Sears Tower gets 2 new tenants
By Thomas A. Corfman - Chicago Business
September 30, 2008

(Crain’s) — Sears Tower has signed new leases with a law firm and marketing firm that total 47,000 square feet. Both tenants will be on the 44th floor of the 110-story skyscraper, according to a news release issued Tuesday by U.S. Equities Realty, which manages the tower at 233 S. Wacker Drive.

A new law firm, Kopon Airdo LLC, has already moved into its space. The firm, which focuses on defending complex cases such as product liability cases, currently has 10 lawyers, according to Lawyers.com.

The other tenant, business-to business marketing firm Centiv Services Inc., is currently at 525 W. Monroe St.

But Sears Tower’s owners — Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinian — face a major challenge retaining the building’s largest tenant, Ernst & Young U.S. LLP, which currently leases about 352,000 square feet.

The accounting giant is in advanced negations with Chicago-based John Buck Co. to move to the Chicago developer’s skyscraper under construction at 155 N. Wacker Drive. If a deal is reached, 155 N. Wacker, with more than 1.1 million square feet, would be more than 75% leased.

For Sears Tower, the departure of E&Y would mean the loss of 19% of its annual rental revenue when the accounting firm’s lease expires in 2012.

A spokesman for Sears Tower declined to comment.

Sears Tower recently won a reprieve from its fifth-largest tenant, which opted against an early termination of its lease for 181,000 square feet.

Related story: Sears Tower keeps B of A through 2015

And the building’s fourth-largest tenant, law firm Schiff Hardin LLP, has waived an option for an early termination of its lease for 205,000 square feet. The firm decided to expand its space to more than 217,000 square feet and extend its lease three years to 2024.

Keeping their cool: How Sears tests appliances
Bells, whistles and energy efficiency
By Deborah Donovan - staff - Daily Herald - Suburban Chicago
September 30, 2008

Pity the refrigerator that aspires to wear the Kenmore label.

Fitted with sensors to measure whether temperatures remain steady throughout its cavities and looking like a heart-attack victim, it moves into a torture chamber.

Chicago's climate should be enough to test man and machine, but Sears sells major appliances throughout the country with its various temperatures and humidities.

The refrigerator is put through its paces in a room where temperatures swing from very cold to 90 degrees. And the humidity reaches heights that remind engineers of summer in Miami.

Of course the refrigerator has to continue making ice and dispensing water. And no sweating allowed. Condensation is bad, although the engineers agree wine refrigerators and others with glass doors are going to perspire.

Sears recently invited reporters in for a rare look at the 30,000- square-foot laboratory in the corporation's Hoffman Estates headquarters. The lab develops and improves products while testing protects a reputation earned through 95 years of selling the Kenmore brand.

At least part of the trial for appliances like air conditioners, dehumidifiers and vacuum cleaners is more like a vacation. That's the visit to an anechoic chamber, a room lined with foam cones to create complete silence.

This is where engineers measure how much noise appliances are putting off, and what parts are causing it so they can figure how to reduce it, said Tom DeSalvo, director of product development for Kenmore.

Just as important is the nature of the sound.

"Of the various frequencies, some are much more annoying than others," he said.

Washing machines have not only sound to worry about but vibration as well, especially these days when they are as likely to hang out in the bedroom wing as the basement. Again, sensors hooked to computers are connected to a washing machine and its platform, which mimics a floor that just meets code.

The quest here is to develop industry specifications for washing machine vibration. And to find ways to reduce the shakes with techniques such as redistributing the load before the high-spin cycles.

Oh, yes, engineers also test for stain removal.

Perhaps engineers have the most fun testing ovens and cooktops.

Weighty questions here include how does an oven perform baking two racks of cookies, and does the AirGuard feature really keep odors from permeating a home even when a pizza is cremated for more than an hour?

Bells, whistles and energy efficiency

Sears sells many brands of major appliances at its stores. Here are some of the new features to look for.

Induction range: Induction cooktops efficiently and quickly heat water to boiling with a giant electromagnet under glass. (You must use a metal pan that attracts a magnet). Within the next month, Kenmore is introducing a free-standing range with an induction top. Homeowners have called for this because the majority of American kitchens have free-standing ranges (rather than cooktops and ovens), said Richard C. Demert Jr., a Sears buyer of cooking appliances. The price will be about $900.

