Wal-Mart Wants to Carry Its Christmas Ads Beyond Price
By Stuart Elliott and Michael Barbaro
November 1, 2007

THE possibility that consumers will hesitate to spend for the holidays is worrying retailers as the Christmas shopping season gets under way. Wal-Mart, the nation’s No. 1 merchant, is starting its big holiday advertising campaign today with an upbeat appeal that seeks to elevate saving money from a necessity to a virtue.

The goal of the campaign, by the Martin Agency in Richmond, Va., part of the Interpublic Group of Companies, is to promote low prices as a means rather than an end — less Scrooge and more Tiny Tim.

For instance, in one commercial, the question, “What will you do with your savings?” is answered by showing a grinning boy riding a bicycle with a big red gift bow atop the handlebars.

A print advertisement presents a house and yard ablaze with Christmas lights. “With great holiday decorations at unbeatable prices,” the headline says, “we’ve got two words for you: backup generator.”

In another commercial, a wife raves about the “incredible” price she paid for a Toshiba HD-DVD player she bought her husband. “All I know is that Christmas is going to be a very, very good day,” she says, smiling.

Another print ad, decorated with a ribbon-bedecked ornament labeled “For every wish,” shows gold jewelry; the prices are displayed near each earring, bracelet and necklace. “We make it affordable to have a heart of gold,” the headline declares.

The goal is to persuade budget-minded consumers that “the more you save, the more Christmas you can give,” said Stephen Quinn, chief marketing officer at Wal-Mart Stores in Bentonville, Ark.

“The core statement of our holiday program is that you can save money if you shop at Wal-Mart,” he added, but to “find more positive and more emotionally connective ways” to express it beyond prosaic appeals to buy stuff cheap.

This is the first holiday campaign for Martin, an agency best known for its humorous Geico insurance campaigns, featuring offbeat characters like geckos and cavemen. The work for Wal-Mart is more mainstream in its approach, reflecting the retailer’s heartland roots.

Martin took over in January as the creative agency for Wal-Mart’s general advertising account, with spending each year estimated at close to $600 million. There are also holiday ads aimed at Hispanic consumers, created by López Negrete Communications; black consumers, from GlobalHue; and Asian-Americans, from the IW Group, another Interpublic agency.

The results of the campaign will be closely watched, because how Wal-Mart fares at Christmas could foretell the health of the American retail economy as shoppers struggle with rising energy prices and falling home values.

“Tough times are actually a good time for Wal-Mart,” Tom Schoewe, chief financial officer, said during a meeting with Wall Street analysts last week, because “our customers care a lot about price and value.”

In September, Martin introduced a theme for Wal-Mart that is intended to reclaim the retailer’s reputation as middle America’s favorite discounter while adding uplifting sentiment to the sales pitch.

The result — “Save money. Live better” — appears in most of the holiday campaign, which will include television, magazines, newspaper circulars, ads on Web sites and signs in stores. It supplants the more bargain-focused slogans Wal-Mart has used in previous years, which included “Always low prices.”

The “save money” part of the theme “is in the DNA of Wal-Mart; it’s why it was created,” said Steve Bassett, creative director at Martin.

The “live better” part is intended to offer “a great promise,” he added, beyond “we’re having a big blowout sale.”

That is particularly important for Christmas, Mr. Bassett said, when consumers want to be “celebratory” rather than to dutifully count pennies.

“One of the pillars of the work is, ‘Let’s express joy,’” he added. “We want people to come away with, ‘Wow, it’s going to be a great Christmas this year, and Wal-Mart will be part of that for my family.’”

Wal-Mart’s holiday marketing tactics have varied widely from one year to the next. This is a reflection of its recent struggle to determine whether it ought to concentrate on its traditional blue-collar customers or woo more affluent shoppers.

In 2003, Wal-Mart cut toy prices so deeply it set off a price war with Toys “R” Us and KB Toys, which sent KB Toys into bankruptcy. The next year, Wal-Mart went lighter on the cutbacks, hurting sales.

In 2006, the theme of the holiday campaign was “Be bright,” as Wal-Mart sought to stimulate sales of more expensive merchandise like designer sheets.

But sales slumped, so price cuts, which Wal-Mart calls rollbacks, quickly returned, creating an uneven tone.

“We had been experimenting a lot,” Mr. Quinn said. “The experimentation process is over.”

“We’ve hit a groove on what our core positioning is,” he said, but because “people already know Wal-Mart is a place to save, we’re trying to make sure there is an emotional connection and not just an empty promise of ‘Save, save, save.’”

For Christmas, the campaign will express the thought this way, Mr. Quinn said: “It’s great to save money, but the feeling you get giving the bike the kid wants is the payoff.”

A commercial for Hispanic shoppers makes that point by showing how the low price on a doll lets a mother also buy clothes for the doll, he said, “rather than saying, ‘You’ll save two dollars here, a buck fifty there.’”

Whether shoppers speak Spanish, English or Esperanto, Wal-Mart needs a big Christmas.

Despite record sales and earnings, Wall Street is worried about the company. Sales at Wal-Mart stores open at least a year, a crucial yardstick in retailing, have risen but at a steadily falling rate — from an average of 3.6 percent a month in 2005 to 2.1 percent in 2006 to 1.5 percent so far this year.

A plan by Wal-Mart to use big-name brands and rock-bottom prices to lure customers has worked in the electronics and grocery departments, but it has so far failed in the home and apparel sections of the stores.

“Clearly, we’re on a longer-term path to ‘fix’ those businesses,” Mr. Quinn said, adding that for the holiday season there will be an emphasis on “a lot of basics: fleece, jackets, hats.”

For those who like decorating their homes for the holidays, Wal-Mart will for the first time operate themed Christmas shops, Mr. Quinn said. In many stores, they will be in the lawn and garden departments.

The special shops will also stock Christmas toys, video games and foods.

The shops are another example of how Wal-Mart is seeking to offer shoppers “higher-touch” experiences than before, Mr. Quinn said, and help them “get into the Christmas spirit” instead of coming to Wal-Mart to trudge the aisles for bargains.

The focus on well-known brands in electronics will continue for the coming Christmas, Mr. Quinn said, listing names like Sony and Toshiba. In the commercial about the Toshiba DVD player, the wife says the price was so low that “even for Wal-Mart, I was surprised.”

In a study released this week by BDO Seidman, 73 percent of the chief marketing officers at retailers said discounting and promotions would be more common this holiday season than last year. And 54 percent said sales would be flat compared with the 2006 holiday season.

To help jump-start the holiday shopping season, Wal-Mart announced yesterday that it would offer door-buster discounts three weeks before they traditionally appear. Five popular products, including a laptop for $350, will go on sale at 8 a.m. tomorrow rather than the day after Thanksgiving.

Wal-Mart said there would be additional door-busters on Nov. 23.

The holiday campaign will appear on TV networks like ABC, ABC Family, CBS, CMT, CW, Discovery, E!, ESPN, HGTV, Lifetime, NBC, Nick at Nite, TBS, TLC, TNT and USA. The publications to carry the print ads include Better Homes and Gardens, Family Circle, Parade, People and Redbook.

$199 computer could crack 'digital divide'
Price reflects Wal-Mart's purchasing power and manufacturer's use of open-source software
By Eric Benderoff - staff reporter – Chicago Tribune
November 1, 2007

Scattered among the $500 to $1,000 desktop computers available at Walmart.com, one machine stands out. It doesn't have a unique design, but its price tag looks like a typo: $199.

Prices for consumer electronics goods, ranging from highdefinition televisions to mobile phones, drop consistently, but few products have more potential to impact a person's ability to learn or find work than a computer.

The cheap computers-sold beginning this week at 20 Illinois Wal-Mart locations and online- are offered at a time when charitable efforts, such as the "One laptop per child" program intended to provide portable computers for $100 to children in developing countries, have struggled to achieve results. Those laptops now are to cost $200, but the program has yet to deliver a product.

The computer for sale at Wal- Mart, on the other hand, can put an affordable machine immediately into the hands of anyone, from students in low-income households to senior citizens on strict budgets, potentially addressing the critical social issue of a so-called digital divide in the U.S. between those with access to computers and the Internet and those without.

"What this will do is make it affordable to have a computer, or even multiple computers, at home," said Mohsin Dada, assistant superintendent for business at the Schaumburg Com- munity Consolidated School District 54.

The computers do not include a monitor, but those can be bought for less than $100, and the price could encourage more families to buy computers, said Sharnell Jackson, chief e-learning officer for the Chicago Public Schools system.

"This is a good thing for digital equity and digital excellence," she said.

According to a 2006 Chicago Public Schools survey, 72 percent of students said they use a computer at home. The remaining students access a computer at school, a library or at a friend's house.

The cheap price reflects Wal- Mart's buying power as the world's largest retailer and an aggressive gambit by a Taiwanese company that has carved out a niche at the low end of the computer market. To get to $199, First International Computer had to forgo software made by Microsoft Corp. or Apple Inc. and try the little-used opensource computer platform.

"There are $60 to $90 savings on every single computer sold just by getting away from the Microsoft products," said Paul Kim, director of marketing for Everex, the in-house brand of First International.

What is open source?

Open-source software programs are developed using code that is available to anyone, typically free of charge. The most notable open-source platform is called Linux, and it has become widely used on corporate server computers.

But consumers, other than hobbyists, who use Linux and open-source software are rare.

Whether people are comfortable with open-source software, or even aware it exists, these computers ship with an array of familiar software: a Web browser, word processing, programs for presentations and spreadsheets, e-mail, instant messaging and media-playing software for music and movies. Much of that software will be provided by Google.

The computer is being offered online at Walmart.com and in about 600 Wal-Mart stores nationwide. The PCs have started arriving in some stores, said Melissa O'Brien, a spokeswoman for the Bentonville, Ark.- based retailer.

"That's about one-eighth of our stores," she said. "It's a test of market demand for opensource software. It's very limited."

Al Gillen, an analyst who covers operating-system issues for technology analyst IDC in Framingham, Mass., said the lowpriced computers "could be disruptive" for the computing industry, but more important it has the potential to expand the market.

"When you look at the people who take photos with their cell phones, it did not diminish camera sales," he said. "The photo quality is not good [with phones], but it enabled the adoption of a technology that was never addressed before. So the opportunity here is to serve a market that has never been served before."

For its part, Google supports the open-source movement and encourages developers and consumers to experiment with its offerings.

Wal-Mart has sold an opensource computer before. In 2002 it tried to sell a $199 PC that used the Lindows operating system. But the PCs were poorly reviewed, and there were compatibility issues working with peripheral devices, such as printers and digital cameras.

Gillen said those hurdles will need to be overcome with this effort.

"Are there adoption blockers here?" he asked. "If there is any kind of updating or installation required, it could be a challenge. Will you be able to install driver software for an old HP laserjet printer? Or will you have to buy a particular printer to work with this device?"

To ease some worries, the PC has a 1-year warranty and a 24- hour help line.

"We want people to accept this as a mainstream product," said David Liu, the founder of gOS, the California start-up that built the open-source operating system the PC runs on.

"The operating system will continue to grow. There will be upgrades."

Dada, the Schaumburg educator, said a "$199 computer can level the playing field for a lot of people. We should make every effort that there is no digital divide."

Wal-Mart Jump-Starts Discounts for Holidays
By Michael Barbaro – New York Times
October 31, 2007

In what is shaping up to be the earliest holiday shopping season ever, Wal-Mart Stores says it will offer door-buster discounts this Friday, three weeks before they are traditionally unveiled on the day after Thanksgiving.

The giant discount chain is expected to announce a plan today to sell five major products — like a $350 laptop — beginning at 8 a.m. on Friday in a bold effort to jump-start holiday shopping two days after Halloween.

The move is likely to put growing pressure on Wal-Mart’s competitors, like Best Buy and Toys “R” Us, to begin marking down merchandise well ahead of Nov. 23, known as Black Friday because it was historically the day stores turned a profit, or went into the black.

The pre-Thanksgiving price-cutting underscores how worried the retail industry is about consumer spending this season. With the housing market in a slump and energy prices high, industry analysts expect retail sales in November and December to grow at the slowest rate in five years.

In the phenomenon of “creeping Christmas,” stores like CompUSA and Gap have begun opening their doors at midnight on Thanksgiving to drum up business, delighting some bargainhunting consumers and irritating some others who bemoan the earlier-than-ever start to the season.

But no retailer has ever tried to single-handedly move Black Friday, considered the biggest shopping day of the year.

Linda Blakley, a spokeswoman for Wal-Mart, said that consumers “are feeling all kinds of pressure, but because part of our DNA is to provide great prices on the gifts people buy, we are starting to do that early.”

Four of the five products will remain secret until Thursday morning, when they can be found — but not bought — on the walmart.com Web site. Shoppers can begin buying them in stores at 8 a.m. on Friday, where the company expects the kind of long, early-morning lines that are common on Black Friday.

By keeping the products secret until the last minute, Wal-Mart will avoid the risk of newspaper circulars leaking out onto the Internet weeks before the sale, as Black Friday ads now regularly do, much to retailers’ chagrin.

Ms. Blakley said Wal-Mart would still offer Black Friday deals on Nov. 23. “This,” she said, “is an early Christmas gift to our customers.”

Playing for laughs amid horror, the Price was fright
by Stephen Whitty, Staff – Newark, NJ Star-Ledger
October 27, 2007

He was born in a grand inquisitor's Spanish castle, in the most loveless of old London mansions, in a ghastly and gabled Salem homestead. He would spend his adult life gleefully arranging premature burials, presiding over sadistic masques, tending bubbling vats of pinkly horrific paraffin.

And then, as it does to all fiends -- at least in those days -- rough justice would come.

The callow hero would wrest the villain's blood-rusted weapons away. Policemen would appear, even their calm exteriors shaken by his unspeakable deeds. An undead wife would rise from her crypt and, knocking aside a guttering candle, set the decrepit old manse ablaze.

And he would scream, and the film would cut to old stock footage of burning houses, and we would cheer and throw our popcorn at the screen.

Vincent Price was not the first horror star and he might not have been the best. But he always seemed to be the fiend having the most fun. And for the "Famous Monsters" generation that grew up watching him wander the cardboard castles of low-budget '60s Gothics, he remains a beloved matinee memory.

And now, like one of those cataleptic wives of his, he rises again.

His grimy, man-against-the-vampires film, "The Last Man on Earth" -- which helped inspire "Night of the Living Dead" -- is about to see a big-budget remake as "I Am Legend." A beautifully restored print of "Leave Her to Heaven" -- a gorgeous Technicolor noir -- was just showcased at the New York Film Festival.

Meanwhile, a boxed set of his horrors -- including the dark "Witchfinder General," the campy "Dr. Phibes" films and a trio of documentary tributes -- has been released by MGM at $39.98. They also have a complimentary set of other, "Price-less" genre films by frequent collaborator Roger Corman and, in December, a deluxe DVD release of the often-bootlegged "Last Man on Earth."

You can't keep a good monster down.

Vincent Price was born in 1911 in St. Louis, the heir to a candy-factory fortune. An enthusiast of fine art since childhood, he went to Yale, then on an old-fashioned "grand tour" of Europe, poking around German castles and English museums. But when Price tried out, almost as a lark, for the London play "Victoria Regina," his passing resemblance to Prince Albert got him cast.

The play led to Broadway, and soon the 24-year-old was fielding offers from Hollywood. As Price had made his name playing a young lover in a period piece, film producers rushed the well-spoken, 6'4" actor into similar parts. He starred in a lightweight romantic comedy, "Service de Luxe," in 1938. He co-starred in "The Private Lives of Elizabeth and Essex" and "Tower of London," a blood-and-thunder retelling of Richard III.

Yet what had seemed courtly in the theater, seemed mannered now; what had once appeared as breeding now came off as superiority. Hollywood had bought a young leading man; they had been delivered a character actor.

Luckily for Price, it was the ¤'40s, a boomtime for supporting players. He soon carved out a nice niche at Fox, playing rich weaklings and ruthless snobs; his finest moment came in "Laura" in 1944, opposite a frequent co-star, the achingly beautiful Gene Tierney. As Shelby Carpenter, the penniless Southern gigolo, Price flits from one benefactress to another like a butterfly, his shallow charm matched only by his canny self-interest.

The sign that there might be an even more profitable genre came with "House of Wax," in 1953. Price had dabbled in such films before -- that's his uncredited voice as the Invisible Man in "Abbott and Costello Meet Frankenstein" -- but this was an all-out shocker, and a huge hit. Later that decade, "The Fly" and two films for William Castle -- "The Tingler" and "House on Haunted Hill" -- confirmed Price's status as horror's newest star.

Confirmed his style, as well, as he brought both films a touch of self-conscious melodrama and self-mocking camp. He knew what these films were. But he was also determined that he, and we, were going to have fun.

A climax of sorts came in 1960, when Roger Corman -- who had been churning out profitably puerile B-movies for American Independent Pictures -- grew ambitious. His next picture, he decided, would be in color. It would be based on a classic of American literature. It would star a famous actor.

Of course the color was the garish Pathecolor, the classic was a Poe story conveniently in the public domain, and the actor was Price. But "House of Usher" showed that Corman could handle more than giant crab monsters and beatnik delinquents. And its basic theme -- with Price as a symbol of the corrupt Establishment, falling rapidly to pieces -- connected, subconsciously, with a newly rebellious generation.

The film spawned a series, many of them marked by poetic flourishes or surprising new talents. "The Raven" brought in young Jack Nicholson as a male ingenue; "The Tomb of Ligeia" featured a literate script by Robert Towne, who would go on to write "Chinatown." "The Pit and the Pendulum" featured a sensuous turn by femme fatale Barbara Steele; "The Masque of the Red Death" showed off Corman's flair for composition.

They were the making of Price as a star -- and, perhaps, the unmaking of him as an actor. Too many other movies began to copy them, and the actor signed on for every one; the more ridiculous they became, the less seriously Price took them. Offscreen he might have a reputation as a chef, but before the cameras, all he served was ham.

So when the moody Michael Reeves, then preparing a period drama called "Witchfinder General" with Donald Pleasance, was told by his American producers that it was to be re-titled "Edgar Allen Poe's Conqueror Worm," and star Vincent Price, Reeves was furious. From the moment Price arrived, Reeves snarled at him, on take after take. "You're doing it!" he'd shout. And then, minutes later, "You're doing it again!"

Price, by then a hundred movies into his career, was just as upset -- until he realized that what the director had caught him "doing" was the very routine he had perfected over more than 15 years of middling efforts -- winking at the audience, playing for laughs, striking camp. Reeves didn't want "the Vincent Price act" -- he wanted Vincent Price, the actor. And once Price realized that, he gave a coldly brilliant performance as the corrupt inquisitor.

The movie was too grimly serious for monster fans, and too horrific for mainstream audiences. Yet it gently eased Price into a better cycle of "revenge" films, such as the stylish "The Abominable Dr. Phibes," in which he settles old scores using the 10 plagues of Exodus, or the witty "Theatre of Blood" in which an actor executes carping critics according to the plays of Shakespeare.

That one remained, not surprisingly, one of his favorites.

In a perfect world, it would have been his last, a nice, neat capping achievement -- but lives are not nice, or neat, and Price wanted to keep working. He did more horror films. He hosted PBS' "Mystery!" He toured the country with a one-man show based on the life of Oscar Wilde, "Delights and Diversions." He popped up on records by Alice Cooper and Michael Jackson.

His last major appearance, before his death in 1993, was in Tim Burton's "Edward Scissorhands," as the inventor who never quite got the chance to finish Johnny Depp's digits; for Burton, who grew up obsessed with TV broadcasts of Price's Poe movies, it was the culmination of a life-long dream.

But then, Vincent Price had always haunted many dreams.

In the end, he was even more complicated than his characters. Although Price came from money and privilege, he was no snob; his two proudest projects were convincing Sears, Roebuck to sell paintings and establishing an art collection at East Los Angeles College. Although he was married three times, his sexuality remained ambiguous; even his devoted daughter said she couldn't figure it out. (Confusing things even further was that Price's last wife, Coral Browne, was a flamboyant bisexual.)

But one thing about Vincent Price was absolutely unambiguous, and that was that he simply loved being Vincent Price. He never refused an autograph. He answered every fan letter. He knew that he owed his career to his audience, knew that his films only made money because his fans trustingly turned out every time, knowing he would never disappoint.

And he tried so very hard not to.

We knew that too, somehow, wherever we first saw him -- at those bargain-basement Saturday matinees, or on the 4:30 movie after school. We watched, and maybe we sneered a little at the giant spun-glass cobwebs, or the bats on strings, or even Price's quivering nostrils as he spoke desperately of that eldritch horror who waits, sir, yes waits even now beyond this chamber! We watched, and we laughed.

But Price was always laughing, too -- with us, and at himself. And it is that great and gentle generosity of spirit that survives him even now.

Marketers Use Trickery To Evade No-Call Lists
Mailings Fool Seniors Into Accepting Pitches;
States Launch Charges
By Jennifer Levitz and Kelly Greene – Wall Street Journal
October 26, 2007

Older Americans around the country are getting duped by a seemingly innocuous tactic that can expose them to hard-sell pitches from the insurance industry.

The technique is centered on a marketing tool called the lead card, and it became popular after the federal government created its Do Not Call Registry in 2003 to shield consumers from unwanted solicitors. Sent through the mail, the lead card invites the recipient to mail off an enclosed reply for free information about, say, estate planning.

"It's a huge loophole," says Pam Dixon, executive director of the World Privacy Forum, a San Diego nonprofit researcher of privacy issues including commercial use of personal information.

The technique is prompting legal action from states across the country. Because the loophole itself violates no law in most states, prosecutors are focusing their cases on other lead-card deceptions. The cards often falsely imply an affiliation with the federal government or with advocacy groups such as AARP, for instance. Many of the cards also fail to mention that replies will be turned over to insurance salespeople.

When Naomi and Horace Williams got a postcard warning that estates of older Americans could be wiped out by taxes unless they moved quickly, they believed it came from AARP, the Washington-based lobbying group for older Americans, since it said that "AARP found" probate taxes were hurting seniors.

So the Williamses filled out a reply card that promised more information and mailed it to a post-office box in Washington, D.C. Soon after came a phone call from a man saying he wanted to drop by their North Carolina home to deliver the information they'd requested. It never occurred to the Williamses -- who had registered on the Federal Trade Commission's Do Not Call Registry -- that the caller was a marketer. They assumed he was affiliated with AARP, they say.

As it turned out, the actual sender of the card had been America's Recommended Mailers Inc., a company housed in a Lewisville, Texas, strip mall that provides leads to insurance agents nationwide.

Soon after they mailed the reply, a living-trust marketer, and then an insurance agent, showed up at the couple's Morganton, N.C., home, Mr. Williams said in an affidavit filed in state Superior Court in Raleigh. Mr. Williams, an 83-year-old retired factory worker, says the agent talked him into transferring much of the couple's $179,000 nest egg into annuities that barred them from tapping the bulk of their money, unless they paid high penalties, until Mr. Williams was nearly 90. The commission on such products is typically 9.5%.

The marketer and the insurance agent worked for American Family Prepaid Legal Corp., an Irvine, Calif., living-trust provider, and its related insurance marketing company, which filed an affidavit generally denying wrongdoing as well as an affidavit from the living-trust salesman denying the Williamses' claim.

The agent received his lead from the postcard reply, according to North Carolina court filings. Meanwhile, the Texas attorney general is suing America's Recommended Mailers for alleged misrepresentations in its pitches. The company disputes the allegation, saying it merely quoted AARP. Nonetheless, it says it is revising its cards. After hiring a lawyer and complaining, the Williamses obtained the return of their nest egg.

Since the FTC created the Do Not Call Registry four years ago, Americans have registered 145 million phone numbers on the list, theoretically shielding themselves from phone solicitations.

But that measure gave new purpose to a growing breed of marketers known as lead generators. "Overnight," says a Web site run by Kaleidico LLC, a Flat Rock, Mich., company that sells software to the lead industry, the Do Not Call Registry made obsolete traditional methods of "prospecting for business" such as "auto-dialing." As a result, Kaleidico says, the new postcard niche has emerged -- a "marketing medium" that is geared toward prompting consumers to "raise their hand to be called."

Plastered With American Flags

Some cards gush about sweepstakes prizes, and returns may be used by marketers in any number of industries. But state regulators say the most ubiquitous type of card is delivered to seniors on behalf of insurers. Often plastered with American flags, such cards may cite "changes in your Medicare benefits" or mention "new legislation" passed by Congress that will "affect you and your heirs" -- along with references to research by federal agencies or AARP on how to handle such changes.

The research is offered free to those who send back contact information. Then the companies, some owned by large insurers, sell the names and contact information they compile to insurance agents and other salespeople.

The postcards often don't identify the mailers, using return addresses with oblique names such as "Central Processing Center." And they often ask for the respondent's signature, considered by some insurers as further consent to be contacted. "You have that hand-signed card with their phone number on it, and you sell tons," says Gary Brown, a salesman in Minneapolis until April for American Family, which buys leads from America's Recommended Mailers.

The Do Not Call law allows companies to bypass the registry and call people on the list if they have "provided express agreement in writing" to receive calls. But Eileen Harrington, deputy director of the FTC's Bureau of Consumer Protection, says the commission's view is that "you cannot use ruses" to get consumers to provide that agreement. Such mailers could be considered deceptive and violate the law, she says. Although the FTC has not yet gone after lead-card companies, she says the agency has some "nonpublic matters pending."

Attorneys general in Illinois, Pennsylvania and Texas have taken legal actions against a total of seven lead generators, charging them with falsely suggesting endorsements by the government or AARP. Regulators in about 20 states have opened fraud investigations into lead generators, according to a court filing by the Texas attorney general's office in one of the cases.

State regulators say insurers are using the cards to peddle investments unsuitable for seniors, including so-called living trusts that may provide no benefit and annuities that come with steep surrender charges and lengthy payout deferrals.

A case in point is Jeanne Blom, an 81-year-old widow in Minneapolis. A retired office-building cleaner, Mrs. Blom years ago transferred the deed of her house, worth $135,000, to her son, placed his name on her checking account and made him the owner of her 1990 Buick LeSabre. The rest of her assets were valued at far less than $20,000, which under Minnesota law would allow her son to collect them without probate, according to Charles Roach, her attorney. In any case, the probate fee in her county is only $250.

Mrs. Blom, who is registered on the Do Not Call list, received a postcard offering free information on estate planning, and she sent it back. Soon, an American Family saleswoman named Deborah Kimball called and set up an appointment to discuss a legal plan. When Mrs. Blom explained the steps she'd already taken, Ms. Kimball insisted that "I needed more than that," recalls Mrs. Blom.

American Family "sounded like they knew what they were talking about," says Mrs. Blom. So she purchased a living trust -- designed to save her the costs of probate -- for $2,295, about a third of her cash savings.

One of Many

Mrs. Blom's case was one of many that prompted Minnesota Attorney General Lori Swanson to file suit against American Family in March, accusing it of selling living trusts and annuities that are unsuitable for older adults with modest savings. Attorneys general in North Carolina and Pennsylvania have filed similar suits against American Family, which has 10 offices around the country.

American Family denied the attorney general's allegations but in July agreed to shut down in Minnesota. Mrs. Blom, who lives on a Social Security payment of $900 a month, has been unable to get her money back. Her lawyer, Charles Roach, says that American Family's headquarters, after initially telling him it would look into Mrs. Blom's request for a refund, hasn't been returning his calls.

Ms. Kimball didn't return several phone calls seeking comment. Jeffrey Norman, the chief executive of American Family, declined to discuss a specific case but said, "We've had thousands and thousands of clients and hardly any problems."

Four of the country's largest lead generators are clustered around Fort Worth, Texas, and Attorney General Greg Abbott has sued them all in an Austin state court, accusing them of false and misleading practices.

In another lead-generator case, the Illinois attorney general, Lisa Madigan, has sued Senior Benefit Services Inc. and American Investors Life Insurance Co., two Kansas-based units of London-based Aviva PLC, one of the world's largest insurers. The suit, brought in state court in Springfield, alleges that Senior Benefit mailed postcards offering free advice that resulted in sales pitches for American Investors products. The complaint says that 393 Illinois residents over age 65 who returned lead cards bought 512 annuities worth $29 million between 2002 and 2005, resulting in commissions of $1.5 million to $2.9 million. The annuities were largely unsuitable for older investors, the claim alleges, because they barred access to the money put into the annuities for years without stiff penalties.

An Aviva spokeswoman says that the company disputes the Illinois allegations.

Mary Menges, a 70-year-old retired nurse in Collinsville, Ill., had signed onto the federal Do Not Call list. But in 2004 she replied to a Senior Benefit postcard that offered estate-planning information because she believed the card came from the government, Mrs. Menges said in an interview. Senior Benefit postcards filed as exhibits in the case don't say they came from an insurance marketer. In fine print -- about half the size of the regular print on the postcards -- is a disclaimer: "Not affiliated with any government agencies."

After returning the card, Mrs. Menges got a phone call from a Senior Benefit telemarketer, followed by a visitor who told her he was paid by the "program" that sent the card, and presented a business card with the title "senior estate advisor."

"I didn't know this was an insurance agent at all," she says.

Limited Withdrawal

During their meeting, she recalls, he "asked me what I had in stocks and bonds" and convinced her to move her $170,000 IRA, invested in mutual funds, to an American Investors deferred annuity. She says she only realized later that she was limited to withdrawing 10% a year. Any withdrawals beyond that sum were subject to a penalty as high as 17% in some cases, the state complaint says. After Mrs. Menges, with her son's help, made several phone calls to the insurer, wrote a letter of complaint and was declined in writing twice, she complained to the state. Informal mediation through the state failed, so the attorney general's office started an investigation. Shortly after that, the company returned her money.

Michael Vaughan, an attorney representing the Aviva units, says the company has seen "no evidence" that Mrs. Menges's claims represent a "broad-based issue."

AARP has also been upset with lead generators. In April 2006 it won a permanent injunction in U.S. District Court in Jacksonville, Fla., prohibiting a company owned by ChoicePoint Inc., a big Alpharetta, Ga., seller of personal data, from referring to AARP on its lead cards and from using a Washington, D.C., return address unless it had an office there. In a settlement, ChoicePoint also agreed to destroy lead cards violating the injunction and paid an undisclosed sum to AARP.

'Fear Factor'

ChoicePoint internal emails used as evidence in the case showed it was mailing more than a million lead cards a year and charged insurers as much as $35,000 per order for the mass mailings, including one in 2003 alerting older adults to a "new" AARP study on probate taxes. The study was then actually 14 years old, was done before a change in federal probate laws and, according to AARP, no longer represented its views. In internal emails, ChoicePoint employees attributed the cards' success in generating responses to their "fear factor" and described response rates that "tumbled" when AARP's name was temporarily removed from mailings.

ChoicePoint's spokesman says the "business practice" described in the settlement began before ChoicePoint bought its lead-generator unit in 2003, and that ChoicePoint stopped using AARP references after last year's settlement.

AARP has a similar complaint pending against America's Recommended Mailers and American Family Prepaid in U.S. District Court in Durham, N.C. AARP alleges that America's Recommended Mailers uses cards that appear to come from AARP to generate leads sold to American Family and others. America's Recommended Mailers has denied the claim. American Family said in a court filing that it bought lead cards on "good faith" belief that the cards didn't violate laws.

North Carolina court filings against American Family say "deceptive" mailers enabled the company's agents to visit 2,000 North Carolina residents over age 65 in their homes in 2004 and 2005. The state says they bought $4.2 million in living trusts and millions of dollars in equity-indexed annuities that were unnecessary and unsuitable.

Macy’s and Hilfiger Strike Exclusive Deal
By Michael Barbaro – New York Times
October 26, 2007

The designer Tommy Hilfiger has agreed to sell his biggest clothing lines exclusively at Macy’s, both companies are expected to announce today in a deal that could rattle the department store industry.

The deal is a coup — if not a vindication — for Macy’s, which promised that its rocky merger with May Department Stores in 2005 would give it the heft to secure scores of such agreements.

But it could prove a headache for Macy’s rivals. Under the agreement, Mr. Hilfiger must now remove his signature clothing lines from the shelves of stores like Dillard’s and Bon-Ton, a move likely to upset shoppers.

Beginning in the fall of 2008, Mr. Hilfiger will restrict sales of his men’s and women’s sportswear lines — from hoodie sweaters to puffer coats — to Macy’s roughly 800 stores. The combined lines are estimated to have annual sales of at least $200 million.

“This is a very big deal for us,” the chief executive of Macy’s, Terry J. Lundgren, said in an interview last night. “Tommy is very significant brand.”

Mr. Hilfiger called Macy’s “our most important account” and said its merger with May made an exclusive deal “all the more compelling and logical.”

Dozens of retailers have struck agreements to sell exclusive clothing lines over the last decade, but the Macy’s-Hilfiger deal stands apart because of the clothing brand’s reputation and popularity.

For decades, Tommy Hilfiger was part of an elite club of designers — Ralph Lauren, Calvin Klein and Donna Karan among them — that dominated department store sales and became megabrands in the process.

Hilfiger has lost much ground over the last five years, going through an identity crisis that took it from preppy to urban and back again, hurting sales. But it is still a force in fashion.

Macy’s move suggests it may have several major designers in its sights, a prospect that Mr. Lundgren did not try to dismiss in an interview. “Our policy is to listen to any good ideas,” he said.

Mr. Lundgren said the Hilfiger deal rests on the assumption that Mr. Hilfiger can sell as much if not more sportswear clothing at Macy’s than he does now at several chains.

“We have the scale to make the math work for a brand like Tommy Hilfiger,” Mr. Lundgren said.

Tommy Hilfiger, which is owned by the private equity firm Apax Partners, may still sell its full line at its own branded stores, and may sell licensed products like fragrances and shoes at Macy’s competitors.

Representatives from Dillard’s and Bon-Ton could not be reached for comment last night.

Without doubt, the agreement poses the greatest risk for Mr. Hilfiger, who will be betting his signature brand on the success of Macy’s, which has hit several roadblocks over the last year.

As part of the merger of Macy’s and May, which operated chains like Marshall Field’s in Chicago and Filene’s in Boston, Mr. Lundgren changed the name of 11 regional department stores to Macy’s, alienating thousands of consumers.

Compounding the problems, Macy’s abruptly reduced the number of coupons it offered shoppers, costing it sales.

The immediate benefit of the merger, however, was the ability to persuade manufacturers to sell products exclusively to Macy’s. So far, Mr. Lundgren has secured a home décor line from Martha Stewart and small clothing lines from the designers Elie Tahari and Oscar de la Renta.

But the results have been uneven. The de la Renta line, for example, has not sold well. The new Martha Stewart home line, on the other hand, is considered a major success, with sales exceeding expectations.

Mr. Lundgren said he was working on several additional exclusive agreements, but he said he was taking his time because such arrangements “are a big commitment — it’s a marriage.”

“You shake your hand and all of a sudden the line does not look good the next season and you have to buy it,” he added. “The vendor is not going anywhere else. That is why it hasn’t gone as fast as we’d like.”

SEC Posse Hunts The 13D/G Gang?
Wall Street Journal – Excerpt from Deal Journal
October 26, 2007

There are few things more annoying than a passive-aggressive family member or colleague. Ever so subtly, it dawns on you that their gentle wheedling or whining might serve some bigger purpose.

So it goes with a group of investors who have been buying stakes in companies and declaring their interest as "passive." With a "Who? Me?" incredulousness, they increase their stake, typically saying it represents only a standard investment and that they have little intention of publicly advocating for strategic or board changes. In Securities and Exchange Commission terms, this means filing a 13G form, instead of the activist special, the 13D -- as in "Carl Icahn just 13D'd me."

Of course, there is a Kabuki quality to these 13G filings, as they very often lead to very active shareholder roles: Such as when Eddie Lampert's hedge fund, ESL Investments Inc., negotiated a takeover of Sears Holdings Corp. while still a "passive" 13G filer.

These technical distinctions will be increasingly important, as Deal Journal has been hearing repeatedly that the SEC is looking to crack down on some of these ever-active but purportedly passive investors. If so, that could mean even more upheaval around proxy contests and boardroom control, and potentially more activity from the likes of Carl Icahn, Dan Loeb and the rest of the 13D/G Gang.

--Dennis K. Berman

True Value woos women with store makeover
By Karen Jacobs – Reuters
October 25, 2007

ATLANTA (Reuters) - True Value Hardware, the cooperative of independent home-goods retailers, is looking to woo female do-it-yourselfers with a new store format.

Some of the changes include the placement of a redesigned paint department and eye-catching seasonal items at the front of the store, a broader selection of kitchen and bath decor hardware, and directional signs in colors such as soft blue.

"The guys still like the store," Lyle Heidemann, True Value president and chief executive, said during a walk in a prototype on display at the company's fall dealer show this week in Atlanta. "The difference is the females also like it."

Heidemann oversaw appliances, tools and other home categories during a 36-year career with retailer Sears, Roebuck. He joined True Value in 2005.

The store makeover is based on feedback collected from customers. True Value first built a prototype of the new store at a warehouse in its headquarters city of Chicago, and currently has two test stores open in Houma, Louisiana, and Manhattan, Kansas.

"The way we've re-merchandised, the aisles appear to be larger," Heidemann said.

