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Contents

More Choices for Medicare
New, Fine-Tuned Drug Plans Aim to Lower Costs, Expand Coverage

(Sept. 30, 2006)

Medicare Releases 2007 Drug Plans Available in Each State
(Sept. 28, 2006)

Companies to pitch cheaper Medicare drug plans
(Sept. 28, 2006)

Sears joins CPSC reporting program
(Sept. 28, 2006)

Ratings agency downgrades bonds of Sears Tower
(Sept. 28, 2006)

AutoZone says director Lampert will vacate seat
(Sept. 27, 2006)

Sears fills marketing exec gap at Lands' End
(Sept. 26, 06)

Seeking Expansion in Urban Areas,
Wal-Mart Stores Gets Cold Shoulder

(Sept. 25, 2006)

Millions of Seniors Facing Medicare 'Doughnut Hole'
(Sept. 25, 2006)

Pay By Touch appoints former Home Depot exec Costello as president
(Sept. 25, 2006)

The Return of John Costello
(Sept. 25, 2006)

Most Maytag technicians to be offered new jobs
(Sept. 23, 2006)

Sears' Martha Muddle
(Sept. 21, 2006)

Canada ruling stands against Sears
(Sept, 20, 2006)

Macy's to Relaunch Kellwood's "O Oscar line"
(Sept. 20, 2006)

Sears Canada axes dividend
(Sept. 20, 2006)

Sears Holdings seeks to overturn Canada ruling on buyout votes
(Sept. 19, 2006)

Edward Lampert Is in the Hunt
(Sept. 19, 2006)

Allstate insider to be CEO
(Sept. 19, 2006)

Sears is dealt setback in Canada
(Sept. 19, 2006)

Allstate CEO to step down
(Sept. 19, 2006)

Sears spots need to fire up branding iron
(Sept. 18, 2006)

Allstate's Liddy To Resign As CEO At End-'06
(Sept. 18, 2006)

Next Allstate CEO doesn't plan big changes
(Sept. 18, 2006)

Sears' Position as Home Appliance King Threatened
(Sept. 17, 2006)

IKS wins bid for Sears Tower kiosk
(Sept. 15, 2006)

Kmart Looks to Build Business with Power Tools
(Sept. 15, 2006)

The Tools for Change
(Sept. 15, 2006)

Sears to Stock Craftsman in All Kmarts
(Sept. 14, 2006)

Wal-Mart Stores to Cease Layaway Service
(Sept. 14, 2006)

George Wollenberg, veteran Sears Executive, dies at 95

Eyewitness to Holocaust speaks Sept. 26 at Appalachian
(Sept. 13, 2006)

'Big-box' veto stands
(Sept. 13, 2006)

Medicare Premiums To Rise 5.6% in '07
(Sept. 12, 2006)

Sears Board  Okays Increased Share Repurchase
(Sept. 12, 2006)


Sears Unveils New Fall Advertising
(Sept. 12, 2006)

Daley vetoes big-box wage ordinance
(Sept. 11, 06)

Lampert Lights Up Sears Holdings
(Sept. 11, 2006)

Ron Culp Named Senior Vice President and Managing Director of Ketchum Midwest
(Sept. 11, 2006)

Medicare Costs to Increase for Wealthier Beneficiaries
(Sept. 11, 2006)

Flaws in Jim Cramers' Sears Analysis
(Sept. 8, 2006)

Old Warehouses Reborn As City Centers, Homes, Offices
(Sept. 8, 2006)

To Boost Sales, Wal-Mart Drops One-Size-Fits-All Approach
(Sept. 7, 2006)

Macy's Launches National Advertising, Marketing Campaign
(Sept. 6, 2006)

RealMoney Radio: Sears Will Soar
(Sept. 5, 2006)

Let Wal-Mart Be Wal-Mart
(Sept. 4, 2006)

New concept store on tap for Sears
(Sept. 3, 2006)

Macy's trumps Field's' local designer support
(Sept. 3, 2006)

OSC out of line on Sears, banks say
(Sept. 1, 2006)

Sears Holdings extends buyout offer for Canadian unit
(Aug. 30, 2006)

Mail-order homes a step into history
(Aug. 30, 2006)

Eight Companies Whose Managers
Have Real 'Skin in the Game'

(Aug. 29, 2006)

Pensions Likely to Stay Dying Breed
(Aug. 29, 2006)

Competition grows as brands lose places to hang their wares
(Aug. 29, 2006)

Grand old stores too old, grand
Carsons' flagship no longer destination

(Aug. 27, 2006)

After Smooth Sales Talk, Stores Take Macy’s Name
(Aug. 26, 2006)

One year later -
Beyond the merger
Kmart, Sears stores still struggling to find niche

(August 26, 2006)

Vera Wang to design line just for Kohl's
(August 25, 2006)

Federated Elects Mark Cosby as Senior Vice President
(August 25, 2006)

Penneys to bring new format to Chicago area
(Aug. 23, 2006)

New Lands' End shop to drop anchor in Loop
(Aug. 23, 2006)

Swiping at Industry From Atop the Stump
(August 20, 2006)

RadioShack president, COO to resign
(August 18, 2006)

More of the Same at Sears, Except...
(August 18, 2006)


Spree in store for Sears?
(August 18, 2006)

Sears shopping around
(August 18, 2006)

Sears Looks for Acquisitions As Cost Cuts Lift Profit 83%
(August 18, 2006)

Sears Holdings to appeal OSC decision in Ontario Divisional Court on Sept. 18
(Aug. 17, 2006)

Is Sears the K.K.R. of Retail?
(August 17, 2006)

Sears Holdings to appeal OSC decision in Ontario Divisional Court on Sept. 18
(August 17, 2006)

Pershing Square sells shares in McDonald's, stake in Sears
(August 17, 2006)

Sears stock falls as CEO talks acquisitions
(August 17, 2006)


Sears Holdings Second-Quarter Net Income Rises on Spending Cuts
(Aug. 17, 2006)

When It Comes to Free Shipping, One Size Doesn't Fit All Sites
(Aug. 16, 2006)

Sears, Roebuck and The Long Tail(Aug. 16, 2006)
 
Ears for Sears

(Aug. 14, 2006)

Former Sears officer takes new post
(Aug. 14, 2006)


What You Need To Know About Pension Changes
(Aug. 15, 2006)

Ex-Wal-Mart Official Gets Home Confinement Sentence
(Aug. 11, 2006)


J.C. Penney's Net Income Rises on Women's Accessories

(Aug. 10, 2006)


Lampert may have lost the hand, but still holds all the cards
(Aug. 9, 2006)


Sears Holdings smacked by OSC ruling
(Aug. 8, 2006)


Sears Holdings Bid For Canadian Division
Hits Regulatory Snag

(Aug. 8, 2006)

Lampert blocked by Regulator on Sears Camada Purchase
(Aug. 8, 2006)

'We have incidents every day'
(Aug. 8, 2006)

Regulator delays Sears buyout of Canadian unit
(Aug. 8, 2006)

Wal-Mart Alters Pay Structure
(Aug. 7, 2006)

Allstate Speaks for Insurance Industry
(Aug. 3, 2006)

Coke Enterprises names Greg Lee
to senior HR post

(Aug. 2, 2006)

Sears New Financial Chief To Get $600,000 Salary
(Aug. 1, 2006)

The End of Retirement
(Aug. 1, 2006)

 

Breaking News
August  2006 - September  2006

More Choices for Medicare
New, Fine-Tuned Drug Plans Aim to Lower Costs,

Expand Coverage

By Jane Zhang and Vanessa Fuhrmans – Wall Street Journal
September 30, 2006;

WASHINGTON -- The number of companies offering nationwide Medicare prescription-drug plans will increase to 17 next year from nine this year, and more plans will feature zero deductibles and coverage in a gap commonly called the "doughnut hole," federal officials said.

Insurers are permitted to begin advertising their plans Sunday. Enrollment begins Nov. 15 and runs through the end of the year, with the new coverage beginning Jan. 1.

Officials at the Centers for Medicare and Medicaid Services said that beneficiaries who are satisfied with their current Medicare prescription-drug coverage won't have to take any action. But even if they opt to remain in the same plans, they may see changes in their co-payments, premiums and list of covered drugs.

The average premium will remain about $24 a month, about the same as this year, and the lowest will be around $10, up from about $2 this year, according to Medicare. Officials added that more than 80% of seniors will have access to plans with premiums lower than they are paying this year, and that more plans will offer more comprehensive coverage, including coverage in the "doughnut hole."

In 2007, that coverage gap begins after the federally subsidized drug plan and the beneficiary have spent $2,400 on drugs. At that point, a beneficiary must pay 100% of costs until he or she has spent a total of $3,850 out of pocket. Then the federal subsidy resumes, paying 95% of any additional drug purchases.=

"As a result of robust competition and smart choices by seniors, plans are adding drugs, removing options that were not popular and providing more options with enhanced coverage," said Mark McClellan, CMS administrator.

The new offerings will unlikely change the nature of the market, where the 10 largest insurance companies already have 80% of the market, said Dan Mendelson, president of Avalere Health LLC, a health-care consulting firm in Washington. "You have a vibrant market," he said.

Avalere estimated that beneficiaries in most states will have about 15 or 16 choices of plans that cover drugs in the "doughnut hole," with most of the plans covering only generic drugs.

But some advocacy groups such as Families USA worry that more choices, a shorter enrollment period and changes in plans will confuse seniors even more than this year, when they had six months to make up their minds.

Company by company, the changes in plans and prices reflect lessons learned in the first year of the drug benefit. Many of the more-expensive plans in 2006 have come down in price to compete with the low-cost options that helped Humana Inc. sign up 3.5 million members for its drug plans this year -- second only to UnitedHealth Group Inc. Premiums for Aetna Inc.'s drug benefit plans, for instance, will fall by between 5% and 13%. Its lowest-cost plan will be $24.80 a month, compared with $27.50 for its lowest-cost plan this year.

Meanwhile, some of Humana's premiums -- though still the lowest to be had in 38 states -- have climbed higher. Its most basic option costs an average $15.34, $5.29 more than this year, while its more-enhanced version -- which covers the benefit's initial $265 deductible and requires beneficiaries to pay a flat co-payment rather than a percentage of a prescription's price -- will cost an average $22.02, $6.11 more than this year.

Cigna Corp. has lowered the cost of its most basic plan by roughly 30%, to an average $24, and spruced it up by making generics free. Its middle-range plan costs an average $33, down 18%, while its high-end plan costs an average $43, down 10%.

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Medicare Releases 2007 Drug Plans Available in Each State
September 29, 2006

Links below will take readers to their state plans available for enrollment Nov. 15

 – The Medicare drug programs available for 2007 in each state were released today by the Centers for Medicare and Medicaid Services. Check the link in the sidebar on this page to find the information for your state. Open enrollment begins November 15. Those satisfied with their current plans do not have to take any action but CMS says in 2007 there are new options with lowers costs and more comprehensive coverage.

The monthly premium beneficiaries will pay in 2007 will average $24 if they stay in their current plan -- about the same as in 2006, says Medicare.

While some people will see an increase in their current plan premiums, they have the option to switch plans. Nationally, 83 percent of beneficiaries will have access to plans with premiums lower than they are paying this year, and beneficiaries will also have access to plans with premiums of less than $20 a month.

Beneficiaries will have more plan options that offer enhanced coverage, including zero deductibles and coverage in the gap for both generics and preferred brand name drugs. Plans are adding drugs to their formularies.

Nationwide the average number of drugs included on a plan formulary will increase by approximately 13 percent, and plans will also use utilization management tools at a lower rate.

There will also be new tools from Medicare to help beneficiaries make a choice.

Surveys, according to CMS, consistently show over 80 percent of Medicare beneficiaries are satisfied with their current coverage and drug plans. As a result of the Medicare prescription drug benefit, more than 38 million seniors and people with disabilities now have some form of drug coverage.

"The Medicare prescription drug benefit, passed by Congress and signed into law by the President, is saving seniors an average of $1,200 a year, and it just keeps getting better," HHS Secretary Mike Leavitt said. "In 2007, there will be more plans with coverage in the gap, more drugs covered, and more help from Medicare in choosing the plan that's best for you."

During the 2007 bidding process, strong competitive pressure resulted in bids (costs of coverage) that average 10 percent less than in 2006. According to guidance from the CMS, each drug plan or health plan needed to show meaningful variation in their plan choices, including only two basic coverage options per region.

CMS also encouraged plans to offer a third option only if it included enhanced benefits, such as providing coverage in the coverage gap ("donut hole") or covering excluded drugs.

"With next year's drug coverage, we want to build on the high level of beneficiary satisfaction in 2006 by strengthening the drug benefit in key ways," said CMS Administrator Mark B. McClellan. M.D., Ph.D. "As a result of robust competition and smart choices by seniors, plans are adding drugs, removing options that were not popular, and providing more options with enhanced coverage."

"If you're satisfied with your coverage, you do not have to do anything during the Open Enrollment period. If you are considering a change, Medicare has new tools to help," McClellan said.

Across the country, nearly all beneficiaries enrolled in Medicare prescription drug plans will be able to remain in the plan in which they enrolled for 2006, since almost all Part D sponsors are either continuing their current plans in 2007 or streamlining and consolidating their 2006 plans, CMS reports.

They will be able to choose from plans that offer enhanced benefits or services, such as coverage in the gap and little or no deductible. Beneficiaries will have a wide range of plans that have zero deductibles, some of which also offer other enhanced benefits. There are also options that cover generics and preferred brand name drugs through the coverage gap for as low as $38.70, and generally for under $50.

Beneficiaries with limited incomes who qualify for the extra help will have a range of options available for comprehensive coverage. Beneficiaries who qualify for the full Medicare subsidy will pay no premiums or deductibles in these plans. Nationally, over 95 percent of low income beneficiaries will not need to change plans to continue to receive this coverage for a zero premium.

There are eight new national organizations offering drug plans to beneficiaries, in addition to the nine national organizations that were available in 2006. The list of national plans can be found at <http://www.medicare.gov/medicarereform/local-plans-2007.asp> .

Medicare Advantage
In general, CMS says, beneficiaries will also have greater access to Medicare Advantage health plans next year, generally with lower costs for drug coverage.

These plans offer an opportunity for additional benefits beyond those covered in the original Medicare program, with savings that average around $82 a month for hospital and physician benefits.

Important Dates
• October 1: Plans begin marketing
• Mid-October: 2007 Plan Data and enhanced Plan Finder available
• October 31: Annual Notice of Change (ANOC) and Medicare & You Handbook
   must be in the mail to beneficiaries
• November 15th: Open Enrollment Begins
• December 8th: Optimum Date for Early Enrollment to Ensure Timely Processing
• December 31st: Open Enrollment Ends

In addition to these savings, Medicare Advantage plans provide overall care coordination, and more effective use of drugs that lead to savings in other health care costs. As a result, the cost of drug coverage in Medicare Advantage plans is about $6 a month lower on average nationally in 2007 than in 2006. In addition, most beneficiaries will have access to plans that provide basic drug coverage for $0, and many will have access to plans that also provide coverage in the gap for $0.

In addition to prescription drug plans, Medicare beneficiaries in 39 states will have access to the first Medical Savings Account plans and related consumer-directed plans ever available in Medicare. These plans provide Medicare beneficiaries with more control over their health care utilization and health care costs, while providing them with important coverage against catastrophic health care costs.

Beneficiaries who want to consider other options will have access to help from many sources in the fall including:

● A notice of any coverage changes from their drug plan, coming at the end of October;

● The enhanced Medicare Drug Plan Finder will be available in mid- October;

● 1-800-Medicare (1-800-633-4227) which will be available 24/7;

● The Medicare & You 2007 handbook, the annual handbook that explains Medicare coverage, which beneficiaries will receive in October; and

● Local organizations such as the State Health Insurance Assistance Programs (SHIPs) and thousands of other Medicare partner organizations that will provide personalized assistance throughout the fall.

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Companies to pitch cheaper Medicare drug plans
By Lisa Richwine - Reuters
September 29, 2006

WASHINGTON (Reuters) - Companies that provide Medicare prescription drug coverage will offer most seniors cheaper options for 2007 during an enrollment period next month, U.S. officials said on Friday.

More than 80 percent of Medicare patients will be able to switch to plans with lower monthly premiums if they choose, the Centers for Medicare & Medicaid Services (CMS) said.

Average premiums will remain at about $24 a month, CMS said. Co-payments, deductibles and the drugs that are covered vary with each plan.

Medicare is the federal health insurance program that covers 42 million elderly and disabled Americans. Signing up for prescription drug benefits, which started in 2006, is optional.

The companies that offer Medicare drug plans include Aetna Inc., Cigna Corp., Caremark Rx Inc., Wellpoint Inc., and UnitedHealth Group.

Officials stressed that patients who are happy with their current coverage can stay with it without taking any action. Others who want to sign up for drug benefits or change plans can do so during an enrollment period from November 15 to December 31.

Some companies are raising premiums on current plans, and those seniors could switch to another option, CMS Administrator Mark McClellan said.

"We expect most (patients) will not want to change, but we do encourage seniors to compare their current plans with the new offerings," McClellan told reporters.

Many seniors will have dozens of options available in their states. Critics say the large number of choices are confusing.

McClellan said companies were offering fewer basic plans but more alternatives with expanded coverage.

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Sears joins CPSC reporting program
United Press International
September 29, 2006

WASHINGTON, Sept. 29 (UPI) -- Sears Holdings Corp. has joined a voluntary reporting program developed for retailers by the U.S. Consumer Product Safety Commission.

Sears Holdings, the nation's third largest broadline retailer and operator of Kmart stores, joins Wal-Mart as a participant in the program. Wal-Mart has been in the program since October 2004, the CPSC said in a news release Friday.

Participating retailers agree to provide CPSC with regular weekly reports of safety related information. The retailer analyzes and identifies incidents that involve serious injuries or hazards. The retailer simultaneously provides the same safety information to the manufacturer or supplier of the product. Retailers report within 24 hours to the CPSC if they learn of an incident that results in a death or if a product is withdrawn from the market for safety reasons.

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Ratings agency downgrades bonds of Sears Tower
By Susan Diesenhouse - Staff Reporter – Chicago Tribune
September 28, 2006

As the Sears Tower, the nation's tallest skyscraper, grapples with leasing its available space, the credit rating on its $600 million mortgage was downgraded on Tuesday.

Ratings agency Standard & Poor's downgraded the bonds backed by the building's mortgage loan issued by Bank of America in April 2004. The tower's credit rating has fallen as its financial performance has declined since 2004, said John Kemp, a director at S&P. Some blame lingering concerns after the Sept. 11, 2001, attacks, while others point to the difficulty the building is having as an older property competing with new buildings.

While property credit ratings can change from time to time, this case stands out.

"It's a notable asset," Kemp said of the 110-story skyscraper. It is also unique because of "the size of the loan, the size of the property and its location in downtown Chicago."

"The building has been underoccupied and the rents being garnered are a few dollars below the market," Kemp said in an interview. Rent discounts and other landlord concessions have eased recently but, added Kemp, "Concessions are still being offered."

With about 3.8 million square feet of rentable space, approximately 21.3 percent is available for lease, according to CoStar Group Inc., a real estate research firm. Such a vacancy rate is substantial in the downtown market.The eight classes of bonds for Sears Tower were downgraded to levels ranging from A+ to BB, S&P stated. Five classes are in the BBB+ to BB range.

The downgrading does not, however, indicate that the tower's mortgage loan is in default at this time. But a lesser credit rating could lead to more onerous terms should Sears Tower owners refinance the property as they told S&P they intend to do, Kemp said.

Two years ago a group of New York entrepreneurs including Joseph Chetrit and Jeffrey Feil purchased the building for $835 million. Another group member, John Huston, said Wednesday in a written statement that Sears Tower is suffering like other existing office buildings in the West Loop.

"An increased supply of space from newly constructed office buildings and sagging demand have contributed to tougher leasing conditions," he wrote.

Huston, who stated his confidence in the property as an investment, added, "Rising interest rates have also increased mortgage debt costs for the building."

In some ways the landmark structure may well be suffering from its own notoriety as an American icon in the wake of the 2001 attacks.

"More than any other building in the city, 9/11 had an impact on the tower and the public's perception of it, and since then it's struggled to attract new tenants," said Earl Webb, chief executive officer of capital markets at Jones Lang LaSalle Inc.

While Sears Tower has attracted some new tenants and some existing ones have increased their space, discounted rents probably mean "the cash flow is less than the lender had projected when it extended the loan," said Webb.

While it's known in the real estate community here that Sears' owners have been seeking refinancing on their mortgage loan, this credit downgrade would typically mean that if they secure additional funds, "they'll have to pay more," said Webb, who views the S&P move as an "adjustment," not a "collapse."

The property, built in 1973, was renovated 20 years later and has other upgrades under way but is old. It is apparently having a difficult time competing with the new office buildings still opening in a downtown where about 16 percent of the space is available for lease or sublease and rents are still weak. It isn't easy for the Sears Tower to lure the 100,000-square-foot-plus tenants.

As Harvey Camins, president and chief executive of the brokerage Camins Tomasz Kritt, said, "It is an older building and prime prospects for larger space are opting for newer buildings with more modern systems."

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AutoZone says director Lampert will vacate seat
REUTERS.COM
September 27, 2006

LOS ANGELES - Reuters - AutoZone Inc. , the largest U.S. auto parts chain, on Wednesday said Edward Lampert, chairman and chief executive of ESL Investments Inc. and chairman of Sears Holdings Corp., will not be standing for re-election to the AutoZone board.

AutoZone said Lampert will not run again in order to devote more time to his duties at ESL and Sears Holdings.

AutoZone's board has nominated Theodore Ullyot, executive vice president and general counsel of ESL, to fill the seat.

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Sears fills marketing exec gap
at Lands' End
By Sandra Jones – Chicago Tribune – Inside Retailing
September 26, 2006

Sears Holdings Corp. tapped a former Gap Inc. executive to help revive Lands' End.

The Hoffman Estates-based retailer is expected to announce Tuesday that it hired Gerard Cunningham, former vice president of operating strategy at Gap, as chief marketing officer of Lands' End. Cunningham is charged with bringing "fresh direction" to the 43-year-old traditional sportswear line.

The Dodgeville, Wis.-based direct merchant, best known for basic khakis and oxford shirts, has struggled since Sears bought it in 2002 for $1.8 billion. Sears has had a tough time fitting the upscale Lands' End merchandise into Sears' low-priced clothing strategy.

Cunningham, 42, has been hired to build the brand and reach a broader audience. He specializes in analyzing and measuring how customers experience a retailer, its merchandise and its service.

It was widely believed last year when billionaire Edward Lampert combined Sears, Roebuck and Co. and Kmart Holding Corp. that he would sell Lands' End. Instead, Lampert said Lands' End wasn't for sale, and he focused on improving the business by cutting costs, eliminating jobs and shaking up management.

"A lot of people thought they would sell it, which clearly they haven't done," said Neil Stern, senior partner at Chicago-based McMillan/Doolittle LLP. "When the company was forced to integrate with Sears, not only did it not work, but they lost their focus on being a great direct marketer. They have to get that back. It's still a really strong brand."

In 2003, Lands' End clothing, shoes and home goods were rolled out to more than 800 Sears stores with the notion the products would draw catalog shoppers into stores. But Lands' End got lost among Sears' cluttered displays, and Lands' End's relatively high prices confused shoppers accustomed to markdowns.

Sears has since experimented with ways to get consumers' attention, opening 25 Lands' End shops inside Sears stores and expanding into lingerie.

Cunningham replaces Ed Whitehead, who left this year after less than two years in the post, and reports to David McCreight, who was elevated to president when Sears Chairman Lampert took direct control of Lands' End. McCreight joined Lands' End in 2003 as chief merchant after stints at Disney Stores Worldwide and Smith & Hawken.

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Seeking Expansion in Urban Areas,
Wal-Mart Stores Gets Cold Shoulder

By Kris Hudson and Gary McWilliams – Wall Street Journal
September 25, 2006

Cities like Boston might be the best hope for Wal-Mart Stores Inc. to grow in the U.S. For the retail giant, that's a problem.

Last year, Wal-Mart's discussions about opening its first store here, in retail space that was soon to be vacated, spurred public outcry. The retailer eventually dropped its pursuit of the property. "Wal-Mart does not suit the clientele we have in the city of Boston," says Mayor Thomas Menino, explaining his opposition. "They don't pay wages that are sufficient. Their benefit structure is poor. I don't need employers like that in our city."

Mayor Menino has no such qualms about trendier rival Target Corp., which he has been actively recruiting. "It's a different image they have in how they market their product and the appearance of their stores," he says. "That's a lot to do with it, the image of the store."

For years, Wal-Mart, of Bentonville, Ark., thrived in rural and suburban America where land was cheap and local governments didn't interfere. Now Wal-Mart is trying to break into the last areas of the country where it isn't dominant, and the going is tough.

Wal-Mart is used to opposition, but these antagonists are tougher and better organized than earlier breeds. In the Northeast and America's big urban centers, they've augmented a traditional anti-Wal-Mart message with something more potent: an appeal to urban cultural values. Here, Wal-Mart is a metaphor for the worst of middlebrow America.

After missing out in Boston, the company lost a two-year fight to open in Leominster, in central Massachusetts. Some of the same antagonists are now organizing to block Wal-Mart in adjacent Lancaster.

Officials in Miami prevented Wal-Mart from locating a store amid a 55-acre midtown redevelopment project, on the grounds that its sprawling, suburban aesthetics and low-end appeal didn't conform to the city's architectural and social vision for the project.

"I feel bad for Wal-Mart, but that's their image," says Johnny Winton, the former Miami commissioner who helped plan the project.

Wal-Mart, which responded in writing for this article, says it's committed to starting stores in urban markets and that many towns welcome the resulting jobs and tax revenue. "We know that customers want what we have to offer," the company says in a written statement. "In the end, the customer should have the opportunity to decide where to shop."

Behind Wal-Mart's push into this inhospitable terrain is the onset of middle-age. The company reported a 9.5% increase in annual sales last year, falling short of the double-digit pace it set in nearly all of its 34-year history as a public company. Sales growth at stores open at least a year slowed to a 3.4% gain, far from their 10-year high of 9%, a record reached in 1999.

It faces this challenge both in the U.S. and abroad. Wal-Mart grew into the world's largest retailer by relentlessly cutting prices, putting local retailers out of business while passing on savings to consumers. The company is a powerhouse in Mexico -- where it's the top retailer -- and it's surging in South America, Central America and Canada. Yet Wal-Mart's international operations account for just 22% of its overall sales, and the retailer has found itself hindered in some countries.

Hit by stiff competition from cut-rate retailers, strong unions and labor restrictions, Wal-Mart recently withdrew from Germany after eight rough years, taking a $1 billion charge in the process. In China, Wal-Mart has only 64 stores, or one for every 20 million Chinese. Its expansion, which includes plans for another 18 to 20 stores this year, is subject to the whims of China's Communist Party.

Last year, Wal-Mart applied to open a specialized bank in Utah, pledging to use it for credit-card transactions and accepting deposits from charities, not to open branch banks. That didn't forestall an outcry from critics, bankers and politicians, and in July the Federal Deposit Insurance Corp. imposed a six-month moratorium on such applications.

To jump-start sales in the U.S., the company has begun revamping the merchandise and layouts of existing stores to appeal to specific groups, such as African-Americans and Hispanics. It is stocking trendier items such as organic food and designer décor. The move represents a risky departure from the company's successful one-size-fits-all strategy.

Investors are skeptical whether Wal-Mart can continue to rely on U.S. expansion to sustain its growth. Wal-Mart's shares trade at 16.6 times projected earnings, below the ratios notched by rivals Target Corp. and Sears Holdings Corp.

Some on Wall Street would prefer the company tap the brakes on its building plans. New urban stores cost a lot to build and operate, and might not be as successful as other areas, at least initially. Due mostly to local resistance, Wal-Mart says it sometimes takes twice as long to plan, construct and open stores in markets such as California compared with a typical time frame of 18 to 24 months.

Wal-Mart dominates rural America, with 45% of its stores located in rural and semi-rural counties, according to market researcher ACNielsen. The retailer is acting to correct the imbalance: In the 12 months since July 2005, two-thirds of the stores opened by Wal-Mart have been in urban or semi-urban areas, ACNielsen says. Wal-Mart won't provide information about future store openings.

Yet sales gains at new stores, located mostly in urban areas, are lower this year than last, indicating that urban shoppers might be turning up their noses. Joanne Dudevoir, 53, a computer specialist for the Defense Department in Boston, dismisses the company with a wave of her hand. "I don't do Wal-Mart. There's nothing there I need to shop for."

Wal-Mart says it will prosper even in challenging markets if it serves customers well. The company adds that it has a "very disciplined approach" to building new stores. Wal-Mart is on track to expand its square footage in the U.S. this year by 8%, its average over the past six years, adding the equivalent of nearly 40 regional malls. Wal-Mart executives said in June that the retailer has plans for at least another 1,400 U.S. stores, but it has not announced a time frame in which all will be built.

"With more than 3,900 stores and clubs in the U.S., we represent a small number of retail outlets in the United States and a much smaller percentage internationally," the company says. "We see continued opportunity for growth and we are committed to that growth."

Community opposition to Wal-Marts dates back to the early 1970s, when Vermont passed a law requiring regional planning commissions to consider the environmental and economic impact of large developments.

Opposition has grown more organized in recent years as nonunion Wal-Mart advanced on union strongholds. In California, Wal-Mart's pledge to open 40 supercenters -- massive stores offering general merchandise and groceries -- precipitated a four-month strike of grocery unions in 2003 as rival chains sought to cut labor costs to compete. A year later, Wal-Mart suffered a setback when voters in the Los Angeles suburb of Inglewood decided by a three-to-two margin to reject a proposed Wal-Mart store.

Wal-Mart officials characterize Inglewood as an anomaly, noting that they have won 32 of 39 such public votes during the past two years. The majority of new Wal-Marts face little or no opposition, they say.

Today, politicians and residents use a variety of snares and roadblocks to slow the giant's advance. Recently, the Institute for Self-Reliance, a community activist group based in Washington, D.C., launched a Web site -- www.bigboxtoolkit.com -- where Wal-Mart opponents can gather data to use in public speeches and letters. The organization has helped 30 towns adopt ordinances to block big retailers and advised about 100 others.

The institute supports what it calls "sustainable communities," or those that grow using their own environmental and economic resources. It opposes big retailers, contending they take more from communities than they contribute.

In New York City, which has no Wal-Mart, the company's opponents helped kill proposed stores in Queens and Staten Island. In February, the city council approved plans for a retail center near Yankee Stadium with a proviso that only retailers already operating in the city could locate there. Translation: Wal-Mart need not apply.

Wal-Mart has won some victories on the urban battlefield. In 2004, it won approval to open its first store in Chicago, in a depressed neighborhood on the West Side, which is set to open later this month. The city's alderman responded by passing a law mandating that big retailers pay employees an hourly wage of at least $10 and health-care benefits equivalent to at least $3 an hour.

Chicago Mayor Richard Daley vetoed the law earlier this month and persuaded the council to not override his decision. In Maryland, a federal judge recently struck down a law mandating how much money large employers -- effectively meaning Wal-Mart -- should spend on workers' health-care coverage.

The retailer has had no such luck in Massachusetts, a state that is urbanized, educated and liberal. Wal-Mart operates 47 stores there, as opposed to 106 in Oklahoma, a state with roughly half the population of Massachusetts. In the Bay State, films such as the anti-Wal-Mart documentary, "Wal-Mart: The High Cost of Low Price," are regularly shown in college halls and independent theaters.

Anthony Citrano, a 36-year-old tech entrepreneur who lives in South Boston, describes the company as a "weed" that "drains the life out of other plants" and as a symbol of America's "unsustainable way of living." Mr. Citrano argues that Wal-Mart is a business that grew in an era of cheap oil, which he says is coming to an end.

After Boston Mayor Menino last year pronounced Wal-Mart persona non grata, five Maine towns and the neighboring city of Cambridge put store-size restrictions in place that effectively barred Wal-Mart. Several of the moves were triggered by a mere rumor of Wal-Mart interest.

In central Massachusetts, Wal-Mart's nemesis is businessman Arthur P. DiGeronimo Jr., known as Jay. Mr. DiGeronimo, 54, is a native of Leominster, a city of 41,000 in the rolling hills of central Massachusetts. Business-savvy and well-spoken, he is a community fixture, having run a grocery-store chain started by his Italian immigrant family until its sale in 2004. He now owns a sound and video equipment company.

Mr. DiGeronimo says Wal-Mart's arrival will hurt the area's nine grocery stores and half-dozen department stores. Driving through the city in his pickup truck, he argues that Wal-Mart won't improve residents' well-being. "It is a question of the quality of life that's become important for a lot of communities," he says.

Mr. DiGeronimo developed his anti-Wal-Mart fervor while running his family's grocery store chain. "He has difficulty with Wal-Mart's method of operation and how they treat their help," says Robert Capobianco, an attorney who has worked for DiGeronimo companies since 1968.

In 2003, Mr. DiGeronimo tapped Mr. Capobianco to represent residents in their fight to stop a proposed 24-hour Wal-Mart in Leominster. They filed a suit against the developer and the city alleging, among other things, that the city didn't adhere to its own application procedures. After two years of wrangling, the defendants agreed to restrictions that in effect shut out Wal-Mart.

During that fight, Mr. DiGeronimo hired anti-Wal-Mart activist Al Norman as a consultant. He had heard about Mr. Norman from a DiGeronimo company manager, who had attended a seminar about how to fight Wal-Mart that was sponsored by one of its wholesaler competitors.

Mr. Norman, a health-care worker, turned a 1993 campaign against a Wal-Mart in his Greenfield, Mass. home into a second career. He recently traveled to Japan to advise a group there. "My fifth international gig," he says.

Wal-Mart's push into communities like Leominster has spawned a tenacious opposition, Mr. Norman says. "What used to be a two or three month turnaround [to get a store approved] can turn into a two-year turnaround and sometimes longer," he says.

Messrs. Norman and DiGeronimo rejoined forces this year after Wal-Mart returned from its Leominster defeat with a 200,000-square-foot store proposal in Lancaster, a neighboring town of 7,400. Patrice Harvey, a mother of two small children, called Mr. DiGeronimo for advice.

Ms. Harvey and her husband John, both 35, didn't actively oppose the Leominster store plan, even though their house is technically within city limits. The second site, by contrast, is directly across from their home. Ms. Harvey says she used to shop at Wal-Mart when her children were small but stopped after encountering Wal-Mart critiques, such as the documentary, "Is Wal-Mart Good for America?" Wal-Mart "doesn't fit the character of the town," Ms. Harvey says.

Wal-Mart says the type of opposition it faces in Massachusetts isn't affecting its plans. "We believe that the customers want to decide for themselves where they work and shop, as opposed to having those decisions made for them by special interest groups with ulterior motives," the company says.

Under Mr. DiGeronimo's guidance, Ms. Harvey put together a group of about a dozen residents who meet at a different member's house each week. The group includes a university computer manager, a software-company office manager and two local businessmen.

Mr. DiGeronimo has been attending the group's meetings where he offers advice. Whenever the discussion veers into Wal-Mart's environmental record or health care practices, he steers it back to local issues: "water, sewer, wetlands and traffic. Those are the only pressure points that can be brought" to bear on town officials, he says he tells them.

He adds: "That seemed to work in Leominster and is working here."

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Millions of Seniors Facing Medicare 'Doughnut Hole'
By Christopher Lee and Susan Levine - Washington Post Staff Writers
September 25, 2006

Millions of older Americans are confronting a temporary break in their Medicare drug coverage this month that will require them to pay the full cost of their prescriptions or face the painful prospect of going without.

This is the "doughnut hole" in the new Medicare drug benefit that began in January, and advocates for seniors say there is nothing sweet about it. Some seniors knew nothing of the coverage gap until they were hit with a bigger drug bill, advocates say.

"Virtually everyone who calls to say they've been denied coverage, they're shocked," said Robert M. Hayes, president of the Medicare Rights Center, a nonprofit that helps seniors navigate Medicare. "Trying to explain that this is the way the program was created by Congress angers folks who think it makes no sense. Many people feel blindsided."

The coverage gap was one of the most contentious elements of the 2003 legislation that created the new benefit. It ends federal payments for a person's drug purchases once an annual spending limit is reached, resuming them only after the beneficiary has spent thousands of dollars out of pocket.

Proponents saw the unusual setup as a way to provide some help to all beneficiaries, and substantial help to those with catastrophic drug costs, and yet not break the bank in a federal program that is expected to cost hundreds of billions of dollars over the next decade.

Nine months into the program, as more and more seniors reach the threshold that puts them in the gap, many see it as a headache -- or worse.

Frances Acanfora, 65, had been paying $58 for a three-month supply of her five medications. But this month the retired school lunchroom aide learned that her next bill would be $1,294. She had entered the doughnut hole.

"It's not my fault that I take this medicine," the Brooklyn resident said. "I've got to take it. And they make a limit. That's not fair."

After talking to her doctor, Acanfora decided to temporarily stop taking a drug as part of her treatment for breast cancer. She hopes to obtain some free samples of eye drops for her glaucoma. Three other medicines -- for high cholesterol, diabetes and osteoporosis -- cost $506.62, which Acanfora put on her credit card.

"I pay a little bit at a time," she said. "What am I going to do? I need it. . . . Sometimes, just to think about it, I cry."

About 3 million of the 23 million Americans who receive the Medicare drug benefit are expected to reach the gap this year, officials said. That is fewer than half the 7 million cited in a 2004 report by the nonprofit Kaiser Family Foundation, which Medicare chief Mark B. McClellan called outdated.

A few more-expensive plans have no doughnut hole, and low-income beneficiaries can receive extra help from Medicare that eliminates the gap. Under the standard plan, however, the government picks up the bulk of drug costs only until the beneficiary and the government together have spent $2,250 for the year. At that point, beneficiaries must pay 100 percent of costs until they have spent a total of $3,600 of their own money. Then the federal subsidy resumes, paying 95 percent of any additional expenses.

Beneficiaries must continue to pay premiums averaging $24 a month, even in months when they are on their own. The calculation starts anew every year.

At Iona Senior Services in the District, Chris DeYoung's phone keeps ringing. On the other end are Medicare beneficiaries who have suddenly fallen into the gap and are looking for ways to climb out. DeYoung, Iona's community outreach coordinator, has only a few tips: mail-order pharmacies, diligent comparison shopping, purchases from Canada.

"For most of them, they're not going to get out of it this year," he said. "I don't think everyone really appreciated the doughnut hole, or they thought it'd be narrower than it is."

Georgetown retiree Maria Laurence, who says she selected an AARP-affiliated drug plan without doing much research, now pays "a fortune" for nearly half a dozen prescriptions. One drug went from about $84 for a three-month supply to $670.56 -- more than $7 per pill.

"It was such a shock. I had no idea," she said. "It's just a hard pill to swallow, no pun intended."

Even with the doughnut hole, most beneficiaries are better off financially than they were before the drug benefit was created, when many seniors had to fend for themselves all year long.

McClellan said seniors in the coverage gap should continue to use their Medicare drug cards to get the prices negotiated by their plans. They also can apply for prescription-assistance programs run by many states and pharmaceutical companies, he said. And they can call Medicare at 800-633-4227 for information and help.

"There are lots of places to go to get lower-priced drugs, to get additional help with your drug costs," he said.

Mark Merritt, president of the Pharmaceutical Care Management Association, stressed that the majority of seniors will not reach the gap. Many who will could delay it by more than two months by switching to generic drugs and using mail-order pharmacies, he said.

"There's been a lot of hand-wringing about it and very little information about what people can do to stay out of it," said Merritt, whose organization represents companies that administer drug benefit programs for employers and health insurance carriers.

Another thing seniors can do is choose their drug plans more carefully for 2007 when the open enrollment period begins Nov. 15. Susan Knight, director of the Senior Health Insurance Program in Anne Arundel County, said she and other workers will begin visiting centers and programs for seniors next month, the start of what is likely to be another major marketing season for companies offering prescription coverage.

Many Democrats in Congress, long critical of the gap, are not waiting until then. They dubbed last Friday "doughnut hole day," saying it was when the average Medicare beneficiary would reach the gap. They and their supporters criticized the policy at dozens of events last week, airing grievances from seniors in public forums and delivering edible doughnut holes to the office of at least one House Republican.

"This gap does not have to exist," said Sen. Debbie Stabenow (D-Mich.).

Clarice Wansley, 67, a retired county administrator who lives in Hattiesburg, Miss., fell into the doughnut hole in June. Her drug bills went from $184 a month to $387 for the eight medications she takes for cancer, heart trouble, seizures and other ailments, she said.

She paid on her own for the past few months, but recently her doctor told her she needed yet another drug, one that costs $239 a month. Now she doesn't know what to do.

"I'm not destitute, but I can't pay that and buy gasoline and food and pay the mortgage," Wansley said. "I'm scrambling around trying to find help."

Dan Wojehowski, 47, of Smyrna, N.Y., takes six drugs for disabling depression and severe back problems. Last year he was able to get five of them free through drug companies' patient-assistance programs. But when the Medicare benefit started, many of those programs sent people there instead. Wojehowski began paying $53 a month for most of his drugs. Next month, his first in the doughnut hole, he will have to pay $341.

Wojehowski, who knew about the gap, plans to continue with two medications but not the others.

"I just can't afford to buy them," he said. "Every time somebody in Washington says what a wonderful benefit this is, I think they have to look a little closer."

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Pay By Touch appoints former Home Depot exec
Costello as president

September 25, 2006

Pay By Touch, the leader in integrated biometric authentication, personalised marketing and payment solutions, today announced that John Costello, former Executive Vice President of Merchandising and Marketing for The Home Depot, has joined the company as President, Consumer and Retail. Costello will report directly to John Rogers, Founder, Chairman and CEO, and will take a seat on Pay By Touch's Board of Directors.

Costello brings more than 25 years of general management, retail and technology leadership to Pay By Touch. In his new role, he will work closely with John Rogers and John Morris, Pay By Touch's President and COO, to lead the company's biometric authentication and payment services, while also spearheading its new personalised marketing and online services lines of business.

"Pay By Touch is bringing the power, the privacy and the security of biometrics to everyday life," said John Costello, President, Consumer and Retail, Pay By Touch. "I look forward to working with John Rogers, John Morris and our world class senior management team to address the full extent of that opportunity. Together, we will bring truly personalised marketing and unprecedented ease, speed and convenience to consumers everywhere."

