Breaking News
July 2001 - September  2001

Sears Says It'll Put Flag Decals on Vehicles

By Robert C. Herguth, SunTimes Staff Reporter
September 28, 2001

Sears, Roebuck and Co. angered many employees by recently banning American flags from service vehicles.

Now the company plans to apply flag decals to the exteriors of all 15,000 company vans, an official said Thursday.

"We had said all along what we were looking for was something properly and respectfully displayed and not obstructing the vision of the driver, and we wanted something that could be consistently applied throughout the fleet," said Ted McDougal, a spokesman for the Hoffman Estates department store chain.

On Wednesday, Sears defended the decision not to allow employees to attach flags and other patriotic symbols to side-view mirrors and antennas of service vans, citing safety and aesthetics.

And the company at the time said it was exploring whether to paste uniform decals on all vans.

On Thursday, as the debate intensified, Sears announced flag decals would be applied to vans beginning today. The decal cost likely will be $1 to $2 per van.

Consumer Confidence Crumbles
Reuters Newsroom
September 25, 2001

U.S. consumer confidence fell sharply in September, suffering its largest one-month drop since October 1990, during the Gulf crisis, according to a survey that captured only a small part of the economic shock from the Sept. 11 attacks on New York City and the Pentagon.

An eroding labor market and weakening business conditions weighed heavily on consumers, the Tuesday report said, threatening to undermine retail spending, one of the few remaining tethers of strength in an economy a majority of economists believe is already in recession.

In a report that cemented hopes for more deep interest rate cuts from the Federal Reserve, the Conference Board, a New York-based private business research group, said its monthly index of consumer confidence fell 16.4 points to 97.6 in September, from a downwardly-revised 114.0 in August.

September's index was the lowest reading since January 1996. Wall Street economists had forecast a fall to 105.1.

But 88 percent of the survey responses were conducted before the devastating attacks of Sept. 11, which led many economists to conclude that confidence will take an even harder hit once those effects are measured in the October survey.

``The decline in confidence is being driven by both current labor market conditions and concerns about future employment trends. There were also diminished expectations for business conditions and income as well as deteriorating buying plans,'' said Jade Zelnik, chief economist at Greenwich Capital Markets.

``I think it will keep the Fed worried that consumer spending could falter. It will keep them on track to cut aggressively again.''

The Dow Jones industrial average briefly fell after the report was released before recouping its gains, while short-dated Treasury securities clung to gains on expectations of more Federal Reserve interest rate cuts.

The Present Situation Index, which measures consumer views of the economy right now, extended its slide, falling to 125.2, its lowest since October 1996, from a revised 144.5 in August.

The Expectations Index, which gauges consumers' outlook for the next six months, slid to 79.2 in September, its lowest since April, from a revised 93.7 in August.

In a harbinger of rising unemployment in the months ahead, 18.5 percent of respondents said jobs were ``hard to get,'' compared to 16.0 percent in August. The category is closely linked with trends in the unemployment rate.

Consumers rating business conditions as favorable also plummeted, the report said, with 22.0 percent rating them favorable in September versus 27.7 in August.

More Americans expected business conditions to deteriorate over the next six months, at 15 percent from 10.7 percent in August. Consumers also were less optimistic about their future incomes, with only 21.1 percent expecting an increase in family income compared to 23.2 percent in August.

``As the economic ramifications of September 11 continue to reverberate in the coming weeks and months, and the number of layoffs continue to rise, the economy faces tougher times ahead,'' said Lynn Franco, director of the Conference Board's Consumer Research Center, in a statement. ``While consumers have managed to keep the U.S. out of a recession for several years now, that soon may no longer be the case.''

The consumer confidence index is taken from a sampling of 5,000 households monthly. It follows a tumble in the University of Michigan's preliminary consumer sentiment index, conducted entirely before the Sept. 11 attacks and published on Sept. 13, to its lowest in nearly eight years.

 

Sears Cancels Ads on ABC's `Politically Incorrect'

By Amy Hellickson - Bloomberg - September 19, 2001

Sears, Roebuck & Co. and FedEx Corp. pulled their advertising from ABC television's "Politically Incorrect'' after guests on the late- night show described past U.S. military actions as ``cowardly.''

Sears, the biggest U.S. department-store chain, said it made its decision after reviewing a transcript of the Sept. 17 discussion among host Bill Maher and guests including commentator Arianna Huffington. ABC is owned by Walt Disney Co.

During the show, Maher said Americans have been ``the cowards lobbing cruise missiles from 2,000 miles away,'' according to a transcript posted on ABC's Web site. Huffington agreed, saying more then 5,000 U.S. civilians died ``because we were cowardly when it came to our military personnel.''

"In this sensitive time, we're trying to be sensitive to our customers,'' Sears spokeswoman Lee Antonio said. "While we certainly believe in the freedom of speech, we feel it's best not to advertise on the show at this time.''

FedEx spokeswoman Carla Richards confirmed that the Memphis, Tennessee-based company also removed ads from the show. "If this becomes a pattern, if we see sponsors pulling their support of programs, that would be an extremely unfortunate action on the part of the corporate world,'' said Marvin Kalb, executive director of Harvard University's Shorenstein Center on the Press, Politics and Public Policy.

In a statement, ABC said the show celebrates freedom of speech.

Gamut of Emotions
"Recent tragic events have evoked feelings in all of us, running the gamut from apprehension to fear to anger, and these emotions are what fueled Monday night's discussion,'' ABC said.

Maher said his criticisms were aimed at politicians and not at U.S. military personnel.AIn no way was I intending to say, nor have I ever thought, that the men and women who defend our nation in uniform are anything but courageous and valiant, and I offer my apologies to anyone who took it wrong,'' he said in a statement.

Maher will say more about his earlier comments on tonight's show, his publicist Cece Yorke said.

The U.S. television and radio industry lost as much as $1.2 billion in advertising sales after the terrorist attacks in New York and Washington last week, Robertson Stephens analyst James Marsh said Monday. Television networks lost an estimated $68 million a day in ad sales by running commercial-free news coverage, he said.

The loss in ad sales, as well as the fear of future losses, helped spur declines in shares of many media companies this week, including Burbank, California-based Disney.

Disney shares today rose 10 cents to $18.50. They have fallen 36 percent this year.

Hoffman Estates, Illinois-based Sears fell $1.02 to $33.08.

'Insufficient Grieving'
Antonio declined to say how much money Sears spent on ads shown during "Politically Incorrect,'' which airs after 11 p.m. in most U.S. markets. The bulk of the spending for Sears' television-ad campaign is spent earlier in the day, she said.

Maher left one chair at the roundtable empty Monday night in a tribute to Barbara Olson, a commentator who died in the flight that was crashed into the Pentagon. Olson had been on her way to Los Angeles to appear on "Politically Incorrect,'' Maher said.

On last night's show, Maher said in his opening monologue that he'd received some messages from viewers saying "there was insufficient grieving'' in Monday night's show.

"I was as devastated as anyone was, and I feel it,'' Maher said, according to a transcript."But I also feel a responsibility for this show to be what it has always been, a place where people can come and express their ideas openly in a way they can't in many other places.''

R E A L   E S T A T E
Already troubled with its core businesses,
Sears has another problem on its hands. PRAIRIE STONE

By Mark Tatge, Forbes - September 17, 2001

Leave it to Sears to lose money on a 786 acre office development financed with $181 million in tax giveaways. In 1989 the retailer decided to dump the Sears Tower and move its headquarters 31 miles north-west of downtown Chicago, figuring the development, called Prairie Stone, would be a bonanza for the bottom line.

But with more than a third of Prairie Stone still vacant, and nearby suburban vacancy rates climbing, the sprawling development has become a drag on earnings. Add Prairie Stone to the list of problems Chief Executive Alan Lacy inherited at the nation's number four retailer (2000 sales: $41 billion) when he took charge last fall. Sears' "softer side" has turned to mush, home improvement chains have invaded the retailer's core appliance business, and credit card revenue, a major earnings engine since 1998, has cooled. In the first half of the year, Sears lost $21 million.

These aren't the best of times to be caring for a white elephant. The company has forked over $10 million since 1999 to cover principal and interest payments on bonds sold by the Village of Hoffman Estates. The bonds covered the upfront public improvements and were to be repaid from property taxes as the development grew and taxes rose. Sears agreed to cover any shortfall. It will probably owe $7 million more in 2002 and faces escalating payments unless it can figure out how to get businesses to relocate to Prairie Stone.

Call it irrational exuberance, but Sears once envisioned 12 million square feet of office space on a tract that ten years later is still miles from the nearest gas station. With only 3.3 million square feet completed since 1992, Sears "probably has not gotten the kind of return they thought they would," says Hoffman Estates Village Manager James Norris.

Sears sank an estimated $225 million into building its 2.3-million-square-foot headquarters. That investment is probably worth $150 million to $180 million now. Construction of a 295-room Marriott hotel is certain to help property values, but it could take another 20 years for Prairie Stone to realize its full potential. Why? There's simply too much prime space available elsewhere. According to commercial real estate giant Cushman & Wakefield, vacancy rates climbed to 16.2% at midyear, the highest they've been since the mid-1990s. In nearby Schaumburg, Ill. some 3.3 million square feet of office space awaits new tenants.

Another problem: Downtown locations are back in vogue. Chicago has fanned out during the past decade to the extent that it now suffers from the same gridlock as Los Angeles, Atlanta and Houston. Motorola and CDW have opened offices downtown to attract younger workers who won't travel to the burbs. Even Chicago's latest corporate catch, Boeing, shunned the cornfields for Chicago's Loop, complete with access to a nearby helipad to avoid those nasty traffic jams.

No doubt Sears executives miss their views of Lake Michigan.

By the numbers:

# Value includes vacant land and Sears portion of Prairie Stone:

Sources TrizecHahn; Cushman & Wakefiled; Forbes calculations

"You Don't Know What You've Just Started . . . "
By Leonard Pitts - Miami Herald -  September 12, 2001

We'll go forward from this moment.
It's my job to have something to say. They pay me to provide words that help make sense of that which troubles the American soul. But in this moment of airless shock when hot tears sting disbelieving eyes, the only thing I can find to say, the only words that seem to fit, must be addressed to the unknown author of this suffering. You monster. You beast. You unspeakable bastard.

What lesson did you hope to teach us by your coward's attack on our World Trade Center, our Pentagon, us? What was it you hoped we would learn? Whatever it was, please know that you failed.

Did you want us to respect your cause? You just damned your cause.

Did you want to make us fear? You just steeled our resolve.

Did you want to tear us apart? You just brought us together.

Let me tell you about my people. We are a vast and quarrelsome family, a family rent by racial, social, political and class division, but a family nonetheless. We're frivolous, yes, capable of expending tremendous emotional energy on pop cultural minutiae -- a singer's revealing dress, a ball team's misfortune, a cartoon mouse.

We're wealthy, too, spoiled by the ready availability of trinkets and material goods, and maybe because of that, we walk through life with a certain sense of blithe entitlement. We are fundamentally decent, though peace-loving and compassionate. We struggle to know the right thing and to do it. And we are, the overwhelming majority of us, people of faith, believers in a just and loving God.

Some people -- you, perhaps -- think that any or all of this makes us weak. You're mistaken. We are not weak. Indeed, we are strong in ways that cannot be measured by arsenals.

IN PAIN
Yes, we're in pain now. We are in mourning and we are in shock. We're still grappling with the unreality of the awful thing you did, still working to make ourselves understand that this isn't a special effect from some Hollywood blockbuster, isn't the plot development from a Tom Clancy novel.

Both in terms of the awful scope of their ambition and the probable final death toll, your attacks are likely to go down as the worst acts of terrorism in the history of the United States and, probably, the history of the world. You've bloodied us as we have never been bloodied before.

But there's a gulf of difference between making us bloody and making us fall.

This is the lesson Japan was taught to its bitter sorrow the last time anyone hit us this hard, the last time anyone brought us such abrupt and monumental pain.

When roused, we are righteous in our outrage, terrible in our force.

When provoked by this level of barbarism, we will bear any suffering, pay any cost, go to any length, in the pursuit of justice.