Dishwasher: Manufacturers have added steam to their high-end dishwashers. General Electric says its version prevents spotting on glassware. The bulk dispenser of detergent is another innovation General Electric has embraced. With a new version due out in a month, the homeowner puts 40 ounces of detergent in the machine, which senses when the dishes are so dirty extra is needed.

Refrigerator: You may find that most refrigerator innovations deal with the doors. Putting the freezer under the refrigerator is very popular, but people can balk at digging through a large drawer to look for that package of hamburger. Kenmore Elite's new Trio puts two freezer drawers on the bottom to make the hunt easier. The cost is $3,000.

Washer/dryer: If you're willing to pay up to $1,800 each for a washer and dryer, you can get units that not only steam the stains and wrinkles out of clothes but are so colorful you will want to give tours of your laundry room. Expensive front-loading machines from all brands are all the rage because they use less water and energy. For the more budget conscious, Sears offers a front-loading washer for $600 and a dryer for just under that price.

Making the rounds with Mr. McFeely
The Roanoke VA Times
September 27, 2008

David Newell, who played Mr. McFeely on the TV series, "Mister Rogers' Neighborhood," will be at the Salem Civic Center on Sunday.

For 40 years, "Mister Rogers' Neighborhood" has been a place to sing and pretend and make sense of things. The host, Fred Rogers, zips up his cardigan at the start of each episode and asks: "Won't you be my neighbor?"

Generations of children said yes, spending unhurried afternoons with Mister Rogers, who died in 2003 but whose shows continue in reruns. He worked simply, using a set and props that can look out dated next to current children's shows. And he spoke simply, looking straight into the camera and reminding his little viewers that he liked them just the way they were.

"In a way, you might have thought it was coming just to you," said David Newell , the man who portrayed the speedy delivery man Mr. McFeely in more than 500 episodes. "And it was."

So it was sad news for those little-viewers-all-grown-up when the show was pulled from regular rotation at most public television stations at the beginning of September because of sagging ratings. (Blue Ridge PBS continues to run "Mister Rogers" four times a week and will do so for the foreseeable future, the station said.)

One unhappy father from South Carolina created a Web site, savemisterrogers.com, praising the "timeless, nurturing messages" that Mister Rogers delivered.

And although Mister Rogers is disappearing from TV screens, Newell is still making the rounds. The delivery man will appear, in blue cap and uniform, at the Salem Civic Center on Sunday afternoon for the Blue Ridge PBS KidsFest. He joins several other public television characters, including Elmo, Curious George and Clifford at the free community party.

In advance of his arrival, the 68-year-old Newell, who works in public relations for Rogers' production company, Family Communications , took a phone call to talk about his friend, the McFeely name and the show's popularity with an unexpected demographic.

Q: How would you describe the tone -- magic might be a better word -- of the neighborhood?

A: There's a gentle tone to it, but underneath that gentleness there's a very supportive tone, too.

[Fred Rogers] wanted to introduce children to the potpourri of the world. There are so many things you can do. And here's television, this vehicle that's being used to sell corn flakes. He wanted to take it and use it in a very constructive, positive way to help families with young children.

The pace set the tone, too. Child development experts will tell you, it's the pace of what you're saying to a young child that's important. Fred would ask a question not expecting an answer, a rhetorical question: "Do you like this boat?" He'd pause and wait.

Fred wanted to give them a chance to reflect on what was said. Don't just keep rushing it one thing on top of another.

When you're designing a television program for adults, you make it move. People want things to move and they don't want to listen too much. Fred wanted to challenge the attention span of a young child.

Q: Do you see that in children's shows now?

A: Not as much. The children's shows on public television have become more animation and not as much live-action.

For an older child, "Arthur" is a good program. They take a topic and look into it.

"Sesame [Street]" does a good job. Over the years, they've slowed down and made their segments longer. They're not as jump-cut as they used to be. I think their research showed that children learn when things are more linear.

For the most part, anything on public television for children is a good program.

"Blue's Clues" had a tone of Fred. In fact, the creator of "Blue's Clues" grew up with the program, with "Mister Rogers' Neighborhood."

Q: How did Mr. McFeely get his name?

A: Fred wrote his own scripts, and in the scripts he always would thank people in some way.