Costello joins a dynamic leadership team that features a unique combination of entrepreneurs and proven veterans from the retail, franchise, financial services, health care and loyalty marketing industries. John Rogers has more than 15 years of experience as a visionary, entrepreneur and manager. Prior to founding Pay By Touch in 2002, he was founder and CEO of eBizWorld.com. John Morris brings more than 23 years of experience in general management and retail technologies from IBM.

Pay By Touch's management team has in-depth experience working with such industry leaders as VISA, MasterCard, Bank of America, First Data Corporation, Concord EFS, McDonalds, Accenture, Siebel Systems and more to bring innovative ideas, products and services to life.

"As a world-class executive with deep retail expertise, John Costello brings proven leadership skills and unparalleled industry knowledge to Pay By Touch," said John Rogers, Pay By Touch's Founder, Chairman and CEO. "We are thrilled to have him on board, underscoring our ability to attract seasoned management as well as our commitment to serving merchants and consumers alike."

John Costello is a well-known and highly respected senior executive. The first half of his career was spent in classic management jobs, with the second half devoted to helping companies manage through high change environments, from start-ups like MVP.com to $80 billion companies like the Home Depot.

As part of this, Costello has been involved in some of the most visible business turnarounds and been associated with some of the most successful marketing campaigns including 'Come See The Softer Side of Sears' and 'You Can Do It. We Can Help.' at The Home Depot.

He was most recently Executive Vice President of Merchandising and Marketing for The Home Depot, where he held responsibilities for the company's merchandising, marketing, advertising, and visual and store merchandising, public affairs, eCommerce and global sourcing, including the Company's sourcing offices in China and Mexico. Costello joined The Home Depot in November 2002 as Executive Vice President & Chief Marketing Officer, and was promoted to assume responsibility for merchandising and global sourcing in August 2003. He led a major transformation of the merchandising, marketing, eCommerce and sourcing operations, and worked with the senior leadership team on long-term growth strategies.

Costello joined The Home Depot from Yahoo! where he served as Chief Global Marketing Officer. At Yahoo!, he worked with the CEO and senior leadership team on many of the strategies that are driving Yahoo's growth today. Prior to Yahoo!, Mr. Costello was President and CEO of MVP.com, the Internet sporting goods and outdoor retailer, which he founded with John Elway, Michael Jordan and Wayne Gretzky. He also served as President and Chief Operating Officer of Nielsen Marketing Research, USA, where he led a major restructuring of Nielsen's product line, customer service model and technology platform.

Costello served as Senior Executive Vice President of Sears from 1993 to 1998, and was a key member of the team that revitalized Sears with the 'Softer Side of Sears' marketing campaign and increased focus on Sears' proprietary brands. He was an early leader of multi-channel retailing, and launched Sears.com and Sears' speciality catalogue business to replace the 'Big Book'. He served as a member of Sears' Executive Committee and on the Board of Directors of Sears Canada.

Costello began his career at Procter & Gamble, where he held a number of senior marketing and brand management positions. He also served as Senior Vice President of Sales and Marketing at Pepsi-Cola, USA. A frequent speaker on industry trends, Costello was named one of the 30 Most Influential People in Marketing by Advertising Age, one of the Top 10 Merchants by DSN Retailing Today and was elected to the Retail Marketing Hall of Fame in 1997. He is a past director of The Quaker Oats Company (NYSE) and The Bombay Company (NYSE), and the Direct Marketing Association, and a current director of the American Film Institute (AFI), the Steppenwolf Theatre, and the Georgia Aquarium. Costello is also a director and past chairman of both The Ad Council and the Association of National Advertisers, and chaired the selection committee for the 2006 inductees into the Advertising Hall of Fame.

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The Return of John Costello
Former Home Depot, Sears Exec Lands at Biometric Company Pay By Touch
By Mya Frazier – Advertising Age
September 25, 2006

COLUMBUS, Ohio (AdAge.com) -- One of marketing's most-watched players, John Costello, has finally resurfaced: as president of consumer and retail at Pay By Touch, a privately held biometric payment company in San Francisco.

Mr. Costello, a former Advertising Age Power Player who has held high-level marketing positions at Yahoo, Sears Roebuck & Co. and, most recently, Home Depot, will report directly to Pay By Touch founder-CEO John Rogers. The 59-year-old Mr. Costello shares the president title with John Morris, who joined the company in May 2005 after 23 years at IBM.

Passed up CEO offers
"I had a number of CEO opportunities, but at the end of the day I became the most excited about a partnership with John Rogers," Mr. Costello said. "I was excited about the potential of Pay By Touch to transform the relationship among consumers, retailers and manufacturers."

Though he declined to name specifics, Mr. Costello said offers came from "retail, consumer products and technology companies," adding: "They are still coming in." Chicago-based recruiting firm Spencer Stuart handled the Pay By Touch search.

Mr. Costello said that he sees mass marketing evolving into one-to-one relationship marketing, where brands seek ways to isolate their most valuable customers -- something he said Pay By Touch is positioned to capitalize on. He said the company's 3 million members eventually could, with a touch of a finger at a kiosk in a grocery store, receive offers tailored specifically to their needs and shopping history.

Although promising, the field of biometric technology and the prospects of Pay By Touch, which employs 700, have many hurdles to overcome before mainstream adoption.

Obstacles to overcome
While the company has several tests in national retailers and operates in 2,400 retail locations, there has yet to be a mass rollout of the technology, and there undoubtedly will be a battle with privacy advocates before that occurs.

And as Pay By Touch brings fingerprint payment-scanners to checkout lanes at leading grocery chains, convenience stores and check-cashing facilities nationwide, Mr. Costello's contacts in the retail and marketing world, including his role as a key player in the Association of National Advertisers, will prove useful.

Mr. Costello's unconventional career track led him to the top marketing ranks of Sears and Yahoo before his nearly three-year stint at Home Depot. He was also president at Nielsen Marketing Research and AutoNation and was CEO of MVP.com, before it folded in the late '90s dot-com bust.

Varied career
That varied career, Mr. Costello said, will serve him well at Pay By Touch. "This job goes back to my days at Yahoo and my days at Nielsen," he said. "I know how to help early-stage companies in an emerging technology space."

Mr. Costello said that in the 14 months since he left Home Depot, he served as an adviser to a number of private equity firms and merchant banks, and recently joined the board of Aspen Marketing Services, a privately held marketing services company known for its direct-marketing work.

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Most Maytag technicians to be offered new jobs
DesMoines Register
September 23, 2006

About 1,000 repair technicians employed by Maytag Corp. before the appliance maker was acquired by rival Whirlpool Corp. will be out of work by January, Whirlpool spokeswoman Jody Lau said Friday.

New jobs? "The vast, vast, vast majority" of the displaced workers, however, will be offered similar positions at an appliance-repair joint venture owned by Whirlpool and retail giant Sears Holdings Corp., Lau said.

Rich history: The Maytag repairman has been depicted in TV commercials for decades as a lonely guy with little to do. He has been played by actors including Jesse White, Hardy Rawls and Gordon Jump.

Restructuring: Whirlpool acquired Newton-based Maytag on March 31 in a deal valued at about $1.79 billion, or $2.6 billion, including the assumption of Maytag's debt. Restructuring plans were not far behind.

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Sears' Martha Muddle
By Nat Worden – Staff Reporter - The Street.com
September 21, 2006

With Martha Stewart running around with his retail competitors, will Ed Lampert be able to salvage his turbulent merchandising marriage to the domestic diva?

Stewart's media empire, Martha Stewart Living Omnimedia (MSO) , announced a deal Wednesday to sell a line of house paints at Lowe's (LOW) called Martha Stewart Colors.

The move marks Stewart's second fling with a retail chain that is a competitor of her longtime partner, Kmart, which is now owned by Lampert's Sears Holdings (SHLD) . Industry sources say its further evidence that Stewart's relationship with Kmart is headed for the rocks, and investors are wondering how the already struggling discount chain would fare without her brand on its shelves.

"One of the first things that Lampert tried to do after he resuscitated Kmart from bankruptcy [in 2003] was renegotiate the terms of its deal with Martha Stewart because it was a horrible deal that made no sense for the company," says Howard Davidowitz, chairman of a New York-based retail consulting and investment banking firm called Davidowitz & Associates. "Martha wouldn't budge because it was a great deal for her, and she was headed for prison at the time."

After Lampert later used Kmart to acquire Sears, he tried to cut a deal with Stewart's company to sell its merchandise in Sears stores, but the two sides couldn't reach an agreement. Some have speculated that, as Sears continues to lose market share to competitors like Wal-Mart (WMT) and Target (TGT) , Martha Stewart wasn't interested in connecting its brand with the chain.

Sears Holdings' same-store sales, a key retail metric gauging sales at stores open at least a year, have consistently declined. In its second quarter, the retailer's same-store sales fell 3.8%, reflecting a 6.3% drop at Sears stores and a 0.6% slump at Kmart.
"If you were Martha Stewart, or any top designer for that matter, would you want to have a deal with Sears or Kmart right now?" asked Davidowitz.

Last spring, Stewart's company announced a deal with Federated's (FD) Macy's department store chain to launch a line of home products called The Martha Stewart Collection. Not unlike the Martha Stewart line sold in Kmart stores, Macy's will sell branded towels, dinnerware and holiday décor in its stores and on its Web site.

Martha Stewart also has merchandising deals with a slew of other companies, like Kraft Foods (KFT) and KB Home (KBH) . The company sees such deals as way to grow its business, and it plans to further diversify its distribution channels.

Next year, Kmart will pay Martha Stewart Living $65 million for its products. Lampert has reportedly said that the contract is too pricey with its guaranteed minimum royalty fees from Kmart. The two sides have been unable to work out a long-term agreement to sell Stewart's goods at Kmart or Sears, and observers say it's likely that the Kmart contract won't be renewed when it runs out.
A Sears spokesman, Chris Brathwaite, had no comment on Stewart's deal, which ends in January of 2010.

"We'll cross that bridge when we get to it," said Martha Stewart Living's chief financial officer, Howard Hochhauser, when asked about whether the company was interested in renewing the contract.

For his part, Davidowitz speculates that Kmart stores won't even be operating by 2010.

"Will [Lampert] have a sustainable retail entity by then? All the things he has done don't leave you with a sustainable retail entity, and the fact that Kmart's signature brand, Martha Stewart, is now headed elsewhere is an outgrowth of that strategy," he says. "He's turned over his share of that retail business to J.C. Penney (JCP) and Kohl's (KSS) because he raised his retail prices, cut his inventories, cut his assortments, cut his service, cut his promotions and invested no money in the stores."

"Did he generate cash with that strategy?" adds Davidowitz. "Of course he did."

The pile of cash on Sears' balance sheet, recently totaling $3.7 billion, is the central focus of investors who are buying the retailer's shares these days -- along with the company's sizable stable of real estate assets.

Many observers are speculating that Lampert will gradually sell off Sears' assets and use its cash to invest elsewhere. With his value-finding acumen, such a strategy has the potential to enrich shareholders far more than any profits Sears could generate as a retailer.

In his latest quarterly earnings release, Lampert signaled to Wall Street that the time for finding new investments is drawing nigh.

"Our strong financial position and cash-flow generation provide us with the flexibility to capitalize on a wide range of market opportunities," he said. "In addition to investing in our business and acquiring our shares, we are prepared to invest substantial amounts of capital if we identify other attractive investment opportunities."

Since then, the stock market has been hit with bursts of speculation that Lampert is buying shares of the likes of Home Depot (HD) , Gap (GPS) , and even the world's largest automaker, General Motors (GM) .

"I wouldn't doubt that Sears is really more of a liquidation scenario, and that Lampert is looking elsewhere to allocate capital," says Jeff Matthews, a retail consultant who heads the firm Jeff Matthews Partners.

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Canada ruling stands against Sears
Purchase bid blocked; appeal called certain

Bloomberg News – Chicago Tribune
September 20, 2006

TORONTO -- Sears Holdings Corp. has lost a bid to overturn a Canadian regulatory ruling blocking its effort to buy the 46 percent of Sears Canada that it does not already own.

Last month the Ontario Securities Commission barred Hoffman Estates-based Sears Holdings from counting some shareholder votes toward the 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.

A three-judge panel on Tuesday rejected the appeal following a two-day hearing in Ontario Divisional Court. Mark Gelowitz, a lawyer for Sears Holdings, said it was " safe to assume" the company will appeal.

Lampert wants to buy Toronto-based Sears Canada to lower costs, lease back some stores and sell real estate. The move is also designed to help the chain compete more effectively with rivals Wal-Mart Stores Inc. and Hudson's Bay Co.

Regulators said Lampert's deals to win support from the Bank of Nova Scotia and the Royal Bank of Canada, which hold 7.6 million shares, and Steven Roth's New York-based Vornado Realty Trust, which has 7.5 million shares, violated Canadian securities law. All shareholders must be treated identically under the law, the regulator said.

The judges rejected Gelowitz's argument that by upholding the ruling the court would effectively ban lock-up agreements, which require companies to provide some incentives to large shareholders for their support in a takeover.

Sears fell short of meeting the minimum legal requirements to carry out the buyout by making inaccurate and incomplete disclosures about the acquisition and bullying Sears Canada's independent directors, who had opposed the sale, said Kent Thomson, a lawyer for the dissident shareholders.

"There's no doubt the commission applied the proper, long-standing test for public interest," he said.

Lampert had agreed to extend the closing date for the takeover so the banks could get a tax benefit from having held the shares at least a year. The extension saved the banks $122 million Canadian in taxes, Thomson told regulators in July.

Roth agreed to sell his shares to Sears Holdings in exchange for a promise the company would not sue him. Sears Holdings had accused Roth of working with another investor to keep Sears Canada's share price above the offer price, Thomson said Tuesday.

Sears Holdings had offered to extend Roth's protection from suits to all shareholders after the agreement was uncovered during the exchange of evidence and testimony that came out before regulators heard the case.

"To offer it now is way too little, way too late," Thomson told the court.

inted Chairman of the Board of Prudential Bank for 10 years.

He was devoted to his family and will be dearly missed. A private celebration for family members of George Wollenberg's life is scheduled. Family suggests memorials be made to Shriners Hospital for Children, 3101 SW Sam Jackson Park Rd, Portland, OR 97239.

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Macy's to relaunch Kellwood's 'O Oscar' line next spring
By James Covert – MarketWatch
September 20, 2006

NEW YORK (MarketWatch) -- Oscar de la Renta's now-defunct 'O Oscar' sportswear line will be resurrected this spring - this time exclusively at Macy's department stores and at higher prices.

The spruced-up women's line - which will show more feminine touches like ruffles and embroidery the designer is known for - will be introduced at about 150 Macy's stores nationwide in February 2007. It replaces a mid-price incarnation that was pulled from several chains including Macy's last year following an ill-fated launch in fall 2004. Terms of the deal weren't disclosed, but executives said it was long term and will eventually expand the new collection to between 350 and 450 stores, or about half of the Macy's chain.

The agreement is the latest in a recent string of exclusives for Macy's aimed at setting it apart from rivals. Macy's owner Federated Department Stores Inc. (FD) doubled the size of the chain earlier this month when it converted more than 400 stores gained in its 2005 acquisition of rival May Co., and has been using its new clout to woo big-name designers. Macy's already has begun selling T Tahari, an exclusive hip women's clothing line from designer Elie Tahari, and will introduce a home collection from Martha Stewart next year.

The deal also is a boost for manufacturer Kellwood Corp. (KWD), which is scrambling to transform itself from a high-volume supplier of mid-price basics into a credible purveyor of trendy fashions. In addition to the demise of the mid-price O Oscar line, Kellwood last year was stung when Federated dropped its Sag Harbor line in favor of more unique "lifestyle" brands, costing it some $75 million in revenue.

The revamped O Oscar designs will include jackets priced up to $229, pants for up to $99, and skirts and sweaters for $99 and up. The fashions will be given special treatment, with their own in-store boutiques.

Indeed, space for higher-priced fashions has become increasingly crowded at mainstream mall anchors, with labels including Lauren by Ralph Lauren, Jones New York Signature, Michael Michael Kors and Calvin Klein White Label.

Last fall, Tommy Hilfiger Corp. pulled its higher-priced line from department stores. The H Hilfiger line - which had been launched in an exclusive with Federated and a glitzy ad campaign that featured David Bowie and Iman - is now exclusive to the designer's fledgling chain of specialty stores.

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Sears Canada axes dividend
Canadian Press - Globe and ail.com
September 20, 2006

TORONTO — Sears Canada Inc. said Wednesday it has decided not to declare a dividend for the second quarter of 2006 and will stop the payouts altogether “consistent with the practice of its parent company” Sears Holdings Corp.

Sears Canada's board had previously deferred its decision on the second quarter dividend.

On Tuesday, an Ontario court denied an appeal by Sears Holdings against a regulatory ruling that blocks the American company's takeover of Sears Canada.

A three-judge panel of Ontario Divisional Court took only 10 minutes Tuesday to quash the appeal, saying reasons for the decision will likely be released within two or three weeks.

At issue was an Ontario Securities Commission decision last month finding that the Chicago-based retailer had violated securities law by failing to disclose support agreements it struck with the Bank of Nova Scotia, its investment banking division Scotia Capital Inc. and the Royal Bank of Canada.

The OSC ruled that the banks' large shareholdings in Sears Canada cannot be counted in determining whether the Sears takeover succeeds.

Sears Holdings owns 54 per cent of Sears Canada but cannot take the Canadian unit private unless the holders of a majority of Sears Canada's minority shares approve the $908-million bid.

Sears Holdings had extended its bid until Sept. 29, but Sears Canada stock has been trading well above the $18-a-share offer price.

The stock was down five cents at $20.20 on the Toronto Stock Exchange Wednesday at midday.

Shares in Sears Holdings, whose main businesses are the Sears Roebuck and Kmart retail chains in the United States, gained $2.10 to US$162.81 on the Nasdaq market.

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Sears Holdings seeks to overturn Canada ruling on buyout votes
Bloomberg News – Chicago Tribune
September 19, 2006

TORONTO -- Sears Holdings Corp. on Monday urged an Ontario court to overturn a ruling by Canadian regulators barring the counting of some shareholder votes toward its purchase of Sears Canada.

On Aug. 8 the Ontario Securities Commission blocked the Hoffman Estates-based company's offer to buy the 46 percent of Sears Canada it does not already own, 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.

The ruling provided a "disproportionate and unreasonable remedy that must be set aside," Sears Holdings lawyer Mark Gelowitz told a three-judge panel in Ontario Divisional Court.

Lampert wants to buy Sears Canada to lower costs, lease back some stores and sell real estate. The move is also designed to help the chain compete more effectively with rivals Wal-Mart Stores Inc. and Hudson's Bay Co.

The regulators' ruling was a victory for investors such as William Ackman, who said Lampert's offer of $18 a share Canadian was too low. Ackman's New York-based hedge fund, Pershing Square Capital Management LP, said the Canadian retailer should fetch twice that amount.

Toronto-based Sears Canada has 108 million shares outstanding, of which Sears Holdings owns 58 million. Sears Holdings needs votes of a majority of the shares it does not own to complete the deal.

The Bank of Nova Scotia and Royal Bank of Canada agreed to tender their 7.6 million shares to Sears Holdings after negotiating an extension allowing them to hold the shares until the end of the year. That provision allowed them to receive a tax benefit of $122 million Canadian, said Kent Thomson, a lawyer for dissident shareholders.

Scotiabank lawyer Paul Steep said the commission erred in disqualifying the shares from the vote because the bank did not get any special benefits.

"All shareholders were going to get the extension," Steep told the judges.

The regulators also disallowed 7.5 million shareholder votes of Steven Roth's New York-based Vornado Realty Trust. A Sears Holdings agreement protecting him from lawsuits and guaranteeing the highest price for the shares for three years gave him benefits not available to others, the regulators said.

Ackman asked the regulators to block the buyout after Lampert's deals with Roth and the banks put the Sears chairman over the 26 million share mark, guaranteeing him a win in the shareholder vote.

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Edward Lampert Is in the Hunt
Sears Chairman Has Sent Signals
He's Looking for Acquisitions --
Is General Motors in His Sights?
By Gregory Zuckerman – Wall Street Journal
September 19, 2006

Edward Lampert is sending clear signals that he is on the prowl for acquisitions now that Sears Holdings Corp., the company he controls, is on firmer footing. And that has Wall Street abuzz about potential targets for Sears and Mr. Lampert's hedge fund, ESL Investments Inc.

Possible targets being bandied about include Home Depot Inc. and Gap Inc., among others.

But Mr. Lampert has been trading shares of General Motors Corp. in the past year, well below the radar screen of most investors. It is a potential sign the hedge-fund honcho might want to play a role in the auto maker's future.

"There are investors who figure something is coming," says Gary Balter, a Credit Suisse analyst who has a "buy" rating on Sears. "Wall Street is hoping that he buys a good franchise and a company that he can cut costs." (Mr. Balter doesn't own any Sears shares. His firm has done banking work for the retailer.)

A spokesman for Mr. Lampert says he declines to comment.

It isn't easy to track Mr. Lampert's moves. Like all hedge-fund managers he doesn't publicize his investments. And while most big investment managers are forced to file so-called 13F filings after each quarter, listing their largest holdings, Mr. Lampert is one of a small handful who have obtained permission from the Securities and Exchange Commission to delay releasing details of at least some of those holdings. When he does make his filings, Mr. Lampert's firm makes its securities filings under RBS Partners LP, an affiliated entity. While he serves as chairman of Sears, the company doesn't provide earnings forecasts or conduct quarterly calls with analysts.

In a little-noticed move last month, RBS made an amended securities filing with the SEC showing that Mr. Lampert's firm owned 1.754 million shares of GM at the end of 2005, and that it reduced that stake to 633,000 shares of GM at the end of the first quarter of this year. The confidentiality treatment for those periods ended last month, prompting Mr. Lampert to make the amended filings.

It isn't clear if Mr. Lampert's firm owned more or fewer GM shares at the end of the second quarter -- or if he owns any GM shares today. That is because the hedge fund said in its second-quarter filing that it again received permission to omit certain "confidential information" from the filing of its holdings. So the GM shares could be among those that Mr. Lampert didn't have to disclose, say securities attorneys.

Mr. Lampert's holdings made up a small slice of GM's 565 million shares outstanding, and Mr. Lampert might have traded GM as part of a short-term strategy, to take advantage of a beaten-down stock. But that isn't a tactic he usually employs. Most of his holdings in recent years have been major commitments and efforts to exert his control. ESL owned about 30% of AutoZone Inc. at the end of the second quarter, for example, and approximately 24% of AutoNation Inc.

Could Mr. Lampert emerge as a player in the GM situation? The auto maker is trying to engineer a turnaround, and Kirk Kerkorian, the billionaire shareholder activist, is pushing GM to consider an alliance with Nissan Motor Co. and Renault SA. Mr. Kerkorian owns almost 10% of GM.

But some investors speculate Mr. Lampert might have an interest in helping turn around the company, in part because he likes situations where conventional wisdom suggests failure is a foregone conclusion. He bought Kmart which later was merged with Sears, when few saw value in the retailer. And he has been focused on pension issues in recent quarters -- Sears and Kmart have had to grapple with those costs and they are something that GM is dealing with.

Laying the Groundwork

Either way, Mr. Lampert seems to be preparing investors for a big deal.

Last month, when Sears reported second-quarter earnings, he said: "Our strong financial position and cash-flow generation provide us with the flexibility to capitalize on a wide range of market opportunities," adding, "In addition to investing in our business and acquiring our shares, we are prepared to invest substantial amounts of capital if we identify other attractive investment opportunities."

Such language often worries investors because it could mean that a costly investment is on the horizon. But many Sears shareholders bought the stock because they have faith in Mr. Lampert's investment prowess -- and actually hope that he will make purchases. That is part of the reason Sears shares hit $159.99 at 4 p.m. yesterday on the Nasdaq Stock Market, up about 30% in the past year.

Credit Suisse's Mr. Balter predicts Sears will have as much as $13 billion of cash available for investments by the end of next year, thanks to Mr. Lampert's efforts to reduce the retailer's investment in working capital and increase cash flow from operations. While he and other analysts say Sears could use some of that money to buy back its own stock, there will be more than enough left over to help fund a major acquisition, Mr. Balter says. Mr. Lampert also could use Sears stock to fund a purchase.

A Big Bite

Shares of Home Depot have surged more than 10% in the past six weeks amid speculation among traders that Mr. Lampert's fund has been buying up shares of the company, which owns its own real estate, an attractive attribute. Other investors say another retailer, such as Gap -- which leases its real estate, but could be an easier place to cut costs -- might be a target. A Gap spokesman says the company doesn't comment on market speculation.

Home Depot spokesman Jerry Shields says the company is aware of the Wall Street chatter. "We do not comment on rumors and speculation in the marketplace," he adds.

Some are skeptical that a takeover of Home Depot could take place, given the company's huge size and the fact that Mr. Lampert doesn't usually make unfriendly acquisition moves.

"Sears has said that Mr. Lampert may invest the company's cash in other businesses," says Carol Levenson, a bond analyst at Gimme Credit LLC. But she says Home Depot's market value of $76 billion "is a sobering reality check."

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Allstate insider to be CEO
Company veteran Wilson to succeed Liddy on Jan. 1;
Liddy to stay as insurer's chairman

By Becky Yerak - Tribune staff reporter – Chicago Tribune
September 19, 2006

Allstate Corp. didn't have to look far for its next top leader.

The Northbrook-based insurer said Monday that longtime insider and President Thomas J. Wilson, 48, will succeed Edward M. Liddy as chief executive Jan. 1.

Although groomed for the top spot for years, Wilson clearly emerged as Liddy's heir apparent in May 2005, when he was named president and chief operating officer.

Wilson will keep the president's job and also has been elected to Allstate's board. The chief operating officer position will not be filled.

The suburban Detroit native joined Allstate in 1995 as vice president of finance and was named chief financial officer later that year. He was appointed president of Allstate Financial in 1999 and president of Allstate Protection, the company's largest business unit, in 2002.

Liddy, 60, will remain chairman of the nation's second-largest home and auto insurer until his retirement in spring 2008, when he will be 62. Liddy has been chairman and CEO of the $35 billion company since January 1999. He was Allstate's president and chief operating officer from 1994 until 1998. He helped guide the insurer's spinoff from Sears, Roebuck and Co. in 1995.

The succession plan was made official as Allstate continues to rebound from the aftereffects of Hurricane Katrina last year. In July, led by its automotive business, Allstate posted better-than-expected quarterly net income, prompting the company to lift its earnings forecast for the entire year.

"Ed has done a great job of putting Allstate on a strong path, and Tom will do a fantastic job continuing on," said Eli Rabinowich, research analyst for New York-based Pzena Investment Management LLC, which owns nearly 2.2 percent of Allstate's stock.

"Tom has been instrumental in the company and has effectively been running it with Ed for a while now, so we don't expect any big changes," particularly since the transition is being stretched out. "Ed is not leaving today," he said.

Wilson has been a driving force behind a new heavily advertised program called Your Choice Auto, and, like the high-profile Liddy, advocates reforms to help protect Americans from mega-catastrophes.

In an interview Monday, Wilson said there would be no dramatic changes since the two have worked together for so long.

"You should expect to see more of the same," he said. "We've worked together for more than 11 years."

A.G. Edwards analyst Paul Newsome wasn't surprised by Wilson's promotion, but said it came sooner than he expected. Still, he doesn't think Liddy was told to step aside.

"I doubt if he was told to go, because Allstate will have a really good year," Newsome said. "He may have just decided it's a good year, so why not go out on top?"

Allstate stock added 51 cents Monday, to $60.63, and is up more than 12 percent this year. Newsome said other insurers he follows are up an average of 5 percent. Last week, he increased his 2006 earnings estimate for Allstate to $7.58 a share from $7.54 a share, and maintains a "hold" rating on the stock.

Indeed, Liddy said it's the right time to step out, noting that the company is in "fabulous shape," with its stock "performing well."

"I'd like to do it while we're on top," he said, noting that the decision to step aside next year was his. "We're feeling good about our business, our business prospects and our transition."

Liddy approached the board about his retirement more than 18 months ago.

"The board conducted a diligent and thorough succession process over the last several years," W. James Farrell, chairman of the nominating and governance committee, said in a statement. "The close working relationship that [Liddy] has fostered with Tom over more than a decade makes us confident we will have a smooth transition and great success in the years ahead."

Asked whether Allstate considered any outside candidates, Liddy would say only that the board did a "thorough" study.

Since Hurricane Katrina, Liddy has taken steps to reduce Allstate's exposure in high-risk areas. Rates have been hiked in some markets. Earlier this year, Allstate bought billions of dollars in reinsurance, basically insurance for insurers, to protect it from further disasters such as Katrina.

Although Allstate could have used the coverage during Katrina, 2006 is shaping up to be a mild hurricane season--so far.

"They made a gamble last year and lost," said Morningstar analyst Matt Nellans. "And so far this year, they haven't gotten their money's worth."

Liddy did a "good job" for shareholders, and Nellans doesn't expect any major changes under Wilson. He believes Allstate's stock has a "fair value" of $51 a share.

"We think it will become increasingly difficult for Allstate to win new business as competitors slash prices and relax underwriting standards," Nellans wrote in a report this month. "This will also force Allstate to cut rates to retain renewals."

Technically, "key decision makers" at Allstate aren't shown the door until they reach the company's mandatory retirement age of 65. But by the time he leaves at age 62, Liddy will have hung around longer than most of Allstate's previous CEOs.

In August 1994, Wayne Hedien, then 60, announced he'd be giving up the chairman and CEO roles to Jerry Choate in January 1995.

In September 1998, Choate, also 60, announced he'd be giving up both jobs to Liddy in January 1999.

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Sears is dealt setback in Canada
Crain's Chicago Business Online
September 19, 2006

(Reuters) — An Ontario court on Tuesday dismissed a Sears Holdings Corp. appeal against a Canadian regulatory decision to halt the U.S. retailer's takeover offer for its unit Sears Canada Inc.

Sears Holdings' $892-million Canadian ($775 million) buyout offer for the Canadian retailer was halted last month after the Ontario Securities Commission ruled the offer had fallen short of disclosure obligations.

The OSC had said Sears Holdings must exclude the votes of a number of minority shareholders in calculating how many Sears Canada shareholders favored its buyout offer.

Hoffman Estates-based Sears Holdings had offered better terms to these shareholders in return for their support and failed to adequately disclose the arrangements, the commission said.

The three-judge panel hearing the case said they would, at a later date, explain in writing why they denied Sears Holdings' appeal against the OSC decision.

Shares of Sears Canada were up 11 Canadian cents, or 0.6%, at $19.93 Canadian, in afternoon trading on the Toronto Stock Exchange following the news. The stock is trading about 11% above Sears Holdings' offer of $18 Canadian a share.

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Sears spots need to fire up branding iron
By Lewis Lazare – Chicago Sun-Times
September 18, 2006

They're rolling out the fall advertising at Sears, Roebuck and Co. And perhaps the most remarkable thing about this new campaign from Young & Rubicam/Chicago is how unremarkable it is.

It's been known for some time that marketing doesn't top the priority list of Eddie Lampert, Sears Holdings Corp. chief honcho and hedge fund guru. So we haven't been sitting on the edge of our seat waiting for Lampert to wow us with a breakthrough ad campaign.

And sure enough, the Wow (!) campaign doesn't appear to be what's going to happen. This new round of fall commercials -- six in the opening salvo -- are of the testimonial variety, with each testifier alluding to something available at Sears

The testimonial type of commercial, of course, features people just looking into the camera and talking. It's perhaps the simplest and cheapest form of commercial there is. Especially when you aren't employing a slew of high-priced celebrities, and -- no surprise here -- these new Sears commercials feature primarily real people (or, more likely from what we surveyed, actors trying to portray real people) along with Ty Pennington, who has been under contract as a Sears star spokesman for a while now.

Testimonial commercials can work in this age of excessive clutter if they're conceived with an unusual twist that makes viewers want to pay attention. But that isn't the case with these Sears spots. Aside from a decided absence of energy and impact, what's strangest about this new work is how little effort is made to spotlight or push specific brands or aspects of the Sears shopping experience.

That omission is especially annoying in a spot where we see several women and one man discussing shoes. But in what we suppose was intended to be a clever creative choice, we never actually see any shots of these women or the man wearing any of the shoes that might be on offer at Sears. That left us wondering how this commercial could possibly make any woman or man rush to Sears to buy new shoes this fall.

Then there's the spot with Pennington -- who at least has toned down his tic-laden schtick a notch or two to good effect for this testimonial effort -- talking to the camera about the differences he has noted in the way men and women shop.

Per Pennington, men gravitate toward the tools (surprising, huh?), while women seem to be obsessed with shoes (yes, shoes seem to be much on the minds of Sears marketing executives this season). But again, the chatty Pennington never zeroes in on exactly what might make Sears the desired destination for tools. Or shoes for that matter. Another lost opportunity.

Finally, none of the six 30-second commercials we viewed carries a tag line. Which didn't really surprise us, because it's been increasingly apparent for some time now that even Sears executives themselves aren't sure what they want Sears to be. So how could Young & Rubicam be expected to come up with a catchy advertising tag to sum up the Sears experience?

The absence of a tag, of course, isn't a cardinal sin in advertising. It just feels like something is missing. But what's really missing the most at Sears -- and in this new campaign -- is a clear identity for the retailer. And, more importantly, a compelling reason to shop there.

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Allstate's Liddy To Resign As CEO At End-'06
By Lavonne Kuykendall – Wall street Journal Online
September 18, 2006

CHICAGO (Dow Jones)--Edward M. Liddy, chairman and chief executive officer of Allstate Corp.(ALL) since 1999, announced Monday that he will step down as chief executive at the end of the year.

He will be succeeded as chief executive by Thomas J. Wilson, currently president and chief operating officer. Wilson will retain the title of president, while Liddy will remain chairman until his retirement from the company in the spring of 2008. The chief operating officer role will not be filled, the company said.

Wilson, 48, joined Northbrook, Ill.-based Allstate in 1995 as vice president of finance and was elected chief financial officer later that year. In 1999, he was named president of Allstate Financial, the company's life insurance unit, and was named president of Allstate Protection, the company's largest business unit, in 2000. He took his current role in May 2005.

Allstate, which reported over $5 billion in losses due to hurricanes last year, has taken an aggressive role in reducing its exposure to natural catastrophe nationwide since then. During the second quarter, Allstate reported net income of $1.2 billion, up 5% from the same quarter last year.

It also changed its course with respect to reinsurance, buying its first national coverage earlier this year, and increasing its coverage in hurricane and earthquake-prone regions.

The company also is active in the movement to push the issue of national catastrophe coverage to a vote in Congress. Liddy has brought up the issue in his public remarks repeatedly over the last several months.

Shares of Allstate, which languished after the 2005 hurricane season, have recovered ground as the 2006 hurricane season turned out, so far, to be far milder.

In afternoon trading Monday, shares of Allstate were up 53 cents, or 0.9%, to $60.65. The stock has been trading at 52-week highs in recent sessions.

Liddy said earlier this year, when the stock was trading around $50 per share, that he felt Allstate's share price was being held back by fears of a severe storm season.

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Allstate CEO to step down
By Mary Wisniewski - Business Reporter - Chicago Sun-Times
September 19, 2006

Ed Liddy, the Allstate CEO who's been pushing for state and federal catastrophe funds to cope with Hurricane Katrina-type storms, is stepping down at the end of the year.

Liddy, 60, will be replaced by Thomas J. Wilson, 48, No. 2 in command at the Northbrook-based company.

The change comes as Allstate, which like other insurers was hurt by the 2005 hurricane season, has become more focused on the profitable car insurance market and on reducing its exposure to catastrophic risk. Both Liddy and Wilson, whose joint history with Allstate dates back to when the insurer was part of Sears, promise a smooth transition between like-minded leaders.

"They can expect to see more of the same," Wilson said.

Liddy said Wilson will "do a fabulous job. He's tailor-made for this job."

The country's second-largest home and auto insurer took a $1.55 billion loss in the third-quarter of 2005 as a result of Hurricanes Rita and Katrina. Fourth-quarter profit fell on Hurricane Wilma claims.

Allstate has had two positive quarters so far in 2006, as the company collected more premiums and saw less damage to homes and cars. The company has cut back on catastrophe exposure in coastal New York and Florida, and is discontinuing its earthquake coverage.

Allstate shares closed Thursday on a 52-week high of $60.63.

Wilson joined Allstate in 1995 as vice president of finance and was elected chief financial officer later that year. He was appointed president of Allstate Financial in 1999 and president of Allstate Protection, the company's largest business unit, in 2002.

Wilson was a leader behind Allstate's "Your Choice Auto" offering, which allows customers to have new options for car insurance, such as eliminating the deductible by staying out of accidents for four years.

He said the differences that will be seen in Allstate in the coming years have more to do with the life cycle of the company than with who is CEO.

"Our strategy is to be more consumer-oriented," Wilson said. He said the company plans to do more in retirement products, and is launching a "Your Choice" option for homeowners' insurance. The program started Monday in Idaho, and will go into the rest of the country in 2007.

Liddy has served as chairman and CEO since January 1999. He previously served as president and COO from 1994 to 1998. He will remain chairman until his retirement from the company in the spring of 2008.

Liddy said the company will continue lobbying for state and federal catastrophe funds, intended to spread the risk of operating an insurance company in disaster-prone areas.

Analysts said they didn't expect any big changes at Allstate.

"They'll continue to focus on the profitable customers in the auto market," said Eli Rabinowich, an analyst at Pzena Investment Management.

Cliff Gallant, an analyst with Keefe, Bruyette & Woods, said the fact the company went with an insider is a sign the leadership change will be smooth, though he was a "little surprised" that Liddy's retirement came as quickly as it did.

"Mr. Liddy has really emerged as the big cheese in the insurance business," Gallant said. "I guess he has other pastures to roam, so good for him."
 

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Next Allstate CEO doesn't plan big changes
But Wilson plans to add additional innovative products
By Steve Daniels - Crain's Chicago Business Online
September 18, 2006

(Crain's) — Thomas Wilson, Allstate Corp.’s next CEO, says he won’t make major changes at the insurance giant.

But Mr. Wilson, 48, who succeeds Edward Liddy as CEO of Northbrook-based Allstate at the end of the year, said in an interview Monday to expect additional innovative insurance products under his leadership. Your Choice Auto, Allstate’s program offering consumers the ability to purchase unusual insurance features like progressively lower deductibles for every accident-free year, is a model for what he has in mind.

“You’ll see some consumer-driven changes,” he says.

Otherwise, Mr. Wilson said he will hew to the course set by Mr. Liddy, 60, who will step down as CEO but remain chairman of Allstate until the spring of 2008, when he will leave the company entirely. Mr. Liddy has been CEO since 1999.

In most ways Mr. Wilson is inheriting a company in a strong position. Allstate has generated consistent earnings growth in recent years as its underlying insurance business has become more profitable. A combination of price increases in the early 2000s and lower claim payouts is the reason. “It’s now a really powerful, freestanding, publicly held company with the ability to compete in an ever more competitive world,” Mr. Liddy said Monday in an interview. “I’m very proud of that.”

But confronting Mr. Wilson is an auto insurance industry where prices are starting to fall. To date, Mr. Liddy has declined to drop Allstate’s overall rates, instead providing selective reductions to specific customer sets while raising prices or holding the line for others.

While acknowledging the intense competition, Mr. Wilson told CNBC today that large insurance companies like Allstate are having an easier time maintaining profitability than smaller players.

Messrs. Liddy and Wilson both are veterans of Sears, Roebuck and Co., which Allstate was part of until the early 1990s, when it was spun off.

Mr. Wilson joined Allstate in 1995 as vice-president of finance and soon was named chief financial officer. He has run both of Allstate’s principal businesses, as president of Allstate Financial beginning in 1999 and then as president of Allstate’s property and casualty insurance operation beginning in 2002. He was named president and chief operating officer of Allstate last year.

Among the initiatives Mr. Wilson intends to pursue is the roll-out of a Your Choice version of homeowners insurance. That’s coming next year. He also will emphasize new products aimed at building retirement assets for middle-income Americans, a goal of Allstate’s since Mr. Liddy’s ascension that hasn’t panned out as well as the company would have liked.

Mr. Liddy’s seven-year tenure was marked by an early stormy period, provoked in large part by his decision to force Allstate agents who were employees to become independent contractors, thereby giving up retirement and health benefits. In recent years, though, the conflicts with the agents have ebbed.

Under Mr. Liddy’s leadership, Allstate’s total return has been 86% versus 21% for the Standard & Poor’s 500 Index and 73% for the S&P Financials Index.

Of the succession, Mr. Liddy said, “We think this is a process that has been pretty well executed.”

Allstate’s stock was up 0.85% Monday to $60.63.

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Sears' Position as Home Appliance King Threatened
Lowe's and Home Depot Sales Eat Heavily Into Market Share
By Mya Frazier - Advertising Age
September 17, 2006

COLUMBUS, Ohio --Since it first put the Kenmore brand on a washing machine in 1927, Sears has reigned as the No. 1 appliance retailer in America. But as its merger with Kmart limps along amid fast-growing competition from home-improvement stores, this once-indisputable position is becoming increasingly vulnerable.

Once the undisputed king of U.S. home appliance sales, Sears is now under heavy attack from home-improvement chains.

Research data
According to Louisville, Ky., market researcher Stevenson Co., only six market-share points separate appliance sales in the retail channel dominated by Lowe's, Home Depot and department stores, almost entirely represented by Sears. And that's troubling to retail watchers for reasons well beyond the category.

"Appliances are a bellwether for the future of Sears," said George Whalin, an analyst with Retail Management Consultants. "This has been their strength for so long, so it's the one category that can hurt them the most. Because when consumers think of Sears today, it's no longer the place where you go to buy everything."

Indeed, when it comes to major appliances-an estimated $83 billion category-that place is increasingly the home-improvement channel, which had increased its share of the appliance market to 26.6% by June 2006, up from just 16.2% in June four years earlier, Stevenson reported. Meanwhile, sales of appliances in department stores dropped to 32.9% from 40.8% during the same period.

Home Depot
Only five years ago, Home Depot did not sell a single refrigerator, washing machine or dishwasher, but today it's the No. 4 appliance retailer, as the so-dubbed white goods fly out its doors. It nabbed $1.8 billion in appliance revenue in 2005 and disclosed in a recent call with analysts that it now controls 10% of the market.

Further along is Lowe's, which has been selling appliances on a national scale since 1994 and is the No. 2 retailer, the closest to catching up with Sears. Lowe's had appliance revenue of $4.3 billion in 2005 compared to $6.9 billion at Sears. And like Home Depot, Lowe's in recent earnings calls cited the category among its fastest-growing.

