More Choices for Medicare
New, Fine-Tuned Drug Plans Aim to
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
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
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%.
Medicare Releases 2007 Drug Plans Available in Each State
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
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
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.
• October 1: Plans begin marketing
• Mid-October: 2007 Plan Data and enhanced Plan Finder
• October 31: Annual Notice of Change (ANOC) and Medicare
& You Handbook
must be in the mail to
• 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
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.
Companies to pitch cheaper Medicare drug plans
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
Sears joins CPSC
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
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
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.
Ratings agency downgrades bonds of Sears Tower
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
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
"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
"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
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."
AutoZone says director Lampert will vacate seat
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
AutoZone's board has nominated
Theodore Ullyot, executive vice president and general counsel of
ESL, to fill the seat.
fills marketing exec gap
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
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
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
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.
Seeking Expansion in Urban Areas,
Wal-Mart Stores Gets Cold Shoulder
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
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
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
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
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
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
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'
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
He adds: "That seemed to work in
Leominster and is working here."
Millions of Seniors Facing Medicare 'Doughnut Hole'
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
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
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
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
"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
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
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
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.
The Return of John
Former Home Depot, Sears Exec Lands at Biometric Company Pay 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.
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
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
Although promising, the field of
biometric technology and the prospects of Pay By Touch, which
employs 700, have many hurdles to overcome before mainstream
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
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.
Maytag technicians to be offered new jobs
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.
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
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
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
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
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.
Canada ruling stands against Sears
Purchase bid blocked; appeal called certain
Bloomberg News –
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
"There's no doubt the commission
applied the proper, long-standing test for public interest," he
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.
Macy's to relaunch Kellwood's 'O Oscar' line next spring
By James Covert –
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
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
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
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
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
Sears Canada axes dividend
- 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
Sears Holdings seeks to overturn Canada ruling on buyout votes
Bloomberg News –
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
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.
Edward Lampert Is in
Sears Chairman Has Sent Signals
He's Looking for Acquisitions --
Is General Motors in His Sights?
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
"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
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.
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
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
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
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
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
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
"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
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
"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
Sears is dealt
setback in Canada
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
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.
spots need to fire up branding iron
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
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
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
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
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
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.
Allstate CEO to step down
By Mary Wisniewski - Business Reporter -
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
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
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."
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
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
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
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
Allstate’s stock was up 0.85%
Monday to $60.63.
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
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
"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.
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.
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
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.
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"
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.
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.
Looks to Build Business with Power Tools
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'
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
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
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 -
What are your thoughts on this
Take the Poll - Results delayed by 15 minutes.
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
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.
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.
The best that I can, to Kmart
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
Mike Tesler, President , Retail Concepts
The Tools for Change
Craftsman tools are now sold at K-Mart.
Is it a sign of future changes?
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
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:
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.
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
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
Stock Craftsman in All Kmarts
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
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
Another top-selling Sears
product, DieHard batteries, was added to all Kmarts last
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
Shares of Sears Holdings rose 67
cents to $159.12 in trading Thursday on the New York Stock
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
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.
Stores to Cease Layaway Service
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
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
"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
"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
Eyewitness to Holocaust speaks Sept. 26 at Appalachian
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
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
Call (828) 262-2311 or e-mail
email@example.com 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.
'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
Hundreds of Chicagoans — some
toting signs reading "Shame on you, Mayor Daley" — turned out at
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
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
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.
Premiums To Rise 5.6% in '07
Affluent Senior Citizens Will Pay More
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
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,
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
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
Board Okays Increased Share Repurchase
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
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
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.
Sears Unveils New
September 12, 2006
Ty Pennington and Customer
Testimonials Showcase a Surprisingly Broad Array of Sears
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
"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
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
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
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
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
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
"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
“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
Ellis – The Motley Fool
September 11, 2006
Is Sears Holdings an enigma to many
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
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.
value in a non-linear fashion
Let's take a closer look at the approaches available to Sears
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
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
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.
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.
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
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.
Ron Culp Named Senior Vice President and Managing Director of
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
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
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
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
"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.
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
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
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
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
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
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
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 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.”
Flaws in Jim
Cramer's Sears Analysis
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.
Old Warehouses Reborn As City Centers, Homes, Offices
Joe Gose - Investors Business Daily
September 8 2006
From 1910 to 1928, Sears, Roebuck
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
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
"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.
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
"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
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
To Boost Sales, Wal-Mart Drops
World's Largest Retailer Will
Target Six Groups in U.S.;
Changing Product Mix
Guns Out, Home-Fitness In
By Ann Zimmerman – Wall
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
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
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
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
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
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
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
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.
Macy's Launches National Advertising, Marketing Campaign
September 6 , 2006
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
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
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
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
(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
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.
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."
Sears Will Soar
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,"
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
"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
Let Wal-Mart Be Wal-Mart
Legislating a minimum wage hurts
the people it's supposed to help.
By Thomas G. Donlan –
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
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?
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
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.
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.
New concept store
on tap for Sears
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
“We’re excited to see the new
store complete,” said Greg Stolarski, marketing director at
Westfield Hawthorn. “The store is much cleaner, brighter and
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,
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
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 &
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
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
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.
