Sears Canada Inc. says its independent directors won't run for re-election
(Feb. 28, 2006)

Wal-Mart CEO Urges Broader Health-Care Cure
(Feb. 27, 2006)

Sears Holding joins Army recruiting partnership
(Feb. 24, 2006)

Sears' Lampert solid in game of valuation chicken
(Feb. 25, 2006)

Wal-Mart at Turning Point for Business
(Feb. 25, 2006)

Will name change draw customers?
(Feb. 24, 2006)

Renovating Home Depot
(Mar. 6, 2006 issue)

Sears shifts strategy for off-mall stores
(Feb. 24, 2006)

Ex-Sears exec would lead board of Wal-Mart bank
(Feb. 24, 2006)

Allstate CEO Liddy Gets Restricted Stk Valued At $4.5M
(Feb. 23, 2006)

Canada approves US buyout of iconic retailer HBC
(Feb. 23, 2006)

Serta to Build New HQ in Northwest Suburbs
(Feb. 23, 2006)

Wal-Mart Plans to Expand Worker Health-Care Coverage
(Feb. 23, 2006)

The Sears Shuffle
(Feb. 23, 2006)

Sears to launch new marketing ploy in spring
(Feb. 23, 2006)

Sears pulls plug on Essentials
(Feb. 23, 2006)

Sears ditches Sears Essentials name
(Feb. 22, 2006)

ears Canada rejects US parent's C$835 mln bid
(Feb. 22, 2006)

Wal-Mart Tries to Find Its Customer
(Feb. 22, 2006)

Hudson's Bay Co. shakeup imminent
(Feb. 20, 2006)

Top firms' plan for uninsured stumbles
(Feb. 19, 2006)

On Private Web Site, Wal-Mart Chief Talks Tough
(Feb. 17, 2006)

2 firms increase holdings in Sears
(Feb. 15, 2006)

Sears in demolition mode
(Feb. 12, 2006)

Piggy Banker? Critics Fear a Wal-Mart Move Into Banking Would Dominate the Industry
(Feb. 12, 2006)

Historic homes by Sears also included some barns
February 11, 2006)

Family feud grips Sears
(Feb. 10, 2006)

Sears Canada wants more for shares
(Feb. 10, 2006)

So what is he doing with Sears?

(Feb. 20 issue)

Kmart streamlines at workers' expense
(Feb. 9, 2006)

Benefits Go the Way of Pensions
(Feb. 9, 2006)

Kmart Settlement Proposal Advances
(Feb. 9, 2006)

Wal-Mart to Open About 1,500 New Stores
(February 8, 2006)

GM's Decision to Cut Pensions Accelerates Broad Corporate Shift
(February 8, 2006)

Few Uninsured Workers Opt For Employers' New Health Plans
(February 8, 2006)

Can Wal-Mart Sustain a Softer Edge?
(February 8, 2006)

Hudson's Bay Sells Credit Card; Owner-To-Be Approves
(Feb.7, 2006)

Hudson's Bay sells financial arm for $370M
(Feb.7, 2006)

J.C. Penney Parades Makeover With Media Blitz
(Feb.7, 2006)

A New Side to Apparel at Sears
(Feb. 6, 2006)

Sears Canada 4th-Qtr Net Soars on Sale of Credit Unit
(Feb. 2, 2006)

Analyst sees Sears Canada operation sliding
(Feb. 1, 2006)

Some will succeed, others will fall
(Feb. 1, 2006)

Wal-Mart: Store savors hiring success
(Jan. 27, 2006)

Wal-Mart maintains bank hopes despite Greenspan
(Jan. 27, 2006)

Up to 700 Allstate job cuts
(Jan. 26, 2006)

Sears Centres huge trusses installed
(Jan. 26, 2006)

What Are Sears and HBC Up To?
(Jan. 26, 2006)

Attention, Wal-Mart shoppers
Let your conscience be your guide

(Jan. 25, 2006)

New Medicare Drug Benefit Sparks an Industry Land Grab
(Jan. 25, 2006)

Understaffing Blamed For Drug-Plan Woes
(Jan. 25, 2006)

Lands' End founder gives U-Chicago $42 mil.
(Jan. 25, 2006)

Free Sears houses: Any takers?
(Jan 23, 2006)

Educational efforts of Sears giant celebrated
(Jan 23, 2006)

Women missing from top earners at 35 big firms
(Jan. 22, 2006)

Retiree Accounting: More Than Meets The Eye
(Jan. 30, 2006)

Florida West Coast Retiree's Ass'n Winter Meeting Feb.3
(Jan. 20, 2006)

Sears once sold everything, including memories
(Jan. 20, 2006)

How did this retail theft get through store security?
(Jan. 19, 2006)

Legislation Weakens Pension Protections
(Jan. 18, 2006)

Wal-Mart Trains Sights On India's Retail Market
(Jan. 18, 2006)

S.E.C. to Require More Disclosure on Executive Pay
(Jan. 18, 2006)

CEOs cut pensions, pad their own
(Jan. 18, 2006)

Kmart service comes up lacking
(Jan. 17, 2006)

Accounting Changes May Squeeze Pensions
(Jan. 16, 2006)

Medicare Drug Plan Sign-Up Surges
(Jan. 17, 2006)

More Employers Try Limited Health Plans
(Jan. 17, 2006)

Frederick T. Weimer, former assistant general credit manager of Sears, dies at 78
(Jan. 15, 2006)

Maryland Sets a Health Cost for Wal-Mart
(Jan. 13, 2006)

Wal-Mart Takes Over The World
(Jan. 13, 2006)

Kmart cuts full-time store jobs
(Jan. 13, 2006)

How Safe Is Your Pension?
(Jan. 12, 2006)

Forecast: More Pension Freezes/Sears Liability Reduced by $80 Million
(Jan. 12, 2006)

Chris Johnson, former General Manager for Sears in Utah. dies
(Jan. 12, 2006)

In Wal-Mart's Case, Its Enemies Aren't Terribly Good Friends
(Jan. 11, 2006)

Local retail Web sites get low marks from shoppers
(Jan. 11, 2006)

More Companies Ending Promises for Retirement
(Jan. 9, 2006)

Was Wal-Mart's Anti-Union Image Used as a Shield?
(Jan. 9, 2006)

Wal-Mart's Coughlin to Plead Guilty To Wire-Fraud, Tax-Evasion Charges
(Jan. 6, 2006)

Sears Sees the stingier side of holiday sales
(Jan. 6, 2006)

Sears holiday same-store sales fell 12%
(Jan. 5, 2006)

Sears Same-Store Sales Tumble, Kmart Up
(Jan. 5, 2006)

Kmart plans to cut store jobs
(Jan. 4, 2006)

As Drug Plan Begins, Stores Predict Bumps
(Jan. 1, 2006)

Penney: Back In Fashion
(Jan. 9, 06 issue)

What Is Eddie Buying?
(Jan. 9, 2006 issue)


Breaking News
January  2006 - February 2006

Sears Canada Inc. says its independent directors
won't run for re-election
Canadian Press
February 28, 2006

TORONTO (CP) - Directors of Sears Canada Inc. who urged shareholders last week to reject the $835.4-million takeover offer from U.S. parent company Sears Holdings Corp. won't seek re-election to sit on the company's board.

The Toronto-based retailer announced late Monday that each of the six independent directors said they wouldn't put their names forward for re-election to the board at the next annual meeting of shareholders. "They intend to continue to serve on the board until the next shareholders' meeting to be held during the spring," Sears Canada said in a release.

The announcement comes on the heels of the board's recommendation last Wednesday that shareholders spurn the takeover offer.

Four of the 10 Sears Canada board members abstained from voting because they are executives of Sears Canada or Sears Holdings.

The directors who did vote pointed last week to a valuation opinion from Genuity Capital Markets declaring the bid inadequate.

Genuity said the proposal from Sears Holdings (Nasdaq:SHLD) - $16.86 per share for the 46.2 per cent of the Canadian subsidiary it does not already own - falls more than $2 per share below the appropriate valuation.

Genuity suggested a fair market value is $19 to $22.25 per share.

The directors noted that the offer, which expires March 14, is 18 per cent below the midpoint of the Genuity valuation range.

Chicago-headquartered Sears Holdings, controlled and chaired by hedge fund manager Edward Lampert who engineered last year's $11-billion-US merger of Sears and Kmart in the United States, has expressed disappointment with the Canadian board's decision and said the Genuity report was flawed.

In a statement last week following the decision, Sears Holdings vice-chairman Alan Lacy said Genuity assumed "a significant and unrealistic reversal of the decline of Sears Canada's financial performance," and did not take into account that the Sears Canada name and brands including Kenmore and Craftsman are owned by Sears Holdings.

He added that the "full and fair" $16.86 offer stands.

Prior to the release, Sears Canada shares fell 14 cents to close Monday at $17.51 on the Toronto Stock Exchange.

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Wal-Mart CEO Urges Broader Health-Care Cure
By Kris Hudson – The Wall Street Journal
February 27, 2006

Wal-Mart Stores Inc. Chief Executive Lee Scott on Sunday denounced as "too much politics" state bills aimed at dictating what large employers spend on health benefits for employees and called on U.S. governors to address rising health-care costs in a broader manner.

"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," Mr. Scott said in a speech at the National Governors Association winter meeting in Washington, D.C. "And every day we do not work together to solve this challenge is a day that our country becomes less competitive in the global industry."

Only 46% of Wal-Mart's workers enroll in the company's health-insurance plan. Many others are covered by spouse's policies. But thousands more -- nobody has a good number -- have no coverage at all or rely on state Medicaid coverage. And state and local officials have been increasing grousing about the costs of providing coverage for uninsured Wal-Mart workers.

In his speech, Mr. Scott reiterated impending changes to Wal-Mart's health-care benefits that the company disclosed last week: a shortening of the wait time for part-time employees' eligibility from two years; granting eligibility for children of part-timers; and expanding a low-cost, high-deductible coverage plan from its current limited availability to half of Wal-Mart's 1.36 million U.S. employees by 2007. Wal-Mart also intends to establish in-store health clinics for customers and employees in more than 50 stores. Wal-Mart hasn't divulged when it will implement the changes.

Wal-Mart's critics, primarily union-backed activist groups, note that Wal-Mart is promising the improvements to its benefits at the same time it is shifting its workforce to a greater portion of part-timers. The retailer has acknowledged such a shift in recent months as a means of trimming labor costs and better matching its labor shifts to customers' shopping patterns, but its executives haven't quantified the shift. About 70% to 80% of Wal-Mart's U.S. workers are full-time.

Bentonville, Ark.-based Wal-Mart faces a host of potential health-care mandates in various states after Maryland legislators in January overrode Gov. Robert Ehrlich's veto of a bill proposing to require large employers to spend the equivalent of 8% of their payroll on health-care benefits for employees. That law has since been challenged in court by the Retail Industry Leaders Association.

In tandem with the Maryland override, the AFL-CIO announced it would push similar bills in as many as 30 states. However, several of those bills have faired poorly, with bills failing in Washington, Wisconsin and Colorado, among others. Union groups are optimistic about bills pending in states such as New Jersey and California.

Mr. Scott noted in his speech that, while Wal-Mart wants to cover more of its employees, state Medicaid programs have become "far more generous" in covering children. "Are you right to want to make sure that the kids of working families have health coverage -- even if it's Medicaid? You bet you are," Mr. Scott said. "So, let's commit … to working together to solve these problems."

Governors had differing reactions to Mr. Scott's speech in interviews afterward. Christine Gregoire, the Democratic governor of Washington where a so-called Wal-Mart bill died this month, said that despite Mr. Scott's request for a broad response to rising health-care costs "he too shares in the problem." Roughly 20% of Wal-Mart's employees in Washington are enrolled in the state's Medicaid program, she said. And she suspects that the improvements in Wal-Mart's coverage that Mr. Scott outlined won't bolster the percentage of Wal-Mart employees on the company's health plans.

Another Democrat, New Jersey Gov. Jon Corzine, chided Wal-Mart and other unnamed large companies in a statement for "not contributing their fair share."

"American companies must start providing living wages and affordable health benefits to their employees and stop saddling the federal, state, and local governments and the taxpayers with their responsibilities," Gov. Corzine said. "I supported legislation in the U.S. Senate to do just that, and will support state legislation that embodies the principles of fairness and affordability."

Republicans favored allowing the federal government or the market to determine matters of employer-provided health-care coverage rather than the states.

Republican Gov. Robert Taft of Ohio said employer-provided health care isn't an issue for state governments to decide. Ohio lawmakers are considering a Wal-Mart bill. "If there is going to be an effort to address health insurance, it has to be a national solution," Gov. Taft said.

In Massachusetts, legislators are attempting to reconcile competing bills, one of which would mandate that large employers provide specific levels of health-care benefits. "I don't see this as a Wal-Mart problem nor as a business problem," Massachusetts Gov. Mitt Romney, a Republican, said prior to Mr. Scott's speech. "I see it as an insurance issue that needs to be dealt with, in our case, on a statewide basis."

Colorado Gov. Bill Owens went after the bills' primary supporters. In Colorado, the sponsor of a Wal-Mart bill pulled it from consideration on Friday. The Republican governor called the bills a method for unions to force Wal-Mart's unionized competitors to bolster their health-benefit plans. "If Labor really cares about health care for the millions in the U.S. who do not have health care, why aren't they going after Main Street?" he said. "Why aren't they going after small business?"

Fielding questions from governors after his speech, Mr. Scott found fault with Wal-Mart's programs for encouraging healthy habits for employees. "Our health-care program is better than our wellness program," he said. "We have a lot of work to do there."

At least one governor praised Wal-Mart for offering high-deductible health-care accounts and health-care savings accounts for employees. Even so, Mr. Scott noted that the rate of Wal-Mart employees signing up for the pre-tax savings plans for health-care costs "is not very high." In fact, the CEO has yet to enroll in the plan himself because the federal paperwork to do so "is too complicated." He suggested that simplifying the application would boost interest in enrollment.

At the NGA conference, Mr. Scott met individually with governors from Pennsylvania, Kansas, Tennessee and Arkansas.

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Sears Holding joins Army recruiting partnership
By Ashley Stetter – Army News Service
February 24, 2006

FORT SHERIDAN, Ill. -- As Army recruiters strive to reach a goal of 80,000 new Soldiers this year, their commanding general said he is hopeful that the new Partnership for Youth Success Program will continue to produce results.

Army Recruiting Command’s Maj. Gen. Thomas P. Bostick labeled the PaYs program “a key objective in addressing major FY06 recruiting obstacles,” at a PaYs induction ceremony for The Sears Holding Corporation in Illinois last week.

Sears is the newest of more than 140 PaYs partners, and the list of corporate associates and interested enlistees continues to grow, officials said.

As part of the enlistment process, some recruits sign a statement of understanding of intent to work for a PaYs corporation that needs job skills gained in the Army.

“PaYs is extremely important to Sears Holding because it provides us with workers who represent the values and skill-sets that we hold dear while allowing us to give back to an Army that gives day in and day out for American Freedoms,” said Bob Luse, Sear’s Senior Vice President of Human Resources.

Both recruiters and company executives agree, noting that PaYs is particularly promising in addressing waning support for military enlistment in a time of low unemployment and an improving U.S. economy.

“This has proven to be a very popular program with over 900 Army enlistees having entered agreements for civilian careers with PaYs partners from the Chicagoland area alone,” said Lt. Col. David Sears, commander, U.S. Army Recruiting Battalion. “We are very optimistic about the program’s potential.”

This optimism lies in the programs equally beneficial approach.

“Through the PaYs program we can assist our Soldiers and former Soldiers in finding rewarding, lucrative careers with our corporate partners while at the same time helping those partners gain access to some of the most highly trained, disciplined and motivated potential employees anywhere,” Sears said.

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Sears' Lampert solid in game of valuation chicken
By Eric Reguly – Globe and Mail, Canada
February 25, 2006

Sears Holdings, the Eddie Lampert creation that owns 54 per cent of Sears Canada, got lucky when the man without a plan -- Jerry Zucker -- bought the slow-motion-suicide case known as the Hudson's Bay Company. If a Class A retailer like Target had snapped up HBC and revitalized it, Sears Canada probably would have lost half its value in less time than it takes to move a Kenmore fridge off the showroom floor.

It looks like SH is on the verge of getting lucky one more time. The minority shares of Sears Canada, which SH has offered to buy for $16.86 apiece, are still above the bid price. But they have lost value since Wednesday, after Genuity Capital Markets concluded their fair value ranges between $19 and $22.25 and the Sears Canada board told investors to reject the offer.

Nice try, Genuity, but the market says your effort to extract a few more bucks from SH isn't going to work.

The Sears Canada shareholders, most of whom are hedge funds at this stage in the takeover attempt, must be dreaming to expect a nice surprise. Mr. Lampert is no sweetheart. He's the guy who smashed Sears and Kmart together, squeezed costs, unloaded assets and created value from a flat-lining business. He's got his own money on the line. He might tack a few cents onto the Sears Canada offer as a sop to the Sears Canada independent committee, which commissioned Genuity's valuation. Anything more seems unlikely, though it's not out of the question.

Why would SH bid against itself? In theory, another retailer or a private equity firm could bid for all of Sears Canada. The trouble with the scenario is that SH owns the Sears name in Canada and the names of some of its top merchandise brands, Kenmore among them. If Sears Canada is struggling now, imagine the hell it would go through with a sales arsenal devoid of those brands.

The investors who recently sold Sears Canada shares -- they were as high as $18.67 early this month and closed yesterday at $17.65, down 12 cents -- probably have less than fond memories of another situation where minority shareholders had their hopes dashed. A few years ago, Rogers Communications offered to buy out the minority of Rogers Wireless. The independent committee of the Wireless board deemed the offer mean and suggested that Ted Rogers up the ante. Ted said forget it and walked away (in a separate reorganization in 2004, Wireless came under full Rogers control).

The counterargument is that Mr. Lampert knows value when he sees it. He thinks he can turn Sears Canada into a Wal-Mart and Home Depot beater and wouldn't go through the takeover effort if he saw only a buck or two of upside (or so the holdouts must think). He probably thinks Sears Canada is worth $20 a share, probably more. Therefore, investors can look forward to an offer within Genuity's valuation range.

Aside from the fact SH is the only realistic bidder, the scenario presents a few problems. The first is that Natcan, the investment management arm of National Bank and owner of 9 per cent of Sears Canada shares, supports SH's $16.86 offer. It has agreed to sell its stake to SH even if SH does not manage to buy out most or all of the minority shares. What do the hedgies know that Natcan doesn't know?

The second is that Sears Canada has been no growth story as the competition heats up. Merchandise sales have been on the wane in recent years. EBITDA -- earnings before interest, taxes, depreciation and amortization -- has declined 13 per cent over four years. The EBITDA margin has gone from 8.5 per cent in 2003 to 7.4 per cent last year. One of the few bright spots in its stores is appliances; their sales are up, but flogging kitchen machinery is a low-margin activity compared with, say, apparel sales.

Between 2002 and last summer, Sears Canada shares went nowhere. They rose in the subsequent months as SH auctioned off the Sears Canada credit card business and paid a $18.64 distribution in December. It's apparent the six Sears Canada directors who form the special committee don't feel strongly about their company's value-creation ability. They have bought a grand total of 1,000 shares in the past three years. Committee chairman William Anderson owns no common shares.

Genuity did nothing wrong. Based on a cost reduction effort that is just getting under way and valuations obtained in other retail industry deals, it concluded SH's offer was inadequate. Nonetheless, Dundee Securities has effectively told clients to sell. The Toronto investment firm said "the folks at Natcan are astute valuators and represent an ideal proxy for the minority shareholders."

It would be lovely if the minority shareholders squeezed more money out of SH. Talking up valuations is what investing is all about. But playing chicken with SH, which has said it's happy to live with less than 100-per-cent ownership of Sears Canada, seems a game with unattractive odds. Don't feel sorry for Genuity. It made $1-million on the valuation exercise. As for the minority shareholders? Who cares. Hedge funds live to gamble.

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Wal-Mart at Turning Point for Business
By Marcus Kabel - Associated Press Writer – Houston Chronicle
February 24, 2006

BENTONVILLE, Ark. — After watching its sales momentum surge over the past four decades, Wal-Mart Stores Inc. now finds it has to work harder to grow _ with 3,900 stores nearly saturating the U.S. market, it's the company's sales strategy, not new retail outlets, that will determine Wal-Mart's future.

Analysts are optimistic the nation's largest retailer will get the job done - even if the company isn't so sure itself. Wal-Mart is offering a broader selection of high-end items and sprucing up its stores to make happier customers, but has set a yearly earnings target below that of people who watch the world's largest retailer.

In a world where most Americans already live near a Wal-Mart, Chief Executive Lee Scott is betting that trendier merchandise and a more appealing shopping environment will boost sales faster than simply opening new Supercenters can accomplish.

The company is clearly under pressure: Although this past week Wal-Mart reported fourth-quarter earnings were up 13.4 percent, its stock slipped as revenue fell short of Wall Street projections and its profit outlook also disappointed the market. The stock ended the week at $45.45, near the low end of its 52-week range of $42.33 and $53.49.

Many industry analysts expect Wal-Mart to have a good year as it continues to deploy its new strategy _ in spite of higher energy prices that are pinching the spending power of its core lower-income customers and that have driven up Wal-Mart's own costs.

"The outlook for them this year is the best it's been in about the last three years," said Richard Hastings, senior retail analyst at Bernard Sands in New York.

Hastings noted that Wal-Mart since late last year has been stocking its stores with trendier women's fashions and higher-end home electronics. The company also is in the process of renovating 1,800 stores, widening aisles, lowering shelves, sprucing up floors and cleaning up restrooms.

The aim is not so much to get new customers in the stores but to lure millions of consumers who shop for basics like groceries and paper goods to the aisles that offer the more fancier clothes, electronics and home furnishings. The new merchandise ranges from the Metro 7 line of urban-style women's fashions to fish and shrimp certified to have been raised or caught in ways that do not harm the environment.

Analysts said the company needs these changes to help it reclaim sales lost to smaller, more upscale rival Target Corp.

"They've got to create a better shopping experience, better merchandising, and really try to sell more things to those selective shoppers in their stores," said Sandra J. Skrovan, vice president and head of Wal-Mart research at consultant Retail Forward Inc. "They're in a transitional period."

Scott told analysts in October that 86 percent of Americans shop at Wal-Mart at least once a year, but the higher their income bracket, the less likely they are to leave the grocery or staples departments.

Fourth-quarter results, covering a holiday season when some of the new products were in place, showed Wal-Mart seems to be headed in a good direction.

"While it remains early days, change is in the air and in the results at WMT," Goldman Sachs analyst Adrianne Shapira wrote in a research note. Shapira said Wal-Mart was conservative in setting a target for earnings per share this year of $2.88 to $2.95, below Wall Street expectations, and put her own estimate at $2.94, up 12.6 percent from the past year.

But problems remain, not the least of which is Wal-Mart's size. The chain has three times as many stores as Target and plans about 1,500 more stores. That makes it harder to keep stores looking fresh, and to ensure that new displays, products and styling are in place throughout the company.

"They're paying attention to their problems. They are aware that when it comes to store-level execution there are problems and they're paying attention to it," Hastings said.

Eduardo Castro-Wright, president and chief executive of Wal-Mart USA, told analysts this past week a reorganization of the retailer's regional structure last year gives more power and responsibility to district and store managers and will "close the gap that exists between strategy and performance."

While Wal-Mart is trying to raise its profile among more affluent shoppers, it's also trying to improve its image with workers and the public. Union-backed critics continue to hammer away at Wal-Mart for what they say are substandard wages and health benefits, and organized labor is pushing bills in about 30 states that would force Wal-Mart to spend more on health coverage.

Scott announced this past week that the company will expand lower-cost coverage for employees this year, the second improvement in health benefits in six months. The company said 615,000 of its 1.3 million U.S. workers were on Wal-Mart health plans as of January, versus 568,000 a year earlier.

"More consumers don't just see Wal-Mart as a business, they see it is a social and political issue. Until Wal-Mart changes substantially, those consumers they are going after, who can make a choice about where they shop, will avoid Wal-Mart," said Chris Kofinis, spokesman for WakeUpWalMart.com, a union-funded campaign group.

The fact that Wal-Mart has to find new ways to grow is an outgrowth of its own success, said Charles Fishman, author of "The Wal-Mart Effect: How the World's Most Powerful Company Really Works and How It's Transforming the American Economy."

"Once you have saturated the country and soaked up enormous quantities of market share, it gets hard to grow in this country faster than the economy and general spending grow," said Fishman, a senior editor at Fast Company magazine.

Fishman's book is rich with statistics illustrating Wal-Mart's dominance. According to market research he commissioned, 53 percent of Americans live within five miles of a Wal-Mart and 90 percent live within 15 miles.

Wal-Mart accounts for 10 percent of the U.S. retail economy, 15 percent to 16 percent of all groceries sold, 25 percent of health and beauty products and a quarter of all toys, Fishman wrote.

But it is hard for Wal-Mart to grow substantially based on just those kinds of products, Fishman said. Consumers may have switched to Wal-Mart to buy paper towels or dog food, but they're not going to buy twice as much dog food just because the price is lower.

"People understand the whole low price idea, they know where to get low prices. But if they're looking for something that has a little extra quality, a little extra design, a little extra service, they're looking at places besides Wal-Mart," Fishman said.

"That's why Target has been running twice the same-store sales as Wal-Mart has for months and months," he said.

Wal-Mart's same-store sales, which measure performance at stores open at least year, were up 3.2 percent for the fiscal year that ended Jan. 31, excluding Sam's Clubs. Target posted 5.6 percent growth.

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Will name change draw customers?
Rebranding of Sears Essentials as Sears Grands might not be enough
By Mike Comerford - Business Writer - Daily Herald Suburban Chicago
February 24, 2006

Investors and analysts Thursday greeted the decision to rebrand Sears Essentials as Sears Grands with indifference.

Sears Holdings Corp. confirmed late Wednesday the changeover of 50 former Sears Essentials to Sears Grands, but the name and design changes may not be accompanied by many product changes, according to Chris Brathwaite, a spokesman for the Hoffman Estates-based firm formed in last year’s merger of Kmart and Sears.

Wall Street’s response was ho-hum, with Sears stock rising 31 cents to $120.07. Trading volume was 60 percent off the three-month average of 1.9 million shares a day.

Retail analyst George Rosenbaum on Thursday said the similarity in product offerings makes the switch to the Sears Grand unlikely to spark a revitalization at Sears.

“If Essentials didn’t make it, calling it Grand and rearranging the merchandise is not a good bet to overcome their problems,” said Rosenbaum, chairman of Chicago-based retail consulting firm Leo J. Shapiro & Associates.

The Sears Essentials store in Palatine, a former Kmart location, will soon be among those being retooled into Sears Grand sites. Locally, a Kmart store in McHenry is scheduled to open in May as a Sears Grand and a Sears Essentials in Palatine, a former Kmart store, will be renamed later this year, according to the company. Currently, Gurnee is only Sears Grand in the Chicago market, one of only eight across the country.

After the merger of Kmart and Sears closed early last year, plans were laid for as many as 400 Kmarts to switch to Sears Essentials, a hybrid of Kmart discount goods and Sears products, such as Kenmore appliances.

Sears’ new plans call for off-mall Kmarts to be converted to Sears Grands, including groceries, CDs and, in some cases, pharmacies.

Yet, the original Sears Grand stores are larger, from 151,000 square feet to 200,000 square feet. Kmarts vary from 80,000 square feet to 105,000 square feet.

“To me, Essentials stores are little more than convenience stores,” said Kurt Barnard, founder of the Barnard’s Retail Trend Report. “But they are still experimenting.”

Since billionaire investor Edward Lampert engineered Kmart’s takeover of Sears, speculation among some investors has focused on the sale of real estate and the paring down of retail operations.

Supporters of the real estate strategy point to Sears’ stock, trading Thursday at 32 times earnings while rival Wal-Mart trades at 18 times earnings.

Lampert insists he wants to turn the retailer around. But Sears is not revealing how many Kmarts will be renamed Grands nor if it intends to grow or shrink its store count.

Before the merger, Sears officials were saying the big-box Sears Grand stores were its answer to fast growing Target Corp. and Wal-Mart Stores Inc. But since the first stores rolled out more than two years ago, Sears hasn’t adopted an aggressive building plan, saying results have not been clear enough.

Retail analyst John Melaniphy Sr. said Sears Grands aren’t likely to hold off Wal-Mart’s aggressive roll-out of Super Wal-Marts. It’s planning to open 20 in the next two years in the Chicago market alone.

“This (switch to Sears Grand) is no solution to the present situation,” Melaniphy said.


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Grand plan goes in a new direction
Sears Essentials will soon be history
By Susan Chandler - staff reporter – Chicago Tribune
February 23, 2006

Sears Essentials has turned out to be not so essential.

Less than a year after unveiling it, Sears Holdings Corp. has decided to abandon the new retail brand it once touted as the future of the Kmart-Sears merger.

On Monday, Sears informed employees that the Sears Essentials name, which is currently on 50 former Kmart stores, will be going away. Those stores will eventually be renamed Sears Grand, a similar off-the-mall retail format featuring Sears' products along with convenience food items and a pharmacy.

Another 14 stores that were set to debut in May as Sears Essentials now will open as Sears Grands, including one in McHenry. The changeover does not involve any store closings.

"Eventually, the people who shop these stores are just going to say they are going to `Sears,'" said Chris Brathwaite, a Sears Holdings spokesman. "The distinction in names was not worth the incremental investment in maintaining three named formats."

The demise of Sears Essentials doesn't come as a surprise. In a December letter, Sears Holdings Chairman Edward Lampert said the results from the first 50 stores had been mixed and he downplayed the idea that the format was ever the "strategic rationale for the merger."

Sources close to the company said Sears Essentials' sales were tracking 30 percent below Sears' internal targets and were down 15 percent from what the stores formerly had done as Kmarts. There are three Sears Essentials around Chicago--in Palatine, Elmhurst and Homer Glen.

Initially, Sears Essentials was the brainchild of Sears, Roebuck and Co. Chief Executive Alan Lacy, who was looking for a fast way to move Sears away from shopping malls to better compete with Wal-Mart, Target and Kohl's. He purchased 50 Kmart stores in the summer of 2004 with plans to convert them to the new format.

Before the stores debuted, however, Sears announced its merger with Kmart, and plans for Sears Essentials became even more ambitious. At one point last year, Sears was projecting that as many as 400 Kmarts would be converted to Sears Essentials by the end of 2007.

Sears has said the stores were intended to combine "the best of Sears and Kmart," which seemed to indicate that Martha Stewart's popular housewares line would be sharing space with Craftsman tools and Kenmore washers.

But when the first stores opened in May, Martha Stewart was nowhere to be found, and neither were Kmart's other brands. Sears said it was still studying how to best integrate its brands. Sources close to Sears said Lampert was trying to renegotiate Kmart's long-term deal with Stewart before expanding her brand to Sears stores.

Now Sears is falling back on its Sears Grand off-the-mall format, which received very positive response from shoppers in surveys but was expensive to build. After opening its first one in the fall of 2003, Sears now has eight of them, including one in Gurnee.

Along with renaming the Sears Essentials stores, Sears also will be sprucing them up with new layouts, flooring and fixtures, Brathwaite said. But aside from the new look, the format isn't changing. "The proposition is the same. You can get the milk and the fridge to put it in," he said.

Sears Holdings lost 55 cents a share Wednesday, closing at $119.76.

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Renovating Home Depot
Skip the touchy-feely stuff. The big-box store is thriving
under CEO Bob Nardelli's military-style rule
By Brian Grow, with Diane Brady in New York and Michael Arndt in Chicago - Business Week – Cover Story
March 6, 2006

Don D. Ray is one tough hombre. The 39-year-old Kentucky native spent three years with the 82nd Airborne Div., one of the U.S. Army's elite units, serving at the head of a maintenance crew during the first Gulf War and an additional seven years on active duty. Then, after the September 11 terrorist attacks, Ray suited up for service again, this time as the commander of a special forces A-team that followed the U.S.-led invasion into Afghanistan. His 12-man squad of snipers, demolition experts, and communications specialists hunted renegade al-Qaeda and Taliban. Combing mountain villages, he grew a thick beard, wore traditional Afghan garb, and rode on horseback to blend in with local Muslims. Ray and his men never killed anyone, he says, but they arrested dozens of suspected militants.

Nowadays, Ray commands a different kind of operation. He has replaced crack-of-dawn physical training and green Army fatigues with sunrise store openings and an orange Home Depot apron. A store manager in Clarksville, Tenn., Ray runs a 110,000-square-foot box with 35,000 products and a 100-member staff, 30 of them former military. Many days start at 4 a.m. That's when he wakes, eats breakfast, catches some CNBC news, then heads to the store, where the doors open at 6. Although Ray's bookish round glasses and pressed khakis make him look more like a teacher than a onetime terrorist hunter, he exudes a steely confidence. Former soldiers on his staff call him "sir." "In the military, we win battles and conquer the enemy," says Ray. At Home Depot, "we do that with customers."

Military analogies are commonplace at Home Depot Inc. these days. Five years after his December, 2000, arrival, Chief Executive Robert L. Nardelli is putting his stamp on what was long a decentralized, entrepreneurial business under founders Bernie Marcus and Arthur Blank. And if his company starts to look and feel like an army, that's the point. Nardelli loves to hire soldiers. In fact, he seems to love almost everything about the armed services. The military, to a large extent, has become the management model for his entire enterprise. Of the 1,142 people hired into Home Depot's store leadership program, a two-year training regimen for future store managers launched in 2002, almost half -- 528 -- are junior military officers. More than 100 of them now run Home Depots. Recruits such as Ray "understand the mission," says Nardelli. "It's one thing to have faced a tough customer. It's another to face the enemy shooting at you. So they probably will be pretty calm under fire."

Built like a bowling ball, Nardelli is a detail-obsessed, diamond-cut-precise manager who, in 2000, lost his shot at the top job at General Electric Co. to Jeffrey R. Immelt. He is fond of pointing out that if Home Depot were a country, it would be the fifth-largest contributor of troops in Iraq. Overall, some 13% of Home Depot's 345,000 employees have military experience, vs. 4% at Wal-Mart Stores Inc. And that doesn't even count James E. Izen, 38, a lieutenant colonel in the U.S. Marine Corps stationed outside Nardelli's door, is part of a Marine Corps Corporate Fellows program that Home Depot joined in 2002.

Importing ideas, people, and platitudes from the military is a key part of Nardelli's sweeping move to reshape Home Depot, the world's third-largest retailer, into a more centralized organization. That may be an untrendy idea in management circles, but Nardelli couldn't care less. It's a critical element of his strategy to rein in an unwieldy 2,048-store chain and prepare for its next leg of growth. "The kind of discipline and maturity that you get out of the military is something that can be very, very useful in an organization where basically you have 2,100 colonels running things," explains Craig R. Johnson, president of Customer Growth Partners Inc., a retail consulting firm.

Rivals such as Wal-Mart are plunging deeper into home improvement products, while archenemy No. 1, Lowe's Cos. (LOW <javascript: void showTicker('LOW')> ), is luring Home Depot customers to its 1,237 bright, airy stores. Even as other companies seek to stoke creativity and break down hierarchies, Nardelli is trying to build a disciplined corps, one predisposed to following orders, operating in high-pressure environments, and executing with high standards. Home Depot is one company that actually lives by the aggressive ideals laid out in Hardball: Are You Playing to Play or Playing to Win?, the much discussed 2004 book co-authored by Boston Consulting Group management expert George Stalk.

The cultural overhaul is taking Home Depot in a markedly different direction from Lowe's, where managers describe the atmosphere as demanding -- but low-profile, collaborative, and collegial. Lowe's does not have formal military-hiring programs, says a company spokeswoman, nor does it track the number of military veterans in its ranks. Observes Goldman, Sachs & Co. analyst Matthew Fassler: "Bob believes in a command-and-control organization."

In Nardelli's eyes, it's a necessary step in Home Depot's corporate evolution. Even though founders Marcus and Blank were hardly a pair of teddy bears, they allowed store managers immense autonomy. "Whether it was an aisle, department, or store, you were truly in charge of it," says former store operations manager and Navy mechanic Bryce G. Church, who now oversees 30 Ace Hardware stores. And the two relied more on instincts than analytics to build the youngest company ever to hit $40 billion in revenue, just 20 years after its 1979 founding. In the waning years of their leadership in the late 1990s, however, sales stagnated. The company "grew so fast the wheels were starting to come off," says Edward E. Lawler III, a professor of business at the University of Southern California. These days every major decision and goal at Home Depot flows down from Nardelli's office. "There's no question; Bob's the general," says Joe DeAngelo, 44, executive vice-president of Home Depot Supply and a GE veteran.

Although he has yet to win all the hearts and minds of his employees, and probably never will, Nardelli's feisty spirit is rekindling stellar financial performance. Riding a housing and home-improvement boom, Home Depot sales have soared, from $46 billion in 2000, the year Nardelli took over, to $81.5 billion in 2005, an average annual growth rate of 12%, according to results announced on Feb. 21. By squeezing more out of each orange box through centralized purchasing and a $1.1 billion investment in technology, such as self-checkout aisles and in-store Web kiosks, profits have more than doubled in Nardelli's tenure, to $5.8 billion. Home Depot's gross margins inched up from 30% in 2000 to 33.5% last year. But fast-growing Lowe's is still Wall Street's darling, in large part because analysts are only now getting comfortable with Nardelli's strategy. Based in Mooresville, N.C., Lowe's has seen sales grow an average of 19% a year since 2000, and it has narrowed the gap in gross margins vs. Home Depot. Since the day before Nardelli's arrival on Dec. 14, 2000, Lowe's split-adjusted share price has soared 210%. Home Depot's is down 7%.

One way Nardelli plans to kick-start the stock: move beyond the core U.S. big-box business and conquer new markets, from contractor supply to convenience stores to expansion into China. On Jan. 19, Home Depot announced plans to scale back the growth of new stores from more than 180 per year to about 100. The slowdown will let him plow extra resources into beefing up Home Depot Supply (HDS), a wholesale unit hawking pipes, custom kitchens, and building materials to contractors and repairmen. It's a fragmented market worth $410 billion per year, according to Home Depot, where Wal-Mart and Lowe's are AWOL and the only competitors are regional companies. Already, Nardelli has spent $4.1 billion buying 35 companies to bulk up HDS, and it plans to plunk down a further $3.5 billion to buy Orlando-based Hughes Supply Inc.  By 2010, HDS sales are expected to reach $23 billion, accounting for 18% of Home Depot's total, up from 5% in 2005.

The scope of the task is staggering. Nardelli, in essence, is building a whole new company -- in a market twice the size of do-it-yourself retail -- to service a prickly customer: professional contractors who want low prices, great quality, and instant service. Success in this field will require pinpoint execution, and Nardelli knows it. But his ambitions make some analysts nervous. "He's moving out of retail into services," says Deborah Weinswig, an analyst at Citigroup. "If it was just retail, a lot of us would be more comfortable."

The high stakes of Home Depot's services gambit is one of the main reasons Nardelli has pushed his cultural makeover so hard in the five years since he has been at the helm. But not all have embraced him, or his plans. BusinessWeek spoke with 11 former executives, a majority of whom requested anonymity lest the company sue them for violating nondisclosure agreements. Some describe a demoralized staff and say a "culture of fear" is causing customer service to wane. Nardelli's own big-time pay package, $28.5 million for the year ended Jan. 30, 2005, rubs many workers the wrong way. His guaranteed bonus, the only locked-in payout at the company, rose to $5.8 million in 2004, from $4.5 million in 2003, at a time when Home Depot's stock price finished below its yearend price in 2000, when Nardelli took over.

Before he arrived, managers ran Home Depot's stores on "tribal knowledge," based on years of experience about what sold and what didn't. Now they click nervously through BlackBerrys at the end of each week, hoping they "made plan," a combination of sales and profit targets. The once-heavy ranks of full-time Home Depot store staff have been replaced with part-timers to drive down labor costs. Underperforming executives are routinely culled from the ranks. Since 2001, 98% of Home Depot's 170 top executives are new to their positions and, at headquarters in Atlanta, 56% of job changes involved bringing new managers in from outside the company. Says one former executive: "Every single week you shuddered when you looked at e-mail because another officer was gone."

As a manager, Nardelli is relentless, demanding, and determined to prove wrong every critic of Home Depot. He treats Saturdays and Sundays as ordinary working days and often expects those around him to do the same. "He's the hardest-working guy you'll ever see," says his former boss, Jack Welch. "If I was working late at GE and wanted to feel good at 9 p.m., I would pick up the phone and call Bob. He would always be there." Privately, Nardelli admits that the move to Home Depot has sometimes been a tough slog. When he first took over -- having no retail experience and replacing the beloved Bernie and Arthur -- he often felt as though he were fighting a lonely, uphill battle to convert Home Depot's legions of workers to his new vision for the company.

Nardelli's history of surrounding himself with military recruits goes back to his GE days. At GE Transportation in the 1980s, he pioneered a program of hiring junior military officers, in part because few people were willing to move to "Dreary Erie, Pa.," where the unit is headquartered. Former grunts, used to sitting in mud holes, found the locale less of a problem. William J. Conaty, senior vice-president for corporate human resources at GE, says: "Places like Erie or Fort Wayne, Ind., didn't look desolate to these guys." Welch soon expanded the program throughout GE.

Welch characterizes Nardelli as "an unusual patriot...a true flag-waving American." Nardelli's father, Raymond, served in Europe during World War II with the Pennsylvania Keystone unit of the National Guard. As a freshman at Rockford Auburn High School in Rockford, Ill., Nardelli joined the Reserve Officers' Training Corps (ROTC) and eventually became company commander and a member of the rifle team. He also played football. "You could either take gym class or ROTC," recalls Nardelli. "I took ROTC and enjoyed the hell out of it." When it came time for college, he applied to the U.S. Military Academy at West Point, N.Y. But the Army academy accepts applicants in part by congressional district, and the young Nardelli missed the cut by one person: He was the first alternate from his region of Illinois. Instead he attended Western Illinois University in Macomb. After graduating in 1971, his draft number was called, but, he says, he did not pass his physical. Later he went on to the University of Louisville for an MBA.

As an adult, Nardelli's passion for the military persists. At Home Depot headquarters, 1,800 "blue star banners" hang in the main hallway in honor of employees serving in Afghanistan, Iraq, and elsewhere. He is frequently shadowed by Marine Fellow Izen. During one recent project to help Home Depot hone its motivational message to 317,000 store troops, Izen consulted the Marine Corps Doctrinal Publication 1 on "War-Fighting." MCDP 1, as it's called in the Marines, includes a chapter on "developing subordinate leaders," which Izen found a handy guide for Home Depot workers, too. "It's about how to out-think your enemy," says Izen.

The military, says Nardelli, trains its recruits to be leaders and think on their feet, skills he wants in Home Depot stores. "Having personally been on the flight deck of an aircraft carrier where 18-year-olds are responsible for millions of dollars worth of aircraft," says Nardelli, "I just think these are folks who understand the importance of training, understand the importance of 'you're only as good as the people around you.' In their case, their life depends on it many times. In our case, our business depends on it many times."

Indeed, the Home Depot of Bob Nardelli is being run with military-style precision. These days everyone at Home Depot is ranked on the basis of four performance metrics: financial, operational, customer, and people skills. The company has placed human resources managers in every store, and all job applicants who make it through a first-round interview must then pass a role-playing exercise. Dennis M. Donovan, Home Depot's executive vice-president for human resources and a GE alumnus, measures the effectiveness of Home Depot workers by using an equation: VA = Q x A x E. Its meaning? According to Home Depot, the value-added (VA) of an employee equals the quality (Q) of what you do, multiplied by its acceptance (A) in the company, times how well you execute (E) the task. The goal is to replace the old, sometimes random management style with new rigor. "Bob's creating a second culture [at Home Depot]," says DeAngelo.

While Nardelli is careful to say that the military is just one pipeline of talent into Home Depot -- the company also recruits senior citizens through the AARP and Latinos through four Hispanic advocacy groups -- he is clearly imbuing the company with "Semper Fi" spirit. If Nardelli is the four-star general, then Carl C. Liebert III is his chief of staff. A graduate of the U.S. Naval Academy at Annapolis, Md., where he played college basketball with NBA star David Robinson, Liebert, 40, stands 6 ft., 7 in. and is every bit as intense as his boss. After running Six Sigma programs at GE's Consumer Products unit, followed by a stint at Circuit City Stores Inc.,  he took over Home Depot's stores in the U.S. and Mexico in 2004. Now, with Lowe's and Wal-Mart picking off Home Depot's customers, Liebert is moving quickly to whip the troops into shape. "What worked 20 years ago may not work today," says Liebert. "It's as simple as warfare. We don't fight wars the way we used to."

To win the customer service war, Liebert has adjusted his tactics. At the annual store managers' meeting in Los Angeles on Mar. 8, Home Depot plans to roll out a 25-page booklet dubbed How To Be Orange Every Day. All store employees will be expected to keep it in their apron pocket. It contains aphorisms such as "customers cannot buy what we do not have," "we create an atmosphere of high-energy fun," and "every person, penny and product counts." Liebert hopes such simple slogans will help shore up Home Depot's once-vaunted customer service. To Liebert's mind, they recall the four basic responses to an officer's question in the Navy: "Yes, sir"; "No, sir"; "Aye, aye, sir"; and "I'll find out, sir." He calls it an effort to "align" all Home Depot workers on the same page when it comes to serving customers. "I think about that line from A Few Good Men when Jack Nicholson says: 'Are we clear?' and Tom Cruise says: 'Crystal,"' chuckles Liebert. "I love that."

But drilling workers in how to treat customers may not be enough. The University of Michigan's annual American Customer Satisfaction Index, released on Feb. 21, shows Home Depot slipped to dead last among major U.S. retailers. With a score of 67, down from 73 in 2004, Home Depot scored 11 points behind Lowe's and three points lower than much-maligned Kmart. "This is not competitive and too low to be sustainable. It's very serious," says Claes Fornell, professor of business at the University of Michigan and author of the 12-year-old customer satisfaction survey, which uses a 250-person sample and an econometric model to rate companies on quality and service. Fornell believes that the drop in satisfaction is one reason why Home Depot's stock price has declined at the same time Lowe's has soared. A former executive who spoke on condition of anonymity says that Nardelli's effort to measure good customer service, instead of inspiring it, is to blame: "My perception is that the mechanics are there. The soul isn't."

Nardelli angrily disputes the survey. "It's a sham," he says, jabbing his finger in the air for emphasis. Nardelli notes that, in 2003, Fornell shorted Home Depot stock in his personal portfolio, before his survey results came out. Fornell says the trades were part of his research into a correlation between companies' customer-satisfaction scores and stock price performance. The University of Michigan banned the practice the next year. Home Depot executives add that internal polling shows customer satisfaction is improving, but they won't release complete results. They point to Harris Interactive's 2005 Reputation Quotient, an annual 600-person survey that combines a range of reputation-related categories, from customer service to social responsibility. The survey ranked Home Depot No. 12 among major companies and reported that customers appreciated Home Depot's "quality service." Still, Home Depot appears to know it has serious customer-service problems. Store chief Liebert's back-to-basics plan includes a push to improve even the "genuineness" of the greeting that customers receive at the door.

Some of the same former managers who blame Nardelli's hardball approach for corroding the service ethic at Home Depot describe a culture so paralyzed with fear that they didn't worry about whether they would be terminated, but when. One night last year, an unnamed executive in the lighting department at Home Depot headquarters left fliers on desks and in elevators containing a litany of complaints about Home Depot, including Nardelli's giant pay package and the high level of executive turnover. The rebel, say other former executives, was tracked down by security cameras and immediately fired. Citing concerns about the employee's privacy, Home Depot declined to comment on the incident. In break rooms, the company pipes in HD-TV, short for Home Depot television. But employees have mocked it as "Bobaganda," referring to Nardelli, for its constant drone of tips, warnings, and executive messages. Every Monday night, for example, store chief Liebert and Tom Taylor, executive vice-president for marketing and merchandising, host a 25-minute live broadcast for senior store staff on the week's most important priorities called The Same Page. "These are [their] marching orders for the week," says Liebert.

Still, it's hard even for Nardelli critics, including ones he has fired, not to admire his unstinting determination to follow his makeover plan in the face of scores of naysayers. They describe being "in awe" of his command of minute details. But some of them question whether the manufacturing business model that worked for him at GE Transportation and GE Power Systems -- squeezing efficiencies out of the core business while buying up new businesses -- can work in a retail environment where taking care of customers is paramount. "Bob has brought a lot of operational efficiencies that Home Depot needed," says Steve Mahurin, chief merchandising officer at True Value Co. and a former senior vice-president for merchandising at Home Depot. "But he failed to keep the orange-blooded, entrepreneurial spirit alive. Home Depot is now a factory."

Can his plan work? "Ab-so-lute-ly," says Nardelli. "This is the third time this business model has been successful." He rejects the idea that he has created a culture of fear. "The only reason you should be fearful is if you personally don't want to make the commitment," says Nardelli. "Or there's a bolt of reality that you're in a position, based on the growth of the company, that you can't deliver on those commitments." He says Home Depot is dealing with the challenges of being a more centralized company just fine. And he makes no apologies for laying off the ranks of underperforming store workers and executives to achieve aggressive financial objectives. "We couldn't have done this by saying, 'Run slower, jump lower, and just kind of get by,"' insists Nardelli, hardening his gaze. "So I will never apologize for setting the bar high."