The moves come as big-box rivals such as Home Depot (HD.N: Quote, Profile, Research), Lowe's Cos (LOW.N: Quote, Profile, Research) and electronics chain Best Buy Co (BBY.N: Quote, Profile, Research) step up efforts to tailor their merchandise and store presentation to women.

Women represent 44 percent of "do-it-yourselfers" and 51 percent of people that usually hire professionals for home improvement projects, according to a 2006 report from the NDP Group, a consumer and retail market research firm

"Females are the decision maker and big boxes aren't as friendly for them to shop in," Heidemann said. True Value says about 50 percent of its shoppers are women.

In the next three years, True Value is looking to incorporate elements of the changed store design into more than 1,000 stores. The cooperative currently has about 5,600 independent stores.

Heidemann also said that True Value, a private cooperative which had sales of $2 billion last year, was not looking to go public. In recent months, some media have reported that Ace Hardware, another retailer-owned cooperative, plans to convert to a for-profit corporation.

"That is not something that we've considered," Heidemann said.

Wal-Mart CEO Promises Improvements
By Gary McWilliams – Dow Jones Newswires
October 24, 2007

HOUSTON -- Wal-Mart Stores Inc. Chief Executive Officer H. Lee Scott Jr. told investors that the retailer's performance bottomed earlier this year and promised gradual improvements in the months ahead.

The world's largest retailer cleared excess inventories during the summer and is well positioned for holiday sales. "I feel good about Christmas. I'm excited and optimistic about it," he said, citing price reductions, new marketing approaches and better merchandising.

However, should the U.S. economy or consumer spending turn down, Wal-Mart is prepared. "Our low-cost model should in fact on a relative basis give us the advantage that we've historically had if things get difficult," Mr. Scott said.

Shares fell sharply Tuesday as investors reacted to a plan to keep capital spending the next three years at about $14 billion to $15 billion annually. The spending continued to draw heat as one investor questioned whether the Walton family, which owns about 41% of Wal-Mart shares, is less interested in the stock price than collecting its roughly $1 billion in annual dividends.

In remarks to investors gathered in Rogers, Ark., Mr. Scott rebuffed the complaints, calling the capital spending and a new investment in its struggling Japanese subsidiary, Seiyu Ltd., an investment in the company's future. Wal-Mart will fund its new overseas expansion, which calls for new store construction there to exceed that in the U.S. by 2010, from cash generated from international operations, he said.

In its next fiscal year, beginning in February, 80% of new stores built outside the U.S. will be in fast-growing Canada, Mexico and China, he said. Those new stores and improved operating results would "dramatically increase" the company's cash flow enabling Wal-Mart to finance new initiatives, including share repurchases, he said.

He defended Wal-Mart Chairman S. Robson Walton. "He has an interest in and an understanding of what the share price means for shareholders, management and [employee] profit sharing," Mr. Scott said.

The company's shares fell for the second day in a row, closing down six cents at $43.87 in 4 p.m. trading on the New York Stock Exchange.

Mr. Scott called the fiscal second quarter "the low point," adding "in all the things I worried about in my seven years in this job, the first half of this year was the most significant."

Wal-Mart is well into a three-year restructuring plan and starting to see benefits in U.S. operations, he said. "A lot of the hard things have been done," he said, pointing to new executives in merchandising, marketing, operations and revamped labor scheduling in its stores. "My expectation is what we're going to see continually improvement, month to month, over this three- to five-year time," he said.

Wal-Mart's Strategy Spurs a Selloff
By Gary McWilliams and James Covert – Wall Street Journal
October 24, 2007

Wal-Mart Stores Inc. disclosed further cutbacks in its U.S. supercenter-expansion plans, but its shares fell 3% after the retailer conceded the savings would be plowed into overseas expansion rather than into larger stock buybacks.

The Bentonville, Ark., retailer also forecast that revenue excluding acquisitions would rise between 5% and 8% a year through 2010, below its historic rate and lower than many Wall Street projections. The world's largest retailer by revenue has grappled with lackluster U.S. growth and promised to focus more on increasing shareholder returns and improving U.S. operations.

The news, at an investors' meeting in Rogers, Ark., triggered an angry reaction from those attending the meeting and sparked a selloff in the stock despite gains for the market overall. In 4 p.m. New York Stock Exchange composite trading, Wal-Mart shares were down $1.32, or 2.9%, at $43.93.

Wal-Mart executives said the company expects capital spending, forecast to be about $15 billion this year, would remain at between $14 billion and $15 billion annually through 2010.

Some investors challenged the company's plan to spend about $860 million to acquire the remaining shares of its Seiyu Ltd. subsidiary and its decision to continue hefty capital expenditures through the next several years. Seiyu, a Japanese retail chain, has produced losses since Wal-Mart acquired its original stake in 2002.

"There are a lot more pressing issues than the consolidating of Japan," said William Dreher Jr., a retail analyst at Deutsche Bank Securities Inc. Mr. Dreher said Wal-Mart needs to do more to improve the performance of its U.S. stores. He projected that the unusually warm weather in much of the country this month is producing weaker-than-expected October same-store sales.

Despite criticism that the company was pouring new money into a weak business, Thomas Schoewe, Wal-Mart's chief financial officer, defended the Seiyu tender offer, saying "Japan is a great long-term opportunity." He also said Wal-Mart would increase its investments in faster-growing markets, such as Brazil. Wal-Mart's plan calls for international store expansion to outstrip expansion in the U.S. in two years.

Mr. Schoewe and other executives said investments to improve U.S. operating results were paying off in the grocery, pharmacy and electronics businesses. The company has struggled with lower same-store sales in apparel and home decor, two of the highest-margin areas.

Craig Johnson, of Customer Growth Partners LLC, a New Canaan, Conn., retail consultant, said Wal-Mart needs to quickly revitalize higher-margin businesses.

This month, the company forecast October sales at U.S. stores open at least a year would be unchanged or rise 2%, compared with last year. In September, Wal-Mart's U.S. same-store sales rose 1.4%, missing Wall Street's forecast for 1.9% growth.

Patricia Edwards, an analyst at financial-services firm Wentworth, Hauser & Violich, says she would have preferred to see capital spending cut to as little as $12 billion this year.

Wal-Mart shares are likely to languish in the low-$40 range at least through the end of the year, said Charles Grom, an analyst at J.P. Morgan Securities Inc. Wal-Mart executives declined to respond to questions about the recent progress of sales, and Mr. Grom expects that Wal-Mart, like other retailers, has been hit this fall by unusually warm weather, as well as a stumbling housing market and high energy prices that have weakened the company's lower-income consumers.

"I just don't see enough positive catalysts to drive it higher," Mr. Grom said. "They're trying to fix this business with a heavy wind in their face, and that's going to be very challenging to do."

Sears, Computer Sciences settle dispute
Business Week.com - The Associated Press
October 23, 2007

HOFFMAN ESTATES, Ill. -- Department store retailer Sears Holdings Corp. said Tuesday it will pay an undisclosed sum to Computer Sciences Corp. to settle a contract dispute between the companies.

Sears, Roebuck and Co. and El Segundo, Calif.-based Computer Sciences were in a contract dispute stemming from a 10-year information technology outsourcing agreement signed in May 2004.

The companies said they have amicably settled their differences. Computer Sciences doesn't expect to record an asset impairment charge related to the agreement.

Sears Holdings said it already had established a reserve for the expected settlement, so doesn't expect the deal to materially affect its 2007 earnings or financial position.

Inside Wal-Mart's Bid To Slash State Taxes
Ernst & Young Devises Complex Strategies;
California Pushes Back
By Jesse Drucker – all Street Journal
October 23, 2007

In May 2001, Wal-Mart Stores Inc. issued an appeal to big accounting firms: Find us creative new ways to cut our state tax bills.

Ernst & Young LLP swung into action. Senior tax experts at the big accounting firm swapped ideas via email and in a series of meetings. At least one gathering, according to an internal Ernst & Young calendar, took place in Wal-Mart's headquarters in the "Tax Shelter Room."

Wal-Mart decided to hire Ernst & Young to help devise complex tax strategies to use in at least four big states. The accounting firm, for example, helped Wal-Mart take tax deductions in California for dividends it never actually paid. And in Texas, Ernst & Young advised, the giant retailer could exploit a wrinkle in the tax law involving limited partners from out-of-state -- a maneuver subsequently shut down by the state's legislature.

Big companies hardly ever discuss how outside accountants, lawyers and investment bankers help them cut their tax bills. But Ernst & Young's contributions to Wal-Mart's state-tax minimization project are outlined in a raft of documents filed in recent months in North Carolina state court, where the state's attorney general is challenging a Wal-Mart tax-cutting structure involving real-estate investment trusts. The material, which includes company emails and memos, provides a rare window into accountants' role in generating tax-reduction ideas at one major company.

Companies often assert that tax savings are simply happy byproducts of transactions pursued for other business reasons. But documents from the North Carolina case indicate that Wal-Mart, from the outset, had one primary purpose: cutting its state income taxes. Ernst & Young worked to fulfill that goal. In 2002, for example, the accounting firm delivered a 37-page proposal laying out a smorgasbord of 27 potential tax strategies, most tailored to a particular state's tax code. It described one of them as "a very aggressive strategy with considerable risk."

Lawmakers and law-enforcement officials have taken a keen interest in tax advice provided by the Big Four accounting firms and other consultants. In August, U.S. Senate investigators sent letters to at least 30 companies asking for details of potentially aggressive tax arrangements, including the names of tax professionals and law firms that advised on the deals. In May, four current and former Ernst & Young partners were indicted for their tax-shelter work. Two years ago, KPMG LLP agreed to pay $456 million to settle government charges that it promoted abusive shelters to individual taxpayers.

Publicly traded companies reduced their federal income taxes by about $12 billion in 2004 through potentially abusive tax transactions, according to Internal Revenue Service data. Some experts say companies save far more than that each year through elaborate tax-cutting maneuvers.

A Wal-Mart spokesman, citing ongoing litigation, declined to comment on any of the tax work by Ernst & Young, which also set up the tax maneuver that North Carolina has challenged. In court papers, Bentonville, Ark.-based Wal-Mart has said that some transactions implemented by Ernst & Young were intended to cut taxes, but also to more efficiently manage its real estate and potentially help raise capital. A spokesman for Ernst & Young says the tax deals for Wal-Mart "occurred years ago when such tax structures were not uncommon."

Cookie-Cutter Shelters

Tax-enforcement authorities often regard complex corporate transactions that serve no business purpose other than to reduce taxes to be improper tax shelters. In recent years, authorities have cracked down on cookie-cutter tax shelters mass marketed by accounting and law firms. But these days, it is common for advisers to help large companies such as Wal-Mart to develop individually tailored tax-cutting strategies, according to people who work on such deals.

Wal-Mart's 2001 letter to accounting firms got right to the point. It began: "Wal-Mart is requesting your proposal(s) for professional tax advice and related implementation services in connection with minimization of state income taxes in the following states: Arizona, California, Florida, Illinois, Indiana, Michigan, Minnesota, and Pennsylvania."

State income-tax rates for corporations average about 6.9%, and come on top of a federal statutory rate of 35%. Tax rates vary from state to state, and some states have no corporate tax at all on certain income. That provides ample opportunity for so-called tax arbitrage, in which companies allocate expenses and revenues between states in order to minimize taxes owed. That practice has been going on for decades. Some such strategies are perfectly legal. The government considers others to be abusive. States often try to crack down, but the tax-enforcement staffs of many states are smaller than the tax departments of some big companies.

Wal-Mart set aside about $526 million for state and local income taxes last year, not including its substantial property-tax bills, according to the company's financial reports. But its various state tax-cutting strategies seem to have had an impact. On average, Wal-Mart has paid taxes at a rate equal to about half of the average statutory state rate over the past decade, according to an analysis of the company's regulatory filings by Standard & Poor's Compustat.

Wal-Mart has switched state income-tax strategies several times over the past 15 years, coming up with new approaches as states attack existing ones, court records show. In the early 1990s, it employed an "intangibles holding company," a unit operating in tax-friendly Delaware into which it transferred ownership of its brand names such as Sam's Club. It then made payments to that unit for use of those brands, deducting them as expenses from its taxable income in other states, according to court records. That strategy fell out of favor after several states successfully challenged Wal-Mart and other companies in court over the maneuver.

About a decade ago, Wal-Mart adopted another approach, following advice from Ernst & Young. Wal-Mart transferred ownership of its stores to various in-house real-estate investment trusts. REITs pay no corporate income tax as long as they pay out at least 90% of their income to shareholders as dividends, which are usually taxed. Wal-Mart paid tax-deductible rent to those REITs. For one four-year period, the setup saved the retailer an estimated $230 million on its tax bill, even though the rent payments never left the company.

That strategy was the focus of a Wall Street Journal article in February4. Since then, at least six states, including New York, Illinois, Maryland and Rhode Island, have passed laws attempting to prohibit the maneuver, which also has been used by banks and other retailers such as AutoZone Inc. The practice is being challenged by tax authorities in at least four other states, court records show.

After Wal-Mart hired the firm in 1996 to implement the REIT strategy, an Ernst & Young tax executive urged his team to be discreet, according to a staff memo included in North Carolina court records. "We don't think there is much the state taxing authorities can do to mitigate these savings to Wal-Mart, however some states might attempt something if they had advance notification," he wrote. "We think the best course of action is to keep the project relatively quiet....there just seems to be too many opportunities for it to get out to the press or financial community and we all know they are difficult to control, particularly when we are dealing with a client as well-known as Wal-Mart."

David Bullington, Wal-Mart's vice president for tax policy, said in a deposition that he began feeling pressure to lower the company's effective tax rate after the current chief financial officer, Thomas Schoewe, was hired in 2000. Mr. Schoewe was familiar with "some very sophisticated and aggressive tax planning," Mr. Bullington said, according to a transcript of the deposition, taken by the North Carolina attorney general's office in July. "And he ride herds [sic] on us all the time that we have the world's highest tax rate of any major company."

Compared with many other large multinational companies, Wal-Mart has a small presence in foreign countries with low tax rates, reducing opportunities to shift income overseas for tax purposes.

The May 2001 invitation to provide advice came from Wal-Mart's then senior director for income tax, Wyman Atwell. Most of the states he named in the letter had provisions in their tax codes that prevented the REIT strategy from easily providing tax benefits, according to several people familiar with the matter.

In addition to advising Wal-Mart on tax issues, Ernst & Young served as its outside auditor, which meant that its accountants had to pass judgment on advice rendered by colleagues who did the tax work. That's permissible for accounting firms, so long as tax-consulting fees aren't contingent on a client's tax savings. Rules instituted in 2005 prohibit accounting firms from pitching certain types of "aggressive" tax structures to audit clients. An Ernst & Young spokesman said the work for Wal-Mart "complied fully with the independence rules at the time regarding tax advice provided to audit clients."

'Domestic Restructuring'

As Ernst & Young worked on its proposals, one high-ranking tax partner sent an email to a colleague addressing a concern often faced by companies: how to describe a tax-driven transaction in a way that won't create problems later on with tax authorities. "You asked if we have a document that details how the tax savings will work, how much they will save....We really don't have anything like that except for the sales document, partly because we have avoided calling this a 'tax' project, to show that we did not have a tax savings motivation, rather it is a 'domestic restructuring' project," he wrote.

That November, Ernst & Young sent Wal-Mart an "engagement letter" to confirm the scope of its work to cut the company's state tax burden. The letter said the accounting firm's fees would be at least $2.5 million, with potential additional fees to be determined later.

California was a key state for Ernst & Young's project. Its tax system is among the most stringent in the country. Many states only tax income from operations within their own borders -- called the separate-reporting method -- which makes it easier for companies to shift taxable income out of reach of tax authorities in those states. But "combined reporting" states such as California total up all profits of a company's domestic or world-wide operations, regardless of what state they're in, then allocate a portion of those profits to their states.

Ernst & Young dreamed up a novel way to sidestep combined-reporting requirements in California. It used an unusual type of dividend to transfer income from one subsidiary to another in such a way that the second unit wouldn't be taxed.

Here's how it worked: When REITs pay dividends to their shareholders, they can deduct those payments from their taxable income. The federal government permits REITs to take deductions for dividends before they're actually paid -- a provision intended to give them extra time to make payments. Such dividends are called "consent dividends" because the recipients must consent to record the unpaid dividends as taxable income.

Ernst & Young argued that California law permitted REITs to deduct such consent dividends, but that the state law didn't also require recipients of the consent dividends to count them as taxable income, according to one person who worked on the transactions. The accounting firm proposed a strategy in which the Wal-Mart REIT would claim a tax deduction for paying consent dividends to its parent, but the unit receiving the dividends wouldn't record them as income for tax purposes. The bottom line: Wal-Mart could reduce its taxable income in California by an amount equal to the total consent dividend payments it recorded, thereby cutting its tax bill.

Two years later, California's Franchise Tax Board, the state's income-tax agency, put the strategy on its list of "Abusive Tax Shelters." Wal-Mart's Mr. Bullington said in his deposition that California tax authorities have protested various tax benefits taken by the retailer since 1998. California also is in litigation with a big bank, City National Corp., over a similar strategy.

Out-of-State Partner

In Texas, Ernst & Young helped Wal-Mart set up a somewhat more common tax-cutting vehicle. Under Texas law at the time, a limited partner from out of state was exempt from Texas's corporate franchise tax. As a result, scores of companies, including Wal-Mart, reorganized their Texas operations into limited partnerships. The general partner, which was subject to state taxation, was typically a subsidiary based in Texas. But the limited partner, often owning as much as 99.9% of the entity, would be based in Delaware or another tax-friendly state. The result: up to 99.9% of the profits of the Texas operation would flow to that out-of-state limited partner, making that income tax-free.

Texas's state legislature eliminated that option when it revamped its tax laws earlier this year.

Wal-Mart also agreed to buy other complex tax shelters from Ernst & Young to cut taxes in Arizona and Michigan, the court documents show. One Ernst & Young document said Wal-Mart would cut its state income taxes by about $18 million, although that document didn't make clear the time period or the states included in that figure.

In August 2002, Ernst & Young proffered the new list of 27 additional tax-cutting approaches. It isn't clear if Wal-Mart adopted any of them. One of the proposals was accompanied by the following warning: "Note that in a 'post-Enron' environment and amidst the focus on 'tax haven' operations, this strategy is expected to get more scrutiny by the IRS, as well as some states."

As for Wal-Mart's "Tax Shelter Room," North Carolina officials asked Mr. Bullington about the odd name. In his deposition, the Wal-Mart vice president said the moniker was "a bit of a pun," stemming from the conference room's use by tax-department employees to conduct safety drills for natural disasters such as tornadoes.

Wal-Mart, he said, no longer has a room by that name.

Wal-Mart to Take Full Ownership of
Japanese Subsidiary Seiyu
By Andrew Morse and Amy Chozick – Dow Jones Newswires
October 22, 2007

TOKYO -- In yet another effort to shore up its slumping operations in Japan, U.S. discount giant Wal-Mart Stores Inc. offered on Monday to pay more than $860 million to acquire the 49.1% of its Japanese subsidiary it doesn't already own.

Wal-Mart said it would pay ¥140 ($1.22) for each Seiyu Ltd. share. That's a 60.9% premium to Friday's closing price of ¥87. Trading in Seiyu shares were halted before the start of trading.

Wal-Mart said owning the entirety of Seiyu would give it more flexibility to invest in a range of activities, including merchandising, distribution and logistics. It will also give Wal-Mart the ability to make any changes to Seiyu it might want.

The deal comes five years after Wal-Mart began building its stake in Seiyu Ltd., a struggling Japanese retailer that seemed to fit in with the Bentonville, Ark.-based company's strategy. Since then, Wal-Mart has spent millions of dollars to amass a 50.9% stake as well as refurbish Seiyu's older stores.

So far, that effort hasn't been rewarded. On Monday, Seiyu said it posted a loss of ¥11.4 billion in the nine-month period ended Sept. 30. While that marked an improvement over the ¥59.6 billion loss posted a year earlier, Seiyu also said its same-store sales had fallen 1%.

Wal-Mart's decision to buy all of Seiyu underscores both the allures and the challenges foreign retailers face when doing business in Japan, the world's second-largest economy. While Japanese consumers have become increasingly cost-conscious during a 15-year period of slow economic growth, they remain among the most choosy shoppers in the world.

Wal-Mart's philosophy of "always low prices" hasn't played well in Japan, where consumers often equate low prices with low quality. The company has tried to address that issue by offering higher-end goods at Seiyu, Japan's fifth-largest retail chain by sales. It expanded its fashionable clothing line to include suits for Japan's hoards of so-called salarymen. It added more fresh foods to attract homemakers and expanded the number of stores it operated round-the-clock. Seiyu also remodeled 73 stores, which had acquired a reputation for being down-at-the-heel.

The world's biggest retailer has had trouble with its international operations before. In July, Wal-Mart sold its German operations to rival German retailer Metro AG. In May, the company said it would sell its 16 stores in South Korea. Wal-Mart's international operations accounted for 22% of the retailers' total sales of $345 billion in the year ended Jan. 31, 2007.

Wal-Mart is not alone in having difficulty in Japan's tricky retail market. In particular, large retailers that rely on scale in their home markets have had trouble replicating their successes in Japan. Paris-based Carrefour SA has left Japan in 2005. Meanwhile, the local competition is getting stronger. Earlier this year, Aeon Co., a direct rival of Wal-Mart here and one of the few Japanese companies to adopt a growth-through-acquisition strategy, bought a 15% stake Daiei Inc. and a 20% stake in its Maruetsu Inc. subsidiary.

Wal-Mart's tender offer, approved by Seiyu's board, is scheduled to begin on Oct. 23 and end on Dec. 4.

A Storied Name on Sale?
Eddie Lampert could have the last laugh
By Jonathan R. Laing – Barron’s
October 22, 2007

IT HAS BEEN A TOUGH YEAR for Sears Holdings, created by the 2005 merger of retailers Sears Roebuck and Kmart. After peaking in April at more than 195 a share, the company's stock (ticker: SHLD) sank like a stone to a low of 123.39 in September. It now treads water around 134.

Yet Sears is not without glamor, despite its poor stock-market performance and prosaic product lines like Kenmore appliances and Craftsman tools. In part, that's because it is run by Edward Lampert, a money-management wunderkind who cobbled together the merger and whose hedge fund, ESL Investments, owns about 45% of Sears' 150 million shares outstanding.

In the fund's 19 years of operation, Lampert's limited partners have enjoyed average annual returns of about 25% after fees from the concentrated bets the 45-year-old investor has made. In late 2004, BusinessWeek went so far as to dub Lampert the next Warren Buffett for his prodigious investment accomplishments, though, unlike Buffett, Lampert is willing to parachute into dicey corporate situations -- like that of once-bankrupt Kmart, which he bought in 2002 -- and actually manage the companies.

Lampert has applied his turnaround strategy, consisting of cost-cutting and an obsessive focus on profit margins, to great effect at AutoZone (AZO), his second-largest position. But he has had little luck, so far, with Sears.

The retailer laid a big egg with its fiscal second-quarter earnings, which fell some 40% to $176 million in the three months ended Aug. 4, from $294 million in the year-ago period. Moreover, murderous competition from the likes of Target (TGT), Kohl's (KSS), J.C. Penney (JCP) and Lowe's (LOW) has caused Sears' gross margins to drop in the past two quarters, after rising smartly the previous year. As a result, Sears is likely to have a rotten third quarter and holiday season, and will be hard put even to equal results for the fiscal year ended Feb. 3, when the company notched earnings of $1.4 billion, or $9 a share, on sales of $53 billion.

Sears detractors now are legion, and claim that Lampert is "paying the piper" for two years of underinvesting in company stores and penny-pinching on advertising. As a retail-industry laggard with tired locations and mediocre merchandising, Sears figures to suffer mightily if consumers retrench and the economy slows, they insist.

A measure of schadenfreude also may be behind the poor-mouthing of Sears. Lampert inspires envy among some peers with his luminous results and palpable cockiness. Analyst coverage of the company is spotty, since he has only minimal communications with investors and doesn't talk to Wall Street; he declined, as well, to speak with Barron's.

Says one New York hedgie: "I think that Sears will prove the ultimate trap for Lampert and his investors, and the Eddie cult will come to an ugly end."

Perhaps. But certain factors argue for the opposite conclusion.

ESL has lost money in the past, in 1990 and 2002, only to come roaring back, according to Reuters, which obtained a recent offering document Lampert's firm used to raise $3 billion of capital. In the past, at least, Lampert's keen nose for value has kept him from protracted performance problems.

Given demand from mall owners and competitors, Sears easily could sell its legacy retail space. Likewise, Sears' business is getting short shrift, as some of Lampert's restructuring efforts are likely to bear fruit. Too, the retailer's real estate has considerable value that is not reflected in the stock. Add up this real estate, valuable brands like Kenmore and Craftsman, and Sears' huge appliance and home-remodeling business, and the company could have a liquidation value of more than $300 a share. The worse Sears performs in the next year or so, the more likely Lampert is to monetize and harvest this potential real-estate bonanza.

Lampert isn't acting like someone mired in a losing situation. Far from it, in fact. Under his guidance, the company has bought back stock at a ferocious pace, particularly during the recent swoon. Since it was formed in March 2005, Sears Holdings has used $3.5 billion of internally generated cash to buy in shares, with $1.5 billion spent in the second quarter alone to purchase 9.7 million shares. More recently, the Sears board authorized the company to repurchase yet another $1.5 billion of stock.

About 60% of Sears' shares are in hands supportive of Lampert. That includes ESL's 65.6 million shares, and 5 million shares recently purchased by Pershing Square, a hedge fund run by Bill Ackman. The family of Sears board member Thomas Tisch owns 4.2 million shares separately from its investment in ESL; a hedge fund run by board member and Lampert buddy Richard Perry owns 2.7 million shares, and mutual funds controlled by Legg Mason's Bill Miller holds an estimated 12 million shares. This combined interest might even stand at 65% if Sears has bought in more stock in the current quarter.

Admittedly, Lampert faces a tough task trying to turn around the fortunes of legacy Sears and Kmart operations; both chains still suffer from decades of management gaffes and neglect. Yet Deutsche Bank analyst William Dreher, for one, sees improved prospects for the company's retail operations, and has a price target of 215 for the stock. He says Lampert has a golden opportunity to more than double Sears' operating margins, merely by bringing them up to levels approaching those of the competition. In its latest fiscal year, Sears mustered margins of 4.74%, in comparison to Penney's 9.66%, Target's 8.76% and Kohl's' 11.7%.

Such turnarounds take time. As Dreher notes, retail veteran Allen Questrom took five years to revive the moribund Penney, from 2000 to 2004. "Questrom was the object of the same kind of skepticism that surrounds Lampert today," Dreher says.

A Screaming Bargain: The implied value of Sears' retail real estate is absurdly low relative to competitors' property. Yet Lampert seems to make lots of right moves, he adds. He's changing the product mix to feature higher-margin merchandise such as Lands' End fashions, and home-decor merchandise. He's also beginning to push big-ticket items like Kenmore appliances out of the mall and into free-standing Kmart box locations.

And, according to Dreher, Lampert is making unsexy but crucial investments in technology and software to update antiquated distribution, point-of-sale, sourcing and price-optimization systems. Not least, the value of Sears' real estate, or what he calls the company's "land bank," is rising with the company's absorption of Macy's and Mervyns excess real estate.

The fallout from the housing-market's bust currently is buffeting Sears, and concerns about consumer spending prompted Dreher to lower his earnings estimate for the fiscal year ending January 2008 to $8.49 a share from $11. "We're currently in an environment in which consumers aren't looking to try new store chains, but the changes in Sears won't escape shoppers notice forever," he says.

Dreher's fiscal '09 estimate is at $11.48.

Credit Suisse analyst Gary Balter also is upbeat on Sears, with a one-year price target of 190. He considers the stock attractive given the numerous opportunities for margin expansion, asset sales, share repurchases and working-capital improvements. On the latter score, he estimates Lampert could wring $3 billion a year in additional cash flow from Sears merely by slowing down company payments to vendors.

To many observers, Sears' real estate is what ultimately will deliver big returns to investors. Sears owns, among other things, 518 of the 861 legacy Sears general-merchandise stores, located in some of the best malls in the U.S., by virtue of the clout that Sears Roebuck's onetime developing arm, Homart, was able to exert. Leased Sears stores generally pay below-market rents, and have lenient covenants as far as common-area maintenance obligations and building-use restrictions.

Most of the Kmart stores -- 1,194 out of 1,333 locations -- are leased on even more favorable terms. Rents are at rock-bottom levels. And the 100-year leases at many of these locations give Sears what effectively is ownership control.

As to the value of Sears' real estate, Ackman of Pershing Square made some interesting observations at a recent charity event in Dallas. He reasoned that Sears Holdings is more a conglomerate than a pure retailer. He therefore deducted from its $20 billion enterprise value [stock-market capitalization of $19.3 billion plus net debt and capital leases of $700 million] the $2.2 billion value of its 70% holding in Sears Canada and $9.3 billion in noncore assets after working capital adjustments, valuing Sears' U.S. retail real estate at just $8.5 billion of its total enterprise value.

According to Ackman's calculations, Sears is rich in assets that could be easily sold. Among them are the company's 15 million square feet of warehouse and distribution-center real estate; its headquarters campus and surrounding 200 acres in Hoffman Estates, Ill.; the Kenmore and Craftsman brands; the company's enormously profitable home-services operations, which do everything from appliance repair to installation of home siding, and its popular Lands' End unit.

Ackman used seemingly conservative break-up estimates. Yet the $8.5 billion enterprise value he assigned to Sears' U.S. retail real estate both on and off the mall worked out to just $33.05 per square foot, based on an estimated 257 million square feet. The number pales beside the enterprise values per square foot of Sears' various rivals.

Target and Kohl's both boast implied real-estate values of more than $300 a square foot, or around 10 times Sears' number, despite generating cash flow per square foot less than three times that of Sears. Appliance- and tool-heavy Home Depot (HD) and soft-goods-oriented Penney also have per-square-foot numbers that are multiples of Sears', weighing in at $277 and $144 respectively. The comparison gets downright nutty when Sears is compared to, say, the retailing real-estate investment trust Simon Property (SPG), which, according to Ackman, has an implied mall value per square foot of $698.

The Bottom Line

Sears Holdings sells for 134 a share, but could have a break-up vaule of more than $300. If Lampert turns around its retail operations, the shares could rally to 200 or more.The apparent purpose of Ackman's exercise was to illustrate the potential value of Sears' real estate, were it put to its highest and best use. He used as an example the REIT Vornado Realty Trust (VNO), which saw its stock rise some 15-fold between 1980 and 1994 after liquidating the Two Guys retail chain and re-leasing or redeveloping the company's 60-odd real-estate sites.

There would be a ready market for legacy Sears retail space, either through a sale or a more tax-friendly long-term lease arrangement. The management of Target has made known its desire to take over "hundreds" of Sears locations either on or off the mall.

Mall owners also would pay dearly to gain control of Sears' space. Many anchors like Sears no longer draw the traffic they once did. Increasingly mall owners are replacing erstwhile anchors with lifestyle wings, including restaurants like the Cheesecake Factory, and P.F. Changs, Crate & Barrel, Barnes & Noble and Dick's Sporting Goods, or stadium-seating multiplexes. And there's little to keep Lampert and Sears from disintermediating the entire process and acting as their own leasing and redevelopment company.

Time is money, and Lampert has made few moves to monetize Sears' real estate. More likely, he wants to buy in as much of the stock as he can to increase ESL's eventual returns. For other investors, too, a big payday could lie in the offing. And the Eddie cult could live on.

Wal-Mart Will Rise Again
By Johanna Bennett – Barron’s Online
October 16, 2007

THOUGH DISLIKED ON WALL STREET, Main Street, and even off-Broadway, Wal-Mart Stores could end up winning over many skeptics.

Certainly, things can't get much worse for the company's once formidable shares, which have fallen 23% over the past five years and dropped 5% during the past 12 months, severely trailing the broader market during that time.

Blame slowing sales, strategic missteps and cash-strapped consumers for the stock's woes.

Meanwhile, Wal-Mart has become fodder for farce. The off-Broadway musical satire, Walmartopia, pokes fun at the company's ruthless image, featuring the floating (and singing) disembodied head of Wal-Mart's late founder Sam Walton.

Yet efforts over the last six months to improve margins, increase cash flow and reward shareholders are showing early signs of success.

And with multiples bouncing off 10-year lows, investors have little to lose, and could gain returns of 20% to 30% over the next 12 months.

"I haven't liked Wal-Mart for a while, but I think now we have to take a look at it," says Pete Kwiatkowski, portfolio manager of Fifth Third Dividend Growth Fund. "It remains a 'show me' stock. But if they're going to outperform, this is when they will do it."

Efforts to improve margins are working. Last week, management hiked earnings projections for the third quarter, citing lower expenses.

In June, Wal-Mart cut back plans to open up to 270 new Wal-Mart Supercenters this year, and announced plans to repurchase $15 billion in stock instead.

Meanwhile, Wal-Mart has revamped its marketing, added new brands, remodeled some stores and cut costs on some products to draw in penny-pinching holiday shoppers.

"It is a reasonable contrarian play," says Todd Slater, an analyst with Lazard Capital Markets, of the stock. "This is one of the few retailers at the moment raising guidance."

Others agree.

On Friday, Jefferies & Co. initiated the stock at a Buy. Last month, Rochdale Securities upgraded the stock to Buy.

And at $45.86 a share, the stock has climbed 8% since hitting a five-year low last month, says Thomson Financial.

"Though the fits and starts to this turnaround have been frustrating for investors, we believe management has made significant changes in the last six months to support meaningful turnaround progress in 2008," wrote Jefferies analyst Daniel Binder in a recent research note.

How meaningful?

Expected to earn $3.07 a share during the current fiscal year scheduled to end Jan. 31, 2008, profits could rise 13% next year to $3.47 a share, Binder estimates.

Meanwhile, Wall Street expects profits to dramatically outgrow the broader market over three to five years (see At a Glance), says Thomson Financial.

In the 45 years since the first store opened, Wal-Mart Stores has become the world's largest retailer, operating 7,022 stores with sales of $345 billion during the fiscal year that ended Jan. 31, 2007.

Just under one-quarter of those sales came from foreign shores.

In the U.S., which accounts for 77% of Wal-Mart's business, the company operates 4,091 stores, including Wal-Mart discount stores, Wal-Mart Supercenters, Sam's Clubs and Neighborhood Markets.

Selling groceries, electronics, clothes, computers and prescription drugs, Wal-Mart generated $1 out of every $9 spent at U.S. retailers last year, according to some estimates.

But U.S. sales have slowed over the last five years, and defied the company's fix-it efforts (see Barron's, Follow Up, "Investors May Apply Wal-Mart-like Discounts to Shares1," Nov. 6, 2006).

Last year, sales at stores open for 12 months rose 2.1%, the lowest since Wal-Mart first reported figures in 1980. And so far this year, same-store sales have climbed 1.5%.

In August, management lowered earnings projections for the current fiscal year by 10 cents to $3.05 a share to $3.13 a share.

But Chief Executive H. Lee Scott Jr.'s decision to cut back new store openings was a smart move, says Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm.

It will cut capital expenditures, boost free cash flow and allow Wal-Mart to focus on fixing existing stores and repurchasing stock.

The company expects capital expenditures to fall $1.5 billion this year. And next year, spending could fall another $4 billion, according to Jefferies' Binder.

Free cash flow before dividend payments, meanwhile, could climb 50% to $9 billion next year, and over the next five years total $55 billion, he added.

"They are doing a lot right," says Davidowitz.

Investment pros predict that Wal-Mart -- which cut prices on select toys this month -- could attract middle-class holiday shoppers. Investors also expect aggressive pricing on consumer electronics.

Wal-Mart has returned to touting its low prices with a new advertising slogan, "Save Money. Live Better."

The company reduced markdowns used to clear out old merchandise. And since last year, it has culled its vendors and used a staff scheduling software to control costs and improve margins.

Meanwhile, the first Wal-Mart stores could enter India next year under a joint venture with Bharti Enterprises.

And at 14.2 times projected profits over the next four quarters, the stock is a bargain, trading at a 9% discount to the broader market, and bigger discounts to industry rivals Costco Wholesale, BJ's Wholesale Club and Target.

Yet turnaround stories can be tricky, especially for a company as big as Wal-Mart.

More missteps or problems rectifying the company's previous errors could keep Wal-Mart's share price stagnant. Competition for customers remains fierce. And even "Everyday Low Prices" can't stand up to a recession.

Bears say the company still needs to do more to curb capital expenditures and boost free cash flow.

Meanwhile, high-profile lawsuits and attacks on the company's public image still attract attention.

Still, cash flow is rising. The company is taking steps to fix its tarnished image. Plus, the share repurchase now underway could be completed in two years, according to Jefferies' Binder.

And if management can steer the right course, investors may finally find Wal-Mart a good fit.

Allstate shift pays off in big profits
By Dave Carpenter – The Associated Press - Business Week.com
October 16, 2007

CHICAGO -- When a series of killer hurricanes walloped the Gulf Coast in 2005, costing Allstate Corp. a record quarterly loss of $1.55 billion, the company tried to make sure its bottom line would never be hit so hard again.

The nation's largest publicly traded personal-lines insurer pulled back aggressively from areas susceptible to expensive storms. It did not renew many homeowners' policies. It dramatically increased its own insurance, or reinsurance.

