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Contents


Northwest Living
Mail-Order Remade . . . 1911 House by Sears
(Jan. 7, 2007)


Saving Sears
Sears Store Saved...as Hotel, Condos and Apartments

(Jan. 6, 2007)



A Director Decides to Override a Friendship
(Jan. 5, 2007)


More Problems Remain After CEO's Departure; Daunting Competition
(Jan. 5, 2007)


The Future of Luxury: Custom Fashion, Cheap
(Jan. 4, 2007)

Pressure's on for CEOs to deliver--now
(Jan. 4, 2007)


Executive's Fatal Flaw: Failing to Understand New Demands on CEOs
(Jan. 4, 2007)

A Warning Shot by Investors to Boards and Chiefs
(Jan. 4, 2007)


Goody's Family Clothing Names Mary Kwan President
(Jan. 3, 2007)

Wal-Mart Seeks New Flexibility In Worker Shifts
(Jan. 3, 2007)


Nardelli Resigns as CEO, Chairman of Home Depot
(Jan. 3, 2007)


Power-Sipping Bulbs Get Backing From Wal-Mart
(Jan. 2, 2007)


J.C. Penney Fires Operating Chief After Five Months
(Dec. 29, 2006)

Lampert 'Just Says No' to Wall Street Convention
(Dec. 28, 2006)


J.C. Penney Terminates Operating Chief West
(Dec. 28, 2006)


Wal-Mart Blames Short-Term Woes, But Some Expect Challenges to Remain
(Dec. 28, 2006)

Eight Retail Buyback Heroes
(Dec. 21, 2006)


Spinoff Set by Summer for Discover
(Dec. 20, 2006)


Discover spinoff to give Chicago a new HQ
(Dec. 19, 2006)

Morgan Stanley To Shed Discover, Posts 4Q Results
(Dec. 19, 2006)

Private companies confront pensions
(Dec. 19, 2006)

Sears Holdings: Take The Bull By Its Horns and Ride
(Dec. 19, 2006)

Latest Deal in Real Estate for $9 Billion
(Dec. 18, 2006)

Retiring Allstate CEO unloads $33 million in shares
(Dec. 18, 2006)


Miracle on 34th Street
(Dec. 16, 2006)

Sears Tower close to losing Bain as tenant
(Dec. 13, 2006)

Macy's faces the music, Sears looking better
(Dec. 12, 2006)


The Lands End Brand Plan; Insanity or Genius
(Dec. 11, 2006)

For some people, the first job in retirement involves a good deal of ho-ho-hoing
(Dec. 11, 2006)

Rocky Return to the Roots at Wal-Mart
(Dec. 9, 2006)

Chinese company sweeps up Hoover
(Dec. 8, 2006)

Wal-Mart Fires Marketing Star and Ad Agency
(Dec. 8, 2006)

Wal-Mart Dismisses Ad Agency That It Had Just Hired
(Dec. 8, 2006)

Former Focus Media Execs Get Jail Time
(Dec. 7, 2006)

Lands' End is branching out
(Dec. 7, 2006)

Once Unloved, Medicare's Prescription-Drug Program Defies Critics, but Issues Remain
(Dec. 7, 2006)

Montgomery Ward Comes Back, Sans Stores
(Dec. 7, 2006)

Sears' flagship store to house Web center
(Dec. 7, 2006)

Behind the Scenes, PR Firm Remakes Wal-Mart's Image
(Dec. 7, 2006)

Sears' results split analysts
(Dec. 7, 2006)

Sears Salutes The Spirit Of 'George Bailey'
(Dec. 6, 2006)

Hasty exits bring chill at Draft
(Dec. 6, 2006)


2 Hired to Overhaul Marketing Leave Their Posts at Wal-Mart
(Dec. 6, 2006)


Sears Tower electrical fire extinguished
(Dec. 6, 2006)

Martha's a Macy's shopper
(Dec. 6, 2006)

Medicare's Donut Hole Help
(Dec. 5, 2006)


Nordstrom, Sears hear music in CD sales

(Dec. 3, 2006)

Wal-Mart Says Thank You to Workers
(Dec. 4, 2006)


Sears Responds to Life Insurance Inquiry
(Dec. 4, 2006)


Valuing Eddie Is the Story Line at Sears
(Dec. 2, 2006)

Smashing The Clock
(Dec. 11 issue)

Ev Franger, veteran Sears controller, dies at 92
(Nov. 5, 2006)


Retailers Expect Strong Holiday,
Despite Grim Wal-Mart Forecast

(Nov. 30, 2006)

Dollar General closing 400 stores
(Nov. 29, 2006)

Big Employers Plan Electronic Health Records

(Nov. 29, 2006)

Sears Holdings Acquires 17.8M Sears Canada Shrs In Offer
(Nov. 28, 2006)

Sears not so grand, not so essential
(Nov. 28, 2006)


March of the holiday shoppers
(Nov. 27, 2006)

Holiday Sales Get Off to Solid Start, But Wal-Mart Doesn't Share Cheer
(Nov. 27, 2006)

In middle, it's Penneys vs. Kohl's
Stores making a grab for more market share

(Nov. 25, 2006)

Cheap Chic: Who Gets it Right?
(Nov. 25, 2006)

Allstate takeover talk resurfaces
(Nov. 24, 2006)

Risk and Reward
Hurricane Losses Prompt Allstate To Pursue New Path Cutting Coverage on Coasts,

(Nov. 24, 2006)

|Hinsdale resident depicts seascapes in painting circle...Sears retiree Hadley Pihl
(Nov. 23, 2006)

What’s Hot, What’s Not in Stores
(Nov. 23, 2006)

Seattle-area company suing Sears over fake wishbones
(Nov. 23, 2006)

Sears Tower owners, management firm split
(Nov. 21, 2006)

Sears Tower, CB Richard Ellis end contract
(Nov. 21, 2006)

Wal-Mart: The New Banking Monopoly?
(Nov. 21, 2006)

Lifting the Lid: Sears -- A retailer or a hedge fund?
(Nov. 18, 2006)

Showing a New Style, Department Stores Surge
(Nov. 18, 2006)

At Sears, Investing -- Not Retail -- Drives Profit
(Nov. 17, 2006)


Sears profits on hedge fund tack
(Nov. 17, 2006)


Sears, Not Just a Retailer, Is Lampert's Latest Hedge Fund
(Nov. 17, 2006)


Lampert Looking to Buy Another Retailer
(Nov. 10, 2006)


2,000 Climbers Tackle Stairs of Sears Tower
(Nov. 12, 2006)

Isadore Barmash, 84, Prolific Chronicler of Retail Wars, Dies
(Nov. 12, 2006)

Sears Canada stockholders reject buyout bid
(Nov. 15, 2006)

Sears Canada investors reject Sears offer
(Nov. 14, 2006)

Sears Holdings Bid To Buy Sears Canada Defeated
(Nov. 14, 2006)

CSC: We've Blown $80 Million at Sears and Want Our Money Back
(Nov. 13, 2006)

Former Sears complex wins national
historic preservation award

(Nov. 13, 2006)

The New Math of Health Benefits
(Nov. 7, 2006)


Carolyn Link:
1920 - 2006
Longtime assistant to former Sears chief

(Nov. 6, 2006)

Historic Sears Headquarters District Finds New Life
(Nov. 5, 2006)

Sears home items remade to keep consumers buying
(Nov. 5, 2006)

`I think you can reinvent insurance'
(Nov. 5, 2006)

Woman was a leader in every way
(Nov. 4, 2006)

ISS urges vote against Sears takeover of Canadian unit
(Nov. 3, 2006)

Pioneering designer finds art in everyday products
(Nov. 3, 2006)


Medical Information for Sears Retirees
(Nov. 1, 2006)

CVS and Caremark Rx Unveil Stock-Swap Deal
(Nov. 1, 2006)

Sears Tower eateries lost $1.1 mil. in 7 months: suit
(Nov. 1, 2006)

Employers, Insurers Push Generics Harder
(Oct. 31, 2006)

Tobacco Comes to the Supreme Court
(Oct. 31, 2006)

Sears Canada senior VP leaves for Loblaw
(Oct. 30, 2006)

Seniors fret over changes in Medicare drug program
(Oct. 30, 2006)

Why Costco is so addictive
(Oct. 30, 2006)

Lampert's surprise ambush
(Oct. 29, 2006)

The Reinvention Of Martha Stewart
(Nov. 6, 2006)


TOMAX Names Bernie Brennan as Chairman
(Oct. 27, 2006)

UBS tosses $780-million rope to Sears Tower
(Oct. 26, 2006)

Lower expenses help Sears Canada return to profit
(Oct. 26, 2006)

Man linked to Sears Tower terror plot
pleads guilty in weapons case

(Oct. 25, 2006)

Wal-Mart’s Chief Says Chain Became Too Trendy Too Quickly
(Oct. 25, 2006)

Battle to decide Sears Canada's fate
(Oct. 25, 2006)

Sears Alowed by Ontario Regulators
to Hold Vote Before Appeal

(Oct. 23, 2006)

Sears Canada buyout vote on
(Oct. 21, 2006)

Sears Explores Its Chic-er Side
(Oct. 19, 2006)

Allstate posts $1.16-billion profit, raises guidance
(Oct. 18, 2006)

New Lands' End Format Suits Sears
(Oct. 17, 2006)

Wal-Mart Agrees to Acquire Chinese Chain for About $1 Billion
(Oct. 16, 2006)

Lands' End sets up camp in Sears department stores
(Oct. 15, 2006)


Prepare for a Gruesome Retirement
(Oct. 14, 2006)

Wal-Mart Adjusts Attendance Policy
(Oct. 14, 2006)

Sears building Lands' End shops in 100 stores
(Oct. 13, 2006)

Sears Insider Heads to The Great Indoors
(Oct. 13, 2006)

A Vote of Confidence for Sears Holdings
(Oct. 12, 2006)


Deal talk lifts Sears to new high
(Oct. 11, 2006
)

Target Corp. designed its climb to fabulous
(Oct. 11, 2006
)

Chuck Harrison, Adding Dimension to Design
(Oct. 11, 2006
)

Sears Envisions A Longer Stay With Internet Lounges
(Oct. 11, 2006
)

Jim Cramer's Stop Trading!
Sears Soars
(Oct. 10, 2006)

There’s no formula for retirement planning
(Oct. 8, 2006)

Kohl's scaling up stores, goods
(Oct. 7, 2006)

`Fair-trade' label reaches retail market
(Oct. 7, 2006)

Everlasting Retirement
(Oct. 7, 2006)

Chasing Mr. and Mrs. Middle Market, J.C. Penney, Kohl's Open 85 New Stores
(Oct. 6, 2006)

Gary Comer, Lands' End founder, had heart for city
(Oct. 5, 2006)

Join the Sears Team this Holiday Season
(Oct. 4, 2006)

Man linked to Sears Tower plot working on weapons plea deal
(Oct. 4, 2006)

Aetna Expanding Medicare Availability and Enhancing Offerings for 2007  
(Oct. 4, 2006)

In wake of changes, seniors urged to revisit Medicare drug plans  
(Oct. 4, 2006)

John M. (Jack) Kelly, Retired Controller at Sears, Dies at 78
(Oct. 4, 2006)

Ex-Kmart execs face trial in fraud claim
(Oct. 4, 2006)

Medicare Drug Plans: The New Choices
(Oct. 4, 2006)


Forget Golf Courses, Beaches & Mountains
(October 2, 2006)


A neighborhood looks up
(October 2, 2006)

Piecing together Julian Day
(October 2, 2006)

Wal-Mart to Add More Part-Timers and Wage Caps
(October 2, 2006)

For retirees, health-care cost increases add to pains of aging
(October 1, 2006)

Eddie’s Mad $$$/ Investing Sears, Kmart Cash
(October 1, 2006)
 

Breaking News
October  2006 - January  2007

Northwest Living
Mail-Order Remade . . . 1911 House by Sears
By Valerie Easton - Seattle Times
January 7, 2007

When a young couple approached them about a remodeling job in Wallingford, architects Steve Hoedemaker and Tom Bosworth turned them down. "Our initial reaction was no, don't do anything, it's too charming," recalls Hoedemaker.

Eric and Karen Lonergan found the pagoda-style bungalow mid-renovation. The windows were boarded up, the inside dark and dreary. The porch off the dining room was decrepit, and the cement basement was creepy. The generous corner lot was a messy construction zone. But the young couple fixed the place up a bit, moved in, and loved the location and the neighborhood. While they wanted to retain the bungalow's essential character, they needed more space than the existing two bedrooms and single bath. "There were lots of pieces of this house that were pretty funky," says Karen of the1911 house originally ordered from the Sears catalog.

In autumn of 2003 the Lonergans began brainstorming with Hoedemaker. They'd worked with JAS Design Build in the past, so they felt comfortable hiring the contractor bid-free. The result of the collaboration is a seamless addition that looks as if it's always been there. In fact, you're sure the new second story should have been sent mail-order along with the rest of the house nearly a hundred years ago.

A good deal, indeed

The Lonergan home is bungalow floor plan No. 264, page 244, in the Sears Modern Home Mail Order Catalog. The advertisement reads:

"While the bungalow on this page is neither extreme nor extravagant, it has all the ear-marks of a cozy, well planned, artistic little home.

"Cost? For $1,106.00 we will furnish all the material to build this Five-Room Bungalow. . . By allowing a fair price for labor, cement, brick and plaster, which we do not furnish, this bungalow can be built for about $2,800.00 including all material and labor."

Read it and weep.

Sears, Roebuck and Co. shows prescience: "Bungalow authorities all agree that this style of architecture has come to stay. They claim that as the years go by the bungalow will even be in more demand than at the present time, and should one wish to sell he will have little difficulty in finding a buyer if his building is constructed along the new lines."

Hoedemaker's design repeats the home's pagoda roofline, emphasizing its curvaceous appeal. The powerful column detailing around the porch, red front steps and deeply textured gray stucco exterior all accentuate the home's distinction. "This house has such history. It comes from a time when craftsmanship was so important," says Hoedemaker.

The handcrafted look continues out into the garden where low, dry-stack stone walls define the edges of the property, flower beds soften the stone, and a corner cutout in the wall forms a little street-side garden.

Early on, the Lonergans reassured neighbors that they didn't plan to ruin the character of the beloved old house. "There's such a long, bad history of second stories in Wallingford that people were really worried," says Karen Lonergan.

Although most of the work called for was above the existing roofline, structural issues required that the house be penetrated all the way to the basement. Most of the surprises came in the engineering and design phase rather than during construction, and in the end, few rooms remained untouched. The Lonergans don't even want to think about how much the 700-square-foot addition ended up costing per foot. Of course, they also got a new porch off the dining room, new wooden windows that open out, and a fresh look throughout the old home. "It snowballed from a small addition to a big project, although it doesn't look like it from the outside," says Hoedemaker.

The stairway leading up to the new master suite is flooded with natural light, making it seem larger than its minimal dimensions. Built-in bookshelves and a large window make walking up the stairs a pleasant journey. At the top, there's a new bath tiled in crisp white hexagons, a master bedroom, view to downtown Seattle, and a little nursery for the baby who arrived in November. A floating wall allows flexibility for future reconfiguration, but for now, it's all working just fine.

Photos Included
By Benjamin Benschneider - The Seattle Times

Multiple-paned windows, French doors and pale paint and floors create light, airy interiors.

The new master bath is part of the 700-square-foot, second-story addition. Its clean, simple lines harmonize with the home's style while the little hexagonal floor tiles add instant age.

The new second story, containing master bedroom, reading room and bath, fits seamlessly on top of the old house, with a roofline echoing the distinctive pagoda style of the main floor.

The Asian feel of the porch beams and pagoda roofline have a modern sensibility, though the original design is nearly a century old.

The built-in breakfast nook at one end of the kitchen used to be a storage space that wasted the beautiful windows. Now the nook is so well used that the family calls it the bistro.

The new master bedroom has an appealing, tucked-beneath-the-eaves feeling despite plenty of light and headroom.

You'd never guess that this stairway to the second floor didn't exist before the remodel. Its materials, trim, lighting and quiet, Zen-like feel integrate so well with the rest of the house.

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Saving Sears
Sears Store Saved...as Hotel, Condos and Apartments

By Linda Mack, Minneapolis Star Tribune
January 6, 2007

That the retail white elephant was saved at all was a miracle.

After the historic 1927 store at Lake Street and Chicago Avenue closed on Christmas Eve 1994, the giant brick structure sat empty, a black hole in the city's heart. For a decade, developers and their ideas came -- and went. Thankfully, threats to raze the place were never carried out.

When the city of Minneapolis put out a new request for proposals in 2003, Ryan Companies offered a plan that included housing and an anchor office tenant, Allina Hospitals and Clinics, that had decided to consolidate 1,650 employees near its flagship Abbott Northwestern Hospital a block away.

The master developer put together a topnotch design team: retail and restaurant masters Shea for the public areas and global market; Elness Swenson Graham for the hotel and the condos and apartments, which were developed by Sherman Associates; the Collaborative Design Group to coordinate the project and design the shell and parking ramp, and Close Landscape Architecture for the urban design.

"It reminds me of Ben Hur -- epic proportions and a cast of thousands," said Mark Swenson of ESG.

After getting development approval from the city in January 2004, Ryan cut two atria in the main building, cleaned out asbestos and other pollutants, built a seven-story parking ramp and proceeded to complete Allina's offices by December 2005.

Residents began moving into the condos and apartments last January, and the Global Market opened in June. The Midtown Exchange Condos, developed by Project for Pride in Living across 10th Avenue S. and designed by UrbanWorks Architecture, were recently completed.

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A Director Decides to Override a Friendship
By Landon Thomas, Jr. - New York Times
January 5, 2007

Everyone who knows him says it: In a tough fight, Kenneth G. Langone is a guy you want in your corner.

But when Robert L. Nardelli, the former chief executive of Home Depot, refused to bend to the will of an exasperated board and accept a pay cut, he lost the crucial support of a friend who as lead director not only recruited him but presided over his compensation contract that would later draw so much fire.

For Mr. Langone, a voluble man whose passions include Italian meatballs, golf and the Roman Catholic Church, it was a surprising reversal. Mr. Langone prides himself on his loyalty to his friends and, as a director who has served on the compensation committees of General Electric, Yum Brands and the New York Stock Exchange, he has never been shy about paying his chief executives well.

Now, people who have spoken with him in recent days say, he is angry with Mr. Nardelli over his unwillingness to have his pay reduced.

In an era of escalating pay, with chief executives on Wall Street taking in $50 million a year and former General Electric executives like David Calhoun getting $100 million compensation deals from private equity investors, being paid well was a way for Mr. Nardelli, a scrappy former football player, to keep score.

In light of Mr. Langone’s vocal and unyielding support for the $190 million pay package that was awarded to Richard A. Grasso, the former chief executive of the New York Stock Exchange, he might have been expected to fight to the bitter end to save Mr. Nardelli.

But as friends who have served on boards with him say, beneath the bluster and occasional histrionics lies a more pragmatic man well aware of his fiduciary duties as a director — especially at Home Depot, a company that he helped found and that has made him a billionaire.

“Ken does not back down, but he also has a strong sense of propriety,” said Gary E. Earlbaum, a real estate executive who introduced Mr. Langone to Bernard Marcus, a founder of Home Depot, more than 30 years ago. “His loyalty is to the enterprise.”

Mr. Langone declined to comment. Mr. Nardelli did not return messages left for him.

At age 71, when many corporate executives start slowing down a bit, Mr. Langone continues to manage a full schedule of corporate, political, legal and philanthropic activities. He is a top financial supporter of Rudolph W. Giuliani, who is weighing a possible run for the White House, and he is the chairman of New York University Medical Center. Mr. Langone also still devotes considerable time and energy to contesting the lawsuit brought against him and Mr. Grasso by Eliot Spitzer, the former attorney general for New York who is now the state’s governor.

That’s all in addition to his day job, running Invemed Associates, the small investment bank he founded.

But it has been his passionate and unstinting defense of Mr. Grasso’s pay, much of which was set during his time on the exchange’s compensation committee, that has come to define Mr. Langone’s public image.

His detractors see him as a living symbol of the excesses of runaway executive compensation, a bullying old-school titan whose tendency to befriend his chief executives blinds any objective ability he might have had to keep a ceiling over their pay.

Mr. Grasso’s huge compensation package, and, according to the lawsuit brought by Mr. Spitzer, his efforts to keep other directors in the dark about it, are perfect examples of this, they say.

“Ken Langone is the root of the problem; his philosophy is that you can never pay a C.E.O. too much money,” said Richard Ferlauto, the director of pension investment policy at the A.F.L.-C.I.O. “That was revealed in his defense of Grasso. Now we are focusing on the role of Langone” at Home Depot, he said. “We blame him and his cronies for the original contract.”

His defenders, on the other hand, point to his long experience as a director and his acute knowledge of a director’s responsibilities, honed from more than 30 years’ experience as an independent investor. Yes, he has a big heart and an inclination to overpay at times, they say, but his ethics are beyond dispute.

“I don’t care what kind of a battle I’m in but I would want Ken Langone on my side, because he is on the side of honor and righteousness,” said Frank Borman, a former director at Home Depot.

Mr. Langone’s pursuit of Mr. Nardelli, whom he met in 1999, when he became a G.E. director, was infused with a sense of glee at the prospect of landing such a corporate star. Mr. Nardelli, well aware of the value of the G.E. pedigree, drove a hard bargain. A result was the 2000 contract, which, with its guarantees and perks, may well be an anachronism today as rich pay packages come under increasing scrutiny.

At Home Depot, Mr. Langone is a particularly involved director. He is chairman of the nominating committee and has played a significant role in shaping the current board. He is also a member of the executive and audit committees. He would frequently start his mornings with a call to Mr. Nardelli, and he thrilled in digesting the latest sales data as well as updates about Lowe’s, the retailer’s main competitor. And, while walking the floors at store outlets was a responsibility for directors, Mr. Langone did more than his share, as well as inspiring the Home Depot sales force at the frequent pep rallies he attended.

Still, when it became clear that a combination of the poor performance of Home Depot’s stock and Mr. Nardelli’s obstinate demeanor had made his position untenable, Mr. Langone threw his support with the rest of the board.

In a 2004 interview for an article about Mr. Langone and his role in the Grasso controversy, Mr. Nardelli said: “Change is difficult. But it is the only constant in today’s environment. It takes courage and leadership.”

“I think Ken stands by good business judgment.”

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More Problems Remain After CEO's Departure;
Daunting Competition
By Ann Zimmerman – Wall Street Journal
January 5, 2007

Investors in Home Depot Inc. may soon discover that Bob Nardelli wasn't the only wrench in the works.

The home-improvement company's stock price rallied after the chief executive left. But plenty of problems remain for the retailer, from a decline in home prices to vigorous competition from Lowe's Cos.

Those twin issues are daunting enough, but Home Depot has a host of internal flaws that are hampering its ability to meet those challenges. The company in recent months has lost several executives, and the top ranks are generally lacking in much-needed retail experience. Home Depot's customer service is lackluster, according to analysts, and its stores are still run by antiquated systems that too often leave shelves short of popular items.

Getting on top of all these issues will take time. The departure of Mr. Nardelli was a quick fix, perhaps clearing the way for some needed changes. But restoring the retailer's once-vibrant stock price will be more of a long-term project for successor Frank Blake.

And views differ over whether Mr. Blake is the right man for the job, considering his lack of retail experience.

Mr. Blake was unavailable for questions, according to a Home Depot spokesman.

Already the stock has given back some of Wednesday's gains. In 4 p.m. composite trading yesterday on the New York Stock Exchange, Home Depot's shares were down 50 cents, or 1.2%, to $40.57, giving the company a market value of $82.8 billion. Many on Wall Street think the stock will fall back more, or, at best, remain at the current price for a while before it starts rising again.

"The question is, 'How does the business perform from here?' " said Colin McGranahan, a retail analyst at Sanford C. Bernstein & Co. who has a "market perform" rating on Home Depot's shares. "Say what you will about Bob Nardelli, but he was a hard worker and knew how to fix problems. That means there is no easy fix. There's no white rabbit."

Mr. McGranahan, who doesn't own any Home Depot shares, is particularly pessimistic about any near-term rebound for Home Depot. He has a near-term price target of $37 on the stock. Sanford Bernstein hasn't done any business with Home Depot in the past year and doesn't own more than 1% of the company.

Most of all, Wall Street is hoping that Mr. Blake hires some top-notch retail talent.

Analysts had criticized Mr. Nardelli for failing to establish a stronger management bench. Some senior Home Depot executives who had been loyal to the founders, Bernie Marcus and Arthur Blank, left in 2001 and 2002 after chafing under Mr. Nardelli's micromanagement and disdain for some of the company's existing practices.

The departure of executives accelerated again last year as questions arose about Mr. Nardelli's future at the company and as investor sentiment soured. In the past six months, the company lost its executive vice president of operations and its longtime marketing head.

Despite claiming to reinvest in Home Depot's stores, Mr. Nardelli never replaced the head of operations -- which was a mistake, analysts said. Instead, Mr. Nardelli reassigned duties in what he said was an effort to streamline the bureaucracy. But Wall Street thought the company's upper-management ranks were too thin.

Investors have made it clear that they want the company to continue investing in the stores, updating inventory and delivery systems, hiring more workers and freshening displays. That will help Home Depot compete against the faster-growing Lowe's with its newer, brighter stores and better customer service. Lowe's has a market value of $49 billion. Its stock was up 14 cents, or 0.4%, to $32.18 on the NYSE yesterday.

In the third quarter, Home Depot's stock rallied when Mr. Nardelli announced that the company was investing an additional $350 million in the store base, even though the company also said its sales and profit were being hurt by a steep slowdown in home sales. But many critics believed this was still too little and much too late.

Matt Fassler, a Goldman Sach retail analyst, is a little more bullish. "I think the stock will be in a wait-and-see mode," he said. Mr. Fassler has a near-term price target of $42. "I think the stock is fairly valued on its fundamentals; its margins are relatively high; and its growth opportunities are modest from here." He rates Home Depot's shares as "neutral," and the retailer has been a client of Goldman Sachs in the past 12 months.

The chief challenge facing Mr. Blake at Home Depot will be selling investors on the retailer's foray into commercial supply, something Mr. Nardelli mostly failed to do.

"I would be coming up with ways either to sell the story to Wall Street or take the two companies -- Home Depot supply and Home Depot retail -- and make them separate companies," said Patricia Edwards, a retail analyst and portfolio manager in the Seattle office of investment firm Wentworth, Hauser & Violich, which manages assets of $7.9 billion and holds 690,000 Home Depot shares. "There's got to be some way to unlock this value."

Regardless of what changes the new management makes, no one thinks the stock will climb soon. "Don't expect the margins to improve and the comps to go up overnight," Sanford Bernstein's Mr. McGranahan said. "The ship doesn't turn that fast, and the environment isn't favorable right now."

---- Kris Hudson contributed to this article.

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The Future of Luxury: Custom Fashion, Cheap
Designer Tom Ford on Finding Individual Style Today; 'To Have Something Different'
By Teri Agins – Wall Street Journal
January 4, 2007

Vera Wang, famous for her couture bridal gowns, is coming out with a line of $69 dresses and $99 handbags at the Kohl's department-store chain. French fashion house Christian Dior is expanding its line of $3,500-and-up customizable handbags, allowing shoppers to choose their own skins, colors and hardware. And pop star Gwen Stefani, on the strength of her successful L.A.M.B. fashion collection, will launch a line of fragrances with Coty Inc. in the fall.

Tom Ford

These are only a few of the changes in store for fashion this year as the industry enjoys a boom in luxury goods and wrestles with a glut of fashion designers.

What can shoppers make of it? With so many sometimes contradictory currents in fashion, we sought out Tom Ford, former creative director of Gucci Group who became a major force in international fashion in the 1990s, to discuss where the industry is going and how to create your own personal style.

Though best known for flourishes such as hip huggers and plunging necklines for women in the 1990s, he is also considered one of the industry's most articulate predictors of the zeitgeist. The 45-year-old Texas-born designer, who left Gucci in 2004, will dive back into fashion apparel this spring when he introduces his first signature menswear line at a new Madison Avenue boutique.

As he surveys the global luxury-goods landscape today, Mr. Ford sees several big trends since his heyday at Gucci. In a shift from the era of mass luxury, which he himself helped usher in, consumers are demanding ever more uniqueness and customization in fashion. The designer also thinks that as high fashion becomes more democratic -- with designer clothes available at Target and Wal-Mart -- everyone is capable of pulling off a stylish individual look.

A perfume called Tom Ford Black Orchid starts at $90 an ounce.

"You should never be intimidated by fashion," he says. "It is meant to be fun."

Mr. Ford's approach to high fashion has always been a blend of innovation and accessibility -- a characteristic that has caused some critics to deride him as more of a marketer than an artiste. But Mr. Ford shrugs. "I have always had very mass tastes -- mass taste on a high level -- and I'm proud of it," he says. Mr. Ford's mission as a designer was always "to be ahead of the curve but never too far ahead," he says.

His own personal style is a variation of an open shirt with a blazer. "I never wear a tie," he says. "Tight things around my neck give me a headache."

Since he left Gucci, Mr. Ford has worked on several projects, introducing Tom Ford sunglasses that average $350, and a new fragrance under license with Estée Lauder Cos. -- the exotic Tom Ford Black Orchid at a starting price of $90 a bottle. Mr. Ford's new menswear boutique will serve up a spread of pricey menswear -- including custom tailored suits -- as well as shirts, ties, shoes, luggage, jewelry and cosmetics with a "new level of service -- a niche that doesn't exist today," he says. He plans to open Tom Ford boutiques in cities such as London and Milan.

Here's a look at some key themes Mr. Ford sees in fashion in the future, as well as a few tips on how people can define their own personal style today:

Mr. Ford says consumers will flock to personalized luxury goods. Christian Dior caters to individual tastes with its line of customizable handbags.

Personalization of Luxury Goods

Mr. Ford's tenure at Gucci occurred during a pivotal moment in high fashion, when Gucci, LVMH Moët Hennessy Louis Vuitton and Prada Group transformed the international fashion scene into multi-brand, billion-dollar empires, fueled by demand for $1,500 and up "it" handbags, the new status totems. From then on, upscale designer togs would be referred to as "luxury goods," steeped in red-carpet hype and snob appeal.

Today, however, consumers no longer want to have the same thing at the same time. "Now everybody wants to have something different," Mr. Ford says. "A woman doesn't necessarily want the same bag her friend has. That is part of the appeal of vintage fashion -- you don't see yourself coming and going. It's something that you found."

Next spring, Mr. Ford will launch 12 new individual fragrances under his eponymous label marketed by Estée Lauder. The idea is "to give everyone something they will be able to latch on to," he says. "People want the ability to be an individual. And that is why luxury keeps growing."

Trends such as the expansion of the customized Dior handbag line suggest other companies also share his vision. For the first time, Coach introduced last fall a collection of handbags and accessories that can be monogrammed with up to three initials.

With more stores offering "cheap chic," such as this Viktor & Rolf outfit from H&M, the democratization of fashion continues to spread, says Mr. Ford.

Cheap Chic Will Stay Chic

As more mass chains -- from H&M, which has most recently teamed with Viktor & Rolf, to Target, which has deals with Isaac Mizrahi and others -- produce low-priced designer clothes and accessories, high fashion is becoming more democratic than ever before.

Sitting in his London home, Mr. Ford says he himself is wearing a pair of Levis and a T-shirt. His T-shirts are always "from Gap or Banana Republic or some underwear label," he notes. Such basic togs can hang in a women's closet alongside, say, a $3,000 Chanel jacket because "the same chord is authenticity," he says. "The idea is that good design should be affordable to all."

"With Target, for example, you go in there and find something that is a great price and wonderful for its intrinsic value. This is democratization of fashion. I love this high-low concept," he says, adding: "There is all this accessibility -- everything is now online."

Tom Ford used the Gucci logo to convey cachet. With many brands having followed suit, he warns that consumers may become skeptical about logos' value.

Logos Lose Their Luster

During his years at Gucci, Mr. Ford used the GG logo as a launch pad for creating cachet, updating it and putting it on everything from shoes to handbags to dog beds.

Nowadays designers of every stripe high and low plaster logos on a broad array of merchandise, so that logos no longer carry the connoisseurship and cachet they once did. "I never thought logos were the way to sell products," he says. Too often they are showy labels that don't represent merchandise that is high quality. A logo is "only as valuable as the brand it represents," Mr. Ford says. "People now are maybe more suspicious of that hollow product behind the logo."

Still, he understands why many consumers are fixated on wearing logos: It demonstrates they belong to an elite group. "It's just part of human nature," he says.

Tom Ford has a new line of sunglasses, with an average price of $350.

Celebrity Marketing Is Here to Stay

"It has become so formulaic -- the celebrities and the party pictures that run all over the world -- and I am just tired of it," says Mr. Ford, who spends part of the year at his home in Los Angeles. "I have a lot of friends who are actors and actresses, and in some cases [all this publicity centering on fashion] hurts their careers. It demystifies them -- you get so tired of seeing someone's face on an advertising billboard."

In 2006, several luxury goods makers, including Versace, veered away from stars to showcase models in their ad campaigns. Yet celebrities continue to dominate most fashion advertising and product endorsements. And a growing number of stars including Gwen Stefani and Beyonce have been pushing their own fashion lines.

"In a way, it is understandable [that celebrity marketing thrives]. They are a constant in our lives. In a way, they have become our family," Mr. Ford says. "You can move from one city to another, but you can pick up a magazine and know what Lindsay Lohan is doing. You know everything about them."

Sensual Is the New Sexy

At Gucci, Mr. Ford was the designer most responsible for ushering in the ultra-sexy style of the 1990s. There have always been sexy fashions, but that decade's look, from low-cut pants to gowns with plunging necklines, sizzled with sex appeal.

"Right now, sexiness in fashion has given way to sensuality" -- a more subtle look, he notes. But "everything is cyclical," says Mr. Ford. Sexiness in fashion "is never going to go away. Because we are human beings and that is one of our fundamental drives: our attraction to other people."

The reality is that while beauty standards come and go, people "want to look beautiful and want to look attractive in clothing."

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Pressure's on for CEOs to deliver--now
By Susan Chandler - staff reporter – Chicago Tribune
January 4, 2007

The best thing about being a CEO these days may be the exit package.

More corporate chieftains are getting the boot after relatively short tenures even as the size of their severance checks balloons, management experts say. Robert Nardelli, the autocratic chief executive of Home Depot Inc., became the latest example Wednesday as he was shown the door at the world's largest home improvement retail chain.

Nardelli, once a rising star at General Electric Co., had much to do with his downfall, experts said. But his departure is part of a larger trend: Boards are running short on patience.

"The average tenure of a CEO is 48 months. That's not very long," said Wally Scott, professor of management at Northwestern University's Kellogg School of Management. "Boards are intervening much more strongly to make changes when they think change is required. They have itchy trigger fingers."

CEOs have the same short-term mind frame, adds Peter Crist, a headhunter in Hinsdale who specializes in filling the top three positions at large publicly traded companies.

"Whether they know it or acknowledge it, everybody in my world lives on a five-year cycle. That manifests itself in how long people stay in the chairs but also how the contracts are written. Check the contract of a coach, a CEO or even a head of a not-for-profit. They tend to run in five-year cycles."

Nardelli managed to anger his critics even on his way out. His exit package totaled $210 million, an extraordinarily large number even by today's high corporate compensation standards and a figure that is roughly seven times what Home Depot set aside last year to reward stores and store-level employees for good customer service.

"It's an egregious amount any way you slice it. It's not a number you will see in today's climate," said Crist.

He noted that Home Depot may have been legally obligated to pay much of that amount as part of the contract Nardelli signed when he joined the company in 2000 at the top of a long bull market.

That's little comfort to Richard Ferlauto, director of pension and benefits for the American Federation of State, County and Municipal Employees, the public-employees union that owns 23,000 Home Depot shares. The union has been a frequent critic of Nardelli's compensation and other issues.

The size of Nardelli's package, Ferlauto says, makes it more like a "platinum helicopter" than a golden parachute.

Ferlauto vows that the union's fight with Home Depot is not over. "It's a continuing story. We're going after the board."

That's exactly what companies' board members are hoping to avoid by dumping underperforming CEOs faster, corporate governance experts say.

"The last thing you want is to be sued, successfully or not," said Scott at Northwestern. "That's not the reason you join boards."

The stress on boards is coming from the world of big money--managers of pension funds, hedge funds and private-equity funds--all of whom are under pressure themselves to produce fat returns for their clients.

"Shareholders definitely have a shorter fuse these days. It's just the world we live in," said Anthony Sabino, a law professor at St. John's University and a New York attorney who specializes in corporate litigation. "It's been a long time since the investing public had any patience with year-to-year results. Now we focus on quarterly results, and sometimes it's daily results."

For examples of CEOs who have been on a short leash, one need look no further than Kraft Foods Inc. in suburban Northfield. Kraft promoted Betsy Holden to co-CEO in 2001 and then moved her aside in 2003. Roger Deromedi, who became Kraft's sole CEO in 2003, was ousted himself three years later.

In December J.C. Penney Co. fired its chief operating officer, Catherine West, after just five months, reportedly because she had not learned the retail business quickly enough. Previously she had worked in the credit card industry.

This week, Mike Zafirovski, the new chief of Nortel Networks Corp., expressed concern about his job security in The Wall Street Journal after only 13 months on the job.

When Nardelli arrived at Home Depot's Atlanta headquarters six years ago he seemed a natural to lead the company into the next era. Under founders Arthur Blank and Bernard Marcus the chain had prided itself on hiring former plumbers and electricians and paying them good wages to help customers navigate the world of home improvement. It kept prices low with no-frills warehouse-type stores and encouraged local managers to tailor their product selections to the taste of local markets.

Boosted by growth in home ownership Home Depot had expanded to 1,000 stores in 20 years, displacing Sears, Roebuck and Co. in the Dow Jones industrial average and becoming the country's second largest retailer, behind Wal-Mart Stores Inc.

Top-down management

But after Nardelli arrived he quickly imposed a top-down style. In one of many efforts to cut costs Nardelli replaced many full-time workers with part-timers. He slashed the bonus pool for front-line employees even as his own pay package hit $28.5 million in 2004. Customer-service ratings last year hit the bottom of the barrel among major U.S. retailers in the University of Michigan's annual survey.

At the same time, rival Lowe's Cos. was gaining market share by opening bright, welcoming stores that contrasted sharply with Home Depot's concrete floors and towering shelves.

Nardelli also worried retail analysts about his commitment to the core big-box business by going on an acquisition binge and expanding into endeavors that included contractor supply outlets and convenience stores.

In the world of corporate governance, Nardelli's approach was unusually high-handed.

Last year, for example, Nardelli moved Home Depot's annual meeting out of town, told board members not to make an appearance and severely limited shareholders' time to ask questions.

In May, Nardelli stopped issuing monthly sales results, a key measure Wall Street analysts use to assess the health of retail chains.

Declining stock price

Despite the fact that Home Depot had posted yearly sales increases averaging 12 percent and profits had doubled, the company's stock went nowhere. Home Depot's stock, which traded around $60 per share the year he arrived, closed Wednesday at $41.07 a share, up 91 cents on the news of Nardelli's departure.

Home Depot's stock price translates into a price-earnings ratio of slightly more than 14. Wal-Mart Stores Inc., which has been having its own troubles these days, trades at a P-E multiple of more than 18. Sears Holdings Corp., which has been losing market share rapidly, trades at a P-E of nearly 20.

Nardelli reversed course slightly last year, saying he would refocus Home Depot on providing good customer service. But it was too late.

He might take comfort in the fact that he is not the only high-profile person in Atlanta who lost his job this week. Jim Mora, coach of the Atlanta Falcons, was fired after his team failed to make the playoffs. The Falcons happen to be owned by Home Depot co-founder Arthur Blank.

"Sports or business, it's all the same," attorney Sabino said. "The team doesn't win, fire the coach."

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Executive's Fatal Flaw:
Failing to Understand New Demands on CEOs
By Alan Murray – Wall Street Journal
January 4, 2007

Robert Nardelli's demise as chief executive of Home Depot resulted, in part, from his failure to understand how profoundly the job of CEO has changed in recent years.

Mr. Nardelli was old school. In an interview last fall, as his public-relations problems were compounding, he acknowledged he had gotten "too focused on the idea that you do your job, you take care of your numbers, and the rest will take care of itself." Some of Mr. Nardelli's numbers were hard to argue with. In six years on the job, he doubled Home Depot's sales and more than doubled its earnings.

Did Home Depot Chief Executive Bob Nardelli deserve to lose his job? And if so, why? Join the discussion.1 Alan Murray will read your thoughts and post replies.What Mr. Nardelli missed, however, is that in the post-Enron world, CEOs have been forced to respond to a widening array of shareholder advocates, hedge funds, private-equity deal makers, legislators, regulators, attorneys general, nongovernmental organizations and countless others who want a say in how public companies manage their affairs. Today's CEO, in effect, has to play the role of a politician, answering to varied constituents. And it's in that role that Mr. Nardelli failed most spectacularly.

There were plenty of other reasons a board might want to dump him. He provided no return to shareholders. He pursued a controversial strategy of expanding into the low-margin wholesale business. And he accepted an exorbitant pay package.

But other CEOs have survived similar criticisms. Mr. Nardelli's failure to do so reflects, at least in part, his inability to adapt to a new era of greater scrutiny.

"I used to play football," he said when asked about the challenges of being a public company CEO today. "In football, you always know the score. Now, it's like we are ice-skating, and you've got a bunch of judges on the sideline shouting out the scores."

As failures go, Mr. Nardelli's isn't half bad. He walked away with an exit package of $210 million -- and that figure was calculated before announcement of his resignation boosted the potential value of his stock options yesterday.

Much of the package is due to the rich employment contract he negotiated with the Home Depot board before leaving General Electric Co., where he was one of three finalists to succeed Jack Welch. Mr. Welch convinced his board to give all three finalists large batches of stock options, telling board members they would have to make good on only one man's options, one director says. Upon leaving GE, the board was told, the two runners-up likely would use those awards to negotiate pay at their next jobs -- which is exactly what Mr. Nardelli and James McNerney, who is now CEO of Boeing, did.

Yet Mr. Nardelli's extravagant pay became his biggest problem. It prompted an attack from shareholder advocates like Richard Ferlauto, who runs investment policy for the American Federation of State, County and Municipal Employees, one of the nation's largest labor unions.

Political Error

Mr. Ferlauto helped organize protests at Home Depot's annual meeting last year, prompting Mr. Nardelli to commit his gravest political error: Aware of the protests to come, he convinced other board members to stay away from the meeting, and restricted shareholder questions to one minute. That sealed his public image as a callous and entrenched corporate leader, and even prompted a call from his former boss, Mr. Welch.

In response, Mr. Nardelli belatedly tried to become a politician. He went on a "listening" tour to visit 25 of the company's largest shareholders, and he granted interviews to a number of television and newspaper reporters. He apologized for his ham-handed handling of the annual meeting.

But he didn't apologize for his pay package. And he didn't reduce it.

That left him vulnerable last month when an investment firm, Relational Investors LLC, announced it was mounting a proxy battle to put new directors on the Home Depot board. Ralph Whitworth, who heads Relational, said his complaint had less to do with Mr. Nardelli's pay than his strategy. Mr. Whitworth believes Home Depot erred in expanding into the contractor-supply business. But Mr. Nardelli's weakened standing greatly increased the odds that Mr. Whitworth might win his proxy battle. So Home Depot's directors acted first.

Raised in a blue-collar family and educated in public schools, Mr. Nardelli was upset when informed by Mr. Welch that he had lost out to Ivy Leaguer Jeffrey Immelt for the top job at GE. He believed he had been a better performer, building revenue at the company's power-turbine business from $770 million in 1995 to $2.8 billion in 2000.

But subsequent events have confirmed the wisdom of Mr. Welch's choice. Like Mr. Nardelli, Mr. Immelt has struggled with a languishing stock price. But in addition to generating good operating results, Mr. Immelt has played the CEO's political role with great skill. He has tied his own pay closely to performance. He has eschewed the kind of employment contract that is now rewarding Mr. Nardelli. He has reached out to a wide range of constituent groups. And he has adopted a number of popular initiatives, such as his "eco-imagination" program which, among other things, includes an effort to reduce GE's emissions of greenhouse gases.

As a result, Mr. Immelt wins awards, graces magazine covers, and is widely praised as one of America's best CEOs.

Learned the Lessons

Procter & Gamble Co.'s A.G. Lafley is another CEO who has learned the lessons of the post-Enron era. Instead of catering just to shareholders, he makes a broad appeal to "stakeholders" -- a group that, by his definition, includes shareholders, employees, customers, consumers and the communities in which all these people live. When I asked him last year whether that makes his job sound like that of a global politician, he responded: "Like it or not, we are in a global political world. I've concluded I'm in it anyway, and I might as well deal with it anyway."

No one exemplifies the new CEO more than Wal-Mart Chief Executive Lee Scott. When Mr. Scott found his company under attack by a well-organized political campaign, he responded in kind. He reached out to his opponents, took polls of opinion leaders and hired political consultants. He also embraced environmentally friendly policies, improved employee health-care coverage and began advocating policies like an increase in the minimum wage.

Mr. Scott insists the environmental positions he's taken and the other policies he's adopted are all good for the company's bottom line. In an interview in his office in Bentonville, Ark., last year, Mr. Scott said: "The generation of people I work with -- like A.G. Lafley, who has been here in this office in the last two months, or Jeff Immelt, who has been in this office in the last three weeks -- feel there is a business reason to do this."

Taking the political route may be necessary to success in the post-Enron world, but it, alone, is not sufficient. Citigroup CEO Charles Prince has tried to appease his critics by making ethics a hallmark of his time at the top, but that hasn't helped the bank's lagging performance or silenced its critics.

In any event, it's clear Mr. Nardelli never bought into the approach favored by his colleagues like Mr. Immelt, Mr. Lafley, and Mr. Scott. Instead, he fretted that the corporate system is under attack.

"I am very concerned with the future of business and the capitalistic system in this country," he said last fall, expressing his concern about the repeated attacks on public companies. "Somebody has yelled fire in the auditorium. If you stand back, you've got to say that we as a country should share a growing concern as it relates to the capitalist system. The things that got us to where we are are under attack."

One consequence of the increased pressures on public companies and their CEOs, Mr. Nardelli noted, is a rush of both money and talent into private equity, which is shielded from many pressures that affect public companies. "Not everyone can go private," he said.

Not everyone, but how about Mr. Nardelli? He wasn't giving interviews or any hint of his plans yesterday. But his strong background in operational management, his distaste for the public spotlight and his hefty severance check in need of investing may make him the perfect candidate for a private-equity firm.

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Market Place
A Warning Shot by Investors to Boards and Chiefs
By Gretchen Morgenson – New York Times
January 4, 2007

Arrogance has never been attractive in a leader. Now, in corporate chief executives anyhow, it may be a career ender.

The surprising defenestration yesterday of Robert L. Nardelli, head of Home Depot and one of the nation’s most imperious and highly paid chief executives, was a victory for shareholders hoping to force corporate directors to be more accountable on the increasingly incendiary issue of executive pay.

Even though the board gave him $20 million that was not a part of his employment contract, perhaps smoothing his way out the door, the departure seemed to be a watershed. No longer can executives demand — and directors happily grant — contracts worth hundreds of millions of dollars without at least some shareholders uttering a peep.

Indeed, Mr. Nardelli’s resignation seems to indicate a rising fear among Home Depot’s directors that they would be subject to even more investor ire and personal embarrassment during the 2007 proxy season than they encountered in 2006, when Mr. Nardelli ran the annual shareholder meeting like a lord over his fief.

“The departure of Nardelli is good news for shareholders,” said Frederick E. Rowe Jr., a money manager in Dallas and president of Investors for Director Accountability. “To borrow from Winston Churchill, this is the end of the beginning in the war to make directors accountable to the shareholder owners they represent.” Mr. Nardelli’s fall from the executive firmament was fairly stunning. In just six years, he went from being one of the most sought-after chief executives, forged in the management crucible that is General Electric, to a top target of investors outraged by his $245 million in total pay over the last five years. That amount was seen as completely at odds with the dismal performance of Home Depot stock on his watch. Yesterday, the shares closed at $41.07, almost 6 percent lower than they were the day Mr. Nardelli arrived at Home Depot in December 2000.

“C.E.O.’s now will understand that they’ve got to put their conscience and shareholder wealth well above their personal gain,” said Jeffrey M. Cunningham, chairman and chief executive of Directorship, an online information service for board members. “Boards create termination packages when no one even contemplates there is going to be a termination and they are extraordinarily rich. You are going to see all those plans rethought and rationalized for the new environment.”

Shareholders of Home Depot have been smoldering for several years about the company’s executive pay practices. Back when Mr. Nardelli arrived, for example, shareholders raised eyebrows after the company granted him a $10 million loan that it subsequently forgave. He has earned $20 million to $37 million each year since he joined the company.

In 2004, the company quietly changed the measurement it used to calculate long-term incentive pay for executives, upsetting investors when they learned of it later. Previously, the performance measure was based on a peer-group comparison, but the new measure involved only the company’s growth in earnings per share. It was more easily reached because it was based solely on Home Depot’s performance not that of other companies.

To some shareholders, changing the performance target in the middle of a year seemed an attempt to ensure a payout despite a dismal performance.

“We had a problem with that change,” said Bess Joffe, manager for the Americas at Hermes Investment Management, a money management firm owned by the British Telecom Pension Scheme, the largest pension plan in Britain. “After all, shareholders don’t get to change the terms under which they bought their shares midstream.”

But it was not until last year that Home Depot’s shareholders began to express serious disenchantment with the company’s directors over Mr. Nardelli’s pay. Last March, about two months before Home Depot’s annual shareholder meeting, the board was named one of the 11 worst executive pay offenders by the Corporate Library, a corporate governance research firm. In the weeks leading up to the meeting, shareholder advisory firms recommended withholding votes from Home Depot directors to voice their dismay over the disconnect between performance and pay at the company.

But Mr. Nardelli’s biggest error, and the act that may have set his demise in motion, was his shocking decision to run the annual meeting last May alone, insisting that his directors stay away and limiting questions from the shareholders.

“I’ve never heard of anything like that happening before, where directors don’t show up,” Ms. Joffe said. “It’s the one time of year that shareholders have a right to be present and stand up and speak their mind and directors have to respond.”

Stockholders were outraged. At least 30 percent of shareholders voting at the meeting withheld support from 10 of the company’s directors. Some 32 percent withheld support from Mr. Nardelli. Almost 36 percent of those voting withheld support from Claudio X. Gonzalez, chairman and chief executive of Kimberly-Clark’s Mexico operations and the director who had headed the compensation committee when the company changed its performance goals midstream.

Many shareholders also favored a proposal urging the Home Depot board to allow its investors to vote on an advisory basis to approve the company’s compensation; 40 percent voted for the measure.

Shareholders also supported a measure that would have required the board to accept resignations from directors who failed to receive support from a majority of votes cast. After the meeting, Home Depot said it would require such a vote from shareholders for the election of its directors.

Even so, the company continued to tinker last year with its pay practices in a way that may have been intended to generate pay for Mr. Nardelli in periods of poor performance at the company. Last November, a Home Depot spokesman disclosed that the company’s huge stock buybacks, which have the effect of increasing earnings when measured per share, would be included in the calculation of long-term incentive targets. In previous years, the effects of the buybacks were excluded from the calculations.

John A. Hill, the chairman of Putnam Funds, was one investor whose organization voted against Home Depot management at last year’s meeting. He said he was optimistic that Mr. Nardelli’s resignation signaled a new responsiveness among corporate directors. But he is uncertain.

“I think if a lot more shareholders withhold their votes for this board in the upcoming proxy season over their agreement with Nardelli, then it will really start to have an impact,” Mr. Hill said. “But as long as it is a minority, it won’t.”

Mr. Hill personally experienced Mr. Nardelli’s disdain toward his shareholders. As chairman of Putnam Funds, he wrote a letter after the annual meeting to Mr. Nardelli explaining why he had not earned the funds’ support at the election. He did not get a reply until August, when a reporter asked Home Depot why the chief executive had not responded to one of its large shareholders.

“He had become a lightning rod with the stock down,” Mr. Hill said. “But his not replying to our letter showed an arrogance there that came in on him.”

It seems that “my way or the highway” — Mr. Nardelli’s message to Home Depot’s beleaguered shareholders in recent years — does not play that well anymore.

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Goody's Family Clothing Names Mary Kwan President
PRN Newswire
January 3, 2007

Mary P. Kwan has been named president of Knoxville, Tenn.-based Goody's (Goody's Holdings Inc.), a retailer of moderately priced family apparel. In her new role, Kwan will oversee merchandising, licensing and planning, allocation, product development and design, quality assurance, sourcing, marketing and e-commerce.

"Mary has deep experience in both the art and science of retail," said Isaac Dabah, CEO of Goody's and GMM Capital LLC. "She can seamlessly cross over from merchandising to planning and allocation to marketing. I'm looking forward to the implementation of her winning strategies as we refocus the Goody's brand."

Prior to joining Goody's, Kwan served as senior vice president for Quiksilver Incorporated in Huntington Beach, Calif. While there, Kwan led the merchandising and design efforts for the Roxy brand, as well as sales and profit growth of juniors, girls, accessories and footwear. Her impressive career in retail apparel also includes executive positions at Levi Strauss & Company; Lane Bryant, a division of The Limited Inc.; Sears Roebuck & Co.; and Mervyn's, a division of Target Corporation.

Kwan got her retail start on the department store floor at Mervyn's, working her way up to divisional vice president of children's apparel. She then refined her experience to incorporate specialty retail at Lane Bryant. Her next ventures at Levi Strauss and Quiksilver focused on wholesale in addition to traditional retail. Kwan successfully launched Levi Strauss Signature(TM) Brand, a line of casual clothing, to the masses. In the mid- '90s, Kwan's top-to-bottom merchandising efforts were pivotal in helping transform Sears, increasing revenue and margin growth to the top tier.

Throughout her career, Kwan has been involved in numerous civic activities, including serving on the board of directors for Oasis for Girls, Columbus Family and Child Guidance Center, and K.I.D.S. - Kids in Distressed Situations. In 1995, Kwan was awarded Working Mother's "Mothering That Works" Award for maintaining balance between family, work and community involvement.

"I'm thrilled to join Goody's at this exciting stage in its growth and look forward to empowering our people," said Mary Kwan, president of Goody's. "This opportunity is a perfect collaboration between my passion for retail and the passion and fun inherent in Goody's heritage."

Goody's targets value-conscious customers and provides a broad selection of merchandise featuring labels such as Adidas, Alfred Dunner, Carter's, Dockers, l.e.i., Lee, Levi's, Mudd, Nike, Reebok, Requirements, Sag Harbor, U.S. Polo Association and Zana-di. It is also the exclusive retailer of Duck Head.

To complement these brand names, Goody's has introduced its own clothing lines for men, women and children. The signature lines include Ivy Crew for men; Mountain Lake and Goodclothes for women; OCI for juniors, young men and children; and Baby Crew for infants and toddlers. With departments for each member of the family, Goody's provides a wide assortment of active, casual and career wear in a variety of colors and sizes for all body types.

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Wal-Mart Seeks New Flexibility In Worker Shifts
By Kris Maher – Wall Street Journal
January 3, 2007

The nation's biggest private employer is about to revamp the way it schedules its work force, in a move that could shake up many employees' lives.

Early this year, Wal-Mart Stores Inc., using a new computerized scheduling system, will start moving many of its 1.3 million workers from predictable shifts to a system based on the number of customers in stores at any given time. The move promises greater productivity and customer satisfaction for the huge retailer but could be a major headache for employees.

The change is made possible by a software system that can crunch an array of data, part of a shift toward computerized management tools that can help pare costs and boost companies' bottom lines. But it also could demand greater flexibility and availability from workers in place of reliable work shifts -- and predictable paychecks.

WSJ assistant managing editor Alan Murray discusses Wal-mart's new worker scheduling system2.Wal-Mart began implementing the new system for some workers, including cashiers and accounting-office personnel, last year. As the world's largest retailer, the Bentonville, Ark., company often sets the standard for others, and many chains already are heading in the same direction.

Others that have rolled out advanced scheduling systems in the past year or are currently doing so include Payless ShoeSource Inc., RadioShack Corp. and Mervyns LLC. Payless expects to have its system in 300 of 4,000 stores by the end of January. The system, designed by Kronos Inc., tracks individual store sales, transactions, units sold and customer traffic in 15-minute increments over seven weeks, and compares data to the prior year's, before scheduling workers.

Payless hopes to "optimize our schedules to better anticipate when customers will be in our stores so that we can better engage them," says Larry Leibach, the shoe retailer's director of project management.

A company using these fine-tuned programs might start the day with a few employees on hand at many stores, bring in a bunch more during busy midday hours, and gradually pare down through the day before bulking up for the evening rush.

Staffing is the latest arena in which companies are trying to wring costs and attain new efficiencies. The latest so-called scheduling-optimization systems can integrate data ranging from the number of in-store customers at certain hours to the average time it takes to sell a television or unload a truck, and help predict how many workers will be needed at any given hour.

Companies also hope the scheduling systems will cut litigation by helping them comply with federal wage-and-hour laws, and variations at the state level on everything from the timing and frequency of breaks to how many hours minors can be scheduled. Moreover, retailers say tighter scheduling lets them better serve customers by shortening checkout lines.

"There's been a new push for labor optimization," says Nikki Baird of Forrester Research Inc. "You want to have the flexibility to more closely match ... shifts to when the demand is there."

But while the new systems are expected to benefit both retailers and customers, some experts say they can saddle workers with unpredictable schedules. In some cases, they may be asked to be "on call" to meet customer surges, or sent home because of a lull, resulting in less pay. The new systems also alert managers when a worker is approaching full-time status or overtime, which would require higher wages and benefits, so they can scale back that person's schedule.

That means workers may not know when or if they will need a babysitter or whether they will work enough hours to pay that month's bills. Rather than work three eight-hour days, someone might now be plugged into six four-hour days, mornings one week and evenings the next.

Some analysts say the new systems will result in more irregular part-time work. "The whole point is workers were a fixed cost, now they're a variable cost. Is it good for workers? Probably not," says Kenneth Dalto, a management consultant in Farmington Hills, Mich.

Unions have criticized Wal-Mart for its scheduling changes, saying the company is forcing people to be available to work more hours each week but to sacrifice a more regular schedule. Paul Blank, campaign director for WakeUpWalMart.com3, funded by the United Food and Commercial Workers union, says the new scheduling system has "devastating implications" for employees. "What the computer is trying to optimize is the most number of part-time and least number of full-time workers at the lowest labor costs, with no regard for the effect that it has on workers' lives," he says.

Wal-Mart spokeswoman Sarah Clark says the system isn't intended to schedule fewer workers, and hasn't where it has been implemented so far. The company says that in one test last year in 39 stores, 70% of customers said the checkout experience had improved. "The advantages are simple: We will benefit by improving the shopping experience by having the right number of associates to meet our customers' needs when they shop our stores," Ms. Clark said.

In the past, store managers for Wal-Mart and other huge retailers, including Sears Holdings Corp.'s Kmart, Payless and J. Crew, scheduled workers based on store promotions and weekly sales figures from the previous year. By comparison, the software systems created by workforce-management software companies such as Workbrain Inc., Kronos and CyberShift Inc. rely on real-time data feeds, such as sales rung up at the cash register and customer traffic.

The systems can boost productivity by freeing up managers. While it can take managers an entire day to create schedules for several hundred workers at a single big-box store, staffing can now be drawn up across an entire company in a few hours. Workbrain says it generates schedules for Target Corp.'s 350,000 U.S. employees at 1,500 locations in less than six hours. Target declined to comment on its scheduling system.

Store chains spent $55 million on licensing fees for work-force-management software in 2005, up from $44 million in 2004, according to AMR Research Inc. in Boston. AMR analyst Robert Garf estimates revenue for these systems grew by 15% to 20% in 2006. "We're really at this tipping point today," he says.

Wal-Mart is rolling out the new "optimizer" system from an outside vendor in all its stores and for all employees this year. Wal-Mart asks hourly employees to fill out the hours they can work on "personal availability" forms. A copy provided by WakeUpWalMart states that all full-time cashiers and customer-service workers are encouraged to consider including "if at all possible" a weekend shift every week. "Limiting your personal availability may restrict the number of hours you are scheduled," the form reads.

Some workers say the form has been used to pressure them to be open to more shifts. Tami Orth, a full-time cashier in Ludington, Mich., says she used to work a regular schedule of nearly 35 hours a week, with Mondays and Wednesdays off. In May, managers began to assign her as few as 12 hours a week, and her shifts began to fluctuate. "You can't budget anything," says Ms. Orth, who earns $9.32 an hour.

Some longtime workers also say they believe managers use the system to pressure them to quit. After working 16 years at a Wal-Mart in Hastings, Minn., Karen Nelson says managers told her she had to be open to working nights and weekends. After she refused, her hours were trimmed, though they have been restored in recent months. "The store manager said he could get two people for what he pays me," says Ms. Nelson, who earns about $14.50 an hour.

Ms. Orth and Ms. Nelson both had contacted union critics of the company in recent months.

Ms. Clark denied managers use the system to pressure people to change their availability or force out seasoned workers. She also said the new system makes schedules more consistent.

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Nardelli Resigns as CEO, Chairman of Home Depot
By Kevin Kingsbury – Dow Jones Newswires
January 3, 2006

Home Depot Inc.'s board and Chairman and Chief Executive Bob Nardelli have agreed that he should leave the company, and he will take a $210 million severance package with him.

The news sent shares of the home-improvement retailer 4% higher in premarket trading. The stock was recently at $41.86, compared with Friday's closing price of $40.16.

The departure, effective yesterday, comes as Mr. Nardelli and the board have been heavily criticized about his $245 million package coupled with the company's languishing stock price since joining Home Depot.

Mr. Nardelli will be succeeded by Vice Chairman Frank Blake.

In a statement, the board expressed its gratitude to Mr. Nardelli "for his strong leadership of The Home Depot over the past six years. ... The Home Depot has delivered strong and consistent growth and gained market share under Bob's leadership, and we believe that the company is well positioned to continue to do so."

Mr. Nardelli took the top job at Home Depot after being passed over to take over General Electric Co. after Jack Welch's retirement.

Mr. Blake, who served as deputy Energy Secretary, has been on the board since 2002. Prior to that, he served in a variety of executive roles at GE.

Mr. Nardelli and Home Depot have agreed in principle to the terms of a separation agreement agreed to as part of his contract upon joining the company. That would give him consideration currently valued at approximately $210 million, which includes $20 million in cash, the acceleration of unvested deferred stock awards now worth about $77 million, the payment of previously earned and vested deferred shares worth nearly $44 million and the payment of retirement benefits currently valued at approximately $32 million.

Home Depot said Mr. Nardelli has also agreed not to compete with the company for one year, not to solicit employees or customers for four years and other restrictive covenants.

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The Energy Challenge
Power-Sipping Bulbs Get Backing From Wal-Mart
By Michael Barbaro – New York Times
January 2, 2007

As a way to cut energy use, it could not be simpler. Unscrew a light bulb that uses a lot of electricity and replace it with one that uses much less.

While it sounds like a promising idea, it turns out that the long-lasting, swirl-shaped light bulbs known as compact fluorescent lamps are to the nation’s energy problem what vegetables are to its obesity epidemic: a near perfect answer, if only Americans could be persuaded to swallow them.

But now Wal-Mart Stores, the giant discount retailer, is determined to push them into at least 100 million homes. And its ambitions extend even further, spurred by a sweeping commitment from its chief executive, H. Lee Scott Jr., to reduce energy use across the country, a move that could also improve Wal-Mart’s appeal to the more affluent consumers the chain must win over to keep growing in the United States.

“The environment,” Mr. Scott said, “is begging for the Wal-Mart business model.”

It is the environmental movement’s dream: America’s biggest company, legendary for its salesmanship and influence with suppliers, encouraging 200 million shoppers to save energy.

For all its power in retailing, though, Wal-Mart is meeting plenty of resistance — from light-bulb makers, competitors and consumers. To help turn the tide, it is even reaching out to unlikely partners like Google, Home Depot and Hollywood.

A compact fluorescent has clear advantages over the widely used incandescent light — it uses 75 percent less electricity, lasts 10 times longer, produces 450 pounds fewer greenhouse gases from power plants and saves consumers $30 over the life of each bulb. But it is eight times as expensive as a traditional bulb, gives off a harsher light and has a peculiar appearance.

As a result, the bulbs have languished on store shelves for a quarter century; only 6 percent of households use the bulbs today.

Which is what makes Wal-Mart’s goal so wildly ambitious. If it succeeds in selling 100 million compact fluorescent bulbs a year by 2008, total sales of the bulbs in the United States would increase by 50 percent, saving Americans $3 billion in electricity costs and avoiding the need to build additional power plants for the equivalent of 450,000 new homes.

That would send shockwaves — some intended, others not — across the lighting industry. Because compact fluorescent bulbs last up to eight years, giant manufacturers, like General Electric and Osram Sylvania, would sell far fewer lights. Because the bulbs are made in Asia, some American manufacturing jobs could be lost. And because the bulbs contain mercury, there is a risk of pollution when millions of consumers throw them away.

Michael B. Petras, vice president of lighting at G.E., concedes that “the economics are better with incandescent bulbs.”

All that has only spurred Wal-Mart to redouble its efforts — and, in typical fashion, it is asking those who may be hurt by the change to help achieve it.

During an extraordinary meeting in Las Vegas in early October, competing bulb makers, academics, environmentalists and government officials met to ponder, at times uncomfortably, how Wal-Mart could sell more of the fluorescent lights.

The proposals discussed at what Wal-Mart dubbed the “light bulb summit” ranged from the practical (advertise the bulbs on the back of a Coke 12-pack) to the quixotic (create a tax on incandescent bulbs to make them more expensive).

Selling 100 million bulbs “is not a slam dunk by any stretch of the imagination,” Stephen Goldmacher, an executive at Royal Philips, the Dutch company that is one of the world’s largest light-bulb makers, told the group. “If this were easy, it would have happened already.”

The attendees did not need to look far for evidence. Wal-Mart had asked the owners of the Mirage Hotel and Casino, where the conference was held, to commit to using the energy saving bulbs in its guest rooms in time for the meeting. The hotel politely declined.

It is not alone. Compact fluorescent bulbs, introduced in the United States with much fanfare in 1979 by Philips just as the nation’s second energy crisis of the decade was getting under way, have never captured the public imagination.

The new bulbs — lighted by sparking an efficient chemical reaction, rather than heating a metal filament — were ungainly, took several seconds to light up and often did not fit into traditional light fixtures.

Since then, refinements have made them far more convenient to use, reducing their size and price as well. But Wal-Mart sold only 40 million in 2005, compared with about 350 million incandescent bulbs, according to people briefed on the figures.

And it would have stayed that way unless Wal-Mart decided to go green. More than a year ago, Mr. Scott, the company’s chief executive, began reaching out to some of environmental groups, telling them that Wal-Mart, long regarded as an environmental offender, wanted to become a leader on issues like fuel efficiency and greenhouse gas emissions.

Mr. Scott viewed such a move as a way to use Wal-Mart’s influence to improve the environment, cut costs and, of course, burnish the company’s bruised image. In September 2005, Mr. Scott and Andy Ruben, Wal-Mart’s vice president for strategy and sustainability, drove 6,000 feet to the Mount Washington Observatory in New Hampshire with Steve Hamburg, an environmental studies professor at Brown University, and Fred Krupp, the president of the advocacy group Environmental Defense.

At the summit, where scientists measure climate change 24 hours a day, the men discussed global warming, acid rain, the hole in the ozone layer and what Wal-Mart could do about them.

“You need to look at what is being sold on the shelf,” Mr. Hamburg recalled telling Mr. Scott over a dinner of turkey and mashed potatoes. He began talking excitedly about compact fluorescent bulbs. “Very few products,” he said, “are such a clear winner” for consumers and the environment.

Soon after returning from the trip, Wal-Mart publicly embraced the bulbs with the zealotry of a convert. In meetings with suppliers, buyers for the chain laid out their plans: lower prices, expanding the shelf space dedicated to them and heavily promoting the technology.

Light-bulb manufacturers, who sell millions of incandescent lights at Wal-Mart, immediately expressed reservations. In a December 2005 meeting with executives from General Electric, Wal-Mart’s largest bulb supplier, “the message from G.E. was, ‘Don’t go too fast. We have all these plants that produce traditional bulbs,’ ” said one person involved with the issue, who spoke on condition of anonymity because of an agreement not to speak publicly about the negotiations.

The response from the Wal-Mart buyer was blunt, this person said. “We are going there,” the buyer said. “You decide if you are coming with us.”

In the end, as Wal-Mart suppliers generally do, the bulb makers decided to come with the company.

Philips, despite protests from packaging designers, agreed to change the name of its compact fluorescent bulbs from “Marathon” to “energy saver.” To keep up with swelling orders from the chain, Osram Sylvania took to flying entire planeloads of compact fluorescent bulbs from Asia to the United States.

“When Wal-Mart sets its mind to something with a narrow objective like that, they are going to make it happen,” said Jim Jubb, vice president for consumer product sales at Sylvania.

At the same time that it pressured suppliers, Wal-Mart began testing ways to better market the bulbs. In the past, Wal-Mart had sold them on the bottom shelf of the lighting aisle, so that shoppers had to bend down. In tests that started in February, it gave the lights prime real estate at eye level. Sales soared.

To show customers how versatile the bulbs could be, Wal-Mart began displaying them inside the lamps and hanging fans for sale in its stores. Sales nudged up further.

To explain the benefits of the energy-efficient bulbs, the retailer placed an education display case at the end of the aisle, where it occupied four feet of valuable selling space — an extravagance at Wal-Mart. Sales climbed even higher.

In August 2006, the chain sold 3.94 million, nearly twice the 1.65 million it sold in August 2005, according to a person briefed on the numbers.

But to reach 100 million, Wal-Mart has to do much more — and that, executives concede, is where the biggest challenges rest. In the fall, the company began reaching out to competing retailers, Internet companies and even filmmakers.

The goal was to turn its sales campaign into a broader cultural movement.

One proposal, headed by Lawrence Bender, who produced Al Gore’s 2006 documentary, “An Inconvenient Truth,” is to create a Web site that would track sales of compact fluorescent bulbs at major retailers like Walgreen’s and Target. The result would be a real-time map, with data collected by a third party, showing how much Americans have saved by using the energy-efficient bulbs.

Mr. Ruben said such a map “helps consumers see this as something bigger than buying a bulb.”

At the same time, Google and Yahoo are in talks with Wal-Mart about how to use their search engines to promote the bulbs.

But Home Depot and Lowe’s balked at the idea of cooperating with their larger rival. “We don’t think we need an organization like that to sell more CFLs,” said Ron Jarvis, the vice president of environmental innovation at Home Depot, using the bulb’s industry nickname.

Then there is the mercury inside the bulbs, a problem Wal-Mart is working with the federal government and environmental groups to resolve, possibly by collecting the bulbs at its stores or off-site locations for recycling.

In the end, though, the biggest obstacle to overcome is America’s love affair with cheap, familiar-looking incandescent bulbs — a habit 130 years in the making.

For that to turn around, Wal-Mart will have to persuade its traditional consumers that it is worth paying a bit more at the checkout counter to save a significant amount money down the line, a seemingly simple task that few companies ever accomplish. It is particularly difficult at a retailer that has long emphasized “always low prices.”

“It has taken the American public forever to grasp this,” said Charlie Jerabek, the chief executive of Sylvania.

Helen Capone encapsulates the challenge. Ms. Capone, 68, said she “curses the energy company every month” because of her electricity bill and loves the five-year-old, trouble-free compact fluorescent bulb in her attic. But she won’t switch to the energy-saving bulbs in the rest of her house in Secaucus, N.J. “They are not the prettiest things in the world,” she said, surveying the bulbs at a Wal-Mart.

That has put Wal-Mart in the strange position of racing ahead of its customers and coaxing them, bulb by bulb, toward energy conservation.

“We start with the premise,” Mr. Ruben, “that customers make good choices.”

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J.C. Penney Fires Operating Chief After Five Months
By Joann S. Lublin and Cheryl Lu-Lien Tan – Wall Street Journal
December 29, 2006

J.C. Penney Co. abruptly terminated its chief operating officer after just five months on the job because the industry newcomer failed to quickly learn how to be an operational retail executive, according to one person familiar with the situation.

Penney announced the firing in a terse press release. The firing of Catherine West, the former president of the U.S. credit-card business for Capital One Financial Corp., highlights the hazards of recruiting executives from outside the retail industry.

Among the industry outsiders joining retailers in senior roles during the past decade, "more have failed
than succeeded," said Kirk Palmer, chief executive of New York recruiter Kirk Palmer & Associates, which focuses on the industry. "I'm hard-pressed to come up with too many examples from outside who have registered success in the retail environment." Among the retailers that have brought in top executives from different industries in recent years are Gap Inc., Levi Strauss & Co. and Home Depot Inc.

Ms. West's severance package will total close to $10 million, including accelerated vesting of stock options and restricted-stock units that she was granted to compensate her for forfeiting benefits at Capital One, according to spokeswoman Darcie Brossart.

Ms. West oversaw store operations, property development and logistics, responsibilities that Chairman and Chief Executive Myron E. "Mike" Ullman III will assume. Mr. Ullman had overseen those areas before Ms. West's arrival in July.

Penney, of Plano, Texas, which is in the midst of a big store-expansion plan, had put Ms. West in "an operational role with a lot of detail and substance" because "retailing is about 1,000 different details a day," the person familiar with the situation said. But "the operating assignment was not her best fit," this individual said, adding that Ms. West's commute to her home in Maryland every weekend also was a factor.

Rather than try to find a new role for her inside Penney, top executives suggested that she quit, the person familiar with the situation said. But she refused to resign, partly because a voluntary resignation would have made her ineligible for the severance benefits, this person said. She also resisted resigning because she believed she "thought it was going to work [out]," this person said.

Ms. West, who is 47 years old, couldn't be reached for comment.

Penney officials believed that she would be a good fit because the credit-card business has such a strong customer focus and successful information systems, the person familiar with the situation said.

Penney, which has updated its fashions in recent years, has been gaining market share. Profits are up. So is the company's stock price, despite slipping 76 cents, or 1%, to $77.64 in 4 p.m. New York Stock Exchange composite trading.

The chain, which currently operates 1,037 department stores in the U.S. and Puerto Rico, opened 28 stores this year and plans to open 150 more over the next three years, including free-standing locations. It is also trying to win over midmarket customers who used to shop at the hundreds of stores operating under such names as Filene's, Hecht's and Foley's that Federated Department Stores Inc. recently converted to Macy's.

A.G. Edwards analyst Robert F. Buchanan said he had considered Ms. West "an unconventional choice" for the job, given Penney's expansion and her lack of retailing experience. "It's very hard for someone from a nonretailing background to transition to a retailing job," he said. "It's a highly peculiar, tough and fast-moving business that does not lend itself to quick, on-the-job training."

Penney isn't the only retailer to go outside the industry in recent years. In October, Liz Claiborne Inc. chose a top Johnson & Johnson official, William L. McComb, to succeed its retiring chief executive. In 2004, Gucci Group appointed Robert Polet, a 26-year veteran of Unilever, as CEO. Paul Pressler, a 15-year executive at Walt Disney Co., became CEO of Gap in 2002.

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Lampert 'Just Says No' to Wall Street Convention
Seeking Alpha.com
December 28, 2006

Andy Kern submits: As soon as Eddie Lampert and his fund, ESL Investments, put together the surprise takeover of Sears Roebuck to create Sears Holdings (SHLD), changes in the temperament of the company began to surface. Lampert, in his role as Chairman of the new company, immediately began insisting on undertaking only value-creating projects.

Quit selling products at a loss just to compete with Wal-Mart (WMT). Quit carrying excess inventory. Quite simply, get more efficient. The most interesting change, though, is much more subtle. Within months, Lampert had decided to abandon the ingrained Wall Street convention of hosting quarterly conference calls, writing quarterly letters to shareholders and providing earnings guidance in anticipation of the conference calls and earnings announcements.

Humorously, once Lampert ceased issuing earnings guidance, analysts quit following the stock! As if the analysts agreed in unison, “Well if the company won’t tell me how to rate the stock, then I won't bother trying.” We can infer what we wish about what this says of the stock analyst’s role in the market, but to put things in context, SHLD currently has seven analysts following the stock. Companies of similar size such as Best Buy (BBY), Starbucks (SBUX) and Charles Schwab (SCHW) generally have fifteen to twenty ratings.