John N. Pistone, 35, is on the elite team. A graduate of West Point and former company commander in the Army's First Cavalry Div., he served in Kuwait in 2000 and was an ROTC instructor at Boston College. Now a district manager running eight Home Depot stores on the east side of Atlanta, with 1,200 staffers, he's on the fast track, in part because of his cool demeanor and always-on smile that endears him to employees. "A private in the Army is a lot like an $8-an-hour cashier," he says. But there's another reason Pistone is on the rise: As he clicks through his BlackBerry on a Monday morning, he remarks, with a sigh of relief, that his eight stores "made plan" the previous week. "This is a quarterly business that we worry about hourly," he says. As Bob Nardelli builds his new army at Home Depot, that's a sentiment he loves to hear.

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Sears shifts strategy for off-mall stores
By Lorrie Grant, USA Today
February 24, 2006

Sears Holdings (SHLD), operator of the Sears and Kmart chains, is retooling its plans for Sears stores outside of malls. The Sears Essentials name will be dropped in favor of the Sears Grand brand, and some food and media items will be added to the merchandise mix.

The Essentials stores, located in converted Kmart buildings, combine Sears goods — such as Lands' End apparel, Kenmore appliances, DieHard batteries and Craftsman tools — with convenience and health and beauty items typically found at Kmart. As Sears Grands, they also will offer milk and other convenience foods, as well as CDs, DVDs, books and magazines.

"The customer has migrated from malls to off-mall sites, so our hope is that the Sears customer will have an option," says Paul Fenaroli, vice president of new store development.

The stores have Sears merchandise in an off-mall setting that also offers more one-stop shopping.

"Showcasing the products in a non-department store format is a way to leverage the Sears brand name and exclusive products," says James Ragan, equity analyst at Crowell Weedon.

The 47 existing Essentials stores will become Sears Grands as their remodeling is finished. Another 14 stores due in May, about a year after the introduction of the Sears Essentials brand, will open as Sears Grands.

Using former Kmart stores is a faster and cheaper way to execute the off-mall strategy than new stores. "This is a chance to do something much more immediate," Fenaroli says.

Sears Holdings continues to run 926 Sears department stores, mostly in malls, and 1,400 Kmart stores.

Off-mall stores originally were a strategy of Alan Lacy, former Sears CEO who left shortly after it was acquired by Kmart last year. He created the Sears Grand concept as newly built stores as big as a Wal-Mart Supercenter, but without groceries. Eight still operate. His new The Great Indoors home-decorating stores aimed for the Home Depot and Lowe's market. There are 16. Both ideas are on hold.

CEO Edward Lampert, who brought Kmart out of bankruptcy court three years ago, steered the merger with Sears Roebuck into Sears Holdings. In restructuring Kmart, he gained note as much for divesting unprofitable stores in shrewd real estate deals as for improving sales. The new Sears Grand strategy is a way to expand Sears out of malls at minimum cost and see if old Kmart sites can be more profitable.

"Lampert is being very prudent and frugal in capital expenditures," says Bill Dreher, retail analyst at Deutsche Bank. "He's trying to choose the greater value of a store: an operating concern vs. an asset sale. In other words, is it worth more dead than alive?"

To succeed, Sears Grand must attract Sears loyalists but be different enough to lure new customers. "It's a good move," says Kenneth Bernhardt, marketing professor at the Robinson College of Business at Georgia State University. "The new brand is most important to get the initial visit. After that, the brand will take on a meaning based upon the consumer's experience."

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Ex-Sears exec would lead board of Wal-Mart bank
By Becky Yerak – Chicago Tribune
February 24, 2006

If Wal-Mart Stores Inc. succeeds in opening an industrial bank in Utah, a person with strong Chicago connections will be at the helm of the board of directors of the proposed Wal-Mart Bank.

Jane Thompson, who in 2002 joined the world's biggest retailer as president of its financial-services unit, would also be chairman of the board of the bank, which Wal-Mart wants to establish to process in-house the 140 million credit, debit and check transactions at its stores each month.

Before she joined Wal-Mart, Thompson's career included a host of high-level jobs at Sears, Roebuck and Co., which merged last year with Kmart Holding Corp. to form Sears Holdings Corp.

Positions that Thompson held at the Hoffman Estates-based retailer included president of Sears' direct and home-services businesses, as well as chairman of Sears National Bank.

Thompson is former chairman of the Boys and Girls Clubs of Chicago and the Chicago Network, a group for professional women. She still belongs to the Commercial Club of Chicago and the Economic Club of Chicago.

Her husband, Steve Thompson, is president and a director at Immtech International Inc., a publicly traded drug company based in Vernon Hills.

"We go back and forth," Thompson, who has a house in Lake Forest, said of her living arrangements in an interview. "I still think of it as home, but I call Arkansas home too."

Wal-Mart Bank's five-member board would also include a Utah banker, a former managing partner for KPMG's Salt Lake City office, the chief executive of the Utah Information Technology Association and the chief legislative advocate for AT&T Inc.'s western region.

According to a filing with the Federal Deposit Insurance Corp., Wal-Mart Bank plans to have at least five workers, including a CEO, a chief operating officer and a chief financial officer, and would occupy 1,900 square feet in HK Tower in Salt Lake City. The space is not on the ground level and will not include any signage, as the bank will not be open to the public and does not plan to open branches, the filing pointed out.

Quiz time: What does Seattle-based Washington Mutual Inc. have in common with Rockford-based Amcore Bank and Elgin-based EFS Bank?

See end of this column for answer.

More alumni news: Allstate Corp. recently hired Toure Claiborne as director of acquisition strategy and program design. That means he's in charge of multicultural marketing for the Northbrook-based insurer.

Claiborne, 33, was a director of brand management and partnership marketing for Sears, where his duties included working on the retailer's NASCAR and Extreme Makeover programs.

Quiz answer: Washington Mutual, Amcore and EFS all have Chicago-area deposit market share of about 0.30, according to the FDIC.

Amcore and EFS have 22 and nine Chicago-area branches, respectively, a fraction of Washington Mutual's 163.

Asked recently about the effectiveness of its Chicago-area branch expansion, Washington Mutual likes to point out that growth in the number of Chicago-area households banking with it is meeting expectations. It also said it largely caters to consumers and therefore doesn't generally land big commercial deposits.

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Allstate CEO Liddy Gets Restricted Stk Valued At $4.5M
Dow Jones Newswires
February 23, 2006

WASHINGTON -- Allstate Corp. (ALL) said Thursday that it granted restricted stock units valued at about $4.5 million and 410,000 stock options to Chairman and Chief Executive Edward M. Liddy.

The Northbrook, Ill., insurer said in a filing with the Securities and Exchange Commission that it granted Liddy 84,000 restricted stock units on Tuesday under the company's equity incentive plan.

Based on Tuesday's closing price of $53.81 a share, Liddy's restricted stock grant is worth about $4.5 million.

For 2004, Liddy received restricted stock awards valued at $1.84 million and 272,000 options, according to the company's most recent annual proxy.

Allstate disclosed restricted stock and option grants to other executives in separate filings Thursday, including a grant of 37,700 restricted stock units and 190,000 stock options to President and Chief Operating Officer Thomas J. Wilson II.

Allstate shares recently traded at $54.53 apiece, down 17 cents from Wednesday's close.

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Canada approves US buyout of iconic retailer HBC
By Blaise Robinson – Reuters
February 23, 2006

TORONTO (Reuters) - Canada's government gave its blessing on Thursday to the takeover of iconic retailer Hudson's Bay Co. <HBC.TO> -- a company two centuries older than the country itself and entwined with its history -- by U.S. investor Jerry Zucker.

A victim of foreign competition, many analysts had seen a foreign takeover of the company as only a matter of time. But retail consultant John Williams said it is a huge loss for Canada nevertheless.

"It's been around for more than 300 years. As the Bay grew, the country grew," Williams said.

"It laid the foundation of our economic growth as a country, and now it's being held by foreign investors."

Founded in 1670 as "the Governor and Company of Adventurers of England trading into Hudson Bay," Hudson's Bay Co. once held title to big chunks of northern and western Canada, with fur-trading posts spreading across the country, offering European goods in exchange for Indian beaver pelts.

Those trading posts gave birth to some of the country's major cities. In 1870, the company transferred most of its lands to Canada, and its trading posts became one of the country's biggest department store chains.

On Thursday Canada's industry and heritage ministers gave the green light to Zucker's Maple Leaf Heritage to acquire Hudson's Bay, removing one of the last hurdles before the C$1.1 billion ($957 million) acquisition closes.


Hudson's Bay, which now operates more than 550 stores across Canada under the Bay, Zellers and Home Outfitters banners, has been losing market share in recent years.

The retailer is squeezed between big-box format stores like Wal-Mart, and smaller but rapidly expanding fashion retailers such as Zara, owned by Spanish group Inditex, and Swedish H&M.

Fierce competition in the Canadian retail sector has already pushed into extinction another Canadian iconic retailer, The T. Eaton Co. Ltd., swallowed by Sears Canada in 1999.

But like Hudson's Bay, Sears Canada itself has become a target.

Founded in 1952 after Canadian retailer Robert Simpson and Sears Reobuck joined forces to compete against Hudson's Bay and Eatons, Sears Canada has been struggling with sluggish sales recently, triggering a buyout offer last December by its U.S. parent Sears Holdings.

On Wednesday, Sears Canada rejected the C$835 million offer as inadequate but analysts have said it's a matter of time before Sears Holdings takes over its Canadian unit.

For Williams, the old department-store format has matured.

"They are either dying or consolidating," the consultant said.

Zucker has said he doesn't have major restructuring plans for Hudson's Bay, the oldest North American corporation.

The U.S. investor said he will accelerate the conversion of Zellers outlets to more broadly stocked big-box format stores to try to regain ground on Wal-Mart stores.

($1=$1.15 Canadian)

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Serta to Build New HQ in Northwest Suburbs
By Dees Stribling, Midwest Correspondent - Commercial Property News
February 23, 2006

Mattress maker Serta International plans to build a new corporate headquarters in Hoffman Estates, Ill., a northwest suburb of Chicago not far from its current HQ. The 90,000-square-foot building on 19 acres will be in the 780-acre Prairie Stone Business Park, best known as the place where Sears Roebuck and Co. moved after leaving the Sears Tower in downtown Chicago in the late 1980s.

Construction on the two-story facility will begin this spring and is slated for completion in the summer of 2007. The new facility will include administrative office space for the firm's 110 employees, as well as a 20,000-square-foot research center attached to the main building. The building will also include a showroom for retailers.

"Several factors went into Serta choosing the Prairie Stone site," said John Goodman, executive vice president at the Chicago office of Studley, which brokered the purchase of the site from Sears Holdings and which will also serve as the project manager for the build-to-suit. "But perhaps the most important was the site's highly visible location on I-90. That represents huge exposure for the company."

Goodman also told CPN that the space will further the process of Serta's consolidation with National Bedding Corp., which it bought in 2004. Serta currently occupies 17,000 square feet of space at Prairie Stone (pictured) in a facility that once served as National Bedding's headquarters.

The Society of American Registered Architects recognized the design of the building in 2004 with an Award of Honor. The architectural firm A. Epstein and Sons International designed it to include such distinctive elements as underground parking, which reduces impervious surfaces and allows the structure to appear to "float" in a sea of green prairie grass.


Wal-Mart Plans to Expand Worker Health-Care Coverage
By Kris Hudson – Wall Street Journal Online
February 23, 2006

Wal-Mart Stores Inc. outlined impending changes to its health-care benefits for employees, including a reduction of the wait period for part-time employees to become eligible and designation of children of part-timers as eligible once their parents are eligible.

Wal-Mart issued the changes in a bid to thwart publicity by union-backed groups prior to chief executive Lee Scott's speech on Sunday at the National Governors Association's winter meeting in Washington, D.C. Mr. Scott is expected to preview the changes of Wal-Mart's benefits, which will be announced in April, with governors at that meeting.

Among the other changes Mr. Scott will discuss: Wal-Mart intends to establish health clinics in more than 50 of its 3,900 U.S. stores, and it will expand the availability of its new low-premium Value Plan to "at least half" of its 1.3 million U.S. employees by 2007. Those clinics will be operated by outside firms. Nine such clinics are operating as part of a pilot program in Oklahoma, Florida, Arkansas and Indiana.

Mr. Scott's speech to the governors association comes as lawmakers in several states ponder bills aimed at forcing large employers, namely Wal-Mart, to spend more on health benefits for their employees. Such a bill was passed into law by a veto override last month in Maryland, but the Retail Industry Leaders Association has challenged the law in court.

So far, Maryland remains the only state to enact such a law. Similar bills have failed states such as Washington and New Hampshire.

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The Sears Shuffle
By Michael Sasso - Tampa Tribune
February 23, 2006

TAMPA - Shoppers may be scratching their heads lately at the changes taking place at their local Sears and Kmart stores.

First, Kmart Corp. merged with Sears Roebuck & Co. to form Sears Holdings Corp. Next, the merged company announced it would change up to 400 Kmart stores across the country into a new store called Sears Essentials. This week, the company said it is retooling its Essentials stores by changing their design and changing their name to Sears Grand.

How to read Sears' actions is being debated. A Sears spokesman said the company has learned important lessons about running Sears Essentials during the past year, and it will incorporate those lessons into its new Sears Grand stores.

However, some retailing analysts wonder if Sears can successfully pull off any store format aside from its traditional shopping mall stores, which apparently are unaffected by conversions of Sears Essentials to Sears Grand.

Erik Gordon, a University of Florida marketing professor, said Sears needs to develop an off-the-mall store that fills a particular customer need. It cannot just create a new store format so that it can find a new use for all the old Kmart stores it picked up in last year's merger, Gordon said.

"Sears can say whatever they want," Gordon said. "They can call it an Essentials or a Grand or green fried tomatoes, but are they going to make it appealing, to go from not working to making it a success?"

Whether Sears succeeds will play out in Florida, where the company has at least 10 Sears Essentials stores, including two in the Tampa Bay area.

When Sears Holdings launched Sears Essentials a year ago, some Sears watchers hailed it as the company's next growth vehicle. It would have Sears' popular brands, such as Kenmore appliances and Craftsman tools, inside of converted Kmart stores. The Essentials stores would also carry the food pantry and health and beauty products found in a Kmart.

Sears has been looking to open stores outside its traditional mall settings, so Sears Essentials was seen as a great way to accomplish that. Last year, Sears announced it would open up to 400 Sears Essentials stores inside of converted Kmarts by the end of 2007.

However, those plans took a turn this week. Sears spokesman Christian Brathwaite said the company will change the names on all of its 50 Sears Essentials stores to Sears Grand. That includes two local Sears Essentials stores that had been converted from former Kmart stores: 9500 Ninth St. N., St. Petersburg, and 2130 Gulf-to-Bay Blvd., Clearwater. The company didn't pull that name out of a hat; it had developed a huge supercenter format called Sears Grand in 2003. Currently, there are eight such Sears Grand stores in operation around the country, none of which is in Florida.

Sears Grand supercenters were built new and were as big as a Wal-Mart Supercenter, whereas Sears Essentials stores were built inside existing Kmart stores. Nonetheless, Sears Essentials and Sears Grand shared many of the same products. Sears Holdings ultimately decided it didn't need to operate two separate off-the-mall store formats, Brathwaite said.

"It was apparent that the difference in names was not worth the incremental investment that was required," Brathwaite said.

During the next few months, Sears will focus on converting 14 Kmart stores, none of which is in Florida, into Sears Grand stores. Later, it will come back and convert the 50 existing Sears Essentials stores into Sears Grand. Brathwaite had no timetable for the conversions. The Sears Essentials stores will continue operating through the changes.

When changed from Sears Essentials to Sears Grand, the converted stores will remain the same size but receive several improvements. The rebranded Sears Grand stores will get a new "store-within-a-store" format, in which each department will feel like a separate store. Many of the conversions also will get new lighting, fixtures and exteriors, Brathwaite said.

Brathwaite said consumers shouldn't look at the changes as the end of the Sears Essentials brand. Instead, the company is making improvements to the stores, which include a new look and a new name, he said.

In recent months, Sears Holdings Chairman Edward Lampert has said the Sears Essentials stores were never meant to be the "strategic rationale" for the Sears-Kmart merger. Sears Essentials stores "have achieved various degrees of success to date," Lampert said in a December letter to Sears stockholders.

Retailing experts this week said Sears will have to overhaul Sears Essentials stores - not just change their names and repaint the stores - to compete against Wal-Mart and Target.

Lil Hanson, a senior retail associate with real estate brokerage Grubb & Ellis, stopped by the Clearwater Essentials store two weeks ago and found only about 10 cars outside on a weekday afternoon.

"It looked like a Kmart that had been repainted," Hanson said. "There had been nothing inviting done to attract a customer in."

When the Tribune visited the two Bay area Essentials stores this week, they appeared to have the same corrugated concrete exterior that they had as Kmart stores. The St. Petersburg store's exterior had a splotchy mix of off-white and gray paint.

Neil Stern, a consultant for the Chicago retail consultancy McMillan-Doolittle, said customers never knew what to expect from Sears Essentials. The stores appeared to be an amalgamation of Sears and Kmart departments, and they suffered from an identity crisis, Stern said. The problem may have come from a lack of Sears Essentials advertising.

"Because there's not a lot of density for these stores, it's hard to spend a lot on marketing," Stern said.

Meanwhile, Sears may have rolled out its Sears Essentials stores too quickly, without sprucing up their exteriors enough, acknowledged Paul Fenaroli, vice president of new store development for Sears.

Customers loved the bright interiors and the merchandise assortment, Fenaroli said, but they were less enthusiastic about the outside. The next round of off-the-mall Sears stores will have more attractive exteriors, he said.


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Sears to launch new marketing ploy in spring
Anna Marie Kukec - Daily Herald – Suburban Chicago
February 23, 2006

Hoffman Estates-based Sears Holding Corp. Wednesday said it plans to convert 14 Kmart stores into smaller Sears Grand stores and introduce a new shopping experience by May.

The retailer then plans to return to about 50 other Kmarts that had been changed into Sears Essentials, remodel them to fit the newer Sears Grand style and eventually drop the Essentials name, said Sears spokesman Chris Brathwaite.

“The Sears Grand concept was originally thought to be a big-box store, with about 200,000 square feet,” said Brathwaite. “But some Essentials were around 135,000 square feet and really weren’t that much different than the Grands.”

The new Grand stores will feature a “store of shops” concept where each department, such as toys or clothing, is designed as an individual shop. All new flooring, fixtures and signage will be installed.

A Kmart in McHenry is one of the 14 changing to Sears Grand. The 195,000-square-foot Sears Grand in Gurnee Mills is expected to remain unchanged.

Brathwaite declined to say how much Sears will spend for the remodeling or when all the stores would be completed.

Sears Grand started in 2003 and has eight stores nationwide, which were intended to compete with Target and Wal-Mart. Essentials started last year in a plan to convert about 400 Kmarts following the merger with Sears.

In other news Wednesday, Sears faced a setback in its plan to buy the 46 percent of Sears Canada it doesn’t already own. Sears Canada said the $727 million offer doesn’t value the department-store chain fairly.

Sears offered $16.86 Canadian a share. Independent analyst Genuity Capital Markets values the shares at C$19 to $22.25 Canadian, Sears Canada said in a release.

Alan Lacy, vice chairman of Sears Holdings, said in a statement the company was sticking to its offer.

“The optimistic expectations for Sears Canada’s business that form the basis for the valuation report are unrealistic and inconsistent with the increasingly competitive retail market in Canada,” he said.

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Sears pulls plug on Essentials
By Sandra Guy – Business Reporter – Chicago Sun Times
February 23, 2006

Sears has dumped its failing Sears Essentials format, as expected, and will start converting Kmart stores into a smaller version of its Sears Grand superstore instead.

Sears Chairman and hedge-fund guru Edward S. Lampert said in December that Sears would have to find a better strategy than its Sears Essentials stand-alone stores, which failed to catch on with shoppers. Sears initially said it would convert 400 Kmarts into Sears Essentials in three years, but dropped the stores after 50 were opened.

The latest strategy, one of many that Sears executives have introduced in the past several years to revive the flagging retailer, calls for 14 Kmart stores to be converted into Sears Grands. One of the Kmarts to be reformatted is in McHenry.

The Sears Grand stores will sell everything already found in a Sears department store, plus milk, drug store items and car batteries. But they will feature a new format, different even from the eight existing Sears Grand stores, including one in Gurnee, which were built from the ground up.

The converted Kmarts will feature upgraded layouts, fixtures, flooring and design, and they will showcase different departments so that each looks like a separate shop. For example, a toy department will have different flooring, fixtures and displays than will an outdoor living department.
Sears Essentials stores ranged from 80,500 to 130,000 square feet, compared with existing Sears Grand stores that measure anywhere from 106,000 to 200,000 square feet. An average Sears department store measures 91,000 square feet.

Because the Sears Essentials and Sears Grand stores were so similar, "We didn't need to have Sears Grand, Sears Essentials and Sears," said Sears spokesman Chris Brathwaite.

The existing Sears Essentials stores will be changed to Sears Grand and reformatted again after the initial 14 Kmarts are reopened as Sears Grand stores in May.

Sears had no cost estimate on remaking the Kmart stores into Sears Grand.

"A name is just a name," said Retail analyst Neil Stern. "We have to see what the new Sears Grand format will sell and at what price. We'll have to see what the changes are."

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Sears ditches Sears Essentials name
Retailer plans to convert Kmart to Sears Grand stores
Crain’s Chicago Business Online
February 22, 2006

(Crain's) — Sears Holdings Corp. is dropping Sears Essentials, a year-old store format designed to turn Kmart stores into freestanding Sears stores. In its place, the Hoffman Estates-based retailer plans to revive a slimmed down version of Sears Grand, a superstore that Sears had counted on as its growth vehicle until Kmart Holding Corp. took the company over last year.

Sears plans to convert 14 Kmart stores into Sears Grand by May and soon afterward change its existing stable of 50 Sears Essentials stores into Sears Grand, according to a Sears spokesman. Employees were notified of the pending conversion on Monday.

The new Sears Grand stores will have the same merchandise as a Sears department store, running the gamut from clothing to appliances, as well as offer a pharmacy, drug store items, CD’s and convenience foods. Sears plans to remodel the stores with upgraded flooring, fixtures and signs. It will also change the layout so that each department will look like a separate shop, the spokesman says.

Sears Chairman Edward Lampert told investors in December that plans to roll out the Sears Essentials format were on hold, noting that the stores had “achieved various degrees if success,” according to his letter to shareholders. “We will not simply throw money behind any concept, but instead, will test, evaluate, refine and ‘prove the math’ so that the investment is justified before we make it.”

Mr. Lampert has been criticized since engineering Kmart Holding Corp.’s takeover of Sears last March for cutting capital spending and failing to invest in the upkeep of stores, an essential component of retailing.

Sears declined to disclose how much it plans to invest in the new Sears Grand stores. But in the November 2004 press conference announcing the Kmart-Sears deal, former Sears CEO Alan Lacy, estimated it would cost $3 million to $4 million to convert each Kmart store to a Sears.

“From an efficiency stand point it doesn’t make sense to have two names out there,” says Neil Stern, senior partner at McMillan/Doolittle LLP, a Chicago-based retail consulting firm. “Grand is probably the better name, but neither one has established any brand equity. At the end of the day, it doesn’t matter what name they call it, it’s what they’re going to sell and how they promote it that makes the difference.”

Sears introduced the Sears Essentials concept in February 2005 and had plans to convert up to 400 Kmarts into the new format. But the stores failed to catch on with shoppers, in part because Sears simply used it as a vehicle to put Sears products (such as Kenmore appliances and Craftsman tools) into Kmart stores, says Mr. Stern.

Sears has an opportunity to do better this time by being more selective and taking the best product line from each store, he says.

Sears Grand debuted in 2003 in West Jordan, Utah, with a 210,000-square foot store designed to compete with Wal-Mart and Target.

The old Grand stores, built from the ground up, were costly to build and deemed too big. Only eight have been built, including one in far north suburban Gurnee.

The Kmart stores slotted to be converted to Sears Grand are smaller at 105,000 to 135,000 square feet. One of the initial 14 stores will be located in suburban McHenry.

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Sears Canada rejects US parent's C$835 mln bid
Reuters – Canada
February 22, 2006

TORONTO (Reuters) - Retailer Sears Canada Inc. urged its shareholders on Wednesday to reject the C$835.4 million ($726.4 million) buyout offer made by it U.S. parent Sears Holdings Corp., saying it was inadequate.

Sears Holdings, the parent of U.S. retailers Sears and Kmart and the majority owner of Sears Canada, mailed its C$16.86 a share offer to shareholders two weeks ago to buy the rest of Sears Canada it does not already own.

Sears Canada said its board considered many factors, including the valuation of its business prepared by Genuity Capital Markets, which set the Canadian retailer's worth at C$19.00 to C$22.25 a share.

The valuation was rejected by Sears Holdings, saying it ignores the fact that Sears Canada does not own the Sears trademarks and tradenames in Canada.

Shares of Sears Canada were down 1 Canadian cents, at C$18.03 on the Toronto Stock Exchange late Wednesday afternoon.

($1=$1.15 Canadian)

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Wal-Mart Tries to Find Its Customer
By Michael Barbaro – Market Place - New York Times
February 22, 2006

For all its success in the United States — and there is plenty of it — Wal-Mart Stores is still struggling to figure out its home turf, where sales growth at individual stores has sagged, its customers routinely flirt with rivals like Target for clothing and its advertising has often failed to inspire.

The retailer's plans to fix the problems became clearer yesterday, when Wal-Mart executives pledged to remodel nearly half of its United States stores over the next 18 months, beef up its marketing division and expand a bold line of clothing across much of the chain.

The changes, explained in Wal-Mart's fourth-quarter earnings announcement yesterday, threw a spotlight on the increasingly important role of one man: Eduardo Castro-Wright, the new chief of Wal-Mart's United States stores. Mr. Castro-Wright is a popular figure in the company because of his success in transforming the retailer's Mexican division into one of its most profitable units.

Mr. Castro-Wright, 51, has proved to be an aggressive innovator, overseeing a change in regional store management that will put more supervisors in the field rather than in the company's hometown of Bentonville, Ark., and encouraging experimentation, like a new pharmacy station that brings customers closer to pharmacists.

"Clearly, Wal-Mart's fortunes over the next 12 to 18 months hinge on the quality of the job that Eduardo Castro-Wright does," said Robert F. Buchanan, a retail analyst at A. G. Edwards & Sons. "He is the man on the hot seat."

Bill Dreher, a retail analyst at Deutsche Bank Securities, called Mr. Castro-Wright a rising star and a very strong candidate to succeed the chief executive, H. Lee Scott Jr., providing that he can fix what analysts say is broken in the United States — namely a shopping experience that Wal-Mart executives concede has become inconsistent and, at times, unpleasant because of cluttered aisles and outdated décor.

Sales at Wal-Mart stores open for at least a year grew, on average, 3.6 percent a month in fiscal year 2005, compared with a 5.8 percent gain for Target, according to the International Council of Shopping Centers, a trade group.

And as yesterday's earnings — or perhaps more accurately, investors' reactions — showed, managing Wal-Mart is no simple task. Profit rose 13 percent in the quarter, but Wal-Mart, the nation's largest retailer, predicted that full-year earnings would fall below Wall Street's expectations.

As a result, Wal-Mart's shares fell as much as 1.5 percent in morning trading. Shares closed down 36 cents, or less than 1 percent, at $45.74.

Wal-Mart said it was optimistic about 2006 despite the financial burdens — among them higher energy prices — facing its predominantly working-class shoppers.

The company forecast full-year earnings yesterday of $2.88 to $2.95 a share, compared with analysts' estimates of $2.98. Wal-Mart pointed out that the Wall Street estimates did not reflect higher interest costs and share repurchases.

Mr. Scott said the retailer finished strong in its fourth quarter, which ended Jan. 31. Net income rose to $3.6 billion, or 86 cents a share, for the quarter, from $3.2 billion, or 75 cents a share, a year ago. Sales increased 8.6 percent, to $89 billion from $82 billion, but overall revenue of $90.1 billion was below analysts' estimates.

In a conference call this morning, Mr. Castro-Wright outlined his plan to improve the uneven shopping experience at Wal-Mart's American stores, which accounted for 67 percent of the company's $312 billion in annual sales last year.

Perhaps the most ambitious part of the plan is the proposed renovation of 1,800 stores over the next 18 months. The remodeling is intended to bring the chain's oldest outlets in line with newer ones, which have faux hardwood floors in the clothing department, lower display cases that make it easier to see merchandise, and — as Wal-Mart likes to emphasize — better restrooms.

Bernard Sosnick, an analyst at Oppenheimer & Company, called the pace of the remodeling remarkable, noting the company's budget for capital expenditures, which he estimated at $17 billion, exceeded the annual sales at a rival, Kohl's department store.

But the store improvements may be coming too late for some customers, said Mr. Buchanan, the A. G. Edwards analyst. "Arguably, they have fallen behind. They have too many tired-looking stores," he said, adding that Mr. Castro-Wright is "barking up the right tree."

A Wal-Mart representative said Mr. Castro-Wright was unavailable for an interview and declined to comment on his future at the company. Mr. Castro-Wright, who was born in Ecuador, held senior positions at RJR Nabisco and Honeywell Transportation before he began running Wal-Mart Mexico in 2001.

To appeal to fashion-conscious shoppers, Mr. Castro-Wright said during the conference call that a line of clothing called Metro7, originally introduced to 500 stores, will be stocked at 1,500 stores by September. The line, which includes distressed-denim jeans and silk camisoles with sequined lace, has exceeded sales expectations.

Wal-Mart has found that its higher-income consumers rely on the chain for cheap consumables like laundry detergent and toilet paper, but shop elsewhere for fashion, home décor and electronics, products that typically deliver higher profit margins for retailers.

Wal-Mart refers to such consumers at "selective shoppers," because they can afford to buy a skirt, television or comforter at higher-priced retailer.

To reach them, the company has expanded its marketing team, poaching senior executives from Frito-Lay and DaimlerChrysler . It is introducing more sophisticated advertisements, largely supplanting the sword-wielding, price-slashing smiley face, which seemed dated next to sleek ads from Target.

The latest television and print media campaign, in a departure from Wal-Mart tradition, concedes that shoppers do not think of the chain as a destination for fashion. In one print ad, a woman arrives at a store looking for eyedrops and, to her surprise, discovers smart apparel. Instead of advertising "always low prices," it ends by encouraging consumers to "look beyond the basics."


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Hudson's Bay Co. shakeup imminent
Analysts expect major revamp when U.S. businessman takes the reins, MARINA STRAUSS says
By Marina Strauss – Retailing Reporter – Glober & Mail, Canada
February 20, 2006

If all goes as scheduled, Jerry Zucker will pick up the keys to Hudson's Bay Co. on Friday. He's expected to take a little while to look around the old place, and then get right to work.

There's a lot on his "To Do" list as he takes over the oldest company in Canada. Its core retailing division makes little, if any, money, and has been losing business to nimbler rivals. Its discounter Zellers struggles to compete with the powerful Wal-Mart Canada Corp., while the Bay races to keep up with specialty chains.

HBC is desperately in need of a sharpened image and leaner, more efficient operations.

"Zellers has to do more to be different," says retailing consultant Walter Loeb in New York, a former member of HBC's board of directors. "In order to make it, you have to take a position against Wal-Mart . . . Zellers is key to the future success."

Mr. Zucker has said he will follow HBC's strategy of closing unprofitable Zellers stores, expanding others and improving customer service and inventory management to ensure in-demand goods are on store shelves. Asset sales are also on the drawing board.

"We think there is tremendous potential to really reinvigorate this company and put it back on its growth trajectory and re-establish itself as the dominant department-store retailer in Canada." Says Robert Johnston, a vice-president at Mr. Zucker's South Carolina business.

Mr. Loeb says some Bay stores should be converted to Zellers, and that the Target-ization of Zellers -- styling them more in the image of the successful U.S. discounter Target -- needs to be hammered home even more.

The downtown Bay stores, meanwhile, need to become a fashion destination at mid-to-higher prices, Mr. Loeb adds.

A wealthy industrialist with no retailing experience, Mr. Zucker may take a page from U.S. billionaire hedge fund manager Eddie Lampert. He's another non-retailer who orchestrated the acquisition of Sears Holdings Corp. after scooping up the bankrupt Kmart. Now he's set to fix both.

Like Mr. Lampert, Mr. Zucker will likely cut costs and replace top management with his own picks, says Joe Manget, vice-president at Boston Consulting Group who does work for Sears.

(That won't come cheap: golden parachutes for HBC CEO George Heller and four of his senior executives could reach almost $10-million, according to information in public filings.)

Like Mr. Lampert, Mr. Zucker will likely call the shots on strategy. And like Mr. Lampert, Mr. Zucker will be extremely focused on boosting the bottom line. During discussions with senior HBC executives, Mr. Zucker wanted to talk numbers more than anything else, a source said.

But Mr. Zucker should not be too quick to slash advertising because it draws customers to stores, Mr. Manget says. Mr. Lampert went too far at Sears by ditching ads, prompting sales to dwindle, Mr. Manget says. "It's the easiest way to cut costs but it's very hard to regain the customers once they stop shopping you."

Indeed, Mr. Manget warns that Mr. Lampert's financially-driven recipe of slashing costs, inventory and promotions could yield short-term profit gains but long-term disaster for HBC.

Mr. Zucker would do better by making smart investments in HBC in a bid to shorten inventory purchasing cycles to help ensure that stores carry relevant and timely merchandise, Mr. Manget says. Otherwise products can become dated and have to be cleared out at marked-down prices, which pinches profit.

HBC stores also need to make sure they don't run out of basic items such as white shirts and black pants, he adds. If shoppers can feel confident that they'll be able to find the staples in their desired size, they will likely return to a store and, at the same time, snap up other products while there.

What is more, Mr. Zucker needs to invest in other basics that make shopping more convenient such as comfortable change rooms and helpful people to staff them, he says.

But it's not just the inside of the stores that needs to be transformed, Mr. Manget says. In updating Zellers outlets to emulate Target, Mr. Zucker should refashion the outside as well, he says.

He points to the successful makeover of Canadian Tire and Shoppers Drug Mart newest outlets. With more windows and an airier look, the exterior re-designs flag significant changes inside, too. "Zellers has made some progress here but has a long way to go."

Shifting more resources to burgeoning product categories, such as pet care, could also pay off for HBC, he says.

For all the potential fixes, there are some retailing experts who say Mr. Zucker would fare better by just selling off the real estate and its leases to rival retailers.

"He could lose all the gains he's made by trying to run this thing," says retailing consultant Don Watt of DW + Partners, who advises Wal-Mart Canada's U.S. parent. "This turnaround could take years."

Jerry Zucker's HBC To-Do list:

Reduce staff and replace senior management to ensure a fresh flow of new approaches.

Expand stores, widen the aisles, improve the lighting and update the exterior.

Make sure shoppers know what is available in the stores.

Make them attractive, and staff them with knowledgeable and helpful people.

Shorten purchasing cycles so stores always have new products.

Make sure stores have basic items such as white shirts and black pants, and don't run out of them.



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Top firms' plan for uninsured stumbles
Reality: Workers still can't afford premiums
By Bruce Japsen - staff reporter – Chicago Tribune
February 18, 2006

A landmark health-care plan offering benefits to millions of uninsured workers and initially sponsored by more than 50 blue-chip companies has failed to gain traction in the nearly two years since its lofty goals were announced.

Fewer than 9,000 workers and their dependents have enrolled in the National Health Access program since the plan got off the ground in the fall, which is far short of expectations, said officials connected with the plan.

At the time of the open-enrollment period last fall, officials said the program would provide an estimated 1.25 million part-time, temporary, and contract workers and their dependents with affordable health care.

In addition, dozens of large employers who had originally backed the plan have not yet signed up to be among those offering benefits.

Officials say several issues, notably the inability to offer a plan that's affordable for most employees in the group, have been the biggest stumbling blocks.

"For this group, it's a challenge to find almost any level of affordable coverage to give them what they are looking for," said Marisa Milton, associate general counsel at the HR Policy Association, a Washington-based lobbying group composed of human resource executives. HR Policy Association helped create the program, which is administered in part by Hewitt Associates, a Lincolnshire-based employee benefits and human resources consultancy.

"There are valuable lessons to learn from this," Milton said. "We definitely would have liked more people to enroll."

Initially the plan's backers, which include Hoffman Estates-based Sears Holdings Corp. and Oak Brook-based McDonald's Corp., were lauded for trying to find an innovative, private-sector initiative to help fix one of the country's most expensive problems: providing affordable health coverage for more than 45 million uninsured Americans.

But the stumbles illustrate how long-standing issues, including regulatory and legal red tape and skyrocketing health-care costs, continue to stymie efforts by workers to get their hands on affordable insurance.

The member companies believed that if they could pool enough of their workers together they could entice health insurance companies into a bidding war to handle the business, thus keeping costs lower.

They were able to get insurance companies interested but have run into a number of roadblocks, most notably premiums that many workers can't afford.

As a result of the National Health Access plan's problems, consumer advocates are calling for more government involvement when it comes to funding health benefits for the uninsured.

"There needs to be a greater partnership between the public sector and the private sector," said Jim Duffett, executive director of the Illinois Campaign for Better Health Care, which is advocating universal coverage in the state. "An expanded public program could help pick up some of these folks. There needs to be an even larger pool."

Milton said the initial group of 50 employers agreed to first set up the framework for National Health Access and fund studies and infrastructure that would allow the companies to get competing bids.

By last fall's enrollment period, only 10 companies offered the plans to their workers. Sears, General Electric, Federal Mogul Corp., Avon Products Inc., IBM and EMC Corp. were the only companies Milton would name.

Milton would not disclose specific reasons why the majority of those that funded the start-up did not join the group, but she said there were many challenges for those companies that have not offered the benefits for their part-time workers.

In some cases, companies could not or did not participate because certain targeted part-time employees did not meet state regulations for small group insurance.

Meanwhile, other companies developed a wait-and-see attitude to the program before offering part-timers benefits. And some firms, such as McDonald's, said they preferred to offer their own benefit package to part-time workers.

"Right now, to meet our needs, the program that we are in was a bit better," Bob Wittcoff, senior director of employee benefits at McDonald's, said of the company's benefit offerings.

In the National Health Access plan, three insurers—Cigna Corp., Humana Inc. and UnitedHealth Group—agreed to offer a range of benefits and discounts on medical care and prescription drugs. But because state insurance regulations vary, the uninsured workers might not have access to all three choices.

Under the plan, monthly premiums can range from $7 for discounts on certain medical services to $150 for benefits that cover doctors' office visits and "some coverage of hospital stays," the HR Policy Association said.

Unlike employer-paid premiums for full-time employees, companies participating in National Health Access are not contributing to workers' health-care expenses. Further, laws and insurance regulations prevent coverage from being more affordable to part-time workers. For example, a full-time worker receiving employer-paid benefits pays a premium that has tax advantages unavailable to many part-time workers.

"One of the problems is the expense and lack of subsidy for this group," HR Policy's Milton said.

At Sears, the company is still hoping for more participation among its more than 100,000 eligible part-time workers. Still, Sears said it won't commit long-term to National Health Access, citing a company policy to evaluate all health-benefit programs annually.

"It's still in the very early stages of this program," said Sears Holdings spokesman Chris Brathwaite. "Overall, we are satisfied but, like we do with all of our benefits programs, we will review this one as well. The problem of the uninsured did not happen overnight and perhaps it is unreasonable to assume or expect that it is going to be solved overnight."

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On Private Web Site, Wal-Mart Chief Talks Tough
By Steven Greenhouse and Michael Barbaro
The New York Times
February 17, 2006

In a confidential, internal Web site for Wal-Mart's managers, the company's chief executive, H. Lee Scott Jr., seemed to have a rare, unscripted moment when one manager asked him why "the largest company on the planet cannot offer some type of medical retirement benefits?"

Mr. Scott first argues that the cost of such benefits would leave Wal-Mart at a competitive disadvantage but then, clearly annoyed, he suggests that the store manager is disloyal and should consider quitting.

The Web site, which Mr. Scott uses to communicate his tough standards to thousands of far-flung managers, gives a rare glimpse into the concerns that are roiling Wal-Mart's retailing empire, from the company's sagging stock price to how it treats its workers. Judging by the managers' questions, Mr. Scott has an internal public relations challenge that in some ways mirrors the challenge he faces from outside critics.

And while Mr. Scott's postings are usually written in a careful, even guarded manner, they can often be revealing — for example, showing a defensiveness and testiness with critics — that Mr. Scott normally keeps under wraps.

Copies of Mr. Scott's postings covering two years were made available to The New York Times by Wal-Mart Watch, a group backed by unions and foundations that is pressing Wal-Mart to improve its wages and benefits. Wal-Mart Watch said it received the postings from a disgruntled manager. While the existence of the Web site and Mr. Scott's participation in it have been known, transcripts have never been made public before.

The Web site has a folksy name — Lee's Garage, because Mr. Scott pumped gas at his father's Kansas service station while growing up.

But its tone is at times biting. In his response to the store manager who asked about retiree health benefits, Mr. Scott wrote: "Quite honestly, this environment isn't for everyone. There are people who would say, 'I'm sorry, but you should take the risk and take billions of dollars out of earnings and put this in retiree health benefits and let's see what happens to the company.' If you feel that way, then you as a manager should look for a company where you can do those kinds of things."

Mona Williams, a Wal-Mart spokeswoman, said Mr. Scott responded so sharply because of the manager's sarcastic tone. The question, she said, indicated the manager failed to understand how competitive retailing is and would not be able to convey that to his subordinates.

"At Wal-Mart, we communicate very candidly with one another," she said. She added that Mr. Scott's tone did not deter employees from asking questions, noting that 2,147 questions have been asked since last April.

Commenting on a labor union that is fighting Wal-Mart's expansion plans in New York City and elsewhere, Mr. Scott wrote in the Web site, "that way its members' employers" — meaning many Wal-Mart competitors — "can continue to charge extremely high prices for food and tolerate poor service."

Stung by the many news media reports about allegations of sex discrimination, off-the-clock work and child labor violations at Wal-Mart, Mr. Scott wrote, "The press lives on things that are negative."

The Web site shows many sides of one of the nation's most powerful executives. He denounces managers who complain about the company or their subordinates. He frets about the success of his discount rival Target . He exhorts employees to act with integrity. He mocks General Motors for problems caused by its generous benefits. He rejects a manager's suggestion that Wal-Mart has created "a culture of fear," and he hails Wal-Mart's performance in responding to Hurricane Katrina.

Mr. Scott has made some of these points before in public speeches, but in these confidential e-mail messages to managers, he delivers far blunter insights in much greater detail.

In one posting, he urges managers to set an example by doing more to comply with the company's 10-foot rule, requiring employees to smile and ask "Can I help you" when a shopper is less than 10 feet away.

In his postings, Mr. Scott tries to strike a chummy, "in the trenches" tone, reminding managers how frequently he visits stores — at least once a week — and pops into meetings unannounced "to make sure there's not a filter keeping me from hearing what's really important."

But his responses often serve to remind managers of the gap between them and their chief executive, who earned more than $17 million last year, including stock options, who hops around the globe on Wal-Mart's fleet of jets and who lives in a gated community called Pinnacle.

"I recently had dinner with the prime minister of the U.K., Tony Blair, and his wife; my wife and I had a meeting with Prince Charles to talk about sustainability; and I met with Steve Case, the founder of AOL, and talked about health care," Mr. Scott wrote in a two-week-old entry describing how he represents Wal-Mart around the world.

Mr. Scott, 56, joined Wal-Mart in 1979 as its assistant trucking manager. Helped by his affable manner and his command of the company's vast distribution system, he was named chief executive in 2000.

Throughout the dozens of postings, Mr. Scott shows deep concern about the many attacks and allegations that Wal-Mart skirts environmental and labor laws. He acknowledges that Wal-Mart used to have a greater tolerance for managers who cut corners, but his postings insist that Wal-Mart's new focus is on total compliance with the law. In a posting last June, he quoted the Rev. Dr. Martin Luther King Jr., saying, "The time is always right to do what is right."

Responding to a manager's question about attacks on Wal-Mart's image, Mr. Scott wrote in an April 2004 posting: "Your value to Wal-Mart is outweighed by the damage you could do to our company when you do the wrong thing."

"If you choose to do the wrong thing: if you choose to dispose of oil the wrong way, if you choose to take a shortcut on payroll, if you choose to take a shortcut on a raise for someone — you hurt this company," he added. "And it's not unlikely in today's environment that your shortcut is going to end up on the front page of the newspaper. It's not fair to the rest of us when you do that."

Lee's Garage was set up in January 2004, at Mr. Scott's suggestion, to improve communications with managers after a wave of particularly bad publicity, including a federal raid that rounded up 250 illegal immigrants who cleaned Wal-Mart stores and a class-action lawsuit charging sex discrimination, filed on behalf of 1.6 million current and former female employees.

Ms. Williams of Wal-Mart said a public relations assistant screened the questions and Mr. Scott dictated responses to an aide. At first the site was accessible only to salaried managers. Last October, it became available to all 1.3 million employees in the United States.

The questions posted on the Web site range from the self-interested (when will managers receive a raise?) to the competitive (will the merger of Sears and Kmart hurt Wal-Mart?) to the academic (is Wal-Mart technically a monopoly that could be broken up?).

A recurring theme is the attacks on Wal-Mart's image and managers' worries that these attacks are undermining employee morale and the company's ability to grow. Asked if the negative publicity has slowed Wal-Mart's expansion, Mr. Scott responded: "I think it probably has. You can't get letters that say, 'I read where you're doing this and therefore I'll never shop with you again,' and assume everyone who writes that is just some nut. Some of those are real people who don't know us and believe what they've read."

A manager of a Wal-Mart's store in Medford, N.Y., asked about Wal-Mart's repeated failure to gain zoning variances and other government permits to open its first store in New York City. "We're going to have to be a lot more sophisticated about it than we have been," he said, saying that Wal-Mart brings good jobs and great prices. "But I think you'll see us get the stores."

Though Wal-Mart is three times larger than its next biggest retail rival, Mr. Scott appears to be preoccupied with competitors whose individual store sales are growing faster than Wal-Mart's — namely Target and Walgreens.

Asked about Wal-Mart's stock price, which has fallen 11 percent in the last five years. Mr. Scott said: "You cannot have Target or Walgreens beating you day after day after day." Mr. Scott wrote that one reason Wal-Mart's same-store sales were growing more slowly than Target's was that Wal-Mart's customers earn less and have been squeezed worse by soaring fuel prices.

"Wal-Mart's focus has been on lower income and lower-middle income consumers," he wrote. "In the last four years or so, with the price of fuel being what it is, that customer has had the most difficult time. The upper-end customer got a tremendous number of tax breaks about four years ago. They have been doing very well in this economy."

He said having to pay $50 to gas up a car did not change anything for rich customers, but did for those who didn't earn a lot. "It changes whether or not you go to the movie, whether or not you buy new sheets, whether or not you go out to eat."

At several points, Mr. Scott addressed criticisms that Wal-Mart health plan was too stingy toward its employees. He said that Wal-Mart's health plan "stacks up very, very competitively" with other retailers. In a knock at companies that provide more generous benefits, Mr. Scott wrote: "One of the things said about General Motors now is that General Motors is no longer an automotive company. General Motors is a benefit company that sells cars to fund those benefits."

In one posting, Mr. Scott talked about how proud he was about Wal-Mart's response to Hurricane Katrina, when it rushed urgent supplies to the Gulf Coast. "The media coverage has been extremely positive and speaks to who we really are as individuals, and as a company."

When one manager asked how an associate — Wal-Mart's term for an employee — could become chief executive of the world's largest retailer, Mr. Scott wrote, "The first thing you can do is make sure you treat your people well, and understand that your associates are what will make you a success."

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2 firms increase holdings in Sears
Atticus, Legg Mason add shares of retailer
By Susan Chandler - staff reporter – Chicago Tribune
February 15, 2006

Shoppers vote with their dollars. So do investors. But a poor retail performance last year didn't discourage two of Sears Holdings Corp.'s largest investors from increasing their stakes in the retail company.

Atticus Capital LP, a New York hedge fund, raised its investment in Sears to 10.8 million shares, or 6.7 percent of the shares outstanding, as of Dec. 31, according to a filing Tuesday with the Securities and Exchange Commission. That investment is worth more than $1.3 billion based on Sears' closing price of $121.85 per share.

That appeared to rank Atticus as the third-largest holder of Sears, only slightly behind mutual fund manager Legg Mason, which raised its collective stake in Sears to 11.4 million shares, or 7 percent, according to a separate filing.

There's no question, though, that Sears Chairman Edward Lampert is still firmly in control. His Connecticut hedge fund, ESL Investments, and related entities, own more than 65 million shares of Sears, or more than 40 percent of its outstanding equity.

A spokesman for Sears said the Hoffman Estates-based retailer does not comment on its investors. The company no longer has an investor relations department; it doesn't talk with analysts or issue earnings guidance.

A spokesman for Atticus said the firm doesn't comment "on our activities or our portfolio."

But Atticus' intentions appear to be friendly at this point. In its filing, the firm said its Sears shares "are not held for the purpose of or with the effect of changing or influencing the control of the issuer."

In fact, Atticus previously was an investor in Kmart Holding Corp., which emerged from bankruptcy under Lampert's control in the spring of 2003.

Lampert and Timothy Barakett, the chief executive of Atticus, appear to have more than that in common.

Lampert attended Yale and started his hedge fund when he was in his mid-20s. Barakett was a Harvard man and a star hockey player who started his asset management firm when he was 30 with the help of Nathaniel Rothschild, a young heir of the Rothschild banking family.

Together Barakett and Rothschild raised $1 billion to pursue undervalued companies in Europe, according to a BusinessWeek story that included them in a list of the continent's "corporate raiders." Atticus now has $9.2 billion under management, according to recent filings.