And he thanked the Sears-Roebuck Foundation [who underwrote the program for more than 20 years] by calling the delivery man -- whose name is now Mr. McFeely -- Mr. McCurdy . Because that was the name of the president of the Sears-Roebuck Foundation.

On the day we started taping the first chunk of programs, the phone rang. They asked for Fred. We were in the studio already, and it was the president of Sears.

And he said: "We love the scripts, we've read everything over. I've just been thinking about it and don't call the delivery man Mr. McCurdy. It just seems too self-serving."

So Fred literally turned to me and said, "We start in 20 minutes. We've got to get you a name." There was about a 10-second beat in between. He said, "I know. McCurdy. McFeely."

Because that's his middle name: Fred McFeely Rogers.

Q: I get the feeling that Mister Rogers was the same, on air or off. Did you see Mr. McFeely as a role or as an extension of Mister Rogers, or was it your own personality?

A: You hit on a combination of everything.

It was an extension of my own personality. Fred, as I said, wrote the scripts and he would take elements of what he knew the cast members were like and work it in the script.

He knew I loved film and theater, and that's in fact how some of those "How People Make Things" began. He would come over to Mr. McFeely's house and I would show him on my projector a film or maybe my trip to something.

And I speak quickly. I remember when he interviewed me, he said, "You speak very fast and that's what Mr. McFeely should be like. He should be always in a hurry." And it gave Fred a reason to encourage children to slow down.

He'd say, "Mr. McFeely, you've got to take your time. Come in and sit down for a while. Do some sitting-still exercises." He would use it as a teaching vehicle.

There's a musical term, "contrapuntal ," where a fast piece of music goes up against a slow piece of music. I liken that to Fred and McFeely. Fred was always in control and McFeely was always frantic.

Q: Do former viewers react strongly to meeting Mr. McFeely?

A: Oh, they do, they do.

It's not just me, but I'm part of something they grew up with.

Last weekend at an event, there was a woman who said, "I'm tearing up. This has meant so much to me, this program." And meeting McFeely was her childhood being relived.

Ironically, it's a positive thing that they get excited and tear up. It meant she had a great childhood if she can get misty-eyed at meeting Mr. McFeely. And it happens over and over.

Everywhere there's a high Hispanic population -- New York City, L.A., Albuquerque, Dallas -- invariably we get someone who says, "the program taught me how to speak English."

[Mister Rogers] speaks slow, clear and precise English. And he looks right at the camera.

Sears woos appliance shoppers with new stores, ads
By Karen Jacobs - Reuters.com
September 26, 2008

HOFFMAN ESTATES, Ill. (Reuters) - Sears, Roebuck & Co, whose sales have been hit by a soft U.S. economy, is moving to revive its appliance business by wooing shoppers with new stores, best-price promises and no-interest financing.

The retailer is opening at least 50 showroom-sized stores dedicated to home appliances this year in high-traffic strip malls. It has also boosted training in product knowledge and energy savings for its appliance staff.

"We've got great things to tell and we just haven't been saying them in a way that has been clear to the consumer," Steve Light, appliance general merchandise manager for parent Sears Holdings (nasdaq: SHLD - news - people ) Corp , told Reuters in an interview at company headquarters.

"We've got a vision .. to re-engage and rebuild our relationship with the American consumer," said Light, who took up the post earlier this year.

Sears says it will beat any competitor's appliance prices, even if it means looking them up on the Internet while the shopper is in the store. In October, it will begin a program offering zero percent financing and no payments for 12 months every day.

This week, the company launched an advertising campaign aimed at cash- strapped consumers who are seeking greater value for their money.

Thirty-second TV spots feature an "appliance blue crew" touting low prices, financing offers and next-day delivery to most U.S. ZIP codes.

The Hoffman Estates, Illinois, company has long been the top-selling U.S. appliance chain although its dominance has been challenged in recent years by rivals such as Lowe's Cos (nyse: LOW - news - people ) and Home Depot (nyse: HD - news - people ), which have expanded their offerings of kitchen and laundry products.

The slumping U.S. housing market and a growing financial market crisis have contributed to its woes. Sears Holdings, controlled by hedge fund manager Edward Lampert, posted a 62 percent decline in second-quarter profit last month on lower same-store sales at Sears and Kmart stores.

