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Five Companies That May Not Survive Past 2014
December 27, 2013

Sears Continues to Wither Away
December 29, 2013

Does Sears Have the Will to Survive?
December 26, 2013

CPS relocation to Sears site puts store's future in doubt
December 18, 2013

Sears Canada's urban retreat signals more shut stores
December 18, 2013

Sears Home Services provider in receivership
December 17, 2013

Easy Money Delays Retailing Shakeout
December 16, 2013

Penney Pinches Sears's Sales
December 13, 2013

Retailers Turn Store Clerks Into Web Shippers
December 10, 2013

Eddie Lampert vulnerable on dual fronts after Lands' End spinoff
December 9, 2013

Is Lampert's vast empire starting to crack?
December 9, 2013

Analysts: Lands' End has potential as separate company
December 8, 2013

Investors, Dismayed by Losses at Sears, Pull Money From Hedge Fund
December 6, 2013

Weakened Lands' End Won't Be Freed by Sears Spinoff
December 6, 2013

Struggling Sears to spin off Lands' End clothing business
December 6, 2013

Lampert Sees Fund Investors Check Out
December 6, 2013

Lampert Fund Distributed Sears Stock to Investors
December 4, 2013

Former Sears Canada CEO gives holiday predictions
December 3, 2013

How Sears' managed decline could crash
December 2, 2013

Sears Takes Crash Course in Surfing
November 29, 2013

Large historic Sears property in Boyle Heights sold for redevelopment
November 20, 2013

JC Penney On An Express Train to Oblivion
November 28, 2013

Sears Canada slashing 800 jobs in services units, head office
November 27, 2013

Wal-Mart Taps Veteran as New CEO
November 26, 2013

Eddie Lampert considers sale of Sears Canada
November 25, 2013

Sears, Kmart boss Lampert: 'What we have is a profit problem'
November 24, 2013

Sears loss widens
November 22, 2013

Sears Holdings Reports Third Quarter 2013 Results Consistent With Prior Guidance
November 21, 2013

Weak sales, more promotions hurt Sears
November 21, 2013

Sears Appears to Be a Stuffed Turkey
November 21, 2013

J.C. Penney Loss Widens
November 20, 2013

Sears And J.C. Penney: A Tale Of Two Fading American Retailers
November 19, 2013

Tower Envy
November 13, 2013

World Trade Center Back on Top
November 13, 2013

Tallest building ruling: Willis Tower loses to One World Trade Center
November 12, 2013

Discover Financial Services Shares Could Rise 20%
November 10, 2013

High drama: Meeting today on whether Willis Tower loses rank
November 8, 2013

Size Does Matter, At Least In The Tallest Building Debate
November 8, 2013

Walmart.com Can't Live With Glitchy Prices
November 7, 2013

Sears Holdings: Death by 1,000 Cuts?
November 6, 2013

As Penney Sales Improve, Worries Remain
November 6, 2013

Sears, Kmart to Open Most Stores on Thanksgiving
November 6, 2013

Aetna CEO explains why Obamacare is causing insurance premiums to skyrocket
November 5, 2013

More Doubts About Sears' Strategy
November 2, 2013

How JCPenney Could Ruin The Industry's Holiday Season
November 1, 2013

Sears Decides Two Offspring Not Enough, Looking at Lands End Spin
October 30, 2013

Sears Resorts to Spin
October 30, 2013

Sears Considers Splitting Off Lands' End, Auto Centers
October 29, 2013

Five Disturbing Signs That Sears Is Getting Closer To Death
October 29, 2013

Sears considering spinning off Lands' End
October 29, 2013

Glaxo shifting retirees to health exchanges
October 24, 2013

Nobody Wants To Shop At Sears
October 21, 2013

Larry Cudmore, retired Sears President, dies at 77
October 19, 2013

Sears CEO Lampert loses 4th appliances chief in 5 years
October 16, 2013

J.C. Penney Sees Improving Sales Trends
October 9, 2013

Sears Cashes Out of Prime Stores
October 9, 2013

POW wrote of ordeal/Sears executive told of war experiences
October 6, 2013

Sears Holdings Corporation Completes $1.0 Billion Term Loan Borrowing
October 2, 2013

Penney Stock at 13-Year Low
September 26, 2013

Former U.S. Marine takes helm at Sears Canada
September 24, 2013

Big suburban firms joining private health exchanges including Walgreens & Sears
September 19, 2013

Walgreen to Give Workers Payments to Buy Health Plans
September 18, 2013

Sears seeks to borrow $1 billion
September 17, 2013

Ringing Up the Sum of All Sears
September 12, 2013

More Employers Overhaul Health Benefits
September 4, 2013

Noonan: Work and the American Character
August 30, 2013

Wal-Mart to Insure Domestic Partners
August 28, 2013

Ackman Flees Penney Stock
August 27, 2013

Bill Ackman takes huge loss on J.C. Penney
August 27, 2013

Sears Crucial Appliance Sales Erode
August 23, 2013

Sears, Facing Weak Sales and Internal Strains, Posts Loss
August 23, 2013

For Sears, the 'Dangerous Downward Spiral' Continues
August 23, 2013

Ackman Concedes Some 'Failures'
August 22, 2013

Sears 2Q Loss More Than Expected
August 22, 2013

Can Lampert Return Sears to Profitability?
August 22, 2013

Sears Holdings Reports Second Quarter 2013 Results
August 22, 2013

Sears Canada Reports Second Quarter Earnings
August 22, 2013

Activist Investor Had Sought to Oust Retailer's CEO, Chairman
August 13, 2013

War of Attrition at J.C. Penney
August 10, 2013

Ackman Calls for Ouster of J.C. Penney Chairman
August 9, 2013

William Ackman Targets J.C. Penney's CEO
August 9, 2013

J.C. Penney names Kraft executive as head of marketing
August 5, 2013

Saks Deal Is About Land as Much as Luxury
July 30, 2013

Sears CEO Edward Lampert Denies Secret Online Posts
July 23, 2013

JCPenney Is Close to Making Key Marketing Hire
July 23, 2013

Sears Would Really Like to Sell You a $33,000 Rolex
July 22, 2013

Prudential Retiree Life Insurance Mailing
July 19, 2013

A Health Scare for ObamaCare
July 19, 2013

What Will the Next 20 Years Hold for Sears Hometown Stores?
July 19, 2013

Why Sears Doesn't Have To Go Out Of Business
July 18, 2013

At Sears, Eddie Lampert's Warring Divisions Model Adds to the Troubles
July 11, 2013

Sears workers protest wages at State Street store
July 16, 2013

Can this woman save Sears?
July 15, 2013

Eddie Lampert, Read ‘Balter Shrugged’
July 11, 2013

4 Reasons J.C. Penney Will Survive & Thrive
July 8, 2013

Part-Time America
July 5, 2013

Health-Insurance Costs Set for a Jolt
July 1, 2013

Sears Holdings cuts ties with Paula Deen, as fallout builds from revelations of racial slurs
June 28, 2013

Isn't It Time Eddie Lampert Fired the CEO of Sears?
June 20, 2013

Lampert Says He Has Sears Strategy as Analysts Doubt It: Retail
June 18, 2013

Orchard blames former owner Sears for bankruptcy
June 18, 2013

Orchard Supply files for bankruptcy, Lowe's steps in
June 17, 2013

Glass ledges atop Chicago's tallest building boast more than 6 million visitors in 4 years
June 11, 2013

Wal-Mart Renews Buyback Effort
June 8, 2013

Supreme Court backs Sears in washing machine case
June 4, 2013

Sears to Market Stores as Data, Disaster Recovery Centers
May 29, 2013

At Sears, CEO's Tech Focus Hasn't Led to a Turnaround
May 29, 2013

JCPenney One of 10 Brands Predicted to Die in Next Year
May 24, 2013

Sears loss widens in 1Q on continued sales slide
May 24, 2013

Will Lands' End Finally Prosper Under Sears Holdings?
May 24, 2013

Sears Turns in a Loss as Revenue Falls
May 24, 2013

Sears reports bigger-than-expected loss for 1st quarter
May 23, 2013

Penney Sales Yet to Pick Up After Johnson Exit
May 17, 2013

Sears won't sign Bangladesh safety accord
May 16, 2013

Your Next IRS Political Audit
May 15, 2013

Applying for ObamaCare�Still Not Simple
May 11, 2013

Sears Holdings names new chief information officer
May 11, 2013

Bangladesh Shuts 3 Factories of Top Exporter
May 10, 2013

Sears launches new lease-to-own program
May 9, 2013

As Sears Portrait Studio Goes Bust, Who's Left With the Debt?
May 3, 2013

Sears Didn't Move Fast Enough, CEO Says
May 1, 2013

Soros Takes Stake in J.C. Penney
April 26, 2013

Not Much Future in Penney's Past
April 17, 2013

How J.C. Penney Laid an Egg
April 16, 2013

Moody's Lifts Outlook on Sears Rating, Citing Narrower Losses
April 16, 2013

How Congress Puts Itself Above the Law
April 16, 2013

Orchard Supply Hires Restructuring Lawyer
April 15, 2013

Penney Wounded by Deep Staff Cuts
April 15, 2013

J.C. Penney, Bleeding Cash, Seeks to Raise $1 Billion
April 12, 2013

Bill Rule, veteran Sears PR director, dies at 84
April 12, 2013

JC Penney hires Blackstone, Ackman willing to put up capital
April 12, 2013

Retail Industry Short on Star Executives
April 10, 2013

At Penney, Ullman to Reassess Shops, Pricing
April 9, 2013

Macy's Says Penney Violates Detente
April 9, 2013

Penney CEO Out, Old Boss Back In
April 9, 2013

Lasting Memories? The Sears Portrait Studio Shuts Down
April 6, 2013

Sears Hometown, Outlet CEO sees compensation jump
April 2, 2013

Wall Street wears the pants at Sears and J.C. Penney
April 8, 2013

Wal-Mart losing shoppers, appeal
March 29, 2013

Sears CEO Took Big Cut in 2012
March 29, 2013

Eddie Lampert Hacks OSH - Is Sears Spinoff Spinning Out?
March 28, 2013

Mall Landlords Get a Penney for Thoughts
March 27, 2013

About That 'Scalpel'...
March 21, 2013

Sears Says Lampert Will Remain as CEO, Earning $1 Salary
March 20, 2013

A Bad Penney Gets Worse
March 11, 2013

J.C. Penney CFO says he and CEO Johnson are staying put
March 13, 2013

Sears' failure to adapt disillusions shoppers, shareholders
March 13, 2013

Edward Lampert and Sears, Investing in Wow
March 7, 2013

U.S. Retailers See Tepid Growth
March 8, 2013

Board Patience Wears Thin at Penney
March 6, 2013

After Sears reports loss, shares drop 5%
March 1, 2013

J.C.Penney's Losses Snowball
February 28, 2013

Sears tops estimates; Lampert promises turnaround
February 28, 2013

Sears Holdings 4th-quarter loss narrows as company reduces inventory and expenses
February 28, 2013

J.C. Penney sales plunge, much worse than expected
February 27, 2013

Shakeout in old media picks up pace
February 25, 2013

For Penney's Heralded Boss, the Shine Is Off the Apple
February 25, 2013

JCPenney cutting 300 workers at headquarters
February 18, 2013

Grant will verify Glenview's historic kit homes
February 15, 2013

Billionaire Sears CEO increases stake in Gap
February 15, 2013

Sears shifts gears to cater to city dwellers
February 14, 2013

Form 8-K for SEARS HOLDINGS CORP
February 13, 2013

Sears Resurrects RoadHandler Brand of Tires
February 1, 2013

JCPenney Brings Back Sales
January 28, 2013

Sears Pension Plan Cuts Stake in Retailer�s Debt
January 22, 2013

Sears Holdings Announces Date For 2013 Annual Meeting Of Stockholder
January 24, 2013

Deja Vu for Sears CEO: Fix Kmart
January 24, 2013

Sears to Find Out If Lampert Knows Washers From Dryers
January 10, 2013

Rosenthal: Sears Holdings' Edward Lampert discusses company's future, new role in it
January 9, 2013

Experts: Sears chair's move to CEO means more of the same
January 9, 2013

Sears Says Lampert to Take Over as CEO
January 8, 2013

Sears CEO D'Ambrosio to step down
January 6, 2013

Rivals Object to Wal-Mart Ads
January 4, 2013

Health Law: A Tough Diagnosis
January 2, 2013


 

Breaking News

2013

Five Companies That May Not Survive Past 2014
By Jonathan Berr
Fiscal Times
December 27, 2013

Wall Street is a sucker for a good comeback story, and it got plenty of them in 2013. Best Buy shares, for example, have zoomed nearly 250 percent higher this year. Hewlett-Packard, the worst performer in the Dow Jones industrial average in 2012, has nearly doubled this year. Companies like E-Trade Financial, GameStop, Rite Aid and Yahoo have all seen their share prices soar 100 percent or more--sometimes much more--as investors bought into their turnaround tales.

Sometimes, though, down-and-out businesses stay that way, or manage to fall even further. The five companies below have struggled for years to turn around their operations and, for whatever reason, have failed to get themselves back on the right track. We're not predicting that they will go out of business tomorrow, or anytime soon. They .of future years.

Martha Stewart Living Omnimedia

Martha Stewart's media empire has been circling the drain for years as the diva of domesticity's popularity fades. Stewart has proven far more adept at fashioning crafts than at developing a coherent, successful corporate strategy. The company's executive offices have seen a revolving cast of managers, but none have managed to get profits blooming. Revenues in Martha Stewart Living's publishing business have fallen year-over-year for seven straight quarters. During the company's third quarter, its only profitable business was merchandising.

Even those profits may be in jeopardy as the company has had to revise its partnership with J.C. Penney after being caught in the middle of a nasty battle between that retailer and Macy's. Investors have complained that Stewart is vastly overpaid and she cut her pay in response. Stewart's best hope is to sell the company but given the trouble she has caused it's hard to imagine who would buy MSO.

Zynga

Zynga, the creator of FarmVille and Words With Friends, has suffered a serious drought of follow-up hits. As one analyst recently noted to Bloomberg, with the exception of Zynga Poker, the company has failed to produce a sustained mobile hit in ages. For players of Words With Friends, that would be like having only O's and U's.

New CEO Don Mattrick, the former head of Microsoft's Xbox business, was brought on in July to put some zing back in the game-maker. The company has also slashed jobs and cut back on outside contractors in an effort to reduce costs. Those cuts helped the company post better-than-expected third-quarter results, but unless Mattrick can position Zynga for success in mobile, he's going to have problems gaining traction. He could also play "find the white knight," but that's a dangerous game, too.

Sears Holdings

When billionaire Edward Lampert engineered the merger of Sears and Kmart in 2004, one analyst described it as a "dream deal." The reality has been more of a nightmare for long-term shareholders.

The ongoing struggles at troubled J.C. Penney may have overshadowed those at Sears, but sales have fallen at the Hoffman Estates, Ill., company for 27 straight quarters. During the first three quarters of 2013, the once-venerable retailer lost $1 billion. Wall Street analysts expect the red ink to continue for the foreseeable future.

Lampert, who became Sears CEO this year, is trying to unload any assets not nailed to the floor as the company's cash begins to dwindle. Sears has announced plans to spin off Lands' End and sell its auto centers, a deal that one analyst estimates could be worth as much as $2.5 billion. But the company has about $2.8 billion in long-term debt.

Sears' struggles are taking a bite out of Lampert's fortune. He was forced to reduce his stake in Sears to under 50 percent because of redemptions from hedge fund clients. As he continues to lose control over Sears, pressure will mount on Lampert to either take the venerable retailer private or sell it to someone else.

Radio Shack

Ever since he became CEO earlier this year, Joe Magnacca has vowed to "transform" the business. That's a tall order. Radio Shack has been struggling to keep pace with technology and stave off fiscal oblivion for years. In 1999, the shares sold for $78.50. Now, they sell for $2.66. The company has seen its market capitalization shrink by 98 percent. It now has a value of $270.4 million, which is tiny for a national retail chain.

Magnacca has tried to breathe new life into the stodgy brand through stunts such as opening a pop-up store in New York's Penn Station. Though Wall Street analysts have welcomed these efforts, many think it's too little, too late.

Radio Shack is in such poor shape that it's unlikely that a buyer would rescue it, at least before it shutters poorly performing stores. Though the company had $613 million in cash as of Sept. 30, its long-term prospects aren't going to improve anytime soon.

MySpace

Yes, MySpace, once the dominant social network, still exists. It was acquired in 2011 by a group of investors including Panasonic and singer/actor Justin Timberlake. The investors acquired the site from Rupert Murdoch's News Corp., now 21st Century Fox, for $35 million. News Corp. had famously bought the company six years earlier, for $580 million.

Under its new management, MySpace has tried to reinvent itself as a social music service. It relaunched the website earlier this year and undertook a $20 million advertising campaign. Though it has attracted some 36 million users, profits haven't followed and the company announced in November that it had laid off 5 percent of its staff. According to Business Insider, MySpace lost $43 million in 2012.

Even worse, a group of small, independent record labels called Merlin has accused MySpace of using its members' content without permission--a situation that will have to be addressed. Even if it does reach a deal with Merlin, MySpace still must find a way to compete against a slew of larger, more popular music services such as those from Apple and Spotify. For MySpace, the music may stop before that happens.

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Sears Continues to Wither Away
By Dan Moskowitz
The Motley Fool
December 29, 2013

Over the past three years, the stock market has consistently hit new highs. In this environment, stocks belonging to both good and bad underlying businesses tend to appreciate. However, if you look hard enough, you will find stocks that have grossly underperformed the market. This is often a telling sign that investors don't see current strength or long-term potential for those businesses. Sears Holdings (NASDAQ: SHLD), which is facing much competition from every angle, is an example of this. In fact this short list of competitors: Amazon.com (NASDAQ: AMZN), Wal-Mart Stores (NYSE: WMT), Home Depot (NYSE: HD) and kohl's (NYSE: KSS) is enough to raise concerns. This has led to stock deprecation of 28% over a three-year time frame.

Sears hasn't made any significant changes to its stores, but it has made several significant moves to improve its business. Will these moves be enough to offer investors a dash of hope, or would that hope be merely a mirage?

Competition from all angles

Sears, the once-dominant department store, failed to change with the times while other companies began offering something unique. For instance, Amazon.com offers the ultimate in convenience with its online retail store. More people are shopping online every day, and even if Sears and its other department store peers increase their online traffic, they're still going to be well behind Amazon.com.

According to website analytics company Alexa.com, Amazon has a global traffic ranking of 10 (with 1 being the highest) and a domestic traffic ranking of 5. On top of that, Amazon's page views per visitor have increased 54.80% to 10.76 over the past three months. Its time-on-site has shot up 63% to 9:03 over the same time frame. These are astronomical numbers, and they're very important to Sears. Amazon consistently steals customers from all retailers, and Sears is no exception. What makes Sears different is that it can least afford to lose those customers.

Consider that other than Amazon, some of Sears' largest competitors include Wal-Mart, Home Depot, and Kohl's. Now take a look at the top-line comparison for these five companies.

Only Sears has suffered a concerning revenue decline. Wal-Mart's revenue increase over the past year isn't overly impressive, but it's not expected to be. Wal-Mart is a large and mature company that finds ways to grow methodically while returning capital to shareholders in the form of dividends and buybacks. For instance, it currently yields 2.4%. Therefore, its rewards go beyond stock appreciation. Mist important for this comparison, consumers looking for bargain-basement prices will opt for Wal-Mart over Sears.

Kohl's revenue has slipped a bit over the past year, primarily due to the suffering middle class, which it tends to target. However, it's still outperforming Sears on the top line, relatively speaking.

Home Depot has been stealing business from Sears for years. Home Depot presents a do-it-yourself image, which leads to consumer savings. This drives consumers into the store. Therefore, while Sears remains No. 1 in annual installation calls (14 million per year), consumers are attempting to do as much as they can on their own these days. This image also leads to foot traffic and increased product sales for Home Depot. The rebounding housing market doesn't hurt, either. Furthermore, Home Depot yields a 2% dividend.

Sears is attempting to offset the increased competition with divestitures and initiatives, but will it be enough?

Divesting and investing

Over the past two years, Sears has spun off Sears Hometown and Outlet Stores, Orchard Supply Hardware Stores, and now Lands' End. It acquired the latter for $1.9 billion in 2002. Bringing the brand in-store proved to be a strategic error. It's possible that Sears will continue its divestment rampage with Kenmore and Craftsman, but that remains to be seen. One thing is certain: Sears is beginning to look much different than it has in the past.

In regard to initiatives, the best one Sears has is its Shop Your Way rewards program, which is a free program that offers rewards, personalized deals, and member coupons. There is no minimum required to redeem points.

Sears recently announced a Shop Your Way Holiday Bonus, where consumers can earn up to 10% back in points through the reward program through Jan. 31. Additionally, Shop Your Way Max members have an opportunity to receive free two-day shipping on all orders. This also goes for anyone spending $59 or more. Shop Your Way members can also use the Shop'In app if they're near a Sears or Kmart if they want to place an order and then swing by and pick up their products with ease.

The Shop Your Way program might have potential as a positive catalyst, but will it be enough? Not likely.

Recent divestments will likely help the bottom line, but they're not going to help the top line. It looks like the goals for Sears are to become smaller and profitable. Though not impossible, these will be difficult tasks, especially considering the company's fiscal situation. Sears generated negative operating cash flow of $694 million over the past year and it's leveraged -- $599 million in cash and short-term equivalents versus $4.70 billion in long-term debt.

The bottom line

Americans love a comeback story, and it would be great to see Sears prove almost everyone wrong. However, due to stiff competition, being years behind industry trends, and fiscal weakness, this doesn't seem to be a likely scenario.

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Does Sears Have the Will to Survive?
by Robert Byrnes, The Motley Fool
Daily Finance
December 26, 2013

Sears Holdings has been struggling to survive. With 23 quarters of negative earnings Sears has had to sell valuable assets such as Sears Hometown and Outlet Stores, hold a partial spin-off of Sears Canada, and now Lands' End is scheduled to be spun off. Even more shocking is that Sears is losing ground in its hardline business, which includes Craftsman, Kenmore, and Sears Auto, with approximately $2.4 billion less in sales in the first 3 quarters than during the comparable period in 2012. CEO Eddie Lampert is running out of cards, but I think there is one card that just might bring Sears back to life despite intensifying competition from Amazon.com and Wal-Mart Stores .

A consumer revolution

A revolution occurred throughout the United States right before the turn of the 20th century that changed American consumerism forever, that revolution was the mail-order catalog. Imagine living in a small town in the Midwest where the only store that sold goods was the general store, where prices generally were high and the selection was low.

One day, a catalog arrived that offered almost every good imaginable, truly a 'Book of Wonders', and that book was the Sears catalog. From this catalog you could select any item you wanted, send for it, pay with credit, and the product would arrive in about six weeks with 'Satisfaction Guaranteed'. Amazing, right? Well, compared to today's standards maybe not so much, but back then, Sears opened up the door to mass consumerism.

No. 3 in online retail?

Online retail companies like Amazon are not so different from the Sears Mail Order Catalog; they are truly the modern-day equivalent. A successful online retail company needs superior logistics, warehouse infrastructure across the country, and a means to effectively distribute products to the people.

The two largest online retailers are Amazon and Wal-Mart and both have renowned distribution systems; so does number three, Sears. Yes, I know Sears is not who you were expecting to be the third-largest online retailer in the United States, but the company has claimed this spot and it is fighting to not only stay alive, but undergo a complete revitalization.

Sears: Back to the roots

CEO Eddie Lampert has made a conscious decision to not focus on reinvesting in Sears Department stores like J.C. Penney has done. Instead, he has changed Sears' focus to online retail with the member-centric Shop Your Way program. It is paying off, as 70% of all Sears' sales used Shop Your Way so far this year.

Sears actually has approximately 100 million products available online at a number of websites under the Sears and Kmart banners. In addition, the company offers multiple transaction choices such as same-day shipping or pick up from one of the nearest Sears stores. That's what I call instant gratification. You won't be picking any items up from an Amazon Store anytime soon!

The Shop Your Way initiative has continued to gain traction as members are able to earn points, receive additional benefits, and buy key proprietary brands such as Kenmore, Craftsman, and DieHard. I believe Sears is going to continue to sell assets such as valuable mall-anchor stores and under-performing lines, all while using these sales to continue to grow online and become a marketplace to rival Amazon.

The Will of Fire

Richard Sears left the firm when his board decided to focus on department stores instead of the mail-order catalog. Now, ninety years later Sears is shifting away from department stores and toward the Sears Online Market Place. This firm, who fueled the American consumer revolution, is not ready to simply keel over and die; it is adapting, evolving, and fighting for its rich heritage to survive another generation.

Sears has a lot of work to do, this is undeniable; competition is fierce across the board and it is no longer the ultimate one-stop shop. In spite of this, the company is making smart decisions by spinning off Lands' End and potentially Sears Auto. Praise the company for making the difficult-but-smart choice; invest in Sears' revival, and you may be rewarded.

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The article Does Sears Have the Will to Survive? originally appeared on Fool.com.

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Sears Home Services provider in receivership
By Francine Kopun
Canadian Press
December 17, 2013

Ten months after taking over, the company licensed by Sears to provide home installed products and service is in receivership.

The company operating as Sears Home Services has gone into receivership, leaving 643 people jobless and putting into limbo $3-million in customer deposits for home installed goods and services ranging from carpeting to roofing.

SHS Services Management Inc. has been providing home installed products and services under the Sears Home Services banner since February.

It went into receivership on Friday, citing liabilities of $17-million.

In nine months, SHS lost approximately $14 million and is projected to lose approximately $18.1-million in the year ending Jan. 31, 2014. Payroll to Dec. 13 was met, according to court documents.

About half of the affected employees - 326 – work in Ontario and include sales associates, installation specialists, inspectors, managers and office assistants, among others.

They work in SHS warehouses, Sears warehouses and Sears stores.

Customers who have made deposits with Sears Home Services for home installed products are being asked to call 1-855-376-8474 and leave a message to learn what will become of their money.

Sears Canada spokesman Vince Power said in an email that the company is working with PwC Canada, which is handling the receivership, to ensure that customers are looked after and that all Sears Home Services warranties are honoured.

"Looking after customers is our priority," he added.

In an affidavit filed with the court, Micheal Clements, the remaining director of SHS at the time, said the firm agreed to purchase the home installation business from Sears largely because of the $208 million in annual and likely sales projections initially represented by Sears to SHS.

But the anticipated volume of revenue never approached the amounts represented and by late September SHS was experiencing significant liquidity issues, according to the affidavit by Clements.

It wasn't supposed to turn out this way.

In January, Sears Canada Inc. issued a press release saying it was entering into what it called a strategic alliance with SHS Services Management Inc. to operate the home improvement business.

"Combining Sears brand, reputation and customer service with SHS's expertise, processes and technology is expected to significantly grow the efficiency and viability of the business, while creating an organization that provides Canadians with a trustworthy, reliable and affordable alternative in the home improvements arena," former president and CEO Calvin McDonald said in a release issued at the time.

Sears and Alaris Income Growth Fund are the only two secured creditors.

The remaining 17 pages of unsecured creditors range from individuals to Bell Canada to roofing companies and the City of Ottawa.

Former Sears CEO Mark Cohen, who is now a professor of marketing at Columbia Business School, said that when he left the company in 2004, it was profitable across all divisions, including home services.

"The home services business is a very complicated and challenging business. It prospered at Sears in no small measure because of the leverage from reputation and a large parent company," said Cohen.

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CPS relocation to Sears site puts store's future in doubt
By Becky Schlikerman, Sandra, Guy, and Fran Spielman
Chicago Sun-Times
December 18, 2013

On the heels of closing dozens of schools, Chicago Public Schools is moving its headquarters to smaller offices, in the same building that currently houses Sears' flailing flagship store off State Street, raising questions over its future, the Chicago Sun-Times has learned.

CPS will move next year from 125 S. Clark, where it has been since 1998, to the first three floors at 1 N. Dearborn, CPS officials said.

Sears Holdings declined repeatedly to comment on whether it is moving from 2 N. State -- which is in the same building -- or more broadly, about its future in downtown Chicago.

Spokesman Howard Riefs said in a statement: "The store will continue to serve our members and customers as normal, including throughout the holiday season."

The spokesman would not expand beyond that statement.

Meanwhile, CPS is looking toward the move, which comes on the heels of the district's closing of a record number of schools.

"As everybody knows, the basis for that was underutilization, so we turned that mirror on ourselves and discovered that our headquarters is over 50 percent underutilized," said Tom Tyrrell, CPS' chief operating officer.

The Chicago Board of Education is anticipated to take up the move on Wednesday. Officials say moving will save tens of millions of dollars over time.

CPS officials have been looking at downsizing the central office since spring. The central office staff, which now has about 1,200 people, has shrunk over the years.

Jesse Ruiz, the school board vice president and a lawyer, said there's just too much unnecessary space in the current office building.

"The office I'm assigned at CPS headquarters is larger than my law firm office," he said.

The 19-story building CPS now owns and occupies will go on the market in the coming weeks. Tyrrell declined to say what it might be worth. When CPS bought the building in 1998 from ComEd, it paid $8.3 million, a CPS spokesman said.

CPS plans to be in the new space by November.

Renting the new spot will cost $34.6 million over that period of time, but CPS declined to specify its rent. Staying in the current building would cost $94.9 million over 15 years, he said. Those costs include building operations and maintenance.

"If we're going to be responsible stewards of the public trust, we have to make sure we're making decent business decisions when it comes time to make a business decision," he said. "It's just silly to sit here 15 years and shell out $95 million bucks when you don't have to."

The move means CPS will be "putting $60 million back in classrooms over 15 years," Tyrrell said.

Tyrrell, the retired marine colonel who helped manage the school closings, said the district considered about 140 other buildings to move its headquarters, including 52 empty school buildings. That includes the former Wentworth Elementary School building, 6950 S. Sangamon. The building was emptied when Altgeld Elementary School was closed and Wentworth was moved into its building. CPS determined that to move and stay in that building would cost $79.4 million over 15 years, including the "huge" cost to retrofit the vintage building.

CPS also looked at options for staying in its current building or converting part of the building to condos, but the savings just weren't there, Tyrrell said.

Location also was a consideration. While CPS didn't necessarily need to be headquartered in the Loop, it wanted to be centrally located for those who need to travel to the schools or travel to the CPS central office.

That includes people who attend the monthly CPS board meetings.

The new Board of Education chambers will be able to fit 250 people -- more than twice as many as in the current building, Tyrrell said.

Sears has been at its State Street location since 2001. At the time, it was lured back to a revived State Street after an 18-year absence.

Sears, based in Hoffman Estates, has been cutting costs and inventory and shedding assets -- moves designed to help it return to profitability.

In March 2006, Sears opened an e-commerce development center on the fourth floor of the property at 2 N. State, employing software developers, project managers and technical architects.

Marty Stern, board chairman of the Chicago Loop Alliance, said he's not aware of any imminent plan by Sears to close its State Street store.

But if the store does ultimately close, Stern said it would only be a "temporary hiccup" for State Street that could be easily overcome by retaining ground-floor retail.

Contributing: Brian Slodysko

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Sears Canada's urban retreat signals more shut stores
By Ari Altstedter, Bloomberg News

December 18, 2013

TORONTO -- Soheil Khojasteh walks through the Sears Canada department store in Toronto's Eaton Centre without a second glance at men's shoes on sale for 40 percent off, gold earrings marked down 65 percent and signs declaring "Everything Must Go!"

"I don't shop at Sears for clothes to be honest, I just shop at Scotch & Soda and Club Monaco," the 24-year-old dental student said Monday, referring to the boutique stores at the downtown mall in Canada's biggest city. "I don't think Sears has what I look for in terms of my style."

With urban shoppers like Khojasteh going elsewhere, Sears Canada, the country's largest department store chain, is closing the Eaton Centre store along with four other locations as it shifts focus to middle-class families in smaller rural and suburban markets. The closures may not be the last, Chief Executive Officer Douglas Campbell said.

"There could be other opportunities where there is real estate that is greater than the trading value, it all depends what the offer is on those particular properties," Campbell said in an interview at the Eaton Centre store on Friday. There is "opportunity for more store closures."

Campbell is trying to stop a streak of 20 straight quarters of declining year-over-year revenue by catering to smaller markets where the brand has a larger presence, while squeezing value out of its real estate assets for shareholders, including Sears Holdings and its CEO Edward Lampert.

After making C$400 million ($378 million) on its latest lease sales -- which it used to fund a special C$5 dividend for shareholders -- Sears will have 111 stores across Canada. The company considers 17 of those to be in urban markets and the rest in mid-sized markets, Vincent Power, a spokesman for Sears Canada, said in an email. Sears also has a network of 241 smaller Hometown franchises in rural or small markets.

Lampert has been spinning off and selling assets at Sears Holdings, most recently the profitable Lands' End clothing brand, to fund a turnaround of the parent company. In addition to Sears Holdings' 51 percent stake in Sears Canada, Lampert directly owns 27.6 percent of the Canadian unit, through his own investment and hedge fund ESL Investments, according to data compiled by Bloomberg.

Retailers like Sears have found themselves under pressure in Canada amid an influx of new competition from the U.S., with Target and Wal-Mart expanding into the lower price end of the market and luxury retailers like Nordstrom and Saks Fifth Avenue preparing to enter the luxury segment.

"We are strongest and our heritage is in rural and suburban markets and that is the core and model which we need to grow from," said Campbell, named CEO on Sept. 24 after former CEO Calvin McDonald left to join cosmetics company Sephora, a unit of LVMH Moet Hennessy Louis Vuitton.

Sears Canada is the worst-performing department store stock this month among 15 global peers -- with U.S. parent Sears Holdings second worst -- after dropping 28 percent since paying out the special dividend Dec. 6, according to data compiled by Bloomberg. Even with that drop, the stock is up 33 percent this year, ahead of the 6 percent gain in the Standard & Poor's/TSX Composite Index.

The stock rose 1.3 percent to C$13.38 Monday after Sears Canada announced Dec. 13 that SHS Services Management, which provides home services like roof and window installations under the Sears Homes Services banner, entered receivership and said it would no longer provide Sears with its services. Sears is working with the receiver, PricewaterhouseCoopers on a viable option for the future of the home service business, the company said.

As SHS and Sears were separate entities there will be no impact on any business within Sears Canada, Power said in an email Monday.

"They're going to do what's best for Sears Holdings," said Don Lato, who manages about C$50 million, including shares of Sears Holdings, as president of Padlock Investment Management in Toronto. "He'll sell the leases that he can for the most profit and if there's something left as an ongoing entity -- and there may not be, it may be the value is truly in the leases -- you may see potentially a wind up of Sears two or three years from now."

For Campbell, the focus is on containing costs and serving middle-class families. Sears's business has shrunk in recent years but its costs haven't declined at the same pace, Campbell said. The key to stabilizing the business now is bringing costs in line with revenue, he said.

"We have to get the operating costs right for our business," he said. "We used to be a C$6 billion business, now we're closer to a C$4 billion business and those adjustments haven't been made in our costs."

As an example, he points to the almost 800 job cuts in November in the company's auto service business.

As for the C$315 million Sears will receive after selling its interest in eight Quebec properties, Campbell said he will determine how to use the money when the deal closes, though the stores there would stay open.

Sears Canada's third quarter revenue declined 6.4 percent from a year earlier to C$982.3 million and the net loss rose to 48 cents per share from 22 cents a year earlier due in part to restructuring costs, according to a statement from the company. Sales in stores open at least a year increased 1.2 percent, the first quarterly same store sales increase since 2008, according to the statement.

"Usually a company will take its proceeds when they're trying to reinvent themselves, and use that in the process of reinventing themselves," said Alex Arifuzzaman, a partner of Interstratics Consultants, a Toronto-based retail consulting firm. "In this case from what I'm seeing they're giving it back to the shareholders, which is more of a liquidation process. It's a slow motion liquidation."

Christine Hong, a 26-year-old student, was also making a beeline through Sears on Monday, clutching a Zara bag, on her way to other stops at the Eaton Centre. Along with Inditex's Zara she also frequents Ralph Lauren's Club Monaco outlet and Urban Outfitters stores, but not Sears.

When asked what she hopes will take Sears' place when it closes, Hong answers immediately. "Nordstrom."

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Easy Money Delays Retailing Shakeout
By Vipal Monga
Dow Jones Newswire
December 16, 2013

Investors are eagerly lending to risky retail borrowers like RadioShack, Sears Holdings and J.C. Penney, buying the chains time to try to turn around their businesses but delaying the overbuilt industry's day of reckoning.

Struggling retailers may have never had it so good. Too good, some would argue.

Investors, desperate for higher returns, are eagerly lending to risky borrowers like RadioShack Corp., Sears Holdings Corp. and J.C. Penney Co., buying the chains time to try to turn around their businesses in the face of weak sales and fierce competition.

But what’s encouraging for those companies is a problem for their retailing competitors that also cater to the nation’s financially stretched middle class.

A building boom in the years before the credit crisis has left the U.S. with a surplus of stores. While chains like Gap Inc. are closing locations and scaling back others, some analysts think it will take a few bankruptcies and liquidations to bring the market back into balance.

RadioShack, Sears and J.C. Penney all say their liquidity is adequate, and their ability to continue as going concerns hasn’t been cast into doubt. But easy credit is delaying the industry’s day of reckoning, putting pressure on middle-market chains that already are grappling with slow sales growth and consumers who can be won over only with deep discounts.

"What you’ve got here is a market that still has more players than are necessary," said Antony Karabus, CEO of Hilco Retail Consulting. "They’ve bought themselves time, but they’re still all eating from the same pie."

It’s telling that the more-prominent retailers to have raised so-called rescue financing recently are ones that cater to middle-class shoppers. While discount retailers such as Dollar General Corp. and luxury-oriented chains such as Neiman Marcus Group Inc. are gaining market share, Wal-Mart Stores Inc., J.C. Penney, and Sears have been losing ground.

The math is simple, but the financial trade-offs can be difficult. The median household income in the U.S. fell 8.3% between 2007 and 2012, according to the Census Bureau. To make ends meet, more middle-class Americans are bargain- hunting for essentials in the aisles of Dollar General, instead of shopping for flat-screen TVs at Sears.

The market share of Sears, which also owns Kmart, has shrunk to 2% this year from 2.9% in 2005. Downstream, Dollar General’s share has almost doubled to 1.1% over the same period, according to research firm Euromonitor International.

Meanwhile, incomes grew by 31.4% for the top 1% of Americans from 2009 to 2012, according to a recent study by the University of California at Berkeley. That helps explain why luxury retailer Nordstrom Inc. has increased its market share to 0.7% from 0.5% in 2005.

"The middle-tier types of firms are suffering," said Jack Kleinhenz, chief economist for the National Retail Federation. "There is a lot of competition in retail, and they have very thin margins. There’s going to be a sorting among retailers."

Yet Sears Chief Executive Edward Lampert has been able to raise money for the store chain even as its sales and profits shrink. In October, Sears secured a $1 billion loan to repay money it had borrowed under another asset-backed credit line, despite reporting just 41 days earlier that it had a loss of $194 million and a revenue decline of 6.3% in its fiscal second quarter. The loan will mature in 2018, two years after the credit line, giving Sears more time to restructure by taking steps like spinning off its Lands’ End apparel business.

Retailers can borrow money by pledging collateral such as inventories and buildings. The loans can be expensive, however, and that puts pressure on businesses by increasing their interest burdens.

Last week, RadioShack signed a $835 million financing deal. The arrangement included a revolving credit line and a $50 million loan from General Electric Co.’s GE Capital unit, as well as another $250 million loan from Salus Capital Partners LLC.

The deal, which replaces a smaller financing package, will give RadioShack an extra $200 million, but its annual interest payments will jump about $9 million to just over $60 million, according to a person close to the company.

The money won’t just help fund the chain’s turnaround plan; it also sends an important signal to vendors that RadioShack is still viable, said one person involved in the financing. "It’s important to show liquidity to landlords and to get products at reasonable rates," the person said.

Access to funding has kept default rates low across the corporate landscape. The U.S. default rate for junk-rated borrowers--such as RadioShack, Sears and J.C. Penney--was just 2.5% in October, down from 3.6% a year earlier, according to Moody’s Investors Service.

J.C. Penney has been working to right itself after a disastrous year under former Apple Inc. executive Ron Johnson, who oversaw a $1 billion loss and 25% sales decline during his first full year as the retailer’s chief executive. In April Penney replaced Mr. Johnson with CEO Myron "Mike" Ullman, who moved quickly to borrow $1.75 billion and raise another $785 million in a stock sale in late September.

The boost in liquidity has allowedPenney to offset higher surcharges imposed by some suppliers and buy time for Mr. Ullman’s turnaround plan.

Penney declined to comment, but its efforts appear to be bearing some fruit. For November the retailer reported that sales at stores open for at least a year rose 10% from November 2012, the second month in a row that sales have improved.

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Penney Pinches Sears's Sales
By Justin Lahart
Wall Street Journal
December 13, 2013

Retail-Sales Numbers Show Department Stores Continue to Struggle, but J.C. Penney Is Finally Finding a Way to Tread Water

If J.C. Penney manages to turn itself around, investors may have one man: Sears Holdings chief Eddie Lampert.

The good news, such as it is, from Penney lately is that it has finally stanched the declines that have plagued it. The company last week estimated same-store sales rose 10% in November from a year ago, setting it up for its first quarter of same-store sales growth in more than two years.

But it isn't yet clear how many of the customers lost during Apple executive Ron Johnson's failed makeover the company will regain. And the existential problem that paved the way for Mr. Johnson's reign remains: Penney belongs to a retailing category--department stores--in steady decline, losing share to general merchandisers such as Wal-Mart Stores and Target.

Thursday's November retail-sales report from the Commerce Department showed department-store sales now account for just 6.1% of retail sales away from gasoline stations, car dealers and building-materials stores. That compares with 15.6% some 20 years earlier.

Penney chief Myron Ullman has taken steps to boost sales, such as bringing back in-house brands and reinstating coupons. The company has also heavily marked down upscale inventory acquired for Mr. Johnson's plan to clear it out quickly and make its mix of goods more in line with what its customers want.

To the extent many of the customers Penney lost may have been opting for Sears, getting them back may not be as hard as it might otherwise have been. Indeed, a bright spot for Sears recently had been apparel sales--a sign it had been taking share from Penney. But when it reported results last month, apparel sales at its domestic Sears stores fell.

Penney may not mind a smaller pie if it gets a bigger slice.

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Retailers Turn Store Clerks Into Web Shippers
By Laura Stevens
Wall Street Journal
December 10, 2013

ATLANTA -- Cameron Holloway, a sales associate at Sears in the Cumberland Mall here, is hard at work helping a customer--a virtual shopper 300 miles away in Semmes, Ala.

The Sears website just sent a message to Mr. Holloway's iPhone telling him the customer wants a $145 18-inch Craftsman chain saw, so he retrieves one from the store floor, labels it and loads it onto a pallet next to cameras, tools and other holiday gifts.

At 5 p.m. a United Parcel Service Inc. truck will arrive to ship it west, and Mr. Holloway will have successfully kept Sears from losing another holiday shopper to Amazon.com, Inc.

"If you want to go head-to-head with Amazon, you go out and build a bunch of distribution centers," said Jeff Starecheski, vice president of logistic services with Sears Holding Corp., referring to the dramatic steps some competitors consider to stave off the e-commerce rival. But Sears and its sister retail chain Kmart blanket the country with about 2,000 stores. "We're already close to the customers," he says. Sears just needed a delivery.

The success of the holiday shopping season--the difference between winners and losers--usually hinges on factors like the economy, fashion, color, price, or a blockbuster new items like tablet computers or videogame consoles. Increasingly, though, another factor is coming into play: Shipping. Package delivery is becoming a competitive weapon in the holiday retail season.

Retailers ranging from Macy's Inc.to Wal-Mart Stores Inc. embraced shipping to compete against Amazon. They are shuttling merchandise on demand from store to store, warehouse to store, store to customer--often both quickly and free. Entering the fray over shipping is viewed as a necessity when online sales are growing at nearly four times the rate of overall retail sales and where people who shop online, on average, plan to spend 20% more than people who shop only in physical stores, according to research firm eMarketer. About a third of all retailers already use brick-and-mortar stores as fulfillment centers for online orders; another 26% plan to do this soon.

UPS and FedEx Corp., which were critical to helping launch the e-commerce boom, are now eager to help traditional retailers deal with it. They have engineered new strategies for jockeying inventory across the country to avoid overstocks and markdowns and to keep customers from defecting to Amazon, a big problem last year. The strategy is also important this holiday season as clothing retailers are threatened with heavy inventories.

UPS says it is working with about 40 retailers on implementing these strategies--about double the number a year ago. FedEx said these partnerships helped boost revenue in its ground delivery business 11% in its fiscal first quarter. Both forecast record holiday-season deliveries: UPS with 34 million packages on Dec. 16 and FedEx with 22 million packages on Cyber Monday.

In the case of Sears, UPS provided software that shows shipment statuses of all orders across the entire system. It also sends tracking numbers.

When a customer in Brooklyn ordered a girl's size-7 pink-and-purple coat--which was out of stock up north--software searched Sears's inventory and directed the order to Atlanta.

"If a consumer comes to your website and the product's not available, you typically lose the sale," said Alan Gershenhorn, chief sales, marketing and strategy officer at UPS. These methods allow retailers to "pull and display the inventory from both your brick-and-mortar stores and your online inventory, so you're going to run into that problem less and less."

Shipping does matter to retailers' bottom lines. Half of online shoppers would consider purchasing from a new online retailer if it offered the lowest-cost or free shipping, and customers often abandon sites without free shipping, according to Forrester Research Inc.

Sears piloted its ship-from-store program in early 2012, before rolling it out to 27 Kmart and Sears stores that August. UPS helped the retailer determine which locations should be shipping centers to cover 80% of all customers by next-day ground.

At peak season in December, dedicated in-store staff will have the capacity across the 27-store network to fill 20,000 orders a day, with the ability to fill 30% more order.

Online sales account for less than 2% of Sears' $40 billion in annual revenue, according to analyst estimates and company filings. Analysts say the real problem for Sears is its stores, many of which are run down and dilapidated after the chain spent about half of what competitors J.C. Penney Co. and Macy's invested in store upkeep. Sears lost $534 million in the quarter that ended Nov. 2, compared with a loss of $498 million a year earlier. Revenue declined 7% to $8.3 billion.

Sears declined to comment on online sales. The company has invested hundreds of millions of dollars in improving stores and technology, a spokesman said.

Saks Inc. employed FedEx when it decided to fill online orders from its 43 stores a year ago. FedEx is now joining with Saks on an experiment in same-day delivery in Florida. Over the past year, orders processed in store have jumped to 15%, from about 8%.

"We've always had FedEx software in our shipping departments, but we've worked together collaboratively on how to handle peak workloads," including adding pickup times, said Ed Stagman, Saks' senior vice president of store operations.

Some logistics experts doubt the ship-from-store strategy is feasible long term because inventory is often scanned incorrectly by cashiers, meaning it is too difficult to know what's actually available in specific stores.

Even retailers say shipping is an added expense that must make economic sense.

"It's all a balancing act," said Jim Sluzewski, senior vice president with Macy's, which now has 500 stores shipping with UPS after starting in 2011. This requires being strategic to "turn inventory faster--and do it while maintaining margins."

If retailers don't get it right, they take a big risk: 89% of customers say they are likely to choose other retailers in the future if an item is delivered late, according to a survey commissioned by consultant Capgemini Group.

Back at the Sears in Atlanta, UPS driver Paul Godfrey backs his truck into the loading dock and picks up three pallets of packages, including the chain saw and coat. He drives them to a nearby logistics center, which sorts a quarter of approximately 200,000 packages processed daily by UPS in Atlanta.

Workers unload the chain saw, sending it through a maze of conveyor belts before adding it onto the next truck heading to Alabama.

--Suzanne Kapner contributed to this article.

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Eddie Lampert vulnerable on dual fronts after Lands' End spinoff
Crain's Chicago Business
December 9, 2013

(Bloomberg) -- Even after spinning off Lands' End, Sears Holdings Corp.'s Eddie Lampert remains vulnerable on dual fronts: a struggling retail business in need of a new strategy and a hedge fund whose investors have begun pulling their money.

The Lands' End spinoff, announced Dec. 6, gives Sears investors a piece of a profitable clothing brand no longer hindered by an association with the loss-making Sears. Yet the move may not raise capital that Lampert, the company's largest shareholder, can plow into the business, which is burning cash amid dwindling traffic to rundown stores.

Separately, Lampert issued Sears stock last week to investors redeeming shares in his hedge fund, ESL Partners LP. The moves reduced his stake in the department-store chain to 48 percent from 55 percent. Additional redemptions by ESL Partners holders could reduce his Sears stake further, loosening his grip on a company he's controlled for nine years. "His investors are running out of patience," said Erik Gordon, a professor at the University of Michigan's Ross School of Business in Ann Arbor. "He's running out of time to keep pulling rabbits out of the hat. He's going to have to start producing sales in the stores."

Sears declined to make Lampert available for comment.

A mercurial and remote leader who has presided over a revolving cast of executives, Lampert has confounded retail analysts by introducing and abandoning one strategy after another. His latest idea is to turn Sears into a membership chain centered around its rewards-card program. How this is supposed to return Sears to growth remains unclear.

DIVIDING COMPANY

Adding to his challenges, Lampert has pitted executives against one another by dividing the company into separate operating units, according to dozens of former executives.

The shares fell 1.1 percent to $47.54 at 9:41 a.m. in New York. They had gained 16 percent through Dec. 6, compared with a 41 percent gain for the 31-member Standard & Poor's 500 Retailing Index.

Sears Holdings, which includes the Kmart chain, has posted six years of declining revenue in large part because Lampert has underinvested in the stores. In 2012, the company spent about $1.51 a square foot on its Sears stores and $1.04 on its Kmart stores, compared with $5.56 at Home Depot Inc., and $6.25 at Macy's Inc., according to Matt McGinley, a managing director at International Strategy & Investment Group in New York.

There is less and less money to update them -- even if Lampert were inclined to. Sears's operations have consumed cash for six of the past seven quarters. The retailer said last month that it had $607 million in cash as of Nov. 2 and that it expects to generate $2 billion of liquidity in the current fiscal year, up from an earlier forecast of $500 million.

SEARS TRANSFORMATION

"It's not fair to say we haven't invested in the future and transformation of the company," Howard Riefs, a Sears spokesman said in an e-mail. "Store investment may be necessary but it's not sufficient in helping to transform a traditional retailer to a retailer that's more competitive."

Sears is shifting into a business that serves customers "in the manner most convenient for them: whether in store, in home or through digital devices," he said.

To shore up the balance sheet, Lampert has been selling off assets. Last year, he split off Sears's smaller-format Hometown and Outlet stores to raise about $446.5 million. He also spun off a portion of Sears's stake in Sears Canada as well as an investment in the Orchard Supply hardware stores.

Selling Lands' End may not have been an option for Lampert because he wouldn't get anywhere near the $1.9 billion Sears paid for the brand in 2002, according to Paul Swinand, an analyst at Morningstar Inc. in Chicago. Lands' End would probably fetch no more than $1 billion, he said.

SPINOFF PAYOUT

The retailer still could structure the spinoff to include a payout to the parent company or to investors, said Mary Ross Gilbert, an analyst at Imperial Capital LLC in Los Angeles. Sears could issue $100 million to $300 million in debt to fund such a payout, she said.

"While this is favorable to the shareholders, it's detrimental to creditors," Gilbert said. "As they sell off or spin off these profitable businesses, these cash-generating businesses, you're left with higher losses at Sears."

Next on the block: the retailer's automotive unit, a chain of more than 700 service centers offering repairs and routine maintenance such as oil changes. Estimates of how much the business is worth range from $600 million to $1 billion. However, because there are no competitors with national scale, finding a strategic buyer may be difficult, McGinley said.

RAISING CASH

Lampert has been raising cash by selling stores and leases, too. He sold 11 locations to General Growth Properties Inc. for about $270 million in cash proceeds last year. In October, the company said Sears Canada is selling five store leases to Cadillac Fairview Corp. for C$400 million ($376 million). Sears said it is continuing to evaluate its U.S. stores, including leased locations that are set to expire.

Vadim Perelman, whose Baker Street Capital Management is Sears's ninth-biggest shareholder, remains bullish on Lampert's vision and in September issued a report called "The Case for Sears Holdings," which argued that the company's real estate is worth more than $7 billion.

"We think the business will look quite different in three to five years," Perelman said in an interview. "We think they're working pretty hard to figure out a way to become profitable, or less unprofitable."

While Lampert said last week he's still focused on creating long-term value at Sears, he has lost the faith of a group of clients that invested about $3.4 billion in his main fund, ESL Partners, as early as 2007, when the stock was trading at much higher prices.

LAMPERT REDEMPTIONS

All of the investors were required to commit their money for at least five years, Lampert's standard lockup period, a person familiar with the situation said last week. By the beginning of this year, ESL had received notice from these investors that they wanted to redeem all of their money, the person said. ESL had the right to meet the redemptions over a one-year period rather than pay out at once.

Lampert's firm began returning the money last year and continued to do so this year, using both cash and securities such as stock in AutoNation Inc., AutoZone Inc., and Sears, according to the person, who requested anonymity because the information is confidential. In June, ESL Partners reported in a regulatory filing that it distributed $393 million of AutoNation shares to clients who had elected to redeem all or a portion of their investment in the fund.

FIVE-YEAR LOCKUP

Still, even if other Lampert investors have lost confidence in Sears, they may not flee the fund because they are bound by the five-year lockup. Besides, Lampert's U.S.-traded stock holdings, which include shares in AutoZone, AutoNation and Gap Inc., have gained 25 percent this year.

"A lot of things are coming together at once," McGinley said. "His fund is highly concentrated in Sears. As the CEO of the company, I'm sure his primary focus is on making sure that this thing is a viable concern so that his limited partners in his position don't get wiped out."

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Is Lampert's vast empire starting to crack?
By Kim Peterson
CBS Money Watch
December 9, 2013

Eddie Lampert isn't exactly the toast of Wall Street anymore.

Investors are starting to lose faith in the chief executive of Sears (SHLD) and prominent hedge fund manager. They're fleeing his fund in droves, and as a result he's lost his majority stake in the struggling retailer.

For a while, Lampert was one of the best in the business. His fund, ESL Investments, boasted annualized returns of more than 20 percent for 20 years, The Wall Street Journal reports. But then the recession hit, and the fund suffered a 33 percent loss in 2008, rebounded with gains of 55 percent and 16 percent in 2009 and 2010, and sagged back to a 12 percent loss in 2011. Although such volatile returns have been common on Wall Street in an economic recovery characterized by fits and spurts, those losses were enough to make some of Lampert's investors want to bail.

Now, a group of clients that came over through Goldman Sachs (GS) have asked Lampert to return the roughly $3.5 million they invested with him in 2007, The Journal reports.

But instead of giving those investors cash back, Lampert is paying them partly with Sears stock. He's returned some 7.4 million shares to them, in fact. As a result, ESL now only owns 48.4 percent of Sears' shares, down from 55 percent from as early as October, Bloomberg reports.

So were investors happy to get paid in Sears stock? The answer can be seen in the company's plummeting share price last week. The stock started a week ago in the $64 range -- the day before Lampert disclosed the fund redemptions -- and closed Friday at $48. And lurking behind that 25 percent drop is a harsh reality: Many of the investors who get paid in Sears shares will turn around and sell.

And why shouldn't they? Sears is set to mark three straight years of losses. The retail environment is "a vicious minefield," TheStreet's Jim Cramer wrote last week. "I don't know anyone who has been able to navigate it. Perhaps the best thing to do is to just stay away from the darned thing until we get some clarity."

And that's exactly what many investors will do with Sears, leaving Lampert on the outs. To be sure, he still has some $2.5 billion in outside investor money left to play with, and his legendary investing prowess may help him work wonders with that money in a booming market.

But for now, Lampert's empire looks like it's just starting to crack. November sales at stores open for longer than a year appear to be down by a percentage in the mid-to-high single digits, an analyst at Cleveland Research told Bloomberg, while Sears continues to lose market share in the important home-appliance market.

Can Lampert turn things around? Nothing spooks investors like a mass exit, and it will take an extraordinary amount of work on his part to calm the waters.

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Analysts: Lands' End has potential as separate company
By Ameet Sachdev
Chicago Tribune
December 8, 2013

The combination of Sears and Lands' End wasn't quite a fashion nightmare but it isn't a good fit either.

That's more apparent now as Sears Holdings Corp. disclosed plans Friday to separate Lands' End into its own publicly traded company, a little more than a decade after it acquired the preppy apparel retailer to spice up its clothing lines.

For the first time since the 2002 acquisition, the public got a look at Lands' End financial performance, and the picture is not as pretty as one of the retailer's catalogs.

The company reported $49.8 million in profit on $1.58 billion in revenue in its last fiscal year, down from $134.9 million in profit on $1.65 billion in sales in 2008. In particular, Lands' End departments within Sears stores are unprofitable. Mary Ross Gilbert, a financial analyst who follows Sears, said the results were weaker than she expected.

"This was supposed to be one of the jewels of Sears' portfolio," said Gilbert, managing director of Imperial Capital, an investment bank in Los Angeles. "I would say it's not that shiny of a jewel."

While Lands' End suffered under Sears Holdings' ownership, stock analysts said the company has potential as an independent company. Sears stockholders who will receive shares in Lands' End should take comfort that the retailer known for classically styled clothing still has a lot of loyal customers and a nationally known brand associated with high quality and good customer service.

"I don't think it's perfect, but it's not beat up," said Paul Swinand, an analyst at Morningstar in Chicago. "It should have improved prospects on it own."

But Sears Holdings will still loom large over Lands' End's operations after the planned spinoff. Edward Lampert, Sears Holdings' chairman and chief executive officer, is expected to own nearly 50 percent of Lands' End's stock following the separation. He owns a similar stake in Hoffman Estates-based Sears Holdings.

Lampert created his retailing empire by merging Kmart with Sears, Roebuck and Co. in 2005. But the combination has not worked, as Sears and Kmart have each lost customers because of outdated stores and intense competition. Sears Holdings lost $3.1 billion in 2011, $930 million in fiscal 2012 and $1 billion in the first nine months of fiscal 2013, which ends in January.

Lampert has been selling stores and spinning off assets, such as Orchard Supply hardware stores and Sears Hometown and Outlets stores. In October, Sears Holdings said it was considering separating its auto center unit and Lands' End.

Sears Holdings took the first steps to spin off Lands' End to shareholders by filing a registration statement Friday with the Securities and Exchange Commission.

In the filing, Lands' End said Lampert and his hedge fund, ESL Investments, "are expected to exert substantial influence" over the company, and their interests may "diverge" from the interests of other stockholders.

Lands' End also pointed out that a portion of its sales are tied to the success of Sears stores, a significant risk considering Sears' deteriorating performance.

In paying $1.9 billion for Lands' End, Sears hoped to become the preferred shopping destination for suburban moms. The average annual household income of Lands' End customers was $104,000, and nearly half of its customers were between 36 and 55 years old.

Sears' strategy was to create a "store within a store" business model. In 2005, it opened its first "Lands' End Shop" at Sears. As of August, there were 275 Lands' End Shops. These "shops" accounted for 16 percent of Lands' End revenue in 2012, or $253.7 million.

Sears has about 800 stores in the United States.

But the retail partnership with Sears is losing money. Lands' End said the bricks-and-mortar business, which includes a handful of outlet stores, had an operating loss of $10.2 million in 2012.

The poor performance continued in the first half of 2013. Revenue at Lands' End bricks-and-mortar business fell 12 percent.

What's more disappointing to analysts is that Lands' End online and catalog sales also are declining. In the first half of this year, direct sales fell 1 percent from the same period a year ago. In 2012, direct sales fell 9 percent.

"This is not a growth situation," Gilbert said.

However, Lands' End is one of Sears Holdings' best-performing assets, according to analysts. Without Lands' End going forward, Sears Holdings' prospects look even bleaker.

Before the spinoff, Swinand had estimated Sears Holdings' 2014 earnings before interest, taxes, depreciation and amortization at less than $100 million. Exclude Lands' End -- which generated about $100 million in EBITDA last year -- and Sears Holdings will have to continue to sell assets and shrink working capital, he said.

Sears Holdings stock price fell $1.89, or 3.8 percent, to close Friday at $48.09.

Sears Holdings said it expects the Lands' End spinoff to be a tax-free distribution to shareholders. The securities filing did not mention how much debt an independent Lands' End will carry and whether it will pay a dividend to Sears Holdings.

Lands' End's headquarters will be in Dodgeville, Wis., where it maintains administrative offices and a large distribution center. Chief Executive Edgar Huber is expected to remain in charge after the spinoff.

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Investors, Dismayed by Losses at Sears, Pull Money From Hedge Fund
By Randall Smith
New York Times
December 6, 2013

The storied investing empire of Edward S. Lampert is shrinking.

David Geffen, the entertainment mogul, got out in 2007. Members of the Ziff family cashed out more recently, between 2011 and earlier this year. And more investors are heading for the exits, discouraged by the declining fortunes of Mr. Lampert's signature stake in Sears Holdings.

Near its peak in 2006, Mr. Lampert's hedge fund, ESL Investments, managed more than $15 billion. As recently as the end of 2011, it still managed more than $10 billion. But the disclosed total last year was less than $6 billion.

On Tuesday, ESL Investments announced that for the second consecutive year, it had reduced the size of its stake in Sears Holdings to meet investor redemptions, dropping below 50 percent for the first time since 2008.

While Mr. Lampert is not selling any of his personal stake in the company, which he created by combining Kmart with Sears, Roebuck & Company, his firm said that it had distributed 7.4 million shares, then worth $411 million, to investors who exited in 2013. The distribution cut his fund's stake to 48 percent from 55 percent. The remaining Sears stake of 51.6 million shares, worth $2.6 billion, remains ESL's largest holding.

The move is the latest sign of investor disenchantment with Mr. Lampert, who was once hailed as a canny value investor in the same league as Warren E. Buffett. His partnership has included big-name investors like Mr. Geffen, the Ziffs and members of the Tisch family, which owns 21 percent of the Loews Corporation. Thomas J. Tisch, who manages certain Tisch family assets, is a Sears director.

A spokesman for Mr. Lampert declined to comment on the investor exits.

Mr. Lampert, 51, is a onetime protégé of financial luminaries like Robert E. Rubin, who once led a takeover stock trading desk at Goldman Sachs, where Mr. Lampert briefly worked, and the Texas investor Richard Rainwater, who helped Mr. Lampert start his own fund in 1988, the year he turned 26.

He gained majority control of Kmart as it emerged from bankruptcy in 2003 after investing in its debt at distress prices. With that and a minority stake in Sears, he merged the two companies in 2005. At the peak in 2007, Mr. Lampert has said, his original investment in Sears had increased 20-fold. But the price fell about 75 percent in the marketwide downturn of 2008, and after a strong two-year rebound, it has fallen back over the last three years amid heavy losses. Sears lost $3.1 billion in 2011, $930 million in 2012 and $1 billion in the first nine months of this year.

The news of the ESL redemptions hit Sears stock hard on Wednesday, when it fell $4.63, or 8.3 percent, to $50.92. It fell even further on Thursday, to $49.98, down 1.9 percent. The shares have fallen 21 percent this week.

Both Sears and Kmart "have been deteriorating for years," said Mary Ross Gilbert, a securities analyst at Imperial Capital in Los Angeles. In a report this year, she said the retail operations had underperformed because of "the lack of a cohesive strategy, management talent and capital support." After a succession of four other chief executives under his control, Mr. Lampert took the job himself in February.

Mr. Lampert said he remained intent on transforming Sears "into a membership-focused company and on creating long-term value for shareholders. My significant personal ownership in the company is a sign of my confidence and alignment with all shareholders."

In recent years he has moved to break Sears into pieces, selling stores and spinning off parts of its smaller Sears Hometown and Outlet Stores as well as Sears Canada; he is also considering separating its Lands' End catalog clothing unit and auto service centers.

Although he has traded in and out of a few dozen stocks since 2007, Mr. Lampert has held onto a handful of core holdings like Sears and the car retailer AutoNation, according to a tally by Dealogic. He sold most of what had been a 41 percent stake in AutoZone, worth $3.2 billion from 2009 to 2012, as the stock price doubled. But he has held on to a 41 percent stake in AutoNation, worth $2.5 billion.

Some investors say Mr. Lampert has failed to deliver with Sears.

Margaret Black-Scott, president of Beverly Hills Wealth Management, which manages $500 million, said that ESL's stake in the "big old names" of Kmart and Sears had "run up on anticipation" that Mr. Lampert's "buy-and-hold approach would build value," similar to that created by Mr. Buffett.

Instead, she said, "you have not seen the fulfillment of what people expected. You've not seen the value built from their skeletons. They expected this new humongous company to be built out of what I would call yesterday's stores. So now it's sort of, ‘You know what? I'm out of here.'"

But some Sears investors still have faith. Bruce Berkowitz of Fairholme Capital Management, which owned 20 percent of Sears in September, said the spinoffs had helped deliver about $10 a share in assets to Sears holders, and the chain's loyalty program, Shop Your Way, "now has over one-quarter of all Americans as reward members."

Some of the recent investor withdrawals may have also been influenced by the stringent lockup terms imposed by Mr. Lampert. When ESL raises funds from outside investors, it typically requires them to keep their money with ESL for five years.

In 2007, Goldman Sachs led a $3.5 billion investment in ESL by wealthy individuals and institutions, which included a lockup that expired at the end of 2012. Investors who wanted to keep their money in at that point had to agree to another five-year lockup.

The marquee investors who have withdrawn were reluctant to discuss their rationale.

Ziff Brothers Investments, a family office of three sons of the publishing billionaire William Ziff Jr., began winding down its ESL investment in late 2011 and finished this year, according to a person briefed on the move. A spokesman for Ziff declined to comment.

Mr. Geffen, who founded three record companies and helped found the film studio DreamWorks SKG and is now retired, told Fortune magazine in 2006 that he had made more money from a $200 million investment with Mr. Lampert in 1992 than he had "from all the businesses I've created and sold."

But in an email last month, he said, "I have not been an investor with ESL since 2007." He added, "During the many years I was with Eddie he was very successful and his returns were extraordinary." He declined to discuss why he exited, explaining that Mr. Lampert "is a friend of mine."

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Weakened Lands' End Won't Be Freed by Sears Spinoff
By Suzanne Kapner
Dow Jones Newswire
December 6, 2013

Apparel Maker Reveals Surprisingly Poor Financials as It Announces Plans for Spinoff

Lands' End has suffered under Sears, and the planned spinoff won't exactly set it free.

The companies originally Lheralded the merger as a strategic fit that would help the mail-order retailer grow faster and drive traffic to the venerable department store. But the ambitious goals bogged down in Sears's deteriorating stores. After a string of record profits that ended in 2008, Lands' End's results have deteriorated.

The 50-year-old maker of preppy chinos and fleece jackets brought in $50 million in profit on $1.6 billion in revenue in the company's last fiscal year, down from $135 million in profit on $1.7 billion in revenue in 2008.

Gary Balter, an analyst with Credit Suisse, on Friday called Lands' End's numbers "surprisingly weak." Sears Holdings Corp SHLD in Your Value Your Change Short position shares fell 3.8% Friday to $48.10, even as the broader market rallied.

Sears took steps Friday to separate its Lands' End unit by filing a registration statement with the Securitie.s and Exchange Commission. The move will end a rocky marriage between the two companies that began when Sears bought Lands' End for $1.86 billion. Lands' End gets 18% of its total revenue from retail stores, which are mostly shops inside Sears locations. Clayton Hauck for The Wall Street Journal

Yet even after the spinoff, the chains will remain linked. Lands' End drew 18% of its revenue from its brick-and-mortar retail business, and that depends on its ability to operate shops within Sears's stores. If Sears "sells or disposes of its retail stores or if its retail business does not attract customers," this could hurt Lands' End's business, the filing warned.

Lands' End will initially depend on Sears for a host of logistical and operational services, according to the filing. Nearly half its shares will be controlled by billionaire hedge fund manager Edward Lampert, who controls a similar stake in Sears and serves as its chairman and chief executive. According to the filing, Mr. Lampert will be able to exert "substantial influence" over Lands' End after the spinoff, and his hedge fund's interests "may from time to time diverge from the interests of our other stockholders."

The eventual spinoff of one of Sears's best-performing assets underscores the challenges facing the larger company, which was created after Mr. Lampert bought Kmart out of bankruptcy in 2003 and two years later combined it with Sears, Roebuck & Co. Mr. Lampert has pushed the company to become more technologically savvy, but underinvestment in its stores has hurt traffic and led to a steady decline in sales.

Sears's losses ballooned to $1 billion for the nine months ended Nov. 2 from $441 million a year earlier, as revenue fell 7% to $25.6 billion. The company has closed more than 300 stores since 2010 and has been selling or spinning off assets. The company disclosed in October that it was considering strategic alternatives for its line of auto centers.

Sears also said at the time that it might spin off Lands' End. The company had shopped Lands' End to private-equity firms as recently as last year, but no deal was reached, according to people familiar with the situation.

The 2002 acquisition that brought the companies together surprised the retail industry and didn't resonate with consumers. Lands' End's customers tended to be wealthier than Sears shoppers but had plainer tastes. Sears shoppers didn't warm to the brand's offerings, and Lands' End's reputation for quality and customer service suffered under its new owners, former executives said.

Still, the unit was a big contributor to Sears's results. Mr. Balter, the Credit Suisse analyst, said he expected Sears's operational performance to deteriorate further without Lands' End, which he said was likely the most profitable piece of the company.

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Struggling Sears to spin off Lands' End clothing business
By Maria Ajit Thomas and Aditi Shrivastava
Reuters
December 6, 2013

(Reuters) - Eddie Lampert-controlled Sears Holdings Corp said it would spin off its Lands' End clothing business, adding to the assets the company is shedding as it struggles with mounting operating losses and declining sales.

The company, operator of Sears department stores and the Kmart discount chain, has been selling or spinning off assets and closing stores for the past few years to try to turn around its business. Sales have been dropping since Lampert combined Sears and Kmart in an $11 billion deal in 2005.

The billionaire hedge fund manager, who took over as chief executive in February, has been criticized for not investing enough in the business, which has earned a reputation for dowdy merchandise and poor service compared to Wal-Mart Stores Inc and Target Corp .

Sears shares were slightly down on Friday afternoon after rising as much as 4 percent in early trading.

"... The spinoff announcement essentially points to a number of negatives, including an inability to find a buyer, as previously Lands' End was listed as an asset that the company would monetize," Credit Suisse analyst Gary Balter wrote in a note to clients.

The New York Post reported in March 2012 that Lampert was exploring a sale of Lands' End. Lampert later told investors that while he was not actively looking for a buyer, there was always a possibility the business could be "separated."

When asked if the spinoff pointed to its inability to find a buyer for the business, a Sears spokesman referred to a company statement in late October.

The company said then that any separation, if pursued, would not be structured as a sale but rather through a transaction that would allow shareholders to benefit from the significant potential for value creation.

The spinoff will not raise cash for Sears but will allow Lampert to more efficiently chart a course for the two businesses, which compete for management time and capital within the Sears group.

"Sears is in a steady state of decline," said Brian Sozzi, chief executive of Belus Capital Advisors. "They're essentially selling their body parts so they stay alive today."

Apart from losing market share to Wal-Mart and Target, Sears is facing increased competition from online retailers.

Sears spun off its Orchard Supply Hardware Stores unit in 2011 and its Sears Hometown and Outlet business last year.

In October, the company sold some Canadian real estate assets for $383 million and said it was considering separating Lands' End and its auto center business.

Sears had cash and cash equivalents of $599 million as of November 2, down from $671 million on August 3.

"... This spinoff is another wooden block being pulled out in our Jenga scenario, with Lands' End likely the most profitable piece that was left in the company," Balter said, referring to a game in which players pull blocks from a stack until the stack collapses.

LOSING SOME CACHET

Lands' End sells casual clothing, accessories, footwear, and home products online, through catalogs and in stores.

Competitors include Eddie Bauer LLC and L.L. Bean Inc as well as department stores such as J.C. Penney Co Inc .

The business, which was bought by Sears in 2002, generated sales of $1.59 billion in 2012, down from $1.73 billion in 2011. Sears' sales fell to $39.85 billion from $41.57 billion.

Founded in Chicago 50 years ago as a catalog business, Lands' End has lost some of its cachet since the brand started to be sold at Sears stores.

About 16 percent of the brand's sales came from Lands' End shops located in Sears stores in 2012.

"(Sears has) been slowly destroying it," Balter told Reuters.

Lands' End said the spinoff would give both it and Sears simplified focus and operational flexibility.

"The spinoff ... is expected to result in a more efficient allocation of capital for both Sears Holdings and Lands' End and mitigate the competition for capital that currently exists between Lands' End and other Sears Holdings business units," Lands' End said in a filing.

Belus Capital's Sozzi said Sears' troubles would not end with the spinoff of Lands' End, which he described as "a brand going down the drain."

"I see better things from Wal-Mart and Target. They're getting all the traffic. Sears and Kmart have not done enough to stay competitive," he said.

The spinoff will be through a pro rata distribution of Lands' End shares to Sears shareholders, Sears said in a regulatory filing on Friday.

Land's End said it expected to report net income of between $12.7 million and $14.2 million for the third quarter ended November 1, up from $8.8 million a year earlier.

Lampert's hedge fund, ESL Investments, owns about 48.4 percent of Sears and will own an identical stake in Lands' End following the spinoff.

ESL said this week it had cut its stake in Sears from 55.4 percent by distributing about 7.4 million shares to fund investors.

Lands' End plans to list on the Nasdaq under the symbol "LE." Sears and Lands' End provided no timetable for the selloff and share listing.

The business's current chief executive, Edgar Huber, is expected to remain the CEO when it goes public.

Sears shares have risen nearly 21 percent this year, giving the company a market value of about $5.3 billion.

(Additional reporting by Dhanya Skariachan in New York; Editing by Ted Kerr)

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Lampert Sees Fund Investors Check Out
By Juliet Chung
Wall Street Journal
December 6, 2013

Sears CEO's Hedge Fund Is Returning Bill

Edward S. Lampert, struggling to stem heavy losses at Sears Holdings Corp is facing an exodus of money from his hedge fund.

Mr. Lampert's hedge fund is returning billions to clients of Goldman Sachs GS in Your Value Your Change Short position who had invested with ESL Investments Inc. in 2007, according to people with knowledge of the matter. Under that deal, Goldman's clients, such as corporate pension plans, put roughly $3.5 billion with Mr. Lampert, and they have asked for it back.

The investors are receiving part of their funds in stock rather than all-cash, a redemption technique Mr. Lampert has used before. In June, ESL paid departing investors in part with the stock of a small company that ESL was invested in--Orchard Supply Hardware Stores Corp. a Sears spinoff. A week later, Orchard filed for bankruptcy protection.

The recent events mark a reversal for Mr. Lampert, a lauded investor whose fund has made a huge bet that he can revive Sears. Mr. Lampert, Sears's longtime chairman, took over as the retailer's chief executive in January but hasn't been able to turn around the company.

In 2007, when Goldman's clients were offered access to Mr. Lampert's fund, he was a star of the hedge-fund world, commanding some of its strictest terms--a minimum $25 million investment and the ability to lock up investors' money for five years.

The redemption requests from the Goldman clients were submitted last year in advance of the expiration of the lockups. Without the money raised through Goldman, more than $2.5 billion in outside investor money is expected to remain, the people said.

Mr. Lampert, a former Goldman trader, also invests billions of his money in ways that mirror the positions in the fund.

The exit of Goldman's investors largely returns Mr. Lampert's investor base to what it was before 2007: a core group of wealthy, individual investors who have profited handsomely by investing with him over many years.

One exception: longtime investor Michael Dell of Dell Inc., whose multibillion-dollar family office has pulled out of ESL as it sheds its outside investments in favor of putting money to work directly.

Some people said their faith in Mr. Lampert is intact.

"This might be the time people should consider investing" with Mr. Lampert, said one client on Thursday, describing Mr. Lampert as one of the most talented investors he knew.

Another person familiar with Mr. Lampert described him as an investing visionary and noted that even Steve Jobs was fired from Apple Inc. at one point.

ESL has notched annualized returns of more than 20% a year for 20 years, according to a person familiar with Mr. Lampert, one of the strongest long-term track records in the industry.

The returns of late have been volatile, including a 33% loss in 2008, then 55% and 16% gains in 2009 and 2010, and a 12% loss in 2011. ESL has posted gains this year and last, according to people familiar with the firm, who didn't provide figures.

Mr. Lampert is a so-called value investor who makes concentrated bets intended to pay out over the long-term. He has long subscribed to the philosophy that his clients were paying him to invest their money profitably, not to explain his thinking on those investments, said a person familiar with Mr. Lampert.

Goldman's clients earned profits with ESL, beating the S&P 500, according to people familiar with the matter. But they defected in part because of the fund's lower-than-expected returns during their investment period, even though Mr. Lampert had cautioned during marketing meetings in 2007 not to expect his historic high returns, the people said.

Some of the investors requested redemptions in 2008 during the financial crisis, when many institutions and individuals were strapped for cash, and they were frustrated when ESL refused, the people said.

One of his highest-profile investments was in Kmart Corp., which he helped bring out of bankruptcy proceedings in 2003 at the equivalent of $17 a share and then helped merge with Sears, Roebuck & Co. in 2005 to create Sears Holdings.

The deal was seen as a savvy bet on the company's real estate and a short-term validation of Mr. Lampert's theories for running a retailer. Sears shares surged to $163.50 in 2005.

Since the merger, revenue has plunged by more than $13 billion as of the end of the company's last fiscal year, and Sears is on track to book its third consecutive year of losses. "The confidence I had over 10 years of what's possible, it has been shaken over time," Mr. Lampert said at the company's annual meeting.

Despite the weakening performance, Sears stock is up about 20.8% on the year, but is down 21.3% this week. Mr. Lampert said Tuesday that he was paying some of his departing investors in Sears stock, rather than cash. The move reduced his total stake in the company to 48.4%, and sparked a sell-off in Sears shares, which dropped 7.7% in heavy volume that day. It closed Thursday at $49.98, down 94 cents, or 1.8%.

Fund managers typically will give back such "in-kind distributions" when doing so is either advantageous to their investors for tax reasons, lawyers say, when they are limited in what they can sell because of securities rules or when a manager is trying to meet redemption requests while avoiding a fire-sale of assets.

"In general, investors don't like in-kind distributions," said Bert Fry, a partner at Pryor Cashman LLP who focuses on hedge funds. "At a minimum, it puts them in the position of having to make the exact investment decision that they'd hired a portfolio manager to make."

In the case of Orchard, the company signaled early in June that a bankruptcy filing was possible. Its shares closed at $2.48 June 10, the day ESL or related entities distributed them to clients "on a pro rata basis to limited partners that elected to redeem all or a portion of their interest," according to a regulatory filing.

The company filed for bankruptcy protection on June 17. Its assets were acquired by Lowe's Cos. in August.

--Suzanne Kapner contributed to this article.

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Lampert Fund Distributed Sears Stock to Investors
By Justin Lahart And Suzanne Kapner
Wall Street Journal
December 4, 2013

Move Reduced Hedge-Fund Manager's Stake in Retailer by $445 Million

The fund, ESL Partners, said it distributed about 7.4 million shares of Sears Holdings Corp. SHLD in Your Value Your Change Short position to those investors. The stock was worth around $445 million at the closing price Monday, the date on a securities filing disclosing the move.

The holdings of Mr. Lampert's fund are highly concentrated in shares of Sears, a storied retailer whose performance has been deteriorating quickly. Investors who sought to exit received those same shares.

Sears stock fell 7.7% Tuesday in much heavier trading than usual. Some 3.2 million shares changed hands, about four times the normal volume, according to FactSet.

