Kmart and Wal-Mart Move On After E-tail Defeat

Some saw it as the greatest test of middle America’s potential to shift its collective buying behavior online when Wal-Mart (NYSE: WMT) and Kmart (NYSE: KM) debuted splashy Web sites.

Whatever the cause, Walmart.com and BlueLight.com have not lived up to expectations. Not so unexpectedly, Kmart announced it would buy all shares of BlueLight.com that it does not already own, and at almost the same moment, Wal-Mart announced its own intention to buy all minority interests in Walmart.com.

Blame it on a sluggish economy, a stock market that doesn’t seem to like dot-coms, or even a fickle consumer base that still likes to push carts down the aisles and touch the linens. Whether the attempt by Kmart and Walmart to be real players in the New Economy was a noble experiment or a true hope, last week they essentially admitted some level of defeat in the electronic marketplace.

Worlds Collide

While both companies made headline news coast to coast with their plans to restructure and essentially downplay the e-tail end of their operations, the first question that comes to mind has to do with the timing. How is it that two of the country’s biggest retailers just happened to reveal parallel plans on the same day? Is coincidence the only answer?

In any event, retailers who face the same dilemma that Kmart and Wal-Mart faced continue to talk of “re-integrating” their e-commerce initiatives into their parent companies. That’s corporate-speak for “We gave it a shot and it’s costing us too much to be e-tailers.”

So perhaps the most important question to address regarding Kmart and Walmart is how come it came to this point. After all, if those two giants can’t make a go of it online, can anybody?

Trend, Not a Trend

When Staples (Nasdaq: SPLS) made a similar move not so long ago, nobody panicked, though it was a bit disconcerting that the second largest office supply chain (after Office Depot) was struggling to make e-commerce work for itself.

When Saks Fifth Avenue decided to fold its Web unit back into its parent company, it raised some eyebrows in the e-commerce industry. Saks had only been online for about a year.

But stacking up the current crunch facing Wal-Mart and Kmart next to those other “re-integrations” is an apples-to-oranges comparison.

Staples and Saks each had a somewhat specialized audience. Wal-Mart and Kmart, on the other hand, often succeed at being all things to all shoppers. Need towels? Car batteries, greeting cards, lipstick, sports drinks, underwear? They’ve got it all.

And now it’s all under one brick-and-click roof.

Unseen Perils

Kmart and Walmart have strong identities and instant name recognition with the buying public. These are probably the main reasons that each mega-retailer felt it could safely spin off their Web operations into separate, almost independent companies.

Hindsight being what it is, each company is probably kicking itself at this moment for being naive.

If there is a lesson to be learned from the disappointing commercial performance of BlueLight.com and Walmart.com, it is simply that making assumptions about the buying public can be dangerous.

Expensive Lesson

The two companies had no way of knowing if or when the consumer base would respond to its favorite retailers going electronic. To have plunged in so aggressively and quickly to online selling was probably not wise.

In a published statement the day of the announcement, a spokesperson for Walmart.com said, “What we learned is that there is one customer — irrespective of the channel.”

It would seem that if the company chose to make any assumptions upfront about its customers, it would have been this one. To spend millions of dollars to find that out is shortsighted.

Long-Term Longings

Meanwhile investors, customers and pundits will all hold their breath waiting to see if the giant retailers can regroup and make a go of it online.

I fully expect to see both of them online five years from now.

Why?

Simply because by then, more of middle America will be savvy computer owners and users, and apt to order everything from gym bags to vitamins to paper towels online.

The plain fact is Wal-Mart and Kmart tried too hard too soon, just like so many others who have come and gone. The difference is Wal-Mart and Kmart can summon their resources to keep trying.

What do you think? Let’s talk about it.


Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.


3 Comments

  • Seems like not quite the whole story to declare these spinouts/spin-ins to be failures and symptoms of poor management decisions.

    Alternative interpretation:

    Premise:

    1. Walmart should build a major league presence online, offering most/all of its standard inventory items, as well as other customer service features.

    – This was definitely ‘conventional wisdom’ when the matter was contemplated in ’99.

    – Still a ‘good idea’, inferring from your article.

    2. Such a presence–from a dead stop–including the requisite back-end integration, costs well into the eight figures.

    Then…

    Why not take in tens of millions in cheap VC, offering no more than a minority interest?

    If things [capital markets] stay rosy, IPO that business unit, thereby having released and created tremendous financial value to the parent corp.

    If/when things crater, buy out the twitchy investors at pennies on the dollar. The parent now owns [presumably] the technology investment, customer lists, e-business experienced management, brand equity, etc.

    When making the decision to do this in the late nineties, Walmart bought an arguably underpriced option on either of these positive outcomes.

    Maybe not such a bad decision, after all?

  • This article takes the position that b/c Wal-mart and Kmart have bought back the shares of their online stores and plan to re-integrate them into their overall business operations that this is tantamount to some admission that these sites have failed. I haven’t followed the travails of those particular e-tail operations closely enough to know what the real numbers are (tho I do remember that until about a year ago, Wal-mart.com was a joke). But I don’t see how the stock buy-back constitutes failure.

    What it seems to mean to me is that the idea of raising lots of money on the public markets is a pipe dream that went up in smoke. Moreover, it seems to make better business sense to run the sites as an integrated part of the business in any event. Clearly, e-commerce isn’t going to be 50% of Wal-mart’s income anytime soon, but I continue to have every optimism that e-com’s long-term viability is huge, and I wish Wal-mart and Kmart the best of luck cashing in on that.

    Rick Bruner

    Internet business analyst

    Author: Net Results.2: Best Practices for Web Marketing

    ExecutiveSummary.com

  • I would suggest that Wal-Mart and K-Mart should use the Internet to drive customers toward their “brick & morter” stores by having current Catalogs (with prices) of all their products online. Later, as customers become more accustomed to Internet buying habits, customers can be encouraged to buy both Online and also at the store (Brick & Click). In store Kiosks would help customers move more quickly toward “Brick & Click” buying habits.

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