Last week, Fitch Ratings downgraded its ratings on some of Sears debt, warning that future liquidity levels could fall.

NEW FOCUS ON KEY UNITS

Sears Holdings is rebuilding its management and focusing on key businesses such as appliances and apparel, so they will be poised to grow when the economy steadies.

"Although the economy today is very poor relative to big-ticket items, appliances will be a growth category," said Douglas Moore, president of Sears Holdings appliance business.

"It's moving from being a white-goods business to a multi-color, multi-platform, multi-shape business with many choices around green, style and innovation," Moore added.

That renewed focus includes changes within stores and fine-tuned advertising messages. For instance, displays such as a "laundry gallery" with washing machines in a variety of colors are being added in mall-based stores to attract shoppers.

Sears is also increasing efforts to showcase the different brands it sells besides its private label Kenmore appliances. Model kitchens feature appliances from manufacturers such as Sweden's Electrolux and General Electric Co (nyse: GE - news - people ) .

Banc of America analyst David Strasser wrote in July that Sears gained 30 basis points of market share in the second quarter after 13 previous quarters of share losses.

Sears said it does not comment on market share.

Sears Holdings shares were up $1.87, or 2 percent, to $95.30 in Nasdaq trading Friday.

Medicare Drug Premium on Rise
By Jane Zhang and Vanessa Fuhrmans - Wall Street Journal
September 26, 2008

The average premium that seniors will pay for Medicare drug coverage in 2009 will rise, with the average for the 10 most-popular plans increasing 31%, according to an analysis of new government data.

The average premium will increase 24% to $37 a month for all standalone drug plans, up from $30 this year, according to Avalere Health LLC, a Washington, D.C., consulting company that analyzed data from Medicare, the federal health-insurance program for seniors.

The average monthly premium for Humana Inc.'s basic plan, for example, will rise to $40.83 in 2009 from $25.52 this year and $9.51 in 2006, the cheapest plan that year. The plan is the second largest by enrollment, with 1.5 million participants, and overall, Humana has
3.4 million people enrolled in Medicare drug plans. Monthly premiums can vary from county to county.

The nation's most popular plan with 2.7 million participants, UnitedHealth Group Inc.'s AARP "preferred" plan, will raise its average monthly premium to $37, 15.5% more from 2008. Overall, UnitedHealth plans have 5.4 million enrollees.

UnitedHealth declined to comment on its Medicare premium increases for 2009. But the company had blamed high Medicare drug costs for part of its poor earnings performance this year. It also raised premiums across the board, in both its own branded plan and those under the AARP name.

Humana spokesman Tom Noland said the increases reflect rising costs. "If [premium] prices are increasing more on the midlevel plans, it's simply because our experience tells us that's where we need to be -- premium-wise -- to cover our actual costs plus a small margin," he said.

When the drug program began in 2006, Humana's premiums were among the cheapest. Humana, Mr. Noland said, has provided the most cumulative value for its drug-plan members, saving them an average of $4,900 on drug costs during that time and that the premiums are still in line with rivals.

The drug plans are heavily subsidized by the federal government and are offered through private insurance companies. Insurers will begin advertising their plans Oct. 1, and the six-week enrollment period starts in mid-November.

It's unclear how the price increases will affect the market. Medicare beneficiaries tend to select a plan and stay with it, and the market is highly concentrated. Kerry Weems, acting administrator of Centers for Medicare and Medicaid Services, the federal agency that manages Medicare, said, beneficiaries should shop around to avoid "significant premium increases or changes."

This Season, Tense Times for Retailers
By Stephanie Rosenbloom - New York Times
September 23, 2008

For many of the nation’s retailers, this is shaping up to be the most critical holiday season since the recession of the early 1980s. Chains that fare poorly could end up as ghosts of Christmases past.

Not only are retailers grappling with a sputtering economy and tight- fisted consumers, but the credit crisis is making it harder for them to finance their operations. Most retailers that are not already bankrupt have managed to buy their winter inventories, but that happened before Wall Street was brought to its knees.

With credit continuing to tighten, industry professionals now think any weak retail chain that turns in a below-average Christmas performance will be a candidate for bankruptcy early in the new year.

“Management teams of some of the leading department stores are very much expecting significant store closures or outright bankruptcies,” said Bill Dreher, an analyst with Deutsche Bank Securities. “There’s going to be a lot of market share up for grabs.”