Mr. Lampert acquired Kmart out of bankruptcy in 2003 and two years later combined it with Sears, Roebuck & Co. to create Sears Holdings. The combination initially performed well, but the business has racked up heavy losses in recent years, leading Mr. Lampert to sell stores and spin off divisions.

The shares have performed well this year, rising 34% even as the company's net loss deepened to $1 billion in the nine months ended Nov. 2 from a loss of $441 million a year earlier. Revenue in the period fell 7% to $25.6 billion.

The hedge-fund manager took over as chief executive of Sears this year and has touted investments in technology and the company's membership program. But analysts have criticized him for underinvesting in the company's 2,000-plus retail stores, and sales have continued to erode.

In October, the company said it might separate its Lands' End brand and would consider strategic alternatives for its line of auto centers. It had previously spun off a stake in Sears Canada Inc. as well as the Sears Hometown and Outlet Stores Inc. and Orchard Supply Hardware Stores Corp.

Using stock to pay off investors in his hedge fund reduced Mr. Lampert's stake in Sears--distributed among his hedge fund and other vehicles--to 48.4% from 55.4% earlier. Mr. Lampert and his fund didn't otherwise reduce their holdings.

"My significant personal ownership in the company is a sign of my confidence and alignment with all shareholders," Mr. Lampert said.

Sears said in November that it was on track to generate $2 billion in cash and available borrowing this year, more than its original target of $500 million.

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Former Sears Canada CEO gives holiday predictions
By Dana Mattioli
Retail Merchandising
December 3, 2013

Former Sears Canada chairman and CEO Mark Cohen, currently a professor at Columbia Business School, has released a set of predictions for the retail industry this holiday season:

Who will be the winners this holiday season? Which retailers will struggle?
"Retailers whose performance going in to this holiday season has been consistent and positive are likely to be winners assuming they don't mismanage the next 4–6 weeks. Conversely, retailers whose performance through Q3 has been problematic, such as Walmart and Kohl's, could very well struggle."

Electronics a big winner
"Best Buy is likely to show a big sales increase because of the strength of their efforts this year against a very weak showing in 2012 and the overall strength of electronics at the moment. I think electronics is again the big winner this holiday. Tablets, phones, games, and peripherals are hot."

Outlook rosy for auto makers
"The automotive industry, already on a tear, will likely have a great holiday season. Think of how many Christmas stockings go empty to fund the purchase or lease of a new car? Interesting, I don't think I've ever seen as much Black Friday marketing from the automobile makers than this year."

A difficult season for retailers
"2–3 percent top-line growth with generally unfavorable gross margins. At the end of the day, retailers must sell virtually all of their season, fashionable and soon-to-be-obsolete inventory, at whatever price the consumer will pay and that price already looks untenable with respect to many retailers' P&L."

Post-Black Friday fatigue
"The widespread early promotional breaks pre-Thanksgiving, coupled with the unusually short Holiday selling calendar will mean that the pre-anticipation consumer behavior, and Black Friday Weekend transaction fatigue will possibly hurt overall retail sales performance."

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How Sears' managed decline could crash
By Joe Cahill
Crain's Chicago Business
December 2, 2013

Managing decline at Sears Holdings Corp. gets harder with every passing quarter.

CEO Edward Lampert has kept the retailer aloft with a combination of asset sales and debt. But his controlled descent will turn into a free-fall if his Sears and Kmart stores don't start selling a lot more stuff soon.

For all of Mr. Lampert's financial agility, the hedge-fund tycoon has been unable to reverse sliding sales and rising losses. Sales at stores open at least a year dropped 3 percent in the third quarter while revenue fell 7 percent. Operating losses grew 16 percent to $497 million.

Left unchecked, such trends can gather unstoppable momentum. A retail chain's decline "is not linear," says analyst Paul Swinand of Chicago-based Morningstar Inc., explaining that slumping retailers eventually reach an inflection point after which recovery becomes far less likely.

Mr. Lampert is scrambling to avoid that point. He has put the company's Lands' End and Auto Center businesses on the block, sold off a couple more chunks of real estate and borrowed another $1 billion.

The moves reflect an increasingly urgent need to cover losses. Sears burned through $1.7 billion in operating cash through the first three quarters of this year. While holiday sales will reduce that number significantly, it's still 30 percent higher than the year-earlier figure.

Cash pressures will intensify next year, when the Hoffman Estates-based retailer must come up with $510 million for its underfunded pension plan, in addition to funding operations.

Mr. Lampert isn't worried. "We have ample liquidity," a company spokesman says, noting Sears has raised $2 billion this year for a total of $7.7 billion in "combined liquidity and net inventory." The spokesman adds that Sears has a revolving credit facility in place until 2016 and no long-term debt maturities until 2018. That buys time, assuming store-level cash consumption doesn't rise too dramatically.

Even if lenders eventually balk at Sears' rising debt levels, Mr. Lampert still has plenty of assets to sell. Sears poured cold water on a New York Post report last week that he is talking to investment banks about selling the company's remaining stake in Sears Canada. Nevertheless, I would assume anything Sears owns is for sale at the right price.

The more important question is how Sears will use the sale proceeds and what will be left when everything that can be sold is sold. Ever since Mr. Lampert took control of Sears in 2005 by merging it with Kmart, investors have expected him to create value for shareholders by selling off the chains' vast real estate holdings.

Those sales have begun, but Sears' foundering stores are soaking up the proceeds. Meanwhile, Mr. Lampert talks about transforming Sears into an Internet-oriented, membership-driven retailer. Sounds great, but if those strategies were working, losses would be shrinking, not growing.

Consider big-ticket appliances, a business Sears once dominated with more than 40 percent market share. Not only has that figure plummeted, but Sears' appliance sales plunged 18 percent in the third quarter while rivals such as Home Depot Inc. posted double-digit gains and manufacturer Whirlpool Corp. predicted North American demand will rise 9 percent this year.

This suggests a recovering economy isn't lifting Sears as many expected it would. And that means the tipping point is drawing closer.

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Sears Takes Crash Course in Surfing
By Justin Lahart
Wall Street Journal
November 29, 2013

Beyond the rundown of just how much money the company had lost, its latest quarterly results included a statement from Chief Executive Edward Lampert on where he sees Sears heading.

"We are proactively transforming our business to a member-centric integrated retailer," said Mr. Lampert, who controls the company through his individual stake and that held by his hedge fund. He added that Sears is "transitioning from a business that has historically focused on running a store network" to one delivering value "by serving its members in the manner most convenient for them: whether in store, in home or through digital devices."

Behind the jargon, the idea seems to be to turn Sears from a company hampered by its notoriously unproductive stores--sales per square foot are less than half those of a typical Wal-Mart--into one pushing more merchandise via various online purchases. Sales are to be boosted further through its membership program, labeled "Shop Your Way," giving special deals and points when customers buy things. Like local coffee shop punch cards or the free shipping Amazon.com gives its Prime members, the idea is to get people to tap Sears for more of their purchases.

The company can point to some success. It says onlie sales (excluding its Lands' End and Sears Canada) have increased at a better-than-15% annual rate in the past two years. And in its fiscal quarter ended Nov. 2, shoppers in its membership pogram accounted for 70% of sales. A year earlier, Sears had categorized that figure as "more than half."aDespite such growth, online sales aren't big enough to make up for the big declines Sears is seeing elsewhere. Nor does the membership program seem to provide much oomph.

Indeed, it may be hurting, with people making bigger-ticket-item purchases signing up to get a discount but not necessarily coming back. Sears said the program cost $75 million in the third quarter. More broadly, achieving profits in the competitive arena of online retailing is notoriously hard; just look at Amazon's razor-thin margins.

The overriding question, says Matt McGinley of ISI Group, is whether Sears can realistically make its strategy work quickly enough to offset hefty losses. He reckons that absent more asset sales, the company is on track to run out of cash sometime in 2015. Although the majority of Sears's debt won't mature until 2018, it seems certain more disposals are coming.

The company said last month that it is considering spinning off its Lands' End brand to shareholders (which wouldn't actually raise cash) and weighing strategic alternatives for its auto centers. It is also evaluating alternatives for its warranty business, has sold some of its most profitable stores since last year and is expected by analysts to continue disposing of real estate.

But disposals, while boosting cash, also eat into Sears's capacity to make profits the old-fashioned way. This puts the onus on making the new strategy work.

While all sorts of businesses, from retailing to newspapers, ballyhoo their embrace of the Internet, making money at it is a different story. And, as Sears's investors know only too well, the company needs to learn that skill very fast.

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Large historic Sears property in Boyle Heights sold for redevelopment
Los Angeles Times
November 20, 2013

A vast but vacant Sears Roebuck & Co. product distribution center in Boyle Heights dating to the 1920s has sold for $29 million to a Los Angeles developer who plans to bring it back to life, perhaps with housing, offices and stores.

The building has been a fixture on the East Los Angeles skyline for decades.

Izek Shomof, who has renovated several office buildings and hotels in downtown's historic core, bought the sprawling nine-story Olympic Boulevard complex, where workers once glided on roller skates among far-flung racks of merchandise to fill orders from the popular Sears mail order catalog.

The seller was another downtown developer, Mark Weinstein, who acquired the 1.8-million square-foot property nearly a decade ago but was unable to get his own planned mixed-use project there underway.

The property is big enough to support a range of uses in the years ahead, Los Angeles real estate consultant and historian Greg Fischer said.

"You can actually create your own neighborhood in that space because there is nothing in there people are so wedded to that they would be sorry to see it go," Fischer said.

A Sears department store on the first floor is still in operation, but the catalog center closed in 1992 and the property was sold as part of a cost-cutting program. That left a hole in the neighborhood around Olympic and Soto Street, where the Sears complex employed more than 1,000 workers at the time it closed.

The illuminated Sears sign atop a 14-story tower above the building was a beacon for Eastsiders returning home on area freeways for decades. The property is listed on the National Register of Historic Places.

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JC Penney On An Express Train to Oblivion
By Charles Sizemore
Forbes
November 28, 2013

I was on CNBC earlier this week to discuss battered retailer JC Penney, commenting that the company "is on an express train to oblivion."

Activist investor Bill Ackman is widely blamed for running the company into the ground, and the criticism is justified. Ackman installed former Apple retail guru Ron Johnson as CEO, and in a span of less than two years, he managed to alienate (some might say actually antagonize) Penney's core customer base and shrink the store's annual revenues by a quarter.

But as destructive as Ackman was during his tenure as a major shareholder, he didn't create Penney's problems. Penney had been losing market share to nimbler retailers like Target, Wal-Mart and Kohl's for years. In a strong retail market, a marginal player like Penney can survive and have some degree of success. But the retail market has been soft for years, particularly at Penney's working and middle-class price points. Target, Wal-Mart and Kohl's have all had disappointing years, and Wal-Mart has repeatedly mentioned the difficult financial conditions of its core working-class customers. If Wal-Mart is having a hard time growing, then what possible chance does Penney have of turning it around.

And this says nothing of the retail elephant in the room, internet retailer Amazon.com and its online peers. JC Penney has made decent progress online, as have most major retailers. But Amazon's insistence on growth over profitability has a way of crimping the margins of virtually all its competitors.

JC Penney was slowly dying before Ackman got his claws into it. But at this stage in the game, the company will burn through its cash in less than a year unless sales show meaningful improvement. This brings up a good question: If Penney is dying, might it have value as an asset liquidation play?

Two years ago, I asked tongue in cheek if Sears was the next Berkshire Hathaway, noting that Eddie Lampert, the company chairman, was essentially doing what Warren Buffett did a generation ago: Turning a dying dinosaur into an investment holding company. Two year later, it seems that Lampert is carrying on as before, slowly selling off Sears' valuable real estate while keeping the retail operations afloat, but just barely.

So, might JC Penney be a candidate for a similar strategy?

Well, yes, in theory. Except that Penney put its real estate up as collateral to Goldman Sachs in exchange for a lifeline loan earlier this year.

Don't even think about buying Penney stock, even at current prices. In fact, you should use any end-of-year rally as an opportunity to short.

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management

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Sears Canada slashing 800 jobs in services units, head office
By Solarina Ho
November 27, 2013

To use contracted technicians, streamline service teams

TORONTO (Reuters) -- Sears Canada is laying off nearly 800 employees as it overhauls its repair services and parts businesses and makes further staffing cuts at its head office, the department store chain said on Tuesday.

News of the layoffs broke shortly before markets closed, sending shares up four per cent to close at $18.98.

Sears Canada, 51 per cent owned by Sears Holdings Corp, said 712 jobs will be cut from its services divisions and an additional 79 eliminated at the head office. The company has more than 25,000 associates, according to the Sears Canada website.

The department store, which reported a wider quarterly loss last week but its first rise in quarterly same-store sales since 2008, operates 181 corporate stores and 241 hometown dealer stores.

The company has lost significant market share amid an increasingly competitive Canadian retail environment, particularly as big-box U.S. retailers and discount department stores enter and expand in the country.

Sears Canada said it will begin using contracted technicians for repair services in mid-markets instead of Sears technicians and that service teams in major markets would be streamlined.

Warranty repair for appliances is also shifting to the supplier, in line with industry standard, it said.

The company's parts division, which consisted of a central processing center and 16 stand-alone locations, will be consolidated into three major centres in Calgary, Toronto and Montreal.

Since Doug Campbell took over as CEO from Calvin McDonald in September, the company has also said it is selling its stake or ending leases on a number of properties, including its flagship downtown Toronto store. Those deals total more than $700 million.

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Wal-Mart Taps Veteran as New CEO
By Shelly Banjo
Wall Street Journal
November 26, 2013

Doug McMillon, a Long-Serving Insider, Will Be Youngest Since Founder

Wal-Mart Stores Inc. named Douglas McMillon as its next chief executive, handing the job to a long-serving insider who, at just 47 years old, will be the youngest CEO since Sam Walton to helm the giant retailer.

In a sense, he represents a generational shift at the company as its traditional model of big U.S. stores comes under pressure from smaller retailers and a shift to the Web. Yet Mr. McMillon is a tried-and-true company man who since a summer job at a distribution center has spent nearly all his professional life at the chain.

Wal-Mart is producing nearly half a trillion dollars in annual revenue, but it is struggling to spark .growth. Mr. McMillon's elevation is a strong signal that the retailer is unlikely to steer itself too far from its course as it adjusts to the new realities of retailing.

The tradition-bound company has had only four CEOs prior to Mr. McMillon, who was named to the job at a meeting of Wal-Mart's board on Friday at the Bentonville, Ark., headquarters. His promotion was announced Monday. He will take the top job on Feb. 1, after current CEO Michael Duke retires early next year. Mr. Duke will remain on the board.

In a meeting with senior managers in Bentonville on Monday, Mr. McMillon--currently president and CEO of Wal-Mart International--highlighted his commitment to following in founder Sam Walton's footsteps by placing more focus on merchandise but also underscored the changing and evolving needs of the customer, according to a Wal-Mart executive who attended the meeting. Wal-Mart is trying to boost sales by introducing smaller store formats and has brought in a number of outsiders in recent years to jump-start its online operations, including Neil Ashe, the former president of CBS Interactive who took over Wal-Mart's global e-commerce division, and Yahoo Inc. CEO Marissa Mayer, who joined the board last year.

The company didn't make Mr. McMillon available for comment.

Mr. McMillon, who has run Wal-Mart's international business since 2009 and will join the board, inherits a company that is struggling with sluggish sales in the U.S. and abroad, a federal investigation into bribery allegations at its foreign operations and worker protests over pay.

Two weeks ago, the company reported its third straight quarter of poor U.S. sales and warned it would discount heavily to avoid losing business during the holidays, even at the expense of its profits. Wal-Mart's lower-income customers have been squeezed by the expiration of the payroll tax cut earlier this year and the loss of a temporary boost in food stamp benefits on Nov. 1.

The company has stuck to its script, betting that it will win business by grinding down prices ever lower.

Wal-Mart departed from that script in the middle of the last decade with disastrous results. In an attempt to attract higher-income shoppers and better compete with rivals like Target Corp. the company began paring back the number of items it carried to unclutter its aisles and tried to boost margins by moving from a policy of everyday low prices to one of more targeted sales.

Customers balked, and Wal-Mart soon retreated.

While Wal-Mart U.S. President Bill Simon pushed the mantra of everyday low prices at home, Mr. McMillon carried it abroad. Asked in a 2011 interview with The Wall Street Journal if that strategy could work everywhere, Mr. McMillon was emphatic.

"I am reminded of the time we started to spread the food business to more parts of the U.S. and a trip I made as a food buyer to Michigan, where our associates explained to me that Every Day Low Prices would not work in Michigan," he said. "I have heard it before. The big bet is that the customers are smart, and I am willing to make that bet anywhere in the world, any time."

Wal-Mart has a long history of grooming leaders from within and said it began planning for Mr. Duke's succession years earlier. Among the favored candidates were Mr. McMillon and Mr. Simon. The latter was a straight-talking outsider who served various roles at restaurant chain Brinker International, drinks company Diageo DGE.LN -1.60% Diageo PLC U.K.: London GBp1968.00 -32.00 -1.60% Nov. 26, 2013 4:35 pm Volume : 4.96M P/E Ratio 0.20 Market Cap GBp50.20 Billion Dividend Yield 2.98% Rev. per Employee GBp402,429 2000198019609a10a11a12p1p2p3p4p 11/13/13 Diageo PLC Brings Exclusive Bl... 11/06/13 China's Slower Growth Puts a D... 10/24/13 Pernod Plans Cheaper Drinks in... More quote details and news » DGE.LN in Your Value Your Change Short position PLC, PepsiCo Inc. and former conglomerate RJR-Nabisco before joining Wal-Mart in 2006.

Mr. McMillon, on the other hand, is one of the few top executives who worked directly under Sam Walton, the founder, who is buried in a cemetery adjacent to the corporate headquarters.

A native of Jonesboro, Ark., Mr. McMillon first worked at Wal-Mart in 1984 as an hourly worker unpacking trucks at a distribution center. He rejoined the company in 1990 and became a buyer trainee in sporting goods.

He regularly tells the story of one of his first days as a fishing-tackle buyer when Sam Walton placed a yellow Post-it Note on his desk asking Mr. McMillon to match the price of a fishing line that was selling for less at rival Kmart stores. It was then, he learned "about a sense of urgency," he said at a shareholder's meeting in June 2012.

Mr. McMillon rose steadily through the ranks, making his reputation as CEO of the Sam's Club warehouse division, a job he took in 2006. There, Mr. McMillon helped drive a renewed focus on small-business owners and introduced "treasure hunt" items like diamond necklaces and wine vacations to better compete with warehouse club rival Costco's sales are still nearly twice that of Sam's Club.

Three years later, Mr. McMillon took over the international division from Mr. Duke when he was promoted to CEO. Mr. McMillon helped Wal-Mart usher in everyday low prices around the world. And mirroring the tradition of Mr. Walton, he often picks out a single product to champion, such as a popular soccer ball in Brazil or spiced Masala Coca-Cola in India.

His southern charm and affability made him popular with the Walton family, who remain the largest shareholders and continue to exert substantial influence on leadership decisions.

Wal-Mart's international operations posted $135 billion in sales in the year that ended Jan. 31--29% of total revenue--and have long been seen as the company's most important source of growth and an antidote to stalled U.S. sales. But the unit, which has 6,300 stores and would by itself be one of the world's largest retailers, has stumbled recently. International sales for the six months ended July 31 grew 2.9% this year, versus 10.5% during the same period a year before. The head of the Chinese operations left in 2011 following a scandal in which Wal-Mart was accused of fraudulently labeling pork.

Last month, the company said it would shelve plans to open retail stores in India, a setback for the retailer after it spent a half dozen years trying to gain ground in one of Asia's largest but heavily regulated markets.

The biggest black eye has been an ongoing investigation into potential violations of the U.S. Foreign Corrupt Practices Act in Mexico, India, China and Brazil. Mr. McMillon has been on the board of Wal-Mart de Mexico since 2009, after the potential violations allegedly occurred. Wal-Mart has said it is cooperating with the U.S. government investigations.

A Wal-Mart spokesman said the leadership change didn't have anything to do with the FCPA investigation.

Turning around those operations is crucial to the company's future.

"Wal-Mart's growth will be in international markets as it works at becoming a trillion-dollar company," said Allen Questrom, a former Wal-Mart board member and former chief executive of J.C. Penney Co. "Wal-Mart has obviously had problems dealing with corrupt governments and difficult circumstances abroad. But if Wal-Mart can't succeed in places like China and India, no one can."

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Eddie Lampert considers sale of Sears Canada
By James Covert
New York Post
November 25, 2013

Eddie Lampert has milked Sears Canada for years -- and now he's looking to gut the company for good.

The hedge-fund billionaire, who as chairman of Sears Holdings has been selling Sears Canada's best stores and skimming its cash since he took control in 2005, is exploring a possible sale of the 61-year-old chain, The Post has learned.

Lampert is interviewing multiple banks including Goldman Sachs about conducting a prospective process, according to sources close to the situation.

Spokesmen for Sears and Goldman declined to comment.

"There's a real beauty contest going on," according to one insider briefed on the talks.

Nevertheless, some sources were skeptical whether a bank-run auction of Sears Canada will take place. Lampert already has been quietly shopping the retailer to prospective buyers without success, insiders said.

"Eddie never actually hires banks," one insider told The Post. "He just sucks their brains and does what he wants."

What Lampert wants, according to sources, is to accelerate his recent moves to turn Sears Canada into cold, hard cash, despite announcing plans last year to mount a data-driven "turnaround" of the Toronto-based department store.

Last week, Sears Canada issued a $483 million dividend, even as its quarterly loss widened to $46.3 million. Most of the cash was bagged in an October deal to close the Toronto flagship store and end four other leases for $380 million.

That transaction, according to industry sources, has fanned worries among Sears suppliers and executives alike about the future of the chain.

"Eaton Centre [in Toronto] was one of their best locations," an exec at one supplier said. "They're insulting us if they tell us they want to stay in business."

The latest sale of profitable locations follows the sell-off of other high-performing stores in Vancouver, Calgary and Ottawa to Nordstrom. It's a template for what's to come, according to Mark Cohen, a professor at Columbia Business School who had been CEO of Sears Canada from 2001 to 2004.

"When legitimate companies sell assets, they reinvest by paying down debt or using the funds to invest in the business," Cohen said. "What's Eddie Lampert doing? Putting the money in his pocket."

"If anybody harbors the illusion that this guy has any capability or intent of running this company anyplace but into the ground, he'll lose that illusion real fast," Cohen added.

Over the past decade, Sears Canada has seen its operating profit evaporate as revenue has slid from $6.5 billion in 2002 to $4.3 billion last year.

The dire straits stand in sharp contrast to a decade earlier, when it refused three separate merger overtures by rival Hudson's Bay, according to a person close to the situation.

Now, insiders say Hudson's Bay doesn't appear to be interested in a deal. Target and Walmart may pick up some locations in a liquidation scenario, although the former said last week it continues to suffer losses after a surprisingly weak start in Canada this spring.

"Sears is going to close all their stores, liquidate all their goods and distribute the cash to shareholders," an industry source predicted. "Then they'll wait for a period of time and then file for bankruptcy."

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Sears, Kmart boss Lampert: 'What we have is a profit problem'
By Phil Rosenthal
Chicago Tribune
November 24, 2013

As retail company pushes further into digital realm, CEO says stores will need to be versatile, often smaller

Edward Lampert is talking about the future of Sears and Kmart. The chairman and chief executive of Hoffman Estates-based parent Sears Holdings Corp. is wondering aloud how many physical stores are needed, how large the stores should be and how their role will change.

"The integrated retail part of our strategy is really about how you work between online, mobile and store, not just from a customer standpoint, but from a supply-chain standpoint," Lampert said. "If we have a shirt in the store in four colors, we might have that shirt in 10 additional colors online. To have 14 colors in the store may be too risky because what you don't sell, you end up losing money on, (compared with) having a group of it online that serves all the stores so that if people want more variety, they can get more variety."

Yet for all the talk of transformation at Sears Holdings against the backdrop of a new holiday shopping season, the company's lack of profitability has remained steadfast.

As far as shirts go, Lampert hasn't lost his, but red is not the new black.

"With $30 billion-plus in sales, we don't have a customer problem," Lampert said by phone after the company's latest subpar earnings report. "We don't have a sales problem. What we have is a profit problem, and that's what we're intending to address. ... We need to demonstrate that if we serve people well, we can actually make an acceptable amount of money."

Through the first three quarters of its fiscal year, Sears Holdings lost about $1 billion on operations, more than double its operational loss for that span a year earlier. Its 39-week revenue was off about 7 percent, or almost $2 billion from what it was at the same point in 2012. The company racked up a $534 million operational loss in the quarter that ended Nov. 2, as revenue fell $585 million, to $8.3 billion.

Some of that lost revenue may be attributed to the fact Sears Holdings keeps closing stores, having shuttered more than 300 since 2010. But comparable-store sales declined 3.1 percent in the quarter, with domestic Sears down 4 percent and Kmart down 2.1 percent. So, despite its strategy of complementing bricks-and-mortar with digital platforms, it's still struggling with maintaining margins in the increasingly complex matrix of 21st century retail.

The share price is more than 55 percent higher than it was in late August, but many analysts attribute that less to confidence in the company's retail prospects than speculation the company will unlock value by selling off assets, such as its real estate holdings. The company said last month that it would consider spinning off its Sears Auto Centers and its Lands' End brand.

"If they execute well, they can survive this, but they have to execute everything right," Greg Melich of International Strategy & Investment Group said. "The fact is the business has been underinvested in for 10-plus years, and if you look at the strategic actions they've taken, they've been selling assets that generate cash to raise liquidity. What that means is your cash flow only gets worse. You get a shot in the arm, but we call it burning the furniture."

Credit Suisse's Gary Balter, in a note Friday, was even more blunt: "Back in May we likened CEO Edward Lampert's slow dismemberment of Sears Holdings to a player in a game of Jenga, whose goal is to pull out pieces, hoping the overall structure does not collapse. With (the most recent) results, we saw further proof that too many pieces have been removed from the Sears portfolio, and the remaining structure may be too weak to exist as a viable economic model."

Critics argue Sears Holdings has invested too little in its physical stores, which they still see as vital to the revenue picture, as attention and diminished resources shifted elsewhere. But from the moment Lampert engineered Kmart's $12 billion merger of Sears in 2005, the hedge-fund billionaire has pushed the company to carve out territory in the Amazonian wilderness of e-commerce, where it contends with traditional rivals as well as the likes of Amazon, Google and Facebook.

Lampert, who added the role of CEO in January, views integrating digital platforms and initiatives such as the Shop Your Way membership program -- a loyalty and discount club -- as key to the future: They've "taken years to incubate, and for sure if we were making more money, there are different types of risks we could have taken." He retains interest in nondigital real estate but believes stores ultimately will need to be versatile, often smaller, sometimes a showroom, sometimes a service center, sometimes a fulfillment house.

"It doesn't make sense to have millions or tens of millions of dollars invested in a property that doesn't make money," he said. "What real estate affords us: It's a footprint to serve members, first. It also (gives) us the ability to afford a transformation and to be able to withstand, one, a financial crisis, which we went through, and two, withstand a period of poor operating performance, which hopefully will come to an end soon."

Lampert expected it to have come to an end already.

"The honest answer is we certainly had plans (for a turnaround) and forecasts for this year that it would have happened already, and we haven't delivered against that," Lampert said. "The Shop Your Way membership metrics that we measure, and there are many of them, almost uniformly they've been going in the right direction. Many have exceeded what our expectations were at the beginning of the year. So we see these behaviors that are foundational to the transformation and foundational to restoring profitability. But we haven't been able to connect those behaviors to the actual results."

The membership program figured in 70 percent of sales last quarter, up from 65 percent in the second quarter, but it also cost Sears Holdings $75 million in discounts over those 13 weeks. So in a business in which a penny or two make all the difference, adjustments will be necessary. On top of all the other adjustments.

"In the CEO role, the thing that's most noticeable to me is just how difficult it is to get the talent we need into the company and get the talent in the company to be open to having their competency challenged because they're very good at things that worked for a long time that no longer work," Lampert said. "We've built the platforms. We've built the technology that gives us a real chance to differentiate ourselves."

But this transformation stuff doesn't get any easier, does it?

"It better," he said.

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Sears loss widens
Chicago Tribune
November 22, 2013

NEW YORK -- Sears Holdings Corp. Thursday posted a wider third-quarter loss as Chief Executive Officer Edward Lampert works to sell more of the department-store chain's assets to drum up cash amid a six-year sales decline.

The net loss, the company's sixth in a row, widened to $534 million, or $5.03 a share, from $498 million, or $4.70, a year earlier, Hoffman Estates, Ill.-based Sears said in a statement. Sears said last month it would report a loss of $532 million to $582 million for the 12 weeks ended Nov. 2. Sales fell 6.6 percent to $8.27 billion.

Lampert, the hedge fund manager who also is Sears's chairman and majority shareholder, has been selling and spinning off assets as Sears's cash pile shrinks amid 27 straight quarterly sales declines. The dwindling resources are making it harder for Sears to improve the outdated stores that have contributed to its loss of customers.

"The gross margins were really bad," Matt McGinley, a managing director at International Strategy & Investment Group in New York, said in a telephone interview."If there was one silver lining in terms of what they did this quarter, it's that they delivered on what they said they would do with the expense reductions and the inventory reductions." Sears fell 2.9 percent to $59.93 at the close in New York. The shares have gained 45 percent this year, compared with a 26 advance for the Standard & Poor's 500 Index.

Sears said last month it's considering separating its Lands' End apparel and automotive service-centers units. McGinley estimated that a Lands' End spinoff and sale of the auto centers may raise as much $2.5 billion. The company had $607 million in cash as of Nov. 2.

The retailer said today that it expects to generate $2 billion of liquidity in the current fiscal year, up from an earlier forecast of $500 million.

While analysts have pointed out that Sears spends less than competitors on store upkeep, the retailer has been pouring money into e-commerce initiatives. Lampert has highlighted Member Assist, a mobile application that customers can use to text message store associates. The retailer also recently created a social network for the company's Shop Your Way loyalty program, which now generates 70 percent of sales.

Many of the company's current leaders come from the technology world. In 2011, Lampert hired Lou D'Ambrosio, a veteran of IBM Corp. and Avaya Inc., as CEO. Lampert himself took the reins after D'Ambrosio resigned earlier this year for family-related reasons.

"We have been investing hundreds of millions of dollars annually in our transformation and will continue to invest in the future of the Company," Lampert said Thursday in the statement.

Separating businesses such as Sears Hometown and Outlet Stores Inc., spun off last year, allows Sears to "become a more focused company that is easier to understand and manage," the company said in an online slide presentation today.

Funds raised by the sale of assets including five store leases in Canada for C$400 million ($383 million) and the completion of a $1 billion five-year term loan will give Sears liquidity through next year, McGinley said.

Comparable-store sales in the U.S., which exclude new locations, fell 2.1 percent at Kmart stores, hurt by lower demand for grocery and drugstore items. Sales fell 4 percent at Sears locations, amid decreases in appliances, electronics and clothing. Total domestic same-store sales dropped 3.1 percent.

Gross margin, or the percentage of sales left after subtracting the cost of goods, narrowed at all three divisions, with a companywide decline of 2.1 percentage points.

Retailers are bracing for a slow holiday season, with consumer sentiment falling to an almost two-year low this month, according to the Thomson Reuters/University of Michigan index. Wal-Mart Stores Inc. last week cut its annual profit forecast for the second time since August, citing a slow economic growth.

Sears says it's keeping costs under control and is on track to cut fixed expenses by $200 million this year, and has surpassed its goal to cut inventory levels by $500 million, reducing its inventory position by $620 million as of Nov. 2.

A smaller inventory may hamper its ability to compete with more aggressive promotions from Wal-Mart and Kohl's Corp., McGinley said.

"The more you reduce your inventory, the more you put your fourth-quarter sales at risk," said McGinley, who recommends selling the shares.

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Sears Holdings Reports Third Quarter 2013 Results Consistent With Prior Guidance
By Dana Mattioli
PR Newswire
November 21, 2013

HOFFMAN ESTATES, Ill., Nov. 21, 2013 -- Sears Holdings Corporation (NASDAQ: SHLD) today announced financial results for its third quarter ended November 2, 2013. Net loss attributable to Holdings' shareholders was $534 million, or $5.03 loss per diluted share, compared to $498 million, or $4.70 loss per diluted share, in the prior year quarter. Adjusted EBITDA was $(286) million for the third quarter of 2013, which was within the range of our previous guidance from October 29, compared to $(172) million in the prior year quarter.

As a supplement to this earnings release, please see our presentation at our website SearsHoldings.com re proactively transforming our business to a member-centric integrated retailer leveraging Shop Your Way(TM) ("SYW") to benefit from the changing retail landscape. We are transitioning from a business that has historically focused on running a store network into a business that provides and delivers value by serving its members in the manner most convenient for them: whether in store, in home or through digital devices," said Edward S. Lampert, Sears Holdings' Chairman and Chief Executive Officer. "We are driving this transformation by investing in capabilities to enable members access to the broadest possible assortment of products and services, enhancing our membership benefits associated with SYW, developing digital and social relationships with our members, using data and analytics to make targeted offers and decisions delivered in real time and expanding our reach through Marketplace and delivery options."

Mr. Lampert continued, "While transformations of this scale are challenging, we believe we are making progress as we are seeing substantive continued increases in our SYW member engagement metrics. We are intentionally transitioning business models in a thoughtful manner and are making the investments to demonstrate the value of SYW to our members. Throughout this transition, we have continued with traditional promotional programs and marketing expenditures while investing in our member-centric model, which has impacted our margin and expenses. We have been investing hundreds of millions of dollars annually in our transformation and will continue to invest in the future of the Company."

Highlights of our transformation to a member-centric integrated retailer include:

  • 70% of sales are now made to SYW members, up from 65% last quarter
  • 17% year-to-date growth in our online and multi-channel sales over the prior year
  • Launched Adam Levine and Nicki Minaj in 500 Kmart stores and on shopyourway.com/kmart.com
  • On track to generate $2.0 billion of liquidity during fiscal year versus objective of $500 million
Financial Summary

Third Quarter Revenues and Comparable Store Sales

Revenues decreased $585 million to $8.3 billion for the quarter ended November 2, 2013, as compared to revenues of $8.9 billion for the quarter ended October 27, 2012. The revenue decrease was primarily due to the effect of having fewer Kmart and Sears Full-line stores in operation, which accounted for approximately $200 million of the decline, as well as lower domestic comparable store sales, which accounted for approximately $170 million of the decline. Revenues were also impacted by approximately $110 million attributable to the separation of Sears Hometown and Outlet Stores, Inc. ("SHO"), which occurred in the third quarter of 2012. We recorded revenues from SHO of approximately $425 million, primarily related to merchandise sold to SHO for resale, in the third quarter of 2013. The prior year quarter included revenues of approximately $463 million related to SHO merchandise sales to its customers, as well as revenues of approximately $70 million for merchandise sold to SHO for resale which occurred after the separation. Third quarter revenues also included a decrease of $49 million due to foreign currency exchange rates.

For the quarter, domestic comparable store sales declined 3.1%, comprised of decreases of 2.1% at Kmart and 4.0% at Sears Domestic. The decline at Kmart reflects decreases in our transactional categories, such as grocery & household and drugstore, as well as declines in consumer electronics and toys. These decreases were partially offset by increases in the apparel and seasonal & outdoor living categories. The decline at Sears Domestic reflects decreases in most categories including the consumer electronics, lawn & garden, tools, home appliances and apparel categories, as well as declines at Sears Auto Centers, partially offset by an increase in the home category.

Operating Performance

For the quarter, our gross margin decreased $322 million to $1.9 billion in 2013 due to the above noted decline in sales, as well as a decline in gross margin rate. Gross margin included expenses of $13 million and $32 million in the third quarter of 2013 and 2012, respectively, related to store closings while the third quarter of 2012 also included gross margin of $113 million from SHO. Excluding these items, gross margin decreased $228 million. In addition, Sears Canada's gross margin for the third quarter of 2013 included a decrease of $13 million related to the impact of foreign currency exchange rates.

The gross margin rate for both Kmart and Sears Domestic continued to be impacted by transactions that offer both traditional promotional marketing discounts and Shop Your Way points. As compared to the prior year, Kmart's gross margin rate for the third quarter declined 160 basis points, with decreases experienced in a majority of categories, particularly apparel. Sears Domestic's gross margin rate declined 230 basis points for the quarter primarily due to selling merchandise to SHO at cost pursuant to the terms of the separation as expected and previously disclosed, which accounted for approximately 160 basis points of the decline. Sears Domestic also experienced decreases in the home appliances and apparel categories. Sears Canada's gross margin rate declined 240 basis points for the third quarter due to an increase in inventory reserve requirements.

Selling and administrative expenses decreased $234 million in the third quarter of 2013 compared to the prior year quarter and included expenses related to domestic pension plans, store closings and severance of $32 million and $48 million for 2013 and 2012, respectively. The third quarter of 2012 also included selling and administrative expenses of $97 million related to SHO and $7 million of transaction costs associated with strategic initiatives. Excluding these items, selling and administrative expenses declined $114 million primarily due to a decrease in payroll expense.

We reported an operating loss of $497 million and $428 million for the third quarter of 2013 and 2012, respectively. See the attached schedule, "Adjusted Earnings per Share," for a reconciliation from GAAP to as adjusted amounts, including adjusted earnings per diluted share.

Our effective tax rate for the third quarter of 2013 was a benefit of 0.4% compared with an expense rate of 2.3% in 2012. The application of the requirements for accounting for income taxes in interim periods, after consideration of our valuation allowance, causes a significant variation in the typical relationship between income tax expense and pretax accounting income. Our tax rate in 2013 continues to reflect the effect of not recognizing the benefit of current period losses in certain domestic jurisdictions where it is not more likely than not that such benefits would be realized. In addition, the third quarter 2013 benefited from statute expirations and the lower tax on the Sears Canada gain on sales of assets.

Our fiscal 2013 third quarter was comprised of the 13-week period ended November 2, 2013 while our fiscal 2012 third quarter was comprised of the 13-week period ended October 27, 2012. This one week shift in sales had no impact on the domestic comparable store sales results reported herein due to the fact that for purposes of reporting domestic comparable store sales for the third quarter, weeks 27 through 39 for fiscal 2013 have been compared to weeks 28 through 40 of fiscal year 2012, thereby eliminating the impact of the one week shift. In addition, domestic comparable store sales amounts for the third quarter include online sales from sears.com and kmart.com shipped directly to customers, which resulted in a benefit of approximately 50 basis points, and have been adjusted for the change in the unshipped sales reserves recorded at the end of each reporting period, which resulted in a negative impact of approximately 10 basis points.

Financial Position

"During the third quarter, we continued with our strategy to redeploy our capital as we invest to accelerate our transformation. We announced several transactions that demonstrated our financial flexibility and we are on track to generate $2.0 billion of liquidity as compared to our previously stated objective of $500 million," said Rob Schriesheim, Holdings' Chief Financial Officer. "On October 2, 2013, we completed a new senior secured term loan facility of $1.0 billion under the Company's existing Second Amended and Restated Credit Agreement. In addition, Sears Canada announced two transactions related to the termination of its leases with respect to five stores for a total consideration of $400 million and the sale of its 50% joint venture interest in eight properties it owns with The Westcliff Group of Companies for approximately $315 million. Sears Canada also announced a cash dividend of approximately $509 million Canadian, of which our share will be approximately $260 million Canadian. Lastly, we announced that we are evaluating separating both our Lands' End business and Sears Auto Center ("SAC") business. These actions are consistent with our objectives of becoming a more focused company that is easier to understand and manage, of allowing these businesses to pursue their own strategic opportunities and allocate capital in a more focused manner, of providing multiple opportunities for our shareholders to participate in the value created by these businesses and of potentially enhancing our financial flexibility, depending upon the transaction structure."

We had cash balances of $607 million at November 2, 2013 ($384 million domestic and $223 million at Sears Canada) as compared to $618 million ($380 million domestic and $238 million at Sears Canada) at February 2, 2013. The slight decrease in cash during the first nine months of 2013 primarily reflects cash borrowings of $1.0 billion under a new senior secured term loan facility entered into during the third quarter of 2013, as well as proceeds received from the sales of properties, which were offset by higher working capital needs.

Merchandise inventories at November 2, 2013 were $8.9 billion, as compared to $9.6 billion at October 27, 2012. Domestic inventory decreased by approximately $620 million to $8.0 billion at November 2, 2013 driven by both improved productivity and store closures. Sears Domestic inventory decreased in a majority of categories, with the most notable decreases in the apparel and consumer electronics categories. Kmart inventory decreased in virtually all categories with the most notable decreases in the consumer electronics and apparel categories, as well as in the toys, grocery & household and drugstore categories.

Total debt (consisting of short-term borrowings, long-term debt and capital lease obligations) was $4.7 billion at November 2, 2013, compared to $3.1 billion at February 2, 2013. The increase in borrowings funded our operations, including the loss for the period, seasonal inventory build, pension contributions and capital expenditures. Availability under our credit facilities was $1.7 billion ($1.0 billion domestic and $0.7 billion at Sears Canada, prior to taking into consideration possible reserves) at November 2, 2013.

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Weak sales, more promotions hurt Sears
By Dhanya Skariachan
Dow Jones Newswire
November 21, 2013

(Reuters) - Sears Holdings Corp (SHLD.O: Quote, Profile, Research, Stock Buzz) reported a wider quarterly net loss on Thursday after sales fell at both its namesake department stores and its Kmart discount chain and it invested in more promotions targeting rewards members.

The company is trying to engineer a turnaround. Sales have been falling since 2005, when hedge fund manager Edward Lampert merged the two U.S. chains in an $11 billion deal.

The net loss in the third quarter ended on November 2 widened to $534 million, or $5.03 a share, from $498 million, or $4.70 a share, a year earlier.

Excluding severance costs, tax-related adjustments and a pension expense, the loss was $2.88 a share.

Sales fell 6.7 percent to $8.3 billion, missing the analysts' average estimate of $8.9 billion, according to Thomson Reuters I/B/E/S.

Sears has been closing stores, tightly managing inventory, selling real estate and shedding assets, but the retailer is still struggling to generate cash from its operations.

Wall Street has criticized Lampert for not investing enough in stores and for relying on financial engineering to boost profits. On Thursday, he said Sears was spending more to make targeted offers to members of its Shop Your Way rewards program. He said 70 percent of sales are now made to Shop Your Way members.

Sales at stores open at least a year fell 3.1 percent, including a decline of 2.1 percent at Kmart. At that chain, weak demand for groceries, consumer electronics and toys offset strength in the apparel and "seasonal and outdoor living" categories.

A 4 percent drop at Sears Domestic reflects decreases in most categories, including the consumer electronics, lawn and garden, tools, home appliances and apparel.

At the end of the quarter, total debt was $4.7 billion.

The Hoffman Estates, Illinois-based company recently refinanced some debt, sold its stake in eight properties it owns with the Westcliff Group and terminated some store leases in Canada. It said it was on track to generate $2 billion of liquidity during the fiscal year.

On his own and through his ESL Investments hedge fund, Lampert holds about 55.34 percent of Sears stock, according to the latest U.S. securities filings.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)

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Sears Appears to Be a Stuffed Turkey
Wall Street Journal
November 21, 2013

These door busters may be a bust.

Sears Holdings Corp. attracted tongue lashings for agreeing to open its stores to members of its loyalty program from the crack of dawn on Thanksgiving through the wee hours of the night on Black Friday. Adding injury to insult, the step won't do much for its battered bottom line, according to retail analysts.

Sears underscored how grim the situation is on Oct. 29, saying sales fell 3.7% on a comparable basis versus a year earlier in the previous 12 weeks. It also projected deeper losses for the fiscal third quarter through Nov. 2, which it will unveil Thursday.

Pretty awful, right? Not for investors, who have seen the stock rally 48% in the past three months. Hedge-fund manager Edward Lampert has proved hopeless as a retailer since taking control of Sears in 2005. Recent enthusiasm represents a bet that he will be a far better liquidator.

In late August, with the stock below $42 and bets that it would fall further weighing on the price, a report by shareholder Baker Street Capital Management on the potential breakup value of the company's real estate sparked a rally. It estimated the company's top 350 owned and 50 leased stores alone, out of over 2,000 in total, were worth "at least" $7.3 billion.

The company's profit warning two months later poured more fuel on the breakup fire. The big news in the release was the possibility of spinning off clothing retailer Lands' End. Though few figures are available, it could be valued at about $1.8 billion, based on the same multiple of revenue as Gap Inc. And Sears has already sold about $700 million of assets this fiscal year while cutting working capital needs.

With its share price now near $62, though, Sears's debt-adjusted market value is nearly $10 billion, not far off some estimates of its potential breakup value. That is only 27% of revenue, less than a third of the ratio at Macy's Inc. and barely half that of struggling J.C. Penney Co. But the discount isn't so tantalizing any more given Sears's dreadful operating performance.

Investors who weren't early birds on this one can stay home and enjoy their turkey instead.

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J.C. Penney Loss Widens
By Tess Stynes
Dow Jones Newswire
November 20, 2013

J.C. Penney's fiscal third-quarter loss widened as the department-store retailer's sales and margins weakened and the bottom line took a tax hit.

However, shares rose in early trading as investors nonetheless were encouraged by the progress that the retailer said it has made in recent months.

"Our strategies to reconnect with customers are beginning to take hold, and this became increasingly clear as the quarter progressed," Chief Executive Myron Ullman said. "We are proud of the company's October sales performance, encouraged by the early weeks of November, and believe we are making strides toward a path to long-term profitable growth."

Mr. Ullman reiterated Wednesday that the company expects to report positive same-store sales for the fourth quarter.

The company recently reported its same-store sales rose in October--the company's first monthly same-store sales increase since December 2011 and a potential sign that its turnaround strategy is making some progress.

J.C. Penney is struggling to turn itself around after former chief executive Ron Johnson's failed effort to remake the retailer by doing away with promotions and eliminating in-house brands.

Investors were watching for signs of whether the recently improved sales trends can be sustained, as well as the rate Penney is burning through cash.

In the latest period, women's and men's apparel and fine jewelry were the top performing merchandise divisions, while the company's cash burn was $737 million.

Also of interest to investors was the company's outlook for the critical holiday-sales season.

"We are committed to building on our progress by winning this holiday season," Mr. Ullman said Wednesday. He added that the company's new marketing campaign, which launched this week, is aimed at reminding customers that Penney is a destination for holiday gifts that fit a budget.

Like its rivals, Penney plans to go aggressively after Black Friday sales and is planning to open its doors on Thanksgiving Day. Analysts have been anticipating a highly promotion holiday-shopping season, which could weigh on margins in the retail sector.

For the period ended Nov. 2, J.C. Penney reported a loss of $489 million, or $1.94 a share, compared with a year-earlier loss of $123 million, or 56 cents a share. The latest period included negative tax-valuation allowance impacts of 73 cents a share and restructuring-related charges of 18 cents a share.

Excluding certain items, but not the tax-valuation allowance, the per-share loss was $1.81, compared with a year-earlier loss of 93 cents.

Sales decreased 5.1% to $2.78 billion, compared with a drop of 27% reported a year earlier.

Analysts polled by Thomson Reuters had expected a per-share loss of $1.77 and revenue of $2.79 billion.

Gross margin fell to 29.5% from 32.5% on lower clearance margins caused by to the overhang of inventory from the first two quarters of the year and Penney's return to a promotional pricing strategy.

Same-store sales dropped 4.8%, compared with analysts' expectations for a decline of 4.2% and the year-earlier decline of 26%. Online sales through jcp.com rose 24.5%.

The company ended the quarter with $1.23 billion of cash and cash equivalents, compared with $525 million reported a year earlier. Total debt was $5.61 billion.

Crections & Amplifications
An earlier version incorrectly said the per-share loss of $1.81 excluded the tax-valuation allowance.

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Sears And J.C. Penney: A Tale Of Two Fading American Retailers
By Panos Mourdoukoutas, Contributor
Wall Street Journal
November 19, 2013

For years, American retail icons Sears and J.C. Penney had one thing in common: they've been serving the middle class working American consumer, seeking good quality products at reasonable prices. Recently, they have one more thing in common: they both distanced themselves from this group through a series of strategic mistakes committed by leadership.

J.C. Penney tried to move upscale. They refurbished stores, and did away with coupon discounts, as discussed in previous pieces.

The old policy had been working well, because it hypes consumer emotions, making them feel smart and encouraging them to talk with other consumers about it. That's how hype and buzz begins.

JC Penney did away with this strategy after Ron Johnson assumed the helm of the company, modeling the company's stores after those of Apple. At the same time, J.C. Penney changed its product line to cater to upper scale consumers rather than the middle class consumer. The rest is history.

Sears has suffered from a series of strategic mistakes. In 1981, Sears, Roebuck & Co. made the first strategic mistake -- diversification outside its "core" retailing business into financial and real estate services, by purchasing the Dean Witter Reynolds securities firm and the Coldwell Banker real estate operation.

The problem, however, was that these new business lines had little synergies with the company's core business.

Besides, it offered Sears' competitors -- like Macy's Inc., Wal-Mart Stores and Home Depot Inc. -- an opportunity to invade the company's market.

In 2006, Sears made its second mistake, restructuring its operations into several units, often run by people with little retailing experience. It should come as no surprise that this policy was doomed to fail, as evidenced by the company's financial results in recent years.

In the last two years, Sears made its third strategic mistake -- selling-off company stores. The problem with this was most likely that it constituted sale of the wrong products at the wrong time.

Sears' stores are usually stand-alone units in local community malls, which have been falling out of favor among shoppers who prefer big shopping malls. Sears' sales further come at a bad time, as the commercial real estate market is in a glut that depresses prices.

Two weeks ago, Sears announced that it was considering splitting off its Lands' End and Sears Auto Center brands. In the meantime, the company continues to neglect its core retail business, as graphically described by New York Times David Gellies in "For Once-Mighty Sears, Pictures of Decay." Sears seems to be moving downscale, at least when it comes to consumer experience.

To be fair, J. C. Penney has taken a number of steps to revive its business -- like the bringing back of coupon discounts, and by selling additional shares to raise cash. Sears has been raising cash from store sales, which could be spent to modernize the remaining stores.

Will these moves be sufficient to save these two American icons?

It is probably too early to say. What we can say, however, is that the two retailers do not seem to enjoy the popularity they once enjoyed among loyal customers.

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Tower Envy
Chicago Tribune - Editorial
November 13, 2013

It used to be the tallest building in America. It used to be the tallest in the world. It used to be the Sears Tower.

Now Chicago's Willis Tower is second, um, banana to New York's not-yet-completed One World Trade Center, which was declared tallest in the nation Tuesday by the Council on Tall Buildings and Urban Habitat, the official arbiter of disputes over the height of skyscrapers.

Council members from all over the world huddled here last week to decide whether the tower rising from the rubble of Manhattan's ground zero would claim the top spot in the U.S.

Yes, this required a panel of experts, and not just because nobody could find a really long tape measure. At issue was whether the pointy thing atop the New York building should count as an architectural element or an antenna.

The council determines the height of a building from the sidewalk to its "architectural top." A spire, mast or other adornment counts as part of the structure. An antenna doesn't.

One World Trade Center aspires to a symbolically significant height of 1,776 feet, including a 408-foot needle piercing the sky. Last year, its developer scratched plans to enclose the needle in a fiberglass-and-steel sheath called a radome. The move saved $20 million, but it left the building with a topper that looks suspiciously like an antenna.

Without the needle -- we can state this confidently without involving a panel of experts -- the building would measure 1,368 feet tall. The Willis Tower, minus antennas, is 1,451.

But the council decided the pointy thing is a real part of the New York building, and just like that, Chicago was second again. Don't jump! The earth kept turning after Chicago lost the world's tallest building title to the Petronas Twin Towers in Kuala Lumpur, Malaysia, in 1996.

Being named the "tallest in America" is good for little more than bragging rights for the building's tenants and steady tourist traffic for its ground floor gift shop. (If you own a souvenir replica labeled "World's Tallest," be sure to snap up a now-dated "America's Tallest" to go with it.)

That's because the U.S. has all but conceded the skyscraper Olympics to cities like Dubai, Taipei, Hong Kong and Shanghai. Eight of the world's 10 tallest buildings are in the Middle East and Asia. Saudi Arabia's Kingdom Tower, now under construction, will be 3,281 feet tall.

This brings us to the concept of "vanity height" -- defined by the council as "the distance between a skyscraper's highest occupiable floor and its architectural top." Anxious to measure up in the international skyline, modern developers are adding height to their buildings by piling them with unusable structures rising hundreds of extra feet.

Dubai's Burj Khalifa -- currently the world's tallest building at 2,717 feet -- is topped by 800 feet of unusable ornamentation. That means almost 30 percent of the world's tallest building is "vanity height."

New York's Bank of America tower registers 36 percent, according to archdaily.com.

"The average vanity height in the United Arab Emirates is 19 percent, making it the nation with the 'vainest' supertall buildings," the website notes, adding that once One World Trade Center is finished, "New York City will be home to three of the world's top 10 vanity heights."

Knock yourself out, New York. Chicago has a much more important architectural challenge on its hands. The Realtor Building -- across Michigan Avenue from the Tribune Tower, at the south end of the Magnificent Mile -- is due for a major overhaul. Its owners say it soon will be "the next destination building in the iconic Chicago skyline." That's good news for the neighborhood.

But what about the Goat? Since 1964, the Billy Goat Tavern has been housed below Michigan Avenue, in a part of the Realtor Building not even visible from the sidewalk. It's a watering "hole" in the truest sense and the very opposite of vanity height. It must be saved.

Chicago can live without the title of America's tallest building. But the Billy Goat has to stay.

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World Trade Center Back on Top
By Eliot Brown
Wall Street Journal
November 13, 2013

Skyscraper Council Affirms 1,776-Foot Measurement; Willis Tower to No. 2

The World Trade Center is back on top.

The Lower Manhattan site's signature tower on Tuesday secured the designation as the country's tallest building at 1,776 feet, as the nonprofit Council on Tall Buildings and Urban Habitat ruled its 408-foot mast was considered part of the building's architecture.

The ruling by the Chicago-based group--the accepted arbiter on matters of skyscraper height--wrests the vertical crown from Chicago's Willis Tower, the formerly named Sears Tower that measures 1,451 feet tall to its roof and has been the country's tallest since it was completed in 1974.

"We determined the structure above the mass of the building was in fact a spire," giving One World Trade Center the height title, said Timothy Johnson, the council's chairman and a partner at architecture firm NBBJ. The designation is set to go into effect when the building opens in 2015.

The bragging rights became clouded over a decision last year to remove an architectural shell for the mast from One World Trade's design on account of maintenance and cost concerns. The move sparked criticism at the time from building's lead designer, David Childs, as it left behind steel beams, broadcast equipment and maintenance platforms that weren't meant to be seen. It also left room for debate given that the council's brief guidelines say spires that are part of the architecture count while antennas don't.

But late last week, Mr. Childs and another architect from Skidmore, Owings & Merrill LLP flew to Chicago to urge the council to count the mast, saying the symbolic 1,776-foot height was a key part of the design of the tower, the signature building at the rebuilt site.

The argument was compelling, Mr. Johnson said, as the council believes the mast has numerous features that differentiate it from a standard antenna. Those include plans for a colorful night lighting display and a bright beacon at its top.

Not everyone is so convinced, particularly in America's second city. "If it looks like an antenna, acts like an antenna, then it is an antenna," Chicago Mayor Rahm Emanuel said Tuesday. "At the Willis Tower you have a panoramic view that is unmatched. You can't get a view like that from an antenna."

The global landscape for sky-high towers has changed much since One World Trade was planned a decade ago, when it would have been the tallest in the world.

Since then, two towers taller than One World Trade have been completed and six others are under construction, according to the tall buildings council. All are in Asia, ending decades of U.S. claim to top towers. The world's tallest building, Dubai's Burj Khalifa, is 53% taller than One World Trade at 2,717 feet.

The decision comes as a relief for One World Trade's owners, the Port Authority of New York and New Jersey and the Durst Organization LP, as officials had been concerned the council would rule against counting the spire. After all, the mast didn't come cheap: it cost $21 million to build and install, according to the Port Authority.

The 1,368-foot north tower of the original World Trade Center had a brief tenure as the world's tallest from 1972 to 1974, when it was ceded to Chicago, according to the council.

Such high-stakes decisions have caused stirs before. The skyscraper council was rebuked by Chicago architectural devotees in the 1990s, when it ruled that the spires atop the Petronas towers in Kuala Lumpur put their official height above the Sears Tower to become the world's tallest.

Since the Petronas ruling, spires have become commonplace and grown ever-higher. The tall buildings council recently released a report that found spires today can account for more than 30% of a skyscraper's total height, up from less than 10% in the 1970s and 1980s.

The council even created a term for the practice: "vanity height."

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Tallest building ruling: Willis Tower loses to One World Trade Center
By Blair Kamin
Chicago Tribune
November 12, 2013

Tallest building ruling: Willis Tower loses to One World Trade Center

One World Trade Center will be the nation's tallest building when it is completed next year.

One World Trade Center will be the nation's tallest building when it opens next year, a Chicago-based tall buildings council announced Tuesday, a decision that drew a quick rebuke from Mayor Rahm Emanuel.

The decision by the Chicago-based Council on Tall Buildings and Urban Habitat hinged on whether the tower's mast was a spire, which counts in height measurements, or an antenna, which doesn't.

"Even though the cladding was taken off the spire, you can still see that it is an architectural element," said Antony Wood, executive director of the Chicago-based Council on Tall Buildings and Urban Habitat. "It is not just a plain steel mast from which to hang antenna or satellite dishes."

Emanuel forcefully disagreed, defending the supremacy of Chicago's skyline.

"I just saw the decision," the mayor said. "And I would just say to all the experts gathered in one room, if it looks like an antenna, acts like an antenna, then guess what? It is an antenna. That's number one.

"Number two," he continued, "I think (with) the Willis Tower you will have a view that's unprecedented in its beauty, its landscape and its capacity to capture something. Something you can't do from an antenna. Not that I'm competitive. So for all those who want to climb on top of an antenna and take a look, go ahead. I would suggest stay indoors and take a look."

But the council ruled that One World Trade Center's mast is a spire because it will be a permanent feature, its height locked in at a symbolic 1,776 feet. In doing so, the council accepted the argument of the skyscraper's architect and developers that the mast is part of the building's fixed height of 1,776-feet. That distinguishes the mast from an ordinary antenna, like the one atop Willis, whose height can be changed.

"We know that it is a permanent feature because of the sacrosanct nature of the 1,776 height," Wood said. "The key word is permanence."

"We felt it was really a designed element," not just a functional piece of equipment, added Peter Weismantle, the chair of the council's height committee.

The council also sided with the New Yorkers in ruling that World Trade Center's bottom, or baseline for measuring its height, should be considered its main entrance facing south toward the National Sept. 11 Memorial, not the building's north entrance. Because of the skyscraper's site slopes, the north entrance is 5 feet, 8 inches lower than the main entrance.

The council's height standards state a building's height is measured from its lowest outdoor entrance to its architectural top. If One World Trade Center's height was measured from the north entrance, the building would be 1,781 feet tall--still the nation's tallest, but without the symbolic ring of 1,776 feet.

"That entrance is not classified as significant," Wood said. Ninety-nine percent of people will be entering One World Trade Center off the memorial plaza, he added.

Wood said the height committee's decision was "virtually unanimous." One member of the committee abstained.

Wood and Weismantle said the committee felt no political pressure to rule in favor of One World Trade Center.

Wood said One World Trade Center would only become the nation's tallest building next year when it is at least partially occupied. The decision will end Willis Tower's reign of roughly 40 years as the nation's tallest building.

Willis Tower officials issued a statement emphasizing the features of the Chicago skyscraper for visitors--among them "the unique thrill and excitement of standing at the highest point in any building in the country, 1,353 feet above ground"--and downplaying any competition for the title of the country's tallest building.

"Willis Tower welcomes One World Trade Center to the elite club of the world's tallest buildings," the statement read. "Willis Tower has never seen this as competition between two iconic buildings. One World Trade Center is a stunning architectural feat and it is a symbol of the resilience of the American people."

Widely acknowledged as the arbiter of skyscraper height disputes, the private council announced its decision in simultaneous Chicago and New York press conferences.

Reflecting intense public interest in the decision, the announcement was made before a bank of television cameras in a packed room of the 16th floor of the IIT Tower at the corner of State Street and 35th Street. The room looked out to the Chicago skyline, including Willis Tower.

The announcement culminated weeks of speculation about the ruling, which drew widespread attention because it would finally settle the issue of whether Chicago or New York could claim bragging rights to having the nation's and the Western Hemisphere's tallest building, as well as whether One World Trade Center would achieve the symbolic height of 1,776 feet.

Willis Tower, completed in 1974 and once the world's tallest building, is 1,451 feet tall. Dubai's Burj Khalifa, the current holder of the title, is 2,717 feet tall.

The council's height committee met for 3 1/2 hours last Friday at the Illinois Institute of Technology, where the council is headquartered. Representatives of the Port Authority of New York and New Jersey, a co-developer of One World Trade Center, addressed the committee, as did the skyscraper's architects, the New York office of Skidmore, Owings & Merrill.

Twenty-five members of the committee were present, according to Daniel Safarik, a spokesman for the tall building council.

Of the nine Americans on the committee, five are from Chicago, Safarik said. They include the committee's chairman, Peter Weismantle, director of supertall building technology at the firm of Adrian Smith + Gordon Gill Architecture, and William Baker, chief structural engineer at the Chicago office of Skidmore, Owings & Merrill.

According to Safarik, two committee members are from New York.

The council's spokeman pointed out that a majority of the committee members present Friday were from outside the U.S. They were from such countries as Australia, Belgium, Canada, China, Denmark, Finland, Germany, Italy, Luxembourg, Qatar, the the United Arab Emirates and the United Kingdom.

"I think the Chicago-New York thing is pretty overblown," Safarik said. "It is a global organization."

In 1996, the council stripped Chicago's Willis Tower, then known as Sears Tower, of its world's tallest building title in a dispute that favored the Petronas Towers in Malaysia. The council ruled that the Malaysian towers' decorative spires, which edged 33 feet higher than Sears' roof, should count in height measurements.

In making that decision, the council affirmed its longtime standard that spires, like those atop New York's Chrysler Building, are integral to a building's architectural design while broadcast antennas, like those Willis, are not.

"Between Petronas and Sears, it was really a non-issue," said Chicago structural engineer Shankar Nair, the council's former chairman, who participated in the 1996 vote. "It was a foregone conclusion what the decision would be."

The One World Trade Center issue was more complex than the 1996 case because the tower's 408-foot mast was designed to be a spire that would elevate the skyscraper, whose roof is 1,368 feet tall, to total height to 1,776 feet.

That number, which architect Daniel Libeskind proposed in his competition-winning master plan for ground zero, was meant to symbolize the year the Declaration of Independence was adopted and American resolve in the face of the 9/11 terrorist attacks.

But eyebrows were raised at the council last year when it became known that the co-developer of the One World Trade Center, the Durst Organization, had decided not to clad the mast in a tapering, fiberglass and steel enclosure called a radome. The developers insisted the radome would be difficult to maintain. The decision saved an estimated $20 million in construction costs.

Without the covering, the mast, which reached its full height in a "topping-out" ceremony last May, consists of a conventional steel pole surrounded by round catwalks. At the time of the topping-out, it was widely reported that the tower had reached the height of 1,776 feet tall and was America's tallest building.

But the elimination of the radome raised the issue of whether the mast should be considered an antenna, which would not count in the official height measurements.

It did not help One World Trade Center's case when the skyscraper's architect, David Childs of Skidmore, Owings & Merrill, said in response to the Durst decision: "We are disappointed that a decision has been made to remove the sculptural enclosure at the top of 1 World Trade Center. Eliminating this integral part of the building's design and leaving an exposed antenna and equipment is unfortunate."

This September, SOM backed off Childs' earlier statement, but did not explain why the council should continue to heed its view that the mast still qualified as a spire.

Appearing before the height committee, Childs did "a mea culpa," the council leaders said.

Also in September, the council issued a provocative report which noted that skyscrapers around the world were padding their heights with ever-rising amounts of non-occupiable space atop the buildings. The council called the trend "vanity height." It pointed to such examples as Dubai's Burj Al Arab tower. Thirty-nine percent of the tower's overall height consists of un-occupied space at the tower's top.

"People have started designing to the rules," Nair said. They're "putting on spires just to get the record."

Some observers viewed the report as a pretext that would set the stage for the council to modify its long-running spire-versus-antenna distinction--and take the previously unthinkable step of ruling that One World Trade Center's mast is not a spire. The mast accounts for nearly 30 percent of the skyscraper's height."

Last Friday, just hours after the council heard arguments on the matter, the Port Authority conducted what it said was a test of decorative lighting for the mast. Hundreds of red, white and blue LED modules lit up the mast. A beacon shined on top of the mast. Port Authority officials said the glow from the lights would be visible up to 50 miles away. The message of the test seemed clear: The mast is a spire.

On Monday, on the eve of the council's announcement, One World Trade Center's web site continued to refer to the skyscraper as "the tallest building in the Western Hemisphere."

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Discover Financial Services Shares Could Rise 20%
By Jack Hough
Wall Street Journal
November 10, 2013

Don't judge Discover Financial Services by the stickers on store windows. Visa and MasterCard are accepted at far more locations, but Discover's payment network contributes only a small portion of its profit, serving mostly to facilitate its main business of consumer lending.

There, the company (DFS) is steadily taking share from big banks in card balances while delving into lucrative new products. Earnings should top $5 a share next year and shares, recently near $52, could gain 20% over the next year.

On average since 2011, Discover has lifted card balances by 5% year-over-year in each quarter, versus 1% for the industry, according to Deutsche Bank analyst David Ho, who initiated coverage of the stock in October with a Buy recommendation.

One reason is that customers tend to use their Discover cards more than other cards, perhaps because of the company's rewards programs, where it can be generous because it operates its own network.

Last year, Discover's credit-card loans outstanding grew 6% to $50 billion, ranking it No. 6, just behind Capital One Financial. Card balances grew more slowly at American Express and they shrank at giants J.P. Morgan Chase, Bank of America and Citigroup.

The past five years have been marked by consumers paying down debt and regulators cracking down on credit-card gimmicks like teaser rates and hidden fees.

Discover has increased share in a difficult environment, while branching out with new products other lenders have had to pull back on, like student and personal loans, including newly launched home-equity loans.

It's growing organically, and cautiously. Student loans are restricted to traditional colleges--not for-profit ones, which have higher default rates--and most loans have cosigners.

Home-equity loans are installment loans, not lines of credit. The new products bring diversification; credit-card interest income has fallen from more than 95% of revenue to 80% last year.

A recent rise in consumer spending could spur faster growth for Discover, and its home-equity business is poised to prosper.

Payments for many home-equity lines of credit are poised to jump over the next three years as the loans shift from interest-only payments to full payments. Discover's installment loans could offer prime borrowers a way to refinance and keep payments manageable.

Discover ranks better than peers on cardholder default rates and the amount of money recovered after defaults, and it has smaller average lines of credit, all of which keeps risk in check.

Shares go for about 10 times next year's earnings estimate of $5.07. A 20% price gain over the next year would put them at almost 12 times the 2015 estimate of $5.32 a share. For comparison, the S&P 500 index trades at 14.5 times next year's projected earnings.

Jack Hough is a senior editor for Barron's.

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High drama: Meeting today on whether Willis Tower loses rank
Crain's Real Estate
November 8, 2013

(AP) -- Rising from the ashes of 9/11, the new World Trade Center tower has punched above the New York skyline to reach its powerfully symbolic height of 1,776 feet and become the tallest building in the country. Or has it?

A committee of architects recognized as the arbiters on world building heights is meeting today to decide whether a design change affecting the skyscraper's 408-foot needle disqualifies it from being counted. Disqualification would deny the tower the title as the nation's tallest.

But there's more than bragging rights at stake; 1 World Trade Center stands as a monument to those killed in the terrorist attacks, and the ruling could dim the echo of America's founding year in the structure's height. Without the needle, the building measures 1,368 feet.

What's more, the decision is being made by an organization based in Chicago, whose cultural and architectural history is embodied by the Willis -- formerly Sears -- Tower that would be knocked into second place by a vote in favor of the New York structure.

"Most of the time these decisions are not so controversial," said Daniel Safarik, an architect and spokesman for the nonprofit Council on Tall Buildings and Urban Habitat. The 30 members of its Height Committee are meeting to render a judgment behind closed doors in Chicago, where the world's first skyscraper appeared in 1884.

The committee, comprising industry professionals from all over the world, will announce its decision next week.

CHANGE TO NEEDLE DESIGN

The question over 1 World Trade Center, which remains under construction and is expected to open next year, arose because of a change to the design of its tower-topping needle. Under the council's current criteria, spires that are an integral part of a building's aesthetic design count; broadcast antennas that can be added and removed do not.

The designers of 1 World Trade Center had intended to enclose the mast's communications gear in decorative cladding made of fiberglass and steel. But the developer removed that exterior shell from the design, saying it would be impossible to properly maintain or repair.

Without it, the question is whether the mast is now primarily just a broadcast antenna.

According to the architecture firm behind the building, Skidmore Owings & Merrill LLP, the needle will have a communications platform for radio and television equipment, but it will also be topped with an LED beacon that will fire out a horizontal blaze of light visible from 26 miles away -- a feature that has been described as a crowning beacon of hope.

Safarik said the committee might consider amending its height criteria during the meeting today -- a move with much broader implications that could force a reshuffle in the rankings of the tallest buildings in the world.

If the matter weren't so steeped in emotion it might have set off some of the good natured ribbing emblematic of the history of one-upmanship between New York and Chicago. But 1 World Trade Center is a monument to American resilience admired well beyond Manhattan.

"I don't think anybody's going to argue with the pride in building that new tower," said 31-year-old software developer Brett Tooley, who works across the street from the Willis Tower. "Not only is it going to be the tallest building; it's going to be one of the strongest buildings in the history of America. It's a marvel of engineering."

'HATS OFF TO THEM'

"We take our hats off to them out here in Chicago and the Midwest," said Robert Wislow, chairman and chief executive of U.S. Equities, the firm that manages the Willis Tower. "And we welcome the building to the elite club of the tallest buildings in the world. Nobody's looking at this like a competition."

Still, the Willis has a central place in Chicago's history, speaking to the city's own tradition of recovering from adversity ever since the 1871 Great Fire and its history of creating architectural marvels, said Peter Alter, an archivist at the Chicago History Museum.

Skidmore Owings & Merrill, headquartered in Chicago, also designed the Willis, which opened as Sears Tower in 1973 and remained the tallest building in the world until 1996 when the council ruled that the Petronas Twin Towers in Kuala Lumpur, Malaysia, had knocked it from the top spot.

And the Willis can still claim to get visitors up higher: The highest occupied floor in the 1,450-foot (not including antenna height), 110-story Willis Tower is still higher up than that of the 104-story 1 World Trade Center.

At the Willis' 103rd floor thrill-seekers can step out into one of the glass boxes known as The Ledge that extend outside the building's steel frame and look straight down 1,353 feet.

In New York, the debate was upsetting to Jim Riches, a retired fire department deputy chief who lost his 29-year-old firefighter son, Jimmy, in the terrorist attack.

"You know what? I think it's a ridiculous argument. It doesn't matter to me what height it is," he said. "You know, my son's not going to walk back in that door again. And that's the big thing. He's gone."

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Size Does Matter, At Least In The Tallest Building Debate
By David Schafer and Joel Rose
NPR
November 8, 2013

There's a question that's looming over the new skyscraper at the World Trade Center site in New York: Should it count as the tallest building in the country?

The developers say yes. But by some measures, the Willis Tower in Chicago -- formerly known as Sears Tower -- can still lay claim to the title.

Now, an obscure organization known as the Council on Tall Buildings and Urban Habitat is preparing to settle the debate.

"It's a seminal moment for skyscrapers," says Antony Wood, the council's executive director. "It doesn't come along every year."

The issue has been hanging over the architecture world since the spring, when construction crews hoisted a 400-foot metal mast into place at the top of One World Trade Center. As far as New Yorkers are concerned, it's now the tallest skyscraper in the hemisphere.

"It's a fact. It's taller," says Jerry Romano of New Jersey. "It doesn't matter to me. I'm just stating facts."

Veronica Smalls of Harlem agrees. "It has to be the tallest," she says.

"Not one of the tallest," interrupts her friend Tyreek Jones of Brooklyn, " 'cause New York City needs to be known as No. 1."

Technically, One World Trade Center is 1,776 feet, from the ground up to the light at the top of the mast, which makes it more than 300 feet taller than the top of the Willis Tower. But the observation deck at the Chicago landmark is actually farther from the ground than the highest occupied floor of One World Trade Center.

"We're standing on a sheet of glass, looking 1,353 feet straight down to the street," says Bob Wislow, standing on a ledge extending out from the sky deck on the 104th floor of the Willis Tower.

Wislow is a lifelong Chicagoan who watched this building go up 40 years ago. Now he's chairman and CEO of the company that manages it. Wislow says he has great respect for New York and for the developers and builders of One World Trade Center, which he calls a great symbol of American resilience. But, "I do think technically, if you strictly interpret the rules, that this would continue to be the tallest building," he says.

"I think it's pretty amazing," says Gloria Aragon. She lives in Chicago's suburbs and comes to the top of Willis Tower because the view is from a height that you cannot get anywhere else. "Just looking out at the architecture of the city surrounding on the ledge is a pretty unique experience," she says.

Even visitors from overseas agree. Lee Colgan and her family are visiting the sky deck from England.

"I think Chicago should have it, yeah," says Colgan. "The mast doesn't matter -- it's the floors, in my eyes."

But Colgan doesn't get to decide; the Council on Tall Buildings and Urban Habitat does. It's based in Chicago -- suspiciously -- but it's made up of people from all over the world. Its 30-member "height" committee will be debating these buildings on Friday.

"The last time we did this, in 2007...we spent all day talking," says Wood.

In the mid-1990s, the Sears Tower lost the title of the world's tallest building to the Petronas Towers in Malaysia (which have since been surpassed by others). Wood says "the decision was made then to distinguish between architectural height and material height. And that got distilled down to spires versus antenna."

An antenna is just functional -- something with a technical purpose stuck on top of the building after it's finished. Spires are considered a continuation of the form of the building.

The council decided that antennas should not count toward height, but spires do count because they're part of the architectural design of the building.

That brings us back to that 408-foot mast on top of One World Trade Center: Is it a spire, as the designers argue? Or is it just an antenna? It certainly can and will function as an antenna, but it was part of the original architectural design to reach up to the symbolic height of 1,776 feet.

What's causing controversy is that the developers and the Port Authority of New York and New Jersey eliminated an ornamental fiberglass and steel cladding that was part of the original design, making it look to some more like an antenna now than a spire.

In addition, some members of the council are growing concerned about the increasing use of spires to reach what Wood calls "vanity heights." For example, the current tallest building in the world, the Burj Khalifa in Dubai, has a spire of 800 feet, which is a third of the building's total height.

"What it really comes down to is this: What are we measuring?" asks Wood. "If we are measuring man's ability to put materials above the plane of the earth, then it should just be material, irrespective of what that material or function is. Or, are we measuring man's ability to put man above the plane of the earth? Are we going with the highest occupied floor? Or something in between?"

The Council on Tall Buildings will be debating those issues at its meeting Friday in Chicago. Of course, this whole debate is sort of academic.

Neither the Willis Tower nor One World Trade Center is going to be able to claim the title of tallest building in the world. But the decision could set a precedent for tall buildings that will be around for a long time. The group could announce a decision as soon as next week.

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Walmart.com Can't Live With Glitchy Prices
By George Anderson
Retail Wire
November 7, 2013

Stuff happens. It's a basic fact anyone involved with operating a website knows. Amazon.com knows it, eBay does, the U.S. government certainly does and so too does Walmart.

Yesterday, an unexpected glitch on Walmart.com caused prices on some items to drop dramatically. The retailer first, apparently, fixed the problem but was then left to figure out the resulting damage and a response to customers who took advantage of the deals that, as it turns out, were too good to be true.

Internet Retailer reported that news of Walmart's low prices hit social sites yesterday, including one deal on a Cricut Expression 2 Electronic Cutting Machine for $4.80. The deal advertised a savings of $244.20. The same item, which was later listed as out-of-stock on the site, has a price of $224.10 currently on Walmart.com.

By last night, Walmart appears to have determined who received unintended rollbacks and sent an email apologizing for the problem and cancelling their orders. The company said it would send anyone inconvenienced by the glitch a $10 e-gift card via e-mail for them to use on a future order.

Not everyone is happy with Walmart's response. Lila Ecker, a Walmart.com shopper from Grand Rapids, MI, told WOOD TV 8, "If you go to the store and something is marked wrong on the shelf, they will sell it to you for that price. So shouldn't they do the same thing online? I think so."

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Sears Holdings: Death by 1,000 Cuts?
by AnnaLisa Kraft, The Motley Fool
Daily Finance
November 6, 2013

Sears Holdings has announced it's lopping off more assets by splitting-off the Land's End brand and Sears Auto Center. This follows the split-offs of its Orchard Supply Hardware, Sears Canada, and Sears Hometown and Outlet Stores . The company also announced more sales of US Sears stores in prime malls and the sale of five Sears Canada store leases.

Although the announcement initially boosted the stock by some 12%, enthusiasm has waned as investors wonder how much more the company can amputate to offset mounting losses. The company pre-announced negative earnings before interest, taxes, depreciation, and amortization of $250-$300 million for the third quarter, a worse loss than the prior year's quarter negative adjusted EBITDA of $156 million. This would translate to a net loss between $532 and $582 million for the third quarter.

Cutting into the muscle

Morningstar analyst Paul Swinand told Reuters,"They have cut the fat. Now they are cutting in the muscle." The goal of all of this surgery? According to the Sears Holdings press release, nothing less than the "...transformation into a leading integrated retailer that fosters relationships with members through our Shop Your Way platform."

Sears added real-life Moneyball hero Paul De Podesta to the board and to manage big data on the "Shop Your Way" loyalty program. The members' program is primarily an online platform somewhat like the "Cartwheel" member initiative at Target or J.C. Penney's "JCPRewards" program. It's quite possible that Sears' brick and mortar presence will be virtually nil in a few short years.

A Zack's analyst note applauds the loyalty program and split offs saying,"We commend the company's strategy of capitalizing on opportunities, while increasing profitability through its revamped organizational structure and new operating model. All these measures will expectedly drive top- and bottom-line growth."

Brian Sozzi of Belus Capital Advisors has doubts that will happen. Of these latest divestitures he said, "... with today's announcement, they are dismembering their body". Weeks before, Sozzi posted photos of the decrepit condition of various Sears stores he visited to better illustrate his Sell recommendation.

But Michael Santoli, senior columnist for Yahoo! Finance and a Barron's contributor, approved CEO Eddie Lampert's reluctance to waste capital to freshen up Sears and KMart stores a la J.C. Penney.

Santoli goes so far to say,"Lampert has carved up the company in a way that seems to ensure its financial liquidity while maintaining a wide array of options for preserving and increasing eventual investor value -- even if the physical retail business is radically shrunk or even wound down."

Sum-of-the-parts investors who believe Sears' real estate creates a value of $100-plus a share don't really care if Sears Holdings ever recovers as a retailer. Hedge fund legend Bruce Berkowitz of Fairholme Capital Management has been aggressively buying Sears, claiming it owns more real estate than Simon Properties, the mall developer.

Large stakeholder Baker Street Capital issued a 139 page property-by-property appraisal in September, concluding that Sears' top-400 locations could net more than $7.3 billion if sold. Including the 500 remaining locations, Sears Holdings' real estate portfolio is conservatively worth $8.3 billion.

Healthier alternatives

Earlier this year, hedge fund titan Whitney Tilson of Kase Capital wrote in an investor note that he suspects Sears Holdings' CEO Eddie Lampert is quietly transferring the best of Sears' assets over to Sears Hometown as the company shutters more of the big-box Sears stores. Tilson took a starter position in Sears Hometown.