Both Lampert, 43, and Barakett, 40, appear to have similar investing strategies. Both are patient investors and like to keep a low profile. They tend to favor companies with strong cash flow that can be used for stock buyback programs.

Sears announced $1 billion in stock buybacks last fall. Similarly, Atticus raised its stake in Phelps Dodge last year and urged the world's second-largest copper producer to spend an estimated $2.5 billion to buy back stock.

Atticus also has been throwing its weight around in Europe, where last month it urged Euronext NV, which operates the Dutch stock exchange, to merge with Deutsche Boerse, its German counterpart.

"Significant cost savings would benefit both shareholders and customers of the merged company, making the European capital markets more efficient," said David Slager, a senior portfolio manager at Atticus.

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Sears in demolition mode
By Susan Chandler - staff reporter - Chicago Tribune
February 12, 2006

Chairman Edward Lampert continues to remodel his retailing behemoth, scaling back on high-end, star-studded wallpaper like Bob Vila and Martha Stewart, but the moves may cost him

Edward Lampert certainly isn't dazzled by celebrity.

The Sears chairman has taken on Martha Stewart, asking the diva of home decor to accept less money under her long-term contract with Kmart if she wants to expand her distribution to Sears' stores.

Now he is trying to do a gut-rehab on Bob Vila, the home remodeling whiz.

Sears Holdings Corp.has terminated a long-standing contract with Vila to act as a spokesman for Sears' Craftsman tool line. It also has dumped its sponsorship of his nationally syndicated home remodeling show.

Vila has sued, charging Sears wrongfully breached the contracts, and is seeking more than $14 million in damages. Sears is countersuing Vila and says he has been paid more than he was due. The suit is headed for trial in October.

It's all in a day's work for Lampert, the bottom-line oriented hedge fund operator who engineered Kmart's takeover of Sears in March. Lampert and Sears' chief financial officer, William Crowley, are poring over contracts, looking for places to save money. They are reopening contracts and pushing those who do business with Sears for better terms. In some cases, they are getting them.

In Vila's case, Lampert and Crowley believe that the original host of "This Old House," wasn't doing much for his money, says a source close to Sears. Yet as of late last week, the Craftsman.com Web site still had Vila's photo on its home page with links to "Bob Vila's tips and techniques" and "Bob Vila's project plans."

Sears' willingness to cut ties with a well-known spokesman comes at a time when other companies are eager to sign celebrity endorsers. Catherine Zeta-Jones graces TV spots for T-Mobile. Joan Cusack scampers up staircases and pops out of manhole covers in ads for U.S. Cellular Corp.

Donovan McNabb, the quarterback for the Philadelphia Eagles, represents Campbell's Chunky Soup, and Gap has cycled through a cast of celebrities, including actors Elijah Wood, Gary Sinise and Juliette Lewis; musician Carole King; and comedian Will Ferrell.

But using celebrities to promote a brand is always fraught with peril, says Christie Nordhielm, clinical associate professor of marketing at the University of Michigan's Ross School of Business.

"The problem is you end up raising the awareness of the celebrity and the brand," Nordhielm said. "It increases the celebrity's negotiating power and, therefore, their costs. What starts out as a synergistic partnership can end up as more of a zero-sum game. That's why it's always better to hire cartoons."

At this stage of the game, Vila likely has more to lose than Sears if the two part ways, she adds. "He is getting paid so much right now. His hourly rate is quite high, and from Sears' perspective, Bob Vila's awareness is probably benefiting more than theirs is. It's probably a good strategic shift to refocus on the Sears brand and the Sears product."

There's no doubt that Vila had the "street cred" among handymen to be a valuable endorser of Sears' Craftsman lines of drills and power saws when Sears signed him up as a spokesman in 1985. For six years, he had been the folksy host of "This Old House," a nationally syndicated home renovation show on public television.

The relationship deepened four years later when Vila left the PBS show and founded his own production company to produce "Bob Vila's Home Again." Sears agreed to finance the show. In 2000, Sears and Vila formed a joint venture to turn BobVila.com into "America's leading site for home improvement solutions."

Vila says his current spokesman's contract was due to expire at the end of 2009. The contract has a "pay or play" provision that calls for Vila to be paid whether or not Sears calls on him to perform any duties, according to Vila's lawsuit. Most recently, Vila was paid $1.9 million a year for his spokesman's duties.

Drama involves TV show, too

The TV syndication also has been extended and renewed multiple times, but how many times is a matter of dispute. Vila says negotiations over an 11th amendment began in the fall of 2004 and were concluded in January 2005 for Sears to sponsor the 2005-2006 and 2006-2007 seasons. Sears says that no such agreement was reached, and it never agreed to underwrite the next two seasons. Both sides agree that Vila's company began production of a new season of shows.

Much at Sears changed in those months.

Kmart made a friendly $11 billion takeover offer in November 2004 with a plan to form a new company called Sears Holdings. Before the deal closed in March, though, Vila was approached by Kmart's top management about changing the syndication and spokesman agreements, the lawsuit says.

Talks stall, lawsuit follows

Talks went on for several months, but no new agreement was reached. Under pressure from Kmart, the suit alleges, Sears "repudiated" the syndication agreement in late spring. Vila filed a breach of contract suit in Massachusetts state court in mid-July. Sears Holdings then asked for an extension so it could resume negotiations with Vila.

Those talks went on for a month, and the suit was moved to federal court. Then on Aug. 19, Sears Holdings sent Vila a letter, saying it was canceling the spokesman agreement because Vila had engaged in "substantial misconduct," and violated Sears' trademark in the "Home Again" name. Vila's lawsuit "reflected unfavorably" on Sears' reputation, the letter said.

Sears also said it was canceling Vila's show.

A Sears spokesman said the company disagrees "with Mr. Vila's characterization of the circumstances surrounding the fact that he is no longer a Sears spokesman and that the show, "Bob Vila's Home Again," was canceled," but declined to go into detail. He also declined to comment on the use of Vila's image on a Sears' Web site.

Vila is out of the country and could not be reached for comment. His attorney, James O'Brien, declined to comment because the matter is still being litigated, except to say, "We're certainly preparing for trial."

In his suit, Vila argues that only the show's syndicator, King World Productions, can cancel the show, and it hasn't done so. In fact, the show is still airing with new sponsors. He also is disputing that "Home Again" is a trademark of Sears, but he agreed to drop those words from the show's title, which is now simply "Bob Vila."

Vila doesn't blame the old Sears, the one he had a lucrative relationship with for 20 years. He blames the guys at the top of Kmart, who "intentionally and tortiously interfered" with his contracts, according to the suit.

Vila says Sears owes him $948,750 for the second half of 2005 and another $9.7 million for the 2006-2009 period under the spokesman agreement. Under the TV deal, Vila is seeking $3.9 million in damages. He is asking the judge to treble both amounts.

In Sears' answer and counterclaim, the retailer denies that Vila began making the 2005-2006 season of his show "under any purported eleventh amendment of the syndication agreement." By going ahead and making shows under the "Home Again" banner, Vila violated Sears trademark, the retailer says.

`Home Again' rights disputed

As to a nearly million dollar payment due last July, Sears says Vila is entitled to only a pro rata amount because the spokesman agreement was terminated in mid-August. Even that amount should be reduced "by the damages [Sears] has suffered as a result of Vila's misconduct." Sears also alleges that Vila was overpaid by $75,000 in bonuses for the 2003-2004 season TV season.

Sears asks the court to find that it has exclusive rights to the "Home Again" trademark and to order Vila to turn over any materials bearing the logo so they can be destroyed.

The retailer also is seeking unspecified damages as well as attorney fees and costs.

Stephen Presser, a law professor at Northwestern University, says it is tough to get a read on the case unless one examines the actual contracts in dispute.

"My guess is this is a very arcane dispute among lawyers about what some of the clauses mean," he said. "You need some kind of pretext to walk away from a contract. You can always breach a contract but you're going to have to pay damages if you do."

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Piggy Banker? Critics Fear a Wal-Mart Move Into Banking Would Dominate the Industry
By Kathleen Day - Staff Writer - Washington Post
February 12, 2006

Wal-Mart entered the grocery business in 1988 to compete with established names such as Kroger, Safeway and Albertsons, which had dominated food retailing for decades.

Today Wal-Mart is America's biggest grocer, with 16 percent of the U.S. retail food market, and its sales continue to climb, even as dozens of grocery chains struggle.

Wal-Mart Stores Inc.'s decision to jump full-force into toys about 15 years ago has had similar results. Its sales overtook leader Toys R Us Inc. -- the inventor of selling toys in big-box discount stores -- in 1998. Wal-Mart now has 28 percent of that market. And it's not just food and toys: Owners of religious bookstores worry about being outpriced by the retailing behemoth. The list of Wal-Mart's effects on businesses goes on and on.

Congressional lawmakers and federal regulators now face a tough question: Should they permit Wal-Mart to use a legal loophole to enter banking and potentially do in that arena what it has done to nearly every other consumer product and service it has touched?

The question rattles bankers from Maine to California, even though the retailer no longer wants a full-service bank, only a limited-purpose one. It has whipped up longtime Wal-Mart critics, including labor unions, consumer groups and some congressmen on both sides of the aisle, who say the company is already too big, with too much power over the American economy, sometimes to the detriment of workers' pay and domestic jobs.

Charles Fishman, author of a new book, "The Wal-Mart Effect," chronicling how the company's growth and low-price philosophy influences the U.S. economy, is undecided: "I don't know if Wal-Mart would be good or bad for banking in the long run. But I'll bet ATM fees would come down pretty quick."

* * *

At issue is the possibility that Wal-Mart and a dozen other nonfinancial firms would be allowed to erode and possibly jettison a prohibition that's been in place for most of America's 230-year history barring commercial firms from owning full-service retail banks, and vice versa. Supporters of the ban say letting commerce and banking mix would foster unfair concentrations of power, create conflicts of interest in how credit is granted and perhaps one day burden taxpayers should the failure of a bank and its affiliate put at risk the Federal Deposit Insurance Corp., the federal fund that insures consumers' bank deposits.

"What's really at issue is the nature of the American economy," says Rep. Jim Leach (R-Iowa), who for two decades has fought efforts by industry to lift the ban. "If such concentrations are allowed, you could have our largest banks combined with our largest retail companies and high-tech companies and create questions about how credit is allocated. It has enormous consequences for competition, and I think America would become less competitive in the world."

But others say low pricing is king. "Wal-Mart sees banking as an opportunity to give the customer a better deal," says Howard Davidowitz, founder and chairman of Davidowitz & Associates Inc., a New York retail consulting and investment banking firm. "That's what Wal-Mart's about. That's why they have demolished the food and toy industries. If it's better for the customers, then that's the way it ought to be."

Sparking the current uproar is Wal-Mart's application to obtain federal deposit insurance, which is required before it can open a state-chartered bank in Utah known as an industrial loan corporation, or ILC.

Congress overlooked the ILC loophole in 1999 when it passed laws to deregulate financial services by allowing bankers, securities brokers and insurers to enter one another's businesses and sell such products under one roof. But despite overlooking ILCs, Congress specifically addressed the issue of commerce and banking: It voted to maintain the ban on mixing the two by closing another loophole that allowed nonfinancial firms such as Wal-Mart to own a savings and loan, a specialty bank.

A handful of states, including California and Nevada but most of all Utah, grant charters for ILCs. Sixty-one ILCs have been granted since 1984, nearly half of them after the 1999 financial deregulation bill passed, and six applications, including Wal-Mart's, are pending. The advantage of an ILC -- aside from the fact that commercial firms are prohibited from owning a traditional bank -- is that it allows its owner to bypass regulation by this country's main bank regulator, the Federal Reserve Board.

Instead, ILCs are supervised by their state regulator and, at the federal level, the FDIC, which in addition to insuring all banks has for decades regulated some state banks. The FDIC has said it has the capability to provide sufficient federal oversight of these state banks. Leach and others disagree, as did the Government Accountability Office, the research arm of Congress, in a report last fall.

The majority of ILCs are owned by financial companies such as securities firms Merrill Lynch & Co. and Goldman Sachs Group Inc. that under deregulation could own a traditional bank but don't want to because that would require they be regulated by the Fed as bank holding companies. The Fed requires holding companies to maintain certain amounts of cash against potential losses, and that's an expense these firms want to avoid. The dozen or so nonfinancial companies that own ILCs -- BMW of North America LLC, Volvo and the like -- do so to finance purchases of their cars and motorcycles.

Controversy has surrounded ILCs for several years, but the debate has been mostly among lawmakers and regulators. Not until Wal-Mart applied to the FDIC did the issue attract widespread public attention.

Partly it's Wal-Mart's sheer size. But it's also because of Wal-Mart's employment and pricing practices. For years, labor unions, employees in dozens of lawsuits across the country and even state legislators have criticized the company for low pay and health benefits. Critics also say the low prices the company uses to dominate industries -- while they may make consumers smile at the checkout -- have put many smaller companies out of business and shipped jobs to cheaper overseas labor markets.

The FDIC has received 1,500 comment letters on Wal-Mart's application, the most it's received on an issue. Many support Wal-Mart's bid to own a bank, but most are from banks and bank-lobbying groups across the country opposing it.

Three dozen members of Congress, evenly divided between Republicans and Democrats, have written the FDIC expressing concern about Wal-Mart's application: Twenty-five members of the House Financial Services Committee, including Leach, and three senators asked the FDIC to hold hearings before making a decision, which it has said it will do in the next few months.

Spencer Bachus (R-Ala.), chairman of the House financial institutions and consumer credit subcommittee, has announced plans to hold hearings on ILCs.

And no less than Alan Greenspan, while Federal Reserve Board chairman, at least twice told members of Congress that ILCs -- especially if given authority to open branches nationwide -- threatened to undermine sound banking oversight by creating a second, parallel system.

"These are crucial decisions that should be made in the public interest after full deliberation by the Congress," Greenspan said in a recent letter to Leach. "They should not be made through the expansion and exploitation of a loophole that is available to only one type of institution chartered by a handful of states."

By contrast, the FDIC, with little fanfare and no headlines, granted retail discounter Target Corp.'s application for insurance for a Utah-chartered ILC 18 months ago . Target is using it to offer a credit card to its small-business customers. Wal-Mart uses Target to press its case in its lobbying of Congress, saying it's unfair to let its rival own a bank when it doesn't.

Wal-Mart officials, in letters to Congress, in the company's FDIC application and in interviews, say it too would use the Utah bank for limited purposes, namely to accept large deposits brokered through third parties and, by removing the middleman, to lower costs of back-room operations by tens of millions of dollars a year in the processing of 2.5 billion credit and debit-card transactions.

That's a change in plan from a few years ago, when the company said it wanted to enter full-service retail banking because that's what its customers want. A spokesman for the company in 2003, for example, said that because Wal-Mart could not find enough banks willing to open branches in its stores, it wanted to do it on its own.

At about the same time, Wal-Mart chief executive H. Lee Scott Jr. said in an interview with the Los Angeles Times that the company wanted to be gung-ho into financial services, including mortgages.

Since then, Wal-Mart has changed its approach, says Jane Thompson, president of Wal-Mart Financial Services. The company has "read the tea leaves," she said. The in-store banks will now be outside partners.

Thompson says the company already works with 300 banks that operate branches in its stores and has embarked on an aggressive campaign to recruit more. Wal-Mart has 1,980 supercenters, 1,150 of them with full-service bank branches. And Wal-Mart has contracts for an additional 250 branches in its stores, including some to be housed in some of the eight superstores it plans to open in the next 12 months in Virginia and Maryland.

Thompson, as proof of Wal-Mart's new direction, points out that its contracts with outside banks are long-term, lasting 15 years if a bank wants. And partnering with outside firms is something Wal-Mart is used to, she said. Wal-Mart credit cards are offered through GE Money Bank, and wire transfers around the world go through MoneyGram Payment Systems Inc.

"People are not looking at the facts," Thompson said of the vocal opposition. "We have no aspirations to have our own branch in our stores. We've said publicly that we have no intent to branch. We're heading the other way."

Critics remain skeptical that Wal-Mart's ultimate goal has changed.

"Why should we believe them?" asked Tracy Sefl, spokesman for Wal-Mart Watch, a coalition of organized labor, community groups, environmentalists and others critical of the retailer's business practices. "Nothing would prevent Wal-Mart, once it's granted a bank charter, from coming back to the FDIC and asking to do more with it."

Even some Wal-Mart supporters think the company's entry into banking would inevitably change the industry. "Typically, when Wal-Mart enters a new product category, all of a sudden, the world goes topsy turvy," says Britt Beemer, founder and chairman of Americas Research Group in Charleston, S.C, a consumer-research firm that interviews as many as 15,000 consumers a week for corporate clients. "It forces the marketplace to charge less for the categories it's into. It would be a good thing in banking because instead of banks talking about customer service, they would actually have to offer it."

Wal-Mart and its supporters say Target's approval will make it hard for the FDIC to turn down Wal-Mart. But some government officials caution that the FDIC's approval process isn't automatic.

The agency must weigh objective measures, such as Wal-Mart's financial soundness. But it also must consider the "general character and fitness" of management, which could provide room for disagreement. Critics who testify at the upcoming FDIC hearings almost certainly will bring up the sexual-discrimination case against the company brought by more than 1.5 million women and other labor problems, including its settlement last year on allegations it broke child-labor laws.

Wal-Mart officials say they look forward to FDIC and congressional hearings as a chance to set the record straight. In the meantime, the company continues to open superstores at a rate of about 22 a month nationwide and searches for banks that will open branches in them.

And customers do love having a bank in the stores. "It works for me," said Darlene Thornhill, shopping at the Wal-Mart supercenter Friday in Culpeper, Va. Like dozens of other folks in the store, she strolled up with her as-yet-empty shopping cart to one of two tellers manning the store's SunTrust branch. The branch was sandwiched between Wal-Mart's customer-service center, where customers could buy money orders for 46 cents or transfer money to Mexico for $8.55, and the Da-Vi Nail Salon on the other.

She said the branch is open longer than the other one on the other side of town. Does she buy more at Wal-Mart because she can -- and now exclusively does -- bank there? "It probably helps," she said. "I usually think, 'Oh well, while I'm here I might as well pick up such-and-such.' "

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Historic homes by Sears also included some barns
By Leslie Mann - Special to the Chicago Tribune
February 11, 2006

Known for their rock-solid construction and architectural details, precut homes from Sears Roebuck and Co., sold during the last century, are prized by homeowners. But Sears also sold barns to farmers during the same era.

From 1911 to 1917, Sears sold barn plans and materials. From 1918 to 1930, it sold whole, precut barns. Like the Sears precut houses, the barns arrived by railroad boxcar, with parts numbered and ready to be assembled.

Each barn kit included lumber, windows, fasteners, hardware, paint and shingles, plus accessories such as animal pens, roof ventilators and feed racks. Many customers bought Sears outbuildings, too, such as corn cribs, hog houses, chicken coops and tool sheds. For $120, a farmer could add to his order a 20-foot-tall, yellow-pine silo.

Sears catalogs touted these barns as "made entirely from selected lumber sheltered from rain, sun, soot and wind." The barns' model names--Dairy Belle, Country Gentleman, Pride of the Homestead--were as charming as the grazing cows pictured in the catalogs.

Sears house historian Rebecca Hunter, author of three books about precut houses, profiles these barns in her new book, "Sears, Roebuck Book of Barns: A Reprint of the 1919 Catalog." She and co-author Dale Wolicki supplement the original catalog copy with an overview of the precut barns.

We reached Hunter by telephone at her home office in Elgin.

Q. What other companies besides Sears sold precut barns?
A. Many of those that made precut houses also made barns--Gordon-Van Tine in Iowa, Harris Brothers and Montgomery Ward in Chicago and Aladdin Company in Michigan. Their barn styles were all similar, just as were their house styles.

Q. How can you tell which company made which barn?
A. Like the houses, the barns have part numbers on the boards. But they are harder to find because they might be way up high under the roof. It's easier to identify the houses with a flashlight in the basement or attic.

Each company used different types of markings. In the book, we explain how to tell the difference.

Q. How much did farmers pay for these barns?
A. A Sears gambrel roof dairy barn was $1,049 to $2,836, depending on the size. That didn't include the foundation or the labor. Like the buyers of the precut houses, the barn buyers had to pick up them up--usually by horse and buggy--from the railroad station or at a railroad spur.

Q. Which were the most popular styles?
A. Sears sold seven--all reflecting popular styles of the day. The gambrel roof barn seemed to be the most popular, followed by the gabled roof, then the round and octagonal ones.

Q. How many precut barns were built?
A. We don't know for sure. We assume from the testimonials that they were built primarily in the Midwest. But we've found them as far away as Virginia, where Helen Marie Taylor has restored five of them on her farm.

They are fast disappearing. Blink and they're gone; there are subdivisions in their place. We hope through this book we'll learn of more. I encourage people to call or e-mail me if they think they have one.

For a copy of the book or to reach Rebecca Hunter, call 847-697-4551 or visit www.kithouse.org.

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Family feud grips Sears
Canadian unit valuation: Genuity says $19 to $22.25;
parent sticks to $16.86
By Hollie Shaw – Financial Post – Canada.com
February 10, 2006

Sears Holdings Corp. laid the groundwork for a major spat with its subsidiary Sears Canada Inc. yesterday, dismissing a formal valuation of the unit while still maintaining its desire to buy the shares it does not already own at a below-market price.

Sears Holdings, which owns 54% of the Canadian department store retailer, rejected a report commissioned by Sears Canada's financial advisor, Genuity Capital Markets, valuing the company at $19 to $22.25 per share.

The U.S. company, formed by last year's merger of Sears and Kmart, mailed an offer to Sears Canada shareholders yesterday reiterating a bid price that the company said it would make two months ago -- $16.86 per share in cash.

Before it went public with its intentions in early December, Sears Holdings garnered the support of the second-largest shareholder, Natcan Investment Management Inc., which holds 9% of Sears Canada. Most other shareholders, however, believe Sears Holdings will sweeten the deal. Shares have been trading at $18 or above since January.

"I don't know why the shares are trading above the $18 level," William Crowley, chief executive of Sears Holdings, said in an interview.

"I think you have had a lot of speculators, risk arbitragers, bidding the price up. If the stock is trading high enough people hope they will get a higher price. But in this case there isn't going to be another bidder."

Without the takeover premium, he said, Sears Canada would be trading at $12 to $13 and shares will begin to spiral downward if Sears Holdings does not acquire the full minority stake when the bid expires on March 17.

"We do not have unlimited resources," he said, noting $16.86 was higher than the company had wanted to offer to Natcan.

Acquiring the minority stake will help Sears compete in Canada against powerful rivals such as Wal-Mart Stores Inc., but Mr. Crowley noted it is not necessary for Sears Holdings to swallow its Canadian unit right now. The parent company has waived the minimum share condition of the offer and will take up however many shares are tendered.

"This would allow us to leverage existing management by not having two separate companies. It would help us somewhat, but we'll take whatever we get."

Sears Canada officials did not return calls for comment.

Genuity also looked at the positive implications of converting Sears Canada into an income trust, but Mr. Crowley said that scenario would never happen because of the negative tax implications for the U.S. majority owner.

David Brodie, retailing analyst for Research Capital Corp., called the defensive move by Sears Holdings unusual, saying under more typical circumstances the two boards would have haggled over price until they came to a mutual deal.

"Normally they don't get into these types of disagreements," he said, but noted majority owners have the luxury of making "lowball bids, and they sit there and hope the stock will come in."

Analyst George Hartman of Dundee Securities believes Sears Holdings makes some valid arguments in its refusal to pay more for the stock.

Despite reporting cost cuts of about $400-million between 2001 and 2005, Sears Canada's earnings have remained within the same narrow band during that time, Mr. Hartman said.

"They have maintained the level of earnings by cost-cutting and not by capturing a big sales gain. What is going to happen when people have filled their houses with appliances and sales slow down [further]? It is one thing to value an operating company on its operations and another thing for its assets."

- - -

Ticker: SCC/TSX
Close: $18.15, down 35 cents
Volume: 467,760
Avg. 6-month vol.: 474,166
Rank in FP 500: 47


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Sears Canada wants more for shares
Appraisal values shares at up to $2 more Valuation flawed,
U.S. parent replies
By Dana Flavelle – Business Reporter – Toronto Star
February 10, 2006

Sears Canada says it has obtained an independent opinion that its shares are worth between $19 and $22 apiece, at least 12.6 per cent more than is being offered by its U.S. parent company, Sears Holdings Inc.

But Sears Holdings says the valuation is flawed and assumes the Canadian company owns the rights to the valuable Sears' trademark and Kenmore, Craftsman and DieHard brand names.

Without those names, the company is worth $4.50 to $7 a share less to a rival bidder, Sears Holding's chief financial officer William Crowley said in an interview yesterday.

The U.S. firm is offering $16.86 a share for the 46 per cent of Sears Canada that it doesn't already own in a circular that was mailed to shareholders yesterday.

"Our offer represents full and fair value for Sears Canada," said Alan Lacy, vice-chairman of Sears Holdings. "We firmly believe that our offer provides the best alternative for all Sears Canada shareholders and that Sears Canada's current market price reflects unrealistic market expectations for a higher bid."

The Canadian shares have been trading above $18 apiece since late last year as shareholders speculated the U.S. firm could be persuaded to pay more to own 100 per cent of the company.

But Sears Holdings says it's prepared to settle for less than full ownership and is betting many skeptical investors will accept the offer and sell when they see nothing better is on the horizon, said Crowley. "We expect a number of shareholders will sell into the offer at the last minute," he said, adding the U.S. firm predicts the value of any remaining Canadian shares will fall to between $12 and $13 as soon as the offer expires.

Sears Holdings' ownership is guaranteed to rise by 9 percentage points from this transaction, to nearly 64 per cent, as NatCan Investment Management Inc. has already agreed to sell at the $16.86 per share price.

The U.S. firm would prefer to own 100 per cent of the Canadian unit because it could help the company "compete more effectively," Crowley said. "We could draw more directly on some of the management talent in the U.S.

"There would be no major change in strategy. We would continue to focus on costs," he said. Since Sears Canada's parent company, Sears Roebuck, was sold to hedge fund manager Ed Lampert, and merged with Kmart south of the border, both chains have been cutting jobs and selling off assets.

A rival bidder for all or part of Sears Canada could expect to pay at least 1 per cent of annual sales for the Sears name, or roughly $57 million, and another 3 per cent royalty on sales of brands exclusive to Sears, such as Kenmore, the dominant appliance brand, he said.

The combined costs would reduce Sears Canada's earnings before interest, taxes and depreciation by $80 million to $140 million a year.

Some analysts have speculated Sears Canada would merge with rival department store operator Hudson's Bay Co., which is the target of a takeover bid by U.S. financier Jerry Zucker.

Both retailers have been losing market share to new formats, such as Wal-Mart and Home Depot. Sears Holdings also ruled out any prospect it would let Sears Canada convert to an income trust, an alternative favoured by some analysts. Sears Holdings first expressed interest in buying the rest of Sears Canada last Dec. 5. It confirmed its interest earlier this week and has mailed out the circular to shareholders.

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He made over a billion dollars for David Geffen, racked up better returns than Warren Buffett, and talked four kidnappers into letting him go.
Eddie Lampert is ...
So what is he doing with Sears?

By Patricia Sellers - Fortune
February 20, 2006 issue

(FORTUNE Magazine) - The mood was tense at the Bel Age Hotel in West Hollywood, Calif., early last year. The top two dozen executives of Sears Roebuck & Co. were gathering for a strategy session with Eddie Lampert, then 42, the billionaire hedge fund manager who had just engineered an unlikely takeover of their venerable but struggling company. The fact that the vehicle of his acquisition was discounter Kmart--which Lampert had come out of nowhere to snatch control of during bankruptcy--was only one source of unease. Once their presentations started, Lampert also began poking holes in virtually every idea. "What's the benefit of that?" he asked again and again. "What's the value?" He shot down a modest $2 million proposal to improve lighting in the stores. "Why invest in that?" He skewered a plan to sell DVDs at a discounted price to better compete with Target and Wal-Mart. "It doesn't matter what Target and Wal-Mart do," he declared.

Eyes began rolling. Sure, Lampert was an alluring character: He'd built himself into one of the richest men in America, survived a bizarre and terrifying kidnapping, and somehow supercharged Kmart's moribund stock into a highflier. But when the Sears team asked him to share his vision for their company, he brushed the question aside. The impression, says one attendee, was that "Eddie was going to pull cash out of Sears to invest in the next addition to his hedge fund." Lampert says that view comes with the territory: "The pushback I get is, 'He's a hedge fund guy.' Full stop. Some places, that can be a badge of honor. In others, it's almost a term of derision."

A year after the Bel Age meeting many of those Sears executives--including the CEO, the CFO, and the chief buyer--are out of the picture. Sears stock is up 30%, and Lampert is fully in charge. While his official title is chairman, he's operating much like a CEO, calling the shots on strategy, marketing, merchandising, and more. "I'm not from a retail background, but I am a shopper," says Lampert, whose contained, sometimes shy manner is the last thing you'd expect from a big swingin' hedge fund guy. "I come to this with practical, logical ideas."

Eddie Lampert is the Steve Jobs of the investing world: He thinks differently, and acts differently, with extraordinary results. "He's the greatest investor of his generation," says fellow billionaire (and onetime mentor) Richard Rainwater, and Lampert has the numbers to prove it. His hedge fund, ESL Investments, has delivered average annual returns of nearly 30%, after fees, since its 1988 launch, according to several of its investors, who include Dell founder Michael Dell, media mogul David Geffen, and the Tisch family. Geffen, who gave Lampert $200 million to invest in 1992 (when Lampert was just 29), says that had he not periodically taken money out for diversification, he would have $9 billion today. As it is, says Geffen, "I've made more money from Eddie than from all the businesses I've created and sold."

Lampert is wealthier than Warren Buffett was at his age. And his $15 billion fund has outperformed Buffett's Berkshire Hathaway during its 18-year span (though of course the bigger Berkshire is a heavier load to move). Unlike other hedge funds, ESL doesn't typically short stocks, or trade derivatives, or dabble in currencies, or use aggressive leverage. Lampert buys cheap stocks and holds them for long periods (see "How Lampert Picks His Stocks," page 100). He made his first big money in the '90s with IBM and financial stocks like Wells Fargo, and became a billionaire by buying AutoNation and AutoZone, which have tripled and quadrupled in value, respectively, since he invested in them. But the capper so far has been his coup with Kmart. In 2004 alone, the stock soared 300%, ESL's stake grew from $1.3 billion to $5.4 billion, and as a reward that year he raked in a reported $1 billion in fee income.

Now the question is this: Is Lampert's Sears acquisition another inspired work of genius, a stepping stone to Berkshire Hathaway--like wealth creation for public investors? Or has he finally gone a step too far? In a series of revealing interviews--the first in-depth discussions he's had with any outsiders, including Wall Street analysts, since the Sears deal--Lampert acknowledges that he has nearly all of his own money in his hedge fund. That means his personal fortune is also riding on the fate of Sears Holdings, as the combined Sears-Kmart is now called. After rocketing to $163 last summer, shares of Sears Holdings have dropped to a recent $121. With same-store sales at Sears down 12% this Christmas season, the sniping among retailing purists--for a time overshadowed by Wall Street's cheers--is getting louder. "These financial guys, including Eddie Lampert, have no idea who the customer is," says Britt Beemer, chairman of America's Research Group, a retail industry consultancy. Former Sears CEO Arthur Martinez calls the plunge in holiday sales at Sears "very troubling" and wonders how long Lampert can sustain such a poor showing.

If Lampert is blinking, he sure doesn't show it. His hedge fund owns 40% of Sears Holdings, a stake worth almost $8 billion and by far its largest position. (He takes no salary for his role as Sears chairman.) From ESL's tiny offices in an unremarkable four-story building in Greenwich, Conn., Lampert manages the $54 billion, 330,000-person retail giant by phone, e-mail, and videoconference. He regularly holds court in his spartan conference room, diagramming on a big whiteboard for Sears executives who tune in remotely. The key points on his agenda: Be willing to sacrifice sales for profitability. Ignore Wall Street expectations. Question everything.

Lampert, who is a white-knuckle flier, has been to Sears' headquarters near Chicago just six times. But chief information officer Karen Austin says Lampert is the company's No. 1 user of a computer-based tool to analyze sales, margins, and inventories by store, by region, and by merchandise group. A geek at heart, he spends hours at his Connecticut office drilling down into the data, zeroing in on whatever isn't making money. His critics argue that judging a single item's profitability in isolation is unsophisticated--that a retailer's menu of offerings is what's important, even if an individual item lags. Lampert disputes that. While Sears' December sales drop was disappointing, as he admits, year-end earnings, due out in mid-March, are expected to show improving margins. That, in part, is because unprofitable items are disappearing from the stores. Sears recently stopped carrying traditional televisions, now offering only pricey flat screens. As for DVDs at Wal-Mart and Target prices, they're also a thing of the past. An in-store test showed that full-priced DVDs produce plenty of volume and a lot more for the bottom line. Eddie was right.

"I THOUGHT THEY WERE GOING TO kill me," Lampert says. He's sitting in the conference room at ESL, almost exactly three years after his kidnapping. Lampert's operation has moved to a new building, and security has gotten tighter--the beefiest receptionist in Connecticut sits behind the counter of ESL's small entrance area--but when Lampert tells the full story of what happened to him that day in early 2003, the terror of it shakes him anew.

And there's also the irony: that if Lampert hadn't been kidnapped that day, he might not be the sole, undisputed king of Sears and Kmart now. If he hadn't been crossed by a potential business partner who took his absence as an opportunity to go around him, he might even have retired. To understand the saga--the full tale that has not been told anywhere until now--you have to go back to the start of the Kmart deal.

Just about everybody thought Lampert was crazy in 2002 when he began buying up Kmart debt at around 40 cents on the dollar after the retailer filed for Chapter 11. Crazier still, Lampert loaded up more as the price sank to 20 cents, eventually boosting his total investment to $700 million. "To most people, Kmart looked like a pile of trash," says Al Koch of restructuring advisor AlixPartners, then Kmart's interim CFO. "We were told that this hedge fund guy had bought a huge portion of Kmart and wanted to get it out of bankruptcy fast. None of us had ever heard of him."

But Lampert knew exactly what he was doing. He'd spent hundreds of hours analyzing Kmart's financials and reached a simple conclusion: "Kmart's bankruptcy was avoidable," he says. To his thinking, the retailer had frittered billions on unproductive store improvements and excessive inventories. The prevailing wisdom held that Wal-Mart and Target were squeezing Kmart into oblivion by stealing its sales, and that Kmart had to fight back to maintain its dwindling market share. Lampert felt differently: that only by managing Kmart for profitability, not sales growth, could the discounter succeed. And if need be, Lampert could sell off Kmart's real estate, which had been valued at $800 million in a liquidation analysis filed in bankruptcy court. He was sure it was worth much more.

As 2003 approached, Kmart was hungry for more cash to keep operating, and Lampert considered bringing on a partner: Ron Burkle, a secretive California billionaire who had owned more than 6% of Kmart stock pre-bankruptcy and wanted back in.. Lampert and Burkle considered several possibilities: that Burkle would buy some of Lampert's Kmart debt or partner with him to put additional funds into Kmart. "The company needed a lot of money," says Lampert. "And he had a lot of experience that could be valuable."

On Friday, Jan. 10, at about 7:30 P.M., Lampert left his office to meet his wife and mother for dinner at a nearby restaurant. He was anticipating a weekend full of phone calls and meetings--the following Monday was a key deadline for Kmart's refinancing--but as he walked to his car in the underground parking garage of ESL's building, four masked men grabbed him. They pulled a thick hood over his head, shoved him into an SUV, and sped off. An hour later Lampert was sitting on a toilet in a motel bathroom, blindfolded, his hands and feet bound by plastic handcuffs. His abductors told him that they had been hired to kill him. It made no sense, but he wasn't about to argue. "One thing I was sure of was that I had to tell the truth because they knew everything about me," Lampert recalls. "They knew where I lived, how much I had paid for my house, who worked at my office, how much I was worth. If I bullshitted them, they'd know it."

He sat in that bathroom for 39 hours, awaiting who-knew-what. They gave him water and one meal (Popeye's fried chicken). When they removed his blindfold so that he could eat, he kept his eyes down, even though they had masks on. "I was respectful," he says. They'd taken his wallet away but allowed him to hold a passport photo of his 5-month-old son that he'd wedged into his billfold. When they demanded that he record a message to his wife, he complied. "I was in God's hands," he says.

It was later reported that Lampert talked his kidnappers into believing that he would deliver $5 million to them if they let him go. But the real story is a little different. One of the kidnappers foolishly used Lampert's credit card to order pizza delivered to a friend's house. When Lampert heard them talking about it, he saw an opening. Didn't they realize that the police were on to them now? Only if they released him would they have a chance to get away. Lampert, after all, had never seen them, so he couldn't ID them. But if they got caught with him as a captive--or harmed him--they would be in terrible trouble. Lampert says he did discuss a payoff with his captors, but nothing was decided on. "Ultimately they realized that it was better to let me go than to kill me," he says.

At 2 A.M. on Sunday the kidnappers dropped him at the off ramp of exit 3 on I-95. Even then he feared that they would shoot him, but they drove off. He walked a mile to the Greenwich police station. The cops apprehended the culprits within days. Ranging in ages from just 17 to 23, they had used the Internet to research Lampert and buy equipment for their caper. They later pleaded guilty. They are now in prison, and Lampert says he just wants to put the episode behind him.

"A couple of friends said to me, 'Stop. Get out of the business. Retire,' " Lampert recalls. "I thought about it--not for a long time, but it was definitely a consideration." A few hours after he arrived home, he says, he asked colleagues to call the key players in the Kmart refinancing and pass along a message: "I need to collect my thoughts. I don't need weeks. I need days." He was stunned by the reaction he got: A few people suggested that he might have concocted the kidnapping story to buy time.

Then he heard about Burkle. The day after Lampert's release, as he was recovering from his ordeal with his family, Burkle went to Jim Adamson, Kmart's then-CEO, and said he would be willing to put up the money the company needed, without Lampert. When Lampert found out, he was furious at Burkle's apparent end run. "It jolted me back to reality," he says. Instead of retiring, he jumped back into the fray, elbowing Burkle aside--and committing $110 million. Burkle says that Lampert misinterpreted his maneuvers, and that he acted only because one of Lampert's colleagues told him that ESL was not going to put any more money in. "We never would have gone in when somebody was kidnapped and tried to do a deal around him," says Burkle.

In any case, by the time Kmart emerged from bankruptcy in May 2003, a year ahead of schedule, Lampert had invested some $800 million. When his debt converted to equity, he found himself with a commanding 54% ownership stake.

WHEN LAMPERT WAS 14, HIS FATHER died of a heart attack at age 47. A lawyer, he nonetheless left the family, which lived in the middle-class town of Roslyn, N.Y., with virtually no savings. Lampert's mother took a job as a clerk at Saks Fifth Avenue. Eddie worked in various warehouses--stocking shelves, picking orders--after school and on weekends to help support her and his younger sister, Tracey. "He was a child, and then suddenly he was a man," says his mother. Eddie handled the pressure. He earned good grades, made time for soccer and basketball, won the scholar-athlete award at his high school. He got financial aid to help pay for Yale, where he majored in economics and was inducted into Phi Beta Kappa and Skull & Bones. "Even back then Eddie was intense," says Steven Mnuchin, his college roommate, who now runs Dune Capital in Manhattan and sits on the board of Sears Holdings.

After college Lampert landed a job at Goldman Sachs, persuading Robert Rubin to let him join his risk-arbitrage unit. The decision-making process he learned working for the future Treasury Secretary (now Citigroup vice chairman)--envisioning possibilities and their inherent risks--has shaped him as an investor, he says: "In investing, you constantly make decisions under conditions of uncertainty."

After four years the 25-year-old Lampert decided he didn't want to build his career inside someone else's money machine. In early 1988 he moved to Texas to work with Richard Rainwater, whom he had met in Nantucket a few months earlier. Rainwater gave him seed money to launch his own equity fund, which Lampert dubbed ESL. "Eddie works harder than anyone I've ever seen," says Rainwater. He recalls that when he owned the Texas Rangers (with George W. Bush), he would take the guys from his office to the stadium on sunny afternoons to play baseball. "Eddie would come with us, but he'd be there with his papers spread out on the right-field stands." Lampert cringes at Rainwater's portrayal. "Richard's office was like Grand Central Station," he says. "Richard would say, 'Joe Smith is coming to town. Let's all have lunch with Joe Smith.' I'd say, 'No, I have my work to do.' "

He split with Rainwater after a year and a half over a disagreement about his role. Lampert pushed to get involved in deals, but Rainwater wanted him to stay focused on buying and selling stocks. "It wasn't that I thought I'd do deals," says Lampert, who was 27 when he set out on his own, taking ESL with him. "But I was hell-bent on the principle that I should have the flexibility to do deals." He adds, "The irony is that I didn't do a deal until 15, 16, 17 years later." That first deal was Kmart.

During ESL's early days, Lampert was an ordinary passive investor. "I bought IBM two years after Lou Gerstner got there," he says. "They had an incredible services business, but most investors were focusing on the mainframe and PC businesses, so IBM's valuation was low. In four or five years, we made four or five times our money." Starting in the late '90s with AutoZone and then AutoNation, he became more active, attacking capital spending and playing a key role in replacing top management. He took heat from some critics, who charged that he was pursuing short-term fixes that could end up hurting the companies. But the stocks of AutoZone and AutoNation continued to rise, and ESL still counts both among its core holdings. Lampert's tactics back then--and critics' reactions to them--would become a model for his future deals.

WHEN KMART EMERGED FROM bankruptcy in 2003, Lampert quickly cut spending, reduced inventories, and halted what he calls "crazy promotions" to clear out merchandise. "For the first year or so, we had declining same-store sales, but more stores made a profit. To some people, it looked like a plane that was going from 40,000 feet to 20,000 feet, and in five minutes from now, it's going to hit the ground. We said, 'We're going to land this plane.' And we did."

The stock didn't just land, it soared. By summer 2004, Kmart was solidly profitable and building a $3 billion cash pile. The retail novice was proving everyone wrong. The buzz on the Street was that Lampert planned to milk the company for cash, using Kmart's real estate as his secret cache. Lampert exploited the moment. In June he announced the sale of some 70 Kmart stores--5% of the base--to Sears and Home Depot for more than $900 million. The figure was so high, Kmart stock zoomed on the news. Lampert's stake, acquired for $800 million, was now worth about $4 billion.

But Lampert had another card to play. His hedge fund had also quietly accumulated almost 15% of Sears over the previous four years. In selling 50 Kmart stores at a premium price, he'd spotlighted the weakness of Sears management. With Wall Street convinced that Kmart had gotten the better of the deal (Home Depot's purchases were deemed more strategic), Sears stock dipped. That opened the door to phase two of Lampert's plan: to use Kmart to take over Sears.

On Halloween weekend of 2004, Lampert and Sears CEO Alan Lacy sat down in Lampert's Greenwich home. Lampert prodded Lacy to sell him the company. After endless bad news--sales declines, profit shortfalls, and 75,000 job cuts--Lacy was exhausted. Kmart's $12 billion takeover was announced three weeks later.

Not long after, Lampert placed a call to Arthur Martinez, who had run Sears during a short-lived revival in the late '90s. Martinez had recharged the company (and its stock) by reducing costs, imposing new financial discipline, and luring female shoppers with the "Softer side of Sears" campaign. Martinez had an office in Greenwich not far from ESL, and on a mild winter day he walked the few blocks over for a visit. Lampert greeted him warmly, though the two had never met before. "Do you think I've done something crazy?" Lampert asked Martinez when they sat down. Martinez didn't answer him directly. "You have taken on the most complex retail integration task in history," he replied. Martinez recalls that Lampert wanted to know how he had gone about changing a vast bureaucratic organization. "I told him that it was far harder than I thought it was going to be," Martinez says. He'd underestimated "the cultural challenge," he told Lampert, and should have cleared out the old guard more quickly. Says Lampert: "He was helpful. The changes he made didn't stick, so the turnaround stalled out."

Lampert got the message, though his strategic approach is not what Martinez's would have been. He replaced CEO Lacy, who was Martinez's successor, with retailing newcomer Aylwin Lewis, 51, a restaurant industry man and former president of YUM Brands (owner of Pizza Hut, Taco Bell, and Kentucky Fried Chicken) whom he had hired to run Kmart just before the Sears deal was announced. "He's been on an incredibly steep learning curve," says Lampert of Lewis, with whom he talks frequently and e-mails constantly. A few months ago, CEO Lewis recalls, he asked Lampert, " 'Where do you end and I begin?' Eddie said, 'Why do you have to know that? This is a partnership.' " Lewis is pragmatic. "You check your ego at the door," he says. "Eddie is a nontraditional leader. I've learned to be nontraditional."

Lampert found Sears a new marketing chief too, not by using a recruiter but by querying a tech world contact who steered him to IBM. Lampert, who admires the company for its cultural revival, asked Maureen McGuire, a 30-year IBMer, to meet him at his ESL office. McGuire recalls asking Lampert, " 'Why would you hire me? I have no retail experience.' He told me, 'That's exactly why I want you. I need somebody with fresh eyes.' "

Lampert's right hand at ESL, Bill Crowley, 48, is now his eyes and ears at Sears headquarters, typically spending three days a week there. "We don't use discounted cash flows out five years and weigh it against the cost of capital," says Crowley, whom Lampert installed as Sears' CFO and chief administrative officer. "We talk about how much money we are making right now, and how that can change."

At times it seems as if Lampert's only passion is in tightening the operations. (One experiment in expansion, new stores called Sears Essentials that put Sears brands like Craftsman, Kenmore, and DieHard into Kmart's off-the-mall locations, has already been scaled back after a subpar rollout.) Says Morgan Stanley's Greg Melich, a bear on the stock: "You could find specialty retailers that have scaled down to something sustainable. But among general-merchandise retailers, there's no example of long-term success."

"The notion of spending money on the business--I'm not opposed to it. I just want a return for it," Lampert says. That attitude has certainly helped free up cash flow: Sears Holdings ended 2005 with more than $3.5 billion on its books. But how is Eddie going to create long-term value? He offers no specifics. When I propose one popular speculation--that if improved operations don't get the stock moving soon, he will begin selling off more real estate and maybe even Sears house brands like Craftsman--he laughs, simply saying, "No." In other conversations he suggests that rather than unload the company's prime properties, he'd like to better exploit them--he calls Land's End, for one, "a strategic asset." But he offers few details.

In other words, we just have to trust him--as his hedge fund investors have. (He demands a five-year minimum commitment from them, and refuses to tell them what he's investing in.) He points to three role models that together may say more about where he's going than any retail initiative he might float: Bob Rubin, who claims that the best decision-makers keep their options open until the last reasonable moment; Bill Belichick, the coach of the New England Patriots football team, who befuddles and outwits his opponents by constantly adjusting the game plan; and Warren Buffett, who turned from investor to business builder by acquiring operations at good prices and rearranging the cash flow, in many cases to invest elsewhere. "The entrance strategy is actually more important than the exit strategy," Lampert says. Could Sears Holdings evolve into another Berkshire Hathaway?

"One of the unspoken secrets about business leaders is that they often have no idea about where they're going to end up," Lampert says coyly. "I know the right direction. Whether we end up at the destination--rebuilding Sears Holdings into a great company on many dimensions--I don't know. But we're headed in that direction."

IN LATE JANUARY, LAMPERT TAKES ME for a walk-through of the Kmart in White Plains, N. Y., 20 minutes from his Greenwich office. He points out that he redirected the toothpaste display to the end aisle, and carps that the bath towel section needs classier signage. His mother has joined us, and we sit down on Martha Stewart patio chairs in the outdoor-furniture section for a chat. "I never thought he would go into retail," Dolores Lampert says. "It's a very hard business. But it's a challenge, and Eddie likes a challenge." She talks about how he'd been accepted to both Harvard and Yale law schools after college, and how crushed she was when he told her he was going to Goldman Sachs instead. "I didn't know what Goldman Sachs was," she recalls, adding: "I called my mother and I cried. I was hysterical."

I ask Dolores Lampert what Eddie's greatest insecurity is. She pauses, and almost chokes up, then replies, "This is a terrible thing to say, but it's that he won't live long enough to complete all his goals." His mother goes on, saying how Lampert writes his goals on a yellow legal pad, just like his father did before he died. "But Eddie won't die young," she says, not looking at him. "He'll probably live into his 90s."

Lampert is sitting quietly, watching us but involved in his own thoughts. "I want to be known as a great businessman," Lampert had told me earlier. With all he's accomplished, you might think he'd feel like one already. But Lampert has bigger aspirations, even if he's mostly mum about them. Sitting there in the Kmart with his mother, he agrees that he worries about dying young like his dad did. "If you had asked me the question, I wouldn't have answered that way. But that is the right answer." And then he goes silent. Perhaps he is calculating the probabilities and, whatever they may be, thinking that he has no time to waste.

FEEDBACK psellers@fortunemail.com


LIKE WARREN BUFFETT, EDDIE LAMPERT CALLS HIMSELF A "value investor," meaning he buys into companies whose assets he calculates are worth more than the current trading price. "The idea is that I'm going to pay this price and great things may happen, but they don't have to happen for me to do okay," he says. He typically doesn't short stocks, trade currencies or derivatives, take on substantial leverage, or do any of the fancy stuff that most hedge funds do. His firm, ESL Investments, employs 20 people, whereas another hedge fund its size (there are just a few) would have hundreds and a busy trading floor. "We try to stay very focused," Lampert says. He takes large positions in major companies and typically holds them for a long time. He has owned AutoZone and AutoNation, his two biggest investments besides Sears Holdings, since 1997 and 2000, respectively. ESL now owns about 29% of each company.