Two years later, despite the continuing risk of a consumer and regulatory backlash, the strategy is paying off: Allstate, which reports third-quarter earnings Wednesday, is on a pace to exceed last year's record annual profit of $5 billion.

Not only has the company reduced its exposure to catastrophic events, it is benefiting from a calculated shift away from the riskier homeowners' business into the increasingly profitable auto line. Automobile insurance now accounts for 67 percent of its property-liability premiums and more than double the revenue from homeowners.

"Allstate has come a long way in becoming more sophisticated in understanding the risks that it underwrites, and it's had very, very good financial results because of that," said Donald Light, an analyst at research and consulting firm Celent. "They've clearly made a management judgment that they'll take the lumps that they have to take, public relations-wise, in order to insulate themselves from the shock losses."

Criticism has been harsh.

The Consumer Federation of America says the Northbrook, Ill.-based company favors investors at the expense of consumers and has engaged in price-gouging. Sen. Trent Lott, R-Miss., has repeatedly assailed Allstate and other big insurers for what he claims is negligence since Katrina and even sued State Farm for related claims, ultimately settling the lawsuit. He is pushing to crack down on the industry through various legislative initiatives.

"It's OK to make a profit, but they are ripping people off," said J. Robert Hunter, the consumer group's insurance director. "Why are they so risk-averse? If they're not going to take on risk, what do we need insurance companies for?"

Allstate declined to make an executive available for this story, citing the mandated quiet period before its earnings announcement. But the company has been very public, if not blunt, about its intentions.

Less than two months after Hurricane Katrina devastated the Louisiana and Mississippi coasts and four weeks after Rita struck along the Texas-Louisiana border, Allstate executives told analysts the more than $3 billion in catastrophe losses in the third quarter of 2005 were "unacceptable."

"We will continue to take our (homeowners') coverage and exposure down because we have no moral or legal obligation to provide this kind of coverage to people," current CEO Thomas Wilson, then president and chief operating officer, said on an Oct. 20, 2005, conference call.

That strategy accelerated with Katrina but it reflects a more hard-nosed approach toward pricing that began years earlier.

The insurance industry began re-examining its pricing after Hurricane Andrew devastated Florida in 1992. Allstate developed a sophisticated new underwriting and pricing system that it began using in 2000 to manage its risk better and minimize losses.

The company boosted homeowners' rates by double digits for the following two years to revive a line that had suffered losses, and big increases continue in select coastal states today. Allstate Floridian Insurance Co., for example, is currently asking regulators for a 41.9 percent rate increase, and some premiums in other states along the Gulf Coast have doubled or tripled since 2005.

Allstate also has shed hundreds of thousands of homeowner policies by non-renewal in Florida and taken a similar approach in other coastal states.

Banc of America Securities analyst Alain Karaoglan said in a research note last week that heavy exposure to catastrophes in its homeowners' business has long been Allstate's Achilles' heel.

He applauded the company's increased pricing discipline, reflecting the prevailing view on Wall Street.

"It's purely model-driven, it's purely risk-driven -- it's not like they hate Florida or anything," said Morningstar analyst Matt Nellans. "What people don't see is that for 10 years they were writing underpriced insurance and nobody complained about that."

Allstate, which also bought about $800 million of reinsurance in 2006 and again this year to further protect itself, says changing weather patterns are the real villain. It has shifted business increasingly to auto, which has become more profitable due to a decline in accidents in recent years, and now claims nearly 12 percent of the U.S. market, trailing only State Farm.

Allstate's Your Choice auto insurance, which gives customers benefits such as a lowered deductible based on how long the covered driver goes without an accident, is a top priority. Wilson said in an Oct. 4 speech in Chicago the company has sold more than 2.7 million policies since it launched the program in late 2005.

"In a sense they're already a heavy auto company," Light said. "I think over three to five years you'll see much more evidence of the shift."

Allstate on Wednesday is forecast to report earnings of $1.67 per share from a third quarter that had few major storms, based on estimates of analysts surveyed by Thomson Financial. That would push profits for 2007 over $3.8 billion, slightly ahead of last year's record pace.

Letters to the Editor
Wal-Mart Tottering? Don't Bet On It
Wall Street Journal
October 13, 2007

I couldn't disagree more with your article "Wal-Mart Era Wanes Amid Big Shifts in Retail1" (page one, Oct. 3). The Wal-Marts I visit in Georgia are packed, and this is at a time when the company's prime customers, the middle and lower classes, are hurting. To compare Wal-Mart with Costco or Target is laughable. Costco and Target cater to a different clientele that is benefiting from a strong economy.

When I go to Wal-Mart I can do all my shopping in one trip, and I know that the prices are going to be the lowest. I can put up with not having a glamorous store when it comes to saving a buck. In addition, I'm not surprised that PepsiCo is marketing a new energy drink through Whole Foods. Energy drinks are consumed by affluent yuppies who like to work out and are on the run. They're definitely not Wal-Mart customers.

The bottom line: Don't discount Wal-Mart. The company isn't going away and is just waiting for its targeted consumer base to grow once again.
Brett Sorge
Murrayille, Ga.

Your article glosses over the consequences to American society caused by the influence Wal-Mart has exercised over the economy. Unmentioned is the disastrous rush toward the bottom in wages, with Americans settling for appalling salaries in the service sector, yet still remaining uncompetitive with both new immigrants and overseas labor forces.

The payoff for this destructive trend? Widespread availability of cheap consumer goods, many of them made overseas, and the vast preponderance of them unnecessary purchases. Your article does mention the disaster these big-box stores have been for small businesses and Main Street America. Add to this the vast acreage paved over for malls and parking lots, and the fuel used to drive to and from these shopping centers, and the entire Wal-Mart phenomenon has been an unmitigated disaster for everyone except the Walton family.
Elliott S. Hurwitt
New York

The fact that Wal-Mart's revenues are quadruple those of its nearest competitor is an indication that Wal-Mart's quality isn't on trial.
Ralph W. Conner
Local Legislation Manager
The Heartland Institute, Chicago

In a couple of places this story has the flavor of one of Yogi Berra's famous remarks: "No one goes there any more. It's too crowded."
D.B. Johnson
Madison, Wis.

Tall order for Tower?
Sears Tower owners to press city for zoning change, subsidy to add 2nd building as part of mega-million-dollar project next to landmark
By David Roeder – Chicago Sun Times
October 12, 2007

The owners of Sears Tower are preparing a plan for City Hall's review that calls for giving the building an environmentally oriented renovation and a new high-rise neighbor in hopes of boosting their returns on the property.

The changes would be the biggest for the nation's tallest building since it opened in 1973.

But the project could involve a subsidy request of more than $60 million from the city, a commitment Mayor Daley could find hard to justify when he's proposing substantial tax increases.

Sources said the tower's ownership wants to construct a hotel or office building next door. The private investment would be about $400 million, according to one estimate.

A likely site is the north side of Jackson between Wacker and Franklin, which now contains a plaza and the entrance to the tower's observation deck. Beneath them is the tower's parking garage.

A building there would fulfill original ideas for the property as developed by the architectural firm Skidmore Owings & Merrill in the 1960s. Lead architect Bruce Graham allowed for another building on the block, although current zoning doesn't permit it.

The tower's owners include New York investors Joseph Chetrit and Joseph Moinian and a local representative, American Landmark Properties in Skokie. None returned calls Thursday.

But they have hired a well-connected team to pitch city officials on a zoning change and a subsidy. Heading the team is Robert Wislow, a long-time fund-raiser for the mayor and the chairman of U.S. Equities Realty. In March, U.S. Equities was given the management contract for the 110-story tower.

The law firm handling the zoning issue is Daley & George, whose lead partner is the mayor's brother Michael Daley. And the architect is Adrian Smith, formerly of Skidmore and now principal at Adrian Smith & Gordon Gill Architecture.

Smith's speciality is high-rises. He designed the 92-story Trump International Hotel & Tower under construction in Chicago and Burj Dubai, unfinished, but already crowned the world's tallest building.

Over the summer, the tower's owners said they hired Smith to conduct an environmental review of the 3.8-million-square-foot tower, with a focus on its lighting and maintenance procedures.

But the assignment apparently goes much further to include a new building connected to the tower and with such touches as a landscaped roof, one source said.

Smith and Daley & George partner Jack George declined to comment, while Wislow was said to be unavailable for interviews because he was traveling. A spokeswoman for the city's Planning Department said it has received no proposal about the tower.

City Hall sometimes agrees to a public subsidy of major developments amounting to 15 percent to 20 percent of the private investment.

The argument for the subsidy is that it assists construction that enriches the tax base. Critics counter that many subsidies are unnecessary, that the money collected is spent outside the public eye and that the financing scheme diverts money from schools and other public uses.

The Daley administration laid the legal groundwork for helping the tower a year ago when it included its block in the map for a new tax-increment financing district. Called the La Salle Street TIF, its stated purpose was to help owners of aging office buildings upgrade the properties.

As a potential target for airborne terrorism, Sears Tower has suffered since the Sept. 11, 2001, destruction of the World Trade Center buildings in New York. Market research firm CoStar Group Inc. said about 18 percent of the tower's office space is vacant, almost double the figure reported in early 2004.

That's the same year the Chetrit-Moinian group bought the property for $840 million. It arranged a refinancing early this year.

Real estate experts said the leases of several large tenants in the tower expire in the next few years and that many want to leave the building.

City Hall sometimes agrees to a public subsidy of major developments ...

Sears Tower tenant preparing to test market
By Thomas A. Corfman – Chicago Real Estate Daily
October 10, 2007

(Crain’s) — A longtime tenant in Sears Tower that leases more than 77,000 square feet is getting ready to test the market on a possible move from the West Loop skyscraper.

Law firm Marshall Gerstein & Borun LLP, a tenant in the 110-story structure since 1993, has selected real estate firm Colliers Bennett & Kahnweiler Inc. to review its space needs, confirms Jeffrey Sharp, the managing partner of the intellectual property and patent law firm, which has about 80 lawyers. Marshall Gerstein’s lease expires in February 2011.

Jeffrey A. Barron, a senior vice-president with Chicago-based U.S. Equities Realty LLC, which manages Sears Tower, says in a statement: “Every smart business assesses its real estate needs well before its lease is scheduled to expire, so hiring a commercial real estate broker is commonplace and frequently leads to a lease renewal.”

With 3.78 million square feet, Sears Tower's vacancy rate has fallen to 18.9%, compared to a high of 22% during the third quarter of 2006, according to real estate research firm CoStar Group Inc.

Yet the iconic tower, which has fought to attract new tenants in recent years, faces another round of challenges to keep existing ones.

The building’s fifth-largest tenant, Bank of America Corp., is evaluating its real estate needs following the Oct. 1 purchase of ABN Amro North America Holding Co, LaSalle Bank’s parent company.

Charlotte, N.C.-based Bank of America has an option to terminate its lease at Sears Tower for about 181,300 square feet. The option can be exercised only after giving one year’s notice during the 12 months beginning Aug. 1, 2008.

“We are in the early stages of reviewing our real estate needs, and we’ve made no decisions,” says a BofA spokesman.

The bank, which has said it plans to lay off about 2,500 workers in Illinois, already has about 768,000 square feet in the Bank of America Building, 231 S. LaSalle St., under a 20-year sale/leaseback deal signed in 2003.

As part of the ABN Amro deal, BofA inherited ownership of the historic LaSalle Bank Building, 135 S. LaSalle St., and the three-year old ABN Amro Plaza, 540 W. Madison St.

Meanwhile, in June, Sears Tower’s largest tenant, Ernst & Young LLP, began testing the market on a possible move in May 2012. Another longtime tenant, law firm Schiff Hardin LLP, has a 2009 termination clause in its lease for 218,410 square feet, although it has not begun exploring the market.

“We will work closely with these valued tenants to address their needs,” Mr. Barron says in the statement.

Aon wins back Sears business
By Steve Daniels – Crain’s Chicago Business
October 9, 2007

Aon Corp. has won back the insurance brokerage business of Sears Holdings Corp., which had left two years ago.

The Sears account once provided Aon with millions of dollars in revenue a year but now is worth just under $1 million annually after the Hoffman Estates-based retail giant forced price concessions through frequent bidding contests for its business, according to people familiar with the matter.

Sears left longtime broker Aon two years ago for Kansas City, Mo.-based upstart Lockton Insurance Cos. The change came soon after hedge fund manager Edward Lampert engineered his takeover of Sears through the merger of Kmart and Sears.

It also followed investigations by then-New York Attorney General Eliot Spitzer that exposed cozy back-end commission arrangements between brokers and insurers that Mr. Spitzer said led to placing client business with underwriters who paid the highest amounts to the brokers. Without admitting or denying Mr. Spitzer’s allegations, Aon, along with other leading brokers, agreed to multimillion-dollar settlements with his office.

Since then, though, Aon has built marketshare at the expense of New York-based archrival Marsh & McLennan Cos. Marsh was hurt the worst by the Spitzer probe, which found explicit evidence of bid-rigging at the firm.

A Sears spokesman declines to comment. A spokesman for Aon wasn’t immediately available to comment.

In addition to Lockton and Aon, bidders for the Sears account this time around included Marsh and New York-based startup Integro Insurance Brokers.

 

Mapping Lampert's next Sears move

The market thinks that investor Eddie Lampert has a plan for the aging retailer. But is Sears too far gone? Fortune's Peter Eavis and Suzanne Kapner shop for insight.
By Peter Eavis and Suzanne Kapner, Fortune – CNN Money
October 9, 2007

NEW YORK (Fortune) -- Billionaire hedge fund manager Eddie Lampert, who controls Sears Holdings, has earned a reputation as a boy wonder of retailing by wringing profits from an aging department store chain.

Though that reputation frayed when Sears reported sickly earnings this summer, investors, who have bid up the stock 20 percent from its September lows, are betting Lampert has moves up his sleeve that will soon clear away doubts about the company's future. While there is plenty of speculation as to what Lampert might do next -- including further balance sheet enhancements and real estate sales -- the company's operating weaknesses may be too big to overcome, some analysts say.

Lampert, 44, controls Sears Holdings through his hedge fund, ESL Investments. The investor gained renown after he took control of bankrupt Kmart Holding Corp. and used the retailer's reorganized shares to buy Sears, Roebuck & Co. in March 2005. The investments in Kmart and Sears were obvious masterstrokes and Lampert is still sitting on huge gains from them. For nearly two years after the purchase of Sears, at least through this year's ugly fiscal second quarter, ended Aug. 4, Lampert impressed investors by consistently reporting improved profitability in his stores. And because of Lampert's track record, there's a growing consensus that it won't be long before he does something big to fully revive confidence in his Sears strategy.

Lampert declined to comment. Sears spokesman Chris Brathwaite said the company is focused on its strategy of reducing costs by implementing more efficient back-office systems and improving sales through national branding campaigns and upgrading the merchandise assortment.

Assuming Lampert does have a trick up his sleeve, what might he do to wrest more value out of the chain? Investors closely track cash flows and some analysts think Lampert could surprise the market by wringing yet more cash out of the balance sheet. Credit Suisse analyst Garry Balter estimates that Sears could free up about $5 billion over the next two years - cash that could be used for further stock repurchases - simply by delaying payments to suppliers. "This is something that retailers have been doing for years," said Balter, adding that Sears has been a laggard here.

However, not everyone agrees that further balance sheet improvements will be easy to achieve. One big problem: Sears inventory has been rising. In the second quarter, it was up 7% from the year-earlier period, despite a 4% percent drop in sales. "It's a classic red flag for a retailer when inventories are rising at the same time as sales are falling," says Gregory Melich, retail analyst at Morgan Stanley.

Hefty markdowns to clear unsold goods, along with lower-than-expected profits, could be on the way. And a period of big markdowns would be a personal defeat for Lampert, whose strategy is based on resisting heavy discounts and going for full-price sales.

Another strategy may involve real estate. Sears has around 3,800 stores worldwide, just over half of which are leased. Analysts generally estimate that Sears' owned and leased properties could be worth between $15 billion and $20 billion. Louis Taylor, a real estate analyst with Deutsche Bank, said mall owners have told him they detect a change of tone on the part of Sears officials, who previously had not been interested in discussing the sale of stores. "Now," Taylor said, "it's no longer a dead end conversation."

And last week, activist investor William Ackman said he had acquired a 3.5% stake in Sears through his fund, Pershing Square Capital Management. News of the purchase, along with an easing of recession fears, helped move the stock higher.

Ackman, who has clashed with Lampert over his attempts to purchase the remaining shares of Sears Canada that he doesn't already own, has, in the past, pointed to Sears' large real estate holdings as a reason to own the stock. "At some point, Sears needs to make a serious revision in the locations they own, and we are at the point where real estate is going to become more of a front burner issue," said Richard Hastings of Bernard Sands.

Though analysts have long expected Sears to trim about 300 stores from a domestic base that numbers 3,400, there are several reasons why Lampert has not rushed to sell. One of the first things Lampert did after rescuing Kmart from bankruptcy was to unload about 67 stores at prices far higher than the amount listed on the company's books, helping to cement his reputation for ferreting out value.

But many of those stores were Kmart's best locations, and divesting made it harder for the retailer to compete. "There is a sense that Eddie was too hasty in selling the Kmart locations, and he doesn't want to make the same mistake with Sears," said one analyst. Moreover, many of the system upgrades that Lampert rolled out after taking control of Sears are only starting to take effect. Lampert would want to evaluate the revised profitability of each location before deciding what to sell, analysts said.

Of course, there's another reason why Lampert might want to hold off on asset sales. The potential value of the company's real estate has served to underpin the stock price. If stores were to fetch less than expected, it could lead the market to ratchet down the overall value of Sears. Also, unloading stores would be harder today than a year ago. Consumer spending has softened, department store consolidation has left fewer buyers and other large stores such as Wal-Mart (Charts, Fortune 500) are scaling back growth. "You may have less demand now," said Morgan Stanley's Melich.

Melich estimates that Sears' real estate is worth $17 billion - less than the $20 billion-plus estimates that have floated around the market recently. And he adds that these sorts of analyses are potentially misleading because they imply most of the real estate can be sold easily, which clearly isn't the case, simply because the company's holdings are so large.

For Sears as a whole, factoring in all assets and liabilities, Melich estimates the underlying value of the company to be between $123 and $145 per share. That's lower than the current share price, $150.79.

If Melich is right, then the market has already recovered its optimism about Sears. But that could be dashed if the company reports another disappointing quarter in November.

How likely is that? After all, retailers can do plenty of things in one quarter to improve results, and the third quarter numbers may well look great. But the specifics of Lampert's approach to retailing profitability make improvement hard to achieve. Lampert has focused solely on driving down costs, while doing little to drive up sales. That's an implicit recognition that Sears - perhaps because of its outmoded department store model - just can't hope for revenue growth. But overdoing cost cutting may have led to even lower sales, as less promotion and dated stores drive shoppers to Sears' competitors.

Burt Flickinger, managing director of Strategic Resource Group, estimates that Sears' seven largest competitors are adding 250 million in combined square footage a year, meaning that Sears, which is not currently opening new stores, is becoming even less relevant.

What metric can investors track to see if this is happening? Very useful is the profit margin that Sears makes on its pretax cash flows from its biggest retail units. In the second quarter, Sears' U.S. operations made $339 million of cash-based operating profits (operating income before depreciation and amortization, a noncash expense), or 5.1% of revenue from that unit. That was way down from $505 million, or 7.2% of revenue in the year-ago quarter. Cash profitability at Kmart, which brings in 35% of revenue, also slipped.

In other words, as revenue fell, Lampert and his managers were unable to cut costs enough to sustain profit margins. It was a personal blow for Lampert, who said in March said that increasing these profit margins was "a significant value-creation opportunity for Sears Holdings shareholders."

And thus, Lampert's methods got Sears into its second quarter mess. The market, by bidding up Sears' stock, is betting he gets the company out. Get ready for a plunge if Eddie doesn't deliver.

Sears Reveals 2008 Retiree Medical Coverage
October 8, 2007

After a review of the competitive medical market Sears decided that Aetna offered the best deal that would cover Pre and Post 65 retirees. This is what Sears officials told the Sears Retiree Advisory Council at a meeting in Deerfield Beach, Florida at the end of last month.

If you continue with AARP for 2008 you will lose the Sears subsidy. AARP will not be part of the RHA platform for 2008 and the Sears subsidy will only apply to plans that are part of the 2008 RHA platform-Aetna.

To receive the subsidy in 2008 you must enroll in the Aetna options. However, you can elect to continue medical coverage with AARP and just take prescription coverage with Aetna and your subsidy will apply to the prescription coverage or you can take the Aetna Private Fee For Service (PFFS) medical coverage and a prescription drug coverage option for complete coverage through Aetna and your subsidy would then apply to the Aetna coverage.

Aetna is a comprehensive approach. Today, Sears offers multiple carriers for medical coverage. In 2008, Aetna will be the single carrier and bill payer. If you move from the AARP to Aetna plan, you must call AARP and cancel.

It is important for retirees to confirm that their medical providers are in the PFFS network with Aetna. Check with your doctor to determine if he/she is in the Aetna PFFS program to obtain the benefits of the Aetna program.

Sears will be holding information meetings with retirees in select locations during the October-November time frame with Aetna.

The 2008 Aetna rollout is as follows: During the week of October 8, announcement letters will be mailed to retirees; during the week of November 12, enrollment materials will be mailed that will include a personalized worksheet outlining plan options, premiums, Health plan charts, etc.; also, during the same week, the Hewitt Call Center will open for enrollment questions.

Ackman buy seen good for Sears regardless of sales
Earnings may keep stocks rally alive
Reuters.com
October 5, 2007

ATLANTA (Reuters) - Activist investor Bill Ackman could help lift shareholder returns for Sears Holdings Corp by pushing for asset disposals, even if sales at the U.S. retailer continue to decline.

His Pershing Square Capital Management hedge fund bought 5 million Sears shares, a source said this week. The stock rose 7.5 percent combined on Thursday and Friday as speculation mounted about Ackman influencing strategy with his stake of more than 3 percent.

"The increase in price ... is a function of people still believing in the concept that restructuring can continue to occur at Sears," said Mitch Zacks, portfolio manager at Zacks Investment Management.

Eddie Lampert, another hedge fund manager who is chairman of Sears Holdings, presided over the merger of Sears, Roebuck and Kmart in 2005. Ackman may have spotted the potential for property sales among the combined company's 3,800 stores.

"He's going to ask Eddie Lampert to step up asset sales and maybe Ackman will ask for a seat on the board," said Scott Rothbort, president of LakeView Asset Management in Millburn, New Jersey.

There have been no big sell-offs announced since the merger was completed in March 2005, but Lampert gained favor at Kmart for making shareholders rich by selling chunks of prime real estate.

"The basic idea is that you can be more aggressive in selling off assets," said Zacks, whose firm sold most of its Sears stock earlier this year as earnings weakened. "It doesn't necessarily help sales but it does help investors."

Despite a recent rally, Sears shares are still down 11 percent this year and same-store sales at both Kmart and Sears, Roebuck have sagged for the past six quarters. In August, Sears Holdings posted a 40 percent drop in quarterly profit.

"Sears and Kmart are in big trouble," said Britt Beemer, chairman of America's Research Group, which surveys consumer behavior. "They have to take a much more aggressive strategy, both in promotions and marketing."

MORE MARKETING MUSCLE

The company has put more muscle into marketing lately with new campaigns for Kmart and Sears this year. Kmart unveiled new bed and bath products last month, and Sears this week announced the return of its holiday Wish Book after a 14-year absence.

"Sears has been starting to say the right things that make sense from a good retail strategy, but I don't know if it's too late," said Will Ander, senior partner at McMillan/Doolittle, a Chicago retail consulting firm.

Ander says Lampert has delivered the goods for shareholders -- the stock is up at least 14 percent since Sears Holdings began trading in 2005. But cost cuts to buoy profit have not helped store sales, as Sears has lost ground to rivals who are stepping up product innovation, he added.

"Sears needs to get relevant again," Ander said. "It needs to take a look and learn from Penney (JCP.N: Quote, Profile, Research)," which has been offering more fashionable merchandise and adding new private brands.

Hoffman Estates, Illinois-based Sears competes with many other chains, including Kohl's Corp (KSS.N: Quote, Profile, Research) in the sale of apparel and Wal-Mart Stores (WMT.N: Quote, Profile, Research) and other discounters in general merchandise. In appliances and tools, it vies with Home Depot (HD.N: Quote, Profile, Research) and Lowe's Cos (LOW.N: Quote, Profile, Research).

Amid that competition and softening demand for home goods, sales at stores open at least a year fell 3.8 percent at Kmart and 4.3 percent at Sears during the second quarter. The retailer's suppliers have felt the impact.

"The challenge we have with Sears and the challenge that they have is to grow their business and get more traffic," Jeff Fettig, chairman of number-one appliance maker Whirlpool Corp (WHR.N: Quote, Profile, Research), said at a Morgan Keegan conference last month.

Whirlpool is the biggest supplier of appliances that are sold under Sears' proprietary Kenmore brand. Fettig said lost appliance market share at Whirlpool had been largely tied to its Kenmore business.

Still, recent Sears efforts have impressed some. LakeView's Rothbort said the presentation in stores "looks a lot nicer" since the Lampert management made merchandise changes.

"You want to invest in Sears for the undervalued balance sheet and the ability of Eddie Lampert to spot opportunities of value," he said.

Ackman Takes Stake in Sears
New York Times Online
October 5, 2007

Are activist hedge fund manager William Ackman and Sears Chairman Edward Lampert headed for a rematch?

Mr. Ackman, who helped thwart Mr. Lampert’s attempt to take full control of Sears Canada last year, confirmed Thursday that he had purchased 5 million shares in Sears through his hedge fund, Pershing Square Capital Management. The news sparked speculation that Mr. Ackman may be planning to push Mr. Lampert, who was ranked as one of last year’s top hedge-fund earners, to sell off some real estate holdings.

Such a battle would be entertaining, to be sure. But it may not happen. Mr. Lampert’s large stake in Sears makes him a difficult target for an activist. And The New York Post, citing undisclosed sources, suggested Mr. Ackman’s purchase was more of a peace offering, describing it as “a long-term investment, in which he is unlikely to advocate for substantial change.”

But The Financial Times’s Lex column doesn’t envision a lovefest. “The two men are unlikely to sit cheek to cheek while Mr. Lampert attempts to resuscitate Sears,” he wrote.

Mr. Ackman’s holdings would make him the fourth-largest shareholder in Sears, according to Bloomberg data.

Mr. Ackman, who has pushed for similar measures at other companies, including McDonald’s, isn’t saying why he bought the stake, which equals about 3.5 percent of Sears’ outstanding shares. The news, first reported by StreetInsider.com, came to light when Mr. Ackman said in a speech at a Dallas charity event earlier this week that he was “thrilled with the efforts of Sears’ Chairman Eddie Lampert and was looking forward to working with him.”

In a December 2005 interview with Barron’s, Mr. Ackman said he estimated Sears’ real estate is worth more than $22 billion and that the real estate combined with brands including Craftsman and Kenmore provides a “nice asset value cushion” in case Mr. Lampert fails to turn around the retail operation.

Along with his activist history, speculation that Mr. Ackman may try to muscle Mr. Lampert into unlocking value at Sears, whose stock has plummeted as much as 37 percent from its April high of $195, stems from an acrimonious battle between the two men last year.

Mr. Ackman successfully blocked a 888 million Canadian dollar ($781 million) bid by Sears Holdings to take full control of Sears Canada, in a dispute over the pricing of the offer.

At the height of the dispute, which focused on the voting rights of a block of shares involved in a complex swap transaction, Sears Holdings accused Pershing Square of allying itself with speculators to orchestrate “baseless complaints and misleading media reports” aimed at disrupting the transaction.

It also said the action had blocked the will of the 80 percent of shareholders in Sears Canada that wanted to accept the company’s takeover offer.

Chatter aside, several industry observers said that it was unlikely that Mr. Ackman would –or could — push Mr. Lampert into selling off holdings. The Chicago Tribune noted that Mr. Ackman’s ability to press for change is limited, given that Mr. Lampert owns 46 percent of the retailer. Add in the holdings of Mr. Lampert’s fellow investors on the board, and Mr. Lampert holds sway over more than half of the company.

“I don’t think this is likely to be an activist situation because of the controlling interest Lampert has,” Whitney Tilson, managing partner at T2 Partners, which holds about 70,000 Sears shares, told The Tribune. “I suspect he owns it for the same reason we own it. The stock is beaten up and there’s a lot of embedded real estate value.”

The New York Post, citing unidentified hedge fund sources, said Mr. Ackman’s move to buy a stake in Sears was the result of efforts between activist investor and Mr. Lampert over the past few months to patch things up.

Calling the speculation that Mr. Ackman was girding to press for change at Sears “off-base”, The Post said that Mr. Ackman purchased the stake following conversations with Mr. Lampert in which the Sears chief laid out some of his vision for the company, including plans to use some of the $2.6 billion in cash on hand to buy back stock.

Mr. Ackman has used investments in companies to press executives to cut spending and sell property or divisions. The hedge fund manager is currently pursuing an activist campaign at Target, the fourth largest U.S. retailer. Last month, Target said it was reviewing a potential sale of its $7 billion credit-card portfolio.

Sears shares rose 2.3 percent Thursday to close at $141.40 following the disclosure of Mr. Ackman’s stake.

Peace Offering
Ackman Makes Nice with Sears’ Chief Lampert
By Roddy Boyd – New York Post
October 5, 2007

The move by hedge fund gadfly Bill Ackman to buy a stake in Sears Holdings Corp. was the result of efforts between Ackman and Sears Chairman Edward Lampert over the past few months to patch up a once frosty relationship, The Post has learned.

Ackman's Pershing Square Capital Management disclosed yesterday that it had taken a 5 million-share stake in Sears, making it the fourth-largest shareholder with about 3.5 percent of the Hoffmann Estates, Ill.-based retailing giant.

The stock, which has declined about 18 percent for the year, popped $3.12 on the news to close at $141.40.

Hedge fund portfolio managers who have been in contact with Pershing Square told The Post that initial reports portraying the investment as a sign that Ackman was girding to possibly pressure Lampert to shutter stores were off-base.

In reality, according to those familiar with the situation, Ackman is treating his stake in Sears as a long-term investment, in which he is unlikely to advocate for substantial change.

Ackman did not return an e-mail seeking comment. A spokesman for Sears did not return a call for comment.

The change of heart comes after Ackman and Lampert became bitter adversaries when the latter was attempting to purchase the 46 percent of Sears Canada that Sears Holdings didn't already own.

Ackman made little secret of his belief that Lampert was offering to pay below what the shares were worth, and at one point went to Ontario regulators to complain about Lampert.

Ackman remains Sears Canada's second-largest shareholder.

However, over the past "several months," according to one hedge fund manager, Ackman and Lampert had several conversations in which the Sears chief laid out some of his vision for the company, including plans to use some of the $2.6 billion in cash on hand to buy back stock.

Another hedge fund manager who sold out of his Sears position on Tuesday told The Post that even if Ackman were looking to spar with Lampert, he'd probably hit a wall.

"There is no pushing Lampert around in this situation," the hedge fund manager said. "He owns 43 percent of the company and everything else is in very friendly hands."

The hedge fund manager added: "Ackman's only bet is to be paid to wait."

Likely giving Ackman some comfort is Sears' extensive real estate holdings and its legacy of generating at least $1 billion in cash from its operating activities.

Ackman expected to make Lampert's life miserable
Investor socked it to Sears CEO last year, now owns 3.5%
By Sandra Guy – Chicago Sun-Times
October 5, 2007

Activist investor Bill Ackman, who won a fight with Sears Chairman Edward Lampert over Sears Canada last year, disclosed that he has bought 5 million shares -- a 3.5 percent stake -- of Sears Holdings Corp.

The move has the potential to put Macy's and a lot of real estate into play, according to one analyst.

Sears' stock jumped 2.26 percent, or $3.12 on Thursday, to $141.40. It gained as much as 4.3 percent during trading.

Word that Ackman was boosting his Sears holdings was reported in the Sun-Times on June 6.

Sears Holdings Corp., headquartered in Hoffman Estates, owns Sears and Kmart stores. A Sears spokesman declined comment Thursday on the rumor.

The news prompted analyst Howard Davidowitz to speculate that Ackman, through his Pershing Square Capital hedge fund, probably will pressure Lampert to sell off real estate and take other steps to increase shareholder value. Sears' stock price has fallen 26.7 percent from its 52-week high of $195.18 on April 17.

Lampert could respond by teaming up with Steven Roth of Vornado Realty Trust to take over Macy's department-store chain -- a recurring rumor that most recently pushed up Macy's share price on Sept. 14, said Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm.

Vornado has reportedly been interested in making a bid for Sears Holdings since 2005.

A Macy's takeover by Lampert and Roth would be intelligent because Vornado has unlimited capital, Roth is a successful shopping-mall developer, and Macy's would give Lampert a new opportunity to slash costs and sell off real estate, Davidowitz said.

"Lampert would save a fortune" in a Macy's takeover by combining Sears, Kmart and Macy's functions and saving costs on items such as accounting, distribution, administration and merchandising.

Lampert also would gain tremendous power because he would own two department-store anchors at shopping malls nationwide, Davidowitz said.

Many shopping-mall developers "would pay anything" to take back a Macy's and/or Sears space for a more lucrative retailer or for other types of development, he said.

Ackman has a reputation for making executives' lives miserable with demands for change. Last year, Ackman won a battle against Lampert's proposed $899 million takeover of Sears Canada.

Investor takes Sears stake
Ackman's influence likely limited, given Lampert's control
By Sandra M. Jones - staff reporter – Chicago Tribune
October 5, 2007

Activist investor William Ackman, the man who threw a wrench into billionaire Sears Chairman Edward Lampert's attempt to buy out Sears Canada Inc. last year, is back.

Ackman purchased 5 million shares in Sears Holdings Corp., a spokeswoman for his New York-based Pershing Square Capital Management hedge fund said Thursday, confirming a report in StreetInsider.com. He disclosed the stake in a speech at a Dallas charity event earlier this week, telling the audience he was "thrilled" with Lampert's efforts at Sears, the Wall Street newsletter said.

The investor isn't saying why he bought the stake, which equals about 3.5 percent of Sears' outstanding shares. But his ability to press for change is limited, given that Lampert owns 46 percent of the Hoffman Estates-based retailer. Add in the holdings of Lampert's fellow investors on the board, and Lampert holds sway over more than half of the company.

"I don't think this is likely to be an activist situation because of the controlling interest Lampert has," said Whitney Tilson, managing partner at T2 Partners LLC, which holds about 70,000 Sears shares. "I suspect he owns it for the same reason we own it. The stock is beaten up and there's a lot of embedded real estate value."

That hasn't stopped speculation that Ackman would push for real estate sales, something he has done at other companies, including McDonald's Corp.

Two years ago Ackman tried to push the Oak Brook-based hamburger chain to sell some of its fast-food chain real estate or spin it off and borrow against it. McDonald's board ultimately rejected the restructuring idea, but the experience left investors wondering if the same could be done at Sears.

In a December 2005 interview with Barron's, Ackman said he estimated Sears' real estate is worth more than $22 billion and that the real estate combined with brands including Craftsman and Kenmore provides a "nice asset value cushion" in case Lampert fails to turn around the retail operation.

Sears shares rose 2.3 percent Thursday to close at $141.40 following the revelation. The stock has plummeted as much as 37 percent from its April high of $195 to a low of $123 in September after sales declines cut into Sears' bottom line.

Last year, under Lampert's reign, Sears Holdings tried and failed to acquire the 46 percent of Sears Canada it didn't already own. Ackman led a group of investors who wanted more money for their shares and brought the deal to the attention of the Ontario Securities Commission. The commission ruled that a key block of share votes needed to make the deal go through didn't count, saying Sears broke merger rules related to disclosing information.

Ackman has been an active shareholder at companies including Ceridian Corp. and Wendy's International Inc. He recently took a 9.6 percent stake in Target Corp., where some investors are urging the retailer to sell its credit card operation.

Sears Holdings Shares May Advance on Ackman's Purchase of Stock
By Lauren Coleman-Lochner
October 4, 2007

Oct. 4 (Bloomberg) -- Sears Holdings Corp. may rise today in New York trading after hedge-fund manager William Ackman disclosed that he purchased 5 million shares of the largest U.S. department-store chain.

Ackman, the 41-year-old president of Pershing Square Capital Management in New York, confirmed the purchase in an e- mail to Bloomberg News yesterday. He didn't say why he bought the shares. Last year he thwarted Sears Chairman Edward Lampert's efforts to take full control of Sears Canada, saying the price was too low.

Sears stock has risen for the last six days. It gained $2.31, or 1.7 percent, to $138.28 in composite trading on the Nasdaq Stock market yesterday. The shares declined 18 percent this year through yesterday.

Ackman's stake makes him the fourth-largest shareholder in Hoffman Estates, Illinois-based Sears, according to Bloomberg data. Sears is the largest U.S. department-store chain based on sales, ahead of Macy's Inc.

Sears turns target
Financial Times
October 4, 2007

Bill Ackman, the hedge fund manager, has amassed 5m shares in Sears during the past month, a sign that patience with the department store operator’s turnround efforts may be finite.