Sears Hometown and Outlet has more than 1,000 stores that resell Sears merchandise at discounts, and parent Sears allows the outlet to sell back merchandise that hasn't moved. Tilson noted Sears Hometown and Outlet Stores have the advantage of being 85% franchised, and Lampert owns a larger stake in Sears Hometown at 62% than in Sears Holdings at 56%.

Tilson said he would have taken a larger position but for valuation. The stock is now on sale, off more than 50% from its 52-week high after a dismal second quarter report in which net income declined from $0.91 per share in the prior-year quarter to $0.40.

Alternatively, Target is worth considering. It's growing in Canada, offers a 2.7% yield, and is trading at a trailing earnings multiple of 15.6. It, too, is on sale, under-performing the S&P 500 index this year.

In a challenging retail environment, Target's aforementioned "Cartwheel" mobile deal and coupon app may give the company the edge over rival Wal-Mart this holiday season. Target also plans to have the popular ship-to-store option available during the holiday season.

Target has a net profit margin of 3.7% and a price-to-sales ratio of 0.6. This compares favorably to Sears Hometown's net profit margin of 1.7%. As for Sears Holdings, with a negative net profit margin of -4.7%, it costs money just to have employees show up.

Cut to the chase

Sears Holdings is a battleground stock performing battlefield surgery on itself. Sum-of-the-parts investors have fewer parts now to count on. Sears and KMart stores will soon be shadows of their former selves.

Both Sears Hometown and Target have better prognoses than Sears Holdings. Of the two, Target is the better value, but Sears Hometown is having a big sale.

Who wins as the biggest retailer in the world loses?

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As Penney Sales Improve, Worries Remain
Wall Street Journal
November 6, 2013

Gross Margin and Cash Burn Are as Important as Reviving Revenue

JCP in Your Value Your Change Short position is expected to say this week that its sales turned positive in October -- but that won't quell worries about the retailer's financial health.

Any improvement in sales would be welcome news, indicating that the 1,100-store chain is doing a better job of converting its inventory into cash. The concern, though, is that sales won't rise fast enough or be profitable enough to head off the need to raise more cash next year.

Penney shares have risen over the past two weeks, and the retailer's bonds have followed suit, reflecting investors' anticipation of better news. That emphasis on sales gains misses the mark, says David Tawil, the co-founder and portfolio manager of Maglan Capital.

"The important metrics will be gross margin and cash burn, not comp-store sales," said Mr. Tawil, whose fund doesn't currently have a position in Penney's stock.

Kristin Hays, a Penney spokeswoman, declined to comment on financial performance, citing the quiet period before its earnings release later this month.

Penney hasn't reported a quarterly increase in comparable-store sales since the middle of 2011. Suppliers generally say sales have improved, although one large apparel vendor says progress has been slower than hoped. Moreover, there are concerns that gains are coming at the expense of profit margins as the chain takes heavy markdowns to clear unsold goods.

Any damage to profitability will be evident when the company reports results for the third quarter, expected on Nov. 20.

"We expect results to be weak, as improving comps are offset by poor gross margins," wrote Kristen McDuffy, a Goldman Sachs Group Inc. credit analyst, in a note to clients. ("Comps" refer to sales at stores open at least a year.)

Ms. McDuffy joins other analysts who say Penney will likely need to raise fresh capital in 2014. The big question is whether Penney can generate enough cash in the year ahead to stop burning through its reserves.

Monica Aggarwal of Fitch Ratings said the company needs to bring in a minimum of $650 million next year in earnings before interest, taxes, depreciation and amortization, or ebitda. That would be enough to cover $360 million in interest payments on Penney's debt and capital expenditures of $300 million.

To get there, Ms. Aggarwal said Penney will need to boost its sales--which totaled $13 billion last year--by as much as $500 million next year and widen its gross margin to 40% from about 30%. Fitch expects the company to post negative Ebitda of $1 billion to $1.2 billion this year.

Despite the gains of the past few weeks, Penney's stock remains in the single digits and fell slightly Tuesday to $8.31. The shares are down nearly 58% so far this year. The cost of insuring its bonds against default, meanwhile, remains elevated.

Not all Penney investors expect more bad news. Prices of its bonds have broadly risen over the past week, a sign some debt investors are optimistic that the retailer is on track to meet its year-end liquidity goal.

Some people "are feeling more encouraged that [Penney] will have adequate liquidity to get through next year, which gives them more time to let the turnaround unfold," said Evan Mann, an analyst at Gimme Credit, a debt research firm.

A Penney bond that comes due in October 2036 has gained 11% from a week ago to 71.8 cents on the dollar, yielding 9.4%, according to bond trading platform MarketAxess.

Penney is struggling to overcome a disastrous year under former Apple Inc. executive Ron Johnson, who presided over a $1 billion loss on a 25% drop in sales during his first full year as chief executive. In April, Penney rehired former CEO Myron "Mike" Ullman to replace Mr. Johnson in the top job. Mr. Ullman is bringing back popular in-house brands and reinstating coupons, both of which had been eliminated by Mr. Johnson.

Mr. Ullman reaffirmed at an industry conference last week that Penney expects to be on track to have positive comparable sales coming out of the third quarter.

While suppliers say sales are improving for men's suits as well as children's and women's clothing, sales of home products continue to suffer deep declines, a problem that is particularly acute since home merchandise accounts for 11% of Penney's overall sales.

Mr. Johnson overhauled the home departments to feature more upscale designers like Michael Graves, Jonathan Adler and Martha Stewart. But the more expensive products and edgier styling turned off Penney's core shoppers. Penney recently unwound parts of its pact with Ms. Stewart's company in an effort to resolve a year-long dispute with Macy's Inc., which claimed the agreement violated a similar deal Macy's had struck with Martha Stewart Living Omnimedia.

Mr. Ullman is now moving to undo many of Mr. Johnson's changes, including restocking the home departments by category rather than by brand. But because of the longer lead times for many of these products, the fixes to the home departments aren't expected to be completed until next spring. suppliers said.

Some suppliers who require third-party financing to fund their deliveries to the retailer have faced tighter credit. Rosenthal & Rosenthal, a "factoring" company that pays suppliers up front and then collects later from Penney, raised the surcharge it imposes for Penney suppliers several weeks ago to 2% from 1% and is now financing only 70% to 80% of the goods that are delivered.

Suppliers say they have continued to ship to the retailer despite the added expense and exposure, because Penney continues to pay on time and sales are improving. Penney says that factoring accounts for less than 5% of its overall sales.

Penney bolstered its liquidity by raising $785 million in a stock sale in late September. In April, the company secured a $1.75 billion loan arranged by Goldman Sachs.

The company has said it expects to finish the year with more than $2 billion in cash and cash equivalents. Yet, Fitch downgraded Penney's debt deeper into junk territory on Oct. 2, in part because it said the company is burning through cash faster than expected.

-- Serena Ng contributed to this article.

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Sears, Kmart to Open Most Stores on Thanksgiving
By Ben Fox Rubin
Dow Jones Newswire
November 6, 2013

Sears Holdings Corp. (SHLD) said most of its Sears and Kmart stores will open Thanksgiving Day, with Kmart stores being open for 41 hours straight through "Black Friday."

Kohl's Corp. (KSS), Macy's Inc. (M) and OfficeMax Inc. (OMX) recently said many of their stores will open at 8 p.m. on Thanksgiving. Retailers have in recent years been trying to get a jump on Friday shopping by opening on Thanksgiving, in an effort to boost struggling sales during the slow economic recovery. The move was also an attempt by traditionally brick-and-mortar companies to keep up with online retailers, which started offering Thanksgiving Day deals.

Last year, despite an outcry from some employees and traditionalists, national chains including Wal-Mart Stores Inc. (WMT), Target Corp. (TGT), Toys "R" Us Inc. and Sears Holding opened their doors on Thursday. Macy's, along with Best Buy Co. (BBY) and Kohl's Corp., waited until midnight.

While Kmart has routinely been open on Thanksgiving for many years, Sears only a few years ago joined its sister retailer by opening up stores that day.

Kmart stores will open at 6 a.m. on Thanksgiving and remain open until 11 p.m. on Black Friday, Nov. 29. Sears stores will open at 8 p.m. on Thanksgiving and close at 10 p.m. on Black Friday. Locations in Massachusetts, Rhode Island, Maine and Puerto Rico won't be open on Thanksgiving Day, due to state laws.

Sears shares were up 1.6% at $59.09. The company's stock is up 43% so far this year.

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Aetna CEO explains why Obamacare is causing insurance premiums to skyrocket
By Jason Pye
United Liberty
November 5, 2013

Many Americans who have been pushing into Obamacare's health insurance exchanges have experienced sticker shock at the cost of health insurance plans available to them. Some are wondering why this has happened after President Obama promised Americans "affordable" health insurance.

During an interview last week, Maria Bartiromo, host of CNBC's Closing Bell, asked Aetna CEO Mark Bertolini about some of the insurance premium horror stories that she and others in the media are hearing and asked what exactly is causing the cost of plans to necessarily skyrocket.

"[W]e spoke with two people yesterday who so upset. Intitially, her plan cost her, I think it was $250 a month. It's gone up to $600 a month, the new plan. And then the other, it was costing her $500, it went up to $2,000," noted Bartiromo. "I mean, the numbers are skyrocketing in terms of what these new plans are costing. Is it just because there's just a lot more things in there, and many of these things, they don't even want?"

"I mean, they said, ‘I don't need this, I don't need that. I don't need child care, that's not what I'm looking for.' How come it's so much more expensive, the new plans?" she asked.

Bertolini explained that there are three factors that are behind the skyrocketing premiums, taxes and fees, Obamacare's "minimum essential benefits."

"The largest factor is that the essential benefits requires a minimum of a 60% actuarial benefit," noted Bertolini. "For most Americans and more than half of Americans who buy individual coverage, there current benefit plan is below 50%. So if you just move up to 60%, that's a 20% increase out of the box."

For those who don't know, the actuarial benefit is the share of medical expenses for which the insurance company is responsible. The insured pays the remainder through copayments, deductibles, and coinsurance. The higher the actuarial benefit, the lower the out-of-pocket cost to the insured.

Part of Bertolini's comment on this particular point can also be read as a dig at President Obama, who had promised Americans could keep their health insurance plan if they liked it. He subtly pointed out that "most Americans and more than half of Americans who buy individual coverage" don't have a health plan that meets the actuarial benefit requirements mandated by Obamacare.

"Secondly, there's anywhere from 4% to 5% in taxes and fees associated with the new Affordable Care Act," Bertolini continued, adding later that Aetna will pass $1 billion in taxes and fees in Obamacare to consumers. "And there are changes, the third thing is there are changes in rating. There are more benefits required. There are changes, you know, in preexisting conditions."

"So all those things add up to an average increase we've seen across the United States, depending on the market, of anywhere from 30% to 40%, ranging anywhere from low single digits, all the way over 100% increases," he added.

There were some other good parts of this interview. Bertolini would later dive into the impact that Obamacare is having on the job market based on what Aetna is seeing in its large group accounts. He does note that they are seeing decreases in overall employment and more part-time employment.

President Obama has insisted that the cost of coverage is cheaper and that the benefits are better than plans that many people have had in the past. The problem with that statement is that a health insurance plan is only substantially cheaper if you qualify for subsidies (people with incomes of up to 400% of the poverty level, or up to $94,000 of income for a family of four in 2014).

The Kaiser Family Foundation estimates that 48% of Americans who purchase coverage on the exchange will have access to the subsidies. Those who don't qualify, because they make to much money, will have to pay the full cost of health insurance coverage on the exchanges.

Even with the subsidies, the costs for health insurance coverage are still extraordinarily high for young people, a segment of the population desperately needed to make the math behind Obamacare work. Some may even choose to go uninsured, rather than have to pay substantially more for coverage than they did in the past.

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More Doubts About Sears' Strategy
Barrons
November 2, 2013

Planned asset sales could deprive the company of needed profit to shore up its struggling retail operations. Why are investors so sanguine? Stock buybacks, better profits boost Bank of New York's prospects. And golf-equipment maker Callaway finally escapes the rough.

Sears Holdings is shedding more assets to raise cash and create value for investors. But the disposition of healthier assets could pose problems as the company tries to shore up its deteriorating retail operations.

Sears announced last week that it sold five Canadian store leases for 400 million Canadian dollars (US$383 million), and might separate its Lands' End brand and Sears Auto Center. The company says it aims to become more focused and easier to understand and manage, but some skeptics question that explanation. Chairman and CEO Edward S. Lampert "effectively is trying to separate the good assets from the bad assets," says Paul Swinand, an analyst at Morningstar. "The question is, who gets left holding the bag of bad assets?

Sears said it might shed more assets, including Lands' End and its auto centers.

A company spokesman disagreed with that view: "We are continuously evaluating our asset structure and whether specific assets and/or businesses are better managed within the current Sears Holdings asset configuration or outside it."

Barron's recently expressed doubts about Sears' strategy and asset value ("Sears Rally Belies Big Worries," Oct. 14), but investors remain sanguine. The stock has rallied 6% since our story, and last week rose 4%, to $58.17. Some bearish analysts think Sears is worth only $20 to $30 a share, based on appraisals of its real estate and operating assets.

Sears Canada once operated in seven of Canada's 10 best malls. Sears has sold six of those locations since 2011, including the two leases sold last week, says Matt McGinley of International Strategy & Investment Group.

Lands' End could be worth $1.2 billion to $1.6 billion, he estimates. The auto centers could be worth another $900 million, he adds

Sears distributed almost 45% of Sears Canada shares last year, and spun off Sears Hometown and Outlet Stores (SHOS), whose shares closed last week at $27.08. The company spun off Orchard Supply Hardware Stores in 2011; it recently filed for bankruptcy protection.

If Sears can separate Lands' End and Sears Auto via equity offerings, it will be able to raise cash. If the separations occur through spinoffs, no new cash will be raised.

Sears Holdings is expected to lose $607 million in the fiscal year ending in January, on revenue of $37 billion, largely due to problems at the Sears and Kmart retail chains. Management said last week that same-store sales fell 3.7% for the 12 weeks ending Oct. 26.

Sears investors remain hopeful that the company's strategy will yield positive results, but their optimism seems misplaced.

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How JCPenney Could Ruin The Industry's Holiday Season
By Ashley Lutz
Business Insider
November 1, 2013

JCPenney's desperation to get shoppers in stores could set off a promotional war in retail.

Morgan Stanley analysts say that JCPenney is expected to put merchandise on sale to attract customers, activating a "panic button" within the retail industry.

"We predict JCP will offer extremely deep discounts early in the season... putting pressure on other retailers to do the same," the analysts write in a recent report titled "Expect Coal: We Predict The Weakest Holiday Season Since 2008."

The discounts could end up hurting retailers' profits.

While customers have more money to spend on holiday gifts this year, they are hesitant because of Congressional discord and weaker consumer confidence, according to the report.

JCPenney has been racing to get ahead for the lucrative holiday season.

The company recently hired a new lead marketer who told AdAge that the retailer would have a "robust promotional schedule" this holiday.

JCPenney's share price has tumbled nearly 70% in the past year.

The company fired failed CEO Ron Johnson in April after his strategy to eliminate promotions and fill JCPenney with expensive merchandise alienated customers.

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Sears Decides Two Offspring Not Enough, Looking at Lands End Spin
By David Benoit
Wall Street Journal
October 30, 2013

For the third time in two years, Sears Holdings is talking about creating a separate company for one of its brands. Its track record of separations, like its financial results, is a bit mixed.

Sears is considering spinning off to investors the Lands' End brand after failing to find a private-equity buyer, it said Tuesday. The transaction could see Sears create a separate company for Lands' End and deliver the shares to existing Sears investors.

The retailer tried the same tactic twice since the start of 2012. One has already gone bankrupt and is being sold to a rival. The other is down 10% since its opening trades but up 87% from the price Sears holders were able to get it at.

At the start of 2012, Sears handed its own shareholders the stock of California hardware-store chain Orchard Supply Hardware. For every 22.14 shares of Sears held, an investor was given a share of Orchard Supply. About a year and a half later, Orchard Supply was in bankruptcy after struggling with its balance sheet and sliding sales, as well as the burden of costs from being public. It has reached a deal to be bought by rival Lowe's for $205 million.

In October of 2012, Sears moved to spin off another hardware business, the Sears Hometown & Outlet Stores Inc. This time it did a rights offering, giving each shareholder of Sears a right to purchase the stock of Sears Hometown & Outlet for $15 each. The stock opened at $31 on its first day of trading and closed as high as $56.65 in June of this year, but has slid for several months to $28.10 in recent action.

In each instance, Sears has made the case that separating the business from the broader Sears would allow management to focus on improving operations and decide what to do independently, without having to consider the impact to Sears. It would also allow investor choice, Sears said about Orchard's and Hometown's spin off.

"Regarding Lands' End, we believe that Lands' End is an iconic brand with the potential to become a more global brand," Sears said in a statement Wednesday, helping shoot its own stock up 12%.

To be clear, Orchard Supply and Hometown were different beasts, as will be Lands' End.

Orchard Supply operates 89 stores solely in California, a market that it warned in its prospectus was volatile. Sales had declined each year from 2006 to 2010, losing more than a quarter of its total revenue over the period, according to its prospectus. The first half of 2011 was trending lower too.

Profits were also falling, with 2010's income barely one third of 2006′s. Orchard Supply's gross margin also were contracting, and it listed long-term debt of $310.5 million as of July 2011, the last update before the spin went official

Not exactly the kind of company in which investors leap to buy.

Hometown, meanwhile, operated more than 1,200 stores in all 50 states and the U.S. territories and sold appliances, tools and hardware. Its sales were largely flat over the four years ended 2011. Its 2011 profit was off 43% from 2007. Still Hometown continued to make $33 million that year.

Most importantly: Hometown had zero long-term debt.

Sears doesn't break out Lands' End results, and didn't even mention the unit on its most recent conference call. That the company spent a year trying to find a private-equity buyer and didn't could raise some concerns for investors, but the performance of the company, and balance sheet, are likely to be far more important.

As seen in Orchard Supply and Hometown, raising a new company is as much nature as nurture.

In October of 2012, Sears moved to spin off another hardware business, the Sears Hometown & Outlet Stores Inc. This time it did a rights offering, giving each shareholder of Sears a right to purchase the stock of Sears Hometown & Outlet for $15 each. The stock opened at $31 on its first day of trading and closed as high as $56.65 in June of this year, but has slid for several months to $28.10 in recent action.

In each instance, Sears has made the case that separating the business from the broader Sears would allow management to focus on improving operations and decide what to do independently, without having to consider the impact to Sears. It would also allow investor choice, Sears said about Orchard's and Hometown's spin off.

"Regarding Lands' End, we believe that Lands' End is an iconic brand with the potential to become a more global brand," Sears said in a statement Wednesday, helping shoot its own stock up 12%.

To be clear, Orchard Supply and Hometown were different beasts, as will be Lands' End.

Orchard Supply operates 89 stores solely in California, a market that it warned in its prospectus was volatile. Sales had declined each year from 2006 to 2010, losing more than a quarter of its total revenue over the period, according to its prospectus. The first half of 2011 was trending lower too.

Profits were also falling, with 2010's income barely one third of 2006's. Orchard Supply's gross margin also were contracting, and it listed long-term debt of $310.5 million as of July 2011, the last update before the spin went official

Not exactly the kind of company in which investors leap to buy.

Hometown, meanwhile, operated more than 1,200 stores in all 50 states and the U.S. territories and sold appliances, tools and hardware. Its sales were largely flat over the four years ended 2011. Its 2011 profit was off 43% from 2007. Still Hometown continued to make $33 million that year.

Most importantly: Hometown had zero long-term debt.

Sears doesn't break out Lands' End results, and didn't even mention the unit on its most recent conference call. That the company spent a year trying to find a private-equity buyer and didn't could raise some concerns for investors, but the performance of the company, and balance sheet, are likely to be far more important.

As seen in Orchard Supply and Hometown, raising a new company is as much nature as nurture.

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Sears Resorts to Spin
By Justin Lahart
Wall Street Journal
October 30, 2013

With Its Business Still Flailing, It's Tough to See How Splitting Off Some Operations Will Turn

Edward Lampert needs to convince Edward Lampert that the parts of Sears Holdings are worth more than their sum.

How else to describe Tuesday's news that Sears is considering unloading its Lands' End brand and Sears Auto Center businesses? Mr. Lampert is the company's CEO as well as its biggest investor, controlling a combined 55% of the company's shares through his individual holdings and those of his hedge fund are worth more than their sum.

The company also said it is selling five store leases in Canada for 400 million Canadian dollars (US$383 million) and that it will continue to close some stores as leases expire. And it said that with same-store sales continuing to deteriorate, it expects to post a net loss of up to $582 million in the quarter that ends Saturday. On balance, investors decided the news was good, sending Sears shares up more than 10%.

Sears explained that the moves to split its businesses--a shareholder spinoff for Lands' End, an as-yet unspecified transaction for the auto business--would let the two divisions "pursue their own strategic opportunities, optimize their capital structures, attract talent, and allocate capital in a more focused manner."

The implication is that, despite Mr. Lampert's control, these are things Sears management isn't able to set in motion if the businesses remain as one.

ISI Group analyst Greg Melich estimates that Lands' End as a stand-alone business is worth $1.2 billion to $1.6 billion, while the auto business might fetch about $900 million. In an "orderly liquidation," where Sears was able to extract value from its real estate and brands as it methodically wound down its operations, what remains would be worth about $2.1 billion, by his reckoning. That implies a stock price of about $40--better than Mr. Melich's target of $25 (he believes Sears business will continue to deteriorate next year), but below its closing level of $62.09 on Tuesday.

Mr. Lampert has had years to convincingly turn Sears around, and hasn't done so. The latest maneuver looks more like a reshuffling of the deck than dealing the business a new hand

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Sears Considers Splitting Off Lands' End, Auto Centers
Chicago Tribune
October 29, 2013

(Reuters) - Sears Holdings Corp is considering splitting off its Lands' End clothing and Sears Auto Center businesses, after another quarter of declining same-store sales.

The company's shares rose 7 percent, as investors assessed the latest attempt by the operator of Sears department stores and the Kmart discount chain to turn around its business.

Analysts said recent moves to dispose of assets, while perhaps negative in the long term, could reassure creditors and vendors and help to ensure sufficient liquidity for now.

Sears has been suffering from declining sales since 2005, when hedge fund titan Edward Lampert merged the two iconic chains in an $11 billion deal.

Sears, still controlled by Lampert, said on Tuesday that same-store sales for the 12 weeks ended October 26 fell 3.7 percent.

The company said it now expected a net loss of between $532 million and $582 million for the third quarter ending November 2, wider than the $498 million loss reported a year earlier.

The company will release its results around November 21.

Battling intense competition from Target Corp , Wal-Mart and Amazon Inc , Sears launched last year a turnaround plan including shutting stores, selling real estate and shedding other assets.

Sears spun off its Orchard Supply Hardware Stores unit in December 2011. It announced plans in 2012 to spin off its Sears Hometown and Outlet businesses and certain hardware stores.

"They have cut the fat. Now they are cutting in the muscle," Morningstar analyst Paul Swinand said, referring to the company's plan to consider separating businesses such as Lands' End.

Hoffman Estates, Illinois-based Sears said any separation of Lands' End would not be structured as a sale but would be through a deal that would benefit shareholders.

Lampert indicated in 2012 that assets such as Lands' End, which Sears bought for about $2 billion in 2002, could be separated.

The company said on Tuesday that it is exploring strategic alternatives for Sears Auto Center, which offers auto repair services and spares. It has started repositioning the business around non-tire related services.

Sears also said that Sears Canada Inc , in which it holds a 51 percent stake, would sell five store leases, including its flagship downtown Toronto store, to Cadillac Fairview Corp Ltd for C$400 million ($383 million).

Sears said it is looking to close even more underperforming Sears and Kmart stores and use the savings to fund its more profitable outlets.

The company's shares were up at $59.43 on the Nasdaq on Tuesday morning.

($1 = 1.04 Canadian dollars)

(Reporting by Siddharth Cavale in Bangalore and Dhanya Skariachan in New York; Editing by Saumyadeb Chakrabarty and Kirti Pandey)

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Five Disturbing Signs That Sears Is Getting Closer To Death
By Ashley Lutz
Business Insider
October 28, 2013

Sears is in trouble.

The company has shut down hundreds of stores in recent years and has been selling its most profitable locations to raise cash.

Today, the company made the big announcement it was considering spinning off its Land's End and Sears Auto Center businesses--a huge sign that the brand is deteriorating, said Brian Sozzi, chief equities strategist at Belus Capital Advisors.

"Every asset sale brings Sears closer to death," Sozzi said.

Here are the five most disturbing announcements Sears made today.

1. Spinning off properties. Parting ways with its well-known Land's End and Sears Auto businesses shows that the Sears brand is desperate to raise cash, Sozzi said. "The company is pushing off the inevitable," Sozzi said. "Because here is the real deal: at some point in our lifetime, Sears will run out of assets to sell to raise cash to fund operations."

2. Sears is bombing in Canada. The company is selling off prime real estate there, opening up space for competitor Target, Sozzi said.

3. Sales are down. The namesake brand's domestic sales are down 4.8%, putting Sears in a way worse position than competitors like Wal-Mart or Target.

4. The company isn't investing in the future. "Sears says it's 'managing its capital expenditures more efficiently'...and that's the problem," Sozzi writes. "Sears spent 0.9% of its annual 2012 revenue on capex...Macy's spent 3.4%."

5. Rewards program. The "Shop Your Way" rewards program is "eating the company from the inside out," Sozzi said. "It's driving lower quality sales today and opening the floodgate for even more margin-killing promotions in the future."

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Sears considering spinning off Lands' End
By Anne D'Innocenzio, AP Business Writer
Minneapolis Star-Tribune
October 29, 2013

NEW YORK -- Sears is considering separating its Lands' End and Sears Auto Center businesses from the rest of the company as it seeks to focus its attention on bolstering its business at its Sears and Kmart stores.

The retailer also plans to continue closing some of its unprofitable stores as it moves ahead on its turnaround efforts.

The moves come as Sears Holdings Corp., headed by hedge fund billionaire Eddie Lampert, announced another quarter of declining sales. The company has been working for some time to cut costs and lower its debt, but it's been an uphill battle.

"(Sears) equity remains a melting ice cube, with asset sales and spinoffs the clearest path to justifying the share price," noted Greg Melich, an analyst at International Strategy & Investment Group LLC in a report published on Tuesday.

Shares rose $3.60, or 6.5 percent, to $59.17 in morning trading.

Sears said Tuesday that it would likely pursue a spinoff of Lands' End and not a sale. The retailer purchased the catalog retailer in 2002 amid high hopes among Wall Street that it would help boost the image of Sears and bolster its clothing departments.

But Brian Sozzi, CEO and Chief Equities Strategies at Belus Capital Advisors, says that Sears hasn't done much to display it well in the stores.

"The merchandise looks very poor in the stores," he said. "The consumer doesn't have an emotional connection."

Sears also said that it has already started repositioning Sears Auto Center around services other than tires and is evaluating strategic options for the business.

Sears anticipates closing unprofitable stores, including those locations whose leases are set to expire soon. The retailer said that it would take the capital from the unprofitable locations and redeploy it elsewhere.

In addition, Sears Canada is selling five store leases to Cadillac Fairview Corp. for 400 million Canadian dollars. ($383.5 million). The deal is expected to close in the next 10 business days.

The Hoffman Estates, Ill., company also announced that its third-quarter sales at stores open at least a year fell 3.7 percent. The figure dropped 4.8 percent for Sears locations and declined 2.6 percent for Kmart stores.

Sales at stores open at least a year is a key gauge of a retailer's health because it excludes results from stores recently opened or closed.

Sears, which has nearly 2,500 stores in the U.S. and Canada, expects to report its quarterly financial results on Nov. 21.

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Glaxo shifting retirees to health exchanges
By David Sell
Philadelphia Inquirer
October 24, 2013

GlaxoSmithKline P.L.C. is the latest large company to save money now and in years to come by shifting medical costs for future retirees from its company-sponsored plan to insurance policies purchased individually on health-care exchanges.

The London-based drugmaker with about 5,000 employees in Pennsylvania and New Jersey said Wednesday that it saved about $431.8 million for the third quarter of this year because of changes it explained to employees in September related to postretirement medical obligations.

Although the Affordable Care Act has spurred exchanges that will be used by adults of all ages who need to purchase insurance, Medicare plans offered by insurers have been sold via online exchanges for several years. Medicare is the government-funded insurance plan for those 65 and older.

Under the plan, Glaxo will put money into a Health Reimbursement Account (HRA), which the retiree will use to buy insurance on the exchanges.

Glaxo has about 5,500 Medicare eligible retirees in the United States. Current Medicare-eligible retirees will have a one-time choice, to remain in the company plan or opt for the fixed amount and shop for a better plan.

For now at least, current employees and the 4,000 retirees who are not yet Medicare-eligible will continue on the company plan but will be automatically enrolled in the Glaxo Medicare HRA when they become Medicare-eligible.

Based on years of service, Glaxo will pay up to $1,500 per person annually, with dependent contribution capped at $1,160 per person.

IBM said it would shift about 110,000 retirees to a private exchange starting Jan. 1. General Electric Co. is doing the same. DuPont Co. previously did. Walgreen Co. said it was joining the still-small, but growing list of companies moving current employees to a privately managed health-care exchange.

Glaxo chief executive officer Andrew Witty was not specific about further changes in this realm in 2014 or beyond. A spokeswoman said there were no plans as of now to move current employees to health-care exchanges.

"What we are saying to them is rather than having to take the package we offer you, we are going to give you an amount of money for you to choose your package," Witty said in a conference call with reporters Wednesday.

"The benefit to the employee is it gives them more choice and it gives them an ability to match their needs, and health-care expectations, to the market.... The benefit for the company is we have a definition around the contribution that we are giving."

Drug companies are on both sides of the health-care cost debate because they want high prices for drugs, but their employees and retirees want health-care costs covered.

Some big employers have stopped paying retiree health-care benefits entirely, partly because of the immediate cost and partly because projected expenses require setting money aside to meet accounting rules.

Some of those still paying have shifted from a defined-benefit plan to a defined-contribution plan, as occurred with the shift from company-run pension plans to company contributions to employee-run 401(k) accounts.

"The emerging trend is moving current employees to exchanges and getting out of health insurance all together," said Bruce Elliott, manager of compensation and benefits at the Society for Human Resource Management. He estimated 1 or 2 percent of the Fortune 500 had done so, with others watching and waiting.

HEALTH CARE

Even companies that profit from drugs and health-care services have to deal with costs for their own employees and retirees.

Drugmaker GlaxoSmithKline said Wednesday it was switching future Medicare-eligible retirees to a defined- contribution health-care plan, under which people will get a set amount to buy insurance on an exchange.

IBM and General Electric are shifting retirees to private exchanges.

Walgreens said it would shift some current employees.

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Nobody Wants To Shop At Sears
By Ashley Lutz
Business Insider
October 21, 2013

Sears, once America's golden retailer, is a company in crisis.

The company has shuttered hundreds of stores in recent years. The embattled company has been selling some its most profitable stores to raise money.

Brian Sozzi, chief equities strategist at Belus Capital Advisors, took poignant photos inside of New Jersey and New York Sears locations.

"To understand why Sears is in a 'sell stores mode' one must look no further than the stores themselves, where the truth is to be found," Sozzi writes.

His photos show the sad reality of what Sears is today.

View Photos

Comments

weston: I once worked hardware on the side. It got old working for corporate types that knew nothing about what the store sold and had to go by a corporate plan rather than sell items that would sell well in the area. There was just no common sense. A college degree doesn't mean person knows anything...

Sandra: I'd shop in a less than attractive store if the prices were low, but the prices at Sears are just as high as Macy's. I can remember 45 years ago when literally everything my family bought was from Sears, but I haven't bought anything there in years. The quality has gotten really low. Same for..

Bradley!: What you are looking at is the new corporate America. True retailers would not allow the conditions shown in the photo's. Holding companies have no business running retail! It is the same with American Manufacturing, the money is there but they are squeezing all they can with what few employees...

Rowdy: Yes, the ones trying to close their doors look like this. The one I occasionally shop at is still in full swing. The employees could use some work though.

MARVIN: My grandson works at a Sears in the electronics dept. He sold a 78" TV for over $1500. The customer wanted to take it with him to watch a football game. There was no stock only the display model and the customer walked out

bdm: walmart take notice...your shelves are not much better...

seriously: Was in Sears last week, for the first time in a long time, looking for boots. There was nobody working in the shoe department, or in any of the departments in the vicinity of the shoe department. The display boot was discolored and dirty. When someone did come over, they were out of my size. It's...

Brian: A perfect example of what greed, mis-management and demographics can do to a once great retail giant.

S: I used to love getting the Sears Wishbook in the mail in early fall. It was so neat. Now days, everything is on demand and people are impatient.

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Larry Cudmore, retired Sears President, dies at 77
Oct. 19, 2013

Lawrence E. (Larry) Cudmore, retired President of Sears Merchandise Group, died Thursday, October 17 in Shrewsbury, MA after a long struggle with Alzheimer's disease. He was 77.

Larry had a long and successful career with Sears, Roebuck and Co., and his work took him and his family to various parts of the country, including Westborough, Newtown Square, PA, Oakville, Ontario, Canada and Chicago. He served as CEO and President of the Canada division and later as President of Sears Merchandise Group in Chicago before retiring in 1993.

He graduated from Brockton High School where he played varsity basketball on the team that won the state championship at the former Boston Garden in 1954. He was recruited to play basketball and study at Colby College where he earned his Bachelor of Arts degree.

From a friendship that formed in the third grade with Jane E. Caldwell to courtship that tagged them high school sweethearts, they married on February 4, 1956 in Brockton. Jane died December 1, 2011.

They maintained a summer home in Pocasset, In later years, they divided their time between the Cape and Venice, FL.

In addition to his wife of 55 years, he is predeceased by his brother, Donald.

He leaves his children, Kristina C. Callaway of Lebanon, NH, Susan L. Powell of Worcester, Andrew J. Cudmore and his wife, Jennifer of Princeton and John C. Cudmore and his wife Caroline of Winnetka, IL, nine grandchildren and his brother Thomas and his wife, Diane of Yarmouthport.

Family and friends will honor Larry's life at the Pocasset Golf Club on Wednesday, October 30 with a memorial service at 11 a.m. Interment will be private.

To honor his memory and struggle with Alzheimer's, the family suggests a contribution to Alzheimer's Association, 480 Pleasant Street, Watertown, MA 02472.

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Sears CEO Lampert loses 4th appliances chief in 5 years
By Lauren Coleman-Lochner
Chicago Tribune
October 16, 2013

Sears Holdings Corp., which has watched appliance sales slide at a time when many consumers are upgrading washing machines and dishwashers, has parted ways with the former Sony manager hired to reboot its Kenmore brand.

Steve Haber will leave at the end of this month to be closer to his family on the West Coast, Howard Riefs, a spokesman, said Wednesday in an e-mailed statement. Haber is the fourth appliance chief to leave in the past five years, joining a revolving door of managers who have come and gone since Chief Executive Officer Eddie Lampert merged Sears with Kmart in 2005.

Appliance sales have been thriving as U.S. consumers defer smaller purchases to spend on their homes. Even though Sears owns the popular Kenmore brand, its home appliance sales declined in the quarter ended Aug. 3, even as competitors such as Lowe's Cos. posted strong gains in the category.

Competition for those sales "is a lot more acute than it was two or three years ago," said Matt McGinley, a managing director at International Strategy & Investment Group in New York. Sears's market share has declined from 42 percent in 2002 to 27 percent in the last quarter, he said.

Haber joined Sears in 2012 after more than 20 years at Sony Corp., where he oversaw U.S. consumer-electronics sales and introduced two video cameras that gained top market share.

He couldn't immediately be reached for comment.

Separately, Sears said it named Nick Grayston as president of Sears apparel and jewelry in addition to his role heading the home and footwear units. Grayston replaces Lana Cain Krauter, who retired after taking the position in February 2011.

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J.C. Penney Sees Improving Sales Trends
By Ben Fox Rubin
Wall Street Journal
October 9, 2013

Struggling Retailer Says Turnaround Efforts 'Making Solid Progress' But Still in 'Early Stages'

J.C. Penney Co. on Tuesday reported improving sales trends in September but noted that turning around the struggling retailer is still in the early stages.

At stores opened more than a year, sales fell 4% last month, an improvement over the roughly double-digit declines in August and the second quarter.

"Over the last six months, we have made significant strides and are now seeing positive signs in many important areas of the business, in spite of what continues to be a difficult environment for consumers and retailers in general," said Chief Executive Myron E. Ullman .

He acknowledged, though, that the company is "still in the early stages of the turnaround," and Penney suggested challenges remain, such as improving traffic at mall-based stores, weaker profitability because of discounting and fixing its home department.

Nonetheless, investors were encouraged by the improvement in sales. Shares, which have fallen 61% in 2013 and are trading at multidecade lows, jumped about 6% in early trading.

Penney is struggling to overcome a year and a half under former Chief Executive Ron Johnson . Mr. Johnson cut back discounts and did away with some popular house brands without first testing the moves, which drove away shoppers and plunged the company into the red.

Tuesday, Penney said it's "making solid progress" in its turnaround efforts, with its core customer reconnecting with the department store, especially during promotional events.

"Reconnecting with our customers and getting them into our stores is a top priority," Mr. Ullman said. Still, the company said customer traffic at its mall-based stores "continues to be difficult."

Mr. Ullman, who returned to the helm of Penney in the spring, has brought back discounts and is stocking more of the house brands that the retailer was known for, including women's apparel labels Worthington and St. John's Bay. He's also trying to rework the chain's home departments after a costly revamp planned by Mr. Johnson failed to catch on with consumers.

The retailer acknowledged that "getting the new 'home' strategy up and running has been more challenging than originally planned." While the company has re-opened all but a handful of its 505 new home departments, "the merchandise assortment, shopping environment and price points have not resonated with customers, and sales trends remain weaker in stores," Penney said.

In addition, the retailer said overall profits continued to be squeezed because of more sales of discounted materials as well as the company's transition back to a promotional pricing strategy.

On the positive side, Penney said sales at JCP.com continue to trend double digits ahead of last year and are up 19% in the third quarter to date. September sales on JCP.com rose 25% from a year ago.

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Sears Cashes Out of Prime Stores
By Suzanne Kapner
Wall Street Journal
October 9, 2013

Several of Its Most-Profitable Locations Have Been Sold

Sears Holdings Corp. has been selling off some of its best stores to raise cash, an unusual strategy that makes it harder for the struggling chain to improve its sales even as it helps shore up its financial position.

The discounter has sold nearly a dozen profitable Sears stores in the U.S. and Canada over the past 18 months, including two separate deals that were signed this summer for four stores plus an option to sell a fifth, according to former employees and analysts who have tracked the deals.

That is a small number for a company that operates 2,000 Sears and Kmart stores in the U.S. and 148 Sears stores in Canada. Still, it is an indication the company is faced with tough choices between succeeding as a retailer and unlocking the value in its property.

In July, Sears agreed to sell two locations, one in the Fayette Mall in Lexington, Ky., and another in Cool Springs Galleria in Nashville, Tenn.

The CoolSprings store sat on good real estate but wasn't that profitable, former Sears employees said. But the Fayette store turned a tidy profit, they said.

Spokesmen for Sears U.S. and Sears Canada SCC.T in Your Value Your Change Short position declined to comment on individual store performance, but said that when Sears did sell stores or leases that were performing well, the upfront cash payment outweighed the loss of operating income. Sears owns 51% of Sears Canada.Sears U.S. spokesman Howard Riefs broadly disputed the accuracy of Mr. Balter's estimates, calling them misleading. He said most of the 300 U.S. Sears and Kmart stores that have been closed since 2010 were performing poorly, and Sears chose not to renew the leases. Less than 2% were in good locations with good performance, Mr. Riefs said.

The July deal followed an agreement Sears Canada reached in June to sell the leases of two stores to Oxford Properties Group and Alberta Investment Management Corp. for $191 million. The buyers also have the right to exercise an option to buy a third lease.

By Mr. Balter's estimates, the three stores pulled in a combined $283 million in sales and $13.7 million in Ebitda. A little over a year earlier, Sears Canada sold three other stores to Cadillac Fairview Corp. for $170 million.

Credit Suisse arrived at its estimates by averaging the sales per square foot of other retailers in the same malls and then discounting that number by 30% or 40%. To arrive at its Ebitda estimates, Credit Suisse assumed the Sears stores had an operating margin of 2.7% to 6.7% depending on the location.

Sears has posted more than $4 billion in losses in the past two years, and its revenue has steadily eroded. For the quarter ended Aug. 3, losses widened to $194 million from $132 million a year earlier. To shore up its financial position, the company has pledged to raise $500 million from asset sales this year. Through the second quarter, Sears pocketed $277 million from selling stores and leaseholds.

Mall owners and property developers said the Sears deals are unusual. "Retailers invest in their best stores and refurbish them, they don't sell them," said Robert Futterman, chief executive of RKF, which leases properties to retailers.

Edward Lampert , the billionaire hedge-fund manager and CEO, isn't running Sears like a typical retailer. He has invested less in store upgrades than most retailers. In 2012, Sears spent $378 million on capital expenditures, compared with $785 million at Kohl's Corp., $810 million at J.C. Penney Co. and $942 million at Macy's Inc.

Instead, Mr. Lampert has adopted some unorthodox strategies including leasing space in Sears stores to third parties, including Western Athletic Clubs Inc., which in 2011 signed a contract to take over 69,000 square feet of a Sears store in Cupertino, Calif., and Gonzalez Grocery Store, which agreed to take over 41,000 square feet of a Kmart in San Diego.

Real estate has been a hot topic at Sears since Mr. Lampert bought Kmart out of bankruptcy in 2003 and combined it with Sears two years later.

Investors have speculated ever since that part of the attraction for Mr. Lampert was the underlying value of Sears's real estate. Yet, only a quarter of Sears mall stores are in the best centers, with the rest in average and even subpar malls, according to Green Street Advisors, a real estate research firm.

That hasn't stopped investors from getting excited about the potential for Sears to one day reap a huge payday from its real estate.

Baker Street Capital, one of Sears' largest investors, recently published a report that sent the stock up 25% over a four day period in mid-September by estimating that the company's top 350 locations were worth $7.3 billion--about $600 million more than Sears's market capitalization.

The problem with that scenario, according to Mr. Balter, of Credit Suisse, is that the top real estate also happens to be where Sears earns its money. If the best stores were sold, Mr. Balter wrote in a Sept. 11 rebuttal to Baker Street's research, "We highly doubt there would be a profitable chain left."

On a small scale, those are the choices Sears has been making.

Sears reached a $270 million deal in February 2012 to sell 11 stores to General Growth Properties. Among the stores was a location in the Ala Moana Center in Honolulu, Hawaii, which was one of the most profitable in the chain, former employees say.

The Ala Moana store was so valuable that all but $70 million of the purchase price went to pay for that one location, according to a person familiar with the transaction.

Three other stores in that deal--at the Woodlands Mall in Woodlands, Texas; the Fashion Place Mall in Murray, Utah; and the Apache Mall in Rochester, Minn.--were also highly profitable, the former employees said.

"While the Hawaii location was among the very, very few closed locations with good profits, we got an even better deal for selling the lease back," Mr. Riefs, the Sears spokesman, said.

He declined to comment on the profitability of the other stores in that deal.

Stores aren't the only assets on the block. Sears earlier this year spun off its Sears Hometown and Outlets Stores Inc., which sell appliances and tools, and it is considering selling its lucrative in-house warranty business.

Mr. Balter likens the sale of profitable stores and business units to a game of Jenga, in which players remove stacked wooden blocks one by one trying not to knock down the entire structure.

"What we are likely to see in the future is that too many pieces have been removed, which in turn is reducing the strength of the core," Mr. Balter wrote in a note to clients.

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POW wrote of ordeal/Sears executive told of war experiences
By Joan Giangrasse Kates
Chicago Tribune
October 6, 2013

George K. Zak, 1925-2013
Battle of the Bulge POW wrote of World War II experiences

George K. Zak, an infantryman during World War II, was taken prisoner along with the rest of his company during the early stages of the Battle of the Bulge.

He was held for six months, first in forced labor and later at a prison camp, before he escaped, weighing 50 pounds less than when he joined the Army in December 1943.

Through much of his life, Mr. Zak preferred to share lighthearted tales of times spent with comrades during the war rather than talk about the hardships he endured. "He loved 'Hogan's Heroes,'" said his son Rick. "When we were growing up, that was the show that made him laugh the most."

After retiring from his job as an executive at Sears, Roebuck & Co., Mr. Zak decided it was time to tell his story. He published "Soldier Boy: A Chronicle of Life and Death and Survival During World War II" in 1998, some 53 years after his escape from the Stalag IV-B prison camp in Germany.

"I have been reflecting all these years on all I had experienced as a very young man in World War II, and I knew that one day I had to put it all down on paper," he writes in the final passage of his book. "And now, finally, I did. My war is over."

Mr. Zak, 88, died of renal cancer Friday, Sept. 20, at Plymouth Place, an assisted living facility in La Grange Park, where he had lived for the past year. He was formerly a resident of Westchester and Willowbrook.

"He needed to write the book in a cathartic sense because the man who came back from war was very different from the boy who took off for boot camp," his son said. "He needed to come to terms with the fact that he survived when so many others did not."

Born in Oak Park and raised in Forest Park, Mr. Zak was a graduate of St. Patrick High School on Chicago's Northwest Side. He was 18 when he reported for active duty at Fort Sheridan. He underwent training at Fort Benning, Ga., and was later assigned to Company M with the 3rd Battalion of the 422nd Regiment in the 106th Infantry Division and sent to fight in Europe.

On Dec. 19, 1944, Mr. Zak and his company surrendered to German troops in the Ardennes Forest in Belgium. After weeks of forced labor in a stone quarry and later in a blanket factory, he and his company were sent to Stalag IV-B, where he remained until his escape on May 15, 1945, according to the account in his book.

"He suffered severe malnutrition in the camp and was forced to survive on turnip soup, minus the turnips, and stale crusts of bread," his son said. "He weighed about 170 pounds entering the Army and was a little over 120 pounds after his escape."

Mr. Zak's book includes a joyous reunion with his older brother Bob not long after his escape, as well as a poignant recollection of how homesick he felt as he sat in a dark and dank boxcar in a German rail yard listening to a fellow prisoner sing "Silent Night," two days before Christmas in 1944.

He later learned that soldier was killed in the firebombing of Dresden by Allied planes.

"He told me that without even knowing it, that soldier had sung his own requiem," his son said.

Before his discharge from the military, Mr. Zak was awarded the Combat Infantry Badge, the Bronze Star and battle stars for the Ardennes, Rhineland and Central Europe campaigns, but he turned down the Purple Heart he was entitled to for the severe frostbite he suffered during battle.

"I would have been embarrassed to explain why I got it when other men had been awarded this medal because they had lost an eye or an arm or a leg," he wrote in his book.

Mr. Zak returned home and received bachelor's and master's degrees from Loyola University in Chicago. He later was assistant treasurer and manager of corporate banking for Sears.

Mr. Zak's wife of 48 years, Joan, died in 2001. While raising their children, the couple lived in Westchester before moving to Willowbrook in 1990.

After publishing his book, Mr. Zak visited area schools and talked with students about his war experiences. He also served for several years as chairman of the group organizing Stalag IV-B reunions in Chicago.

"George Zak was the dearest friend to his many fellow POWs of Stalag IV-B," Ervin Szpek Jr., whose father was a POW with Mr. Zak, said in an email. "(He) did an exceptional job of preserving the history of the camp … appreciated by the UK Ex-POWs of 4B as well as the German association that maintains this former POW camp as a historical site."

Szpek said Mr. Zak inspired him to write his book, "Shadows of Slaughterhouse Five," which documented the recollections of Allied POWs who were in Dresden, among them the author Kurt Vonnegut.

"Only someone as special as George could have so great of impact in others," Szpek said. "George will truly be missed by many but never forgotten."

Mr. Zak also is survived by two other sons, David and Michael; a daughter, Suzanne Martens; and five grandchildren.

Services were held.

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Sears Holdings Corporation Completes $1.0 Billion Term Loan Borrowing
Wall Street Journal
October 2, 2013

HOFFMAN ESTATES, Ill., /PRNewswire/ -- Sears Holdings Corporation (NASDAQ: SHLD) today announced that its wholly owned subsidiaries Sears Roebuck Acceptance Corp. and Kmart Corporation have borrowed $1.0 billion under a new a senior secured term loan facility (the "Incremental Term Loan") under the Company's existing Second Amended and Restated Credit Agreement, dated as of April 8, 2011 (the "Existing Credit Agreement"). In addition to the Incremental Term Loan, the Existing Credit Agreement continues to provide for a $3.275 billion asset-based revolving credit facility (the "Revolving Facility").

The Company can elect for the Incremental Term Loan to bear interest at a rate of LIBOR (subject to a 1.00% floor) plus a margin of 4.50%, or at a "base rate" plus a margin of 3.50%. The Incremental Term Loan is secured by the same collateral as the Revolving Facility on a pari passu basis with the Revolving Facility and guaranteed by the same subsidiaries of the Company that guarantee the Revolving Facility, and matures in June 2018. The Revolving Facility continues to be scheduled to expire on April 8, 2016.

The net proceeds of the Incremental Term Loan were used to reduce borrowings under the Revolving Facility, which resulted in borrowings outstanding under the Revolving Facility of approximately $1.0 billion.

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Penney Stock at 13-Year Low
By Suzanne Kapner and Serena Ng
Wall Street Journal
September 26, 2013

Retailer Considers Raising Fresh Capital as Sales Continue to Slide

Concerns are growing about J.C. Penney Co. as it considers raising fresh capital heading into the holiday season.

The retailer's shares fell 15% on Wednesday after debt analysts from Goldman Sachs Group offered a downbeat view of the retailer's prospects, saying weak performance particularly in its home department could put pressure on its available cash in the quarter that ends in October.

Already, the struggling department store chain is exploring the possibility of borrowing more money with the help of investment bankers elsewhere at Goldman Sachs, people familiar with the matter said. The aim appears to be to build a cushion in case the company's turnaround efforts stall out over the key year-end shopping season.

Chief Executive Myron "Mike" Ullman has been trying to revive Penney after a disastrous year and a half under former Apple Inc. executive Ron Johnson. Mr. Johnson cut back discounts and did away with popular house brands without first testing how those moves would be received. The strategy drove away customers and plunged Penney into the red.

Mr. Ullman, who led Penney for more than a decade and returned to the retailer in April, has reversed those policies but has yet to stem the slide.

Penney suppliers say the business has shown a slight improvement in the third quarter. Shown, shoppers at a Glendale, Calif., Penney in August.

The company posted a loss of $586 million in the second quarter, as sales dropped 12% to $2.7 billion. Sales at stores open at least a year, an important barometer known as comparable-store sales, also fell 12% in the period.

Penney suppliers said the retailer's business had shown only slight improvements in the third quarter. One supplier said he believed comparable-store sales were trending down by somewhere around 5%, though there were pockets of strength in the men's and denim categories.

Charles Grom, an analyst with Sterne Agee, expects Penney's same-store sales to fall 5% in the period. While that is better than the double-digit declines that Penney's has posted for the past six quarters, it may not be enough to allay investors' concerns.

Mr. Grom met with Mr. Ullman and other Penney executives in New York on Wednesday for a scheduled investor update. While Mr. Grom said the Penney executives didn't explicitly address whether business had improved in the third quarter, they made encouraging comments.

"The key sound bite from the meeting was 'when we bring in the new stuff...it is selling,'" Mr. Grom wrote in a note to clients.

Penney's shares ended the day at $10.12, their lowest close in nearly 13 years. The company has shed more than $2 billion in value so far this year and now has a market capitalization of just $2.2 billion, the lowest for a company in the S&P 500 Index.

One area that continues to be a challenge for Penney is its home stores, which Mr. Johnson put through a costly redesign. The new shops, which feature goods from Martha Stewart, Michael Graves and Jonathan Adler, have fallen flat with customers. Penney is in the process of reformulating the shops so goods are shown by category rather than by designer.

Penney's partnership with Ms. Stewart caused another headache when Macy's Inc. sued Penney and Ms. Stewart's company, Martha Stewart Living Omnimedia Inc., alleging their agreement violated an existing contract Macy's had to sell the designer's goods.

New York State Supreme Court Judge Jeffrey Oing ruled earlier this year that Ms. Stewart couldn't put her name on products for Penney in categories in which Macy's claims to have exclusivity. Those include bedding, bath and housewares, categories in which the Stewart-designed product are sold under the name JCP Everyday.

Penney has since tried to find an amicable way to unwind the agreement, people familiar with the situation said. One scenario could see Penney discontinue Stewart's JCP Everyday merchandise, but continue to sell goods under her name in other categories such as rugs, lighting and draperies, one of the people familiar with the situation said. Another person familiar with the situation said no deal was imminent.

Judge Oing said Wednesday he continues to work on his ruling in the case.

Penney said in August that it expected to end the year with more than $1.5 billion in cash. More recently, however, the company has held discussions with Goldman about raising additional funds.

Kristen McDuffy, the Goldman credit analyst, in a note to clients Tuesday, said Penney 's cash reserves would come under pressure from weak underlying operations, the costs involved in rebuilding inventory and the drag from the lackluster home department.

Goldman has already helped Penney raise $2.25 billion backed by assets including real estate. While much of that collateral is now tied up, there are other ways the company could raise money. One would be to pledge its inventory as collateral for a "second lien" loan, which would give lenders a subordinated claim over those assets. Private equity firms and yield-hungry investors would be possible takers of such loans, which a few other retailers have issued in the past.

While Penney's inventory is currently covered by the Goldman loan, the terms of that loan allow additional debt to be issued with a second lien on inventory, according to the report.

The risk of rising interest rates also could push Penney to raise funds sooner rather than later. So far, corporate borrowing costs have generally remained low and markets hospitable to borrowers. That's because the Federal Reserve doesn't foresee any imminent change to its policy of keeping the financial system flush with liquidity, and many large investors are hunting around for debt that pays good interest rates.

But market conditions could change quickly, and investors expect longer-term interest rates to eventually start climbing.

Prices of Penney's bonds slumped on Wednesday, reflecting the higher risk for existing debt investors if the retailer takes on additional borrowings. The company's bonds maturing in April 2017 dropped 4 cents to 85 cents on the dollar, yielding 13.5%.

Other money-raising options for Penney include selling 240 acres of vacant land surrounding its headquarters, a sale of 30 tire, battery and automotive locations or eight regional mall partnerships and raising money from below market leases, though the latter would be more complicated, Ms. McDuffy wrote in her note.

--Emily Glazer contributed to this article.

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Former U.S. Marine takes helm at Sears Canada
By Hollie Shaw, Postmedia News
Vancouver Sun
September 24, 2013

Sears Canada announced Monday that chief executive Calvin McDonald was stepping down to "pursue an opportunity with a leading international company.

Struggling department store operator Sears Canada Inc. shocked the market Tuesday when it put a decorated former U.S. Marine pilot who fought in the Iraq war at its helm to replace Calvin McDonald, a savvy merchant who revamped the chain's look and retail brands.

But it is not clear whether the tactical strengths of Douglas Campbell, most recently chief operating officer at Toronto-based Sears, will help the company fare any better in the high-stakes retail battle unfolding across the country, experts say.

The execution of Mr. McDonald's three-year transformation plan for the company, which had only recently hit its midpoint, apparently did not satisfy executives at parent company Sears Holdings. His resignation was announced Tuesday, concurrent with the news of Mr. Campbell's promotion.

"Calvin is a fantastic merchant and he should have been around once the turnaround was completed," said a source familiar with the situation, adding the public company's results failed to show that a positive transformation was under way.

Mr. McDonald's turnaround plan, announced a few months after the rising star at Loblaw Cos. left the grocery chain in mid-2011 to head up Sears, included remerchandising the store into its core "hero" categories, improving its brand assortment and trying to raise its fashion profile.

But Sears has been looking for a fix for a long time, and the departure of Mr. McDonald, 41, suggests it is still searching. The executive has now taken an opportunity with an international retail company.

Sears Canada's revenue has fallen for seven consecutive years, and the chain would have posted an $11-million loss in its most recent second quarter were it not for a real estate deal to vacate two of its Toronto-area stores by next March. Sales at stores open for more than a year, an important retail benchmark, slid 2.5%. In addition to Mr. McDonald's bid to refresh stores, the retailer had also raised cash by selling off the leases of three other sluggish locations, and currently has the option to sell a fourth in Scarborough within five years. The company has done several rounds of layoffs in a bid to cut costs, the most recent of which came last month, with the ouster of 245 employees in IT and accounting, their jobs outsourced to third-party firms.

"Mr. McDonald may have held differing views from those of the controlling shareholder, Sears Holdings, on the appropriate level of capital spending for store renovations, on the sale of under-market leases back to landlords, and with respect to the outsourcing of head office positions to other countries," said Keith Howlett, retailing analyst with Desjardins Securities, in a note to clients.

Sears Canada is now pinning its hopes on Mr. Campbell, who after his military career worked as a principal with Boston Consulting Group with turnaround and retail expertise.

"Doug joined us in March 2011 to manage our major appliance business, which had at the time been in a period of decline," Sears Canada spokesman Vincent Power said Tuesday. "He's a sleeves rolled up kind of guy. He got into the business deep. He worked with suppliers, he worked with the stores, he worked with the merchandising teams, and basically got that business back on positive ground."

Mr. Campbell, 43, was later given responsibility for home décor and furniture, bed and bath and was named chief operating officer of the company last November.

But industry experts are skeptical about whether or not a new chief executive will help Sears out of its current bind.

"J.C. Penney went down a path of transforming the brand into something new, and it failed miserably," said George Minakakis, chief executive officer at Inception Retail Group Inc. retail consulting firm. "So it does not surprise me that operationally McDonald was not getting there, because I have wondered if it was possible to do enough to turn it around. But are they going to abandon that now? To do what? I don't think it is a good time to walk away from [his] strategy."

In addition to a broader selection of retailers carrying major appliances, there is new competition from Target, a renaissance from rival Hudson's Bay and continued market expansion from Walmart and Costco.

"Selling off more real estate just means that you are walking away from the industry," Mr. Minakakis said. "But if that is not your plan, you have to do a lot of smart strategic and tactical marketing that is going to drive traffic to your door in the hopes of getting more customers in there."

Mr. Howlett of Desjardins said the well-liked CEO's departure reduces probability of an operating turnaround.

"Our view was that McDonald was a talented, energetic retail executive and might have been able to accomplish a turnaround against what we perceive as long odds," he said. "Many of Sears Canada's department store locations would presently be more productively deployed if operated by other retailers."

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Big suburban firms joining private health exchanges including Walgreens & Sears
By Anna Marie Kukec
Daily Herald
September 19, 2013

With its announcement that it will move 240,000 employees to private health exchanges, Walgreens adds to the thousands of suburban workers who will find themselves choosing health care coverage in a new way for the coming year.

Eighteen major companies, including Deerfield-based Walgreen and Hoffman Estates-based Sears Holdings, have switched from traditional health insurance offered directly to their employees to a private health care exchange operated by Lincolnshire-based Aon Hewitt, the companies said Wednesday.

This major shift in how workers obtain their health insurance coverage provides them with more options while it reduces risks for the corporations. But who, if anyone, will be the winner or loser in such a new marketplace is yet to be determined, experts said. Private exchanges, such as the one operated by Aon Hewitt, are different from what will be offered nationally by state and federal governments through the Affordable Care Act, also known as "Obamacare." The Aon Hewitt Corporate Health Exchange is a private health exchange for large employers and offers group health insurance policies that are subject to the same rules that exist in traditional employer-sponsored health benefits, Aon said.

The government exchanges are primarily for individuals, especially those who are uninsured.

The Aon Hewitt Corporate Health Exchange projects more than 600,000 people are expected to be under the plans in 2014.

Aon Hewitt's exchange offers employees, retirees and their families a range of plan options, carriers and prices. Participating employers are in various industries, including retail, wholesale trade, business, professional services, hospitality, health care, technology, communications, financial and manufacturing areas, Aon Hewitt said. This major shift in how workers obtain their health insurance coverage provides them with more options while it reduces risks for the corporations. But who, if anyone, will be the winner or loser in such a new marketplace is yet to be determined, experts said. Private exchanges, such as the one operated by Aon Hewitt, are different from what will be offered nationally by state and federal governments through the Affordable Care Act, also known as "Obamacare." The Aon Hewitt Corporate Health Exchange is a private health exchange for large employers and offers group health insurance policies that are subject to the same rules that exist in traditional employer-sponsored health benefits, Aon said.

The government exchanges are primarily for individuals, especially those who are uninsured.

The Aon Hewitt Corporate Health Exchange projects more than 600,000 people are expected to be under the plans in 2014.

Aon Hewitt's exchange offers employees, retirees and their families a range of plan options, carriers and prices. Participating employers are in various industries, including retail, wholesale trade, business, professional services, hospitality, health care, technology, communications, financial and manufacturing areas, Aon Hewitt said.

"This approach to medical coverage better meets the needs of our diverse workforce, while also providing our company with increased efficiencies in our health care offerings due to the competitive marketplace created by the new model," Riefs said.

But the devil is in the details, said attorney Janice Anderson with Polsinelli PC in Chicago. "I would assume these large companies are providing their employees with a sum of money to purchase a health plan on the exchange," she said. "If that is the structure, and if the amount is enough to purchase a plan with comparable benefits to what the company provided directly, then the change should not negatively impact the employee's coverage, but it caps the potential liability to the employer."

Though the private exchanges are not linked to the Affordable Care Act, what is not clear is whether the expansion of coverage under the government program will stress the health care system, causing delays in appointments for all patients, Anderson said.

"This is not a function of whether the employee buys off the exchange or not but rather a function of the possible increase in demand once more people are covered," Anderson said. Under the Affordable Care Act, uninsured people must sign up for coverage beginning Oct. 1 or face paying penalties.

The expanded options available in private exchanges are likely to be a good thing for healthy employees, who will be able to choose coverage with lower premium costs as opposed to the "one size fits all" options now available under many employer plans.

Employees who are not as healthy will still have access to a wide variety of plans that will likely fit their health needs, so participating in a private exchange can generally be thought of as a good thing for workers, said Anthony E. Antognoli, partner and lawyer with Hinshaw & Culbertson LLP in Chicago.

One concern might be costs, he said.

"By providing employees with a single lump-sum contribution to be used to purchase coverage on an exchange, employers may limit their health cost uncertainty and reduce or eliminate many of the administrative costs that come with maintaining a health plan," said Antognoli.

Employees should typically expect to see employer contributions that cover a roughly similar portion of total costs as employers pay now. If the options offered under the exchange increase in cost at a rate beyond the increases in the employer contributions, then employees will be responsible for covering that gap.

These cost burdens are limited, however, Antognoli said.

"In order to avoid the (recently delayed) employer 'pay or play' penalty, employers will still have to ensure that the options offered under the private exchange are 'affordable' under the rules of the Affordable Care Act," Antognoli said.

"The shift toward private exchanges is consistent with a trend in shifting responsibility for health care coverage choices to employees," said Antognoli. "This trend predates the ACA, and we would expect to see that continue regardless of how the ACA works in practice."

Suburban workers who enter Aon Hewitt's online exchange portal will see a range of consumerbased tools that enable them to sort and filter benefit options by price, insurance company and/or plan type. They will have access to a wide range of benefits experts and advisers, including Aon Hewitt's Advocacy Support team, to answer questions during enrollment and throughout the year.

Over the past decade, the average health care cost for large employers in the U.S. has increased to more than $10,000 per employee and the amount employees will be asked to contribute is expected to grow much faster than the rate of salary increases, Ken Sperling, Aon Hewitt's national health exchange strategy leader, said in a statement.

"The Aon Hewitt Corporate Health Exchange seeks to mitigate health care cost increases by creating an efficient marketplace that fosters competition at a consumer level and offers an improved employee experience and greater choice for employees," Sperling said. "With our market-leading model, employers can minimize cost increases for themselves and their employees while maintaining their commitment to health benefits and enhancing companywide programs to increase employee health, well-being and engagement."

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Walgreen to Give Workers Payments to Buy Health Plans
By Timothy W. Martin and Christopher Weaver
Wall Street Journal
September 18, 2013

Drugstore Chain's Move Underscores Shifting Burden on Insurance

Sears Holdings Sending Employees to a Private Exchange

Rising health-care costs and a climate of change brought about by the new federal health law are prompting American corporations to revisit the pact they've long had with employees over medical benefits.

Walgreen Co. is set to become one of the largest employers yet to make sweeping changes to companybacked health programs. On Wednesday, the drugstore giant disclosed a plan to provide payments to eligible employees for the subsidized purchase of insurance starting in 2014. The plan will affect roughly 160,000 employees, and will require them to shop for coverage on a private health-insurance marketplace. Aside from rising health-care costs, the company cited compliance-related expenses associated with the new law as a reason for the switch.

Walgreen is the latest in a growing list of companies making changes to their benefits. International Business Machines Corp. and Time Warner Inc. both said in recent weeks they will move thousands of retirees from their own company-administered plans to private exchanges.

Sears Holdings Corp. SHLD and Darden Restaurants Inc. said last year they would send employees to a private exchange.

Since the 1940s, health benefits have been a key part of many employees' compensation. A long trend of rising health spending and a wave of changes to the health-care system are prompting many employers to rethink their roles in financing care for employees and their dependents.

Like the shift from pension plans to 401(k) plans beginning in the 1980s, the moves mark a transition in which employers are handing their workers more control over their benefits, some experts say. But as companies set their contributions at fixed amounts to limit benefits spending, workers could wind up shouldering a greater share of the burden if health costs increase.

Medical prices are rising at their slowest pace in a half century, according to Commerce Department data. That trend may help businesses, but it also reflects how cost burdens are shifting to patients. Many are being asked to comparison-shop or make tough choices on medical care as their health plans have become less generous. Overall health costs take into account both prices and the volume of health services patients use.

"You're completely moving away from a paternalistic employer deciding what's best for employees," says Paul Fronstin, an economist for the Employee Benefit Research Institute in Washington. "Workers don't need their employer anymore for health coverage. They just need the employers' money," he says.

Private exchanges amount to online marketplaces in which employers can select a slate of health plans to offer to workers. The employer typically agrees to contribute a lump sum that workers can apply to a plan of their choosing.

The health law helped the private-exchange business take off in part because the law borrows the concept for public exchanges in which lower-income people can use federal subsidies to buy insurance. Some businesses have used private exchanges for years.

As the health law was taking shape, President Barack Obama said people with employer-sponsored health plans would be able to keep them. While the health law metes out relatively few requirements for big employers, its impact on the industry has created a climate of change.

The economic recession also accelerated the trend for many companies, says Helen Darling, president of the National Business Group on Health, a Washington nonprofit representing more than 300 large firms. Employers "were beginning to let go of the idea that they could provide benefits with no constraints," says Ms. Darling. "They began shifting in their thinking to say, 'we're not necessarily going to guarantee that we'll provide 80% of the cost of benefits.'"

Big companies have been gradually pushing far more of the costs of health care to workers. More than one-third of workers at companies with 200 or more workers had annual deductibles of $1,000 or more last year, according to a report by the Kaiser Family Foundation. That's up from 10% of workers at those businesses in 2006.

Though companies point to the health law for accelerating the trend of broad benefits changes, supporters of the law note some firms may be using it for cover as they make adjustments that aren't always popular with workers.

Strategies like moving workers to private exchanges "may be the way of the future, but don't blame the Affordable Care Act for it," says Ezekiel Emanuel, a former Obama administration health-care adviser and University of Pennsylvania professor of health-care management.

"For decades, rising health-care costs have burdened employers, but since the Affordable Care Act became law, health-care costs have been slowing and premiums are increasing by the lowest rates in years," said Erin Shields Britt, a spokeswoman for the Department of Health and Human Services.

Under Walgreen's new arrangement, to take effect in 2014, the firm will pay a fixed amount for employees to select coverage options in a private insurance exchange run by Aon Hewitt, a consulting unit of Aon PLC. The exchange will offer up to 25 different plans in some states.

The options include HMO-style coverage with no deductibles and lower out-of-pocket costs than some plans. Also available are bare-bones plans with higher deductibles and leaner coverage. Workers could have premiums costing as little as $5 a month, Walgreen says, to appeal to the 36% of its employees who are single and under 30 years old.

It isn't clear how much money the move might ultimately save Walgreen or whether its workers will face higher costs. Mark Englizian, Walgreen's vice president of compensation and benefits, said the submitted bids for monthly premiums for the private exchanges were roughly equal to its current 2013 rates--meaning some savings could come from the fact the bids didn't factor in year-over-year increases.

Mr. Englizian said another reason behind the private-exchange decision was offering employees more health insurance options.

Some 24% of employers said they were "likely" over the next five years to provide access to a private or corporate health exchange where workers select from various options, according to a March report by Towers Watson and the National Business Group on Health, which surveyed 583 larger companies. Some 45% said they were neutral, and 30% said they were unlikely to make such a move.

The insurance landscape is shifting in other ways. Earlier this month, Trader Joe's Co. said it would end coverage for part-time workers. The privately-held grocery chain said in a statement it would give those workers $500 to buy insurance elsewhere.

In August, United Parcel Service Inc. said it would end benefits for 15,000 spouses of its employees who are able to get coverage through their own employers. UPS said Tuesday no spouses would become uninsured as a result of the shift.

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Sears seeks to borrow $1 billion
By Corilyn Shropshire
Chicago Tribune
September 17, 2013

Cash-strapped retailer plans to use loan to pay down debt

Money is tight, so Sears is looking to do what other cash-strapped consumers have done: take out a loan to pay down debt.

The unprofitable retailer said Monday it is seeking a senior secured term loan of up to $1 billion to pay down borrowings.

If approved, the loan would be issued under the Hoffman Estates-based retailer's current $3.2 billion revolving credit agreement, the company said in an announcement.

A meeting with lenders to discuss the loan, which would mature in June 2018, is scheduled for Wednesday, according to a person with knowledge of the transaction who wasn't authorized to speak publicly and asked not to be identified.

Sears has about $1.1 billion available under the revolving facility, according to data compiled by Bloomberg.

"Recent operating results were disappointing and don't bode well heading into the important second half back-to-school and holiday season," Evan Mann, an analyst at Gimme Credit LLC, wrote in a note Monday. "We look for credit ratios to deteriorate."

Sales at the company, which is helmed by hedge-fund billionaire Edward Lampert, have been slipping since 2006. In addition to the iconic Sears brand, Sears is the parent company of Kmart and Lands' End.

Sears' net loss in the three months ended Aug. 3 widened to $194 million from a deficit of $132 million a year earlier as loyalty program members used more discounts and appliance sales fell.

Sears pays an interest rate of 2 to 2.5 percentage points more than the London Interbank Offered Rate for advances under its revolving credit agreement, depending on how much debt the company holds relative to its earnings, according to an Aug. 22 regulatory filing.

Under a revolving facility, money can be borrowed again once it's repaid; in a term loan, it can't.

As Sears' cash spending has risen, so has its short-term borrowing.

In its most recent quarter, the retailer's short-term borrowing climbed to $1.75 billion, up $600 million from the same period a year ago. Its more recent move to secure a $1 billion loan has raised eyebrows among retail analysts.

Matt McGinley, a managing director at ISI Group in New York, compared Sears' move to taking out a loan to pay down credit card debt.

"The concern here today is that we know their cash situation is not that great," he told the Tribune. "They are not generating cash from operations."

The retailer is likely doing it to pay for inventory for the coming, all-important holiday season in the fourth quarter, which is crucial to Sears' and other retailers' bottom lines, McGinley said.

"Anything they do can do to boost liquidity by the end of the year ... if they are in a cash pinch, they should definitely do it," he said.

Sears shares closed Monday at $61.35, up 1.5 percent.

Bloomberg contributed.

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Ringing Up the Sum of All Sears
By Justin Lahart
Wall Street Journal
September 12, 2013

A Hedge Fund's Assumptions for the Value of Sears's Real-Estate Holdings May Rest on Shaky Foundations

When Sears Holdings struggles, it has a knack for turning from a retail turnaround story into a real-estate play. So once again, the notion has arisen that there's gold in them thar malls.

A recent report from hedge fund Baker Street Capital Management, which owns a 1.4% stake in Sears, argues its real estate is "conservatively worth over $8.6 billion," which compares with a current market value for the entire company of $5.9 billion. About $7.3 billion, or $69 a share, of that rests in Sears's top 350 owned sites and top 50 leases�assets it reckons would be relatively easy to sell in an environment where high-quality mall assets are scarce. Throw in the value of Sears's brands such as Kenmore, its Lands' End operations and so on, and the firm says the company is worth $13.9 billion, or $131 a share.

The report has resonated, helping drive Sears shares about 25% higher this month to around $56. But it is also out of whack with other sum-of-the-parts analyses. Wednesday, Credit Suisse analyst Gary Balter struck back, arguing Baker Street wildly overvalued Sears's real-estate holdings, while putting too high a price on the rest of the company, as well.

Consider: Baker Street says Sears's top 350 stores are worth $98 a square foot. Contrast that to a May presentation J.C. Penney gave to lenders, where it provided appraisal values for its stores from real-estate firm Cushman & Wakefield. The going-dark value of Penney's stores in A-grade malls�what the retailer could get for its best locations if it shut down�was $55 a square foot.

A real reason to buy Sears shares would be signs that it was shoring up sales, not its real estate.

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More Employers Overhaul Health Benefits
By Anna Wilde Mathews
Wall Street Journal
September 4, 2013

Some Let Their Workers Pick a Plan From an Online Marketplace

This fall, tens of thousands of U.S. workers will learn that they're getting their health benefits next year in a radical new way: Their employers will give them a fixed sum of money and let them choose their plan from an online marketplace.

The approach, which gained a high profile last year when it was adopted by Sears Holdings Corp. SHLD +0.18%and Darden Restaurants Inc., has the most momentum among small and midsize employers. But interest is growing among companies of all sizes, research shows. Accenture PLC projects that around a million Americans will get employer health coverage through such marketplaces next year, and the number will increase to 40 million by 2018.

This fall, tens of thousands of workers will learn that they're getting their health benefits in a new way: Their employers will give them a fixed sum of money and let them choose their plan from an online marketplace.

More health-industry players are launching the online employer marketplaces, known as private exchanges, that let employers offer their workers a range of choices to shop from. Companies now jumping in�including benefits-consulting firms like Xerox Corp.'s Buck Consultants, Marsh & McLennan Cos.' Mercer and Towers Watson & Co., as well as insurance brokerages such as Willis Group Holdings PLC and Digital Insurance Inc.�are betting that 2014 will be the start of a ramping up over the next few years.

Insurers are creating their own versions, with Aetna Inc. planning to launch a "proprietary" marketplace model next year. WellPoint Inc. already has one, while UnitedHealth Group Inc.'s Optum health-services arm owns an exchange operator.

The private exchanges for employers are separate from the government-operated marketplaces that are being created in each state under the federal health law, which will serve individual consumers and small companies.

Employers hope the exchanges will trim costs and make their health spending more predictable. But some experts say workers could be squeezed by the fixed-sum approach if the dollars allotted each year don't keep up with the rising cost of coverage. "Is the defined contribution going to increase with premiums, and how much is it going to go up? It is a question," said Paul Fronstin, director of health research at the nonprofit Employee Benefit Research Institute.

Tequila maker Tanteo Spirits LLC, which has 20 employees, switched to the new approach in June. The New York firm said its contribution is big enough to pay for a rich health plan, as well as vision and dental coverage, for each employee. "We wanted to be really generous," said Neil Grosscup, chief operating officer. He wants the sum to rise as quickly as premiums, he said, but the company will "be able to look at our budget for 2014 and dictate how much we can actually spend on it."

At least a few bigger employers are also moving: Bob Evans Farms Inc., which owns about 560 restaurants and has around 34,000 employees including part-timers, will start directing workers to an exchange from Xerox's Buck unit that will start next January.

In a statement, provided through Buck, the company, which is based in Columbus, Ohio, said the setup offered "an opportunity to more cost-effectively deliver a competitive employer-sponsored benefit program while providing expanded plan options." Through Buck, the firm declined to comment on details of its setup.

Operators of employer health-insurance marketplaces say many workers pick cheaper coverage than they previously had and that is one way the exchange approach can save money.

In an exchange run by Liazon Corp. that has around 60,000 people enrolled, about 75% of the workers have chosen less-expensive plans, accepting bigger deductibles and other out-of-pocket charges, as well as smaller choices of health-care providers and restrictions such as primary-care gatekeepers. "They want value for their money," said Alan Cohen, Liazon's chief strategy officer.

At a.i. solutions Inc., a 450-employee firm that started using plans offered through Liazon in March, employees picked their coverage using a tool on the site that asked in-depth questions about their health needs and expectations, as well as their appetite for risk, said Christy Fenner, the Lanham, Md., firm's director of human resources. The aerospace-engineering company gave workers a set amount of money, which was larger for those covering spouses and families, and let them opt to spend some of their own cash for pricier coverage if they chose.

Sears and Darden, which said they will use the exchange from Aon PLC's Aon Hewitt again next year, said they believe the approach has helped hold down costs, though both said that wasn't their main goal. They also said that workers generally liked the new setup. Darden said the sums it provides, which are pegged to a midlevel plan, will go up this year in parallel with the premium increases for that plan. Sears said it is still working to determine its contribution for next year.

In general, health-insurance marketplace operators said, they have seen employers provide annual increases that were approximately in sync with premiums. In recent years, though, the cost of employer coverage has been rising at a relatively slow rate�4% for a family plan in both 2012 and 2013, according to Kaiser Family Foundation polls.

ConnectedHealth LLC said employers have made increases in roughly the 2%-3% range on average. Bloom Health Corp. said the average boost between 2012 and 2013 was about 5%. "It's cost predictability" that employers want, said Simeon Schindelman, Bloom's chief executive.

Some employers are opting to use exchanges, but without the fixed-sum contribution approach.

Also, the private-employer exchanges themselves vary widely. Buck's setup generally involves offering health plans from just one insurer in a particular location. The company chose the lowest-cost carrier available in each geographic area, an approach that it said pushes down costs. Marketplaces from individual insurers are also typically stocked only with different flavors of their own plans.

But most of the employer exchanges are expected to offer an array of carriers. Those operators argue that the competition among insurers should reduce the cost of coverage over time.

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Noonan: Work and the American Character
By Peggy Noonan
Wall Street Journal
August 30, 2013

We need political leaders who can speak to the current national unease.

Two small points on an end-of-summer weekend. One is connected to Labor Day and the meaning of work. It grows out of an observation Mike Huckabee made on his Fox show a few weeks ago. He said that we see joblessness as an economic fact, we talk about the financial implications of widespread high unemployment, and that isn't wrong but it misses the central point. Joblessness is a personal crisis because work is a spiritual event.

A job isn't only a means to a paycheck, it's more. "To work is the pray," the old priests used to say. God made us as many things, including as workers. When you work you serve and take part. To work is to be integrated into the daily life of the nation. There is pride and satisfaction in doing work well, in working with others and learning a discipline or a craft or an art. To work is to grow and to find out who you are.

In return for performing your duties, whatever they are, you receive money that you can use freely and in accordance with your highest desire. A job allows you the satisfaction of supporting yourself or your family, or starting a family. Work allows you to renew your life, which is part of the renewing of civilization.

Work gives us purpose, stability, integration, shared mission. And so to be unable to work�unable to find or hold a job�is a kind of catastrophe for a human being.

There are an estimated 11.5 million unemployed people in America now, and those who do not have sufficient work or who've left the workforce altogether inflate that number further.

This is the real reason jobs and employment are the No. 1 issue in America's domestic life. And what I have been thinking in the weeks leading up to this weekend is very simple: "Thank you, God, that I have a job." May more of us be able to say those words on Labor Day 2014.