I tell you this without fear of contradiction. I know my people, as you, I think, do not. What I know reassures me. It also causes me to tremble with dread of the future. In the days to come, there will be recrimination and accusation, fingers pointing to determine whose failure allowed this to happen and what can be done to prevent it from happening again. There will be heightened security, misguided talk of revoking basic freedoms. We'll go forward from this moment sobered, chastened, sad. But determined, too. Unimaginably determined.

THE STEEL IN US
You see, the steel in us is not always readily apparent. That aspect of our character is seldom understood by people who don't know us well. On this day, the family's bickering is put on hold. As Americans we will weep, as Americans we will mourn, and as Americans, we will rise in defense of all that we cherish.

So I ask again: What was it you hoped to teach us?

It occurs to me that maybe you just wanted us to know the depths of your hatred. If that's the case, consider the message received.

And take this message in exchange: You don't know my people. You don't know what we're capable of. You don't know what you just started.

But you're about to learn.

Sears CEO: Apparel Strategy Needs Premier Brands

By James Covert, Dow Jones Newswires - Sept. 5, 2001

In an effort to reinvigorate its apparel business, Sears, Roebuck & Co. (S) may place more emphasis on premier brands than it has in the past, Chairman and Chief Executive Alan J. Lacy said Wednesday.

Speaking at a retail conference here, Lacy also reiterated guidance that the company's 2001 earnings will be flat to the previous year and that sales at stores open at least a year during the second half will be flat or slightly lower than the year-earlier period.

Lacy said Sears' apparel business has suffered in the past because the merchandise doesn't appeal to the higher income class of customer that shops at Sears for large appliances and tools.

While Sears is widely recognized as a destination for large appliances under its Kenmore Brand, as well as Craftsman Tools, it doesn't get enough credit for the apparel brands it carries, which include Nike Inc. (NKE) athletic wear and Levi's jeans.

In an interview with Dow Jones Newswires, Lacy said the company's apparel strategy will partly depend on new agreements with vendors to sell premier apparel brands. The company will announce one such agreement this fall, Lacy said, although he added that it won't be on the level of the Nike agreement.

"We're chipping away at it," Lacy said.

The company is also looking to reinvigorate its private label offerings, Lacy said. He declined to comment further, saying the company's full apparel strategy will be revealed at a meeting with analysts in October.

The company's new marketing campaign, which kicks off this fall, will emphasize the strength of the merchandise brands it carries, Lacy said. The campaign will also emphasize Sears as a destination for one-stop shopping for merchandise that includes appliances, apparel, tools, jewelry and electronics.

Tales of the Tape
Sears, Lowe's Increase Share of Major Appliances Market

By Mary Ellen Lloyd -  Dow Jones Newswires, Sept. 4, 2001

Old-timer Sears, Roebuck & Co. and recent aspirant Lowe's Cos. Inc. are gaining in the market for major home appliances.

The top two U.S. appliance retailers have continued to gain share in the $39 billion market despite new competition. They've also been helped by the demise of old players over the last year.

A year ago, No. 3 player Circuit City Stores Inc. announced its retreat from the market and in December, Montgomery Ward Inc., another big competitor, closed its stores. But two new challengers -- retailing behemoths Wal-Mart Stores Inc. and Home Depot -- joined the fray.

Sears' share of the major appliance retailing market approached 40% in the second quarter -- up nearly two percentage points from a year ago, according to the most recent results from Stevenson Co., a Louisville, Ky., firm providing market research to manufacturers and retailers.

With industry shipments of major appliances down 7% through June, Sears has seen a mid-single-digit increase in sales year-to-date, said Tina Settecase, vice president and general manager of appliances for the Hoffman Estates, Ill., retailer.

Analysts and Sears officials credit the company's wide selection, its expansion into more upscale appliances, and its services, such as delivery and financing options. Sears carries the top eight appliance brands, including its own Kenmore brand, which itself has 27% of the appliance market.

Lowe's vs. Sears
"There clearly were some easy pickings in the market-share category as Circuit City exited the white goods category," said Bill Dreher, senior analyst with Robertson Stephens, "but it's more than just Sears stumbling into the market share."

The company has made a "determined effort" to capture additional business, and has surpassed Mr. Dreher's expectations in being able to make gains, he said.

Ms. Settecase said Sears "has pretty much stayed the course" in its approach, although it is carrying more inventory for customers to take home immediately. Sears is also testing a 20,000 square-foot standalone store for electronics and appliances to try to capture off-mall traffic. Two more test stores will open in the fourth quarter in suburban Chicago. Sears hasn't said how many such stores it will open if the model proves successful.

Lowe's has also picked up business, said Stevenson Co. analyst Steve Woeste. The home-improvement retailer has almost 10% of the market and has nearly doubled its share of all major appliances sold at retail outlets since the firm began its survey seven quarters ago, he said. "It's been phenomenal," Mr. Woeste said.

Lowe's said appliances were one of the reasons behind its improved second-quarter financial results. The Wilkesboro, N.C., company also reported improving profitability in the category, saying inventory turnover is rapid enough to offset appliances' lower gross margins compared with the corporate average.

Lowe's last year declared its intention to unseat Sears as the top appliance retailer within five years.

"We still have a very aggressive approach to growing our appliance business," said Lowe's spokeswoman Chris Ahearn.

The plan calls for keeping a large number of models on the floor and in stock, and it's also offering more high-style and technologically Sophisticated appliances.

Best Buy Trying
Speculation that third-ranked Best Buy Co. would follow Circuit City's exit from appliances died down in recent quarters after the company reiterated its commitment to them. But Best Buy's market share, which is more than 5%, has fluctuated recently, Mr. Woeste said. That is likely due to Home Depot and Wal-Mart's push into appliances over the last year, analysts said.

Appliance sales will continue to weaken at Best Buy this year, said Deutsche Banc Alex. Brown analyst Dan Wewer. Best Buy's expectation that appliance sales at stories open at least a year will be flat in the second quarter and higher year over year in the second half could be optimistic, he said in a recent report.

The company's efforts to improve results aren't likely to have an impact until at least next year, Mr. Wewer said. But investors don't seem worried; Best Buy's shares have more than doubled this year. Company officials weren't available for comment.

For most of last year, top home-improvement retailer Home Depot was rolling out appliances to its stores, so the category generated only about $200 million in sales, according to analyst estimates.

With appliances in all 1,253 stores today, Home Depot could generate $2 billion in appliance sales this year, according to an estimate from Deutsche Banc Alex. Brown. That would quickly put the Atlanta company's appliance sales in line with those of Best Buy.

Stevenson Co. pegs Home Depot's second-quarter market share at close to 3%, but said the company has not gained market share on a sequential basis in either of the last two quarters, based on the firm's survey of consumers.

Home Depot spokesman Bob Burton disputed that assertion, but declined to provide estimates of the company's market share or its recent growth rates. "I believe we're gaining share on a percentage basis faster than any other retailer," he said.

Wal-Mart Closely Watched
Home Depot has taken a less aggressive posture toward appliances than its rival Lowe's, said Lehman Brothers analyst Alan Rifkin.

Home Depot's selection is more narrow, its dedicated space smaller, and its inventory levels lower than Lowe's, which says 60% of its appliance sales go home with customers immediately. But the opportunity is still huge, Mr. Rifkin said.

Indeed, Home Depot's Mr. Burton said the company expects to see "continued substantial growth." While appliances, by their nature, carry a lower gross margin than other products, they also generate larger sales tickets, helping company performance overall, he said. Inventory turnover so far has been rapid enough to help the category meet Home Depot's required return on invested capital.

Wal-Mart, which sells only General Electric Co. appliances in 100 of its namesake stores and 487 Sam's Club warehouse stores, is also a relative newcomer. Analysts believe the company is gobbling up business among former customers of Circuit City and Montgomery Ward, but its market share remains about half of Home Depot's, according to Stevenson Co.

Wal-Mart is on track to have 130 appliance centers in its 2,700 stores by year end, said Susanne Decker a spokeswoman.

"We're very pleased with the results so far, and so we are continuing to evaluate other market opportunities," she said.

Lehman Brothers analyst Mr. Rifkin said Wal-Mart's share so far is small but closely watched. "One should never underestimate anything Wal-Mart does because of their sheer size," he said.

Sears, Home Depot Ratchet Up Battle
for Homeowners' Decorating Dollars

By Chad Terhune - Staff Reporter of The Wall Street Journal - Sept. 4, 2001

They already tussle over tools and appliances. Now Home Depot Inc. and Sears, Roebuck & Co. are battling for homeowners' decorating dollars.

Signaling the start of a nationwide race, the two retailers rushed to open their home-decor stores in this Chicago suburb earlier this summer. Home Depot's Expo Design Center and Sears's The Great Indoors feature showrooms that look like a page out of Architectural Digest, offering such items as granite countertops, knotty pine cabinets, a $13,000 fire-engine red stove and satin nickel faucets labeled in French. They also provide in-store cafes and interior designers for hire.

Both retail giants are hungry for a new growth vehicle. Home Depot, wanting to expand beyond its do-it-yourself warehouses, introduced its home-design concept in 1991 with its first Expo in San Diego. The Atlanta-based company fiddled for years with the store layout and product mix, and now feels Expo is ready for a national rollout. It aims to have 200 Expos by 2005, up from 33 now.

Sears, based in Hoffman Estates, Ill., opened the first of its eight Great Indoors in Denver in 1998. It's searching for growth outside of its core department-store business; the company foresees expanding The Great Indoors to 100 to 150 stores within the next several years. The chain remains a work in progress: Store executives pulled water heaters and garage door openers, for example, because women -- the target shopper -- said they didn't buy those things; their husbands did.

Of course there are many others chasing the home-decor and remodeling market, but Sears and Home Depot have the deepest pockets and the most Ambitious plans for seizing a chunk of the $500 billion that U.S. consumers spend annually on home improvement and decor.

"I think we can both grow in the marketplace," says Sears Chief Executive Alan Lacy, who acknowledges that Expo is better known among consumers for managing project installation -- the most difficult part of the business, he says. But he thinks his chain offers a broader line of decor products and lower prices.

Expo caters to cash-rich, time-poor baby boomers who, after dabbling in do-it-yourself, have become "Do It For Me" customers. But it has taken steps to fight the perception that it's an exclusive showroom for the rich. Earlier this year, for example, Expo started carrying lower-priced ceiling fans and rugs. Now shoppers can pick up a Hunter-brand fan in brushed nickel for $79, but those desiring "the romance of the gaslight era" can still upgrade to a $949 Casablanca fan.

Expo targets households with an income above $60,000, but the company says customers doing a major remodeling typically have income higher than $200,000. Great Indoors aims at household incomes of $50,000 and up. Industry analysts figure both chains average about $50 million in annual sales per store.

"I'm sorry I remodeled my bathroom already," sighs Vera Ibach, a 52-year-old respiratory therapist who was shopping recently at a Great Indoors here. "This place would save a lot of running around." Like many shoppers strolling through the store, Ms. Ibach's next stop was an Expo a block away.

Converting browsers into buyers is a challenge for both chains. "How many people need a $3,000 stove hood?" wonders shopper Mary Leske, who was at Expo looking for a dining-room light under $700. Or for that matter, a $4,379.99 Gaggenau pizza oven or a Schonbek Limited Edition Heirloom chandelier for $11,000. "I would come here for ideas, but I wouldn't ever buy anything here," says Great Indoors browser Cynthia Schmitz.

Nearby, Lawrence Campbell leans over to inspect a $725 bidet. "What is this? I can't figure it out," says the 57-year-old ROTC instructor. "This store seems like it's geared more for upper-income people than everyday folks like us."

Drawing on its department-store heritage, The Great Indoors offers a wider selection than Expo, including sheets, towels, dishes and TVs. Bob Rodgers, a 30-year Sears veteran and president of Great Indoors, says small purchases are crucial to getting customers back for a $25,000 kitchen renovation later.

Expo counters that its experience showed that fewer picture frames and other knickknacks thinned out the crowd, which in general resulted in better sales of major remodeling projects. Expo's initial stores more closely resembled a Home Depot warehouse in looks -- and in the number of shoppers. "You had too many footsteps in the store," says Barry Silverman, a veteran Expo executive who helped open the chain's first store but left the company last month. Customers planning a $10,000 bathroom renovation "don't want 10 other people pulling on the sleeve of the person who is selling them this," he says.