For now, Mr Ackman’s 3.5 per cent stake, at a cost of about $675m, is meant to prod Eddie Lampert, the chairman, along in his mission to boost Sears’ value. But, if history is any guide, Mr Ackman will have some suggestions of his own.

Two and a half years after Mr Lampert, a lauded fund manager, combined Sears and Kmart into Sears Holdings, the retailer is still gasping for air. In the second quarter, profits sank 40 per cent and domestic same-store sales dropped 4.1 per cent. Sears’ shares had slumped 34 per cent since May 1 before rising recently owing to Mr Ackman’s interest. Elsewhere, his agitation for spin-offs, asset sales and share buybacks has propped up shares of Target, McDonald’s and Wendy’s.

The two men are unlikely to sit cheek to cheek while Mr Lampert attempts to resuscitate Sears. They were at loggerheads last year over Mr Lampert’s failed bid to take Sears Canada private.

For now, Mr Ackman plans to give Mr Lampert latitude. But Sears’ investors have grown displeased with its self-defined “softer side”. While none of Sears’ businesses has shown stellar results, some brands, including Kenmore, Craftsman and Lands’ End, have displayed promise. Others, however, notably Sears’ apparel, stack up poorly against competitors and take up square footage that could be used differently or sold.

Mr Lampert has stressed that he views Sears as a retailer, not a real estate play. But it can be both. The share premium that Sears once commanded simply by dint of Mr Lampert’s presence has worn off. With commercial property prices holding strong and Mr Ackman underfoot, Mr Lampert may want to free up some real estate by quitting Sears’ weakest businesses.

Shareholder activist Ackman takes Sears stake
By James Covert – Dow Jones Newswires
October 4, 2007

NEW YORK (Dow Jones)--Shareholder gadfly Bill Ackman, who once stung Sears
Holdings Corp. (SHLD) in a battle over the retailer's Canadian unit, is buzzing
around Sears again.

Ackman, whose hedge fund Pershing Square Capital Management has successfully agitated for changes at chains including McDonald's Corp. (MCD) and Wendy's International Inc. (WEN), has taken a five million-share stake in Sears, which would amount to 3.5% of the retailer's outstanding shares.

Financial Web site StreetInsider.com reported that Ackman revealed his Sears stake on Tuesday at a Dallas charity event. Ackman was "thrilled with the  efforts" of Sears Chairman Edward S. Lampert, and was "looking forward to working with him," according to the Web site.

A Sears spokesman declined to comment, and Ackman's firm declined to comment beyond confirming the stake. But after taking a beating during the past several months, Sears shares have rallied strongly in recent days. After rising 2.3% on Wednesday, they were up more than 11% over the past week. In recent late trading Sears shares are up to $141.55 from the Thursday close of $141.40.

Ackman's activist efforts typically have prodded companies to cut spending and
sell assets, or perform other shareholder-friendly financial maneuvers such as taking on debt to fund share buybacks. Last month, Target Corp. (TGT) said it will consider selling its credit-card unit after years of saying it was a bad idea, and some analysts
guessed that Ackman, who owns nearly 10% of Target's shares, was behind the
about-face.

Some investors note that Lampert, a shareholder activist in his own right, already has done plenty to boost shareholder value at Sears, including aggressive share buybacks and sales of real-estate assets. But Carol Levenson, an analyst at the boutique credit-research firm Gimme Credit, speculated in a June research note that Sears could nevertheless be a target for Ackman, saying its balance sheet is still "ripe for financial engineering."

"We get the feeling stock investors are impatient with Mr. Lampert's surprising
decision to attempt to run the company as a retailer, not a real estate play,"
Levenson wrote, adding that "Sears Canada would no doubt qualify in Mr. Ackman's
eyes as the 'undervalued' segment."

Sears Canada has been a bone of contention for Ackman and Lampert before. Last
November, shareholders of Sears Canada rejected a $792 million takeover bid by
Sears after Ackman, a major shareholder of the Canadian unit, argued that it was
worth much more.

Kohl's outlines 5-year strategy
Chicago Tribune News Services
October 3, 2007

MILWAUKEE -- Kohl's Corp. on Tuesday outlined plans to add nearly 500 stores in the next five years and said it will continue to increase its offerings to entice more shoppers to buy in more parts of the store.

On Wednesday, the company will open 80 stores in states including Arizona, California, Wyoming and Delaware. Kohl's plans to open 15 more stores next month, for a total of 929 stores in 47 states. The company's goal is to have 1,400 stores by 2012.

The retailer is bringing in new shoppers and energizing existing ones with new brands, such as high-end fashion designer Vera Wang's line of women's apparel, shoes, jewelry and home furnishings, President Kevin Mansell said.

"We're seeing new customers, and we're seeing them appear not just in apparel but shopping in other areas as well," he said.

The firm discussed its growth plans and touted the success of new lines, including cookware by the Food Network, at an investor conference in Indianapolis, where one of the company's new store models is located.

Kohl's said same-store sales are expected to grow 2 percent to 4 percent each year from 2008 through 2012 and that revenue should hit $24 billion by 2010. Last year, the retailer, based in the Milwaukee suburb of Menomonee Falls, posted sales of $15.5 billion.

The company expects its per-share earnings to grow by 15 percent to 17 percent in each of the next five years as it opens more stores and spreads across the country.

While it expands, Kohl's is trying to shrink the time it takes for clothing designs to come to fruition and appear on sales racks, Mansell said. He cited the success of Wang's line as an example, saying that when items sell out, Kohl's is becoming better positioned to replenish stock quickly and keep customers shopping.

"If the lead time is longer, then it's going to take us longer to get back into those styles and then you lose sales," he said.

The company is also adding more to its online offerings in the hopes of capturing some of those increasing sales, he said. A year ago, about 40 percent of Kohl's stock was available online, but, by the end of the fall shopping season, all the in-store offerings will be online, he said.

Mansell said Internet sales have been strong, and Kohl's expects online sales to reach about $300 million this year, up from $175 million last year.

For the holidays, Kohl's expects strong sales, especially with Wang's offerings and cooking gadgets from the Food Network, a line that launched two weeks ago, Mansell said.

Kohl's stock added $1.03, to $58.63, Tuesday on the New York Stock Exchange.

Wal-Mart Era Wanes Amid Big Shifts in Retail
Rivals Find Strategies To Defeat Low Prices;
World Has Changed
By Gary McWilliams - Wall Street Journal
October 3, 2007

The Wal-Mart Era, the retailer's time of overwhelming business and social influence in America, is drawing to a close.

Using a combination of low prices and relentless expansion, Wal-Mart Stores Inc. emerged from rural Arkansas in the 1970s to reshape the world's largest economy. Its co-founder, Sam Walton, taught Americans to demand ever-lower prices and instructed businesses on running a lean company. His company helped boost America's overall productivity, lowered the inflation rate, and strengthened the buying power for millions of people. Over time, it also accelerated the drive to manufacture products in Asia, drove countless small shops out of business, and sped the decline of Main Street. Those changes are permanent.

Today, though, Wal-Mart's influence over the retail universe is slipping. In fact, the industry's titan is scrambling to keep up with swifter rivals that are redefining the business all around it. It can still disrupt prices, as it did last year by cutting some generic prescriptions to $4. But success is no longer guaranteed.

Rival retailers lured Americans away from Wal-Mart's low-price promise by offering greater convenience, more selection, higher quality, or better service. Amid the country's growing affluence, Wal-Mart has struggled to overhaul its down-market, politically incorrect image while other discounters pitched themselves as more upscale and more palatable alternatives. The Internet has changed shoppers' preferences and eroded the commanding influence Wal-Mart had over its suppliers.

As a result, American shoppers are increasingly looking for qualities that Wal-Mart has trouble providing. "For the first time in a long time, quality has a chance to gain on price," says Lee Peterson, a vice president at Dublin, Ohio-based brand consulting firm WD Partners Inc.

Now, the big-name brands that fueled Wal-Mart's climb to the top are forging exclusive distribution deals with other retailers, or working to reduce their reliance on its stores. PepsiCo Inc., which favored mass-market campaigns a decade ago, recently skipped Wal-Mart when launching a new energy drink in favor of Whole Foods Market Inc. Consumer-products giant Procter & Gamble Co. gets 15% of its revenue from Wal-Mart, down three percentage points from 2003.

Wal-Mart's effort to expand internationally has had mixed success in affluent markets. Last year it exited South Korea and Germany after failing to adapt to local tastes and achieve economies of scale. In Japan, the company's low-price, high-volume approach has struggled in a country where low prices often equate to low quality.

Wal-Mart remains an enormous force in retailing, of course. Its world-wide sales are almost three times those of France's Carrefour SA, the world's second-largest, publicly traded retailer. Wal-Mart's U.S. revenue is 4½ times that of discount-store rival Target Corp., and four times that of second-largest U.S. food retailer Kroger Co. Its clothing and shoe sales last year alone exceeded the total revenues of Macy's Inc., parent of Macy's and Bloomingdale's department stores.

The company's unquenchable thirst for scale has been the secret to its market-changing power. "What we are is a 'supercenter' with one-stop shopping," said Wal-Mart's Vice Chairman John Menzer at an investors' conference last month. The company expects each year to build another 170 to 190 of the 200,000-square-foot supercenters that are its hallmark and convert 500 smaller discount stores to the bigger format over the next five years. "We would love to wave a magic wand and [make] every one of our discount stores a supercenter," he says.

But that very focus on scale is now a weakness, for the world has changed on Wal-Mart. The big-box retailing formula that drove Wal-Mart's success is making it difficult for the retailer to evolve. Consumers are demanding more freshness and choice, which means that foods and new clothing designs must appear on shelves more frequently. They are also demanding more personalized service. Making such changes is difficult for Wal-Mart's supercenters, which ascended to the top of retailing by superior efficiency, uniformity and scale.

"All retailers have a formula. They grow as far and as fast as they can with that formula," says Love Goel, a former Fingerhut Cos. executive and now chairman and CEO of Growth Ventures Group, a Minnetonka, Minn.-based private-equity firm that invests in retail businesses. Wal-Mart has outgrown its supercenter recipe, but efforts to win growth from more affluent consumers have fallen flat, he says. "They have hit the wall."

Wal-Mart declined to make an executive available for an interview and declined to respond to written questions, citing an upcoming meeting with Wall Street analysts.

Business history is littered with companies that grew to enormous size and used their girth to re-arrange the world to fit their strengths. Think International Business Machines Corp. in the mainframe business, General Motors Corp. in autos, or Microsoft Corp. in personal computers. For a time, their success bred an ecosystem that sustained their status. In the 1970s, independent software companies piggybacked on IBM's mainframes, resulting in greater demand for mainframe computers.

Such orchestration can produce solid growth for decades. But it can also produce corporate blinders. Over time, IBM's grip on the corporate data center left it unable to anticipate the decentralizing effects of personal computing. GM's knack at brand creation and frequent model changes left it vulnerable to the incremental quality approach of Japanese auto makers. Microsoft was so busy cramming features into its Windows operating software that it lagged others in the shift to the Internet. Each remains among the top in its industry; yet each has relinquished the role of industry definer -- IBM to Intel Corp., GM to Toyota Motor Corp., Microsoft to Google Inc.

Wal-Mart's great insight was perfecting the so-called "value loop" in retailing. At its most basic, the system works like this: Lower prices generate healthy sales gains and profits. Some of those profits went into further price cuts, generating more sales. The lower the price, the more consumers flocked to Wal-Mart.

But the value loop is beginning to unravel. For 10 years through 2005, Wal-Mart's sales gains at stores open at least a year averaged 5.2%. So far this year, its comparable-store sales, a measure of market share, is up just 1.3%. The pricing gap between Wal-Mart and rivals has narrowed, and more customers are now choosing convenience over wading through a supercenter.

That compares with comparable-store gains of 4.6% at Target, which markets itself as a trend-setting discounter, and 6% at membership-club rival Costco Wholesale Corp., which peddles $500 Bordeaux wines and $4,000 Cartier watches. While Wal-Mart has been portrayed as a ruthless employer, Costco has been praised for providing some of the best employee benefits in retail.

Wal-Mart's shares trade about where they were at the start of the decade, when the company produced less than half its current revenue. Shares closed yesterday up 40 cents at $44.87, and down 9.3% from the stock's year-earlier price. Earlier this year, Wal-Mart took the extraordinary step of ratcheting down its U.S. expansion plans because its new stores were stealing too much revenue from existing ones. That wasn't a concern in the 1980s and 1990s when Wal-Mart was regularly flattening competitors.

In some ways, Wal-Mart's loss of clout is a reflection of a more fragmented world. Retailing is a mirror to how we live and work. Big-box stores thrived by selling highly recognizable national brands, which themselves were fed by two phenomena: the growth of mass media and freeways, which encouraged large stores in remote areas. Stores and brands together achieved scale efficiencies that allowed them to overwhelm local chain stores and regional brands.

But the Internet is transforming the retail definition of scale. The once-stunning compilation of 142,000 items found in a Wal-Mart supercenter doesn't seem so vast alongside the millions of products available on the Internet. At the same time, the cost of creating and sustaining a national brand is rising because of media fragmentation. Niche brands, created by Internet word of mouth, are winning shelf space and sapping profits required to fund big brands' advertising. Manufacturers such as Apple Inc. and Phillips-Van Heusen Corp., lacking the retail distribution or presentation they crave, are opening their own stores. One result is that retail giants hold less sway over their customers -- and over their suppliers.

And across the landscape, numerous rivals are using a form of competitive jujitsu to keep the Bentonville behemoth off balance.

Grocery-store chains such as Kroger are resurging on sales of prepared or semicooked meals, which people can grab on their way home. Cincinnati-based Kroger projects sales at stores open at least a year will climb between 4% and 5% this year, on top of a 5.3% increase last year.

Thomas Kim, a financial analyst for a St. Louis scrap-metal firm, describes his family as frugal shoppers who check prices on the Internet. But he and his wife most often shop in local retailers. "It's the convenience factor," says Mr. Kim. His family avoids supercenters, describing them as too large and too crowded.

When Wal-Mart pushed heavily into consumer electronics earlier this decade, many industry observers expected it to flatten electronics chains. But five years ago, Best Buy Co. began aggressively marketing installation and other services alongside flat-panel TVs and PCs. Last year, Best Buy's total sales rose 16%. Wal-Mart, which has struggled to sell big-ticket HDTVs, has only recently begun selling installation services at a few stores using an outside supplier. It doesn't break out consumer-electronics sales, but analysts estimate sales last year rose 7.6% to $22.6 billion.

Melissa Morris says Best Buy won her loyalty by gladly accepting a notebook PC return and having trained sales clerks. "I go to a store that specializes or has associates there that know about it," she says. The Erie, Pa., sales executive refuses to go to Wal-Mart, citing its crowded aisles and hurried atmosphere.

Best Buy and specialty retailer PetSmart Inc., which touts pet grooming and kennel stays, put hard-to-copy services at the forefront of their pitch, says Howard N. Jackson, president of retail advisers HSA Consulting Inc., Knoxville, Tenn. "They realize the best way to win a fight is to make sure you don't get in one," he says.

Wal-Mart has long sold prescription drugs, setting up its pharmacy business in 1978. But national drug chains CVS Caremark Corp. and Walgreen Co. reacted by redefining their role and selling basic health services, such as school physicals, diagnostic tests, and flu treatment, alongside drugstore wares. CVS and Walgreen each acquired in-store clinic operations, redefining the pharmacy business as basic health-care centers.

Same-store sales at CVS and Walgreen are running about double that of Wal-Mart this year. Wal-Mart has begun offering leases to clinic operators.

Then there's the host of new entrants. In apparel, smaller retailers with niche market appeal like Hennes & Mauritz AB's H&M, Inditex Group's Zara and Los Angeles-based Forever 21 Inc. are growing by offering consumers rapid style changes. Outside the U.S., Britain-based Tesco PLC is challenging Wal-Mart by cultivating the Tesco brand across five different formats, including convenience stores and urban stores as well as supercenters. This fall, Tesco will open its first U.S. outlets, stores that will offer fresh and prepared foods and staples (see related article 5).

As Wal-Mart's influence erodes, so does its allure to manufacturers. Burt P. Flickinger III, managing director of retail consulting firm Strategy Resource Group, says Wal-Mart now takes a back seat to regional grocery and national drug chains when it comes to striking deals.

He says some manufacturers now sell their wares faster at other retailers. "Four of the top 10 consumer-products companies say they can move merchandise faster with Walgreen and CVS," says Mr. Flickinger, who came up with the estimate from his talks with consumer-products firms. Such retailers have been rewarded with lower costs and better sales gains.

The change is apparent at PepsiCo. Wal-Mart is PepsiCo's largest customer world-wide, accounting for $3.16 billion in sales of drinks and snack foods. But earlier this year, PepsiCo opted to launch Fuelosophy, a new energy drink, at Whole Foods, a high-end supermarket chain.

"We thought that was the best place to introduce and test it," says PepsiCo spokesman David DeCecco. Whole Foods customers'"health and wellness" profile better match that of likely Fuelosophy buyers than Wal-Mart's, he says. He declined to name which other retailers were considered for the rollout.

Wal-Mart's loss of influence can also be seen in logistics. In 1984, Wal-Mart's decision to embrace bar-code scanners in its distribution centers and stores helped quash the use of a less-efficient technology then used at Sears, Roebuck & Co. and other retailers.

In 2003, the retailer brashly jumped onto the next big logistics technology, called radio-frequency identification, and mandated big suppliers begin slapping RFID tags on products shipped to its warehouses. Wal-Mart installed tag readers at warehouses and stores, hoping to further automate warehouses and lower inventory costs.

Wal-Mart quietly dropped the mandate earlier this year and refocused its development after suppliers complained of the high costs and lack of a return on their investment in the new technology. While the company says it's pushing ahead, Wal-Mart says it realigned efforts to focus on areas where the technology offered the most promise, such as assuring vendors' promotional displays are properly deployed in its stores.

Wal-Mart wasn't able to demand big suppliers continue investing in a technology that was raising their operating costs, says Ken Rohleder, president of Rohleder Group, a Louisville, Ky., supply-chain consulting firm. "There was a time when they could have dictated anything," he says.

Sears resurrects holiday Wish Book
Associated Press
October 2, 2007

CHICAGO - For decades, the Sears Wish Book was a holiday treat, scrupulously studied, and dog-eared by generations of children hoping for the best on Christmas morning.

Now, 14 years after the retailer shelved the venerable catalog, Sears is reviving the storied holiday tradition as it struggles to attract new shoppers and revive business.

"We all get lots of gifts, but wishes are a special thing," said Chief Marketing Officer Richard Gerstein. "And I think that's what this book used to embody, and that's why we're bringing it back."

Unlike its 832-page monstrous predecessor, the updated Wish Book being mailed to shoppers this week is a much trimmer 188 pages.

Over the years, Sears has created smaller toy-only Wish Books through a partnership with EToys.com and publishes periodic mailers that focus on things such as a tools or furniture. But this year's Wish Book marks the first full-fledged catalog by the retailer since 1993.

Half the catalog will be devoted to toys, while the remainder will focus on other store items ranging from appliance and tools to clothes and jewelry.

The company won't say how many copies of the Wish Book it's printing, only that it's far fewer than the massive distribution decades ago. Meanwhile, an online version of the Wish Book will also be available on Sears' Web site, Sears.com.

Allstate takes a pounding
Insurer's shares are off 8% since June amid fear over $5 billion in subprime investments; investors 'largely overreacted,' analyst says
By Becky Yerak - staff reporter – Chicago Tribune
September 28, 2007

When Allstate Corp. executives speak to investors these days, hurricanes and home insurance aren't the only topics on the agenda.

The Northbrook-based company has about $5 billion in subprime investments in its portfolio, a stake that has been weighing on shares of the nation's No. 2 home and auto insurer and compelling its managers to spend time assuaging investor worries about a topic far removed from selling property and casualty coverage and financial products.

Allstate's subprime holdings represent less than 4 percent of its total investment portfolio, but the insurer's shares are off nearly 8 percent since the end of June. "We believe the decrease mostly stems from investors' fears regarding the company's subprime exposure," Value Line analyst Ian Gendler said in a Sept. 21 report.

Most U.S. property and casualty insurers have little or no exposure to the subprime mortgage sector, according to Moody's Investors Service. Nonetheless, "investors seem to be running from anything that says 'subprime,'" Gendler said in an interview Thursday.

In Allstate's case, investors have "largely overreacted," Gendler maintains, because the company won't incur big losses from its subprime assets.

Even so, Allstate acknowledges that concerns about its subprime exposure have pressured its stock.

"If you look at where we are in this particular part of the cycle, if you look at the hurricane season and the subprime issues, you look at pricing today, you can see that we are affected by some of that," Chief Financial Officer Dan Hale said Sept. 5 at a Keefe Bruyette & Woods Inc. event.

During his presentation, Hale addressed what he called the "topic du jour" -- the subprime mortgage securities market. Subprime mortgages are made to consumers with less-than-stellar credit.

As of June 30, Allstate had $4.8 billion in subprime residential mortgage-backed securities. All are investment grade, and 73 percent have AAA ratings.

It also has $1.2 billion in Alt-A securities. All are investment grade, and 92 percent have AAA ratings. Alt-A mortgages serve home buyers who are slightly better credit risks.

For Allstate to lose money on those securities, default rates for the mortgages would have to reach 70 percent, Hale said, citing a Moody's study on 2006 subprime mortgages.

"That's a dire scenario that no one I've seen is predicting," he said.

But calming the nerves of one investor during the question-and-answer session required more than Allstate citing a Moody's report. "I would hope that's not the only study by Moody's that you're depending on to gain comfort in your position in those securities," the audience member said. "I would take it that you've gotten some details from somebody a little bit more in tune to the topic versus a rating agency whose credibility is undoubtedly under pressure now."

On Wednesday, Standard & Poor's, Moody's Investors Service and Fitch Ratings were accused by some legislators of being torn by conflicts of interest that might have contributed to the mortgage market turmoil.

Critics say the agencies, which are paid by the companies whose bonds they rate, failed to give investors adequate warning of the risks associated with mortgage-backed securities, which have plunged in value as defaults soar.

Hale responded to the concerned investor by saying that Allstate's investment team several years ago predicted troubles for the subprime industry, and responded by upgrading the quality of its holdings.

"We clearly are not dependent on Moody's or anyone else," Hale said. "We are comfortable with where we are and don't anticipate having to take any losses."

Hale also pointed out that problems generally occur when holders of the residential mortgage-backed securities have to sell investments at a loss or in a panic.

"We don't need to trade those securities," he said. "Allstate has excellent liquidity."

His evidence: Even as Allstate contended with $5 billion in hurricane losses a couple of years ago, it also had the wherewithal to repurchase billions of dollars in stock.

Even though subprime is a tiny share of Allstate's investment portfolio, and while the company hasn't strayed into the deep end of subprime, Celent analyst Donald Light still wonders how much might default.

Rating agencies "have been raked over the coals in how they've evaluated subprime" securities, he said in an interview Wednesday. Their AAA ratings "are a bit of comfort, but a lot less than they would have been six to 12 months ago."

Harry Fong, a Calyon Securities analyst with a "buy" rating on Allstate, noted in a Sept. 5 report that Allstate was confident about its subprime portfolio.

But "they do admit that a AAA rating for subprime mortgages is not the same as AAA rating elsewhere," Fong wrote.

Morningstar analyst Jim Ryan blames soft pricing and higher advertising and agency commission expenses for most of the pressures on Allstate and other insurance stocks.

Allstate shares rose 64 cents Thursday, closing at $56.34 on the New York Stock Exchange.

Sears must differentiate from Wal-Mart, not resist: consultant
By Mark Anderson – CanWest News Service – Montreal Gazette
September 26, 2007

Star Trek Next Generation fans will be familiar with the Borg catch phrase "resistance is futile." Canadian department and grocery store chains, watching U.S. retail behemoth Wal-Mart consolidate its presence have to feel a lot like that.

Walk into a nearby Sears, however, and you quickly discover that not everyone has given up the good fight: where once stood racks of nondescript, vaguely down-market clothing, today stands a stylish new store-within-a-store, a stand-alone boutique with a distinctive Hamptons-esque feel.

Lands' End, is the popular Wisconsin-based clothing manufacturer that began life as a hugely popular sailing gear outfitter, and now competes with the likes of Eddie Bauer. Five years ago Lands' End was purchased by Sears, Roebuck & Co. for $1.9 billion, raising both the cache and profitability of the venerable U.S. retailer. Indeed, less than a year after the purchase, Sears stores carrying the Lands' End line were outperforming those where the rollout had not yet been completed.

Now, a mere five years after the fact, it's hoped Lands' End will have a similar impact on Sears Canada Inc.'s sales and margins - to say nothing of the brand's ability to help differentiate Sears from its department store competitors: the Bay, Zellers and, of course, Wal-Mart.

In this context, the arrival of Lands' End marks yet another shift in the Canadian retail landscape, one that moves Sears slightly up-market - where Toronto-based retail consultant Richard Talbot, of Talbot Consultants International Inc., says the chain should have been positioning itself years ago.

According to Talbot, the demise of Eaton's in 1999 created a vacuum at the upper end of the department store pantheon that Sears, the Bay or both should have moved to fill. Sears, in fact, did purchase the Eaton's name and some of its assets, opening a mini-chain of six Eatons stores before pulling the plug on the experiment a couple years later.

At the time, some analysts thought a six-store chain was simply too small to be profitable. Either way, when Sears and Hudson's Bay Co. failed to take advantage of the niche vacated by Eaton's, uber-posh retailer Holt Renfrew slid into the niche from the top end by offering lines of more affordable clothing and accessories. Thus, says Talbot, Sears and HBC remain "the meat in the sandwich," squeezed between Wal-Mart on the lower end, and the likes of Holt Renfrew on the upper.

"In my opinion, Sears Canada made the wrong strategic decision by not going up-market, moving away from Wal-Mart," says Talbot, who blames the decision on the fact Sears Canada takes its marching orders from majority owner Sears, Roebuck in Chicago, and hence can't respond quickly to changes in the Canadian retail landscape.

 

Discover's Net Drops 16% On Write-Offs for Payments
By Lingling Wei  -  Wall Street Journal
September 26, 2007

Discover Financial Services, the credit-card company spun off from Morgan Stanley, posted a 16% drop in third-quarter net income as it wrote off more payments as uncollectible and set aside more funds to cover loan losses.

In its first quarterly earnings report since the spinoff June 30, Discover said net income was $202.2 million, or 42 cents a share, for the quarter ended Aug. 31. In the year-earlier period, when the Riverwoods, Ill., company was still part of Morgan Stanley, net income was $241.4 million.

Discover incurred higher marketing costs in the quarter and made less money from securitization. Just like mortgages, receivables generated by credit cards are often packaged into securities and sold to investors. But in recent months, the asset-backed securities market has tightened because of a sharp rise in home-loan defaults.

Discover Chief Executive David Nelms said, "It will take some amount of time" before investors can regain their confidence in the asset-backed market. He said the company, which generally securitizes about 60% of its credit-card receivables, has moved toward other sources of funding, such as Discover certificates of deposit and Discover money-market accounts.

In 4 p.m. composite trading on the New York Stock Exchange yesterday, Discover shares were down 54 cents, or 2.4%, to $21.72. The stock has fallen about 25% since the spinoff, reflecting concerns over the company's ability to gain acceptance with merchants. Discover said merchants representing more than 90% of the sales volume in the U.S. payment-card industry accept its cards. Credit-card sales volume rose 4% to $26.8 billion in the quarter.

While other financial companies have seen softness in the U.S. offset by strength overseas, Discover's international card business continued to show weakness. It had a pretax loss of $67 million, compared with a year-earlier loss of $30 million. Discover's international segment is dominated by United Kingdom card business Goldfish, acquired last year.

Mr. Nelms has told investors that being independent will help the company boost transaction volumes and acceptance of the Discover card among merchants. Discover has long lagged behind its bigger rivals -- American Express Co., MasterCard Inc. and Visa USA Inc.

Discover, like American Express, operates a so-called closed-loop network by signing up merchants, issuing cards and processing transactions. MasterCard and Visa, by comparison, don't issue cards but make money from the fees they charge bank customers for processing transactions.

In the third quarter, Discover wrote off 3.95% of payments as uncollectible, up from 3.81% a year earlier. Provision for loan losses increased to $509 million from $495 million. The latest results reflect a trend toward more normalized levels of bankruptcy write-offs, following the plunge in the months immediately after the new bankruptcy law aimed at making it harder for consumers to wipe off their debts.

The company declared an initial dividend of six cents a share.

One month of Discover's results were also wrapped into Morgan Stanley's earnings report Sept. 19 as discontinued operations.

Sears strikes deal to sell Toronto head office
By Marina Strauss - Retailing Reporter - Globe and Mail, Toronto - With files from reporter Lori McLeod
September 25, 2007

Sears Canada Inc. has quietly sealed a deal to sell its distinctive - and valuable - upside-down pyramid shaped head office in Toronto, a move that analysts estimate will raise tens of millions of dollars for Ed Lampert, the U.S. hedge fund manager who controls the retailer.

The head office alone, not including the land it sits on, could be worth in the range of $100-million, according to estimates based on office property values in the area.

The proposed sale - to the Ontario Realty Corp., the manager of the province's real estate portfolio - comes shortly after the retailer sold off its corporate jet earlier this year. It could be the first of other real estate sales, some observers predicted yesterday.

"There are probably stores that they own that they could realize value on," retail analyst Robert Gibson of Octagon Capital said in an interview. "That was their strategy: you do all this and you can realize a lot more money."

Under Mr. Lampert's control, Sears Canada has been improving its profit as it slashes costs. In late 2005 it sold its lucrative credit card business.

Last month, Sears Canada put pressure on its suppliers in what some called an unprecedented "money grab." Sears is asking vendors to pay it tens of millions of dollars to cover the money that it estimates they made from a soaring Canadian loonie over the past two or three years. The suppliers generally buy their goods overseas in U.S. dollars.

Vincent Power, a spokesman for Sears Canada, confirmed that it had an agreement to sell the head office and the surrounding property on Jarvis Street in Toronto, although he would not disclose the price. The deal has yet to close.

The 1,400 or so employees who work in the building will eventually move to the top four floors of the eight-storey Sears flagship store at the Toronto Eaton Centre. The deal gives Sears Canada the option to lease back the current head office space for as long as three years.

The Eaton Centre store has been an underperformer as consumers have stayed away from the upper floors. Mr. Power said the store will be more productive operating on four floors rather than eight.

And while about 1,200 Sears Canada employees have been let go in recent years, the shift in head office space will not lead to further staff reductions, he said.

The ORC, the would-be buyer of the Jarvis Street office, is expected to convert the building into a courthouse, although it could also use it for other government functions, a source said.

The property is unique because it also includes excess land now used as a parking lot. An ORC spokesman said it is too early to say what it will do with the property.

The Accidental Thief
An Editor's Unwitting Journey Into Retail Crime at Kmart;
Wrong Box for the Flip-Flops
By Lara Landro – Wall Street Journal
September 20, 2007

Amid mounting theft and other merchandise loss in recent years, retailers face a daily battle against scam artists. But let the customer beware: With security on high alert, even law-abiding shoppers can fall under suspicion.

I learned that on a recent family shopping trip to the Kmart in Bridgehampton, N.Y. By going through the checkout line with a pair of flip-flops I had mistakenly placed in the wrong box, I joined the ranks of thousands of shoppers detained or arrested each year -- in my case, accused of trying to cheat the store out of $8. Pronounced guilty on the spot, I soon learned there is no presumption of innocence in retail, and that's pretty much how the system is intended to work.

According to the National Retail Federation, U.S. retailers last year lost an estimated $40.5 billion to "shrinkage" -- as the industry refers to shoplifting, employee theft, and other inventory losses -- up from $37.5 billion the year before. While total retail sales rose, shrinkage as a percentage of sales fell just slightly to 1.57% from 1.59%, which means retailers haven't made much of a dent in stemming their losses.

Some are getting more aggressive in loss-prevention efforts: In July, Wal-Mart Stores Inc., seeking to put a cap on rising theft that has eroded its profit, recommended that local store officials prosecute shoplifters at age 16 and older rather than the prior age of 18.

What I did in the store, albeit unintentionally, could be construed as one of the most common forms of theft in retail. "Ticket switching" occurs when a shopper removes a price tag from an item and puts it on a more expensive one or switches an expensive item into the box of something lower-price. While many stores now use sophisticated radio-frequency ID tags and multiple tickets on an item to head off ticket switching, tech-savvy gangs can now print new tags on portable printers and slap them on merchandise right in the store.

For my part, I had no intention of trying to pull a fast one on the store, from which my extended family purchases prodigious quantities of household items, kids' toys, and beach paraphernalia. I needed a box because there was no box or price tag for my merchandise to begin with.

On this particular Saturday in August, I was looking through piles of flip-flops -- most of them not in a box or the wrong size for their box -- with my step-daughter-in-law and 8-year-old step-granddaughter. There was no employee around to help. I found the perfect orange pair in size nine for another family member and looked around for their box. The only box marked size nine had tiny toddler-size shoes in it; since they seemed to be in the wrong box, I removed them and placed my nines inside. I didn't look at the price on the box. (I don't scrutinize prices in Kmart, assuming they are a bargain compared to, say, Neiman Marcus.)

While my two family members went to one register, I took my haul, including the flip-flops, to another counter; between us we spent more than $800.

As soon as we stepped outside the store, I felt a tap on my shoulder and turned to face a serious-faced young man who identified himself as store security and asked me to step back inside. When he said the shoes I'd purchased were in the wrong box, I followed him inside, promising my family I'd be right back.

Instead, I was led to a windowless security room in the back of the store, detained for an hour and accused of deliberately switching a more expensive item into a cheaper box. The adult flip-flops, it turned out, were $24.50, and the box had been for a child's size nine, with a $16.50 price. My stunned protestations and explanations were summarily dismissed. My driver's license and credit card were temporarily confiscated, I was told to expect a civil notice of a fine by mail, and finally, I was advised never to return to the store.

Though no law enforcement or court was involved, I was effectively tried, convicted and punished for a crime I didn't intend to commit. As for my dismay at the way I was treated, there was little I could do, other than take my future business to Wal-Mart or Target. And as I later learned from security and legal experts, the store had acted reasonably and within its rights in treating me as a criminal.

A spokesman for Kmart parent Sears Holdings Corp., to whom I described the events, said that while it was "unfortunate" that I'd had the experience, the store's security appears to have done its job correctly. He added that I might have avoided the problem by telling the cashier that I wasn't sure the shoes were in the right box.

Richard Hollinger, lead author of the retail-federation report on retail shrinkage and a criminology professor at the University of Florida, says I fell into the "accidental trap" of engaging in actions that fit the profile of a ticket switcher. Even though I sorted through boxes in the open and made no attempt to conceal my actions, "you were unlucky enough to repeat a pattern of behavior the store has been watching for," he adds. Typically, the loss-prevention staff doesn't prevent a cashier from ringing up customers suspected of ticket-switching; their job is to catch the culprit in the act.

"You innocently put yourself in jeopardy, but you did carry out merchandise with a greater value than what you had paid," says Charles Sennewald, a retail security consultant. My explanation may have helped a bit. "If they thought you were really trying to steal, more often than not, they will call the police," he notes. According to the principle known as merchant's privilege, any merchant that believes a crime is in progress has the right to detain and question a shopper and to conduct a reasonable investigation. Of course, overzealous security employees sometimes make mistakes, which could present a legal risk to their employer, says Mr. Sennewald, who is the author of "Shoplifters vs. Retailers: The Rights of Both."

Stores can also seek "civil recovery," a direct demand to consumers for damages or penalties, without any court involved, under state statutes for retail theft, according to Stuart Levine, chief executive of Port Washington, N.Y., security firm the Zellman Group, whose attorneys help retailers pursue such fines. The fines vary by state but generally are as much as five times the value of the act. Mr. Levine says stores often don't seek criminal prosecution for ticket-switching; defense lawyers can often show that many items in an average store are mispriced or markdowns weren't taken on merchandise supposed to be on sale.

Consumers who contend they have been wrongly accused can protest civil fines while detained in the store, write a letter to the company's director of loss prevention, or communicate with the law firm that sends a letter seeking a fine on behalf of the retailer. The Sears Holdings spokesman says if the accused chooses not to pay, "then the customer will have the opportunity to be heard as part of the legal proceedings that may follow." (I am still awaiting my letter.)

For their part, security people in the stores have heard all the stories -- and they aren't buying any of them. Amid my protestations to the young man who had detained me, who gave his name only as Brian, I said that while I understood his job was to protect the store from loss, I was a regular customer, a professional, and an upstanding citizen, and my family had just spent hundreds of dollars in the store. Did I seem to him like someone who would cheat the store out of $8 and risk this kind of treatment? Unmoved, he told me that he had seen what I did, and "people like you come in here all the time and do this."

Indeed, security experts say professionals, public officials, prominent citizens and even celebrities are among those apprehended stealing items or switching tickets; most bring up the case of Winona Ryder, the actress who was convicted of shoplifting in Beverly Hills.

While detained, I emailed my husband on the golf course with the message "I've been arrested at Kmart" (just a little dramatic license) and called my stepdaughter-in-law to tell her I was OK.

Finally, Brian, who had initiated a futile search for the right box for my shoes, came back with my driver's license and credit card. I was so frazzled and eager to get back to my family that I signed the receipt he placed in front of me without looking at it, thinking it was a charge for the extra $8. As I gathered my bags, he told me I couldn't come back to the store; I assured him I had no intention of returning to any Kmart, ever.