And may more political leaders come up who can help jobs happen, who can advance and support the kind of national policies that can encourage American genius. One of the things missing in the current political scene is zest�a feeling that can radiate from the political sphere that everything is possible, the market is wide open. In the midst of the economic malaise of the 1970s the TV anchormen spoke in sonorous tones about the dreadful economic indicators�inflation, high interest rates, "the misery index." But Steve Jobs, in his parents' garage, was quietly working on circuit boards. And strange young Bill Gates was creating a company called Microsoft. All that work burst forth under the favorable economic conditions and policies in the 1980s and '90s.

What is needed now is a political leader on fire about all the possibilities, not one who tries to sound optimistic because polls show optimism is popular but someone with real passion about the idea of new businesses, new inventions, growth, productivity, breakthroughs and jobs, jobs, jobs. Someone in love with the romance of the marketplace. We've lost that feeling among our political leaders, who mostly walk around looking like they have headaches. But American genius is still there, in our garages. It's been there since before Ben Franklin and the key and the kite and the bolt of lightning.

The second point is about a kind of cultural unease in the country that is having an impact on the national mood. I think it's one of the reasons the right track/wrong track polls are bad.

To make the point, we go back in political time.

Really good politicians don't try to read the public, they are the public. They don't try to be like the people, they actually are like them. Ronald Reagan never thought of himself as a gifted reader of the public mind, but as a person who had a sense of what Americans were thinking because he was thinking it too. That's a gift, and a happy one to have�the gift of unity with the public you lead. The lack of that quality can be seen in many current political figures, who often, when they speak, seem to be withholding their true thoughts. As if the people wouldn't like it, or couldn't handle it.

Reagan was a good man, and part of his leadership was that he thought Americans were good too. He had high respect for what he saw as the American character. He liked to talk about the pioneers because he was moved by their courage, their ability to endure and forge through hostile conditions. He thought that was a big part of the American character. He was similarly moved by the Founders. He talked about the men who founded Hollywood , too, because those old buccaneers were great entrepreneurs who invented an industry. He admired their daring and willingness to gamble. They were wealth creators�that's who Americans are. He liked to talk about inventors who create markets�that's us, he thought. He liked to talk about barn raisings�the practice out West of local settlers coming together to build some neighbor's barn, so pretty soon they'd have a clearing and then a town.

By celebrating these things he felt he was celebrating not the America that was, but the America that is. That America, he felt, was under threat of being squashed and worn down by the commands and demands of liberalism. He would fight that and, he thought, win, because Americans saw it pretty much as he did.

So Reagan didn't just have something, the ability to lead. He was given something�the America he grew up in, knew and could justly laud.

To today: I've been thinking about the big bad stories of the summer, the cultural ones that disturb people. The sick New York politician who, without apparent qualms, foists his sickness into the public sphere again. The kids who kill the World War II vet because they're bored. The kids who kill the young man visiting from Australia because they too are bored, and unhappy, and unwell. The teacher who has the affair with the 14-year-old student, and gets a slap on the wrist from the judge. The state legislator who's a sexual predator, the thieving city councilor and sure, the young pop star who is so lewd, so mindlessly vulgar and ugly on the awards show.

We're shocked. But we're not shocked. And that itself is disturbing. We're used to all this, now, this crassness and lowness of public behavior. The cumulative effect of these stories, I suspect, is that we're starting to fear: Maybe that's us. Maybe that's who we are now. As if these aren't separate and discrete crimes and scandals but a daily bubbling up of the national character.

It would be good if we had some political leaders who could speak of this deflated and anxious feeling about who we are. Conservatives have been concerned about our culture for at least a quarter-century. Helpful now would be honest liberal voices that speak to our concerns about who we fear we're becoming. They might find they're thinking the way the American people are thinking, which is step one in true leadership.

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Wal-Mart to Insure Domestic Partners
By Jessica Wohl
Chicago Tribune
August 28, 2013

(Reuters) -- Wal-Mart Stores Inc said on Tuesday it will offer health insurance benefits to domestic partners of its U.S. employees starting next year, following the lead of other major companies.

The world's largest retailer, based in Bentonville, Arkansas, also plans to begin to offer vision care to its eligible employees and their dependents, according to information the retailer sent to workers this week.

Wal-Mart is the single biggest U.S. employer outside of the federal government. More than half of its 1.3 million U.S. employees are on its health-care plans. The company said it does not know how many workers would use the new benefits, which also include free hip and knee joint replacements.

Wal-Mart's extension of health insurance to domestic partners comes after the U.S. Supreme Court in June forced the federal government to recognize same-sex marriages in states where it is legal. The Supreme Court also paved the way for same-sex marriage in California.

"Since we operate in all 50 states, we thought it was important to develop a single definition for all Wal-Mart associates in the U.S.," spokesman David Tovar said.

Wal-Mart is behind many other large companies on domestic partner coverage. Sixty-two percent of the Fortune 500 already offer health benefits for domestic partners, according to the Human Rights Campaign's 2013 Corporate Equality Index.

Employees' domestic partners can be covered if they are legal spouses, not legally separated; or a domestic partner of same or opposite gender in an ongoing, exclusive relationship similar to marriage for at least 12 months with the intention to continue sharing a household indefinitely, Tovar said.

DOMESTIC PARTNERS

Wal-Mart confirmed some details of its 2014 annual enrollment to Reuters ahead of the sign-up period, which runs from October 12 to November 1. The company outlined changes to its plans on a postcard mailed to employees this week.

The 2010 U.S. Affordable Care Act will require large employers to offer coverage to certain part-time workers beginning in January but Wal-Mart said it had anticipated the change and did not need to further adjust its plans.

The law's goals include broadening insurance coverage and it requires companies with more than 50 employees to offer health insurance for employees who work 30 hours a week or more.

About 1.1 million people, including workers' family members, are currently covered by Wal-Mart health-care plans in the United States. Not all of the company's U.S. employees sign up for coverage. Part-time employees must work for Wal-Mart for one year and work an average of 30 hours a week to qualify.

Last week, United Parcel Service Inc told non-union employees that their spouses would no longer qualify for company-sponsored health insurance if they could get coverage through their own jobs.

Starbucks Corp Chief Executive Howard Schultz said on Monday that his company, which provides healthcare to employees who 20 hours a week or more, would not cut health benefits or reduce hours for employees in anticipation of the U.S. Affordable Care Act.

MAIN PLAN TO COST WORKERS 5.7 PERCENT MORE

Wal-Mart's U.S. employees are set to pay 3 percent to 10 percent more for their medical coverage next year, depending on the plan chosen.

The lowest-priced and most popular plan for a Wal-Mart employee is set to cost $18.40 per bi-weekly pay period next year, up 5.7 percent from $17.40 this year, the company said.

Full plan details were not available. The company plans to send tailored guides to its U.S. employees the week of October 8.

Annual U.S. health insurance premiums rose an average of 5 percent for individuals and 4 percent for families in 2013, according to the Kaiser Family Foundation's 2013 Employer Health Benefits Survey released on August 20.

This year, Wal-Mart began to offer U.S. employees and their dependents free heart and spine surgeries at six major health centers. Next year, it plans to also fully cover hip and knee joint replacements at certain hospitals.

A large majority of Wal-Mart's workers who sign up for medical coverage also sign up for dental coverage. Wal-Mart said it would start to offer vision coverage in 2014 after employees asked for it.

"There's no one size fits all solution for people's benefits, so we're trying to offer a number of benefit options and then let associates make choices on what's best for them," said Tovar.

Dental and vision coverage are offered for additional fees, which for an individual are about $7 and $2 per bi-weekly pay period, respectively.

Wal-Mart's benefits administrators are Aetna Inc, UnitedHealth Group Inc's UnitedHealthcare and Blue Cross Blue Shield, depending on the location of a particular worker.

(Reporting by Jessica Wohl in Chicago)

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Ackman Flees Penney Stock
By Emily Glazer, Matt Jarzemsky, and Suzanne Kapner
Wall Street Journal
August 27, 2013

Citigroup Agrees to Sell Hedge Fund's Shares to New Buyers at $12.90 Each

Hedge-fund manager Bill Ackman moved to dump his entire stake in J.C. Penney Co., ending a failed bet on the retailer that cost his fund more than $600 million, resulted in the loss of thousands of jobs and left the 1,100-store chain still struggling to right itself.

Mr. Ackman's Pershing Square Capital Management LP is unloading its 39 million shares�nearly 18% of Penney's stock�with help from Citigroup Inc., which underwrote the sale.

Citigroup reached agreements to sell the shares to new buyers at $12.90 each, a person familiar with the matter said. That was well below their closing price Monday of $13.35 and close to half the roughly $25 apiece that Pershing Square paid for the shares, mostly in 2010 and 2011.

Mr. Ackman resigned from Penney's board earlier this month after a conflict with fellow directors over the choice of a chief executive spilled out into the open. He had become a divisive figure at the company by backing the appointment of Apple Inc. retail executive Ron Johnson as CEO and supporting a strategy that ended up pushing the retailer deep into the red by the time it removed Mr. Johnson in April and brought back his predecessor Myron Ullman.

It was the hedge-fund manager's third bad bet on the retail industry, following an investment in the now-defunct bookseller Borders Group in 2006 and a proxy-fight defeat at Target Corp. in 2009.

In a letter to Pershing Square investors last week, Mr. Ackman conceded those "mistakes," and said he would consider selling his stake in Penney. "Clearly, retail has not been our strong suit, and this is duly noted," he wrote.

Mr. Ackman's exit leaves Penney still facing the uphill job of winning shoppers back to its stores and recovering from a deep drop in sales.

Mr. Johnson's strategy of eliminating discounts and doing away with popular house brands without first testing those ideas led to a 25% drop in Penney's sales and a loss of nearly $1 billion in his first full year on the job. Those losses took a toll on the company's workforce. Penney, which had provided at least 150,000 people with full- or part-time work for almost a decade, had just 116,000 employees when its most recent fiscal year ended Feb. 2.

Retailers fight hard for every point of sales growth, and a drop of Penney's magnitude won't be easy to fix, according to industry executives. Moreover, the chain's sales have continued to decline.

The retailer said last week that its sales at stores open at least a year sank by 12% in the quarter ended Aug. 3, as shoppers gave its new home departments a poor reception. The company posted a loss of $586 million for the period.

"To bet the ranch on some kind of wild return to growth in a short time period wouldn't be prudent," Mr. Ullman, the CEO, said on a conference call to discuss earnings last week.

Soon after his resignation from the board, Mr. Ackman and Penney agreed on a framework under which he could sell his stock. The terms allowed Pershing Square to make up to four large sales a year, as long as each exceeded five million shares.

Mr. Ackman also won the right to appoint a person to serve on Penney's board in his place. But with the sale of his entire stake, he will forfeit that right, people familiar with the situation said.

Pershing Square, which has about $11.7 billion of assets under management, is selling its stock through a deal with Citigroup, which agreed to buy the entire stake and then marketed the shares to fund managers late Monday, according to a filing.

Unclear is whether another dissident Penney director, Steven Roth, chairman of Vornado Realty Trust, plans to remain on the board or sell his company's remaining shares.

Vornado sharply reduced its stake in Penney in March, selling stock valued at $160 million. On Monday, Mr. Roth didn't respond to a request for comment.

Penney's board, having seen off one activist, adopted a shareholder rights plan last week intended to prevent new investors from gaining control of the company. The rights plan, also known as a poison pill, is designed to dilute the value of the stock by potentially flooding the market with additional shares, making it expensive for an investor to acquire a controlling stake.

The company adopted the plan as other investors built big stakes in the stock. They include George Soros, who now controls the second-largest stake in the company--9.1%--through his Soros Fund Management LLC. Meanwhile, hedge fund Perry Capital LLC has taken a 7.3% stake.

Write to Emily Glazer at emily.glazer@wsj.com, Matt Jarzemsky at matthew.jarzemsky@dowjones.com and Suzanne Kapner at Suzanne.Kapner@wsj.com

A version of this article appeared August 27, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Ackman Flees Penney Stock.

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Bill Ackman takes huge loss on J.C. Penney
By Hibah Yousuf
CNN Money
August 27, 2013

NEW YORK -- Activist investor Bill Ackman is cutting his losses in J.C. Penney. The hedge fund manager sold his entire stake in the troubled retailer.

Ackman's Pershing Square Capital Management began buying J.C. Penney in October 2010 when shares were around $25 a piece. The hedge fund said it sold all 39 million of its shares to Citigroup (C, Fortune 500), which is now offering the shares at $12.90 each. That puts Ackman's loss at nearly $500 million.

The sale was disclosed by J.C. Penney (JCP, Fortune 500) Monday in a regulatory filing with the SEC and in statements from Pershing Square.

Ackman quit the Penney board earlier this month following disagreements about the company's leadership.

Ackman initially brought in Ron Johnson, a former head of Apple (AAPL, Fortune 500)'s retailing unit, to lead the Plano, Texas-based company. But Ackman ultimately agreed to get rid of Johnson earlier this year after his strategy drove away customers, resulting in repeated quarters of sinking sales.

Just last week, J.C. Penney reported its ninth consecutive drop in quarterly revenue and posted another huge profit loss.

Ackman hasn't been happy with interim CEO and Penney veteran Mike Ullman either, and was pushing to replace him sooner rather than later. But the board continued to support Ullman, forcing Ackman to step aside.

After quitting the board, Ackman reached an agreement with the company that allows him to register to sell shares of J.C. Penney, so the market has been expecting the move.

Still, some experts worry what Ackman's sale will signal to the market.

On one hand, Ackman has "been privy to all sorts of information for a long time" and is willing to take a loss on his investment now out of "fear of losing more money," said Brian Sozzi, chief equities strategist at Belus Capital Advisors.

But at the same time, Ackman is a well-known activist investor, and without the ability to influence the direction of the company, it makes sense for him to sell his stake, said Will Frohnhoefer, analyst at BTIG.

And with the Ackman-J.C. Penney feud coming to an end, Penney executives will be able to focus on executing the company's makeover.

"J.C. Penney showed some progress in its recent earnings, but it still hasn't proved it can pull of a turnaround," said Frohnhoefer. "Investors will now be laser-focused on sales, the broader trends in retail and any new material information for J.C. Penney."

Shares of J.C. Penney were lower in premarket trading Tuesday. The stock has plunged more than 60% since the start of 2012 and more than 30% in 2013.

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Sears Crucial Appliance Sales Erode
By Suzanne Kapner
Wall Street Journal
August 23, 2013

Sears Holdings Corp. built its Kenmore brand into the dominant force in U.S. major appliances over the better part of a century. It only took a few years of tinkering by hedge fund manager Eddie Lampert to take it apart.

The breakdown was evident on Thursday, when Sears said weakness in home appliance sales caused a key measure of sales at existing U.S. stores to shrink. That contributed to a poor showing for the three months ended Aug. 3, when Sears' net loss deepened to $194 million as overall sales fell 6.3%.

Sears' Kenmore now ranks behind Whirlpool and GE in the U.S.

Appliances were an odd area for Sears to not do well. Sears essentially invented the business during World War I. Nearly every other manufacturer and retailer is benefiting as the recovery in the housing market spurs sales of dishwashers, washing machines and refrigerators. Home Depot Inc. and Lowe's Cos., which have eroded Sears' market leading position, this week reported double-digit gains in appliance sales.

Sears finished the quarter with its lowest market share in a decade, according to research firm The Stevenson Company. Its shares fell 8.2%, to $39.72, in New York trading on Thursday.

The damage has a number of causes, former Sears executives and employees said. Sears disrupted a key relationship with Whirlpool Corp. that had underpinned the business for decades. Key management positions turned over frequently. Decaying stores that kept customers away hurt appliance departments as well. Executives focused on technological gimmicks like giving sales associates iPads that proved more frustrating than useful. Meanwhile, competitors were building up their appliance businesses.

As recently as 2002, Sears sold four of every 10 major appliances in the U.S., far outpacing its rivals. Its closest competitor, Lowe's, held a 10% market share, and Home Depot held only 4%, according to Stevenson data.

Those sales had knock-on benefits. Customers who came to Sears looking for appliances often shopped for apparel and other items while in the store. Appliances remain a crucial source of revenue, accounting for roughly $7.5 billion in sales in 2012, or 18.8% of the company's total, according to Wall Street Journal calculations.

Sears still holds the top share of retail appliance sales. But that lead has narrowed dramatically. For the 12 months ended June, Sears had a 29% share by value compared with Lowe's 19% and Home Depot's 12%.

Much of Sears' strength in major appliances derived from a long-standing relationship with Whirlpool. The Upton Machine Company, which later became Whirlpool, sold its first washers to Sears in 1916, and Sears took a stake in the company in 1921, when it forgave a loan. Over the years, the companies pioneered products including the first automatic washer in 1947.

Whirlpool also made many products for Sears' 86-year-old Kenmore brand, which generally offered more features at the same price as other brands. It was able to do that, because Whirlpool agreed to give new features like timed dryers and three-cycle washes to Kenmore first before adding them to its own products, people familiar with the arrangement said.

That dynamic changed in 2009 when Sears, in an effort to boost profitability, switched many Kenmore products from Whirlpool to LG Electronics and Samsung Electronics Co., those people said. The newly designed Kenmore products lacked many of the bells and whistles for which the brand was known, and sales suffered, they added.

Once the no. 1 selling appliance brand in the U.S., Kenmore now ranks third behind Whirlpool and General Electric Co., according to Stevenson data.

Sears declined to comment on the company's relationship with manufacturers, as did representatives for Whirlpool and Samsung. An LG spokesman defended its manufacturing, saying "LG brings a higher level of innovation to the relationship." Kenmore will soon release a new Elite Grab-N-Go refrigerator made by LG that houses frequently used items in a separate compartment that can be accessed with the touch of a button.

"In the short term, market share naturally ebbs and flows based on many factors," said Steve Haber, president of Sears' appliance business. "Rather than focus on short-term cycles, we're committed to delivering exceptional experiences that create long-term relationships."

Mr. Haber is the third executive to run its appliance unit in the past five years. Turnover there has contributed to a sense that the business is adrift, a former executive said. Other key jobs such as chief merchant also changed hands, hurting its ability to build supplier relationships, former executives said.

Michael Burti, Sears' general merchandise manager for appliances, left in January 2012 after five years with the company. Steve McClearn, who oversaw strategy and pricing for online and appliances, left in April. Messrs. Burti and McClearn didn't return requests for comment.

A Sears spokesman said the company has made changes to key roles to help transform the business, but added that Sears has a team of experienced staff in place.

The malaise in Sears' appliance business mirrors broader problems at the company since Mr. Lampert gained control of Kmart in 2003 and merged it two years later with Sears in an $11.5 billion deal. Sears hasn't turned a profit since 2010, and sales, which stood at $53 billion when Mr. Lampert took control, fell to $40 billion in 2012, as customer traffic ebbed and Sears sold assets to raise cash.

Mr. Lampert, whose ESL Investments Inc. controls 56.2% of Sears and who became chief executive of the retailer earlier this year, has been criticized for letting stores become run down and for emphasizing technological initiatives over brick and mortar operations even though 97% of Sears sales are done in its more than 2,000 stores.

The company says Kenmore continues to introduce innovative products such as the Kenmore Elite, the biggest front-load washer and dryer on the market. It said Kenmore products routinely get high ratings from consumers, including dishwashers which are rated the highest by J.D. Power and Associates. Other improvements include a loyalty program that has signed up a majority of its shoppers and an initiative to equip store sales staff with iPads so they can more easily look up product information and offer speedy checkouts.

Employees said they like the iPads in theory but have trouble with them in practice. One challenge has been getting Sears' antiquated systems to communicate with the devices, which can lead to frustrating moments when customers and staff are waiting for information, current and former employees said.

That is a particular challenge for appliance sales staff, who rely on the devices to look up product specs. One appliance associate said he has a "love hate" relationship with his iPad. He's supposed to ring up customer purchases on the device, but he often uses the register instead because it is quicker.

"We implemented this capability to give our associates easy access to information at their fingertips," the Sears spokesman said.

Meanwhile, Sears' competitors have been exploiting the gap. Home Depot has expanded its product offerings over the past year by adding Whirlpool, Electrolux, Frigidaire and Samsung brands. Lowe's offersfree next day delivery.

"If the competition continues to focus on appliances and Sears' doesn't do something to make itself relevant, I would expect this share loss to persisteven as the overall appliance market grows," said Matt McGinley, an analyst with researcher ISI Group Inc.

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Sears, Facing Weak Sales and Internal Strains, Posts Loss
By Associated Press
New York Times
August 23, 2013

Sears posted another bad quarter on Thursday, saying that its second-quarter loss widened as the company continued to struggle with weak sales and deep discounts.

Results for the retailer, which operates Kmart and Sears stores, were also hurt by the decline in the number of stores in operation and the lingering effects from its spinoff of the Hometown and Outlet stores.

Shares of Sears Holdings fell 8.2 percent to close at $39.72.

A series of retailers, including Walmart and Macy's, have reported disappointing quarterly results this month and have issued bleaker outlooks as shoppers deal with an uncertain economy and an increase in the payroll tax.

Some store executives have also noted that people are shifting spending toward bigger-ticket items like cars and home improvement and away from clothing.

Sears, which caters to middle-income shoppers, faced those pressures on top of its own problems, further clouding the path toward profitability.

Edward S. Lampert, the Sears chairman who took on the role of chief executive and controls the company, on Thursday acknowledged the importance of profits but he emphasized that the company had made progress toward a so-called members-focused company whose most loyal customers receive incentives to buy.

Still, the latest results bolster critics' arguments that Sears has not done enough in its own stores to give shoppers a compelling reason to visit.

For the quarter, revenue at stores open at least a year in the United States fell 1.5 percent. The measure is a crucial indicator of a retailer's health because it excludes results from stores recently opened or closed.

"There was not much change in direction from weak results over the last few quarters, but this quarter should have benefited from strong seasonal sales in home improvement and a revived appliance market," Gary Balter, an analyst at Credit Suisse, said in a note to clients. "Sears remains on a dangerous downward spiral."

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For Sears, the 'Dangerous Downward Spiral' Continues
By Steven Russolillo
Wall Street Journal
August 23, 2013

Once upon a time, Sears Holdings Corp. encouraged consumers to come see its softer side. Based on its most recent quarterly report, the retailer's financial soft side is on full display, and investors don't like what they see.

Sears' quarterly loss widened from a year ago, revenue fell and margins tightened as the company grapples with lower foot traffic and waning demand. The disappointing results add to a string of quarterly reports that have magnified the struggles taking place at Sears.

"Another disappointing quarter," is how Gary Balter, the bearish retail analyst at Credit Suisse, described the company's results. Mr. Balter, who has an underperform rating and a $20 price target on Sears, pointed out the company reported a higher short-term debt balance from a year ago, which he dubbed as an "ominous" sign.

Shares recently fell 8.6% to $39.55 on more than twice the stock's average daily trading volume, according to FactSet. The stock has lost about 1/4 of its market value over the past 12 months, including a 33% drop since late May.]

"Sears remains on a dangerous downward spiral," Mr. Balter said in a note to clients. "To finance operations and create liquidity, Sears continues to pare back on inventory, spinoff select businesses, and to sell some of its best locations. This is leading to even weaker operating results, which in turn is leading to additional dispositions of good locations.

"Given the multiple assets that Sears owns, including Lands' End and some excellent real estate locations, this trend can continue for awhile," he added. "However, at some point, if EBITDA does not improve one wonders if vendors get more concerned on the direction. Problems with retailers usually begin with vendors paring back, not with obvious liquidity issues."

Sears, controlled by billionaire hedge-fund investor Edward Lampert, has lately been revamping its image to become more chic. Yes, chic. It's secured upscale offerings for the Marketplace section of its website, which features goods sold by third-party vendors. Those offerings contrast sharply with the washing machines, tools and basic clothing that are the mainstays of the department-store chain.

In addition, Mr. Lampert has made e-commerce a priority, hoping to position the company to compete better with larger online marketplaces run by Amazon.com Inc. and eBay Inc. So far so good: Online sales from sears.com and kmart.com jumped 20%.

The problem, though, is online sales account for a tiny percentage of Sears' overall revenue. Some analysts see the effort as a distraction from work needed to shape up the company's stores, which account for an estimated 97% of its sales.

"It is becoming clearer that cash flow from operations will remain negative for some time after taking out CapEx, interest payments, and cash pension contributions," Mr. Balter says.

"We guess time will tell, but at this stage, time does not appear to be on the side of this company."

--Paul Vigna and Saabira Chaudhuri contributed to this post.

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Ackman Concedes Some 'Failures'
By David Benoit and Emily Glazer
Wall Street Journal
August 22, 2013

Letter to Investors Says He Has Made 'Mistakes' With Retailer Bets

William Ackman said he has made "mistakes" with bets on retailers such as J.C. Penney & Co., but defended his record and style as an activist investor.

In a letter to investors this week, the hedge-fund manager also said he had a few "failures," though he argued that his stumbles get a lot of attention because his firm manages so much money and is active in high-profile companies

'Clearly, retail has not been our strong suit, and this is duly noted,' wrote William Ackman.

The 20-page missive, recapping a tumultuous second quarter for Mr. Ackman's Pershing Square Capital Management LP, kicked off with a section titled "Mistakes," in which Mr. Ackman confronted his failures: Investments in retailers J.C. Penney, Target Corp. TGT -1.92%and Borders Group Inc. A bet against supplement-maker Herbalife Ltd. HLF -0.41%remains "in the column," Mr. Ackman said.

Mr. Ackman also mused about his funds' recent performance, "flat" for the quarter and underperforming the S&P 500 index's 2.9% gain, including dividends, and the life of an activist investor.

"We are going to make mistakes," Mr. Ackman told investors. "Our mistakes are often going to be much more visible than those of other investment professionals."

The letter pointed out that Pershing Square has strongly outperformed the market since its founding.

"We believe our activist track record, both long and short, is the best of any activist investor of which we are aware," Mr. Ackman wrote.

The letter showed Pershing Square's first fund has earned investors a 463% return, after fees, since the start of 2004, compared with a 76% gain, including dividends, in the S&P 500. The main fund is up 6.3% this year through June, after accounting for fees, compared with a 14% gain, including dividends, in the S&P 500, according to the letter.

Mr. Ackman didn't respond to requests for comment about the letter.

In recent years, other big-name investors have expressed regret about some of their losing bets.

John Paulson at the end of 2011 called that year his firm's "worst" in its 17-year history after several bets on an economic recovery proved premature. Bond investors Bill Gross, of Pacific Investment Management Co., in 2011 and Jeffrey Gundlach, of DoubleLine Capital LP, several weeks ago said they were wrong-footed by market moves. Warren Buffett admitted last year he made a "major unforced error" in buying bonds of Energy Future Holdings Corp., the energy producer once known as TXU Corp.

Hedge-fund owner Whitney Tilson, a longtime supporter of Mr. Ackman, said Mr. Ackman owed no apology to investors and called the letter "one of the best" he has read given the scrutiny Mr. Ackman has faced.

"Investing is a probabilistic game. If you are right 60% of the time, you'll be a billionaire," Mr. Tilson said. "If you just go back and look at the totality of an activist investor, he has a pretty darn good batting average."

Lauren M. Bloom, a consultant and the author of "The Art of the Apology," said that while Mr. Ackman may not owe investors an apology for the recent stumbles, it may help. "It sounds to me like he's written a tough-luck-Charlie letter," she said, after being read parts of the letter. "He maybe could have done better if he had done nothing at all."

Mr. Ackman's public attacks on companies have attracted heated comments from rival traders, including a live spat with Carl Icahn on CNBC television this year.

On J.C. Penney, Mr. Ackman acknowledged that Pershing Square may sell its 17.7% stake in the company after the firm failed in its efforts to force change at the retailer. Mr. Ackman this month resigned from J.C. Penney's board after an unusually public boardroom fight. He also has been criticized by other investors over his use of a public pulpit in his bet against Herbalife, which he has derided as a pyramid scheme. Mr. Icahn, for one, has said Mr. Ackman's public comments led him to look into Herbalife and come to a different conclusion.

Mr. Ackman's positions on J.C. Penney and Herbalife are deep in the red, on paper at least, according to the letter.

"Activist investing requires a thick and calloused skin, and recent press coverage reinforces this point," Mr. Ackman said in his letter. The letter also said previous stakes in Borders and Target were "failures."

"Clearly, retail has not been our strong suit, and this is duly noted," Mr. Ackman wrote.

Other investors, including George Soros, have aligned with Herbalife, which denies Mr. Ackman's charges.

Mr. Ackman's letter dedicated eight pages to Herbalife. He said the investment is down sharply as Herbalife's stock has nearly doubled this year. A Herbalife spokeswoman said Mr. Ackman's campaign is "increasingly taking on an air of desperation."

Mr. Ackman said in the letter that betting against Herbalife is still a good wager.

"We believe that Herbalife was a good short sale at our cost, and an even better one at current values," Mr. Ackman wrote

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Sears 2Q Loss More Than Expected
By Corilyn Shropshire
Chicago Tribune
August 22, 2013

Sears shares fell more than 7 percent Thursday morning after the retailer reported a bigger than expected loss, weaker sales and pinched margins because of heavy discounting.

In an interview Thursday, Chief Executive Eddie Lampert, who took over day-to-day operations in February, noted that online sales were up 20 percent and that the beleaguered retailer remains on track. Plans to shore up its bottom line this year include selling real estate and other assets toward its goal of freeing up $500 million in cash this year.

Lampert said his strategy is long term: noting his time in other retail investments such as AutoZone and AutoNation that have extended beyond a decade. The results will right themselves with time, he said.

"Some of the things that we've done, we have because we've had to be responsible to the obligations we've inherited," Lampert said. "Yes, if we were making more money, we'd have to do fewer things, like selling stores or assets," he said. "In some cases we're doing things maybe we wouldn't prefer to do but we have to, because that's life."

Sears and Kmart's parent company reported an adjusted loss of $1.46 per share in the second quarter Thursday morning, missing Wall Street's estimates by about 39 cents.

Sears Holdings Corp. said it lost $194 million, compared to $132 million in the same quarter last year. Sales at the Hoffman Estates-based retailer continued their multiyear slide, down more than 6 percent in the quarter that ended Aug. 3 to $8.8 billion. Wall Street predicted revenues of roughly $8.9 billion.

The company's results included gains of $58 million on the sale of certain parts of the its real estate interests in the U.S. and Canada. The transactions, the company said, generated a total of $290 million in cash -- more than half of the $500 million officials vowed to raise this year.

Sears blamed lower sales on the effect of having fewer Kmart and Sears full-line stores and the continued effects of having spun off their Sears Hometown and Outlet stores last year.

Sales at stores open at least year, however, improved at both Sears and Kmart, the company said.

Same store sales at Sears declined less than one percent compared to a slide of nearly 3 percent at the same time last year.

At Kmart, sales in stores open a year fell 2.1 percent compared to last year's slip of nearly 5 percent. The company said sales of its domestic apparel, which includes fashion lines by the Kardashian family has seen comparable sales climbs for eight consecutive quarters.

At the same time, Sears core business -- appliances, has suffered, with company officials attributing comparable sales declines this quarter on lower home appliance sales. This comes as retailers such as Home Depot and Best Buy have recently reported good results this season in appliances.

Online sales climbed 20 percent this quarter, Lampert said in an interview with the Tribune.

Lampert pointed out that the retailer is continuing its focus on beefing up online business and its membership program, "Shop Your Way Rewards." "The last few years our online business is growing not just in terms of sales, but in visits and the influence that online has had in our stores," Lampert said.

But while Lampert is focusing on what the company calls "integrated retail,"allowing members to shop anywhere, anytime they want, industry watchers are worried about Sears' bottom line and their shrinking margins, which dropped more than 200 basis points this quarter to 24.6 percent.

In a note this morning, Credit Suisse analyst Gary Balter said the company "should have benefitted from strong seasonal sales in home improvement and a revived appliance market."

He added that the company is on a dangerous downward spiral, as it sells inventory and spins off businesses while its sales and profits continue to decline.

Morningstar's Paul Swinand added, "They can go along like this for quite some time. But if the loss is so big their debt is climbing, it can become a noose."

Rumors swirled this week that the troubled retailer would announce a sale of some of its assets, but no announcement was made.

Company officials said earlier this year they were mulling a sale of its protection agreements business, which provides service agreements to customers who purchase big-ticket items such as fitness equipment, electronics and appliances. But Chief Financial Officer Rob Schriesheim said that while that segment hasn't sold yet, Sears believes it has "potential options."

"We have not decided what actions, if any to take with regard to this business," Schriesheim said in a statement. The company he added, has continued to work toward the cash-raising goal by reducing its domestic inventory, which is expected to generate roughly $300 million in cash.

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Can Lampert Return Sears to Profitability?
By Lauren Coleman-Lochner & Cotten Timberlake
Bloomberg
August 22, 2013

Sears Holdings Corp. (SHLD), the retailer controlled by Edward Lampert, posted a wider second-quarter loss as loyalty program members used more discounts and appliance sales fell.

The net loss in the three months ended Aug. 3 expanded to $194 million, or $1.83 a share, from a deficit of $132 million, or $1.25, a year earlier, the Hoffman Estates, Illinois-based company said today in a statement. Excluding some items, the loss was $1.46 a share.

Lampert, who engineered the merger of Kmart Holding Corp. and Sears, Roebuck & Co. eight years ago, has presided over 26 consecutive quarters of sales declines. Since becoming chief executive officer in February, he has focused on a loyalty program called Shop Your Way that offers discounts to get customers to visit more often. While program members generated 65 percent of sales in the quarter, associated marketing costs weighed on profit, Lampert said today.

Shop Your Way members "redeemed rewards points at a significantly higher rate than last year," Lampert said. "We recognize how important it is to improve the profitability of our company and I am disappointed that we did not deliver a better result."

Sears sank 8.2 percent to $39.72 at the close in New York, for the biggest drop since May 24. The shares have fallen 4 percent this year, compared with a 16 percent gain for the Standard & Poor's 500 Index. Share Loss

Sales fell 6.3 percent to $8.87 billion. Domestic sales at stores open at least a year fell 1.5 percent, hurt by the decline in appliance sales, the company said.

"Most retailers have reported mid-teen comps in appliances, so the negative appliance comp is quite surprising," Greg Melich, an analyst with International Strategy & Investment Group LLC in New York, wrote in a note to clients today.

Melich, who has a sell rating on the shares, said the appliance sales drop was a "remarkable share loss" and the retailer "does not appear well positioned" for the fourth quarter.

Comparable sales fell 0.8 percent at Sears's domestic stores, and retreated 2.1 percent at Kmart locations.

The company said it ended the quarter with cash, equivalents and restricted cash of $681 million, down from $738 million at the end of the same period a year earlier.

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Sears Holdings Reports Second Quarter 2013 Results
PRNewswire
August 22, 2013

HOFFMAN ESTATES, Ill. -- Sears Holdings Corporation ("Holdings," "we," "us," "our" or the "Company") (NASDAQ: SHLD) today reported its second quarter 2013 results. As a supplement to this earnings release, please see our presentation at our website http://searsholdings.com/invest.

In summary, we reported:

  • Net loss attributable to Holdings' shareholders of $194 million, or $1.83 loss per diluted share, compared to $132 million, or $1.25 loss per diluted share, in the prior year quarter;
  • Adjusted EBITDA of $(55) million for the second quarter of 2013 compared to $116 million in the prior year quarter;
  • Adjusted loss per diluted share for the quarter of $1.46 and $1.06 in 2013 and 2012, respectively;
  • Second quarter 2013 included gains on the sale of assets of $58 million, after tax and noncontrolling interest, from the sale of certain U.S. and Canadian stores and leasehold interests. These transactions generated approximately $277 million of cash proceeds;
  • In the second quarter of 2013, Kmart comparable store sales declined 2.1%, Sears Domestic declined 0.8% and Sears Canada declined 2.5%;
  • Our online business on sears.com and kmart.com grew 20% over the prior year second quarter;
  • Our Shop Your Way(TM) membership program is continuing to gain traction with our members as members continue to engage in all aspects of our program, including points and other program benefits. Shop Your Way members generated over 65% of our revenues at Sears Domestic and Kmart during the quarter, as compared to over 55% in the prior year quarter;
  • Gross margin rate decreased 210 basis points for the second quarter of 2013 compared to the prior year second quarter; and
  • Domestic inventory declined $968 million from the prior year second quarter. Excluding the inventory related to Sears Hometown and Outlet Stores, Inc. ("SHO"), Domestic inventory declined approximately $564 million.
"We made meaningful progress this quarter in our transformation to a member-centric company. Shop Your Way members represented over 65% of our sales and they redeemed rewards points at a significantly higher rate than last year. While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program which will allow us to further accelerate our transformation," commented Eddie Lampert, Sears Holdings' Chairman and Chief Executive Officer. "At the same time, we recognize how important it is to improve the profitability of our company and I am disappointed that we did not deliver a better result."

Second Quarter Revenues and Comparable Store Sales

Revenues decreased $596 million to $8.9 billion for the quarter ended August 3, 2013, as compared to revenues of $9.5 billion for the quarter ended July 28, 2012. The decrease in revenue was primarily due to the effect of having fewer Kmart and Sears Full-line stores in operation, which accounted for approximately $210 million of the decline. Revenues were also impacted by approximately $195 million attributable to the separation of SHO, which occurred in the third quarter of 2012. We recorded revenues from SHO of approximately $450 million, primarily related to merchandise sold to SHO for resale, in the second quarter of 2013. The prior year quarter included revenues of approximately $645 million related to SHO merchandise sales to its customers. In addition, our revenues were impacted by lower domestic comparable store sales, which accounted for approximately $100 million of the decline. Second quarter revenues also included a decrease of $13 million due to foreign currency exchange rates.

For the quarter, domestic comparable store sales declined 1.5%, comprised of decreases of 2.1% at Kmart and 0.8% at Sears Domestic. The decline at Kmart reflects decreases in our transactional categories, such as grocery & household, pharmacy and drugstore. It also includes declines in consumer electronics and toys. These decreases were partially offset by increases in the footwear and lawn & garden categories.

Sears Domestic comparable store sales declined 0.8% due to a decrease in the home appliance category, which was partially offset by increases in the lawn & garden, apparel and home categories. The Sears Domestic apparel category has now achieved comparable store sales increases for eight consecutive quarters.

Operating Performance

For the quarter, our gross margin decreased $345 million to $2.2 billion in 2013 due to the above noted decline in sales as well as a decline in gross margin rate. Gross margin included expenses of $7 million in the second quarter of 2013 related to store closings while the second quarter of 2012 included gross margin of $160 million from SHO. Excluding these items, gross margin decreased $178 million.

The gross margin rate for both Kmart and Sears Domestic was impacted by transactions that offer both traditional promotional marketing discounts and Shop Your Way points. As compared to the prior year, Kmart's gross margin rate for the second quarter declined 100 basis points, as decreases in the footwear, seasonal and toys categories were only partially offset by an improvement in the apparel category. Sears Domestic's gross margin rate declined 280 basis points for the quarter primarily due to selling merchandise to SHO at cost pursuant to the terms of the separation, which accounted for approximately 170 basis points of the decline. Sears Domestic also experienced decreases in the home appliances and automotive categories, which were only partially offset by an improvement in the apparel category. Sears Canada's gross margin rate declined 240 basis points for the second quarter due to an increase in inventory reserve requirements.

Selling and administrative expenses decreased $146 million in the second quarter of 2013 compared to the prior year quarter and included expenses related to domestic pension plans, store closings and severance of $43 million and $59 million for 2013 and 2012, respectively. The second quarter of 2012 also included selling and administrative expenses of $124 million related to SHO. Excluding these items, selling and administrative expenses declined $6 million due to favorable legal settlements during the second quarter of 2013, which were partially offset by increases in a number of other expense categories.

We reported an operating loss of $51 million and $103 million for the second quarter of 2013 and 2012, respectively. Operating loss for the second quarter of 2013 included expenses related to domestic pension plans, store closings, and severance, as well as gains on the sales of assets which aggregated to operating income of $184 million. Operating loss for the second quarter of 2012 included expenses related to domestic pension plans, store closings and severance, as well as operating income from SHO, which aggregated to operating income of $32 million. Excluding these items, we would have reported an operating loss of $235 million and $71 million in the second quarter of 2013 and 2012, respectively. See the attached schedule, "Adjusted Earnings per Share," for a reconciliation from GAAP to as adjusted amounts, including adjusted earnings per diluted share.

Our effective tax rate for the second quarter of 2013 was an expense of 30.9% compared with a benefit of 15.8% in 2012. Our tax rate in 2013 continues to reflect the effect of not recognizing the benefit of current period losses in certain domestic jurisdictions where it is not more likely than not that such benefits would be realized. In addition, the second quarter of 2013 benefited from favorable audit settlements and the lower tax on the Sears Canada gain on sales of assets.

Our fiscal 2013 second quarter was comprised of the 13-week period ended August 3, 2013, while our fiscal 2012 second quarter was comprised of the 13-week period ended July 28, 2012. This one week shift in sales had no impact on the domestic comparable store sales results reported herein due to the fact that for purposes of reporting domestic comparable store sales for the second quarter, weeks 14 through 26 for fiscal 2013 have been compared to weeks 15 through 27 of fiscal year 2012, thereby eliminating the impact of the one week shift. In addition, domestic comparable store sales amounts for the second quarter include online sales from sears.com and kmart.com shipped directly to customers, which resulted in a benefit of approximately 75 basis points, and have been adjusted for the change in the unshipped sales reserves recorded at the end of each reporting period, which resulted in a negative impact of approximately 60 basis points.

Financial Position

"At the end of the second quarter, our financial flexibility remains strong with cash of approximately $700 million, availability under our credit facilities of approximately $1.6 billion and inventory, net of payables, of approximately $4.8 billion. During the first half, we generated approximately $290 million of proceeds from real estate transactions," said Rob Schriesheim, Holdings' Chief Financial Officer. "While we believe that we continue to have potential options relating to our protection agreement business, we have not decided what actions, if any, to take with regard to this business. Regardless of the outcome of this process, we have made significant progress toward our goal to raise at least $500 million of additional liquidity in 2013. With regard to the objectives we outlined in our February earnings release, we remain on track to reduce 2013 peak domestic inventory by $500 million from the 2012 level of $8.6 billion at the end of the third quarter as a result of stores already or expected to be closed, initiatives underway to reduce slow-moving inventory and modest productivity improvement. This action is expected to generate $300 million of cash after consideration of related payables. We also expect to further reduce our fixed cost base by another $200 million, much of which will occur in the second half."

We had cash balances of $681 million at August 3, 2013 ($383 million domestic and $298 million at Sears Canada) as compared to $618 million ($380 million domestic and $238 million at Sears Canada) at February 2, 2013. The increase in cash during the first half of 2013 was primarily due to proceeds received from the sales of properties which were partially offset by higher working capital needs.

Merchandise inventories at August 3, 2013 were $7.7 billion, as compared to $8.7 billion at July 28, 2012. Domestic inventory decreased $968 million to $6.9 billion at August 3, 2013. Excluding the inventory related to SHO, domestic inventory decreased approximately $564 million from the prior year's second quarter driven by both improved productivity and store closures. Sears Domestic inventory decreased in virtually all categories, with the most notable decreases in the consumer electronics and tools categories, as well as in apparel, sporting goods and jewelry. Kmart inventory also decreased in virtually all categories with the most notable decreases in the consumer electronics, grocery & household and drugstore categories.

Total debt (consisting of short-term borrowings, long-term debt and capital lease obligations) was $3.7 billion at August 3, 2013, compared to $3.1 billion at February 2, 2013. The increase in borrowings funded our quarterly operations, including the loss for the period, seasonal inventory build, pension contributions and capital expenditures. Availability under our credit facilities was $1.6 billion ($1.1 billion domestic and $0.5 billion at Sears Canada, prior to taking into consideration possible reserves) at August 3, 2013.

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Sears Canada Reports Second Quarter Earnings
Chicago Tribune
August 22, 2013

TORONTO, Aug. 21, 2013 /CNW/ - Sears Canada Inc. (TSX: SCC) today announced its unaudited second quarter results. Total revenue for the 13-week period ended August 3, 2013 was $960.1 million compared to $1,061.9 million for the 13-week period ended July 28, 2012, a decrease of 9.6%. Same store sales decreased 2.5%.

Net earnings for the second quarter were $152.8 million or $1.50 per share compared to a net loss of $9.8 million or 10 cents per share for the second quarter last year. Included in net earnings for the second quarter this year is a pre-tax gain of $185.7 million related to transactions for the vacating of two stores, and the granting of an option regarding the vacating of a third store, as announced by the Company on June 14, 2013. Excluding the after-tax gain from these transactions of $164.0 million, the net loss for the second quarter of 2013 was $11.2 million or 11 cents per share. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization and non-recurring items) for the second quarter this year was $20.2 million versus $24.8 million in the second quarter last year. Adjusted EBITDA for the second quarter last year included $5.7 million related to 4 stores for which the leases were terminated prior to the end of 2012.

Total revenues for the 26-week period ended August 3, 2013 were $1,827.2 million compared to $1,989.9 million for the 26-week period last year, which ended July 28, 2012, a decrease of 8.2%. Same store sales decreased 2.5%.

Net earnings for the first half of 2013 was $121.6 million or $1.19 per share compared to net earnings of $83.2 million or 81 cents per share for the first half of last year. Included in earnings for the first half of last year was a pre-tax gain of $164.3 million related to lease terminations on three properties. Excluding the after-tax gains associated with vacating stores of $164.0 million and $137.9 million in the first half of 2013 and 2012, respectively, the net loss for the first half of 2013 was $42.4 million or 42 cents per share and the net loss for the first half of 2012 was $54.7 million or 54 cents per share. Adjusted EBITDA for the first half of the year was $10.4 million versus $2.1 million for the first half of last year. Adjusted EBITDA for the first half of last year included $6.0 million related to 4 stores for which the leases were terminated prior to the end of 2012.

"This period marks the half-way point of our three-year Transformation plan, and although we have much work to do, we are starting to see progress, thanks in large part to our 29,000 associates coast to coast who are continuing to plan and execute strategies that are designed to drive increased consideration for Sears as a shopping destination of choice for Canadian families," said Calvin McDonald, President and Chief Executive Officer, Sears Canada Inc., commenting on the second quarter. "The success we are seeing in the merchandise categories where we have focused most of our Transformation efforts continues to be an indication that Canadians are responding positively to the changes they are seeing at Sears.

"We continue to be particularly encouraged by the results in our Apparel and Accessories (A&A) business which grew again in the quarter on a same store basis and which has now experienced positive year over year same store growth for three quarters in a row, performance that the Company has not seen for many years. Of particular note is that our two key events in these categories, Mother's Day and Father's Day, saw A&A sales increases of 25% and 10%, respectively, for the two-week period leading up to these two days in May and June.

"The A&A growth was offset by declines in some of our Home and Hardlines (H&H) businesses, notably home furnishings, mattresses and home electronics. These businesses have struggled in the face of a low growth housing market. Although the H&H businesses have had challenges, our merchandising efforts led to a sales increase in Major Appliances, a key hero category for Sears which has continued to maintain market share over recent periods.

"On a broader basis, we reduced total expenses by 10.3% in the second quarter this year versus the second quarter last year, as management continues to adjust to revenue trends.

"Looking forward, the third quarter will see the arrival in stores of our new Nevada denim for men and women designed by Buffalo and private brand footwear designed by Aldo. The first five stores carrying the Penningtons brand of plus-sized women's fashions will also be presented to customers with reconfigured selling floors that will reflect our intention to shift the balance of sale into more predictable and profitable categories while reducing those which are susceptible to volatility from unfavourable seasonal, industry or economic conditions."

Adjusted EBITDA is a non-IFRS measure, and excludes finance costs, interest income, income tax expense or recovery, depreciation and amortization and income or expenses of a non-recurring, unusual or one-time nature. Please refer to the table attached for a reconciliation of net earnings (loss) to Adjusted EBITDA.

This release contains information which is forward-looking and is subject to important risks and uncertainties. Forward-looking information concerns, among other things, the Company's future financial performance, business strategy, plans, expectations, goals and objectives. Although the Company believes that the estimates reflected in such forward-looking information are reasonable, such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information and undue reliance should not be placed on such information. Factors which could cause actual results to differ materially from current expectations include, but are not limited to: the ability of the Company to successfully implement its cost reduction, productivity improvement and strategic initiatives and whether such initiatives will yield the expected benefits; the results achieved pursuant to the Company's long-term marketing and servicing alliance with JPMorgan Chase Bank, N.A.; general economic conditions; competitive conditions in the businesses in which the Company participates; changes in consumer spending; seasonal weather patterns; customer preference toward product offerings; changes in the Company's relationship with its suppliers; interest rate fluctuations and other changes in funding costs; fluctuations in foreign currency exchange rates; the possibility of negative investment returns in the Company's pension plan; the outcome of pending legal proceedings; and changes in laws, rules and regulations applicable to the Company. Information about these factors, other material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in preparing forward-looking information, may be found in this release and in the Company's 2012 Annual Report under Section 11 "Risks and Uncertainties" and elsewhere in the Company's filings with securities regulators. The Company does not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

Sears Canada is a multi-channel retailer with a network that includes 181 corporate stores, 246 hometown dealer stores, over 1,400 catalogue and online merchandise pick-up locations, 101 Sears Travel offices and a nationwide home maintenance, repair, and installation network. The Company also publishes Canada's most extensive general merchandise catalogue and offers shopping online at www.sears.ca.

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Activist Investor Had Sought to Oust Retailer's CEO, Chairman
By Emily Glazer, Joann S. Lublin, and Suzanne Kapner
Dow Jones Newswire
August 13, 2013

Hedge-fund manager William Ackman has resigned from the board of J.C. Penney Co., bringing an end to an unusually public rift among directors that had threatened the struggling company's turnaround efforts.

Mr. Ackman resigned Monday, J.C. Penney said in a statement Tuesday. The board is bringing aboard former Federated Department Stores Inc.--now Macy's, Inc.--executive Ronald Tysoe and said it will name another new director in the future.

The board also declared its "overwhelming support" for Chairman Thomas Engibous and Chief Executive Myron "Mike" Ullman, both if whom Mr. Ackman had argued should be replaced.

Mr. Ackman raised the possibility of resigning when the board met Sunday evening by telephone, people familiar with the matter said. It was hammered out in further discussions Monday that lasted late into the night, the people said. Mr. Tysoe's appointment had been in the works already and was brought forward, the people said.

The steps are a blow to Mr. Ackman, who has already lost more than $600 million on his stake in Penney. He is the company's largest stockholder with nearly 18% of its shares via his Pershing Square Capital Management LP. But it could also free him to more actively lobby the company or adjust his holdings as an outsider man said in a statement that stepping down is the most constructive way forward for the company.

One big question is what he plans to do with his shares in Penney. If he were to consider selling, he would be limited by his recent position as an insider and also by a shareholder agreement with the company that restricts how he unwinds his holdings, a person familiar with the situation said.

In an interview on CNBC, Mr. Ackman said if he had wanted to sell down his stake he could have done it earlier.

For the company, the move signals a truce in a battle that had threatened to distract the struggling company as it tries to win back customers.

The conflict erupted last week, when Mr. Ackman took the unusual step of publicly releasing two letters he had sent to the board criticizing directors for not moving fast enough to replace Mr. Ullman. Mr. Engibous had shot back in a pair of news releases calling Mr. Ackman's comments "misleading, inaccurate and counterproductive."

The dispute between the department-store chain and its largest shareholder came as the company was struggling to stop a slide in sales ahead of the crucial year-end holiday season.

It presented a possibly crippling distraction to Penney's main task: recovering from the botched strategy implemented by former CEO Ron Johnson, whose decision to do away with discounts and overhaul the chain's inventory produced a $1 billion loss and a 25% drop in sales in his first full year on the job.

Mr. Ullman, who had preceded Mr. Johnson as CEO, returned to the top job on an interim basis in April. Mr. Ackman agreed to bring back Mr. Ullman, provided that the board immediately begin to look for a permanent successor, a person familiar with his thinking said.

Matters came to a head at the July board meeting when Mr. Ackman threatened to sell his stock and leave the board unless directors moved more rapidly to find a permanent CEO. The board has since appointed Heidrick & Struggles International Inc. to handle the search, which will continue.

Directors over the weekend considered ways to isolate Mr. Ackman, people fagmiliar with the matter said.

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War of Attrition at J.C. Penney
By Suzanne Kapner and Joann S. Lublin
Wall Street Journal
August 10, 2013

Retail Chain's Chairman Slams Ackman Complaints as 'Misleading, Inaccurate'

J.C. Penney Co.'s board broke into open warfare on Friday, threatening to distract top managers and hobble the search for a new chief executive at a crucial moment in the retailer's attempt to turn itself around.

Hedge fund manager William Ackman, the department-store chain's largest shareholder and a Penney director, fired off a scathing letter to fellow directors that claimed, "In recent weeks, our board has ceased to function effectively."

It was the second public broadside from Mr. Ackman in as many days and followed harsh comments Thursday by Chairman Thomas Engibous, who described the hedge fund manager's actions as "disruptive." On Friday, Mr. Engibous called Mr. Ackman's latest letter "misleading, inaccurate and counterproductive."

The board rift has deepened at a precarious time. The Plano, Texas, company last year lost $1 billion as sales fell 25%, and it is scrambling to get customers back into its stores and retain the support of vendors ahead of the holiday sales season.

Many analysts believe that the coming holidays will be a make-or-break period for Penney, a 1,100-store chain that employed 116,000 people nationwide at the beginning of February. Suppliers have said Penney's sales have continued to slide at a double-digit pace in the past three months. The company also is burning more cash than some analysts expected.

Investors were rattled by the developments, sending the company's shares down nearly 6% on Friday to $12.87. They have lost 35% of their value this year.

Turning around the department-store chain would be no easy task in the best of times, but Penney is facing particular headwinds. The back-to-school shopping season is off to a slow start for retailers, putting a damper on the second most important selling season after the year-end holidays. Penney also faces fierce competition from Macy's Inc. and other mall-based retailers that have unleashed deep discounts to woo shoppers.

The debate consuming the board is about how quickly to replace interim Chief Executive Myron "Mike" Ullman. He returned from retirement four months ago to undo the damage caused by former Apple Inc. executive Ron Johnson, whose decision to do away with coupons and toss out popular private label lines crushed sales.RT The boardroom brawl could make it harder to recruit a permanent replacement.

"The board has the challenge of convincing candidates that it truly has control of the situation,'' said Peter Crist, chairman of executive search firm Crist/Kolder Associates, which isn't involved in the search.

Penney has retained recruiters Heidrick & Struggles International Inc. to find Mr. Ullman's permanent replacement. A person familiar with the Penney situation said: "There is never a search that doesn't have issues."

Longtime observers of U.S. corporate governance said the level of dissension on Penney's board was among the worst in recent memory. "It's not time to be shooting at each other,'' said Charles Elson, head of the Weinberg Center for Corporate Governance at University of Delaware's business school.

Mr. Ackman, the activist investor who owns more than 18% of Penney's stock through his Pershing Square Capital Management LP, has paper losses of more than $600 million on his investment in the company.

His letter, which runs to more than 2,500 words, takes aim at Messrs. Ullman and Engibous. It rails at what he sees as the board's foot dragging over finding Mr. Ullman's replacement, voices concerns over the company's deteriorating financial performance, and laments that he has been cut off from information about the company's performance.

Mr. Ackman writes, for instance, that Penney's internal sales projections have deteriorated over the past three months and that a large vendor recently voiced concern that the company was stocking up on too much inventory. A Penney spokeswoman declined to comment.

The hedge fund manager's letter calls for Mr. Engibous to be replaced as chairman by former Penney CEO Allen Questrom, who has said he would return to the retailer under the right circumstances.

Mr. Engibous said the board is following proper governance procedures and directors "have been fully informed and are making decisions as a group."

Mr. Ackman lobbied to hire Mr. Johnson as CEO in 2011, a decision that led to plunging sales, deep job cuts and diminishing cash reserves.

Since taking the job in April, Mr. Ullman has managed to marginally slow the decline in sales. Yet progress in winning back customers hasn't been as dramatic as some analysts and industry executives had hoped. Adding to investors' concerns, Penney disclosed that as of the end of July, it had $1.5 billion in cash, less than many analysts had expected.

Mr. Ullman's defenders say it is too soon to judge whether his strategy will deliver results. They point out that it takes months to restock shelves and that inventory levels were severely depleted during the Johnson regime.

Compounding the drama around Penney, hedge fund Perry Capital LLC disclosed on Friday that it has taken a stake of 7.3% in the company and called on the board to hire Foot Locker Inc. chief Kenneth Hicks as CEO and bring in Mr. Questrom as chairman.

Mr. Hicks, also a former Penney executive, has regularly been mentioned by people in the industry as a possibility for the job. He would be acceptable to Mr. Ackman, a person familiar with the matter said. Mr. Hicks declined to comment.

Mr. Ackman has fought bitter battles with companies before. He took on Target Corp. in a two-year fight that ended in defeat when he lost proxy battle to replace five board members in March 2009. Last year, he won a long proxy battle at Canadian Pacific Railway Ltd. after threatening the company's board with "nuclear winter" if it didn't agree to management changes.

But this fight is different, because Mr. Ackman is already on the board. "That is what makes this extraordinary,'' said Mr. Elson.

-- Emily Glazer contributed to this article.

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Ackman Calls for Ouster of J.C. Penney Chairman
By Beth Jinks and Lauren Coleman-Lochner
Bloomberg
August 9, 2013

The board isn�t functioning effectively, major personnel decisions are being made without the advice of all directors and important financial information is being withheld from him, Ackman, whose Pershing Square Capital Management LP is the company�s largest shareholder, said in a letter obtained by Bloomberg. The board should meet as soon as possible, he said.

J.C. Penney�s board is fighting as the company works to rebound from its worst sales in more than two decades and prepare for a crucial holiday shopping season. Ackman�s request yesterday to speed the CEO search was met with a statement of support for Ullman, signaling the investor who handpicked previous chief Ron Johnson two years ago has lost some sway.

�He�s clearly alienated the rest of his directors on the board,� Jeffrey Sonnenfeld, senior associate dean at the Yale School of Management, said in an interview. �His chosen candidate, Ron Johnson, virtually destroyed this great American icon and now he�s throwing a tantrum about the guy they brought in to replace him.�

Engibous said today that �Ackman�s statements are misleading, inaccurate and counterproductive.�

�The Board is focused on the important work of stabilizing and rejuvenating the business,� he said in a statement. �It is following proper governance procedures, and members of the Board have been fully informed and are making decisions as a group. This includes the CEO search process, which is being conducted at an appropriate pace.�

Ullman�s Return

Ackman is agitating for the speedy appointment of a leader who can reverse a sales slump that worsened under ex-CEO Johnson, the former Apple Inc. executive he recruited for the role. Ullman, who returned on an interim basis at age 66 in April, has revived price cutting and brought back merchandise to attract core customers alienated by Johnson�s strategy, which centered on ending discounting and remaking the stores into collections of boutiques.

�If Ackman had suddenly accumulated a position in the company and was being met with discord from the board, I could see him maybe doing what he�s doing, but given the fact that he has been so involved with directors for some time now and was involved heavily in hiring the last CEO, it�s very surprising he�s launched such a public dispute,� said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

Ackman Criticisms

Ackman today criticized Ullman for making a number of important decisions without consulting the full board. Ackman said he terminated AlixPartners, which a person familiar with the matter told Bloomberg had been hired in April to help the retailer get fresh financing. Ullman also cut off Blackstone Group LP�s access to the company�s financial information and ended its role in analyzing the company�s position, Ackman said.

Ullman has been using Centerview Partners LLC and co-founder Robert Pruzan, Ackman said. Representatives of Blackstone and Centerview didn�t immediately respond to requests for comment. Tim Yost, an AlixPartners spokesman, declined to comment.

Other personnel moves that Ackman said the full board should have been consulted on include the hiring of Debra Berman from Kraft Foods Group Inc. (KRFT) as senior vice president of marketing, which was announced earlier this week.

Ullman Firings

Ullman also fired Sergio Zyman, a former Coca-Cola Co. advertising executive, who had been brought in as a marketing consultant in February, and pushed out Senior Vice President of Operational Strategy Bob Peterson, Ackman said. He said he was told Vice President of Financial Planning and Analysis Susan Ray was fired.

A message left on Ray�s voicemail wasn�t immediately returned, nor was an e-mail to Peterson and a message with Zyman. Messages left for J.C. Penney spokesmen weren�t immediately returned.

The board agreed July 22 to begin a search for a CEO, to be named within six months, according to a person familiar with the matter, who asked not to be identified as the process is private. Ackman is pushing to find someone by mid-September since there are only a few candidates, the person said.

CEO Candidates

Among possible candidates for the next CEO are Foot Locker Inc. (FL) CEO Ken Hicks, Bon-Ton Stores Inc. chief Brendan Hoffman and Hudson�s Bay Co. (HBC)�s Bonnie Brooks, according to the person.

Spokesmen for Foot Locker and Bon-Ton didn�t reply to requests for comment. Andrew Blecher, an outside spokesman for Hudson�s Bay, declined to immediately provide a comment.

Ackman, 47, told board members in a letter yesterday that he persuaded former J.C. Penney CEO Allen Questrom to agree to return as chairman if he approves of the department-store chain�s next CEO and said today that Questrom may return even before one was chosen.

�J.C. Penney is at a very critical stage in its history and its very existence is at risk,� Ackman said in today�s letter. �During a period like this one, it is absolutely critical that we work together to solve our problems. It is essential that our board function extremely effectively or we will certainly fail.�

The retailer�s shares, which dropped 4.8 percent to $13 at 2:21 p.m. in New York, have slid 34 percent this year.

Perry Capital LLC, which owns about 7.3 percent of J.C. Penney�s shares, is siding with Ackman. Founder Richard Perry said today in a letter to the retailer�s board that it should name Questrom chairman and choose Foot Locker�s Hicks for CEO.

Permanent CEO

Questrom, 73, criticized J.C. Penney directors for moving too slowly to find a permanent CEO after rehiring Ullman. He said he had supported Ullman as interim CEO and had expected the board �to use the time that Mike afforded them generously to find a person who was long term.�

In an interview yesterday from Aspen, Colorado, Questrom called returning as chairman �a long shot,� hinging on directors forming �a positive board and an aggressive board to help solve the problems.� He also said he�d return only if the board hired a new CEO who had previously served as a chief executive and had retail experience, preferably with department stores.

Ullman, who had served as J.C. Penney�s chairman and CEO for about seven years, has the board�s support.

�Right Person�

�Mike is the right person to rebuild J.C. Penney by stabilizing its operations, restoring confidence among our vendors, and getting customers back in our stores,� Engibous said in a statement yesterday after the market closed. �He has the overwhelming support of the Board of Directors, and we are confident the Company is in good hands.�

Since taking over, Ullman has been trying to woo back middle-aged women, the chain�s core customers, who decamped when Johnson changed the merchandise mix to attract younger shoppers and reduced discounts. Ullman has revived so-called �doorbusters� bargains usually reserved for the holiday-shopping season.

Marketing has been refocused on bargains and private-label lines like St. John�s Bay, a $1 billion brand whose women�s apparel was discontinued under Johnson. The company is bringing back three other brands popular with older, female shoppers: the lingerie line Ambrielle, outdoor-apparel Made for Life and JCP Home.

Ullman also has labored to shore up J.C. Penney�s cash balance. Along with hiring AlixPartners in April, the company started negotiating a $2.25 billion loan arranged by Goldman Sachs Group Inc. and borrowed $850 million from a revolving credit facility.

Bond Trading

Investors are trading unsecured notes of the company at prices that reflect growing concern that cash on hand won�t be adequate to fund a turnaround. J.C. Penney, which estimated on Aug. 1 that it has about $1.5 billion of cash, will probably report its eighth consecutive quarterly loss on Aug. 20, according to analysts� estimates compiled by Bloomberg.

Kimberly Greenberger, a New York-based analyst at Morgan Stanley, earlier had projected that the company would have $1.9 billion in cash by Aug. 1. Greenberger said the disclosure implied cash use of about $1 billion from the previous quarter amid lower operating cash flow, increased capital spending and higher-than-expected inventories.

J.C. Penney isn�t Ackman�s first foray into retail. He raised a $2 billion investment vehicle in 2007 that bought a stake in Target Corp. (TGT) that lost 90 percent of its value over the next two years. At the time, Ackman called it �one of the greatest disappointments� of his career. Pershing Square sold its Target stake in the first quarter of 2011, after shareholders rejected a board slate nominated by Ackman.

Pershing Square International Ltd., the firm�s largest fund at $4.9 billion in assets, rose 3.7 percent this year through July, according to a performance update sent to clients. U.S. stocks returned 20 percent and hedge funds on average gained 3.2 percent in the period, according to data compiled by Bloomberg.

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William Ackman Targets J.C. Penney's CEO
By Suzanne Kapner and Emily Glazer
Wall Street Journal
August 9, 2013

Board Blasts Action as 'Disappointing' and 'Counterproductive'

J.C. Penney Co.'s largest shareholder is pressing the board to quickly replace its chief executive, as the battered department-store chain struggles to turn around a deep slide in sales.

The move to unseat interim CEO Myron "Mike" Ullman sets up a standoff between hedge fund manager William Ackman, who owns nearly 18% of the company's stock, and a board that was badly burned the last time it went along with his wishes.

It was Mr. Ackman who, as a director, lobbied successfully to bring in former Apple Inc. executive Ron Johnson as chief executive in 2011, a choice that set off a disastrous year of plunging sales, diminishing cash reserves and deep job cuts.

The chain of middle-market department stores is still struggling to recover from the damage. Suppliers to the company estimated sales at stores open at least a year�a key measure of a retailer's health�fell by more than 10% in the three months through July, and the cash is running lower than some analysts had expected.

Mr. Ackman's Pershing Square Capital Management LP is under pressure as well. His investment in Penney has lost more than $600 million, nearly half its value, and his $1 billion bet against nutritional supplement distributor Herbalife Ltd. is in the red as well, with paper losses of about $350 million, according to people familiar with the matter.

While his fund is up 4% through July, according to a letter to his investors, that compares poorly with the average 7.7% gain for other stock hedge funds tracked by research firm HFR and the nearly 20% gain for the Standard & Poor's 500-stock index, including dividends, for the period.

Mr. Ackman made his argument to the board in a letter that was made public during the day by CNBC. He expressed impatience in the letter and said a new CEO needs to be found within 30 to 45 days. "As the largest shareholder of J.C. Penney, I only have one goal: help save one of the great iconic American companies," Mr. Ackman told The Wall Street Journal.

Late Thursday, Penney's board blasted Mr. Ackman, saying his actions were "disruptive and counterproductive" and arguing that he had been "integrally involved" in the events that caused Penney's prospects to deteriorate. The company also lined up executives to defend Mr. Ullman's track record.

"Mike is working tirelessly to save this company, and it is despicable of Ackman to leak a letter asking for his removal," said Howard Schultz, the chief executive of Starbucks Corp., on whose board Mr. Ullman sits. "The irony is that Ackman himself has every step of the way severely damaged this company."

Mr. Ullman had been seen as a temporary hire since taking the job in April, and Penney said Thursday it began looking for a new CEO in earnest three weeks ago. Heidrick & Struggles is handling the search, a person familiar with the effort said.

Matters came to a head at a board meeting on July 22, when Mr. Ackman threatened to sell his stock and leave the board if his fellow directors didn't move to replace Mr. Ullman as CEO, the person said.

People close to Penney said Mr. Ackman didn't influence the timing of the search.

It isn't clear who might succeed Mr. Ullman. Mr. Ackman said in the letter he had approached former Penney Chairman and CEO Allen Questrom about returning as chairman. Mr. Questrom said he would consider the job under the right conditions.

With Penney suffering lackluster sales, Mr. Ackman successfully lobbied in 2011 to end Mr. Ullman's first stint running Penney and replace him with Mr. Johnson.

Mr. Johnson came to the job with much fanfare and splashy plans to remake the dowdy stores into collections of boutiques. But he drove away customers with his decision to virtually eliminate coupons and rejigger Penney's merchandise without following the usual practice of first testing his ideas at a few outlets. Sales fell 25% last year, an enormous drop in an industry where chains claw for every percentage point.

Of particular concern today is the performance of Penney's newly renovated home departments. The areas, under construction in the first quarter, had been expected to be a big draw when they reopened in June. Suppliers say sales in key categories in the home department are running 40% to 50% below Penney's internal plan.

Penney declined to comment on sales trends.

Analysts said they were concerned the prices on some home items such as $115 coffee makers designed by Michael Graves, $2,895 sofas by Jonathan Adler and $95 window treatments by Martha Stewart were too high for Penney's typical shoppers.

"The J.C. Penney customer is not likely to splurge on an expensive toaster or coffee press," said Kimberly Greenberger, an analyst with Morgan Stanley.

Some suppliers, meanwhile, lamented that elements of the home department had been poorly designed. Test kitchens that were supposed to have been used for cooking demonstrations now serve as checkout aisles, because the stores lacked the necessary plumbing.

Kristin Hays, Penney's spokeswoman, confirmed that the kitchens had been repurposed but said customers "have told us that is where they want to check out." She said that because the home stores had only been open for two months, it was too soon to gauge their performance.

"It takes time for customers to adapt to the products and the prices," Ms. Hays said. Some suppliers also cautioned that it was too early to judge whether Mr. Ullman's plans to revive the retailer were working. They pointed out that under Mr. Johnson inventories had been depleted and restocking shelves wouldn't be complete until the third and fourth quarters.

Still, the continued decline in sales is a concern, because Penney has been ramping up discounts to lure shoppers back. An analysis for The Wall Street Journal conducted by SaleTally, which tracks online and in store promotions, concluded that Penney had offered "more storewide promotions with higher overall savings" than competitors Macy's Inc. and Kohl's Co. during the second quarter.

Poor sales also add pressure to the company right when it has to spend to stock up for the holidays. Penney was forced last week to deny rumors that the CIT Group, CIT -0.22%which lends to garment manufacturers, had stopped financing shipments to the retailer. To reassure Wall Street and its suppliers, Penney said it finished the second quarter with $1.5 billion in cash on its balance sheet.

But rather than ease fears about its financial position, the disclosure set off fresh worries that Penney was burning through cash too fast. Kimberly Greenberger, a Morgan Stanley analyst, said that she had expected Penney to end the quarter with $1.9 billion in cash�about $400 million more than what is in Penney's coffers. Based on store checks, Ms. Greenberger now expects same-store sales fell 10% in the second quarter. After talking to vendors, Citigroup analyst Deborah Weinswig concluded same-store sales may have fallen by as much as 15%.

"At this point in the game, the J.C. Penney customer has moved on and they will have to do something dramatic to get her back," s Ms. Weinswig said.

There have been some missteps on that front. Before returning to the practice of putting items on sale, Penney first raised the prices�a practice common in retailing. But because reticketing goods is a time consuming and labor intensive practice, Penney simply pasted new price stickers over the old.

Shirley Supp said she was surprised to find that she paid more than the original price for a beach coverup at a Penney's store in the Rockaway Mall in Rockaway, N.J., even though the item was on sale.

When Ms. Supp got home, she peeled back the sticker to discover the original price was $20--$4 less than the $24 she paid.

"I thought it was really unethical of them," Ms. Supp said, "I'm not planning to shop there again."

A Penney spokesman said the shift back to promotional pricing required the company to change prices on merchandise to remain competitive and acknowledge that the changes may "cause some temporary confusion."

-- Juliet Chung contributed to this article.

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J.C. Penney names Kraft executive as head of marketing
Reuters
August 5, 2013

J.C. Penney Co Inc on Monday named a Kraft Foods Group Inc executive to head its marketing efforts, filling a job that had been vacant for 14 months while the company tries to win shoppers back to its promotions-heavy strategy.

Debra Berman was vice president, marketing strategy and engagement, at Kraft, which she joined in 2009. Previously, she was a strategic planning director at DDB Advertising.

At Penney, she will report to Chief Executive Officer Myron Ullman, who was brought back in April to steady the company after an attempt by his predecessor, Ron Johnson, to re-invent it as a trendier chain led to a 25 percent sales decline last year.

Penney has not had an executive specifically dedicated to marketing since Michael Francis left the company over disagreements about its marketing campaigns. Johnson had worked with him years earlier at Target Corp and hired him as Penney president in late 2011.

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Saks Deal Is About Land as Much as Luxury
Wall Street Journal
July 30, 2013

Hudson's Bay Purchase of Retailer for $2.4 Billion Could Lead to a REIT

Richard Baker grew up watching his father develop shopping malls. Now, the 47-year-old chief executive of Hudson's Bay Co. is buying the companies that fill them up.

His latest deal is the $2.4 billion takeover of luxury retailer Saks Inc., SKS +0.06%his highest-profile acquisition after buying Lord & Taylor and Canadian department store chain Hudson's Bay over the past decade.

Mr. Baker said he and his partners began eyeing Saks five years ago, but bided their time while they got Hudson's Bay into shape for an initial public offering completed in November.

They were drawn to the luxury retailer's real estate, including a trophy property on Manhattan's Fifth Avenue, across from Rockefeller Center. Early this year, Mr. Baker contacted Saks to express his interest in buying the company.

"We're stalkers, not opportunistic buyers," Mr. Baker said in an interview.

Hudson's Bay is paying $16 a share to become the latest owner of a swanky chain that has changed hands multiple times since it was set up as a specialty department store in 1924. In the 1970s, Saks became a unit of tobacco conglomerate B.A.T. Industries, which sold it to Bahrain-based private-equity firm Investcorp in 1990. Then in 1998, Saks found itself briefly headquartered in Alabama after it was bought by Proffitt's Inc., which was rolling up middle-market department stores and took on the Saks Inc. name. A leaner Saks, rededicated to the upper crust, emerged when the middle-market stores were sold off in 2005 and 2006.

A Saks spokeswoman declined to say what alternatives the company considered before agreeing to Hudson's Bay deal.

Owning two flagship stores on Fifth Ave.--Lord & Taylor is just 11 blocks from Saks--would be something of a vindication for Mr. Baker, who was initially derided in fashion circles as "Richie Rich," for his boyish looks and privileged upbringing.

He grew up in Greenwich, Conn., where he lives today in a gated community that boasts a 50-foot indoor pool designed by the installation artist James Turrell. It is one of three homes he owns. The others are in Telluride, Colo., and on the North Fork of Long Island.

His father, Robert, founded the shopping mall developer National Realty & Development Corp. The younger Mr. Baker also had an entrepreneurial bent. While in high school, he started a catering business, recruited his private-school classmates as waiters and served up delicacies at parties around town, including a bar mitzvah for 100 people.

After attending Cornell University's School of Hotel Administration, Mr. Baker planned to go into the restaurant business, but his father talked him out of it and instead convinced him to join the family business.

He plunged into retail with NRDC Equity Partners, a partnership that includes Mr. Baker; his father; William Mack, the founder of Apollo Real Estate Advisors, now called Area Property Partners; and Lee Neibart, another Apollo partner.

Mr. Baker's father warned him against bidding for Lord & Taylor, believing the acquisition would be too big and complicated, but he plunged ahead, paying $1.2 billion for the company in 2006. Two years later, NRDC Equity Partners bought Canada's Hudson Bay Co. for $1.3 billion, giving it control of two of the oldest department-store chains in North America.

Mr. Baker cashed in on the investment in 2011, when Target Corp. shelled out around 1.8 billion Canadian dollars ($1.75 billion at current rates) for the rights to leases on as many as 220 Zellers stores, a Canadian discount chain owned by Hudson's Bay.

"The great coup that Richard pulled off was to unlock the value of that real estate," said Mortimer Singer, the president and chief executive of Marvin Traub Associates, a consulting firm.

Mr. Baker is now hoping to pull off another property coup. Saks gives him not only a high-end luxury chain to add to his collection of brands, but also enough real estate to make it possible to lump it together with the property owned by his other retailers and spin it off as a real-estate investment trust. Saks operates 41 Saks Fifth Avenue stores, and 67 of its Off 5th clearance outlets.

The REIT would own the property and rent it back to the chains. By selling shares in the REIT, Hudson's Bay could raise funds to help pay down the $3.2 billion of debt it expects to have following the Saks transaction. His company's operating costs will rise as it makes market-rate lease payments to the REIT, but investors sent Hudson's Bay shares up 5.8% in Toronto trading Monday.

To defray the expense of the acquisition, Hudson's Bay is bringing in equity partners. Ontario Teachers Pension Plan will put $500 million into the deal, and Toronto-based West Face Capital Inc. will put in $250 million. The company had at one point talked to private-equity firm Blackstone Group, but those talks fell through.

Saks lacks scale in a market with larger competitors and consolidation among luxury brands, and its sales have yet to fully recover after swooning during the recession. The chain has also been saddled with underperforming stores that are locked into leases. After the approach from Hudson's Bay, the company tapped Goldman Sachs Group Inc. to explore strategic alternatives. It was also advised by Morgan Stanley and Guggenheim Securities.

Mr. Baker, whose company was advised by Bank of America Merrill Lynch and Royal Bank of Canada, plans to replace Saks stores with less exclusive Lord & Taylor stores in some of locations. He also sees opportunities to expand Saks into Canada, either by adding stores or converting Hudson's Bay locations.

The new company would have generated about $7 billion in revenue in the last fiscal year.

--Mike Spector contributed to this article.

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Sears CEO Edward Lampert Denies Secret Online Posts
By Susanna Kim
ABC News
July 23, 2013

Sears CEO Edward Lampert Denies Using Pseudonym to Get the Scoop on Employees

A spokesman for Edward Lampert, CEO of Sears Holdings Corp., denied reports that Lampert used a pseudonym in the company's internal social networking system through which he reportedly scolded employees

Chris Brathwaite, a spokesman for the company, said the report that Lambert used a pseudonym to snoop on employees on its Pebble internal network is not true.

"Any suggestion that Mr. Lampert was using a pseudonym on Pebble to interact with associates is patently false," Brathwaite said.

BusinessWeek reported that Lampert, 51, used the online pseudonym "Eli Wexler", as Eli refers to someone who attended Yale University, where Lampert went to school. Lampert became CEO of the retailer earlier this year after Louis J. D'Ambrosio stepped down for family health matters.

"[Lampert] left critical comments on other people's posts, according to more than 20 former employees; he even got into arguments with store associates," the magazine reported. "Word got around that Wexler was Lampert. Bosses started tracking how often employees were 'Pebbling.' One former business head says her group organized Pebble conversations about miscellaneous topics just to appear they were active users. Another group held 'Pebblejam' sessions to create the illusion they were using the network."

Lampert, who took control of Sears in 2005 after engineering its purchase by discount-retailer Kmart Holdings Corp., then took the helm as CEO in February, is struggling to turn around the retailer. The former hedge fund manager has seen sales slide as losses topped $4 billion in the last two years.

Sears Holdings, based in Hoffman Estates, Ill., launched Pebble company-wide in the summer of 2009, Brathwaite said, which allows employees to interact online with each other. Before Pebble, the company beta-tested a system called Yammer with about 5,000 employees. Brathwaite said he does not know whether Lampert used a pseudonym for Yammer when it was in use for about three months starting March 2009. At the time, Lampert was chairman.

Records from the company show Lampert posted on Pebble using the name "Edward Lampert."

In messages shown to ABC News, Lampert posted on Aug. 12, 2009 at 3:40 p.m. saying, "Agree that some like anonymity. That is not what Pebble is all about. It is a communication platform to allow people to express themselves, to increase transparency and improve the company. Anybody uncomfortable, need not participate. All welcome to."

A thumbnail photo of Lampert is shown next to his name.

At 3:58 p.m. later that day he posted, "I am looking forward to having more people share their ideas. For those who are shy, maybe somebody can set up a group to work with them to communicate their ideas more comfortably and constructively?"

Brathwaite describes Pebble as a social networking channel, more like a message board and not like real-time chatting services like Instant Messaging or Gchat.

Initially Pebble had a limit of around 200 characters, but it has since been expanded.

When asked how often Lampert uses Pebble, Brathwaite said Lampert "talks to employees regularly."