Home Depot Chief Executive Bob Nardelli wants to accelerate Expo's expansion into the largest 100 markets and focus less on opening several stores in a single market. Mr. Nardelli says he isn't fazed by competition from The Great Indoors. "If I sold dishes, maybe," he says.

With the slowing economy, there will likely be fewer high-dollar projects to fight over. From 1995 to 2000, the number of kitchen remodeling jobs worth $15,000 or more nearly doubled to more than 435,000 annually, says trade publication Kitchen & Bath Business. But this year's forecast calls for a 1% decline.

Meanwhile, the small, independent stores worry about their new competitors. Michael Ryan plans to spruce up the exterior of his Carpet One Flooring Center in Schaumburg to keep pace. "We'll be a crumb picker," he says of customers who don't find what they want at the bigger stores. "They leave giant crumbs."

New Sears Ads Tout Variety, Not Price
By Dave Carpenter - Associated Press
August 21, 2001

Sears, Roebuck and Co. is changing its image again in the latest effort to rev up sluggish sales, ditching its focus on discount prices in a new advertising campaign emphasizing its wide variety of goods.

The multimillion-dollar message: Shoppers can find most anything under one roof at Sears — even fun.

The switch in pitches comes at an important time for the nation’s No. 4 retailer, hamstrung by a tightened economy as it tries to keep from losing more ground to discounters such as Wal-Mart Stores, Target Corp. and Kohl’s Corp.

Sears remains the leader in U.S. appliance sales and a hardware powerhouse, but clothing sales have been weak for years despite its efforts to boost them in a much-ballyhooed campaign touting Sears’ "softer side."

The struggles continued even when the Hoffman Estates-based company confronted its low-cost rivals head-on starting in 1999 by making prices the centerpiece of its marketing strategy with the tagline: "The Good Life At A Great Price. Guaranteed. Sears." In the first six months of 2001, the Retailer lost $21 million.

The new campaign, to be launched Sept. 6 with a nationwide advertising blitz, will emphasize the extent of Sears’ brand-name products, from its Craftsman and Kenmore brands to national names such as Levi’s and Maytag.

Officials said it is just one part of the company’s revised strategy under new chief executive Alan Lacy, who also is selling off non-core units and ordered 89 underperforming stores closed this year.

"We wanted to strike a balance between marketing purely on the basis of price and short-term promotional gains and ... investing in our brand for the long term," said David Selby Sears senior vice president of marketing. "What we’re trying to do is play to our strengths."

 Kurt Barnard, a retail consultant and president of Barnard’s Retail Trend Report, said the campaign heralds a change in identity.

"It portrays Sears as a fun place to shop, which is a lot more than can be said of most department stores, while sidestepping pricing. And it rides on the strength of famous brands," Barnard said. "The intent is to establish a clear-cut identity."

The campaign is being launched as Sears and other retailers brace for what some industry experts have said could be the weakest Christmas sales season in a decade.

Developed by the Sears marketing team with the Chicago ad agency Young & Rubicam, it uses humor to hawk Sears products.

For example, in a TV commercial, a man wearing a Levi’s jacket and Timberland Pro boots cuts a hole in his hedge with a Craftsman hedge trimmer so he can peer into a neighbor’s window to watch a football game on his Sony big-screen TV. One of the print ads shows a pot-bellied man wrapped in a towel in his bathroom next to a superimposed shopping list: "Fieldcrest bath towels, Whole Home accent rugs, NordicTrack treadmill."

The company declined to put a price on its campaign, but it spends $600 million to $1 billion annually on advertising.

Sears shares fell 50 cents to $44.40 Tuesday afternoon on the New York Stock Exchange.

__________________

Gordon's Comments:
Sears customers have traditionally looked for quality, price, value, and service. One can't help wonder how this program may excite the consumer to hurriedly walk into Sears? Where are the MERCHANTS? Have they too left Sears? I'm suggesting rather than advertising humor what is needed are traffic and transaction producing items, competitive pricing, and advertising the "hot-button" items and issues. It's apparent that the decision has been made to operate the company to a profit rather than merchandise it to one. AGAIN, WHERE ARE THE MERCHANTS?

Sears Unveils New Ad Program
Sears to Focus on Variety, Not Price
By Stuart Elliott - New York Times Advertising
August 21, 2001

Sears, Roebuck & Company, which spends $600 million to $1 billion annually on advertising, is overhauling its pitches to emphasize the variety of name-brand merchandise sold by its 860 stores rather than trying to compete on pricing with discounters like Wal-Mart Stores and Target.

The idea behind the high-stakes new campaign for Sears is simple enough: Let Sears be Sears.

Sears executives hope the humorous campaign will stimulate flagging sales amid the soft economic climate by playing up its strengths, primarily the broad assortments of branded goods, and playing down its weaknesses, primarily an inability to pursue the so-called everyday-low-price strategy of the discount chains.

The stakes for the campaign, to begin appearing on Sept. 6, could not be higher for Sears, the nation's fourth-largest retailer. The company is hard-pressed in grappling with skeptical, belt-tightening shoppers who have grown reluctant to buy much of anything and increasingly open their wallets and purses only when the goods are on sale.

"Sears, like all retailers, is operating in a difficult consumer- spending environment," said Jeffrey M. Feiner, an analyst at Lehman Brothers (news/quote) who follows retailing.

"Relatively speaking, Sears is holding its own," he added, "but that's still not as much as investors would like."

Investors were also not too keen on the Sears results for July, which showed a 2.5 percent decline in total sales and a 3 percent decline in sales at stores open for more than a year, known in the industry as same-store sales. That figure is considered a crucial indicator of retail vitality.

And in the second quarter, Sears revenue from retailing, its mainstay money maker, fell 1.1 percent from the corresponding period of 2000.

"We're very aware of the economic conditions," said David Selby, senior vice president for marketing at Sears in Hoffman Estates, Ill., who offered a preview of the campaign yesterday in a telephone interview.

"What we're going to do here is tell our story very clearly and very aggressively," he added.

The campaign, a result of a creative shootout between the two big principal Sears agencies, will include everything from television commercials to signs in stores to ad banners on Web sites. The campaign carries the theme "Sears. Where else?," a question meant to be part rhetorical, part revelatory, not unlike the old slogan for Kellogg's Corn Flakes, "Taste them again for the first time."

The switch in Sears strategies came after Alan J. Lacy, chairman and chief executive of Sears, told shareholders at the company's annual meeting that he wanted to improve marketing efforts by refocusing them from pricing to the extent of brand-name products, whether proprietary (Craftsman, Kenmore) or national (Levi's, Maytag (news/quote)).

That set the clock ticking on the Sears ad theme since August 1999, "The good life at a great price. Guaranteed," which was the product of a previous creative shootout between the retailer's two principal agencies. They were, and are, the Chicago offices of Ogilvy & Mather and Young & Rubicam, both now owned by the WPP Group (news/quote), which typically divide the general advertising assignments for Sears by categories like apparel (Y.& R.) and automotive (Ogilvy).

Mr. Lacy's reorientation set off the second shootout, which ended last month with a decision to proceed with a strategy developed by the Chicago office of Y.& R. That agency also created "Come see the softer side of Sears," the theme that ran from 1993 to 1999.

"The goal is to articulate what the brand is all about and serve it up in a fresh way," Mr. Selby said. "We want to cut through the fog of familiarity, if you will."

"At the heart of what we're doing is to play our own game, 'Only Sears can do that,' because that's who we are," he added. "Rather than be embarrassed or vague, we want to celebrate the breadth of merchandise Sears has."

The variety of goods Sears sells is represented in the campaign by shopping lists of disparate items consumers typically buy, augmented by paeans to Sears service, employees and product guarantees. But in keeping with the desired freshness, there's typically a twist.

For instance, one commercial shows a woman in a chic autumn outfit as a breeze stirs, causing a trickle of leaves to fall. The breeze becomes a windstorm and the leaves start flying. The cause? A man with a Craftsman leaf blower. In another spot, a baby keeps crying as its mother tries offering distractions like a Sears infant blanket, but the wails turn to gurgles only when dad trips and falls as he tries to capture the child on a Sony (news/quote) video camera.

The print ads are similarly skewed. One displays an overweight man in a bathroom and offers this shopping list: "Fieldcrest bath towels. Whole Home accent rugs. NordicTrack treadmill." Another shows the shopping list for a boy named Tim, who is decked out in Nike (news/quote) shoes, Levi's jeans and a Champion jersey he "had to have" because his friends Billy, Danny and Derek wear them. The final item on the list is a membership in the Sears KidVantage Club, which offers the "savings you had to have to keep up with Billy, Danny and Derek."

The humor "is important," said Mark Figliulo, executive vice president and chief creative officer at Y.& R. Chicago, because "we want to bring a lightheartedness to Sears." "Shopping should be fun; it shouldn't be a chore," he added, "and when you accomplish things, you feel good."

Target has had much success with breezy, cheerful print and television ads by Peterson Milla Hooks in Minneapolis that celebrate the wide variety of brand-name products it peddles. Though it is not implicit in the campaign, Sears is in effect saying, been there, done that.

"Our research shows our customer is a `mission shopper' and we know how busy her life is, how crazy her life is," Mr. Selby said.

"We're not everything for everyone," he added, "but the reality is, we can help her complete more of her mission."

As for concerns the campaign might make Sears seem as if there is too much under one roof, that's why several commercials show the sales staff, Mr. Figliulo said, "who are there to help you accomplish your mission." (There will be internal communications, with training involved, aimed at helping employees cross-sell merchandise between departments, as in commercials where appliance shoppers are sent to the jewelry department and jewelry shoppers are sent to home electronics.)

Besides, "as soon as you think you've got it all," Mr. Figliulo said, referring to the typical shopping list, "there's usually one more thing you need."

The "Sears. Where else?" theme is being used by all Sears agencies, which in addition to Y.& R. Chicago and Ogilvy Chicago include the Burrell Communications Group in Chicago, 49 percent owned by the Publicis Groupe (news/quote), for ads aimed at black consumers; Mendoza Dillon & Asociados in Newport Beach, Calif., for ads aimed at Hispanic consumers; and the Los Angeles and New York offices of Kang & Lee, part of Young & Rubicam, for ads aimed at Asian-Americans.

Sears joins a list of retailers revamping their campaigns, among them Kmart, with new work by the New York office of TBWA/Chiat/ Day, part of the TBWA Worldwide unit of the Omnicom Group (news/quote), and J. C. Penney, with new work by DDB Worldwide, part of Omnicom.

Designers Finding Their Target

By Susan Chandler - Chicago Tribune staff reporter
August 19, 2001

Minneapolis-based discounter successfully enlists famous names to make everything from clothing to teapots to makeup, helping fulfill its aim in the process.

It almost sounds like a celebrity game of "Clue."

Architect Michael Graves is in the kitchen with the knives. Designer Mossimo Gianulli is in the bedroom with a rack of clothes. And makeup artist Sonia Kashuk is in the bathroom with foundation and powder.

But this wasn't a board game, and there's no mystery about the point the Minneapolis-based discount chain was making when it recently showed off its fall and holiday offerings in a 20-room townhouse in New York's trendy TriBeCa neighborhood. Target has everything the modern American family needs--from trendy teapots to bedspreads to toilet bowl brushes.

What's more mysterious is how Target was able to sign big names like Graves, whose exclusive line of household accessories has grown to 1,000 items.

Such designer partnerships have been the Holy Grail for moderate-price merchants such as Sears, Roebuck and Co. and J.C. Penney Co. for years. But even after Sears remodeled its stores and made a big push to get more brand names, it ran into a wall. Most designers are afraid of hurting their reputations and alienating upscale customers by selling goods anywhere except high-end specialty or department stores.

There's a simple answer as to how Target was able to partner with Graves. They asked him, and he said yes. After all, Graves reflects, "It's every designer's dream to do what Modernism and Bauhaus set out to do: Bring good design to the masses."

But the real explanation of how Target has become an "upscale discounter" is far more complex and has been evolving for almost 30 years. Nobody is arguing about the result: Target has found a way to transcend its low-price roots and become a trendy retailer.