At home, when I ruminated about whether I had a case of wrongful detention, my husband noted, "Well, technically you did do what they say you did." Finally, when I went to give the flip-flops to my stepdaughter, I found they weren't in my bags. I called the store and found out the receipt I had signed was actually a credit for the $16.50 plus tax that I'd paid. Kmart wasn't going to let me have those flip-flops.

Wal-Mart expands health coverage
By Julie Appleby, USA TODAY
September 19, 2007

Wal-Mart, whose health coverage for employees has been a target of critics, says it will offer improved options for workers next year that include $4 generic drugs and monthly premium costs of as low as $4.36 on some of its plans.

The company drew criticism from unions — and some state lawmakers — in recent years for its coverage, which critics called unaffordable for some of its 1.3 million workers, causing them to be uninsured or enroll in government programs such as Medicaid.

Starting in January, workers will be able to mix-and-match up to 50 different combinations of deductibles, credits and premiums, which the company says should help boost enrollment. Last year, Wal-Mart (WMT) said 43% of its workers had health insurance through the company, although a full 90% had some coverage, through spouses, parents or government.

"It's hard to see why an associate would not choose health coverage when we have plans as low as $4.36 to $7.31," says Wal-Mart spokeswoman Sarah Clark.

The new plans will offer:

•A choice between four annual deductibles: $350, $500, $1,000 or $2,000, a change from this year when plans had annual deductibles of $1,000 or $2,000. The amount paid by workers for monthly premiums increases as the deductible goes down.

•To offset those deductibles, employees can choose between $100, $250 or $500 "credits" Wal-Mart will pay for medical care before the worker pays the deductible. The higher the credit, the higher the premium.

•Co-payments of $4 for 2,400 generic drugs.

•No lifetime maximum on most plans for the amount the insurer will pay toward catastrophic medical needs. The maximum workers would pay each year, after their deductibles, toward medical costs would be capped at $2,000 or $5,000.

The proposal drew faint praise from one union-backed advocacy group.

"The coverage changes for the more expensive health care plans show signs of improvement and demonstrate the company is listening. … But, for the vast majority of Wal-Mart workers, who struggle to get by on an average annual salary of $18,800, these plans are still unaffordable," said Wal-Mart Watch Executive Director David Nassar in a written statement.

Wal-Mart said a worker choosing a plan with a $1,000 annual deductible and a $250 credit toward that deductible would pay $11.55 a month to $42.70, based on where they live and what kind of annual out-of-pocket maximum they choose. The $4.36 to $7.31 a month plan has a $2,000 deductible and a $100 credit, and the worker would be liable for up to $5,000 in additional costs for catastrophic medical expenses.

That the plans have no lifetime maximum on benefit payouts will help protect people from bankruptcy, says Dallas Salisbury, president of the Employee Benefits Research Institute. "Wal-Mart is moving in the direction of far more complete coverage at lower premiums with greater flexibility," he says.

Health Plan Overhauled at Wal-Mart
By Michael Barbaro – New York Times
September 19, 2007

Wal-Mart, long criticized for its health care coverage, unveiled a broad plan yesterday that is intended to cut employee costs, expand coverage and offer workers thousands of cheap prescription drugs.

Starting Jan. 1, Wal-Mart’s insurance will look a lot like that offered by many other American companies, but with some twists that even longtime critics described as innovative. Independent experts praised several features of the plan and said it could represent a turning point for the retailer, the nation’s largest private employer.

“On face value, this looks like a very significant change and improvement,” said Ron Pollack, president of Families USA, a health care advocacy group in Washington that has been critical of Wal-Mart.

Wal-Mart said it would give each employee or family that signs up for coverage a grant of $100 to $500 to defray health expenses while charging premiums as low as $5 a month. It will eliminate expensive hospital deductibles and make 2,400 generic drugs available to employees for $4 a prescription — about 1,000 more than it sells to customers at that price.

The plans with the lowest premiums would still charge annual deductibles as high as $2,000 — typical for American corporate health plans, but perhaps steep for Wal-Mart employees, many of whom work part time and earn less than $20,000 a year. And the company’s plans have other limitations, including waiting periods as long as a year for new employees.

Wal-Mart Watch, a group long critical of the company, said yesterday that “these plans are still unaffordable due to low wages or inaccessible due to waiting periods.”

It is unclear how many of the 125,000 Wal-Mart workers without health coverage would sign up. But industry analysts said the program represented an upgrade for the 636,000 employees who already receive health insurance through Wal-Mart. They said it could force the company’s discount-retailing competitors to offer more generous plans for their own workers.

Helen Darling, president of the National Business Group on Health and a former benefits consultant, called it “a very good plan,” saying that “parts of it, like the $4 generics, are game-changing for the industry.”

Mr. Pollack and others noted, though, that they had yet to see the fine print of the new program.

Wal-Mart has long been held up to ridicule for its health care programs.

Two years ago, the Maryland legislature took the unusual step of requiring Wal-Mart — and only Wal-Mart — to increase spending on health insurance. The law was later overturned.

Even before yesterday’s announcement, Wal-Mart had taken some steps to answer critics. It allowed part-time employees to enroll their children in the company’s insurance program, reduced the waiting period before a new part-time employee was eligible for benefits to one year from two, and created plans with premiums as low as $11 a month.

But critics contended that the company had not done enough, pointing to the still high deductibles and lengthy waiting periods.

The new program, for which workers can sign up starting this month, offers 50 ways to customize coverage, with varying trade-offs like higher premiums and lower deductibles.

In one plan, for example, an employee would pay premiums up to $79 a month, receive a health care credit of $100 and pay a deductible of $500. In another, the employee would pay premiums of $8 a month, receive a $100 health care credit, but pay a deductible of $2,000. Though many generic drugs will be available for $4, brand-name drugs will cost $30 to $50.

In an interview, Wal-Mart’s executive vice president for benefits, Linda M. Dillman, said the company hoped to persuade those workers without health coverage to sign up for it. About half of Wal-Mart workers have coverage from the company, while 40 percent more get their coverage elsewhere — through a spouse, a parent, a second job or a state program like Medicaid. About 10 percent have no health coverage.

“We are removing any barriers of entry” to the company’s health care plan, Ms. Dillman said. “When you are talking about $8 a month and a $100 health care credit, why would you not sign up?”

She said the program emphasized preventive care, paid for by the company before a deductible kicked in. Health care credits, for example, would make it possible for employees to see doctors and buy prescription drugs without paying anything out of pocket.

“If they need to seek care, they will do it, not forgo it,” Ms. Dillman said.

Milt Freudenheim contributed reporting.

Wal-Mart Expects Health Costs Will Climb Under New Options
By Kris Hudson – Wall Street Journal
September 19, 2007

Wal-Mart Stores Inc., the nation's largest private employer, anticipates the costs it incurs for its employees' health coverage will increase next year under new options it will offer.

Wal-Mart unveiled coverage options for 2008 that mimic the low-premium, high-deductible plan it championed last year. Wal-Mart's slightly more than one million U.S. employees eligible for coverage can choose beginning Saturday from plans ranging from an $8 monthly premium and $2,000 deductible for those who anticipate needing only minimal medical care to a premium of $94.11 and deductible of $350 for those needing more. The premiums are lower in some locations.

Meanwhile, Wal-Mart will discontinue several restrictions it put on this year's coverage plans, scrapping additional deductibles of $1,000 for inpatient hospital stays and $500 for outpatient surgical visits. The retailer will stop charging employees an extra fee for spouses enrolled in a Wal-Mart plan who otherwise could be covered by their own employers. Wal-Mart made the changes after gathering feedback from employees.

The changes will boost the costs Wal-Mart incurs on a per-employee basis for health-care coverage, though the increase will remain "in line" with those seen in prior years, said Linda Dillman, the retailer's executive vice president of risk management, benefits and sustainability. She declined to divulge Wal-Mart's exact outlay. However, a 2005 internal memorandum outlining methods for curtailing increases in Wal-Mart's health-care spending noted that, from 2002 to 2005, the retailer's annual health-care costs rose 19% to $1.5 billion.

Wal-Mart, based in Bentonville, Ark., last year helped pioneer low-premium, high-deductible coverage plans in the retail industry by introducing a plan with a $1,000 deductible in exchange for monthly premiums as low as $11. In comparison, 75% of U.S. retailers offer a preferred-provider organization with deductibles ranging from $250 to $300 as their primary option for employees, according to Hay Group, a management-consulting firm that advises many large retailers on health-care benefits.

In a new twist for next year, Wal-Mart employees can elect to pay higher premiums to receive health-care "credits" of $100, $250 or $500 that they can use to pay for covered medical expenses before their deductible applies. Wal-Mart's new plans will provide the credits in lieu of the previous offering of three free doctor's visits and $10 co-pays on three generic prescriptions prior to the deductible kicking in. Finally, employees enrolled in the plan can get prescriptions to any of 2,400 generic drugs for $4.

Wal-Mart critic Wal-Mart Watch said the retailer's new plans "show signs of improvement," but added that the deductibles remain too high and the wait periods for eligibility too long. Full-time Wal-Mart employees must wait six months to qualify for coverage; part-timers, one year.

--Jane Zhang contributed to this article.

Amid Macy's Launch, Martha Stewart Gets A Makeover at Kmart
By James Covert - Of DOW JONES NEWSWIRES
September 18, 2007

NEW YORK (Dow Jones)--Martha Stewart is touting her tie-up with Macy's Inc. (M) to sell a new line of home accessories this fall, but she's also making an effort in her long-troubled relationship with Kmart.

After years of sagging sales and contract tussles, Kmart is relaunching its Martha Stewart Everyday home furnishings line for the first time in nearly a decade. The revamped line, slated for a formal launch next week, offers better-quality bed and bath linens at lower prices, executives say: a queen-size set of 500-thread-count sheets will have a regular price of $59.99, versus $79.99 for a 300-count set earlier this year.

Kmart's relaunch, which overhauls 1,100 items, comes as Martha Stewart Living Omnimedia Inc. (MSO) this month is rolling out to Macy's a new proprietary line called Martha Stewart Collection, which spans 1,500 items including stainless-steel cookware, china and glassware, and towels, linens and bedding.

Still, Kmart's Martha Stewart overhaul, which has been in the works for a year, "has nothing to do with Macy's," insists Bill Stewart, Kmart's chief marketing officer.

Kmart has posted mostly declining sales during the past few years as Sears Holdings Corp. (SHLD) Chairman Edward S. Lampert has focused on cutting costs at stores rather than boosting sales. Earlier this year, Martha Stewart inventory at Kmart stores were slashed severely to make way for the new fall merchandise, "dropping it down to nothing," Susan Lyne, president and chief executive of Martha Stewart Living, told analysts on a conference call last month.

"There has been a lot of disruption" over the years in Kmart's relationship with Martha Stewart, admits Stewart, the Kmart executive. But "we worked very collaboratively with the Martha Stewart team on this project," he said in an interview Tuesday.

Kmart's home-goods relaunch isn't all about Martha, however. The Sears Holdings unit's contract with Martha Stewart Living is set to expire in 2009, and this month Kmart is also introducing a new line of proprietary home goods called Abbey Hill. The new private brand features sheet sets at $29.99, and extra-thick, no-lint bath towels. All of the new home merchandise will be presented with an eye toward helping customers better mix and match colors and patterns, executives say.

Martha Stewart has "no control" over what Kmart buys from her company, Lyne added in her comments last month, noting that Kmart has stopped carrying key Martha Stewart Everyday items, including lawn-and-garden products and ready-to-assemble furniture.

While Kmart executives declined to comment on recent sales of Martha Stewart goods, Martha Stewart executives said last month that sales declines at Kmart have offset gains of licensed products at other retailers including Michaels Stores Inc. (MIK) and Lowe's Cos. (LOW).

As such, Martha Stewart Living says it mainly relies on its guarantee of yearly minimum royalties, which will peak this year at $65 million. The guaranteed payments had become a bone of contention between Kmart and Martha Stewart after Kmart closed 700 stores in its 2002 bankruptcy, helping quash an idea to extend Martha Stewart products into Sears stores.

Sears Left Me Without A Refrigerator For 18 Days
CONSUMERIST
September 16, 2007

Sears needlessly left William and his insulin-dependent wife and daughter without a working refrigerator for eighteen days. For three weeks, William chilled his food and life-saving medication with bags of ice, waiting for Sears to send a part that their intolerably rude repairman insisted would take at least ten business days to deliver. When a second repair team arrived to install the part, they found leaky copper tubing - a problem the first repairman could have easily fixed.

William sent a letter to Aylwin Lewis, CEO of Sears:

Dear Mr. Lewis,

In the summer of 2003 I purchased a Kenmore Refrigerator from the Sears store in Brooklyn, New York. Since that time this refrigerator has needed to be repaired three times the last time being August 23, 2007. I have a service contract with Sears. I called to have the refrigerator repaired and on August 28th a repairman came to my apartment. After examining the refrigerator he determined the part that was needed had to be ordered. He said that it was Sears's policy for the delivery of the part to take ten business days. At that point I informed the repairman that my wife and daughter are insulin dependent and their insulin requires refrigeration. The repairman then replied that it was Sears' policy that the delivery of the part to take ten business days. I asked the repairman to use my phone to call his office to inform his superiors that my wife and daughter are diabetic and their medicine requires refrigeration at all times. The repairman refused to call his office on my phone. He repeated that it was Sears' policy that it would take ten days and picked up his bag and left my apartment. I followed the repairman to the elevator and asked him to give me his name. He refused. The repairman said I should call the office and state that a repairman had been to my apartment. While demanding that he at least tell me his name I held the elevator door open to prevent the repairman from leaving. The repairman exited the elevator and walked towards our staircase. I asked him again in the hallway what is your name. He finally muttered Brian. I said what is your full name and he replied "JESUS CHRIST!"

I called the service center on August 28th at about 3:30pm to inform your office what had transpired during this repair visit. I spoke to a representative named Manuel who took all of my information about this unpleasant repair visit. Manuel stated he would investigate and try to expedite the shipping of the part that was needed to repair my refrigerator and he would call me on August 29th. When I received no call on August 29th , I called Sears on August 30th to find out how soon the repair of my refrigerator will be completed. I spoke to representatives Gloria, Liz, Abel and Vicky. Each time I called I had to give the information all over again. No one ever called me back with an update on how long it would take to repair my Kenmore refrigerator

Today at 2:39 pm August 31st I spoke to Judy. I explained the situation to Judy and she put my call on hold for over five minutes. She returned to the phone and stated that she was trying to contact the service office and could not reach them. Judy stated that she would send the service office an email in order to get a faster reply. I informed Judy that each of the reps I had spoken with during the week had each told me the same thing but none had kept their promise.

Your company, Sears, prides itself on excellent customer service. Other than the representatives apologizing for the behavior of the repairman named Brian I have not received excellent customer service. The bottom line is I bought a refrigerator from your company because I thought Sears would stand behind their product. Instead I spent good American dollars to purchase a product that broke down even before the basic warranty period had expired. It continues to breakdown almost yearly. Something is wrong with this refrigerator. I worked for over thirty years as a customer service rep and trainer. I worked for a nationally known insurance company and that company would not have stayed in business for over thirty years if we had treated our customers like I've been treated in the last eight days.

I'm living with a box of ice sitting in front of my refrigerator. Have you ever spent a warm August day with no refrigeration? Do you know what its like to buy bag after bag of ice to keep milk fresh, eggs cold and insulin safe? I don't think anyone with whom I've spoken has grasped the magnitude of the suffering that my family is experiencing. If you're really serious about providing excellent customer service your company, Sears, should provide a small refrigeration unit in which I could keep essential items until my refrigerator could be repaired or replaced. I do think the refrigerator needs to be replaced at this time since it has failed three times since July 2003. My last Kenmore purchased in 1988 only had one minor repair in nearly 15 years. Please do something immediately so that my and my family's' life can return to normal.

Thank you

Sincerely

William

Sears finally fixed the refrigerator after William sent the letter: After 10 business days, as Brian had predicted and in spite of my pleas Sears sent two repair people to my home at about 9:00 AM on 9/11/2007. On September 4th I had told Sears that this was not a good day for me because i had a doctor's appointment in the morning. On September 10th Sears called and i explained that I still had a doctor's appointment. Amanda from Sears assured me that the visit would be quick and fast . And that i would be able to keep
my10:30 AM appointment.

The only good thing was that after 10:30 they had found the problem & repaired the leak in the copper tubing of my refrigerator. When i asked the technical manager why the first repairman stated that it would take 10 days to order a part that was never needed to repair my refrigerator; he had no answer. The bad thing was that i was very late for the doctor visit. So the bottom line is that I was without a refrigerator from August 23rd, the day my refrigerator stopped working until September 11, 2007, when Sears finally did something right.

Eighteen days, why? This is a big company, supposedly with lots of money & they treat customers like DIRT. I have not received any type of compensation for their behavior or delays. No letter from Mr. Lewis, the CEO of Sears or his assistant. This situation was treated as if it were a broken sewing machine not like an appliance needed to keep insulin safe.

BY HAMBRIQ AT 09/16/07 12:49 PM That sucks.

This actually happens a lot at our pharmacy. Lots of extremely low/fixed income patients who either can't afford to pay their electric bills so it gets shut off, or their refrigerator breaks and they can't afford to get it fixed. I would recommend that anyone who is on maintenance medication that requires refrigeration to take the following precautions:
Always keep a small, styrofoam cooler on hand. In your freezer, keep about five of those freezable, reusable "ice" blocks. Total, it should cost less than 10 dollars. If you think that you won't have refrigeration for an extended period of time, break open the cooler, put an ice pack on the floor and one on each wall, and then fill it about halfway up with ice. Stuff the empty space with newspaper, paper towels, toilet paper, whatever, and then put your insulin, Byetta, Xalatan, etc. etc. into the cooler.
The ice blocks will retain their cold temperature more efficiently than ice, and even when they thaw, still leave them lining the walls of the cooler; they'll still be cold enough to provide ample refrigeration, which in turn will make the ice melt less quickly. Using this setup, you should only have to replace the ice once every four to five days, depending on how hot it is where you live. In Texas, it gets pretty hot, but ice is dirt cheap down here, so this system only costs about 8 bucks a month if you use it as a long-term solution. And sadly enough, some people have to. But anyway, if you ever find yourself in a situation like this guy, you shouldn't have to worry too much about your medicine. But definitely use that as cannon fodder when it comes time to file a complaint.

BY BOHEMIAN AT 09/16/07 02:03 PM Our local used appliance guys who also do repairs generally can get out to fix something within a day. There is also an appliance repair parts warehouse that carry parts for just about any model of home appliance. If they don't have it they can get it overnight shipped.
Why Sears took almost 3 weeks to deal with this is not excusable. I quit doing business with Sears for repairs a few years ago. I took a microwave in about ten years ago and the staff were so rude I swore I would never go back for repair work. I went in for tires on a car about five years ago. The tech tried to sell me on a bunch of suspension repairs the vehicle didn't need. I tried to order a part around the same time. The parts department told me to just go order it online.
Is there anyplace that actually gives any resemblance of decent customer service anymore?

BY JAMESDENVER AT 09/16/07 02:14 PM
@Hambriq:

I'm a type 1 diabetic and I never refrigerate the insulin I'm using at the moment. Stored insulin yes, but whatever bottle I'm using is just in my messenger bag on the go with me.
I think the poster played up the "MY INSULIN!!!" card. It's an afterthought, and
like Hambriq said a $3 cooler and some ice and keep your previous insulin safe.
(said by someone who takes insulin daily.)

BY MASONRELOADED AT 09/16/07 02:21 PM If its that big a deal, go to walmart and
buy one of those little beer fridges for less than $50... problem solved. I know it's frustrating that things take time to be repaired and maybe the first guy was a jerk but this would definitely be an easy/cheap backup.

BY SCUBA STEVE AT 09/16/07 02:27 PM Whether it's excusable or not I'm not going
to argue with, but I'd say it's more common than you think. Take a big place, say, New York City. You buy from a Sears there, and only Sears technicians are allowed to do the repair work (under warranty), and suddenly you have way more people calling in with problems than you have slots to fill, and work builds up. Another place with long repair wait times are islands who only have transportation by boat. We actually had to schedule an appointment with our technician for 2 or 3 months away simply because of the small window he had available to actually get to the island. Most repairs happen within a (business) week, and I've scheduled service same day twice (although most likely the TECH called the customer and rescheduled, as they have the right to do) since we're generally not supposed to schedule same day service (it's almost never an option). Personally I think having a backup plan would be prudent in any situation where needed medical supplies were at risk.

BY JOEMONO AT 09/16/07 03:46 PM Our fridge broke and after we were told it be a
week before they could come out to fix it, we went to Target and bought a mini-fridge. It wound up being a good idea because it was actually 3 weeks before we had a working fridge. The bonus was that when they finally fixed it I put the fridge on craigslist and made all of my money back.

BY CATNAPPED AT 09/16/07 05:15 PM @bohemian: Sears was busted years ago for
upselling unneeded auto repairs (and had to give out store credit to make up for some of it). Good to know they still haven't learned their lesson

BY LORENJFISHER AT 09/16/07 05:34 PM 1. Please advise, where in your contact with Sears does it say that Sears must provide you with a "courtesy refrigerator" to use during periods where your fridge is under repair?
. You are a very bad diabetic. Are you not aware that an opened vial of Insulin can be stored for 28 to 30 days at room temperature. It would be possible for you to store your Insulin in your basement or in your non-working fridge.
Are you not aware that storing your Insulin in a bucket of ice or between ice packs is just as bad as storing it in high temperatures?
3. Brian had every right not to provide you with his last name and you had no right to prevent him from leaving your property.
4. Most extended warranties for refrigerators (including future shop, best buy, etc) DO come with insurance coverage that explicitly covers spoiled foods/goods, and this would cover the cost of replacing your Insulin!

BY ALICE_BUNNIE AT 09/16/07 05:59 PM JamesDenver...
Came in here to say that I never refrigerate my insulin unless I have more than a 30 day supply. They're playing unnecessarily on sympathies. That being said, 3 weeks is ridiculous. My experience with Sears has generally been good ones. Many years ago my parents had a chest freezer from Sears. When it was about 6 months old it broke. Got a repair man out there and it was fixed. The third time it happened, they told us if we bought a different one then they'd credit us for the old one. They delivered that one and picked up our old one. I think they didn't need to do that, but their policy was that if they had
to repair it more than twice, they'd replace it.

BY SPRYTE AT 09/16/07 06:12 PM @lorenjfisher:
1. It probably doesn't say that anywhere, but there is that quirky concept of a company actually doing something decent to help a customer out in a situation like this. I know, silly huh?
2. He is not a bad diabetic. He is not a diabetic at all. It's his wife and child who are the diabetics. And anyway, if he's using the phrase "requires refrigeration" perhaps it says that on the medication package and he's simply following pharmacy recommendations. I know, what a kook.
3. Maybe the whole "preventing the elevator door from closing" thing was a bit loopy, but there is nothing wrong with wanting the full name of a repairman who comes to your house. Most places like this have hundreds of customer service reps, technicians, repairmen, etc, and there may very well be more than one Brian working there. Keeping track of exactly who did what in a series of events like this is perfectly logical.
4. I don't think it was so much the cost of the medication he was concerned about. Do those insurance policies cover diabetic shock? Probably not.../vent off

BY WRING AT 09/16/07 06:15 PM I'm beginning to notice that most of the comments defend the big companies over the consumer. Is this still CONSUMERIST.com?

BY OMERHI AT 09/16/07 06:29 PM @wring: Blindly defending consumers is as bad as
blindly defending companies. There are always two sides to the story, and in cases like this, the consumer would most likely self-edit what actually happened. Maybe he got in the repairman's face, maybe he swore at him. We don't know. Maybe that didn't happen.
But blindly defending consumers who abuse the system makes it harder for people
who are legitimately screwed over. Which William might very well have; but that's certainly not a given.

BY HEXUM2600 AT 09/16/07 07:00 PM @wring: Yes, because being a good consumer
doesnt mean thinking the consumer is always correct. If I walk into a gas station and say I had trouble with the pump so i should get my gas free, is that reasonable? And no good consumer would think so. A good consumer is one who wants decent treatment and pricing from a company and in return will reward that company with patronage. Its a 2 way street, I don't expect a company that is guarenteed to only get my patronage one time (although what kinda company that would be i don't know) to treat me well, but the places people go they have the potential to come back or not.
Consumerist.com, where people who want a system of good customer service where
we feel comfortable returning and spending more money because of how they treat
us. not Consumerist.com, where we expect every business to cater to our every need and
treat us as if we deserved more than anyone else.
What a stupid comment.

BY CUMAEANSIBYL AT 09/16/07 07:04 PM
Okay, already. If nobody in this man's family had been diabetic, would the service be acceptable? NO. The repairman was rude and incompetent, and nobody at Sears was willing to do anything about it.
I doubt William started complaining about the insulin right off the bat -- why would he? It wasn't until Sears blew him off that he brought it up to try to goad them into acting right. It didn't work, but I can't blame him for trying. Bad service from a company is always unacceptable, but when they can't even rouse themselves to make the slightest effort in a special case, it's a clear sign that they're not going to care about any of us normal schmucks.

BY AMOEBA AT 09/16/07 07:57 PM I had experienced a similar situation in the past with Sears. At my local Sears store, they sell what is in display and they don't bother to bring a new one, unless you have to wait 2 wks to arrive (the Main store is in a big city close to my town - about 35 miles or more). After my washer broke after 3 months and nobody dared to fixed it, I sold it and I bought a new one at Lowe's. So, I decided to do my shopping else where. And yes, William needs a momentary replacement and a big apology from the repairman; besides his "diabetic" problems (may be he needed to make up a story to rush the new fridge).

BY JEAN NAIMARD AT 09/16/07 08:07 PM Sears suck big time.
A friend of mine asked me to help when he moved into his new condo, for which be bought appliances, and had the cabinets custom-made to fit. The installers came in first, then the appliance delivery guys. One of the fresh squirts said that "the fridge is not going to fit in there", and they did not bring the fridge up. The installation guys installed everything else, then they said they could come back for the fridge, but (of course), not at the same time they would deliver it. The jokers came back the next day to deliver the fridge, but it could not be installed.
When the installers came, they said that it's not their job to move the fridge. Now, that's typical private sector featherbedded employees not doing their jobs. So we move the fridge, without proper strapping and in doing so, we scratch the brand-new flooring while the fucker installers watch and not help. To move the fridge in place, we had to undo the doors (at least, the installers did that). Eventually, the fridge gets installed, with a nice bonus scratched wooden floor.
It took six months of bitching to finally have Sears compensate my friend with a cheque that basically covered half the cost of the appliances and "installation"…
His floor is still scratched badly, though. This all boils down to some asshole in Sears head-office who has a diploma on his wall with the letters "MBA" on it.

BY PINKBUNNYSLIPPERS AT 09/16/07 09:08 PM
Can anyone tell me why if this guy's refrigerator was so important to him that once he struck out with Sears, he wasn't on the phone with Kenmore directly? That might've been a good idea. You have to understand Sears is just a broker - they don't make the products, they just sell them. Kenmore has a more vested interest in keeping you happy to keep buying their products - Sears could care less.

BY EVILSQUIRREL AT 09/16/07 10:01 PM @pinkbunnyslippers: Kenmore appliances are actually rebranded appliances made for Sears. You are basically stuck talking to Sears in some way unless you want to pay someone else to fix it. If you know what is broken, it couldn't hurt to see if any of local appliance repair places carry the part in stock. If you call early enough, they might be able to fix it the same day.

BY WRING AT 09/16/07 11:39 PM the consumerist: shoppers bite back. Not shoppers bite and judge each other. I'm so sad for all the self righteous 'our shit don't stink, we don't overdraft' trolls.

BY SHADOWFALLS AT 09/16/07 11:45 PM I'd say you would be better of getting a GE fridge from Home Depot, at least from my experiences anyways. But in any regards William, maybe you forgot that Sears is now own by Kmart, a company known to cut corners when needed, their customer service certainly leaves much to be desired. The wait time is pretty bad, but if you are worried about these issues, maybe getting a mini fridge just in case is a good idea, I have seen some go for $50-$70 and they would be good enough for simple items.

Sears Hldgs Sets New Financial Chief's Salary At $600,000
Dow Jones Newswires
September 14, 2007

Sears Holdings Corp. (SHLD) has set the salary for J. Miles Reidy, its new chief financial officer, at $600,000, the company said Friday.

Reidy is set to join the retailer in October.

Sears, based in Hoffman Estates, Ill., plans to grant Reidy a performance-based restricted stock award valued at $1.8 million. The award will vest only if Sears meets long-term earnings goals in any year from 2007 to 2010.

Reidy also will get a $250,000 sign-on bonus, plus restricted stock valued at $750,000, according to a Securities and Exchange Commission filing.

Sears also set Reidy's target bonus at $450,000 under its annual incentive plan, with a maximum possible bonus of $675,000, depending on the company's performance, according the filing.

Sears shares closed Friday at $134.93, up $1.09.

John Costello Joins Retailer Zounds as President-CE
Onetime Sears, Home Depot CMO Wants to Make Chain the LensCrafters of Hearing Aids
By Alice Z. Cuneo – Ad Age.com
September 14, 2007

SAN FRANCISCO (AdAge.com) -- Former Sears and Home Depot chief marketing officer John Costello has taken a job as president-CEO of a seven-store retailer that hopes to become the LensCrafters of hearing aids.

A year ago Mr. Costello, 60, was named co-president of Pay By Touch, a privately held, fingerprint-based payment system. He said he left that company, where he was vice chairman (and remains an adviser), and has joined hearing-aid marketer Zounds.

"Zounds technology has the potential to transform the multibillion-dollar hearing category similar to what LensCrafters did in optical, with breakthrough technology, an exceptional value and unique retail store-based sales approach," he said, calling the stores "the most exciting retail concept I'd seen in the last 10 years."

Zounds has seven stores in locations including St. Louis, Phoenix and King of Prussia, Pa., near Philadelphia. Design in the stores is high-tech and sleek, resembling those of high-end audio retailer Bose, Mr. Costello said. In addition to offering hearing tests and fittings, the stores have a room designed like a noisy restaurant so customers can test equipment.

Mr. Costello said he was drawn to Zounds because "there aren't too many times where you have an opportunity to help people."

Zounds was founded in Mesa, Ariz., by an engineer whose daughter had hearing loss. The devices are priced at less than $2,000, compared with $5,000 for comparable products, Mr. Costello said.

Under Mr. Costello, Sears introduced women's and other clothing lines with the tagline "Come See the Softer Side of Sears." At Home Depot, he launched the "You Can Do It. We Can Help" campaign, which still is running today. Currently, Zounds has been using the tagline "Don't get mad. Get hearing."

He declined comment on the retailer's ad budget.

Macy's Shares, Options Surge on Takeover Speculation
By Jeff Kearns and Eric Martin - Bloomberg.com
September 14, 2007

Macy's Inc. shares rose the most in two weeks and options traders increased bets the stock will advance amid renewed speculation that the second-largest U.S. department-store chain will be acquired.

Macy's shares rose 93 cents, or 3.2 percent, to $30.18. Call-option volume rose to 36,929 contracts, an almost eightfold increase from the 20-day average. Bullish options bets exceeded bearish ones by more than 10-to-1.

“Macy's calls are trading briskly on the resurgence of takeover rumors,” said Rebecca Engmann Darst, an equity options analyst at Interactive Brokers Group in Greenwich, Connecticut.

Macy's shares advanced on June 22 and July 18 on speculation that bidders including Kohlberg Kravis Roberts & Co. may try to buy the Cincinnati-based company.

Macy's spokesman Jim Sluzewski said the company doesn't comment on speculation or swings in its stock.

“Rumors of a Macy's buyout have been around a number of times over the last six months”, said Michael James, senior equity trader at Wedbush Morgan Securities in Los Angeles.

James said today's speculation is that Vornado Realty Trust and billionaire investor Edward Lampert's ESL Investments Inc. hedge fund will offer to buy Macy's for $43 a share. Lampert combined Sears, Roebuck & Co. and Kmart Holding Corp. in 2005 to form Sears Holdings Corp., the largest U.S. department-store chain. New York-based Vornado is the second-largest U.S. real estate investment trust.

Vornado spokeswoman Wendi Kopsick said the company doesn't comment on market speculation. Steve Lipin, a spokesman for Lampert, didn't immediately return a call for comment.

The most-active options were September $35 calls, which require the shares to rise by 17 percent to pay off before they expire Sept. 21. Their price more doubled to 20 cents.

“There's heavy buying in the September $35 calls, which is significant because these are going to expire next week”, Darst said “That's a pretty significant upside in a really short period.”

Call options give the right to buy 100 shares for a certain amount by a given date. Puts convey the right to sell.

Dorothy Bacon, wife of Sears Vice President, dies at 87
Island Packet.com - Hilton Head Island - Bluffton, SC
September 13, 2007

Dorothy Simpson Bacon, 87, of Hilton Head Island, passed away Monday, September 10, 2007, at Broad Creek Care Center after a period of declining health.

Mrs. Bacon, a homemaker and devoted mother, was born January 29, 1920 in Chicago. She was the daughter of the late Charles A. and Ellen T. Simpson. She was the beloved wife of Charles F. Bacon, her husband of 63 years, whom she met at Beloit College in Wisconsin. She was an active member of the Delta Gamma Sorority.

Following Mr. Bacon'­s retirement from Sears, they moved to Sea Pines in 1983 after many years in Philadelphia and Chicago. As a member of the LuLu Temple Country Club in Pennsylvania, Mrs. Bacon was an avid player on the golf and bridge teams. She was an involved member of Abington Presbyterian Church. These interests continued on the island at Sea Pines Country Club, TidePointe Community, and as a member of Providence Presbyterian Church.

She is survived by her husband Charles; two children, a daughter and son-in-law, Leslie B. and David Williams, of Ellicott City, Maryland, a son and daughter-in-law, Robert S. and Jennifer S. Bacon, of Clemson, South Carolina; four grandchildren; two great-grandchildren; and a brother, John B. Simpson of Pasadena, California.

Services will be held at 4 p.m., Friday September 14, 2007, at Providence Presbyterian Church with Dr. Howard Edington presiding. Memorial contributions may be made to Providence Presbyterian Church, 171 Cordillo Parkway, Hilton Head, SC 29928; Hospice Care of the Lowcountry, P.O. Box 24158, Hilton Head, SC 29925; or to a favored charity in her name.

The Island Funeral Home and Crematory is in charge of arrangements.

Wal-Mart's New Tack: Show 'Em the Payoff
By Ylan Q. Mui and Michael S. Rosenwald
Washington Post Staff Writers
September 13, 2007

Wal-Mart is shelving its "Always Low Prices" slogan after 19 years and launching an advertising campaign that plays up life's little pleasures over no-frills practicality.

The new motto -- "Save Money. Live Better." -- will show up on everything from store receipts to plastic bags. Accompanying 30-second TV spots were created by the Martin Agency, the Richmond firm behind the Geico gecko and caveman ads. The Wal-Mart ads began appearing yesterday and will run on network season premieres, specials and cable channels.

Stephen Quinn, Wal-Mart's chief marketing officer, said the campaign is aimed at personalizing the chain's low prices. In the two kickoff ads, for example, the company's name is sidelined for scenes of vacationing families and father-and-son bonding while browsing for cars. The commercials conclude that shopping at Wal-Mart saves families an average of $2,500 a year, making such experiences possible.

"People know they can save money by shopping at Wal-Mart," Quinn said. "The emotional connection . . . was what those savings allowed them to do as a family."

Wal-Mart has been searching for ways to reposition itself to combat slowing sales growth as its stores saturate the nation. Its strategy had long been to open in small towns and suburbs much like its headquarters of Bentonville, Ark. But with more than 3,300 U.S. stores that draw roughly 127 million shoppers each week, it is running out of room to grow.

Wal-Mart now is trying to persuade its more-affluent customers to see it as a destination for more than toilet paper and laundry detergent. It hired music celebrities such as R&B girl group Destiny's Child and country crooner Garth Brooks to star in its holiday campaign two years ago. It ran ads in Vogue magazine for its more fashionable clothing line, Metro 7. A campaign with the tagline "Look beyond the basics" was supposed to surprise shoppers with the range of products in its stores.

But the experiment backfired after an unhappy flirtation with an edgy New York advertising agency, which the company dropped in favor of the Martin Agency and its salt-of-the-earth sensibility. Martin created the campaign with MediaVest, GlobalHue, the IW Group and Lopez Negrete.

Martin is the agency behind Geico's successful and long-standing come-on line: "Fifteen minutes could save you 15 percent or more on car insurance." In Wal-Mart's case, the agency latched on to a study by the economic research firm Global Insight that found the retailer's low prices saved customers $287 billion last year -- or $2,500 per household.

The agency crafted the two kickoff ads around that number. Each ends with the new slogan and a question, "Wal-Mart saves the average family $2,500 per year. What will you do with your savings?"

In one commercial, a man and his son drive to a used-car lot. The son spots a sporty red car. The father elbows him and tells him to go check it out. As the son runs his fingers across the hood, cue tagline.