Lampert's stock picking is a "form of immersion," he says. Before he put a penny into AutoZone, he visited dozens of the auto-parts retailer's outlets and had one of ESL's analysts spend six months calling on hundreds of stores, posing as a demanding customer. "It's probably overkill," Lampert says, but he can't resist. "Eddie doesn't do things that 99% of the hedge fund world does," says Tom Tisch, an ESL limited partner since 1992. To avoid pressure to sell his holdings prematurely, Lampert requires ESL's investors to commit their money for five years--rare in the hedge fund world, where the standard lockup is one year.

Lampert also believes that secrecy is a key advantage for an investor. Because ESL today owns such large stakes in companies, those holdings must be publicly disclosed. But Lampert still refuses to talk about the specifics of his portfolio, even with his own investors. In the past Lampert has had occasional conflicts with his limited partners over this policy. Media mogul David Geffen, who has invested with Lampert since 1992, recalls insisting to him at one point, "I want to know where the hell my money is." Lampert refused to tell him. "The rules are the rules, and they're the same for everybody," says Geffen. "Eddie is very strict.

It's one of the things I admire about Eddie. But I don't like it about him." Of course, much has changed since Lampert made the biggest bet of his career: his $12 billion acquisition of Sears. He used to wield his influence quietly at companies--by shaking up management and imposing financial discipline from his seat inside the boardroom. Now, by taking an

active role in running Sears Holdings, he is veering from his old self and from Buffett, who takes pains to avoid meddling in management. Buffett also tends to buy well-run market leaders--such as Wal-Mart (whose stock he bought last year) rather than its downtrodden victims like Kmart and Sears. "Warren Buffett says, 'I'd rather jump over a one-foot hurdle than a six-foot hurdle,' " says Lampert. "We'd rather jump over a one-foot hurdle too. But it's difficult to find the opportunity. So I'm willing to engage more in underperforming companies."


Lampert on being an active--not activist--investor:

"You don't need to revolutionize an industry or overhaul a company to make money. Often you need to change the way capital is allocated and maybe change compensation targets. I'd rather do these things privately than publicly."

On capital spending:

"A lot of managers say, "Here's the rule of  thumb: We have to spend X amount per year." It gets written into the plan. You know who benefits? The consumer. There's nothing wrong with that. But my job is to provide value for the investor."

On executive compensation:

"Compensation committees divide pay into quartiles. No board wants to pay people in the fourth quartile, but somebody has to be there. If your performance is in the fourth quartile, then maybe your pay should be in the fourth quartile."

On Wall Street guidance:

"The world is just not predictable enough to give earnings guidance. The prevailing wisdom is, you set guidance at a level that you can beat, so the surprise is on the upside. Or you sell something on June 29 for $2.2 million even though you could have gotten $2.5 million on July 1."

REPORTER ASSOCIATES Julia Boorstin and Joan Levinstein contributed to this article.

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Kmart streamlines at workers' expense
By Eric Ruth - The News Journal – Wilmington News Journal
February 9, 2006

Less pay, fewer hours become norm

Talk to corporate folks at Kmart and you'll hear recent layoffs in Delaware and across the country are just what's needed to serve customers more "efficiently and effectively."
But talk to downsized employees, many of them seasoned workers, and you'll hear tales of betrayal and warnings that the Kmart shopping experience will be spoiled for good.

The retailer, which has 1,400 stores -- including six in Delaware -- and 133,000 employees across the country, is trying to reinvent itself and reinvigorate sales since coming out of bankruptcy and merging with Sears, Roebuck and Co. The current cost-cutting push, analysts say, eventually may help the company's bottom line, but ultimately may make it tougher to compete with such nimble rivals as Wal-Mart and Target.

The latest move toward trimming costs came in early January, when the company began laying off employees at some stores and rehiring them as part-timers.

The move came as sales for Sears Holdings Corp., the parent company for Kmart and Sears, sagged. For the three months ending in September 2005, same-store sales, the most widely used gauge of a retailer's health, were down 2.8 percent at Kmart stores and 10.8 percent at Sears.

Kmart won't say how many layoffs were made in Delaware, and a company spokesman said that some U.S. stores still are hiring.

But a Detroit News report, quoting an internal Kmart memo, reported the staffing strategy also involved using fewer full-time workers and more part-timers, whose benefits and pay are often less.

"The goal is to to provide the best possible customer service and have the right staffing on hand," said Chris Brathwaite, a spokesman for Sears Holding, in a telephone interview. "We're confident that these changes are going to result in a greater flexibility for the store management and ultimately will provide us with better customer service."

For Melissa Stapleford, who was laid off from the Elkton, Md., Kmart on Jan. 4, the company's plans for "greater flexibility" meant the opportunity for fewer hours and less pay. The store offered to rehire her as a part-timer, the New Castle resident said, but at pay simply not worth it for her.

"They don't want full-timers anymore," she said. "I don't see how it's going to work for them. We were struggling before."

The company, long plagued by its reputation for poor customer service, closed nearly 600 stores and cut 57,000 jobs before emerging from Chapter 11 bankruptcy in May 2003.

But even after its merger with Sears, the retailer has been troubled by increasing competition from the likes of Wal-Mart and Target. The combined company's stock has suffered, closing trading Wednesday at $118.71, down nearly $45 from its 52-week high.

"My view is that they are purely looking at Kmart from a dollar sign, investment point of view," said Kenneth J. Dalto, a retail analyst in Farmington Hills, Mich. "The retail side is being de-emphasized. The importance of their real estate holdings are really more important."

Sadako Cramer's 23-year career at the Kmart in Martinsville, Ind., also ended in January. But the 57-year-old said she was not offered a part-time job, though her performance evaluations had been solid.

"Every day I give 110 percent to the company," she said. "I never called in. I was always available to the company."

The loss of such employees may mean an ultimate loss in customer service, workers and analysts said.

"It's going to take away a critical edge [of better customer service] that Kmart touted and talked about when the merger developed," Dalto said. Instead, he said, planned store upgrades fell through, and Sears executives began to plan for the end.

Among employees, there's certainly a common sentiment that the company has come to care too little about the workers who invested their careers at Kmart. Several former workers interviewed for this article said they were let go despite years of positive performance evaluations.

"It's crazy," Stapleford said. "People have given a lot of time for this company. I loved working for Kmart."

"I liked it," Cramer said. "I liked the customers. I was proud of what I was doing."

Coping with the loss of those loyal long-time employees may be the company's next big challenge, Dalto said.

"When you get a low morale, part-time work force, forget about the competitive advantage," he said.

Gannett News Service and the Associated Press contributed to this article.

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Benefits Go the Way of Pensions
By Eduardo Porter and Mary Williams Walsh – New York Times
February 9, 2006

For years, the benefit packages of General Motors were considered to be so good that the company was known among workers and retirees as Generous Motors.

But now even G.M., struggling to maintain its grip in the global auto industry, is being forced to bow to a changing competitive landscape and join the ranks of hundreds of other companies that are moving to unburden themselves of as much of the cost of supporting their retired work force as they can.

For those who were counting on G.M. to care for them for life, the company's recent moves to pare back, in different ways, the pension and health benefits of union and nonunion retirees amount to a breach of a promise that was at the core of the nation's labor relations for much of the post-World War II era: workers would give their productive years to the company; the company would care for workers when they got old.

"The thing that annoys me about G.M. is that when I retired I had a letter that said I would receive health care for life at no cost," said Chester Clum, 79, a former sales and service manager at G.M. who retired in 1981 after 38 years of service. "They never brought up that they could change that at will."

But, in fact, the change has been long in coming. While there are exceptions in industries less subject to intense competition, G.M. is like many other once impregnable American corporate titans in arguing that reducing the burden of caring for retirees has become essential to compete against foreign companies with lower benefit costs and domestic rivals with younger work forces and less generous benefit packages.

With retirees living longer and accounting rules forcing companies to more honestly reflect their full costs on their books, the corporate-sponsored social contract is no longer sustainable. Something else, experts say, needs to replace it.

"It was easy to offer these things 40 years ago because they were cheap," said Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute, a nonpartisan group in Washington. "They're not cheap anymore."

Moreover, Mr. Fronstin said, "employers have cut benefits not just because of the cost of these benefits, but because of the competition. How do you stay competitive when your competitors are not offering these benefits?"

Companies have also noticed that, in many cases, offering a secure retirement package is no longer essential to attract formidable younger talent. I.B.M. found this out after closing its pension plan to new hires in December 2004. It hired about 7,500 employees last year, and observed that none of them seemed perturbed to be getting a rich 401(k) plan instead of the pension plan that was closed to them.

Last month, I.B.M. froze the pension plan, saying that employees would only get the benefits they had earned up until the freeze. In the future, everybody will earn retirement benefits in the 401(k) plan.

In many ways, G.M. is late to this transformation. G.M. said this week it would cap contributions to its health care plan for its nonunion retirees at this year's level and it would also pare their pension benefits. Nonunion employees hired after Jan. 1, 1993, are not eligible for any retirement health benefits at all. The automaker also closed its pension plan to new nonunion workers as of Jan. 1, 2001.

The union, meanwhile, agreed for the first time last November that retirees would start paying for part of their health care coverage.

Many of America's large companies took similar steps in recent years, closing their guaranteed pension plans and post-retirement health plans to new employees. Instead, they have offered fixed contributions to individual retirement accounts and health care packages limited to active workers.

If a private company still offers old-style benefits to its retirees, chances are it has union contracts or other legal obligations that forbid a wholesale unwinding of established benefit packages. Unionized companies are about twice as likely to offer retiree health benefits as nonunion shops, according to a survey by the Kaiser Family Foundation.

By last year, the Kaiser survey found, only a third of companies with 200 workers or more offered any health care benefits to their retirees, down from 66 percent in 1988. Small companies, which employ about half of the work force, never offered very generous retirement benefits.

The companies that still offer health insurance for their retirees have been trimming the plans in many ways. A survey of large companies by Kaiser and Hewitt Associates, a consulting firm, found that while only 12 percent of large employers ended all retiree health benefits last year, 71 percent required higher premium contributions from retirees, 34 percent increased co-payments or co-insurance and 24 percent increased deductibles.

Companies have been moving away from traditional, defined-benefit pension plans since the late 1980's, when Congress imposed a steep excise tax on corporate withdrawals from pension funds. The new penalty prompted consulting firms to start promoting new plan designs that reduced pension obligations, often by eliminating the rich benefits that older workers could earn under the earlier designs.

Companies that had never had pension plans in the first place, meanwhile, steered clear of them altogether, opting instead to create 401(k) plans, which are generally cheaper and easier to administer.

The only employer of any appreciable size known to have created a traditional pension plan in the last few years is the United Methodist Church, which, as a church, is exempt from the pension funding rules.

The exceptions to this steady erosion are in the public sector, where traditional retirement benefits abound, and in a few isolated industries that still have particular reasons for offering such benefits. Large pharmaceutical companies, for example, which still have greater control over their markets because of patent protection, say they continue to be committed to traditional benefits packages, while also providing 401(k) plans.

"The feeling here is the traditional pension offers certainty for our employees in their retirement," said Patty Seif, a spokeswoman for GlaxoSmithKline.

Ms. Seif said Glaxo also offers retirees the same health coverage that active workers get, as long as they have had at least 10 years with the company. Ms. Seif said Glaxo wanted to offer solid health benefits to retirees because it was in the health care business itself.

Given all the flux in today's corporate environment, many workers — especially younger ones — are rolling with the punches. According to a survey in 2004 by the Employee Benefit Research Institute, only 5 percent of workers consider retiree health care to be their most important benefit, and only 4 percent put a defined-benefit pension at the top of the list. And 9 percent put either of these benefits in second place.

And even those most immediately affected appear resigned to their fate. Gordon Goecke, 83, who worked at G.M. for 35 years before retiring, is currently undergoing treatment for prostate cancer, paying a $30 co-pay every time he sees a doctor, which he said is about once a month, and a $10 co-pay for each prescription.

"As we go on through the years ahead we're probably going to foot half or two-thirds of the bill," Mr. Goecke said. "Times change, and you've got to ride with them. G.M. is not the only company that's got financial problems."

Jeremy W. Peters contributed reporting from Detroit for this article.

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Kmart Settlement Proposal Advances
By David Ashenfelter – Staff Writer – Detroit Free Press
February 9, 2006

A federal judge in Detroit gave preliminary approval Wednesday to a proposed $11.75-million settlement of a class action that accuses former Kmart bosses with breaching their fiduciary duty by investing the company's 401(k) plans in now-worthless Kmart stock.

U.S. District Judge Avern Cohn ruled after court-appointed fiduciary Theodore St. Antoine, a University of Michigan law professor, concluded that it's fair, adequate and reasonable given the prospects of waging and winning a complicated legal battle.

Court papers say 401(k) participants who held stock in the plans will recoup 20% to 40% of their losses, estimated at $26 million to $55 million.

The documents say 71,000 people held Kmart stock in the plans from March 15, 1999, through May 6, 2003, the day Kmart emerged from bankruptcy protection as a new company, Kmart Holdings Corp., and the old stock was canceled. Kmart filed for bankruptcy protection in January 2002. In May 2005, Kmart merged with Sears, Roebuck and Co.

Plaintiffs lawyers said the average settlement will be $162 per plan participant. The most anyone would receive is $37,000 based on the number of shares they held, lawyers said.

The plaintiffs' lawyers have requested 10% of the settlement -- $1.17 million -- for attorney fees, plus up to $250,000 for settlement fees and costs.

Cohn scheduled a fairness hearing for 10 a.m. May 22 to decide whether to finalize the settlement.

Between now and then, plaintiff lawyers Glen Connor of Birmingham, Ala., and Mary Ellen Gurewitz of Detroit are to notify class members about the tentative settlement by U.S. mail and newspaper ads. Partipants should receive letters by early April, Gurewitz said Wednesday.

She said objecting class members must file written objections with Cohn at least seven days before the May 22 settlement hearing.

Connor filed the lawsuit in March 2002 on behalf of Quincie Rankin, an Alabama Kmart retiree. She alleged that former Kmart CEO Charles Conaway and other former officers and directors breached their fiduciary duty by investing the plans in Kmart stock and misled retirement plan participants about the company's dire financial condition and business prospects in the months leading up to its historic bankruptcy filing.

Connor and Gurewitz said the settlement is the best deal they could negotiate, given the former Kmart's available resources.

The $11.75-million settlement is to be paid from a $25-million insurance policy for Kmart's former officers and board members.

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Wal-Mart to Open About 1,500 New Stores
By Marcus Kabel - AP Business Writer – Chicago Tribune Online
February 8, 2006

Wal-Mart Stores Inc. plans to open more than 1,500 stores in the United States in the coming years, on top of nearly 3,200 it already operates, the world's largest retailer said Tuesday.

John Menzer, the company's vice chairman and head of its domestic Wal-Mart stores division, said Wal-Mart was on schedule to meet an announced target of between 335 and 370 new U.S. store openings this year after 341 last year.

That number includes Wal-Mart discount stores, Supercenters that also have a full grocery section, smaller Neighborhood Markets and Sam's Club membership warehouses. Supercenters are the largest single group with 1,980 locations in the U.S. and the focus of future growth plans.

Menzer did not specify a timeline for the new stores. He also did not refer to zoning and permit fights that have erupted in some places where Wal-Mart wants to expand, including big markets such as California where the company has fewer locations than in its traditional bases in the South and Midwest.

"We are really focused on opening new stores right now. We see so many opportunities to open new stores that that's where our capital is going first," Menzer said during a Web cast from a financial conference hosted by Citigroup in Miami.

Wal-Mart opened 69 new stores and Sam's Clubs in January, a company record for one month, it announced last week.

Menzer said 1,800 of its existing Supercenters would be remodeled over the next 18 months to make them more inviting, adding touches such as faux wood floors, wider aisles and digital television display walls.

The remodeling program, which Menzer said would not require a large capital outlay, is part of a broader strategy to interest consumers who are already in the store for basics to buy more fashions, electronics, home furnishings and fancier foods.

Wal-Mart began working on the remodeling program last year, and formally unveiled it in October at its annual meeting with analysts.

As part of its growth plans, Wal-Mart also is experimenting with new formats for Supercenters to fit the big box structures into tighter urban neighborhoods. New styles will include multilevel stores and underground or above-store parking rather than a huge lot out front.

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GM's Decision to Cut Pensions Accelerates Broad Corporate Shift
Benefits Curb Follows Path of Other Companies on Worker Guarantees
The End of Retirement?

By David Wessel, Ellen E. Schultz and Laurie McGinley – Staff Reporters
The Wall Street Journal
February 8, 2006

General Motors Corp.'s move to dilute salaried workers' pensions and make them shoulder more medical bills in retirement is a milestone in the erosion of a deal big American companies struck in the prosperous years following World War II: They promised to provide loyal employees with a comfortable retirement free of worry about running out of savings due to old age or ill health.

"Our employer-based social-welfare system is collapsing," says Alicia Munnell, director of Boston College's Center for Retirement Research. "GM itself is not a big deal. It's GM on top of Verizon and IBM" -- which both recently froze some of their pension plans -- "and then there's everything that's happening in weak companies like airlines."

GM, which previously had stopped offering retiree health coverage to salaried workers hired after Jan. 1, 1993, said it would cap health-care spending for all other salaried retirees and their families at 2006 levels, forcing them to shoulder all future increases in health costs. The company said the move will save it $900 million a year, before taxes. It follows an agreement last year with the United Auto Workers to pare union workers' health benefits.

Although it offered few details, the auto maker also said it would "substantially alter pension benefits" for salaried workers to "reduce the financial risks to GM." It said the moves would include freezing benefits in its defined-benefit pension plan -- a type of plan that promises a monthly check based on years of service and wages -- and introducing one in which more of the financial risks are borne by workers. The company is likely to press the UAW to move its pension plans in the same direction, predicted Fitch Ratings, a credit-rating provider.

GM is hardly alone, and the trend isn't limited to financially weak companies. This week, the North American arm of Japanese auto maker Nissan Motor Co., which currently has only 500 retirees but expects to have 3,500 within a decade, said it would limit its share of retiree health costs to $2,500 a year, plus a 3% annual allowance for inflation.

International Business Machines Corp. last month told 117,000 workers in U.S. defined-benefit pension plans that they will stop earning additional benefits after 2007, saving the Armonk, N.Y., company more than $2.5 billion over five years. And in December, Verizon Communications Inc., New York, announced it was freezing the pensions of 50,500 managers, saving $3 billion in the coming decade. Workers at both companies still will get pensions at retirement but won't accrue benefits with additional years on the job. Circuit City Stores Inc. and Sears Holdings Corp. have done the same.

A larger number of companies are closing pension plans to new hires or to younger workers, including Motorola Inc., Lockheed Martin Corp., Hewlett-Packard Co., Aon Corp. and NCR Corp. Many have, at the same time, expanded defined-contribution retirement plans, such as 401(k) plans. In such plans, employees themselves contribute to retirement investment pools -- often supplemented by employer contributions -- and elect how to invest these savings. Employees, not employers, bear the risk of inflation, sour markets or outliving their savings. Total assets in private-sector defined-contribution plans first exceeded those of defined-benefit plans in 1997.

Then there are other companies that have turned to bankruptcy court in industries such as steel, auto parts, airlines and others. Many of them essentially have walked away from their retirement plans, turning over obligations to pay pensions -- often less than promised -- to the government's Pension Benefit Guaranty Corp., which has warned that its resources are billions of dollars short of its future obligations.

The changes are particularly wrenching for midcareer workers, who don't have enough time left in their working lives to save for retirements that now look very different than the ones many had imagined.

Overall, the portion of the U.S. work force without any job-based retirement plan is growing. At last tally, 42.4% of private-sector workers age 21 or older lacked any retirement plan at work, up from 38.5% in 1999, according to the Employee Benefit Research Institute, a Washington think tank.

About two-thirds of companies in the Standard & Poor's 500-stock index and 55% of companies employing more than 5,000 people still offer retiree health benefits. Smaller companies are much less likely to do so. Among all companies with more than 200 employees, about one-third offer retiree health benefits, according to surveys from the Kaiser Family Foundation and others. That is down from 40% in 1999 and 66% in 1988, a change exacerbated by a 1990 Financial Accounting Standards Board rule that forced companies to record the cost of unfunded retiree health liabilities on their books. Of the 300 largest companies surveyed by Kaiser, almost two-thirds have put caps on contributions to retiree health plans.

Powerful Forces

All these actions spell the end of retirement as generations have known it. Behind them is a confluence of powerful forces. When they were very profitable, companies with stable, often unionized, work forces promised pensions. When markets turned, it became clear that some hadn't set aside enough money to fulfill those promises. With profits squeezed by competition from home and abroad, or by changing technology, even companies with well-funded pension plans now are looking for ways to cut costs. Cutting benefits is often slightly more palatable than cutting wages. "It's driven by economics, not ideology," Ms. Munnell says. "GM needs the money. Employers want to get out of the business of providing fringe benefits."

Promises to cover retiree health costs not covered by Medicare were made when health care was much less expensive and less effective at prolonging the lifespans of older people.

"Most of the companies we compete with...have a different benefits structure. A significantly greater portion of their retirement [cost] is funded by a national system," GM Chairman Rick Wagoner said at a news conference yesterday. GM's pension and health-care safety net was designed "in the '50s," he said, when GM dominated the U.S. and world auto industries. "We're now subject to global competition," Mr. Wagoner said. "We're running against people who do not have these costs, because they are funded by the government."

There is some truth in that. Employer pension plans are far less significant in continental Europe, and health-care costs are lower in nearly every other country. "The most often-cited example: some of the car makers have shifted to Canada -- just a few miles away from Detroit -- because they benefit from the lower health-care costs that Canada provides," says Dalmer Hoskins, former general secretary of the International Social Security Association and now managing director for policy at AARP, the senior citizens' lobby in Washington.

Health-care systems in some countries, such as the United Kingdom and Canada, are financed through general tax revenue. In Germany and several other European countries, all employers and employees pay for health care through a payroll tax. The per-person health-care tab is smaller, and the systems provide universal coverage. "Retirees aren't singled out as a separate category," Mr. Hoskins says. "They are part of the pool of workers. That provides certain advantages, because you can spread the cost between the active and inactive, and the sick and the healthy. You are spreading the risk so it doesn't fall so heavily on any one employer."

Significant Shift

The cost-cutting pressures at big companies come as, in many spheres of economic life, Americans are embracing or are being forced to embrace what President Bush calls, approvingly, an "ownership society." The basic notion is that the economy functions best when individuals assume more financial responsibility -- and risks -- now shouldered by government or employers. In exchange, they get both real and intangible benefits: owning their own homes rather than renting; controlling their own retirement accounts instead of relying on sometimes-hollow employer promises; and shopping for the health-care or mutual-fund investments that they want, rather than those chosen by employers or government.

It is a significant shift away from a system in which risks -- of illness or other bad fortune -- were pooled and shared among the entire population. The American tradition of employer-provided health care dates largely to wage and price controls of World War II, which encouraged companies that couldn't offer raises to offer insurance instead. But that system left many Americans without health insurance. When these uninsured are unable to pay for care, the cost passes to the government and sometimes to the health-care providers who care for them, who recoup their losses by charging higher prices. Today, nearly one-third of Americans get their insurance from government programs such as Medicare and Medicaid. Even among those with jobs, nearly one in five doesn't get job-based health insurance.

Employer coverage is particularly important for early retirees not yet eligible for Medicare -- about 3.5 million in all, according to the Urban Institute and the Kaiser Foundation. According to a 2002 Medicare survey, about 14.7 million Medicare beneficiaries also had employer-sponsored coverage, including 2.1 million who were still working. Those people generally rely on Medicare for basic coverage, and employer-subsidized Medigap insurance to pick up some costs Medicare doesn't.

The Medicare prescription-drug benefit is an exception to this rule. To discourage companies from abandoning prescription-drug coverage, it offers subsidies to employers to continue to pick up the tab. A survey of 300 large employers by Hewitt Associates and Kaiser found that nearly 80% said they plan to continue to offer existing drug coverage for now, though a significant minority said it was likely they would drop coverage by the end of the decade.

Employer pensions in the U.S. began in the early 20th century with the railroads, and then spread to other big employers, according to economist Steven Sass. The plans became firmly established after World War II as part of a postwar effort to establish labor peace with unions.

Railroads were the first industry to renege on the promises. The government took over their pensions in 1934. Forty years later, Congress created the Pension Benefit Guaranty Corp. to insure defined-benefit pension plans, after a long campaign spurred by the 1963 closing of Studebaker-Packard Corp., which left 4,000 auto workers without pensions. The wrenching recession of the 1980s, coupled with the woes of the steel industry, exposed weaknesses in pension funding. That led to new laws to force companies to set aside more money.

The strong stock market of the 1990s pumped up the assets of corporate pension plans, easing concerns. But the bursting of the bubble shrank those portfolios.

Contentious Legislation

Congress currently is contemplating contentious legislation to force some companies, particularly financially weak ones, to put more money aside for defined-benefit pensions and to pay more to support the PBGC. The House and Senate are expected to reconcile competing versions of the legislation in the next couple of months. The auto industries' woes are likely to make key congressional negotiators, and the Bush administration, more open to arguments made by GM and the UAW. GM, for instance, objects to a provision that would require companies with junk-bond status to put more into pension plans.

In Detroit, William Smith, who retired as an engineering-center supervisor 13 years ago, said he understands that GM needs to save money. "I don't want to see them going into bankruptcy, so I'd rather pay a little bit more now and see them keep going," he says. Mr. Smith currently pays about $50 a month for a Medigap policy that supplements his Medicare, twice what he paid a year ago.

That will rise under the new GM policy. "The immediate impact might not be an awful lot, but if you keep going incrementally, it'll keep going up and up and up," Mr. Smith says. And while top GM officials are taking pay cuts, Mr. Smith says, they'll make up the difference should the company's fortunes improve. By contrast, Mr. Smith says, "whatever we lose is lost forever.

--Theo Francis contributed to this article.


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Few Uninsured Workers Opt For Employers' New Health Plans
By Vanesssa Fuhrmans – Staff Reporter – The Wall Street Journal
February 8, 2006

A bold initiative to bring health-care coverage to more than a million uninsured working Americans has gotten off to a rocky start.

A year ago, a coalition of 60 of the country's largest employers -- including General Electric Co., Avon Products Inc., International Business Machines Corp. and Sears Holdings Corp. -- announced a novel plan to sell affordable health-care coverage to as many as three million of their part-time, temporary and contract workers who weren't eligible for the companies' existing health insurance plans.

By pooling a large, diverse group of participants, the companies said, they'd be able to offer coverage at premiums lower than what workers could buy on their own.

But last month, when the National Health Access program went into effect, only 10 of the 60 employers were on board for the initial round. And just a fraction of possible participants -- 5,726 employees, with their dependents -- had signed up, 4,000 of them from one company alone.

The small numbers reflect the coalition's struggle to create a workable program, as it learns more about the pool of employees it has targeted and how to market and explain the products it is offering. These efforts underscore the challenges in selling commercial insurance products to the uninsured.

At the same time, the products the coalition offered apparently aren't attractive to many workers. The plans range from access to discounted prices for doctors to major medical insurance with high deductibles. Many options are essentially bundled health-care services rather than insurance. Those products are inexpensive -- only $5 for discounted prices on doctor office visits, or $59 a month for a bundle of health-care services. But, so far, they don't seem to entice employees who may be living on very tight budgets or who may be young and relatively healthy.

The companies also offered some major medical plans, but those plans aren't available to employees unless they have signed up for another, less extensive plan for a year, and the premiums range from $70 to roughly $390 a month.

Some of the companies involved say they may need to re-evaluate their products. But some also did little to market the plans beyond sending out a few mailings and leaving it to employees to take action. Given the workers' unfamiliarity with health insurance, more detailed communication would have been better, some companies say.

The coalition's project is "a noble pursuit, but it may be overly optimistic," says Paul Ginsburg, president of the Center for Studying Health System Change, a nonprofit health-policy research group based in Washington, D.C., that is not involved in the project.

"As everyone learns over and over, tackling the uninsured is really complicated,'' says Robert Galvin, director of global health care at General Electric. He says the coalition will continue to weigh how to make the plans more appealing. "Either what we were selling is not what people wanted to buy,'' he says. Or, given these employees' immediate living expenses, "people continue to see buying health insurance as something that's optional.''

Six more companies plan to join the group this summer in another enrollment period.

National Health Access is the brainchild of the HR Policy Association, a public-policy group of senior human resource officials at major companies. In recent years, as companies have outsourced more work to contractors and part-time workers, and tightened the eligibility for traditional health benefits, they've seen these workers comprise an increasing share of America's 45 million uninsured.

Many employers say that they ultimately pay for treating the uninsured, because hospitals and other medical providers pass on the costs. So the companies have looked for ways to offer benefits without necessarily paying for them directly.

Initially, the coalition envisioned a much larger market of employees who would be eligible for National Health Access. It's not clear why more of the initial 60 companies haven't already signed on. The coalition says that some companies are still waiting to see how the program progresses. Some of the companies are retailers, with large seasonal turnover, who don't like to start health plans in January. Others don't have large numbers of eligible workers and are simply endorsing the program.

The 10 companies now participating had an initial pool of 909,000 eligible employees. But they discovered that 85% of those workers had coverage elsewhere, often through a spouse. That left a pool of about 133,000 employees with no insurance.

One novel element of the initiative is that UnitedHealth Group Inc., the main health insurer selling the plans, isn't taking enrollees' medical histories into account in charging premiums for the major medical plans. Humana Inc., which will offer the major medical plans in 13 states, and Cigna Corp., which will offer them in Arizona, are taking individual medical histories into account, but not as rigorously as is typical in the individual insurance market.

One reason the coalition saw low enrollment rates, it believes, is that buying health insurance is a complicated decision. "You're talking about trying to get a large number of people who haven't had insurance in a long time to understand these plans. For many, it's overwhelming," says Michele Schneider, employee-benefits director for Avon.

Representatives of the employer coalition and UnitedHealth say they're convinced they've designed coverage options that are affordable and attractive to uninsured employees. Of those who signed up, more than 80% opted for one of the limited-benefit plans in the middle-price range.

"We didn't see people just buying the discount card," says Tom Beauregard, president of health-access solutions at UnitedHealth. "The vast majority want and are buying insurance."

The group of 5,726 employees -- with roughly 3,000 dependents -- who signed up includes 4,000 Avon representatives. The rest are from GE, IBM, Sears, and six other companies. The coalition also saw a high rate of participation among men between the ages of 55 and 64. The coalition can't yet say how the risk pool in this group is balanced. If a broad mix isn't achieved, however, the insurer ultimately may have to raise prices.

The coalition is also looking at how best to reach the likeliest participants. It may survey the eligible employees to figure out how to tailor the communications.

The coalition found that companies where supervisors discussed the program with workers or contractors had much higher sign-up rates than those that simply sent mailings to workers and offered toll free numbers. For example, Avon district managers raised the subject with sales representatives, one probable reason why it got a higher response rate.

"We think we got pretty good enrollment rates in those who came and wanted to know about the products," says Steve Coppock, senior health actuary at Hewitt Associates, the employee-benefits firm that is helping administer the program. "We just have to figure out better ways to reach our audience."

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Can Wal-Mart Sustain a Softer Edge?
By Alan Murray – Business – The Wall Street Journal
February 8, 2006

You have to wonder what the late Sam Walton would have thought if he had seen this recent headline: "Wal-Mart vows to sell only sustainable fish."

Sustainable fish? Get real. Whole Foods, the upscale retailer, sells "sustainable fish." Wal-Mart, the cost-chopping company Sam Walton created a half-century ago, sells cheap fish. How else can they offer salmon for less than $5 a pound?

But after spending some time with Wal-Mart Chief Executive Lee Scott on Monday, I came away convinced there's more going on here than just public relations. Mr. Scott drives a Lexus hybrid, he touts products that reduce greenhouse gases, and he really believes in sustainable fish. The company has decided that the fresh fish it sells in North America -- excluding farmed fish -- will carry certification labels from the nonprofit Marine Stewardship Council, a conservation group that works to prevent the seas from being overfished.

"I like the term 'sustainable,' " he says.

It is easy to depict Mr. Scott as just another CEO saddled with a bad public-relations problem. His company has been accused of paying poverty-level wages, providing inadequate health-care coverage to employees, hiring illegal immigrants, destroying communities, driving jobs overseas, and, in a new book by Charles Fishman called "The Wal-Mart Effect," even polluting Chilean waters by buying salmon from crowded South American fish farms.

Wal-Mart has become one of the great polarizing issues that divides American politics. Democratic Sen. Hillary Clinton of New York, who spent eight years on the board of the giant retailer, recently returned a $5,000 contribution from Wal-Mart's political-action committee "because of serious differences with current company practices."

In response, Mr. Scott has had to become not just chief executive officer, but chief reputation officer. He spends at least half of his time, by his estimate, in a campaign to convince the world that Wal-Mart is a force for good. He has a rapid-response team, and he monitors polls, conducting periodic surveys of "thought leaders" about Wal-Mart's reputation.

Mr. Scott's basic "goodness" story is simple enough: Wal-Mart has improved people's lives by lowering their cost of living and by providing them jobs. Every time a store opens, long lines of wannabe employees form outside -- a graphic rebuttal to those who argue the company creates "bad" jobs.

But he doesn't stop there. He has revised the company's health-care program, implemented incentives for diversity hiring and put in place programs designed to soften Wal-Mart's impact on the environment. He also has taken on issues that extend far beyond the boundaries of his stores, calling on Congress to raise the minimum wage and intervening to help the victims of Hurricane Katrina.

The problem created by all of this, of course, is one of focus. As Wal-Mart tries to be all things to all people, how well can it continue to do the one thing that made it great? The legendary Mr. Walton is famous for having instilled his company with "discipline" and "single-mindedness." On Mr. Walton's mental dashboard there was one meter -- costs -- and it moved in one direction -- down. Talk to Mr. Scott, and you get the feeling his dashboard is more complicated than that of a 747. If he is going to take on responsibility for ensuring the seas aren't overfished, what won't he take on?

Mr. Scott admits that his broad-gauged campaign does involve occasional trade-offs. "Will there be times that these decisions will raise costs? I think that is entirely possible, and maybe likely." But, he insists, "there are fewer compromises than we thought."

Mr. Scott points to a plastic bottle on his desk of Small and Mighty All, a concentrated version of Unilever's top-selling liquid laundry detergent. By taking the water out, Unilever has halved packaging and transportation costs. The challenge is to get shoppers, who tend to think bigger is better, to buy it.

So Mr. Scott has made it his VPI -- for "volume producing item" -- which provides an incentive to store managers to give the product prominent display and promote its sale. If past VPI experience is any guide, Wal-Mart can use its retailing clout to turn Small and Mighty All into a best seller, cutting costs and helping the environment at the same time.

And what would Sam Walton think of his successor's far-reaching campaign? "He wouldn't want any part of it," said Mr. Scott. But upon reflection, he added: "Sam would change anything in a heartbeat. He was not locked into the past. He would understand that it's a different world."

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Hudson's Bay Sells Credit Card; Owner-To-Be Approves
By Andy Georgiades – Dow Jones Newswires
February 7, 2006

TORONTO -- Following in the footsteps of other retailers that have parted with their credit cards in the last couple of years, Hudson's Bay Co. (HBC.T) has sold its financial services division to General Electric Co.'s (GE) GE Money unit.

As reported, Canada's oldest corporation, which recently accepted a C$15.25-a-share takeover offer from South Carolina businessman and largest shareholder Jerry Zucker, expects proceeds of C$370 million net of receivables, related costs, and taxes, including a C$50 million break-up fee it must pay, reportedly to Royal Bank of Canada (RY), for a credit-card co-branding agreement it had with the department-store operator.

Hudson's Bay, better known as HBC, initiated the credit-card sale process in October, before it received a C$14.75-a-share takeover bid by Zucker that initiated an auction process for the Canadian retailing icon. Zucker won the contest after sweetening his offer.

The credit-card sale includes a 10-year alliance in which GE Money will provide credit marketing and analytic support, credit servicing and customer care for Hudson's Bay's 3.1 million cardholders. In return, Hudson's Bay says it will realize "financial benefits similar to the historic earnings levels" of its credit-card business through performance payments from GE. Those payments will be based on the level of credit sales, new account acquisitions and new product introductions.

An HBC spokeswoman said the credit card is a valuable asset, and the new owner recognizes that it needs HBC's assistance to keep it performing at its "full potential," hence the performance payments.

Analysts have often criticized HBC for making most of its money from its credit card and little, if anything, from its core retailing business.

In a research note, Scotia Capital analyst Ryan Balgopal said the premium the company received over the face value of its receivables came in slightly lower than the 20% he expected. However, the company's annual EBIT of C$155-C$160 million from the business will remain about the same, which is better than the 75% earnings retention level he had forecast.

Balgopal doesn't own Hudson's Bay stock; his firm doesn't have an investment-banking relationship with the company.

This sale follows several recent similar transactions. Sears Canada Inc. (SCC.T) sold its credit-card business to JPMorgan Chase & Co. (JPM) earlier this year. In 2003, Sears Roebuck, which has since merged with Kmart to create Sears Holdings Corp. (SHLD), sold its credit card to Citigroup Inc. (C), which has also bought the credit card of Federated Department Stores Inc. (FD). Neiman Marcus Group Inc. (NMGA), Dillard Inc. (DDS) and Circuit City Stores Inc. (CC) have all sold their credit cards to financial institutions as well.

Although Zucker, HBC's largest shareholder and soon-to-be owner, was lukewarm to selling the credit card at first, his spokesman said the transaction has Zucker's blessing.

"We were aware of the process, we had become supportive of the process, and we're satisfied with the results," Robert Johnston told Dow Jones, adding that Zucker was in contact with HBC management during the process but not directly involved in the negotiations.

While there were concerns at the outset about letting the credit card go, he said the end result is positive, as it provides the company with a substantial and "immediate" financial return and a "sizable" revenue stream in the future.

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Hudson's Bay sells financial arm for $370M
By Rita Trichur – Canadian Press
February 7, 2006

Hudson's Bay Co., Canada's oldest company, has struck a deal to sell its lucrative private-label credit card and related financial services business to GE Money for net proceeds of about $370 million.

GE Money — the Canadian consumer lending unit of General Electric Co. — will make that upfront payment but is also forging a 10-year marketing alliance with HBC that enables the retailer to collect annual performance payments "similar" to the division's historic earnings levels.

The segment generated about $162 million in normalized earnings before interest and tax in 2004.

"This is a premium over the book value of this asset. And not only are we getting this upfront cash payment, we're also going to see significant ongoing cash payments," HBC spokeswoman Hillary Stauth said Tuesday.

"During those 10 years, we're responsible for getting customers to use their credit cards when they make a purchase, signing up new credit-card accounts, (and) introducing new products."

HBC's financial-services division manages one of the largest private-label retail card portfolios in Canada with $1.1 billion in card receivables at the of end 2005, representing approximately 3.1 million active accounts.

The sale comes less than a month after HBC's board of directors unanimously endorsed a sweetened takeover offer from its largest shareholder, American industrialist Jerry Zucker, that values the storied retailer at $1.5 billion including debt.

His spokesman, Robert Johnston, said no decision has been made on how the Toronto-based retailer will use the initial proceeds.

The sale, which remains subject to regulatory approval, is scheduled to close during the second quarter of 2006. That's after Zucker's $15.25-per-share takeover offer expires Feb. 24.

Founded in 1670, HBC has been under pressure to revitalize its retail operations, which include more than 500 outlets across Canada, led by the Bay and Zellers chains.

The Toronto-based retailer first announced it was mulling the segment's sale last fall, and at that time, analysts estimated it would fetch about $600 million. HBC, however, is not disclosing the sale's gross proceeds.

The upfront payment of $370 million is net of all costs, including a $50-million break fee paid to HBC's co-branding bank which is reportedly Royal Bank of Canada.

The deal also includes the transfer of about 650 employees directly involved in HBC's financial services business to GE Money. The employees will continue to work at their current locations in Montreal, Toronto and Vancouver.

After the GE deal, "HBC customers will be able to continue to use their HBC cards and will continue to enjoy access to the HBC rewards program and other cardholder benefits as they do today, as well as a broader range of financial products in the future," the company said.

HBC's deal has a similar structure to one inked by arch-rival Sears Canada when it sold its credit-card division to JPMorgan Chase & Co. for $2.2-billion last August.

Sears Canada also signed a 10-year marketing deal from which it expects to receive more than $100 million in annual performance payments.

With more than $163 billion in assets, GE Consumer Finance, a unit of General Electric, is a leading provider of credit services to consumers, retailers and auto dealers in 47 countries around the world.

HBC's stock gained six cents to trade at $15.07 on the Toronto Stock Exchange.

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J.C. Penney Parades Makeover With Media Blitz
Oscar Ads, 'Pop-Up' Store Aim to Convince Customers Its Fashions Are Updated
By Ellen Byron – Wall Street Journal
February 7, 2006

J.C. Penney is ready to strut its stuff.

Determined to persuade shoppers that it no longer deserves a frumpy image, the company is set to launch one of the biggest marketing campaigns in its 103-year history.

The media blitz begins March 2 with a red-carpet event unveiling a 15,000-square-foot temporary store in New York's Times Square that spotlights its newly updated apparel and home-furnishing brands. Days later, Penney will use the Academy Awards to debut a television advertising campaign. The TV spots will be available for Web replay on America Online and Yahoo, where users will be able to click and buy the merchandise shown in the ads. Penney has also purchased multipage ad spreads in the April issues of several major fashion magazines, including Vogue and Cosmopolitan.

Penney declined to discuss the cost of the campaign. The retailer spent $353.3 million on ad time and space in 2004, according to Nielsen Monitor-Plus.

The new push follows a five-year overhaul of Penney's operations that successfully lifted the Plano, Texas, company out of a sales slump. As part of the makeover, it focused on updating its fashion sense. Most recently, the retailer began introducing new designer lines, such as Nicole by Nicole Miller, and the sleek Studio by J.C. Penney Home Collection line -- both targeting consumers with modern tastes.

In stores open at least a year, Penney has posted average sales growth of 3% since the makeover started in 2000. But Penney executives believe there are still some shoppers who don't visit its stores because of an outdated view of what Penney stocks. With the new campaign, "we're trying to motivate new customers, and show that we're now more relevant," says Penney Chief Executive Myron "Mike" Ullman. "If you haven't been here in awhile, we want you to know that something's changed."

Penney's marketing push comes as many of its competitors are busy integrating recent acquisitions. Sears Holdings is incorporating Kmart operations, while Federated Department Stores is trying to fold in May Department Stores, bringing its merchandise more upscale and closing many stores. Penney hopes such distractions will allow it to snag additional market share. "We're not ignorant of the opportunity," Mr. Ullman says.

Penney may face a tough task. Changing consumers' long-held notions of a retail brand "can be done, but it is a big challenge," says Jonathan Asher, president of branding consultant Dragon Rouge USA. "The product lines have to be there, the store fixtures and furnishings all have to be in sync with what the message is -- if you fail to deliver that, it won't work."

A key feature of its new campaign is the Times Square temporary store, called a "pop-up." Such stores, designed to generate media attention and attract curious pedestrians to see a snazzy presentation of new products, are increasingly popular among marketers. Penney has erected "pop-up" stores before, but the Times Square outlet will be its largest yet. Penney hopes the prime real estate will guarantee visits from out-of-town tourists as well as New Yorkers. The nearby TV network studios should also help with media coverage, the company says.

In the store, shoppers will be able to browse three levels of museum-like showrooms that spotlight most of Penney's newly launched or updated private-label brands, including Stafford, Bisou Bisou and Arizona. Kiosks at each display will allow shoppers to order the merchandise they see from Penney's Web site.

"If we can get new customers in our store and on our Web site, they'll be surprised at what we have," says Penney's chief marketing officer Mike Boylson. "To do that you have to be very interruptive and rely on unconventional messages -- you have to take completely different tactics."

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Sears Holdings pressing on with Sears Canada bid
 Reuters - February 6, 2006

Sears Holdings Corp. (SHLD) said on Monday it was moving forward with its offer to buy the stake in Sears Canada Inc. (SCC) it does not already own for C$16.86 per share, though the stock was trading above that price.

Sears Holdings, parent of retailers Sears and Kmart and majority owner of Sears Canada, in December offered to buy the remaining 46.2 percent of Sears Canada's stock for C$835.4 million.

But the shares have traded above the offer price since then, suggesting that shareholders have expected a sweeter bid. The stock climbed even higher last week after Sears Canada reported a jump in fourth-quarter profit, closing at C$18.67 on Friday.

Sears Holdings said it was sticking to its offer price, however.

"While we are pleased to see improvement in their business, we believe that this is a fair price for the asset," Sears Holdings spokesman Chris Brathwaite said.

Sears Holdings, based in Hoffman Estates, Illinois, said it plans to mail a circular this week detailing its bid. It also said that it was prepared to buy any and all shares tendered, even if it didn't receive 100 percent of the stock. It said it was waiving the minimum share tender condition of the offer. The offer had been subject to receipt of a majority of the Sears Canada shares not already owned by Sears Holdings.

Sears Holdings reiterated that a major Sears Canada investor, Natcan Investment Management Inc., has agreed to tender its 9.06 percent stake.

"We are fully committed to moving forward with our offer at C$16.86 per share and purchasing any shares tendered at that price, including those owned by Natcan," Alan Lacy, vice chairman of Sears Holdings, said in a statement.

"While we would prefer to own 100 percent of Sears Canada, we are committed to increasing our ownership through this offer in any case," Lacy said.


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A New Side to Apparel at Sears
By David Moin – Women’s Wear Daily
February 6, 2006

NEW YORK - Sears Holdings Corp. is opening a design office here around mid-March as part of a drive to increase the margins and appeal of its private label apparel and accessories, lower costs and attract talent.

The Sears division specifically wants to bridge the gap between its hard and soft goods, and encourage cross-shopping. Some proprietary brands are being introduced, some are being dropped, and femininity and details are being injected into third- and fourth-quarter collections for the Apostrophe, Covington and Classic Elements in-house apparel brands, among others.

The Canyon River Blues name is returning this fall after being sold as CRB and losing some recognition. Toughskins, a former Sears brand, is being revived for kids aged two to seven by next holiday. Belongings, a Liz Claiborne-supplied brand, will be gone after the spring, as will Parallel, another in-house brand. Craftsman stain-resistant workwear for men was introduced last fall, and prototype Lands' End shops, some that house all categories together, are being tested in a handful of locations, including units in White Plains and Yonkers, N.Y.

The strategy is led by Lisa Schultz, executive vice president of Sears Holdings Apparel Design. She oversees all Sears and Kmart apparel design teams, which are being integrated at the new office at 75 Varick Street in SoHo. "I am interested in adding new brands," she said in an interview. "I would like to see more activewear, which could include Lands' End. As you know, Sears sells a lot of treadmills....And in dresses and special sizes, things are in the works.

"By the end of the year, you will see a different way of merchandising, a different way of flowing goods and less confusion" on the selling floors. "There will be longer periods in between changes so stores can execute more clearly and the shopping experience is easier."

She acknowledged there had been too much clutter on the selling floors, and that the company was "running lots of tests and experiments" with Lands' End and other programs. Last quarter, apparel sales dragged at Sears, but posted comp gains at Kmart, the sister division at Sears Holdings.

Even though the stores dropped Belongings, Schultz said there was still a "strong partnership with Liz Claiborne" through Claiborne's First Issue brand, sold exclusively at Sears, as well as with Jones Apparel Group, which supplies the Rena Rowan line to Sears. "We are focusing on those brands that have a history and are recognized by our customers."

Schultz reports to Edward S. Lampert, chairman of Sears Holdings, who is viewed with some skepticism in the apparel industry, and works with Aylwin Lewis, president and chief executive. Many think Lampert, the major shareholder, is primarily focused on selling assets rather than building the Sears-Kmart offerings and investing in fashion. He has lashed out at the critics, saying most pundits missed the turnarounds at Google and J.C. Penney, as well as the "resurrection of Kmart, until it was abundantly clear those companies succeeded."

Contending there really is a revival happening on the merchandise side at Sears, Schultz said she was building her design team to improve Sears' offerings, and holding a job fair today and Tuesday, 9 a.m. to 6 p.m., at the Varick Street office to attract designers, CAD operators, graphics personnel and others involved in apparel, accessories, shoes and intimate apparel for Sears Holdings. The new facility ultimately will have 45,000 square feet, and a team of 200, and will replace the 3,500-square-foot office used just by Kmart at 111 Eighth Avenue. That office had about half as many workers. There is also a team at Sears Holdings headquarters in Hoffman Estates, Ill., principally packaging and product managers, and technical design staff; the core apparel design team is here.

Until November, Schultz was senior vice president of design for Kmart, where she reengineered Kmart's proprietary fashion and home businesses, applying to the mass channel what she learned during 14 years at Gap Inc.

"The process we developed at Kmart is really working well and the company is really supporting it. That is what we are doing at Sears, as well. It's a team in formation," said Schultz.

Kmart apparel was refocused with products with better values and easier care, as well as an emphasis on key items, denim and programs for knits and fleece. The chain adopted a vertical approach to product development that was new for Kmart, though similar to the way Gap, Limited Brands and other specialty chains have been operating for years. This approach involves sourcing and designing in-house, bypassing the domestic market for production, much more direct importing and having merchants function as general managers rather than selecting goods - all to exert tighter control over designs, pricing and quality.

