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FW: BlueLight.com in Fortune!  Pippa
 Nov 01, 2000 18:10 PST 
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Buy this issue, geeky Pippa has a picture in Fortune!!
-----Original Message-----
From: Abigail Jacobs [mailto:abig-@bluelight.com]
Sent: Wednesday, November 01, 2000 4:21 PM
To: al-@bluelight.com
Subject: BlueLight.com in Fortune!


Below is a great article about BlueLight.com from this week's issue of
Fortune Magazine. A hard copy including photos of Mark, Heidi, Steve
Chaffin, Brian, Pippa and Dave Shuvie is available for viewing on the PR
wall.


Attention Kmart Bashers
The folks at BlueLight are turning the troubled retailer into an online
force. And Wal-Mart is watching.

By Suzanne Koudsi
When Brian Sugar left his job as vice president of e-commerce at J. Crew
last winter, his friends asked him about his new gig. Sugar, 26, danced
around the question. He'd tell them he was moving from New York to San
Francisco, the mecca of dot-comhood. So far, so good. Then he'd explain that
he would be working at a Softbank-funded startup that's partnering with
Yahoo. That sounded promising too. Next, he'd add that he would be selling,
among other things, Martha Stewart products online. That's cool--kind of.
Finally, he'd spit out the name of the company he'd really be working for.
Under his breath, he'd mutter, "Kmart." Yes, he was going to be chief Web
officer at Kmart's Internet subsidiary, BlueLight.com. "I grew up with the
connotation of Kmart not being cool," he says.

He and plenty of others. Unlike discounter Target, which has fashioned a
chic image for itself (suburbanites affectionately call it Tar-ZHAY, with a
faux-French pronunciation), Kmart is considered simply cheap. But Kmart's
problems go way beyond image. As a business, it's a mess. Stores are poorly
stocked, customer service has a reputation for being less than stellar, and
its promotional pricing strategy has run into a brick wall called Wal-Mart,
home of "everyday low prices." Speaking of cheap, Kmart's stock price is
hovering around $6, down 50% from its 52-week high. What's more, both
Wal-Mart and Target have been steadily chipping away at its market share.
"Our whole execution is broken," says Kmart CEO Chuck Conaway, who was
brought in last spring to turn the company around.

So what was Sugar thinking? He was thinking potential. Kmart, after all, is
not some dot-com punk angling for 15 minutes of CNBC fame. It has been
around for more than 100 years. Sure, it has fallen on hard times, but it
remains the nation's No. 2 discount retailer, after Wal-Mart, with $36
billion in sales in 1999 and 2,164 stores across the country.

It was, in other words, the ultimate clicks-and-mortar challenge, one that
Sugar couldn't pass up. If BlueLight succeeded in creating a robust online
business, it could breathe new life into the floundering retailer. But could
Kmart's 275,000 employees learn to play with a bunch of in-your-face
dot-commers--and vice versa? Eleven months later, it's too soon to tell
whether BlueLight will survive in the increasingly harsh world of online
retailing, but the results so far have been promising. For just about the
first time since Kmart landed the exclusive deal to sell Martha Stewart
products, it has one-upped Wal-Mart. That's no small achievement. As Emme
Kozloff, an analyst at Sanford C. Bernstein, puts it, "It's been a while
since Kmart's had any leading role in innovation."

Founded in December as a joint venture with Softbank Venture Capital, Kmart,
and Martha Stewart Living Omnimedia, BlueLight is a 115-person startup run
by CEO Mark Goldstein, former boss of Impulse Buy Network, which he sold to
Inktomi for about $110 million. From his cubicle overlooking San Francisco
Bay, 2,400 miles from Kmart's Troy, Mich., headquarters, Goldstein is
working on a three-part business plan: Get Kmart shoppers online, build a
world-class e-commerce site, and drive online and in-store sales.
BlueLight's co-branded free Internet service provider (ISP) has already
lured nearly 4.6 million subscribers. Both Target and Wal-Mart have followed
Goldstein's lead, announcing partnerships with AOL to offer their own
low-cost ISP. But Kmart clearly has a head start--in Webspeak, that's called
first-mover advantage. (Target's ISP launched two months ago; Wal-Mart's has
yet to materialize.)

Kmart's Internet wake-up call may have come in the nick of time. The
discounter launched an incredibly clunky shopping site called Kmart.com in
May 1998. It had six product categories and a section where shoppers could
read about specials advertised in weekly circulars. "It was just kind of
there," says Heather Dougherty of Jupiter Research. "It had no real force
behind it." The site was run by an in-house team short on Internet
experience and lacking the know-how to run an e-business, according to
BlueLight CFO Chris Lien, who was then working as one of Kmart's financial
advisors. At the time, Toys "R" Us had already announced its deal with the
venture capital firm Benchmark Capital, providing Lien and his team with a
good model for Kmart to follow. (That, of course, was before Toys "R"
Us--and its Benchmark partnership--imploded.)