Already, more than a dozen retail chains have filed for bankruptcy this year — including Boscov’s, Mervyn’s, Steve & Barry’s, Linens ’n Things and the Sharper Image. That is double the volume of bankruptcies last year, according to the International Council of Shopping Centers, an industry group. And a new crop is expected in February and March.

“Everybody’s going to forestall any kind of closing or bankruptcy filings as long as they possibly can now that we’re on the doorstep of the holiday season,” said John D. Morris, an analyst at Wachovia. “ From here, it’s kind of the homestretch.”

Retail analysts and consultants said weak chains that had been giving up market share include the department stores Bon-Ton and Gottschalks and the discounter Stein Mart. They also cited Sears Holdings, Dillard’s, Pacific Sunwear and Coldwater Creek as performing poorly.

Antony Karabus, chief executive of Karabus Management, which advises retailers, said one reason some chains were ailing was that they went on shopping sprees in robust times and bought more real estate than they could afford. “A lot of people were seduced by the easy accessibility to debt at relatively low rates,” he said.

Boscov’s, for instance, bought about 10 stores and is now selling off that many. Bon-Ton — which in August had a 10.3 percent decrease in stores open at least a year, an important indicator of retail health — bought dozens of stores from Saks.

While recent sales figures for the aforementioned retailers were down from a year ago, the chains argue that they are not in extreme distress.

For example, when some of its debt ratings were downgraded last week, Sears Holdings issued a statement saying it was being unfairly treated, noting that other companies were also suffering from high levels of debt taken on in the last few years. Sears says it has generated $5.2 billion of operating cash since the Sears chain merged with Kmart to form Sears Holdings, in 2005, and it generated $1.5 billion in cash last year.

A spokesman for the company declined to elaborate on the statement, which said that Sears “has consistently maintained a strong capital structure and generated significant cash flow from operations.”

Though Christmas is traditionally the time of year when retailers earn much of their profit, this year they will have to contend with a frosty sales environment. Consumers, feeling the effects of the credit squeeze and inflation, are expected to continue to trade down to lower-priced items and chains, and to cut back on big-ticket gifts. The National Retail Federation estimates that holiday sales will rise a meager 2.2 percent this year, well below the 10-year average of 4.4 percent.

The Wall Street crisis “just exacerbates the situation,” said Rosalind Wells, the federation’s chief economist. “You can’t turn on your radio or TV without hearing the world is coming to an end.”

Many retailers are doing their best to prepare, in part by controlling costs, and analysts say some of them may be able to ride out a weak season. “I think the industry has gone into the current holiday season with pretty conservative plans with inventory and employment levels,” said Carl Steidtmann, Deloitte Research’s chief economist.

Indeed, for retailers this Christmas is about trimming inventories, not trees. But a delicate balancing act is required. They must stock enough merchandise to fill the stores’ racks and shelves but not so much that it ends up having to be put on sale, eroding profits. The strongest retailers — those that are able to pull off the balancing act — may well post low sales growth figures, but their profit margins will be healthy compared to weaker stores.

“We think we’re well positioned going into the holiday,” said Myron E. Ullman III, chairman and chief executive of J. C. Penney, adding that the company had more than $2 billion in cash and relatively low debt.

Jim Sluzewski, a spokesman for Macy’s, said the retailer had ample cash on hand (nearly $1.3 billion in the three-month reporting period that ended Aug. 2), part of which is being used to pay down debt. Macy’s also has a $2 billion line of credit in place with Bank of America and JPMorgan Chase as the lead banks. “It’s too soon to know what the effect will be on the overall economy or the consumer,” Mr. Sluzewski said in an e-mail message.

Retail professionals say they think the impact of extensive Wall Street layoffs will be felt most acutely by stores in New York, particularly those that cater to upscale customers. Said Walter Loeb, president of Loeb Associates, a retail consulting firm: “No Ferraris, no Lexuses, no luxury apartments.”

New AIG Chief Liddy Has Finance in His Blood
Former CFO at Sears and G.D. Searle, his accomplishments include axing the Sears Catalog.
By Stephen Taub - CFO.com
September 17, 2008

In choosing Edward Liddy as the new CEO of American International Group, federal regulators once again show a partiality in a crisis for leaders with strong finance backgrounds.