Considering these seemingly unstoppable sales trends and changing consumer shopping preferences, can Sears ever regain lost share? "Impossible," said Mr. Whalin, noting that Sears faces the disadvantage not only of not opening new stores, but that consumers do not think of Sears when it comes to home remodeling. "If you're already redoing the countertops and cabinets, it's easier to sell a trio of appliances to the consumer," he said.

Kenmore challengers
And there are more appliance brands than ever to sell. "It was once Kenmore and a few other U.S. brands," said Tim Sonheil, editor of Appliance Magazine. "Now there are all these new brands like Bosch, LC and Samsung that weren't even here 10 years ago."

In fact, although Kenmore is still the No. 1 brand sold through Sears, making Sears an extremely important retail partner for Whirlpool-it manufactures some Kenmore appliances for Sears-Whirlpool is no longer entirely dependent on Sears. "If they were to lose a significant portion of business from Sears, they could easily make it up in Lowe's," Mr. Sonheil said.

The other challenge for Sears is retaining margins in a category that is growing increasingly competitive as consumers regularly comparison shop online for big-ticket items, according to Jeffrey Grau at online-research firm eMarketer. Sears began selling appliances online in 2003 but declined to disclose its web appliance sales.

Kenmore Pro line
The retailer is trying to bolster its position with a string of product launches. In October, Sears rolls out Kenmore Pro, a line of professional-grade appliances manufactured by Electrolux and designed to look like the gas grills, double wall ovens and counter-depth refrigerators seen on cooking shows, according to spokesman Larry Costello.

Additionally, it hopes to lure remodeling-minded consumers with a total "room solution" storage system that works with its high-end front-loading Kenmore washing machines. The system includes solid work surfaces for folding clothes and ironing stations at what it terms "value" price points.

Although the Sears/Kmart merger was touted as an opportunity to cross-sell brands and would seem like a logical way to help Sears expand its declining market share in appliances by selling through Kmart's 1,445 stores, only 129 carry Kenmore appliances today.

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IKS wins bid for Sears Tower kiosk
September 15, 2006

PLACENTIA, Calif. — IKS Innovative Kiosk Solutions Inc. announced in a news release the winning of a bid to deploy visitor-management kiosks for the Sears Tower in Chicago.

"The Sears Tower was looking for a scalable, cost-effective visitor management solution," said IKS vice president Richard Love. "The kiosk required a unique stainless steel façade that needed to match the impressive architecture of the tower."

IKS, whose key production facility is located in Beijing, has delivered eight of the units to the Sears Tower in the last six weeks.

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Kmart Looks to Build Business with Power Tools
By George Anderson – Retail Wire
September 15, 2006

Ever since Kmart and Sears agreed to merge back in November 2004, one of the projected benefits of the deal was thought to be that popular exclusive brands such as Crafstman, Kenmore, Diehard, Martha Stewart Everyday and Joe Boxer would be made available to shoppers at both companies' stores.

While there has been some migration of Sears' brands to Kmart (none vice versa), it has been limited in scope. That, however, may be about to change with the announcement yesterday that Craftsman tools will be sold in nearly all the 1,400 stores operated by Kmart in the U.S.

Before now, Craftsman products were sold in 120 Kmarts in 2005. The chain expanded the test with sales of the brand during the 2006 Father's Day season.

"We took the concept of selling Craftsman products into select Kmart stores this spring to gauge customers' reactions," said Greg Inwood, vice president of tools, hardware and paint at Sears Holdings Corp in a company press release. "Customer response exceeded our expectations."

According to Mr. Inwood, consumers appreciated "the added convenience of buying Craftsman tools at additional locations and we feel that providing Craftsman products in all Kmart stores will allow our customers to shop for the tools they love while picking up items for their everyday needs."

The number of Craftsman tools will vary by location, according to Kmart, based on the store. Recently remodeled Kmarts will carry more than 1,800 Craftsman items while others may have as few as 500 SKUs.

"We see this as a tremendous opportunity to enhance Kmart's tool and automotive departments. Craftsman products have been used by generations of Americans and by delivering a sizable selection of high quality, durable Craftsman tools and merchandise we really feel we can deliver more great products to our customers," said Bill Stewart, chief marketing officer at Kmart.

Discussion Questions: What will Craftsman mean for Kmart's business now that the brand will be sold in almost all the chain's stores? What is your reaction to Greg Inwood's statement that "providing Craftsman products in all Kmart stores will allow our customers to shop for the tools they love while picking up items for their everyday needs"?

Craftsman, Kmart reminds us in its press release, is:

America's number one tool brand;
The official tool brand of NASCAR (National Association of Stock Car and Auto Racing);
The primary sponsor of the NASCAR Craftsman Truck Series.
Attention Kmart Shoppers: Craftsman - The Number One Tool Brand - is Now Available at Kmart Stores Nationwide - Kmart/PRNewswire-FirstCall

What are your thoughts on this subject?
Take the Poll - Results delayed by 15 minutes.

Comments

As I see it, what is wrong with Kmart will not be ameliorated with what is right about Craftsman. Peripheral modifications like this don't address the larger issue of how Kmart will shift shoppers perceptions that the store is worth the trip.
Leon Nicholas, Principal, Consumer Markets, Global Insight, Inc.

Sears has guarded the Craftsman brand zealously. It has tremendous equity in the brand, and the brand is quite powerful with consumers. Adding the Kmart locations as additional retail outlets certainly will help the Kmart locations. Perhaps the real questions are whether adding the Kmart locations will increase sales overall or merely dilute sales at existing Sears locations, and whether the Kmart brand will detract from the perceived quality of the Craftsman brand.
Sears has become a bit more willing to use its power brands (e.g., Kenmore). In recent years, the Craftsman was used on toy tools which provided a nice tie-in (especially on Father's day) to the real tools. Adding the Craftsman tools to Kmart also distinguishes Kmart from Wal-Mart in a major way. All-in-all it should be a positive and I'm sure given the test it has been a plus to sales rather than simply dilutive so far. Sears is evolving, and becoming more willing to exploit its power brands is another way Sears can distinguish itself from the pack.
Kenneth A. Grady, President and Attorney, K.A. Grady PC

Stocking Craftsman tools in Kmart will sell some units, but not save the chain. Considering Kmart is well known as self service with little or no customer sales assistance will hurt sales. Power tools are purchased by both males and females as gifts. Many females require sales input to make a decision, which is not likely to happen in a Kmart. In the end, it does not really matter. No retailer with double digit decline in sales will survive over time.
W. Frank Dell II, CMC, President, Dellmart & Company

My guess is that a NASCAR watching, Honey-doing, backyard mechanic may like the fact that he (or she) doesn't have to drive an extra mile to get that replacement 5/16 wrench, but they're also not going to stop to smell the soft goods.
Ryan Mathews, Founder, CEO, Black Monk Consulting

Kmart continues to perform at such low sales per square foot levels that it is beyond me how they keep the doors open. I think the last place I would want to promote a valuable brand name would be in the nation's worst performing retailer. In my opinion this is just hype to keep hope alive.
David Livingston, Principal, DJL Research

All Sears/Kmart has left is its "power brands," and rather than let them sit and slowly wither in stores that no one goes to anymore, Eddie Lampert should just throw in the towel and sell Kenmore and Craftsman to a Home Depot or Lowe's, and sell the real estate while the going is good. In a few years, Sears and Kmart will be just a memory anyway when the next recession comes, but at least Lampert & Co. will come out ahead.
'SearchBots'

Not to be overlooked is the business that will come from small cities and rural markets where there is a Kmart location but no Sears for 50+ miles. I disagree that Kmart is doomed; and feel that Wal-Mart is creating a "gap" that Kmart may be able to fill as the no-nonsense, low price leader. It won't be tomorrow, but it could happen. The two Kmarts I keep an eye on both seem to be busier and the stores looking sharper.
'bobcraycraft'

The best that I can, to Kmart stores, say,
Is put your dreams away for another day.
The great Craftsman is a working man's tool,
That won't blend well with Martha's softgoods cool.
Gene Hoffman, President, Corporate Strategies International

The consensus seems to be that this is a "rearranging the deck chairs on the Titanic" type of move and I agree. Kmart has some very good locations in densely populated areas and a properly edited, streamlined, and well merchandised presentation of key items, brands and prices could turn them around, but why in the world would anyone think that the present management team is the one to execute such a massive turnaround?
Mike Tesler, President , Retail Concepts

 

 

The Tools for Change
Craftsman tools are now sold at K-Mart.
Is it a sign of future changes?
By David Meier (TMFHumbleServant)
September 15, 2006

If you thought the merger between Sears and Kmart to form Sears Holdings was mainly about selling off real estate, think again. The real estate definitely remains a margin of safety, but today's announcement shows that Sears Holdings is also trying to create value by improving operations.

I scan the retail headlines every morning as part of my Foolish duties. Today, I saw a press release touting the availability of Sears' popular Craftsman brand of tools in Kmart stories across the country. After testing the idea at 120 Kmart stores, the execs at Sears Holdings decided the time was right to go nationwide. ad_dap(250,300,'=NBCMSB=1089');
Why this is a big deal? For one thing, it should boost sales; the tools will be available at more than 2,500 locations now, up from about 900. But I think it also supports the claim that Sears Holdings Chairman Edward Lampert aims to create value by making the most of the stores and brand names he purchased. Here are three reasons why:

1. Retail is about merchandising.
Getting the right products in the stores is one major key to success. Good merchandising repeatedly lures my family to Target and Best Buy. Their stores tend to have what we want, at the prices we're willing to pay. That's why they get our business. Putting Craftsman tools in Kmart stores is a good step forward.

2. Sears is doing things differently.
The old Sears would never have relinquished control of its flagship brand. I have a whole bunch of Craftsman tools in my garage. Now, if I need another one (I just bought a new house, so that's very likely), I don't have to drive all the way up to the nearest mall. I can go to my more conveniently located Kmart store.

3. The changes have only begun.
If it can happen with Sears' biggest brand, it can happen with other product lines. The Craftsman expansion paves the way for more experimentation, and helps Sears Holdings foster a culture focused on creating value. You have to take some chances to find out what works. That's one thing Wal-Mart does very well, especially since it has the information systems to drive data-based decision-making.

Meanwhile, Sears Holdings' board recently upped the authorization for share repurchases. Given Lampert's investing prowess and value-oriented philosophy, I think it's safe to assume that he still considers the shares undervalued. I'm betting that his opinion is based less on Sears Holdings' real estate, and more on his opinion of future operations.

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Sears to Stock Craftsman in All Kmarts
Associated Press
September 14, 2006

HOFFMAN ESTATES, Ill. — Sears Holdings Corp. said Thursday it is putting its popular Craftsman tools on sale in nearly 1,400 Kmart stores nationwide this fall, more than a year after first stocking select Kmarts with the brand.

Aside from some marketing tests, Sears Holdings had moved deliberately in expanding the offering to all Kmarts. Craftsman, made by Danaher Corp., is one of the most popular brands at the 900 Sears department stores, along with Sears Grands, Sears Hardware, Sears Dealer and Orchard Supply Hardware.

Kmart and Sears came under the same ownership in March 2005 when Chairman Edward Lampert, then chairman of Troy, Mich.-based Kmart Holding Corp., orchestrated the $12.3 billion acquisition of Sears, Roebuck and Co. Bill Stewart, Kmart's chief marketing officer, said adding Craftsman represents a good opportunity to enhance Kmart's tool and automotive departments.

Another top-selling Sears product, DieHard batteries, was added to all Kmarts last December.

Sears shoppers aren't likely to see Kmart's top brand in their stores any time soon, however. Lampert said at the company's annual shareholders meeting in April that the company was unable to negotiate a long-term deal with Martha Stewart beyond the four years remaining on its contract and had no plans to commit to new products just for the short term.

Shares of Sears Holdings rose 67 cents to $159.12 in trading Thursday on the New York Stock Exchange.

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George Wollenberg, veteran Sears executive, dies at 91

George Lincoln Wollenberg, veteran Sears executive, died peacefully at home on Thursday, September 14, 2006. He was 91.

A native of San Francisco, CA. George was born March 6, 1915 and attended Menlo Park College and New York University School of Retailing.

George is survived by his loving wife of 70 years, Jeanne Toolen Wollenberg; his two sons and daughters-in-law, Gary and Joanne Wollenberg, Addison, TX; Kurt and Sue Wollenberg, Portland, OR and 'honorary' son John Costa, Granite Bay, CA; grandchildren Elkan, Skye, Tyson and Stacey; and cherished sister Marjorie Lord Milk, Beverly Hills, CA.

Mr. Wollenberg began his retail career with Associated Merchandising Corp in New York. He returned to the West Coast with the Emporium Capwell Co. department stores in California.

George joined Sears in San Bernardino in 1942. He entered military service in 1943 and served until April 1946, at which time he returned to Sears.

He successfully handled a number of different assignments including California Zone Merchandise Manager and store manager of San Mateo, California and Portland, Oregon retail stores. In 1963, Mr. Wollenberg was appointed to head of the Pacific Northwest Zone, and in 1966 became District Manager of the Seattle-Puget Sound area.

During his last10 years with Sears he also served as the firm's Legislative Affairs Director in the State of Washington. Active in business and civic affairs, George served in a variety of leadership posts in over a dozen local and statewide organizations, plus social and charitable agencies.

George served as a board member of Prudential Mutual Saving Bank and after retirement from Sears was appointed Chairman of the Board of Prudential Bank for 10 years.

He was devoted to his family and will be dearly missed. A private celebration for family members of George Wollenberg's life is scheduled. Family suggests memorials be made to Shriners Hospital for Children, 3101 SW Sam Jackson Park Rd, Portland, OR 97239.

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Wal-Mart Stores to Cease Layaway Service
By Marcus Kabel - AP Business Writer
September 14, 2006

Wal-Mart Stores Inc. will end layaway service this year due to falling demand and rising costs, scrapping a tradition started when Sam Walton founded the chain in 1962 catering to cash-strapped rural shoppers in northwest Arkansas.
Wal-Mart said Thursday it will stop accepting layaway items Nov. 19 with a pickup deadline of mid-December. In its layaway program, customers make a down payment to hold an item and then generally had up to 60 days to pay it off, with a shorter deadline in the peak Christmas season.

Layaway services are used mainly by people at the lowest end of the income scale, who don't have credit cards and may not qualify for credit, analysts say.

The move comes as Wal-Mart is changing on many fronts, from adding upscale fashions to targeting new urban customers, in a bid to revive growth rates that have fallen behind smaller rivals such as Target Corp.

"Demand for layaway service has declined steadily as consumers turn to current options including online shopping, shopping cards and no-cost credit alternatives that were not available when the company was started," said Pat Curran, executive vice president of Wal-Mart store operations.

Analysts said most retailers have already dropped layaway service as it is expensive and cumbersome. Merchandise can be tied up for months and employees have to keep track of a steady trickle of payments.

One holdout is Kmart, a wholly owned subsidiary of Sears Holdings Corporation, which issued a statement Thursday stating that it continues to offer layaway services at its 1,300 stores.

"This is another recognition that Wal-Mart is no longer a little Ozarks company but instead is the nation's largest private employer and the world's largest retailer," said Patricia Edwards, portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle, which manages $8.2 billion in assets and holds 51,000 Wal-Mart shares.

Still, Wal-Mart's union-backed critics said the move marked another step away from its founder's vision.

"Sam Walton's Wal-Mart -- the one that 'bought American', treated workers with some dignity, and gave low income customers a chance to buy an expensive item over time -- that Wal-Mart is now on permanent layaway," said Chris Kofinis, spokesman for WakeUpWalMart.com.

It is Wal-Mart's latest break with tradition this year.

Wal-Mart introduced pay caps for hourly workers last month after four decades of no limits on annual merit raises. It stopped selling guns in about a third of stores to make room for more non-hunting sporting gear. It is also tailoring stores to local demographics rather than stocking all Wal-Marts alike.

Wal-Mart said it is working on ways to make other payment methods available to shoppers with limited credit, such as Wal-Mart-specific cards that offer zero interest for the first 6 to 12 months.

Edwards said dropping layaway will not chase off Wal-Mart's lowest income shoppers because those customers still need low prices. Getting some of those shoppers to take in-house credit cards can also mean more money for the chain in the form of card fees.

Wal-Mart's shoppers have an average household income of around $30,000 to $35,000 a year, compared to $50,000 to $60,000 for customers at smaller rival Target Corp., Edwards said.

Wal-Mart spokeswoman Linda Blakley said that, as demand for layaway has dropped, the costs have gone up since the department has fewer customers.

Blakley said she did not have a precise estimate for the number of Wal-Mart's more than 1.3 million U.S. employees who will be affected.

But she said a typical layaway department has three employees. Multiplied by Wal-Mart's 3,256 U.S. discount stores and Supercenters, that would mean around 10,000 could be impacted somehow. Wal-Mart said layaway employees will be encouraged to seek new opportunities in their stores.

"We will do whatever we can to help them find those new positions," Blakley said.

Wal-Mart stores shares rose 29 cents to close at $48.37 Thursday on the New York Stock Exchange.
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Eyewitness to Holocaust speaks Sept. 26 at Appalachian
Appalachian State University
September 13, 2006

BOONE—Ralph Jacobson will present a slide-illustrated lecture regarding his childhood in Nazi Germany Tuesday, Sept. 26, at 6 p.m. at Appalachian State University.

The program will be presented in Plemmons Student Union’s Calloway Peak Room. The lecture is free and open to the public and is sponsored by Appalachian’s Center for Judaic, Holocaust, and Peace Studies and The Leon Levine Foundation.

Call (828) 262-2311 or e-mail holocaust@appstate.edu for more information. Information also is available at www.holocaust.appstate.edu.

Jacobson was 10 years old when Kristallnacht occurred. Known as "the night of broken glass,” it describes the night in 1938 when Nazi youth destroyed synagogues and looted more than 7,000 Jewish businesses across Germany. His father was murdered by the Nazis the same year.

Jacobson was born in Osnabrueck, Germany, and came to the United States in January 1938. After graduating from an American high school in 1945, he studied law at New York University Law School. He was a corporate attorney for Sears, Roebuck and Co. for more than 30 years.

Jacobson and his wife, Vivian, moved to Pinehurst in 1990. He has served on the board of The Moore Parks Foundation, and been a volunteer with Service Corps of Retired Executives (SCORE) and the Weymouth Center for the Arts and Humanities music committee.

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'Big-box' veto stands
Chicago Tribune Online
September 13, 2006

Chicago's City Council members today failed to override Mayor Richard Daley's veto of the so-called "big-box'' ordinance that would have required mega-retailers in the city to pay their workers higher wages.

The 31 to 18 decision was three votes short of the 34 votes needed to override the mayoral veto.

Ald. Joe Moore (49th), sponsor of the so-called Big Box Living Wage Ordinance, had introduced the measure to override Daley's veto and vowed to fight on even if it failed. "I can assure you this issue will not go away," Moore told the council.

At the next council meeting, he said, he will introduce a new measure that would be broader, applying to workers of companies with at least 1,000 employees.

Religious leaders held a prayer service and rallies were planned throughout the day to protest Daley's veto.

Hundreds of Chicagoans — some toting signs reading "Shame on you, Mayor Daley" — turned out at City Hall.

By 8 a.m., people already had begun to gather, waiting to be admitted to the council chamber. All the seats in the chamber gallery were occupied when the meeting began, some of them occupied by members of ACORN — a community organization that supports the ordinance — wearing matching red T-shirts.

But the spectators were orderly as the meeting started and routine matters on the agenda were addressed.

The atmosphere in the chamber seemed to be much less charged than it was when the ordinance was passed in July, possibly because it was apparent that Daley had the votes to withstand an override vote.

The veto on Monday was Daley's first in 17 years in office. The council approved the ordinance 35-14 in July. It would have required large retailers to pay workers at least $10 an hour plus $3 in fringe benefits by mid-2010. The rules would have only applied to companies with more than $1 billion in annual sales and stores of at least 90,000 square feet.

The minimum wage in Illinois is $6.50 an hour and the federal minimum is $5.15.

Major retailers, including Target and Wal-Mart, opposed the plan, saying it would put an unfair burden on them to operate within one of the nation's largest cities. Some companies have shelved development plans for some Chicago locations pending the outcome of the debate.

Daley has angrily defended his position, saying the measure would cost the city jobs and hurt people, but supporters say the "living wage'' would help employees.

The debate will likely be a campaign issue for Daley and city aldermen who face re-election bids in February.

Tribune staff reporter Gary Washburn and the Associated Press contributed to this story.

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Medicare Premiums To Rise 5.6% in '07
Affluent Senior Citizens Will Pay More
By Christopher Lee - Washington Post Staff Writer
September 13, 2006

Most seniors will have to pay 5.6 percent more for basic Medicare coverage next year, officials announced yesterday. But premiums for more affluent beneficiaries will increase by as much as 83 percent, because the federal government for the first time will require wealthier people to pay more.

The standard monthly premium for Part B, which covers doctor visits and outpatient hospital care, will rise to $93.50 from $88.50 this year, said Mark B. McClellan, head of the Centers for Medicare and Medicaid Services. Individuals with an annual income of more than $80,000 (or more than $160,000 for married couples) will pay monthly premiums of $106 to $162.10, depending on income.

About 1.5 million of the 42 million Americans on Medicare will have to pay the higher premiums based on income, a change instituted by Congress as part of the 2003 law that created the Medicare drug benefit. McClellan said the income-based premiums will save the financially troubled program $7.7 billion over five years and more than $20 billion over a decade.

Even at the higher rates, Medicare remains a good deal, he said. The most affluent beneficiaries, those with individual incomes of more than $200,000 a year, will pay just under $2,000 a year in premiums while receiving an average of $4,300 a year in benefits.

"That still makes it a very attractive insurance package," McClellan said.

The leader of one organization for seniors predicted that the higher premiums will drive away some of the more affluent seniors, undermining Medicare's broad political support and its finances.

"As healthier and wealthier seniors see their premiums rise, we fear that when that premium equals what they could pay for regular health insurance, why be in the program at all?" said Shannon Benton, executive director of the Senior Citizens League, an advocacy group with 1.2 million members. "We feel that eventually the sickest, the oldest and the poorest are going to be the ones left behind in Medicare, and their costs are going to go up significantly to sustain the program."

Rep. Nita M. Lowey (D-N.Y.) introduced a bill in April that would repeal the income-based premium increases, but it has not gotten out of a House committee.

Medicare officials said they expect 9,000 people to drop out of the program next year because of the new income-based premiums, and 30,000 to leave by 2010. Overall, that's not a lot, they said.

"I don't see any substantial adverse impacts on participation in Medicare, and I definitely see a very positive impact on making Medicare sustainable for the long term," McClellan said. Medicare officials had been projecting an even higher increase in the standard premium, but there has been an unexpected slowing in the volume of services and tests that doctors are ordering for their Medicare patients, McClellan said.

Officials said the standard premium increase of 5.6 percent is the smallest since 2001. It trails the projected 6 percent increase in per capita health spending next year and a projected 7 percent increase in prescription drug spending, they said. Average premiums in the Medicare drug benefit, known as Part D, are expected to remain flat in 2007, McClellan said.

McClellan said the Part B standard premium would have to go up by $1.50 in 2008 (in addition to routine annual premium increases) if Congress were to repeal a planned 5.1 percent cut in Medicare payments to physicians next year -- a cut that doctors are lobbying hard to kill.

That prospect troubles AARP -- the largest senior organization, with 37 million members.

"The fact that the premium is a little less than originally projected is good news, but . . . we may simply be forestalling higher costs to beneficiaries," said Kirsten Sloan, the organization's national coordinator for health.

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Sears Board Okays Increased Share Repurchase
Sears News Release
September 12, 2006

HOFFMAN ESTATES, Ill., Sept. 12 --  Sears Holdings Corporation announced today that its Board of Directors has approved the repurchase of up to an additional $500 million of the Company's common shares.

This authorization is in addition to the $118 million worth of shares that remain available for repurchase under the $1.5 billion share repurchase program previously announced.

Since initiating that program in September 2005, Sears Holdings has purchased approximately 11.0 million of the Company's common shares at an average cost per share of $126.14.

Sears Holdings had approximately 154.0 million shares outstanding on August 29, 2006.

The shares are expected to be purchased in the open market or in privately negotiated transactions. Timing will be dependent on prevailing market conditions, alternative uses of capital and other factors.
 

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Sears Unveils New Fall Advertising
Sears News Release
September 12, 2006

Ty Pennington and Customer Testimonials Showcase a Surprisingly Broad Array of Sears Merchandise

HOFFMAN ESTATES, Ill., Sept. 12 /PRNewswire/ -- Sears, Roebuck and Co. will differentiate itself from other retailers this fall by launching new television advertising featuring customers talking candidly about real experiences and real purchases they have made at Sears. Each testimonial captures the feeling of discovery and sense of satisfaction inspired by a quest that ends in finding something great.

"The advertising communicates how customers, when they take the time to rediscover Sears, will be pleasantly surprised by the breadth and depth of merchandise," said Joan Chow, senior vice president and Sears' chief marketing officer. From a redesigned home fashions department and new Kenmore Pro appliances to trend-right fall fashions, Sears has a unique opportunity to be a one-stop destination for fall solutions."

The spots highlight core product categories including apparel, home fashions, electronics, sporting goods, fitness, appliances and tools. In place of a customer, one ad features home design expert, Ty Pennington, who discusses his perspective on Sears' home furnishings.

The advertising broke nationally this week with more than six 30-second television spots and will be featured on programs such as ABC's "Extreme Makeover: Home Edition," FOX's new show "Vanished," CBS shows "Big Brother," "Amazing Race" and "Rock Star." Additional spots will be rolled out throughout the fall timeframe. Creative was developed by Y&R Chicago.

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Daley vetoes big-box wage ordinance
By Lorene Yue – Crain’s Chicago Business Online
Sept. 11, 2006

With his first veto in 17 years at City Hall, Mayor Richard Daley’s decision Monday to overturn the big-box wage ordinance has set the stage for a possible Wednesday battle on the future of big-box development in Chicago.

Mayor Daley, who was expected to veto the ordinance, which called for certain retailers to pay employees at least $10 an hour and an additional $3 an hour in benefits, made his decision official at 9:35 a.m. when he filed a letter with the City Clerk’s office. He had until Sept. 13 to file a veto.

“I understand and share a desire to ensure that everyone who works in the city of Chicago earns a decent wage,” Mayor Daley wrote in his letter to City Council members. “But I do not believe that this ordinance, well intentioned as it may be, would achieve that end. Rather, I believe it would drive jobs and businesses from our city, penalizing neighborhoods that need additional economic activity the most. In light of this, I believe it is my duty to veto this ordinance.”

His decision drew immediate criticism from living wage supporters who accused Mayor Daley of favoring businesses over residents.

"I am very disappointed that the Mayor decided to thwart the will of the vast majority of the City Council and the vast majority of the voting public by vetoing this ordinance," said Ald. Joe Moore (49th), the chief sponsor of the law.

Workers' unions expressed the same sentiment.

“The Chicago Big Box Living Wage Ordinance is overwhelmingly supported by the residents of Chicago’s neighborhoods, however, the Mayor has completely ignored the voice of the people,” Ron Powell, President, Local 881 and UFCW International Vice President, said in a statement. “The Mayor’s veto serves to boost the million dollar salaries of CEO’s of big box stores and leaves Chicago workers out."

Retailers have been against the ordinance since its inception, saying its passage would have them reconsider locating within the city limits.

Target Corp. said it would halt expansion plans in Chicago after City Council members passed the ordinance, which would affect stores of at least 90,000 square feet built by retailers with at least $1 billion in revenue.

Wal-Mart Stores Inc. had said it was reconsidering plans to build more stores in Chicago if the big-box ordinance stuck.

“We commend Mayor Daley for vetoing the ordinance and ensuring more jobs, more convenience and more choice for Chicago’s working families," Michael Lewis, senior vice-president for store operations at Wal-Mart Stores Inc. said in a statement. "His action encourages desperately needed business investment and development in the city, with job opportunities and savings for those who need it most."

Target officials said in a statement that if Mayor Daley's veto is sustained, the retailer would continue to build in Chicago.

"The living wage ordinance would have been an unfair mandate that discriminated against one category of retail establishment," Target officials wrote. "In addition, the ordinance placed extreme limitations on retailers to perform background checks and could have led to a less safe environment in Chicago."

City Council members, who voted 35-14 to pass the ordinance on July 26 (46th Ward Alderman Helen Shiller did not vote), can override Mayor Daley’s veto provided they have enough votes. The next City Council meeting is scheduled for Wednesday, but it has not been determined if an override vote will take place that day.

Since the law passed, Mayor Daley has worked to sway some aldermen who supported the ordinance to change sides. He needs to persuade only two to change their minds, since an override requires 34 votes.

Already Alderman Shirley Coleman (16th) has publicly said she would change her vote if Mayor Daley issued a veto.

"I'm supporting the Mayor and the veto," Ms. Coleman said Monday. "I have changed my mind. People need a job and I'm not denying them an opportunity if Wal-Mart expresses an interest, and they have, in my ward."

Big-box ordinance supporter Alderman Manny Flores (1st) is in China until Sept. 25, so his vote would be missing if an override was scheduled for Wednesday.

Ald. Moore said he has been speaking to various aldermen to ensure there are enough votes to override Mayor Daley's veto.

"I haven't had any alderman tell me if they have changed their votes," he said.

Chicago is one of several cities that have considered raising wages for workers at big-box stores. Santa Fe and San Francisco have passed similar laws, much to the dismay of retailers.

“Hopefully the Daley veto is another nail in the coffin in this movement,” said Neil Trautwein, a vice-president for the National Retail Federation, which has been opposed to the ordinance. “This is a triumph of reason over politics. The current political flavor of the (health care benefits) movement is to decry lack of coverage and try to handcuff retailers to (providing) coverage.”

 

 

Lampert Lights Up Sears Holdings
By Stephen Ellis – The Motley Fool
September 11, 2006

Is Sears Holdings an enigma to many investors?

On the surface, it's the combination of two big retailers, Sears and Kmart, that were struggling to compete with better-run discounters such as Target and Wal-Mart, and with focused retailers such as Home Depot, Lowe's, Kohl's, and off-price retailer TJX. I have no doubt that many investors looked at the Sears-Kmart merger, which closed in 2005, as a classic "1+1=1" merger, in which the two companies would continue their slide into irrelevance as they failed to generate value for shareholders.

Still, with around $54 billion in sales and about 3,800 stores, Sears Holdings is the third-largest retailer in the U.S. and controls the second-largest amount of retail square footage, behind only Wal-Mart.

I think the investment thesis for Sears Holdings has to begin by considering the options currently available rather than focusing on the massive strategic missteps of years past. This company is definitely being managed better these days, and with billionaire financier Eddie Lampert on board, it has more avenues available for value creation than the average retailer does. I don't believe that investors fully appreciate those avenues. In fact, the stock is being discounted heavily, because of the uncertainty surrounding whether the company's strategy will pay off.

Creating value in a non-linear fashion
Let's take a closer look at the approaches available to Sears Holdings.

1. A vehicle for Lampert's investment acumen. The hedge fund manager has compiled nearly 30% a year on average, after fees, since his fund was launched in 1988. David Geffen, the famed media mogul, invested $200 million with Lampert in 1992, and if Geffen had not repeatedly taken out funds for diversification purposes, the initial investment would be worth $9 billion -- a better performance than famed value investor Warren Buffett achieved over the same time frame. Of course, Buffett has a larger asset base impeding his returns.

In its most recent 10-K, under "related-party transactions," Sears Holdings spells out quite clearly how it intends to proceed with this approach in mind: "The Company's Board of Directors has delegated authority to direct investment of the Company's surplus cash to Edward S. Lampert subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or the Finance Committee of the Board of Directors."

Lampert has quite a bit of moola to work with; Sears Holdings' cash pile is currently at $3.7 billion (including Sears Canada), and the company generated $1.8 billion in free cash flow last year -- far above what the company requires for its operations. If Lampert's record is any indication, those results should be positive for the company. But much like Lampert's hedge fund investors, who are subject to a five-year lockup (the industry standard, in comparison, is one year) and have absolutely no disclosure about what the fund is investing in, shareholders will simply have to trust Lampert to perform.

2. A retailing turnaround. Lampert has hired Aylwin Lewis, a relative newcomer to the retailing industry who previously was president of Yum! Brands after leading turnarounds at KFC and Pizza Hut, to serve as Sears Holdings' CEO. The two men are focused on remaking the company into a "learning organization" in which experimentation is encouraged and employees are honored by being recognized for their financial literacy.

3. An opportunistic real estate liquidation/rationalization. Lampert has already taken this route once, with the sale of 68 Kmart stores to Sears and Home Depot in 2004 for more than $846 million. Deutsche Bank and Morgan Stanley estimate the real estate value on Sears Holdings' books to be anywhere from $21 billion to $38 billion, thanks to Sears' acquisition of many prime locations in the 1960s and 1970s. The company's book value is $11 billion, which means that any gains would be taxed at an estimated 35% tax rate. Using the lowest number to be conservative -- $21 billion -- results in a tax liability of $3.85 billion and a net value of $17.15 billion, or roughly 75% of the current enterprise valuation of the company. That provides a floor for the share price.

In Eddie we trust?
Lampert is a key figure in Sears Holdings' future success. He engineered the Sears-Kmart merger after acquiring 54% of Kmart in its bankruptcy and now owns a 41% stake in the combined company. Aside from his hedge fund accomplishments, which he achieved partially by acquiring large stakes in AutoZone and AutoNation and then agitating for change -- similar to what he is doing with Sears now -- he can also credit his admiration of Buffett for some of his success. Lampert started studying Buffett shortly after graduating with a degree in economics from Yale, where he studied some reverse-engineering deals that Buffett undertook. Lampert would go back over the previous annual reports for Buffett's acquired companies and try to understand why the Oracle made those deals. He eventually met Buffett in 1989 for a 90-minute interview.

As a result of getting to know Buffett and his approach, Lampert hates to waste money and always seeks to invest every dollar at the highest return possible. Lampert put that philosophy into action at Sears Holdings, which cut capital expenditures by 50% to $546 million in 2005 and has bought back nearly $600 million in stock in the past year. Also in Buffett-like fashion, Lampert's recent chairman's letter makes clear that his goal is to increase the per-share value of Sears Holdings, by improving the company's operations to make it a great company and by buying back stock to magnify the effect thereof.

Lampert also rails against overfocusing on same-store sales. He argues that companies that place too much emphasis on increasing this metric may not be allocating capital most effectively. (Our own Alyce Lomax penned an excellent article highlighting some other trends with same-store sales.) Lampert also emphasizes that companies should consider the cost of generating profit -- $1 million in annual profits achieved by investing $5 million is quite a different return from investing $20 million for the same $1 million profit. It is this type of owner mentality that drives him to obtain the highest possible return for shareholders' cash -- and, no doubt, his 41% stake in the company helps.

What about Sears and Kmart?
Aside from Lampert's investing skills, a large part of the future return for shareholders has to come from what some observers call the impossible task of turning the retail giants around. Still, once again, Lampert and CEO Lewis have a plan to build long-term customer relationships with the best people available. After a nearly complete gutting of top management, Lewis is inviting 500 top managers, 40 at a time, to attend a daylong course called "Sowing the Seeds of Our Culture." Employees are being asked to "drink the Kool-Aid" and make a choice: Buy into a new culture of risk-taking, testing, and making money, or leave.

Lampert manages from 50,000 feet and provides strategic direction, and he is the company's No. 1 user of an online tool that allows managers to dissect the company in granular detail by store, region, and merchandise group. Lewis, on the other hand, manages at the ground level, working closely with top management and visiting stores to gather feedback.

Will all of this work out for shareholders? I'd say the risk/reward is quite good, given that the stock is really pricing in minimal contributions from the turnaround and Lampert's as-yet unknown investment returns. Consider that Sears may be priced at "trough" earnings with a 20 P/E and a 0.4 price-to-sales ratio. But as the turnaround takes place, those numbers could fall considerably. While the company is more expensive than Wal-Mart and Target, which both trade at a P/E ratio of nearly 18 with far better returns on equity, Sears may be more rewarding to the contrarian investor who is willing to invest where much uncertainty looms.

The company's willingness to admit failure with the recent Sears Essentials concept, now renamed Sears Grand, and its readiness to introduce Sears products into the Kmart retail environment represent bold retailing moves that indicate outside-the-box thinking. I think shareholders who consider Sears Holdings shares at current levels will also be well rewarded for their own ability to think outside the box.

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Ron Culp Named Senior Vice President and Managing Director of Ketchum Midwest
Press Release
September 11, 2006

NEW YORK, Sept. 11 /PRNewswire/ -- Ketchum, a leading public relations firm, announced the appointment of Ron Culp as senior vice president and managing director of its Midwest operations, composed of offices in Chicago and Pittsburgh, effective Sept. 18. He also will serve as a global corporate strategist in the agency's global corporate practice. Mr. Culp, who joins Ketchum from Citigate Sard Verbinnen and was previously at Sears, Roebuck and Co., succeeds J. Adaire Putnam, partner and director, Ketchum Midwest, who has made a personal decision to leave Ketchum at the end of the year.

"Ron is an industry leader who's passionate about nurturing long-term client relationships and energized by helping grow people's careers and running a successful business. We look forward to having him join Ketchum," said Raymond L. Kotcher, senior partner and chief executive officer, Ketchum. "We also thank Adaire for her many contributions. She joined Ketchum in 2001 as part of our acquisition of Corporate Technology Communications and became director of the Chicago office in 2003. During that time Adaire was instrumental in enhancing service to our clients and building a solid team in Chicago."

Mr. Culp's 30-year career spans a broad range of communications activities in government and the business-to-business, consumer products, pharmaceutical and retailing industries. He is vice chair of the Economic Club of Chicago and is a former trustee of the Arthur W. Page Society. Most recently, at Citigate Sard Verbinnen, Mr. Culp was managing director/chairman, Chicago, where he established that agency's rapidly growing Chicago office.

"Ketchum provides a unique career opportunity that will allow me to work with a hugely talented group of individuals engaged in creating and executing a broad range of public relations programs for their clients," said Mr. Culp. "I have long admired the Ketchum culture and am now honored to be a part of it."

Previously, Mr. Culp was senior vice president, public relations, government affairs, communications and community relations, for Sears, Roebuck and Co. During a 10-year career at Sears, Mr. Culp managed internal and external communications, marketing and public relations support, state and federal government affairs, and community relations, including the Sears Roebuck Foundation. He also held senior communications positions at Sara Lee Corporation, Pitney Bowes Inc. and Eli Lilly and Co.

Mr. Culp holds a Bachelor of Science degree in political science and journalism from Indiana State University.

In another related personnel development, Ted McDougal was appointed senior vice president and director of Ketchum Midwest's corporate practice. Mr. McDougal has 27 years of communication experience with a strong understanding of corporate branding in the retail and financial-services sectors, and has extensive experience in crisis communications, change management and mergers and acquisitions.

He joins Ketchum from Sears Holdings Corp., a combination of Sears, Roebuck and Co. and Kmart Holding Corp. As vice president, public relations, for Sears Holdings, he directed corporate and financial public relations, including marketing communications, media relations, internal communications and community-relations programs for the company.

Mr. McDougal began his corporate career with Continental Bank Corp., where he spent 14 years directing the company's integrated corporate and marketing communications program before its acquisition by Bank of America.

"We are confident that Ron and Ted -- who worked closely together at Sears -- will bring a continued high level of client service and great mentoring skills to the Midwest and Ketchum overall," said Lorraine Thelian, senior partner, North America, Ketchum.

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Medicare Costs to Increase for Wealthier Beneficiaries
By Robert Pear – New York Times
September 11, 2006

WASHINGTON, Sept. 9 — Higher-income people will have to pay higher Medicare premiums than other beneficiaries next year, as the government takes a small but significant step to help the financially ailing program remain viable over the long term.

The surcharge is a major departure from the traditional arrangement under which seniors have generally paid the same premium.

It is expected to affect one million to two million beneficiaries: individuals with incomes exceeding $80,000 and married couples with more than $160,000 of income. For individuals with incomes over $200,000, the premium, now $88.50 a month, is expected to quadruple by 2009.

The surcharge was established under a little-noticed provision of the 2003 law that added a prescription drug benefit to Medicare.

Supporters of the surcharge say it makes sense for wealthy people to pay more at a time when Medicare costs are soaring. But some Medicare experts worry that wealthy retirees will abandon the program and rely on private insurance instead, leaving poorer, sicker people in Medicare.

The premium in question is for Part B of Medicare, a voluntary program that covers doctors’ services, diagnostic tests and outpatient hospital care.

“The higher premiums could drive people with higher incomes out of Medicare,” said Samuel M. Goodman, a 73-year-old retiree in Derwood, Md. “Medicare would then become a welfare program, rather than a universal social insurance program, and it would be easier to attack.”

Federal officials have repeatedly said that Medicare is financially unsustainable in its current form.

Congress said the surcharge would “begin to address fiscal challenges facing the program.”

Joanne S. Shulman, who worked at the Social Security Administration 35 years, said, “The surcharge will come as a shock to many people because they have not received any warning.”

Most beneficiaries now pay the same premium for Part B of Medicare. That amount has been increasing rapidly even without a surcharge. The standard premium has shot up an average of 12 percent a year since 2001, when it was $50 a month.

The premium is set each year to cover about 25 percent of projected spending under Part B of Medicare, which has been growing because of increases in the number and complexity of doctors’ services. General tax revenues pay 75 percent of the cost.

The Bush administration plans to announce the standard premium for 2007 later this month. In July, Medicare officials estimated that it would be $98.40 a month. The surcharge will be phased in from 2007 to 2009.

Here is how it will work: The surcharge for 2007 will be computed by the Social Security Administration, using income data obtained by the Internal Revenue Service from tax returns for 2005. If an individual has modified adjusted gross income of $80,000 to $100,000, the surcharge will be 13.3 percent, which adds about $13 to the monthly premium, for a total of about $111.50. For a single person with income of more than $200,000, the surcharge will be 73.3 percent, or about $72 a month, for a total premium of about $170.50.

When the transition is complete in January 2009, according to Medicare actuaries, the total premium for a person with income of $80,000 to $100,000 will be 1.4 times the standard premium. A person with income of $100,000 to 150,000 will pay twice the standard premium. A person with income of $150,000 to $200,000 will pay 2.6 times the standard premium, and a beneficiary with more than $200,000 of income will pay 3.2 times the standard amount.

If the basic premium rises 10 percent a year — a relatively conservative forecast — the most affluent beneficiaries will be paying premiums of more than $375 a month in 2009.

