Penney’s Warning Adds to Retail Gloom
By Michael Barbaro and Michael M. Grynbaum - New York Times
March 29, 2008

For retailers, doing everything right is no longer enough.

Over the last year, J. C. Penney rolled out a powerful new marketing campaign filled with heartstring-tugging commercials, it introduced a clothing and home décor line from Ralph Lauren, and it opened 50 stores.

But consumers are not biting — and, on Friday, J. C. Penney sharply cut its earnings forecast for the first three months of the year, by 33 percent, blaming the tough economy.

That fresh sign of distress in American retailing was reinforced by a report from the Commerce Department that consumer spending remained stagnant in February, growing at the slowest pace in more than a year because of the housing slump and a weak job market.

The dour economic data helped push all three major stock indexes down on Friday. The Dow Jones industrial average slipped 86.06 points, to 12,216.40. The Standard & Poor’s 500-stock index fell 10.54 points, to 1,315.22, while the Nasdaq composite index dropped 19.65 points, to 2,261.18

The slowdown at J. C. Penney bodes poorly for a wide range of retailers — and its profit warning appeared to drag down shares of Nordstrom (off 6 percent), Macy’s (6 percent) and Kohl’s (5 percent).

If Penney, a midprice chain shopped by middle America, is feeling the pinch of tightening wallets, investors reasoned, so will the rest of the retail industry.

“This is what a recession looks like,” said Adrianne Shapira, a retail analyst at Goldman Sachs. “We are bumping along the bottom.”

The chief executive of Penney, Myron E. Ullman III, said that “ consumer confidence is at a multiyear low.”

He added, “J. C. Penney counts half of American families as its customers, and they are feeling macroeconomic pressures from many areas, including higher energy costs, deteriorating employment trends and significant issues in the housing and credit markets.”

The revised profit estimate from Penney was striking because after a decline starting last summer when the housing crisis began, its stock started to recover as consumers responded positively to new merchandise from designers like Mr. Lauren.

His new product line, introduced in February to rave reviews, features immaculate displays, with whitewashed picket fence walls and fake hydrangea in metal pails, and piles of polo shirts, floral bedsheets and paisley neckties.

“It’s designed by the greatest American designer and being sold at the best American department store,” Ken C. Hicks, president of J. C. Penney, said in a recent interview.

The Lauren line was the latest chapter in J. C. Penney’s remarkable turnaround over the last decade. The chain lost more than $900 million in 2003, and was nearly written off by Wall Street (and by middle America).

Since then, J. C. Penney has become a force in fashion. New in-store brands, like A.N.A., and East5th are considered as stylish as anything at Macy’s. And it has attracted big-name outside brands, like Liz Claiborne for women’s clothing and Sephora in the cosmetics department.

Last year, under the direction of Mr. Ullman, who once ran the luxury conglomerate LVMH Moët Hennessy Louis Vuitton as well as Macy’s, the company earned more than $1 billion.

“It’s clearly no longer your grandmother’s J. C. Penney,” said Ms. Shapira of Goldman Sachs.

But the falloff in consumer spending that began during the holiday season in 2007 only intensified during the first several months of 2008, and it has not spared J. C. Penney.

The chain said its first-quarter earnings would probably be 50 cents a share, compared with an earlier forecast of 75 cents to 80 cents a share. It estimates sales at stores open at least a year, a crucial yardstick in retailing, will fall by at least 10 percent in March.

Most retailers will report March sales next week. The numbers are not expected to be pretty. In January and February, monthly sales at stores open a year fell at just about every major department store, including Penney, Macy’s, Kohl’s, Dillard’s and Nordstrom.

It is unclear whether these stores will soon issue the same kind of earnings warnings as J. C. Penney. But none are expected to produce stellar earnings this quarter.

Asked if J. C. Penney was serving as an alarm bell for the retail industry, Ms. Shapira said it seemed a little late for that.

“The alarm bell has been deafening for months now,” she said.

There's a new Sears in town
All-appliance stores opening in area
By Michael Sean Comerford - Daily Herald Staff
Daily Herald - Suburban Chicago
March 28, 2008

Sue White of South Elgin walked into the new Sears Home Appliance Showroom on Thursday as if on cue.

She had been driving along Randall Road in South Elgin when she decided to pop into this new kind of Sears store, which only sells appliances.

"Wow," she said out loud as she walked in and saw a couple hundred refrigerators, washing machines, vacuum cleaners and a host of other household appliances shining and lined up in rows and display areas.

The larger, higher-end, higher tech appliances are near the front door for visual impact.

"We look for that 'wow' factor," said Robert Mackey, director of marketing and merchandising for Hoffman Estates-based Sears Holdings Corp.

The first Sears store of its kind in Illinois, its grand opening is tonight. It is the seventh Home Appliance Showroom store in the Sears chain. Other stores are in the Houston and Minneapolis areas.

Another such store is planned to open around June in North Aurora, Mackey said. And sites are being considered in Oswego, Montgomery and other Chicago suburbs.

The store's sales strategy gets good reviews from retail analysts who say the long-struggling Sears can leverage its strength in appliances, particularly the Kenmore brand.

"Sears is going to need a bunch of initiatives if it is going to survive, and this is one that makes sense," said David Davidowitz & Associates, a New York-based retail consulting and investment banking firm.

The Home Appliance Showroom strategy is to open along "power roads" such as Randall Road, with high visibility and traffic, Mackey said. The stores open near rival Home Depots and Lowe's to create a shopping dynamic, Mackey said.

The Houston stores opened in spring last year and have been outperforming their appliance market rivals, Mackey said. Sales have run higher than Sears' expected, Mackey said. They even gained appliance sales market share in the area.

"I think this is a fairly smart strategy for them," said John Melaniphy Sr., a Chicago-based retail consultant.

Melaniphy said he has not studied the performance of the Home Appliance Showroom model but estimated they could generate more than $2 million a year in store sales.

After a few years of a slow-growth strategy, Sears' dealer store plan is its top growth vehicle, Mackey said, along with online services.

Sears has long operated non-mall-based dealer stores, mostly privately owned and carrying appliances, consumer electronics, lawn and garden equipment, tools and automotive batteries. It has more than 850 such stores and plans to open another 100 this year, Mackey said. Last year, it opened 63.

The dealer store category, of which the Home Appliance Showroom is a part, could grow by 1,000 in the next six years, according to some estimates within the company.

How many Home Appliance Showroom stores open probably depends on its success in markets outside Texas and Minnesota, Davidowitz said. The new stores feature tiled floors and model display areas showing sample kitchens.

"It's a showroom rather than a big box where you're fighting off a fork lift," Mackey said.

The stores are smaller, stand-alone operations with staffs of about eight employees who greet customers as they come through the doors.

The stores feature more than Sears products. Brands include General Electric, Jenn-Air, Frigidaire, KitchenAid, Bosch, LG, Maytag and Whirlpool.

For years, Sears has been experimenting with store strategies and product mix. Since the 2005 merger of Sears and Kmart, traditional Sears appliances are now stocked at Kmart stores. Some Sears dealer stores can be found in more than a half dozen Kmarts across the country.

In recent quarters, Sears Holdings has reported falling same-store sales, profits and cash reserves.

Sears generated $53 billion in sales last year, so while positive the Home Appliance Showrooms won't have the scale to turn Sears' numbers around, according to Davidowitz.

"It's too small to move the needle," Davidowitz said.

Mary Lou Fryz 1933 ~ 2008
Longtime aide to Sears chiefs
By Trevor Jensen - Tribune reporter - Chicago Tribune
March 28, 2008

Mary Lou Fryz dedicated much of her life to Sears, Roebuck and Co., where she was an efficient assistant to executives, including former chairman Edward Brennan.

Ms. Fryz, 74, a longtime resident of Elk Grove Village who went by the name of "Lou," died Monday, March 17, in a Ft. Worth, Texas, hospital after a brain aneurysm, said Maryann Aimone, a longtime friend.

Ms. Fryz spent 44 years with Sears and more than another a decade as Brennan's personal assistant.

"That was just the work ethic; that was what she was all about," Aimone said.

Ms. Fryz (pronounced "Frizz") joined Sears in 1951, not long after her graduation from Tuley High School in the Humboldt Park neighborhood. She started as a stenographer before moving up the secretarial ranks at the company's old Homan Avenue headquarters, said Ernie Arms, the retailer's former communications director.

In 1973 she became secretary to Sears president A. Dean Swift, and she kept the job with his successor, Brennan, in 1980.

She stayed with Brennan, who became chief executive officer and chairman, for the rest of her career.

After Brennan retired from Sears in 1995, she continued to help him with his various board and philanthropic responsibilities in an office at the Wrigley Building until his death in December.

An avid golfer, Ms. Fryz was a part of social circles all over the country. She traveled frequently for golf outings and was on such a trip in Texas when she died.

"She was a lot of fun. She put people at ease," Aimone said. "She never met a stranger."

Ms. Fryz is survived by two cousins, Darlene Kocsis and Elaine Fricilone.

A service will begin at 11 a.m. Saturday in Grove Memorial Chapel, 1199 S. Arlington Heights Rd., Elk Grove Village.

 

J.C. Penney Slashes Guidance,
Citing Macroeconomic Pressures
By Kevin Kingsbury - Dow Jones Newswire
March 28, 2008

J.C. Penney Co. cut its fiscal first-quarter outlook, saying quarterly sales through Easter have come in "well below expectations." Its shares traded sharply lower in premarket trading.

The warning is the latest bit of bad news for retailers, and signals that consumers continue to ratchet back nonessential spending amid the current economic uncertainty.

The department-store chain - whose stock was down 14% to $34.96 in recent premarket trading - now sees earnings of about 50 cents a share, with same-store sales falling by the high-single digits on a percentage basis. The company last month projected earnings of 75 cents to 80 cents and a low-single-digit same-store-sales drop.

For March, same-store sales are seen slumping by a double-digit percentage, versus the forecast three weeks ago of a low-single-digit decline.

"Consumer confidence is at a multiyear low," noted Chairman and Chief Executive Mike Ullman. "J.C. Penney counts half of American families as its customers, and they are feeling macroeconomic pressures from many areas ... [and] the sharp decline in sales is reflective of these trends. While the economic stimulus package may provide some temporary benefit, we expect the continuation of a difficult environment over the course of 2008."

To overcome that, Mr. Ullman said the management is looking at ways to cut costs "to best position the company to benefit when a recovery takes hold."

J.C. Penney's fiscal fourth-quarter net income fell 9.9% amid increased markdowns as the company saw weakened consumer spending during the holidays.

Departed execs collecting biggest payouts at Sears
Interim CEO is only top leader to get raise;
no bonuses for 2007
By Sandra M. Jones - Tribune reporter - Chicago Tribune
March 27, 2008

The executives pocketing large sums at Sears Holdings Corp. are those who have left.

None of Sears' top executives received bonuses for 2007 and only interim Chief Executive W. Bruce Johnson received a salary increase, the company said in its annual proxy filing.

But ousted CEO Aylwin Lewis received compensation valued at about $5.5 million and John Walden, who left in January after a year as chief customer officer, received compensation worth about $2 million, based on Wednesday's stock price of $107.63, according to the filing.

The disclosure of the payouts comes as Sears faces challenges in attracting and retaining executives as it attempts to reverse sales and profit declines in an increasingly tough economic environment.

"It's hard to attract people to leave their job for a company in trouble," said Mark Reilly, a Chicago-based compensation expert. "You need to offer them some security to make them whole."

Sears is looking for a CEO to replace Lewis, who left earlier this year in the wake of the retailer's first annual profit decline since hedge fund manager Edward Lampert took control of the company in 2005.

Lampert, who owns 49.6 percent of Sears, works without a salary. The company does not have a stock option plan, and it ties executive incentive pay to a profit measure called earnings before interest, taxes, depreciation and amortization.

Nobody got a bonus for 2007 because "the threshold performance level was not achieved," Sears said in the filing.

"Unlike some companies, which set targets at levels that are difficult to miss, we set targets that are achievable but require us to perform—it is important to set goals that challenge and stretch us," Lampert said in his 2007 letter to shareholders.

Sears doesn't grant restricted stock to its top executives on a "regular basis," but the retailer did grant Walden restricted stock in order to induce him to join the company and to offset stock compensation he gave up at his previous employer, the filing said.

Walden joined Sears from Best Buy Co. in January 2007 and was charged with developing customer strategies and new business development.

Under Walden's severance agreement, he will receive his annual base salary of $750,000 through Jan. 16, 2009, and a target bonus of $675,000 payable over a 12-month period. He also received restricted stock of 5,651 restricted shares.

As previously reported, Lewis will receive his annual base salary of $1 million through March 24, 2010. He also received accelerated vesting of his stock awards, which consist of an option to purchase 37,500 shares at $88.62 per share and 16,926 shares of restricted stock.

Johnson received a 3.4 percent salary increase due to his "individual performance" in fiscal 2006 and for helping "key areas of our business," the filing said.

The 56-year-old executive, formerly executive vice president of supply chain and operations, was named interim CEO and president in February.

As interim CEO, Johnson's annual salary is $900,000, up from $745,000 in 2007. He also is eligible for an annual bonus equal to his annual salary and received a restricted stock award under the company's 2006 stock plan valued at $1 million, which vests in installments in 2009 and 2010, Sears said in the filing.

Sears ex-CEO gets $1M salary through '10
The Associated Press - Business Week
March 26, 2008

CHICAGO -- Former Sears Holdings Corp. CEO Aylwin B. Lewis will receive his annual base salary of $1 million through March 24 of 2010, according to a proxy statement filed Wednesday by the struggling retailer.

Lewis left the job on Feb. 2 and was replaced by the company's executive vice president for supply chain and operations, W. Bruce Johnson, who now serves as interim chief executive officer and president.

Lewis will continue to receive health and welfare plans. He also became vested in his remaining stock and option awards. Those awards comprise options to buy 37,500 shares of company stock at $88.62, along with 16,926 shares of restricted stock.

Johnson took over for Lewis on Feb. 3 and will receive an increased annual salary of $900,000 with a chance to receive a bonus equal to his base salary if he meets certain company goals, according to the proxy. He earned $745,224 in salary for 2007 under his former title.

Johnson also received restricted stock under the company's 2006 stock plan that was valued at $1 million on Feb. 3. It will be vested in two equal installments on Jan. 31, 2009 and Jan. 30, 2010.

Sears Expanding Kmart Majap Biz, Dealer Stores
by Alan Wolf - Twice
March 27, 2008

Hoffman Estates, Ill. — Sears Holdings will continue to add major appliances to more of its Kmart locations, and plans to expand its chain of independently owned dealer stores.

According to the company’s annual 10-K report, filed yesterday with the U.S. Securities and Exchange Commission, Sears remodeled about 30 Kmart stores last year to accommodate Kenmore majaps and other Sears private-label products. By Feb. 2, 2008, about 280 of Kmart’s 1,382 locations carried a multibrand assortment of white goods, up from about 100 stores that were selling majaps three years ago.

“We intend to continue our rollout of home appliances, including Sears Kenmore-brand products, into Kmart locations over the next several years as a means of expanding our points of distribution in response to competitor store growth,” the company said in the filing.

Separately, Sears said it plans to continue expanding its dealer store program this year. The stores are primarily independently owned, average about 8,800 square feet in size, and carry a select assortment of CE, appliances, lawn and garden equipment, hardware and automotive batteries. Dealer stores are traditionally located in small, rural communities, but Sears has also begun targeting urban neighborhoods across the country. Forty locations were added last year, bringing the total dealer store count to 857.

Sears Holdings Names Presidents
of Key Business Units
John Froman to lead Tools and Lawn & Garden,
Doug Moore to lead Appliances
CNN Money.com
March 27, 2008

HOFFMAN ESTATES, Ill., March 27 /PRNewswire-FirstCall/ -- Sears Holdings Corporation announced today that John W. Froman will join the company's executive team as senior vice president and president -- Tools and Lawn & Garden.

Froman was most recently with Namco, LLC, a regional chain of family recreation superstores, where he served as chief executive officer for two years. Prior to Namco, LLC, he spent 19 years at Circuit City Stores, Inc., where he served as executive vice president and chief operating officer for four years. In that capacity, he directed all store operations, distribution, product service, real estate, construction, store design, store services, loss prevention, procurement and corporate operations.

"John's wealth of retail experience and demonstrated success in retail operations, merchandising, and strategic planning will help us operate the Tools and Lawn and Garden businesses more efficiently and effectively," said Bruce Johnson, Interim CEO and president of Sears Holdings. "John will also enable our company to be more responsive and competitive in this industry, as he has a strong record of developing and implementing key initiatives that drive shareholder value and build customer relationships."

Separately, the company promoted Douglas T. Moore to the position of senior vice president and president -- Appliances. Moore started with the company in June 2007 as SVP, Hardlines Merchandising. Prior to Sears Holdings, he spent 17 years at Circuit City Stores, Inc., most recently as EVP/chief merchandising officer. He also served in senior leadership positions within sales, operations and installation at Circuit City. Moore holds a Masters degree from the University of Virginia.

Historical Society Sets Program on Richard Sears
Spring Valley, Minnesota
March 26, 2008

The Spring Valley Historical Society's annual meeting is set for Sunday, April 13, and will feature a program on the life of Richard Sears presented by local historian Sharon Jahn.

Sears was born in Stewartville but his father, James Sears, moved his family to Spring Valley in 1869. James opened a blacksmith shop and soon built the brick house at 216 North Hudson Avenue. He led an interesting life, trying to earn a living at various trades. He even ventured to the Black Hills in 1876 to prospect for gold but came home disillusioned and broke.

Richard completed nine years of school here, an "A" student according to records, but the family moved on before he graduated.

At the time of the city centennial in 1955, historian John Halbkat wrote a story of his brother, Charles, who was a friend of "Dick" Sears. John's uncle, Fred Halbkat, made a practice telegraph key mounting on a cigar box for a sounding board. John claimed the two boys, Charles and Dick, practiced diligently and Dick became quite proficient at sending and receiving messages. This was in an age when telegraphy was a new "wonder" in communication and young fellows were quite fascinated with this new "hobby." Whether Dick Sears learned telegraphy in Spring Valley isn't certain, but he was introduced to it as interest often drew the boys to the depot on the way from school. When the family moved north, Sears took a job as a telegrapher at the railroad depot at North Branch, then later at Redwood Falls which led to his career as a super salesman of the 20th century. By 1886 he was in business for himself as the Sears Watch Co. in Minneapolis; then later in Chicago as Sears Roebuck and Co. At one time the company was mailing out 75 million catalogs each year.

At the meeting the society will display the telegraph key and Sears catalogs featuring the Conley camera once made in Spring Valley in 1899. Yes, there was a thriving camera factory here, a local invention, product of one more fertile brain developed locally! You will hear its connection to Sears and the dramatic growth after its move to Rochester, Minn.

Lou Fryz - 1933-2008
Faithful No. 2 to Sears CEO
knew Chicago business titans
By Eileen O. Daday | Daily Herald Correspondent
Daily Herald - Suburban Chicago
Published March 25, 2008

Less than three months after former Sears Chairman and CEO Edward A. Brennan passed away at the age of 73, his longtime secretary and administrative assistant, Lou Fryz, died unexpectedly.

Ms. Fryz died March 17 of an apparent brain aneurysm while on a golfing vacation in Dallas. The former Elk Grove Village resident was 74.

Colleagues said Ms. Fryz was one of the longest-serving employees in Sears' history, having joined the company in 1951, shortly after graduating from Tuley High School in Chicago, the forerunner to Clemente High School on the West Side.

She rose through the ranks to become secretary to the Midwest Territory vice president, before being named secretary to Sears President A. Dean Swift in 1973.

Ms. Fryz's work for Brennan began in 1980 when he was elected Sears president and she stayed by his side as his executive secretary and administrative assistant when he became the company's chairman and CEO in 1986.

"She was fabulous," said Ernie Arms, former Sears news director. "Everything she did was perfect."

After Brennan retired from Sears in 1995, he served as an active board member of many corporations and Ms. Fryz again served as his right hand, Arms said, in an office in the Wrigley Building in Chicago.

One of the boards he served on was of McDonald's Corp., alongside Andrew McKenna of Chicago, its chairman.

"She was a remarkable lady," McKenna said. "She knew everyone and everyone knew her. She always knew the right button to push."

Likewise, Ed Liddy, retiring chairman of Allstate, which at one time was owned by Sears, recognized the strengths Ms. Fryz brought to her role supporting Brennan.

"Lou was extraordinary in her professional role," Liddy said, "handling complex or sensitive issues with great skill and diplomacy. At the same time, she was always an enjoyable and caring person to be around."

A longtime family friend, Maryann Aimone of Prospect Heights, described Ms. Fryz as something of an aunt to her family, attending all of her children's celebrations. Earlier this month, Ms. Fryz attended Aimone's daughter's wedding in New York.

"She danced and danced, and had so much fun," Aimone said. "It's a beautiful way for our family to remember her."

Ms. Fryz never married, but is survived by two cousins, Elaine Fricilone of Orland Park and Darlene Kocsis of Fort Myers, Fla.

A memorial service will take place at 11 a.m. Saturday at Grove Memorial Chapel, 1199 Arlington Heights Road in Elk Grove Village.

Justices Reject AARP Appeal
Dow Jones Newswire
March 24, 2008

The justices turned away an appeal from the AARP, the nonprofit association for older Americans, that sought to reverse and Equal Employment Opportunity Commission rule change that made it easier for employers to drop health benefits once workers reach 65.

The rule change made in 2004 impacted millions of workers and allows companies that offer retirement health benefits to eliminate insurance coverage once workers are eligible for Medicare. The EEOC, when it changed the rule, said the change was designed to make it less expensive for employers to continue offering retiree health benefits after an employee leaves the work force. This benefit has been in decline as health-care costs soar.

The AARP sued in 2005, arguing the new rule violated the Age Discrimination in Employment Act and the intent Congress had when it passed the law. A federal trial judge dismissed the lawsuit, ruling the EEOC had acted within its regulatory powers.

The Third U.S. Circuit Court of Appeals in Philadelphia last year also rejected the AARP lawsuit. (AARP v. EEOC)

Waste Not
Wal-Mart's H. Lee Scott Jr. on what the company is doing to reduce its carbon footprint -- and those of its customers
Wall Street Journal
March 24, 2008

The world's largest retailer, Wal-Mart Stores Inc., has put enormous effort in recent years into curbing excess packaging and offering environmentally friendly products. These efforts, led by CEO and President H. Lee Scott Jr., have helped to burnish Wal-Mart's image as a "green" retailer.

What exactly is Wal-Mart doing? And why? The Wall Street Journal's Alan Murray asked Mr. Scott. Here are edited excerpts from that discussion.

ALAN MURRAY: When you started focusing on the environment at WalMart, you were under an organized attack from union-backed groups that were attacking you for wage policies, immigration policies, health policies, but not necessarily for environmental policies. So what made you decide to bring the environment to the forefront of what Wal-Mart was doing?

H. LEE SCOTT JR.: It's consistent with what we say our purpose is, and that is saving people money so they can live better. We looked at what Sam Walton started and how he developed the company. It was by eliminating waste, bringing in efficiencies.

And by thinking about sustainability from our standpoint, it really is about how do you take cost out, which is waste, whether it's through recycling, through less energy use in the store, through the construction techniques we're using, through the supply chain. All of those things are simply the creation of waste. We found it's consistent with the entire model we've had since Sam opened the first store.

MR. MURRAY: So it's all about cost reduction. It's not about trade- offs? Is there never a point where you say, gosh, this is going to cost us a little more, but it's going to be much better for the environment?

MR. SCOTT: Well, there are things that you, as a business, have to think about that something may be more cost-effective but is just wrong -- pollution of the water or those kinds of things. Those things come into play.

One of the things people talk about is, will people pay more? Our question is, why should they have to? If you can take the waste out, if you can take the cost out, and you can provide people who are working people living paycheck to paycheck with an opportunity to be more sustainable, we think they will react to that, and they do.

H. Lee Scott Jr.
Paying More for Green

MR. MURRAY: Will your consumers pay more for products that are environmentally green? Is there any willingness to pay more for something that is perceived as being good for the environment?

MR. SCOTT: Depending on the store, you see a difference in how people are reacting. Where you have a store that's in a higher-household- income area, you can see that people can afford to and are willing to pay a little bit more.

People in general are living paycheck to paycheck for a broad amount of American society. It's not that they don't care about sustainability; it's that they can't afford to pay more. They can't pay a dollar more for the cleaning supply. They can't pay $3 more for a T-shirt.

MR. MURRAY: If we impose either a tax or a cap-and-trade system on carbon emissions, that is like a tax, that means that those shoppers at Wal-Mart will have to pay more for most of the things they're buying from you, doesn't it?

MR. SCOTT: I think that's very possible. We believe a carefully crafted carbon program is something that probably is inevitable and probably positive. What we would ask is that people be mindful of the general population and not be so ideological that we simply say we're going to go from here to here and, yes, people have to pay more but it's worth it. How do you craft something that does the right thing for the environment and for sustainability but doesn't leave behind the basic population that we serve the most?

A Different Footprint

MR. MURRAY: Is 60% to 80% by 2050 too much? A 60% to 80% reduction [in carbon-dioxide emissions]?

MR. SCOTT: You're outside of my knowledge base. We have a very small Washington office. We have no scientists. We are a retailer, and we operate stores that serve customers.

MR. MURRAY: But let's take it to a level that you understand very well, and that is that you have done all that you've done in the past three years. You've focused on products, you've gotten your suppliers focused on these issues, you've gotten your trucking fleet focused on these issues, you've gotten your stores focused on these issues. And yet with all of that, you're still growing your carbon footprint by, according to your own reporting, what, 8% or 9% a year.

So how, after making all the efforts that you've made in the past three years and you still see your carbon footprint expanding at that rate, can we possibly hope to do 60% to 80% reductions by 2050?

MR. SCOTT: First of all, we have started on a program that has a long, long way to go.

At the store level, we have what are called PSPs, which are Personal Sustainability Programs [which encourage Wal-Mart employees to embrace a cause in areas such as environmental sustainability or personal health]. We have, I think, 500,000 people who are signed up and have started recycling or using CFLs or that are doing something related to wellness.

We have these groups of people working on different things from our supply chain all the way into our communities. There is an energy about it, and it's real and it makes a difference. But it is simply the start.

MR. MURRAY: Give a couple examples of some of the low-hanging fruit you've found through this process of opportunities where you can make huge savings with things that are no-brainers.

MR. SCOTT: You had people who just took toys and they reduced packaging by 10% or 15%. Reduced all of that transportation cost associated with those hundreds and hundreds of containers. At Wal- Mart, we recycle cardboard. But we didn't recycle the loose plastic that apparel would come under or those kinds of things.

MR. MURRAY: On an issue like packaging, of course, there's a long way you could go. There's significant groups of people out there now who are saying we shouldn't be bottling water. Why bottle water? It's just an environmental waste. How do you decide how far you go and when to stop? You're still selling bottled water, I assume?

MR. SCOTT: A lot. If the customer wants bottled water, we are going to sell bottled water. But even if you're going to sell bottled water, you can sell it and have less of a negative impact. How have you arranged your transportation so that it's the most effective that it possibly can be? How do you price in a way that can help a customer make a choice that is more environmentally effective?

One of the things that's interesting about things that are sustainable is over the years the margins on sustainable products have historically been higher, because it is a higher income class that has been sensitive to that and purchased those. So organic products had a higher margin than products that weren't organically grown. And one of the things we can do is price product in a way that helps encourage the consumer to make a better choice.

MR. MURRAY: So not try and squeeze extra margin out of it.

MR. SCOTT: Right.

No Timetable

MR. MURRAY: You have set as company goals zero waste and 100% renewable energy. Those are very ambitious goals. What you haven't told us is when.

MR. SCOTT: I don't have a clue. We are not scientists. And so do you set a goal that you're going to reduce this by this and this by this and you put the time frame out there? I'm almost 60 years old. You want to put a time frame out there of 10 years when I'm long retired and if they don't hit it, it doesn't matter. Why do that? Why not just say that ultimately we think this is possible that the technology will develop, that there are things that we can do.

We've got solar now that is being installed in a number of stores in California and Hawaii. We have wind that we're experimenting with. But we have 7,000 stores. I think these are opportunities for us. Do you think electricity is going to be cheaper in 10 years than it is today? We need to be experimenting today and understand what works and be out there so that we don't subject our shareholders to inappropriate cost -- or our customers, because ultimately they pay the bill.

MR. MURRAY: When you launched this program several years ago, Wal-Mart at the time was getting some extraordinarily bad public relations. Today, if you look at the way Wal-Mart has been written about over the course of the past year, these green initiatives have generated enormously good public relations. Some people would say that's why you're doing it. This is all about public relations.

MR. SCOTT: You just need to work with our people. These things are real. The differences we are making are real. We face a number of challenges, and part of the challenges we face are related to the fact that we have probably the largest, most highly financed campaign against us in the history of business. Part of the issues we face are because we are not as good as we should be.

We sat down and we said 10 years from now what will the people in the company wish we had done, such as we wish that the prior generation in management might have done? And the thing that stuck was that this world is going to become more and more sensitive to environmental sustainability. Whether it's three years from now or five years or 10 or 15, ultimately society is going to hold you accountable for whether or not you participated appropriately and the role you played in advancing this area of environmental sustainability.

Big Mergers For A Recession Economy,
Do Firms Like Ford, Citigroup, and Sears Go Away?
24/7 Wall St.
March 23, 2008

"The current financial crisis is the most serious since the second world war, and perhaps since the Great Depression." -- The London Observer, March 23, 2008

Many investors find it hard to believe that some of the largest companies in the country could be taken over and cease to be independent public corporations. In a very deep recession, which the economy may be facing, huge firms with vulnerable businesses, competitive pressures, and weak balance sheets may end up being takeover targets.

In an extremely difficult economy, regulators are more likely to countenance combinations which might be considered anti-competitive in a period of robust growth. Better to allow an M&A event to save a company and its work force than to ask the government for funds as Chrysler did in 1979. The government is likely to say "no".

Creditors and lending institutions are also more likely to be liberal with covenants than to see the money they are owned disappear due to an insolvent company's troubles.

The M&A list here includes companies which might be bought and their likely buyers. It is not a list which would make sense unless the US falls into the kind of recession that it did from November 1973 to March 1975. GDP dropped by almost 5% and unemployment moved above 9%.

By the end of that 21-month bear market, the S&P 500 had lost 42.6% in value, according to Ibbotson Associates and BusinessWeek. It may have been the toughest period since WWW II.. A number of the top 200 companies on the Fortune 500 in 1972 quickly disappeared or were bought. That list included American Motors, White Motor, Lykes, and Otis Elevator.

There is a school of thought that the the US may face a downturn of that magnitude beginning in the first quarter of this year and that it will extend through most of 2009. The housing market may be that bad. Pressure on large financial institutions may cause a run on some money center banks not unlike the run which ruined Bear Stearns. Increases in the prices of key commodities including oil, wheat, and metals could make it almost impossible for consumers to afford some basic goods and could also damage margins at companies which rely on these as part of their cost of goods. If so, the M&A world will change from business as usual.

1. One of the most vulnerable large US companies is Ford (NYSE: F). Its current share of the domestic car market is about 15%. It does have some successful operations overseas, but it is not particularly well position in critical markets like China. Ford has made tremendous cost cuts, but the prices for metals used in its vehicles adds about $350 per unit compared to 2007, according to Lehman Brothers. Rising gas prices will hurt sales of its most successful products, SUVs and pick-ups. Ford's stock trades at $5.60 and was recently as low as $4.95, well below where it traded two years ago when there was concern that that the company might have to file for Chapter 11.

VW has recently said that it expects to sell eight million cars by 2011. That is up from 6.2 million last year, The European company says it can triple sales in the US over the next decade. VW's one huge weakness as a global car company is its tiny market share in the world's largest car market. A takeover by VW would give Ford products access to markets like China. It would also give VW the sales it wants in the US. Putting the two large car companies together would allow for significant cost savings and would create the largest auto company is the world with global revenue of over $260 billion.

2. Qwest (NYSE: Q) is by far the weakest of the independent phone companies created by the break-up of AT&T in 1974. Its stock has fallen from over $10 in June 2007 to under $5. Shares in AT&T (NYSE: T) and Verizon (NYSE: VZ) are off only about 10% over the same period. Qwest has no cellular operation of its own and cannot afford to upgrade its systems to fiber for delivery of high-speed internet and TV services. This makes the company more vulnerable to competition from cable and satellite TV companies. Qwest has over $14.3 billion in debt. Its wireline services are shrinking.

Verizon (NYSE: VZ) is probably the most logical buyer for Qwest. The deal would give the New York-based company a huge pool of customers for cross-selling cellular with land-line products . If the Verizon fiber-to-the-home project continues to be successful, it might move the build-out into the Qwest service area to compete with cable and satellite there. Verizon has a market cap of $105 billion. Qwest's is $8.5 billion. The savings in putting the two together could be significant.

3. Sears Holdings (NASDAQ: SHLD) is one of the worst consolidations in recent US corporate history, the combination of the businesses of Sears and K-Mart. The deal has ruined the reputation of hedge-fund manager Eddie Lampert. The new company was created in 2005 and has a total of about 3,800 retail outlets among all of its brands. After peaking above $195 in April 2007, the stock has fallen as low as $85 earlier this year. It now trades at about $100. In the most recent quarter, earnings fell to $426 million from $811 million a year earlier. Over the course of that one year, cash on hand fell $2.2 billion to $1.6 billion, some of it due to share buy-backs. There is much evidence that supports the view that retail customers do not have the money to buy non-essential items. This change in consumer behavior will damage retail revenue over the next several quarters.
Gas prices are too high, consumers are maxed out on credit cards and are feeling pinched due to loss of jobs and fallin g home prices. The battle for the retail buyer is going to increase and Sears is poorly positioned to compete with Wal-Mart (NYSE: WMT), Target (NYSE:TGT), and CostCo (NASDAQ: COST)

Sears has very modest long-term obligations, but poor performance has taken its market cap under $14 billion. Its price to sales ratio is down to .25x. Wal-Mart's market cap is $212 billion and has a price to sales of .53. A buy-out by Wal-Mart would probably mean the closing of hundreds of Sears and K-Mart locations. But, Wal-Mart could cut significant administrative, supply chain, and purchasing costs. If Sears shares are pushed down to the $50 range by more bad news there is a deal to be done. Target is another possible buyer.

4. Advanced Micro Devices (NYSE: AMD) is not in as bad a spot as some investors think, at least not in terns of strategic positioning. It is the No.2 company in a two company race. The market cannot be without a challenger to Intel (NASDAQ: INTC) in the server and PC chip markets. AMD is very badly run. The decision to buy graphics chip company ATI was a significant mistake and contributed to the $5 billion in debt on AMD's balance sheet as well as a huge write-off last year. AMD also got into a price war with its larger rival compressing its gross margins.

There has already been speculation about an AMD merger with graphics chip company Nvidia (NASDAQ: NVDA). The most recent comments about this came from research firm Amtech. Intel has been moving into Nvidia's markets. While Nvidia is much smaller than Intel, with a revenue run rate of $6 billion, adding AMD would bring that up to about $13 billion. AMD is at an operating break-even. Nvidia could probably take out several hundred million in administrative, marketing, and R&D costs. Last year, research costs at AMD were over $1.8 billion. By adding ATI, Nvidia would be a graphics chip powerhouse. Nvidia has a market cap of $10 billion to AMD's $3.7 billion. For the deal to make sense, AMD's shares, currently at just above $6, would probably have to drop closer to $3.