Liddy, most recently with private equity giant Clayton, Dubilier and Rice Inc., first established his reputation as finance chief at two major corporations: Sears, Roebuck & Co. and pharmaceutical company G.D. Searle & Co.

At AIG, he will succeed CEO Robert Willumstad, who, according to the Wall Street Journal, is going quite reluctantly. (The paper reported that, when told by Treasury Secretary Henry Paulson that Willumstad should step aside, he replied: "If that's what you want, I'll do it.")

Edward Liddy joined Clayton Dubilier earlier this year, after retiring as chairman of insurance powerhouse Allstate Corp. At Allstate, he was president and chief operating officer from 1994 to 1998, chairman and CEO from 1999 to 2006, and chairman from January
2007 to April 2008. He is credited with leading its initial public offering and 1995 spin-off of Allstate from Sears.

Liddy was the first outsider to lead Allstate. Before that, the insurer was known for recruiting former military officers, according to a 2005 article in Chicago Business.

In his first Allstate managerial meeting in late 1998, shortly before formally assuming the CEO job, Liddy reportedly told a gathering of 200 top managers: "A number of you in this room probably will not be with us next year."

Before taking Allstate's reins, Liddy served as senior vice president and CFO, and as senior vice president-operating of Sears, working under then CEO Edward Brennan. There, according to Chicago Business, Liddy was the one who jettisoned the legendary Sears Catalog.

Also as CFO, he was credited with helping to manage the breakup of Sears' financial diversification, which included Allstate, brokerage Dean Witter, real estate broker Coldwell Banker and credit card issuer Discover Financial. Remember Sears's early-1980s moniker: "Stocks and Sox"?

Before he joined Sears, Liddy's role as CFO of G. D. Searle — starting in 1981 — put him under CEO Donald Rumsfeld, later to become President George W. Bush's secretary of defense. Searle was sold to Monsanto in 1985.

Liddy is currently a director of three titans of U.S. industry: 3M Co., Goldman Sachs Group Inc. and Boeing Co. He is chairman of the audit committee at Goldman and a member of the Compensation Committee and the Governance, Organization, and Nominating Committee at Boeing.

Liddy holds a B.A. degree from Catholic University of America and an M.B.A. from George Washington University.

Sears Names Hamblen CMO
Promotion at retailer comes amid massive company-wide reorganization
By Andrew McMains - Ad Week
September 17, 2008

NEW YORK Sears Holding Corp. has named Don Hamblen CMO and vp for the struggling Sears division, effective immediately. Hamblen, who was promoted from within, was vp, marketing and planning.

In his new role, Hamblen reports to svp Richard Gerstein, the client said. Hamblen fills a vacancy that was created when Gerstein rose to replace CMO Maureen McGuire in August.

This is just the latest of many changes at Sears under chairman Edward Lampert. The Hoffman Estates, Ill.-based company, which also operates Kmart, is trying to find new ways to spur same-store sales. For example, last month it announced the launch of a clothing line from rapper LL Cool J. It rolled out last week at stores as well as at Sears.com.

Hamblen, who has been at Sears for two years, will be put to the task of reconnecting with consumers via Sears' sizeable budget. Last year, Sears spent nearly $500 million on media (not including online), per Nielsen Monitor-Plus. Sears' lead agency is WPP's Y&R, Chicago.

Sears' same-store sales declined 6.7 percent for its second quarter ended Aug. 28. "Our second-quarter results reflect the continued effects of a slowing economy which contributed to the earnings declines we have experienced since the third quarter of 2007," said W. Bruce Johnson, Sears Holdings' interim CEO and president. "While it was a difficult quarter, we were successful in reducing our domestic inventory levels by $500 million which should lead to lower markdowns and favorably impact our gross margin rates in the second half of the year."

Sears is the nation's fourth-largest retailer with more than $50 billion in annual revenue and about 3,800 stores in the United States and Canada.

Earlier this month, Kmart tapped Mark Snyder, a former svp, global brand management at Holiday Inn, as its new CMO. He replaced Bill Stewart who departed in June. Kmart's agency is IPG's DraftFCB, New York.