Under current law, the $80,000 threshold and the income brackets will be adjusted each year to keep pace with inflation, as measured by the Consumer Price Index.

President Bush recently proposed eliminating these annual adjustments, so that more people would pay a surcharge. “This change gives beneficiaries increased participation in their health care,” he said.

More than 40 million people are in Part B. Medicare officials estimate that 2 percent of them will have to pay a surcharge next year. The Congressional Budget Office  says 5 percent of beneficiaries will be affected. The Social Security Administration puts the figure at 4 percent to 5 percent. Most people have their premiums deducted from monthly Social Security checks.

Fiscally conservative Republicans supported the surcharge. But so did some Democrats, who saw it as a progressive way to finance Medicare without cutting benefits or raising payroll taxes.

Senator Dianne Feinstein, Democrat of California, argued that “high-income beneficiaries can afford to pay a larger share of Medicare’s costs,” in part because Congress has cut their taxes in recent years.

The Congressional Budget Office estimates that the surcharge will raise $15 billion from 2007 to 2013.

Representative Nita M. Lowey, Democrat of New York, recently introduced a bill to repeal the surcharge, which she says will hit “more and more middle-class seniors.” Some advocates for older Americans, including the Senior Citizens League, with 1.2 million members, are lobbying for repeal.

A beneficiary can obtain relief from the surcharge by showing that the I.R.S. data was incorrect or that the person’s income declined because of a “major life-changing event” like the death of a spouse or the loss of pension benefits.

Theodore R. Marmor, a professor of political science at Yale said the surcharge was more important for the politics of Medicare than for the financing of the program.

“The new income-related premium is fundamentally at odds with the premises of social insurance,” Mr. Marmor said. “Large numbers of upper-income people will eventually want to find alternatives to Part B of Medicare and will no longer be in the same pool with other people who are 65 and older or disabled. Congress will then have less reluctance to cut the program.”

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Flaws in Jim Cramer's Sears Analysis
Seeking Alpha
September 8, 2006

'Average Joe': As I've mentioned before here, I'm a fan of Cramer. I unfortunately do not make it home most nights in time to watch his TV show, but I usually listen to his radio show Podcast on my commute home, and also will catch an article on TheStreet.com every so often. While I don't know that I agree with his investing time frame for most individual investors and I don't tend to follow any of his suggestions because of the "Cramer Effect," I do think that he knows a lot about investing and he is very entertaining to boot.

Sometimes, though, I do disagree and tonight was one of those times. On his show I was listening to him talk through his take on Sears Holdings Corp, his largest holding for his charitable trust. On the show Cramer walked through the seemingly simple idea of how Sears, currently the third largest diversified retailer, is valued at a market cap of $24 billion versus $42 billion and $190 billion, respectively for Target Corp and Wal-Mart Stores Inc (NYSE:WMT, and how the company is currently buying back some of what small amount of stock is outstanding and not in the hands of Eddie Lampert (or his "friends"). At the rate that the company is buying back stock, Cramer estimated that they could retire up to half of the outstanding non-insider controlled stock (he approximated 60 million of these shares) in the next twelve months or so.

With the stock trading at $150/share, that amount of buyback action would lop a cool $4.5 billion off the market cap. Surely, Cramer argued, the company isn't worth $4.5 billion less, so the stock price will have to come up to keep the market cap around where it is now. Now I certainly may be unintentionally misconstruing Cramer's words, but will the company be worth $4.5 billion less? In a word, yes. The buyback and retiring of the stock isn't going to happen out of thin air, it's going to be bought using the cash that the company has on it's balance sheet - $3.7 billion as of the most recent 10-Q. And as cash disappears off the balance sheet, whoosh, you magically have a company that's worth less.

Certainly if revenue and profits grow the value of the company should go up, or at least stay steady as shares disappear, but getting a stock to rise consistently by simply taking out shares would be a tough trick. Think about it this way: if you look at Sears right now, it's trading at about 17.8x expected 2006 earnings. If you keep the market cap the same and pull out 30 million shares you're now looking at roughly a $188 share price - now a 22.0x multiple of '06 earnings, and for what? No additional value was created, you just retired a bunch of shares.

As we all know, stock prices are determined by supply and demand - when more people want to buy the stock than want to sell it, prices go up, and when more people want to sell than to buy it, the price falls. So when a company goes to market with an aggressive stock buyback the way Sears is, it creates greater demand for the stock and can push the price higher if there aren't enough sellers in the market. As the price starts to creep up, though, more and more holders are going to start to see the new, higher price as a nice time to make an exit. Generally, when a stock is undervalued, you'll be able to see the stock climb more before too many new sellers come into the market, while when the stock is fairly valued or overvalued, you're more likely to see new sellers come to the market quickly as the price starts to rise.

Which brings me to my last point on Sears, especially with regard to Cramer's comments. Cramer likes to concentrate on finding the "best of breed" company in each different industry - you know the Microsofts and the Best Buys of the world. But is Sears really best of breed? It certainly is valued like it is - while it's currently trading at 17.8x forward earnings both Target and Walmart are down around 15x. In part of his comments tonight Cramer quipped "There is more to a store than just how it looks. There are the profits, and at Sears the profits are immense." While I agree that profits are key, if the store can't continue to compete with what I consider to be better-of-breed stores like Target and Walmart it's sure going to be tough to keep those profits growing. And more to the point, it's more than likely that Sears will not be able to support a valuation much above its current level, aggressive buyback or not.

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Old Warehouses Reborn As City Centers, Homes, Offices
By Joe Gose - Investors Business Daily
September 8 2006

From 1910 to 1928, Sears, Roebuck & Co. (SHLD <javascript:jsfOpenPowerTool('U3K4P5I6',1,0)> ) built nine mammoth catalog distribution centers in urban centers around the country to feed the growing appetite for consumer goods in an expanding nation.

By the mid-1990s, Sears had shut the operations down, bowing to logistical priorities that demanded sprawling single-story warehouses in the suburbs.

Most of the seven remaining multistory buildings have revived, in new roles. Some are providing vital anchors for urban neighborhoods in Dallas, Boston and other cities.

The latest transformation came last year, when Minneapolis city and business leaders opened the $190 million Midtown Exchange. Formerly a 1.2 million-square-foot Sears warehouse, it has become a medley of offices, housing, shops and restaurants.

The Sears warehouse renovation activity is part of a larger real estate repurposing trend.

Over the last several years, developers have been converting obsolete urban office and industrial buildings into apartments and condos. They occasionally mix in shops, restaurants and offices.

The buildings are typically well constructed and often feature large windows, high ceilings and architecture that appeal to developers as well as to those moving back into cities, says Michael Beyard, a senior resident fellow at the Urban Land Institute in Washington, D.C.

"Adaptive reuse of commercial facilities has been accelerating over the last 10 years," he said. "We'll have a temporary pause if the housing bubble breaks. But over the long term, it's going to be a continuing phenomenon."

Rehab Sites Often Mid-City

Frequently such buildings are in or near downtown cultural districts, as well as gentrifying neighborhoods, Beyard says. That's the case with the Sears site that Minneapolis bought in 2001.

The year before, the home mortgage unit of Wells Fargo bought a former Honeywell  headquarters nearby. It invested $175 million in the area and has brought in more than 4,000 workers. The neighborhood got another boost as Allina Hospital & Clinics of Minneapolis decided to locate its headquarters at Midtown Exchange — and bring in 1,800 workers.

Next up, Atlanta. A consortium of developers there aims to turn a former 2 million-square-foot Sears distribution center into an office, housing and shopping area called Ponce Park. The group intends to start constructing 300 condos and a park across the street this fall.

The group won't take ownership of the edifice for more than a year. Atlanta bought the building from Sears in 1990 and still houses police and fire personnel there. The city plans to move out after it builds a new home for the workers in 2008.

Thus, due to the time frame, the $300 million to $350 million price tag of the project could easily change. Particularly so if construction costs continue to rise, concedes Emory Morsberger, chief executive officer of the Morsberger Group. The Lawrenceville, Ga., development firm is part of the Ponce Park team. Morsberger predicts equity providers, needed to finance upward of $70 million of the project, will require returns as high as 25%.

Still, Ponce Park developers have shelled out $1 million in earnest money and fully intend to proceed.

"Our partners and the mayor of Atlanta are looking at this as a legacy project," Morsberger said. "We want to build something that we can be proud of."

Most Sears building redevelopments need public subsidies though they're in rebounding areas, says Rick Collins, vice president of development for Ryan Cos. of Minneapolis. It served as Midtown Exchange's master developer.

Multiple Funding Sources

Among other financial assistance, the Midtown Exchange received $30.4 million in grants from government programs, $17.7 million in historic tax credits and $22.5 million in tax increment financing. The last is a way developers can use taxes generated by a project to help pay for it.

"In Minneapolis, the former Sears was in a challenging inner-city neighborhood," Collins said.

He says that although most Sears warehouses have become a mix of housing and commercial uses, no two projects are alike. In Boston, developers turned a long-vacant Sears distribution center into 867,000 square feet of offices and retail space known as Landmark Center. That project is on a bustling subway line and blocks from Fenway Park.

The 2-million-square-foot Sears warehouse in Atlanta sits next to Midtown, a business and cultural activity hotbed. It's by Atlanta's proposed BeltLine, a $2 billion effort to turn 22 miles of railroad tracks into a transit and park corridor.

"The entire area is changing," Morsberger said. "Our project is adding a huge amount of momentum."

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Thinking Local
To Boost Sales, Wal-Mart Drops One-Size-Fits-All Approach

World's Largest Retailer Will Target Six Groups in U.S.;
Changing Product Mix
Guns Out, Home-Fitness In

By Ann Zimmerman – Wall Street Journal
September 7, 2006

EVERGREEN PARK, Ill. -- When Wal-Mart Stores Inc. recently opened a new store here with a heavily African-American clientele, it stocked the men's apparel section with an exclusive line of clothes featuring baggy jeans and trendy sports jackets, made the department 30% larger than at typical stores and moved it to the front corner.

To appeal to affluent shoppers in Plano, Texas, Wal-Mart staffed the new store there with consumer-electronics specialists called "know-it-alls." And it geared the sporting-goods section toward children, on the theory that well-heeled adults tend to buy their tennis and golf gear at country clubs, not discount stores.

These two stores are part of a much broader effort by Wal-Mart to jump-start sluggish sales gains by abandoning its one-size-fits-all approach to retailing. In place of cookie-cutter stores stocked with largely the same products, the retailer is custom-fitting its merchandise assortment to reflect one of six demographic groups. Besides African-Americans and the affluent, it is targeting empty-nesters, Hispanics, suburbanites and rural residents.

Wal-Mart's attempt to break its approximately 3,400 U.S. stores into six different models is a huge shift for a company that grew to be the largest retailer in the world on the strength of standardization. By buying products in giant volumes, Wal-Mart was able to relentlessly lower prices, forcing other retailers to adapt or go out of business. But with comparable-store-revenue growth slowing and the stock price falling, the company now thinks aiming at specific types of customers will boost sales.

With about 85% of the U.S. population shopping at its stores at least once a year, Wal-Mart "is all things to all people," says Eduardo Castro-Wright, chief executive of the company's U.S. stores and architect of the new approach. By offering customers all the same things, he adds, "you end up under-serving everyone because you don't have an offering that is specific to that customer segment." (Mr. Castro-Wright is a director of Dow Jones & Co., publisher of The Wall Street Journal.)

As part of this strategy change, the retailer is shaking up its management structure. It moved executives previously based at company headquarters in Bentonville, Ark., to markets around the country so that they're more in touch with their customers. And it beefed up local marketing teams and gave them more power to pick products.

The new campaign runs the risk of diluting what remains the most powerful brand in retailing. Earlier this year, Wal-Mart de-emphasized its low-price message in ads to alert shoppers to trendier products, believing it "owned the low-price" niche, its chief marketing officer said in March. By summer, as sales started to flag, Wal-Mart went back to emphasizing low prices, papering stores with "We sell for less" signs.

While Wal-Mart continues to open new stores at a voracious rate, sales gains at existing stores have been sliding since the late 1990s. Last year, it notched same-store sales gains of 3%, down from a lofty 9% in 1999. Target Corp., which has slashed prices almost as low as Wal-Mart's while honing an appeal to upscale shoppers, posted gains of 6% last year.

Wal-Mart reported earnings of $11 billion on revenue of $312 billion for the year ended Jan. 31, a 10% rise in profit from the previous year. But the company's stock is down 35% from its peak in December 1999.

Wal-Mart is scrambling to bolster the growth prospects of its massive U.S. division, which accounts for 78% of sales. Slowing sales growth at its U.S. stores and increasingly saturated markets point to a future when it can't rely solely on building hundreds of new stores each year to perpetuate growth. Rather, Wal-Mart must find ways to generate more sales at existing U.S. stores.

Other big retailers are starting to adopt strategies like Wal-Mart's. For years, giant chains spread across the country with virtually identical store models, betting that their lower prices and larger selection would flatten less-efficient operators. It worked. Now that national retailers are increasingly competing against each other, they are scrambling to win new customers and get existing customers to spend more.

Federated Department Stores Inc. recently said its newly acquired May department stores that are being converted to Macy's wouldn't all carry the same merchandise, and buying would be done by seven regional offices. Fearful of increasing competition from Wal-Mart, Best Buy Co. two years ago proposed revising its 800 stores to better reach prized customers, targeting some at women, some at technology-obsessed youth and others at affluent men.

But no retailer has tried a localization campaign on anything like the scale being proposed by Wal-Mart, which plans to convert a significant number of its 3,400 stores in the next 12 months

Localization can add new layers of expense and undermine the economies of scale that lower cost and prices, according to a recent study by consulting firm Bain & Co. After Best Buy converted some stores to target specific groups, costs at those outlets rose, says Brian Dunn, the company's president and chief operating officer. He says Best Buy remains committed to its "customer centricity" approach but is tweaking the implementation. Instead of aiming an entire store toward suburban moms, for instance, Best Buy decided to add personal shoppers at a number of stores to lure this customer group.

Wal-Mart got its start in rural Arkansas in 1962, and grew to prominence by building stores in small towns where executives knew what sold. As the company expanded into suburban and urban areas, Wal-Mart's culture remained very focused on Bentonville. Most decisions, including on store layouts and even on how product should be arranged on shelves, were made at company headquarters.

Wal-Mart always tailored some products to customer groups, usually along regional lines. A few years ago, managers were trying to figure out why ant and roach killer sold so well in Southern stores, but not in Northern states, even during warm weather. Women shoppers, when questioned, said the word "roach" was synonymous with a dirty house. Wal-Mart convinced the supplier to change the name to "ant killer" for stores in certain regions and sales jumped, says John Westling, a Wal-Mart general merchandise manager.

Store managers could purchase some popular local products and make sure regional preferences for items such as barbecue sauce or chili were conveyed to buyers in Bentonville. But such variations accounted for just a few hundred items out of a total of more than 100,000 for an average Wal-Mart supercenter.

Enter Mr. Castro-Wright. The 51-year-old native of Ecuador had conducted a test run of his localization theories during his stint running Wal-Mart's Mexican division from 2000 to 2005, first as chief operating officer, then as chief executive. Wal-Mart's Mexican stores had six different formats before he arrived. Mr. Castro-Wright refined their merchandise mix to better target different income levels.

For example, the Bodega stores catered to low-income customers with basic breads while the Superama stores lured the affluent with rich desserts and fancier display cases. Sales per square foot in the Mexican stores rose by 10% after these and other changes were made.

When Mr. Castro-Wright moved to Wal-Mart's U.S. operations about 18 months ago, he said he saw an opportunity to bring the concept to a new level. "I think we can address specific customer segments with a precision that better meets their needs and wants," he says.

While the Mexican localization was based purely on shoppers' incomes, Mr. Castro-Wright concluded the U.S. was a more complex market and segmentation would involve ethnicity and lifestyle as well.

First the company beefed up its marketing department, adding Ph.D.s in areas such as ethnology, food science, and research and evaluation. The department began researching its shoppers last year, using census data and customer feedback, among other things, to break them into demographic groups.

Next, Mr. Castro-Wright began overhauling Wal-Mart's management to match its new localized approach. The company's 27 regional general managers had always lived in Bentonville and spent a few days a week visiting stores in their territory. Starting last fall, Mr. Castro-Wright began moving them to the regions they supervised.

Todd Libbra, who is responsible for 132 stores in Illinois, moved to a Chicago suburb in July. "By reading the newspapers, watching the TV stations and being part of the community, I have a better flavor for what's going on," he says.

Wal-Mart also bulked up the field staff, giving local managers more say in what products to carry, aided by new staffers responsible for responsible for following trends in fashion, food and consumer electronics..

Today, about half of Wal-Mart stores are in rural areas. Their product mix will change the least.

The bigger changes are coming in approximately 1,500 Wal-Marts in suburban and urban areas. Mr. Castro-Wright cautions that this is a work in progress. The only details the company has revealed about planned stores geared to empty nesters, for instance, is that they will carry less apparel for children and have an expanded pharmacy area.

The stores for Hispanic markets will have obvious differences like more varieties of tortillas. They're also getting flexible layouts to accommodate weekend "farmers' market" events offering fresh food, said John Menzer, Wal-Mart's vice chairman, at a recent analyst meeting. The retailer plans to expand store displays devoted to quinceaneras, Hispanic girls' 15th-birthday celebrations, featuring products ranging from dresses to special cakes.

The Plano store has about 3,000 different items -- or about 3% of the total -- targeting the well-heeled. It has twice the number of organic products and a wine section with 1,000 bottles, at prices ranging from $4 to $500. Wal-Mart removed the gun department and expanded the home-fitness equipment area.

"I normally do not shop at Wal-Mart, but I really like this store, because it is much nicer than the typical Wal-Mart," said Charlotte Ackley, an employee-benefits specialist, on a recent visit to the Plano store. "It is clean, has a good selection of wines, and the service is fast."

The store looks different. Before opening it, Wal-Mart researchers interviewed 50 women in North Dallas. The women complained how cluttered Wal-Mart stores seem. To address that, Wal-Mart made changes large and small. Over the front doors, it says "Welcome" instead of "Entrance" in block letters. The aisles are at least a foot wider than at the typical Wal-Mart. And special displays of products that normally mark Wal-Mart's main aisles have been removed.

But the store still needed a way to showcase special products. After about eight feet, shoppers' eyes glaze over and they stop noticing what is on a shelf, Wal-Mart's research revealed. In this store, every so often, shelves jut out with a rounded edge. These are where the special items are displayed, says John Fleming, Wal-Mart's chief marketing officer.

Wal-Mart also chose special loudspeakers, audible only when shoppers are close to or directly under them. "There are some additional costs to building this store," Mr. Fleming says, but "overall, the increases are marginal."

Some important changes in the Evergreen Park store occurred before it opened. Evergreen Park is a largely white suburb of Chicago. However, Wal-Mart's new market-focused team determined that the store's shoppers would be predominantly African-American, many from nearby Chicago.

Chad Donath, marketing manager for Evergreen Park and seven other stores, began studying the area last year. During a visit to a hospital, he learned it had a high number of premature births. At his suggestion, the store stocked up on clothes and baby-bottle nipples geared for preemies, far more than Bentonville buyers would have originally ordered. Both have been strong sellers.

"Before, the strategy for each region and store was set by Bentonville and we were good executors," says Mr. Libbra, the regional general manager, a 24-year-veteran who started as an hourly worker. "Now we set the strategy and are expected to get results. Talk about accountability."

Mr. Donath says the new system has freed him to make some merchandising gambles. In the Evergreen Park store, he increased the gospel, rhythm and blues, and hip-hop music section to 92 feet, almost four times the size at an average Wal-Mart. In the past, he says, the most he could have convinced Bentonville store planners to add was a few feet.

"It's unbelievable; sales are off the charts -- no pun intended," he said. Now several other urban Wal-Mart stores are following suit.

Tiffany Owens, a 19-year-old African-American shopper who was holding a friend's baby, said, "This Wal-Mart has stuff for all your needs -- the right music, makeup, baby things."

Maureen Reilly, a longtime Wal-Mart shopper, stopped Mr. Donath on a recent visit, to complain. Ms. Reilly, who sells rehabbed houses and once worked for Wal-Mart for four months, was visiting this store for the first time and complained that everything had moved from where it would be in a normal Wal-Mart. She found it off-putting that men's apparel was now where the pharmacy and cosmetics used to be. In an interview later, she said she also couldn't find the hair-color product she uses -- a L'Oreal item for redheads.

Wal-Mart spokeswoman Sarah Clark says the company "will continue to work hard to make our stores easy to navigate as we transform our business."

Mr. Donath is still tweaking the product mix in the store. When the store opened, it carried trailer hitches; though popular in Wal-Mart's rural stores, they turned out to be poor sellers in this urban neighborhood. And it failed to stock neon lights that urban teenagers like to put on their car's undercarriage to reflect off the street. The store now carries them.

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Macy's Launches National Advertising, Marketing Campaign
Federated News Release
September 6 , 2006

CINCINNATI--(BUSINESS WIRE)--Sept. 6, 2006--Federated Department Stores, Inc. today announced that a robust nationwide advertising and marketing campaign - the largest in Federated's history - will begin this week as the company prepares to re-launch its Macy's brand. On Saturday (Sept. 9), more than 400 stores across America will convert to the Macy's nameplate, creating a national presence of more than 800 Macy's stores supported by the macys.com Web site.

"Expanding Macy's presence nationwide presents a once-in-a-lifetime opportunity to introduce our brand to new shoppers with a compelling message about fashion and affordable luxury," said Anne MacDonald, president of Macy's Corporate Marketing and the
company's chief marketing officer. "We will be creating a new sensation across the nation with a campaign full of style, fun and freshness."  

Advertising will include national broadcast and cable television, local newspapers, local and national magazines, targeted radio spots, outdoor boards and an extensive online advertising approach - all centered on a new spin to Macy's familiar theme line, "Way To Shop." Direct mail includes a glossy 54-page Macy's "magalog" being sent to the homes of 3.8 million best customers in markets that are new to Macy's.

Theme-setting broadcast commercials will begin running tomorrow (Sept. 7) in an extensive schedule of leading programs. The spots feature a new Macy's re-recording of "Dancing in the Streets," the classic Motown hit made famous by Martha Reeves and The Vandellas. A Spanish-language adaptation was produced by Grammy-nominated producer
Andres Levin. Signature graphics for both broadcast and print ads are focused on a "mural" of fashion-forward women, men and children dancing in the streets across America.

JWT Chicago and Latinvox, a New York-based agency specializing in reaching Hispanic consumers, created the ads in partnership with Macy's Corporate Marketing and Macy's division marketing teams across the country. Starcom USA of Chicago is Macy's national media planning and buying agency.

In addition to media advertising, the Macy's brand re-launch will be supported with hundreds of special events, personal appearances and promotions at stores across the country. They include:

-- Major public community events, such as block parties and shopping parties, on Sept. 8 and 9 in cities including Boston, Chicago, Denver, Minneapolis, Pittsburgh, St. Louis and El Paso. Many will have "dancing in the streets" themes.

-- A traveling events caravan, called "Parade on Parade," will provide a variety of interactive family entertainment about the Macy's Thanksgiving Day Parade, one of the nation's most
beloved holiday traditions, with shows in locations adjacent to Macy's stores. Parade on Parade is being built and christened in Detroit this week, and will launch on Saturday
(Sept. 9) in Chicago. From there, it will travel to 20 other cities in 16 states before concluding at the annual balloon inflation events in New York City on Nov. 22.

-- "Red carpet" ribbon-cutting celebration events at all 400-plus stores being converted to Macy's on Saturday (Sept. 9).

-- A Macy's electronic gift card (EGC) giveaway at all 800-plus Macy's stores on Saturday (Sept. 9). Each store will give away $10 EGCs to the first customers in the door - between 500 and 1,000 at each location, depending on the size of the store. Some $1,000 gift cards will be interspersed among the $10 EGCs to delight customers and add to the excitement.

-- Activities by the new Macy's Culinary Council, a group of 15 leading celebrity chefs and restaurateurs developed from what was once the Marshall Field's Culinary Council. The Culinary Council's mission is to help reinforce Macy's role as the national authority and shopping destination for all items relating to the kitchen and dining room.

-- A nationwide program of community service projects - called "Give Back Day" - by Federated's award-winning Partners in Time employee volunteerism organization. Give Back Day events begin on Sept. 15 in selected cities from New York to San Francisco.

-- A national Shop for a Cause day hosted in all Macy's stores on Saturday, Sept. 16. Macy's is selling $5 'donation tickets' designed to benefit important local charities around the country, with a portion of all proceeds going to the American Heart Association's Go Red for Women movement on a national basis. Charitable organizations keep all of the proceeds from the tickets they sell. The program could raise more than $12 million for participating charitable organizations. Shop for a Cause will be supported by network television ads featuring Susan Sarandon, an actress with national stature and a passion
for community service. A Spanish-language version features Zoe Saldana, star of films including Crossroads and Drumline.

Moving immediately beyond the brand launch period, Macy's advertising through the fall will feature new marketing campaigns. Given Macy's national platform and fashion profile, these ads attracted top talent associated with style - Stacy London and Clinton Kelly of TLC's "What Not To Wear" and Latina actresses and models Ana de la Reguera and Patricia Velasquez.

"Consumers soon will see Macy's as a fashion leader on the national stage, yet accessible locally," MacDonald said. "Our advertising will drive home the message that Macy's has the latest fashions, an exciting shopping experience and values that appeal to
consumers who love to shop."

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RealMoney Radio: Sears Will Soar
By The Street.com Staff
September 5, 2006

There are many companies out there that are buying back stock, Jim Cramer said on his "RealMoney" radio show Tuesday.

"Some say it's to support the price of their stock during these turbulent markets, and others say it's a sign that these companies are confident in their business that they will buy their stock at bargain prices," Cramer said.

Taking a look at Sears a stock that Cramer owns for his charitable trust Action Alerts PLUS, Cramer said the company just bought back 2 million shares last month.

"There is more to a store than just how it looks," he said. "There are the profits, and at Sears, the profits are immense."

In fact, the company doesn't have that many shares outstanding, with about 60 million shares free to trade, Cramer said.

This third-largest retailer in the country has "aggressively been buying back stock," he said.

"If you don't own it, you are going to miss out," Cramer said. "I believe it is going much higher."

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Let Wal-Mart Be Wal-Mart
Legislating a minimum wage hurts the people it's supposed to help.
By Thomas G. Donlan – Barrons
September 4, 2006

IT IS RARELY HEALTHY TO BE THE LARGEST anything in America; attaining such an exalted position usually makes the achiever one of the largest targets in the country. But Wal-Mart, the nation's largest retailer and largest employer, is breaking new ground as a target. Politicians across the country are finding new ways to show their distaste for a company that has the bad grace to be big.

Joe Biden, the Democratic senator from Delaware, has lived down his 1988 embarrassment enough to try for the presidency again. This time, he has joined the forces of Wal-Mart reactionaries:

"My problem with Wal-Mart is that I don't see any indication that they care about the fate of middle-class people," the senator told a reporter during a campaign rally in Iowa. Declaring that Wal-Mart pays an average of $10 an hour, he asked, "How can you live a middle-class life on that?"

It's true, ten bucks an hour is not a middle-class wage. Even though it's nearly twice the federal minimum wage, it's only about three-fifths of the median wage. Working a year at ten bucks an hour will earn a person less than half the median household income.

Ten bucks an hour is what a lot of people in well-to-do communities pay house cleaners and lawn mowers. Ten bucks an hour is what the illegal immigrants hanging around outside suburban convenience stores charge for day labor.

If it also may be the going rate for retail clerks and cashiers, is that an outrage?

Opportunities in the Market

Oddly enough to Biden, Wal-Mart has found 1.3 million Americans and (mostly) legal immigrants to work in its stores -- not all for ten bucks an hour; that's the average and many of them earn less. Some of these workers are members of the middle class, working a second job or a part-time job. Others are on the bottom looking up. If they do good work, they may move on to a better job or move up in the company.

(If they really want to move on quickly, they should check out the local community college rather than hang around at Wal-Mart.)

But if Wal-Mart workers and other workers listen to Biden and other populists, and acquire the idea that every job that does not provide a middle-class life is not worth having, there will be no out or up for them, and probably no jobs for them at all.

Wal-Mart is doing a lot more than Biden to give people a chance for a middle-class life. All Biden can do is vote to give people other peoples' money; Wal-Mart pays them what they earn.

As long as the populists aren't paying it themselves, they are eager to insist that Wal-Mart pay more cash wages and health benefits.

There was the Maryland legislature's enactment declaring that all employers over a certain size had to provide health insurance to their employers or pay a special state tax. The certain size was tailored to exclude all companies in the state except Wal-Mart, the biggest.

The Chicago City Council, in a similar fit of righteousness, declared that all "big-box" retailers -- those with stores of at least 90,000 square feet and revenues of at least $1 billion a year -- would have to pay a higher minimum wage than other businesses. By 2010, their minimum wage would be $13 an hour. At least the size of the box was set to include Target, Lowes and a few other chains, but the principle was the same: What big companies do is bad.

San Francisco is ahead of Chicago in the sanctimony of minimum wage, requiring all businesses to pay minimum wages of $8.85 to $10.75 an hour and $1.60 an hour for employee health care. It cannot be said that this measure targets Wal-Mart alone, since the city has no Wal-Marts to target and likely never will. It does target the citizens who shop in San Francisco stores, and it targets the people who don't get jobs there, and it benefits the stores beyond the city limits.

Wage-Setting Should Be Local

There are those who say these minimum-wage laws make no difference to retailers. The mayor of Santa Fe, N.M., showed up in Chicago recently to report that that passing the nation's highest local minimum-wage law two years ago did not harm the strong local economy: Although businesses with 25 or more employees (including two Wal-Marts) face a local minimum wage of $9.50 an hour including benefits, retail turnover grew 7% in 2005, better than previous years. The mayor also reported that Wal-Mart is planning to open a third store despite the high minimum wage.

There are two ways to tell the Santa Fe story, of course: One is as the glorious triumph of enlightened social policy; the other is as an example of a fast-growing market outpacing politicians.

Either minimum wages reduce employment, or they are pointless; there is no third way. If the minimum wage really raised total wages in town beyond the level provided by growth in its boom-town economy, the mayor of Santa Fe ought to consider the amount of growth that didn't happen. Some cities that have only the federal minimum wage of $5.15 an hour do grow much faster than 7%.

And some cities, like Chicago, would be better off with more Wal-Marts to lower prices, and offer wider choice and more $10-an-hour jobs. Wal-Mart said recently, however, that it would hold off on plans to build 20 stores in the city unless the City Council reverses course on the big-box minimum wage.

As with many efforts to regulate economic conditions, the minimum wage ought to be a local option. If San Franciscans want to make it difficult to create and fill entry-level jobs, it is their privilege. They are starting to notice that their streets are overrun by panhandlers; perhaps one day they will grasp the possibility that there is a connection there.

More than 100 cities and counties have local minimum wages, and the District of Columbia and 22 states have set minimum wages higher than the federal rate.

Problems only arise if they decide to tell the other states what to do.

Small Targets

In waging its battles with politicians and activists, Wal-Mart has also sustained some self-inflicted wounds. Hoping to win a welcome for new stores in low-income urban neighborhoods, Wal-Mart hired Andrew Young -- former civil rights leader, former mayor of Atlanta, former ambassador to the United Nations -- to be a corporate spokesman to the "urban" community.

In the course of a discussion about Wal-Mart's providing lower prices for its shoppers, a reporter asked Young about Wal-Mart's effect on small competitors. Young noted that little stores in poor neighborhoods charge more than big stores in more prosperous neighborhoods. "I think they've ripped off our communities enough," he said. Worse for his reputation as a diplomat, he went on: "First it was Jews, then it was Koreans and now it's Arabs. Very few black people own these stores."

The ethnic background of storekeepers is of course irrelevant. Young should have been trying to point out that the reason small stores charge high prices is that they face high costs and high risks. As small buyers, they pay higher wholesale prices. As proprietors in high-crime neighborhoods, they pay higher insurance premiums and they can't afford to hire security staff. As small employers, they can't afford to hire people from the neighborhood, since only family members are allowed to work for low wages or room and board alone. Finally, there are few people willing to accept all these and other challenges of running such stores, so there's less competition to hold their prices down.

By implying that he really only cared about blacks, Young landed Wal-Mart and himself in hot water. It became necessary for him to apologize and resign. An even better reason for his departure was that he was unable to teach people of all races a much-needed lesson in economics.

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New concept store on tap for Sears
By Kim Mikus - Business Columnist
Daily Herald – Suburban Chicago
September 3, 2006

Sears is testing several new concepts at its store at Westfield Hawthorn in Vernon Hills.

An Internet Café, a separate Lands’ End store, a more upscale home fashions department, ready-to assemble furniture and a catalog that resembles something from the Pottery Barn are a few of the changes shoppers will see. A grand opening for the launch is taking place this weekend.

The store will not be duplicated at other malls, instead the things that work well here will be seen at other locations, said store manager Al Thellefson.

Other new concepts featured at the Lake County store include Oriental rugs, three-day blinds, an expanded electronics department and even Lottery tickets.

All the apparel at the store has now been relocated to the second floor where Lands’ End clothing has its own area designated with royal blue walls. Dockers and Levi’s as well as Disney’s Winnie the Pooh clothing for children are prominently displayed at the reinvented store.

Renovations started more than a year ago.

“We’re excited to see the new store complete,” said Greg Stolarski, marketing director at Westfield Hawthorn. “The store is much cleaner, brighter and very polished.”

Stolarski said a big focus has been placed on higher end appliances, from kitchens to high efficiency washer and dryers. The new Kenmore Pro line, which is top of the line for Sears, is debuting at this store.

“The reinvention also showcases a synergy between departments,” said Thellefson, who has been with Sears for 45 years, 22 of them at Hawthorn. For example, small countertop appliances are positioned next to kitchen appliances, many of which are displayed in vignettes rather than rows.

And a new game parlor department, complete with pool tables and air hockey games, is strategically positioned near the garage department, popular with male shoppers. As more people are building homes with three-car garages, this area is hot.

The free Internet café has been a popular spot for people to wait while their spouse is shopping, Thellefson said.

The new look comes at a time when Hoffman Estates-based Sears is struggling with identity issues between its mall-based stores, Sears Grand concept and Sears Essentials.

Retail analyst George Rosenbaum says Sears needs to know what position they fit in in the retail landscape. “At a time when anchor stores at malls are declining, Sears has to figure out what it’s going to do. They have not fully figured out what departments they should have and what they are going to drop,” said Rosenbaum, chairman of Chicago-based retail consulting firm Leo J. Shapiro & Associates.

He doesn’t believe the new concept store will hurt, but he’s not sure it will help.

“Sears doesn’t have a vision,” he said.

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Macy's trumps Field's' local designer support
By Kelly Haramis - staff reporter – Chicago Tribune
September 3, 2006

The familiar logo may be disappearing, but the New York-based Macy's will continue Marshall Field's commitment to the local fashion scene when it officially changes labels Saturday.

Macy's local designer shop, the Designers of Chicago at Macy's on State Street, will showcase 47 Chicago-based designers and their collections, ranging from handbags to apparel to jewelry.

Yet in keeping with Chicago's rising fashion profile, there will be some key differences. Macy's corporate buyers chose more than double the designers (47 compared with 19 last year). Also, the collections will be featured for the entire season, not just for one month as with the former Field's.

The shop will begin on the first floor (it was only on the third floor last year). When Macy's begins decorating for the holidays, the designers' collections will relocate to their respective areas--for instance, men's clothing in men's clothing and so on.

"I think it will open the door to the possibility of getting national exposure for some of the designers," said Melissa Turner, director of fashion arts and events for the Chicago Department of Cultural Affairs.

The Macy's shop kicks off what will surely be an exciting month for fashion with various Fashion Focus Chicago events--Glamorama fundraiser and Gen Art's Fresh Faces in Fashion show--on the horizon.

On State Street, that fashion plate street

Starting Saturday, Designers of Chicago at Macy's on State Street shop features 47 rising local talents. Ori'en, Bya Denim, Tivi and Elizabeth Brady are just a sampling of Chicago's fashion-forward future.

Ori'en

After being turned down last year for Marshall Field's designer shop, Chicago designer Cyndi Chan wasn't expecting the call to be included in the Designers of Chicago at Macy's on State Street shop.

And Macy's didn't call. They e-mailed.

"I thought it was a survey. I then started reading it, and I started crying. Like if I got engaged."

The 30-year-old Hong Kong native juggles three of her own unique brands: Zen T (tanks and tees), Ori-Jeans (custom-made denim) and Ori'en (couture). Macy's will feature her fourth Ori'en collection, "Independent Chic--A Trip to Remember," which she describes as "a trip to Paris" and "girls night out." The pieces retail for $80 to $450.

Chan may be young, but she carries street cred, interning at Donna Karan and working for rapper Nelly's design company, Vokal in New York.

Now she has swapped the Chrysler Building for Sears Tower. "There are a lot of entrepreneurs here; in New York, there are a lot of people working at the [corporate] design firm."

Chan sees Chicago as seriously D.I.Y. "A lot of designers here have to do everything." She not only designs but also invoices, attends sales meetings and hits trunk shows--without fashion foot soldiers.

More work, sure, but more freedom. "Every single piece needs to be a hit. I have to love it or else I can't sell it."

Chan's Ori'en line sells at La Collezion, 1926 S. Wabash St., and Casa de Soul, 1919 W. Division St., which houses both her workroom and showroom.

On the Chicago fashion scene in five years: "More and more designers will have their own boutiques.

"Like SoHo or the East Village . . . Celebrities will stay at The Peninsula [hotel] and shop [locally]." She adds: "I'm not planning on going anywhere. Chicago is awesome."

Bya Denim

With a name like Stiles Anderson, you'd think this denim newcomer was destined for fashion. Yet, Bya Denim's designer worked as a financial analyst for Merrill Lynch only one year ago.

That's when Anderson, 24, teamed up with Glen Schwartz, 31, and decided to swap green for blue, money for denim. Schwartz comes from a different type of green. He has a background in environmental policy and environmental law.

With Anderson as designer and Schwartz as CEO, the two formed Bya (from "billions of years ago") to "make some noise in the denim world," said the guys.

And somebody must be listening. Bya Denim's (pronounced bee-why-aaay) first collection will sell for $185-$219 at Macy's local designer shop. The collection is also available at Guise, 2217 N. Halsted St., and about 15 other stores in Chicago, Detroit and Minneapolis.

Anderson couldn't be happier. "Nothing compares to doing what I'm able to do now. Somehow it all worked out," he said.

Working out is working with a conscience. Bya's owners make it a point to avoid sweatshop labor. "We check factories . . . that people are paid a fair wage," Anderson said.

Anderson hails from Wayzata, Minn., and Schwartz from Farmington Hills, Mich. But Bya's mission is tied to Illinois' very jeans-friendly metropolis. "[We're] two young energetic guys . . . trying to make a name for ourselves and Chicago fashion," Schwartz said.

For Bya, Chicago fashion is an unplucked flower: "I think it's blossoming, and it's great what the mayor's doing. It would be great to have Chicago become a fashion hub. I think there are undiscovered talents," Anderson said.

On the Chicago fashion scene in five years: "Chicago could be mentioned in the same breath as Toronto, New York and L.A. ... and not just for the Magnificent Mile," said Schwartz.

Elizabeth Brady

After 20 years in advertising, Elizabeth Brady, 42, decided it was time to follow in her family's footsteps.

Her grandmother Irene Koehnemann sold handmade shoes in the 1920s--under the Irene moniker--to Marshall Field's and Saks Fifth Avenue.

Brady's fall line ($415-$595) will also be a part of Macy's local designer shop, and she describes the collection as "whimsical and sexy and exhilarating. It's very fashion forward. I've created some styles that you wouldn't find elsewhere."

And Brady's new collection, rich with eye-popping color and attention to detail, builds upon the softer hues of her first, which hit shelves last spring at Josephine, 1405 N. Wells St.

The leather shoes are handmade in Italy. "My design sensibilities are really to look at interesting combinations of textures and patterns," she said.

Honoring her grandmother's legacy as well as celebrating the modern woman, Brady gave each pair a female name. "[My grandmother] would be thrilled to see the 'Irene' shoe sitting in the store at State and Wacker . . . much like hers did in the '20s."

The exuberant design perhaps mirrors Chicago's rising fashion fortunes: Chicago fashion "needed to find a champion and that champion is the Fashion [Advisory] Council," Brady said.

On the Chicago fashion scene in five years: "It's important for companies and organizations to get behind the talent in the city because that's what's going to get us the recognition of being a fashion town."

Tivi

When the guys behind Tivi trace their origin to "tooling around," it's more than a figure of speech.

Ryan Wither, 28, and Paul Lewin, 25, make industrial-inspired handbags, bracelets and pendants. They work primarily with stainless steel and wood, said Lewin, "because that's what we know."

Tivi (pronounced tev-ee) will return to the local designer shop for the second straight year, but Wither and Lewin (whose father works in human resources for Tribune Co., which owns this newspaper) have roots far removed from Chicago fashion.

Wither, a veteran of the furniture industry, and Lewin, who worked for a firm that designed television news sets, met at California's Savannah College of Art and Design. They share a populist vision: "We're regular T-shirt and jeans kind of guys trying to mingle with a different crowd."

No requiem for the common man here. Aside from Macy's, where Tivi goods will cost $60 to $280, the line sells in more than 30 stores in the U.S., plus in Australia and France.

They may be regular guys, but do they always share the same vision?

"Yes and no. [Wither] is more of an engineer designer, and I'm more of an artsy designer," Lewin said.

Wither is based in Colorado, and Naperville-raised Lewin returned from the West Coast: "You have to leave California because it can envelop you. In Chicago you can have access to everything."

Nonetheless, Lewin said the scene is still young, "[It's] anemic but growing. A few years ago it was really bad, but now it's a toddler ... pretty soon the training wheels will come off."

On the Chicago fashion scene in five years: "More word of mouth--like L.A. and New York ... as long as people get the idea of cornfields out of their heads," Lewin said.

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OSC out of line on Sears, banks say
Theresa Tedesco – Canada.com
Financial Post
September 1, 2006

Two major Canadian banks have accused the Ontario Securities Commission of overstepping its powers and causing harm to their public shareholders when the provincial regulator ruled the banks could not participate in the takeover of Sears Canada Inc.

According to documents filed in Ontario provincial court this week, Royal Bank of Canada and Bank of Nova Scotia argue the decision by a panel of OSC commissioners is "overbroad" and is inconsistent with the province's established securities laws governing takeover bids.