Last summer, Kmart started looking for venture partners. That's when the
Silicon Valley-based venture capital arm of Japanese conglomerate Softbank
came into the picture. Rex Golding, a principal managing director at
Softbank, met with Kmart executives in July 1999. Golding, like Sugar, was
worried about Kmart's battered brand, but he was impressed by the discount
chain's reach. By dot-com standards, it was astounding. Eighty-five percent
of the U.S. population lives within 15 minutes of a Kmart, four million
people visit a Kmart every day, and Kmart sends out about 70 million
advertising circulars each week, Golding spouts in a meeting with Fortune at
his Silicon Valley office. "We saw enormously underutilized assets," he
says.

Next, Golding asked 39-year-old Goldstein to serve as a consultant on the
project. The experienced Net-preneur, who had started and sold two companies
in addition to Impulse Buy, laughed when he first heard the idea. It was
only when he thought back on his days as a software vendor that he
remembered how powerful the massive retailer once was. Both he and Golding
believed that this might be Kmart's one chance to compete with Target and
Wal-Mart, which were whupping the retailer bad in the offline world.

Neither of Kmart's competitors had yet come up with a winning cyberstrategy.
For all the hype it has received, Walmart.com, a joint venture with Accel
Partners, hasn't done much. From February to August, according to Nielsen
NetRatings, BlueLight.com led both Target.com and Walmart.com in the number
of unique visitors to their sites. (In September, Target, which recently
enhanced its site, took the No. 1 spot.) Walmart.com's visitor numbers
aren't likely to pick up--at least immediately. The world's top retailer
took down its site for renovations several weeks ago; at press time it had
yet to be put back up. Still, no one doubts that Walmart.com will get its
act together. With former Banana Republic boss Jeanne Jackson heading its
efforts, Goldstein fully expects his chief competitor to come up with
something good.

Even though Kmart owns 60% of BlueLight, the retailer had promised that
BlueLight would remain independent. Goldstein didn't waste any time testing
the limits. He decided to change the site's name from Kmart.com to
BlueLight. "If we were really going to be a separate company, we had to
control our branding and our name," he says. At first, Kmart wasn't pleased.
But Goldstein didn't take no for an answer. He thought the name
BlueLight.com--dating back to blue-light specials of the 1960s--would appeal
to a wider audience. Kmart executives were worried that the name BlueLight
would further reinforce Kmart's cheap image, but Goldstein was determined to
prove them wrong. He sent Steve Chaffin, now BlueLight's director of
in-store marketing, to do some research in stores. Chaffin found that Kmart
shoppers liked the name BlueLight and that only 10% of them had even heard
of Kmart.com.

As the flap over the name suggests, the cultural differences between
BlueLight and Kmart were pronounced--to put it mildly. BlueLight employees
are younger and hipper; they work in a funky, mostly blue-colored office in
the heart of San Francisco. Kmart employees are, well, Kmart employees. Most
executives are older and more conservative; they work in a brown-brick maze
in Troy, Mich. But like it or not, the two companies were now inextricably
linked.

One thing was certain: BlueLight needed Kmart's full cooperation, from the
brass at headquarters to the in-store employees. After some research,
BlueLight's brain trust decided that the way to entice typical Kmart
shoppers--moms with a household income ranging from $25,000 to $60,000--to
go online was to offer them free Internet service. Making that service
available to Kmart shoppers meant giving it to them in Kmart stores, which
in turn meant working closely with Kmart employees. The key was getting the
retail behemoth to move swiftly. Easier said than done. "They're an army
operation," says Chaffin. "We're a SWAT team." Accustomed to dot-com
deadlines, Chaffin was shocked when a few weeks after BlueLight launched, a
Kmart employee he was working with didn't know anything about the Internet
arm. "I went ballistic," says the 34-year-old, who wondered how he was
supposed to get the CDs with the Internet access software into 1,600 stores
if people he was depending on didn't know what he was doing. "Nothing really
had been communicated to them," Chaffin says.

It wasn't just store-level employees who didn't get BlueLight. "We had a
real champion in [former CEO] Floyd Hall," says Goldstein, "but a lot of the
initial championing stopped as soon as you left his office." The culture gap
only exacerbated the situation. Take BlueLight's Heidi Gibson, for example.
The 28-year-old doesn't know what her Kmart colleagues think of her, but she
knows what they call her behind her back--"Heidi with the nose ring." The
native Californian has a sapphire stone in her nose, a tattoo on her left
ear, and auburn-streaked hair.

Gibson is in charge of BlueLight's PC program. In Kmart stores around the
country and online at BlueLight.com, shoppers can buy a BlueLight monitor
and PC (made by LG International) loaded with free Internet access, plus a
Lexmark color printer, for $649.97. Featuring a blue-plastic tower stamped
with BlueLight's light bulb logo, the low-end PCs are another innovation
that sets Kmart's dot-com effort apart from its rivals. Wal-Mart already
sells computers, but not its own brand of PCs.

To get the PC program off the ground, Gibson, like Chaffin, needed Kmart's
help. Donning her most conservative interview suit, she headed to Troy to
meet with the retailers' consumer electronics buyers. When she sat down in
the meeting, she started spewing off her ideas for marketing, distribution,
and sales. What she didn't realize was that the Kmart employee she was
talking to had already been working on his own plan to start selling PCs in
the stores--a plan that had nothing to do with BlueLight.

