New Hire
Amounts to Sears Shakeup
By Lewis
Lazare - Sun Times Columnist
Chicago Sun-Times - August 24, 2004
The Sears Roebuck and Co. PR team had its cue cards
close at hand on Monday, ready to read off rote answers to some of the
more delicate but obvious concerns related to the arrival of Luis Padilla
as the retailing giant's new president of merchandising. Chief among them,
whether it amounts to a major shakeup in the company's marketing
department.
You see, Padilla's new title at Sears doesn't quite tell
the whole story, because he also will head up Sears' marketing and
advertising initiatives. That job previously fell to Janine Bousquette,
who arrived at Sears from eToys in October 2002, as executive vice
president, chief customer and marketing officer. Bousquette previously
reported directly to Sears Chairman and CEO Alan J. Lacy, but now she will
answer to Padilla, according to a Sears spokeswoman.
Bousquette will keep her title, but it appears Padilla's
hiring amounts to a demotion for her. By all accounts, she has done little
in nearly two years to give Sears a compelling, coherent image through its
marketing and advertising. Off the record, sources at Sears' roster ad
agencies who have worked with Bousquette agree that her tenure has been
mostly a bust, as least as far as proving she has the vision and skills to
outline and execute a strong marketing message.
Certainly her previous jobs -- a brief stint at eToys, a
couple of vague marketing posts at Pepsi-Cola, plus 12 years in the brand
management and marketing ranks at Procter & Gamble -- give no indication
she ever excelled at developing the kind of effective advertising Sears
desperately needs to get back on the radar screen with shoppers.
That may be why Bousquette now will report to Padilla, a
veteran of the Target Corp., which, if nothing else, has demonstrated it
knows how to use advertising to create a strong brand image that resonates
with consumers. Though Padilla's background is in merchandising at Target
and its Marshall Field's unit, Lacy clearly is betting enough of Target's
marketing magic rubbed off on Padilla to enable him to do something
similar at Sears.
It's a tall order, but Padilla surely can do no worse
than Bousquette, who observers believe may be so far from the center of
action that she will be left no choice but to depart.
But for now, Sears insists Bousquette is looking forward
to an exciting "partnership" with Padilla as he moves to more effectively
integrate merchandising and marketing. We'll just have to see how long
that partnership stays intact.
Sears
Lures Top-shelf Exec
from Target
By Sandra Guy -
Business Reporter - Chicago Sun-Times
August 24, 2004
Luis Padilla, the man credited with putting the "chic"
into Target stores' cheap, will become Sears Roebuck and Co.'s top
merchandiser -- a job that experts believe could position him for the
CEO's spot.
Now that Sears has finally filled such a critical job,
will Sears CEO Alan Lacy give Padilla the autonomy he needs to turn around
the retailer's years-long sales declines?
Padilla, 50, earned a reputation as a merchandising whiz
at Target Corp. before he moved to his most recent job as executive vice
president of merchandising for Marshall Field's department-store chain.
"In a merchandising firm, this position could easily be
the heir apparent to the CEO," said Don Delves, a Chicago executive-pay
consultant.
"It's one of the three most important positions in the
company, with the others being CEO and chief financial officer," Delves
said.
Sears CEO Alan Lacy's total compensation jumped 48
percent in 2003 from the previous year -- to $4.3 million in 2003 from
$2.87 million in 2002, largely because Sears' board granted him more than
$2 million in stock options.
Lacy also took advantage of the retailer's stock bounce
last year to exercise previously worthless Sears options for a gain of
$2.16 million.
Lacy benefits from another procedure that's also typical
of CEO compensation -- an automatic stock "reload," in which CEOs are
awarded one stock option for every one they exercise.
One thing is certain: Sears scored a coup in getting
Padilla, said John Challenger, CEO of Challenger, Gray & Christmas Inc.
"It's akin to the Sox going out and getting Nomar
Garciaparra [the Cubs' new shortstop]," he said.
Padilla's national reputation is built upon his
expertise at wrangling exclusive brands such as Mossimo and Cherokee
apparel lines for Target's discount stores, and his ability to pump a
fresh cache into Field's aging mall-based department stores.
Such skills are critical to Sears because the Hoffman
Estates-based retailer plans to boost growth not only by revamping its 870
mall-based stores, but by building 12 to 14 stand-alone "Sears Grand"
stores by the end of 2005 and renovating 61 former Kmart and Wal-mart
stores as either mid-sized Sears stores or small Sears Grand stores.
Sears no doubt wants Padilla to work his magic with its
own exclusive brands, including Lands' End apparel, Craftsman tools and
Die-Hard batteries.
Padilla was deeply involved in the makeover of Field's
flagship store on State Street. He broke the news about it in an Aug. 7,
2002 exclusive in the Sun-Times. Some analysts fear that Field's new
owner, May Department Stores Co. of St. Louis, will reverse Field's
progress in opening upscale, unique boutiques, though May executives say
they support the redesign.
Padilla will join Sears on Sept. 15, just in time to
plan for the all-important holiday shopping season.
He will oversee both merchandising and marketing efforts
in the newly created job of president of merchandising.
"This is a position that Sears has needed for years,"
said Neil Stern, senior partner at Chicago-based retail consultancy
McMillan Doolittle.
Indeed, analysts have begged Sears CEO Lacy to appoint a
chief merchant since Lacy won the top job nearly four years ago.
Mark Cohen, who previously held both merchandising and
softlines marketing titles, was named president of Sears Canada three
years ago.
Lacy, a former Sears and Kraft finance officer, likes to
maintain control, said George Whalin, president of Retail Management
Consultants, based in San Marcos, Calif.
"Padilla is a first-class merchant, but it will depend
on how much autonomy Lacy gives him," Whalin said. "Padilla can improve
the merchandise and the way the merchandise looks, and he understands what
needs to be done."
Lacy said in a prepared statement that Padilla's
background and experience are "ideally suited for this key leadership
position at Sears as we move to grow our business aggressively on all
fronts."
Padilla said in a statement that Sears has a "solid
opportunity to reconnect with the American consumer in a big way," and he
expressed optimism about Sears' growth prospects.
If Padilla is let loose, expect to see visionary
changes, said one executive who has worked closely with him.
"He [Padilla] combines extraordinary vision with
flawless execution," said Robert Margolis, chairman and CEO of Cherokee
Group, a Van Nuys, Calif.-based company that licenses major brands.
Margolis credited Padilla with being a pioneer in
realizing that a retailer could benefit from holding exclusive license to
a brand name, collaborating with the brand's manufacturers and designers,
and finally, sourcing the brand by itself.
Target Corp. has exploited such ingenuity with its
Michael Graves housewares and Philippe Starck consumer products ranging
from baby monitors to magazine racks.
Despite Padilla's star power, Sears still must fill his
future boss' job -- the newly created post of president of Sears retail
businesses. For now, Padilla will report to Lacy.
The retail president will be in charge of Sears'
department stores, specialty stores and new stand-alone stores being built
away from malls. The new retail president also will oversee merchandising,
marketing and supply-chain management.
Padilla is the latest in a string of Sears' hires from
its key rivals, and follows Sears' lowered forecasts for the third quarter
and the full year based on its poor first-half performance. Sears' mistake
earlier in the year of ordering too little apparel continues to haunt the
retailer, as does repeated rejiggering of store merchandise
Other recent Sears hires include:
* Another former Target Corp. executive, Catherine
David, 40, who was named to head Sears' troubled chain of Great Indoors
home-decor stores on July 19.
* Steve Ryman, 50, a former leader at Kmart Corp., who
was named vice president and general merchandising manager of home
fashions on June 1.
* Paul Jones, 42, former senior vice president of
menswear merchandising at Kohl's, who is now Sears' vice president and
general merchandise manager for men's apparel.
* Former J.C. Penney Co. executive Rodney Birkins Jr.,
48, who oversees Sears' sourcing, international buying operations and
technical design efforts.
Padilla
Won't be Able to Share
Secrets
By Sandra Guy
- Business Reporter - Chicago Sun-Times
August 24, 2004
A top retail executive with the star power of Luis
Padilla, Sears' new merchandising president, can command a top-flight
salary, bonus and other perks, but he probably will be silenced from
telling his former employer's trade secrets, Chicago compensation experts
said Monday.
High-level executives typically sign non-compete and
non-disclosure agreements that keep them from blabbing secrets after they
jump to a rival business, the experts said.
Such agreements are specific and restrict the executive
from taking with him or her a rival's work products and intellectual
property, said Jim Sillery, vice president at Pearl Meyer & Partner's
Chicago office.
As for Padilla's paycheck, no one will know for certain
until Sears discloses its executives' salaries in a filing with the U.S.
Securities and Exchange Commission.
Until then, experts said Padilla's salary could range
from $500,000 to $600,000, his bonus could reach $1 million, his stock
options could be worth as much as $1 million and he could reap benefits
from an extra signing bonus.
Sears' Grand Initiative
By Jennifer Waters,
CBS.MarketWatch.com
August 23, 2004
Sears spins out its own version
of a megastore
GURNEE, Ill. (CBS.MW) -- Sears Roebuck executives
realized customers buy more when they have something besides their arms to
carry purchases. But shopping carts defy the traditional department-store
experience.
After a test in a new super-sized Sears Grand store, the
company brass decided tough times call for an act of defiance.
As Sears gears up for a future marked by increasing
competition on a number of fronts, it's looking to this megastore concept
to drive long-stagnant sales. The Sears Grand stores are probably its most
significant growth initiative in at least two decades.
Sears (S: news, chart, profile) has opened Grand stores
in Las Vegas, Salt Lake City and the Chicago suburb of Gurnee, Ill., and
plans another in Rancho Cucamonga, Calif. By late 2005, the company
expects to have as many as 15 such locations, including stores in Austin,
Texas; Cape Girardeau, Mo.; and Bonita Springs, Fla., complete with
shopping carts.
Sears is a late arrival to the one-stop shopping party
-- Wal-Mart first put food in its stores more than a decade ago. But after
seeing the success of Wal-Mart's Supercenters and Target's Greatland
stores, Sears developed a concept that combined its legacy brands such as
Kenmore and Craftsman with the likes of Pringles and Tombstone Pizza in a
brighter environment.
Its take on a super center amounts to Bed Bath & Beyond
meets 7-Eleven and Pep Boys, with a lot of other stuff thrown in. If it
proves successful, the concept could return the retailer that once claimed
to be the place where America shops to its former powerhouse position. If
it backfires, the softer side of Sears could end up being, well, a whole
lot softer.
"It has the potential to change people's perception of
Sears," said Julie Krueger, director of marketing for the Sears Grand
division.
Many analysts agree, noting the retailer already has
broken up most of its traditional stores and repackaged them in a more
vibrant environment. Others worry there's too much on Sears' plate now and
that its executives should focus on what ails apparel and other key
product categories.
In July, Sears reported its fifth straight month of
declining sales, a 2.6 percent drop that was worse than the 1.9 percent
fall drop Wall Street was expecting. Sears expects the entire third
quarter to be tough because of slumping sales and inventory problems.
July's results were hurt by flat sales in home-goods and declining sales
of apparel and automotive products and service.
"We would like to see Sears focus its efforts on
revitalizing its existing store base rather than rolling out another
concept," Credit Suisse First Boston analyst Michael Exstein said after
his first visit this month to a Sears Grand store, which he said he
generally liked.
A new breed of shopper
Though Sears has been an anchor in malls as long as
malls have been around, it's now shunning that role for a freer street or
"big-box" location, a smaller center with a few large specialty retailers.
The three Sears Grand stores opened so far range in size
from 160,000 to 201,000 square feet.
The Gurnee, Ill., store sits at the furthermost edge of
a shopping mall in a far northern Chicago suburb. Its wide and bright
entranceway looks more like a grocery store's -- especially with its
shopping carts, a couple hundred strong. There are seven cash registers
side-by-side, with room for a set of mobile registers to be rolled in
during heavy periods. There's a Java City coffee shop next to a Sears
Optical and a Citibank branch.
Unlike the usual grid floor plan of a department store,
Sears has turned to the racetrack layout that has become popular with
big-box retailers. The format allows consumers to completely circle a
super-sized store and not miss much.
The aisles are significantly wider than the old Sears
stories, with a 10-foot track around the store and an 18-foot "boulevard"
slicing through it. The lighting is nearly twice as bright as in a
traditional store. The ceilings are higher, and the sight lines stretch
from one end of the three football-fields-long store to the other. And
it's all on one floor, albeit one very large one.
But it's probably the signage and displays that add the
most oomph.
Eighty percent of items in Sears Grand stores have been
rearranged from traditional department stores, but the feel is that of a
much bigger and more sophisticated shopping experience. The home-goods
areas bear an uncanny resemblance to certain corners in Pier 1 Imports (PIR:
news, chart, profile) stores while the electronics departments steal
liberally from Best Buy (BBY: news, chart, profile). In some spots, the
place feels a bit like a Target Greatland.
Yet you won't find lawn tractors across an aisle from
bath towels at Target
(TGT: news, chart, profile) or be able to test a mattress while watching a
sea of TVs. But like Target, there's plenty of toothpaste. And tank tops,
cakes, candles and cards.
That's what makes Sears stand out from Target and
Wal-Mart (WMT: news, chart, profile), the company says. Though it mimics
the warehouse size of those discounters, there's no question you're in a
Sears.
There are about 20 school-bus yellow, tall information
kiosks throughout the store. Customers can scan a product to find out its
price and availability immediately -- the latest twist in customer
self-service. And just as an airplane passenger can push a button to call
a flight attendant, Sears Grand customers can have help come to them --
and within 30 seconds, Krueger says.
Clothes call
The most promising sales figures out of the fledgling
stores are for apparel, the category in which Sears has spent most of its
energy and resources in recent months. Sears Grand carries all the brands
that the traditional stores have -- Lands' End, Covington, Lucy Pareda,
Laura Scott and others. CEO Alan Lacy says he was surprised that apparel
sales, which have dogged the department stores in recent quarters, are
taking off in Sears Grand stores.
The apparel sections in Sears Grand are huge, open, full
of colorful displays and close to shoes. The displays peddle suntan lotion
with juniors' shorts, Gatorade with active wear and baby wipes with
layettes.
Lacy said he's charting sales of tops, pants, dresses
and shoes that are 30 percent higher at the new stores than at the older
ones. That means he's getting new customers as well as long-established
ones who seem more interested in buying clothing with their tools in a
Sears Grand than at traditional stores.
"We had a fairly good sense of how our home-goods
category would perform, but we didn't really know how the customer would
respond to our apparel and home fashions," Lacy said.
That's appealing to skeptical analysts such as Exstein.
"Sears Grand is also more dependent on getting its apparel effort right
than at its core full-line stores," he said.
Cross-shopping
Lacy said the food component is driving traffic into the
stores.
"We tend to be very much destination stores for
customers looking to buy a new appliance, a lawn mower, kids clothes for
back to school," Lacy said. "Now we have a number of items that you need
in your daily life, and you can achieve more of your shopping goals for
today by coming to our stores."
So far, Lacy appears right. Sears Grand store visits are
now more than double the four-visits-a-year average for mall stores.
Though he says location will always be key to Sears'
success -- in malls for certain suburbanites, in big-box locations for
others, on the street for urban dwellers -- Lacy says his customers want
Sears to stay Sears. They're not looking for hip. They're not even
necessarily looking for low prices. But they do want value, and he says
the value component is more apparent at a Sears Grand than in the
traditional mall locales.
Sears didn't have many other growth strategies
available. The company already has branched out with separate auto care,
hardware and housewares stores (Sears Auto Centers, Sears Hardware Stores
and The Great Indoors), and it has dabbled in a handful of non-retail
businesses (Dean Witter, Coldwell Banker, Discover Card) during its
118-year history.
There aren't many malls being built these days, and
Sears doesn't seem to fit into the new lifestyle centers that developers
are so hot on now. Those spots are saved for the likes of Gap (GPS: news,
chart, profile) and Barnes & Noble (BKS: news, chart, profile).
Beyond that, the competition isn't what it was. In its
day, Sears vied well against the likes of J.C. Penney (JCP: news, chart,
profile) and now-defunct Montgomery Ward and held its own against upstarts
like Target and Wal-Mart. But consumer shopping habits and preferences
changed. Discounters held sway over department stores, particularly during
the recent recession, and forced the mainstays to struggle with declining
sales while trying to differentiate themselves.
Stalled growth
For Sears, that meant five years of virtually flat sales
with choppy earnings. In 1999, for example, Sears reported revenue of
$41.07 billion and income of $1.45 billion. Last year, Sears' revenue was
$53 million greater. Earnings, however, were 133 percent higher than in
1999, thanks to a $4.24 billion infusion from the fourth-quarter sale of
its credit-card division.
Operating income last year was $3.06 billion, off 18
from 1999. Sears ended 2003 with roughly 870 stores, the same number it
had in 1970.
Fitch, the ratings company, took a notch out of its
credit rating on Sears' debt based on concerns about the company's
operating performance, according to analyst Philip Zahn. The debt stands
at a triple-B, but the outlook has been raised to "stable" from
"negative."
The downgrade isn't a serious setback for Sears because,
while the company is sitting on $5.6 billion in debt, only $1.48 billion
is short-term and it has a cash trove of $3.6 billion, according to the
midyear balance sheet.
Sears announced last month that it is looking to buy as
many as 61 stores, 54 from Kmart and seven from Wal-Mart. The price tag is
about $621 million, with another $200 million needed to convert the stores
to what essentially will be mini-Sears Grands in key urban locations and
suburban off-mall sites.
Deutsche Bank analyst Bill Dreher said Sears may be
pushing forward too quickly with the Sears Grand concept.
"It's not been as carefully tested as we might have
liked," Dreher said. "Fundamentally, it's the same as the core concept.
People give them a hard time for their other off-the-mall concepts, but
people much prefer to go shopping off the mall."
Still, Dreher added: "I like what they're doing."
Exstein concurred, but added, "The challenge for Sears
is execution."
Marshall Field's
Vet Joins
New Talent at Sears
By Lorrie Grant, USA Today
August 23, 2004
Sears plans to announce today that Luis Padilla has
signed on in the newly created post of president of merchandising.
Padilla, a 20-year retail industry veteran who previously headed
merchandising for upscale department store chain Marshall Field's, will
head merchandising and marketing across Sears' broad product and brand
portfolio.
"Sears is a great name in retailing with great brands.
As a broadline retailer, Sears has a solid opportunity to reconnect with
the American consumer in a big way," says Padilla, 50. "I have every
reason to be optimistic about our prospects to grow the business."
He begins work Sept. 15, just in time for the critical
holiday shopping season. Sears has posted a string of soft sales reports
despite its push to overhaul stores and bring in more fashionable
merchandise, including its proprietary Covington line and Lands' End
products.
It wrapped up the second quarter with sharply lower
profit of $53 million, or 24 cents a share, off weak sales in June,
clearance of spring apparel and inventory issues. That also reflected $80
million in charges, including severance costs stemming from restructuring
the home office. The results compared with net income a year ago of $309
million, or $1.04 a share, including results from Credit and Financial
Products and National Tire & Battery businesses divested in the fourth
quarter of 2003.
Padilla is the latest in a string of hirings designed to
turn around the beleaguered company. Most recently:
. Rodney Birkins Jr., 49, was recruited from J.C. Penney
and named to the post of senior vice president of sourcing. He was
president of J.C. Penney's international purchasing and import subsidiary,
. Paul Jones, 42, was brought from Kohl's to become vice
president and general merchandise manager for men's apparel. He was senior
vice president of menswear merchandising at Kohl's.
. Steve Ryman, 50, was named to the post of vice
president and general merchandise manager of home fashions. He held senior
leadership roles at Kmart.
Sears continues to pursue candidates to fill the new
post of president of retail, announced in July.
Before heading merchandising at Marshall Field's, a unit
of Target until its July sale to May Department Stores, Padilla was, from
1994 to 2001, a head merchandiser for Target, helping define its "cheap
chic" image with items designed by Michael Graves and Mossimo.
"His background and experience in bringing great
merchandise to both a department store and discount retail environment, to
both on- and off-mall formats, is ideally suited for this key leadership
position at Sears as we move to grow our business aggressively on all
fronts," Sears CEO Alan Lacy says.
Sears sells $41 billion worth of merchandise a year,
with a range of appliances, apparel and automotive products, including
private brands Kenmore, Craftsman and DieHard.
Sears Taps Another Target Exec
By Mark Scheffler - Crain's
Chicago Business Online
August 23, 2004
Padilla to manage merchandising
operations
Sears Roebuck & Co. on Monday named Luis Padilla, a
22-year veteran from Target Corp., president of merchandising, the latest
move in the Hoffman Estates-based company's attempt to shore up retail
operations and boost sagging sales.
Mr. Padilla, 50, fills a newly created position and the
gap left by former KFC Chief Operating Officer Mark Cosby, 45, who didn't
pass muster with Sears Chairman and CEO Alan Lacy. It's now up to Mr.
Padilla to take on the tough job of integrating merchandising and
marketing across Sears' product offerings and brand portfolio. The
nation's second-largest department store chain has struggled to find a
silver bullet to turn around its 2˝-year string of declining retail sales.
In hiring Mr. Padilla, Sears is banking the Target executive can apply
successful strategies from the Minneapolis-based discounter and help make
Sears broad array of products appealing to shoppers.
"Sears has a severe brand positioning problem and a huge
strategic merchandising problem, particularly in apparel," says retail
analyst Robin Lewis, publisher of Robin Reports, a monthly retail industry
newsletter. "Padilla understands the absolute necessity for retailers to
be dominant brands in their own right - (to be) destination brands," Mr.
Lewis says.
