September 3, 2002, 12:00 AM

The Green Light

Richard Blunck has Kmart.com ready to prosper—the rest is up to Kmart.

As every retailer knows, the holiday season amounts to the year’s report card. For those who’ve been struggling, it’s even more than that-it can be make-it-or-break-it time. Virtually everything retailers need for the season is locked in by now. Christmas merchandise is arriving at some distribution centers. And the only outstanding question is how customers will respond to the holidays’ marketing and merchandising efforts.

One of the season’s biggest outstanding question marks hangs over Kmart Corp. Beset by woes ranging from January’s bankruptcy filing and subsequent closing of some 13% of stores, to the PR fallout from troubles at Martha Stewart Living, the source of one of its best-selling brands, to falling stock prices that prompted a notice of possible delisting from the New York Stock Exchange in July, Kmart needs to pull off a stellar Christmas this year-some say a miracle-to turn itself around.

The company has spent much of the past two years scrambling to put out fires, and that includes ongoing and significant changes at Kmart.com, formerly known as BlueLight.com. Chief architect of those changes is Kmart.com CEO Richard Blunck. Recruited from Deloitte Consulting America’s e-business unit, DC.com., Blunck first got Kmart’s attention when he consulted with the company in connection with the WorldWide Retail Exchange he’d helped launch while at DC.com. Prior to his eight-and-a-half-year stint at Deloitte, he worked in information systems for Ford Motor Co. and was an instructor in management information systems at Indiana University.

A blend of talents

Time was, it was unheard of for an executive with virtually no retail experience to land a CEO title at a retail company of Kmart’s size, but then, times have changed. When it comes to fixing an ailing BlueLight.com-losing as much as $14 million a month between its e-commerce operation and its ISP when it troughed last year-Kmart’s management says Blunck is just what the doctor ordered.

“He has a blend of two talents that don’t always come packaged together,” says Randy Allen, chairman of BlueLight and Kmart’s senior vice president of strategic initiatives, who worked with Blunck at Deloitte. “One is an in-depth knowledge of technology and understanding of operational processes. Secondly, he has very solid financial acumen and a wilingness based on that to make tough decisions and hard calls. He has a good sense of what items are going to sell, how to drive profitability through margin, and what kind of goods we should have. “

That said, Blunck never set out to be CEO. He’d signed on late in 2000 as CTO and e-business officer for Kmart, and was looking forward to overseeing what was to be a $1 billion-plus, multi-year program to restructure Kmart’s technology platform with a focus on supply chain technology. By May 2001, however, as Kmart decided to scale back on spending and the web site’s problems emerged, he was tapped for a different job: stabilizing operations at a wildly overspending and underperforming BlueLight.com.

BlueLight.com had troubles emblematic of the times. Focused on a potential IPO and metrics such as traffic versus the more telling sales or cross-channel effect, it was losing $10 million per month on e-commerce and another $3 million to $4 million on the ISP when Blunck arrived. And accompanying the departure of BlueLight’s original CEO, the entrepreneurial Mark Goldstein, was industry buzz about whether focusing on operations would kill the web site’s VC-era creativity.

Blunck bristles at some of those comments. “I won’t agree that creativity died, but they sure did need someone who was operationally focused,” he says. Blunck has cut a workforce of about 200 by half, reduced the flow of red ink, and helped usher key functions of BlueLight back into Kmart Corp. But it will take a post-season review of this, Blunck’s second, holiday at the helm to tell if those efforts will ultimately pay off.

More focus

Kmart re-launched BlueLight this past June, updating the look, adding an expanded selection of brand name merchandise such as Disney’s children’s apparel and Pentax cameras, and perhaps most importantly, aligning the web’s offering and marketing messages with the store’s “Stuff of Life” campaign for tighter cross-channel integration and uniform brand marketing. For the first time, the site features the same logo, imagery, even the same type fonts as every other Kmart communications platform, from TV to newspaper inserts.

The new BlueLight also is more focused on merchandising and getting the right assortment, and is continually refining the product mix with online product testing. To get ready for the holidays, it’s added the popular Joe Boxer line online as well as in-store, and is supporting it with a new TV campaign. It also will offer the Martha Stewart Holiday line, the first time the brand has created a dedicated holiday assortment. (A word on Martha: Kmart says her products continue to sell “above trend.”) The updated site, renamed Kmart.com, features more information on Kmart stores and an area on the home page that alerts web customers to nationwide events, promotions and sales.

It’s a 180-degree turn from BlueLight’s original strategy of distancing the web site from Kmart stores in hopes of attracting a new customer base. Blunck inherited that strategy, and it was one he never really embraced. “The idea was to grow as fast as possible, at whatever expense, and to create a separate corporate entity that could generate value as an IPO, with the potential to grow into billions in online sales,” he says. “There was some appeal to a different audience, and positioning it as a separate company was attractive to some people. I don’t know that that was the way I would have chosen to go and clearly, we proved that all of it didn’t make sense.”

Brand power

Blunck’s first charge was to take a hard look at whether the money-losing BlueLight was worth salvaging and accept that a negative answer would put him out of a job. While the web operation had experienced significant growth, it had even more spectacular growth in expenses that more than offset the increase in top-line revenue. In short, BlueLight was broke.

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