Lampert’s dismissal of this standard Wall Street practice can be interpreted in one of several ways. On one hand, it may indicate his arrogance or contempt for the individual investor. This is plausible, as Lampert’s hedge fund owns 40% of the company – the individual makes up a comparatively small chunk of the ownership picture. On the other hand, perhaps Lampert and management simply want to avoid the burden of constantly having to answer to the market about matters of which it is not concerned. This is one explanation given by the company for its decision.

On yet another hand, perhaps it is indicative of his focus on the long-term prospects of the company. A couple of years ago, I was fortunate to meet and hear Professor Michael Jensen speak to our college. The famed Harvard scholar has, more or less, written the book on incentives for corporate managers and appropriate ways to compensate them. On this particular day, his message was remarkably simple and clear: “We must stop the earnings guidance ‘game.’”

His contention, later formalized in a paper called “Just Say No to Wall Street,” was that focus on the short-term expectations is responsible for many of the corporate governance issues in our recent history, particularly when executive compensation is directly tied to these short-term expectations. Further, he claims that an “overvalued stock can be as damaging to the long-run health of a company as an undervalued stock.”

This struck a chord with me as an admirer of Berkshire Hathaway (BRKA), which provides no earnings guidance, and of Warren Buffett, who has insisted for years that he would rather Berkshire stock trade at a fair value than a high value. Since the overwhelming majority of companies today provide earnings guidance to analysts and host quarterly conference calls, we cannot expect to invest only in companies that do not. However, when we observe a company abstaining from these practices, such as Sears Holdings, I feel we can be somewhat more confident that the managers are indeed managing in the long-term investor’s best interests.

One more reason why SHLD may be an interesting ride.

FD: I own shares of SHLD

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J.C. Penney Terminates Operating Chief West
By Angela Moore – Dow Jones Newswires
December 28, 2006

Department-store operator J.C. Penney Co. on Thursday said it terminated Chief Operating Officer Catherine West, effective immediately, without citing a reason.

The areas previously reporting to Ms. West, consisting of store operations, property development and logistics, will again report to Chairman and Chief Executive Myron Ullman, which he had held prior to West assuming the COO role in July.

A company spokeswoman wasn't immediately reachable for comment.

Ms. West's base salary at Penney was $750,000, to be reviewed annually beginning in 2007, according to a company filing with the Securities and Exchange Commission. She was also eligible for annual cash incentive with a target award equal to 75%% of her base salary and a maximum award equal to 150% of her base salary, based upon actual company and individual performance. For 2006, Ms. West was slated to receive a minimum cash incentive award of $1 million in recognition of "forfeited benefits" at Capital One. Also in connection with the relinquishment of benefits provided by her former employer, Penney said at the time that it would issue restricted stock units valued at $3 million and stock options valued at $17.1 million, the filing said.

Before she joined Capital One in 2000, West spent nine years at First USA Bank, where she joined as senior vice president of Card Member Services and rose to executive vice president of Marketing Services and Operations. From 1985 to 1991, she served as the vice president of Credit Card Operations for Chevy Chase Bank FSB. She began her career at Peoples Express Airline in 1981, after receiving a B.A. from Lynchburg College.

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Wal-Mart Blames Short-Term Woes,
But Some Expect Challenges to Remain
By Kris Hudson - Wall Street Journal
December 28, 2006

Wal-Mart Stores Inc. cites a clutch of short-term problems behind its slowing pace of sales late this year, but bearish observers say looming challenges could hinder the retailer through 2007 and beyond.

Wal-Mart executives fingered disruptions from store remodeling, an overly aggressive bet on a new line of women's apparel and a slip from sales temporarily boosted by 2005 hurricane-recovery efforts to explain lackluster results at its established stores.

Same-store sales, or sales at U.S. stores open at least a year, fell 0.1% last month from the year-earlier period -- the second such decline for the Bentonville, Ark., retailer in 27 years.

Wal-Mart should work through the short-term issues next year, say some analysts and investors, who are more concerned by a possible long-term drag from Wal-Mart's maturing grocery business and its expansion into urban and suburban areas.

This year, Wal-Mart has seen same-store gains in food sales fall below the major grocery chains, on average. And new stores Wal-Mart has opened as it pushes deeper into more densely populated locations apparently haven't produced the hefty gains the retailer needs to boost overall same-store sales.

Same-store sales gauge a retailer's gains or losses against the relatively fixed costs of operating established stores. They are an important indicator of a retailer's return on the money spent on stores, which in turn reflects on overall profitability. Wal-Mart has posted smaller annual same-store-sales gains in recent years, sliding to 3.4% last year from 9% in 1998.

Wal-Mart's latest monthly sales, which are compared with those from the same month a year ago, fared even worse. Wal-Mart posted a 0.5% gain for October and a 0.1% decline for November. Wal-Mart predicts that its December figure -- to be released Saturday -- will come in anywhere from "flat" to a 1% gain.

Wal-Mart declined to comment for this article.

The sales figures have contributed to a decline in Wal-Mart's stock price, which has fallen 11% from its 52-week closing high of $51.75 Oct. 26. The stock was up five cents to $46.16 in 4 p.m. composite trading on the New York Stock Exchange yesterday.

Several analysts don't foresee Wal-Mart's same-store sales rebounding until well into 2007, or even later.

Richard Hastings, an analyst for retail credit-rating agency Bernard Sands LLC, predicts that same-store sales for Wal-Mart's main U.S. division -- consisting of roughly 3,300 supercenters, discount stores and Neighborhood Market grocery outlets -- "will now trend flat to slightly negative for the foreseeable future." The division doesn't include Wal-Mart's Sam's Club stores. Mr. Hastings doesn't own Wal-Mart stock.

Even some Wal-Mart bulls are cautious. Bear Stearns Cos. analyst Christine Augustine, who rates Wal-Mart's shares "outperform," with a 12-month price target of $54 to $55, says it will be several months before Wal-Mart's sales benefit significantly from its efforts to remodel stores and tailor merchandise to customers. "It's our belief that same-store sales may remain under pressure for the first half of 2007," Ms. Augustine says. She doesn't own any Wal-Mart stock. Bear Stearns has done business with Wal-Mart in the past year.

Some investors warn against putting too much emphasis on same-store sales. Wal-Mart has posted strong earnings and maintained solid profit margins, thanks in part to managing labor and inventory costs. Its average store generates far more in sales per square foot than the average Target Corp. store. Wal-Mart, which operates more than 6,700 stores globally, posted sales of $312.43 billion and net income of $11.23 billion for the fiscal year ended Jan. 31.

Other investors worry that a prolonged run of scrawny results from established stores could begin to erode Wal-Mart's bottom line. Another concern: Wal-Mart's base of lower-income shoppers remains vulnerable to high utility bills and other energy-related costs that have soared with the rise in oil prices.

The retailer's results also have been pinched by its recent emphasis on more-populous markets, some analysts say.

As Wal-Mart opens its doors in more urban and suburban areas, it faces stiffer competition for prime store locations and finicky shoppers who aren't always wooed simply by low prices, says Gregory Melich, a Morgan Stanley analyst. Mr. Melich rates Wal-Mart's shares "equal-weight" and doesn't own any Wal-Mart stock. Morgan Stanley owns 1% or more of Wal-Mart's stock and has done business with the retailer in the past year.

Already established in those urban and suburban markets and strengthening its grip is rival Target. The cheap-chic retailer has exceeded Wal-Mart's U.S. same-store-sales gains in 28 of the past 30 months and anticipates a gain of 3.5% to 5.5% for this month. Target already has 83% of its U.S. stores in urban and suburban counties, and 87.5% of the stores it has opened since October 2002 are in more densely populated counties, according to ACNielsen's Homescan & Spectra division.

Investors also give Target a higher valuation, with price-to-earnings ratio of about 19, compared with Wal-Mart's P/E ratio of about 17.

Retail experts look to stores open between one and four years to provide most of a retailer's momentum for same-store results. Of the 599 stores Wal-Mart opened between October 2002 and October 2006, 76% were in urban or suburban counties rather than rural and semirural locales, according to ACNielsen.

That is a big change for a retailer that grew into a colossus by dominating rural markets amid little competition. Even with Wal-Mart's recent focus on higher-density markets, 44.8% of its U.S. stores are in rural and semirural counties.

A slowdown in Wal-Mart's grocery sales at established stores also is giving some analysts pause. Groceries accounted for 30% of Wal-Mart sales last year at its supercenters and discount stores.

"In the past, their mix of food has helped out their same-store sales. But as Wal-Mart reaches more of a maturation in that area, those sales have slowed down," said Chris Kagaoan, an analyst at J. & W. Seligman & Co., an investment firm that holds 761,000 Wal-Mart shares after selling 145,000 during the third quarter.

After several years of trailing Wal-Mart, the top five U.S. grocers in the past two quarters posted average same-store-sales gains that outpaced Wal-Mart's slowing sales gains in groceries, said J.P. Morgan Securities analyst Charles Grom. While Wal-Mart has gained overall market share by adding groceries to its stores at a fast clip, its rivals have focused less on expansion than on improving stores and merchandise. Among them, Safeway Inc. opened 20 stores in the past year and remodeled 275.

Mr. Grom sees the rivalry from existing grocers as "a systemic problem" for Wal-Mart. "It could take a couple of years to work out," says Mr. Grom, who rates Wal-Mart's shares "neutral" and doesn't own any of the company's stock. J.P. Morgan has done business with Wal-Mart in the past year.

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Sears Canada names new CEO and chairman
Reuters
December 22, 2006

OTTAWA (Reuters) - Sears Canada Ltd. (SCC.TO: Quote) announced on Friday the appointment of Dene Rogers as president and chief executive officer, effective December 21.

Rogers, acting president since May 2006, was previously a vice-president of restructuring and business improvement for U.S. parent Sears Holdings Corp. (SHLD.O: Quote) and has served as executive vice president and general manager of Kmart Stores.

The company also named William C. Crowley as board chairman, effective Thursday.

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Eight Retail Buyback Heroes
David Fried, Forbest.com - Buyback Letter - Adviser Soapbox
December 21, 2006

Many retail stocks look good right now, and to the benefit of shareholders, many retailers also like the idea of buying back their own stock. Repurchasing is an expression of company management‚s confidence in the future, their belief that the stock is a good value right now, and buying back often gives a nice bump to earnings per share, as well, since there are fewer shares outstanding.

The investing philosophy behind the Buyback Letter is buying top-notch, solid companies that are robust repurchasers, and we have found a number of worthy retailers who fit that bill.

Big Lots: Discount stores are a good pick in a crummy or waffling economy. Big Lots keeps a flexible inventory, has well located and plentiful retail locations, and its sheer size gives it international buying power smaller chains cannot match. A new CEO has focused them, closing underperforming stores and introducing a new goal to encourage existing customers to spend more per visit.

What really got our attention was a $150 million stock buyback program that management said was sized to approximate the company‚s free cash flow; the stated goal is to use buybacks as a way to build value for shareholders. Shares outstanding have declined 4.3% over the past 12 months. We think company management knows the real bargain going forward is in the stock price right now.

Analysts believe in Eddie Lampert, who took control of Kmart during bankruptcy proceedings and then handily used Kmart‚s stock to buy Sears. He‚s now only in midstride in the midst of this marathon turnaround, but analysts and investors have formed a cheering section as he takes on Target and Wal-Mart. And let‚s not forget that Sears Holdings is a virtual land bank. When cash is needed during this resurrection, they might look to badly underperforming stores as a source of real estate money. The company reduced shares outstanding by 4.3% in the last 12 months.

Rex Stores: Rex has carved out a business by operating in markets that are too small for the big box retailers. Like Sears, Rex is real estate rich, and owns some 70% of its stores. Another interesting part of the Rex story is that they invest in alternative energy projects that provide substantial tax reductions, and currently have about $70 million in ethanol manufacturing projects. These investments shelter almost all of RSC‚s earnings!

Rex has been flat in share reduction in the past 12 months, perhaps due to this additional investment. We like to see companies use their money in the wisest possible way, so if other opportunities make more sense at the moment than buying back, so be it.

With steady margins, good operating cash flow and impressive free cash flow (up from $70 million to $258 million), Family Dollar has a lot going for it, including a consistent history of paying dividends. FDO‚s current buyback plan began in October 2002, and in August its board authorized the repurchase of an additional five million shares. During the fiscal year that ended August 2006, FDO repurchased 15.4 million shares at a cost of $367 million, leaving 1.1 million shares still authorized to be repurchased under previous decrees.

TJX Companies: The leading off-price retailer of apparel and home fashions in the U.S. and worldwide delivers a rapidly changing assortment of brand name merchandise at prices that are 20% to 60% less than department and specialty store regular prices. Target customers are middle- to upper-middle income shoppers who are fashion and value conscious.

Third-quarter earnings for the period ended Oct. 28 show a strong balance sheet and working capital accounts that track sales growth. Free cash flow improved greatly and same store sales were up a smokin‚ 6%, especially impressive for a mature retailer. Some 76 stores were added in the third quarter. Meanwhile, in January 2007, TJX plans to close the 34 A.J. Wright stores that are only marginally profitable to tighten up that end of the business, leaving the stronger stores intact; this will result in an 8-cents-a-share charge to fourth-quarter income. TJX has reduced shares outstanding 2.4% in the last year.

Limited Brands: Victoria‚s Secret is the dominant brand in Limited‚s lineup, accounting for more than half of LTD‚s $10 billion in sales, and even more of its earnings. Pink, a young brand within Victoria‚s Secret that sells pajamas and lingerie to a slightly younger-skewing demographic of 19- to 22-year-old women, already accounts for $700 million of sales, and can take credit for LTD‚s new healthy glow.

LTD‚s same-store sales for November jumped 12%, and Limited expects earnings for the full year to increase at least 29%. The company's stock, so-so for five years, is up 35% so far in 2006. As Paris Hilton would say, that‚s hot!

Limited has completed some $70 million of its current outstanding $100 million share repurchase program and has authorized an additional $100 million share repurchase. It has reduced shares outstanding by 1.3% in the last year.

Staples: Staples opened 37 new stores in the latest quarter, including moving into new markets such as Miami and Chicago. It also has ambitious goals, such as increasing operating margins for the international business from a current 1.5% to 7.5% in a few years. In North America, plans are to add more stores, including smaller, standalone copy centers in prime real estate locations where larger stores would not fit. Management targets 10% to 15% sales growth for the next few years.

November same-store comps were up 4% in the U.S. and 5% in Europe. Third-quarter financials were strong, too. For the period ended Oct. 28, sales increased by 12% to $4.75 billion, due to improved performance in office supplies such as ink and toner, paper and portable computers. Net income was up a whopping 29.2% to $290 million. A dedicated repurchaser, Staples has decreased shares outstanding 1.2% in the last year.

Home Depot: Home Depot is flexing a bit this holiday season, adding interior holiday decorations such as candles and tree skirts, which it had traditionally shunned, as well as consumer electronics such as DVD players, iPod speaker systems and plasma TVs, to try to lure December gift money and more female shoppers during this traditionally slower time.

Home Depot's stock has been depressed recently due to a deflated housing market. Maybe CEO Bob Nardelli‚s $225 million paycheck for the past six years is overcompensation, as critics say, since the stock dropped by half in that time. Then again, maybe it isn‚t, considering HD has solid cash flow (about $6.5 billion in cash flow from operations last year with $3.9 billion spent on capital costs, mostly on new-store openings and remodeling of older ones). Look at it this way: during the same time he was supposedly overpaid, he helped HD achieve spectacular financial results--dividends are up, book value per share is up, earnings per share is up, sales per share up, revenue has grown, the company is doing very well, is profitable, and has beaten Wall Street‚s estimates. HD is projected to continue growing in the double digits. What‚s not to like about a company with favorable long-term growth prospects?

Make no mistake about it; this is one of the biggest and best companies in the world. With 355,000 employees and 2,000 big box warehouse stores that average 125,000 square feet, it‚s a giant in every sense of the word. And, like Sears, Home Depot is another virtual real estate bank: The company owns some 87% of its stores.

HD has reduced shares outstanding by 2.8% in the last 12 months, a substantial amount for a rock-solid company with a mega-market capitalization. HD is a bedrock stock, has a world-class brand and franchise, a good market position and consistently gives money back to shareholders through dividends and buybacks. We think HD will get its mojo back.

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Spinoff Set by Summer for Discover
By Landon Thomas, Jr. - The New York Times
December 20, 2006

He built it. Now he is taking it apart.

John J. Mack, in his boldest strategic move since he became chief executive last year, said yesterday that Morgan Stanley would spin off its slow-growing credit card unit, Discover.

For Mr. Mack, a mastermind behind the 1997 merger with Dean Witter, Discover & Company that brought Discover into the Morgan Stanley fold, the decision is a tacit recognition that the firm’s future success lies with its traditional heart, its lucrative trading and investment banking business.

The results the firm released yesterday underscored that reality. Propelled by trading and banking, Morgan Stanley’s operating earnings rose 26 percent in the fourth quarter, which ended Nov. 30. For the year, earnings rose 44 percent.

Yet while the 2006 profit of just under $7.5 billion was a record for Morgan Stanley, it lagged the $9.5 billion generated by its archrival, Goldman Sachs, whose profit rose 76 percent for the year.

The Morgan Stanley chief has clearly taken note of the extraordinary results being generated by Goldman Sachs, which spurned the financial supermarket model that Mr. Mack once embraced when he spearheaded the 1997 merger as president of the investment bank. A decade later, Goldman Sachs has replaced Citigroup as the financial archetype. The emphasis is now on concentrated specialties in trading and banking and not on diversification and synergies.

To sharpen the firm’s focus and recharge its faltering asset management business, Mr. Mack has invested nearly $1 billion in stakes in a variety of hedge funds. He has also signaled his intent to build an internal private equity unit, trying to replicate the successes of Goldman Sachs and others in that business. And Mr. Mack has allocated larger amounts of capital to his traders.

“The soul is back,” said Anson M. Beard Jr., an advisory director at Morgan Stanley. Mr. Beard was part of a group of former executives who started a shareholder revolt that forced the departure last year of the previous chief executive, Philip J. Purcell. “You have to give John credit for that.”

Ties between Mr. Mack and the original group of eight Morgan Stanley dissidents have warmed noticeably in the last year. They had become strained when it became clear that top executives like Vikram S. Pandit and Joseph R. Perella would not return to the firm.

A few months ago, Mr. Mack invited Mr. Beard; a former president, Robert G. Scott; and a former chairman, S. Parker Gilbert, among others, to lunch at the firm’s headquarters, where he brought them up to date on his strategic thinking.

The outside directors and many shareholders have long called for a spinoff, but Mr. Mack and his management team proceeded at their own pace in weighing the pros and cons of such a move. While they recognized that Discover had few synergies with the firm’s securities businesses, the question was how best to make use of Discover’s growing value as an asset. This topic became the thrust of a full-scale management review, headed by a co-president, Robert W. Scully, and Robert A. Kindler from the firm’s investment banking division, that began in the last couple of months.

When it became clear soon thereafter that a tax-free spinoff would be the most efficient approach, the board was briefed. It signed off on Mr. Mack’s proposal on Monday. The spinoff is scheduled for the third quarter of 2007.

Shares of Morgan Stanley rose $1.33, or 1.7 percent, yesterday to close at $81.70 — their highest level since February 2001.

“We believe this will maximize value for Morgan Stanley and Discover shareholders,” Mr. Mack said. “We are confident that Discover will be a strong stand-alone company.”

He said the division could tap the capital markets more successfully as an independent company.

In 2005, Mr. Purcell proposed a spinoff of Discovery, only to have that move reversed by Mr. Mack when he took over. Since that time, market conditions for credit card companies have improved, along with Discover’s performance. This year, the unit reported a record pretax profit of $1.6 billion, up 72 percent for the year, driven by a sharp improvement in its credit portfolio as delinquencies reached lows not seen in 10 years.

Other credit card companies have taken advantage of the market conditions. Since its initial public stock offering this year, MasterCard’s stock price has more than doubled.

Analysts said Discover, as a separate company, could achieve a market value as high as $10 billion. And while the card’s prestige does not rank as high as that of some others, its $50 billion portfolio and its improved performance may make it a takeover target for larger card-issuing banks like Bank of America, J. P. Morgan or Citigroup.

Despite the firm’s strong performance, Mr. Mack was careful yesterday to assert that Morgan Stanley had more work to do.

“For a number of quarters we have had record results, but there is still room for improvement in many of our businesses,” he said.

Those are the asset management and brokerage divisions, which are both in wide-ranging revamping programs under new management. In a conference call with analysts, Mr. Mack shot down the prospect of any similar disposal of these units, saying he was committed to keeping them.

The brokerage unit showed marked improvement, with pre-tax profit up 104 percent from the quarter a year earlier. Under James P. Gorman, the former retail chief of Merrill Lynch, Morgan Stanley has fired underperforming brokers and replaced them with more productive financial advisers. Margins increased to 12 percent from 7 percent.

Asset management, which has undergone even more substantial change, had a 50 percent decline in profit for the quarter as fund outflows continued to be a problem.

The firm’s institutional business carried the load, as usual. Its pretax profit increased 46 percent on the back of a robust showing from the mergers and acquisitions bankers, who have benefited from a strong deal-making environment. With interest rates low and liquidity high, the firm’s bond traders also prospered, as did its prime brokerage unit, which serves the hedge fund industry.

Surprisingly, given the quarter’s bountiful trading conditions, the firm’s principal trading revenue declined 20 percent from the third quarter.

“Trading should be up 20 percent, not down 20 percent,” said Richard X. Bove, a securities analyst at Punk Ziegel & Company. “I think Mack is moving in the right direction, but that trading number was horrible.

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Discover spinoff to give Chicago a new HQ
Crain's Chicago Business Online
December 19, 2006

Chicago won a new publicly traded company headquarters Tuesday without offering a penny’s worth of public subsidies.

Morgan Stanley Inc.’s decision to spin off its Discover credit-card business will create a Fortune 500, stand-alone company headquartered in north suburban Riverwoods.

A market valuation of more than $20 billion, which is possible given the stock-market performance of other credit-card companies, would make Discover Financial Inc. one of the Chicago area’s 15 largest publicly traded by companies by that measure. Discover’s tenure as an independent company could be short-lived, though. The spinoff, which is expected to be completed in the third quarter of 2007, will make Discover more vulnerable to a takeover, especially if the traditionally growth-challenged card issuer can’t continue the profit and revenue growth it’s enjoyed in 2006.

“Because they’ll be independent, they will be much more vulnerable to an offer that’s friendly or not friendly,” says Mark Lane, an analyst at William Blair & Co. LLC in Chicago.

Discover CEO David Nelms, 45, who will be chairman and CEO after the spinoff, says that’s not his intention.

“Ultimately our independence will be dependent on our ability to generate significant shareholder value, which we are committed to doing,” he says.

He points to other stand-alone credit card players, like New York-based American Express Co., which have stayed independent over many years despite the pressures in the credit-card business for size because of thinning profit margins.

Morgan Stanley CEO John Mack, who took the reins of the New York securities firm last year after the ouster of longtime CEO Philip Purcell, had committed to keeping Discover within Morgan Stanley, reversing a decision Mr. Purcell made in early 2005 to spin off Discover in a last-ditch effort to save his job.

But Mr. Mack concluded more recently that the two would be better off separate, bowing to investor concerns that Discover’s mass-market business didn’t fit with Morgan Stanley’s other units, which are focused on wealthy individuals and institutions.

“Both the securities business and Discover had record years in terms of profit and growth,” Mr. Nelms says. The spinoff “is happening this time out of strength.”

Discover employs 3,500 in Riverwoods and 14,000 people around the world. Mr. Nelms says the spinoff will result in a “modest increase” in local jobs.

For his part, Mr. Purcell, who now runs a small private-equity firm in Chicago, thinks the spinoff will help Discover grow. "It's a really energizing event," he says. "If you look at the track records of most spinoffs, they're successful."

In the fiscal year ended Nov. 30, Discover’s net income was $1.1 billion, up 86% from the $581 million recorded in 2005. The increase was attributable in part to unusually low loan writeoffs caused by the passage last year of the federal bankruptcy reform law. Still, net managed credit card loans increased 7% to $49.5 billion.


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Morgan Stanley To Shed Discover, Posts 4Q Results
By Jed Horowitz - Dow Jones Newswires
December 19, 2006

NEW YORK (Dow Jones)--In a move that closes a tortured part of its history, Morgan Stanley (MS) said it will spin off its Discover credit card business. The announcement came as the Wall Street investment bank reported a 26% rise in its fiscal fourth-quarter operating profit.

Including an after-tax gain in the year-earlier quarter of about $700 million from the sale of its aircraft leasing business, Morgan Stanley's net income fell 11% to $2.21 billion, or $2.08 a share, from $2.47 billion, or $2.32 a share.

But earnings per share on an operating basis rose 27%to $2.08, or total income of $1.75 billion, compared with $1.64 a share in the fiscal fourth quarter of 2005.

Analysts had expected earnings per share of $1.77, according to the mean estimate of 19 analysts surveyed by Thomson Financial. The firm's net revenue rose 24% to $8.6 billion while noninterest expenses were up 19% to $5.8 billion. Analysts had forecast quarter revenue of $8.3 billion.

Morgan Stanley shares rose 2%, or $1.61, to $81.98 in premarket trading on news of the Discover spinoff. Shares closed up 1.4% on Monday, hitting a 52-week high of $80.37. Morgan Stanley is up 42% year to date.

The decision to spin off Discover in the third quarter of 2007, pending regulatory approval, caps several years of on-again, off-again decisions on whether to keep the profitable but slow-growing credit-card unit. Shareholders for years complained that the business, absorbed when Dean Witter Discover merged with Morgan Stanley in 1997, was an odd fit for the securities firm.

"Discover and the securities businesses are going to be better served by being standalone," Chief Financial Officer David Sidwell said in a phone interview. "Both will be well capitalized, have independent boards and each will make their own decisions."

Morgan Stanley will not have any ownership in Discover after the tax-free spinoff, he said, and the ratio of shares that will be given to current stockholders has not yet been determined.

Sidwell said the company has no plans to spin off its retail brokerage unit or its asset management businesses, areas that some investors have criticized for sluggish profitability.

Former Morgan Stanley Chairman and Chief Executive Philip Purcell, who helped form Discover, had long argued that Discover generated huge cash flow and steady revenue while creating diversification from the volatile securities business. Shortly before he was forced to resign in June 2005, however, he recommended to the firm's board that it spin off the unit.

His replacement, John Mack, reversed the decision pending his review of all business areas. On Tuesday, Morgan Stanley said Discover "has improved considerably its business fundamentals over the past year" and will be more valuable to shareholders as a standalone unit. The unit had pretax income of $1.6 billion in fiscal 2006 on record revenue of $4.3 billion, but it continued to rank behind the industry's top credit-card issuers in charges and merchants accepting the card.

Morgan Stanley's record quarterly earnings were driven by fixed-income and equity sales and trading in its dominant institutional securities unit. The division generated 64% of the company's revenue and a whopping 80% of its pretax profit in the fiscal fourth quarter.

Revenue from the division, which includes sales, trading and investment banking operations, rose 34% to $5.56 billion from $4.15 billion a year earlier, while profit numbers soared. Pretax net income increased 46%, profit margin climbed to 41% from 38% and return on common equity - a key measure of its efficiency in redeploying profits - inched up to 36% from 35%.

Revenue from global wealth management, a retail brokerage unit inherited from the Dean Witter merger that some investors also have disdained, rose 12% to $1.45 billion from $1.3 billion a year earlier. Profits in the unit more than doubled to $171 million, while pretax profit margin climbed to 12% from 7% and return on equity moved to 16% from 9%. Mack has said that it will take another two to three years to bring the unit to the profitability levels the firm has targeted internally. In the last three years, the firm's broker count has fallen from over 10,000 financial advisors to 8,030 in a conscious effort to eliminate low producers.

Revenue in asset management - another area involved in a multiyear recovery plan - fell 19% to $718 million from $890 million a year earlier "driven by significantly lower investment revenues" in private equity and other areas, the company said in its earnings release. Pretax income was down 29% to $711 million, profit margin declined to 26% from 35% and return on equity sunk to 19% from 36%.

The profit dives reflect in part a rise in expenses in asset management. Morgan Stanley has spent heavily to build the unit's alternative investment prowess, buying stakes in five hedge funds since June 1.

At Discover revenue rose 39% to $963 million during the quarter from $694 million a year earlier, while pretax income more than tripled to $199 million. Pretax profit margin more than doubled to 21%, reflecting credit improvement as bankruptcy filings that spiked in the year-earlier quarter returned to normal levels. However, the company said that excluding the one-time bankruptcy boost, pretax profit actually fell 19% because of a big rise in expenses. Return on equity, excluding some one-time tax benefits, was a slender 11%.

In November, company executives said they had made substantial progress toward Chief Executive Mack's goal of taking more risk in trading, lending and investing to generate higher returns and were more than halfway to the goal of having made $2.5 billion of principal investments. The firm this year also has bought a subprime mortgage company, is expanding its substantial presence in trading commodities and owning energy storage and pipeline firms, and early next year plans to raise a multibillion-dollar private equity fund after having abandoned the business under previous management.

Morgan Stanley also is reorganizing its retail brokerage operations, having cut its broad-based national network of brokers by more than 2,000 people while making selective hires who focus on very wealthy investors. In asset management, it has been buying hedge funds to give clients access to a broader array of investments than traditional stocks, bonds and mutual funds.

Morgan's results wrap up a great year for big Wall Street firms ending their fourth quarters in November. Goldman Sachs Group Inc. (GS) last week reported a 97% year-over-year gain, followed by jumps of 38% at Bear Stearns Cos. (BSC) and 22% at Lehman Brothers Holdings Inc. (LEH).

Merrill Lynch & Co. (MER) doesn't report fourth-quarter results until January.

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Private companies confront pensions
The Deset Sun – Palm Springs, California
December 19, 2006

City governments aren't the only ones grappling with how to pay for pensions. Across the country, several major private companies from Sears Roebuck to Hewlett-Packard have frozen pensions or face problems with how to compensate their retirees. Among them:
General Motors: Following $10.6 billion in losses in 2005, the world's largest automaker is slashing more than 34,000 jobs, reducing production and freezing accrued pension benefits for its 42,000 salaried workers.

Those hired after Jan. 1, 2001 - about 10 percent of GM's white-collar workforce - will shift from traditional, defined benefit pensions to defined contribution 401(k) plans.

It's an attempt by GM to regain competitiveness while saddled with staggering employee benefit costs - particularly health care, which cost the company $5.3 billion last year and adds $1,525 to the price tag of every vehicle it sells. One of every 87 Americans over the age of 65 gets their medical bills paid for by GM, according to a Detroit News investigation.

Ford Motor Co.: The automaker in September announced plans to cut 40,000 hourly and 15,000 salaried jobs and close 16 North American plants in an effort to return to profitability. The benefits the company provides to its current and past workers are among its heaviest burdens.

Delphi: The bankrupt auto parts supplier, once a part of General Motors, reduced its unionized workforce by about 62 percent - more than 20,000 employees - through early retirement and other buyouts over the past year. In March, Delphi outlined plans to cut about four-fifths of its U.S. hourly workforce, and 21 of 29 U.S. union plants.

It expects to drop several business lines and thousands of salaried employees as well. Pay and benefit cuts were also instituted in an attempt to overcome more than $22.5 billion in benefits owed to retirees.

IBM: The information technology company in January froze pension plans for about 120,000 U.S. workers, meaning anything earned through 2007 remains intact, but after that, benefits will not increase. Instead, the company is offering a 401(k) plan. New employees also do not get the traditional pension. It's all an effort to save $2.5 billion to $3 billion through 2010.

Delta Air Lines: The bankrupt airline in September received court approval to eliminate its pension program for its 6,000 active pilots and 5,800 retired pilots. The federal Pension Benefit Guaranty Corp., the national insurer for private pensions, is taking over its plans, and the net result will likely be reduced benefits for both active and retired pilots.

Verizon Communications: The phone company froze its pension plan for 50,000 managerial workers and increased benefits with its 401(k) program in an effort to save nearly $3 billion in the next 10 years. Enron: Employees lost billions when the energy company filed for bankruptcy in 2001 because much of their pension was invested in Enron's own stock.

United Airlines: Thousands of employees learned their retirement benefits would be cut and they would not be earning future pension benefits when the airline's parent company went through bankruptcy and a company reorganization in 2005. The federal Pension Benefit Guaranty Corp. took over the employee pension program.


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Sears Holdings: Take The Bull By Its Horns and Ride
Seeking Alpha
December 19, 2006

Anand Krishnaswamy submits: First everyone thought that it was a classic turnaround story with Kmart. Next, it was about the prime real estate that went with the Kmart Stores. And now, it is the "investment activities" that make retail investors looking to enter Sears Holdings (SHLD) nervous [if not bearish]. A few things to ponder if you are in this boat:

Past Performance: This stock has been a 10 bagger since Eddie Lampert got his hands around it back in 2003. I know, I know, I can almost hear the bears screaming disclaimers about past performance and how it can't serve as an indicator of future returns. However, I am not saying that one should go out and buy this stock because of past returns. All I am saying is that given the right scenario, management is fully capable of delivering outsized returns, if the last three years are any indicator.

Use of Derivatives: Investors have also been expressing concern that the derivatives strategies employed by ESL Investments may be too risky. While there may be some truth to that, there are a plethora of strategies available where one does not have to bet the farm to get decent returns. While I am no expert, I will try to explain.

It is popular believed that selling naked put options are a risky strategy. True, but this statement has to be taken in the context of portfolio size. For example, in a $10,000 portfolio, if one goes out and sells, say, 100 naked put contracts on a volatile tech stock, then yes, that IS risky for a $10,000 portfolio. However, consider the scenario where you want to buy a stock at a given price, and instead of buying it all at once, you buy a fraction of your intended position and continually sell short-term put options at the desired entry point [called the strike price]. That would give you a much better cost basis, if and when you get assigned on the contracts.

Bottom line, derivatives are "risky" only if you don‚t know what you are dealing with. And given that Lampert has a Wall Street background, you can be pretty darn sure that he would not hire inexperienced quants to run the operation.

Declining Store Comps/Lack of Transparency: Same Store Sales growth, the key metric for retail stocks have been declining for Sears in recent quarters. However, management puts a different spin by asking analysts to focus on the bottom line rather than revenues. After all, it is profits that matter, not revenues they say.

Which argument is one to believe? The declining SSS or rising profitability? Let us analyze. It is straightforward to see that management has cut under performing product lines [contributing to the declining top line] while continuing to sell the more profitable ones, leading to an increase in profits. Is this sustainable? Yes and no.

No, because there is a natural limit to the number of product SKUs one can cut. [After all, you can only milk a cow so much!]

Yes, because a similar strategy of cutting under performing assets can now be applied stores [instead of product lines]. This would likely continue to deliver earnings in the short to medium term. Longer term however, the sustainability of this strategy is not apparent.

However, with the firm being structured as a holding company, it definitely gives one the flexibility to compartmentalize and/or acquire new assets under one umbrella as necessary. Plus, of course, the Sears brand could [and probably will] be guided back to growing its top line given the attention to detail Eddie has exhibited in the past. In my opinion, a realistic long term target for the sales growth is the mid to high single digit range.

The Real Deal

This is the short version of the Sears story that is unfolding.

What happened: Wall Street financier Eddie Lampert with a great track record recognizes Kmart as an opportunity, buys it, refocuses operations and turns it around to profitability, delivering a 10 bagger return in the process.

Current Scenario: Beginning to cut/sell off under performing product lines/ stores to enhance top and bottom lines. Started channeling the excess cash from retail into high risk/return alternate investment strategies. This strategy has already contributed to one quarter‚s bottom line.

What the future will likely bring: Continue selling off under performing assets and investing in alternate investments. Buy back shares aggressively. Possibly acquire new retail assets as a source of excess cash.

Sound Risky? Sure. But with Uncle Eddie at the helm controlling a 41% stake in the company, I am sure he has tricks up his sleeve that Wall Street hasn‚t recognized as yet.

Investors wanting in have two choices: continue to be „skeptical on earnings quality‰ and remain on the sidelines, or if you are like me, turn cautiously bullish, slowly adding positions to what may well turn out to be a ride of a lifetime.

Anand Krish is a technology professional with an MBA. He is long-term bullish and owns shares of Sears Holdings (SHLD) in his portfolio at the time of writing.

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Latest Deal in Real Estate for $9 Billion
By Andrew Ross Sorkin and Michael J. De La Merced – New York Times
December 18, 2006

Realogy, the giant real estate franchisor that owns Coldwell Banker, Century 21 and Sotheby‚s International Realty agreed yesterday to be sold to Apollo Group, the private equity firm, for about $9 billion.

The deal marks the latest play by private equity firms to buy into the real estate business just as it appears to have peaked. Just two weeks ago, Blackstone Group led a $36 billion deal to acquire Equity Office Properties Trust, the nation‚s largest office building owner and manager, for about $36 billion, which was the biggest buyout in history.

The deal will be another huge payday for Henry R. Silverman, the architect behind Cendant, the conglomerate that Realogy was part of until it broke itself into four pieces earlier this year in an effort to revive its flagging stock price.

Mr. Silverman, who had been criticized for huge paydays while he was at Cendant, stands to make about $135 million by selling all of his shares and stock options as part of the deal. Mr. Silverman, who is now the chairman and chief executive of Realogy, is expected to stay on until his contract expires at the end of next year. However, Mr. Silverman will not be an equity participant with Apollo in the deal, and his out-of-the-money stock options (those below the strike price) will be canceled.

"I think it is a conflict to be the C.E.O. and to be the buyer," Mr. Silverman said in an interview, taking a swipe at management-led buyouts where the chief executive buys out his own company.

Realogy is among the biggest players in the real estate field, taking part in a fourth of all home sales nationally. It has more than 300,000 agents among its franchises, almost three times more than its closest rival, Re/Max International. It is also a player in commercial real estate through its Coldwell Banker Commercial arm.

Yet the company has seen its fortunes decline as the real estate market has slumped. Sales have dropped from 2005, a record year, and more homes are staying on the market longer. The rise in home prices has slackened to the slowest pace seen since 1998, according to government reports. And the National Association of Realtors said earlier this month that it expected home sales to continue to decline next year.

Moreover, Internet-based brokerages and discount shops may have dealt a further blow to traditional real estate brokerages. Commissions have fallen to an average of 5 percent from 6 percent a decade ago, although experts say that slide had begun before the entrance of the discounters.

For the quarter that ended Sept. 30, Realogy reported net revenue of $1.73 billion, a decline from the $2.08 billion it earned as a part of Cendant a year ago.

“Our earnings are going down,‰ Mr. Silverman said. „We‚re probably not going to see a recovery until 2009. This deal is an insurance policy.”

He said he had decided to pursue the deal with Apollo, which approached the company earlier this year, because, "we need to be owned by someone with a five-year time horizon,” suggesting that many public shareholders, including hedge funds, have a "five-second horizon."

Under the terms of the deal, Realogy shareholders will receive $30 a share in cash, a premium over the stock‚s Friday closing price of $25.50. Apollo said it would commit $2 billion of equity to Realogy.

The deal is expected to close in the spring of 2007, but Realogy may solicit other buyout proposals until Feb. 14. in what is known as a "go shop" provision. Should it accept another offer, Realogy will pay Apollo a breakup fee.

Mr. Silverman said the company decided against a full auction because it could be "very destabilizing to the staff and customers." He said that the deal with Apollo meant "an outcome is guaranteed" that company would be sold and that a potential higher offer could still be sought.

Apollo, which said that it was strongly positioned to take Realogy forward, is no stranger to the company or the industry. In 1997, Apollo and Cendant formed NRT, or National Realty Trust, as a joint venture to consolidate various fragments in the residential real estate market. NRT revenues then grew to $3 billion by 2001, and it made 200 acquisitions and added $1.5 billion in annual commission revenues. Cendant bought out Apollo's stake in NRT in 2002.

"Realogy's powerful real estate brands and their long heritage of leadership in the industry serve as a strong platform for future growth and we are pleased to again have it as part of our investment portfolio," Marc Becker, a partner at Apollo, said in a statement.

Realogy, along with the rest of its former Cendant brethren, has long been seen as a potential target for a private equity buyer. Its $500 million in annual cash flow and relatively small debt were seen as attractive to such firms. And analysts have said that residential real estate companies like Realogy often find rough times on Wall Street, where the cyclical drops in the housing markets have taken a toll on such companies‚ share prices. Some of Realogy‚s competitors, like Re/Max, are already privately held.

Evercore Partners advised Realogy on the deal, while Skadden Arps Slate Meagher & Flom served as legal counsel. J. P. Morgan Chase and Credit Suisse were Apollo‚s financial advisers, while Wachtell Lipton Rosen & Katz worked as its legal counsel. J. P. Morgan, Credit Suisse and Bears Stearns will provide Apollo with debt financing.

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Retiring Allstate CEO unloads $33 million in shares
By Lorene Yu - Crain's Chicago Business Newsroom
December 18, 2006

(Crain’s) ˜ Edward Liddy, who is retiring as CEO of Allstate Corp. at the end of the year, exercised stock options and sold the stock for $33.14 million.

Mr. Liddy, who remains Allstate‚s chairman, disclosed the sale of 518,994 shares at $63.95 each in a document filed Dec. 11 with the Securities and Exchange Commission. He paid $35 to $61.39 for the shares, according to the filing.

The transaction occurred on Dec. 7 and was part of a prearranged trading plan. “His execution of the options does not in any way reflect a lack of confidence in the company,” said Mike Trevino, spokesman for Allstate Corp.

Mr. Liddy is still Allstate‚s largest individual shareholder, Mr. Trevino said. In the past, Allstate executives have generally executed prearranged trading plans for portfolio diversification or estate-planning purposes, Mr. Trevino said.

Allstate Corp. shares closed Monday at $65.52, a 52-week high. It hit an intraday high of $65.72. When Mr. Liddy filed his prearranged trading plan on Nov. 22, the company's stock price closed at $64.77.

“He just may have done some profit-taking on a successful career,” said Clifford Gallant, analyst at Keefe Bruyette & Woods Inc.

David Anthony, analyst at Argus Research, called Mr. Liddy’s stock sale “insignificant” in the scheme of things.

“I don’t think he thinks the stock will imminently go down in the next two to three quarters,” Mr. Anthony said.

Mr. Liddy, who has been CEO since 1999, will be replaced as CEO by Thomas Wilson, Allstate’s president and chief operating officer.

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Miracle on 34th Street
Commentary: The Weekend Interview - Terry J. Lundgren
By Judith Dobrzynski  – The Wall Street Journal
December 16, 2006

NEW YORK -- Approaching Christmas, Terry J. Lundgren, the chairman and chief executive of Federated Department Stores, is always a man on the run -- and especially so this year. In September, a year after Federated completed its $17 billion merger with May Department Stores, every remaining May store was renamed Macy's (or, in a few cases, Bloomingdale's), making this the first Christmas season that Macy's has a truly national presence -- about 825 stores in 45 states. Mr. Lundgren has to keep the cash flowing and the credit cards flying at all of them.

So, after a few preliminaries, it seemed natural to ask Mr. Lundgren what his Christmas season is like, starting with the day after Thanksgiving, the retailing industry's big "Black Friday" sales day.

"Mine actually starts on Thanksgiving day," he corrected. "I go to the parade, always sitting in the same seat," one that is highly visible to television viewers. "My friends were text-messaging me, saying 'I can see you, right behind Barry Manilow.'" He grinned at the thought.

"On the day after Thanksgiving," he continued, "I did 21 interviews with the press, starting at 6:30 a.m." -- all in Macy's flagship 34th St. store. "I moved from one camera to the next; they were all set up, they always come here because they can see thousands of customers, our window displays, all the decorations . . ."

* * *
If that many encounters with the Fourth Estate sound like a nightmare to most executives, it helps to know that they are also a dream come true for Mr. Lundgren this year -- money-can't-buy-it publicity that played right in to Macy's first national marketing campaign, an event-loaded, all-media effort also launched in September. If all goes well, Mr. Lundgren may be the guy who buries the canard, repeated incessantly for at least 30 years, that traditional department stores are history, squeezed to death by trendy specialty stores like Abercrombie and Fitch and social-climbing discounters like Target.

Mr. Lundgren, a taller, thinner version of Richard Gere, with a better wardrobe, seems made for the role. After years in the retailing trenches, all at Federated except for six years at Nieman Marcus, Mr. Lundgren took the top job in January 2004. By then, Macy's had swallowed more than a dozen department store chains, brands like Lazarus, Goldsmith's, Bon Marché, and Abraham & Straus. With May, he added Hecht's, Kaufmann's, Marshall Fields, Filene's, Foley's and other stores to Federated's domain, boosting annual revenues to about $27 billion.

Despite some resistance to the name changes -- especially in Chicago -- so far the numbers look good. Federated's November same-store sales figure, up 8.5% from last year, was the best performance "in the company's history," Mr. Lundgren said. Federated has since raised its internal growth forecast for the 4th quarter to 5% to 8%, from 3% to 5%.

Better yet, the sales growth is coming from mall stores, which Mr. Lundgren claims is evidence that department stores are gaining market share from rivals. "There's a resurgence," he says. "It is indeed growing, but it's relatively new." He dismisses the idea that department stores owe their better numbers to the buoyant economy, or to the fact that the total number of department stores is shrinking, inflating the same-store sales of the survivors.

"Consumers are finding that we have choice and value and, at Macy's, fashion that is affordable," he says. "We have more fashion than the off-the-mall stores, the discounters, the other guys."

Then, the conversation gets personal: Mr. Lundgren, renowned for his perfectly coiffed silver hair, points to the grey pinstripe suit he is wearing, along with a white shirt and silver tie. "This two-button Armani," he says, is the latest in fashion -- and in stock. It is not to be confused with the two-button Armanis that preceded the three-button Armanis that were fashionable until, say, five minutes ago.

I take his word for it. Mr. Lundgren is, after all, so much the fashion maven that he designed, along with Vera Wang, his second wife's wedding dress, blindfolding her during fittings to keep it a secret until just before she walked down the aisle. (He also, I noticed, keeps a huge gilt-framed mirror in his large, wood-paneled office on the 13th floor of the Macy's 34th St. building -- the largest mirror I have ever seen in any executive's office.)

"There is definitely a fashion-conscious customer who wants to see what's next," he says. They want brands like Ralph Lauren and MAC Cosmetics at Macy's, and Juicy Couture at Bloomingdale's. That's why he has made "affordable fashion" the Macy's watchword.

According to Mr. Lundgren, even young fashionistas are coming to Macy's now: a new survey among 18- to 24-year-olds, he says, found that 43% said Macy's would be the primary place for them to shop this season. "I think it's because we worked on our assortment to make it relevant to them."

This high priest of department store revivalism hasn't converted everyone -- yet. But Macy's is just getting started; there'll be more changes. Over the next five years, Mr. Lundgren believes that department-store chains "will define the lane we travel in more clearly." By that he means that stores will settle into a hierarchy, with Bloomingdale's and Nieman at the top, followed by Nordstrom, Macy's, J.C. Penney and Kohl's, and so on down to Wal-Mart.

"In our case," he adds, "it's defined by the brands we carry, and more and more of our brands will be unique to Macy's or to Bloomingdale's." (To some extent, this plan takes Macy's back to the origins of the department store in the mid-19th century, when many manufactured their own apparel.)

Last year, Macy's got about 18% of its sales from in-house brands, like INC, Alfani and Charter Club, and that figure will increase. Unquestionably, too, there will be more deals with designers like the one Mr. Lundgren forged last April with Martha Stewart for a new, upscale line of linens, dishes, glasses, flatware and the like. "I've seen it, and we're going to knock the socks off of the home-furnishings business," Mr. Lundgren crows. It's so good, he claims, that Macy's will not test the merchandise in 50 or 100 stores, but is going "all the way" to put it in every Macy's, right off the bat, next year.

Mr. Lundgren remained coy about discussions with other designers, but said there will be at least one announcement "as soon as the deal is done," at least by February.

These exclusive arrangements are another sign of Macy's resurgence, Mr. Lundgren argues. For one thing, "more of those ideas are coming to us than we can handle. But I want, actually, to pursue designers, rather than be pursued." For another, Macy's in-house designers are in demand, courted by rivals. "They're trying to raid us all the time, but our turnover in the talent pool is minimal," he says.

The motive behind offering fashionable, exclusive merchandise is, of course, to attract more buyers and move the basis of competition with other stores away from price. Going forward, Macy's will not be as "promotional," which means everyone will see fewer discount coupons in newspapers or flyers. Unless you are a Macy's charge-card customer, you'll be getting fewer deals.

Macy's has also been sprucing up its stores, trying to dispel the dowdy, department-store image via Mr. Lundgren's "Reinvent" strategy to make shopping easier. When customers complained that stores were too big and they didn't know where departments were, Macy's installed big signs directing them to departments and sometimes to specific brands; when they said they didn't know where they could try things on, Macy's put in bigger, more clearly marked fitting rooms and built lounges, often with plasma TV screens tuned to sports and cartoons, for the men and children who waited outside. When customers said that, given the plethora of "take 25% off the last marked price" signs and coupons, they couldn't do the math and didn't carry a calculator, Macy's bought electronic price scanners that calculate the final price of marked-down items for customers before they go to registers. Now in 600 stores, and headed for all Macy's, "they are getting used millions of times in each store," he says. Mr. Lundgren also widened store aisles and is upgrading restrooms.

Simple as those things sound, customers had to tell Macy's about them in surveys. "This was a big ah-hah moment for us," Mr. Lundgren remarks. As a result, the Reinvent program "will never be over" -- though he claims not to know what's next.

Mr. Lundgren is a big believer in research. "Tons" of it is underway in new areas, he says. For example, Macy's is surveying 450,000 customers about its service. Implementation of the resulting advice will rest in the hands of local stores managers, whose performance will be assessed on their grades and improvements. Meanwhile, a new marketing research team under a new chief marketing officer, Anne MacDonald, brought in from Citibank and PepsiCo, is searching for ways to burnish the Macy's brand nationwide. Surveyors are talking to customers right now, asking what they think of the advertising and other variables that affect Macy's image.

This is a busy time for Mr. Lundgren, remember, but there were a few minutes to talk about Macy's international aspirations (they're there, if the potential payoff is "meaningful," so maybe China, parts of South America, possibly Russia and maybe India would be ripe) and the Internet (Macys.com is the fastest-growing part of the mix, clearly set to be a billion-dollar business in the next few years). And then my time was up.

* * *
Outside, the sun had set. I didn't ask what was next on Mr. Lundgren's agenda, but I knew it would soon involve travel and communication. He had already told me that he and his lieutenants make unannounced trips to eight to 11 stores a week during December, swooping in to make sure the stores look good and clean, with all the key sellers (cashmere sweaters, mufflers, boots, coffee machines) in sight and in order. Other days, they do the same in videoconferences, showcasing a fabulous display that everyone should emulate.

It's detail work. With enough of it, Mr. Lundgren wants to show he can catapult department stores to the top of the retail heap. If so, disbelievers would no doubt say it was nothing short of a new miracle on 34th Street.

Ms. Dobrzynski is a writer in New York.

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Sears Tower close to losing Bain as tenant
By Thomas A. Corfman - Crain’s Chicago Business Online
December 13, 2006

Bain & Co. is close to a deal to move to 190 S. LaSalle St. in what would be the first high-profile tenant to bolt from Sears Tower after several years of relative calm.

The high-powered consulting firm would lease two floors totaling about 50,000 square feet at 190 S. LaSalle, about the same amount of space as it has at Sears Tower, where it is on the 44th floor, sources say.

The Boston-based firm has been a tenant in the 110-story skyscraper at 233 S. Wacker Drive since 1998, according to real estate research firm CoStar Group Inc.

The defection would come at a time when Sears Tower can little afford to lose any tenants.

The vacancy rate has soared this year to about 21%, compared to nearly 12% during the second quarter, CoStar says. A flurry of tenants left the building in the wake of Sept. 11, but their leases didn‚t expire until this year, resulting in the recent run-up in vacancy.

Bain‚s reasons for the move could not be fully determined, but in part the firm is said to like the image of 190 S. LaSalle, an ornate tower designed by New York architect Philip Johnson that features a 55-foot-high vaulted, gold leaf ceiling and a 28-foot-tall bronze sculpture.

Representatives of Bain and Sears Tower‚s owners decline to comment. Jeffrey Samaras, an executive vice-president with real estate firm Cushman & Wakefield Inc., which represents Bain, could not be reached for comment.

The deal would be a boost for 190 S. LaSalle St., which was purchased earlier this year by CB Richard Ellis Investors LCC in a bet on the recovery of the downtown office rental market.

The nearly 800,000-square-foot building is more than half vacant, CoStar says. A spokesman for the Los Angeles investment firm declines to comment.

Bain‚s departure has been in the works for several months, but comes during a critical transition for Sears Tower, which is owned by a group made up of Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinian.

The building‚s owners have been interviewing real estate firms to take over leasing and management of the prominent skyscraper after last month‚s surprising announcement that CB Richard Ellis Inc. would resign the assignment.

But finding a replacement may be proving more time-consuming than expected. CB’s resignation was originally to be effective by Jan. 1, but the firm will stay on until Feb. 1 or March 1, a Sears Tower spokesman says.

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Macy's faces the music,
Sears looking better
By Sandra Guy – Business Reporter - Chicago Sun-Times
December 12, 2006

Holiday shoppers' spending mood is anybody's guess, but Marshall Field's-as-Macy's is looking like a tough sell, and Sears is looking better in retail and real estate assets, according to separate analyst reports issued Monday.

The shock of Federated Department Stores CEO Terry Lundgren's decision to eliminate beloved names such as Marshall Field's, Kaufmann's and Famous-Barr is proving a more difficult and time-consuming fight than expected for Macy's owner, wrote analyst Dana Cohen at Banc of America Securities.

Cohen estimated that sales plunged 11 percent in November from a year earlier at Field's and the other former May department stores, all now Macy's.

Another analyst, Carol Levenson of Gimme Credit, has put the stores' sales decline at anywhere from 20 percent to more than 30 percent for the three months that ended Oct. 28.

Cohen lowered her rating for Federated to neutral and cut her holiday-season and 2007 earnings forecasts based on the Macy's revamp decision and four other Federated missteps.

Cohen cited a "sharp reduction" in the cadence of promotions at the new Macy's stores; "dramatic" changes in merchandise assortments; a lack of compelling marketing, and "not enough change in the store environment and service levels."

"Federated tried to do too much too quickly" at Field's and the other department store chains previously owned by May Department Stores, Cohen wrote in a report to investors.

Chicagoans are increasingly bitter at what they see as lower levels of merchandise and customer service at Macy's compared with Field's.

Cohen sees no upturn in the fortunes of the newly minted Macy's stores until spring at the earliest, but she believes Federated's executives will turn things around eventually.

A Federated spokesman said the company's third-quarter sales and earnings were within its forecasts, and the balance sheet and cash flow have remained strong.

A sharp contrast was an analyst's glowing report about Sears Holdings Corp., whose Sears and Kmart stores have failed to attract shoppers.

Bill Dreher at Deutsche Bank said Sears Holdings could spit out an extra $6 billion in cash -- $5 billion by borrowing money through issuing debt, using its real estate as collateral, and another $1.1 billion from selling or leasing brand names such as Kenmore, Craftsman, Lands' End and Die Hard.

Dreher praised Sears Chairman Edward S. Lampert, a billionaire hedge-fund guru, as "one of the greatest investment minds of our time," who could spin the assets into earnings gold.

Dreher said Lampert's investing smarts could add 93 cents to $7.97 to Dreher's forecast of $11 in earnings per share for fiscal 2007. Dreher believes Sears' real estate is worth $8.8 billion.

Dreher also applauded Lampert for improving store profitability, cutting costs and trying to improve shopper traffic by putting Lands' End boutiques and Internet cafes in stores.

 

The Lands' End Brand Plan: Insanity or Genius?
By George Anderson – Retail Wire
December 11, 2006

Shopping for a winter coat or cashmere sweater for the holidays? Would you like that monogrammed? How about getting Peppermint Crunch chocolate wafers, a Panasonic 42" Plasma Television, a China Pearl Necklace, a NordicTrack Audio Strider or a Cool Blue Dog Squall for that special person or pet in your life?

If you wish to buy any of the above then check out your most recent Lands' End catalog or go to www.landsend.com/gifts. There, you'll find a lot of items that you probably wouldn't associate with the retailer that has made its brand name selling preppy clothing and home furnishings.

David McCreight, president of Lands' End, recently told the Wisconsin State Journal that the retailer is looking to create "a one-stop shopping experience" for its customers.

Mr. McCreight is a believer in Lands' End strategy to branch out beyond its core business. Others see the move as necessary while others seen it as brand suicide.

Count George Rosenbaum, chairman of Leo J. Shapiro & Associates, as one of those who see Lands' End new direction going in the wrong direction.

"I think it probably reflects some rather incompetent meddling on the part of Sears," he said. "To attempt to extend the Lands' End brand name to toys and plasma TV, I think, is very risky, in terms of degrading its value as an apparel brand."

Howard Davidowitz believes that selling Crafstman tools, an iBeanbag chair wired for iPods, and cashmere water bottle covers is necessary for Lands' End to remain relevant in the consumer marketplace.

"Lands' End is a great brand, but nothing is forever. Any brand has to continually move to the next level," Mr. Davidowitz said.

Mr. McCreight said Lands' End's new direction a result of "talking to customers, trying to surprise and delight them." He added, "We're trying to bring the customer even closer to the company."

Lands' End is looking to create that closeness by being more accessible to consumers. The company is moving beyond its catalogs, web site, company and outlet stores to branded departments within select Sears' locations as well as placing kiosks in stores.

It is also looking to personalize the shopper experience by expanding monogramming. Lands' End has moved beyond simple initials embroidered on a shirt or other garment by, as an example, placing children's artwork on tote bags.

"If you listen to your customers and have your customers' best interests at heart, you're bound to be successful," said Mr. McCreight. "I plan to not only maintain that focus but further it."

Listening to its customers is what led to Lands' End developing its newest line of clothing -- women's intimate apparel. "Customers were saying, 'you fit me so well in (swimsuits), would you help me in intimate (apparel)?'," he said.

Discussion Question: What is your assessment of Lands' End current marketing strategy?

Lands' End is branching out - Wisconsin State Journal

What are your thoughts on this subject?

Which initiative will be most beneficial to the top line performance of Lands' End?

Branching out into categories beyond apparel and home furnishings
Expanding within its heritage to add new product lines such as women's intimate apparel
Increasing its visibility with departments and kiosks in Sears
Offering more customized services such as advanced monogramming
Not sure/no opinion

Comments... Send in Yours!

The further they move away from their roots of high-quality clothing and the equity they've built up with their customer base the more they have to lose. It appears they're working to make their website nothing more than an alternative to Amazon.com and when they do the consumer will no longer know what it is they stand for and their brand will no longer be the brand of choice that they've worked so hard to create.
Mark Hunter, President, TheSalesHunter.com

A winning retail strategy: be dominant in the categories you enter. A losing retail strategy: one stop shopping. No American wants to buy everything in one place. Everyone knows that no one place can be the best place for everything. Lands' End is great for preppy clothing. Maybe they can be great in related clothing. Trying to be great in consumer electronics? Why not sell cars or burgers or lawn care services? Preppies buy those too. Best thing about free enterprise: any retailer is free to embarrass themselves.
Mark Lilien, Consultant, Retail Technology Group

Extending its product lines to electronics and other unrelated lines is going too far. If a consumer wants to buy electronics they'll go to Best Buy or Circuit City, not Lands' End. Consumers are already inundated with too many ads and promotions and many are about to cry out "enough." When will some retailers understand that strategic product extensions, not greedy extensions are what consumers want.
Barry Wise, President, Wise Retail Consultants

No question that Lands' End's offer is being tinkered with by Sears and it is no surprise that their new president, David McCreight hailing from Smith & Hawken -- an upscale chain that doesn't sell apparel -- is tasked to leverage the Lands' End brand in a revenue generating way. I can't imagine any other reason you would bring in an executive from outside the apparel industry to run a "dyed in the wool" apparel catalog retailer.

Will it work? Well, Sears wasn't too successful at launching Lands' End Departments within their stores and while they attempted to integrate this concept, they took their eyes off the cash generating portion of the acquisition -- the successful catalog customer.

I spoke with Lands' End employees during and after the purchase in order to track the impact of the acquisition to their core business. Folks on the inside didn't paint a pretty picture, with both morale and execution falling considerably over the first couple of years. Mistakes in catalog printing and product offers combined to drive morale and customer satisfaction downwards.

Will this new venture work? I think it is very ambitious and a gutsy move, but I believe that it is going to be very tough to execute from an operational and a customer service perspective. In my opinion they should focus on expanding their core offer, but do it in phases allowing their customers to absorb and react.

This may be one bullet the guys in Dodgeville just aren't able to dodge.
Charles P. Walsh, President, The Network of NWA

Mr. Davidowitz's comment that "nothing is forever" certainly will apply to Lands' End, the longer they pursue this misguided strategy. It's one thing to develop product and line extensions that are true to the brand; intimate apparel, for example, makes perfect sense if the design is appropriate to the target customer rather than imitation-Victoria's Secret. It's another thing entirely to muddle the brand image with irrelevant product and clashing brands (such as Craftsman), and turning the business into a "bunch of stuff."

This looks like somebody's idea of corporate synergy: How to leverage the investment in Lands' End by driving sales of Sears merchandise in an inappropriate channel. Short-term, this may please investors in Sears Holdings, long-term it's a great way to kill a respected brand with a well-defined image.
Richard Seesel, Manager and Owner, Retailing In Focus LLC

Lands' End is doing the right thing. Many of my panelists are too quick (IMHO) to silo Lands' End as just a clothing retailer. Today's successful retailers have all extended their presence to other products, recognizing that their customer is the same one that purchases these products in other places. One of the things which has made LE distinctive has been their warranty, ability to merchandise, and the value that they bring to their competitive landscape. How they continue doing this with other branded products will determine their future success. If they can continue to offer a unique channel, with standards that exceed their customer's expectations in customer service and product reliability, they will be successful. Otherwise, they will stall and fail. It is the follow-through with their channels and customers which makes LE the success it is today.
Kai Clarke, President, Miraclebeam Products, Inc.

The day they were purchased by Sears was "the day the music died" for Lands' End. End of brand, at least end of the quality, targeted, upscale brand they were...end of story.
Mike Tesler, President , Retail Concepts

With its new strategy, Lands' End is simply doing what every loyalist power brand worth its name recognition salt has already been doing: becoming a true "lifestyle" brand (which should go down in history as the brand buzzword for 2006). From that perspective, LE is actually behind the curve and should be applauded for waking up and smelling the opportunity. No worries about stepping out into unprecedented waters though. They can simply pick and choose winning ideas from many who have gone before: Eddie Bauer, Jeep, Aeropostale, Juicy Couture, Napapirji, Nautica, Baby Phat, Vuitton, Gucci....
Carol Spieckerman, President, newmarketbuilders

Change is essential to stay relevant, so Lands' End does need to change. However, trying to morph into a general retailer does not seem to be the way for Lands' End to go. Not every retailer can or should be everything to everyone. Lands' End probably would do much better by defining its lifestyle brand and building on it. While some of the extra items may be higher margin, they really subtract in the long run from what the brand means. Lands' End seems to be moving towards the point of meaning nothing to anyone because they tried to be something to everyone.
Kenneth A. Grady, General Counsel and Secretary, Wolverine World Wide, Inc.
 
I couldn't respond to the poll question because there was no "get divested" option....

...But one observation on the "our consumer's are telling us" comment. There is a "forest and the trees" aspect to consumer research that is difficult to see (yes, pun intended). If we look closely enough and ask the questions correctly, we can get some of our consumers to tell us just about anything we want them to. This does not result from malicious intent or poor research practice. Rather, it is human nature to follow the threads that appeal to us and to hear the things that fit our own paradigms and support our own ideas.
Ben Ball, Senior Vice President, Dechert-Hampe

I like it.

I received the catalog and have to admit, it held my attention. It was nice to see a few new surprises other than the 2006 version of the last 10 years of polos & fleece.

It's all in the mix. I think they can pull it off with smart merchandising and unique findings. They'll screw it up if the product additions are just "me too" offerings broadly found elsewhere.
'SILVERSTONE'

Bill Ford recently said that his customers told him that they are "building cars that people want to buy." Now, depending upon your perspective, you could interpret that differently. If you have shifted, like so many, to a completely different brand long ago with no intention of looking back, you might chuckle. Some, however, do agree with Mr. Ford since they still do sell millions of them (just not as many as before).

The same holds true for Lands' End. Some are still buying. The question is, will their consumer base that has already diminished, buy more and different things? Or, are they potentially, like Mr. Ford's past consumers, longing for a better day?

For myself, I made the shift to L.L.Bean some time ago. Why? Well, it's sort of like my dream of owning a Jag or a Volvo. Both went away when Ford bought them. When Sears bought LE, and for no reason other than that, I sought an alternative. Why? Perception. LE had never done anything wrong, in fact they had been terrific for years. However, when purchased by Sears, it was my immediate perception that they couldn't possibly be the same. Fair? Not really. But, they did prove me out when they failed miserably in launching LE product in their stores.

From one cycle of purchases, L.L.Bean won me over. But, to be honest, there was nothing that I ever disliked about LE other than the Sears tag. The problem is, now having found a far superior online and catalog retailer in L.L.Bean, can I go back? Not likely; my loyalty has shifted. (And without a frequent shopper card too -- imagine that!)

I'll be doing my Christmas shopping tonight from the couch. I could in fairness give them a try, but not for a television. That's just silly. But I might give them a side by side comparison with L.L.Bean and see what happens.

There was a day when Sears was on top. And they still have valuable brands that stand on their own as a value. Is it possible that LE could become the outlet for the best of what Sears once had to offer? That just might be the better day. The problem is, I don't think the merchants at Sears are smart enough to re-package all that was once great....
'Scanner'

I think Kai said almost everything I was thinking better than I could myself.

The only thing that I would add is that I don't think it is fair to compare this move to the merchandising of Lands' End in Sears. In my viewpoint, the problem there is that the demographics of the Sears customer didn't match the Lands' End demographics. I think in this case the demographics do match and if they can execute with quality, this should be a winner.
'karenk'

This discussion really isn't about Lands' End; it's about Sears. They have purchased Lands' End and obviously believe that LE offers not only quality merchandise but another distribution method for Sears' own products. However, Lands' End didn't get to be as successful as it has been by selling plasma televisions. It's clear that Lands' End needs to stick to its strength: clothing, luggage, related preppy attire. However, Sears is in serious need of finding its core. Rather than purchase and then disembowel a strong brand like Lands' End, Sears should take a step back and find its own strengths to capitalize on.
Tonya Hamilton, Owner, Hamilton Strategic Marketing

Lands' End built its emotional base with customers through understanding who they were as people and catering to their clothing needs in a personal and informative way. I was there, reporting to founder Gary Comer during this period in the 80's - and it is sad to see the erosion of this great brand.
Gary used to tell us "think small, big will take care of itself. Treat each customer as if they were the most important person." This served us well and would continue to serve Lands' End well today if they focused more on service and customer experience in their core of clothing versus selling bells and whistles, and phones and air conditioners and, well, the kitchen sink.
jeanne bliss, ceo, customerbliss

I have to vote brand suicide based on initial concept and perhaps not fairly, forecasting results based on Sears/Lands' End's execution so far. Some mentioned lifestyle brands. Neither TVs nor pearls seem to build a casual/preppy lifestyle retail stop, or their own brand. Why not have Lands' End treadmills instead of Nordic Track exercisers that can be bought at Nordic shops? There are so many other categories, with even more room for expansion, that would be a better tie in to their lifestyle -- pets, camping, accessories for Jeeps and SUVs, hiking, messenger bags, an organic clothing section, and so on -- that would reinforce their brand versus possibly "muddying the water."
George Andrews, Principal, Delta Associates

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For some people, the first job in retirement involves a good deal of ho-ho-hoing
By Kelly Greene – The Wall Street Journal
December 11, 2006

Richard Christie, a 73-year-old retiree in Sunland, Calif., was struck by the idea of becoming Santa Claus seven years ago while vacationing in Big Sur.

"I was walking on the pier when I saw a man dressed all in red with a full beard, and I watched children flock to him and talk to him as Santa," recalls Mr. Christie, who had retired from Sears, Roebuck & Co. several years before and was looking for something "noble to do where I could interact with children."

The Santa who would become his mentor, Bill Gibson, told Mr. Christie -- who already sported a small beard -- that he could find work as Santa, too.

THE JOURNAL REPORT
The small town of Brunswick2 in southern Maine is very cold -- and very inviting. Plus, our annual gift ideas3 for the travelers on your shopping list.

Mr. Christie never shaved again.

Within two years, the transformation was complete. He found an agent who helped him land work at corporate events, private parties, malls and even in television commercials. Last year, he flew to Shenzhen, China, where he greeted thousands of guests in a chalet set up in the lobby of a five-star hotel -- and pulled down a paycheck in "the mid-five-figures" for two hours of work a day, six days a week, for about a month.

About two weeks ago, Mr. Christie returned to Asia. This season, he is listening to wishes of girls and boys at Pacific Place, one of Hong Kong's most popular shopping malls.

Second Calling

For no small number of male retirees, it's their first foray into life as an independent contractor: playing Santa Claus during the holidays. Many are ideally matched to the role of the Jolly Old Elf, given their real beards, which are sought after by photo companies manning Santa's workshops, and their real waistlines, reflecting decades of good cooking by their respective Mrs. Clauses.

Shopping malls, of course, are where most St. Nicks ply their trade. Such work requires lots of time -- and endurance. (One Santa's secret: soccer shin guards to protect legs from preschooler kicks.) On average, each Santa visits with more than 80 children daily, according to a survey of 150 malls by the International Council of Shopping Centers, a New York trade group. And each mall snapped an average 4,000 photos of Santa mugging with those children in 2004.

Instead of logging long hours in a chair, some retirees-turned-Santa work the party circuit, often mixing charity events with paid gigs. Few make it to national TV commercials, which are dominated by younger, professional actors, but most retired Santas have made an appearance or two on the local news, often helping to promote a toy drive.

Patrick Farmer, a 63-year-old retired caterer who lives in Yuma, Ariz., spent the summer doing an off-season job: He and his wife greeted visitors as Santa and Mrs. Claus at Santa Claus House, a tourist stop in North Pole, Alaska, where the couple lived in their recreational vehicle. Mr. Farmer, who has traveled widely throughout the U.S., was able to converse with children from different parts of the country about features of their hometowns.

"It makes Santa that much more real to them," he says. "I see everything when I'm in my sleigh, you know."

Branching Out

Some entrepreneurial Santas have created lucrative sideline businesses along the way. Mr. Christie, for example, markets a line of leather belts, buckles and other accessories, some costing nearly $300. Others, finding themselves with too much work to handle on their own, have become agents for fellow Santas. And a few of the sagest St. Nicks have written and published instruction manuals for the business and hold regular Santa workshops -- turning out trainees rather than toys.

The pay can help beef up retirement savings. Santas working at shopping malls typically make $8,000 to $20,000 a season, with most landing in the $10,000 to $12,000 range. Santas on the party circuit pull in about $100 an hour, depending on the region and type of event. The larger photo companies, such as Noerr Programs Corp. in Arvada, Colo., pay most of their Santas on the lower end of the scale, but also provide their wardrobe, training and living expenses for employees working in malls far from home.

But there's always the lure of the big time. "I saw Robin Leach interviewing a Santa going to appearances in a limo, and I thought, 'If I can do that in retirement, my wife would be really happy,' " recalls Timothy Connaghan, 58, a retiree and a Southern California Santa who now heads an industry trade group, the Amalgamated Order of Real Bearded Santas, based in Riverside, Calif.

The tradition of visiting Santa dates back more than a century, to the late 1800s, when department stores started using St. Nick to lure shoppers. After World War II, the U.S. Army sold leftover cameras to photographers, who began snapping Santa photos in the department stores. The business surged with Polaroid instant pictures in the 1970s, and more recently with the rise of digital photography.

Bill Sandstrom, a 57-year-old retired minister in Braselton, Ga., has always had an unmistakably ho-ho-ho-like laugh. Three years ago, after his first grandson was born, "my daughter said, 'If you're ever going to do this, now would be a great time.' "

The new grandfather called AmuseMatte Corp., the Chatsworth, Calif., photo company that runs the Santa scene at North Point Mall in nearby Alpharetta, Ga., in hopes of working there. Instead, he was placed at the Rock Hill Galleria in South Carolina in 2004. His start-up costs -- $2,000 for three red suits and $200 to professionally whiten his beard, plus more for touch-ups -- meant he broke even compared with the retirement job he holds the rest of the year as a local truck driver.

But the following year, AmuseMatte gave Mr. Sandstrom a raise and sent him to Burbank Town Center in California. Mr. Sandstrom is spending this season there as well, working eight hours a day, seven days a week, as the sole Santa on the scene. His wife, Peggy, took the job of set manager, and they're sharing an all-expenses-paid apartment.

His first day in the chair was demoralizing: Three children showed up with a computer-generated list, single-spaced, that ended with a request for $2,000 in cash. Last, year, though, he was inspired by a little girl who told him, "Santa, Christmas isn't about you. It's about the Baby Jesus." Mr. Sandstrom, a retired Church of God minister, told her that Santa agreed.

"Even in Hollywood, which is so materialistic, there are kids who don't ask for anything for themselves," Mr. Sandstrom says. "There was a little girl whose sister had drowned around Christmas the year before, and all she wanted was for her parents to be happy again."

Another job requirement -- persuasively handling tough requests -- draws from retirees' reserves of life experience. And having your own grandchildren helps, veteran Santas say. When asked to bring parents back together, or to bring a family member home from Iraq, "I usually tell children that Santa feels really sad for them and I'll pray for them," Mr. Sandstrom says.

The digital age -- and children's increasing skepticism -- makes it tougher today to keep children believing in St. Nick. That places more emphasis on the authenticity of Santa's beard, and makes men of a certain age that much more desirable as candidates.

"If one of the ways people can get a child to believe in Santa one more year is to see a real-bearded Santa, that's what [families] seek out," says Mr. Connaghan, in California, who grew his beard about a decade ago to bolster his credentials as a Santa-for-hire.

Making the Transition

Like many retirees-turned-Santa, Mr. Connaghan dabbled in the role before walking away from the office. In fact, he first transformed into Santa while stationed in Vietnam, fashioning his beard from shaving cream. As he phased into full-time retirement from hotel marketing, he expanded his Santa enterprise. This year, as executive director of the Amalgamated Order of Real Bearded Santas, a group of more than 1,000 such men, Mr. Connaghan organized the group's first convention, in Branson, Mo., where 300 participants could meet with representatives from several photo companies and attend workshops on subjects ranging from Santa ethics to modeling work.

(Among 322 real-bearded Santas who responded to a survey earlier this year, the average age was 59, average height was 5 feet 10 inches, average weight was 257 pounds, average length of marriage was 24 years, average number of children and grandchildren was 2.7 and 3.5, and the average number of years they had been Santa with a real beard was nine. Favorite movie? Fifty-six percent said "Miracle on 34th Street.")

Mr. Connaghan, whose own appearances have included the Hollywood Christmas parade and the "Dr. Phil" TV show, shares what he has learned with new initiates for $89 apiece (including a "Behind the Red Suit" manual) in one-day workshops called the International University of Santa Claus.

Santa Helpers

Among his tips: Market yourself, rather than hiring an agent, by combing your hair and beard before heading out on errands and making up a distinctive business card to hand out around town. (His looks like a driver's license.) When in character, don't eat (except breath mints) or drink (except for water), scratch, sleep, chew gum or smoke. The most professional Santas invest in custom-tailored velvet suits and learn how to use foundation and rouge (DR-3 Raspberry from Ben Nye, a theater-makeup company, is a popular choice), Mr. Connaghan says.

And the biggie: "Santa should always have his hands showing in the photo," usually with one arm around the child and the other in his own lap, Mr. Connaghan says. "We work hard to keep our image untarnished. One weak link can ruin the whole thing." His book includes information about buying liability coverage in case a parent sues.

It's a concern shared by many Santas: Mr. Sandstrom says that he always wears white gloves so parents can watch his hands.