In the other, a real-life family leaves a Wal-Mart parking lot in their minivan and hits the road for a vacation. They stay at a tiny hotel. The kids jump on the bed. They swim in a pool, eat ice cream and frolic on the beach. Then the van is shown headed down the highway, passing underneath a sign pointing toward Orlando. Cue tagline.

"I love retail ads that make a specific promise," said Steve Bassett, a creative director at Martin. "Always low prices was specific, but for me, 'Save Money. Live Better' is a bigger promise that is backed up by a number that's pretty impressive."

But branding consultant Rob Frankel said Wal-Mart should move away from its focus on price. Most of its customers still shop there because they have to, he said. Wal-Mart should give them another reason to walk through the door.

"What they've really done is akin to rearranging deck chairs on the Titanic," Frankel said. "This is another corporate stroke that's completely out of touch with what Wal-Mart shoppers need to see, feel and hear from Wal-Mart."

In addition, a study last year by the Economic Policy Institute, a nonpartisan think tank, questioned the methodology of the study by Global Insight, conducted in 2004 at Wal-Mart's request. It reported that the retailer saved consumers $263 billion that year, or $2,330 per household, though it slowed growth in wages. Wal-Mart critics argue that there is a net loss in jobs in a community when a Wal-Mart store opens.

In the ads, however, the exact amount of savings is less significant than the message.

"What we're telling people is that the little things that they do all year at Wal-Mart -- the basics they buy, the apparel, all the things they buy -- that stuff adds up to something," Bassett said.

The Making of a Palace Coup
By Randall Smith - Wall Street Journal
September 12, 2007

On Wall Street, it's a law of nature that power follows profits. After the bond traders made most of the money at Lehman Brothers in 1982, they ousted investment banker Pete Peterson as top dog. And when bond traders at Goldman Sachs & Co. racked up big losses in 1998, investment bankers showed the door to top executive Jon Corzine, a bond-desk veteran.

At the blue-chip firm of Morgan Stanley, Philip Purcell managed to avoid such a fate for eight years -- through a combination of shrewd deal-making, boardroom gamesmanship, and Machiavellian divide-and-conquer tactics. When he was finally ousted in a messy battle in spring 2005, his fall seemed all the more ignominious because he had managed to defy the natural order for so long.

Mr. Purcell, who grew up Catholic in Mormon-dominated Salt Lake City, had an outsider's history of imposing his will on organizations he joined. At Sears, Roebuck & Co. in the 1980s, with a mandate from the chief executive, he expanded a financial-services business partly at the expense of the retailing parent. His most lasting creation, the Discover credit card, was launched by requiring its use by Sears customers who wanted to charge their purchases.

He gained the top job at Morgan Stanley in 1997 when his firm, Dean Witter, Discover & Co., itself a spinoff from Sears, merged with Morgan Stanley. The proud spawn of once formidable banking giant J.P. Morgan & Co. -- whose motto was "first-class business in a first-class way" -- Morgan Stanley would now be stablemates with the new owner's Dean Witter brokerage, a second-tier enterprise serving individual investors.

In "Blue Blood and Mutiny: The Fight for the Soul of Morgan Stanley," Patricia Beard presents an engaging narrative of a by now well-known tale: how eight former Morgan Stanley executives rose up to oust Mr. Purcell, the interloper who had commandeered the firm they helped to build. Ms. Beard had the full cooperation of the so-called Group of Eight, or "Grumpy Old Men," as they came to be known. Among them is her former brother-in-law Anson Beard, whose name, like that of Parker Gilbert and other group members, evokes the privileged set of a Fitzgerald novel.

Ms. Beard's story is enlivened by accounts of the group's behind-the-scenes maneuvering. But the author's wealth of access to the Group of Eight throws into relief the book's major weakness: Ms. Beard didn't have access to Mr. Purcell or his camp. Although Mr. Purcell's shortcomings did indeed fuel his downfall and thus lie at the heart of the story, the author's incessant carping at his every action and her gushing treatment of his enemies as "people of character" become tiresome, and one yearns for a more evenhanded view.

."For example, when Mr. Purcell negotiates in 1997 to merge Dean Witter with Morgan Stanley, in talks with Morgan Stanley's leaders, Richard Fisher and John Mack, he asks for an unusual provision, requiring a 75% board vote to change the duties of either himself as chief executive or Mr. Mack as president. It seemed, Mr. Fisher said at the time, that Mr. Purcell "doesn't trust us" -- as if such caution were just another of his many character flaws.

But it soon develops that Mr. Purcell had every reason not to trust the folks from the Morgan Stanley side, because within a year of the merger they were trying to roll him -- agitating for Mr. Mack to become co-chief executive and complaining about the weaknesses of Mr. Purcell's hands-off management style, his cronies and the assets he brought to the marriage.

Why had the merger happened in the first place? Individual investors were pouring money into mutual funds at a furious pace. Merrill Lynch & Co. had become the nation's No. 1 securities underwriter with the aid of its army of brokers catering to individuals. Dean Witter, Discover -- which promoted its own mutual funds to Dean Witter customers until regulators intervened -- offered Morgan Stanley a piece of that action.

Why did Mr. Purcell get the chief-executive job? Ms. Beard, while noting that when the two firms merged their earnings were roughly the same, doesn't give Mr. Purcell his due by also mentioning that his firm's stock-market value was greater -- Dean Witter's earnings were seen as steadier than Morgan Stanley's, which involved trading and were thus more volatile.

But by 2004, the earnings from the Morgan Stanley side of the merged businesses exceeded 60% of the total -- and this cold number doomed Mr. Purcell as much as his other transgressions, such as his relying on an abrasive general counsel, butting heads with regulators and losing a spectacular $1.6 billion lawsuit brought by Ron Perelman. (An appeals court threw out the verdict, but Mr. Perelman has appealed.) Yet as Messrs. Fisher and Mack pursued their efforts to dethrone Mr. Purcell, they were thwarted by a few simple dynamics.

First, Mr. Purcell kept his critics down through control of new director selections, an arrangement that the Morgan Stanley bankers barely noticed at first. When Mr. Fisher complained to the directors that Mr. Purcell's management style wasn't working, he was brushed off.

Second, before Mr. Mack left the merged firm in frustration in 2001, he was never able to unite the Morgan Stanley side behind him. At one point, just before Mr. Mack left, he and Mr. Purcell told other senior executives that they couldn't agree on anything, according to Ms. Beard. But at that potentially pivotal moment, Joe Perella -- a legendary Morgan Stanley deal maker -- did not throw his weight behind Mr. Mack. He simply told the two men that it was up to them to work things out.

After Mr. Mack left, Mr. Purcell moved up another Morgan Stanley executive as his heir apparent, then another -- at once forestalling any insurgency and deferring succession. Not until the eight alumni took up the cudgels after Dick Fisher's death in 2004 -- and after Mr. Perella himself made a statement by quitting Morgan Stanley midway through the battle -- was Mr. Purcell swept aside and Mr. Mack restored to power.

This tale of subjugation and revenge has a certain Shakespearean quality, and in Ms. Beard's telling it also offers glimpses into the gilded lives of Wall Street kings. She takes us into Mr. Purcell's corporate aircraft hangar and inside the lavish late-in-life weddings of both Mr. Fisher and Mr. Beard. We learn that, when the interoffice fighting breaks out, Mr. Perella is busy hosting a client conference at a resort in Cabo San Lucas, Mexico. When Mr. Purcell's resignation finally comes, Parker Gilbert learns of it while he and his wife are in Bilbao, Spain, visiting the Guggenheim Museum. Nice work if you can get it -- and keep it.

Mr. Smith, a reporter for the Journal, covers the securities industry, including Morgan Stanley.

Target May Sell $7 Billion Credit-Card Portfolio
By Lauren Coleman-Lochner – Bloomberg.com
September 12, 2007

Target Corp., the discount retailer pressured by investors to boost its shares, may sell its $7 billion credit-card portfolio and increase share buybacks.

Target hired Goldman, Sachs & Co. to help evaluate a potential sale. Any decisions, including a review of its use of debt, will be made by December, the Minneapolis-based company said today in a statement.

Activist investor William Ackman, who controls a 9.6 percent stake in Target, has used investments in companies such as McDonald's Corp. to push executives to reduce spending and sell divisions. He hasn't specified what actions he proposed for the retailer. Analysts have suggested he would press the company to consider selling its credit-card unit or real estate.

“We've always said that we would periodically consider alternatives that would generate shareholder value,” spokeswoman Susan Kahn said in an interview. “We simply felt that now was the time to create a public review of the alternatives.”

The decision was not a response to pressure from Ackman, Kahn said.

Target intends to retain its financial-services operations regardless of the outcome of its review, Chief Financial Officer Douglas Scovanner said in the statement.

Target's sales have outpaced larger Wal-Mart Stores Inc. and Sears Holdings Corp., the biggest U.S. department-store chain, by luring customers with exclusive apparel.

Sears' Loans

Citigroup bought Sears, Roebuck & Co.'s $31.8 billion credit-card portfolio in 2003. That sale gave Sears, which has since merged with Kmart Holding Corp. to create Sears Holdings Corp., $6 billion to reduce debt.

Target climbed $1.61, or 2.6 percent, to $64.33 at 6:27 p.m. in trading after U.S. exchanges closed. Earlier, the shares rose 92 cents, or 1.5 percent, to $62.72. The stock has climbed 9.9 percent this year.

Sears Picks Finance Chief From Capital One Ranks
By Gary McWilliams - Wall Street Journal
September 11, 2007

Sears Holdings Corp. named J. Miles Reidy executive vice president and chief financial officer, effective next month.

Mr. Reidy, 45 years old, spent the past eight years at Capital One Financial Corp., most recently as a senior vice president. Before that, he was chief financial officer of the McLean, Va., financial conglomerate's credit-card division, its most profitable unit.

He will be the third finance chief since the March 2005 merger of Kmart and Sears, Roebuck & Co. Mr. Reidy will report to William Crowley, chief administrative officer and acting finance chief of the Hoffman Estates, Ill., retailer since January.

"Miles has built and led highly quantitative, analytical finance organizations," Mr. Crowley said. "We have asked Miles to bring to Sears Holdings this rigorous approach to testing and creating value through data-driven decisions."

Mr. Crowley, who was the merged companies first chief financial officer, stepped back into the post after former AutoNation Inc. executive Craig Monaghan resigned from the position in January, after just four months on the job.

Sears has struggled with declining sales amid a consolidation and revitalization of traditional department-store chains. Under billionaire financier Edward Lampert, the retailer has sought to boost profit by cutting expenses. It recently launched new marketing efforts in home appliances amid market-share losses to home-improvement rivals.

In 4 p.m. composite trading on the Nasdaq Stock Market, Sears fell $3.06, or 2.3%, to $130.64.

Sears hires Capital One executive as new CFO
Reuters
September 10, 2007

Sears Holdings Corp said on Monday that J. Miles Reidy, an executive at Capital One Financial Corp , will join the department store operator as chief financial officer starting in October.

The appointment comes after CFO Craig Monaghan left the retailer in January after only five months on the job. William Crowley, Sears' chief administrative officer, has been serving as chief financial officer on an interim basis.

Sears Holdings operates Kmart and Sears stores, and is led by hedge fund manager Edward Lampert, who brought Kmart out of bankruptcy in 2003 and orchestrated the takeover of Sears, Roebuck & Co. in 2005.

At the helm of Sears, Lampert has focused on cutting costs and building up the retailer's cash position. Investors snapped up its shares, betting Lampert would either sell stores to cash in on valuable real estate or use the excess cash to make acquisitions. But this year, Sears' share have fallen 20 percent as investors fret over its declining sales. Last month the retailer reported a 40 percent decline in second-quarter profit as sales fell and it marked down prices.

Sears said Reidy served in a number of senior financial and planning positions at credit card issuer Capital One, including chief financial officer of the company's credit card division and most recently, as financial cost executive reporting to the chief risk officer.

He will report to Crowley.

Hedge funds are walking away from Sears
By Monée Fields-White – Chicago Business
September 9, 2007

Fellow hedge fund managers are bailing out of Edward Lampert's Sears Holdings Corp. as eroding sales and profits dog the nation's largest department store chain.

Six of the 10 largest sellers of Sears shares during the second quarter were hedge funds, with four, including New York's Atticus Capital L.P. and Third Point Management LLC, selling out completely. The six unloaded a total of 3.1 million shares, according to U.S. Securities and Exchange Commission filings.

The sales suggest concern over the sluggish retail environment, as well as a lack of confidence in the ability of Mr. Lampert, Sears' chairman, to turn the retailer into an investment vehicle, analysts say. Shares of the Hoffman Estates-based company have tumbled 31% from a record $193.00 on April 17, ending Friday at $133.70.

Retailers aren't the only ones struggling, with many hedge funds stung by recent market turmoil and trying to boost cash reserves after the subprime mortgage blowup this summer.

Sears "is sort of a quasi-hedge fund that has become less attractive in a market with less liquidity and tighter credit," says David Keuler, managing director at Milwaukee-based Mason Street Advisors, which sold about 10,000 Sears shares in the last quarter. It still owns about 20,380 shares in its indexed funds. "It's not clear to me what they want to be as a retailer, and it's not clear to me what Eddie wants it to be beyond that."

Mr. Lampert declined to comment, as did spokespeople for the six hedge funds.

Since taking control of Sears in March 2005, Mr. Lampert, 45, has funneled cash into everything from foreign currency contracts to credit derivatives, a favorite among hedge funds. He's also repurchased more than $3 billion of the company's stock since 2005.

Mr. Lampert "has a good track record of allocating capital," says Kim Picciola, an analyst at Chicago-based Morningstar Inc. "Clearly the retail business continues to suffer, and it doesn't seem like there is any light at the end of the tunnel."

In August, Sears said second-quarter net income fell 40% from the year-earlier period to $176 million — the first quarterly decline in almost two years — while revenue dropped 4.3% to $12.2 billion.

Not all investors are running away from Sears or losing faith in Mr. Lampert. Four of the top 10 buyers of the company's shares during the second quarter were hedge funds, adding a combined 1.46 million shares. The largest buyer was Boston-based Fidelity Investments, as the world's biggest mutual fund company added 2.3 million shares to boost its total to almost 5.6 million, making it Sears' third-largest shareholder.

As an investor, "Lampert's record speaks for itself," says Howard Davidowitz, chairman of New York-based consulting firm Davidowitz & Associates Inc. As a retailer, "he's stuck, because his stewardship has resulted in the loss of massive marketshare. . . . The worst is yet to come."

Name Change Not Macy's Problem
By George Anderson – Retail Wire
September 8, 2007

According to a report by the St.Paul Pioneer Press, Frank Guzzetta, chief executive officer of Macy's North, is willing to admit the national chain has had rough going, especially when it comes to the former May Department Stores' locations. What he will not agree with, however, is that the problems relate to the company changing the names above the door on those locations.

"We didn't focus on developing new customers and explaining what Macy's was all about," he told an audience at the Carlson School of Management on Tuesday. "It was not the name."

Mr. Guzzetta points to Marshall Field's to make his point. While consumers, particularly in Chicago, have reacted negatively to the Macy's banner, the former Field's chain was struggling well before it was acquired in the deal with May.

While there is no guarantee that Chicago consumers (or others in other cities) will ever come around, Macy's believes it is making changes that will help it connect with consumers in markets across the country. Even now, stores in markets including Chicago are beginning to improve, he said.

Macy's has also had problems in Minneapolis where stores have gone through several name changes. According to Mr. Guzzetta, Macy's in downtown Minneapolis and at the Mall of America are doing well.

The national department store chain has turned to star power and familiar private labels to help it regain lost ground.

The company recently announced a new ad campaign that features celebrities with lines sold in Macy's. The highest profile celeb, from a group that includes Donald Trump, Jessica Simpson, Diddy, and Usher, is Martha Stewart.

Ms. Stewart's line, The Martha Stewart Collection, has 2,000 products including home goods, textiles, cookware and holiday decorating items. Eventually, it has been reported, the line will be broadened to home furnishings, bridal registry items and cookbooks.

Count Donald Trump among those who believe that Macy's chief Terry Lundgren has a winning strategy. He told The Enquirer, "I believe (Mr. Lundgren) is absolutely on the right track. He's a winner, and he's always been a winner. This ad campaign will be very successful."?

Discussion Questions: Has too much been made of the Macy's name change when it comes to explaining some of the difficulties the chain has encountered? Will the company's focus on "star power" help it to begin to attract shoppers who have refused to this point to shop in its stores?

Name's not to blame, Macy's exec said - Pioneer Press

Can Macy's still shine? - The Cincinnati Enquirer

What are your thoughts on this subject?

How do you think the former May Department Stores, on the whole, would be performing now if they had not been converted to Macy's?

Former May stores would be doing much better
Stores would be doing a little better
Performance would be about the same as now
Stores would be doing a little worse
Stores would be doing much worse
Not sure/no opinion

Comments...

On 9/9/2006, Marshall Field's was renamed Macy's. Ever since, sales trends have been weak. As time goes on, the comparative sales trends will generally gain, because of the weak year-ago comparisons. The exceptions: periods where heavy promotions were used to introduce the new Macy's identity. Those comp comparisons will be weak. As time goes on, the stores' assortments and promotions will be adjusted appropriately, since Macy's certainly has the systems, management focus, and resources to make the rollout successful, even if it takes another year or two.
Mark Lilien, Consultant, Retail Technology Group

It's not the name, it's the format.
Even though Kohl's and to a certain degree Penney's have been able to tweak and extend the dated Department Store value proposition for the last few years, the idea of gathering several brands of mostly apparel and accessories (other than your own) under one roof has gone by the proverbial consumer wayside. Huge, multi-level boxes with perceived luxury sentiment and impossibly cluttered isles is no longer a viable consumer notion. We just don't shop like that (or for that) anymore.

The Macy's "strategy" of consolidation (and massive reduction, by the way) under one name is the last gasp from a dinosaur idea birthed over 100 years ago and finally running out of gas.

Best idea I've seen so far has been to turn some of the real estate left over from closed department stores into lifestyle centers (Polaris Parkway, Columbus Ohio) with restaurants, grocery markets and other interesting propositions.

Let's see more of that, regardless of name.
Lee Peterson, Vice President, Creative Services, WD Partners

In my neck of the woods (Denver), the switch has been nothing but a vast improvement. The May stores were aging, dark, dingy, and over-stuffed with junk to the point where you could hardly navigate the aisles. When the change-over to Macy's happened, suddenly the stores were bright, clean, well-stocked but not over-stocked. No protests happened around here!

However, I agree that Macy's suffers from more than just a name change, and that the company has not done a good job of telling the market what it's all about. And that is increasingly important in a time when Macy's competition isn't Dillard's or whoever's left in "mid-market department store" land, but split between cheap-chic Target and high-end Nordstrom.
Nikki Baird, Managing Partner, RSR Research

Macy's made a point last year of not reporting comp sales in the former May stores, but all the evidence suggests that the numbers were poor. So it's disingenuous to suggest that things are improving since the comps will soon be reported against terrible numbers from a year ago. It's likely that the sales results in the former May stores are not meeting Macy's internal targets.
The crux of today's question is whether the name change is the culprit. I believe that in markets like Minneapolis, where the "legacy" name was changed from Dayton's to Marshall Field's several years ago, the damage was already done. However, in key markets like Chicago and St. Louis (home towns of Field's and Famous-Barr), customers have confronted the loss of their "hometown" nameplate for the first time. So Mr. Guzzetta's point (it's not about the name change) is valid to a point.

The bigger issues confronting Macy's in its turnaround effort: Does the sharp swing away from May's promotional stance now look like a big mistake, as JCPenney fills this void among mall-based anchors? Do the Macy's stores look cluttered and disorganized? (Yes, according to this shopper of former Field's locations.) Is the merchandise content--especially the endless, homogenized private brand product--less than compelling? I'm not sure a celebrity-based TV campaign is the cure-all when there are so many other fundamental issues that need fixing.
Richard Seesel, Principal , Retailing In Focus LLC

I agree that it is not just about the name change. Department stores were struggling long before that and the name change just made it worse. When you have a negative trend going and add another strong negative to it, what else could you expect to happen? As has been said, their comp sales will start looking better as soon as they are working against the new low numbers but that will only make the poor performance numbers more palatable. Many former Marshall Field's customers have found new retailers to reward with their purchases and only time will help ease the dislike over the change. A strong advertising campaign will surely help draw people to their stores but the brands and merchandising will have to be right to get repeats. One has to wonder if the savings of eliminating the Marshall Field's name and brands was a good trade for the reduced sales levels.
Art Williams, Retail Marketing Consultant/Analyst, Independent

I'm not too sure that Macy's understands completely that it was more than just a name change in certain markets. For example, in St. Louis, Famous-Barr was an institution. "Famous" was a locally managed retail branch of St. Louis based May Co., that employed lots of people, was as synonymous with St. Louis as Budweiser, the Arch, and the Cardinals. It was more than just a new sign on the building in that market, for sure.
David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates

The name change across-the-board and without regard to local preferences was myopic. Mr. Guzetta's own words sound almost arrogant--they indicate a desire to bring in new customers, but ignore the old ones. Sure, Field's was struggling before the acquisition, but one of the things it DID have going for it was the name. It hearkened back to grander times for the chain and the department store format, for that matter. A better move would have been to retain the name in markets where loyalty was strong and replace it in the others, where it didn't matter. In all markets, however, both old and new customers would certainly be looking for in-store improvements. So that mis-step is accurately discussed above and by Mr. Guzetta.

If Macy's had spent a little moolah on market research, they could have saved it on store signage and everything else that goes along with a name change. Plus they would have attracted old customers curious about the new merchandise, rather than repel them outright.
Dan Raftery, President, Raftery Resource Network

The problem with all conventional department stores is that they haven't changed with the consumer. Macy's, Dayton's, May, Sears, JCPenney, Donaldsons: they all had their start as regional department stores, and extension of the old general store if you will. Everybody shopped there, and they purchased all of their household needs there. There was nothing even close to specialty stores during their inception.
Over the years they have lost touch with their consumer base (some more than others) by becoming too upscale, too inflexible, or in some cases just poorly run. Department stores are still very relevant today, but they are taking a new form. Wal-mart and Target are the two largest department stores, trying to fill most of your household needs. Home Depot, Lowe's, and Menards are the new Sears of the world. The only thing they don't sell is clothing. The old department stores just became huge specialty retailers that tried to specialize in too much. Their product lifecycle is far in decline and needs a major overhaul to correct this trend.
'SWOT'

With over 800 stores in differing economic markets throughout the country, it is inevitable that there will be varying impressions and opinions of Macy's. But "name change" or not, for many of us in the Midwest the converted Macy's stores are now physically, viscerally and emotionally a wholly different and unacceptable shopping experience from the stores they replaced. Those who solely focus on the "name change" may miss the point that the merchandise at Macy's is different and perceived to be of generally lower quality and class, the assortments are narrower, top designers have fled, entire specialty departments have been closed, and the overall upkeep of the stores seems inferior. Additionally, many long time knowledgeable employees who were raised on providing impeccable service and had a loyal customer following have left in frustration--replaced by "cashiers." We in the greater Chicago/Milwaukee/Minneapolis/Detroit metro areas are blessed with many, many retail choices. During the past year former Marshall Field's customers have not quit buying, but we have found other stores and boutiques to meet our needs and preferences. It is highly unlikely (OK, laughable) that Donald Trump and Jessica Simpson products will lure us back to Macy's.
'Liatt'

One of the many bad things about divorce is the loss of part of your life. It is hard to sit down with the kids and the new spouse and reminisce about that great vacation or adventure you all took with the ex. So over time, those memories disappear from our minds and history. Taking the El down to the State Street Field's to do Christmas shopping with grandma, watching the delivery truck bring home mom's latest hat or shoe purchase, taking my own kids to see Santa; to quote Roy Batty from the movie The Blade Runner "All those...moments will be lost in time, like tears...in rain."

Federated can advertise all they want, using a bunch of egomaniacs with poor taste but they won't draw me into their stores until they come up with a compelling reason to shop. I used to shop Field's because of the memories of my youth. I still find myself referring to the new dame as MF then then I remember and say mf. I do not believe that Federated understood or correctly measured the emotional heritage that the Marshall Field's brand had achieved and while the the merchandising and operations might have needed tweaking; that could have been more profitably achieved through an encounter weekend rather than a divorce.
'DrCellmor'

"Famous" was a locally managed retail branch of St. Louis based May Co., that employed lots of people, was as synonymous with St. Louis as Budweiser, the Arch, and the Cardinals. Interesting analogy. in a town where the Football St. Louis Cardinals are now in Arizona, and the Los Angeles Rams are now the St. Louis Rams. Name changes are a part of doing business. They come whether the people of a local area are prepared for them or not.

Is the Macy's name change as big a factor in the success or lack of success in certain markets? Perhaps short term in markets like St. Louis and Chicago where people had become so comfortable with a hometown name that was now missing. However, like all things new, a certain intrigue comes with the new kid on the block, and the same consumer who misses the store that has withstood the test of time will come to check out Macy's if simply to satisfy a curiosity. What Macy's, or any other business for that matter, must do from that point, is to establish a stronghold in the markets where things were weakening, and re-establish relationships with customers who were loyal to old friends.
Jim Dakis, sales associate, Macy's

The fact of the matter is that names matter. Companies spend millions of dollars a year to build great brands that resonate with their consumers. The "May nameplates" were unique to each of the regions they served. There was Filene's in Boston, Marshall Field's in Chicago, and Foley's in Houston. Each had traditions and product mixes that matched the region they did business in. Customers liked their regional department stores--they didn't ask for a "national brand." In fact they already had national players like Sears, JCPenney, and Target/Wal-Mart...why would they need Macy's?
'JasonM'

This didn't have to happen.
Macy's could have quickly reaped most of the economies of scale even as they slowly morphed from well-known (even if not well-shopped) local brand to a single nationwide brand.

I couldn't agree more with the arrogance of the Macy's executive's comments in which he essentially says "If you think things are bad now you should've seen them before!"

Can't wait to see the 'case study' that some university will write on this.
'BoatSchool'

This is like one of those riddles: what sailed a mile high in Denver, sank in Saint Louis, crashed in Chicago...?
At the risk of oversimplifying, what this is really about is Macy's (questionable at best) "conversion" of Marshall Field's, where what was a mid/high-end store is now something else: in short, the change has been both in appearance AND substance; (in markets like St. Louis, Philly, Boston, et. al., where a long established name and a downtown flagship still existed with May's uninspiring assortment inside, the change is largely symbolic; in markets like Denver, Dallas and Hartford, which long ago succumbed to nameplate-of-the-monthism, the change is probably greeted with a yawn.)

But what to do about this (discontent) is unclear...and every week that goes by from that fateful September day, the options shrink.
'csundstrom'

The format has been obsolete for years and dying, no matter what the name. The 'moderate' department store's market share is 1/4 today of what it was in 1980...gone to the "better" department stores and to the discount stores. The category needs total reinvention or it faces extinction...the name on the door is a non factor.
Mike Tesler, President , Retail Concepts

While I think Federated Department Stores made a mistake integrating Marshall Field's into Macy's, the other May Company stores were dull with uninspired merchandise.
Many Marshall Field's customer have good reason to be disappointed with the change, the customers of the other stores have lost nothing but the name on the door. Strawbridge's and Filene's were nothing of their former selves. After being taken over by the May Company, Strawbridge's became just a shell of itself.
'Weaselnj'

I shopped at Marshall Field's for many years not because it had the broadest selection, or the lowest prices or cutting edge fashion, but because it was QUALITY. From the professionalism of the sales staff, to the care taken with the in-store displays, to the understated green shopping bags...it was an experience. Macy's is just 800 boring cookie-cutter stores, and that's all they ever will be, although Macy's executives have their heads in the sand thinking otherwise. I have not spent a dime in Macy's since last September as a protest to the name and format changes, and never will till they bring the name and the experience back.
'mjgseattle'

Macy's top management is in denial. Of course, the name matters. They were warned over and over again that it matters. They took the May Co.'s one solid asset--the enormous good will that came with the name "Marshall Field's"--and they [threw] it away. I look forward to reading about this debacle in future business school textbooks--next to the chapter on "New Coke."
'gheriot'

The conversion of the Field's nameplate was a huge mistake. Macy's would have been better served to do the same with Field's as they did with Bloomingdale's. They could have converted many of the stores other than State Street to Macy's without causing such hard feelings--Macy's Water Tower and Field's on State. Some of the best business plans come from failure.
michael murray, owner, milwaukee pumphouse

Sears Holdings gets downgraded
Chicago Tribune
September 1, 2007

Sears Holdings Corp. stock was downgraded by Bear Stearns & Co. Friday, a day after the retailer reported a 40 percent decline in second-quarter earnings, higher inventories and declines in sales and profit margins.

Competition "could become more challenging" for the rest of the year, analyst Christine Augustine said in a report as she cut her rating to "peer perform" from "outperform." Wal-Mart Stores Inc. and other retailers might reduce prices, putting pressure on Sears to do the same, she said. Augustine lowered her profit estimates for the rest of the year and next, citing the second-quarter performance and a slump in the U.S. housing market that's discouraging consumer spending.

Chairman Edward Lampert has said he's considering buying another company, perhaps a retailer. Sears had $2.63 billion in cash at the end of its second quarter. "We expect that an acquisition over the near term is unlikely, as the company appears to be focused on share repurchases," Augustine wrote.

Shares of Sears rose $1.73, to $143.56, on the Nasdaq stock market. Hoffman Estates-based Sears said Aug. 13 it was boosting stock buybacks by $1.5 billion after almost completing a $1 billion program announced in July.

Sears net slides as sales sag
Profit declines 40%; margins pressured
From Tribune news services – Chicago Tribune
August 31, 2007

Sears Holdings Corp. posted its lowest profit in nearly two years Thursday after another round of weak sales at Kmart and Sears stores sent the retailer's net income tumbling 40 percent.

Led by hedge-fund wizard Edward Lampert, Hoffman Estates-based Sears has seen much of its recent financial success boosted by investment income. But after months of curtailing expenses, the company continues to be vexed by falling sales and profit margins.

Second-quarter net income fell to $176 million, or $1.17 a share, from $294 million, or $1.88 a share, a year earlier, when the company was helped by a one-time gain. The most recent result beat analysts' lowered estimates by 4 cents a share, according to Thomson Financial.

Revenue slipped 4 percent, to $12.24 billion.

"We are disappointed with our second-quarter results," said Aylwin Lewis, Sears Holdings chief executive and president. "Our gross margins came under pressure from sales declines and increased promotional activity, and, as a result, our net income was significantly below last year and our expectations."

Troubling, too, is the loss of the once-strong interest and investment income, which so far this fiscal year has accounted for a loss of $82 million.

Many investors regard Sears as a hedge fund masquerading as a retailer, with Lampert, who acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005, at the helm. The company invests in foreign currency contracts as well as complex credit derivatives, which are popular among hedge funds.

The company's once-robust war chest is shrinking, too, dropping to $2.6 billion from $4.4 billion in January 2006. And since mid-April, when shares reached an all-time trading high of $195.18, the company's stock price is down more than 27 percent. Thursday, the shares closed at $141.83, off $3.78, after sinking as low as $138.33 on the Nasdaq stock market.

Howard Davidowitz, chairman of the retail consulting and investment banking firm Davidowitz & Associates Inc., said he thinks the company will run into more head winds as its competitors expand their own operations. Under Lampert's leadership, Sears has shied away from investing in stores and massive marketing campaigns.

"The worst is yet to come," Davidowitz said. "If Eddie Lampert's strategy is right, then Wal-Mart's wrong, Target's wrong, Limited is wrong, every great retailer in the history of America is wrong."

Morgan Stanley analyst Gregory Melich said he is concerned that the company's inventory climbed 13 percent in the past two years, while sales slid 7 percent during the same period.

"We were hoping to see [Sears] work through its inventory this quarter," he wrote in a research note.

"While markdown may have helped move some apparel, it was not enough in our view, as inventory continues to rise faster than sales."

But others on Wall Street still are willing to give Lampert, and his long history as an astute investor, the benefit of the doubt.

"While we believe Sears Holdings remains several years away from being a formidable competitor in the industry, we believe that management will make financial and strategic moves that should reward shareholders in the meantime," Lehman Brothers analyst Robert Drbul wrote in a research note.

"We believe this company can and will pursue various avenues to enhance shareholder value as its strategy unfolds over the next several years."

The company blamed its latest performance on lower operating results at Kmart and Sears U.S. stores, which were partially offset by improved results at Sears Canada.

U.S. same-store sales fell 4.3 percent at Sears and 3.8 percent at Kmart.

Same-store sales, or sales at stores open at least a year, are considered a key indicator of a retailer's health.

Both chains have reported lower same-store sales every quarter since Lampert combined Sears Roebuck and Kmart in 2005 to form the nation's largest department-store chain.

"They can't maintain profit margins in clothing, and they can't maintain sales in home appliances," said Erik Gordon, a business professor at Stevens Institute of Technology in Hoboken, N.J. "This time, the blame is on the housing slump. I forget what got blamed for the prior seven quarters of crummy results."

In the second quarter, price markdowns narrowed gross margins, or the percentage of sales left after subtracting the cost of goods, to 27.7 percent from 28.4 percent a year earlier.

"I just don't see Sears as a quality retailer right now," said David Keuler, managing director at Milwaukee-based Mason Street Advisors.

Sears Holdings Reports 40% Drop in Profit
By The Associated Press – New York Times
August 31, 2007

CHICAGO, Aug. 30 (AP) — Sears Holdings said Thursday that its second-quarter profit had tumbled 40 percent because of lower overall sales and weaker operating results from Kmart and its domestic Sears operations.

Sears, which is the nation’s No. 2 retailer after Wal-Mart and is led by the hedge fund operator Edward S. Lampert, also said its cash holdings, which swelled to $4.4 billion less than two years ago, had dwindled to $2.6 billion.

Net income for the period ending Aug. 4 fell to $176 million, or $1.17 a share, compared with $294 million, or $1.88 a share, in the previous year.

The earnings were compared with year-ago results that included a gain on a large legal settlement.

Quarterly revenue dipped 4 percent, to $12.24 billion, versus $12.79 billion a year ago.

Analysts polled by Thomson Financial expected earnings of $1.13 a share and revenue of $12.32 billion after the company narrowed its earnings projections this month. The analysts’ estimates typically exclude one-time items.

On Thursday, speculation mounted that Mr. Lampert could run into more resistance as a stagnant Sears fights with competitors that are continuing to invest in stores and expand their operations.

“The worst is yet to come,” said Howard Davidowitz, chairman of the retail consulting and investment banking firm Davidowitz & Associates. “If Eddie Lampert’s strategy is right, then Wal-Mart’s wrong, Target’s wrong, Limited is wrong, every great retailer in the history of America is wrong.”

The company, based in Hoffman Estates, Ill., attributed the performance to lower operating results at Sears Domestic and Kmart that were partly offset by improved results at Sears Canada. Still, same-store sales at Sears’s American stores sank 4.3 percent while Kmart’s comparable store sales fell 3.8 percent.

Sears said it had $2.6 billion in cash and equivalents on hand at the end of the quarter, down from $3.7 billion last year. The company said much of the money had been used to repurchase about $1.5 billion in shares during the second quarter.

Shares finished at $141.83, down $3.78, or 2.6 percent, after dropping as low as $138.33.

Sears profits tumble 40 percent
Sales fall for second straight quarter despite heavy markdowns
By Sandra Guy – Chicago Sun-Times
August 31, 2007

Bad news abounded in Sears' latest earnings announcement Thursday:

• • Second-quarter net income dropped 40 percent to $176 million, or $1.17 a share.

• • Revenue declined 4.3 percent to $12.2 billion, the second straight quarterly decline.

• • Sales fell 3.8 percent at Kmart and 4.3 percent at Sears.

• • Inventories rose 7 percent even as Kmart and Sears stores marked down merchandise to appeal to shoppers spooked by rising gasoline prices, a deteriorating real estate market and tightening credit terms.

The profit was Sears' lowest in nearly two years.

Sears' shares dropped $3.78, or 2.6 percent, to close Thursday at $141.83. The stock price has plunged about 25 percent in the last four months. They traded as high as $195.18 in April.

Investors and analysts looking to Chairman Edward Lampert for a miraculous turnaround were left wondering what's next.

Retail expert Howard Davidowitz said he believes the worst is yet to come, but added he cannot underestimate Lampert's savvy at rescuing a sinking ship.

Lampert, the billionaire hedge-fund guru who engineered Kmart's $12.3 billion takeover of Sears, Roebuck and Co. in March 2005, has a big incentive to improve things: He owns 43 percent of Sears Holdings Corp.'s stock and his investment has lost more than $4 billion in value.

Davidowitz, who has questioned Lampert's retail strategies of cutting costs and eliminating jobs to focus on profit margins, said he foresees "further and dramatic" earnings deterioration, as well as higher expenses and lower earnings in the next few years.

Yet Lampert has assets he may still put in play: valuable real estate, well-regarded brand names such as Kenmore and Die-Hard, a cash kitty of $2.6 billion and an ability to borrow money, said Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm.

Gary Balter, a Credit Suisse analyst who rates Sears' stock "outperform," said in a report, "We all await some magic fix from Mr. Lampert, and so far this year, not only hasn't it happened but the results continue to deteriorate."