Sears Holdings is also said to be seeking a new chief merchant. Asked about that, Schultz replied, "We are looking for all levels of merchants."

Schultz sees the assortment building up "great basics and great classic clothing....Our customers love classic clothing and a little femininity. Everything should have a feminine twist, including a fleece sweatshirt with a little embroidery in Apostrophe. In a suit, it could be the way it fits. With a blouse, it's the way it drapes, and in a knit, it's the embellishment. I don't think it's been thought about so much before. We are creating a real point of view in each of our brands."

With Schultz heading and integrating the Sears and Kmart design initiatives in SoHo, there has been some speculation that the two chains might share private labels. For instance, Kmart has begun selling Sears' Craftsman and other hard goods.

"I wouldn't say I wouldn't ever do that, but it's not what I am working on," Schultz said. "You may see a couple of examples, but there is no need to confuse the customer. For the most part, we will keep our brands separate. The real synergies are behind the scenes, with fabrics and factories.

"By the third and fourth quarters of this year, you will see better definition between brands, more focused brands, more focused assortments," she added. "We will still have multibrands, but we are starting to cull them down."

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Sears Canada 4th-Qtr Net Soars on Sale of Credit Unit
February 2, 2006

Sears Canada Inc., the department- store chain that may be bought by Edward Lampert, said net income in the fourth quarter rose more than eightfold because the company sold a credit-card business.

Profit jumped to C$783 million ($686 million), or C$7.30 a share, from C$94.8 million, or 89 cents, a year earlier, Toronto- based Sears Canada said today in a Canada NewsWire release. Sales fell to C$1.91 billion from C$1.92 billion.

The company had a C$677 million gain in the quarter from the sale of the credit-card unit to JPMorgan Chase & Co. Lampert, chairman of parent company Sears Holdings Corp., is selling assets and cutting costs at the unit to help make up for sales lost to discounters such as Wal-Mart Stores Inc. Sales have fallen in four of the past five quarters.

Sears Canada will ``struggle to meaningfully grow sales in the face of the growing Wal-Mart juggernaut at one end and focused specialty retailers at the other,'' National Bank Financial analyst Jim Durran said in a Jan. 30 report.

The company's shares fell 8 cents to C$17.90 yesterday on the Toronto Stock Exchange. Sears Canada, the country's third- biggest department-store chain, is 54 percent owned by Hoffman Estates, Illinois-based Sears Holdings.

Excluding one-time gains and costs, Sears Canada's profit climbed 17 percent to C$102 million, or 95 cents a share, from C$87.3 million, or 82 cents, the company said. Profit was bolstered by lower staffing costs and an increase in appliance sales.

Durran said that, excluding some costs and gains, he was expecting Sears to report earnings of 86 cents a share. The average estimate of three analysts surveyed by Thomson Financial was 90 cents. Thomson has declined to say what the estimate comprises.

Sales at stores open at least a year rose 1.1 percent, compared with a 1.7 percent decline a year earlier. Sears Canada's so-called same-store sales have risen in just five quarters in the past four years. Some investors consider same- store sales an important measure of a retailer's performance because they show how fast revenue can grow without new stores.

The company announced plans to fire about 1,200 workers on Oct. 3, mostly in administrative positions, to reduce annual operating expenses. The company's costs of merchandise plus operating, administrative and selling expenses fell 1.2 percent to C$1.7 billion in the quarter.

Sears Canada shareholders are awaiting a report from the company's financial adviser, Genuity Capital Markets, on whether a takeover proposal from Sears Holdings is fair to minority shareholders. On Dec. 5, Sears Holdings announced plans for a possible bid of C$835 million, or C$16.86 a share, for the 46 percent of Sears Canada the parent doesn't already own.

Sears Canada shares have traded around C$18 each since Dec. 9, indicating investors expect Sears Holdings to sweeten the offer.

The company also paid C$18.64 a share to investors on Dec. 16 from the proceeds of the C$2.3 billion unit sale to JPMorgan.

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Analyst sees Sears Canada operation sliding
Cites U.S. parent's cost cutting, scant investment
and 'general disregard'
By Marina Strauss – Retailing Reporter – Globe and Mail, Toronto
February 1, 2006

Sears Canada Inc. faces a deteriorating operating performance over the next couple of years as its U.S. parent cuts costs, invests little in the retailer and holds "a general disregard for merchandising experience," a veteran analyst says.

And Sears Canada, which reports its fourth-quarter results tomorrow, likely suffered a 4-per-cent drop in sales at stores open a year or more in that period, says merchandising analyst Perry Caicco at CIBC World Markets.

The retailer, nevertheless, will be "saved" by its U.S. parent's $834.5-million bid to buy the minority stake in Sears Canada that it doesn't already hold, Mr. Caicco wrote in a report yesterday.

The recent attempt by majority owner Sears Holdings Corp. to take its Canadian unit private followed a move late last year to sell the Sears Canada credit card division for $2.3-billion. Most of the proceeds went to Sears Holdings, which is controlled by billionaire hedge fund manager Edward Lampert.

Mr. Caicco predicts that Sears Canada's independent board of directors committee will issue an opinion in the next few days that the Sears Holdings' $16.86-a-share offer is inadequate, and should be priced in the $19-to-$20 range.

Sears Holdings may have to sweeten its offer to complete the deal, a number of analysts have said. Still, "it is just as likely that Sears Holdings will hold the line, or only offer a modest increase," Mr. Caicco said. "Sears Holdings holds the hammer -- the formal offer has not been mailed."

The U.S. parent could threaten to withdraw its bid, but the value of Sears Canada could sink to $13 or $14, he said. Even so, Sears Holdings is not likely to increase its offer by more than 50 cents. "Hold-out shareholders will have to consider the grim alternatives."

There are no alternative bidders, and the spectre of Sears Canada being valued in the public markets on its operating performance presents tremendous leverage for Sears Holdings, he said. He downgraded his rating on Sears Canada to "sector underperformer" from "sector performer," and dropped his price target to $17 from $19.50. On the Toronto Stock Exchange, Sears Canada shares closed at $17.98.

Analysts have speculated that at some point, Sears Canada would be merged with Hudson's Bay Co., the country's other major department store retailer. Last week, U.S. financier Jerry Zucker agreed to acquire HBC for $1.1-billion. An official at his firm said yesterday that it has no plans to scoop up Sears Canada.

A Sears Canada spokesman said the independent board committee is still working on its valuation.

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Some will succeed, others will fall
Retail companies, with their mergers and bankruptcies, continue to evolve with their innovation and coordination.

By Marcia Windness Coward – Philadelphia Inquirer
February 1, 2006

Up, down. Come, go. The growing popularity of gift cards is just one of the trends that will shape retailing as we ride into 2006.

Businesses' identity crises spurred by mergers and bankruptcies could occupy an analyst's couch for years. The beloved Strawbridge's name will fade into department-store history since Federated Department Stores' buyout of the May Department Stores Co. Kmart and Sears have a bumpy marriage. Toys R Us sits in play-dough.

While Moorestonians wring their hands over the closing of their downtown "little Acme" scheduled for tomorrow, hearty competitors rise in real, cyber and catalog space. Wegmans, Costco, Target, Stein Mart, Lowe's, LL Bean, upscale boutiques and discounters are but a few. And Starbucks' plans are as robust as its coffee. Starbucks Entertainment will begin in-store promotions for a new Lions Gate film in addition to selling CDs and DVDs.

Meanwhile, customer loyalty drifts past Pluto. During the holidays, shoppers routinely head to Wal-Mart. But buy earmuffs - expect public outcry as the behemoth opens hundreds of new stores and Sam's Clubs worldwide while pursuing the ability to offer banking.

What a roller-coaster. Yet modern retailing is a marvel of innovation, coordination and transformation that mirrors our social, economic and political history. Retailers once commanded near-veneration for taking financial risks, meeting and creating needs and wishes, and mastering transportation, manufacturing and communication networks.

And talk of celebrity! Cherry Hill Mall developer Willard Rouse became a legend. So did Sam Walton, Marshall Field, Justus Clayton Strawbridge, Isaac Hallowell Clothier, and John Wanamaker. Home Depot cofounder Bernie Marcus gained recognition recently for the whale of an aquarium his $200 million built in Georgia. Heirs to the Wal-Mart fortune consistently find themselves listed among the wealthiest people in America.

Still, my father, Clair Windness, might call retailers' reputations as marked down as skis in June. Dad, who died in 1999 at age 96, thrived during the heyday of Montgomery Ward, itself watered by employee sweat and tears. Dad rose from assistant store manager to assistant to the president. In the '60s, he and a technical staff created computerized programs for operating hypothetical stores, with which Dad trained managers nationwide.

Successes and stresses accompanied his climb. My mother resented her outsider status as we moved frequently. My brother refused to move as a high school senior. Yet we explored worlds of mountains, plains, mark-ups and mark-downs.

What a contrast to Grandpa Windness' general store in North Dakota in the late 1800s. There, candies mixed with hats, hammers and horse whips. Your options were to buy from Alf Windness, travel elsewhere, make it, or order from the Montgomery Ward or the Sears, Roebuck & Co. catalogs.

Dad began his career with Butler Bros. in Chicago, where he worked for Harold Post and married Post's daughter, my mother. Founded in 1877, Butler Bros. sold wholesale to merchants, generally through catalogs. When the company developed the idea of a "5-cent counter" with low-priced bargains near the store's front, a flurry of dime stores followed: F.W. Woolworth, S.S. Kresge Co., and S.H. Kress & Co. McCrory's. Ben Franklin Stores, and Kmart came later. Woolworth's and McCrory's folded in the 1990s. Most Ben Franklin stores eventually became craft stores; Sam Walton honed his merchandising skills by owning a Ben Franklin variety store before founding Wal-Mart.

Marshall Field's in Chicago and John Wanamaker's of Philadelphia were among the first department stores in the United States. Field's opened in 1852 and Wanamaker's (originally Oak Hall) in 1861. Strawbridge & Clothier's dry-goods store opened in 1862. Successful operations like Kaufmann's of Pittsburgh stayed regional. Saks, Lord & Taylor, Nordstrom, and Neiman Marcus became coast-to-coast shopping destinations.

For decades, Wards and Sears were retail dynamos for farm communities and the middle class. After Wards beat it into the mail-order business, Sears pulled ahead around 1900 by selling just about everything. In fact, Sears sold more than 100,000 mail-order homes from 1908 to 1940. Each arrived by railroad ready to assemble from precut lumber, carved staircases, nails and varnish.

Dad intuited that Wards would never catch up to Sears after its president, Sewell Avery, refused to spend Wards' huge cash reserve on expansion during the post-World War II boom. Dad was right. The company that gave America "Rudolph the Red-Nosed Reindeer" and the slogan "Satisfaction guaranteed or your money back" never fully recovered.

Wards closed its retail stores several years ago. However, the retailer has come full circle. Shoppers can still buy by catalog and through online entrepreneurs who collect 10 percent to 15 percent commissions on customers' purchases. The company's Web site lists its headquarters as an Iowa post office box. My father, the consummate company man, would not be pleased.

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Wal-Mart: Store savors hiring success
New Evergreen Park Wal-Mart draws many applicants,
as well as some critics, at its preview event

By Jo Napolitano - staff reporter – Chicago Tribune
January 27, 2006

Karen Layne of Chicago was one of 325 people--from among 25,000 applicants--who made it through four interviews and a drug test to begin working at the Wal-Mart opening Friday in Evergreen Park, company officials said.

The number of applicants, believed by officials to be the largest in company history, raised eyebrows among some Thursday, but it mattered not to Layne, 48, and the others who made the cut.

"I didn't have to go through that with the post office," she said of the interview process. "I feel special."

With 22 boxes of paperwork prominently displayed during a news conference, company officials said the response showed Wal-Mart is considered to be a great place to work.

But Elizabeth Drea, spokeswoman for United Food and Commercial Workers Local 881, said the number was a publicity stunt meant to "get the attention of the Chicago City Council and strong-arm them into allowing Wal-Mart to come into the city limits in more locations."

A company spokesman stood by the figure, saying Wal-Mart is scrutinized and an inflated number would be easily discovered.

"Anyone who suggests the number is inaccurate is way out of bounds," John Bisio said. "What would we have to gain from that? We are in no position to mislead people. A lot of people have an interest in working at Wal-Mart."

Richard Kaye, a labor market economist with the Illinois Department of Employment Security, said the number sounded unusual given Chicago's economy. Last year brought an additional 65,000 jobs to the state, the highest number of new jobs in five years, and the regional unemployment rate was 5.5 percent in December, same as a year before.

Evergreen Park Mayor James Sexton said he welcomes the store's 325 jobs, the tax dollars it will generate and the $35,000 donation Wal-Mart has made to local causes. He boasted that union workers constructed the building, although Wal-Mart is known for its anti-union stance.

"We would love to have a union inside, but we certainly wouldn't turn down Wal-Mart because of that," Sexton said.

He doesn't fear that mom-and-pop businesses will be forced out of town because of the competition, he said, but said increased consumer traffic would spill over into area stores and restaurants.

Gerald Roper, president and chief executive officer of the Chicagoland Chamber of Commerce, said he's happy to bring in a company that pays an average of $10.99 per hour to full-time hourly workers.

Wal-Mart has been criticized nationally for offering low wages and few health benefits. It has been accused, among other things, of locking employees inside stores and forcing some to work off the clock.

Roper called the company's labor problems "learning experiences."

"I think they've worked through it and are better for it," he said. "Every small business wants to grow to be a Wal-Mart."

Chicago Ald. Emma Mitts (37th) worked for years to bring Wal-Mart to her neighborhood. A West Side store, the first in the city limits, is expected to open this summer.

Mitts is well aware of controversy surrounding the retailer, but the jobs the company promises overshadow that, she said. Still, it "could be made a better company" by being more sensitive to the communities it serves, she said.

In Evergreen Park, Wal-Mart executives asked reporters to interview handpicked employees, but some new hires talked before that decision.

Serina Cartagena, 29, of Chicago said she's proud to work at Wal-Mart because of the decent wages and chance for promotion. She will earn more than $9 an hour and has health benefits, she said. It's an easier job than her previous position as a home-care provider for the elderly.

"It was OK until my client died," she said. "Wal-Mart is better."

Tiffany Johnson, 23, a single mother with two young boys, wanted to rejoin the workforce after spending a year at home. She was glad to nab a cashier position. Having earned $5.80 an hour at Brown's Chicken and as a home day-care provider, she was pleased with her new pay, roughly $8 an hour.

Courtney Reyna, 18, has been working for the Bedford Park Wal-Mart for almost a year and received a 40-cent raise within three months, bringing her to just under $8 an hour. She said she hopes to transfer to Evergreen Park in part because she believes it pays better. Reyna would someday like to go to college, study criminal justice and become a police officer.

"It's not the best job," she said, "but it's a good job."

Deborah Guise, 26, would take it. Holding her toddler's hand, she expressed frustration she hadn't landed a job after applying three weeks ago. She fears youthful run-ins with the law are working against her, even though she said she's turned her life around.

"I desperately need the job," she said. "I'm a workaholic. I'll work my tail off for $7."

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Wal-Mart maintains bank hopes despite Greenspan
By Lorrie Grant, USA TODAY
January 27, 2006

Wal-Mart Stores remained confident Thursday about its effort to form a special type of bank, despite an appeal by Federal Reserve Chairman Alan Greenspan for changes in the law allowing commercial entities to own such banks.

In a letter released late Wednesday, Greenspan urged Congress to close a regulatory loophole that lets businesses own an Industrial Loan Corporation (ILC), a type of bank operated for specific purposes, such as processing payments.

"Chairman Greenspan's lengthy letter is about the broader issue of regulation of Industrial Loan Corporations. We look forward to the (Federal Deposit Insurance Corporation) public hearing on our application to operate an industrial bank in Utah," says Wal-Mart spokesman Marty Heires.

The 12-page letter, responding to an inquiry from Rep. James Leach, R-Iowa, of the House Financial Services Committee, does not single out Wal-Mart. It raises concerns about regulation of all such banks, noting Wal-Mart's application, but also noting ILCs already are operated by companies including General Motors and General Electric.

The parent of a chartered bank must register as a bank holding company, which are regulated by the Federal Reserve. ILCs aren't defined as traditional banks, and the parent is exempt from Fed oversight, though the FDIC oversees applications and insures them. ILCs' combined assets have grown by more than 3,500% from $3.8 billion 1987, when the current rules were set, to $140 billion in 2004, Greenspan says in the letter.

Wal-Mart has said it wants to form an ILC to process the 140 million credit, debit and electronic check payments it gets monthly.

Wal-Mart's FDIC application has gotten more than 1,500 comments, mostly from opponents ranging from small banks to unions. Many welcomed Greenspan's letter.

"If they get their hands on an ILC and get into financial trouble, they could swamp the FDIC fund, and we could have a repeat of the savings and loan collapse," says Camden Fine, CEO of the Independent Community Bankers of America.

"The so-called Bank of Wal-Mart has been dealt another heavy blow," says union-backed Wal-Mart Watch.

The letter might affect Wal-Mart's application by flushing out the larger issue, says Edward Yingling, American Bankers Association CEO. He says the wall between banking and commerce had a small and somewhat inconsequential crack that has grown with more ILCs. Wal-Mart's application might spur action, he says. "We're at a point where if policymakers (regulators and Congress) don't act, you run a real risk that the wall will crumble," Yingling says.

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Up to 700 Allstate job cuts
Northbrook targeted in voluntary buyouts
By Becky Yerak - staff reporter – Chicago Tribune
January 26, 2006

Allstate Corp., which last fall posted a record quarterly loss in the wake of Hurricanes Katrina and Rita, plans to cut 600 to 700 jobs at its Northbrook headquarters through a voluntary buyout program.

Allstate, the nation's second-biggest auto and home insurer after Bloomington-based State Farm Insurance Cos., hinted Jan. 10 that job cuts could be in the offing as a way to cut expenses. That day it announced that it had purchased billions of dollars in reinsurance to help cover auto and personal property claims nationwide arising from future hurricanes, earthquakes and other disasters.

The reinsurance, which is basically insurance for insurers, will reduce the volatility of Allstate's future earnings but will cost about $600 million a year--triple what it currently pays.

At the same time, the company also disclosed that it was studying "the efficiencies of our operations and cost structure," said Allstate President Thomas Wilson. That's often corporate-speak for job cuts.

In a memo sent to employees Monday, Allstate workers were told of the "voluntary termination offers."

"I don't know exactly how many will take it, but we expect our workforce in our home office complex will be reduced by about 10 percent," or between 600 and 700 workers, spokesman Michael Trevino said Wednesday.

The buyout offer is being made mostly to salaried workers in Northbrook. Employees who accept the offer will be let go no later than May 31.

"We're continuing to examine our operations and reducing our expenses to remain competitive," Trevino said.

The job cuts aren't occurring because of higher reinsurance costs, he stressed.

"We'll attempt to recoup those through premiums," he said.

Allstate has about 9,000 workers in the Chicago area.

In October, the insurer was stung by a third-quarter loss of $1.55 billion, its largest quarterly hit as a publicly traded firm, because of hurricane costs of $3.06 billion.

The company didn't have reinsurance in Louisiana or Mississippi, states hit hard by Katrina.

The job cuts are one of several moves that Allstate is making to get its expenses more in line those of competitors, including those who advertise more heavily on television.

Allstate also has warned that it will hike premiums in certain markets to cover its higher costs. It has said, however, that Chicago-area residents, whose chances of facing a natural disaster are slim, should not expect to see their insurance premiums rise as a result of Allstate's higher reinsurance costs.

Separately, Allstate, the biggest seller of homeowner's insurance in New York, confirmed this month that it has stopped writing new homeowner's policies in eight coastal counties in that state, including those containing New York City and Long Island.

At least one insurance industry watcher wasn't surprised that Allstate is cutting jobs.

"They were caught looking a little, or maybe a lot, unprepared for the level of hurricane losses they had in 2005 in terms of their risk selection, where they were writing and their reinsurance levels," said Donald Light, senior insurance analyst for financial-services consulting firm Celent.

"They're trying to get back ahead of the curve now in terms of substantially reupping their reinsurance and in terms of pulling out of high-risk areas. Then, beyond all that, there is earnings pressure in terms of what Wall Street is expecting."

Allstate is scheduled to release its earnings on Tuesday.

Shares of Allstate closed Wednesday at $50.56, off 72 cents, on the New York Stock Exchange.

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Sears Centre's huge trusses installed
By Patrick Corcoran - Hoffman Estates Review
January 26, 2006

Like a gigantic erector set, Hoffman Estates' Sears Centre is going up piece by massive piece.

And with much of the U-shaped arena shell complete due to mild weather, work crews started construction on the stadium's roof support system last week.

On Thursday, the first of six trusses -- each measuring 275 feet long and weighing 105 tons -- were lifted by crane about 100 feet, maneuvered into place and secured over a period of about two hours by more than 20 ironworkers.

Minding an October grand opening for the 11,000-seat stadium under construction in Hoffman Estates, the entire roof is expected to be completed in the coming weeks, according to Michael Millar, director of consulting with the real estate branch of Ryan Companies USA, the firm building the Sears Centre.

The arena, which is expected to host 135 events sports and entertainment events in 2007 and bring in annual revenues of about $10 million, is backed by Sears Holdings, Inc., and a $50 million loan from the village.

Steel trusses the size of those used at the arena have not been installed locally since 1993, when the 20,000-seat, $175 million United Center was built on Chicago's west side, according to Millar said.

The $60 million project is the centerpiece of a growing entertainment district in the Prairie Stone Business Park near Higgins and Sutton roads, which -- when completed-- will include a Cabela's outfitter retail location and additional shopping and possibly a water park and hotel.

For those who can't peek at the construction progress while driving along the Northwest Tollway, photographs and additional updates are available at www.searscentre.com.

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What Are Sears And HBC Up To?
Zena Olijnyk
From the October 24-November 6, 2005 Issue of Canadian Business Magazine

Are the recent decisions of Sears Canada Inc. and Hudson's Bay Co. to seek buyers for their credit card operations a smart way of realizing shareholder value? Or is this just a case of burning the furniture to heat the house? Or perhaps (and this is the possibility that has industry watchers really wagging their tongues) HBC and Sears' moves to sell their credit card divisions are the precursor to a desperate attempt to fend off behemoth Wal-Mart ˜ by merging the two retailers.

In late August, Sears Canada announced a deal to sell the portfolio, which includes its house-brand credit card as well as a Sears MasterCard, to JPMorgan Chase for $2.2 billion. More than 90% of that is expected to go to shareholders in the form of a special dividend, which has caused Sears Canada stock (TSX: SCC) to soar. As for HBC (TSX: HBC), which offers a credit card that's honoured only at its stores and a few places like Esso gas stations, it said in early October that it will look at options for its financial services division; it has yet to say what it would do with the proceeds, though they probably won't be nearly as rich as in the Sears deal.

The embattled retailers, both of which have lost market share to Wal-Mart, say selling credit card operations to a financial player offers cash upfront along with a stable revenue stream through "performance payments" from the purchase. Money lost from selling the credit business would be made up by these payments. Getting rid of the division, the argument goes, also lets Sears Canada and HBC focus on improving their ailing retail operations. And with credit card businesses now a hot commodity among financial institutions, it's a great time to sell.

Still, it's hard to understand why Sears and HBC are willing to leave their poorly performing retail divisions so exposed. In the case of Hudson's Bay, its operating profit from credit cards last year was $162 million, while the retail division actually lost money; without the cash from financial services, the owner of the Bay and Zellers chains would have had an operating loss approaching $30 million. As for Sears, the credit card division made up more than 50% of its earnings before interest, unusual items and income taxes last year. At first blush, the transaction appears "akin to selling the family silver," as analyst Cynthia Rose-Martel of Jennings Capital so bluntly puts it. While Sears is counting on getting a steady stream of $100 million a year from its alliance with JPMorgan Chase, analysts like Rose-Martel doubt that target is achievable. Even if it was, she says, Sears is forgoing the "tremendous income growth potential" it could get from the business itself ˜ for example, by convincing customers with a Sears-only card to switch to its branded MasterCard, which can be used anywhere. (Canadian Tire, which has made it clear it has no intentions of selling its credit card division, has managed to do that very successfully over the past few years.)

If Sears and HBC are determined to sell their financial services operations, however, there's the matter of what to do with the cash. At Sears Canada (held by U.S.-based Sears Holdings Corp., which is controlled by hedge fund manager Edward S. Lampert), most of the proceeds will go to shareholders, who will see a nice return on their investment. The deal works out to a special dividend of more than $18 a share. Yet the payout is an indication to many that Sears Canada's U.S. parent doesn't see itself in Canada for the long haul.

It's a bit different with HBC. Retail watchers note the company appears to be acting with a view to the long term. While it's possible HBC might give shareholders some proceeds from a sale of the credit card business, it's more likely a good portion of it will go into shoring up the retail business or paying down debt.

That likelihood has given rise to speculation that HBC ˜ which in the past has been seen as an acquisition target ˜ might want to buy out Sears Canada. Only problem with that, analysts say, is that the upfront money it would get from selling the credit card business ˜ perhaps as high as $700 million ˜ would be a drop in the bucket. It's hard to see how HBC could borrow the money it would need for such an acquisition. HBC has already been put on notice by agencies such as DBRS that its credit rating (now at BB-Neg) is under review, with a possible downgrade. While a merger makes eminent sense to some industry watchers, others question whether it's possible to combine two weak operations into a force that can fight Wal-Mart. Any attempt to do so might simply be an exercise in building a house of cards ˜ but without the cards.

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Attention, Wal-Mart shoppers
Let your conscience be your guide

By Kathleen Parker
Syndicated columnist for the Orlando Sentinel, a Tribune newspaper;
Tribune Media Services – Chicago Tribune
January 25, 2006

If you love buying cheap salmon from Wal-Mart, you might not after reading Charles Fishman's new book, "The Wal-Mart Effect."

Few issues in American life, except perhaps the war in Iraq, are as polarizing these days as how Wal-Mart sits in our landscape, our economy and our consciousness. Fishman, a friend and former editor, tells the Wal-Mart story in such intricate detail that you'll never see your local store the same way again.

Wal-Mart isn't just a company. It's a global market force--a nation unto itself.

Ponder this: Americans spend $35 million every hour at Wal-Mart, 24 hours a day, every day of the year. Wal-Mart is so huge and so powerful, you'll wonder how you failed to notice that the company affects not just how we shop, but how we think and live--even if we never set foot in a Wal-Mart.

Not everyone has missed the Wal-Mart effect, of course. The company has plenty of critics, but Fishman puts in perspective not just the power of Wal-Mart, but the good that the mega-corporation does and could do. Recently, for instance, Wal-Mart announced energy- and fuel-saving plans for its stores and trucks that, if successful, could serve as a model for the nation. Such is the kind of global good Wal-Mart can and should do, Fishman says.

On the home front, Fishman argues that critics are wrong when they say Wal-Mart puts little people out of business. We (shoppers) put little people out of business, he says. We vote with our wallets, and we're the ones who choose Wal-Mart over local stores. Wal-Mart, in that sense, is the ultimate model of democracy.

Shoppers also have made possible the company's phenomenal growth. In 1990, Wal-Mart had just nine supercenters in the U.S. By 2000, there were 888. Wal-Mart is the No. 1 grocery retailer in the world. Between 1990 and 2000, 31 supermarket chains sought bankruptcy protection, including 27 that cited Wal-Mart as a factor.

Ah well, we say, so it goes in love, war and business. Competition is the engine that drives a capitalist society. But Fishman argues that Wal-Mart's power and scale hurt capitalism by strangling competition.

"It's not free-market capitalism," he says. "Wal-Mart is running the market. Choice is an illusion."

Wal-Mart not only changes the way we buy, but the way we think, Fishman says. If Wal-Mart charges $5 per pound for salmon, then shoppers wonder why a restaurant charges $15. We expect salmon to cost only $5. Or a microwave to cost only $39. The Wal-Mart effect first changes our expectations, then changes the quality of merchandise, which is cheap, because it isn't always well- or ethically made.

Take salmon. Wal-Mart, which buys all of its salmon from Chile, sells more than anyone else in the country and undersells all other retailers by at least $2 per pound. That's a lot of market power, which prompts Fishman to ask: "Does it matter that salmon for $4.84 a pound leaves a layer of toxic sludge on the ocean bottoms of the Pacific fjords of southern Chile?"

Salmon in Chile are raised in packed underwater pens--as many as 1 million per farm--and fed prophylactic antibiotics to prevent disease. Here's a fact you'd rather not know: A million salmon produce the same amount of waste as 65,000 people. Combine that waste with unconsumed food and antibiotic residue, and you've got a toxic seabed.

Does it matter?

Only if shoppers say it does, says Fishman. Wal-Mart listens to "voters." If shoppers say they won't buy salmon until Wal-Mart insists on higher standards from suppliers, then Wal-Mart will make those demands. Incentive is the engine that drives the company that promises low prices--"always."

Fishman also raises questions about worker wages, health insurance and working conditions in other countries.

In the final analysis, he asserts that the scale of Wal-Mart makes it a different species of animal than we've ever known before and that, therefore, horse-and-buggy business rules no longer apply. He insists that transparency, which corporations (and especially Wal-Mart) resist, is key not only to preserving the capitalist system we value, but to ensuring fair and humane business practices here and abroad.

Ultimately, Fishman's book posits a question of values: What kind of country are we going to be?

It is a worthy question that shoppers will have to answer.

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New Medicare Drug Benefit Sparks an Industry Land Grab
By Sarah Lueck and – Vaness Fuhrmans - Staff Reporters – The Wall Street Journal
January 25, 2006

Golden Oldies New Medicare Drug Benefit Sparks an Industry Land Grab
Insurers Rush to Sign Seniors, Confounding Expectations; AARP's Controversial Plan
Possible Customers: 42 Million

The government's new Medicare benefit that gives private drug coverage to millions of Americans has sparked a competitive scramble in the health-insurance industry. One of the battlegrounds is UnitedHealth Group Inc.'s cavernous call center in Roanoke, Va., which houses more than 500 customer-service representatives.

Fliers pinned on the wall list the "5 things every caller should know about our prescription-drug plan." The top one: "We are the only...plan endorsed by AARP, the most respected organization serving older Americans."

AARP, the powerful seniors' organization, is in the awkward position of providing impartial advice to seniors while at the same time selling them products. For UnitedHealth, the nation's No. 2 health-insurance provider, the AARP relationship is a powerful tool in what is becoming an all-out land grab.

Defying early predictions that private insurers wouldn't offer prescription-drug policies, dozens of companies are offering regional plans and 10 are selling them nationwide. The government is heavily subsidizing the policies, for which 42 million people are eligible. It's a big and unexpected growth opportunity at a time when the industry's traditional business -- administering employer health benefits -- is stagnant or shrinking.

UnitedHealth, based in Minnetonka, Minn., is one of the most aggressive players and one of the most successful so far. It has signed up about 2.8 million Medicare beneficiaries, either to stand-alone drug plans or within its more comprehensive Medicare plans. It picked up 1.5 million more sign-ups from its acquisition in December of PacifiCare Health Systems.

One of UnitedHealth's biggest rivals is Humana Inc., a midsize player in the market of offering insurance to corporate employees. Seeking quick growth, the Louisville, Ky., company is relying heavily on low prices, selling policies with monthly premiums as low as $2, alongside other more expensive plans. UnitedHealth's AARP premiums range between $23 and $31. Humana, in part through a marketing alliance with Wal-Mart Stores Inc., has signed up 1.7 million people for the drug benefit, either alone or through one of its comprehensive Medicare plans. It hopes to eventually switch many of these new customers to more lucrative policies.

"Basically 42 million people have been put in the marketplace, and that won't happen again," says Steve Brueckner, Humana's vice president of senior products. "If you don't get your fair share, you're going to be in trouble later on."

Every major insurer has carved out a slightly different strategy. WellPoint Inc., the nation's biggest health insurer, is counting on its long track record selling individual insurance products through the Blue Cross and Blue Shield plans in 14 states. WellPoint is marketing many of them at Walgreen Co. stores. Like a handful of other plans, it has eliminated deductibles in some offerings.

Aetna Inc. and Cigna Inc. are touting options with higher premiums but covering more drugs. Aetna, the third biggest insurer, is taking a relatively conservative approach to pricing and how many people it expects to sign up. It might stand to benefit if the new program proves a commercial bust.

Before the new Medicare legislation passed in 2003, insurers didn't sell stand-alone drug coverage, which they thought would be unprofitable. The likely consumers were people with high drug bills. Insurers covered medications only as part of broader packages that included doctor and hospital insurance.

But the Bush administration's prescription-drug program suddenly changed the calculus. Not only did the Medicare benefit provide a new way to drum up business from seniors, the government agreed to protect insurance companies from much of the risk.

Each year under the new drug program, insurers submit bids based on their estimated costs to the federal government, which then calculates a national average. The government pays insurers about 74.5% of that average. It requires companies to charge customers the balance between the government subsidy and insurers' initial estimates.

Thus, the lower the insurer's bid, the lower the premium for the customer. The government hopes this formula will keep its costs low.

Insurers also get additional federal payments for enrolling high-risk beneficiaries and those with low incomes. If an insurance company spends more than the estimate, the government will help pay the excess. If an insurer spends less, the government gets part of the savings.

Insurers say there's about 3% to 4% profit margin in drug-only insurance. The extra government payments mean there's little downside risk.

Bumpy Start

Medicare drug coverage, which began Jan. 1, has gotten off to a bumpy start. Many pharmacists have had problems confirming customers' new insurance. Some beneficiaries haven't received cards or letters proving they have coverage. Many states are stepping in to buy drugs temporarily for low-income seniors who ran into problems after being switched by the government to the new Medicare program from Medicaid.

Health and Human Services Secretary Michael Leavitt says that problems are being worked out and that "the vast majority" of people signed up for the benefit are using it successfully. "When you move large amounts of people and data...there's always an imperfect match," he says.

For some companies, the new benefit is a welcome boost. Humana, for example, with seven million members, is only half the size of Cigna, its next largest competitor, in the employee-based health-insurance market. Humana is betting that its experience in the Medicare market and its super-low premiums will let it take advantage of this "one-shot opportunity," says Mr. Brueckner, the vice president.

After grabbing market share, Humana hopes to entice many seniors to switch to more comprehensive Medicare plans, which are known as Medicare Advantage. The company calls this strategy "enroll and migrate." These more-lucrative plans cover doctors' visits, hospital stays and other services.

The premiums on Humana's least-expensive plan make the insurer such an outlier in the market that, "either they've figured out something the others haven't or they're pursuing a reckless strategy," says Matthew Borsch, a health-insurance analyst at Goldman Sachs.

Under the cheapest Humana plan, consumers pay a $250 deductible, then 25% of the next $2,000, all of the next $2,850, and 5% of everything else for the rest of the year. Other Humana plans don't have an initial deductible, charging only co-pays, and the most-expensive option provides coverage without a gap.

On a recent morning, Humana sales representatives manned tables in front of Wal-Mart's largest outlet in Tucson, Ariz. One Humana representative offered free, canvas tote bags to coax people into talking to a sales agent.

Jim Winger, 70 years old, a retired truck driver, said he wanted to avoid the higher premiums that kick in after a May 15 deadline. "I just want to avoid that penalty and get a plan that doesn't cost that much," said Mr. Winger, who at the moment doesn't take any medications. He bought a midpriced policy for $11.58 a month and no deductible, among the cheapest available in Arizona.

This marketing push is designed to shore up Humana's battle against traditional heavyweights such as UnitedHealth. "We had to do eight different things to compete with that one," says Humana's Mr. Brueckner.

The UnitedHealth/AARP combination is emerging as one of the major players in this new market with the AARP Medicare Rx plan. The plan doesn't have any deductibles.

AARP, which counts more than 36 million members, has a long-running relationship with UnitedHealth. The insurer beat rivals to win a 10-year contract with the seniors group that started in 1998. The two co-market, under AARP's name, supplemental Medicare insurance policies, sometimes called Medigap, which cover some services and items not paid by Medicare.

It was a lucrative relationship even before the start of the new drug benefit. In 2004, UnitedHealth collected $4.5 billion in premiums from AARP-related products. Currently, nearly three million people buy the AARP/UnitedHealth Medigap plans, making the duo the biggest Medigap vendor. The AARP-based drug plan has generated at least 95% of UnitedHealth's overall Medicare drug enrollment so far.

Lois Quam, head of Ovations, the UnitedHealth unit that oversees products for older people, calls the company's tie with AARP "a partnership that we treasure."

The partnership has been lucrative for AARP, too. In 2004, AARP earned $197 million in insurance-related royalties and an additional $23 million from investing insurance premiums, in both cases mostly from Medigap. In total, 40% of the organizations $878 million in 2004 revenue came from various royalties and service provider fees. That compares to $224 million, or 26%, from membership dues.

AARP and UnitedHealth are testing an AARP-branded Medicare Advantage plan in Rhode Island, which they could expand if successful.

AARP's Dual Role

The seniors' group often draws fire for its dual role as a seniors' advocate and a sales organization. Wearing a policy hat, AARP played a pivotal role in the 2003 passage of the drug-benefit legislation. That angered some of the bill's Democratic opponents who disliked the level of private-sector involvement in the new program. Some 60,000 people revoked or declined to renew their AARP memberships.

The two sides of AARP operate separately but communicate frequently. Information gleaned from the policy side's field offices is often shared with the business side, says Mark Carter of AARP Services Inc., the organization's business arm. When the AARP is considering a new product, the policy side gives it advice about local markets, for example.

Mr. Carter says "goal No. 1" on the business side is to make sure anyone who contacts AARP is educated about the Medicare drug benefit. But a "close second," he says, is selling the AARP product. "We try to be objective and at the same time not turn away business."

AARP publications in the past two months, such as AARP The Magazine and AARP Bulletin, have explained the overall federal program without mentioning AARP's plan. They've also mentioned some of Humana's plans -- without using the company's name.

But AARP's Web site showcases the organization's own insurance products, including those from UnitedHealth. Ads for AARP's products, which the business side has to buy at standard rates, also dominate the magazines.

AARP officials realize there are "perception issues," says Cheryl Matheis, director of health strategy in AARP's Office of Social Impact, part of the group's policy operation. Ms. Matheis says AARP staff won't help people fill out applications for a specific drug plan or advise people about which one to choose.

Ms. Matheis notes that AARP ploughs most of its revenue back into the association. "Clearly there will be more revenue to the association if more people sign up," she says. "It's a good thing because I can do more social impact work."

On a recent day, Bernard Bernstein, an 82-year-old retiree in Boca Raton, Fla., spoke with a sales agent at the Roanoke call center. Mr. Bernstein already had AARP/UnitedHealth Medicare supplemental insurance. After getting an expensive prescription from his doctor, he decided to enroll in a drug plan and called the number on the back of his AARP insurance card.

"I'd like to get a prescription-drug plan," he told UnitedHealth sales agent Heather Reynolds. "I'm an AARP member.... What information do I have to have?" She signed him up after he found his Medicare card.

Mr. Bernstein, a former sales manager for a Japanese electronics company, said in a later interview he didn't consider other companies' plans because he was happy with his AARP Medigap coverage. "I've never had any problems," he said. "Why not go back to them?"

At the call center, UnitedHealth invites local residents for lunchtime information sessions. On a recent day, Ronnie Reed, 69, and his wife Emma, 68, of Salem, Va., sat in a conference room to hear a pitch on the AARP drug plan. A white board on the wall carried the message: "Information is Power."

"We've pretty well made up our minds," said Mrs. Reed afterward. "We're going to go with the AARP program."

"I hope we can pretty well trust them," Mr. Reed said.

"We can," his wife said.

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Understaffing Blamed For Drug-Plan Woes
By Vaness Fuhrmans and Sarah Lueck – Staff Reporters – The Wall Street Journal
January 25, 2006


Insurers, Government Add Employees to Handle Unexpected Crush of Medicare-Benefit Problems

The government and private insurers have identified insufficient staffing as a key cause of many of the problems that have dogged the rollout of the Medicare drug-benefit plan.

Many health plans say they underestimated the volume of questions and complaints that would come with the introduction of huge numbers of new policies. To address the problem, many insurers are beefing up their call centers and providing more information to pharmacists to cope with the unexpected demand. The government agency that runs Medicare is also expanding the staff at its help line for pharmacists.

The new benefit -- which offers drug coverage to Medicare's 42 million beneficiaries through subsidized, private insurance policies -- has encountered a number of problems since it began Jan. 1. Insurers had been preparing since last year to handle the millions of senior citizens and disabled beneficiaries of Medicare, who were expected to need more phone support than the traditional clientele. For instance Cigna Corp. says it decided not to use an automated phone system for Medicare beneficiaries. But insurers say the onslaught was still more than they had prepared for, resulting in long waits on hold for consumers.

"Beneficiaries have on average had more questions than most plans projected," says Frank McCauley, head of retiree markets at Aetna Inc., which has set up a special team to handle urgent issues from pharmacists and customers. Aetna says it also increased staff for its pharmacy help line by 70% and for its member call centers by 50% this month, some of which was planned, in anticipation of a busy start.

WellPoint Inc., the nation's largest health insurer, says it has increased staff and expanded the hours at its call centers for seniors and pharmacists. Humana Inc. has added staff and phone lines in recent weeks, and is faxing pharmacists with additional guidance on coverage. And UnitedHealth Group Inc. says that this month it set up an interactive phone line with answers to common questions from pharmacists, so they can get information without waiting on hold. Cigna, too, says it has expanded the number of phone lines and brought in more staff to deal with calls.

Some of the most widely publicized problems with the benefit so far have involved low-income beneficiaries. Many encountered problems getting drugs when they were shifted from Medicaid, the state-federal program that provides health care for the poor, into private Medicare drug plans. About two dozen states stepped in to provide drugs temporarily where needed. Federal officials had said they would help states get repaid by insurance plans. In a shift yesterday, the government said Medicare would reimburse the states for any additional costs the plans don't cover.

But a range of problems have cropped up for Medicare beneficiaries of all incomes. Some say they don't yet have their enrollment cards, they were overcharged for medications, or they need more guidance on signing up for mail-order delivery. When they or their pharmacists try to reach an insurer for answers, the phone lines are jammed. And when they do get through to service representatives, often after hours on hold, they often get incorrect or confusing information.

Many of these problems are natural growing pains for a program that began from a standing start just a few weeks ago. A recent surge in enrollment has brought the total number of covered beneficiaries to more than 23 million, an enormous number of people to begin serving all at once. The Centers for Medicare and Medicaid Services, the agency that administers the programs, says more than a million prescriptions a day are being filled successfully under the program.

Many beneficiaries are happy, finding that their coverage works smoothly and saves them significant amounts of money. The coverage fills a huge gap for Medicare's elderly and disabled beneficiaries, who previously got no help from the government to pay for most drugs.

Beth Oscanyan, who lives near Philomont, Va., says she and her husband were surprised at how quickly their coverage was activated, and that they saw substantial savings with their drug plan from Humana. "It is exactly what we hoped for," Ms. Oscanyan says. Michelle Elliott, a beneficiary in Port St. Lucie, Fla., who has a drug plan from UnitedHealth and AARP, says she is "thrilled" by the savings.

Some tips to avoid phoning a busy call center with Medicare drug-benefit questions:
• Look for the answer online; some company Web sites and www.Medicare.gov can provide information.

• Have your pharmacist call; most insurers have special lines dedicated to pharmacists who need speedy information.

• Try your state's health-insurance assistance program, which can be found by going to www.medicare.gov/contacts/static/allStateContacts.asp

But a number of beneficiaries have encountered difficulties. Dick Sink, a 71-year-old resident of Indianapolis and former investment specialist for insurance companies, had no drug coverage previously, and he chose Humana plans for himself and his wife, age 69. But when he filled a prescription for his wife, he was surprised to be charged $360 rather than the $180 he was expecting. The pharmacist's computer indicated that Humana was charging a $180 deductible, though Mr. Sink says his wife's policy doesn't have a deductible. In addition, Mr. Sink was charged a $17 co-pay for one of his wife's generic drugs, even though the policy doesn't require a co-pay for generics.

When Mr. Sink couldn't reach Humana by phone, he met with an official in the office of the state insurance commissioner and together they wrote a complaint letter to Humana. Mr. Sink, who didn't immediately get a reply, then wrote another letter -- this one to Humana's grievance manager. Humana was "inaccessible," he says.

Humana spokesman Dick Brown, after being contacted by a reporter, said yesterday that Humana got in touch with Mr. Sink and will reimburse him for the extra costs. Mr. Brown, who said the mistake was due to a "systems error," says even when costs are correct, they sometimes catch beneficiaries off-guard. "A lot of it has to do with understanding what you signed up for," Mr. Brown said.

For seniors who can afford to pay for their drugs upfront, it may make sense to wait until the start-up commotion dies down to try to reach a settlement with their insurer. Consumers should keep thorough records of all communications with the company, as well as any receipts.

Individuals who believe they are being overcharged and don't have the money for the drugs should contact their state's agency on aging or health-insurance assistance program. Information is available at www.medicare.gov/contacts/static/allStateContacts.asp. Another option: Complaining directly to the regional office of the Centers for Medicare and Medicaid Services, findable at www.cms.hhs.gov/regionaloffices.

The increase in call-center staff by government and the insurers creates another issue: Some newly trained representatives may provide misleading information.

To choose a drug plan, Jeff Bloom, a 47-year-old who is eligible for Medicare because he has AIDS, spent hours on the government's hotline going through the price of his 14 prescriptions under the new Medicare plans. Initially, the Washington, D.C., resident was told there wasn't a way to store the information, so Mr. Bloom spelled drug names and provided dosage information each time he called. In his most recent call, a Medicare operator said there was a way to save the information.

Mr. Bloom says he was told by a Medicare operator that he would spend more than $13,000 a year under the Humana plan he was considering. When he called Humana, he was told he would pay a little more than $4,000. "It gets curiouser and curiouser every day," Mr. Bloom says.

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Lands' End founder gives U-Chicago $42 mil.
By Associated Press – Chicago Sun-Times
January 25, 2006

The University of Chicago said Wednesday it has received $42 million from the founder of the Lands' End clothing company to create a specialty-care pediatric center.

The gift from Gary Comer and his wife, Frances, is the largest single donation in the university's 116-year history. The new center will adjoin the children's hospital named after Comer that opened on the city's South Side campus last February.

Construction is to start in March on the 122,500-square-foot center, which will include a new pediatric emergency room and programs for medical specialties including transplants, advanced surgery and heart and cancer treatment.

It will be called the Comer Center for Children and Specialty Care.

The Comers have donated more than $84 million for children's services at the school, University of Chicago officials said.

"Children with the most complex disorders, those in the most dire health position, are among the truly needy in this world and they have found a champion in Gary Comer," said Dr. James Madara, dean of the university's medical school.

Comer, a South Side native, said he and his wife have sought to give back to his old neighborhood.

"We have chosen to do that by focusing on fundamental needs such as children's health and education. What could be more important than that?" Comer said in a statement.

Hoffman Estates-based Sears Holdings Corp. is the parent company of Lands' End.

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Free Sears houses: Any takers?
By Justina Wang - Elgin Courier News
January 23, 2006

Historic homes must be moved or be demolished
The two Sears homes at 828 and 832 Ziegler Ave. in Aurora are available free to anyone who is willing to move them to different lots and pay the relocation costs. Alderman Stephanie Kifowit feels the homes have great historic value and should not be demolished.

AURORA, IL— As the East Aurora School District begins to make way for its high school expansion project, some local officials are hoping to rescue at least two historic homes from the wrecking ball.

At least two of the six houses slated for demolition in late February or early March are believed to be among the 100,000 homes purchased nationwide from the Sears, Roebuck and Co.'s mail-order catalog during the first half of the 20th century.

"These homes are reflective of an era in time," said Jan Mangers, director of the Aurora Historic Preservation Commission. "They are important in the residential history of our city."

Originally, 3rd Ward Alderman Stephanie Kifowit had made plans to move the homes to city-owned land near Ashland Avenue and Union Street and put them up for sale. But engineers said the area, which sits in a flood plain, is not suited for homes.

Now, Kifowit and other Sears homes enthusiasts are hoping someone will save the houses before the properties are razed to make way for a high school parking lot and storm water retention space.

Anyone with an open lot can have one of the homes, Kifowit said, and would only have to pay for the moving costs. A home mover estimated each house would cost $15,000 to $20,000 to move, she added.

In May, the School District paid $138,500 each for the approximately 800-square-foot homes, at 828 and 832 Ziegler Ave. The passage of last fall's school construction referendum required that six homes adjacent to East High be sold by November 2007.

Preservation Commission members are still searching for the deeds and building permit records of the two Ziegler Avenue homes, but believe they were built in the early to middle 1920s.

Many records have been destroyed, and most of the mail-order homes are identified by style, markings on the lumber or the trademark Sears stamp, said Stephanie Johnson, who has spent six months documenting local Sears homes for the Preservation Commission.

So far, she's found 61 of the mail-order homes in Aurora, but suspects there are more than 100.

"There is a huge underground following of Sears houses — a lot of Sears house buffs," she said. "I definitely think it's a selling point, and it's just nice to live in something that was so important in history."

Kifowit said she suspects another one of the six houses slated for demolition might also be a Sears home.

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Educational efforts of Sears giant celebrated
By Krystin Merriweather - Aiken (SC) Standard
January 23, 2006

Enlightening the minds of area residents and historians in the community, Dr. Peter Ascoli spoke during the 32nd Historic Aiken Foundation Annual Meeting, which took place Sunday afternoon at the Aiken Community Playhouse.

Ascoli expounded on his grandfather’s influence in the establishment of Sears Roebuck and his prominent inspiration for the construction of more than 400 schools in South Carolina with over 11 in Aiken County, of which only one still stands.