The best part of the job? The adoration coming from children, and some adults. Mrs. Sandstrom recalls a dinner at Red Lobster shortly after Christmas last year when Mr. Sandstrom excused himself to use the restroom -- and then took about 45 minutes to make his way back to the table. Though he wasn't in costume, his beard and hair had been dyed white before Christmas, so he still looked the part.

All of this can be tough on the real-life Mrs. Clauses, who, after all, didn't necessarily sign up to play second fiddle to Santa. In fact, one of the most popular workshops at last summer's convention in Missouri was titled "Dealing with the Male Peacock: How to Live with Santa."

"But even for me," Mrs. Sandstrom says, "seeing the wide-eyed innocence in the children's eyes when they see Santa makes it worth it."

--Ms. Greene is a staff reporter in The Wall Street Journal's Atlanta bureau.

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Rocky Return to the Roots at Wal-Mart
By Michael Barbaro and Stuart Elliott - New York Times
December 9, 2006

It was the kind of bold advertising campaign that Wal-Mart executives agreed was needed to attract style-hungry consumers: a series of commercials featuring two sisters — one a regular Wal-Mart shopper, the other not — trying to redecorate their homes.

In commercials set to run throughout this holiday season, the sisters were to discover that Wal-Mart offers a lot more than low prices.

But in July, as gasoline prices spiked, senior executives abruptly scrapped plans for the so-called sisters campaign, sending a marketing team led by Julie Roehm scrambling to create a replacement, according to people involved in the process. The reason was that the ads did not focus enough on low prices.

Wal-Mart ousted Ms. Roehm — and abandoned her choice for new ad agencies — this week after determining that she violated company policy by accepting gifts from potential vendors and maintaining a personal relationship with a subordinate, according to people briefed on the matter. She has denied any wrongdoing.

But Ms. Roehm’s near-operatic downfall exposes deeper tensions within the Wal-Mart empire, as a company that has been identified for four decades with working-class consumers tries to appeal to more affluent Americans.

A year ago, the company surprised the marketing world by hiring brash outside executives like Ms. Roehm and introducing ads that emphasized style and played down price. Then, in a sudden reversal, the company began trumpeting price-slashing for the 2006 holiday season.

In an interview, John Fleming, the chief marketing officer at Wal-Mart, said the company had indeed begun to backtrack from sleeker advertising that emphasized style over price. Customer research, he said, showed that, rich or poor, Wal-Mart customers “care about unbeatable prices.”

“I don’t think Wal-Mart advertising is ever going to be edgy,” he said last night. “ I do not think that fits our brand. Our brand is about saving people money.”

But Ms. Roehm was the very essence of edgy — and her hiring was widely viewed as a signal that Wal-Mart wanted to shake up its marketing.

As an executive at DaimlerChrysler, Ms. Roehm approved a commercial for Chrysler in which a mother explained to her daughter that her brother was conceived in the car, spurring customer complaints that led to the spot’s being dropped.

And after arriving at Wal-Mart, she referred to herself as a “change agent,” and set about turning the company’s annual shareholder meeting — a traditionally PowerPoint and numbers-heavy affair — into a three-hour musical.

Ms. Roehm, in an interview, said she believed that her job at Wal-Mart was to buck convention. “I had to assume they felt I brought the right skill set in this quest for transformation,” Ms. Roehm said.

But Ms. Roehm said it was clear from the start that she did not fit in. “Culturally, I clearly was an anomaly,” she said, likening her personality to a vacuum that can, at times, suck all the oxygen out of the room. “I come in, and I am extremely high energy, and it can be overwhelming.”

And, she said, her background at Chrysler — where her specialty was eye-popping, sexually charged commercials to sell trucks — may have alienated her colleagues.

“My ideas were viewed with greater skepticism,” she said. “People understood my background and where I came from and they were probably more concerned about the kinds of ideas I might bring. It caused a greater level of pause when I suggested something.”

In several cases, Wal-Mart approved her ideas, only to reverse course later.

After a handful of consumers complained about a holiday commercial that was overseen by Ms. Roehm and focused on lingerie, the company stopped running it.

Mr. Fleming said that Wal-Mart changed the holiday ads every week and decided, after receiving negative feedback, “to move on” with new commercials.

He also replaced the holiday campaign focused on the two style-conscious sisters with commercials built around a family whose curmudgeonly father is obsessed with low prices.

Mr. Fleming said the family in the new campaign “provided a broader reach” than the sisters — with each family member representing a different gift idea available at Wal-Mart.

In all of its advertising, he said, “we are looking for the right balance between price and products.”

Advertising executives who have worked with Ms. Roehm at Wal-Mart said she never seemed at home there.

“Julie’s one of those celebrity” figures in marketing, said an advertising executive who was involved in the review process who spoke on the condition of anonymity because he was not authorized to discuss the process publicly. “When Julie walks into the room, it’s Julie’s room.”

“But Wal-Mart’s never been a culture of stars,” the executive added, pointing to the philosophy of the founder, Sam Walton, who “was about the team and the workers on the floor.”

Wal-Mart has not confirmed why it fired Ms. Roehm, but people briefed on the issue said it was over her conduct during a search for new advertising agencies, which concluded in late October. During that process, these people said, Ms. Roehm accepted gifts from agencies, attended events considered out of bounds for an executive choosing a new firm and maintained a relationship with an employee.

Wal-Mart also fired the employee with whom Ms. Roehm is said to have had the personal relationship, Sean Womack, who answered directly to her. Both deny having a relationship that violated Wal-Mart policies or behaving in any way that tainted the search for a new ad agency. Both said they were in the process of putting their homes near Wal-Mart’s headquarters up for sale.

It was their conduct, people briefed on the matter said, that prompted Wal-Mart to overturn Ms. Roehm’s choice of Draft FCB as the company’s ad agency on Thursday and to bar Draft FCB from participating in a new search.

Numerous agency executives said they expected Wal-Mart to begin next week to reach out to the final group of agencies that Ms. Roehm, Mr. Womack and other Wal-Mart managers had decided against hiring during the first search.

Those agencies include GSD&M in Austin, Tex., part of the Omnicom Group, which has worked for Wal-Mart since 1987; the Martin Agency in Richmond, Va., also part of Interpublic; and Ogilvy & Mather Worldwide, part of the WPP Group.

Bernstein-Rein in Kansas City, Mo., which has worked for Wal-Mart since 1974 but was dismissed during an early stage of the search, may be asked to take part in the search.

A spokeswoman for Wal-Mart, Mona Williams, said the company hoped to complete the second search by the end of next month.

The fallout from the overturned search process played out yesterday at Draft FCB. Howard Draft, chief executive, spent the day trying to bolster the morale of his employees, who were hit hard by the surprise change of heart at Wal-Mart.

“We should all remain incredibly proud of the fact that after a grueling five-month review, we won this business against dozens of worthy competitors,” Mr. Draft wrote in a memorandum to employees that was also signed by three other senior Draft FCB managers.

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Chinese company sweeps up Hoover
Whirlpool selling floor-care business for $107 million

By James P. Miller - staff reporter – Chicago Tribune
December 8, 2006

Whirlpool Corp. on Thursday agreed to sell its recently acquired Hoover floor-care operation for $107 million to Hong Kong-based Techtronics Industries Co.

Sale of the floor-care business "allows us to focus on our core appliance business," said Whirlpool Chairman and Chief Executive Jeff Fettig.

Whirlpool announced several months ago that it intended to sell the Hoover operation, which has had difficulty competing with a surge of low-cost imports, in part because the vacuummaker is saddled with relatively high labor costs.

It wasn't immediately clear whether the Chinese purchaser intends to continue using Hoover's manufacturing operations in the United States, the largest of which is a 850-employee unionized factory in North Canton, Ohio.

In recent months, the Ohio workers have been scrambling to put together an employee buyout of Hoover. Thursday's announcement of the sale to the Asian manufacturing concern appears to kill any chance of that, however.

Techtronics is best known as a maker of power tools, sold under the well-known Milwaukee and Ryobi brands. But the Asian company is also a major producer of floor-care appliances, which it supplies under such brand names as Royal, Dirt Devil, Regina and, in Britain, the Vax brand.

The Hoover purchase, expected to close by the third quarter of 2007 at the latest, "will strengthen our market presence globally," Techtronics said.

Although Hoover generates annual sales of $450 million to $500 million, estimated B. Craig Hutson of the bond-analysis firm Gimme Credit, it has been losing money as well as market share "and will require significant investment by Techtronics to improve results."

Whirlpool took ownership of Hoover when the appliance manufacturer acquired Hoover parent Maytag Corp. for $1.7 billion in March. In May, Whirlpool announced plans to shed the financially struggling Hoover operation, as well as three other former Maytag businesses, by year-end.

Michigan-based Whirlpool sold off the Amana commercial microwave operation for $49 million, and the Dixie-Narco vending-machine business drew $46 million in a separate transaction. Still unsold is the Jade commercial-appliance group.

Including non-union operations in Texas and Mexico, Hoover has a total workforce of about 2,600 and is the largest of the operations Whirlpool is divesting.

Under the sale accord, Whirlpool retains responsibility for pension obligations of currently retired Hoover workers.

Hoover probably would have drawn a higher sales price, experts have suggested, but for the fact that its buyer probably will face hefty separation costs if it decides to restructure, particularly if the cuts include the jobs of the unionized Ohio employees.

Part of the rise of low-cost floor-care producers can be traced to the growing importance of "big box" retailers in the United States. High-volume retail chains, such as Wal-Mart Stores Inc., Home Depot Inc. and Target Corp., routinely use their purchasing power to squeeze lower prices from suppliers. That situation puts companies with domestic manufacturing facilities, like Hoover, at a disadvantage.

Jim Repace, head of the North Canton local of the International Brotherhood of Electrical Workers, who has been leading the ill-fated attempt to mount an employee buyout, said union officials hope to meet soon with the new owners.

"We're looking forward to an opportunity to have talks with them and work something out so that we can remain strong here in North Canton," he told The Associated Press. "People here need to have their jobs, make a living and raise families."

In New York Stock Exchange trading Thursday, Whirlpool shares edged down 24 cents, to $86.13.
- - -
Hoover's history

1907 James Murray Spangler, working as a janitor in a Canton, Ohio, department store, develops a prototype for the first portable electric vacuum sweeper using a soap box, an electric fan, a broom handle and a pillow case.

1908 After making improvements and receiving a patent, Spangler sells rights to his "electric suction sweeper" to William H. Hoover.

1943 The Hoover family takes the company public.

1985 Hoover is acquired by Chicago Pacific Corp.

1989 Maytag Corp. acquires Chicago Pacific.

LATE 1990s/EARLY 2000s A rising tide of low-price imports, coupled with the increasing market power of low-cost mass retailers like Wal-Mart and Target, puts heavy pressure on Hoover's profit.

MARCH 2006 Whirlpool acquires ailing appliance-industry rival Maytag and puts Hoover up for sale. Hoover employees in Canton begin exploring an employee buyout.

DEC. 2006 Whirlpool sells Hoover to Hong Kong-based Techtronics Industries for $107 million. As part of the deal, the U.S. company retains pension liabilities for currently retired employees.

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Wal-Mart Fires Marketing Star and Ad Agency
By Michael Barbaro and Stuart Elliott – New York Times
December 8, 2006

It was a coup for Wal-Mart: hiring away a top marketing executive whose envelope-pushing advertising campaigns ˜ like a lingerie-filled mock football game ˜ generated big business and big buzz.

But a year later, that executive, Julie Roehm, is out of a top job at Wal-Mart amid allegations, which she denies, that she accepted gifts from ad agencies, maintained a personal relationship with a subordinate and showed favoritism toward potential vendors.

Yesterday, in a surprising rebuke, Wal-Mart overturned Ms. Roehm‚s choice to replace the company‚s longtime advertising agencies ˜ a decision that puts $580 million worth of marketing up for grabs again, two months after the original search process ended.

Her departure has roiled Madison Avenue and sent several major agencies scrambling to dust off their marketing plans for the nation‚s largest retailer.

At the heart of the controversy, everyone agreed, is a culture clash. Ms. Roehm, a 35-year-old rising star who won acclaim in advertising circles for her work in the automobile industry, was never at home within the painstakingly modest by-the-books culture of Wal-Mart.

While some of the details are in dispute, several people briefed on the matter said that Wal-Mart dismissed Ms. Roehm and a lower-ranking marketing colleague, Sean Womack, after deciding that the pair had a personal relationship that violated the company‚s strict ethics policy, which forbids fraternizing with subordinates.

After an internal investigation, these people said, the company also concluded that Ms. Roehm had accepted gifts, including meals, from companies vying to become Wal-Mart‚s advertising agency, a coveted account because the company spends nearly $1 billion a year on marketing.

These people, who have direct knowledge of the situation, spoke on condition of anonymity because they were not authorized to talk publicly about the case.

In telephone interviews last night, Ms. Roehm and Mr. Womack denied that their relationship violated company policies or that they had done anything wrong in dealing with the ad agencies.

Ms. Roehm acknowledged that her style and ideas did raise eyebrows at Wal-Mart. „I think part of my persona is that I am an envelope pusher,‰ she said last night. „The idea of change in general can be uncomfortable for many people, and my persona as an agent of change can prompt that feeling.‰

In one of her first assignments at the retailer, Ms. Roehm transformed Wal-Mart‚s traditionally stodgy shareholder meeting into a three-hour Broadway extravaganza, hiring a troupe of New York actors who sang songs like "The Day That I Met Sam," the company‚s revered founder.

The show elicited groans from longtime company executives.

Several weeks ago, Ms. Roehm courted controversy again when she oversaw production of a holiday TV ad, known inside the company as "Sexy," that portrayed a husband and wife discussing racy lingerie in front of their extended family. The ad drew customer complaints and was immediately taken off the air, a person involved in the matter said.

But the biggest questions about Ms. Roehm‚s conduct surrounded her work on a closely watched hunt for a new advertising agency for Wal-Mart. Over the last seven months, Ms. Roehm, Mr. Womack and three other colleagues crisscrossed the country interviewing candidates. During that time, her conduct surprised and, in some cases, alarmed Wal-Mart executives.

She was spotted taking a ride in an Aston Martin owned by the chief executive of one agency, Draft FCB. At another time, she was seen riding in a BMW convertible with the president of another, GSD&M, according to people familiar with the matter.

And she attended a September dinner given by Draft FCB at the Manhattan hot spot Nobu, during which she lavishly praised the ad agency and appeared to suggest it had the upper hand in the contest more than a month before an official announcement of the winner was due.

At the dinner, Ms. Roehm spoke about how Draft FCB, formed this year by the merger of the Draft and Foote Cone & Belding agencies, might be the model of the ad agency of the future, said one attendee, Linda Fidelman, president of Advice and Advisors in New York, a consulting company that helps marketers search for advertising agencies.

Ms. Fidelman said she asked Ms. Roehm why she appeared at the dinner and whether the other ad agencies being considered along with Draft FCB were upset. Ms. Roehm‚s reply, according to Ms. Fidelman, was along the lines of "if you don‚t ask, you don‚t get."

Ms. Fidelman said guests at the dinner were "all fairly flabbergasted,"adding, "I‚ve never seen an existing client at one of these things ˜"much less a prospective client."

One agency executive familiar with the situation, who spoke on the condition of anonymity because the company might become involved in the search for a new ad firm, said that Wal-Mart executives were "turning green" over the Nobu dinner because of the strict Wal-Mart rules that prohibit employees from accepting gifts of any kind ˜ including drinks or meals ˜ from a supplier or potential supplier.

Wal-Mart‚s tough standards for employee conduct have become even more stringent since its former vice chairman, Thomas M. Coughlin, pleaded guilty in February to stealing thousands of dollars from the company using fraudulent expense documents and gift cards.

After learning of incidents like the evening at Nobu, and the suspected relationship, Wal-Mart fired Ms. Roehm and Mr. Womack around noon on Monday in terse meetings at the company‚s headquarters in Bentonville, Ark.

Three days later, Wal-Mart decided the agency search process had been tainted by the pair‚s behavior and should be reopened, according to people briefed on the matter.

But Ms. Roehm said the process of choosing new agencies "was fair and exhaustive; we showed no favoritism."

Mr. Womack called the process "extraordinarily thorough and fair," and said he had never had "an improper relationship" with Ms. Roehm. "We are friends."

The two were among 10 Wal-Mart executives who overwhelmingly voted to use Draft FCB, people involved in the process said.

Mona Williams, a spokeswoman for Wal-Mart, said yesterday that the company had notified Draft FCB "that we have decided to reopen the bid process for our advertising account and that it will not be eligible to participate." Ms. Williams cited "new information we have obtained over the past few weeks."

A second agency, Carat USA, part of the Aegis Group, which was selected along with Draft FCB, to handle the media part of the account will be eligible to take part in the second review, Ms. Williams said.

Wal-Mart‚s announcement was a crushing blow to Draft FCB, part of the Interpublic Group of Companies, whose stock fell 6.4 percent, or 79 cents a share, to $11.54.

Executives at the agency had been ecstatic to land the Wal-Mart account, which they viewed as a ratification of a merger that married the traditional advertising experience of Foote Cone & Belding with the specialty services of Draft in areas like direct marketing and database management.

Draft FCB was in the early stages of hiring as many as 200 additional employees at its Chicago headquarters to handle the Wal-Mart account. Philippe Krakowsky, an executive vice president at Interpublic, said, „We were disappointed to hear of Wal-Mart‚s decision.

Louise Story contributed reporting.

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Wal-Mart Dismisses Ad Agency That It Had Just Hired
By Suzanne Vranica and Gary McWilliams
December 8, 2006

Two days after removing two senior marketing executives, Wal-Mart Stores Inc. dismissed the lead advertising agency the executives had helped pick little more than a month ago.

The company dismissed Interpublic Group's Draft FCB and announced it was reopening the recently completed search for an agency for its $580 million account. The move is a new blow to New York-based Interpublic, which is trying to bounce back from an accounting scandal and major client defections.

Earlier this week, Wal-Mart ousted Julie Roehm, its senior vice president of marketing communications, who had led the agency search, and Sean Womack, vice president of communications architecture. Ms. Roehm oversaw the review of the advertising account. She was also in the midst of choosing an agency for Wal-Mart's multicultural ads at the time of her departure. In a telephone interview earlier this week, she declined comment on whether her departure was a dismissal, saying, "It's time to tackle my next challenge."

People familiar with the situation say that during the review, Ms. Roehm attended an expensive dinner at Nobu, a swank Manhattan eatery, that was thrown by Draft FCB for a group of new business consultants. The move may have violated Wal-Mart's strict corporate policy of not accepting gifts from vendors, those people say. Under the longtime policy, designed to keep suppliers from buying business at the world's largest retailer, Wal-Mart employees aren't allowed to accept even the smallest gratuities.

Ms. Roehm confirmed that at Draft's behest, she had spoken about the selection process to a group of consultants at Draft's New York office, and later attended an event at Nobu that Draft held for the same group. However, she said, her attendance wasn't a violation of Wal-Mart's policy. "As far as I know, there was not a dinner party . . . just hors d'oeuvres. We attended a short period of time and left." She also said it was unclear to her why Wal-Mart dropped Draft.

The agency's dismissal "is a result of new information we have obtained over the past few weeks," Mona Williams, a Wal-Mart spokeswoman, said. "Because of work done during the original selection process, this new review should move quickly," she added. "We are open to including another Interpublic agency in the process. We expect the new agency to be on board by the end of January."

Ms. Williams declined to discuss the "new information." In response to questions about whether it involved perks inappropriately accepted by Ms. Roehm, she said: "Our policy is that our associates cannot accept anything from suppliers, not even a cup of coffee. I'm not saying if it's related to this or not."

Wal-Mart, which has struggled this year with weak same-store sales, hired Draft as part of an effort to trade its mass-market approach for customized appeals to suburbanites, ethnic groups and city dwellers. It had viewed Draft as best able to help it identify and reach such customers.

This year, its push to add more-fashionable merchandise hasn't lured upscale suburbanites, and it may have alienated Wal-Mart's traditional price-conscious shoppers. The retailer revived its price-rollback campaign this fall as sales at stores open at least a year fell below expectations. Wal-Mart had put the campaign on ice earlier this year in favor of ads marketing its higher-margin fashions, home decor and electronics products.

"We're very disappointed by Wal-Mart's decision," said a spokesman for Draft, which referred questions to Wal-Mart.

Some agency executives said they were stunned by the move and unsure whether Wal-Mart intends to reconsider only the three finalists beyond Draft or broadly reopen what had been a five-month search. The dismissal of Draft will have no immediate impact on Wal-Mart's current advertising. The contract was to begin early next year.

The other finalists include Omnicom Group's GSD&M, Austin, Texas; Interpublic's Martin Agency, Richmond, Va.; and WPP Group's Ogilvy & Mather, New York. Aegis Group's Carat was named media buyer at the conclusion of the review. Carat has been invited to reapply for the business, and a spokeswoman for the firm said it will participate in the new review.

People familiar with the situation said that Wal-Mart and Draft had never formally signed a contract, although the hiring was disclosed in late October.

"It definitely changes the landscape," said Rusty Scholtes, executive vice president at independent Bernstein-Rein Advertising Inc., Wal-Mart's longtime agency. Bernstein-Rein is now handling Wal-Mart's holiday "Be Bright" campaign under a contract that expires in January. GSD&M, its other current agency, is also under contract through next month.

Landing the Wal-Mart account was seen as validating Interpublic's move in June to merge its Draft Worldwide, a direct-marketing firm specializing in consumer behavior, with Foot Cone & Belding, a traditional advertising and creative unit. In the past, the ad holding company has been unsuccessful at such combinations. In 4 p.m. composite trading on the New York Stock Exchange, Interpublic's shares were off 6.4%, or 79 cents, at $11.54.

Draft had been viewed as an early favorite because its direct-marketing heritage lent itself to determining returns on each direct-response ad via a 1-800 number or Web address. Ms. Roehm, a former DaimlerChrysler advertising executive, was adamant about consolidating the work under a single lead creative agency, a person familiar with the situation said.

---- James Covert contributed to this article.

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Former Focus Media Execs Get Jail Time
By Becky Ebenkamp/Brandweek - AdWeek
December 07, 2006

LOS ANGELES Tom Rubin, the former chairman and CEO of Focus Media, was sentenced Wednesday to five-and-a-half years in federal prison for stealing up to $40 million from Sears and Universal Studios' ad accounts.

Co-defendants Thomas Sullivan, Focus CFO, and Geoffrey Mousseau, an attorney, were sentenced to three-and-a-half years and 21 months in prison, respectively. U.S. District Court Judge Gary Feess said he would order the defendants to pay restitution to the victims, which include Sears and Universal, and scheduled another hearing for Jan. 29, 2007, to determine the specific amount.

"The victims sought to get satisfaction for the wrongs they suffered from the defendants for many years," said Ranee Katzenstein, who prosecuted the case with fellow federal prosecutor Paul Stern. "As the judge said, the defendants used the court systems to further their wrongs. Finally, I trust, justice has been done."

The sentencing all but concludes a legal battle that commenced in September 2004.

In the four-hour hearing that concluded around 7 p.m., Feess appeared unmoved by flowery testimony that painted Rubin as a devoted father, son, friend, pillar of the community and, oddly, helpless alcoholic. The courtroom was packed with 50-plus observers.

The government's written submission to the court characterized Rubin's narrative about himself as "calibrated to achieve a positive and empathetic effect on the court, perhaps not unlike that of a well-orchestrated advertising campaign."

While Feess went to great lengths to justify why he determined a sentence that was lighter than the recommendation, he characterized Rubin as "the goose who laid the golden egg," a person with "disrespect for the law and the legal process" who was driven by "substantial greed."

Rubin was convicted of 25 felony counts including conspiracy, bankruptcy fraud and money laundering earlier this year.

In Rubin's final statement, he said: "I am the most responsible person for the events that transpired." He blamed "personal chaos" in his life "more than greed," though he acknowledged that it might sound "implausible" given the amount of money involved.

The Focus Media executives were convicted of taking money from its advertising clients in 1999 that was intended to pay media outlets such as ABC and NBC, and using it for private purposes, such as taking bonuses and paying taxes.

According to the attorney's office, Rubin and Sullivan continued to misappropriate funds to pay themselves, lawyers and Focus Media employees even after Sears and Universal obtained court orders in early 2000 prohibiting them from doing so.

During the course of the yearlong scheme, Focus received more than $50 million from clients, and less than $10 million was paid to media outlets. ˜with Gregory Solman

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Lands' End is branching out
By Judy Newman – Wisconsin State Journal
December 7, 2006

DODGEVILLE - Looking for a pearl necklace for your sweetheart? A handcrafted corkscrew to give your wine-loving friends? How about an iPod- wired beanbag chair for your teenager to lounge in? And maybe a light-up jacket to keep your pooch warm on cold winter walks?

No need to surf the Web to find them.

These are some of the gift items sparking this year's holiday offerings from Dodgeville retailer Lands' End.

Yes, you can order a $250 Lands' End Lionel train or a $2,100 Panasonic plasma TV - courtesy of Sears - and even read Santa's blog, from the same place you buy your goose down jacket and cotton turtleneck sweater.

Strange? Lands' End president David McCreight doesn't think so.

"It's a way to make Lands' End a one-stop shopping experience," McCreight said.

Less than two years after Kmart bought Sears, Roebuck & Co. - Lands' End's parent since 2002 - the company known for its "preppy casual" apparel and bed linens has branched out, with new lines of baby clothes and women's lingerie, investments in specialized equipment, and a Christmas catalog that could be the Midwest's answer to Texas' grandiose Neiman Marcus wish book.

One retail analyst thinks the array of gifts is a big gamble; another praises the move, saying business has to keep changing in order to survive.

"I think it probably reflects some rather incompetent meddling on the part of
Sears," said George Rosenbaum, chairman of the Chicago market research firm, Leo
J. Shapiro & Associates. "To attempt to extend the Lands' End brand name to toys
and plasma TV, I think, is very risky, in terms of degrading its value as an
apparel brand."

But Howard Davidowitz, chairman of the Davidowitz & Associates retail consultant
and investment banking firm in New York, said expanding into new areas is
critical for businesses.

"Lands' End is a great brand, but nothing is forever. Any brand has to continually move to the next level," Davidowitz said.

Spreading the company's wings comes from "talking to customers, trying to surprise and delight them," McCreight said, in his first interview with the Wisconsin State Journal since he was named to head Lands' End a year and a half ago.

It also represents a significant investment by Sears Holdings, formed from the Sears- Kmart alliance in March 2005.

Even as speculation has swirled that Lands' End would be spun off and sold, the company has now opened 100 Lands' End shops within Sears stores, featuring some of the most popular Lands' End merchandise and a computer kiosk for online ordering. The other 700-plus Sears stores still have a smattering of Lands' End products mixed in among Sears displays.

At Lands' End's Dodgeville headquarters, monogramming has expanded, with investments in new technology and equipment. The company also devised a sophisticated warehouse sorting system - and had it patented and installed earlier this year. McCreight wouldn't disclose costs.

Monograms are part of Lands' End's strong emphasis on customizing purchases, not only with initials or names, but now, by embroidering or screen printing children's
artwork onto tote bags.

"We're trying to bring the customer even closer to the company," through personalized service, speedy shipping and innovative products, McCreight said.

The additions also seem to illustrate that fabled billionaire investor Eddie Lampert, 44, - Sears Holdings' chairman and Kmart rescuer - puts his trust in McCreight, 43, as head of the 43-year-old Lands' End.

"It's an honor and a privilege," McCreight said, "to work with a storied company, with a storied culture."

Born in South Carolina, McCreight had been executive vice president of marketing for Lands' End and moved into the president's chair - on an interim basis at first - when Mindy Meads abruptly departed the company in August 2005. (Meads became chief executive officer of Victoria's Secret Direct in August 2006.)

McCreight had been president of Smith & Hawken, an upscale home and garden retailer, and then spent two years as an executive of Disney Stores Worldwide before coming to Lands' End in 2003.

His management team includes four senior vice presidents. Gerard Cunningham, also chief marketing officer, was recruited from the Gap, and Susan Healy, chief financial officer, is a recent arrival from the Goldman Sachs investment firm. Long-term Lands' End executives Lisa Fitzgerald and Kelly Ritchie round out the team, with Fitzgerald heading merchandising and design and Ritchie in charge of customer and employee services.

McCreight reports directly to Lampert, who is "a big supporter of the brand (and believes) in its potential," McCreight said.

"There's been a wonderful partnership during my time in office," he said. "There's tremendous support for the brand to continue to grow and prosper."

Sears Holdings has said little about Lands' End revenues since becoming part of Lampert's domain. McCreight deferred financial questions to Sears headquarters in Hoffman Estates, Ill., where spokesman Chris Brathwaite declined to comment.

Perhaps the most recent hint comes from a Sears annual report, filed with federal regulators in February 2005. It said Lands' End sales made up $1.6 billion of Sears' $1.8 billion in "direct to customer" revenues in 2003.

In 2004, though, "direct to customer" revenues dropped 7.9 percent, primarily
because of decreased Lands' End sales and because the 2003 fiscal year had 53
weeks, instead of the usual 52.

"We're pleased with the progress," McCreight said. "We believe Lands' End is foundational for Sears Holdings, one of its distinctive brands, and we don't see that changing in the near future."

Only one Kmart store - in the tony Hamptons on Long Island - sells Lands' End items.

Lands' End beachwear was sold in a "pop-up tent" at the Bridgehampton, N.Y., Kmart during the summer, and outerwear was sold there this fall, Lands' End spokeswoman Michele Casper said.

"It's a great fit with our customers," she said.

For McCreight, the job has not just been to build the Lands' End brand. He also has had to
repair the morale of employees stunned by the closing of the Cross Plains call center and elimination of 375 jobs, ordered by Meads, his predecessor. Most of the cuts affected Cross Plains and Dodgeville, with a smaller number at Reedsburg and Stevens Point.

A year and a half later, the Cross Plains building remains vacant, village officials said.

Today, Lands' End has 7,000 employees in Wisconsin - including more than 2,500
seasonal workers - and 2,000 others worldwide, with divisions in Britain, Germany and Japan.

Lands' End shops in Sears stores are staffed by Sears employees, who are trained by Lands' End, Casper said.

McCreight is so focused on building bridges to the company's customers - a concept that, he said, already is part of Lands' End's DNA - that he has moved the desks of several customer service representatives so they sit just outside his office. He listens in on some phone calls and talks to customers frequently, he said.

"If you listen to your customers and have your customers' best interests at heart, you're bound to be successful," he said. "I plan to not only maintain that focus but further it."

The new line of women's underwear, for example, branches from Lands' End's popular swimwear. "Customers were saying, 'you fit me so well in (swimsuits), would you help me in intimate (apparel)?' " McCreight said.

Despite problems that Sears continues to face - same-store sales for Sears stores were down 6.5 percent for the first nine months of 2006, compared to the same period a year ago - the company's stock is soaring, with Thursday's close at $174.25 a share.

Analyst Rosenbaum said that's mainly due to Lampert.

"He has a magical aura that anything he touches will make money," Rosenbaum said, "and a lot of people want to bet on him."

Rosenbaum said he thinks Sears will do "relatively well" this year in apparel sales, due in part to Lands' End. "That doesn't mean they've solved their apparel problem or the integration of Lands' End into Sears, which has never really taken off," he added.

Analyst Davidowitz - who had been predicting that Sears would sell Lands' End - now says he is impressed with the Lands' End shops within Sears and the company's diversification.

"This is a serious effort to market Lands' End. It should have been done from the first second," Davidowitz said.

"Lands' End was dead in the water - that's why I thought it was guaranteed to be spun off. I think now there's an attempt to breathe life into the brand," he said.

Lands' End at a glance Dodgeville, since 1979

Headquarters:
Employees: 4,500 year-round and 2,500 seasonal in Wisconsin; 2,000 at other locations worldwide.
Founded: 1963 in Chicago by Gary Comer, who died in October at age 78. A memorial being developed will benefit a Chicago youth center. Parent company: Sears Holdings, Hoffman Estates, Ill.
Products: Casual apparel, linens and accessories for the home, gift items.
Revenues: Undisclosed.

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Once Unloved, Medicare's Prescription-Drug Program Defies Critics, but Issues Remain
By David Wessel – Wall Street Journal
December 7, 2006

The Medicare prescription-drug benefit, the biggest expansion of a social program since the Great Society of the 1960s, was panned by critics when it was in previews. Now, after a year's run, the elderly audience seems to be applauding, public and private actors are clicking better in the very complex production, and costs are below initial estimates.

Although the program's launch was marred by bureaucratic glitches, befuddled senior citizens, frustrated pharmacists and physicians, and experts asserting it should have been set up differently, critics' worst fears haven't materialized. That fact is often overshadowed by continuing partisan bickering over the program's design and by persistent public suspicion of drug makers, insurers and pharmaceutical-benefit managers.

Critics said the program, which subsidizes private drug-insurance plans that compete to sell coverage to Medicare's million beneficiaries one by one, would flop because too few insurers would offer policies. Most beneficiaries ended up with more than 40 options. The current complaint is that there are too many choices.

Critics said the program's initial unpopularity proved it was a mistake. It certainly didn't deliver the political boost to Republicans that they had hoped for. But it hasn't been the public-relations disaster that some Democrats suggested.

Now that many seniors are saving money on drugs, instead of struggling to pick a plan, polls have turned favorable. A survey of 3,400 beneficiaries by J.D. Power & Associates found 45% "delighted" with the program, rating their Medicare drug plans 10 on a 10-point scale; another 35% rated them an 8 or 9.

A Kaiser Family Foundation survey found that 80% of seniors enrolled pronounced themselves "satisfied" with their plan, though about one in five reported having "a major problem," most often encountering unexpected costs or having to switch medications from a drug that wasn't covered.

Critics carped about the shortcomings of the twisted, complicated design of the standard benefit, the result of a political compromise aimed at keeping down the cost. Because private insurers aren't required to offer the standard plan, fewer than 20% of enrollees are covered by that standard package.

Still, to the consternation of Democrats and many seniors, most beneficiaries are stuck with the much-derided "doughnut hole," a gap in coverage that requires seniors who avoid catastrophic illness to pay their entire drug tab themselves once they spend $2,250 out of pocket.

Critics said a lot of seniors simply wouldn't sign up, a vexing problem for any voluntary insurance program. Back in 2002, 45% of Medicare beneficiaries lacked prescription-drug coverage for all (18%) or some (27%) of the year. Now, more than 90% of Medicare beneficiaries have drug coverage. In all, 22.5 million people are enrolled in what is known as Medicare Part D, including 6.1 million people on the Medicaid health-insurance program for the poor who were assigned -- with some highly publicized glitches -- to insurance plans by the government if they didn't choose one. Another 16 million have Veterans Administration or employer-provided coverage, often subsidized by the government.

Still, more than one in 10 of Medicare's 43 millions beneficiaries have failed to sign up for drug coverage, including more than three million seniors whose incomes are so low that they would have to pay little or nothing for it. "Everyone agrees that's a big concern," says Mark McClellan, who recently stepped down as Medicare's administrator.

An enthusiastic defender of Medicare Part D, Dr. McClellan says the past year demonstrates consumers "can be a powerful force in health care as they are in the rest of the economy, but they do need support." The government, he cautions, cannot skimp on telephone operators, easy-to-use software and the like if it wants patients to be more involved in managing their own care, as it says it does.

Critics said the drug plans would offer enticingly low premiums the first year, and jack them up the second year. Premiums for many are going to rise in 2007 -- but not sharply. An analysis by Georgetown University's Health Policy Institute of 10 plans that have enrolled nearly 70% of Part D beneficiaries estimated that average premiums in 2007 will be $3.10 a month higher (12%) for those who stick with the same plan.

Critics said the complexity of matching tens of millions of elderly Americans with private-insurance plans would overwhelm the government's bureaucracy, and it has proved to be challenging. More problems are likely to surface on Jan. 1 for seniors who switch plans. Robert Reischauer, director of the Urban Institute think tank, says, "For a highly complex new program, the government and the prescription-drug plans did a remarkable job of implementation. Did it work perfectly? No. Were there little inequities here and there? Yes. But they did an immense amount to make this program work."

Critics said the program would be expensive, so expensive that the Bush administration hid internal estimates before Congress voted, and that it would be a heavy burden on the federal budget for decades to come. It will be. The latest official price tag is $729.1 billion over 10 years, and Congress and the Bush administration didn't offset that with spending cuts or tax increases.

Partly because fewer seniors enrolled than Medicare actuaries projected, Part D will cost taxpayers about $30 billion this year, below the $43 billion originally estimated. Dr. McClellan predicts the official $48 billion estimate for 2007 will be marked down. That isn't only because enrollment is below projections but because prescription-drug plans are pressuring drug makers to hold the line on prices and prodding consumers to use cheaper generic drugs or brand-name drugs for which plans have negotiated discounts.

Democrats argue the program could be even cheaper if the government, rather than private insurance plans, used its clout to negotiate with drug makers. They have vowed to change the law to allow that soon after they take control of Congress next year. They talk about using the hoped-for saving to sweeten the benefit, perhaps eliminate the infamous doughnut hole.

They may have trouble delivering: The official congressional scorekeepers aren't persuaded that the government would actually save money if Congress repeals a provision that bans the Department of Health and Human Services from interfering in price negotiations between drug plans and drug makers. Unless Democrats can take credit for saving money, it will be hard to make the benefit more generous.

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Wal-Mart Drops New Ad Agency
Associated Press – Wall Street Journal Online
December 7, 2006

NEW YORK -- Wal-Mart Stores Inc. has dropped its newly hired ad agency Interpublic Group's Draft FCB, following the departure of a top marketing executive that helped lead Wal-Mart's switch to the new agency.

Wal-Mart's spokeswoman Mona Williams said that the decision was "the result of new information that we have obtained over the past few weeks." She declined to discuss further the new information. She added that Wal-Mart notified DraftFCB Thursday morning and is reopening the bid process for its advertising account, which is worth more than $500 million.

The news, first reported on Adage.com Thursday, followed Wal-Mart's announcement earlier this week that Julie Roehm, senior vice president of marketing communications, had left the company after less than a year on the job. Another marketing executive, Sean Womack, vice president of communications architecture, left at the same time. Mr. Womack was hired this spring and reported to Ms. Roehm.

Ms. Roehm was hired in January and reported to Wal-Mart's head of marketing, former Target Corp. executive John Fleming. Under Ms. Roehm, Wal-Mart invited bids from a number of ad agencies on how to better market the image of being both a trend purveyor and a low-price operator.

In the end, Wal-Mart severed ties with its two long-time agencies, Omnicom Group Inc.'s GSD&M in Austin, Texas, and Bernstein-Rein Advertising Inc., based in Kansas City, Mo. Both ad agencies are ending their services in January. Wal-Mart named DraftFCB as its advertising agency and Aegis Group's Carat as its media buying agency in late October.

Ms. Williams said that DraftFCB will not be eligible for the new review, but that Carat will be eligible to participate. She said the review process should "move quickly" and she expects the new ad agency to come on board by the end of January.

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Montgomery Ward Comes Back, Sans Stores
By Dave Carpenter – Associated Press
December 7, 2006

There is life after death - at least in retail.

Five years after Montgomery Ward went out of business, its brand name has been revived on the Internet and there's even a 21st-century version of the Wards holiday catalog that was standard fare in American households for decades at this time of year.

Without stores, this Wards is a bit different from the chain that thrived for over a century until liquidating in 2001 after Wal-Mart and other discounters and department stores left it badly out of fashion.

But Direct Marketing Services Inc., the catalog marketer that acquired the Wards name out of bankruptcy in 2004, insists it is faithfully carrying on a legacy that dates to 1872 when Aaron Montgomery Ward established the first mail-order business.

Many of Montgomery Ward's old vendors and products and several former employees are part of the new Wards, which sells 46,000 items online ranging from rugs to recliners and home electronics to Rudolph the Red-Nosed Reindeer yard art. And David Milgrom, the private firm's president and founder, notes that the cataloger shares Wards' Chicago roots and retail industry experience.

"As a retailing pioneer, Mr. Ward would be pleased to know that the tradition of excellence which he began continues in an exciting new way with Wards.com," the Wards Web site proclaims.

Still, it's the famous brand name that the direct marketer is counting on most to draw shoppers. In the fierce competition among retailers, industry experts say a trusted brand - even a heretofore dead one - can be half the battle.

"People are always open to believing that however wayward one got, even for a retailer, given proper management you can go back on the right track," said George Rosenbaum, chairman of Leo J. Shapiro and Associates, a Chicago-based retail consulting firm. "Wards was a good enough name, so there's probably a good amount of hope or willingness to believe that they've come back."

Sue Montoya, a longtime Wards devotee who was "devastated" when her favorite chain shut down, says she was thrilled to get a catalog from the resurrected business this year. She promptly placed an order.

"I am sure that if my dear mother was still alive today she would be just as excited, as she is the one who introduced me to the Wards tradition," the 56-year-old Montoya said from her home in Denver.

Wards isn't the only moribund brand to get rehabilitated under new ownership.

FAO Schwarz toy stores, another century-old retailer that landed in bankruptcy after failing to keep up with the likes of Wal-Mart and Target Stores Inc., reopened on New York's Fifth Avenue and in Las Vegas in 2004 after the failing company's remnants were bought for $41 million by D.E. Shaw Laminar Portfolios.

Pepsodent toothpaste, once the No. 1 U.S. toothpaste before fading into oblivion, was purchased by Church & Dwight Co. in 2003 from Unilever and now is a value brand sold in discount stores.

White Stag, a leading maker of ski clothing and sportswear dating to the 1930s and '40s, is now an in-house brand at Wal-Mart Stores Inc. after being bought from Warnaco Group Inc. in 2003.

Not everyone is taken with the brand-revival practice.

Sid Doolittle, a retired retail consultant who worked at Montgomery Ward for 29 years and was president of its catalog division, contends that bringing back the Wards name deceives customers who may not realize it's not the same company they knew.

"It's an old familiar name and there is a halo around the name with some people," he said. "This isn't the old reliable company at all, it's a company leveraging the name."

Milgrom takes exception to that characterization, noting that retailers change owners all the time. He says his company adheres to the Montgomery Ward practice of offering affordable merchandise that's not readily available in retail stores with home delivery, a credit option and a customer satisfaction guarantee.

"We take great pride in offering a wide variety of quality products just like the original Wards did," he said in an interview at the company's two-story offices. "We are in the same lines of business as the original Wards, with many of the same suppliers. The overwhelming majority of customer responses are that they are so happy to see Wards back."

The 48-year-old Milgrom has built a $160 million-a-year company through a strategy of acquiring older, established domain and catalog names. A former lighting products supplier to Sears, Roebuck and Co.'s home furnishings catalog, he licensed the right to use Sears' name on catalogs after founding the firm in 1993 and now mails several Sears specialty titles, gifts book Charles Keath, its core HomeVisions catalog and Wards.

The native Chicagoan outbid several others to acquire the Montgomery Ward name for an undisclosed sum in June 2004, sensing that the historic brand would resonate with middle-income consumers over 40.

"To build a brand today is so expensive. There's only so many Wal-Marts and Amazons out there," he said. "We just picked up where they (Wards) left off."

Within three months, Direct Marketing Services had revived the Web site and begun publishing a slimmed-down version of the catalog that vanished 12 years earlier, culminating in the reappearance of a 150-page holiday book last month.

"The Montgomery Ward name certainly has a lot of brand equity so it makes sense for them to make a serious attempt again, more of a traditional direct marketing approach," said George Hague, senior marketing strategist at J. Schmid & Assoc. Inc., a catalog consulting company in Mission, Kan. "They're able to focus and highlight their best-selling merchandise and use the best industry practices of cataloging to drive traffic to their Web site."

Direct Marketing Services, which has 50 employees in Chicago, still derives the largest portion of its revenue from Sears catalogs. But Milgrom says Wards sales, boasted by nearly 20 million catalog mailings have more than doubled this year to become "a very significant piece of our business." He declined to give dollar figures.

The new Wards' strategy gets a thumbs-up from experts so far. Hague said the Web site has "a nice feel to it" and "a nice brand presence."

Despite all the catalog mailings, the comeback has been quiet and consumers may be surprised to trip over the familiar name from the past during a Web search for home furnishings or bedding.

But Wards' presence is growing. A Montgomery Ward Kids site debuted in June, a Spanish-language version is coming, and the company will soon expand into clothing and shoes.

Explaining the gradual buildup, Milgrom said: "We're rebuilding the brand and we want to do it right."

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Sears' flagship store to house Web center
Online development office may employ 100

By Sandra Jones - staff reporter – Chicago Tribune
December 7, 2006

Sears Holdings Corp. plans to turn the fourth floor of its State Street flagship store into a Web development center aimed at invigorating the retailer's online business.

The Loop center is scheduled to open in March and employ up to 100 workers, including software developers, project managers and technical architects. The center will quadruple the number of workers dedicated to Sears' e-commerce site.

The Hoffman Estates-based retailer hopes that by setting up a Silicon Valley-style office in the heart of downtown Chicago, it will attract a new generation of high-tech, creative, urban talent that would otherwise avoid the long trek to the northwest suburbs.

Sears joins the likes of other old-line companies, including Motorola Inc., Wm. Wrigley Jr. Co. and PepsiCo Inc., that have recently established innovation centers in the city in an attempt to keep on the cutting edge of their industries.

"We want to create this high-tech, high-energy, innovative, open-space environment," said Rob Mills, vice president of technology at Sears. "We're trying to create an environment to drive innovation and creativity."

The initiative comes as Sears wrestles with what to do with the giant flagship.

The store, at 2 N. State St., opened with great fanfare in 2001, with the help of $13.5 million in city subsidies, but has failed to live up to expectations.

The store lost money in 2004 and 2005 and generated about half the sales volume that Sears executives initially forecast, according to reports the retailer is required to file with the city as part of a Tax Increment Financing agreement. As of April, the store was still unprofitable.

Under the terms of the TIF, which expires in 2011, Sears is required to employ the full-time equivalent of at least 125 workers and operate in 150,000 square feet of the approximately 240,000-square-foot store. Sears' 2006 report to the city is due by the end of the year.

The Web center will take over space on the fourth floor currently used for storage and training. But it raises the prospect of Sears eventually expanding the office space and scaling back the selling space of the store, which currently takes up three floors above ground and a basement.

Sears Chairman Edward Lampert has said he expects each Sears store to make money, leaving some to wonder if he would eventually close the State Street store or look for a way out of the 20-year lease. Sears spokesman Chris Brathwaite declined to comment on the store's future.

Flagship stores struggling

Setting up office spaces is a strategy that other flagships have pursued in recent years as the big showcase stores become more expensive to operate.

Carson Pirie Scott & Co. converted part of its State Street flagship into offices years ago and earlier this year decided to shutter the flagship completely next spring, saying it was too expensive to operate.

Macy's on State Street, formerly Marshall Field's, plans to convert some of its unused upper floor space into a designer incubator. And Lord & Taylor is considering scaling back its Fifth Avenue flagship in New York.

"I don't see a future for flagship stores," said Homer Johnson, professor of management at Loyola University Chicago's School of Business Administration. "They are costly, take up too much space and can't attract numbers of shoppers. Aside from the Christmas display windows, there's not much unique about a flagship store."

As for Sears' renewed focus on the Web, it comes as traditional department stores and big-box discount chains are turning up the heat on their own Web operations. Lampert took direct control of Sears' online business last year, a signal that he is eager to see it grow.

Sears was one of the first traditional retailers to set up an online shopping site in 1999, initially selling just appliances, but has fallen behind rivals such as Wal-Mart Stores Inc., Target Corp., Best Buy and J.C. Penney in attracting visitors.

Wal-Mart and Target rank as the two largest shopping Web sites operated by brick-and-mortar retailers and the fourth- and fifth-largest online retailers overall, based on the number of unique visitors in October, according to Chicago-based ComScore Networks.

Wal-Mart's audience rose almost 15 percent from the year-ago October, to 27.1 million unique visitors, while Target's audience climbed 11 percent, to 24.3 million, according to ComScore.

Slower growth at Sears

Sears' audience, on the other hand, rose 4 percent, to 8.9 million unique visitors, a slower growth rate than the online retail industry average of 7 percent. It ranks seventh among brick-and-mortar retailers--behind J.C. Penney, Best Buy and Federated Department Stores Inc.--and ranks 23rd overall.

Sears touted a new Web service this holiday season that allows shoppers to order online and pick up their purchase in store in five minutes. It is running TV ads showing a harried mother pulling up to Sears in her station wagon, getting her packages and returning home with a fussy baby in the back seat.

Wal-Mart redesigned its Web site last month, offering Web exclusives and testing ways to drive traffic to Wal-Mart stores. The Bentonville, Ark.-based retailer houses its Web operation in Brisbane, Calif.

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Behind the Scenes, PR Firm Remakes Wal-Mart's Image
Political Veterans at Edelman Tackle Woes of 'Candidate'

By Kris Hudson – Wall Street Journal
December 7, 2006

Over the last year, Lee Scott has appeared on the Rev. Al Sharpton's radio show, talked about pro-environment policies and given speeches that repeatedly state his organization's devotion to "working families."

If Mr. Scott, the chief executive of Wal-Mart Stores Inc., seems like he's running for office, it's no accident. For the last 15 months, the Edelman public-relations firm, led by seasoned political operatives, has been directing a campaign it calls "Candidate Wal-Mart." The goal: Rescue the battered image of the world's largest retailer.

Edelman's bipartisan team has been behind the curtain during Wal-Mart's most visible recent initiatives -- and some of its public stumbles. When Wal-Mart decided to sell an array of generic drugs for $4 a prescription, Edelman orchestrated a 49-state rollout, lining up local dignitaries in 79 places for publicity events. The PR giant also organized a grass-roots group called Working Families for Wal-Mart. But it had to scramble when the leader it helped recruit, Andrew Young, made derogatory comments about ethnic shopkeepers and was forced to resign.

Wal-Mart badly needs a boost. Its sales growth has waned in recent years and an effort to reach out to higher-earning shoppers has sputtered, partly because of the company's beleaguered image. Sales at stores open more than a year fell 0.1% in the four weeks ending Nov. 24 -- only the second monthly drop in 27 years. This year Wal-Mart scaled back expansion plans amid pressure from investors and political opposition in New York, Massachusetts, California and elsewhere.

As Edelman and Wal-Mart see it, image is crucial for drawing customers, smoothing the way for new stores in urban areas and beating back legislation that would raise costs. "This is not a public-relations campaign," says Michael Deaver, a former chief of staff for President Reagan who is now helping to oversee the Wal-Mart account as an Edelman vice chairman. "It's a win-or-lose campaign. And if you've been involved in a presidential campaign, that's the way you look at things."

Leslie Dach, a former adviser to Democratic politicians, led the campaign's first year as an Edelman vice chairman. Now Mr. Dach is a Wal-Marter in full: In July, the retailer hired him as an executive vice president for communications and government relations, reporting directly to Mr. Scott, the CEO.

For years Wal-Mart did little to promote itself as a positive social force, believing its low prices would speak for themselves. But as it mushroomed to become one of the world's biggest companies -- with 6,700 stores and $312 billion in sales last year -- it increasingly felt the sting of public criticism and pressure to fight back.

The pressure grew last year when unions started two organizations to hammer Wal-Mart: the Service Employees International Union's Wal-Mart Watch and WakeUpWalMart.com, funded by the United Food and Commercial Workers union. At Wal-Mart's annual meeting on June 3, 2005, Mr. Scott said: "Your company is the focus of one of the most well-organized and well-financed corporate campaigns in history...A coalition of unions and others are spending over $25 million this year alone to try to do damage to this company."

A few weeks later, on June 28, two dozen Wal-Mart executives sat behind tables at a community-college conference center in Bentonville, Ark., Wal-Mart's hometown. They heard pitches from three PR firms chosen as finalists -- Edelman, APCO Worldwide and DCI Group.

War Room of Publicists

In their "Candidate Wal-Mart" pitch, Messrs. Dach and Deaver of Edelman described a campaign with all the trappings of a U.S. presidential bid. A war room of publicists would respond quickly to attacks or adverse news. Operatives would be assigned to drum up popular support for Wal-Mart via Internet blogs and grass-roots initiatives. Skeptical outside groups, such as environmentalists, would be recruited to team up with Wal-Mart. Edelman won and quickly put its plan into practice, with three dozen staffers working on the account in Washington, D.C., and Bentonville.

Wal-Mart had been mulling the $4-per-prescription program before Edelman's arrival, but the firm saw it as a chance to promote Wal-Mart as a catalyst for health-care change. In late September, Wal-Mart executives gathered with Florida officials, including Gov. Jeb Bush, to announce the program's introduction in the Tampa area. That generated national coverage, despite Wal-Mart's initial statements that it wouldn't expand the program beyond Tampa until 2007. Then the company rolled it out in rapid-fire succession to 48 other states, declaring that the low-cost pills were so popular it didn't want to keep people waiting.

The acceleration of the program earned new national coverage, but even more important were local news outlets. The 79 news conferences arranged by Edelman across the country helped the effort win notices from The Dallas Morning News, Vermont's Burlington Free Press and others.

Privately held Edelman is the largest U.S. public relations firm with 2005 revenue of $254 million and clients such as Microsoft Corp. and Pfizer Inc. (Dow Jones & Co., publisher of The Wall Street Journal, has also been a client.) Both Wal-Mart and Edelman decline to disclose Edelman's fee, but outside estimates put it in the millions of dollars annually.

Mr. Dach, a slightly built 52-year-old, was born and raised in the New York City borough of Queens, son of a homemaker and a small-business owner in Manhattan's garment district. He studied neurobiology at Yale but quickly was drawn to politics, working on the advance teams of Sen. Edward Kennedy and President Carter during their 1980 presidential bids.

He went on to play prominent advisory roles for Democrats in five of the next six presidential campaigns. He prepared Al Gore for debates in 2000 and handled publicity for Democratic efforts in 2004 to keep Ralph Nader off the ballot in several states. In between campaigns, he spent 17 years at Edelman advising clients such as a Fujifilm Corp. division and the Nature Conservancy.

Mr. Dach believes his experience trouble-shooting for political candidates can be applied to the corporate world. "Every crisis is an opportunity," he said in a recent interview. "The American people understand imperfection. But what they want to see is a company taking responsibility and then moving forward."


Soon after getting hired by Wal-Mart, Edelman found an opening. In the wake of Hurricane Katrina, Wal-Mart rushed to reopen its stores and speed supplies to the storm-damaged areas. Edelman helped Wal-Mart get coverage for its efforts and spotlighted Jason Jackson, the retailer's emergency-planning director. Mr. Jackson gave interviews, spoke on a conference call with reporters and gave some a peek into his command center for tracking weather and routing supplies.

After the storm, evacuees and local officials proclaimed in the news that Wal-Mart had outhustled the federal government. Also, Wal-Mart quickly made a $15 million donation to the hurricane-relief fund organized by former Presidents Clinton and Bush. The two ex-presidents praised Wal-Mart's generosity.

Another early Edelman initiative was Working Families for Wal-Mart, the grass-roots organization. The idea was to allow Wal-Mart's defenders to strike back against critics without requiring the company's own PR staff to enter the fray. Wal-Mart provided the group's funding and Edelman staffed it.

Edelman executive Greg St. Claire played a leading role in recruiting Mr. Young, the former U.S. ambassador to the United Nations, as the group's chairman, according to people who spoke with Mr. St. Claire. They say Mr. St. Claire told colleagues how Mr. Young had praised Wal-Mart in public comments. Wal-Mart says its diversity department came up with the idea of bringing in Mr. Young. Mr. St. Claire declined to comment and Mr. Young's office didn't return phone messages.

Others recruited by Edelman for the group's 14-member steering committee include Wheelchair Foundation vice president Chris Lewis, the son of entertainer Jerry Lewis, and singer Pat Boone. In its first year, Working Families for Wal-Mart reports amassing 150,000 supporters and assembling steering committees of local dignitaries in six states.

Yet the Working Families group has produced some of Edelman's worst fumbles, too. Union-backed Wal-Mart Watch swooped in to claim the workingfamiliesforwalmart.com Web address, and posted statements there mocking the company-backed group as artificial. In August of this year, Mr. Young raised a stir when he told an African-American newspaper in California that Jewish, Korean and Arab shopkeepers overcharged inner-city African-Americans for stale food. He had been asked about Wal-Mart's impact on mom-and-pop businesses. Mr. Young apologized and resigned from Working Families for Wal-Mart.

Faux Pas

In October, bloggers and mainstream media criticized Working Families for Wal-Mart for not disclosing the full identities of two people -- one the sister of Edelman's Mr. St. Claire -- whom it enlisted to write a pro-company blog. The two drove an RV around the country and posted happy accounts of the Wal-Mart customers and employees they encountered. Edelman's chief executive, Richard Edelman, apologized on his own blog for the lack of disclosure.

The faux pas had union groups crowing. "Edelman stumbled badly on the Wal-Mart account, and the fake-blog episode is fast becoming a case study on the importance of PR transparency," said Wal-Mart Watch spokesman Nu Wexler.

In its pitch for the account, Edelman had warned Wal-Mart that Google results for a "Wal-Mart" search yielded mostly unflattering material, potentially overshadowing the company's own sites. Edelman sought to balance that equation by funneling positive information about Wal-Mart to bloggers. For example, news that 24,500 people applied for 325 jobs at a new Wal-Mart outside of Chicago made its way onto some blogs.

Edelman has also tried to help Wal-Mart gain some control over the issue of health care. In October 2005, Wal-Mart Watch distributed an internal Wal-Mart document detailing strategies for cutting health-benefit costs by discouraging unhealthy job applicants. In January, Maryland enacted a law targeting Wal-Mart that required large employers to spend certain amounts on health-care benefits for workers in the state. The law spurred similar bills prompted by labor groups in more than two dozen states.

Mr. Dach pushed Mr. Scott to discuss health in a February speech to the National Governors Association. "Everybody was telling Leslie, 'We can't do health care now. We don't want to talk about health care.' But Leslie just kept at it," says Mr. Deaver. Mr. Scott took Mr. Dach's advice, announcing in his Edelman-drafted speech that Wal-Mart would improve health benefits for its workers by such steps as loosening eligibility requirements for part-timers.

Company officials are heartened that none of the bills modeled on Maryland's law survived this year, although that may have more to do with a federal judge's decision in July to strike down the Maryland law because he said it encroached on federal authority.

In Mr. Scott's speech at this year's annual meeting, he used an Edelman-inspired line with political echoes: "This company is committed to working families." In all, Mr. Scott used the expression "working families" 10 times in that speech, which Edelman wrote, and 11 times in two other talks around the same time. Since Edelman's hiring, Wal-Mart has issued at least 44 press releases mentioning working families to describe its customers and employees.

Later in the summer, Edelman booked Mr. Scott in several unfamiliar forums, such as Mr. Sharpton's radio show, where the CEO fielded questions from listeners. In July, Mr. Dach arranged for former Vice President Al Gore to speak about environmental issues and screen his global-warming movie "An Inconvenient Truth" at a quarterly meeting of Wal-Mart employees and environmental groups. Mr. Gore's camp initially had concerns about Wal-Mart's sincerity on the issue, but Mr. Dach helped allay them. "Leslie brings some credibility and integrity," said Roy Neel, Mr. Gore's chief of staff.

This summer, Wal-Mart decided to bring Mr. Dach in-house. Mr. Dach was already so intimately involved in planning that he sometimes heard of key developments within Wal-Mart prior to the company's own senior PR staffers, according to people familiar with the situation. Yesterday, Robert McAdam, who has been a top Wal-Mart PR executive since 2000, told colleagues he is leaving the retailer. In an interview, Mr. McAdam said his departure has nothing to do with Mr. Dach's arrival.

In hiring Mr. Dach, Wal-Mart granted him stock then valued at $3 million and nearly 169,000 options. The retailer allows him to split his time between Bentonville and Washington, D.C., with Washington remaining his primary residence. He also gained oversight of the $1 billion Wal-Mart Foundation, a charitable group. "I'm convinced Wal-Mart is changing and the change is real," Mr. Dach wrote in an email to friends announcing the move.

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Sears' results split analysts
By Sandra Guy – Business Reporter – Chicago Sun-Times
December 7, 2006

Sears Holdings Corp. gave new details Wednesday about its third-quarter sales results, prompting continued division among analysts about the company's future as a retailer.

Sears stores reported "pronounced" sales increases in women's clothing in the quarter ended Oct. 28, but not strong enough to offset declines in the first half of the fiscal year, according to a quarterly report Sears Holdings filed Wednesday.

The company conceded that its efforts to sell more cutting-edge fashion last year flopped, leading to "significant" sales declines during the first half of fiscal 2005.

Under new merchant Lisa Schultz, Sears has returned to fashion basics and placed Lands' End preppy apparel on display in high-profile shops inside Sears stores.

Sales fell across most other categories, including home decor and lawn and garden. Sales in the quarter dropped 4.8 percent, and at Kmart, sales dipped 0.7 percent from a year earlier.

At Kmart, sales improved in apparel and at pharmacies, but fell in food, home goods and general merchandise.

Rumors are circulating that Sears continues to experience sales declines during the holiday season from a year ago. A company spokesman declined to comment on the latest report, which claimed sales at Sears stores on Dec. 2 dropped 18 percent from year-ago levels.

Analyst Gary Balter of Credit Suisse noted that Sears' same-store sales numbers in the quarter were better than Lowe's and Home Depot, which suffer from weaker appliance and lawn-and-garden sales.

Sears Holdings' stock price also continues to reflect Wall Street analysts' belief that Chairman Edward S. Lampert will turn the company into an investment vehicle similar to Warren Buffett's Berkshire Hathaway.

The stock ended the day Wednesday up 17 cents, to $174.93. It has shot up nearly 50 percent this year on Wall Street analysts' hopes that Lampert, a billionaire hedge-fund owner, will eventually generate terrific returns on investments and perhaps real estate sales. The shares are trading at about 21 times next year's earnings because of the so-called Lampert premium.

One example: Sears reported a $101 million gain in the third quarter from investments in risky deals called total-return swaps.

Retail analysts sharply disagree with Wall Street analysts on Lampert's strategy. Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting and investment banking firm, has said of Sears Holdings, "You have a retail entity in collapse, led by a brilliant financier."

Ken Leonard, a Chicago retail real estate consultant, said he believes the value of Sears' real estate is being "tremendously overestimated," largely because Sears department stores operate under restrictions set by mall developers that limits how the property can be used.

"Sears isn't doing anything that a retailer must do to survive and prosper," Leonard said.

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Sears Salutes The Spirit Of 'George Bailey'
By: Frank Diamond, Special To The Philadelphia Evening Bulletin
December 6, 2006

Driving out of Philadelphia along Roosevelt Boulevard toward my home in Bucks County, I am struck by the absence of something as I approach Adams Avenue. Even after all these years, I expect to see the Sears Tower looming like a sentry at the entranceway of the Northeast. It's not there, of course, and hasn't been since Oct. 30, 1994 - when it was demolished.

I get sentimental about vanished buildings only inasmuch as they remind me of people who've vanished from my life. Or a life that's vanished altogether. That tower once cast a long shadow. If you grew up in Olney, or Feltonville, or Oxford Circle, or Hill Creek, or Lawncrest, chances are that, at a certain point in your teenage years, you decided that you needed a job, and you just automatically started the hunt by pointing yourself toward the biggest thing on the horizon.

A lot of my friends worked at Sears, earning money for books and tuition and even more important things, like cars, or Saturday night dates. Me? I worked in the kitchen at Friend's Hospital, opposite Sears, right across the Boulevard. I'd take the bus there, either the "R" or the "J," and the clock on that tower told me that I'd be five minutes late. Again.

This was the 1970s, and there was no slice of Americana more ubiquitous than Sears. Except, of course, the movie "It's A Wonderful Life." The copyright for "It's A Wonderful Life" lapsed in 1973, which allowed television for years to play it almost continuously between Thanksgiving and Christmas. Critics and audiences had been cool to the movie when it was first released in December 1946, 60 years ago this month. However, the constant TV exposure snatched the film from the mush of mediocrity, and catapulted it into the pantheon of classics.

Now, everybody knows the story of how George Bailey (James Stewart) is given a chance by his guardian angel to see what the world would be like if he'd never been born. Stewart, an air corps pilot who'd flown 20 bombing missions over Germany, had to be talked into taking the part. He came close to quitting Hollywood. After seeing real men die in real war, he'd come to see making movies as immoral. Ironic then that one of our great morality films happened only because the costar, Lionel Barrymore, and director, Frank Capra, convinced Stewart of its worth.

George Bailey is a businessman who strives to do good, who in fact has done more good than he knows. Not everything is about the bottom line to George. He makes enough to get by, that's all. George Bailey is to business people what Marcus Welby is to doctors or Atticus Finch is to lawyers: An ideal. In an age of corporate scandals, it's nice to know that many companies still strive for that goal.

I sometimes get forwarded e-mail from relatives of servicemen and women overseas. (My nephew is in Iraq.) The buzz lately among these families is to shop at Sears, because the company goes above and beyond in terms of providing benefits and pay for reservist employees who are called up.

Companies are by law required to hold jobs open for reservists, but often soldiers take a big pay cut and lose benefits. Sears is ponying up the difference between the military pay and what reservists would make if still employed in regular jobs. In addition, workers and their families keep their life, medical and dental insurance. Employees receive annual merit raises, as well as incentive pay. Possibly even more important, given how often tours of duty have been extended, Sears holds the jobs for up to five years.

Now, obviously, Sears gets some good publicity out of this, so it's OK to be a bit skeptical. Also, the number of people who swear that they've been mistreated by any big company could fill entire football stadiums. However, the Sears policy is at least unusual enough to spur the gratitude of the families of those serving.

In "It's A Wonderful Life," George Bailey's brother, Harry, would have died young if George had never been born. George wouldn't have been there to pull him out of a frozen river. Harry, a college football star, goes off to war and eventually receives the Congressional Medal of Honor for saving a transport carrier.

George's guardian angel, showing the world as it would have been if George had never been born, tells him that, "Every man on that transport died. Harry wasn't there to save them, because you weren't there to save Harry."

Imagine if some modern Hollywood producer had been pitched this story. "Wait a minute! You're telling me that the one brother does all this action-hero stuff, but the picture isn't about him?"

Director Capra wanted to show that everybody's life matters, and our destinies are linked by acts so minute they're invisible. It never crossed my mind years ago when I looked up at the Sears Tower that someday it would be gone, while a fragile web of connections silently woven would somehow endure.

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Hasty exits bring chill at Draft
By Lewis Lazare - Sun-Times Columnist - Chicago Sun-Times
December 6, 2006

It could very well become a devastating bombshell at Draft FCB/Chicago. Julie Roehm, Wal-Mart's senior vice president for marketing communications and the retailing behemoth's reputed agent of change, has abruptly exited after less than a year in her post. Also gone: Sean Womack, vice president of marketing.

A Wal-Mart spokeswoman confirmed Roehm's exit. Tellingly, there was no comment from Wal-Mart thanking her for her efforts or wishing Roehm well in her future endeavors.

''I was hired to do a job as a change agent. My primary function here is done,'' Roehm told Bloomberg News, and declined further comment.

Roehm's departure appears to have sent shock waves through Draft FCB, Wal-Mart's new ad agency of record as of just weeks ago. None of the agency's various representatives was available for comment Tuesday, and calls were referred to Wal-Mart.

Roehm's sudden exit is especially troubling for Draft FCB. By all accounts, Roehm was Wal-Mart's point person in the agency review, and Roehm was believed to be the Wal-Mart executive pushing hardest to hire Draft FCB to handle Wal-Mart's $570 million advertising account.

In fact, in a report on how Draft FCB supposedly wooed Wal-Mart that recently appeared in trade publication Advertising Age, much was made of how Draft founder Howard Draft had tried to impress Roehm during the review process -- going so far as to offer to tool around with her in his pricey sports car.

One source familiar with Wal-Mart and its policies suggested Roehm, in her dealings with Howard Draft, might have played too fast and loose with the company's strict corporate gratuities policy. Or her possible flouting of that policy -- said to be one of the strictest in corporate America -- might just have been a piece of ammunition Wal-Mart used to get rid of Roehm.

A Wal-Mart spokeswoman said the policy simply states no one who works for the company can accept any sort of gratuities from suppliers, even a cup of coffee.

Interestingly, Roehm's sudden departure also comes just a week after reports first surfaced of a mind-boggling blunder by Draft FCB/Chicago. Fresh off its win of the Wal-Mart account in October, the agency placed an ad in a trade publication called Creativity that was intended to honor winners of the coveted Lion Awards at the 2006 Cannes International Advertising Festival, considered the most prestigious of a multitude of annual advertising competitions. Draft FCB's shockingly tasteless print ad graphically portrayed a real male and female lion having sex above a copy line that read "It's Good to Be on Top."

Though a Draft FCB spokesman at the time called the ad "a terrible mistake," the damage was already done. The appearance of the ad could have prompted some within the Wal-Mart organization to begin to have serious second thoughts about Draft FCB, and Roehm might have suddenly found herself under considerable pressure to defend her selection of the agency to handle the retailer's huge ad account.

Additionally, Wal-Mart sales have flagged this holiday season as it tried unsuccessfully to position itself as a destination for high-quality merchandise. In recent days, Wal-Mart has stressed low prices all the time.

Whether Roehm's departure is a signal Wal-Mart might pull the plug on Draft FCB before its relationship has even really begun could not be immediately determined.

Draft FCB's first ads for its new client aren't scheduled to break until the first quarter of 2007. A source in the local post-production business said Draft FCB executives had talked about getting clearance from Wal-Mart to produce more than two dozen commercials, but there had been no talk about any greenlighting of ads in recent days. Sources also told this column the tag line for Draft FCB's first work for the client was intended to be "Life Well Spent."

Sources at other ad agencies that competed in the Wal-Mart review downplayed the likelihood of such a dramatic move by Wal-Mart in the immediate wake of Roehm's exit.

But sources who have worked with Wal-Mart also said this kind of massive upheaval in the giant discount retailer's marketing department is not typical, and does not bode well for Draft FCB.

Said one agency executive who has worked with Wal-Mart, "There have got to be a lot of sweaty palms over at Draft FCB right now."


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2 Hired to Overhaul Marketing Leave Their Posts
at Wal-Mart
By Louise Story and Micahel Barbaro - New York Times
December 6, 2006

Two top executives hired about a year ago to help overhaul marketing at Wal-Mart Stores  have stepped down from their posts, the company said yesterday.

The departures coincide with slowing sales growth and several marketing stumbles at Wal-Mart, like designer-inspired fashions that have failed to sell.

Julie Roehm, senior vice president for marketing communications, and Sean Womack, vice president for communications architecture, left the company on Monday, a spokeswoman, Mona Williams, said, confirming a report on BrandWeek.com.

Ms. Williams would not say why they left, whether they would be replaced or whether Wal-Mart would reassess any decisions they had made.

Ms. Roehm and Mr. Womack were hired to move Wal-Mart away from its image as a dowdy discount retailer ╉ an image symbolized, in advertising, by a price-slashing yellow smiley face. Under the leadership of John Fleming, Wal-martâ•˙s chief marketing officer and a former advertising executive at Target, who hired Ms. Roehm and Mr. Womack, Wal-Mart has begun emphasizing its more expensive items in its ads over the last year.

But this holiday season, as sales have slipped, the company has suddenly returned to a low-price message.

Mrs. Roehm and Mr. Womack were instrumental in Wal-Mart's decision this year to replace its longtime advertising agencies, a major event in the advertising industry. Wal-Mart is one of the largest retail advertisers in the country, spending close to a billion dollars on advertising last year, according to TNS Media Intelligence, a research firm.

In late October, Wal-Mart hired DraftFCB, part of the Interpublic Group of Companies, and Carat USA of the Aegis Group to handle $570 million of its advertising after a much watched review.

Sometimes after executives who pick ad agencies leave, companies re-evaluate those decisions, and sometimes they stick with their picks. Wal-Mart declined to comment.

Ms. Roehm, in a statement, said her work at Wal-Mart had reached a natural conclusion." One of my first orders of business was to help spearhead a comprehensive agency review," she said. "Now that I have established the marketing communications organization and completed the agency review, it's time to tackle my next challenge."

Wal-Mart, however, is still deciding which agency to hire to handle its multicultural marketing.

Ms. Roehm is also a leading proponent of a new way to buy and sell ads. She and other marketers at companies including Hewlett-Packard and Microsoft formed a group that hired eBay to develop an online auction system to automate ad sales. The group will test eBay's system next year with cable TV ads.

Mr. Womack declined to comment.

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Sears Tower electrical fire extinguished
Chicago Sun-Times News Group
December 6, 2006

A WEHS Channel 60 electrical television transmitter reportedly malfunctioned and caused a fire on the Sears Tower's 101st floor early Wednesday.

The Chicago Fire Department called a still-and-box alarm at 2:12 a.m. for a "small" fire on the 101st floor of the Sears Tower, 233 S. Wacker Dr., according to Fire Media Affairs spokesman Richard Rosado.

The fire, which was mostly smoke, was contained by 2:30 a.m., Fire Media Affairs Director Larry Langford said.

The fire started in a closet when a 100,000-watt WEHS Channel 60 television transmitter malfunctioned, Langford said.

"Electrical components in the closet were burning, which caused a lot of smoke," Langford said.

The fire did not generate enough heat to activate the building's fire alarms or sprinklers, but the fire produced enough smoke to activate the building's smoke detectors.

"A lot of smoke was pouring out of the cabinet when crews arrived," Langford said. "It was more smoke than anything else."

Responding firefighters initially believed a row of cabinets were on fire, but soon realized it was the transmitter inside the cabinets that was burning, according to Langford, who said one hose was used to extinguish the fire.

The transmitter was disintegrated after the blaze and was "all fried up inside," Langford said.

An EMS Plan 1 was called for precaution and was secured at 2:52 a.m., Langford said.

Nobody was evacuated or injured in the fire, Rosado said.

Firefighters were still on the scene at 3:15 a.m. ventilating and cleaning up water used to spray the equipment, Langford said.

The smoke did not get into the building's ventilation system and did not spread to other floors, Langford said.

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Martha's a Macy's shopper
Chicago Sun-Times
December 6, 2006

Based on the latest forecasts, it's clear Martha Stewart isn't counting on Kmart any more to boost the bottom line.

Martha Stewart Living Omnimedia Inc.'s exclusive deal with Macy's to design dishes, cookware, linens, holiday decorations and other home goods will help fill the "Kmart gap," Chief Executive Officer Susan Lyne said Tuesday.

Revenue from licensing agreements with Macy's and others will keep merchandise earnings from falling, Lyne said. Merchandising accounted for almost a fifth of sales in the latest quarter.

''We do expect there will be a significantly lower revenue stream from Kmart in 2008,'' Lyne said at a Credit Suisse investment conference in New York.

The Kmart revenue stream will decline because Edward S. Lampert, chairman of Sears Holdings Corp., the owner of Kmart and Sears, decided that Stewart's contract with Kmart was too generous. Lampert, a billionaire hedge fund owner, engineered Kmart's $12.3 billion takeover of Sears Roebuck in March 2005.

Lampert told reporters after a shareholders' meeting this past April that Stewart's contract, which expires in four years, exacted too high a price in guaranteed minimum royalty fees from Kmart, and the two sides had been unable to work out a long-term agreement to sell Stewart's goods at Kmart or Sears.

Stewart will receive guaranteed minimum royalty fees from Kmart of either $20 million or 50 percent of her earned royalty fees for fiscal 2008. That compares with $59 million that Stewart's company received last year, and $65 million to be paid this fiscal year, even if Stewart's merchandise doesn't sell.

Stewart's contract with Kmart was initially scheduled to end in January 2010, but the ending date is under negotiation and could be sooner.

Lyne last April rejected any notion that the domestic diva would sell her goods at Sears Roebuck stores, and revealed that Stewart's new deal with Macy's department stores could be worth $400 million.

Lyne, who took over in November 2004, formed agreements with Macy's operator Federated Department Stores Inc. and home builder KB Home to help reduce dependence on Kmart for sales.

On Tuesday, Lyne said earnings before interest, taxes, depreciation and amortization from the merchandising unit will ''approximate'' those of 2006 thanks to the deals.

The Macy's line will start selling in August or September next year, Lyne said.

Shares in Martha Stewart Living increased 75 cents, or 3.56 percent, to $21.82 on Tuesday. The stock had added 21 percent this year before Tuesday.