Royal Bank of Canada, which planned to tender 3.9 million Sears Canada shares, calls the OSC's decision the "wrong conclusion," while Bank of Nova Scotia, which has 4.5 million shares in the Canadian retailer, says the regulator's order is "in excess of the Commission's jurisdiction."

The banks have appealed to the Ontario Superior Court to overturn the decision by a panel of OSC commissioners last month that prohibited them from tendering their shares to a takeover bid by Sears Holdings Corp.

The OSC ruled that Sears Holdings, the Chicago-based parent company of the Canadian subsidiary, gave extra benefits to Royal and Scotiabank by tailoring its bid to help them avoid paying millions of dollars in tax.

Although the provincial regulator ruled that Royal and Scotiabank had not engaged in abusive activities, the panel of three commissioners nonetheless decided the financial institutions received benefits that were not available to other Sears Canada investors in return for backing the $18-a-share takeover bid by Sears Holdings.

As a result, they prohibited the Canadian banks from voting 8.4 million shares as part of the proposed takeover by Sears Holdings.

In its court filings, Scotiabank accused the provincial watchdog of having "fundamentally interfered" with the bank's ownership rights in its Sears shares even though there was no suggestion Scotiabank's conduct "has in in any way compromised the public interest."

As a result, Canada's third-largest bank contends the OSC decision has effectively locked the bank into "an illiquid investment" and has prevented it from divesting of its investment as planned. "This is manifestly not in the public interest since it harms BNS's and Scotia Capital's shareholders," declared the bank's court filing.

At the same time, Royal, the country's largest bank, declared the OSC ruling "has the effect of disenfranchising shareholders" of their right to vote in the Sears Canada takeover.

Sears Holdings launched an $899-million offer to buy the remaining 46.2% equity stake it didn't already own in its Canadian unit in February. However, the bid was met with resistance from a group of U.S.-based hedge funds, led by William Ackman of Pershing Square Capital Management.

On April 4, Sears Holdings increased its bid to $18 from $16.86 after it failed to entice enough minority shareholders. Five days later, Sears Holdings also announced that it had secured "support agreements" with an unnamed group of shareholders who agreed to tender their shares at $18, even though Sears Canada's stock price was trading in the $18.75 range. The unnamed group also agreed to support the privatization of Sears Canada in December.

Mr. Ackman led a dissident group of Sears Canada minority shareholders who pressured the OSC into examining the roles of the banks in proposed takeover and whether all of the retailer's shareholders were being treated equally.

In a separate filing with the Ontario court, Sears Holdings argued the OSC's "unprecedented" ruling has created uncertainty in the province's capital markets.

In its appeal, the Illinois-based company said the standards used to make the decision depended "entirely on the subjective opinions and predispositions of the particular Commissioners hearing the application." As a result, that leaves market participants "in a situation in which they no longer know the rules they are required to follow, or even whether following the rules will be sufficient," the company argued.

A hearing is scheduled for Sept. 18.

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Sears Holdings extends buyout offer for Canadian unit
Reuters
August 30, 2006

$775M tender extended to Sept. 29 as retailer appeals regulatory decision

(Reuters) — Sears Holdings Corp. said on Wednesday it extended its C$892-million ($775 million) offer to buy the rest of Sears Canada Inc. until Sept. 29 as it appeals a regulatory decision that stalled the deal.

The Ontario Securities Commission said earlier this month that Sears Holdings' offer to take Sears Canada private had fallen short of disclosure obligations.

It ruled that Sears Holdings must exclude votes held by a number of minority shareholders from its calculation of how many Sears Canada shareholders are voting in favor of its buyout offer. The OSC said Sears Holdings gave better terms to these shareholders in return for their support and failed to disclose the arrangements.

Sears Holdings has appealed the OSC decision, and said the Ontario Divisional Court will hear arguments on Sept. 18. The retailer said its offer may be further extended.

The owner of Sears and Kmart stores is the majority owner of Sears Canada, but a majority of minority shareholders must support its offer to take the Canadian operation private.

Sears Holdings has offered to buy the remainder of its Canadian unit for C$18 a share. It declared victory earlier this year after winning the support of most of the minority shareholders.

But a complaint was filed to the OSC by a group of dissident Sears Canada shareholders, including U.S. hedge fund Pershing Square Capital Management LP.

Shares of Sears Canada closed at C$21.55 on the Toronto Stock Exchange on Tuesday. The stock is trading nearly 20 percent above Sears Holdings' buyout offer.

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Mail-order homes a step into history
By Jen Waters – Washington Times
August 30, 2006

Linda Hopper's grandparents lived in a Sears home no matter where they moved. In 1985, Mrs. Hopper bought her own Alpha Bungalow Sears home at 4770 N. 25th St. in Arlington. She says it was built in 1925 for about $3,000. Today, homes in her neighborhood sell for $600,000 to $800,000.

"When I think of home, I see a Sears Craftsman of some shape or sort," Mrs. Hopper says. "Now I see my house. This house had everything I was looking for in a house."
From 1908 to 1940, Sears, Roebuck and Co., offered 446 styles of homes for sale via mail order. Railroad lines offered easy access to Arlington County and the District for the transportation of the products.

On Sept. 23, the Smithsonian Associates will offer a tour, Sears Houses of Arlington. The cost for Smithsonian resident members and Clarendon Adult Education Center members is $50; general admission is $67.

There are more than 1,000 kit homes in Arlington County, says tour leader Kathryn Holt Springston. The popularity of the pre-made homes fluctuated in the 1950s and 1960s, but by the 1980s, they began to boom in popularity.

"There is no such thing as the typical Sears house," Mrs. Springston says. "They have different finishings, floor models and paint."

The options for paint included white, canary yellow, dove gray, emerald green and barn red. Many of the Sears homes had closets, though they weren't built into most new houses until the 1940s.

In 1908, the average kit cost $296, but by 1941, it cost $5,000, Mrs. Springston says. Sears also ran a mortgage company that offered low interest rates.

"By allowing these houses to be purchased through the mail, it made it easier for everyone to own a home," Mrs. Springston says. "It furthered the American dream."
After the home was ordered, the first railroad boxcar shipment brought foundation materials, floor plans and walls, she says.

Next came finishing materials, such as doors, windows, plaster and plasterboard. The third load included the fireplace, roof materials, extra trim, oak floors and stained-glass windows, she says. Customers also could order extra fixtures.

Sears numbered every piece of wood for construction purposes. Usually the homeowners would build the home themselves, sometimes with the help of friends, family or neighbors, or a local contractor would be hired, Mrs. Springston says.

In 1924, Charles and Ethel Taylor received $500 for a wedding present. They bought a lot at 1815 Stafford St. in Arlington for $250. Then they paid $250 for a Sunlight model Sears home and built it themselves.

"They lived there until they passed away," Mrs. Springston says. "It's been sold many times. Last time it was sold, it went for about $700,000."

Mrs. Springston has been asked through the years to authenticate Sears homes. The only way to distinguish them accurately from other kit homes of the era is to measure them. She compares the measurements against the floor plan for the model.

"They tend to have a front porch with pillars in groups of three," Mrs. Springston says. "They tend to have six panes over one pane of glass in the windows."

The Americus model owned by Margaret and Bob Quinn of 1903 N. Quebec St. has three bedrooms, a bathroom, a living room, dining room and kitchen from the original home built in 1925. The original price was $2,600. The home is part of the bus tour.
"Sears homes have a lot of personality and character," Mr. Quinn says. "New houses today are sterile and boring."

Additions to the home had been completed before the Quinns bought the house in 1980. After purchasing it, they renovated the home and built a cottage in the back yard. Many original doors and moldings still exist in the house, as well as exposed brick. It is for sale for $1.35 million.

"Sears homes had a reputation for building a high-quality home," Mr. Quinn says. "If it was built right, it would stay together for a long time. They prided themselves on the wood that they used. They used dried wood that didn't shrink, and the floors don't squeak as much."
Another Sears home on the tour is a Walton model built in 1920 by U.S. Navy Capt. P.T. Wright, a submarine commander, at 2436 N. Glebe Road. Maureen Tankersley, the owner since 1994, suspects that Capt. Wright lived in the house until the 1970s.

"If I were going to build a new house, I would build the same model that I have, with maybe a little larger kitchen," Mrs. Tankersley says. "I love it. It's a great layout."

Buying a house through the mail at the turn of the century was almost the same as buying books through Amazon.com today, says Robert Schweitzer, owner of Historic Color Consulting (www.historichousecolors.com) in Ann Arbor, Mich. He is the co-author with Michael Davis of "America's Favorite Homes."

"There hadn't been kit houses before," Mr. Schweitzer says. "It was a new, innovative way of doing things."

If a person lived in rural Virginia, the mail-order catalog gave him more options than the local builder that created the same home for everyone, Mr. Schweitzer says. It proved to be cheaper and more convenient to order a home by mail.

Sears says it produced 100,000 homes across the country, Mr. Schweitzer says. The houses are scattered nationwide, with concentrations in New England, New Jersey, Virginia and the Washington area. Illinois, Indiana, Michigan and the Seattle and Tacoma, Wash., areas of the Northwest coast also have groups of the houses, he says.
The homes usually are popular today because of their ready-made history. It brings a connection to another time and place that doesn't come with subdivision homes, Mr. Schweitzer says.

"In many places, as much as 10 years ago, where I live, if you identify it as a Sears house, the real estate people said it added at least $10,000 to the price," Mr. Schweitzer says. "It's like any oceanfront property. There isn't any more. There is only so much. If you want a specialty item, you have to pay for it. It's like owning a '68 Camaro. It's that kind of rarity item."

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Eight Companies Whose Managers
Have Real 'Skin in the Game'

Seeking Alpha.com
August 29, 2006

Posted on Aug 29th, 2006 with stocks: BKE, BRKB , FFH, FOSL , KSWS , OO, OSTK , SHLD.

Shane submits: As you know, finding a management team that is aligned with the shareholders (owners) of a company can be tricky. Despite attempts to bring increased alignment, it's clear that the incentives have never, and probably will never, be perfectly aligned. Most CEOs and corporate boards say one thing publicly yet do something altogether different privately. The consequences when this happens can be staggering for the shareholders.

You're probably thinking that the CEO of your favorite company is a shareholder and he receives numerous stock options every year. You have no doubt been informed, via management communications, how these options better align the CEO with you the individual shareholder. While stock options certainly allow management to profit from rises in the stock, they don’t allow management to suffer proportionally if the business it self is not performing.

For most management teams, it's a clear case of heads you win, tails you win more.

I concede, I am not a big fan of stock options for high-level executives. I feel management should participate in the future of the company by making a substantial investment in much the same way other shareholders have. Compensation should be reasonable, within the control of the executive, and clearly aligned with the underlying performance of the business. When setting compensation for top management, there is no substitute for a management team that thinks like owners. Unfortunately, the rest of the world hasn't caught on yet, but I still hope that they will.

Although there is no foolproof way of finding a management team that wil l be properly aligned with the shareholders, finding a respectable board of directors with a substantial percentage of their net worth invested in the company is a great starting place, and the advantages to investing alongside management-owners can be numerous.

For example, if management has significant downside risk, this should help ensure discipline around expenses. It will also foster an environment where all employees treat the company's money as if it was their own. Significant ownership will also force the company to use higher hurdle rates for their internal investments in the business. (For example, investing $1 million in an existing business that results in increased sales by $10 thousand is not a good investment.) A company should only invest capital where the returns are adequate.

Another advantage of having management-owners is that it will reduce the natural tendency to pursue empire building. This disease infects far too many executives, and typically results in companies seeking out acquisitions that either increase revenue or allow them to acquire some hot new technology that will change the world in five years. These acquisitions are followed by media conferences where both companies promise increased profits, numerous synergies, etc. as they walk down the yellow brick road together. Unfortunately for the shareholders, these acquisitions are typically done with little regard for return on investment, and often fail to deliver on the promises. This type of situation happens more often than I can count, after all these executives are usually not spending their own money. Generally speaking, it would be better for shareholders to see a certain return to an uncertain acquisition.

At Sears Holdings,  the board of directors holds a very significant ownership stake in the company representing over 45% of the outstanding shares. This means, for every dollar spent the board accounts for over 45 cents of it. Communications from the company are clear and candid with problems openly discussed. Compensation for executives is clearly aligned in a manner that ties pay to operating performance of the company (not stock performance).

Referring to the large ownership stake the directors of the company have, Eddie Lampert, the chairman of Sears Holdings, said it best:

...we will be able to manage the business strategically and for the long term without having to worry about figuring out how to make monthly same-store sales targets, hit a specific target, and without giving any type of quarterly earnings guidance and then trying to manage the business to that guidance.

Now that my friends, sounds like an owner with a lot of skin in the game.

Is it a coincidence that one of the greatest modern business turnarounds came after the company required executives to take positions in the company stock alongside the shareholders? IBM was in a lot of trouble in the early 1990s when Louis Gerstner took over. One of his significant early changes was to the compensation structure. Executives were not to receive stock options unless they had a pre-determined multiple of their salary (as high as 4x) in company stock that was bought on the open market. He wanted the top executives to know they wouldn't be benefiting unless shareholders did as well. Looking back, IBM turned itself around in a hurry with a lot of hard work from some brilliant people, but I have a suspicion that requiring executives to have meaningful portions of their wealth in company stock certainly didn't hurt the turnaround.

At this point you're probably wondering if there are many companies publicly available with owner operators. The answer is yes, off the top of my head I can think of the following (and a few of them are even selling for attractive prices):

Berkshire Hathaway (BRKB <http://seekingalpha.com/by/symbol/brkb> ),
Sears Holdings (SHLD <http://seekingalpha.com/by/symbol/shld> )
Fossil (FOSL <http://seekingalpha.com/by/symbol/fosl> )
K-Swiss (KSWS <http://seekingalpha.com/by/symbol/ksws> )
Fairfax Financial (FFH <http://seekingalpha.com/by/symbol/ffh> )
Overstock.com (OSTK <http://seekingalpha.com/by/symbol/ostk> )
Oakley (OO <http://seekingalpha.com/by/symbol/oo> )
The Buckle (BKE <http://seekingalpha.com/by/symbol/bke> )

If you want a real eye-opener, the next time you get a proxy statement in the mail look at how much of the company the board owns. If you want a real shock, remove the stock options, and make the same calculation (you'll want to put your coffee down first).

I should end by saying that investing your capital with management-owners is no substitute for thinking before you invest and waiting for attractive opportunities to invest at prices well below the intrinsic value of the business. After all, you should deploy your capital in a similar way to the one you expect the companies you own to deploy it - that is with a high hurdle rate of expected return while paying great attention to downside risk.

Disclosure: At the time of writing, the author or his immediate family owned positions in one or more of the companies mentioned.

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Outside Audit
Pensions Likely to Stay Dying Breed
Law Fails to Offset Reasons For Employers to Freeze,
End Defined-Benefit Programs
By Steven D. Jones - Wall Street Journal
August 29, 2006

President Bush recently signed into law a comprehensive bill aimed at rehabilitating the traditional pension plans still operated by many American companies. The irony is that many companies whose pensions are in fine form probably will limit benefits anyway.

More corporate leaders and their advisers are assessing the costs of so-called defined-benefit retirement plans and coming to more or less the same conclusion: The costs of maintaining these plans are still simply too great. Defined-benefit plans -- your grandfather's pension, for example -- guarantee retirees set monthly payments for life, with the size of checks generally based on years of service and salary levels in the final years on the job.

The Pension Reform Bill compels many companies to fully fund their defined-benefit plans over a period of years and pay a small additional premium to shore up the U.S.'s pension-insurance fund, which essentially is the pension insurer of last resort. But the bill also may add to incentives to freeze benefits.

"I believe we will witness an unprecedented number of companies closing their well-funded, defined-benefit pension plans to new employees," James Klein, president of lobbying group American Benefits Council, wrote in a media release when the bill was signed.

Verizon Communications Inc., Motorola Inc., Hewlett-Packard Co., International Business Machines Corp. and others have announced freezes of defined-benefit pension plans. Delta Air Lines and Northwest Airlines intend to impose freezes as part of reorganizations under the U.S. bankruptcy code.

Yesterday DuPont Co. said starting next year it will cut its contribution to its pension plan by two-thirds while raising its contribution to an employee savings and investment plan.

Companies freeze plans generally either by locking out new employees -- a soft freeze, in the argot of the pension industry -- or by halting such new enrollments and stopping the accrual of benefits to existing employees, a hard freeze. Retirees generally aren't affected.

Hewlett-Packard, for example, imposed a freeze in January on its defined-benefit plan for workers other than those close to retirement, while raising its matching contribution for 401(k) defined-contribution plans to 6% of salary from 4%.

IBM by comparison converted it into what is known as a cash-balance pension, which creates a hypothetical account for each worker that grows by an annual amount, then later announced it would freeze the plan. A court ruling supported IBM's switch, a decision pension experts say will pave the way for more companies to adopt such a strategy.

For companies, there are clear economic benefits to freezing a pension plan. Jack VanDerhei, a professor at Temple University and a research director at the Employee Benefit Research Institute, has analyzed pension freezes and estimates a hard freeze can cut the annual retirement payout to a worker by more than half.

Payments to most pensioners in a defined-benefit plan are calculated using what is referred to as final-average defined-benefit formula. The company multiplies the number of years worked by the average of the worker's three highest years of pay times 1%.

Take an employee who retires at age 65 after 35 years on the job, who earned an average $103,000 a year during his final three years of employment. His benefit would be about $36,000 a year, or $103,000 times 35 years times 0.01. If that retiree lives to age 85, the total benefit paid would be $720,000.

Yet consider what would happen if the company had frozen the pension plan when the worker was age 50 and had put in 20 years on the job.

Suppose the employee's average salary for the three years before the freeze was $70,000. Upon retirement at age 65 the benefit would be just $14,000 a year ($70,000 times 20 times 0.01.), or $22,000 a year less. At 85, the total benefit paid out would be $280,000, or $440,000 less than the total benefit had the pension not been frozen.

Even companies whose traditional pensions are fully funded -- meaning they have enough assets on hand to cover benefits of all participants -- are freezing plans. The reasons: retirees are living longer, raising overall costs, and because of the new pension-accounting rules to be implemented that require companies to deduct their plans' shortfalls from net worth.

"I believe a fair number [of companies] have looked at what this is likely to do to their stock prices and loan covenants and decided that kind of risk is just too much," says David John of the Heritage Foundation, a conservative think tank.

One upside to the possible extinction of traditional pensions is that financial-service companies probably will look for new ways to help workers save for their Golden Years on their own, a decidedly tall order: The 50-year-old worker whose pension was frozen in the example would have to begin putting aside nearly 13% of his salary annually for 15 years to make up the $22,000 gap created by the freezing of the employee's defined-benefit plan.

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Competition grows as brands lose places to hang their wares
By Jayne O'Donnell, USA TODAY
August 29, 2006

McLEAN, Va. — Walk into the Hecht's department store at Tysons Corner Center mall here and the first thing you'll likely notice are all the Macy's signs going up. The next easily could be the prominence of the Ralph Lauren displays. Blink and you could miss the Tommy Hilfiger racks in the women's department.

There's a battle of the brands going on behind the scenes at a department store near you.

Some of the best-known clothing and accessories companies, such as Jones Apparel and Liz Claiborne, are dealing with fewer outlets to sell in, thanks to department store consolidation. Federated Department Stores (FD) bought May Department Stores last year, and on Sept. 9 former May stores across the country will become Macy's. Meanwhile, Saks (SKS) has sold several of its non-Saks department stores to Belk and Bon-Ton.

The mergers leave clothing brands looking for new outlets, opening their own retail stores and trying to quickly make friends with new buyers for the remaining department-store names.

"Both the retailers and the suppliers are looking at their business with new scrutiny," says Arnold Aronson, a former CEO of Saks Fifth Avenue and the former Woodward & Lothrop department store chain. He says they are asking themselves: "How are we going to get better so we can survive? How are we going to get more efficient, more customer-friendly and give better product for the price?"

Apparel companies' relationships with retailers are important to both sides' bottom lines. "They need to work together to continue to gain share," says retail analyst Dana Telsey of the Telsey Advisory Group.

Department stores largely control how merchandise is displayed in their stores, how often it is promoted and at what prices. The apparel companies negotiate the size and placement of their in-store displays or departments. They also negotiate how much money they contribute to cover markdowns and which clothes and complementary designs — such as a brand's jeans and T-shirts — are purchased and in what quantities.

The Liz Claiborne company, which owns 43 brands ranging from Dana Buchman to Monet to Juicy Couture, prepared by opening more free-standing stores and diversifying its brands.

"I've got to bite a short-term bullet," Liz Claiborne CEO Paul Charron says of the Federated/May store closings. "But those were not the best stores ... or the more profitable. I do not lay awake at night and worry."

But some experts say others, including Jones Apparel (JNY), Tommy Hilfiger and Kellwood (KWD) — owner of the Phat Farm and Sag Harbor brands — may, indeed, lose some sleep. The mergers could add to their mounting financial woes. Both Jones and Kellwood have cited consolidation as a reason for their declining sales.

Jones had been for sale but recently pulled itself off the market because, it said, bidders didn't understand its real value. "This is a year where there is a lot of change going on," says Jones CEO Peter Boneparth. "Change breeds a lot of misconceptions about brands and the quality of brands."

Boneparth says his company has decreased its reliance on department stores from 80% of sales 10 years ago to 20% today, increased its business with lower-end retailers such as Kohl's and opened more of its own retail outlets. The company now has more than 900 retail outlets for its brands, which include Nine West.

"In the industry, there has been speculation that this type of merger might come down the road, so vendors have had the opportunity to think in advance, prepare and diversify what they do," says Dan Butler, the National Retail Federation's vice president of merchandising and retail operations.

Consolidation can have its benefits

But some retail experts say they've had varying degrees of success.

With retail consolidation, "You have to stand for something incredibly strong to sell into department store channels, because there is so much competition," says retail analyst Jennifer Black of Jennifer Black & Associates. "Some brands aren't well-known enough."

Likely winners:

•Polo Ralph Lauren. The brand is booming. Says Black: "Polo is hitting on all cylinders." The brand made the decision to pull out of underperforming May and Federated stores before the merger, so it is far less affected by consolidation than some competitors. "What kind of foresight is that? It's visionary," Black says. Although Polo doesn't have many other brands, it does have stand-alone stores and labels that target customers all the way up to those who buy couture. The company also has taken back its children's and footwear licenses to better control the final product.

•Liz Claiborne. Aronson, now managing director of retail strategies for global consulting firm Kurt Salmon Associates, says Liz Claiborne brands are more favored by Macy's than they were at May stores. Like Ralph Lauren, its "contemporary fashion" will fit Federated's tendency toward "suppliers that represent the higher end." Black says by opening new stores for Juicy and Sigrid Olsen, among other brands, Liz Claiborne is "further taking control of their destiny." The number of Liz Claiborne brands has increased tenfold since Charron took over 12 years ago. In that time, the percentage of sales from department stores has dropped from 90% to just 30%, while sales attributable to the Liz Claiborne brand are down from 90% to about 22%.

• Phillips-Van Heusen (PVH). The owner and distributor of Calvin Klein brands and the men's shirt behemoth is enjoying brisk sales in department stores despite consolidation. The company says Calvin Klein, Kenneth Cole and Geoffrey Beene brands are "driving" its sales growth. Calvin Klein menswear is expected to be offered in about 60 more department stores this year, up from 500 at the start of the year. Tara Carter of Jennifer Black & Associates reported last week that the company should see revenue growth of up to 20%, thanks in part to its availability in more department stores and because it is expanding its own retail businesses. The downside: The company is not being diversified much outside of menswear.

Possible losers:

•Jones Apparel. Some of its brands could be a "what's hot" list — from the 1980s. Evan-Picone, Pappagallo, Kasper and Bandolino are among them. Black says Jones suffers from having a "very mediocre" portfolio of brands and the fact that it doesn't own premier brands besides Barneys and its stores. Unlike Liz Claiborne, which has brands for every taste and pocketbook, Jones' brands tend toward the most competitive, moderate tier. Boneparth says it's "categorically untrue our brands are losing their relevance." Indeed, Jones New York and Anne Klein remain highly visible brands at Macy's and soon-to-be Macy's stores, and Boneparth says they are picking up some additional floor space.

"Our two largest customers merged, but that doesn't mean it's a negative," says Boneparth. "Federated is in the process of transforming into a national brand. We actually believe that strategy will allow us to grow with Federated."

•Kellwood. This apparel maker and distributor is hardly a household name, but some of the brands it manufactures are. After disappointing first-quarter earnings, including a 10% drop in women's sportswear sales, CEO Robert Skinner said the company was "revitalizing" brands, including Sag Harbor and Koret. "We have upgraded the management, improved business processes and look forward to better profitability in the second half," said Skinner.

Last month, Standard & Poor's Ratings downgraded its outlook on Kellwood from stable to negative. Several retail experts say Kellwood could be one of the hardest hit by consolidation, in part because it has made a lot of department stores' private labels. But Telsey says the company could recoup by picking up new private-label business.

•Tommy Hilfiger. The Hilfiger brand, which lost many of its traditional customers with a foray into urban-oriented clothing, is trying to make a comeback in the USA. The brand, which has become ubiquitous on department store discount racks, is trying to become more of a specialty retailer, but many experts remain skeptical. In May, Tommy Hilfiger was purchased by funds advised by Apax Partners and taken private. A new management team was put into place and, this summer, the company shut down the New York-based Karl Lagerfeld label it acquired last year so it could focus on rebuilding the Hilfiger brand. In a statement, the company said it is "diversifying its distribution channels and its worldwide geographic reach in order to maximize opportunity and minimize risk." The company now has "a presence in 81 countries" and more than 600 "full-price" Tommy Hilfiger stores. The company says its department store business accounts for less than 20% of its worldwide business.

Brands seek control

One thing consolidation has done is to make it more important for brands to be able to control their manufacturing and distribution through their own retail outlets, says Black. Apparel companies often prefer to have all of their line grouped together rather than to have a department store put their jeans with other makers' jeans and their sweaters with other makers' sweaters, says Butler.

Besides, the label's owner is likely to take more pride in the presentation than the retailer. "There's a certain level of frustration among vendors as to the way merchandise is displayed" in department stores, Black says.

Darrell Rigby, head of the global retail practice for consulting firm Bain & Co., says smart brands also will form partnerships with the strongest retailers and customize their offerings the way some already have with Macy's. Along with heavily promoting its private labels, Macy's will have exclusive merchandise from Elie Tahari and Martha Stewart in fall 2007. Vera Wang announced a deal last week to create an apparel line for Kohl's, just as Isaac Mizrahi did for Target.

Where shoppers stand to gain

Rigby says shoppers will benefit from some of the likely improvements made in a downsized retail environment. Among them: Apparel companies will need to shorten their lead times to help get the trends and fashions consumers want into stores.

Members of USA TODAY's shopper panel report that despite some nostalgia, they are adjusting to the loss of their hometown stores. One big reason cited is that they can find many of their favorite, more-upscale labels.

El Paso-based Anita Ontiveros, 65, was pleased when Federated acquired the May-owned Foley's department store in her area.

Ontiveros didn't shop at Foley's because it didn't have designer clothes. Now she's pleased to see that Foley's, which will become a full-fledged Macy's next week, has a good selection of designers, including Ellen Tracy and Dana Buchman.

"I think Foley's, I mean Macy's, will allow me to make a better fashion statement now," says Ontiveros.

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Grand old stores too old, grand
Carsons' flagship no longer destination

By Sandra Jones - Tribune staff reporter – Chicago Tribune
August 27, 2006

Can a store be too big?

The Bon-Ton Stores Inc. thinks so. The Pennsylvania-based company's decision to shutter its Carson Pirie Scott flagship next March highlights what many in the department store industry have known for years: Grand old department stores as big as a city block and older than their patrons are a luxury that few companies can afford to operate.

The Carsons building on State Street in the Loop is 1 million square feet. That's big enough to fit four Wal-Mart Supercenter stores inside.

Carsons sold the building years ago and is leasing back a slimmer 600,000 square feet inside. But still, that's big enough to fit nearly two Ikea stores.

The department store flagship grew up when shoppers looked forward to making a special trip downtown to visit the one big store where they could buy books, toys, furniture, clothing, bedding, cookware, and in later days, stereos, all under one roof.

Those days are gone, but the buildings remain.

"They're white elephants," said Homer Johnson, professor of management at Loyola University Chicago's school of business administration and an expert on the history of department stores. "There is just too much space and not enough merchandise to put in it. These big stores are no longer destinations. You can get most of what you want somewhere else."

Today, shoppers drive to Wal-Mart or Target, park in an expansive parking lot and walk through a one-level store that has all the items they need, frequently including groceries and gas for the car. But even those one-stop shops have their limits. Wal-Mart's biggest Supercenters are 230,000 square feet, not nearly as big as Carsons.

Cabela's, the warehouse-size sports store from Nebraska, operates some of the biggest stores in the country, big enough to hold an indoor mountain. Its largest stores are also only 230,000 square feet.

Indeed, entire malls could take up the space Carsons is leaving behind, including the Westfield North Bridge mall on North Michigan Avenue that is home to Nordstrom.

Flagships are "antiquated notions," said Neil Stern, an analyst at Chicago-based McMillan Doolittle. "No one really has any thoughts of how to merchandise to be effective in 600,000 square feet. The notion of a giant flagship just doesn't work anymore."

But not every merchant agrees with that thinking.

Just down the street from Carsons, Federated Department Stores Inc. has taken over the massive Marshall Field's flagship and is about to convert it to Macy's.

At 1.8 million square feet, the structure is the second-largest store in the nation after Macy's Herald Square in New York, which is 2.2 million square feet.

While Stern predicts Macy's will eventually cut back on even that amount of space, Federated is committing itself to the flagship concept.

Federated Chairman and CEO Terry Lundgren has taken great pains to assure Chicago that the State Street flagship, even as its name changes to Macy's, will remain intact. Lundgren is on a mission to revive the department store and looks to the flagships at Macy's Herald Square in New York, Macy's Union Square in San Francisco and the soon-to-be Macy's State Street in Chicago as key to his plan.

"Our philosophy is the flagships are the hubs of activity that draw the largest customer audiences and can offer the best of everything," said Jim Sluzewski, vice president of corporate communications at Federated in Cincinnati. "It takes a significant amount of money to make a flagship function. For us the concept of the flagship is very much alive."

Still, flagship stores have been disappearing for the past decade. In 1998, Hudson's 2 million-square foot flagship store in Detroit, billed as the world's tallest department store at about 25 stories tall, was demolished. And last month Vornado Realty Trust agreed to buy Federated's 656,000-square-foot Filene's flagship in Boston for about $100 million and turn it into offices and shops.

Michael Bennett, a 26-year-old shopper who lives in Lincoln Park, says grand old stores don't hold as much appeal as what's inside them. If the store has something he can't find elsewhere, such as the Thomas Pink shirt shop inside Marshall Field's, he'll make a special trip. Otherwise, there's little reason to go.

"For the time it takes to take the el downtown on the weekend, I can easily hop in the car and go to Old Orchard."

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After Smooth Sales Talk, Stores Take Macy’s Name
By Michael Barbaro – New York Times
August 26, 2006

PORTLAND, Ore. — It was to be the most ambitious transition in the history of American retailing: To complete the merger of Federated and May, the nation’s largest department store companies, executives would abandon the names of 11 storied local chains, like Marshall Field’s in Chicago and Filene’s in Boston, and replace them with Macy’s, the very symbol of New York City.

And focus groups signaled that it could be a public relations disaster. “I left New York for a reason,” one consumer told Macy’s executives here. But protests now seem remote as company officials prepare, in their words, to “Macyize” 400 stores on Sept. 9. And the reason has much to do with the diplomacy of one man who has crisscrossed the country, a chief executive cum politician, handing out money and promises, and calming local nerves as part of a campaign to neutralize opposition before it gathered strength.

Terry J. Lundgren, the chief executive of Macy’s parent company, Federated Department Stores, flew to Los Angeles, where he agreed, at the mayor’s request, to build a Macy’s at a mall in North Hollywood. In Chicago, he promised to resume local manufacturing of the famed Frango mints at Marshall Field’s. In St. Louis, he vowed to keep the downtown Famous-Barr store open, despite years of poor sales.

“When you are a company of our size, trying to make the changes we are making, you need a close relationship with local officials,” Mr. Lundgren said in an office at Macy’s Herald Square store in Manhattan. “You have to get off on the right foot.”

Any misstep would be costly. The merger Mr. Lundgren engineered in early 2005 was always a high-stakes bet that in a retail landscape dominated by big-box chains like Wal-Mart and specialty stores like J. Crew, consumers still needed department stores, and that they would warm to a retailer that wiped out century-old local brands.

The delicacy of the task may explain why Mr. Lundgren traveled here to painstakingly court Gerry Frank, whose family started Meier & Frank, a 149-year-old Oregon department store that Federated inherited when it bought May. Last year, Mr. Frank, the great-grandson of Meier & Frank’s founder, wrote a letter asking Mr. Lundgren, in no uncertain terms, not to tamper with the identity of the family’s department store. “I think I can speak for many, many Oregonians,” he wrote, “in asking that Federated maintain the Meier & Frank name.”

So, in the midst of the $11 billion takeover of May, Mr. Lundgren flew 2,500 miles to dine with Mr. Frank in Portland. Back at his office in New York, Mr. Lundgren exchanged flattering e-mail messages with him (“You are a Great Man and True Friend,” concluded one note from Mr. Lundgren. “Don’t be afraid to ask me or tell me anything,” read another.)

In a final flourish, Mr. Lundgren agreed to emblazon Mr. Frank’s family name on plaques outside the downtown Portland store after it became Macy’s.

“Today I would jump off a building for him,” Mr. Frank said of Mr. Lundgren.

It is a performance that Mr. Lundgren has repeated over and over, from Boston, where Macy’s will become an official department store sponsor of the Boston Red Sox, to St. Louis. “He called me on the phone several times, met me in person twice, then he had us up to New York,” said Francis G. Slay, the mayor of St. Louis, where the Famous-Barr chain is soon to become Macy’s. “Honestly, I was surprised that he gave so much personal attention to us.”

At the heart of Mr. Lundgren’s campaign is a simple insight into the politics of retailing: people care more about store symbols and traditions than the names behind them.

So instead of fretting over the loss of Hecht’s in Washington or Famous-Barr in St. Louis, Mr. Lundgren focused on the handful of rituals that matter to shoppers — the Christmas tree lighting ceremonies, the Santaland displays and the July 4 fireworks shows.

Even in Chicago, where 60,000 people signed an online petition to preserve the Marshall Field’s name, Mr. Lundgren has managed to win over detractors by emphasizing tradition, big and small. He has ensured, for example, that the downtown State Street store’s elaborate Christmas windows will remain untouched. He signed off on a plan to refurbish an abandoned express elevator that once carried shoppers directly to the store’s designer boutique, 28 Shop.

And he has seized on Frango mints, a cherished symbol of the State Street store and the source of a public relations fumble for Marshall Field’s earlier owner, Dayton Hudson, in the late 1990’s. Shortly after buying the chain, Dayton Hudson outsourced the mint’s production, laying off about 150 local workers and earning a very public rebuke from Mayor Richard M. Daley.

No wonder, perhaps, that at a luncheon in July that was expected to reveal long-simmering tensions over the Marshall Field’s name change, Mr. Lundgren announced that Macy’s would begin manufacturing Frango-mint-flavored cheesecakes in Chicago, a headline that dominated local newspapers the next day.

At the end of the lunch, members of the audience swarmed around the 54-year-old Mr. Lundgren, a silver-haired, meticulously groomed former Neiman Marcus executive. Several asked for his autograph.

“Very smooth,” was the verdict of one attendee, John S. Maxson, president of the Greater North Michigan Avenue Association, which represents 700 businesses in downtown Chicago. “Were this not handled as expertly as it has been, it could have been a big disaster. It has not been.”

Although Mr. Lundgren is credited with improving Federated’s financial performance, the company is by no means a runaway success. Before it bought May, it reported sluggish sales growth for several years. Bolstered in part by the merger, its earnings have improved; in the 12 months ended in January, revenue was $22.3 billion and profit was $6.5 billion.

All the more reason that Mr. Lundgren insists on sticking to the most disputed part of his plan, the name changes. The May department store chains, Federated executives maintain, have buried consumers under a blizzard of coupons and flustered them with crowded aisles of middle-brow fashions. As a result, the chains lost their relevance as purveyors of style and, with it, their ties to the community.

To prove the point, Mr. Lundgren tells a story. Soon after Federated disclosed that Marshall Field’s, an upscale Midwest department store, would lose its name, scores of shoppers wrote blistering letters to the company, with several threatening to cut up their Field’s charge cards.

Worried that the reaction might be widespread and hurt the chain’s sales, Mr. Lundgren asked the accounting department to pull the purchase records of the first 100 letter writers. “There was no activity,” he said. “Or incredibly little activity.”

“This is where the tension was coming from,” he continued. “There was a group of people who did not want a change. But do they like the merchandise in the store? Not according to their spending. In their letters, they talked about when they were a child. But nobody was talking in the present tense.”

The lesson was clear: changing the name was unlikely to hurt sales. In fact, it might improve them. Then there is the pure financial logic. The conversion to Macy’s will save Federated millions on advertising — one name is cheaper to market than 11 — and create one national brand with stronger negotiating power with clothing suppliers.

Mr. Lundgren said that power had already translated into exclusive product lines for Macy’s, which is trying to shake its reputation as a stodgy, midprice department store by carrying higher-priced, more fashionable brands. After the merger, Martha Stewart said she would develop an upscale furniture line for the chain — much to the chagrin of Kmart, which carries her Martha Stewart Everyday products — while the designer Elie Tahari agreed to create a collection of women’s clothing.

Mr. Lundgren’s commitment to stock more upscale merchandise has become a major selling point in his campaign to sell local political leaders on the Macy’s takeover. For years, officials in St. Louis, Washington and Portland have complained that May dumped cheap goods into their downtown stores.

“It was heartbreaking to watch,” said Mr. Frank, the Meier & Frank scion, who waged a bitter — and unsuccessful — battle to stop his family from selling the chain to May in the 1960’s. “Row after row of sales merchandise just turned people off.”

In their early conversations, Mr. Lundgren told Mr. Frank he would try to restore the luster to the Meier & Frank legacy, investing in elegant new store fixtures and more prestigious clothing brands. But Mr. Frank, at one time the chief of staff to the former Oregon Senator Mark O. Hatfield, a confidant of the Oregon governor and a columnist for the state’s largest newspaper, still opposed the name change.

Upsetting Mr. Frank could mean upsetting much of the Oregon political establishment, so Mr. Lundgren took his charm offensive on the road. He and his wife, Tina, attended a charity dinner in Mr. Frank’s honor in Portland, writing a donation check on the spot. He later invited Mr. Frank to lunch in New York City.

Mr. Lundgren also began exchanging frequent letters and e-mail messages with Mr. Frank, often venturing beyond business matters and speaking in strikingly personal terms. “Tina and I will be there for you if and when you ever need us,” concludes one e-mail message, which Mr. Frank shared with a reporter. “We both absolutely adore you.”

After Mr. Lundgren learned that a block in downtown Portland would be renamed “Meier & Frank Square,” he wrote: “Frankly (no pun intended), I would rather it be named Gerry Frank Square but we are all happy with the alternative. You are the very best.”

Mr. Lundgren has certainly let local leaders down, too. Shortly after Federated announced its plans to convert May stores into Macy’s, a team of political and business leaders from St Louis, where May is based, flew to New York to meet with Mr. Lundgren. In a conference room at Macy’s Herald Square store, they asked him to consider relocating Federated’s headquarters from Cincinnati to St. Louis, which would spare the city steep job losses. “I really appreciate this,” Mr. Lundgren recalled telling the group. “But we are not going to do this.”

In the end, the city lost several hundred jobs. But like their counterparts in Portland, Los Angeles and Philadelphia, St. Louis city leaders did not walk away empty-handed. Mr. Lundgren agreed to designate St. Louis the headquarters of Macy’s Midwest division, overseeing stores from Kansas City to New York, and to renovate the first floor of the city’s struggling downtown store. Mr. Lundgren delivered each piece of news himself, either in person or by phone.

To Mr. Slay, the mayor of St. Louis, the experience must have seemed strangely familiar. “That is,” he said, “a political approach.”

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One year later - Beyond the merger
Kmart, Sears stores still struggling to find niche

By Dorothy Bourdet Detroit News
August 26, 2006

When Chairman Eddie Lampert hauled Kmart out of bankruptcy and announced an $11 billion purchase of Sears Roebuck & Co., some hailed the deal as a comeback for Kmart, a chance for the discounter to better compete with big rivals.

But nearly 18 months after the merger, shopper Sue Bashar, 49, squints at the faded signage of a Kmart store in Livonia. The store looks very much the same -- and that's not a good thing.

"This is old, Wal-Mart and Target are new. It's like out with the old and in with the new," she said recently. "It's not real appealing in the store."

While Kmart has seen plenty of changes since March 2005, when its purchase of Sears was finalized, analysts say they haven't been the sort of improvements needed to boost the retailer's market share and woo shoppers away from competitors.

Many of those analysts question whether Sears Holdings Corp. and Lampert even care about growing Kmart and Sears sales and market share. Analysts were abuzz over discussion in the company's second quarter earnings report about the possibility of investing surplus cash in liquid securities that easily and quickly could be converted to cash. Lampert also spoke about capitalizing on market opportunities, another signal that his long-term plan may include investing elsewhere.

"We are prepared to invest substantial amounts of capital if we identify other attractive investment opportunities which have the potential for returns we believe appropriately compensate the company for the associated risks," Lampert said.

While no one knows for sure what Sears Holdings has in mind, what's clear, said Howard Davidowitz, former Kmart retail consultant and chairman of New York-based Davidowitz & Associates Inc., is that the company's moves to slash promotions, cut back on inventory and reinvest little in existing stores won't boost its market share or endear itself to discount shoppers.

Kmart shoppers want cheap products and good selection, said Davidowitz, who also does consulting for some Kmart competitors.

"That is what the discount customer expects. Eddie Lampert has done all the opposite. He's done everything but customer service," Davidowitz said. "I believe in three years, you will not see a Kmart store in the United States."

Sears Holdings Corp. officials say it's way too early to count them out: they've reached the benchmarks they set to trim costs and integrate Kmart and Sears and are busy working to instill a new "culture" among store employees.

"It's all about the customer experience. We think that's critical to continue to work on," said Don Germano, senior vice president of Kmart retail for Sears Holdings Corp. "The more that we can focus on our customer and improve their experience, (the more) that will help us to get to where we want to be."