Ascoli’s biography, “Julius Rosenwald, The Man Who Built Sears Roebuck and Advanced Black Education in the American South,” will be published in the Spring.

After reading The Autobiography of Frederick Douglass and the Biography of William H. Baldwin, Rosenwald became very concerned about the lack of education for black children.

Through his process of contributing to this cause and providing the incentive for others to give, Rosenwald became very good friends with Booker T. Washington, who also was an inspiration.

Taking nearly 13 years to research and write this biography, Ascoli couldn’t resist revealing such an interesting story.

“Many people have heard of the schools, but not many people know the story of the man who helped inspire them,” said Ascoli, who decided to pick up on this project where his late cousin left off.

Ascoli said he hopes to inspire others by providing insight into the life of his grandfather.

City Councilwoman Lessie Price said she attended the Rosenwald School, Aiken Graded.

“It was a beautiful structure before it was torn down,” said Price, who feels the building could have been preserved, possibly as a center for education.

She said, “I look at the bravery of some whites that were criticized for wanting to assist in the education of African Americans. They certainly should be applauded for their efforts during that era.”

Upon closely examining the architecture of other old schools in the area, local historian Dr. Frank G. Roberson, who also serves as associate superintendent for Aiken County Public Schools, is a firm believer that there are many more schools in Aiken County that were supported by Rosenwald.

“There are at least four other schools that we are gathering documentation for,” said Roberson. “I am convinced that there are close to 20 schools all together.”

In the process of submitting a list to the South Carolina Department of Archives and History, Roberson said the schools under speculation are: St. Phillip School, Langley Bath, the old Jefferson, Mount Figuration, Silver Bluff, and a portion of Storm Branch Academy and Bettis Academy, which also provided service to students in Aiken County.

Blacks in Aiken County ranging from the late 50’s to the early 90’s may have obtained portions, if not all of their education, in a Rosenwald School.

“It is a tremendous honor to have Julius Rosenwald’s grandson in Aiken County,” said Roberson. “Just to meet and chat with him over that past few days is a historian’s dream. I really want to commend the Historic Aiken Foundation and Schofield Community Association for sponsoring this event. It was a huge success.”

List of Rosenwald Schools in Aiken County (provided by Dr. Frank G. Roberson):

Aiken Graded, Baldtown, Clearwater, Fairfield, Founatain, Jerusalem, Oak Grove, Salley, Seivern, Vaucluse, Union Academy and Ridge Hill.

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Women missing from top earners at 35 big firms...
By Becky Yerak - Tribune staff reporter – Chicago Tribune
January 22, 2006

Thirty-five of the Chicago area's 50 biggest companies didn't have a woman among their top earners in fiscal 2004, up from 32 such businesses the previous 12 months.

Three companies had no women among their directors, top executives or top earners, unchanged from fiscal 2003.

And only 2.8 percent of directors at the area's major companies are minority women, which falls short of the Fortune 100's scant 3.01 percent.

Those findings are part of an annual study tracking women's progress in senior roles at the area's biggest publicly reporting companies.

"If you take a quick look at this year's results, you might think that because the number of directors and officers has inched up a bit, things are continuing to move north," said Lyn Corbett Fitzgerald, chief communications officer for United Way of Metropolitan Chicago.

"But when you really delve into the numbers, that's pretty much window dressing," said Fitzgerald, also chairwoman of the 2005 study by the Chicago Network, a group for professional women.

For example, after five years of no progress, there was a 1.4 point increase in the percentage of local corporate directorships held by women, now at 14.4 percent. The caveat, however, is that the number of women directors remains the same; the percentage increase is due to the fact that corporate boards are generally getting smaller.

As for high-level executives inside companies, the study showed a 1 percentage point increase, with women representing 15.4 percent of top officers. The sticking point there, however, is that the number of big area companies with no top women executives rose to 15 from 11.

But the Chicago area is hardly alone in its slight representation of women in the top ranks.

Among the recent findings in other markets doing similar studies: Big Massachusetts companies reported increases of less than 1 percentage point for both top officers and board members. Michigan has no Fortune 500 companies with a woman chief executive officer. And Ohio results show that the percentage of women on boards has increased only because the number of board seats has dropped.

"We are going backwards, but that's being mirrored in some other markets too," Fitzgerald said.

The Chicago Network study, based on companies' annual reports and proxy statements for fiscal 2004, also points out that not one area company had a woman as CEO. In December 2003 Betsy Holden was demoted as co-CEO at Kraft Foods Inc.

The picture might look less grim in the next report: In February 2005 Sara Lee Corp. named Brenda Barnes its new CEO.

The three Chicago-area companies identified in the study with no women directors, officers or top earners are Glenview-based communications products distributor Anixter International Inc., Naperville-based water treatment services provider Nalco Holding Co. and Chicago-based trucking company USF Corp.

Anixter is unlikely to hold that dubious distinction indefinitely because earlier this month it announced that it has appointed Linda Walker Bynoe, CEO of Chicago-based project management firm Telemat Ltd., to its board of directors.

Meanwhile, Nalco said it still has no women on its nine-member board, but points out that its vice presidents of human resources and of safety, health and environment are women. But neither of those posts is considered among the highest jobs at the company, such as the executives named in a proxy statement.

USF might not appear on next year's list either. Last year, Overland Park, Kan.-based Yellow Roadway Corp. acquired USF for $1.37 billion.

Yellow, now YRC Worldwide Inc., does have at least one woman at the upper echelons of its company, with former SBC Communications Inc. executive Cassandra Carr sitting on its board.

Laurel Bellows, a Chicago executive compensation lawyer who belongs to the Chicago Network, wonders if the methods used to develop women in corporate leadership roles are failing.

"I'd like to think of us as a thriving industrial metropolis where there are lots of opportunities for women in corporate Chicago because there's a lot of talk in the corporate community about diversity and the business case for diversity," Bellows said Friday.

But "I do believe that women continue to be held to different standards of performance," she said, noting that some companies seem to retain male CEOs despite performance issues.

With that double standard, women might become increasingly less likely to try to crack the glass ceiling.

"Women are beginning to recognize that service at that level might be a thankless job for which they've sacrificed many years of family life only to be held to a different standard of performance," Bellows said.

The Chicago Network's report cited five companies as top performers, with composite scores of at least 23 percent based on the percentage of women among directors, officers and top earners.

The five were: Highland Park-based food-service goods maker Solo Cup, the only private company in the survey; Hoffman Estates-based retailer Sears, Roebuck and Co.; Vernon Hills-based computer reseller CDW Corp.; Chicago-based commercial buildings owner Equity Office Properties Trust; and Northfield-based food and beverage maker Kraft Foods.

The survey findings are expected to be posted online Monday at www.thechicagonetwork.org.

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Retiree Accounting: More Than Meets The Eye
Business Week
January 30, 2006

Companies may soon be forced to put their unfunded pension and other retiree benefit promises on their balance sheets

Despite plowing billions in borrowed funds into its pension plan, General Motors Corp.'s worldwide retirement schemes still had a shortfall of $7.5 billion at the end of 2004. On top of that, the auto maker had a $57 billion gap in its retiree health-care plans. Investors must delve deep into GM's 196-page annual report, to footnote 16, to learn all this. It's certainly not clearly laid out on the balance sheet, where much of GM's retiree obligations are not accounted for at all.

But if accounting rulemakers have their way, GM's $65 billion in unfunded retiree promises -- $20 billion more than its cash and investments -- will be front and center on its balance sheet as soon as next year. Encouraged by the Securities & Exchange Commission, the Financial Accounting Standards Board is moving to bring more transparency to pension and health-care benefit accounting. "The degree of underfunding in these plans has become more and more visible over the years," says Robert H. Herz, chairman of FASB. "We thought we needed to do something quickly to get these numbers on the balance sheet."

Once that's done, FASB will undertake a more ambitious reconfiguring of the way pension and health-care promises are tallied. This second phase could take several years, FASB says. Executives worry it could eventually result in companies having to reflect volatile swings in such liabilities in their earnings reports.

Herz may face a big backlash from business. Standard & Poor's (MHP <javascript: void showTicker('MHP')> ) calculates that companies in its 500-stock index owe $442 billion more in retiree benefits than they have put aside. Of that amount, some two-thirds, or almost $300 billion, isn't reflected on balance sheets, according to Morgan Stanley. Indeed, Morgan Stanley calculates that if companies put their full pension and other retiree obligations on their balance sheets, reported debt would soar 40%, to $1 trillion. As a result, says Howard J. Silverblatt, S&P's senior index analyst, FASB's move "is going to make [the controversy over expensing] options look like nothing."

GM isn't going to have to stump up $65 billion all at once. Its pensions conform with Employee Retirement Income Security Act (ERISA) funding requirements. Legally, health-care promises don't have to be prefunded. Nor would a big downgrade of debt come into play, as debt rating agencies already factor these obligations into their ratings. GM Vice-Chairman and Chief Financial Officer Frederick A. "Fritz" Henderson say the proposed new rules are very complex, and GM doesn't yet know what the impact will be. But GM's shortfalls could shrink this year, given its pension plan's strong performance. GM Chairman and CEO G. Richard Wagoner Jr. would not comment on FASB's proposed changes. But he noted during an analyst meeting on Jan. 13 that GM's plan is now overfunded by $6 billion after earning a 13% return on its investments in 2005, a $3.5 billion gain over 2004. A health-care deal recently signed with the United Auto Workers will cut that liability by $15 billion, according to GM.

Still, the initial change in FASB rules could have a significant impact on how companies employ surplus cash. It will also reset a host of financial ratios, such as debt-to-equity and debt-to-book value, that loan officers, investment bankers, and investors use to evaluate companies. "Anything that affects the balance sheet in this magnitude is important," says Henry McVey, Morgan Stanley's chief U.S. investment strategist.

Companies most affected will be older ones that are often unionized and have large pension plans and substantial retiree health-care commitments. For example, Boeing Co. could see $18.6 billion in obligations added to its balance sheet under the proposed rules. Its health and pension plans are still open to new employees. But even companies that moved to freeze their plans, most recently IBM, will add a lot of red to their balance sheets if they are underfunded.

The logic of putting these shortfalls on company tabs is simple. Companies have to make good on any underfunding that isn't compensated for by better-than-expected investment returns. And that won't be easy. S&P calculates that seven companies in its 500 index have unfunded retirement liabilities exceeding 25% of their total assets. At the top of the list: appliance giant Maytag (47%), Goodyear Tire & Rubber (38%), and Navistar International (35%), maker of trucks and engines. For Lucent Technologies Inc., which has $17 billion in assets on its corporate books and pension plan assets of $28 billion, "you can argue that the pension plan is as important as the operating company itself," says Credit Suisse First Boston accounting analyst David Zion.

For many, it's not the pension that hurts them the most. S&P figures retiree health plans are only 22% covered by assets, vs. 88% for pensions. The reason: Besides not being legally required to fund health-care costs, companies don't get the same tax credit for them as they do for pensions. An analysis by accounting expert Jack T. Ciesielski, publisher of the Analyst's Accounting Observer, shows that more and more liabilities are being hidden off balance sheets. He found that for 276 S&P 500 companies such underfunding rose 30%, to $318 billion, from 2001 to 2004, while the amount making it onto balance sheets barely budged, at around $200 billion.

Since many plans are being frozen these days, critics of change argue the accounting issue is fast becoming moot. "It's a dinosaur," says Colleen Cunningham, president and CEO of Financial Executives International, an association of corporate finance officers. "Shouldn't [FASB] be spending time on other things that might make a bigger difference?"

Executives seem especially concerned about the second stage of FASB's overhaul of the rules. Moving unfunded liabilities from a footnote onto the balance sheet is little more than a "geography question," says Gregory J. Hayes, accounting and controls vice-president for United Technologies Corp., which has a pension underfunding of $3.1 billion and an estimated $4.5 billion in off-balance-sheet retiree liabilities. "We don't like it, but it's no new news." More worrisome to Hayes is the possibility that FASB might require liabilities and assets to be adjusted to reflect current market values. For his $15 billion fund, a 1% change could add (or subtract) $150 million in income.

Such volatility frightens financial executives, and many would prefer to stick with today's convoluted accounting. "Our concern is that the constant state of change at FASB makes it harder to understand the financial statements," says Hayes. "Our goal is to make [them] more transparent." Which is just what FASB hopes its changes will do.

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Florida West Coast Retiree's Association Winter Meeting

Please mark your calendars to attend the Florida West Coast Retiree's Association Winter meeting on Friday, February 3, 2006. The luncheon begins at noon, with a reception starting at 11:30 a.m. The location will be at the Palm-Aire Country Club located off University Boulevard in Sarasota, Florida. University Boulevard is located six miles East of Interstate #75.

According to Jack Rollins, President of the retiree's association, the speaker will be Aylwin B. Lewis, Chief Executive Officer and President of Sears Holdings Corporation. Rollins said that "We are extremely pleased that Alywin has marked his busy calendar to spend a few hours with our organization...Aylwin is interested in talking with retirees, as well as listening to our concerns. He has specifically asked that our meeting be attended only by Sears retirees...This will be our opportunity to hear the direction of the Company, as well as be given the opportunity to express our thoughts and opinions regarding the direction of the Company to which we all devoted our lives."

If interested in attending this luncheon/meeting, please immediately contact Jack Rollins by phone (941-483-4329) or e-mail (jrolli06@comcast.net) to make your reservations. The cost of the luncheon is $15.00. To attend the meeting, you must also attend the luncheon.

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Sears once sold everything, including memories
By Stewart Elliott - Scripps Howard News Service
January 20, 2006

Maybe I'm just a typical male because I don't really like "shopping." I make a list, buy everything on it and then go home.

But today is different. I am looking through the big Sears Roebuck catalog. They don't print those any longer? Yes, I know. This one is a little out of date, one of 600,000 issues for the spring of 1902.

Richard Warren Sears was the founder of the company. By the turn of the century, he boasted a $2 million corporation, a small company today. This book offers literally anything you can think of. And check out some of the prices: coffee at 10 cents per pound, laundry soap 3-1/2 cents per bar. Medications (this was before the FDA) included Dr. Hammond's Brain & Nerve pills, a guaranteed six-box package that would cure any disease, that cost $6; arsenic complexion wafers, 60 cents; white ribbon liquor cure, $1.10, and assorted guaranteed cures for a tobacco habit, etc.

Sears also would sell you a bicycle for $10, a piano for $98 or a 20-minute cold cure, one that never fails, for 25 cents. The newest things? A fountain pen for $1 and a bottle of Princess bust developer for $1.50. Ladies, are your hips too small? Bustles started at 39 cents. The best corsets sold for less than $1. Sunbonnets were only 19 cents, while gorgeous, highly ornamental hats were up to $5.

By the time I was old enough to read the catalog, Sears had stopped selling farm equipment. But in 1902, if you needed a disc harrow, a planter, a mower or a tedder, they had them, and they were very big on windmills. Mr. Sears published more than a catalog; if he thought it advisable, he would devote a full page of fine print to educate you on the insides of your watch. They also sold telegraphic equipment, and Sears advised young people to learn the trade because the future looked bright and you might earn as much as $35 per month, even as a beginner. Now who could afford to pass an opportunity like that?

Two final examples of price changes in the past 100 years: Sears had a cello listed at $12.95. My old one was recently appraised at $500. My double-barrel shotgun was appraised at $250, but they had one very much like it available for $35 and change.

When I was a child on an Illinois farm my parents made full use of the big Sears catalogs, issued spring and fall. Most of our clothing came from Sears or were hand-me-downs from relatives.

Orders were delivered by rural carriers, who used horse-drawn buggies ($35 in 1902) until roads were safe for automobiles.

As I was writing this column, a nephew walked in and told me Sears was merging with Kmart. But long ago they stopped printing those 1,000-page catalogs.

I asked my granddaughter if I should mention what usually happened to those big books after a new issue arrived. She assured me everyone already knows that story.

(Stewart Elliott is a nursing home resident who writes the column "Notes From a Nursing Home" for the Evansville Courier and Press in Evansville, Ind.)

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How did this retail theft get through store security?
By George Will – Chicago Sun-Times
January 19, 2006

In 1786, the Annapolis Convention, requested by Virginia and attended by only four other states, called for a second gathering to revise the Articles of Confederation in order to strengthen the federal government. Some revision: The second meeting became the Constitutional Convention. It scrapped the Articles, partly because the Founders were alarmed by states legislating relief of debtors at the expense of creditors, often in ways not easily distinguished from theft.

Something not easily distinguished from theft recently occurred in Annapolis. In legislation ostensibly concerned with any company with 10,000 employees but pertaining only to one, Maryland has said Wal-Mart must spend 8 percent of its payroll on health care, or must give the difference to the state.

The Constitution's foremost framer, James Madison, understood the perils of democracy at the state rather than the national level of an ''extensive republic'': State legislatures have fewer factions competing for favors than compete for Congress' favors. States, being smaller than the nation, have legislatures more easily captured by overbearing majorities. Madison would have understood what Maryland has done.

Organized labor, having mightily tried and miserably failed to unionize even one of Wal-Mart's 3,250 American stores, has turned to organizing state legislators. Maryland was a natural place to begin because it has lopsided Democratic majorities in both houses of its legislature.

Labor's allies include the ''progressives'' who have made Wal-Mart the left's devil du jour. Wal-Mart's supposed sin is this: One way it holds down prices (when it enters a market, retail prices decline 5 percent to 8 percent; nationally, it saves consumers $16 billion annually) is by not being a welfare state. That is, by not offering higher wages and benefits than the labor market requires. Labor's other allies are Wal-Mart's unionized competitors, such as, in Maryland, Giant Food, a grocery chain. These allies are engaging in what economists call rent-seeking -- using government to impose disadvantages on competitors with whom they are competing and losing.

Wal-Mart's enemies say Maryland is justified in expropriating some of the company's revenues because the company's pay and medical benefits are insufficient to prevent some employees from being eligible for Medicaid. Well.

Eighty-six percent of Wal-Mart employees have health insurance, more than half through the company, which offers 18 plans, one with $11 monthly premiums and another with $3 co-payments. Wal-Mart employees are only slightly more likely to collect Medicaid than the average among the nation's large retailers, who hire many entry-level and part-time workers. In the last 12 months, Wal-Mart, the largest private employer in the nation and in 25 states, estimates it has paid its 1.3 million employees $4.7 billion in benefits. That sum is almost half as large as the company's profits, which last fiscal year were $10.3 billion -- just 3.6 percent -- on revenues of $285 billion. Wal-Mart earns just $6,000 per employee, one-third below the national average. Anyway, Wal-Mart's pay and benefits are sufficient to attract hordes of job applicants whenever it opens a new American store, which it does once every three days.

Maryland's new law is, the Washington Post says, ''a legislative mugging masquerading as an act of benevolent social engineering.'' And the mugging of profitable businesses may be just beginning. The threshold of 10,000 employees can be lowered by knocking off a zero. Then two. The 8 percent requirement can be raised. It might be raised in Maryland, if, as is possible, Wal-Mart's current policies almost reach it.

This is part of the tawdry drama of state politics as governments grasp for novel sources of money. Forty-eight states are to varying degrees dependent on revenues from gambling. Forty-six states are addicted to their cut, to be paid out over decades, from the $246 billion coerced from the tobacco industry by using the specious argument that smoking costs their governments huge sums. As a result, 46 states have a stake in the long-term profitability of tobacco companies.

Maryland's grasping for Wal-Mart's revenues opens a new chapter in the degeneracy of state governments that are eager to spend more money than they have the nerve to collect straightforwardly in taxes. Fortunately, as labor unions and allied rent-seekers in 30 or so other states contemplate mimicking Maryland, Wal-Mart can contemplate an advantage of federalism.

States engage in ''entrepreneurial federalism,'' competing to be especially attractive to businesses. A Wal-Mart distribution center, creating at least 800 jobs, that has been planned for Maryland could be located instead in more hospitable Delaware.

Meanwhile, people who are disgusted -- and properly so -- about corruption inside Washington's Beltway should ask themselves this: Is it really worse than the kind of rent-seeking, and theft tarted up as compassion, just witnessed 20 miles east of the Beltway, in Annapolis?

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Legislation Weakens Pension Protections
By Theo Francis and Ellen E. Schultz – Staff Reporters – The Wall Street Journal
January 18, 2006

Bill Designed to Bolster Underfunded Plans
Creates New Ways for Employers to Cut Benefits

Pending federal legislation aimed at pushing companies to shore up underfunded pension plans also eliminates some longstanding retirement protections and gives employers new powers to reduce some workers' pensions.

Both the House and Senate have passed versions of the legislation, and within the next month lawmakers are expected to begin the work of reconciling the two. No one knows for sure how the final bill will look, but congressional leaders have said they hope to send it to President Bush by early March.

For the most part, lawmakers and lobbyists have focused publicly on how the legislation, under debate for more than two years, is intended to toughen employer obligations to contribute money to pension plans. Among other things, it requires employers with underfunded plans to pay higher premiums to the Pension Benefit Guaranty Corp., a government-run insurer of private pension plans.

But several little-noticed provisions appear to let employers bolster their pension plans at the expense of employees. For example, measures in both the House and Senate versions would force employers whose plans become underfunded to freeze pensions and, in the House version, even revoke benefits in some situations. Other measures would allow employers to significantly reduce the size of pensions they pay to many departing and retiring workers. Companies also would gain greater ability to transfer more money from pension funds to pay for other retiree benefits.

One of the most far-reaching changes in both the House and Senate versions would reduce the payment workers receive from their pension plans when they take single, lump-sum payments in lieu of monthly distributions. The payment reduction would result from changing the interest rate used to calculate the size of lump-sum distributions.

Here's why: Pensions are usually calculated as a monthly payment for life after retirement, but plans often allow retirees to take a one-time lump-sum payment instead. Currently, the promised stream of payments is converted to a lump sum using an interest rate set by law, matching the interest rate for the 30-year Treasury bond. The legislation would change that and tie the payments to an unspecified mix of corporate bonds -- which usually carry higher yields -- tailored to the age of a company's work force. Consequently, it would generally reduce what many retirees take with them. The change would be phased in over several years.

Employers say that current low interest rates give workers taking a lump sum -- as many do -- a "windfall," which also saps funds that are needed to pay other workers' pensions. Retiree advocates note that employers don't complain when high interest rates lower lump-sum values.

This has happened before. In 1994, employers got Congress to let them replace a low discount rate they were required to use with the 30-year Treasury rate, which was then higher. The move slashed billions of dollars from the pensions paid out to people who took lump-sum payouts following the change.

A spokesman for the American Benefits Council, which represents employers, declined to comment on the pending legislation.

The legislation was sparked by rising concerns about the eroding health of so-called defined-benefit pension plans, which promise workers retirement benefits based on their pay and years on the job. Though robust through the 1990s, many pension plans became underfunded in recent years after declining interest rates boosted their liabilities and several years of poor stock market returns reduced their assets. Nationally, pension plans are underfunded, meaning they don't have enough money to pay all the projected benefits of the participants, by an estimated $450 billion.

Though much of this underfunding could disappear as rates rise and the stock market continues its recovery, lawmakers and the PBGC are concerned by the number of large companies that have abandoned their plans in recent years. Among them have been big airlines, including US Airways Group Inc. and UAL Corp., and steel companies, such as Bethlehem Steel.

The proposed legislation would pertain to the roughly 22 million workers participating in private-sector defined-benefit pension plans, representing one out of every five private-sector workers. (An additional 22 million retirees, and former employees who are entitled to a pension later, would be largely unaffected by the proposed legislation.)

Among the most significant legal changes in the proposed legislation are rules in the House version that would allow poorly funded plans to take away certain pension benefits that older employees have already earned. This would reduce the plan's payment obligations, and thus render it better funded.

Specifically, such plans could eliminate early-retirement incentives, a core feature of many pensions that provides a subsidy to people who retire between 55 and 65, and can boost the total pension payout by 20% or more. The change would apply to so-called multiemployer plans, which are generally plans for workers at different companies represented by the same union and cover about 25% of the private work force with pension plans.

The change, if adopted, would reverse a key protection under federal pension law, which forbids employers from rescinding a benefit that has already been earned. But pension advocates worry that modifying a core protection in the law would establish a dangerous precedent that would soon be extended to the majority of pensions, so-called single-employer plans.

Advocates of the changes say smaller employers could be forced into bankruptcy without the provisions, because they couldn't afford to contribute enough to the plans to make up for funding deficiencies, says Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, a trade group for the pension plans. He adds that any benefit cuts would have to be approved by parties to the union contracts.

The bills from both houses would also automatically freeze pensions that drop below 60% funded, meaning all employees would immediately stop building up new benefits under such plans. In itself, the freeze would improve pension funding levels because, while it wouldn't increase assets, it would reduce the pension's future obligations, or at the very least keep them from rising further. But critics of the measures say the provisions reward employers that allow their plan to become underfunded, because the law would require the pensions to be frozen even if the benefits were subject to a union contract.

The legislation would also make it easier for companies to transfer funds from well-funded pension plans to use for other retiree benefits. Currently, when pension plans are sufficiently overfunded, employers are allowed to withdraw surplus assets to pay retiree medical benefits, a move that enables companies to preserve cash flow. Employers that make such transfers are obligated to preserve those medical benefits at a certain level for at least five years.

Under the Senate version of the pending legislation, companies would be allowed to make such transfers when the threshold of overfunding in their pension plans reaches 115%. Currently, this funding threshold minimum is 125%.

After some companies did this in the late 1990s, it left their plans with smaller cushions to protect against investment losses just a few years later, and retiree advocates worry that easing the restrictions could weaken now-flush plans if investment returns worsen again.

But Prudential Financial Inc., which lobbied for the change, said it toughens the law because it would also require employers to ensure their pensions remained funded at 115% for five years after the transfer. Currently, funding in the pension can fall below that level once the transfer is made.

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Wal-Mart Trains Sights On India's Retail Market
By Eric Bellman and Kris Hudson – Staff Reporters - The WALL STREET JOURNAL
January 18, 2006

U.S. Chain Lobbies For Chance to Sell To Huge Population

Wal-Mart Stores Inc. is knocking at the door of India, whose billion-person economy is largely untouched by modern retailing but might soon let foreign competitors into the sector.

India's prime minister and finance minister recently suggested that movement toward opening the country's retail markets would begin over the next six months. And while initial measures might not make room for the biggest retailers, any opening would be an auspicious sign for the big chain stores. Meanwhile, Wal-Mart and others in its niche -- which are increasingly hungry for international sales -- have been laying groundwork by building relationships with suppliers and distributors and wooing politicians and consumers. Last month, the U.S. company applied for government approval to open its first liaison office in India, which would permit it "to engage in undertaking research and business development activities."

The subcontinent's massive middle class is shopping like never before as its aspirations and purchasing power swell with the country's economy. But the world's biggest retailer has been locked out because of strict government barriers to foreigners owning retail businesses. That could start to change soon, officials and analysts say.

According to estimates by McKinsey & Co., India's $250 billion retail business is the world's eighth-largest. The consultancy firm, in estimates many analysts consider conservative, says the country's retail sector will expand more than 7% a year for the next five years.

The real attraction of India is its retail inefficiency. More than 95% of retail sales in India are made through 12 million mom-and-pop shops, newspaper stalls and tea stands. Sales by modern retailers in branded, professionally managed chain stores are expected to climb more than 15% a year during the next decade.

"Many smart people -- much smarter than I -- believe that India could be the next China," said John Menzer, vice chairman of Wal-Mart's U.S. stores and former head of international operations. "So, certainly, as a retailer, it's a place where we'd like to be."

The developing world is becoming increasingly important for big international retailers as competition slows growth in developed markets. Wal-Mart has struggled in some affluent countries, facing difficulty righting an acquired operation in Japan, stiff competition in the U.K. and restrictive trade and labor laws in Germany. The company has fared better in many Asian and North and South American countries, and it claims strong growth in Mexico, Canada and Brazil.

Wal-Mart and other global names rely increasingly on international operations for growth. In the first nine months of Wal-Mart's current fiscal year, the retailer's international operations -- which account for 20% of its sales -- saw operating income climb more than 10% while its U.S. stores notched gains of less than 7%.

While Wal-Mart and its global peers haven't been allowed into store ownership in India, the U.S. company has been building its local presence for years. In 2005, it bought about $1.5 billion of Indian sheets, T-shirts and jewelry to supply its stores around the world. Wal-Mart has been surveying the market, building a local team of managers and meeting politicians and bureaucrats.

Wal-Mart executives have been among the industry's strongest lobbyists. The company has used high-profile executive visits and pamphlets to preach to India's public and political leaders -- even those from India's Communist Party -- about how international retailers can transform distribution systems and lower prices. Last July, Wal-Mart Chief Executive Lee Scott traveled from the company's Bentonville, Arkansas, headquarters to Washington, D.C., to talk with India's prime minister, Manmohan Singh, during his U.S. visit.

Wal-Mart's global competitors, including Carrefour SA of France and Metro AG of Germany, have teams in India talking with regulators and potential local partners. "We have taken a long-term view that we will be there" in India, says Gerard Freiszmuth, managing director of Carrefour India who moved to New Delhi to help prepare for the market-opening. Meanwhile, a spokesman for Tesco PLC said the U.K. retailer has no plans to enter India.

India's leaders want to attract the international capital and expertise needed to modernize the country's retail industry and distribution system. Indian Finance Minister P. Chidambaram said in November the first steps to open the market could happen during the first quarter of 2006.

To be sure, India has been talking about opening the retail industry to foreign investment for more than a year. It has been blocked by opposition from leftist parties that support the Congress Party's ruling coalition. Communist leaders are concerned foreign retailers will hurt the tens of millions of people dependent on small shops for their livelihoods. Wal-Mart argues that international players are key to streamlining national distribution systems to cut waste and stabilize prices for perishables.

The U.S. company has another carrot to dangle in front of India: its huge buying power. Once it opens stores in a country, it is more likely to supply its international stores with that country's products. Even without stores in India, Wal-Mart is already a bigger consumer of Indian products than many countries.

From China, the company exported $20 billion in goods last year. "What we found in China as we get stores on the ground and get more mass, we get to know a lot more of the suppliers," Mr. Menzer told analysts last year. "And when we know the suppliers, it gives us the opportunity to learn the product of the suppliers and actually export them."

That is easier said than done in India, given its poor infrastructure. The company will likely have to build distribution systems from scratch and struggle with bad roads and power outages. It will also have to contend with new national retail chains, such as Shoppers' Stop Ltd. and Provogue (India) Ltd.

While India might not allow 100% foreign ownership in retail businesses right away, it might allow smaller stakes with restrictions, analysts say. It could allow minority stakes with Indian joint-venture partners or limit foreign investment to specific businesses such as groceries or luxury goods. At first, the government is likely to restrict the locations and number of stores allowed.

Whenever and however India opens up, Wal-Mart hopes to apply lessons learned in other emerging markets. When it first arrived in China more than 10 years ago, it mistakenly stocked stores with bestsellers from the U.S. It quickly learned that the average Chinese consumer didn't have closet space for boxes of 40 rolls of toilet paper.

Wal-Mart now has 51 stores in China and plans to open 39 more this year. While Chinese operations account for less than 1% of Wal-Mart's $285 billion in sales, its China sales could quickly climb to $20 billion, says Emme Kozloff, an analyst with Sanford C. Bernstein & Co.

In the subcontinent, Wal-Mart is aiming for slow and steady growth. "It has to be a measured pace that supports the government's desires," Mr. Scott, the CEO, said at an investors conference last year.

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S.E.C. to Require More Disclosure on Executive Pay
By Stephen Labaton – New York Times
January 18, 2006

WASHINGTON, Jan. 17 - The Securities and Exchange Commission voted unanimously on Tuesday to overhaul the way companies report their pay packages for senior executives, a move that is expected to lead to greater disclosure but not to any significant decline in executive compensation.

The proposal - the biggest change in this area in more than a dozen years - is the first major rule suggested by the commission's new chairman, Christopher Cox. S.E.C. officials said it would be adopted in a few months, after a few details were sorted out. It is expected to go into force for the 2007 proxy season.

The move comes after a series of corporate scandals at the New York Stock Exchange and Tyco International, among others, that drew criticism over excessive pay.

In 1992, when the five-member commission first addressed executive pay issues, it sought to require greater disclosure as an antidote to excessive pay. But in the intervening years, many boards have come up with partly or completely hidden benefits for top executives, ranging from paying their taxes to allowing use of corporate jets for personal reasons.

"Simply put, our rules are out of date," Mr. Cox said at a commission meeting. But Mr. Cox emphasized that the agency did not intend to produce rules that forced changes in executive pay scales, but to make them more apparent to investors.

"It's about wage clarity, not wage controls," he said. "By improving the total mix of information available to the marketplace, we can help shareholders and compensation committees of boards of directors to assess the information themselves, and reach their own conclusions."

In recent years the commission has said that several companies, including General Electric and the Walt Disney Company, failed to adequately describe significant payments and benefits to top executives. Just as the accounting scandals prompted Congress and the regulators to adopt rules to invigorate audit committees of directors, the proposal on executive pay is meant to prompt compensation committees to be more exacting.

At the same time, large institutional investors, like pension funds, have been raising more questions about the compensation of executives at companies where they own stock. The pay of the average worker remained almost flat at $27,000 from 1990 to 2004, adjusted for inflation, while average chief executive pay has risen from $2.82 million to $11.8 million, a ratio of more than 400 to 1, according to the Institute for Policy Studies and a group, United for a Fair Economy, which has been critical of the disparity between the pay of senior executives and lower-ranking employees.

The proposed rules would for the first time require public companies to provide a figure for total compensation, including significant perks, stock options and retirement benefits for the chief executive, the chief financial officer and three other top-paid officers, as well as all directors.

It is intended to prod companies into providing greater justification for pay packages, retirement plans, severance agreements and so-called golden parachutes - large payments to executives when control of a company changes hands. And it would require companies to place a precise dollar value on grants of stock options and restricted stock.

Many companies now do little more than provide legal boilerplate to justify the pay packages.

But the plan fell short of calls by some institutional investors to give a greater voice to shareholders in setting some pay packages. And it proposed to loosen at least one area of disclosure by raising the threshold to $120,000 for reporting a business transaction between a company and an executive or relative. Such disclosures are now required for transactions of $60,000 or more.

Experts hailed the proposal for leading to greater transparency, saying that it would end up showing many hidden benefits given to top executives - particularly the value of stock options, pension plans and a wide assortment of perks - that are now either not disclosed or obscured.

But they acknowledged that the changes, while they may encourage reining in some perks, would not lead to a decline in the rapidly growing pay packages of top executives at many public companies.

"The positive effect will be that on the margin - and it is an important margin - there will be a new so-called outrage constraint," said Lucian A. Bebchuk, the director of the corporate governance program at Harvard Law School, who has documented how executive pay is often hidden and has far outpaced compensation for other employees. "The caveat is that even though there is an outrage constraint, shareholders have very limited power to do anything about it."

Professor Bebchuk said that once what he has called the stealth compensation - pension and retirement plans in particular - became public, the disparities between the top and bottom of a company would be even greater. His research has found, for instance, that at the companies in the Standard & Poor's 500 with pension plans, the median actuarial value for pensions given to chief executives is about $15 million, or about a third of the overall total compensation.

B. Espen Eckbo, director of the corporate governance center at the Tuck School of Business at Dartmouth, said the new rules would give institutional investors more ammunition to use to scrutinize boards and management.

"There will be criticism; there will be second-guessing," said Professor Eckbo, speaking in part from his experience as an adviser to the Norwegian Petroleum Fund, a large pension fund. Still, he said, "forcing people to explain what they are doing can't be bad."

Once the commission publishes the proposal, it will entertain comments for 60 days before voting on a final rule. Agency officials are preparing for a spirited debate over the best way to value options: some business groups have already complained that the proposal would unfairly overvalue options by giving them a full value at the time they are granted, while some institutional investors have urged the commission not to permit companies to undervalue them.

The Business Roundtable, which represents chief executives from many of the nation's largest companies, issued a statement generally supporting the commission's proposal, although it cautioned that it wanted to examine the details. The statement, by the group's president, John J. Castellani, also asked the agency not to require companies to calculate stock options in a way that overvalues them.

"Our goal is to effectively balance the goal of providing shareholders with timely disclosure of accurate and complete compensation information with the need to prevent strategic company information from being revealed to competitors and damaging a company," he said.

Ira Kay, a compensation consultant at Watson Wyatt Worldwide, a human resources consulting firm, said company directors now found themselves caught between highly marketable executives, who could often command huge packages, and more active institutional investors seeking greater accountability.

"Boards are caught balancing the interests of the executives and the shareholders," he said. "It's a difficult balancing act."

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CEOs cut pensions, pad their own
By Michael Brush - MSN MONEY
January 18, 2006

Some executives who slash workers' pensions are keeping or even padding their own fat retirement packages. And some even reap bigger bonuses as pension cuts boost profits.

When International Business Machines froze its pension plan in early January, thousands of its employees suddenly felt a lot less certain about their retirement security.

Samuel Palmisano, IBM chief executive, has no such worries. Palmisano, according to IBM's regulatory filings, will receive an annual pension of $4 million when he retires at age 65. That works out to $75,000 a week -- or more than $10,000 a day, including weekends.

It's becoming a familiar theme, as witnessed by this week's announcement by Alcoa, that it will not offer pensions to new hires. And as traditional pension plans disappear and are replaced by less-generous 401(k) plans, the very executives who cut those pensions are keeping their guarantees of retirement luxury.

In IBM's case, executives will reap the rewards of fat pensions that remain fat even as the company changes its rules. In others, high-ranking managers are given extra pension credit for time served. Some CEOs at company's scaling back benefits are guaranteed multimillion-dollar payouts when they leave their companies, even if it's as a result of being laid off.

And there's another benefit to top executives: By cutting pensions, they make their companies more profitable, thus boosting their own bonuses. “It is unseemly for executives to reap higher bonuses on that basis,” says Eleanor Bloxham of the Value Alliance and Corporate Governance Alliance, a Westerville, Ohio-based outfit that advises boards and companies on corporate governance issues.
But because big shareholders are not about to complain about a CEO making a company more profitable, these practices aren't likely to change anytime soon.

Christopher Cox, chairman of the Securities and Exchange Commission, has promised to revamp disclosure rules to make it easier to figure out what kind of pensions and pay packages execs are getting from companies. And while that will help to show how lucrative executive pensions are, it won't close the gap between the retirement benefits of top executives and their employees.

A $3 billion cut

IBM said it would freeze its traditional defined-benefit retirement plans as of 2008. This means any additional benefits workers in these plans were hoping to accumulate after 2008 simply vanish. An IBM spokesman says the company has to roll back its more costly defined-benefit plans because so many competitors in the software sector don’t offer them.

“It’s outrageous. People are very upset,” says Candice Johnson, a spokeswoman for the Communications Workers of America, which follows IBM pay issues because it is trying to form a union for IBM employees. “They feel that the rug was pulled out from under them.”

To offset the damage, IBM employees will get improved 401(k) plans with higher corporate matches for worker contributions. But defined-contribution 401(k) plans don't offer the guarantees of a traditional pension. In a 401(k), workers kick in regular savings and manage their own investments. So the outcome depends largely on how much they can afford to set aside -- and how well they invest it.

IBM’s top brass is on better footing, even though IBM is freezing pensions for all of its executives, including Palmisano. Scott Klinger of Responsible Wealth, a group that tries to promote more equitable pay, says that it's "hard to argue that someone who is getting $75,000 a week is sacrificing or suffering in any way.”

Palmisano’s pension package is rich, even by CEO standards. The average expected annual pension for CEOs at S&P 500 companies is $930,000, according to Paul Hodgson, an analyst at the Corporate Library and author of "Building Value Through Compensation."

It’s not like Palmisano doesn’t make enough to tuck a little away for his old age on his own -- like regular IBM workers will now have to do. IBM paid Palmisano $6.8 million in salary and bonus in 2004. That’s well above the $2.46 million average for CEOs at S&P 500 companies, according to the Corporate Library. At the end of 2004, Palmisano also had $14 million worth of restricted stock and options potentially worth $12 million or more in 10 years, by the company’s calculations.

Palmisano isn't the only IBM executive headed for a big retirement payout. Nicholas Donofrio, vice president of innovation and technology, can expect a $1 million annual pension at 65. Douglas Elix, vice president of sales and distribution, is on track for a $970,000 annual pension. His total pay package was worth at least $2.7 million in 2004. IBM's spokesman says the pay packages are commensurate with the executives' experience. Palmisano, Donofrio and Elix have each worked for the company for 31 years or more.

IBM estimates it will save $3 billion by 2010 because of the changes. “Any savings in the next several years from this action would be built into the annual plan,” says an IBM spokesman. “So they don't start with a 'leg up' on their incentive payments because of this shift away from defined benefits.”

Any increase in IBM's profitability that is reflected in the company's stock price, however, would benefit any IBM shareholder, including IBM executives whose compensation is often in the form of company shares.

Extra credit, pension style

IBM, of course, is far from alone in cutting back or eliminating pension plans.

The most recent pension plan to be phased out is Alcoa's. As that company switches employees to a 401(k), Chief Executive Alain Belda, as of early 2005, was slated to get $1.28 million a year if he retires at 65.

An Alcoa spokesman responded that its 401(k) plan is generous and “extremely competitive.” Under the new plan, Alcoa will contribute 3% of salary and bonus to the retirement plan, whether or not a worker makes a contribution. Alcoa will also match the first 6% of salary that an employee contributes. The spokesman said that by limiting new employees to 401(k) plans, Alcoa is no different than most other businesses since “65% of companies in the U.S. use a 401 (k) as their primary retirement vehicle."

Sears Holdings froze its defined-benefit plans starting this year. But more than a year before it did so, Sears generously granted some executives two years of credit -- for the purposes of pension vesting -- for each year worked. That means even though the pension was frozen, the executives circumvented the freeze by getting credit for years they would serve in the future.

Though it’s a fairly common arrangement for execs, this kind of deal bothers corporate governance watchdogs. “It is pretty outrageous to get unearned years of pension service as if you were some sort of super-human working double-time,” says Brandon Rees, of the AFL-CIO Office of Investment.

Sears says that because the old Sears, Roebuck and Co. chain merged with Kmart Holding to form what is now Sears Holdings, it has tightened its compensation policy to include more pay-for-performance measures. “As such, we would point out that many of the executive benefits that were awarded prior to the merger do not necessarily reflect the philosophy that Sears Holdings embraces,” says a spokesman.

The silver severance lining
Executives at companies trimming pension plans for the rank and file also enjoy special severance packages that the average worker can only dream of.

Motorola , for instance, wiped out defined-benefit plans for new employees last year, offering them an enhanced 401(k) plan. But if Motorola Chairman and Chief Executive Edward Zander gets laid off or quits, he has the right to two years worth of salary, bonus and health benefits. He got $6.1 million in salary and bonus in 2004, as well as restricted stock that Motorola recently valued at $9.1 million.

"Over the last several years, the use of defined pension plans has declined, particularly among high tech companies. So we began to place a heavier reliance on our defined contribution 401(k) plan. The 401(k) plan's greater portability often is attractive to more mobile high tech workers," a Motorola spokeswoman said.

Sears Holdings, even as it froze its pension plan, continued to guarantee that Chief Executive Aylwin Lewis, if he is laid off or quits, would get his base salary, bonus and benefits for three years. Last year that base salary and bonus were worth $1 million each. In 2004, the company awarded him 50,781 restricted shares worth $4.5 million, along with other restricted stock worth $1 million at the time.

Are pensions dangerous?

Despite the uproar each time another company freezes a defined-benefit plan, many analysts believe the change is good -- even for workers. Scott Rothbort, a professor at Seton Hall University’s Stillman School of Business and president of LakeView Asset Management, thinks defined-benefit plans are “dangerous” for workers. He says they are like having your whole retirement portfolio in one stock. If the company you work for fails -- think airlines or auto companies -- then you wind up with a fraction of your expected pension as the federal government picks up the pieces.

But Klinger, at Responsible Wealth, thinks that the uncertainties of investing in a 401(k) plan are worse. “It turns a secure retirement into an uncertain retirement. People might be better off if the market soars. Or else the market might stumble along."

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Kmart service comes up lacking
By Tenisha Mercer / The Detroit News
January 17, 2006

According to letter from chief executive, firm rated 65% of visits to retailer as 'below expectations.'

Smarting from a consulting firm's report that rated nearly two-thirds of visits to Kmart stores as a disappointment, the struggling retailer is creating a new strategy to shore up its customer service.

The moves were outlined in a letter Sears President and CEO Aylwin Lewis wrote to employees last week. The missive, posted on employee online message boards, came after Kmart consultants visited 70 stores over the holiday shopping season and found 65 percent of their experiences as "below expectations."

The consultant visited stores in 12 markets, rating them on people, core standards, environment and signage, Lewis' letter said. Stores were assigned ratings of "exceeds, meets expectations and below expectations."

Lewis called the results "unacceptable," in his letter titled "2006: Building Customer Relationships," and outlined the retailer's plans to improve customer service. That company hopes to organize work more efficiently at the store level, offer training and coaching, simplify activities and messages at retail locations and implement measureable standards.

The initiative is believed to be the first broad effort to improve customer service since then Troy-based Kmart merged with Sears, Roebuck & Co. in March to create Sears Holdings Corp. It comes as Kmart shifts to a largely part-time work force and tries to stem market share losses to competitors such as Wal-Mart.

Sears Holdings spokesman Chris Brathwaite declined to comment on the letter.

"Our mission for Sears Holdings Corp. is to build customer relationships," Lewis wrote. "A big part of accomplishing that part of our mission in 2006 is to dramatically improve our customer experience for every touch point -- in the home, on the phone, online and in our stores. … The emotional mindset is one of pride, competitiveness, urgency and most of all a willingness to serve customers."

But retail consultant George Whalin is skeptical Kmart can turn the corner without extensive improvements, he said. Kmart has long been plagued by customer service problems. Its comparable store sales have declined double-digits during the past several years.

"What is the likelihood of them coming back? People have more choices of where they can shop today. You have to give them a reason to come to you," said Whalin, president of Retail Management Consultants in San Marcos, Calif.

The consultants' study contrasts with Kmart's recent mystery shopper score, where anonymous shoppers rate retailers on customer service. Kmart scored 88 percent, the highest score of the year and a 10-point improvement from last year.

"Progress most definitely, but not at the levels that will allow our customer experience to drive our business," Lewis wrote. It's unlikely Kmart will turn to its merger partners Sears for any customer service tips, since Sears faired even worse than Kmart in the same consultant's study. Of 82 visits to Sears stores, 82 percent of experiences were "below expectations."

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Accounting Changes May Squeeze Pensions
By Adam Geller, AP Business Writer
January 16, 2006

NEW YORK (AP) -- It may sound arcane, but a planned overhaul of the way companies keep their books on pensions and retiree health care plans could come at a very real cost to workers counting on those benefits.

The changes -- likely to begin by year's end -- come as a growing number of companies freeze pensions and cut retiree health benefits, shifting risks and costs to workers. In recent weeks, IBM Corp. and Verizon Communications Inc. have joined the list of those announcing they will freeze their pension plans. On Monday, aluminum giant Alcoa announced it will no longer offer pension benefits to most U.S. salaried employees it hires beginning March 1.

But some experts say new regulations requiring companies to more accurately calculate and show the cost of their retirement promises could speed up the move by employers away from guaranteed pensions and other benefits.

"Changing accounting rules can cause companies to change their behavior," said David Zion, an accounting analyst with Credit Suisse First Boston.

Rules now in place give companies cover. Many have made expensive retirement promises without putting aside all the money needed to meet them. But they don't have to fully disclose the shortfalls in their earnings statements or on their balance sheets.

Instead, firms can post very positive numbers based on assumptions about investment returns, when the actual returns would hurt their results. And while companies are required to disclose pension figures in footnotes to financial statements, even those can be difficult to decipher.

"If you change those rules you take that protection away and our thinking is a company may have to go out and protect themselves," Zion said.

The question is how quickly that will happen and how transparent it will be given the rapid cutbacks in benefits already under way.

By law, companies can cut retiree health benefits at any time, as long as the changes don't discriminate. They can't yank pensions, but can freeze pension plans. Such moves leave workers eligible for benefits already earned, but halt gains they would have been entitled to in later years on the job. Other firms have closed pension plans to newly hired workers.

Many companies freezing pensions say they are bolstering 401(k) plans, making set contributions while leaving workers to manage for their own retirement. Small firms started the trend, but in the past year some large employers followed suit in freezing pensions for at least some of their workers, including Sears Holding Corp. and Hewlett-Packard Co.

Pensions and other retirement benefits have stirred controversy in accounting circles for years. Critics say while companies made expensive promises to workers, accounting rules let them engage in a shell game and mislead investors about the value of stocks, bonds and other assets held by pension plans. While they can fluctuate widely, the rules let companies smooth the numbers, creating distortions in their balance sheets that can make a whopping liability look like a sizable asset.

That led the Financial Accounting Standards Board -- which sets U.S. accounting rules -- to announce late last year that it planned an overhaul.

"While the accounting and reporting issues do not appear to lend themselves to a simple fix, the board believes that immediate improvements are necessary," FASB Chairman Robert Herz said.

The changes will come in two steps, the group said.

By year's end, FASB says it likely will require companies to report the funding status of pension plans and other retirement benefits -- showing how much those plans contain compared to what is owed to workers -- on their balance sheets.

A second phase of changes would reach much farther and take several years. Those changes would require companies to more accurately measure and report their retirement benefits, and include those costs in calculating their profits.

For some companies, the change in their reported financial condition would be stark.