A Sears spokesman says the company was looking for "a
seasoned merchant" who could more closely integrate marketing and
merchandising.
Most recently executive vice-president of merchandising
for Target's Marshall Field's division, which was sold this summer to May
Department Stores Co., Mr. Padilla managed softlines merchandising for
Target from 1994 to 2001.
"As a broadline retailer, Sears has a solid opportunity
to reconnect with the American consumer in a big way," Mr. Padilla said in
a statement.
"His background and experience in bringing great
merchandise to both a department store and discount retail environment, to
both on- and off-mall formats," was key, Mr. Lacy said in a statement
announcing the new hire.
Mr. Padilla was considered one of the driving forces
behind Target's symbolic transformation into the French-sounding "Tar-zhay,"
a hipster store with edgy brands. While at Target, he brought in the
Mossimo and Cherokee clothing brands, two names that helped elevate the
store's profile among younger shoppers.
Though he'll have a hand in deciding both what goes into
stores as well as how the stores will be marketed, the Sears spokesman
says Janine Bousquette, chief marketing officer, remains on board and "her
title and responsibilities haven't changed."
Mr. Padilla is the latest in a string of strategic hires
for Sears. Just last week, the company named former J.C. Penney executive
Rodney M. Birkins Jr. to manage international buying operations. And in
July, in a sign it hasn't given up on its struggling Great Indoors
concept, Sears hired Catherine David-another Target alum-to oversee the
stores' operations.
The fact that Sears is bringing in outsiders
"underscores a weakness of the company," says retail analyst Walter Loeb
of Loeb Associates in New York. "They need people from the Target
organization to buttress their own."
The Sears spokesman says hiring talented
people from retailer rivals is a positive, and shows Sears can attract
experienced managers who can apply their knowledge to Sears' operations.
Sears
Names Target Executive President of Merchandising
Associated Press
August 23, 2004
Sears, Roebuck & Co. on Monday said it plucked Luis
Padilla from rival Target Corp. to become its first president of
merchandising.
Sears said Padilla, 50, last served as executive
vice-president for merchandising in Target's recently sold Marshall
Field's unit.
Before that, Padilla worked from 1994 to 2001 on "softlines"
merchandising at the Minneapolis-based discount retailer.
Sears, based in Hoffman Estates, said Padilla's
experience in department-store and discount environments, and in mall and
non-mall formats, will help growth "on all fronts." Padilla will report to
Chairman and Chief Executive Alan Lacy.
Sears has about 860 department stores and more than
2,100 specialized retail locations nationwide.
Luis Padilla Joins Sears From Target, Field's as President of
Merchandising
Sears News Release
August 23, 2004
Leading Retail Executive to Drive Integration of All
Merchant and Marketing Efforts
HOFFMAN ESTATES, Ill., Aug. 23 /PRNewswire/ -- Sears,
Roebuck and Co. (NYSE:
S) today announced that one of the top merchants in the retail industry,
Luis Padilla, will join Sears as president of merchandising, a newly
created position. In his new role with Sears, Padilla will lead and
integrate all merchandising and marketing across the company's broad
product and brand portfolio. He will report to Alan Lacy, Sears chairman
and chief executive officer.
Padilla, 50, joins Sears from Target Corporation, where
he served in key leadership roles with the company. Most recently, Padilla
was executive vice president, merchandising for Target's Marshall Field's
division. Before that he was senior vice president, softlines
merchandising, for Target Stores from 1994 to 2001.
"In Luis Padilla, we have one of the industry's most
highly regarded retail executives who is credited with outstanding
achievement in combining excellent merchant skills with a passion for
brand leadership," said Lacy. "His background and experience in bringing
great merchandise to both a department store and discount retail
environment, to both on- and off-mall formats, is ideally suited for this
key leadership position at Sears as we move to grow our business
aggressively on all fronts."
"Sears is a great name in retailing with great brands.
As a broadline retailer, Sears has a solid opportunity to reconnect with
the American consumer in a big way," said Padilla. "I have every reason to
be optimistic about our prospects to grow the business."
Kmart: Rich
in Cash and Real Estate but Not in Sales
Constance L. Hays - New
York Times
August 20, 2004
Now that Kmart has posted its third profitable quarter
in a row and announced that it has an extra $2.6 billion in cash to spend,
the eternal question remains: Just what is Kmart's future as a retailer?
With Edward S. Lampert, founder of the investment
company ESL Partners, steering the retailer since he became chairman,
Kmart now looks like a true retail oddity: simultaneously losing ground
with the American shopper and generating cash like a slot machine.
The company reported a 15 percent decline in sales for
the most recent quarter, but the stock price has climbed this year from a
low of $22.41 in January to close at $76.89 yesterday.
Kmart's big investors, behind Mr. Lampert, include
Goldman Sachs and TIAA-CREF, as well as various hedge funds like Atticus
Capital Management. All of them, presumably, have seen some sort of
writing on the wall and liked, or at least agreed with, what they saw.
The chief attraction seems to be Kmart's real estate,
fund managers invested in the company said. With most of its 1,400 stores
leased at an average cost of $2 a square foot, compared with $3 for
Wal-Mart Stores and $20 for Home Depot, according to a recent Deutsche
Bank report, Kmart's portfolio looks like a gold mine to investors
regardless of what happens to the sales inside those stores.
Kmart has already announced plans to sell as many as 54
stores to Sears, Roebuck & Company for $621 million, as well as 13 to 19
others to Home Depot for as much as $288.5 million. (The Home Depot deal
originally involved as many as 24 stores, but the number was reduced this
month.)
"These are proven, established locations, so the
diligence process is a lot quicker for someone buying one of these
leases," said one fund analyst, citing his company's policy. "There's no
zoning hurdle," and other issues like neighborhood opposition that might
slow the opening of a new store have long been settled.
Gary M. Giblen, director of research at C. L. King &
Associates in Manhattan, contends that even drawn and quartered, Kmart may
not be worth as much as its share price suggests. He said he believed that
its stores, many of them in strip malls and urban areas, could bring far
less than the $15.2 million average per store that the Home Depot deal
commanded.
"In most parts of the country, it's cheaper to build,"
he said, "and why would you want to inherit a bad location?"
Another factor that bullish investors say they like is
the merchandising at Kmart. The chain's longtime focus on increasing or at
least stabilizing sales levels in existing stores is being abandoned.
Instead, Kmart managers are being told to trim costs but keep core
customers. One fund manager said he expected the recent decline in sales
to improve by the fourth quarter of this year, in part because Kmart has
brought in new kinds of apparel and made deals, like one with the WB
Network regarding its fall television lineup, to promote its products.
The company is also more demanding of its vendors. One
former Kmart supplier said the company was charging them for deliveries
that arrive more than one day ahead of schedule or one day late. In the
past, this former supplier said, the window was more like five days before
penalties were imposed.
Still, some watching events unfold at what is the
nation's third-largest discounter are convinced that Kmart represents a
bad enterprise posing for the moment as a great stock. "Kmart is not being
run that much as a retailer," said Mr. Giblen, pointing out that the chief
executive, Julian C. Day, was a chief financial officer at Sears, Roebuck
and Safeway. "The C.E.O. is a financial engineering guy, and they are
really running it as a company to be restructured."
Kmart's $2.6 billion in cash also raises a red flag for
Mr. Giblen, who compared the chain to smaller rivals, now extinct, like
Bradlees, Ames and Caldor. He says he thinks one-time benefits - the sale
of prebankruptcy inventory in Kmart's warehouses along with closed stores,
as well as the hardball tactics with suppliers - are behind the cash
buildup and he says he does not believe that Kmart can sustain that.
"Besides, the lower- to middle-income customer is tapped out," he said,
"and Kmart is really the low-end customer."
Mr. Giblen says he thinks that some Kmart investors may
be unaware of how fast a discounter's story can end. "A retailer can look
good on paper, but completely fall apart faster than anybody can imagine,"
he said. "If the sales go down, the expense structure is fixed with rent
and payroll, so the thing can implode very quickly."
He predicted that the $2.6 billion in cash could be used
to buy back Kmart stock, which, at the current levels, would be highly
profitable for investors who got in during Kmart's darkest days.
Kmart would not provide an executive to comment on the
situation, and a spokesman cited "the new company policy" by way of
explanation. Manufacturers who supply goods to Kmart and were left
empty-handed when the company filed for bankruptcy were promised shares as
well. And while some of them have received them, others have not and that
may have helped bolster the share price as well, Mr. Giblen said.
Even fund managers who are holding the stock long term
say the lack of specific direction from Kmart can be baffling. "That's
been the modus operandi there for a while," one said. Whether the cash
built up will become a special dividend for investors is one possibility;
a stock buyback or another kind of investment are other possibilities as
well.
The Lampert era at Kmart has brought its share of
obvious changes. The company has also made some high-profile merchandising
changes, like creating a design office for Lisa Schultz, its chief
creative officer, not in Troy, Mich., where the rest of Kmart is based,
but in Manhattan's trendy Chelsea neighborhood.
"The company deserves a lot of credit because the people
they brought in to do in-house apparel for women and girls are doing a
terrific job," said Burt Flickinger III, a retail consultant. But even so,
"inventory levels are light, and that just offsets the sales declines they
are experiencing on Martha Stewart," he added.
"At the end of every month, you're still not offsetting
the losses that you have."
Ohio Sues Best Buy,
Alleging Used Sales
Associated Press
August 19, 2004
Ohio authorities sued Best Buy Co. Inc. on Thursday,
alleging the electronics retailer engaged in unfair and deceptive business
practices.
Ohio Attorney General Jim Petro said his office has
received hundreds of complaints over several years, the most common
allegations being that the retailer repackaged used goods and sold them as
new and failed to honor rebates, refund and exchange programs, and
extended service contracts.
"The sheer number of complaints coupled with the types
of allegations my office received prompted us to file this lawsuit," Petro
said in a statement.
The complaint, filed in state court, asks a judge to
order Best Buy to comply with Ohio's consumer protection laws, reimburse
customers who lost money and pay a civil penalty of $25,000 for each
violation of the state's Consumer Sales Practices Act.
Richfield, Minn.-based Best Buy declined to comment on
the lawsuit, citing a policy against discussing pending litigation.
"We are aware of the lawsuit filed, and we currently are
investigating the claims," spokesman Jay Musolf said. The company operates
about 750 stores in the United States and Canada.
McDonald's
Fights Try for
Paid Health
Insurance
By Rob Kaiser -
Tribune staff reporter - Chicago Tribune
August 19, 2004
A battle is gearing up in California to determine if
companies will be forced to pay for workers' health insurance.
A law requiring many employers to pay at least 80
percent of workers' premiums will go into effect unless voters strike it
down in November, and Oak Brook-based McDonald's Corp. and many
franchisees are among the companies leading the campaign against it.
While business leaders argue the legislation will weaken
California's already shaky economy, the dramatic rise in insurance
premiums and the increasing number of uninsured in California and across
the U.S. has generated broad support for the measure.
"If they can do this successfully, I think you are going
to see this in other states," said Alina Salganicoff, vice president of
the Kaiser Family Foundation, a health-care think tank in Menlo Park,
Calif.
Such a change would heap significant new costs on
companies like McDonald's, Sears, Roebuck and Co. and smaller firms that
don't currently offer health insurance.
As one of his last acts in office, former California
Gov. Gray Davis signed legislation requiring most companies to pay at
least 80 percent of workers' health insurance premiums or contribute to a
health-care fund run by the state. The law requires companies to also
cover part-time employees who work at least 100 hours a month.
Businesses aggressively fought the bill and have since
put forward the referendum to determine if the legislation will be
enacted.
A recent Field Poll found 48 percent of likely
California voters support the mandatory insurance legislation, while 31
percent oppose it and 21 percent are undecided.
But businesses opposing the legislation have already
raised $6.5 million and have not yet launched their television, radio and
direct mail advertisements.
After the $1.2 million in contributions from the
California Restaurant Association, McDonald's has been the campaign's
largest contributor with $788,000 coming from the company and franchisees,
according to filings in California that were compiled by the group in
favor of the legislation.
McDonald's and its franchisees have made more than 500
contributions, more than half of the total number of contributions made so
far, according to the compiled information.
A McDonald's statement said it is actively opposing the
legislation because it "could limit our ability to re-invest in the
California economy."
Others in opposition to the legislation said people who
currently have private insurance could end up in government-run health
plans.
"You shouldn't have to turn everybody's health care
upside down to address the need of improved access," said Allan Zaremberg,
president of the California Chamber of Commerce, who said his group hopes
to raise between $12 million and $15 million.
Zaremberg expects more people will oppose the
legislation once his group starts making its case that the legislation
would hurt the state's economy.
"When you're the only state in the continental U.S. that
has an employer mandate, you know that puts you at a competitive
disadvantage for jobs," Zaremberg said.
The coalition supporting the legislation includes many
labor unions and consumer-rights groups. It has raised $954,000 and hopes
to raise $12 million.
Earl Lui, senior attorney with Consumers Union, a
non-profit group that publishes Consumer Reports, said business leaders
are resorting to "scare tactics" to try to get voters to knock down the
legislation.
"I don't think the economy is going to crumble if
McDonald's has to offer health-care coverage," Lui said.
Under the legislation, companies with 200 or more
employees would have to pay at least 80 percent of premiums for workers
and their families by January 2006. Firms with 50 to 199 employees would
have to pay at least 80 percent of workers' premiums by January 2007,
while firms with 20 to 49 employees would have to provide coverage to
workers in 2007 if the state legislature approves subsidies to help offset
the cost.
Small and medium-size business owners that don't
currently offer health insurance say they have the most to lose if the
measure is approved.
Clay Paschen, who along with his two sons owns 11
McDonald's franchises near Los Angeles, estimates offering insurance to 30
employees at each restaurant will cost him $150,000 per location, wiping
out much of his profits. "For the average business in California, it's
just really devastating," Paschen said.
Some owners have talked about shrinking their businesses
so they don't have to offer insurance. Others said the legislation could
keep them from expanding and hiring new workers. Still, some businesses
that already offer health insurance are unconcerned about the referendum's
outcome.
Discount chain Costco Wholesale Corp., which has
one-third of its stores in California, currently covers about 92 percent
of employees' premiums.
"It's not going to have any impact on us should it be
passed," said Bob Nelson, Costco's vice president for finance and investor
relations. Still, Costco recently increased the amount workers must
contribute for their health coverage.
Sears Responds to Hurricane Charley With $750,000 in Merchandise, Funding
Donation
PRNewswire
August 18, 2004
HOFFMAN ESTATES, Ill., Aug 18, 2004 /PRNewswire via
COMTEX/ -- Sears, Roebuck and Co. (NYSE: S), through its Sears American
Dream Campaign, is partnering with United Way of Florida and Kids in
Distressed Situations (K.I.D.S.) to assist the
storm-ravaged Florida communities impacted by Hurricane Charley last
weekend. Sears' merchandise and funding contribution will go toward
cleanup and rebuilding efforts for the families, homes and communities
impacted by the disaster.
"After such a devastating storm, the residents of
Florida need all the help they can get to start re-establishing their
homes and cleaning up their communities," said Gary Salvatore, Southeast
Region Vice President for Sears' full-line stores. "We're pleased to lend
our support as rebuilding and recovery efforts begin."
In response to the Governor's request, this $750,000
merchandise and funding contribution -- which will provide direct and
immediate assistance to the affected communities -- consists of the
following:
-- Sears is providing $225,000 in children's apparel,
Lands' End is providing $200,000 in men's and women's apparel and Sears
stores located in Miami, Orlando and Tampa are providing $200,000 to go
toward relief efforts.
-- Sears is providing United Way of Florida with
$100,000 worth of gift cards so impacted families can purchase items
needed to rebuild. Families will be identified by United Way of Florida as
part of their disaster response and recovery efforts, which includes
working with a vast network of community-based human services agencies and
volunteer centers to mobilize resources and minimize human suffering.
-- Sears and its vendor-partners are donating socks,
sleepwear and undergarments for impacted residents along with rakes,
shovels and supplies for relief workers valued at $25,000.
-- Sears associates and retirees are volunteering in the
neighborhoods and assisting in the sorting and distribution of donated
clothing. Sears' disaster relief plan has been activated for associates
impacted by Hurricane Charley. The Sears American Dream Campaign is a $100
million community commitment to strengthen families, homes and
communities. For more information visit the Web site at
http://www.searsamericandream.com.
Sears Names J.C. Penney Executive to Lead Global Apparel Sourcing
PRNewswire
August 18, 2004
HOFFMAN ESTATES, Ill., Aug. 18 /PRNewswire/ -- Sears,
Roebuck and Co. (NYSE:
S) today named former J.C. Penney executive Rodney M. Birkins, Jr. to the
post of senior vice president of sourcing, effective Sept. 1. He will
report to Gwen Manto, Sears executive vice president and general manager,
apparel.
Birkins, 49, will oversee all sourcing, international
buying operations and technical design efforts for Sears.
"Rodney is a proven leader with key industry knowledge
and a reputation for achieving results," Manto said. "His expertise in
global sourcing, international operations and emerging markets will play a
key role at Sears as we take our apparel business to the next level."
Birkins most recently served as president of the
international purchasing and import subsidiary of J.C. Penney Company,
Inc., responsible for the company's sourcing operations including 31
international offices. He brings nearly 30 years of retailing,
merchandising and sourcing experience to Sears from his career at J.C.
Penney. He holds a bachelor's degree in business administration from the
University of South Carolina.
Sears
Cash Flow
Dives 72% After
Credit Sale
By Becky Yerak - Tribune
Staff Reporter -
Chicago Tribune
August 18, 2004
Sears, Roebuck and Co.'s operating cash flow plunged 72
percent to $388 million in the second quarter, reflecting the recent sale
of its credit card business.
The retailer's cash flow also hit an eight-year low for
the 12-month period ending June 30, according to a new report by
Cashflownews.com.
In that period, Sears had negative cash flow of $363
million, compared with positive cash flow of $1.1 billion in the same
period a year earlier, according to the report.
If the trend continues, debt-rating agencies could turn
a more critical eye toward the Hoffman Estates retailer, analysts for the
Web site said.
Cashflownews.com tracks cash flows for about 10,000
companies.
Fitch Ratings recently downgraded Sears debt, but it
remains investment grade.
Sears said the sharp drop is directly related to last
year's sale of its credit card division.
"Last year in the second quarter we still had income
from the credit business," said Sears spokesman Chris Brathwaite.
Sears sold its credit business--as well as its tire and
battery chain--late in 2003. The company still has $3.5 billion in cash.
Meanwhile, a Wall Street analyst who has been critical
of Sears' recent retail performance called the Cashflownews.com report
"misleading."
"Comparing Sears today with Sears for the past seven
years is ridiculous, unless they've managed to adjust for the sale of the
credit card operations," said GimmeCredit research director Carol Levenson.
Credit and retail operations have "vastly different cash flows."
Plus, "looking at cash flow in isolation is less
meaningful than looking at it relative to the massively reduced debt from
selling the credit card business," she said.
Sears is in its first year as a pure retailer, making it
difficult to know what's normal or what spells trouble, she said.
Still, the sharply lower cash flow numbers could be
trouble for Sears, according to Cashflownews.com.
"This indicates the company is not managing its cash as
well as it should be," said the Web site's editor, Michael Markowski.
"When it goes down, the lenders get nervous."
Markowski says Sears has been an inconsistent cash flow
generator, even when it had its credit card business.
Sears' latest problems are partly due to a buildup of
inventory, Markowski said. Inventories rose last quarter to $5.5 billion
from $5.3 billion in January, he said.
Kmart Stock Rises on
Second-Quarter Profit
Associated Press
August 16, 2004
Shares of Kmart Holding Corp. were up more than 14
percent in early afternoon trading, after the discounter reported Monday
it swung into a profit in the second quarter, compared to a year-ago loss.
It marked the retailer's third consecutive quarterly profit since emerging
from bankruptcy in May 2003.
The company earned $155 million, or $1.54 per share, in
the three months ended July 28. That compared with a loss of $5 million,
or 6 cents, in the same quarter last year.
The earnings offered the first "apples-to-apples"
comparison since Kmart emerged from bankruptcy as a restructured company.
Total revenue, however, dropped 15.3 percent to $4.8
billion from $5.6 billion in the year-ago period.
Same-store sales, considered the best indicator of a
retailer's health, continued to decrease, falling 14.9 percent from a year
ago. Same-store sales are sales at stores opened at least a year and take
store closings out of the mix.
The company attributed the sales decline to fewer
promotional events and less newspaper advertising, as well as to
unseasonably cold weather, which affected sales of seasonal merchandise
such as lawn and garden products.
"We are pleased with our continued progress and ability
to deliver consistent profit," chief executive Julian Day said in a
statement. "We have continued to focus on process changes that simplify
the operations of our stores and distribution centers, including improving
merchandise flow and lowering inventory levels which result in lower
shrink expense, lower clearance and promotional markdowns and lower
payroll expenses."
Gross margin increased $9 million to $1.24 billion for
the second quarter from $1.23 billion in the year-ago period. Gross margin
as a percentage of sales increased to 26 percent for the period, up from
21.8 percent a year ago.
Kmart has won the praise of investors for its quick
financial turnaround, and the company's shares have nearly doubled since
March. Shares of Kmart rose $9.15 reaching $74.05 on the Nasdaq Stock
Market.
Kmart releases very little information between quarterly
reports, and any news tends to evoke a big reaction.
Analysts on Monday were particularly impressed with
Kmart's gross margin improvement.
Richard Hastings, retail analyst at New York-based
credit advisory firm Bernard Sands, praised Kmart's focus on improving
margins.