Most of AMD's debt is due in 2012 and beyond. The majority carries interest of 5.75% and 6%. If the company got into real trouble, lenders might be willing to bring down those rates, if Nvidia would put the obligations onto its balance sheet.

5. Washington Mutual ((NYSE: WM) may have to be sold for the same reason Countrywide (NYSE: CFC) was. Moody's recently cut Washington Mutual debt rating to one notch above junk. S&P recently wrote that the mortgage crisis may hit the financial firm harder than the ratings agency had expected. WM's market cap is down about 75% this year. If mortgage defaults spike up sharply because of a deep downturn in the economy, Washington Mutual could get into more trouble.

Washington Mutual may be forced to find a buyer. In many ways, the strongest of the large banks in the US is Wells Fargo (NYSE: WFC). According to Barron's "unlike most of its peers that have been badly dinged, the San Francisco-based bank doesn't have a big capital- markets operation exposed to credit derivatives, structured- investment vehicles, or mortgage-backed securities. Shares of Well Fargo have done better than Bank of America over the last six months and nearly as well as JP Morgan.

WFC currently has a market cap of $107 billion to WM's $13.7 billion.
Washington Mutual's market cap was recently as low as $10 billion. Wells Fargo is already in the home loan business so Washington Mutual's operations are not foreign to the bank. If housing prices continue to move down sharply, it may become clear to the Fed that WM will not be able to remain independent. The agency might even be willing to help finance a deal for a capable buyer. Washington Mutual could go to one or two of the large money center banks. Right now Wells Fargo would seem to have the fewest problems and the most time to give to turning around a troubled thrift company.

6. A number of pundits think that Citigroup (NYSE: C) is too big to fail. That observation is probably correct, but it is not too big to be bailed out and sold to another, better-managed money center. That could be Bank of America (NYSE: BAC), but JP Morgan Chase (NYSE: JPM) is a more likely dark knight. If the deal were to go through, the government would have to provide waivers of certain banking regulations about retail market share caps.

Over the last six months, shares of Citi are down 53% while shares in JP Morgan are flat which speaks volumes about what the market thinks of the prospects and managements of the two companies. It is only a few days since Citi traded below $18, so the market clearly thinks the financial conglomerate is in big trouble. A combination of problems with LBO debt and mortgage-backed securities led a Merrill Lynch analyst to say Citi may have to write-down another $18 billion for the first quarter. The head of government-owned investment firm Dubai International Capital said that it will take more than the combined efforts of the Gulf's wealthiest investors -- the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal--to save Citigroup, according to the AP.

The Fed would have to be involved in any bail-out of Citi. It is unlikely that the company would stay intact even if it was merged into JP Morgan. The sale of some assets would probably be necessary to help fund a takeover. The bank may be too big to fail, but it is not too big to be liquidated with the majority of the pieces going to JPM.

7. Of all the companies in the telecom and cable sector, Charter Communications (NASDAQ: CHTR) is undoubtedly the most damaged financially. The firm is controlled by billionaire Paul Allen. It has $19 billion in debt and recently took on another $1 billion in junk paper. Over the course of the last year, Charter's shares have dropped from $4.93 to $.91 and recently traded as low as $.61. The company has a market cap of a mere $362 million and trades at .06x sales compared to Comcast (NASDAQ: CMCSA), the largest company in the industry, which trades at 1.9x even though its stock is off sharply in the last two quarters.

Charter has virtually no cash or operating income which can help it compete against the aggressive encroachment of the new telecom fiber initiatives and satellite TV. These new threats are difficult enough for well-funded companies like Comcast and Time Warner Cable (NYSE: TWC). If the economy continues to worsen, the yield that cable companies get from extra services like VOD and VoIP is likely to fall and some subscribers may leave all together.

The FCC has already stated that Comcast is at or near the size beyond which the agency will allow it to expand and may try to block additional acquisitions by the firm. If Charter fails, and it may well, the most logical buyer is Time Warner Cable. Time Warner is considering spinning the cable company out to shareholders. TWX currently owns 86% of TWC. In the process of becoming independent, Time Warner Cable may have the opportunity to raise more capital.

The largest hurdle to a buy-out of Charter is its mountain of debt. The company's lenders, and Paul Allen, would have to be convinced that they are better off owning a piece of a larger company than clinging to one that will almost certainly fail financially, even in a good market. If Charter is sold, common shareholders may get nothing. Lenders may get a fraction of the dollar which they are owed. The alternative is probably worse.

8. E*Trade (NASDAQ: ETFC) retains a significant value in its discount brokerage business, but that is almost completely overwhelmed by its mortgage-related holdings which have caused such great losses that the company's shares have fallen from a 52-week high of almost $26 to under $4. The stock has recently been as low as $2.08, which would put the firm's market cap at only $1 billion.

E*Trade recently reported that daily average revenue trades fell 17% in February when compared to the month before. In a sharp market sell- off, E*Trade would likely lose customer assets and trading volume, both of which would do further damage to the company. The head of ETFC recently said that he did not believe that his firm would be sold. Market forces may make him eat those words. E*Trade says it expects losses of $1 billion to $1.5 billion over the next three years in its home equity portfolio. E*Trade believes that it can set aside money to cover about half of that loss. But, what happens if the housing market turns sharply lower as the year goes on and the plan has underestimated the potential losses?

E*Trade could be sold to either Schwab (NASDAQ: SCHW) or TDAmeritrade
(NASAQ: AMTD). The Fed may have to underwrite the purchase of the company's mortgage portfolio. probably by an entity different than one of the discount brokers. Schwab is the larger of the two discount houses, with a market cap over twice the size of AMTD's. In a big market downturn, ETFC will almost certainly be forced to find a buyer. Schwab can take substantial costs for marketing, administration, technology, and customer service out of a combined company.

9. Wendy's (NYSE: WEN) is a perfectly fine company which is likely to be hit by the rising costs of food commodities and a fall-off in customers in a rough economy. The firm is certainly in one of the most competitive segments of the market, fast foods. It has about 5,300 outlets. Profits are very modest. Last year, the company made $88 million on $2.45 billion in revenue. The top line has been flat since 2004.

The greatest cost problem for a company like Wendy's is that it must maintain a huge marketing budget to protect its brand and bring in customers. Over the last three years, the average annual cost for doing this was roughly $115 million.

It is not hard to imagine that as food prices increase and customer flow falls, that Wendy's could begin to lose money. Over the last six months, Wall St. has voted against the company's prospects by selling off the stock. During that period, the shares are down almost 30% while McDonald's (NYSE: MCD) and Burger King's (NYSE: BKC) are flat to slightly up. Wendy's market cap is only $2 billion or .8x sales. The figure for McDonald's is 2.7x and for BKC it is 1.6x..

If Wendy's struggles, and it will if the economy gets worse, McDonald's and Burger King could both be possible buyers. There are substantial opportunities to save tens of millions of dollars in marketing costs on top of administration, purchasing and logistics expenses.

10. Boston Scientific (NYSE: BSX) ruined itself when it bought medical device company Guidant. In January 2006, BSX got into a bidding war with Johnson & Johnson in an attempt to take over the medical device maker. Eventually Boston Scientific won by paying a price over $27 billion. The results were a disaster. In 2005, Boston Scientific made $891 million on revenue of $6.3 billion. For 2007, the company lost $569 million on revenue of $8.6 billion. The company's long-term and short-term debt balloned from $2 billion to
$8.2 billion between the two years. At the same time, medical research began to indicate that drug-coated stents, one of BSX's most profitable products, might cause clotting in heart arterties. Doctors began to reject using the devices in favor of by-pass surgery.

In mid-2004, Boston Scientific traded for over $44 a share. Now it sits at under $13 and has recently been as low as $10.76. The company is cutting personel and selling divisions, but that may not solve its debt service problems especially if the economy takes a sharp drop. The company's market cap has fallen to $18.6 billion and its price-to- sales ratio is 2.2x.

Johnson & Johnson may still be able to get Guidant, and at a sharp discount. It could pick-up the rest of Boston Scientific as a bonus. JNJ has a $185 billion market cap and trades at over 3x sales. The company is already a big player in medical devices and the stent market. JNJ has cash and marketable securities of about $9 billion and long-term debt of $7.1 billion. In 2007 the company had net earnings of $10.6 billion on revenue of $61.1 billion.

If Boston Scientific gets into more trouble, the investment bankers know where to go.

11. Level 3 (NASDAQ: LVLT) has one of the best broadband networks in the world with 48,000 miles of IP network. The company has been put together through M&A activity which has built up a huge debt-load and made the company overly complex. The firm's long-time No.2 executive was sacked recently as operating results make it difficult to handle Level 3's debt service. In 2007, the company had a net loss of $1.1 billion on $4.3 billion in revenue. Long-term debt was over $6.8 billion. Taking out debt service and loss on extinguishment of debt and the operating loss for the year was $241 million.

The company cannot go on with its current financial problems and in a deep recession, these troubles will almost certainly become worse. Level 3's share price has dropped from a 52-week high of $6.42 to $1.86. Level 3 is probably not a viable standalone company even in a good economy.

Level 3 has a $2.9 billion market cap. The most logical buyer for LVLT is large content delivery network Akamai (NASDAQ: AKAM). Akamai has a market cap of $5.1 billion. It is much smaller than LVLT but highly profitable. In 2007, the company made $145 million on $636 million in revenue. Revenue was up 45% from 2006. Akamai has cash and short-term investments of $545 million and long-term debt of $200 million.

Level 3 will not change hands with its current debt structure, so lenders are going to have to decide whether they would prefer to get a very modest amount in a liquidation or bankruptcy or take more favorable arrangement with a negotiated reduction of debt backed by the Akamai balance sheet. Under these circumstances, common shareholder in LVLT would almost certainly get nothing.

Level 3 is already in the CDN busines competing against Akamai. Akamai could take the asset of Level 3's network and use it to take advantage of the boom in video, voice, and data over the internet. In the process, several billion in equity and debt in Level 3 would have to go away.

Douglas A. McIntyre

Getting Out of the Retirement Rut
Many people find themselves lost after leaving the office. Here's how some retirees are making over their lives.
By Kelly Greene - Staff Reporter - Wall Street Journal
March 22, 2008

What can you do if you're failing retirement?

That idea, of not making the grade in later life, isn't one that's normally found in discussions about aging. Retirement today is supposed to be rewarding, filled with opportunities and certainly less stressful than work. But it isn't always so.

For any number of reasons -- lack of planning, financial duress, caregiving responsibilities, the loss of a spouse -- retirees can easily find themselves carving out a dent in the couch or wandering down dead-end paths. As with some jobs, people start asking: "Is this all there is?"

Barbara Dennis, Linda Carnuccio and Darleen Maumus explain how they found themselves mired in retirement problems and what they did to turn their lives around.

Enter the retirement makeover. In an echo of the home and fashion makeovers that have swept cable TV in recent years, some retirees are seeking help from life coaches, financial planners, career consultants, fitness experts, and even fashion and hair stylists in some cases, to help turn their lives around. Often, the spark comes from looking in the mirror: recognizing that change is needed, and then seizing the chance to make it happen.

There are no retirement-makeover consultants per se. But several groups across the country -- including nonprofits in California and New Jersey, as well as two TV networks -- are assembling teams of experts to help people reshape their lives in retirement. The resulting makeovers offer some good examples of how even modest steps can lead to significant changes in later life.

If you're stuck in a rut -- or want to avoid one -- after leaving the office, consider how these people have shaken up their retirements:

Test Yourself

With so much time suddenly on the horizon, and with so many possible ways to fill it, many retirees find themselves paralyzed by indecision. One way to cut through the clutter is to take tests -- the kind often used by college students or younger workers to help determine their professional path -- to zero in on your current interests.

A great example is Darleen Maumus, who found herself at loose ends after a triple whammy. Within three years, she retired after three decades as an elementary-school teacher and principal in New Orleans, was widowed, and lost her home in her native city to the flooding that followed Hurricane Katrina in 2005.

Ms. Maumus, who is 66 years old, moved to Paoli, Pa., after the storm to be close to two of her three children. But she quickly found herself overwhelmed by the range of retirement options available around her. "I was shocked by how active people my age are up here," she says. She enrolled in a lifelong-learning program at Temple University in Philadelphia, but even there she had trouble choosing among dozens of courses.

She found direction through two of the most widely used tests designed to help people understand their career options. The first, the Myers-Briggs Type Indicator, measures personality traits and preferences. The second, the Strong Interest Inventory, assesses personal interests, including preferred styles of working and learning. The test assigns you a "general occupational theme code," such as "artistic, social or enterprising," which you can use to help figure out your next steps.

"We work with a lot of people who are retiring from their primary career," says Michael Segovia, director of business development for CPP Inc., the Mountain View, Calif., company that publishes the two tests and administered them for Ms. Maumus. "This is a time when they can say, 'What do I really want to do? What are my real interests? What is my personality?' Let's put it together and see what we can come up with."

Ms. Maumus's assessments, Mr. Segovia says, revealed "an amazing person who is really interested in helping people and making a difference in their lives, along with a strong interest in theater."

Mr. Segovia also concluded from the test results that Ms. Maumus "is a real energizer -- a cheerleader. In talking with her, I thought, 'If she can find a place where she feels like she's making a difference in people's lives as a volunteer, why would they not want to hire her?' "

Ms. Maumus says she did have a strong interest in drama when she was younger, but she let it slide while raising her family and working. After getting her results, she started volunteering with a community theater. "I always enjoyed theater, but until then I had wondered if I was too old to start out in it," she says.

After she started volunteering, she learned about an opening at the theater. Last month, she landed a part-time job as an assistant house manager (which allows her to see plays at no cost).

You can take the Myers-Briggs test on your own and get an interpretation of the results at mbticomplete.com8, for $59.95. The Strong Interest Inventory can be taken only through a career counselor who meets the qualification standards set by CPP. These counselors typically charge $100 to $200 to administer the test; Mr. Segovia also suggests getting a counselor's help interpreting the results. There are directories of counselors at the "Career Center" on the Web site for the National Career Development Association, ncda.org9, and at the site for the National Board for Certified Counselors, nbcc.org10.

Grab a Helping Hand

Sometimes in retirement, you can't change or find solutions to problems on your own. In which case, a coach might help.

That was the answer for two retirees, Barbara Dennis and Nancy Elliott, each of whom was mired in grief. Both got help from a so- called life coach, a professional hand-holder who assists people in navigating transitions in their lives.

When Ms. Dennis, who is 58, learned three years ago that her 27-year- old son had died unexpectedly from a heart problem, she walked out of her office at the Centers for Medicare and Medicaid Services in Baltimore -- and never went back. "It was just a major blow, and I thought I should just turn it off," she says. "Other people started to get back into their lives, but I didn't."

Her former sister-in-law, concerned that Ms. Dennis was becoming depressed, suggested that she get a makeover from a TV show called "What's Next?" which is set to air starting next week on the Retirement Living cable network. Host Sherry Parrish, whose day job is resident-life director at a large Baltimore County retirement community, connected Ms. Dennis with Lisa Whaley, a Woodbridge, Va., life coach. Ms. Whaley uses a simple methodology she calls SPA:
"State what it is you want to do, plan it, and then act," she says. "As simple as it sounds, most people don't behave that way."

By getting Ms. Dennis to write down some plans, Ms. Whaley helped her realize that her son "would want me to continue to live," Ms. Dennis says. "I grew to understand that I could honor him by living."

With that realization, she set about finding meaningful -- and fun -- ways to spend her time. She and her husband took up swing and salsa lessons and had such a good time that they made room on their porch for a dance floor. She also started fielding phone calls for a local women's shelter. And to honor her son, Ms. Dennis is sponsoring two youth basketball teams. The players' uniforms include his initials and the number from his high-school basketball jersey. She's writing a memoir about his life as well.

Ms. Elliott, a retired teacher who lives in Fountain Valley, Calif., was widowed in 2005 at age 62 after her husband of 40 years suffered a massive heart attack. She describes his death as a shock that left her "immobilized."

She, too, credits a life coach, Carol Draper, with a large part of her recovery -- helping her to accept her widowhood. As with Ms. Dennis, someone else connected them, in this case an Orange County membership group for older women called WomanSage Inc. that provides "transition makeovers" for local women.

Ms. Draper "moved me to see that I could still be productive, self- supporting, sustaining, and most of all a loving friend to others, and that was all worth living for," Ms. Elliott says.

By last year, she had bounced back enough to come up with the idea, on her own, of a retreat for herself, modeled after an expensive women's retreat in Cape Cod, Mass. Ms. Elliott rented a cabin at Crystal Cove State Park in Laguna Beach, Calif., for two nights for $120, and then invited Ms. Draper and a few friends to lunch. "The four of us sat in this beautiful cottage overlooking the ocean, and it was this surreal moment where everything came together," Ms. Elliott recalls.

"That retreat was very special to me. The makeover team didn't give me the retreat, and they didn't suggest it, but through the resources they have, the forces all came together. I had never been away in 40 years without my husband to go to something. This was being away, spending the night, sharing a cottage with another family. This was a big step for me."

Finding a life coach can be tricky, because they aren't typically licensed or regulated. That means you need to check references and credentials closely. One source of leads is coachfederation.org11. Don't hesitate to ask for a free initial session to see whether a coach is a good fit for your needs.

Inventory Your Interests

In retirement, it can be easy to wind up on a treadmill of activity that isn't particularly meaningful. Sometimes you have to take a step back and think about what you really want to do with your time.

That was the case for Larry and Linda Carnuccio, both 64. Before retiring, he was an engineer in West Chester, Pa., and she owned a restaurant in Ocean City, N.J., where they had a second home. When they retired at age 58, they filled their days for five years taking care of Mrs. Carnuccio's parents. After both parents died, the two retirees found their days still filled with activity, mainly visiting with nearby children and grandchildren.

Last year, Mr. Carnuccio looked up at his wife one morning and asked, " 'We're busy, but are we doing all we're supposed to be doing?' " she recalls. The same morning, they happened to be flipping through television channels and noticed a commercial for the "What's Next?" show, which was seeking retiree applicants. They called up and volunteered.

"We were having trouble getting past the big idea that we wanted to do something new -- something that mattered -- and coming up with something specific," Mr. Carnuccio explains.

The couple shared their concerns with the show's staff. The producers "interviewed us separately, and they interviewed us together. They followed us around and asked us what it was we really would like to do," Mrs. Carnuccio recalls. Through those interviews, the couple was forced to come up with some concrete answers.

Although the idea of surveying your own interests, and asking yourself some tough questions about the way you're spending your time, might sound self-evident, people who are running in place often need help sorting through their thoughts. Needless to say, not all of us are going to have TV producers and social-worker hosts as a sounding board, but you can have the same kinds of conversations with friends or family members. Just give them permission to push you and to force you to get specific.

The Carnuccios wound up pursuing activities on two fronts: volunteering at national parks and helping African villagers start small businesses. The catalysts: family vacations to such parks and the couple's interaction with a home health worker from Ghana. The worker told them about friends who needed help buying their own boat so they could keep a larger share of the money they took in from fishing.

As the Carnuccios learned, many retirees are interested in combining volunteer work with travel and in helping others finance their dreams. Here's how the pair moved forward:

First, the national parks: A TV producer working with the Carnuccios connected them with the National Park Foundation, a Washington, D.C., nonprofit, which put them in touch with the volunteer coordinator at the Everglades National Park in Florida, where they worked for a week.

"We got there, and I learned so much about the ecology, and so much about the environment," says Mrs. Carnuccio. "It's the only place in the world where that particular ecosystem exists. We were out on the water, and were helping identify butterflies. I worked the desk and met people from Australia, Germany -- all over the world.

"We're thinking about next year working at a national park again. I've always wanted to work at Yosemite. And now I have a direct contact," she says.

The easiest way to find a volunteer job at a national park is to go to nps.gov12, click on "Getting Involved," click on "Volunteer," and then click on "Opportunities." You can then search by park or by state. If you'd rather inquire by phone, you can call Joy Pietschmann, the National Park Service's volunteer coordinator, at 202-513-7141.

Last year, 163,000 volunteers provided 5.4 million hours of service -- and an estimated 50% of those volunteers are retired, according to a National Park Service spokeswoman.

As for helping the villagers in Ghana, the Carnuccios discovered microfinance, which typically involves making tiny loans to poor people starting modest enterprises. "It's very easy for me to send a check to someone already doing financing. But I want it to be more intimate, not just, 'Here's my money,' " says Mrs. Carnuccio.

The makeover show helped connect the couple with Opportunity International-USA, a nonprofit based in Oak Brook, Ill. Mrs. Carnuccio is working with Opportunity International to create a job in Ghana for her home health worker as a regional loan officer -- and to raise $10,000 in donations to get the project off the ground. The first loans would go to fishermen and other local entrepreneurs, Mrs. Carnuccio says. Their repayments and any interest collected would then fund additional loans, she adds.

Don Ingle, the nonprofit's spokesman, says one way many retirees get involved is by giving $5,000 to join the organization's board of governors, which is the ticket to travel with the staff to the developing countries where Opportunity International does much of its work. But there are many cheaper ways to get involved, which you can check out at opportunity.org13.

If you're more interested in seeking out a specific borrower to help, he suggests working through another Web site, kiva.org14, where you can find would-be borrowers and their stories.

Don't Be Afraid to Switch Gears

The numbers are heard frequently: About two-thirds of baby boomers tell pollsters that they plan to continue working, in some fashion, in retirement. It sounds good. Staying active as we age promotes both physical and mental well-being. That said, working in later life isn't for everybody. Some retirees are discovering that the idea of returning to work isn't all that it's cracked up to be.

Rich Wacker, 64, lost his job as a mechanic for packaging machinery in Chicago six years ago. He got a retirement buyout and quickly landed another contract job that lasted two years. But when that ended, he realized that similar jobs were drying up. For the next three years, he searched in vain for another full-time opportunity.

Then, last year, he started working with a vocational counselor provided through the "What's Next?" show. The counselor lined up an interview for him with Manpower Inc., with the idea that the employment-services provider would help him find work. But Mr. Wacker left the interview after being asked to take a mechanical-aptitude test. "I was offended they felt they needed to check my skills," he says. He also made it clear to the counselor that he didn't want to work retail, would be choosy about his hours and wouldn't commute far from his home.

At that point the counselor, Arnold Eppel, director of the Baltimore County Department of Aging, persuaded Mr. Wacker to try volunteering, which would let him control his hours and location. Grudgingly, Mr. Wacker agreed to try answering phones for and visiting with residents at a Chicago retirement community near his home.

To his surprise, the volunteer job turned out to be a good fit. "I feel good because I've got someone to talk to, and they feel good because they've got someone to talk to them," he says. "I'd rather do this volunteer work than a part-time job."

If you're interested in exploring volunteer opportunities with commitments as short as a single day, contact your local agency on aging, which you can find at eldercare.gov15 or by calling 800-677-1116. A growing number of these agencies, including the one for Baltimore County, provide local volunteer-matching Web sites through which you can search by ZIP Code or interest.

"We have 189 nonprofits on the list," Mr. Eppel says, "and I've placed close to 1,000 people so far in volunteer matches."

--Ms. Greene is a staff reporter for The Wall Street Journal in Atlanta.

Top assistant to Sears president Brennan
Lou Fryz --| 1933-2008
Avid golfer continued to work for him after retirement in roles with other firms
By Larry Finley - Staff Reporter - Chicago Sun-Times
March 21, 2008

Lou Fryz was the go-to gatekeeper in the corporate offices of Edward A. Brennan, former president of Sears, Roebuck and Co.

"She was a remarkable lady," said Andrew McKenna, chairman of McDonald's Corp., where Brennan was a board member.

"She knew everyone and everyone knew her. She always knew the right button to push."

Ms. Fryz, 74, died Monday at Harris Methodist Hospital, in Fort Worth, Texas, following a stroke while playing golf on a local course.

"Her life was her work, and she enjoyed her golf,'' said Charles Ruder, a retired Sears vice president.

Ms. Fryz was named secretary to Mr. Brennan when he was elected Sears president in 1980.

When he became chairman and CEO of the company in 1986, she became his executive secretary and administrative assistant.

After Brennan retired from Sears in 1995, she continued to work for him while he served on the boards of several other companies, including McDonald's and Allstate Insurance Co. He was executive chairman of American Airlines and board chairman at Rush University Medical Center. He died in December at the age of 73.

Ed Liddy, retiring chairman of Allstate, a former Sears subsidiary, said Ms. Fryz was "always an enjoyable and caring person to be around. Lou was extraordinary in her professional role, handling complex or sensitive issues with great skill and diplomacy."

A longtime resident of Elk Grove Village, Ms. Fryz was born in Chicago on May 12, 1933, and joined Sears in 1951 after graduation from Tuley High School. She became a secretary for a company vice president and then went to work for Sears President A. Dean Swift in 1973.

"She was Ed Brennan's right hand, day in and day out," said Ruder. "She met everyone coming in the door to do business with the chairman. She knew how to get things done. She could make it happen."

While she could do many things at one time, whoever came in the door always had her attention, he said.

"You would be the most important person in the room," Ruder said. "She had outstanding judgment in sorting out the important from the unimportant. Most of all, she was a lady. She was 5 feet, 2 inches tall, but much taller in personality."

"She always had time for her friends," he said.

Ms. Fryz liked to travel and was on a golfing weekend in the Dallas/ Fort Worth area when she died.

Her survivors include two cousins.

A memorial service will be held at 11 a.m. on March 29, in Grove Memorial Chapel, 1199 Arlington Heights Rd., Elk Grove Village.

Lou Fryz, veteran aide to
Sears Chairman and CEO, dies at 74
March 19, 2008

Lou Fryz, executive secretary and administrative assistant to former Sears Chairman and CEO Edward A. Brennan for many years, died Monday at Harris Methodist Hospital in Fort Worth, Texas after suffering a stroke while golfing. She was 74.

A diminutive person -- she was 5 feet two inches tall -- she loved to play golf, and was on a golfing weekend to the Dallas-Fort Worth area with friends when she was stricken.

One of the longest-serving employees in Sears history, she joined the company in 1951 and later was secretary to the Midwest Territory vice president.

In 1973 she became secretary to Sears President A. Dean Swift, and in 1980 was named secretary to Edward A. Brennan when he was elected Sears president.

When he became Chairman and CEO of the company in 1986, she continued her long service as his executive secretary and administrative assistant and again when he retired in 1995.

He was an active board member of many corporations, and Lou Fryz served as his right hand in an office in the Wrigley Building in Chicago. Andrew McKenna, a close friend of Brennan’s and chairman of McDonald’s Corp., said of Ms. Fryz: “She was a remarkable lady. She knew everyone and everyone knew her. She always knew the right button to push.”

Ed Liddy, retiring chairman of Allstate Insurance Co., said "Lou was extraordinary in her professional role, handling complex or sensitive issues with great skill and diplomacy. At the same time, she was always an enjoyable and caring person to be around."

A longtime resident of Elk Grove Village, Ms. Fryz was born in Chicago on May 12, 1933 and joined Sears upon graduation from Tuley High School.

She is survived by two cousins, Darlene Kocis of Ft. Myers, Fla., and Elaine Fricilone of Orland Park, a southern suburb of Chicago. She was cremated Tuesday in Fort Worth, and a memorial service will be held at 11 a.m. Saturday, March 29, at Grove Memorial Chapel, 1199 Arlington Heights Rd., Elk Grove Village.

Target's inner circle
By Jennifer Reingold, senior writer - CNN/Fortune Magazine
March 18, 2008

They're brilliantly creative. They're enviably down-to-earth. They're universally imitated. And they're entering one of the most challenging periods the company has faced in 46 years.

(Fortune Magazine) -- You'd think Robert Ulrich would be warming up for his victory lap right about now. The soon-to-retire CEO of Target Corp. should be easing into a lavish farewell tour filled with teary thank-yous, champagne-soaked sendoffs, and a book of leadership secrets. After all, in his 23 years at Target (almost 14 of them as CEO), Ulrich has transformed a Midwestern discounter into one of the most admired and imitated companies in the world. Target now ranks 33rd on the Fortune 500 - making it bigger than Microsoft, Pfizer, and PepsiCo, and more than double the size of Cisco Systems.

There's just one thing: Though everyone knows Target (TGT, Fortune 500), hardly anyone's even heard of Ulrich. In fact, those who think his name rings a bell are most likely picturing Robert Urich, the deceased actor from television's Vega$ and Spencer for Hire. Even Ulrich's own employees often don't recognize him during his twice-monthly store walks, when he strolls the aisles dressed in Target's standard red shirt and khakis. Neither he nor his company has ever before graced the cover of a major magazine - highly unusual for a corporation its size. In fact, Ulrich has deliberately stayed so far under the radar that Bob Thacker, a former Target marketing executive now at OfficeMax, dubbed him the "silent Sam Walton." Says Thacker: "He has no public persona."

Ulrich's longtime No. 2, Gregg Steinhafel, is equally reticent.

During a recent interview in his tidy, light-filled office at Target's Minneapolis headquarters, Steinhafel's Midwestern reserve fluctuates between polite and downright uncomfortable. But then I cross the line. The offense: asking how Steinhafel, 53, who will take over as CEO from Ulrich on May 1, differs from his longtime mentor. The room grows silent. His mouth gets thin. Arms cross. "This isn't about me," he says. Long, awkward pause. "We're all a little bit nervous when we are talking too much about [ourselves]," he allows, finally. "It should all be about the brand."

Thanks to the efforts of this mysterious Minneapolis-based crew, it has been. Target has been around since 1962, but in the past decade its red-and-white circles have become as instantly recognizable as the swoosh or the bitten apple. A recent survey showed that an amazing 97% of Americans recognize Target's target, which they see everywhere from the web to New York's Museum of Modern Art to the company's 1,613 stores dotted across the U.S., thanks to the $1.2 billion Target spent on ads in 2007. Facebook is filled with groups declaring their love for the chain (and their hope that it will build a store in Seminole, Fla., or Davis, Calif.). Even Bullseye, Target's beloved bull terrier, is so popular that it is the only animal besides Lassie to be enshrined in Madame Tussaud's Wax Museum. By tweaking the discount model, "they found a niche in what was supposed to be a niche-less world," says Richard Tedlow, the Harvard Business School professor and author of "New and Improved: The Story of Mass Marketing in America."

That niche has certainly been an enviable one: Over the past decade, revenues have increased at an annual rate of 12%, to $63 billion. Since 1994, when Ulrich became CEO of what was then the parent company, Dayton Hudson, Target stores' operating margins have jumped from 5.4% to 8.6%, while Wal-Mart (WMT, Fortune 500) stores' have flattened, from 8.1% to 7.3%. The stock has returned 795%, compared with 284% for the S&P retail index and 354% for Wal-Mart.

Behind Target's rise, however, is a series of intriguing inconsistencies, such as an allergy to public attention at a company for which image is the be all (and where the longtime leader minored in journalism) is just one. Target is a company that is remarkably open to outside inspiration while at the same time so top-down that the CEO personally interviews candidates for the top 600 positions and can identify a misplaced screw on a gazebo. It markets itself to the Lexus set as a designer haven, while at its core it makes money selling commodities such as bleach and cereal. It is a big-box retailer that causes gasps of collective ecstasy when it announces a new location as competitors are vilified. Even the company's vision statement - "Expect more, pay less" - is somewhat contradictory.

Now those contradictions are coming to the fore as Target enters what promises to be one of the most tumultuous periods in its 46-year history, starting with a leadership change as critical as Sam Walton's retirement was to Wal-Mart in 1988 or Jack Welch's departure was to General Electric in 2001. According to company bylaws, Ulrich must step down after he turns 65 in April. (He will stay on as chairman until January 2009.)

Such transitions are difficult in the best of times. "Sam Waltons and Bobs are not replaceable at the same level of intensity," notes Luis Padilla, a former Target and Sears executive who now runs retail trade-show operator ENK International. Target's changeover, however, is happening against the backdrop of a weakening economy - which favors Wal-Mart's low-price strategy. During the past two recessions Wal-Mart's U.S. stores bested Target's in same-store sales by an average of 2.5 percentage points, according to estimates from Goldman Sachs's Adrianne Shapira. In 2007's fourth quarter, Target's same-store sales slipped below Wal-Mart's for the first time in more than four years. (To be fair, Target's prior year comparisons were tougher to beat.) Last July prominent activist investor William Ackman, who is best known for taking down the bond insurers, took a nearly 10% stake in the company and is pushing management for changes. The stock has dropped 27% since then, vs. a 2% rise for Wal-Mart. Says CFO Douglas Scovanner: "It is as difficult to grow as it has been in my [14-year] history here."

It might look bleak - until you understand that Target's real competitive advantage isn't a logo or a line of designer purses or a catchy slogan. It's the team that created them.

***

The secret missives arrive via spontaneous e-mails and thoughtful reports, wending their way to Target marketing guru Michael Francis's desk from all over the globe. Like a CIA agent's field documents, they provide on-the-ground intel -dissecting, for example, anime culture in Tokyo or heralding the return of a more vintage look for Christmas in London.

The dispatches come from Target's unique "creative cabinet," an elite, secret team composed of a dozen people of all ages, interests, and nationalities. Selected on a rotating basis by Francis, the members are paid annual retainers and either file reports or are on call when needed to discuss a strategic plan. "We identify them, and we cultivate the relationship," says Francis, a stylish former Marshall Field's buyer with bright eyes, a shock of dark hair, and such brimming enthusiasm that he looks as though he might eject out of his seat at any moment. Cabinet members were recently asked to weigh in on such initiatives as Go International, a series of clothing lines by high-end designers sold for up to 90-day stints, and a new, slimmed-down cereal box with a self-locking top.

One cabinet member who agreed to be named is 80-year-old Liener Temerlin, founder of agency Temerlin McClain. Temerlin's qualification for membership: Francis was struck by "the way his brain worked." Temerlin suggested that Target become the founding sponsor of the AFI Dallas International Film Festival. The company signed on, and the festival, now in its second year, features a Target filmmaker award, a Target documentary prize, and - natch - the Target Festival Lounge. Target's bull's-eye will be on prominent display for the expected 45,000 film watchers and stars like Charlize Theron, and the festival's 700 volunteers will be wearing red jackets with Target logos. "Michael likes ideas that have legs," says Temerlin.

Even Temerlin doesn't know what other group members are up to, though, because unlike almost every other "cabinet" on the globe, Target's never actually meets. "There's no power in bringing them together as a body," Francis says. "The power is in their working independently. We're the cross-pollinator. We're the integrator."

That structure perfectly illustrates the Target approach to innovation: highly creative yet tightly controlled. Far more than other discounters - and most companies of any kind - Target uses an enormous web of outside contacts to help it figure out what belongs on store shelves. It is Target's ultimate goal to walk that razor-thin line between the possible and the practical - a dichotomy you see all over its sleek, modern-art-filled downtown Minneapolis headquarters. Welcoming you to the product design and development department is a whimsical display of metallic tote bags fashioned into shimmering daisy petals. But hanging from the ceiling there's a huge bank of red neon screens showing the company's real-time in-stock levels (the amount of product in stores relative to plan). The message is clear: There is a free spirit expressed in Target's hopeful slogan, "Expect more, pay less," but it is always tethered to reality.