The most widely cited example is General Motors Corp., which has been staggered by both slowing sales and mammoth obligations to workers and retirees. If GM was forced to accurately show its true benefit costs on its balance sheet, the company's book value -- the difference between its assets and liabilities -- would have been cut from $27.7 billion in 2004 to a negative $18.5 billion, according to Credit Suisse estimates.

The changes are likely to stir far more controversy than FASB's requirement that companies account for stock options, partly because of their perceived impact on Main Street, said Janet Pegg, an analyst for Bear Stearns.

"It definitely could be a bigger deal," Pegg said. "Stock options were often thought about as compensation given to top executives who were making significant salaries, whereas the view when you get to pensions is of grandma and grandpa sitting at home collecting their pension checks."

When companies -- under pressure from Wall Street to report steady, predictable profits -- are forced to take big charges against their profits because of the volatilities of their pension plans, more firms could decide they've had enough, analysts say.

That may not happen this year, although some companies could blame the new rules in coming months as they announce pension freezes or cutbacks in retiree health care already being planned.

But as the second phase of the accounting overhaul is completed, "that's going to be a more substantial change," said Don Fuerst, a retirement consultant and actuary with Mercer Human Resource Consulting. "That's going to drive a lot more companies to reconsider how they do this."

Of course, new rules won't change the reality of what companies owe their workers or how much they've put aside. But Credit Suisse's Zion points to the early 1990s, when FASB began requiring companies to put a value on the retiree health care promises they had made. Within a few years, the number offering those benefits had dropped sharply.

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Medicare Drug Plan Sign-Up Surges
By Sarah Lueck – Staff Reporter – The Wall Street Journal
January 17, 2006

WASHINGTON -- Enrollment in Medicare's new prescription-drug coverage has picked up, with more than two million people joining in the past month alone, Health and Human Services Secretary Michael Leavitt said.

Though an uptick was anticipated when coverage began Jan. 1, the surge was "way beyond what we expected," Mr. Leavitt said in an interview. It brings overall enrollment in the Medicare drug-insurance program to more than 23 million people, out of about 42 million eligible beneficiaries.

But Mr. Leavitt acknowledged a "serious problem" for some low-income people, who are entitled to extra help with drug costs under the new program but are reporting difficulty getting coverage. The federal government has been under fire from states, pharmacists and beneficiary advocates who say some of those most in need of medications haven't been able to get them or are being asked to pay high costs.

More details about enrollment in Medicare's drug-insurance plans are expected today. With the latest numbers, more than three million people have signed up on their own since Nov. 15. Many others have been enrolled by the government because they had low incomes or are receiving drug coverage through an employer-sponsored retiree plan or Medicare managed-care plan.

Medicare officials had been predicting a jump in enrollment around Jan. 1, when the drug coverage took effect. Based on the latest data, Mr. Leavitt said he continues to expect a total of 28 million to 30 million people will have signed up by the time this year's enrollment ends May 15.

Mr. Leavitt said Medicare, the federal program for the elderly and disabled, is covering more than one million prescriptions a day. "What that tells me is the system is working for the vast majority of people," he said. "There's a small group that is having trouble, and for that group it is a very serious problem."

A major source of trouble has been the switch of more than six million people, known as "dual eligibles," from drug coverage under Medicaid, the state-federal program for the poor, to the new Medicare drug insurance, which is provided by private insurers. The government automatically enrolled this group into certain Medicare drug plans. But in some cases, people haven't shown up in insurers' records, or haven't been labeled as eligible for the extra help.

Reacting to such problems, more than a dozen states have said they would temporarily cover medications needed by dually eligible beneficiaries. Over the weekend, the federal Centers for Medicare and Medicaid Services provided information for states about how to reconcile the money they spend with insurers.

CMS also instructed insurers to set up a faster process for pharmacists to get coverage information and, if necessary, bypass plan requirements. CMS told insurers that they must make it easier for pharmacists to provide at least a 30-day supply of medication to people whose existing prescriptions are restricted or not included under their new Medicare drug coverage.

Mr. Leavitt said he expects glitches to continue as beneficiaries use the new coverage for the first time.

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More Employers Try Limited Health Plans
By Vanessa Fuhrmans – Staff Reporter - The Wall Street Journal
January 17, 2006

Cheap 'Mini-Medical' Policies Cover Drugs
And Doctor Visits, But Little Hospitalization

Employers are increasingly turning to an affordable type of health insurance that has a big catch: If you get really sick, it won't cover your major expenses.

These low-cost offerings, called "mini-medical" or "limited-benefit" plans, are catching on as employers struggle to restrain the rising cost of health insurance. Available as group plans or individual policies, they typically cover four to 10 doctor visits a year, a certain amount of prescription drugs and some lab work or other tests. Premiums can cost as little as $40 a month -- far less than the $148 average for a major-medical plan bought on the market or the $335 average cost of someone on a company health plan, according to the Kaiser Family Foundation, a health-care policy research group.

Nearly one million people have mini-medical plans, insurers estimate, and some of the plans' biggest sellers say business is growing 20% a year.

Mini-medical plans have been around since the '80s, and until recently were sold mostly to temp-agency, fast-food and chain-store workers. But they're becoming more commonplace as employers cut back on full benefits, or turn more to part-time and contract workers. Mini plans are also starting to appeal to a wider array of individuals who might otherwise not be able to afford insurance, including the self-employed or freelancers. Sometimes individuals buy these plans through professional associations.

This spring a coalition of 10 large employers so far, including Avon Products, International Business Machines, General Electric and Sears Holdings, will make a number of low-cost options, including limited-benefit plans, available to independent contractors and part-time and temporary workers not eligible for regular company benefits -- about 900,000 people, including dependents. Three levels of limited plans will be offered via the coalition, from insurer UnitedHealth Group Inc. and, to a lesser extent, Cigna Corp. and Humana Inc.

Some of the biggest names in health insurance are pushing into the market, in addition to UnitedHealth, reflecting the growing interest in mini-medical benefits. Aetna Inc. jumped into the limited-benefit plan business last year after buying one of the market's bigger players, Strategic Resource Co. of Columbia, S.C. WellPoint Inc., Nationwide Mutual Insurance Co. and Coventry Health Care have also recently developed or are expanding into limited benefit plans.

Critics say that consumers don't always understand the limitations of these policies. Most hospital care isn't covered, or the benefits may be doled out in small increments, requiring consumers to contribute big chunks along the way. Annual payouts are often capped at $10,000 or less, so policyholders are largely on their own if catastrophic illness, such as a heart attack or cancer, strikes.

"People have to be aware this isn't providing them the key purpose of health insurance, and that's protection from catastrophic or chronic disease," says Robert Fahlman, chief operating officer of eHealthInsurance, an online health insurance broker that stopped selling limited-benefit plans because they weren't big sellers and triggered confusion among customers.

In a sense, the plans are the inverse of the "consumer-driven" health plans that many employers and policy makers are pushing today, which require patients to pay out of pocket for routine care but provide coverage for catastrophic needs. Insurance brokers say that some mini plans are being sold to people who have high-deductible, consumer-driven plans to cover catastrophic care and are looking for some coverage for everyday expenses. Layering the two types of plans together can still be cheaper than a traditional major-medical policy.

For group plans, employers can, but often don't, subsidize the premiums. Instead they'll contract with an insurance company to sell directly to employees, much like some supplemental life-insurance policies. This allows them to tout jobs that come with some health benefits in the bid to recruit employees. The policies are typically designed as preferred-provider organizations, with a broad number of doctors and facilities in the plans' networks.

Mini-medical plans cause more than their share of consumer complaints, say some brokers and state insurance regulators. Some critics worry that many customers are young people who might not fully grasp the plans' limitations, or individuals who are buying policies on their own without the guidance of an employer's human-resource department. Overeager brokers may also gloss over them to promote their "upfront" benefits, say consumer groups, and some brokers and state regulators.

But proponents of the plans say they provide access to the types of preventive care people use most often, such as check-ups and medications, at a price they can afford. "If the alternative is nothing, than something is better than that," says David Sherman, president of Preferred Benefit Solutions, a New Jersey-based employee-benefit management firm.

Phoenix-based Star HRG, a unit of UICI and one of the biggest providers of limited-benefit plans, offers a range of policies. One of its core Starbridge plans costs employees $15.85 a week, or $38.65 to $58.25 for family coverage (mini-policies are commonly priced in weekly premiums, rather than monthly). For that, policyholders get up to $1,500 paid for outpatient medical expenses, though they pay a $20 co-payment for each doctor visit, 20% of other outpatient medical bills, and a $50 deductible along the way. The plan also covers up to $25,000 for hospital stays a year. But that's doled out in $250 parcels a day -- a fraction of the cost of a typical day in a hospital, which easily can run to several thousand dollars.

This past fall, Star HRG launched a richer set of limited-benefit plans aimed at companies that can't absorb the rising cost of their comprehensive plans. It's already fielding inquiries from employers, says Tim Cook, Star's president. They provide a maximum annual benefit of $35,000 or $50,000, and cost roughly 25% to 40% less than a comprehensive plan, but there are no out-of-pocket maximums on an employee's share of potential medical costs.

A small but growing number of employers are replacing traditional health benefits with limited-benefit plans as insurance premiums soar. One is Ratner Cos., an operator of several hair-salon chains with 12,000 stylists. Until October 2002, it offered an HMO, but says skyrocketing costs prompted it to move to a limited-benefit plan that it fully finances for employees who work more than 25 hours a week.

Some consumers, such as Donald Lee, of Carson, Calif., say they have few alternatives. "My main concern was just getting into some kind of plan for now," says Mr. Lee, 57. In the fall, the premium on the Lee family's major-medical plan shot up to $2,500, and because of his and his wife's diabetes, few other insurers would accept them. So Mr. Lee found a truck-driving job that gave him the option to buy a limited-benefit plan from OptiMed Health Plans, of Boca Raton, Fla. For a $240 monthly premium, the plan reimburses the Lees $60 for each doctor visit and $500 for each day in the hospital. Eventually, he says, he wants to buy a supplementary catastrophic plan, but this one "helps me keep my diabetes under control."

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Frederick T. Weimer, former assistant general credit manager of Sears, dies at 78
Chicago Tribune
January 15, 2006

Frederick T. Weimer, age 78 of Glen Ellyn, IL and Naples, FL, died Thursday, January 12, 2006 at North Collier Hospital in Naples, FL. He was born April 13, 1927 in Dunkirk, NY.

Fred retired in 1990 from Sears in Chicago, IL as the assistant general credit manager after 40 years of service and was a member of St. Petronille Catholic Church in Glen Ellyn, IL.

He is survived by his loving wife of 58 years, Eleanore (Banks) Weimer; three sons, Gregory M. Weimer, Eric B. Weimer and Andrew B. Weimer; one daughter, Beth Ellyn Weimer; seven grandchildren and one great-grandson.

There will be a Memorial Mass to celebrate Fred's life on Monday, January 16, 2006 at 2 p.m. at St. John the Evangelist Catholic Church, Naples, FL. Burial of the cremains will follow in the St. John Cremation Garden. Walter Shikany's Bonita Funeral Home, 239-992-4982.

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Maryland Sets a Health Cost for Wal-Mart
By Michael Barbaro – The New York Times
January 13, 2006

ANNAPOLIS, Md., Jan. 12 - The Maryland legislature passed a law Thursday that would require Wal-Mart Stores to increase spending on employee health insurance, a measure that is expected to be a model for other states.

The legislature's move, which overrode a veto by Gov. Robert L. Ehrlich, was a response to growing criticism that Wal-Mart, the nation's largest private employer, has skimped on benefits and shifted health costs to state governments.

The vote came after a furious lobbying battle by Wal-Mart and by labor and liberal groups, and is likely to encourage lawmakers in dozens of other states who are considering similar legislation.

Many state legislatures have looked to Maryland as a test case, as they face fast-rising Medicaid costs, and Wal-Mart's critics say that too many of its employees have been forced to turn to Medicaid.

Under the Maryland law, employers with 10,000 or more workers in the state must spend at least 8 percent of their payrolls on health insurance, or else pay the difference into a state Medicaid fund.

A Wal-Mart spokeswoman said the company was "weighing its options," including a lawsuit to challenge the law because it is close to that 8 percent threshold already.

It is unclear how much the new law will cost Wal-Mart in Maryland - or around the country, if similar laws are adopted, because Wal-Mart has not publicly divulged what it spends on health care.

But it was concerned enough about the bill to hire four firms to lobby the legislature intensely over the last two months, and contributed at least $4,000 to the re-election campaign of Governor Ehrlich.

A spokeswoman for Wal-Mart, Mia Masten, said that "everyone should have access to affordable health insurance, but this legislation does nothing to accomplish this goal."

"This is about partisan politics," she said, "and this is poor public policy driven by special-interest groups."

There are four employers in Maryland with more than 10,000 workers - among them, Johns Hopkins University, the grocery chain Giant Food and the military contractor Northrop Grumman, but only Wal-Mart falls below the 8 percent threshold on health care spending.

A Democratic lawmaker who sponsored the legislation, State Senator Gloria G. Lawlah , maintained: "This is not a Wal-Mart bill, it's a Medicaid bill." This bill says to the conglomerates, 'Don't dump the employees that you refuse to insure into our Medicaid systems.' "

Opponents said the law would open the door for broader state regulation of health care spending by private companies and would send the message that Maryland is antibusiness.

"The message is, 'Don't come here,' " said Senator E. J. Pipkin, a Republican. "This is an anti-jobs bill."

Several lawmakers said that in the end, the law would require Wal-Mart to spend only slightly more than it does now on health insurance. But with Wal-Mart refusing to disclose what it pays for health costs, it was unclear how much more it would be required to pay.

This is the second time that the Maryland legislature, which is dominated by Democrats, has passed the Wal-Mart bill. Governor Ehrlich vetoed it late last year, inviting a senior Wal-Mart executive to sit by his side as he did so.

Indeed, the bill is shaping up as an issue in the fall campaign, with Republicans and their business allies lining up against it, and Democrats and their labor union supporters backing it. Wal-Mart has 53 stores and employs about 17,000 people in Maryland.

Debate was particularly emotional among representatives from Maryland's Eastern Shore, where Wal-Mart recently announced plans to build a distribution center that would employ up to 1,000.

Wal-Mart executives have strongly suggested that they might build the center elsewhere if lawmakers passed the health care bill.

In a passionate speech in the State Senate, J. Lowell Stoltzfus, a Republican, warned that the bill "jeopardizes good employment for my people."

"It's going to hurt us very bad," he added,

The bill's passage underscored the success of the union campaign to turn Wal-Mart into a symbol of what is wrong in the American health care system.

Wal-Mart has come under severe criticism because it insures less than half its United States work force and because its employees routinely show up, in larger numbers than employees of other retailers, on state Medicaid rolls.

In response to the complaints, the company introduced a new health care plan late last year, with premiums as low as $11 a month.

Consumer advocates specializing in health care are hoping that the Maryland law will be the first of many.

"You're going to see similar legislation being introduced," said Ronald Pollack, executive director of Families USA, a nonprofit health advocacy organization, "and debated in at least three dozen more states, and at least some of those states will end up also requiring large employers to provide health care coverage."

Mr. Pollack suggested that he did not expect any groundswell of opposition from corporate America. Most companies, he said, provide insurance and know that the costs of medical treatment for uninsured people are reflected in their insurance premiums. Mr. Pollack said that, by his organization's calculations, the cost of such treatment drove up employer premiums by $922 a family last year. In 2006, he said, the added cost could reach $1,000 a family.

"Those employers should welcome the fact that the companies that do not offer coverage now will be forced to step up to the plate," he said.

State lawmakers here in Annapolis took repeated swipes at Wal-Mart during debate over the bill on Thursday. It appeared that the company's intensive lobbying campaign in Maryland, including advertisements arguing that the requirement would hurt small businesses, might have soured some lawmakers.

Senator Lawlah called the lobbying "horrendous" and adding, "I have never seen anything like it."

Frank D. Boston III, the chief lobbyist for Wal-Mart on the health care bill, stood in the main corridor of the Capitol building on Thursday wearing a look of resignation. Referring to unions in the state, he said, "They have a power we can't match, and we worked this bill extremely hard."

Class-Action Case in Pennsylvania

By Bloomberg News

A Pennsylvania judge granted class-action status yesterday to a lawsuit contending that Wal-Mart employees had been pressed to work through breaks and after hours.

The suit could include as many as 150,000 current or former employees in Pennsylvania who have worked at a Wal-Mart store or at the company's Sam's Club warehouse chain since March 1998, Michael Donovan, the lead plaintiff's lawyer, said.

The latest class-action filing against Wal-Mart came after a California jury last month awarded workers $172.3 million in another off-the-clock case.

Wal-Mart is appealing. The company settled a similar case in Colorado for $50 million.

Wal-Mart has given "every indication" that it will go to trial rather than settle, Mr. Donovan said. A Wal-Mart spokesman, Kevin Thornton, said the company was considering appealing the decision.

Claudia H. Deutsch contributed reporting from New York for this article.

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Wal-Mart Takes Over The World
By Robert Malone - Forbes.com
January 13, 2006

What operates in 44 countries, has 2,276 stores outside of the U.S., has more than 100,000 associates (their term for worker) in Mexico alone and does $56.3 billion in sales overseas? That $56.3 billion figure nearly matches the size of the U.S. sales of the Kroger Co., and they are the seventh-largest retail company in the world.

It is, of course, Wal-Mart. And now the accounting for 2005 is in--it increased its international 2005 business by 18.3% over 2004 and grew its international operating profits to nearly $3 billion.

John Menzer, until very recently the president of the international division and now head of U.S. store operations, explains the reason why. "Country by country, the world is discovering the great value of shopping at Wal-Mart. We need to be the growth of Wal-Mart when some day the United States slows down."  Menzer led the multistore acquisition of Asda of the U.K., and of Seiyu in Japan. These acquisitions have become the model for how Wal-Mart's roll out in new countries will be accomplished. Go into a country, pick a sizable retailer, take a piece, and then take the whole piece, then change the name, and voilà: a multitude of Wal-Mart stores with discounting in place, new technology behind it and an awesome scale of retailing and supply chain systems.

Wal-Mart is growing so fast by accelerating electronic sales--taking Apple Computer iPods, Hewlett-Packard printers and Toshiba laptops around the world. They'll grow by pushing their supermarket arena products. They'll grow as they set up in nation after nation.

Above all, they'll grow a store at a time. Already, they have retail stores operating in Mexico (774 units), Puerto Rico (54 units), Canada (263 units), Argentina (11 units), Brazil (295 units), China (56 units), Germany (88 units), South Korea (16 units), United Kingdom (315 units), Costa Rica (124 units), El Salvador (57 units), Guatemala (120 units), Honduras (32 units) and Nicaragua (30 units). During 2005, Wal-Mart started its move into India.

They are not only building stores in these countries, they are building their own distribution centers that are the logistics hubs where they receive, sort and stock the Wal-Mart stores in their area. These distribution centers can be ten times larger than their stores.

So the commitment within these countries is more than providing stores. It is a full supply chain system and all the logistics that can go into it. They can have a hundred or more docking stations in one distribution center. China, for instance, with its 56 stores, has several distribution centers such as the one at Shechen. These centers, like their stores, have local associates, and in China, they number in the tens of thousands.

But to keep a balanced view, there is a downside, too.

“Germany has been terrible for Wal-Mart," says Jon Jacobs, retail analyst for Cantor Fitzgerald. "They are taking losses in a soft economy. Their operations in the U.K, that are around 50% of their overseas business, have shown uneven results, halted growth and [caused] financial disappointment in a market that has taken a consumer tailspin. This would make it understandable that they would move forward in Japan and both Latin America and Central America where they have recently made many gains.”

Most important, Wal-Mart is exporting a retailing and supply chain system that not only trains and influences the "associates" but the public as well. People in these many countries become Wal-Mart customers. They will live with the results of Wal-Mart's (and P&G's) commitment to radio frequency identification (RFID). The technology sneaks into the store on cat’s feet.

The power of Wal-Mart is partly derived from its partnerships and its bold use of technology. These two things in combination give them the muscle to knock out much of the competition, for better or worse, regardless of state or nation. Retail Forward, Inc. has predicted that Wal-Mart will top $500 billion by 2010. That will translate into more power and more countries.

The question is, What is this going to change, and how will the world and its customers adapt themselves to a Wal-Mart world?

Goodbye mom-and-pop stores, goodbye local stores in local places. Hello to stores that have a favored position in their procurement processes and their overall supply chain practice. Hello to efficient store-owned distribution centers. Hello to mega-stores with discount price advantages and a new sense of providing for shoppers' full-life experiences. Hello to radio frequency identification (RFID) and all its speed, accuracy and increased visibility of product availability.

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Kmart cuts full-time store jobs
By Tenisha Mercer - The Detroit News
January 13, 2006

Document outlines retailer's plan to shift to more lower-paid part-time workers.

Kmart recently outlined a new plan to its store managers that calls for fewer full-time workers and more part-time staffers at its 1,400 stores nationwide.

At the same time, some recently fired full-time Kmart workers have been offered part-time jobs with the company with less generous benefits.

The Detroit News obtained an internal Kmart document detailing the new restrictions on full-time store employees.

"As we continue to build a great company, it is important that we enable our stores with the maximum organizational flexibility to serve our customers well," the document said. "In order to obtain this flexibility it is necessary to ensure that we have the correct mix of full-time and part-time hourly associates."

The document, titled "Full-Time-Part-Time Workforce Adjustment Guidelines," lays out how store managers should calculate the number of full-time workers needed and compare that to store employment levels to determine how many positions to cut. Worker performance ratings should be used to identify employees to be terminated, the document said.

The move comes after Kmart confirmed last week that it was conducting a review of staffing levels at all stores that would result in work force changes, including job cuts.

The measures are the latest step in the cost-cutting binge Kmart has been on since it merged with Sears, Roebuck and Co. last year in a deal that created Hoffman Estates, Ill.-based Sears Holdings Corp.

Managers at several of Metro Detroit's more than 25 Kmart stores declined to comment on the staffing plan Thursday, but Sears Holdings spokeswoman Lisa Gibbons said the work force changes have been completed. It is not clear how many employees were affected.

Sears Holdings spokesman Chris Brathwaite said earlier this week that each store could be impacted differently. He declined to be specific about Kmart's use of part-time and full-time employees.

"Part of this process is looking at staffing needs going forward," Brathwaite said. "We believe the changes will allow stores additional flexibility … to serve our customers."

Retailers from Best Buy to Target routinely augment their staff with part-time employees, who are generally cheaper to hire because they receive less generous benefits and rarely qualify for overtime. But Kmart's increasing reliance on part-timers is a troubling sign, said one retail analyst.

"It's a way to sugarcoat what is a mission to prune their whole operation," said Kenneth Dalto, a retail analyst in Farmington Hills.

"Retailers don't bust down full-time to part-time on a scale like this."

Kmart is tying the number of full-time employees to store sales. For example, stores with up to $7 million in sales will have two full-time employees in departments such as apparel and housewares, while stores with $20 million will have four workers -- hiring levels that are 50 percent below industry standards, Dalto said.

"This is a little above a skeleton crew," Dalto said. "It's a blow to the customer service of the company. Cutting stores to these employment levels is almost like self-help. They're (saying) they will not get customers back through customer service."

Jane Zimmerman, who was fired from her position as a Kmart health and beauty aids manager last week, could have reapplied for her job but only as a part-time employee and at a lower hourly rate, she said.

Zimmerman, an 18-year Kmart employee who worked at a store in Mt. Pleasant, Pa., doubts if the retailer will be able to make its part-time employment strategy successful.

"Customer service will be terrible," said Zimmerman, 59, who declined to reapply for her old job, and estimates that about 11 full-time employees were fired at her store.

"They have younger employees who haven't been there that long who don't even know where merchandise is."

Other fired Kmart employees who posted messages on Internet message boards complained that the reductions were based on gender and age, but Brathwaite said the cuts were based on performance.

According to the document, Kmart will only hire full-time employees in select departments, including apparel, health and beauty, electronics and jewelry, as well as receiving, restocking, office administration and human resources. Most other departments will have part-time employees only, the document said.

The document also outlined staffing for certain positions, calling for one full-time associate in appliances at each store and one full-time lead district manager in each district. Kmart has 133,000 employees, according to its Web site.

Relying more on part-time help could put a crimp in Kmart's plans to become more competitive against rivals such as Wal-Mart Stores Inc., Target Corp. and Costco, said George Whalin, president of Retail Management Consultants in San Marcos, Calif.

Kmart, which closed nearly 600 stores and cut 57,000 jobs before emerging from Chapter 11 bankruptcy in May 2003, has long been plagued by customer service complaints.

"It's easier to get part-time employees than full-time employees, but on the other hand how do you properly staff a store with too few people?" Whalin asked. "They are already understaffed at most Kmart stores. Finding somebody to talk to there is nearly impossible. I don't think their service could get any worse."

Brathwaite said the company is not abandoning its customer service strategy.

"This review of our stores is a testament to our laser-sharp focus on customer service," he said. "This was aimed at providing the best customer service through … utilizing our associates."

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How Safe Is Your Pension?
By Ellen Schultz and Theo Francis – Staff Reporters - The Wall Street Journal
January 12, 2006

Freeze of IBM Plan Leaves Workers Worrying If Their Employer Is Next; Who Is Most Vulnerable

International Business Machines Corp.'s plan to freeze its $48 billion pension sent a chill through workplaces across the nation, with employees questioning whether their own benefits were also at risk.

IBM is the latest in a litany of corporations that have announced pension freezes in recent years, including Verizon Communications Inc. and Sears Holdings Corp. The actions mean that even though workers will get their pensions when they leave or retire, their benefits won't grow with additional years on the job. IBM instead increased contributions to its employee 401(k) retirement plan.

So far, there hasn't been a mass exodus by large companies from pension plans. Although smaller companies have been scaling back pensions in favor of 401(k) plans for years, two-thirds of companies that make up the S&P 500 still have pensions.

In the first comprehensive government study of frozen pension plans, the Pension Benefit Guaranty Corp. last month said that nearly one in 10 pension plans at private employers had halted accruals to at least some participants as of 2003, the most recent year for which complete data are available. But most of these cuts were at companies with fewer than 100 participants, and represented only 2.5% of total pension participants in PBGC-insured plans, the study found.

Still, a number of factors make it likely that more large companies could put the brakes on pension benefits soon. What's more, this is likely to happen even if the companies and their pension plans are financially healthy.

Here are some answers to questions confronting employees:

What's a "freeze?"

In a "hard freeze" like those at IBM and Verizon, all participants stop earning benefits. The assets remain in the pension and will be paid out when the workers retire or leave the company, but the workers' benefits don't grow with additional years on the job. It's as if the affected employees had changed jobs and stopped building a pension at their former employer. So far, relatively few large companies have done this, including Circuit City Stores Inc., Sears and hospital-products firm Hospira Inc.

More common are "partial freezes," such as closing the pension to new workers, which is something Motorola Inc., Lockheed Martin Corp. and Aon Corp. have done, or to workers under a certain age, as NCR Corp. has done.

Companies often freeze their pensions in stages. Sears froze its pension as of Jan. 1. But in 2004, before its merger with Kmart Corp., Sears stopped offering pensions to new workers and cut off existing employees below age 40 from building benefits.

Why are companies freezing pensions?

Companies say they're trying to become more competitive and adapt to changing times. Some, including technology firms like Hewlett-Packard Co. and IBM, say they must compete with younger companies that never made pension promises, or foreign companies where the government provides significant retirement benefits.


Workers in many industries are concerned that their employers will put the brakes on their pensions. Here are some groups that are most at risk:
• People in companies with a large percentage of older, longtime employees.

• Managers and other employees not covered by a collective-bargaining agreement.

• Employees whose companies have already cut some retiree benefits in the past. These firms are most likely to do so again.

But freezing pensions can bolster a company's profit, too. Because workers stop building pensions, the company gets to reduce a liability it has already recorded on its books that represents the promise to pay their future benefits. This generates accounting gains that boost income, at least on paper. Berkshire Hathaway Inc. froze the pension of a subsidiary effective Jan 1. The company recorded a gain to income of $70 million when it announced the move in 2004. A Berkshire executive didn't return a call seeking comment.

In short, thanks to the accounting rules, companies can realize income from cutting benefits they haven't paid. That could encourage employers to cut or freeze pensions even when the plans are fully funded and don't require any additional contributions from the companies.

Why now?

This turns out to be an opportune time for companies to freeze pensions, for a variety of reasons. For one thing, people aren't surprised: Financial crises at steelmakers and airlines, several of which have actually abandoned their pensions, mean people are used to hearing about a "pension crisis." Also, as more companies in a certain industry end pension benefits, rivals can argue more persuasively that they need to stay competitive. Moreover, thanks to arcane accounting rules, low, long-term interest rates mean the accounting benefit for freezing a pension is higher than it would be if long-term rates rise as expected.

Who's most vulnerable to a freeze?

Salaried employees are most vulnerable. Companies typically have to negotiate to cut benefits for workers covered by a collective-bargaining contract. Companies can't cut or revoke pension benefits already earned, but employers are generally free to freeze plans for nonunion workers at any time.

Who gets hurt the most?

Workers who have been at the company many years -- especially in their 40s and 50s -- could end up with substantially less money than expected. Traditional pension benefits build up fastest in an employee's final years at a company. That's because benefits are typically calculated by multiplying years of service by the average salary in the final years, when pay usually is highest. As much as half of a person's pension is earned in the last five years on the job. Even with bigger 401(k) contributions, these workers may never catch up.

Retirees aren't affected by freezes. Younger workers and those who switch jobs frequently also will be less affected.

Won't an enhanced 401(k) help?

Something is better than nothing, but employees whose companies switch to a 401(k), even one with more-generous benefits, could well prove worse off than with a pension. Investing their savings themselves means that just a few years of bad returns could leave them with no time to recover -- and a poorer retirement.

What's more, there's nothing to stop employers from cutting the 401(k) contribution in the future. "They have the discretion to change those contributions at any time, whereas they really didn't have that" with the pension, says Jay Hanson, national director of accounting for Minneapolis-based accounting firm McGladrey & Pullen LLP.

What if I'm in a cash-balance plan?

Many companies, including IBM and Verizon, are freezing their cash-balance pension plans. In these plans, employees' benefits grow by a percentage of their pay plus interest each year. These employees have faced multiple freezes of their pensions. When companies converted to these plans from a traditional pension, they froze the benefit buildup under the traditional formula, which reduced the pensions by 20% or more. What's more, the cash-balance pension was also effectively frozen for many older, longer-service workers. That's because they started with an account balance in their new pensions that was lower than the value of their former pensions. As a result, their pensions didn't grow until their annual cash-balance plan credits built up to the level of their old benefit, a phenomenon called "wearaway."

How is freezing different from terminating a pension plan?

When employers terminate a pension, they must pay out all of the benefits immediately, either in lump sums or by buying each worker an annuity. With rare exceptions, only companies operating under bankruptcy protection can dump unfunded liabilities on to the Pension Benefit Guaranty Corp., the government-run insurer that guarantees private-sector pensions. For all of the media attention about companies terminating underfunded pensions, it isn't common. Fewer than 2% of the plans that were terminated from 1986 to 2004 lacked enough money to pay every employee's pension, according to the PBGC.


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Forecast: More Pension Freezes/Sears Liability Reduced by $80 Million
By Ellen Schultz, Charles Forelle and Theo Francis – Staff Reporters
The Wall Street Journal
January 12, 2006

Companies Shift Retirement Plans, Putting Most of Load on Workers; Good Time to Put Lid on Accounts

Look for more companies to cut back on pension benefits as an unusual alignment of financial conditions makes such moves more lucrative than usual.

Two trends have emerged in the broad shift away from traditional pensions, which provide workers set benefits based on their salary and years of service. Financially strapped companies such as airlines and auto makers are garnering much of the attention as they seek to ditch their badly underfunded pension liabilities and try to stay afloat.

Meanwhile, relatively healthy companies -- many with fully paid-up pension plans -- are seeking to shift to retirement programs that put more of the burden for savings and planning on employees.

Last week, International Business Machines Corp. informed 117,000 workers in its U.S. pension plans that they will stop earning additional benefits after 2007, saving an estimated $2.5 billion to $3 billion over five years in the process, including the impact of other changes. Verizon Communications Inc. froze its pension for 50,500 managers last month, saving $3 billion in the coming decade.

Effective Jan. 1, many workers at Hewlett-Packard Co. and Sears Holdings Corp. also stopped building benefits in their plans. The companies said they are enhancing their 401(k) plans, which typically involve employee contributions that may be matched all or in part by employers.

Current interest rates offer employers the possibility of a particularly big income boost if they freeze their pensions, effectively wiping out part of a debt owed to future retirees. While assets in a plan still will be paid out when workers retire or leave the company, benefits don't grow with additional years on the job.

There is no legal barrier to freezing a pension unless it is prohibited by a union contract. Verizon, for example, unilaterally froze the pensions of its managers, but changes to pensions for its union employees are subject to negotiations.

"I wouldn't be surprised if many of the largest [companies] are in fact evaluating" pension freezes, said Vadim Zlotnikov, chief investment strategist for Sanford C. Bernstein & Co. Mr. Zlotnikov says the potential for locking in bigger accounting benefits is one of several reasons big pension sponsors might choose to freeze a pension now.

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 a company freezes its pension -- halting the buildup of additional benefits for employees -- it is no longer obligated to make some of the payments it had planned. That allows the company to reduce the value of the liability it was carrying on its books, which generates accounting gains that are counted as income. Although this "income" isn't money that can be spent, it can affect the stock price and often management's pay incentives.

Benefits consultants, which earn fees in part by helping employers restructure pension plans, have begun telling clients that competitors are considering changes. Hewitt Associates LLC says that 29% of 152 companies it surveyed recently were considering closing some of their pensions to new employees, and 16% of 157 companies said they might freeze benefit accruals for some or all of current participants.

Today's low long-term interest rates allow companies to lock in particularly high gains. The value of a future obligation in today's dollars is bigger when interest rates are low, because the employer would have to put more money aside at prevailing rates to meet the payments when they come due.

Short-term rates, which contrary to long-term rates have been trending higher in recent months, offer the potential for even bigger gains to companies with so-called "cash-balance" plans, such as IBM, Verizon, H-P, Sears and many other big companies. Under these plans, workers have hypothetical "accounts" to which the employer credits interest each year, often tied to short-term rates. Higher short-term rates means higher interest credits. That, too, raises the pension obligation, and in turn, the savings from reducing the obligation.

Thus, by freezing their U.S. plans at a time when both long- and short-term interest rates are creating bigger liabilities, many companies stand to reap a bigger benefit by reducing their obligation. The companies can lock in the savings today, even if, like IBM, the benefits won't stop growing for two more years.

Meanwhile, employers also are worried that proposed pension-accounting changes proposed by the Financial Accounting Standards Board might make their profits more volatile.

It is impossible to say for sure which companies will follow in the footsteps of IBM and Verizon. Technology and telecom companies such as Lucent Technologies Inc., BellSouth Corp. and Electronic Data Systems Corp., like IBM, Verizon, H-P and Sears, have cash-balance plans that could generate gains if frozen in the current interest-rate environment.

Spokesmen at all three companies declined to comment or said they weren't aware of any plans to change their plans. Lucent is among those reviewing options, says a person familiar with the matter.

IBM wouldn't break out the specific effects of freezing the U.S. pension, but says they account for about a third of its expected savings from pension changes. Nor would it identify how much its projected savings are offset by the estimated cost of increasing 401(k) contributions, which the company announced last week as well. IBM officials said the company began examining a pension freeze in earnest sometime early in 2005, and that the current interest-rate environment didn't play a role in the decision.

Verizon too, didn't disclose how much of the $3 billion in savings it expects will come from freezing the pension, nor would it say how much the savings are offset by increased 401(k) costs. The company declined to comment on whether the interest-rate environment played any role in its decision; it said the decision was driven by its merger with MCI, which didn't offer managers a pension.

An H-P spokesman said the company froze its pension for competitive reasons. "I wouldn't say [interest rates] played a significant role," he said. H-P didn't freeze its entire plan; rather, it closed it to younger employees and new employees, a move similar to what NCR Corp., did in 2004. NCR also has a cash-balance plan.

Sears said it froze its plan because traditional pensions have "become competitively unaffordable," and cause "significant volatility in a company's earnings and cash funding requirements."

Companies like Sears, which has an underfunded pension, get cash savings when they freeze their plans in addition to the pension income that boosts the bottom line. Because the obligation is reduced, the plan immediately becomes better-funded, which ultimately reduces or eliminates the need for the company to make cash contributions to the pension fund. Freezing its pension reduced Sears's pension liability by $80 million.

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Chris Johnson, former General Manager for Sears in Utah. dies
Salt Lake Tribune
January 12, 2006

S.C. "Chris" Johnson, who started at Sears, Roebuck and Co. as a dock trainee and rose to become the company's general manager for Utah and Idaho, will be buried Saturday at Wasatch Lawn Cemetery in Salt Lake County. He was 86.

Johnson, a native of Huntington, Emery County, and a graduate of Brigham Young University, joined Sears while earning his master's degree in retailing at New York University. He worked at the store's loading docks in Salt Lake City in 1947 and eventually was named operating assistant for the Pacific Northwest zone. He returned to Utah, was promoted to manager of the newly formed Idaho-Utah group of nine stores in 1965, and added more outlets to the area during his 33-year tenure at Sears.

He served as a Marine in Okinawa, was a member of the Salt Lake Police Colonels and had been named honorary Brigadier General for the Utah National Guard. "Chris Johnson has been a dear friend," said Maj. Gen. Brian L. Tarbet, Adjutant General of the Utah Guard. "Our condolences go to [his wife] Faye and their children. Chris was a pillar of the nation; a model citizen. He served honorably as a Marine and has been a great supporter of the Utah Guard for decades. We'll really miss him."

Johnson also received the Giant of the City Award in Salt Lake City and the Joseph Silverstein Award from the Utah Symphony. He was past chairman and president of United Way, and past president of the Salt Lake Area Chamber of Commerce.

He and his wife of 59 years, Faye Hunter, served a Leadership Mission for The Church of Jesus Christ of Latter-day Saints and also were guides on Temple Square. The couple had four daughters (one of whom preceded him in death), 14 grandchildren and 11 great-grandchildren. - Dawn House

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In Wal-Mart's Case, Its Enemies Aren't Terribly Good Friends
Union Critics Share Objectives But Snipe at Each Other;
Seeking Pay and Benefits
By Ann Zimmerman – Staff Reporter – The Wall Street Journal
January 11, 2006

WASHINGTON --WakeUpWalMart.com and Wal-Mart Watch have two things in common: They criticize Wal-Mart, and they criticize each other.

A few weeks ago, WakeUpWalMart .com, financed by the grocery workers union, launched its latest TV ad campaign questioning whether Christians should shop at Wal-Mart given its low wages and benefits. At the same time, the group sent a letter to Wal-Mart's chief executive Lee Scott signed by 65 ministers. "Jesus would not embrace Wal-Mart's values of greed and profits at any cost, particularly when children suffer as a result of those misguided values," the letter said.

Wal-Mart was upset. But so was Wal-Mart Watch, a group backed in part by the service workers union, formed to take on the world's largest retailer. Wal-Mart Watch declined to put its name on the ad, even though it earlier had helped cull names from its lists of religious leaders potentially willing to sign the letter. "What would Jesus do, indeed," Tracy Sefl, Wal-Mart Watch communications director, said in an email to this newspaper. "I think he would say the ad was a mistake. We heard from numerous supporters who were offended."

Meanwhile, WakeUpWalMart.com has its own issues with Wal-Mart Watch. When Wal-Mart recently offered a health-care plan to its employees, with three free doctor visits before deductibles kick in, Wal-Mart Watch applauded the efforts. Paul Blank, WakeUpWalMart's campaign director, complained that Wal-Mart Watch hadn't properly analyzed the plan and that it was no better than what Wal-Mart had been offering. He put out a harshly worded press release saying that.

The two organizations, backed by different unions, are top-heavy with former Democratic operatives from the 2004 presidential campaigns of John Kerry and Howard Dean. Both groups arose as Wal-Mart's rapid expansion made it a lightning rod in some corners of labor and the political left for a long list of grievances against big business. Wal-Mart and its supporters argue that the big retailer offers an enormous boon to Americans -- particularly lower-income consumers -- by driving down the price of household goods, appliances and thousands of other products.

The company says it doesn't see much difference between the two groups. "To us, these are both campaigns directed by union leadership intended to criticize a company trying to help working families," says Wal-Mart spokeswoman Sarah Clark. "There are well-meaning critics out there. These two organizations don't fall into that category."

WakeUpWalMart is run by Paul Blank, the former political adviser for Mr. Dean's presidential campaign. It is financed and housed by the United Food and Commercial Workers Union, which failed in a decade-long effort to organize Wal-Mart workers.

In November, it ran a provocative Internet ad asking: "Who is the biggest criminal?" The ad showed pictures of former House Majority Leader Tom DeLay and Lewis Libby, Vice President Cheney's former chief of staff, both currently under indictment by grand juries, but the answer turned out to be Lee Scott, Wal-Mart's chief executive. A Wal-Mart spokeswoman called the ad mean-spirited and offensive.

Wal-Mart Watch is the brainchild of Andy Stern, the head of the Service Employees International Union, who shook up the labor movement last summer when he broke his union off from the AFL-CIO. The Service Employees provided the start-up funding for Wal-Mart Watch, though it also has grants -- and support from such groups as Common Cause.

Jim Jordan, Sen. Kerry's former presidential campaign manager, is a consultant, and several former Kerry campaign workers are on the payroll. It scored a coup in November when it made public an internal Wal-Mart memo about spiraling health-care costs that discussed hiring younger, healthier workers. Wal-Mart Watch frets that its campaign is being undermined by WakeUpWalMart's tactics. "I think the key difference between us is that they are about short-term impact rather than long-term change. Our organization is addressing concerns, not caricaturing them," says Ms. Sefl.

Paul Blank's response: "She is dead-wrong about our group. Neither Andy Stern nor Wal-Mart would be foolish enough to think we aren't in this for the long term to make Wal-Mart change."

Both groups were born out of the four-month grocery strike against Safeway, Albertsons and Kroger in Southern California two years ago. The big chains argued that they had to cut wages and benefits in order to compete with Wal-Mart, and the workers ultimately made significant givebacks.

Last summer, when Mr. Stern began exploring a new umbrella labor organization to compete with the AFL-CIO, he wanted to goad Wal-Mart into providing higher wages and more generous health-care benefits. At the Service Employees International Union annual convention, the group pledged $1 million to begin pressuring Wal-Mart. Wal-Mart Watch was officially launched in April, with a Washington staff of 36.

After the costly California strike, the United Food and Commercial Workers Union voted in new leadership last March. Under its new president, Joe Hansen, it decided, at least in the short term, to stop actively trying to unionize Wal-Mart. Instead, it made a priority of pressuring Wal-Mart to raise pay and benefits to more closely resemble those of unionized grocers. In April, the union launched WakeUpWalMart.com, with a staff of six working out of union headquarters in Washington.

Taking a page from the Howard Dean campaign, which recruited supporters and funds over the Internet, WakeUpWalMart wants to drum up community opposition to Wal-Mart's practices and to sign up supporters over the Web. To date, more than 150,000 people have registered their support with the group online.

That doesn't impress Mr. Stern. "They've done a good job collecting a lot of names, but I'm not sure what their ability is to turn the grass roots into action," he said.

His counterpart, Mr. Hansen, didn't answer a question about tensions between the two groups taking on Wal-Mart. Via email he said: "We welcome SEIU's involvement in the campaign to change Wal-Mart."

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Local retail Web sites get low marks from shoppers
By Mark Scheffler – Crain’s Chicago Business Online
January 11, 2006

Sears Holdings Corp. found another piece of coal in its stocking as it put away its Christmas decorations.

After a sluggish holiday sales season that saw the company do less discounting than competitors, a customer poll released Tuesday announced that one of its websites — Sears.com — ranked near the bottom in terms of satisfaction among online shoppers who visited, but may or may not have purchased, from the site.

Out of 40 companies ranked, Sears came in at 37. Its sibling, Kmart.com, came in at 39th. (Last place was Dallas-based CompUSA.com; first place was Netflix.com).

Other Chicago retailers whose sites produced little Christmas cheer were florist FTD.com and computer seller CDW.com, which ranked 35th and 36th, respectively.

The Top 40 Online Retail Satisfaction Index, launched in Spring 2005, was conducted by ForeSee Results and FGI Research and is based on the top 40 retailers as measured by revenue and reported in Internet Retailer Magazine’s Top 400 Guide. It uses methodology of the University of Michigan’s American Customer Satisfaction Index (ACSI) to determine the scores.

According to the poll takers, some of the reasons behind the poor numbers include the arrival of first-time and infrequent visitors and the retailers’ failure to satisfy them. Price was another key sticking point and rated the lowest of any satisfaction category, as many shoppers were expecting deeper discounts online.

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More Companies Ending Promises for Retirement
By Mary Williams Walsh – New York Times
January 9, 2006

More death knell for the traditional company pension has been tolling for some time now. Companies in ailing industries like steel, airlines and auto parts have thrown themselves into bankruptcy and turned over their ruined pension plans to the federal government.

Now, with the recent announcements of pension freezes by some of the cream of corporate America - Verizon , Lockheed Martin, Motorolaand, just last week, I.B.M. - the bell is tolling even louder. Even strong, stable companies with the means to operate a pension plan are facing longer worker lifespans, looming regulatory and accounting changes and, most important, heightened global competition. Some are deciding they either cannot, or will not, keep making the decades-long promises that a pension plan involves.

I.B.M. was once a standard-bearer for corporate America's compact with its workers, paying for medical expenses, country clubs and lavish Christmas parties for the children. It also rewarded long-serving employees with a guaranteed monthly stipend from retirement until death.

Most of those perks have long since been scaled back at I.B.M. and elsewhere, but the pension freeze is the latest sign that today's workers are, to a much greater extent, on their own. Companies now emphasize 401(k) plans, which leave workers responsible for ensuring that they have adequate funds for retirement and expose them to the vagaries of the financial markets.

"I.B.M. has, over the last couple of generations, defined an employer's responsibility to its employees," said Peter Capelli, a professor of management at the Wharton School of Business at the University of Pennsylvania. "It paved the way for this kind of swap of loyalty for security."

Mr. Capelli called the switch from a pension plan to a 401(k) program "the most visible manifestation of the shifting of risk onto employees." He added: "People just have to deal with a lot more risk in their lives, because all these things that used to be more or less assured - a job, health care, a pension - are now variable."

I.B.M. said it is discontinuing its pension plan for competitive reasons, and that it plans to set up an unusually rich 401(k) plan as a replacement. The company is also trying to protect its own financial health and avoid the fate of companies like General Motors that have been burdened by pension costs. Freezing the pension plan can reduce the impact of external forces like interest-rate changes, which have made the plan cost much more than expected.

"It's the prudent, responsible thing to do right now," said J. Randall MacDonald, I.B.M.'s senior vice president for human resources. He said the new plan would "far exceed any average benchmark" in its attractiveness.

Pension advocates said they were dismayed that rich and powerful companies like I.B.M. and Verizon would abandon traditional pensions.

"With Verizon, we're talking about a company at the top of its game," said Karen Friedman, director of policy studies for the Pension Rights Center, an advocacy group in Washington. "They have a huge profit. Their C.E.O. has given himself a huge compensation package. And then they're saying, 'In order to compete, sorry, we have to freeze the pensions.' If companies freeze the pensions, what are employees left with?"

Verizon's chief executive, Ivan Seidenberg, said in December that his company's decision to freeze its pension plan for about 50,000 management employees would make the company more competitive, and also "provide employees a transition to a retirement plan more in line with current trends, allowing employees to have greater accountability in managing their own finances and for companies to offer greater portability through personal savings accounts."

In a pension freeze, the company stops the growth of its employees' retirement benefits, which normally build up with each additional year of service. When they retire, the employees will still receive the benefits they earned before the freeze.

Like I.B.M., Verizon said it would replace its frozen pension plan with a 401(k) plan, also known as a defined-contribution plan. This means the sponsoring employer creates individual savings accounts for workers, withholds money from their paychecks for them to contribute, and sometimes matches some portion of the contributions. But the participating employees are responsible for choosing an investment strategy. Traditional pensions are backed by a government guarantee; defined-contribution plans are not.

Precisely how many companies have frozen their pension plans is not known. Data collected by the government are old and imperfect, and companies do not always publicize the freezes. But the trend appears to be accelerating.

As recently as 2003, most of the plans that had been frozen were small ones, with less than 100 participants, according to the Pension Benefit Guaranty Corporation, which insures traditional pensions. The freezes happened most often in troubled industries like steel and textiles, the guarantor found.

Only a year ago, when I.B.M. decided to close its pension plan to new employees, it said it was "still committed to defined-benefit pensions."

But now the company has given its imprimatur to the exodus from traditional pensions. Its pension fund, the third largest behind General Motors and General Electric , is a pace-setter. Industry surveys suggest that more big, healthy companies will do what I.B.M. did this year and next.

"There's a little bit of a herd mentality," said Syl Schieber, director of research for Watson Wyatt Worldwide, a large consulting firm that surveyed the nation's 1,000 largest companies and reported a sharp increase in the number of pension freezes in 2004 and 2005. The thinking grows out of boardroom relationships, he said, where leaders of large companies compare notes and discuss strategy.

Another factor appears to be impatience with long-running efforts by Congress to tighten the pension rules, Mr. Schieber said. Congress has been struggling for three years with the problem of how to make sure companies measure their pension promises accurately - a key to making sure they set aside enough money to make good. But it is likely to be costly for some companies to reserve enough money to meet the new rules, and they - and some unions - have lobbied hard to keep the existing rules intact, or even to weaken them. So far, consensus has eluded the lawmakers."If Congress will not do its job and clarify the regulatory environment, then I think more and more companies will come to the conclusion that, given everything else that they've got to face, this just isn't the way to go," Mr. Schieber said of the traditional pension route.