Stuck on fast-forward, Gibson had expected her project to be a priority. She
left the meeting thinking that everything was in place. Weeks went by, and
nothing happened. Gibson says that every time she asked for an update, she
felt she wasn't getting much cooperation. It turned out that she had been
stepping on that Kmart employee's turf--and he had said nothing. "If that
was a BlueLight meeting, the person would have just stood up and said
something," says Gibson. "Kmart is just a much more formal environment."

Without Goldstein playing middleman on such issues, and without a big assist
from Kmart senior management, BlueLight might have never made it past its
launch. "We're just going to have to be a little more comfortable being
uncomfortable," says Mike Bozic, Kmart's recently retired vice chairman,
referring to the cultural chasm between the two companies.

When Kmart's slower pace held up Chaffin's efforts to get the CDs into
stores, he met with the retailer's communications department and worked out
a plan to inundate Kmart's staff with information--and free gifts. Over the
next few months Chaffin gave out mouse pads, CD-ROMs, pens with blue light
bulbs at the tip, and BlueLight T-shirts. He even arranged a BlueLight Day
at Kmart's headquarters, where he served a giant sheet cake to 4,500 people.
During the festivities, Kmart's senior management explained BlueLight's
mission to its staff; they even had representatives from Yahoo fly to Troy
to teach Kmart employees about the Internet. Even then, not everyone got it.
"Kmart as an organization was a sponge to this, but it was a dry sponge,"
says Goldstein. "It didn't suck everything up right away."

In the end, free cake and tchotchkes only went so far. If BlueLight really
wanted to win the cooperation of Kmart employees, Goldstein knew he had to
cough up some cash. "We basically applied Silicon Valley thinking to an
established corporation," says Goldstein. He granted an undisclosed number
of options to senior-level employees at Kmart who work directly with
BlueLight. To solve the problem at the store level, Lien established a bonus
program for managers who support BlueLight initiatives such as signing up
ISP subscribers and handling in-store returns for online purchases.

Goldstein also had to make sure that employees at both companies shared the
same goals. When Gibson's PC project was blocked in Troy, Goldstein and Lien
met with senior management at Kmart to figure out a way to make the PCs a
joint effort. Since Kmart employees are rewarded on a
management-by-objectives system, Goldstein asked the retailer to add sales
of the PCs to the list. Financial incentives weren't enough. Kmart employees
needed to know what the PCs would do for their business. They've since
learned that PC sales can spur sales of accessories like printer cables and
surge protectors.

It wasn't just Kmart employees who had to warm up to BlueLight. The
headstrong dot-commers had a lot to learn about Kmart too. Many of them had
never so much as set foot in a Kmart store. That's why Goldstein started
making them wear Kmart clothes--like Route 66 cargo pants and Jaclyn Smith
blazers--to work every Tuesday. He even started a contest in which employees
had to guess how much he paid for his Kmart outfits (first prize included
tickets to a Giants game).

Goldstein's efforts are starting to pay off. Walk into a Kmart store today
and employees will point you in the right direction if you ask about
BlueLight. Sure, they might not be able to tell you what a gigabyte is or
how to install the software, but at least they'll let you know where to pick
up the CDs. Chaffin has placed them all over the gargantuan stores--at the
jewelry counters, at the checkout stands, and in various departments. "The
disks have been flying out of here," says a Kmart employee at a San Diego
store.

BlueLight's free ISP idea has taken off. It's become the favored model for
other companies offering free Internet service, says Dylan Brooks of Jupiter
Research. Indeed, Yahoo and e-marketing firm Spinway, which partnered with
BlueLight on the deal, have recently entered into several new agreements
with major retailers like Costco and Barnes & Noble.

Getting shoppers online is quite an accomplishment, but it's not going to
make BlueLight any money. If Goldstein wants to meet the goals he has set
for next year--including tripling the number of registered BlueLight users
to around 25 million, and turning a profit--he has to start selling up a
storm. He's counting on BlueLight's recently relaunched and redesigned site
to help. The site is modern, crisp, and generally easy to navigate. Apart
from the bold-faced attention bluelight.com shopper! message that pops up
when logging on, shoppers might even forget they're in a Kmart. Martha
Stewart products, which BlueLight hopes will differentiate the site, own a
big chunk of real estate on the home page; the rest is a combination of
Kmart's private-label brands and separate departments like jewelry,
appliances, and apparel.

With around 220,000 items available, Web shoppers have twice as many goodies
to choose from as they do in a typical Kmart store. "Those additional items
can definitely attract some new customers who may not want to go to a Kmart
store," says Dougherty of Jupiter Research. For Goldstein, who hopes to
broaden Kmart's audience, that's exactly the point. By year-end, BlueLight
also will offer online coupons that shoppers can use in stores. In addition,
Goldstein plans to introduce an in-store kiosk program so that, say, Kmart
customers without Net access can shop at BlueLight while they're in the
store to order out-of-stock items.