"Gross profit at Kmart shows they are transforming their
merchandise mix around higher margin apparel, footwear, Martha Stewart
Everyday softlines, and other margin-driven items," Hastings said.
Kmart has exclusive rights to the Martha Stewart
Everyday brand of home products, and demand has remained high despite the
domestic guru's conviction for lying about a stock sale.
Last week, Kmart said it was cutting some 200 jobs at
its headquarters as part of ongoing streamlining efforts.
The company also lowered the maximum number of stores it
plans to sell to The Home Depot Inc. from 24 to 19.
The planned real estate sale had been embraced
enthusiastically by Wall Street. Under the revised agreement with
Atlanta-based Home Depot, Kmart will sell no fewer than 13 stores for $173
million in cash and up to 19 stores for $288.5 million. Previously, it
said it would sell up to 24 stores for a maximum of $365 million.
Kmart also has announced plans to sell up to 54 stores
to Sears, Roebuck and Co. for up to $621 million.
Much of the enthusiasm for Kmart stems from its valuable
real estate holdings, but skepticism remains about its viability as a
retailer. The company continues to lose market share to powerhouses
Wal-Mart Stores Inc. and Target Corp.
Kmart is hoping its redesigned clothing lines, launched
this summer in time for the back-to-school season, will help distinguish
it from its competitors.
Elmer
Tynes Brumfield, Retired Sears Executive,
Dies
at 83
Daily
Herald - Suburban Chicago
August 15, 2004
Services for Elmer Tynes Brumfield, 83, will be held at
1 p.m. Monday, at Williams-Kampp Funeral Home, 430 E. Roosevelt Road (one
block east of Naperville Road), Wheaton.
Born Sept. 19, 1920, in Bogalusa, La., he died Friday,
Aug. 13, 2004, in Warrenville, IL Interment will be in Wheaton Cemetery.
Mr. Brumfield was a Navy pilot during World War II and
the Korean War.
He retired as a national merchandise manager with Sears
Roebuck, and was a member of the Executive Service Corps.
He was the former fire and police commissioner and
Little League commissioner in Wheaton. Mr. Brumfield was a member of
Wheaton Kiwanis and a longtime Wheaton Warrenville South High School
athletic booster.
He loved gardening and sports, especially the Cubs,
Bears and all local athletics.
Elmer was the beloved husband of Audrey (nee Broom);
loving father of Melanie Petrilli, David (Christina), William (Jill) and
Elizabeth Brumfield and Becky (Mike) Williams; and dearest grandfather of
11 and great-grandfather of two.
Visitation will be from 10 a.m. until the time of
services Monday, at the funeral home. Memorials may be made to the Indiana
Organ Procurement Organization, 429 Pennsylvania St., Suite 201,
Indianapolis, IN 46204-1816.
Friends may visit www.dailyherald.com/obits to express
condolences and sign the guest book. For funeral information, (630)
668-0016.
New Variation
on Sears Draws Big Box of Opinions
By Becky Yerak - Tribune
staff reporter - Chicago Tribune
August 15, 2004
Despite ongoing troubles at its existing stores, Sears,
Roebuck and Co. is mounting an expansion to better compete against the
world's biggest retailer and other off-mall giants.
Sears said in June it would spend as much as $820
million to buy and renovate up to 61 former Kmart and Wal-Mart stores,
marking its first major move away from the mall and representing its
biggest growth spurt in the four-year tenure of Chief Executive Alan Lacy.
The reaction from Wall Street: "It's about time." But
the deal is hardly risk-free.
The new stores will be smaller versions of the Sears
Grand concept the retailer has tested for less than a year in three
locations. About 15 percent to 20 percent of the shelf space at the
fledgling Sears Grand format is devoted to such items as animal crackers,
greeting cards and CDs--products that Sears has little experience selling.
Also, the stores will boost Sears' retail square footage
by less than 6 percent, and the Hoffman Estates retailer needs to spend
nearly a quarter of its existing capital budget to fix them up.
That's money Sears could have spent on problems
elsewhere, as sales at existing stores have fallen in five of the past six
months.
"Time will tell whether Sears executed a genius move or
a blunder," GimmeCredit analyst Carol Levenson wrote of the Kmart deal.
"Aside from whether a Sears store with a different
physical layout, pantry items and a key-cutting desk can thrive off-mall,
there's the larger question of why Sears wants to go head-to-head against
the kings of the big-box retailers" including Wal-Mart Stores Inc. and
Target Corp., she said. "Especially after Kmart's dismal failure with
these same locations."
Sears would have been wiser to sink $820 million into a
profitable apparel chain, whose products and expertise could be
incorporated into its mall stores, said retail consultant Howard
Davidowitz.
He points to Sears' $1.9 billion purchase of Lands' End,
which he said made sense because it lures shoppers to the mall, where
Sears makes its livelihood.
"Asset allocation is part of management's job. There are
a million things to invest in," Davidowitz said. "It's not a test anymore.
They're making a billion-dollar bet on what's essentially a start-up.
Nothing's more high-risk."
The deal has its pluses.
Sears needs the spark the new stores can offer,
particularly away from malls as shopping patterns shift. And its store
count is stuck at 870 while rivals open hundreds of free-standing stores
annually.
The new stores will be in big metro areas and help Sears
protect its No. 1 share in the appliance market.
Sears seems to have a "What? Me worry?" attitude about
the Kmart deal. For one thing, 80 percent to 85 percent of the selling
floor in the new stores will be devoted to products Sears already sells at
the mall.
Sears will "carry the same core product offerings we've
sold for more than 100 years," spokesman Ted McDougal said. Pricing,
service, marketing and supply-chain logistics are similar to mall stores.
The layout of the new stores will be on one level, similar to the design
of Sears Grand stores, with cashiers near the door.
The new stores, McDougal stressed, won't live and die by
the 15 percent devoted to the so-called "consumables" in the off-mall
stores. "It's a convenience to customers, not a driver of store
performance," he said.
Sears opened its first Sears Grand last fall in Utah.
Another followed in Gurnee in March. A third pilot opened last month in
Las Vegas.
Sales are exceeding expectations by 30 percent. As for
profits, Sears has said only that margins are "still not what we'd like."
"The expense structure is still not right," Lacy said in
February. "The store operates very differently than a full-line store, so
we're still learning."
Sears expects, however, that the cost structure should
improve as it opens more Sears Grand stores and is able to enjoy economies
of scale from the format's suppliers.
While clothing sales at Sears' mall stores are falling,
that department is among the stronger performers at Sears Grand. That's
significant because apparel carries relatively high margins and can
compensate for sales of lower-margin products such as snacks.
Different traffic off-mall
But Sears' lack of off-mall experience could hinder the
stores' success, Davidowitz said.
"In the mall, you have natural traffic, and you get it
because you have the anchor stores and the malls themselves advertising
their brains out," he said. "Off the mall, it's more difficult to get the
footsteps" that create the need to carry more frequently bought items like
snacks.
Sears already has thinner margins than such off-mall
rivals as Best Buy and Home Depot, according to a report from J.P. Morgan.
Reviews of the Kmart deal have been mostly positive.
Moody's Investors Service called it a "sensible
strategy, with less risk" than building from scratch. Merrill Lynch had
similar praise.
Added Deutsche Bank analyst Bill Dreher: "We're very
pleased with the deal. The format is essentially the same as a traditional
Sears store."
Sears will spend an average of $3 million apiece on the
new stores. The money will be go toward new facades, signage, flooring,
lighting, paint, fixtures and wiring.
Concern for existing stores
Yet Philip Zahn, an analyst at Fitch Ratings, expressed
concern that diverting $200 million in remodeling dollars to the new
stores could mean that Sears' existing stores won't be freshened up as
often, making them less competitive in the long run.
Sears disclosed in July that it will permanently trim
capital spending--the money used to improve operations.
In February, Lacy said Sears would overhaul 116 of 870
full-line stores in 2004. Children's, electronics and home fashions
departments would be made more "shoppable" through revised layouts and new
fixtures, lighting, carpeting and paint.
All told, Sears would spend "a little more than $900
million" in 2004 on remodeling, new stores and technology.
In 2003, Sears spent $793 million to spruce up its
stores. As a percent of sales, Sears ranked fifth among 14 retailers on
capital expenditures, according to a Credit Suisse First Boston survey.
To cover the new stores' $200 million worth of
renovations, fewer existing Sears stores will be remodeled. However, "a
lot of our repositioning is largely done, so we do free up a lot of
resources," Chief Financial Officer Glenn Richter said recently.
Of the new stores, Sears expects to take possession of
four this year, up to 55 in 2005 and the remaining two in 2006. Sears is
buying 54 stores from Kmart and leasing seven from Wal-Mart.
They're about half the size of the biggest Sears Grand
store. While the new stores will be patterned after Sears Grand, they'll
simply be called Sears.
Home Depot drops number
Kmart Holding Corp. disclosed that a deal to sell up to
24 stores to Home Depot Inc. was scaled back to between 13 and 19 stores.
Neither company said why, but Kmart stores are regarded as some of
retailing's most shopworn.
"Due diligence by Home Depot probably discovered that
fixing up the buildings would be relatively expensive," said Richard
Hastings, an analyst with Bernard Sands.
Sears said its Kmart stores are in "reasonable" shape.
The deal with Kmart, McDougal said, remains unaltered.
Sears
Names Paul Jones from Kohl's
to Lead
Men's Apparel
PRNewswire
August 13, 2004
HOFFMAN ESTATES, Ill., Aug. 13 /PRNewswire/ -- Sears,
Roebuck and Co. (NYSE:
S) announced today that Paul Jones, 42, senior vice president of menswear
merchandising for Kohl's Department Stores, will join Sears on Monday as
vice president and general merchandise manager for men's apparel.
"I am very excited that Sears has been able to attract
another deeply experienced and talented merchant with a track record of
sales and margin success," said Gwen Manto, executive vice president and
general manager of apparel.
Jones built the men's business during seven years at
Kohl's after serving at Foley's, a subsidiary of May's Department Stores,
where he was vice president and division merchandise manager for men's
sportswear and designer collections. Earlier, at Meier & Frank, another
May's unit, Jones held several men's merchandise buyer and management
positions.
Toys 'R' Us Says It
May Leave the Toy Business
By Constance L. Hays - New York
Times
August 12, 2004
Battered by intense competition from discounters like
Wal-Mart Stores, Toys "R" Us announced yesterday that it might bow out of
the toy business altogether.
The $11 billion company, which rose to become the
nation's largest toy retailer by developing a once-successful formula that
pushed its rivals out of business, said in a statement that it was
determined to split its toy business and its faster-growing baby supplies
division, Babies "R" Us, into two companies. It also said it planned "to
explore the possible sale of the global toy business."
Abandoning the world of Barbie and Lego would be a
startling denouement for a company that rose to supremacy during the
1990's. Behind the bobbing head of its corporate mascot, Geoffrey the
Giraffe, it surpassed rivals like F. A. O. Schwarz, which filed for
bankruptcy late last year.
But the troubles at Toys "R" Us show how Wal-Mart and
other large discounters, once seen solely as a threat to mom-and-pop
stores on Main Street, are now squeezing previously strong national
chains. Bookstores, music retailers, electronics chains and supermarkets
have all struggled to compete with Wal-Mart's low prices and its enormous
power over its suppliers.
During last year's December holiday season, Wal-Mart,
Target and other discounters captured a large share of the $27 billion
United States toy business by expanding their selections and slashing
prices. Wal-Mart now has about 20 percent of the market, said Chris Byrne,
a toy consultant based in Manhattan, and Target has about 18 percent,
while Toys "R" Us has dipped to 17.
Ten years ago, Toys "R" Us held 20 percent, followed by
Kmart, Sears and Ames, Mr. Byrne said. Wal-Mart and Target were
insignificant players.
"It's the ultimate corporate capitulation,'' Burt
Flickinger III, a retail consultant, said of the Toys "R" Us announcement.
"They killed off all their competition, like Child World and Kiddie City,
and declared victory worldwide. But they never saw Wal-Mart catching up."
Company executives would not comment further on the
statement, which came just a week before Toys "R" Us was scheduled to
discuss second-quarter earnings in a conference call. The discussion has
been postponed until Aug. 23.
Sean P. McGowan, managing director of the Harris Nesbitt
Corporation, an investment bank, said the announcement created further
confusion with too few details about the company's future. "If Toys 'R' Us
gets sold and Babies 'R' Us is spun off, what's left of the company?" he
said.
Toys "R" Us, which lured its chief executive, John H.
Eyler Jr., away from F. A. O. Schwarz four years ago, has made several
attempts to redefine itself since then, as sales began to flag. In 2001,
it opened a flagship store in Times Square that, with its indoor Ferris
wheel and roaring bipedal dinosaur, has become the tourist attraction that
F. A. O. Schwarz once was. Sales were at least $50 million, according to a
person who has seen the figures.
As recently as early 2002, the company was busily
redesigning its 683 United States stores, at a cost of $600,000 apiece,
after closing unprofitable locations and changing its assortment to try to
stand out from warehouse-style retailers. Meanwhile, competitors faltered,
like FAO Inc., the parent of F. A. O. Schwarz, as well as Kaybee Toys,
which has run into problems of its own.
While the company has acknowledged difficulties at Kids
"R" Us stores, it has consistently indicated that its domestic toy
business, which accounts for the bulk of sales, held more promise.
The poor results from last year's holiday season, during
which Toys "R" Us was squeezed on profits, prompted clamor from Wall
Street that led to an internal review of the company's various segments,
analysts said.
While it has always encountered some competition from
Wal-Mart and Target, last year the two giant discounters began carrying
more toys than ever, with wider variety and lower prices in many cases
that brought shoppers running. Store specials advertised as early as
September helped the discounters draw business away from Toys "R" Us even
before the crucial holiday shopping season began.
Earnings for Toys "R" Us last year fell to $119 million
compared with $275 million in 2002, although part of that decline was from
a charge related to an accounting issue involving a supplier. In 2003, the
company also closed 146 stores in its Kids "R" Us children's clothing
chain and 36 Imaginarium stores, resulting in charges against earnings as
well. Its share price has settled between $10 and $16, compared with more
than $40 at its peak.
In his letter to shareholders published in the most
recent annual report, Mr. Eyler said falling prices on products like video
games had produced results in the United States that were "well below our
objective."
But, looking ahead, he added, "We are hopeful that we
can continue to improve our market share in a season of renewed growth for
the toy industry."
Some analysts said that yesterday's announcement fell
short of reassuring investors, since it did not include store closings and
other moves to further reduce costs. The company said that since most of
its sales were concentrated at the end of the year, "it would not be
appropriate to make a decision to close any of our stores between now and
the conclusion of the 2004 holiday season."
Bill Sims, a senior retail analyst at Citigroup Smith
Barney, said the company was left with few options, which led to what he
called an "ambiguous" announcement.
"They didn't want to make an announcement until after
the holidays, from a competitive standpoint and an employee morale
standpoint,'' he said. "You don't want your managers to flee the stores.
They are leaving things purposely vague so they don't have to deal with
all of these other things."
One analyst said the announcement represented clear
thinking on the part of the company's directors, considering the
challenges of a vastly altered marketplace.
"It is a smart move that reflects the reality that, at
the time Toys announced its intention to look at this, the value of the
stock was worth less than the sum of its operating parts," said Matthew J.
Fassler, an industry analyst for Goldman Sachs.
If the company ends up strictly in the baby supplies
business, it would specialize in a fast-growing niche that has until now
eluded major competition from discounters. Babies "R" Us had about $2
billion in sales last year, which accounted for about 15 percent of the
company's total sales but generated more than half its profits, Mr.
Fassler said.
In its announcement, the company seemed to be wooing
financial buyers as well as other retailers, saying it would trim its
headquarters work force and reduce its operating expenses over all by at
least $125 million by next year, compared with 2003. It is also slashing
capital spending, to a figure below $150 million, and will take $150
million in markdowns of existing inventory to streamline stores and its
supply chain, as well as "to accelerate inventory turnover and generate
additional cash."
Mr. Eyler will continue to run Toys "R" Us, while Babies
"R" Us will be led by Richard Markee, the vice chairman of Toys "R" Us.
As for the continued health of Babies "R" Us, Mr.
Flickinger said he was in a new Wal-Mart in Gulf Shores, Ala., this week
where a special baby department had been set up selling everything from
infant formula to baby clothes. "Moms were pouring in," he said. "It is in
all likelihood going to be the death of Babies 'R' Us at a very early
age."
Sears Details Savings from
Job Cuts
But Analyst says Boosting Sales is Real Key
By Rita Chang - Chicago
Business.com
August 11, 2004
Sears, Roebuck and Co.'s plans to slash thousands of
jobs and revamp its information technology operations will produce annual
savings of $55 million to $65 million, the company said in a public
filing. The Hoffman Estates-based retailer won't realize those savings in
full this year, however, because it took a $41-million pretax charge in
the second quarter related to severance costs.
In quarterly financial statements filed with the U.S.
Securities and Exchange Commission (SEC) Wednesday, Sears said after
selling its $3.4-billion credit business to CitiGroup last year, it has
found "opportunities to create a more streamlined, focused retail company
with fewer jobs that are wider in scope and responsibility."
In July, Sears announced plans to trim 3,000 jobs from
its stores nationwide and about 340 positions from its headquarters, of
which 165 were unfilled positions that have since been eliminated.
The retailer also entered into a 10-year agreement with
California-based Computer Sciences Corp., an IT outsourcing firm, to help
re-engineer and increase the efficiency of its technology operations.
Sears has been mired in a steady downturn, with
two-and-a-half years of declining retail sales. Last quarter, its profits
plunged 83% and its July domestic same store sales-a key measure of a
retailer's health-dropped nearly 3%.
At least one analyst says the savings reported to the
SEC aren't enough to lift the retailer out of its slump.
"You don't turn around a company by cost savings," says
Neil Stern of Chicago-based retail consultant McMillan Doolittle LLP.
"Sears has to drive its top line and bring in more customers . . . with
more compelling merchandise, more compelling marketing. That's the issue."
A Sears spokesman says the downsizing is a "significant part" of its
turnaround, as is getting the "internal structure of company to reflect a
primarily retail operation rather than a conglomerate."
Sears shares were trading at $35.46 Wednesday afternoon,
down 51 cents and well off a 52-week high of $56.06 reached Dec. 1, 2003.
Toys "R" Us May Leave the
Toy Business
Associated Press
August 11, 2004
Toys "R" Us Inc., battered by price wars from
discounters, particularly Wal-Mart, is considering getting out of the toy
business.
The nation's second-largest toy retailer behind Wal-Mart
Stores Inc. announced plans Wednesday to restructure its toy business, but
said it is considering selling the business outright as part of an effort
to dramatically reduce operating and capital expenses.
The $11.6 billion company is also pursuing a possible
spinoff of its fast-growing Babies "R" Us, whose 200 stores sell
furniture, including cribs and bedding, as well as accessories. The
company will begin operating the toy and baby business as separate
entities in the meantime.
The Babies "R" Us division has been the company's growth
vehicle, and has not been as vulnerable to discounters, Standard & Poor's
credit analyst Diane Shand said in an S&P statement affirming its ratings
on Toys "R" Us remained on CreditWatch with negative implications.
The company's U.S. toy division, however, has been
inconsistent since the mid-1990s, when Wal-Mart ramped up its toy
department as it also dramatically expanded the number of stores.
"Traditional toys have decreased in importance, as
children are turning to video games, computer software, sporting goods,
and music for entertainment at younger ages," Shand said.
Babies "R" Us, which represents 15 percent of the
company's total revenues, posted sales of $1.76 billion, up nearly 11
percent, for the year ended Jan. 31. Meanwhile, the Toys "R" Us' U.S.
revenues fell 4 percent to $6.48 billion. Toys "R" Us has 683 toy stores
in the United States and 579 international toy stores. It also sells
through its Internet sites.
The announcement "is extremely positive for investors,
as one of the critical pieces to unlocking shareholder value in (Toys "R"
Us) is separating its crown jewel, Babies "R" Us," said Mark Rowen, an
analyst at Prudential Equity Group Inc.
Still, shares fell 27 cents to close at $16.15 on the
New York Stock Exchange.
John Eyler, chairman and chief executive officer, said
the global toy and Babies "R" Us businesses are at "fundamentally
different phases in their growth cycle," and separation would give the
baby business more opportunity to continue its healthy growth.
Company officials declined to elaborate on their plans.
Richard Hastings, an analyst with Bernard Sands, was
critical of the plan and said the Toys "R" Us announcement "is not as
transparent as we would prefer."
The big question is who would buy the toy business,
given that the industry has been reduced to cutthroat price wars?
Hastings said a buyer, should one emerge, would be more
likely to be a private equity investment than a public company, as
happened with rival FAO Schwarz. He could not estimate a price.
"They seem to be throwing this up in the air to see
where it lands," Hastings said. "This sounds like the aftermath of some
very, very weak results."
Toys "R" Us said Wednesday it would delay releasing its
second quarter 2004 earnings until Aug. 23. The figures were to be
released Monday. In the first quarter, the company's profit declined 48
percent in its fourth fiscal quarter, which ended Jan. 31 and covered a
disappointing holiday sales season. Disappointing results continued into
the first quarter, with the retailer posting a wider-than-expected loss
and lower sales.
Poor holiday 2003 results helped lead to the
bankruptcies of FAO Schwarz and K-B Toys.
Toys "R" Us has been retrenching for much of the last
year to improve its bottom line. In November, it said it would close 146
freestanding Kids "R" Us clothing chain and 36 Imaginarium specialty toy
stores, which sold educational toys, cutting up to 3,800 U.S. jobs.
Regarding the latest plan, Eyler said, "whatever form
the separation takes, these steps should facilitate the execution of a
restructured - and substantially leaner and more focused - global toy
business that we believe can generate significant cash."