Francis's job is to make sure everything the public sees lives up to that motto. As such, the 1,400-person-strong "marketing" division he oversees actually encompasses everything from the Target Foundation to publicity, strategy, Target.com, and "guest" (i.e., customer) insights. Every single thing that Target's logo appears on - from the donation of $1,000 to an elementary school to the look of its private-label garbage bags - goes through Francis. His team, naturally, put together the manual of approved looks for Bullseye, the Target mascot (using a Jack Russell terrier rather than a bull terrier is forbidden; black eye circles rather than red are unthinkable!).

Like many people at Target, Francis, 46, has never worked anywhere but at Target and its former parent, Dayton Hudson, which also owned Marshall Field's and Mervyn's until 2004. And although marketing executives are famously transient, not one of his top reports has left for a competitor in more than 16 years. "The energy that flows through here is just amazing, and it's fun," says Karen Gershman, senior vice president of marketing and a 35-year veteran, who started as a proofreader when there were just 42 stores. Another key member of the group: Minda Gralnek, a voluble, stripy-haired 17-year veteran who has headed up many of the company's best-known campaigns, including "Design for All" and the current "Hello Goodbuy." Working closely with them, though he reports to Sternhafel, is Michael Alexin, a relative newbie from Eddie Bauer, who in six years has built an internal product design group of 300. "They never know when they walk in if they are going to be working on branded beef or the newest designer from Bergdorf," says Francis.

Each of Francis's reports - and, in fact, everyone at Target - is expected to constantly grow his or her own web of networks. To spot emerging young designers, for instance, Target has for years contributed to design education projects sponsored by the Council of Fashion Designers of America (CFDA). When bag and shoe designer Jessie Randall of Loeffler Randall became a finalist for the CFDA's Swarovski Award for Accessory Design in 2005, a marketing executive named Sally Mueller invited her to Target to talk about a collaboration. Randall was particularly surprised that the company was willing to accommodate her designs, even giving in to her preference for woven material that was actually - shocking for a discounter - woven. "Everyone said it would have to be embossed, and I said, 'Please just try,'" she recalls. "They always said, 'We don't want you to think about what we might like. We came to you because we want your aesthetic'" Randall's collection just ended a 90-day run in Target's stores.

To encourage, or rather ensure, a steady stream of bold new ideas, even managers with a proven record of hits must duke it out for portions of their budgets every year. So although the events team won a big chunk of the 2007 pie with its idea for a holographic fashion show - featuring virtual, not real, models - it had to come up with something equally compelling if it wanted funding this year. "We hold a huge percent of our dollars back," says Francis. That helped generate such out-there ideas as a temporary store floating in the Hudson River and a vertical fashion show, where acrobats '"walked" down the side of a building. That element of surprise, it turns out, has been part of Target's DNA for some time.

***

On a summer afternoon in 1921, farmers attending the Minnesota State Fair were hit by a freak storm of blue, red, and yellow feathers - one million in all, dropped from a biplane. Once they fluttered to the ground, fair-goers could see that each feather was marked "Dayton's" after the Minneapolis department store. The stunt was just one of many dreamed up by banker and real estate developer George Draper Dayton, who happened into retailing after he leased space in a downtown building to department store R.S. Goodfellow's in 1902. The next year he bought the outfit and renamed it the Dayton Dry Goods Co., creating a store known for high quality and great salesmanship. There were cooking classes and concerts, and Dayton even once cleared out an entire floor to exhibit a famous biplane called the Curtiss Airship. In 1909 he opened a discount section in the basement.

Dayton, who died in 1938, was not a native Minnesotan but quickly took to the straightforward, ultra-polite, and nonshowy "Minnesota nice" culture that still permeates Target today. "Buy and sell only merchandise of dependable quality and honest value at its level," he preached. He was succeeded by his son and grandsons, who, in addition to creating the first enclosed shopping mall, established a company mandate to give away 5% of pretax profits every year (a policy that continues today, with a focus on community, arts, and education). Impressed by the success of the basement store, grandson Douglas Dayton decided to open a discount arm. The first Target, whose name was chosen because it suggested value and also had visual impact, opened in Roseville, Minn., in 1962 - amazingly, the same year both Kmart and Wal-Mart began.

It was just five years later, in 1967, that Robert Ulrich signed on as a merchandising trainee at Dayton's, fresh out of the University of Minnesota. A Minneapolis native and the son of a 3M executive who is equally conversant in African art, musical instruments, and Indy car racing, Ulrich rose quickly, becoming president of the 215-unit Target Stores division in 1984. Ulrich was not - and has never been - the typical backslapping corporate leader. So lean as to resemble a scarecrow, with a slightly red face and a predilection for cowboy boots, he abhors small talk, isn't big on golf, and is quick to make a decision - hence the handle "Bullet Bob." Ulrich's words, when they come, aren't always in order, partly because his brain seems to be firing faster than his tongue - which is pretty darn fast. "He's just impatient," says Thacker, the former Target marketing exec. "He doesn't suffer fools. If somebody's doing stupid things, he doesn't tolerate it." Nor does he like to lose. "He is the most competitive individual I have ever met - ever," says George Jones, CEO and president of Borders Books and a Target executive in the 1980s, remembering casual Ping-Pong games at Ulrich's house that became bloody battles. "He would dive for a ball and literally run into the wall."

That competitive streak heated up in the mid-1980s, when Wal-Mart first made inroads into Target country. With its everyday-low-price strategy, Wal-Mart began eating into Target's sales while spending far less on marketing than Target, which produced colorful - and costly - Sunday advertising sections. Alarmed, Ulrich approved a test in 1985, converting 50 Target stores in Albuquerque and Knoxville, Tenn., to emphasize low prices. Quickly, Target found that it did okay in new stores but abysmally in places where people were trained to expect that circular. "We realized that we wouldn't ever be able to convert the entire chain," says Jones. "And we couldn't really run a bifurcated strategy."

Target faced a choice - one that easily might have put it in the same spot as doomed chains like Caldor or Bradlees. "Some people tried to do the dance on both sides," says Ulrich. "As Wal-Mart got bigger and bigger, [other rivals] started emulating them more, but they were still trying to appeal to an upscale guest. They'd pile shit in the middle of their aisle and then throw in some merchandise that wasn't the right quality for the store level. It's the classic mistake."

Instead, Ulrich's team saw an opening: If Wal-Mart was striving to be the king of logistics, with enough muscle to force vendors to deliver on price, Target could deliver on a great store experience and a product that was exciting and unique. "Wal-Mart's strategy is in many ways more simple than ours," says Ulrich. "It's more about price and more about mass quantities. It's a hell of a competition, but ours is more dependent on innovation, on design, and on quality."

What Target did have, thanks to its department store sisters, was access to people who anticipated desires. So Ulrich started a trend department, bringing over fashion scouts from Dayton Hudson, who started by expanding the color palette for T-shirts. "I can remember all the skepticism," says Jones. "No one in mass had anything like this." In 1987, Ulrich became CEO of Target Stores, and the chain's efforts grew bolder, thanks in part to John Pellegrene, a onetime theater major who arrived in 1988. He set about creating a marketing message that dared to suggest that shoppers could get joy from buying a broom or a toothbrush. Pellegrene's imagery, in effect, helped Target spearhead a giant self-esteem program for the middle class. No longer did people with limited budgets have to buy clothing that looked cheap or dish towels that didn't match. They deserved - and now could afford - more. In 1994, Ulrich's creative team turned that idea into a company motto that is, even today, the strategic filter through which everything must pass: "Expect more, pay less."

Target now had an increasingly public image to keep up - both inside and outside its stores. In 1998 the company agreed to give money to support the renovation of the Washington Monument. But during an early visit to the site Thacker, then vice president of marketing, was horrified: The sacred Target logo was plastered next to rotting scaffolding and ripped plastic. After much brainstorming, Target decided to sponsor an architectural competition to build scaffolding. The winner was a well-known architect named Michael Graves, who proposed an elegant, lighted structure made of flexible PVC foam. During one meeting, Thacker says Graves pulled out a stack of product designs "the size of a phone book." "Do you think Target would have any interest?" he asked.

Thacker, thunderstruck, took the idea to his boss, Ron Johnson. Johnson, who left Target in 2000 and has since rolled out Apple's wildly successful retail store strategy, immediately saw the potential. Later that year Graves' iconic, affordable tea kettles and kitchen gadgets hit shelves. "People have within themselves a paradox," says Robyn Waters, a former Target executive who now runs consultancy RW Trend. "Fit in and belong, and also stand out and be unique." With Target's designer wares, shoppers could do both. The company followed up with "mass/class" collections by the likes of Philippe Starck and Todd Oldham, and started to market Target as a destination for design.

These collaborations boosted Target's brand, but its bottom line ultimately depended on people buying their basics there. So in 1995 the company followed Wal-Mart's Supercenter lead and opened its first SuperTarget. The new format featured more consumable items such as food and toilet paper, to persuade customers - 80% of whom are women - to do most of their basic shopping there. Early results were disappointing; most experts thought Target would never be competitive with Wal-Mart in food. But Target persevered. The hope was that this would smooth out economic cycles, but it was also a move into a lower-margin, more commoditized business.

***

I am watching from behind a two-way mirror as two people struggle to assemble a $299 Grill King gas grill. Next to me is a camera crew filming the event, along with Target's buyer for lawn and patio, Paul Bein, who is scribbling notes. Already Bein has noticed that the screws are falling off the screwdriver and will ask the vendor to magnetize them, and he wants to have the customer service number listed more clearly on the instructions.

We're in Target's user-experience research center (ULab, in Targetese). And it's here, in this windowless warren at headquarters, that Target works on the practical side of its strategy. At the ULab, Target enlists real "guests" to test anything they interact with in the store, from free sanitizing hand wipes or gel (wipes won), to the company's latest shopping cart (now being tested in Minneapolis and Tulsa, it has handlebars that let you push it from any side), to new product prototypes like ITSO, Target's affordable storage system that hits stores in June (the name stands for "It's so fabulous!").

The ULab is just one of the ways Target has tried to make sure that the creativity gets results. "It certainly is possible to overemphasize innovation," says Ulrich. A few years back, he says, "it was almost as though everyone in every store was like, 'Oh, I have an idea and I'll try that.' We had to go back and say, 'Wait a minute, we're operators.'"

That's where Steinhafel comes in. A Kellogg MBA who spent two decades at Target merchandising everything from toys to stationery, Ulrich promoted him to president in 1999. By his own admission Steinhafel is a bit of a wonk. "I talk a lot about gross margin rate and the key drivers to improve our metrics and performance," he says. While it's easy to cast him as a B-school suit, that's not totally fair: He literally grew up in retail, working at the family store, Steinhafel's Furniture, in Milwaukee. By all accounts, Steinhafel is well liked both inside and outside the company, and he seems to consider Target a second home. In fact, he met his wife of 25 years there. I'd love to tell you I'm a swashbuckling entrepreneur like Richard Branson or Larry Ellison and have this exciting life beyond Target and my family," he says. But it wouldn't be true.

Steinhafel is also lauded for his deep understanding of vendors and store layouts. Says Deutsche Bank Securities senior retail analyst Bill Dreher, who recently visited a store with him: "He was speaking like a real dyed-in-the-wool garmento, not just some manager." Having a feel for how the products are presented is essential: Top management reviews initiatives before they launch, a process that takes place in the Status Room, a special area at headquarters that is home to a constantly rotating display of goods.

Ulrich, Steinhafel, and Troy Risch, EVP of stores, each walk with Francis through the room every ten days, checking out everything from table tents for Target's café to Cherokee's new underwear line and giving feedback. Recently Ulrich energized a print ad featuring wine. "Can we make this more interactive?" he asked, suggesting the bottle pour wine rather than just sit there. Once the trio has signed off, Francis brings in his 150 marketing managers, along with company lawyers, PR representatives, and even the training folks, to talk them through the marketing strategy behind every item. "We microman-age and we think and sweat about every little aspect of the guest experience," explains Steinhafel. "We take the time to communicate to our broad organization what they do, why they're doing it, how it fits the whole."

***

Yet communication alone is not going to solve the problems Target is facing now. Last fall Target, MTV, and Go International designer of the moment Erin Fetherston put out a two-minute-long "film" called "Morning, Till Night," which showed a bevy of beautiful girls who lived in brownstones and attended parties in sleek white spaces wearing flirty, ruffly clothes. It was aspirational, of course, and that was the point. But on the floors, under fluorescent lighting and hanging close to busy checkout lines, Fetherston's clothes seemed to promise a bit less. That's the reality of shopping at any discounter - but at image-obsessed Target, that disconnect can be jarring. "They've had inconsistent merchandising, and sometimes [it] doesn't live up to the marketing," says one former Target senior executive who walks the stores regularly.

In February, Citigroup managing director and analyst Deborah Weinswig polled shoppers and found that though Target consistently underprices supermarkets on groceries by about 10% to 15%, shoppers perceived the opposite: that Target's prices were a full 20% higher. Moreover, though prices at Target average out to within 1% to 3% of those of Wal-Mart, 87% of respondents said they shopped at Wal-Mart because it was the cheapest. "The problem could be that some of these stores are so clean that you just assume you're paying more," says Weinswig.

Another issue may be that Target's pioneering efforts, like its partnership with high-end fashion designer Isaac Mizrahi, which recently ended after five years, have become commonplace. To wit: Stella McCartney for H&M, Vera Wang for Kohl's, Norma Kamali for Wal-Mart, and countless others.

Steinhafel says Target is making adjustments in the current environment, but radical changes are not in the works. "A strategy is a strategy," he insists. "Sometimes we focus a little bit more on the 'pay less,' sometimes on the 'expect more,' but the guardrails are here." Target has revised its internal model to assume 2008 same-store sales growth of 2% to 3% per month rather than the 5% of recent years. Target also has changed the "messaging" in those famous circulars to emphasize price, particularly in food and commodities, and they've also adjusted worker hours to reflect lower traffic. Steinhafel has high hopes for the company's Converse One Star partnership, which he says is "above plan." Every five years Target rolls out a new store prototype, and in October it will start testing the larger 2009 iteration, which further emphasizes food, electronics, and pharmacies. (Consumables and commodities make up 34% of sales, up from 30% in 2005.)

Target continues to open about 100 stores a year, a feat made easier by the fact that it has thus far managed to avoid the barrage of bad press Wal-Mart has suffered. In part, that's because of Target's very public philanthropy (no good deed goes unpublicized here), but it's mostly because Target will never be the biggest target - Wal-Mart is six times its size. "Bentonville is a behemoth," Ulrich says, with a wink. "We're just a nice, modest, little, average [company] trying to get to a reasonable scale so that we can take care of things for our guests and give them good value." Yet some have noticed that both Target's and Wal-Mart's average pay in Minnesota, for example, falls below the $12.24-per-hour that advocacy group Jobs Now calls a living wage. "We feel they are worse than Wal-Mart because they are masquerading as this benign employer," says Bernie Hesse, director of special projects for Local 789 of the United Food and Commercial Workers Union in St. Paul, which has unsuccessfully tried to unionize local Target employees (no Target employees are unionized). "They have gotten this pass because they have set up this foundation and have this chic look, and that's more cruel than Wal-Mart. Wal-Mart doesn't pretend."

The labor issues have thus far remained behind the scenes, but a more pressing issue is the emergence of William Ackman, founder of Pershing Square Capital Management. Ackman, a very public activist investor, took a nearly 10% stake in the company last July. Even though his cash investment (most of the stake is in options) is down 15%, he says he considers Target "the best-managed retailer" around. Thus far he's met with Ulrich, Steinhafel, and Scovanner to urge them to spin off part of the credit card business and boost stock buybacks. (Target upped its buyback and on March 12 announced it is in negotiations to sell half its credit card receivables for about $4 billion.)

Taken all together, it's a tough situation for any new CEO to walk into. Certainly it's fair to say that if successors typically fall into two categories - those representing continuity, like Steve Ballmer at Microsoft, and those representing change, like Jack Welch or even Ulrich, Steinhafel is poised to be the former. "There are always choices for succession," says Anne Mulcahy, CEO of Xerox and a longtime Target board member, "and I think one of the [deciding factors] was Gregg's ability to carry on the collaboration. Their ambition is about the company; it is not about themselves as individuals."

And that, in fact, has always been the point. "Ulrich has done his successor a service," notes business historian Tedlow. "Sam Walton was an icon at Wal-Mart, and it's much easier to succeed somebody who isn't." Says Ulrich: "I know there are some people who have sort of this twisted concept that they can't do it without me, but that would obviously be the worst legacy that one could possibly leave." Instead he has built an organization designed to outlive him - and his successor. "We're going to be here for 40, 50,60 years," says Steinhafel. There's a decent chance Target will still be a household name then. But there's an even better chance its CEO won't be.

RESEARCH ASSOCIATE Susan M. Kaufman contributed to this article.

Motorola Replaces Two More Executives
By Sara Silver - Wall Street Journal
March 17, 2008

Motorola Inc. has replaced two more senior executives, adding to a stream of departures from the troubled maker of telecom equipment.

Larry R. Raymond has replaced Steve Strobel as treasurer of the Schaumburg, Ill., company. Mr. Raymond most recently worked in private equity after 20 years at Sears Roebuck & Co., ending as vice president and treasurer.

Also, Stephen Nolan is taking over as the head of mobile devices in Europe, Middle East & Africa (EMEA) for Motorola, a job that Mike Fenger has held. Mr. Nolan was vice president of sales for Continental Europe.

A company spokeswoman said "the leadership changes are part of an overall plan to swiftly transform the senior executive team."

Since Greg Brown took over as chief executive officer in January, the company has replaced its head of finance, human resources and technology, among other senior executives. Motorola's handset division, which makes up half of its sales, has been losing money and market share since the decline in popularity of its Razr phone.

Betting Big, Winning Big:
Interview With Bruce Berkowitz, CEO of
Fairholme Capital Management
 By Lawrence C. Strauss - Barron's
March 17, 2008 edition

BRUCE BERKOWITZ, PRESIDENT OF FAIRHOLME FUND and CEO of Fairholme Capital Management in Miami, runs concentrated portfolios -- and keeps a lot of powder dry to pounce on opportunities as he looks for companies that throw off a lot of free cash. This approach has paid off nicely for the firm, which now oversees about $9 billion, the vast majority of it in the no-load Fairholme1 Fund (ticker: FAIRX), of which Berkowitz is president. Since its launch at the end of 1999, the fund has finished near the top of its Morningstar category, with an annual "since-inception" return of 16.27%, trouncing the S&P 500's performance of minus 0.03% over the same period. The fund also bests most of its peers based on one-, three- and five-year returns.

Barron's: You run a very concentrated portfolio, with the top 10 holdings of the Fairholme Fund accounting for roughly 70% of the assets. Why is that?

Berkowitz: If you can buy more of your best idea, why put [the money] into your 10th-best idea or your 20th-best idea? If we're confident in what we do, then that's the way we should do it. The only reason not to is a fear of being wrong. The more positions you have, the more average you are.

How do you go about mitigating risk in such a concentrated portfolio?

We consider risk to be the chance of permanent loss, as opposed to volatility. Volatility is more of an opportunity. There's nothing better than a one-time event that allows you to buy a reasonable company at a great price. So we are looking at the chance -- in terms of risk -- of a permanent loss, based upon our own security research.

What kind of companies are you looking for?

You can try to predict the future or you can react to it. We are not any good at prediction. So we try to position ourselves with companies that are capable of reacting to whatever environment comes their way, because in the good times companies take care of themselves. It's only in the bad times when you want to find companies that actually plant the seeds of greatness. There is Berkshire Hathaway there has been Leucadia National [LUK], a holding company with a lot of different businesses, and similar companies. They are always playing defense, because you never know when something bad will happen.

In looking for stocks to buy, why do you put so much emphasis on free cash flow?

Because it makes the most sense to me. My first job was at a little corner grocery store, and it seemed pretty simple. Cash goes into the register; cash comes out of the register to pay for supplies, payroll and taxes -- enough to maintain the business at a steady state. What was left over was the owner's earnings, or free cash flow. That was really what the business made.

Your cash position has averaged about 20% -- much higher than most mutual funds'. Why?

No. 1, we don't have to sell that which is cheap [in order to] to buy that which is cheaper, especially companies that we have gotten to know and love. And No. 2, where there are special situations, we can act quickly.

How about an example?

One is WellCare Health Plans [WCG], a managed-care company focusing on Medicare and Medicaid. Last October, some 200 federal and state agents raided its headquarters in Tampa. That's when we started to look at the company, especially because Fairholme is now based in Miami. WellCare, which serves only Medicare and Medicaid, offers its members a better service then they would get just on Medicare, something called Medicare Advantage. It saves the government and taxpayers money, so they are trying to reduce the growth of health- care costs. By using Medicare Advantage, members have a wonderful prescription plan that they didn't have with Medicare.

What else caught your eye about WellCare?

If you study the history of health-care companies or hospitals that get into trouble -- and provided they have a reasonable balance sheet -- it's the same scenario, usually taking place over a one-year period. Step A: After, or during, the investigation, senior executives are replaced. Step B: The institution pays some type of fine, which really ends up just being a delay of game, and the company moves on. Top management at WellCare has been replaced. If you look at the data, you'll see that the company continues to grow and continues to get enrollment in more and more counties in the U.S.

The stock fell off a cliff late last October, presumably after the headquarters was raided. At around 37 last week, it was fetching less than 10 times 2008 profit estimates of $5 a share. When did you start buying the shares?

We came in after it fell off the cliff, when it was trading in the 30s late last year. As for the investigation, the only thing we know was that there were 200 agents that raided their campus. But, to this day, we don't know exactly what is involved, except that these kinds of investigations usually involve billing practices. Still, it's growing nicely and its valuation is significantly less than those of a UnitedHealth Group, WellPoint or Humana. The government needs all of these companies to implement its health plans.

How did you develop this particular idea?

Sometimes, it's by accident and being in the right place at the right time. In January, Fairholme hired a new chief operating officer, Charles Fernandez, who used to work at IVAX, which was acquired by Teva Pharmaceuticals in 2006. He was the audit committee chairman and he had intimate knowledge of [health-maintenance organizations]. Then we [went] back to other situations like this, including Tenet Healthcare and Health South. Then we dug into the quality of WellCare. Based on Medicare and Medicaid data, we see the growth. And there are certain indicators you can't ignore, among them how WellCare has been building up cash. Also, the independent directors acted quickly and wisely. It was only a matter of months before they named a new executive chairman, Charles Berg, formerly the CEO of Oxford Health Plans, which he turned around and sold to UnitedHealth.

Where do you see the investigation going?

WellCare will pay a fine. I'm sure the company, like all other companies in this situation, wants to resolve the issue as fast as possible. But this company generates $5 a share of free cash flow; it's too cheap.

Table: Berkowitz Picks 2 Let's move on to another holding.

Mohawk Industries [MHK] is a carpet, flooring and tile company that, together with Shaw/Berkshire Hathaway, is one of the two big national companies in that industry.

It looks pretty cheap, trading at roughly 12 times 2008 profit estimates.

The CEO, Jeffrey Lorberbaum, has done a wonderful job of cutting costs, making some acquisitions and growing the business. They are still doing very well in a difficult environment. The stock gets pushed down, based on the residential real- estate situation. But we still believe the company has the ability to earn about $7 of free cash flow a share this year, even in a difficult time, and into the future. They can earn much more than that if things get better, and they are expanding in Europe.

Another of your holdings is Berkshire Hathaway, whose A shares [BRK- A] currently trade around $131,000.

In the past, the market has made some mistakes in valuing this company. But in general, right now the market is within an intrinsic value range of anywhere from $125,000 to $175,000 per A share.

What gets the stock higher?

Just a-little-bit-different assumptions in growth rates make a huge difference over time. Having said that, Berkshire isn't going to be able to do what it's done in the past, owing partly to the law of large numbers and because Warren Buffett is getting older.

The company still has the ability to outperform the index. But it's not going to produce the 27%-per-annum return he has achieved for the past 42 years. Buffett is the first one to tell you that's pie in the sky. But at this price, the company is unbelievably well-positioned to have one more good growth spurt from this environment. You can sleep extremely well at night holding this stock.

Sometimes a good bit of the trick to investing is not losing. If you can focus on not losing, the winning takes care of itself. For Berkshire Hathaway, the worse the environment gets, the better it's going to do.

Because of what?

Buffett wants a tougher environment. When you have $40 billion to $60 billion in cash on your balance sheet, you need a tough environment, as that's the only way you are going to be able to put that money to work. Berkshire isn't what I would call a back-up-the-truck bargain value, but it's reasonably priced.

Tell us quickly about St. Joe [JOE], which is based in your neck of the woods.

A major real-estate developer and forestry operation, they have over 700,000 acres in the panhandle of Florida, most of it within a reasonable ride to the Gulf of Mexico. Living here in Miami, you start to understand the state and its business climate, partly by reading the state's master plan of development. And you will see that an international airport is being built now, right in the middle of St. Joe's land. And even though St. Joe has made some mistakes in the past, specifically trying to do too many things, they have at least made the wise choice of raising some equity [by issuing more stock] so that they are pretty much debt-free.

The stock's now around 40, down from the mid-80s in 2005.

Under the right management, this is a very, very valuable company, but it is tough to see because of the long-term nature of the product and the lack of under-standing that people outside the panhandle have of the panhandle. But we are talking about what everybody wants: oceans, rivers, lakes, sand and a nice climate.

Let's talk about a few stocks that haven't worked out. Would you put Sears Holdings [SHLD] in that category?

It's too soon to tell. I think Sears is going to work out. Some of our greatest victories have come from very difficult beginnings, and they have allowed us to buy more of what we like at lower prices.

At 94 and change recently, the stock was down about 50% from its peak nearly a year ago. What gives you confidence in Eddie Lampert, the hedge-fund manager who took over Sears in 2005 and serves as the retailer's chairman? They just went through another top-management shakeup recently.

Look at Lampert's overall performance. He has done a good job with retail holdings in the past, and he understands Sears' assets. We've looked at a lot of the tax assessments and location maps on many of their properties, which have a lot of value and provide downside protection. We're in the middle of a very difficult environment, so Sears is being priced for a very, very difficult outcome. Meanwhile, it's making money, and has significant assets, so I'm not concerned. We've had a position since September. One error for us was Household International, a credit-card finance company that HSBC acquired in 2003.

What did you take away from that?

You have to be very, very careful about investing in companies that are captive to the capital markets. We saw the same situation recently with Thornburg Mortgage [TMA] and others. The capital markets decide to call in their loans and these companies don't have good long-term financing -- it doesn't matter how good they are.  Well, they aren't that good because they didn't take care of the balance sheet. If your short-term financing is pulled, you're dead.

That's for sure. Thanks, Bruce.

Designing Women?
Apparel Apparatchic at Kmart
Edited by Robin Goldwum Blumenthal - Barrows
March 17, 2008 edition

CAN THE AVERAGE JOSEPHINE RESCUE KMART? While other apparel retailers are trying to attract high-profile designers to lend pizazz to their brands, Kmart is going the opposite way. Last week, it began a nationwide search for what it calls "the country's next style guru," à la reality television's Project Runway or America's Top Model.

The contestants have until April 27 to post a picture of themselves decked out in their Kmart fashion favorites on kmart.com\style3. The winner, who will be chosen by a panel of celebrity judges, will join four other everywomen selected in "blind casting calls" to represent Kmart in a national advertising campaign.

"We thought if we could just get people to try us we could win them over," says Bill Stewart, chief marketing officer for the discount retailer, whose sales at stores open at least a year fell nearly 5% in '07. He says the contest aims to reverse some preconceived negative notions about Kmart quality and service.

But some have questioned the idea's effectiveness. "It's a slightly tired idea coming from a brand that isn't already known to have a good point of view on design," says Lucian James, president of brand- consulting firm Agenda. "It gives the impression that Kmart is looking for help." The Kmart customer "is looking for a bargain rather than anything that is well-designed," says Derek W. Cockle, a professor at LIM (a college for "the business of fashion") in New York. Both Kmart and parent Sears Holdings (ticker: SHLD) have struggled with design initiatives under the leadership of Eddie Lampert. The stock is down 46% in the past year.

Stewart remains optimistic: "If you take a look at our apparel, you'll find amazing style at an incredible price."

Stepping Out After a Makeover
By Michael Barbaro - New York Times
March 15, 2008

It loomed just out of reach, a tantalizing prize that Lord & Taylor could not win: Juicy Couture, one of the hottest women’s clothing brands and a best seller in rival stores.

Every year, the chief executive of Lord & Taylor, America’s oldest department store, pleaded to have Juicy Couture. And every year, its owner, the giant clothing house Liz Claiborne, refused. “It was considered out of their league,” said one person involved in the negotiations.

Not any more. With little fanfare, Claiborne started selling Juicy Couture jewelry at a handful of Lord & Taylor stores last month, with handbags expected soon, according to people briefed on the deal.

The deal is the latest chapter in one of American retailing’s most striking turnaround stories. With its cluttered aisles, bland clothing and perpetually deep discounts, Lord & Taylor not long ago appeared destined for the same doom that befell once-venerable names like B. Altman, Sterns and Bonwit Teller.

But the 182-year-old department store chain has, improbably, come roaring back to life. Once-dowdy floors are now lined with up-to-the- minute fashions. Cheap plastic shopping bags have given way to hefty, luxurious ones. And formerly empty stores are bustling with shoppers, giving the chain its best sales figures in 15 years.

Behind the resurgence is a most unlikely turnaround team: Jane Elfers, a tough-talking, well-connected former department store buyer who is fiercely protective of Lord & Taylor’s heritage, and Richard A. Baker, a baby-faced financier who has virtually no experience running a retail company.

When Mr. Baker, head of a buyout firm, purchased Lord & Taylor in 2006, many people on Wall Street assumed he would dismember the venerable chain by shutting down stores and selling off valuable real estate. Instead, he has decided to support Ms. Elfers, a chief executive who was already in place, backing her with the trust and money needed to turn Lord & Taylor around.

Together, the pair are plowing up to $500 million into the chain’s stores, marketing efforts and Web site. And Mr. Baker has embarked on a buying binge, starting with Fortunoff, the jewelry and home furnishing chain, that will allow him to fill in gaps in Lord & Taylor’s lineup of merchandise.

Lord & Taylor’s unexpected success has turned conventional wisdom about modern retailing on its head. Since about 2000, it was believed that department stores had to merge with rivals to survive, wielding size to win over designers and consumers. That encouraged Macy’s to buy its biggest rival, May Department Stores, and Kmart to purchase Sears Roebuck.

Yet the 47-store Lord & Taylor chain, one-twentieth the size of Macy’s, is proving that there is still room for a small, regional department store chain. The era of relentless mergers, it seems, has left many Americans rejecting the coast-to-coast sameness of Macy’s in favor of something different.

Ms. Elfers, 46, who has worked at Lord & Taylor for 19 years, calls the merger trend “over-consolidation.” Consumers, alienated from the combination of behemoths like Macy’s and May, which wiped out Marshall Field’s and Hecht’s, are streaming into Lord & Taylor. “ People are looking for a store to call their own,” she said.

For years, it appeared Lord & Taylor would not have a chance to win over anyone, as it was bought and sold by one out-of-town owner after another, careening from one near-death experience to the next.

The chain, which opened in 1826, started by dressing New York’s white glove set. Soon, it became a fixture of upscale suburban shopping in the Northeast.

But in 1986, it was bought by May, a national conglomerate. To squeeze more money out of the chain, May managers began building Lord & Taylor stores in markets like Florida, Texas and Georgia, where the chain — known for coats, sweaters and boots — had little following. The stores carried less expensive clothing brands. And new managers introduced steep markdowns and bountiful coupons.

All of this dragged down the shopping experience and prestige of Lord & Taylor, leaving it indistinguishable from local rivals. “Lord & Taylor had no reason for being,” said Paul R. Charron, the former chief executive of Liz Claiborne, a major supplier to the chain.

Ms. Elfers is more blunt. “The store had become a dump,” she said of that period.

When she became chief executive in 2000, Ms. Elfers decided to try something that rarely succeeds in retailing: taking a tarnished brand back upscale. She insisted on selling off 32 poorly performing stores that accounted for roughly $400 million in annual sales; dumping the Liz Claiborne conglomerate’s mid-priced clothing line, a $100 million business; and recruiting higher-end designers.

Her vision? A Lord & Taylor “comfortably above Macy’s, well below Neiman’s and Saks, elbowing in between Nordstrom and Bloomingdale’s,” she said.

Customers started trickling back in — and so did designers. Since 2003, Lord & Taylor has recruited more than 200 new upscale brands, like Trina Turk, Tracy Reese and Nanette Lepore for women and Lacoste, Hugo Boss and Ted Baker for men.

Like consumers, clothing makers were eager for an alternative to the mega-department stores. “We are all rooting for Lord & Taylor to make the transition,” said Roger N. Farah, the president of Polo Ralph Lauren.

For the first time in more than a decade, sales at Lord & Taylor stores open at least a year, a crucial yardstick in retailing, rose in 2006, before consumer spending began to decline. Sales per square foot are an estimated $250, higher than Macy’s but still well below Nordstrom.

In the midst of the turnaround, May merged with the owner of Macy’s, once again putting the future of Lord & Taylor in doubt. Rumors swirled that its stores would become Macy’s. In the end, Macy’s chief executive decided to sell it for $1.2 billion, making Lord & Taylor the only former May chain to survive as an intact brand.

It was assumed that the new owner of Lord & Taylor, NRDC Private Equity, would sell off the stores and cash in on the value of locations like Lord & Taylor’s Fifth Avenue store, alone worth an estimated $600 million.

Mr. Baker, the chief executive of NRDC and the son of Robert Baker, a wealthy real estate developer, seemed to fit that mold. Retail executives dismissed his purchase of the chain as motivated by short- term profit, with some likening him to Edward S. Lampert, the hedge fund manager who took over Sears in 2005 and has since run that chain on a shoestring, extracting profits but turning off consumers.

But Mr. Baker is emerging as the anti-Lampert: a serious figure in retailing committed to spending the time and money necessary to rebuild a brand.

He has already spent $60 million on stores, buying new carpet, chairs and fixtures. Another $100 million will be used to modernize Lord & Taylor’s dated Web site, which is attracting a paltry $6 million in sales a year.

“He is in it for good,” said Bud Konheim, the chief executive of Nicole Miller, the contemporary dress house. “He wants to put Lord & Taylor back on the map.”

Mr. Baker, 41, concedes that when he bought Lord & Taylor, he attached a high value to its real estate. “But what happened, literally days after signing the purchase agreement,” he said, “is that the business started to perform better than we expected.”
Monthly sales began surging 10 percent.

Macy’s decision to eliminate century-old local brands, like Marshall Field’s in Chicago, pushed shoppers into Lord & Taylor, where they found Ms. Elfer’s new, higher-end store. “When people got there, they were surprised, because Jane had transformed the stores,” said Mr. Baker, who holds the title of chairman at Lord & Taylor.

In interviews, customers talked of rediscovering Lord & Taylor. Ava Reich, 45, who has shopped sporadically at the Manhattan store for a decade, said it “was not as frumpy and middle-aged” as it used to be. “It’s more contemporary, and it just looks really good.”

Despite the tough credit market, Mr. Baker is considering buying several retail companies, in addition to Fortunoff, which he purchased last month. He plans to put Fortunoff jewelry and home goods into every Lord & Taylor store.

People familiar with his thinking said Mr. Baker is considering Kleinfeld, the venerable New York bridal chain, which could make Lord & Taylor a destination for designer wedding dresses.

