2HRS2GO: E-tailing Secrets! BlueLight.com CEO Spills All!

SAN FRANCISCO -- People curious about the prospects for online retail might do well to adopt a National Enquirer mentality.

"I've gotten a lot of grief over this, but this is the best," BlueLight.com CEO Mark Goldstein said yesterday. "It appeals to people's banal senses."

Goldstein sees the future of e-tailing and it includes an exclusive deal with the Enquirer. It includes blue light specials. It includes a physical store with a huge, gaudy sign in a tourist area that supposedly gets more visitors than any other in the United States outside of Disney World. It includes kiosks in the second largest U.S. chain. It includes a free ISP.

Welcome to the world of Kmart online.

Mind you, Goldstein is biased, because he runs Kmart's online company. But his enthusiasm is hard to resist.

"We're going to be a great B2C play," proclaimed Goldstein, president and CEO of BlueLight.com. "At this point, we don't think anyone's going to get into e-tail the way we're getting into it."

Goldstein spoke yesterday at The Robertson Stephens Internet Conference: The Next Generation. You can see how BlueLight.com might qualify as the next wave of e-tailing, with clicks-and-bricks lately touted as the model that will ultimately win online, rather than Internet-only players.

Yesterday's column mentioned the greater emphasis on private companies at this week's investment conference, and BlueLight.com illustrates the point further. An overflowing crowd listened to Goldstein's presentation, so clearly there's a strong level of interest from Robby Stephens' institutional clients. Either that, or a lot of folks simply wanted to crash on the plush couches in The Ritz-Carlton Dining Room.

"Who is this I'm seeing again?" a conference attendee asked just before Goldstein began. "Oh, the Kmart thing."

It's easy to be dismissive about BlueLight.com, especially considering the disappointing performance of the Kmart franchise for most of the 1990s. Kmart remains the second largest U.S. retailer, but these days it operates in the shadow of Wal-Mart (NYSE: WMT) and, to some extent, Target (NYSE: TGT).

Even Goldstein tacitly acknowledged that weakness as he listed his main goal for BlueLight.com's first year of operation: "We want to win all the awards," he said. "And outsell Wal-Mart and Target online."

It shouldn't be hard as long as Goldstein's company carries out its plans competently, because these Big Box retailers have bland websites.

Target recently revamped its online store, but it's still nothing special. Wal-Mart has been promising an improved online presence since last year, but if you visit walmart.com today, you'll see this note from Jill the Greeter:

"We're remodeling! After listening to your suggestions, we're revamping our online store to serve you better..."

At the moment, BlueLight.com isn't much better. It remains as dull of a site as it was when I panned it back in December, after which Goldstein replied with an e-mail that basically said "You just wait and see, we're going to get better."

Better will arrive in a month, Goldstein said yesterday. BlueLight.com plans an aggressive relaunch in October, with a new site, a bigger presence in Kmart's physical stores, and new distribution deals.

The sheer Kmartness of it all is frightening. Even more frightening is how effective the plan sounds, at least when Goldstein is shilling. Consider these goals for the BlueLight Sticky Bricks Business Model (speaking of Kmart type names):

• $100 million in 2001 annual sales.

• 25 million registered users by the end of 2001.

• 6 million ISP subscribers by the end of this year.

• Eventually convincing 25 percent of website browsers to buy something.

• Profitability within five quarters.

That last point is the most impressive. How many Internet companies, e-tailing or otherwise, break into the black within two years? Amazon.com (Nasdaq: AMZN) has been around for five years and it's still bleeding dollars.

BlueLight.com expects a speedy path to earnings because of its parent company. Almost all of BlueLight.com's advertising and marketing will come through Kmart, including the chain's newspaper circulars and TV ads that mention BlueLight.com prominently. The Internet operation will have kiosks in 1,600 of Kmart's 2,164 stores this fall. And of course, there's the National Enquirer deal.

BlueLight.com will offer an HTML e-mail newsletter filled with Enquirer gossip and, of course, ads and links for BlueLight.com specials. Goldstein believes it's a great way to expand beyond the six million e-mail addresses already contained in his company's database.

"I want 20 million e-mail addresses by the end of the year, and we sat down and said, 'How are we going to do that?' " Goldstein said. "The National Enquirer is Kmart's Reuters."

Every e-tailer promises huge distribution deals, yet they continue to lose money, because the cost of acquiring new customers is high. BlueLight.com doesn't face that problem, because it's largely tapping into existing Kmart resources.

Thus, BlueLight.com already has database of -- privacy advocates, get ready to raise hell -- 96 million U.S. households, or 90 percent of the U.S. buying market, with buying patterns for the last three years.

The company also won't face the warehousing expenses that have increased Amazon.com's costs, because BlueLight.com relies on a combination of K-Mart's existing facilities and fulfillment outsourced to an Ohio-based firm and. "We don't see the need for building out incremental distribution facilities any more than what Kmart already has," Goldstein said, adding that BlueLight.com also sees more manufacturers shipping directly.

Granted, Value America (Nasdaq: VUSA) promised the same inventoryless benefit. But VUSA didn't have a physical partner boasting $36 billion in annual sales, and ready to deliver those mall customers on a platter. "We've hit scale," Goldstein proclaims.

Goldstein's "scale" includes more than four million customers from BlueLight.com's free ISP. Goldstein didn't say how many of those are active users and he didn't indicate churn rates, but he noted 35 percent of those sign-ups were from users completely new to the Internet, which is BlueLight.com's target audience.

And active users hardly matter to Goldstein, because the ISP isn't designed as a money-maker in and of itself; it's just another way to get people to look at BlueLight.com. As long as it doesn't lose money -- and Goldstein says it doesn't -- it's a winner for BlueLight.com.

Kmart owns 55 percent of privately-held BlueLight.com, although it appoints just two of five board members. Softbank -- you know, the company selling ZDNet to CNet -- is BlueLight.com's other major shareholder. Goldstein came to BlueLight.com from Softbank, where he was an entrepreneur in residence. BlueLight.com hopes to "look attractive to the public markets" sometime next year, Goldstein said.

It's already drawing more media attention than most of the companies at the Robby Stephens conference. At least five journalists hung around to ask more questions after Goldstein's formal talk ended yesterday. What can I say? Retail is a more easily digestible concept than wireless network optimization.

But I hate to wax effusively about BlueLight.com, because retail is just a lousy field in general. Retailers' net margins are generally thin and their businesses is more sensitive to broad economic trends than other operations in other industries.

And e-tailing is retailing, retailing stinks, and Kmart has been one of the biggest stinkers of all over the last couple of years for investors. And e-tailing stocks have been dogs for most of this year.

On the other hand, having Kmart on board eliminates many of the problems faced by e-tailers. That ought to be worth something. 22GO>