Cynthia Cohen, president of retail consulting firm Strategic Mindshare, believes Target was able to develop "the cool factor" through clever image advertising focused on its now ubiquitous red-and-white bull's-eye logo. After it achieved a hip image in consumers' minds by quickly copying stylish designs, it was able to sign up real designers to create affordable versions of their products, she says.

"If you're a designer, it's a question of matching your image with what you think about the store you're lending your brand to. Target says, `We stand for creative design,'" she says.

But, she adds, Graves was still taking a big risk when he decided to create a $35 teapot for Target with a similar design and same weight of stainless steel used in a $120 teapot he created more than a decade ago for upscale Italian accessories-maker Alessi.

Graves' odyssey with Target started five years ago when he was visiting Target's headquarters to discuss the renovation of the Washington Monument. Target had pledged $1 million toward the fix-up effort, and Graves was the architect chosen to design the scaffolding.

After the meeting, Target's then-vice president of home decor, Ron Johnson, said, "We've been knocking you off for 15 years. It's about time we came to the source," Graves recalls.

Then Graves made a little confession of his own: He had never been in a Target store. When Johnson invited him to take a tour, Graves said he wanted to put a "little yellow sticky" on anything he found that was ugly. Johnson's reply: "There are not enough Post-its in the world."

Indeed, Target has a lot less ugly stuff since it began selling Graves' toasters, clocks and kitchen gadgets in 1999, even though designer stuff still represents only a fraction of its overall offerings.

Payoff evident in sales
The designer gamble is paying off for Target, which posted a revenue increase of 12 percent and same-store sales gain of 3.4 percent in 2000, despite a late-year slowdown in the economy. That's a much better showing than the 2 percent revenue decline and 4 percent falloff in same-store sales at Target Corp.'s Marshall Field's department store division. The dichotomy was just as great in 1999 when the economy was humming. Target's sales rose 6.7 percent, while Marshall Field's sales were flat.

Field's certainly isn't alone in its struggles. Other major chains such as Federated Department Stores Inc. and May Department Stores Co. have suffered, too, leading retail experts to dub the entire department store industry a "dinosaur."

Gianulli, who abandoned his department store apparel business to sell exclusively to Target in 2000, is even more blunt about department stores.

"They're antiquated and tired, and it's stifling. It is a sick business, and I wanted out," he said.

Furthermore, he says he doesn't even think of Target as a discount store. "I think they're the premier retailer in the country right now," Gianulli said.

Near bankruptcy before the deal, Gianulli is now in the black again, on track to exceed Target's guarantee of selling more than $1 billion of his casual clothes over three years. "I think it's the best decision I've ever made in my life."

Cool stuff' strategy

The best decision Target executives ever made, retail consultants agree, was to differentiate themselves from other discount chains by having "cool stuff."

It's not a vision from the 1990s. Back in the early '70s, Target executives, including Norm McMillan, vice president for strategic planning, developed a mission statement for the company that could be stated in 27 short sentences called "Guides for Growth."

Among them: "Target is a trend merchant. Target sells higher quality merchandise." And "Target respects the people who shop its stores." Ten years later in 1982, Target reissued its guidelines with only a few revisions, among them: "Target has dominance in the merchandise customers want most," and "Target's pricing says `value.'"

That consistency has helped Target focus its efforts, according to Sid Doolittle, a veteran retail consultant who later partnered with McMillan to create their own Chicago consulting firm, McMillan/Doolittle.

And it's a sharp contrast to a long list of retailers that keep trying to reinvent themselves every few years because they've lost their way. That has made Target CEO Robert Ulrich's job much easier than, say, Alan Lacy's at Sears. Lots of Wall Street analysts and investors are waiting for Lacy to unveil his strategy for Sears in October. Everybody already knows what Ulrich's vision is--all he has to do is keep the ship chugging ahead.

"They've positioned themselves very carefully," Doolittle says. "They are a replacement for the Wards, Penneys and Sears of the old days. And they're the only mass merchant that has real clout with good vendors."

Target's designers say they were never nervous about having their products in a discount chain. Graves says his only concern was about whether the partnership could make "things in a way I would be proud of."

That hasn't turned out to be a problem. Graves does sketches and computer models of the items. Then Target's manufacturers make prototypes of the objects and send them to Graves for review and corrections. He then travels to factories to make sure the quality is up to snuff.

Go where you need to go'
Likewise, Kashuk says Target executives never blinked when she said she wanted her makeup-artist line of cosmetics developed by a top-quality Italian laboratory. "To me it was about maintaining the integrity of the product. Target said `Go where you need to go.'"

A few times, Graves has designed something that Target decided was too expensive. Usually, the product was saved by using less expensive materials, although a few have gone by the wayside. His early best sellers included a teapot and toaster. Currently, the hottest sellers are a recently introduced line of cleaning products, including buckets, brooms and toilet bowl brushes. "Is that beneath me? No," Graves insists.

Target's drive to get well-known names into its store hasn't always gone smoothly--or quickly. Target struck a deal to carry a less expensive line of Stiffel lamps, an upscale brand made in Chicago and carried in department stores. But Stiffel went out of business not long after, leaving Target high and dry.

Then Target persuaded Philippe Starck, another famous architect, to sell a chair from his existing furniture collection in a test in late 1999. The chairs, dubbed "Cheap Chic," sold like gangbusters but there haven't been any new Starck-designed products for Target in a year and a half because Starck isn't quite satisfied with them yet.

"He really is intent on making it right, as we are. It's good creative friction," said John Remington, Target's vice president of special events and publicity. When it arrives next spring, Starck's line will run the gamut from furniture to accessories to personal items such as toothbrushes, Remington said.

More exclusive lines ahead
Target says its exclusive lines will become a bigger part of its mix over time. Graves is working on a bedding collection. Kashuk is developing skin-care items such as eye creams and toners.

Why can't other mass merchants do the same thing? It's a bit of a culture clash for many. Wal-Mart Stores Inc., for example, is price-focused, and designer names might not connect with its customers. Kmart Corp. got into a deal years ago with decorating doyenne Martha Stewart but hasn't brought other big names on board.

A peek into the memoirs of former Sears CEO Arthur Martinez reveals the difficulties of doing such deals. He says he approached casual apparel-makers such as L.L. Bean, Lands' End and J. Crew about teaming with Sears but got the cold shoulder. Believing he had to do something, Martinez struck a licensing deal with Benetton, the European sportswear-maker known for its titillating advertising. Shortly after the line arrived in Sears' stores, Benetton launched an ad campaign featuring U.S. death-row inmates. Martinez decided to pull the line, forcing Sears to take "a $20 million bath."

Target's partnership with Graves has obviously turned out much better.. Would Graves have considered designing for Sears? Sure, he says, but they never asked.
 

Martinez Remains A Key Player
By Mike Comerford - Chicago Daily Herald
August 16, 2001

When Arthur Martinez resigned as chairman of Sears, Roebuck and Co. in December, critics thought he'd retire to his native New York or his summer home in Maine.

He does like to summer in Maine but Martinez considers Chicago his adopted home and is active on several local nonprofit boards, sits on four corporate boards and chairs the Federal Reserve Bank of Chicago.

In November, he'll be promoting a book "The Hard Road to the Softer Side," about his eight years at the Hoffman Estate-based retailer.

"One thing that always irritated me was the idea that I was some sort of carpetbagger," said Martinez, who may have suffered that criticism because he followed Chicago-born Edward Brennan as head of Sears. "I've spent nine years of my life in Chicago. My wife and I consider it our home."

Martinez guided Sears through some of its most tumultuous years during the 990s. He was brought in by Sears to be an outsider with the mission of transforming the largest retail chain in the country. It was thought at the time that an insider would be too ensconced in Sears traditional ways to give it the shake-up it needed.

When he arrived in 1992 from Saks Fifth Avenue as head of the Merchandise Group, Sears was still headquartered in the Sears Tower. Allstate Insurance Corp., Coldwell Banker, Dean Witter, Discover & Co., Homart Development Co. and Prodigy were still part of the conglomerate.

Early in his tenure he moved quickly to cut 50,000 jobs, close 113 stores and close Sears' Big Book catalog.

He launched "The softer side of Sears" ad campaign to emphasize the retailer's apparel brands and attract female shoppers. He revamped store space and streamlined the distribution system.

Sales rebounded along with profits and Martinez was a darling of Wall Street. Financial World Magazine named him CEO of the year in 1996. His original book deal was set for a 1997 launching.

However, sales began to slow and the once-soaring stock price, at better than $60 a share in 1997, eventually plunged to around $27 a share when he left.

"Sears challenged me like I've never been challenged before," Martinez said in an interview from his summer home along the Maine coastline.

In addition to its sluggish sales, Sears landed in legal trouble for violating federal bankruptcy law by collecting on debts from bankrupt customers. The practice, legal if a judge pre-approves it, resulted in a $475 million settlement and a major embarrassment for Sears.

Critics also blame him for the bad debt associated with lowering credit standards on Sears cards and for moving its furniture sales into freestanding HomeLife stores. The stores were later sold and have since filed for bankruptcy protection.

Martinez also won the enmity of retirees with cost-cutting measures that included cutting back on life insurance benefits for Sears retirees. They formed the National Association of Retired Sears Employees and picketed stores and annual meetings. A compromise was agreed to by successor Alan Lacy earlier this year.

"Change is never finished in retail," Martinez said. "The road to success is always under construction. There are a lot of potholes in retailing. Every retailer hits potholes. The question is what do you do about it."

Martinez responded to the revenue stall by cutting more jobs at the Hoffman Estates headquarters and revamping Sears' advertising campaign, chucking the "Softer side" for "The Good Life at a Great Price. Guaranteed."

He cut back on the retailer's automotive parts and repair operations, tweaked apparel brand lines and launched The Great Indoors home furnishings concept.

Currently, Sears has been growing sales slowly, about 1 percent annually, and its stock price is making a comeback at about $45 this week.

"My successes in life came in part by being approachable, supportive and challenging when the time came to be challenging," he said. "I left Sears in good financial shape and I left it with a guy who I have confidence in."

The Brooklyn-born son of a fish wholesaler says he still has goals.

"I hope that in retirement I learn something new every day, every week - and keep growing as a person."

Sears' Woes Fodder for ex-CEO's Book
Martinez Catalogs 8 years at Retailer

By Susan Chandler - Chicago Tribune staff reporter - August 14, 2001

It was a low point in Arthur Martinez's eight-year tenure at Sears, Roebuck and Co.

On Ash Wednesday in 1998, Sears' chief executive found himself in the interrogation room at the U.S. attorney's office in Boston trying to explain the retail business to some FBI agents.

The straight-backed chairs were uncomfortable, and there wasn't a cup of water or coffee to be had. "It is like going to jail, or at least like getting ready to go to jail," Martinez recalls in his book, "The Hard Road to the Softer Side," due out in November.

Martinez was there to explain why Sears had been violating federal bankruptcy law for at least a decade by persuading bankrupt customers to pay back their debts even after a court had wiped them out. The practice known as "reaffirmation" wasn't illegal as long as the agreements were filed with the court. That was the step that Sears had skipped in tens of thousands of cases.

Even though he had presided over a dramatic turnaround in Sears' fortunes in the mid-1990s, Martinez didn't have an easy answer for the feds. He hadn't found out about the practice until a year earlier when Sears legal counsel Mike Levin stopped in to say that a bankruptcy judge in Boston was hopping mad at Sears.

When he discovered the sweeping scope of the problem, Martinez says he was mad, too.

"I am not the kind of leader who bangs on the table a lot, but what happened deep inside of Sears, inside of our company, angered me then, just as it angers me now," Martinez writes.

In the end, Sears would plead guilty to one criminal count of bankruptcy fraud and take a pretax charge of $475 million to cover the cost of the scandal. Martinez says that what shook him the most about the entire mess was that no one at Sears ever called an ethics hotline to report the practice.

Martinez's treatise about his years in Sears' Hoffman Estates headquarters has been a long time coming. Originally scheduled to come out in the fall of 1997, the book was postponed because of the bankruptcy scandal and signs that the Martinez-engineered turnaround was faltering. In the intervening years, Martinez and his co-author, Charles Madigan, now editor of the Tribune's Perspective section, revised the book to keep up with developments, including Martinez's retirement in the fall of 2000.