Ms. Elfers said that, even as dozens of its competitors went bankrupt or were sold and renamed, Lord & Taylor refused to be killed off.

“What else could be done to this brand?” she asked. “The more barriers that are thrown in front of it, the more people believe in it.”

Sears launches new effort to boost image, low sales
By Frank Washkuch - PR Week
March 17, 2008 issue

HOFFMAN ESTATES, IL: Sears has launched a national campaign to reinvigorate its image amidst slumping sales.

The goal of the effort is to boost excitement in the brand, despite a gloomy economic forecast and increased competition from other retailers, according to Kirsten Whipple, Sears Holdings marketing and PR director. The campaign launched on March 1 and is set to run through May.

Sears, which saw Q4 profit drop 47% due to poor store performance, is reaching out to consumers to reaffirm its usefulness, said Whipple.

"We know a lot of people have decided that Sears isn't relevant to them," she added. "We know we have the products, services, and experiences that are relevant for today, so it's our job to get that message across."

Celebrity spokesman Eric Stromer, host of HGTV's Over Your Head, has participated in about 50 TV, radio, and print interviews regarding the initiative.

The retailer has launched a campaign Web site, Reimagineyourself.com, featuring design tips from Stromer, celebrity handyman Ty Pennington, of ABC's Extreme Makeover: Home Edition, Redbook editor-in-chief Stacy Morrison, and "green" expert Deborah Barrow.

The corporation also plans to renovate the homes of 70 Armed Forces veterans on April 26, as part of National Rebuilding Day.

Sears is working with Euro RSCG Worldwide PR on the "Reimagine You"  effort. The campaign budget is undisclosed.

The effort is aimed at all consumers, but Sears' partnership with Hearst to distribute a 32-page, promotional magazine to 7 million people through 13 magazines and newspapers is mostly targeting women, said Andrea Morgan, Euro EVP and MD of consumer branding.

The promotion is running in Cosmopolitan, O: The Oprah Magazine, Redbook, Marie Claire, Country Living, Good Housekeeping, and Popular Mechanics.

Sears Holdings names
Kevin Holt retail operations chief
Ex-Meijer exec to head 1 of 5 new sections
By Sandra M. Jones - Reporter - Chicago Tribune
March 13, 2008

Sears Holdings Corp. has named Kevin R. Holt, a former Meijer Inc.
executive, to lead the company's retail operations business unit, one of five umbrella units the retailer created earlier this year in a broad reorganization.

Holt, 49, was named executive vice president of store operations late last month, Sears spokesman Chris Brathwaite said Wednesday, confirming a disclosure in a regulatory filing. Holt joined the Hoffman Estates-based company in September as senior vice president and chief effectiveness officer, charged with "shaping the methods and processes" at the stores, Brathwaite said.

Sears is in the midst of a reorganization that is dividing the company into many business units under the five umbrella groups: brands, real estate, support, online and store operations. It's a move that the company said is aimed at speeding decision-making and increasing accountability but that some analysts view as a precursor to asset sales.

Holt worked for 13 years at Meijer, a closely held Grand Rapids, Mich.-based grocer and general merchandise big-box chain, where he was most recently executive vice president of retail operations. Meijer operates just under 200 stores in Michigan, Indiana, Illinois, Kentucky and Ohio.

In his new role at Sears, Holt will oversee about 3,400 stores in the U.S. operating under names that include Sears, Sears Grand, Sears Essential, Sears Hardware, Kmart and Great Indoors. The chiefs of Sears and Kmart -- Don Germano, senior vice president of Kmart, and Mike McCarthy, senior vice president of Sears stores -- will report to Holt.

W. Bruce Johnson, who became interim chief executive and president of Sears Holdings in February, had been executive vice president of supply chain and operations for Sears Holdings since the company was formed by the 2005 merger of Kmart and Sears. James P. Mixon, a former Kmart executive, took over the supply chain role in January as senior vice president of logistics and transportation. Both Holt and Mixon report to Johnson.

Sears Chief Executive Aylwin Lewis was ousted in January, and Sears is looking for a new CEO.

Sears names head of retail operations
Chicago Sun-Times
March 13, 2008

Sears Holdings Corp. has promoted Kevin R. Holt, a former executive at Meijer stores, to head the company�s 3,400 retail stores, including Sears, Kmart, Sears Grand, Sears Hardware and The Great Indoors, according to a filing with regulators.

Holt, 49, was hired at the Hoffman Estates-based retailer in September, as senior vice president and chief effectiveness officer.

His new title is executive vice president of store operations. The retail business unit is one of several operating units that Chairman Edward S. Lampert is creating to try to turn around Sears Holdings declining sales and profits. Each unit will have its own leadership and accountability. The reorganization may result in Sears proprietary brands, such as Kenmore appliances and Craftsman tools, being sold at rival retail stores.

The Hoffman Estates-based retailer reported Feb. 28 that its fourth-quarter and fiscal year sales and earnings declined.

Net income fell 47.5 percent, to $426 million, or $3.17 a share, in the fourth quarter ended Feb. 2, from $811 million, or $5.27 a share, a year earlier. Net sales fell 6.8 percent to $15.07 billion from $16.18 billion in the period a year earlier.

Prior to joining Sears, Holt most recently served as executive vice president of retail operations at Meijer, a Grand Rapids, Mich.-based grocery and mass merchandise chain of big-box, standalone stores.

Interim CEO and President W. Bruce Johnson is leading Sears Holdings while the company searches for a new CEO to replace Aylwin Lewis, who left in January.

Sears Holdings hires ex-Hilfiger exec for Kmart's women's division
By Monée Fields-White - Chicago Business
March 10, 2008

(Crain’s) – Sears Holdings Corp. hired a former executive at Tommy Hilfiger Corp. to head its women’s clothing division at its Kmart stores. Stephen Donnelly has been named vice-president and general merchandising manager at Kmart and starts March 24, spokeswoman Amy Dimond confirmed Monday.

Kathy Douglas, a vice-president and general merchandise manager who headed both women’s and children’s attire, will oversee just children’s goods.

The trade publication Women’s Wear Daily earlier reported Mr. Donnelly’s hiring.

Mr. Donnelly, who previously worked at Eddie Bauer and A/X Armani Exchange, comes to Sears Holdings amid a reorganization that will split the company into five divisions, including a segment that will focus on boosting profit and sales of the company’s key brands.

The move, announced in January, is part of Sears Chairman Edward Lampert’s efforts to reverse the slump at Sears and Kmart stores.

Sears Holdings' net income dropped 48% and sales declined 6.8% in the fourth quarter of fiscal 2007.

Sales at stores open at least a year, a key retail measure, fell 4.5% with home appliances and apparel faring the worst.

Product Review:
Sears Kenmore Elite Washer and Dryer
By Alexandria Jackson - log Critics.org
March 10, 2008

In March of 2006 I decided to splurge on a top-of-the-line washer and dryer. I use Consumer Reports regularly and I research anything I'm about to buy months before purchase. When I researched the Kenmore Elite Oasis Washer and Dryer, I read nothing but fantastic reports.

When I got to Sears, I asked to see the washer and dryer I'd been salivating over for months. I saw the washer and dryer on a pedestal and I almost fainted. They were actually pretty in addition to being energy efficient! I was even more ecstatic when I saw the Canyon Capacity washer. You could fit an entire sleeping bag in that thing!

In my current washer, I was up to eight loads of laundry per week. My fantasy was that I could cut that down to four loads with this beautiful set. I spent more money than I should have on the washer and dryer. Final cost: $1500. I declined the extended service plan; after all, Consumer Reports says most extended warranties are for suckers. Plus, the Kenmore name was behind them, not to mention the Sears name.

Two months after I was in possession of my luxurious washer and dryer, the washer began beeping and emitting an error code. The code meant nothing to my owner's manual or me. I called a technician. He repaired whatever problem it was and wished me well. Five months later, it began displaying a new error code. I called the technician who repaired it without speaking. I should have known something was amiss.

At the thirteen-month mark, one month outside of the manufacturer's warranty, it began cycling randomly through its water temperature levels. It was like Russian roulette. I never knew which temperature I was going to get. In addition to having several laundry mishaps due to the variable water temperature, the washer began beeping incessantly. I had to add a second door to the laundry area so I could simultaneously sleep and wash a load of clothes.

I called Sears and received the proverbial runaround. I was encouraged to buy the $129 extended service plan. I refused on principle because I had purchased the top-of-the-line model and did not expect further problems. Sears said it couldn't help me unless I paid the $95 service call. I told them to forget it; I'd live with the beeping and the crazy water temperature.

I did not know the beeping was about to herald a worse problem. The washer actually refused to wash my clothes. I looked on line and discovered thousands of people having the exact same problem with these washers. The FixYa guy indicated that we all needed a new Interface Relay and that a technician would have to come out.

I contacted Sears about the "known defect" since so many people were having the same problem. They reported that statistically it was not a "known defect" and they were therefore not responsible for the problem. I demanded a free technician. They refused.

I filed a Better Business Bureau complaint. Sears responded by sending out a technician for free. Sears called to set up the event - a five-hour window on one of my working days. I agreed to take the time off work and made sure they knew all symptoms pointed to a problem with the Interface Relay.

The technician showed up and diagnosed it with, "You need a new Interface Relay." I said, "I know." He said, "I have to order the part and you need to pay me before I can order the part." I said, "What? I told them about this two weeks ago!" The poor technician just shrugged. I tried to contact the customer service representative, but surprisingly enough, I could not reach her. I ended up shelling out $170 for the part.

After I took another day off work for the five-hour window of repair service, the technician told me on the sly, "Buy the warranty. These things are going to go bad every year." I was horrified that I'd have to pay the extortion fee of $129 a year on something I'd paid $800 for 15 months previously.

I did not buy the warranty. I am an idiot. I should know when to just take my tube of Vaseline and go home.

Today is the anniversary of my possession of the washer and dryer. The dryer has decided it won't run unless I stand there and hold the "start" button. I went online, and guess what? Thousands of people are having the same trouble.

I called Sears and bought a three-year extended warranty for both. This made for an additional $600 price tag to insure I won't have to pay the parts, labor, and service charge to have a technician come out to my home to repair my "luxury" items.

I will never buy another product from Sears again as long as I live. The entire customer service process is laughable. I will encourage all and sundry to stay away from any Kenmore product, and if they simply must buy that brand, they absolutely must pay the extortion fee - otherwise known as their Master Service Plan. That is the price you must pay for a Sears product in my humble and dissatisfied opinion.
----
Alexandria Jackson is a psychologist by day and a Blogcritic by night. She is the author of Don't Take it Personally: Keep Your Self- Esteem in a Relationship.

Comments

#1 — March 10, 2008 — maskay
You are not alone--I had similar issues with a Kenmore washer and dryer (not top of the line, but about $800 total) from Sears. Problem after problem, and I always had to take 2 days off work because they don't equip a technician with the basics in his truck. For example, my plastic tub in the washer cracked. Instead of ordering the part when I made the appointment (I was too stupid to see the crack, the techician had to see for himself.) I had to go through 2 appts. this was about 6 months after my warranty ran out.

With the dryer it was a relay or something so it would no longer start. I could see not having a tub, but a part that's less that 4 inches?

Let's just say I've paid over 50% of what I originally paid for the washer and dryer. I also filed a complaint with the BBB but they could do nothing.

Sadly, I bought kenmore because my parents had a kenmore washer and dryer from before my birth until after I graduated from college. Only a few minor repairs needed that my father could handle.

Next time I'm goig el cheapo--when it breaks I'll just buy new, since most repairs cost a minimum of $300 anyway.

#2 — Alexandria [URL]
I would feel a lot less unhappy if the BBB or Sears customer service understood that we aren't trying to get something for free - the product is bad and should be recalled.

And you're absolutely right. We should consider washers and dryers disposable, just buy the cheapos and toss 'em when they break.

Going to the Company Elders for Help
By Matt Richtel - New York Times
March 10, 2008

SANTA CLARA, Calif. — On a recent Saturday afternoon, John Toppel, a retired Hewlett-Packard sales manager, did not spend his leisure time golfing or mowing the lawn. He spent it at a local electronics store extolling the virtues of H.P. laptop computers to customers.

He was not paid by the store or by Hewlett-Packard, for that matter. Mr. Toppel, 62, left the technology company four years ago, but he remains a volunteer cheerleader for H.P., one of thousands of its retirees whom the company is trying to galvanize into an auxiliary army of senior marketers, good-will ambassadors and volunteer sales people. None of them get paid; they do it, they say, because of their affection for the company.

“I feel like I have two marriages: a wonderful marriage at home for 36 years and a wonderful marriage at H.P.,” Mr. Toppel said. “I guess that’s now a former marriage, but I still have strong feelings for it.”

Across the country, companies are making use of retirees as part-time or temporary workers. They are taking advantage of not only their expertise, but also their desire to stay involved and engaged with the world through work.

Hewlett-Packard’s twist is particularly unusual in Silicon Valley, where long-term company loyalty is as rare as a pinstripe suit. Here, people switch jobs and companies on Internet time, chasing the latest technology developments and the chance to cash in stock options or catch an initial public offering.

But Hewlett-Packard, founded in 1939 before there even was a Silicon Valley, has tens of thousands of alumni, many who spent decades at the company, based in Palo Alto, Calif. Old-timers express a familial loyalty, telling stories of eating meals and drinking coffee with the founders, David Packard and William Hewlett, or receiving a baby blanket from Mr. Packard’s wife, Lucile, on the birth of a child.

In a move it says reflects a renewed emphasis on grass-roots marketing in the Internet era, Hewlett-Packard is seeking to turn its retirees into a valuable asset that other, younger tech companies lack.

“We’re moving forward with an effort to capitalize on the fact we have these great brand stewards,” said Michael Mendenhall, chief marketing office of Hewlett-Packard. “When you look at the importance of great word of mouth and great third-party endorsement — who better to do that than your own employees?”

Mr. Mendenhall appeared last Monday at the retirees’ annual gathering with Hewlett-Packard’s chief executive, Mark Hurd. They urged more than 500 retirees who had gathered at the Computer History Museum in Mountain View, Calif. — hundreds more watched over the Internet — to do volunteer sales, join local alumni clubs, get involved in legislative issues the company cares about and represent Hewlett-Packard in philanthropic and community events. The company’s goal is to inspire involvement from as many as 40,000 retirees.

Mr. Toppel, who did a recent stint as a volunteer salesman at Circuit City, said he gladly is participating because he feels great loyalty to the company. He and others also say they still own shares in the company, giving them a financial incentive to contribute. And, Mr. Toppel said, the company is giving a renewed sense of purpose to retirees.

“It makes them feel good, makes them part of it, makes them feel wanted,” said Mr. Toppel, who spent 31 years at Hewlett-Packard and now is a professor of management at the business school at Santa Clara University.

The idea of encouraging retirees to work for free has inspired some criticism. Susan Ayers Walker, founder of SmartSilvers Alliance, which offers consulting services to business looking to connect with older consumers, says she is offended that Hewlett-Packard can’t find some way to compensate volunteer workers, particularly salespeople.

The company said participation is the reward. “It’s about being part of the H.P. community and its rich heritage,” said Mr. Mendenhall. “That’s what they get.”

Their involvement can be bittersweet, say some of Hewlett-Packard retirees. The oldest among them — now into their 90's — are the last of the generation that helped build Silicon Valley, watching it evolve from endless fields of almond, plum and cherry orchards into laboratories, semiconductor companies and software makers.

They also are workers from a bygone era of paternalistic employers that promised lifelong employment. That era is largely gone across the country, including at H.P., which broke a tradition of avoiding layoffs and has terminated more than 30,000 workers over the last five years.

The contrast between the Hewlett-Packard of yesterday and the typical Silicon Valley company of today is especially pronounced, said Joe Schoendorf, 62, who spent 18 years at H.P. and is now a venture capitalist. “If I look at a résumé today, it says two years at Netscape, two years at Google, two years at Amazon, and then Facebook. That used to be a bad résumé that meant the person couldn’t keep a job,” said Mr. Schoendorf. “There is no institutional loyalty.”

Leslie Berlin, a project historian for the Silicon Valley Archives at Stanford, said the ethos has probably changed today at Hewlett-Packard, which now has 172,000 employees. But in Silicon Valley’s history, the loyalty engendered by Hewlett-Packard stands alone, she said.

“This is quite a unique phenomenon,” she said. “They represent the collective past of this place,” she said of the older retirees.

To be sure, companies like I.B.M. and Lockheed Martin have loyal retiree groups. So do relatively newer entrants into the Valley’s economy and culture, like Intel. A tight-knit network of retirees in the area, alumni from places like SRI International and Xerox Palo Alto Research Center who helped build the Valley, have an enormous sense of tradition. But they often are tied not to a company but to their work on specific projects or technical standards.

In the case of Hewlett-Packard, retirees talk about how the company treated them with respect. The company was, historians say, the first to adopt flexible work hours, and it put an early emphasis on ideas rather than titles.

Last Monday, Chuck Ernst, 91, a former customer service manager, attended the retiree meeting with Frank Musso, 75, who spent 25 years at H.P. They said they might not have too much time or energy to get involved in volunteer projects, but they liked the way the company was reaching out. They said the company’s embrace of its retirees started in earnest several years ago and has been intensifying.

“H.P. wants us to feel connected, and they’re doing all this work to keep us connected,” said Mr. Ernst. He said he thought the company probably ought to pay retirees to get involved in sales, but it’s not something he feels strongly about. “We’re proud of the company, and we don’t hesitate to let people know it.”

Some former employees also do not hesitate to let the company know how it might do better. One of them is Art Fong, 88, who joined Hewlett-Packard in 1946 after being recruited by Mr. Hewlett over a spaghetti dinner. Every few years, Mr. Fong sends the company a technical suggestion, as he did on the day of the retiree meeting.

“I suggested some improvements to their new TVs,” said Mr. Fong, who spent 50 years at the company, 40 of them full time, and, thanks to stock ownership, retired a wealthy man.

He said he has another suggestion for the new Hewlett-Packard: “Be nice to your employees. Treat them like family.”

Big Names Are Trading Teams,
But the Game Is Retail Fashion
By Eric Wilson and Michael Barbaro - New York Times
March 8, 2008

It's free-agency season in American fashion.

Isaac Mizrahi, the everyman's fashion oracle, is about to leave behind his wildly popular cheap-chic clothing collections at Target to be the creative director for Liz Claiborne, the stalwart shopping-mall label.

Dana Buchman, a longtime favorite of customers at upscale stores like Saks Fifth Avenue and Neiman Marcus, is decamping this fall to the budget-conscious Kohl's.

And Tommy Hilfiger, a constant in department stores like Dillard's and Bon-Ton for two decades, now says he will sell his clothes only at Macy's.

Over the next year, an unusually large group of famous clothing designers, motivated by lucrative deals, plan to shift their retail allegiances, in many cases abandoning stores and customers who have supported them for years.

So like angry sports fans wounded by a the trade of a star player, consumers (and even stores) are left to wonder: What ever became of loyalty?

The sudden flurry of designer address changes - J. C. Penney, Gap, Old Navy and Wal-Mart have also recruited their own designers over the last six months - is likely to create jarring transitions for American consumers as they try to navigate the once-familiar aisles of their local clothing chains, wondering where to find Isaac, Dana and Tommy, among others.

"There will be a period of dislodgment and disenfranchisement," said William L. McComb, chief executive of Liz Claiborne, whose efforts to revive flagging sales hinge upon his company's aggressive wooing of Mr. Mizrahi from Target.

After Claiborne announced the move in January, Target responded by saying it would end its relationship with Mr. Mizrahi at the end of the year, leaving, for now, a void in its lineup.

The motivation behind these defections and poachings is equal parts economic and egocentric. Clothing manufacturers are responding to a seemingly insatiable appetite for fashion across every income bracket. They are also benefiting from a lively, and occasionally vindictive, competition between mass retailers (Wal-Mart and Kohl's) and the traditional department stores (Macy's, Bloomingdale's and Lord & Taylor) that remain after years of industry mergers.

When it comes to luring designer brands, it seems that popularly priced chains are suddenly on equal footing with their glossier rivals.

For decades, department stores like Saks had a virtual lock on designer clothing labels, until Mr. Mizrahi broke that barrier with his collection at Target in 2003, which, rather than burying his career, became an estimated $300-million-a-year success.

Once the stigma of crossing into mass-retail territory lifted, such high-low designer partnerships became commonplace, with Vera Wang selling a line at Kohl's and blue-chip names like Karl Lagerfeld and Stella McCartney creating lines for H&M.

All this activity has raised a bar for traditional retailers like Macy‚s, which rarely had to fend off competition from below. Its 2005 merger with May Department Stores, which created the country‚s largest department store company, was in part an effort to use size to wield more influence over designers.

The democratization of design forced Macy‚s to claim exclusives it never before needed, and to punish designers who cut deals elsewhere. When Ms.
Wang went to Kohl‚s, Macy‚s dropped her popular lingerie line. The chain cut orders from Liz Claiborne after the company offered a line called Liz & Co.
to Penney.

"If the product is available in 50 different points of distribution in a five-mile driving radius, convenience becomes the No. 1 reason to buy a brand," said Terry J. Lundgren, chief executive of Macy's. "And so we lose."

That's why Macy's, which has begun promoting its designer relationships in television ads, persuaded Mr. Hilfiger to drop his other partnerships, infuriating regional department store chains like Bon-Ton, Belk and Dillard's that had promoted his brand.

"The stores we exited were very upset," Mr. Hilfiger said. "I'm sure we'll lose certain consumers in certain areas, but I'm sure the gain is much greater than the loss could potentially be.‰

In recent months, the designer poaching has devolved into open warfare among retailers, leaving some battlefield casualties.

Only a year ago, Dana Buchman was designing a $6,950 leopard-patterned swing coat made, with real mink, for the affluent women who shopped for decades at high-end stores like Saks Fifth Avenue and Bloomingdale‚s.

But as Liz Claiborne tried to reorganize its business because of declining sales from department stores like Macy's, the company decided to close the Dana Buchman line and reinvent it as a bargain-conscious brand for Kohl's, where no article of clothing is sold at full price, and most are under $100.

Ms. Buchman does not expect most of her customers will follow her there.
Judy Golubchick, 60, a loyal Dana Buchman shopper, is worried that the Kohl's line "will be lower-quality product" than what she buys at Ms. Buchman's store off Madison Avenue in Manhattan. That location is expected to close March 26.

"It's very sad for me," Ms. Golubchick said, dressed head to toe, she proudly announced, in Ms. Buchman's fashions.

"It‚s traumatic," Ms. Buchman said of losing customers. " Traumatic." But, she added, "I am not stuck on one kind of retailer, or one kind of customer. It's a big country and everyone wants fashion."

For some retailers, the introduction of upscale names like Ms. Buchman offers a handy means of reinvention, and building buzz among customers.

Gap is bringing out clothes by Patrick Robinson, who previously designed the ultramodern Paco Rabanne collection in Paris. Old Navy has turned to the 1990s phenomenon Todd Oldham (who once made a dorm-themed collection for Target) to promote its happier, hipper new image.

And last week, Wal-Mart announced it had hired Norma Kamali, an influential designer since the 1970s who had just ended a relationship with Everlast making designer sweat pants for Bloomingdale‚s, to create a new look for its clothing department.

Not all deals have been successful. Oscar de la Renta's venture called O Oscar has not gone over well at Macy's, and Wal-Mart's previous fashion effort, a label by Mark Eisen, was a flop.

Perhaps the most ambitious, and closely followed, introduction is at J. C. Penney, where Ralph Lauren began selling a broad collection of fashions and housewares in February. Because Mr. Lauren already sells his Polo collection to virtually every department store ˜ including the prickly Macy's - the collection for J. C. Penney is called American Living, with no mention of Polo or Ralph Lauren in the stores.

But the modern American shopper is pretty savvy: At the Garden State Plaza in Paramus, N.J., last week, few customers failed to discern Mr. Lauren's influence on the preppy American Living line.

The displays were immaculate, with whitewashed picket fence walls and displays of fake hydrangea in metal pails, and piles of polo shirts, floral bedsheets, paisley neckties, wheelie bags and even fuzzy toilet seat covers.

"It just looks like Polo, even if it doesn't say so," said Ethel De See, 77, who bought American Living leather belts and towels.

Ken C. Hicks, president of J. C. Penney, said the precise name on the label is unimportant because "the merchandise stands up on its own."

"It's designed by the greatest American designer and being sold at the best American department store."

Asked about Mr. Lauren's line for Penney, Mr. Lundgren, Macy's chief, replied that "no one has ever heard of that brand."

Mr. Hilfiger was slightly more diplomatic. "People want the authentic and the original Ralph Lauren," he said. "I don't know what American Living does for Ralph. There may be some confusion or some conflict, I'm not sure. But I will say it is better than the merchandise that exists in Penney's today."

ADVERTISING
New sheriff at Sears
Arrival of marketing VP from West Coast could mean changes to strategy with lead agency
Young & Rubicam
By Lewis Lazare - Chicago Sun-Times
March 6, 2008

Sears is adding ammunition in its marketing department. Robert Raible, a former vice president of marketing at a West Coast department store chain called Mervyn's, has joined the Sears marketing team as vice president, integrated marketing communication. Raible apparently will assume many of the duties of Rebecca Case, vice president of marketing, advertising and creative, who we announced on Monday is leaving the company after a seven-year stint.

Richard Gerstein, Sears chief marketing officer, just broke the news about Raible in a memo to the troops at Sears' advertising agencies, including, of course, Young & Rubicam/Chicago, which is the lead agency for the struggling retailer. Gerstein said Raible will "lead, communicate and evaluate the organization's marketing communications activities." And Raible will report directly to Gerstein.

Raible's arrival can't be altogether comforting news for Y&R, or any of the other shops with which Sears works. At least Case was a known entity. Y&R will have to figure out quickly whether Raible, as Gerstein's point man, intends to rethink and shake up the retailer's marketing strategy or stick with something closer to the status quo, which doesn't appear to have been working too well. This week Sears unveiled a new "Reimagine You" spring ad campaign in conjunction with Hearst publications.

In his memo to the ad agencies, Gerstein also said he had "mixed emotions" about Case's departure. Per Gerstein, Case had expressed a desire to leave Sears as far back as last July, but agreed to stay on until a replacement could be found

Macy's Joins Trend of Retailers Ending Monthly Reports
By Vanessa O'Connell - Wall Street Journal
March 6, 2008

Monthly retail sales have long been an important tool for gauging the health of the American economy as well as the retailers themselves.

But tomorrow, when retailers around the country report their February sales for stores open at least a year, the statistics will be a lot less meaningful. Macy's Inc., the nation's largest traditional department-store operator by revenue, will stop making its monthly disclosure, joining other retail titans such as Sears Holdings Corp., Home Depot Inc. and Dollar General Corp.

The monthly reports have actually lost significance as an economic indicator over time. For one thing, they don't reflect two big shifts in the way consumers shop. The booming category of online sales isn't included in the widely watched numbers. And gift cards, which have grown in popularity, aren't logged as sales until they are redeemed, temporarily distorting monthly sales, especially during the holidays. The timing of holidays on the calendar also can skew monthly sales figures, making it harder to see a meaningful trend.

But for investors, the monthly numbers provide a timely peek at sales trends that is even more important with the economy shaky. Macy's decision to withhold its monthly sales now underscores the increasingly difficult environment for U.S. retailers, many of which have seen their shares tumble in recent months amid mounting fears of a recession. Two other retailers, Jos. A. Bank Clothiers Inc. and CVS Caremark Corp., abandoned reporting monthly sales as of January.

"There's obviously a common theme among all of these retailers," says Ken Perkins, president of Retail Metrics Inc., a research-consulting firm. "This is a trend when things get lean and difficult." He expects the February sales results to reflect another difficult month, and is projecting an average growth in same-store sales of 1.2%.

"Giving less information at a time of high investor concern heightens the perception that there might be bad results," says David Dreman, chairman and chief investment manager of Dreman Value Management, which owned about 3.4 million Macy's shares as of Dec. 31.

Calling the decision by Macy's "unbelievable," David Berman, a hedge-fund manager at Durban Capital, said abandoning the disclosure of monthly sales hurts small investors more than big investors, who have better access to management and can hire professionals to help them collect clues about sales trends.

"All they are doing is taking away the pressure on themselves, and when that happens, in my experience, the company really starts to tank," adds Mr.
Berman, who doesn't currently have a position in Macy's stock. "There's no sense of urgency for management. The incentives are all messed up. Where is the motivation coming from?"

At Macy's, informal discussions for months focused on the benefits of abandoning monthly disclosure of same-store sales. The operator of Macy's and Bloomingdale's stores has reported negative same-store sales for eight of the 12 months through Feb. 2, driving down its stock price. Executives at the Cincinnati-based company began debating that the obligation to report monthly same-store sales was a big distraction at a time when the company was suffering from the effects of its 2005 acquisition of hundreds of May Co. stores.

In a Feb. 26 conference call with investors, Chief Financial Officer Karen Hoguet acknowledged that the move, combined with not providing quarterly guidance, "could be misconstrued as trying to cut back on the information that we're providing to investors," but said "that is not the intent."

Macy's spokesman Jim Sluzewski notes that companies in other industries -- like Motorola or Dell -- don't report sales monthly.

"The practice of reporting sales monthly unfortunately has encouraged a short-term orientation that distracts retailers such as Macy's," adds Mr. Sluzewski. "Moreover, monthly reporting in times of calendar shifts has led to misunderstanding and misinterpretation of sales results."

Retailers first began reporting same-store sales in the 1970s, when an analyst developed the metric to analyze a now-defunct retailer whose older stores were suffering. The number of companies reporting monthly sales grew substantially in the '80s and '90s, as more retailers went public, and began providing the metric as a yardstick.

But in recent years, retailers have begun balking. Fewer than 50 retailers report monthly, down from 70 three years ago, according to TNS Retail Forward, a Columbus, Ohio, consulting firm.

"Increasingly the thought is that reporting monthly sales results makes retailers susceptible to managing on a month-to-month basis," says Frank Badillo, senior retail economist at Retail Forward. But because some big chains no longer report the data, the figures don't accurately reflect the retail landscape; there are now big gaps in the home-improvement category and apparel retailers and discounters are overrepresented, he points out.

At a Feb. 21 roundtable discussion for retail chief financial officers hosted by Deloitte & Touche, there was "a lot of grumbling" about the work involved in reporting monthly sales, says Pat Conroy, U.S. consumer products leader at Deloitte & Touche. Finance chiefs question whether "there is an alternative that requires less work and provides just as much insight," he says, noting that Deloitte would like to help them come up with one in the future.

But critics of retailers that abandon monthly sales reports note that, in good times, chains go out of their way to trumpet big gains in monthly sales. "It always seems to be the companies that are having problems" that go mum, says George Whalin, president of Retail Management Consultants Inc. in Carlsbad, Calif., and an investor in retail companies. He complained to both Home Depot and Sears about their lack of disclosure, saying he tracks the numbers closely. He says he got no response.

Nineteen retailers have abandoned reporting monthly same-store sales in the past 18 months alone, according to Retail Forward.

Sears Holdings May Have Downside to $75
Seeking Alpha.com
March 5, 2008

Morgan Stanley is out cautious on Sears Holdings (NASDAQ:SHLD), reiterating their Underweight rating. The firm notes margins have now fallen for three quarters, and that is despite drops in both depreciation and ad spending.

Sum-of-parts support near $90 a share remains theoretical and stretched, in their view, and less likely to find a bid in a more constrained credit and retail environment. Valuation has downside to $75 vs peer group on FCF yield, even lower on P/E.

Buybacks continued in 4Q, but with cash down to $1.66bn (roughly half in Canada, ESL's meetings with investors will be important. Original ESL fund investors are still up at least 4x from the original Kmart bond before bankruptcy investment. Some investors may want liquidity. Firm believes any signs of redemptions or sell-down of ESL stake in SHLD would be a significant negative to the share price

At $95, they believe the market is failing to account for not only risks but likely outcomes. The 90bps drop in SHLD margins equals the average they assume for WMT, TGT, HD, LOW, M, JCP, JWN, and KSS.

Notablecalls: Don't shoot the messenger, but I think SHLD may have some downside in it. There were some Icahn stake rumors yesterday (10% chance of being true, in my opinion), so there could be some weak hands around.

Not a huge conviction call by any means. Just letting you know it's out there.

Wal-Mart to Open 81 Stores in March,
170 Supercenters in 2008
Dow Jones Newswires
March 5, 2008

Wal-Mart Stores Inc. (WMT) said it will open 81 new stores and clubs across the country in March, providing jobs for 26,000 associates.

The Bentonville, Ark., retail chain said it will also open 170 supercenters in the current fiscal year ending Jan. 31, 2009, and 140 supercenters in the fiscal year ending Jan. 31, 2010.

Wal-Mart said the 81 stores and clubs are opening in 30 states including seven openings in North Carolina, six in Illinois, five each in Michigan and Florida, four in Ohio and three each in Wisconsin, Texas, Tennessee, South Carolina, Pennsylvania, Oklahoma, New York, Nevada, Indiana and Iowa.

The company also said the stores include two additional new high-efficiency
(HE-2) prototypes designed to reduce greenhouse gas emissions and use 25% less energy than a standard Wal-Mart Supercenter.

Wal-Mart said it will open its ninth Jobs and Opportunity Zone store in Decatur, Ga., on March 7, to partner with local organizations "to spur job creation and economic development in the community."

Advertising
'Reimagine you': no imagination
Lackluster 'Garage' commercial, first in Hearst campaign, doesn't make its case for Sears tools
By Lewis Lazare - Chicago Sun-Times
March 4, 2008

Spring is about to arrive. So Hoffman Estates-based Sears is coming at us with a new wave of spring advertising, coupled with a promotional tie-in with Hearst magazines and newspapers. A range of Hearst publications (from Redbook to the Houston Chronicle) in the weeks ahead will become the conduit for distributing copies of a Sears standalone 36-page magazine titled "Reimagine You," which also is the theme of the new ad campaign from Young & Rubicam/Chicago.

We discovered on Monday, however, that there was some confusion within Sears about whether this mildly aspirational "Reimagine You" campaign would include the overarching "Where It Begins" tagline introduced a while ago -- a nebulous tag notably absent from the retailer's holiday and winter television advertising.

At first a Sears spokeswoman informed us that "Where It Begins" would appear in all the "Reimagine You" television commercials. But it wasn't on one of the commercials we watched. The decision to drop it was apparently made so late in the process that Sears' own marketing spokeswoman hadn't been informed.

In any event, the first of four television commercials that will roll out over the course of the next couple of months is called "Garage," and it does in fact deal with tools -- by no means a sexy merchandise category, but nonetheless one for which Sears is well-known. And it's a category that, best we can tell, actually still drives customers to struggling Sears outlets. Other spots yet to be unveiled will deal with spring fashion, outdoor living and the kitchen.

"Garage" is a muddle of stuff that doesn't do much to generate interest in Sears or its tool products, except perhaps to note the retailer is conducting a tool sale.

The spot opens with a reference to the magazine Popular Mechanics (a Hearst
title) and a bit of commentary from a PM editor who talks about reimagining a home garage as a proper repository for tools. Organization, says the PM guy, is the key. Hardly a startling revelation.

But by the time we've gotten that out of the way, the voice-over announcer barely has time to mention the tool sale before the spot ends. And the commercial concludes, as have many in recent campaigns, without making a compelling case for why Sears is the right retailer to help us reimagine ourselves. Or, more specifically, our garage. But what's worse is the lack of creative spark in the way the commercial is shot and edited.