Bloomberg News with Business Reporter Sandra Guy contributing

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Medicare's 'Doughnut Hole' Help
Cost Estimator on Web Site Can Give Seniors a Glimpse
Of Drug Plan's Coverage Gap
By Jane Zhang – Wall Street Journal
December 5, 2006

The federal government is offering seniors a hand figuring out the infamous "doughnut hole" -- the coverage gap in Medicare's prescription-drug benefit that many beneficiaries will encounter during the year.

A new tool on Medicare's Web site, called a cost estimator, offers monthly and annual spending estimates based on the drugs seniors take and the pharmacy they use. Because it includes both the costs to seniors and to their plans -- the two factors that determine when the doughnut hole kicks in -- seniors can get at least a rough idea of when during the year they will reach the gap under each plan in their area.

For 2007, the doughnut hole begins after seniors and their stand-alone drug plan have spent a total of $2,400. The beneficiary then must bear all costs for his or her drugs until the out-of-pocket expenses reach $3,850. After that, seniors pay only 5% of additional drug costs.

Seniors have four weeks left in the current enrollment season to sign up for the Medicare drug benefit or change plans. Especially for seniors who spend a hefty amount on drugs, the new cost estimator can help decide whether they should change plans. All other things being equal, drug plans that negotiated lower prices with drug makers will have coverage gaps that occur later in the year than plans that pay higher prices for drugs. So a plan with a later coverage gap may mean lower out-of-pocket costs for beneficiaries.

The drug benefit, which took effect in January, is subsidized by the federal government and offered through private insurers. This year, an estimated three million to four million seniors hit the gap. While more plans are offering coverage through the gap next year, most don't cover brand-name drugs, so seniors still need to watch their spending.

The cost estimator was launched in October as part of the upgraded Medicare Web site. Previously, most enrollees could figure out how much their plans were spending on drugs only when they bought the drugs at the pharmacy. This year, insurers such as Humana Inc., UnitedHealth Group Inc. and WellPoint Inc. also have updated their Web sites so seniors can compare total drug costs from different plans. But the Medicare tool is the most comprehensive -- if a bit harder to navigate. To use it, seniors need to click the compare-drug-plans link on www.medicare.gov, followed by "find and compare plans." They then can begin either a personalized or general search for drug costs and enter the lists or drug names they use. The estimates -- shown in a chart followed by a detailed explanation -- are at the very end of the page with the plans' details.

The site is updated every two weeks based on updated information from the plans, and the costs reflect discounted prices each plan has negotiated with drug manufacturers, not including rebates, says Mary Agnes Laureno, director of beneficiary information services at the federal Centers for Medicare and Medicaid Services. "It should be really close" to what seniors see after each purchase at their pharmacy.

But there's also a caveat: Plans can change their drug prices during the year, so a beneficiary's actual spending may be higher or lower than estimated. "That gives you the best possible estimate, but it's only an estimate," says Tricia Neuman, Medicare policy director at Kaiser Family Foundation.

In addition, seniors can't always predict what drug they will use, and not all seniors are savvy online users. John Rother, policy director at the seniors' group AARP, welcomes the tool but wonders how useful it will be. "Most seniors are not going online for information," he says. A Kaiser survey in April showed that 5% of seniors compare plans themselves on www.medicare.gov, while another 5% had family or friends that did that for them.

In all, 3.6 million seniors enrolled in the drug benefit online in 2006, says Medicare spokesman Jeff Nelligan. The enrollment period ends Dec. 31.

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Nordstrom, Sears hear music in CD sales
By Ed Christman - Reuters
December 3, 2006

With music specialty stores dying by the hundreds this year between the liquidation of Tower and Musicland, Nordstrom and Sears may be picking up some of the slack. Both retailers have added an entertainment cache to their stores by carrying CDs. Nordstrom has been testing music in 29 stores in Seattle and will roll out the category to all 157 stores in the chain by mid-December, says Michael Barber, who heads up Barber Entertainment and assists Nordstrom in the selection.

In Chicago, the Sears Holding Company began carrying video and videogames almost two years ago, and in November began testing music in its 789 stores, according to Sears Holding entertainment divisional merchandise manager Jim Stella.

At Nordstrom, the chain sees music as an extension of its presence as the leading fashion department store in the United States. "The key for Nordstrom is it is first and foremost a fashion retailer, and we believe there are parallels between fashion and music," says Barber, who points out that a number of artists have their own clothing lines; Gwen Stefani's brand is carried by Nordstrom.

"We are bringing in titles that are timely and that are right for Nordstrom's customers," Barber says. In fact, Nordstrom is buying all kinds of titles: from new releases to select catalog titles, compilations and custom-designed artist compilations carrying the Nordstrom logo.

In total, each store may carry about 50 titles, ranging from current hits to older titles. There are also exclusive offerings; so far it has licensed custom compilations of Jamie Cullum and Marvin Gaye, with a Chet Baker title coming in 2007.

Titles featured in its young men's section are the Killers' "Sam's Town," John Mayer's "Continuum," Wolfmother's self-titled debut and the Beastie Boys' 1989 release "Paul's Boutique." Its young women's designer department features Beck's "The Information," Justin Timberlake's "FutureSex/LoveSounds" and Feist's "Open Season."

It could eventually mean big business for record labels. Sources say Nordstrom is buying direct from the majors. Barber expects to expand into the independent label community.

Meanwhile, Sears Holding is taking a different approach in carrying music. Since Sears merged with Kmart at the end of 2004, the music industry has been expecting the parent company to add music to Sears stores.

In the States, Sears runs 926 full-line department stores, while its Kmart division operates about 1,400 stores. The latter chain has carried music for decades.

At Sears, the company initially brought in movies and DVD games and began experimenting with music only in November, placing 120 CD titles in each of about 875 of its mall stores.

In addition, about 75 Sears Grand stores, which were converted from Kmart free-standing locations, continue to carry full music departments like Kmart does.

"What we are up to," Stella says, "is trying to see how entertainment can play a role in Sears stores."

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Wal-Mart Says Thank You to Workers
By Michael Barbaro & Steven Greenhouse – New York Times
December 4, 2006

Faced with public demonstrations of discontent by its employees, Wal-Mart Stores has developed a wide-ranging new program intended to show that it appreciates its 1.3 million workers in the United States and to encourage them to air their grievances.

As part of the effort, Wal-Mart managers at 4,000 stores will meet with 10 rank-and-file workers every week and extend an additional 10 percent discount on a single item during the holidays to all its employees, beyond the normal 10 percent employee discount.

The program, described in an internal company document, was created during a volatile six months period, starting when the company instituted a set of sweeping changes in how it managed its workers.

Over that time, Wal-Mart has sought to create a cheaper, more flexible labor force by capping wages, using more part-time employees, scheduling more workers at nights and weekends, and cracking down on unexcused days off.

The policies angered many long-time employees, who complained that the changes would reduce their pay and disrupt their families lives. Workers even staged small rallies in Nitro, W. Va., and Hialeah Gardens, Fla., the only such protests in recent memory.

The portion of the new outreach program called "Associates Out in Front" is described in company documents as a way for Wal-Mart to show workers that we do appreciate you and that we have an ongoing commitment to listening to and addressing your concerns."

The documents were provided to The New York Times by WakeUpWalMart.com, a group funded by the United Food and Commercial Workers union, which fears that Wal-Mart will undermine unionized stores.

The program includes several new perks "as a way of saying thank you" to workers, like a special polo shirt after 20 years of service and a "premium holiday" when Wal-Mart pays a portion of health insurance premiums for covered employees. Sarah Clark, a spokeswoman for Wal-Mart, said the program was a "a more formalized, contemporary approach" to communicating with and collecting feedback from its fast-growing work force.

But she said it was not a response to workers"˙ concerns about new company policies. The Associates Out in Front program, much of which is not described in the documents, she said, "is about building on something that is already very good."

In interviews, half a dozen Wal-Mart workers said there was a growing perception within the company that managers did not respond to employees' ideas and complaints.

Kory Uselton, a 35-year-old overnight floor cleaner at a Wal-Mart in Tyler, Tex., said his store manager offered "robotic" company-approved responses during a recent meeting when workers questioned the new attendance policy, which originally called for disciplinary action after three unauthorized absences (although it was later revised to four unexcused absences).

Asked if absence for a family emergency, like a sick child, would be authorized, Mr. Uselton recounted, the manager said, "No, it's not."

"Many of the associates were very upset, Mr. Uselton said. "Management is just not listening anymore. Some Wal-Mart employees said workers might be afraid to speak up because they have seen coworkers retaliated against for instance, transferred to worse shifts when they voiced their complaints.

Ms. Clark said Wal-Mart already had several systems in place that allowed employees to criticize company practices. Among other things, she said, there was a toll-free hotline workers could call to report ethical lapses, a Web site on which chief executive H. Lee Scott Jr. answered questions and a policy, known as the "open door," that permitted anyone to bring complaints to officers at the highest level of the company.

Industry analysts and labor experts generally praised Wal-Mart's new employee outreach effort, which they said appeared to imitate practices from companies known for cultivating a healthy relationship between managers and employees.

"When you look at the list of best employers' said Richard W. Hurd, a professor of industrial and labor relations at Cornell University, “you will find programs that look something like this.”

The question, he said, “is how sincere the effort is and how much change you see in workers” lives."

But he said the perks, like the 10 percent discount and the shirt for long-time workers, are a very token, modest form of appreciation. It is not sufficient.

Adrianne Shapira, a retail analyst at Goldman Sachs who tracks Wal-Mart, cautioned that, whatever the reasons for the new program, the pace of change at the company carried its own hazards.

“I think they are asking a lot of their people right now,” she said. “It’s a lot of change in a short period of time at an already hectic time of year. It has to be pretty challenging for workers.”

The Associates Out in Front program, which Wal-Mart is introducing over the holiday season, was developed by company executives about seven months ago, Ms. Clark said. It is, in part, the result of recommendations from a group called the Care Council, 700 Wal-Mart workers who advise executives on ways to improve working conditions.

Under the program, store managers are to meet each week with 10 employees who sign up to discuss concerns, suggestions and ideas for improving operations. The program also requires regional general managers to conduct monthly town-hall meetings that are open to every worker in the area.

A new management training program, called “Leaders Out in Front,” is intended to encourage hourly workers to advance their careers and help existing managers become “better ambassadors and mentors,” according to the memo.

Not all of these perks are new. During previous holiday seasons, Wal-Mart has paid health care premiums and offered an additional 10 percent discount. But they were sporadic or at store managersâ•˙ discretion, rather than offered annually across the chain, said Ms. Clark, the spokeswoman.

Other perks, like a shirt that states length of employment in five-year increments starting with 20 years of service, appear designed to build morale, but might do the opposite.

Cleo Forward, a 37-year-old support manager at a Wal-Mart in Dallas, said the new program was promising, but that it fell short in recognizing long-time workers who felt unappreciated by the changes.

“They are going to spend $15 on a Polo for you after 20 years? Give me a break,” he said. “We would rather they lift the wage caps.”

Still, Mr. Forward said, he would like to be able to resolve his problems inside the company and viewed Associates Out in Front as step in the right direction. “Maybe the company is willing to listen,” he said. “If that is so, I am happy. I want to be part of that process.”

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Sears Responds to Life Insurance Inquiry
December 4, 2006

As reported in the Winter, 2006 issue of STRAIGHT TALK, NARSE has received numerous phone calls, letters and e-mails from retirees and spouses of retirees concerning the exact amount of remaining life insurance coverage that they have.  As a result, NARSE’s Chairman, Ronald Olbrysh, sent a letter to Aylwin B. Lewis, CEO and President of Sears Holdings Corporation, dated October 11, 2006, concerning this reduction in retiree life insurance coverage. The letter reads, in part, as follows:

“Many Sears retirees are still confused about the amount of life insurance they will have in force in January after the final reduction is completed…As a result, it would be a great service to Sears retirees if the Company would send each retiree a certificate indicating the exact amount of life insurance that will be payable to the designated beneficiary at the time of their death.

“It would also be helpful if instructions were included in an accompanying letter detailing the necessary procedures to file a claim upon the retiree’s passing.

“Your positive consideration to this request will be most appreciated by all retirees and their families.”

As background, in 1997 then Sears Chairman Arthur Martinez announced that retiree life insurance benefits would be cut back for all participants who retired after January 1, 1978, at the rate of 10% per year on each retiree’s life insurance amount in excess of $5,000.

A number of lawsuits were filed against Sears by retirees who alleged they had been promised “free” or “paid-up” life insurance for the rest of their lives.  All lawsuits were eventually consolidated in the U.S. District Court for the Northern District of Illinois.

The case was finally settled in the fall of 2001.  Under the terms of the settlement, Sears could not further accelerate the life insurance reduction schedule that began in 1998 and it could not reduce the final insurance amount to less than $5,000.  In addition, all class action members who timely mailed a claim form would be guaranteed at least one less annual reduction than the scheduled ten reductions.  Therefore, their final insurance amount would be at least $5,000 plus the amount of one year’s reduction. 

As promised in our “Life Insurance Coverage” article in the current issue of STRAIGHT TALK, when we receive a response from Sears, we would post it on our web site.  Sears response to NARSE’s letter to Mr. Lewis, dated November 22, 2006, came from Clara Hughes, Sears Holdings Manager of Policy and Benefits Compliance.  It reads:

“In response to your letter dated October 11, 2006, I wanted to assure you that planning is underway to communicate to those retirees who are covered under retiree life.  We will be communicating the life insurance amount as well as the process for updating beneficiary information and filing a claim.  I will be working closely with the carrier to get this information out in a timely fashion.”

We appreciate Sears response to our request. For those retirees who are still covered under retiree life, you should be hearing from Sears in the near future.  Clara Hughes can be contacted by writing to:  Sears Holdings Management Corporation, 3333 Beverly Road A4-170B, Hoffman Estates, IL  60179.  Her direct phone number is:  847-286-3755.

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Wal-Mart Confronts a Conundrum:
How Does the Biggest Get Bigger?

By Annys Shin - Staff Writer - Washington Post
December 2, 2006

Wal-Mart has a problem: In 93 percent of American households, one person shops at its stores at least once a year, and that's not good enough for the company.

The retailer wants to continue growing to keep investors happy. But how? If it can't attract new shoppers to push up its sales, it must get the occasional ones, who dash in for bargain dog food or paper towels and then hurry out, to cross the aisle and load up on clothes, bedsheets and flat-panel televisions.

For a year, Wal-Mart has been trying to get those sporadic and mostly higher-income customers to do that. It designed a line of up-to-the-minute clothes. It stocked its shelves with organic cotton sheets and sustainable fish. It wished its customers a "Happy Holiday," not a "Merry Christmas." It hired civil rights leader Andrew Young to burnish its image. It joined the National Gay and Lesbian Chamber of Commerce. This year, it began remodeling nearly half its stores.

On Thursday, Wal-Mart reported a decrease in November sales at stores open at least a year, a rare decline that weighed down holiday prospects for the entire retail sector.

Many of Wal-Mart's core customers disliked the new clothes and skinny jeans, which also failed to set off a serious buzz among the fashion conscious. "Merry Christmas" is back, after the American Family Association and the Catholic League launched a boycott. In May, Wal-Mart pulled out of South Korea, and followed that with a retreat from Germany in July. In August, Young quit after making inflammatory remarks about ethnic grocers in African American communities. In September, Wal-Mart said it was getting rid of layaway, which analysts said sent the wrong message to the 20 percent of its customers who do not have a bank account. Then came the November sales report.

"You got to ask yourself: What happened?" said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm in New York that has done work for Target and Kmart.

More important for Wal-Mart, has the retail approach of stack 'em high and sell 'em cheap, which transformed a little company from rural Arkansas into a chain of more than 3,300 stores and bellwether of the American economy, run its course on its home turf?

"They're in a box," said Charles Fishman, a senior writer for the magazine Fast Company and author of the book "The Wal-Mart Effect." "There's a limit to the market for what they're offering. They're smacking up against it."

Wal-Mart's management does not have to be reminded of its predicament. In October, chief executive H. Lee Scott Jr. acknowledged the rapid switch to hipper clothing worked in urban stores but not nationwide.

"We overloaded the fashion part," Scott told analysts. "That's not who we are."

Management also described a difficult set of circumstances: Company surveys indicate that the pain of high gasoline prices and utility bills lingers for many Wal-Mart shoppers. The remodeling also has hurt sales.

Some factors have been beyond Wal-Mart's control, such as 5 million fewer people shopping on Black Friday this year. Yet Wal-Mart fared worse than many retailers that day, dragging down November sales for the entire industry by 2 percent, the International Council of Shopping Centers said. Without Wal-Mart, November sales would have increased by a healthy 4 percent.

Wal-Mart's biggest competitor may still be itself. In areas where the chain has two stores, the opening of a third siphons off 20 percent of sales from the other two, said Robert S. Drbul, an analyst at Lehman Brothers.

In the short run, Wal-Mart is falling back on what it knows best: cutting prices. Since October, it has slashed prices on toys and electronics. Last Thursday, management said that around Christmas, Wal-Mart would promote low prices on more goods in a series of advertising circulars.

Longer-term, executives say they will stop opening so many new stores to stem cannibalizing their own business and focus on improving productivity at existing ones by finding new ways to get the occasional customer to spend more.

"Unless they abandon the idea of growth," Fishman said, "they need to attract a wider array of customers."

The company is going after what it calls "selective" customers. That would describe Springfield resident Nadine McMahon, 46, who was shopping Thursday morning at the Wal-Mart on Kingstowne Boulevard in southeast Fairfax County . McMahon heads to the discount retailer for household cleaning and school supplies, but she was not the least bit tempted by the racks of the new fashion-forward Metro 7 brand camisoles and skirts she saw.

"I thought they never held up as well as clothes from other stores," she said, adding that she buys clothes from hipper rival Target. She thought for a second, trying to explain her resistance.

"Maybe it's the way the store looks," she said.

That "look" could be seen in the Kingstowne store, where 250-thread-count organic cotton sheets on sale for $52.88 sat in open boxes next to a display featuring a martini set, clear glass cheese serving plates and curvy, white, modernist vases. The sheets and the barware would look at home inside any Target store, except that they were stranded in the middle of a narrow aisle next to shelves piled nearly to the ceiling with consumer electronics.

Retail analyst Patricia Edwards of Wentworth, Hauser & Violich in Seattle said ambience is increasingly critical to holding on to price-conscious shoppers. As gasoline prices have dropped and as "they've gotten discretionary income, the core base is shopping elsewhere," she said.

Wal-Mart has simply made its competitors smarter, she said, as they followed the company's example by making supply chains more efficient and lowering costs.

In responding to competitors, Wal-Mart has struggled through an identity crisis. Management has pulled the plug on troubled undertakings so quickly lately that it has lurched from one extreme to another.

Fishman, however, looks to history. Wal-Mart has been adept at trying new strategies, jettisoning them when they do not work, and moving on. What Wall Street and others forget, he said, is "part of Wal-Mart's DNA is to test things out."

He cited experiments such as full-service auto repair, which the company gave up on, choosing to focus on replacing tires and batteries and changing oil. "That was a passion of Sam Walton: copy, copy, copy, execute brilliantly, abandon what doesn't work," he said.

The difference now is as the nation's largest employer and second-largest company by revenue, Wal-Mart's every move is scrutinized. It has an army of critics ready to pounce, such as the union-backed Wake Up Wal-Mart and Wal-Mart Watch. They are organized and well-financed. They've advocated for anti-big-box store laws in cities and counties across the country designed to keep Wal-Mart from expanding. And as one of the largest companies in the world, its missteps reverberate through the entire economy, as on the Monday after Thanksgiving, when management's warning of poor November sales figures helped drive the Dow Jones industrial average down 158 points.

Fishman said it was important not to lose sight of the fact that while it has lately fallen short of its goals -- and Wall Street's -- for same-store sales growth, the company is enormously profitable and growing overseas. Wal-Mart rang up $28.6 billion in sales in November, up 11.9 percent. Sales have been strong in Mexico, Brazil, Argentina and China, and the company is expanding into India.

But Fishman said, a larger question remains: "How much can one company own of the U.S. retail market?"

Staff writer Ylan Q. Mui contributed to this report.

 

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Valuing Eddie Is the Story Line at Sears
Despite Run-Up, Investors May Be Undervaluing
Lampert's Famed Acumen
John Christy, Rob Cox and Lauren Silva - Wall Street Journal
December 2, 2006

Falling same-store sales and rising inventories aren't classic indicators of success in the retail business. Yet that hasn't stopped the steady upward march of Sears Holdings' shares. The company's stock has surged nearly 50% this year. Much of this can be attributed to the faith that investors place in the $26 billion retailer's chairman, hedge-fund kingpin Edward S. Lampert. But as enthusiastic as they've been, could investors actually be undervaluing Mr. Lampert's services?

At current prices, Sears trades at about 21 times next year's earnings -- or a premium of about 10% to the retail sector. This implies a "Lampert premium" of some $2.6 billion. While that might seem large, Mr. Lampert's stellar record as a money manager shouldn't be ignored. Returns of nearly 30% a year over nearly two decades at his firm ESL Investments have swelled the bank accounts of already wealthy clients such as David Geffen and Michael Dell.

Mr. Lampert, who is often compared to Warren Buffett, makes no secret of his admiration for the Sage of Omaha. Many Lampert loyalists are banking on him to turn Sears into a Berkshire Hathaway-like investment vehicle.

That hasn't happened yet. Until it does, valuing Sears remains a tricky exercise. There are two components: the core retailer selling everything from power tools to women's panties, and the implicit value in Mr. Lampert's freedom to put excess cash to work. Last quarter, for example, Sears booked a $101 million gain from trading total-return swaps.

There's still plenty of loot for Mr. Lampert to play with. Sears has $2 billion of cash -- a pile that should grow over time. Then there's the nearly $9 billion worth of property that could be freed up for additional capital. If Mr. Lampert puts most of this to work -- and matches his past returns -- Deutsche Bank reckons that Sears's investment business would be worth a huge $121 a share, or nine times the company's cash on hand.

That's clearly excessive. Still, Mr. Lampert's track record suggests that he can achieve the same with $1 as most others can do with $2. So in his capable hands, Sears's cash pile of $2 billion is worth at least twice that amount to investors, or roughly 7.5% of the retailer's market value. Given the options provided by the company's property portfolio and the strong cash flow from the retailing operations, the 10% Lampert premium looks conservative.

Captain Kirk

Set aside for a moment what Kirk Kerkorian's decision to abandon his investment in General Motors says about the car company. That he would sell his stake was fairly evident from the moment his henchman Jerome York quit the board in a huff in October. More interesting is what his actions say about the future of the U.S. economy.

At 89, Mr. Kerkorian is one of the most experienced investors alive. He has made and lost money in a broad swath of industries -- from movie studios and nightclubs to airlines and automobiles. So, when he parked his limo on the curb outside GM's Detroit headquarters in May 2005, it meant something. It suggested that even though some of the sharpest minds on Wall Street had assumed that GM had little hope of avoiding insolvency, Mr. Kerkorian believed in the possibility of renewal at America's largest industrial concern. His investment helped changed that negative perception.

There's something symbolic in the fact that Mr. Kerkorian is now taking his money out of GM and investing it in Las Vegas casino operator MGM Mirage. Sin City is rising out of the ruins of Motown. Only time will tell whether America's glitzy casino economy is more secure than one based on blood, sweat and hard assets.

Feds at the Gate

The only question being asked more frequently on Wall Street than "How big is my bonus?" is "What will the Feds do to private equity?" That's because the answer to the second question could decide the former. The leveraged-buyout boom has powered investment-bank profits. So the probe into whether some of the industry's titans colluded illegally has many people worried. History suggests they can relax.

In many respects, the current inquiry into private equity resembles another launched by the Justice Department, in the 1940s. In that probe, the Feds accused 17 of the largest investment banks of colluding in underwriting practices. The trial lasted 2Â∏ years and created more than 100,000 documents -- a mountain of evidence in an era before email, faxes and recorded telephone chitchats.

The essential charge was that by ganging together in syndicates to sell securities, underwriters engaged in price-fixing that damaged the capital markets. That charge didn't stick, however. As a result, more than half a century later not much has changed in the underwriting business. Banks still pool their cash for deals.

How is this relevant to the current investigation of big private-equity firms? In theory, by banding together, private-equity firms perform a similar function to the underwriting syndicate. They diversify risk and enable the financing of ever larger deals to take place, such as the recent $33 billion buyout of hospital operator HCA involving Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch & Co. Shareholders who sell to private equity pick up a premium.

Of course, if club deals were to lead to smaller bid premiums, shareholders would be getting a raw deal. As yet, there's no evidence of this. On average, premiums for club deals have differed little from those when only one buyout firm has been involved, according to Standard & Poor's Leveraged Commentary & Data. The 1940s probe into underwriting practices floundered for lack of incriminating evidence. Unless some explosive emails are uncovered, the current investigation could go the same way.

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Smashing The Clock
By Michelle Conlin - Business Week
Cover Story - December 11, 2006

No schedules. No mandatory meetings. Inside Best Buy's radical reshaping of the workplace

One afternoon last year, Chap Achen, who oversees online orders at Best Buy Co., shut down his computer, stood up from his desk, and announced that he was leaving for the day. It was around 2 p.m., and most of Achen's staff were slumped over their keyboards, deep in a post-lunch, LCD-lit trance. "See you tomorrow" "I'm going to a matinee."

Under normal circumstances, an early-afternoon departure would have been totally un-Achen. After all, this was a 37-year-old corporate comer whose wife laughs in his face when he utters the words "work-life balance." But at Best Buy's Minneapolis headquarters, similar incidents of strangeness were breaking out all over the ultramodern campus. In emplo yee relations, Steve Hance had suddenly started going hunting on workdays, a Remington 12-gauge in one hand, a Verizon LG in the other. In the retail training department, e-learning specialist Mark Wells was spending his days bombing around the country following rocker Dave Matthews. Single mother Kelly McDevitt, an online promotions manager, started leaving at 2:30 p.m. to pick up her 11-year-old son Calvin from school. Scott Jauman, a Six Sigma black belt, began spending a third of his time at his Northwoods cabin.

At most companies, going AWOL during daylight hours would be grounds for a pink slip. Not at Best Buy. The nation's leading electronics retailer has embarked on a radical--if risky--experiment to transform a culture once known for killer hours and herd-riding bosses. The endeavor, called ROWE, for "results-only work environment," seeks to demolish decades-old business dogma that equates physical presence with productivity. The goal at Best Buy is to judge performance on output instead of hours.

Hence workers pulling into the company's amenity-packed headquarters at 2 p.m. aren't considered late. Nor are those pulling out at 2 p.m. seen as leaving early. There are no schedules. No mandatory meetings. No impression-management hustles. Work is no longer a place where you go, but something you do. It's O.K. to take conference calls while you hunt, collaborate from your lakeside cabin, or log on after dinner so you can spend the afternoon with your kid.

Best Buy did not invent the post-geographic office. Tech companies have been going bedouin for several years. At IBM, 40% of the workforce has no official office; at AT&T, a third of managers are untethered. Sun Microsystems Inc. calculates that it's saved $400 million over six years in real estate costs by allowing nearly half of all employees to work anywhere they want. And this trend seems to have legs. A recent Boston Consulting Group study found that 85% of executives expect a big rise in the number of unleashed workers over the next five years. In fact, at many companies the most innovative new product may be the structure of the workplace itself.

But arguably no big business has smashed the clock quite so resolutely as Best Buy. The official policy for this post-face-time, location for your work," says the program's co-founder, Jody Thompson. By the end of 2007, all 4,000 staffers working at corporate will be on ROWE. Starting in February, the new work environment will become an official part of Best Buy's recruiting pitch as well as its orientation for new hires. And the company plans to take its clockless campaign to its stores--a high-stakes challenge that no company has tried before in a retail environment.

Another thing about this experiment: It wasn't imposed from the top down. It began as a covert guerrilla action that spread virally and eventually became a revolution. So secret was the operation that Chief Executive Brad Anderson only learned the details two years after it began transforming his company. Such bottom-up, stealth innovation is exactly the kind of thing Anderson encourages. The Best Buy chief aims to keep innovating even when something is ostensibly working. "ROWE was an idea born and nurtured by a handful of passionate employees," he says. "It wasn't created as the result of some edict."

So bullish are Anderson and his team on the idea that they have formed a subsidiary called CultureRx, set up to help other companies go clockless. CultureRx expects to sign up at least one large client in the coming months. The CEO may have bought in, but there has been plenty of opposition inside the company. Many execs wondered if the program was simply flextime in a prettier bottle. Others felt that working off-site would lead to longer hours and destroy forever the demarcation between work and personal time. Cynics thought it was all a PR stunt dreamed up by Machiavellian operatives in human resources. And as ROWE infected one department after the other, its supporters ran into old-guard saboteurs, who continue to plot an overthrow and spread warnings of a coming paradise for slackers.

Then again, the new work structure's proponents say it's helping Best Buy overcome challenges. And thanks to early successes, some of the program's harshest critics have become true believers. With gross margins on electronics under pressure, and Wal-Mart Stores Inc. and Target Corp. shouldering into Best Buy territory, the company has been moving into services, including its Geek Squad and "customer centricity" program in which salespeople act as technology counselors. But Best Buy was afflicted by stress, burnout, and high turnover. The hope was that ROWE, by freeing employees to make their own work-life decisions, could boost morale and productivity and keep the service initiative on track.

It seems to be working. Since the program's implementation, average voluntary turnover has fallen drastically, CultureRx says. Meanwhile, Best Buy notes that productivity is up an average 35% in departments that have switched to ROWE. Employee engagement, which measures employee satisfaction and is often a barometer for retention, is way up too, according to the Gallup Organization, which audits corporate cultures.

ROWE may also help the company pay for the customer centricity campaign. The endeavor is hugely expensive because it involves tailoring stores to local ma rkets and training employees to turn customer feedback into new business ideas. By letting people work off-campus, Best Buy figures it can reduce the need for corporate office space, perhaps rent out the empty cubicles to other companies, and plow the millions of dollars in savings into its services initiative.

Phyllis Moen, a University of Minnesota sociology professor who researches work-life issues, is studying the Best Buy experiment in a project sponsored by the National Institutes of Health. She says most companies are stuck in the 1930s when it comes to employees' and managers' relationships to time and work. "Our whole notion of paid work was developed within an assembly line culture," Moen says. "Showing up was work. Best Buy is recognizing that sitting in a chair is no longer working."

ONE GIANT WIRELESS KIBBUTZ
Jody Thompson and Cali Ressler are two HR people you actually don't hate. They groan over cultis h corporate slogans like "Build Superior Organizational Capability." They disdain Outlook junkies who double-book and showboating PowerPointers. But it's flextime, or Big Business' answer to overwork, long commutes, and lack of work-family balance, that elicits the harshest verdict. "A con game," says Thompson. "A total joke," adds Ressler.

Flexible work schedules, they say, heap needless bureaucracy on managers instead of addressing the real issue: how to work more efficiently in an era of transcontinental teams and multiple time zones. They add that flextime also stigmatizes those who use it (the reason so few do) and keeps companies acting like the military (fixated on schedules) when they should behave more like MySpace  (social networks where real-time innovation can flourish). Besides, they say, if people can virtually carry their office around in their pockets or pocketbooks, why should it matter where and when they work if they are crushing their goals?

Thompson, 49, and Ressler, 29, met three years ago. The boomer and the Gen Xer got each other right away. When they talk about their meeting, it sounds like something out of Plato for HR, or two like minds making a whole. At the time, Best Buy was still a ferociously face-time place. Workers arriving after 8 a.m. on sub-zero mornings stashed their parkas in their cars to foil detection as late arrivals. Early escapees crept down back stairwells. Cube-side, the living was equally uneasy. One manager required his MBAs to sign out for lunch, including listing their restaurant locations and ETAs. Another insisted his team track its work--every 15 minutes. As at many companies, the last one to turn out the lights won.

Outside the office, Thompson and Ressler couldn't help noticing how wireless broadband was turning the world into one giant work kibbutz. They talked about how managers were mired in analog-age inertia, often judging performance on how much they saw you, vs. how much you did. Ressler and Thompson recognized the dangerous, life-wrecking cocktail in the making: The always-on worker now also had to be always in.

The culture, not exactly Minnesota-nice, was threatening Best Buy's massive expansion plans. But Ressler and Thompson knew their solution was too radical to simply trot up to CEO Anderson. Nor, in the beginning, did they feel they could lobby their executive supervisors for official approval. Besides, they knew the usual corporate route of imposing something from the top down would bomb. So they met in private, stealthily strategizing about how to protect ROWE and then dribble it out under the radar in tiny pilot trials. Ressler and Thompson waited patiently for the right opportunity.

It came in 2003. Two managers--one in the properties division, the other in communications--were desperate. Top performers were complaining of unsustainable levels of stress, threatenin g business continuity just when Best Buy was rolling out its customer centricity campaign in hundreds of stores. They also knew from employee engagement data that workers were suffering from the classic work-life hex: jobs with high demands (always-on, transcontinental availability) and low control (always on-site, no personal life).

Ressler and Thompson saw their opening in these two vanguard managers. Would they be willing to partake in a private management experiment? The two outlined their vision. They explained how in the world of ROWE, there would be no mandatory meetings. No times when you had to physically be at work. Performance would be based on output, not hours. Managers would base assessments on data and evidence, not feelings and anecdotes. The executives liked what they heard and agreed.

The experiment quickly gained social networking heat. Waiting in line at Best Buy's on-site Caribou Coffee, in e-mails, and during drive-by's at friends' desks, employees in other parts of the company started hearing about this seeming antidote to megahour agita. A curious culture of haves and have-nots emerged on the Best Buy campus, with those in ROWE sporting special stickers on their laptops as though they were part of some cabal. Hance, the hunter, started taking conference calls in tree stands and exchanging e-mails from his fishing boat. When Wells wasn't following around Dave Matthews, chances were he was biking around Minneapolis' network of urban lakes, and digging into work only after night had fallen. Hourly workers were still putting in a full 40, but began doing so wherever and whenever they wanted.

At first, participants were loath to share anything about ROWE with higher-ups for fear the perk would be taken away or reversed. But by 2004, loftier and loftier levels of management began hearing about the experiment at about the time opposition to it grew more intense. C ritics feared executives would lose control and co-workers would forfeit the collaboration born of proximity. If you can work anywhere, they asked, won't you always be working? Won't overbearing bosses start calling you in the middle of the night? Won't coasters see ROWE as a way to shirk work and force more dedicated colleagues to pick up the slack? And there were generational conflicts: Some boomers felt they'd been forced to choose between work and life during their careers. So everyone else should, too.

Shari Ballard, Best Buy's executive vice-president for human capital and leadership (an analog title if ever there was one), was originally skeptical, although she eventually bought in. At first she couldn't figure out why managers needed a new methodology to help solve the work-life conundrum. "It wasn't hugs and smiles," she says of Ressler's and Thompson's campaign. "Managers in the old mental model were totally irritated." In the e-learning division, many of Wells's o lder co-workers (read 40-year-olds; the average age at Best Buy is 36) expressed resentment over the change, insisting that work relationships are better face-to-face, not screen-to-screen. "We have people in our group who are like, `I'm not going to do it,'" says Wells, who likes to sleep in and doesn't own an alarm clock. "I'm like, `that's fine, but I'm outta here.'" In enemy circles, Ressler and Thompson are known to this day as "those two" and "the subversives."

Yet ROWE continues to spread through the company. If intrigued nonparticipants work for progressive superiors, they usually talk up the program and get their bosses to agree to trials. If they toil under clock-watchers, they form underground networks and quietly lobby for outside support until there is usually no choice but for their boss to switch. It was only this past summer that CEO Anderson got a full briefing, and total understanding, about what was happening. "We purposely waited until the tipping point b efore we took it to him," says Thompson. Until then he wasn't well-versed on the 13 ROWE commandments. No.1: People at all levels stop doing any activity that is a waste of their time, the customer's time, or the company's money. No.7: Nobody talks about how many hours they work. No.9: It's O.K. to take a nap on a Tuesday afternoon, grocery shop on Wednesday morning, or catch a movie on Thursday afternoon.

That's the commandment Achen was following when he took off that day to see Star Wars Episode III: Revenge of the Sith. Doing so felt abnormal and uncomfortable. Achen felt guilty. But Ressler and Thompson had told him to "model the behavior." So he did. It helped that Achen saw in ROWE the potential to solve a couple of nagging business problems. As the head of the unit that monitors everything that happens after someone places an order at BestBuy.com, including manually reviewing orders and flagging them for possible fraud, Achen wanted to expand the hours of op eration without mandating that people show up in the office at 6 a.m. He had another issue. One of his top-performing managers lived in St. Cloud, Minn., and commuted two and a half hours each way to work. He and Achen had a gentleman's agreement that he could work from home on Fridays. But the rest of the staff didn't appreciate the favoritism. "It was creating a lot of tension on my team," says Achen.

RECORD JOB SATISFACTION
Ressler and Thompson had convinced Achen that ROWE would work. Now Achen would have to convince the general manager of BestBuy.com, senior vice-president John "J.T." Thompson. That wasn't going to be easy. Thompson, a former General Electric Co. guy, was as old school as they come with his starched shirt, booming voice, and ramrod-straight posture. He came of age believing there were three 8-hour days in every 24 hours. He loved working in his office on weekends. At first, he pushed back hard. "I was not supportive," says Thompson, who was privately terrified about the loss of control. "He didn't want anything to do with it," says Achen. "He was all about measurement, and he kept asking me, `How are you going to measure this so you know you're getting the same productivity out of people?'"

That's where Achen's performance metrics came in handy. He could measure how many orders per hour his team was processing no matter where they were. He told Thompson he'd reel everyone back to campus the minute he noticed a dip. Within a month, Achen could see that not only was his team's productivity up, but engagement scores, or measuring job satisfaction and retention, were the highest in the dot-com division's history.

For years, engagement had been a sore spot for Thompson. "I showed J.T. these scores, and his eyes lit up," says Achen. Thompson rushed to roll out ROWE to his entire department. Voluntary turnover among me n dropped from 16.11% to 0. "For years I had been focused on the wrong currency," says Thompson. "I was always looking to see if people were here. I should have been looking at what they were getting done."

Today, Achen's commuting employee usually comes in once a week. Nearly three-quarters of his staff spend most of their time out of the office. Doesn't he worry that he loses some of the interoffice magic when they don't gather together all day, every day? What about the value in riffing on one another's ideas? What about teamwork and camaraderie? "You absolutely lose some of that," he says. "But what we get back far outweighs anything we've lost."

Achen says he would never go back. Orders processed by people who are not working in the office are up 13% to 18% over those who are. ROWE'ers are posting higher metrics for quality, too. Achen says he believes that's due to the new office paradox: Given the constant distractions, it sometimes feels impossible to get any work done at work.

Ressler and Thompson say all the Best Buy groups that have switched to the freer structurereport similar results. Meanwhile, the two have other big plans for the company. Last month they launched a new pilot called Cube-Free. Ressler and Thompson believe offices encourage the wrong kinds of habits, keeping people wrapped up in a paper, prewireless mentality as opposed to pushing employees to use technology in the efficiency-enhancing way it was intended. Offices also waste space and time in an age when workers are becoming more and more place-neutral. "This also sets up Best Buy to be able to completely operate if disaster hits," says Thompson. Work groups that go cube-free will be able to redesign their spaces to better accommodate collaboration instead of working alone.

Next year Ressler and Thompson plan to pilot their boldest move yet, testing ROWE in retail stores among both managers and workers. How exactly they will do this in an environment where salespeople presumably need to put in regular hours, they won't say. And they acknowledge it won't be easy. Still, they are eager to try just about anything to help the company slash its 65% turnover rates in stores, where disgruntlement is common and workers form groups on MySpace with names like "Best Buy Losers Club!"

Best Buy has transformed its workplace culture in a remarkably short time. Isn't it also true that ROWE could unravel just as quickly? What happens if the company hits a speed bump? Competition isn't getting any less intense, after all. Best Buy sells a lot of extended warranties, an area where both Wal-Mart and Target are eager to undercut the electronics retailer on price. What's more, the current boom in flat-panel, digital TVs will peak in a few years.

If Best Buy's business goes south, human nature dictates that the people who always believed the clockless office was a flaky New Age idea will see an opportunity to try to force a hasty retre at. Some at the company complain that productivity is up only because many Best Buyers are now working longer hours. And some die-hard ROWE opponents still privately roll their eyes when they see Ressler and Thompson in the hallway.

But it's worth remembering that most big companies fail to grow at the rate of inflation. That's true in part because the bigger the company gets, the harder it is to get the best out of each and every employee. ROWE is one of Best Buy's answers to avoiding that fate. "The old way of managing and looking at work isn't going to work anymore," says Ressler. "We want to revolutionize the way work gets done." Admit it, you're rooting for them, too.

 

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Ev Franger, veteran Sears controller, dies at 92

NOTE: The following was learned November 30 in a message from his daughter, Susan Franger Singleton, to the NARSE guest book:

Evgen D. Franger passed away peacefully at home on October 31, 2006. His career and colleagues at Sears were a very important part of his life, second only to his family. We were raised as Sears kids, even being taught to play gin rummy. I remember Homan and Arthington, the State Street Store (WLS), the opening of Oak Brook Mall, the erection of the Sears Tower, and possibly, my earliest memory, the Wish Book. My first job - Sears Oakbrook, D/77! Regards, Susan, for the Family of Ev Franger
30 November 2006

CHICAGO TRIBUNE
November 5, 2006

Evgen Daniel Franger "Ev", age 92, of Shorewood, IL and Rancho Mirage, CA, at rest Oct. 31, 2006, beloved husband of the late Margaret Ethel Franger, nee Bowser, whom he married in 1937; the devoted father of Margaret Jane Harper, Joseph Daniel (Mary Ellen) Franger, M.D. and Susan (Peter) Singleton; loving grandfather of Daniel (Julie) Harper, Elizabeth (Rudy) Ramirez, Richard (Linda) Harper, John (Toni) Harper, Margaret (Frank) Franger Urbano, Joseph Franger, Peter Franger and Andrew Franger; cherished great- grandfather of Daniel, Kathleen, Sarah Harper, Peter, Kathryn, Caroline Ramirez, Margaret, Amy Harper, Megan, Amanda, Andrew, Matthew Harper, Madison Rose and Genevieve Urbano; dear brother of Kathryn, Joseph and the late John and Vincent Franger; loving uncle to many nieces and nephews.

Born to the late John and Velma, nee Bollman, Franger in Racine, WI on Sept. 25, 1914, the family moved to Fairbury, IL where he remained until graduation from high school. Thereupon, he moved to Chicago where he attended the University of Chicago, studying finance and accounting. He subsequently earned his law degree from Loyola University, Chicago and MBA from the University of Chicago, Graduate School of Business.

He joined Sears, Roebuck & Co. in 1948 in Chicago where he enjoyed a long and distinguished career, retiring after 38 years of service in 1984. He attained the position of General Merchandise Controller in 1969, responsible for the management of inventory levels throughout the retail and catalog infrastructures. To support this effort, he and his team introduced management systems at point of sale in all stores (RIM) and catalog distribution centers (AIM).

Leveraging this expertise, the US Army GAO engaged him to audit its logistics, purchasing and warehousing systems.

In 1978, he joined Sears International, and led the consulting team for the Japanese retailer, Seibu, in which Sears had a minority interest. His primary focus was the installation of inventory management systems at POS. He traveled world wide, consulting for firms and governments alike.

Lying in state Saturday 8:30 a.m. until Mass 9:30 a.m. at St. Raymond Church, Elmhurst Rd. (Rt. 83) and Lincoln St., Mt. Prospect. Interment will be Saturday 3:30 p.m. at St. John the Baptist Cemetery, Fairbury, IL. In lieu of flowers, memorials to Joliet Area Community Hospice. Arrangements by Friedrichs Funeral Home, Mt. Prospect, IL. For info, 847-255-7800 or www.FriedrichsFH.com

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Retailers Expect Strong Holiday,
Despite Grim Wal-Mart Forecast

By James Covert – Wall Street Journal Online
November 30, 2006

NEW YORK -- Retailers began posting mixed November same-store sales, but many said slow sales in the beginning of the month picked up during the Black Friday weekend, positioning them for a good holiday sales season.

Strength at department stores and teen/child sectors were offsetting weakness at Wal-Mart Stores Inc.

Last year major retail chains reported a 3.3% gain in same-store sales, or sales at stores open at least a year, as spending was lifted by soaring home values. But while the housing market has grown shaky over the past year, the job market and wages lately have been strong.

Wal-Mart confirmed a 0.1% decline in its November same-store sales -- short of its earlier forecast for flat same-store sales in November. That would mark Wal-Mart's first same-store sales decline in more than a decade. The company said it expects sales to be flat to up 1% in December

On the bright side, most analysts say Wal-Mart's weakness is a company-specific issue. Wal-Mart recently has missed its monthly sales forecasts despite a late-summer drop in gasoline prices that should have benefited its lower-income consumers. The company blames a botched fashion strategy, remodeling efforts that have disrupted traffic and difficult comparisons with a year ago, when shoppers in the Southeast scrambled to stock up on essentials in the wake of big hurricanes.

J.C. Penney Co. and Federated Department Stores Inc., which both sounded upbeat notes on post-Thanksgiving sales, reported 1.4% and 8.5% jumps in same-store sales, respectively. Federated topped First Call expectations of a 4.8% jump after more than 400 former May Co. stores were converted to Macy's in September.

November's post-Thanksgiving weekend traditionally kicks off the Christmas shopping season. Reports were mixed on how strong a start retailers got. Sales on "Black Friday" rose 6% to $8.96 billion, according to ShopperTrak RCT, a firm that compiles data based on traffic at 45,000 stores in shopping malls around the country. But that information excludes data from many strip centers and free-standing stores, such as Wal-Mart, Prudential Equity Group's Stacy Pak said in a Monday research note.

Warmer-than-usual temperatures in November haven't helped apparel sales, according to weather consultant Planalytics. And while sales of electronics were above average at Wal-Mart, Best Buy Co. and Circuit City Stores Inc. during the Black Friday weekend, gains in apparel were below average, according to credit card transaction data from Visa USA. Department stores will depend on last-minute splurging on cashmere sweaters, coats and leggings to meet outsized expectations for the season, according to Wayne Best, Visa USA's chief economist.

Among the handful of stores that reported November sales early, teen retailer Aeropostale said same-store sales rose 1% for the four weeks ended Nov. 26. Rival American Eagle Outfitters Inc. said its same-store sales rose 14% for the month ended Nov. 25.

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Dollar General closing 400 stores
Associated Press
November 29, 2007

NASHVILLE, Tenn. - Discount retailer Dollar General Corp., a major competitor of Matthews-based Family Dollar Stores, said Wednesday it plans to close 400 stores next year and open about 300 new locations to improve profitability.

The plan will cost about $138 million, with $74 million related to store closings and $64 million for higher markdowns to expedite the move away from its "packaway" inventory management model, as well as other expenses. The "packaway" model keeps products on the shelf longer. Under its new inventory strategy, Dollar General plans to sell off some $300 million in older merchandise to make way for newer products that are in season.

Dollar General did not specify where the new stores would open and which stores will close.

About $80 million of the costs will be booked in the third quarter ended Nov. 3.

In the most recent quarter, Dollar General reported a 40 percent decline in profit on increased costs, despite slightly higher sales.

Dollar General shares fell 77 cents, or 4.61 percent, to $15.94 in late morning trading on the New York Stock Exchange.

"These strategic changes are designed to enhance the shopping experience for our customers and put the company on a solid foundation for profitable and sustainable growth in the future," said David Perdue, chairman and CEO. "Fiscal 2007 will be a year of transition for us as our team will be highly focused on executing this plan."

The company also announced plans to repurchase up to $500 million of its outstanding common stock over the next two years in a buyback that expires Dec. 31, 2008.

It also said it has named David L. Bere as its new president and chief operating officer effective Dec. 4. Bere, 53, has served as a company director since 2002. He previously served as corporate vice president of Ralcorp Holdings Inc., a publicly held maker of store-brand breakfast cereals, cookies and snacks. Before that, he spent 17 years at oatmeal maker Quaker Oats Co.

A spokeswoman said the position of president and chief operating officer has been vacant since 2004, when former President and COO Lawrence Jackson left the company.

Dollar General, based in Goodlettsville, Tenn., had 8,276 neighborhood stores in 34 states as of Nov. 24.

The store closings will allow the retailer to open about 300 new stores in fiscal 2007 and another 400 in 2008. Dollar General also plans to relocate or remodel 300 stores each year, with about 700 new store openings in 2009.

The company did not disclose how many workers would be affected.

Despite the hefty markdowns, the retailer said the change will improve the appearance of its stores and will ultimately result in higher sales and lower employee turnover.

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Big Employers Plan Electronic Health Records
By Gary McWilliams – Wall Street Journal
November 29, 2006

Several big employers are about to deliver an electronic jolt to the U.S. health-care system.

Next week, Intel Corp., Wal-Mart Stores Inc., British Petroleum and others will disclose a plan to provide digital health records to their employees and to store them in a multimillion-dollar-data warehouse linking hospitals, doctors and pharmacies. Their goal: to cut costs by having consumers coordinate their own health care among doctors and hospitals.

Craig R. Barrett, Intel's chairman, calls portable electronic records "the building-block to modify the U.S. health industry" into a more responsive and cost-conscious system. "I frankly don't think that the industry is capable of modifying itself," he says.

Next week, the companies will announce their collaboration on a records standard to kick-start the plan. Later, about 10 employers are expected to chip in $1.5 million each to construct a data warehouse to store and update the e-records. Once in place, the combination would allow consumers and insurers to evaluate price and performance data from millions of employees. Eliminating duplicate tests and erroneous or lost information would also slash administrative overhead, which is estimated to account for 40% of medical costs. And electronic prescriptions alone could help prevent the 98,000 serious illnesses or deaths that result annually from prescription mistakes.

ONE DOCTOR'S EXPERIENCE

WSJ columnist Benjamin Brewer, a family practice doctor in Illinois, has written about his experience with online patient visits, and how they help build electronic health records.


Doctors could also use the records to measure which treatments worked best for chronically ill groups of patients. In addition, once their records are online, employees could order prescriptions and calculate their out-of-pocket medical costs using software that understands their health plans.

Patient medical records -- often hand-written -- are currently strewn among doctors' offices and hospitals. Computerizing them has long been supported by hospital and doctors' groups, but has foundered on technical and cost grounds. Now, only about 10% of U.S. doctors have a completely electronic record-keeping system.

Coalition members believe that giving consumers control over their own records would help get around the technical and cost issues. But the idea of portable medical records and a massive repository still faces hurdles. Privacy advocates worry that digital records will be misused by employers and insurers to deny jobs or health-care coverage. The watchdog group Patient Privacy Rights Foundation urges employees to shun the approach until there are adequate protections. "The system is leaking information," says Chairwoman Deborah C. Peel, a practicing psychiatrist. "Once out there, it's like a Paris Hilton sex video. It's [there] for the millennium."

The coalition expects to apply a combination of market pressure and incentives to get doctors and hospitals on board. The employers will insist that health-care providers adopt electronic records and prescribing as a condition of future business. Retailer Wal-Mart will apply its purchasing power to get bar codes on products intended for hospitals and clinics. All expect employees to pick doctors willing to use and update their records, though employee compliance is voluntary. According to the companies, the records will be the property of the employees, and the data will be mined by insurers and others only after the patients' identity is stripped off.

"We're trying to bring all the right people to the table and show them what can be done," says Linda M. Dillman, the Wal-Mart executive vice president in charge of the company's budding health-care initiative. A late comer to the health-care debate, Wal-Mart has been criticized for its employee health plans, and it has sought out allies among medical societies and health-care advocates.

Intel and Wal-Mart came together on the initiative last summer at the suggestion of the Centers for Disease Control and Prevention. Each had been meeting separately with the federal agency to discuss its efforts. Wal-Mart's Ms. Dillman describes the linkup as a bit of unexpected luck. "There is only so much you can do internally. To make a difference, you have to reach outside your own four walls," she says.

Both companies' businesses could benefit from the initiative's success. Intel sells chips that power prescription-writing hand-held PCs as well as giant file servers. Wal-Mart, the third-largest pharmacy chain, will soon have 60 "miniclinics" dispensing basic health-care services, and it is rapidly expanding the business.

Wal-Mart and Intel also share a common enemy: benefit costs. Intel figures its health-care spending will be as much as a fifth of its research and development costs by 2009. Wal-Mart says the costs for its 1.3 million U.S. employees, if unchecked, will climb $1 billion annually for the next five years.

While health care in the U.S. has remained paper-based and fragmented. Danish hospitals, pharmacies and general practitioners communicate via a secure, government-supplied network. Danes can go online to book medical appointments, renew prescriptions, view diagnoses and query their doctors.

At the heart of the Intel-Wal-Mart approach is the belief that if price and quality measures apply market pressures, technology can duplicate the integration that government-run health-care systems like the Danish one achieve. The final pieces to the puzzle -- pricing and performance information -- only recently started appearing online. The government posts pricing information using the fees charged to Medicaid. Groups including Hospital Quality Alliance, Ambulatory Quality Alliance and the Wisconsin Collaborative for Healthcare Quality rate hospitals and doctor groups on quality.

"The evidence is beginning to show that what gets measured and reported publicly gets improved faster," says Christopher Queram, president of Wisconsin Collaborative for Healthcare Quality, which began rating southeast Wisconsin hospitals and doctors in 2003.

"If this works, for the first time people and companies will be able to get a sense of how their doctors are doing so they can steer to or from them," says Sheldon Greenfield, director of the health-policy research center at the University of California, Irvine. Costs will fall when consumers can see "other doctors are achieving the same outcomes at lower cost. That's going to eventually affect us," he says.

Suitable quality measures for certain illnesses, such as depression and heart disease, aren't currently available, says Dr. Greenfield. But in other areas, such as diabetes, there are widely accepted ways to measure quality -- and match it to pricing.

The Intel-Wal-Mart plan to offer employees medical records and automatically update those records with hospital, doctor and pharmacy detail "is very ambitious," says Dr. Greenfield, an adviser to Care Focused Procurement LLC., a nonprofit putting together an HMO claims database. "We love the patient as the agent."

"It has always seemed unusual to me that the medical record is seen as the property of the medical system," adds Donald Berwick, chief executive of the Institute for Health Care Improvement, Cambridge, Mass. Tests are duplicated and information lost in the handoff between physicians or clinics. "The best integrator in the end is the patient," Dr. Berwick says.

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Sears Holdings Acquires 17.8M Sears Canada Shrs In Offer
Wall Street Journal Online – Dow Jones Newswires
November 28, 2006

Sears Holdings Corp. (SHLD) said Tuesday it acquired a total of 17.84 million shares of Sears Canada Inc. (SCC.T) in its offer which expired last night.

Sears Holdings, Hoffman Estates, Ill., said it now owns, directly or indirectly, 75.57 million shares of Sears Canada, or 70.2% of its outstanding stock.

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Sears not so grand, not so essential
By Sandra Guy – Business Reporter – Chicago Sun-Times
November 28, 2006

Sears Holdings Corp. is still struggling with its off-mall superstore format, but holds out hope it will sell Martha Stewart merchandise at Sears stores, according to a report of a talk given by Sears CEO Aylwin Lewis.

Lewis is quoted in the newsletter of the National Association of Retired Sears Employees Inc. as telling Orange County, Calif., retirees that most of the Sears Grand and Sears Essentials superstores have been unsuccessful, especially in the Northeast and in Southern California.

Sears is counting on success from Sears Grand's one-stop-shop aura, complete with toys, pantry items and an outdoor garden shop under the same roof as tools, electronics and appliances, to compete with Wal-Mart, Kohl's, J.C. Penney and other fast-growing rivals.

Sears Grand emerged as Sears' off-mall format in February, after Sears Chairman Edward S. Lampert decided that Sears Essentials, which was meant to combine the best of Kmart and Sears, had flopped.

Sears operates 28 Sears Grand and 46 Sears Essentials stores, and is converting Kmart stores and Sears Essentials stores to the Sears Grand format.

Sears spokesman Chris Brathwaite said Monday the company would not comment on the speech.

The newsletter article comes on the heels of insider reports that Sears and Kmart regular stores suffered sales declines of more than 6 percent from a year ago on the day after Thanksgiving, the crucial start of the holiday shopping season that many retailers rely on to make a profit.

Lewis, a former Kmart CEO, became one of the country's highest-ranking African-American executives on Sept. 8, 2005, when he was promoted to CEO and president of Sears' and Kmart's parent company.

Martha Stewart's popular home decor and kitchenware have been exclusive to Kmart, but Lampert, a billionaire hedge fund owner, grew dissatisfied with the generous terms of her contract.

At the Sears' shareholders' meeting last April, Lampert said the company was unable to negotiate a new long-term deal with Stewart beyond the three years remaining on her present contract, and didn't have any plans to commit to new products just for the short term.

Stewart struck back, announcing that she will design upscale home decor and holiday decorations exclusively for Macy's, starting in 2007, and trumping any such deal at Sears stores.

The Kmart-Sears turmoil has reportedly led to a large-scale turnover at stores. Half of the store managers have departed since Kmart's $12.3 billion takeover of Sears Roebuck on March 24, 2005, according to the report of Lewis' speech.

The Sears spokesman said he could not comment on the number of people who've changed jobs since the merger.

Lewis has said in previous forums that he is in charge of changing the culture at the store level by requiring managers to train their underlings to greet shoppers, work as a team and institute systems that help shoppers find merchandise.


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March of the holiday shoppers
By Sandra Guy and Francine Knowles - Business Reporters – Chicago Sun-Times
November 27, 2006

Shoppers gave retailers the gift of big bucks by spending nearly 19 percent more this Thanksgiving weekend than they did last year.

But despite the strong start to the holiday shopping season, the National Retail Federation is sticking to its forecast that overall sales won't be as bright as last year's by the time the season comes to an end.

"Black Friday weekend isn't usually the main indicator for the remainder of the holiday season," said federation spokeswoman Kathy Grannis on Sunday. "There are many other shopping days to gauge sentiment."

The traditional kickoff of the holiday shopping season saw more than 140 million shoppers hit the stores, spending an average of $360.15, according to a federation survey. That was up 18.9 percent from the $302.81 they spent on average last year. The survey of Black Friday weekend -- the phrase refers to retailers turning a profit or being "in the black" -- was conducted by BIGresearch.

The federation still forecasts retailers' holiday sales will rise 5 percent to $457.4 billion, compared with the 6.1 percent increase during the 2005 holiday shopping season.

Special deals on high-definition TVs and apparel, available at retailers who opened during the wee hours of the morning and some who opened at midnight Friday, helped attract customers over the weekend. But many came only for the bargains, such as Wal-Mart Stores Inc.'s $997 37-inch LCD TV.

"It was shocking, because people were only buying 'doorbusters,'" said Howard Davidowitz, chairman of Davidowitz & Associates, referring to low-priced items. Workers at his consulting and investment banking firm visited 50 retailers over the weekend. "You can't have people just come in and buy doorbusters and leave."

Bargain shoppers love the thrill of the chase, but the political and economic climate also affects how people spend. This year, shoppers have to decide how wide to open their pocketbooks while they consider the Iraq war, a weak housing market, political party turnover and a "gas ticker" clicking in their heads, even when gasoline prices drop, analysts say.

Most popular: clothes, books, CDs
Discount stores saw traffic fall substantially this Thanksgiving weekend, compared with last year. But they still attracted the biggest chunk of traffic -- more than 49 percent, compared with more than 60 percent last year. Traditional department stores drew in 39 percent of the traffic, while specialty retailers, including clothing and toy stores, attracted 38 percent.

The most popular items purchased were clothing and accessories, books, CDs, DVDs, videos, consumer electronic products and computer-related accessories.

Gail Lavielle, spokeswoman at Hoffman Estates-based Sears Holdings, which also owns Kmart stores, said Sunday the stores were busy Friday and Saturday. At Sears, flat-screen TVs, digital cameras and Craftsman tools were the hot items. At Kmart, holiday decor -- including Christmas trees -- jewelry and toys were the most popular.

This year's retail season is one day longer and has one more weekend than did last year's, so even though the day after Thanksgiving was expected to be the largest sales day of the season, the Saturday before Christmas -- Dec. 23 -- should be the biggest day for crowds, according to ShopperTrak RCT Corp., a Chicago research firm that tracks sales at more than 40,000 mall-based stores.

Besides traditional gifts of clothing, toys and jewelry, gift cards are expected to remain popular. The cards should account for 10 percent of holiday sales -- an all-time high with sales forecast at $24.8 billion this holiday season. Gift-card purchases are excluded from holiday sales until the cards are redeemed.

Online sales are also expected to be healthy. Last year, online holiday sales grew 25 percent from 2004. This year's increase is expected to come close to matching that percentage gain, with sales of $24 billion to $27 billion.

The busiest online traffic day is expected to be today. More than 60 million consumers plan to shop online from home or work today, a Shop.org survey says.

Contributing: Bloomberg News

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Holiday Sales Get Off to Solid Start,
But Wal-Mart Doesn't Share Cheer
By Amy Merrick and Kris Hudson – Wall Street Journal
November 27, 2006

Shoppers started early and splurged on flat-panel TV sets and computers over the long weekend, driving strong electronics sales in what was generally viewed as a solid start to the holiday season. But despite aggressive discounting throughout November and on Black Friday, Wal-Mart Stores Inc. reported its weakest monthly sales in more than 10 years, raising doubts about whether the Christmas cheer will be widely shared.

ShopperTrak RCT Corp. estimated that Friday sales nationwide increased 6% from the previous year, reaching $8.96 billion. "This data show an even larger increase than expected," said Bill Martin, ShopperTrak's co-founder. The research firm compiles its estimate from sales statistics and data gathered from 45,000 electronic counting devices in enclosed malls and strip shopping centers.

The kickoff of the holiday shopping season continued to creep earlier this year, with shoppers taking advantage of special hours that began before dawn Friday, or even earlier, at a growing number of stores.

The biggest sales gains Friday were in electronics. In dollar terms, the average purchase was nearly 9% higher than a year ago, said Wayne Best, senior vice president of business and economic analysis for Visa USA, which tracks purchases made with its credit cards -- roughly $17 out of every $100 spent in the U.S. Increasingly, the nation's shoppers view Black Friday as a time to buy big-ticket items for themselves, often at deep discounts, Mr. Best said. "You don't go out and buy a flat-panel TV for someone else."

Goods dominated by department stores and discounters, such as apparel, didn't sell as briskly, he added.

The National Retail Federation, which predicts that holiday sales will increase 5% this year to $457.4 billion, said more than 140 million people went shopping on Friday. In a survey of 3,090 consumers, the trade association found that shoppers spent an average of $360.15 this weekend, up nearly 19% from last year's $302.81. Discounters were still the most popular shopping destination, but their share dropped significantly from last year; about 50% of those surveyed said they visited a discounter over the weekend, compared with 61% last year.

Online retailers also saw a big jump in holiday sales, even as the e-commerce industry matures into a period of slower growth. Web retail sales, not including travel, jumped 42% on Black Friday to $434 million from $305 million a year earlier, according to comScore Networks Inc., a Web-tracking firm.

Today is another closely watched day for online retailers. "Cyber Monday" is the first back-to-work day after Thanksgiving, which often sees a surge of people shopping online from the office. ComScore expects sales to jump 24% to $599 million today from $484 million last year.

"Since last year, it seems like the general trend is upward," said Mike Morgan, of Mahopac, N.Y., who was out shopping after midnight Thursday, looking for a big-screen TV for his father. "Everywhere I go, people are talking about how much lower gas prices have gotten."

But Wal-Mart doesn't seem to have benefited from the lower gasoline prices. On Saturday, the retail giant said its same-store sales, or sales at stores open at least a year, declined 0.1% for the four weeks ended Friday. It was its worst such performance since April 1996, and only the second time in 27 years that Wal-Mart has registered such a decline. (Read more on Wal-Mart's sales <http://online.wsj.com/article/SB116446151547032781.html?mod=Leader-US> 6.)

The slippage came despite the retailer's much-publicized program offering some generic drugs for as little as $4 per prescription in 38 states. Hampering Wal-Mart's November sales was the outage of its Web site for what a spokeswoman called "a short time" on Friday morning.

Wal-Mart had been moving to broaden its appeal to more-affluent shoppers earlier this year. But its aggressive bet on trendy women's apparel hasn't caught on, and store remodeling has been disruptive. Recently, the company switched gears and tried to dominate the holiday shopping season early on by slashing prices on toys, home goods and electronics throughout November. Some analysts say those efforts generated more of an increase in publicity than in sales.

However, some analysts urge patience, arguing that Wal-Mart's bid to add new customers is the proper course, given that the retailer, with nearly 4,000 U.S. stores and $312 billion in sales last year, no longer can rely as heavily on rapid expansion in the U.S. to propel its sales growth.

"The strategy is the right one, we're just not seeing it in the numbers yet," Goldman Sachs Group analyst Adrianne Shapira said yesterday. She added that Wal-Mart's performance in December will be more telling. To achieve sales growth next month, Wal-Mart won't face as high a hurdle as it did in November because its year-earlier sales for the month weren't up as steeply. The retailer's same-store sales gained 4.7% in November 2005, compared with an increase of just 2.7% last December.

Eager to launch this year's holiday season, dozens of malls from coast to coast lured shoppers out at midnight on Thursday. Packs of teenagers, babies in strollers, pajama-clad shoppers and families with grandparents and elementary-school children flooded the Citadel Outlets mall in Commerce, Calif., east of downtown Los Angeles, where they were greeted by Christmas carols blasted over the loudspeaker, and a 90-foot-tall Christmas tree, lit up with colored lights.

Did the increased traffic bring more incremental sales -- enough to compensate for the expense of the additional staffing? Anita Boeker, spokeswoman for the Outlets, said that several national retail tenants reported sales increases of 35%, doubling last year's Black Friday sales, with one national fashion chain reporting a 400% increase over its projections for the day.

"It definitely exceeded our expectations." said Ms. Boeker, who said stores were already planning for how to manage the midnight crowds again next year. "The key is, where you saw the lines and the stores that were really packed with shoppers are the stores that had great offers at midnight," she said, adding: "Give the shopper a reason to come into your store at midnight."

Many of CompUSA's more than 200 stores were doing just that -- and opening even earlier, at 9 p.m. Thursday. An estimated 500 people filed into the store in Arlington, Texas, in search of doorbuster specials such as a $199 Compaq laptop and a $429 26-inch high-definition-ready TV. "I feel bad for these poor people," one customer, Jason Arntz, said of the CompUSA staffers as he waited in a long line at the checkout counter. "But if their company wants to make that decision, that's fine by me."

Apparel stores were harder pressed to offer steep discounts. Unlike electronics chains that benefit from ever-decreasing prices on new technologies, clothing prices have been relatively stagnant for years and at many stores, there isn't much room to cut. At Old Navy, for example, the fleece pullovers on sale for $10 cost the same last year.

A slow start to apparel sales isn't necessarily a problem. The first five days of the holiday season represent only 13% of clothing sales, compared with the 23% coming in the last five days, said Michael McNamara, vice president of research and analysis for MasterCard SpendingPulse.

"The early buzz that we're seeing is that the weekend might have exceeded expectations in some areas," such as electronics, "but overall I wouldn't necessarily see a reason to raise the bar for all growth," he said. He predicts overall holiday retail sales will increase 4% to 6%, excluding autos.

Henri Bendel is among those making a bigger marketing push, creating its first holiday catalog this year and its most elaborate holiday window and store display so far. The Alice in Wonderland-themed display involves 2,000 crimson fairies covered in marabou feathers and an adult-size spinning Alice suspended from the ceiling.

While 50%-off house-brand cashmere drew many shoppers to the Henri Bendel store on Manhattan's Fifth Avenue, accessories such as evening clutches and cocktail rings, and small gifts such as the store's $30 candles sold briskly on Saturday, Chief Executive Ed Bucciarelli said. "We've had to restock the candles every 10 minutes," he said.

J.C. Penney Co. said Saturday that its season is off to a good start, with brisk traffic in its stores Friday and strength across all regions of the country. Home entertainment, jewelry, children's apparel and housewares were among the most popular merchandise categories.

Target Corp. had its own secret weapon for luring shoppers back into its stores. On Sunday, it unveiled what Target president Gregg Steinhafel described as "collectors' items and unique, nationally branded goods" it has never before sold. They included an autographed guitar by Paul Stanley of Kiss for $199.99 and a Dolce & Gabbana fragrance set for $39.99.

Shoppers also flocked to the Web to track down hard-to-find items that have sold out in many retail outlets. Between Nov. 17 and Nov. 24, 14,675 PlayStation 3 game consoles were sold on eBay for about $1,186 apiece. (The highest amount paid so far for the coveted console: about $7,500, says a spokeswoman.) Meanwhile, on Black Friday alone, 2,537 TMX Elmo toys were sold for about $70 each.

To further spur Cyber Monday shopping, some retailers, including Petco, Home Depot Inc., Barnes & Noble Inc., will be offering additional online discounts. But Web retailers say they are starting to see a surge in Web traffic come earlier and earlier. As of Friday, consumers had spent $8.31 billion since Nov. 1 on nontravel purchases on the Web, up 23% from $6.75 billion a year ago, according to comScore.

Indeed, online spending is still so new that it isn't easy to predict trends. Last year Cyber Monday was only the ninth-biggest day for online shopping. The biggest day last year was Monday, Dec. 12.

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In middle, it's Penneys vs. Kohl's
Stores making a grab for more market share

Associated Press – Chicago Tribune
November 25, 2006

Clutching a plastic J.C. Penney bag in one hand and reaching for her 4-year-old daughter with the other, Cathy Lewis sized up the department-store options for shoppers on a budget.

"I like the quality and price of the children's clothes at Penneys," the suburban Dallas woman said. "I like Kohl's too. Their sales are good, but I don't like their selection as much."

That's pretty much the competition as far as Lewis is concerned. She said Macy's and regional chain Dillard's, both in the same mall as her Penney, are just too expensive.

As the holiday season begins in earnest this week, J.C. Penney Co. and Kohl's Corp. will battle each other for the purses and wallets of moderate-income shoppers who feel left behind by Macy's and are looking for a bit more cachet than they find at Wal-Mart Stores Inc.
Penneys and Kohl's have been posting impressive sales gains and hope to carry that momentum through December. Not coincidentally, both are on major expansion binges, building new stores at the fastest pace in years.

The holidays, however, pose their own special challenge to these two retailers.

Being a destination for that special gift "probably wasn't one of our strengths," said Myron Ullman III, Penneys chairman and chief executive. But "Penneys has changed. We are a desirable place to shop and a desirable place to get a gift from."

To convince shoppers of that transformation, Plano, Texas-based Penneys has added more electronics, jewelry, toys and fancier clothes such as cashmere sweaters.

Kohl's holiday plans include increasing inventory and pushing watches and jewelry. Kevin B. Mansell, president of the Menomonee Falls, Wis.-based company, said he expects luxury home items to be big sellers.

Both chains enter the holidays on a winning streak.

Kohl's posted a 16.3 percent September gain in sales at stores open at least one year, a key measurement in retailing, and it slowed to 4.2 percent in October. Penneys put up same-store gains of 8.7 percent in September and 8.1 percent in October.

While Penneys and Kohl's eye each other, they also must contend with other rivals, from discounters to other department stores.

Kohl's touts frequent sales events and is willing to cut prices to steal shoppers from other stores, said Richard Hastings, a retail analyst with Bernard Sands LLC. That pits Kohl's against chains such as Target Corp. and Gap Inc.'s Old Navy.

Hastings said Kohl's is more willing than Penneys to sacrifice some of its profit margin to attract customers, "and it's working for them. They are very aggressive about getting market share."

Penneys has a distinct advantage over Kohl's in at least two areas: It has a strong Web presence and big private-label brands that generate s trong profit margins. "I like Penneys better than Kohl's because they've built out a multichannel approach," said Love Goel, who heads Growth Ventures Group, a Minnesota-based investment firm. "Kohl's hardly has an Internet presence."

Penneys and Kohl's are expanding rapidly. Penneys plans to add 50 stores a year for the next three years, giving it nearly 1,200 by 2010. Kohl's, which has more than 800 stores, also aims for 1,200 in 2010.

Most of the new Penneys stores will be built away from shopping malls. Kohl's, which has avoided crowded malls since its beginning in 1962, is way ahead of Penneys on that score, said Marshal Cohen, a retail analyst at market researcher NPD Group Inc.

"Shopping is a chore when you have to go to the mall," Cohen said. "Shopping used to be an impulse thing. They want to bring it back to being fun again and being convenient again."

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Cheap Chic: Who Gets it Right
Snakeskin shoes for $25. Trendy ottomans.
Discount design has transformed retail, but it's generating flops along with fashion coups. Has label mania gone too far?

By Rachel Dodes and Ann Zimmerman – Wall Street Journal
November 25, 2006

At J.C. Penney, a $70 chiffon leopard-print dress carries designer Nicole Miller's name. Kohl's will roll out a collection of lingerie and bedding by Vera Wang next year. Even Payless ShoeSource has teamed up with a high-end designer -- Laura Poretzky, whose Abae for Payless line starts at $25 for a pair of wedges.

In less than a decade, filling the shelves of mass merchants with hip designs has gone from an unusual approach pioneered by Target to one of retail's most widely copied strategies. Stores have scrambled to sign up designers and tout their trendier sides. When Wal-Mart brought in Mark Eisen to update its George line in early fall, it showcased the clothing in a spread in Vogue.

Designer shoes at Payless: Faux snakeskin and suede for $25

But as the concept has spread, the pressure to come up with more goods that project a trendy image yet appeal to a mass audience is taking its toll -- and resulting in some missteps. While Wal-Mart had early success selling a high-fashion line called Metro 7 in urban areas, when it rolled the clothes out more broadly this fall, much of the collection languished on shelves. Target trumpeted a new line of furnishings by Thomas O'Brien, a designer with a boutique in New York's Soho neighborhood, but customers initially balked at some of the price tags, including $140 for a chenille ottoman.

We called in a panel of design experts to help us sort through this season's trendiest new items from major discount retailers, including everything from men's shirts to appliances. With fashion trends changing so quickly, buying cheap designer products can often be a great way to get in on the latest looks without a huge financial investment.

But there are some exceptions. Items meant for everyday use, such as handbags, are subject to wear and tear -- so buying an inexpensive bag with lower-quality materials might not pay off in the long run. The ones we bought had trendy details like whip-stitching and dulled hardware, but almost all of them were made out of plastic. Costume jewelry is also particularly tricky to get right, and shoppers are usually better off at an antique store, street fair or higher-end shop.

Shoes, on the other hand, can be a particularly good bargain. The discounters have many stylish options at relatively low prices (though don't expect them to last for more than one season). They're also a good source for inexpensive men's clothing, though it can pay to stick with simpler items like shirts, which require less tailoring than, say, a jacket.

When our panelists scrutinized specific items, they found some surprises. Though Target had a women's work ensemble by Isaac Mizrahi and Wal-Mart had one designed by Mark Eisen, our judges were most impressed by an outfit from J.C. Penney, which instead of a designer name carried the store's Worthington label. The white blouse and black skirt won praise for clean lines and smart details. Similarly, a $14 rayon-jersey Kmart dress with a purple-and-mustard abstract print was compared favorably to one of Diane von Furstenberg's signature wrap dresses that retail for around $300 at department stores.

Though Target is largely credited with launching the discount-design approach, our panel found some of its latest efforts to be more kitschy than trendy. For instance, when it came to toasters, they preferred a stainless-steel number from Bed, Bath & Beyond to Target's plastic toaster by architect Michael Graves. In other cases, mass-market retailers were only willing to push the fashion envelope so far. A $22 "dusky lavender" cardigan by sportswear designer Mark Eisen for Wal-Mart had some ruffles, but not as many as the high-end fashion houses showed on the runways this season. Target declined to comment on its toaster. Wal-Mart says the ruffles are "feminine details" that represent "a significant evolution from last year's very embellished apparel."

To generate a sense of excitement and lure designers who want only short-term deals, Target is trying limited-edition collections. For consumers, that means pressure to hit the stores quickly before some of the best designer goods sell out. More specialty stores are adopting the strategy, too. The upshot: Finding the trendiest items can mean scouring stores like Bed, Bath & Beyond, along with the big names in mass retailing.

Cheap yet chic merchandise has come a long way since 1999 when Target hired architect Michael Graves to create a line of ordinary household items, including a whimsical teapot with a red whistle for $35. The teapot created a stir, leading Target to sign other high-caliber designers, including Stephen Sprouse and Liz Lange.

Toaster for $40: The once-dowdy J.C. Penney goes for sleeker looks.

