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Wal-Mart and Kmart to Buy Back Online Stores

Mass merchandisers Wal-Mart Stores Inc. and Kmart Corp. said this week that they will buy out the minority partners in Walmart.com and BlueLight.com LLC, respectively.

Wal-Mart, Bentonville, AR, will acquire venture capital firm Accel Partners' undisclosed minority share in Walmart.com. Kmart, Troy, MI, will buy out the BlueLight.com shares owned by Japan's Softbank Venture Capital and Martha Stewart Living Omnimedia Inc.

“Kmart feels the future of retail is in the bricks-and-clicks model and to better integrate the two, we think it's important to own 100 percent of BlueLight,” said Stephen Pagnani, media relations manager at Kmart.

A senior Wal-Mart executive echoed that sentiment in a public statement.

“Clearly, customers today want to shop and seek information through both online and offline channels,” said Lee Scott, president/CEO of Wal-Mart Stores. As a result, he said, the company's focus is on “tighter integration of our online program with our stores.”

Scott said Wal-Mart sought to add more traditional retail store services online, and the “most practical way for us to address these opportunities is to do so from within one company.”

Following the buyout, Wal-Mart will closely integrate its online and offline programs in such areas as prescription drugs, gift registry and photography services. But technology, site development and merchandising will remain Walmart.com responsibilities.

For its part, Kmart has assumed BlueLight.com's marketing and merchandising functions. This was announced in the spring, when an operational revamp claimed the jobs of many BlueLight.com employees, including CEO Mark Goldstein.

In their decisions to absorb their online stores, Kmart and Wal-Mart are following in the footsteps of fellow retailers.

Earlier this month, RadioShack Corp. said it would buy back Microsoft Corp.'s 25 percent stake in RadioShack.com for $88 million.

Prior to that, VitaminShoppe Industries, Zany Brainy Inc. and Staples Inc. initiated similar moves, mostly for the online stores' failure to produce financially.

But the mantra of closer integration has its critics.

Al Ries, chairman of strategy consultancy Ries & Ries, Roswell, GA, said the Wal-Mart and Kmart sites stand to lose their individuality if they replicate their retail siblings' look and feel.

“Having an outside partner gives Wal-Mart [and Kmart] some objectivity,” Ries said. “Let's face it: No company has the kind of objectivity that it can get by having an outsider involved. I mean, that's why the consulting business is so big.”

Kmart's Pagnani said it was too early to comment on how BlueLight.com would evolve after company ownership changed hands. Nor did he clarify whether there were more layoffs planned at BlueLight.com or whether the dot-com's corporate headquarters would change.

BlueLight.com did not return a call at deadline.

Wal-Mart said no layoffs were planned as a result of the decision to incorporate Walmart.com as a separate business unit within the $191 billion retailer. The Walmart.com joint venture was announced in January 2000.

Kmart's decision to absorb its BlueLight.com spinoff awaits approval from the online company's minority owners. Kmart aims to buy back the shares by Aug. 1.

The decision ends a two-year stand-alone run for BlueLight.com, in which Kmart has a 60 percent stake. Softbank owns 27 percent, and Martha Stewart Living Omnimedia owns 13 percent.

Besides being an e-commerce site, BlueLight.com also is the nation's No. 2 Internet service provider with almost 6.8 million users. ISP services are offered for free or via paid subscription.

Both BlueLight.com and Walmart.com are based in the Bay area. BlueLight.com is in San Francisco and Walmart.com in Brisbane, CA. At launch, executives from Kmart and Wal-Mart said their online retail joint ventures would benefit from their proximity to Silicon Valley.

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