"He asks questions, gets feedback, shares his thoughts on the company and his strategic initiatives, our mission and our culture," Brathwaite said.

The company doesn't force employees to use Pebble, but Brathwaite said there are numerous benefits, especially company transparency, which Lampert has encouraged.

"I can interact right now with a store associate if I wanted to. That's the beauty of it: it allows us to see what's happening in the field and it makes the world smaller," he said, adding that retail workers "on the frontline" can communicate with corporate headquarters about store issues.

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JCPenney Is Close to Making Key Marketing Hire
Ad Age
July 23, 2013

Sources tell Ad Age that struggling discount retailer JCPenney is preparing to hire a new marketing head. Leading the list of possible candidates for the role is current Kraft Foods Vice President of Marketing and Engagement, Debra Berman.

JCPenney wants to install a new marketing executive prior to the onset of the holiday shopping season, a critical period for any retailer and one that takes on added importance after JCPenney's poor recent performance.

Currently, JCPenney is receiving marketing guidance from former Aflac executive Jeff Herbert. His contract with the chain expires at the end of this month. The company has been without a marketing head since Michael Francis was ousted last year.

Berman worked at a number of marketing firms, including Y&R, Saatchi & Saatchi and DDB, before joining Kraft in 2009.

JCPenney is trying to recover from a disastrous "no-sales" strategy implemented over the past two years by former CEO Ron Johnson, who was forced out earlier this year as quarterly losses soared.

Shares of JCPenney fell more than 1% in Monday morning trading.

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Sears Would Really Like to Sell You a $33,000 Rolex
By Dana Mattioli & Suzanne Kapner
Wall Street Journal
July 22, 2013

Retailer's Third-Party Marketplace Is Attempt to Burnish Its Image

Looking for a $4,400 Chanel handbag or $33,000 Rolex watch? Try...Sears?

In one of the more counterintuitive strategies in retailing today, Chairman and Chief Executive Edward Lampert has been pushing his beleaguered company to secure upscale offerings for the Marketplace section of its website, which features goods sold by third-party vendors.

In one of the more counterintuitive strategies in retailing today, Sears Chairman and Chief Executive Edwart Lambert has been pushing his company to secure upscale offerings for the Marketplace section of its website. Andrew Dowell discusses on MoneyBeat.

So now in addition to the Chanel bag and Rolex watch, Marketplace browsers can find $445 Balenciaga sunglasses, $600 Pour La Victoire boots and a $500 Zac Posen dress, according to a recent scan of the website.

The offerings contrast sharply with the washing machines, tools and basic clothing that are the mainstays of the downscale department-store chain. Luxury vendors said Sears representatives have stressed in meetings that the company was trying to revamp its image and become more hip.

In addition, Mr. Lampert has made a priority of e-commerce, hoping to position the company to better compete with larger online marketplaces run by Amazon.com Inc. and eBay Inc.

Yet there are hurdles to making Sears Holding Corp. a real competitor online, and some analysts see the effort as a distraction from needed work shaping up the company's stores, which account for an estimated 97% of its sales.

The breadth of items, particularly at the high end, has some shoppers confused, especially since they usually land there through general Internet searches, rather than by going to Sears.com.

On an online forum for handbag aficionados, a string of members were questioning whether a Gucci purse listed on Sears' website was fake, merely because of its association with the department store.

"Sears would be the last place most would think to purchase high-end bags from," a member quipped. Another wrote, "Gucci @ Sears? hmmmmm don't think so!"

A Sears spokesman said every seller goes through a registration and approval process to ensure the validity of their items.

"Honestly, when I tell people I sell there, I always have to put in a caveat," said Linda Lightman, owner of ShopLindasStuff, which sells new and preowned clothing and accessories from designer brands such as Christian Louboutin, Chanel and Dolce & Gabbana.

Ms. Lightman began selling on Sears Marketplace in June of last year, and said she sells a few dozen items a week, compared with the more than 1,000 orders she gets daily on eBay.

Sears approached Allison Oseran, who runs AJM Fashions, about a year ago to sell her wares on its Marketplace. AJM carries brands such as Stella McCartney, Jimmy Choo and Zac Posen.

"They convinced us they are working hard to change their image and wanted to focus on designer clothing," Ms. Oseran said.

Sales have started off slow, but Ms. Oseran said she has sold a $3,000 pair of Alaia heels on the site as well as a Michael Kors handbag. AJM now sells about 30 to 40 items a month via Sears, compared with thousands of items a month on eBay and about 700 a month on Amazon, she said.

"We hope that they're able to change their image," Ms. Oseran said.

Marketplace was the brainchild of Mr. Lampert, who merged Sears and Kmart stores in 2005 to create Sears Holdings. Marketplace opened in 2010 and has grown to include thousands of vendors selling more than 85 million products, ranging from sporting goods to consumer electronics.

The Sears spokesman said the idea behind Marketplace was to offer the "best and widest assortment for our members," and the company remains focused on shaping up its bricks and mortar stores. "Since 2011, Sears Holdings has invested millions of dollars equipping our stores with technology" like iPads, the spokesman said.

Sears collects a commission that ranges from 7% to 20% of sales in addition to a $39.99 monthly fee.

Sears's Marketplace is now the third-largest online vendor market by number of visits, but it trails Amazon and eBay by a wide margin, according to comScore. In June, Amazon had 98 million unique visitors, eBay had 69 million and Sears had 18 million.

Amazon charges fees ranging from 6% to 25% of an item's cost, plus a closing fee, and for sellers that don't buy monthly subscriptions, a per-item fee. EBay charges fees of 6% to 9% of an item's price for sellers who buy subscriptions, or 10% for those who go without.

Searches for products turn up results for both Amazon and Sears fairly high in the rankings, said Paul Swinand, an analyst with Morningstar. But Amazon still holds an advantage on price, he said.

This proved true during a recent search for a Conair fabric steamer. The GS10 Deluxe model was available on Amazon's Marketplace for $74.95, while Sears's third-party vendor was selling it for $138.66.

The Sears spokesman said the company offers competitive pricing and offers free shipping on items of $59 or more for its own products or those sold in its Marketplace section. Marketplace has grown quickly in the three years since it opened, with total online sales, including items sold directly by Sears as well as third-party sellers, up 17% last year, the spokesman said.

While the company is experimenting with e-commerce ventures and other technologies, its core operations continue to suffer. Revenue has declined steadily since the merger that formed the company, falling to $39.9 billion in fiscal 2012 from $53 billion in 2006.

After losing more than $4 billion in 2011 and 2012 combined, Sears Holdings posted weak results for the quarter ended May 4.

Revenue fell 9% to $8.5 billion and the company showed a $279 million loss. Sales at Sears stores open at least a year in the U.S. had ticked up in the previous quarter but resumed their decline, dropping 2.4%.

The Sears spokesman said the company is trying to deliver a "differentiated" experience to customers by integrating its online platforms with its brick-and-mortar stores and through a loyalty program called Shop Your Way.

Matt McGinley, managing director of investor research firm International Strategy & Investment Group, said the Marketplace and other Web initiatives won't help those results unless the bricks-and-mortar business turns around.

"Regardless of how successful they are in growing this business, the bulk of their business is from stores," Mr. McGinley said. "And if they can't plug those holes, it's hard to see how they remain viable as a retailer."

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Prudential Retiree Life Insurance Mailing
June 19, 2013

On July 15 Prudential began mailing retirees Sears Retiree Life Insurance confirmation statement confirming the amount of their benefit so they have something for their record to confirm their benefit and amount.

Unfortunately, the first 7500 statements mailed listed over-stated coverage amounts. Prudential found this error when they began receiving calls from retirees questioning the amount listed. The error has been correct and the statements going forward will list the correct amount.

Prudential will be send the retirees who received the incorrect statements an apology letter with instruction to disregard and destroy the original statement they received and replace with the enclosed correct statement.

However, the major concern is that some retirees may keep the incorrect statement for their records, which could cause issues for their family when they file a claim for the benefit, because they could be expecting to receive the incorrect benefit amount.

If you have any questions about this matter, contact Prudential at 800-778-3827.

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A Health Scare for ObamaCare
By Kimberley A. Strassel
Wall Street Journal
July 19, 2013

This week, a notable number of Democrats in Congress voted against core provisions of the president's signature health legislation.

What if waking up is more terrifying than the nightmare?

Democrats for three years have comforted themselves with the thought that 2014 would be the year they broke free of the ObamaCare night sweats. Their political washout in 2010, their failure to take back the House last year, all was the result of their having to defend a law that had yet to take effect. Once the law was up and running, Americans would wake up to its benefits. Or so they believed.

Instead, it is Democrats who are waking up�to a horror film. Every morning brings fresh news of terror: missing deadlines, programs running of money, premiums set to soar, flailing technical implementation. And this week Republicans nimbly forced them to choose between abandoning core provisions of the bill or renewing ownership of what may prove to be one of the biggest political liabilities in decades.

What makes this story line particularly horrifying for Democrats is that it is happening despite their best-laid plans. The architects of ObamaCare wrote its timeline with politics in mind. The law's most popular freebies�the bar on pre-existing conditions, parental coverage for children up to age 26�went into effect quickly to give the party some immediate credit. The law's more unpleasant provisions and trickier technical components were slated to begin ramping up in 2013�a non-election year. That way Democrats could get past any hiccups and start handing out subsidies in time for the next midterm election. Nobody counted on the hiccups turning into cardiac arrest.

Worse for Democrats, the troubles come at the moment the White House had convinced them to wrap their arms around the law. The administration has been arguing in briefing sessions to members that it helps no one to run from legislation the party already owns. Democrats are discovering this argument is immensely self-serving.

Self-serving, because the White House's biggest fear is that Democrats will begin to desert this effort. After all, growing numbers of congressional Democrats do not really own ObamaCare in the purest sense. Many of those who voted for the law have retired or been defeated. Their successors have far less allegiance to it.

Recently elected Senate Democrats have enthusiastically joined efforts to kill portions of the law, such as the medical-device tax, the better to suggest to angry constituents that they are "flexible" about "fixing" it. Recent Democratic candidates are harsher. Elizabeth Colbert Busch, who ran in May's special House election in South Carolina, declared ObamaCare "extremely problematic, it is expensive, it is a $500 billion [higher] cost than we originally anticipated, it's cutting into Medicare benefits and it's having companies lay off their employees because they are worried about the cost of it." She finished: "It needs an enormous fix." This was a call for repeal in everything but name.

Alison Lundergan Grimes, who recently declared against Kentucky Sen. Mitch McConnell, declined to even voice support of the health law. At the event announcing her candidacy, the second question was about her support of ObamaCare. Her response was nearly incoherent: "I will tell you, regardless of the vote that is issued in this race, we cannot change who our president is. But we can change who we have in Washington representing Kentuckians." With that, she ended the event.

This fading enthusiasm for the law explains why House Republicans this week held votes requiring Democrats to declare themselves on the questions of delaying both the employer mandate and the individual mandate. The White House was forced to issue a bipolar statement, in which it vowed to veto a bill that codifies its own plans to delay the employer mandate until 2015.

Then there were House Democrats. In the end, 35 felt pressured to vote with nearly every Republican to push off the employer mandate for a year. Another 22 voted with the GOP to similarly forestall the individual mandate.

This was a huge break with the White House, the first time a notable number of Democrats have voted against core provisions of ObamaCare. In that regard, it was also a psychological break, one that lays the potential groundwork for a bipartisan coalition to defund or repeal the law, if things continue to deteriorate. This is what the White House truly fears.

Democrats who voted against the delays have renewed their ownership of the law. And they will own the political fallout next year as voters struggle with mandates, soaring prices and plan disruptions.

The Republicans are newly re-energized to run on this issue. Any seats they pick up in the House or Senate next year mean more votes for repealing the law.

Whether Democrats voted for or against this week's delays, they were helping the ultimate cause of weakening the law. This is the political predicament Mr. Obama has put his party in, thanks to a rushed, misguided, deeply flawed and unpopular health policy. And it looks like the trouble is only beginning.

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What Will the Next 20 Years Hold for Sears Hometown Stores?
By George Anderson
Retail Wire
July 19, 2013

In 1893, the first Sears, Roebuck and Co. catalog was published. In 1993, the last Sears catalog was published. In 2013, Sears Hometown Store is going nostalgic and honoring the memory of the "Big Book" with a twentieth anniversary sale.

This year also marks survival for the entrepreneurs who operate local Sears Hometown Store locations. Twenty years ago, Sears announced it was closing around 2,000 of its catalog stores along with the Big Book. Only 122 owners were allowed to continue operating their businesses that became known as Sears Hometown stores. Today, Sears Hometown Stores account for more than 900 locations as part of Sears Hometown and Outlet Stores, Inc., which was spun off by Sears Holdings.

"Looking back over the past 20 years, we're celebrating tremendous progress," said Bruce Johnson, president and CEO, of the company, in a statement. "Everyone has memories of ordering from the eagerly awaited Big Book for delivery to a local catalog store or their home. The Big Book is gone. But as much as things change, we continue to grow by providing top-notch customer service, and we still provide incredible values."

"I started working at a Sears catalog store in the telephone department in 1958," said Lucille Cooper, owner of the Sears Hometown Store in Bogalusa, La. "I loved working for Sears and worked my way up, eventually becoming a store manager. When we heard that the catalog stores were closing, our entire community was distressed. A few weeks later, I heard about the opportunity to buy a dealer store in my hometown, and I immediately took it. Everything has come full circle."

To commemorate the anniversary of the last Big Book, Sears Hometown Stores are running a "throwback" promotion offering current versions of items sold in 1993 at prices at or below what they charged 20 years ago.

Discussion Questions:

What do you think will be the greatest challenges for Sears Hometown Stores over the next 20 years? Does individual ownership of stores increase or decrease the likelihood of success for the company in the years ahead?

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Why Sears Doesn't Have To Go Out Of Business
By Mark Fidelman
Forbes
July 18, 2013

Every time I hear the critics of Sears discuss its inevitable demise due in part to Eddie Lampert�s decision to break the company into 30 separate operating divisions, I am always reminded of one of my favorite Ayn Rand quotes in her book �Fountainhead� delivered by Howard Roark after being chastised by his College Dean for attempting to build the unconventional: �My dear fellow who will let you?� Roark responds, �That�s not the point. The point is who will stop me.�

There doesn�t appear to be anyone stopping Mr. Lampert right now, and that may not be a bad thing.

But clearly the Sears Holdings recovery is on layaway and most of Wall Street is discounting its ability to turn itself around. Consider the following metrics. Since the Kmart and Sears merger, revenues have declined from $53 billion to $36 billion, in the last year the company stock has lost 18% of its value. And its market cap is down to 4.69 billion. Its net profit margin is down 2.64% for the year which is second worst amongst its peer group (only JC Penney is worse).

Still more concerning is that according to Glassdoor, employee morale for Sears appears to be particularly low with only 31% of its employees recommending the company, and Lampert�s 19% approval rating isn�t helping matters. In contrast, both Target and Macy�s each have 62% and 47% of its employees recommending their companies � neither make the best place to work but are faring much better than Sears.

Let�s face it: Those are only some of the issues, and the rest doesn�t look much better. But the numbers only scratch the surface and shouldn�t necessarily be used to judge the long term viability of the company. Take the �Shop Your Way� advocacy platform, which Sheila Field, Chief Marketing Officer for Sears Apparel describes as: �� in one word: authentic. If it�s not authentic, it�s not worth doing. We have grown an advocacy program from individual relationships with people that genuinely care about the brand. That�s very powerful. When we sit down with a brand advocate, we want to hear the truth. Their stories inspire us to become better and to exceed their expectations.�

The Sears �Shop Your Way� advocacy platform is a great start, but a lot imagemore must be done in order to turn the company around. Both Sears and Kmart still have a lot of advantages � Sears is still the third largest merchandise retail company and they own many trademarked brands like Craftsman, Land�s End and DieHard with loyal customers.

But from my work with companies at Evolve!, there are specific actions Sears Holdings is taking and should be taking that are worth reviewing. I have set forth some of these key strategies in my book Socialized!, but let�s look at each of them in the context of Sears and the current retail environment.

1. Use credit card, website, social, in store, and mobile data to understand patterns for cross selling opportunities. CEO Lampert has hired Moneyball�s Paul DePodesta, and Freaknomics Co-Author Steven Levitt as consultants to the organization, which is a great start. But they need the heavy hitters to profile current and prospective customers by observing patterns of behavior across Sears Holdings and across their digital properties to better understand how and when to sell products.

For example, if a digital pattern emerges around customers that like the Sears Facebook page, click on Craftsman tool links in emails sent by Sears, visits an Orchard Supply Hardware website, and has used a Sears credit card to buy tools in the past � then when that customer is in the store next time (or even close by) Sears should send them a mobile coupon offering a discount if the customer makes a tool purchase in the next 30 minutes. This isn�t digital fantasy � this can be done today.

But from what I can tell, with 30 independent operating groups, it�s going to be a huge challenge getting each of them to share data with the other to exploit these opportunities.

2. Use an IBM culture shift strategy to turn employee morale around: While Lampert deserves praise for his courage to bet the company on his restructuring plan, Lampert must remove the fear and communication road blocks amongst the employee base. As IBM has shown, this can be done by engaging employees in the planning stages, getting their buy in (which increases the effectiveness of executing on the plan), and making the whole process transparent by communicating successes, failures and learnings. Sears executives can�t complete a turnaround without the support of its employees. Employees need to feel as important as the customers � if not more.

3. Leverage influencers and advocates to enchant a new generation of retail customers: Sears Holdings can�t change their image with a new generation of socialized, mobilized and digitized consumers without the support of retail influencers and tastemakers. They come in all shapes and sizes and many of them have more power to change the hearts and minds of Sears target customers than can the entire marketing budget of Sears Holdings.

Field explained to me how The Shop Your Way program works with influencers: �Our <influencers> included mommy bloggers, fashion bloggers, media, DIY�ers, and beauty bloggers. We�ve done in store events, editors events, blogger events, online sweeps and digital activations�all tailored to the way our audience prefers to engage in those channels.� And I�ve heard the program�s growth rate is substantial.

Yet, they�ll need to take it a few steps further to integrate influencer opinion directly into their buyer�s shopping experience whether it be online or offline. For example, if I am looking to buy a shirt online, I want to know if an influencer I follow recommends it (or not) and if I am in the store, I want mobile recommendations from influencers about shirts they recommend.

4. Use social data to understand the trends � then get ahead of the trends: Sears Holdings will need to leverage Influencer maps not only to understand who is impacting their products, brands and customers the most � but also to understand what the tastemakers are discussing as the next hottest thing. Sears should also form a retail partnership with the IBM Watson team as they can quickly help Sears leverage social data to predict profitable trends and use Sears Holding�s own data to help uncover valuable purchase insights that were previously hidden. IBM has created a digital crystal ball, Sears should be the first to use it.

Then, Sears should work with its influencers and a new company called Expressible to instantly publish rich media, digital content landing pages based on that trend data with links to Sears products. When Sears influencers share (and endorse) those pages with their followers, Sears can expect a huge uptick in qualified customer traffic. Expressible makes it remarkably easy for brands to become publishers by leveraging content that already exists on the web.

5. Turn in-store Mobile shopping into purchases: In a recent Accenture Interactive report, 72 percent of consumers aged 20 to 40 useclip_image002 mobile devices while in-store to compare prices, but the majority leave before making a purchase. This is a huge miss given the report also states that 32% of those consumers buy from a different retailer.

Baiju Shah, managing director of strategy and innovation for Accenture Interactive explains: �But consumers don�t want to shop online exclusively and our work with retailers shows that physical stores don�t have to compete on price alone but rather focus on the whole experience. Retailers need to create a seamless, multi-channel experience that blends the digital and physical, and delivers convenience, price and relevance.�

Sears should consider working with Bloomreach which provides cross-channel optimization, across multiple devices, even if shoppers never authenticate themselves. If the user logs in from home or another device, BloomReach not only identifies those people based on behavior, but creates a dynamic experience for the shopper by presenting the most relevant products and search suggestions.

6. Sears Executives need accountability for discussions about their division: Reading through Sears Glassdoor comments, it�s clear clip_image003employees believe there is a huge gap between Sears Holdings executives and their customers. Lampert should require each of its holding companies to set up a social media command center to monitor conversations about Sears and its competitors� customers.

Sears should work with MutualMind (which has a deep retail understanding) to set these command centers up.

7. Ditch Pebble and use a real social platform: According to Businessweek, Lampert ordered the IT department to build a proprietary social network, called Pebble to engage with employees and find out what was happening across the company. The problem is Lampert engaged employees under a pseudonym and when it was discovered, employees pulled back from using the platform.

The other issue is that Sears built Pebble themselves despite it not being a core competency. I�m pretty sure 99.9% of the companies that have built their own proprietary platform have eventually thrown it away. That�s because they simply can�t compete and can�t afford to maintain the platform with software companies that eat, live and breathe it for a living. Sears needs to ditch Pebble and use a solution like Yammer to engage with its employees and to spot opportunities to improve the organization.

8. There�s a lot more room for retail innovation: Today, Sears is competing with a tsunami of disruptive technologies that are turning the retail industry on its head. It�s tough for any industry to stay on top of all the changes � and in retail is especially difficult. Yet Sears must find a way to innovate its physical retail space so that it becomes a higher value to its customers. Apple has done a great job in consumer electronics; Sears Holdings needs to find a way to do something similar with each of its branded retail stores.

Forbes contributor and IdeaFaktory CEO Steve Faktor offers some great suggestions, Sears ought to take note.

9. Complete the Brand makeover: What�s missing with Sears brands are desire � they need more equity with consumers to move the company back into profitable growth. Ironically, Sears has all of the assets and products to be trendy again, yet it lacks the emotional connection with today�s consumers. Target has it � so do a lot of the boutique retailers.

From my point of view, Sears needs a psychological makeover � similar to when Steve Jobs returned to Apple and asked everyone to �think different�. But since Sears doesn�t employ someone as influential as Steve Jobs, Sears should engage a legion of retail influencers to tell its story for them. And don�t stop at the story telling, ask them to provide feedback on the in-store experience, the online experience and how to best connect emotionally with customers of each of the Sears Holdings� brands.

10. Leverage employee connections and promote them as subject matter experts (SMEs): Almost all companies underutilize the expertise contained within its employee base. Almost all companies employ subject matter experts that if exposed to their customer base increase trust and sales. So why do most companies hide these employees from the outside world? Some do it out of fear � fear that competitors will try and recruit them � fear that the employee will say something embarrassing � fear that the employee�s expertise will be used by competitors to strengthen its own products and services.

Yet my research has shown that these fears are unfounded. In fact, just the opposite is true. Companies that allow SMEs to communicate on social channels with current and prospective customers increase their trust in the organization. Our research has also shown that by leveraging solutions like PeopleLinx organizations can leverage its entire employee base to connect with new customers, partners and suppliers.

I�m certain that Sears can benefit from removing any barriers for responsible SMEs to communicate with Sears customers � I am also confident that its 274,000 employees have critical connections that can help Sears in its turnaround.

The Critics are Piling On

Sears certainly has its share of critics these days -notice most of them don�t have the business acumen to make any actionable suggestions. My favorite is from Paul Krugman who has virtually zero business experience: �We may live in a market sea, but that sea is dotted with many islands that we call firms, some of them quite large, within which decisions are made not via markets but via hierarchy � even, you might say, via central planning. Clearly, there are some things you don�t want to leave up to the market � the market itself is telling us that, by creating those islands of planning and hierarchy.�

Krugman�s understanding of business strategy is a simplistic one where one only has to press the center of it to make it evaporate into thin air. Competing profit centers and Decentralization are a time proven approach to drive innovative behavior in large organizations. That is exactly what is needed at Sears, but as I�ve pointed out, that decentralization leads to data silos in which the company must diligently integrate the data horizontally across Sears Holdings in order to maximize revenue opportunities.

It�s also clear both Sears and Kmart need to rebuild the relationship with their employees and customers. They need to be relevant each day and every day to reestablish the fervent trust they once had with their employee and customer base. I�ve recommended some approaches above in which I have experience. Externally, Field has demonstrated that the Shop Your Way program is a success that Sears can build from. Internally, IBM is a model for how to turn around low employee morale situations.

In the end, Sears Holdings management teams must provide the right inspiration, strategy and retail environment if it is to succeed. They can�t rely on the status quo � they can�t rely on old marketing models -they can�t rely on the media � and they certainly cannot rely on advice from people like Paul Krugman.

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At Sears, Eddie Lampert's Warring Divisions Model Adds to the Troubles
By Mina Kimes
Bloomberg Business Week
July 11, 2013

Every year the presidents of Sears Holdings' many business units trudge across the company's sprawling headquarters in Hoffman Estates, Ill., to a conference room in Building B, where they ask Eddie Lampert for money. The leaders have made these solitary treks since 2008, when Lampert, a reclusive hedge fund billionaire, splintered the company into more than 30 units.

Each meeting starts quietly: When the executive arrives, Lampert's top consiglieri are there, waiting around a U-shaped table, according to interviews with a half-dozen former employees who attended these sessions. An assistant walks in, turns on a screen on the opposite wall, and an image of Lampert flickers to life.

The Sears chairman, who lives in a $38 million mansion in South Florida and visits the campus no more than twice a year (he hates flying), is usually staring at his computer when the camera goes live, according to attendees.

The executive in the hot seat will begin clicking through a PowerPoint presentation meant to impress. Often he'll boast an overly ambitious target--"We can definitely grow 20 percent this year!"--without so much as a glance from Lampert, 50, whose preference is to peck out e-mails or scroll through a spreadsheet during the talks. Not until the executive makes a mistake does the Sears chief look up, unleashing a torrent of questions that can go on for hours.

In January, eight years after Lampert masterminded Kmart's $12 billion buyout of Sears in 2005, the board appointed him chief executive officer of the 120-year-old retailer. The company had gone through four CEOs since the merger, yet former executives say Lampert has long been running the show.

Since the takeover, Sears Holdings' sales have dropped from $49.1 billion to $39.9 billion, and its stock has sunk 64 percent. Its cash recently fell to a 10-year low. Although it has plenty of assets to unload before bankruptcy looms, the odds of a turnaround grow longer every quarter. "The way it's being managed, it doesn't work," says Mary Ross Gilbert, a managing director at investment bank Imperial Capital. "They're going to continue to deteriorate."

Plagued by the realities threatening many retail stores, Sears also faces a unique problem: Lampert. Many of its troubles can be traced to an organizational model the chairman implemented five years ago, an idea he has said will save the company. Lampert runs Sears like a hedge fund portfolio, with dozens of autonomous businesses competing for his attention and money.

An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, he created the model because he expected the invisible hand of the market to drive better results. If the company's leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance.

Instead, the divisions turned against each other--and Sears and Kmart, the overarching brands, suffered. Interviews with more than 40 former executives, many of whom sat at the highest levels of the company, paint a picture of a business that's ravaged by infighting as its divisions battle over fewer resources. (Many declined to go on the record for a variety of reasons, including fear of angering Lampert.)

Shaunak Dave, a former executive who left in 2012 and is now at sports marketing agency Revolution, says the model created a "warring tribes" culture. "If you were in a different business unit, we were in two competing companies," he says. "Cooperation and collaboration aren't there."

Although Lampert is notoriously media-averse, he agreed to answer questions about Sears's organizational model via e-mail. "Decentralized systems and structures work better than centralized ones because they produce better information over time," Lampert writes. "The downside is that, to some, it appears messier than centralized systems." Lampert adds that the structure enables him to evaluate the individual parts of Sears, so he can collect "significantly better information and drive decision-making and accountability at a more appropriate level."

Lampert created the model because he wanted deeper data, which he could use to analyze the company's assets. It's why he hired Paul DePodesta, the Harvard-educated statistician immortalized by Michael Lewis in his book Moneyball: The Art of Winning an Unfair Game, to join Sears's board. He wanted to use nontraditional metrics to gain an edge, like DePodesta did for the Oakland Athletics in Moneyball and is trying to repeat in his current job with the New York Mets. Only so far, Lampert's experiment resembles a different book: The Hunger Games.

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Sears workers protest wages at State Street store

Chicago Tribune
By Corilyn Shropshire
July 16, 2013

Nearly 20 workers protested in front of the Sears store on Chicago's State Street Monday morning calling for higher wages and better working schedules.

Chanting, "No justice, no peace, no hours, no peace, no wages, no peace," the workers said after the protest they planned to travel to Sears Hoffman Estates headquarters to deliver a petition, which they claimed was signed by more than half of the stores employees demanding predictable scheduling, raises and respect for union members.

Several workers said they have been trying to organize interested employees into a union. Last month, they delivered a petition to Sears management requesting a discussion about raises and more predictable scheduling. Their request was rebuffed, according to group spokeswoman Judith Luna.

"We want to be taken seriously this time, because we believe that we should get more from Sears," said Luna, an employee who works in the store's hardware department who makes $8 a hour plus commission. "They make a lot of money, millions of dollars and we deserve to get a fair wage."

A Sears spokesman said the company would review any documents presented and respond accordingly, but that accepting the petition does not mean it intends to recognize the Workers Organizing Committee of Chicago/Fight for 15 as a collective bargaining unit.

"Sears, Roebuck and Co. has always respected and continues to respect its associates' rights to engage in legally protected concerted activity. It is Sears' longstanding and firmly held position that our valued associates deserve the benefits of an open conversation regarding unionization and the protection of a secret ballot election before any associate who does not want a union is forced to have one," the company said in an emailed statement.

The retailer also said it "is focused on performance-based incentive opportunities for non-commission hourly associates."

This is one of several protests for Sears employees who joined other local retail and food workers to walk off the job in late April, calling for higher wages.

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Can this woman save Sears?
By Brigid Sweeney
Chicago Business
July 15, 2013

Leena Munjal's office on the sixth floor of Sears Holdings Corp.'s Hoffman Estates headquarters is pristine.

There's not a single printout by her computer. Instead, there's a white rug, a dark leather sofa and cream throw pillows�all from Sears, of course. The only hint that major work happens here is the whiteboard, with four columns of meticulously organized goals. Ms. Munjal rewrites it every Friday.

That focus, combined with an inviting, down-to-earth demeanor, has propelled the 36-year-old to a top role at Sears�senior vice president of customer experience and integrated retail�and earned her the confidence of CEO Edward Lampert.

As the chief architect of Sears' integrated retail program since September, Ms. Munjal's job is to figure out the secret to "omnichannel" shopping: How can Sears boost sales by letting customers shop whenever, wherever and however they want? That mission has been the company's focus for more than three years�and, according to Mr. Lampert, holds the long-awaited solution to Sears' frustrating decline.

There's just one question: Will it work?

The company doesn't have a lot of time to reach an answer. Revenue has declined for six consecutive years. The company lost $930 million in fiscal 2012. Its stock is trading around $46, down from a 2007 high of $200. Last year, Sears shut nearly 100 stores, sold 14 other properties and spun off its Hometown and Outlet businesses.

Even as it culls other holdings, the 127-year-old Sears is pouring time and money into its digital shopping efforts, especially its Shop Your Way Rewards program.

It connects online, mobile and brick-and-mortar shopping to cater to ever-pickier, more time-starved customers: Buy online, pick up in-store! Buy in-store, have it sent to your house! Or look in-store, but don't buy anything! A Sears associate will email you links to the products you browsed and remind you that he's available to text and track down items while you sit on your couch.

Like other loyalty programs, Shop Your Way lets members earn and spend points for Sears, Kmart and Lands' End merchandise. But it's also a social platform that lets you discuss purchases and matches the Shop Your Way "newsfeed" to your buying habits.

The program, launched in late 2009, is showing signs of traction. Sears' online sales increased by 20 percent in the most recent quarter and 17 percent in fiscal 2012. (The company won't provide the base numbers. But Gary Balter, a New York-based analyst at Credit Suisse, estimates that online sales are only 2.5 percent of total sales, or about $1 billion of the $40 billion the company pulled in last year.)

Today 60 percent of all Sears transactions are completed by members. There are "tens of millions" of them, according to the company, and they're beginning to shop more frequently: Shop Your Way transactions increased 8 percent for the 12 months ended March from a year earlier.

Some experts agree that omnichannel can increase spending by loyal shoppers but say it isn't enough to lure new customers.

"Omnichannel is about making it easier to transact business, but at the end of the day the question remains: Do people want to buy your products or not?" says Jeff Wissink, a management consultant at Navint Partners LLC in Chicago.

Ms. Munjal responds: "Integrated retail not only benefits existing members, but also attracts new customers who value convenience and are looking to shop on their own terms."

Regardless, the company, oft-criticized for failing to invest in its physical locations, is pouring more than $100 million annually into store technology. Much of that is dedicated to equipping store associates with iPads, which are already in 400 of Sears' 800 stores. More than 1.7 million transactions and $550 million in sales were processed through tablet and mobile apps in 2012.

SHE'S THE ONE

Ms. Munjal's colleagues say she's the right person to drive change. "She's able to lead by influence," says Bruce Johnson, Sears' interim CEO from 2008 to 2011. "There's a combination of both intellect�she has a mind like a steel trap�and also the ability to work with people in a nonthreatening way and clearly communicate a goal."

Taking responsibility for 2,000 Sears and Kmart stores, a 400-person store operations team and 200,000 store associates requires an early start. Ms. Munjal's days begin at 3:45 a.m., when she hops on the treadmill in her northwest suburban Algonquin home. She's at her desk in Hoffman Estates before 7 a.m. for a standing call with Mr. Lampert and other senior management.

It's a far cry from her conservative upbringing in New Delhi. But when her father suffered a serious accident, Ms. Munjal decided to pursue an education. She earned a bachelor's degree in statistics from New Delhi's Hindu College at age 19 and decided to come to the U.S.

Ms. Munjal moved in with family friends on the North Side and enrolled in a master's program in computer science at Loyola University Chicago. She worked in IT consulting before joining Sears in 2004.

Her talent for execution was quickly noticed. Mr. Johnson tapped her to serve as his chief of staff in 2007. She went on to perform the same role for Mr. Lampert before being named vice president of integrated retail innovation in early 2012. She was promoted to senior vice president nine months later.

Ms. Munjal says Sears will re-establish its relevance in a new era of consumer behavior. "I truly, honestly, 100 percent believe that the assets we have�thousands of stores, a very robust platform online and our supply chain�make us uniquely positioned," she says.

That thinking aligns her closely with Mr. Lampert. In a company where many senior managers�including former CEO Louis D'Ambrosio, who departed abruptly in February�last two years or less, Ms. Munjal's nine-year tenure and long relationship with Mr. Lampert are notable.

WHAT'S IN STORE

Right now, she's overseeing an experiment offering lower prices to Shop Your Way members, rather than just point accrual. She also is leading the transition from physical receipts to e-receipts, paper store signage to digital displays and manual inventory counting to radio frequency identification wireless bar codes.

At Mr. Lampert's behest, she created Sears' Integrated Retail Labs last year. Its main offices at Sears' headquarters resemble a startup, with open workspaces and a cadre of about 30 casually dressed young employees. The group recently launched mobile coupons. Another idea about to be tested involves a display screen that lets a customer select a style and size of jeans, then delivers them via a chute directly to the fitting room.

"We move at a very fast pace," Ms. Munjal says. "We're doing a lot of things to position our business so we can succeed."

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Eddie Lampert, Read ‘Balter Shrugged’
Tom Keene
Business Week
July 11, 2013

An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, Lampert created the model because he expected the invisible hand of the market to drive better results. If the company's leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance. – Mina Kimes, "At Sears, Eddie Lampert's Warring Divisions Model Adds to the Troubles," Bloomberg Businessweek, July 11, 2013.

I thought I knew what a mess Sears was. Then I read Mina Kimes's tour-de-Kenmore on Edward Lampert. This must-read is the kind of must-read that you read, then ponder, then go back and reread.

I am assuming somewhere in the vicinity of October it will actually sink in how interesting, original and uniquely screwed-up the Sears/Kmart model is.

In the meae, I consider Sears. Consider this.

Late in the story (call it "DieHard Management"), Kimes quotes Gary Balter of Credit Suisse. This is a stroke of Kimesian genius. It demands elaboration.

On the Street, there are a select few "analysts" that quietly, always quietly, rise above the mundane. Gary Balter is one of these.

For decades, Balter has committed trenchant analysis of retail companies. I recall (can it be 20 years ago) Gary inventing compare-and-contrast ratios that explained the internal inventory dynamics of a given firm. We read Balter to learn about the companies, but frankly more so to peer into the Balter process.

Kimes brilliantly gets Balter to find the one positive in this grim corporate tale: "'They're ahead of most retailers,' says Gary Balter, an analyst at Credit Suisse (CS). 'In a way, it's frustrating.'"

There is not a moment to lose amid these turbulent times for Mr. Lampert. Once he memorized his Ayn Rand. Now he should best pick up the phone and dial 1-GAR-YBA-LTER.

Better yet, Mr. Lampert, read Balter Shrugged.

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4 Reasons J.C. Penney Will Survive & Thrive
By Jeff Macke
Yahoo! Finance
July 8, 2013

Mike Ullman has accomplished much in the three months since his stunning return to the helm of J.C. Penney (JCP). Having run JCP from 2004 to 2011, Ullman has the right emotional connection with the employees and enough credibility with vendors to pull the storied retailer out of its death spiral. Ullman has secured a $1.75 billion lifeline with Goldman Sachs (GS). He has also apologized and restored the company's wild promotions and discounts.

Ullman has performed corporate triage, but J.C. Penney is still on life support. The question for investors and shoppers is whether or not Ullman can make J.C. Penney healthy again. Long-time JCP critic Brian Sozzi of Belus Capital Advisors is slowly becoming a believer -- a fact that surprises even him.

"I can't believe I'm saying this, and I've lost mucho hair about this," moans Sozzi. "It's a call I don't take lightly because I have not liked the stock since January 2012."

In the attached video Sozzi gives the reasons why he's risking hair and reputation on a JCP "buy" call.

1. They're getting their act together online.

Customers and investors can learn a lot about a company by comparing its online operations to what's on display in the stores. If the "dot-com" segment of a retailer is out of sync with what you see in the mall, it's a sign of trouble.

Under Ron Johnson, who is ironically a former Apple (AAPL) executive, JCPenney.com was being run as a free-standing division of the company. As a result, there were problems with inventory control and consistency of message to the customer.

Sozzi says Ullman has brought the online and offline J.C. Penney shopping experience back into sync, which makes running an online store more of a complement to the bricks and mortar store rather than a competing business.

2. "Stores within a store" offerings are expanding.

Johnson's plan to reinvent JCP was built around letting vendors create their own semi-independent shopping experiences within JCP locations. The most high-profile example of this is in the housewares department with Martha Stewart. Those initiatives were left half-finished by Johnson, leaving customers struggling to figure out where JCP ended and Martha Stewart, Levis or Sephora began.

Sozzi says the concept remains and will become more robust in the next few months. "What everybody is failing to realize is that extra stores are coming before the holiday season." The separate stores are still under construction but not left for dead. In Sozzi's mind most analysts fail to understand that the remodels are already paid for and, more importantly for investors, they'll be generating sales by the critical fourth quarter.

3. Promotions are back in vogue.

The biggest debacle of the Johnson era was the end of promotional pricing. When JCP compared coupons to addictive drugs and made customers go cold turkey, it alienated and insulted its most loyal fans. Ullman has brought markdowns back with a vengeance.

There is a certain element of snake-oil salesmanship in overpricing certain goods then putting them "on sale." However, the truth is people like to feel like they're getting a deal and have come to associate JCP with promotions, deals and discounts.

Call it an addiction relapse if you must, but Ullman has brought back the addictive deals.

4. Management change is coming.

Ullman has done good things upon his return, but investors aren't forgetting that he was in the corner office during the years of decline at the chain. Johnson was brought in to reverse JCP's flagging fortunes.

"Ullman is not the guy to lead this company into the next generation," Sozzi concedes. His job is stabilizing JCP and laying out a five-year plan that will attract a new CEO over the next 18 months. In Sozzi's vision, Ullman's next replacement will be brought in to advance and enhance an existing JCP plan rather than starting from scratch the way Johnson did.

Can JCP make it? It's up to the company to win back the trust of customers and investors. It's going to be a long ride, but Ullman has at least put J.C. Penney in position to surprise some people in a good way over the next few years.

For long-abused investors, anything that wasn't actively hurting the chain will be a dramatic improvement.

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Part-Time America
Wall Street Journal
July 5, 2013

A better jobs report in June, except for the impact of ObamaCare.

The U.S. labor market may be gaining a little more steam, judging by Friday's June jobs report. Imagine how much better it might do if ObamaCare weren't encouraging employers to hire so many part-time workers.

The Labor Department's survey of businesses found 195,000 net new hires in June, 202,000 in the private economy. Payrolls for April and May were also revised upward by a total of 70,000, which means the average for the last three months is about 200,000. That's up from the 182,000 monthly average over the last year.

One positive development is that the number of "long-time" unemployed, those out of work for six months or more, fell again and is down by one million workers over the past year. The dismally low labor participation rate ticked up to 63.5% from 63.4% in May as 177,000 more Americans entered the workforce, though the rate is still below the 63.8% from last June. Average hourly wages climbed a welcome 10 cents and for the first time hit $24.

The disappointments include a big jump of 247,000 in the number of "discouraged workers," those who have stopped looking for a job. This could be a one-month anomaly given the other increases, but it bears watching.

Also disappointing is the big jump in the number of Americans who want to work full time but could only find part-time work. That number leapt to 8.23 million, a 322,000 one-month increase. Total part-time employment rose by 432,000, more than double the total number of net new jobs. The broadest measure of unemployment�which includes discouraged workers and those who can't find a full-time job for economic reasons�still totals more than 20 million Americans and the rate unexpectedly rose in June to 14.3% from 13.8%.

This could also be a one-month outlier, and at this stage of an expansion you'd expect the number of part-time jobs to be falling as companies do more full-time hiring. Yet as the nearby chart shows, the number of part-time workers who want full-time work has stayed stubbornly high. The number at this stage in the last expansion was closer to 4.5 million.

Retail (37,000) and leisure and hospitality (75,000) businesses accounted for more than half of the new jobs in June. And it's revealing that the average hours worked in retail have fallen to 31.4 from 31.6 hours a week over the past year, and the average hospitality job now is still 26.1 hours a week.

One explanation is almost surely ObamaCare. The law requires employers with more than 50 workers to provide health insurance to all employees or pay a $2,000 penalty per worker. The law also defines a full-time job as 30 hours a week. All of this gives businesses that operate on thin margins�and that's most businesses--an incentive to hire more part-time workers.

On Tuesday the Obama Treasury announced it is postponing this employer mandate until 2015, and perhaps this will encourage more full-time hiring. But thousands of businesses, especially in retail and fast-food, have already started to cap employment for many workers at 30 hours and they know their reprieve is only for a year. If President Obama really wants to spur hiring, he'd let Congress delay the employer mandate forever. A version of this article appeared July 5, 2013, on page A12 in the U.S. edition of The Wall Street Journal, with the headline: Part-Time America.

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Health-Insurance Costs Set for a Jolt
By Louise Radnofsky
Wall Street Journal
July 1, 2013

For the Healthy, Rates Could Soar Under New Law; Sicker Consumers to See Relief

Healthy consumers could see insurance rates double or even triple when they look for individual coverage under the federal health law later this year, while the premiums paid by sicker people are set to become more affordable, according to a Wall Street Journal analysis of coverage to be sold on the law's new exchanges.

The exchanges, the centerpiece of President Barack Obama's health-care law, look likely to offer few if any of the cut-rate policies that healthy people can now buy, according to the Journal's analysis. At the same time, the top prices look to be within reach for many people who previously faced sky-high premiums because of chronic illnesses or who couldn't buy insurance at all.

Several big provisions in the law taking effect in six months affect rates for the estimated 20% of Americans who don't have coverage through an employer, Medicare or Medicaid. Plans must be available to consumers regardless of their health and must cover certain items such as hospitalization, maternity care and prescription drugs. The exchanges are set to open Oct. 1 selling plans effective Jan. 1.

A review of rates proposed by carriers in eight states shows the likely boundaries for the leastexpensive and most costly plans on the exchanges. The lower boundary is particularly important because the government wants to attract healthy people to the exchanges, and they may choose to pay a penalty and take the risk of going without coverage if they believe they can't get an acceptable deal

For a 40-year-old single nonsmoker--in the middle of the age range eligible for exchanges--a "bronze" plan covering about 60% of medical costs will be available for about $200 a month in most places, the proposals show.

Though less generous than "silver" and "gold" plans on the exchanges, a bronze plan would still include fuller benefits than many policies available on the individual market today.

The challenge for the law is that healthy 40-year-olds can typically get coverage for less today, especially if they are willing to accept fewer benefits or take on more costs themselves. Supporters of the law say tighter regulation on insurance practices gives consumers more protection and is worth the extra cost, but they have to persuade people who don't have an immediate need for health care of that. If only sick people buy into the new insurance pools, prices could shoot up.

Bob Laszewski, a Virginia health-care consultant and former insurance executive, said the new offerings were likely to anger people who had preferred lower-cost products that were no longer available.

"If a person in 2013 has a choice of buying a Chevrolet or a Cadillac health plan, and in 2014, they can only buy a Cadillac�are they going to be upset? I think the answer is, yes," he said.

Virginia is one of the eight states examined by the Journal and offers a fairly typical picture.

In Richmond, a 40-year-old male nonsmoker logging on to the eHealthInsurance comparisonshopping website today would see a plan that costs $63 a month from Anthem, a unit of WellPoint Inc. That plan has a $5,000 deductible and covers half of medical costs.

By comparison, the least-expensive plan on the exchange for a 40-year-old nonsmoker in Richmond, also from Anthem, will likely cost $193 a month, according to filings submitted by carriers.

The law is likely to offer a benefit to those who have difficulty getting insurance now or are pushed out of the market because they have had illnesses. Under the current system, the rate on the $63-a-month plan could be revised higher if a consumer indicates prior health problems in a medical questionnaire that must be filled out before buying the plan. The application also could be rejected entirely based on specific answers given.

Under the new health exchanges, plans are available regardless of health status, and a price can't change once it is offered. Top-of-the-line plans on the exchanges that cover 80% of medical costs and have a wider network of doctors and hospitals are likely to be available for about $400 a month for a 40-year-old single person.

That is a lot of money for the lower-to-middle-income Americans who are expected to be the main customers on exchanges, but it could be less than some people currently encounter after a carrier considers their medical history.

Those without coverage face out-of-pocket medical bills in the tens of thousands of dollars if they get sick.

"The quality of the coverage is transparent, so you know what is covered and that you can count on it, without having to worry that your coverage will end when you need it the most," said Joanne Peters, a spokeswoman for the Department of Health and Human Services.

Consumers in states that aren't creating their own health exchanges will use an exchange run by the federal government. Americans who already get health coverage on the job or through Medicare or Medicaid are likely to be affected more by other elements of the 2010 Affordable Care Act, such as those encouraging doctors and hospitals to cut back on inefficient care. On the exchanges, not everybody will have to pay the prices in full, because the law offers some incomebased subsidies toward the cost of premiums.

A 40-year-old with income near the poverty level--currently $11,490 a year for a single person--would likely qualify for a subsidy of as much as $234 a month toward the cost of premiums in Virginia, potentially covering the entire cost of a bronze plan.

Any subsidy in Virginia would vanish once an individual reached annual income of about $33,150.

Tom Perriello, who voted for the law as a Democratic House member from Virginia and who now works for the left-leaning Center for American Progress, called the costs of premiums "a work in progress" and added, "Over the next few years, we should see that cost curve bend."

Prices may change slightly in some states before the fall, and the picture for 2015 and beyond is fuzzy.

Some carriers have been more cautious in judging the risks of the new market, and several large insurers are mostly sitting out the exchanges for the first year to see how they work.

UnitedHealth Group Inc. and Humana Inc. both currently sell a range of products in Richmond but haven't proposed to sell through the exchange, according to the Virginia State Corporation Commission.

The companies declined to comment on the commission's list of proposals.

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Sears Holdings cuts ties with Paula Deen, as fallout builds from revelations of racial slurs
By Associated Press
June 28, 2013

NEW YORK -- Paula Deen just lost another business partner.

Sears Holdings Corp. announced Friday that it is cutting ties with the Southern celebrity chef, adding to the list of companies severing their relationship following revelations that Deen used racial slurs in the past.

The company, based in Hoffman Estates, Ill., said Friday that it decided to phase out all products tied to the brand after "careful consideration of all available information."

"We will continue to evaluate the situation," said Amy Diamond, a spokeswoman at the parent company of Sears and Kmart stores.

Both Sears and Kmart sold Paula Deen products.

Sears joins Wal-Mart Stores Inc., Target Corp. and Home Depot as retailers that plan to stop selling cookware and other items with Deen's brand.

Meanwhile, on Thursday, Novo Nordisk said it and Deen have "mutually agreed to suspend our patient education activities for now." Deen, who specializes in Southern comfort food, had been promoting the company's drug Victoza since last year, when she announced she had Type 2 diabetes

On Monday, pork producer Smithfield Foods dropped her as a spokeswoman.

Caesars Entertainment also announced that Paula Deen's name is being stripped from four buffet restaurants owned by the company. Caesars said that its decision to rebrand its restaurants in Joliet, Ill.; Tunica, Miss.; Cherokee, N.C.; and Elizabeth, Ind., was a mutual one with Deen.

Last week, the Food Network said that it would not renew her contract.

The stakes are high for Deen, who Forbes magazine ranked as the fourth highest-earning celebrity chef last year, bringing in $17 million. She's behind Gordon Ramsay, Rachael Ray and Wolfgang Puck, according to Forbes.

Deen's empire, which spans from TV shows to furniture and cookware, generates total annual revenue of nearly $100 million, estimates Burt Flickinger III, president of retail consultancy Strategic Resource Group.

But Flickinger says that the controversy has cost her as much as half of that business. He also estimates that she could lose up to 80 percent by next year as suppliers extricate themselves from their agreements.

Still, book-buyers are so far standing by Deen. As of Friday morning, "Paula Deen's New Testament: 250 Recipes, All Lightened Up," remained No. 1 on Amazon.com. The book is scheduled for October. Another Deen book, "Paula Deen's Southern Cooking Bible," is No. 2. Several other Deen books were out of stock.

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Isn't It Time Eddie Lampert Fired the CEO of Sears?
By George Anderson
Retail Wire
June 20, 2013

Many failed to see what the big deal was back in January when it was announced Edward Lampert, chairman of Sears Holdings, was taking over as CEO of the company. After all, through leaders both interim and permanent, it is widely believed Mr. Lampert has been calling all the shots since merging Kmart and Sears some eight years back. He certainly has been blamed for failing to invest in the company's stores. He has jumped from one tactic to another, all the while claiming to have a grand strategy to turn the business around, if not readily obvious to retail industry watchers.

Just last month, as Bloomberg News reports, Mr. Lampert claimed in an interview that his critics just don't get it. Perhaps the misunderstanding between Mr. Lampert and his critics has to do with how each defines success.

Some, like former chairman and CEO of Sears Canada Mark Cohen, do not seem to believe that words like merchant or retailer should be used in the same sentence as Mr. Lampert's name.

"Sears is slowly and steadily failing at the hands of a ruthless, methodical asset-stripper," Mr. Cohen told Bloomberg. "Lampert will come up with some cash every quarter or two to make sure the balance sheet is still viable. It's a tragedy because Sears is a legacy brand that needed to be and could've been repositioned."

Mr. Cohen is not alone in his criticism of what Mr. Lampert has done at � perhaps to � Sears. Even Wall Street analysts, who bought in early to Mr. Lampert's PR that he is a Warren Buffet-like figure, question how long the company can continue to spin-off businesses, sell leases, etc. before a turnaround is no longer possible.

In an interview last month with WWD.com, Mr. Lampert offered a definition of a great company. "A great company grows without sacrificing quality," he said.

During his tenure, Mr. Lampert can neither claim to have achieved growth or avoided sacrificing quality. Perhaps it's time he looks in the mirror and tells the CEO of Sears Holdings that he's fired.

Discussion Questions: Can Sears Holdings get turned around while Edward Lampert is calling the shots? What qualities is Sears' leadership lacking?

What business are they in? What business do they want to be in? At various times: Real Estate, Financial Services, Appliances, Tools, Department Store? Can you figure it out? Pick something and then we can all share opinions on what is the next step. If there is a strategy�it is not clear to us.
-- David Zahn, Owner, ZAHN Consulting, LLC

The biggest question is, "Can Sears Holdings get turned around, period?"

Kmart and Sears are dinosaurs now. The department store model is tired and old...especially the "low priced spreads." Five years ago I might have said the company could be turned around by shrinking the store format and getting out of the apparel business (for one). But that concept (Sears Grand) was killed by Mr. Lampert, and the brand equity of Kenmore, Craftsman and DieHard have eroded over time.

I think it's really unfortunate, but Mr. Lampert has pursued a strategy of finding "stuff" to fill up the physical plant rather than defining a strategy and then finding space to match.

I don't know if the company was savable even before Mr. Lampert's reign. Now, I'm quite sure it's not. The irony is exquisite, since after all, what is Amazon.com but a modern day Sears Catalog? Iconic brands do die.

-- Paula Rosenblum, Managing Partner, RSR Research

Activist investors are killing retail brands.
-- Bob Phibbs, President/CEO, The Retail Doctor & Associates

Watching the Sears/Kmart debacle has been like watching a slow motion train wreck. These retail brands have been on a road to oblivion since before Lampert took over and if he deserves any credit, it is that he has found various financial tricks over the years to spin the balance sheet to avoid going under.

I mean really...can anyone make an argument as to why Sears or Kmart need to exist? Other than the impact of more empty real estate and the loss of jobs...those are obviously good reasons. But I don't see a consumer need.

-- Mike Osorio, Senior VP Learning & Development, Chief Learning Officer, DFS Group

It doesn't matter whether Eddie Lampert carries the CEO title or not...as the question suggests, he is calling the shots. The answer is "no," if the conventional definition of a turnaround is actual improvement in operating results, merchandising and the store experience. But none of these has been on Mr. Lampert's agenda for a long time, while he is more preoccupied with ways to leverage the company's assets and come up with farfetched ideas like data storage and disaster recovery. So don't expect this picture to improve anytime soon�the only question is, what's the endgame?
-- Dick Seesel, Principal, Retailing In Focus LLC

There will be no turnaround and there never was one expected. Sure there are stories for the press releases, but those are more to keep stockholders, employees, and customers from panicking.

Coming up with some cash every quarter or two to make sure the balance sheet is still viable, stripping assets�THAT THE WHOLE POINT! This is like an old mule; we are not going to make a thoroughbred out of it, we'll barbeque it. But to spare the feelings of employees, customers, and delusional stockholders, Eddie needs to send out press releases talking about feel-good, grand strategies.

-- David Livingston, Principal, DJL Research

Sears Holdings would be turned around to what, with Lampert out? If Eddie Lampert wasn't the official CEO, would it make any difference? He would still run the show from behind the curtain.

There is no clarity to what Sears Holdings is doing ... and Eddie Lampert, never a great retailer will be. Or for that matter, any kind of a retailer.

-- Gene Hoffman, President/CEO, Corporate Strategies International

When Mr. Lampert bought Sears and Kmart, I said this is a real estate deal pure and simple. Nothing has been done to reposition these retailers so they can grow sales. Comp store sales just continue to decline. Costs have been cut and units have been sold.

The problem is, this real estate strategy has also fallen apart. The real estate is not worth anywhere near what Mr. Lampert expected. As online sales increases every year, real estate loses value.

Sears Holding needs a real marketer and a real merchant. Until they define who their customer is and what they want, we will continue to watch this slow death. Mr. Lampert may be a great financial person, but clearly he does not understand retail other than the financial modeling.

-- W. Frank Dell II, CMC, President, Dellmart & Company

The real question should be, can anyone really turn Sears around at this point?
-- Mel Kleiman, President, Humetrics

The strategy is quite clear. Just look at the number of monthly Sears and Kmart store closings. In the foreseeable future you will not see these banners on brick and mortar. A sad story indeed.
-- Winston Weber, Chairman and CEO, Winston Weber & Associates, Inc

Savior or impediment? Sports fans have figured it out. Using a baseball analogy, no one can play every position. No one, not even Edward Lampert, can be team owner, and team manager, and ace pitcher. Case in point, a football analogy: Dallas Cowboys owner Jerry Jones, who also is a backstage General Manager and Head Coach. America's Team hasn't done well since Jerry stopped hiring strong, independent Head Coaches like Jimmy Johnson, Bill Parcells, and Barry Switzer.

It's almost too late for Lampert to realize that he must hire competent marketers, merchants, and managers, and then back off and leave them alone. It seems like it's not in his character to do so. It's a shame that a single man's character flaws can negatively affect so many employees and customers.

I'm a huge Lands' End fan/customer. I hope they're able to find a lifeboat when Sears Holdings sinks.

-- M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

As pathetic as the Sears/Kmart situation may seem, I fear that J.C. Penney may have actually sunk lower.

Recently my wife and I visited the housewares section of a JCP and were surprised to see how difficult it was to determine prices for many products. Many items were unmarked. Most shelves had signs which mentioned the lowest price of all the items on the shelf and added the words, 'and up'. In some cases there was no product approaching that lowest price point. One couple could easily be heard noting their confusion on determining prices. Another approached the checkout and asked how to determine prices.

They were told to take the item to a pole (there was a single scanner there though this wasn't even mentioned) or to bring the item to the checkout to be scanned.

This clearly had not been properly thought out. Many of these items are bulky. The customer and his wife were elderly. Why should they have to go through an effort simply to determine a price. To determine the best value between competing products, such as coffee makers, could require several trips.

We exited the mall most efficiently through a Sears. There was lots of clear signage explaining an upcoming after-hours sale for loyal customers. We were impressed by how well signed the selling floor was. Sales prices stood out from a distance and those prices were attractive. This prompted her to check out a pair of shoes and me a casual shirt.

As we approached our car she noted how much better a retailer Sears was, at least at this location.

-- Arthur Rosenberg, Senior Editor, Chain Store Guide

What a shame that two great retail names of the past continue to flounder with little to no hope of survival. We will be left with more retail real estate on the open market along with too many added names on the unemployment lists. I doubt there is a super hero out there who can save either company.
-- Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

No! Lampert HAS to be CEO of Sears Holdings, because he seems to be the only one who has a clue what he's doing with it!
-- Ben Ball, Senior Vice President, Dechert-Hampe

Watching Sears has been downright painful, particularly for those of us who have a family history with the company. I've been saying that the most expensive dollar Sears spends every day is the dollar in compensation they pay to Mr. Lampert. Fire him, please.
-- Cathy Hotka, Principal, Cathy Hotka & Associates

The Sears/Kmart odyssey will be studied for years. Mr.Lampert has had to make tough choices and has managed to keep the ship a float. As an ex employee, I doubt that anyone else would have done what he has accomplished and sustained the jobs that he has. Out here on the street of average America, our lives have changed and retailers are making the same, painful adjustments we are. I believe he is constantly making adjustments and is planning for the future. Maybe a little stealth is not a bad thing, maybe it is okay if others don't see what is coming, what he is building.
-- Shiney Sage, Store Manager, Grass Roots

The answers, of course, are "no"--or at least "very unlikely"--and "all of them." (And as others have mentioned, the implied third question is "CAN it be turned around by anyone?"...which is fast approaching "no" as well.)

The more interesting question is whether or not this was simply a real estate play, or if in fact there was a sincere desire to be a retailer. Though many have argued passionately for the former, a look at his background gives evidence for the latter ... though probably the true answer can only come with some "Rosebud"-like moment when Citizen Lampert passes on.

-- 'notcom'

The related question I have been asking myself for many years is what is the real business strategy for Sears and Kmart? Is the business strategy a classic retail turnaround strategy or something else? Based on the retail results over the last ten years, it must be something else. The real question for stockholders is if Mr. Lampert is executing the strategy that is most likely to drive shareholder value and if not, then the shareholders need to make a change.

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Lampert Says He Has Sears Strategy as Analysts Doubt It: Retail
By Lauren Coleman-Lochner
Bloomberg
June 18, 2013

June 18 (Bloomberg) -- Mark Cohen, a former chairman and chief executive officer of Sears Canada Inc., talks about the outlook for Sears Holdings Corp. and J.C. Penney Co. Cohen, who was dismissed by previous management and now teaches at Columbia University's business school, talks with Erik Schatzker and Sara Eisen on Bloomberg Television's "Market Makers."

Lampert says critics just don't grasp his strategy.

"I understand what needs to be done here for us to be successful," Lampert, who controls 55 percent of Sears, said in an interview last month.

Eight years after Lampert and his RBS Partners LP hedge fund merged Kmart and Sears, the Hoffman Estates, Illinois-based company has tried and abandoned multiple strategies under a revolving cast of chief executives. While Sears has made merchandising improvements, created solid inroads online and started a loyalty program with tens of millions of members, many analysts say Lampert, 50, has yet to articulate or follow a clear strategy for the two chains.

Sales (SHLD) have declined for six years in a row. Last month, the largest U.S. department-store chain posted a $279 million first-quarter loss and revenue fell 8.8 percent to $8.45 billion. Sears rose 0.5 percent to $47.06 at the close in New York. The shares have gained 14 percent this year, compared with a 16 percent rise for the Standard & Poor's 500 Index.

Asset Sales

With the business struggling, Sears has taken a number of steps to shore up cash. Last year, it sold 110 stores and spun off its smaller-format Hometown, Hardware and Outlet business, and a portion of its Canadian unit. In 2011, it spun off its stake in Orchard Supply Hardware Stores Corp. (OSH), which filed for bankruptcy yesterday.

Last week, the company agreed to vacate two store leases in Canada in a deal that will raise another C$191 million ($187.5 million). Last month, Sears said it may put its warranty business on the block.

Sears is in no immediate danger of running out of cash. While the company would exhaust its hoard within five months at its current burn rate without raising more money, Sears has $7.3 billion that can easily be converted into cash, including $5 billion equity in its inventory and $1.75 billion in credit facilities.

Still, selling more assets will diminish the company's ability to generate more cash, said Gary Balter, an analyst at Credit Suisse Group AG in New York. He likens the situation to a popular children's game.

Jenga Game

"Over the last few years, Mr. Lampert has been slowly dismembering the corporation, taking pieces out much as players pull out pieces of a Jenga game, hoping the overall structure does not collapse," he wrote in May 24 note. Further asset sales "will weaken it even more."

Balter rates the shares "underperform," the equivalent of a sell.

In the telephone interview last month, Lampert, who became CEO earlier this year, rebutted analysts' criticism.

"There are a lot of brilliant retail guys who haven't done particularly well, either," he said. "I'm pretty comfortable in the position I'm in. I know what the challenges are."

Lampert has said he wants Sears to be a "membership" retailer. What that means isn't entirely clear. While about 60 percent of the company sales come from Shop Your Way members, unlike Costco Wholesale Corp. (COST), which makes money from annual membership fees, Sears doesn't charge customers to join.

Loyalty Program

Asked about the loyalty program, Lampert said: "It's about serving people rather than selling products. It may seem like the same thing, but it's different. The idea is that as a company, the direct reason for our existence becomes more explicit, which is that the reason a business exists is to provide products and services that people value."

Kmart, once seen by analysts as a potential force in cities and among Hispanics, is struggling to compete. Kmart's prices are more than 14 percent higher than its two larger competitors, Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT), according to Bloomberg Industries data collected in May. Same-store sales slid 3.7 percent last year, compared with a 1.4 percent decrease for domestic Sears stores, after besting Sears in five of the previous six years.

'Risky Bet'

At Sears Holdings' annual meeting last month, investors asked Lampert whether Kmart should even exist. Yes, he said, arguing that moving to one brand would be "a very, very risky bet" and that the two chains still have distinct customer bases -- with Kmart catering to lower-income customers and shoppers seeking basic household items and Sears selling appliances and lawn and garden goods to homeowners.

Kmart "has a lot of relevance" in clothing and home goods, he told shareholders, and can use those areas to boost profit.

The chain has made progress. Its recently released "Ship My Pants" commercial touting its ship-to-home program went viral. Kmart is expanding its private Smart Sense line of food, pharmacy and household goods to be more competitive with other chains' private brands.

Analysts have been calling for Sears to close hundreds of its 2,000-plus stores for years and plow the money back into the remaining ones.

Store Closures

First "we wanted to try and fix them," Lampert said in the interview. "Now some of those stores are getting closed, so what people said we should do, we're doing, but before we did it, we tried to fix them. I don't think that that was a bad decision."

With competition increasing from the Web and brick-and-mortar rivals, store closings are more important, said Matt McGinley, an analyst at International Strategy and Investment Group in New York. He urges Lampert to shutter the bottom-performing third of locations for both brands. This is easier said than done because in many cases it would require buying out leases, which Sears can ill afford.

In the meantime, analysts like Paul Swinand, at Morningstar Inc. (MORN) in Chicago, say the steps Sears has taken so far, such as loyalty programs, are not enough when a retailer is selling basic goods. While those programs can be positive, Swinand said, they're not a strategy, and other retailers have them, too.

Besides, he added, "Eddie's got the equation wrong. Loyalty only works when the customer wants stuff you have."

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Orchard blames former owner Sears for bankruptcy
By Tom Hals
Reuters
June 18, 2013

WILMINGTON, Del. (Reuters) -- Tucked away in Orchard Supply Hardware Stores Corp's announcement that it was filing for bankruptcy was what looked like an invitation to creditors' lawyers to sue Sears.

Orchard, based in San Jose, California, operates neighborhood hardware stores, and it was spun off by Sears Holdings Corp in 2011.

The company operated independently for just 18 months before filing for bankruptcy on Monday and announcing that it was selling itself to Lowe's Companies Inc. It pinned the blame partly on its previous owner, the department store chain led by hedge fund investor Eddie Lampert.

"Orchard has previously dedicated considerable effort to addressing the substantial overleveraging that originated in 2006, when it was still owned by Sears," Orchard said in a statement.

In court documents, Orchard said its substantial debt load was taken on in part to pay dividends to its former owner. Sears said in its 2007 annual report it had received a $225 million payment from Orchard Supply.

When spin-offs go bust, former parent companies are often accused of larding them with too much debt or stripping them of valuable assets. Any litigation is often pursued by lawyers for the bankruptcy estate or attorneys for the official creditors' committee.

For example, creditors for bankrupt Tronox Inc have alleged they are owed at least $14 billion from Anadarko Petroleum Corp. Tronox was spun off by Kerr-McGee before the former parent sold itself to Anadarko in 2006. Those allegations have gone to trial, and U.S. Bankruptcy Court in New York has not issued a ruling.

Other spin-offs that landed in bankruptcy include video store chain Blockbuster, which had been owned by Viacom Inc, and parts maker Delphi, which was spun off by General Motors.

Usually, creditors accuse the former parent of failing to provide adequate capital to the spin-off, or of inflating projections, said David Berliner of BDO Consulting, who advises creditors in bankruptcy cases. "I assume that's exactly what will be going on here."

The former parent often defends itself by blaming the bankruptcy on external forces such as California's housing market crash, which swamped every business tied to home construction, including Orchard.

The former parent can also try to pin the blame on the management of the new company. Orchard's court documents seem written with that in mind, praising the management that took over from Sears for launching a strategy that drove sales up 15 percent where it was employed.

But in the end that strategy did not save the company, and Orchard blamed Sears for piling on debt.

"Despite the improved sales, however, the company's debt structure has limited its ability to dedicate the resources necessary to transform the Orchard brand to its full potential," it said in court documents.

Sears declined to comment on the court filing.

Orchard did not immediately respond to a request for comment.

The case is In Re Orchard Supply Hardware Stores Corp, U.S. Bankruptcy Court, District of Delaware, No. 13-11565.

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Orchard Supply files for bankruptcy, Lowe's steps in
Chicago Tribune
June 17, 2013

(Reuters) -- Orchard Supply Hardware Stores Corp , spun off by Sears Holdings Corp less than two years ago, has filed for Chapter 11 bankruptcy protection partly blaming hefty dividends paid out to its former parent.

Rival retailer Lowe's Companies said it would buy at least 60 of Orchard's 91 neighborhood hardware and garden stores in California for about $205 million and also assume payables owed to nearly all of Orchard's suppliers.

Orchard shares were up 22 percent at $2.30 in early trading on Monday. The stock had fallen about 50 percent from early June up to Friday's close.

Orchard said in a court filing that it was carrying a high debt load and that it may not be able to make payments when the first tranche matures in December.

The company, which generated revenue of $657 million in fiscal 2012, listed total liabilities of $480.1 million and total assets of $441 million.

"The company's substantial debt due, in part, to significant recapitalization dividends paid to Sears, made it difficult, if not impossible for the company to right itself," Orchard said.

Management and the board determined that a sale of Orchard through a Chapter 11 process was the best possible outcome for the company and its stakeholders, Orchard said.

The company has secured commitments for $177 million in debtor-in-possession financing, which will help it meet financial obligations through the bankruptcy.

LOWE'S TO ACT AS "STALKING HORSE"

Orchard said Lowe's would act as a "stalking horse bidder," setting a minimum offer for the business, which could still be topped by others.

If there are no competing bids, the home improvement retailer will acquire Orchard's assets after obtaining bankruptcy court approval.

Lowe's plans to operate Orchard as a standalone business, retaining its brand and management.

"Strategically, the acquisition will provide us with immediate access to Orchard's high density, prime locations in attractive markets in California, where Lowe's is currently underpenetrated," said Robert Niblock, Lowe's chairman, president and chief executive.

Orchard said it expects the bankruptcy process to be completed in about 90 days.

"This transaction is both a smart and modest capital investment to attack a critical real estate shortcoming that Lowe's has relative to Home Depot ," Janney Montgomery Scott LLC analyst David Strasser wrote in a note.

Lowe's lacks conveniently located stores in key metro markets compared to Home Depot, and this deal could bridge that gap, particularly in markets like California, Strasser added.

The analyst has a "neutral" rating on Lowe's stock.

Lowe's shares were up less than 1 percent at $41.42.

The case is in re Orchard Supply Hardware Stores, Case No. 13-11565, U.S. Bankruptcy Court, District of Delaware.

(Reporting by Sakthi Prasad and Siddharth Cavale in Bangalore; Editing by Patrick Graham, Greg Mahlich and Roshni Menon)

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Glass ledges atop Chicago's tallest building boast more than 6 million visitors in 4 years
Associated Press
June 11, 2013

CHICAGO -- Nearly six million people have stepped out onto see-through ledges atop Chicago's tallest building to see the streetscape below and the surrounding metropolitan area.

The Willis Tower, formerly known as the Sears Tower, released that figure this week � four years after the tourist attraction opened in 2009.

Photo of girl looking down from Sears tower
In this July 1, 2009 file photo, Anna Kane, 5, of Alton, Ill., looks down from "The Ledge," at the Sears Tower in Chicago. The series of glass bays jut out from the 103rd floor of the building, now called the Willis Tower. Nearly six million people have stepped out onto see-through ledges since the tourist attraction opened. (AP Photo/Kiichiro Sato, File)


The series of glass bays jut out from the 103rd floor of the building that's dominated Chicago's skyline for four decades.

The see-through floors are collectively known as The Ledge and they are in the longer-established Skydeck section of the skyscraper.

More than 1.5 million visitors stepped out onto The Ledge in 2012 alone.

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Wal-Mart Renews Buyback Effort
By Shelly Banjo
Wall Street Journal
June 8, 2013

FAYETTEVILLE, Ark. -- Wal-Mart Stores Inc. WMT +0.93% said at its shareholder meeting Friday that it plans to repurchase $15 billion in shares, as the retailer's rapid global growth propels it toward a half-trillion dollars in annual revenue.

"I just love saying half a trillion," finance chief Charles Holley told a stadium full of investors and employees, noting that Wal-Mart in 2012 reported $466 billion in revenue and opened 642 new stores around the world.

The new share-buyback program replaces an earlier $15 billion plan begun in 2011 that had used all but $712 million of its authorization. The timeline of the new buyback program wasn't immediately clear.

Wal-Mart, which operates more than 10,800 stores in 27 countries, struck an optimistic tone during a weeklong series of events, despite a 1.4% drop in same-store U.S. sales for the first quarter and declining store traffic in some markets, notably Mexico.

The company's annual pep rally and celebration, hosted this year by actor Hugh Jackman and featuring performances from John Legend and other musicians, comes as the retailer faces a litany of controversies, including bribery allegations, its treatment of workers and its safeguards to ensure the products it sells are made in humane conditions. Those issues, along with its continuing battles with organized labor, prompted a series of protests and picket lines outside its corporate headquarters this week.

Shareholder proposals emphasized Wal-Mart's refusal to sign on to a legally binding pact meant to prevent disasters such as two recent ones in Bangladesh: a building collapse that killed more than 1,100 garment workers in April, and a fire last November that killed more than 110 people in a factory where clothes bound for Walmart stores were found.

Wal-Mart, which has relationships with more than 250 Bangladesh factories and is one of the country's largest buyers, instead revealed its own plan for improving factory safety there.

It has hired an outside auditor and is requiring factory owners where problems have been found to renovate within 30 days of the audits or risk being removed from its list of authorized factories. The retailer said it is also engaged in talks with a group of U.S. retailers to form a separate agreement, but it declined to comment on further Bangladesh actions during this week's meeting.

"We have a supply chain that is out of control and a failed safety-inspection system," said Kalpona Akter, a former garment worker who is now an activist with the group Bangladesh Center for Worker Solidarity. At Friday's meeting, she presented a shareholder proposal to empower the board to call for a special shareowner meeting to vote on important matters.

"In a country where apparel workers are dying by the hundreds, could there be any more pressing case for a special meeting of shareholders?" she said.

The sourcing controversy followed on an already tumultuous year for the retail giant. Wal-Mart had to overhaul its global compliance program and conduct a large-scale investigation into its Mexican operations after possible violations of the U.S. law that prohibits bribery in foreign countries triggered investigations by the Securities and Exchange Commission and U.S. Department of Justice.

The company has so far spent $230 million on costs related to the investigation and organizational changes.

A number of proxy advisory firms and large shareholders said they would vote against several of the board members up for re-election to protest what they call poor governance and the lack of independent directors.

The resignation of three directors�Accel Partners' Jim Breyer, Marriott International Inc. MAR +1.58% CEO Arne Sorenson, and Marsh & McLennan Co. MMC +1.23% executive M. Michele Burns�with no current plans to replace them leaves nine independent directors on a 14-member board, seven of whom have outside financial ties to the company.

"Wal-Mart has continually rejected stronger, more independent oversight�from its boardroom all the way down to its supply chain�to the detriment of shareowners," New York City Comptroller John Liu said in a regulatory filing.

"Concerns over Wal-Mart's global compliance practices are rising, but the board today is even less independent than it was a year ago, when shareowners called for reform."All 14 remaining directors were re-elected by a majority. The tally will be released Monday. Nonetheless,Last year more than 13% of voting shares went against director and former CEO H. Lee Scott, CEO Mike Duke, Chairman Robson Walton, son of founder Sam Walton, and Christopher Williams, an investment banker and chairman of the board's audit committee. But the votes have little practical effect as the Walton family controls more than half the stock.

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Supreme Court backs Sears in washing machine case
Chicago Tribune
June 4, 2013

The U.S.Supreme Court on Monday struck down an appeals court ruling that favored consumers who bought Sears Roebuck and Co. front-loading washing machines.

The lawsuit claimed Kenmore-brand high-efficiency washers, manufactured for the Sears Holding Co. subsidiary by Whirlpool Corp, were defective because they emitted unpleasant odors and would sometimes unexpectedly stop during use.

The case is almost identical to a class action, involving the same lawyers on both sides, that came before the court earlier this year. The court also sent that case, which was against Whirlpool, back to the appeals court for reconsideration.

In both cases, the Supreme Court said the appeals courts had to take a second look at the issue in light of a Supreme Court ruling in March in favor of Comcast Corp. in a class action based on claims over how much the cable company charged a group of subscribers.

The legal issue is whether the individual claims are sufficiently similar to warrant class action certification, meaning that they can all be heard together in one case.

The case is Sears v. Butler, U.S. Supreme Court, No. 12-106.

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Sears to Market Stores as Data, Disaster Recovery Centers
By Karen Talley
Dow Jones Newswire
May 29, 2013

Sears Holdings Corp. (SHLD) believes it has finally found uses for its underused cavernous stores: data storage warehouses, disaster relief centers and even cell phone towers.

The initiatives partially answer a question that analysts and investors have long been asking--what will Sears do with all the space it has amassed.

Sears, under its namesake and Kmart banners, has roughly 2,000 open stores in the U.S. that encompass over 250 million square feet. Between 2010 and last year the company closed 333 U.S. locations, according to its annual report. The company does not disclose how many of the empty stores remain in its portfolio. A Sears store averages 136,000 square feet while a Kmart averages 94,000 square feet, with Kmart super centers averaging 168,000 square feet.

Finding uses for already closed stores, and those that will follow, has been a bane to the company, which is struggling with sluggish sales and posted a loss in its last quarter.

The initiative to find novel uses for the stores is taking place under Sears' new unit, Ubiquity Critical Environments, which is headed by the former head of Microsoft Corp.'s (MSFT) Chicago data center, Sean Farney.

Ubiquity stands for "the breadth of Sears Holdings' real estate operations and the range of opportunities it creates," Sears spokesman Howard Riefs told Dow Jones Newswires. "We recently established [the unit] to re-develop properties within our portfolio that are no longer in use as retail stores."

The Ubiquity unit was reported earlier by trade publication Data Center Knowledge.

The first Ubiquity initiative will involve a Sears store on Chicago's south side, near the Chicago Skyway. The 127,000 square foot store is slated to close at the end of this month and be transformed into a multiple-tenant data storage site.

The store sites have "existing power, fiber and security conditions that meet the specific needs of data center, business continuity and communication operators," Mr. Riefs said.

Sears will mostly use Kmart sites as the data centers because most are not attached to malls and therefore afford users privacy. The sites have sufficient power and network communications to house computer servers and systems that process Internet traffic, he said.

Open mall-based Sears stores with underutilized floor space will be used for business continuity services, which provide companies with the ability to maintain continuous operations of technology and people in the event of natural disasters, civil disruptions and other unforeseen occurrences, Mr. Riefs said. This will be done by partitioning a part of the store off and providing a separate entrance.

Both Sears and Kmart stores will be used for wireless and wireline equipment needs via rooftops and so called meet-me-rooms, where equipment will actually go in the building. Seventy percent of the U.S. population lives within 10 miles of a Sears or Kmart store, Sears says.

With the unit, Sears is coming up with another creative use for its stores and land. Sears and Kmart stores often lack significant numbers of customers, leading to the company trying to become novel with the real estate if the stores are closed. Sears has sublet space to other retailers and restaurants and even leased space for a bowling alley to be built in one of its parking lots.

Sears "has always tried to be creative about how they leverage their assets," said Paul Swinand, retail analyst at Morningstar. "But it also likely says they don't have retail tenants lined up for these stores."

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At Sears, CEO's Tech Focus Hasn't Led to a Turnaround
By Suzanne Kapner
Wall Street Journal
May 29, 2013

Since taking over as chief executive of Sears Holdings Corp., SHLD +2.74% billionaire hedge-fund manager Edward Lampert has spoken eagerly of overhauling the retailer to accommodate "hyper-connected" shoppers with tablets and mobile phones.

Wall Street mainly wants to know when the company might be profitable again.

Bricks-and-mortar retailers face an important shift in consumer behavior and need to innovate. But some analysts worry that Mr. Lampert is overemphasizing his technological ambitions while sales results at his stores suffer.

They pressed Mr. Lampert for answers on a conference call on Thursday after the company reported a $279 million quarterly loss that sent the shares down 14%. The stock fell an additional 2.5%, or $1.27, on Tuesday to close at $48.98 on the Nasdaq.

"We're all interested and view the online and technology investments positively," Paul Swinand, an analyst with investment researcher Morngingstar Inc., said on the call. "So I guess we're trying to bridge the gap of how we get to a profitable company from where we are today."