As with any shopping site, the key, of course, is execution. After all,
Goldstein is competing not just with Wal-Mart and Target but also with the
likes of Amazon.com, whose seamless order fulfillment and delivery systems
have made it the undisputed king of online retailing. He has at least one
advantage over his offline competitors, even if it's only psychological:
Just about anything he does that helps Kmart compete will be deemed a huge
success. "Wal-Mart has been executing so well as a merchant that the
expectation is that their online venture will execute at the same level," he
says.

Obviously, Kmart's Conaway doesn't expect BlueLight to fix all the
retailer's problems. But for Kmart, it's practically a no-lose proposition.
Kmart gained its majority share in exchange for letting the dot-com take
advantage of its vendor relationships and marketing power--so far it has
invested only $55 million in cash. Besides, even if BlueLight does meet its
target of $100 million in sales in 2001, that adds up to less than 0.3% of
Kmart's total 1999 revenues.

Analysts and industry experts agree that at the very least BlueLight can
help reinvigorate Kmart's brand and improve employee morale. "There's a
tremendous amount of energy surrounding BlueLight and what it can mean to
overall sales and customer satisfaction," says Dave Schuvie, Kmart's vice
president of e-commerce and merchandising, who has been at the company more
than 30 years. Schuvie serves as a liaison between Kmart merchandisers and
the 25-person BlueLight merchandising team in Troy. At a minimum, he says,
BlueLight gives him and his colleagues a chance to build something new,
which is a rare opportunity at any old-school retailer, let alone Kmart.

As for BlueLight, it's already changing people's perceptions of Kmart--at
least in the dot-com world. Even Sugar, the one who left hip J. Crew to work
for Kmart, has stopped hiding that fact from friends. Shoppers themselves
may not be quite ready to declare Kmart cool. But who knows? Before long,
people may start referring to the retailer as "Le Kmart.'' Take that,
Tar-ZHAY.



------=_NextPart_001_0089_01C04425.F24B3E30
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<BODY>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN =
class=3D585040501-02112000>Buy=20
this issue, geeky Pippa has a picture in Fortune!!</SPAN></FONT></DIV>
<DIV align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><FONT =
face=3DTahoma=20
size=3D2>-----Original Message-----<BR><B>From:</B> Abigail Jacobs=20
[mailto:abig-@bluelight.com]<BR><B>Sent:</B> Wednesday, November 01, =
2000 4:21=20
PM<BR><B>To:</B> al-@bluelight.com<BR><B>Subject:</B> BlueLight.com in=20
Fortune!<BR><BR></FONT></DIV>
<DIV>
<DIV align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><FONT =
size=3D2><FONT=20
color=3D#0000ff><FONT face=3DVerdana><SPAN =
class=3D641301000-02112000>Below is a great=20
article about BlueLight.com from this week's issue of Fortune =
Magazine.  A=20
hard copy including photos of Mark, Heidi, Steve Chaffin, Brian, Pippa =
and Dave=20
Shuvie is available for viewing on the PR wall<SPAN=20
class=3D641311300-02112000>.</SPAN></SPAN></FONT></FONT></FONT></DIV>
<DIV align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><FONT =
size=3D2><FONT=20
color=3D#0000ff><FONT face=3DVerdana><SPAN =
class=3D641301000-02112000><SPAN=20
class=3D641311300-02112000></SPAN></SPAN></FONT></FONT></FONT> </DIV=
 