As a memorable marketing tool, "Garage" feels way too flat.

Lew's view: C+

 

Advertising
Sears Joins With Hearst for a Multimedia Blitz
By Stuart Elliott - New York Times
March 3, 2008

TWO decades ago, shoppers were told "there's more for your life at Sears". An ambitious campaign that begins this week "the result of an unusual retailer-media partnership between Sears and Hearst" may help determine whether there is more life for Sears.

Sears, Roebuck & Company, a division of the Sears Holdings Corporation, is struggling with slumping sales, falling profits and mounting complaints about store conditions. Revenue in the quarter that ended on Feb. 2 for stores open more than a year "a closely watched yardstick in the retail industry" dropped 4 percent from a year earlier.

The wobbly economy is exacerbating Sears' woes as consumers slow their spending and worry about rising prices, falling home values and the gyrating stock market. And while its competitors have been stepping up efforts to woo skittish shoppers, Sears Holdings has been cutting the marketing budgets for both Sears and its sibling, Kmart.

"We already invest a significant amount of capital and expenses" in areas like marketing, Edward S. Lampert, the chairman of Sears Holdings, wrote to shareholders in a letter last week. "The key is to improve the productivity of these investments."

The new campaign, with the theme "Reimagine you," seeks to do that by peddling all at once a wide variety of Sears products like clothing, appliances, tools and linens as well as branded Sears services like home maintenance and kitchen remodeling.

The campaign, with a budget estimated at $50 million to $75 million, will include television, print, catalogs, signs and displays, as well as e-mail messages, video clips, blogs and other Web sites.

One goal for Sears is to sponsor "innovative, interruptive and integrated campaigns that challenge people's perceptions" about the retailer and its offerings, said Richard Gerstein, chief marketing officer at Sears, which is based in Hoffman Estates, Ill.

"We have to do a better job of collecting our products and turning them into experiences," he added.

Another goal, Mr. Gerstein said, is finding media companies "to partner with, to go to market differently," rather than "buying pages for pages‚ sake."

So Sears is teaming up with the Hearst Magazines unit of the Hearst Corporation, which is creating elements of the campaign like a Web site (www.reimagine yourself.com) and a 32-page booklet, "Reimagine You," to be distributed with 13 Hearst magazines and newspapers.

Hearst will also add Sears-centric content to a Web site thedailygreen.com that is part of the Hearst Magazines Digital Media stable of sites.

The collaboration between Hearst and Sears speaks to the interest among media companies in customizing plans for major marketers, the better to capture a larger share of their dollars.

The campaign represents "a significant increase" in Sears's commitment to Hearst, said Michael A. Clinton, the executive vice president at Hearst Magazines in New York who is also the chief marketing officer and publishing director.

For instance, Sears will make "a significant digital buy on the Web sites" of the nine Hearst magazines that will carry the "Reimagine You" booklet with their April issues, Mr. Clinton said. They include Cosmopolitan (cosmopolitan.com), O: The Oprah Magazine (oprah. com/omagazine), Popular Mechanics (popularmechanics.com) and Redbook (redbookmag.com).

The booklet was also to be distributed with the Sunday editions of four Hearst newspapers: The Houston Chronicle, The San Antonio Express-News, The San Francisco Chronicle and The Times Union in Albany.

Mr. Gerstein described buying the ads on the Hearst Web sites as part of an initiative to "ramp up our digital investment to five times what it was" in spring 2007.

"We've been a little slow to the digital party," he added, "but our customers spend a lot of time online, researching products like appliances, lawn and garden, and patio furniture."

The deal with Hearst also reflects a shift in the Sears media strategy, Mr. Gerstein said.

"There are a lot of media out there," he said. "It's really about partnership, how to make the ads work for us and stand out."

During the weeks that the "Reimagine you" campaign is running, the Sears creative agency ˜ the Chicago office of Y&R, part of the Young & Rubicam Brands division of the WPP Group ˜ will produce ads that reflect the look and tone of the booklet and Web site being produced by Hearst.

For instance, the print ads inside the booklet use a "Reimagine" theme rather than the theme from the current ads by Y&R Chicago, which is "Sears. Where it begins."

And television commercials feature editors and writers from the Hearst magazines. For example, one spot begins with an announcer saying, "Sears asked Popular Mechanics to reimagine the garage."

After a contributing editor of the magazine, Joseph Truini, offers organizing tips, the announcer promotes a sale on tools and concludes, "This spring, reimagine yourself at Sears." Two Web addresses appear at the end of the spot, reimagineyourself.com and sears.com.

The print ads and commercials seem fresher, less cluttered and more aspirational than is typical of Sears pitches.

For example, the print ads bear headlines suggesting that readers can reimagine themselves as „the green Samaritan," "the urban Aphrodite," "weekend connoisseurs" or "the alpha neighbor." And the models appear younger, better-dressed and more stylish than usual.

Not everyone endorses the idea of a campaign for Sears that strives to be more upscale.

"They can maybe attract some attention and attract some people into the store," said Alan Siegel, chairman and chief executive at Siegel & Gale in New York, a corporate and brand identity consulting company owned by the Omnicom Group, "but the experience in the store will not reflect the ads."

The reason, Mr. Siegel said, is that Mr. Lampert "has skimped on capital investment in the stores" and has not focused enough on merchandise.

"He can do anything he wants in the advertising," Mr. Siegel said of Mr. Lampert, but Sears is now "really not competitive with Target, Kohl's and others."

Mr. Gerstein, needless to say, would beg to differ.

The campaign "is about igniting true possibilities," he said, and persuading a current or potential Sears customer that he or she can "make it the year you want it to be."

Maybe the campaign ought to be called "Reimagine Sears" ˜ or, to borrow the title of a TV series in which the commercials will be seen, "Extreme Makeover: Sears Edition."

The Blue-Light Barneys: That's Kmart's Design
With Fourth-Quarter Sales Down 5.2%,
Discounter Desperate to Shed Preconceptions About Its Apparel
By Natalie Zmuda - Advertising Age
March 3, 2008

Quick, think fashion. What's the first retailer that comes to mind?

Bet it wasn't Kmart.

Coming off a 4.7% same-store-sales decline last year attributed in part to soft apparel sales, the home of the blue-light special is trying to get consumers to equate it with style via a new apparel campaign set to break March 9. Wckd, which was launched online, targets a younger demographic and is already selling out in some locations. Its "Style Showoff Contest" will pit Kmart customers against each other in a competition that judges personal style. The hope is that new and former customers will be surprised, and inspired to shop, by the looks these fashionistas pull together.

"We were talking about ways to dramatize what a great deal Kmart is," said Bill Stewart, Kmart's chief marketing officer, who is an alum of Levi's and Dockers. "A lot of people have preconceived ideas about what they'll find at our stores. ... It's all around getting out the word that if you think you know Kmart, you probably don't, unless you've been in in the last week."

Sprucing up wardbrobe

Jettisoning consumers' notions will be critical, given the financial woes of Kmart and its parent company, Sears Holdings. Last week, Sears Holdings said sales at Kmart stores open at least a year declined 5.2% in the fourth quarter and 4.7% during fiscal 2007. Apparel was cited as an area of particular weakness.

That's a marked departure from the relatively stable, if unextraordinary, results of years past. In 2006, same-store sales at Kmart were down 0.6% on top of a 1.2% decline in 2005. (For comparison, Sears posted a 4% decline in same-stores sales in 2007 and a 6.1% decline in 2006.)

Christine Augustine, senior retail analyst at Bear Stearns, says the timing of the apparel push could be apropos. "We consistently hear that when there's newness [in apparel], consumers will buy. ... The challenge for Kmart is going to be that they don't have the natural traffic to the store that their competitors like Wal-Mart and Target do," she said.

She added that in a tough economy, "sometimes competitors get conservative, and they're nervous, and they don't want to spend [on advertising]. If you can spend in a smart way, you can pick up share."

'Fashion ambassador'

Four women have already been chosen for the campaign in blind casting calls and have shot a TV spot and print ads, which will launch the search for Kmart's "fashion ambassador." Footage from the casting calls, in which the women react to learning the clothes they have been trying on are from Kmart, also could factor into the campaign. The women guessed the clothes were from retailers including Barneys New York, Forever 21, H&M and Banana Republic, Mr. Stewart said.

The strategy is also to put Kmart clothing on real customers. Customer feedback has said that skinny models and seamstresses can make anything look good. "I've done a lot of apparel advertising in my life, and they're right," Mr. Stewart said. "By letting our own customers tell the story of what's in the store, we have tremendous credibility and tremendous viral effect as well."

Ms. Augustine said a campaign that gets consumers talking could be a boon for the retailer. "Probably there's a whole generation of consumers that have no idea what Kmart is like. ... They maybe haven't even ventured into Kmart," she said.

The winner will be announced May 13 and will be used in a national campaign, presumably for the fall season, although Mr. Stewart declined to comment.
Kmart's agency of record, DraftFCB, is working on the push, which will include TV, print, circulars and an online component. Mr. Blue Light also will be interspersed throughout the campaign.

Mr. Stewart declined to comment on whether the new campaign would lead to an increase in advertising spending for 2008. If measured spending levels in the fourth quarter of 2007 -- which are not yet available -- match those from the fourth quarter of 2006, the retailer will have spent nearly $190 million last year, according to TNS Media Intelligence. Kmart's advertising spend jumped to $192 million in 2006 from $149 million in 2005.

Luring in women

Until now, Kmart's fashion marketing has been limited, although it has been staffing up a chic design studio in New York's SoHo neighborhood with hundreds of designers. A campaign four years ago featured stars from the WB's new shows. And last summer, Mr. Blue Light hosted a runway show in one TV spot. Now execs are banking on the new apparel campaign to benefit Kmart across all categories. (Kmart still carries the Martha Stewart Everyday brand.) "The perception of apparel helps to color women's overall opinion of a retailer," Mr. Stewart said. "I think this will go a long way toward bringing all women to Kmart."

Bill Stewart, Kmart's chief marketing officer

The campaign is also likely to publicize the spring launch of three new apparel lines, although there are no guarantees, as the contestants are not limited to certain brands. The lines, Wckd, Piper & Blue and Limon & Sal, which all target a younger demographic, are already selling out in some locations, Mr. Stewart said. That's in addition to Kmart's Route 66, Jaclyn Smith and Joe Boxer lines.

There are also separate marketing plans for Wckd and Piper & Blue, both of which launched online with dedicated microsites created by Chicago-based WhittmanHart. Mr. Stewart said this is the first time Kmart has ever launched a brand online. "These brands are targeting fairly young consumers, so most of the effort there is online," he said. "We're doing a lot of work around [interactive media, and [we're] trying to do something beyond the typical banner ads."

Sears rejected in favor of Catterton bid
Chicago Tribune
March 1, 2008

CORTE MADERA, Calif. — Restoration Hardware Inc. is completing a proposed buyout from Catterton Partners after deciding a competing bid from Hoffman Estates-based Sears Holdings Corp. was inferior.

A committee of independent directors of Restoration concluded that the Sears offer "was not reasonably likely to result in a superior proposal," the retailer said Friday. The Sears proposal "was subject to significant uncertainties" compared with Catterton's terms, Restoration said.

Lower offer: Sears said in a regulatory filing Thursday that it lowered its bid for Restoration to $4.55 a share from the $6.75 a share it offered Nov. 26.

Catterton, a Greenwich, Conn.-based buyout firm, lowered its offer Jan. 24 to $4.50 a share from $6.70 a share after holiday sales at the home-furnishings chain unexpectedly fell.

Sears considers selling signature brands in other venues
Lampert compares the struggling retailer to the Super Bowl underdogs, says its exclusive brands may be sold elsewhere
By Sandra M. Jones - Chicago Tribune Tribune
reporter James P. Miller contributed to this report
February 29, 2008

With no sign of a sales pickup in sight, Sears Holdings Corp. Chairman Edward Lampert is making a radical suggestion: Sears should consider selling its proprietary brands such as DieHard, Craftsman and Kenmore through other retail outlets.

The notion of expanding Sears brands outside the company has been tossed about the Hoffman Estates-based headquarters for years, long before Lampert arrived. But Sears never followed through for fear that without the exclusive brands, shoppers would have little reason to visit a Sears store.

As times get tougher, that thinking is taking on a new light.

In his annual letter to shareholders, released Thursday, Lampert said "There is an opportunity for us to rethink our brand distribution strategy."

The letter coincided with Sears' fourth-quarter earnings report, which showed a 48 percent drop in profits as sales declines at Sears and Kmart accelerated. It was the second quarter in a row that profit had fallen as cost cuts failed to keep up with tumbling sales.

Expanding distribution could help turn around sales. Lampert noted Sears'
products and services need to be available "where and when our customers want. In many cases, that may not be exclusively through our stores."

The letter follows a significant reorganization announced last month in which Sears said it would create a stable of separate business units, including one dedicated solely to Sears brands. While Sears didn't say so at the time, observers assumed that under the new structure the brand unit leader would have an incentive to look for sales outside of Sears.

"It's not my sense that people are going out of their way to make Sears a shopping destination to purchase Sears products," said Martin Brill, president of Sweetwater Consulting LLC, a Jersey City-based firm that advises manufacturers and retailers. "They need to do something [and] they could definitely use the revenue."

In his letter, Lampert pointed to DieHard car batteries as an example of a Sears product that rates high in consumer recognition but "lags dramatically" in market share. DieHard is sold at 900 Sears Auto Centers and 1,400 Kmart stores.

"A car battery purchase is a duress purchase event in which the customer is looking for the nearest, most convenient solution," Lampert said. "Unfortunately, it is not always us."

Colorful passages

Since Lampert has no investor relations department and rarely speaks to Wall Street or the press, his annual letter to shareholders is one of the few forums in which the billionaire investor has an opportunity to say publicly what's on his mind. This year's 14-page letter attempts to answer many of the criticisms Lampert has faced, including skimping on store investment, losing many top executives and failing to stop the profit erosion.

In one of the more colorful passages, Lampert begins the letter drawing an extended parallel between quarterback Eli Manning leading the underdog New York Giants to a come-from-behind Super Bowl victory over the heavily favored New England Patriots -- and Lampert's own unexpected success in reviving Kmart from Chapter 11 a few years ago.

"Like Eli Manning, we know what it's like to be underestimated and questioned, but we intend to keep working on our game to achieve our full potential," Lampert wrote.

The football analogy didn't sit well with Credit Suisse analyst Gary Balter. He noted in a Thursday report the comparison underscores a fatal flaw in Lampert's thinking.

"Retailing is not sports," said Balter. "Consumers may make a decision based on a promotion or specific item, but over time, those [retailers] with the systems, structures, locations and brands win."

Balter also warned that selling Sears' proprietary brands, while it could raise cash in the short run, could put Sears on a "slippery slope of creating less traffic ... and furthering the decline in the core." Most retailers these days -- including rivals J.C. Penney, Kohl's, Target, Macy's and Wal-Mart -- are doing the opposite, expanding their exclusive lines as a way to stand out from competitors.

Decline across categories

Revenue dropped 6.8 percent, to $15.07 billion, from $16.18 billion. Sales at U.S. stores open at least a year, a key retail yardstick, declined a combined 4.5 percent, with Sears falling 4 percent and Kmart dropping 5.2 percent. The sales declines were spread across categories, with home appliances and apparel faring the worst.

For the quarter ended Feb. 2, Sears had net income of $426 million, or $3.17 a share, down from the year-earlier quarter's $811 million, or $5.27 a share. Net income in the fourth quarter of fiscal 2007 included an after-tax gain of $17 million, or 13 cents a share, for asset sales. Excluding such one-time factors, Sears said, per-share earnings were $3.04, compared with $5.30 last year.

January was a particularly bad month for sales and hurt Sears' fiscal year-end cash position. The company had cash and cash equivalents of $1.6 billion, down from $3.8 billion one year ago. Cash attributed to the U.S. operations was $743 million, less than the $1 billion Sears had forecast. The remaining $879 million in cash is attributed to Sears Canada.

Lampert made clear that cost cuts are in store. "We intend to manage the company's expenses and our inventory position more tightly in 2008 in order to improve our productivity," he said.

Sears said it spent $580 million on capital expenditures in the past 12 months, an amount criticized by some analysts as insufficient. In the same time frame, Sears spent $2.9 billion buying back its shares.

Shares fell 20 cents, to close at $101.40, on the Nasdaq stock market.

Separately, Sears lowered its offer to buy Restoration Hardware Inc. to $4.55 a share from $6.75, according to a regulatory filing. The home retailer already has agreed to be acquired by Catterton Partners.

EXCERPTS FROM LAMPERT'S LETTER

"When I first became involved with Kmart in 2002 during its bankruptcy, the company had been given up for dead by most industry analysts and media commentators. Kmart was like an undrafted free agent who nobody thought had a chance to play in the big leagues."

"For the second consecutive year, Lands' End achieved a record year in the profitability of its traditional direct business (i.e., catalog, online and inlet stores) increasing its earnings 12 percent."

"To be clear, we are not saying that we can't justify investing in our stores. The issue is more about the size and type of investment as well as the timing and sequencing of an investment. There are many things that a retailer can do to improve its business without the significant amounts of capital that a major remodel would require."

"Despite the perception during the first two years that we were not focused on growing our business, we were planning to do just that in 2007 through our increased inventory investment. Unfortunately, we did not foresee the severe economic turbulence ahead."

"We are currently planning for reduced inventory purchases in 2008, especially in the spring/summer and fall/winter seasonal apparel categories. And we intend to more tightly manage our operating expenses in 2008 to improve our productivity and in light of the economic environment."

Profit Down, Sears May Hold Yard Sale
Analysts See a Failure In Bid to Revive Sales;
'Only an Asset Play'
By Gary McWilliams - Wall Street Journal
February 29, 2008

Sharply weaker profit at Sears Holdings Corp. signals a growing likelihood that the retailer will be closing stores, selling real estate and offering its core brands through other retail outlets.

The Hoffman Estates, Ill., retailer yesterday disclosed fiscal fourth-quarter net income fell 47% on a 6.8% sales decline, reflecting both a weak economy and customers' preference to shop elsewhere.

SIGNALS FROM SEARS

• The News: Sears reported a 47% profit drop and made statements analysts saw as opening the door to store closures and asset sales.
• Behind the News: They viewed the statement as an acknowledgement that efforts to revive sales have failed.
• In Writing: Edward Lampert's letter cites Sears' brands, services, Web sites and real estate as "unique assets."Included in the results was an admission that sales at stores open at least a year, an indicator of market share, dropped more precipitously in January than the 4.5% decline for the overall quarter ended Feb. 2. Sears didn't offer a first-quarter or full-year forecast, but analysts again cut expectations as a result of the worsening conditions.

Chairman Edward S. Lampert, in a letter to investors, said he will look beyond Sears's own deteriorating stores for revenue from its big-name brands and business assets. Analysts viewed the letter as the most direct statement to date that reviving sales through better marketing campaigns and operating improvements has failed, and that now Mr. Lampert views Sears's future value coming from its collection of assets.

He also opened the door to selling its highly-regarded Kenmore, Craftsman, Lands' End and Diehard brands through other retailers. In the past, he has followed retailing tradition in using the brands to lure customers into its 3,400 U.S. and 380 Canadian stores.

"There is an opportunity for us to rethink our brand distribution strategy,"
he wrote in a letter to shareholders. "All four of these brands...provide tremendous opportunity for value creation."

The comments by Mr. Lampert, a hedge-fund manager whose funds own nearly 48% of the company's stock, come amid a continuing restructuring of the $50.7 billion in annual revenue company. Last month, he ousted the company's chief executive and several other top executives and reshuffled the company into a collection of semiautonomous businesses. The new arrangement makes real estate a separate business unit with its own profit-and-loss goals.

Following the March 2005 combination of Sears and Kmart, Mr. Lampert has kept most of the company's U.S. stores open despite Wall Street pressures to exit poor-performing locations. Instead, he reduced investments in the stores, sacrificing appearance, while promising investment in computer systems and online operations. Last month, Sears said it would cut about 200 jobs at its headquarters, citing weaker results, but it has yet to make bigger cuts.

In his letter, Mr. Lampert reiterated that he wouldn't invest in modernizing stores where returns don't justify the spending. Analysts say the decision to look at real estate as stand-alone assets should encourage sales of underperforming stores rather than continuing them for the retail cash flow.

The chairman's letter cites Sears's brands, home services, its collection of Web sites and real estate as "unique assets" assuring future profit for stockholders.

Mr. Lampert's decision to take sales of Kenmore appliances and other brands outside Sears's stores marks the first in several likely moves to recoup cash from its assets, analysts said. Sears shares fell 20 cents to $101.40 in 4 p.m. trading on the Nasdaq Stock Market.

"The reality is for the last year and a half this has been an asset play and only an asset play. Now, he's admitting that in his letter," said Gary Balter, a retail analyst at Credit Suisse who on Jan. 14 lowered his rating on Sears to "underperform," from "outperform." "The first step is selling brands, selling real estate, selling off [Sears] Canada," he said.

Neither Mr. Lampert nor interim Chief Executive Officer W. Bruce Johnson were available to comment on the likelihood of new store closing and brand sales. A spokesman wrote in an email, "We remain committed to the continuation of our efforts to improve our operating performance."

Rivals are also suffering from weak U.S. sales, but few have been as injured as Sears. Target Corp. this week said fourth-quarter sales at stores open at least a year rose just 0.2%, and Wal-Mart Stores Inc. reported a 1.7% gain for its final quarter. In contrast, Sears reported same-store sales fell 4.5%, continuing a two-year drop.

The company said available cash at the end of the quarter dropped to $1.62 billion, from $3.84 billion a year ago.

William A. Dreher Jr., a Deutsche Bank retail analyst, said Sears must chop the underperforming stores -- what he called "deadwood" -- from its Sears and Kmart chains. Sears "clearly has not" provided a reason for customers to shop at its stores beyond the big-name brands, Mr. Dreher said. "If he gets rid of the brands, what's next?" The retailer's dismal performance "reveals the lack of control over the business," he added.

Sears said same-store sales in "most categories" declined again last quarter. Customer Growth Partners, a Connecticut retail consulting firm, estimates that Sears's share of major appliances sales fell to "barely 30%" last year from about 40% in 2001 as home-improvement retailers' Lowe's Inc. and Home Depot Corp. gained share.

In his letter to stockholders, Mr. Lampert compared Sears to the New York Giants football team, which won this year's Super Bowl despite poor midseason performances. "We know what it's like to be underestimated and questioned, but we intend to keep working on our game to achieve our full potential," he wrote.

Survival strategies for Macy's, Penney's, Target, Neiman's
By Jayne O'Donnell, USA Today
February 29, 2008

An economic slowdown tends to spook the retail industry. When the economy sputters, people close their wallets and delay purchases, and stores suffer.
Store chains, after all, can't survive very long without robust consumer spending.
But retailers don't just stand there and take a beating. They slim down, shut stores, trim inventory, slice payroll and take other strategic steps they hope will help them endure the pain. Some stores even thrive in recession even as others struggle.

With fears that the coming months could be the toughest for them since the
1991 recession, retailers are fighting to gain any edge they can over their rivals and to cushion themselves from the slide in customer spending. Many of them are redeploying staff and revising promotions; some are putting a new stress on low prices. In the end, they know, some of them will be winners, others losers.

"I see clients being more aggressive about promotion and reviewing the strategy by which they promote and how often they do it," says Madison Riley, a retail strategist with consulting firm Kurt Salmon Associates, whose clients include most major retailers.

The stores' strategies vary. So do their prospects for success. Much depends on how vulnerable they are in the first place.

Retailers that specialize in furnishing or refurbishing homes have been among the hardest hit. Specialty stores with highly discretionary products, such as the high- and low-end tchotchkes sold by Sharper Image (SHRP) and Lillian Vernon, respectively, may be worst off of all. Both retailers filed for Chapter 11 bankruptcy protection last week.

Specialty apparel stores are struggling, too. Even though some clothing, especially for growing kids or for career women, is regarded as essential, sales figures suggest that many of those purchases are being postponed.

Home Depot (HD) has slashed 500 jobs at its headquarters. Jewelry store chain Zales (ZLC) has announced plans to close 60 stores, and Ann Taylor plans to slash 180 jobs and close 117 stores within two years.

"The retailers accept that we're in a recession — smack in the middle of it," Riley says.

Among the most visible ways that stores are trying to ease their pain from the spending slowdown:

•Merchandise. Retailers must take care not to stock too little of the latest hot fashion or product — or showcase it too late. Many stores, Riley says, are working more closely with overseas suppliers to settle quickly on designs and shorten the development process.

•Pricing. Even retailers that try to avoid across-the-board price slashing are embracing the deep discounting trend, which Wal-Mart capitalized on so successfully last fall and holiday season.

•More consumer input. Retailers can't afford to wait until the end of a season to determine which trends will prove most popular. Riley says stores are stepping up consumer research and using their websites to gather real-time opinions from shoppers.

Thanks to luck, foresight or a bit of both, some retailers are better positioned to manage a downturn. Those with low, low prices — think Wal-Mart (WMT) and off-price retailers including T.J. Maxx (TJX)— and those that cater to the wealthy are tending to outperform those in the middle.

But opportunities exist for midlevel retailers, too. If shoppers are trading down to Wal-Mart, as its sales suggest, then more affluent people may be ready to cut back on their Bloomingdale's trips in favor of Kohl's (KSS). Tough economic times tend to diminish loyalty to stores across the spectrum.

"In this type of economy, the super shoppers get coupons out and check things online; they're going to be loyal to themselves first," says Phil Rist of the consumer insights firm BIGresearch. "Everyone's trying to find ways to make their money go as far as they can so there's something left for things they really want."

Christopher Maddox of Washington, D.C., says he's not giving up on Macy's (M), one of his favorite retailers, but is being far more cautious about his purchases this year.

"I'm only buying essentials due to the economy," Maddox says. "Luxury and big-ticket items are not in my budget due to increased costs of gas, food and utilities."

What follows is a look at the strategies of four retailers — Target (TGT), J.C. Penney (JCP), Macy's and Neiman Marcus — that draw from often-overlapping segments of shoppers.

As they brace for a possible recession, these stores are re-examining, in particular, four areas that will be most evident to shoppers: inventory, staffing, store openings and promotions.

J.C. Penney

Damn the economic naysayers, J.C. Penney is designing its most ambitious five-year plan for store openings in its history and last week oversaw its largest-ever merchandise launch. Still, facing a persistent drop in consumer spending, CEO Mike Ullman says the chain is scaling back those store openings from 50 to 36 this year and will adjust its inventories to reduce the need for hefty markdowns.

Ullman hopes that Ralph Lauren's new American Living fashion, home and footwear line for men, women and kids will further invigorate the Penney brand, which has drawn more and younger customers with the addition of the Sephora makeup line and two private-label lingerie lines designed, in part, to compete with Victoria's Secret. The American Living line will be found in 600 of the chain's 1,000 stores, often with its own in-store shops.

Deutsche Bank senior retail analyst Bill Dreher questions whether now is a good time for Penney to launch a line that's about 25% higher-priced than similar merchandise already in its stores.

Under the deal, Ralph Lauren's name won't appear anywhere on the new merchandise or displays, Dreher notes. Kohl's, by contrast, was able to connect the Lauren name with its Chaps line for many years, which helped keep customers aware of the connection. The new line is "no panacea," he says.

Still, Dreher notes, Penney has successfully reinvented itself over the past decade from a chain known for "dowdy, older-lady-type fashions to one that's very much hip, on-trend and cool." More recently, Penney has recognized that its catalog business is less important now than its website, he says.

About six months ago, Penney decided to merge its store, catalog and online marketing operations; the change will result in 100 to 200 job losses. Ullman insists it's "not a cost-driven exercise," but rather one that'll give shoppers "one view of our merchandise."

"People expected us to have cost-cutting, but that's not how you grow a business," Ullman says.

Ullman says Penney benefits by serving the "middle third" of the country, where people aren't "living paycheck to paycheck." Still, all bets are off if a weak economy grows really sick.

Nick Birchfield of Garden City, Mich., is still shopping at Penney, but that could change. If the economy gets much worse and gas prices rise higher, he says, "I will not be shopping at J.C. Penney unless they are giving their merchandise away."

Neiman Marcus

Neiman Marcus is preparing for a possible sales slowdown, recognizing that while affluent customers might not trade down to lower-quality stores, they might buy less even if they remain loyal.

The luxury retailer may adjust the amount of merchandise in stores, but otherwise is "just continuing business as usual," says spokeswoman Ginger Reeder.

Neiman "knows how to react," to economic troubles, Reeder says. That means preserving its customer service and high-quality merchandise but adjusting its inventories to concede the reality that its customers may be tightening their snakeskin belts.

"We've found our customers are very resilient," says Reeder, referring to Neiman's history during past economic slowdowns. "They're not trading down but might potentially buy less."

As at other luxury retailers with strong presences in California and Florida, Neiman's sales have suffered along with their customers' finances during the housing recession, says Craig Johnson of retail consulting and research company Customer Growth Partners. But for the "premier luxury retailer in the U.S," in Johnson's words, suffering means merely moderate sales growth — down from double-digit increases in recent years. "As the economy stabilizes and spring returns, we look for improving results," Johnson says.

Neiman's focuses its promotions on two major sales a year, which Reeder says won't change.

In this economy, sales figures show, the safest demographic spot for retailers to occupy is either the low end or the very high end. "Middle-market department stores continue to bleed market share to discounters such as Wal-Mart and TJX, to high-end players like Saks (SKS) and Neiman Marcus and to hot specialty stores such as Anthropologie," Johnson says.

As Reeder suggests, those who remain loyal to Neiman's through economic turmoil are typically those who prize quality over price.

"I still shop at Neiman's and will continue to," says Amy Cavers, of Skillman, N.J. "If things worsen or my budget gets tighter, I may cut back on my volume if anything, but not where I shop. I still want the same quality in my purchases. … I would rather have fewer shoes and dresses but with the same uniqueness and flair or style that I expect."

Jennifer Stillman of Atlanta says that rather than cutting designer labels out of her apparel budget, she's buying groceries at Wal-Mart and Costco (COST) over pricier markets such as Whole Foods (WFMI).

Macy's

The nation's largest department store chain concedes that the economic slowdown has forced it to put off plans to scale back its sales and promotions.

"We still believe the strategy is a good one, but the timing not necessarily good," says CEO Terry Lundgren.

In 2006, Macy's said it was trying to wean customers off frequent sales in favor of its "Every Day Value" pricing. Though Lundgren says there were slightly fewer promotions in 2007 than in 2006, he says Macy's won't reduce the timing or the number of sales until consumer spending starts to bounce back.

All the great deals now in stores are one benefit of the depressing economic news, says Marietta Landon of Cambridge, Mass. She finds sales everywhere she goes. "Especially Macy's — they make every weekend a sale with saving passes and advertising galore," Landon says.

Macy's says its plan, announced earlier this month, to eliminate 2,300 management jobs in the company's central office and create 250 new ones in its local markets wasn't necessarily driven by the economy. But saving about $100 million a year sure doesn't hurt. The plan to localize decision-making "was conceived long before there was talk of a credit crunch or mortgage crisis, but executing it now in the face of a possible recession does have its benefits," says Macy's spokesman Jim Sluzewski.

The addition of Tommy-Hilfiger-branded men's and women's apparel this fall, which will make Macy's the only place to buy the brand in the USA outside of Hilfiger stores, should further boost sales, he says.

Macy's has also announced plans to close nine poor-performing stores this year. Though struggling with some of the same issues that its rival J.C. Penney faces in catering to the middle class, Macy's holds an advantageous position, says Phil Rist of BIGresearch. That's because Macy's enjoys the image of being something of a novelty in many areas since it renamed the former May department stores in the fall of 2006.

Its clientele is generally more affluent than Penney's, notes analyst Bill Dreher. Still, in times like this, even a Macy's will likely be hurt by the tendency of customers to cut back on non-essentials.

"All the department stores are vulnerable because they are about 80% apparel and 20% home goods," Dreher says. "After years of strong apparel sales, customers have full closets, and with a weak fashion cycle, there's nothing fashionistas have to run out and buy."

Target

"Hello goodbuy."

Couldn't that be a Wal-Mart slogan?

As the economy struggles, Target, long known as the purveyor of the well-designed product, is increasingly spotlighting its low-priced goods. "Hello goodbuy" is the tag line for ads that now focus as much on the price of its products as they do on their style. After all, in a down economy, hand-painted toilet-bowl-brush covers that cost several bucks more than the next one are seldom a major consumer priority.

That leaves Target more vulnerable in this economy than, say, Wal-Mart, says Deutsche Bank senior retail analyst Bill Dreher. It may be a discounter, but it's hard for it to compete with Wal-Mart on price, Dreher says.

"Target has historically focused more on being fashion-forward and having value-added design," Dreher says. "The problem is, consumers don't want that now. They're not redecorating or refurbishing their homes. They're looking for everyday life staples."

At the same time, Dreher says, Target is better positioned than department stores these days.

Target has been trying for years to get its low-price message across, says spokeswoman Lena Michaud. And she says its business plan will carry it through hard times: "We are very confident in our strategy going forward."

That includes trying to rein in costs in a way that customers won't notice. That may be difficult given that a key target is hourly payroll expenses. Michaud says Target is investing in technology to make sure workers are scheduled at the right times. Unlike some of its competitors, Target is sticking to its plan to open stores, about 100 of them, which Michaud says is consistent with the number it has opened in recent years.

The chain is also preparing for the departure this year of designer Isaac Mizrahi, who has a line of popular private-label apparel at Target but is leaving to join Liz Claiborne. Spokeswoman Susan Giesen says Target will still offer apparel from trendy designers, which, along with the new Converse All-Star apparel and footwear line, should fill any gaps in its clothing lines.

That might not be enough to keep clothing customers loyal. Based on BIGresearch's survey data on people who shop at Target primarily for at least one category of merchandise, these consumers are shopping around. "The folks who shop at Target for health and beauty aids — a lot of them go to Kohl's, Macy's and Penney's first for clothing," says Phil Rist of BIGresearch. "There's a lot of cross-shopping."

Contributing: Erin Kutz

HOW THE VIEWS OF THESE STORES' REGULAR SHOPPERS COMPARE

Target Neiman Marcus and Saks Macy's J.C. Penney

Optimistic about the economy in next 6 months 33% 35% 36% 33%

Shopping closer to home 38% 26% 36% 44%

Shopping for sales more often 42% 22% 39% 45%

Spending less on clothing 39% 28% 35% 42%

Taking fewer shopping trips 39% 11% 34% 44%

Source: BIGresearch survey using national sample; responses are percentages of 2,434 people who said they regularly shopped at Target, 1,632 at Macy's,
2,723 at J.C. Penney and 32 at Neiman Marcus or Saks

STORES AND THEIR SHOPPERS
Here is how these retailers' shoppers compare with the U.S. population as a whole. Depending on who the store is targeting, they want to have close to or a higher composition of shoppers than the U.S. average. An index of 100 is considered average.