Mr. Lampert, Sears's longtime chairman and the founder of the hedge fund that is the company's largest investor, took over as CEO in February. He has armed store associates with iPads and set about developing online and mobile apps like one that allows customers to text store employees with product questions.

Sears also has reduced the delivery time for online shipments to an average of two days from five days, beefed up ship-to-store capabilities, and taking a page from Amazon.com Inc.'s AMZN -0.63% playbook, now allows third parties to sell to Sears's customers through its Marketplace. The chain carries 65 million products online, which according to Mr. Lampert, "is significantly more than what we sell in stores."

Sears also is using data to track how customers shop through a loyalty program called Shop Your Way to better target promotions to customers in a way that has the potential to increase margins, Mr. Lampert said.

Most retailers are making similar investments to one degree or another. The problem for Sears is that analysts estimate online sales only account for about 2% of Sears's overall revenue, or about $800 million. And it could take years for ecommerce to reach a meaningful level at the company.

For all the potential the Web holds, Mr. Lampert is still bound by the company's fleet of more than 2,000 physical stores. And Sears has been investing in upgrades at a far lower level than rivals. Sears spent $378 million on capital expenditures in 2012, compared with $785 million at Kohl's Corp., KSS -1.47% $810 million at J.C. Penney Co. JCP -2.62% and $942 million at Macy's Inc., M +10.06% according to regulatory filings.

"He has got 225 million square feet of space and he needs to figure out what to do with it," said Gary Balter, an analyst with Credit SuisseCSGN.VX -2.55% . "Sears is going down a good path" with its Internet and membership strategy, "but then the customer goes into the stores and says, 'Is this really where I want to shop?'"

A Sears spokesman said the company has several initiatives to ensure stores are "clean, bright and inviting for customers." Store managers must meet maintenance standards and are subjected to unplanned visits by company executives, he added.

Mr. Lampert's hedge fund, ESL Investments, bought a majority stake in Kmart Corp. during its 2003 bankruptcy and merged it two years later with Sears, Roebuck and Co. to form Sears Holdings in the middle of the last decade.

More than $13 billion in revenue and $9 billion in profits have disappeared since the merger was completed. The company lost $930 million in its most recent year on $40 billion in sales, compared with a profit of $9.57 billion on sales of $53 billion in the first full year after the merger.

Some of that shortfall was due to the sale of businesses such as Orchard Supply and the closure of stores. But Hoffman Estates, Ill.-based Sears has also suffered from a persistent decline in sales at stores open at least a year—a sign that customers are finding less to buy.

"The confidence I had over 10 years of what's possible, it has been shaken over time," Mr. Lampert said at Sears' annual meeting. Last week, he said the company's results for the fiscal first quarter weren't acceptable.

One challenge for Sears as it tries to compete with the Amazons of the world is antiquated or cumbersome technology.

Warren Tracy, CEO of Almost There! Inc., which sells gift items under the Busted Knuckle Garage brand, said he has been trying for five months to navigate Sears's technology so that he can become a third-party seller, but has faced delays and complications. By contrast, Mr. Tracy said it took him a few hours to become a third party seller on Amazon.

"Sears is so far behind in terms of their technology," Mr. Tracy said.

The Sears spokesman called the situation with Mr. Tracy "atypical" and said the company continues "to evolve our processes, using technology, to make the registration as seamless as possible."

Other vendors say they are encouraged by Sears' Internet push. Tom Duncan, the president and chief executive of Positec Tool Corp., which sells Rockwell and Worx tools at Sears, said his ecommerce business with the retailer has grown significantly in recent years.

"They've done a lot of positive things to create a better online experience for their customers," Mr. Duncan said.

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JCPenney One of 10 Brands Predicted to Die in Next Year
By Melissa Hoffmann
Ad Week
May 24, 2013

Volvo, WNBA, Martha Stewart Living, Nook also named

As new brands are brought to life in the evolution of various verticals, others will inevitably give up the ghost. While obsolesence related to industrial shifts is the No. 1 killer of outdated concepts or companies, other factors may guide the executioner's hand, including failure to innovate, cash flow issues and heavy competition.

Each year, 24/7 Wall St. identifies 10 important brands sold in America that it predicts will disappear within a year's time. This year's list reflects the brutally competitive nature of certain industries.

Among those potentially headed into obscurity are two magazines—Martha Stewart Living and Road & Track. While some magazines weathered the multi-year decline, these two suffered sharp drops in advertising revenue over the past five years. Magazines also carry the heavy legacy costs of printing, paper and distribution�a problem not shared by their online-only competitors.

In the realm of consumer electronics, the Barnes & Noble Nook may be done for, as the e-reader business is shrinking and the Nook competes with better-selling products made by Apple and Amazon. Also in line for final goodbyes is the Olympus digital camera, as camera sales continue to be eroded by smartphones with cutting-edge built-in cameras.

Another industry with two brands on the list is automobiles: Mitsubishi and Volvo are reportedly set to follow Suzuki to the big junkyard in the sky.

The full list of brands predicted to fail this year: JCPenney, Nook, Olympus, Martha Stewart Living magazine, LivingSocial, Volvo, the WNBA, Leap Wireless, Mitsubishi Motors and Road & Track magazine.

Last year, 24/7 Wall Street correctly predicted Suzuki, MetroPCS and Current TV would be out. American Airlines, another predicted failure, is part of a new company through its combination with U.S. Airways, though the American Airlines name lives on. Talbots, which also made that list, was acquired by a private equity firm, and also as expected, Research In Motion is no longer a brand. Predictions regarding Avon, the Oakland Raiders and Salon, however, were incorrect.

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Sears loss widens in 1Q on continued sales slide
By Corilyn Shropshire
Chicago Tribune
May 24, 2013

Sears Holdings Corp. said it lost $279 million, or $2.63 per diluted share, in the first quarter compared to $189 million or $1.78 per share a year earlier.

The Hoffman Estates-based retailer said sales slid to $8.4 billion from $9.2 billion last year, in line with analysts' estimates. The company attributed the sales decline primarily to having fewer Kmart and Sears stores in operation, lower sales in stores open at least a year and the spinoff of the Sears Hometown and Outlet business late last year.

On an adjusted basis, Sears lost $1.29 per share. Wall Street predicted a loss of 59 cents per diluted share.

Sales in stores open at least a year slid 3.6 percent, the company reported.

Sears officials have said they plan to free up $500 million in cash this year, raising speculation as to how they'll do it.

Credit Suisse's Gary Balter predicted in a note last week that the company would sell more stores, or spinoff or sell more of its Canadian unit or its Lands' End unit. But Sears Chairman and CEO Edward Lampert impled to Women's Wear Daily in a Thursday interview that the Sears brand and Lands' End work well together, explaining that it was "about Lands' End-izing Sears, not Sears-izing Lands' End."

Lampert, who owns about 55 percent of the company, stepped into the CEO role earlier this year.

Like other department stores, including Target Corp. and Kohl's, the bad weather hurt sales in the first quarter. Cold weather has made it tough for retailers to sell spring and summer merchandise.

"Our recent financial performance has not been acceptable, although we have seen some positive momentum as sales per member increased and our online business grew 20 percent in the quarter," said Eddie Lampert, Sears Holdings' Chairman and Chief Executive Officer in a statement. Lampert added that during the quarter, the company "accelerated" activity to "transform" Sears into a retailer that offers shoppers choices on how and where they consume, through its loyalty rewards program, Shop Your Way.

"We launched new mobile capabilities, like Member Assist, which allows our members to communicate directly with our consultative store sales staff remotely in a manner most convenient for our members. We believe that if we leverage technology to provide our members with the easiest, most seamless shopping experience possible, we will be successful."

Sears shares closed down three-tenths of a percent on Thursday, at $58.17. Shares dropped nearly 10 percent in after hours trading.

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Will Lands' End Finally Prosper Under Sears Holdings?
By George Anderson
Retail Wire
May 24, 2013

Lands' End celebrated 50 years in business earlier this week. The chain, which got its start as a mail-order operation in Chicago in 1963, gained fame, in part, because of its unconditional satisfaction guarantee and with high levels of customer service that remain with the chain today under the ownership of Sears Holdings.

"We are extremely proud of our heritage and are looking forward to giving our customers exceptional quality and value for the next fifty years," said Edgar Huber, CEO and president of Lands' End, in a press release.

In an interview with WWD, Sears Holdings CEO Edward Lampert said he was looking for Lands' End to grow from a $3 billion business to $5 billion by globalizing the brand. To date, Lands' End has a physical presence in three countries outside the U.S. � Germany, Japan and the U.K. Mr. Lampert sees opportunities for Lands' End to expand its footprint to other countries either on its own or perhaps with partners.

The company has invested in remodeling the Lands' End store-within-a-store concept inside Sears as well as standalone units.

"I believe the physical representation should be something that matches the online digital presentation," Mr. Lampert told WWD. "We have made a large investment to bring that to life. Integrated retail is still not second nature. It's something that we are still refining."

Last year, the New York Post reported that Mr. Lampert was seeking a buyer for Lands' End that would license the brand back to Sears. It was not the only time a sale was rumored for the company, which many have seen as a bad fit with Sears Holdings since it was acquired back in 2002.

Mr. Lampert told WWD that the merger with Lands' End was hindered by a "conservative culture" that failed to develop a "plan to integrate Lands' End into Sears in any way."

In a March 2012 RetailWire poll, 70 percent said they believed Lands' End could succeed if it were no longer part of Sears Holdings.

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Sears Turns in a Loss as Revenue Falls
By Nathalie Tadena
Wall Street Journal
May 24, 2013

Sears Holdings Corp. SHLD -16.54% swung to a fiscal first-quarter loss from a profit a year earlier, when the retailer booked a large gain on asset sales. Revenue and margins also weakened in the latest period.

Sears shares were down 12% to $51.31 in after-hours trading on Thursday.

The retailer in late 2011 rolled out plans to sell a handful of stores and close more than 100 others in hopes of reversing a yearslong stretch of declining same-store sales. The company has partially spun off Sears Canada Inc. SCC.T -2.34% and completed the separation of its Hometown and outlet businesses.

Sears, controlled by billionaire hedge-fund investor Edward Lampert, has been looking to draw in customers with more appealing stores, a loyalty program and investing significantly in its online ecommerce platforms.

"Our recent financial performance has not been acceptable," he said. "A company of our size and with our assets should be generating significant profits."

The company last year said it was considering ways to raise at least $500 million of additional liquidity in 2013. Chief Financial Officer Rob Schriesheim said Thursday that the company is currently in the process of evaluating strategic alternatives for its protection-agreement business, including a possible sale.

A weak economy has also pressured demand for the retailer in recent periods.

In the latest quarter, overall domestic same-store sales fell 3.6% as the company noted that most of the U.S. experienced a cooler spring than last year. Same-store sales dropped 2.4% at the Sears chain and 4.6% at sister discounter Kmart. Sears Canada's same-store sales were down 2.6%.

"I do not subscribe to the view that macro factors are the sole reason for our poor performance," Mr. Lampert said, adding that the company has a "clear vision and strategy" for transforming itself.

Among the initiatives Mr. Lampert outlined in a conference call with analysts are investments in technology to further fuel e-commerce and mobile sales. Sears is also growing a loyalty program called Shop Your Way. Mr. Lampert said members now account for 60% of the company's overall sales and that they tend to spend 18% more than nonmemSears said cool weather and a sluggish economy crimped sales.

"We're placing our bets on the evolution of retail becoming a more social and collaborative process," Mr. Lampert said.

Analysts said they remained skeptical that the emphasis on technology could help Sears become profitable, given that most of the company's sales still come from brick-and-mortar stores.

Although Mr. Lampert said online sales at Sears and Kmart grew 20% compared with the same period a year ago, he declined to disclose actual figures.

For the quarter ended May 4, Sears posted a loss of $279 million, or $2.63 a share, compared with a year-earlier profit of $189 million, or $1.78 a share. The latest period included a gain of $14 million on sales of assets, compared with $395 million in asset-sales gains a year earlier.

Excluding items, the company's per-share loss widened to $1.29 from 51 cents.

Sears said revenue declined 8.8% to $8.45 billion, citing fewer Kmart and Sears full-line stores in operation, lower same-store sales and the separation of the Hometown and Outlet businesses. Gross margin narrowed to 25.5% from 27.7%.

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Sears reports bigger-than-expected loss for 1st quarter
Associated Press
May 23, 2013

NEW YORK -- Sears Holdings Corp. reported a steeper-than-expected loss for its first quarter with the beleaguered retailer blaming a cooler spring for falling sales.

The operator of Sears and Kmart stores also said it's considering strategic options for its service-agreement business, such as selling it off, to raise cash. Service agreements are when customers pay an extra fee when buying an appliance and the company agrees to fix or replace it if it breaks within a certain time.

Sears' shares were down more than 11 percent in after-hours trading.

The new, which comes more than three months after hedge fund billionaire and Sears Chairman Eddie Lampert took over as CEO, sent its shares down almost 13 percent to $50.74.

For the quarter, Sears said sales at stores open at least a year fell 3.6 percent, with the company noting that much of the country experienced a cooler spring than last year. The metric is a key gauge of financial health because it strips out the effect of newly opened and closed locations.

The company, based in Hoffman Estates, Ill., has posted six straight years of declining sales at stores open at least a year. Sears' middle-income shoppers have been hit hard by the economy's woes. Investors have also feared that the payroll tax increase that took effect in January could hurt results for retailers like Sears. Wal-Mart Stores Inc., which reported sales and profits for the first quarter that came in under analysts' expectations, cited the tax changes as a factor in a challenging quarter.

Last year, Sears announced plans to restore profitability by aggressively cutting costs, reducing inventory, selling off some assets and spinning off others. It has also been making changes in stores, such as giving iPads and iPod Touch devices to sales staff to research products and help customers on the sales floor.

But critics have long said the company hasn't done enough to invest in its stores to compete with Wal-Mart., Target Corp. and others.

For the quarter, Sears said it lost $279 million, or $2.63 per share. That compares with a profit of $189 million, or $1.78 per share, a year earlier.

Not including one-time items, the company said it lost $1.29 per share, worse than the 60 cents per share analysts expected.

Revenue fell 9 percent to $8.45 billion, above the $8.37 billion Wall Street expected.

Sears' shares fell $6.42, or 11 percent, to $51.75 in after-hours trading.

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Penney Sales Yet to Pick Up After Johnson Exit
By Vanessa Fuhrmans
Wall Street Journal
May 17, 2013

J.C. Penney Co. lost $348 million in its first quarter on top of nearly $1 billion in net losses last year, as sales continued to slide at the beleaguered retailer.

The results are the last to reflect the stewardship of former Chief Executive Ron Johnson, who left the department-store chain last month after a disastrous overhaul that precipitated a 25% drop in sales in his first year on the job.

He was replaced by his predecessor, Myron "Mike" Ullman, who is returning to a discountoriented strategy to bring in customers, restoring some of Penney's private-label brands and mortgaging the company's property and headquarters to raise much-needed cash.

Penney ran into trouble after Mr. Johnson, a former Apple Inc. executive, moved away from discounts and promotions in favor of an everyday low-price strategy that turned off consumers. Mr. Ullman is reversing that approach and needs to stop the decline in sales to return the company to profitability and ease pressure on its cash.

"One of our top priorities this year is to restore traffic," Mr. Ullman said on a conference call Thursday to discuss results. "We need to make a connection with the customer that is enduring as well as meaningful."

In a sign of the challenge ahead, revenue for the quarter totaled $2.6 billion, down 16% from the same period a year ago. Sales at stores open more than a year declined 17%, compared with a 19% drop in the year-earlier period.

Penney's shares fell 2.3% to $18.35 in after-hours trading Thursday. The stock is up about 18% since Mr. Ullman was reinstalled as CEO on April 8, but remains about 40% below where it traded before Mr. Johnson took the helm in November 2011.

For the fiscal first quarter ended May 4, the company's net loss was $348 million, or $1.58 a share, compared with a loss of $163 million, or 75 cents a share, a year earlier. Gross margin fell to 30.8% from 37.6%.

Mr. Ullman laid out a vision for Penney stores that is a hybrid of his own ideas and those of his predecessor.

He plans to undo some of Mr. Johnson's handiwork, such as the move to de-emphasize private label goods that Mr. Ullman called the "core" of Penney's business. Yet he is sticking with other ideas that Mr. Johnson championed, including in-store boutiques for brands like Joe Fresh that appeal to a younger and more fashionable customer.

"Our plan is for Joe Fresh and other new brands to be available at J.C. Penney along with our private brands," Mr. Ullman said.

Still, Mr. Johnson's grand plan for a full overhaul of Penney stores is unlikely to see completion any time soon. Mr. Ullman said capital expenditures would taper off for the year once home department renovations at 505 stores are completed next month.

"The stores look better now than they did a few months ago," said Rose Wernick, a Dallas resident. "I can find more of what I want."

To raise capital, J.C. Penney in April pledged its real estate to secure a $1.75 billion loan. But its cash position continued to dwindle in the first quarter. The company finished the period with $821 million of cash and cash equivalents after burning through roughly $950 million.

A large chunk of that cash was used to refurbish home departments in J.C. Penney stores. The remodeling was part of an effort led by Mr. Johnson to make the departments more appealing by giving them wider aisles and a greater selection, including new offerings from brands such as Martha Stewart.

The plan backfired when Macy's Inc. sued Penney to block it from selling the Martha Stewart products. Macy's claimed it has an exclusive agreement to sell similar merchandise produced by her company, Martha Stewart Living Omnimedia Inc.

A New York State appeals judge ruled that Penney could sell off the merchandise as long as it didn't use the Martha Stewart name.

--Tess Stynes contributed to this article.

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Sears won't sign Bangladesh safety accord
By Corilyn Shropshire and Mugambi Mutegi
Chicago Tribune
May 16, 2013

Company says it's in 'preliminary' talks on alternative plan with retail trade groups in North America

Sears said Wednesday it does not plan to sign a fire and building safety agreement backed by some of Europe's biggest apparel brands aimed at trying to prevent another disaster like the one in Bangladesh that killed more than 1,100 workers.

Instead, the Hoffman Estates-based retailer that operates Sears and Kmart stores said in a statement it is in "preliminary" discussions about an alternative proposal with retail trade associations in North America. "Meanwhile, we will continue ongoing efforts to work collaboratively with other brands and retailers to improve working conditions in Bangladesh," the statement said.

Sears sources its merchandise from more than 3,500 factories around the world, including some in Bangladesh, a company spokesman said. He declined to be more specific about the locations.

In recent days, nearly 30 garment and retail brands including H&M, Benetton, Topshop and the owners of Joe Fresh and Zara, agreed to join the accord, which aims to develop a fire and building safety program in Bangladesh over a five-year period.

Other U.S. retailers, including Gap Inc., said they would not join the European pact without changes in the way conflicts are resolved in the courts. U.S. companies have been reluctant to join any industry accord that creates legally binding objectives, specifically a binding arbitration provision.

And the world's largest retailer, Wal-Mart, laid out its own safety inspection plan, which it said would bring faster results.

Wal-Mart said it plans to inspect 279 factories that supply its stores within six months. It already asked the Bangladesh government to suspend production at two factories.

The accord, led by labor groups such as Europe's IndustriALL, drew sharp criticism from a major U.S. retail trade group Wednesday, which said it would not constrain the legal rights of U.S. companies.

The National Retail Federation said that signing on would expose American companies to a legally questionable binding arbitration provision.

"While the proposal put forth by the labor unions addresses a number of shared concerns, the accord veers away from common sense solutions and seeks to advance a narrow agenda driven by special interests," the group's president and chief executive, Matthew Shay, said in a statement.

The federation is among five North American industry groups that have been working since January on their Bangladesh safety proposal, expected to be released in early June. Education and training are the primary initiatives the group outlined to achieve safer working conditions, according to a statement released by the group Wednesday. Nearly 30 companies, including Sears, have been involved in discussions around the development of the proposal.

While plans to shore up working conditions in Bangladeshi garment factories is a step in the right direction, industry watchers say what will ultimately force reforms is pressure from consumers, who often are unaware of the conditions under which their apparel is produced.

"People don't really know where their products come from and how they are made," said Neeru Paharia, an assistant professor at the McDonough School of Business at Georgetown University. Paharia published a study this month, "Sweatshop Labor is Wrong Unless the Shoes are Cute," which found that consumers are more likely to justify sweatshop labor for items they really want.

"Most people wouldn't lock someone in their basement or harm someone to get them to make (their) clothes," she said. But the fact that retailers outsource apparel production in faraway places, makes it easier for consumers not to see the harm.

Paharia said even those consumers who know where their apparel comes from have limited buying power and therefore little clout over the conditions under which those goods are produced.

"You have such little power as a consumer to influence the marketplace. You only have power as a collected entity--everybody has to demand products that are sourced ethically," she said.

Julius Armour, 31, of Hyde Park, said that while he gives little thought to where his clothing comes from, he would consider switching brands if he learned that his preferred retailer was involved in human rights violations.

"I mainly consider price and style when buying clothes and I do not really look at the backstories to know where the clothes are coming from," said Armour, who was shopping for tank tops on State Street.

"If through the press I find out that workers producing a certain brand I buy are being treated badly, I would try my best not to use that brand, but if I do not know, well, I do not know."

Reuters contributed.

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Your Next IRS Political Audit
Wall Street Journal
May 15, 2013

The tax agency is getting vast new power in health care.

Even as the politicized tax enforcement scandal expands, the Internal Revenue Service continues to expand its political powers thanks to the Affordable Care Act. A larger government always creates more openings for abuse, as Americans will learn when the IRS starts auditing their health care in addition to their 1040 next year.

Over the last decade or so the tax agency has stretched its portfolio and become an enforcer and decision-maker for government benefits and programs. Three years ago, National Taxpayer Advocate Nina Olson, who operates within the IRS, presciently noted that ObamaCare is "the most extensive social benefit program the IRS has been asked to implement in recent history."

This March the IRS Inspector General reiterated that ObamaCare's 47 major changes to the revenue code "represent the largest set of tax law changes the IRS has had to implement in more than 20 years." Thus the IRS is playing Thelma to the Health and Human Service Department's Louise. The tax agency has requested funding for 1,954 full-time equivalent employees for its Affordable Care Act office in 2014.

To monitor compliance with these rules, the IRS and HHS are now building the largest personal information database the government has ever attempted. Known as the Federal Data Services Hub, the project is taking the IRS's own records (for income and employment status) and centralizing them with information from Social Security (identity), Homeland Security (citizenship), Justice (criminal history), HHS (enrollment in entitlement programs and certain medical claims data) and state governments (residency).

The data hub will be used as the verification system for ObamaCare's complex subsidy formula. All insurers, self-insured businesses and government health programs must submit reports to the IRS about the individuals they cover, which the IRS will cross-check against tax returns.

Good luck in advance to anyone who gets caught in this system's gears, assuming it even works. Centralizing so much personal information in one place is another invitation for the IRS wigglers in some regional office�or maybe higher up�to make political decisions about enforcement.

A small harbinger: The original 61-page application for ObamaCare subsidies (since junked) asked about voter registration and invited beneficiaries to sign up then and there. What does that have to do with affordable health care?

Or take the recent HHS disclosure that Secretary Kathleen Sebelius has been beseeching the industries she regulates like insurers, hospitals and drug makers for "independent" donations. Ms. Sebelius will then take this money and give it to third-party groups�many affiliated with the Obama Administration�that will encourage people to sign up for ObamaCare.

The distinction between soliciting and demanding is especially vague when the IRS is the bad cop, with millions of dollars on corporate balance sheets potentially at risk. For instance, the IRS is supposed to apportion the annual $8 billion tax on health insurers according to market share--but that depends on how the IRS defines market share. Giving in advance to Ms. Sebelius can quickly begin to look like protection money to avoid corporate tax retribution.

Putting the IRS in charge of a political program inevitably makes the IRS more political. Since the Affordable Care Act converts every health question into a political question, maybe there's a better candidate?

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Sears launches new lease-to-own program
By Dana Mattioli
The Herald-Dispatch
May 9, 2013

NEW YORK (AP) -- Sears Holdings Corp. is launching a program at its namesake department stores that will allow financially strapped shoppers unable to quality for credit to lease electronics, home appliances, furniture and mattresses.

The program, which was tested last September in 10 stores, is being rolled out to all 900 stores starting this week. Sears is launching the program with leasing service WhyNotLeaseIt.

To qualify for the program, a candidate must be 18 years old, earn a minimum of $1,000 a month and have a Social Security or tax identification number when applying. Customers make the first lease payment at the stores.

The program comes as the Hoffman Estates, Ill.-based retailer, which also operates Kmart, is trying to turn itself around after years of weak sales.

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Applying for ObamaCare�Still Not Simple
By Grace-Marie Turner
Wall Street Journal
May 11, 2013

President Obama boasts that the application for government health-insurance has become easier to fill out. It hasn't.

During his news conference last week, the president sounded defensive in trying to tamp down fears of an impending ObamaCare train wreck. One positive note was his boast about whittling down from 21 pages to three the application for subsidies that individuals have to file. But even that may need some defending.

The three-page application is for people who don't get health insurance at work and are seeking coverage and subsidies for themselves. One big reason the new form is shorter: the type is smaller, with less space for answers.

The much-derided 21-page application was for families. It is now down to 11 pages, thanks to a trick. Eight pages in the longer application called for filling in information for four additional family members. The new form cuts these pages but says that if you have children, "make a copy of Step 2: Person 2 (pages 4 and 5) and complete." The work required of the applicant remains the same.

Then there's a 61-page online application form that is in the draft stage but hasn't been officially released. This is the drill-down version of the three-page and 11-page printed documents. It has all of the if-then questions the government may need to have answered before it can determine if an applicant is eligible for subsidies.

For example, this online form has nine pages of questions and instructions to determine what a family is and how everyone is related. It announces that it is "governed by complex logic in order to ask the fewest number of questions possible." Twenty-eight different options for family relationships will be displayed in drop boxes, including first cousin, former spouse and collateral dependent.

The family application (the paper version and the online draft) assumes that someone in the family has a job that offers insurance. There are two pages the applicant must complete on that front.

One question asks: Does your employer "offer a health plan that meets the minimum value standard*?" Following the asterisk is an explanation of how to make that determination: "*An employer-sponsored health plan meets the 'minimum value standard' if the plan's share of the total allowed benefit costs covered by the plan is no less than 60 percent of such costs (Section 36B(c)(2)(C)(ii) of the Internal Revenue Code of 1986)."

But back to the new, 11-page form. It contains a strong warning not in the earlier, 21-page draft: "I'm signing this application under penalty of perjury . . . I know that I may be subject to penalties under federal law if I provide false and or untrue information." That threat may unsettle applicants already not sure they're correctly answering complicated questions. If they don't, the consequences could be costly. If an applicant understates his income and receives a larger health-insurance subsidy than he is eligible for, the money must be paid back. That may mean thousands of dollars.

Applicants may be further disturbed when they encounter, on the signature page, this message: "We'll check your answers using information in our electronic databases and databases from the Internal Revenue Service (IRS), Social Security, the Department of Homeland Security, and/or a consumer reporting agency. If the information doesn't match, we may ask you to send us proof."

Given the complexity of the questions, many people will need help with the application. So there is a handy Appendix C that allows the applicant to "choose an authorized representative" who can gather information and sign "your application on your behalf." You need to be very sure you can trust this person with the required confidential information (Social Security numbers, income, etc.). Many of those providing help will be footsoldiers in ObamaCare's newly formed army of hourly-paid "navigators."

But this being an Obama administration undertaking, the new application will provide a Web link to "complete a voter registration form."

Ms. Turner is president of the Galen Institute and co-author of "Why ObamaCare Is Wrong for America"

(Broadside/HarperCollins 2011).

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Sears Holdings names new chief information officer
By PR Newswire
Daily Herald - Suburban Chicago
May 11, 2013

Hoffman Estates-based Sears Holdings Corp. said Jeff Balagna will join the company as executive vice president and chief information officer.

Balagna most recently served as the chief information officer at Eli Lilly. In his new role with Sears Holdings, he will be responsible for all technology and infrastructure initiatives for the company in its support centers and in-store.

"Jeff is a proven executive with an analytical approach and experience in transforming complex organizations in rapidly evolving industries," said Edward S. Lampert, Sears Holdings' chairman and chief executive officer. "Innovation and technology are cornerstones in Sears Holdings' efforts to build lasting relationships with our Shop Your Way members, and Jeff's deep expertise in information technology infrastructure, customer loyalty programs and leveraging IT as a business-enabler make him a strong addition to our team."

Prior to Eli Lilly, Balagna spent more than five years with Carlson Companies in various capacities, including serving as CEO of Carlson Marketing, where he led the successful sale of the customer loyalty marketing company to Groupe Aeroplan, a $2.1 billion global marketing company. He stayed at Groupe Aeroplan to coordinate transition and integration activities, which were successfully completed in August 2011. Previously, Balagna also served as chief information officer and senior vice president at Medtronic Inc. for five years, and in increasing senior leadership positions at GE Medical Systems Americas and Ford Motor Company.

He received a bachelor of science degree in computer science and engineering from Oakland University in Detroit, Mich.

"Sears Holdings is at the forefront of leveraging technology and 'big data' initiatives to better understand and build its relationships with members," Balagna said. "I welcome the opportunity to advance these efforts in support of our stores and associates."

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Bangladesh Shuts 3 Factories of Top Exporter
By Syed Zain Al-Mahmood, Kathy Chu, and Shelly Banjo
Wall Street Journal
May 10, 2013

Government Closes Facilities of Largest Garment Manufacturer in Industry Cleanup; Death Toll in Collapse Passes 1,000

Bangladesh shut down three factories owned by the country's largest garment manufacturer for safety violations, a government document shows, underlining the extent to which safety issues are roiling the nation's most important industry.

The shutdown of three factories of the Nassa Group, which has made clothes for Wal-Mart Stores Inc. WMT +0.23% and Sears Holdings, SHLD +1.17% among others, followed mounting pressure from workers' groups and foreign retailers for the Bangladesh government to take action after the country's deadliest industrial accident.

On Thursday, salvage workers at the site of April's Rana Plaza collapse broke through into the basement and discovered around 100 dead bodies. Officials said 1,021 bodies had been recovered as of Friday morning, the Associated Press reported.

The government had said Wednesday it was temporarily closing 18 factories until safety improvements were made, without providing details. A Labor Ministry document, viewed by The Wall Street Journal, showed three of the factories belong to the Nassa Group, while the other 15 are owned by smaller companies.

The closures came in what the government said were the opening days of new inspections of all 5,000 garment factories in Bangladesh. The government ordered factory owners to continue paying workers in factories that were closed.

Nassa Group operates 33 factories in Bangladesh and exported $215 million in garments last year, making it the country's largest exporter. The closures of facilities belonging to a major Bangladeshi company was another indication of the difficulty Western retailers face in making sure their manufacturing partners are providing safe working conditions.

Bangladesh ordered the closure of the three Nassa factories�Nassa Fashions, Bay Pacific Enterprise and New World Apparel�because of visible cracks in exterior walls, according to the Labor Ministry document. Nassa Group couldn't be reached to comment about the closures.

Three shipping containers of swim shorts from Nassa Fashions bound for Kmart, which is owned by Sears, arrived at a Newark port last month, according to U.S. shipping data from online database Import Genius.

A Sears spokesman confirmed that Nassa Fashions produced merchandise for Sears Holdings. "We were not aware of structural safety issues with this factory," the spokesman said. "But based on our last audit, we have been working on various issues unrelated to structural safety."

Wal-Mart named Nassa Group its top international supplier in 2002, according to a flier posted on a workers' group website. Wal-Mart declined to comment on the Bangladeshi company and the closures.

Habibul Islam, chief inspector of factories in the ministry, said the three Nassa Group production facilities in Dhaka that were shut down were "beyond repair and should be relocated."

Nassa Group is one of Bangladesh's largest corporations, with interests in banking, construction and agriculture. Group Chairman Nazrul Islam Mazumder is also chairman of the Bangladesh Association of Banks, among other posts.

VF Corp., VFC +0.99% which owns brands including Wrangler and Nautica, said Thursday that it does business with Nassa, though not at the factories that were closed. All the factories VF uses, a company spokeswoman said, are subject to guidelines that include "making sure that facilities in which our products are made are well constructed and that our partners are prepared to respond effectively in the event of an emergency."

It was too early to tell whether the move by Prime Minister Sheikh Hasina's government was the beginning of a thorough cleanup of an industry vital to the Bangladesh economy.

Activists welcomed the government action but said they remained skeptical of its impact and called on retailers to take a bigger role in building repairs.

"There is no chance this will be sustained unless major brands and retailers commit to raise prices so factories can afford the renovations that are essential to prevent future disasters," said Scott Nova, executive director of the Worker Rights Consortium, a monitoring group in Washington. "If that does not happen, the government's unusual foray into actual regulation will be short-lived."

No factory owner has faced charges in court for the death of a worker in the many fatal accidents over the past decade.

The latest disaster occurred early Thursday, when a fire in an 11-story factory in Dhaka claimed eight lives, including the owner of the company, Tung Hai Group, who was holding a late-night meeting inside. The workers had already left the building. Tung Hai has more than 7,000 employees and three manufacturing sites in Bangladesh, its website says. The company, a large exporter of knitted sweaters and jerseys, established in 1994, says it has annual revenue of more than $50 million.

Clients have included Spain's Inditex SA, ITX.MC +0.69% owner of fast-fashion brand Zara. Tung Hai began manufacturing Inditex's apparel in 2011, but Inditex ended the relationship in June 2012 after the factory failed to adequately respond to the retailer's demands to improve factory working conditions, Inditex said.

The Tung Hai factory fire "is another blow to the image of our industry," said Siddiqur Rahman, a senior vice president of the Bangladesh Garment Manufacturers and Exporters Association.

The fire highlighted the dangerous conditions workers face in Bangladesh, where multistory factories are common because of flooding risks and the high cost of land, said Kalpona Akter, executive director of the Bangladesh Center for Worker Solidarity.

"If eight people couldn't escape, what happens if the entire factory is full of workers?" said Ms. Akter.

News of the Tung Hai fire came as labor activists from across Asia met in Bangkok to mark the 20th anniversary of Thailand's Kader toy factory fire, which killed nearly 200 people.

"We are angry and shocked," said Repon Chowdhury, executive director at the Bangladesh Occupational Safety, Health and Environment Foundation, one of the groups that came to Bangkok. "The state's failure to take action against factories that don't follow labor standards and to safeguard the rights of workers results in these types of accidents."

The Tung Hai fire was the fourth disaster involving a Bangladeshi garment factory since November, when more than 100 people died in a fire at Tazreen Fashions Ltd. outside Dhaka.

After the collapse in April of the eight-story Rana Plaza building outside Dhaka, which housed five garment factories, police arrested the owner of Rana Plaza on allegations he constructed the building without safety permits. They also detained the owners of the five factories, alleging they forced employees back to work despite a crack on the outside of the building.

None of the men has been formally charged. Attempts to reach them were unsuccessful. Lawyers for all the men declined to comment.

Even before the fire at Tazreen, deadly incidents were common. Western retailers blame lax government safety checks, while Bangladeshi manufacturers say foreign companies need to pay more for clothes to finance building improvements.

In late 2010, more than 25 workers were killed when a fire broke out in a 10-story factory near Dhaka owned by a local business group that supplied companies such as GapGPS +5.95% and JCPenney. The fire trapped some workers and forced others to jump to their deaths.

Just a few months earlier, in February 2010, a fire ripped through a Bangladeshi sweater factory and killed at least 21 people, while injuring dozens more. All the victims died of suffocation.

Those disasters were preceded by a series of fires that each left large numbers of people dead, including one in 2006 that killed more than 50 people. More than 80 were killed in accidents in garment factories in the preceding year.

Those events led industry officials to promise steps to better police companies that flouted safety rules, according to media reports at the time, but the death toll has continued to mount.

- Suzanne Kapner contributed to this article.

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As Sears Portrait Studio Goes Bust, Who's Left With the Debt?
By Tom Gara
Wall Street Journal
May 3, 2013

Back in early April, CPI Corp., operator of the portrait studios inside Sears that documented generations of American families, abruptly shut its doors, putting thousands of employees out of work and leaving plenty of customers in the lurch.

Today, the company formally filed for bankruptcy, and the filing left little hope for the studios to be reopened. Instead of the more common Chapter 11, which lets a company restructure and be sold while in bankruptcy protection, CPI filed for Chaper 7, meaning the company's assets will be liquidated and the proceeds distributed to its creditors.

In the case of CPI, those assets aren't much: it values its licenses to operate portrait studios in Sears, Wal-Mart and Toys 'R' Us at about $10.3 million, and that is pretty much the extent of the assets it lists in its filing. Against that, it lists $135 million in liabilities: $99.4 million owed to secured creditors, and another $35.6 million owed to unsecured ones.

Bank of America is the biggest secured creditor, owed almost $38 million. The biggest unsecured creditor is the company's pension fund, owed just over $22 million.

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Sears Didn't Move Fast Enough, CEO Says
By Suzanne Kapner
Dow Jones Newswire
May 1, 2013

Sears Holdings Corp. SHLD +2.58% continues to struggle to get a "decent" return on its assets despite improvements in customer service and the addition of new mobile and Internet platforms, Chief Executive Edward Lampert said Wednesday.

Speaking at the annual shareholders meeting, Mr. Lampert said that Sears didn't move fast enough to cut expenses in the wake of the financial crisis.

"I've seen businesses, as there has been a recovery, adjust their cost model and come out of it stronger," Mr. Lampert said. "We haven't done that in every case."

The hedge fund manager created Sears Holdings in 2005 by merging Sears and Kmart in an $11.5 billion deal. The deal was hailed as shrewd at the time, in part due to the value of the companies' real estate holdings, but the chains themselves have performed poorly. Sears Holdings' sales have fallen by more than $6 billion since 2008, to $39.9 billion in the year that ended Feb. 2.

Mr. Lampert spoke at length Wednesday about new technology initiatives designed to make Sears less vulnerable to online competitors like Amazon.com Inc. AMZN +1.24% and eBay Inc. EBAY +2.02% Sears has reduced shipping times for online orders to two days from five days and allows customers to ship items to stores, he said.

The CEO also emphasized the importance of Sears' loyalty program, called Shop Your Way. Members accounted for 60% of the company's overall sales last year.

Despite those efforts, Sears lost $930 million last year, though that was narrower than its $3.1 billion loss the year before.

"The level of profitability is still well below where it needs to be," Mr. Lampert said. "We've got a lot of work to do."

The company's shares were down 2.7% Wednesday afternoon at $49.95. They have risen by about 20% so far this year.

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Soros Takes Stake in J.C. Penney
By Suzanne Kapner
Wall Street Journal
April 26, 2013

Financier George Soros has bought a 7.91% stake in J.C. Penney Co., JCP +11.55% a vote of confidence in the beleaguered retailer as it tries to reverse a deep decline in sales.

The cash-strapped department-store chain's shares jumped 7% to $16.31 in after-hours trading after the stake was disclosed.

Penney has been working with bankers at Blackstone Group LP BX -1.65% and Centerview Partners to raise funds and with turnaround firm AlixPartners to identify cost savings and manage its cash flow.

The company's cash holdings fell to $930 million as of Feb. 2 from $1.5 billion a year earlier, as former Chief Executive Ron Johnson's plans for overhauling the company faltered. Mr. Johnson was replaced earlier this month by Myron "Mike" Ullman, who was his predecessor as Penney's CEO.

Under Mr. Johnson, Penney eliminated discounts in favor of an everyday-low-price strategy that turned off consumers. Mr. Ullman is expected to reinstate promotions in an effort to stem the company's sales decline. He is also trying to complete a renovation of the chain's home departments started under Mr. Johnson, as he battles Macy Inc.'s over Penney's right to sell the Martha Stewart brand.

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Not Much Future in Penney's Past
By Justin Lahart
Wall Street Journal
April 17, 2013

Like an old sentimentalist, J.C. Penney JCP -2.76% apparently sees its past as rosier than it really was. Oddly, that could actually boost its stock price�at least until the future intervenes.

Like an old sentimentalist, J.C. Penney apparently sees its past as rosier than it really was. Oddly, that could actually boost its stock price�at least until the future intervenes. Justin Lahart reports.

Penney looks like it is going to go all out to regain the customers it lost under recently ousted Ron Johnson. The former chief executive's grand experiment is now seen as an abject failure. His rush to eschew discounts in favor of everyday low prices drove core customers away to rivals like Macy'sM -0.73% and Sears. The hurried reinstatement of his predecessor, Myron Ullman, reflects a desire to turn Penney back toward the store it once was.

But don't forget that Mr. Johnson was hired originally to fix a business model widely viewed as broken. Penney had taken high-low pricing�listing items at artificially high prices and then marking them down to create the impression of bargains�to unusual extremes. As Mr. Johnson enumerated in January 2012, shortly after he took on the job, 72% of the company's revenue came from items discounted by at least half.

Bar Graph of JC Penney's cash and short-term investments

In trying to fix Penney, Mr. Johnson broke it further. In the crucial holiday-season quarter that ended in January, same-store sales were 32% below their year-earlier level. Moreover, the combination of unexpectedly weak sales during Mr. Johnson's tenure, along with the money shelled out on his plan to refurbish stores, drained away Penney's cash.

At the end of January, the company had $930 million in cash and short-term investments, down from $1.5 billion a year earlier and $2.6 billion a year before that. Even that low amount was boosted by $85 million through deferring payments to suppliers.

Analysts at Deutsche BankDBK.XE -3.36% estimate the company could burn over $750 million in the soon-to-end current quarter. This week, Penney said it drew $850 million from its $1.85 billion revolving credit facility.

A Penney spokesman wouldn't comment on what steps Mr. Ullman will take, other than to say he is "ideally positioned to quickly assess the company's situation and develop a plan to improve performance as quickly as possible." But J.P. MorganJPM -3.51% analyst Matthew Boss, who spoke to Mr. Ullman last week, believes the company will reinstitute high-low pricing in an effort to stabilize sales.

In order to do that, says Robin Lewis of retail strategy newsletter the Robin Report, "He has to build back staff. He has to build back inventory where it's needed to get the markup to mark-down machine going."

That will take money. So even if Penney conserves cash by slowing the development of Mr. Johnson's stores-within-a-store concept, it likely will still need an infusion of capital. Hence, the company is exploring fundraising options.

A return to discounting may very well get back some lost sales. The volatile stock, down 55% in the past year alone despite Tuesday's 5.6% pop, would likely rise on such a sign of stabilization.

But investors shouldn't confuse that with a rebirth. Without a more transformative plan, Penney will go back to being the discount-dependent retailer it once was�albeit with fewer customers, more debt and a limited ability to invest in its future.

A version of this article appeared April 17, 2013, on page C16 in the U.S. edition of The Wall Street Journal, with the headline: Not Much Future in Penney's Past.

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How J.C. Penney Laid an Egg
By Holman W. Jenkins, Jr.
Wall Street Journal
April 17, 2013

Don't buy claims that the retailer's CEO was felled by hubris.

It might be an exaggeration to say that in retail, as in Hollywood, nobody knows anything. But a lot of factors went into Ron Johnson's flop at J.C. Penney

Every human effort is flawed. Failure is not proof of incompetence. So don't buy the narrative that Mr. Johnson was done in by his hubris and cluelessness about retail. His story is not even the novelty it seems.

At Sears starting in 1989, a new leader introduced a new strategy of dramatically reduced promotions and manipulative "discounts." Instead, Sears would feature "everyday low prices," in-store boutiques and jazzier merchandise. Yes, the same formula. And Mike Bozic lasted the same 17 months that Mr. Johnson did.

Dillard's made a similar move in the mid-'80s, and turned itself into one of the country's fastest-growing chains. There are no absolutes, and Dillard's still held a sale once in a while. But the lessons would not have been lost on Mr. Johnson or any student of retail.

Dillard's kept its costs low, its systems highly efficient, helping it eke out margins that others eked out with convoluted "high-low" price promotions.

Dillard's also willingly endured the costs of earning credibility for its pricing strategy, which deprived consumers of the usual in-store cues. When Cleveland's Higbee's saw sales plummet after being acquired by Dillard's, a sharply-worded ad pointed out that its rivals' "sale" prices were identical to Higbee's "everyday" prices.

Dillard's was also perhaps wise to push its new pricing regime during the '80s boom, a period of optimism and aspiration among consumers.

Failure, by definition, is always the result of miscalculation, but Mr. Johnson and his compatriot in defeat can point to bad press and bad timing.

Sears's transformation ran into the same recession that ended the political career of George H.W. Bush. It also ran into a New York attorney general, Robert Abrams, who made national headlines by suing on grounds that Sears's advertised "everyday low prices" weren't low.

Mr. Johnson's recruitment from Apple occasioned much gushing press about his strolls upon water, followed by loving accounts of every stumble at J.C. Penney, including a messy lawsuit with Macy's M -0.77% over Martha Stewart. His bigger problem, though, may have been the draggy Obama recovery, which left consumers clinging to their illusory discounts.

If Mr. Johnson was a bonehead, he was a bonehead who had succeeded not just at Apple but at Target. He certainly was not as naive about his customers as it later became useful to him to pretend, when conceding of the Penney shopper: "We learned she prefers a sale. At times, she loves a coupon. And always, she needs a reference price."

This is retailer-speak. When Penney reversed course and returned to the pricing games of yore, it behooved the CEO to credit the biases and blindspots of shoppers as wisdom itself.

A leader of Gimbel's once put the matter rather more bluntly: "The people who shop during sales are the vultures of the industry."

Still another view comes from the marketing professoriate, fussing for decades over whether standard retail practices amounted to illegal deception. The basic game is to convince shoppers they are getting a "good deal" by flaunting a high "original" price that nobody is ever asked to pay.

J.C. Penney itself was once hauled up by North Carolina's attorney general for setting a "regular" price on jewelry five times higher than the wholesale price, then offering consumers a 60% "discount." A judge later tossed the case on grounds that all retailers do the same. The judge was right�and might have added that such antics sometimes reach the point of saturation, leaving certain retailers motivated to roll the dice on a new strategy.

One indictment of Mr. Johnson concerns his failure to test-market Penney's new "no-discount" policy. But this would have been to concede defeat at the starting line. Stores dun shoppers with coupons and faux discounts for a reason. It was a dead certainty Penney's shoppers would react badly at first.

An item left out of the indictment, on the other hand, is the usual execration of CEO golden parachutes. That's because Mr. Johnson didn't have one. He was a willing accepter of the risks of Penney's transformation.

When he was recruited, he told the Penney board that such a high-risk, high-reward overhaul would be better done as a private company, with a private-equity owner's patience and war chest standing behind it. When his strategy failed, Mr. Johnson nonetheless rightly took the fall. But blame also belongs to Bill Ackman, the attention-seeking superinvestor who recruited Mr. Johnson. Blame also belongs to fellow investor and Penney boardmember Steve Roth of Vornado Realty, who cut and ran early. Both men obviously discovered too late they didn't have the stomach for the strategy they set in motion.

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Moody's Lifts Outlook on Sears Rating, Citing Narrower Losses
By Kristin Jones
Down Jones Newswires
April 16, 2013

Moody's Investors Service raised its outlook on Sears Holdings Corp. (SHLD), citing improvements to the retailer's bottom line.

Moody's affirmed Sears's corporate family rating at B3, six notches into junk territory. The outlook was revised to stable, from negative.

The outlook revision "reflects Sears' moderate improvement in financial performance during [fiscal-year] 2012 and our expectations that performance should be sustained near these levels over the course of 2013" said Moody's Vice President Scott Tuhy.

Moody's noted Sears's operating loss narrowed last year, helped by the retailer's closure of less-profitable stores and other cost-saving efforts. The outlook revision reflects the view that Sears maintains a good overall liquidity profile, said Moody's, while it has demonstrated its ability to monetize its assets.

The ratings company could lift the rating if Sears continues to stabilize sales and improve operating margins. Ratings could be lowered if recent earnings improvements were reversed, or the company increases its reliance on debt.

In February, Sears reported its fiscal fourth-quarter loss narrowed as it benefited from a slight sales gain at its namesake stores and inventory reductions. The company in late 2011 rolled out plans to sell a handful of stores and close more than 100 others in hopes of reversing a years-long stretch of falling same-store sales.

Shares closed Tuesday at $48.78 and were unchanged after hours. The stock is up 18% since the start of the year.

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How Congress Puts Itself Above the Law
By Gerald D. Skoning
Wall Street Journal
April 16, 2013

The only way to finally end the sorry tradition of congressional exemptions is with a 28th Amendment.

For years, some have argued that we need a 28th Amendment to the Constitution providing that all members of Congress have to comply with all laws that other citizens have to obey. "Congress shall make no law," the amendment might read, "that applies to the citizens of the United States that does not apply equally to the senators and/or representatives; and, Congress shall make no law that applies to the senators and/or representatives that does not apply equally to the citizens of the United States."

Others apparently have faith in the high moral character of their elected officials and argue that we shouldn't have to enact a constitutional amendment to make sure Congress follows the same laws all Americans do.

Yet history shows that is definitely not the case. Over the decades, Congress has passed innumerable statutes that regulate every aspect of life in the American workplace, then quickly exempted themselves.

In 1938, when the Fair Labor Standards Act established the minimum wage, the 40-hour workweek, and time and a half for overtime, Congress exempted itself from coverage of the law. As a result, for decades congressional employees were left without the protections afforded the rest of Americans working in private industry.

In 1964, with great fanfare, President Johnson signed the landmark Civil Rights Act, including Title VII, which for the first time protected all Americans from employment discrimination on the basis of race, color, religion, sex or national origin. But the law exempted Congress from its coverage, so thousands of staffers and other employees on the Hill were left with no equal- opportunity protection. Staffers could be discriminated against or sexually harassed with legal impunity.

Some will remember Bob Packwood, the former senator from Oregon who resigned his seat in 1995 under threat of expulsion for alleged serial harassment of female staffers and lobbyists. The women who alleged they had been repeatedly victimized by the senator had no legal recourse under federal law. Had Mr. Packwood been a corporate executive instead of a lawmaker, he likely would have been sued for millions.

The same blanket congressional exemption found in Title VII was contained in a total of 10 other federal statutes regulating the American workplace, including protections from age and disability discrimination, occupational safety and health rules, family and medical leave, and many other issues that Congress felt important enough to impose on American industry. These federal laws apply to all civilian employees in the U.S., except those working on the Hill.

Critics advanced the rather sensible and straightforward proposition that U.S. lawmakers should live by the same laws they impose on private employers and state and local elected officials.

Nonetheless, when the comprehensive reform of the Civil Rights Act of 1991 was passed, efforts to eliminate the exemption failed. The immunity of members of Congress from lawsuits for compensatory and punitive damages in cases of employment discrimination continued.

Instead, the federal lawmakers enacted a toothless, self-policing system whereby Congress investigated and enforced its own compliance with civil-rights laws.

Given the choice, private employers no doubt would welcome the opportunity to police themselves on matters of equal-employment opportunity. Who wouldn't prefer self-regulation over dealing with government enforcement agencies and federal court juries considering punitive damages? However, unlike the Congress, private employers don't have the option of self- regulation.

Pressure on Congress mounted and finally, in 1995, with Republicans in control of the House and Senate, the Congressional Accountability Act was passed, eliminating the congressional exemption for all workplace laws and regulations. Some thought passage of the law marked the end of congressional exceptionalism through exemption. They were mistaken.

Insider trading (the buying and selling of stocks based on insider information not available to the general public) has been a violation of federal securities laws for almost 80 years. Yet it was never illegal for members of Congress. Not, that is, until a November 2011 report by CBS's "60 Minutes" shamed Congress into changing the law to prohibit members of Congress and their staffs from trading on inside information. The report was largely based on research conducted by the Hoover Institution's Peter Schweizer for his book, "Throw Them All Out," published that same month. Speaking about the legislators capitalizing on their positions, Mr. Schweizer told Steve Kroft on the program: "This is a venture opportunity. This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends and your family."

Six months after the "60 Minutes" segment with Mr. Schweizer aired, Congress passed and the president signed the Stop Trading on Congressional Knowledge Act of 2012, which bans insider trading by lawmakers and their staffs. But just last week, while voters were focused on emotional issues such as immigration and gun control, House and Senate members voted to repeal a key provision of the so-called Stock Act�the one that required online posting of their financial transactions.

It's not yet clear whether the president will sign the repeal, but it shouldn't be necessary to take a piecemeal approach to rolling back congressional exemptions, ending them�as with the ones for workplace rules and insider trading�only when they become embarrassing. Nor will blocking exemptions here and there prevent members of Congress, particularly those who serve numerous terms, from developing a sense of privilege that makes them think they're above the law.

America shouldn't need to amend the Constitution to ensure that elected leaders comply with the laws of the land. But given the sorry history of congressional leadership by exemption rather than by example, a 28th Amendment doing precisely that makes sense.

Mr. Skoning is a retired labor and employment lawyer in Chicago.

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Orchard Supply Hires Restructuring Lawyer
By Emily Glazer
Wall Street Journal
April 15, 2013

Orchard Supply Hardware Stores Corp., OSH -9.35% a hardware and garden chain spun off from Sears Holdings Corp. SHLD -4.17% in 2012, has hired restructuring lawyers as it faces a coming debt payment and pursues talks with lenders.

In recent weeks, publicly traded Orchard Supply, which has a market capitalization of around $24 million and carries about $230 million in debt, has hired restructuring lawyers at DLA Piper. Financial adviser FTI ConsultingFCN -3.19% is also working with the company.

Meanwhile, some lenders involved in restructuring talks have enlisted turnaround firm Zolfo Cooper LLC and lawyers at Dechert LLP, people familiar with the matter said.

Talks with lenders about the outline of a restructuring deal have intensified in recent weeks, people familiar with the talks said. The company said in February filing that if it doesn't strike a deal with lenders by May 1, it could default on a coming payment on a $55.2 million loan.

Orchard Supply, which employs about 5,400 people on the West Coast, and its lenders are discussing an out-of-court restructuring or a so-called prepackaged bankruptcy filing, these people said.

A spokeswoman for the San Jose, Calif.-based company said it was in "productive talks" with lenders to restructure its balance sheet.

Orchard Supply began trading on the Nasdaq Stock MarketNDAQ -0.96% in January 2012 after its spinoff from Sears, where it took on the bulk of its debt. It operates about 90 stores in California focused on paint, repair and the yard.

Despite a recent comeback in housing, a majority of Orchard Supply's stores haven't been renovated and it has faced competition from Home Depot Inc. HD -0.87% and Lowe's Cos. LOW -1.55%

Orchard Supply is attempting to roll out a new store model that has so far reached about a dozen stores. It is slated to open three new-model stores this month, including two in Portland, Ore., a new market, a company spokeswoman said.

Orchard Supply reported net sales for the fiscal year ended Jan. 28, 2012 of about $658 million.

In February, the company said it increased its total borrowing capacity, and its roughly $40 million of liquidity would be used for "general working capital purposes," including paying vendors. It continues to work with investment bank Moelis & Co., whom it hired in October 2012, to refinance its debt and "explore several actions" to restructure its balance sheet, possibly including a new long-term debt or equity, according to the filing.

Orchard Supply began as a farm supply purchasing cooperative created by a group of Santa Clara County, Calif. farmers in 1931. The 30 orchardists were joined by more than 2,000 other farmers in the 1930s, 1940s and 1950s as merchandise lines expanded from orchard supplies to hardware, housewares and garden equipment. In 1996, Orchard was purchased by a subsidiary of Sears.

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Penney Wounded by Deep Staff Cuts
By Dana Mattioli, Joann S. Lublin, and Emily Glazer
Wall Street Journal
April 15, 2013

Ron Johnson wasn't the only one to lose his job at J.C. Penney Co.

For almost a decade, the department-store chain had provided at least 150,000 people with full- or part-time work. But by Feb. 2, when Mr. Johnson completed his first full fiscal year in the corner office, that figure had fallen to just 116,000.

The plunge in employment leaves Myron "Mike" Ullman, the returning chief executive, with a huge morale deficit to fill even as he works to halt the slide in the company's sales. That task will be made more difficult because the waves of layoffs under Mr. Johnson�who was replaced last week�claimed thousands of employees with expertise in designing and selling clothes favored by the customers that Penney must now try to win back.

Graphic of JC Penney's job report

Mr. Johnson's management team had long argued that job cuts were needed to improve Penney's financial results and to make the company more competitive. But many of the cuts reflected the team's view that the chain needed to become more upscale in its offerings�decisions that in some cases cost the company sales and are now being rethought.

Mr. Johnson's team openly disparaged the house brands that accounted for about half of the chain's sales and moved to reduce Penney's reliance on them, people familiar with the matter said.

One of those brands, St. John's Bay, brought in a billion dollars a year from sales of items like jeans, polo shirts and shorts. On Mr. Johnson's watch, the women's side of the brand was shuttered and many of the merchants and designers who worked on the line were laid off.

Among those affected by the first wave of mass layoffs at Penney's Plano, Texas, headquarters was Cara Hilt, who designed men's clothing for St. John's Bay.

On a Tuesday last April, Ms. Hilt was summoned along with about 35 other designers, product developers and sourcing staffers to a subdivided portion of the large auditorium. There, a senior executive told them the company was moving in a different direction and needed to get rid of some layers, she said.

The employees were asked to leave that day but were told they would be paid through early June and could return the following weekend to clean out their desks, she said. "I just grabbed my purse and left," added Ms. Hilt, who now works as a clothing designer for Haggar Clothing Co. Several laid-off Penney designers remain unemployed, she added.

Scrambling to rebound from a 25% drop in sales last year, Penney is now bringing back the women's line from St. John's Bay.

Penney officially puts the job cuts under Mr. Johnson at 19,000. The previous year's employee count�at 159,000�was inflated by seasonal workers who were kept on for awhile to help reticket items after the former CEO rolled out his new strategy, the company said.

Yet the lowest that Penney's job count had fallen in the half decade before Mr. Johnson took over from Mr. Ullman was 147,000�31,000 more people than the company employed on Feb. 2. And that was in early 2009, during the worst days of the financial crisis. Penney hadn't cut staffing much in the recession.

The abrupt downsizing was the product of an overhaul that was as untested as it was radical, and it is a reminder that shareholders weren't the only ones affected when Mr. Johnson's experiment went awry.

Mr. Johnson's team had concluded early on that the company's headquarters was overstaffed and underworked. Chief Operating Officer Michael Kramer, who had worked at Apple Inc. AAPL -1.67% with Mr. Johnson, said the staff was wasting time watching videos on the Internet.

In a presentation to investors last May, hedge-fund manager William Ackman, Penney's largest shareholder, argued that the average manager at headquarters had fewer than four direct reports and implied that the staff was heavy with unneeded assistants. The company, he said, aimed to find $200 million in annual savings at headquarters, where 5,900 people worked.

The task of paring the ranks fell to Daniel Walker, a former senior human resources executive at Apple who was brought in by Mr. Johnson as chief talent officer. At one meeting in an auditorium at headquarters, Mr. Walker gathered managers together, explained that they would have to fire a certain percentage of their reports and gave them scripts for the task, a person who attended the meeting said. Mr. Walker couldn't be reached for comment.

Penney's top executives deliberated over how to conduct the necessary layoffs as humanely as possible, a person familiar with the matter said. The executives wanted to lay off employees face to face but didn't have the resources, the person said.

Instead, employees were brought to the Plano auditorium to be fired in groups of a few dozen to more than 100, people who were laid off said.

Messrs. Kramer and Walker left the company last week, people familiar with the matter said.

At the time Mr. Johnson was brought in from Apple, Penney was an unremarkable chain of 1,100 department stores serving middle America. Stores were cluttered and tired looking, the company had lost ground during the recession, and its stock was performing poorly in comparison to rivals like Macy's Inc. M -1.83%

Yet Penney was stable. Annual sales had hovered around $17.5 billion for three years, and operations were generating cash.

A year later, the firm was in crisis. Sales had plunged to $13 billion. Operations were consuming cash that analysts warned could run out in a year. And the stock had fallen by half.

The end for Mr. Johnson came at a daylong board meeting on April 8 at the New York offices of Blackstone Group LP, BX -3.39% whose bankers along with Centerview Partners are advising Penney on how to raise more money. Mr. Johnson didn't attend the meeting, but he had tried to resign in a meeting with a group of directors two weeks earlier, people familiar with the matter said. The directors asked for more time to find a replacement, a person familiar with the matter said.

Chairman Thomas J. Engibous told directors that Mr. Ullman had agreed over the weekend to come back as CEO, people familiar with the matter said.

"Mike said, 'I care a lot about this company and its people, and I'd do it for a dollar a year,''' a person familiar with the matter said. The board decided to pay Mr. Ullman $1 million. Hours later, Mr. Johnson was out.

In an interview last week, Mr. Ullman said he wouldn't go back to the old Penney, but he indicated that he didn't fully share Mr. Johnson's approach. "There's no reason to try and alienate customers who want to try and shop at J.C. Penney," he said.

The gutting of Penney's staff is affecting even routine details of Mr. Ullman's turnaround job. The chain, for instance, is expected to deemphasize the "JCP" brand favored by Mr. Johnson and return to "J.C. Penney," people familiar with the matter have said. It is also repricing goods throughout its stores, marking them up to start, with plans to discount them more deeply later, the people said.

In the past, the task of preparing the new signs needed to announce such changes at the chain's 1,100 stores would have been handled by the print shop at Penney's headquarters.

But as Penney was moving away from holding sales, Mr. Johnson deemed the unit's 100 employees and contractors unnecessary, a person familiar with the matter said. Early in his tenure as CEO, the person said, he closed the print shop down.

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J.C. Penney, Bleeding Cash, Seeks to Raise $1 Billion
By Mike Spector, Emily Glazer, and Serena Ng
Wall Street Journal
April 12, 2013

J.C. Penney Co. JCP -1.55% has hired bankers at Blackstone Group LP BX +0.65% for advice on how the department-store chain can shore up its fast-eroding stockpile of cash, people familiar with the matter said Thursday.

Brand reputations are among the most prized assets major corporations have but brands can fall as fast and as hard as they have climbed. Bond analysts don't think Penney's operations will be able to generate enough cash to cover the company's needs beyond a year, putting pressure on new Chief Executive Myron "Mike" Ullman to cut costs and look for ways to raise new capital even as he tries to get more shoppers into stores.

The company is seeking to raise about $1 billion in cash, people familiar with the matter said. One option could be to sell a minority stake in Penney, and the company has reached out to and heard from possible investors including private-equity firms, the people said.

Other fundraising options on the table couldn't immediately be determined.

The department store chain is struggling after former Chief Executive Ron Johnson rolled out a costly and aggressive overhaul that involved rebuilding its 1,100 stores as warrens of boutiques, while sharply cutting back the coupons and artificial discounts that customers loved.

Shoppers balked at the new pricing strategy, and sales plunged 25% in the year ended Feb. 2, costing Penney $4.3 billion in revenue and producing a $985 million loss.

Penney ousted Mr. Johnson on Monday and brought back Mr. Ullman, his predecessor. The new CEO will have to figure out quick adjustments to the merchandise strategy ahead of the important back-to-school and holiday seasons, while figuring out how much of Mr. Johnson's redesign plan to complete.

The chain's fast-dwindling cash makes those tasks more difficult. Hundreds of Penney's stores are in the process of being renovated in line with Mr. Johnson's vision and will require capital to finish the work and make the stores shoppable, said Michael Binetti, a retail analyst at UBSUBSN.VX -1.65% .

"The first thing Ullman's got to do is figure out what's committed on capex that he could get out of and what he can't," Mr. Binetti said.

In an interview Monday, Mr. Ullman said he was still working through his strategy.

"In recent months, the Company has hired outside advisors to provide us with their expertise about how to best position the Company from a financial standpoint during the transformation," Penney spokeswoman Kristin Hays said. "It is safe to assume this will continue as part of the work now underway to develop a game plan for the Company going forward."

Graphic of JC Penney's cash and investments

Penney already had been working with Blackstone but retained the bankers for strategic advice in recent weeks to help with approaches to potential investors, people familiar with the matter said.

This would be a painful time for Penney to bring in an equity investment, with its stock down nearly 25% so far this year at $14.86, around levels last seen during the financial crisis. The retailer's market capitalization now stands at just $3.3 billion; it also has roughly $3 billion of debt.

The alternatives could be worse, however. Penney's cash balance fell to $930 million as of Feb. 2, down 38% from a year earlier. In November, Penney said it aimed to end the year with $1 billion in cash. The total would have looked worse except Penney shifted $85 million in payments to vendors from the fourth quarter into the first week of the new quarter.

The company has access to a $1.85 billion line of credit that it had yet to draw upon as of last month. But drawing down the credit line could send a negative signal to investors that the company is running out of money, analysts said.

Penney doesn't have significant debt coming due until 2015, and its interest expenses are relatively low. Still, Penney requires a lot of cash to pay for inventories, promotions and other costs of operating its stores, and sharply lower sales mean less money is coming in the door.

"Financially, I see Penney in the waiting area of the emergency room but not inside yet," says Carol Levenson, director of research at Gimme Credit LLC, a bond research firm. If Mr. Ullman can calm Penney's vendors and bankers, stanch the company's sales decline and help it return to generating more cash than it is using up, she said, he might be able to drag Penney "back from the brink."

The slide in Penney's sales hasn't been stemmed yet. Same-store sales declined more than 10% in the first two months of the current quarter from a year earlier, people familiar with the matter said this week.

David Kuntz, an analyst at Standard & Poor's Ratings Services, said he expects Penney to borrow under its credit line or seek an infusion of capital in the coming year. His firm downgraded Penney's credit rating by six notches over the past year to CCC-plus, which he called one of the fastest credit deteriorations he has seen.

Two years ago, Penney returned $900 million in cash to shareholders by buying back shares. That exercise, Mr. Kuntz said, "depleted the resources for [Penney's] transformation" under Mr. Johnson and is one reason Penney is cash-constrained now. The dividend was suspended last year to help fund Mr. Johnson's overhaul plan.

The company's current credit rating, which is deep in "junk" territory, means borrowing in the debt markets will be costly, if at all possible. Penney's publicly traded bonds due in 2020 were recently yielding 9.2%, according to data from bond trading platform MarketAxess.

A deal for an equity infusion, however, could send a signal to investors

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Bill Rule, veteran Sears PR director, dies at 84
April 12, 2013

Photo of C.W. (Bill) Rule
C.W. (Bill) Rule (1929 - 2013)

C.W. Rule (Bill) of Glenview, Illinois, born to Carl William Rule and Shirley Brady Rule on February 28, 1929 in Springfield, Missouri, passed away on April 11, 2013.

Bill was raised in Springfield graduating from St. Agnes High School and attended Drury College where he met the love of his life, Aleene. They celebrated their 60th anniversary in 2009.

Bill had a successful career with Sears, Roebuck and Co. starting in 1955 as a store manager and rapidly progressed as a District Manager, Regional Director of Public Relations, National Director of Contributions and, finally, Director of Public Affairs and Director of the Sears-Roebuck Foundation.

Bill served on the boards and executive committees of numerous trade associations, Chambers of Commerce and Private Industry Councils.

Bill was preceded in death by his wife, Aleene. He is survived by his daughters, Becky (Rick) Eberius, Kathy (Joe) Beilein, Jill (Chuck) Cale and his son, Chris (Clare) Rule. Grandchildren Suzanne Clark, Laura Eberius, Joe Beilein, Jr., Jill Azar, Katie and Kelsie Cale, Madeline, Olivia and Caroline Rule.

Visitation Monday, April 15 from 10:00-11:15 AM at N.H. Scott & Hanekamp Funeral Home, 1240 Waukegan Rd.(just south of Lake Ave. on west side), Glenview. Mass to follow at 11:30 AM at Our Lady of Perpetual Help, 1775 Grove St., Glenview. Interment Private.

Memorials may be made to Sr. Paulanne's Needy Family Fund, c/o OLPH, 1775 Grove Street, Glenview, IL 60025. Funeral info 847-998-1020.

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JC Penney hires Blackstone, Ackman willing to put up capital
By Martinne Geller (Reuters)
Chicago Tribune
April 12, 2013

NEW YORK (Reuters) - Troubled J.C. Penney Co Inc has hired Blackstone Group LP's financial advisory arm to explore how best to position the firm financially, three sources said on Thursday, while key investor William Ackman said shareholders were willing to put up more capital.

The prospect of financial backing is likely to help soothe investors rattled by the department store chain's controversial decision this week to let go Apple alum Ron Johnson as CEO after a failed turnaround and bring back his predecessor -- whose leadership was also much criticized.

J.C. Penney is seeking $1 billion in cash, according to the Wall Street Journal, which added that options could include selling a mnority stake. The company has already been in contact with several private equity firms about a potential investment, two of the sources said.

A J.C. Penney spokeswoman said over the last several months the company has hired outside advisors for "expertise about how to best position the company from a financial standpoint during the transformation".

"It is safe to assume this will continue as part of the work now underway to develop a game plan for the company going forward," she said in an email without confirming Blackstone as the adviser.

Ackman, whose hedge fund Pershing Square Capital Management owns an 18 percent stake in J.C. Penney, told a business luncheon that he does not see a "a scenario in which we don't work this thing out, and we're prepared to put in more capital," he said.

"I've spoken to the other big holders, a number of them, and if the money's needed, the shareholders will put it up," he said although he did not expect his comments to be reported by the media.

J.C. Penney's other big shareholders included Dodge & Cox, State Street Global Advisors, Fidelity and Wellington Management, as of December 31.

The retailer's shares slid 27.6 percent in the first quarter and its troubles have left Ackman's portfolio with some $500 million in losses.

MOVING FORWARD

Speaking in New York, Ackman said Penney's former CEO Ron Johnson was not at the company's Texas headquarters enough, since his family lives in California. Even though Johnson worked hard, Ackman said the lack of his physical presence hurt morale.

"The home team lost confidence," he said.

Johnson could not be reached for comment.

This was the first time Ackman, a J.C. Penney board member since 2011, has spoken publicly since his choice to lead the turnaround was dismissed.

Johnson, who joined Penney in November 2011, sought to upgrade the store's merchandise and streamline its pricing structure, which had long relied on coupons. But the moves alienated the store's long-time clientele and failed to draw new customers. The company is now returning to its old strategy of offering coupons.

Ackman described Johnson as brilliant and visionary, but said the team he assembled lacked strong enough operational talent.

"The execution, the basic blocking and tackling of running a retailer -- that's what Ron (Johnson) didn't have," Ackman said. For that, he called out Mike Kramer, the chief operating officer, who he said has left the company. A media report late on Wednesday said three more executives, including Kramer, left J.C. Penney. The company did not confirm Kramer's departure.

The board has now turned to Myron Ullman, Johnson's predecessor. In the past, Ackman had been openly critical of Ullman, saying as recently as last May that the department store operator had been chronically mismanaged and had failed to create value for shareholders for the last 20 years.

What the company needs now though, is somebody who can "stabilize the place" and "calm the vendors", Ackman said, calling Ullman "the right guy at the right time".

OFF THE RECORD

At the luncheon, which was sponsored by New York University's Schack Institute of Real Estate and attracted hundreds of people, Ackman had asked for his comments on J.C. Penney to be off the record. No reporters objected at the time, though his comments were soon reported by other news outlets.

Reuters attended the luncheon, which was part of an annual real estate conference at which Ackman is often a panelist.

At the same time Ackman was speaking, a New York state judge urged J.C. Penney and rival Macy's to settle their lawsuit over who can sell home goods bearing the name of domestic doyenne Martha Stewart.

The two companies have been battling since 2011 when J.C. Penney said it would open "Martha Stewart" stores within J.C. Penney stores. Macy's claims it has exclusive rights to make and sell Martha Stewart products.

Ackman did not address the lawsuit.

He did reiterate his belief in Penney's future, saying that if it can get its sales back to where they were in 2011, before Johnson's changes, and keep costs where they are now, its shares could be worth as much as $75 each.

And once the coupons return, Ackman said he expects sales to turn around.

The shares ended up 77 cents, or 5.46 percent, at $14.86 on the New York Stock Exchange.

(Additional reporting by Ilaina Jonas and Greg Roumeliotis in New York and Svea Herbst-Bayliss in Boston; Editing by Gary Hill, Leslie Gevirtz and Edwina Gibbs)

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Retail Industry Short on Star Executives
By Joann S. Lublin
Wall Street Journal
April 10, 2013

Myron Ullman's return to J.C. Penney Co. highlights a big problem in the U.S. retail industry: its shallow bench of top management talent.

On Monday, the struggling chain rehired 66-year-old Mr. Ullman as chief executive after ousting his successor Ron Johnson. A number of other retail chiefs said they were unwilling to take on Penney's highest job, given its massive problems and cash constraints.

Penney's choices also were crimped by a shortage of executives qualified to command a big retailer. "The bench of potential CEOs is sparse," said Elaine Hughes, head of E.A. Hughes & Co., a retail-industry search firm. She mainly blames retailers' reduced spending on management training and development.

Without adequate grooming and role rotations, many retail managers in their 30s and 40s have worked in just one area. So they are ill-prepared for the corner office, suggested Kirk Palmer, head of Kirk Palmer & Associates, another industry search firm. "That has made for a crisis of talent in the retail industry,'' he continued.

At the same time, major retailers have grown so large that they hesitate to hire a hot-shot executive with a track record leading a smaller enterprise, Mr. Palmer said.

Penney's choices also were crimped by a shortage of executives qualified to command a big retailer. "The bench of potential CEOs is sparse," said Elaine Hughes, head of E.A. Hughes & Co., a retail-industry search firm. She mainly blames retailers' reduced spending on management training and development.

Without adequate grooming and role rotations, many retail managers in their 30s and 40s have worked in just one area. So they are ill-prepared for the corner office, suggested Kirk Palmer, head of Kirk Palmer & Associates, another industry search firm. "That has made for a crisis of talent in the retail industry,'' he continued.

At the same time, major retailers have grown so large that they hesitate to hire a hot-shot executive with a track record leading a smaller enterprise, Mr. Palmer said.

� Denise Landman, the 59-year-old CEO of Pink, a Victoria's Secret brand focused on college- age women. A spokeswoman for Limited Brands Inc., which owns Victoria's Secret, declined to comment.

� James Gold, 49, and president of specialty retail at Neiman Marcus Group Inc. A spokeswoman for the luxury department-store operator declined to comment.

Mr. Johnson, the deposed Penney chief, was once high on recruiters' wish lists for retail-industry CEOs, thanks to his creation of a unique retail environment for Apple Inc. Its hip electronics shops played a crucial role in the rapid growth of new Apple products such as the iPad.

When Penney poached Mr. Johnson from Apple in 2011, "many of us looked at [that] as a masterful move,'' Mr. Palmer added.

Mr. Johnson declined to comment.

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At Penney, Ullman to Reassess Shops, Pricing
By Karen Talley
Dow Jones Newswire
April 9, 2013

J.C. Penney Co. JCP -11.75% is billing Myron "Mike" Ullman as an interim chief executive to replace Ron Johnson, but Mr. Ullman's stint may be a little more protracted as he works to untangle the retailer's current problems.

"He plans to stay on as long as it takes to get the job done," company spokeswoman Kate Coultas said.

Among Mr. Ullman's decisions is whether to go forward with peppering stores with "shops-within-shops," the crux of Mr. Johnson's plans for the retailer.

In general, Mr. Ullman, who had been Penney's CEO from 2004 until 2011, when Mr. Johnson took over, "believes highlighting brands in their own environments can work well," Ms. Coultas said. "That said, he will need to assess the shops concept as it exists currently to understand if changes need to be made as the company plans for the near and longer term."

The company's pricing strategy is another key area that Mr. Ullman will assess. Mr. Johnson eschewed promotions, while Mr. Ullman's previous tenure was marked by hundreds of sales annually. With Mr. Johnson's everyday-low-price strategy Penney lost market share and relevance with customers.

As for a possible sale of the company once it is stabilized, "It is premature to speculate about any details of Mike's plans for J.C. Penney at this time," Ms. Coultas said.

Investors don't appear to be expecting a sale. Shares are down 11% at $14.21 in Tuesday midday trading, and have lost more than half their value since Mr. Johnson came in November 2011. The stock is acting more as if investors fear the departure of big shareholders Bill Ackman, head of Pershing Square Capital Management, and Vornado Realty Trust, VNO -0.87% who supported Mr. Johnson.

Mr. Ullman's abrupt return to the chief executive spot to replace Mr. Johnson after less than a year-and-a-half was praised by Allen Questrom, who was J.C. Penney's chief executive before Mr. Ullman.

"I'm not surprised," Mr. Questrom said. "I wish it was done earlier."

The choice of Mr. Ullman "is probably a good one if it is a short-term choice," Mr. Questrom said. "He can work on stabilizing the situation while the board goes into a full-court press to find a successor."

Mr. Ullman will have to decide what parts of Mr. Johnson's JCP to keep and how much of the traditional J.C. Penney to revive. Even the fate of JCP, the public persona and logo that Mr. Johnson adopted, is uncertain, the company said. Re-establishing relationships with vendors is probably a priority too.

Mr. Ullman comes in during the midst of a multimillion-dollar project to revamp Penney's home department with fresh merchandise and new stagings.

But Mr. Ullman's stamp shouldn't be too heavy handed. "One thing they can't do is swing the pendulum back to the way things were under Mr. Ullman because that wasn't working either," said Kathy Gersch, co-founder of Kotter International, a leadership consulting firm. "As a management team, they have to take a look at who their customer is and what they want and move in that direction. And that can't be Ron Johnson's or Mr. Ullman's."

"Perhaps Mr. Ullman can take the best ideas from Mr. Johnson's regime, such as the specialty shops�but where will the cash come from to execute it?�and abandon the worst ideas, such as eliminating discounts and clogging the aisles with gelato stands, and return the company to its former glory," said Carol Levenson, director of research at Gimme Credit, a corporate bond research firm.

There are also personnel issues that will have to be dealt with. For instance, there has been no word of the fate of Chief Financial Officer Kenneth Hannah, who Mr. Johnson brought in, or others he brought in.

Mr. Ullman "is coming in, but he's not coming back to the same leadership team he had when he left," said Ms. Gersch. "Mike Ullman needs to pull that team together because they have a short period to get things back in order."

Mr. Ullman has to first bring stability to J.C. Penney and then get it moving forward.

The changing of the guard "raises near-term risk as the company has to develop yet another strategy to restore revenue growth and profitability," said Wayne Hood, retail analyst at BMO Capital Markets. "Additionally, the move is likely to create uncertainty among JCP's suppliers as the company's strategy further evolves."

Mr. Hood expects pressure on the stock given no clear picture of sales and earnings as well as liquidity constraints given Penney has been spending so much money on its transformation. The company is in the midst of its biggest transformation project: its home department.

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Macy's Says Penney Violates Detente
By Chad Bray
Wall Street Journal
April 9, 2013

Things are heating up again in the business dispute between Macy's Inc. M -0.34% and J.C. Penney Co. JCP -10.38%

Macy's told a judge Monday that it had caught its rival selling some Martha Stewart-branded products that it claims aren't allowed, including plastic champagne flutes and acrylic pitchers. Theodore Grossman, a lawyer for Macy's, said that violated Penney's agreement not to sell certain items until the two department store chains can work out their competing claims to carry Martha Stewart products.

The dispute flared up as a civil trial on the issue resumed Monday. Mr. Grossman said Macy's lawyers discovered over the weekend that Penney was selling the plastic party products on its website under the MarthaCelebrations brand and asked the judge to block the sales.

Lawyers for Ms. Stewart's company and Penney said they just learned of Macy's concerns Sunday afternoon and needed to check with their clients before responding. But Eric Seiler, a lawyer for Ms. Stewart's company, stressed the items were "disposable" and said he believed they probably didn't fall into Macy's exclusive categories.

"Is this plastic or glass?" New York State Supreme Court Justice Jeffrey Oing asked.

"It's plastic," answered Mr. Grossman, the Macy's lawyer.

"I don't know why we need to interrupt the trial [with this]," Mr. Seiler said.

The judge gave lawyers for Penney and Martha Stewart Living OmnimediaMSO -0.34% more time to get back to him.