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
"I thought it was a survey. I
then started reading it, and I started crying. Like if I got
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
"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."
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
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
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.
After 20 years in advertising,
Elizabeth Brady, 42, decided it was time to follow in her
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."
When the guys behind Tivi trace
their origin to "tooling around," it's more than a figure of
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
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
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,"
OSC out of line on Sears, banks say
Theresa Tedesco – Canada.com
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
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
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
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
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
In a separate filing with the
Ontario court, Sears Holdings argued the OSC's "unprecedented"
ruling has created uncertainty in the province's capital
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
A hearing is scheduled for Sept.
Sears Holdings extends buyout offer for Canadian unit
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
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.
a step into history
By Jen Waters –
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
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
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
Eight Companies Whose Managers
Have Real 'Skin in the Game'
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
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
Berkshire Hathaway (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.
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.
Competition grows as brands lose places to hang their wares
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
"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
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
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
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."
•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.
•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
•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
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
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
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
"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
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
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
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."
After Smooth Sales Talk, Stores Take Macy’s Name
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
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
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
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
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
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
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
“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
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.”
One year later - Beyond the merger
Kmart, Sears stores still struggling to find niche
By Dorothy Bourdet
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
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
"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."
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
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
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
Despite the jump, Kmart still
ranked last in customer satisfaction for department and discount
stores, according to the American Customer Satisfaction Index.
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
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.
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
"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.
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
"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
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.
Vera Wang to
design line just for Kohl's
The Associated Press -
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
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
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
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,"
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
"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.
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
Penneys to bring new format to Chicago area
Off-mall store to be in Woodridge center
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
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
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
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.
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
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
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'
"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
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
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
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
"Our hope is that [the Lands' End
shop] will be a much more personalized service experience,"
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
But Wal-Mart’s success brought
pain to others.
The company has been blamed for
destroying downtowns as shoppers desert local merchants for the
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
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
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 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
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
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.
president, COO to resign
August 18, 2006
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
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
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
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.
More of the Same
at Sears, Except...
By George Anderson –
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
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
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
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
Mike Tesler, President , Retail
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
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,
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 &
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
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
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
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.
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
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
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
Don't think Mr. Day went there for fun.
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 &
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
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
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
"Would it be Gap?" Davidowitz
said. "It has to be something big. Lampert is not a guy to do
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
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
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
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
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
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
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
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.
Sears Looks for Acquisitions
As Cost Cuts Lift Profit 83%
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
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.
Sears Holdings 2Q Profit Soars 83%
Amid Cost Cuts
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
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
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
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
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.
Is Sears the K.K.R. of
The New York Times
August 17, 2006
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
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
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
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
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
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
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
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.
Pershing Square sells shares in McDonald's, stake in Sears
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
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
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.
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,
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
"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 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."
Selling, general and
administrative costs fell to $2.8 billion from $3.0 billion a
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
"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.
Sears Holdings Second-Quarter Net Income Rises on Spending Cuts
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
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.
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
focusing on margins; he's not focusing on absolute sales,''
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.
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.''
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.
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
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
Minority Shareholders in Sears Canada
Win This Round of Ackman vs. Lampert
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
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.
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
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
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
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
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.
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.
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
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
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
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.
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
"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."
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."
Sears, Roebuck and
The Long Tail
By Peter Osnos – The
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
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
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.
Ears for Sears
Tower's owners draw up plans for a Disneyfied experience on the
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
• 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
• 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.
Mr. Gluck downplays a broad
rebranding effort. "We're happy with the image of the building,"
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
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
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."
officer takes new post
By Lorene Yue – Crain’s
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
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
That should make the job
transition easier, except the marketing veteran who launched the
“Sears. Where else?” campaign admits he is forging into new
"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
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
"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
With Ms. Bousquette in, Mr. Selby
"It was an organizational change
that was not consistent to where I wanted to take my career," he
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."
Need To Know About Pension Changes
New Law and Court
Ruling Mean More Companies May Convert Plans to 'Cash Balance'
By Ellen E. Schultz and Theo
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 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.
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
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
This is one reason older
employees complain of age discrimination; however, the bill
Congress passed would ban some of the more-controversial
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
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.
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
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
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
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
Ex-Wal-Mart Official Gets
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
"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.
J.C. Penney's Net Income Rises on Women's Accessories
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
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
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.
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.''
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
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
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
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
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
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.
smacked by OSC ruling
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
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
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
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
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
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
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.
Holdings Bid For Canadian Division
Hits Regulatory Snag
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
In its decision, the OSC said
tentative agreements with shareholders that could influence the
outcome of a bid are "fundamentally important" and should be
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
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
"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
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
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
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
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.
Lampert Blocked by Regulator on Sears Canada Purchase
August 8, 2006
(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
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
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.
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
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.
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.
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
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.
'We have incidents every
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
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."
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
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
. 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."
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
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
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."
Regulator delays Sears buyout of Canadian unit
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
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
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.
Wal-Mart Alters Pay
- 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
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
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
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
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
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.
Speaks for Insurance Industry
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 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
Coke Enterprises names Greg Lee to
senior HR post
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."
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
Sears New Financial Chief To Get $600,000 Salary
WALL STREET JOURNAL
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.
The End of Retirement
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
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
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)
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.
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
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.
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."