'Marts Buy Back E-Commerce Units

BENTONVILLE, ARK.— In the wake of a weak market for dot-com investment capital, Wal-Mart and Kmart are biting the bullet and buying back their e-commerce businesses.

Wal-Mart, headquartered here, is acquiring the remaining minority interest in Palo Alto, Calif.-based Walmart.com from Accel Partners, a Silicon Valley venture capital firm. Similarly, No. 2 discount chain Kmart said it would buy up the outstanding 40 percent of shares of its San Francisco-based online affiliate BlueLight LLC this week pending shareholder approval. Neither merchant would disclose the price or terms of the acquisitions.

Both discounters said the deals were designed to better integrate their online operations with their core brick & mortar businesses. But the buybacks are also believed to be driven by a dearth of venture capital dollars for Internet endeavors and the poor climate for IPOs, leaving the parent companies as the sole sources for continued funding.

What's more, the retailers are likely attaining the balance of their dot.com businesses at bargain basement prices, given the tech sector's deflated valuations.

The moves follow similar announcements from RadioShack, which is buying back Microsoft's 25 percent preferred minority stake in RadioShack.com LLC for $88 million, and Staples, which is also acquiring shares of its online affiliate.

In making the announcement, Wal-Mart president/CEO Lee Scott said, "It is clear to us that the next evolution for Walmart.com is to establish an even deeper integration between our online business and the operations of our Wal-Mart stores. ... The best and most practical way for us to address [online] opportunities is to do so from within one company."

Walmart.com will remain a separate business unit within Wal-Mart, and business functions, including technology design, site development and merchandising, will remain in Palo Alto, the company said.

The unit's president/CEO Jeanne Jackson will continue in that role, reporting to Wal-Mart executive VP and chief financial officer Tom Schoewe.

For Kmart, the move comes two months after it unseated BlueLight chief executive Mark Goldstein, cut merchandising and marketing staffers, and supplanted their functions with corporate resources. BlueLight is an independent company that is majority owned by Kmart and backed by Martha Stewart Living Omnimedia and Softbank Venture Capital.

Ironically, the online startups had intentionally been distanced from the brick & mortar businesses, both geographically and culturally, to better compete within the new e-commerce paradigm.

More recently, both e-tailers have beefed up their CE selections since redesigning their sites last year.