Macy's sued Omnimedia in state court in Manhattan last year over an agreement to sell Martha Stewart-branded products at Penney. Macy's also sued Penney over the deal, which would create Martha Stewart boutiques within Penney locations in the spring.

Macy's claims that Ms. Stewart's company breached an agreement to exclusively sell bedding, cookware and other specified home products at Macy's.

Hearings resumed Monday after the judge ordered the parties into mediation last month following three weeks of trial. The parties were unable to reach an agreement and began calling additional witnesses on Monday.

The trial has included testimony from Ms. Stewart, as well as Macy's Chief Executive Terry Lundgren and Ron Johnson, who was replaced as Penney's CEO on Monday.

Mr. Lundgren told the court last month that he was "sick" to his stomach when Ms. Stewart first told him in a December 2011 phone call about the Penney pact and hung up the phone when she said it would benefit both companies.

After arriving at Penney from Apple Inc. AAPL -0.24% in 2011, Mr. Johnson testified that he believed Martha Stewart's brand name could inject new life in Penney's stores. A deal was eventually crafted that would place Martha Stewart boutiques inside Penney's locations and include a $38.5 million investment in her company by the retailer.

However, the reinvention of Penney's stores didn't result in higher sales. Sales fell 25% in the year ended Feb. 2.

Ms. Stewart testified that she was "flabbergasted" when Mr. Lundgren hung up and said she truly believed it would help both firms. She testified that she believed the business at Macy's would have grown larger than the $300 million in annual sales it currently generates.

Macy's is expected to conclude its case Wednesday.

The judge will hear arguments Thursday about whether he should block Penney from selling products that are designed by Martha Stewart Living, but don't bear her name. Macy's has raised concerns about those products as the trial progressed.

Penney had planned to introduce bedding and other Martha Stewart-designed products under the brand, JCP Everyday, but pledged last month to keep those products off the shelves for now.

A version of this article appeared April 9, 2013, on page B4 in the U.S. edition of The Wall Street Journal, with the headline: Macy's Feud Heats Up.

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Penney CEO Out, Old Boss Back In
By Joann S. Lublin and Dana Mattioli
Wall Street Journal
April 9, 2013

J.C. Penney Co. JCP -10.67% dumped Ron Johnson, the chief executive it poached from Apple Inc. AAPL -0.28% with great fanfare 17 months ago, replacing him midway through a major overhaul of its stores that has produced a disastrous drop in sales..

Penney's board met Monday and agreed to part ways with Mr. Johnson. Sorting out whether to press onward or roll back Mr. Johnson's changes will fall to his predecessor, Myron Ullman, who is rejoining the company as CEO.

Mr. Johnson's exit will mollify some increasingly impatient investors and tamp down discontent among some within the company, but it leaves Penney in a tough spot as it is burning through cash and shedding customers.

Mr. Ullman faces long odds. Retailers fight for every percentage point of sales improvement, and few have rebounded from declines as deep as the 25% drop under Mr. Johnson's first year at the helm. In a sign of investors' concern, Penney's shares were down more than 10% in Tuesday morning trading.

In an interview, Mr. Ullman�who will also get a seat on the board�acknowledged the tough job Penney faces to climb back from the drop in sales and profitability, but said he has yet to make any decisions about what to keep and what to replace from Mr. Johnson's strategy, including the former CEO's management team.

"I wouldn't recommend that we go back to the way J.C. Penney was when I left. Things change," he said. But, he added, "There's no reason to try and alienate customers who want to try and shop at J.C. Penney."

Mr. Johnson declined to comment.

The return of Mr. Ullman, 66 years old, shows the challenge of filling the top job at the struggling chain. A number of other retail CEOs have said they would have been unwilling to take on the job given the size of the company's problems and constraints on its cash.

Penney's largest shareholder, activist hedge-fund manager William Ackman, was instrumental in establishing the 56-year-old Mr. Johnson as CEO in place of Mr. Ullman. The former CEO's return means Mr. Ackman "now has to eat crow,'' because Mr. Ackman wanted Mr. Ullman to retire and make way for Mr. Johnson, said Jeffrey Sonnenfeld, a senior associate dean at Yale School of Management. "He made a mistake.''

Mr. Ackman didn't immediately respond to requests for comment.

Penney hailed Mr. Ullman as an accomplished retail executive with proven leadership ability.

The board's decision ends a brief and turbulent career in the corner office for Mr. Johnson. He arrived at Penney to great fanfare in November 2011, but lost the confidence of directors and investors after he rolled out an ambitious plan to reinvent Penney's stores without following the usual retail practice of testing the changes first. Sales tanked, with no sign of improvement. In the most recent fourth quarter, including the crucial holiday season, sales dropped 28.4%, contributing to a net loss of $552 million, the worst of the year.

Penney paid heavily to lure Mr. Johnson from Apple, issuing the new CEO about $50 million in stock to make up for equity awards he left behind at the iPhone maker. But the company isn't obliged to pay him much to leave. Mr. Johnson opted not to enter into a termination pay agreement, according to the company's latest proxy, which says the former CEO would be entitled only to any unpaid salary and $143,924 from a savings plan and the value of unused vacation. In a securities filing Monday, Penney didn't say whether Mr. Johnson would receive any additional severance pay.

Mr. Johnson also holds warrants that enable him to buy nearly 7.3 million shares of Penney's stock. He spent almost $50 million on the warrants, but their exercise price of $29.92 a share is about twice the stock's current level.

Mr. Johnson was unapologetic about his decision not to test his strategy. Asked earlier this year if he would do things differently given a chance to start over, he replied, "No, of course not."

Penney's revamped stores and new lines of merchandise, such Joe Fresh, won praise from analysts. But shoppers were turned off by Mr. Johnson's decision to cut back clearance sales and didn't respond when Penney started to reintroduce markdowns last year.

Sales fell 25% in the year ended Feb. 2, depriving Penney of $4.3 billion in revenue and causing analysts to ask whether it might run out of cash needed to fund its overhaul.

At Apple, Mr. Johnson won praise for helping create a new and lucrative style of retail. But the experience didn't translate to Penney's customer base of bargain hunters.

Mr. Johnson's fortunes turned a few weeks ago, when the company began looking for management alternatives, one person familiar with the matter said.

Mr. Ackman regularly said last year that he was willing to wait for the turnaround to start getting traction. But by last month he was among the board members who were putting the CEO on a shorter leash, people familiar with the matter said at the time.

Also last month, fellow activist Steven Roth's Vornado Realty Trust, VNO -1.17% at the time Penney's second-largest shareholder, dumped more than 40% of its stake. At Friday's close, Penney's shares were down more than 20% so far this year.

Messrs. Ackman and Roth have seen their holdings pummeled by the steep slide in the company's shares. The stock closed up 2.7% Monday at $15.87. The two investors disclosed their stakes in the fall of 2010 and built their positions at a cost of $25 to $30 a share, according to securities filings and a person familiar with the matter.

Some Penney officials in recent weeks sounded out executives who might be able to take on a senior role at the company, people familiar with the matter said. Those executives include Vanessa Castagna, a former senior executive at Penney and onetime contender for the company's top job, the people said. She is now a retail-industry consultant who serves on the boards of Levi Strauss & Co. and Carter's Inc.

Howard Schultz, CEO of Starbucks Corp., SBUX -1.34% believes Mr. Ullman, a longtime director at the coffee company, faces a daunting assignment because Penney is in a crisis, saying: "The biggest challenge is the significant headwinds of the marketplace and some of the damage that has been done to the J.C. Penney brand.''

– Scott Thurm

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Lasting Memories? The Sears Portrait Studio Shuts Down
By Karen Talley and Tom Gara
Wall Street Journal
April 6, 2013

Photographer Had Been Experiencing Financial Troubles

The lights have gone off on another American tradition.

The photographer that ran the portrait studios at Sears Holdings Corp., SHLD -2.12%Wal-Mart Stores Inc. WMT +0.25% and Babies "R" Us abruptly closed its business, at least temporarily ending a longtime retail tradition at those stores.

CPI Corp., CPIC -13.04% in a statement on its website, said it closed all of its U.S. studios "after many years of providing family portrait photography." The St. Louis-based company didn't explain the hasty closure, and calls to CPI went unanswered. However, the company has struggled financially, hurt by the rise of digital photography.

The news came suddenly to the retailers. "We were notified Thursday that CPI is ceasing its U.S. operations at retailers across the country immediately," Sears spokesman Howard Riefs said. CPI has provided photo services for Sears's customers since 1959 and has been the store's only portrait studio operator since 1986, currently located in all 788 Sears stores in the U.S. and Puerto Rico.

Sears "is exploring all options" to potentially provide portrait services as soon as possible, Mr. Riefs said.

The look and feel of the photographs�cloth backdrops, wide smiles and subjects looking slightly off-camera�became part of the visual dictionary of creative artists, being re-appropriated for everything from a band photo by the Red Hot Chili Peppers to the film poster for "The 40-Year-Old Virgin."

One former customer, Becky Schaaf, used to take her 4-year-old son to a Sears Portrait Studio every three months during the first year of his life, until she decided she could get the same result, or better, on her own or by finding local professionals.

"We started to realize that with a decent camera we could be taking strong photos," said Ms. Schaaf, now a mother of two in Ashland, Ohio. "I just saw an iPhone�[and] for the day to day, we're just as happy with that."

CPI's shares, traded on the Pink Sheets, hovered around 6 cents Friday. The company had about 12,000 employees, including temporary and part-time workers, and operated nearly 1,900 Wal-Mart studios world-wide as of February 2012.

The retailers said they are making sure customers get their photos, with Wal-Mart providing them at its customer-service counters and Sears saying it is working with CPI.

"We are attempting to fulfill as many customer orders as possible," CPI said in its online statement.

A Wal-Mart spokeswoman said CPI operated in less than 20% of U.S. stores. She didn't have details about how the space would be used.

CPI's financials have been deteriorating. Through the first three quarters of its recently completed fiscal year, the company's loss quintupled to more than $60 million, while sales fell 24% to $192.7 million.

Meanwhile, CPI's total liabilities rose 14% to $174.8 million, and its total assets dropped 41% to $56.2 million. These are the latest numbers publicly available from the company.

Last month, CPI entered into its fourth forbearance agreement with its creditors, to whom the company owed $98.5 million. The agreement gave the company until April 6 to repay.

While many believe digital photography and phone cameras have doomed the industry, CPI's troubles were also connected to the details of its own product, said John Johnson, chief executive of Picture People, a competing photo studio with 150 outlets in malls and stores across the country.

Picture People, which is owned by private-equity firm Blackstreet Capital, says it has had positive same-store sales growth and customer traffic in the latest year, and had not seen a slowdown.

CPI's studios would ask customers to return weeks later to collect their portraits, after having them printed at centralized facilities�something fewer customers are willing to accept in a time of ubiquitous instant printing services.

"It's really just an expectation now, people demand speed and they demand quality and convenience," Mr Johnson said. "I've been in this business for 25 years and fundamentally, this business has never changed: You've got a mom, and a new baby or young child, and she wants a beautiful portrait to hang on her wall, and that is never going to change."

�Joan E. Solsman contributed to this article.

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Sears Hometown, Outlet CEO sees compensation jump
By Samantha Bomkamp
Chicago Tribune
April 2, 2013

The CEO of Sears Hometown and Outlet Stores saw his compensation rise by 40 percent, to $1.5 million, last year as the company spun off from Sears Holdings.

W. Bruce Johnson, who also is president, took home a base salary of $1.02 million, up slightly from 2011. He didn't receive any stock awards in either year, and his perks rose just slightly. The value of his extras was $37,167 last year compared with $31,575 the year before and included company-paid transportation to and from Johnson's Chicago home and Sears' headquarters in Hoffman Estates.

But the biggest jump in his pay package came from a performance-based cash bonus, which was valued at $530,420 last year compared with $94,545 in 2011. The bonus is based on company earnings performance.

Sears Hometown and Outlet became a standalone company in October. The stock is up about 30 percent since. Its fourth-quarter net income rose 22 percent on a 7 increase in sales. Its yearly net income almost doubled.

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By Dana Mattioli
Wall Street Journal
March , 2013

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Wall Street wears the pants at Sears and J.C. Penney
By Jennifer Reingolkd and Allan Sloan with Doris Burke
Fortune
April 8, 2013

Retail disasters come in different forms. Walk into a J.C. Penney store these days, and you're likely to see an appealing work in progress, with lovely signage, spiffy layouts, and popular brand-name merchandise beautifully displayed. It shouts, "I'm soooo trendy." Walk into a Sears or a Kmart, by contrast, and you're likely to see the department store equivalent of tumbleweeds: scuffed floors and indifferent merchandise plopped sloppily onto tables and shelves amid a dingy atmosphere. It wheezes, "Time has passed me by."

But these retailers have several things in common. One, easily visible, is a woeful lack of customers. A second, which you don't see but helps account for the parlous state in which the chains find themselves: They're all heavily influenced by Wall Street guys who convinced themselves -- and, for a while, a whole lot of others -- that they understand what Main Street wants. And they've gotten it wrong.

We're dealing here with two big investors who are polar opposites in personality and approach. There's the flashy Bill Ackman of Pershing Square Capital Management. Two years ago he used his hefty stake in Penney to muscle its board into hiring Ron Johnson, creator of the mega-successful chain of Apple retail stores, who in turn has embarked on a radical, so far disastrous strategy. And there's the reclusive Eddie Lampert of ESL Investments. Earlier this year he appointed himself acting chief executive of Sears Holdings (SHLD, Fortune 500), which owns Sears and Kmart. But the two Wall Streeters, so different in many ways, are alike in thinking that they have the talent and the chops to give a troubled national retail chain what it needs to succeed. So far, at least, they haven't come close.

Both Ackman and Lampert became billionaires by being brilliant investors, bland both got into retailing by amassing big stakes in companies they thought were selling for way less than their assets were worth. Under Ackman's influence, J.C. Penney (JCP, Fortune 500) is spending heavily to upgrade its stores from dowdy to delightful, while Lampert is slowly milking a dwindling asset and revenue base at Sears. Both companies now find themselves in serious trouble.

By now the Perils of Penney has become a familiar tale. After soaring on the appointment of CEO Johnson, Penney stock has collapsed in recent weeks. It has fallen 30% in less than a month, following a disastrous fourth-quarter earnings report. It's down 60% since Johnson brazenly claimed in January 2012 that he would transform the gradually fading chain into "America's favorite store."

Ackman's ally at JCP (as it now wants to be called), Steve Roth of Vornado Realty Trust, abruptly sold 40% of the company's stake in March; a Macy's lawsuit over plans to open Martha Stewart "stores" inside JCP locations drags on, temporarily leaving a gaping hole in hundreds of Penneys; and on March 14, lender CIT signaled its skepticism about the company's finances by reportedly boosting the cost for vendors to borrow against payments that Penney owes them.

Johnson swept into Penney in November 2011 with the celebratory air of a revolutionary rolling into a vanquished capital. A few months later he hosted a gala relaunch of the brand, a Penneypalooza modeled after the Apple (AAPL, Fortune 500) fests held by his former boss Steve Jobs. (Even Jobs might have considered this one excessive.) Johnson proclaimed that he would reinvent the department store and do so while keeping earnings intact. His most radical moves were to stop running sales, which he said tricked customers, and to try to persuade the bargain addicted to trust that the new "fair and square" JCP would offer lower prices even if its price tags showed no mark-downs. He killed off older brands and signed hipper names like Joe Fresh, announced a new store-within-a-store design, and launched a bold and pricey ad campaign.

The plan aroused a lot of fascination because national department store chains are in such long-term decline that any fresh approach merits consideration. But Johnson talked the board into abandoning decades of practices and changing the whole company at once without testing it first. "You never, ever do a new concept across the board automatically," says Gilbert Harrison, chairman of Financo, an investment bank that specializes in retail companies. "Before [Johnson] could roll it out, he needed to better train his customers."

There are no superhero CEOs

Johnson was undaunted by any suggestion that he needed to take some time or that he should refrain from touting JCP's new stores until the company had overhauled more than a handful of them. "The only things that haven't worked for me are when I've held back," he told Fortune during the brand's relaunch. (Johnson declined to be interviewed for this article.) "There's no reason to sell an idea short. The only risk would be to not fulfill the dream."

Johnson's call to arms -- with the enthusiastic support of Ackman, who with Vornado owned about 36% of the stock (some of it through derivatives) before the latter reduced its position -- was based on Apple's approach to retail: Sell must-have products that people line up to buy, helped by a great in-store experience. There was a crucial difference: Apple sells sleek miracles of functionality and glamour. J.C. Penney sells sweatpants and tube socks.

There are always casualties in revolutions. In this case, unfortunately, it was the core customer, who had long trusted J.C. Penney as a great place for a deal on basic, unfussy stuff. Effectively, Johnson fired the old shoppers without first winning over any new ones. Need proof? The past four quarters reveal a breathtaking decline in same-store sales, which plummeted 19% in the company's first quarter and accelerated to 32% in the fourth quarter, which is when stores make most of their money.

Now, after seeing overall sales decline by an astonishing 25% -- $4.3 billion -- in the past year, Johnson & Co. are retrenching (sort of) by bringing back clearance prices and coupons. Ken Hannah, chief financial officer, recently offered a modified mea culpa at an investor presentation: "This is a multi-year journey, and we certainly made our mistakes."

Penney's board clearly blundered by entrusting the company's fate to a leader who was dynamic but had no experience as a chief executive. Although Myron Ullman III, then Penney's CEO, was originally supposed to stay for a while as chairman, confusion about who was running the show led the company to change course. Ullman resigned in January 2012, two months after Johnson's tenure began.

eBay is back!

Hiring Johnson was a classic Street turnaround play: Recruit a hot manager from outside the company, hand him massive financial incentives, and set him loose. The board gave Johnson $50 million of Penney stock to make up for $50 million in Apple shares he left behind. Johnson also shelled out $50 million of his own money to buy a warrant giving him the right to buy 7.3 million shares at $29.92 from mid-2017 through late 2018. Already wealthy from his tenure at Apple, Johnson took that huge flier seeking mega-riches. It also conveyed that he was willing to wager his own money on his audacious revival plan.

At first it seemed like a win: On the June 14, 2011, announcement of his hiring, the stock ran up 17%, putting him ahead more than $30 million on paper. Today, at JCP's recent price of $15.50, the stock has to rise about 150% just for him to get his $50 million back. (You can find the math here.) The guys who hired him are way down too: Ackman is looking at a paper loss of $550 million on his $1.55 billion investment, while Vornado is down about $260 million. Says Ackman: "Retail turnarounds are difficult and take time."

In contrast to Ackman and Roth, who began buying their Penney's stake less than three years ago, Lampert has been dealing with his retail company for more than a decade. He's way, way ahead on his investment; we estimate at least 300%. He started by buying Kmart debt in 2002, at undisclosed prices, while the company was in bankruptcy.

His hedge fund owned more than half of Kmart's stock when it emerged from bankruptcy in 2003. A major attraction was Kmart's real estate, which had far more value then to bricks-and-mortar merchants than it does now, with Amazon (AMZN, Fortune 500) and its online brethren eating physical retailers alive.

Then, in 2005, after Kmart stock had surged from its original post-bankruptcy $15 to triple digits, Lampert got Kmart to buy Sears. That gave Lampert even more real estate and a batch of attractive assets, such as the Craftsman tool line. The bullish story, repeated endlessly at the time, was that Lampert would be the next Warren Buffett, redeploying capital generated by fading stores the way Buffett redeployed capital from Berkshire Hathaway's (BRKA, Fortune 500) original fading (and now closed) textile business.

Lampert didn't discourage this. He took to writing long, discursive letters about the company and his views of life, similar to Buffett's Berkshire reports. He was famously intrusive, saying yay or nay on even relatively minor investments. Lampert ran through three chief executives in eight years before becoming acting CEO in January -- a title he probably should have assumed years before.

Customers to retailers: 'Don't spam me, bro!"

For all his smarts, Lampert failed to hire a strong, topnotch retail CEO to run his company. Time and again, he has been able to articulate a financial strategy for his investors; he has rarely been able to offer more than a cursory nod at a retail strategy -- a reason that customers should shop at Sears or Kmart. That deficiency is evident in the company's results. In 2005, Sears generated $49.1 billion in revenue and $858 million in profits. In 2012 revenue slumped to $39.9 billion and Sears lost $1.1 billion.

You can also argue that Lampert didn't do all that well at his core competency: asset deployment. Rather than put lots of money into new stores and upgrades -- which he said over and over in his annual letters wasn't an efficient use of capital -- he had Sears spend a ton of cash buying back stock. By our count, Sears has spent $6.1 billion to repurchase stock, more than 60% above the $3.7 billion spent on capital expenditures on stores during that period. Shortly after buying Sears, Lampert launched a program called Sears Essentials, rebranding existing Kmarts and stocking them with Sears products in order to compete with smaller-format stores. It bombed. "Had Sears Essentials worked, we would have put much more money into the physical stores," Lampert tells Fortune.

The average cost of the repurchases: a bit over $100 a share, roughly double the recent price. To be fair, some $5 billion of the buybacks occurred before the financial crisis hit and Sears' cash flow began to dry up. But a capital allocator is paid to get it right, and in this case he didn't.

Sears is trying to recover with its latest attempt to mix physical stores with online retailing, shopyourway.com, which combines social media with a loyalty program. But most other national retailers are attempting some version of this. Will Sears get it right? Who knows? But some of the money it spent buying back stock would come in handy right now.

At Sears Holdings' recent price of about $52, Lampert is way less ahead than he was in 2007, when the stock was at $170. There's no reason to believe the stock will be returning to that level anytime soon, if ever.

The idea that if investors make money, everything works out for the best for everyone doesn't hold in all cases. Lampert has made a ton of money, as have some of his early investors. "It's been a better investment than people think," he says, "but the company hasn't been a success yet."

Here's how you kill a product gracefully

In both the J.C. Penney and Sears Holdings sagas, there are lots of losers: vendors, communities with abandoned or failing stores, and, above all, employees. Says Ed Cox, a former Penney network engineer whose 32-year career ended abruptly when he was laid off last April: "I was very emotional that day. On those employee-engagement surveys done every year they said, 'Do you see yourself retiring at J.C. Penney?' and I always said yes." Adds his former colleague Lee Stoeckert, who took a buyout: "They always said it was going to take three years, but not that it was going to crash and burn in the meantime."

Today the two American retailing icons look further from revival than they did when Lampert and Ackman entered the picture. The winners so far, in addition to Lampert and his early investors, are the chains' competitors. They include Macy's (M, Fortune 500), Kohl's (KSS, Fortune 500), Target (TGT, Fortune 500), and TJX (TJX, Fortune 500), all of which are run by traditional retailers, not hedge fund guys or their designees.

There's still time for Ackman and Johnson to prove us wrong. Any number of factors could change Penney's momentum. The company could emerge with a favorable result from the Martha Stewart litigation. There are whispers afoot of a significant refinancing, which could remove doubt about its ability to renew its revolving line of credit next year. Customers could come flooding in as the store makeovers are completed. Or not.

Whatever happens, here's the bottom line to this convoluted tale: Retailing is a lot harder than it looks from Wall Street.

Disclosure: Co-author Allan Sloan owns $115,000 of TJX and Target stock, purchased well before this article was conceived.

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Wal-Mart losing shoppers, appeal
By Renee Dudley (Bloomberg News)
Chicago Tribune
March 29, 2013

Margaret Hancock long considered the local Wal-Mart superstore her one-stop shopping destinatiion. No longer.

During recent visits, the retired accountant from Newark, Delaware, says she failed to find more than a dozen basic items, including certain types of face cream, cold medicine, bandages, mouthwash, hangers, lamps and fabrics.

The cosmetics section "looked like someone raided it," said Hancock, 63.

Wal-Mart's loss was a gain for Kohl's Corp. (KSS), Safeway Inc. (SWY), Target Corp. (TGT) and Walgreen Co. (WAG) -- the chains Hancock hit for the items she couldn't find at Wal-Mart.

"If it's not on the shelf, I can't buy it," she said. "You hate to see a company self-destruct, but there are other places to go."

It's not as though the merchandise isn't there. It's piling up in aisles and in the back of stores because Wal-Mart doesn't have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world's largest retailer added 455 U.S. Wal-Mart stores, a 13 percent increase, according to filings and the company's website. In the same period, its total U.S. workforce, which includes Sam's Club employees, dropped by about 20,000, or 1.4 percent. Wal-Mart employs about 1.4 million U.S. workers.

Disorganized Stores

A thinly spread workforce has other consequences: Longer check-out lines, less help with electronics and jewelry and more disorganized stores, according to Hancock, other shoppers and store workers. Last month, Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot. The dwindling level of customer service comes as Wal- Mart (WMT) has touted its in-store experience to lure shoppers and counter rival Amazon.com Inc.

Wal-Mart (WMT) traded at a 1.4 percent discount to Target last week on a price-to-earnings basis after averaging a 5.9 percent premium to its smaller rival in the past two years. Wal-Mart traded as high as a 22 percent premium to Target in January 2012. Wal-Mart fell 0.1 percent to $74.77 at the close in New York.

"Our in stock levels are up significantly in the last few years, so the premise of this story, which is based on the comments of a handful of people, is inaccurate and not representative of what is happening in our stores across the country," Brooke Buchanan, a Wal-Mart spokeswoman, said in an e-mailed statement. "Two-thirds of Americans shop in our stores each month because they know they can find the products they are looking for at low prices."

'Getting Worse'

Last month, Bloomberg News reported that Wal-Mart was "getting worse" at stocking shelves, according to minutes of an officers' meeting. An executive vice president had been appointed to work on the restocking issue, according to the document.

At the supercenter across the street from Wal-Mart's Bentonville, Arkansas, home office, salespeople on March 14 handed out samples of Chobani yogurt and Clif Bars. Thirteen of 20 registers were manned -- with no lines -- and the shelves were fully stocked.

Three days earlier, about 10 people waited in a customer service line at a Wal-Mart in Secaucus, New Jersey, across the Hudson River from New York, the nation's largest city. Twelve of 30 registers were open and the lines were about five deep. There were empty spaces on shelves large enough for a grown man to lie down, and a woman wandered around vainly seeking a frying pan.

Wal-Mart's restocking challenge coincides with slowing sales growth. Same-store sales in the U.S. for the 13 weeks ending April 26 will be little changed, Bill Simon, the company's U.S. chief executive officer, said in a Feb. 21 earnings call.

Target Premium

"When times were good and people were still shopping, the lack of excellence was OK," said Zeynep Ton, a retail researcher and associate professor of operations management at the MIT Sloan School of Management in Cambridge, Massachusetts. "Their view has been that they have the lowest prices so customers keep coming anyway. You don't see that so much anymore."

Shoppers are "so sick of this," said Ton, whose research, published in Harvard Business Review, examines how retailers benefit from offering good wages and benefits to all employees. "They're mad about the way they were treated or how much time they wasted looking for items that aren't there."

Retailers consider labor -- usually their largest controllable expense -- an easy cost-cutting target, Ton said. That's what happened at Home Depot Inc. (HD) in the early 2000s, when Robert Nardelli, then chief executive officer, cut staffing levels and increased the percentage of part-time workers to trim expenses and boost profit. Eventually, customer service and customer satisfaction deteriorated and same-store sales growth dropped, Ton said.

"When you tell retailers they have to invest in people, the typical response is: 'It's just too expensive,'" Ton said.

Adding five full-time employees to Wal-Mart's (WMT) U.S. supercenters and discount stores would add about a half- percentage point to selling, general and administrative expenses, according to an analysis by Poonam Goyal, a Bloomberg Industries senior analyst based in Skillman, New Jersey. Assuming the workers earned the federal minimum wage and industry standards for health benefits, the added costs would amount to about $448 million a year, she said. In the year ended Jan. 31, Wal-Mart generated $17 billion in profit on revenue of $469.2 billion.

Barren Landscape

At the Kenosha, Wisconsin, Wal-Mart where Mary Pat Tifft has worked for nearly a quarter-century, merchandise ready for the sales floor remains on pallets and in steel bins lining the floor of the back room -- an area so full that "no passable aisles" remain, she said. Meanwhile, the front of the store is increasingly barren, Tifft said. That landscape has worsened over the past several years as workers who leave aren't replaced, she said.

"There's a lot of voids out there, a lot of voids," said Tifft, 58, who oversees grocery deliveries and is a member of OUR Walmart, a union-backed group seeking to improve working conditions at the discount chain. "Customers come in, they can't find what they're looking for, and they're leaving."

Years ago, supervisors drilled a message into employees' heads: "In the door and to the floor," Tifft said. That mantra now seems impossible to execute.

'No Manpower'

"There's no manpower in the store to get the merchandise moving," she said.

At the Wal-Mart store in Erie, Pennsylvania, 26-year-old meat and dairy stocker Anthony Falletta faces a similar predicament.

"The merchandise is in the store, it just can't make the jump from the shelf in the back to the one in the front," said Falletta, who works the second shift. "There's not the people to do it."

In both stores, departments have merged, leaving some areas with limited or no staff coverage, they said, and workers rarely have time to finish all their tasks by the end of the day. In the morning, employees scramble to set out new merchandise, put returns back on shelves and handle customer inquires, they said.

"There is definitely some links broken in the chain, and I don't know how long they're going to go on like this," Tifft said.

Vicious Cycle

Wal-Mart is entangled in what Ton calls the "vicious cycle" of under-staffing. Too few workers leads to operational problems. Those problems lead to poor store sales, which lead to lower labor budgets.

"It requires a wake-up call at a higher level," she said of the decision to hire more workers.

Falletta, the meat and dairy stocker in Erie, said his weekly hours are unpredictable. He would like to work a full 40 hours and sometimes gets only 25. Falletta and others interviewed for this story said management bonuses are based partly on minimizing store payroll.

According to Rochelle Jackson, who works at the jewelry counter at a store in Springfield, Missouri, a supervisor recently explained the number of hours available to schedule employees corresponds to sales performance: The worse the sales number, the fewer hours available.

"We're not getting as many sales because there's simply no one to help the customers throughout the stores," said Jackson, 24, who has worked at two Wal-Mart stores since 2009. "I asked, 'Why can't we have enough hours to make the store work?' They said, 'It's orders from Home Office,'" she said.

Cutting Hours

Jackson said her store began cutting hours a year ago, adding that "it hasn't been really bad until this year."

Staff shortages at cash registers during peak hours require Jackson and her co-workers on the sales floor to check shoppers out "while we are trying to restock the shelves, help customers and do other assigned projects," she said. The so-called Code 7 to the registers leaves a vacuum across the store's departments, she said. Customers looking for groceries ask salespeople in the shoe department for help because they can't find what they're looking for, Jackson said.

In the fall, Tim White, a 36-year-old attorney, tried to buy wall paint at the Wal-Mart near his home in Santee, California. "You wait 20, 25 minutes for someone to help you, then the person was not trained on mixing paint," White said. "It was like, you have to help them help you."

'Maddening Inability'

White, who has six children, said while long checkout lines irritated him, "the number-one reason we gave up on Wal-Mart was its prolonged, horrible, maddening inability to keep items in stock."

The store would go weeks without products he wanted to buy, such as men's dress shirts, which he found only in very large or small sizes and unpopular colors, he said. "Pretty soon, they were even out of those," White said. "I would literally check every so often at different Wal-Marts. They would go two or three months with the shelves looking exactly the same."

When Wal-Mart was out of stock of his preferred types of shaving lotion or razors, White would "drive next door to Target where they had it in stock all the time," he said.

The White family's visits to Wal-Mart -- which had been a several times a week occurrence -- became less and less frequent until they stopped this year. The eight-member clan now shops at Target and Costco Wholesale Corp (COST).

"Things might be a little bit more expensive, but not so much so that it would keep me away," he said.

Costco Productivity

Ton's research has centered on retailers that include discount club Costco, whose chief executive officer, Craig Jelinek, offered his support publicly earlier this month for legislation to raise the federal minimum wage.

Costco, which offers a starting hourly wage of $11.50 in all states and employee schedules that are generally predictable, has higher worker productivity and a lower rate of turnover than its competitors, Ton found.

Hancock, the retired CPA in Delaware, said she hasn't abandoned Wal-Mart altogether because she likes the low prices on the items she can find in stock. White, the shopper in California, said those low prices were crucial to his family as he started out his career.

"When I was in law school, it really helped us out," White said.

Wal-Mart shoppers for more than a decade, White's family continued to shop there even once he started earning more money.

"I was pro-Wal-Mart even when our friends rolled their eyes," he said. "I don't defend them anymore."

He added a caveat: "They could get us back if they fixed these problems."

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Sears CEO Took Big Cut in 2012
By Karen Talley
Dow Jones Wire
March 29, 2013

Former Sears Holdings Corp. chief Louis D'Ambrosio received no bonus or stock awards last year, cutting his compensation by nearly 90% to $1.3 million, according to a regulatory filing.

Mr. D'Ambrosio, who also held the title of president and left the struggling retailer last month, received a base salary of $931,000, down from $1 million in the prior year. He received a bonus of $150,000 and stock awards worth $8 million in 2011, having taken the helm in February of that year.

Edward Lampert, the billionaire hedge-fund manager who controls Sears, took over chief executive and president on Feb. 1, the start of the company's fiscal year. Mr. Lampert, as is his habit, took no compensation last year, according the company's proxy filing with the Securities and Exchange Commission.

For its fiscal fourth quarter, which ended Feb. 2, recorded a loss of $489 million. Revenue slipped 1.8%, to $12.3 billion. Sears has been taking steps, including divesting assets, in hopes of reversing a yearslong slump.

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Eddie Lampert Hacks OSH - Is Sears Spinoff Spinning Out?
Forbes
March 28, 2013

Almost a year ago, Sears CEO Edward Lampert owned 2,122,707 OSH shares � today he owns about half of that. As of March 25, 2013, Lampert reduced his position in Orchard Supply Hardware (OSH), a Sears spinoff, for the third time since last summer. For quarter ending June 30, 2012, the 10% owner Lampert had reduced his position by 22.7%, then again for quarter ending Dec. 31, 2012, Lampert reduced by 29.51%. His most current trade, reducing by 8.7%, leaves him with current shares of 1,080,204. The current price of OSH shares is $3.97, and according to GuruFocus analysis, is off 47% year to date.

What is going on with Orchard and its uber investor Guru Lampert, the mastermind of the Sears makeover? Orchard Supply Hardware is a David and Goliath story, but this time, there are many giants to battle. Orchard competes with home improvement and hardware heavies who have already figured out supply chain, pricing strategy and customer options. Orchard�s competitors include The Home Depot, Ace Hardware, Costco, Wal-Mart, Target, TrueValue and Lowe�s for house paint, garden tools, and other do-it-yourself products. Compare The Home Depot fiscal 2012 revenue of $70 billion to Orchard�s fiscal 2011 revenue of $660 million.

In February 2013, Orchard Supply Hardware reported that it had expanded its existing Senior Secured Credit Facility with Wells Fargo Capital Finance and Bank of America N.A., increasing their total borrowing capacity to $145.0 million through the addition of a $17.5 million last-in-last-out supplemental term loan tranche. Orchard also reported cash and available credit of $40 million, including $32 million available to borrow on the Senior Secured Credit Facility. According to the GuruFocus analysis of Orchard, the company may need that. In a recent financial and performance checkup, GuruFocus found one major warning sign, that the company�s earnings cannot cover its interest expense. (Ben Graham prefers a company�s interest coverage to be at least 5. If the situation continues, the company may have to issue more debt.) A good sign is that the OSH price ($3.97) is close to a two-year low of $3.94.

The bigger picture is that Sears Holding Corporation (SHLD) announced early this month a loss of $489 million with a six-month trend of declining sales. At that time, CEO Edward Lampert, also manager of ESL Investments, made two adds of SHLD, 2.91% and 0.79% at the average price of $44.17. As the mastermind behind the Sears makeover with the union of Sears and Kmart, Lampert now owns 43,845,246 SHLD shares, even as OSH is sagging. In other words, Lambert is heavily invested in his own projects at a down time.

Lampert�s company ESL Investments has a portfolio of 11 stocks with a value of $3.8 billion and a quarter-over-quarter turnover of 8%. Lampert�s portfolio is heavily weighted in consumer cyclical at 94.6%.

Lambert is 68th on the Forbes list of 400 Richest Americans.

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Mall Landlords Get a Penney for Thoughts
By Kris Hudson
Wall Street Journal
March 27, 2013

Property Owners Ponder Their Options if Struggling Retailer Decides to Shutter Some Stores; a 'Source of Cash'

U.S. shopping-mall owners, already hit with store closures by longtime laggard Sears Holding Corp., SHLD -0.98% are now pondering what steps to take if struggling chain J.C. Penney Co. JCP -0.67% closes some of its 1,104 stores.

Penney hasn't announced any plans to sell or close stores in the wake of posting a $985 million net loss and a 25% decline in sales for its fiscal year ended Feb. 2, a year in which Chief Executive Ron Johnson's abrupt turnaround plan failed to take root.

Yet investors and analysts are querying mall owners about their contingency plans in case Penney vacates certain stores�at least 675 of which are in malls.

The company owns 429 of its stores�nearly 39%�and some of those could be sold to raise cash or be put into a real-estate investment trust that controls the stores and subleases space to other retailers. Many of the remaining stores are under long-term leases at the nation's biggest mall landlords, including CBL & Associates Properties Inc., CBL -0.89%Simon Property Group Inc. SPG +0.01% and Macerich Co. MAC +0.08%

A Penney representative declined to comment.

Mall owners predict that it wouldn't be difficult to replace Penney stores in the best U.S. malls, such as Aventura Mall in Aventura, Fla., and Park Meadows mall near Denver, where other large tenants might want to take over space. In other cases, mall owners could restructure the space to house several smaller stores.

The greater challenge, many mall owners and analysts say, would be to replace Penney stores in average and subpar malls, where Penney, like Sears, has hundreds of stores. Many of these malls are in older suburban locations or in smaller metropolitan areas. Sears, mired in years of declining sales, has closed 68 of its Sears department stores since 2009.

Simon, owner of 325 shopping centers in North America and Asia, has replaced more than 60 department stores in the past decade with new retailers. Only six of the 635 department stores in Simon's portfolio currently are vacant. With few new shopping centers being built in the U.S., most expanding retailers must wait for space to become available in existing malls.

"We have an ongoing strategic process in place where we keep a running analysis of what users would be interested in each property," said Rick Sokolov, Simon's president and chief operating officer. "So, if the opportunity presents itself to get some space back, we're in position to take advantage of that."

Macerich has 36 Penney stores in its U.S. portfolio of 62 malls. Art Coppola, Macerich's chairman and chief executive, said he anticipates that Penney will remain a viable tenant for mall owners. But, "we have a plan for each and every [Penney] location," Mr. Coppola told investors at a conference in Hollywood, Fla., hosted by Citigroup Inc. C -0.86% on March 5. "Some of them would be terrific. Some of them would be OK. And some of them would be more challenging."

The 111-year-old retailer is struggling after a shake-up led by Mr. Johnson, an Apple Inc. AAPL -1.71% veteran chosen by big Penney investors to revive the company, failed to spur sales and attract new clientele. Mr. Johnson has reversed course on some of his most striking programs, such as eliminating sales promotions in favor of making low prices the chain's standard.

Penney is pushing ahead, though, with a plan to re-create hundreds of its properties as collections of boutique stores for brands such as Joe Fresh and Jonathan Adler. The changes, however, are expensive. Penney finished its last fiscal year with $930 million of cash, down significantly from prior years.

The retailer's struggles have some observers thinking it soon will turn to its real estate as a savior by selling some of the 429 stores it owns or the long-term contracts on those it leases. "The challenge is that they may need more cash to complete their transformation," said Cedrik Lachance, an analyst with Green Street Advisors Inc., which tracks real-estate investment trusts, including most big mall owners. "To that end, I think that J.C. Penney may look to its real estate as a source of cash."

Possibilities include Penney selling some of its stores and leasing them back, or Penney selling some to mall owners who intend to raze them and rebuild them for other tenants. The latter is most likely to occur in malls with high sales volumes, where demand from other retailers for space is strong.

The trouble for Penney is that its stores are skewed more toward average malls. Since the recession, retailers and shoppers have favored strong malls over their average and struggling peers.

And the few expanding department stores that might replace Penney, such as Nordstrom Inc., JWN +0.40% tend to choose the best malls in each market.

Mall owners, in turn, are spending most of their time and capital redeveloping proven malls to generate more sales rather than pouring money into struggling properties unlikely to produce a similar return.

According to Green Street, 157 Penney stores are located in so-called A-grade malls, which typically generate annual sales per square foot of $450 or more. Far more of Penney stores�351�are in B-grade malls, which generate annual sales of $325 to $450 per square foot. Another 146 of Penney stores are in C-grade malls, which generate annual sales of $200 to $325 per square foot, and many are struggling to remain malls. The U.S. average for malls is $391.

Much of the balance of Penney stores are in free-standing locations, strip centers or downtowns. "There's not a lot of value, potentially, for any of those locations," Green Street's Mr. Lachance said. Those types of stores tend to get less traffic than stores at malls, and there are fewer options of retailers or other tenants who will move into them.

Other observers see significant value in the real estate of Penney's top stores. Omar Saad, an analyst at International Strategy & Investment Group LLC, distributed a research note March 18 to his firm's clients estimating that the top 300 Penney stores can be valued at $10.8 billion. Mr. Saad theorized that Penney could create a REIT to own those stores and sublease space in them to numerous other retailers. Other analysts, however, said that value estimate is too high.

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About That 'Scalpel'...
Wall Street Journal
March 21, 2013

Medicare Advantage is the one part of the budget Obama will cut.

President Obama often claims he wants to cut the budget smartly, using a "scalpel"�not a meat axe, machete, cleaver or chainsaw, to list a few of his favorite metaphors. He'll need a more inspired term to describe what he's now doing to Medicare Advantage, perhaps napalm or WMD.

The Affordable Care Act drained $306 billion from this growing version of Medicare that 29% of seniors use to escape the traditional entitlement and obtain modern private insurance, but the Administration is imposing the cuts in ways that are even more harmful than the law requires. The post-election timing is no accident.

In 2012 only 4% of the Medicare Advantage cuts were scheduled under the law, but the folks who run Medicare at the Health and Human Services Department improvised a $3.8 billion nationwide "demonstration project" that paid bonus subsidies to Medicare Advantage insurers to improve quality. The project couldn't demonstrate anything because the payments went to 90% of insurers regardless of quality, but they did cancel out most of the 2012 cuts. That did the trick for voters in Scottsdale or Boca Raton who might have noticed higher costs or lost the coverage they have and prefer.

Federal auditors suggested the project was illegal, but in any case it is now winding down and HHS is making up for lost time. Even as ObamaCare-mandated cuts of roughly 3.4% hit in 2014, out of nowhere HHS gamed the complex formula to conjure a new 2.2% cut in the fixed payments that insurers receive for each senior they cover under Advantage.

Folding in ObamaCare's $8 billion tax on insurers next year that is the equivalent of a smaller subsidy, the Medicare Advantage cuts will total anywhere from 6.9% to 7.8%. Thus Advantage will become the only entitlement for which real spending will fall slightly year over year and continue to decline, even as health costs rise and more people join the program. Mr. Obama would never tolerate this in any other area of government, no matter what tool was used.

The cuts translate into lower benefits, higher premiums or both, and the liberal goal is to induce seniors and insurers to flee the program, much as Bill Clinton starved the Advantage forerunner known as Medicare+Choice in the 1990s. Yet for the past several years enrollment has climbed at an 8% to 10% clip annually, versus 3% for normal fee-for-service Medicare.

The Administration can't abide that Medicare Advantage is stealing customers from government control, while also exposing the failure of traditional Medicare's cost control. Medicare Advantage shows that more dynamic and efficient private alternatives can generate better health-care value than a room of wise men deciding how the government should pay for tens of thousands of services.

A shelf of academic and industry research shows that the care coordination and disease management in private plans result in higher quality than fee for service, including lower hospital readmission rates and better outcomes for seniors with chronic conditions. No less than the liberal Princeton health economist Uwe Reinhardt recently conceded that "robust empirical evidence" is convincing him that competition among plans creates "powerful incentives to improve the quality of the care they procure for patients." This is like the Sierra Club conceding that the coal industry has redeeming qualities.

The tragedy is that Medicare Advantage architecture is far from perfect and HHS could save money if it wanted to, in particular by targeting the private fee-for-service plans that mimic all of traditional Medicare's dysfunctions except with an element of private profit. But that approach conflicts with the Administration's political goal of strangling Medicare Advantage in the crib.

The new HHS payment cuts will be finalized in a week or so, and even some Democrats are protesting that they are too much too fast�including Senate Finance Chairman Max Baucus, who designed the original cuts. Unfortunately for them and their constituents, Mr. Obama would rather destroy a model for true Medicare reform than let seniors choose.

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Sears Says Lampert Will Remain as CEO, Earning $1 Salary
By Lauren Coleman-Lochner
Bloomberg
March 20, 2013

Edward Lampert, the billionaire hedge-fund manager who controls Sears Holdings Corp. (SHLD), entered into a new agreement to continue to serve as the retailer's chief executive officer.

Lampert, 50, will earn a salary of $1 a year, effective as of Feb. 1. During the first three years of his tenure, he'll participate in the company's annual incentive plan with a target payout of $2 million a year, according to a regulatory filing. Lampert will also receive $4.5 million in Sears stock a year.

Lampert took over in February after Lou D'Ambrosio stepped down for a family health matter after less than two years. Lampert became the fifth CEO since he merged Sears and Kmart in March 2005. Sales have declined for six straight years.

Sears, based in Hoffman Estates, Illinois, rose 1.1 percent to $52.30 at the close in New York. The shares have gained 26 percent this year, compared with a 9.3 percent gain for the Standard & Poor's 500 Index.

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A Bad Penney Gets Worse
By Leslie P. Norton
Barrons
March 11, 2013

J.C. Penney's shares have plunged nearly 60% since we first warned about trouble with its turnaround in January 2012. They could fall by another third.

Are J.C. Penney's real-estate assets a reason to buy shares of the ailing retailer? That question has grown louder in recent weeks, as the board mulls a sale of the Plano, Texas-based company (ticker: JCP) or the removal of the company's CEO if sales don't revive.

Over the past year, CEO Ron Johnson has tried to attract higher-end clients with a store-within-a-store strategy and to smooth results by dumping chaotic discounting. Barron's warned readers to expect some bumps ("Penney Wise? Not Exactly," Jan. 23, 2012). The problems were even bigger than we expected. Confused customers fled to rivals like Target (TGT) and Macy's (M). In the year ended Feb. 2, same-store sales fell by a whopping 25%. Penney lost $985 million, or $4.49 a share. The shares have plunged nearly 60%, to $15, since our story ran.

Penney's shares are down 60% since we warned about trouble with its turnaround.

Johnson began with the backing of Penney's two largest shareholders: Pershing Square Capital Management and Vornado Realty Trust, which owned a third of the stock and held board seats. Last week, Vornado sold 40% of its stake and is likely to sell the rest. Johnson has already restored discounting, but Penney has cut 19,000 jobs, or 14% of the total, since the start of 2012.

The board is said to be giving Johnson's plan another year to work, and seems stuck with it in the way that passengers are stuck on a train hurtling toward a collision. "It's hard to see how a new leader can right the ship, given the massive changes being implemented, especially the 'store-in-a-store' concept, which is behind schedule," says David Berman, a hedge-fund manager and retailing expert who has derided Penney's overhaul since day one.

The stock market now values Penney at $3.3 billion, down from almost $8 billion last year. It is hard to see why it might be worth more, given the lack of buyers for a retailer with a national footprint and ongoing asset sales by rivals like Sears Holdings (SHLD).

Penney owns 426 of its 1,100 stores and has cheap leases on the rest, but Vornado's willingness to cut and run calls their value into question.

That, in turn, is creating concerns about liquidity. Penney has $930 million in cash and a $1.85 billion credit line. If same-store sales fall another 10% in the first quarter, Penney will burn through $400 million in cash, says J.P. Morgan. Hedge-fund investor Berman foresees "vendor panic over a steadily worse balance sheet."

Rick Snyder, an analyst at Maxim Group, thinks Penney's real estate is worth roughly $50 per square foot. That would not be enough to cover Penney's $2.9 billion of debt. Snyder's price target on the stock is $10, about a third lower than it fetched last week.

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J.C. Penney CFO says he and CEO Johnson are staying put
By Phil Wahba
Chicago Tribune
March 13, 2013

(Reuters) - J.C. Penney Chief Financial Officer Ken Hannah on Wednesday insisted that neither he nor Chief Executive Ron Johnson has any plans to resign despite growing pressure on the company over its turnaround plans.

"I'm not resigning. Ron is not resigning," Hannah said during a presentation at an investor conference that was webcast. He was addressing market rumors earlier this week that Johnson might step down

Last month, Penney reported disastrous holiday quarter results, with the sharpest decline yet in same-store sales since the retailer began its transformation.

Sales fell 25 percent in the first year of Johnson's plan, which did away with the coupons that brought in loyal shoppers, and which aims to refashion stores into collections of branded boutiques for hip names like Joe Fresh and Jonathan Adler.

Hannah acknowledged that the sales shortfall could slow the pace of the shop rollouts. Penney's plan calls for its 700 larger stores to be refashioned into emporia with 100 shops.

Penney has brought back many sales events and resumed giving coupons, part of its efforts to bring back its so-called "core customer," typically a price-sensitive head of household more concerned with saving money than being a fashionista.

"We have to do it at a measured pace, " Hannah said of the rollout, noting that Johnson would prefer to go faster.

While the shops have shown promising early results, the progressively worse sales declines last year -- including a 32 percent same-store sales decline for the holiday quarter -- have slammed Penney shares.

Last week, Vornado Realty Trust , whose CEO Steve Roth is on Penney's board, sold off 10 million Penney shares, a move interpreted by Wall Street as a loss of confidence in Johnson's turnaround plan.

The move caught Penney by surprise. Roth did not give any hint at the last board meeting that he planned to sell shares, Hannah said.

Hannah, while acknowledging the results so far have been "unacceptable," also said Penney needs time to execute its plan.

"It's going to take a lot more patience from our investors," he said.

J.C. Penney shares closed unchanged. They had been up 1.6 percent immediately before Hannah's presentation began.

(Reporting by Phil Wahba; Writing by Phil Wahba and Ben Berkowitz; Editing by Alden Bentley)

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Sears' failure to adapt disillusions shoppers, shareholders
By Jessica DuBois-Maahs
Medill Reports
March 13, 2013

Yellow sales tags line the top of almost every clothing rack in the Sears store on State Street. Amid the mismatched socks, last-season coats and empty hangers strewn throughout the women's section, Johana Robles sifts through the bulging clearance racks.

She's been shopping at the department store less frequently over the years because of the same kind of shopping experience � inattentive sales associates, disorganized sales racks and the occasional flickering light bulb. And that's a problem for Sears.

Sears Holdings Corp. is a company in steady decline, and few industry experts believe 2013 will prove any better. The Hoffman Estates-based company reported losses in 12 of the last 16 quarters, evidence it is failing to adapt to a changing consumer market while living in the shadows of a legendary brand that peaked decades ago.

The company, which encompasses Kmart, Sears and Lands' End, reported a fourth-quarter net loss of $930 million, or $8.78 per diluted share in February. There were huge onetime charges, and the decrease in customer traffic and sales at stores opened for at least a year also took a toll on profits.

Yet another abrupt management change early this year put majority shareholder Edward Lampert back in the CEO chair once more � another reason why analysts and investors are divided as to the future of the ailing company. Share prices initially jumped 18 percent after the company's announcement.

But the excitement and optimism was short-lived. Sears shareholders are unhappy, and many industry experts anticipate Lampert's new position will mean more of the same failed retail strategies. After all, Lampert's investment firm was behind the Sears and Kmart merger that spawned Sears Holdings in 2005.

Sears shares have dropped more than 35 percent over the past twelve months, and as of Tuesday afternoon were trading at $50.17 apiece � well below its five-year high price of $120.95, which it reached in 2010.

But much of Sears Holdings' share-price volatility is due to Lampert's hedge-fund firm, RBS Partners L.P., owning 34.15 percent of the company. This large ownership percentage makes for a small public �float,� and amplifies the daily movement of the stock.

For Sears, few see any sign of future improvement.

�His strategy is consistent � every year he gets rid of assets. He monetizes good assets� said Howard Davidowitz, a retail consultant for Davidowitz & Associates Inc. �It's not a normal functioning business.�

As the company tries to reverse its decline, officials have been pressing ahead with new company initiatives such as a customer loyalty program, a push for a larger e-commerce presence and celebrity-designed clothing lines. But any strides are overshadowed by the shrinking consumer base, according to Neal Stern, a retail analyst for consulting firm McMillanDoolittle.

Stern said he isn't convinced the company should throw in the towel just yet. Sure, he acknowledges, the declining return-customer rate continues to stifle the Sears' long-term initiatives, but the retailer still has a prominent North American presence.

�It's easy to look at the enterprise and say that these guys are going to be gone in five years if they follow the same path,� Stern said. �But they own a lot of real estate and brands, and there is a tremendous amount of leverage. If they can turn this around, it can be a profitable company.�

While many analysts agree the retailer needs to drastically change course, it remains unclear what should be done. Any initiatives the company implements right now will take at least a year to take hold, and in a precarious economy with fierce competition from nimbler store operators such as Target Corp. and Home Depot Inc., Sears and Kmart stores don't have room for missteps, according to Stern.

A company in decline

When Lampert took over again in February, the billionaire hedge-fund manager continued to sell company assets and cut costs, a strategy he has used since the Sears and Kmart stores merger eight years ago.

And Lampert's cost-cutting isn't convincing many analysts or investors that Sears and Kmart stores are on the mend. The company's earnings are complicated by a host of one-time charges, special items and fluctuating tax obligations, giving investors an unclear picture of the company's progress.

His strategy is proving unsustainable in the eyes of some industry experts.

�If [Sears Holdings] hadn't sold its assets, it would be in bankruptcy. That's what's keeping them in business,� Davidowitz said. �They are not fixing up stores or opening stores. They just sell assets and cut costs.�

Back at the time of the merger, investors believed Lampert had the key to unlocking the company's dire financial straits by repurposing and selling under-performing stores in desirable locations. Instead, Lampert has sold high-performing stores to competing retailers, which only temporarily improved the company's bottom line.

Lampert's real estate missteps have exacerbated the company's long-term problems. For fiscal 2012, the company reported a net loss of $3.11 billion, which reflected punishing onetime writedowns and costs associated with store closures and restructuring. The year of the merger, the company reported net income of $1.11 billion � a stark comparison.

And the company's sales figures aren't much better. The company reported sales of $41.57 billion for fiscal 2012, a 4 percent decrease from 2011 sales of $43.33 billion. Sales have consistently decreased since 2007 when they stood at $53.01 billion.

�Sears can't shrink its way to profitability,� said Paul Swinand, a Morningstar analyst. �Sales keep declining as fast or faster than management can cut costs and reduce inventory. Store closings will not be enough.�

The company is in the process of closing 100 to 120 underperforming Sears and Kmart stores in the U.S., with a typical store on the closure list employing 40 to 80 people, according to a corporate announcement. The company has also recently closed its Sears Hometown and Outlet chains, saying it wanted to forge a more centralized brand.

The reduction in operating costs is an effort to show investors the company is not on a �continued downward trajectory,� Lampert said in a letter to shareholders. He said the company is also cutting costs by reducing inventory and carefully choosing what stores should be remodeled and maintained � something critics and customers have already noticed in some unkempt stores.

Sears and Kmart stores need to attract new customers if they want to win over investors and achieve long-term success, according to Laura Heller, a retail trend expert who teaches as Columbia College in Chicago.

�No strategies have been working in recent months,� Heller said. �They never moved forward in any meaningful way. They closed newer locations and stayed in communities where demographics were underserved but never did anything but give lip service to merchandise.�

As new clothing collections by celebrities such as Selena Gomez and the Kardashians roll into Kmart and Sears stores, the company�s share prices continue to drop as investors are feeling disillusioned about the company's short-term, temporary strategies.

Because of Sears Holdings' losses, the company does not have a trailing twelve-month price-to-earnings ratio. In comparison, the S&P 500�s P/E ratio currently stands at 17.94.

Competing in a changing consumer market

Retailers are trying to keep pace with booming online sales and well-informed shoppers, and many retail experts agree that Sears Holdings is making wise choices in investing in its e-commerce platforms.

Lampert concedes that the only way the company's stores will make it in today's market will be through a strong online presence. �If we don't change, and if our talent can't adapt to that change, we won't be successful,� Lampert said.

The company expanded its online rewards system last year to any customer who has an email address, in place of manually signing them up in stores. Shop Your Way Rewards provides customers with coupons and deal incentives for purchasing specific items at Sears and Kmart stores and online.

The company has also recently updated its website to include online shopping incentives, making it more enticing for customers to shop online. The company's website boasts free shipping, hassle-free returns and an exclusive online inventory.

And while general consumer sentiment and spending continues to fall in a sluggish economy, Sears Holdings is planning its comeback. And whether analysts or investors are happy with Lampert's initiatives or not, those strategic changes are already being implemented.

�At some point you will see the momentum shift, but they are doing it in a precarious economy with competition, so a lot of things have to go right with them in order for that to change,� Stern said. �Is is the best strategy? Well, it's the strategy they have to work with right now.�

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Edward Lampert and Sears, Investing in Wow
By GuruFocus
NASDAQ
March 7, 2013

As Sears Holding Corporation ( SHLD ) announced a loss of $489 million with sales continuing a six-year decline, the new Sears CEO Edward Lampert , also manager of ESL Investments, made two adds of SHLD, 2.91% and 0.79%, at the average price of $44.17 the first week of March 2013. Lampert now owns 43,845,246 SHLD shares. The stock price has changed by 0%.

Lampert's company ESL Investments has a portfolio of 11 stocks with a value of $3.8 billion and a quarter-over-quarter turnover of 8%. Lampert's portfolio is heavily weighted in consumer cyclical at 94.6%. Both SHLD and Sears Hometown & Outlet Stores ( SHOS ) are in ESL Investments' portfolio.

Considered an investment savant and called "the best investor of his generation," Edward Lampert formed Sears Holdings ( SHLD ) in 2005 by joining Sears and Kmart under one umbrella. Lambert told shareholders in his letter of Feb. 28, 2013, "We are rebuilding Sears Holdings' culture with an acute focus on creating 'wow' experiences for our Members and putting Members First." In leading Sears forward, Lampert values creating and maintaining customer relationships via interacting versus just transacting.

In a major retail makeover, Lampert launched creative, new ecommerce platforms more relevant to today's younger consumers and a social shopping environment. In his chairman's letter, Lampert stated, "Sears Holdings made progress in 2012 improving the profitability of our business, but we know there's more work to be done in 2013...Our focus continues to be on our core customers, our Members, and finding ways to provide them value and convenience through Integrated Retail and our SHOP YOUR WAY Membership platform. We have invested significantly in our online ecommerce platforms, our Membership rewards program and the technology needed to support these initiatives."

As for Sears Holdings Corporation's health, GuruFocus performed a checkup and found the company has a low Piotroski F-Score of 2, which usually implies poor business operations. Also, the company's gross margin has been in long-term decline; the average rate of decline per year is 1.7%. Other warning signs: Sears Holdings Corporation has issued new debt of $485 million over the past three years, revenue has declined over the past 12 months and Sears Holdings Corporation had operating loss over the past three years.

Modeling his investment style after Warren Buffett , Lampert is the founder of ESL Investments Inc., a private investment company, as well as the CEO of Sears Holdings Corporation ( SHLD ). Since starting ESL Investments in 1988 at the age of 25, Lampert racked up a reputation and returns averaging 29% a year. On the Forbes list of 400 Richest Americans, Lampert is 68th. Fortune called the billionaire "the best investor of his generation." Although Sears is his first retail CEO role, Lampert served as director for both AutoNation ( AN ) until 2007, and AutoZone ( AZO ) from 1999 through, during which time the company's market price increased approximately 338%.

While Lampert hones the Sears' operation with a mission to serve, delight and engage members while they shop their way , clearly he's confident about investing in his own vision and the future of a company with some of the most recognized proprietary brands in retailing, such as Kenmore, Craftsman, Diehard and Land's End.

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U.S. Retailers See Tepid Growth
By Karen Talley
Wall Street Journal
March 8, 2013

U.S. retailers posted moderate sales for February, with consumer spending feeling the pressure of payroll-tax increases even as the stock market roared ahead and the housing market continued to mend.

Consumers last month also contended with higher gasoline prices and a severe snowstorm in parts of the country.

February "was a challenging month," said Barbara Kahn, director of the Baker Retailing Center at the Wharton School. "Consumers were up against mixed economic news. They faced things like the payroll tax increases, but at the same time the stock market was getting strong and housing was improving."

Retailers may not have been pleased with the month because they had to shift to more promotions to get rid of winter stock as they prepared for spring. February is the month that bathing suits and other warm weather merchandise begin to appear on racks.

While fewer than a dozen retailers still report monthly same-store sales, their message is pretty consistent: February was a month to muddle through. Many retailers that no longer report monthly sales�including Wal-Mart Stores Inc., Target Corp. and Kohl's Corp.�cited weakness in February when they posted fourth-quarter results last month. At the time, Wal-Mart also said a delay in income-tax refunds was weighing on sales.

Thomson Reuters said the 11 retailers still issuing monthly same-store sales, excluding drug stores, posted 3.9% growth in same-store sales for February. This compares with a 7.4% rise for the 11 a year ago.

The list of retailers posting monthly sales numbers has fallen dramatically from its peak of 68 in 2005. With February marking the start of the new fiscal year, the list is now absent some more big names including Target, Kohl's and Macy's Inc.

The fact that so few retailers are reporting doesn't mean the monthly sales reports have become inconsequential, analysts say, but it does limit the information about retailing and the health of consumers that was conveyed when many more companies were posting.

"It's still a relevant barometer, but it does not give you as clear a picture as it used to," said Madison Riley, managing director at consulting firm Kurt Salmon.

In other words, it's more of a thumbnail look than a snapshot.

Gap Inc., one of the few major retailers still reporting monthly figures, posted a 3% increase in same-store sales when 2% was expected. The retailer was expected to release the data after market close Thursday, but the figures were prematurely published in the morning, causing Gap's shares to be halted temporarily, according to a company spokeswoman. She blamed the snafu on a third-party vendor as well as a change in the clothing retailer's usual timing for such releases.

The spokeswoman said a "vendor" prematurely released the data publicly this morning. The numbers appeared on the financial news website Seeking Alpha earlier Thursday. Gap was expected to report the monthly sales for February after the closing bell Thursday, a change from its past tradition of announcing such information in the morning.

Costco Wholesale Corp. posted February same-store sales growth of 6% when 4.8% was expected.

Limited Brands Inc. reported a comparable store sales increase of 3%, when 2.6% was projected. Same-store sales at its Victoria's Secret division rose 5%, while Victoria's Secret direct was down 4%, driven by a reduction in clearance selling and a decline in the clothing category. Bath & Body Works was flat, hurt by negative customer traffic, and La Senza was up 5%.

TJX Cos. posted a 1% rise in February same-store sales, when 0.4% was expected. "Business trends picked up at the very end of the month, leading to our February comp store sales coming in higher than expected," said Chief Executive Carol Meyrowitz. "Winter storms in many U.S. and Canadian regions kept customers at home, but we were pleased to see our momentum continue in warmer weather markets."

Fellow off-price retailer Ross Stores Inc. said comparable-store sales declined 1%, when a 1.1% gain was expected. "We believe the slight decline in February same-store sales was mainly due to the delay in income tax refunds," said Chief Executive Michael Balmuth.

Stein Mart Inc. posted 0.6% same-store sales growth when a flat comparison was expected. "I am pleased with our February sales performance, given the unfavorable impact of weather on certain regions," said Jay Stein, interim chief executive.

Zumiez Inc. reported an 8.9% decline when a 1.9% drop was expected. The company said the decrease was driven by decline in comparable store transactions, partially offset by an increase in dollars per transaction.

Fellow teen retailer Buckle Inc. posted a 1.1% decline, when a 2.7% drop was estimated.

-- David Benoit contributed to this article.

Write to Karen Talley at karen.talley@dowjones.com

A version of this article appeared March 8, 2013, on page B3 in the U.S. edition of The Wall Street Journal, with the headline: U.S. Retailers Post Tepid Growth.

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Board Patience Wears Thin at Penney
By Dana Mattioli
Wall Street Journal
March 6, 2013

The clock is ticking for J.C. Penney Co. JCP -2.96% CEO Ron Johnson.

Members of Penney's board will consider selling the company or replacing the chief executive if a deep drop in sales can't be reversed this year, people familiar with the matter said.

The group includes activist hedge-fund manager William Ackman, who as Penney's largest shareholder was instrumental in establishing Mr. Johnson as CEO.

Penney CEO Ron Johnson has tried to wean shoppers off of discounts.

The development follows a dismal first year under Mr. Johnson's leadership and comes as fellow activist Steven Roth's Vornado Realty Trust, VNO -1.11% Penney's second largest shareholder, on Monday dumped more than 40% of its stake.

The board has 10 members aside from the CEO.

Mr. Johnson didn't respond to a request for comment. Penney declined to comment.

Penney shares sank 10.6% to $14.96 on Tuesday, a day when the Dow Jones Industrial Average set a record high. Messrs. Ackman and Roth disclosed their stakes in the fall of 2010 and built their positions at a cost of $25 to $30 a share, according to securities filings and a person familiar with the matter.

Mr. Johnson arrived to much acclaim when he joined the department store chain in November 2011 from Apple Inc. AAPL -0.52% But confidence in the CEO among investors, Wall Street analysts and some members of the board has been eroded by the disastrous financial results of his turnaround plan thus far.

Penney's sales fell by nearly 25% in its last fiscal year. Messrs. Ackman and Roth have seen their holdings in the company pummeled by the resulting steep share-price slide.

Mr. Johnson and the board initially said it would take five years to complete his turnaround, and Mr. Ackman has repeatedly said that he is patient. Vornado, too, has historically been a long-term investor when it picks stocks, said Alexander Goldfarb, senior REIT analyst at Sandler O'Neill + Partners L.P.

But the deeper-than-expected drop in sales, and the lack of a rebound, have shortened the time Mr. Johnson has to show his strategy works. Mr. Johnson rolled out an ambitious plan last year to remake Penney's stores by setting up dozens of boutiques for brands like Levi's andJoe Fresh. One of the hallmarks of his plan, though, was to end the stream of discounts Penney had used to draw customers.

Store traffic plunged when shoppers balked at the end to discounts, despite Penney's efforts to make clear that it was lowering the amount on the price tag. While Mr. Johnson has retreated somewhat by rolling out new, more regular price cuts, customers haven't returned. Last week, J.C. Penney posted a loss of $985 million for the year ended Feb. 2, as sales declined by $4.3 billion.

Penney's board is closely evaluating sales and merchandising results over the next six months, one of the people familiar with the board's thinking said. The Joe Fresh boutiques will open later this month. In May, Penney's makeover to its home department will be complete. The board is hoping these two new additions, combined with the reintroduction of regular discounts, could kick start results, the person said.

If sales continue to falter through the year, the board will consider other options, including replacing Mr. Johnson or even attempting to sell the 110-year-old department-store chain, the people familiar with the matter said.

Analysts have raised questions about whether Penney could start to run short on cash. Last week, Penney executives said the pace of store overhauls would depend on the speed of a sales recovery.

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After Sears reports loss, shares drop 5%
By Corilyn Shropshire
Chicago Tribune
March 1, 2013

Stocks also fall for J.C. Penney, Kohl's after weak fourth-quarter results

Times are tough for value-driven department stores.

J.C. Penney reported earlier this week that sales plummeted last year after a radical strategy to shun sales in favor of year-round discounts fell flat with shoppers.

Sears Holdings Corp. on Thursday reported fourth-quarter results showing that a hefty measure of belt-tightening helped it narrow losses, but did little to bolster sales. Kohl's Corp., another go-to store for price-conscious consumers, marked down prices, hoping for a boost in sales, but ended up with a lower profit for the quarter, the company reported Thursday.

By the end of the day, Wall Street had expressed its disappointment with all three: J.C. Penney took the biggest hit, with shares closing down nearly 17 percent, at $17.57; Sears closed at $45, down more than 5 percent; and Kohl's slipped 1 percent, to $46.10.

While all three of these retailers are struggling with execution, their core customers are facing financial pressures as well. Rising fuel prices as well as the reinstitution of a 2 percent Social Security tax has cut consumers' spending power, said Matt McGinley, a managing director at ISI Group in New York.

"While the unemployment rate is dropping, we aren't seeing wages increase," McGinley said. "If that customer has less income, or is unable to spend from savings, they just spend less."

And when they shop, they're flocking to retailers that give them what they are looking for, retail watchers say.

Figures show they are heading to the likes of Amazon.com, TJX Cos. Inc., which owns T.J. Maxx and HomeGoods, and at the slightly higher end, Macy's Inc., all of which boosted sales last year, according to Erika Maschmeyer, an analyst at Robert W. Baird & Co.

"J.C. Penney and Sears gave up about $6 billion in sales, which pales in comparison to the $14 billion gained by Amazon, $10 billion by Wal-Mart, $3 billion by Target and $2.6 billion by TJX," she said. "Even Gap and Old Navy brands are a competitor and they've done well."

Indeed, Sears Chairman and CEO Edward Lampert conceded Thursday in his annual letter to shareholders that there is still plenty of work to be done.

"After reporting poor results for 2011, culminating in a very poor fourth quarter, we declared that we would take significant actions in 2012 to restore confidence in and financial stability to the company, while, at the same time, remaining focused on transforming Sears Holdings and creating long-term value for our shareholders," Lampert wrote.

"It will not be easy at times, but we will take bold actions to get through it," he wrote.

The Hoffman Estates-based retailer said it narrowed its losses for the year to $930 million, or $8.78 per share. That compares with a loss of $3.14 billion, or $29.40 per share, for 2011.

It also trimmed losses in its fiscal fourth quarter. Sears said it lost $489 million, or $4.61 per share, for the three months that ended Feb. 3, compared with a loss of $2.4 billion, or $22.63 per share, for the same period a year earlier.

The company had been cutting costs last year by trimming inventory, closing underperforming stores and selling off assets, including its Hometown and Outlet stores and a large stake in its Sears Canada business.

Sears also said it would continue looking for ways to generate $500 million in liquidity in 2013, though it was not specific about how it would accomplish that.

But a tough fiscal diet solves only part of the problem. For years, analysts have been saying that the company must invest in its stores to achieve a substantial turnaround.

And while Lampert noted that the company rolled out tablets and mobile devices to assist sales associates, continued to ramp up its Shop Your Way Rewards customer loyalty program and expanded its product offerings online, revenues continued their yearslong slide.

Sears' full-year revenue dropped to $39.9 billion, compared to $41.5 billion in 2011. And revenue for the fourth quarter dipped to $12.3 billion, from $12.5 billion during the same period the previous year.

Sales in stores open at least a year--an important measure of retail health--also declined overall, a total of 1.6 percent, mainly due to a sales decrease of 3.7 percent at Kmart stores in all categories.

On the bright side, sales increased at Sears' domestic stores by 0.8 percent, mainly due to apparel, which has seen steady sales increases for six consecutive quarters, the company said.

But apparel retailing is a "zero-sum game," according to Richard Jaffe, a research analyst at Stifel Nicolaus. In the best of times, apparel grows modestly at 4 percent, he said, and otherwise, it remains flat. "For any retailer to do better, there must be a retailer doing worse," Jaffe said.

Some analysts doubted that Sears is making headway.

"So far I am not optimistic on the operations of Sears and of Kmart," said Mary Ross Gilbert, managing director at Imperial Capital. "They really have a cash burn."

"The fact is that they don't have strong leadership that can execute," Gilbert added. "If you look at the businesses and the execution of the businesses, it's poor, and that hasn't changed."

Reuters contributed.

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J.C.Penney's Losses Snowball
By Dana Mattioli
Wall Street Journal
February 28, 2013

The bill for J.C. Penney Co.'s JCP -16.16% first year under Chief Executive Ron Johnson is in, and it's about $4.3 billion.

That's how much sales at the department store chain dropped in the 12 months after the former Apple Inc. AAPL -0.15% executive cut back on discounts and rolled out a plan to fill stores with dozens of branded boutiques.

Declines worsened through the year, with sales down 28.4% from a year earlier in the fourth quarter, which spans the crucial holiday selling period. The company reported a fourth-quarter loss of $552 million, its worst of the year, and held $930 million in cash on Feb. 2, a decline of 38% from a year earlier.

For the full fiscal year, Penney had a loss of $985 million, compared to a $152 million loss the year before.

The results are a comedown for Mr. Johnson, who arrived with great fanfare from Apple in November 2011 with ambitions to remake a chain that had sold inexpensive clothes to middle-American shoppers for decades.

The CEO warned investors when he announced the turnaround strategy a little more than a year ago that the changes would involve some pain at first, but he said at the time that the back half of the first year would be stronger than the first and predicted the company would turn a profit during the first year of the transformation.

With those targets blown, his key tasks are stopping the slide in sales and making sure the company has enough cash to complete the job. On Wednesday, he backtracked significantly on his plan to limit discounts, telling investors the company will start holding regular sales.

"We'll offer sales each and every week as we move forward," the CEO said on a conference call to discuss the results.

If sales receipts don't begin to recover soon, shareholders and directors may lose patience and move to shift the company's strategic direction, people familiar with the board's thinking said..

Penney said in November it aimed to end the year with $1 billion of cash, a target it fell short of. The company's shares dropped by more than 9% in after-hours trading, after the results were released.

When Mr. Johnson stepped into the top job at Penney's, sales had been on a downward path since 2007. But right after his new strategy was implemented on Feb. 1, 2012, they plunged. Mr. Johnson eased back from his hardline prohibition of sales and coupons last summer, but customers have stayed away.

In August, Mr. Johnson sent an email to Penney's database of 15 million customers with a link to a survey about the CEO and the changes at the chain's stores, according to internal documents reviewed by The Wall Street Journal. A sample of 600 responses was selected at random. Of the feedback, 67% was negative, particularly on the topics of coupons, sales, prices, merchandise and advertising, according to the documents.

"Many [customers] describe a lifelong relationship with jcp and are struggling with our recent changes," one document said.

Penney didn't respond to requests for comment about the survey.

Mr. Johnson is hoping sales in fiscal 2013 improve as he rolls out more boutiques and new merchandise hits stores. In March, the company will launch its partnership with Joe Fresh, a brand that specializes in bright, youthful clothes at low prices.

Some vendors are also losing patience. One vendor said it had paid for architecture and plans for its boutiques, only to be told by Penney that the rollout would be delayed by a year. Vendors also say Penney is ordering low levels of goods instead of preparing for growth.

Mr. Johnson has rolled out a new ad campaign that stresses Penney's prices. The CEO said it is gaining traction with customers.

Showing sales growth should be easier for the company in the quarters ahead, when results will be compared with the past year's dismal results. Mr. Johnson hasn't been specific when pressed when he expects to see improvements.

"All we need this year is to return to growth, whether it's 1%, 5%, 10%," Mr. Johnson said in an interview late last month. "When we return to growth, we can generate cash. If we start with right amount of cash, we just continue with transformation."

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Sears tops estimates; Lampert promises turnaround
By Dhanya Skariachan
Reuters
February 28, 2013

Sears Holdings Corp (SHLD.O) reported stronger-than-expected quarterly results on lower costs, sending shares of the operator of its namesake department stores and the Kmart discount chain up more than 3 percent on Thursday.

The stakes were high this holiday season for the retailer controlled by hedge fund manager Edward Lampert, with many on Wall Street looking at the quarter as a key milestone in terms of measuring the progress of its turnaround.

The company's net loss narrowed to $489 million, or $4.61 a share, in the fourth quarter ended on February 2 from $2.4 billion, or $22.47 a share, a year earlier.

Excluding pension settlements, severance costs, impairment charges and other items, the company earned $1.12 a share. Analysts on average were looking for a profit of 98 cents, according to Thomson Reuters I/B/E/S.

The news came just weeks after Chairman and largest shareholder Lampert took over as chief executive officer after Louis D'Ambrosio left because of a family member's health issue.

Some on Wall Street saw D'Ambrosio's departure adding to Sears' "turnaround execution risk" and worried about Lampert's lack of merchandising experience at a time when the retailer was trying to turn around its core Sears and Kmart chains.

Lampert, who has faced criticism in the past for not investing enough in stores, said on Thursday: "Observers have mistakenly concluded that our issues were primarily related to underinvesting in our stores."

Instead, he tied the company's problems to the changing habits of shoppers, who are increasingly buying their goods online or using their mobile phones to make purchases.

Still, he promised to invest in in-store technology, online business and Sears' loyalty program, in sync with a blueprint he laid out last May to boost results.

"We know we still have a lot of work to do," he told investors in a letter made public in a regulatory filing. "It will not be easy at times, but we will take bold actions to get through it."

TIGHT LID ON COSTS

The company's sales have fallen every year since Lampert merged two of America's iconic retail chains - Kmart and Sears Roebuck and Co - in 2005 in an $11 billion deal.

Sears has closed stores, tightly managed inventory, sold some real estate and shed assets to become more profitable in recent quarters.

Fourth-quarter sales fell about 1.8 percent to $12.26 billion, but beat the analysts' average estimate of $11.77 billion. Total costs and expenses fell 2.2 percent to $12.88 billion.

Sears spun off its Orchard Supply Hardware Stores unit in December 2011. Last year, it announced plans to sell some prime real estate and spin off its Sears Hometown and Outlet businesses and certain hardware stores.

In November, the company trimmed its stake in its Canadian unit from about 95 percent to 51 percent, distributing the stock to Sears Holdings shareholders.

Earlier this week, Sears Canada Inc (SCC.TO) reported a revenue decline for the 16th straight quarter. Analysts expect Target's push in Canada to hurt that business.

Shares of Sears Holdings were up 3.4 percent at $49.10 in trading before the market opened.

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Sears Holdings 4th-quarter loss narrows as company reduces inventory and expenses
By Associated Press
Washington Post
February 28, 2013

HOFFMAN ESTATES, Ill. -- Sears posted a smaller loss in the fourth quarter as it reduced its inventory and expenses while sales at its namesake stores rose slightly.

The retailer's stock climbed more than 3 percent in premarket trading on Thursday.

The company that also owns the Kmart store chain lost $489 million, or $4.61 per share, for the period ended Feb. 2. That compares with a loss of $2.4 billion, or $22.63 per share, a year earlier.

Excluding certain items, earnings from continuing operations were $1.12 per share.

Revenue fell 2 percent to $12.26 billion from $12.48 billion. Sears said this was mostly due to the separation of its Sears Hometown and Outlet businesses; the impact of having fewer Kmart and Sears stores in operation and lower revenue from stores open at least a year. This was somewhat offset by having an extra week in the period.

Revenue at U.S. stores open at least a year dropped 1.6 percent in the quarter.

This metric is a key gauge of a retailer's health because it excludes results from stores recently opened or closed.

Revenue at domestic Sears stores open at least a year edged up 0.8 percent, helped by strength in the clothing, home appliance and home categories. The figure dropped 3.7 percent for Kmart locations and fell 3.8 percent for Sears Canada.

A good part of the drag on results was softness in consumer electronics. Removing this category, total revenue at U.S. stores open at least a year dipped 0.2 percent while Sears rose 2.4 percent and Kmart declined 2.5 percent.

Like many retailers, Sears Holdings Corp. saw growth in its online business, with sales climbing 25 percent.

Edward Lampert, chairman and CEO of the Hoffman Estates, Ill., company, said in a statement that Sears has invested significantly in its online operations as well as its rewards program and the technology needed to support the two initiatives.

Total costs and expenses declined to $12.88 billion from $13.18 billion.

Merchandise inventories at quarter's end were $7.6 billion compared with $8.4 billion a year earlier. Domestic inventory dropped $895 million to $6.8 billion.

Chief Financial Officer Rob Schriesheim said that Sears anticipates lowering its 2013 peak domestic inventory by $500 million from the $8.6 billion level at the end of the third quarter of 2012.