Indeed, Martinez acknowledges that his turnaround ran out of steam in the late 1990s and that Sears' board members, who had stood by him during the bankruptcy mess, began to lose confidence in him.

"One of the frustrations was my inability to communicate to the board that we actually had very few degrees of freedom to change our strategy. If apparel is a problem, you can't just get rid of it, for example," he writes.

Martinez accepts the blame for strategic blunders such as turning Sears' HomeLife furniture department into a free-standing chain and ramping up Sears' credit card business too quickly. HomeLife, which was sold to Citigroup Venture Capital under Martinez's reign, recently shut its doors and filed for bankruptcy protection.

But he blames many other failures on the bureaucratic, inward-looking nature of Sears' corporate culture. And he uses the Sears Tower, once the world's tallest building, as a metaphor for just about everything wrong at the nation's third-largest general merchant.

When he joined the company in late 1992, Sears' executives were "like the people trying to escape the plague, telling themselves all the old stories, looking to a very old testament for guidance, and waiting for the bad retail sales virus to go away."

Years later, when angry Sears retirees organized to protest Martinez's reduction in their company-paid life insurance benefits, Martinez believed he was being punished by that same old guard. "Maybe I was really dealing with the revenge of the Searsmen," he writes, adding that he still stands by his decision today.

Martinez doesn't offer much advice about what his successor, Alan Lacy, should do. But he says he appreciated Lacy's remarks at his farewell dinner with Sears executives and board members. Lacy said Martinez had "saved the company and gave its people the chance to be successful and to thrive--not just survive."

But in the end, he concludes, "I didn't save Sears. They saved Sears."
 

Discount Stores Post Strong July Sales, 
While Other Leading Retailers Suffer

August 9, 2001 - Media & Marketing
A WALL STREET JOURNAL ONLINE News Roundup

Discount retailers Wal-Mart Stores Inc., Target Corp. and Kmart Corp. recorded surprisingly strong same-store sales for July. But continuing a trend of recent months, sluggish demand hurt results for other leading retailers, including Sears Roebuck & Co. and Gap Inc.

The economic slowdown and resulting job losses have made consumers more price-conscious, which has meant deep markdowns and more business for discount stores. And although July, with its big clearance sales, is one of the least important months on the retail calendar, the pattern appeared to hold.

Mike Niemira, senior economist at the Bank of Tokyo-Mitsubishi, said the retail environment remains "difficult and challenging" but noted some "signs of hope." Sales seemed to improve in the latter half of the month, he said, prompted perhaps by the federal government's tax-rebate checks, which have started trickling out.

Same-store sales, or those at stores open at least one year, are considered a key indicator of the sector's performance in the retail sector. A tally of 80 chain stores that reported Thursday showed July sales overall were up 3.4% over the same period a year earlier, according to an estimate by the Bank of Tokyo-Mitsubishi.

This represented a quickening from June's 3% increase and was the year's third-best monthly gain. However, Mr. Niemira cautioned that without Wal-Mart's numbers, the overall increase for July was just 2.2%.

Wal-Mart said Thursday that its July same-store sales jumped 6%, topping Wall Street's projections for a 4.7% rise, according to analysts surveyed by Thomson Financial/First Call.

Same-store sales increased 6.3% for the Wal-Mart division and 4.9% for the Sam's Club warehouse stores.

Total sales for the Bentonville, Ark., discounter, the world's largest retailer, rose 14% to $16.02 billion, with the Wal-Mart segment posting a 14.5% rise to $10.1 billion, while Sam's Club total sales increased 8.7% to $2.13 billion.

Wal-Mart said that in July a modest but growing number of customers cashed federal tax-rebate checks at its stores, spending between 25% and 30% of the checks at the retailer.

"Value-oriented retailers benefited from the tax rebate," said Jeffrey Feiner, a retail analyst at Lehman Brothers, even though analysts have said sales won't really begin reflecting the rebates until August.

Categories benefiting from the rebate include electronics, led by televisions, computers, video-game hardware and DVD players; cameras; cellular telephones; camcorders; air conditioners; lawn mowers; and bicycles.

Rival discount retailer Target, Minneapolis, reported that same-store sales rose 4.6%, beating the consensus estimate of a 1.1% increase listed by First Call. The company's total sales advanced 14.7% to $2.23 billion.

"As expected, sales results for the month of July benefited from a favorable calendar shift," Bob Ulrich, Target's chairman and chief executive, said in a prepared statement. "For the corporation overall, sales were slightly ahead of our plan for the month."

This year's July sales period, which ended Aug. 4, was one week closer to the "back-to-school" season, company spokeswoman Susan Kahn said. Last year the period closed July 29.

Discounter Kmart, Troy, Mich., said same-store sales rose 3.4% despite disruptions at 40% of its stores due to renovations and the price deflation related to its Bluelight Always discount program. Analysts were expecting an increase of just 1.5%. Kmart's total sales edged up 2% to $2.54 billion.

Another discount chain that has managed to thrive in the tough economic environment, Costco Wholesale Corp., Issaquah, Wash., said same-warehouse sales rose 4%, while total sales climbed 10% to $2.71 billion.

J.C. Penney Co.'s same-store sales for its department-store division rose 2.2% for the month, with total sales increasing 1.1% to $2.15 billion. Drugstore sales in stores open at least a year jumped 10%, with pharmacy sales soaring 13% and front-end sales up 4.7%.

Penney said sales were "very strong during the first half of the month and were driven by planned promotions and clearance events," and led by strong sales in home furnishings, women's apparel and women's accessories.

But at the same time, Penny's catalog sales plummeted 24%. E-commerce sales, which are included in catalog sales, rose 20% to $18 million from $15 million.

Penney also said that it expects results for its second quarter to be "slightly better than the analysts' First Call mean estimate." Analysts are expecting Penney to report a fiscal second-quarter loss of 22 cents a share Tuesday, according to Thomson Financial/First Call. For last year's second quarter, Penney earned $23 million, or six cents a share.

Kohl's Corp., a family-oriented department store that serves middle-income customers, said same-store sales jumped 14%, above projections for a 5.8% increase. Total sales soared 31% to $466.3 million.

Gap, Sears See Same-Store Sales Slide

Meanwhile, Gap reported a 12% drop in July same-store sales, well below analysts expectations for a decline of 6.4%. Total sales increased 5% to $948 million from $900 million.

The San Francisco apparel retailer also said it expects to record second-quarter earnings of 11 cents a share before charges for cuts in its work force. The figure matches the current consensus estimate from analysts. Including the charges, the retailer expects to earn nine cents a share.

Gap also said that it has cut its work force by 10% from the end of its fiscal 2000 year, exceeding its earlier plans for a 5% to 7% reduction, which the company announced in June. Gap said Thursday that it eliminated 1,300 positions in July.

It expects annual cost savings of $65 million to $70 million, with savings for the last half of 2001 reaching about $30 million.

Meanwhile, Sears said same-store sales fell 3% for the month, deeper than the 1.8% drop that analysts had forecast. Sears, Hoffman Estates, Ill., said total domestic sales fell 2.5% to $2.04 billion.

"July was another challenging month as the retail environment continues to be difficult," the retailer's chairman and chief executive, Alan J. Lacy, said in a prepared statement. "In full-line stores, strong sales increases in appliances were more than offset by decreases across most other categories."

Same-store sales at Federated Department Stores Inc. fell 4.2%, also deeper than a consensus estimate of a 3.5% drop. The Cincinnati-based retailer, whose stores include Bloomingdale's and Macy's, reported a 6.4% decline in total sales to $1.09 billion.

And continued weak demand for luxury items dragged down sales at Saks Inc. The upscale retailer said same-store sales fell 4.8%, worse than the 3.2% decline analysts were projecting. Total sales fell 6% to $370.5 million from $394.1 million.

Saks said the lower sales figures numbers knocked it off its earnings and margin targets for the second quarter. The Birmingham, Ala., chain now expects an operating loss of 28 cents to 32 cents a share, wider than the loss of 16 cents a share that Wall Street had been expecting.

Most Apparel Retailers Record Drop in Sales

Among other leading apparel retailers, AnnTaylor Stores Corp. posted same-store sales that sank 17%, significantly worse than a projected 11% drop. Total sales fell 3% to $84.9 million.

But the retailer of women's apparel, New York, said it expects to report second-quarter earnings of 22 cents a share, just above analysts' revised mean estimate of 21 cents a share. Last month, AnnTaylor lowered its earnings outlook to a range of 20 cents to 24 cents a share from a previous range of 28 cents to 32 cents a share.

Limited Inc. said same-store sales fell 6%. Total sales for the Columbus, Ohio, retailer rose slightly to $612.3 million from $611.8 million.

For Intimate Brands Inc., the former Limited unit, same-store sales fell 7%, a steeper drop than Wall Street expected. Analysts were looking for a decline of just 4%. Intimate Brands, also based in Columbus, said net sales dropped about 2% to $305.5 million from $310.4 million. Intimate Brands sells lingerie and beauty products through Victoria's Secret and Bath & Body Works stores.

Abercrombie & Fitch Co. reported a 14% drop in July same-store sales and issued a cautious outlook for the rest of the year. The New Albany, Ohio, clothing retailer said total sales rose 26% to $107 million.

Bucking the trend, Talbots Inc., Hingham, Mass., reported a better-than-expected 7.4% increase in same-store sales, far exceeding Wall Street estimates for an increase of 1.6%. Total sales for July rose 13% to $106.6 million.

Talbots also said Thursday that it now expects second-quarter earnings of 25 cents to 27 cents a share, the high end of its previous estimates. Analysts are looking for earnings of 27 cents a share.

Strict Regimen for Sears Means Wait and See

 by David Greising, Chicago Tribune - August 5, 2001

People like to joke about losing weight. "If I could just shed some flab right here," they'll say, grabbing a roll of gut.

"Watch this French fry go from here," they'll say, holding it to their mouth, "to here," they'll finish, holding it against an ample thigh.

People can't smart-bomb their weight-loss programs. They can't drop pounds just in the stomach, the thighs or the seat.

Don't worry, you haven't wandered into the Good Eating section. This is Business, where we focus on numbers and bottom lines.

And, thanks to Sears Chief Executive Alan Lacy, where we focus on novel weight-loss strategies.

Sears, Roebuck and Co.'s new CEO is cutting fat, but not conventionally. He's trying a targeted approach.

No 20,000-job Lucent cutback for him. No Motorola: A few thousand here, a few thousand here, count 'em and 25,000 jobs are gone. No Firestone closing an entire Decatur tire plant.

No way. According to a memo unearthed by retail reporter Susan Chandler last week, Lacy plans to cut Sears' flab position by position. He has told managers to take a close look at their operations, and tell him specifically which among Sears' 7,000 headquarters jobs are not needed.

Sears had only 4,000 headquarters jobs when it moved to Hoffman Estates in 1993. But suburban living has expanded Sears' middle management.

The suits had expanded to 6,800 in 1999 when CEO Arthur Martinez noticed the fat and pared it by 10 percent. But add a couple of departments, some real estate buyers, some lawyers, and the suits bulged right back.

It's about time Sears cuts down. People who have watched Sears' shrinking profit statements have seen the need for a long time.

Lacy's approach to the problem is unique. It's also emblematic of the course the new CEO has set in almost a year on the job: tactical, practical and, so far, not quite material.

In his first year on the job, Lacy is developing as a CEO who seems unlikely to make any big mistakes, but has not yet shown he can create big ideas, either.

Maybe that's not all bad. After all, it was some of Martinez's big, bad ideas that cost him his job and cost Sears shareholders big money.

With his small-step style, Lacy is becoming the anti-Martinez.

No costly "off-mall strategy" for Lacy. And he is savvy enough to see that the "Softer Side of Sears" was a great slogan but an empty strategy. His bottom-line focus prompted him to close 89 stores.

Lacy abruptly jilted Avon just before a splashy cosmetics launch. But Lacy is exiting cosmetics altogether because he correctly sees Sears' future should be measured by profit on the sales floor, not the upscale aspirations of its CEO.