Liddy’s mission:
Dismantle AIG to make good on gov't bailout
By Steve Daniels - Chicago Business.com
September 17, 2008

(Crain’s) — In tapping former Allstate Corp. CEO Edward Liddy to run American International Group Inc. following the federal government’s $85-billion bailout of the insurance giant, U.S. Treasury Secretary Henry Paulson has chosen someone he knows well and trusts.
After all, Mr. Paulson picked Mr. Liddy to join the board of Goldman Sachs Group Inc. in 2003 when Mr. Paulson ran Goldman.

Now Mr. Liddy, 62, who retired as chairman of Allstate less than five months ago, takes on the task of largely dismantling the country’s largest insurer, with operations spanning the globe and reaching into many nooks and crannies of the financial markets.

“This was a big surprise to him over the weekend,” said W. James Farrell, former CEO of Illinois Tool Works and a longtime friend of Mr. Liddy’s, having served on the board of Allstate . “I’m sure he was pressed on, we need you to help your country.”

Job No. 1 for Mr. Liddy will be ensuring taxpayers are repaid on the $85-billion, 24-month loan the Treasury Department agreed to make in order to keep AIG out of bankruptcy and forestall a crippling ripple effect that could have imperiled other financial institutions around the world. The federal government, in return, takes an 80% equity stake in AIG, massively diluting existing shareholders’ stock.

Preventing a taxpayer loss on the bailout should be doable, given the fact that AIG has many profitable units. Its woes are largely centered on a U.K.-based unit that issued lightly regulated financial instruments that effectively insured other financial institutions against losses in their mortgage-related investments. As the housing market collapsed, capital needed to support that business mushroomed, leading AIG to the brink of bankruptcy.

“Our preliminary estimate of the breakup value for the company is well over $150 billion,” wrote Bijam Moazami, insurance industry analyst for Friedman Billings Ramsey & Co. Inc. in Virginia.

“We believe that the government will try to maximize the value of its 80% holding by pushing the company to sell most of its assets in an orderly fashion,” he adds.

The job will be immense, but Mr. Liddy has shown many of the skills it will take during previous stints at Allstate and Sears Roebuck & Co. He’s intensely analytical, having played an instrumental role as Sears’ chief financial officer in the breakup of the Sears financial empire in the early 1990s that resulted in the sales or spinoffs of Allstate, credit card operation Discover Financial and real estate brokerage Coldwell Banker.

When he became CEO of Allstate in 1998, Mr. Liddy undertook a wrenching restructuring of the insurer’s massive agent force, requiring employee agents to become independent contractors and provide for their own health and retirement benefits. After a rocky start at the Northbrook-based insurance giant, he led Allstate through a period of strong earnings growth fueled by steady rate hikes, cost controls and a new focus on shielding the company from heavy exposure in catastrophe-prone areas like the Gulf Coast.

“I can’t think of anyone else who has a tool kit like that who also happens to be an expert in insurance,” said Peter Crist, chairman of executive search firm Crist/Kolder Associates in Hinsdale. Mr. Crist handled Allstate’s recent search for a new chief financial officer.

One key question, Mr. Crist says, is whether Mr. Liddy will step down from his board seat at Goldman, particularly if the investment bank is asked to handle any of the AIG asset sales.

Another is whether Mr. Liddy’s task will be to methodically sell off all of AIG, or preserve a core that would continue as a going concern. Mr. Paulson, who has taken a central role in managing the federal government’s response to the credit crisis, undoubtedly will have much to say about that, at least until a new presidential administration takes over early next year.

Mr. Crist identified another ironic feature of Mr. Liddy’s appointment: The masters of the universe in New York, who made the mortgage meltdown possible by providing the capital to fuel the giddy underwriting of home loans to unqualified home buyers, now are turning to the Heartland for help cleaning up the mess.

“The fact that in the New York meltdown the guys who are at the top of the world reached to Chicago to help, I take great pleasure in,”  Mr. Crist said. Mr. Liddy was not available to comment.

Former Allstate CEO Liddy expected to be named CEO of AIG
Chicago Business.com
September 17, 2008

(AP) — The U.S. government stepped in Tuesday to rescue American International Group Inc., one of the world's largest insurers, with an $85 billion injection of taxpayer money and a former Chicago executive is expected to take the helm. Under the deal, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

AIG's chief executive, Robert Willumstad, is expected to be replaced by Edward Liddy, the former head of insurer Allstate Corp., according to The Wall Street Journal, citing a person it did not name. Willumstad had been at the helm of AIG since June.