Total debt at quarter's end was $3.1 billion. This is down from $3.5 billion in the prior-year period.

Shares of Sears gained $1.53, or 3.2 percent, to $49 two hours before the market open.

For the full year, Sears lost $930 million, or $8.78 per share. In the prior year it lost $3.14 billion, or $29.40 per share.

The company's adjusted loss from continuing operations was $2.03 per share.

Annual revenue fell 4 percent to $39.85 billion from $41.57 billion.

Sears has more than 2,500 stores in the U.S. and Canada.

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J.C. Penney sales plunge, much worse than expected
By Phil Wahba
Reuters
February 27, 2013

* Sales fall 31.7 pct vs analysts estimate 27.8 pct

* Analyst says CEO needs to right ship this year

* Cash holdings just under $1 billion

J.C. Penney Co Inc reported that sales at stores open at least a year fell 31.7 percent in the fourth quarter, even steeper than the sharp drop analysts expected for the struggling department store chain.

The poor results for the quarter, which included the holiday season, capped a rough first year for Penney's turnaround. The company's shares fell 8 percent in after hours trading.

Chief Executive Ron Johnson, who was brought in to revive the chain after running Apple Inc's retail business, tried to put a positive forward spin on events.

"Sales and customer traffic were below our expectations in 2012, but as we execute our ambitious transformation plan, we are pleased with the great strides we made to improve jcpenney's cost structure, technology platforms and the overall customer experience," he said in a statement.

Analysts had already been expecting same-store sales to decline 27.8 percent, but the even weaker figure put huge pressure on Johnson.

"He's going to have recover this year or he's done," said Ron Friedman, retail practice leader at the consulting firm Marcum LLP. "He's running out of time. He has to have it turned around by the third quarter."

Penney reported a net loss of $552 million, or $2.51 per share in the 14 weeks ended Feb. 2, compared with a loss of $87 million, or $0.41 per share for a 13-week period a year earlier.

Excluding restructuring charges and non cash pension plan expenses, the company posted an adjusted loss of $1.95 per share, as net sales fell 27 percent to $3.88 billion. The loss was nearly three times worse than even the most pessimistic Wall Street estimate tracked by Thomson Reuters I/B/E/S, while sales were also below forecasts.

Gross margin was 23.8 percent of sales, down 6.4 percentage points from a year earlier. The company blamed lower-than-expected sales and a higher level of sales on clearance.

Retailers ranging from Kohl's Corp to Target Corp said the holiday was heavily discount-driven, putting additional pressure on Penney's no sales, no coupon philosophy.

The department store chain had $930 million in cash and cash equivalents at the end of the quarter.

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Shakeout in old media picks up pace
By Roger Yu
USA Today
February 25, 2013

Investors are heartened by the improving--albeit slowly--conditions of the news businesses, particularly newspapers.

On Feb. 6, Time Warner CEO Jeffrey Bewkes spoke at length about his company's performance in a routine earnings call. He went on about CNN's election coverage, the enduring popularity of HBO � and even the impact that the absence of any new Harry Potter movies has had on Warner Bros. movie studio.

That its print business is on Bewkes' back-back burner was hardly a surprise. But the 2,400-word speech didn't refer to any of its magazines, once the crown jewels of its publishing empire.

Its print division Time Inc.--which includes Time, People, Sports Illustrated, Fortune, InStyle and other magazines--received a single, cursory nod, a 50-word blip about how the division is making more tablet apps.

So the stock market merely shrugged when word leaked a week later that most of Time Inc.'s magazines likely will be sold to Meredith, a smaller publisher in Des Moines. Time Warner's stock is trading about 4% higher than it was a month ago.

With the financial market ripe for deals, Time Warner is one of several large media companies looking to sell or restructure their print divisions. Investors have been selling their stakes in media companies for some time as print revenue declined over the past decade. But the quickening pace of deals in recent months indicates that a new orer is emerging in the media world � one in which shareholders demand greater focus from companies with hands in too many unrelated jars.

Companies are moving to quarantine their more profitable units from the fallout of print advertising's decline. And vulnerable print businesses increasingly are left to survive on their own merits, with a hope that their executives, no longer distracted by other divisions, will provide more resources and navigate the digital transformation with stepped-up vigor.

Last year, total U.S. digital advertising spending reached $37.3 billion, exceeding spending on print ads for the first time, according to research firm eMarketer. That only adds to media companies' urgency to chart out their digital future with a clearer strategy, says Ken Doctor, a media analyst who writes about the industry on his site, Newsonomics.com.

"The 2000s was a period when (print media companies) sobered up to the fact that digital disruption is changing business models," Doctor says. "This time, it's the great (digital) crossover. ... Some want to go on the journey. Some are saying 'I don't want to cross that river.'"

Several deals have surfaced in recent months that could reshape four of the 10 largest newspapers, some of the most popular and profitable magazine titles and a giant in the education publishing market:

� News Corp. revealed in December the details of its planned spinoff of its print division � which includes The Wall Street Journal, the New York Post and several British papers � into a separate company that will retain the current corporate name. The spinoff is underway and will be completed later this year.

Rupert Murdoch, CEO of News Corp., will be chairman of the new company. Robert Thomson, former managing editor of the Journal, will be CEO. Perhaps in a move that underscores the priority of even this newspaperman-at-heart, Murdoch will remain both the chairman and CEO of the more profitable TV and film business left standing, which will be renamed Fox Group.

� Time Warner is in talks to sell most of its magazine titles, including People, InStyle and Real Simple � to Meredith, which wants to expand its portfolio that targets mostly women.

For now, Time Warner plans to keep at least Time, Sports Illustrated and Fortune. But even they will likely be sold in the future, says Reed Phillips, co-founder of DeSilva + Phillips, an investment bank specializing in the media industry. "If Time Warner is selling such a large portion of its (magazine business), there's even less of a reason to be in the business going forward," he says.

With a decline in advertising sales and subscriptions, revenue for Time Warner's publishing business, Time Inc., fell 7% to $3.4 billion last year.

� Tribune Co., whose properties include the Los Angeles Times and the Chicago Tribune, emerged from a painful four-year bankruptcy reorganization last December and is looking to sell some or all of its eight newspapers, according to Bloomberg News.

Analysts expect the company to then focus on the 23 TV stations that it owns around the country.

� New York Times Co. is shedding its exposure to the print business further by selling The Boston Globe and doubling down on its flagship paper, which has greater international appeal. In announcing the sale of the 23rd largest metro daily last week, CEO Mark Thompson said the move was orchestrated "to concentrate our strategic focus and investment on The New York Times brand and its journalism."

In 2011, the company also sold its regional newspaper unit--which consisted of 16 newspapers, including The Gainesville Sun and the Sarasota Herald-Tribune in Florida--to Halifax Media Holdings for $143 million.

� McGraw-Hill agreed in December to sell its education business, the second-largest college book publisher, whose sales had declined the past two years, to private equity firm Apollo Global Management for $2.5 billion.

Even though the education unit generated more than $2 billion in revenue last year, McGraw-Hill came under pressure from shareholders to unlock its stock price potential by focusing just on its business-information units, which include ratings firm Standard & Poor's.

Favorable market conditions

Until about 18 months ago, there was little appetite in the media industry for deals and acquisitions as bearish investors, skittish about the sluggish economy, stayed on the sidelines.

But with looser financial markets, attitudes are shifting. According to data from Thomson Reuters, about $21 billion in "media and entertainment" deals have cropped up since the beginning of the year.

Low interest rates have made the debt market livelier. Surging cash piles from companies that have been idle in the past few years also encourage more deal-making. Companies in the Standard & Poor's 500 are on pace to have $1.06 trillion in cash, setting a record. "Companies are flush with cash and looking to put money to work," says Richard Peterson of S&P Capital IQ. "You have buyers looking to acquire targets."

Investors are also heartened by the improving--albeit slowly--conditions of the news businesses, particularly newspapers. U.S. newspapers have lost about a fifth of their revenue since 2009, and their valuations have reflected the decline, Doctor says.

But the rate of decline in advertising revenue now can largely be matched by cost cutting. This additional bit of certainty � along with rock-bottom prices of newspapers � is convincing investors to reconsider buying papers. "Newspapers still remain profitable if they keep on cutting cost," Doctor says. "If you want to put a media property on the market, it's a better time to do it now than three or four years ago."

Also driving the optimism is more evidence of readers' willingness to pay for content. The Journal, the Times, The Financial Times and local newspapers published by Gannett all feature a paywall. (Gannett is the parent company of USA TODAY.)

Vocal shareholders are also pressuring media companies to raise stock prices by unleashing money-losing divisions. They want protection from the risk that the transition to digital platforms will result in a decline in profits.

McGraw-Hill's sale of its education division was partly driven by several shareholders � including activist hedge fund Jana Partners and the Ontario Teachers' Pension Plan � calling for a major restructuring.

"Shareholders want to see more focused companies," Phillips says.

But there can be an upside for print units, too. They may have been disadvantaged by being a part of a combined company because resources in a conglomerate are often steered to ventures with better growth potential, Phillips says. Once spun off, "They can now focus on what they do best," he says. "I don't think the concept is 'Let's put the good business over here and bad business there.' They're different businesses, and the market is valuing diversified businesses differently than 10 years ago."

Even prior to its announcement, shareholders of News Corp. talked about splitting the publishing business, only to have Murdoch initially resist such moves. Its publishing business contributes about a quarter of its revenue but only about 10% of its profit, Doctor says.

Pressure to split the company escalated in the wake of a phone-hacking scandal involving one of News Corp.'s U.K. newspapers, which eventually closed. But that gave investors yet another reason to renew their call for a split.

Rick Edmonds, a media analyst at Poynter Institute, notes that News Corp.'s plans have precedence. Two smaller companies � E.W. Scripps and Belo � also spun off their newspaper businesses in 2007 and 2008 respectively. And the newly created publishing companies emerged without burdensome debt on their books, he says.

Brighter prospects for smaller papers

In assessing print publications' future, the conventional wisdom is that newspapers in smaller markets � with less competition for audience and advertisers � have brighter prospects to sustain growth. Warren Buffet's purchase of more than 60 small papers � including the Omaha World-Herald and The Richmond Times-Dispatch � has only reaffirmed that view.

Analysts are less sanguine about the future of large dailies, even as more are put up for sale.

Civic or political-minded individuals with deep pockets are seen as their most likely saviors. Facebook co-founder Chris Hughes' purchase of The New Republic is a prime example. According to the Times, New York Mayor Michael Bloomberg is interested in buying the Financial Times, which is owned by Pearson.

Austin Beutner, an investment banker who ran in Los Angeles' mayoral race last year, is rumored to be interested in buying the Los Angeles Times, joining Rupert Murdoch on a list of potential bidders.

But then you have financial buyers, as well. Aaron Kushner is a prime example. He bought Freedom Communications, publisher of the Orange County Register, in June 2012 for an undisclosed sum and has industry watchers' attention by actually adding news pages and hiring journalists.

"We're starting to see as we give the community more, they are engaging more with us and spending more money with us," he told USA TODAY earlier this year. Both circulation and ad revenue are up, he says.

Kushner likely enjoyed the low valuation the newspapers are fetching nowadays. Ten years ago, at their peak, the price of buying a newspaper was worth about 10 to 12 times its annual cash flow, Doctor says. Now, it's about three to five times, he says.

In selling the Globe, the New York Times Co. likely will get a fraction of the $1.1 billion it paid in 1993. The Globe � and other related assets also on the block � is worth about $150 million to $180 million, estimates Kannan Venkateshwar, an analyst with Barclays Research.

The prospect for national magazines may be even bleaker. Fewer than 5% of national magazines' overall advertising revenue comes from digital ads, vs. 20% for some high-performing newspapers, Doctor says.

Time Warner hired Laura Lang as CEO of Time Inc. in late 2011 with the mission of reassessing its print future, and the result seems clear: The company is paving a future without most of its magazine titles.

The impact on customers is still unclear. But one things seems to be sure: Readers will have to pay more for quality content.

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For Penney's Heralded Boss, the Shine Is Off the Apple
By Dana Mattioli
Wall Street Journal
February 25, 2013

As he toured a J.C. PenneyJCP -3.92% store before undertaking one of retailing's most ambitious overhauls, Chief Executive Officer Ron Johnson bristled when a colleague suggested that he test his new no-discounts strategy at a few stores before rolling it out at all 1,100.

"We didn't test at Apple, AAPL -1.29% " the executive recalled Mr. Johnson, hired away from the gadget maker, saying.

Seven months later, sales at the new Penney had dropped by double-digits. By the end of 2012, analysts were warning the company could run short on cash. Penney's stock, which got a boost when the former Apple retailing chief took the job, finished last year down more than 40%.

Things weren't supposed to go this way. Mr. Johnson was viewed as something of a savior when he was hired in 2011�an Apple innovator who could help revive the chain's tired stores and merchandise.

But many people close to the company said Mr. Johnson ignored conventional industry wisdom and moved too abruptly to impose practices inspired by his time at Apple�a very different type of retail animal. Declaring the department-store system broken, he eliminated coupons entirely and did away with most of Penney's sales�popular customer incentives that often drove seasonal traffic.

The new CEO also set out to physically refashion stores by installing dozens of branded boutiques. Clearance racks were banished.

Investors will get a look at how things are going on Wednesday when Penney reports its results for the all important holiday quarter. For the first three quarters, nine months after putting those and other changes into motion, sales fell by 23%, depriving the company of $2.7 billion in revenue. People familiar with the results said the drop in sales has deepened to around 30%.

Today, Mr. Johnson is in the process of reversing some of the key decisions he made just over a year ago. Penney, for instance, has reissued some coupons, reinstated some sales and wheeled back in the clearance racks. Several internal practices have been reinstated, too.

The executive, though, blanches at the suggestion that his philosophy has changed. "I feel we're executing very closely to the strategy," he said in a recent interview. "It's more like the old J.C. Penney, but it's not."

Mr. Johnson is still betting that overall sales can turn around as he rolls out fresher merchandise and carves up the traditional department-store template into a pavilion of more intimate shops and boutiques.

A few signs are encouraging. Sales per square foot in areas converted to the new store format are so far outperforming the old Penney, he said, and Mr. Johnson has managed to lure popular brands like Joe Fresh and Jonathan Adler. (One deal has taken a detour, though: The company signed lifestyle doyenne Martha Stewart, rankling competitor Macy's, where Ms. Stewart is a top-selling label. Macy's sued, and a trial began last week in New York State Supreme Court.)

If Mr. Johnson can't stem the sales slide soon, shareholders and directors may lose patience and move to shift strategic direction, people familiar with the board's thinking said. Mr. Johnson acknowledges that the situation is do or die.

"This is the year we will find out if the vision we articulated is right or wrong," he said. The 54-year-old CEO's goal is to show sales growth sometime this year, even if not immediately. "I'm not caught up in Q1, Q2 or Q3."

Mr. Johnson had previously won praise for his bold retail strokes. He helped develop Apple's sleek, hands-on retail stores. Prior to that, he served as Target Corp.'s TGT -0.52% vice president of merchandising, where he is credited for spearheading the designer collaborations that have become Target's forte.

Such a pedigree led directors at Penney to grant him $52.7 million in restricted-stock awards on the day he arrived to make up for what he left behind at Apple. They also allowed him to continue living in the San Francisco Bay area where he still attends church on Sundays. He works Monday through Wednesday at the company's Plano, Texas, headquarters and spends the rest of the week at a satellite office or traveling to visit vendors and stores.

The new CEO assembled a team of executives with backgrounds at Apple, Target and Abercrombie & FitchANF -3.14% . They toured warehouses and found stacks of dust-covered boxes filled with unsold merchandise. They walked stores that had grown cluttered and stale compared with competitors like Macy's and Kohl'sKSS -0.91% .

They also decided that the headquarters had grown overstaffed and underproductive. During January 2012, the 4,800 employees in Plano had watched five million YouTube videos during work hours, said Michael Kramer, a former Apple executive brought in by Mr. Johnson as chief operating officer. Thirty-five percent of the bandwidth at headquarters was routinely used for such loafing off.

"I hated the J.C. Penney culture," Mr. Kramer said. "It was pathetic."

Penney brought in Bain & Co. to assist with rounds of layoffs; there are now 1,600 fewer workers at headquarters.

Meanwhile, the top line was suffering. Sales fell to nearly $17 billion in the 2011 fiscal year from $20 billion four years earlier.

Mr. Johnson and his team diagnosed Penney as having "analysis paralysis." The CEO slashed the number of meetings to review data, store results and other metrics that managers had used to stay on the same wavelength, said people familiar with the matter. He also wanted Penney to stop peppering customers with email several times a week�a standard practice even among luxury retailers. Apple, he said, sent only a few such missives per year.

Mr. Johnson spent more than six months thinking about his vision for overhauling the chain. In January 2012, the company spent $15 million to roll it out for investors, analysts and the media at two-day conference in New York.

Pacing in front of a giant screen showing a blue sky, Mr. Johnson said Penney would fill its stores with name-brand clothes highlighted in as many as 100 separate boutiques. The center of the stores would be converted into hangout areas where Penney would have activities or freebies like kids' haircuts or ice cream. New ads tried to convey a hipper identity.

Perhaps most daring of all, Mr. Johnson eliminated hundreds of annual discounts. Before he arrived, nearly three-quarters of all Penney items were sold at reductions of 50% or more, and he was resolved to restore some integrity to pricing.

The new prices took effect on Feb. 1, 2012, and sales immediately dropped. Mr. Johnson and his team had anticipated a sales decline of 10% to 12% in the first quarter, Mr. Kramer said. Instead, they fell by 20%, leading the company to a $163 million loss. The second quarter would prove an even bigger disappointment, with sales tanking by nearly 23%.

Some retail veterans, including former Penney CEO Allen Questrom, watched with disapproval. "The customer has said she's very much into value, and coupons and sales are very much part of her vocabulary," he said. "It's hard to tell people another way to do something when they like to do it a certain way."

Retailers, having long ago learned it can be difficult to predict how shoppers might react to changes in format, regularly try out new ideas in a few locations before committing them to all their stores. Penney had been particularly rigorous, using a system it called Jtest.

Mr. Johnson, however, had seen a different approach pay off at Apple, where Steve Jobs famously once said, "A lot of times, people don't know what they want until you show it to them."

The CEO decided to go with his gut�in one case shifting more men's dress shirts to all cotton from cotton/polyester blends. Sales fell, said people familiar with the results. Mr. Johnson is still plunging ahead with a goal to make 20% of the chain's dress shirts all cotton this year.

"We're trying to attract over time a slightly different customer, and so our assortments are going to change," he said.

With sales figures looking bleak, directors tried to encourage Mr. Johnson to test parts of his strategy that had yet to be rolled out. At one meeting during the summer, board member Burl Osborne, the former executive editor and publisher of The Dallas Morning News who died in August, suggested testing Mr. Johnson's idea of turning the center of stores into "Town Squares," said a person who attended the meeting.

"I think not testing was a mistake," said Penney board member Colleen Barrett.

Instead, Mr. Johnson used a more Apple-like approach to vet ideas. Secretive innovation teams were set up shortly after he arrived to explore ideas from customer service to store layout. The groups, which came to be known as iTeams, were told to scour various retail innovations around the globe�and to keep their efforts to themselves. While iTeam members were to request information from other departments, they weren't supposed to tell them why.

All told, the results were daunting. Between 2011 and 2012, Penney's market share declined from 12% to 9.1%, according to market research firm Euromonitor International. Over the same period, Macy's, Kohl's, Dillard's and Belk all gained share. "We're definitely benefiting from Penney," said Belk CEO Thomas Belk Jr.

Standard & Poor's downgraded Penney's credit rating in March, May and again in July, leaving it at B-plus�four steps below investment grade. The drop in sales, S&P said, left Penney with less money to cover its debts.

"I was disappointed," Mr. Johnson said. "My dream was that we'd go through a six-month transition, people would realize we have great everyday prices and that they like shopping on their terms, and the business would get better."

Restoring the luster of James Cash Penney's stores proved much more difficult. Mr. Penney had founded the chain in 1902 at the age of 26. Over the next 15 years he built a 22-state empire by selling low-price clothes to middle-America shoppers looking for bargains. But by the end of the century, the chain was showing its age.

Penney came close to filing for bankruptcy protection and in 2000 turned to Mr. Questrom�whose resume spanned Macy's to Barneys New York�to fix up its balance sheet. In 2004, the company hired Myron E. Ullman III, a former CEO of R.H. Macy & Co. He set up in-store boutiques with cosmetics company Sephora and fast-fashion retailer Mango and led the company to its most profitable year ever in 2006. But then the recession blunted results.

The most recent shake-up had came in 2010, when hedge-fund manager William Ackman and Vornado Realty Trust Chairman Steve Roth quietly amassed a 27% holding in Penney. "The New Yorkers," as the board referred to them, joined the Penney board and started to agitate for change. Several months later, the company announced that Mr. Johnson would replace Mr. Ullman.

Senior Penney employees had long voiced the need to bring back clearance goods. But month after month, Mr. Johnson would shoot the idea down in meetings. The discount vocabulary itself became taboo. Even when Penney did conduct sales, it avoided the term, using "best prices" instead.

The company's directors grew concerned about the drop in sales and started to meet more frequently in person and by phone, a person familiar with the matter said. Mr. Johnson began sending the board weekly updates by email.

Facing pressure from the board on down, Mr. Johnson relented last summer. Clearance racks became visible every day, often drawing crowds. When it became clear that managers needed to be more connected, the CEO reinstated many of the meetings he had eliminated, said people familiar with the matter.

Mr. Johnson moved to make Penney's price cuts even clearer. In October, the chain began to show manufacturers' suggested prices on tags to give customers a reference point. The following month, it introduced "price slash," which lowers the price of items that aren't selling.

Mr. Johnson is particular about the terminology.

"That's not a sale," he said recently, while holding up an Arizona V-neck T-shirt. "It's an in-season markdown or a new lower price."

In February, the company said it would hold even more sales. The push kicked off with Valentine's Day, when Penney advertised 20% off fine jewelry. Additional sales will be timed to events and holidays, although Mr. Johnson won't say how frequently they will occur.

"Ron's got tremendous vision, yet the willingness to change course when he realizes he's made a mistake," Mr. Ackman said.

While Mr. Ackman has come off as patient, his partner in the investment, Mr. Roth, has expressed more disappointment, people close to the investor said. Mr. Roth declined to comment through a spokeswoman.

The Vornado chairman has piped up at board meetings and mentioned losses on his investment, people familiar with the matter said. One of his major concerns has been getting traffic back into stores and not letting sales slide too long without making strategic changes, a person familiar with the matter said.

Mr. Johnson knows investors won't be patient forever. "I think Bill's concerned with his investment. I think Steve's concerned," he said. "I'm concerned with everyone's investment."

Throughout his learning curve, though, Mr. Johnson hasn't budged on one key aspect of his strategy: store testing. Asked if he would do things differently a second time, the CEO's answer was decisive.

"No, of course not."

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JCPenney cutting 300 workers at headquarters
By James Covert
New York Post
February 22, 2013

The pink slip massacre at JCPenney has come a week late--but it may be even bloodier than feared.

CEO Ron Johnson this week is cutting loose at least 300 workers at the retailer's headquarters--a display of carnage that some employees had been dreading for weeks, calling it a "St. Valentine's Day Massacre," sources told The Post.

The cuts amount to at least 10 percent of the 3,000 workers at Penney's HQ in Plano, Tex. The Post reported exclusively on Feb. 6 of the cuts.

"We had a person crying as if she had just received word that someone had died," a source close to the retailer said yesterday. "They get straight to the point in letting you know you no longer work at JCP."

A Penney spokesman didn't respond to a request for comment.

About 75 workers in Penney's legal, human-resources and information-technology departments had been given walking papers on Wednesday, according to insiders.

A team of about 20 fashion-trend watchers lost their jobs yesterday--as well as designers in men's and kids' clothing, sources said.

The ax was expected to swing again today--and some feared the cuts could drag on for a few weeks, sources added.

"A large group was sent an e-mail and went into a room this morning," a source said yesterday, relating the grisly scene. "They said almost everyone [being hired] is very young, and it is clear they only want young people."

The cuts will leave HQ with less than half the workers it had when Johnson took the reins in late 2011.

Johnson is cutting jobs despite vague responses in recent weeks when asked whether layoffs were looming. That, in turn, is feeding growing cynicism among the rank and file, insiders said.

"The remaining employees can't help but wonder if the timing has anything to do with the Martha Stewart trial," one Plano worker told The Post, referring to the courtroom battle that began this week over Stewart's licensing tie-up with Penney, which Macy's charges violates its licensing deal with Stewart.

"Maybe upper management is hoping that the press will be looking in that direction and won't notice what is happening back in Plano," the employee said.

In New York, testimony began in the much-watched trial. Macy's CEO Terry Lundgren is expected to take the stand Monday.

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Grant will verify Glenview's historic kit homes
By Todd Shields
Wall Street Journal
February 15, 2013

GLENVIEW -- The Glenview Historic Preservation Commission is the recipient of a federal grant to survey up to 30 "kit homes" bearing historic significance.

The homes were purchased through catalogue mail order companies such as Sears and Montgomery Ward and built from 1908 to 1963.

Arriving in Glenview on railroad boxcars, the homes were in pieces and numbered for assembly by the homeowner or work crews.

Each kit included an instruction book for putting together the 10,000-30,000 pieces, with framing to help construction.

Pieces for the Sears Crescent model home, for instance, were a kitchen cupboard, flooring, shingles, siding, finishing lumber, building paper, eaves trough, down spout, roofing, sash weights, hardware, porch screens, painting material, lumber and lath, according to the Sears Archives Website.

"From 1908�1940, Sears, Roebuck and Co. sold about 70,000-75,000 homes through their mail-order Modern Homes program," stated the site, adding the company designed 447 housing styles.

Glenview was one of 14 Illinois villages to receive a grant from the U.S. Department of Interior for the preservation program.

Glenview was given $3,018 from the $138,000 total federal fund.

David Silver is chairman of the Glenview Historic Preservation Commission.

"We suspect most of the kit homes in Glenview are on Glenview Road, west of the rail tracks. We'll find out the exact number when we complete the survey around May or June," he said.

"These companies got into the business of building homes. They were already in the catalogue business and it just took off."

Dianne and Daniel Lebryk have lived at 1736 MacLean Court for 16 years, and participated in a Glenview historic home survey several years ago.

"They knew it was a Sears home, especially when you compare the floor plans and configuration to a reproduction of the catalogue," said Daniel, a manager at Kraft Foods in Glenview.

"The catalogue drawing of what you can purchase is visually exacting, right down to the frost moldings."

Daniel said carpenters were not usually asked to build the kit homes.

"All the wood pieces were numbered and carpenters were more likely to just grab a piece and start sawing, which messed up the whole puzzle," said Daniel, laughing.

The Lebryk's home is the Conway model built in 1928, and the second-floor dormer was originally an attic.

"Our kit home was bought for $1,614, which was 67 years ago. We bought it for $247,000," said Dianne, a teacher at Lane Technical High School, Chicago.

"It also had five rooms, but an addition was put on sometime. Our home is still very sturdy and it's kind of Prairie style," said Daniel referring to architect Frank Lloyd Wright's well-known home design.

"The lathe and plaster walls were typical of the 1920s, as well as everything being over-engineered. The big, solid joists, for example, are still in the basement," he said.

"Everything is here really rugged."

Dan believed the house next door at 1740 MacLean Court, where the Olive family lived up to a few years ago, also was a kit home.

Verification of the historic kit homes would give them placement on the village's list of landmark-eligible properties, a first step toward historic landmark designation.

Other Illinois municipalities and one county receiving the grants were Belvidere, Columbia, Downers Grove, Edwardsville, Glen Ellyn, Jacksonville, Marshall, Maywood, Morrison, Ottawa, Springfield, Woodstock and Will County.

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Billionaire Sears CEO increases stake in Gap
By Corilyn Shropshire
Wall Street Journal
February 15, 2013

Sears Chairman and CEO Edward Lampert boosted his stake in Gap Inc. according to regulatory filings.

Lampert is the billionaire hedge fund manager who engineered the merger of Sears and Kmart in 2005. Since then, Sears has struggled to maintain its place with years of declining sales and executive changeover. The company has focused on building loyalty rewards program and online business which officials said grew by 20 percent last year.

Lampert�s ESL Partners LP, took a 5.3 percent stake in San Francisco-based The Gap, on Dec. 31, according to documents filed Thursday with the Securities and Exchange Commission.

Shares of The Gap, which also operates brands Banana Republic, Old Navy, Piperlime and Athleta closed up nearly 5 percent at $32.87 on Friday, in part due to news about Lampert�s boosted interested in the retailer and on speculation that Uniqlo-owner and Japan-based Fast Retailing, Ltd. is also interested in the retailer.

The Gap has been on an upswing beating analysts estimates with holiday and January sales. The retailer said sales in stores open at least were up 8 percent to $1.13 billion in January.

Lampert, who has several retail holdings including Columbus, Ohio-based Big Lots Inc., also decreased his interest Fort Lauderdale-based AutoNation, Inc. by about $13.5 million to $34.5 million and purchased 844, 926 shares of Pleasanton, Calif-based Safeway Inc.

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Sears shifts gears to cater to city dwellers
By Corilyn Shropshire
Chicago Tribune
February 14, 2013

Can a Craftsman hammer and a cupcake coexist at Sears?

Sears Holdings Corp. will begin testing a new concept for its 4-year-old Web portal called Mygofer, adding Sears-branded products to the mix as well as a hodgepodge of offerings from more than a dozen local merchants. And it's giving consumers a new choice in pickup, promising to have their selections packaged and available that very day from its flagship State Street store in downtown Chicago.

With the new program, Mygofer Express, Sears is expanding its sights beyond its prized, typically suburban "chief household officer" customer to busy, urban professionals who want to avoid the hassle of shopping and grab a bag of pre-ordered items � everything from groceries and kitchen appliances to over-the-counter drugs � on their way to the train or to their downtown lofts.

"If I'm at work and I need to pick up a few things, I may not have the opportunity to shop at a store, I just have enough time to stop at a store," says Kevin Lyons, Sears Holdings divisional vice president of integrated retail experience. "I might want to pick up some cupcakes � a blender from Sears and a case of popcorn from Kmart. I can get those all in one place at the express location."

The test aims to solve what's become a vexing problem for traditional bricks-and-mortar retailers: How to capitalize on the double-digit yearly growth of online sales and compete with Internet behemoths such as Amazon.

Sears Holdings launched Mygofer in 2009 as a way to combine bricks-and-mortar retailing with Amazon-style online shopping. Mygofer.com allowed shoppers to search tens of thousands of goods online, place orders from a computer or iPhone and pick them up at a Kmart store in as little as two hours � without getting out of their cars.

Sears also converted a shuttered Kmart store in Joliet into a warehouse and showroom with a drive-thru and renamed it Mygofer. The store, which opened in May 2009, was the only one of its kind. But the Mygofer location closed last week, displacing 17 employees.

Officials at Sears declined to say why the retailer shuttered the Joliet warehouse and showroom, which had kiosks for customers to browse items and purchase and was stacked with merchandise in the back. "We looked at it as a laboratory," said Chris Brathwaite, a Sears spokesman. "We learned a lot of lessons, including things we are applying to Mygofer Express."

The new pilot, set to launch next week, gives Mygofer Express shoppers access to all of the Sears Holdings brands, including Craftsman, Kenmore and Lands' End, as well as merchandise from local vendors, including Chicago Cupcake, Mon Ami Jewelry and The Clay Pot Flower Shop in the Loop.

The concierge-like service pits Sears against its arch-nemesis across the street, Target, which is a regular go-to spot for busy downtown professionals who stop by before heading home.

Like many traditional bricks-and-mortar retailers, Sears has spent years trying to get its arms around the best way to sell online.

The retailer's online business is growing 20 percent year-over-year and is largely driven by giving customers the option to buy online and pick up in the store, company officials said.

Homing in on a new shopping demographic is a smart move on Sears' part, because convenience is what consumers are demanding, said Carol Spieckerman, president of newmarketbuilders, a retail consulting firm.

These days, large retailers such as Sears with lots of square-footage are figuring out that they can use their physical scale to their advantage, said Spieckerman. Gap Inc., for example, purchased Web retailers Piperlime and Athleta and opened physical locations for the brands.

Other Web retailers have joined the trend, including men's online seller Bonobos, and crafty marketplace Etsy. Amazon is trying out merchandise pickup options in some 7-Eleven stores.

Other retail experts wonder if Sears' new test is a long shot.

"Theoretically it's a good idea, but I don't know if it's going to work," said Morningstar analyst Paul Swinand.

Consumers often cherish the experience of touching products before they buy them, he said, so there's no guarantee that the allure of pre-packed ready-to-go goods will compel shoppers to pick up a television and a gallon of milk on the way home from work, he said.

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Form 8-K for SEARS HOLDINGS CORP
February 13 , 2013

Item 5.02. Compensatory Arrangements of Certain Officers

On February 4, 2013, the Compensation Committee of the Board of Directors of Sears Holdings Corporation (the "Company") approved an increase in the annual base salary of Dane A. Drobny, Senior Vice President, General Counsel and Corporate Secretary of the Company, from $650,000 to $700,000. In addition, Mr. Drobny received a long-term incentive cash award in the amount of $800,000; $200,000 of which will vest on February 4, 2014, $300,000 of which will vest on February 4, 2015, and $300,000 of which will vest on February 4, 2016, in each case, provided that he is an employee of the Company on the applicable vesting date.

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Sears Resurrects RoadHandler Brand of Tires
By Jonathan Welsh
Wall Street Journal Blogs
February 1, 2013

Sears, Roebuck & Co. said it is bringing the RoadHandler tire brand back to its Sears Auto Center car-service outlets. The company is touting the tires� durability and 100,000-mile warranty and relatively low prices in an era when tires have become surprisingly expensive.

The name has been off the market for almost a decade, but for many people it brings back memories of the 1970s and 1980s. Back then the brand was prominent and featured in Sears commercials on television and in print along with the store�s Muzzler mufflers and DieHard batteries. While such old brands may seem a bit kitschy, they also have name recognition among a wide swath of consumers.

�We brought back RoadHandler tires to give our customers a safe, dependable tire at an excellent value,� said Sears Automotive boss Joe Finney. �We are excited to re-introduce the classic RoadHandler brand, exclusive to Sears.�

There are more than 775 Sears Auto Center stores in the U.S. and, like many car-maintenance shops, Sears is trying to take advantage of a trend among drivers toward keeping vehicles longer. As cars age beyond their warranty period, owners are more likely to take them to independent mechanics or repair chains with local outlets.

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JCPenney Brings Back Sales
Associated Press
January 28, 2013

NEW YORK (AP) - JCPenney is bringing back sales.

The struggling department store chain this week is rolling out some of the hundreds of sales it ditched last year in hopes of luring back shoppers who were turned off when the discounts disappeared.

JCPenney also plans to add new price tags or signs for more than half of its merchandise to show customers how much they�re saving by shopping at the mid-priced chain � a strategy that a few other retailers such as home decor chain Crate and Barrel and the company that owns TJ Maxx, HomeGoods and Marshalls. For store branded items such as Arizona, JCPenney will be show on store signs a comparison of prices from competitors

The moves are a departure for JCPenney on the eve of the one-year anniversary when it vowed to almost completely get rid of the sales that Americans covet but that cut into a store�s profits. The idea was to offer everyday low prices that customers could consistently count on rather than the nearly 600 fleeting discounts, coupons and sales it once offered.

The bold plan has been closely watched by others in the retail industry, which is notorious for offering deep discounts to draw shoppers. But so far the experiment has served as a cautionary tale of how difficult it is to change shopper� habits: JCPenney next month is expected to report its fourth consecutive quarter of big sales drops and profit losses. After losing more than half of its value, JCPenney stock is trading at around $18. And the company�s credit ratings are in junk status.

CEO Ron Johnson, who rolled out the pricing plan shortly after taking the top job in November 2011, told The Associated Press last week that the latest moves are not a �deviation� from his strategy but rather an �evolution.� He also vowed he would not be bringing back coupons.

�Our sales have gone backward a little more than we expected, but that doesn�t change the vision or the strategy,� said Johnson, who previously masterminded Apple Inc.�s retail stores and Target Corp.�s cheap chic fashion strategy. �We made changes and we learned an incredible amount. That is what�s informing our tactics as we go forward.�

But critics say that Johnson is backpedaling. Walter Loeb, a New York-based retail consultant, said Johnson �is now realizing that he has to be more promotional to attract shoppers.�

This pricing strategy has been a key part of Johnson�s plan to reinvent JCPenney from the ground up that also included adding hip new brands such as Joe Fresh and replacing racks of clothing with small shops-within-stores by 2015. But this isn�t the first time the plan has been tweaked it.

The pricing plan, which was rolled out in February 2012, entailed permanently slashing prices on everything in the store by 40 percent. Instead of the 600 or so sales and coupons it used to offer, JCPenney would hold just 12 monthlong sales events on some merchandise. And there would be periodic clearance events throughout the year.

But the plan wasn�t well received on Wall Street or Main Street, so six months after launching it, Johnson ditched the monthlong sales, saying that they were too confusing to shoppers. Johnson said JCPenney since has learned that people don�t shop on a monthly basis, but rather they buy when they need something for say, back-to-school or during the winter holidays. And during those times, he says, they�re looking for even more value.

�I still believe that the customer knows the right price, but they want help,� he says.

JCPenney declined to say how many sales events it will offer going forward, citing competitive reasons. But the company said the figure will be well below the nearly 600 that it used to offer. The company said the discounts will vary depending on the sale. From Feb. 1 through Feb. 14, for instance, shoppers will get 20 percent off some jewelry for Valentine�s Day. One example: half carat diamond heart pendants will have a sale price of $96. JCPenney�s everyday price was $120.

JCPenney said the decision to add tags on much of its merchandise that shows the �manufacturer�s suggested retail price� along with JCPenney�s �everyday� price came about because he realized that shoppers wanted a reference price. National brands were also asking JCPenney to show the suggested price to shoppers, he said. JCPenney started to test showing the suggested price on Izod men�s merchandise last fall, and was encouraged by the sales.

Burt Flickinger, a retail consultant, said the move could help JCPenney because manufacturers� suggested retail prices can be as much as 40 percent higher than what retailers would end up selling it for. That practice of marketing suggested prices with their own price is common in the home appliance industry because shoppers like a reference price for items they don�t buy often. But it�s spotty with the department industry because stores generally hike prices up even more to give shoppers an illusion of a big discount, says Flickinger.

�The strategy will be helpful for shoppers to understand lower prices. At the same time, it will be tough to get consumers back in the store from competitors,� said Flickinger.

But Craig Johnson, another retail consultant, said adding the suggested manufacturer�s price is just a gimmick. �The objective of this exercise is to maximize the perceived value for the purchase,� he said.

Johnson says JCPenney will submit supporting data to its legal team for approval before it advertises its prices, using certain criteria. For example, they�ll make sure the fabric used is of the same quality as its rivals. For jewelry, JCPenney is using the International Gemological Institute, a third-party appraiser.

JCPenney says it will not show comparison prices for merchandise that is part of exclusive partnerships with brands such as Nicole Miller and Mango. JCPenney said it�s difficult to offer such references.

�There are no makeup prices here,� he added. �It�s all about trying to communicate what it�s worth to the customer

To promote the strategy, JCPenney will start airing TV, print and digital ads. One TV ad compares a $9 polo shirt under its store brand Arizona with $19 �elsewhere.� �Two polos, same color, same vibrant, same details, same swing, same swagger, different prices,� the ad says.

Going forward, Johnson reiterated that he expects Penney to return to growth sometime in 2013. That would be a welcome change for JCPenney, whose business has suffered under the new strategy.

For the first nine months of its current fiscal year, JCPenney lost $433 million, or $1.98 per share compared with a loss of $65 million, or 30 cents per share in the year-ago period. Total sales dropped 23.1 percent to $9.1 billion.

Johnson declined to comment on holiday sales. But analysts expect a loss of 17 cents on sales of $4.22 billion for the fourth quarter. That would mean the company�s annual sales shrunk by 23 percent, or nearly $4 billion, to $13.3 billion for the latest year. Revenue at stores opened at least a year are expected to drop 25 percent, in line with the third quarter, according to analyst polled by research firm FactSet.

�A year ago, we were launching a major transformation and didn�t know what to expect,� he said. �Today, I know what happened. Our team has a year�s worth of history. This is going to be a great year because the new JCP is coming to life for customers."

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Sears Pension Plan Cuts Stake in Retailer�s Debt
By Miles Weiss
Bloomberg
January 22, 2013

Sears (SHLD) Holdings Corp.�s employee pension fund sold a portion of the $250 million in company debt that it bought more than two years ago to help fund lump-sum payments to retires.

The Sears Holdings Pension Trust, overseen by the State Street Bank and Trust Co., on Jan. 9 sold $10.25 million principal amount of Sears 6.625 percent senior secured notes, which mature in 2018, according to a paper filing last week with the U.S. Securities and Exchange Commission. The retirement planfiled to sell another $1 million of the bonds on Jan. 10, the document shows.

The Hoffman Estates, Illinois-based retailer disclosed in a September filing that it would seek to increase the funding level of its pension plan so that Sears could offer lump-sum settlements to retirees under legislation adopted last year. Sears said in that filing it would be �beneficial� to offer such payments to reduce the company�s exposure to gross pension obligations, which totaled $6.1 billion for the fiscal year ended Jan. 28, 2012.

�We have to fund those lump sums for people who elected it,� Chris Brathwaite, a Sears spokesman, said in a telephone interview. �It�s not an indicator of the investment committee�s view on the bonds.�

Billionaire Edward Lampert, who together with his hedge funds holds a 56.5 percent stake in Sears, is slated to take over as chief executive officer next month. Sears, beset by declining revenue, has been selling stores and other assets to raise cash.

Sears Loss

Sears said on Jan. 7 that it will report a net loss of as much as $360 million for the fourth quarter ended Feb. 2. The results will include a $450 million noncash charge related to pension settlements, tied to a voluntary offer to eligible employees.

The pension fund received $9.74 million from the Jan. 9 bond sale, according to the filing, suggesting that the debt was sold at a 5 percent discount to face value. The retailer�s 6.625 percent bonds traded at 95.375 cents on the dollar to yield 7.63 percent as of 4:19 p.m. today, according to data compiled by Bloomberg.

Sears issued $1 billion of the debt in 2010 after doubling the size of the offering, and said at the time that it would sell an additional $250 million of the notes to its domesticpension plan. The notes were priced to yield 451 basis points, or 4.51 percentage points, more than similar-maturity Treasuries.

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Sears Holdings Announces Date For 2013 Annual Meeting Of Stockholder
PR Newswire
January 24, 2013

HOFFMAN ESTATES, Ill. --Sears Holdings Corporation (NASDAQ:SHLD) announced today that the 2013 annual meeting of stockholders will be held at the Company�s headquarters in Hoffman Estates, Ill., on Wednesday, May 1, 2013.

In addition, the Company announced that March 7, 2013, has been fixed as the record date for determination of the stockholders of the Company entitled to notice of and to vote at the annual meeting of stockholders.

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Deja Vu for Sears CEO: Fix Kmart
By Dana Mattioli
Wall Street Journal
January 24, 2013

As Eddie Lampert settles into the corner office of Sears Holdings Corp., SHLD +1.64% the new chief executive is likely to again come face to face with Kmart, the retailer he bought out of bankruptcy.

Kmart has introduced a loyalty program to get shoppers back into the stores more frequently.

The chain, which sells everything from apparel and home goods to consumer electronics, has stumbled in recent quarters because of increased competition, missteps in its grocery business and turf battles in the urban areas where it has traditionally been strongest.

Sears Holdings faces challenges across its operations, with sales in decline and credit analysts concerned about its ability to generate cash. But the namesake Sears chain's domestic losses have narrowed, and it has defensible positions in such categories as appliances and fitness equipment.

Meanwhile, Kmart, which accounted for about 37% of the holding company's 2011 revenue and is the asset upon which Mr. Lampert built his department-store empire over the past decade, is watching its sales move in the wrong direction.

In November and December, Kmart's same-store sales fell 3.8%, while Sears's domestic same-store sales rose 0.5%.

Gary Balter, a retail analyst at Credit Suisse, CSGN.VX +3.57% described Kmart as "terminally challenged" in a recent research report. "What's Kmart's strength?" he said in an interview. "There isn't one to speak of."

On a recent trip to a Manhattan Kmart, towels were stacked unevenly, unfolded pajama sets were sprawled across the top of a table, and abandoned carts full of merchandise were visible on both floors of the store. The tile floors looked as though they hadn't been mopped in some time, and clothes were piled in the corners of the dressing rooms.

Lori Berger visited the Manhattan store recently to grab a pair of stockings. "I normally don't shop here," said the 57-year-old mother of three who normally goes to Kohl's, Gap and Ann Taylor Loft. "The store doesn't look that great. It could be cleaner."

The company has been working on getting customers into its stores more frequently. It introduced a loyalty program that gives Kmart and Sears shoppers points that can be applied to future purchases. It has also launched services like bill payment and check cashing on site, and it has set up clothing partnerships with pop stars Nicki Minaj and Adam Levine that will launch later this year.

"Just two short years ago, Kmart reported a full year of positive same-store sales," Kmart spokesman Howard Riefs said in an email. "We've done it before, and we will do it again." He also noted that "with our strong geographic footprint, 75% of the country lives within 15 miles of a Kmart."

In early January, Mr. Lampert announced that he would take on the additional title of Sears Holdings chief executive after the current CEO said he would be stepping down in February. The billionaire hedge-fund manager has effectively run the company for years. He gained control of Kmart in 2003 after buying up its debt while the retailer was in bankruptcy proceedings. Then, two years later, he combined it with Sears in a $12.3 billion deal.

The Kmart chain was founded by Sebastian S. Kresge in 1899 and adopted its current name in 1977. For decades, it had an advantage because of its real estate, which gave it prime locations in urban areas and no clear competitors for miles. But the chain came under pressure as dollar stores expanded rapidly into more urban areas and Wal-Mart Stores Inc. WMT +0.07% started to build smaller stores positioned in cities.

Kmart's share of the nongrocery retail market fell to 0.6% in 2012 from 0.8% five years earlier, according to market-research firm Euromonitor International. Over the same period, competitors such as Target Corp., TGT +0.75% Wal-Mart, Dollar General Corp. DG +2.89% and Walgreen Co. WAG +0.35% all gained, and Sears was able to keep its market share flat.

Kmart's sales have followed its market share, declining by $3.3 billion since 2006 to $15.3 billion in the fiscal year ended Jan. 28, 2012. For the first nine months of this fiscal year, Kmart posted a $98 million operating loss, and sales fell 5.5% to $9.9 billion. That followed a dismal 2011, when the chain posted an operating loss of $34 million for the full fiscal year.

Mr. Lampert and his lieutenants have tried a number of approaches to help drive traffic and sales, but they haven't paid off yet. In particular, people familiar with the matter said, Kmart fumbled an expansion into grocery items, an area that other big discount chains have used to drive traffic.

Kmart first introduced groceries into some of its stores in 1991, calling those stores "supercenters" and promoting them as a way for customers to do all their shopping in one spot. The company now has 24 supercenters. It had planned to increase the number of grocery items at its other Kmart stores, which carry nonperishable goods, but it has halted that effort.

For the first nine months of the year, Kmart's food and drug sales fell 6.1% to $3.9 billion. In November, the company hired Ryan Vero, a former OfficeMax Inc. OMX +0.44% executive, as senior vice president of grocery, drug and pharmacy to fix the business.

Other experiments involve quasi-banking services for a lower-income base of customers who often don't have their own accounts. Nearly half of Kmart's customers pay in cash, and big traffic days include the first and third Fridays of the month, when many of them are paid or receive their Social Security checks, a person familiar with the matter said.

In 2010, Kmart began testing a check-cashing program at some of its stores, and it now cashes checks at 650 locations. It also has a bill-paying program at some stores that enables customers to come in and make regular payments on cellphone, gas and water bills. Kmart hopes people will come in to use the payment services and then buy things once they're in the store.

But that strategy is undermined by Kmart's pricing. While the chain's customers are price sensitive, it generally charges 15% to 20% more than its competitors, says Matt McGinley, a retail analyst with ISI Group.

Data compiled by online price-tracking firm Decide Inc. at the request of The Wall Street Journal found that Kmart's prices were higher than Wal-Mart's and Target's on five out of a group of six items checked at all three stores. For instance, Kmart carried the children's game Apples to Apples for $21.89 online, while Wal-Mart priced it at $15 and Target offered it for $19.99. For a range of other products, Kmart charged more than one of those competitors.

Kmart is also facing tougher competition for low-income customers. Sears executives like to say that Kmart invented layaway, but Wal-Mart has made a big push with that service, reintroducing it during the 2011 holiday season. This past holiday, Wal-Mart rolled out layaway a month early and lowered its fees to $5 from $15. Kmart responded with free layaway.

Since the Sears-Kmart merger, analysts and executives have also noted the declining physical state of Kmart's stores, saying the management team cut costs, often at the expense of updates like paint jobs, cleaning and repairs.

The typical mature retailer spends about 3% of its capital expenditures on maintenance projects to keep its stores updated, says Monica Aggarwal, head of retail for Fitch Ratings Inc., while Kmart spends 1% or less on such projects. Kmart declined to comment on how much it invests in its stores.

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Sears to Find Out If Lampert Knows Washers From Dryers
By Roben Farzad
Business Week
January 10, 2013

The future of Sears Holdings (SHLD) boils down not to its same-store sales, online strategy, or any of retail�s countless other metrics, but this one question: Is Eddie Lampert a budding Warren Buffett or a Willy Loman?

That�s long been a question on Wall Street, never more so than this week after Lampert, 50, the chairman of the company and founder and head of hedge fund ESL Investments, inserted himself as Sears�s fifth chief executive officer in seven years. You cannot help but wonder if Lampert knows what he wants to do with the retailer/investment vehicle, which is the product of his 2005 smashing together of Kmart and Sears Roebuck.

Out of the gate, the merged entity�s first CEO was Alan Lacy, the same guy who led Sears before it sold, following a long-term decline. Within six months, Lampert replaced the legacy exec with fast-food veteran Aylwin Lewis, who was then pushed out to start 2008, amid Sears Holdings� broad reorganization. Then, for more than three years, Lampert allowed the company�in operational decline, and shuttering stores�to be run by an interim CEO. Finally, or so the Street thought, in February 2011 he tapped Louis D�Ambrosio, who had no experience in retail, to become its CEO. D�Ambrosio cited family health issues for his departure.

�I have agreed to assume these additional responsibilities in order to continue the company�s recovery and sustain the momentum we are experiencing, as well as further the development of the management team under the distributed leadership model, which provides our business unit leaders with greater control, authority and autonomy,� remarked Lampert in Tuesday�s announcement. �Working closely with the Board, management and our dedicated associates, we will remain focused on executing our goals, improving operations and building sustainable long-term value for shareholders. All of this starts with delivering great experiences to our Members.�

Of which there clearly aren�t enough. Though Sears is wringing more cash flow from its stores, the business is still losing revenue. On Monday, the company posted an overall comparable-store sales decline of 1.8 percent for the nine weeks ended Dec. 29, and a 2.6 percent decline for the year.

�While we acknowledge Mr. Lampert�s insight and expertise when it comes to �financial engineering,� we are concerned about his lack of merchandising experience at a time when the retailer is struggling to turn around its core Sears and Kmart chains,� wrote Evan Mann of research firm Gimme Credit, in response to the news. �Sears has a lot of work to do righting the ship, despite its sufficient liquidity position. Until we see more evidence of a turnaround, we remain skeptical.�

For long, the conventional thinking on Sears was: How can this possibly not turn out well, at least for shareholders? After all, in time, no one was buying Berkshire Hathaway (BRK/A) for the quality of its fabrics. And Lampert personally owns a ton of Sears�most recently 22 percent.

Still, none of this can overshadow how Kmart is borderline irrelevant, and Sears is a destination for washers and dryers and drill bits and not much else. Wall Street is no longer giving Lampert the benefit of the doubt. According to Bloomberg data, a majority of analysts rate Sears a sell, with an average price target (from four analysts) that�s actually a third lower than where it now trades. �Does it really matter?� writes YCharts editor Jeff Bailey. �Maybe Lampert will install new carpet at headquarters. Or change the logo. But it seems doubtful at this late date that the man who has controlled Sears for nearly a decade�and presided over this stock chart�has any new tricks up his sleeve.�

Chris Brathwaite, a Sears spokesman, told Bloomberg News that it is unfair to suggest that Lampert, who is also invested in AutoZone (AZO) and Gap (GPS), doesn�t get retail. �There�s nobody who cares more about this organization and there�s nobody who�s invested more,� he said. �For continuity of leadership, the board wanted Eddie to step in, take the reins, and keep that momentum going.�

And so, for better or worse, Eddie Lampert now has a truly full-time job in the aisles�or at least trying to get more people into them. Or liquidating them.

Farzad is a Bloomberg Businessweek contributor. Follow him on Twitter @robenfarzad

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Rosenthal: Sears Holdings' Edward Lampert discusses company's future, new role in it
By Phil Rosenthal
Chicago Tribune
January 9, 2013

In a rare interview, chairman of struggling retailer indicates he's more than just a hedge fund guy

He's been a big-time investor in the retail sector for more than 15 years and was chairman of Kmart after it emerged from bankruptcy about a decade ago. A few years later, he paired it with once-dominant Sears.

Yet even as Eddie Lampert is poised next month to add the role of chief executive to that of chairman at retail giant Sears Holdings, he's still characterized generally as just a hedge fund guy.

This, Lampert suggested in a rare interview Tuesday, fails to acknowledge changes in the 21st century retail industry as well as the Hoffman Estates-based company he seeks to revive.

"The most successful guy in retail right now is Jeff Bezos, and he was a (Wall Street) hedge fund guy," Lampert, 50, said by phone. "I think a lot of times when people talk about merchants it's almost a nostalgic look back at the time where the world moved at a very different pace and information was very different."

Lampert has decided to succeed Lou D'Ambrosio, who is leaving to tend to a family health issue. Critics complain that this is just the latest missed opportunity to have a world-class merchandiser run the struggling company.

"So it's Eddie Lampert who's going to be there, and he's a smart guy and insightful when it comes to doing deals, but he doesn't have a track record at running a retail operation," said Evan Mann, an analyst with Gimme Credit.

Lampert argues that a new kind of sales, one that encompasses e-commerce, traditional bricks-and-mortar, mobile and more, requires a new kind of merchant.

"Trying to move the volume of products we're talking about from place to place to get it ultimately into the customer's hands, to price these items, to market these items, I think the retail business is incredibly complex," Lampert said. "But if you get it right, it's a beautiful thing."

"I'm not denying that there are still great merchants," he said. "But to operate a company of the size of Sears Holdings or Wal-Mart or Target or Home Depot or Lowe's, you need a combination of skills, and each of those skills needs to be sufficiently strong."

Lampert can make the case that he is a modern-day merchant. He still hasn't proved he's a good one. For six successive years, Sears Holdings has seen no top-line growth, due to slipping sales and store closings.

"I understand and I appreciate people looking at same-store sales as an indicator," D'Ambrosio said during the call. "I think when you look at the financial shape of the company, there's clear progress."

D'Ambrosio noted four consecutive quarters of EBITDA growth and the fact the company raised $1.8 billion of liquidity in 2012 while reducing net debt by $400 million.

Overshadowed in Monday's news of the leadership change were other glimmers of hope: Sears' domestic comparable-store sales for the nine weeks ended Dec. 29 were up 0.5 percent.

Meanwhile, the strategy of technological convergence, which included a loyalty program, has yielded a wellspring of consumer data and changed customers' relationship with the retailer. Kmart and U.S. Sears' online sales are up 20 percent.

"It's never a good time for a transition, but what I would tell you is, five years ago, we put in place a more distributed leadership structure," Lampert said. "Despite what people may have said or written, there is a difference between a chairman role and a CEO role, and I've never been in the CEO role in this company."

D'Ambrosio predicted Lampert will offer strategic continuity. But handicappers have long questioned whether the old horse had any giddy-up left in its step to catch up to and keep pace with Wal-Mart, Target and Amazon.

And not to beat a dead metaphor, but the suspicion among many all along has been that Lampert saw neither a thoroughbred nor tireless workhorse in the parent of Sears and Kmart as so many parts to be cut up, boiled down and sold off.

"I was very clear why we put these companies together and what our goals were," Lampert said. "It was really to allow both Sears and Kmart to compete in what I thought was going to be a more challenging but evolving industry. The framework which was placed upon me and the company was: 'OK, this was all about real estate. It's about selling real estate.' Then when we didn't sell real estate, it became: 'Well, they missed the opportunity in 2006, 2007 to sell the real estate.'

"I've never denied there was substantial real estate value in the company," he said. "Suffice it to say that � the most value can be created if we actually transform it."

Fortune in 2006 called Lampert "the best investor of his generation." A Forbes contributor last year ranked him No. 2 on a list of the worst CEOs, and while acknowledging Lampert was Sears Holdings' chairman and not CEO, the contributor argued that "Lampert has called the shots, he's missed every target" and that he had "destroyed Sears."

D'Ambrosio said he doesn't recognize the Lampert he sometimes sees described by critics.

"I've never worked with somebody who understands business models and how to re-imagine a business model and has a view on the way buying will change going forward better than Eddie," D'Ambrosio said.

It turns out, his image is the thing he's least interested in selling at Sears Holdings.

"I do think what we've been trying to do at the company has been very clear," Lampert said. "If people want to doubt it or put a spin on it, they're entitled to do it. We just have to perform."

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Experts: Sears chair's move to CEO means more of the same
By Corilyn Shropshire
Chicago Tribune
January 9, 2013

Hedge fund billionaire taking the reins more likely signals breakup and sell-off of company assets than imminent turnaround, say industry watchers

Now that Sears chairman and hedge fund billionaire Edward Lampert has stamped the CEO moniker on his nameplate, industry watchers wonder what's next for the beleaguered retailer

Lampert has been at the helm of the Hoffman Estates-based company since 2005, when he engineered a $11 billion merger between Sears Roebuck & Co. and Kmart, which he ushered out of bankruptcy in 2003.

Since then, the CEO role at Sears has been a virtual revolving door. Lampert will be the company's fifth in eight years.

With the hands-on chairman slated for a more operational role, industry watchers predict not much will change for Sears, which has seen years of declining sales.

A bright spot, however, is that sales at stores open at least one year � an important retail metric � narrowed during the holiday season, to a decline of 1.8 percent, while analysts had predicted a decline of 3.2 percent. Online sales increased 20 percent during the holiday season, the company said.

Sales of apparel and appliances also improved, credited to departing CEO Louis D'Ambrosio and merchandising chief Ron Boire. D'Ambrosio also worked with Boire to build the company's Shop Your Way Rewards loyalty program, which Sears says is now responsible for 50 percent of its annual sales.

Earnings before interest, taxes, depreciation and amortization � which Lampert says is a better metric because it measures income after expenses � also have improved.

But Sears has hurdles to overcome in an increasingly competitive retail marketplace.

On Tuesday, Target Corp. said it plans to match its online prices to those of Amazon.com and Wal-Mart year-round instead of just during the Christmas season. Industry watchers predict other brick-and-mortar retailers will have to follow suit.

"It's something that retailers are going to increasingly have to do ... it's an all-year kind of thing," said Matt McGinley, managing director of ISI Group in New York.

The transition from D'Ambrosio to Lampert will also have to be seamless, industry watchers say.

"They can't allow this hiccup to slow down their ability to match customer expectations as well as in the online marketplace," said Tom Nawara, vice president at Chicago-based Acquity Group.

Lampert, 50, isn't new to retail and has substantial holdings in companies such as AutoZone, Big Lots and Gap Inc.

"At the end of the day, there is only one person who makes the big decisions from the divisions to dispose of, the capital expenditures to budget, stores to sell, etc. and that person is Mr. Lampert," Credit Suisse analyst Gary Balter wrote in a note. "Giving him an additional title does not change that reality, and in our opinion, does not change the direction of the company."

Earlier this month, Lampert hired former Best Buy interim CEO G. "Mike" Mikan to be president of his hedge fund, ESL Investments Inc. Sears officials declined comment on whether Mikan might have a role at Sears Holdings.

When D'Ambrosio said Monday he would step down due to family health issues, Lampert didn't announce plans to search for a successor, and some industry watchers told the Tribune that they didn't expect him to.

But it's one thing for Lampert to be Sears chairman and another to be in charge of day-to-day operations, retail experts say. Some worry that Lampert, who lives full time in Florida but has an office on the company's Hoffman Estates campus, might be spread too thin.

"Eddie has never truly run a retailer, he's invested and been on the boards of retailers � that puts him at a bit of a disadvantage," said ISI's McGinley.

Some retail experts suspect that stepping into the CEO role gives Lampert the opportunity to execute his master plan � which is to break the company into pieces, making it easier to sell certain assets. Last year Sears sold off underperforming stores and raised cash by spinning off its hometown dealer stores and Sears outlet stores, also unloading a large chunk of its Canadian business. There's been speculation that its popular Lands' End apparel business could be next.

"It's my opinion that he knows that there's no way of saving this business, therefore the best way to deal with it is to manage it down to a point where he and maybe some of the hedge fund pals can buy it back and take it private," said retail industry consultant Robin Lewis.

A Sears official insisted it'll be business as usual with Lampert as CEO. "The board thought it was important for continuity of leadership. No one cares more about the company than Eddie," said spokesman Howard Riefs. "We'll continue to keep our eye on the ball with the strategy that we've outlined for the company."

Critics say that it's unlikely that Lampert will direct a true turnaround.

Corporate turnarounds have three parts, according to James Shein, professor of management and strategy at Northwestern University's Kellogg School of Management. First examine strategy, then operations, then finances, he said.

"They (Sears) seem to be focusing more on cost-cutting, cutting people, and capital structure without seeing whether or not Sears and Kmart have a strategy to set themselves apart from other retailers," said Shein, who has written about corporate turnarounds.

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Sears Says Lampert to Take Over as CEO
By Lauren Coleman-Lochner
Bloomberg
January 8, 2013

Sears Holdings Corp. (SHLD) Chairman Edward Lampert�s selection of himself as the ailing retailer�s fifth chief executive officer in seven years shows the billionaire hedge-fund manager hasn�t taken his critics to heart.

Ever since he�s controlled the company, Lampert has avoided putting a seasoned retail executive in charge of the department- store chain. Instead, he�s handed the reins to executives from the supermarket, restaurant and telecommunications industries, and now himse

Lou D'Ambrosio said in a memo to employees, �This was a very difficult decision because of everything that Sears Holdings represents - great brands, great history, great associates and a deep commitment to its members and customers.�

�Eddie buys a once-great retailer but seems to be allergic to retailers,� Erik Gordon, a professor at the University of Michigan and Ross School of Business, said today in an interview. �Eddie is a brilliant guy, but that doesn�t make him a retailer.�

Lampert, 50, will take over on Feb. 2, when Lou D�Ambrosio officially steps down because of a health matter in his family, Sears said yesterday in a statement. D�Ambrosio, 48, will remain on the board until the company�s next shareholder meeting in May.

Sears fell 5.1 percent to $40.72 at 2:50 p.m. in New York after earlier dropping as much as 9.1 percent for the biggest intraday decline since Nov. 16. The shares gained 45 percent last year.

The fact that Lampert worked closely with D�Ambrosio allows him to continue guiding the company�s recent initiatives said Chris Brathwaite, a Sears spokesman. It�s also unfair to suggest that Lampert, who also has investments in AutoZone Inc. and Gap Inc., doesn�t understand retail, Brathwaite said.

Buying Kmart

�There�s nobody who cares more about this organization and there�s nobody who�s invested more,� Brathwaite said today in a telephone interview. �For continuity of leadership, the board wanted Eddie to step in, take the reins, and keep that momentum going.�

Lampert formed Greenwich, Connecticut-based ESL Investments Inc. in 1988 after working on the merger arbitrage desk of Goldman Sachs Group Inc. under Robert Rubin, who would go on to become U.S. Treasury Secretary under former President Bill Clinton.

Lampert bought Kmart Holding Corp. out of bankruptcy in 2003, then put it together with Sears, Roebuck & Co. in March 2005. His first CEO was Alan Lacy, who led Sears, Roebuck before the merger and served at consumer-products giants such as Kraft Inc. before Sears. Six months later, Lampert replaced Lacy with Aylwin Lewis, whom he�d brought over to Kmart from the restaurant industry. Lampert at the time said he�d head marketing, merchandising and Internet sales.

No Experience

Lampert ousted Lewis in January 2008 and reorganized the company into five units. W. Bruce Johnson succeeded Lewis as interim CEO for more than three years, until D�Ambrosio was named.

D�Ambrosio, who had no experience in retail, became CEO in February 2011 after leading telecommunications company Avaya Inc. and spending 16 years at International Business Machines Corp. (IBM)

At Sears, D�Ambrosio vowed to invest in stores and use data gathered from the company�s tens of millions of loyalty-program customers to boost sales. His background in technology made online sales a particular focus, and the company said yesterday that Sears domestic and Kmart Internet sales during the nine- week holiday period rose 20 percent from a year earlier.

Under D�Ambrosio, Sears gave salesmen in 450 of its stores more than 5,000 iPads and 11,000 iPod Touches to help them track inventory and customer orders, and added free wireless access.

Sales Decline

The initiatives didn�t halt the sales decline, and the retailer has been selling stores and other assets to generate cash. Sears last year completed the spinoff of its smaller- format Hometown, Hardware and Outlet stores. The move raised $346.5 million from a rights offering and a $100 million cash dividend from Sears Hometown.

Sears also completed the spinoff of a portion of Sears Canada (SCC) in November, reducing its stake to about 51 percent from 95 percent.

In addition to the spinoffs, the retailer has shuttered large U.S. stores and began leasing space to other chains. Sears began allowing other retailers such as Costco Wholesale (COST) Corp. and Ace Hardware to sell its popular Craftsman tools and worked to license its Kenmore and DieHard products.

In November, Sears said its third-quarter net loss widened to $498 million, or $4.70 a share, from a loss of $421 million, or $3.95, a year earlier. Sales dropped 5.8 percent to $8.86 billion, continuing a streak of declines that began in 2007.

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Sears CEO D'Ambrosio to step down
By Corilyn Shropshire
Chicago Tribune
January 6, 2013

Sears Holdings Corp. said Monday night that Chief Executive Officer Louis J. D�Ambrosio will step down at the end of its fiscal year on Feb. 2, due to family health matters. Chairman Edward S. Lampert will step into the role of CEO.

The surprise move adds new uncertainty for the Hoffman Estates-based company, which has struggled for years to re-establish itself as a department store in an ultra-competitive retailing industry dominated by the low-price giant Walmart and big box and specialty stores.

The decision by Lampert, a hedge fund operator who is the company�s biggest shareholder and driving force, to reassert day-to-day control represents a reversal from his the naming of D�Ambrosio, an outsider, as chief executive nearly two years ago after operating with an interim CEO previously.

�In light of Lou's decision to step down, the Board feels it is important that there is continuity of leadership during this important period of transformation and improvement at Sears Holdings,� Lampert said in a statement. �I have agreed to assume these additional responsibilities in order to continue the company's recovery and sustain the momentum we are experiencing, as well as further the development of the management team under the distributed leadership model, which provides our business unit leaders with greater control, authority and autonomy.�

Sears Holdings, which operates Sears and Kmart, also updated fourth quarter earnings outlook Monday night. The company said it expects to report a net loss of between $280 million and $360 million, or $2.64 and $3.40 per diluted share, for the quarter ending Feb. 2. The loss includes a non-cash charge of roughly $450 million due to pension settlements and an additional $42 million in pension expenses.

Excluding pension expenses Sears said it expects to earn between $132 million and $212 million, or between $1.25 and $2.00 per share. Analysts polled by Bloomberg had been expecting adjusted net income of $137 million.

Excluding interest, taxes and other items, Sears said it expects its adjusted earnings to be between $365 million and $465 million, compared to $351 million at the same time last year. For the year, it expects to adjusted earnings to be between $560 million and $660 million compared to $277 million last year.

For the year, Sears said it expects to lose between $721 million and $801 million, or between $6.80 and $7.56 per diluted share, which also includes pension-related costs and other adjustments reported in regulatory filings late last year. Excluding those items, the company said it expects to lose between $123 million and $203 million or between $1.16 and $1.92 per share.

D�Ambrosio became CEO after working for the company as a consultant. The 16-year veteran of IBM Corp. had been CEO of a telecommunications company before joining Sears.

�I have worked very closely with Eddie over the past two years. I can say this: there is simply no one in the world that cares more about Sears Holdings and has thought more deeply about our company than Eddie,� D�Ambrosio wrote in a memo to employees.

Lampert gained control of Sears in 2005 after engineering the merger Kmart and Sears Roebuck & Co. For years speculation about Lampert�s intentions for the company focused on the value of its real estate, but under D�Ambrosio Sears appeared to pay more attention to its aspirations as a retailer.

The company reported improved performance in the last quarter that beat Wall Street expectations, but Sears stock still has lost more than 35 percent of its value since November, closing Monday at $42.92.

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Rivals Object to Wal-Mart Ads
By Ann Zimmerman and Shelly Banjo
Wall Street Journal
January 4, 2013

Toys 'R' Us, Best Buy and Others Complain to States, Saying Price Comparisons Are Misleading

An aggressive Wal-Mart Stores Inc. WMT +0.28% advertising campaign that claims better prices than specific, named competitors has rankled rivals, which have complained to attorneys general in more than half a dozen states.

The targeted retailers, including Toys "R" Us Inc., Best Buy Co. BBY +0.50% and several regional supermarket chains, claim Wal-Mart cites inaccurate prices and compares differing products, such as laptop computers with separate specifications.

Wal-Mart defends the ads, begun last year, as accurate.

"We know competitors don't like it when we tell customers to compare prices and see for themselves," Wal-Mart spokesman Steven Restivo said. "We are confident on the legal, ethical and methodological standards associated with our price comparison ads."

Wal-Mart began the radio and television ads in 31 U.S. cities last spring as part of a broader campaign to regain its reputation for rock-bottom pricing, after it suffered a two-year sales slump in the U.S. following the recession. It launched an additional national ad blitz targeting Best Buy and Toys "R" Us during the holidays.

The Bentonville, Ark., giant said last year that the initial ads spurred a 1.2% boost in sales at stores open at least a year and a 1.1% rise in store visits in areas where the ads aired, compared with similar regions where they didn't run. Likening the ads' techniques to reality shows, Wal-Mart U.S. President Bill Simon said at a September retail conference, "We're able to film these ads on a Tuesday, get them on the air on a Thursday." The result, he said, is that Wal-Mart can "deliver a far more intense, far more directed message."

But rivals claim in documents reviewed by The Wall Street Journal that Wal-Mart's ads cross a line by making misleading comparisons or promoting products the company doesn't have in ample supply.

Best Buy complained about a Wal-Mart ad over the holidays that claimed a Dell laptop cost an additional $251 at Best Buy. The electronics retailer said that the two laptops in the comparison were different models and that the one it offered had a longer battery life.

"That would be like comparing a Toyota to a Lexus," Keith Nelsen, Best Buy's general counsel, wrote in a Dec. 20 letter to the Florida attorney general's office.

Best Buy said some of Wal-Mart's promotions, including a deal on the iPhone 5, had a measurable effect on its profits due to a price-match guarantee that requires the retailer to match the price of competitor's ads. Best Buy said it lost about $65,000 in profit the day Wal-Mart's promotion first ran on Facebook, because it was compelled to match Wal-Mart's advertised $150 price, even though it concluded that Wal-Mart didn't actually have a sufficient number of iPhones available.

Wal-Mart said its ads didn't claim to compare identical laptops. It also said it shipped double the amount of iPhones during the promotion and that it was 98% in stock at stores that carried the devices. Wal-Mart declined to say how many iPhone 5s its stores carried during the promotion.

Toys "R" Us complained to Michigan officials about Wal-Mart's advertising, citing what it said were inaccurate prices for a Fisher-Price toy kitchen, a holiday-themed Barbie doll and an electric Razor scooter.

Wal-Mart said advertised prices were correct for the dates cited in the ads.

The claims mirror complaints lodged against Wal-Mart in the early 1990s by Target Corp., TGT +0.42% Meijer Inc., and Kmart Corp. At the time, Target ran a counter ad accusing Wal-Mart of misleading price comparisons that read "This Never Would Have Happened if Sam Walton Was Alive." Wal-Mart denounced the ads as a smear campaign.

Wal-Mart settled the dispute with Michigan's attorney general in 1994 and agreed to make changes to its price comparison ads, including ceasing to compare products that weren't the same size or model without noting differences. It didn't admit guilt or pay fines.

In the current dispute, Wal-Mart said it responded to attorneys general in Michigan, Illinois, Pennsylvania, and Missouri over complaints from regional supermarkets and Toys "R" Us. It said it hasn't received complaints from Best Buy. The attorneys general offices in Florida and New Jersey said they were reviewing similar complaints. Wal-Mart's competitors also have contacted the California attorney general's office, which declined to comment.

Other retailers and grocery stores have tried to fight back by launching their own local advertising campaigns. Publix Super Markets, a $27 billion chain with 1,000 stores across the Southeast, began printing weekly comparison ads under the heading: "Walmart doesn't always have the lowest price."

Pick 'n Save, a Midwestern supermarket chain operated by the $4 billion Roundy's Supermarkets Inc., is running radio ads touting its fresh meat and fish.

"If you'd rather feed your family good food made fresh instead of just cheap food, there's no comparison to Pick 'n Save," one radio ad proclaimed.

Retailers often grumble about their competitors' tactics, but rarely take complaints to state consumer-protection regulators or attack each other by name, experts said.

"This is a price war that's causing many retailers a lot of angst," said Leon Nicholas, an analyst at consultancy Kantar Retail. "Wal-Mart had lost the pricing discipline it became famous for and now they are desperate to get it back."

A version of this article appeared January 4, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Rivals Object to Wal-Mart Ads.

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Health Law: A Tough Diagnosis
By Anna Wilde Matthews
Wall Street Journal
January 2, 2013

With Much of the U.S. Overhaul to Take Effect in a Year, Companies Weigh Employee-Benefit Options

One of the biggest decisions for many companies this year will be what to do about their health benefits.

They have just 12 months before the major provisions of the federal overhaul law take effect on Jan. 1, 2014, reshaping health coverage in the U.S. Employers with at least 50 workers will owe penalties if they don't cover full-time employees. Most Americans will face a parallel "individual mandate" to obtain insurance. And new online marketplaces called exchanges will sell insurance plans in each state, paired with federal subsidies for lower-income people.

Certain employers could see health-related costs go up as a result of the law's requirements, and they are weighing how to respond. One possibility would be to opt out of providing health coverage altogether, as employees will have new coverage options outside the workplace� for the employer, the penalties are lower than the typical cost of insurance. But employers are considering a range of more moderate steps to limit their expenses. Decisions will need to be in place well before next fall, when benefits enrollment typically begins and the new exchanges are supposed to begin operating.

The large segment of employers that already provide relatively rich benefits�a group that includes many of the largest companies and firms with higher-income or unionized workforces� will feel only limited immediate impact from the law. These companies likely won't take radical action this year, though they could weigh longer-term changes, depending on how the exchanges and other provisions of the law play out.

"They want to measure twice and cut once," said Bryce Williams, managing director for exchange solutions at consulting firm Towers Watson & Co. One first step may be trimming or eliminating coverage for retired workers, particularly those who aren't old enough for Medicare and will have many more insurance options in 2014 than today.

But 2014 will bring significant change for many smaller companies above the 50-worker threshold, and those in industries such as retail and restaurants that have lots of lower-income and part-time workers. Some offer no health benefits today, or limited coverage that won't meet the law's standards. Upgrading to richer plans could raise costs substantially; failing to do so could trigger the penalties, which can amount to $2,000 or $3,000 for each uncovered worker, depending on the circumstances, with the first 30 employees exempted from the count.

Companies that already provide health benefits may see their spending go up as workers who had opted out of such plans in the past decide to take them because of the individual mandate.

The law requires larger employers to automatically enroll eligible employees in health benefits, a shift that promises to further boost enrollment, though that provision isn't currently slated to go into effect in 2014. The law also says that employees who work at least 30 hours per week should be covered, a threshold that could sweep in many workers now not offered health benefits.

Companies seeking to trim the impact on their expenses will have to weigh the possible downsides in employee morale and recruitment, operational headaches and public image, as well as the tax advantages of employer-provided coverage. Darden Restaurants Inc. which had been experimenting with keeping some workers' hours beneath the threshold, recently announced it wouldn't expand the effort after it generated backlash among consumers.

Dots LLC, a women's-clothing chain based in Glenwillow, Ohio, projects that its health costs could go up by around a third because of the law. That is largely because only about 55% of the employees who are currently eligible for health benefits take the coverage, and the retailer thinks that share could jump sharply.

Dots has been preparing for that increase for two years, trimming its costs with moves such as boosting workers' premium contributions and putting new employees into a more basic health plan for their first year, said Joanna Curran, benefits and payroll manager.

In coming months, Dots' top executives will have to decide what else to do. One possibility: more cost-sharing for employees. Dots also will consider more strictly enforcing existing limits on the hours of a small group of part-timers who occasionally go over 30 a week today, to avoid the complexity of having workers bounce back and forth into the law's definition of full- time status. "We are facing the fact that we are going to have to spend more money," said Ms. Curran. Her company won't drop its coverage because it would hurt recruitment and retention of employees, she said.

The Obama administration, for its part, is "optimistic that, by and large, employers will continue providing coverage," said J. Mark Iwry, a senior adviser to the secretary of the Treasury.

But employers affected by the law will likely consider other cost-cutting approaches: offering only higher-deductible plans, perhaps, or giving workers a set sum of money and a choice of plans and letting them pay more if they opt for pricey coverage. For certain employers, the law could prove "the impetus for them to have very bold strategies," said Tracy Watts, national leader for health-care reform at Mercer, a consulting unit of Marsh & McLennan Cos.

Other employers may end up prodding only certain employees toward the health exchanges. Lower-wage workers may qualify for federal subsidies�and find the exchange plans a better deal�if their employer coverage is "unaffordable" under the law because premium contributions represent too big a share of their income. Companies could also simply not offer health benefits to certain classifications of workers.

In a survey by the International Foundation of Employee Benefits Plans, nearly a quarter said they were at least somewhat likely to provide coverage to some employees but direct others to the exchanges.

"Employers are going to be doing rigorous scenario-planning, and they're going to be doing it deep in a bunker" because of the sensitivity of the issue, said Michael Turpin, executive vice president at USI Holdings Corp., a major insurance brokerage.

One client, he said, asked him to examine the possibility of structuring employee premiums so that some workers would become eligible for federal exchange subsidies, but only if they decided to forfeit financial incentives tied to a wellness program. The likely upshot: the lower-income workers who were the least engaged in health-related activities, and thus potentially the priciest to cover, could end up opting out of the company's plan.

Mr. Turpin said it still wasn't clear if federal rules will allow employees to qualify for the federal subsidies under these specific circumstances.

Indeed, splitting the workforce by pushing certain workers toward the exchanges is an idea that might face barriers from regulators, though detailed rules for meeting nondiscrimination standards haven't yet been issued. "We have to wait and see what regulatory agencies develop," said Julie Stich, director of research at the benefit-plans foundation.

Employers that aren't forced to make short-term shifts because of the health law may eventually see opportunities.Houghton Mifflin Harcourt Publishing Co. won't see much immediate impact from the 2014 changes, but it will be watching the development of the exchanges, said Carl Cudworth, director of benefits.

The publisher is using a Towers Watson exchange for its Medicare retirees, who get a sum of money to choose their plans, and could consider exploring a similar option for pre-65 retirees and, possibly, active employees, he said. But its potential interest would hinge on regulators' rulings about such approaches, including the tax treatment of the employer contributions, and what happens to the post-2014 individual market.

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