In 2003, Target hired high-end designer and media darling Isaac Mizrahi, prompting skeptics to predict that the line would destroy the designer's image. Instead, Mr. Mizrahi's $9.99 woven tops and $69.99 swing coats flew out of stores, boosting the designer's name recognition and career. For Target, the designer cachet was a major factor in attracting more affluent customers and increasing customer visits by heightening what the company calls the "treasure-hunt appeal" that good design creates.

Since then, mass marketers have embraced the designer strategy as the sector has become increasingly competitive. Kohl's will roll out its Very Vera By Vera Wang collection next year with a range of products including apparel, bath accessories and bedding. Other chains have expanded at a furious pace and improved their product offerings. Between 2000 and 2005, sales at off-price retailers rose more than 60% to $464 billion, according to Customer Growth Partners, a retail consultant. And though the designer offerings are still a relatively small part of the business -- at Target, for example, apparel, including non-designer basics, makes up only 22% of overall sales -- stores say the collaborations help distinguish their products and give their brand more buzz.

Signing known designers helped spur growth at once-faltering J.C. Penney, which hired French designer Michele Bohbot to create a moderately priced version of her Bisou Bisou line in 2004 and Nicole Miller to create a work-to-weekend collection. Ken Hicks, Penney's president and chief merchandise officer, credits these designer brands with helping to shed the company's once dowdy image and reigniting sales growth at the 100-year-old company. "The shopper is more educated about style and fashion today," explains Mr. Hicks.

Tahesha Urie says she got hooked on cheap designer fashion two years ago when she discovered an Isaac Mizrahi-designed blouse and blazer at Target. "I was impressed by the crispness of the blouse and quality of the fabric," says the 32-year-old residence-hall manager at New York University. Since then, Ms. Urie has become a cheap-chic connoisseur, snapping up a pair of $20 Abaet for Payless ballet flats and a $50 tote by New York handbag designer Rafe Totengco at Target.

SPECIALTY STORES

Blouse by Viktor & Rolf for H&M, $59.50
Below, some of the names specialty stores have launched or plan to roll out soon.
H&M Viktor & Rolf (sold out in most stores); in past years, Karl Lagerfeld, Stella McCartney

Payless Abaet for Payless by designer Laura Poretzky; Lela Rose next spring

Uniqlo Collections from Alice Roi, Phillip Lim and Satoru Tanaka for one-month exclusives beginning in February

Bed Bath & Beyond Jonathan Adler, Nicole Miller

Lately, however, Ms. Urie has gotten a few duds. The Rafe tote won big compliments, but a clutch from the same line broke and had to be returned. Viktor & Rolf tops from H&M were cut small for her and a raincoat's lining ripped apart in the fitting room. "Lucky for me, I tried it on so I didn't have to shell out $129," Ms. Urie says. H & M had not comment. A Target spokeswoman says all of the store's merchandise is high quality and apologizes "that this one item did not live up to that expectation."

With the expansion of designer goods, some retailers are discovering that truly groundbreaking design doesn't appeal to the masses across the board. H&M, one of the leaders in the fast-fashion world, rolled out edgy collections by Karl Lagerfeld in 2004 and Stella McCartney in 2005 in about 500 stores. In some locations, the collections, including slim-fitting pants, voluminous trench coats and lingerie-inspired streetwear, sold well. In others, though, customers didn't bite. H&M had to ship those leftovers to the stores where the lines were more popular.

Its new Viktor & Rolf collection will be carried in only 250 of its most fashion-forward stores where cutting-edge apparel is better received. "We have learned from doing this a couple of times," says Sanna Lindberg, H&M's president of U.S. operations.

Pricing is an issue since costs can be higher when there is a designer involved. In some cases, consumers are prepared to pay a little more for a designer name, but there are limits. In the case of Target's Thomas O'Brien Modern Vintage furniture and housewares collection, the company blamed initial lackluster sales partly on prices that were too high for its shoppers. It also says it rushed too many different products to stores at once -- 500 items, more than double the average -- increasing the risk of multiple items not selling.

Dinnerware at Wal-Mart: Upping the style quotient amid tough competition

As a result, some products had to be scaled back and others added -- Mr. O'Brien's mint green and pale blue bedding and bath accessories sold particularly well, for instance. Still, the eventual markdowns were one contributing factor in weaker-than-expected first quarter net profit increase at Target in May.

Wal-Mart, too, has run into problems with its attempts to lure the high-fashion crowd. Introduced last fall, its Metro 7 line included avant-garde pieces like a pair of embellished jeans with a dragon image on one of the legs. The line did well at the 600 mostly urban stores that carried it. But when it rolled the line out to another 400 stores this fall, customers were less interested and major markdowns ensued. This led to the company's worst monthly sales gains in October in the past six years. "We overloaded the fashion part. We need to remember who we are," Wal-Mart Chief Executive Lee Scott said at a recent analyst's meeting.

To better monitor fashion trends and coordinate styles, colors and fabrications with its assorted suppliers, Wal-Mart, a company with an insular reputation, opened a fashion office in Manhattan -- one of its first satellite offices beyond the boundaries of its Bentonville, Ark., headquarters.

Wal-Mart has had better luck bringing stylish flourishes to another line, George, for which it hired fashion designer Mark Eisen. The company had previously resisted hiring designers. Mr. Eisen, former head designer for Ann Taylor and creator of a high-end sportswear line called Karoo, designed a capsule collection of about 35 looks called George ME this fall. He describes the line as "updated, modern classics," such as a black coat with beaded detailing that sells for $88. "We don't do anything avant-garde at all for Wal-Mart," he says.

For designers, the deals can be lucrative and boost name recognition. They vary, but can range from $25,000 for a short-term arrangement with a lesser-known fashion name to $10 million and up for a longer-term collaboration with a big name, says Marc Beckman, owner of talent company Designers Management Agency, which links designers with big retailers. In one of the bigger deals, Target recruited Mossimo Giannulli, CEO and principal designer of the label Mossimo, to design an apparel line in 2001. Under the agreement, Target paid the label a percentage of net sales with a minimum of $27.8 million paid over three years, according to SEC filings. The line is still sold exclusively at Target.

Thomas O'Brien lamp from Target: Fresh designs, but some shoppers have balked at price tags.

To stand out, retailers are taking increasing risks, signing on fewer mainstream names and pushing the design envelope. This year, Target brought in collections from European designers Tara Jarmon and Paul & Joe, and it just inked a short-term deal with Proenza Schouler, hot New York-based label known among fashionistas for bustier-inspired tops.

Such deals have become a new route for designers to launch their careers. Laura Poretzky was virtually unknown outside the world of fashion before she struck a deal with Payless at the end of 2005. The 29-year-old designer's Abaeté brand of clothing sells at a handful of hip stores like Intermix and Henri Bendel for $225 to $375. At Payless, which will carry her shoes and bags at 600 retail outlets by next spring, prices start at $18 for a satin clutch.

The deal has boosted Ms. Poretzky's name recognition, and she has been featured in O Magazine and on the Today Show regarding the Payless project. Now, she is launching a small line of higher-priced shoes for her core collection. Ms. Poretzky says that beyond getting her name out, the deal "has been extremely helpful financially."

Party dress at Kohl's -- an elegant look for $29

Along with other more fashion-forward accessories Payless launched last year, the Abaeté for Payless line has helped reverse the company's fortunes. Higher-priced items caused gross margins at Payless to increase by 1.5 percentage points to 34.3% of overall sales, or $241 million, in the third quarter, up from $219 million in the year-earlier period. "We are starting to speak to the customer who appreciates good quality and good design," says Payless CEO Matt Rubel. "We are no longer about the cheapest deal."

Because the cost of apparel is mostly dictated by the cost of materials, designers accustomed to working with fine silks and cashmeres must find analogues in cheaper, often synthetic materials when they team up with discounters. "The design challenge for this price level is daunting," says Bud Konheim, CEO of Nicole Miller. Designers also must make sure that their mass retailer collections bear only a slight resemblance to their more expensive lines.

Wal-Mart sources cheap fabrics after the design process has been completed, while Uniqlo, a Japanese fast-fashion retailer that is expanding into the U.S. market, pre-buys its fabrics -- there are about 30 to choose from. "Other companies give the designers more freedom than we do," says Yuki Katsuta, president of U.S. operations at Uniqlo. "It's like the 'Iron Chef,' and our fabrics are the secret ingredient."

Last month, market researcher Unity Marketing added mass retailers like Wal-Mart and Target to its quarterly Luxury Tracking Report, which surveys about 1,000 people with average household incomes of $150,000. Overall, respondents said that Target was their favorite department store, with 71% brand awareness, compared with 32% for Neiman Marcus. "Luxury consumers don't feel like they are slumming when they go" to Target, says Pamela Danziger, president of Unity Marketing and author of a recent book called "Shopping."

Before a recent gala in San Diego, actress Kristen Bell met with her stylist and tried on dresses from her favorite designers like Lela Rose, Stella McCartney and Sari Gueron. Instead of opting for a fancy $1,000-plus frock, she chose a $45 taffeta number by Behnaz Sarafpour for Target.

Ms. Bell, who stars in the TV series "Veronica Mars," says she "about fell over" when her stylist told her where the dress was from. "I assumed it was from Behnaz's couture line and didn't think twice about it," Ms. Bell said.

Rating the Chains
How five mass-market stores fared in our test

TARGET
Hit: Handbags
Miss: Menswear
Comment: Largest stable of designers across all categories. Target had some kinks in a home furnishings line this year, but generally offers top-notch styling in apparel, accessories and housewares. With increased competition, Target will have to work harder to stay on top.

WAL-MART
Hit: Some apparel; bedding
Miss: Kid's clothes
Comment: Has worked to improve styling. New fashions have had a mixed reception: Metro 7 was too fashion-forward for a broad clientele. George, a more tailored line, has fared better but will need regular freshening up.

J.C. PENNEY
Hit: Women's wear
Miss: Shoes
Comment: Designer collections for women's clothes have been very successful. Both designer and private label clothing is known for its good quality and construction. Accessories, such as shoes, belts and handbags, are still the weaker link.

KOHL'S
Hit: Women's clothing
Miss: Handbags
Comment: Known for solid quality and good basics, the chain is just starting to work on its fashion quotient in women's apparel. Children's clothes are already trendy without trying too hard, a problem other retailers have had.

KMART
Hit: Dresses
Miss: Men's blazer
Comment: Shoppers can find some hidden gems in women's clothes. Home furnishings, especially Martha Stewart line, are still strong, but the jury's out on whether her clothing line will work. Needs to improve design consistency in apparel and accessories.

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Allstate takeover talk resurfaces
By Becky Yerak
Chicago Tribune – Inside Financial Services
November 24, 2006

For the second time in less than six months, Allstate Corp. is being bandied about as possible takeover bait.

A Morgan Stanley report published Monday identified two dozen companies whose stock is so cheap that they could become acquisition targets.

Nine of the 24 companies are in the financial-services industry.

Besides Northbrook-based Allstate, they include Bank of America Corp., Citigroup Inc. and Countrywide Financial Corp.

"Whether these stocks become acquisition candidates or not, we do not know," wrote Henry McVey, chief U.S. investment strategist for Morgan Stanley. But "they appear extremely cheap, and as such, are worthy of investor attention if current earnings projections are even in the ballpark."

Last summer, Prudential Equity Group LLC named Allstate one of 15 "possibilities" for where buyout firms could appear next.

After Allstate's annual mee ting in May, Chief Executive Edward Liddy was asked whether Allstate has any potential suitors.

"No, we're interested in being an independent company," he replied.

Allstate's market capitalization, or shares outstanding times stock price, is about $40.5 billion after the stock closed Wednesday at $64.77 on the New York Stock Exchange.

"You'd need a lot of money to do it," Allstate President Thomas Wilson said earlier this year when asked about Allstate as a potential takeover target, back when its market cap was just shy of $35 billion. "That said, I think our stock is cheap."

And if Wilson, who will succeed Liddy in January, has his way, the company will be raising the profile of at least two businesses and product lines.

Wilson wants Allstate Financial, which sells life insurance and retirement and investment products, to do more advertising and product development.

It's one reason why Chief Marketing Officer Joseph Tripodi, who used to r eport up through the home and auto insurance arm, Allstate Protection, will soon report to the CEO.

Allstate Protection accounted for 81 percent of the parent company's 2005 net income of $1.76 billion.

Some Allstate watchers wonder why the company, which had 2005 revenue of $35.38 billion, doesn't unload Allstate Financial to become more of a pure play in insurance.

To be sure, the financial unit's returns are less volatile than those at Allstate's flagship insurance business. But they're also lower than those of Allstate's key business and lower than those of some peers.

But Allstate won't hear of it. For one thing, the increasing numbers of retiring Baby Boomers need financial services. Another reason: The more products and services that a company sells to a customer, the less likely that individual is to take his business elsewhere, Wilson pointed out in an interview earlier this year.

"In a business like auto and homeowner's insurance, where there is not a lot of growth, keeping customers is as important as getting new ones," he said. "Nobody ever gripes about General Electric owning financial services and dishwashers, and what do all those have in common?"

In another interview last month, Wilson said Allstate Motor Club Inc., which provides emergency road service, is a product line that's not living up to its full potential and is ripe to be repositioned.

"I'm looking at setting it up as its own business," Wilson said.

 

 

Risk and Reward
Hurricane Losses Prompt Allstate To Pursue New Path
Cutting Coverage on Coasts,

It Eyes Big Opportunity To Insure Boomers' Lives Challenges of a Personal Pitch
By Liam Pleven – Wall Street Journal
November 24, 2006

Even though Edward Liddy's house in an upscale Chicago suburb is insured by Allstate Corp., he didn't bother asking the company to cover his second home on the South Carolina coast. In this era of ruinous hurricanes, insurers have balked at protecting waterfront dwellings.

Mr. Liddy's situation, however, is unusual. He's Allstate's chairman and chief executive.

Behind the twist is a big strategic gamble for Allstate, one of the U.S.'s largest insurers, which has been chastened by recent hurricane losses. As he seeks to reduce the company's exposure to disaster losses, Mr. Liddy also wants his company to be a one-shop stop for middle-income baby boomers' financial planning, using an army of 14,000 sales agents to push an increased number of life policies, annuities and other products.

Already, in many catastrophe-prone coastal areas, Allstate has stopped writing new homeowner policies and has dropped some existing customers altogether.

Driving the move are Mr. Liddy and his anointed successor, Tom Wilson, the company's president, who will step into the chief executive's office next year. Mr. Liddy will remain chairman. The pair has already worked together at a financial conglomerate in the 1990s, when they pried apart Sears, Roebuck & Co.'s loosely linked businesses, which included Allstate.

Persuading consumers to purchase life insurance is a far more personal proposition than selling auto coverage. Allstate will find itself in intense competition with a broad range of rivals. More immediately, Allstate has to persuade customers to consider the company even as it risks alienating policy holders by cutting back coverage in coastal areas.

Allstate, of Northbrook, Ill., insures roughly one out of every eight American homes and one in 10 cars. Together, these two businesses produce 68% of Allstate's $35 billion in revenues, with the rest coming from the company's existing life insurance and annuity business and other sources. Auto insurance is profitable but challenging, with competition from Progressive Corp. and the Geico unit of Berkshire Hathaway Inc. keeping prices low and limiting chances for growth.

On the housing front, Messrs. Liddy and Wilson say Allstate has little choice but to pare exposure to disaster-related losses and look for growth in other areas. The company is one of the top five home insurers in all 15 states curving along the U.S. coastline from Texas to Rhode Island, according to A.M. Best Co., a ratings service. It lost $1.55 billion in the third quarter of last year, largely due to the storms. Mr. Liddy's annual cash bonus, which is tied to Allstate's results, fell to $538,351 last year from nearly $3.7 million in 2004.

Allstate's revenues have been climbing steadily in recent years, from $28.87 billion in 2001 to $35.38 billion in 2005. But its net income has fluctuated, climbing from $1.16 billion in 2001 to $3.18 billion in 2004, but dropping to $1.77 billion last year. This year, the industry is on track to report record profits, in large measure because of a hurricane-free storm season.

Earlier this year, Allstate dropped 27,000 customers in coastal counties in New York. In Florida, it shed 120,000 customers, on top of 95,000 customers in 2005. And it's eliminating earthquake coverage for more than 359,000 homeowners nationwide.

"They showed me no loyalty," says Isaac Axel. Mr. Axel says he had insured his home near the water in Brooklyn, N.Y., with Allstate since 1986, but was informed this year he was being dropped. Asked to comment, Allstate says it manages its business for the good of the entire company.

Amid the criticism, Allstate is pushing for the government to play a larger role in covering the homeowners it wants to drop. Specifically, the insurer is pushing for the creation of a "federal backstop" that would cover major losses in the case of disasters such as Hurricane Katrina. Mr. Liddy raised the notion with President Bush during a small event at the White House last year, and the company has committed $2 million in seed money to an organization that promotes the plan.

Allstate's idea has roused critics in the industry, who say insurance doesn't need more government involvement. Some point to the example of federal flood insurance, arguing that it perversely encourages people to live in risky places.

"There is plenty of capacity in the private sector to handle natural catastrophes," says Ted Kelly, the chairman and CEO of Liberty Mutual Group, an Allstate competitor.

Allstate disagrees. For Messrs. Liddy and Wilson, the horizon appears considerably brighter for selling financial-planning products. It's a fast-growing business for Allstate, but one it doesn't dominate. Roughly 70 million baby boomers are expected to retire over the next few decades and many will turn to annuities to provide a steady income. With an annuity, a retiree makes an upfront investment and receives annual payments in return, along with certain tax benefits.

Financial-services companies have a mixed record of using one business relationship -- an insurance contract, a credit card, a checking account -- as a leaping-off point to establish another. Last year Citigroup Inc. finished unwinding an earlier effort to meld banking with insurance, selling its Travelers Life & Annuity Co. to MetLife Inc.

Allstate has seen new sales of financial-services products by its agents soar from $334 million in 1999 to $2.8 billion in 2005. Mr. Wilson ran the business from 1999 to 2002. He sees room for growth.

Becoming a one-stop spot for financial and real-estate services was also the aim of Sears in the 1980s, when it bought brokerage house Dean Witter Reynolds Organization Inc. and the real-estate firm Coldwell Banker & Co., and started the Discover credit card. It added those businesses to a stable that already included Allstate.

But while Sears focused on financial services, its core retailing business was flagging. Mr. Liddy and Mr. Wilson had to deal with the consequences. Mr. Liddy came to Sears in the 1980s, when Donald Rumsfeld sat on the retailer's board. Mr. Rumsfeld had been Mr. Liddy's CEO earlier in the decade at drug maker G.D. Searle & Co., where Mr. Liddy rose to become chief financial officer. In the same position at Sears, Mr. Liddy set about breaking up the company's financial-services network. One of the people who helped him was Mr. Wilson, a young and rising investment banker at Dean Witter.

Mr. Liddy, 60 years old, is a gregarious former basketball player. Mr. Wilson, 49, is a runner who completed the Chicago Marathon last year. When the spinoffs were largely complete, Mr. Liddy left to become chief operating officer of Allstate. Mr. Wilson later moved with him.

Both men say what Allstate is doing is less ambitious than what Sears attempted. Sears made major investments in new businesses. "I don't think we have to do those big bets," Mr. Wilson says. Adds Mr. Liddy: "We don't want to be all things to all people." For example, Mr. Liddy says, it would be a mistake to sell individual stocks or bonds. By contrast, he says life insurance is an "adjacent product."

Cross-selling life and property insurance has long been a challenge because consumers tend to see them differently. While car insurance is viewed by many people as a routine necessity, life insurance involves intimate decisions about lifestyle and family.

Tom Aromando, 50, of Ocean City, N.J., says that although his house is insured by Allstate, he has turned elsewhere for car insurance and life insurance. He "would consider" Allstate for other types of insurance, he says, but generally prefers to discuss life insurance with someone who's looking at products from an array of companies. Allstate agents only sell Allstate life insurance, though they do offer some other companies' annuities and mutual funds.

In a recent research report, William Wilt, an equity analyst with Morgan Stanley, said a consumer's inclination to buy home and life insurance policies from the same company "seems to be on the decline." In another report, Mr. Wilt noted that cross-selling rates of car, home and life insurance had "barely budged" in recent years.

"To those still clinging to the belief the rise of the financial supermarket is around the bend," he concluded, "we say Fuggeddaboudit!"

Life insurance is a more predictable business than property, and at Allstate, its return on equity is lower. For the first nine months of 2006, the return on equity for Allstate as a whole was 23.2%, driven by car and home insurance. It was just 6.4% for the Allstate Life Insurance Co., the key part of the financial-services division.

Allstate considers one segment of the market for financial products sold by its agents particularly alluring: Middle-income Americans with a household income of $35,000 to $200,000, which it says is more than half of U.S. households. Allstate executives believe that part of the population is neglected by many financial advisers, who shoot for wealthier clients.

Allstate agents already sell car and home insurance -- as well as some life-insurance products -- to those customers it's now targeting. Only State Farm has a comparable network of agents on Main Street. Many consumers say they prefer to plan for retirement with somebody they can meet face to face.

More than 40% of customers who have Allstate home insurance also have Allstate car insurance, according to a report by Mr. Wilt. "If we can crack this code, that's going to serve us well in the long run," says Mr. Liddy.

To build the business, Allstate is trying to boost the profile and training of its agents. Six years ago, few had licenses to sell securities, which are required for many annuity products. Now nearly half do, Mr. Liddy says.

Whether Allstate can succeed depends on how fluidly its agents can move from one product to another. Many in the financial-services industry, from life insurers to mutual-fund sellers, see the same wave of retirees and are preparing their own sales pitches.

Earl Gainey, an Allstate agent in St. Petersburg, Fla., says life insurance and annuities represent about 20% of his business, at least double the level from 10 years ago. Insuring homes has fallen from between 30% and 35%, he says, to less than 20% now, as Allstate has moved to reduce its exposure to hurricanes in the state.

Mr. Gainey says he was one of the first Allstate agents in Florida to get his securities license a few years ago. He says talking with a client about property insurance and life insurance are "two different conversations." He tries not to sell them at the same time.

But Mr. Gainey says he might approach a customer who already has Allstate car or home insurance and ask if the person wants to know about life insurance or annuities. About 20% of those people agree, he estimates. Of those who do, he says, about two in five ultimately purchase some kind of financial-service product from him.

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Hinsdale resident depicts seascapes in painting circle...Sears retiree Hadley Pihl
By Eric Martin – Staff Writer – The Doings Newspapers - Hinsdale, IL
November 23, 2006

A brushstroke of humor

On a wall in Hadley Pihl's living room, a painting portrays Portland Head, Maine. Dreamy, light clouds float over a rocky coast and the site's historic lighthouse in a work from the Hinsdale resident's own collection of what he calls seascapes.

Pihl, 81, almost always depicts bodies of water in his works -- a result of his upbringing in Cape Cod, Maine.

The third-generation painter has wielded the brush since childhood, when his father took him and his siblings painting for family outings.

As a result, "I never understood why you had to take golf clubs out on a Saturday afternoon to have fun," he said. "I literally grew up understanding that painting was fun."

Once a week for about 15 years, Pihl and his easel have been found in a room at King-Bruwaert House, a Burr Ridge retirement community, where a small group of fellow painters gets together to paint and talk.

Pihl was in a painting circle in 1991 when one of its members moved into the house, which lent the group an unused storage room. When she died a few months later, the circle continued to work there, even now that Pihl is the only original member.

"Painting together with fellow artists is an awful lot of fun. We exchange ideas back and forth. We chat as we're painting. It makes the whole thing a great pleasure," he said.

To show their appreciation to King-Bruwaert, Pihl and the group started a sale of members' work, with the proceeds benefiting the retirement community. But the event has grown into an annual art fair, with professional artists selling their work alongside the "advanced amateurs."

Bonnie Kahout, King Bruwaert's marketing director and an organizer of the fair, said Pihl was instrumental in putting together the show, because he brought artistic expertise. As a member of the painting group, she said, he encourages other members to develop a style that is all their own.

"He will tell you that he's an amateur artist, but over the years I think he's developed a unique style," Kahout said.

A board member of the area Boy Scout Council, Pihl moved to Hinsdale after he married a Hinsdale native, Carol, in 1950. They have adult twins -- a daughter and a son.

A Harvard University graduate, Pihl worked for more than three decades at Sears, Roebuck and Co. until he retired in 1981. He was among a small group of marketing professionals deciding who would receive the company's famous catalogs by making scientific projections about how much each customer might spend in a year.

"In other words, you might be a $120 customer or a $300 customer," he said.

In the 1970s, Pihl took part in transferring the company's vast electromechanically stored customer records to computers.

"Here you had 11 different catalog plants, you had 35 million names and addresses, and how you take them from an Addressograph plate onto a computer -- it was a monumental effort," he said.

After his retirement, the company made an understandable mistake when it discontinued the catalog business in 1993, because new retail-minded leaders knew nothing of catalogs, Pihl said.

Now, he is executive director of the Weed Stick Club and executive vice president of the Small Appliance Testing Division at Union Church of Hinsdale's annual resale event.

But these are positions Pihl made up for a laugh.

"My attitude is, if you can make something fun, it makes life more interesting," he said.

He gardens to stay in shape, but weeding is tough. So he fastened a hacksaw blade to a broom handle and christened the new device the weed stick.

As he gave the tools to neighbors, he made them members of his club.

"The weed stick comes with a lifetime guarantee ... my lifetime," he wrote in a letter to new club members.

An active member of Union Church, Pihl took over appliance testing during the resale event about 15 years ago, but he saw it as an opportunity to involve church members who could not do heavy lifting.

Eventually, his recruits became the testing division, in which testers became made vice presidents.

"It's corny," he said, laughing. "I promised them executive seating, keys to the washroom, air conditioning -- all the executive perks that go with being a vice president."

 

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What’s Hot, What’s Not in Stores
By Michael Barbaro – New York Times
November 23, 2006

Want to get an early start on the holiday shopping season?

You can, at midnight.

That’s when dozens of shopping centers around the country will open their doors to bargain hunters six hours earlier than they did last year.

It's just one of the five subplots that are likely to define the crucial home stretch for retailers that begins tomorrow and ends Christmas Eve:

REVENGE OF THE MALL The reason behind the midnight start time at shopping centers: Wal-Mart and Best Buy with their $398 laptops and 6 a.m. openings, have stolen consumers from specialty retailers at the mall.

But this year, malls are striking back, with dozens, from the Fashion Place in Utah to Spring Hill Mall in Illinois, letting in customers at 12 a.m.

The strategy represents an aggressive attempt by stores like Gap, Victoria’s Secret and American Eagle Outfittersto become bigger players on Black Friday, so-called because it traditionally was the day merchants turned a profit for the year.

The envelope has been pushed, said Greg Rossiter, a spokesman for Gap, which will host its first midnight opening tonight.

The motivation could not be more clear. The day after Thanksgiving was a low-point for the American mall last year, with sales falling 0.9 percent compared with the year before, according to ShopperTrak, a research firm.

So the stores are not taking any chances. At midnight tonight, General Growth Properties will open seven of its malls, Prime Outlets will turn on the lights at 12 of its shopping centers and the Chelsea Property Group will open the doors at 25 of its premium outlets.

To encourage sleep deprivation, the stores will provide entertainment (like live bands at General Growth malls) and caffeine (served at the Chelsea Property outlets).

Not everyone is rolling out of bed, however. J. C. Penney and Nordstrom , which have stores in General Growth Properties malls, said they would keep their doors closed, preferring to give employees a few more hours of sleep rather than ring up a few hundred early-morning sales.

Wally Brewster, senior vice president of marketing at General Growth Properties, said 60 percent of merchants in the company's malls would participate. Consumers are time-starved,he said. Based on the research we've done, they want extended hours.

As for sleep? How awake they are going to be at work Friday is hard to say, Mr. Brewster said.

PLASTIC WINS
Once, not so long ago, Americans at least pretended to put thought into holiday gift giving, relying on bad ties, awful socks and dreadful sweaters. The recipient of these garments never wore them, but that was beside the point. The giver had roamed aisles, felt fabrics and tried, albeit half-heartedly, to match a product to a person.

No more. This holiday season, clothing is poised to lose out to plastic as the No. 1 gift, confirming that convenience has finally prevailed over consideration.

According to a survey conducted by American Express, 66 percent of Americans plan to purchase a gift card this year, compared with 68 percent for apparel. Given that the poll has a 3.1 to 3.8 percent margin of error, the results put $50 gift cards to Target and Best Buy within striking distance of cashmere scarves from Saks and J. Crew.

Clothing is not the only potential loser. Gift cards are expected to eclipse toys (only 64 percent plan to buy those), music (63 percent) and cosmetics (43 percent).

Gift cards will even overtake cash (46 percent), depriving an entire generation of money-holding cards with the presidential face cutouts.

The popularity of gift cards and the motivation behind them ╉ is nothing new, of course. Americans have been doling out $20 bills after Christmas dinner for decades, hoping to avoid picking the wrong size blazer and the uncool remote-control car.

But retailers believed wrongly, it turns out that the traditional gift, placed inside a box and covered with wrapping paper, would remain sacrosanct to a significant percentage of the consuming public. Instead, the gift of plastic has become, in the words of Valerie Soranno Keating, a president at American Express, super acceptable.

The more people give and receive them, the more they like them,ˇ she said.

The National Retail Federation estimates consumers will like $6 billion more of them, in fact. Gift card sales will likely reach $24.8 billion this holiday season, the group said, up from $18.5 billion in 2005. Last time around, consumers spent, on average, $88.03 on gift cards. This year it will be $116.51.

To strip away any stigma that might be associated with gift cards, retailers will dress them up as never before this season, hoping the disguise will convey more of a personal touch. A gift card from Best Buy doubles as an ice scraper for the car. Just whip it out, slide it across the windshield and ╉ violà ! ╉ the ice is gone, so you can drive to Best Buy and purchase a home theater.

TOY STICKER SHOCK
For decades, executives at Mattel and Hasbro argued that consumers would never pay more than $100 for a toy ╉ and they refused to make products that crossed the line. Then came the iPod ($200), Nintendo Wii ($250) and PlayStation 3 ($600), a progression of pricey gadgets bought for the very 8-year-olds the toy giants covet.

So after much hand-wringing, manufacturers and retailers are shattering the plastic ceiling on toy prices this year, speeding past the $100 threshold and crossing the $300 mark ╉ and not just for gaming systems.

Wild Plant will market the Spy Video Car, a remote-controlled vehicle equipped with an infrared camera, for $140. Hasbro is offering Butterscotch, a life-size, life-like pony, for $299. And Mattel has created the Power Wheels Jeep Hurricane, a two-seat, all-terrain car, for $399.

Toy designers say the higher-priced toys represent a small sliver of their merchandise and they have no plans to raise overall prices, which are actually falling because of cheaper overseas manufacturing.

But they observed that parents were showing a growing willingness to shell out hundreds of dollars on a toy, provided it delivers enough bells and whistles. There is a lot of technology in all these products that is putting the price where it is, said Sharon John, a general manager for Hasbro.

Loaded with sensors, Butterscotch responds to the presence of a child by turning its head, wriggling its nose, rocking back and forth and emitting recordings of a real pony. every little girl’s dream, Ms. John said.

Daniel Grossman, the founder and chief executive at Wild Planet, traces the $100 toy trend back to the 2000 introduction of RoboSapian, the humanoid robot introduced by WowWee for $99. Its success, he said, suggested that was not such an intimidating price.

The vast majority of Wild Planets toys cost $5 to $30 but, with the Spy Video Car, the company will finally crack $100. Mr. Grossman argues that the toy technology it allows a child to see what the car sees, even in the dark, using a video-equipped headset makes it worth the price.

But toy makers and retailers are selling $300 ponies at their own peril. At the end of the holiday season, both may be left with pricey, unsold inventory. If it does go wrong, said Ms. John of Hasbro, is an expensive proposition.

DRESSING UP
Bubble dresses, jersey dresses, halter dresses, strapless dresses.

From luxury department stores like Neiman Marcus to more popularly priced chains like Banana Republic, the message could not be any clearer: sloppy is out, formality is in.

The biggest clothing trend this winter is a return to stark elegance after several seasons of casual, intentionally messy fashion marked by layers of fabric and jewelry.

This season, it’s about our customers making sure they look in the mirror before they leave the house, said Michael Fink, the director of women’s fashion at Saks Fifth Avenue, whose designer and contemporary collections are swelling with dresses. Haphazard is over.

Today, he said, you have to be in the dress business.

And so everyone is. J. Crew has just introduced a large dress shop into its stores. Anthropologie has beefed up its dress offerings across the store. And Banana Republic has made the dress a key idea for the holidays, said the chain's president, Marka Hansen.

After a hiatus that can only be explained by the whimsy of the fashion cycle, women are wearing dresses to work again, over leggings, with cardigans, Mr. Hansen said. It just works.

J. Crew’s dress collection contains at least a dozen distinct looks, like a classic black silk chiffon dress ($150) and a retro black-and-white organza dress ($298). Banana Republic has a silk jersey dress ($128) and a taffeta tulle dress ($168). Anthropologie carries a velvet minidress ($298) and a plaid shirtdress ($288).

For the less inhibited, there is the $2,450 Vera Wang bubble dress and the $5,000 Jason Wu strapless cocktail dress at Saks.

Customers are the ones telling us more dresses, said Tracy Gardner, the head of merchandising at J. Crew, which has put its dress collection at the front of its biggest stores, like the one in Manhattan’s Rockefeller Plaza.

It˙s a counterpoint to what has been big, Ms. Gardner said. And it makes you feel good. Who doesn’t want to look sexy and chic?

LEAK-PROOF DOORBUSTERS
In 2005, retailers bemoaned the rise of Web sites that ruined the surprise on Black Friday by posting newspaper circulars filled with early-morning discounts, weeks before they were supposed to reach consumers.

Lawsuits, cease-and-desist orders and flat-out begging failed to shut down the sites. So retailers have found a novel way to create suspense tomorrow: last-minute doorbusters, kept out of circulars and announced on the Web.

Best Buy has posted five such deals, not advertised in the newspaper ad, according to the Web site, like a Panasonic 42-inch Plasma HDTV for $1,000 and a Samsung MiniDV Digital Camcorder for $129. Wal-Mart plans to post eight new Black Friday deals this morning on its Web site, like a 52-inch RCA projection TV for $470 and Compaq personal computer for $149.

Using our own Web site is the natural way we can address the inevitable circular leaks, said Nick Agarwal, a spokesman for Wal-Mart.

Of course, it cannot be long before the online deal-seekers, who have convinced company insiders to hand over early copies of Black Friday circulars, learn how to hack into the retailers Web sites a trend to watch for in 2007.

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Seattle-area company suing Sears over fake wishbones
The Associated Press – Chicago Tribune
November 23, 2006

SEATTLE -- The Thanksgiving wishbone, that age-old good luck charm, is causing bad blood between a small Seattle manufacturer and Sears Holding Corp.

Lucky Break Wishbone Corp., which makes replica plastic turkey wishbones, claims in a federal lawsuit that Sears and its advertising agency gave away rip-offs of Lucky Break's design after canceling a deal to use its products in a holiday promotion.

Hoffman Estates, Ill.-based Sears and the advertiser, Young & Rubicam, counter that the natural design of a turkey bone can't be copyrighted.

A federal judge has ordered the parties to spend 60 days in arbitration, but Lucky Break attorney Mark Walter said he's not expecting a settlement anytime soon.

"They're not taking this case seriously as far as I can tell," Walter told The Seattle Times in a story published Wednesday.

Sears spokeswoman Kim Freely declined comment on the ongoing case Wednesday, and Young & Rubicam did not immediately return a call seeking comment.

Ken Ahroni, whose birthday falls near Thanksgiving, founded Lucky Break to give vegetarians and others tired of fighting over a lone wishbone more chances to participate in the holiday ritual.

Ahroni told the Times his inspiration came from the dried-out wishbone from his 1999 Thanksgiving dinner.

He began producing prototypes at a factory in nearby Auburn, and started test-marketing the turkey-bone knockoffs in Seattle-area stores in 2004. The company has since expanded to Web sales and deals with retailers ranging from Urban Outfitters to Whole Foods.

A "fun pack" of four gray Lucky Break Wishbones retails for $3.99 on Lucky Break's Web site, while a tub of 400 is listed at $195.99

Ahroni said Young & Rubicam contacted Lucky Break about supplying the Sears promotion in June 2005.

According to Lucky Break's lawsuit, Young & Rubicam sent e-mails in August 2005 confirming the deal and ordering 1.3 million wishbones, dyed blue to match Sears signature color. Less than a week later, Lucky Break says Young & Rubicam informed Ahroni that an "offshore company" would make the wishbones instead.

Lucky Break also alleges that Young & Rubicam "directed an overseas manufacturer in China to copy the Lucky Break Wishbone sculpture for use in the Sears promotion," in violation of U.S. copyright laws.

Neither Sears nor Young & Rubicam have formally responded to the breach-of-contract allegations, but the two companies asked U.S. District Judge Thomas Zilly to dismiss Lucky Break's copyright claims.

"Any originality inherent in a replica of a wishbone was invested so by nature, by a supreme being, or by the turkey itself," the companies wrote in a legal filing. "By any account, however, it was not done by L ucky Break."

In addition, the companies said Sears' faux wishbones were significantly different in size, texture and color.

Regardless of the outcome, Ahroni said he expects to sell about a million Lucky Break Wishbones this year. He's also trying to expand from the Thanksgiving niche, perhaps marketing the wishbones as stocking stuffers for Christmas.

"We think we have a very viable product," Ahroni said. "Our goal is to make this a new family tradition."

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Sears Tower owners, management firm split
By David Roeder - Business Reporter – Chicago Sun-Times
November 21, 2006

Two of the most coveted assignments in Chicago real estate are up for grabs. The owners of Sears Tower said Tuesday they are parting ways with the firm responsible for its leasing and management.

CB Richard Ellis Group Inc. has handled those tasks for the national’s tallest building since 2004. The owners said the agreement with CB expires at the end of 2006, but that the firm will stay on until a replacement is found.

The owners and CB described the parting as mutually decided and amicable. But it comes as the 110-story tower has suffered financial setbacks. Industry data show that about 21 percent of the tower is vacant, double the reported figure in early 2004.

In addition, the owners made a financially disastrous move earlier this year when they stopped Levy Restaurants Inc. from operating four locations inside the tower, 233 S. Wacker. They filed a lawsuit against their new restaurant operator, Sodexho USA, charging that they ran up $1.1 million in losses in just seven months. The restaurants are closed.

One of the Sears owners, John Huston, principal of Skokie-based American Landmark Properties Ltd., could not be reached. In a press release, Huston praised CB’s tenure.

"Together, we’ve increased Skydeck revenues, developed a robust office leasing program, reduced expenses and enhanced security," he said. CB is the largest real estate firm in Chicago.

Other owners include New York investors Joseph Chetrit and Joseph Moinian. Their 2004 acquisition valued the building at $840 million, and they are negotiating a refinancing with several funding sources.

Without discussing vacancy rates, the Sears owners said 250,000 square feet of new leases have been signed for the building in the last two years. The building contains about 3.8 million square feet.

Some leasing experts have said the owners need to cut rents more to woo tenants to a tower that acquired a stigma after the Sept. 11, 2001 terrorist attacks.

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Sears Tower, CB Richard Ellis end contract
By Thomas A. Corfman – Crain’s Chicago Business Online
November 21, 2006

In another sign of turmoil at Sears Tower, CB Richard Ellis Inc. and the investment group that owns the 110-story structure have mutually agreed to endˇ the real estate firm's contract for leasing and management after three years, the two firms announced Tuesday.

CB Richard Ellis and Sears Tower’s ownership group have had a sometimes tempestuous relationship since 2004, when the prominent skyscraper was acquired by a group that includes Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinian.

The owners have often expressed dissatisfaction at ‘s leasing efforts, while CB has at times been frustrated by the owner’s slow-moving decision-making and abrupt about-faces in the midst of lease negotiations.

For example, in 2004, shortly after buying the building, the new owners rejected a deal to renew the lease of a key tenant, law firm Schiff Hardin LLP, that had been endorsed by the prominent skyscraper's former owner, MetLife Inc.

Schiff Hardin later renewed its lease. Last year, Sears Tower’s owners came close to a reaching an agreement with CDW Corp. But after bitter negotiations, CDW opted to expand and consolidate its downtown offices at 120 S. Riverside Plaza, taking about 240,000 square feet of space.

In September, the once-popular restaurants on the tower’s second floor were unexpectedly closed, seven months after they were taken over by food-service giant Sodexho USA from longtime operator Levy Restaurants Inc.

Our ownership group and the CB Richard Ellis team have worked well together to lease and manage the building, John Huston, executive vice-president with American Landmark, says in a joint statement.

Citing the pending merger between CB’s parent company and Trammell Crow Co., Barbara Carley, managing director of asset services for CB, says in the statement, “We feel this is the appropriate time to re-deploy our Sears Tower talent and resources elsewhere in our portfolio.

Replacement firms are already being interviewed, according to the statement. The change comes as the building faces a new round of leasing challenges.

The vacancy rate in the building shot up to nearly 22% in the third quarter, compared to about 12% during the prior period, according to real estate research firm CoStar Group Inc., largely because of the expiration of leases of tenants who left the building in the wake of Sept. 11.

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Lifting the Lid:
Sears -- A retailer or a hedge fund?
By Martha Graybow – Reuters.com
November 18, 2006

NEW YORK (Reuters) - The billionaire hedge fund manager who runs Sears Holding Corp. (SHLD.O) rarely speaks in public, but he has been sending a message to shareholders: Have faith.

Sears stockholders have done pretty well lately putting their trust in Sears Chairman Edward Lampert, a finance guru some consider a next-generation Warren Buffett who might transform Sears into a holding company in the mold of Buffett's Berkshire Hathaway.

But while the stock has jumped nearly 50 percent this year, investors might feel left in the dark about the company's strategy and even the particulars on how it's making money.

The company's reticence -- it no longer provides earnings forecasts or gives out monthly sales data -- and reluctance to discuss its long-term plans have put off some money managers who say they won't invest in the stock.

Some observers say it's impossible to get a good handle on the business and that many individual investors probably have little idea of how much Sears has shifted away from traditional retail. Sears in many ways is transforming itself into a quasi-hedge fund along the lines of Lampert's ESL Investments fund for wealthy clients.

"If you are investing in the company, you are investing every bit as much in Lampert's investing strategy as you are investing in the retailing results," said Joseph Carcello, co-founder of the University of Tennessee's Corporate Governance Center. "This isn't your father's Sears."

The Hoffman Estates, Illinois-based retailer said earlier this week that about one-third of its total earnings per share in the third quarter came from gains it made from complex derivative contracts known as "total return swaps." Under these agreements, the investor takes on the risk of an investment without actually owning the security.

Hedge funds are known for secrecy, something that Lampert is clearly trying to replicate within the confines of the disclosure rules required for a public company, said David Baker, a principal at money manager North American Management Corp., which oversees $1 billion in assets but does not invest in Sears.

"Sears is clearly becoming less transparent," he said. "It's not just the lack of disclosure. It's that I don't like what he's (Lampert's) investing in, because I can't quantify the risk."

Already, Sears' debt is considered a riskier bet than most of its peers. Its senior unsecured debt is rated a "Ba1" -- the highest junk level -- by Moody's Investors Service. For its size, the company is one of the largest high-yield retailers in the world, said Moody's analyst Charles O'Shea.

COMPLEX DERIVATIVE DEALS

In its profit report this week, the Hoffman Estates, Illinois-based retailer said the derivative contracts, which generated $101 million in investment gains in the three months, involved substantial risks and that returns could fluctuate significantly from quarter to quarter.

But it did not provide many other details, including whether the derivative deals involved investments in the shares of other retailers or other types of companies altogether.

The lack of information about these derivative contracts is troubling, said James Huguet, president and chief executive of Great Companies Inc., an asset management firm that does not hold Sears shares.

Sears "is not the type of company we would invest in," said Huguet, whose Tampa, Florida investment firm oversees $350 million. "I would not be comfortable looking at a company that's had a one-time shot or a nonrecurring event where you can't be sure what earnings are going to do in the future."

A Sears spokesman declined to provide additional details about the total return swaps beyond what was in the earnings statement.

Because Sears has kept Wall Street at arms length, few stock analysts now cover the company. Lampert, who engineered Kmart's $12.3 billion buyout of Sears, Roebuck and Co., does not comment in public very often and investors must rely on his periodic "Message from the Chairman" letters to glean his insights into the business.

Baker, of North American Management, said it's understandable that Sears, like some other companies, would want to move away from Wall Street's short-term focus by giving up quarterly earnings guidance.

But he said the company should give investors more to go on if they want people to understand the business.

"Eddie is running it like it's his own entity, but you can't have your cake and eat it too, so to speak," he said. "Quite honestly, if he doesn't want to deal with Wall Street, he should take the thing private."

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Wal-Mart: The New Banking Monopoly?
By Emil Lee – The Motley Fool.com
November 21, 2006

Yesterday, I looked at three arguments against Wal-Mart's banking ambitions. Today I will look at the most visible, yet unlikely, argument against Wal-Mart forming an industrial loan corporation, or ILC. ILC opponents paint a picture where Wal-Mart sucks up local banking deposits, decimates the banking industry, and puts local banks out of business. Although Wal-Mart's history of crushing competitors in retail makes this scenario seem possible, I believe that extremely few precedents exist to suggest that a discount retailer might suddenly take over the banking industry.

Would Wal-Mart have an unfair advantage in banking? I believe the answer is an utter and resounding no. Wal-Mart's cost of funds would be the same or higher than Bank of America, Wachovia, Wells Fargo, SunTrust or any other bank. Furthermore, Wal-Mart's brand is hardly one that customers would turn to for banking needs. The only major advantage Wal-Mart would have is foot traffic; it has customers in the store, and it could offer convenient banking.

If this were such an enormous advantage, why hasn't it manifested already? After all, more than 1,000 Wal-Mart locations have third-party bank branches in their stores. If Wal-Mart's competitive advantage in banking were so great, these branches -- which already have the "banking" brand -- would be sucking up huge amounts of deposits and putting mom-and-pop banks around the country out of business. Obviously, this hasn't happened, and I fail to see why replacing the third-party bank with a Wal-Mart-branded bank would be any different. If anything, the Wal-Mart-branded bank would have a tougher time attracting customers, because of its unproven brand.

Although it's hard to imagine now, in its heyday, Sears was just as dominant as Wal-Mart is now. Sears tried using its retailing prowess to get into financial services. In the end, it turned out that customers simply don't like making a shopping list that includes paper towels, shaving cream, and oh yeah, a mortgage and property and casualty insurance. That's why Sears eventually spun off its insurance and brokerage businesses, Allstate and Dean Witter.

A game of chicken
In the end, I believe the Wal-Mart argument comes down to self-interest, which shouldn't be a surprise to anyone. Banks, capitalizing on Wal-Mart's goliath status, see a chance to slam the door shut on future ILC competition, and they're using the Wal-Mart battle as a way to strike while the iron is hot.

On the other hand, Wal-Mart is using one of the most effective sales tactics: the foot in the door. Wal-Mart wants an ILC charter "just for payment processing." Later on, when everyone forgets that Wal-Mart promised to never, ever, ever go into retail banking, Wal-Mart could expand its banking scope.

The who is always right?
In researching these two articles, I read hundreds of articles, encompassing around 300 pages of news, opinion, and commentary. I was amazed that not a single argument focused on the customer. Almost all anti-competitive arguments center on concerns that a company can use its monopolistic power to price-gouge suppliers. Although Wal-Mart has arguably treated employees and suppliers poorly, no one has ever accused the company of trying to rip off customers. Instead, Wal-Mart uses its considerable muscle to pass cheaper prices onto customers, evidenced by its slim operating margins.

In turn, I don't think anyone doubts that Wal-Mart would pass on ILC cost savings to customers. In fact, Wal-Mart, through third-party providers, is already offering money orders, wire transfers (often used by Hispanic customers to send money back to families in Mexico), and check advances at prices as much as 50% less than competitors. Additionally, the company estimates that roughly one in five of its customers lacks a bank account. Wal-Mart's bank could provide "entry-level" banking services to these un-banked customers, increasing their chances of upward economic mobility.

What does this mean for investors?
I believe Wal-Mart's ILC application means almost nothing for short-term investors, but should be viewed as a "free call option" for long-term investors. If the application is rejected, the status quo remains, and the stock probably isn't affected. If the ILC is approved, Wal-Mart will instantly save tens of millions of dollars for sponsorship fees from electronic payment processing. These savings aren't even a rounding error for a company earning almost $12 billion in net income.

Nevertheless, the ability to cross-sell certain financial products requires almost no incremental capital expenditures, while resulting in huge amounts of free cash flow. Target's credit card operations contributed $645 million to operating income in the last fiscal year, including $124 million of interchange fees, which Target receives when customers use its card outside its stores. Given that Wal-Mart does five times more in revenue than Target, it takes about 20 seconds and the back of an envelope to realize that the long-term potential could become extremely meaningful.

Final thoughts
Although I strongly agree that a Wal-Mart ILC would need careful regulation and restrictions, in a capitalist society, companies need to continually evolve to become more efficient. If banks with century-old operating histories can't fend off a company that makes its living selling underwear and soap at cheap prices, then perhaps those banks aren't providing customers with enough value. Perhaps it's time to introduce some more competition into the equation.

Besides, imagine how silly it would be if I wrote an article asking, "Should Citigroup be allowed to sell groceries?"

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Showing a New Style, Department Stores Surge
By Michael Barbaro – New York Times
Nov. 17, 2006

From the modest cubicles inside Macy’s headquarters in Cincinnati to the spacious corner offices at Saks Fifth Avenue in Manhattan, merchants are beginning to discuss something virtually unheard-of in the American department store industry: a comeback.

Bloomingdale’s is owned by Federated Department Stores, which was struggling five years ago.

After four decades of decline, said Myron E. Ullman, the chief executive of J. C. Penney, “The department store has become a destination again.”

That is not just boasting. In a remarkable reversal of fortune, the performance of department stores has quietly overtaken that of specialty clothing retailers like Gap and Limited — scrappy, mall-based stores whose emergence over the last 30 years forced many regional department stores, like Marshall Field’s in Chicago and B. Altman in New York, to shut or be sold to competitors.

Over the last 12 months, sales at department stores open at least a year, a widely used measure of a retailer’s health, have grown 4.1 percent, compared with a 1.3 percent increase at specialty apparel chains, according to the International Council of Shopping Centers, a trade group. This holiday season, the gap is expected to grow even wider. At the same time, profits are surging and executives accustomed to cutting back are dusting off old plans for new stores.

Executives attribute the resurgence of the department store to well-laid plans, drawn up several years ago, at chains like Kohl’s, Macy’s, Bloomingdale’s, Nordstrom and Saks to develop stronger store clothing brands, carry higher fashions and to tidy up cluttered aisles and grimy restrooms.

Two megamergers in the last several years — between Sears and Kmart and Federated and May department stores — resulted in store closings, leaving those who shopped there up for grabs just as the chains completed their makeovers.

In the midst of all that, consumer tastes evolved away from basic apparel at chains like Old Navy toward name-brand clothing and accessories, the very merchandise department stores have sold for years.

Kenneth McCoy, 27, is the kind of customer the specialty clothing store industry has relied upon for years — too stylish for the dowdy department store, too busy to wade through its unwieldy aisles. But to find the Prada Teflon pants and Rock & Republic jeans he covets, Mr. McCoy shops at Bloomingdale’s and Saks, not J. Crew and Abercrombie & Fitch. “I might go to those stores for underwear,” he said as he walked around Macy’s Herald Square store with a friend.

The most popular apparel categories over the last five years — premium denim and handbags — have been dominated by labels like Diesel and Coach that, for the most part, cannot be found at the specialty clothing chains that line the corridors of the mall.

Relying on national brands, a hallmark of the department store, was once considered a disadvantage, saddling chains like Macy’s and Kohl’s with the same piles of Liz Claiborne woven shirts and Dockers pants.

But now, department store executives say, it is the specialty clothing stores, which design most if not all of their own clothing, who are struggling to stand out, their aisles chock full of roughly the same fur-lined puffer jackets and hooded sweaters.

More options, it turns out, is exactly what consumers want, despite years of advice from retail consultants, who told department store executives their stores overwhelmed shoppers with floor after floor of merchandise.

“The great advantage the department store has is the ability to quickly move from one brand to another to keep itself fresh,” said Stephen I. Sadove, the chief executive of Saks, whose sales have improved sharply over the last three months on the strength of designer brands like Tahari, Theory and Juicy Couture.

“The specialty store does not have that luxury,” he said.

Unaccustomed to success, department store executives are approaching the strong sales figures, which first appeared in June, with all the requisite reservations. Profit margins may be growing, they say, but, in many cases, like Saks and Dillard’s, they have not reached levels that satisfy Wall Street analysts or investors.

Customer service remains weak, if not nonexistent at some stores. Popular name brands could lose their luster, dragging down sales. And, the executives concede, the entire industry is still vulnerable to attack from fast-fashion chains like Zara and H&M that offer designer-inspired clothes at rock-bottom prices, and discount retailers like Target and Wal-Mart, which have hired well-known designers to create budget clothing lines.

But those who run the nation’s biggest department stores chains say that after years of casting about for the right strategies, their companies have never been better positioned to beat back the competition.

Five years ago, for example, Federated Department Stores , which operates Macy’s and Bloomingdale’s, was struggling, locked in seemingly endless battles of 20 percent off coupons with its biggest rival, May, owner of chains like Hecht’s in Washington and Filene’s in Boston.

But in 2003, when Terry J. Lundgren became the chief executive of Federated, he instituted a program called Reinvent that required the renovation of Macy’s dressing rooms, the widening of aisles and the use of price scanners to make shopping more convenient.

His next move, the $11 billion merger with May and the conversion of 400 May department stores into Macy’s, created a department store with the size and power to demand better prices from clothing suppliers and more exclusive merchandise. In the last year, Martha Stewart said she would develop an upscale furniture line for Macy’s and the designer Elie Tahari agreed to create a collection of women’s clothing for the chain.

The merger has proved bumpy — business at the old May stores remains disappointing — but sales at stores open at least a year have grown 3.6 percent over the last 12 months, compared with a 1.1 increase in 2005. (The numbers, though seemingly small, represent tens of millions in sales.)

“We have been on a tremendous roll here,” said Mr. Lundgren, who credited years of research into what consumers want in a department store. The surprise answer: “Fitting rooms,” he said, “was the No. 1 issue.”

No wonder, perhaps, that in its newest stores, unveiled this holiday season, Kohl’s introduced far more spacious fitting rooms with stylish benches and faux modern artwork; that Bloomingdale’s has just rolled out larger lingerie dressing rooms with call buttons that allow shoppers to summon a sales clerk; and that Bergdorf Goodman has built a sumptuous personal shopping area that offers robes and multicourse meals.

But the biggest explanation for the success of the department store industry, executives and analyst said, is the clothing. Take the progress at J. C. Penney, which only a decade ago was known among shoppers for dowdy clothes and among investors for trailing its competitors in financial performance.

Under the leadership of the former chief executive, Alan Questrom, and Mr. Ullman, who once ran the luxury conglomerate LVMH Moët Hennessy Louis Vuitton, J. C. Penney has become a force in fashion. Its new store brands, like A.N.A. (with its gaucho capri pants) and East5th (with its faux fur hooded swing coats) are considered as stylish as anything in Macy’s.

So after losing more than $900 million in 2003, J. C. Penney earned more than $1 billion last year. It plans to open 28 new stores this year, its biggest expansion in two decades and a clear vote of confidence in the future of the department store.

Kohl’s, a rival of Penney’s, appears to be even more confident about the industry’s prospects. It opened 65 new stores on a single day last month. Bloomingdale’s is opening four stores this year, its biggest expansion in a decade.

At the highest end of the department store spectrum, stores are awash in profits. Over the last three months, monthly sales rose 6.8 percent at Neiman Marcus and 8.8 percent at Saks, as bankers and brokers (and their spouses) have splurged on $700 Dolce & Gabbana peep toe pumps and $2,000 Zegna cashmere coats.

James Gold, the chief executive of Bergdorf Goodman, the Manhattan luxury department store owned by Neiman Marcus, explained that “the rich are getting richer at a staggering rate.”

And the benefits have trickled down. As Bloomingdale’s and Nordstrom, relative bargains next to Bergdorf, have beefed up their designer collections and dialed up the price of merchandise in their stores, already strong sales have improved further. A recent bet by Nordstrom on Michele watches, which routinely sell for $2,000 to $3,000, has paid off handsomely.

“Those are pretty darn expensive,” said Peter E. Nordstrom, president of merchandising at the company and the great-grandson of its founder. “But the more we carry, the more we sell.”

The success is building upon itself. After years of timid management and small ideas, department store leaders are thinking boldly. J. C. Penney, a mainstay at the mall, is building stand-alone stores in the smaller suburban shopping centers where more consumers shop, and hiring outside retailers, like Sephora, to help run its cosmetics counters.

Macy’s, which long ago ceded the electronics business to specialty stores like Best Buy, is installing vending machines that will dispense iPods and, eventually, digital cameras. And Neiman Marcus has created a new chain, called Cusp, tailored to younger consumers, that is less than half the size of regular outlets.

“The ones that have survived in this industry are the ones that have finally figured it out,” said Mr. Ullman of J. C. Penney, as he mournfully ticked off the names of department stores that have vanished over the last century (he put the number, conservatively, at 65).

“The strong,” he said, “are only getting stronger.”

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At Sears, Investing -- Not Retail -- Drives Profit
By James Covert and Gary McWilliams – Wall Street Journal
November 17, 2006

Sears Holdings may be struggling as a department-store operator, but it is proving an astute hedge fund under billionaire investor Edward S. Lampert.

The retailer, controlled by Mr. Lampert, earned more than half its net income in the fiscal third quarter ended Oct. 28 from investments in exotic derivatives designed to mirror the performance of company stocks. Those investments helped triple net income, to $196 million, or $1.27 a share, despite weak sales at its Sears and Kmart stores. In the year-earlier quarter, the company earned $58 million, or 35 cents a share.

Investors, counting on a turnaround on the retail floor, fled the stock, sending shares down more than 5.5%, or $9.89, to $169. 26 in trading on Nasdaq. The drop in its shares, which have been up nearly 50% in the past 12 months, also came as the company cut back last quarter on share repurchases.

Sears Holdings shares are no less costly than those of its peers. Analysts expect Sears to earn $10.39 in its next fiscal year, which ends January, 2008, and $11.41 in the following year. That means the stock is trading at 16 times next year's estimated earnings and almost 15 times the following year's earnings.

By way of comparison, retailers such as J.C. Penney, Target and Federated Department Stores trade at 14 to 16 times next year's estimated earnings.

The company turned an investment in derivatives in other companies' shares into a $101 million after-tax profit during the quarter. A spokesman for the Hoffman Estates, Ill., retailer declined to disclose the company or companies whose shares were represented by the derivatives.

In a statement, the company said the investments involve "substantial risks," adding that future results "may be positively or negatively materially affected based on the timing, magnitude and performance of these investments."

The financial derivatives used by Sears, known as "total-return swaps," are agreements that take on the big risks of highly leveraged investments in equities or other assets without actually buying them or assuming debt to purchase them, said David Krein, president of New York structured-investment adviser DTB Capital Group. Total-return swaps also can boost the liquidity of an investment, carry tax benefits, and have the advantage of gains that can be recorded as profit on a balance sheet, whether realized or unrealized.

This isn't the first time Sears has used financial swaps. For the quarter ended July 2005, the retailer reported $60 million in proceeds from swaps it made around $600 million in variable-rate debt. The third quarter's swaps, which had an aggregate notional amount of $387 million, weren't linked to a specific debt offering.

Sears has authorized Mr. Lampert, who plays an active role in overseeing the company's operations from his chairman's perch, to throw excess cash into investments that are unrelated to the retail operations, and yesterday's news is a sign that Sears is no longer merely a retail company, industry observers said.

Last August, after Sears Holdings' cash flow improved, Mr. Lampert told investors that he planned to consider nonretail "acquisitions, joint ventures and partnerships." As his company's stock price has risen, Mr. Lampert has cut back on repurchases of Sears shares. In the third quarter, Sears spent $289 million on repurchases, down from $413 million in the first quarter.

Goldman Sachs analyst Adrienne Shapira said the retailer's continued sales drops remain a concern, but that the derivatives trading gain is "another sign that this management team knows how to make money and is building a war chest for potential acquisitions." There has been recent speculation that Sears might acquire companies as diverse as Anheuser-Busch, Home Depot and RadioShack, whose chief executive formerly headed the Kmart stores.

The company said most products performed poorly at Sears and Kmart, and a $1.1 billion ramp-up in holiday inventory sapped its cash.

Revenue fell 1.5% to $11.94 billion from $12.12 billion. Sales at stores open at least a year, a measure called same-store sales, fell 3% overall, with a 4.8% drop at Sears stores.

Sales of home fashions at Sears stores saw steep drops amid a weak housing market despite revamped furniture, kitchenware and bedding, as well as its sponsorship of ABC's hit home-improvement show, "Extreme Makeover."

Kmart's 0.7% same-store sales drop was spurred by declines in food and hard goods including electronics and toys.

Apparel sales were one of the few bright spots for Sears and Kmart, which for years have been plagued by dowdy fashions.

As of Oct. 28, Sears Holdings had cash and cash equivalents of $2.1 billion, up from $1.2 billion a year earlier, but down sharply from the second quarter as it ramped up inventory.

Richard Hastings, an analyst at New York retail consultant Bernard Sands, said Sears looks at inventory "in a brutally realistic way." The company slashes investments in poor-performing categories, rather than just ordering products to fill shelves, and that has helped boost gross margins, he said.

 

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Sears profits on hedge fund tack
Big 3rd-quarter gains despite revenue drop

By Sandra Jones - staff reporter – Chicago Tribune
November 17, 2006

Has billionaire investor Edward Lampert finally turned Sears Holdings Corp., one of the nation's oldest retailers, into a hedge fund?

Not quite.

But the prominent investor, who runs his own elite hedge fund in Greenwich, Conn., and is chairman of Hoffman Estates-based Sears, has taken a significant step in that direction.

The nation's largest department store chain generated half of its third-quarter profit on an investment maneuver popular among hedge funds called total return swaps--a derivative that allows an investor to make highly leveraged bets on financial instruments, including stocks.

“They're leaving the world of pure retailer," said Jerome Castellini, president CastleArk Management LLC, a Chicago-based investment firm with $2.1 billion in assets that include hedge fund portfolios. "These total return swaps are traditional hedge fund vehicles designed to get a return for far less capital."

Net income for the quarter ended Oct. 28 more than tripled to $196 million, or $1.27 a share. The increase included $101 million in total return swap income. The profit growth came as same-store sales, a key barometer of a retailer's health, dropped 3 percent. A pick up in apparel sales, helped by a shift away from an experiment with trendy clothing that fell flat with shoppers a year ago, wasn't enough to overcome steep declines in home fashion and lawn and garden goods.

Same-store sales fell 4.8 percent at Sears stores and declined just under 1 percent at Kmart stores, reflecting "increased competition and lower transaction volume," the company said.

Sears shares dropped 5.5 percent, to $169.26, in heavy trading, the biggest decline since August when Lampert first disclosed to investors in Sears' second-quarter earnings report that the company was investing its surplus cash in derivatives. At that time Sears had yet to give details on the types of derivative contracts it held.

Sears warned in its most recent earnings report, "These investments are highly concentrated and involve substantial risks." Sears spokesman Chris Brathwaite declined to comment beyond the report.

Derivatives are financial instruments that can be used to control risk or to speculate in hopes of making a big return. They are common in the hedge fund world but for the most part foreign to retailers.

"It's certainly unusual for a retailer to be using their funds this way, but he warned us," said Philip Zahn, a Chicago-based analyst at Fitch Ratings, a credit rating agency.

Lampert signaled to investors in Sears' second-quarter report that he could also use the extra cash to look for an acquisition outside the retail industry. Since then, speculation about what he would buy has included Home Depot Inc., Gap Inc., Anheuser-Busch Cos. and Safeway, fueling a 22 percent rise in Sears stock in the past three months to as high as $181.

Total return swaps allow Lampert to invest in stocks without having to disclose what he is buying. Like other big-name investors, including Warren Buffett, Lampert's investment moves are so closely watched that buying a stake in a company can almost guarantee that the firm's stock price will rise, making it more expensive for Lampert to build a position.

"The company made investments in derivative contracts that we believe effectively replicate investments in companies without disclosure requirements," wrote Gary Balter, a New York-based Credit Suisse analyst in a report on Thursday. Balter rates Sears an "outperform." Sears is an investment banking client of Credit Suisse.

Sears cash slipped to $2.1 billion at the end of October down from $4.4 billion in January. About $1.1 billion of that decrease reflects cash used to build up inventories for the holidays, particularly in apparel where business has been good.

Many investors like Sears more for its cash and Lampert's investment acumen than for its retail prospects. Indeed, holiday inventory expense is "higher than we would like to see which hurts the cash balance," Balter wrote. " ... We want that cash for other purposes."

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Sears, Not Just a Retailer, Is Lampert's Latest Hedge Fund
By Lauren Coleman-Lochner – Bloomberg.com
November 17, 2006

Investors in Sears Holdings Corp. aren't getting their payoff from Martha Stewart sheets and Kenmore dryers.

When the largest U.S. department-store chain reported third- quarter profit yesterday, more than half - $101 million of $196 million - came from investments as sales fell.

Two years after announcing his intent to purchase Sears Roebuck & Co., Chairman Edward Lampert has turned the largest U.S. department-store chain into an investment vehicle. He's almost doubled cash holdings in the past year, and says he's on the prowl for acquisitions, perhaps outside of retailing. Investors say that's not enough.

“At the end of the day, what you’re going to have is a publicly traded hedge fund,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting and investment banking firm.

“A retailer stands for reliable cash flow,” Davidowitz said. ``But not this retailer. Eddie Lampert comes in and starts to run Kmart and Sears and all the customers start to run away.''

Sears spokesman Chris Brathwaite declined to comment.

Investors flocked to Sears after Lampert acquired the Hoffman Estates, Illinois-based chain for $12.3 billion in March 2005, combining it with his Kmart Holding Corp. Anticipating cost cuts and sell-offs of weaker stores, they sent shares up 35 percent between March 24, 2005, the day shareholders approved the merger, and Nov. 15.

Shares Drop

Yesterday, as Sears reported sales at stores opened one year fell 3 percent, shares dropped 5.5 percent to close at $169.26 in Nasdaq Stock Exchange composite trading.

The company has posted declining same-store sales, led by its Sears division, in every quarter since the merger.

Revenue for the three months ended Oct. 28 fell 2.1 percent to $11.9 billion, from $12.2 billion. Most categories of goods posted declines at Sears stores. Home fashion and lawn and garden products accounted for the biggest slides. Clothing, long a drag on results, showed “pronounced sales gains,” the company said.

“People are looking for some kind of stabilization in the retail business,” said Arun Daniel, who helps manage $40 billion in assets for New York-based ING Investments LLC, which owned 227,000 shares as of June.

Instead, Lampert has proved adept at investing the company's cash in financial assets. Sears had $2.1 billion in cash on hand at the end of the third quarter ended Oct. 28, almost double the $1.2 billion from a year earlier and down from $4.4 billion at the end of January.

Derivatives

Sears earned $101 million, or 42 cents a share, from investments in total-return swaps, types of derivative contracts that “involve substantial risks,” the company said in its earnings release.

Total-return swaps are agreements through which one investor makes payments based on any coupons and capital gains or losses of an asset and the other makes fixed or floating-rate payments. An investor makes or loses money based on the difference between the two.

Income from these derivatives may vary from quarter to quarter and may have “disproportionate effect” on the company's results, Sears said.

Excluding the investment income and other items, profit was 83 cents, less than the 98-cent average analyst estimate. Third- quarter net income climbed to $196 million, or $1.27 a share, from $58 million, or 35 cents, a year earlier, Sears said.

`One-Time Event'

“Those aren't the type of earnings that you look at when you value a business,” said Michael Morcos, who helps manage $1.1 billion at Old Second Wealth Management in Aurora, Illinois. He doesn't own Sears shares. “It is no more than a blip in a one-time event and is not part of its core business.”

Making money from financial investments won't assure Sears of steady profits. “That's a huge risk,'' said Matthew Smith, who helps oversee $1.7 billion at Smith Affiliated Capital in New York. “You can make a lot of money, yes, but at the opposite end of the spectrum you could be like Ford Motor Credit. They lost money on interest rate swaps in the last five quarters. The same interest rate swaps, identical.”

Sears shares may falter if Lampert depends on derivatives for profits, Davidowitz said. ``You're going to have tremendous volatility in earnings,” he said. ``The stock will crater.'' Sears shares currently are valued higher than most retail stocks, trading at a price-to-earnings ratio of 26.49 compared with 18.18 for the S&P 500 Retailing Index.

Lampert, 44, is a former risk-arbitrage executive at Goldman Sachs Group Inc. He now heads ESL Investments Inc., a hedge-fund company in Greenwich, Connecticut and has focused on buying undervalued companies.

Non-Retail Acquisitions

On Aug. 17, the day Sears released second-quarter earnings, Lampert said he was looking for acquisitions, either in retailing or unrelated businesses. Shares fell the most in 18 months after the company reported better-than-expected profit.

Sears is likely to grow through buying other companies rather than via its own operations, Adrianne Shapira, an analyst at Goldman Sachs in New York, wrote in an Oct. 31 report. She rates the shares ``neutral.''

“We believe the company is actively searching for retail and non-retail acquisition targets,'' Shapira wrote. "With a solid balance sheet and strong cash flow, we believe management has the ability to build a significant war chest to put to work.”

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Lampert Looking to Buy Another Retailer
By George Anderson - Retail Wire
November 10, 2006

Okay, Sears Holdings is cash rich and Edward Lampert, the company's chairman, is looking for something to buy. Until now, rumors have had it that Mr. Lampert was looking at BJ's Wholesale, Gap Inc., Home Depot, Anheuser-Busch Cos., Manny Moe & Jack, and RadioShack as potential acquisitions. Now, speculation on the investment web site Briefing.com has raised the possibility that perhaps Sears Holdings might decide to go after Safeway. Howard Davidowitz, chairman of Davidowitz & Associates, told the Chicago Sun-Times that Mr. Lampert might need an acquisition to satisfy the demands of investors in his hedge fund. On the Safeway speculation, Mr. Davidowitz believes Sears could benefit from Safeway's food distribution system to supply its Sears Grand and other stores. Sears Holdings has extended its offer to purchase the remaining 46 percent of shares it does not currently hold of Sears Canada. The Canadian business has called a special shareholders meeting on November 14 to consider the offer. Discussion Question: What are your thoughts on a possible deal by Sears Holdings to acquire another retail chain, specifically Safeway or another large grocer?

Sears may have eye on Safeway - Chicago Sun-Times

Comments
I would think the profit margins from a "standard" grocery business would be too small for a company like Sears.
Stephen Needel, Managing Partner, Advanced Simulations - Braintrust Panelist

Ummmm....at least they'd have one that seems to be headed in the right direction? Seriously, not a lot of dry goods retailers have made a successful transition to food distribution. Wal-Mart and Target being notable successes, but Kmart followed the familiar path. The success of this venture would depend largely on Sears Holding's willingness to allow Safeway continued autonomous operation -- not something they have demonstrated to date. Safeway is a good buy for someone, but maybe not Sears.
Ben Ball, Senior Vice President, Dechert-Hampe - Braintrust Panelist

"Shopping" and "buying" are 2 very different things, and while Sears is in a position to make a significant acquisition, they should think long and hard about the challenges each opportunity presents. Safeway is doing well and moving in the right direction, but on a completely different platform than Sears/ Kmart. I would think, for a number of reasons, Home Depot or another possibility mentioned offers many more connective points for integration and business synergies than Safeway could provide.
Dan Nelson, Sr VP / Chief Operating Officer, GMDC - Braintrust Panelist

How can you argue with success? Oh, sorry. I can see it now -- Craftsman socket sets in the produce department and Lands' End Mock Turtle soup. Sometimes you get large because you are growing and sometimes you get large because your capacity to consume exceeds your ability to reason or because you're not self aware or taking care of yourself and you are developing a huge tumor. I think Sears Holding should get Sears Holding running smoothly for a minute before they look for new industries to conquer.
Ryan Mathews, Founder, CEO, Black Monk Consulting - Braintrust Panelist

As far as benefiting from buying Safeway to assist in the food distribution to Sears Grand makes little to no senses. That's because Sears Grand stores do little to no business now and have a very limited food presence. This is good news for the competitors of any business purchased by the hedge fund. It could be a win-win all around, except perhaps for the employees of the company that gets purchased. Personally I would love to see Safeway get acquired. I can understand the need to make new acquisitions. The more companies that are acquired, the more the Sears/Kmart blunder is dwarfed.
David Livingston, Principal, DJL Research - Braintrust Panelist

I imagine it won't be good for Safeway or Sears. There is no consistent track record of turning a business around yet by Sears or Kmart or Sears Holdings. If Sears would leave Safeway alone as Ben said and perhaps leverage a better distribution system, maybe it would help, but not likely. Remember when Sears and Montgomery Ward had 2 brothers battling to turn their respective companies around? MW disappeared and Sears remained lackluster. Sears bought the Lands' End brand and maybe the softer side of Sears would turn around? Lands' End departments in the few Sears stores I have been in recently were anemic. (The catalogue is still strong). I walk through Sears and Kmart today and find both retailers far behind in merchandising and customer count to Target, J.C. Penny and Wal-Mart. The real frustration is that Sears does have some strong hardline departments. Let's improve Sears and Kmart first?
George Andrews, Principal, Delta Associates - Braintrust Panelist

Hasn't Sears had difficulty identifying its position and niche in the consumers' mind? Is that well established now or are consumers still trying to figure out what is available at Kmart and what is available at Sears or why those Sears products are at Kmart? And now they want to add a grocery store? Tell me again, what is your core business? The track record of companies expanding far beyond their core business is not good. History will repeat itself if no one pays attention.
Camille P. Schuster, Ph.D., President, Global Collaborations, Inc. - Braintrust Panelist

I like the idea of Sears buying Safeway, as long as they keep their mitts off what Safeway is doing and instead learn from them. There are synergies there, and the possibility of a new level of supercenter, along with prime real estate and the opportunity to reinvent Kmart to serve the urban market with a truly innovative product mix. Whether that would work in the real world is quite another question, though.
'phisey'

I disagree with many of my fellow BrainTrust panelists. I think that this would be a great match. It would complement the strengths of Sears Holdings while diversifying their reach. Safeway is a strong player in the grocery industry, but this expansion would enable Kmart to better manage their superstore's food needs, while allowing Safeway to position itself as a Hypermarket with full hard goods access through Sears Holdings. Also, the real estate locations appear to be complementary since the base stores of Sears and Kmart generally don't conflict with the store locations for Safeway. What is not to like about merging the strengths of these retailers and creating better focused stores with a greater reach?
Kai Clarke, President, Miraclebeam Products, Inc. - Braintrust Panelist

Sears would be better off holding on to that cash. They should be learning the business they are in and making it work. They definitely should not be getting into a business they do not know, that is possibly even more difficult than the one they have not yet come close to understanding and mastering.
Mike Tesler, President , Retail Concepts - Braintrust Panelist

Can you imagine the employee fallout? Safeway has finally put together a reasonably effective team and is learning how to merchandise and market in a better way - and Sears/Kmart suddenly comes in looking for "synergies"? I would guess that Lampert still hasn't learned that retailing expertise isn't bolted onto the store or sitting in a file drawer - it's in the people, and I can't imagine how many talented people would be gone within days or weeks of this ever happening. For consistency, he ought to buy Penn Traffic and Winn-Dixie.
John Rand, Director, Retail Insight, Management Ventures

A Sears-Kmart/Safeway deal somehow doesn't pass the "smell test" for me. (How's that for scientific reasoning?) Safeway has been on a roll lately as a consumer-centric retailer, while the S-Mart hybrid is looking relatively lackluster. I don't see how Safeway's grocery knowhow would translate beneficially to the Sears stores, and I certainly don't think Sears has much to bring to the Safeway operation beyond financial depth. A Safeway/Kmart Hypermarket concept might fly (SafeMart?)- but Safeway could probably do as well on its own. All in all, I think Sears/Kmart should stick to its knitting and invest in being a better solution provider for consumers. All that capital can be put to good use, if smart merchants and marketers are given authority to invest it. If I were Safeway CEO Steve Burd, I'd steer the company away from Ed Lampert's empire-building. If Safeway is looking for a merger opportunity that leads to hypermarkets, it might consider approaching BJs or even Meijer. Otherwise, it should stick to pursuing and refining its consumer-centric strategy, which is potentially a real differentiator for the next decade.
James Tenser, Principal, VSN Strategies - Braintrust Panelist

So, does this mean "Super-K" becomes "Safe-K" and current Safeway stores will have Martha Stewart and Craftsman? It might play....
'SILVERSTONE'

No...please, God, no.
'csundstrom'

This makes no sense to me. Sears seems to know the hard lines and has a good brand franchise there. They know next to nothing about food. Kmart has some depth in soft lines, but their food expertise is zero or less. Safeway is a now a "happening" company. Except for being the retail category, I see no other favorable connections or outcomes between these combinations. Here's an idea...buy a major stake in Target to "hedge" your Kmart holdings. I bet they could sell a lot more Craftsmen tools than Kmart can, does or will do.
'Merkin00duece'

Re the comment about Penn Traffic and Winn-Dixie.... Tops and U.S. Foodservice are available and wouldn't make sense either. If they really want core competence in food distribution, do a joint venture with Supervalu.
Richard Layman, Chair, Promotions Committee, H Street Main Street

Edward Lampert can make money buying almost any retailer, as long as the price paid is a bargain. To list an acquisition candidate's name without a price tag is an incomplete answer. Would you buy a new BMW for $5,000? Would you buy a new BMW for $150,000? Great fortunes can be made when assets are bought for bargain prices. A year ago, Safeway was $23. Now it's $31. At $31, it might not be a screaming bargain. If Sears and Kmart really wanted better in-store supermarkets fast, they could lease out the space to experienced operators without having to buy anyone. Or they could hire any number of industry veterans with demonstrated track records to create their own great organization.
Mark Lilien, Consultant, Retail Technology Group - Braintrust Panelist

Sears should FOCUS ON SEARS --Sears still has some great brands and potential. Kmart, as far as I am concerned, is a total disaster and I feel badly about that -- grocery operation is very difficult and low margin. Kroger has great difficulty keeping up with Wal-Mart, who now OWNS grocery because of volume and size, but Kroger IS a GREAT grocer! Sears would find a difficult and distracting business if they acquired Safeway -- they WOULD need to LEAVE Safeway autonomous -- however, that doesn't necessarily mean they would have beneficial or additive results. They need to keep their cash and CONCENTRATE on optimizing, improving and making progress with the Sears brand and then perhaps try to modify Kmart to improve that establishment -- Fix your own problems before you take on someone else's.
William Passodelis, associate, ML Co.