Still, Lacy isn't junking Martinez projects for no good reason. He is building Martinez's single best idea, the Great Indoors upscale home decoration chain, though perhaps a bit more slowly than the chain's early, strong performance might warrant.

His less flashy steps won't make any big impact on the bottom line, but they reflect a welcome sense of decency. He settled with retirees whom Martinez alienated by reducing their pensions. He sold the helicopter Martinez used to commute to Sears' headquarters from his home downtown.

Not a bad start. Sales and earnings are improving. And investors have responded with a quiet rally that has bid Sears' stock up 50 percent in the past year to around $45 a share.

Lacy needs to move beyond the small moves. He needs to find the right business niche for Sears between hard-charging discounters like Target and high-enders like Nordstrom. When he lays out his broader vision to analysts in October, he needs to describe where he plans to take his huge but far-too-fragile enterprise.

It's not Lacy's style to make splashy vision statements the way Martinez did. But Lacy must, in his own way, develop and communicate his own strategy for Sears.

Lacy's unique new diet is good for his company. But we won't know if Lacy is the answer for Sears until he shows he has a plan to whip his company back into shape.

Sears to Shed Department Store Format

by Eddie Baeb, Crain's Chicago Business • August 4, 2001

The Big Store? No more.

Sears, Roebuck and Co. CEO Alan Lacy is preparing to unveil a strategy that will, in the end, make Sears less of a traditional department store and more of a blend of Home Depot and Kohl's—two of Sears' most successful rivals.

By converting mall-based stores to a largely "self-help" format—which analysts expect will feature fewer sales people roaming the floors, "open stock" displays and fewer checkout counters—Mr. Lacy is expected to leave Sears' department store legacy behind.

He's aiming for a narrow niche between full-service department stores on the high end and discount retailers like Kohl's and Wal-Mart on the low end.

Mr. Lacy flashed his hand to industry analysts during a conference call late last month.

"We have historically tried to be a moderately priced department store. That is not a very differentiated positioning these days," he said. "So, as we move forward . . . we're going to be a little less department store-like and a little more off-mall-like."

The full details of his plan, the result of a strategic review of full-line store operations launched after he took the top job last year, are expected to be unveiled in October, when Sears reports third-quarter results.

Sears to Pare Corporate Positions

Headquarters Staff, Expenses Climb Since 1997

By Susan Chandler, Staff Reporter Chicago Tribune -  August 3, 2001

Alan Lacy has decided it's time to trim a little fat at Sears, Roebuck and Co.'s sprawling Hoffman Estates-based headquarters.

Sears' new chief executive issued marching orders to his management team Wednesday, directing them to spend the next several weeks finding ways to "reduce our home office expense levels," according to a copy of Lacy's memo.

While the overhaul's emphasis is on cost reduction, "it is likely that it will include reductions in staff," Lacy wrote. Unlike previous headquarters downsizings, Sears will not be offering early retirement incentives, and the cuts will not be across the board.

"Instead, we will make fact-based decisions to eliminate work that is redundant or adds little value," Lacy added.

It's too soon to know how many job cuts will be involved or where they will fall, said Sears spokeswoman Peggy Palter. "It's not, 'Just cut your budget or people by X percent.' It's a very strategic process that each department is going through," she said.

The cuts are necessary, Lacy said, because Sears' corporate overhead has grown much faster than its revenue and profit. Since 1997, Sears domestic revenue has eked out only a 1 percent increase. Meanwhile, its home office expenses have grown 17 percent and headcount has expanded 21 percent.

"This mismatch is not affordable," Lacy said.

In 1993, when Sears relocated its headquarters to the northwest suburbs, the retailer had about 4,000 corporate employees. Since then, that number has ballooned to more than 7,000. Sears says some of the additional staff was necessary to launch new enterprises such as Sears Online and the Great Indoors home remodeling chain.

But Sears' bureaucracy has been remarkably shrink-resistant. As recently as July 1999, former CEO Arthur Martinez ordered a 10 percent headquarters reduction when there were about 6,800 employees in Hoffman Estates. That means close to 1,000 jobs have reappeared in the past two years.

Headquarters layoffs are common at retailers when business is slow. Indeed, many merchants slashed jobs and closed stores earlier in the year when it became clear that the 2000 holiday season had been a bust.

Sears also took action, closing 89 underperforming stores in January. But Lacy defied the conventional wisdom and chose not to pare his headquarters organization at the same time.

The reason he is doing so now? The economy is not picking up in the second half as economic experts had predicted.

"The current tone of business is not strong," Lacy said in the memo. "We are all hopeful that the economic outlook will improve and that consumers will begin to spend again. However, there are no clear signs of improvement, and we need to recalibrate our spending to the pace of business."

Offering early retirement packages has long been the tool of choice when it comes to getting Sears people to leave. But Lacy decided that wasn't the way to go this time.

"We want more control over the process," Palter said. "Just offering an early retirement incentive across the board does not give us control over how many people or who leaves."

Sears also is concerned that critical jobs and functions within the company be preserved, something that hasn't always been the case when individuals were given the choice to leave. Another advantage to Lacy's method: It saves money that would have been handed out as incentives.

Lacy acknowledged in the memo that Sears employees are likely to feel anxious in the coming weeks, but he said the potential distraction is worth the benefits. He also urged employees to take the initiative in suggesting which parts of their jobs might not be essential.

"Be open to change yourself. Take ownership," Lacy said.

Moody's Changes Sears Outlook to Negative

Approximately $15.2 Billion of Debt Securities Affected.
August 2, 2001

Moody's Investors Service confirmed the A3 long term and Prime-2 short term ratings of Sears, Roebuck and Co and changed the rating outlook to negative from stable.

The outlook revision reflects the complex challenge that management faces in strategically repositioning the company for profit improvements.

In order to improve the sales productivity and the profitability of its retail store locations, management is faced with the difficult task of revitalizing its merchandising strategy to encourage its customers to shop Sears as a store, and not as a collection of departments, and to increase the frequency of visit and the average spending level by household.

All of this will need to be accomplished at a time when the department store sector is facing many challenges and when Sears main non-mall based competitors are growing square footage at a significantly faster rate than Sears.

Many of the solutions are still being developed by management, which creates a high level of uncertainty regarding the ultimate success of the potential initiatives.

The confirmation of the rating reflects the substantial level of cash flow generation, the relative strength and profitability of the credit card business, and the value of the Sears franchise, its proprietary brands, broad customer relationships, and diversity of locations.

Ratings confirmed are:

Sears, Roebuck and Co.
- Debentures, notes, and medium term notes at A3; issuer rating at A3; senior unsecured shelf registration at (P) A3, and preferred stock shelf at (P) Baa1.

Sears Roebuck Acceptance Corp.
- Notes, medium term notes, debentures, bonds, and Eurobonds at A3; subordinate medium term note program at Baa1; senior unsecured shelf registration at (P)A3, and subordinate and preferred stock shelf at (P) Baa1; commercial paper at Prime-2.

Sears DC Corp - 
Medium term notes at A3. Orchard Supply Hardware - Senior notes at A3.

On a consolidated basis in fiscal 2000, Sears' EBIT margin of 6.0% was in the range of several of its retail peers such as Wal-Mart and Target.

However, when the results of the credit business are excluded, Sears retail business generated an EBIT margin of only 3.0%, which is below virtually every major national retailer.

This situation results partly from having a much higher percentage of its sales mix in high gross profit dollar/ low gross profit margin ``hardline'' businesses, such as appliances, than its peers.

Ideally, these areas of strength should lead to increased levels of customer traffic in the higher margin businesses such as apparel to allow for a maximized level of returns.

The reality, however, is that Sears has been unable to leverage off areas of strength and translate that into improved productivity across the store.

Essentially, many customers ``cherry-pick'' Sears and shop the store on a department basis and not as a source for multiple needs.

Apparel, an area of weakness for several years, is the most evident example of a department that has not benefited from the strength in hardlines and the customer awareness of the Sears brand as it has been unable to overcome some poor merchandising decisions and lack of differentiation from the competition.

Sears is also challenged as a result of operating in a mature segment of the retail marketplace; mall-based department stores. Many of its non-mall competitors (Target, Home Depot, Lowe's and Kohl's, for example) have been growing square footage quite rapidly and gaining broad customer acceptance in areas of core strength for Sears.

While Sears has been able to stay competitive, the level of competition is clearly rising in areas such as appliances, electronics, and lawn and garden.

As a likely result of this increased level of competition and areas of uneven merchandising within its store, the number of households that shop at Sears and the average level spent by customer has risen only nominally over the last few years.

Frequency of visit per year, has actually been in decline. Management has not yet made public its solutions and strategic initiatives for reversing some of these trends.

However, in a highly competitive environment and an uncertain economy, the ultimate success of these initiatives will likely be unknown for several years.

It is highly likely however that any strategic repositioning initiatives will have significant execution risk attached and a potentially lengthy time-frame for full implementation and benefit.

Despite the serious challenges that Sears has in improving its retail performance and positioning itself for future growth, it has managed to maintain a strong balance sheet and relatively strong cash flow generation due to the strength of its credit card program and the contribution from its service businesses.

Sears does enjoy a unique position in the retail landscape given the breadth of its product offerings.

While the growth has been minimal the last few years, Sears does business in a variety of channels with over 40 million U.S. households and does enjoy a broader array of ``touch-points'' than almost any other retailer.

Some of these businesses, such as in-home appliance repair, require a high degree of customer trust in your reputation. These areas of strength and the ability to provide a strong credit product, can provide some of the critical building blocks that will be needed to reinvigorate the retail operation over the coming months.

Sears, Roebuck and Co., headquartered in Hoffman Estates, Illinois operates more than 860 full-line department stores and more than 2,100 specialty stores. It is one of the largest retailers in the U.S. on a revenue basis.

Sears Selects Rebrand Strategy 
Tania D. Panczyk - Adweek.com - July 26, 2001

Sears, Roebuck and Co. has selected a strategy from Young & Rubicam for a major rebranding campaign after a creative shootout between that shop and the retailer's other roster agency, Ogilvy & Mather.

"We decided to go with Y&R's idea, which will be implemented across our other agencies," a representative for the retailer said.

The decision to rebrand came after Sears' chief executive Alan Lacy told investors earlier this year that he wanted Sears marketing to focus on the Hoffman Estates, Ill. company's entire offerings rather than price and scrap the two-year-old tagline, "The Good life at a great price. Guaranteed." That tag was developed after a similar competition, with credit given to both agencies.

Pitches were made last month before Lacy and David Selby, Sears' marketing chief. At that time, both Chicago shops pitched nearly identical taglines: one with "Sears. What else do you need?" the other, "What else do you need? Sears."

Ogilvy currently handles hardware and the bulk of the Sears advertising, while Y&R works on software goods. Both handle various promotional campaigns.

Sears spends roughly more than $600 million on advertising, according to CMR. Spending on its new brand work was not revealed.

Sears Profits Down As Expected
By Anna Driver - Reuters News - July 18, 2001

HOFFMAN ESTATES, Ill. (Reuters) - Sears, Roebuck and Co. (NYSE:S - news), the nation's fourth-largest retailer, on Wednesday reported an expected 13.4 percent decline in earnings before $809 million in charges as consumers made fewer purchases in the slowing U.S. economy.

The Hoffman Estates, Ill.-based company also said it backed its previous forecast for full-year earnings, excluding items, that are about equal to the previous year, when it earned $4.21 a share.

Sears said earnings for the quarter were $316 million, or 96 cents a diluted share, excluding items, compared with $365 million, or $1.05 a share, a year earlier.

When it reported June sales earlier this month, the company said it expected second-quarter earnings of 96 cents a share, above Wall Street's estimates that ranged from 85 cents to 95 cents. At that time, it also said it would take about $810 million in charges for accounting changes, its stake in the troubled HomeLife furniture chain, and its decision to exit the cosmetics business.

Because Sears had pre-announced profits, the earnings report contained no huge surprises for investors.

``I don't see anything here initially that is compelling,'' Wayne Hood, retail analyst at Prudential Securities, said.