Defined-benefit pensions proliferated after World War II and reached their peak in the late 1970's, when about 62 percent of all active workers were covered solely by such plans, according to the Employee Benefit Research Institute, a Washington organization financed by companies and unions. A slow, steady erosion then began, and by 1997, only 13 percent of workers had a pension plan as their sole retirement benefit. The percentage has held steady in the years since then. The growth of defined-contribution plans has mirrored the disappearance of pension plans. In 1979, 16 percent of active workers had a defined contribution plan and no pension, but by 2004 the number had grown to 62 percent.

For many workers, the movement away from traditional pensions is going to be difficult. Already there are signs that people are retiring later, or taking other jobs to support themselves in old age. Participation in a pension plan is involuntary, but most 401(k) plans let employees decide whether to contribute any money - or none at all. Research shows that many people fail to put money into their retirement accounts, or invest it poorly once it is there.

Even skillful 401(k) investors can be badly tripped up if the markets tumble just at the time they were planning to retire. Mr. Schieber of Watson Wyatt ran scenarios of what would happen to a hypothetical man who went to work at 25, put 6 percent of his pay into a 401(k) account every year for 40 years, retired at 65, then withdrew his account balance and used it to buy an annuity, a financial product that, like a pension, pays a lifelong monthly stipend.

He found that if the man turned 65 in 2000 he would have enough 401(k) savings to buy an annuity that paid 134 percent of his pre-retirement income. But if he turned 65 in 2003, his 401(k) savings would only buy an annuity rich enough to replace 57 percent of his pre-retirement income.

When a company switches from a pension plan to a 401(k) plan, the transition is hardest on the older workers. That is because they lose their final years in the pension plan - often the years when they would have built up the biggest part of their benefit. They then start from zero in the new retirement plan.

Jack VanDerhei, an actuary who is a fellow at the Employee Benefit Research Institute, offered a hypothetical example. If a man joins a firm at 40, works 15 years, and is making $80,000 a year by age 55, he might expect to have built up a pension worth $16,305 a year by that time, Mr. VanDerhei said. If he keeps on working under the same pension plan, that benefit will have increased to $27,175 a year when he retires at 65.

But if instead when the man turns 55 his company freezes the pension plan and sets up a 401(k) plan, the man will get just the $16,305 a year, plus whatever he is able to amass in the 401(k). It will take both discipline and investment skill to reach the equivalent of the old pension payments in just ten years, Mr. VanDerhei said.

For women, the challenge is even tougher. They have longer life expectancies, so they have to pay more than men if they buy annuities in the open market. It turns out the traditional, pooled pension offered them a perk they did not even know they had.

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Was Wal-Mart's Anti-Union Image Used as a Shield?
By Michael Barbaro – New York Times - News Analysis
January 9, 2006

In December 2004, shortly before Thomas M. Coughlin left his job as the second-ranking executive at Wal-Mart Stores, he instructed a subordinate to order him a $1,700 laptop computer, which he later charged to Wal-Mart. "This," he wrote to the aide, in an e-mail message later disclosed by the company, "is to be used on the union project."

The union project, according to Mr. Coughlin, was a secret scheme, approved by senior Wal-Mart executives, to pay union members for information about which stores they planned to organize.

A year later, when Mr. Coughlin was accused of misusing more than $500,000 in company funds through fraudulent reimbursements, the union project became the heart of his defense, and it immediately transformed the case into a symbol of anti-unionism on the part of Wal-Mart. Reporters seized on it, labor groups issued a flurry of angry press releases about it and the National Labor Relations Board began an investigation into it.

But Mr. Coughlin's agreement to plead guilty to federal wire fraud and tax evasion charges, which two people close to the negotiations disclosed on Friday, and the lack of evidence that he used the missing money to spy on unions raise doubts as to whether such a project even existed.

A nearly yearlong investigation, in which prosecutors reviewed records of Mr. Coughlin's travel, phone calls and e-mail messages, produced no evidence that he or any other executive at Wal-Mart ever paid a union member for information, according to one person briefed on the inquiry who spoke on the condition of anonymity because Mr. Coughlin is not scheduled to officially enter the plea until later this month.

Lacking evidence of the scheme, the Coughlin case follows a far more familiar track - a highflying executive, paid millions of dollars a year, who stole from his company.

Wal-Mart, in a separate legal complaint with a former Coughlin subordinate, called the union project a "complete fabrication." But what made Mr. Coughlin's defense so powerful - and, in a way, so convenient - was that it seemed so plausible to longtime observers of the company.

Such a scheme "certainly would not be out of character," said Harley Shaiken, a professor on labor issues at the University of California, Berkeley, who has studied Wal-Mart for years. "Given Wal-Mart's antipathy for unions and its aggressiveness in fighting them, what Coughlin fabricated appeared to be real."

Wal-Mart has long been known for its bare-knuckled approach to fighting unions. When employees at an outlet in Canada voted last year to unionize, the retailer shut the store down, arguing it was unprofitable. In 2000, shortly after 11 Wal-Mart meat cutters in Texas voted to form a union, the company eliminated meat-cutter jobs companywide and announced it would use prepackaged meat instead.

The National Labor Relations Board has filed dozens of complaints accusing Wal-Mart of using hardball tactics to fight unions, such as improperly firing union supporters and threatening to deny bonuses to management if workers unionized.

In one case, Mr. Coughlin - at the time, he was chief of Wal-Mart Stores in the United States - was accused by the United Food and Commercial Workers Union of personally trying to improperly influence a union vote at a Wal-Mart auto center in Arizona by showing up at the store and speaking with employees about their working conditions.

Indeed, when word of the union project first emerged a year ago, the food and commercial workers union, which is trying to unionize Wal-Mart's 1.3 million workers in the United States, believed it enough to file an unfair labor practice complaint with the National Labor Relations Board.

The complaint touched off an agency investigation that is continuing.

It was Mr. Coughlin who worked hardest to keep the union project - or at least the idea of it - alive, according to corporate records from Wal-Mart.

Over a period of several years, when he headed the United States operations of Wal-Mart and was vice chairman of the company and a board member, he mentioned it frequently to his underlings, almost always to explain why he needed large sums of company money.

In 2002, for example, Mr. Coughlin told one of his aides to prepare two fake invoices, each for $5,000, that "the union people in Vegas needed," according to a lawsuit Wal-Mart filed to strip Mr. Coughlin of his retirement benefits.

The aide sent the money, which was used to purchase a $10,810 custom-built hunting vehicle for Mr. Coughlin, according to Wal-Mart.

In 1997, Mr. Coughlin told the same aide to obtain a corporate calling card number so he could make long-distance calls to "the union people," Wal-Mart said. For five years, the company alleges, Mr. Coughlin used the card number to make lengthy telephone calls to and from cities where his children were attending college.

Neither Mr. Coughlin nor a representative for Wal-Mart returned phone messages yesterday.

Mr. Coughlin's employees appeared to have doubts about the union project. According to the company, one of Mr. Coughlin's top deputies disclosed in interviews with company investigators that he "always suspected there was no union project. " After reviewing expense account statements and e-mail messages, he concluded instead that it was a "cover for his fraud."

But if Wal-Mart employees had doubts about the project, and the validity of Mr. Coughlin's expenses, they kept them private. Mr. Coughlin, a 6-foot-4 former football player and hunting buddy of Wal-Mart's founder, Sam Walton, was among the most powerful executives at the company.

By 2003, as vice chairman, he oversaw Wal-Mart, Sam's Club and walmart.com. For much of that time, he was responsible for Wal-Mart's loss prevention department, which investigated alleged theft and fraud by employees.

Indeed, Mr. Coughlin's supposed use of misappropriated gift cards and false invoices to pay for personal purchases like CD's, beer and hunting gear was not disclosed by the people he worked with but by a low-level store employee. The worker called Wal-Mart's headquarters to inquire about Mr. Coughlin's use of a gift card - originally designated for store employees to improve morale - to buy a pair of contact lenses.

People briefed on the matter said Mr. Coughlin might still advance the union project defense before a judge later this month in Fort Smith, Ark., not far from the company's headquarters in Bentonville. It is unclear why he would pursue such a defense, because his lawyers apparently presented no firm evidence to support it and prosecutors found no evidence to back it up, according to people involved in the case.

If the plea deal holds, Mr. Coughlin may serve more than two years in jail and pay restitution of at least $350,000, according to people briefed on the matter.

"This is probably his last choice," said Mr. Shaiken, the professor of labor studies. "It represents few options and a pretty grim reality for him."

"He wanted to bargain with" the union project, Mr. Shaiken said, "but it did not prove possible."

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Allstate a hands-down winner in corporate reputation survey
By Becky Yerak – Staff Reporter – Chicago Tribune – Inside Financial Services
January 6, 2006

Allstate Corp.'s reputation was in better hands in 2005.

In its annual study of 60 high-profile U.S. companies, Harris Interactive found that the Northbrook-based insurer's "reputation quotient" climbed 3.36 points, the biggest increase last year for any firm, to 65.82.

Allstate ranked 40th in the recently released national corporate reputation survey, which was topped by Johnson & Johnson's score of 80.56. Harris' benchmark for a "strong, positive reputation" is 75. Last year, Allstate was 45th.

The study began in March with 6,977 interviews. Respondents were asked to nominate two companies they felt had the best reputations and two with the worst. Responses were tallied to identify the 60 most visible companies.

Then, starting in August, nearly 19,600 randomly picked respondents were asked to rate one or two companies with which they were "very or somewhat familiar," in such areas as products, financial performance and workplace environment.

Each of the 60 companies was rated by at least 253 people. The average number of respondents per company was 650.

It was a better year for financial-services companies overall. Bank of America Corp. ranked 39th, with a score of 66, up 2.44 points. Citigroup Inc. placed 43rd, with a 65, up 0.9.

Among other companies of local interest, Chicago-based Boeing Co.'s score rose 2.7 points, to 73.1, putting it 22nd on the list.

Oak Brook-based McDonald's Corp., however, lost luster, dropping 1.73, to 66.83. It ranked 35th.

Sears Holdings Corp., the product of the March merger between Kmart Holding Corp. and Hoffman Estates-based Sears, Roebuck and Co., ranked 41st, with an overall score of 65.26.

That's a big comedown for Sears Roebuck. In the 2004 study it ranked 31st, with a score of 70.06.

Companies new to the 2005 list included United Airlines, 56th, with a 53.09 grade. Bringing up the rear was Enron Corp., scoring 30.05.

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Wal-Mart's Coughlin to Plead Guilty To Wire-Fraud,
Tax-Evasion Charges
By James Bandler – Staff Reporter – The Wall Street Journal Online
January 6, 2006

Former Wal-Mart Vice Chairman Thomas Coughlin has agreed to plead guilty later this month to federal wire-fraud and tax-evasion charges, according to people familiar with the proposed plea agreement he has struck with prosecutors.

Mr. Coughlin, formerly the giant retailer's No. 2 executive, left the company early last year amid accusations that he misappropriated as much as $500,000 from Wal-Mart Stores Inc. through fraudulent reimbursements and improper use of gift cards.

Federal sentencing guidelines, which are advisory, but which are still adhered to by most judges, call for a sentence of in excess of two years, according to people familiar with the matter.

Under terms of the deal, Mr. Coughlin will plead guilty to five counts of wire fraud and one count of tax evasion, according to the people familiar with matter. A court hearing on the plea deal is set for later in January.

The most explosive aspect of the drama may remain unresolved. Mr. Coughlin is expected claim that, in part, he was reimbursing himself for a secret scheme to fund an anti-union spy operation.

But Federal prosecutors for the U.S. Attorney's Office for the Western District of Arkansas have found no significant evidence that Mr. Coughlin was part of any clandestine intelligence operation directed at unions, according to someone familiar with the investigation. Wal-Mart has said it has also investigated the matter and found Mr. Coughlin's claims to be untrue.

The deal ends several months of negotiations between Mr. Coughlin's lawyers and prosecutors. Mr. Coughlin's lawyers, who include William Taylor and Blair Brown, persuaded prosecutors not to pursue money laundering charges, which could have added substantially to his sentence.

Mr. Coughlin, regarded once by some employees as the living embodiment of Wal-Mart founder Sam Walton, is likely to be the senior most Wal-Mart executive charged for his involvement in the episode. Several other lower level employees could also face charges. Mr. Coughlin was widely regarded as helping preside over one of the most successful periods of growth in Wal-Mart history, and the scandal has shocked thousands of employees who admired him.

One of Mr. Coughlin's deputies, former Wal-Mart vice president Robert Hey Jr., pleaded guilty in federal court in November to three charges of wire fraud in the case.

According to a chronology provided by Wal-Mart in a civil suit filed last year, Mr. Coughlin was caught after asking an underling for $5,100 in company gift cards, supposedly to reward superior performance by employees.

Instead, Wal-Mart has claimed, Mr. Coughlin used the gift cards himself at Wal-Mart stores and Sam's Club outlets, spending $1,000 toward three 12-gauge shotguns, and buying a Celine Dion compact disc, Stolichnaya vodka, wine, a $319 fishing license, a rifle case and a $3.54 Polish sausage.

Documents reviewed by The Wall Street Journal also suggest that Mr. Coughlin had Wal-Mart pay for a range of his personal expenses, including a $2,590 kennel at his ranch, a $1,359 pair of handmade alligator boots, and thousands of dollars in hunting leases.

Mr. Coughlin told subordinates that the money was to reimburse him for sums he secretly spent gathering intelligence on union activities, including paying for information about pro-union workers in Wal-Mart stores. Wal-Mart has long opposed efforts by unions to organize the retailer's workers, so the claim had a ring of plausibility.

Mr. Coughlin's deal with prosecutors calls for him to admit to five wire-fraud counts based upon multiple transactions. The parties have agreed that the amount of the loss including the unpaid taxes is slightly over $350,000. All of the transactions occurred before November 2001.

--Wall Street Journal staff reporter Kris Hudson in Dallas contributed to this article.

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Sears sees the stingier side of holiday sales
Retail experts doubt Lampert's strategies
By Susan Chandler - staff reporter – Chicago Tribune
January 6, 2006

Nobody could blame Sears Holdings Corp. Chairman Edward Lampert for wearing a Grinchy frown.

His big retail bet--the combination of Sears and Kmart--turned in one of the most disappointing holiday showings among major retailers Thursday. The former Sears, Roebuck and Co. brought up the rear, in fact, with a sales decline of 12 percent in the nine-week period that ended Dec. 31, one of the worst year-end performances in its 120-year history.

Sears blamed fewer promotional events and "weaker than anticipated customer response to fashion offerings." Kmart turned in a meager gain of 1 percent.

It's the first holiday season with Lampert at the helm of Sears Holdings, the $55 billion company formed in March by Kmart's acquisition of Sears. The showing reflects poorly on Lampert's decision to take a more hands-on role in merchandising and marketing, retail consultants say. While he isn't responsible for the holiday assortment in Sears' stores, which was ordered early in the year, he did decide not to discount goods as heavily as the Hoffman Estates-based company has in past holiday periods.

More important, the disappointing finish to 2005 raises questions about how long Sears can continue to hemorrhage customers and remain in the game with more nimble players such as Target, Home Depot and Kohl's.

"As a retailer, you can't do what Eddie Lampert is doing and stay in business," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm in New York City.

The double-digit plunge in Sears' sales came against a background of much better showings by competitors. Target Corp. boasted a 4.7 percent gain in December same-store sales and Costco Wholesale Corp. racked up a 7 percent sales gain. Industry leader Wal-Mart Stores Inc. was apologizing for a 2.2 percent sales boost.

Neil Stern, a retail consultant with Chicago's McMillan/Doolittle, agrees that Sears' holiday performance was "abysmal," and he notes that it is a continuation of dismal results in the back-to-school season when sales also were down by double digits.

The problems at Sears remain largely the same--an overcrowded apparel assortment that doesn't connect with customers and more competition from Home Depot and Lowe's for appliances and tools.

Sears' rollout of the Lands' End apparel brand in its stores hasn't paid off as expected either.

But Sears' decision to cut back on advertising and "door-buster" specials during the holidays took a big toll, analysts said. Shoppers have been trained to expect bargains early in the holiday season and if they don't find them, they go elsewhere.

Even though the numbers were nothing to celebrate, Lampert may not be completely displeased.

A hedge fund operator who lives in Connecticut, Lampert is a strong believer in not giving away merchandise at bargain prices to pump up top-line sales numbers. Likewise, he is leery of spending heavily on advertising. Gross profit margins are what Lampert talks about and cares about. He is willing to sacrifice sales if it means bigger profits at the end of the day.

"It's his strategy to be less promotional," Stern said. "You're cutting advertising expenditures and you are going to sell product at more regular pricing and higher margins. It's very contrary to what most retailers do. It's not about the top line, it's about the bottom line."

Davidowitz concedes the strategy is intentional, but he also believes it is misguided. "Cut the inventory, cut the assortment, raise the prices, cut the help, cut advertising and promotions. It's a unique approach to retailing."

That doesn't seem to bother Wall Street.

Sears Holdings stock closed up $1.89, or 1.6 percent, to $117.90. That's a far cry from Sears' 52-week high of $163.50 per share but still well above its 52-week low of $84.51.

Since the merger, Sears Holdings has acquired a new group of investors who don't fit the typical retail investor mode--people who consider a steady increase in sales to be a crucial sign of a retailer's health.

By contrast, Sears' new breed of shareholders are less focused on what happens at the cash register. They believe Lampert's real strategy is to break up and sell off the real estate and other assets of Sears and Kmart rather than run the company as a viable retail operation.

Lampert, of course, has said the contrary--that he does intend to run Kmart and Sears as retail operations, but he believes it can be done more efficiently than in the past.

Still, investors are betting that Lampert will use the cash raised from asset sales to diversify from retail to other businesses.

They also care more about Sears Holdings' bottom line and balance sheet than they do monthly sales numbers.

That is why Sears Holdings also reassured investors about fourth-quarter profits Thursday. The Hoffman Estates-based company said it expects to post profits of between $570 million and $635 million for the fourth quarter, in line with analysts estimates reported by Thomson Financial.

After the merger was finalized in March 2005, Sears began following Kmart's practice of not issuing monthly sales reports. In a departure from that strategy, Sears Holdings released its numbers Thursday along with the rest of the industry.

Sears also said its cash position would improve to $3.5 billion by the end of its fiscal year, which runs through Jan. 28. That's up from a recent estimate of $2.7 billion and puts Sears in "a solid financial position going forward," Gary Balter, a Credit Suisse First Boston analyst, told Dow Jones.

Sears Holdings investor Richard Diecidue agrees there is no real cause for concern.

"I don't think there's any question that the Sears component of what they're doing is not where it needs to be or where they want it to be. It's a work in progress," said Diecidue, a portfolio manager in the Denver office of Unicom Capital.

"But their overall revenue and net income was about in line with our expectations," he said. "More significantly for us, the balance sheet continues to look very strong. We're going through a paradigm change from an execution standpoint."

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Sears holiday same-store sales fell 12%
Crain’s Chicago Business Online
January 5, 2006

Weak apparel sales hurt Sears; Kmart sales up 1%

(Reuters) — Sears Holdings Corp. <http://chicagobusiness.com/cgi-bin/relatedStories.pl?type=company&amp;id=235&amp;news_id=19014> on Thursday said holiday sales rose at its Kmart discount chain but fell sharply at Sears, dragged down by weak clothing sales and the elimination of profit-crunching clearance sales.

In a surprise statement from the No. 3 U.S. retailer, which normally does not release monthly sales data or provide profit forecasts, Sears Holdings said it expects fourth-quarter earnings per share of $3.55 to $3.95. Analysts, on average, expected $3.65, according to Reuters Estimates.

The company also said it expects to end the fiscal year with more than $3.5 billion in cash, excluding Sears Canada, up from its previous forecast of about $3 billion.

Sears Holdings, headed by financier Edward Lampert, has cut back on store investment and eliminated several clearance sales to boost profit. But the strategy has hurt business.

The retailer said sales at Sears stores open at least a year dropped 11.9 percent in the nine weeks ended Dec. 31. At Kmart stores, they were up 1 percent, helped by higher apparel sales that made up for a decline in home goods.

Credit Suisse First Boston analyst Gary Balter called the holiday sales performance "encouraging" and largely in line with expectations, and said the balance sheet looked strong.

"At current levels, and with our expectation that some type of capital transaction will occur near term, we view Sears Holdings as one of our favorite names for 2006, albeit our riskiest," he wrote in a note to clients.

Investors have been waiting for Lampert to orchestrate some sort of blockbuster deal, whether it be selling stores to raise even more money or making a big acquisition using the company's already sizable cash pile. The retailer recently offered to buy the remaining minority stake in Sears Canada for about $719 million but Wall Street is still anticipating a bigger move.

Sears Holdings also said it repurchased about 826,000 shares of its stock in the nine-week November and December period, leaving $471 million remaining under its buyback plan. CSFB's Balter said he was somewhat disappointed that the retailer hasn't bought back more of its shares.

Shares of Sears Holdings shares closed up $1.89, or 1.6 percent, at $117.90.

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Sears Same-Store Sales Tumble, Kmart Up
January 5, 2006

HOFFMAN ESTATES, Ill. -- Sears Holdings Corp., one of the nation's largest department store chains, on Thursday said more picky consumers and a lack of special promotions caused same-store sales at its namesake outlets to tumble 11.9 percent last month.

The retailer, which operates both Sears department stores and Kmart discount outlets, has been struggling to improve sales and margins since the two brand names combined last year. However, the four weeks ended Dec. 31 showed its Sears brand has been having a tougher time doing so _ while same-store sales at Kmart increased 1 percent.

At Sears stores, the company said it scaled back on promotional events to improve margins during the period. In addition, "customer response to fashion offerings" at its Sears stores were weaker than expected.

Sears also said fourth-quarter profit is expected to between $570 million and $635 million, or between $3.55 and $3.95 per share, on a combined basis. Analysts surveyed by Thomson Financial project earnings of $3.69 per share when Sears reports quarterly results around March 15.

On Dec. 6, the company stated in a report with the Securities and Exchange Commission earnings for the year-ago quarter were $589 million, or $3.61 per share. The retailer said those projections were prepared as though Kmart and Sears operated as one company at the beginning of 2004 - but were not adjusted for savings from the combination.

The updated guidance factors in an expected $15 million of pretax gains from the sale of assets during the quarter. Sears earnings will not be affected by two transactions that closed during the quarter _ the sale of Kmart headquarters, or the $680 million sale of its credit business in Canada.

Sears owns approximately 2,300 full-line and 1,200 specialty retail stores in the United States and owns 54 percent of Sears Canada Inc., a 370-store operation in that country.

Shares of the company tumbled $1.65 to $114.36 in premarket trading.

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Kmart plans to cut store jobs
Tenisha Mercer / The Detroit News
January 4, 2006

Retailer will announce changes to workers this week after completing a major staffing review.

Employees at Kmart stores in Metro Detroit and across the country are bracing for layoffs as the retailer prepares to announce changes to employment levels at many of its 1,400 locations. The moves will be the latest blow to Kmart workers, who have suffered though a Chapter 11 bankruptcy filing, numerous stores closings and reduction in full-time positions in recent years. The cost-cutting has only intensified since the discount retailer merged with Sears Roebuck & Co. last year in a deal that created Sears Holdings Corp.

Chris Brathwaite, spokesman for Hoffman Estates-based Sears Holdings, confirmed Tuesday that the company will announce changes affecting employees in the next few days. Braithwaite said some stores will cut jobs, others will add employees and staffing at some locations won't change.

Brathwaite wouldn't estimate how many employees will be affected. "Every year, stores go through a review of staffing needs to determine if they are staffed appropriately," he said.

One store manager who asked to remain anonymous told The Detroit News that he has to lay off nearly 10 full-time employees this week, and other store managers he has spoken with plan to take similar actions.

The manager said he understands that several thousand jobs will be cut across many of Kmart's 1,400 stores, including more than 25 locations in Metro Detroit. Kmart employs about 133,000 workers, according to its Web site.

The News obtained a list of talking points the company e-mailed to store managers to help them explain the job cuts to employees.

"As you may have heard, this morning/afternoon some of your fellow associates are no longer working with us," the e-mail said. "I realize it's never easy to say farewell to colleagues and friends, but for us, for Kmart and for Sears Holdings to grow and stay relevant to our customers, we must continually evaluate how we can operate most efficiently and effectively."

The e-mail said the "difficult but necessary" moves come as a result of a thorough review conducted over the past several months to "ensure our staffing model positions us for long-term success and is aligned with that of our key competitors. This change will impact a small number of associates in most Kmart stores."

Some stores affected by Hurricane Katrina will be exempt from the cuts, according to the e-mail, which Brathwaite described as an "initial draft" that will be revised.

Kmart employees who lose their jobs will have the opportunity to reapply for open positions, the e-mail said.

"It is essential that we not let today's news distract us from the important work of serving our customers," the e-mail said.

Anxious Kmart employees have posted messages on Internet chat rooms in recent days warning that the retailer would cut employees and possibly shrink its number of full-time staff in favor of part-time employees.

Brathwaite would not comment on full-time positions.

Kmart, like many other retailers, pares seasonal help and reduces work hours for full-time employees after the holidays. But the upcoming changes are anything but routine, said Farmington Hills retail analyst Kenneth Dalto.

"They strategize every year, but they don't make these kinds of (changes)," Dalto said. "They need to bring expenses in line with their revenue, and cutting employees is the quickest way."

Retail analyst Howard Davidowitz said the cuts at Kmart stores were inevitable. Kmart and Sears have struggled to compete against large rivals such as Wal-Mart Stores Inc. and Target Corp.

"You can cut inventory and promotions," said Davidowitz, chairman of Davidowitz & Associates in New York, "but if you don't cut help, you go out of business. When you continue to lose market share like Kmart has done, all you can do is keep cutting costs."

The changes at Kmart come as Sears Holdings Chairman Edward S. Lampert -- an investment whiz with a knack for turning around troubled companies -- takes a broader roll at Sears Holdings. Lampert drastically cut costs at Kmart, trimming inventory and improving stores, after becoming a majority investor in 2003.

The company has relocated or cut most of the employees at its former headquarters in Troy.

Last month, Lampert backed away from an aggressive plan to convert 400 Kmart stores into Sears Essentials -- a smaller, off-mall shopping format -- intended to drive growth at the company.

For the third quarter ending Oct. 29, same-store sales at Kmart fell 2.8 percent, while sales at Sears fell 11 percent.

Kmart closed nearly 600 stores and cut 57,000 jobs before emerging from Chapter 11 bankruptcy as a new company in May 2003.

The cuts at Kmart come as retailers nationwide try to shake off a mediocre holiday selling season. Despite aggressive discounts, sales at Wal-Mart, the nation's largest retailer, rose 2.2 percent in December at U.S. stores open at least one year.


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Stewart locked out of Sears
Negotiations with Lampert to modify contract key to whether products expand beyond Kmart

By Susan Chandler - staff reporter – Chicago Tribune
January 1, 2006

It was supposed to be one of the biggest synergies to come out of the merger of Kmart and Sears: the opportunity to pump Martha Stewart's stylish line of housewares--currently sold exclusively at Kmart--through Sears' network of almost 1,000 stores.

But nine months after Kmart's acquisition of Sears closed, Martha is nowhere to be seen in Sears' U.S. stores, and there's no sign she will be making an appearance anytime soon.

Stewart and Edward Lampert, the chairman of Sears Holdings Corp., are negotiating over a modified contract that would allow the Martha Stewart Everyday line to be sold in Sears, sources close to both sides say.

Lampert, the hard-nosed hedge fund operator who brought Kmart out of bankruptcy, wants to pay Stewart less than she is entitled to under the current agreement, according to a source familiar with the talks. Stewart is pushing for an extension of her current contract, which carries large financial guarantees.

A spokesman for Sears Holdings declined to comment on the state of negotiations as did a spokeswoman for Martha Stewart Living Omnimedia.

As the talks drag on, investors and others are getting impatient to see how Sears Holdings deploys the various brands at its disposal.

"People expected to see more of the cross-pollination going both ways between the brands," said Neil Stern, a retail consultant with Chicago's McMillan/Doolittle. "We're seeing DieHard and Kenmore in Kmart, and you'd expect to see Kmart brands in Sears as well, with no brand being more prominent than Martha."

The absence of Martha Stewart products is particularly awkward for Sears Essentials, the hybrid stores that were once touted as the future of the new company.

Sears Essentials was supposed to combine the best of Sears and Kmart in former Kmart sites that are outside mall settings and therefore easier for shoppers to negotiate. But so far, the stores have turned out to be Sears merchandise combined with a pharmacy and a convenience food department.

Kmart brands are no-shows, including Martha Stewart Everyday housewares, Route 66 denim, Joe Boxer casual wear and Jaclyn Smith women's apparel.

That's particularly confusing for Kmart shoppers who used to frequent the 50 locations that have been converted to Sears Essentials. They now find Martex towels in the housewares department Martha Stewart goods formerly occupied, and they likely were disappointed to discover that Martha Stewart's popular Christmas shop was missing this year.

"We don't have any Kmart brands at Sears at this point," confirmed Chris Brathwaite, a Sears Holdings spokesman. "We're currently looking at the best way to leverage the brands of both companies, and that work continues right now."

The early results on Sears Essentials have not been encouraging, and Sears is pulling back on the concept, Lampert said in his third-quarter letter to Sears shareholders. Instead, the company is focusing on a strategy called "Sears Inside of Kmart," which involves putting Kenmore appliances and Craftsman tools in more of Kmart's nearly 1,500 stores. Kenmore and Craftsman already are available in 88 Kmart stores.

Lampert didn't mention the logical counterpoint of that strategy, which would be "Kmart Inside Sears."

Stewart's home goods would be the centerpiece of such a strategy, and her notoriety is higher ever since she emerged triumphantly from prison in March after serving five months for lying to investigators about a stock sale.

NBC made a movie about her life starring Cybill Shepherd that aired in May. Stewart starred in her own reality show version of "The Apprentice" this fall. A Martha Stewart line of upscale furniture is doing well for Bernhardt Furniture Co., and more than 3,000 people in suburban Raleigh, N.C., have expressed interest in a Stewart-designed house being marketed by KB Home.

Sears' home departments could use a lift.

Before he departed in October, Luis Padilla, Sears' head merchant, was trying to give them one by bringing new merchandise inspired by Sears' Great Indoors home remodeling and decorating chain to Sears department stores.

The new home department would have featured bedding, pillows, lighting and home decor items such as vases, frames and candles created by the same vendors that supply the Great Indoors. There also would be a culinary department with small electric appliances, cookware, place mats and napkins.

The items would have been priced a little above Sears' current offerings but would have been less expensive than those found at the Great Indoors. The home department in the Sears store in Vernon Hills was being remodeled as a prototype for the new approach.

But the departure of key merchants after the Kmart/Sears merger closed in March has left the strategy in limbo.

"There is so much turmoil going on," said one former Sears executive who asked not to be named. "There is nobody who is leading the initiative, and much of that has fallen by the wayside. There will be a minimal amount of new merchandise."

Brathwaite declined to comment, saying the company doesn't comment on its business strategies going forward.

Back in the late 1980s, when Stewart first signed on with Kmart, many retail experts thought her image was too upscale for the discount chain. Sears, J.C. Penney or Kohl's, stores that were a cut above, would have been a better match, they said.

Yet Stewart proved adept at translating her understated style and color palette into budget-priced items for Kmart shoppers, who found the Martha Stewart Everyday department front and center in many Kmart stores. The line has expanded over the years to include outdoor furniture, dishes, glassware, holiday decorations, cookware and even baby gifts. In earlier times, Stewart also appeared in Kmart's TV spots.

But the relationship suffered after Kmart was forced to seek bankruptcy protection in 2002.

Stewart was concerned about being tied exclusively to a chain that was rapidly shrinking through store closings, while Kmart was unhappy with the guaranteed royalty amounts it had to pay Stewart even as its sales contracted. Kmart sued Martha Stewart Living Omnimedia in February 2004 over contract language that provided royalty guarantees for individual product lines.

Just two months later, things appeared to be patched up.

Kmart and Stewart announced they had reached a revised agreement that "better aligns the two companies' mutual business interests."

As part of the deal, Stewart gave up the product line royalty guarantees. Kmart dropped its lawsuit and agreed to extend its contract with Stewart through the end of 2009. The deal is heavily weighted in her favor, industry sources say, because, at the time, Kmart needed Stewart more than she needed Kmart.

Under the agreement, Kmart will pay Stewart an aggregate minimum royalty of $54 million for 2005; $59 million for 2006 and $65 million for 2007. The payment then drops to $20 million for 2008 and $15 million for 2009 or 50 percent of the earned royalty in either of those years. Kmart also is allowed to defer up to $10 million in royalties to the last two years of the contract.

Stewart's products have never sold in enough quantity to hit the guaranteed royalty payment, says a knowledgeable source, so in theory, a certain amount of her products could be sold in Sears without costing the combined company anything extra.

Lampert's pitch to Stewart is that she can make more money long-term by having her products sold in more outlets, but Sears Holdings won't expand the distribution unless she accepts Lampert's modifications. Stewart has an additional reason to work something out with Sears Holdings. Her products are sold exclusively in Canada through Sears' stores in that country.

But Stewart and Lampert are both known to be tough negotiators who don't give much ground. It's entirely possible the two sides will reach an impasse and no new agreement will be reached, sources said.

Stewart might be better off if that happens, according to retail consultant George Whalin.

"She is going to make more money in the long-term when she is away from Kmart and Sears. Tomorrow she could sell that product to Federated, J.C. Penney, Linens 'n Things and Bed Bath and Beyond. She would be foolish not to, and nobody has called her a fool."

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As Drug Plan Begins, Stores Predict Bumps
By Robert Pear and Milt Freudenheim – New York Times
January 1, 2006

WASHINGTON, Dec. 31 - Millions of older Americans will gain access to government-subsidized prescription drugs on Sunday with the long-awaited expansion of Medicare. But pharmacists say beneficiaries may initially experience delays and frustration as the promise of the new program is translated into practice.

Tens of thousands of people who signed up for the benefit have yet to receive the plastic identification cards that will enable them to fill prescriptions promptly at retail drugstores.

More than five million poor people have been assigned to Medicare drug plans selected at random by the federal government. In an unknown but small number of cases, people were inadvertently assigned to plans far from their homes, because the government used addresses for relatives or guardians.

Bush administration officials have made exhaustive efforts to identify low-income people entitled to the drug benefit. But they say it is possible that some will show up at pharmacies before they have been enrolled in any plan.

Leslie V. Norwalk, deputy administrator of the federal Centers for Medicare and Medicaid Services, said her agency had "an extra safety net" for these beneficiaries. They can "leave the pharmacy with a prescription in hand," she said, if pharmacists follow a contingency plan devised by the government.

In addition, insurers said that some people happily receiving care in health maintenance organizations, under contract to Medicare, had signed up for free-standing prescription drug plans, not realizing that they would be automatically ejected from their H.M.O.'s. They now face higher costs for hospital care and doctor's visits in the traditional Medicare program.

Medicare drug coverage, the biggest expansion of the program in its 40-year history, will be offered through private insurance plans subsidized by the government, at a federal cost estimated at $724 billion in the first 10 years. In traditional Medicare, the government offers a uniform package of benefits, with only minor variations.

But under the new program, dozens of different plans will be available, with different premiums, co-payments and lists of covered drugs, known as formularies.

William P. Scheer, president of the Pharmacists Society of the State of New York, who owns a drugstore in the Bronx, said he was nervous.

"I would be thrilled if it goes smoothly," Mr. Scheer said, "but it may not. There's a plethora of potential problems that could delay service for customers. In my testing of Medicare's computer system, to verify eligibility, it appears that 30 percent of my low-income patients have fallen through the cracks. Some of those patients are at risk of not getting medications."

Garrison C. Moreland, a co-owner of the Moreland & Devitt Pharmacy in rural Rushville, Ill., said, "The first few weeks will be chaotic." His store, he said, will have to change its billing procedures for many customers, and doctors will have to rewrite prescriptions to comply with Medicare drug plan formularies.

The new drug coverage is available to all 42 million Medicare beneficiaries, regardless of their incomes. The government reported on Dec. 22 that more than 1 million people had voluntarily signed up, while 10.6 million had been automatically enrolled by federal officials or by Medicare managed care plans.

People have until May 15 to sign up. After that, they may face penalties in the form of higher premiums.

Opinion polls provide a mixed picture of public sentiment. In a survey conducted in late October by the Kaiser Family Foundation, only 35 percent of people 65 and older said they understood the new drug benefit. Those who did understand it were much more likely to view it favorably. A Wall Street Journal/NBC News poll in early December found that 40 percent of older voters had unfavorable views of the new benefit.

The new program depends heavily on a vast network of electronic communications linking Medicare, pharmacies, insurers and other government contractors.

To enroll a person in the new Medicare program, an insurer must submit an electronic file with the person's name, date of birth, sex and other identifying information. If any of the information is inaccurate or missing, or if the format is not exactly right, the file may be rejected.

In most cases, the government tells insurers to correct the errors and resubmit the applications. But in recent weeks, Medicare has often sent back a message saying simply "processing delayed" because of unspecified problems in a computer system. In a bulletin to insurers, the government said it was "researching the cause of this situation."

In some cases, insurers have received two contradictory messages for the same beneficiary, saying "enrollment accepted" and "enrollment rejected" at the same time.

S. Lawrence Kocot, a senior policy adviser at the Medicare agency, said the Bush administration had taken many steps to ensure a smooth transition. On Thursday, the administration disseminated "quick tips" for Medicare beneficiaries. On Friday, it offered guidance to pharmacists, telling them how to deal with two dozen questions and problems that could arise at the pharmacy counter.

Mr. Kocot said, "We know that many beneficiaries may not have their plan identification card on Jan. 1."

To ease this burden, Mr. Kocot said in an e-mail message to pharmacists, "we have implored all plans" to send acknowledgment letters to people who apply for Medicare drug coverage. Druggists, he said, should fill prescriptions for anyone with such a letter.

A typical letter used by AARP, the lobby for older Americans, thanks the recipient for enrolling in AARP's drug plan, insured by UnitedHealth Group. But it says that the recipient's application has yet to be approved by the federal government. In the meantime, it says: "This letter is proof of your AARP MedicareRx plan coverage. You should show this letter at the pharmacy until you get your member ID card from us."

The letter then cautions that if the government rejects the application, the "AARP MedicareRx plan will bill you for any prescriptions you received through us."

Such letters can be helpful. But Steven A. Hitov, a lawyer at the National Health Law Program, a nonprofit law firm for low-income people, said mail delivery was notoriously spotty in some poor neighborhoods. "Mailboxes are more likely to be broken," Mr. Hitov said, "and mail is more likely to be lost or stolen."

Insurance companies are eager to smooth the way for applicants while they wait for Medicare approvals. Aetna, for example, has arranged temporary drug plan ID cards that can be downloaded and printed from a Web site. Cigna is offering to tell members by telephone how to identify themselves at the pharmacy. WellPoint is keeping its call-in centers open around the clock.

Under the 2003 Medicare law, beneficiaries with low incomes qualify for extra help that can sharply reduce their premiums, deductibles and co-payments. But until Medicare approves an application, the insurer does not know the amount of the subsidy for any particular beneficiary.

The drug benefit may increase business for some pharmacies by making medications available to people who could not afford them in the past. But John M. Rector, a senior vice president of the National Community Pharmacists Association, said, "It won't be a moneymaker for the typical pharmacy, because insurers have set extremely low reimbursement levels."

Anxiety about the new drug benefit is remarkably similar to concerns expressed around the beginning of Medicare, on July 1, 1966.

"Social Security offices around the country are being swamped with questions" about Medicare, said an article on the front page of The New York Times on that day. Some people who enrolled "are worried because they have not yet received their Medicare cards," the article said. A top Medicare official said that "many doctors and hospital administrators, as well as patients, do not understand the program."

Then, as now, Medicare was a huge political issue. President Lyndon B. Johnson predicted a smooth beginning for the program, a cornerstone of his Great Society. But a committee of top Republicans from the federal government and the states said he had "failed tragically" to prepare for the start of Medicare.

The first major test of the new drug benefit involves low-income people entitled to both Medicare and Medicaid. They will lose Medicaid coverage of their prescription drugs on Sunday. The Bush administration has made elaborate plans to ensure that Medicare will immediately start paying for their medicines.

Kathryn J. Cole, 36, of Seattle is on Medicare because of a disabilities related to a pituitary tumor and has been receiving drug coverage through Medicaid. She said she lived on Social Security checks of $757 a month. "Currently," she said, "Medicaid pays 100 percent of my drug costs." Under Medicare, she will have co-payments up to $3 a month for each of her 15 prescriptions.

"That's a large chunk of money for me," Ms. Cole said. "But it's not just the money. The new program is overwhelming because it's so complicated and stressful."

Despite the complexity, insurers report keen interest in the new drug coverage. Karen Wintringham, vice president of Excellus Blue Cross Blue Shield in Rochester, N. Y., said beneficiaries would inevitably experience some problems in the first weeks or months.

"It won't run smoothly anywhere in the country for a little while," Ms. Wintringham said, "but it's still better than what many people had before.

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Penney: Back In Fashion
Its private-label brands draw middle-market shoppers
By Robert Berner – Business Week
January 9, 2006 issue

Rushing through a J.C. Penney Co. store in Plano, Tex., to buy underwear for her two girls, Anna Garlington stops to eye a pair of jeans under the a.n.a. brand name. Preferring trendier stores, the 43-year-old schoolteacher hadn't set foot in a Penney for years but was drawn by a coupon she received in the mail. The cropped jeans, called gauchos, appeal to Garlington's contemporary sense of style. "Really cool," she says, feeling the denim between her fingers.

That's the reaction Penney Chief Executive Myron "Mike" Ullman III wants with a.n.a. The stylish line of women's clothing, which is just rolling out to stores, is the retailer's largest launch ever of a proprietary store brand. It's part of a comprehensive branding strategy that Ullman hopes will bring growth to a tired section of the retail world -- the middle-market department store. That runs counter to the conventional retail wisdom that the best growth opportunities are either at the discount end of the market, like Wal-Mart or Target, or the high end, like Nordstrom Inc. and Neiman Marcus.

The thinking behind the a.n.a. brand says a lot about how Ullman plans to make that happen. Penney is sharpening its understanding of its customers' needs and borrowing branding practices more familiar to a consumer-products maker like Procter & Gamble Co. () than a 103-year-old retail chain. The steps are aimed at erasing Penney's image as "your mother's store" and making Penney brands resonate with the shopper. "So when she walks into the store she says: 'This is my store; they get me,"' Ullman says. "Most department stores don't pull that off."

The changes are already boosting results. In November, Penney registered a 3.6% gain in sales at stores open at least a year, the highest among department stores. Analysts say its Christmas sales will show it to be one of the holiday shopping season's big winners. It'll all add up to a 57% increase in earnings for its fiscal year ending in January, to $925 million, Citigroup forecasts. But investors still doubt its long-term prospects for growth. That's why Penney's stock -- trading at 13 times estimated future earnings -- has one of the lowest price-earnings multiples of any major retailer and is far below its fast-growing, off-mall rival Kohl's Corp., whose forward p-e is 19. "Investors underestimate Penney, which is why there is huge opportunity in the stock," says Citigroup analyst Deborah Weinswig.

Should the growth plan succeed, it will cap a remarkable turnaround for the once-moribund Penney, which was operating at a loss when Ullman's predecessor, Allen Questrom, joined the company in 2000. Questrom, who retired at the end of 2004, resuscitated the languishing Penney, reinvigorating its merchandise and profits by the time Ullman, 59, took the helm. Questrom also left Ullman with the largest young women's and men's apparel businesses in the country and retail Internet sales second only to those of Amazon.com Inc.

In the choice of a successor, Penney needed a leader who could define a unique position in an overcrowded retail landscape -- "someone who could deal with black holes," says Melanie Kusin, vice-chairman of recruiting firm Heidrick & Struggles International Inc. (), who led the search. With Ullman, Penney got an executive known for his strategic and branding skills. In his last job, he had been managing director at Paris-based LVMH Moët Hennessy Louis Vuitton, where he doubled its luxury brand holdings. Ullman has a nerve injury that limits his ability to walk long distances, but it doesn't slow him down: To get around Penney's big Plano headquarters, he parks a Segway next to his desk.

For the next chapter of Penney's revival, Ullman has set his sights high, aiming to be in the top-performing quartile of retailers in five years, judged by several benchmarks. That includes new-store growth, something that has eluded other mall-based department stores. Indeed, most of Penney's new stores will be built off the mall, where Kohl's has had much success. With 22 such stores already, Ullman says there is room for as many as 200, on top of Penney's 1,000 mall stores. With Sears Holdings Corp. distracted by its merger with Kmart and Federated Department Stores Inc. planning to take its recently acquired May Department Store Co. more upscale, he sees plenty of room to grow in the middle market. Demographics are on his side, says Ullman: "42% of consumer spending is within our target market."

The core of the growth plan is Ullman's branding strategy. Forty percent of Penney's sales are of private label brands, the highest of any department store. Seven of those brands, such as Arizona, Worthington, and St. John's Bay, are billion-dollar businesses in their own right. But while such brands can make a retailer more distinctive and offer high margins, Ullman believes they serve no purpose unless they appeal to shoppers emotionally like strong national brands such as Nike. "We looked at them more as labels," he says. Questrom started to change that by dividing shoppers into four fashion taste levels: those who wanted conservative, traditional, modern, or trendy clothing. Now, Penney could focus its assortments around those shoppers, just as a specialty apparel store like Talbots Inc. focuses around its traditional shopper.

Under Ullman, the strategy has a greater level of refinement. He's adding more modern and trendy brands, because they offer higher sales growth, and he's further segmenting those categories. For instance, Penney's a.n.a. line fills a need for casual weekend wear for women with modern tastes. It rounds out two slightly dressier modern lines launched last spring, W and Nicole, an exclusive line by designer Nicole Miller. To make sure Penney store brands stay true to their customers, Ullman is putting dedicated design teams on each. And he has launched a brand management system, much as P&G has a single brand manager on its brands. The brand manager's role is to ensure consistency behind the brand, from apparel appearance and marketing to sales practices. "We want each brand to have a maniacal focus," says new branding head Laurie Van Brunt, who joined Penney from Limited Brands Inc., one of the few other retailers to employ brand managers.

The launch of a.n.a. also demonstrates how Penney intends to develop brands more quickly and speed up the flow of new fashions through its stores. From conceptualization to first deliveries, a.n.a. took about four months to evolve. That compares with at least a year for Penney's past brand introductions. What started as about 18 pieces of apparel for the spring season will eventually be expanded to include a.n.a. accessories such as jewelry, handbags, and shoes. "We want to outfit her from head to toe so she has the entire look and it is very easy for her," says Brian Deleu, a.n.a.'s head designer. "It completes the full brand image."

Penney's recent results suggest that Ullman's plan has struck a chord with consumers. But analysts say the biggest obstacle Ullman faces in continuing his run is Kohl's, which continues to open new stores at a far faster pace than Penney. Kohl's has been boosting the fashion quotient of its private brands, launching new ones like daisy fuentes and Candie's, partly in response to Penney. According to some analysts, Kohl's is also in talks with designer Vera Wang on an exclusive line like Penney's Nicole and is moving toward a similar brand management system. Kohl's declines to comment.

By some measures, Penney is gaining ground on its rival. Research firm BIGresearch LLC shows that Penney's popularity among women as a favorite place to buy clothes rose by 13% during the last year, vs. an 8% gain for Kohl's. And Penney says the new a.n.a. brand is running 34% ahead of plan, in terms of sales. If Penney can maintain such momentum, Ullman's goal to have a growth multiple like Kohl's might not be out of reach.

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What Is Eddie Buying?
By Mark Tatge & Miriam Gottfried - Forbes - OutFront
January 9, 2006 issue

Is hedge fund manager Edward Lampert taking Sears private?
Can Edward Lampert save Sears? Or maybe that's the wrong question. Can he save his investment in Sears? He might do that by taking the $54 billion (sales) retailer private. Lampert smushed Sears and Kmart together a year ago. But the $11 billion deal has so far done little to reverse the sickly retailers' slide. The December quarter was another horrible one for comparable store sales, down 10.8% at Sears outlets and down 2.8% at Kmart. The future doesn't look much more promising. Lampert, who noted in SEC filings that recent apparel sales numbers were "disappointing," prefers not to talk to Wall Street or to journalists.

All the more reason to take Sears private. Acquiring the 60% of Sears that his hedge fund doesn't own could cost Lampert $12 billion to $15 billion (including assumed debt). Lampert could then slowly sell Sears real estate assets, valued at $10.8 billion, without having to explain himself to public shareholders. So far Lampert has dumped some of Sears' Orchard hardware stores, slashed costs and sold some credit card receivables, raising $1 billion in cash.

"There's so much going on with this company, and most of it doesn't have anything to do with retailing," says Gimme Credit analyst Carol Levenson. She suggests in a recent writeup that Sears lacks retail merchandising talent. Replacing longtime Searsians are Aylwin Lewis, who served briefly as Kmart's chief executive after running fast-food joints for Yum Brands, and William C. Crowley, who is chief operating officer of Lampert's hedge fund, ESL Investments.

Look for Lampert to plow $2 billion annually into stock buybacks (he spent $430 million this way in the third quarter), effectively boosting his control of the retailer. Then, when Sears' lofty $123 share price eventually falls, Lampert will be poised to buy the rest via tender offer.


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