Toys "R" Us said it planned to "substantially
restructure" the company's Wayne headquarters, reducing operating expenses
in the headquarters and U.S. toy business by more than $125 million by
fiscal 2005 as compared to fiscal 2003.
Spokeswoman Susan McLaughlin declined to say if layoffs
are contemplated. The company said it has recorded severance and other
related charges of approximately $14 million which will be reflected in
the second quarter results, and additional charges will occur in
subsequent quarters.
The company had 65,000 employees at the end of January.
Toys "R" Us has hired Credit Suisse First Boston to
advise it on any sale. The possible retreat comes after Toys "R" Us has
spent millions to renovate its stores and sought exclusive rights to
certain toys to differentiate itself from the discounters, whom it
couldn't beat on price.
"How do you make a profit in a business where margins
are so squeezed?" said New York-based independent toy consultant Chris
Byrne. "Wal-Mart really has functioned as a category killer in this."
"Ironically, this is what Toys "R" Us was doing in the
'60s and '70s, as they were trumping all the regional toy chains," Byrne
said, citing Lionel Leisure and Kiddie City.
Byrne said buyers for the global toy business would be
scarce, considering the company's real estate liability and debt.
Toys "R" Us said it was focusing on preparing its toy
stores for the upcoming holiday season and did not expect to make a
decision before then on any store closings.
"Customers should know that we will operate our toy
business with renewed energy," Eyler said in the release.
Jim Silver, publisher of the Toy Book, a New York-based
industry magazine, said Toys "R" Us said the restructuring could help the
company's finances.
"They're looking to make things more profitable. I think
that's why you're seeing that there are management changes, they are going
to get to leaner and meaner," Silver said, speaking from Orlando, Fla.
With store closing expected, he said the company "can be successful as a
500- or 600-store chain."
Eyler will continue in his role as chairman and CEO.
Richard Markee, vice chairman of Toys "R" Us Inc., was named president of
Babies "R" Us and will become its CEO and president once the companies
separate. Toys "R" Us treasurer Jon Kimmins will become chief financial
officer of Babies "R" Us, and John Barbour, currently president of Toys
"R" Us International, will become president of U.S. toy stores, the
company said.
Can Alan Lacy Save Sears?
(Or His Job?)
By Patricia Sellers
- Fortune
August 23, 2004
Alan Lacy has a powerful backer in Eddie Lampert, the
billionaire Sears investor.
Time is running short for Alan Lacy. As Sears'
performance has drifted from lackluster to lousy, it looks as though he
may be another casualty of the toughest turnaround challenge in retailing.
Sears' profits plunged 83% in the second quarter. Same-store sales, which
have declined for three consecutive years, increased early this year but
have dropped the past four months. Meanwhile Lacy pushed out Mark Cosby,
the chief of Sears' full-line stores, in July. And the rumor mill is
churning about other top-tier changes. What about Sears' stock? Down 22%
this year, it's one of the worst performers in retail. Many investors are
wondering: Why is Lacy still in his job? A diligent, mild-mannered finance
man, Lacy, 50, ably performed the first duty the board assigned him when
it named him CEO in the fall of 2000: He lowered expenses and Sears' $28.5
billion debt by slashing 65,000 jobs (24% of the workforce) and selling
the company's credit card business to Citigroup last year. Now that Sears
is a pure retail company, says Lacy, "it's an execution game." But his
cost-cutting strategy, which includes reducing cashiers and inventory, has
made growth all the more difficult. One of Sears' "self-inflicted
problems"-as Lacy calls many of its woes-is that it doesn't have enough
apparel in its stores this year. "We overreacted to last year's inventory
excesses," he admits.
While Lacy stumbles, the board shows mercy. He has a
powerful advocate in director Michael Miles, his boss in the 1980s and
'90s when Miles headed Kraft and then Philip Morris, and Lacy was his
fast-rising financial strategist. Another lifeline for Lacy happens to be
a stock-price chart, presented at every Sears board meeting,
showing-amazingly-that Sears has outperformed the S&P since 2000 (by 42%,
in fact, since he became CEO) and even done better than Wal-Mart, Home
Depot, and Kohl's. "With dividends reinvested, if you'll allow me that,"
Lacy says.
Famously polite and deferential when he needs to be,
Lacy also has a backer in Eddie Lampert, the billionaire investor who
controls 14.6% of Sears. Lampert, whose ESL Investments owns 52.6% of
Kmart (which he chairs), scored in June when Kmart announced it would sell
54 stores to Sears for as much as $621 million. Kmart stock spurted 5%
that day. Some contend that Lacy overpaid for the stores, endearing
himself to Lampert. "We clearly paid a premium price for these stores,"
says Lacy. "But they're worth a lot more to us than they are to Kmart."
This deal-plus seven stores that Sears is buying from Wal-Mart-is the
foundation of Lacy's expansion plan. Next year he expects to open 70 new
off-the-mall Sears stores. It is the company's biggest square-footage
increase ever and a serious attempt to catch up with the discounters
(Wal-Mart, Target, Home Depot) that have leveraged their efficiencies,
convenience, and low prices to steal Sears' mall shoppers. "We're trying
to make up for the last 20 years of change in the retail industry," Lacy
says. "Time is not our friend."
Indeed, Lacy has plenty to prove-and fast. He's looking
outside for a new president of U.S. retail. Bear Stearns analyst Christine
Augustine (who rates Sears stock "underperform") believes that it will
take at least three to six months to fill the position and another year
for the new exec to make meaningful contributions. "I think that's fair,"
says Lacy, who is overseeing retail operations himself in the interim.
Some retail experts contend that unless Lacy steps aside, Sears won't
attract the top merchant it needs. Rumored candidates include J.C.
Penney's Vanessa Castagna (unlikely, since she's the lead candidate to
replace CEO Allen Questrom next year) and Sears
Canada CEO Mark Cohen (also unlikely, since that publicly traded entity,
54.3% owned by Sears, is struggling through its own turnaround). "The
rumor mill these days is bizarre," says Lacy, shaking off all threats.
"For better or for worse, I come to the office every day and give it my
best shot," he says. Asked about the possibility that he'll be out of a
job next year, he replies, "We have to perform."
Kmart to Cut 200 Jobs at
Headquarters
Associated Press
August 10, 2004
Kmart Holding Corp. said Tuesday it was cutting some 200
jobs at its headquarters as part of ongoing streamlining efforts.
The Troy-based company also lowered the maximum number
of stores it plans to sell to The Home Depot Inc. from 24 to 19.
The planned real estate sale had been greeted
enthusiastically by Wall Street, and Tuesday's news sent Kmart's stock
downward. Shares fell $3.21, or nearly 5 percent, to close at $64.40 in
trading on the Nasdaq Stock Market.
Under the revised agreement with Atlanta-based Home
Depot, Kmart will sell no fewer than 13 stores for $173 million in cash
and up to 19 stores for $288.5 million. Previously, Kmart said it would
sell up to 24 stores for a maximum of $365 million.
Sales of four stores already have been completed for $59
million. Payment for an additional nine stores is to be received in escrow
within the next five days, with the money to be released to Kmart upon the
transfer of property, the company said. Store-closing sales will be held
at the sold locations.
Kmart spokesman Stephen Pagnani declined to identify the
stores that have been sold or provide any further comment. Home Depot
spokesman Jerry Shields also would not comment on the locations, saying
Kmart had to first inform the stores' employees.
In a separate statement, Kmart said it was reducing
staff at its headquarters by about 10 percent. Kmart's Web site says a
total of 2,400 people work at its headquarters. A spokesman said in
February that the number was 2,200 people.
"While today's decision was extremely difficult, these
changes better align corporate headquarters support with the improved
field organization," Kmart said.
Kmart emerged from bankruptcy in May 2003 with about
1,500 stores - 600 fewer than before, and has continued to pare down its
work force this year. The company has a total of 144,000 employees,
according to the Web site - down from 158,000 at the end of January.
Kmart has greatly improved its financial picture since
emerging from bankruptcy, but it has struggled to maintain sales in the
face of heavy competition from Wal-Mart Stores Inc. and Target Corp.
The company is taking advantage of demand for its
valuable real estate. In June, the company announced plans to sell up to
54 of its stores to Sears, Roebuck and Co. for up to $621 million.
Gary Ruffing, a retail consultant at BBK Ltd. and a
former Kmart executive, said the job cuts could be a sign the company is
preparing to sell another piece of real estate - its headquarters - and
move elsewhere in Michigan or to another state. The city of Troy, about 20
miles north of Detroit, is home to several major companies and a trendy
mall.
Kmart's headquarters "is probably one of their
highest-valued possessions as far as real estate is concerned," Ruffing
said.
Dillard's to
Sell Card Unit to GE for $1.25 Billion
Bloomberg
August 8, 2004
Dillard's Inc., which operates 329 department stores in
the U.S., agreed to sell its in-store credit- card business to General
Electric Co. for $1.25 billion to pay down debt, buy back shares and boost
profit. General Electric's consumer-finance unit, the world's largest
issuer of in-store cards with clients including Wal-Mart Stores Inc., is
adding the sixth-largest U.S. issuer, GE said in a statement.
Substantially all of the Dillard's unit's 500 employees will transfer to
GE.
Dillard's, based in Little Rock, Arkansas, follows
retailers including Sears, Roebuck & Co. that have been getting out of the
credit-card business. General Electric will provide marketing and service
for Dillard's 5.5 million active cardholders under a 10-year agreement
that will let Dillard's share in some income.
The retailer said it expects that income to be
comparable to the unit's current earnings, and predicted the sale will add
to earnings starting in fiscal 2005. The companies expect to complete the
acquisition before year-end.
General Electric Chief Executive Jeff Immelt has been
expanding the company's consumer finance unit, which also includes
mortgages and personal loans, through acquisitions and new products. The
unit was the parent's third-fastest growing by sales in the second
quarter.
General Electric will assume Dillard's credit-card loans
plus $400 million in securitized liabilities. Dillard's said the $1.25
billion also includes an undisclosed premium.
Sears Sees Weaker Quarter
ChicagoBusiness.com
August 5, 2004
(Reuters) - Sears, Roebuck and Co. on Thursday said July
sales at stores open at least a year fell 2.6 percent, hurt by weakness in
key segments like apparel, appliances and Sears Auto Centers.
In a prerecorded sales review for the month, Sears
forecast domestic same-store sales for the third quarter to be down by a
low single-digit percentage.
The largest U.S. department store chain said total sales
in the four weeks ended July 31 were $1.84 billion, down 4 percent from a
year earlier.
The only segments to report some growth in sales this
July - albeit in the low-single digit percentage range - were consumer
electronics; lawn, garden and fitness equipment; home fashions and
household goods, the company said in the prerecorded message.
July Sales Disappoint Some Retailers
Sears Off 2.6 Percent in Same-Store Sales
Associated Press
August 5, 2004
Consumers' frugal spending extended into a second month
during July, giving many retailers lackluster sales gains, particularly at
apparel chains including Gap Inc. and mid-priced department stores.
Analysts attributed the disappointing sales to a variety
of factors, including the end of the mortgage refinancing boom and the
continuing impact of higher gasoline prices and grocery bills, which have
hurt middle-income shoppers. They said retailers should expect more of
this modest sales trend going forward.
John Morris, senior retail analyst at Harris Nesbitt,
said Wall Street was expecting a moderate recovery in July after June's
sluggish sales.
"It throws some water on the view that June was just a
hiccup, and bump in the road," Morris said. "You now have two months in a
row of lackluster sales. I think we are at a critical period for
forecasting the health of retailers."
Morris said consumers are more hesitant to spend while
they feel uncertain about the presidential election and the economy.
Other analysts said cooler-than-usual weather in the
beginning of July also hurt sales.
The preliminary International Council of Shopping
Centers-UBS sales tally of 70 retailers was up 3.3 percent, in line with
forecasts. The tally is based on what the industry calls same-store sales,
or sales at store opened at least a year. Those sales are considered the
best indicator of a retailer's performance.
While results were a bit better than the 3 percent gain
recorded in June, they're still well below the average 6 percent increase
recorded from January through May.
July is one of the least important months of the
retailing year and is used by stores to clear out summer goods, but it
nonetheless reflects consumer trends. Wall Street will be closely watching
the critical back-to-school business in August and September, but Morris
expects sales to be up only in the low mid-single digits for the remainder
of the year.
Many believe that how much consumers spend hinges on the
health of the labor market.
In an encouraging sign, the Labor Department reported
Thursday that the number of new people signing up for unemployment
benefits dropped last week. New applications for jobless benefits fell by
a seasonally adjusted 11,000 to 336,000 for the week ending July 31. It
was slightly better than what some analysts forecast.
Given consumers' return to frugality, it wasn't
surprising that discounters outperformed other retailers. Higher interest
rates have slowed mortgage refinancings, which means many consumers have
less free cash to spend on non-essentials. And while gas prices have
dipped somewhat, they are still quite high and taking a big chunk out of
household budgets.
Wal-Mart said it had a 3.2 percent gain in same-store
sales in July, in line with the 3.1 percent forecast of Wall Street
analysts surveyed by Thomson First Call. Total sales rose 10.9 percent.
At Target Corp., same-store sales were up 3.8 percent,
better than the 2.8 percent gain that Wall Street projected. Total sales
were up 8.8 percent.
For many mall-based apparel stores, the month was
challenging. Part of their problem came from a lack of inventory - there
weren't enough summer clearance goods to bring people into the stores for
bargains.
Gap had a 5 percent decline in same-store sales, much
worse than the 0.8 percent Wall Street forecast. Total sales fell 3
percent.
"Although sales of summer product at Gap, Banana
Republic and Old Navy were strong in May, June's soft traffic trends
continued into July, making summer clearance results disappointing
overall," said Sabrina Simmons, senior vice president, treasury and
investor relations in a statement.
Talbots Inc. had an 8.8 percent decline in same-store
sales, worse than the 0.3 percent forecast. Total sales were down 3
percent.
"Our July comparable store sales results were weaker
than expected, due entirely to significantly softer than anticipated
markdown selling midway into our semi-annual sale," said Arnold B. Zetcher,
chairman, president and chief executive officer, said in a statement.
High-end stores like Neiman Marcus Group and Saks Inc.
continued to please Wall Street.
Neiman Marcus reported a 16.6 percent gain in both
same-store sales and total sales. Wall Street anticipated an 8.8 percent
gain in same-store results.
Saks Inc., which operates Saks Fifth Avenue as well as
moderate price stores like Carson Pirie Scott, reported a 5.5 percent gain
in same-store sales, above the 5 percent Wall Street anticipated. Total
sales rose 7.3 percent.
Among more traditional department stores, J.C. Penney
Co. Inc. recorded an 8.1 percent gain in department stores, well past Wall
Street's 3.2 percent estimate. Total sales were up 6.8 percent.
But Kohl's Corp. recorded a 4.2 percent decline in
same-store sales, worse than the 3.9 percent forecast. Total sales rose 10
percent.
Federated Department Stores Inc. posted a 3.7 percent
increase in same-store sales, below Wall Street's forecast of 5.4 percent.
Total sales rose 3.6 percent.
May Department Stores Co. had a 5.5 percent decline in
same-store sales, below the 2.4 percent analysts anticipated. Total sales
were down 5.3 percent.
Sears, Roebuck and Co., had another disappointing month.
It recorded a 2.6 percent drop in same-store sales, below the 1.9 percent
decline Wall Street expected. Total sales were down 4 percent.
Apparel Missteps Take
Toll at Sears
Retail Giant Admits
Problems are Becoming
a Pattern
By Becky Yerak
- Tribune staff reporter - Chicago Tribune
August 4, 2004
When Sears, Roebuck and Co. bought Lands' End in 2002,
the retailer explained that the preppy clothing line had a strong
following across several key categories.
Two years later, Sears is scaling back the brand for
children, recognizing that parents are reluctant to spend $24 on a pair of
Lands' End shorts when the private-label Covington brand is on sale for $8
nearby.
Selling clothing, it turns out, still isn't child's play
for the Hoffman Estates retailer.
The nation's biggest department store chain suffered
disappointing earnings in the second quarter due largely to weak apparel
sales. The results even prompted one Wall Street analyst, during a July
conference call with Sears' executives, to ask if the retailer should stop
selling clothing altogether.
Sears acknowledges that its missteps--including
shortages of spring clothing in both classic and trendier lines--are
getting to be a pattern.
"This has been a hard slog," Sears Chief Executive Alan
Lacy replied to analyst Michael Exstein.
Others take a more jaundiced view: "The company seems
fated to make the wrong bet on apparel time and time again," said Carol
Levenson, research director for Gimme Credit Publications Inc.
"We fear that after a quarter in which management blamed
weak apparel sales on the lack of fashionable merchandise in its stores,
the company will load up on ponchos and bright colors just when these fads
are fading," she said.
The clothing difficulties come at an inopportune time
for Sears.
September marks the one-year anniversary of Lands' End
being carried in all 870 Sears stores.
Sears also will start selling a full assortment of
clothing over its Sears.com Web site starting next month. Currently, the
only clothes offered online are school uniforms or pieces linked to
specialty catalogs.
"We're excited about it," said Gwen Manto, Sears'
apparel general manager. Even with the limited attire on Sears' Web site,
"clothing" gets the third-highest number of clicks--after "search" and
"appliances."
But Internet apparel selling has been tough for even the
mightiest merchant. Wal-Mart Stores Inc. recently announced it would take
another stab at online clothing after an earlier effort failed.
And Wal-Mart sells more clothing than anyone else.
Relatively few shoppers, in contrast, spend most of
their clothing budget at Sears, according to Retail Forward. In a survey
of shoppers from November through June, only 2 percent of respondents
identified Sears as the place they spent the most money on apparel, the
researcher found. Named most often, at 21 percent, was Wal-Mart.
"I'm a great believer in a company sticking to what it
does well," Gimme Credit's Levenson said. "Sears hasn't been able to
differentiate itself and succeed in apparel for years."
But, she and others add, it's highly unlikely Sears will
punt on apparel.
For one thing, clothing profit margins surpass those of
other goods. Gross margins for clothing stores are 42.4 percent, according
to a study released in March by the U.S. Census Bureau. That compares with
margins of 27.8 percent for electronics stores and 24.7 percent for
general merchandise stores.
Also, apparel brings people into stores more frequently
than durable goods such as appliances.
Finally, while the heart of Sears is such hard goods as
Kenmore appliances, Craftsman tools and DieHard batteries, its clothing
sales are nothing to sneeze at.
The $36.4 billion retailer sells $4.5 billion in apparel
annually.
Putting that in perspective, its clothing sales alone
are nearly double Marshall Field's total sales of $2.6 billion.
In a nutshell, Sears has too much invested in apparel to
cut and run. But it has yet to master it.
Nowhere are the shortcomings more notable than with its
flagship Lands' End line. Historically, the brand was sold mostly through
catalogs and the Internet. It's also a relatively pricey line for Sears.
"We've had some price-value issues, most notably in the
kids' area," Lacy said last month. So "we've cut back kids, broadly
speaking, mostly in infant and toddler."
Still, demand for Lands' End in general varies depending
on location. Sears'
solution: Starting this fall it will edit inventory store by store.
"In the top 300 stores, we'll put additional product
in," Lacy said. "In the bottom 300, we'll reduce it."
The overhaul is welcome news to Sears' analysts and
shoppers.
In a March 30 report about Sears, Goldman Sachs pointed
out the wide range of prices for boys' shorts.
The report also noted that "Lands' End was not always
merchandised with integrity, that some categories were on heavy
clearance."
Shopping at his local Sears in Tucson, Ariz., in
January, James Tenser, principal for Internet consultant VSN Strategies,
noticed that "Lands' End seemed to be interspersed with other apparel,"
making it tough to find.
Sears says it has since improved the presentation of
Lands' End.
As for Lands' End's more established sales channels,
Sears disclosed that catalog and online sales for Lands' End were "soft"
in the first half of 2004. That was blamed on the weather, a decrease in
catalog circulation and cannibalization by stores. Sears won't say how
much Lands' End catalog sales are down.
Still, Sears has a spirited defense of its $1.9 billion
purchase of Lands' End and its broader decision to stick with apparel.
"The customer tells us they want Sears to be a
broad-line merchant," Lacy said.
He also points out that 70 percent of Lands' End sales
occur at full price in stores and that demand for older children's
apparel--particularly the brand's outerwear--is selling well.
Lacy noted that, in the top 300 stores, Lands' End sales
exceed $200 a square foot. He didn't disclose Lands' End per-foot sales in
the 570 other stores. Nor did he say what sales were generated by products
that Lands' End replaced other than that they are better.
"Generally speaking, we're pleased with how the business
is performing," Lacy said.
He added that Sears ultimately will realize "very good
success" in apparel overall.
He points to freestanding Sears Grand stores. Clothing
sales at the fledgling format are "remarkable." So far, sales at Sears
Grand are exceeding expectations by 30 percent, with apparel among the
strong performers.
Apparel chief Manto attributes the improvement partly to
the "enhanced" shopping experience at Sears Grand.
But until Sears has enough stand-alone stores to move
the sales needle, it needs to improve apparel at the mall. "We have fallen
short of our customer's expectations, yet we're focused on fixing those
issues and we're in a good place for fall," Manto said.
Sears soon will roll out Structure, a fashionable men's
line it bought from the Limited. Also on the way is A Line, a trendier
women's brand made exclusively for Sears by Jones Apparel Group.
Sears also recently disclosed three other additions. Liz
Claiborne will make an active wear line called Curve for Sears only.
Russell Kemp, a national brand, will be stocked. And designer Harve
Bernard will put his imprint on Sears' in-house Laura Scott line.