Officials push forward

It's been a bumpy road in recent years for Kmart, the small five-and-dime store that was started by S.S. Kresge and grew up in downtown Detroit. The company became a national retail powerhouse after the first Kmart opened in 1962. In 1966, sales topped the $1 billion mark and in 1981, the 2,000th store opened.

But increased competition and other problems hit the retailer hard and in 2002, Kmart filed for Chapter 11 bankruptcy protection. At the time, the company had 2,114 stores. The bankruptcy closed 600 stores and cut 57,000 employees.

In November 2004, Kmart announced it would acquire Sears in an $11 billion deal, a merger that bounced the combined company to No. 3 among national retailers.

With the merger, Sears Holdings closed Kmart headquarters in Troy, ending Kmart's corporate connection to Metro Detroit.

Now, as speculation swirls about Kmart and Sears' future, company officials insist they are pressing on to take the combined company to greater retail heights.

Kmart officials point to a 4.5 percent jump in customer satisfaction from the fourth quarter of 2004 to the fourth quarter of 2005 as evidence their plan is working.

Despite the jump, Kmart still ranked last in customer satisfaction for department and discount stores, according to the American Customer Satisfaction Index.

Competitors still have edge

A prime reason for that, industry watchers say, is that the retailer has lost its niche as a discounter, replaced and outpaced by upstarts such as Costco, Wal-Mart and Target.

"The problem with Kmart alone is I don't think there's a place in the market for a not-very-defined discount retailer. It's a brutal business," said George Whalin, president of Retail Management Consultants in San Marcos, Calif.

But Kmart's Germano is quick to point out that Sears Holdings is still a "learning company," a "$55 billion start-up" in the words of Lampert.

"In the first year, we've integrated both organizations," Germano said. "We tested some new formats and made some customer improvements in those formats."

The off-mall format called Sears Essentials, which combined Sears products and everyday national brands of Kmart, was one such trial balloon. But after "varying degrees of success," the company announced that Sears Essentials stores would become Sears Grand stores, another off-mall format. So far, 65 Kmart stores have been converted to Sears Grand.

Company officials say the change came after they determined that three Sears nameplates was one too many for the market.

Shoppers in some Kmart stores have also seen Sears private label products such as Kenmore, Craftsman and Die Hard -- a move by the company to help differentiate itself from other mass merchandisers. Licensed businesses like hearing and optical centers and auto and truck rental services also are being added to some Kmart stores.

Strategy key to survival

Carving out a niche for itself is exactly what Kmart must do to survive, experts say.

"They are increasingly in the middle market. They are lumped together with a lot of other people," said retail analyst Kenneth Dalto, principal with Kenneth J. Dalto & Associates, a Farmington Hills-based firm. "What they really need is a merchandising strategy: Who are they? What niche of the market are they in? Who are they competing against?

"Once they decide that, they need to get the best merchandise mix for the niche they are going after. It's not customer service," he said.

The company has continued to see same store sales fall, a sign the retailer is losing customers and market share, analysts say.

Kmart "has lost market share for every month and every quarter for as long as I can remember now," Whalin said. "At some point, they're going to make some hard decisions about how this business is run."

In its most recent statement, Sears Holdings reported revenue of $8.3 billion for the 13 weeks ended July, down from $8.6 billion last year. Domestic comparable stores sales declined 3.8 percent, with Sears same store sales dropping 6.3 percent and Kmart same store sales declining 0.6 percent.

'Stable following' remains

Richard Hastings, a retail analyst for Bernard Sands LLC in New York, believes the outlook for Kmart is not that dire.

He notes the company has a stable following and inventory that is carefully managed to maintain profitability.

"The bottom line is that the nay sayers have to solve a very simple paradox: how do you go out of business where you make that much money," Hastings said. "They are profitable and they will always figure out how to be profitable."

While Hastings said there are merchandising and display problems that need to be addressed, Kmart is not yet a thing of the past.

"None of it is going away any time soon," he said.

Part of that "stable following" includes shoppers like Cathy Sledz, who said she still finds good deals at Kmart and continues to shop there in addition to other stores like Meijer and Target.

"They sell a few things there that (Meijer) doesn't," she said.

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Vera Wang to design line just for Kohl's
The Associated Press - USA Today
August 25, 2006

In the latest step by department stores to team with high-end fashion designers, mid-brow retailer Kohl's announced Thursday a union with Vera Wang, known for her $10,000 wedding gowns, to create a fashion and lifestyle brand.

The exclusive brand called Very Vera by Vera Wang will be available in all 749 Kohl's stores and on Kohls.com starting in the fall of 2007.

Under the long-term licensing agreement, Menomonee Falls, Wis.-based Kohl's will be the exclusive provider and marketer in the USA of all Very Vera by Vera Wang merchandise such as sportswear, intimate apparel, handbags, leather accessories, jewelry, footwear, linens and towels.

Financial terms of the deal were not disclosed, Prices have not been set for the collection, but it will be aimed at the top tier in Kohl's women's apparel offerings, according to Kevin Mansell, president of Kohl's. Currently, the highest-priced women's apparel collection at Kohl's is Polo Ralph Lauren's Chaps, which features $50 sweaters and $120 jackets.

"This is another great example of how Kohl's continues to differentiate ourselves from the marketplace," Mansell said Thursday. He declined to offer sales projections for the collection.

Kohl's and other department stores are increasingly turning to big designer names to develop exclusive merchandise, following in the footsteps of discounter Target , which has done well with its partnerships with Isaac Mizrahi and Cynthia Rowley. J.C. Penney teamed with dress designer Nicole Miller to develop an affordable collection, while Federated Department Stores announced a deal in April with home diva Martha Stewart to develop a home furnishings collection that will be rolled out at Macy's stores in fall 2007.

For Vera Wang, the licensing pact with Kohl's serves as a big opportunity to expand her customer base to middle-income shoppers. The New York-based designer has branched out beyond gowns to include home furnishings, jewelry, stationery and eyewear, but they carry designer price tags.

Wang said that "it has troubled" her for quite a while not to be able to offer her designs to all women. "We have been quite elitist in terms of price points," she said

The designer added that she doesn't believe expanding her designs to a midprice retailer such as Kohl's will taint her reputation as a designer, citing names like Ralph Lauren and Giorgio Armani, both of whom have developed fashion empires that have appealed to a broad base of shoppers.

"In all honesty, I have weighed everything," she said. But what's important is that there's good quality, trust and value at all levels of merchandise, she said.

In May, Wang received the Andre Leon Talley Lifetime Achievement Award from the Savannah College of Art and Design.

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Federated Elects Mark Cosby
as Senior Vice President for Property Development

August 25, 2006

Federated Department Stores, Inc.'s board of directors has elected Mark S. Cosby to the new position of senior vice president for property development. He will be based in Cincinnati and report to Federated Vice Chair Tom Cole.

Cosby, 47, will oversee a range of corporate-level functions, including store design and construction, energy services, real estate and licensed operations.

"Mark is an exceptional leader with a proven track record for creating growth opportunities for retailing and consumer brand companies," Cole said. "At Federated, Mark will apply his skills in leveraging real estate to support the company's growth."

Most recently, Cosby served as president of full-line stores for Sears Roebuck & Co., where his responsibilities included merchandising, store operations and supply chain management. Previously, he was chief operating officer of KFC and chief development officer of Yum Brands, the branded restaurants company spun off from Pepsico. He began his career as a financial analyst for General Foods Corporation.

A native of Madison, WI, Cosby holds bachelor's and MBA degrees from the University of Wisconsin. A current resident of Chicago, he will be relocating to Cincinnati with his wife, Kathy and two children.

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Penneys to bring new format to Chicago area
Off-mall store to be in Woodridge center
By Sandra Jones - staff reporter – Chicago Tribune
August 23, 2006

J.C. Penney Co. plans to bring to the Chicagoarea next spring its first off-mall format store--a single-level store the Texas-based retailer has pegged as its growth vehicle.

The department store chain is expected to announce Wednesday that it signed a lease to take over a shuttered Kmart at the Centerpointe of Woodridge strip center in southwest suburban Woodridge. The store is slated to open in spring and the retailer is shopping for more off-mall sites.

Department stores are attempting to generate more business by opening stores away from malls as consumers shift their buying habits to strip centers. Penneys' off-mall strategy takes it away from the large malls and into the strip centers, the smaller roadside shopping plazas typically occupied by a handful of stores.

The move positions Penneys to take on rival Kohl's Corp., the Wisconsin-based retailer, in its biggest market. Kohl's, which has almost 40 locations in the Chicago area, pioneered the notion of putting specialty department stores in strip centers. Penneys, meanwhile, has 15 department stores in the region, located in malls.

The debut comes as rival Hoffman Estates-based Sears Holding Corp. is still trying to figure out the best strategy for moving away from traditional mall locations into strip centers. It began with Sears Grand, then added a concept called Sears Essentials, and now has combined elements of both into a new format under the Sears Grand banner.

"I wouldn't continue to put my assets in mall-based stores, either," said Steven Platt, director of Platt Retail Institute, a retail industry think tank in Hinsdale. "Mall traffic is down. Freestanding stores are a lot more convenient."

Penneys and Sears opened their first off-mall stores in 2003. 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, said spokesman Tim Lyons. It already operates more than 1,020 department stores.

The midtier department store, which is in the midst of a renaissance, generates average sales of $200 per square foot at its freestanding stores, compared with $157 at its department stores, Bob Johnson, vice president of investor relations, told Wall Street analysts at a Piper Jaffray conference in June. The retailer anticipates the new-format stores will eventually reach $250 a square foot.

Johnson also said at the conference that Penneys "would be interested" in Sears and Kmart locations that are available as they look for big-box real estate away from the mall.

For its part, Sears operates 58 Sears Grand stores. The retailer built eight Sears Grand stores and converted 50 existing Kmart stores into a separate format called Sears Essentials. Earlier this year, the company decided to retool all the stores and call them Sears Grand. The company, formed last year when Kmart Holding Corp. purchased Sears, Roebuck and Co., ratcheted back aggressive plans for expansion.

When Penneys opens at the old Kmart store in Woodridge, it will be housed near Sam's Club, Home Depot, Sports Authority and OfficeMax. The Kmart closed in 2002, one of almost 300 stores shuttered nationwide as part of the Michigan-based discount chain's reorganization in Chapter 11 bankruptcy.

The freestanding Penneys store is 104,000 square feet and carries apparel and home fashions in a racetrack-style layout with central cash registers.

Mid-America Asset Management Inc. and Staubach Co. brokered the deal. Heitman Capital Management LLC is the landlord.

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New Lands' End shop to drop anchor in Loop
By Sandra Guy - Business Reporter – Chicago Sun-Times
August 23, 2006

The Sears flagship store at 2 N. State St. will open a first-floor shop showcasing its preppy Lands' End apparel in late September, including a new Lands' End collection of women's lacy lingerie.

The 10,000-square-foot shop will have an assortment 50 percent larger than the Lands' End apparel and accessories now sold in separate departments in the downtown store.

The Lands' End shop will sell men's, women's and children's clothing in a full assortment of sizes and colors; men's, women's and children's shoes; towels and bath accessories, and the lingerie line of bras, panties and lounge wear.

Lands' End is known for basic cotton and workday intimates, but the expanded collection will include feminine styles with French lace and Swiss embroidery and an assortment of colors, said Michele Casper, director of public relations for Dodgeville, Wis.-based Lands' End.

"We are offering beautiful feminine details and fine fabrics. It's an opportunity to grow the business," Casper said.
A Sears spokesman said the Loop store attracts professional office workers, tourists, conventiongoers and others who recognize Lands' End's quality of workmanship.

Kim Picciola, a retail analyst with Morningstar in Chicago, said the lacy lingerie seems "a bit of a departure" from the basic and classic look that is Lands' End's style.

"Why go into intimate apparel when Lands' End is still trying to get the ready-to-wear apparel business back on its feet?" Picciola said.

Lands' End is higher priced than Sears' discount clothing. It initially flopped with urban shoppers and suffered from inventory mishaps that forced Sears to discount the merchandise and heap it into sloppy displays.

Sears was even rumored to be shopping the Lands' End brand at a discounted price a few years ago.

Former Sears CEO Alan Lacy championed buying Lands' End for $1.9 billion four years ago in an effort to woo Sears' upscale appliance buyers over to the "softer" side.

Edward S. Lampert, the hedge-fund billionaire who engineered Kmart's $12.3 billion takeover of Sears last year, denied the sell-off rumors and called Lands' End a "great American brand" that had a place in the retailer's strategy.

The Lands' End shop at Sears in the Loop will be set off by navy blue-and-white signs representing Lands' End's nautical roots, and will have a couch and overstuffed chairs, teak tables and an Internet kiosk where shoppers can order goods online.

The Lands' End shop lets Sears leverage the strengths of what's known as multichannel selling -- enabling shoppers to call an 800 number, or go online or walk into stores to buy goods.

The new line of Lands' End intimates will also be added in late September to existing Lands' End shops at Sears stores at Woodfield Mall in Schaumburg and at Westfield Hawthorn shopping center in Vernon Hills.

Lands' End has set up "shop in shops" in 25 Sears stores in seven states, including four in the Chicago area. The other two are at Oakbrook Center in Oak Brook and at Orland Square Mall in Orland Park.

There are no plans to open more Lands' End shops in the Chicago area, Casper said.

The downtown Sears store will hire a handful of new salespeople trained to work in the Lands' End shop. Existing merchandise is being rearranged to make way for the shop, but no lines will be dropped, a Sears spokesman said.

"Our hope is that [the Lands' End shop] will be a much more personalized service experience," Casper said.

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The Nation
Swiping at Industry From Atop the Stump
By Floyd Norris - The New York Times
August 20, 2006

BUSINESS bashing by politicians in America has a long history, including rhetoric far more inflammatory than the denunciations being directed at Wal-Mart this year by some Democrats , who sometimes sound as if they are running against the company instead of another politician.

Wal-Mart is under attack for paying too little, providing benefits that are too small and even exploiting illegal immigrants. Laws have been written with Wal-Mart in mind, and more are being proposed.

The company may not appreciate the honor, but its place in the political debate reflects its revolutionary effect on the American economy.

Put simply, the big winners as the economy changes have often been scary to many, particularly those with a stake in the old economic order being torn asunder.

“Twice as many Americans shop at Wal-Mart over the course of a year than voted in the last presidential election,” said H. Lee Scott Jr., the company’s chief executive, in a speech to the National Governors Association in February.

Wal-Mart’s success reflects its ability to charge less for a wide range of goods. That arguably has reduced inflation and made the economy more efficient. It has introduced innovations in managing inventory and shipping goods.

But Wal-Mart’s success brought pain to others.

The company has been blamed for destroying downtowns as shoppers desert local merchants for the big-box store.

Local newspapers lost some of their best advertisers. That may not influence news coverage, said Alex Jones, the director of the Shorenstein Center on the Press, Politics and Public Policy at Harvard, but “I don’t think you will see many editorials blasting the government for taking on Wal-Mart.”

The company’s ability to negotiate good deals from suppliers, some of which probably would go out of business if Wal-Mart walked away, has also created anxiety and resentment, both among the suppliers and among merchants who complain that Wal-Mart gets better deals.

It has infuriated unions by opposing the organization of its employees — even to the point of closing a Canadian store whose workers voted for a union. (It said the closing was not related to the vote.) In some locations, unions have been forced to agree to reductions in wages and benefits at retailers that must lower costs in order to compete with the giant.

Opponents say some Wal-Mart employees are paid wages that still allow them to qualify for Medicaid health insurance, calling that, in effect, a government subsidy for a company that is forcing down pay for workers at other companies.

But the fact that Wal-Mart has more shoppers than any politician has voters shows that many of those workers — and many people higher on the income scale — find its prices irresistible. That group no doubt includes some of the company’s critics.

Previous business targets of politicians have similarly been both popular and reviled. The railroads enabled much of America to prosper, but to many people in the late 19th century they were viewed as villains.

They upset old economic relationships by making it possible to ship goods over much longer distances, thus introducing competition for local businesses and farms. At the same time, any given area was likely to be served by just one railroad, giving it monopoly pricing power over the farmers, whose produce became worthless if it could not be shipped to distant markets.

The railroads were lumped together in the public consciousness, but the Pennsylvania, as a major road linking New York to the Midwest, came in for much of the criticism.

The railroads in turn made possible giant industrial companies, and led to new fears of monopolies, culminating in the passage of antitrust acts, and their sometimes vigorous enforcement by President Theodore Roosevelt, who coined the term “malefactors of great wealth” and ran against them.

“There is not,” he thundered, “in the world a more ignoble character than the mere money-getting American, insensible to every duty, regardless of every principle, bent only on amassing a fortune, and putting his fortune only to the basest uses — whether these uses be to speculate in stocks and wreck railroads himself, or to allow his son to lead a life of foolish and expensive idleness and gross debauchery, or to purchase some scoundrel of high social position, foreign or native, for his daughter.”

By the time of the Great Depression, the Wall Street colossus, embodied by J. P. Morgan, became embroiled in the political arena. Franklin D. Roosevelt inveighed against the “economic royalists” and blamed “the ruthless manipulation of professional gamblers in the stock markets and in the corporate system.” In his 1933 inaugural address, he celebrated that “the money changers have fled from their high seats in the temple of our civilization.”

The results of all those political agitations were government reforms, although they often had limited effect. The Interstate Commerce Commission was created to regulate the railroads, but that was not the force that eventually knocked the industry from its powerful perch. It was competition, brought about by trucks and their tax-provided highways and airlines and their tax-supported airports.

John D. Rockefeller’s Standard Oil was broken up in 1911, but owning stakes in a lot of companies left Rockefeller even wealthier than he was. (Some of the companies have since been recombined, the most notable being the merger of Exxon, the former Standard Oil of New Jersey, with Mobil, the former Standard Oil of New York.)

The Wall Street outrages that angered Franklin Roosevelt brought a wave of legislation, including the creation of the Securities and Exchange Commission, an institution that has not prevented the securities industry from being very profitable.

There have been other cases where industries came under intense political attack, like the oil companies in the 1970’s and early 1980’s, when the phrase “obscene profits” was coined but little was done to rein in the industry.

Wal-Mart has been on the defensive in some legislative chambers. Maryland adopted legislation intended to force the company to spend more on health insurance, but that was struck down by a federal judge. Chicago passed legislation to force the company to raise its wages.

Wal-Mart is among the most successful companies in the world, but last week it reported a decline in quarterly profits for the first time in a decade, partly because of problems with its international business and partly because competitors are getting better. Its stock price rose 1,100 percent in the 1990’s, but it is down by a third in the current decade.

Despite opponents’ success in Chicago, it seems unlikely that governments will force Wal-Mart to greatly increase its health insurance benefits. Any such effort would most likely affect many other businesses, some of which would be in no position to afford it.

But it is conceivable that some of Wal-Mart’s harshest critics could find it an ally in changing the way health care is paid for in the United States, particularly if more companies come to agree with what Mr. Scott told the National Governors Association after he defended the health care benefits his company did offer.

“The soaring cost of health care in America cannot be sustained over the long term by any business that offers health benefits to its employees.,” he said. “And every day that we do not work together to solve this challenge is a day that our country becomes less competitive in the global economy.”

Much of what he went on to say dealt with efforts to control costs and make the health care system more efficient, something few would oppose. But it is unusual for a business leader to call on government to do more in health, while many who attack Wal-Mart now have long advocated a greater government role in paying for health care.

Politics, as someone once said, can make strange bedfellows.

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RadioShack president, COO to resign
WFAA.COM, DALLAS
August 18, 2006

Bloomberg News
RadioShack Corp. President and Chief Operating Officer Claire Babrowski will leave the company at the end of the month after failing to win the top job at the third-biggest U.S. electronics retailer.

Babrowski, who came to RadioShack from McDonald’s Corp. in July 2005, was acting Chief Executive Officer before turnaround specialist Julian Day was hired last month. There are no plans to fill her positions, the company said Friday in a statement.

Day was hired July 7 after the Fort Worth-based company’s profit dropped five of six quarters. RadioShack, which ousted CEO David Edmondson in February for lying on his resume, is liquidating merchandise, closing at least 480 stores and eliminating as much as 23 percent of headquarters staff.

Babrowski, 49, was named acting CEO in February and was among the people considered by the board for Edmondson’s replacement. She was McDonald’s chief restaurant operations officer, spending 31 years with the company.

Day, 54, who helped lead Kmart Holding Corp. out of bankruptcy in 2003, held senior positions at Sears, Roebuck & Co. and Safeway Inc.

Ten days after Day was hired, Chief Financial Officer David Barnes said he would resign to work at First Data Corp.’s Western Union unit. He was replaced by James Gooch, who worked with Day at Kmart.

Shares of RadioShack slid 83 cents, or 4.5 percent, to $17.68 at 4:04 p.m. in New York Stock Exchange composite trading for its worst performance in more than two months. The shares have gained 4.2 percent since Day took over.

Liked By Investors

Babrowski was liked by investors and is a loss to the company, BMO Capital Markets analyst Rick Weinhart wrote in a research note today.

“We believe new management would have benefited from having Ms. Babrowski on board, at least through the upcoming holidays,” he wrote. New York-based Weinhart rates the shares “underperform.”

RadioShack, known for tough-to-find cables and its strip- mall locations, has struggled to stay relevant to consumers as larger retailers Best Buy Co., Circuit City Stores Inc. and Wal-Mart Stores Inc. took market share by offering more choices.

RadioShack reported a second-quarter loss in July on declining sales of wireless plans and cell-phone accessories. Cell-phone plan sales started to drop after the company said in July 2005 it would switch to Cingular from Verizon at the end of the year. The change confused employees and customers, RadioShack has said.

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More of the Same at Sears, Except...
By George Anderson – Retail Wire
August 18, 2006

Sears Holdings reported its second quarter financial results and Morningstar analyst Kim Picciola had this to say: "It's more of the same - declining same-store sales but improving profitability. They're still struggling to give customers a compelling reason to shop at their stores."

Aylwin Lewis, Sears Holdings CEO and president, said the company is working to create more reasons for consumers to shop at its stores and "must continue to focus on our customers, improve the shopability of our stores and continue to give our customers reasons to shop our stores more frequently."

Howard Davidowitz, chairman of Davidowitz & Associates, is among the many who believe Mr. Lewis and his boss, Sears Holdings Chairman Edward Lampert, need to do something quickly if they hope to continue having a retail business to operate.

"No retailer in history has ever survived losing this amount of market share and comp (comparable) store sales," Mr. Davidowitz told The Associated Press. "When the quarter comes and earnings flatten out and sales keep going down, we're looking at the Titanic."

While the words of the Ms. Picciola and Messrs. Lewis and Davidowitz are eerily similar to what has been said by analysts and Sears Holdings before, the latest financial report came with an interesting switch. Sears Holdings is looking, by all indications, to make a deal to acquire another company.

In a released statement from the company, Mr. Lampert said, "Our strong financial position and cash flow generation provide us with the flexibility to capitalize on a wide range of market opportunities as they arise. In addition to investing in our business and acquiring our shares, we are prepared to invest substantial amounts of capital if we identify other attractive investment opportunities which have the potential for returns we believe appropriately compensate the company for the associated risks."

One deal Sears Holdings has not given up on is its proposed $908 million buyout of Sears Canada. The Globe and Mail reports Sears Holdings plans to attempt to overturn on appeal a ruling by Ontario Securities Commission, which found its offer of $18 a share for Sears Canada was "coercive and abusive of the minority shareholders."

Discussion Questions: Where would you look for Sears Holdings to make an acquisition? What would an acquisition likely mean for Sears Holdings current businesses including Sears, Kmart and Lands' End?

While there are no guarantees Edward Lampert will look to acquire another retail company, one possibility that has surfaced on investment blogs is BJ's Wholesale Club. The number-three warehouse membership club is looking at "strategic alternatives" for its business.

Acquisitions are sometimes used as a stalling tactic for management teams that can't think of another way to silence analysts. Buy something and you can spend months -- maybe even years -- talking about how you're rationalizing the acquisition; achieving previously unheard of economies of scale; and honing a new market offering dynamically positioned against the new consumer. Sometimes it even works. Sometimes, it's just lipstick on a pig.
Ryan Mathews, Founder, CEO, Black Monk Consulting

Sears is Chicago based. Maybe they should acquire the famous improvisational comedy group Second City because everything they do from a retail point of view looks comical. Maybe what they do makes sense from a financial point of view and maybe what they do makes sense from a real estate point of view. I have no expertise in those areas, so I can not comment, but I do know that, to date, everything they have done from a retail point of view is nonsense.

Buying more is reminiscent of Robert Campeau of the 1980's who got much publicity and support (even though it made no sense) when he bought the two largest department store chains (Allied and Federated) and merged them into eventual bankruptcy. Like the Sears/Kmart people, the key reason why we all knew Mr. Campeau was headed towards failure was that he was not a retailer; his expertise was finance and real estate.
Mike Tesler, President , Retail Concepts.

Sears Canada is an attractive target for Sears Holding; not as a retail entity, but for its real estate. The obstacles to turning around Sears Holding are too great: declining comp sales, stiff competition, uninspired workforce, and fickle shoppers. Soon Lambert will stop the charade that he has transformed himself at mid-life into a retail mogul.
By that time, Sears Holding, including Sears Canada, will have an amazing portfolio of choice real estate across North America in dozens of revitalized downtowns in major cities and in near-suburban malls. Soaring energy prices make these properties even more valuable.

Why play retailer to an unimpressed consumer when you can make a killing selling or developing the real estate?
Bill Robinson, Senior Executive, QuantiSense

Mr Lampert knows real estate. Not retail. I would presume any new acquisition he would make would be for the real estate, rather than for the retail business. I hope he doesn't really believe he's become a retail specialist.
Am I the only one old enough to remember that we've seen this movie before? Can you spell C-A-M-P-E-A-U?

Next thing you know, Sears will stop reporting comp store sales in an effort to divert Wall Street's attention from Sears' problems. Oh wait, someone else did that already. Doesn't work so well.
Paula Rosenblum, VP Research and Content, Retail Systems Alert Group

Their comments are only posturing to buy them time and, if they were to make an acquisition, it would be driven by the real estate it could bring and not the customer sales. We've yet to see anything come from Lampert to make us believe he is a long-term retailer interested in building customer share.
Mark Hunter, President, MJH & Associates

When Sears Holdings started in 2003, it was $12/share. Two years ago it was $79. A year ago it was $140, and today it's $140. How many other retail stocks can beat this performance? Sears can afford to buy other retailers because it can use its stock as currency. Many investors don't seem to care about the declining sales. Edward Lampert is not alone in his focus on profits. Many people and institutions love this stock. Wouldn't you if you bought Sears two years ago?

Many people see a high volume retailer with well-run stores and they believe they're seeing success. High volume, great customer service, exciting displays, and superb technology add to up very little if the profits are disappointing. Sears is not unique: there are many retailers whose strategy and execution look second rate but their investors love them. And there are high-profile retailers with world class execution and great strategies who can disappoint their investors.

Example: Target is always mentioned as a well-run company with a top strategy. Today, the stock is $50, yet it was $56 a year ago. Five years ago, it was $37. So Sears stock seems to beat Target. Some people might think Edward Lampert isn't a great retailer, but his investors don't agree.
 Mark Lilien, Consultant, Retail Technology Group

I commend Ryan Matthews for his insightful cosmetological phrase: "Lipstick on a pig."
Through the years, we have seen many financial opportunists try to resuscitate companies with broken-bones (and, of course, themselves) into modern day Saints of Retailing and Marketing. Eddie Lampert is on such a crusade albeit his pocket bulge with golden nuggets forged from his costs-eviscerating press. But the proof of the constant pudding still lies in Mr. Lempert's and Sears Holdings' ability to capture market share instead of just scraping the skin off an old cat's back. But it's still too early to count "heady" Eddie out as a savvy new retailer.
Gene Hoffman, President, Corporate Strategies International

Two words. Food. And food. If any retailer was in need of a traffic-building food business, it's Sears/Kmart. As the unfortunate Andrew Young tirade showed, there's still a great need for fresh food retailing in urban areas, particularly minority neighborhoods. Kmart has experience with urban retailing, and has a large minority base of shoppers.
I don't think BJ's is a particularly good match. Sears should look at expanding its Kmart base and locking up the inner city.

One idea that occurs to me is something along the line of Big Lots. That would allow Sears to shift its excess merchandise to an outlet where it can actually make a few bucks on it, put in continuity goods that compete with the dollar stores and operate a fresh grocery.

That could be a very profitable business, and it would be a way to leverage Kmart and Sears brands to an audience that is very familiar with those brands.
'phisey'

What is a problem for Sears? Getting the right product to the right consumers at the right time at the right price. What company does that well? That's who Sears should buy and allow their management team to make the necessary changes at Sears.
Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

I'm betting on RadioShack. Mr. Lampert is already loading its top end with his own people and it is definitely vulnerable with a lot of low hanging fruit to be plucked in much the same manner that Kmart and Sears were "harvested."

I think the fact that same store sales declines have actually increased under Mr. Lampert's leadership would indicate that, other than total slash and burn cost cutting, he has no plan for returning those chains to any kind of RETAIL profitability and increased profit on decreasing revenues is not a sustainable strategy simply because of the law of diminishing returns.

The talk about using the cash reserves to acquire other companies instead of reinvesting it in the current companies in an attempt to regain the sales and market share Sears has dumped over the past six years or so would seem to indicate that he's reached the point where diminishing returns is about to become a key factor in the current operation and something is needed to sustain the cycle he's entered into.

One question that arises is that, once there is a new company or two to practice his special brand of lobotomization on, will there be any need for both Kmart and Sears? Or for that matter, either of them?

This should be when the selling off of Sears/Kmart assets will come into major play; when the cash reserves that have been depleted by new acquisitions need to be replenished in time to play the next round of musical companies.
Tom Bales, Retiree, State of California

Hard to say who Sears would buy. Probably a company with lots of cash and, somehow, not use any of their own to do it. I agree with Ryan that an acquisition would be a stall tactic. Sears and Kmart are operating at a very low sales per sq. ft. level and it is difficult to understand how they keep the doors open on these retail museums. I think this is all a big charade and I choose not to believe any of the numbers released or that Sears is really making a legitimate profit. I would compare the latest financial reports to claims made by late-night infomercials.
David Livingston, Principal, DJL Research

RadioShack.
Don't think Mr. Day went there for fun.
'IMRetail'

Sears and Kmart real estate isn't as prime as one might think. Are malls prime real estate today, with so many empty stores? Or old Kmart locations, when Target and Wal-Mart have moved further out with the population?
Bob Vereen, President, Vereen & Associates, Inc.

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Spree in store for Sears?
By Sandra Guy – Business Reporter – Chicago Sun-Times
August 18, 2006

Sears Holdings Corp. told investors Thursday it plans to invest in high-flying companies to generate big returns, even as its own quarterly profit jumped 83 percent, and sales continued to fall.

Sears Chairman Edward S. Lampert, a hedge-fund billionaire often compared to legendary investor Warren Buffett, wrote in a note to investors that Sears might use part of its $3.7 billion cash hoard to invest in securities, derivatives and "highly concentrated" ownership stakes in publicly held companies, including companies outside of retailing. The result could range from partnerships to ownership stakes to joint ventures.

Analysts believe Lampert will turn Sears Holdings into a Berkshire Hathaway-type company, with investments in a variety of companies whose stock is undervalued but that have high potential for growth and profit.

Profit jumps, but revenue sinks

Sears Holdings got help from a legal ruling and deepening cost-cutting in reporting Thursday a second-quarter profit jump of 83 percent.

Sales continued their downward spiral, with same-store sales falling 6.3 percent at Sears stores and 0.6 percent at Kmart stores in the quarter that ended July 29.

Operating profit jumped 82 percent to $294 million, or $1.88 a share, thanks in part to a boost of 14 cents a share from an antitrust settlement with Visa and MasterCard and a prior-year restructuring charge for closing Kmart's headquarters outside Detroit.

Net income, excluding the one-time gain and losses, increased 45 percent, to $272 million, or $1.74 a share.

Revenues fell 3.1 percent to $12.8 billion.

Sears' shares fell $8.71, or 5.8 percent, to close at $141.29 on Thursday.

Analysts say Sears' cutbacks in employment, advertising, clearance sales, store maintenance and other initiatives have helped improve the fortunes of rivals ranging from Kohl's and J.C. Penney to Lowe's and Home Depot. Sears' sales fell across most product lines, with the biggest drops in home fashion and the once-formidable lawn and garden department. At Kmart, declines in sales of home goods were partly offset by increased sales in clothing, pharmacy and food.

Lampert is signaling to Sears' hedge fund investors that he knows he has to make a big move -- possibly as big as his engineering of Kmart's $12.3 billion takeover of Sears, Roebuck and Co. in March 2005 -- and take advantage of a trend in which private equity companies take over retail chains and squeeze them for cost savings.

The need for reassurance was apparent in Sears' stock price, which plunged $8.71, or 5.8 percent -- the biggest drop in more than a year -- to end the day Thursday at $141.29.

A hedge fund is an aggressively managed investment pool that takes risks prohibited by mutual funds, such as short-selling, and buying and selling puts and calls, with its main goal being to maximize investment returns.

"There has to be a next act, or Sears Holdings' shares have tremendous downside risk," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting and investment banking firm. "It has to happen fast, and Lampert talks about it, which is unheard of in a quarterly earnings report."

Sears' board gave Lampert control over investing the company's surplus cash last year, and Lampert has always said he intended to seek acquisitions.

Speculation about a target started immediately.

"Would it be Gap?" Davidowitz said. "It has to be something big. Lampert is not a guy to do something small."

Rumors also are swirling that Sears might take a stake in RadioShack, where Julian Day, a former Kmart CEO, former Sears board member and Lampert protege, is now CEO and chairman.

AutoNation might be another possibility because Lampert's hedge fund is the company's biggest shareholder.

Kim Picciola, retail analyst at Morningstar in Chicago, said Sears' future has become "less about turning around the retail business, and more about how to best allocate the cash."

Gary Balter, an analyst at Credit Suisse, said Sears could use its $6.2 billion in inventory in addition to the cash to invest in other companies.

Time is of the essence because Sears Holdings' position is weakening, analysts said. Sears lost valuable time trying to buy the shares of Sears Canada that it didn't already own. Sears and Lampert lost the first stage of the battle earlier this month in a fight with rival hedge-fund activist Bill Ackman.

The Ontario Securities Commission blocked the takeover on Aug. 8, saying Lampert gave better terms to certain investors.

Sears Holdings' financial report for the second quarter that ended July 29 outlined the situation: Revenues fell, same-store sales declined, inventories rose, accounts payable declined, and Sears dramatically cut back buying its own shares.

"The numbers are more of the same. Lampert is doing a great job of controlling expenses, but he is opening no new stores, and sales are continuing to collapse," Davidowitz said. "We have a non-sustainable situation. . . . There comes a point where you have no customers."

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Sears shopping around
Earnings surge 83%, but shares take a hit
By Sandra Jones - staff reporter – Chicago Tribune
August 18, 2006

Owning stock in Sears Holdings Corp. just got riskier.

Billionaire investor Edward Lampert, the taciturn hedge fund manager who engineered the combination of Sears and Kmart last year, made it clear in Sears' second-quarter earnings report Thursday that he plans to put his investment acumen to work and suggested he could look outside the retail industry for deals.

That's good news for investors who don't have access to the Greenwich, Conn.-based magnate's elite hedge fund but are eager to benefit from his moneymaking skills. But it also means more risk.

Sears shares dropped $8.71, or 5.8 percent, to $141.29 in heavy trading, the biggest decline in more than a year, as investors worried about how the company is going to spend its $3.7 billion in cash. The stock fell even as the Hoffman Estates-based retailer's second-quarter profit jumped 83 percent on cost cuts and a slower decline in sales.

"You could think of it as a publicly traded private equity fund," said Arun Daniel, analyst at ING Investment Management, a New York firm that holds about 500,000 Sears shares. "You're not going in there for the fundamental improvement in business. You're looking at it as the KKR of retail."

Kohlberg Kravis Roberts, the buyout firm made famous in the 1980s book "Barbarians at the Gate," buys and sells undervalued companies.

Ever since Kmart Holding Corp. of Michigan purchased Sears, Roebuck and Co. in March 2005 for $12.3 billion, Wall Street has debated over whether to view the company as a retailer or an investment company.

Sears' shift toward investments has already begun. The company ratcheted back its longstanding aggressive buyback program, a strategy many investors viewed as a safe way to boost the stock. Sears repurchased 700,000 shares for $91 million in the quarter, far less than the $1.1 billion in shares bought back since the merger and a small slice of the $406 million remaining in the program.

Likewise, the company disclosed that it is using a portion of its cash to invest in derivatives, financial instruments that are often thinly traded, sometimes speculative and, while frequently used to control risk, are also famous for blowing up.

"They're not limiting themselves to retail-related investments, and that makes it unusual and something we would have to watch," said Philip Zahn, a Chicago-based analyst for Fitch Ratings, the New York-based credit rating firm. "The fact that they're bringing it up suggests they have some ideas of what to do with the money."

Credit Suisse analyst Gary Balter, who rates Sears an "outperform," wrote after the announcement that Sears is beginning a "new chapter" and added that the high-risk stock is "clearly not for many investors." He speculates that Sears could buy suppliers, real estate or unrelated companies.

Lampert has so far kept investors happy by posting steady profit improvements, but even that strategy appears to be running out of steam. In the most recent quarter, cost cuts barely kept up with the drop in sales.

Sales and administrative expenses as a percent of sales remained relatively unchanged at 22.1 percent in the quarter compared with 22.8 percent in the year-ago quarter.

Sears has suffered from five consecutive years of declining sales. Sales at all Sears Holdings' stores open at least one year, a key barometer of a retailer's health, fell 3.8 percent. The firm blamed "increased competition and lower transaction volumes" for the decline.

Same-store sales at Sears stores fell 6.3 percent, with declines across most categories and the biggest drops in home fashion and lawn and garden, the company said. At Kmart, same-store sales declined 0.6 percent as declines in home goods offset gains in apparel, pharmacy and food.

Sears and Kmart are under siege on several fronts from Home Depot Inc. and Lowe's Cos. in appliances, J.C. Penney Co. and Kohl's Corp. in apparel and home goods, and Wal-Mart Stores Inc. and Target Corp. in general merchandise.

Net income increased to $294 million, or $1.88 a share, from $161 million, or 98 cents, in the year-ago quarter as the retailer cut expenses and got a boost from proceeds related to the settlement of credit card antitrust litigation.

Excluding gains and charges, net income rose 45 percent to $272 million, or $1.74 per share. Revenue fell to $12.8 billion from $13.2 billion a year ago.

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Sears Looks for Acquisitions As Cost Cuts Lift Profit 83%
By Gary McWiliams – Wall Street Journal
August 18, 2006;

With continued cost cutting lifting its profit and cash flow, retailing company Sears Holdings Corp. signaled it is on the prowl for acquisitions, telling investors it may "invest substantial amounts of capital" outside the company.

Second-quarter net profit rose 83% to $294 million, or $1.88 a share, from $161 million, or 98 cents, in the year-earlier quarter. Excluding items in both periods, the company said it would have earned $1.74 a share compared with $1.14 a year earlier. The latest period included a $22 million gain from a settlement with credit-card processors.

Sears Holdings was formed 16 months ago when hedge-fund manager Edward S. Lampert's Kmart Holding Corp. acquired Sears, Roebuck & Co. While sales and per-share profit for the Hoffman Estates, Ill., retailer exceeded analysts' consensus estimates, news of the acquisition plans apparently pushed shares lower. Sears shares fell $8.71, or 5.8%, to $141.29 as of 4 p.m. in Nasdaq Stock Market composite trading.

Sales in the quarter ended July 29 fell 3% to $12.79 billion from $13.19 billion a year earlier. Sears said U.S. same-store sales, or stores open at least a year, slipped 3.8%, largely because of increased competition and lower volumes at Sears stores, which were hurt by weak home-fashion and garden sales. It said same-store sales at Kmart fell less than a percentage point.

Mr. Lampert, who styles himself after Berkshire Hathaway Inc. Chairman Warren Buffett, said in a statement that the company's improved finances provide "the flexibility to capitalize on a wide range of market opportunities." Sears may consider "acquisitions, joint ventures and partnerships" in conjunction with, or unrelated to, its retailing operations, it said in a statement.

Cost cutting, including reductions in stores and employees, has increased net income and cash even as sales have continued to drop. Sears ended the quarter with 3,800 stores, down 69 from a year earlier. The reductions have benefited the bottom line. Profit in the past 12 months was $1.18 billion on $53 billion in sales. Sears had cash and cash equivalents of $3.69 billion at the end of the second quarter, up from $2.14 billion a year earlier.

Sears, which had been aggressively repurchasing shares, sharply cut buybacks last quarter to $91 million from $413 million in the first quarter.

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Sears Holdings 2Q Profit Soars 83%
Amid Cost Cuts
By James Covert - Wall Street Journal Online
August 17, 2006

NEW YORK (Dow Jones)--Sears Holdings Corp.'s (SHLD) second-quarter profit soared 83% despite declining sales at its Sears and Kmart chains, with results helped by continued cost cutting, better margins and one-time items.

The Hoffman Estates, Ill., retailer Thursday reported net income of $294 million, or $1.88 a share, for the quarter ended July 29, up from $161 million, or 98 cents a share, a year earlier.

The latest results included an after-tax gain of $22 million, or 14 cents a share, related to the settlement of Visa/MasterCard antitrust litigation. The prior-year results included merger-related restructuring charges at Kmart of $26 million, or 16 cents a share.

Total revenue for the second quarter - the first full comparable year-over-year quarter for the company since it was formed in March 2005 by the merger of Kmart and Sears - fell 3.1% to $12.79 billion from $13.2 billion a year earlier. Sales at stores open at least a year - or same-store sales, a closely watched measure of retail performance - fell 3.8%.

At Sears stores, same-store sales fell 6.3%, with declines across "most categories and formats, with more pronounced sales declines within both the home fashion and lawn and garden categories," the company said in a written statement Thursday. Kmart stores recorded a same-store sales drop of 0.6% amid declines in "home goods," which include electronics and toys; these were partly offset by increases within categories including apparel, general merchandise, pharmacy items, food and other consumable goods.

"Sears Holdings' resolve to improve the profitability of this business remains strong and is borne out in the company's second-quarter results," Chief Executive and President Aylwin Lewis said in a written statement. "While we are making progress, we must continue to focus on our customers, improve the shopability of our stores and continue to give our customers reasons to shop our stores more frequently."