Target Neiman Marcus Macy's J.C. Penney

Age 18-34 104 99 92 89

Age 35-64 110 112 110 105

Age 65 and older 69 70 82 97

Education high school 82 71 78 92

Education college 112 115 113 105

Household size two or fewer 88 91 91 95

Income less than $40,000 63 55 56 75

Income $40,000-$99,000 121 96 116 120

Income $100,000 and more 155 240 186 122

Source: Claritas, a Nielsen company

To Our Shareholders:

I would like to start off this letter in a rather unconventional way by congratulating the New York Giants, led by their young quarterback Eli Manning and by head coach Tom Coughlin, for winning the Super Bowl earlier this month. This was quite an upset victory. Throughout the regular season, fans and the media were quick to criticize Manning every time he had a bad game, and to question his leadership. As recently as late November, after a particularly disappointing loss to Minnesota in which Manning threw four interceptions, many pundits were declaring him a bust. Manning, however, did not give up or lose heart. He remained focused, continued to work hard on his game and on improving his skills, ultimately leading the Giants to the NFL Championship and being named the Super Bowl MVP.

I mention this not because I am a Giants fan (I am actually a lifelong fan of the New York Jets) but rather because the Giants‚ story reminds me of what we went through a few years ago with Kmart. When I first became involved with Kmart in 2002, during its bankruptcy, the company had been given up for dead by most industry analysts and media commentators. Kmart was like an undrafted free agent who nobody thought had a chance to play in the big leagues. Its more than 150,000 employees and its investors had an uncertain future. Despite intense criticism of and skepticism about the company and its prospects, we were able to rally Kmart‚s various constituents and turn an unprofitable, failing company into a profitable company with hope for the future. Like Eli Manning, we know what it‚s like to be underestimated and questioned, but we intend to keep working on our game to achieve our full potential.

I would be the first to tell you that I never expected it to be easy, and it certainly hasn't been. But it has been rewarding ˆ rewarding to those investors in Kmart who stuck with the company after it emerged from bankruptcy, to the vendors who continued doing business with Kmart, to the associates who remained with Kmart, and to the customers and communities who continued to support the company.

In late 2004, Kmart was on its way to earning almost $1 billion in Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), had built up almost $4 billion in cash, and had virtually no debt. In November 2004, we believed that the company‚s prospects could be enhanced by a partner who could help improve the productivity of Kmart‚s almost 1,500 stores. Sears had been challenged for many years and found itself seeking a way to grow outside of the mall. Expanding by building a large number of stores was a risky strategy. By merging, the combined company would have the scale, time, and capabilities to compete more effectively against many of its more profitable rivals.

Again, at the announcement of the merger there were skeptics in the industry, in the media, and in the financial community. Many of the issues raised were valid. However, the sensationalist tone masked the real debate.How would Kmart compete against the more profitable and better capitalized Wal-Mart and Target? How would Sears compete with Home Depot and Lowe‚s as well as Best Buy, Kohl's and JC Penney? Why would we believe that we could do something that so many others had tried with mixed results?

All of these are legitimate questions. What we have tried to do is improve our operations in the near term while positioning ourselves for long-term success. After the merger, we initially worked to improve our operations by focusing on the basics, like markdown disciplines and expense management. At the same time, we have been prioritizing our resources to rebuild many of the company's systems and processes by taking a longer-term view than most investors and business managers.

Looking forward, I continue to be excited about the prospects for Sears Holdings. In 2008, we need to reverse much of the profit erosion we experienced in 2007. It won't be easy, especially if the economy stays soft. The environment surrounding U.S. retail has been very difficult; we were not alone in experiencing disappointing performance this past year. Many retail companies lost significant market value. As illustrated in the table below, while the recent correction has brought Sears Holdings‚ stock price down from an increase of nearly 20 times since Kmart emerged from bankruptcy to around ten times, it remains one of the top-performing retail stocks over the past five years. In addition, it is not clear that heavy expenditures of capital guarantee either short or long term success. Like any investment of capital, the return on that capital over time will determine its wisdom.

Retail Companies with Market Capitalization Greater than $5 billion

($ in millions, except per share data; sorted by Return Since 5/6/2003)

2/26/2008
Market
Cap 2/26/2008
Price Return
Since Kmart
Emergence
5/6/2003 2007
Return LTM (c)
Sales

Capex
LTM (c)
Data as of:
LTM (c) FYE07 FYE06
Sears Holdings Corporation
13,951 $ 101.36 914 % (b ) (39 )% 50,703 582 513
586 2/2/08
Urban Outfitters Inc.
5,143 $ 30.98 707 % 18 % 1,403 128 212 128
10/31/07
GameStop Corp.
7,583 $ 47.11 703 % 125 % 6,532 174 134 111
11/3/07
Nordstrom Inc. (a)
8,500 $ 38.46 360 % (26 )% 8,828 501 264 272
2/2/08
CVS Caremark Corp.
59,209 $ 40.09 214 % 29 % 76,330 1,805 1,805
1,769 12/29/07
J. C. Penney Company, Inc
11,185 $ 50.45 205 % (43 )% 19,860 1,243 772 535
2/2/08
Polo Ralph Lauren Corp.
6,869 $ 67.50 197 % (20 )% 4,671 232 184 159
12/29/07
Coach Inc.
11,437 $ 32.50 187 % (29 )% 2,932 154 141 134
12/29/07
Abercrombie & Fitch Co.
6,995 $ 81.19 174 % 15 % 3,750 NA 403 256
2/2/08
Amazon.com Inc.
29,882 $ 71.69 132 % 135 % 14,835 224 224 216
12/31/07
Best Buy Co. Inc.
19,506 $ 46.50 105 % 7 % 39,504 797 733 648
12/1/07
Costco Wholesale Corp.
28,894 $ 66.46 98 % 32 % 66,058 1,434 1,386 1,217
11/25/07
The TJX Companies, Inc.
14,557 $ 33.31 86 % 2 % 18,647 527 378 496
1/26/08
SUPERVALU Inc.
5,963 $ 28.19 86 % 7 % 43,961 1,025 837 308
12/1/07
Kroger Co.
17,523 $ 25.94 85 % 17 % 69,859 2,133 1,683 1,306
11/10/07
Staples, Inc.
16,730 $ 23.66 81 % (13 )% 19,334 492 528 456
11/3/07
Macy‚s, Inc. (a)
11,483 $ 26.52 80 % (31 )% 26,313 994 1,317 568
2/2/08
Safeway Inc.
13,400 $ 30.29 66 % (0 )% 42,286 1,769 1,769
1,674 12/29/07
Target Corp. (a)
45,605 $ 54.89 66 % (12 )% 63,367 4,369 3,928
3,388 2/2/08
Starbucks Corp.
13,820 $ 19.06 59 % (42 )% 9,823 1,073 1,080 771
12/30/07
Limited Brands Inc. (a)
6,357 $ 18.00 52 % (32 )% 10,134 788 548 480
2/2/08
AutoZone Inc. (a)
7,893 $ 124.93 46 % 4 % 6,271 217 224 264
2/9/08
Tiffany & Co.
5,175 $ 40.75 46 % 19 % 2,932 194 182 157
10/31/07
Whole Foods Market Inc.
5,167 $ 37.04 29 % (12 )% 7,178 538 530 340
1/20/08
Gap Inc.
14,867 $ 20.27 28 % 11 % 16,027 685 572 600
11/3/07
Walgreen Co.
37,425 $ 37.75 18 % (16 )% 55,081 1,858 1,785
1,338 11/30/07
Lowe‚s Companies Inc. (a)
36,435 $ 24.99 15 % (27 )% 48,283 4,010 3,916
3,379 2/1/08
The Home Depot, Inc (a)
48,654 $ 28.83 5 % (31 )% 77,349 3,388 3,542
3,881 2/3/08
Wal-Mart Stores Inc.
205,847 $ 51.40 (2 )% 5 % 378,799 14,937 15,666
14,530 1/31/08
Kohl‚s Corp.
14,821 $ 47.25 (16 )% (33 )% 16,382 1,510 1,142
828 11/3/07
Bed Bath & Beyond Inc.
7,974 $ 30.44 (25 )% (23 )% 7,111 339 318 220
12/1/07

Notes:

All pricing data sourced directly from Bloomberg; stock prices have been dividend-adjusted.

All company financial data sourced directly from Capital IQ on February 27, 2008, except where otherwise noted and except for all Sears Holdings data

(a) Company financial data from latest press release.

(b) Assumes $10.00 Kmart plan participant price on 5/6/03

(c) LTM is last twelve months

For a company like Sears Holdings, which has been in a rebuilding phase, the macroeconomic issues compound the difficulty of the rebuilding effort.
Earning over $2.5 billion in Adjusted EBITDA in 2007, however, provides us with capital to be in a position to take advantage of future opportunities to invest in our business and create value for shareholders. We also have a strong balance sheet, as we ended the year with $1.6 billion in cash and a reduced debt load while some retail companies have increased their debt over time as shown below.

Retail Companies with Market Capitalization Greater than $5 billion

($ in millions; sorted by Return Since 5/6/2003)

Debt

Cash
LTM (c) /
MRQ (d)
Data as of: FYE07 =
FY Ending:
MRQ (d) FYE07 FYE06 FYE05 FYE04 MRQ (d)
Sears Holdings Corporation
3,009 3,548 4,016 4,863 (e ) 8,655 (e ) 1,622
2/2/08 2/3/07
Urban Outfitters Inc.
˜ ˜ ˜ ˜ ˜ 191 10/31/07 1/31/07
GameStop Corp.
574 856 976 37 ˜ 278 11/3/07 2/3/07
Nordstrom Inc. (a)
2,497 639 934 1,030 1,234 358 2/2/08 2/3/07
CVS Caremark Corp.
10,482 10,482 5,057 2,189 2,842 1,084 12/29/07
12/29/07
J. C. Penney Company, Inc
3,708 3,444 3,465 3,923 5,374 2,471 2/2/08
2/3/07
Polo Ralph Lauren Corp.
618 446 305 293 277 824 12/29/07 3/31/07
Coach Inc.
17 3 3 16 5 891 12/29/07 6/30/07
Abercrombie & Fitch Co.
˜ 27 59 54 33 649 2/2/08 2/3/07
Amazon.com Inc.
1,344 1,344 1,267 1,485 1,857 3,112 12/31/07
12/31/06
Best Buy Co. Inc.
988 650 596 668 920 1,614 12/1/07 3/3/07
Costco Wholesale Corp.
2,219 2,222 565 768 1,321 3,210 11/25/07
9/2/07
The TJX Companies, Inc.
833 810 809 700 699 733 1/26/08 1/27/07
SUPERVALU Inc.
9,128 9,478 1,518 1,678 1,940 177 12/1/07
2/24/07
Kroger Co.
7,462 7,042 7,205 7,901 8,260 166 11/10/07
2/3/07
Staples, Inc.
330 518 530 559 758 1,032 11/3/07 2/3/07
Macy‚s, Inc. (a)
9,753 9,753 10,183 3,879 4,059 583 2/2/08
2/3/07
Safeway Inc.
5,655 5,655 5,868 6,359 6,763 278 12/29/07
12/29/07
Target Corp. (a)
17,090 10,037 9,872 9,538 11,018 2,450 2/2/08
2/3/07
Starbucks Corp.
1,080 1,264 703 281 4 535 12/30/07 9/30/07
Limited Brands Inc. (a)
2,905 1,673 1,676 1,646 648 1,019 2/2/08
2/3/07
AutoZone Inc. (a)
2,151 1,991 1,857 1,862 1,869 93 2/9/08
8/25/07
Tiffany & Co.
463 518 472 441 487 391 10/31/07 1/31/07
Whole Foods Market Inc.
773 761 9 19 171 44 1/20/08 9/30/07
Gap Inc.
188 513 513 1,886 2,770 1,656 11/3/07
2/3/07
Walgreen Co.
1,167 917 ˜ ˜ ˜ 295 11/30/07 8/31/07
Lowe‚s Companies Inc. (a)
6,680 4,436 3,531 3,690 3,755 530 2/1/08
2/2/07
The Home Depot, Inc (a)
13,430 11,661 4,085 2,159 1,365 457 2/3/08
1/28/07
Wal-Mart Stores Inc.
44,671 39,018 38,729 31,052 26,466 5,569
1/31/08 1/31/07
Kohl‚s Corp.
2,227 1,059 1,154 1,107 1,089 321 11/3/07
2/3/07
Bed Bath & Beyond Inc.
˜ ˜ ˜ ˜ ˜ 377 12/1/07 3/3/07

Notes:

All pricing data sourced directly from Bloomberg; stock prices have been dividend-adjusted.

All company financial data sourced directly from Capital IQ on February 27, 2008, except where otherwise noted and except for all Sears Holdings data

(a) Company financial data from latest press release.

(c) LTM is last twelve months

(d) MRQ is most recent quarter

(e) In FY05 and FY04, Sears Holdings debt represents Sears Roebuck (including Sears Canada) plus Kmart debt

Sears Holdings remains one of the largest retailers in the United States in terms of revenues, market capitalization, and employees. However, our profit margins continue to lag our competitors. We intend to manage the company‚s expenses and our inventory position more tightly in 2008 in order to improve our productivity on both fronts. We will continue to work to improve our game and work on our skills in the short term, and aim to put this company on a winning trajectory over the medium and long term.

* * * *

In the remainder of this year's letter, I will review our performance in 2007 and analyze how we have performed both in the context of the economic environment and also over a longer time horizon. I will focus in particular on the company's cash generation since the merger and on how we have used the cash over the past three years. I will also describe some of Sears Holdings‚ unique assets, including our brands, services, online businesses, real estate, and people. Finally, I will discuss the current changes we are making at the company in terms of both organizational structure and management in order to maximize the value of these resources.

2007 and Fourth Quarter Financial Performance

The 2007 fiscal year was our third year as a combined company. In our first two years of operations, 2005 and 2006, we generated substantial profit increases. In 2007, however, we gave back those profit improvements and returned to the 2004 profit level. But while 2007 was difficult, we cannot lose sight of the opportunities ahead of us and the resources we have at our disposal.

For the 2007 fiscal year we reported net income of $826 million. On a per-share basis, earnings were $5.70 in 2007. For the fourth quarter of 2007, net income was $426 million ($3.17 per share), as compared to $811 million ($5.27 per share) in the fourth quarter of 2006.

Because GAAP (Generally Accepted Accounting Principles) net income includes more than just operating results (it also includes financing and investing results), we use an Adjusted EBITDA measure internally to evaluate operating performance. It is called „Adjusted‰ EBITDA because we also exclude certain transactions (like gains from asset sales) that we believe are not reflective of ongoing operating performance. For the 2007 fiscal year our Adjusted EBITDA declined to $2.55 billion, which is below 2006 and 2005 and comparable to the 2004 level.

Adjusted EBITDA

($ in millions)
Pro Forma*
2007 2006** 2005 2004
Domestic
$ 2,056 $ 3,248 $ 2,622 $ 2,134
% to revenues
4.6 % 6.8 % 5.3 % 4.2 %
Sears Canada
495 416 347 390
% to revenues
8.8 % 8.0 % 6.8 % 8.0 %

Total
$ 2,551 $ 3,664 $ 2,969 $ 2,524

% to revenues
5.0 % 6.9 % 5.5 % 4.5 %

Please see our earnings release issued today for a reconciliation of Adjusted EBITDA to GAAP net income.

* The "pro forma" Adjusted EBITDA figures for 2004 and 2005 are derived by combining the results of Kmart and Sears, Roebuck for those years - i.e., using an assumption that the two companies were already merged at the beginning of the 2004 fiscal year.
** 2006 was a 53-week year, so 2006 did benefit from an extra week of operations. We estimate that the extra week benefited 2006 EBITDA and fourth quarter 2006 EBITDA by approximately $60 million (please note that this is an estimate because we do not close our books on a weekly basis).

Before the merger, Kmart earned almost $1 billion in EBITDA and had approximately 100 million fully diluted shares outstanding while the combined company earned over $2.5 billion of Adjusted EBITDA in 2007 and today has approximately 132 million fully diluted shares outstanding and $1.6 billion of cash, after having deployed roughly $9 billion of cash during the past three years. We are proud of the progress we've made but do not believe we have played up to our full potential yet.

2007 in Review

The economy was certainly one of the factors which contributed to our performance in 2007 - falling housing prices led to mortgage defaults, which in turn damaged the credit markets and ultimately led to losses measured in the tens of billions of dollars across the financial services industry. As a consumer-facing company, we are adversely affected whenever the macroeconomic environment challenges the individual consumer. Further, given the large portion of our business which is in big ticket, home-related categories (e.g., appliances, tractors, treadmills) we are strongly affected by changes in the housing market. But the economy was not the only factor. Looking back, we also had too much inventory in 2007, particularly in seasonal goods like apparel.

As I discussed in last year‚s letter, we ended 2006 with more inventory than we had held in the past. At the time, we believed that the performance of several of our businesses justified the increase in our inventory investment to grow our earnings. Much of the profit improvement that occurred in both 2005 and 2006 was due to the elimination of unprofitable sales and promotions as well as due to synergies from the merger. We viewed these changes as necessary to establish a sound base of profitability from which to grow. Despite the perception during the first two years that we were not focused on growing our business, we were planning to do just that in 2007 through our increased inventory investment. Unfortunately, we did not foresee the severe economic turbulence ahead. In hindsight, 2007 was not a good year in which to operate with increased inventory. The higher inventory investment coupled with the difficult economic environment led to a significant increase in markdowns to cl ear product, especially seasonal product which has a shorter life than basic items. This created a double hit on gross margin; both lower volume due to declining sales and a lower gross margin rate due the increased markdowns. As a result, our gross margin dollars declined by more than $1 billion from the prior year.

Our current plan is to take a more conservative posture in 2008. First, we begin 2008 with a lower inventory level. Domestically, our inventory is down nearly $300 million (when you adjust the $160 million of previously consigned pharmacy which is now included in our inventory since the first quarter of 2007). Also, we are currently planning for reduced inventory purchases in 2008, especially in the spring/summer and fall/winter seasonal apparel categories. And we intend to more tightly manage our operating expenses in 2008 to improve our productivity and in light of the economic environment. But we plan to continue to invest for the long term in enhancing our merchandising capabilities, improving our multi-channel experience, enhancing the in-store customer experience with additional Lands‚ End shops and Craftsman in Kmart, and expanding our Home Services offerings.

There were several successes in 2007 that I would like to recognize.

The first one is Sears Canada, which increased its Adjusted EBITDA by nearly 20% to $495 million this year, or 8.8% of sales. The Sears Canada team has done an excellent job in focusing on the merchandise offerings and optimizing promotions, resulting in a 150 basis point expansion in their gross margin rate.

For the second consecutive year, Lands‚ End achieved a record year in the profitability of its traditional direct business (i.e., catalog, online, and inlet stores) increasing its earnings by 12%. This performance is impressive as 2007 was not a very good year for apparel and speaks to the strength of the Lands‚ End business. Not only is it a respected brand appreciated by many customers for its great combination of quality and value, it is also a highly profitable operating business.

Finally, our cash flow generation remained strong as we generated $1.6 billion of operating cash flow in 2007, which exceeds the $1.4 billion generated last year. We ended the year with $1.6 billion in cash, as we deployed $4.3 billion in 2007 as follows:

 $2.9 billion for share repurchases;

 $600 million for net reductions of debt;

 $580 million for capital expenditure reinvestments in our business;
and

 $220 million contributed to our legacy pension obligations.

During the year we increased our buyback activity and reduced our shares outstanding by nearly 15% as we repurchased approximately 22 million shares at an average price of $135 per share. In hindsight, although we believe it was a prudent use of cash, it would have been better if we had exercised more patience in the buyback as our share price continued to decline as the year progressed. However, my experience is that it is difficult to predict short-term stock price performance and that one should make the best decisions one can with the available information and a long-term perspective.

History of cash flow generation

Over our three years of operating as a combined company, we have generated significant cash flow. Cash flow generation refers to cash from operations, which is the cash generated from running the business. The reason for the focus on cash from operations is because we believe that it provides the best view of the ongoing cash generation capability of the enterprise as it excludes the effect of borrowings (other than the interest expense) and other financial transactions like acquisitions, divestitures, asset sales, and share repurchases. Obviously, it makes a big difference whether cash was earned from running the business or borrowed from a bank - the big difference being that amounts borrowed must be repaid, with interest.

Cash from operations is before taking into account capital expenditures.
Some of our capital expenditures are discretionary investments that we choose to make back into our business. This is an important point that doesn‚t seem to be as widely understood as it should be. Managers make an explicit choice among a number of alternatives when deciding to invest funds back into the business. The only sound economic reason to make such a choice is when we believe the capital expenditures will earn a better return for our shareholders than other potential uses would produce. If we are not convinced that capital expenditures will produce acceptable returns, the better course is to use this capital in other ways, including returning these funds to our shareholders through buybacks or dividends.

Some have wondered why we haven‚t invested more money in our stores. This is a legitimate question. In theory, a company can always invest more money in its operations, but, when we make an investment we expect to earn an appropriate return. Since we have invested a significant amount of capital in hundreds of stores, we have some good data to work with to better understand what works and what does not. In some cases, our investments have led to higher earnings in the stores in which we invested and we continue to make investments like those today. In other cases, however, the investment has not led to acceptably improved performance.

Let's look at a hypothetical example. Imagine that we invested $200 million to remodel or improve 100 stores, or $2 million per store. If the store profitability after that investment is exactly the same as before, then the $200 million investment generates 0% in return. By simply keeping our money in cash, we could have earned anywhere from 3-5% over the past several years, which is better than the 0% return in this case.

The related question then becomes: why can't you find ways to invest in your stores that generate an acceptable return? That's exactly the problem we have been working to solve and we will continue to work until we solve it. Until then, we will seek to be responsible with our shareholders‚ capital and to make decisions based on the results of the portfolio of tests that we have in process at any point in time.

Pressing this point even further, some might ask, if you can‚t justify investing in your stores, then how are you going to grow your business? To be clear, we are not saying that we can‚t justify investing in our stores. The issue is more about the size and type of investment as well as the timing and sequencing of an investment. There are many things that a retailer can do to improve its business without the significant amounts of capital that a major remodel would require. Improving the assortment of products and services, mix of inventory, visual presentation, recruitment and training of employees, and marketing and communications to customers are all ways to generate improved performance. They all require significant investments, but we already invest a significant amount of capital and expense in all of these areas. The key is to improve the productivity of these investments. Our marketing and labor spend is in the billions of dollars each and we need to work diligently to get the most from these significant investments. Fundamentally, our capital allocation decisions are influenced by the alignment of management and owners with the goal of creating value for the shareholders of the business.

Let me return to the main point, which is that cash generated from operations is one of the key factors of our business. But we also need to consider one more factor: pension contributions. Cash from operations (as defined by accounting rules) is reduced by the cash contributed to pension plans, which has been significant for us over the past three years. However, we do not consider this cost to be part of cash from operations because it does not represent a current operating cost. Both Sears and Kmart have legacy pension obligations, which we inherited and which do not relate to current operations. These pension obligations arose because both predecessor Sears and Kmart companies promised pension benefits to associates but did not provide funds sufficient to pay for that promise at the time (given changes in interest rates, actuarial assumptions, and returns on plan assets). Over the past three years, we have contributed approximately $800 million pre-tax to the Sears and Kmart pension plans and we currently expect to contribute several hundred million more in total over the next few years. However, we (along with the rating agencies) view this pension cost as more akin to a repayment of debt incurred years ago than an ongoing cost.

With all that being said, how much cash have we generated from operations over the past three years? From my perspective it is about $6 billion, computed as follows:

Cash from operations
$ 5.3 billion
Add back pension contributions
$ 0.8 billion

Total
$ 6.1 billion

That is certainly a significant amount of cash that has been generated by our enterprise since 2004.

Uses of cash

Over the last three years, we have spent a total of $4.3 billion on share repurchases. We have repurchased 33 million shares at an average cost of
$132 per share. With this buyback activity, we have reduced our shares outstanding by 20%. For those investors who have sold their shares, we have helped provide liquidity to exit their investment. For those investors who have held onto their shares, they get to participate to a greater extent in the company's future performance.

Debt reduction has been another area of significant focus for us over the last three years. We have reduced our total obligations by more than $3 billion, in the following two ways. First, we have repaid $1.8 billion of our debt. Our debt balance is currently only $2.3 billion ($3.0 billion with capital leases) - which is quite modest for a company of our size and with our earnings. This number includes the debt of Sears Canada and Orchard Supply Hardware. Excluding this subsidiary debt leaves a remaining balance of $1.6 billion.

Second, we have focused on reducing our pension and other retirement benefit obligations (as noted above, this is similar to debt). Over the past three years we have reduced this obligation by $1.3 billion, cutting our retirement benefit liabilities in half from their balance of $2.6 billion at the time of the merger. This reduction is mostly due to the $800 million we have contributed to pension plans, but the payments we have made for other legacy retiree benefits (like medical coverage and life insurance) and the investment returns generated by our pension assets have also contributed to the reduction in the liability.

In contrast to the attention that our share repurchases have received, it is generally not well understood or appreciated how much we have reduced our debt and pension obligations. Our decision to reduce debt stands in contrast to the practice of some other retail companies that have increased their debt levels significantly in recent years.

In addition to share repurchases and debt reduction, we have also invested in our business over this period, as we have devoted $1.7 billion to capital expenditures. The total investment in our business is $2.0 billion if you include the $300 million we deployed last year to increase our ownership in Sears Canada. We have remodeled hundreds of stores during that time and have invested significantly in new technology platforms and information systems to enhance our online, supply chain and merchandising capabilities.

As a public company we are always focused on shareholder returns. However, as you can see, we simultaneously reduced our obligations and invested in our businesses over this time period. As a result of these actions, we enter 2008 fortunate to have a strong balance sheet. This, accompanied by cash flow generation, can be a very powerful combination, especially in difficult economic times. Among other things, it provides the capacity to pursue opportunities which may become available due to the environment. At the end of the day, our goal is to create value by generating cash and using that cash wisely, not simply to accumulate cash.

Resources

As we look forward to 2008 and beyond we certainly face a number of challenges ˜ some based on the macroeconomic environment, and others specific to our company. At the same time, we see a number of important resources that are unique to Sears Holdings. As our company strives to experience success in the years to come, we will need to draw heavily upon these important attributes.

One of our most important resources is the great brands we own, in particular DieHard, Craftsman, Kenmore, and Lands‚ End. All four of these brands have significant equity with customers and provide tremendous opportunity for value creation. To illustrate, let me discuss one of them, DieHard, in more detail. Based on brand recognition studies, DieHard leads in customer recognition among car battery brands by a wide margin, but it lags dramatically in market share. Why? We believe it is due to fewer points of distribution. As a proprietary brand, DieHard is only available in 900 Sears Auto Centers and 1,400 Kmart stores. Yet it is competing with other batteries that are available in thousands of locations across the country. Further, a car battery purchase is a duress purchase event, in which the customer is looking for the nearest, most convenient solution. Unfortunately, it is not always us, but there is an opportunity for us to rethink our brand distribution strategy to create value.

Home services, including installation, delivery, and repair, represent another important resource of our company. Our extensive network of in-home and in-store service businesses gives us a great opportunity to retain long-term relationships with our customers ˆ a chance to deliver value not only at the point of sale but on an ongoing basis, and a chance to learn continuously about our customers and what they like and do not like about our products.

We also benefit from owning multiple growing and profitable on-line businesses, which enhance our multi-channel customer experience. Sears.com, Landsend.com and PartsDirect.com are all successful ways that we are engaged with our customers. For those who are not familiar with PartsDirect.com, it is the website through which we provide repair parts. In my view PartsDirect.com clearly illustrates the power of the online selling channel as it combines access to both the product (carrying more than 7 million repair parts from 450 manufacturers) and information (more than 750,000 schematic diagrams of products and the parts of which they are comprised) necessary to help our customers replace worn-out parts on their own.  Clearly, it is going to be essential in the years and decades to come for any retail business to be not just competent but outstanding online. I would not put Sears Holdings in the outstanding category yet, but I believe we are trending in the right direction.

Sears Holdings also benefits from possessing substantial real estate assets.
We have a physical presence in almost all major communities in the United States. In addition, we own a significant number of our larger stores including about 750 Sears Full-line, Kmart and The Great Indoors store locations. We also own 10 distribution centers as well as our Home Office campus located in Hoffman Estates, Illinois. We believe that these properties are a substantial benefit to our business.

All of these assets are valued by our customers and allow us to present solutions to enhance our customers‚ lives. Not only do we have a legacy of trust, which we seek to continually strengthen, we also are known for the quality and value of our products and services, which we are able to present to our customers through multiple channels. Our associates in our stores are also critical resources, who are at the front lines of building customer relationships every day.

As we look ahead, these are some of the unique assets we see playing critical roles in the future of Sears Holdings.

New Structure and Personnel Changes

We have recently undertaken a reorganization of the internal workings of Sears Holdings. The idea behind the reorganization is to drive decision-making down into the organization and to harness free-market forces to convert a centrally planned company into a more decentralized company. In effect, Sears Holdings will operate as a holding company that owns five types of businesses: operating businesses; support businesses (e.g., finance, marketing); online businesses; real estate businesses; and brand businesses. In the case of the operating and support business categories, there will be a number of business units that fall into those categories, each run by a single leader accountable for its results. The holding company will define the "Sears Way" of doing business, appoint the leaders of the business units, and have its senior executives act as board members for each of the business units.

We know that corporate reorganizations are often greeted with skepticism, but we do believe strongly in the spirit and philosophy behind this reorganization. Our hope is that the new structure will bring much more focus, clarity, and accountability to the process of analyzing the performance of our company's various business units. In turn, the hope is that greater visibility and accountability will help us identify, monitor, and accelerate the improvements we require to be more competitive. The pace of implementing the new structure will depend on the ability of each business unit leader and the needs of each business unit.

Our mission is to provide our customers with the products and services they want. And, we need to be prepared to supply them where and when our customers want. In many cases, that may not be exclusively through our stores. Instead, it could be online, via catalog, or possibly even through other retail outlets. We will now have a dedicated brand team who will manage our branded products - Kenmore, Craftsman, and DieHard, that way.  Furthermore, we will have a Real Estate business that will act as an internal landlord, providing access to space and maximizing the value of that space over time. In order to be successful in the future we need to more quickly adapt to the changing marketplace and we believe that this structure will help us do that. We have begun the process of transforming the organization to this new model, but it will take some time to build the processes and information systems necessary to support the structure.

In addition to these structural changes, Sears has recently announced a few important changes in our senior executive ranks. In any company, especially in turnaround situations and in difficult times for an industry, one would expect that there would naturally be executive and employee turnover. We strive to give our managers and associates sufficient opportunities to learn, to grow, and to take responsibility for driving their businesses. Retail is a challenging industry and the ability to attract and retain talent is a high priority for us at Sears Holdings. At the same time, we need to ensure that we continue to promote and build a performance-oriented culture. I want to specifically recognize all of the associates who fulfill our mission every day, helping to improve the lives of our customers by providing quality services, products, and solutions that earn their trust and build lifetime relationships.

In late January we announced that we have begun a search for a new chief executive officer for Sears Holdings. I want to take this opportunity to again thank Aylwin Lewis, for his leadership and dedication over the past three-and-a-half years, first as CEO of Kmart and most recently as CEO of Sears Holdings. Aylwin led the integration of Kmart and Sears Roebuck and helped meld these two cultures. He has exemplified the qualities that are core to our company and its principles: hard work and ethical leadership. I enjoyed working with Aylwin over the last three years and I appreciate his contributions to the Company and the support he has provided me.

Second, while we interview candidates to become our new CEO, we are fortunate that we have such a strong interim leader in Bruce Johnson. Bruce has begun implementing the important organizational changes that will allow our business units to operate with greater independence, focus, and efficiency. Bruce is an experienced retail and consumer products executive. He joined Kmart in 2003 after five years at French retail chain Carrefour, where he served as director, organization and systems and as a member of the management board. Before that, Bruce spent 16 years at Colgate-Palmolive in various positions. Bruce has worked hard not only to integrate and improve our supply chain and increase our direct sourcing of product, but in 2006 took responsibility for store operations as well. As interim CEO, Bruce is overseeing the separate business units described above.

Finally, I will continue to lead the Office of the Chairman and focus on identifying and attracting talented executives to our company, including a new chief executive officer. I will also work to ensure that our new structure supports our objectives of greater accountability, faster decision-making, and increased profitability. I believe the reorganization will allow our leaders to be more productive and efficient and allow us to attract talented executives who are eager to take on the challenges of running their own businesses.

* * * *

We remain committed to creating value, growing in a disciplined way, and aiming to be a leader in the retail industry. As I said last year, it‚s important for all of us at the company to keep in mind that we could not do any of this without your continued support as shareholders. We sincerely thank you for allowing us to work on your behalf, and we look forward to continuing our efforts in 2008 and beyond.

Respectfully,

Edward S. Lampert, Chairman

Cautionary Statement Regarding Forward-Looking Statements: Certain statements contained in this letter contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements include, but are not limited to: statements about the ability of Sears Holdings (the "Company") to increase its revenue and profits, innovate, manage spending and invest its capital profitably; the Company‚s risk management processes; the Company‚s inventory levels, debt capacity and future cash flows; future share repurchase activities; the Company's pension liability and its ability and plans to fund its pension obligations. These forward-looking statements are based on assumptions about the future that are subject to risks and uncertainties. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the risk that the Company fails to offer merchandise and services that its customers want; the risk that the Company does not successfully manage its inventory levels; the ability of the Company to compete effectively in the highly competitive retail industry; the Company‚s failure to successfully invest available capital could negatively affect the Company's performance; the Company may fail to properly implement and realize the expected benefits from our new organizational structure and operating model; comparable store sales may fluctuate for a variety of reasons; the Company may rely on foreign sources for significant amounts of merchandise, and its business may therefore be negatively affected by the risks associated with international trade; the possibility of disruptions in computer systems to process transactions, summarize results and manage the Company‚s business; the loss of key personnel; the Company may be subject to product liability claims if people or property are harmed by the products it sells; the Company may be subject to periodic litigation and other regulatory proceedings, which may be affected by changes in laws and government regulations or changes in the enforcement thereof; and a decline in general economic conditions, consumer spending levels and other conditions could lead to reduced consumer demand for the Company‚s merchandise. Certain of these and other factors are discussed in more detail in the Company's filings with the Securities and Exchange Commission. In addition, these forward-looking statements are intended to speak only as of the time of this letter and no undertaking is made to update or revise them as more information becomes available.

Lampert's New Role Model

Edward S. Lampert has taken a lot of hits during his time as chairman of Sears Holdings. But he apparently sees himself as spiritual kin to a pro football player who endured years of ridicule before finally winning a championship.

In his annual letter to shareholders, Mr. Lampert congratulated Eli Manning, the young New York Giants quarterback who led his team to victory in Super Bowl XLII this year and won the Most Valuable Player trophy ˜ but only after suffering nearly four years of insults and mockery for his inability to lead his team. Mr. Lampert (a New York Jets fan, mind you) sees an instructive lesson in that, as his company reported a 47 percent decline in profits for the fourth quarter.

"Like Eli Manning, we know what it‚s like to be underestimated and questioned, but we intend to keep working on our game to achieve our full potential," he declares.

Read the beginning of the letter after the jump.

February 28, 2008

To Our Shareholders:

I would like to start off this letter in a rather unconventional way by congratulating the New York Giants, led by their young quarterback Eli Manning and by head coach Tom Coughlin, for winning the Super Bowl earlier this month. This was quite an upset victory. Throughout the regular season, fans and the media were quick to criticize Manning every time he had a bad game, and to question his leadership. As recently as late November, after a particularly disappointing loss to Minnesota in which Manning threw four interceptions, many pundits were declaring him a bust. Manning, however, did not give up or lose heart. He remained focused, continued to work hard on his game and on improving his skills, ultimately leading the Giants to the NFL Championship and being named the Super Bowl MVP.