<DIV align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><FONT =
size=3D2><FONT=20
color=3D#0000ff><FONT face=3DVerdana><SPAN =
class=3D641301000-02112000><SPAN=20
class=3D641311300-02112000> <STRONG><FONT color=3D#000000><A=20
href=3D"http://www.fortune.com/fortune/"><IMG alt=3D"Fortune logo" =
border=3D0=20
height=3D35=20
src=3D"http://a1668.g.akamai.net/f/1668/606/1d/image.pathfinder.com/fortu=
ne/img/fortune_logo.gif"=20
width=3D131 NOSEND=3D"1"></A></FONT></STRONG><B><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 13.5pt; =
mso-bidi-font-family: =
Arial"></SPAN></B></SPAN></SPAN></FONT></FONT></FONT></DIV>
<DIV align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><FONT =
size=3D2><FONT=20
color=3D#0000ff><FONT face=3DVerdana><SPAN =
class=3D641301000-02112000><SPAN=20
class=3D641311300-02112000><B><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 13.5pt; =
mso-bidi-font-family: Arial">Attention=20
Kmart Bashers</SPAN></B><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt"><BR><B =
id=3DWEL>The=20
folks at BlueLight are turning the troubled retailer into an online =
force. And=20
Wal-Mart is watching. <BR><BR><EM>By <A=20
href=3D"mailto:skou-@fortunemail.com"><SPAN style=3D"COLOR: =
black">Suzanne=20
Koudsi</SPAN></A></EM></B><?xml:namespace prefix =3D o ns =3D=20
"urn:schemas-microsoft-com:office:office" /><o:p></o:p></SPAN></DIV>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">When Brian =
Sugar=20
left his job as vice president of e-commerce at J. Crew last winter, his =
friends=20
asked him about his new gig. Sugar, 26, danced around the question. He'd =
tell=20
them he was moving from New York to San Francisco, the mecca of =
dot-comhood. So=20
far, so good. Then he'd explain that he would be working at a =
Softbank-funded=20
startup that's partnering with Yahoo. That sounded promising too. Next, =
he'd add=20
that he would be selling, among other things, Martha Stewart products =
online.=20
That's cool--kind of. Finally, he'd spit out the name of the company =
he'd really=20
be working for. Under his breath, he'd mutter, "Kmart." Yes, he was =
going to be=20
chief Web officer at <A=20
href=3D"http://www.fortune.com/r0/fortune/business_reports/out?http://www=
.tscn.com/Fortune/Corporate_Snapshot.html?Button=3DGet+Report&Symbol=3D=
KM"=20
target=3Dnew><SPAN style=3D"COLOR: black">Kmart</SPAN></A>'s Internet =
subsidiary,=20
BlueLight.com. "I grew up with the connotation of Kmart not being cool," =
he=20
says. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">He and =
plenty of=20
others. Unlike discounter Target, which has fashioned a chic image for =
itself=20
(suburbanites affectionately call it Tar-ZHAY, with a faux-French=20
pronunciation), Kmart is considered simply cheap. But Kmart's problems =
go way=20
beyond image. As a business, it's a mess. Stores are poorly stocked, =
customer=20
service has a reputation for being less than stellar, and its =
promotional=20
pricing strategy has run into a brick wall called Wal-Mart, home of =
"everyday=20
low prices." Speaking of cheap, Kmart's stock price is hovering around =
$6, down=20
50% from its 52-week high. What's more, both Wal-Mart and Target have =
been=20
steadily chipping away at its market share. "Our whole execution is =
broken,"=20
says Kmart CEO Chuck Conaway, who was brought in last spring to turn the =
company=20
around. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">So what =
was Sugar=20
thinking? He was thinking potential. Kmart, after all, is not some =
dot-com punk=20
angling for 15 minutes of CNBC fame. It has been around for more than =
100 years.=20
Sure, it has fallen on hard times, but it remains the nation's No. 2 =
discount=20
retailer, after Wal-Mart, with $36 billion in sales in 1999 and 2,164 =
stores=20
across the country. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">It was, in =
other=20
words, the ultimate clicks-and-mortar challenge, one that Sugar couldn't =
pass=20
up. If BlueLight succeeded in creating a robust online business, it =
could=20
breathe new life into the floundering retailer. But could Kmart's =
275,000=20
employees learn to play with a bunch of in-your-face dot-commers--and =
vice=20
versa? Eleven months later, it's too soon to tell whether BlueLight will =
survive=20
in the increasingly harsh world of online retailing, but the results so =
far have=20
been promising. For just about the first time since Kmart landed the =
exclusive=20
deal to sell Martha Stewart products, it has one-upped Wal-Mart. That's =
no small=20
achievement. As Emme Kozloff, an analyst at Sanford C. Bernstein, puts =
it, "It's=20
been a while since Kmart's had any leading role in innovation."=20
<o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Founded in =
December=20
as a joint venture with Softbank Venture Capital, Kmart, and Martha =
Stewart=20
Living Omnimedia, BlueLight is a 115-person startup run by CEO Mark =
Goldstein,=20
former boss of Impulse Buy Network, which he sold to Inktomi for about =
$110=20
million. From his cubicle overlooking San Francisco Bay, 2,400 miles =
from=20
Kmart's Troy, Mich., headquarters, Goldstein is working on a three-part =
business=20
plan: Get Kmart shoppers online, build a world-class e-commerce site, =
and drive=20
