DETROIT (FNS) -- Kmart is putting retail sales on-line in September when its Bluelight.com Web business goes live, but groceries won't be among the eventual millions of stockkeeping units available.
"We're going to stay with hard goods," said Mark Goldstein, Bluelight chief executive officer.
Goldstein's remarks came during the Kmart annual meeting, held here last week. Also during that meeting, Kmart said that Floyd Hall, chairman, president and CEO, will step down April 1, 2001, and that a search for a successor has officially begun.
Goldstein said grocery sales are too time-critical and costly for Kmart's Web program to tackle, especially because likely Bluelight shoppers tend to be employed out of the home and so aren't available to take delivery of perishables during the day, a mainstay of Internet-based grocery concepts.
"It's too high-end for the market," Goldstein said.
Brent C. Scott, Kmart vice president of grocery operations, also said that the logistics of delivery following Internet sales seemed to pose a big problem. Scott said he also didn't see how a Priceline.com-like "auction" for staple items could work effectively for Kmart. Despite the decision not to carry groceries, the site will carry some food-related gift items, such as fruit baskets and certain meats.
Hall told the meeting audience that the company's business fundamentals had improved, to put Kmart's compounded annual growth rate in the forefront of big-box retailers at 36.5% over the past three years.
But an unusual time in Wall Street history has failed to reward Kmart for its recovery, which has taken the company from a 1995 loss of 51 cents per share to 1999's profit of $1.22 per share on net income from continuing operations of $633 million. Kmart's gross sales of $233 per square foot are expected to grow to $250 per square foot in the year ahead, Hall told shareholders.
"Like you, I am frustrated by the volatility of the market and the treatment of our stock price in the past year," said Hall, who a year ago termed Kmart shares undervalued at a price of more than $17 per share, then last week had to face shareholders angered over Kmart's $7.50 per-share price.
Indeed, the Troy, Mich.-based company bought back 17 million shares of its own stock at an average price of $11.75, and left management holding stock options that are now "underwater," some redeemable only at prices close to $18.
Hall remained upbeat about Kmart's future. He dismissed current stock market woes as a timing blip, and vowed that Kmart will continue to work on retailing fundamentals while waiting out what he sees as an irrational market in which "too much money is chasing too few companies."
"Until the last year, basic financial fundamentals have always prevailed. Unfortunately, that hasn't been the case of late," Hall said. "The new economy has left millions of investors and pundits alike scratching their heads."
Hall would have liked better share-price news to deliver at his final shareholder meeting. But he assured shareholders the company was robust and ready for challenges.
Kmart will move ahead with store expansions, relocations and construction to increase Super Kmart presence and to expand Big Kmart stores to take advantage of market conditions, Hall said.
This year, the company plans to build 20 new Big K stores (some of them relocations of existing stores), expand 12 to 15 stores and create five Super K stores, four of them expansions of existing stores.
The company will add 30 Big K stores, 20 Super K stores and 11 expansions in 2001, and plans 20 Big K, 50 Super K and 20 expansions in 2002, Hall said. Overall, the plans call for addition or expansion of 105 Super K stores.
The meeting also focused on Kmart's business-to-consumer e-commerce initiative. The Bluelight.com site is already available as a free Internet service provider and has recruited more than 2 million members since its December unveiling.
Kmart is a 59% owner of the San Francisco-based company, which also includes partners Yahoo! Inc., Martha Stewart Living Omnimedia and Softbank Venture Capital. The minority partners have invested $62.5 million in the e-commerce startup; Hall said Kmart's ownership came without cash cost to the company.
"The cost for Bluelight for Kmart has been nothing, so far. We brought our purchasing power. Will Kmart have to put money into it? Yes, we will," said Hall, but said a cash investment would come at a later time.
Bluelight will not carry groceries or consumables, Goldstein said.
Almost no formal comment was made at the Kmart meeting regarding grocery sales. In answer to questions during a press conference that Hall was unable to attend, Kmart vice president and chief financial officer Mike Viola said the year had been one of transition for the company, which inked agreements with Minneapolis-based Supervalu and Oklahoma City-based Fleming Cos. to move grocery logistics and inventory away from Kmart.
Viola said there had been inventory stumbles during the months after the agreements took effect, requiring president-to-president meetings as well as opposite-number management meetings to resolve. But, he said, some of the stumbling points were only to be expected, and Kmart has been able to move roughly $3.8 billion of annual inventory to the two national wholesalers.
"I think that it did improve the capacity in our distribution centers. When you take almost $4 billion of goods out of your distribution channel, it obviously frees up some capacity," Viola said.