Sears' disappointing second-quarter results did produce
one bright spot: Its trendier clothing line, Apostrophe, enjoyed a 20
percent sales increase.
But solving apparel problems at Sears is more than about
the product.
"The problem seems to be in execution. Sears itself has
noted issues related to inventory, a missed spring selling season, and
Lands' End positioning problems in the stores," said Steven Keith Platt,
director of Platt Retail Institute.
Regardless of how it gets there, he said, "in the final
analysis, Sears must succeed in apparel."
Critics
See Kmart Shares Heading for the Discount Bin
By Mark Maremont -
Staff Reporter - The Wall Street Journal
August 2, 2004
Edward Lampert found an unbelievable bargain at Kmart:
the company itself.
The hedge-fund manager amassed a majority stake in Kmart
Holding Corp. by snapping up its cut-rate debt when the retailer was in
Chapter 11 bankruptcy-court protection; now, he is the company's chairman.
With the reborn Kmart's stock soaring, Mr. Lampert by some estimates has
nearly quintupled his money in less than two years. His fund's stake in
the giant discounter is valued at about $4.2 billion.
Mr. Lampert's many fans say the Kmart bonanza
demonstrates the 42-year-old manager's knack for finding value in unloved
companies, particularly retailers. But Mr. Lampert also is collecting
critics, who believe Kmart's stock won't stay in the high ground for long.
They argue that Mr. Lampert has a history of making a killing by
engineering short-term fixes that wring out cash and raise per-share
earnings but that aren't sustainable and sometimes end up damaging the
companies in which he invests. Starry-eyed Kmart investors, these critics
say, should take a close look at Mr. Lampert's other deals, particularly
AutoZone Inc.
Mr. Lampert's hedge fund, ESL Investments, accumulated a
29% stake in the discount-auto-parts store a few years back and installed
a new chief executive. Although earnings have soared and its stock had a
big run-up -- allowing Mr. Lampert to sell more than a third of his
position for a huge gain -- AutoZone and its stock are starting to falter
amid signs that its competitive position is weakening.
Retailing consultant Burt Flickinger says Mr. Lampert
runs businesses brilliantly -- in the short term. "But it's a question of
who's holding the bag in the end," he says. Kmart, he thinks, "will be a
very sad story."
A spokesman for Mr. Lampert declined to comment for this
article.
A former Goldman Sachs takeover-stock trader, or risk
arbitrager, Mr. Lampert started his Greenwich, Conn., hedge fund 16 years
ago. He has since gained a reputation as a risk-taker, typically amassing
large positions in a small number of companies. He then uses those stakes
to influence management, often pushing for big stock buybacks and other
changes that boost per-share earnings and improve returns on capital.
Mr. Lampert's other current positions include a 14.6%
stake in retailer Sears, Roebuck & Co. and 28.4% in car dealer AutoNation
Inc.
At AutoZone, the Lampert medicine seemed to work wonders
for a while. When Mr. Lampert entered the picture in the late 1990s, the
Memphis, Tenn., company was the leader among auto-parts retailers, but
results were lackluster and its stock had long been moribund. Mr. Lampert
pushed for change, taking a board seat and eventually installing a
handpicked chief executive in early 2001: Steve Odland, a former Ahold USA
Inc. chief operating officer.
Mr. Odland cut costs and accelerated an
already-aggressive stock-buyback program that has nearly halved the number
of shares. Pretax income more than doubled from 1999 to 2003, while
per-share earnings more than tripled. AutoZone's stock rose from the low
$20s in late 1999 to a record of $103 in October 2003.
But AutoZone's stock plummeted in late June after it
reported a slight decline in same-store sales for the first half of the
quarter that was just ending. On Friday, the shares traded at $77.20, up
49 cents, in 4 p.m. composite trading on the New York Stock Exchange.
Critics say AutoZone's sudden surge came from
over-revving its engine for a short period. To get earnings and cash flow
up, AutoZone raised prices, cut store-maintenance budgets, switched to
cheaper and less-knowledgable part-time staff, eliminated an old-fashioned
retirement program in favor of a less expensive 401(k) plan and
significantly stretched out payments to suppliers. Long-term debt has more
than tripled since 1998 to $1.8 billion.
The problem, the critics say, is that these steps
weakened AutoZone's competitive position and left it little flexibility in
the event of a downturn. In recent quarters, the chain has reported
same-store sales, or sales at stores open at least a year, that were flat
or only slightly up, far below major rivals including Advance Auto Parts
Inc., of Roanoke, Va., and O'Reilly Automotive Inc. in Springfield, Mo.
Bret Jordan, at hedge fund Delta Partners LLC in Boston,
says recent troubles show AutoZone isn't as inherently profitable as it
appears. "Everything that could be done to run this thing for cash and
leverage it up has been done," says Mr. Jordan, a former
automotive-aftermarket analyst who won't comment on whether his firm is
short, or betting against, AutoZone shares. "Now, they don't have any
sales growth and have damaged their relationship with their vendors. I
find it unlikely they'll be able to reignite sales growth without dramatic
margin deterioration."
Critics also point to a well-timed stock sale by Mr.
Lampert last October. The day the stock hit its record, AutoZone announced
that Mr. Lampert's fund had sold 5.6 million shares -- about 22% of his
remaining stake -- for $98.88 apiece and had given Citibank an option to
buy an additional 4.4 million shares for $100 each. The stock quickly
started falling; Citibank never exercised the option.
Mr. Lampert's fund has realized a total of about $940
million by selling about 35% of its AutoZone stake for an estimated gain
of more than $650 million. He retains nearly 20 million shares valued at
about $1.5 billion.
Michael Archbold, AutoZone's chief financial officer,
dismisses criticism of the company's business model, saying it is
following a successful, Lampert-inspired strategy of "strict financial
discipline" that stresses return on capital. He says the company has made
up for staffing changes with better computer systems, relations with
vendors remain strong and its stores continue to "outperform all our
competition" in measures like sales per square foot.
At Kmart, even Mr. Lampert's critics give him kudos for
spotting value where many others didn't. Presumably savvy banks and other
creditors were willing to sell him control at cut-rate prices, believing
Kmart was destined to be a permanent punching bag for Wal-Mart Stores Inc.
Kmart's entire real-estate portfolio was valued at $800
million in a liquidation analysis filed in the bankruptcy court. Mr.
Lampert, who became Kmart's chairman when it emerged from bankruptcy,
already has announced deals under which it could sell as many as 78 of its
1,500 stores for as much as $1 billion -- mostly to Sears. If consummated,
the deals would give the chain about $3 billion in cash, leading to
speculation about possible acquisitions.
Michael Price, a fellow value-stock investor, says Mr.
Lampert "is clearly one of the guys who can look at a new situation, not
get caught up with all the Wall Street nonsense, get to its essence and
say 'this is cheap.' " Mr. Price, whose MFP Investors LLP owns Kmart
stock, believes "there's a lot more upside." He figures investors are
valuing Kmart only for its real-estate holdings and contends there is
untapped potential in a smaller, more profitable retail business.
Others argue that the surprisingly high prices Kmart has
reaped for its stores suggests the chain is selling off its crown jewels.
(Kmart will disclose locations for only three of the stores, of which two
are larger SuperK outlets.) They detect signs of the Lampert formula at
work, including price increases at the stores that make Kmart even less
competitive and a recently announced stock-buyback plan. They also claim
Kmart has been getting a temporary profit-margin boost as a result of
favorable settlements from vendors who had unresolved claims arising from
the bankruptcy.
Kmart's stock, which traded at $15 when it came out of
bankruptcy in April 2003, hit a high of $81.65 in early July and rose 2.6%
Friday on the Nasdaq Stock Market to $77.43, up $1.94.
Meanwhile, comparable-store sales fell another 13% in
the most recent quarter. "There's not a retailer in the world that can
sustain that for more than a couple of years," says Mr. Flickinger, the
retailing consultant.
Clem Stein, Sears Legend, Dies at 87
Chicago
Tribune
July 30, 2004
Clem Stein Jr., 87, of Chicago, died Saturday, July 24,
2004 at his home in Salem, WI, surrounded by devoted family members.
Loving son of Helen and Clement; brother of Adrienne (Denny), Marygene,
Frank, Bill, and Les.
His family was very close, but very poor while he grew
up. They once ate hominy for 30 days in a row. He supported himself
through St. Thomas Aquinas High School. The Stein-Lawless pop and sandwich
stand was a fixture at the Ohio State Fair and was one of many
entrepreneurial exploits in which he was involved. He was a fine tennis
player, but his greatest athletic feat was carrying a 50 pound block of
ice for five miles to the pop stand every day. There are also claims that
he carried the remaining ice home, which was another five miles, at the
end of the day.
He attended The Ohio State University. Again, he worked
full time, helping to support his family and graduated in five years in
1941. He later, in 1957, attended a graduate business program at M.I.T. He
enlisted in the Army in 1941. He rose to the rank of Master Sergeant. He
served for three years, three months, and three days.
He took a job with Sears, Roebuck and Co. after his
military service. He rapidly rose at Sears to become the youngest national
merchandise manager in their history, at age 38. He worked at Sears for 37
years. He was a legend there. He was a teacher, a leader, and a motivator.
His proteges went on to star in many fields of endeavor. They all continue
to attribute a good deal of their success to his tutelage.
He retired early from Sears at age 62 and started the
International Academy of Merchandising and Design. He put everything that
he had, emotionally, financially, and spiritually into it. All of his work
paid off, and under his direction the school catapulted to the forefront
of education in fashion merchandising, fashion design and interior design.
The school continues to flourish.
He was an avid golfer and a great money player. In his
heyday, his competitors mounted cries of "Beat Clem", but they couldn't,
in spite of their trying. He loved his friends at The Beverly Country
Club. He loved the Gold Cup and and everyone associated with it.
His children Jim, Monica, Marilee, Margie, Ken, Nancy,
Kimber (Dixon), and Clement III all adored him. He was a great
communicator and a noble patriarch. The twinkle in his eye was infectious.
He was always there, every step of the way, for his kids. Any successes
that they have achieved were in a large part due to his influence and
support. His grandchildren, Melanie, Scott, Meagan, Karilee, Nicole,
Alison, Michael, Katie, Brett, Dixon, Mac, Lauren, Lisa, and the upcoming
twins (that he predicted Ali and Clem would have), all are nuts about
their Granddaddy (Bodaddy). His greatgrandchildren Molly, Alex, Shannon,
and Emma all worshipped the ground he walked on.
He was the unbelievably loving husband of Marion, his
wife of 38 years. He was the founder of the internationally famous CACAM
society (Clem is absolutely crazy about Marion). He and Marion traveled
extensively worldwide. They were flamboyant in their lifestyle and joie de
vivre. On the advice of their friend, Vincent Price, they began collecting
vintage Jules Cheret posters and amassed the largest private collection in
the United States.
They also gave a lot back. They served together on the
original board for Central Dupage Hospital. They worked tirelessly for the
Chicago Heart Association. Clem served as president of Chicago Heart for
two years. Marion's death in September of 2003 was devastating to him. He
was strong though and never complained despite acceleration of his
Parkinson's disease and progression of prostate cancer. He continued to be
actively involved in plans for Steinfest - Party with Purpose, a charity
party which has raised thousands and thousands of dollars for Parkinson's
research.
He lived the rest of his life with gusto. He was a
vintner extraordinaire. He wrote "The Art of Home Winemaking". His own
forays into winemaking produced a fabulous '70 Pinot Noir under the Vin
Mariani label. Under another label, The Frankenstein Winery, some of the
most expensive vinegar known to man was created. He was an amazing gambler
and card player.
There was nobody at the Bev or anywhere else, that
didn't fear his ability at the gin rummy table. He was a rated gambler at
casinos all over the world, but held a special affinity for the Desert Inn
during its 50+ year run in Las Vegas. He edited the acclaimed treatise
"Gambler's Digest", Volumes 1, 2, And 3 (not yet published, but watch for
it in bookstores). His humorous and clever side came through in his book
"Bridge and Gin Gambitry". Those who really knew him, really loved him.
He was proud of his service to his country, his family
and his friends, and he truly was, as General George Patton once wrote to
him "a very brave man".
He will be missed by all. A memorial service will held
Saturday, Aug. 28, 2004 at 2:00 p.m. at The Stein Farm in Salem, 5700 -
312th Ave., Salem, WI 53168. Memorials have been suggested to Rush
Presbyterian St. Luke's Medical Center, 1725 W. Harrison St., Suite 755,
Chicago, IL 60612. Schuette-Daniels Funeral Home, 625 S. Browns Lake
Drive, Burlington, WI 53105.
Sears Real Estate Assets Provide a Solid Boost to Stock Price
Chicago Tribune
July 28, 2004
Shares of Sears, Roebuck and Co. rose 6 percent
Tuesday, closing at $35.38, a day after analysts said the Hoffman
Estates-based retailer's real estate could be worth as much as $67 a
share.
Deutsche Bank analyzed the real
estate of 37 retailers and concluded that eight had undervalued
shares considering their significant real estate assets. Stocks of
the other companies were up 1 percent to 14 percent.
Separately, Deutsche commented about
the relationship between Sears and ESL Investments Inc. principal
Edward Lampert. ESL owns 14 percent of the stock of Sears, which
last week posted disappointing profit. Sears has said Lampert has no
input in its day-to-day operations, though he's alerted of major
business decisions once they're made public.
Deutsche suggests he could be about
to take a more active role. "As the horrible details of the quarter
became known, it appeared more likely that Mr. Lampert could get
more active in his Sears investment, which could be a greater
catalyst for substantial operational improvements."
Martha Stewart's
Company Shakes
Up Board
By Andrew Countryman
- Tribune Staff Reporter
- The Chicago Tribune
July 27, 2004
In a boardroom revamp at the company Martha Stewart
founded, former Sears,
Roebuck and Co. Chief Executive Arthur Martinez today stepped down as a
director.
Domestic maven Stewart continues to have influence at
Martha Stewart Living Omnimedia Inc., despite her conviction this year on
four felony counts connected to a stock sale and her resignations as
chairman, CEO and a director.
Seven of the company's nine directors have joined the
board since Stewart was indicted in June 2003, including five in the past
five weeks. Stewart suggested at least three potential directors,
including Charles Koppelman, who was appointed today.
Martinez, who joined the board in January 2001, had been
its longest-serving
independent director. Only company CEO Sharon Patrick had been on the
board
longer. He was re-elected as a director just last month. He had been the
audit committee chairman and was lead director, a position that will be
eliminated.
Martha Stewart Living's announcement did not give a
reason for Martinez's departure. He could not be reached for comment, and
Martha Stewart Living spokeswoman Elizabeth Estroff said she could not
comment further.
As part of the shake-up, Jeffrey Ubben, whose investment
partnership is the company's second-largest shareholder after Stewart
herself, stepped down as chairman and was replaced by independent director
Thomas Siekman.
Ubben, who will stay on the company's board, replaced
Stewart as chairman following her indictment
last year. In a regulatory filing earlier this month, his firm said it
owned 21 percent of Martha Stewart Living's Class A stock.
"With the company having weathered a most difficult
period associated with Martha Stewart's personal legal situation, I felt
this was the right time to turn over the chairmanship to someone who has
the skills and, most importantly, sufficient time available to guide the
board and the company forward," he said in a statement.
Siekman, who joined the board in August, is a former
senior vice president and general counsel of Compaq Computer Corp., who
most recently was with the Skadden, Arps, Slate, Meagher & Flom law firm.
New director Koppelman, a music industry veteran who has
worked with Frank Sinatra, Michael Jackson, Barbra Streisand and Vanilla
Ice, is chairman and CEO of music and entertainment firm CAK Entertainment
Co.
He also has a background in coping with the legal
troubles of a company's namesake founder: He was chairman of shoemaker
Steven Madden Ltd. for four years, during which Madden pleaded guilty to
federal securities fraud and money-laundering charges.
Madden is serving a 41-month prison term and, like
Stewart, remains on the company payroll. Madden is guaranteed at least
$700,000 a year while in prison; Stewart's contract, which expires in
three months, provides her with at least $1.2 million annually in salary
and bonuses.
Stewart was sentenced this month to five months in
prison and five months of home confinement, but remains free pending an
appeal.
Martha Stewart Living stock fell 7 cents today, to
$10.93. Shares are slightly lower than their level before Stewart was
indicted, but are well below the all-time intraday high of $50 reached in
1999.
Sears Opens
Concept Store in Vegas
By Jennifer
Shubinski -
Las Vegas Sun
July 27, 2004
Sears, Roebuck & Co. opened its Sears Grand concept
Monday in the west Las
Vegas Valley, the third such store in the country.
Sears is experimenting with a new layout and a one-stop
shopping experience in an attempt to win back its core customers -- women
ages 25 to 49 -- from Target, Kmart and Kohl's. Grand-opening events begin
Thursday, with a ribbon cutting ceremony Saturday.
Las Vegas' Sears Grand is in a large shopping center,
owned and developed by Triple Five Nevada, already anchored by a Target
and Mervyn's, just south of the planned community Summerlin at Flamingo
Road and the Beltway.
The store has 355 full- and part-time employees and has
longer hours than a traditional mall-anchored Sears, store officials said.
Sears Grand's hours are 8 a.m. to 10 p.m. Monday through Saturday, and 8
a.m. to 9 p.m. on Sundays.
"Pretty much this is set up so you can shop in your
neighborhood," said Harvey Isom, the store's general manager. "You don't
have to make extra stops, Sears Grand is a full-line store, it's just an
extension of it."
Unlike Super Wal-Mart and Super Kmart, which have full
grocery stores with produce and meat departments, Sears Grand only carries
pantry items, such as milk, cereal, and baby food. The store does carry
packaged deli meats, hot dogs and a small frozen section with meals and
pizzas.
Sears Grand carries all the product lines found in a
mall-anchored Sears store -- home appliances, electronics, tools, lawn and
garden and apparel.
The concept store includes a year-round toy department
(regular Sears stores sell toys only during the holiday season), cleaning
supplies, home decor, pet food, health and beauty, cards and party
supplies, books and magazines along with CDs and DVDs. New services
include paint mixing, window blind cutting and key cutting and a plant
nursery. The Sears Grand also will have an auto service center.
"It has a big feel, but shoppers can navigate easily
through the store and they don't have to deal with mall traffic," said
Corinne Gudovic, a Sears spokeswoman.
Sears has struggled over the years to stay relevant in
an ever-changing retail landscape. The off-mall Sears Grand concept has
exceeded analysts' expectations following disappointing earnings during
the second quarter, attributed in part to soft sales in fashion product
assortment.
But analysts don't expect the benefits of Sears Grand to
start to accrue for the company until 2006.
Daniel Barry, an analyst with Merrill Lynch who covers
Sears, said in a report that the two Sears Grand concepts previously
opened were strong in apparel, home fashion, electronics and toys.
"The off-the-mall brand stores are generating higher
sales per households versus the full-line stores, customers are
cross-shopping more than in the mall stores," Barry reported.
Other existing Sears Grand stores are in West Jordan,
Utah, a suburb south of Salt Lake City, and Gurnee, Ill., a suburb of
Chicago. A fourth Sears Grand is scheduled to open this fall in Rancho
Cucamonga, Calif.
The off-mall strategy has worked well for retailers such
as Kohl's, which opened three stores in the Las Vegas area last year.
Similar to Kohl's, Target and Kmart, but unlike Sears'
mall stores, Las Vegas' Sears Grand has cash registers at the front of the
store and bright blue shopping carts.
The 165,000-square-foot one-level Las Vegas store was
designed to be shopper-friendly, it has wider aisles -- 15 feet -- and has
directional signs and do-it-yourself price checkers throughout the store.
Each of the three Sears Grand concept stores are
slightly different. The reason, store officials said, was to see what
works best. For example, Las Vegas' Sears Grand is the first concept store
with a plant nursery and one of two with an exposed ceiling.
The Las Vegas Sears Grand store is also smaller than its
two predecessors that are each more than 200,000 square feet.
"Based on information (from a survey group) we
experimented with different things," Isom said. "The store is designed
around the customer."
Sears has tried different concepts in the Las Vegas
market before.
Its 121,310-square-foot one-level Henderson store has a
different layout than a typical two-story mall-anchored Sears.
The Henderson store has most of its cash registers
grouped at the front and offers shopping carts for its customers.
Gudovic said the Henderson store would not be changed
into a Sears Grand, but said the store and other Sears stores would be
fitted with price checkers and some displays, such as the shoe department,
will be changed to reflect the new Sears Grand layout.
The company is focusing on growth, rather than
converting old stores, Isom said.
"(Sears Grand) is where our growth potential will come
from," he said.
Sears plans to increase the pace of its growth for its
Sears Grand format, targeting three of the newly acquired Kmart locations
for conversions to Sears Grand stores. Sears has said it will acquire 54
Kmarts. The locations will not be disclosed until Sears takes ownership of
the stores, which is expected to happen next year.
Kmart officials have previously indicated none of the
stores is in Southern Nevada.
Including the three open Sears Grand locations and the
fourth to open in California this year, the company expects to be
operating 12 to 14 Sears Grands by the end of 2005.
So far, three locations have been announced for 2005
openings, Austin, Texas, Bonita Springs, Fla., and Cape Girardeau, Mo.,
outside St. Louis. The stores are not Kmart conversions, Sears officials
said.
As for future Sears Grand locations in the Las Vegas
Valley, it is unlikely that any more will be built in the near future,
Gudovic said.
"We continue to look for locations but we have no plans
to add (another) one in the Las Vegas area," she said.