Shares of Sears fell $0.64 or 1.37 percent to $45.92 in early trade on Wednesday on the New York Stock Exchange (news - web sites). The stock has outperformed the Standard and Poor's index of mass merchandisers (^SPRETM - news), which includes Target Corp. (NYSE:TGT - news), by about 34 percent in the last 52 weeks.

Including the charges, Sears posted a net loss of $197 million, or 60 cents a share, compared with a year-earlier profit of $388 million, or $1.11 a share. Items in the year-ago quarter included income of $23 million from the securitization of credit-card receivables.

Revenues rose to $10.23 billion from $10.04 billion.

"CHALLENGING ENVIRONMENT''

``Despite a very challenging retail environment, we delivered second-quarter results that were in line with our expectations,'' Sears Chairman and Chief Executive Alan Lacy said in a statement. ``In our core retail operations, we were very effective in tightly managing inventories and costs.

Sears, like many other retailers, has seen sales and profits slump in recent quarter as consumers, wary of rising job cuts and volatile stock markets, cut back on spending.

In Sears' retail and services unit, revenues fell 1.1 percent from a year earlier to $7.80 billion. Retail operating income fell to $213 million from $225 million a year ago.

Retail gross margins improved to 26.7 percent from 26.1 percent. Automotive, full-line and hardware stores contributed to the margin expansion, the company said..

``The difficult economic environment and cooler than anticipated weather negatively impacted both our hardlines and softlines businesses within the full-line stores,'' Lacy said.

Sales increases in Sears automotive stores, its Great Indoors home decorating stores, dealer stores and hardware stores were offset by declines in its department stores.

Sears is in the midst of a wide-ranging review of its sagging retail operations. Last week, it announced its decision to exit the cosmetics business and it has also shed some sporting goods lines. A full report on the review is expected in late summer or early autumn.

The retailer's revenues from credit and financial products declined 0.5 percent to $1.28 billion from a year ago as higher average receivable balances largely offset a lower portfolio yield.

Operating income, excluding noncomparable items, declined 11.3 percent to $345 million, primarily due to the higher provision for uncollectable accounts and higher operating expenses.

Papers Fear Sears Broadcast Plan Cashes Them Out
By Jim Kirk - Chicago Tribune - July 24, 2001

Retail advertising is a simple science: Companies set up sales and discounts, then companies advertise them in neat inserts that go into your local newspaper, and then people go to the stores and shop. At least that's the plan.

So naturally, any change in that orderly process, no matter how big or small, is likely to draw a lot of attention.

Sears, Roebuck and Co., a longtime newspaper advertising giant, is drawing plenty of attention as it prepares to shave how much it spends on so-called newspaper preprints--a cornerstone of its marketing--in an effort to pull together money behind a major new branding campaign slated to hit the airwaves this fall.

Insiders say Sears will have to spend more than $100 million on a new image campaign--most of it in broadcast--if it expects it to be at all effective.

The new image campaign has been championed by new Sears Chief Executive Alan Lacy. Lacy and marketing chief David Selby are in the throes of development on the particulars.

On Monday, a spokeswoman said the giant Hoffman Estates-based retailer is giving its preprint "a hair cut" in order to help fund the image campaign. Sears spends as much as $400 million in newspapers each year, out of total ad spending of roughly $700 million, to reach nearly 100 million households a week.

Sears is cutting its preprint pages by as much as 18 to 19 percent in the second half of the year over first-half levels. The spokeswoman said that cuts would come in the number of pages of each preprint and possibly the number of times the preprint runs during a given week.

Usually, Sears does two newspaper drops a week--Thursdays and Sundays. Under consideration, apparently, is dropping some, but not all, midweek circulars.

The move was revealed last week during Sears' conference call with analysts after it released second-quarter earnings.

When questioned about whether it was the right move, Lacy acknowledged the risk in pulling back a main traffic driver, but said he was confident the move to spend behind the brand would be worth it in the long run.

The spokeswoman said that preprints remain "the cornerstone" of Sears' marketing efforts.

Still, any news of any cutbacks sends shivers through newspaper advertising departments, especially at a time in which classified advertising declines have cut deeply into newspaper revenues across the country.

Retail advertising in newspapers has remained relatively flat over the past several months, and some buyers are seeing a light at the end of the dismal tunnel.

According to Scott Harding, CEO of Downers Grove-based Newspaper Services of America, which buys print for nearly 23,000 retail outlets, indications are that retailers are planning an increase in print spending in the all-important fourth quarter--the first sign in months that the advertising climate may be heading out of its tailspin.

Magnet wins 3 accounts: It has been slow growth for much of the public relations community this year, so three new account wins at one agency is quite an anomaly. The Chicago office of Magnet Communications landed the launch campaign for Farm Fresh Direct's Express Bake PotatOH! brand in several markets, starting in Los Angeles and Atlanta this fall. In addition, the agency picked up the PR and restaurant opening assignment for the gourmet hamburger chain Red Robin International, which is slated to open eight new restaurants in Chicago in the coming year. The agency was chosen to handle a national PR campaign for Chicago-based Ignite Design.

Shift at PentaMark: In a significant change, two key executives at the local buying office of BBDO's PentaMark unit, which services Chrysler brands, are swapping jobs. Sherri Chanen, currently vice president/group director, becomes vice president, director of local broadcast. Ellen Garippo, who had been director of local broadcast, becomes vice president/group director.

On the move: Bank One Corp. named Melinda McMullen its senior vice president of communications and public affairs, reporting to CEO Jamie Dimon. McMullen comes from IBM, where she was vice president of communications of IBM Global Services. She replaces Gerald Buldack, who retired last month. . . . Law firm Katten Muchin Zavis named Cheryl Gidley its first chief marketing officer, based in Chicago. She most recently had been a senior marketing executive for a division of GE Capital in Chicago.

Sears Has Loss, Sees Flat Sales 

Reuters - By Anna Driver - July 18, 2001

Sears, Roebuck and Co., the nation's fourth-largest retailer, on Wednesday reported an expected net loss of $197 million, as $809 million in charges from an accounting change and the company's exit from the cosmetics business hurt results.

Earnings before the one-time items slumped 13.4 percent as consumers made fewer purchases in the slowing U.S. economy, and Sears warned that sales at U.S. stores open at least one year would be flat to slightly down in the second half of 2001.

The retailer, in a conference call with analysts, said sales could improve if consumer spending picks up.

Sears posted a second-quarter net loss of $197 million, or 60 cents a share, compared with a year-earlier profit of $388 million, or $1.11 a share. Revenues rose to $10.23 billion from $10.04 billion.

The retailer said earnings excluding items for the quarter ended June 30 fell to $316 million, or 96 cents a diluted share, compared with $365 million, or $1.05 a share last year.

The Hoffman Estates, Illinois-based company also said it backed its previous forecast for full-year earnings, excluding items, that is about equal to the previous year, when it earned $4.21 a share.

Because Sears had pre-announced profits, the earnings report contained no huge surprises for investors.

When it reported June sales earlier this month, the company forecast second-quarter earnings of 96 cents a share, above Wall Street's estimates that ranged from 85 cents to 95 cents.

At that time, it said it would take about $810 million in pretax charges for the accounting changes related to the securitization of credit-card receivables, its equity stake in the bankrupt HomeLife furniture chain, and its decision to exit the cosmetics business as part of a previously announced strategic review of its retail operations.

Shares of Sears were off 24 cents, or 0.52 percent, to $46.36 in afternoon trade on the New York Stock Exchange (news - web sites). The stock has outperformed the Standard and Poor's index of mass merchandisers (^SPRETM - news), which includes Target Corp. (NYSE:TGT - news), by about 34 percent in the last 52 weeks.

``CHALLENGING ENVIRONMENT''

Sears, like many other retailers, has seen sales and profit growth slow in recent quarters as consumers, wary of rising job cuts and volatile stock markets, cut back on spending.

``The difficult economic environment and cooler than anticipated weather negatively impacted both our hardlines and softlines businesses within the full-line stores,'' Sears Chief Executive Officer Alan Lacy said in a statement.

Revenues of the retail and services unit fell 1.1 percent from a year earlier to $7.80 billion. Retail operating income fell to $213 million from $225 million a year ago, but retail gross margins improved to 26.7 percent from 26.1 percent.

Sales increases in Sears automotive stores, its Great Indoors home decorating stores, dealer stores and hardware stores, were offset by declines in its department stores.

Revenues from credit and financial products declined 0.5 percent to $1.28 billion from a year ago.

Operating income, excluding noncomparable items, declined 11.3 percent to $345 million, primarily due to the higher provision for uncollectable accounts and higher operating expenses.

SHEDDING SOME LIGHT ON STRATEGIC REVIEW

Sears is in the midst of a wide-ranging review of its weak retail operations. Lacy said a full report on the review is expected when the company reports third-quarter earnings in October. When Lacy was named to replace Arthur Martinez as CEO last fall, he said fixing the company's retail arm would be a top priority.

``We are encouraged by new management's willingness to make difficult decisions to maximize shareholder value and improve the overall profitability of the business,'' Lehman Brothers analyst Jeffrey Feiner wrote in a research note.

But Lacy said that while the company's apparel business has been a laggard, clothing would remain important to Sears.

``Having a successful apparel business is absolutely essential to us,'' Lacy said on the call with analysts.

Lacy said the product offerings in the apparel and housewares business would continue to be trimmed, similar to what Sears did with cosmetics and skin care and its bicycle business. Sears is also looking to cut costs and improve returns across all its business units.

``We just need to make a lot more money,'' he said.

Sears will also focus on targeting its existing middle-income customer instead of spending on efforts to draw in new customers, Lacy said.

Although nothing formal has been announced, Wall Street analysts are encouraged by the scope of the retail review.

``It's appealing to hear that the company is really taking steps (to fix the business), and there is no crown jewel that that they are not willing to touch,'' said Asma Usmani, retail analyst at Edward Jones.

Sears Removes Makeup

By Susan Chandler - Chicago Tribune - July 13, 2001

Sears, Roebuck and Co. is removing the makeup that it applied as part of its "Softer Side" appeal to female shoppers.

The Hoffman Estates-based retailer said Tuesday it is closing down its private-label Circle of Beauty cosmetics line, which is carried in 450 Sears stores. It also is scuttling the launch of Avon's new beComing line, slated for rollout in 125 Sears stores this fall.

To cover the cost of the cosmetics exit, Sears will take a pre-tax charge of about $80 million in the second quarter. As part of that amount, Sears will pay Avon an undisclosed amount for backing out of the deal.

Sears said its decision is part of an ongoing strategic review of business units by new Chief Executive Alan Lacy.

"As work on improving the performance of full-line stores progresses, it has become clear that a broad cosmetics business no longer fits with our financial and strategic objectives for Sears' full-line stores," Lacy said.

Wall Street analysts and retail consultants applauded the move. "They were nothing special in that category," said Sid Doolittle, partner with Chicago retail consulting firm McMillan/Doolittle. "There's a lot of cost involved, and it ties up prime real estate in all of those Sears stores."

Wayne Hood, retail analyst with Prudential Securities, estimates that Sears was generating paltry sales of $29-$30 per square foot in the cosmetics area, far lower than the company average of $400 per square foot. He called the exit "a good decision."

Sears has not yet decided what will occupy the space currently devoted to selling cosmetics and skin-care products, said spokeswoman Peggy Palter.

It's a big turnaround from when Circle of Beauty was launched in 1995. Back then, Sears CEO Arthur Martinez and Robert Mettler, president of merchandising, said cosmetics were a critical element in wooing middle-class women to shop at Sears for themselves. The thinking made sense, given the background of both men in department store retailing.

The Circle of Beauty line, which was developed in a joint venture with a former president of Lancome USA, tied in with Sears' flashy "Softer Side" advertising campaign and its efforts to make its women's apparel more fashionable and appealing. The project was developed in a frantic 17-month period in 1994-95, costing Sears tens of millions of dollars.

The strategy was simple: Bridge the market between pricey department store cosmetic lines such as Estee Lauder and Chanel and inexpensive drugstore lines such as Revlon and Maybelline, which sell their products in blister packs hung on pegboards.

Circle of Beauty also was supposed to be a breakthrough in self-service, allowing shoppers to test products themselves, while providing other, more tentative consumers with advice from trained beauty consultants.