I mention this not because I am a Giants fan (I am actually a lifelong fan of the New York Jets) but rather because the Giants‚ story reminds me of what we went through a few years ago with Kmart. When I first became involved with Kmart in 2002, during its bankruptcy, the company had been given up for dead by most industry analysts and media commentators. Kmart was like an undrafted free agent who nobody thought had a chance to play in the big leagues. Its more than 150,000 employees and its investors had an uncertain future. Despite intense criticism of and skepticism about the company and its prospects, we were able to rally Kmart‚s various constituents and turn an unprofitable, failing company into a profitable company with hope for the future. Like Eli Manning, we know what it‚s like to be underestimated and questioned, but we intend to keep working on our game to achieve our full potential.

I would be the first to tell you that I never expected it to be easy, and it certainly hasn't been. But it has been rewarding ˆ rewarding to those investors in Kmart who stuck with the company after it emerged from bankruptcy, to the vendors who continued doing business with Kmart, to the associates who remained with Kmart, and to the customers and communities who continued to support the company.

In late 2004, Kmart was on its way to earning almost $1 billion in Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), had built up almost $4 billion in cash, and had virtually no debt. In November 2004, we believed that the company‚s prospects could be enhanced by a partner who could help improve the productivity of Kmart‚s almost 1,500 stores. Sears had been challenged for many years and found itself seeking a way to grow outside of the mall. Expanding by building a large number of stores was a risky strategy. By merging, the combined company would have the scale, time, and capabilities to compete more effectively against many of its more profitable rivals.

Again, at the announcement of the merger there were skeptics in the industry, in the media, and in the financial community. Many of the issues raised were valid. However, the sensationalist tone masked the real debate. How would Kmart compete against the more profitable and better capitalized Wal-Mart and Target? How would Sears compete with Home Depot and Lowe‚s as well as Best Buy, Kohl‚s and JC Penney? Why would we believe that we could do something that so many others had tried with mixed results?

All of these are legitimate questions. What we have tried to do is improve our operations in the near term while positioning ourselves for long-term success. After the merger, we initially worked to improve our operations by focusing on the basics, like markdown disciplines and expense management. At the same time, we have been prioritizing our resources to rebuild many of the company‚s systems and processes by taking a longer-term view than most investors and business managers.

Looking forward, I continue to be excited about the prospects for Sears Holdings. In 2008, we need to reverse much of the profit erosion we experienced in 2007. It won't be easy, especially if the economy stays soft. The environment surrounding U.S. retail has been very difficult; we were not alone in experiencing disappointing performance this past year. Many retail companies lost significant market value. As illustrated in the table below, while the recent correction has brought Sears Holdings‚ stock price down from an increase of nearly 20 times since Kmart emerged from bankruptcy to around ten times, it remains one of the top-performing retail stocks over the past five years. In addition, it is not clear that heavy expenditures of capital guarantee either short or long term success. Like any investment of capital, the return on that capital over time will determine its wisdom.

Go to Sears Holding Letter via the Securities and Exchange Commission

Sears Earnings Fall More Than Analysts' Projections
By Lauren Coleman-Lochner  -  Bloomberg.com
February 28, 2008

Sears Holdings Corp., the retailer controlled by investor Edward Lampert, reported fourth-quarter profit that plunged more than analysts projected after appliance and clothing sales declined.

Net income fell 47 percent to $426 million, or $3.17 a share, in the three months ended Feb. 2 from $811 million, or $5.27, the Hoffman Estates, Illinois-based company said today in a statement. Revenue declined 6.8 percent to $15.07 billion.

Sears announced a reorganization last month to revive sales as consumers burdened by higher fuel, food and mortgage costs cut spending or shopped elsewhere. The retailer has posted sales declines in stores open at least a year in every quarter since Lampert combined the Sears Roebuck and Kmart chains three years ago.

"I'm not sure that there's anybody out there who says, 'Sears or Kmart is my favorite place to shop'", said David Keuler, a money manager at Mason Street Advisors. The Milwaukee firm holds Sears shares only in index funds and not in its actively managed portfolios.

Seven analysts surveyed by Bloomberg estimated profit of $3.11 a share. Profit included a 13-cent gain from asset sales.

Sears rose 24 cents to $101.60 yesterday in Nasdaq Stock Market composite trading. The stock, little changed this year, has lost 43 percent of its value in the past 12 months through yesterday.

'Like Eli Manning'

Lampert began a letter to shareholders released today by praising the New York Giants' upset Super Bowl win and comparing the National Football League team to Kmart, which he brought out of bankruptcy in 2003.

"Like Eli Manning, we know what it's like to be underestimated and questioned", Lampert wrote, referring to the Giants' quarterback.

Sears had too much inventory last year, particularly in clothing, Lampert said in the letter.

"Our current plan is to take a more conservative posture in 2008", he wrote. "We intend to manage the company's expenses and our inventory position more tightly in 2008 in order to improve our productivity on both fronts."

To stem declining sales, Lampert ousted Chief Executive Officer Aylwin Lewis last month and reorganized the company into five units: support services; apparel and home goods; online sales; real estate; and development of its brands, such as Craftsman tools. The retailer also cut 200 jobs, or about 4 percent, at its headquarters to save costs. The company operates about 3,800 stores in the U.S. and Canada.

Analyst's View

"We do not expect any change to the downward trajectory in the near term'' as consumers curtail spending on clothes and appliances, Bill Dreher, an analyst at Deutsche Bank AG in New York, wrote in a Jan. 23 report. "On the positive side, the shift in strategic focus could improve transparency and help investors better understand the value of the individual units."

Dreher recommends selling the shares.

Sales at stores open at least a year fell 4 percent at Sears stores and 5.2 percent at Kmart for a total of 4.5 percent companywide, led by declines in appliances and clothing.

Lampert said the new structure will bolster earnings and attract customers. Sears has lost shoppers to competitors such as J.C. Penney Co. and Target Corp. in recent years.

"This is a man who is not a retailer, who's pretending to be a retailer," Richard Jaffe, an analyst at Stifel, Nicolaus & Co. in New York, said in an interview yesterday. In the retail industry, "history suggests the near impossibility of taking a distressed business and turning it around," he said. Jaffe doesn't have a rating on Sears shares.

Sears Posts 47% Drop in Net Income As Economic Woes Hit Bottom Line
By Donna Kardos - Dow Jones Newswires
February 28, 2008

Sears Holdings Corp.'s fiscal fourth-quarter net income fell 47% on declining margins as the weakening economy and increasing competition continued to hurt sales.

For the quarter ended Feb. 2, the retailer controlled by hedge-fund manager Edward S. Lampert posted net income of $426 million, or $3.17 a share, down from $811 million, or $5.27 a share, a year earlier. After reporting last month that same-store holiday sales fell at domestic stores, Sears projected earnings of $350 million to $470 million, sharply below analysts' estimates. Excluding items, including divestiture gains, earnings fell to $3.04 a share from $5.30.

Sears, which gets about 40% of its revenue from home goods and appliances, saw its revenue fall 6.8% to $15.07 billion, driven by lower same-store sales and an additional week of sales in the prior year. The mean estimates of analysts polled by Thomson Financial were for earnings of $3.10 a share on revenue of $15.26 billion.

Gross margin slumped to 27.7% from 29.7%, reflecting increased markdowns to mitigate the sales weakness and resulting higher levels of inventory.

Total domestic same-store sales declined 4.5%, dropping 4% at Sears's namesake stores and 5.2% at the Kmart discount chain. The company attributed the drops to competition and the economy, notably the housing downturn, less disposable income and higher prices for consumer staples. Sears noted it saw a more pronounced decline in same-store sales in January.

Merchandise inventory levels increased 1% to $10 billion, as a 1.1% reduction in domestic inventory levels was offset by an increase in inventory levels at Sears Canada, largely due to the weaker dollar.

Sears said it had cash and cash equivalents of $1.6 billion at the end of the quarter -- $749 million domestically and $879 at Sears Canada -- compared with $3.8 billion a year earlier. Analysts have been watching the company's cash position, as less cash could limit management's ability to spend big to revitalize sales and stores, especially at a time in the fiscal year when Sears's operations consume large amounts of cash.

Lots of cash continued to be used for share buybacks, with the company spending $2.9 billion in the fiscal year, including $553 million in the fourth quarter. Sears had $183 million available for purchase as of Feb. 2 under current repurchase authorization.

Sears's once-dominant place supplying refrigerators and washing machines to American homes has been chipped away by competitors such as Lowe's Cos. and Best Buy Co., while its clothing business has suffered at the hands of Kohl's Corp. and J.C. Penney Co. and its identity as the nation's broadest one-stop shop was usurped years ago by Wal-Mart Stores Inc.

The company last month ousted its chief executive and announced plans to restructure into five autonomous units in an effort to make the 121-year-old retailer more nimble and profitable. Earlier this month, Sears said it will eliminate about 200 employees at its headquarters as it tries to cut costs.

Meanwhile, analysts have been questioning whether Mr. Lampert's focus on cost control will pay off, particularly if Sears keeps shuffling executives and employees continue to follow each other out the door. Not long after its CEO was ousted, the company saw the exits of two other senior executives. And a week ago, the Sears announced the departure of two veteran merchandising executives who oversaw Kenmore appliances and Craftsman tools, two of the company's best-known and most lucrative brands.

Sears shares closed Wednesday at $101.60 and there was no premarket activity.

Allstate Chairman, Financial Chief To Retire; Boosts Dividend, OKs Buyback
Dow Jones Newswires
February 26, 2008

Allstate Corp. (ALL) said Chairman Edward M. Liddy and Chief Financial Officer Dan Hale will retire, effective April 30 and March 31 respectively.

Separately, the Northbrook, Ill., insurance company raised its quarterly dividend to 41 cents from 38 cents and approved a $2 billion share repurchase program.

Liddy will be succeeded by Thomas J. Wilson, who will remain president and chief executive.

Samuel Pilch, group vice president and controller, will serve as acting chief financial officer while the company searches for a successor.

The dividend is payable on April 1 to shareholders of record on March 14. The repurchase program is scheduled to be completed by March 31, 2009.

Allstate shares were at $49.36 in after-hours trading, after closing the regular session up 64 cents, or 1.3%, at $48.82.

Deere retirees 'feel sense of betrayal' on health insurance
By Bob Tita - Chicago Business.com
February 27, 2008

(Crain's) - Deere & Co. retirees on Wednesday accused CEO Robert Lane of disregarding their service to the farm equipment maker by imposing more expensive health insurance coverage on them.

About 5,000 salaried retirees who had been receiving the same coverage as when they were on the job were given a choice of different insurance plans that some retirees maintain will cost them thousands of dollars more a year and provide fewer benefits than the old plan.

Dozens of retirees attended Wednesday‚s annual shareholder‚s meeting and some voiced their opposition to the changes when Mr. Lane fielded questions from the audience. Mike Stohlmeyer, 67, of East Moline said retirees were promised the continuation of their health insurance coverage as part of their retirement benefits.

"We feel a sense of betrayal," he said after the meeting at the company's Moline headquarters. "We view Deere as a family. Where's the loyalty? Where's the compassion."

Mr. Lane, however, says the company isn‚t reneging on retirees‚ health insurance coverage, but can't afford inefficiencies in the old plan. By giving retirees more options on coverage, the company hopes to control escalating insurance costs.

"We are confident that because of your personal involvement the program will be more effective," he said. "We continue to believe these changes are beneficial to the retirees and to the company."

With the possibility of a lawsuit from the retirees looming, Mr. Lane mostly declined to comment on specifics about the coverage or discuss the company's costs for it. However, he took exception at characterizing the relationship between the company and its employees as a family.

"For most of you, you‚re not out of a family if you're not pulling your weight," said Mr. Lane, who described Deere as a "high-performance team." "If you're not pulling your weight on a high-performance team, you're not on the team."

Allstate chairman, CFO to retire
Chicago Business.com
February 26, 2008

(AP) Allstate Corp. Chairman Edward M. Liddy plans to retire at the end of April and the company's chief financial officer plans to retire at the end of March, the insurer said Tuesday.

Liddy, 62, spearheaded the insurer's initial public offering and spinoff from Sears, Roebuck and Co., and has been with the company since 1994. He will be succeeded by Thomas J. Wilson, 50, who is also chief executive and president.

"Ed Liddy made an indelible mark on Allstate," Wilson said in a statement.

Liddy was president and chief operating officer of Allstate from 1994 through 1998, and chairman and CEO from 1999 to 2006.

Wilson will continue to serve as president and CEO.

Dan Hale has been CFO since 2003. Allstate is conducting a search for Hale's successor, considering candidates from inside and outside the company.

In the meantime, Samuel Pilch, 61, will be acting CFO. Pilch has been corporate controller for 12 years and was formerly treasurer of Travelers Insurance Co.

Joan Crockett, senior vice-president of human resources, also is retiring. Crockett, 57, has led Allstate's human resources department for 14 years, capping 35 years of service at the company.

Crockett will be replaced by James DeVries, who joins Allstate from Principal Financial Group.

Sears CEO job tough sell
By Sandra M. Jones - Tribune Reporter - Chicago Tribune
February 25, 2008

Edward Lampert has had no luck filling the position at the struggling retailer, as top candidates are looking for a level of control, direction and compensation

Edward Lampert, the billionaire hedge-fund investor mired in turning around Sears Holdings Corp., has been looking for a chief executive to run the retail giant since last fall, a longer time period than publicly acknowledged, according to several executives familiar with the search.

It's been an uphill slog.

The dilemma: Candidates for the CEO job want the freedom to set direction and hold sway over business-unit leaders. Yet with Lampert's wealth and reputation so closely tied to Sears, the billionaire, not surprisingly, is loathe to give up much control, a factor that is getting in the way of closing a deal, according to people with knowledge of the situation.

With Sears warning its fourth-quarter profit, to be reported Thursday, will plummet for the second quarter in a row, and its closely watched cash position shrinking, filling the leadership void takes on new urgency. Sears is in the midst of a reorganization that has left workers and investors alike at loose ends over the company's direction.

"It's a very hard sell," said Nancy Koehn, a professor and retail historian at Harvard Business School. "It's not clear what the strategy of this company is, and that makes it hard to find a CEO. Somebody who is effective and ambitious wants to go into a place where they have the freedom to set a clear-cut strategy."

The Hoffman Estates-based company announced its intention to hire a new CEO in January to replace Aylwin Lewis, the fast-food executive Lampert handpicked to run the company created when Kmart Holdings Corp. bought Sears, Roebuck and Co. in 2005.

Sears has at least two search firms on the prowl for talent, Russell Reynolds Associates and Korn/Ferry International, according to people familiar with the situation.

The new CEO will be charged with overseeing a new structure of many business units, including real estate, online, brands, support and store operations, that operate independently, have their own profit-and-loss responsibilities and own advisory boards.

Lampert has said the move is meant to speed decision-making and improve accountability, but many on Wall Street see it as a precursor to selling off pieces of the business.

The confusion has interfered with Sears' ability to attract a CEO.

One candidate close to taking the job in January backed away after becoming convinced the strategy didn't make sense and the reporting structure didn't allow the CEO enough control to fix the retailer, according to a person familiar with the situation.

Exodus casts a pall

When Sears announced Lewis' departure last month, Lampert said he planned to remove himself from the daily operations, a role he has played for more than two years. But even if Lampert can pull himself away, an exodus of senior executives has cast a pall over the frontline managers who in the end will have to execute any plan.

At least nine top executives, including Lewis, have left since January 2007.

Tina Settecase, vice president of home appliances, resigned Friday. Greg Inwood, vice president of merchandising for e-commerce and formerly head of Craftsman tools, hardware and paint, left several weeks ago. Both were Sears veterans.

John Walden, chief customer officer, left in January after less than one year. Bob Luse, senior vice president of human resources, left in earlier this month. Peter Whitsett, senior vice president for merchandising at the Kmart division, departed in November.

And early last year, three key executives left: Dan Laughlin, senior vice president of merchandising for appliances and electronics; Joan Chow, chief marketing officer for the Sears division; and Craig Monaghan, chief financial officer. Monaghan, who had worked for Lampert as CFO of AutoNation Inc., another of Lampert's big investments, resigned after less than six months on the job.

A Sears spokesman declined comment. Officials at Russell Reynolds and Korn/Ferry didn't return calls.

Buying on the cheap

Ultimately, Lampert could find himself faced with choices he would rather not make: settling for a less-than-seasoned CEO, paying a premium in compensation and terms, or going back to running the company himself.

Lampert wants to hire an experienced executive of "GE caliber," said one high-level executive familiar with the search, referring to the sterling reputation General Electric Co. has for churning out top-tier managers. Yet, in reality, executives at that level want to run the show and are likely to clash if Lampert interferes, analysts said.

Then there is the pay issue. Lampert is disinclined to pay a premium for anything. He made his fortune by buying companies on the cheap. At Sears he has skimped on capital investment in the stores and squeezed suppliers. And he doesn't like to pay for star power.

Martha Stewart and Bob Vila are cases in point.

Shortly after taking over Sears, Lampert asked the home-decor diva to accept less money under her long-term contract with Kmart if she wanted to expand her distribution into Sears stores. Martha Stewart said no and signed an exclusive deal with Macy's for a new line of home products. Lampert similarly ended a long-standing contract with home-remodeling celebrity Bob Vila.

"Obviously, it's going to be very difficult to find the right person," said Alan Barocas, an Atlanta-based retail consultant and the former head of Gap Inc.'s real estate department. "If you want somebody with a track record of success, you will have to pay an extra premium to work for Lampert."

In the end, Lampert's unspoken strategy may be as simple as finding a way to untether his destiny from the retailer. The Sears chairman owns 48 percent of the company through his Greenwich, Conn.-based hedge fund, which caters to wealthy investors. It is the fund's largest equity holding.

"It's going to be challenging for him to find someone without being creative in how he structures the deal," said Mark Reilly, partner at 3C-Compensation Consulting Consortium. "Nobody's been able to figure Sears out. If they can find someone to do that, that person is going to be worth a lot of money."
---
RESIGNATIONS ADD TO SEARS' UPHEAVAL

At least nine top executives have left Sears Holdings Corp. since January 2007. Among them:

John Walden, chief customer officer, who left in January after less than one year.

Aylwin Lewis, a fast-food executive handpicked by Lampert as CEO, exited last month.

Joan Chow, chief marketing officer for the Sears division, left early last year.

Craig Monaghan, chief financial officer, resigned after less than six months.

Outsider CEOs: breath of fresh air or more hot air?
Chicago Business Editorial
February 25, 2008

In business, as in politics, few figures are as alluring as the brilliant outsider who promises innovative solutions to seemingly intractable problems. Shareholders and directors of struggling companies, exasperated by veteran managers' inability to devise successful strategies, often seek "fresh thinking" by looking beyond their industry for new leadership.

Fresh thinking and innovation, of course, are critical to any business. But companies that seek salvation abroad ignore a basic fact: True innovation springs only from a deep understanding of how an industry and its market work. Few outsiders helicoptered in to save a major company bring that kind of insight. They tend to offer simplistic strategies that overlook the company's real problems.

Cell phone maker Motorola Inc., for example, hired a computer industry executive as CEO a few years ago. At first, Edward Zander seemed to have fixed Motorola's problems with the wildly popular Razr phone. Only later did it become clear that the Razr was a lucky hit, conceived before Mr. Zander arrived. The Razr's popularity soon ebbed, revealing that Motorola's real problems — an inability to develop new phones quickly and manufacture them efficiently — remained unsolved.

A similar scenario is playing out at Sears Holdings Corp., where hedge fund manager Edward Lampert took over a few years ago promising radical change.
Disregarding industry convention, he invested little in Sears stores and sucked billions out of the company through stock buybacks. Lo and behold, profits are now plunging as shoppers bypass its shopworn stores.

Perhaps the most dramatic local case of outsider appeal is at Tribune Co., where directors tossed the keys to real estate mogul Sam Zell for a nominal investment on his part. Despite falling circulation, ad sales and cash flows, Mr. Zell plopped $13 billion in acquisition debt on the company and casually assured everyone that all would be well once he worked his unspecified magic.

But recently, his tone has changed. He's cursing at employees, calling the situation at Tribune a "crisis" and warning it has "no future" if things don't change. Now that's fresh thinking.

Attention, Lampert: Red-light Sears, blue-light Kmart
By Rance Crain - Chicago Business.com
February 25, 2008

My daughter Heather's solution to the Sears meltdown: Be more like sibling Kmart.

Heather was thrilled when she went to Kmart to buy sheets and discovered the store's Martha Stewart Everyday line had linens with thread counts of 600. When she's in a hurry, Heather likes the easier parking (Kmarts are free-standing and not located in malls like department stores) and the fact that Kmart provides shopping carts to haul away all that bedding.

Sears, on the other hand, is a mess. The merchandise is piled together without rhyme or reason. At the Sears store in Hyannis, Mass., on Cape Cod, which is across the road from a Kmart, the Craftsman tools are right next to the patio furniture, next to windows, bedding — a big mishmash of stuff all jumbled together. Children's wear is with appliances and electronics. The best thing Sears has going for it — the Lands' End line of men's and women's clothing — is jammed into a corner and displayed in the same careless way.Not a very good first impression.

After Sears, I went to Kmart. It's less jumbled and more open but a little on the faded side. The electronics department had plenty of widescreen TVs, though no jumbo sets like Sears had. The Craftsman section was, in some ways, more attractive and appealing, even though there wasn't as wide a selection. On the other hand, there were no huge signs heralding the line or a special Martha Stewart section. That's definitely underplaying the partnership.

Heather says she filled a couple of carts because she had a lot of pillows. The manager told her to pull her car up and he would load the merchandise into it. "For the sheer hassle factor, it was easier than going to a department store. I shopped at Kmart at 8 p.m. and left at 9 p.m. The department stores were closed by then, and that was my only time to shop."

Sears Holdings' Eddie Lampert is just about out of bullets, as Crain's recently put it. He's milked Sears dry, and about the only thing left to do to raise money is sell off Lands' End, Kenmore and Craftsman.

That's a shame, because they could all find a happy home at Kmart, which could end up a formidable competitor to Wal-Mart and Target. With Martha Stewart, Lands' End, Kenmore and Craftsman under one roof, consumers like Heather would have even more reason to shop Kmart.

My advice: Close Sears, sell the real estate and plow the money into building the Kmart brand.

Subprime Lessons Hit Home for CEOs In Other Industries/Sears mentioned
By Erin White - Managing - Wall Street Journal
February 25, 2008

As mortgage lenders imploded and stock prices swooned last summer, a light bulb went off for Tim Houlne, chief executive of a Texas call-agent provider: "Bubbles always burst."

Mr. Houlne's realization attests to how, far from Wall Street, executives in other industries and their advisers are finding management lessons in the subprime-loan meltdown.

Among the key insights: Don't chase a boom without planning for the bust. Make sure subordinates feel safe delivering bad news. Ensure that incentive systems don't encourage excessive risk. And don't gloss over complicated details.

"Every five to 10 years, there's a mess of this sort," says Richard Coughlan, a management professor at the University of Richmond. "Leaders would do themselves a great service if they would study the failures of the past and learn from them."

Mr. Houlne says he's trying. His company, Working Solutions of Plano, Texas, provides companies with agents who work out of their homes handling customers' phone calls. Amid the subprime woes, he asked lieutenants to assess the company's exposure to potentially risky customers in cyclical industries.

A review showed that Working Solutions derived a big chunk of its revenue from clients in the hospitality and travel industries, which Mr. Houlne views as vulnerable to economic downturns. So he urged salespeople to more aggressively pursue health-care and pharmaceutical firms, which he believes are less exposed to booms and busts. He says the effort is beginning to pay off.

By contrast, in the finance industry, many firms continued to pursue subprime-related business long after the first signs of a housing slowdown.

That's a familiar pattern to veterans of the technology boom of the 1990s and the ensuing bust. During the boom, telecom companies rushed to install miles of fiber-optic lines based on predictions of an exponential need for capacity, says Michael Kanazawa, chief executive officer of Dissero Partners, a management-consulting firm. Those predictions fell flat; technological advances boosted the capacity of existing fiber. "It's really easy to fall into that trap of whatever seems to be working for us today, let's just keep doing that tomorrow," Mr. Kanazawa says.

Instead, he suggests that executives plan new initiatives before the current wave crashes. Toyota Motor Corp. did this well during the 1990s, Mr. Kanazawa says. While Toyota and its peers chased the then-hot sport-utility market, Toyota also developed its hybrid Prius. Its 2000 U.S. launch ran counter to conventional wisdom at the time. But as gasoline prices rose, Toyota's move looked prescient.

Marty Beard, president of a mobile-messaging unit of software maker Sybase Inc., is trying to apply that lesson. Sybase executives convene quarterly meetings to consider potential new projects. Last month, his unit created a group focused on mobile-commerce prospects, an idea from a fall brainstorming session.

Jim Bradford, dean of Vanderbilt University's Owen Graduate School of Management, sees another lesson in the subprime woes: Make sure subordinates feel comfortable delivering bad news -- promptly. It's possible that earlier strong warnings of mounting subprime problems may have helped top bank executives react better.

Mr. Bradford speaks from experience. Before entering academia, he was CEO of glassmaker AFG Industries, a unit of Japan's Asahi Glass Co. He tried to foster a candid environment by also praising and promoting people who disagreed with him or who brought him bad news.

That candor helped thwart disaster at least once. In the mid-1990s, a customer told an AFG sales representative about a potentially serious safety problem. A forklift at the customer's warehouse had crashed into some AFG glass intended for shower doors. The break pattern indicated the glass hadn't been properly tempered and could cause injuries. The sales representative told Mr. Bradford about the problem, and AFG alerted shower-door makers before the faulty glass reached consumers.

Mr. Bradford later praised the rep at meetings. "You really want to encourage that conduct, as painful as it may be," Mr. Bradford says. "You don't want to have to wait until the Federal Trade Commission or a safety group is coming to you."

Similarly, Stephanie Klein, CEO and founder of Boomer Group, a staffing agency based in Colorado, re-examined the health of the firm's culture as the subprime crisis unfolded. "You start to look back and say, 'Are we doing anything that would cause us to be making these [risky] decisions?' " she says. Ms. Klein says she wants the company to have an environment where co-workers feel comfortable questioning each other's decisions -- even hers.

She was heartened when she recalled a meeting with a prospective client a couple of months ago. She had left giddy with the possibility of new business. But a colleague worried that the client would treat temp workers placed by Boomer poorly. Ms. Klein realized she had ignored several red flags and reconsidered.

Other management experts say the subprime mess underlines dangers of incentive systems' unintended consequences. Many finance-industry participants are rewarded for closing deals, with less regard for the deal's ultimate value. Critics say that encourages everyone from mortgage brokers to investment bankers to disregard long-term risk.

Sears auto centers learned this lesson about incentives in the early 1990s, recalls Mr. Coughlan, the University of Richmond professor. State officials alleged that employees recommended unnecessary repairs largely to earn more commission payments. By 1994, Sears had paid $15 million in refunds and other costs to settle charges in 41 states and 19 related class-action suits. It also pledged to change its compensation plan.

Executives at Sears, now Sears Holdings Corp., hadn't intended for workers to perform unnecessary repairs, Mr. Coughlan says. Under the commission system, though, "it's logical in retrospect that folks would have behaved this way," he says.

Allan Cohen, a management professor at Babson College in Massachusetts, sees another lesson: Make sure to understand your business. Wall Street invented so many ways to repackage and trade mortgages that executives had a hard time estimating their own losses once the market unraveled.

Too often, Mr. Cohen says, executives plunge into businesses they don't fully understand, particularly if rivals are doing the same. That happened during the dot-com boom, he notes, as venture-capital firms threw money at companies.

"It got so that it was, 'I have to be there fastest and first or somebody else will get this,' without asking, 'Is there a market? Would anybody buy this?' " he says.

Readers speak on how to help Sears
By Mike Hoban - Business at Large - The Time - Munster, Indiana
February 23, 2008

Two weeks ago in this space, I posed a challenge to readers to suggest ways to turn around Sears if you were the strategic adviser to that company. Unless you have been living on the planet Zemo for the past 10 years, you know that Sears and the Titanic seem to have a lot in common, with the exception that the Titanic's deck chairs were nicer.

I asked you to write and many of you sent your ideas and modest proposals. Or, perhaps my mom wrote all those e-mails under phony names so I would think people are reading this column. Either way, here are some of your thoughts:

* Recognize that the Sears‚ customer base is middle class and stop flitting with avante garde, here-today-gone-tomorrow merchandising schemes.

* Multiple readers identified the employees and their attitudes as being key to a turnaround. Pay them well, you said, and train them to be knowledgeable first line contacts with customers. Increase communication and feedback with them.

* Several suggested that the new CEO should run the show, not Chairman Ed Lampert. One reader, in fact, suggested that Mr. Lampert go elsewhere altogether.

* Make sure the merchandise is available -- too many stock-outs.

* Improve the customer service -- "it's not unusual to see sales associates standing around in groups while the customers must browse on their own."

* Getting closer to the customers and their needs was a theme echoed by several. Examples -- "Hold roundtables with them;'' "Give them an evaluation form."

* Several ex-Sears employees wrote in with ideas. One of those reader-writers recommended that top management listen more to Sears field managers.

* More than one reader identified tools and appliances as Sears' strong suits and suggested a focus on those areas, and perhaps exiting categories like clothing and jewelry. "Sears is a pretty drab place outside of appliances and tools," someone said.

* However, another "adviser" opined that better advertising and a regional buying strategy would help attract customers to Sears' apparel offerings.

* Multiple readers proposed that Sears provide better discounts for seniors and ex-employees.

* One reader was very specific, calling for Sears to put a Dollar Store inside existing stores, as well as a deli, nail salon and three banks. Yes, three. And if you spent $15, you'd get a free glazed doughnut.

Would these kinds of actions be enough to make Sears a shopping destination like Target is? Or, will Sears ultimately go the way of another merchandising icon, Montgomery Ward?

The new management team has much work to do. As one reader -- one of the ex-Sears employees said, "This business is not rocket science. It is simple if they just listen to the folks in the field . . ."

Finally, a reader named Jane said she would appoint a female CEO and have an all-female board. She went on to say, "Success, like anything else, depends on vision and creativity. And the ladies have it -- hands down."

Hmmm ... Mom, seriously, was that you?

Opinions expressed solely are those of the writer. Mike Hoban, of Crown Point, is a senior consultant for an international leadership development and training firm.

Sears' Craftsman, Kenmore executives depart
By Sandra M. Jones - staff reporter - Chicago Tribune.COM
February 22, 2008

Sears Holdings Corp. veteran executives that have been in charge of the retailer's flagship Kenmore and Craftsman brands have resigned in a management shake-up at the retailer.

Tina Settecase, vice president of home appliances, is leaving the Hoffman Estates-based company today, a spokesman Chris Brathwaite confirmed. Settecase led the charge to revive Sears' appliance business , including its marquee Kenmore line, as Home Depot and Lowe's moved into the market and took market share.

Greg Inwood, who had been in charge of Craftsman tools, hardware and paint, left several weeks ago. Inwood had moved to Sears' online business briefly late last year as vice president of merchandising.

Both executives have been with the company for more than three decades and are retiring, Brathwaite said.

Steven Light, a vice president of inventory management, will succeed Settecase as head of appliances. Dave Figler, a former Staples Inc. executive, succeeds Inwood as head of tools, hardware and paint.

The management changes were first reported by the Wall Street Journal.

Sears is in the midst of a reorganization that is dividing the company put into many business units, including units focused on brands, real estate and store operations, in a move the company said is aimed at speeding decision making and increasing accountability.

What Made Jack Welch Jack Welch
By Matthew Kirdahy - Required Reading - FORBES.COM
February 22, 2008

Apparently, it's not rocket science. Anyone can be a leader. Really. That's not to say the average Joe could manage $20 billion in assets and a 50,000-man workforce, but if you've got the right mixture of traits, all it takes is the experience and desire to reach that point.

This is how Jack Welch and a host of other big-name corporate American leaders did it, explains Stephen H. Baum, author of What Made Jack Welch Jack Welch: How Ordinary People Become Extraordinary Leaders.

In his book, Baum taps into the minds of some of the best business leaders of the 20th century, taking an anecdotal approach to revealing the secrets of what makes a guy like Jack Welch, former chief executive of General Electric, and others like him, legendary.

"Leadership boils down to some very simple--not rocket science--ideas:
character, confidence, critical thinking and the ability to engage other people," Baum said. "It's all about know-how and learning that stuff in life, what works and what doesn't."

Baum has been an adviser and coach to CEOs for more than 20 years. This book is a product of the relationships he's forged in that time. With their trust, he interviewed business leaders about some of the most intimate details of their lives and how the events molded them.

"It's a leadership book in practical, daily ways," Baum said. "Learn from what other people have done and get your own experiences, big or small. Take your own inventory. Look in the mirror. It's all about personal growth."

Baum met with Forbes.com to discuss proven and failed leaders, their decisiveness, humility and character and how a U.S. Navy Seal instructor could size up who has "it" and who doesn't in a day.

Forbes.com: With all the leadership books already on the shelf, what inspired you to write this and take a more human approach to the subject of building great leaders?

Stephen H. Baum: A few years ago, I decided I had a calling, a passion, when I was coaching. Even when you're doing studies with analytical results with charts and stuff, when you examine those results, it's important. Part of all of that I love is when a CEO would say, "Hey Stephen, you going to hang around afterward? I want to talk to you about something. I can't talk to the board about it. I can't talk to the team about it. My wife's tired of hearing it."

I found that sort of intimate relationship very satisfying, if I could help them chart a course. In consulting, you're supposed to provide answers; in coaching you're suppose to provide questions. That's one data point. I was sort of focusing my career on coaching in a private practice.

I had this prospect who was a 28-year-old CEO. I was asking myself, "Why would this guy think that someone nearly twice his age is relevant as a coach for him?" I started to write down the experiences that I've had that make up my behavior, my beliefs.

And I went to somebody I knew who was then chairman of Sears. I said, "Arthur, I want to run this by you and see how it goes." And for the next two hours, instead of looking at my own tape, I listened to him. When we finished, he said, "You know, I've never seen anything in the literature about this. You ought to write a book."

Do existing leaders pick up books like the one you've written, or is it just the aspiring that show an interest?

I already know for a fact that business owners, especially entrepreneurs, have read the book and given me feedback. The fellow I mentioned who owns an insurance agency in Connecticut, he wanted to take his community activities to a different level. He read the book and decided he could do what he thought he couldn't.

They use this kind of information to get ahead then?

There are very few leaders that don't want to have an edge, to be even better than they are. There are some who don't. There are some who think, "I already know what I need to know."

Guys who run companies, they're in a war for talent. So they ask, "Is there anything in your book that'll help recruit, develop and keep good guys?" The answer is yes. I didn't write it for HR people.

In your book, it's clear that you explain that good leadership can be taught, and in the battle of nature vs. nurture, it's nurture that prevails. Is it always that cut-and-dry? There are plenty of people who believe otherwise--leaders are born, and all that.

I'll answer your question in two ways. The first answer is the theory of the case. That is, if you have a minimum level of intelligence. If you have a deep-seeded motivation to take control of your own destiny, to take charge of your life, you will test yourself in taking charge and being a leader.
You may find you don't like it. You don't like being on the hot seat. You don't like the pressure. You don't like the rejection. You want something else. There's nothing wrong with that.

