The Vanishing Corner Web Store

To the casual surfer, the Internet may seem like a limitless ocean, but to e-tail firms whose cash is swirling down the drain, it may seem more like a little fish tank that is fast losing its water. The situation is about to get a lot worse: The land sharks are coming.

Real-world discount giants Wal-Mart and Kmart appear hell-bent on getting their electronic shops in order. They may not be fully operational overnight, but they are certainly coming soon — probably in time for Holiday Season 2000. They are not going to miss out again. The big marts are not exactly online newcomers, but their latest e-commerce efforts are imbued with a seriousness of purpose that should have the smaller fish swimming for their lives.

Leverage, Inc.

Kmart’s online progeny is BlueLight.com, which picked up $80 million (US$) in cash from its parent company and Softbank this week. That kind of money could keep dozens of struggling e-tailers alive, but unlike BlueLight, the poor things do not have a direct pipeline to a major retailer.

BlueLight CEO Mark Goldstein said his company is “the most aggressive, privately funded business-to-consumer play going.” Lending credence to Goldstein’s claim, Kmart executives told financial analysts that the company will spend $2 billion during the next year to get its brick-and-mortar stores and its Internet venture on the same technology page.

Kmart’s 2,165 U.S. stores hauled in $2.58 billion in sales in July of this year alone. When a company with revenues on that scale says it means business, it really means business.

Meanwhile, in Arkansas…

Wal-Mart Corp. also appears to be taking important steps toward bolstering Benton, Arkansas-based WalMart.com, which has been losing money up until now. Wal-Mart’s moves are subtler than Kmart’s big splash, but the results could be just as impressive. The company has tapped a former Gap, Inc. executive, Jeanne Jackson — widely credited with bringing Banana Republic back from the brink — to head its online efforts.

Just a few months into her new job, Jackson made what could be considered a stunning discovery: WalMart.com has been selling a substantial number of products on the Web site for less money than it costs the company to handle the sales transactions. Needless to say, Wal-Mart is removing those items from the site.

That seemingly small move represents a major shift in thinking. Wal-Mart has come to the realization that multi-channel selling does not mean putting every product on sale on every channel. Some things — like 99 cent lip gloss — should only be sold at the checkout counter in the brick-and-mortar stores. It is an enlightened approach to using different sales avenues — and a recognition that the obvious answers about online retail won’t necessarily appear until someone dares to ask the obvious questions.

New Frontier

Of course, no matter how hungry they are, Kmart and Wal-Mart are not going to immediately render extinct all the smaller online retailers — some will find hiding places in the seaweed. But the fact that the land sharks are finally getting serious about e-commerce leaves me a bit pessimistic about the fate of the little fish.

Kmart and Wal-Mart have seen the future. They waited long enough to allow some of the Internet’s bugs to be worked out and to let some early failures illuminate the path to success. They are now confident the Web is no passing fad. Now they are on the move, so this is sure to be another watershed year for e-commerce. If 1999 was the year of the dot-com startup, then 2000 is shaping up as the year of consolidation.

Gobble, Gobble

If a company like Kmart can spend $2 billion on in-store scanners and back-end computer software, it can vacuum up small e-commerce concerns with ease if and when the mood strikes. Unfortunately, that could leave us with an online world that looks starkly like the real world, where big-box retail outlets dominate the landscape and the small, quirky shopkeeper who knows your name and your kid’s shoe size lives only in Norman Rockwell paintings.

Unfortunately, Rockwell is not around to capture it for posterity, so take a good look around at your friendly, neighborhood Internet in the summer of 2000. It’s about to vanish.

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