Operating income soared 60% to $517 million from $324 million, helped by merger efficiencies as well as proceeds from the Visa/MasterCard antitrust settlement. The company's "adjusted EBITDA" - or earnings before interest, taxes, depreciation and amortization excluding the Visa/MasterCard settlement, merger costs, restructuring, and gains or losses on the sale of assets - rose to $772 million, or 6% of revenue, from $642 million, or 4.9% of revenue, a year earlier.

The adjusted figure - which doesn't comply with generally accepted accounting principles - is nevertheless considered by analysts to be a key measure of the company's progress in its turnaround effort.

As of July 29, Sears Holdings had cash and cash equivalents of $3.7 billion, up from $2.1 billion a year earlier. Merchandise inventories rose to $9.5 billion from $9 billion a year earlier, reflecting "earlier receipt of product this year and increases in categories where the company believes business trends support higher inventory levels," Sears said.

Sears repurchased 700,000 shares during the quarter at an average price of $137.67 a share, with authorization remaining to repurchase $406 million in shares under a current, board-approved program. With cash flows expected to continue exceeding operating needs, Sears said it may pursue acquisitions, joint ventures or partnerships that offer attractive returns.

"In addition to investing in our business and acquiring our shares, we are prepared to invest substantial amounts of capital if we identify other attractive investment opportunities which have the potential for returns we believe appropriately compensate the Company for the associated risks," Chairman Edward S. Lampert said in a written statement.

Shares of Sears Holdings closed Wednesday at $150, up $3.80, or 2.6%. The stock was unchanged in recent premarket activity on Inet.

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Is Sears the K.K.R. of Retail?
The New York Times Online
August 17, 2006

TOPICS
Sears Holdings , Edward Lampert
INDUSTRIES - Retail/Leisure

You may think Sears Holdings is a giant retail company. But many on Thursday were prepared to argue that point. Depending on the observer, the company, run by Eddie Lampert, is turning into a hedge fund, a private equity fund or the successor to Warren Buffett’s famed investment vehicle, Berkshire Hathaway.

The identity crisis comes as the company reported second-quarter earnings on Thursday. As it did, it also told investors that it was considering a wide range of uses for its $3.7 billion in available cash — including investments unrelated to its current business.

Herb Greenberg, the MarketWatch columnist, was among those calling Sears a hedge fund on Thursday. Here is why, in his words:

Sears has so much cash that instead of investing in the stores, which could boost sales, its board has given Chairman Eddie Lampert authority to invest the cash in “marketable securities and other financial instruments, including derivatives. These investments may include significant and highly concentrated direct investments and/or related derivative positions with respect to the equity securities of public companies.”

Put another way, Sears is no longer a retailer, as we know retailers; it’s a hedge fund.

Morgan Stanley analyst Gregory Melich presented a variation on that theme. He suggested in a research note that, given all the available options for spending Sears’s cash horde, the company was on track to become a “publicly traded hedge/private equity fund.” Later in the note, Mr. Melich used the term “K.K.R. of Retail” — a reference to the giant private equity shop Kohlberg Kravis Roberts.

A different comparison came from Credit Suisse analyst Gary Balter. He said in a research note on Thursday that Sears’ cash-flow growth is looking good (though not as good as the previous two quarters). “However,” he wrote, “that is not the story.”

The story is Sears’s cash and the $6.2 billion that it has invested in inventory, which, Mr. Balter wrote, “over time can be an additional source of funds.”

At a time that we are seeing [leveraged buyouts] in retail occur at significant premiums to public market values, Sears apparently sees similar value opportunities. Given the lack of contact at the company, we do not know if they are looking at expanding their retail investments, whether they are looking for suppliers, real estate or companies completely unrelated to the current Sears. This story has been positioned by some as a young version of Berkshire Hathaway and it may be that we are about to see what direction the company can move.

Mr. Lampert has called himself a student of Warren Buffett, Berkshire Hathaway’s chairman, and BusinessWeek magazine wondered in a cover story in 2004, as Mr. Lampert was announcing Kmart’s merger with Sears, whether the financier was “the next Warren Buffett.”

While Sears reported higher second-quarter earnings on Thursday, “a slide in total sales and comps provides more evidence that the company is bleeding market share to rivals” such as Wal-Mart and Target,” wrote TheStreet.com’s Nat Worden.

Mr. Balter, for all his enthusiasm (he rates the stock “outperform,” and calls it “intriguing”), cautioned that Sears is “the highest-risk name” among the retailers he covers and that it is “clearly not for many investors.”

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Sears Holdings to appeal OSC decision in Ontario Divisional Court on Sept. 18
By Rita Trichur – Canadian Press
August 17, 2006

TORONTO (CP) - Sears Holdings Corp. (NASDAQ:SHLD) will try to resurrect the controversial $908-million buyout of its Canadian subsidiary by arguing in court that no securities laws were broken when it struck side deals with two Canadian banks, The Canadian Press has learned.

The American retailing giant, headed by U.S. billionaire Edward Lampert, will launch the next salvo in its battle to privatize Sears Canada Inc. (TSX:SCC) Sept. 18 in Ontario Divisional Court, sources said Thursday.

Sears Holdings will argue that the Ontario Securities Commission erred in a finding that securities laws were violated when it failed to disclose information about the side deals, according to court documents obtained by CP.

The U.S. company plans to outline at least 14 grounds of appeal and is keeping the door open introducing further arguments at a later date.

In its notice of appeal, Sears Holdings claims " . . . the Commission erred in finding that the support agreements between Sears Holdings and each of The Bank of Nova Scotia, Scotia Capital Inc. and Royal Bank of Canada contravened subsection 97(2) of the Act."

It also takes issue with the OSC's finding that "the effect" of the support agreements was to give the banks preferential treatment over other Sears Canada's shareholders.

Together, the two banks own a significant voting block of 7.6 million shares of Sears Canada, which are now disallowed from being counted towards the bid's final tally.

In the case of Scotiabank (TSX:BNS), its investment banking division Scotia Capital was hired by Sears Holdings as an adviser on its takeover offer, while another arm of the bank tendered Sears Canada shares to the bid.

Royal Bank (TSX:RY) said it will seek intervener status and a source familiar with the legal proceedings said Thursday that Scotiabank has "indicated that it wants to intervene" at the appeal hearing.

Mark Gelowitz, who is part of the legal team at Osler Hoskin & Harcourt which is representing Sears Holdings, declined comment on the appeal, as did a company spokesman.

The OSC halted Sears Holdings's privatization offer earlier this month with a decision that essentially forces the parent firm to put together an amended bid circular if it is still interested in pursuing a privatization transaction.

The ruling followed an OSC hearing in July to consider complaints filed by three dissident shareholders of Sears Canada - including Hawkeye Capital Management LLC, Knott Partners Management LLC and Pershing Square Capital Management LP - who pushed for the banks' shares to be excluded from the deal-completion thresholds.

While the OSC decided the banks were not joint actors in the takeover offer, it did conclude "the effect of the support agreements was to provide consideration of greater value to the banks than that offered to other Sears Canada shareholders."

Further, it found that "elements of the conduct of Sears Holdings in pursuing the offer were coercive and abusive of the minority shareholders of Sears Canada and the capital markets generally" - another point of contention cited in Sears Holdings's notice of appeal.

Luis Sarabia, a litigation partner with Davies Ward Phillips & Vineberg who represents the three hedge funds, declined comment on the prospects of the appeal while it is before the court but said his clients "looked forward to having the matter finally resolved."

Other legal observers have already suggested that Sears Holdings faces an uphill battle with respect to its appeal because there is generally a standard of deference toward the OSC.

While the divisional court has set aside only one day to hear the appeal, it could take days, weeks or even months to render a decision, experts said.

Sears Holdings's $18-a-share offer - for the 46 per cent of Sears Canada that it doesn't already own - is set to expire Aug. 31.

It was not known Thursday if the company planned to extend its offer or just let it lapse until a decision is rendered on the appeal. The company had originally planned to hold a vote at a special shareholders meeting Nov. 30, with an eye to wrapping up the deal by year's end.

Meanwhile, Sears Holdings reported better-than-expected second-quarter earnings Thursday, due to improved margins at Kmart and U.S. Sears operations.

Net income grew to $294 million US, or $1.88 per share, from $161 million, or 98 cents per share, a year ago. Total revenues declined to $12.8 billion from $13.2 billion last year.

Sears Holdings shares tumbled $7.20 to $142.80 US on the Nasdaq, while Sears Canada's shares were even at $21.75 Cdn on the TSX.

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Pershing Square sells shares in McDonald's, stake in Sears
Bloomberg News Chicago Tribune
August 17, 2006

NEW YORK -- Activist investor Bill Ackman's Pershing Square Capital Management LP hedge fund has sold shares of McDonald's Corp., after pressuring the company to repurchase stock and borrow against its real estate holdings.

Pershing Square said in a filing Wednesday with the Securities and Exchange Commission that it sold 105,125 shares of McDonald's in the second quarter. The filing also showed that it unloaded all of its 1.57 million shares of Hoffman Estates-based Sears Holdings Corp.

New York-based Pershing Square still holds a stake in McDonald's of more than 49 million shares in stock options and swaps, Ackman said. Those holdings, which amounted to 4.5 percent of McDonald's outstanding shares as recently as January, aren't required to be reported to regulators.

Last year, Ackman urged McDonald's to buy back stock and demanded an initial public offering of 20 percent of 8,000 company-owned McDonald's stores.

He dropped those requests after the Oak Brook-based company said it would repurchase $1 billion of stock and license 1,500 restaurants.

Pershing Square also sold 3.39 million shares of H.J. Heinz Co. and 1.28 million shares of Kohl's Corp., eliminating its stake in those companies.

It bought 817,500 shares of Viacom Inc., the media company controlled by billionaire Sumner Redstone, bringing its stake to 4.1 million shares.

Pershing Square also bought 1.53 million shares of Barnes & Noble Inc.

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Sears stock falls as CEO talks acquisitions
Cost cutting and litigation gain drive 2Q profit up 83%
August 17, 2006

(Reuters) - Sears Holdings Corp. on Thursday said it may spend some of its $3.7 billion in cash on acquisitions as it posted a better-than-expected 83 percent jump in quarterly profit.

The owner of Sears and Kmart stores has been cutting costs and eliminating clearance sales to boost profit. The result has been strong cash flow but weak sales, and investors have long predicted that the company and its chairman, hedge fund manager Edward Lampert, would invest the money in blockbuster deals.

Shares closed 5.8 percent lower on Nasdaq as analysts pointed out that an acquisition spree would also make the stock a riskier investment.

Second-quarter profit was $1.74 per share before an unusual gain, while analysts, on average, expected $1.67.

The quarterly earnings report included an unusually long section discussing possible uses for the cash pile, which includes $3.2 billion in domestic cash and $500 million from Sears Canada Ltd. The retailer also repeated that Lampert had authority to invest excess cash.
Analysts said it was the strongest signal yet the retailer may be poised to transform into a holding company in the mold of Warren Buffett's Berkshire Hathaway Inc.

"This story has been positioned by some as a young version of Berkshire Hathaway, and it may be that we are about to see what direction the company can move," Credit Suisse analyst Gary Balter wrote in a note to clients.

Balter cautioned that an acquisition spree would make the stock an even riskier bet for investors.

"This stock is the highest risk name we cover, and clearly not for many investors for that reason, but we continue to view it as one of the more intriguing stories and continue to rate it outperform," Balter wrote.

PROFIT JUMPS

Profit rose to $294 million, or $1.88 per share, in the second quarter ended July 29, from $161 million, or 98 cents per share, a year earlier.

Excluding an after-tax gain of $22 million, or 14 cents per share, from the settlement of Visa/MasterCard antitrust litigation, earnings in the latest period were $1.74 a share.

Analysts, on average, expected $1.67 per share, with estimates ranging from $1.46 to $1.90, according to Reuters Estimates. The retailer does not provide financial outlooks, so analysts' estimates tend to vary widely.

Sears Holdings said it may pursue acquisitions, joint ventures, and partnerships, including taking significant positions in public companies.

"Our strong financial position and cash flow generation provide us with the flexibility to capitalize on a wide range of market opportunities as they arise," Lampert said in the statement.

"In addition to investing in our business and acquiring our shares, we are prepared to invest substantial amounts of capital if we identify other attractive investment opportunities which have the potential for returns we believe appropriately compensate the company for the associated risks," he said.

Kim Picciola, a retail analyst with Morningstar, saw the lengthy discussion as "a sign that there is something on the horizon. The fact that they are reiterating his authority to invest the surplus cash makes me think that there is more news to come."

COSTS FALL

Selling, general and administrative costs fell to $2.8 billion from $3.0 billion a year earlier.

Total revenues declined 3 percent to $12.8 billion. Sales at stores open at least a year — a key retail measure known as same-store sales — fell 3.8 percent, with Sears stores down 6.3 percent, and Kmart stores down 0.6 percent.

"It's more of the same — declining same-store sales but improving profitability," Picciola said." They're still struggling to give customers a compelling reason to shop at their stores."

The retailer said Sears stores saw pronounced sales declines in the home fashion and lawn and garden categories. At Kmart, sales of home goods dropped, while apparel, general merchandise, pharmacy and food sales increased.

Shares ended down $8.71 to $141.29 on Nasdaq.

Sears Holdings stock is up about 27 percent this year, while the Standard & Poor's retailing index is roughly unchanged. Sears trades at 14.6 times analysts' profit estimates for next year, below the index's average valuation of 15.9 times earnings.

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Sears Holdings Second-Quarter Net Income Rises on Spending Cuts
Bloomberg
August 17, 2006

Sears Holdings Corp., the largest U.S. department-store company, said second-quarter profit rose after it cut selling and administrative expenses.

Net income climbed to $294 million, or $1.88 a share, from $161 million, or 98 cents, a year earlier, Hoffman Estates, Illinois-based Sears said today in a statement distributed by PR Newswire. Revenue in the period ended July 29 fell to $12.8 billion from $13.2 billion.

Chairman Edward Lampert, the hedge-fund manager who arranged Kmart Holdings Corp.'s purchase of Sears, Roebuck & Co., is retooling stores and merchandise to halt declining sales. He has fired workers, closed Kmart's headquarters and cut administrative expenses.

People already know their sales are going to be slower,'' said Arun Daniel, an analyst at ING Investments LLC in New York, which manages $40 billion in assets including Sears shares. Investors ``are looking for incremental changes.''

Shares of Sears rose $3.80, or 2.6 percent, to $150 yesterday in Nasdaq Stock Market composite trading. The stock has surged 30 percent this year. Federated Department Stores Inc., the second-largest U.S. department-store company, gained 15 percent and J.C. Penney Co., third biggest, jumped 22 percent.

Credit Suisse analyst Gary Balter, who is top-ranked for accuracy by StarMine Corp., estimated profit of $1.69 a share. Balter, based in New York, rates the shares "outperform.''

The average estimate of five analysts surveyed by Thomson Financial was $1.67. Thomson declines to disclose the basis for its projections to Bloomberg.

Selling More Profitability

While sales may be falling, Lampert is selling merchandise more profitably, said Scott Rothbort, president of Millburn, New Jersey-based Lakeview Asset Management, which counts Sears Holdings among its top investments.

"He's focusing on margins; he's not focusing on absolute sales,'' Rothbort said.

Sears has about 3,900 stores in the U.S. and Canada.

J.C. Penney, which also offers moderately priced merchandise, is winning clothing and home goods shoppers from Sears, Daniel said. Sears is also losing customers for appliances to Home Depot Inc. and Best Buy Co.

"Things are not good for them in that area,'' he said.

Morgan Stanley analyst Gregory Melich estimated in an Aug. 6 report Home Depot and Lowe's Cos. each gained more than 1 percentage point in market share in appliances -- "a critical category for Sears'' -- during the quarter.

The retailer is losing business to other chains at a time when home improvement sales are weakening, wrote Melich, who is based in Purchase, New York, and rates the shares "underweight.''

Shuffles Managers

Lampert, 44, combined Sears with Kmart in March 2005 to create the largest U.S. department-store company by sales. He has removed Alan Lacy as chief executive, shuffled managers and hired merchandising executives since taking direct control of the company's operations in September.

He's also reduced spending by firing more than 1,500 workers and closing Kmart's headquarters in Troy, Michigan.

During the quarter, Lampert hired Craig Monaghan as chief financial officer to begin Sept. 1. Monaghan arrives from AutoNation Inc., the largest U.S. retailer of new and used cars, where he is CFO. Lampert is a director of AutoNation and his fund is the company's biggest shareholder, according to Bloomberg data.

Monaghan is adept at cost cutting and worked closely with Lampert and Sears Chief Administrative Officer William Crowley, who is also an AutoNation director, Balter wrote in a July 27 report.

Goldman Sachs

A former risk-arbitrage executive at Goldman Sachs Group Inc., Lampert heads ESL Investments Inc., a hedge-fund company in Greenwich, Connecticut. He has focused on buying undervalued companies and said he's a student of billionaire Warren Buffett's investment philosophy of acquiring assets shunned by others.

Last month, Lacy resigned as vice chairman and chairman of Sears Canada. Lampert had replaced Lacy as CEO in September with Kmart chief Aylwin Lewis.

Lampert has been thwarted in his efforts to buy the 46 percent of Sears Canada the company doesn't already own.

On Aug. 8, the Ontario Securities Commission blocked the company's offer for the shares, saying Lampert gave better terms to two banks and a real estate investor in return for their support. Lampert broke merger rules by failing to disclose the arrangements to all shareholders, the commission said.

Lampert is opposed in the Sears Canada fight by investors including William Ackman, who has said the C$18-a-share offer is too low. Ackman's New York-based hedge fund, Pershing Square Capital Management LP, said the unit should fetch twice that amount.

``I think Sears Canada has taken up a lot of his time,'' Rothbort said, adding he expects Lampert to eventually gain control, perhaps by taking on a partner.

Sears' profit beat analysts' estimates in the three prior quarters. Of seven securities analysts tracked by Bloomberg, five recommend buying Sears shares, one says "hold'' and one says "sell.''

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Minority Shareholders in Sears Canada
Win This Round of Ackman vs. Lampert

LONG & SHORT By Jessie Eisinger – Wall Street Journal
August 16, 2006

Bill Ackman was almost hoisted with his own petard, but he came out unscathed -- and a bit richer.

Led by the activist hedge-fund manager, a group of minority shareholders in Sears Canada won a resounding victory last week against Sears Holdings and its chairman, Eddie Lampert.

Mr. Lampert, of course, is the hedge-fund world's Victor Kiam, the guy who loved Remington shavers so much he bought the company. First, Mr. Lampert fell for Kmart. And then he had Kmart buy Sears, reaping billions and inspiring a pack of like-minded activists that includes Mr. Ackman.

And then Sears tried to buy the shares of Sears Canada that it didn't own already. But by then, Mr. Lampert had gone native, taking on the management traits he had once battled by making a low-ball offer. Sure, that may have seemed to be in the best interest of Sears Holdings' shareholders, but the offer was so low that Sears Canada's minority investors revolted.

Mr. Ackman believes that with Sears Canada's real estate and its potential to cut costs, the stock could trade into the C$40s, up from about C$20, where it is now. Mr. Ackman has economic ownership of almost 12% of the company.

It is that phrase "economic ownership" that almost bollixed things up for the pugnacious money manager. Late last year, before Sears made its offer for Sears Canada, Mr. Ackman entered into a derivative transaction aimed at lessening the Canadian taxman's take for his investors. He kept the economic benefit of the shares, but not the voting rights.

Mr. Lampert managed to win some of those votes in Sears Holdings' battle to secure approval for its offer, which helped put him over the top. That maneuver was the subject of a Long & Short column back in April, when it looked like Mr. Lampert had gotten the best of Mr. Ackman.

But Mr. Ackman is a persistent activist who uses all available weapons. He and two other hedge-fund owners blew the whistle to Canadian regulators, essentially arguing that Mr. Lampert had bought some votes.

The Ontario Securities Commission, Canada's chief regulator, agreed. For one, Sears Holdings entered into side agreements with some Canadian banks, one of which had ended up with Mr. Ackman's voting rights. The agreements allowed them to delay the sale of their Sears Canada shares to help lower their tax bills. Another side agreement allowed Vornado -- a giant real-estate company that Mr. Ackman urged to invest in Sears Canada -- to be indemnified against any lawsuits related to the deal if it backed Mr. Lampert's offer.

The OSC ruled that those things had value not offered to all minority shareholders and therefore were an improper inducement under Canadian securities law. The OSC decided that those shares had to be excluded in the takeover tally.

It was, on the whole, a sober decision that didn't simply side with Mr. Ackman's group. The OSC seems to have gone out of its way to spank Sears Holdings for its aggressive takeover tactics, including its disparaging of boutique investment bank Genuity Capital for an independent assessment that put Sears Canada's value at as much as C$22.25 a share, far above Mr. Lampert's C$18 offer.

"The manner in which Sears Holdings chose to attack the integrity of the Genuity Valuation is reflective of the manner in which they dealt with others...who got in the way of the successful completion of their bid," the OSC scolded. The commission concluded: "Although it is unnecessary for us to do so, we find that elements of the conduct of Sears Holdings in pursuing their offer were coercive and abusive of the minority shareholders of Sears Canada and the capital markets generally."

So now what? Sears Holdings is going to appeal, but it is hard to see much chance of success. Meanwhile, the 30% of Sears Canada it doesn't own will continue to trade on the Toronto Stock Exchange -- and there's a good bet it'll continue to rise. The Genuity estimate took into account only about $100 million in cost savings, but a Sears Holdings report for investment banks identified an additional $200 million.

Mr. Ackman figures that amounts to $1.4 billion of extra value for the company over its current $2.2 billion market value. "The OSC decision is a great outcome for all minority shareholders," he says. "We are delighted to be a long-term shareholder of Sears Canada in partnership with Mr. Lampert."

For Mr. Lampert, maybe this slip-up on the Canadian ice will pass. He can argue, correctly, that Sears Canada shareholders have made a tidy profit on his watch already, including a huge dividend when he sold its credit-card division. And Sears Holdings stock continues to soar. Despite a widely anticipated consumer slowdown that has shellacked other retailers' stocks, the parent company's shares are up 27% this year.

This takeover battle has been garnering less attention here below the border than some other fights for board control, such as the Peltz-versus-Heinz ketchup fight. It may be tempting to dismiss the Sears Canada imbroglio as a small scuffle in a distant burg.

But Wall Street should take note: Mr. Lampert considers himself acolyte of Warren Buffett, the Nebraska-based billionaire investor. In Canada, this erstwhile activist sure used some un-Omahian tactics, employing abusive tactics in trying to hog too much shareholder value for himself.

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When It Comes to Free Shipping, One Size Doesn't Fit All Sites
By Bryan Keogh - Wall Street Journal Online
August 16, 2006

Online shopping is a decade old, but large retailers continue to tinker with a key part of the process: shipping.

Traditional brick-and-mortar retailers are increasingly moving toward free shipping for Internet purchases, pressured by aggressive shipping promotions from Web-only shops like Amazon.com Inc. But in their quest to snag customers, retailers have crafted a patchwork of policies, and consumers often have to jump through hoops to avoid shipping costs.

Electronics chain Best Buy Co. rotates which items on its site ship free -- digital cameras one week, desktop computers the next. Sears charges for shipping, but occasionally lets Internet customers get the fees back with mail-in rebates. Wal-Mart, meanwhile, is testing a free ship-to-store program for some products it sells online.

"Retailers are still experimenting and learning what works in this environment and that's why you'll see a vast number of strategies," said Patti Freeman Evans, a senior retail analyst at Jupiter Research. "What's different now is more retailers are using free shipping very aggressively."

Shipping costs can factor heavily into how consumers shop online. In an online survey of more than 8,500 people conducted this spring by ForeSee Results Inc., an e-commerce research firm in Ann Arbor, Mich., more than one-third of those polled said a free-shipping offer was the most influential factor in their decision where to make their most recent online purchase. And analysts say high or hidden shipping costs are one of the most common reasons that consumers abandon online shopping carts before completing their purchases.

"It is a very competitive environment, and we are determined to be competitive in the marketplace with our various offers," said Jim Babb, a spokesman for Circuit City Stores Inc., which offers free shipping on any order $25 and over. A spokesman for rival Best Buy said the company decides which products to promote with free shipping based on factors like price and seasonal campaigns.

'Luxe' Customers

Internet merchants promoted the notion of free or discounted shipping as part of an effort to lure customers away from sites with well-established brands. Amazon.com, which has long offered free shipping on any order over $25, upped the ante last year when it introduced the Amazon Prime membership program. Customers who pay a yearly fee of $79 receive free two-day shipping on many of Amazon's items, regardless of how much they spend on each order. Amazon hasn't disclosed how many people have signed up, but executives say customers tend to spend more on the site and shop in more categories after joining Amazon Prime.

Retailers have tried to capitalize on shoppers' interest in free-shipping offers, but companies are split on how best to offer such promotions without eating into their bottom lines. Gap Inc. pursues a variety of strategies across its three brands. At its upscale Banana Republic chain, customers who spend $800 a year on its "Luxe" charge card get free shipping on all online orders. Noncard holders must order at least $125 in clothes to qualify for free shipping on the site.

There's no such program at the online store for its flagship Gap brand. Instead, Gap shoppers get their turtlenecks, jackets and khakis shipped gratis on orders of $100 and up. (In an added wrinkle, holders of Gap's charge card have to spend only $50 before free shipping kicks in.) Gap's third brand, the more bargain-based Old Navy, charges $5 per online order for shipping regardless of size and weight. (This week the site is also offering free shipping on orders $75 and over.)

"Each brand has its own character," said Alex Clark, a spokesman for San Francisco-based Gap. He said the free-shipping policies began as seasonal promotions, but their popularity encouraged the company to keep them year round. "We realize our customers are sensitive to online shipping prices," he said. "Our goal is to manage our own shipping costs and at the same time offer our online customers the most reasonable shipping charges possible."

Mail-In Rebates

Other retailers pursue a more strings-attached approach. Sears, for example, offers free shipping on many items, but only with a mail-in rebate. Consumers pay the shipping cost upfront but then must send in a rebate form within a month to get the refund. Shipping starts at $6.25 an order, based on weight.

"We employ a variety of promotions – including free shipping -- to remain competitive during key drive periods," said Chris Shimojima, a vice president and general manager at Sears Customer Direct. Sears declined to say how many customers submit the rebate forms.

Analysts said the Chicago-based retailer, a unit of Sears Holding Corp., may be betting some customers will never request refunds -- especially when the shipping charge is only a few dollars. "They're playing on the fact that not everyone's going to mail it back in," said Larry Freed, chief executive of ForeSee Results. "From a financial perspective, you can see it, but from a consumer standpoint, it starts to degrade customer satisfaction."

Wal-Mart Stores Inc., the world's biggest retailer, has largely shunned free-shipping promotions on its Web site. "We focus more on offering our customers the best value on all merchandise at Walmart.com rather than special offers or discounts," said spokeswoman Amy Colella, adding that "free shipping" offers can often result in higher prices.

Instead, the Bentonville, Ark., company has been experimenting with a "site-to-store" program in which customers can buy items only available online and have them shipped to participating Wal-Mart stores free. First launched in the Dallas-Ft. Worth area two years ago, the retailer is expanding to additional stores near Houston this month, according to Ms. Colella. She declined to specify how many locations now participate in the program, but it includes stores in California, Georgia, Arkansas and Mississippi.

Some analysts said it's time retailers narrowed in on one approach, swallowed online shipping costs and accepted that some consumers don't expect to pay extra to shop on the Internet. "I think that retailers really need to step up to the plate on shipping," ForeSee's Mr. Freed said. "I'm sort of surprised that retailers haven't really seen that."

But Sucharita Mulpuru, a retail analyst at Forrester Research, said what attracts customers in apparel may not work for chains like Wal-Mart that carry everything from appliances to toys. Every company has to figure out for itself where to draw the line on free shipping, she said. "What is that balance between attracting more consumers and attracting more profitability?" Ms. Mulpuru asked. "At some point it's just not worth it."

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Sears, Roebuck and The Long Tail
By Peter Osnos – The Century Foundation
August 15, 2006

This summer’s big-idea media book is The Long Tail: Why the Future of Business Is Selling Less of More, published by Hyperion, the book division of The Walt Disney Company. Its author is Chris Anderson, the editor of Wired, a magazine owned by Conde Nast. One message of the book is that behemoths like Disney and Conde Nast face a future in which they must hold their audiences when gazillions of options are available in the infinite space of the Internet.

Like so many sages of the Web, Anderson is taking full advantage of every feature of twentieth-century media (money, marketing, distribution) to proselytize about their fraught prospects in a transforming twenty-first-century world.

As with other books in the big idea category—The Tipping Point and The Wisdom of Crowds for example—the central insight is relatively simple: the more information and entertainment there is available and the more accessible it is, the more it is likely reach consumers with niche interests. Anderson believes that blockbusters will diminish in clout as the impact of The Long Tail grows. The power of the networks, recording labels, studios, and publishers erode as anyone with limited resources but vast potential can make themself a star.

I “read” the unabridged audio edition of Anderson’s book in the car (the print price of the book is $25.95. The audio is $39.98). Listening to a book is, in some ways, more acute than reading it because you can’t skim. As a result, all repetitions register and the jargon of technical terms and brand names (Google, Yahoo, etc.) make the book feel like it is written mainly for an audience that already knows what’s in it.

But The Long Tail a smart argument because it provides both the context and rationale for making sense out of the inundation of media we are subjected to each day. When there is so much more to choose from, it is logical that we choose, as the subtitle suggests, “less of more.”

My favorite aspect of the book, however, is, in Anderson’s view, probably a secondary point: few things we think of as brand new really are. Instead, they are new versions of time-honored means of transaction and communications. That’s where the Sears, Roebuck catalogue comes in. In 1897, Mr. Sears and Mr. Roebuck put out their first 736 page bazaar, containing a vast array of good for sale of every kind at reasonable prices. In the first ten pages there were several dozen types of tea, for instance.

The mail order was fulfilled by a warehousing system and delivered efficiently to customers by the evolving modes of transport. Sound familiar? This is, of course, the essence of what Amazon did, first with books and then with products of all kinds. Sears, Roebuck offered incentives to customers to give the catalogue to friends and neighbors, a form of viral marketing.

In time, the Sears concept of all-purpose, one-stop shopping was supplemented by the specialty catalogue. To this day, the array and quantity of catalogues, shoppers, and other come-hithers that arrive in the typical American home is enormous. So out of one, comes many. And so it is in The Long Tail. The behemoths begin as upstarts and amass to scale and then there are new upstarts.

What changes, therefore, is less the things we do—read, listen to music, shop for amusement—than the way we do them. Even the names are modified in time to reflect the changes. Pony Express becomes Federal Express.

Anderson is certainly right that we have more of every kind of media and commerce than we ever had before and that democratic distribution is a definite plus for innovation in culture and information. But it is also true that today’s technical breakthroughs are really just new tools for the ways we have long done many of the same things. The Long Tail is new and also old. Incidentally, you can still buy that first Sears, Roebuck catalogue as a book on Amazon.

Peter Osnos is Senior Fellow for Media at The Century Foundation.

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Ears for Sears
Tower's owners draw up plans for a Disneyfied experience on the Skydeck

By Thomas A. Corfman - Crain’s Chicago Business
August 14, 2006

The typical trip to the top of the Sears Tower — go up, look around, come down — could soon become a more Disneyesque experience, with a special-effects theater, a light-show ride on a glass elevator and man-made clouds covering the Skydeck floor.

The owners of the 110-story structure have hired a design firm founded by a Walt Disney Co. veteran, which has drawn up plans with an eye not only on boosting revenue but also on polishing the image of the iconic tower in the post-Sept. 11 age.

Burbank, Calif.-based BRC Imagination Arts Inc. counts Disney as a client; its other high-profile projects include the Abraham Lincoln Presidential Library and Museum in Springfield.

The redevelopment project is part of a "branding strategy" that would portray Sears Tower as "the most prestigious business address in the world," according to a description of the project circulated earlier this year to potential investors in a proposed recapitalization of the 3.6-million-square-foot building at 233 S. Wacker Drive.

About 1.5 million visitors a year make the trek to the Sears Tower Skydeck, according to the description by Carlton Group Ltd., the New York real estate finance firm that's handling the recapitalization. But partly because of "long and boring waits," the observation deck has few repeat customers, and only one in seven guests is a child.

The redevelopment would include several new attractions, such as:

• "The Works," a tour of mechanical systems, such as the huge heating and air conditioning equipment.

• A theater presenting a "multimedia, multisensory show" that would feature the illusion of looking over the edge from the top of the building down to the street.

• A glass elevator ride in a specially lighted shaft to the observation deck, where a fog machine would create a cloudlike atmosphere.

"The idea is to make it more of an experience than just going up to the top and coming down," says Yisroel Gluck, president of American Landmark Properties Ltd. In 2004, the Skokie firm and two New York real estate investors, Joseph Chetrit and Joseph Moinian, bought the tower for $840 million.

'WARM THE THING UP'

Mr. Gluck downplays a broad rebranding effort. "We're happy with the image of the building," he says.

But an improved image would probably help office leasing at Sears Tower, which has already begun to rebound after the 2001 attacks, says an Evanston marketing consultant who worked on the 1995 redevelopment of John Hancock Center.

"Terrorism or no terrorism, it's a sound strategy," Brian Bourke says. "It's this austere black tower. This would warm the thing up."

Mr. Gluck says the redevelopment plans, including financial projections, have not been finalized, and that the project wouldn't begin until the recapitalization is completed.

The promise of growing Skydeck income is a key piece of that recapitalization, which is said to include a roughly $750-million first mortgage to be issued by the commercial mortgage unit of UBS A.G. More recently, Sears Tower owners have held talks with New York billionaire Tamir Sapir, who would invest about $150 million through equity and a mezzanine loan, sources say.

Mr. Gluck declines comment on the UBS loan. He confirms talks with Mr. Sapir, but says not even an "informal" deal has been reached. A spokesman for Mr. Sapir declines comment.

ATTENDANCE MAXED OUT?

At an estimated cost of $8 million, a redeveloped Skydeck could more than double its net income, to roughly $20 million a year, according to the plan, a windfall for a building whose total annual net income is already a hefty $65 million. The increased revenue would come from several sources, including raising prices from the current $11.95 ticket price, boosting sales of souvenirs to an average of $4.50 a person, from $1, and increasing visits by 30%.

Boosting attendance that may already be "maxed out" could be a challenge, Mr. Bourke says. But the redevelopment would help solve another problem.

"On a cloudy day," he says, "it's like looking at somebody's shower curtain."

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Former Sears officer takes new post
By Lorene Yue – Crain’s Chicago Business
August 14, 2006

David Selby hopes his fascination with the business of executive searches coupled with his expertise as a marketing executive will help him quickly conquer the learning curve required at his new job at Russell Reynolds Associates.

In June, Mr. Selby, 49, became an executive director in the consumer and corporate officers unit in the executive search firm’s Chicago office. His priority is beefing up the company's business by recruiting both executives and new clients.

"More than ever there is a need for exceptional talent regardless of the industry given the vast amount of change that is going on," he said. "There is certainly a high level of demand for executives regardless of the industry."

That should make the job transition easier, except the marketing veteran who launched the “Sears. Where else?” campaign admits he is forging into new territory.

"I have to learn to do search work," Mr. Selby said. "I have never done executive searches." He's learning fast. Nearly three months into the job, Mr. Selby has already taken the lead on some searches.

Mr. Selby said he made the career switch after leaving as Potbelly's chief marketing officer in December. After exploring several options, he decided to put his 25 years of experience to work for Russell Reynolds, a company Mr. Selby has used himself.

"I find the search business fascinating," he said. "The people side of the business is one of the most dynamic and intellectually challenging parts of the business. Being in this position makes sense to me."

Corporate governance groups support the use of executive search firms in seeking qualified candidates for top management.

“While it’s usually cheaper and more productive to groom internal candidates, sometimes it’s necessary and prudent for a board to hire from the outside,” said Patrick McGurn, an executive vice president for Institutional Shareholder Services. “The key issue is independence. The search firm must report to the board and not to senior management.”

After graduating from Amhurst College in 1978, Mr. Selby joined Leo Burnett where in his 19 years with company he worked on McDonald's Corp., Walt Disney Co. and Fruit of the Loom accounts. In 1985 he earned an MBA from Kellogg Graduate School of Management at Northwestern University.

In 1997, Mr. Selby became senior vice president of marketing for Sears, which was struggling to stay relevant with shoppers.

"At Sears, I had opportunity to be a member of a very high performing executive team charged with turning around an iconic company," he said.

He created the “Sears. Where else?” campaign which critics claim failed because of its ambiguity.

"Sears. Where else? Implies that everyone is shopping at Sears," said Laura Reis, a marketing strategist and branding expert in Atlanta. "That's not true. People will say, 'Are you kidding me? I'm going to get new fall fashions at Sears, Where else?'"

The campaign was canned in 2002 when Alan Lacy, then CEO of Sears, hired Janine Bousquette of Procter & Gamble as executive vice president of marketing. She replaced Mr. Selby’s program with “Sears. Good Life. Great price.”

With Ms. Bousquette in, Mr. Selby wanted out.

"It was an organizational change that was not consistent to where I wanted to take my career," he said.

He took roughly 16 months to find his next job and landed as Potbelly's chief marketing officer in 2004. Mr. Selby helped Potbelly double its number of stores and expand into three states, but left in 2005.

"We came to the belief that it wasn't the long-term fit either of us had hoped for and we agreed to part ways," he said.

Now he has his sights set on conquering a new job in a new field.

"The goal is to become an accomplished search executive," Mr. Selby said. "I view my career as a life-long apprenticeship."

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What You Need To Know About Pension Changes

New Law and Court Ruling Mean More Companies May Convert Plans to 'Cash Balance' Model
By Ellen E. Schultz and Theo Francus
Wall Street Journal
August 15, 2006

If you're covered by a traditional pension plan, the odds that your employer will change to a "cash balance" pension plan have just increased.

These new-style pensions, which currently cover roughly a quarter of the 22 million private-sector workers with pensions, have been controversial because switching to them reduces pensions for older workers -- sometimes significantly. This has led to lawsuits and proposed legislation to slow their spread, causing some employers to hesitate about changing.

But last week, a federal appeals court ruled that International Business Machines Corp.'s cash-balance pension didn't violate age-discrimination laws. Just days before that, Congress approved a measure that would deem cash-balance plans legal. While the ruling will be appealed, and the bill has yet to be signed into law by President Bush, employer groups say the recent actions are a green light for employers to change their pensions.

For employers, switching to a cash-balance pension plan reduces future payouts and boosts earnings. That, in turn, can result in big gains in executive incentive pay, which is tied to earnings.

Researchers at Cornell University, the University of Colorado at Boulder and the University of California at Irvine examined hundreds of companies that converted their pensions to a cash-balance formula, and they found that the average incentive compensation for the chief executive officers jumped to about four times salary in the year of the pension cut, from about three times salary the year before. Companies that didn't change their pensions saw little change, says Julia D'Souza, a Cornell associate professor of accounting and lead author of the study, which is currently under review by an accounting journal.

For example, filings show that when Cooper Tire & Rubber Co. converted its pension to a cash-balance plan in 2002, the CEO's incentive pay rose to $1.5 million -- the highest level in a decade -- from $702,000 the year before. After a similar move by Clorox Co. in 1996, the incentive compensation for G. Craig Sullivan, its chief executive, jumped to $5.6 million from $961,000 the year before.

A spokesman for Cooper Tire called any correlation between its CEO's pay and its pension changes "completely coincidental." Clorox didn't respond to requests for comment.

The bottom line is that companies can boost their profits by converting to cash-balance plans and now face little legal risk in doing so. Unless you have already retired -- in which case your pension won't change -- here's what it may mean for you:

What is a cash-balance plan?

Cash-balance plans are pensions in which you have a hypothetical account that grows by an annual credit, say 3% of your pay each year, plus interest. When you leave your job, you usually can roll the amount into an individual retirement account or cash it out. If you're joining a company with a cash-balance plan, the mechanics are simple. But if you're at a company that switches from a traditional pension, things can get complex.

What happens to my pension when it's changed to a cash-balance pension?

Most traditional pensions are designed so that if you work a full career at a company, the pension will replace about a quarter of your final pay when you retire. While formulas vary, a plan might give you an annual benefit starting at age 65 equal to 1.5% of pay for each year of service. So, if you've worked 20 years at the company, and your average salary was $50,000, that's a pension of $15,000 a year (.015 x $50,000 x 20).

When your employer converts to a cash-balance formula, the first thing it does is "freeze" the pension you've earned under the old formula. (This means it doesn't grow any more.) Your employer then calculates what this frozen pension would be worth if it were paid out in a lump sum of cash. This frozen pension value becomes the "opening account balance," which will grow with future contributions and interest.

Note that a cash-balance account is only virtual, or hypothetical. The pension plan hasn't changed -- it's the same pool of money, which your employer funds and manages. A cash-balance "plan" is simply the same old pension plan, with a new formula for determining your benefit.

How can a cash-balance plan reduce my pension?

Because traditional pension benefits build up fastest in the later years, as much as half of a person's pension may be earned in the final five years on the job. When this older formula is frozen and the employee's pension grows only with the annual "interest" credits, the pension in retirement can be 20% to 40% lower than if the prior formula had remained in place.

Your pension could be reduced even further. Some companies lowball the opening account balances, giving someone an "account" worth, say, $100,000, even if the frozen pension is worth $120,000. As a result, you'd have to wait until your annual pay credits and interest build your "account" back up to $120,000 before you begin building any additional pension.

This is one reason older employees complain of age discrimination; however, the bill Congress passed would ban some of the more-controversial practices.

Why do employers change to cash-balance plans?

Companies can save money and boost profits. If a company has a pension surplus (most that converted in the 1990s did, and some that are converting today do), it can use the surplus assets to "fund" the contributions to workers -- offering the company a cash savings for a 401(k)-like benefit that it wouldn't have if it actually switched to a 401(k).

What's more, changing to a cash-balance plan reduces pensions, and thus a company's pension obligation. Under accounting rules, companies calculate how much they expect to pay out in pensions over the lives of their employees -- including amounts workers haven't earned yet -- and then reflect that amount as a liability on their books. When the pensions are cut, the estimated amounts that will no longer be paid out instead get added to income.

What kinds of companies change to cash-balance formulas?

Companies with work forces closer to retirement were more likely to change from traditional pension to cash-balance formulas, Ms. D'Souza found.

If you're a salaried worker, your pension is more likely to be changed. If you're covered by a collectively bargained contract, your employer typically must negotiate with your union before changing to a cash balance plan.

