Kmart, the second-largest discount retail operation in the U.S., has announced that it will offer shares of its common stock directly to its 180 million shoppers on its recently-launched BlueLight.com Web site. Most stocks normally must be purchased from brokerages.
The first shares were offered yesterday through Kmart Stock Direct, which was developed jointly with direct stock purchase plan provider StockPower, Inc. If the move succeeds, it could well spark a precedent in which numerous other companies sell their stock directly from their sites.
Because it is a special Direct Stock Purchase Plan (DSPP) filed with the Securities and Exchange Commission (SEC), Kmart cannot offer other stocks on its site. Investors will be required to make an initial investment of $250 (US$), pay a one-time fee of $5 and pay five cents per share for purchases and 12 cents per share for sales. Investors can purchase up to $100,000 in stock each year.
Kmart said it will also offer automatic monthly stock purchases and customized e-mails containing stockholder communications, as well as direct marketing information on Kmart promotions and sales.
Kmart’s stock has lagged behind its competitors, primarily Wal-Mart and Target Stores. Observers are sure to be watching for any signs of new life in the company’s stock, since over the past 52 weeks Kmart’s shares have fallen by more than 50 percent from a high of $18-5/8 on February 4, 1999 to $8-7/8 in mid-day trading today.
Appeal to Middle America
The new initiative aims to build customer loyalty and increase revenues. “Clearly Kmart understands the value of connecting directly with its investors and customers and realizes that the Internet is the most effective means — from both a cost and time perspective — to achieve that goal,” said Dean Frost, president and chief executive officer of StockPower.
At the end of last year, Kmart and venture capital partner Softbank announced a strategic alliance with Yahoo! to create BlueLight.com. Industry analysts had long been touting the importance of bringing middle America online and incorporating e-commerce into the daily lifestyles of Americans.
A New Trend?
With stock trades reaching as low as $8, analysts are not sure what to make of today’s move. Some observers believe that it will signal a new trend, while others see it as a publicity stunt by a company whose stock has been drifting slowly downward.
In the past, large companies have offered direct stock purchase plans as a convenient way for long-term investors to avoid expensive brokerage fees. Many of these programs are offered by companies that pay cash dividends so that those dividends can be issued automatically in new stock.