Sears CEO Aylwin Lewis said the retailer was disappointed with the results for the quarter ended Aug. 4 and would improve its marketing message to tell shoppers why they should buy its merchandise and appliance services -- the kind of advertising spending Lampert had previously slashed.

Sears 2Q Net Skids 40% Amid Sales Decline
DOW JONES NEWSWIRES - August 30, 2007

Sears Holdings Corp. (SHLD), which narrowed its fiscal second-quarter earnings estimate two weeks ago, posted a 40% plunge in net income for the period, citing declining same-store sales at its Sears and Kmart chains.

Net income fell to $176 million, or $1.17 a share, for the period ended Aug. 4, compared with $294 million, or $1.88 a share, a year earlier.

On Aug. 13 Sears said it expected second-quarter net income of between $170 million and $185 million, or $1.13 and $1.23 a share. That was down from a previous estimate in a range of $160 million to $200 million, or between $1.06 and $1.32 a share.

The latest results included a gain of $22 million, or 14 cents a share, for a Visa/Mastercard antitrust settlement.

Excluding items, Sears said it would have reported earnings of $1.74 a share. Revenue in the latest period fell 4.3% to $12.24 billion from $12.79 billion.

The Hoffman Estates, Ill., retailer, like other retailers, is battling a drop in demand tied to sluggish home sales and tightening credit.

"We are disappointed with our second-quarter results," Sears Chief Executive Aylwin Lewis said. "Our gross margins came under pressure from sales declines and increased promotional activity, and as a result, our net income was significantly below last year and our expectations."

The company said it "experienced lower sales across most merchandise categories at both Kmart and Sears Domestic, partially offset by increased sales of women's apparel at both Kmart and Sears Domestic, as well as within consumer electronics and footwear at Sears Domestic."

Comparable store sales declined 4.3% for the quarter, while Kmart's comparable store sales declined 3.8%. Total domestic comparable store sales declined 4.1%.

Sears shares closed Wednesday at $145.61. There was no premarket trading.

Sears 2Q Net Income Declines 40 Percent
By Ashley M. Heher – Associated Press - Forbes .com
August 30, 2007

CHICAGO - Sears Holdings Corp. posted its lowest profit in nearly two years Thursday after another round of weak sales at Kmart and Sears stores sent the retailer's net income tumbling 40 percent.

Led by hedge fund wizard Ed Lampert, Sears has seen much of its recent financial success boosted by investment income. But after months of curtailing expenses, the company continues to be vexed by falling sales and profit margins.

Net income for the period ended Aug. 4 fell to $176 million, or $1.17 per share, from $294 million, or $1.88 per share, a year earlier, when the company was helped by a one-time gain. Revenue dipped 4 percent to $12.24 billion.

"We are disappointed with our second-quarter results," Aylwin Lewis, Sears Holdings' chief executive and president, said in a statement. "Our gross margins came under pressure from sales declines and increased promotional activity, and as a result, our net income was significantly below last year and our expectations."

Analysts surveyed by Thomson Financial expected earnings of $1.13 per share and revenue of $12.32 billion after the company narrowed its financial projections earlier this month. The analysts' estimates typically exclude one-time items.

Troubling too is the loss of the once-strong interest and investment income, which so far this fiscal year has accounted for a loss of $82 million.

Thursday's results are the latest in a series of lackluster news from Sears, which has seen its stock price fall about 25 percent in the past four months.

Many investors regard Sears as a hedge fund masquerading as a retailer with Lampert, who acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005, at the helm. The company invests in foreign currency contracts as well as complex credit derivatives, which are popular among hedge funds.

But as Wall Street anxiously awaits word from Lampert about a possible expansion financed by investment income, which could turn around the company's fortunes, Sears' revenues are slumping.

Meanwhile, the company's once-robust war chest is shrinking too, dropping to $2.6 billion from $4.4 billion in January 2006. And since mid-April, when shares reached an all-time trading high of $195.18, the company's stock price is down nearly 25 percent.

Howard Davidowitz, chairman of the retail consulting and investment banking firm Davidowitz & Associates Inc., said he thinks the stagnating company will run into more headwinds as its competitors expand their own operations. Under Lampert's leadership, Sears has shied away from investing in stores and massive marketing campaigns.

"The worst is yet to come," Davidowitz said. "If Eddie Lampert's strategy is right, then Wal-Mart's wrong, Target's wrong, Limited is wrong, every great retailer in the history of America is wrong."

Morgan Stanley analyst Gregory Melich said he is concerned that the company's inventory climbed 13 percent in the past two years while sales slid 7 percent during the same period.

"We were hoping to see (Sears) work through its inventory this quarter," he wrote in a research note. "While markdown may have helped move some apparel, it was not enough in our view as inventory continues to rise faster than sales."

But others on Wall Street are still willing to give Lampert - and his long history as an astute investor - the benefit of the doubt.

"While we believe Sears Holdings remains several years away from being a formidable competitor in the industry, we believe that management will make financial and strategic moves that should reward shareholders in the meantime," Lehman Brothers analyst Robert Drbul wrote in a research note. "We believe this company can and will pursue various avenues to enhance shareholder value as its strategy unfolds over the next several years."

The Hoffman Estates-based company blamed its latest performance on lower operating results at Kmart and Sears' U.S. stores, which were partially offset by improved results at Sears Canada.

Still, same-store sales at Sears' U.S. stores sank 4.3 percent, while Kmart's comparable store sales fell 3.8 percent. Same-store sales figures are an important retail industry metric of stores open at least one year.

Sales in Kmart and Sears stores were sluggish in nearly all categories.

Sears said it has $2.6 billion in cash and equivalents on hand at the end of the quarter, down from $3.7 billion last year. The company said much of the money was used to repurchase about $1.5 billion in shares during the second-quarter.

Sears stock fell $3.78, or 2.6 percent, to $141.83 Thursday after dropping as low as $138.33 earlier in the day.

Sears Strikes an Iceberg
By Rich Duprey – The Motley Fool
August 30, 2007

Let's face the truth: Fewer customers want to shop at Sears Holdings (Nasdaq: SHLD) anymore. Nor at Sears' sibling Kmart, for that matter.

For more than two years now, the once-venerable discount retailer has seen customers return to its stores less and less often. Same-store sales (which measure growth at a company's existing stores, filtering out sales growth from newly opened locations) sank like the Titanic yet again: 4.3% at Sears, and 3.7% at Kmart.

Since the company emerged from bankruptcy a few years ago, Sears' stock has been on a tear, rising with the hope that a latter day Warren Buffett -- in the form of CEO Eddie Lampert -- would be able to remake the retailer the way middle-market retailers J.C. Penney (NYSE: JCP) and Kohl's (NYSE: KSS) have been able to do.

Yet the competition is really too much. It can't compete on price the way discounters Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) do, and the premiums that some of its products carry -- like its Craftsman tools -- can find equal quality at other stores like Home Depot (NYSE: HD) or Costco (Nasdaq: COST).

Was anyone really surprised at the lower comps? I would have raised an eyebrow had they actually gone up, so it shouldn't be much of a surprise that profits were much lower this time around, too. In fact, they were off 40% from last year to $176 million.

That's because there were no magic bullets to boost results this time around -- no Carpathia to rescue survivors. Last year, the company recorded a $22 million gain from an antitrust settlement with Visa and MasterCard, and Lampert's exotic total return swaps posted a slight gain of less than $1 million this quarter.

The company narrowed its guidance a few weeks ago, raising the low end and dropping the top. At the time, it seemed to please Wall Street, but it was apparently only the tip of the iceberg. Sears' stock has fallen from its highs. It was starting to move back up, but today's earnings report underscored that Sears suffers from don't-want-it-itis. Customers don't want its merchandise, and with the stock down 3% today, investors don't want its stock.

The only one buying Sears stock lately has been Sears, which burned through $1.5 billion of its cash repurchasing 9.6 million shares -- at some pretty steep prices, it seems. That looks like a foolhardy venture for a store that should be buying up goods that its customers actually want.

The one thing Sears does have that's in demand -- but the one thing Lampert has denied any interest in undermining -- is its real estate. CEO Alwyn Lewis has said again and again that he's looking to make Sears Holdings a successful retail operation. Today, he stated that the company is "enhancing our marketing message to more clearly articulate the advantages of our products and service offerings."

Jawboning about the operations won't salvage this sinking ship. I think it's time to face facts and scuttle Sears. Despite a still-healthy balance sheet (it has $2.6 billion in cash still), I don't think the retailer has what it takes to compete anymore. Rather than waste more trying to prop up the stock with buybacks, Sears could devise better ways to create shareholder value and return money to investors.

Instead of Buffett, Lampert here is more closely emulating the heroic Wallace Hartley, the Titanic's bandleader, who played "Nearer My God To Thee" as the ship sank beneath the icy waters. He's kept a similarly stiff upper lip, but unlike Wallace, someone needs to guide Lampert to a lifeboat.

Sears Profit Falls 40% on Lower Sales; Stock Drops
By Lauren Coleman-Lochner – Bloomberg.com
August 30, 2007

Sears Holdings Corp., the retailer assembled by Edward Lampert, said second-quarter earnings sank 40 percent on declining sales at Kmart and its namesake chain. Sears shares dropped 2.6 percent, the most in three weeks.

Revenue fell for most merchandise categories, and profit margins narrowed after the retailer discounted spring and summer clothing to clear its racks. Consumers cut back on purchases as the worst housing slump in 16 years reduced remodeling projects and made it harder for shoppers to get home-equity loans.

``We all await some magic fix from Mr. Lampert, and so far this year, not only hasn't it happened, but the results continue to deteriorate,'' Gary Balter, an analyst at Credit Suisse in New York, wrote in a report. He cited the narrowing gross margin and higher inventories as concerns, and rates Sears ``outperform.''

Chief Executive Officer Aylwin Lewis said Sears was ``disappointed'' with the quarter. The company will improve marketing and do more to tout its ovens, refrigerators and other appliances to win back sales, he said today in a statement.

The results are at the lower end of a preliminary earnings statement Sears issued Aug. 13. Net income decreased to $176 million, or $1.17 a share, from $294 million, or $1.88, a year earlier. Revenue dropped for the second quarter in a row, sliding 4.3 percent to $12.2 billion.

Sales at U.S. stores open at least a year fell 4.1 percent, with a 4.3 percent drop for Sears stores and 3.8 percent for Kmart. The retailer said last month that home appliances led revenue declines in the first nine weeks in the quarter, which covers the three months through Aug. 4.

‘Crummy Results'

Both chains have reported lower same-store sales every quarter since Chairman Lampert combined Sears, Roebuck & Co. and Kmart Holding Corp. in 2005 to form the largest U.S. department- store chain.

``They can't maintain profit margins in clothing, and they can't maintain sales in home appliances,'' Erik Gordon, a business professor at Stevens Institute of Technology in Hoboken, New Jersey, said today in an e-mail. ``This time, the blame is on the housing slump. I forget what got blamed for the prior seven quarters of crummy results.'' Gordon says he doesn't consult for or own shares in any retailers.

Sears shares fell $3.78 to $141.83 at 4 p.m. New York time in Nasdaq Stock Market composite trading, the biggest decline since Aug. 9. They've dropped 16 percent this year.

Lampert, a hedge fund manager who runs ESL Investments Inc. in Greenwich, Connecticut, is in charge of investing the retailer's cash, which totaled $2.63 billion at the end of the quarter. He is looking for acquisitions, both in and out of retailing.

Markdowns, Margins

In the second quarter, price markdowns narrowed gross margins, or the percentage of sales left after subtracting the cost of goods, to 27.7 percent from 28.4 percent a year earlier.

Sears is losing ground to other department-store chains such as J.C. Penney Co. and Kohl's Corp. that offer more fashionable goods to their middle-income customers, said David Keuler, managing director at Mason Street Advisors, which holds shares of those merchants among more than $70 billion in assets. The Milwaukee-based firm doesn't own Sears.

“I just don't see Sears as a quality retailer right now,” Keuler said in an Aug. 16 interview.

Sears executive loved Indiana -- and to laugh
By Susan Sarkauskas | Daily Herald Staff Writer – Suburban Chicago
August 30, 2007

Richard P. Robinson of Geneva had a serious job, as vice president and general counsel for Sears Merchandise Group. That didn't mean he couldn't take a joke.

Co-workers and family fondly recall his sense of humor. Robinson, 80, of Geneva, died Saturday.

"He could poke fun at himself," said his daughter, Sue Ellen Robinson of Geneva. And he loved his home state of Indiana.

"He never lost touch with his hometown," said Robinson. Her father subscribed to the local paper for Auburn, and attended a high school reunion recently.

"He was very, very loyal to Sears," she said, noting how he insisted on buying goods from Sears. "Even if it didn't work (as well), you got it there."

Robinson joined Sears as a trainee in 1951 at its headquarters on Homan Avenue in Chicago, becoming manager of the trade practices division in the merchandise comparison department in 1953. In 1960 he joined the law department as an attorney. He was elected vice president and general counsel in 1981, and retired at the end of 1986.

Ron Olbrysh, who worked with Robinson, recalled that at Robinson's retirement party, they handed out coupons with Robinson's picture on them; whoever received one got to hear an Indiana story.

"He was a real character -- he was just hysterical."

Robinson was a good sport, participating in humorous films made each year from 1979 to 1986 for the employees' Christmas celebration.

One of them, a takeoff on Michael Jackson's "Billy Jean" video, ended with a shot of Robinson, wearing one sequined glove.

"How many general counsels would do that?" Olbrysh said.

"But he cared for his staff. He listened to you," said Olbrysh, then assistant counsel, explaining how Robinson oversaw a staff of 60 attorneys and 40 support workers.

Robinson grew up in Auburn, Ind. He served in the Naval Reserves, then graduated
from the University of Notre Dame and Indiana University, where he received his law degree.

He had a teaching fellowship at New York University, where he met his wife, Elizabeth. She died in 2005.

Robinson is survived by his four children - Kathryn A. Berryhill of Houston, Sue Ellen Robinson, Thomas A. Robinson and Philip S. Robinson, all of Geneva; his grandchildren Laura, Rachael, Timothy, Julia and Michael; and his sister, Virginia Robinson.

Visitation will be from 4 to 9 p.m. Friday at Malone Funeral Home, 324 E. State St., Geneva. A funeral service will be held at 10 a.m. Saturday at the funeral home, followed by Mass at 11 a.m. at St. Peter Catholic Church, 1891 Kaneville Road. He will be buried in River Hills Cemetery in Batavia.

In lieu of flowers, the family requests memorials to the Coalition for Pulmonary Fibrosis Suite F, #227, 1659 Branham Lane, San Jose, CA 95118-5226. Mrs. Robinson had pulmonary fibrosis.

Sears Profit Falls 40% on Lower Sales; Stock Drops
By Lauren Coleman-Lochner – Bloomberg.com
August 30, 2007

Sears Holdings Corp., the retailer assembled by Edward Lampert, said second-quarter earnings sank 40 percent on declining sales at Kmart and its namesake chain. Sears shares dropped 2.6 percent, the most in three weeks.

Revenue fell for most merchandise categories, and profit margins narrowed after the retailer discounted spring and summer clothing to clear its racks. Consumers cut back on purchases as the worst housing slump in 16 years reduced remodeling projects and made it harder for shoppers to get home-equity loans.

``We all await some magic fix from Mr. Lampert, and so far this year, not only hasn't it happened, but the results continue to deteriorate,'' Gary Balter, an analyst at Credit Suisse in New York, wrote in a report. He cited the narrowing gross margin and higher inventories as concerns, and rates Sears "outperform.''

Chief Executive Officer Aylwin Lewis said Sears was ``disappointed'' with the quarter. The company will improve marketing and do more to tout its ovens, refrigerators and other appliances to win back sales, he said today in a statement.

The results are at the lower end of a preliminary earnings statement Sears issued Aug. 13. Net income decreased to $176 million, or $1.17 a share, from $294 million, or $1.88, a year earlier. Revenue dropped for the second quarter in a row, sliding 4.3 percent to $12.2 billion.

Sales at U.S. stores open at least a year fell 4.1 percent, with a 4.3 percent drop for Sears stores and 3.8 percent for Kmart. The retailer said last month that home appliances led revenue declines in the first nine weeks in the quarter, which covers the three months through Aug. 4.

‘Crummy Results'

Both chains have reported lower same-store sales every quarter since Chairman Lampert combined Sears, Roebuck & Co. and Kmart Holding Corp. in 2005 to form the largest U.S. department- store chain.

"They can't maintain profit margins in clothing, and they can't maintain sales in home appliances,'' Erik Gordon, a business professor at Stevens Institute of Technology in Hoboken, New Jersey, said today in an e-mail. ``This time, the blame is on the housing slump. I forget what got blamed for the prior seven quarters of crummy results.'' Gordon says he doesn't consult for or own shares in any retailers.

Sears shares fell $3.78 to $141.83 at 4 p.m. New York time in Nasdaq Stock Market composite trading, the biggest decline since Aug. 9. They've dropped 16 percent this year.

Lampert, a hedge fund manager who runs ESL Investments Inc. in Greenwich, Connecticut, is in charge of investing the retailer's cash, which totaled $2.63 billion at the end of the quarter. He is looking for acquisitions, both in and out of retailing.

Markdowns, Margins

In the second quarter, price markdowns narrowed gross margins, or the percentage of sales left after subtracting the cost of goods, to 27.7 percent from 28.4 percent a year earlier.

Sears is losing ground to other department-store chains such as J.C. Penney Co. and Kohl's Corp. that offer more fashionable goods to their middle-income customers, said David Keuler, managing director at Mason Street Advisors, which holds shares of those merchants among more than $70 billion in assets. The Milwaukee-based firm doesn't own Sears.

“I just don't see Sears as a quality retailer right now,” Keuler said in an Aug. 16 interview.

Allstate's Liddy Elected to Boeing Board of Directors
CNN MONEY.COM
August 29, 2007

CHICAGO, Aug. 29 /PRNewswire-FirstCall/ -- Edward M. Liddy has been elected to the Boeing board of directors, effective immediately.

Liddy, 61, is current chairman of The Allstate Corporation, a position he has held since January 1999. He served as chief executive officer of Allstate from January 1999 to December 2006, president from January 1995 to May 2005, and chief operating officer from August 1994 to January 1999.

"Ed's broad experience and extensive business acumen will further strengthen the Boeing board," said Boeing Chairman, President and CEO Jim McNerney. "He is a proven corporate and community leader, and we are excited to have him as a director," he added.

Prior to joining Allstate, Liddy worked for Sears, Roebuck and Co. from April 1988 until August 1994. He served in a variety of financial and operating positions at Sears, becoming chief financial officer of the company in February 1992. He was executive vice president and a member of the board of ADT Inc. from 1986 to 1988, and prior to ADT he worked for G.D. Searle & Co., rising over the course of seven years to the position of senior vice president and CFO.

Liddy is a member of the board of directors of 3M Company and The Goldman Sachs Group Inc. He is a member of the Financial Services Forum, the Business Roundtable, and Catalyst, the leading non-profit organization for the advancement of women in business. He also is chairman of Northwestern Memorial HealthCare and serves on the boards of Northwestern University and the Museum of Science and Industry. He is the past chair of the Boys and Girls Clubs of America and remains active with that organization. He is a 1968 graduate of Catholic University and holds a master's degree in business administration from George Washington University.

 

Lampert's Sears Strategy Could Pay Off
By Nat Worden - TheStreet.com Staff Reporter
August 29, 2007

Ed Lampert has a message for Sears Holdings (SHLD) investors: The faithful will be rewarded.

Those investors betting on the Sears Roebuck/Kmart merger that the hedge fund sensation orchestrated are now jumping ship as sales at the two retailers continue to slide and America's housing woes spill over into the stock market and the broader economy.

Lampert, however, is using those fears to his advantage, ramping up buybacks of the cheapening stock -- potentially benefiting long-term believers.

With Sears Holdings poised to report its second-quarter results this week, its stock is trading down 16% for the year at about $140. The bulk of that selling came this summer as the credit market's crack-up emerged and it became apparent that many would-be Sears and Kmart shoppers are drowning in debt.

Earlier this month, Sears Holdings updated its second-quarter sales and earnings guidance to Wall Street, and it wasn't pretty. The company lowered its earnings outlook to $170 million to $185 million from its previous range of $160 million to $200 million.

It said Kmart comps -- a key retail metric that gauges sales at stores open for at least a year -- dropped by 3.8% for the period, with declines across most categories. Domestic comps for the Sears chain were down an even worse 4.3%.

Comps declines are nothing new at Sears Holdings. The market share losses that they represent have been routine at both chains ever since Lampert revived Kmart from bankruptcy and used it to buy Sears.

The goal was never to compete with the likes of Wal-Mart (WMT) and Target (TGT) . Since day one, Sears Holdings has always been about the cash flow that Lampert could generate by putting two bloated, old-school retail laggards under one roof and bleeding them slowly.

Last year, Sears Holdings reported depreciation and amortization of its assets of $1.1 billion and capital expenditures of only $513 million. That means the company is essentially wearing out its assets at a much faster rate than it is replacing them.

"Lampert is playing the company for cash while it loses market share," says Howard Davidowitz, chairman of research firm Davidowitz & Associates. "Kmart has now lost all relevance in the retail industry, and Sears has become dramatically less relevant. He has kept the earnings up by slashing promotions, slashing expenses and slashing investment. All of that stuff is great, but it's not sustainable, so the whole question becomes: How does the story end?"

For Lampert's faithful, the story continues in the form of a cash spigot and his trademark flurry of share repurchasing. Since the merger of Sears and Kmart closed in 2005, the company has repurchased 21.5 million of its common shares at a total cost of $3 billion and an average price per share of $139.53 -- a discount to today's stock price.

But Lampert thought the price was right even before the summer selloff. In the second quarter, he bought back 9.6 million shares at an average cost of $153.50 apiece.

Sears Holdings ended the quarter with $2 billion in cash on its books, below its previously stated target of $2.8 billion. But that was primarily because the company stepped up its buybacks on July 7, the day after the stock hit its recent high of $174.06.

It's been all downhill for the stock from there, and as the selling has accelerated, so has the share repurchasing. The same day Sears Holdings issued its gloomy guidance, it also announced the board authorization of another $1.5 billion share repurchase on top of the $19 million it had left over from its previous plan.

While Lampert declined to comment for this story through a spokesman, it looks as if he might actually welcome a lower share price so he can buy more of the company at a cheaper price. And unlike many of his counterparts in corporate America, Lampert isn't taking on more debt in order to buy back shares. He's using the cash flow generated by the retailer.

Last year, Sears Holdings' continuing operations generated excess cash flows of about $3.1 billion, and its rate of cash generation showed no signs of slowing in the first quarter.

At $140, the company is trading at approximately 10 times its annual cash flow after taxes. That means that by buying back shares, Lampert is essentially investing his money at a 10% cash return -- a good deal considering that 10-year Treasury bonds are yielding less than 5%.

The cheaper the stock goes, the higher his return. Meanwhile, public shareholders who bought the stock at $150 are banking that the market won't let Lampert get his 10% return for long. Eventually, the value of Sears Holdings' cash generation will have to be recognized in its market price, as long as the cash flows hold up.

With its sales declines showing signs of digging into its bottom line, Sears Holdings could soon find its cash flows dwindling rapidly -- especially in a consumer-led economic slowdown. In that worst-case scenario, some consumers may turn to discount retailers for their shopping needs, but as they build stores, retail titans like Wal-Mart, Target and Costco (COS) are in a much better position to win that business.

Sears Holdings spokesman Chris Brathwaite declined to provide any guidance for cash flows in 2007.

If shares of Sears Holdings keep sliding, Lampert could accelerate the buybacks even further. That means shareholders will eventually benefit, but it could be a rough ride.

"If Sears Holdings keeps buying shares, that means at some point it could take itself private, but at what price?" asks Davidowitz. "Lampert is starting to get into a very tricky place."

Wal-Mart Exploring New Store Sizes, Types In U.S.
DOW JONES NEWSWIRES
August 27, 2007

NEW YORK (AP)--Wal-Mart Stores Inc. (WMT) said Monday it is considering new store sizes and types in the U.S. market but played down the possibility of acquisitions as it faces slowing sales growth at its older stores and new competition from British rival Tesco PLC (TSCDY).

The world's largest retailer said it is hiring managers for a team to consider new formats besides the retailer's four established U.S. types. Those are Wal-Mart discount stores, Supercenters that combine groceries and general merchandise, Sam's Club membership stores and Neighborhood Market grocery stores.

One of the job ads on Wal-Mart's Web site refers to potential mergers and acquisitions, but Wal-Mart downplayed the possibility it might buy existing businesses rather than develop its own.

The prospect of acquisitions was raised by the ad for a senior director of "multi-format strategies" whose responsibilities would include to "assess the strategic implications of any possible (mergers and acquisitions) on our overall portfolios."

Wal-Mart spokesman John Simley noted that the reference to possible acquisitions came after a long list of other responsibilities for the job, most of which involve evaluating the market and finding opportunities for growth from new store types.

"The fact is, two months ago we posted a number of middle-management-level positions to evaluate our existing formats with the aim of achieving better customer relevance," Simley said.

"It would be wrong to speculate about how that might translate into future M&A activity," he added.

Analysts said that it makes sense for Wal-Mart to look at new formats, such as smaller stores, but that the Bentonville, Ark., retailer is not likely to go on an acquisition spree.

"Wal-Mart has been building things from the ground up for a long time," said Patricia Edwards, a portfolio manager and retail analyst at Wentworth Hauser & Violich in Seattle, which manages $9.6 billion in assets and holds about 42,000 Wal-Mart shares.

Sam's Club bought some rival stores to complement its growth in years past, but the bulk of Wal-Mart's U.S. growth has been through building new stores, she said.

Robert Buchanan, retail analyst at A.G. Edwards & Sons, said the head of Wal-Mart's U.S. stores, Eduardo Castro-Wright, came from Wal-Mart in Mexico, where the retailer has six or seven formats and therefore is more experienced with running a variety of store types.

Buchanan said the timing is right for looking at new formats because of the imminent opening of Tesco's first U.S. stores in Southern California, Arizona and Nevada. The British grocery giant plans to open 30 stores called Fresh & Easy Neighborhood Markets, which are smaller than typical supermarkets.

"Wal-Mart is always trying new things," Buchanan said.

Wal-Mart might make a smaller acquisition in the next two or three years, Buchanan said, but added, "I don't see them going on a buying spree."

Wal-Mart's sales at stores open at least a year, a key measure among retailers, has been slowing and in the latest quarter rose a slim 1.9%.

Wentworth's Edwards said retailers as an industry are looking at smaller, more niche-oriented stores as shoppers apparently tire of big boxes. Wal-Mart could be expected to look at smaller options too, she said.

"In retail you always have to do something new and different to keep the attention of the consumer," Edwards said.

Wal-Mart shares rose 18 cents to $43.92 in recent trading.

Richard P. Robinson, retired Sears vice president and general counsel, dies at 80

Richard P. Robinson, vice president and general counsel of Sears Merchandise Group until his retirement in 1986, died Saturday, Aug. 26, at Kindred Hospital in Sycamore, IL. He was 80.

He joined Sears as a trainee in 1951 and two years later, became manager of the trade practices division in Sears merchandise comparison department. In 1960 he joined the company's law department as an attorney. He was elected vice president and general counsel of Sears Merchandise Group in January, 1981.

Henry Sunderland, who was senior vice president administration and planning, said "Dick had a wonderful legal mind but more importantly had great integrity, a soft spoken sense of humor and truly cared for those who worked with and for him. He was a humble man who went to great lengths to be sure that his people received the credit when a job was well done."

Ron Olbrysh, chairman of the National Association of Retired Sears Employees, said "Beginning in 1979 and continuing until 1984, the law department made annual movies that we showed during the Christmas holiday season. Dick was involved in the last four of these flicks which he encouraged. The name of one of the movies was 'Mr. Robinson's Neighborhood.' He was such a good sport. That's why everyone loved him."

Mr. Robinson, who lived in Geneva and Fountain Hills, Arizona, was born November 6, 1926 in Detroit, Michigan, the son of Richard H. and Nellie V. (Carper) Robinson.

He spent his formative years growing up in Auburn, Indiana, graduating from Auburn High School. After serving in the Naval Reserves, he went on to graduate from Notre Dame University and Indiana University where he received his law degree. He then received a teaching fellowship at New York University, where he met the future Mrs. Robinson.
He was an attorney for Sears for 35 years until his retirement. He was an avid sports fan especially the Indiana Hoosiers.

He is survived by his four children, Kathryn A. Berryhill of Houston, Texas, Sue Ellen Robinson of Geneva, Thomas A. Robinson of Geneva and Philip S. Robinson of Geneva; He was loving "dipa" to Laura, Rachael, Timothy and twins Julia and Michael and his sister, Virginia Robinson of Columbus, Indiana.

He was preceded in death by his parents and his wife of 54 years, Elizabeth J. (Betty) Robinson, who passed away in May of 2005.

Visitation will be Friday, August 31 from 4:00 to 9:00 p.m. at the Malone Funeral Home at 324 E. State St. (Rte. 38), Geneva, with a Liturgical Service at 8:30 pm.

Funeral service will be held Saturday, September 1 at 10 am at the Malone Funeral Home Geneva, proceeding to St. Peter Catholic Church, 1891 Kaneville Rd., Geneva for Celebration of Funeral Mass at 11 a.m. Burial will follow in River Hills Cemetery in Batavia.

In lieu of flowers memorials to the Coalition for Pulmonary Fibrosis Suite F, #227, 1659 Branham Lane, San Jose, CA 95118-5226 would be appreciated.

Judge Dismisses Suit Against Wal-Mart
Ex-Ad Chief Strikes Conciliatory Note; Win for Retailer?
By Gary McWilliams – Wall Street Journal
August 23, 2007

A Michigan state judge dismissed a wrongful-termination suit by Wal-Mart Stores Inc. former advertising chief Julie Roehm, saying the case should have been filed in Arkansas.

The decision appears to be a victory for Wal-Mart, which used a March countersuit to disclose embarrassing emails to Ms. Roehm from a former subordinate and an advertising-agency executive. Wal-Mart had accused Ms. Roehm of a romantic relationship with the subordinate. She denied the allegation.

Ms. Roehm, recruited in 2006 from DaimlerChrysler AG in Detroit to become Wal-Mart's senior vice president of advertising, countered with her own allegations of favoritism and misconduct by Wal-Mart executives.

But yesterday, she struck a conciliatory note. "It feels this has gone on for too long," Ms. Roehm said in a telephone interview. "It makes all the sense in the world to resolve this in a way that doesn't involve litigation."

A Wal-Mart spokesman yesterday said, "We're pleased with the judge's decision to dismiss the case."

Neither Ms. Roehm nor Wal-Mart claimed Michigan residency, and none of the witnesses or alleged actions took place in the state, Oakland County Circuit Court Judge Denise Langford Morris wrote in her opinion.

Ms. Roehm had filed suit in Michigan state court accusing the company of breach of contract and fraud after her December 2006 dismissal. The suit was transferred to U.S. District Court for Eastern Michigan, where a judge ruled it had no jurisdiction, then returned it to the state court.

In March, Wal-Mart countersued, accusing Ms. Roehm of violating company policies against accepting gratuities and fraternization with subordinates and suppliers. In its countersuit, Wal-Mart accused Ms. Roehm of using company-paid travel to conduct an affair with former Wal-Mart Vice President Sean Womack, who was her subordinate; and of accepting meals at the restaurant Nobu and pricey vodka from a company competing for Wal-Mart's advertising business. It also released statements from co-workers that portrayed Ms. Roehm and Mr. Womack as flouting the company's policies.

Mr. Womack has denied an affair or any improper behavior.

Wal-Mart fired Ms. Roehm and Mr. Womack, and later canceled the decision to name DraftFCB to lead its advertising account, which had an annual budget of around $580 million. Earlier this year, it named Martin Agency as its lead ad agency.

B. Andrew Rifkin, an attorney for Ms. Roehm, said there has been no decision whether to refile the suit in Arkansas. "We have an awful lot of options, which we'll consider over the next few weeks," Mr. Rifkin said. The judge's decision didn't touch on issues raised in the suit, he said.

The court's dismissal leaves the only ongoing suit involving Ms. Roehm, a defamation case filed by Minnesota businessman Irwin Jacobs against Ms. Roehm and the two law firms that represent her. Mr. Jacobs, a longtime Wal-Mart vendor, was named by Ms. Roehm as furnishing Wal-Mart Chief Executive H. Lee Scott Jr. with air travel and discounts on personal purchases. Both Mr. Jacobs and Wal-Mart dispute the allegations involving Mr. Scott.

Shopping With the Stars:
Macy's Turns to Celebrities
By Suzanne Vranica and Vanessa O’Connell – Wall Street Journal
August 23, 2007

Can a splashy ad campaign featuring the likes of domestic entrepreneur Martha Stewart, tycoon Donald Trump and singer-actress Jessica Simpson help revive Macy's sagging fortunes?

Two years ago, the retailer formerly known as Federated Department Stores Inc. launched a major effort to save the ailing department store business, spending $11 billion to buy May Co. The deal put into place a plan to assemble a giant national chain of 825 stores under a single, powerful brand: Macy's.

The strategy has yet to pay off. Macy's Inc. shares have dropped roughly 13% in two years; second-quarter net income this year plunged 77%.

Macy's ad with Jessica Simpson
Now, the Cincinnati-based chain is putting the final touches on an estimated $100 million fall advertising push to inject some celebrity glitz into the brand, according to people close to the company.

The ads, beginning on television next month, will feature such well-known figures as Ms. Stewart, rapper-producer Sean Combs, Ms. Simpson, Mr. Trump and chef Emeril Lagasse, according to people familiar with the matter. Most of the celebrities involved have personalities and personal lives that have been well-documented in the press. But all have something in common: They sell name-branded items at Macy's. The spots often will poke fun at aspects of their public images, such as Ms. Stewart's micro-managerial tendencies, Ms. Simpson's mental acuity and Mr. Trump's hair.

"Where the inspiration came from was all of the great brands -- and celebrity designers -- under our roof," said Martine Reardon, executive vice president of Macy's corporate marketing. "As we started to do our homework, people were saying, 'We'd love to be a part of it.' "

This attempt to jazz up a department-store category that has been plagued by a dowdy image carries some danger if it alienates Macy's core consumers. "Simply putting a sexy marketing campaign on top of a business that is out of step with shoppers is risky," says Bob Kahn, founder of Kahn Consulting, a branding firm based in Darien, Conn.

The star-studded ad approach is a big departure for Macy's, which largely has relied on everyday-looking actors to hawk its products. In a major national television campaign last fall, Macy's plugged its own private-label brands, such as Alfani, Charter Club, Greendog and I.N.C., which together accounted for 18% of its sales last year.

Macy's new campaign was prompted, in part, by a line of home products -- towels, linens, cookware, china and more -- that Ms. Stewart is launching this fall. "It's the biggest brand launch they have ever had," says Ms. Stewart, referring to her line, which will be carried exclusively by Macy's.

Macy's executives believe the line will be key to their plan to turn Macy's into a major national retailer of upscale home goods, which will help to boost sales this fall. Sales of furniture and home goods account for about 15% of Macy's annual sales, which totaled nearly $27 billion last year. Macy's sales of home-related merchandise has been soft in recent years, though CEO Terry Lundgren cited "improving sales trends" in the category in the second quarter.

One TV spot, viewed by The Wall Street Journal, features an exchange between Ms. Stewart and R&B singer Usher. "I worked on two fragrances, how many things did you make?" asks the singer. Ms. Stewart replies: "Two thousand or so."

Another spot features Tim Gunn, co-host of the TV show "Project Runway," using new Martha bed linens to create a dress for Ms. Stewart's daughter. (In real life, Ms. Stewart says she is using her "Singer sewing machine" to personally make a dress using the Martha bed linens that she hopes her daughter will use in a promotional appearance.)

The ads were created by Macy's and WPP Group's JWT, which hired movie director Barry Levinson, maker of such films as "Diner" and "Bugsy" to work on them. A spokeswoman for the agency referred calls to Macy's. The chain is expected to air a 90-second spot during the Emmy Awards show Sept. 16, according to people familiar with the matter.

The 90-second spot features celebrities prepping a Macy's store before the opening. Hip-hop mogul Russell Simmons teaches a sales clerk how to fold shirts; Mr. Trump blow-dries his hair in the suit department and Tyler Florence, a chef from the Food Network, delivers breakfast to designer Tommy Hilfiger as he primps his merchandise.

In one scene, Ms. Stewart is seen rearranging her collection for the umpteenth time, much to the chagrin of designer Marc Ecko, who uses the store's public-address system to prod people into hurrying up. In another scene, Ms. Simpson calls designer Kenneth Cole, who is fixing the shoe department. "I can't get in the building," she moans. "Did you try pull?" asks Mr. Cole. "Ohhh" she responds, carrying boxes of her Jessica Simpson branded shoes.

While the long list of well-known personalities appearing in Macy's latest ad campaign is new for the chain, other retailers have tried to highlight celebrity brands. Target used designer Isaac Mizrahi when he introduced a line. Ms. Stewart has appeared in commercials for Kmart. Next month, Kohl's, the Menomonee Falls, Wis., retailer, is expected to air a 30-second spot featuring Vera Wang talking about her design philosophy as part of the company's effort to hawk its new "Simply Vera by Vera Wang" line of clothing, home products and accessories.