Since the early 1990s, roughly 400 companies -- commonly utilities, defense contractors and manufacturers -- that together have at least 1,200 pension plans have shifted to the new-style pensions.

Are cash-balance plans better for younger workers and job-hoppers?

Employers say cash-balance pension plans are better for younger and more mobile workers because these workers can build up a better benefit than under traditional pensions, and take it with them when they leave. But last year, the Government Accountability Office concluded that most workers -- regardless of age -- get lower retirement benefits when employers switch from traditional pension plans to cash-balance plans.

What's more, workers get nothing if they leave before they are "vested," which usually takes five years. The GAO says more than one-third of workers in both traditional and cash-balance plans fail to vest, making cash-balance plans no better for job-hoppers than traditional pensions. (And most companies automatically cash out pensions with values below $5,000, effectively already giving young mobile workers pension portability.)

What steps can I take if my pension is converted?

About half of employers making the switch provide a transition period to protect older workers, such as letting them stay under the prior formula for five years.

But some older workers choose the cash-balance option, because they like the idea of walking away with a lump sum. This is almost always a bad deal. Lump sums are often worth less than what you could get with a monthly pension at retirement age -- especially if you're in your late 40s to late 50s and have been at the company for many years.

Before deciding, ask to see the value of your pension in all possible forms: not just the cash-balance account, but the pension you'd get at age 65 if you chose to remain in the old plan, and that value converted to a lump sum.

Remember, your employer can still cut a cash-balance pension. In coming years, it can reduce the annual pay credit, or even freeze the plan. (Sears Holdings Corp. and Verizon Communications Inc. froze their cash-balance plans this year, and IBM announced it will freeze its plan at the end of 2007.) So you need to save as much as you can in a 401(k) account or elsewhere.

Cash-balance plans could be even riskier going forward, because the new pension law would allow companies to use an interest crediting rate that could turn negative, potentially wiping out all the interest credits previously earned.

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Ex-Wal-Mart Official Gets Home-Confinement Sentence
By Ann Zimmerman – Wall Street Journal Online
August 11, 2006

Former Wal-Mart Stores Inc. Vice Chairman Thomas Coughlin yesterday was sentenced to 27 months home confinement on wire fraud and tax evasion charges by a federal judge, who substantially reduced Mr. Coughlin's potential sentence because of his fragile health.

Mr. Coughlin, a Wal-Mart legend and former protégé of company founder Sam Walton, left the company a year and a half ago amid accusations that he misappropriated as much as $500,000 from Wal-Mart through fraudulent reimbursements and improper uses of gift cards.

Before the sentence was handed down, a tearful Mr. Coughlin apologized to the court, his wife and children and "extended Wal-Mart family." Only after sentencing, on the courthouse steps, did Mr. Coughlin affirm – still cryptically -- that he stands by his original contention that he had been reimbursing himself for a secret scheme to fund an antiunion spy operation.

"It is obvious that the activity which I was involved in has gone on for a number of years and was, in fact, acknowledged by members of management, even though they did not know the specific details," he said.

Mr. Coughlin added, "While I handled certain transactions wrong, and while I deeply regret that other Wal-Mart associates became involved and under suspicion, I must convey to you that I resent the concentrated effort that has been made by a few members of Wal-Mart's upper management and some of Wal-Mart's lawyers to paint this situation as something it wasn't. I am convinced that the top level of present Wal-Mart management never fully investigated the transactions that are in question here today."

Federal prosecutors for the U.S. Attorney's Office found no evidence that Mr. Coughlin was part of a secret company intelligence operation directed at the unions. Wal-Mart also has said Mr. Coughlin's claims are untrue.

Mr. Coughlin agreed to plead guilty in January. Federal sentencing guidelines, which are advisory, but are still followed by most judges, called for a sentence in excess of two years. During a three-hour hearing yesterday, Mr. Coughlin's doctor, who described his patient as "57 going on 87," said he suffered from severe coronary disease, diabetes and pulmonary hypertension. Twice in the last three years, Mr. Coughlin suffered a cardiac incident in which his heart stopped and had to be restarted.

In sentencing him, Fort Smith, Ark., Federal Judge Robert P. Dawson said he took into account Mr. Coughlin's medical condition, his civic and corporate contributions, as well as what the judge described as his "spectacular fall."

"The world-wide exposure and ridicule Mr. Coughlin has received means the worst punishment may have already been meted out," Judge Dawson said.

The judge sentenced Mr. Coughlin to a five-year probation period, 27 months of which is to be served in home confinement, plus ordered him to pay $306,822 restitution to Wal-Mart and $104,000 to the Internal Revenue Service. The judge also fined Mr. Coughlin $50,000.

David Blackorby, assistant U.S. attorney, argued that Mr. Coughlin should be incarcerated because his scheme to defraud Wal-Mart lasted 15 years and that his medical condition could be cared for in prison.

Mr. Coughlin also is embroiled in a civil suit filed by Wal-Mart, which is seeking to rescind his retirement agreement, worth more than $10 miilion.

 

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J.C. Penney's Net Income Rises on Women's Accessories
Bloomberg.com
August 10, 2006

J.C. Penney Co., the third-largest U.S. department-store company, said profit increased 37 percent, helped by sales of women's accessories and men's clothing.
Net income in the second quarter ended July 29 rose to $179 million, or 76 cents a share, from $131 million, or 50 cents, a year ago, the Plano, Texas-based company said today in a statement. Sales increased 6.5 percent to $4.24 billion from $3.98 billion.

Sales at stores open at least a year rose 6.6 percent, the largest quarterly increase in two years, buoyed by items such as $40 Worthington strap satchels and $26 St. John's Bay men's polo shirts. Chief Executive Officer Myron Ullman is reducing discounts and promoting J.C. Penney's own brands such as the X Games boys clothing line introduced last month.

``Penney has been doing well across the store,'' said Keri Spanbauer, an analyst at Minneapolis-based Thrivent Investment Management, who helps manage $67.5 billion in assets including J.C. Penney shares.

Shares of J.C. Penney rose 3 cents to $64 yesterday in New York Stock Exchange composite trading. The stock has gained 15 percent this year, compared with a 20 percent gain for Sears Holdings Corp. and a 3.9 percent increase for Federated Department Stores Inc.

Robert Buchanan, an analyst at A.G. Edwards & Sons Inc. who is top-ranked by StarMine Professional, estimated earnings of 73 cents a share for the second quarter. That is 1 cent above the average of 15 analysts surveyed by Thomson Financial, which doesn't disclose the basis for its projections.

Buchanan cut the company's rating to ``hold'' from ``buy'' on July 18, saying he was concerned that it's taking longer to move inventory out of the store.

Raising Earnings Forecast

J.C. Penney Aug. 3 raised its second-quarter earnings forecast by 6 cents to 71 cents, the third time it increased the forecast, after reporting a better-than-expected July same-store sales gain of 4.9 percent.

Deborah Weinswig, a Citigroup Investment Research analyst, called J.C. Penney her top pick for the back-to-school season in a July 27 report. She cited the company's offering of fashionable ``private, national, and exclusive brands, focused and integrated advertising campaign, and early rollout of merchandise'' by early July.

Weinswig is based in New York and rates the shares ``buy.''

Gaining Shoppers

J.C. Penney is gaining shoppers from Sears, the largest U.S. department-store chain, and from the former May Department Stores Co., Spanbauer said. Federated, owner of Macy's and Bloomingdale's, bought May for $11 billion last year.

If J.C. Penney can get 5 percent of the estimated $5 billion to $6 billion in sales that went to now-closed department stores, that could lift full-year comparable-store sales by 1.5 percentage points and earnings per share by 6 cents next year, Piper Jaffray & Co. analyst Jeffrey Klinefelter estimated in an Aug. 3 report.

Klinefelter, based in Minneapolis, rates the shares "outperform.''

J.C. Penney has more stores near units closed by Sears and Federated than any other retailer, Morgan Stanley analyst Michelle Clark said during an Aug. 8 conference call, and ``its merchandise offerings have significantly improved.''

J.C. Penney, along with discount department-store chain Kohl's Corp., is among the few retailers posting increases in the number of shoppers year over year, she said. Clark, based in New York, rates the shares “overweight.''

Ullman, 59, has reduced J.C. Penney 's reliance on promotions as it has pushed its own labels, including Arizona Jean Co., Nicole by designer Nicole Miller and Nick (it) by Joe Boxer creator Nick Graham.

Of 17 analysts tracked by Bloomberg, nine rate J.C. Penney shares “buy'' and eight say “hold.''

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Lampert may have lost the hand, but still holds all the cards
By Derek DeCloet – Globe and Mail.com
August 9, 2006

Hedge fund manager Ed Lampert has just lost his bid to privatize Sears Canada, yet may still win. Hedge fund manager William Ackman won the legal battle to stop the deal, but might lose anyway. Got that?

If it sounds convoluted, so are a lot of things about this takeover, now on ice after several months of hostilities. On one side is Sears Holdings, of which Mr. Lampert is chairman, openly trashing the future prospects of its majority-owned Canadian unit. On the other is Mr. Ackman, who didn't like the U.S. parent's $18-a-share bid and claimed that Sears Canada ought to be worth more than twice that price.

Each man has been nakedly arguing his own self-interest -- what else is new on Wall Street -- but which version is closer to truth? Does it even matter, when Mr. Lampert holds all the cards?

Make no mistake: He's still in a commanding position, even after the Ontario Securities Commission turned away his offer and slapped Sears Holdings around a bit. The testimony exposed the parent company's bully tactics, but the OSC ruling itself is confined to a fairly narrow point. Three shareholders, including Royal Bank of Canada and Bank of Nova Scotia, were given special benefits from Sears Holdings -- ergo, their votes don't count, and the going-private bid fails for now.


Here's what the OSC decision doesn't say. It doesn't force Sears Holdings to come back with a better offer, or pay a special dividend to mollify the recalcitrant minority shareholders, or give up seats on the board. Mr. Lampert is still firmly in control here: It's his call on when, or whether, to put a richer bid on the table.

Sears Canada shares closed yesterday at $20.39, or about 13 per cent higher than the last bid. If the parent company walks, as it has threatened to do, anyone buying the stock had better feel certain the business is worth more than that. Mr. Ackman does, and he seems to have a pretty good nose for value, so let's examine his claim that Sears Canada should be a $40 stock.

He starts with the assumption the Sears department stores will produce $384-million in EBITDA this year (earnings before interest, taxes, depreciation and amortization). That's the number Genuity Capital Markets used in its own valuation, which concluded the shares are worth as much as $22.25.

That's the starting point, and Mr. Ackman adds in $205-million of cost-cutting moves that management has already identified, but that Genuity didn't count, to come up with an "adjusted EBITDA" of nearly $600-million. What's that worth? The hedge fund manager reckons that an investor ought to pay about seven times EBITDA for a department store. And, will you look at that -- that's pretty much exactly what Kmart paid for Sears Holdings in 2004. The brains behind that merger? Step forward, Ed Lampert!

Add in Sears Canada's cash stockpile and some minor assets, subtract debt, divide by the number of shares and -- presto -- Mr. Ackman gets a stock price of $41. Easy, simple math, so how can he possibly lose?

We can think of a few ways. For one, the cost-cutting might fall short; it sounds good to say that management can axe $200-million, but at Sears Canada, good intentions often diverge from reality. (This is a company that still earns less than it did during the late-1990s. If fixing it were so simple, you'd think it would have been done by now.) Nor can you count the executive suite to sprinkle some marketing magic. Sales have been stuck in neutral at $6.2-billion for three years running.

Finally, there's the matter of valuation. Hudson's Bay or Sears Canada might be worth seven times EBITDA in a takeover, but what if there's no offer on the table? History says five or six times is a more likely multiple for a struggling Canadian department store that isn't an acquisition target.

We don't doubt that Mr. Lampert wants to rectify the problems at Sears Canada. But there's nothing to say he will do so immediately. Sears Holdings will likely earn $1.3-billion (U.S.) this year and the Canadian contribution will be less than $100-million. The unit's impact on the parent company's stock price is minimal, and in any event, Mr. Lampert is a long-term guy (investors in his hedge fund are forced to lock up their money for five years). His best strategy might be to let Sears Canada twist in the wind for a year or so, let the stock languish, then come back with an offer in the low-$20 range. In any game of chicken, the most patient contestant usually wins, and Mr. Lampert, more than Mr. Ackman, can afford to wait. Advantage Eddie.

 

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Sears Holdings smacked by OSC ruling
By Janet McFarland and Marina Strauss – Globe and Mail.com, Toronto
August 8, 2006

The long-running takeover fight for Sears Canada Inc. was in disarray Tuesday after the retailer's U.S. parent said it will appeal an Ontario Securities Commission ruling in favour of dissident hedge funds.

Sears Holdings Corp. said it disagrees with an OSC panel that said the company cannot proceed to buy the remaining minority interest in the Canadian division unless it significantly changes details of its offer. The company said it will appeal to Ontario divisional court.

“Sears Holdings is disappointed with the decision,” spokesman Chris Brathwaite said. “We believe that we, as well as the Canadian banks who agreed to support the transaction, acted in full compliance with Ontario securities laws and practice throughout this process.”

The company, which offered $18 a share to buy the minority interest in Sears Canada that it didn't already own, “fully complied with our disclosure obligations,” Mr. Brathwaite said.

The ruling is a major setback for Sears Holdings, because it had secured a bare minimum of required shares by signing lock-up agreements with Bank of Nova Scotia, Royal Bank of Canada and U.S. investment fund Vornado Realty LP. The OSC said those shares will not be allowed to count toward the required threshold since the parties received special benefits that were not available to other shareholders.

“We find that elements of the conduct of Sears Holdings in pursuing their offer were coercive and abusive of the minority shareholders of Sears Canada and the capital markets generally,” the OSC said in a ruling released Tuesday.

Without those shares, Sears Holdings could raise its bid to complete a deal on new terms, or follow through on previous threats to walk away and leave about 30 per cent of Sears Canada in the hands of the minority shareholders.

William Ackman, managing partner of Pershing Square Capital Management LP — one of the dissident investors involved in the case — said the shareholders are pleased with the ruling, and may buy more Sears Canada shares “depending on market conditions.”

“We have been vindicated by this decision,” he said.

An industry analyst, who did not want to be identified, said Tuesday “all eyes” now are on Eddie Lampert, chairman and controlling shareholder of Sears Holdings. The analyst said he thinks Mr. Lampert will set aside the offer for a while rather than pay significantly more.

“He's unlikely to roll over and pay up, [it's] too visible a disgrace,” the analyst said. “Plus he won't pay much more, and shareholders won't take less than low- to mid-20's. I think it's a longer-term holding, frankly, with a high likelihood of a large dividend payout in the next six months.”

Sears Holdings may have another reason to walk away from the deal for now. It would have to extend any raised offer to two major shareholders who have already sold at $18 a share. Sears Holdings agreed to pay them any increase in the takeover price until the end of 2008.

In its ruling Tuesday, the OSC said a series of factors contributed to its conclusion that Sears Holdings' behaviour was abusive.

It cited Sears Holdings' warnings to shareholders that if they did not tender, Sears Canada would cease to pay a dividend and would become an illiquid stock. The OSC said the statements “could be construed as threatening in nature.”

The OSC also criticized Sears Holdings for failing to give full information to the independent committee of Sears Canada directors who were considering the bid, and for attacking the committee members' low levels of share ownership.

The commission also ruled against all of Sears Holdings' counterattacks against the hedge funds, saying there was no proof they acted in collusion or failed to accurately disclose their share ownership.

Securities lawyers Tuesday said the OSC's extensive ruling will have repercussions for future takeover cases because it touches on many issues common in bids.

Jonathan Levin, who acted for the Sears Canada special committee, said the OSC has sent a signal that it will act strongly to protect minority shareholders.

“The impact of this decision is going to be renewed respect for the welfare of public shareholders in the context of related-party transactions,” he said.

The OSC, for example, ruled that various aspects of Sears Holding's information disclosure was inadequate during the takeover offer, signalling a low tolerance for selective disclosure to shareholders.

The OSC also ruled that there was no evidence to suggest Scotiabank was a “joint actor” with Sears Holdings because of its dual role as investment adviser to the company and as a shareholder signing a support agreement.

That element of the decision was being closely watched by Bay Street because it is common for banks to advise companies on takeovers while they also hold the shares in their portfolios.

Scotiabank spokesman Frank Switzer said the bank was happy with the finding it did not have any conflict of interest.

“We were pleased that the OSC concluded that our Chinese walls operated efficiently, very professionally, and that we acted with the utmost integrity in this transaction,” he said.

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Sears Holdings Bid For Canadian Division
Hits Regulatory Snag

By Andy Georgiades
Of DOW JONES NEWSWIRES - WALL STREET JOURNAL ONLINE
August 8, 2006

TORONTO (Dow Jones)--The takeover bid by Sears Holdings Corp. (SHLD) for Sears Canada Inc. (SCC.T) is in trouble, after a Canadian regulator criticized the parent company for its disclosure with respect to the bid.

In a 94-page decision, the three-member panel of the Ontario Securities Commission, Canada's top securities regulator, found that certain aspects of Sears Holdings' conduct violated Ontario securities law. As a result, it ruled that votes attached to side deals the company made with various shareholders be excluded from a shareholder vote that will decide the fate of Sears Holdings' bid for the 46% of Sears Canada it doesn't already own.

One retail observer said that, by excluding the Sears Canada shares that are part of the support agreeements, it doesn't look like Sears Holdings has enough support to succeed in its bid. Sears Holdings now has two choices, either sweeten its offer enough to please the hedge funds, or walk away and let it continue as a subsidiary, the observer said, adding that the latter is more likely.

At the same time, the OSC dismissed in its entirety the application filed by Sears Holdings with respect to the conduct of one of the dissident shareholders, Pershing Square Capital Management, in connection with the offer.

"Viewed as a whole, the panel is troubled by the approach taken by Sears Holdings to their disclosure obligations in the context of their offer," the panel said in its decision. "We are particularly troubled by Sears Holdings' approach with respect to making proper and timely disclosure to the special committee of Sears Canada."

In an e-mail message to Dow Jones, a Sears Holdings' spokesman said the retailer is studying the opinion of the OSC, but had no further comment.

Sears Holding said in February that its offer for Sears Canada doesn't have a minimum-tender condition, and it will take up and pay for any shares tendered.

Sears Holdings started the bidding for its Canadian subsidiary at C$16.86 a share back in December. After Genuity Capital Markets released an independent valuation of the company of C$19-C$22.25 a share, Sears Holdings raised its offer to C$18, which it called final.

Needing a majority of the minority shareholders to vote in favor of the deal, Sears Holdings entered support agreements in April with Bank of Nova Scotia (BNS) and Royal Bank of Canada (RY) - without identifying them at the time. The same month, it signed a deposit agreement with Vornado Realty Ltd. Having secured more than enough votes, it intended to close the transaction in December.

But dissident shareholder groups, led by William Ackman's Pershing Square, complained to the OSC that an eight-month extension of the bid's deadline gave preferential treatment to the two Canadian two banks, which stood to save millions in taxes. In addition, the Vornado agreement included a litigation release from any claims and demands of any nature arising from the activities of Vornado in connection with its acquisition and disposition of Sears Canada shares.

In its decision, the OSC said tentative agreements with shareholders that could influence the outcome of a bid are "fundamentally important" and should be disclosed.

Sears Holdings' Disclosure Found Lacking

"A deal with an individual shareholder to support (an acquisition transaction) in the midst of a bid that otherwise appeared to be failing is unusual and cannot be equated with an anonymous decision on the part of a shareholder to tender to the bid," said the OSC. "The identity of the counterparties to the support agreements was material information in these circumstances and ought to have been disclosed."

The OSC concluded that, in entering the support agreements, the banks were provided "consideration of greater value" than other Sears Canada shareholders, as they stood to receive millions of dollars in tax benefits. It noted that a congratulatory e-mail from Sears Holdings' financial adviser to the company's top executives on April 6 was telling of the "purpose and effect" of the agreements:

"Today's announcement will surprise the market and, given our conversations with the analysts and institutional shareholders, it will catch most off-guard. In fact, the rather unique tactic of securing the support of the majority through the derivatives trades and support agreements will make this transaction one of the most intriguing Canadian M&A trades in a long time," the e-mail said.

The OSC didn't dispute that the tactic was unique, but said allowing the votes to count in a shareholder vote on the takeover would "turn a blind eye" to the overriding principle that all shareholders are treated fairly and equally.

Likewise, Vornado's litigation release also violated the law as it "constitutes consideration of greater value than that offered to other shareholders" of Sears Canada. Votes attached to these share won't be counted either, the OSC ruled, but it didn't terminate any of the agreements.

The regulator was also critical of Sears Holdings' conduct with the special committee of Sears Canada, headed by William Anderson, appointed to study the Sears Holdings offer.

For instance, the OSC said e-mails sent by Sears Holdings' chief financial officer showed that the company's March 20 press release, in which it said Sears Holdings will support the elimination of the "recent practice" of Sears Canada paying a dividend, was meant to "coerce" shareholders of Sears Canada into tendering to the insider bid.

In addition, the OSC believed Anderson's testimony that Sears Holdings took comments made by the special committee about Sears Canada's financial condition out of context. "Mr. Anderson made it clear that, despite numerous requests made to Sears Holdings for access to information which the special committee felt they needed in order to fulfill their statutory mandate, access to this information and documentation was either delayed or never provided at all," the OSC said.

Finally, when the members of the special committee of Sears Canada announced in February that they wouldn't stand for re-election to the board in May, Sears Holdings asked that they resign immediately. They refused, citing fiduciary obligations. "That Sears Holdings would seek the early resignation of the members of the special committee in the midst of an insider bid in respect of which the special committee had expressed serious reservations is of significant concern to the panel," it said.

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Lampert Blocked by Regulator on Sears Canada Purchase
BLOOMBERG.COM
August 8, 2006

Aug. 8 (Bloomberg) -- Sears Holdings Corp. lost its bid to gain full control of Sears Canada, a setback to Chairman Edward Lampert's efforts to eliminate opposition to his plan to cut costs at the unit.

The Ontario Securities Commission today blocked the company's offer to buy the 46 percent of Sears Canada it doesn't own, saying Lampert gave better terms to two banks and a real estate investor in return for their support. Lampert broke merger rules by failing to disclose the arrangements to all shareholders, the commission said.

``If people knew those agreements were in place, would it have changed things?'' said Richard Powers, executive director of MBA programs at University of Toronto's Joseph L. Rotman School of Management. ``Yeah, that's very important information to know.''

The ruling thwarts Lampert's attempt to buy Sears Canada against the opposition of investors including William Ackman, who said the C$18-a-share offer was too low. Ackman's New York- based hedge fund, Pershing Square Capital Management LP, said the unit should fetch twice that amount.

Lampert, 44, wants to buy Sears Canada to lower costs, lease back some stores and sell real estate. The move is also designed to help Sears Canada compete more effectively with Wal- Mart Stores Inc. and Hudson's Bay Co.

Hedge Fund Battle

The dispute over Sears Canada pits Lampert, a hedge fund manager who took Kmart Holdings Corp. out of bankruptcy in 2003, against Ackman, an activist investor who battled management to lift stock prices at companies including Wendy's International Inc. and McDonald's Corp.

Ackman told the OSC in a hearing in Toronto last month he had an 11.6 percent interest in Sears Canada, the country's third-biggest department store chain. He asked the agency to block the buyout.

Lampert has ``struggled against the whole Sears Canada thing for a while, and you had a lot of people who were shooting against him,'' said Scott Rothbort, president of Millburn, New Jersey-based Lakeview Asset Management, which counts Sears Holdings among its top investments.

Lampert struck deals with Bank of Nova Scotia and Royal Bank of Canada for their backing of the C$899 million ($803 million) takeover. The banks would have had tax benefits unavailable to other shareholders, the OSC said.

Protecting Rights

The commission's decision ``protects the rights and interests of all minority shareholders of Sears Canada,'' Ackman said in a statement released by Pershing, Knott Partners Management LLC and Hawkeye Capital Management LLC, which joined Ackman in fighting the Sears Holdings offer.

Sears Canada shares rose 16 cents to C$20.10 at 2:40 p.m. in trading on the Toronto Stock Exchange. Sears Holdings shares rose fell 58 cents to $139.99 in Nasdaq Stock Market composite trading.

Sears Holdings was studying the ruling and declined further comment, said Chris Brathwaite, a spokesman for the Hoffman Estates, Illinois-based company.

The Canadian banks agreed to tender their 7.6 million shares to the offer by Sears Holdings after negotiating an extension allowing them to hold the shares until the end of the year. That would have given them a tax benefit of C$122 million because they would have held the shares at least a year, said Kent Thomson, a lawyer for dissident shareholders.

Votes Disallowed

The OSC also disallowed the 7.5 million shareholder votes of Steven Roth's New York-based Vornado Realty Trust. A Sears Holdings agreement protecting him from lawsuits and guaranteeing the highest price for the shares for three years gave him benefits not available to others, the regulator said.

Ackman, 40, asked the OSC to block the buyout after Lampert's deals with the banks and Roth's Vornado gave him the votes he needed.

Toronto-based Sears Canada has 108 million shares outstanding, of which Sears Holdings owns 58 million. Sears Holdings needs votes of a majority of the shares it doesn't own for the deal to go through.

 

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'We have incidents every day'
Sept. 11 had a huge impact on the Sears Tower, Chicago's tallest building. But is it safer?
By Christina Le Beau - CRAIN'S CHICAGO BUSINESS
August 7, 2006

John Hlava, a Sears Tower security official, mans his post at the building's command center.

There's no question Sept. 11 changed the Sears Tower. Security officers are everywhere. Large planters outside are clearly more for protection than decoration. And the 25,000 people who work in and visit the nation's tallest building every day can't enter or leave without being watched, recorded and possibly searched.

Management, meanwhile, has grown accustomed to fielding inquiries about alleged terrorist plots like the one uncovered in Miami in June.

"We don't have terrorism threats every day," says Barbara Carley, managing director of the Sears Tower, which has been managed by CB Richard Ellis Inc. of Los Angeles since 2004. "We do have incidents every day."

Sometimes that's a suspicious person. Other times it's as benign as a visitor getting his fingers caught in an elevator. "There are a lot of things that happen in a building of this size," Ms. Carley says, "and we do talk to the police on a daily basis."

TOWERING FORTRESS

Perhaps because the Sears Tower is such an icon, the 110-story building is one of the most protected properties outside of Washington, D.C.

Trizec Properties Inc., the Chicago real estate investment trust that previously owned and managed the Sears Tower , took a hard look at security immediately after the Sept. 11 terrorist attacks. Major changes included beefing up the security staff — it now numbers about 75, including off-duty Chicago police officers on each day shift — and installing metal detectors, X-ray machines and keycard turnstiles in the lobby. Management also increased the number of security cameras and upgraded many of them from analog to digital.

The Skydeck on the 103rd floor was considered particularly vulnerable, because the structural mass of the tower is thinnest at the top, meaning an explosion there could cause the rest of the building to collapse, as happened with the World Trade Center. So metal detectors and X-ray machines were added there as well. New restrictions and protocols were put in place for the garage and loading docks, too, including explosives detection. Phones and speakers were installed throughout stairwells.

John Risley is deputy superintendent for the Bureau of Strategic Deployment within the Chicago Police Department, which along with the fire department and other agencies conducts periodic threat assessments of the building. He says the Sears Tower now is "one of the safest buildings in the country."

Since CB Richard Ellis took over two years ago, it has moved X-ray machines to the side and relocated metal detectors from the entrances to the elevator banks, so now only visitors are screened.

"Security is going to continue to be a living and breathing area," says Barbara Carley, above, the managing director of the Sears Tower <http://chicagobusiness.com/cgi-bin/relatedStories.pl?type=company&amp;id=1575&amp;article_id=26277> . Photo: Erik Unger"We tried to strike the appropriate balance so there's no change in the safety, just in what it looks like and how easy it is for tenants to get through," Ms. Carley says. "Security is going to continue to be a living and breathing area where we look at what's going on and make adjustments. Not just events that develop, but new technologies."

CAN'T PREVENT EVERYTHING

CB Richard Ellis also installed an online visitor-registration system (which also lets tenants block someone, like a disgruntled ex-employee) and hired a full-time fire and life safety manager who coordinates tenant fire drills, brings in speakers and provides free tenant training in CPR and other first aid.

Norris Beren, executive director of the Emergency Preparedness Institute Inc., a Mount Prospect company that does preparedness training, describes a recent visit to the building as offering "more scrutiny than airport security."

He likes that visitor information is recorded, not only because it lets security screen potential troublemakers, but also because it generates a list of who's inside at a given time, which could be helpful in a rescue effort.

Even so, some worry it's not enough. "The people at Sears told me that they could not stop a suicide bomber who walked up to the front entrance of the building," says Matthew Lippman, a terrorism expert and professor of criminal justice at the University of Illinois at Chicago. "A sufficiently powerful explosive from the street would result in significant damage."

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Regulator delays Sears buyout of Canadian unit
CRAIN'S CHICAGO BUSINESS ONLINE
August 8, 2006

Ontario Securities Commission says Sears failed to meet disclosure obligations
(Reuters) — Canada's main securities regulators put the brakes on Sears Holdings Corp.  C$892-million ($775 million) buyout offer for its Canadian unit on Tuesday, saying the bidder had "fallen short of disclosure obligations."

The Ontario Securities Commission ruled Sears Holdings will have to exclude votes held by four entities — Scotia Capital Inc., Bank of Nova Scotia, Royal Bank of Canada and Vornado Realty Trust — from its calculation of the required majority of the minority approval.

Sears Holdings had support agreements with the four, which own a pivotal voting block.

The decision follows a hearing held by the Commission last month after a complaint was filed by a group of dissident shareholders of Sears Canada, including hedge fund Pershing Square Capital Management LP., who wanted the banks' shares to be excluded from counting toward the bid thresholds.

Sears Holdings, which has long held a majority stake in Sears Canada, has offered to buy the remainder of the Canadian retailer for C$18 per share.
It declared victory earlier this year after winning the support of most of the minority shareholders of Sears Canada to take the retailer private.

A Sears Holdings spokesperson wasn't immediately available for comment.

Shares of Sears Canada were up 16 Canadian cents, or 0.8 percent, at C$20.10, in morning trading on the Toronto Stock Exchange. The stock is trading 12 percent above Sears Holdings' buyout offer.

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Wal-Mart Alters Pay Structure
Associated Press - WALL STREET JOURNAL ONLINE
August 7, 2006

Wal-Mart Stores Inc. is raising starting pay at about a third of its nearly 4,000 U.S. stores by an average 6% and introducing wage caps for the first time on each type of job in all stores, the company said Monday.

The nation's largest private employer said the changes would help it remain competitive with other retailers and meet a need for workers and managers as it continues to expand.

Wal-Mart has more than 1.3 million U.S. employees, which it refers to as associates.

The retailer's pay and benefits have been under fire from union-backed critics, who call them skimpy. Wal-Mart has defended its average full-time hourly wage of $10.11 and launched lower-cost health plans this year with premiums as low as $11 month in some areas.

"We've created about 240,000 jobs in the last three years and we are continuing to grow. We need to ensure that we have the most appropriate classification and pay programs to meet our growth needs," Wal-Mart spokesman John Simley said.

The changes help in two ways, Mr. Simley said. Higher starting pay makes Wal-Mart more attractive to new workers and the wage caps give current associates an incentive to move up to higher positions if they want to make more money.

Some associates are already making more than the new caps allow for their positions, Wal-Mart said without providing numbers. But no one will receive a pay cut as long as they are in that position, the company said.

The Bentonville, Ark.-based retailer didn't specify the new starting rates or give examples for the new pay caps. Mr. Simley said the numbers vary too much by local market conditions across the country to provide an accurate average figure.

The new caps come in the form of pay ranges established for each type of job.

Starting rates will be increased at more than 1,200 stores, with the average rise about 6%, Mr. Simley said. "This does not translate into an across-the-board pay increase for all associates."

He said the pay changes wouldn't have an impact either way on Wal-Mart's personnel costs for the year.

Susan Chambers, executive vice president of the company's People Division, said in a statement that Wal-Mart remained competitive with benefits including health care, 401K plans, profit sharing and annual incentives. She said that was why "people stand in line to apply for Wal-Mart jobs."

As of July 31, the company operated 1,146 Wal-Mart discount stores, 2,098 Supercenters that combine a supermarket with general merchandise, 567 Sam's Clubs warehouse stores and 107 Neighborhood Market grocery stores.

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Allstate Speaks for Insurance Industry
ADWEEK
August 03, 2006

CHICAGO Under fire for not paying some Katrina-related claims (and with another hurricane season beginning), Allstate is launching a print advocacy campaign intended to explain how the insurance industry works and how business and governmental leaders can make it better.

Beginning tomorrow and continuing every week through year's end, the Northbrook, Ill., company will place ads in The Wall Street Journal highlighting a different aspect of the insurance industry. The first ad declares insurance to be "the oxygen of free enterprise." "You probably don't spend a whole lot of time thinking about insurance," reads the headline over an illustration of a man tiptoeing among banana peels. "But try doing anything without it."

"It proposes the concept of insurance as a driver of the economy," said Lisa Cochrane, vice president of integrated marketing communications at Allstate. "It helps people understand the value of insurance."

Additional ads in the campaign, which was created by Publicis Groupe's Leo Burnett in Chicago, will highlight teen driving safety, the use of consumer credit history in insurance pricing and deregulation in the insurance industry, Cochrane said.

Spending on the effort was not disclosed. Allstate spent nearly $175 million on ads through May of this year, according to Nielsen Monitor-Plus.

The print campaign will also appear in other publications read by business and government leaders including Time, Newsweek, The Atlantic Monthly and the New Yorker, though with less frequency than in the WSJ.

Allstate has a history of advocacy efforts dating back to the 1930s, when the company advocated mandatory seat belts in all cars, Cochrane said. Last year, the company began a movement to create a publicly funded, privately managed catastrophe fund to help mitigate insurance payments after disasters such as Katrina, she said.

"We felt that as the largest publicly held insurance company, we should speak out on behalf of all insurance companies to set the record straight," Cochrane said. "And part of setting the record straight is telling how the industry works."

Allstate has taken recent hits in the media for its decision to discontinue wind and hail coverage for about 30,000 policy holders in Louisiana, though that coverage would be picked up by another company, reported Best's Insurance News. The company also has more than 1,200 hurricane-related complaints filed against it in Louisiana, according to BIN.

Allstate is the second-largest personal insurer in the country, behind privately held State Farm.

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Coke Enterprises names Greg Lee to senior HR post
Atlanta Business Chronicle
August 2, 2006

Coca-Cola Enterprises Inc. has hired Greg A. Lee as senior vice president of human resources to oversee the development of human resources strategy.

Lee most recently was an independent consultant providing advice and counsel on talent management strategies. From 2000 to 2005, he served as senior vice president of human resources, for Sears, Roebuck and Co. He also served as senior vice president, human resources, for Whirlpool Corp. From 1983 to 1993, he worked for PepsiCo Inc., in several roles, including vice president of personnel, vice president of human resources, vice president of employee relations and director of personnel.

"Greg has more than 20 years of comprehensive, global human resources leadership experience, and he has proven himself to be a strategic business partner with a track record of success," said John F. Brock, Coca-Cola Enterprises president and CEO. "Greg knows that one of our most important responsibilities is to provide our people with the necessary tools, training, and leadership that will allow them to win in the marketplace. We have 73,000 employees at Coca-Cola Enterprises, and this position is one of critical importance to execute our strategy moving forward."

Atlanta-based Coca-Cola Enterprises (NYSE: CCE) recently reported its second-quarter profit increased 1.8 percent to 3$39 million on $5.5 billion in revenue, showing solid volume and pricing growth in North America and the positive impact of efforts to stabilize its European business.

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Sears New Financial Chief To Get $600,000 Salary
WALL STREET JOURNAL ONLINE
DOW JONES NEWSWIRES
August 1, 2006

WASHINGTON -- Sears Holdings Corp.'s (SHLD) new chief financial officer, Craig T. Monaghan, will get a $600,000 salary and a $250,000 sign-on bonus, the retailer said Tuesday.

Monaghan's appointment takes effect Sept. 1, when he'll replace CFO William C. Crowley, who will remain with Sears as an executive vice president and chief administrative officer, the company said.

Sears also will grant Monaghan restricted stock valued at $1.5 million on Sept. 1, according to a Securities and Exchange Commission filing. The award will fully vest on Sept. 1, 2009.

Under a long-term incentive plan for executives, Monaghan is eligible for a $1 million target award, payable in fiscal 2009 for a performance period that begins Sept. 1 and ends on the last day of fiscal 2008.

Also, Sears set Monaghan's annual target bonus at $450,000, according to Tuesday's SEC filing. Based on Sears' performance, Monaghan's bonus could total up to $900,000, Sears said.

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The End of Retirement
By Robert Brokamp - THE MOTLEY FOOL.COM
August 1, 2006

Tired of reading about America's retirement woes? Then I have an alternative for you: Watch a TV show about them. Heck, you don't even have to move to your TV -- you can watch it on your computer, from the comfort of your own desk chair. The particular program I'm talking about today is an episode of the PBS series Frontline titled "Can You Afford to Retire?”

Of course, since you've clicked on this article, you can't be too tired of reading about all of the impending retirement woes out there, so let me sum up the program's main points and then explain how you can be an extraordinary American by actually being able to retire.

Goodbye, pensions ... unless you're the CEO
We all know that thousands of pensions are underfunded. We've heard the tales of people who dedicated their lives to a company only to see it slip into bankruptcy and take all of its retiree benefits with it. The Frontline program rightly started off by discussing the demise of the traditional pension -- it focused on current and former employees of UAL's (Nasdaq: UAUA) United Airlines, which filed for Chapter 11 bankruptcy protection in 2002 and dumped its pension plans on the Pension Benefit Guaranty Corp. When the government-sponsored PBGC takes over your plan, you'll still receive pension benefits, but only a fraction of what you would have received if your company had stayed in business. (The PBGC itself, by the way, is $23 billion underfunded.)

But the real shocker in the Frontline program was the revelation of how such bankruptcies are becoming an acceptable way for companies to get out of their pension obligations. Check out what United Airlines' lead bankruptcy lawyer, James H.A. Sprayregen, told Frontline: "I would say that Chapter 11 has become somewhat of a more accepted strategic tool than just companies filing who are about to go out of business or something like that. As a result, there's more use of Chapter 11 now than probably 20 years ago."

So should you be worried if your pension is underfunded? Well, according to a recent report from Standard & Poor's, corporate America doesn't seem to be taking pension funding too seriously. From the 2005 "Pensions & Other Post Employment Benefits Report," I found the following statement: "While corporate operating earnings post 16 consecutive quarters of double-digit growth, corporate pension plans remain in the red with minimal contributions continuing to be made. ... S&P 500 defined-benefit plans as a group were $140.4 billion underfunded for 2005."

According to the report, here are some of the companies with the biggest deficits:

ExxonMobil (NYSE: XOM)
Ford
Lockheed Martin
General Motors
Raytheon
Pfizer
DuPont
Goodyear
IBM

It should be noted that bankruptcy might be the only way for some companies to survive, and sometimes employees have to give up something just to keep their jobs. United was certainly in dire straits. But I suspect that it's harder for the folks in the rank-and-file to accept their reduced pension benefits when, according to Frontline, executives were given $400 million in stock grants and CEO Glenn Tilton's $4.5 million was put in a special trust so that he'll still get his full benefit. Very nice.

Hello, 401(k)s ... unless you don't participate
Next, Frontline discussed the shift from defined-benefit plans to defined-contribution plans -- i.e., the shift from companies being responsible for funding retirement to the employees having to do it themselves. For instance, Hewlett-Packard and Sears Holdings cut back their defined-benefit plans at the beginning of 2006, opting to instead focus their efforts on 401(k) plans.

Unfortunately, employees don't seem to be doing a good job of taking the reins. After all, they have to answer several important questions:

"Should I participate?" The answer, of course, is yes! But since 30% of workers choose not to, some folks aren't making the right choice. And we're not even talking about the 50% of workers who don't have access to an employer-sponsored plan.

"How much should I save?" The best answer is "as much as you're allowed," but, says Alicia Munnell of the Boston College Center for Retirement Research, fewer than 10% of participants contribute the maximum.

"How should I invest it?" The move to defined-contribution plans requires that every employee becomes his or her own money manager. We at The Motley Fool believe you can do it, but clearly, as we'll see later, many people aren't up to the task.

"How should I take the money out?" Frontline profiled a fellow who cashed out his entire 401(k) when he retired, resulting in a huge tax bill. Ouch. The better move: Transfer the money to an IRA, and take money out only when you need it, leaving the rest to grow tax-deferred.

One of the most interesting tidbits from the Frontline episode came from benefits consultant Brooks Hamilton, who oversees 15 large 401(k) plans. At one point, he calculated the investment return for each participant in each of the plans. Here's what he found:

"Say the bottom 20% had an investment return for the year of 4%. The top 20% would be anywhere between five and seven times that number. ... In every case, the 20% at the top not only had the highest investment income, they also had the highest average annual pay. Whereas the bottom 20% not only had the lowest investment income, they had the lowest average annual pay."

Frontline characterized the situation this way: "The richest people are getting richer, and the middle-class workers are falling further behind." This is certainly true, but not in the same way as Glenn Tilton getting to keep his pension while everyone else's is reduced; the 401(k) system isn't rigged. We do have to recognize, however, that the average American isn't prepared to be an investment expert. Most schools don't teach personal finance, and neither do most parents. And clearly, most Americans aren't doing enough to teach themselves.

Now, we at The Motley Fool -- being the do-it-yourself, control-your-own-destiny types -- are big fans of self-directed retirement accounts. And believe me, traditional pensions aren't the answer. They benefit people who stay with the same employer for decades, not the typical job-hopping American. My wife and I worked a combined 10 years at the same elementary school, and from those jobs we'll receive a combined $108 a month in retirement -- not adjusted for inflation. I would have gladly taken the 6% of my salary that the school contributed to the pension fund in the form of matched contributions to our 403(b) plans.

But the reality is that as retirement becomes the sole responsibility of the individual, many people -- because of bad decisions, bad health, bad education, or bad luck -- will have to work forever.

It's all up to you
Frontline interviewed Notre Dame economics professor Teresa Ghilarducci, who said, "What is the meaning of retirement if the only way you can live is to work? The answer is, there is no meaning to retirement anymore. We are now shifting from lifetime pensions to lifetime work. It's the end of retirement."

 

   

 

 

 

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