Kmart Stock Soars After
Analyst Report
Associated Press
July 27, 2004
Kmart Holding Corp.'s stock soared 14 percent Tuesday on
the heels of a Deutsche Bank report that said the discount retailer's real
estate holdings could be worth up to $150 per share.
The report also speculated that Kmart might take
advantage of the high value of its real estate holdings and gradually sell
off more of its stores during the next five to 10 years.
Kmart's stock jumped $9.16 to close at $73.24 on the
Nasdaq Stock Market.
Analysts for the investment bank examined the real
estate holdings of 37 retailers and found that eight of them, including
Kmart, had real estate value significant enough to generate a per-share
net asset value higher than their stock price.
The other companies include ShopKo Stores Inc.,
Dillard's Inc., Saks Inc., Sears Roebuck and Co., Winn-Dixie Stores Inc.,
Federated Department Stores Inc. and Toys "R" Us Inc.
Analysts estimated the Troy-based discount retailer's
net asset value at as high as $152.95 per share.
A Kmart spokesman declined to comment Tuesday on the
Deutsche Bank report.
The analysts said one of the keys to Kmart's high net
asset value is its relatively inexpensive long-term leases, which have an
average of 17 years remaining on them and an average rent of $2.03 per
square foot. In addition, most of the company's debt was eliminated during
bankruptcy proceedings, they said.
Although Kmart's long-term viability as a retailer has
been repeatedly questioned, the company's strategy makes sense from a real
estate perspective, the analysts said.
A gradual and orderly sale of Kmart stores, possibly
over the next five to 10 years, would ensure the company higher sale
prices of the properties, compared to the sale of 200 to 300 stores at
once, where few potential buyers would have the resources to bid for them
and would likely demand a "volume discount," they said.
In June, Kmart announced the sale of 78 its stores to
Sears and Home Depot for $965 million, about $12.4 million per store. With
an average store size of 95,000 square feet, that works out to a sale
price of about $130 per square foot.
That could make Kmart a very attractive "land bank" for
the retail industry, Deutsche Bank real estate analyst Lou Taylor said in
the report.
Kmart emerged from bankruptcy in 2003 with about 1,500
stores - 600 less than before the filing. The discounter has posted a
profit in the two most recent quarters and won praise for its financial
turnaround. But sales have continued to drop.
Sears Switches Gears
-- Mall Pioneer Looks
to Strip Centers to
Spur Future
Growth
By Alexander
Coolidge - Post staff reporter
- Cincinnati Post
July 27, 2004
Once the pioneer of mall retailing, Sears Roebuck & Co.
is determined to shed that image. The American retail icon is moving ahead
on a new real estate and merchandising strategy to bring it closer to its
customers and maybe get them to stop by for some food. This summer Sears
announced it would spend $620 million to acquire up to 54 Kmarts and seven
Wal-Marts in undisclosed non-mall locations across the country. Some will
be converted into the Illinois retailer's new concept, Sears Grand, which
peddles a limited assortment of food items. Most others will become
scaled-down stores that borrow from the Grand concept.
Profit problem
• Sears last week reported an 83 percent drop in second-quarter profits
and lowered its full-year estimates based on the worse-than-expected
results.
• Officials also said that 3,260 jobs have been eliminated so far this
year as part of a restructuring.
Sears officials say the purchase is a key step in
pursuing new growth after the nation's waning malls.
"In order to grow, we have to look at off-mall options,"
said Sears spokesman Chris Brathwaite. "Malls are not being built as they
had been. Sears Grand is really our primary growth vehicle going forward."
Brathwaite said the retailer would disclose locations
once the sale closes in fall. The company plans to convert three of the
stores into Sears Grand stores. The others will be modeled after the
off-mall concept, using a racetrack floor format and selling a mix of
apparel, appliances and consumables.
Although it has more than 850 full-line stores at
suburban malls, Sears has taken a beating in recent years as more
consumers have shopped at smaller, easier-to-park, nearby strip centers
that often are anchored by a supermarket, mass-discounter or specialty
store. The popularity of strip centers has led to a slowdown in mall
construction, further slowing growth at retailers dependent on the mall
concept, including Cincinnati-based Federated Department Stores Inc. The
shift has prompted traditional mall-based retailers to reconsider their
strategy and seek alternative locations.
Sharon Martz, a 36-year-old full-time mom from
Bridgetown, said one of the main reasons she shopped Sears' Western Hills
store was because it wasn't located in a regional mall. She was busy with
two small children, including an energetic 5-year-old in need of
kindergarten clothes who played with the handicapped door button.
"That's what I like best -- I got two kids, and taking
them to the mall is like taking them to the playground," she said.
Experts say Sears strategy was similar to moves by other
retailers.
Stephen Stephanou, executive vice president at real
estate consulting firm Madison HGCD in New York, said mall-based retailers
are being pinched because mall construction has slowed.
"If there were more malls being built, there'd be a lot
more opportunities to grow -- that's why there's consolidation," he said.
"By acquiring stores that's how your sales jump."
Still, Stephanou thought Sears was paying a high price
for the stores.
Joe Beaulieu, an analyst with Morningstar in Chicago,
said the high price tag might be because of the emphasis on urban
locations where enough real estate is hard to come by for big box stores.
Assuming the sites are good, he acknowledged the lack of other big boxes
could shield the stores from competition like Wal-Mart.
"Getting away from the mall has been on their agenda for
some time," he said. Moving into a smaller center allows the retailer to
reside closer to customers' homes.
"You can park right in front, run in and run out. People
are going less to the mall because they're less convenient," he said.
Memo to
Federated --
Spruce
Up at Home and Stop Shopping
By Ellen Byron -
Staff Reporter - The Wall Street Journal
July 26, 2004
Wall Street wants Federated Department Stores Inc. to
keep its money in its purse.
The parent of Macy's and Bloomingdale's appeared to have
suffered a strategic blow last month when it was trumped by May Department
Stores Co. in the bidding for upscale Midwest retailer Marshall Field's.
Few department-store chains have as valuable a presence in Chicago and
other parts of the heartland as Marshall Field's, which fetched an
unexpectedly high $3.24 billion for 62 of its stores plus nine Mervyn's
locations.
Federated isn't giving up. With hundreds of millions of
dollars in cash available, Federated's chief executive, Terry Lundgren,
says the company will continue looking for acquisitions. Some wonder
whether Federated might go after Little Rock, Ark.-based Dillard's Inc.,
Barneys New York Inc. or Dallas's Neiman Marcus Group Inc.
But a splashy acquisition is the last thing many on Wall
Street want. Federated's last big acquisition, the $1.7 billion purchase
of direct marketer Fingerhut Cos. in 1999, turned into a disaster. The
retailer ended up dumping Fingerhut after racking up millions in losses,
mostly from credit delinquencies among low-income customers.
Federated has only recently emerged from a period of
lackluster earnings caused by increasing competition from discounters such
as Target Corp. and its digestion of regional department-store
acquisitions. Boosted by revamps at some stores and a stronger retail
environment, Federated reported sharply higher net income of $96 million
in the first quarter, more than double results a year earlier. Showing
further signs of strengthening its balance sheet, last week Federated
increased its authorized stock-repurchase program by $750 million,
bringing the total authorization to $1.29 billion.
Some investors think Federated should concentrate on
upgrading its own business through continued store renovations and new
store concepts, rather than pursuing potentially costly acquisitions.
"Federated is big enough," says Peter Solomon, chairman
of investment bank Peter J. Solomon Co. in New York, which doesn't have
any business with Federated, but had some work in the past. "They need to
make their square footage more profitable. Their issue isn't to buy more
square footage." He doesn't own any shares.
Many investors think May overpaid for Marshall Field's
and applaud Federated's restraint. As long as Federated's management stays
disciplined, investors are bullish about its prospects -- particularly
given its relatively cheap valuation. At its current price of around $47,
Federated shares are trading at 12 times earnings, well below May's
price-earnings multiple of 19. The broader retail sector, as measured by
the Dow Jones Broadline Retailers index, is trading at 22.5 times.
"Federated possesses two of the most important
nameplates in American retailing," says Larry Leeds, chairman of
Buckingham Capital Management Inc., referring to Macy's and
Bloomingdale's. "Federated's cash flow is substantial and despite all the
progress made in recent years, the company's shares still sell at a low
price-earnings ratio." Buckingham owns 903,050 shares of Federated,
according to FactSet Research Systems Inc.
Some investors remain bearish on the department-store
business model. Once deemed a one-stop shop for clothing, appliances,
books and toys, department stores have over the years given up precious
market share to price-competitive and increasingly fashion-savvy
discounters such as Target as well as nimble specialty shops. "We have
underemphasized that stock over the years because of the problems they've
had from competitors such as specialty stores and discounters," says
Stephen Monticelli, president of hedge fund Mosaic Investments in San
Francisco, which doesn't own Federated stock. "They have challenges ahead
which they've only begun to address."
But others note signs of progress under Mr. Lundgren,
particularly with his initiative to overhaul Federated's 400-plus Macy's
stores. Dubbed "Reinvent," the company is redesigning store layouts to
make fitting rooms easier to find, with cable TV and seating available
outside of them for bored spouses. Checkout counters were made more
central, and bar-code scanners were introduced for shoppers to make
pricing easier to understand. The overhaul is credited with helping
Federated boost sales at stores open for more than a year by 6.9% in the
first quarter. Smith Barney analyst Deborah Weinswig notes that the revamp
has so far only been made in about a third of Macy's stores, suggesting
that the initiative can deliver more growth.
Mr. Lundgren also is trying new store concepts, such as
Bloomingdale's SoHo, a newly opened six-level store in Manhattan's trendy
SoHo neighborhood featuring cutting-edge fashions from youth-oriented
designers. Its sales have outperformed expectations, he says. "Federated
has the ability to grow internally," says Arnold Aronson, a managing
director at consulting firm Kurt Salmon Associates in New York. "There's
certainly no reason why they can't develop more small format stores
similar to their Bloomingdale's SoHo store in other cities," says Mr.
Aronson, who owns 1,000 Federated shares.
Just how aggressive Federated will be in pursuing
acquisitions is uncertain. "My view has always been to look at
opportunities to acquire and expand," Mr. Lundgren said in a recent
interview. A Federated spokeswoman cautioned that Federated won't overpay.
"We will not stray from our department-store roots. We believe we have the
appropriate strategies and initiatives on growing internally to provide
significant growth without external acquisitions," says Carol Sanger, vice
president of corporate affairs.
The most obvious target, now that Marshall Field's is
off the table, is Dillard's, which could also give Federated a chance to
spread its wings in the Midwest. Dillard's owns 328 stores, many more than
the 62 owned by Marshall Field's. Still, it isn't clear that the family
controlling Dillard's will sell. And its price tag has recently
skyrocketed: Dillard's stock is up 44% since mid-May, giving it a market
value of $1.84 billion.
At the same time, Barney's recently decided to put
itself on the market. While the upscale retailer is small in size, its
reputable name could help Federated win its quest to become an established
fashion leader.
Others like the idea of Federated buying either
Nordstrom or Neiman Marcus
-- at the right price. "Either Neiman Marcus or Nordstrom purchased at a
reasonable amount would be very constructive additions to the Federated
Department Store company," says Buckingham's Mr. Leeds.
But Smith Barney senior analyst Deborah Weinswig, whose
firm doesn't own any shares or do work for Federated, is more cautious.
"Federated obviously has the team to make the store more of a destination
and I'd rather they focus on that as opposed to making an acquisition
that's more than they can handle," she said. "The reason I've kept my
'buy' rating is that they have so much cash, I trust the management team,
and they have so many opportunities by growing sales in existing stores."
Wal-Mars Invades Earth
By Barbara
Ehrenreich - Guest Columnist - The New York Times
July 25, 2004
It's torn cities apart from Inglewood to Chicago and
engulfed the entire state of Vermont. Now the conflict's gone national as
a presidential campaign issue, with John Kerry hammering the megaretailer
for its abysmally low wages and Dick Cheney praising it for its "spirit of
enterprise, fair dealing and integrity." This could be the central battle
of the 21st century: Earth people versus the Wal-Martians.
No one knows exactly when the pod landed on our planet,
but it seemed normal enough during its early years of gentle expansion.
Almost too normal, if you thought about it, with those smiley faces and
red-white-and-blue bunting, like the space invaders in a 1950's sci-fi
flick when they put on their human suits.
Then it began to grow. By 2000, measures of mere size -
bigger than General Motors! richer than Switzerland! - no longer told the
whole story. It's the velocity of growth that you need to measure now: two
new stores opening and $1 billion worth of U.S. real estate bought up
every week; almost 600,000 American employees churned through in a year
(that's at a 44 percent turnover rate). My thumbnail calculation suggests
that by the year 4004, every square inch of the United States will be
covered by supercenters, so that the only place for new supercenters will
be on top of existing ones.
Wal-Mart will be in trouble long before that, of course,
because with everyone on the planet working for the company or its
suppliers, hardly anyone will be able to shop there. Wal-Mart is
frequently lauded for bringing consumerism to the masses, but more than
half of its own "associates," as the employees are euphemistically termed,
cannot afford the company's health insurance, never mind its Faded Glory
jeans. With hourly wages declining throughout the economy, Wal-Mart - the
nation's largest employer - is already seeing its sales go soft.
In my own brief stint at the company in 2000, I worked
with a woman for whom a $7 Wal-Mart polo shirt, of the kind we had been
ordered to wear, was an impossible dream: It took us an hour to earn that
much. Some stores encourage their employees to apply for food stamps and
welfare; many take second jobs. Critics point out that Wal-Mart has
consumed $1 billion in public subsidies, but that doesn't count the
government expenditures required to keep its associates alive. Apparently
the Wal-Martians, before landing, failed to check on the biological
requirements for human life.
But a creature afflicted with the appetite of a starved
hyena doesn't have time for niceties. Wal-Mart is facing class-action
suits for sex discrimination and nonpayment for overtime work (meaning no
payment at all), as well as accusations that employees have been locked
into stores overnight, unable to get help even in medical emergencies.
These are the kinds of conditions we associate with third world
sweatshops, and in fact Wal-Mart fails at least five out of 10 criteria
set by the Worker Rights Consortium, which monitors universities' sources
of logoed apparel - making it the world's largest sweatshop.
Confronted with its crimes, the folks at the Bentonville
headquarters whimper that the company has gotten too "decentralized" -
meaning out of control - which has to be interpreted as a cry for help.
But who is prepared to step forward and show Wal-Mart how to coexist with
the people of its chosen planet? Certainly not the enablers, like George
Will and National Review's Jay Nordlinger, who smear the company's critics
as a "liberal intelligentsia" that favors Williams-Sonoma. (Disclosure: I
prefer Costco, which pays decent wages, insures 90 percent of its
employees and is reputedly run by native-born humans.)
No, Wal-Mart's only hope lies with its ostensible
opponents, like Madeline Janis-Aparicio, who led the successful fight
against a new superstore in Inglewood, Calif. "The point is not to destroy
them," she told me, "but to make them accountable." Similarly Andy Stern,
president of the Service Employees International Union, will soon begin a
national effort to "bring Wal-Mart up to standards we can live with." He
envisions a nationwide movement bringing together the unions, churches,
community organizations and environmentalists who are already standing up
to the company's recklessly metastatic growth.
Earth to Wal-Mars, or wherever you come from: Live with
us or go back to the mother ship.
Barbara Ehrenreich, Guest
Columnist, is a
political activist, Born: 8/26/41,
in Butte, Montana.
A social activist and a feminist, Ehrenreich has written on the
subjects of healthcare, class, families, and sex. Among her most
well-respected-and controversial-books are The American Health Empire:
Power, Profits, and Politics (1970), For Her Own Good: One Hundred Fifty
Years of the Experts' Advice to Women (1978), and The Hearts of Men:
American Dreams and the Flight from Commitment (1983). Originally a
biologist who earned her Ph.D. from Rockefeller University (1968),
Ehrenreich became involved in political activism during the Vietnam War
and has written professionally ever since. Her first novel was Kipper's
Game (1993).
Sears Job Cuts will Total 3,300
2nd Period Weak and Outlook Bleak
By Becky Yerak -
Tribune Staff Reporter - Chicago Tribune
July 23, 2004
Plagued by poor clothing sales, Sears, Roebuck and Co.'s
second-quarter profits were about a third less than what Wall Street
expected, and the nation's biggest department store chain warned of a
bleaker outlook for the rest of the year.
It wasn't good news for Sears' employees, either.
Under pressure to prove it can perform as a pure
retailer since last year's sale of its profitable credit business, Sears
announced Thursday that about 3,300 jobs, or 1.6 percent of its U.S.
workforce, are in the process of being eliminated this year. That includes
layoffs of nearly 200 workers at its Hoffman Estates headquarters.
The difficulty in finding a silver lining in Sears'
quarterly results prompted retail observers to question everything from
the company's apparel strategy to the staying power of its management.
"At what stage of the game do you stop and say, `Is this
a business we should keep investing in?'" said Credit Suisse First Boston
analyst Michael Exstein.
The clock also is ticking on Sears Chief Executive Alan
Lacy, others said.
"He's running out of reasons" to explain Sears'
disappointing results, said Sid Doolittle, retail consultant with
Chicago's McMillan/Doolittle. "Alan is on borrowed time."
New York retail consultant Howard Davidowitz said: "If I
was a Sears director, I'd say, `Oh God, we're a train wreck.' Management
gets paid to get results."
Analysts were expecting Sears to earn about 70 cents a
share in the second quarter.
Sears ended up earning 24 cents a share, after two
pre-tax charges totaling 24 cents a share. One was a charge of 12 cents a
share for severance costs related to the elimination of about 3,300 jobs.
In the second quarter of 2003, Sears earned $1.04 a
share. Those results included the profits of the credit business as well
as its National Tire & Battery unit. Both were sold in late 2003.
Sears had operating income of $42 million in the second
quarter. In the same period last year, it had operating income of $466
million, with most coming from its credit and financial-services arm.
The poor quarterly results were felt on Wall Street,
too. Sears' stock fell nearly 3 percent, or $1 per share, to close at
$33.93. In December, Sears' shares were trading near $55.
Sears said it was "disappointed" with its second-quarter
results and pointed out that much of the retail industry experienced weak
demand in June. But it concedes some problems are Sears-specific and have
yet to be solved.
In the first quarter, Sears posted poor sales partly due
to being slow to stock spring clothing and, when it did, buying too
little. It assured investors that its problems would be fixed.
But "we continue to be affected by product assortment
and inventory issues" in apparel, Lacy said Thursday. "We lacked a
sufficient amount of fashion-oriented spring products in what has been a
strong fashion-driven season."
As such, same-store sales, which are those at stores
open at least a year, fell 2.9 percent in the second quarter.
While Sears hopes to have its apparel problems fixed for
the fall season, second-half sales will be flat, the company said.
"Due to lower levels of apparel inventory compared to
last year, we anticipate that apparel sales will remain soft in the third
quarter," Lacy said.
That means 2004 is shaping up to be the fourth straight
year of falling sales for Sears.
To improve its apparel selection, Sears bought the
Lands' End clothing line in June 2002. Results have been mixed.
"Lands' End total brand sales were flat in the first
half of the year due to reduced store inventory levels," Lacy said, but
the line's revenues and profit margins should widen in the second half.
Demand for Lands' End varies greatly from store to
store, and this fall the line's choices will be tailored to meet shopping
patterns at individual stores. "In the top 300 stores, we'll put
additional product in," Lacy said. "In the bottom 300 stores, we're
reducing it."
Another disappointment was sales of air-conditioning
units because of unseasonably cool weather.
In response to criticism about his leadership, a
spokesman said Lacy realizes pressure comes with the CEO territory.
Lacy has "plans to fix and grow the company," spokesman
Chris Brathwaite said. "There are a number of strategic initiatives under
way that position Sears for growth."
Sears did have some bright spots in its quarterly
results.
Its trendier clothing line, Apostrophe, enjoyed a 20
percent sales increase. Sears will soon roll out Structure and A Line,
also aimed at the more fashion conscious.
"We're confident that both the quality and level of
apparel inventory will be in good shape for fall and holiday seasons,"
Lacy said.
Children's footwear sales were up by a double-digit
percentage as Sears moved to a self-serve format. Also up were sales of
lawn and garden products.
Sears' specialty outlets--hardware stores, the Great
Indoors and its independently owned dealer store network--also saw
improvement.
Steel shortages resulted in some appliances being out of
stock, but sales in that sector--when stripping out air-conditioner
results--remained solid.
Of the 3,300 jobs being shed, about 3,000 are support
workers performing administrative and back-office tasks in the field.
Sears declined to say how many of those jobs are from the Chicago area.
Another 340 headquarters positions were eliminated, of which half were
unfilled jobs.
Sears' Profit Plunges
83% in 2nd Quarter
by Sandra Guy -
Business Reporter - Chicago SunTimes
July 23, 2004
CEO Alan Lacy's efforts to transform Sears Roebuck and
Co. into a competitive retailer are failing.
Sales continue to drop and earnings continue to fall
below forecasts, despite the retailer's latest round of job cuts -- a plan
to slash 3,340 positions this year, resulting in a second-quarter charge
of $41 million for severance costs.
The bad news just kept coming when Sears reported its
second-quarter earnings Thursday.
Sears lowered its forecasts for the third quarter and
the full year based on its poor first-half performance. Sears' mistake
earlier in the year of ordering too little apparel continues to haunt the
retailer, as does repeated rejiggering of store merchandise.
Sears' stock dipped as much as 11 percent Thursday --
the biggest decline in 21 months -- after the Hoffman Estates-based
retailer reported that second-quarter earnings plunged 83 percent from the
same period a year ago.
The shares ended the day Thursday down $1, or 3 percent,
at $33.93. The stock has dropped 23 percent this year, making it the
second-worst performer in the S&P 500 Retailing Index, behind Tiffany &
Co., according to Bloomberg News.