Macy's is still grappling with significant marketing challenges, many of which revolve around the idea of establishing a strong national identity. The retailer took a lot of heat when it replaced fabled regional store names such as Marshall Field's with the Macy's name last fall. Meanwhile, overall sales at midtier retailers such as Macy's fell 1% in the year through July 31, according to Customer Growth Partners, a retail consulting firm. Sales at luxury retailers increased 11.1%. Sales at discounters jumped 9.2%.

The new ad campaign did face some resistance inside Macy's, according to a person close to the company. Some Macy's executives wanted to place more emphasis on promotions such as coupons and ads that hype sales, techniques the company has used for decades, rather than image advertising to bolster the brand of the company, according to this person. The financial performance of the company is fueling the internal bickering because promotional type ads can work quicker at driving short-term sales while image advertising is a strategy that takes longer to show results.

Macy's Ms. Reardon said the company would continue to run ads emphasizing sales along with the new branding spots, and noted that she wasn't aware of any tensions over the branding strategy. "Use of coupons and promotional advertising has been reduced over the years, but there are still shoppers who love Macy's sales," she said.

The Macy's ad campaign comes just several months after major upheaval took place in its marketing department. In June, Anne MacDonald, a well-known and highly regarded ad executive, abruptly departed after being on the job for only about 16 months.

A person close to the company says she left because she and the company disagreed on what direction marketing should take. The person says Ms. MacDonald favored more long-term image advertising, while some executives at the retailer wanted more short-term promotional ads. Ms. MacDonald couldn't be reached to comment. Macy's declined to comment on Ms. MacDonald's departure.

If Macy's can't improve sales, its massive annual ad budget could come under pressure. Macy's shelled out $1.17 billion for ad time and space last year, and Mr. Lundgren recently said it aims to reduce its ad spending over time. A spokesman for Macy's said "it is not prudent" to do so in the near future while Macy's works to improve sales trends and build the Macy's brand.

Richard P. Price: 1930 - 2007
Longtime buyer of women's shoes for Sears was a school board member, township trustee and political worker
By Patricia Trebe - Special to the Chicago Tribune
August 22, 2007

Richard P. Price was never one to seek the limelight, but, as a school board member and township trustee, he was a workhorse. "He was always the one to go to if you needed help," said Naperville Township Clerk Carol Bertulis.

And for the DuPage County Republican Party, Mr. Price would walk precincts and encourage candidates to run, including DuPage County Board President Robert Schillerstrom.

"He was instrumental in my election in 1986," Schillerstrom said. "When I decided to run, Dick and [his wife] were there right away. ... They helped me in every aspect of my campaign. "Dick wasn't the kind of guy who wanted to advance politically, but he wanted to help candidates and the Republican Party grow out here. He was a true grass-roots guy," he said.

Mr. Price, 77, of Sugar Grove, died of cancer Saturday, Aug. 18, in DuPage County Convalescent Center in Wheaton.

Shortly after several smaller school districts merged to create Indian Prairie School District 204, which covers Naperville, Aurora, Plainfield and Bolingbrook, Mr. Price was elected to the board of education in 1977. He served for 11 years. "He was a very dedicated school board member who I regard as a devil's advocate," said former school board president Owen Wavrinek. "Dick contributed by always making sure we thoroughly discussed any issue before we voted on it and looked at it from all viewpoints. He wanted to make sure all the pros and cons were considered. "He particularly stressed that we establish an excellent curriculum, which still holds true today," Wavrinek said.

Born in Kansas City, Mo., Mr. Price, an only child, moved with his mother to Lansing, Mich., after his parents divorced. After he graduated from high school, Mr. Price enlisted in the Army and for the next two years served in Korea.

After his discharge he worked at various jobs, including one as a traveling salesman. He met his future wife, Mary, on a sales call in Roanoke, Va. They married six months later, in 1950. The couple eventually settled in Naperville in 1963 after Mr. Price landed a job with Sears, Roebuck and Co. as a salesman. Mr. Price became the buyer for women's shoes for all Sears stores nationally and did it for the next 25 years.

"He liked picking out the styles and traveling and meeting a lot of interesting people," said his daughter, Derrin Duffy. "And I liked it because I got all my shoes for free."

His wife became involved in politics as well and served on the DuPage County Board for several years until her death 12 years ago.

In 2002 Mr. Price married his second wife, Mildred, and the couple were active in Community United Methodist Church in Naperville.

"I think Dick epitomized the people who worked for the Republican Party and for DuPage County, and he was devoted to making his home out here a great place for his family," Schillerstrom said.

In addition to his wife and daughter, he is survived by two sons, Robert and David; two stepsons, Michael Smeltzer and David Smeltzer; one stepdaughter, Karen Glowiak; four grand-children; two step-grandchildren; and one step-great-granddaughter.

Visitation is scheduled from 4 to 8 p.m. Thursday in Friedrich-Jones Funeral Home, 44 S. Mill St., Naperville. Services will begin at 10 a.m. Friday in Community United Methodist Church, 20 N. Center St., Naperville.

J.C. Penney Outlook Hints at Price War
By James Covert – Wall Street Journal
August 17, 2007

J.C. Penney Co.'s fiscal second-quarter net income rose 1.7%, but the retailer said it expects the bulk of its second-half profit will come later than expected, stoking worries about fierce competition among department stores this fall.

Executives at Penney, of Plano, Texas, which targets middle-income shoppers, said the crucial back-to-school season is "off to a good start." But executives at the chain also conceded that high energy prices and the housing market's slowdown are weighing on consumers' minds. The worries have created "an environment we don't expect to get any easier in the third or fourth quarter this year," Chairman and Chief Executive Myron E. Ullman said on a conference call.

Penney raised its full-year profit forecast by a penny a share, citing better-than-expected second-quarter results. But the retailer said third-quarter profit will miss Wall Street's views, while the fourth quarter will surpass them. Penney cited a shift in its corporate calendar, and J.P. Morgan Securities analyst Charles Grom said Penney would have cut its profit outlook if it had "any real concerns" about the fall and holidays.

Still, Deutsche Bank analyst Bill Dreher notes that Macy's Inc. this week also gave a tepid third-quarter outlook. For the past year, Penney and its off-mall rival Kohl's Corp. have been stealing customers from Macy's since the latter began raising prices and eliminating coupons at stores it acquired from now-defunct May Co. Looking to keep their momentum, Penney and Kohl's will likely step up discounts in coming months, adding risk to earnings for the fall and holidays, Mr. Dreher predicts.

"We've got a market-share battle brewing among the department stores," Mr. Dreher said. "It's going to be a great back-to-school environment for the consumer."

Penney said sales are getting a lift from its growing stable of stylish private brands, which now account for about 45% of its sales. A revamped lingerie line and two proprietary lines from Liz Claiborne Inc. introduced this spring are performing well, Penney said. Margins continue to benefit from improved inventory controls, with new technology that is better at tracking demand for different clothing styles, colors and sizes on a store-by-store basis.

Gross margin, or sales minus the cost of goods sold, rose to 38.1% in the second quarter from 37.3% a year earlier.

Penney raised its estimate for full-year earnings from continuing operations to $5.50 a share from $5.49 a share. That includes a forecast of $1.28 a share for the third quarter and $2.41 a share for the fourth quarter. Wall Street had expected third-quarter earnings of $1.43 a share and fourth-quarter earnings of $2.25 a share, according to Thomson Financial. Separately, Kohl's said strong seasonal sales lifted second-quarter earnings 16%. The Menomonee Falls, Wis., department-store chain said net income was $269.2 million, or 83 cents a share, compared with $232.4 million, or 69 cents a share, for the same period a year ago. Sales gained 8.8% to $3.59 billion from $3.3 billion. Analysts polled by Thomson Financial had expected earnings of 82 cents a share for the quarter.

Kohl's Chairman and CEO Larry Montgomery said the early indications on back-to-school sales are positive, and Kohl's raised its full-year forecast slightly to $3.77 to $3.87 a share from $3.73 to $3.87 a share. Thomson Financial forecasts $3.86 a share.

Wal-Mart Eyes Smaller And Higher-End Stores
By Gary McWilliams – Wall Street Journal
August 17, 2007

Twelve years ago, Wal-Mart Stores Inc. executives welcomed Terry Leahy to the company's Bentonville, Ark., headquarters. Mr. Leahy, newly promoted at Tesco PLC and considering an overhaul of the British retailer, spent an afternoon discussing operations with Wal-Mart executives.

Today, Wal-Mart is doing everything it can to stop Mr. Leahy from crashing its last big growth business: groceries. It has a team of executives hunkered down far from Bentonville in the San Francisco Bay area devising two new small-footprint stores, including a response to the November launch of Tesco's U.S. grocery stores, according to people familiar with the group.

Their brainchildren represent an unlikely step for staid Wal-Mart: One idea calls for urban convenience stores less than a tenth of the size of the company's supercenters and stocked with groceries geared to more affluent tastes. Another plan calls for stand-alone stores offering a variety of health services and products. The new outlets are being prepared for introduction early next year, the people say.

David Wild, the Wal-Mart senior vice president of new business development, is leading the initiatives. He declined to comment. A Wal-Mart spokesman wouldn't provide specifics but said, "Our business is constantly evolving, and we're always looking for new and innovative ways to serve our customers."

The company may have waited too long to develop successors to its big-box U.S. stores. Analysts now chopping their profit estimates for this and next year say Wal-Mart has seemed tone-deaf to consumer trends. Failed pushes in women's fashions and home decor continue to sap profits, and high gasoline prices are eating into supercenter visits. Recently, Wal-Mart has tried running ads promoting its low prices as worth the extra travel.

Nonetheless, the smaller stores could help Wal-Mart do more than fend off Tesco. The retailer has been largely shut out from upper-income and urban markets, including those in California and New York. High land costs and local opposition have limited the discounter to just 28 supercenters in California, a tenth of the number in Texas. Smaller stores are less likely to stir up opponents than the hulking 200,000-square-foot big-box stores.

In health care, Wal-Mart sees itself providing an array of services and home-health equipment along with the prescription eyeglasses and pharmaceuticals that it already sells, according to a person familiar with the effort. "In five years, Wal-Mart wants to be on its way to becoming the No. 1 health-care company in America," that person said.

In April, the retailer announced that over the next three years it would open up to 400 in-store clinics, offering basic services, including school physicals and treatments for sinus infections and allergies. It also said it hoped to have 2,000 clinics in operation in five to seven years. Wal-Mart has already teamed with some big employers hoping to improve employee health by providing standards for electronic health records. If that effort succeeds, it would give the Wal-Mart clinics a boost.

The world's largest retailer hopes to begin rolling out the new convenience and health-care stores early next year, and it's looking at locations in California for the pilots. A Wal-Mart spokesman said the company "regularly tests new formats" but declined to describe the effort further.

California has been an embarrassing stumbling block for the Arkansas retail giant. "Wal-Mart doesn't have a format that works in California," says Burt P. Flickinger III, managing director of retail consultant Strategic Resource Group. He believes the convenience-store effort is based in the San Francisco area because it is home to the Trader Joe's chain, retailer of prepared foods and groceries, and it has become the biggest market for Whole Foods Inc. "Wal-Mart really needs to take a strategic stand" in the state, he says.

Tesco's impending arrival in the U.S. Southwest has accelerated Wal-Mart's plans. The British retailer is expected to open 30 Fresh & Easy Neighborhood Market stores by February and invest $2 billion in the U.S. rollout over the next five years, according to a spokesman for Tesco's U.S. operation, which is based in El Segundo, Calif. After the first stores are launched, the company has 70 more stores in its pipeline for early 2008.

"The impact on the competition depends on how fast Tesco rolls out. I think it'll be fast," says David McCarthy, a London-based deputy head of equity research for Citigroup. He estimates Tesco could have 500 U.S. stores and U.S. revenue of $5 billion by 2010.

The proposed Wal-Mart stores would fit with U.S. chief Eduardo Castro-Wright's goal of localizing the retailer's business. As part of its effort to appeal to a broader range of consumers, Wal-Mart has begun tailoring merchandise and food selections to regional and ethnic groups and tastes. It recently asked fruit vendors to package apples, now sold in plastic bags, in paper sacks similar to those at roadside orchards. And it is reaching out to major suppliers, including Johnson & Johnson and Procter & Gamble Co., for advice.

Wal-Mart could use an injection of new ideas. Its earnings are expected to rise just 3.5% this year, to $12.52 billion, compared with a 10.2% increase just two years ago. The company remains the world's largest retailer, with sales this year projected to hit $370 billion. But its rivals -- Costco Wholesale Inc., Target Corp. and J.C. Penney Co. -- have been turning in better comparable-store sales for more than a year.

Food sales are a double-edged sword for Wal-Mart. They represent its fastest-growing business, with revenue rising 14% last quarter and comparable-store sales up about 5% this year. But slim profits mean the company's overall margins weaken as food's share of the business gains. Wal-Mart shares hit a new 52-week low yesterday before bouncing back to close at $43.50, up 22 cents on the day.

In addition, Wal-Mart hasn't successfully incubated new-store concepts since the first supercenter was created in 1988. Its effort to build a conventional grocery business via Neighborhood Market stores has been a modest success at best. The 40,000-square-foot outlets were designed to fill the gap between supercenters. But the company has opened just 124 of them since 1998.

Efforts to start new retail outlets overseas in countries like Germany were stark failures. In contrast, Wal-Mart has had some success entering into joint ventures with local retailers, as it did with Mexico's Cifra SA in 1991, buying majority control after it understood the market.

Wal-Mart isn't the only company readying new store formats. Major grocery chains are testing ideas that combine convenience and grocery stores. The third-largest U.S. supermarket chain, Safeway Inc., recently opened Citrine New World Bistro, a restaurant that uses its private-label brands.

FamilyMart Co., the third-largest convenience store operator in Japan, has opened 12 Famima convenience stores in the Los Angeles area and plans 250 U.S. stores by 2009. "This is a big, big target," says Hidenari Sato, Famima's vice president of U.S. operations.

Analysts say Wal-Mart hasn't been able to penetrate the markets where wealthier America resides. "In the Northeast Corridor, California and Chicago you have 33% of U.S. income and retail sales. Yet these areas account for 10% of [Wal-Mart] stores and less than 2% of their supercenters," says Greg Melich, a retail analyst at Morgan Stanley.

Ready, Set, Retire
Make the most of your peak years on the job to boost your savings and plan your exit.
By Mary Beth Franklin - Kiplinger's Personal Finance magazine
September 2007

You're at the top of your game, the peak of your career, and you're making more money than you've ever made. Now is the perfect time to think about quitting.

Say what? It's true. The five-to-ten-year period before you retire is the time to assess your retirement preparations to see whether they're realistic. And if you're falling shy of your goals, you still have time to make adjustments.

David Zeigler is living proof that preparation is key and the payoff is sweet. "Retirement is great," says Zeigler, 61, who spends his days playing tennis or ice hockey, volunteering with Meals on Wheels, catching up on his reading, and working on household projects at his home in McLean, Va.

Zeigler retired earlier this year after nearly 44 years at the U.S. Department of Labor. But he started thinking seriously about making the break seven years ago, after he attended a four-day, government-sponsored seminar on retirement that covered everything from investments and health care to how to spend your extra time. "It was a catalyst for me," says Zeigler.

His wife, Melody Sands, expects to retire next year after 31 years as a federal-government employee. By then, their youngest son, Luc, will have graduated from college, and they'll be close to paying off their mortgage. Like many dual-career couples, Zeigler and Sands did not plan retirement as a simultaneous event. "I wanted David to have at least a year by himself," says Sands, 55. But she's eager to join him so they can travel and enjoy life without the daily grind. And with college bills behind them and two pensions, retiree
health benefits, personal savings and a paid-off mortgage, they have a lot to look forward to. "This is the payoff," says Zeigler. "But if you're not financially prepared, you may not be nearly as happy."

The federal government has been offering retirement-transition seminars to employees for years. Now, corporate America is waking up to the fact that as workers shoulder more of the burden of providing for retirement, they need more help figuring out how to do it.

IBM, the venerable U.S. company once synonymous with career-to-grave employee
benefits, is on the leading edge of this new trend. Times have changed, and so has Big Blue. In conjunction with its decision to freeze its traditional pension and cash-balance plans and move to a 401(k)-only strategy next year, IBM recently launched an innovative Money Smart educational program to help employees make the transition from work to retirement. The program offers comprehensive preretirement seminars, presented on site during business hours, that cover all the moving parts of a 21st-century retirement, including how to estimate future expenses and decide on an appropriate withdrawal strategy to make your savings last a lifetime.

Seminar leaders also discuss Social Security options and what to do about health coverage before Medicare kicks in at age 65. (IBM no longer guarantees health benefits for life, but it gives retirees an account based on their years of service after age 40 -- often worth $40,000 or more -- to pay for health insurance and other medical expenses. Once the money is gone, retirees are on their own.)

The seminar was an eye-opener for Bill Wiktor, 55, an IBM project manager in Rochester, Minn. "It made it clear to all employees that you have to take responsibility for your own retirement," says Wiktor. "You're not going to reach your goal unless you have a plan."

Wiktor is lucky. He has logged 30 years with IBM, so he'll qualify for a full pension. And he and his wife, Elaine Case, 52, a global marketing executive with IBM, have contributed the maximum to their 401(k) plans every year since the plans became available.

An engineer by training, Wiktor is big on planning. He has already taken advantage of IBM's offer of free, one-on-one advice sessions with Fidelity Investment counselors. As a result, he has tweaked his investments to a slightly more conservative mix, now that he is three to seven years away from retiring. "If the market continues to do well, it will be sooner rather than later," he says. "If there's a significant downturn, it may affect our actual date."

Reduce your risk

Workers nearing retirement face a conundrum. You need to keep a large portion of your investments in stocks so that your portfolio continues to grow and can support you for as long as 30 years. But you also need to scale back risk because a major market drop just before or during your early retirement years could devastate your nest egg once you start taking withdrawals.

A well-diversified portfolio with 50% to 85% invested in stocks is a prudent course for most people who are five to ten years from retirement, says Michael Yoshikami, president of YCMNET Advisors, in Walnut Creek, Cal. Reducing your stock holdings and increasing your bond holdings will add stability to your portfolio, but your blended rate of return is likely to be lower. If you have a company pension or another source of guaranteed retirement income, you can afford to take more risk with your investments.

Yoshikami says the biggest mistake many pre-retirees make is not knowing when they've reached the finish line. "If you've accumulated the principal you need to produce an adequate income stream in retirement, reduce your risk level," he says. "At this point in your life, investing is all about managing risk and avoiding a train wreck, such as being fully invested in a bear market and riding it to the bottom."

If you are in your final decade on the job, you may be closer to your financial target than you realize. Michael Kitces, a financial planner with Pinnacle Advisory Group, in Columbia, Md., says that if your investments earn an average of 8% a year, your portfolio will double in value in nine years -- and even faster if your returns are higher. (To figure out how many years it will take to double your money, divide 72 by your rate of return. The result -- in this case, nine -- is the number of years it will take your principal to double.)

That projection doesn't include the money you continue to stash in retirement accounts. "A lot of people underestimate how steep the compounding curve is at the end," says Kitces.

Debbie and Karl Israelson are counting on the magic of compounding and continued 401(k) contributions to help them reach their goal of a $1.5-million nest egg. Debbie, 51, is a plant manager for Burton Lumber, in Salt Lake City. Karl, 54, is an operations manager for Boise's Building Materials Distribution division. They'd both like to scale back their management roles over the next few years but keep working full-time until they are 60 or 62.

Now in their final decade of work, the Israelsons recently took a serious look at their finances. Debbie increased her 401(k) contributions after the Principal Financial Group, which administers her retirement plan, sent a personalized statement explaining how much more she could accumulate if she took advantage of an extra $5,000 in "catch-up" contributions open to workers age 50 and older. She and Karl also met with a financial planner to make sure they are on track to meet their goal. They are.

Too busy to monitor her investments as she once did, Debbie decided to turn over her IRA to the adviser to invest in actively managed mutual funds. At work, she directs her 401(k) contributions to an all-in-one target-date retirement fund. Karl's 401(k) plan doesn't offer a target-date option, but his investments are well diversified; they include a smattering of international funds and real estate holdings as well as a portion in bond funds.

One of the Israelsons' big concerns is health care. Neither is eligible for retiree health benefits. Although they hope to retire before they qualify for Medicare at 65, one of them might have to keep working just for the benefits, Debbie says. "Health benefits are the biggest, scariest issue."

The latest retiree health-cost survey by Fidelity Investments estimates that a 65-year-old couple retiring today without employer-provided health insurance will need about
$215,000 over their lifetime to pay for medical expenses, including Medicare premiums, deductibles, supplemental insurance and prescription drugs. That estimate does not include long-term-care coverage.

50 is the magic number

Turning 50 is a logical milestone at which to take stock of your retirement situation, whether your target is five or 15 years away. That's when you can start making "catch-up" contributions to your 401(k) or other workplace-based retirement plan. This year, workers can contribute up to $15,500 to an employer-provided retirement plan. If you are 50 or older by the end of the year, you can kick in an extra $5,000, for a total of $20,500 in 2007.

And you don't have to stop there. You can also contribute up to $4,000 to an IRA (or $5,000 if you are 50 or older), even if you contribute to your employer's plan. Depending on your income, you might even be able to deduct your contribution to a traditional IRA or fund a Roth IRA, which offers no up-front tax deduction but provides tax-free income in retirement. Stay-at-home spouses can also contribute to an IRA.

Stay on the job

If you've started your countdown to retirement and discovered that your savings will fall short of your goal, here's good news: Time is on your side. The most important thing you can do to bolster your nest egg as you near the homestretch is work a little longer, says Christine Fahlund, senior financial planner for T. Rowe Price.

That advice may seem disappointing, but it doesn't have to be a downer. "Instead of delaying gratification, keep the gratification coming and just delay the retirement," says Fahlund. For example, rather than waiting for retirement to splurge on a long-awaited cruise, do it now. After a change of scenery, you might even find that, when you come back to work, your job's not so bad after all.

Nice thought. But how do you pay for the trip? Fahlund suggests that you scale back your retirement savings during your final years on the jobÐ contributing just enough to get the employer match -- and use the extra take-home pay to treat yourself. That may sound like
heresy, but Fahlund explains that those last few years of 401(k) contributions don't have a huge impact on your bottom line because there's little time for them to compound before you start tapping your savings for income. The big-ticket impact comes from delaying the day when you start taking withdrawals, which reduces the total number of years you'll have to make your savings last.

Working longer not only provides an extra year or two of income and employer-provided benefits, it also reduces how much you need to save. Assuming you withdraw 4% of your nest egg in the first year of retirement -- a standard rule of thumb -- earning $20,000 a year at a part-time job is like having an extra $500,000 in retirement savings. "Working a little longer is a lot less painful than saying you have to save half of everything you earn in order to catch up," says Fahlund.

If you decide to work longer, you'll have lots of company. More than three-fourths of baby-boomers say they expect to work, at least part-time, during retirement, according to AARP. Now that the oldest boomers are 61, the trend is already apparent. Ten years ago, the typical U.S. worker retired at 60. Recently, the typical retirement age has risen to 62. Researchers at the Employee Benefit Research Institute speculate that the shift may be tied partly to the demise of traditional pensions and an increasing reliance on self-funded
401(k) plans.

Cut housing costs

Aside from your retirement savings, your house may be your biggest asset, and it can play a major role in your financial plan. Paying off your mortgage before you leave your job can significantly reduce your cash-flow needs in retirement. Or, selling your house and downsizing to something less expensive could leave you with more cash to invest.

Eric and Sandi Hakanson bought waterfront property in Boothbay, Maine, a few years ago with plans to build a retirement home someday. Then late last year, Sandi, who works
as an educational consultant for Prentice Hall textbook publishers, was reassigned to Maine. She moved into a rental house last Christmas, leaving Eric to sell their home in Glastonbury, Conn. As a couple, the Hakansons can pocket up to $500,000 of home-sale profits tax-free, and that will go a long way toward building a mortgage-free dream home. (Individuals can shelter up to $250,000 of home-sale profits from taxes.) Downsizing to a smaller, more eco-friendly house should also help them save on housing costs.

It's the first time in their 32 years of marriage that the Hakansons have moved because of Sandi's job. All their previous relocations were linked to Eric's career with IBM, which employees used to joke stood for "I've been moved." But in today's decentralized business climate, it might as well stand for "I'm by myself" -- which is what Eric will be when he, too, starts working in Maine with his company's blessing. "We both plan to keep working on a full-time basis and go home to our vacation house every night," says Eric, 57.

He and Sandi, 56, recently participated in IBM's Money Smart retirement seminar. Thanks to his pension and company stock, and their combined savings, the Hakansons are looking forward to a comfortable retirement. "We've been planning this for 30 years, and we feel we're prepared," says Eric.

 

J.C. Penney Profit Increases on Sales of New Brands
By Lauren Coleman-Lochner – Bloombert Press
August 16, 2007

J.C. Penney Co., the third-largest U.S. department-store company, said second-quarter profit increased 1.7 percent on the success of new clothing lines from Liz Claiborne and its own Ambrielle lingerie.

The company lifted its annual profit forecast today as higher sales of back-to-school clothing, including new jeans by designers Chip and Pepper, along with Sephora cosmetics, boosted revenue. Chief Executive Officer Myron Ullman added exclusive brands to lure shoppers from Kohl's Corp. and Macy's Inc., which yesterday cut its outlook for the rest of the year.

“A lot of their new exclusive and private labels in their stores have done well,” said Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, with $77 billion in assets including J.C. Penney shares. “It looks like a very solid quarter in a challenging environment.”

The company forecast annual profit of $5.50 a share, more than its previous expectation of $5.49, and in line with the average estimate of 16 analysts surveyed by Bloomberg.

Second-quarter profit rose to $182 million, or 81 cents a share, matching analysts' estimates. A year earlier, earnings were $179 million, or 76 cents, Plano, Texas-based J.C. Penney said today in a statement.

Sales climbed 3.6 percent to $4.39 billion, helped by a 17.4 percent gain in purchases through the Internet site, the company said. The results were in line with the preliminary results J.C. Penney issued last week. Sales at stores open at least a year rose 1.9 percent.

J.C. Penney, which operates 1,048 stores, increased 12 cents to $62.69 at 1:24 p.m. in composite trading on the New York Stock Exchange. The stock has declined 19 percent this year, compared with a 21 percent drop by Macy's.

`Feeling Good'

“We're feeling good about the second half of the year,” Ullman said in an interview. Back-to-school shopping is off to a good start, he said.

Ullman, Macy's former chief, has spruced up J.C. Penney's image by adding designer brands in home goods and clothing for men, women and teens.

J.C. Penney has won customers displaced or alienated after Macy's closed stores and cut back on coupons, a move resisted by shoppers. Next year, the retailer will begin selling American Living clothing and home goods by Polo Ralph Lauren Corp.

Macy's, the second-largest department-store chain, yesterday lowered its annual earnings forecast on slower sales at former May department stores acquired in 2005.

Sales at Sears

At Sears Holdings Corp., the largest chain, same-store sales have declined at both the Sears, Roebuck and Kmart stores since Chairman Edward Lampert combined them in 2005 as he seeks to boost profit and considers other investment opportunities for Sears at the expense of increasing revenue.

“While the macro backdrop is choppy, we have to believe that if J.C. Penney had any concerns on the second half, they would have lowered'' estimates, Charles Grom, an analyst at J.P. Morgan in New York, wrote in a report today. He rates shares “overweight”.

Wal-Mart Stores Inc. and Home Depot Inc., the two biggest U.S. retailers, said on Aug. 14 that the U.S. housing slump and rising energy prices would damp earnings growth the rest of the year.

“We're proud that we delivered the quarter in a difficult economic environment, an environment we don't expect to get any easier in the third and fourth quarter of this year,'' Ullman said today on a conference call.

Energy, Housing

“We're mindful that our consumers are concerned about energy prices and the softness of the housing market,” he said in an interview later.

Earnings from continuing operations were 78 cents, J.C. Penney said, in line with analysts' estimates. Sales were projected to be $4.41 billion. Last year's profit included a tax gain of $26 million, or 11 cents a share.

Third-quarter profit will be about $1.28 a share, while earnings in the fourth quarter will be $2.41, J.C. Penney said. Analysts had estimated $1.43 in the third quarter and $2.25 in the fourth.

Second-quarter gross margin, or the percentage of sales left after subtracting the cost of goods sold, widened to 38.1 percent, from 37.4 percent on efforts to design and manufacture clothing more quickly and a shift of a profitable back-to- school selling week into the quarter. Selling, general and administrative expenses fell to 28.3 percent of sales from 28.8 percent.

Investor buys Sears building; plans unknown
By Amos Maki – Memphis Commercial Appeal
August 15, 2007

After more than a decade of repeated attempts by several investors to buy the Sears Crosstown building in Midtown, the sale is now official.

Local investor Andy Cates bought the building for $3.5 million. Cates did not return phone calls.

While plans for the landmark structure are being kept quiet, local business and civic leaders are thrilled with the purchase.

"I just think it's exciting that someone local has an interest in it and wants to help revitalize a great building and potentially that entire neighborhood," said Larry Jensen, president of Memphis-based commercial real estate services firm Commercial Advisors LLC.

"If they make it happen, it could be a huge catalyst for that area," said Jensen, who has talked with Cates about his plan for the building.

The Center City Commission listed the Crosstown building as one of its top-10 development sites, and CCC president Jeff Sanford agreed with Jensen.

"After working with five or six groups that have tried to create redevelopment plans for the Sears property over the years, I could sum my feelings about this news up in one word: excitement," Sanford said.

Cates, who returned to Memphis from Texas in 1999 and kick-started the Soulsville Revitalization Project -- a $20 million nonprofit venture that includes the Stax Museum of American Soul Music, The Stax Music Academy and Soulsville Charter School -- previously described any effort to buy and rehabilitate the building as "extremely complicated" and loaded with "moving pieces."

The 1.4 million-square-foot Crosstown building has been largely vacant since it closed in 1993.

Opened in 1927, the Art Deco-style building near Watkins and North Parkway was home to the Mid-South regional office of Sears, Roebuck and Co., the company's catalog merchandise distribution center and its Credit Central operation.

The retail store closed in 1983. The building has been vacant since its catalog distribution center closed in 1993.

The former owner of the site, Memtech LLC, bought the property from Sears in 2000 for $1.25 million.

Over the years, a host of investors and developers has expressed interest in the property only to see the deals fizzle, usually because of the sheer size of the building and its design.

"That building is two Clark towers," said Jensen, referring to Clark Tower, the 34-story East Memphis office tower.

Other cities -- often using public-private partnerships -- have had more success in rehabilitating former Sears catalog distribution buildings.

The former Sears distribution center in Minneapolis is now called Midtown Exchange, a $192 million mixed-use residential, office, hotel and retail center.

In Boston, the Abbey Group transformed a 1929 Sears warehouse into a 1.5 million-square-foot commercial development called the Landmark Center.

The building, near Fenway Park, was renovated to include a movie theater, retail, office space and housing.

Lampert increases stake in Citigroup
Chicago Tribune
August 15, 2007

Billionaire Edward Lampert, the investor behind Sears Holdings Corp., continues to build his position in Citigroup Inc., the nation's largest bank.

ESL Investments Inc., Lampert's hedge fund, increased its stake in Citigroup by nearly two-thirds in the second quarter, according to a filing with the Securities and Exchange Commission. The Greenwich, Conn.-based hedge fund held 24.8 million Citigroup shares worth $1.27 billion as of June 30, up from 15.2 million shares worth $783 million on March 31.

The Hoffman Estates-based company sold its massive credit card division to Citigroup in 2003 for about $3 billion in cash.

At the same time, ESL cut its stake in Schaumburg-based Motorola Inc. by one-third. The fund held 625,000 Motorola shares as of June 30, down from 925,000 shares at the end of the first quarter.

Lampert, one of the nation's highest-paid hedge-fund managers, has a history of making large bets on a few companies. The closely watched investor has been gradually building a position in Citigroup for more than a year.

Two Giant Retail Chains Say Sales Are Slumping
By Michael Barraro – New York Times
August 15, 2007

Wal-Mart and Home Depot sneezed yesterday. Will the economy catch a cold?

The two companies, the nation’s largest retailers and bellwethers for consumer spending, reported earnings disappointments for the second quarter and predicted an even bumpier year ahead because of higher energy costs and a sagging housing market.

The sober forecasts reverberated across Wall Street, sending the Dow Jones industrial average and the Standard & Poor’s 500-stock index down by nearly 2 percent, with the Dow dropping more than 200 points. Shares of both Wal-Mart and Home Depot fell around 5 percent.

Home Depot also said that the proposed sale of its supply business, for $11 billion, could fall through because of trouble in the credit markets, potentially forcing the retailer to shrink a $23 billion stock buyback.

Economists said the sluggish performance of the chains — Wal-Mart missed its profit forecast and Home Depot’s earnings dropped — could signal broader troubles in the economy.

“It’s a red flag,” said Jay Bryson, global economist at Wachovia. “If consumer spending starts to weaken, the overall outlook for economic growth will diminish.”

That, Wal-Mart executives said, is precisely what has begun to happen in its 4,000 United States stores over the last three months — even after the chain cut prices on 16,000 products this summer.

“Many customers are running out of money at the end of the month,” said H. Lee Scott Jr., the chief executive of Wal-Mart.

Home Depot’s chief executive, Frank Blake, described a “tough selling environment” and warned that the housing and home improvement markets would remain weak into 2008.

But Wal-Mart also blamed itself, for poor clothing and home décor products. And Home Depot has alienated customers with lackluster service, making it difficult to discern how much of the slowdown was self-inflicted damage and how much was tied to larger economic forces.

For the second quarter, which ended Aug. 3, Wal-Mart missed its profit estimate and those of Wall Street analysts, a rarity for the company, whose performance is generally the envy of the industry. Earnings from continuing operations were 72 cents a share, below the company forecast of at least 75 cents. Even so, sales rose 8.8 percent, to $92 billion.

Net income rose 49 percent, to $3.1 billion, or 76 cents a share. But that figure included 4 cents a share in one-time gains like lower workers’ compensation claims.

“Although some people will report that Wal-Mart has had record sales and earnings, our underlying operating performance this quarter was not what we expect of ourselves, and not what our shareholders expect of us,” Mr. Scott said.

For the year, Wal-Mart said it would earn $3.05 to $3.13 a share from continuing operations, lower than its original forecast of $3.15 to $3.23.

Mr. Scott said Wal-Mart’s shoppers, who generally earn less than $40,000 a household, are “under difficult pressure economically.”

He added that “the paycheck cycle is more pronounced now than ever before,” meaning that customers are left with little cash by the end of the month.

Wal-Mart has lowered prices across its stores to appeal to such customers, but the strategy has hurt its profit margins. Sales of grocery items, electronics and pharmacy items rose in the second quarter, but clothing and home products — which sell at a higher profit margin — did not.

Charles Grom, an analyst at JPMorgan, downgraded Wal-Mart stock yesterday, saying its second-quarter earnings were “creating a slippery slope for Wal-Mart to climb.”

“Wal-Mart’s lowered outlook,” Mr. Grom wrote, “is more than just resetting the bar this morning. Rather, the company and this management has suffered a credibility blow that will take time to overcome.”

Wal-Mart’s shares fell $2.35, more than 5 percent, to close at $43.82 yesterday.

At Home Depot, second-quarter income fell 14.8 percent, to $1.6 billion, or 81 cents a share, compared with the quarter last year. Sales fell 1.8 percent, to $22.2 billion, while sales at stores open at least a year, a key measure in retailing, fell 5.2 percent.

“The housing market remains difficult, and our performance reflects that,” said Mr. Blake, the chief executive. He noted, for example, that housing starts so far this year were down 22 percent, compared with a year ago, and existing-home sales were down 12 percent.

Home Depot said its earnings for the year would fall 15 to 18 percent, confirming an earlier forecast. Nevertheless, the company will invest in its stores, giving employees bonuses and remodeling aging outlets to better compete with Lowe’s, its biggest rival.

Executives said they were restructuring the deal to sell Home Depot’s supply division, a $12 billion business, to three private equity groups, which could result in a lower sales price. The original price for the division was $10.3 billion. As the home construction market has slowed, the supply business has suffered, which may explain why the buyers want to renegotiate the price.

If the sale price is lowered or the deal for Home Depot Supply collapses, Home Depot said it would most likely cut back its share repurchase program, which calls for the company to buy $22.5 billion worth of company stock.

Home Depot’s stock fell $1.72, or 4.9 percent, to $33.52.

Sears buys time
Plan to repurchase stock gives Sears cushion in tough climate
By Sandra Guy – Chicago Sun-Times
August 14, 2007

Sears Holdings Corp.'s stock jumped 5.6 percent Monday on the retailer's stock-buyback plan, despite slumping profit and continued falling sales at its Sears and Kmart stores.

Sears' shares ended the day Monday up $7.45, at $140.55. It was the highest stock jump for the retailer since mid-January.

The Hoffman Estates-based company on Monday announced its second share buyback in a month, this one up to $1.5 billion, and it tightened its second-quarter earnings forecast. Sears has repurchased $3 billion of its stock since it started its buy-back program in the third quarter of 2005.

The company Monday forecast that second-quarter profit declined as much as 42 percent. The drop was within its July guidance that profits might decline by as much as 46 percent. It blamed the decline on the hou