online and in-store sales. BlueLight's co-branded free Internet service =
provider=20
(ISP) has already lured nearly 4.6 million subscribers. Both Target and =
Wal-Mart=20
have followed Goldstein's lead, announcing partnerships with <A=20
href=3D"http://www.fortune.com/r0/fortune/business_reports/out?http://www=
.tscn.com/Fortune/Corporate_Snapshot.html?Button=3DGet+Report&Symbol=3D=
AOL"><SPAN=20
style=3D"COLOR: black">AOL</SPAN></A> to offer their own low-cost ISP. =
But Kmart=20
clearly has a head start--in Webspeak, that's called first-mover =
advantage.=20
(Target's ISP launched two months ago; Wal-Mart's has yet to =
materialize.)=20
<o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Kmart's =
Internet=20
wake-up call may have come in the nick of time. The discounter launched =
an=20
incredibly clunky shopping site called Kmart.com in May 1998. It had six =
product=20
categories and a section where shoppers could read about specials =
advertised in=20
weekly circulars. "It was just kind of there," says Heather Dougherty of =
Jupiter=20
Research. "It had no real force behind it." The site was run by an =
in-house team=20
short on Internet experience and lacking the know-how to run an =
e-business,=20
according to BlueLight CFO Chris Lien, who was then working as one of =
Kmart's=20
financial advisors. At the time, Toys "R" Us had already announced its =
deal with=20
the venture capital firm Benchmark Capital, providing Lien and his team =
with a=20
good model for Kmart to follow. (That, of course, was before Toys "R" =
Us--and=20
its Benchmark partnership--imploded.) <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Last =
summer, <A=20
href=3D"http://www.fortune.com/r0/fortune/business_reports/out?http://www=
.tscn.com/Fortune/Corporate_Snapshot.html?Button=3DGet+Report&Symbol=3D=
KM"=20
target=3Dnew><SPAN style=3D"COLOR: black">Kmart</SPAN></A> started =
looking for=20
venture partners. That's when the Silicon Valley-based venture capital =
arm of=20
Japanese conglomerate Softbank came into the picture. Rex Golding, a =
principal=20
managing director at Softbank, met with Kmart executives in July 1999. =
Golding,=20
like Sugar, was worried about Kmart's battered brand, but he was =
impressed by=20
the discount chain's reach. By dot-com standards, it was astounding. =
Eighty-five=20
percent of the U.S. population lives within 15 minutes of a Kmart, four =
million=20
people visit a Kmart every day, and Kmart sends out about 70 million =
advertising=20
circulars each week, Golding spouts in a meeting with Fortune at his =
Silicon=20
Valley office. "We saw enormously underutilized assets," he=20
says.<o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Next, =
Golding asked=20
39-year-old Goldstein to serve as a consultant on the project. The =
experienced=20
Net-preneur, who had started and sold two companies in addition to =
Impulse Buy,=20
laughed when he first heard the idea. It was only when he thought back =
on his=20
days as a software vendor that he remembered how powerful the massive =
retailer=20
once was. Both he and Golding believed that this might be Kmart's one =
chance to=20
compete with Target and Wal-Mart, which were whupping the retailer bad =
in the=20
offline world. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Neither of =
Kmart's=20
competitors had yet come up with a winning cyberstrategy. For all the =
hype it=20
has received, Walmart.com, a joint venture with Accel Partners, hasn't =
done=20
much. From February to August, according to Nielsen NetRatings, =
BlueLight.com=20
led both Target.com and Walmart.com in the number of unique visitors to =
their=20
sites. (In September, Target, which recently enhanced its site, took the =
No. 1=20
spot.) Walmart.com's visitor numbers aren't likely to pick up--at least=20
immediately. The world's top retailer took down its site for renovations =
several=20
weeks ago; at press time it had yet to be put back up. Still, no one =
doubts that=20
Walmart.com will get its act together. With former Banana Republic boss =
Jeanne=20
Jackson heading its efforts, Goldstein fully expects his chief =
competitor to=20
come up with something good. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Even =
though Kmart=20
owns 60% of BlueLight, the retailer had promised that BlueLight would =
remain=20
independent. Goldstein didn't waste any time testing the limits. He =
decided to=20
change the site's name from Kmart.com to BlueLight. "If we were really =
going to=20
be a separate company, we had to control our branding and our name," he =
says. At=20
first, Kmart wasn't pleased. But Goldstein didn't take no for an answer. =
He=20
thought the name BlueLight.com--dating back to blue-light specials of =
the=20
1960s--would appeal to a wider audience. Kmart executives were worried =
that the=20
name BlueLight would further reinforce Kmart's cheap image, but =
Goldstein was=20
determined to prove them wrong. He sent Steve Chaffin, now BlueLight's =
director=20
of in-store marketing, to do some research in stores. Chaffin found that =
Kmart=20
shoppers liked the name BlueLight and that only 10% of them had even =
heard of=20
Kmart.com. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">As the =
flap over the=20
name suggests, the cultural differences between BlueLight and Kmart were =