Sears' quarterly earnings totaled $53 million, or 24
cents a share, compared with $309 million, or $1.04, a year ago, when
Sears benefitted from its profitable credit-card business, which accounted
for more than 60 percent of its operating profit. Sears last year sold its
credit-card operations to Citibank.
Sears' earnings without pre-tax charges amounted to 48
cents a share, or 23 cents less than Wall Street analysts' expectations of
71 cents a share as compiled by Thomson First Call.
The pre-tax charges included the 12-cent-a-share
severance charge and a separate charge of $39 million, or 12 cents a
share, for an adjustment in the value of assets Sears sold to an outside
firm, Computer Sciences, which now runs Sears' computer systems.
Revenues dropped 14 percent, to $8.78 billion, from the
year-ago quarter's $10.2 billion, which included the credit-card business.
Lacy told analysts Thursday that he was disappointed in
the results but believes that cost cutting, management changes,
improvements in mall stores and the opening of off-mall stores will turn
things around.
Lacy has slashed 60,400 jobs, or 23 percent of the work
force, since Sears' board hired him to succeed Arthur Martinez in October
2000. Sears' work force after the cuts will total 206,600.
This year, Sears will cut 340 positions, or 7 percent,
of its work force at Hoffman Estates headquarters, and 3,000 back-office
operations jobs at stores, call centers and service centers. Of the 340
positions to be eliminated at headquarters, 165 were open and had remained
unfilled.
The 3,340 job cuts are expected to save $55 million to
$65 million annually.
Analysts were unimpressed.
"Sears continues to lose the merchandising war to
Wal-Mart and Target, with the main redeeming feature being its hefty
cash," said Egan-Jones Ratings Co., which placed Sears on a negative
watch. (Sears' cash balance was $3.7 billion at the end of the second
quarter.)
Said Howard Davidowitz, chairman of retail consultant
Davidowitz & Associates, "This is a continuation of the debacle -- a
company continuing to lose market share, continuing to lose position,
continuing to spin in place."
Bad news permeated Sears' earnings report.
Sales in the quarter that ended July 3 fell or stayed
flat in nearly every category. Sales of apparel and accessories fell 7 to
9 percent in the quarter from a year ago, as fashion successes in the
Apostrophe brand (sales up 20 percent) were more than offset by flat sales
of Lands' End apparel and declines in sales of classic clothing.
Sears continues to try to right its apparel mix. It will
introduce in the fall new casual brands from Azucar Bella, Harve Bernard
and Russell Kemp, all aimed at Latinos and African Americans. The Russell
Kemp and Azucar Bella brands will first appear in 100 urban stores, and
Harve Bernard's designs, to be sold under the Laura Scott label, will be
introduced in 350 stores.
Lacy declined to say whether Sears has its eye on
acquiring the Dockers brand from Levi Strauss & Co.
Sears also is repositioning its Lands' End brand after
it failed to catch on in multicultural, lower-income areas. Sears also has
cut back Lands' End's infant and toddler apparel because of poor sales.
"It's a modification, not a major shift in strategy,"
Lacy said.
Sales of Sears' traditionally strong hard goods also
were hurt, with a shortage of steel contributing to weak appliance sales,
and cooler, wetter-than-normal weather in May and June dampening sales of
air-conditioning units.
Sears also took a $21 million pre-tax charge to set up
reserves to cover the financial difficulties of one of its third-party
insurance providers.
Sears has started new initiatives to improve its
inventory controls, but it still expects same-store sales to decline 1 to
3 percent in the current quarter, and to rise 1 to 3 percent in the
critically important final quarter, which includes holiday sales.
Same-store sales fell 2.9 percent in the second quarter.
Sears said it now expects zero to 10 cents in earnings
per share in the current quarter, and earnings of $2.66 to $2.86 a share
for the year, down from an earlier estimate of $3.60 to $3.80. Analysts
had expected an average of $3.63.
Sears is seeking a merchandising guru to turn around its
retail sales -- a position many analysts had recommended as far back as
three years ago.
An analyst asked Lacy why Sears is bothering to sell
apparel. Lacy said clothes sales at the stand-alone Sears Grand stores
have been a "remarkable" success, and customers want Sears to sell a full
range of merchandise.
"There's no question this has been a hard slog so far,"
Lacy told analysts during a conference call.
The board of directors must decide whether Lacy should
suffer the consequences, said Davidowitz.
"Lacy had a tremendous challenge," Davidowitz said.
"He's been there three years. It ain't lookin' good."
Sears' Earnings Plummet 83%
By Amy Merrick -
Staff Reporter - The Wall Street Journal
July 23, 2004
Sears, Roebuck & Co. said its second-quarter net income
declined 83% and the company cut its forecast for the rest of the year,
blaming continued weak sales and inventory problems, lost revenue from
divested businesses and charges to reduce staff.
The retailer, based in Hoffman Estates, Ill., also said
it continues to struggle with the Lands' End apparel business it bought in
2002. Sears ordered too little Lands' End products overall, a problem it
won't be able to resolve until autumn. The company said it will pare back
Lands' End stock in stores where the clothes aren't selling well, while
adding more of the goods to stores with more-upscale customers.
For the quarter, Sears posted net of $53 million, or 24
cents a share, compared with $309 million, or $1.04 a share, a year ago.
Revenue declined 14% to $8.78 billion from $10.2 billion. U.S. sales at
stores open at least a year declined 2.9%. Sales and earnings were below
the company's expectations. Sears shares fell $1, or 2.9%, to $33.93 in 4
p.m. New York Stock Exchange composite trading.
Last year, Sears sold its credit business to Citigroup
Inc. and also sold its National Tire & Battery chain. In the year-ago
quarter, those businesses accounted for $364 million of Sears's $466
million in operating income from its U.S. division. Sears Chief Executive
Alan J. Lacy said during a conference call with analysts that the company
"lacked a sufficient amount of fashion-oriented spring product in what has
been a strong fashion-driven season."
During the quarter just ended, the company recorded a
pretax charge of $41 million, or 12 cents a share, for severance costs.
Sears said it eliminated 340 jobs at its headquarters, or 7% of such
positions. In addition, Sears cut 3,000 "field support" positions, mostly
back-office jobs. Those cuts represented less than 2% of its total U.S.
staff, the company said.
Sears also took a pretax charge of $39 million, or 12
cents a share, for depreciation expenses related to a sale of assets to
Computer Sciences Corp.
Sears said it expects to break even or earn as much as
10 cents a share for the third quarter. For the year, the company said it
expects to earn $2.66 to $2.86 a share, dragged down by 20 cents to 25
cents a share in credit-related debt costs.
J.C. Penney Launches
Fashion Makeover
By Ellen Byron -
Staff Reporter - The Wall Street Journal
July 23, 2004
When it comes to jeans, J.C. Penney wants a new fit.
In an effort to kick-start its private-label brand of
casual-teen clothing sold under the name of Original Arizona Jean Co., the
department-store chain is rolling out an advertising campaign to highlight
the collection's new look and launch its crucial back-to-school season.
The campaign marks a relaunch of the Arizona brand as a
more stylish, trendy collection. Once one of Penney's strongest private
labels, its clothing failed to keep up with the fashion pace of preppy
teen specialty retailers such as Abercrombie & Fitch and American Eagle
Outfitters, and sales dwindled. Its stagnant offering of polo shirts,
T-shirts and jeans had become too basic, and even though its target
shopper had always been 17 to 24 years old, company research found that
Arizona consumers were mainly age 45 to 48.
Hoping to better click with the fickle fashion appetites
of teens, Penney revamped its Arizona supply chain to get edgier,
vintage-inspired fashions such as crocheted ponchos, dark-wash jeans and
easy-to-layer shirts to its stores faster. In addition to print and
television spots, Penney is launching a Web site, www.arizonajeans.com1,
that will include interactive features so the company can stay in touch
with its teen consumers' tastes.
"We found out that on the juniors side, every six to
eight weeks a new trend emerges," says Jeff Bergus, design director for
Arizona. "If you're a half a year behind, teens will leave you in the
dust."
Centered on a road-trip theme, the TV spots and print
ads for Arizona show hip, long-haired young men and women enjoying one
another's company as they drive through a desert landscape. The spots, set
to debut Sunday, will run on network and cable programs likely to be
watched by kids, teens and their mothers, and the print ads will run in
August and September issues of Cosmopolitan, Teen People, Maxim and
Rolling Stone, among others. Omnicom Group's DDB created the ads.
J.C. Penney's new Arizona
campaign emphasizes
its new hip look.
"By updating our teen fashions, it gives us the
credibility that we're right there with the other specialty retailers at
half the price or less," says Vanessa Castagna, chairman and chief
executive of J.C. Penney's stores, catalog and Internet.
The Arizona effort is part of a broader push at the
Plano, Texas, retailer to transform its staid image into a more
fashionable one, primarily by emphasizing and updating its private labels.
Those brands, which include Arizona, career-oriented Worthington, St.
John's Bay casual clothing and Stafford business wear, account for about
40% of its sales and are rising at twice the rate of overall sales, the
company says.
The fashion revamp is the latest step in a companywide
overhaul that retailing veteran Allen Questrom has put in place since
arriving as chairman and chief executive in 2000, including closing
underperforming stores, centralizing purchasing and bringing on a new
management team.
The strategy seems to be working. Same-store sales, or
sales in stores open at least a year, rose 4.8% in June and are up 8.4%
for the first 22 weeks of the year. Last year, same-store sales edged up
0.9%, with total sales of $17.8 billion. Penney spends about $400 million
a year on advertising, according to ad-spending tracker TNS Media
Intelligence/CMR.
Sears
Profits Plummet 83 Percent in 2Q
By Dave
Carpenter - AP Business Writer
July 22, 2004
CHICAGO (AP)--Sears, Roebuck and Co. reported an 83
percent drop in second-quarter earnings and fell far short of Wall
Street's expectations Thursday, suffering from continued weak sales and
the absence of the profitable credit-card unit which it sold last year.
The ailing retailer also lowered its second-half
estimates based on the poor first-half showing.
Its shares plunged $3.43, or 10 percent, to $31.50 in
early trading on the New York Stock Exchange.
Net income was $53 million, or 24 cents per share, down
from $309 million, or $1.04 per share, a year earlier.
In morning trading Thursday, Sears shares tumbled $2.88,
or 8.2 percent, to $32.05 on the New York Stock Exchange.
The company took two charges for the quarter--$41
million for severance costs associated with the restructuring of its
company's home office organization and related field initiatives, and $39
million for additional depreciation expense related to a previous
transaction with Computer Sciences Corp.
Excluding those items, operating earnings were 48 cents
a share _ far short of the 71-cent consensus estimate of analysts surveyed
by Thomson First Call.
Revenue was $8.78 billion, down 14 percent from $10.2
billion a year earlier before it sold the credit business to Citigroup.
On pace for its fourth consecutive year of declining
sales, the Hoffman Estates, Ill.-based retailer said it expects lower
comparable sales for the third quarter.
``Like much of the industry, we experienced weak demand
in June,'' chairman and CEO Alan Lacy said. ``That, combined with the
overhang of our spring apparel assortment and inventory issues, resulted
in a disappointing quarter.''
In a reflection of the impact of the divested credit
business, which it sold for $3 billion, Sears said its domestic businesses
had operating income of $42 million in the quarter. That was less than a
tenth of the $466 million figure from a year earlier, when the credit unit
alone had operating income of $358 million.
For the first six months of 2004, Sears reported a net
loss of $806 million, or $3.71 per share, as a result of an $839 million
first-quarter accounting charge linked to its pension and post-retirement
medical benefits. It earned $501 million, or $1.63 per share, in the first
half of 2003.
Revenue was $16.58 billion, down 13 percent from $19.08
billion.
Lands' End
Announces New Chief Marketing Officer
PRNewswire
July 21, 2004
Ed Whitehead Brings
More Than 20 Years of Retail Experience to
Lands' End Marketing
DODGEVILLE, Wis., July 21 /PRNewswire/ -- Lands' End
today announced it has named Ed Whitehead as executive vice president and
chief marketing officer effective today. Whitehead is responsible for
collaboratively ensuring the integrity of the Lands' End brand and
overseeing integrated marketing communications. Whitehead joins the Lands'
End executive committee and reports directly to Mindy Meads, president and
chief executive officer.
a.. "Ed is a nationally respected marketing and retail
executive, filled with a wealth of experience in developing integrated
marketing strategies across multiple channels and media," Meads said. "His
proven leadership skills will continue to raise the bar for Lands' End
marketing and strengthen the image throughout all the venues where Lands'
End does business."
Whitehead comes to Lands' End from Galyans where he was
senior vice president of marketing. He was the founder and chief operating
officer of Workshop, a company specializing in branding, marketing and
creative strategies. Whitehead also has held senior marketing positions
at: Harrods; Mossimo, Inc.; CK Calvin Klein; Nike; and, Polo/Ralph Lauren.
Sears Hires a Former
Wal-Mart Executive
By Becky Yerak -
Tribune staff reporter - Chicago Tribune
July 21, 2004
Sears, Roebuck and Co. hired a former
Wal-Mart Stores Inc. executive to help the struggling retailer's strategy
for improving sales.
Jeffery Gruener will fill the newly
created post of vice president of corporate strategy for the Hoffman
Estates retailer. He is a former senior strategic planning executive at
the Bentonville, Ark., discounter and will work with the Sears team
responsible for 871 full-line stores, most of which are anchored to malls.
"Jeff will be responsible for retail
strategy, working with the full-line stores team on retail store
turnaround, growth and strategic positioning," Sara LaPorta, Sears' senior
vice president for strategy, said in a memo.
Facing its fourth straight year of
falling sales, Sears increasingly is looking outside the company for help
in righting its retail operations.
"Our goal has always been to look at
talent here and supplement it with seasoned executives from the industry,"
said Sears spokesman Chris Brathwaite. "That's not a knock on the talent
here, but we like to have a new perspective."
On July 12, Sears announced an external
search to fill another new position, president of Sears' retail.
Outsiders are said to have the edge for the new post,
which would be the No. 2 job at Sears behind Chief Executive Officer Alan
Lacy. The new president will oversee not only Sears' mall stores, but also
its growing off-mall presence.
On June 30, Sears acquired 61 stand-alone stores from
Wal-Mart and Kmart Holding Corp. Most of those locations will be folded
into the full-line stores division of which Gruener is now a part.
One executive recruiter wasn't surprised to hear about
Sears' poaching from a rival.
"You look at the numbers, and Wal-Mart and other big-box
guys have clearly been ascending" at the expense of Sears, said Kerry
Moynihan, managing partner for search firm Christian & Timbers in McLean,
Va.
"It makes sense to go to your successful competitors and
figure out what you have to do to emulate them," he said.
At Wal-Mart, Gruener was responsible for rolling out
Sam's Club in the Canadian market, the Sears memo said. He'll report to
LaPorta.
Also this week, Sears named Catherine David to the post
of general manager of its Great Indoors home improvement chain.
David formerly was president of Newell-Rubbermaid's
Burnes Group, the world's biggest photo frames supplier. She also worked
at Target Corp. for 12 years.
Sears Trims Staff That Oversees Network of Independent Stores
By Becky Yerak - Inside Retailing - Chicago Tribune
July 20, 2004
As Sears, Roebuck and Co. slims down
its corporate structure to reduce costs, not even its growing
businesses are immune from the numbers-crunching scrutiny.
The Hoffman Estates retailer, which
has 792 independently owned stores in small towns across the nation,
last week trimmed the corporate staff that supports the so-called
dealer network.
A total of seven managers and
administrative workers in Sears' dealer store department left the
company last week as part of a companywide cutback called Project
Sharp. At least a couple of hundred headquarters jobs are expected
to be eliminated from the payroll.
"Although this process was painful,
it was necessary" to make Sears a nimbler and more efficient
retailer, Penny Katsaros, head of Sears' dealer stores group, said
in an e-mail. "This restructured organization will better serve
customers and owners and will ensure that the dealer stores are more
relevant."
The ability to recruit entrepreneurs
willing to own and operate Sears' franchised stores hasn't quite
kept pace with the company's earlier expectations.
In 1993, Sears had only 192 dealer
stores, but their numbers grew consistently throughout the 1990s.
In 1998, Sears announced plans to
have 1,000 dealer stores by 2001. But it has yet to reach that
target.
The dealer stores average 5,600
square feet--a mere fraction of the 91,000 square feet in the
company's 871 mall-based stores.
But the locally owned stores do give
Sears the opportunity to sell its Kenmore appliances, Craftsman
tools, DieHard batteries, electronics, and lawn and garden goods in
the hinterlands.
Also, while sales in Sears' 871
full-line stores have dropped in four of the past five months,
revenues in Sears' 792 franchised dealer stores have fallen only
twice in that same time period.
In all of 2003, sales at dealer
stores open at least a year rose 3 percent, bucking the trend of
falling companywide sales.
Also, income of the average dealer
"increased about 5 percent last year" to record levels, Beryl Buley,
senior vice president of Sears' off-mall formats, said in April.
"We're really happy with the business."
In fact, Sears has growth plans for
the dealer format in 2004.
"We're going to open another 30
locations in 2004," giving Sears 822 dealer stores by year end,
Buley said.
"We have a team here that actually
goes to the towns. We go through the chamber of commerces, send
people into the market and hold a meeting and talk about the
opportunity. We have an Internet site we're working on for
recruitment," Buley said.
Sears has an additional 200 markets
identified in which it would like to find entrepreneurs to open
dealer stores. That would enable it to surpass its goal of 1,000
stores.
But about 75 dealer stores, or about
10 percent of existing stores, also are for sale.
"At any given time people are looking
to retire or do something else," Buley explained.
The start-up cost for a Sears' dealer
store ranges from $43,000 to $117,000, depending on the size,
merchandise assortment and location.
Sears
Picks Target Exec for
Great Indoors
By Sandra Guy - Business Reporter
- Chicago Sun-Times
July 20, 2004
Sears Roebuck and Co. named a former Target Corp.
executive to head its troubled chain of Great Indoors home-decor stores.
Catherine David, 40, succeeds Jeff Jones, who turned
around the Great Indoors chain's performance before he was promoted in
April to executive vice president of merchandising operations at Sears.
David told the Sun-Times on Monday that her experience
working in the home fashions department at Target Corp. will serve her
well in her new job.
She even sent a team of Target employees to Colorado to
scrutinize a Great Indoors store when Sears kicked off the concept. The
Great Indoors chain, which includes stand-alone stores in Lombard,
Schaumburg and Deerfield, sells mostly high-end home products from bed
linens and lamps to countertops and cabinets.
David oversaw Target's customer-direct business and
merchandise planning, buying and marketing during her 12 years at the
Minneapolis-based retailer ending in 2003.
Most recently, she served as president of Burnes Group,
a photo frame supplier that Newell-Rubbermaid is selling to Global Home
Products LLC.
She faces a daunting task at the Great Indoors, whose
monthly sales performance has been slipping. Some analysts believe the
chain has one more chance to survive.
Last October, Sears took a $141 million pre-tax charge,
or 32 cents per share, to account for its decision to close three Great
Indoors stores, convert a fourth into an outlet store, and revamp
marketing, product selection and inventory controls at the remaining 17
stores.
Each Great Indoors store costs $16 million to $25
million to build and produces an average of $30 million in yearly sales.
Sears CEO Alan Lacy expressed confidence in the chain's retooling after
the company's shareholders' meeting in May, and said the Great Indoors
chain might even be expanded.
David said, "We intend to maximize (the Great Indoors')
profit potential."
David, who will report to Beryl Buley, Sears' vice
president and general merchandise manager of home stores, is no stranger
to the Chicago area. The native of Queens, N.Y., worked in Chicago for the
Gallo Winery in 1989-1990, and received her MBA at Northwestern
University's Kellogg Graduate School of Management in 1991.
Performance of Softline Business
Press Release
(July 19, 04)
Sears to Bolster
Its Merchandise Performance Improvement Project
(MPIP) by Applying Customer Insight and Analytics to Its Markdown Process
BOSTON, July 19 /PRNewswire/ -- ProfitLogic, whose suite
of Merchandise Optimization solutions helps retailers make more profitable
merchandising decisions, announced today that Sears, Roebuck and Co.
(NYSE: S - News) will undergo an implementation of ProfitLogic's Markdown
Optimization solution for apparel merchandise in its 870 U.S.-based
stores. This initiative is designed to bolster Sears' strategic
Merchandise Performance Improvement Project (MPIP), which was launched in
2003. ProfitLogic will provide Sears with analytics and a new approach to
merchandising that will result in improved financial performance.
"We have refocused our efforts on the softlines
business," said Alan Lacy, Chairman and CEO of Sears. "We have created a
new merchandising organization whose goal is to increase margins and
market share and decrease markdown rates in the apparel business."
Sears wanted a solution that would deliver high value in
a short period of time. After investigating their options, the
merchandising team determined that ProfitLogic's solution, running on IBM
hardware and software, offered an innovative and streamlined approach to
merchandising decision-making. Once implemented, the merchant and planning
teams will have a single source for information, an automated process, and
a solution that allows them to understand the ramifications of their
decision-making. Ultimately, this will allow the merchant and planning
teams to make more effective use of their markdown dollars.
"After much investigation, we realized that in order to
dramatically improve our merchandising processes, we need to supercharge
our decisions with analytics and better information about our customers'
needs," said Steve Poplawski, VP of Integrated Merchandise Planning and
Placement at Sears. "We chose ProfitLogic for a couple of reasons. The
ProfitLogic team demonstrated a solid understanding of our business and
they have a proven track record with 20 retail customers that are
achieving significant performance improvements."
