What Will Become of Bankrupt Kmart’s BlueLight.com?

It is unclear what will happen to Kmart’s BlueLight.com as a result of the retail giant’s bankruptcy filing, but analysts said the store’s Web presence is likely to be among the first places the company looks to eliminate costs.

The Kmart e-commerce site and formerly free, low-budget Internet service provider (ISP) struggled in the online world, even as the huge brick-and-mortar retailer failed to stay profitable amid the slumping economy and heavy competition from the likes of Wal-Mart.

According to analysts, Kmart likely will keep its site up and running, but it may no longer sell its “blue light” deals on BlueLight.com, which is also likely to suffer from investment cuts as a result of the bankruptcy.

Blue for Bankrupt

In what is being called the biggest retailer bankruptcy in history, Kmart filed for Chapter 11 protection Tuesday, saying it will undertake restructuring and cost-saving measures to recover.

Meta Group senior program manager Gene Alvarez told the E-Commerce Times that while Kmart probably will keep operating its Internet site and ISP as it has in the past, the company’s Web presence will not benefit from technology upgrades, development and IT spending.

“I cannot see them abandoning the BlueLight initiative,” Alvarez said. “But they will look at it from an IT budget perspective and let it stand instead of upgrading.

“In a time of bankruptcy, it’s no-holds-barred to get back to profitability,” he added.

Business as Usual

BlueLight.com spokesman Dave Karraker told the E-Commerce Times that the Kmart site is operating as usual, and added that he does not anticipate any lapse in either the consumer site or the Internet service.

“We are a key element in their retail strategy, and the Internet is an important part of reaching out to customers,” Karraker said. “We see ourselves as having a valuable spot in [the company’s] strategy.”

Karraker said the company is contacting its 200,000 subscribers, who pay US$8.95 per month for Internet access, to inform them that the service will continue.

Falling Behind

However, Gartner G2 research director Kevin Murphy told the E-Commerce Times that Kmart will have little choice but to cut the BlueLight.com site “one way or another.”

“It’s not just the bankruptcy,” Murphy said. “Some of their rivals are moving significantly ahead and it would be expensive for them to catch up.”

Murphy noted that Kmart competitor Sears has successfully implemented a buy-online, pick-up-in-store initiative using existing systems, store space and other resources.

“Kmart doesn’t have that,” Murphy said, adding that he would be surprised if Kmart were not already in talks “with a Yahoo!” to take over the BlueLight.com site.

No More Buying Online?

Nielsen//NetRatings senior analyst Dawn Brozek told the E-Commerce Times that the BlueLight.com site has struggled against stiff online competition, just as Kmart has struggled against its brick-and-mortar competition.

Brozek said Kmart may follow the lead of other retailers that have converted unsuccessful e-commerce sites into pure marketing plays, using BlueLight.com “as a marketing tool rather than a sales channel.

“[Like] being an ISP, it isn’t really core to their business,” she said. “They’re a retailer.”