Has this Chairman and CMO taken care of his current retail operations? Consumers, and my friends, haven't seen anything but pricing discounts and the same old, outdated stores. Can you see the 'turn-around' and repositioning promise that he made to the financial industry? Cash flow must be good. And, one of his current and 'fixed' operations must be ready to sell, as he contemplates another acquisition. Almost like the days of Beatrice Corporation's strategic direction and acquisition craze. The chairman may need a strategic and marketing chief officer!
Stephan G. Kouzomis, Faculty and Staff Member of University of Louisville's College of Business, University of louisville - Braintrust Panelist

Eddie would be wise to first fix Sears Grand. After doing that, perhaps a Lowe's, or Home Depot acquisition would be a better fit. After all, Sears in its day, with its Sears Town, invented the do-it-yourself segment as well as evolving one-stop shopping. That would be the better avenue to pursue. Also they could buy another big box retailer like Best Buy or even Kohl's and expand them, using the Sears mall anchors, as new locations. This also would make sense.
'weo'

There are two ways to look at this in my opinion:
1. Sears Holdings should not acquire another business and focus on determining their own identity and core consumer they are targeting.
2. Sears Holdings should acquire a successful retailer like Safeway or Home Depot and leverage their strategy, talent pool and brand. In terms of brand identity, I often think of the "closed eye rule." Close your eyes and imagine Whole Foods, now Target, even 7-Eleven. The majority of consumers can imagine these retailers as they have done a good job building an identity. Now do the same, except imagine Sears/Kmart...I see clothes, junky stores, tools, bikes, groceries, empty shelves, dry decor, etc. Either way I think Sears is working towards improvement. It's simply a matter of how quickly and to what extent. One more thing to think about is that once upon a time, Albertsons was a pretty respectable player in the grocery industry. They decided to make a move and bought a strong retailer with many cash cows - American Stores. A few years later the combined company has been sold off and divided by 3....
Art Sebastian, Director, Consumer & Marketplace Insights, Information Resources, Inc

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CSC: We've Blown $80 Million at Sears and Want Our Money Back
By Paul McDougall, InformationWeek
November 13, 2006

CSC says it has sunk $80 million into building and operating a computing backbone for Sears, but that Sears now wants out of the 10-year outsourcing agreement.

Why wait for the post-holiday rush to get a refund from Sears? Computer Sciences Corp., the nation's third largest tech services provider, said Monday in a regulatory filing that an ongoing dispute with the retailer over a failed outsourcing agreement may force it to take a significant charge against earnings if it can't recover its investments into the deal.

In a document filed with the Securities and Exchange Commission, CSC disclosed that it has sunk $80 million into building and operating a computing backbone for Sears as of September, 2006. The problem: CSC may not recover all of that investment as Sears wants out of the outsourcing agreement, which the companies signed in 2004 to begin what was supposed to have been a 10 year relationship. The deal would have been worth $1.6 billion to CSC.

Last year, Sears sued CSC in an effort to extricate itself from the contract following its merger with Kmart.

Sears and CSC are now trying to work out a settlement, and CSC is continuing to provide the retailer with IT services until that's done. However, it's not certain whether CSC will recoup all or part of the money it's spending on software, hardware and labor while running Sears' technology operations.

"The company will vigorously pursue recovery for its associated assets and commitments. While the company expects full recovery of its investments associated with this agreement, if unsuccessful, the company may experience a charge, which could be material, associated with the impairment of these assets," CSC said in Monday's filing.

Sears' outsourcing contract with CSC was authored in 2004 by former Sears CIO Gerald Kelly. Kelly, however, was ousted in 2005 following the merger of Sears and Kmart. Kmart CIO Karen Austin was given the top technology post at the combined company.

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2,000 Climbers Tackle Stairs of Sears Tower
NBC NEWS
November 12, 2006

CHICAGO -- Some 2,000 people worked their way up the stairs of the Sears Tower on Sunday.

The tower's 103rd floor Skydeck observatory was the finish line for what's billed as the world's longest indoor stair climb, "Go Vertical Chicago."

Climbers huffed and puffed their way up 2,109 steps to raise money for the Damon Runyon Cancer Research Foundation.

"We've been around for 60 years this year, and our mission is to find young cancer researchers across the country who are committed to new answers for all types of cancer," said Lorraine Egan of the foundation.

"They’ve won Nobel Prizes, they're running cancer research centers around the country and, most importantly, they've made breakthrough discoveries that have improved the treatment for cancer and are really saving lives," she said.

The foundation has raised nearly $200 million since 1946.

Egan said this fifth year for "Go Vertical Chicago" raised $300,000, and 100 percent of those funds go toward cancer research.

"It's just amazing that there are so many people in Chicago who are willing to come out and climb the tallest building in the country for cancer," Egan said.

Dave Shafron took part in the "elite athlete race" that began just after 7 a.m., and he finished with one of the fastest times.

"I did pretty well," he said. "The official results aren't in, but I think I was right around the top three, possibly four, and ran right around 14:10 to 14:15 or so."

It was Shafron's third stair climb. He tries to do a lot of endurance training, like biking and running hills, leading up to the event, in addition to practicing on the actual stairs.

At noon, individual and team runners got their shot at the stairs.

NBC 5's Carla Eboh reported from the Skydeck that paramedics were on hand but had not been needed by mid-morning.

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Isadore Barmash, 84, Prolific Chronicler of Retail Wars, Dies
By Robert D. McFadden – New York Times
November 12, 2006

Isadore Barmash, a retired business news reporter for The New York Times who specialized in retailing and wrote a dozen books on trends, strategies and machinations in the ferociously competitive mercantile industry, died on Thursday at the Margaret Tietz hospice in Jamaica, Queens. He was 84.

Mr. Barmash, who lived in Queens, died of complications of bladder cancer, said his wife, Sarah.

In the genteelly cutthroat world of retail merchandising, where greed, secrets, backbiting and other skulduggery often lurk behind the facades of fashion, marketing and merger announcements, Mr. Barmash took his readers beyond the glitz of the selling floors and the closed doors of executive suites.

Besides chronicling the fortunes and failings of big department stores like Macy’s, Gimbel’s, Saks and Bloomingdale’s, discount chains like Korvettes and myriad small businesses, Mr. Barmash covered fashion trends, the explosion of credit cards, leveraged buyouts, executive fights, corporate missteps, bankruptcies and hidden biases that affected black, Hispanic and female aspirants for management.

In a career that spanned more than four decades, Mr. Barmash worked for Fairchild Publications in the early 1950s, was managing editor of Women’s Wear Daily from 1955 to 1963 and was a reporter for The New York Herald Tribune in 1963 and 1964. He joined The Times in 1965 and retired in 1991, but continued for a decade to write freelance articles and books on retailing.

“He was a legendary figure on the beat and one of the toughest and most gracious competitors I ever had,” said Hank Gilman, deputy managing editor of Fortune magazine, who wrote for The Wall Street Journal when he knew Mr. Barmash in the early to mid-1980s.

Floyd Norris, The Times’s chief financial correspondent and a former colleague, recalled Mr. Barmash as the consummate retail reporter. “He knew everything there was to know and everybody there was to know in the field,” Mr. Norris said.

In 26 years with The Times, Mr. Barmash wrote nearly 4,000 articles, many on subjects, like overexpansion and fashion blunders, that were unwelcome to department stores and corporate retailers, many of them major advertisers.

One news break, he told Jack O’Dwyer’s Newsletter in 1989, came when a company chairman asked him after he interviewed the company’s president, “So, what did he tell you?” Mr. Barmash recalled: “That sent me digging hard for the management split that gave me an entire series of exciting pieces.”

One Barmash book, “Welcome to Our Conglomerate — You’re Fired,” published in 1971, was chosen by five book clubs, including the Book of the Month Club. Among his other titles were “Great Business Disasters: Swindlers, Bunglers and Frauds in American History” (1972); “More Than They Bargained For: The Rise and Fall of Korvettes” (1981); and “A Not-So-Tender Offer: An Insider’s Look at Mergers and Their Consequences” (1995).

Isadore Barmash was born in Philadelphia on Nov. 16, 1921. He graduated from West Philadelphia High School and studied journalism at the Charles Morris Price School in Philadelphia. During World War II, he served in the Army in the South Pacific, rising to staff sergeant.

Besides his wife, the former Sarah Jasnoff, whom he married in 1948, Mr. Barmash is survived by three daughters, Elaine Charnow, of Jericho, N.Y., Marilyn Weinberger, of Livingston, N.J., and Pamela Barmash, of St. Louis; a son, Stanley, of Clayton, Del.; and four grandchildren.

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Sears Canada stockholders reject buyout bid
Bloomberg News – Chicago Tribune
November 15, 2006

TORONTO -- Sears Canada Inc. shareholders on Tuesday rejected a $781 million bid by parent company Sears Holdings Corp. to acquire the Canadian subsidiary after some investors said the price was too low. Sears Holdings said it won't raise the bid.

Shareholders voted 62 percent against the proposal by Hoffman Estates-based Sears Holdings to acquire the 46 percent of the company it doesn't already own. Sears Holdings needed approval from more than half of the holders of the minority stake to acquire the Canadian unit.

The vote, along with a court ruling earlier Tuesday on the voting process, blocks Sears Holdings Chairman Edward Lampert's attempt to acquire 100 percent of the Canadian subsidiary.

"This is a great day for minority shareholder rights in Canada," said Richard Rubin, managing partner of Hawkeye Capital Management LLC, a New York-based hedge fund that owns Sears Canada stock. "We felt strongly enough to join with all the other shareholders. If we weren't receiving fair value, Sears Canada should remain a public company."

The Ontario Court of Appeal ruled Tuesday that it would not hear Sears Holdings' appeal stemming from an Aug. 8 decision by the Ontario Securities Commission that prevented 15.1 million shares from being counted. The shares were held by Bank of Nova Scotia, Royal Bank of Canada and Vornado Realty Trust.

The commission disqualified the shares, saying Sears Holdings broke merger rules by failing to disclose promptly to all shareholders certain details of deals made with the banks and the trust for their support.

Sears Holdings' acquisition bid would have succeeded if the shares had been counted. While investors holding 81 percent of Sears Canada shares were in favor of the takeover, the offer could not succeed without minority shareholders' approval. The 81 percent includes the stock held by the parent company.

"We respect the decision of the Court of Appeal," Sears Holdings said in a statement. "Sears Holdings is disappointed that the ruling of the OSC has not allowed the expressed will of the holders" to be carried out.

Sears Holdings said it won't raise the price and its offer will expire on Nov. 27.

Institutional Shareholder Services, the biggest independent proxy research firm, and at least two other proxy research companies recommended that shareholders reject the acquisition because it didn't adequately value Sears Canada.

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Sears Canada investors reject Sears offer
Crain's Chicago Business Online
November 14, 2006

(Reuters) ˜ Sears Canada Ltd. minority shareholders rejected a buyout offer from the company's U.S. parent, Sears Holdings Corp., on Tuesday in a vote that will keep the Canadian arm a public company.

Sears has offered $15.79 a share, or $782.46 million, for the shares of the Canadian retailer that it does not already own so that it can take the company private.

Although the motion received the required two-thirds approval in one vote, about 61.5% of the minority shareholders who voted did not support the deal in a second ballot.

"This was a great day for minority shareholder rights in Canada," said Richard Rubin, managing partner at Hawkeye Capital Management LLC.

Rubin said the vote was not so much about shareholder activism as it was about receiving fair value for minority shareholders.

He wasn't aware of any further recourse available to Sears Holdings to revive this bid, following a lengthy battle before Ontario courts and the Ontario Securities Commission, Canada's main securities regulator.

Sears Holdings, which has long held a majority stake in Sears Canada, said last April it had gained the support of most of the retailer's minority shareholders to take it private.

But a group of minority shareholders, led by hedge fund Pershing Square and included Hawkeye Capital, vowed to fight the deal and filed a complaint with the OSC.

The OSC put the brakes on Sears Holdings' offer last August, saying the owner of U.S. retailers Sears and Kmart had fallen short of disclosure obligations after it failed to adequately disclose support agreements with some minority shareholders.

An Ontario court upheld the OSC decision in September.

In a statement, Sears Holdings acknowledged that because of the OSC order, shares held by Bank of Nova Scotia, Scotia Capital and Royal Bank of Canada ˜ with which Sears Holdings had the support agreements ˜ were excluded from the calculation of the "majority of the minority" approval.

Shares acquired from Vornado Realty L.P. were also excluded, Sears Holdings said.

All told, Vornado's and the banks' shares represented about 30% of minority shares.

As a result, the buyout is considered to have been voted down by the majority of the minority shareholders, it said.

The company also said the Ontario Court of Appeal denied its motion to effectively again appeal the OSC's ruling.

"Although Sears Holdings continues to disagree with the decision of the OSC, and continues to believe that the case presented important issues concerning the Canadian rules for takeover bids and going-private transactions that warranted further judicial review, we respect the decision of the Court of Appeal," the company said.

Sears Holdings' offer will expire on Nov. 27.

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Sears Holdings Bid to Buy Sears Canada Defeated
By Andy Georgiades - Dow Jones Newswires
November 14, 2006

TORONTO (Dow Jones)--Minority shareholders of Sears Canada Inc. (SCC.T) have voted against a privatization offer from the Canadian retailer's U.S. parent, Sears Holdings Corp. (SHLD).

At a shareholder meeting Tuesday, about 61% of minority shareholders eligible to vote cast ballots against the offer, worth C$17.94 a share.

"I think this was a great day for minority shareholder rights in Canada," said Richard Rubin, a member of Hawkeye Capital, one of the hedge funds against the deal.

He added that his firm considers itself a long-term shareholder of Sears Canada, and that he sees the stock price going "substantially higher" in the future. He declined to elaborate.

In Toronto Tuesday, shares of Sears Canada are up C$1.27, or 5.5%, at C$24.52 on about 109,000 shares. The stock traded as high as C$25.99 earlier in the session.

The battle for Sears Canada has gone on for nearly a year, seeing several twists along the way.

Perhaps the most crucial moment was a decision by the Ontario Securities Commission in August, declaring side deals Sears Holdings had made with certain shareholders - including two Canadian banks and a real estate company - were improper. The regulator said at the time it was troubled by Sears Holdings' approach to its disclosure obligations and that its conduct violated Ontario securities law.

As a result, Sears Canada's shares held by Bank of Nova Scotia (BNS), Royal Bank of Canada (RY) and Vornado Realty Ltd. weren't included in the shareholder vote.

The vote is considered "conclusive," shareholders attending the meeting heard, given that earlier Tuesday a Canadian court denied Sears Holdings' motion for a leave to appeal the OSC decision a second time.

In a statement, Sears Holdings noted that about 81% of the total number of votes cast approved the deal. It also said that, had the shares that were excluded by the OSC been counted, the deal would have met the "majority of the minority" condition.

The company added that, while it continues to disagree with the OSC decision to exclude the votes, it respects the ruling of the court.

An arbitrageur that owns Sears Canada stock said the outcome isn't overly surprising.

His expectation is for Sears Canada to pay out a special dividend within six to 12 months. "Sears (Holdings) can't treat itself any better than it treats the rest of the shareholders. Given the animosity that exists between Sears (Holdings) and the minority shareholders, it's conceivable that Sears might want to delay any potential benefit that could come from this," the arb said.

He also noted that fears that the stock would fall if the takeover failed were obviously unjustified in the end. "It's a very valuable stock," he said.

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Former Sears complex wins
national historic preservation award
By Linda Mack, Star Tribune – Minneapolis Star-Tribune
November 13, 2006

The $190-million redevelopment of the former Sears complex in south Minneapolis has won a special award from the National Trust for Historic Preservation. Minneapolis-based Ryan Companies, developer of the newly dubbed Midtown Exchange, received the National Trust/Housing and Urban Development Secretary's Award for Excellence in Historic Preservation.

The $190-million redevelopment of the former Sears complex in south Minneapolis has won a special award from the National Trust for Historic Preservation. Minneapolis-based Ryan Companies, developer of the newly dubbed Midtown Exchange, received the National Trust/Housing and Urban Development Secretary's Award for Excellence in Historic Preservation.

"Midtown Exchange has given new life not only to this historic structure, but also to a community that was beginning to lose hope," said Richard Moe, president of the National Trust, a private nonprofit membership organization.

The former Sears complex at Lake St. and Chicago Av. S. now includes apartments, condos, office space, a hotel and an ethnic food and crafts market. Six architects, four developers and numerous consultants and community groups were involved in the redevelopment, which began in 2004 when Ryan received the city's go-ahead after a series of other failed deals. The Sears store closed in 1994. Its 16-story art deco tower is a city landmark.

Ryan's award was one of 21 given this year at the organization's annual conference in Pittsburgh. In recent years, National Trust awards have gone to the renovation of the Grain Belt Brewery, the Minnesota Historical Society's Mill City Museum and the Minneapolis Community Development Agency. Next year's National Trust conference will be in St. Paul and Minneapolis.

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The New Math of Health Benefits
This Enrollment Season, Companies Prod Workers to Choose High Deductibles or High Premiums
By Sarah Rubenstein - Wall Street Journal
November 7, 2006

Get ready to do more homework on your health plan.

Companies are pushing to make the sign-up process for 401(k) plans and other retirement benefits as simple as possible, narrowing choices and often enrolling employees automatically. But when it comes to health benefits, the trend is just the opposite: Give employees an array of choices and encourage them to think hard before picking one.

As this year's open-enrollment season -- the time when employees choose their health plans for the following year -- goes into high gear at many companies, employers are trying to get workers to confront ever-rising out-of-pocket costs. Some are requiring employees to proactively choose a plan, even if the workers think they want to stick with the status quo. Some are offering online tools to help employees analyze their coverage options. Others are rolling out more-complex options, such as customized plans where employees can pick and choose features.

Many companies are hoping that more workers will decide on their own that they don't need the most-generous plans the company offers. And more are offering plans with higher deductibles, or the amounts patients must spend upfront before their coverage kicks in. To sweeten the pot, some companies are kicking in contributions to tax-advantaged health savings accounts and other vehicles designed to pay for health expenses. Deductibles on plans paired with HSAs are currently allowed to run as high as $10,500 for family coverage, though employees may pay smaller premiums than they would for other plans.

Traci Brown, a business analyst at GMAC Insurance Personal Lines, a unit of General Motors Acceptance Corp., used a company calculator and decided to increase her family's deductible from $250 to $500 next year. (Each member of the family has to meet the deductible before the insurance kicks in for that member. Once three members have met it, the fourth isn't required to meet it.) Ms. Brown will pay about $1,500 less for the coverage next year, according to the company.

"It's still scary," says Ms. Brown of the higher deductible. But she says she hopes she'll be able to hoard the money she saves on the cost of the plan. "Everything should be fine, and if it's not, then you deal with it when it comes."

Efforts to get workers to do the math are coming chiefly from employers that are offering workers new "consumer driven" health plans that typically have deductibles of $1,000 and up -- and often cost employers less than plans with lower deductibles. Companies also hope that workers who choose these plans will become more-careful consumers and reduce their health-care spending over the long run.

The so-called high-deductible plans may be cheaper for some workers, especially those with low health-care costs. But they may be costlier for employees who use lots of medical services.

Of course, even if people thoroughly analyze their health history and expectations, they can't be sure what their future health expenses will be. "People shouldn't get some sort of false sense of security" from plan-comparison tools, says Gary Claxton, a vice president at the Kaiser Family Foundation, a nonprofit health-policy research group.

Still, employers fear that people who would be good candidates for the less-expensive plans aren't considering them because they don't understand them, or because of sheer inertia. Often, employees who do nothing during the open-enrollment period are defaulted into the plan they had the prior year. "The natural tendency is to stick with what you know," says Randall Abbott, a consultant at employee-benefits firm Watson Wyatt Worldwide.

The plan-comparison push from employers comes at a time when it's tougher to choose among health plans based on acronyms such as HMO, for health maintenance organization, or PPO, for preferred provider organization. The lines between these types of plans have blurred as some HMOs have added deductibles or relaxed rules that require, for instance, patients to get a referral to see a specialist.

Last fall, GMAC Insurance Personal Lines began requiring workers to choose a plan each year. It started a mix-and-match program for its 2,500 full-time employees, allowing them to choose among a total of 12 health-coverage options. Employees are defaulted into the least-comprehensive plan available to them and must actively make changes to their coverage if they want something else.

There are three different individual-deductible levels -- $250, $500 and $1,000 -- and other features employees can choose to add on, such as upfront coverage for office visits regardless of whether the deductible has been met. GMAC developed a tool that helps employees predict their total annual costs under different options.

Before GMAC started the program, 88% of eligible employees had a $250 deductible, and most of the rest opted out of company coverage, says Janet Frazier, who directs benefits and compensation at the company. In the program's first year last fall, 43% went with deductibles of $500 or $1,000, often choosing to enhance coverage for office visits or drugs.

International Business Machines Corp., in a pilot program with UnitedHealth Group Inc., is giving employees in Arizona the option to pick different plans for individual members of their families. One sick family member could opt for the most-generous and expensive option, for instance, while others could go for a cheaper plan. Without such a program, some employees "feel like they're buying up for a level of coverage they don't really need," says Karen Salinaro, IBM's vice president of compensation and benefits.

For many employees, the most straightforward part of the calculation is the flat amount they'll pay out of each paycheck for the coverage. What's trickier is figuring out your total spending, including costs for hospitals, doctors, drugs and other expenses. People who have spending accounts also need to factor in how much, if anything, their employer contributes to that account -- and those with health savings accounts also need to estimate how much they stand to save on their taxes.

More employers are providing workers with online tools that predict how much employees would end up spending under each of the plans they're considering. Some 250 midsize and large employers are using Aetna Inc.'s plan-comparison tool, up from 50 when the insurer launched the tool on a limited basis in 2004, it says. Some 175 companies are using Cigna Corp.'s tool, which was developed by WebMD Health Corp., up from 20 when the insurer started offering it in 2004, Cigna says. Another big insurer, Humana Inc., this spring expanded the availability of its plan-comparison tool.

WebMD enhanced its plan-comparison tool over the past year to make cost calculations for drug plans with four or more levels of co-payments. Subimo LLC, which has a tool used by many insurers, added a feature that lets patients specify whether they order mail-order drugs, buy generics or get preventive care.

In addition to providing cost-comparison details, Pitney Bowes Inc., of Stamford, Conn., last fall started offering employees another tool that provides information on many other health-plan details, such as what type of information is available in the plans' doctor directories, what services the plans provide over the Web and how the coverage works for a host of services such as physical therapy, lab tests and prenatal office visits.

If you are inclined to go with a less-expensive, higher-deductible plan, make sure you could quickly meet your deductible if you encounter a costly health problem. With any plan, make sure you're comfortable with the out-of-pocket maximum, which is the most you have to spend before you get 100% coverage.

Other factors to consider: whether your doctor is in a plan's network and whether there are restrictions on specialist visits or out-of-network care. And if you're looking at a high-deductible plan, look into what tools the insurer offers to help you research costs and the quality of the medical providers and services offered.

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Carolyn Link, longest employee of Sears, dies at 86

Carolyn Link, with the longest service of any employee in Sears,Roebuck and Co.’s history, died Wednesday at the Scottish Home in North Riverside, IL after suffering a stroke and heart attack. She was 86.

She had more than 67 years of service with Sears, including more than 38 years as executive secretary for Arthur M. Wood when he was Sears president, then chairman and during his retirement until his death last June.

Mrs. Link, a resident and former president of the Oak Brook Club, also was an active fund-raiser for the Scottish Home, a retirement residence her mother lived in for 14 years.

She joined Sears as a sales associate in Union City, NJ in 1939, and transferred to the Chicago area in 1940 as a stenographer at the Irving Park store. She moved to the company’s headquarters in 1942 as a staff secretary and moved to the Midwest Territory office as an executive staff secretary in 1948. She moved to Minneapolis as secretary to the Midwestern Zone manager from 1950 to 1954, returning to the Midwestern Territory office from 1954 to 1967, when she became secretary to Arthur M. Wood, then Midwestern Territory vice president.

In 1968 she moved with him to Sears headquarters as executive secretary when he became Sears president, and in 1973 when he was elected chairman and chief executive officer. When he retired in 1978, she continued to work for Sears as his executive assistant until his death in June of this year.

Mrs. Link was a longtime supporter of the Rush University Medical Center and a charter member of the Rush Heritage Society. Her association with the medical center began in 1955, when she was first a patient in the hospital. Her late husband, Robert, and her mother also were Rush patients.

Mrs. Link was actively involved on many boards, including the Oak Brook Club, Oak Brook Civic Association and the St. Andrews Society.

She was preceded in death by her husband, Robert K. Link, her brother, William S. Watrous and her mother, Christine Watrous and father, Harry Watrous, who was a commercial artist and friend of Norman Rockwell.

She is survived by her sister-in-law, Janet Watrous of San Jose, CA, cousins Sandra (Jack) Fox of Kalamazoo, MI, Alma (Alan) Frederick of Winnipeg, Canada, David (Jeanne) Stansfield of Hollandale, WI, niece, Karen (David) Greene of Sarasota, FL, nephews Bill (Janice) Link of Lake Villa, IL, and Wayne (Melissa) Link of Columbus, NC, members of the Watrous family living in Indiana and many close friends.

Visitation will be from 2 to 6 p.m. Saturday, November 4, at Ahlgrim funeral home, 567 S. Spring Rd., Elmhurst, IL. A memorial service will be held later.

In lieu of flowers, the family suggests contributions in her name to the Scottish Home.

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Carolyn Link: 1920 - 2006
Longtime assistant to former Sears chief

Oak Brook resident began 67-year career with the company in sales,
then worked her way to the top as a secretary
By Courtney Flynn - staff reporter - Chicago Tribune
November 6, 2006

Carolyn Link spent most of her 67-year career at Sears, Roebuck and Co. in an important role to one of the company's most important people.

As one of Sears' longest-serving employees, Mrs. Link worked for nearly four decades as secretary to Arthur M. Wood, the company's former president, chairman and chief executive.

But it wasn't the high-profile nature of her job that mattered most to Mrs. Link--showing kindness toward others always took top priority, family said.

"There was a plaque that hung in her kitchen for as long as I can remember that said: `It's nice to be important, but it's more important to be nice,'" said her niece Karen Greene. "She was incredibly kind and generous."

Mrs. Link, 86, died Wednesday, Nov. 1, in Loyola University Medical Center in Maywood after complications from heart surgery, her family said. She had been a longtime resident of Oak Brook.

A Chicago native, Mrs. Link moved as a girl with her family to New Jersey, where she graduated from high school in 1938, her family said. A year later, she landed her first job at Sears as a sales associate, said Ernie Arms, a former Sears spokesman.

By 1940, Mrs. Link had moved back to the Chicago area, where she began working as a secretary at a Sears store on the North Side, Arms said. From there, Mrs. Link went to work as a staff secretary in 1942 at the company's headquarters, then located on the West Side, he said.

Mrs. Link married her husband, Robert, in 1945, her family said. He died in 1985.

Although the couple never had children, they treated their cousins, nieces and nephews as their own children.

"Many people, whether they were related or not, became her family," said her cousin Sandra Fox. "She was the most loving, generous and gracious individual that you'd ever meet."

In 1948, Mrs. Link went to work at Sears' Midwest territory office in Skokie as an executive staff secretary, Arms said. From 1950 to 1954, Mrs. Link worked in Minneapolis, where she was secretary to the company's northwestern zone manager, before returning to the Skokie office later in 1954 to resume her post there, he said.

When Wood became vice president of the Midwest territory office in 1967, Mrs. Link went to work for him, Arms said.

In 1968, when Wood was promoted to company president, Mrs. Link became his executive secretary, Arms said. She continued to work for him through the time he was elected Sears' chairman and chief executive in 1973 until his retirement in 1978, he said.

Mrs. Link remained a Sears employee and retained the title as Wood's executive assistant, as a benefit extended by the company, until his death in June, Arms said.

Throughout her life, Mrs. Link was happiest when there were opportunities for her to share whatever she could with others, her family said.

She once sent a letter to a relative, who was attending college at the time, including a check for $200 and a note saying: "Take your friends out for coffee," her family said. She often sent money to other relatives, encouraging them to take their families out for nice dinners.

But her generosity frequently stretched beyond her relatives.

When Mrs. Link discovered that an interior decorator she worked with for about 40 years didn't have anything saved for retirement, she used some of her own money to set up a retirement fund for him, her family said.

Outside of her career, Mrs. Link had been a supporter of Rush University Medical Center and was a member of the Rush Heritage Society, her family said. She also had been involved with the Oak Brook Civic Association and the St. Andrew's Society, her family said.

Other survivors include a sister-in-law; two cousins; and two nephews.

A memorial service will be held at 2 p.m. Dec. 3 in the Oak Brook Hills Marriott Resort, 3500 Midwest Rd., Oak Brook.

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Historic Sears Headquarters District Finds New Life
The Real Estate Capital Institute
November 6, 2006

Chicago, Il. (WebWire) -- Celebrating its centenary, the historic Sears Catalog Plant district is now transcending into a new era. Serving as the original Sears Roebuck and Co. world headquarters from 1906 to 1973, the district boasts a long history of research and development accomplishments including a catalog publishing plant, testing laboratories, automobile insurance (original home of Allstate Insurance) and one of the nation’s first radio stations (WLS).

Today the area is a National Landmark district known as Homan Square. Continuing the innovative tradition of the Catalog Plant, it is Chicago’s newest technology-based community. A $30-million Community Center developed by the late Charles H. Shaw is the crowning achievement of this area featuring free WiFi for the entire neighborhood.

Beyond the technology initiatives, Homan Square boasts a central location within Chicagoland. Located in North Lawndale, the neighborhood is in the heart of the City’s West Side. Only ten minutes from downtown (about 4.5 miles), the Rapid Transit serves this section (Blue Line) and the Eisenhower Expressway. Douglas and Garfield Park surround it. Just as importantly, the second largest employment node in Illinois is only a few minutes directly east (the University of Illinois and the Illinois Medical District).

The Real Estate Capital Institute is a specific example of technology-based organizations moving into Homan Square. The Institute will occupy the original Sears Tower. Located in the heart of the area at the intersection of Arthington Street and Homan Avenue, the 14-story structure is a 100-year-old national landmark, otherwise known as the "Old" and "First" Sears Tower. This landmark is the oldest skyscraper outside downtown Chicago. Notes Nat Zvislo, research director of the Institute, "the area has a small community feel within a big-city environment -- a true neighborhood."

The Real Estate Capital Institute selected this community as its headquarters for a myriad of reasons. The Institute is a national research organization using fully automated communications for processing real estate capital market data. As a result, its workforce needs to be close to downtown and “tech" neighborhoods such as Wicker Park. Enough parking and close public transportation access were also important factors.

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Sears home items remade to keep consumers buying
With a Focus on Trendy Designs, the Chain Looks
to Give Its Home Furnishings a Lift
By Jura Koncius - Staff Writer - Washington Post
 Fort Wayne Indiana Journal Gazette
November 5, 2006

Two years ago, Sears decided it was urgently in need of a home furnishings makeover.

Its furniture department had dwindled over the years, and the bed and bath offerings were a wasteland of tired old standards.

Competitor Target, meanwhile, had been building buzz with its budget-chic offerings from the likes of Michael Graves, Philippe Starck, Isaac Mizrahi and Thomas O'Brien. At Kmart, which was brought under the Sears Holding Corp. umbrella last year, Martha Stewart has been churning out matelasse comforters and garden benches. Chris Madden upgraded the home department at J.C. Penney with spa towels and tasteful upholstery.

Sears, with 926 stores, was a sleeping giant with a nagging image problem.

First, the bright spots: The appliance department is always highly rated by consumers. Kenmore, launched by the chain in 1927, is the best-selling appliance brand in the United States. Sears appliances are found in two of every three U.S. homes, company spokeswoman Corinne Gudovic says. Craftsman tools, a Sears brand, have always been another major draw.

But customers seeking washers, dryers and power drills were walking right by shelves of towels, candles, lamps, curtains and blankets. The home department clearly needed a style jolt.

"Sears has been a staple in families' homes and lives for generations," Gudovic says of the 120-year-old retailer. "We are a part of Americana. It made sense for us to expand on our home fashions and make us a complete solution for the home."

The company assembled a team of designers to reexamine each shower curtain and soup bowl on the shelves and raise the style quotient in every category. For a little star power, it signed Ty Pennington, the hunky carpenter who stars in ABC's "Extreme Makeover: Home Edition," first as a spokesman and eventually as a designer of furniture, tabletop items and bedding.

The new look, introduced in the fall 2006 Simply Indoors catalogue that was mailed to customers, draws on the prevailing popularity of dark woods, luxury linens and gourmet tabletop items and cookware. The collections include 75 ready-to-assemble beds and chests, and a hotel bedding and bath collection with 500-thread-count sateen sheets.

Looking to piggyback on the Kenmore brand, the chain brought out Kenmore cookware, including a high-end line combining aluminum and stainless steel. From Lands' End, a company that is also part of Sears Holdings, come fleecy throws and flannel sheets and comforters. (The Sears stores at Landmark Mall in Alexandria and in Glen Burnie are opening Lands' End bed and bath departments this month.)

The Sears at Landmark Mall, one of 20 in the Washington-Baltimore area, doesn't look quite like the backdrops in the company's glossy catalogue. There are no neoclassical mantels or Palladian windows; it has tile floors and no-frills shelving instead.

But shoppers gliding down the escalator can't miss clearly updated bed and bath, furniture and tabletop collections, including a Martha-ish set of willow storage baskets ($29.99 for four), a pink convertible sofa ($279) and a wall of KitchenAid stand mixers, available in 24 colors ($299.99). Computers give customers access to. Most orders can be delivered within 48 hours, and for an extra charge, customers can arrange in-home furniture assembly.

Shalonda Randolph, an assistant store manager at the Landmark store, says the assembly-required furniture has been among its top sellers, especially the pub table and four-stool set ($249). Randolph says customers have commented on how great the new catalogue looks. "It reminded me of Nordstrom," she says, straightening a cushion.

Sears's sales have been sluggish. For the second quarter of 2006, its comparable store sales declined 6.3 percent from the same period last year. Some retail experts think Sears still has a ways to go.

"Sears merchandising has been rather inconsistent and lackluster," says Warren Shoulberg, editor in chief of HFN, an industry publication. "They should be with Kohl's and Penney's, right in the middle, as a store that appeals to the middle market."

"Sears is trying to redefine itself," says George Whalin, president and chief executive of Retail Management Consultants. "But they still need to make investments in their stores. They haven't done enough of that. Some of their stores are real tired-looking."

And the competition keeps coming: Kohl's just signed Vera Wang to do a line of linens and towels.

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`I think you can reinvent insurance'
New Allstate chief accepts risk-taker label, views insurer as consumer products company
By Becky Yerak - staff reporter – Chicago Tribune
November 5, 2006

Standing before a group of about 40 rising stars at the Northbrook headquarters of Allstate Corp. last month, Thomas Wilson asked a question related to their homework.

"What was Drucker's major message about innovation?" he asked, referring to "The Discipline of Innovation" by management guru Peter Drucker.

At first, there was stony silence.

Eventually the group began to discuss, among other things, research and development and product differentiation--topics hardly associated with the staid insurance business.

Wilson, the 49-year-old son of a truck driver and a library clerk, is taking the helm of the nation's biggest publicly traded home and auto insurer at a time when some believe his business has no where to go but down.

As a result, Wilson's stated quest is no less than reinventing insurance and defining Allstate more broadly.

"If we didn't do anything differently tomorrow than we'd do today, you'd expect your results to deteriorate," Wilson said in an interview. "The thing is, I do like to do things differently, and it's easier to change from a position of strength than it is from a position of weakness."

He wants employees to think of Allstate more as a consumer products company that happens to sell insurance as opposed to just an insurance company.

His push comes as the number of cars and homes in the United States is not growing rapidly, and some argue that makes insurance a low-growth--and therefore a commodity--business.

"I don't buy it," said Wilson, an 11-year Allstate veteran who takes over as chief executive in January. "I think you can reinvent insurance and expand the category."

Some industry observers are skeptical.

"The Story has Played Out. Sell Now," was the title of a report written by CreditSights last month after Allstate, which has $35 billion in sales, reported strong third-quarter results. The credit research firm believes sales growth will slow, partly due to intensifying auto insurance competition.

But Wilson, who at one time aspired to become an English professor, believes the company can defy the gravity that some believe is inevitable.

He cites such innovations as Allstate's introduction of identity theft insurance as well as its Your Choice Auto program, which offers options for consumers depending on whether they care the most about cheap coverage or comprehensive coverage.

"If we think of ourselves as `It's us and our customers against the world,' then it opens your mind to the things you can do," he said.

Take cell phone insurance, which Allstate doesn't sell.

"I've said to myself, `Well, we missed that one,'" Wilson said. Coverage is usually sold at the point of sale anyway, "but somebody figured it out."

He regularly gets e-mail from Allstate agents asking whether the company will sell pet insurance.

"We're selling some up in Canada to test it out," he discloses, with total recall of statistics on the percentage of households with pets (about two-thirds) and the percentage of pet owners calling themselves their pet's "parent" (about 80 percent). "But I don't know that we'll sell it in the U.S. because it feels too much like health insurance."

Wilson also believes that agents' office space has to be a lot hipper if Allstate is to compete.

Using a design consultant who has worked with clients such as Block 37, the Gap, and MGM Mirage, Allstate has designed an "office of the future" in an undisclosed Chicago suburb.

A new look

The challenge for Allstate will be persuading its exclusive agents, who are independent contractors, to invest in all or at least parts of the optional design, which also features daisy-yellow walls complementing Allstate's signature blue, plus flat-screen televisions airing "Good Hands TV," and blown-glass blue pendant lighting.

Prominent glass walls are meant to evoke openness and transparency. A children's play area goes beyond the usual fire-safety coloring books to include hand-held DVD players so distracting that can-we-go-now pleas are kept to a minimum as mom tries to figure out her homeowner's policy. The prototype has gotten high marks from customers and employees, Wilson said, but costs need to be fine-tuned.

"The chairs are about $1,200 a pop, and that's an expensive chair," Wilson said. The blue pendant lighting fixtures cost $1,500 per location, he added.

Wilson said appearance of the retail office isn't the only thing that financial-services companies compete on. "But when you spend as much money as we do on advertising we don't want people driving by and saying, `It was a great ad but look at that dump,'" he said.

Other financial-services companies have been revamping their offices, and Wilson likes to check on them.

"I'm out. I'm curious. I look around," he said.

In recent years, Allstate also has become better at picking retail locations. "Fast-food restaurants have long had sophisticated ways to locate retail sites," Wilson said.

Before Allstate was spun off from Sears, Roebuck and Co., the insurance guys didn't have to worry about real estate. "Sears did it for us," he said.

Earlier this year, Allstate filed for a patent on what it calls its "retail deployment models" to find locations. "They're very cool," he said. "You can zoom in, use satellite imagery, and see what kind of construction goes on in various places."

Personal investment

His own family experiences have influenced how he thinks of his job at Allstate and how customers are treated.

Wilson's older sister, an occupational therapist who lives outside Jackson, Mich., is a quadriplegic who returned to work a couple of years ago after being seriously injured in a car accident seven years ago.

"So I've experienced some of what our customers have, tangentially," Wilson said.

While Allstate has been criticized for playing hardball with policyholders, Wilson said his sister's accident has driven home the importance of good customer treatment. His sister, who wasn't insured through Allstate, had "incredibly bad claim service," he said.

"I did start working with the claims people, when claims have not been settled within a certain time period, I've asked them to change their review process," he said. "We have good review processes around timeliness, and complying with the laws and making sure we're in contact with people, but sometimes you need to stand back and say from a customer perspective, should we settle this thing?"

He also has a younger brother who lives in Detroit and has been a claims adjuster for Allstate for more than a decade.

Born and raised in St. Clair Shores, Mich., Wilson's father was a meat-truck driver who climbed the company ladder to run the distribution network. He later became a small shareholder in a meat company that ultimately went bankrupt. So his father went back to driving a truck.

Wilson's father died last year at age 76 in a drowning accident; Wilson's mother had always wanted to take a Mississippi cruise, so for the couple's 50th wedding anniversary there was a family reunion in which they rented two houseboats.

The first night of the trip, in Iowa, the family was at a dock where boaters had to disembark to use a bathroom.

"In the middle of the night my father got up, fell into the water and drowned," Wilson said. "It's the worst thing that has ever happened to me."

Many different hats

Wilson's route to Allstate has been circuitous. At the University of Michigan, he started out wanting to be a psychiatrist, then an English professor, then a political science major before deciding on business.

He interned at Ernst & Whinney in Detroit, but, dissatisfied, left to attend Northwestern, where he earned a master's in management.

He considered a career in venture capital, but Stan Golder--the "G" in Chicago-based private equity firm GTCR Golder Rauner--suggested that he first get operating experience. So he took a job at Amoco, where he worked from 1980 to 1986, afterwards heading to Dean Witter.

His investment banking skills caught the attention of Bruce Rauner, of Golder Rauner.

"When there are issues around a deal's structure or sensitive points of negotiations, or problems valuing the company, he'd not just lay out the facts but come up with creative ways to think about the situation," Rauner said.

On one deal in which family infighting made it difficult to do a transaction, Wilson held one-on-one meetings with the clan's members until he "gained their trust and persuaded them to get on the same page," Rauner recalled.

Rauner also recalled some sensitive negotiations with the wealthy owners of a business with which GTCR was trying to do a deal.

"There were tax issues, and Tom, more than any of the tax attorneys working on the deal, came up with a solution," Rauner said.

Talk to people who know both Wilson and 60-year-old Edward Liddy, who has been CEO for the past seven years, and they'll tell you that Liddy takes greater pains to consider different viewpoints and build a consensus before reaching a decision. He's also more likely to second-guess a course of action. He's considered a tad quieter than Wilson and more comfortable in lower-key settings.

In contrast, Wilson likes spending more time outside his office, rooting around the company.

He's also considered more of a risk-taker and a quicker decision-maker--"maybe too quick," said one person who knows him well.

Wilson doesn't dispute that. He even feels secure enough to share one recent incident at Allstate, and it was a doozy, at least symbolically.

In 2005, Allstate had an opportunity to buy a relatively small amount of reinsurance--basically insurance for insurers--in Louisiana.

"We decided not to do that, and in looking back on it, it would have been a smart thing to do," he said. "We still would have lost $4.8 billion, but not $5 billion, on hurricanes in 2005, but it would have been a good decision because the cost of the reinsurance" was a fraction of the payout.

Looking back, Wilson said he could have spent more time thinking through that decision. "It wasn't a company-threatening decision, but I've learned, on that type of risk-management stuff, you need to spend more time looking at things," he said.

Wilson's quicker decision-making process also emerged in 1999 when plans got under way for Allstate Financial, which at the time sold only such unregistered products as life insurance and fixed annuities, to add such registered products as mutual funds to its offerings.

"I said, `Here's $10 million.' Talk to me every two weeks,'" Wilson recalled, noting that he wanted to get his team going on the process. "I didn't want to do a big study for two years. I needed to get the organization's confidence up that we could grow."

Sales of financial products through Allstate agents have risen from about $400 million in 1999 to $2.5 billion today.

Wilson also has taken risks with Allstate's advertising, pushing the company to do its first comparison advertising and greatly dialing up its advertising spending.

In 2003, Wilson deemed that the $70 million a year Allstate was spending was insufficient.

"I went to the board and said, `I'm going to put another $150 million into advertising because I don't think we're investing enough to support our brand and drive our growth,'" he said.

At the same time, he didn't think Allstate's existing ad program justified such an increase.

"I sat down with Leo Burnett, with Linda Wolf at the time, and said we needed new ads because the ads we were running at the time weren't very good," Wilson recalled. "I said, `I don't have the right team, and I probably don't have the right team from you,' and that was appropriate when I was spending $70 million, but if we're headed toward a quarter of a billion we both deserve the `A' team.'"

Wolf, who has since left Leo Burnett, described Wilson as "engaged, and that's unusual for someone at his level." The program that was born out of those discussions is still running.

Thomas J. Wilson
Job: Allstate Corp. president, soon to be chief executive.
Lives in: Chicago with his wife, three children and dog.
Age: Turned 49 on Oct. 15.
Goal before turning 50: Finish a marathon in less than 4 hours. Ran one last year in 3:48.
Recently read books:
- "Observatory Mansions," a novel by Edward Carey that one critic said "makes David Lynch's work seem sunny"
- "The Parliament of Man: The Past, Present, and Future of the United Nations," by Paul Kennedy. (A copy in his office includes passages he has underlined and notes that he has jotted down on the fly page.)
Collects: Photographs, including some by French photographer Henri Cartier Bresson.
Calls mom: daily.

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Woman was a leader in every way
By Henry Stuttley - Staff Writer – Daily Herald – Suburban Chicago
November 4, 2006

Carolyn Link had been working at Sears, Roebuck and Co. on the East Coast when she moved to other Midwest cities just so she could stay with the company.

Eventually, she rose from her first job as a sales associate to become an executive secretary for former Sears President Arthur M. Wood.

And it was that loyalty, dedication and willingness to stay with the company for 67 years that earned her the title of the all-time longest-tenured Sears employee, said Ernest Arms, a former news director for Sears for 25 years.

Link, a longtime Oak Brook resident, died this week after complications from heart surgery. She was 86.

Family and friends say she’d recently suffered a minor stroke and died while recovering from heart surgery.

“It’s a real shock to us here and the village,” said Oak Brook Village Trustee Jeff Kennedy, who worked with Link on several boards in the Oak Brook Club subdivision.

Link started as a Sears sales associate in New Jersey in 1939. Her steady climb within the company took her to the Chicago area as a stenographer and then as a secretary in a Sears store in Minneapolis.

Link, who became executive secretary for Wood in 1967, continued as his executive assistant until his death in June.

“She was a classy lady and always just a perfect person,” said Arms, adding many assistants within the company continue to work for presidents after they retire.

But her contributions didn’t just end at Sears.

She was on several boards in the community, including the Oak Brook’s autumn festival committee and the Illinois St. Andrew Society in North Riverside, an organization which celebrates Scottish culture.

Active in fundraisers for many organizations, Link also raised money for the Scottish Home, a retirement residence where her mother lived for 14 years.

Her cousin, Sandra Fox, said Link always lived according to a sign that hung in her Oak Brook home that read, “It’s nice to be important, but it’s more important to be nice.”

“She followed that right to the letter,” she said. “She was an outstanding woman.”

Many in Oak Brook remember her for her tireless contributions to the Oak Brook Civic Association where she had served as president and was a mainstay for more than 35 years.

She had also been the editor of the monthly newsletter.

Dave Saxman, another past president, said her willingness to attend every village board meeting for years and publish the newsletter was indicative of her ability to do whatever she could to get the job done.

“We are going to miss her immensely because she handled so many things and it will probably take two people to replace her,” he said.

Friday, Village President Kevin Quinlan ordered the village flag flown at half-staff in her honor. A public memorial service will be held later.

She was preceded in death by her husband, Robert K. Link.

Survivors include a sister-in-law, Janet Watrous.

Visitation for Link is from 2 to 6 p.m. today at the Ahlgrim Funeral Home, 567 Spring Road in Elmhurst.

In lieu of flowers, contributions can be made in her name to the Scottish Home, 28th and Des Plaines, North Riverside, IL 60546.

 

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ISS urges vote against Sears takeover of Canadian unit
Crain’s Chicago Business Online
November 3, 2006

(Reuters) — Proxy research firm Institutional Shareholder Services has recommended that its clients vote against Sears Holdings' proposal to take subsidiary Sears Canada private, a group of Sears Canada minority shareholders said on Friday.

The ISS said in a report: "We believe that the cash consideration offered under the share consolidation does not fully reflect the value of Sears Canada shares," the shareholdeer group, led by Pershing Square Capital Management L.P., said.

Sears Holdings has offered C$18 a share, or C$892 million ($789 million), for shares of the Canadian retailer it does not already own.

Sears Holdings, which has long held a majority stake in Sears Canada, said last April it had gained the support of most of the retailer's minority shareholders to take it private.

But a group of minority shareholders, led by hedge fund Pershing Square, vowed to fight the deal and filed a complaint with the Ontario Securities Commission.
The OSC put the brakes on Sears Holdings' offer last August, saying the owner of U.S. retailers Sears and Kmart had fallen short of disclosure obligations after it failed to adequately disclose support agreements with some minority shareholders.

An Ontario court upheld the OSC decision in September.

"We are pleased that ISS agrees that Sears Canada shareholders should vote against the proposed minority squeeze-out transaction," William Ackman, the head of Pershing Square, said in a statement.

"We urge all Sears Canada shareholders to have their voices heard at the upcoming shareholders meeting by voting against the transaction today on the gold proxy card," he said.

Shares of Sears Canada were down 11 Canadian cents at C$21.90 on the Toronto Stock Exchange on Friday morning, still well above Sears Holdings' C$18 a share offer.

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Pioneering designer finds art in everyday products
Charles A. Harrison overcame racial barriers early in his career and later changed the look of cribs, cameras and other household items
By Lisa Black - staff reporter - Chicago Tribune
November 3, 2006

You don't know Charles A. "Chuck" Harrison, but he knows you.

Or at least he knows what you like in a product, in terms of convenience, function and cost.

Harrison, 75, of Evanston has designed hundreds of household products during his lifetime, from coffeemakers and butter dishes to television sets and the humble plastic garbage bin--his favorite.

As one of the first African-American executives in the corporate world, he is perhaps best known for transforming a clunky 3-D viewer into the lightweight children's toy, the View-Master.

His friends know him as an honest man, a creative artist with a keen sense of humor, who worked 32 years at Sears, Roebuck and Co., where he rose to head a department of 22 designers.

So those friends were shocked to read a Chicago Tribune article published Sept. 6 that erroneously linked Harrison to former Chicago Mayor Eugene Sawyer, whose business dealings with shady discount cigarette dealers were outlined in court records.

According to the article, Sawyer, who was not implicated in any wrongdoing, launched his firm CEI International with another man named Charles Harrison.

But the Harrison named in the article was identified as Charles Harrison, the industrial designer and former adjunct professor at the University of Illinois at Chicago--an obvious mistake to those who know him. "He is a person of great integrity. Very honest, very straightforward," said Earl Barnes, a Chicago lawyer and longtime friend. He knew immediately, he said, that "some grave error has been made."

Harrison's accomplishments include an award for lifetime achievement presented to him Oct. 10 in Washington, D.C. An organization of professionals called FocusOnDesign honored Harrison for "his commitment to design excellence and to advancing the careers of young designers," according to the group's Web site.

Before that, he won a personal recognition award by the Industrial Designers Society of America.

Harrison also released a book on his life earlier this year, published by Chicago-based Ibis Design Inc., titled "A Life's Design: The Life and Work of Industrial Designer Charles Harrison."

"He's a pioneer," said Victor Margolin, professor emeritus of design history at the University of Illinois at Chicago, who wrote the foreword to Harrison's book.

"At the time he worked for Sears there were hardly any African-Americans working in corporate design. He was a major figure."

Harrison was born in Shreveport, La., and grew up in segregated communities, including a house at the Prairie View A&M campus in Texas, where his father worked as an industrial arts professor.

His family didn't know it at the time, but Harrison had dyslexia.

"I was not very successful in academics," said Harrison, who today enjoys an expansive view of downtown Evanston from his seventh-floor condominium. "My parents knew I had a problem, they just didn't know what it was. They just put some eyeglasses on me."

While in college, he enrolled in a vocational guidance course and discovered he was good at art.

He was accepted into The School of the Art Institute of Chicago, where he earned a degree in industrial design. After serving a few years in the military, then returning to Chicago, he found it difficult to find a job, even when he knew openings existed.

"I would show up and all of a sudden they didn't need any help anymore," Harrison said.

Harrison said that a Sears manager told him flat out that he would like to hire him but could not because of an "unwritten policy against hiring blacks."

Instead, Harrison freelanced for Sears and other companies.

He said his first taste of success arrived in 1957, after he designed his first mass-produced product, a plastic butter dish, for the Victory Manufacturing Co. He keeps one on display in his home, alongside a View-Master.

In 1961, the same Sears manager asked Harrison to join the company, saying the time was right. Harrison turned out to be a prolific designer for the company, creating cameras, radios, baby cribs, whirlpools, hedge clippers, riding lawn mowers and a slew of other products.

He didn't mind working behind the scenes on everyday products without credit or fanfare. Rather, he rejoiced in the usefulness of his designs, such as the plastic garbage can, which could be mass-produced, easily transported and didn't produce the clanking noise of the metal cans. The bin served as the predecessor for the garbage cans of today that roll out to the curb on wheels.

"Chuck could see the humor in things and had a very subtle but very active eye," said one of his former co-workers, John Ronvik, 78, of Palos Heights. Harrison became his supervisor during their latter years at the company.

"There could be something awkward at work and Chuck would be very good in making the atmosphere easier to deal with."

After Harrison retired from Sears in 1993, he taught as an adjunct professor at the University of Illinois at Chicago. He still teaches a course at Columbia College.

When asked if there is any product he wishes he had designed, he deferred to Mother Nature.

"I think one of the most beautiful things in the world is an egg," said Harrison, whose goal has always been to produce products that don't appear forced, but intended to be that way.

Setting the record straight about his achievements is important to him, not only to preserve his reputation, but because he serves as a role model for younger designers.

"I just don't want to be identified with something that's not respectable," Harrison said. "I've tried to live a life of openness, straightforwardness and honesty."

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Medical Information for Sears Retirees
Retiree News from Sears Holdings
November 1, 2006

2007 Medical Information
On behalf of Sears Holdings, Retiree Health Access (RHA) has begun annual enrollment process for 2007.

Date Event Comments
10/24 - 10/25 Wave 1 RHA enrollment materials mail Wave 1: retirees TX, PA, IL, GA, FL, CA
10/30 - 11/10  Wave 1 enrollment period  
11/8 - 11/10 AARP enrollment materials mail (both waves)  
11/7 - 11/8 Wave 2 enrollment materials mail Wave 2: retirees in all other states
11/13 - 11/27 Wave 2 enrollment period  
11/28 AE close date  
12/15  January 2007 bills mail date  

Program Goals
The goal of this year’s process is to execute a smooth, problem-free enrollment. Benefit and process changes were deliberately kept to a minimum. Steps have been taken to increase customer service and access to information.

Enrollment Materials
RHA will be sending letters to all Sears retirees who are currently enrolled in an RHA plan in two waves (see above for dates). Retirees who wish to remain enrolled in the same option(s) for 2007 do not need to take any action. Retirees who would like to make a change will be instructed to access the RHA web site or call the RHA Service Center during their scheduled enrollment wave.

Retirees Not Eligible for Medicare
The enrollment letters for retirees who are currently enrolled in an RHA/Sears pre-65 medical plan will include:

• personalized enrollment worksheet with the medical options and pricing
for 2007
• a comparison chart of the features of the available medical options
• a special insert which describes the changes to the Sears PPO plans (see Benefit Changes for 2007 on the next page)

Letters will also be sent to Sears retirees who have elected to suspend retiree medical coverage, inviting them to enroll in RHA.

Retirees Eligible for Medicare
The enrollment letters for post-65 retirees will include the net pricing for 2007 (for prescription drug and Medicare Advantage HMO options only), including any subsidy from Sears. [Note: there is no change in the subsidy for 2007.] Retirees who are not enrolled in a Medicare Advantage HMO will also receive a separate enrollment packet from AARP a few days after November 10. The AARP packet will include the Medicare Supplement pricing for 2007.

RHA Web Site
The RHA web site has been significantly improved. Retirees can still access the web site 24 hours a day, 7 days a week to enroll, review account information, view or print detailed charts of the available benefit plans, get pricing information, and link to decision-making tools. Another resource that has been added is the ability to view or print general information and compare key differences in the benefit plans. The web address is: www.retireehealthaccess.com <http://www.retireehealthaccess.com/>

Benefit Changes for 2007

PPO Plans
• Sears will continue to offer 3 PPO options nationwide to retirees who are not yet eligible for Medicare.
• The plan names will change for 2007 to more accurately reflect the level of coverage.
• Several benefit enhancements will also be made, including increased protection for catastrophic health care expenses. Click here <http://www.retireessears.com/docs/Insert_for_Pre-65_Retirees.pdf> to view a copy of the special insert that describes these changes.
• There will also be an important change in the pharmacy network: Walgreen’s and CVS will be eliminated from the network, effective 1/1/07. Prescription drug benefits will be available on an “out of network” basis if a plan participant uses a pharmacy that is not in the network. Click here <http://www.retireessears.com/docs/Pharmacy_Network_Change_(Sears_retirees).pdf> for the rationale behind this decision and additional details.

Medicare Changes
• Medicare has increased deductibles and copays for 2007 (about 4% to 6% over 2006).
• Medicare has increased Plan B premiums and introduced variable premiums (based on retiree’s income tax return).
• Medicare has decreased the level of subsidy for prescription drug plans and Medicare Advantage HMOs. This will result in an increase in premiums for retirees who enroll in these plans.

New Prescription Drug Plan Option
• In addition to the Low and High options currently available, there will be a new “Basic” option for 2007.
• The Basic option will be the lowest premium of the three options.
• Prescriptions are subject to flat dollar copays instead of a deductible and coinsurance.
• The Basic option provides no coverage for non-preferred brand-name drugs.
• Premiums for the Low and High options will increase for 2007 due to decreased subsidy levels from Medicare and claims experience within the Sears population.

AARP Medicare Supplement Plans
• Plans will change based on the increases that Medicare is making to the Part A and B deductibles, copays and premiums.
• Premiums will increase due to decreased subsidy levels from Medicare.
• The AARP packet will include the plans and pricing for 2007.

Medicare Advantage HMOs
• There will be expanded availability for the HMOs. Retirees in Atlanta, upstate New York, northern Virginia, Chicago and Kansas City may be eligible for an HMO in 2007 that was not available to them in 2006.
• Premiums will increase – many significantly – due to decreased subsidy levels from Medicare.

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CVS and Caremark Rx Unveil Stock-Swap Deal
Combined Drugstore, Benefits Manager Would Have $75 Billion in Annual Sales
By George Stahl – Wall Street Journal Online
November 1, 2006

CVS Corp., one of the largest drugstore chains in the U.S., and Caremark Rx Inc., a leading pharmacy-benefits manager, unveiled a stock-swap merger valued at more than $20 billion.

Under terms of the all-stock deal, Caremark shareholders will get 1.67 shares of CVS stock for each share of Caremark they own.

The companies stressed that it is a "merger of equals," with CVS Chief Executive Tom Ryan becoming CEO of the new company and Caremark CEO Mac Crawford assuming the chairman's post. The companies said that, on a pro forma basis, CVS shareholders will own 54.5% of the combined company and Caremark shareholders will own 45.5%. The board of directors will be split evenly between representatives from Caremark and CVS.

The new company will have combined annual revenue of $75 billion. As of Tuesday's close, Caremark's market capitalization was $21.02 billion, while CVS's was $25.78 billion.

"This merger is a logical evolution for CVS, Caremark and the entire pharmacy industry," Mr. Ryan said. "Employers and health plans want to control costs, but also want their plan members to have access to a full range of integrated pharmacy services."

Headquarters in Rhode Island

The new company, to be called CVS/Caremark Corp., will be headquartered in Woonsocket, R.I., where CVS is currently based. The pharmacy-services business will be based in Nashville, Tenn., where Caremark's headquarters are. The new company is expected to fill or manage more than one billion prescriptions per year, the companies said.

The companies said they expect "operating synergies" of about $400 million and expect the deal to add to earnings in the first full year after the deal closes.

While analysts were mostly upbeat on the long-term prospects of the merger, investors didn't appear to be impressed, sending shares of both companies lower. Some analysts fretted that integrating the operations might be a burden for CVS, which already has made two large retail acquisitions this year.

In afternoon trading, Caremark shares were down 47 cents, or 1%, at $48.76, while CVS shares were down $2.18, or 7%, to $29.20, both on the New York Stock Exchange. The new company will also trade on the Big Board, under the symbol "CVS."

An Industry Powerhouse

Merging the largest pharmacy-benefits manager with one of the largest U.S. drugstore chains creates a major player in the health-care industry, with significant buying power in generic drugs and dominant positions in numbers of retail outlets and mail-order capability, an increasing component of drug distribution. UBS analyst Neil Currie said the scale could be used as a weapon to gain market share in both the PBM business and retail pharmacy.

A deal also increases CVS's access to members of Medicare's prescription drug plan, giving the drugstore the ability to market its front-end retail business directly to Caremark's members. A tie-up also will help fight off an increasing threat from Wal-Mart Stores Inc., which has cut prices on some generic drugs, threatening margins at PBMs and drugstores.

PBMs like Caremark handle prescription-drug benefits for individuals on behalf of clients, namely employers and health plans, and operate their own mail-order pharmacies.

Goldman Sachs analyst Christopher McFadden said news of the deal suggests an easing in the "traditional animosity between retailers and PBMs" in light of growth opportunities presented by the Medicare prescription-drug program and national employer contracting. He also noted "signs of market maturity for the PBM sector."

Shares of drugstores chains and PBMs have declined since the middle of September from a perceived threat from Wal-Mart, which unveiled plans to cut the price on some generic drugs to $4 for a 30-day supply.

The deal could pressure drug wholesalers, specifically McKesson Corp., which gets 11% of its revenue from Caremark, and Cardinal Health Inc., which gets 21% of its revenue from CVS, according to Revere Research.

CVS Stocks Up

Caremark Rx is the largest pharmacy-benefits manager by market capitalization, providing drug-benefit services to more than 2,000 health-plan sponsors and their plan participants throughout the U.S. The company also operates a national retail-pharmacy network with more than 60,000 participating pharmacies. For the year ended Dec. 31, Caremark reported earnings of $932.4 million, or $2.05 a share, on revenue of $33 billion.

CVS is the largest drugstore chain by store count but the second largest by store sales behind Walgreen Co. CVS operates about 6,200 retail and specialty pharmacy stores in 44 states and the District of Columbia. Last month, CVS lifted its third-quarter and 2006 earnings guidance, citing September same-store sales and a "solid improvement" in gross margins. For the year ended Dec. 31, CVS reported earnings of $1.2 billion, or $1.45 a share, on sales of $37 billion.

Mr. Currie said an acquisition of Caremark provides CVS with the ability to market its front-end retail business directly to Caremark's members. He said that strategy has been successful with CVS's Pharmacare PBM, where CVS has offered front-end discounts to PBM customers.

CVS has been acquisitive this year. In June, CVS bought 700 Osco and Sav-On pharmacies from $2.93 billion and indicated then that it was in the market for more acquisitions. Mr. Ryan said at the time that he was unfazed by recent downgrades of CVS debt by credit-rating companies concerned about the amount of debt incurred as part of the drugstore chain's most recent purchase. "This is a still consolidating industry," Mr. Ryan said then. "Acquisitions are a big part of our business, and we do [them] well."

Since then, CVS bought MinuteClinic, a Minneapolis provider of retail-based health clinics in the U.S. Terms weren't disclosed. In August, Moody's Investors Service affirmed a long-term rating of Baa2 on CVS, leaving the company two steps above junk ratings. Standard & Poor's rates the company one notch higher, at BBB+.

Other drugstore chains also have made recent purchases. In August, Rite Aid Corp. agreed to purchase the Eckerd and Brooks drugstore chains from Jean Coutu Group Inc. for about $3.4 billion in cash and stock. Walgreen has bought a Delaware drugstore chain and a specialty pharmacy company this year.

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Sears Tower eateries lost $1.1 mil. in 7 months: suit
By Thomas A. Corfman – Crain’s Chicago Business Online
November 1, 2006

Sears Tower's restaurants lost a stunning $1.1 million during the tumultuous seven months that Sodexho America LLC ran them, according to a lawsuit filed against the food-service giant by the skyscraper's ownership group.

The restaurants closed in September. The fiasco is a costly misstep by Sears Tower's owners, a group that includes Skokie-based American Landmark Properties Ltd. and two New York real estate investors, Joseph Chetrit and Joseph Moinian.

In February, they abruptly replaced Chicago-based Levy Restaurants Inc. with Sodexho as the operator of the four restaurants, which are owned by the building and are on the second floor of the 110-story tower.

The group is negotiating agreements with new operators that would "make Sears Tower a restaurant destination for the West Loop," a spokesman says. "This is a top priority."

The alleged loss is a far cry from the $500,000 to $1 million in annual additional restaurant revenue that Sears Tower's owners predicted for 2007 because of the change to Sodexho, according to a memorandum circulated to potential investors in the tower.
Under Levy, the four restaurants had been popular but never very profitable for the building.

But Sears Tower's owners were rankled by what it considered the "very favorable" terms of the agreement with Levy, which was originally signed in 1990. Twice in 2005, Levy sued to recover payments due under the agreement.

But under Sodexho, the ownership group found that "long delays were common," the restaurants "were not clean" and they offered "institutional quality" food at prices that were "significantly higher" than the competition, according to the complaint, filed Oct. 13 in Cook County Circuit Court. The ownership group wants to recover the operating losses and is seeking other damages.

Gaithersburg, Md.-based Sodexho says in a statement that it "denies the material allegations . . . in the complaint and we expect to file a counterclaim. We were very disappointed that we were unable to resolve the contract issues in a mutually agreeable fashion."

Sodexho initially predicted the restaurants would operate at a $26,000 loss during the first, transition year. In May, after a rough transition, the company apparently submitted a revised budget that forecast a loss of nearly $700,000, and then blew past that figure by more than $400,000, according to a budget document attached to the complaint.

Those losses were to be borne by the ownership group, Sodexho's contract says.

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Employers, Insurers Push Generics Harder
As Many Blockbuster Drugs Go Off-Patent,
Some Health Plans Drop Copays for Copycats
By Vanessa Fuhrmans - Wall Street Journal
October 31, 2006

Wielding both carrots and sticks, a growing number of companies are trying harder to push generic drugs on their employees.

At prices often 80% cheaper than those of brand-name medicines, generics have become a key tool for health insurers and employers trying to hold back soaring medical costs. There's hardly a health plan today that doesn't use higher copayments on branded drugs as a way to nudge employees toward less-expensive copycat versions.

But as employees re-enroll in benefit plans this fall, many will encounter more-aggressive efforts to make generics the clear-cut choice. Some companies, such as small employers insured by Blue Cross and Blue Shield of Minnesota, have stopped charging any copayment or out-of-pocket cost for generics. Others are taking a different tack, adopting plans that cover only generics, such as a new, less-expensive prescription-drug plan from Medco Health Solutions Inc., one of the country's biggest pharmacy-benefit managers. And some employers are trying to tee up savings by steering employees onto brand-name drugs that will soon face generic competition.

The concerted push comes in part because the availability of generics is fast reaching a critical mass -- and as health-care costs continue to soar, employers and insurers are eager to take full advantage of the generics' lower prices. Over the past 12 months, four of the biggest blockbuster medicines -- the cholesterol drug Zocor, the antidepressant Zoloft, the antibiotic Zithromax and the nasal spray Flonase -- have gone generic. Patents for at least 11 more top-selling medicines are expected to expire within the next two years. All told, nearly half of the 60 most commonly prescribed drugs will become available generically over the next four years, at prices that could save health plans and consumers a potential $49 billion by 2010.

"In 20 years we've never had an opportunity like this, in terms of so many generics available in such a broad number of therapeutic categories," says John Malley, a senior pharmacy-benefits consultant with employee-benefits group Watson Wyatt Worldwide. "Everyone's trying to best position themselves."

Generic drugs are required to be the exact chemical equivalent of their brand-name counterparts. They have the same effect in the body as branded medicines, experts say. Many companies already have incentives in place to encourage employees to use generic drugs. But these milder measures have maxed out their savings potential.

Though 53% of prescriptions are filled with generics today, health-care experts say billions of dollars in savings are left on the table each year. For example, the antiheartburn pill Prilosec, once a prescription-only best seller, is now available in inexpensive over-the-counter and generic versions. But Nexium, a successor drug that's nearly identical to Prilosec, still racked up U.S. sales of $4.3 billion last year for its maker, AstraZeneca PLC. That was almost a 15% increase from the year before. UnitedHealth Group Inc. recently became the first health plan to stop coverage of Nexium altogether, saying that there were plenty of less-expensive equivalents to choose from.

Many health-care consultants and insurers are now urging employers to steer employees toward generics even when the brand-name drugs the patients are taking don't have direct equivalents. Pharmaceutical makers and some doctors argue that the strategy may force some people to take medicines that don't work as well for them. But a number of studies indicate that with many drug types, a majority of people get the same health benefits when they switch to a generic from another brand-name drug within the same group, even if it's not the direct brand-name equivalent.

DRUG SAVINGS
As health plans and employers push generic drugs, here are ways patients can save money:
• Ask your doctor anyway: Even if the brand-name drug you're taking hasn't gone generic, a drug in the same therapeutic class might have.

• Check pharmacy prices: Wal-Mart and other chains have cut generic prices to as little as $4, lower than many health plan co-pays.

• Buy in bulk: Check whether your health plan charges less to mail you a 90-day supply of your long-term medications.

The anticholesterol drugs called statins, one of the costliest categories, are a popular case in point. Copycat versions exist for Pravachol and Zocor, but not for Lipitor and Crestor. Health plans argue that while more than 70% of patients' statin prescriptions could be filled with generics, only 31% actually were in the third quarter of this year, according to health-care-data firm Wolters Kluwer Health. "That's the real savings opportunity," says Ron Fontanetta, a principal at employee-benefits consulting firm Towers Perrin.

Many private employers are taking their cues from public health plans. Faced with budget crunches, public payers were among the first to ratchet up their generic-drug strategies. Three years ago, South Dakota's state-employee plan began requiring employees taking a brand-name drug to pay a copayment if a generic alternative was available plus the difference in the drug's price. In 2005 the difference between a brand-name and generic drug averaged $84, according to Blue Cross and Blue Shield of Minnesota.

In some cases where no direct generic equivalent exists but one for a similar drug does, employees must have a doctor document the reason for taking it. "It's pretty arduous and they don't like it," says Mary Weischedel, director of South Dakota's plan. The point of the requirement: to make the employee consider taking a generic instead.

South Carolina's state-employee plan has a similar pay-the-difference policy. What's more, employees enrolled in the state's lower-premium, $3,000-deductible plan option can't apply the price difference for the brand drug toward their deductibles. Since the policy went into effect in 2002, generics have gone from 34.8% to 49.9% of prescriptions. The state says most participants have chosen to switch their medication rather than be saddled with the extra cost.

Medco is launching a drug plan for smaller employers that goes a step further. The plan covers up to a 90-day supply of nearly 2,000 generic drugs for a $10 copayment, but consumers have to pay Medco's negotiated prices for any brand-name and specialty drugs. A 90-day supply of brand-name Zocor costs $406.99, for example, whereas the same supply of allergy pill Allegra costs $221.36.

Medco says the plan, sold also by Nationwide Mutual Insurance Co., is aimed at businesses who otherwise wouldn't be able to afford any drug plan. By covering only generics, the company says it can sell the plans for between $600 and $700 per plan member a year, half of what its traditional plans cost.

Blue Cross and Blue Shield of Minnesota is taking a more reward-driven approach. As of July, it began providing free coverage of generics for all of its small-employer plans. Larger companies have the option, too. The goal, says Al Heaton, Blue Cross's pharmacy director, is to increase the generic share of prescription drugs to more than 70%. Dropping copayments will pay for itself, he argues, since experience suggests that for each percentage-point increase, drug costs fall by nearly the same amount.

The strategy already has had some measure of success. In January the insurer tried it first on the 1,100 employees of its pharmacy-benefits manager, Prime Therapeutics, and the percentage of generic prescriptions filled rose to 68.6% from 56.2% in eight months.

At Zumbrota Ford, a dealership in southeastern Minnesota, owner Steve Johnson says he's already changed two prescriptions, one for a bee sting, the other for a sinus infection. Though he was prescribed brand-name medications, "I mentioned my no-copay alternative and got it changed," he says, saving at least $70 in copays in the process.

Eastman Chemical Co. own pharmacy at its Kingsport, Tenn., headquarters in 2003, in part to help steer more than 30,000 employees, retirees and dependents toward low-cost generics. "We know the pharmacists will make sure to remind them," says Phil Belcher, manager of Eastman's health and pharmacy plans.

The company says that for certain drugs it will start requiring "step therapy," in which employees starting a medication have to try a plan-preferred drug before going to what might have been the doctor or patient's first choice. The idea is to push more employees toward the brands that are about to go generic, such as the sleep aid Ambien, in the coming year. Once it goes generic, it will be easier to encourage them to switch, Mr. Belcher says.

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Tobacco Comes to the Supreme Court
Forbes.com
October 31, 2006

WASHINGTON, D.C. -
Just what brand of conservative is Chief Justice John Roberts--one who rigidly tethers his views to the text of the Constitution or a pragmatist who tends to rule in favor of business?

The business lobby, which threw its full support behind the nomination of Roberts to the U.S. Supreme Court, will soon find out.

On Tuesday, the justices are hearing arguments on the debate over stratospheric punitive damage awards in a case that has ramifications for any company that sells products in the U.S.

At issue is $80 million in punitive damages that Philip Morris was ordered to pay Mayola Williams, the widow of a Portland, Ore., janitor killed by lung cancer after decades of smoking Marlboros.

The award was more than 150 times the half-million in damages the tobacco company owed the family for the lost wages and other economic losses attributed to Williams' early death, at 57. But last February, the Oregon Supreme Court held that it was not excessive given Philip Morris' "extraordinarily reprehensible" behavior in lying about the health risks of smoking to the public.

Philip Morris, owned by Altria Group, appealed the ruling and has never paid the judgment. It argues that the jury award is completely out of whack with the rough 9-to-1 guideline on the ratio of punitive to actual or compensatory damages that the court had set in two prior cases. The cigarette maker, along with a host of business groups, hopes the court will adopt an even lower ratio and, perhaps more important, set it in stone in order to rein in jury awards it sees as excessive.