pronounced--to put it mildly. BlueLight employees are younger and =
hipper; they=20
work in a funky, mostly blue-colored office in the heart of San =
Francisco. Kmart=20
employees are, well, Kmart employees. Most executives are older and more =

conservative; they work in a brown-brick maze in Troy, Mich. But like it =
or not,=20
the two companies were now inextricably linked. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">One thing =
was=20
certain: BlueLight needed Kmart's full cooperation, from the brass at=20
headquarters to the in-store employees. After some research, BlueLight's =
brain=20
trust decided that the way to entice typical Kmart shoppers--moms with a =

household income ranging from $25,000 to $60,000--to go online was to =
offer them=20
free Internet service. Making that service available to Kmart shoppers =
meant=20
giving it to them in Kmart stores, which in turn meant working closely =
with=20
Kmart employees. The key was getting the retail behemoth to move =
swiftly. Easier=20
said than done. "They're an army operation," says Chaffin. "We're a SWAT =
team."=20
Accustomed to dot-com deadlines, Chaffin was shocked when a few weeks =
after=20
BlueLight launched, a Kmart employee he was working with didn't know =
anything=20
about the Internet arm. "I went ballistic," says the 34-year-old, who =
wondered=20
how he was supposed to get the CDs with the Internet access software =
into 1,600=20
stores if people he was depending on didn't know what he was doing. =
"Nothing=20
really had been communicated to them," Chaffin says. =
<o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">It wasn't =
just=20
store-level employees who didn't get BlueLight. "We had a real champion =
in=20
[former CEO] Floyd Hall," says Goldstein, "but a lot of the initial =
championing=20
stopped as soon as you left his office." The culture gap only =
exacerbated the=20
situation. Take BlueLight's Heidi Gibson, for example. The 28-year-old =
doesn't=20
know what her <A=20
href=3D"http://www.fortune.com/r0/fortune/business_reports/out?http://www=
.tscn.com/Fortune/Corporate_Snapshot.html?Button=3DGet+Report&Symbol=3D=
KM"=20
target=3Dnew><SPAN style=3D"COLOR: black">Kmart</SPAN></A> colleagues =
think of her,=20
but she knows what they call her behind her back--"Heidi with the nose =
ring."=20
The native Californian has a sapphire stone in her nose, a tattoo on her =
left=20
ear, and auburn-streaked hair. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Gibson is =
in charge=20
of BlueLight's PC program. In Kmart stores around the country and online =
at=20
BlueLight.com, shoppers can buy a BlueLight monitor and PC (made by LG=20
International) loaded with free Internet access, plus a Lexmark color =
printer,=20
for $649.97. Featuring a blue-plastic tower stamped with BlueLight's =
light bulb=20
logo, the low-end PCs are another innovation that sets Kmart's dot-com =
effort=20
apart from its rivals. Wal-Mart already sells computers, but not its own =
brand=20
of PCs. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">To get the =
PC=20
program off the ground, Gibson, like Chaffin, needed Kmart's help. =
Donning her=20
most conservative interview suit, she headed to Troy to meet with the =
retailers'=20
consumer electronics buyers. When she sat down in the meeting, she =
started=20
spewing off her ideas for marketing, distribution, and sales. What she =
didn't=20
realize was that the Kmart employee she was talking to had already been =
working=20
on his own plan to start selling PCs in the stores--a plan that had =
nothing to=20
do with BlueLight. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Stuck on=20
fast-forward, Gibson had expected her project to be a priority. She left =
the=20
meeting thinking that everything was in place. Weeks went by, and =
nothing=20
happened. Gibson says that every time she asked for an update, she felt =
she=20
wasn't getting much cooperation. It turned out that she had been =
stepping on=20
that Kmart employee's turf--and he had said nothing. "If that was a =
BlueLight=20
meeting, the person would have just stood up and said something," says =
Gibson.=20
"Kmart is just a much more formal environment." <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Without =
Goldstein=20
playing middleman on such issues, and without a big assist from Kmart =
senior=20
management, BlueLight might have never made it past its launch. "We're =
just=20
going to have to be a little more comfortable being uncomfortable," says =
Mike=20
Bozic, Kmart's recently retired vice chairman, referring to the cultural =
chasm=20
between the two companies. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">When =
Kmart's slower=20
pace held up Chaffin's efforts to get the CDs into stores, he met with =
the=20
retailer's communications department and worked out a plan to inundate =
Kmart's=20
staff with information--and free gifts. Over the next few months Chaffin =
gave=20
out mouse pads, CD-ROMs, pens with blue light bulbs at the tip, and =
BlueLight=20
T-shirts. He even arranged a BlueLight Day at Kmart's headquarters, =
where he=20
served a giant sheet cake to 4,500 people. During the festivities, =
Kmart's=20
senior management explained BlueLight's mission to its staff; they even =
had=20
representatives from Yahoo fly to Troy to teach Kmart employees about =
the=20
Internet. Even then, not everyone got it. "Kmart as an organization was =
a sponge=20
to this, but it was a dry sponge," says Goldstein. "It didn't suck =
everything up=20
right away." <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">In the =
end, free=20
cake and tchotchkes only went so far. If BlueLight really wanted to win =
the=20
cooperation of Kmart employees, Goldstein knew he had to cough up some =
cash. "We=20
basically applied Silicon Valley thinking to an established =
corporation," says=20
Goldstein. He granted an undisclosed number of options to senior-level =
employees=20
at Kmart who work directly with BlueLight. To solve the problem at the =
store=20
level, Lien established a bonus program for managers who support =
BlueLight=20
initiatives such as signing up ISP subscribers and handling in-store =
returns for=20
online purchases. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Goldstein =
also had=20
to make sure that employees at both companies shared the same goals. =
When=20
Gibson's PC project was blocked in Troy, Goldstein and Lien met with =
senior=20
management at Kmart to figure out a way to make the PCs a joint effort. =
Since=20
Kmart employees are rewarded on a management-by-objectives system, =
Goldstein=20
asked the retailer to add sales of the PCs to the list. Financial =
incentives=20
weren't enough. Kmart employees needed to know what the PCs would do for =
their=20
business. They've since learned that PC sales can spur sales of =
accessories like=20
printer cables and surge protectors. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">It wasn't =
just Kmart=20
employees who had to warm up to BlueLight. The headstrong dot-commers =
had a lot=20
to learn about Kmart too. Many of them had never so much as set foot in =
a Kmart=20
store. That's why Goldstein started making them wear Kmart clothes--like =
Route=20
66 cargo pants and Jaclyn Smith blazers--to work every Tuesday. He even =
started=20
a contest in which employees had to guess how much he paid for his Kmart =
outfits=20
(first prize included tickets to a Giants game). <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: =
10pt">Goldstein's efforts=20
are starting to pay off. Walk into a <A=20
href=3D"http://www.fortune.com/r0/fortune/business_reports/out?http://www=
.tscn.com/Fortune/Corporate_Snapshot.html?Button=3DGet+Report&Symbol=3D=
KM"=20
target=3Dnew><SPAN style=3D"COLOR: black">Kmart</SPAN></A> store today =
and employees=20
will point you in the right direction if you ask about BlueLight. Sure, =
they=20
might not be able to tell you what a gigabyte is or how to install the =
software,=20
but at least they'll let you know where to pick up the CDs. Chaffin has =
placed=20
them all over the gargantuan stores--at the jewelry counters, at the =
checkout=20
stands, and in various departments. "The disks have been flying out of =
here,"=20
says a Kmart employee at a San Diego store. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: =
10pt">BlueLight's free ISP=20
idea has taken off. It's become the favored model for other companies =
offering=20
free Internet service, says Dylan Brooks of Jupiter Research. Indeed, =
Yahoo and=20
e-marketing firm Spinway, which partnered with BlueLight on the deal, =
have=20
recently entered into several new agreements with major retailers like =
<A=20
href=3D"http://www.fortune.com/r0/fortune/business_reports/out?http://www=
.tscn.com/Fortune/Corporate_Snapshot.html?Button=3DGet+Report&Symbol=3D=
COST"><SPAN=20
style=3D"COLOR: black">Costco</SPAN></A> and Barnes & Noble.=20
<o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Getting =
shoppers=20
online is quite an accomplishment, but it's not going to make BlueLight =
any=20
money. If Goldstein wants to meet the goals he has set for next =
year--including=20
tripling the number of registered BlueLight users to around 25 million, =
and=20
turning a profit--he has to start selling up a storm. He's counting on=20
BlueLight's recently relaunched and redesigned site to help. The site is =
modern,=20
crisp, and generally easy to navigate. Apart from the bold-faced =
attention=20
bluelight.com shopper! message that pops up when logging on, shoppers =
might even=20
forget they're in a Kmart. Martha Stewart products, which BlueLight =
hopes will=20
differentiate the site, own a big chunk of real estate on the home page; =
the=20
rest is a combination of Kmart's private-label brands and separate =
departments=20
like jewelry, appliances, and apparel. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">With =
around 220,000=20
items available, Web shoppers have twice as many goodies to choose from =
as they=20
do in a typical Kmart store. "Those additional items can definitely =
attract some=20
new customers who may not want to go to a Kmart store," says Dougherty =
of=20
Jupiter Research. For Goldstein, who hopes to broaden Kmart's audience, =
that's=20
exactly the point. By year-end, BlueLight also will offer online coupons =
that=20
shoppers can use in stores. In addition, Goldstein plans to introduce an =

