Bluelight.Com LLC

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BLUELIGHT.COM LLC

BlueLight.com was established in 1999 as part of Kmart Corp.'s efforts to gain an Internet presence. The venture, majority owned by Kmart and funded by SOFTBANK Venture Capital, Martha Stewart Living Omnimedia, and Yahoo!, originally operated as an Internet Service Provider (ISP). However, in just two years BlueLight grew into an online discount shopping destination, as well as a leading ISP with nearly 7 million subscribers.

By the end of the 1990s, Kmart stood as the third-largest discount retailer in the United States behind Wal-Mart Stores Inc. and Sears, Roebuck & Co. However, a lack of innovative marketing tactics and slowing sales had left the 100-year-old company scrambling to hold onto its market share. Believing the Internet might prove to be a lucrative growth vehicle, Kmart management began to formulate an e-business plan aimed at bolstering the company's image and boosting sales.

In May of 1998, the Kmart launched its Web site as Kmart.com. The company's first attempt at creating an online presence failed, as it neither improved the firm's faltering image nor increased revenues. Run by an inexperienced in-house staff, the site was a far cry from what Kmart executives had envisioned. Consequently, Kmart sought out investment capital firm SOFTBANK and put plans in motion to create a new e-business strategy. While discouraged by Kmart's suffering brand image, SOFTBANK was impressed with its customer reach. According to a November 2000 Fortune article, 85 percent of the U.S. population lived within 15 minutes of a Kmart store, 4 million people visited a Kmart store each day, and more than 70 million Kmart advertising circulars were mailed out each week. Seeing Kmart's expansive customer base as a significant growth advantage, SOFTBANK agreed to fund the floundering retailer's Internet venture. Kmart immediately hired an experienced executive staff, including CEO Mark H. Goldstein, founder of Impulse! Buy Network, and Chief Web Officer Brian Sugar, the former head of e-commerce at clothing retailer J.Crew.

Goldstein laid out a three-part business plan that included getting Kmart shoppers online, creating a successful online shopping destination, and increasing both online and in-store sales. The first goal of Goldstein's plan—getting Kmart shoppers to use the Internet—proved to be the backbone of Kmart's e-business strategy. The firm's lackluster Web site was replaced with a new venture entitled BlueLight.com, which was launched in December of 1999 as an independent ISP.

The name BlueLight.com was chosen to reflect the infamous "BlueLight Specials" started by Kmart in the 1960s. The venture began operation as a free ISP with headquarters in San Francisco. Realizing that many Kmart shoppers did not have Internet access, the company sought to boost its online presence by first enticing customers to start using the Web by way of BlueLight's free service. Kmart also marketed the ISP in its stores by offering shoppers CD-ROMs that contained BlueLight.com software. The ISP was powered by Spinway Inc., a virtual ISP that leased telephone lines and equipment. Via Spinway, BlueLight's free ISP service was available to 96 percent of the U.S. population, which was the largest ISP coverage available to U.S. Web surfers.

BlueLight.com experienced overwhelming success in its first months of operation. By March of 2000, it had secured 1 million customers and was on its way to becoming the fastest-growing ISP in the United States. According to the company, 40 percent of its customers were first-time Internet users and did not have Web access before signing up for BlueLight services. To continue encouraging its shoppers to get online, Kmart also sold branded personal computers, made by LG Electronics, that came equipped with BlueLight software and sold for approximately $700 in its stores.

As the number of Web surfers visiting BlueLight.com continued to grow at a rapid clip, the firm began preparing for its official launch as an online shopping destination. BlueLight formed several key partnerships to boost its product offerings. For example, Global Sports Inc. teamed up with the firm to offer sporting goods on the site. A deal also was formed with CoolSavings.com Inc. that allowed BlueLight shoppers to receive special discounts and coupons for BlueLight merchandise by visiting the CoolSavings.com Web site. By the time BlueLight's e-commerce capabilities were fully operational, shoppers could find nearly 220,000 items available for purchase on the site. According to a 2000 Media Metrix study, BlueLight.com was the top home furnishings Web site in June, securing the highest number of unique visitors to its Web site and beating out competitors J.C. Penney and Sears. By August, it had signed on 3 million free ISP customers, reaching that milestone more quickly than any other paid or free ISP.

That month, BlueLight also secured another round of financing from Kmart and SOFTBANK. The $80 million cash infusion was used for increased Web development. In September, BlueLight had secured 4 million customers and launched its free ISP service in Spanish. To promote the new service, the firm distributed more than 55,000 CD-ROMs at Major League Soccer games in the United States and also hosted "Get to Know the Internet" classes in Kmart's top Hispanic stores. In addition, the BlueLight.com Web site was revamped to increase ease of use and customer services. Its product count increased to 250,000 items. However, two months later BlueLight experienced its first major stumbling block when Spinway announced that it was going out of business. As a result, BlueLight was forced to buy certain Spinway assets to keep its 5.2 million customers online during the holiday season.

By March of 2001, BlueLight had signed on nearly 7 million members. However, converting these subscribers into BlueLight shoppers proved much more difficult. To encourage online purchases, BlueLight began charging $9.95 a month for 100 hours of Internet service. However, subscribers who spent more than $100 in a single order received a free month for every $50 spent. Free service was still offered to those who spent less than 12 hours a month online. Kmart also installed Internet shopping kiosks in 1,100 of its stores in April 2001, allowing Kmart shoppers to purchase out-of-stock merchandise and items that were not available in the company's stores. According to Goldstein in a 2001 Direct Marketing article, "the BlueLight.com online shopping kiosk is a major cornerstone in our e-selling strategy. Working with Kmart, we are developing multi-channel programs that answer the consumer's needs and wants—no matter where they are, no matter what they are looking for."

In 2000, Kmart increased its control over BlueLight when the slowing economy began wreaking havoc among those in the dot-com industry. In May of 2001, the firm was forced to begin restructuring efforts aimed at making BlueLight more profitable. Jobs were cut, and BlueLight began relying more heavily on its majority owner. Analysts began to speculate that Kmart was considering a full purchase of the Internet start-up, as marketing and merchandising responsibility shifted to the retailer. At the same time, Goldstein announced his departure as CEO of BlueLight, staying on as an Internet advisor for Kmart. BlueLight and Kmart executives continued working together to boost revenues, improve overall operations, and help secure future growth for both Kmart and BlueLight.com.

The future of BlueLight.com is uncertain as of January 2002, as Kmart Corp. has filed for bankruptcy.