• by Scott Hays , May 29, 2002

The giant retailer has changed its online business model several times, but has also learned valuable lessons along the way.
It’s tough to imagine how Kmart, the third largest retailer in the U.S., a granddaddy of mass-retailing with more than 2,100 super-center outlets serving all 50 states, the Caribbean Islands, and Asia Pacific, could fail with its first foray into the online world. After all, roughly 85 percent of this country’s population lives within 15 minutes of a Kmart store, and the company mails roughly 70 million advertising circulars each week. If you can’t drive traffic with these kinds of numbers, how can any traditional company expect to successfully bring offline customers online?

Kmart.com failed because it was a clunky website that failed to generate enough buzz to bring the company’s huge-yet-technology-shy audience to the Internet. And although the website may have been a great way to grow the catalogue to a new channel, the experience only served to remind the online world that Kmart was still an old-school retailer in a young man’s game.

But Kmart execs persisted in directing the same will that brought the company worldly success to the creation of a separate, interactive division to secure venture funding, and the opportunity to bring on seasoned Internet experts to launch a full e-commerce site. After shopping around, they partnered with Softbank to develop and maintain a new e-commerce site, dubbed BlueLight.com, which debuted in 1999 and reflected the good old days when the BlueLight Special in-store announcements alerted Kmart shoppers to limited-time discounted items.

It was a far, far better cyber-strategy that translated the company’s core values online, company execs announced. But was it enough to succeed at building offline-online customer relationships? The redesigned website featured a new, contemporary look and feel, with a front page concept of synchronized animated headers, sidebars, and “blue” real estate, and a focus on the same attributes that characterized Kmart’s BlueLight brand in stores: a shopping cart and familiar brands.

Kmart launched BlueLight.com with the largest marketing push in company history. It included national broadcast, print, in-store, and outdoor campaigns, supported with a comprehensive online campaign at BlueLight.com and other web properties. And according to MediaMetrix, more than 9 million unique visitors shopped at BlueLight.com during the holiday season, an increase of 823.5 percent over the same period the previous year.

“We took the heritage of value that the BlueLight Special represented for consumers across the country and repurposed it for a new mindset,” says Brendan Foley, director of online marketing for BlueLight.com. “BlueLight.com also brought the best of what Kmart had to offer to online customers.”

The company also built some strong partnerships with the likes of Martha Stewart, Black & Decker, Philips, and Panasonic. (Martha Stewart, for example, occupied a big chunk of real estate on the home page.) BlueLight.com shoppers had more than twice as many products to choose from as they did in a typical Kmart store. Still, this would have been just another e-commerce site were it not for the company’s next move—to become the first major offline retailer to offer free Internet service supported by advertising banners. CDs were handed out to customers at the company’s 2,100 super-center outlets, and Kmart quickly registered a whopping 7 million subscribers.

“It was an incredibly successful acquisition campaign,” says Foley. And to the extent that those customers have become loyal Kmart shoppers, the cyber-strategy worked. Why then did the free Internet service end in August? Why were customers offered the same unlimited nationwide access, only now for a fee? And what’s become of BlueLight.com? Did the company meet the ultimate clicks-and-mortar challenge—succeed in creating a robust online business?

The move to end the free Internet service was necessitated by diminishing ad revenue. The company had originally used banners in the menu bar touting weekly promotions “but the ad revenue just dried up, and we couldn’t support the original business model,” explains Foley.

So customers were offered unlimited nationwide access for a monthly fee, and the task bar was minimized, the ad bar suppressed. Only Kmart activity remained on the home page of Internet service. To date, 153,000 customers have signed on, some of whom were converted from the free service. The company also announced earlier this year that it had agreed to buy back the 40 percent of BlueLight it did not already own, and assume tighter control over the division at its Troy, Michigan, headquarters.

“It’s easier this way,” says Foley. “We’re a big company, and it’s just easier to sit down with the person in charge of the weekly advertising circular, for example, and talk about how we can expose the brand more effectively. We’re not having to deal with transcontinental communication to grow the business.”

Whatever it takes to grow the business makes sense, especially while electronic revenues continue their precipitous decline. Few companies have successfully negotiated the rocky series of financial quarters.

What lessons did Kmart learn along the way? For openers, the BlueLight campaign demonstrated that success isn’t always just about click-throughs. In fact, branding took precedence over any response-driven objectives. “We can only think of a couple of ideas that can get you immediate gratification,” says Foley. “BlueLight continues to bring to the web all those things that Kmart shoppers want and need. In Internet time, we’re only one year into this. We’re still learning about the relationships between the offline world and online world.”

BlueLight.com also continues to bring some old-school marketing tactics to the online world. The website continues to expose products and brands, allowing customers to have more interaction with Kmart than just a shopping cart in a store aisle. The website also serves to educate users to the company’s resources and the locations of Kmart stores.

And although some analysts and industry pundits may argue that this is just another example of a traditional company that failed to successfully bring offline customers online, Foley says the campaign and the free Internet service doubtless served as an effective marketing tool to acquire customers, and as “another distribution vehicle” for Kmart shoppers.

Scott Hays is the former editor of Digitrends magazine. He can be reached at SHays123@aol.com.