in-store kiosk program so that, say, Kmart customers without Net access =
can shop=20
at BlueLight while they're in the store to order out-of-stock items.=20
<o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">As with =
any shopping=20
site, the key, of course, is execution. After all, Goldstein is =
competing not=20
just with Wal-Mart and Target but also with the likes of Amazon.com, =
whose=20
seamless order fulfillment and delivery systems have made it the =
undisputed king=20
of online retailing. He has at least one advantage over his offline =
competitors,=20
even if it's only psychological: Just about anything he does that helps =
Kmart=20
compete will be deemed a huge success. "Wal-Mart has been executing so =
well as a=20
merchant that the expectation is that their online venture will execute =
at the=20
same level," he says. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Obviously, =
Kmart's=20
Conaway doesn't expect BlueLight to fix all the retailer's problems. But =
for=20
Kmart, it's practically a no-lose proposition. Kmart gained its majority =
share=20
in exchange for letting the dot-com take advantage of its vendor =
relationships=20
and marketing power--so far it has invested only $55 million in cash. =
Besides,=20
even if BlueLight does meet its target of $100 million in sales in 2001, =
that=20
adds up to less than 0.3% of Kmart's total 1999 revenues. =
<o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">Analysts =
and=20
industry experts agree that at the very least BlueLight can help =
reinvigorate=20
Kmart's brand and improve employee morale. "There's a tremendous amount =
of=20
energy surrounding BlueLight and what it can mean to overall sales and =
customer=20
satisfaction," says Dave Schuvie, Kmart's vice president of e-commerce =
and=20
merchandising, who has been at the company more than 30 years. Schuvie =
serves as=20
a liaison between Kmart merchandisers and the 25-person BlueLight =
merchandising=20
team in Troy. At a minimum, he says, BlueLight gives him and his =
colleagues a=20
chance to build something new, which is a rare opportunity at any =
old-school=20
retailer, let alone Kmart. <o:p></o:p></SPAN></P>
<P align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><SPAN=20
style=3D"COLOR: black; FONT-FAMILY: Verdana; FONT-SIZE: 10pt">As for =
BlueLight,=20
it's already changing people's perceptions of Kmart--at least in the =
dot-com=20
world. Even Sugar, the one who left hip J. Crew to work for Kmart, has =
stopped=20
hiding that fact from friends. Shoppers themselves may not be quite =
ready to=20
declare Kmart cool. But who knows? Before long, people may start =
referring to=20
the retailer as "Le Kmart.'' Take that, Tar-ZHAY.<IMG align=3DabsBottom =
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