The payoff could have been huge. Cosmetics carry hefty gross profit margins of 40 percent, much higher than the single-digit margins on consumer electronics. At one point, Mettler estimated Circle of Beauty could contribute $500 million a year to sales when it was rolled out to all Sears stores. But the line never came close to those numbers, Sears now says.

Promising revenue potential
Cosmetics and fragrances together generated revenue of about $300 million last year, only $45 million of which was generated by cosmetic sales. Sears will continue to sell bath and body products, as well as selected name-brand fragrances such as Elizabeth Taylor's White Diamonds, Calvin Klein's Eternity and Ralph Lauren's Polo.

From the time Circle of Beauty was unveiled, some critics questioned whether women would feel comfortable buying their makeup at a store better known for its WeatherBeater paint, Craftsman tools and DieHard batteries. Others sniped that it was a desperation move because Sears could not attract the big brand names it craved.

The cosmetics exit is viewed by some as a sign that Lacy is quietly de-emphasizing Martinez's "Softer Side," returning Sears to more of a focus on the home accessories and hardware. In one sign of that, Sears recently said it would get back into the mattress business after exiting it several years ago.

Lacy, Sears' former chief financial officer, has said he wants Sears to do fewer things better and promised to pare businesses that do not generate adequate returns on capital.

"He is trying to figure out from the data what customers are telling him and give them more of what they want and less of what they don't want," Doolittle said.

That eventually may be good news for Sears shareholders, but in the short-term, investors didn't show much interest. Sears' stock fell 15 cents a share to $41.05 Tuesday.

Bad timing for Avon
However, the cosmetics exit is very bad news for Avon, which was banking on Sears to launch its first in-store brand of cosmetics. "The timing couldn't be worse for Avon," said Allan Mottus, editor of the Informationist, a cosmetics trade publication in New York. With the rollout of beComing scheduled for the fall, Avon already had produced inventory and expensive product displays for Sears, he said. J.C. Penney Co. will still carry the new Avon line, but it only has committed to a limited rollout of 80 stores. Avon stock closed down 78 cents to $44.47 a share.

HomeLife Furniture Customers Turn to Sears for Help
By Mary Ellen Lloyd - Dow Jones Newswires 
July 13, 2001  

Sears, Roebuck & Co. may have sold its HomeLife Furniture Corp. in 1998, but that's not stopping customers of the now-closed HomeLife chain from trying to hold Sears responsible for unfilled orders.

Some customers, especially those who bought from HomeLife stores that leased space within Sears stores or used Sears credit cards, are contacting Sears for help in obtaining ordered merchandise or getting deposits back.

Sears spokeswoman Peggy Palter said the company has heard "quite a bit" from HomeLife customers.

"At this point, there's nothing we can do for HomeLife customers," she said Friday. "We have to wait until there's a court-approved plan."

As reported, HomeLife closed its roughly 130 stores Wednesday due to financial circumstances. The Hoffman Estates, Ill., company on Wednesday called the closing temporary, but furniture industry analysts widely expect a bankruptcy filing shortly. HomeLife had 2000 sales of about $680 million, making it the eighth-largest U.S. furniture retailer, according to trade magazine Furniture Today. > Sears sold its HomeLife unit to Citicorp Venture Capital, a unit of Citigroup Inc. (C), in 1998 for $100 million, although Sears retained a 19% equity stake. Sears also participated in a new round of financing in May that helped restore some manufacturers' shipments to HomeLife.

As reported, Sears said Thursday that its second-quarter results would include a $185 million charge relating to HomeLife. On Friday, HomeLife's Internet site said all merchandise in the company's stores and warehouses will be liquidated, and that outstanding orders won't be filled.

A company spokeswoman couldn't be reached for comment Friday, but the Internet site suggested some credit card purchases that haven't been delivered may be refunded, starting with the oldest orders first. Purchases made with cash or check "are being researched," and customers who haven't heard about their refund request by Aug. 3 will be given further instructions on the Internet site then, HomeLife said. That's bad news for Angela Forbus, a San Antonio resident whose June 30 check for $1,212 for a La-Z-Boy Inc. (LZB) recliner sofa cleared her bank on July 5.

Forbus said she's contacted Sears, which she believes should assist HomeLife customers even though Sears no longer owned the business. "The only reason I purchased from (HomeLife) was I figured Sears backs them by letting them use their card," she said. Other customers say that because some HomeLife stores operated inside Sears stores, it implied a connection.

Fourteen HomeLife stores operated inside Sears stores under a licensing agreement. "If it operated in one of our stores, it was still a HomeLife store with HomeLife employees," Palter said. Sears cordoned off the stores at HomeLife's request on Wednesday.

Stephanie Gregg bought a couch and love seat 18 months ago from a HomeLife store in a Sears in Costa Mesa, Calif. She's been battling ever since to replace defective seat cushions. Gregg, who moved to Vancouver, Wash., a few months ago, said Friday she expects Sears to help.

"When I purchased this couch it was from Sears HomeLife," she said. While Sears may have removed its name from the furniture chain after the 1998 sale, many consumers continued to link the two. Internet complaint boards and Better Business Bureau Web sites often use the name "Sears HomeLife" to identify the chain.

Gregg's purchase also was charged to her Sears credit card, which she since has closed due to the problems with HomeLife, but is still making payments on.

"I think they should do something about it, if they want to keep customers happy and they don't want to end up like HomeLife," Gregg said.

HomeLife Closes
Shuts its Doors, Lays Off Workers

By Susan Chandler - Tribune Staff Reporter
July 12, 2001

In another blow to the beleaguered U.S. furniture industry, HomeLife Furniture Corp. closed its doors Wednesday and retail experts say it is unlikely to open them again.

The 133-store chain, which was once part of Sears, Roebuck and Co. and is still based in Hoffman Estates, apologized to customers in a message on its Web site.

It also issued a statement saying it has "temporarily" laid off almost all personnel at its stores and headquarters while negotiating with its investors and lenders "regarding possible financing options." A company insider said HomeLife is planning to file for bankruptcy protection Friday.

HomeLife's cash-flow problems were no secret in the industry, which has suffered from the liquidation of several major retailers, including Montgomery Ward & Co. and Heilig-Meyers Co., once the nation's largest furniture retailer. But the timing of its shutdown came as somewhat of a surprise because HomeLife secured an emergency cash infusion of $65 million in late May from Citigroup Venture Capital, Fremont Investment and Sears. Some suppliers had stopped shipments in April and then again in July because they weren't getting paid.

Sears declined to confirm how much money it had kicked in, but furniture industry sources put the Hoffman Estates-based retailer's portion at $20 million to $25 million. In addition, Sears retained a 19 percent  interest in HomeLife after it sold the money-losing chain to Citigroup Venture Capital for $100 million in November 1998.

Citigroup Venture Capital distanced itself from HomeLife Wednesday, calling itself "one of several investors" in the company. A Citigroup spokeswoman referred calls to HomeLife Chief Executive Joe Baron, who did not return calls.

Sears confirmed it was in discussions with HomeLife Wednesday, but retail experts predicted it is unlikely the retailer would invest or lend any more money to HomeLife.

"Strategically, they're not positioned to make it work. We believe they're gone," said Will Ander, partner with McMillan/Doolittle, a Chicago retail consulting firm. "They never had the critical mass to market and advertise the business."

HomeLife executives approached Sears Tuesday night with a plea for more cash and a plan to downsize to 55 stores in four cities, including Chicago, San Francisco, Los Angeles and Seattle, according to a source close to HomeLife. Sears said no.

Under the leadership of former Chief Executive Arthur Martinez, HomeLife once was billed as a major growth vehicle for Sears. By moving furniture out of Sears stores into a freestanding chain, Martinez was able to free up more space for his "Softer Side" apparel push.

But HomeLife never performed as expected, hampered by a far-flung network of stores and high rates of merchandise returns. When Sears sold the chain, HomeLife's 2,000 employees kept their jobs and the unit's headquarters moved to a newly developed building in the Prairie Stone development, which Sears anchors.

Back then, Sears took a $21 million after-tax charge related to the divestiture. Sears spokeswoman Peggy Palter said she had no information Wednesday about whether Sears would be taking an additional charge in the second quarter related to the value of its HomeLife stake. Sears is scheduled to report its second-quarter results July 19.

Sears has cordoned off the 14 HomeLife departments that remain in Sears stores, including those in its Calumet City, Woodfield mall and Chicago's Irving Park neighborhood, Palter said. In addition, HomeLife had eight freestanding stores in the Chicago area and an outlet at the Ford City Shopping Center.

HomeLife racked up about $680 million in sales last year, making it the industry's eighth-largest player, according to estimates by trade publication Furniture Today.

But the company continued to have distribution and customer service problems after it was sold to Citigroup. After it was separated from Sears, HomeLife had to recreate business processes that its parent's infrastructure had once provided.

"They couldn't ship goods on time. They disappointed customers," said one industry executive who asked not to be named.

Those problems were only compounded by the economic slowdown, which has dampened consumer confidence and spending, retail experts said.

"The problem with furniture is it's a large-ticket item that is very much tied to
the housing market. It's also a very postponable purchase," said Carl Steidtmann, chief retail economist with PricewaterhouseCoopers, the national accounting firm. "In difficult economic times, it's one of the first things that gets hit."

In addition to a lackluster economy, HomeLife found itself facing a wider variety of moderate-priced competition from rapidly expanding chains such as Pottery Barn, Restoration Hardware, Ikea and Room & Board.

HomeLife's demise is just the latest calamity to befall the nation's furniture manufacturers.

Earlier this year, Heilig-Meyers pulled the plug on its comeback efforts, liquidating the rest of its chain. As recently as 1998, Heilig-Meyers operated more than 1,200 stores in 37 states, many of them located in small towns. The Richmond, Va.-based company relied heavily on credit terms to move its value-priced merchandise. It was hurt by the proliferation of credit cards, as well as new low-priced competition such as Ikea, retail experts said.

Late last year, Montgomery Ward also threw in the towel. A much-downsized Wards sold more than $450 million in furniture during 1999, including recliners, sofas and bedroom sets. But continued losses spelled the end for Wards, which closed its last store in March.

The loss of so many retailers will have a cascade effect on manufacturers, many of whom are located in North Carolina, industry players said. Last month, Bassett Furniture Industries Inc. warned its second-quarter earnings would fall far short of Wall Street estimates because of the weak economy and the liquidations of Heilig-Meyers and Wards.

Sears To Take $810M Pretax Charges In 2Q

Dow Jones Newswires - July 12, 2001

Sears Roebuck & Co.'s (S) domestic same-store sales fell 0.5% in June, and the retailer anticipates second quarter earnings of 96 cents a share excluding items, in line with previous guidance.

A survey of analysts by Thomson Financial/First Call produced a mean earnings estimate for Sears of 92 cents a share for the quarter.

In a press release Thursday, the retailer said, total domestic store revenue for the five weeks ended July 7 was $2.81 billion, flat with year-ago levels for the five weeks ended July 8, 2000.

On a "reported basis," or including items, Sears is projecting second quarter earnings of 60 cents a share. For the year-ago period, the company earned $1.13 a share, excluding items, and $1.10 a share on a reported basis.  Second quarter 2001 items primarily include a previously reported change in accounting for credit receivable securitizations, a charge relating to HomeLife Corp., and the exit of the skin care and color cosmetics business.

The new accounting for securitizations resulted in a one-time, noncash charge of about $520 million. The company will recognize a $185 million charge relating to a formerly owned business, HomeLife, which has discontinued operations. Exiting the skin care and color cosmetics business resulted in a one-time charge of about $80 million.

Noncomparable items in the prior-year period included securitization income of $37 million.

Sears said its domestic retail business met expectations in the second quarter, with soft revenue partially offset by favorable margin performance.  

The company's credit business also performed in line with expectations, with second quarter results coming in slightly below year-ago levels on higher writeoffs, notification costs and continued credit card rollouts.

While higher write-offs reflect bankruptcy trends, the company said its credit portfolio remains strong.  

Sears said its specialty store formats performed well in June, with Sears Automotive Group posting double-digit sales increases. The company's Great Indoors format and its hardware segment also posted solid sales increases. In full-line stores, strong-salesincreases in appliances were offset by decreases in other categories.