Capping such jury awards would radically shift the nation's tort laws in favor of business, easing the sting of punitive damage lawsuits and lifting the cloud of uncertainty from industries trying to fend off personal injury suits. Plagued by suits over its Vioxx drug, Merck no doubt is anxious for a favorable ruling.

Aside from its potentially sweeping impact, the ruling will also be a gauge of the Roberts court's friendliness toward business.

The issue of punitive damages defies a crude liberal-conservative split. In two crucial precedents for the case, BMW v. Gore and State Farm v. Campbell, conservative Justices Antonin Scalia and Clarence Thomas dissented with the majority that laid out the 9-to-1 ratio, arguing that no limit on punitive damage awards could be found in Constitution.

Roberts and Samuel Alito, the court's other new member, might agree, which would transform the minority in those two cases to the majority view. Or they could take the pragmatic view that punitive damages should be tied somehow to actual damages and that companies should not be punished for harm done to parties other than the ones suing them.

"There's just no telling which conservative value will win out for Chief Justice Roberts at all," says Joshua Rosenkranz, an appellate lawyer at Heller Ehrman in New York.

Adding to the suspense is the fact that it is the first punitive damages case to come before the high court that involves personal injury. The other two landmark cases involved a scratch in a paint job and an improperly handled insurance claim. The justices may view things differently when it comes to human life.

"It's not even a question of what the two new justices think," says Mark Levy, who heads of the Supreme Court practice at Kilpatrick Stockton in Washington. "We don't even know what the seven justices who sat on State Farm think of this.”

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Sears Canada senior VP leaves for Loblaw
By Rita Trichur – Canadian Press – Toronto Star
October 30, 2006

A key executive at Sears Canada Inc., senior vice-president and chief merchant Frank Rocchetti, has left the Toronto-based retailer to take an executive position at Loblaw Co. Ltd.

Sears, the target of a strongly contested buyout by U.S. parent Sears Holdings Corp. (NASDAQ:SHLD), said Monday that Rocchetti resigned to "pursue other opportunities."

"The company thanks Mr. Rocchetti for his 27 years of service to Sears Canada and wishes him well in the future," the company said.

"A search to fill this position, considering both internal and external candidates, is currently underway."

Loblaw later announced that Rocchetti had been named an executive vice-president, responsible for "business process transition" and reporting to the company's president, Mark Foote.

Rocchetti will be working with a team "assessing opportunities for improvements in key areas such as category management, merchandising and operations," Loblaw said.

"Frank Rocchetti brings unparalleled retail experience and insights to our company," Loblaw executive chairman Galen G. Weston said in a release.

"He is ideally suited to take on a key leadership role and to add a new perspective to the senior management team at Loblaw. We are very pleased to welcome him to the executive team as we strengthen the company and position it for long-term growth."

Rocchetti's appointment follows the resignation of Peter McMahon, Loblaw supply-chain executive vice-president, and a major management shakeup at Loblaw in September.

The shakeup saw Foote replace John Lederer as president, after joining Loblaw as executive vice-president of general merchandise in April.

Galen G. Weston, 33, was also given the nod to succeed his father, W. Galen Weston, as executive chairman of Loblaw. Meanwhile, long-standing Weston family adviser and former president of Wal-Mart Europe Allan Leighton joined the board of directors as deputy chairman.

Those management changes, however, were met with stinging criticism from some analysts, who suggested the shuffle raised the level of uncertainty for the business.

Last week, Sears Canada reported a third-quarter profit of $37.8 million or 35 cents a share, reversing a year-ago loss mostly on lower costs.

That contrasted with a loss of $37.4 million or 35 cents per share in the same quarter last year.

Total expenses were slashed by 13.7 per cent, about 60 per cent of which is related to the sale of its credit and financial services operations in the fourth quarter of 2005. Total revenues dropped 5.2 per cent to $1.41 billion.

Chicago-based Sears Holdings has launched a $908-million buyout bid for Sears Canada, which expires Tuesday at 5 p.m. ET.

The U.S. parent owns 54 per cent but can't take the Canadian unit private unless the holders of a majority of Sears Canada's minority shares approve the $18-per-share offer.

Activist shareholders Hawkeye Capital Management LLC, Knott Partners Management LLC and Pershing Square Capital Management LP have said they will continue to oppose efforts "to squeeze out minority shareholders of Sears Canada" at a meeting to be held Nov. 14 for $17.94 per share.

Sears Canada is a multi-channel retailer with a network of 188 corporate stores, 182 dealer stores, 65 home improvement showrooms, over 1,900 catalogue merchandise pick-up locations, 107 Sears Travel offices and a countrywide home maintenance, repair and installation network.

During late-afternoon trading on the Toronto Stock Exchange, Sears Canada's shares gained eight cents to $21.88.

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Seniors fret over changes in Medicare drug program
By Richard Wolf, USA Today
October 30, 2006

WOOSTER, Ohio — Gordon Musch stares into a computer monitor and listens while an insurance counselor peppers him with unfamiliar terms.

For Musch, like millions of other seniors and people with disabilities, it's time to learn again about Medicare's prescription-drug program. It was confusing the first time around. Now, there are even more plans to consider for 2007. The enrollment period begins Nov. 15 and ends Dec. 31, but officials say those who wait past early December could face delays.

The lowest-priced premiums have risen considerably. Lists of covered drugs have changed, as have rules that must be followed to get coverage.

And plans that last year provided continuous insurance throughout the year for all drugs now have a "coverage gap" for brand-name drugs. Most plans have a gap that begins when total drug costs reach $2,250 and ends when the beneficiary has spent $3,600 out of pocket.

For all those reasons, experts say, virtually everyone in the program should shop around.

That's what Musch is doing here, about an hour south of Cleveland in Ohio's farm country.

"What you did would take me five or six hours to struggle through," he tells the state counselor helping him choose three alternatives from Ohio's 61 plans for next year. Only Pennsylvania and West Virginia, with 66, have more.

"My older brother's a physicist, my younger brother's a pharmacist, and I'm an engineer, and we've all found it to be very, very complicated," Musch says. "I feel sorry for the mass of elderly people out there. It's got to be very confusing for them."

Prescription-drug coverage was added to the Medicare program by Congress in 2003. Under the program, which took effect this year, coverage is provided by private insurers approved by Medicare. Most states have about 40 plans this year, rising to more than 50 next year.

In addition to widespread confusion, the program got off to a rough start. Thousands of low-income beneficiaries who previously received their drugs through Medicaid were mistakenly dropped or overcharged. Millions more with slightly higher incomes were never reached and remain outside the program.

Medicare officials hope for a smoother transition to the program's second year. They have improved the online "Plan Finder" used by beneficiaries, their families and friends, and insurance counselors to find the best plans in terms of price, drug coverage and convenience. Average monthly premiums are $24 to $29, below original estimates.

"People seem a lot more OK with it this year," says Lynn Heskett of the Ohio Department of Insurance, who travels a 27-county area advising Medicare beneficiaries about their choices. "I haven't had many people who were really angry."

National advocates are beginning to hear complaints. Vicki Gottlich of the Center for Medicare Advocacy says beneficiaries are finding their deductibles and co-payments rising, even if premiums are not. "A lot of this is hidden," she says.

Deane Beebe of the Medicare Rights Center says low-income beneficiaries who applied for extra financial assistance this year are getting letters from Medicare stating that they have to prove their case again.

"They're calling us in a panic," she says. "They're very confused about the process, and what they have to do."

In Wooster and thousands of other communities across the country, counselors are beginning to help seniors and people with disabilities research their options for 2007. They're finding many who need to switch plans:

•Cinda Meyer, 56, of Seville, Ohio, wants out of the Humana plan which last year offered continuous coverage for all her drugs. This year, Humana will only cover generics continuously, and premiums are rising.

"Less coverage for more money doesn't sound good to me," Meyer says. She plans to switch to a plan with complete coverage, even though its monthly premium will be about $95, up from the $64 she paid this year.

•Delbert Moine, 74, of Rittman, Ohio, plans to leave the same Humana plan because it's no longer the best deal for him. He's staying with Humana in a plan that has a gap in coverage but lower premiums.

"It's cost-effective for my wife and me, but you've got to persevere," Moine says. At one point this year, Social Security stopped automatically deducting premiums from their monthly benefits, and both Medicare and Humana asked for direct payments.

•Musch, 67, of West Salem, kept his former employer's retiree coverage this year. But since it's not considered "credible" coverage by Medicare, he must pay 1% more in premiums for every month he stays outside the program. Because the signup period ended May 15 this year, that means a 7% penalty for 2007. If he waited another year, it would be 19%.

"It behooves me to get into a plan," Musch says. Despite the program's complexity, he says, "Most of the people that I talk to have been satisfied with it."

 

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Why Costco is so addictive
A day with Jim Sinegal, the Merchandising Maestro who gets shoppers to buy  2,250-count packs of Q-Tips and mayo by the drum.
By Matthew Boyle, Fortune writer – Fortune Magazine
October 30, 2006

A man who looks like Wilford Brimley moseys into the Costco warehouse store in the Seattle suburb of Issaquah, Wash., on a bright Columbus Day morning, easily blending into the throngs of shoppers picking up Cheerios, toilet paper and cashmere sweaters.

But as soon as Costco CEO Jim Sinegal crosses the threshold of this vast, 150,000-square-foot theater of retail, it's abundantly clear that he's not just a spectator - he's the executive producer, director and critic. "Jim's in the building!" crackles over the walkie-talkie of warehouse manager Louie Silveira. In the apparel section, Silveira's infectious grin morphs into a look of slight panic.

Big box, big bucks
Costco sells more efficiently than its low-margin peers. It even outdoes plusher names like Nordstrom, and holds its own against higher-markup "category killers" like Best Buy.

Company Sales per square foot, annual
Target $307
Nordstrom $369
Home Depot $377
Wal-Mart* $438
BJ's $445
Sam's Club* $552
Costco $918
Best Buy $941
Source: Company data; UBS
*Estimate

A sudden hop in his step, Silveira, who can log 15 miles a day walking the aisles, scurries over to Sinegal. Unsmiling, hands in his pockets, a coffee stain on his $12.99 Costco shirt, Sinegal turns out to be a no-nonsense connoisseur of detail. He greets his manager with a barrage of questions: "What's new today?"

"We just moved this $800 espresso machine to an end-cap," Silveira responds, meaning he moved it out from the middle of the aisle to a more prominent location at the end.

"How are in-stocks?"

"We're good there."

"What did we do in produce last week?"

"$220,000."

Wielding a bar-code scanner like a six-shooter, Silveira answers each query to Sinegal's satisfaction, but evidently that's not often the case. "When he starts looking at an item too long," Silveira confides later, "I say, 'Oh, s***.' "

Sinegal makes a beeline for a table full of $29.99 Italian-made Hathaway men's dress shirts, located just off the "racetrack," which is retail lingo for the U-shaped path along the perimeter - down one side, across, and back up the other side - that most shoppers follow upon entering the warehouse. He takes a shirt out of the box, fingers it, ponders a moment then puts it back. He walks away, but soon returns to the table. He looks concerned.

In keeping with Costco's low-price, limited-selection philosophy, the Hathaway shirts are all the same size - a 34/35-inch sleeve. Today, at least, if you want a more precise length, you're out of luck. "I'm anxious to see how it does," says Sinegal, bending to pick up a bit of trash off the floor.

Sinegal needn't worry. The shirts, like everything else at Costco, will no doubt sell out within days, to be replaced by another item in the company's carousel of ridiculously priced high-quality inventory.

With $59 billion in sales from 488 warehouse locations, Costco, No. 28 in the Fortune 500, is the fourth-largest retailer in the country and the seventh-largest in the world.

In the 23 years since Sinegal co-founded Costco with Jeff Brotman (now chairman), it has never reported a negative monthly same-store sales result. Yet he's modestly compensated - Sinegal earned $450,000 in salary and bonus last year, chump change by CEO standards. Add in his stockholdings and he's worth $151 million. (One note on that: On Oct. 12, Costco disclosed that an internal review of stock-option granting identified one grant to Sinegal that was "subject to imprecision" and "may have benefited [Sinegal] by up to $200,000." Sinegal says he takes "full responsibility.")

The company counts nearly 48 million people as members, and those customers are not only slavishly devoted (averaging 22 trips per year, according to UBS analyst Neil Currie), but surprisingly affluent as well (more than a third have household incomes over $75,000).

While Wal-Mart stands for low prices and Target embodies cheap chic, Costco is a retail treasure hunt, where one's shopping cart could contain a $50,000 diamond ring resting on top of a 64-ounce vat of mayonnaise. Despite having 82 fewer outlets than its nearest rival, Wal-Mart's Sam's Club, Costco generates about $20 billion more in sales.

Clearly, Costco is doing something right - but what? And how? To figure that out, we shadowed Sinegal, who has spent 52 of his 70 years in the retail business. He got his start working for Sol Price, who created the warehouse-club format, and left Price to launch Costco in 1983.

Over the years, he's become a merchandising grand master, an exceedingly shrewd practitioner of the unglamorous but elusive art of getting the right product in the right place at the right time for the right price.

When Jim Sinegal told Sol Price that he was launching a warehouse club to compete with Price's own Price Club, "Sol was pissed," recalls Sinegal, sipping Starbucks coffee (black) in his modestly appointed office at Costco headquarters in Issaquah.

Price had a point: His erstwhile protégé was now his top rival in the fast-growing warehouse-club business. Wal-Mart launched Sam's Club that same year; Price Club and Costco later merged, in 1993.

Price competition
And what a strange business it is. Costco refuses to mark up any item more than 14 percent, in contrast to supermarkets and department stores, which often carry markups of 25 percent and 50 percent, respectively.

"We always look to see how much of a gulf we can create between ourselves and the competition," Sinegal says. "So that the competitors eventually say, 'F*** 'em, these guys are crazy. We'll compete somewhere else.' "

To illustrate, Sinegal recounts a story about denim. "Some years ago we were selling a hot brand of jeans for $29.99. They were $50 in a department store. We got a great deal on them and could have sold them for a higher price, but we went down to $29.99. Why? We knew it would create a riot."

Low markups may create excitement, but they also mean lower profits: Costco ekes out pretax margins of around 3 percent. Despite the microscopic margins, Costco earned $1.1 billion last fiscal year through its membership fees - $50 per year of pure profit - and its spartan approach to costs.

The company doesn't use pricey ad agencies. Products move right from the delivery truck to the charm-free concrete sales floor. Signage looks like it was made with a cheap laser printer. There are no commissioned salespeople. There aren't even any shopping bags. The only cost that Costco doesn't skimp on is wages and benefits, which are the envy of big-box employees nationwide.

And yet Costco's card-carrying legions come in droves, waiting anxiously in fancy foreign cars on Saturday mornings for the store to open. Carts in hand, they display a fervor not usually seen outside of houses of worship. Why? Because we all love a bargain, and Lord help us if we miss one.

Scarcity
"We only carry about 4,000 items," says Sinegal, "compared with 40,000 in a typical supermarket and 150,000 in a Wal-Mart supercenter. Of that 4,000, about 3,000 can be found on the floor all the time. The other 1,000 are the treasure-hunt stuff that's always changing. It's the type of item a customer knows they'd better buy because it will not be there next time, like Waterford crystal. We try to get that sense of urgency in our customers."

(It should be mentioned that showing up on the sales floor of a discount emporium doesn't necessarily fit the marketing strategies of your Waterfords and Calvin Kleins and other high-end brands. Whatever those companies think, Costco wants to sell their products and makes a practice of acquiring them - legally - on the gray market.)

The limited-variety approach isn't for everyone, though. Sinegal explains: "We carry a 325-count bottle of Advil for $15.25," he says. "Lots of customers don't want to buy 325. If you had ten customers come in to buy Advil, how many are not going to buy any because you just have one size? Maybe one or two. We refer to that as the intelligent loss of sales: We are prepared to give up that one customer. But if we had four or five sizes of Advil, as grocery stores do, it would make our business more difficult to manage. Our business can only succeed if we are efficient. You can't go on selling at these margins if you are not."

The more efficient the product sourcing, the more latitude Sinegal can give his store managers in how they lay out those big bottles of Advil. "There are certain merchandise displays that all warehouses do," he says. "TVs are always in the front, for example.

Specialization
But the intent is not to tell these guys how to run their places. Our managers are entrepreneurs, not somebody who just comes in and unlocks the doors." Indeed, with some locations doing upwards of $300 million in sales a year, each warehouse is a mini-corporation, and each manager a de facto CEO.

Costco differs from other retailers in many ways, but it's not as if Sinegal feels he has nothing to learn from them. "Whole Foods has a lot of theater to it," he says. "It's difficult to walk in there and not buy something."

He also learned a lot from Stew Leonard's, a supermarket chain in the Northeast: "When we did our fresh foods, we studied them closely." And Target: "They have high standards, but they do that without being boring. That's the trick."

Sinegal has taken Costco where no warehouse club had gone before - pharmacy, fresh bakery and meat, store brands one could be proud to serve in the home and international expansion. Sinegal's son Michael is currently heading Costco's Japanese operations. Will he run the company someday? Sinegal won't go there.

Being a CEO was the last thing on 18-year-old Jim Sinegal's mind when he took a job unloading mattresses at Fed-Mart, Sol Price's precursor to Price Club.

"It wasn't that great a job," Sinegal recalls. "I was getting a buck and a quarter an hour. But it was exciting. Sol was a major part of that excitement. He was not big on compliments, but you never doubted what was on his mind. Ever. He was always able to discover everything we were doing wrong. He just had a knack for it."

Price saw that the young Sinegal had the knack too, and chose him to overhaul Fed-Mart's flagship store. "When I was 26," Sinegal continues, "Sol made me the manager in the original San Diego store, which had become unprofitable. I was supposed to narrow down the selection and get out of troublesome categories like apparel. We had way too much apparel. So here I was, this kid, and I was given a tremendous responsibility. As a result of simplifying the process, we were able to get it back into the black."

Sinegal embraced Price's iconoclastic approach. "An awful lot of what we did at Fed-Mart was counterintuitive to people who were in the merchandising business at that time," Sinegal says. "We didn't advertise or accept major credit cards. It was all self-service. Also, you had to be a member of the club. People paid us to shop there."

Most counterintuitive of all was Price's stubborn refusal to wring an extra buck from his customers. "Many retailers look at an item and say, 'I'm selling this for ten bucks. How can I sell it for 11?' We look at it and say, How can we get it to nine bucks? And then, How can we get it to eight? It is contrary to the thinking of a retailer, which is to see how much more profit you can get out of it. But once you start doing that, it's like heroin."

Sinegal works diligently to prevent that addiction from entering Costco's bloodstream. Now that he's in Price's role - retail sage - how does he impart what he's learned, and how does he know who his best students are? Step one is obvious: Hire smart young workers.

Productivity
"One of the first places we recruit is at the local university," Sinegal says. "These people are smarter than the average person, hard-working and they haven't made a career choice." Those who demonstrate smarts and strong people skills move up the ranks.

But without merchandising savvy - that ability to know what product would sell best on an end-cap on any given Saturday - an employee has no chance to become warehouse manager. "People who have the feel for it just start to get it," says Sinegal. "Others, you look at them and it's like they are staring at a blank canvas. I'm not trying to be unduly harsh, but that's the way it works. They are not going to become a Louie."

Back in his warehouse, Louie Silveira is perhaps wishing he'd become someone else. He's still facing an Issaquah inquisition from Sinegal, who's convinced he saw a digital piano - $1,999 at the Issaquah warehouse - priced lower in one of his Florida locations the week before. He's not sure which, but tells Silveira to track it down. Silveira checks on a few, but they are all priced the same as his. Sinegal isn't satisfied.

The following day, after hours of boring budget meetings, Sinegal finds, to his delight, that the piano was indeed marked down to $1,499 in the Kendall, Fla., outlet. No victory is too small.

"Every time you go someplace, you see something that excites you," Sinegal says. "I was just in the South of France, and there was this gelato stand. I could not believe the excitement it created. I haven't figured out how we will do it at Costco, but it's in my noodle."

Jenny Mero and Dana Castillo contributed to this article.


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Lampert's surprise ambush
OSC's Sears ruling catches Ackman offguard
Theresa Tedesco - Financial Post - Canada.com
October 29, 2006

American hedge-fund titan Bill Ackman and his Canadian lawyers must have been temporarily blinded while basking in the glow of their victory at the Ontario Securities Commission.

Surely, there's no other explanation for the surprise ambush by his adversary Edward Lampert, a card-carrying member of the New York billionaire hedge-fund club.

Only days ago, it looked as if the stingy Lampert, who is chairman of Chicago-based retailer Sears Holdings Corp., would have to pad his $18-a-share privatization bid for Sears Canada Inc., or risk getting stuck clutching a whack of shares in the Canadian unit with nowhere to go.

Ackman and his group of disgruntled Sears Canada shareholders understandably figured they had Lampert boxed into a corner. For one, the OSC halted his hostile bid two months ago by ruling that the U.S. retailer couldn't count 15.1 million Sears Canada shares held by four major shareholders, including Bank of Nova Scotia and Royal Bank of Canada, toward the takeover purchase. The reason: the securities watchdog concluded this select group received benefits in the form of tax relief that other minority shareholders didn't get.

The cherry on top for Ackman, who egged the OSC to step into the fray, was when the Canadian regulator publicly spanked the U.S. retailer -- for its "abusive and coercive" behaviour toward minority shareholders.

Given that Sears Canada stock has been trading above $22 a share, Ackman's camp could be forgiven for thinking that Lampert's hostile takeover attempt could only be resuscitated by the Ontario Court of Appeal -- a bet no one is willing to take -- or more money.

Neither happened.

Instead, in an ironic twist, the OSC has breathed new life into Lampert's bid by allowing him to hold a special shareholders' meeting on Nov. 14 with the minimum 21-days' notice, to vote on the same low-ball offer that many shareholder activists decry as "highway robbery." Remember, a valuation done last February pegged the shares in the $19 to $22.25 range -- that opinion is more than 10 months old.

"No one in their right mind is tendering right now, not with the stock at $22," said one Sears Canada shareholder.

But Lampert doesn't appear too fussed about that. All he needs is a majority of the minority shares that are voted at the Nov. 14 meeting or by proxy - not a majority of the 46.2% of the total outstanding shares Sears Holdings doesn't already own.

Given that he's already heading into the Toronto meeting with just under 30% of the 34.78 million shares eligible, the fewer people that show up or vote through their nominees, the better Lampert's chances of success.

His Canadian lawyers convinced the OSC in a secret hearing last week that Sears Holdings had a right to vote the shares it purchased during the acquisition process that began last February. Of course, the U.S. retailer promised not to count the votes attached to the shares owned by the banks, however, the company merely wanted to protect its rights down the road.

Ackman found out at the last minute and could not mount a successful counter-offensive.

If this gambit succeeds, Ackman and the other dissident Sears Canada shareholders who collectively own 10.1 million shares could be simply squeezed out at the $17.94 offer -- after a special dividend -- and the only dent in Lampert's wallet would be the legal fees to outmanouevre Ackman.

Obviously, this can't be a happy situation for the OSC.

For one, the OSC's original decision to halt the hostile bid was intended in part to curb Lampert's aggressive tactics against minority investors.

Two, the regulator doesn't want to appear to be interfering with the Court of Appeal, regardless that most believe Lampert's appeal is a lost cause.

It's more likely the OSC figures that most of the widows and orphans have sold off their Sears Canada shares and those investors left holding the stock are sophisticated enough to take care of themselves. But unless Ackman and his group can collect enough proxies to thwart Lampert's attempted end run, the minority shareholders are faced with having to swallow about a 20% discount on their shares.

It's an unprecedented turn of events that has created an awkward situation for Sears Canada shareholders, the company's independent board of directors who have had to call a meeting to consider the low-ball offer with no recommendation, and of course, the provincial securities regulator.

For now, Ackman may be privately fuming at losing his advantage in his protracted war with Lampert, but the proxy battle is already underway.

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The Reinvention Of Martha Stewart
Business Week
November 6, 2006

The domestic guru is once again the face of her brand, but she's no longer calling all the shots

Martha Stewart is deeply immersed in what she calls "this era of me." Since completing her 10-month sentence in August, 2005, for lying to government officials about a stock sale, the lifestyle guru has spent most of her waking moments trying to bring the world back to Martha. She has helped design new homes, forged a slew of merchandise deals, completed a 750-page book, and launched her 24-hour radio channel. She hosts a daily live TV show. She's helping to create a search engine of Martha-approved sites, and even is developing a line of food.

Stewart feels vindicated--and tired. "I don't go out as much at night as I used to," she says, noting that she can't get her mind off work long enough to enjoy a Broadway show. "And I don't have enough time to travel. I just don't. There's too much to do." To all the naysayers who said her 15 minutes were finally up, the implicit message is: Take that. Securities regulators may have stripped her of the chairman and CEO title and denied her a seat on her own board--something that pains her to this day--but Stewart is dreaming big again.

NO BABYSITTING
Something fundamental has changed, though: Stewart no longer has total control over the brand she built. She still owns the bulk of the company's stock and holds 92% of the voting power--prompting speculation that she may one day take it private--but she can't dictate the agenda. She has a strong and media-savvy CEO in ­Susan Lyne, whom Stewart says "is extremely fair in letting me know almost everything that's going on." Stewart also answers to an independent board, led by cigar-chomping entertainment veteran Charles A. Koppelman--a man so un-Martha-like that he refers to flowers as "some pink things" and thought nothing of putting up in his office a massive poster of his grandchildren, visible from the otherwise austere halls of headquarters. Moreover, what was once an army of mini-Marthas with careers largely tied to their famous boss has morphed into a more eclectic and professional management team. Sally Preston of Rodale has come in as senior vice-president of publishing; Yahoo! (YHOO ) veteran Holly Brown manages the Internet business; and former Kate Spade president Robin Marino has taken over merchandising. As Lyne puts it: "We've got people running segments who can do a lot of their work and planning independently. They don't need to be babysat in any shape or form."

Is Martha Stewart Living Omnimedia Inc. (MSO ) now at the point where it may not need Martha Stewart to survive?

Lyne, who became CEO in late 2004, certainly thinks so, noting that "we have a depth and breadth that wasn't there a year ago." While the former ABC Entertainment president and Premiere magazine founder isn't about to back away from the woman who defines the brand, she treads carefully: "We are embracing it, but trying not to overuse Martha, the personality." Even perennial pessimists such as Dennis B. McAlpine of McAlpine Associates says he's "very impressed with Susan's ability to get things done. There's a move to make Martha Stewart more like Betty Crocker, more ephemeral."

LOOMING PRESENCE
Stewart, naturally, prefers not to talk about what the company would be like without her. At first, she will only express the hope that her name will have the longevity of Coco Chanel's or Walt Disney's. When pressed, she does say that "if I played a lesser role, the company could still do extremely well."

At 65, though, she considers that prospect to be far off. She has no intention of pulling back her looming presence over the brand. She saw the damage that downplaying the Martha Stewart name caused for her company during "the legal problems," and she won't let that happen again. "I never agreed with that strategy because I believed in myself," says Stewart. The goal now is to take her brand as far as it will go and return her company to profitability (it hasn't made money since 2002 and in 2005 lost $76 million). "It's not like I'm an absentee founder, holed up in my château in France," she laughs. "I'm working every day."

And sometimes it really can feel like hard work. In some ways, Stewart acts more like the talent than the top boss, stoically doing what's needed to pump the brand. Take her daily live television show. "It's, um, challenging," admits Stewart, who prefers the leisurely pace and "wonderful flow" of an edited show. "A live show really curtails your ability to get in as much serious content as the other show. You also can't put in as many field trips and experts as you want to have. You have three minutes to do everything." Working in front of an audience is nice, she adds, "but it feels a little rushed sometimes."

As strong as Stewart's comeback has been, she faces intense competition from new personalities. Rachael Ray, for one, hosts a show that now averages 2.3 million viewers, 46% more than Stewart's, according to Nielsen Media Research Inc. Starcom USA President Chris Boothe argues that Stewart is "pretty much holding her own at a difficult time of day," while Ray benefits from being positioned between Live with Regis and Kelly and The View in some key markets. But Ray is getting a lot of buzz. Stewart insists she isn't concerned: "Her daily show is much less appealing than her Food Network show. It's very disjointed and loud, and I don't learn anything."

MAKING UP FOR LOST TIME
Stewart also admits to mixed feelings about her partnership with Kmart Corp., (SHLD ) which she fashioned more than a decade ago. It made her a force in merchandising. But since merging with Sears Holdings (SHLD ) two years ago, the retailer is still, as she puts it, "struggling to get all the stores in the shape that they ought to be." Her company gets minimum guaranteed payments of $60 million annually--about double what it would otherwise earn from current sales--but those guarantees shrink to $20 million in a few years. "It's a monstrous consolidation of two monstrous retailers, and the jury is still out," she says.

The deals that are really propelling the company these days owe as much to Lyne's deputies as Stewart herself. Merchandising chief Marino was key in working out an agreement with Macy's (FD ) to develop a line of Martha Stewart products that will launch next year. As Janet E. Grove, CEO of Macy's Merchandising Group, says: "Robin and I have known each other for a long time. She really understands how customers shop and why they shop." Stewart is important, but Grove believes the Martha Stewart aura transcends the person. "The brand will prosper in any situation," she says.

Koppelman, ever the dealmaker, forged what looked like a kooky scheme with KB Home (KHB ) to build Martha Stewart-designed houses in the $400,000 range around the country. While some might question launching "themed" communities amid a housing downturn, "they're incredibly well-built and selling like hotcakes," says analyst Robert Routh of Jefferies & Co. Stewart's team helped design the prototypes, asking architects to put in Martha touches like mud rooms and cabinets that stretch to the ceiling (fewer dust bunnies!). The company gets royalties and, soon, a chance to sell buyers exclusive Martha products. KB Home CEO Bruce Karatz notes that buyers have snapped up the initial 300 homes in two communities.

Amid it all stands Stewart, eager to make up for lost time.

She has developed a strong interest in the "prolongation of life"--recently giving a $5 million donation to New York's Mt. Sinai Hospital to set up the Martha Stewart Center for Living, which will promote healthy aging. She thinks it's a concept that could go national. Despite the apparent frenzy in her life, Stewart goes on early morning hikes, practices yoga, and has started horseback riding. She is building barns from scratch. She has a "man friend," former Microsoft Corp. (MSFT ) executive Charles Simonyi. She has "no comment on poor Peter" Bacanovic, the former broker who was involved in the ImClone stock scandal and served time in jail. Stewart has moved on. "In the creative area, I'm very, very involved," she says. "I don't have time to be CEO."

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TOMAX Names Bernie Brennan as Chairman
Chain Store Age.com
October 26, 2006

TOMAX Corp., a software-technology provider for the retail industry, has appointed veteran retailer Bernard F. Brennan as chairman of the board. An investor to TOMAX for two years, Brennan served as an executive board member and advisor, working closely with CEO Eric Olafson on the development of Retail.net.

Brennan served in a variety of roles in the retail and supply industries over a 30-year period. He began his retail career at Sears, where he held a number of merchandising positions as well as serving at director of management development for the retail chain. His resume also includes an 11-year stint as chairman and CEO of Montgomery Ward Holding Co.

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UBS tosses $780-million rope to Sears Tower
Massive refi gives owners breathing room
as rental income sinks
By Thomas A. Corfman – Crain’s Chicago Business Online
October 26, 2006

Swiss banking giant UBS A.G. is rescuing Sears Tower with a new, $780-million loan at 6.26% — about the same as your typical home mortgage, according to sources close to the transaction.

The massive loan arrives as the iconic skyscraper’s annual net operating income (NOI) has tumbled 20%, to about $59 million, because of the downturn in the office market and a hangover from the 2001 terrorist attacks.

Such a decline might otherwise spell disaster. But instead, Sears Tower is a high-profile example of how a plentiful supply of cheap mortgage money has allowed landlords to survive falling rents and rising vacancies, and flourish when it comes time to sell.

Sears Tower ’s owners, a group that includes New York investors Joseph Chetrit and Joseph Moinian as well as Skokie-based American Landmark Properties Ltd., gambled on short-term interest rates — and won — when they used $825 million in mostly floating-rate debt to acquire the 110-story skyscraper in April 2004. But this year, with short-term rates rising above long-term rates, they have been under pressure to refinance the massive debt.

That effort has been complicated by a drop in NOI, which does not include debt payments, taxes or certain other expenses. On Sept. 27, New York-based credit rating agency Standard & Poor’s slightly lowered its rating on the building’s existing debt, sponsored by Bank of America. The New York-based credit rating agency cited a 20% decline in NOI from the date of the loan through the end of 2005. S&P's calculation was based on a 2004 NOI of $73.9 million, a source says.

Nonetheless, during the first week in October, when benchmark long-term rates dipped to their lowest level since the spring, the Sears Tower’s owners locked in the UBS loan, which has been pending for months, sources say.

“Intuitively, it seems cheap,” says Michael Kavanau, senior managing director with real estate firm Holliday Fenoglio Fowler L.P., which isn't involved in the transaction. “But you never get your absolute best pricing if, at the same time, the existing loan gets downgraded.”

The 10-year loan is expected to close later this year, says John Huston, executive vice-president with American Landmark. “This shows how the investment community has confidence in Sears Tower,” he says in a written answer to questions.

An offering memorandum circulated to potential investors and lenders earlier this year provides a rare, inside glimpse into the finances of the nation’s tallest building. Additional financial information was gleaned from credit rating reports.

Mr. Huston says the NOI drop is “substantially less than 20%,” but is “something we’ve anticipated.” The offering memorandum does not disclose historical income figures, but says “in-place” NOI is $64.7 million.

In the last two years, Sears Tower has leased 700,000 square feet, more than a third of that being occupied by new tenants or existing tenants expanding their space, Mr. Huston says. But he acknowledges that Sears Tower is feeling the effects of a marketwide rolldown in rents, as leases signed when the market was tight begin to expire.

The new loan from UBS puts the 3.8-million-square-foot tower on a firmer financial foundation. But challenges remain.

The ownership group is still looking to replace about $45 million in high-interest mezzanine debt, with either a lower-interest loan or a fresh equity investment. The UBS loan isn’t contingent on that deal, yet replacing that mezzanine loan is key to a proposed Disneyesque redevelopment of the Skydeck (Crain’s, Aug. 14).

Last month, the once-popular restaurants on the tower’s second floor were unexpectedly closed, seven months after they were taken over by food-service giant Sodexho USA from longtime operator Levy Restaurants Inc. The tower’s ownership group had expected to receive a $500,000 annual boost in revenue under the Sodexho deal, the offering memorandum says. Reopening the restaurants is “a top priority,” says a spokesman for the building.

Meanwhile, the vacancy rate in the building shot up to nearly 22% in the third quarter, compared to about 12% during the prior period, largely because of the expiration of leases of tenants who left the building in the wake of Sept. 11, according to real estate research firm CoStar Group Inc.

“The question for a structured finance provider on Sears Tower is, ‘Do you want to bet they are going to be able to lease up that building, given the challenges,’ ” says Bruce Cohen, CEO of Chicago real estate investment firm Wrightwood Capital LLC.

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Lower expenses help Sears Canada return to profit
Reuters Canada.com
October 26, 2006

TORONTO (Reuters) - Sears Canada, in the middle of a buyout battle between U.S. parent Sears Holdings and minority shareholders, said on Thursday it returned to profit in the third quarter, helped in part by lower expenses.

The retailer said it earned C$37.8 million ($33.5 million), or 35 Canadian cents a share, in the quarter ended September 30. That compares with a loss of C$37.4 million, or 35 Canadian cents a share, in the same period a year earlier, when the company also had one-off charges.

Sales dropped 5.2 percent to C$1.41 billion, reflecting the sale of the company's credit and financial services operations to JP Morgan Chase & Co. last year.

Same-store sales, a key measure of retail performance, rose 1.2 percent.

Gross margins for the quarter gained 250 basis points, the company said, citing higher apparel sales and improved inventory management.

Inventory levels were 1.5 percent lower than in the corresponding period last year. Total expenses dropped 13.7 percent, about 60 percent of which was related to the sale of Sears Canada's credit card business.

"The productivity improvements begun in the fourth quarter of 2005 are now essentially complete," Dene Rogers, acting president of Sears Canada, said in a statement.

"To grow earnings going forward it will be necessary to grow sales in an increasingly competitive Canadian marketplace," he said.

Sears Canada, which slashed 1,200 jobs last fall as it started aggressive cost cuts, has been hurt by eroding sales over the last years amid tough competition against Wal-Mart's Canadian stores, Canadian Tire, and privately-held Hudson's Bay Co., as well as smaller apparel retailers.

Sears Holdings, which has long held a majority stake in Sears Canada, last April said it had gained the support of most of the retailer's minority shareholders to take it private in a deal worth C$892 million ($792 million).

But a group of minority shareholders, led by hedge fund Pershing Square Capital Management LP, has vowed to fight the deal and filed a complaint to the Ontario Securities Commission.

The OSC put the brakes on Sears Holdings' offer last August, saying the owner of U.S. retailers Sears and Kmart had fallen short of disclosure obligations after it failed to adequately disclose support agreements with some minority shareholders.

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Man linked to Sears Tower terror plot
pleads guilty in weapons case

Associated Press
October 25, 2006

MIAMI - A man linked to plotters who allegedly hoped to blow up Chicago's Sears Tower and other buildings pleaded guilty Wednesday to a federal weapons charge stemming from a confrontation at the group's warehouse headquarters.

Sultan Khanbey, 51, was sentenced by U.S. District Judge Marcia Cooke to 14 months in prison with credit for the time he has served since his arrest in May. Cooke agreed to recommend that Khanbey serve his sentence at a prison in the Chicago area, where he is from.

Khanbey, a leader of Chicago's Moorish Science Temple religious sect who was born Charles Stewart, admitted that he fired a handgun during an argument at the warehouse where a group led by Narseal Batiste allegedly pledged allegiance to al-Qaida and made plans for terror attacks.

Prosecutors say Batiste and six others arrested this summer never got beyond the plotting stage and that a man they thought was an al-Qaida operative was actually an FBI informant.

Khanbey, who has past convictions for attempted murder and rape, pleaded guilty to possession of a firearm by a convicted felon. He fired the gun during an argument that followed a "trial" held by Khanbey to expel Batiste from the Moorish organization amid suspicions it had been infiltrated by the FBI. The seven terror suspects remain jailed without bond and face trial March 5 in Miami. All have pleaded not guilty. Khanbey did not agree in pleading guilty to cooperate in that case.

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Wal-Mart’s Chief Says Chain Became Too Trendy Too Quickly
By Michael Barbaro – New York Times
October 25, 2006

The chief executive of Wal-Mart Stores, H. Lee Scott Jr., said yesterday that the introduction of upscale products, like silk camisoles and 300-thread-count sheets, had proved “choppier than it should be” and that the company had “moved too far too fast” with fashionable clothing.

In wide-ranging remarks to Wall Street analysts yesterday, Mr. Scott also said that consumers had been reluctant to splurge at Wal-Mart even as gas prices have fallen, that the company would be “very aggressive” on toy prices this holiday season, and that the chain’s reputation with elected leaders has improved because of its environmental initiatives and $4 generic drug program.

Speaking at Wal-Mart’s analyst meeting, held in Teaneck, N.J., this year, Mr. Scott said he was unhappy with the chain’s performance in September, when sales at stores open at least a year rose only 1 percent, missing a company forecast.

At one point, he appeared to admonish executives for leaving the impression that the sales figure was acceptable. “If anyone caused you to believe we are comfortable with a 1 percent” sales increase, he said, “I want to apologize. We are not.”

Explaining the sluggish September results, Mr. Scott said shoppers had favored local stores when gas prices spiked and had not yet decided to switch back to Wal-Mart, though it generally offers lower prices.

“We have got to as a company reinforce that that customer needs to go to Wal-Mart, that the value creation is great enough to break the habit,” he said. “I think we clearly have the ability to say that.”

Mr. Scott said Wal-Mart would be able to drastically reduce the growth in its spending on new stores — from up to 20 percent this year to up to 4 percent next year — because of lower construction material costs and plans to build some smaller stores.

Wall Street cheered the lower expenses. After they were announced on Monday, Wal-Mart’s shares rose 5 percent, closing above $50 for the first time since December. Yesterday, shares rose 2 cents, to close at $51.30.

Mr. Scott hinted that Wal-Mart, which has already reduced prices on 100 popular toys this holiday season, could make even deeper cuts before Christmas. Recalling the 2003 holiday season, when Wal-Mart touched off a price war among retailers, he said, “I think you will see a very aggressive toy market at Wal-Mart.”

After withdrawing Wal-Mart from Germany and South Korea because of poor sales, Mr. Scott said he was determined to make the chain a success in Japan, where it has struggled. Joking with the head of the company’s international operations, Michael T. Duke, he said that if Wal-Mart failed in the country, “neither you nor I will be here.”

Mr. Scott offered the most detailed explanation to date of why apparel sales at Wal-Mart, a major focus under the new head of marketing, John Fleming, have proved disappointing.

“What we did was overload the fashion part,” he said, by introducing new trendy clothing lines like Metro 7, a Wal-Mart-designed brand, in too many stores too quickly. The solution is to carry “fashion basics” that are less intimidating to the company’s consumers, Mr. Scott said.

Wal-Mart, which has had a reputation for dowdy clothing, is trying to appeal to style-conscious consumers who buy at rival chains like Target Kohl’s and J. C. Penney .

The entry into fashion has been closely watched by competitors and New York designers, who are anxious to see if the retailer, the world’s largest seller of food and laundry detergent, can master dresses.

While apparel sales have not met expectations, those of everyday products like socks and laundry detergent have surged. Mr. Scott said Wal-Mart has sold 675 million pairs of white socks in the past year.

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Battle to decide Sears Canada's fate
Proxy fight pits U.S. parent against hedge funds
Theresa Tedesco and Lori McLeod - Financial Post
October 25, 2006

The fate of Sears Canada Inc. is set to be decided in a proxy battle between the Canadian retailer's U.S. parent company and a group of New York-based hedge funds.

Sears Holdings Corp. is attempting to push through its $899-million takeover of the Canadian subsidiary by holding a special shareholders' meeting on Nov. 14. According to a circular distributed yesterday, Sears Holdings is offering $17.94 for each Sears Canada common share, down from $18 offered in the original bid last April.

The Ontario Securities Commission granted the giant Chicago-based retailer permission to schedule the meeting to buy the remaining 46.2% equity stake it doesn't own after a confidential hearing last week, despite the objections of a group of dissident shareholders.

"Sears Holdings is pleased the OSC agreed with us that the meeting should be allowed to proceed," said Mark Gelowitz, a lawyer representing the parent company.

William Ackman, president of New York-based Pershing Square Capital Management LP, accused Sears Holdings of trying to unfairly "squeeze out" minority shareholders with a low-ball offer that is 20% less than the current trading price.

"We are disappointed that both Sears Holdings and Sears Canada continue to game the system by trying to cram down an unfair price on all Sears Canada minority shareholders," Mr. Ackman said in a statement yesterday.

Sources say Mr. Ackman, who pressured the OSC last spring into examining whether all Sears Canada shareholders were being treated equally, is puzzled that Sears Holdings has been granted approval to proceed with a vote even though the regulator ruled on Aug. 8 that the takeover offer was "abusive and coercive" to minority shareholders.

He even appealed directly to other Canadian provincial securities commissions to pressure the OSC into refusing the request by Sears Holdings.

Mr. Ackman and his group of dissident shareholders, which include New York-based hedge funds, including Pershing, Hawkeye Capital Management LLC and Knott Partners Management LLC, also accuse Sears Holdings and its chairman Edward Lampert, a billionaire hedge-fund magnate, of "disenfranchising" minority shareholders by calling a meeting with the minimum of 21-days notice, as required by Ontario securities laws.

In his release yesterday, Mr. Ackman said Sears Canada shareholders may not have sufficient time to cast their votes by attending the meeting or by proxy through their brokers or nominees.

More importantly, Sears Holdings only needs to acquire a majority of the minority shares represented at the meeting -- not from the company's total outstanding shares. According to Mr. Ackman, Sears Holdings may be able to vote 29.7% of the 34.78 million minority shares eligible heading into the meeting.

The disgruntled shareholder group needs 17.4 million shares to block the privatization effort and Mr. Ackman says his group already owns 10.1 million.

As a result, he implored all Sears Canada shareholders to cast a vote by either attending the Nov. 14 meeting or by proxy.

Given that, Canadian investors are expected to play a significant role in deciding which American hedge-fund titan ultimately succeeds.

"Think of two hot-rodders who cross the border and decide they're going to conduct their race in Canada. They're both Americans, so theoretically we don't care who wins or loses," an arbitrage trader said.

"What we care about," he said, "is the fact they're doing it on our highways and putting our people at risk."

Sears Holdings is attempting to complete its privatization effort without the support of four large investors, including the Bank of Nova Scotia, Scotia Capital, its investment-banking arm, and Royal Bank of Canada.

Two months ago, the OSC halted Sears Holdings' takeover bid when it sided with minority shareholders, ruling the U.S. retailer flouted disclosure rules and made illegal side agreements with the banks and Vornado Realty.

The regulator ruled that the banks received benefits not available to other Sears Canada investors in return for backing the $18-a-share takeover bid. Because that contravened rules requiring equal treatment for all stockowners, the OSC said the votes of the four large shareholders -- which accounted for 15.1 million shares -- could not be counted as part of the Sears Holdings takeover bid.

Sears Holdings appealed the decision in Ontario Divisional court but the request was denied last month. Since then, the U.S. retailer has asked the Ontario Court of Appeal to consider the matter. A decision is still pending.

In the meantime, Sears Holdings persuaded the OSC to allow for a shareholders' meeting to protect its rights should the company succeed with its appeal. Although most legal observers agree that is not likely to happen, most say the regulator had no choice in granting approval for the meeting.

"The OSC doesn't want to be in the position of frustrating the Court of Appeal or be criticized for making court decisions irrelevant," said a senior corporate lawyer who asked not to be named.

As well, Sears Holdings' deals with Royal and Scotiabank, who could avoid paying tens of millions of dollars in taxes, are set to expire on Nov. 15. In its August ruling, the OSC said the Canadian banks, which own 8.3 million shares of Sears Canada, had done nothing wrong.

"This is absolutely what they [the OSC] should have done, even though I don't like it," said an arbitrage trader and Sears Canada shareholder.

SEARS CANADA INC.
Ticker: scc/TSX
Close: $22, down 50 cents
Volume: 7,060
Avg. 6-month vol.: 275,627
Rank in FP500: 57

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Sears Allowed by Ontario Regulators
to Hold Vote Before Appeal

By Joe Schneider – Bloomberg.com
October 23, 2006

Sears Holdings Corp. can hold a vote on a proposed $792 million buyout of its Canadian unit to avoid breaching an agreement that commits Bank of Nova Scotia to support the deal, the Ontario Securities Commission said.

Sears Holdings, which owns 54 percent of Sears Canada, had agreed to delay completion of the buyout so Bank of Nova Scotia and Royal Bank of Canada could get a tax break from having held the shares at least a year. Sears Holdings, based in Hoffman Estates, Illinois, had planned a shareholder vote by Nov. 15.

The OSC on Aug. 8 barred Sears Holdings from counting the votes of the banks and a realty fund toward the purchase, saying Chairman Edward Lampert had given them better terms and failed to promptly disclose certain details of the deals to all shareholders. A three-judge panel of the Ontario Divisional Court upheld the ruling. Sears has appealed.

Bank of Nova Scotia told Sears Holdings and the commission that the company ``would be in fundamental breach of the support agreements if the meeting is not held prior to Nov. 15,'' the OSC said in its ruling, given to lawyers Oct. 20 and released to the public today.

Sears Holdings is offering C$18 a share for Sears Canada, which some investors say is too low. Sears Holdings doesn't have enough votes to win approval of the purchase without the banks, which hold 7.6 million shares and Steven Roth's New York-based Vornado Realty Trust, which has 7.5 million shares. Sears Canada has about 107.6 million shares outstanding.

Investors' Objections

Sears Canada shares rose 35 cents to C$22.50 in trading on the Toronto Stock Exchange today.

The votes by the banks and Vornado won't count unless Sears Holdings convinces the Ontario Court of Appeals to overturn the rulings of the divisional court and the OSC. William Ackman's Pershing Square Capital Management LP, Hawkeye Capital Management LLC and Knott Partners Management LLC, objected to approval of the meeting.

"A granting of the stay will yield a perverse result,'' the funds' lawyer, Louis Sarabia, said in a filing to the OSC. "Minority shareholders of Sears Canada will be forced to cast votes with respect of a transaction which was shaped by conduct that both this commission and a full panel of the divisional court have unanimously found to be abusive, coercive and against the public interest.''

The case is between Sears Holdings Corp. and the Ontario Securities Commission, Ontario Divisional Court, Toronto, Case No. 399/06.

 

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Sears Canada buyout vote on
'Disappointed', say 3 major shareholders
Chicago Tribune – Bloomberg News
October 21, 2006

TORONTO -- Sears Canada Inc. shareholders will be allowed to vote on a $792 million buyout offer from Sears Holdings Corp. for the 46 percent stake it doesn't already own, three major shareholders said Friday.

Pershing Square Capital Management LP, Hawkeye Capital Management LLC and Knott Partners Management LLC said in a statement Friday that they "are disappointed" the Ontario Securities Commission said Sears Holdings can proceed with a stockholders meeting to vote on an $18-a-share Canadian ($16 U.S.) takeover of the unit.

In August, the commission barred Hoffman Estates-based Sears Holdings from counting certain shareholder votes toward the proposed purchase, saying Chairman Edward Lampert gave better terms to some Sears Canada shareholders and broke merger rules by failing to promptly disclose certain details to others.

Lampert wants to buy Sears Canada to lower costs, lease back some stores and sell real estate. The move also is intended to help the chain compete more effectively with rivals Wal-Mart Stores Inc. and Hudson's Bay Co.

Shareholders, including William Ackman, who runs New York-based Pershing, have said the Canadian retailer should fetch twice the amount being offered.

The three major shareholders said the commission will allow the meeting on Nov. 14 for owners of Sears Canada stock as of Oct. 23, pending certain conditions. The companies said they "are considering their options and responses."

It wasn't clear when the commission made the ruling or the specifics of it. A message left at the office of Wendy Dey, director of communications for the commission, was not returned, and no ruling could be located on its Web site.

Sears Holdings spokesman Chris Brathwaite declined to comment. A message left at the office of Sears Canada spokeswoman Katarina Kristanic was not returned.

The commission earlier said Lampert's deals to win support from the Bank of Nova Scotia and the Royal Bank of Canada, which at the time held 7.6 million shares, and New York-based Vornado Realty Trust, with 7.5 million shares, violated Canadian securities law. All shareholders must be treated identically under the law, the regulator said.

Previously, the Ontario Divisional Court in Toronto dismissed an appeal by Sears Holdings on Sept. 19 to overturn the commission ruling. Sears said last month that it would take the case to the Ontario Court of Appeal.

The offer values Sears Canada at about $1.72 billion in U.S. dollars.

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Sears Explores Its Chic-er Side

With a Focus on Trendy Designs, the Chain
Looks to Give Its Home Furnishings a Lift
By Jura Koncius - Staff Writer - Washington Post
October 19, 2006

Two years ago, Sears decided it was urgently in need of a home furnishings makeover.

Its furniture department had dwindled over the years, and the bed and bath offerings were a wasteland of tired old standards.

Competitor Target, meanwhile, had been building buzz with its budget-chic offerings from the likes of Michael Graves, Philippe Starck, Isaac Mizrahi and Thomas O'Brien. At Kmart, which was brought under the Sears Holding Corp. umbrella last year, Martha Stewart has been churning out matelasse comforters and garden benches. Chris Madden upgraded the home department at J.C. Penney with spa towels and tasteful upholstery.

Sears, with 926 stores, was a sleeping giant with a nagging image problem.

First, the bright spots: The appliance department is always highly rated by consumers. Kenmore, launched by the chain in 1927, is the best-selling appliance brand in the United States. Sears appliances are found in two of every three U.S. homes, company spokeswoman Corinne Gudovic says. Craftsman tools, a Sears brand, have always been another major draw.

But customers seeking washers, dryers and power drills were walking right by shelves of towels, candles, lamps, curtains and blankets. The home department clearly needed a style jolt.

"Sears has been a staple in families' homes and lives for generations," Gudovic says of the 120-year-old retailer. "We are a part of Americana. It made sense for us to expand on our home fashions and make us a complete solution for the home."

The company assembled a team of designers to reexamine each shower curtain and soup bowl on the shelves and raise the style quotient in every category. For a little star power, it signed Ty Pennington, the hunky carpenter who stars in ABC's "Extreme Makeover: Home Edition," first as a spokesman and eventually as a designer of furniture, tabletop items and bedding.

The new look, introduced in the fall 2006 Simply Indoors catalogue that was mailed to customers, draws on the prevailing popularity of dark woods, luxury linens and gourmet tabletop items and cookware. The collections include 75 ready-to-assemble beds and chests, and a hotel bedding and bath collection with 500-thread-count sateen sheets.

Looking to piggyback on the Kenmore brand, the chain brought out Kenmore cookware, including a high-end line combining aluminum and stainless steel. From Lands' End, a company that is also part of Sears Holdings, come fleecy throws and flannel sheets and comforters. (The Sears stores at Landmark Mall in Alexandria and in Glen Burnie are opening Lands' End bed and bath departments this month.)

The Sears at Landmark Mall, one of 20 in the Washington-Baltimore area, doesn't look quite like the backdrops in the company's glossy catalogue. There are no neoclassical mantels or Palladian windows; it has tile floors and no-frills shelving instead.

But shoppers gliding down the escalator can't miss clearly updated bed and bath, furniture and tabletop collections, including a Martha-ish set of willow storage baskets ($29.99 for four), a pink convertible sofa ($279) and a wall of KitchenAid stand mixers, available in 24 colors ($299.99). Computers give customers access to http://www.sears.com/ . Most orders can be delivered within 48 hours, and for an extra charge, customers can arrange in-home furniture assembly.

Shalonda Randolph, an assistant store manager at the Landmark store, says the assembly-required furniture has been among its top sellers, especially the pub table and four-stool set ($249). Randolph says customers have commented on how great the new catalogue looks. "It reminded me of Nordstrom," she says, straightening a cushion.

Sears's sales have been sluggish. For the second quarter of 2006, its comparable store sales declined 6.3 percent from the same period last year. Some retail experts think Sears still has a ways to go.

"Sears merchandising has been rather inconsistent and lackluster," says Warren Shoulberg, editor in chief of HFN, an industry publication. "They should be with Kohl's and Penney's, right in the middle, as a store that appeals to the middle market."

"Sears is trying to redefine itself," says George Whalin, president and chief executive of Retail Management Consultants. "But they still need to make investments in their stores. They haven't done enough of that. Some of their stores are real tired-looking."

And the competition keeps coming: Kohl's just signed Vera Wang to do a line of linens and towels.

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Allstate posts $1.16-billion profit, raises guidance
Crain’s Chicago Business Online
October 18, 2006

(AP) — Allstate Corp., the second-largest U.S. personal-lines insurer behind State Farm, reported a $1.16-billion third-quarter profit Wednesday as it benefited from a quiet hurricane season that generated relatively few catastrophe losses.

The company also raised guidance for its full-year earnings.

The large gain contrasted sharply with a year ago, when Katrina and other hurricanes that devastated the Gulf Coast sent the Northbrook insurer to a record $1.55-billion loss in the third quarter of 2005.

Earnings for the July-through-September period amounted to $1.83 per share and compared with a loss a year earlier of $2.36 per share.

Revenue was $8.74 billion, down 2% from $8.94 billion in the third quarter of 2005.
Analysts polled by Thomson Financial had been looking for earnings of $1.78 per share on revenue of $8.32 billion.

Allstate raised its estimate for 2006 operating earnings to a range of $7.35 per share to $7.50 per share, up from the previously announced range of $6.70 to $7.

The company also announced a new $3-billion share repurchase program, to be completed after the current $4-billion plan ends in the fourth quarter and before April 2008.

"We remain very confident in the company's strategy and are investing in our core businesses to generate profitable growth," said Edward Liddy, chairman and chief executive.

Allstate announced last month that Liddy is stepping down from the CEO post at the end of 2006 after eight years, and will be succeeded by No. 2 executive Thomas Wilson, currently president and chief operating officer.

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New Lands' End Format Suits Sears
By Kris Hudson – Wall Street Hjournal
October 17, 2006

Sears Holdings Corp. is sticking with its effort to raise the profile of its Lands' End unit by showcasing the casual apparel in separate shops within 100 Sears locations to better serve the preppy brand's loyal customers ahead of the holiday season.

Sears, based in Hoffman Estates, Ill., previously did little to call attention to its Lands' End offerings, which it gained in its 2002 acquisition of mail-order retailer Lands' End Inc. for $1.86 billion. Until recently, Lands' End crewneck golf shirts, coats and cashmere sweaters were scattered about Sears's apparel section according to season, style or category. That made finding Lands' End clothes within stores challenging for the line's customer base.

Sears and Lands' End see the store-within-a-store approach as a way to better display the brand and boost sales. The story was reported earlier by Reuters. Lands' End, of Dodgeville, Wis., has hired and trained the salespeople working within the 10,000-square-foot outposts to know the nuances of its apparel, such as the temperatures at which its coats keep wearers warm and how to clean its cashmere sweaters. The Lands' End stores also will offer lounge areas and Internet kiosks to allow shoppers to order apparel that isn't stocked in the store. Catalog and online sales remain important venues for Lands' Ends sales.

Since opening its first test store within a Sears in White Plains, N.Y., in September 2005, Lands' End has opened 98 more. The 100th location will open Nov. 1. Sears and Lands' End declined to comment on plans beyond the 100th store. "We're still considering this a test," said Lands' End spokeswoman Michele Casper.

The store-within-a-store concept will be a marked improvement from Sears's previous "buckshot" approach to displaying the brand, according to Bill Cody, managing partner of the Baker Retailing Initiative at the University of Pennsylvania's Wharton School. "Now, treating it as the specialty brand it is...is extremely important for the success of the brand going forward," Mr. Cody said. "Presenting [Lands' End] as a store version of the catalog is going to be a benefit if they sell the brand going forward. [Sears] gave no proof of the brand's retail viability in the way they sold it previously."

Sears's net profit has soared as Chairman Edward Lampert has aggressively cut costs since combining the venerable retailer in early 2005 with discounter Kmart. However, with a market value of $26 billion, it remains dwarfed by larger discount rivals such as Target Corp. and Wal-Mart Stores Inc. Unlike Mr. Lampert's earlier cost-cutting moves, opening Lands' End shops appears to be aimed at boosting revenue.

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Wal-Mart Agrees to Acquire Chinese Chain
for About $1 Billion
By Kate Linebaugh – Wall Street Journal Online
October 16, 2006

BEIJING—Wal-Mart Stores Inc. has agreed to acquire a Chinese hypermarket chain for about $1 billion, according to people familiar with the transaction, in a deal that could give the world's largest retailer the biggest food and department store network in China.

The deal for the Chinese hypermarkets of Trust-Mart, a closely held Taiwanese company, comes as foreign retailers look to tap China's fast-growing economy, large population and expanding middle class. It also follows Wal-Mart's recent exit from both Germany and South Korea.

If it is approved by Chinese regulators, the transaction would vault Wal-Mart past its archrival, Carrefour SA of France, in number of hypermarkets in China. Wal-Mart beat out Carrefour for the Trust-Mart purchase, according to people involved in the deal. Hypermarkets are giant stores that sell a wide range of general merchandise and food.

While Wal-Mart has struggled in some overseas markets, it can't afford missteps in China. Its U.S. business gains are slowing, and costs are rising, forcing the company to look elsewhere for expansion. The company has said it plans to add 18 to 20 new stores this year. It currently has a total of 66 stores in China, including 61 hypermarkets.

The transaction is structured to take place in phases. The Bentonville, Ark., company will acquire 31 stores initially, according to a person involved in the transaction. Then, over the next three years, Wal-Mart will acquire the remainder of Trust-Mart's 100 stores as each outlet meets various criteria, including compliance with fire codes and the like. Details of the payment were not disclosed.

A staggered purchase would follow Wal-Mart's practice of buying minority stakes in foreign retailers, then increasing its holdings to a majority over time. Earlier this year, for instance, it boosted its stake in Central American Retail Holding Co. (Carhco), a supermarket chain operating in Central America, to 51% after initially purchasing a third of the chain from Dutch food giant Royal Ahold NV last year. Similarly, Wal-Mart de Mexico started as a minority stake in retailer Cifra CV, and in Japan the company purchased a 6% stake in struggling supermarket retailer Seiyu in 2002 and two years later held a controlling share.

The acquisition, which Wal-Mart and Trust-Mart agreed to more than a month ago, requires regulatory approval from China's Ministry of Commerce. Chinese government approval of acquisitions by foreign companies can be a lengthy and fraught process. In this case, however, the company being acquired is Taiwanese, so the deal may pass muster more readily.

Officials of Trust-Mart declined to comment. A Wal-Mart spokeswoman declined to comment.

A spokeswoman for Carrefour—the world's second-largest retailer by sales, after Wal-Mart, and the first international retailer to establish a presence in Asia, in 1989—declined to comment on the deal or on Carrefour's interest in buying the Trust-Mart stores in China. But if the deal goes ahead, it will mark a setback for the Paris-based retailer. In the past 18 months, Carrefour has withdrawn from several international markets, including Korea and Japan, and is focusing resources on markets where it can play a dominant role.

China is one such market for Carrefour, which has about 80 hypermarkets and 242 hard discounters there. Buying a local competitor could have sped up Carrefour's penetration of the Chinese market.

By acquiring Trust-Mart, which was founded by Taiwanese investors in 1997, Wal-Mart will expand into more than 20 Chinese provinces or districts and take on a work force of about 30,000 people, according to information about Trust-Mart on its Web site.

The deal would mark a success in Wal-Mart's international businesses in a year that has been marred by some notable retreats. In May the company exited from South Korea. And in July, Wal-Mart withdrew from Germany, having found stiff competition from cut-rate retailers, strong unions and labor restrictions too difficult to endure. After eight years, the company sold its 85 stores to a rival, taking a $1 billion charge in the process.

Foreign retailers are eager to land or expand in China. In late 2004, as part of its entry into the World Trade Organization, China lifted restrictions on foreign retailers. Since then, Wal-Mart and Carrefour have been rapidly expanding into China's competitive retail market.

But a highly fragmented market with tight profit margins and dominant local players has made penetrating the market challenging, and getting approvals to open new stores can be a slow process. So foreign companies have been on the hunt for acquisitions.

Best Buy Co. announced in May that it had bought a majority stake in China's fourth-biggest appliance and electronics retailer, Jiangsu Five Star Appliance Co., for $180 million. Home Depot has been in talks to buy local player Orient Home, an Orient Group Inc. unit, with 22 stores.

The consolidation isn't limited to foreign players. In July, Gome Electrical Appliances Holding Ltd., China's top electronics retailer by sales, offered to buy out rival China Paradise Electronics Retail Ltd. for $676.9 million.

Gary McWilliams in Dallas, Juying Qin in Hong Kong and Cecilie Rohwedder in London contributed to this article.

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Lands' End sets up camp in Sears department stores
By Sandra Jones - staff reporter – Chicago Tribune
October 15, 2006

Sears Holdings Corp. is taking another stab at making Lands' End work.

The retailer is rolling out distinct Lands' End shops inside scores of Sears stores, including a showcase boutique at Sears' State Street flagship in Chicago, in hopes of reviving sales at the preppy sportswear company and helping to juice overall sales at Sears stores--which have been declining for years.

It's a move that retail experts say should have happened four years ago, when Sears bought the Dodgeville, Wis.-based catalog merchant for $1.84 billion.

Sears has been selling Lands' End merchandise at its department stores since 2003, but did little to set the well-known brand name apart. Lands' End fans had a hard time finding the merchandise and Sears shoppers, accustomed to markdowns, suffered sticker shock from Lands' End's relatively high-priced $120 cashmere sweaters and $70 fleece jackets.

This time, Sears--headquartered in Hoffman Estates--has turned the reins over to Lands' End, allowing executives there to romance the merchandise in Sears' stores just as they have for decades in the catalog.

"It's just something they should have done a long time ago," said George Whalin, president and chief executive of Retail Management Consultants Inc., a consulting firm in San Marcos, Calif. "Lands' End is a brand that will help them get customers they don't normally get. It's a customer they should be courting."

Sears began testing the in-store shops last September when billionaire investor and Sears Chairman Edward Lampert took direct control of the catalog company. The retailer started with four shops last fall, including one at Oakbrook Center in Oak Brook. The company quietly added more earlier this year and plunged headlong into the expansion this summer.

In the past three months, Lands' End executives have been overseeing the rollout of 75 stores, concentrating on Sears stores in the upper Midwest and Northeast--territory populated with fans of Lands' End's quilted down vests, squall jackets and blizzard-busting boots.

The total number of in-store Lands' End shops stands at 99 today. The 100th shop is slated to open Nov. 1 at a Sears in Duluth, Ga., Lands' End spokeswoman Michele Casper said.

Lands' End and Sears officials declined to comment on plans for next year. Sears operates 863 department stores.

The Lands' End shops are typically 10,000 square feet and easy to find. They stand out from the rest of the store with carpeting, navy walls, and comfy couches and chairs.

Lands' End, not Sears, is hiring and training the sales associates, putting them through the same intense customer service and product training that call center representatives go through at the catalog and online operation. It's the only way Lands' End can convey to shoppers information so painstakingly detailed in the catalog, such as the insulating difference between the 600-gram snow boot and 200-gram Moc.

Lands' End is also hiring its own district managers to work with Sears' store managers and customer experience managers to oversee the sales associates in the stores.

And in an effort to make it easier on shoppers, Lands' End has installed kiosks in the store to take online orders with no shipping charges and will also take returns in the store that were purchased online or in the catalog, something Sears originally neglected to do.

Sears' same-store sales fell 6.3 percent in the second quarter, with decreases across most categories and formats. Sears has suffered from five consecutive years of declining sales.

Lampert has said he puts little stock in same-store sales as a performance measure. But most analysts say boosting profits through cost-cutting, as Lampert has been doing, has its limits.

At the same time, apparel is a high-margin business, yielding far higher profits than electronics or appliances. If Sears can boost its roughly $4 billion apparel sales, which has been shrinking for years, it will make more money, said Love Goel, chairman and chief executive of Growth Ventures Group, a Minnetonka, Minn.-based investment firm.

"They are using the brand to help boost store business," said Goel. "They're figuring out a way to use Land's End to improve margins."

Sears has no plans to roll out the upscale line at its more than 1,300 Kmart stores at the moment. But the company did open a small Lands' End outpost in May at the Kmart in Bridge-hampton, N.Y., the bucolic former whaling village that hosts the prestigious Hampton Classic Horse Show, a magnet for the rich and famous. Kmart sold a selection of Lands' End swimsuits, tote bags and teak furniture this summer and is now stocking stores with outerwear.

For its part, the Lands' End State Street flagship in Chicago, which opened in late September, stands in stark contrast to the rest of the store. It's bright and airy, and it has plenty of room between the racks of clothing. Sales associates approach shoppers eager to help. Not long ago, Lands' End shirts and pants were stuck in the back of the store, surrounding the escalator banks, on disorderly racks and tables.

Even Lampert, in a letter to shareholders late last year, acknowledged many customers didn't even know that Sears carried Lands' End.

Now they will.

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Prepare for a Gruesome Retirement
By Selena Maranjian (TMF Selena) - The Motley Fool.com
October 14, 2006

It's time for some tough love. After all, I want you to have a comfortable retirement, doing things that you enjoy and have always desired. That may mean dining in fine restaurants, traveling to the Galapagos Islands to see blue-footed boobies, or taking your grandchildren to Hershey, Pa., to eat chocolate to their heart's content -- and then coming home from these activities to your spiffy retirement community. But judging from some startling statistics I discovered, you're in danger of a retirement that's quite the opposite. Picture dining on Salisbury steak TV dinners, traveling to the Git'n'Go down the street for a bag of chips, taking your grandchildren to the Salvation Army as you shop for some new clothes, and doing so while living in a relative's damp basement.

The facts
According to the 2005 Retirement Confidence Survey (RCS), we can be confident that many people will have gruesome retirements. In fact, according to a separate survey, 31% of Americans would rather scrub a bathroom than plan for retirement. Rest assured: If you've been putting off planning for your retirement, you're not alone. (I can't speak for the scrubbing thing.)

Check out the numbers from the RCS survey. They reflect the total savings and investments (not including the value of the primary residence) of today's workers, broken down by age group:

Retirement Savings

All Age Groups

25-34

35-44

45-54

  55+

  Less than $25,000

52%

70%

50%

41%

 39%

  $25,000-$49,999

13%

12%

15%

14%

12%

  $50,000-$99,999

11%

9%

14%

13%

7%

  $100,000-$249,999

12%

5%

10%

27%

23%

  $250,000 or more

11%

4%

10%

16%

19%

  
Source: Retirement Confidence Survey (2005)

These statistics don't include Social Security payouts. Maybe there's a reason for that. I have at least two decades until retirement. In fact, I recently received my latest statement from the Social Security Administration and found out that the amount I can expect to receive at my full retirement age of 67 isn't much more than my current mortgage payment. My 30-year mortgage won't be finished by the time I hit the big 6-7, and my mortgage and tax payments will likely be much higher because of rising taxes. Making matters worse is the possibility that I -- no, we -- can't be entirely sure that Social Security will be around in much the same form in my -- no, our -- Golden Years.

Then there are pensions to consider. The truth is that darn few of us have traditional pensions anymore. An Associated Press article highlighted the issue: "In 1985, 89% of Fortune 100 companies offered traditional pension plans, but that had fallen to 51% by 2004, according to Watson Wyatt Worldwide, a human resources consulting firm. Some 11% of the plans in the Fortune 1000 were frozen or terminated for new employees, up from 5% in 2001." Companies that have recently frozen all or part of their traditional pension plans (or are slated to do so) include Tenneco, Sears, and DuPont.

I think it's better to rely instead on those factors that are under our control: our savings and investments.

What the facts mean
Let's say you're a typical 40-year-old working American. According to the table, there's about a 50% chance that your savings and investments total less than $25,000. Let's be generous and assume you have $20,000 socked away. You've also got about 25 to 30 years until you retire. How will that money grow for you? Well, here's what happens when we assume that you earn the market's average long-term return of 10%:

2006 (age 40): $20,000
2016 (age 50): $51,875
2026 (age 60): $135,550
2036 (age 70): $349,000

Now, let's use some information I've gleaned from the Fool's Rule Your Retirement <http://www.fool.com/shop/newsletters/13/decide.asp?source=irredilnk4550754> newsletter service: In order to make your nest egg last, you should conservatively plan to withdraw about 4% of it per year in retirement. So 4% of $349,000 is almost $14,000. That's about $1,200 a month. Will that be enough? According to an inflation calculator I used, what cost a buck 30 years ago will cost about $3.75 today. Assuming the same rate going forward, your $14,000 in 2036 will buy you what you can get for $4,700 today. So that $1,200 a month will feel more like $400. Startling, isn't it?

Another way to look at it is to realize that the 4% withdrawal rate should include inflation-indexed increases, so if you're taking out $14,000 in the first year of retirement (and inflation that year is 3%), the next withdrawal will be 1.03 times $14,000, or $14,420. Can you imagine how quickly your money will go? (Note: You can withdraw more each year. If you're taking out 5% annually over 30 years, you have roughly a three-in-four chance of not running out of money, but that's far from a sure thing.)

If you want to live off the current equivalent of $50,000 per year in 30 years, you can estimate that you'll have to withdraw $150,000 annually. If that's 4% of your nest egg, then that nest egg will need to be $3.75 million! Still startled?

It gets better ... and worse
This is, of course, just one (hypothetical) example. There are plenty of other concerns that can make matters better -- or worse. For instance:

Many of us have seen age 40 come and go, and we still have less than $25,000 socked away. Heck, 39% of Americans ages 55 and older are in that camp. Remember that we can all make the situation better by investing regularly. A rule of thumb is to save and invest 10% of your income (but more is better).

Many of us will have home equity to tap, if need be, in retirement. We'll also receive at least something from Social Security -- and perhaps even a little from a pension.

The stock market's return over the next 10, 20, and 30 years isn't going to match the historical average of 10%. It could be higher. Or it could be lower, meaning you can end up with a considerably smaller nest egg than you expected. It's similar with individual stocks. Look at Intel(Nasdaq: INTC) as an example. Between March 1996 and March 2006, its stock advanced roughly 200%. But over the decade starting three years earlier, between March 1993 and March 2003, its stock rose about 365%. Similarly, Disney(NYSE: DIS) stock increased in value by more than six-fold between October 1986 and October 1996, and didn't even double between 1996 and 2006. This doesn't mean these are bad companies or stocks. It just demonstrates how volatile stocks can be, especially over relatively short time periods.

Don't assume that your stash of company stock will save you. Having too much of your financial future resting on the fate of one company is risky. If you'd acquired shares of stock in the Gap(NYSE: GPS), five years ago, for example, you'd be underwater by more than 20% today. Investors in Coca-Col (NYSE: KO) haven't fared much better, leaving investors who've hung on for the past 10 years not much richer than when they started. This doesn't mean these companies won't ultimately surge and reward us, but if anyone was counting on them to do so by a certain time, they've likely been disappointed.

There's hope, we promise
Fortunately, all isn't lost. You needn't end up with a gruesome retirement. Here's the tough-love part. If you take some action now, you can begin to set yourself up for a more comfortable retirement. So get going! Forget about scrubbing that bathroom for a while, and tend to your retirement instead. You'll thank yourself for it later.

Here's to avoiding a gruesome (and securing a great!) retirement.

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Wal-Mart Adjusts Attendance Policy
By Kris Hudson and Kris Maher – Wall Street Journal
October 14, 2006

Critics Say Plan Is Designed To Pare Unhealthy Workers;
1-800 Number for Sick Days

Wal-Mart Stores Inc. has enacted a new attendance policy that penalizes workers for multiple unexcused absences and requires them to call an 800 number whenever they get sick, changes critics say are part of a bigger effort to nudge out unhealthy and long-tenured employees.

Also on the labor front, a Pennsylvania jury on Friday awarded $78.4 million to thousands of Wal-Mart employees who claimed they were forced to work during rest breaks and off the clock.

Wal-Mart, of Bentonville, Ark., says the new attendance policy benefits employees by documenting their requests for time off instead of relying on harried store managers to remember each request. And it benefits shoppers by discouraging unexcused absenteeism. "It's not for tracking; it's really to ensure a more consistent application of our absentee policy," spokesman John Simley said.

The new policy instructs employees requesting time off for illness to call an 800 number to get a code and then relay that code to their store manager for approval of their absence. Previously, employees asked their store manager directly for such time off, employees say.

In addition, the new policy formalizes penalties for employees who fail to get their absences authorized or don't bother to call. Among them: Any employee with more than three unauthorized absences in a six-month span will be disciplined, and those with seven will be fired. Any employee who is absent three times during a six-month period and doesn't call the 800 number for any of the three times can be fired. And employees needing more than three consecutive sick days are encouraged to apply for an unpaid leave of absence or time off under the Family Medical Leave Act. Previously, store managers had more discretion regarding discipline for unexcused absences.

The policy change comes at a time when some of Wal-Mart's 1.3 million U.S. workers are riled by fears that the retailer wants to cut costs by attracting healthier employees and a greater percentage of part-time workers. Some employees and Wal-Mart critics decry the new policy as a way for Wal-Mart to discourage unhealthy employees by tracking sick-time use more closely, setting stricter guidelines for authorization and making the process of applying for sick leave more onerous.

"I guess they're just trying to see how many people they can get rid of," said Ramiro Gonzalez, a 49-year-old full-time worker in the produce section of a Wal-Mart in El Paso, Texas. "They're trying to make ways that you can mess it up so they can let you go, especially if you're a full-timer."

Wal-Mart's concerns about its soaring health-insurance costs came to light last year, when an internal memorandum authored by a top Wal-Mart official was leaked. The memo offered numerous suggestions for corralling benefits costs by luring healthier workers.

The new policy "just sends another terrible message that this company looks at its workers as a commodity," said Chris Kofinis, spokesman for Wal-Mart critic WakeUpWalMart.com.

