Blue Light Bust

The big lesson from Kmart's demise.

Given the week's events, it's impossible not to compare and contrast the fortunes of Kmart and Amazon.com. The big blue-light discounter heads to bankruptcy while the one-click e-tailer–after previous billions in losses and thanks to some year-end Euro conversions–posts a few million in profit.

So, the 21st century cyber-store triumphs over the creaking dime-store edifice with 2100 stores, right? Retailing will never be the same? Well, not quite.

While Amazon's modest success should prompt reassessment of the far-too sweeping and sometimes downright gleeful dismissal of the dot-com model by analysts, journalists, and other habitual cranks, a larger lesson looms.

Retailing has not changed. To succeed you still have to satisfy the customer. The dot-coms that crashed produced notoriously bad customer experiences. Sometimes the Web sites simply could not accept orders, kicking everything to clogged 1-800 lines. Shipping arrangements were sketchy, if not totally up in the air. Goods never arrived, or prices quoted turned out to be wrong.

Such snafus revealed that for many e-tailers the only thing they had that was electronic was their Web page, and maybe a coffee maker. Their back office, order processing, and payment settlement ops were still firmly rooted in the 1960s, with bundles of papers the primary information conduit.

Amazon itself had to grow through spots where they were overwhelmed. But only in the past holiday season–the quarter that gave the firm some hard cash–has Amazon begun to put to work all the information a transaction creates in ways that benefit everyone. The product mix is broad enough to constantly offer some sort of special–a loss leader that brings coveted repeat business and can be easily offset by volume, an ancient retailing approach.

Amazon also makes a reasonable attempt at personalized service, another hallmark of a good customer experience. Its "you might like" bots still need fine-tuning–buy a potty training seat and you are a confirmed fetishist as far as the bots are concerned–but up-selling complementary goods is almost as old as selling.

Contrast these things Amazon is beginning to do well with the things Kmart utterly bungles. Customer experience at Kmart was anything but one-click: It was totally dependent on time of day, store location, and the mood of staff. Overstocks and never-stocked spill in the aisles, betraying both labor issues and order-management nightmares. Shoppers of all income levels have better things to do than trip over things.

Compared to brick-and-mortar rivals such as Target and Wal-Mart, these shortcomings really stood out. For decades now Wal-Mart has built up its stocking operation using software that accounts for seasonal, regional, and other fluctuations. In that way, it was more of an e-tailer that many pure dot-coms, producing $220 billion in revenue last year–enough to topple ExxonMobil from the perch of the world's largest company.

And now its Web site features cruises from Wal-Mart Vacations. Cruises–along with roses and impact wrenches. For sheer breadth of offerings it rivals–Amazon. And its Amazon's e-tailing partner, Target.

So does a duopoly loom for mass-market, discount retailing? Perhaps. If it does come to pass it will only be because–and for as long as–consumers like it that way.