January 2006 - February 2006
Sears Canada Inc. says its independent directors
won't run for re-election
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
Four of the 10 Sears Canada board members abstained
from voting because they are executives of Sears Canada or Sears
The directors who did vote pointed last week to a
valuation opinion from Genuity Capital Markets declaring the bid
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
The directors noted that the offer, which expires
March 14, is 18 per cent below the midpoint of the Genuity valuation
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.
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
"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
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
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
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
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
At the NGA conference, Mr. Scott met individually with
governors from Pennsylvania, Kansas, Tennessee and Arkansas.
joins Army recruiting partnership
By Ashley Stetter – Army
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.
“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
“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.
Lampert solid in game of valuation chicken
By Eric Reguly – Globe and
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
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
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
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
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.
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
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
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
Will name change draw
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
Sears’ new plans call for off-mall Kmarts to be
converted to Sears Grands, including groceries, CDs and, in some cases,
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
“This (switch to Sears Grand) is no solution to the
present situation,” Melaniphy said.
Grand plan goes in a
will soon be history
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
"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
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
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.
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 –
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
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
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
Rivals such as Wal-Mart are plunging deeper into home
improvement products, while archenemy No. 1, Lowe's Cos. (LOW
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
"CULTURE OF FEAR"
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
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.
COMMAND OF DETAILS
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
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
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.
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
"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."
exec would lead board of Wal-Mart bank
By Becky Yerak – Chicago
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
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
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
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.
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
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.
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
"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.
DEPARTMENT STORES VS BIG BOXES
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
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
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
"They are either dying or consolidating," the
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.
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
"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
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
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
By Kris Hudson – Wall Street
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
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
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
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
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
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
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
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
"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.
Sears to launch
new marketing ploy in spring
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
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
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.
Sears pulls plug on
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."
Sears ditches Sears
Retailer plans to convert Kmart to Sears Grand
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
“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
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,
Sears Grand debuted in 2003 in West Jordan, Utah, with
a 210,000-square foot store designed to compete with Wal-Mart and
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.
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
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.
Wal-Mart Tries to Find
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
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
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'
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
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
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."
Hudson's Bay Co. shakeup
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
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
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
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
Jerry Zucker's HBC To-Do list:
Reduce staff and replace senior management to
ensure a fresh flow of new approaches.
SHARPEN UP ZELLERS
Expand stores, widen the aisles, improve the
lighting and update the exterior.
LIVEN UP MARKETING
Make sure shoppers know what is available in
BUFF UP THE CHANGE ROOMS
Make them attractive, and staff them with
knowledgeable and helpful people.
STAY IN STOCK
Shorten purchasing cycles so stores always
have new products.
STOCK THE BASICS
Make sure stores have basic items such as
white shirts and black pants, and don't run out of them.
CLOSE UNPRODUCTIVE OUTLETS
Top firms' plan for
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
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
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
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
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
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
"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
"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."
Web Site, Wal-Mart Chief Talks Tough
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
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
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
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
The Web site has a folksy name — Lee's Garage, because
Mr. Scott pumped gas at his father's Kansas service station while
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
"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
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
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
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
"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
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
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
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
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."
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
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
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.
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
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
"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
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."
Piggy Banker? Critics Fear a Wal-Mart Move Into Banking Would Dominate
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
"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
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
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
"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
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
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
"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
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
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
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
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
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
Q. How many precut barns were
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
Family feud grips Sears
Canadian unit valuation: Genuity says $19
parent sticks to $16.86
By Hollie Shaw – Financial Post
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
"I don't know why the shares are trading above the $18
level," William Crowley, chief executive of Sears Holdings, said in an
"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
"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
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
Analyst George Hartman of Dundee Securities believes
Sears Holdings makes some valid arguments in its refusal to pay more for
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."
- - -
SEARS CANADA INC.
Close: $18.15, down 35 cents
Avg. 6-month vol.: 474,166
Rank in FP 500: 47
Sears Canada wants more
Appraisal values shares at up to $2 more
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
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
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 ...
THE BEST INVESTOR OF HIS GENERATION.
So what is he doing with Sears?
By Patricia Sellers -
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
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
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
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
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
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.
HOW LAMPERT PICKS
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
Lampert on being an active--not
"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
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.
Kmart streamlines at
By Eric Ruth - The
News Journal – Wilmington News Journal
February 9, 2006
Less pay, fewer hours become
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
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
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
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
"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
"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.
Benefits Go the Way of
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
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
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
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
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
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
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
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
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
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.
Kmart Settlement Proposal
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
She said objecting class members must file written
objections with Cohn at least seven days before the May 22 settlement
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
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
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
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.
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
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
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
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
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.
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."
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
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
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.
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.
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
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
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."
Can Wal-Mart Sustain a
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? 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
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."
Bay Sells Credit Card; Owner-To-Be Approves
By Andy Georgiades – Dow
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
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
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
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
Analysts have often criticized HBC for making most of
its money from its credit card and little, if anything, from its core
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
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.
Hudson's Bay sells
financial arm for $370M
By Rita Trichur –
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
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
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
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
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
HBC's stock gained six cents to trade at $15.07 on the
Toronto Stock Exchange.