There has to be followers, independent practitioners. There's room in the world for a group of people who do not want to oversee a group of other people.

I had an experience last fall. I went out to the [U.S.] Navy SEALs training grounds in San Diego. I've never been there before. I had a private conversation with the commanding officer of the Navy SEALs training base. I got a chance to ask him about the class ... you have a 30% success rate.  That's how many people get to be SEALs.

Well, they all want to be. That's why they're there.

But want to be how bad? These are all people who are fit. They have some level of intelligence. [The commanding officer] said that in the incoming class, in a day or two, "I can tell that 10% or 15%, that if I cut off their left leg, they will still make Navy SEALs. I can also tell the 10% or 15% that will never make it. They're going to opt out."

He said the sad part is that the 75% to 80% left, those are the ones who make the best platoon leaders. So nature vs. nurture? We'll see. But it's mostly nurture.

Do you consider yourself a leader?

Now that's a tougher question. I am much less on the firing lines than somebody who is actually responsible for a group of other souls. So I could be a thought leader, sure. I have to be responsible for my group of chief executives whom I meet with all the time. It's not the same thing as if you've had the profit-and-loss responsibility for their livelihoods. I can't lay claim to that.

Just to underscore that, God help me if I think I am.

Are good leaders good followers? At some point in our lives we've all had to take orders and play by someone else's rules.

There are situations in which a good leader has to be a good follower because there's something in the community that's going on where they play a role and they're not the leader of it. There may be situations in an industry where they have to let somebody else take the lead. There are sometimes good reasons to let somebody be out front. But it is over their contravention of their preferences, that they would prefer to take charge. By the time they are well along in their careers, that's the seat they're used to.

Are the leaders you see in corporate America, like the ones making headlines right now, true leaders, or did they just work their way up the ranks and make it to the top job?

Obviously not all of them. If they're leading by fear when the company is three days away from bankruptcy, no. That's not a way to build an institution. The way to build an institution is to make it the best damn place to work.

Now in some businesses, the culture of the industry doesn't look like that.
There are serious issues about the financial industry where the culture by and large is all about the financial returns. One of the reasons Stan O'Neal (former CEO of Merrill Lynch) failed, in my view, he didn't feel responsible for the human capital, only the financial capital. And I don't think we're finished seeing lawsuits that expose what they knew and when they knew it.

Are leaders ever to weight the two equally, financial and human capital, in a business?

You can't balance it minute by minute. You can't keep it equal all the time. You just can't do that. You have to know what the non-negotiable is for each constituency. You have to put credit in the bank for each of them from time to time, is the way this works.

When Gordon Bethune took over Continental Airlines, he looked out at a defeated workforce. Shareholders had driven the company into bankruptcy. He had to put the employees first at that moment, not forever. He had to prove to them this was worth investing in from their point of view in a book he wrote: From Worst to First.

It's all about signal act, as I call it--when deeds speak louder than words and get the employees involved. He couldn't have turned the airline around if he just looked at the numbers.

Changes Continue at Sears
Leaders of Kenmore, Craftsman Depart from Key Brands
By Gary McWilliams - Wall Street Journal
February 22, 2008

Two veteran merchandising executives are leaving Sears Holdings Corp. in the midst of a revamping intended to make the 121-year-old retail pioneer a more nimble and profitable company. The executives oversaw Kenmore appliances and Craftsman tools, two of the company's best-known and most lucrative brands.

Tina Settecase, the company's vice president of Kenmore appliances, is retiring this week after 35 years at the Hoffman Estates, Ill., company. Ms. Settecase, 58 years old, is being succeeded by Steven Light, a vice president of inventory management.

Greg Inwood, a 30-year company veteran who had been the vice president of Craftsman tools, hardware and paint, retired three weeks ago. Mr. Inwood was reassigned as a vice president of merchandising shortly before his retirement. Dave Figler, a former vice president at office-supplies retailer Staples Inc., took over tools, hardware and paint merchandising.

Kenmore appliances and Craftsman tools are two of the company's most  successful brands, combined accounting for about a third of the company's $53 billion in annual sales. But sales of the product lines recently have declined on a year-over-year basis.

A spokesman confirmed the moves, calling them unrelated to the company's recent decision to oust its chief executive and establish autonomous business units. Messrs. Light and Figler continue to report to Douglas T. Moore, a senior vice president in charge of the electronics, appliances and tools business units, people familiar with the matter said.

Sears's efforts to revitalize its home and appliance businesses with new marketing campaigns ran headlong into a housing crash and economic downturn. Sears announced last month the reorganization and departure of Aylwin B. Lewis, its CEO, after forecasting profit for the fiscal fourth quarter ended Feb. 2 would fall about 50% from the $820 million earned a year earlier.

In addition, Robert D. Luse, the senior vice president of human resources, and John C. Walden, executive vice president and chief customer officer, have left the company in recent weeks. Mr. Luse's duties were reassigned to William R. Harker, senior vice president and general counsel. Sears also recently cut about 200 employees at its headquarters as part of a cost-cutting move.

The company has launched an effort to replace Mr. Lewis and is recruiting executives to lead other business units. Former Microsoft Corp. MSN Shopping executive James Barr joined the company this month as a senior vice president over its online unit, responsible for online sales and technology infrastructure.

Settecase Leaving Sears
By Alan Wolf - Twice
February 21, 2008

Hoffman Estates, Ill. - Tina Settecase, the longtime chief merchant of Sears‚ industry-leading home appliance business, is retiring today after 35 years with the company.

She will be succeeded as home appliance VP/general merchandise manager by Steve Light, formerly the inventory management and replenishment VP for Sears‚ apparel business.

"Tina achieved tremendous success during her 35 years with Sears and we thank her for her many contributions, particularly during her last 12 years in a leadership role," the company said in a statement to TWICE. "Her unwavering support of home appliances was unmatched, and we wish Tina and her family all the best."

Light reports to Douglas Moore, Sears‚ hardlines merchandising senior VP and a former chief merchant at Circuit City.

Motorola names new CFO
By John Pletz - Chicago Business
February 21, 2008

(Crain's) - Motorola Inc. has named a new chief financial officer from outside the company.

Paul Liska, a former Sears, Roebuck and Co. CFO, will take over March 1 for Tom Meredith, a Motorola board member who was named interim CFO last March.

Mr. Liska, who most recently was a partner at several private-equity firms, is a surprise choice for the post. Some Motorola insiders guessed the new CFO would come from within the company.

Bringing in an outsider could be a risky move for CEO Greg Brown, who took over the top job only last month and is under serious pressure from Wall Street. Carl Icahn, who holds a 5% stake in Motorola, has mounted another proxy fight.

Mr. Meredith, who will remain on the board of directors, was a favorite among Wall Street analysts and investors dating back to his days as CFO of Dell Inc. He was viewed as a smart, straight-shooting financial whiz who championed cash and tight inventory control. But Mr. Meredith, who was a friend of former Motorola CEO Ed Zander from their days together at Sun Microsystems Inc., never intended to stay in the job long-term.

"I'm a big fan of Tom Meredith", Jim Suva, a Citigroup analyst, said recently in an interview before Mr. Liska was named the new CFO. "I've really welcomed him bringing in financial discipline."

As Mr. Brown considers whether to spin off Motorola‚s handset business, Mr. Liska's private-equity background could be his more pressing need.

Sears Holdings 2008 Annual Meeting
Set for Monday, May 5
Sears Holdings News Release
February 20, 2008

HOFFMAN ESTATES, Ill., Feb. 20 /PRNewswire-FirstCall/ -- Sears Holdings Corporation NASDAQ: SHLD announced today that the 2008 annual meeting of stockholders will be held at the Company's headquarters in Hoffman Estates, Ill., on Monday, May 5, 2008.

In addition, the company announced that March 10, 2008 has been fixed as the record date for determination of the stockholders of the Company entitled to notice of and to vote at the Annual Meeting of Stockholders.

Sears agrees to settle lawsuit over possibly unstable ovens
Associated Press - Daily Herald - Suburban Chicago
February 20, 2008

EDWARDSVILLE -- Sears Holdings Corp. will install safety brackets on its stoves in millions of households as part of a settlement of a class-action lawsuit over the appliances supposed propensity to tip.

Under an agreement signed off on by a Madison County judge, Hoffman Estates-based Sears will fix all brands of its kitchen ranges in as many as
3.9 million homes by bolting them to a wall or floor. The deal covers Sears ranges sold since mid-2000.

The settlement also requires Sears to install safety brackets in newly purchased ranges for the next three years.

Attorneys for the plaintiffs estimate the settlement could cost Sears more than $500 million. Sears, in a statement Tuesday, said it disputes "many aspects of the case, including the value on this settlement -- which Sears estimates to be a small fraction of what plaintiff's counsel estimates."

Consumer groups, which were not involved in the lawsuit, say more than 100 people have been killed or injured from scalding and burns caused by hot foods and liquids spilling from the stove top, or from being crushed by the weight of a stove that has tipped over.

Those advocacy groups insist Sears and other retailers often fail to connect safety brackets when delivering a stove, which apparently now are made so light they can be unstable unless secured to a wall or floor. Most stoves made before the 1980s were too heavy and sturdy to easily tip over.

"The Consumer Product Safety Commission hasn't even warned the public about it, much less done anything about it," said Joan Claybrook, head of the consumer group Public Citizen.

A spokeswoman for the commission says it "has put out messages that consumers should use the brackets offered to them" and considers voluntary standards adequate.

Consumers will have the option of having an anti-tip device installed free of charge, receiving $100 it they have Sears or a third party to install the device, or getting a $50 gift card to help pay for a new, regularly priced stove from Sears if they don't want the anti-tip device.

"The whole idea is to solve the problem," said Stephen Tillery, a St. Louis lawyer involved in the lawsuit.

The lawyers will split $17 million in fees, according to the settlement.

Sears Holdings Elects Kevin B. Rollins to Board
Sears Holdings News Release
February 20, 2008

HOFFMAN ESTATES, Ill., Feb. 20 /PRNewswire-FirstCall -- Sears Holdings Corporation NASDAQ: SHLD announced today the election of Kevin B. Rollins, 55, former president and chief executive officer of Dell, Inc. and currently a senior adviser to the private investment firm TPG Capital, L.P. (formerly Texas Pacific Group), to membership on the Sears Holdings board. His election increases the number of Sears Holdings' directors to 8.

"Kevin Rollins is an accomplished businessman whose experience leading a company in Fortune's top 50 will be invaluable as we continue to implement Sears Holdings' revised organizational and internal management structure. The Board of Directors looks forward to his advice and contributions," said Sears Holdings Corporation Chairman Edward S. Lampert.

Along with his duties as CEO of Dell, Mr. Rollins was a member of the company's board of directors, through January 2007. He then served as a senior advisor to the company until his retirement in May of last year. During his 11 year career with the company, Mr. Rollins also served as Vice Chairman and as the head of Dell Americas. Prior to his time at Dell, Mr. Rollins worked at Bain & Company, most recently serving as a director and partner.

Mr. Rollins also serves on the board of Avaya Inc. and is a member of the President's Leadership Council and the Marriott School National Advisory Council at Brigham Young University, where he founded and continues to sponsor the Rollins Center for E-Commerce.

He also serves as Vice Chairman of the Board of the American Enterprise Institute in Washington DC.

Big Retail Chains Dun Mere Suspects in Theft
Demands for Money Can Leave Targets With Little Defense
By Ann Zimmerman - Pay Up - Wall Street Journal
February 20, 2008

After Miami handyman Glenn Rudge was accused of shoplifting an $8 set of drill bits at Home Depot, he thought he'd settled the matter when he showed his receipt to prosecutors and they dropped the charge.

But a few weeks later, a law firm hired by Home Depot began sending him letters demanding first $3,000, then a total of $6,000, implying he'd be sued if he didn't pay it.

In an escalating battle against theft, retailers are going after anyone suspected of shoplifting, turning over their names to lawyers and collection firms, who pursue the suspects for stiff penalties and split the take with the retailer.

CIVIL RECOVERY
When lawyers and debt collectors pursue alleged shoplifters for monetary penalties with letters and phone calls, retailers call it "civil recovery." But the people targeted by the practice see it as something else. They describe it as a humiliating and intimidating process that leaves them all but defenseless. Here are some of the demand letters, and the shoppers' legal responses.

• Clear Evidence 1
A Palm Beach judge, Donald W. Hafele, writes to the Florida bar on behalf of one of the alleged shoplifters who received a letter demanding $700. The judge claims the letter fails to itemize the supposedly stolen items and provide "clear and convincing evidence" of the damages.

• Boy's Money 2
A Massachusetts mother wanted to know why a Florida firm was demanding her 14-year-old son pay $475 for a $10.99 pair of sunglasses he attempted to steal when he was visiting his grandmother in Florida. The mother wrote, "…I find it hard to believe that justice is served in attempting to scare and threaten a young boy into handing over money after he has already given back the merchandise."

• Collect Call 3
A Florida Bar grievance committee found "no probable cause" in a complaint against a lawyer sending demand letters and calling the alleged shoplifters, but warned the firm to be careful about its collection tactics. "Harassment techniques in an effort to collect for your clients are not acceptable."

• To Pay or Not to Pay 4
A Philadelphia firm first sought a total of about $1,400 in civil damages from three women for merchandise that was undamaged and put back into stock for resale. Two of them paid and each received a letter saying the payment "satisfied her civil obligation." A third one did not pay, and instead got a "final notice," saying that she could have to pay "additional costs." And that her "credit rating might be adversely impacted. "There is little oversight of a system retailers call "civil recovery," created by special laws passed in all 50 states. With no proof of theft, the retailers demand money -- often $200 but sometimes far more -- and promise to avoid suing if it is paid quickly. Laws vary by state, but in general, retailers can demand these sums even if the item at issue was worth far less and was quickly recovered and put back on the shelf.

The laws are meant to help compensate retailers for money they must spend to secure their stores against crime and recoup part of losses when thieves are not caught, says Neal Tenen, a founder of Civil Demand Associates, a firm specializing in civil recovery. U.S. retailers lost more than $40 billion to theft in 2006, which equaled 1.6% of retail sales and was up $3 billion from 2005, according to the National Retail Federation, a trade group.

But people targeted describe a humiliating and intimidating process, with no way to resist short of hiring a lawyer, a costly step few are able to take.
Once a person's name is turned over to a collection firm, he or she is dunned with letters and often phone calls, which refer to lawsuits and sheriff's visits and sometimes multiply the penalty by demanding "pre-litigation" legal fees.

Defenders of the process say that, besides helping stores recover a small part of their security costs, it reduces litigation and the clogging of the courts by allowing shoplifting cases to be settled without legal action.

This goal is evident in the way the laws are written. Many don't simply authorize retailers to demand money from suspected shoplifters but say retailers must make such a demand before they can file a suit.

But this legal first step has turned into a routine demand. For one thing, the laws often are vague about who can be targeted. Secondly, although the laws call the demands a prerequisite to suing, they don't say that retailers really have to intend to sue before making such a demand. There's nothing to stop them from demanding money from shoplifting suspects even if they have no intention of taking them to court.

Lord & Taylor, for instance, never follows up civil-demand letters by suing suspected shoplifters, its loss-prevention manager said in deposition about a year ago, citing the cost of going to court. Lord & Taylor collected about $1 million in civil recovery from suspected shoplifters in a recent year, up from $850,000 the year before, the official testified.

The chain's letters to suspected shoplifters are sent out by a Florida law firm called Palmer Reifler & Associates, which also handles the task for four dozen other clients, from Wal-Mart Stores Inc. to Walgreen Co., keeping 13% to 30% of what it collects. A partner at the law firm has said that it sends out about 1.2 million civil-recovery demand letters a year but follows up by suing fewer than 10 times a year.

Leading people to fear a suit when none is likely makes civil recovery a kind of "shakedown," contends Walter Hanstein III, a Maine lawyer who complained about Palmer Reifler to the Florida bar association last year. Palmer Reifler didn't return several calls seeking comment. In a letter to the bar association, it defended civil recovery as "a first alternative dispute measure" to resolve cases short of litigation.

Civil recovery has rarely faced legal challenge. A 1993 challenge to Ohio's civil-recovery process cited the federal Fair Debt Collection Practices Act. A U.S. magistrate said that law didn't apply because civil recovery wasn't an effort to collect a debt but "a settlement offer for potential tort liability."

In 2005, a suit by three Pennsylvania teenagers suspected of shoplifting said a retailer's civil demand deprived them of due process. A federal court in Philadelphia dismissed their suit, saying that state law, not federal, established the rules. The lawyer for the teens, J. Conor Corcoran, didn't appeal. "I think the statute is scandalous, but there are only so many windmills you can chase," he says.

Retail lobbies began pressing state legislatures for civil-recovery laws about two decades ago as their theft and store-security costs rose, says Stuart Levine, chief executive of another recovery firm, Zellman Group. He says the retailers wanted laws to help cover their security costs just as "when a cop writes you a speeding ticket, the funds funnel back to the state to pay for the police to catch you in the first place."

At Beall's Inc., a Florida-based chain of 550 department stores, loss-prevention executive Dan Doyle says, "We're just trying to get some money from criminals so our honest customers don't have to pay." The National Retail Federation describes the money retailers collect through civil recovery as "minimal" compared with their fraud losses and security costs.

In the Home Depot case, Mr. Rudge, the handyman, had a set of drill bits poking out of his shirt pocket when he went through the checkout line at a Miami store in December 2002, according to a suit he later filed against Home Depot. After he paid $66 for his purchases, a security guard stopped him on his way out and asked him about the drill bits.

Mr. Rudge said he had carried them in, having bought them on an earlier trip to the store. After he kept insisting he was innocent, the guard handcuffed him, walked him to an interrogation room in back and took the drill bits. Mr. Rudge asked to call home to have his wife bring in the receipt but the store wouldn't let him, he said in a 2003 suit in Miami-Dade County Circuit Court, since settled. Home Depot declined to discuss specifics of his account.

Prosecutors charged the handyman with shoplifting, then dropped the charge in February 2003 when he showed them a receipt for the drill bits. But about a month later, according to his suit, he got a letter from the Palmer Reifler law firm demanding he pay a little over $3,000 within 20 days.

He ignored the demand. Then he got a letter demanding an additional $3,000, as "pre-litigation" attorney's fees, for a total of just over $6,000. If he didn't pay, one letter said, the sheriff's office would be called to notify him if a lawsuit was filed.

Mr. Rudge was doing some handyman work for a lawyer and showed her the letters. "I took one look and said, 'This is outrageous,' " says the lawyer, Alison Harke. "These letters are designed to make people settle because they believe they are going to jail." She filed a suit against the retailer, the settlement of which is confidential.

Costly Drill Bits
Home Depot said Mr. Rudge was pursued for such a large sum because of a data-entry mistake that recorded the price of a $8.09 drill-bit set as $1,008.09. The law firm then tripled that, which the Florida statute permits in certain cases. The retailer said it now has extra processes to make sure it seeks correct penalties.

Home Depot's spokesman, Ron DeFeo, defended going after Mr. Rudge even though prosecutors dropped charges when he showed a receipt. "In Florida, no criminal conviction is needed to pursue civil demand," Mr. DeFeo noted.

As in this case, collection firms sometimes add legal fees to their demands.
Most states permit a separate legal fee only if a court first approves it, but 10 states don't bar asking for "pre-litigation" fees, and Palmer Reifler sometimes does so. Two others, Civil Demand Associates in Van Nuys, Calif., and Zellman Group in Port Washington, N.Y., say they don't ask for such fees. Zellman's lawyer, Michael Asen, says doing so would be "gouging."

Sometimes, suspected shoplifters face another demand: a no-trespassing agreement. A Lord & Taylor store in Novi, Mich., detained three teenage girls in February 2005 on suspicion of stealing a $50 pair of sunglasses. The store called the police, but before they arrived, it asked the three to sign statements agreeing not to enter any Lord & Taylor store for three years.

A security guard "made it seem like we had no choice, and at the time, we were just so nervous and scared that I signed it," said one girl, Sarah Eggen, in a deposition later filed in U.S. court for the Eastern District of Michigan.

When the police arrived, they looked at a surveillance tape and released two of the girls, including Ms. Eggen, concluding they weren't involved. The third teen later faced a retail-fraud charge that was dropped after she did some community service and attended a theft-deterrence class.

Lord & Taylor gave Palmer Reifler the names of all three teens, and each received a letter demanding a payment of $200 within 20 days, in which case "no further civil action will be taken against you."

When they didn't pay, at least two of the girls got second letters from Palmer Reifler. These increased the demand to $435 apiece, adding $235 from each girl in pre-litigation attorney's fees, according to a suit they later filed. The store put the undamaged sunglasses back on the shelf for sale, Lord & Taylor's loss-prevention manager testified.

One girl had an aunt who was a lawyer, and she sued the retailer and its law firm on their behalf. The teens settled with the retailer and have a pending settlement with the law firm, says the lawyer, Mary Brigid Sweeney.

"You had two teens who were innocent and this was extortion," Ms. Sweeney says. "The legal intent of the law is a recoupment of losses, not to make a profit by suing over and over, multiple parties."

Lord & Taylor, now a unit of NRDC Equity Partners in New York, says it doesn't comment on litigation.

A little over a year ago, a Florida judge complained about the civil-recovery process to the state bar. In Palm Beach County Court, a woman had pleaded guilty to stealing $222.90 of merchandise from a Saks Fifth Avenue store. Her sentence included court costs, and when the judge asked how long it would take her to pay them, she said a long time, showing him a letter saying she owed Saks $669.

The judge, Donald Hafele, complained to the bar association that the letter, sent by Palmer Reifler, didn't spell out any injury or damage and could be misleading.

Palmer Reifler partner James R. Palmer told the bar association that his firm, applying Florida law, had tripled the recovery demand in a mistaken belief the merchandise had been damaged.

Compensable Injury
In a letter to the bar group, Mr. Palmer defended civil recovery as "a 'cost spreading' measure to allow retailers to recover a small portion of the losses arising from people who get away with theft from the people who are caught trying to take items." He added that even if an item is recovered undamaged, the retailer has "suffered a legally compensable injury in the form of an invasion of a legal right to ownership of and control" over it.

The bar association dismissed the judge's complaint, saying it lacked jurisdiction. Judge Hafele says, "The answer will have to come through case law or the legislature amending the statute, after determining whether the civil theft law is accomplishing what it is designed to do."

The bar association got four other complaints about Palmer Reifler last year, two of them complaining about excessive phone calls. The law firm disputed that notion, but the bar association questioned its "methods and professionalism" and warned the firm that "harassment techniques in an effort to collect for your clients are not acceptable."

In one of the complaints, a Massachusetts mother wanted to know why a Florida law firm was demanding that her 14-year-old son pay $475 after he tried to steal an $11 pair of sunglasses while visiting his grandmother in Florida. The boy entered a program that required him to do community service.

His parents added some punishment, doubling the amount of community service.
But, his mother wrote to the Florida bar: "I find it hard to believe that justice is served in attempting to scare and threaten a young boy into handing over money after he has already given back the merchandise."

Sears Case Cited by Critics of Safety Panel
By Stephen Labaton - New York Times
February 20, 2008

WASHINGTON - In an effort to pressure lawmakers to toughen legislation on consumer product safety, consumer groups this week began publicizing the recent settlement of a major lawsuit against Sears for installing millions of kitchen ranges that were vulnerable to tipping over.

The groups, which were not involved in the class-action lawsuit, say that more than 100 people have been killed or injured from scalding and burns caused by hot foods and liquids spilling from the stove top, or from being crushed by the weight of a stove that has tipped over.

They say the Consumer Product Safety Commission has known about the problems for more than 20 years but repeatedly declined to take meaningful steps to correct it.

A spokesman at the commission, Scott Wolfson, said that last year it listed the possible tipping of stoves, furniture and other household items as one of the five greatest hazards facing consumers. It recommended that consumers install brackets to secure ranges and urged the industry to apply its own voluntary safety standards.

Joan Claybrook, president of Public Citizen, one of the consumer groups publicizing the settlement, said the Sears case highlighted the failure of the commission and the shortcomings of legislation moving through Congress to strengthen it. By all accounts, the agency has been significantly understaffed and had struggled to monitor the safety of products effectively.

"Voluntary standards have been shown not to work," Ms. Claybrook said. "And mandatory recalls under the agency‚s procedures take too long to occur."

Ms. Claybrook has criticized both the House and the Senate versions of consumer product safely legislation as failing to do enough. The Senate Commerce Committee approved a measure in October that was denounced by the administration and manufacturers. The Senate majority leader, Harry Reid of Nevada, has recently said the Senate would consider a bill as early as next week.

The administration, including the acting head of the safety commission, Nancy A. Nord, and manufacturers have praised a bill approved by the House in December.

Ms. Nord‚s spokesman, Julie Vallese, said Ms. Nord criticized the Senate bill for overreaching in her appearances at a toy fair on Sunday and a conference of safety regulators on Monday.

"She has given credit to the House members for working together in a bipartisan way to help American consumers," Ms. Vallese said. "She has commented that the Senate did not approach its legislation in the same constructive way and in her opinion, the legislation shows that. Her concern is that the Senate legislation will not advance safety for American consumers."

The Bush administration dislikes a provision in the Senate bill that would give state prosecutors greater authority to enforce consumer product laws and would provide compensation to industry whistle-blowers. Ms. Nord has objected to those provisions and many others that have also been opposed by manufacturing associations.

Ms. Nord has also criticized a provision that would give the agency greater discretion to disclose details from companies of consumer complaints and potential product defects. She has said that such disclosure would discourage the companies from being candid with regulators.

She has also objected to a provision in the Senate bill that would give the agency the authority to impose financial penalties of up to $100 million for safety violations. The law now caps such civil penalties at $1.25 million. The comparable provision in the House bill would increase the maximum penalty to $10 million.

The Sears settlement, approved last month by Judge Barbara Crowder in Madison County, Ill., requires the company to fix ranges in as many as 3.9 million homes by bolting them to a wall or floor. Parts and labor for the procedure have a value of about $135. The agreement covers Sears ranges sold since 2000.

If every household ever sold such ranges requested the fix, the groups said, then the settlement would be valued at about $526 million. In addition, the judge approved a $17 million payment by Sears to the lawyers for the homeowners.

The settlement also requires Sears to install safety brackets in newly purchased ranges for the next three years. Details about the settlement are available at www.searsrangesettlement.com.

The product safety commission has a staff of about 400, roughly half of its size in the 1980s, and one full-time employee to test toys. Fifteen inspectors monitor all imports of consumer products under the agency‚s supervision, a marketplace that last year was valued at $614 billion.

A spate of food and product recalls beginning last year highlighted the agency's difficulties. Moreover, the commission has been hampered by the failure of the White House to fill a vacancy on the three-person commission.

In August, Congress granted the commission temporary permission to operate without three commissioners. But the provision expired three weeks ago, and the vacancies prevent the agency from issuing new rules or punishing companies that violate the old ones.

Sears chair's rival boosts company holdings
By Sandra Guy - Chicago Sun-Times
February 15, 2008

Sears Chairman Edward S. Lampert has cut his losses in Citigroup, the nation's largest bank, while Lampert rival William Ackman has increased his stake in Sears Holdings Corp., according to regulatory filings late Thursday.

Ackman, a hedge-fund manager who successfully fought Lampert's bid to acquire the portion of Sears Canada that Sears Holdings didn't already own, boosted his holdings in Hoffman Estates-based Sears Holdings by 4.5 percent, to 6.15 million shares, according to the filings.

Ackman's first investment in Sears last October caused Sears' stock to jump because Ackman, through his Pershing Square Capital hedge fund, was expected to pressure Lampert to sell off real estate and take other steps to increase shareholder value.

Sears' performance continues to decline, and the troubles prompted CEO Aylwin B. Lewis' departure earlier this month. Analysts continue to question Lampert's strategies.

Separately, Lampert, through his hedge fund ESL Investments, reduced its stake in Citigroup by 31 percent, to 19.08 million shares.

The value of the holding had fallen from $1.3 billion to $561.8 million because of Citigroup's losses from subprime mortgages, debt obligations and bad loans.

Wal-Mart Growth Expected to Slow Again in 4Q
By William Spain - Dow Jones Newswires
February 15, 2008

While Wal-Mart Stores Inc.'s (WMT) fourth-quarter profit is expected to show a double-digit profit rise on a per-share basis when it reports before the opening bell Tuesday, the retail behemoth's sales growth is beginning to sputter as the economic slowdown tightens it grip.

Wal-Mart is expected to earn $1.02 a share on revenue of just under $107 billion for the three months ended Jan. 31, according to the current average estimate of analysts polled by Thomson Financial. For the same period a year ago, it earned 92 cents a share on revenue of $99.08 billion.

But in its most recent sales release, Wal-Mart Stores posted a measly 0.5% gain in same-store sales for January, below expectations of 2% growth - and it was supposed to be one of the winners in a down economy.

Then, late last month, the company lowered prices by 10% to 30% on thousands of items in a move it said was to help shoppers save money against a backdrop of economic uncertainties. The savings were targeted especially at purchases for the Super Bowl weekend and were available while supplies lasted.

And that followed a move to cut prices on more than 15,000 items during the holiday crush, along with an offer of no interest for 18 months on purchases of $250 or more with a Wal-Mart credit card. The strategy seemed to work, at least for a while, as the company outperformed many of its competitors, including archrival Target Corp. (TGT), during the crucial December sales period.

Pershing Square's Bill Ackman Increases His Stake In Sears Holdings (SHLD)
Street Insider.com
February 14, 2008

Pershing Square's Bill Ackman increases his stake in Sears Holdings (Nasdaq:
SHLD). Ackman increased his stake to 6.15 million shares from 5 million shares last quarter.

Sears Holdings Corporation is a broadline retailer with approximately 2,300 full-line and 1,100 specialty retail stores in the United States operating through Kmart holding Corporation (Kmart) and Sears, Roebuck and Co., and approximately 370 full-line and specialty retail stores in Canada operating through Sears Canada.

Sears to cut 200 staffers
Overhead reduction targets support jobs
By Sandra M. Jones - Tribune reporter - Chicago Tribune
February 13, 2008

Sears Holdings Corp. is cutting about 200 headquarters jobs as it tries to bring its overhead costs in line with falling sales and stem profit declines.

The Hoffman Estates-based retailer notified employees of the pending cuts in a memo Tuesday from interim CEO W. Bruce Johnson. The jobs, which are in support functions, represent about 4 percent of Sears' 5,000 headquarters employees, said Sears spokesman Chris Brathwaite. He declined to be more specific.

The cutbacks come as billionaire investor Edward Lampert looks for a way to save his investment and turn around the company created when he engineered Kmart Holding Corp.'s purchase of Sears, Roebuck and Co. in 2005. Late last month, Sears unveiled a restructuring that divides the company into a five independently run businesses, a move some investors view as a precursor to eventual asset sales.

In a two-page letter to employees dated Jan. 28, Lampert warned, "There will be many difficult decisions to come and the recent economic downturn which has affected practically all retail companies has set back our progress. However, it has not deterred us and we will continue to move forward with our strategy and take all appropriate actions to stabilize our business."

Support is one of the five business areas being created under the new structure. While Brathwaite declined to disclose the support functions targeted in the cuts, Sears described the new support unit as housing such functions as marketing, store operations, customer strategy and finance.

"As we've previously stated, Sears Holdings' results have not been satisfactory," said Brathwaite. "As part of a continuing process, we're assessing our business priorities and cost structures in the organization and when and where necessary, we will be making adjustments."

Shortly after Sears and Kmart merged, cost cuts and gains from investments boosted profit and Sears stock soared, flirting with $200 in April.

But that strategy began to show its shortcomings last fall. Lots of money went to buy back stock. Little went to sprucing up stores. Customers shopped less at Sears, and the overhead costs began to take their toll on earnings.

Profit dropped 99 percent in the third quarter over the year-ago period, its worst quarter by far since Lampert took control of the department store chain. If not for the money made on investments, Sears would have been in the red. Sears warned that fourth-quarter earnings per share are expected to decline 35 percent to 51 percent.

Sears shares fell $2, or 2 percent, to close at $99.07 Tuesday on the Nasdaq stock market. Lampert owns 48 percent of the company.

"When he first took over the company he was pretty aggressive in cutting [overhead]," said Neil Stern, a partner at McMillan Doolittle LLP, a Chicago retail consulting firm. "Over the past year or so, as they pursued a more retail focus, they added jobs. I don't think they got the result they wanted, so now they're cutting back."

Retailers typically tighten their belts in January and February after a disappointing holiday season. Macy's, J.C. Penney and Home Depot all announced job cuts in the past two weeks.

Separately, Bob Luse, senior vice president of human resources, left the company last week, Brathwaite confirmed.

Sears' job cuts seen as just the beginning
By Monée Fields-White - Chicago Business
February 13, 2008

(Crain's) Sears Holdings Corp.'s announcement that it will cut about 200 jobs at its headquarters may be just the beginning. The Hoffman Estates-based department store chain probably will have to reduce its staff further as it tries to bring overhead in line with slumping sales and profit, industry observers say.

"It wouldn't surprise me if we begin to see more. They have got to figure out a way to get their sales up," said George Whalin, head of California-based Retail Management Consultants Inc. "Anytime you start looking at substantial sales (declines), you start looking at your support internally within the headquarters as ways to solve problems and cut costs."

The pending cuts are in support functions and represent about 4% of Sears‚ 5,000 headquarters employees, a spokesman said. Employees were notified in a memo on Tuesday from interim CEO W. Bruce Johnson.

The spokesman declined to be more specific on which jobs would be targeted.

"As we've previously stated, Sears Holdings‚ results have not been satisfactory," he said. "Because of that, as part of a continuing process, we are assessing our business priorities, cost structures and organization, and, when and where necessary, we will be making adjustments."

The 200 job cuts, first reported by the Chicago Tribune, come as billionaire investor Edward Lampert searches for ways to revive the company created when he merged Kmart Holdings Corp. and Sears Roebuck & Co. in March 2005.

Mr. Lampert has squeezed cash and profit out of the business mostly through cost cuts and measures like investing in credit derivatives ˜ a practice which was successful at the start but was pursued at the expense of reinvesting in stores to boost sales.

The tables turned last fall when the company reported a 99% drop in third-quarter profit from the same period a year earlier.

The company said results in the fourth quarter, ended Feb. 2, would show another big drop. Cash holdings have dwindled through stock buybacks.

Comparable store sales, a key industry measure, have dropped every quarter since the merger.

In late January, Sears unveiled a restructuring that divided the company into five units. Support is one of them and includes marketing, store operations, customer strategy and finance.

Earlier this month, Aylwin Lewis stepped down as CEO, and other top executives have left as well. The spokesman confirmed a report in the Chicago Tribune that Robert Luse, senior vice-president of human resources, departed last week.

Typically, job cuts are completed once a new executive steps in, but the latest move "just means the firm is really chomping at the bit to really get things working here," says Marcos Moya, a partner at New York-based executive search firm Battalia Winston International. "So you're going to see a lot more people go."

Sears is the latest retailer to announce job cuts following a disappointing holiday season. Macy's, J. C. Penney and Home Depot all announced job cuts recently.

Lampert Buys $19.8M Worth Of AutoNation Shares
Dow Jones Newswire
February 13, 2008

Billionaire Investor Edward L