"We are very pleased to be working with Sears in an
effort to improve its softlines business," said Tom Ebling, ProfitLogic's
Chairman and CEO. "We're excited to help the company positively impact its
financial performance through the use of analytics and a better
understanding of customer demand."
ProfitLogic provides industry-leading Merchandise
Optimization solutions designed for retailers whose top priority is
getting the highest return on inventory investments. ProfitLogic's
customers have found that using insights into future customer demand
results in more profitable merchandising decisions and more time to focus
on what matters most: the customers and the merchandise. ProfitLogic's
solution for Sears supports IBM DB2 Universal Database and IBM WebSphere
Internet infrastructure software, and runs on AIX5L for eServer and
pSeries as well as Linux on eServer and xSeries.
Sears Names
Great Indoors Exec
By Rita Chang - Crain's Chicago
Business
July 19, 2004
Catherine David spent 12
years at Target
In a sign that Sears Roebuck & Co. hasn't given up on
its struggling Great Indoors concept, the Hoffman Estates-based retailer
said Monday it has a new manager to oversee the stores' operations.
Catherine David will be the division's new general
manager, in charge of merchandising, marketing and operations for the
big-box home decorating and remodeling stores. She replaces Jeff Jones,
who was promoted to executive vice-president of Sears' merchandising
operations in April.
Ms. David most recently was president of
Newell-Rubbermaid Inc.'s Burnes Group, a photo frame supplier. Before
that, she spent 12 years at Target Corp., where she directed merchandise
planning, buying and marketing for the Minneapolis discount giant.
"Bringing someone from the outside signals that [Sears]
is serious about making it work," says Neil Stern of Chicago-based retail
consultancy McMillan Doolittle LLP. Mr. Stern calls the Great Indoors "a
wonderful concept for the consumers," but says the company has failed in
execution and operation.
Sales at Great Indoors stores began faltering in 2001,
but posted positive growth in June-one of the few bright spots in Sears'
most recent same stores sales results.
"I think the Great Indoors has a future, although a
fairly limited future," says Kurt Barnard, president of New Jersey-based
Barnard's Consulting Group. He notes that Sears is focused now on getting
the most out of its off-mall department store concept.
Ms. David's challenge, he says, will be to make the
stores profitable as Sears focuses on turning around its overall poor
performance.
"It's a good concept, but it has not has not taken hold
as well as Sears has expected. They're more interested in these (off-mall
department store) formats, because they've been getting good results from
them. They have not learned to make money from the Great Indoors."
Ms. David was not immediately available; Sears officials
did not return phone calls.
Divining Eddie
Lampert's Grand Plan for Kmart
By Andy Serwer - Fortune
July 26, 2004
The discounter is Wall
Street's darling,
but don't mistake that for a bright future.
What makes a company a Wall Street darling? It helps to
have a scintillating story or to sell a product that people are gaga
about, but above all what makes for a Wall Street darling is buzz. And
right now no company is generating more buzz on Wall Street than Kmart.
Yes Kmart, the sick man of discount retailing and the butt of 1,000 jokes.
That Wall Street is now sweet on Kmart is irrefutable.
Since coming out of bankruptcy in June of last year, Kmart's stock has
exploded, climbing from $15 and change to nearly $80. The rising level of
chatter about the company has been commensurate. In early June, in a
column in New York magazine, the irrepressible Jim Cramer tagged Kmart as
the next Berkshire Hathaway! With skywriting like that, it's no wonder
hot-money types, as well as short-sellers, have plunged into the stock.
I should stop here to make the very important point that
Kmart is now 52.8% owned by its chairman, financial impresario Eddie
Lampert, who heads ESL Investments, a $6 billion hedge fund. Eddie is an
interesting character. A former protege of Bob Rubin in Goldman Sachs's
risk arbitrage department, Lampert has built a strikingly successful hedge
fund business-initially with Richard Rainwater down in Texas-often by
buying stakes in down-and-out companies and then foisting change upon
them. (Case in point: AutoZone.) Last year Lampert was kidnapped, bound,
and blindfolded in a bathtub in a cheap hotel outside New Haven and held
for ransom. (The ransom was never paid, and the kidnappers were caught
after ordering pizza on Lampert's credit card.)
So is Lampert strictly interested in reviving Kmart as a
discount merchandiser, and if the answer is yes, what is the company's
strategy? Or is he more interested in selling off Kmart's valuable real
estate portfolio? Or is Lampert looking to create some sort of holding
company-which is the point that Cramer was making. Let's look at each
scenario. First, reviving Kmart: Yes, the
company still has Martha Stewart's line (is that an asset?). It's also
true that Kmart reported net income of $93 million in the first quarter,
but that included net gains on sales of assets (including corporate
aircraft and a Trinadadian subsidiary) of $32 million. Same-store sales
declined 12.9%, and you'd be hard-pressed to find anyone who's convinced
by new CEO Julian Day's turnaround strategy. Plus, let's not forget that
Kmart is facing off against formidable rivals in Target and, especially,
Wal-Mart. Growing Kmart looks like a long shot.
So is Lampert interested in making Kmart a real estate
play? Could be. In early June, Kmart sold 24 of its stores to Home Depot
for $365 million. Then, less than a month later, Kmart sold another 54
stores, this time to Sears for $621 million. Now Kmart only owns 78 stores
(though it still has leases on more than 1,300). Looks as if Lampert is
running out of real estate. As for Lampert doing his best imitation of
Warren Buffett and turning the Big Red K into a
holding-company-cum-investment-vehicle, that may very well be. Of course
it may also very well not be. Lampert has yet to invest in a Washington
Post or buy a Geico. You get the picture.
So what is Lampert's endgame with Kmart? It's a good bet
that even he doesn't know. One thing's for sure: Lampert will probably
keep moving the pieces around as long as he makes money. (So far he has
turned his reported $750 million investment in Kmart into some $3.5
billion.) Which raises the question: What
happens to Wall Street darlings? Well, sometimes they go on to become
Starbucks or Federal Express. But often they become Iomega or Theglobe.com.
Notice the difference between the stars and the dogs. With the former, the
company's business, its product, and its competitive position is clear.
With the latter, it's all a lot less clear. Which category does Kmart
belong in? Hard to argue it's in the first.
Kmart: Yes, with Conviction --
Retailer Stands Firmly Behind Martha Stewart's Products
By Becky Yerak - Tribune staff
reporter - Chicago Tribune
July 17, 2004
Despite Martha Stewart's legal problems over the past
year, her key retail partners are sticking with her--and for good reason.
Sales of Martha Stewart Everyday products have remained
solid despite their creator's felony conviction in March. On Friday, she
was sentenced to five months in prison for her part in a stock-trading
scandal.
Kmart Holding Corp. and Sears Canada Inc., who sell her
products exclusively in the United States and Canada, are standing by her.
"Martha Stewart Living is a valued brand partner of
Kmart," the retailer said in a statement Friday. "We look forward to
continuing our mutually beneficial and successful relationship."
Stewart's jail sentence changes nothing for Sears Canada
either.
"Even with the verdict in March, we didn't see any
difference in sales patterns," Sears Canada spokesman Vincent Power said
Friday.
Shoppers are compartmentalizing their views on Stewart's
legal woes with their regard for the styling and pricing of her products.
"The customer still says `yes,' so we'll continue," said
Power, whose company is 54 percent owned by Sears, Roebuck and Co. of
Hoffman Estates.
The two retailers' continued association with Stewart
doesn't surprise one researcher who tracks shopping trends.
"I've found that 80 percent to 85 percent of Kmart
shoppers who have bought Martha Stewart products remain loyal," said Britt
Beemer, chairman of America's Research Group.
Stewart might be a convicted felon, but she and her
design team have as much of a feel for the needs and desires of American
women as anyone, he said.
"She sells products that consumers want to buy," Beemer
said. And "Martha and Kmart need each other so much that they're both
looking for the relationship to continue."
For the quarter ending April 28, sales at Kmart stores
open at least a year sank 13 percent, the Troy, Mich., company reported in
May.
But Kmart's sales of Martha Stewart goods rose 6.5
percent since the March 5 verdict, according to a May 7 financial report
from publicly traded Martha Stewart Living Omnimedia Inc.
Higher sales of Stewart's products at an otherwise
struggling merchant can be chalked up to two factors, one former Kmart
executive said.
"The amount of Martha Stewart product they now have in
the stores is greater today than it was a year ago," said Gary Ruffing,
now head of the retail services group at turnaround management firm BBK
Ltd.
"And some of it could be a backlash by women who are
buying because they're making a statement that they're behind Martha," he
said.
The Martha Stewart line is one of the few offerings
distinguishing Kmart from other merchants.
As proof they're in it for the long haul, Kmart and
Martha Stewart extended their partnership in April by two years, through
2009. The new pact also gives Stewart a presence in such new product
categories as ready-to-assemble furniture.
Consumers have remained "stalwart" in the view of
Stewart, her company maintains.
"Our research shows that magazine subscribers in
particular were unfazed by the verdict immediately afterwards and remain
so roughly six weeks later," it said May 7.
But at least one group remains skittish about Stewart:
advertisers.
Total revenues for Martha Stewart Living Omnimedia
dropped 23 percent in the quarter, due mostly to falling revenues at her
television and publishing arms as advertisers and broadcast stations fled.
"It will take longer for advertisers to return to our
print publications," the company conceded.
Sears Needs a Top Talent
A Solution That Threatens Lacy's Job
By Sandra Jones - Crain's
Chicago Business Online
July 17, 2004
Sears, Roebuck and Co. needs a merchant to fix its
stores, but is unlikely to find an executive who's up to the job unless
Chairman and CEO Alan Lacy steps out of the way.
Mr. Lacy-who is searching for a new president of stores
after his first hire, former KFC Chief Operating Officer Mark Cosby, 45,
didn't work out-is in a bind. To keep his job, he needs to turn around
Sears' 2˝-year string of declining retail sales. And to boost store sales,
Mr. Lacy needs to find a savvy and experienced merchant who understands
how to sell everything from milk to swimsuits to refrigerators at outlets
as diverse as a catalog, the mall and freestanding big-box stores.
Mr. Lacy, 50, took the top job at Sears in October 2000
after a career in finance. Critics lamented his lack of merchandising
experience, but at the time Sears was making two-thirds of its profit from
its credit card operation, a business Mr. Lacy ran for three years.
That business is gone. Mr. Lacy made the stunning move
of selling Sears' credit operation to New York's Citigroup Inc. last year
and declared Sears would sink or swim on the strength of its retail
prowess. With that maneuver, Mr. Lacy eliminated the most compelling
reason for keeping his job.
Adding to Mr. Lacy's tenuous position is turmoil among
his senior staff. Only one of the 13 executive officers on Mr. Lacy's
staff when he became CEO in October 2000 is still with the company: Mark
Cohen, 55, currently chairman and CEO of Sears Canada. The absence of a
top merchant has hurt Sears' apparel sales, $4.5 billion in 2003, down
from $5.2 billion in 2001.
Last year, disagreements over the direction of the
apparel business-for example, top executives debated whether to keep the
dowdy women's elastic-waist pants that were among Sears' best sellers, a
former apparel executive says-led to delays in placing orders and left
Sears stores low on merchandise when the apparel recovery began. (Mr.
Cosby, who has a reputation as a motivator, was known to commence meetings
by having the entire room run in place.) Just who has an answer?
A Sears spokesman declined to discuss the candidates
beyond saying, "We're going to do a thorough search." The company is in
talks to hire an executive recruiter, he says.
Two executives within the company are touted as
possibilities: Mr. Cohen improved operating margins on falling sales as
head of Sears Canada and had been one of Sears' top marketing executives
since joining the company in 1998. He also has a strong retail background,
running Brad-lees Inc. and Federated Department Stores Inc.'s Lazarus.
But Mr. Cohen is considered a long shot because he lacks
political clout within Sears, according to former executives. He and Mr.
Lacy don't get along, they say, and that's one reason why Mr. Cohen was
transferred to Canada in January 2001, three months after Mr. Lacy became
CEO.
Post in position
Jerry Post, 59, senior vice-president and general
merchandise manager of Sears' off-mall stores, is a well-regarded Sears
veteran who could step into the No. 2 slot without expecting to become
CEO, say executive recruiters and former Sears executives who know him.
Among the outside candidates: Sears is likely to go
after Vanessa Castagna, chairman and CEO of J. C. Penney Co. stores,
catalog and Internet and a former Wal-Mart Stores Inc. senior executive.
But, Ms. Castagna, 54, is in line to succeed Penney's chairman and CEO,
Allen Questrom, who is 64 and slated to retire next year.
More options
Another possibility: Mark Baker, 46, former chief
operating officer and chief merchant of Home Depot Inc. and the man who
led the home improvement king's entry into the Chicago market in the mid
1990s. Mr. Baker is currently CEO of Gander Mountain Co., a Bloomington,
Minn.-based big-box sporting goods store.
Ms. Castagna and Messrs. Questrom, Cohen and Post
declined to comment. Mr. Baker didn't return phone calls seeking comment.
Sears
to Close Multicultural
Marketing Unit;
Exec Retires
By Becky Yerak
- Tribune staff reporter - Chicago tribune
July 16, 2004
The head of Sears, Roebuck and Co.'s multicultural
marketing group is leaving the Hoffman Estates retailer as part of a
cost-cutting program sweeping the company.
Billye Alexander, a 34-year Sears veteran who was named
vice president for multicultural management seven months ago, is retiring
from the ailing department store chain. Her group will be disbanded.
Five others in the department will be reassigned to
individual business units to handle multicultural marketing. Putting those
marketers closer to the customer "will allow for quicker decision making
and implementation," Janine Bousquette, Sears' chief customer and
marketing officer, explained in an e-mail to workers Thursday.
Sears does need to act fast. The nation's largest
department store chain is on pace for its fourth straight year of falling
sales, as rivals ranging from Wal-Mart Stores Inc. to Home Depot Inc.
steal its market share in everything from apparel to appliances.
The disbanding of what had been the stand-alone
multicultural marketing group typifies the upheaval at Sears, which has
been looking for ways to cut costs and become more nimble. Sears launched
the corporate shake-up, which was code-named "Project Sharp," in December
to streamline its operations.
Many companies have had multicultural marketing
departments only to disband them, figuring that each business line should
be marketed to every customer.
But such companies risk shooting themselves in the foot
by dispersing a tightly knit group into separate business units, said
Richard Aguilar, a Hispanic marketing consultant in Minneapolis.
"Can you imagine integrating Spanish marketing in every
department and thinking they all understand what it is?" he said.
"Hispanics are not seen as minorities by some. They think they've been
assimilated, but you do have to market to them in a different way."
Indeed, Sears has much riding on multicultural
marketing. Hispanics, Asians and blacks now account for more than 25
percent of the company's sales and are likely to grow as a share because
of the nation's changing demographics.
Sears said the dissolution of Alexander's department,
whose duties in the future will be handled out of individual business
units, does not diminish the firm's commitment and investment in
multicultural markets.
"What we're doing now is embedding the team members into
the businesses," Sears spokesman Chris Brathwaite said. "We're taking
multicultural marketing to the next level by making it part of the fabric
of the overall organization."
Among the group's achievements was the integration of
the Lucy Pereda collection, an apparel line backed by the popular
television star dubbed the Hispanic Martha Stewart.
Sears has not disclosed how many of its 4,600
headquarters workers it has laid off under Project Sharp. But the nation's
biggest department store chain is scheduled to release its second-quarter
financial results Thursday, and Sears may address cost cutting in a
conference call with Wall Street analysts.
It is expected the cuts might amount to a couple hundred
positions at Sears' headquarters, in addition to the 260 information
technology jobs farmed out in March.
Now that new departmental structures are in place and
many workers have new duties, Sears is essentially asking headquarters
employees to move on.
"I am happy to report that we are retiring Project Sharp
from the Sears vocabulary," Chief Executive Alan Lacy said in a Tuesday
memo to workers.
The change will make Sears stronger, he said, but he
acknowledged that there had been a significant degree of anxiety in the
process.
The restructuring has "resulted in some very good
members of the team leaving the company, and this is painful," said Lacy,
who became CEO in late 2000. "I would not have taken us down such a
difficult road unless I thought it was absolutely necessary."
Alexander, who could not be reached for comment, joined
Sears in 1970 and became division manager of a store in Stockton, Calif.,
in 1971. Before being named to her current post, she was Midwest regional
vice president.
There are other changes, as well. Sears said Bousquette
will no longer report directly to Lacy after the company hires a president
for its retail operations. Sears announced the new post Monday, coinciding
with the departure of Mark Cosby, head of its full-line stores.
Employers Poised to End
Retiree Benefit
Items compiled from
Tribune news services
CHICAGO TRIBUNE
July 14, 2004
WASHINGTON, D.C. -- New government estimates suggest
that employers will reduce or eliminate prescription drug benefits for 3.8
million retirees when Medicare offers such coverage in 2006.
That represents one-third of all the retirees with
employer-sponsored drug coverage, according to the Department of Health
and Human Services.
Rep. Pete Stark of California, the senior Democrat on
the Ways and Means Subcommittee on Health, said it now appears that the
new law would "force millions of retirees out of comprehensive retiree
drug coverage and into a flawed, inadequate program."
Republican supporters of the new law and many employers
contend it would help stabilize retiree health benefits.
Administration officials said Tuesday that they hope
federal subsidies would induce more employers to continue providing drug
benefits to retirees.
Sears Canada
Shows Successful
Side of Retailing
By Jim Kirk - Business Beat -
Chicago Tribune
July 14, 2004
Change is coming fast and furious at Sears, Roebuck and Co.'s
headquarters.
It has to. With same-store sales continuing to decline, time--as we've
said before--is not on the troubled retailer's side.
On Monday, the company parted ways with its full-line stores president,
Mark Cosby, and said it was searching outside the company for a new head
of retail.
When CEO Alan Lacy wants to change an executive, he conveniently
changes the job specifications.
Now comes word that a big marketing shake-up at its headquarters is
slated for as early as Thursday as pressure builds on Chief Marketing
Officer Janine Bousquette. She's already ordered up a major revamp of the
company's advertising, yet again, for the all-important fall selling
season.
Both Sears' stores, which were headed by ex-Kentucky Fried Chicken
executive Cosby, and marketing division are in desperate need of change.
The gloomy picture at Sears these days is in sharp contrast to its
counterpart operation in Canada, where business is up and prospects are
brighter.
In the first quarter, the 120-store Sears Canada Inc. posted a profit,
while its 871-store U.S. counterpart suffered a loss.
And they have former Sears marketing chief Mark Cohen, chairman and CEO
of Sears Canada, to thank. That's why Cohen's name is again a topic of
discussion at Sears.
To many, he's the merchant Sears has been looking for ever since Lacy,
a financial executive, took the post of CEO in late 2000. While it's true
that Sears Canada retail sales, at roughly $4.5 billion, pale next to
Sears Roebuck's $31 billion, Cohen has the advantage of inside knowledge
of Sears.
Since joining Sears Canada in 2001 after getting overlooked for the CEO
job here, he's streamlined the operation, figured out who Sears' Canada
customer is and ordered up new formats.
In other words, he's turned around a troubled retailer.
As head of Canada's third-largest department store, he recently
launched a new concept under which Sears could open hundreds of smaller
specialty shops to compete against niche stores.
He, like Sears in the U.S., announced an off-the-mall strategy with
stores that would be roughly 20 percent smaller than a typical mall store.
And he's beefed up apparel.
He snatched up the Martha Stewart brand, and things are going so
swimmingly that sales were up after her March conviction.
Same-store sales in Canada were up 8.1 percent in the first quarter
while U.S. same-store sales rose 1.6 percent.
Observers in the retail game say that Sears Canada, which is 54 percent
owned by Sears Roebuck, isn't on the same battlefield as Sears in the
United States.
The whole Canadian department store category was turned on its ear a
few years ago, leaving Sears to compete with fewer players.
"It's a different environment. Department stores have fallen on hard
times, so it doesn't take much of a department store to do well," said
George Whalin, president of Retail Management Consultants, about Canada's
retail market. But Cohen has proven he can turn
around a department store. And he knows the Sears brand perhaps better
than any outsider.
More important, he's a merchant. "They've needed a merchant for a long
time," Whalin said.
But it's not the only thing.
"Part of the problem is direction. This is the most ill-directed big
company I've seen. They go from one harebrained idea to another," Whalin
said.
But it would be highly unlikely that Cohen would take the No. 2 U.S.
post.
Several Sears sources said that the only job he'd come back for would
be Lacy's.
"They need a merchant," said Whalin. "But they need a strategy before
they need a merchant."
(AP) - Caterpillar Inc. retirees have been notified they might have to
start paying for health care premiums.
In a letter mailed last week, the Peoria-based company said that a
special fund created by the United Auto Workers will be empty in August.
The fund paid health care premiums for workers who retired after Jan. 1,
1992.
The amounts could range from $134.44 for individuals not on Medicare to
$280.88 for family coverage, wrote Greg Folley, Caterpillar's director of
compensation and benefits. He added that costs would increase on Jan. 1,
2005.
Folley said in the letter that retirees could avoid having to pay by
ratifying the company's final contract offer.
We understand the impact these premiums may have on you and have
offered the UAW a much more affordable solution as part of our contract
proposal," Folley wrote.
A union spokesman declined to comment.
UAW members at eight Caterpillar locals overwhelmingly rejected a
proposed six-year labor agreement on April 25. They have been working
without a contract.
The letter was the third in a series of updates on the status of the
UAW special fund, Caterpillar spokesman Ben Cordani said.
"We owe it to our retirees to let them know where things stand," he
said. "It was only the responsible thing to do."