Parades Makeover With Media Blitz
Oscar Ads, 'Pop-Up' Store Aim to Convince Customers Its
Fashions Are Updated
By Ellen Byron – Wall
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
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
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."
Holdings pressing on with Sears Canada bid
- 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
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.
A New Side to Apparel at
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
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
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
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
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
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."
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
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
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
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.
Sears Canada operation sliding
Cites U.S. parent's cost cutting,
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
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
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.
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
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
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
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
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
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
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.
Wal-Mart: Store savors
New Evergreen Park Wal-Mart draws many applicants,
as well as some critics, at its preview event
By Jo Napolitano - staff reporter –
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
A company spokesman stood by the figure, saying
Wal-Mart is scrutinized and an inflated number would be easily
"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
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
"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
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
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
Roper called the company's labor problems "learning
"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
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
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
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."
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
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.
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
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
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
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
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
Shares of Allstate closed Wednesday at $50.56, off 72
cents, on the New York Stock Exchange.
Sears Centre's huge
By Patrick Corcoran - Hoffman
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
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
What Are Sears And HBC Up To?
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
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.
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
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
"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
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
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
Medicare Drug Benefit Sparks an Industry Land Grab
By Sarah Lueck and –
Vaness Fuhrmans - Staff Reporters – The Wall Street Journal
January 25, 2006
New Medicare Drug Benefit Sparks an
Industry Land Grab
Insurers Rush to Sign Seniors, Confounding
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
"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
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
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.
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
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
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
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.
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
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
"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
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
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
• 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
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
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
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
founder gives U-Chicago $42 mil.
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
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.
Free Sears houses: Any takers?
By Justina Wang - Elgin
January 23, 2006
Historic homes must be moved or be
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
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.
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
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
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.
missing from top earners at 35 big firms...
SEARS A TOP PERFORMER
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
"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
"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
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
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
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,"
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
Accounting: More Than Meets The Eye
January 30, 2006
Companies may soon be forced to put
their unfunded pension and other retiree benefit promises on their
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 &
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
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
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
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
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 (email@example.com) to make your
reservations. The cost of the luncheon is $15.00. To attend the
meeting, you must also attend the luncheon.
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
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.)
this retail theft get through store security?
By George Will –
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
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
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
By Theo Francis and
Ellen E. Schultz – Staff Reporters – The Wall Street Journal
January 18, 2006
Bill Designed to Bolster
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
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
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
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
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.
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
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
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 &
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.
Require More Disclosure on Executive Pay
By Stephen Labaton – New
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
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
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
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
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
"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,"
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
CEOs cut pensions, pad
By Michael Brush - MSN
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
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
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
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."
Kmart service comes up
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
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
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
May Squeeze Pensions
By Adam Geller, AP
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
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
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
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
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
Medicare Drug Plan Sign-Up
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.
More Employers Try
Limited Health Plans
Fuhrmans – Staff Reporter - The Wall Street Journal
January 17, 2006
Cheap 'Mini-Medical' Policies Cover
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
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."
Frederick T. Weimer, former assistant general credit manager of Sears,
dies at 78
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,
Maryland Sets a
Health Cost for Wal-Mart
By Michael Barbaro – The New
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
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
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
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
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
Wal-Mart executives have strongly suggested that they
might build the center elsewhere if lawmakers passed the health care
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
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
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.
Wal-Mart Takes Over The World
By Robert Malone -
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
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
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
Kmart cuts full-time store
By Tenisha Mercer - The
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
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
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
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
"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
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."
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
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
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
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.
GAUGING YOUR RISK
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
• Managers and other employees not covered by a
• Employees whose companies have already cut some
retiree benefits in the past. These firms are most likely to do so
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
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
Who's most vulnerable to a
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.
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
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
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
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
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
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
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.
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
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
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
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
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
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
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
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
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
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.
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
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
"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
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
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
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
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.
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
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
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
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
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
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
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
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."
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
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.
Wal-Mart's Coughlin to Plead Guilty To Wire-Fraud,
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
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
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
--Wall Street Journal staff reporter Kris Hudson in
Dallas contributed to this article.
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
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
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
"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
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
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
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
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
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
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
"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
same-store sales fell 12%
Crain’s Chicago Business
January 5, 2006
Weak apparel sales hurt Sears; Kmart sales up 1%
(Reuters) — Sears Holdings Corp.
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.
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
Shares of the company tumbled $1.65
to $114.36 in premarket trading.
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
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
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
"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
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.
Stewart locked out of Sears
Negotiations with Lampert to modify
contract key to whether products expand beyond Kmart
By Susan Chandler - staff reporter –
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
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
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
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
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
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
"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
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
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
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
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
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
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."
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
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 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
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
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
Mr. Kocot said, "We know that many
beneficiaries may not have their plan identification card on Jan.
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
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
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
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
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
"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.
Penney: Back In Fashion
Its private-label brands draw middle-market shoppers
By Robert Berner –
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
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
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.
What Is Eddie Buying?
By Mark Tatge & Miriam
Gottfried - Forbes - OutFront
January 9, 2006 issue
Is hedge fund manager Edward Lampert taking Sears
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.