From the employer perspective, automated telephone or Internet-based systems to track worker absences can protect employers against litigation related to providing adequate time off to workers under overlapping federal and state leave laws. "There are a lot of issues that surface when someone calls in sick," said Lisa Franke, a workplace analyst with CCH Inc., a Riverwoods, Ill., provider of employment-law information to companies. "It's really an administrative nightmare, so a lot of employers are outsourcing that to the experts and having them do the dirty work."

Unscheduled absences cost some large employers more than $1 million a year, according to a CCH survey of 323 human-resources executives last year. The survey found that unscheduled absenteeism cost employers $660 per employee per year on average last year, up from $610 the prior year.

In the Pennsylvania case, Wal-Mart was ordered by the jury to pay damages to nearly 187,000 current and former workers in that state. The class-action case had covered labor practices at Wal-Mart and Sam's Club stores from March 1998 through May 2006. In addition to the damages awarded by the jury, a state judge is expected to add $62 million in minimum damages required under state labor law, according to Michael Donovan, attorney for the plaintiffs in the case. That would bring total damages in the case to about $140.4 million, excluding an estimated $40 million in legal fees, he said. Wal-Mart attorney Neal Manne said he was confident the company would appeal the jury's decision.

---- Peter Loftus and James Covert contributed to this article.

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Sears building Lands' End shops in 100 stores
By Emily Kaiser  - REUTERS
October 13, 2006
 

NILES, Ill., Oct 13 (Reuters) - Sears Holdings Corp., which has struggled for years to revive apparel sales, is opening Lands' End clothing shops inside about 100 of its 870 department stores, the direct merchant's president said on Friday.

Sears, owner of its namesake stores and Kmart discount chain, bought Lands' End in 2002 with the hope that the well-known, sailing-inspired clothing and housewares brand would draw more customers to its stores.

But clothing sales at Sears have remained weak, prompting speculation that Sears Chairman Edward Lampert would sell Lands' End. The company does not comment on such rumors.

David McCreight, who was named president of Lands' End last year after the abrupt departure of Mindy Meads, said Lampert has been supportive and "challenged me to think about how Lands' End can be a bigger and more differentiated brand."

The company quietly tested its first Lands' End shop in September 2005, added a second in November, and then 25 more in March 2006. In the past two months, it has opened dozens more, including one in the Chicago suburb of Niles.

Walk through that store and you will find the usual array of Kenmore appliances and Craftsman tools, but the apparel department now has a section marked by navy blue painted walls, wooden tables and overstuffed couches.

McCreight declined to comment on how much Sears has spent on the new Lands' End shops or on sales trends, saying only that the company was "very pleased with the progress."

Sears has been a bit of a mystery for investors and analysts, so the Lands' End expansion may provide at least a small clue into the retailer's strategy.

Lampert, the hedge fund manager who brought Kmart out of bankruptcy in 2003 and later bought Sears, Roebuck and Co., rarely speaks to the media or to Wall Street.

The company does not host quarterly conference calls to discuss its strategy, and releases its sales figures only quarterly as opposed to monthly, as many retailers do.

Lampert has developed a reputation for cutting back on store investment to boost profitability, so investing in the Lands' End shops is notable.

TODDLER JACKETS, MEN'S SHIRTS

McCreight said the 100 stores, which should all be open in time for the holiday shopping season, were a test and the retailer had not ruled out a wider roll-out, or other formats such as stand-alone Lands' End stores.

Critics have argued that Sears customers were not familiar with the Lands' End brand, and were not willing to pay a premium for it. Some analysts said that putting Lands' End products in Sears stores devalued the brand.

Sears initially showcased Lands' End merchandise in all of its stores, but many locations have since cut back on the assortment and replaced it with more trendy apparel, raising questions about whether the Lands' End strategy had failed.

McCreight said the shops were designed to draw new customers and bring existing Lands' End shoppers into Sears.

"Lands' End customers are definitely found within the Sears stores," he said. "When you look at the Sears assortment -- Kenmore Elite, Craftsman, plasma televisions -- there's no reason why they wouldn't want to find Lands' End apparel."

At the Niles store, a sampling of Lands' End clothing -- from toddler jackets to men's shirts -- is on display. There are catalogs scattered across the tables, and kiosks for customers to order items that the store does not carry. Shipping is free.

McCreight said the sales staff in the Lands' End shops were Sears employees but trained by Lands' End, which has a reputation for good customer service.

"We wanted to set it off and elevate it on the (sales) floor," he said, noting that the Lands' End shops carry high-end merchandise such as cashmere sweaters. "It's meant to be one of the best brands on the floor."

 

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Sears Insider Heads to The Great Indoors
Sandra O'Loughlin - Brandweek
October 13, 2006

NEW YORK -- Sears Holdings Corp. has promoted Teresa Byrd to svp and general manager, The Great Indoors (TGI), the company's chain of 18 home-decorating stores. Byrd replaces Catherine David, former svp and general manager of TGI as well as Sears Essentials and Sears Grand stores, who left the company in September. Last month, Julie Younglove-Webb was named general manager for Sears Essentials and Sears Grand.

Sears Grand is a large-format store (between 100,000 and 200,000 square feet) designed to compete with discounters such as Wal-Mart and Target. Sears Essentials, a smaller version of Sears Grand, is a mid-sized off-mall format offering appliances, lawn and garden supplies, tools, electronics, apparel and home fashions as well as convenience items such as health and beauty aids, pantry, household and paper products, pet supplies and toys. Both Grand and Essentials sell Sears' marquee brands including Kenmore appliances, Craftsman tools and Diehard batteries.

In her new role, Byrd will oversee store operations, merchandising and marketing for TGI, reporting directly to William C. Crowley, evp and chief financial and administrative officer of Sears Holdings Corp.

Byrd previously served as regional vp in Sears' full-line stores, most recently as svp and general merchandise manager for Sears Essentials and Sears Grand.

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A Vote of Confidence for Sears Holdings
By Catherine Shu – Baron’s Online
October 12, 2006

A DIRECTOR AT SEARS HOLDINGS recently bought $5.5 million worth of the company's stock just as it was climbing to an all-time high.

Richard C. Perry, the co-founder and president of Perry Capital, bought a total of 33,000 shares for his New York-based hedge fund on Oct. 9 and 10. The purchases, which were made for prices ranging from $165.02 to $168.95 a share, came as the stock was soaring to an all-time high of $171.96 on Thursday.

The run-up began after Sears Holdings reported second-quarter earnings on August 18 that handily beat the consensus estimate. Since then, reports have speculated that Edward Lampert, a superstar hedge-fund manager who doubles as chairman of Sears, may be targeting Anheuser-Busch, Gap Inc . or Home Depot for a buyout.

Perry Capital's transactions in Sears Holdings shares have accurately predicted the stock's movement in the past, says Ben Silverman, director of research at InsiderScore.com.

According to SEC filings, Perry Capital sold about 857,400 of the company's shares in the second-quarter of 2005, bringing its total holdings down to two million shares by June 30. During that period, the share price rose to a high of about $155.

In the second-half of 2005, however, the stock price tumbled and was range-bound between about $115 and $125. Perry Capital took advantage of the lower prices to purchase 683,200 shares during the third quarter.

With this week's purchase, Perry Capital now holds about 2.7 million shares of Sears Holdings, or 1.7% of total outstanding shares.

Coming after a run-up in the stock's price, the $5.5 million purchase is "certainly a bullish signal from Perry," says Silverman, "He believes Lampert is going to create additional value for shareholders."

Perry did not return a call seeking comment by deadline.

Perry's latest purchase of Sears Holdings stock is also the first insider purchase at the company since director Ann N. Reese purchased 5,000 shares on Dec. 8, 2005 for $123.08 a share.

While Jonathan Moreland, director of research at InsiderInsights.com, says that Perry's purchase would be more encouraging if other Sears Holdings insiders "who don't have the means to casually invest $5 million or more in a couple days" joined in the buying, he also believes it is a bullish signal.

"It's definitely an argument that the stock is not ahead of itself," says Moreland. He notes that as a board member, Perry is now bound by SEC insider trading rules and cannot sell the stock he purchased last week for six months.

However, Moreland also notes that analyst estimates for Sears Holdings' fiscal 2007 annual per-share earnings estimates vary widely, from $9.01 to $12.10.

"Not even a successful insider like Richard Perry can accurately predict with one hundred percent confidence how the economy will be doing next year," Moreland says.

Several analysts share Perry's optimistic take on Sears Holdings' prospects, including Crowell, Weedon & Co. equity analyst James Ragan, who has a Buy rating and $180 price target on the stock. Ragan says that the company's ample cash flow of about $3.7 billion will allow it to finance additional acquisitions as well as its ongoing share buybacks.

Ragan also says that he is "not too concerned" with the company's declining sales because of Sears Holdings' cost-cutting measures and increased focus on its more lucrative brands, including Craftsman, Kenmore and Lands' End.

"As long as profits and margins continue to grow, it's the right strategy," says Ragan, who personally owns the stock.

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Deal talk lifts Sears to new high
Anheuser-Busch, Home Depot possible targets
By Sandra Jones - staff reporter - Chicago Tribune
October 11, 2006

Sears Holdings Corp. shares reached a record high Tuesday, fueled by the latest buzz over possible acquisition targets on Chairman Edward Lampert's shopping list.

The billionaire investor is reported to be interested in buying Anheuser-Busch Cos., the St. Louis-based King of Beers that has been struggling to revive sales as more Americans drink wine and spirits instead of Budweiser.

Last month shares of Home Depot Inc., the Atlanta-based home improvement retailer, spiked on speculation that Lampert was buying a stake in that company.

Anticipation over Lampert's next move has reached a fever pitch since August, when the hedge fund investor signaled in Sears' second-quarter earnings report that he is looking for acquisitions and could invest outside the retail industry.

Just what Lampert's intentions are is anyone's guess, but the hope that something big is in the works sent Sears up 2.5 percent, to a record $169.29, on Tuesday, after rising as high as $171.40 earlier in the day.

The London Times reported Tuesday in its "Rumour of the Day" column that the latest "whisper on Wall Street" is that Lampert's ESL Investments Inc. is poised to make a $56-a-share bid for Anheuser-Busch, a price that would value the world's largest brewer at $44 billion, a 19 percent premium over Monday's closing stock price. The report sent shares of Anheuser-Busch up 2.1 percent, to $47.98.

Home Depot shares increased more than 8 percent in a week's time last month on similar speculation and have since leveled off, closing Tuesday at $37.76.

Officials at Sears and Anheuser-Busch declined to comment. Home Depot officials couldn't be reached for comment. Investors are hoping that Lampert will follow through with his plan to turn Sears into a holding company along the lines of Warren Buffet's Berkshire Hathaway Inc., said Ivan Feinseth, Matrix USA research director, who rates Sears a "buy."

"It's no longer a traditional retailer," said Feinseth.

That said, the holding company Lampert formed by combining Sears and Kmart is only 18 months old. Berkshire Hathaway has been around since 1956.

Analysts point out that buying Home Depot or Anheuser-Busch is a risky proposition given their market capitalization--$78 billion and $37 billion, respectively. Sears is worth $26 billion.

The Hoffman Estates-based retailer had $3.7 billion in cash as of July 29. It has the capacity to borrow more, but issuing debt would be expensive given the company's junk rating. And Lampert has an aversion to overpaying.

To be sure, each day Sears' stock climbs higher, Lampert has more equity with which to put together a deal. He used Kmart Holding Corp.'s soaring stock price to engineer the acquisition of Sears, Roebuck and Co. last year. And he could do it again.

"Of course, anything could happen, but just from a fundamental perspective, it seems like the deal is far-fetched," said Arun Daniel, consumer analyst with ING Investment Management in New York.

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Target Corp. designed its climb to fabulous
"Everyone has the right to have great stuff," the retailer's vice president of marketing tells a Sarasota design summit
By Devona Walker – Sarasota Herald-Tribune
October 11, 2006

SARASOTA -- Fewer than 10 years ago, Target Corp. was certainly no trend-setter among design circles. Some would have even argued that the eye-catching bull's-eye was an easy mark for failure.

But the second-largest retailer in the United States is now known as the fashion-forward alternative to discounts.

John Remington, the Minneapolis-based company's vice president of marketing, credits design -- both marketing and merchandising -- for Target's emergence from flagging to fabulous.

"We wanted to be much more than just another discount store," Remington said. "We wanted to be the place that our guests lovingly refer to as "Tar-zhay".

In front of a packed audience at the Ritz-Carlton Sarasota gathered for the Sarasota International Design Summit on Tuesday, Remington chatted while the evolution of the retail giant's trendy marketing campaign played in quick succession on large video monitors.

Remington dropped the names of A-list fashion and design icons even faster: Isaac Mizrahi; Sophie Albou of Paul & Joe; Luella Bartley and Rachel Ashwell; architect Michael Graves; and interior designers Victoria Hagan and Thomas O'Brien, just to name a few.

All have partnered with Target in designing and selling distinct lines of merchandise, something the retailer refers to as the democratization of design.

"Design democratization is about accessibility," Remington said. "Everyone has the right to have great stuff."

Remington also outlined Target's fiscal charity. It gives about $2 million each week to education, human services and the arts. Remington said the retailer plans to boost that investment to $3 million per week in the next fiscal year.

Target opened its first stores in 1962, the same year as both Wal-Mart and Kmart.

Executives learned early on that it would have to distinguish itself to survive. As time went on, they knew they could not compete with Wal-Mart's low prices or mounting girth. As even more time passed, they knew they did not want to suffer the financial woes of struggling Kmart.

Since then, Target has not only managed to stay afloat -- last week it announced it would be adding 59 stores to its stable of more than 1,100 -- it has dodged the microscope of public scrutiny that has so dogged Wal-Mart.

"It really goes back to the DNA of what we stand for," Remington said of the retail giant's public image. "When we go into a market, we establish relationships and partnerships with everyone ... And I think they relate differently to Target than they would a Wal-Mart."

Target shoppers are, on average, more affluent and better educated than those who shop at other discount retailers, the company maintains that its marketing research shows.

The median age is about 46, the youngest among major retailers. The median household income of Target guests is $55,000. Forty-three percent of Target shoppers have completed college.

In recent months, even Wal-Mart appears to have been borrowing from the Target play book.

It announced recently it would be offering higher-end food and clothing merchandise. It also has undergone redesigns in some of its more affluent markets.

"We know people at Wal-Mart. They admit they are going to try to take the best of what we do and apply it there," Remington said. "But they didn't grow up doing it. They have to kind of slap on what we do."

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Chuck Harrison, Adding Dimension to Design
By Linda Hales - Staff Writer - Washington Post
October 11, 2006

Chuck Harrison may be the Jackie Robinson of design.

His career followed an uncharted path from rural Louisiana to chief of design -- and the first African American executive -- at Chicago-based Sears, Roebuck and Co. Beyond breaking through the color barrier of the postwar workplace, Harrison, 75, built a legacy of innovation and thoughtfulness into 750 household products, most created in anonymity for a company that was once the nation's undisputed retail giant.

Last night, such feats earned Harrison an award for lifetime achievement from FocusOnDesign, a Washington-based group that promotes diversity in design. It was his second honor in three weeks. The Industrial Designers Society of America gave Harrison an honorary award for "personal recognition" at its annual convention in Austin.

Though Harrison's list of credits is long, his favorite is a garbage can, the first to be made in plastic, that softened the sounds of trash day.

"No more clang-clang" of metal before breakfast, he said in an interview yesterday. The round container evolved shortly into the familiar square green hulk with two wheels and raccoon-proof lid.

In an age of iPods and feature-laden cellphones, trash cans may rank low on the fashion scale. But Harrison's goal has always been changing fundamentals -- improving the way people live.

"It's not necessary to have your name on the marquee to make a contribution," he says.

Harrison helped perfect the portable hair dryer, riding lawn mower and see-through measuring cup. He worked on a universe of Craftsman power tools, as well as percolators, fondue pots, toasters and stoves. He dreamed up eight to 12 sewing machines every year for 12 years.

No design is more iconic than the View-Master, the 3-D viewer that Harrison helped update in the 1950s. (Only recently, with the sale of the patent to Fisher-Price, was Harrison's form altered.)

Harrison tells his story in a memoir, "A Life's Design: The Life and Work of Industrial Designer Charles Harrison." He was born in Shreveport, La., in 1931. One of his first attempts at design as a child involved a "skate box," the forerunner of the skateboard, which he made from an old piece of two-by-four and some skate wheels.

His father, Charles Alfred Harrison Sr., taught industrial arts first at Southern University in Shreveport, then at Texas A&M, and finally at a high school in Phoenix. The younger Harrison showed a special talent for art at City College of San Francisco. After wangling a scholarship to the Art Institute of Chicago, he earned a degree in industrial design.

He says his talent was acknowledged, but getting a design job in the '50s was tough because of racial prejudice. A mentor from the Art Institute, the Viennese-born designer Henry Glass, took him on and provided the experience that would allow Harrison to succeed.

"It was very tough," Harrison says. "I uncovered every rock in Chicago. People wanted to help me. I stumbled around."

Sears opened the door in 1961, allowing Harrison to become "one of a small number of black executives in all of corporate America," as Victor Margolin, professor of design history at the University of Illinois at Chicago, writes in the foreword to Harrison's book.

Harrison says he rose in the workaday world "despite a long list of despites." In humble mass-market housewares and consumer products, he found the opportunity to express his artistic spirit while easing the stresses of everyday living for millions of strangers.

"This is a fundamental part of who I am," he says.

Harrison traveled the world as a designer. The objects he developed -- cutting-edge steam irons, electric frying pans, mixers, juicers, televisions -- defined the burgeoning consumer class.

"I tried to make things appear as if they just belong. . . . They didn't need to scream," he says in the book. "My best efforts resulted in products that did their job as expected -- you look at it, right away guess what it is supposed to do, and that's exactly what it does."

By 1993, Sears had downsized. The entire design department was eliminated and Harrison retired. He notes today that Sears has begun to reconstitute its design group to compete with Target and Wal-Mart.

Despite the omnipresence of design in the modern world -- from Hollywood sets to supermarket toothbrushes -- there are few designers of color, whose professional development FocusOnDesign, based at the Washington Design Center, seeks to foster.

Harrison was not the first African American designer; Margolin counts two other major talents who preceded him: McKinley Thompson, an auto designer in the 1950s at General Motors, and Georg Olden, who directed on-air graphics for CBS in the 1940s.

For Harrison, design was its own reward: "I came into my own as an artist and human being."

"I think I'm pretty good," he adds.

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Jim Cramer's Stop Trading! Sears Soars
By Staff - TheStreet.com
October 10, 2006

Sears (SHLD) is ready to break out because the retailer is a smart way to play the housing rebound, Jim Cramer said Tuesday on CNBC's "Stop Trading!" segment.

Cramer, a fan of Sears ever since it joined the stable of hedge fund manager Ed Lampert, noted that up till now, the company has "never been an earnings story." Lampert's lieutenants have chosen instead to focus on selling more-profitable merchandise, Cramer said.

But now, Cramer added, "this may be the quarter" that Sears finally shows real progress on the earnings front. He added that the stock seems to be ready to jump to $200 from a recent $169 because of the company's tools business and Lampert's aggressive stock buyback.

Cramer discounted rumors that Lampert might be considering a run at Anheuser-Busch (BUD) , calling the speculation "a little ridiculous." Cramer said he didn't know what Lampert would do with a slow-growing company like the St. Louis-based brewer. "I just don't think it's going to happen," Cramer said, noting that he has been selling the shares his charitable trust owns in Anheuser.

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Sears Envisions A Longer Stay With Internet Lounges
Shoppers can browse the Web, check e-mail and, oh yes, shop.
By Sandra O'Loughlin – Brandweek
October 9, 2006

At the Sears store in downtown White Plains, N.Y., a busy commercial hub of retailers and office buildings, it isn't unusual to see lawyers and businessmen on their lunch hour sitting at computers in the store's Internet lounge, checking their e-mails or catching up on the news. The lounge, which has been operating for about a year, also draws its share of kids shopping in the store with their parents and consumers who don't have Internet access at home.

The company has Internet lounges in 51 Sears, Kmarts and Sears Grand stores ( which are remodeled Kmarts in off-mall locations). Another 42 cafes are slated to open by the end of the year. In addition, all stores on the drawing board for next year also will have the lounges, some with coffee bars nearby. A bank of between four to 10 computers draws as many as 200 customers a day, per Sears.

Although the scene is more reminiscent of a Starbucks, or retailers that sell only computers, Sears' Internet lounge is another example of how stores are trying to one-up each other in the modern competitive retail environment. Some Sears Grand stores also have areas where customers can play electronic games.

"We want to create an environment that connects with consumers in various dimensions," said Paul Fenaroli, vp-new store development at Sears, Hoffman Estates, Ill. "This is one of them."

Unlike other retailers that may have kiosks with online access available only to their own Web site or to order goods from the store itself, Sears computers offer up to 30 minutes of free Internet access (except to X-rated and other questionable sites). Advertising for the lounges primarily been via Sears Grand circulars and word-of-mouth.

Aside from the obvious—trying to keep customers in the store for longer periods of time (Sears has not released numbers as to whether or not this is working)—the question is why would Sears make this kind of investment?

"The objective is really three-fold," said Fenaroli. "We want to provide customers a service with no first-order commercial impact. And if they find it convenient to check e-mail, news or weather, that's good for us. If that makes us that more relevant and helpful in their mindset, that's good enough."


RETAIL WIRE

OCTOBER 10, 2006

Discussion Questions: Is Sears Holdings onto something with its in-store internet lounges and areas to play electronic games? What value (or not) do you see in this effort?

Comments...

Anything that builds low-cost traffic is worth testing. It can easily cost $5 to $20 to get a customer using newspaper circulars, TV and radio. So if Sears attracts people using in-store computers, why not? Internet-savvy people are more likely to be higher income with better educations. Who wouldn't want that demographic?
Mark Lilien, Consultant, Retail Technology Group

Obviously, this is not a radical new concept. However, it indicates that Sears recognizes that it needs to become more relevant if it is to survive. Creating a little in-store excitement can't hurt. Now, maybe they can spend a few bucks towards upgrading their merchandis-ing and decor.
Len Lewis, President, Lewis Communications, Inc.

Yesterday, the Mystery Shopping Providers Association (MSPA) was holding its annual conference. One of the topics was about trends in retail. The presenter spoke about the differences in retail in Asia, Europe and the US. One of the things he discussed was the fact that many retailers, outside of the US, have retail friendly stores. For example, some retailers provided a play area for children. This way they wouldn't push their parents to leave the store too quickly. Another group of retailers had a lounging area for husbands in some women's apparel stores. Sound a little like what Sears is doing?

According to the speaker, two-thirds of purchases made in the United States today is done by discretionary dollars.

If this is so and everyone is competing for those dollars, doesn't it make sense to offer enhanced experiences to keep the consumer in the store? Kudos to Sears!
Bernie Slome, VP Business Development, ICC/Decision Services

If Sears is almost doubling the number of lounges in such a short time, they obviously believe they are seeing a benefit now. I am still a firm believer in getting the merchandise right first, then the ambiance, but the store is a big part of the quality and value message.
Forty years ago, going to Sears meant running into their huge candy and popcorn counter in the center of the store. Perhaps this is an unintended electronic return to their roots and what worked well in the past.

With larger stores and an effort to avoid being seen at the low end of the retail spectrum, it was a good marketing move and it's great to see them being creative. Targets have Starbucks and the new Wal-Mart Store of the Community has a sushi chef and coffee bar, so they need to keep the innovation and upgrades coming.
George Andrews, Principal, Delta Associates

Come on Sears, that is so 90s. And just think, someone is getting paid a lot of money to come up with that idea.
David Livingston, Principal, DJL Research

I'm sorry but I think that this initiative is like spitting in the ocean for Sears. Internet lounges are used to keep shoppers in the store longer, but Sears, Kmart, Sears Grand are doing little to BRING shoppers into the stores. Three weeks ago, I went to a Sears store to buy two new garage door openers, only because my contractor told me the Craftsman brand was still the best to buy. I'm sure that any study of brand awareness puts Craftsman pretty high on everyone's list. However, sales help in the store: practically nil. Information about the product I was buying: hardly anything available. Luckily, the information on the box was pretty good.

I am shocked by the lack of initiative in what was once the largest and most prestigious retailer. Sales people are discussing the latest changes to their benefits rather than helping customers.

I have wanted to see Sears turn themselves around, even offered my help. My father worked for the company, so there is a little pride there too. Little movement can be seen towards righting this ship. It is my belief that internet lounges are not what the Sears shopper wants.
Jerry Gelsomino, Vice President of Marketing and Brand Experience, Pratt Corporation

I fondly remember my parents taking me to the local SearsTown in the mid 1960's where my dad would leave his car for servicing, or get new car seat covers installed and, while he waited, we shopped, or ate in the store. So Saturday was Sears Day for a lot of families of that generation. Today, kind of creating a modern version of that atmosphere could reap some benefits. But since I detest those "waste of ceiling space" Sears Grand stores, I can't imagine how the computer game stations would generate sizable traffic streams.

Since it's a comparatively cheap way to build traffic, I imagine that Eddie and his advisers feel it is worth a try.
'weo'

This is the kind of thinking that Sears needs more of. Keeping customers in the store longer is one of the best ways to increase sales. Sears can become a destination location, rather than just a shopping location. Sears should consider offering some kind of high-end coffee and food at the location as well. This will encourage folks to stay and use these facilities longer in addition to shopping. Placement of these lounges should be as close to the center/side of the store as possible, so that customers must go through part of the store to enjoy the facilities.
Kai Clarke, President, Compact Power Systems

Old idea, new user!
There have been other retailers who have kept shoppers "staying power," if you will, in their outlets longer. Toys R Us - kids play area and birthday party rooms; Starbucks - lounging and reading areas; Barnes & Noble - lounging area to read; and the Home Depot's upscale store, Expo, with interior decorators to address shoppers' needs as well as give ideas in a quiet area or at the food and beverage lounge.

Attention getting; right time and place; comfortable area; and then the retailer must deliver with a superior service for these consumers who stay and research or ponder a decision to buy. Makes sense with today's consumers who have the attitude "give me what I want, when I want it." And retailers that include a superior service level for these consumers who show their loyalty through their pocketbooks!

Groceries should take note of these 'captive' ideas. It may be time to change the old thinking of current floor plans and service levels. Hmmmmmmmmmmmm
Stephan G. Kouzomis, Faculty and Staff Member of University of Louisville's College of Business, University of louisville

How many other shops in the mall have free internet access? If they expand this idea into the malls, they could attract shoppers from outside the store by offering them something to do. Then, if they could come up with some good marketing displays and convince those new shoppers to buy something, it would be a big win for them. Granted, that's a long way to go for a potentially small payoff, but it's better than nothing.
Jon Franco, Manager, University of Pittsburgh

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There’s no formula for retirement planning
By Linda Stern – Reuters – Daily Herald – Suburban Chicago
October 08, 2006

WASHINGTON — Don’t waste too much time mulling over those retirement rules of thumb that seem to pop up everywhere. They’ve never been very useful, but changes in the way people live and work make them even less so.

Here are a couple of rules debunked.
• That 80 percent spending maxim. Once you start planning for retirement, you usually run across this “rule”: “You’ll need roughly 80 percent of your pre-retirement income once you retire.”

That’s a ridiculous figure, pulled out of thin air. Investment companies say they often use that number to “help” people who don’t have any idea of how to plan their retirement savings. But it mainly helps to scare people into thinking they have no hope of saving enough for retirement.

In truth, they may spend more than that in the first couple of years after they stop working, but they’re likely to spend far less, on average, over their entire retirement period. By the time they are 75, they’re likely to be spending about half of what they did when they were 50, according to the Labor Department’s survey of consumer spending.

To the extent that 80 percent figure is worthwhile, it’s meant to compare your last working year with your first retired year. So younger people, who still may be paying for kids in college, have high incomes with high tax rates, live in expensive homes with high property taxes and the like, shouldn’t even bother with this figure.

Instead, take a look at your monthly expenses and see how many of them will follow you into retirement.

Include your car payment; most people buy at least one new car after they retire. Add more for medical and dental care that is likely to cost more as you age. Bulk up travel expenses, if you like.

Eliminate all child-related expenses, and reduce grocery bills and clothing costs. Also cut tax payments if you expect to pay less in taxes once you’re no longer working.

Multiply this seat-of-the-pants retirement spending guesstimate by 12, and you’ll see what you might expect to spend in a year, in today’s dollars, once you retire.

• The asset allocation rule. Many planners also tell people to subtract their age from 110 and use the remainder as the percentage of their nest egg that they should have in the stock market.

That would mean that by the time a person is 70, he or she should have 60 percent of holdings tied up in bonds and money market funds. But that’s a gross generalization that probably wouldn’t work for most people.

In fact, large mutual fund companies that are running one-decision target retirement mutual funds are finding that they have to be more aggressive with stock investments than originally expected if investors are to meet their retirement goals and have their money last a lifetime.

Some people may have guaranteed pensions or money in annuities that would allow them to be more aggressive than they otherwise would be with the money they invest themselves. Others may have money earmarked for children or grandchildren and want to invest part of their portfolio aggressively.

Others may have very old stock holdings that would result in large capital gains taxes if they sold them suddenly to move more money into bonds.

The question of how to split up your assets is best not left to a simplistic formula. Each individual and couple should make that decision based on how much they have, how much of it they’re spending every year, what they intend to do with their money, and their personal risk tolerance.

If you have to hire a financial planner to figure that out for you, it would be money well spent to get a better answer than the rules of thumb would ever deliver.

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Kohl's scaling up stores, goods
By Sandra Jones - staff reporter – Chicago Tribune
October 7, 2006

Kohl's Corp. is getting hip in a big way.

The sensible suburban department store is on a building binge, remaking its stores with contemporary interiors and trendy merchandise in hopes of broadening its appeal beyond the middle market to include more affluent customers.

This weekend alone the Menomonee Falls, Wis.-based retailer opens 65 stores nationwide, including one in Oswego and one in downstate Bradley. It's the largest number of store openings at one time in the company's 44-year history.

Kohl's plans to add a total of 85 stores this year and pick up the pace of expansion next year, opening roughly 100 stores a year through 2010. By then, Kohl's expects to operate 1,200 stores, a four-fold increase from 2000.

"They're trying to do what everyone is trying to do, get scale," said Love Goel, CEO of Growth Ventures Group, an Edina, Minn.-based investment firm. "That is the name of the game in the department store business right now. It's very clear there will be very few survivors. You need scale to survive."

The new stores tout glass storefronts, canopy shelters, display mannequins and photos highlighting fashion trends, directional signing, spacious fitting rooms and redesigned cashier stations. Kohl's also signed in recent weeks exclusive licensing deals with designer Vera Wang for home goods and apparel and with the Food Network for cookware, kitchen gadgets and table linens.

The bulk of the new stores are slated for territory outside of Kohl's Midwest stronghold, moving into the northeast, northwest, southeast and southwest, and most will tout the new design.

The greater Chicago area is home to Kohl's greatest concentration of stores, with 45 currently in operation.

Kohl's plans to incorporate the new look into older stores as it remodels. In Chicago, this has been done in Vernon Hills with two other yet-to-be-determined stores remodeled next year.

"Our typical shopper has been the soccer mom," said Sandra Crowley, a district manager in the Chicago area. "We're now also focusing on the customer who wants to trade up and who has a disposable income and doesn't have kids."

Kohl's expansion comes as rival J.C. Penney Co. moves away from its legacy as a mall anchor by rolling out single-level, freestanding stores designed to capture shoppers averse to malls. Penneys operates 22 freestanding stores and plans to have 44 by the end of the year. The retailer is targeting an annual rollout of 50 such stores a year starting in 2007. It currently operates more than 1,020 stores.

Likewise, Federated Department Stores Inc., the owner of the former Marshall Field's, is betting that bigger is better. It doubled its size to more than 850 stores when it bought May Department Stores Co. in 2005.

Kohl's began its aggressive expansion push in 2004 after recovering from a string of inventory and merchandise snafus that hurt sales and its stock price. In the past year, Kohl's shares soared 42%, closing at $67.63 on Friday, the highest in four years.

This isn't the first time Kohl's has stepped away from its roots as the pioneer of suburban strip center retailing.

Kohl's opened its first urban store within the Chicago city limits last year on Elston Avenue near Lincoln Park. It's about 60% bigger than a typical Kohl's and is one of only four city stores Kohl's operates as it attempts to capture new customers. Kohl's Chairman and CEO Larry Montgomery told investors at a meeting in Tampa earlier this week that he wants to build more city stores.

In the Florida speech Montgomery said, "We think this (urban store) is going to be a pretty big vehicle for growth as we learn to operate in these kind of environments."

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`Fair-trade' label reaches retail market
Entrepreneurs see potential in socially conscious apparel, hoping it will follow the course of fair-trade certified coffee, which is growing at a rate of 75 percent a year
By Susan Chandler - staff reporter – Chicago Tribune
October 8, 2006

Teresa Connors is a socially conscious consumer. She is a vegetarian who seeks out organic produce. She buys fair-trade certified coffee and chocolate, feeling good that the workers who picked the beans and processed them were paid a living wage.

If she could find a fair-trade certified clothing brand, Connors would eagerly check it out. "I would like having the access to an alternative. I kind of feel like it is not there," said Connors, who works as a project manager for a real estate firm in Highland Park.

A group of corporate alumni from Lands' End is trying to give Connors and other consumers like her what they want. The retail executives have traveled the world searching for garment factories that treat workers well and pay them more than the legally required minimum wage, which is often pennies an hour in many underdeveloped countries.

Late last month, they launched Fair Indigo, a catalog and Internet site offering "fair-trade" fashion aimed at mainstream, middle-market consumers. The first Fair Indigo store will open Nov. 1 in Madison, Wis., near the company's headquarters in Middleton, Wis. FairIndigo.com is already up and running.

"The whole evolution of the clothing and manufacturing industry has been to drive prices and wages down, shut factories and move the work to countries with lower wages," said Bill Bass, chief executive of Fair Indigo and a former executive at Lands' End and Sears, Roebuck and Co.

"We said, `We're going to reverse this and push wages up.' We've spent the last 18 months finding worker co-ops and small family-owned factories that were willing to pay their workers more than the going rate."

Bass hopes fair-trade apparel will follow the course of fair-trade coffee, which is growing at a rate of 75 percent a year and now constitutes 4 percent of the $11 billion specialty coffee market in the U.S. Even a few percentage points of the annual $150 billion Americans spend on clothing would mean big bucks.

But extending the fair-trade designation to sweaters and jackets won't be easy. No one really agrees what the ground rules are for fair-trade apparel, and what constitutes a living wage in various countries also is a subject of debate.

On top of that, some retail experts doubt that Middle America will pay a premium for apparel based on where it came from.

"For the mainstream, it's an added benefit. But the primary objective is to find clothes they like. The stuff has to be something they want to buy anyway," said Christie Nordhielm, associate professor of marketing at the University of Michigan's Ross School of Business.

"There are people who are very price-insensitive and are willing to search for these things. Everybody else is looking out for themselves first, and if they can help somebody along the way, they are happy to do so."

There's no question, however, that a growing number of entrepreneurs and companies see a potentially lucrative niche in educating consumers about where their garments come from and how they are made.

American Apparel Inc., the teen apparel-maker known for its risque advertising, runs its own factory in Los Angeles, and plays up the fact that its T-shirts are made by domestic workers who receive good benefits and earn a $9-an-hour base rate plus bonuses.

Dov Charney, 37, American Apparel's founder, says treating his workers well is a key component to his company's success. The company, which has grown to about 125 stores since being founded in 1998, racked up more than $220 million in revenue last year.

At a more rarefied price level, Irish rocker Bono and his wife, Ali Hewson, have launched Edun, a clothing line made from organic materials. The pitch to consumers is more than merely eco-friendly. The $300 hemp blazers and $175 jeans are made by workers in family-run factories in Africa, South Africa and India--plants that have been vetted by Edun for their ethical practices.

Also in the game is denim giant Levi Strauss, which is introducing Eco jeans, its first 100 percent organic denim line, hoping to attract upscale shoppers who can afford to pay $250 for a pair of naturally dyed "green" jeans. The line, which is being made in the U.S., will be launched in select Levi's stores this fall. Less expensive versions in the $65 to $80 price range will be rolled out to department stores next year.

But Fair Indigo's founders say fair-trade clothing shouldn't be something that only the wealthy can afford. That's why prices for most of their items are under $100, such as an $89 silk tunic made in Shenzhen, China, a $39 rayon scoop-neck top manufactured in Macau, and a $59 pair of slim-fit jeans made in Costa Rica.

The goal is to compete with midtier clothing retailers such as Ann Taylor, J. Jill and Garnet Hill, Bass said. One might add Lands' End and L.L. Bean to the list in terms of price and quality, but Fair Indigo is shooting for a more feminine, less outdoorsy look, he said.

By reaching out to consumers through catalogs and the Internet, and dealing directly with factories, Fair Indigo believes it can save money on marketing and middlemen. Those savings will be used to fund the above-market wages paid to workers without having to pass that cost on to consumers through higher prices, Bass said.

Already, though, Bass' version of fair-trade apparel is being criticized by some anti-sweatshop activists.

Although the Fair Indigo catalog displays photos of workers who make its garments and lists the city and country where its manufacturers are located, the company so far has declined to make public the names and addresses of its factories.

Bass says that decision is a competitive one: "We spent the last 18 months trying to search out these factories. If the demand for this takes off like we think it will, there will be a number of big companies that will want to do this. I don't want to make it too easy for them."

That argument doesn't persuade Charles Kernaghan of the National Labor Committee, one of the nation's veteran crusaders against sweatshop labor.

"You can't really claim to be a fair-trade company without a minimum of releasing the names and addresses of the factories. If they say they won't do that because other companies will find the factories, that's exactly what Wal-Mart says," Kernaghan grumbles.

"Nike said to me years ago that if I only understood how business worked, I would understand they would sooner go out of business than release the names of the factories. It couldn't be done. We always knew that was baloney. The labels are all made next to each other. The companies already know where everyone else is producing."

After protests by college students around the country in the 1990s, Nike decided that it could, in fact, release the addresses of its factories without harming its business. The 13-page list is now available on Nike's Web site.

Bass says mentioning Fair Indigo in the same sentence with Wal-Mart is a low blow. "That's completely depressing," he said. "We are dealing at the completely opposite end of the spectrum from Wal-Mart."

The company also has received some calls criticizing it for using some non-union factories and for producing in China, a country infamous for Draconian working conditions.

Fair Indigo addresses those issues in a question-and-answer section of its Web site. While the company supports the rights of workers to form unions, "We do not consider them a make-or-break factor in workers earning fair wages and living comfortable lives," the site says.

As for the China issue, Fair Indigo acknowledges there are "many bad factories in China," but goes on to say that it discovered "some outstanding factories, too, where workers are truly being lifted up out of their former poverty. We do not believe it is moral to penalize these workers nor their generous factory owners simply because they happen to live in one country."

Complicating the issues surrounding fair-trade apparel is the lack of an independent third party to verify that a piece of clothing is made under humane conditions by workers who are earning a sufficient wage. It's something that a non-profit organization called TransFair has looked at but believes will take at least two years to figure out.

TransFair USA, a recognized independent, certifying agency for fair-trade products in the U.S., already gives its seal of approval to coffee, tea, cocoa, some types of fruit, rice and sugar. If a manufacturer passes its stringent tests, it can use the organization's "Fair-Trade Certified" label.

But certifying apparel is more complicated than agricultural products because everything from the fiber and the buttons to the cutting and sewing operation would have to be audited, says Nicole Chettero, TransFair spokeswoman.

"We believe our label can only be on something that is 100 percent fair-trade certified from the farm to the finished product," she said. "Apparel is definitely at the top of our list. In order to do it justice, we want to do it right."

TransFair has received requests to certify everything from cut flowers to soccer balls to diamonds, but the Oakland, Calif.-based group only takes on one new area a year. Currently, it is looking into a fair-trade certification for wine.

Bass says he wasn't willing to wait, and he thinks consumers are ready, too. "We have a bias toward action as a group of people. You can't let the perfect be the enemy of the good."

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Everlasting Retirement
By Paul B. Brown – New York Times
October 7, 2006

HOW to make your money last forever is the cover article in this month’s Kiplinger’s Personal Finance. And Money. And Smart Money.

In what may be a first — or at the very least an extremely rare event — each of the financial advice publications at exactly the same time devotes scores of pages to “how to make money last a lifetime.”

They all use virtually the same language to describe the strategies that can keep you from outliving your money once you retire.

At the core, the advice in each piece is sound — and similar. Mary Beth Franklin does the best job at laying out the basics in Kiplinger’s:

Assume you are going to live a long time — at least 30 years — in retirement, so start saving as much money as you can today. “If you believe you can live comfortably in retirement on 85 percent of what you’re making — a fair rule of thumb — then save and invest at least 15 percent of your gross income” today, Ms. Franklin writes.

When projecting how much you are going to need, do not forget to factor in inflation and the ever-rising cost of health care.

You will need to keep a significant portion — perhaps at least half — of your assets invested for growth, even after retirement. That means you still need to be invested in stocks as well as bonds and other fixed-income investments.

Limit annual withdrawals during retirement to 4 percent (up to 5 percent) of what you have saved. That withdrawal rate can be increased only by the rate of inflation. For example, if you saved $1 million for retirement, you could withdraw 4 percent, or $40,000 a year. If inflation averages 3 percent this year, you could withdraw $41,200 next year.

Money suggests that when you retire, you should think about using part of your savings to buy an immediate annuity.

“It’s essentially life insurance in reverse,” Pat Regnier writes. “You permanently hand over a lump sum, and in exchange the insurer promises you a regular check until you die.”

A 65-year-old man who buys a $100,000 annuity would receive $713 a month, every month, until he dies, the magazine says.

Smart Money offers several rules of thumb for those considering ways to preserve wealth. For a rough estimate on how much money you will need, “multiply your expected annual spending, including taxes, by 20.” To protect against rising health care costs, add $150,000 or more to the savings target.

It is easy to explain why we are seeing all these articles now. As Kiplinger’s points out, there are now 41 million baby boomers who are 50 to 60 years old.

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Chasing Mr. and Mrs. Middle Market,
J.C. Penney, Kohl's Open 85 New Stores

By James Covert - Wall Street Journal
October 6, 2006

Fierce rivals J.C. Penney Co. and Kohl's Corp. have big plans for this weekend, and the name of the game is expansion.

Kohl's is staging grand openings at 65 stores, the largest growth spurt in its history. At the same time, plans call for Penney to cut ribbons to open 20 stores -- its biggest expansion in two decades, and one with a new wrinkle: Of the 20, 17 of the stores are free-standing -- a matter of course for Kohl's but a departure from Penny's longtime role as an anchor in suburban shopping malls.

Both Penney, based in Plano, Texas, and Kohl's, based in Menomonee Falls, Wis., plan to celebrate their growth with big discounts on fall fashions.

That will help set the tone for a highly competitive holiday season as the two battle for the business of the middle-market shopper, says Britt Beemer of America's Research Group, a consulting firm that tracks shopping patterns nationwide. "We're already seeing big, in-your-face discounts of 30% to 50% off," he says. "This is going to be a good fight to watch."

The middle market, sandwiched between discounters at the low end and luxury retailers at the top, is actually growing more slowly than retail spending overall. This holiday season, middle-income shoppers are less likely to increase their spending than their lower- and upper-income counterparts, according to a recent survey by NPD Group, a market-research firm. But Penney and Kohl's are growing faster than other midprice department stores, and both companies raised their profit outlooks this week.

"We're taking share from somebody," says Myron "Mike" Ullman, Penney's chairman and chief executive. "We're getting new customers whether they're trading up, down or sideways."

Fe Limboc, a 55-year-old accounting analyst in Lewisville, Texas, says she shops at both Penney and Kohl's stores because traditional mall department stores are "expensive for what you get."

Both chains now have an opportunity to attract customers who once shopped at hundreds of former Filene's, Foley's and Strawbridge's stores that Federated Department Stores Inc. last month converted to Macy's, a chain with a more upscale image than many of those it is supplanting. Federated also has been closing stores in the wake of its acquisition of May Department Stores Co.

Richard Hastings, an analyst at New York-based retail consultant Bernard Sands, reckons Penney and Kohl's lately are stealing shoppers away from discounters, too. He cites both companies' strong September sales gains versus those of Wal-Mart Stores Inc. and Target Corp.

The shift in strategy at Penney -- which operates about 1,050 stores -- comes as regional mall construction has nearly ground to a halt, and time-strapped shoppers are favoring stores that are closer to home and easier to navigate. Capitalizing on that trend, Kohl's has expanded at a torrid pace, doubling the size of its chain to about 800 stores since 2001 by pushing into new markets like Florida and California. What remains to be seen is whether there are enough good free-standing locations for both companies' big expansion plans.

The stand-alone strategy also isn't a slam dunk. Penney has been tinkering with its free-standing format for three years, opening only 25 such stores prior to this weekend's rollout. And while these types of stores have advantages over mall anchors -- Penney says weekday traffic has exceeded its expectations -- other chains, including Sears Holdings Corp., have seen mixed results with them.

In recent years, Penney has concentrated on updating its fashions, adding a lower-price line by designer Nicole Miller and home furnishings by Chris Madden, for example. It has also beefed up private-label brands such as St. John's Bay clothes and Arizona jeans, which now account for more than 40% of its sales.

This week, Penney announced a deal to sell two new, exclusive lines of apparel, accessories and jewelry from Liz Claiborne Inc. -- Liz & Co. for women and Concepts for men. Both will launch next spring.

Mr. Ullman predicts that free-standing Penney stores will give Kohl's a run for its money with better service and more exclusive brands. In addition to hair salons and spas, some new stores, including a free-standing location opening this weekend in Fort Worth, Texas, will feature Sephora cosmetics boutiques. He also says departments from jewelry to home decor will be staffed with more sales people than at Kohl's. But like Kohl's, Penney will provide shopping carts at its off-mall locations.

Kohl's, which has grown by discounting name brands like Gloria Vanderbilt and Levi's jeans and Adidas athletic wear, also is expanding its stable of private labels with lines like Daisy Fuentes women's sportswear. Last year, it began carrying the Chaps label from Polo Ralph Lauren Corp. And in August, it signed a deal for an exclusive midprice line from designer Vera Wang. This week, the company attributed a surprisingly strong 16% increase in September same-store sales partly to its efforts to make its stores more "feminine."

"We've broadened our reach," Kohl's President Kevin Mansell says. "We're moving from a family-focused-only approach to include women at home without children."

Mr. Mansell adds that the wide-aisled "race-track" design of Kohl's stores reduces the need for staffing. "We're not doing our job in merchandise presentation or replenishment if our customer has to ask for a lot of help," he says. "They should be able to navigate with visual cues and signing."

In its new stores, however, Kohl's is enlarging fitting rooms and installing them with three-way mirrors. Nearby lounge areas are getting hardwood floors and more decorations. The checkout stations have been redesigned so clerks spend more time facing customers, rather than cash registers. New display windows out front will showcase mannequins in the latest fashions.

Stores cluttered with racks of merchandise have drawn complaints in the past, Mr. Mansell acknowledges. But he says they are being addressed with better displays. "We're carrying less inventory, and it's delivered more often," he says.

Some analysts, meanwhile, are skeptical about both companies' big expansion plans, saying the two will eventually fight over key locations as space gets tighter.

"If they do go head-to-head on too many sites, their rents are going to go up," Dennis Yeskey, national director for real-estate capital markets at Deloitte, says of Penney's plan to open as many as 400 more stores and Kohl's plan to add 500 by 2010. "Then they're going to scale back."


Store Openings

J.C. Penney store openings Oct. 6:
Trussville, Ala. Olean, N.Y.
Rogers, Ark. Harrisburg, Pa.
Aurora, Colo. Columbia, S.C.
Fort Collins, Colo. Murfreesboro, Tenn.
Longmont, Colo. Fort Worth, Texas
Westminster, Colo. Pasadena, Texas
Fort Myers, Fla. San Antonio, Texas
Kansas City, Kan. Austin, Texas (2)
Dardenne Prairie, Mo. South Jordan, Utah
North Conway, N.H.

Kohl's store openings in October:
Mobile, Ala. Lafayette, La. Newark, Ohio
Florence, Ala. Auburn, Maine Defiance, Ohio
Oro Valley, Ariz. Lapeer, Mich. Medford, Ore.
Mesa East, Ariz. Mt. Pleasant, Mich. Stroudsburg, Pa.
Jonesboro, Ark. Adrian, Mich. Altoona, Pa.
Bryant, Ark. West Bloomfield, Mich. Monaca, Pa.
Santa Maria, Calif. Benton Harbor, Mich. Myrtle Beach, S.C.
Mira Loma, Calif. Owatonna, Minn. Morristown, Tenn.
Riverbank, Calif. Papillion, Neb. Cookeville, Tenn.
Grand Junction, Colo. Las Vegas South, Nev. Laredo, Texas
Monument, Colo. Tilton, N.H. Conroe, Texas
Clearwater, Fla. Millville, N.J. Sherman, Texas
Tampa North, Fla. Jersey City, N.J. Lake Jackson, Texas
Brandon, Fla. Hackettstown, N.J. Killeen, Texas
Columbus, Ga. Albuquerque NE, N.M. Victoria, Texas
Douglasville, Ga. Albuquerque NW, N.M. Lynchburg, Va.
Valdosta, Ga. Commack, N.Y. Culpeper, Va.
Bradley, Ill. Newburgh, N.Y. Marysville, Wash.
Oswego, Ill. Grand Forks, N.D. Covington, Wash.
Richmond, Ind. Fairfield, Ohio Bellingham, Wash.
Lenexa, Kan. Lorain, Ohio Parkersburg, W. Va.
Baton Rouge SE, La. Marion, Ohio

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Gary Comer, Lands' End founder, had heart for city
By Rick Kogan - staff reporter – Chicago Tribune
October 5, 2006

Best known and widely admired as the innovative founder of the Lands' End clothing empire, Gary Comer was a most self-effacing billionaire whose largesse will have a lasting impact on Chicago.

A Depression-era child of the South Side, Comer never forgot his humble beginnings and he shared his success, funding all manner of endeavors.

Comer, 78, died Wednesday in his Gold Coast apartment after a lengthy battle with prostate cancer. He was surrounded by his family.

"Gary's drive to succeed in business was only surpassed by his deep commitment to Chicago's children," said Mayor Richard M. Daley. "His generosity was boundless. He knew firsthand the importance of hard work and excellence, and he devoted his later life to instilling those values in others."

A few months ago, as Comer toured the nearly completed Gary Comer Youth Center, a new $30 million building not far from his childhood home in the Grand Crossing neighborhood, the effects of his illness were apparent. He looked frail, but traveling by wheelchair through the building seemed to brighten his spirits.

"Isn't this going to be the greatest thing for the kids?" he said, a smile crossing his face.

Gary Campbell Comer was the son of a railroad employee and a homemaker. "I used to use nearby Oak Woods Cemetery as a playground," he once recalled.

He was an indifferent student at Paul Revere Elementary School and Hyde Park High School. He learned to sail at a Chicago Park District beach house. A few years later, he was a world-class sailor, winning a number of competitions, including the North American Championships and a bronze medal in the Pan America Games.

With no money for college, Comer went to work, toiling at odd jobs before landing a position at the advertising firm of Young & Rubicam in 1950.

In 1960, he quit and headed to Europe, where he spent a year traveling. He returned to Chicago and met Francie Ceraulo when she was on a date with another man. He asked for her phone number, which she wrote in lipstick on a napkin.

He called and in 1962 they were married. He had already started a business, selling sailboat equipment, hardware, duffel bags, rain suits and a few items of clothing. He called his new company Lands' End because, he said, "It had a romantic ring to it, and conjured visions of a point to depart from on a perilous journey."

Eventually he bought out two partners and in 1975 printed his first catalog. Two years later, the company was selling only clothing and moved its headquarters to Dodgeville, Wis.

Comer took the company public in 1986 and Lands' End became one of the most innovative and largest mail-order businesses in the world.

In 2002, Sears, Roebuck and Co. purchased Lands' End for $1.9 billion. "He was genuinely grateful that he was able to give jobs to people," said Comer's daughter Stephanie, a photographer and author who administers the Comer Foundation with her mother. "I think what made Lands' End so successful was that he cared."

In addition to his home in Chicago, Comer had a home in Maine, and a farm in Wisconsin. He had his own plane and a boat named Turmoil, which he took on trips around the world.

"There was nobody like Gary, and it wasn't about money, about the numbers," said Lois Weisberg, the city's cultural affairs commissioner and a close friend of the family. "Gary's contributions to this city will be felt for generations. He wanted the best and he had the power and the passions to get what he wanted."

The Comers have given away millions of dollars. For his old grammar school he bought computers, an air-conditioning system, uniforms and promised 8th graders that he would pay college tuition for any who graduated from high school.

He funded CITY 2000, a yearlong photo project that has yielded 500,000 photos and a book. The couple has donated more than $80 million to the creation and expansion of the Comer Children's Hospital at the University of Chicago; funded the South Shore Drill Team; built homes for people in the Grand Crossing neighborhood--the list is a long one.

"We loved each other and we loved this city," said Francie Comer. "We never imagined the success that we would have. Gary was poor and at one point realized he had as much money as he would ever need and also realized that there was so much he could do to help others."

"My dad's legacy will be his humanity," said Comer's son Guy, a former commercial airline pilot who now operates the Comer Science and Education Foundation.

On Sept. 19, Guy's wife, Courtney, gave birth to a baby boy. "It came two weeks early," said Guy. "I think he just wanted to get a chance to meet my dad." The baby's name is Gary Campbell Comer II. In addition to his wife, son and daughter, Comer is survived by son-in-law Rob Craigie and two other grandchildren, a girl Sienna and boy Luca.

Services will be private.

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Join the Sears Team this Holiday Season
From Sears Retirees Website
October 4, 2006

Attention Sears Retirees -
We want you back for the Holidays!

In 2004, Sears Full-line Stores initiated a seasonal employment program for retirees during the holiday season. After two successful years of running the program, we are once again inviting all retirees to join us for part-time, seasonal employment.

Sears understands the exceptional value of an experienced and dedicated workforce - making our retiree population ideal for supplementing our holiday staffing. Retirees bring valuable Sears experience with them, and provide great insight to our stores on various ways that we can better serve our customers.

There are many benefits for retirees who join us during the holiday season:

A sign-on bonus will be given to retirees hired for the holidays. The sign-on bonus is $100, issued by the hiring store in the form of a Sears gift card and distributed in mid-December to retirees on payroll at that time. Retirees may be issued one (1) gift card in the amount of $100 or up to four (4) gift cards totaling $100.
Flexible work hours
Opportunity to earn extra cash for the holidays
Training on current work process and customer expectations

The following jobs are typically available for seasonal employment. (Others may be available based on local store needs.)

Merchandise and Customer Assist - Maintain a well-stocked orderly sales floor; assist customers with locating merchandise
Cashier - Ring customer purchases; offer credit applications to customers
In-store Support Associate - Maintain price and data integrity throughout the store; support the merchandising and sales teams

To confirm your interest in seasonal employment, contact the Human Resources office at your local store, either in person or by phone. You’ll be required to acceptably complete the application and interview process and pass a background check. We look forward to seeing you soon!

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Man linked to Sears Tower plot
working on weapons plea deal
WLS-TV (ABC), Chicago
October 4, 2006

MIAMI, Oct. 4- (AP) - A Chicago man with ties to a group accused of seeking to join al-Qaida and plotting to blow up the Sears Tower and other buildings is working with prosecutors on a possible plea agreement to federal weapons charges.

Sultan Khanbey, 51, was a leader in Chicago of the Moorish Science Temple religious sect and is heard on FBI tapes as telling the alleged Miami plot's ringleader that he hoped to enlist 10,000 people into a "Moorish nation," wearing green-and-black uniforms, to bring about revolution in the United States.

Khanbey, who was born Charles Stewart, is charged with illegal possession of a firearm by a convicted felon. Court records show he was convicted of rape in 1977 and attempted murder in 1973.

U.S. District Judge Marcia Cooke scheduled a change of plea hearing Wednesday for Khanbey, but it was postponed until Oct. 25 to give more time for details of a plea agreement to be worked out, prosecutors said. Cooke said by then both sides should "be on the same sheet of music" in the case.

The gun charge arose from Khanbey's alleged connections to the seven men arrested in June in the terror plot, which authorities acknowledge never got beyond the early planning stage. Khanbey has previously told investigators he knew about the plot and might cooperate with prosecutors in that case.

The purported ringleader, Narseal Batiste, headed a Miami chapter of the Moorish Science Temple sect and had known Khanbey when both lived in Chicago, authorities have said.

A lengthy document filed by Khanbey in federal court discusses the sect's philosophy, including claims that U.S. laws and documents are "bogus and fraudulent" and that the ultimate goal of African-American people should be to "break free of the iron hand of the United States yoke and laws."

Khanbey came to the FBI's attention when he was invited to come to Miami last spring to discuss Batiste's plans, but a rift occurred between the two after Khanbey become suspicious that the FBI had infiltrated the Miami group, according to court documents.

On April 19, Khanbey conducted a "trial" at the group's warehouse headquarters in the Liberty City neighborhood to expel Batiste from the Moorish organization, federal prosecutors say. That same day in a heated argument, Khanbey fired a shot from a 9mm handgun past the ear of a self-described spiritual missionary and longtime Batiste adviser who uses the name Master G.J.G Atheea.

The handgun, it turned out, belonged to another member of the group, Lyglenson Lemorin, according to court documents. Khanbey had previously said the gun discharged accidentally when he was attempting to unload it.

Batiste, Lemorin and five others remain jailed without bail on charges of terror conspiracy and material support, which authorities have said included planning for attacks on the Sears Tower and government buildings in Miami, Washington and elsewhere. All have pleaded not guilty, with trial scheduled to begin March 5.

Their arrests were based on information obtained by two FBI informants, including one man of Middle Eastern descent who pretended to be an al-Qaida operative.

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Aetna Expanding Medicare Availability and Enhancing Offerings for 2007
Aetna News Release
October 4, 2006

HARTFORD, Conn.--(BUSINESS WIRE)--Aetna announced today that for 2007 it is expanding the availability of its Medicare Advantage medical products to three new states, adding new counties within states it already serves, and providing Medicare Part D prescription drug products to auto-enrolled beneficiaries in an additional 28 states and the District of Columbia. In addition, the company will enhance its Medicare plan coverage and expand the ways people with Medicare can purchase its products.

For 2007 Aetna will:

Offer Medicare Advantage products in a total of 16 states and the District of Columbia, including the addition of Connecticut, Oklahoma and Tennessee, and add individual and/or group Medicare Advantage HMO and PPO offerings in 39 new counties in states it already serves.

Provide Medicare Part D prescription drug plans to individuals and employer groups in all 50 states. Aetna also will provide Part D prescription drug plans to auto-enrolled individuals in 36 states and the District of Columbia, including 28 new states for 2007.

Introduce Medicare Advantage Private Fee-for-Service plans to employer groups for their retirees in all 50 states, and for individuals in certain markets.

Expand distribution channels for its Medicare products through new relationships with Old Surety Life Insurance Company and Equitable Life and Casualty.

Enhance its Part D coverage by adding a number of brand name drugs, such as Nexium®, Vytorin® and Crestor®, to its lists of preferred brand drugs on both its open and closed formularies, and offering a zero-dollar co-pay for generics in the majority of its individual plans.

“Aetna is extremely pleased to make our Medicare Advantage products available to many more Medicare beneficiaries in 2007, including significantly more beneficiaries in Florida, Georgia, New York and Pennsylvania. We’re also pleased to continue our national commitment to Medicare Part D, and provide these plans to low-income beneficiaries in much of the United States,” said Frank McCauley, head of Aetna Retiree Markets. “Strong competitive bidding by plans, as well as broad beneficiary choice, means that the average cost of Medicare Part D prescription drug plans for individuals will remain stable or even decline in 2007 – proof that this program is an effective approach to providing low-cost coverage to Medicare beneficiaries.”

For 2007 Aetna will maintain its auto-enrollees in all six regions (including eight states and the District of Columbia) where it achieved the price benchmark set by the Centers for Medicare and Medicare Services (CMS) for 2006. In addition, Aetna is below the price benchmark set by CMS in 17 additional regions, making it eligible to receive auto-enrollees in 28 new states. Low-income beneficiaries who are eligible for 100 percent subsidies also can choose an Aetna Part D prescription drug plan in 36 states and the District of Columbia without paying any premium.

Aetna will continue to offer three Medicare Part D prescription drug plans nationwide in 2007 -- one offering benefits that are equivalent to standard Part D, and two enhanced options. These plans will be even more competitively priced for 2007, in many cases offering premiums that are lower than 2006 rates. Two of the plans will offer an open formulary and one will provide access to generic prescription drugs through the coverage gap. Premiums range from $24.80 to $73.60 a month, depending on the plan and the region. In addition, Aetna will offer Medicare Advantage plans combining Medicare medical and prescription drug coverage in select markets.

Aetna also is focused on developing strategic alliances to help educate consumers about their Aetna Medicare plan options, and provide them with convenient local options to purchase the plans. Aetna will continue its relationships with retail pharmacies Rite Aid Corporation and CVS/pharmacy, distribute products via Medicare Supplement carriers Physicians Mutual and Standard Life and Accident Insurance Company, and continue its community-based relationships with regional organizations such as H-E-B retail stores in Texas.

For 2007, Aetna has developed new relationships with Old Surety Life Insurance Company and Equitable Life and Casualty that will make Aetna Medicare products available through an additional 5,500 independent brokers throughout the country. Aetna has created additional regional alliances with retail brands such as Jewel-Osco in Chicago, Albertsons/Sav-on in Southern California and Sweetbay Supermarket and Kash n' Karry Food Stores in Florida.

“We know that Medicare beneficiaries are very interested in receiving information and purchasing plans from trusted community resources,” said McCauley. “That’s why we will continue to enhance and expand national and local market partnerships that will provide us with the opportunity to reach consumers in ways that are most convenient for them.”

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In wake of changes, seniors urged to revisit Medicare drug plans
By Richard Wolf, USA TODAY
October 4, 2006

WASHINGTON — The rollout of Medicare prescription drug plans for 2007 last week was heralded by federal officials as a trifecta of good news: low premiums, more choices and better coverage, particularly in the feared "coverage gap."

Health care analysts and consumer advocates have a slightly different view: The lowest premiums, sought by healthy seniors who join the program to avoid future penalties, will rise exponentially.

Additional choices mean that beneficiaries in all but two states will have to choose from more than 50 plans. And most of the "gap coverage" will be for generic drugs only. Currently, 94% of beneficiaries in the program face a gap from the time they have paid about $750 until they've paid $3,600.

For these and other reasons, millions of seniors and people with disabilities are being urged to re-examine the plan they chose for this year and compare plans again.

"The right plan for someone in 2006 might not be the right plan in 2007," says Tricia Neuman of the Kaiser Family Foundation, a health research organization. "The concern is that products are changing, but seniors won't."

Medicare officials unveiled details about the program's second year last week, including the number of plans to be offered, premiums, deductibles and types of coverage. They emphasized that average monthly premiums will stay below $24, far less than the $37 originally projected. At the same time, they said, companies are adding new forms of coverage.

"Competition is working," said Mark McClellan, administrator of the Centers for Medicare and Medicaid Services. "They are adding plans that people want."

Companies began marketing those plans Sunday. Further details, including the drugs covered and the co-payments, will emerge later this month. Enrollment begins Nov. 15 for the year beginning Jan. 1.

"There could be a lot of changes, and every Medicare beneficiary is going to have to go back and recalculate what is best for them," says Dan Mendelson, president of Avalere Health, a consulting firm.

Among the changes that beneficiaries will need to watch out for:

• The lowest monthly premium is rising to $9.50 in New York, up from $1.87 in seven Midwestern states in 2006. (Puerto Rico will have a $1.90 plan.) Some states' lowest price will be close to $20.

• The number of plans will rise by 30%. Beneficiaries in most states will have between 50 and 60 to choose from. New York, Ohio, Pennsylvania and West Virginia will have more than 60. Only Alaska and Hawaii will have fewer than 50.

• Far more plans will cover some drugs in the coverage gap — about 15 such plans per state. Only 2% of plans, however, will offer complete coverage in the gap for all brand-name drugs, and the cost is going up. This year, monthly premiums for such coverage averaged $61. Next year, the average will be $100, with a high of $136.

And unlike this year, when such plans were offered in 46 states, only 37 will have them next year.

Karen Ignagni, president of the American Association of Health Plans, says seniors should "take a very close look at all of their choices."

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John M. (Jack) Kelly, Retired Controller
at Sears, Dies at 78

John M. (Jack) Kelly, 78, retired executive with Sears, Roebuck and Co. with 36 years service, died Monday of cancer after a long illness, at his home in Addison, a suburb of Chicago.

A Navy veteran, he was a financial controller for the national public relations department of Sears for many years. He also served as a vice president of The Sears-Roebuck Foundation. He later was the controller of the Savings and Profit Sharing Fund of Sears Employees, and completed his career as a loaned executive to United Way of Chicago.

He leaves his wife, Anna Mae (nee Bowler), daughter, Kathleen (Peter) Pesek, and sons, Michael (Marcia), James (Margot), Patrick (Jessica) and John; sister, Joan (the late Joseph) Izzo; and many nieces and nephews.

Visitation will be from 3 p.m. to 8 p.m. Thursday at Gibbons Funeral Home, 134 S. York Rd., Elmhurst, and 8:45 a.m. to 9:45 a.m. Friday. Mass of Christian burial will be at Saint Philip the Apostle Church, Addison. Interment will be in Queen of Heaven Catholic Cemetery, Hillside. In lieu of flowers, Masses preferred.

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Ex-Kmart execs face trial in fraud claim
The SEC accuses CEO Conaway, CFO McDonald of misleading investors of firm's fiscal woes in 2001.

David Shepardson / Detroit News Washington Bureau
October 4, 2006

Former Kmart CEO Charles Conaway and former Chief Financial Officer John McDonald will stand trial on civil charges that they misled investors on the extent of Kmart's financial troubles in the months before the discount retailer's 2002 bankruptcy, a federal judge ruled Tuesday.

U.S. District Judge Paul Gadola in Flint rejected requests by the men to dismiss a civil complaint filed in August 2005 by the Securities and Exchange Commission accusing them of securities fraud.

The SEC wants to bar the pair from serving as officers at public companies and recoup an unspecified amount of money. Conaway was paid $20 million for 20 months of work at the helm of Kmart, while McDonald received two controversial retention loans worth $2.5 million.

"The SEC now looks forward to presenting its case to a jury for decision," SEC enforcement lawyer Dean Conway said Tuesday.

The SEC claims the former Kmart executives made false statements during a Nov. 27, 2001, conference call with investors that concealed the extent of the retailer's financial difficulties.

Conaway and McDonald secretly engaged in an effort -- dubbed "Project Slow it Down," or SID -- to delay payments to vendors and tried to cover it up by telling employees glitches in a new system were to blame for the late payments, according to the SEC.

The pair then purposely did not tell investors during the call that Kmart was late on hundreds of millions of dollars to vendors who were demanding payment, the SEC said.

About 25 suppliers -- including Black & Decker, Gillette, Rubbermaid, Lego, AC Delco and Coleman -- had stopped shipping products to Kmart because they hadn't been paid, the SEC said.

By early November 2001, "some Kmart stores were out of such staple products as vitamins, cigarettes, light bulbs, books and magazines," the SEC said.

McDonald and Conaway argued that Kmart had more than 2,100 suppliers and that only a handful had stopped shipping.

"The whole purpose of Project SID and (the) cover story was to hide the nature, cause and severity of the liquidity problem from investors," Gadola wrote in his 15-page opinion. Attorneys for the two men have called the case "trivial" and defended the pair's conduct as entirely proper.

Scott Lassar, Conaway's attorney, declined to comment on Tuesday's decision until he discussed it with his client.

John Sylvia, an attorney for McDonald, did not return a call seeking comment Tuesday.

Kmart filed for Chapter 11 bankruptcy in January 2002, and Conaway was fired two months later. Stockholders lost $4.5 billion when Kmart became the largest retailer ever to go bankrupt.

After closing 599 stores and shedding more than 57,000 employees, the retailer emerged from bankruptcy in May 2003 as Kmart Holding Corp. and in November 2004 said it was buying Sears, Roebuck & Co. The new company, Sears Holdings Corp., is based in Hoffman Estates, Ill.

In late 2005, Detroit U.S. Attorney Stephen J. Murphy declined to bring criminal charges against former top Kmart executives.

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Medicare Drug Plans: The New Choices
More Offerings, Shifting Prices Mean Seniors Face Fresh Round Of Decisions as 2007 Sign-Up Nears
By Vanessa Fuhrmans and Jane Zhang
October 3, 2996

Here we go again.

After spending months sorting through a multitude of Medicare drug-benefit options for 2006, seniors have the chance to undergo the dizzying experience all over again. That is because this week insurers begin marketing their 2007 drug plans before the six-week enrollment season kicks off Nov. 15.

The good news is that most seniors who are satisfied with the plan they are enrolled in don't have to do anything. Some analysts had predicted a shakeout after dozens of providers rushed into the new drug-benefit market last year, but few companies are actually canceling plans.

Still, the drug-benefit landscape is changing enough that even enrollees who are content may want to review how their plan stacks up against new offerings. Beneficiaries in most states will have 50 to 60 offerings to choose from, at least 10 more than in 2006. Some plans are adding benefits -- including eliminating co-payments for generic drugs. But at least one, Humana Inc., is rolling back one of the richest benefits on the market: coverage for brand-name drugs during a phase known as the "doughnut hole" that requires many beneficiaries to pay the full cost of drugs after reaching a certain cost threshold.

For the most basic plans, prices are converging, though there are still some big differences. Last year companies announced drug-benefit premiums without knowing how the competitive landscape would shape up. Consequently, prices ranged widely, from as little as $1.87 a month to more than $35 for a basic plan. Now for 2007, Humana still sells the cheapest plan in 38 states, but premiums for its basic option have climbed to between $10.20 and $18.20. Meanwhile, Cigna Corp. and Aetna Inc., whose prices were some of the highest, have lowered theirs by as much as 30%. (Cigna's basic option ranges from $17 to $31; Aetna's costs $24.80 to $30.80.)

To compare the 2007 plan offering, seniors can also tap a number of new or enhanced online tools. Later this month, Medicare's Plan Finder at www.medicare.gov 1 and www.mymedicare.gov  2 will let beneficiaries compare out-of-pocket costs and benefits for the 2007 plans in their area. Seniors can see what plans are available in each state at www.medicare.gov/medicarereform/local-plans-2007.asp  3. A new Web site, www.partdoptimizer.com  4, is run by DestinationRx, which provided software for Medicare's comparison tools. It provides tips on avoiding the doughnut hole and compares how much seniors would save by switching to alternative medicines within their current plan. The site currently has data for 2006 plans but will be able to crunch 2007 information after the enrollment period has ended Dec. 31.

Who should consider switching? Prime candidates are those who picked plans for this year that provided coverage of the so-called doughnut hole, or who fell into that gap and now want coverage for it. The doughnut hole refers to a portion of drug spending that the government-subsidized plans don't have to cover. Seniors get coverage for up to $2,400 in spending in 2007. The federal subsidies then stop until the patient reaches $3,850 in out-of-pocket expenses. After that, the coverage kicks in again and covers 95% of drug purchases for the rest of the year. For a higher premium, some plans offer to cover drug expenses through the gap.

Filling the Gap

It is these higher-end plans that are seeing some of the biggest changes in 2007. For starters, there are many more available. Just 15% of plans this year provided coverage of the doughnut hole, according to Avalere Health LLC, a health-care consulting firm in Washington, D.C. Next year 29% of them will.

This year in New Jersey, for instance, Humana sold one of these more-comprehensive plans for a $48.50 monthly premium, while Cigna's cost a bit more -- $51.36. In 2007, the Humana premium will jump 46% to $71.20. Cigna, though, which signed up fewer beneficiaries than it had hoped for 2006, has dropped its price, to $38.20.

What's more, Humana is joining the majority of its rivals in providing coverage for only generics during the doughnut hole. This year, it was the only major insurer to provide coverage of many brand-name drugs through the gap. But as a result, it says it attracted more than its share of sicker enrollees with higher-than-average medication costs -- and lost money on the higher-end plan. "We'd assumed that other national plans would offer brand coverage through the gap, but none did," says Scott Latimer, Humana's market president for central and northern Florida.

Of Humana's 3.5 million drug-plan enrollees, about 12%, or 420,000 people, are currently in its most-comprehensive plan and will no longer have their brand-name drugs covered through the doughnut hole, Humana says.

On the whole, though, 5% of all plans will offer both brand-name and generic drug coverage through the gap, an increase from this year, according to Avalere. In Michigan, Coventry Health Care Inc. is one of just a few companies that is raising the price of its most comprehensive plan, from $42.40 to $48. In doing so, it is adding generics and brand-name drugs to its gap coverage. But seniors should check if such benefit improvements apply to their drugs. Coventry says only some preferred brand drugs in its first tier of coverage are included alongside the generics.

"You have to read the fine print," says John Gorman, president and chief executive of Gorman Health Group, a Washington health-care consulting company.

In another shift, many plans are making changes that will reduce the chances that consumers will even reach the $2,400 level where the coverage gap starts. By eliminating co-pays for generic drugs in some plans, for instance, insurers are making such treatments essentially free to patients (at least until they reach the coverage gap). Aetna is dropping co-pays for generics in many of its plans, while Cigna says it is eliminating generic co-pays in all of its most basic drug plans.

Peter Ashkenaz, a spokesman for the federal Centers for Medicare and Medicaid Services, says every beneficiary will be notified if there is any change in their plan.

Even if beneficiaries want to stay in their current plan, they should still check that the drugs they take are remaining on their plan's formulary and on the same co-pay "tier" as before. A move from the lowest to a higher tier of co-payments for a drug can translate into a rise in co-pay to $40 a month from $5.

New Shoppers

There may be a huge market of potential shoppers. Only 20% of 3,400 beneficiaries surveyed last month by J.D. Power & Associates said they would definitely stay with the plan they had. About two million Americans will turn 65 in 2007 and also will be eligible. At least another four million, including three million low-income beneficiaries not subject to penalties for missing the deadline earlier this year, have yet to enroll.

Still, unless another plan has the potential to save a beneficiary substantial money each month, some Medicare watchers say that many may decide to stay put. Few predict that any player will break the lock that the country's three biggest plans -- UnitedHealth Group Inc., Humana and WellPoint Inc. -- have on the majority of the market.

"People went through so much trauma picking a plan the first year," says Robert Laszewski, a Washington-based health-care consultant. "They're not going to open this up all over again just to save a few bucks."

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Forget Golf Courses, Beaches & Mountains
When it comes to finding a new place to live, today's retirees are looking for something completely different.

By Kelly Greene – Wall Street Journal
October 2, 2006

Pete Lydens traveled around the mid-Atlantic states and the Southeast as a city manager and consultant for 50 years, so he was familiar with many of the country's retirement hot spots when it came time to decide where to land himself. But he eschewed the region's lush golf-course communities and mountain hideaways, instead choosing to return to a hamlet where he worked in the 1960s: Mount Airy, N.C., population 8,454.

"It's almost mystical the way people here relate to friends and strangers," he says of the town, where actor Andy Griffith grew up and which still resembles the fictional Mayberry in Mr. Griffith's 1960s TV show. "It's the ideal place to retire."

For years, the search for a new home in retirement has been tied to weather and leisure. States like Arizona and Florida captured the lion's share of transplants, with good reason: They offer a warm climate, lots of sunshine and plenty of golf, tennis and water sports.

But today, while weather and leisure remain important, retirees are telling builders, developers and researchers that they are looking primarily for what Mr. Lydens has found in Mount Airy: a community where they can make friends and connections quickly, whether it's a small town or a walkable neighborhood in a big city. A close second and third on the priority lists: a home that's near grandchildren, and a setting where one can indulge a post-work passion, such as a second career, a newly adopted sport or even, for a growing number of people, farming.

"Moving to a mixed-use development, a small town, or seeking an urban experience are all elements of the same thing: It's a community where you get to know each other," says John McIlwain, 62 years old, a senior resident fellow for the Urban Land Institute, a research group in Washington. He traded a Maryland suburb for a 1,000-square-foot loft downtown after his children left home. "You're walking around, and you get to know your neighbors, you get to know the shopkeepers, because you meet them on the street."

Where should you head? Here are some examples of nont