A call to AIG to confirm the executive change was not immediately returned.

It was the second time this month the feds put taxpayer money on the hook to rescue a private financial company, saying its failure would further disrupt markets and threaten the already fragile economy.

AIG said it will repay the money in full with proceeds from the sales of some of its assets.

Under the deal, the Federal Reserve will provide a two-year $85 billion emergency loan to AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 percent stake in AIG and the right to remove senior management.

The move was similar to government's seizure on Sept. 7 of mortgage giants Fannie Mae and Freddie Mac, where the Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke.

The Fed said it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.

It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.

The decision to help AIG marked a reversal for the government from the weekend, when it refused to use taxpayer money to bail out Lehman Brothers Holdings Inc. Lehman, which filed for bankruptcy protection Monday, collapsed under the weight of mounting losses related to its real estate holdings.

The White House said it backed the Fed's decision Tuesday.

"These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy, " White House spokesman Tony Fratto said.

After meeting with Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke in a late-night briefing on Capitol Hill, Congressional leaders said they understood the need for the bailout.

"The administration is approaching an unprecedented step, but unfortunately we are living in unprecedented times. Hearing of these plans, you have to stop to catch your breath. But upon reflection, the alternatives are much worse," said Sen. Charles Schumer, D-N.Y.

In a statement late Tuesday, AIG's board of directors said the loan will protect all AIG policy holders, address concerns of rating agencies and buy the company time to sell off assets.

"We expect that the proceeds of these sales will be sufficient to repay the loan in full and enable AIG's businesses to continue as substantial participants in their respective markets," the statement said. "In return for providing this essential support, American taxpayers will receive a substantial majority ownership interest in AIG."

On Tuesday, the Fed decided to keep its key interest rate steady at 2 percent, but acknowledged stresses in financial markets have grown and hinted it stood ready to lower rates if needed.

The central bank also pumped $70 billion into the nation's financial system to help ease credit stresses. In emergency sessions over the weekend, the Fed expanded its loan programs to Wall Street firms, part of an ongoing effort to get credit flowing more freely.

The stock market, which Monday posted its largest point loss session since the Sept. 11 attacks, recovered Tuesday after the Fed's decision on interest rates. The Dow Jones industrials rose 141 points after losing 500 points on Monday.

AIG's shares swung violently, though, as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent — and another 45 percent after hours.

The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.

The worries were heightened Monday after Moody's Investor Service, Standard and Poor's and Fitch Ratings lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance — such as banks and other financial companies — would have found themselves without protection against losses on the debt they hold.

Kmart names hotel exec Snyder chief marketer
Home Textiles Today
September 17, 2008

Hoffman Estates, Ill. – Mass merchandiser Kmart has recruited Mark Snyder from Holiday Inn as the new chief marketing officer at the 1,300-store retailer, a division of Sears Holdings.

Snyder was svp of global brand management for the Holiday Inn family of brands, owned by Intercontinental Hotels Group. He previously worked in marketing at Hilton Hotels and Harrah's Entertainment.

Snyder reports, effective today, to Richard Gerstein, svp marketing, Sears Holdings. Gerstein himself was named to the top corporate marketing post only in the past several weeks, following the Aug. 29 departure of Maureen McGuire from that post. McGuire had taken on the then-newly created cmo job in October 2005, reporting directly to Sears Holdings chairman Edward Lampert.

Gerstein, a health and beauty consumer goods marketing executive with a stint at Procter & Gamble, joined the company as Sears cmo in August 2007. That spot is now open; the company said it is seeking a successor. Gerstein chose Snyder for the Kmart position, the company confirmed No virus found in this incoming message.

U.S. to Take Over AIG in $85 Billion Bailout;
Central Banks Inject Cash as Credit Dries Up

Emergency Loan Effectively Gives Government Control of Insurer;
Historic Move Would Cap 10 Days That Reshaped U.S. Finance

By Matthew Karnitschnig, Deborah Solomon, Liam Pleven and Jon E. Hilsenrath
Wall Street Journal
September 17, 2008

The U.S. government seized control of American International Group Inc. -- one of the world's biggest insurers -- in an $85 billion deal that signaled the intensity of its concerns about the danger a collapse could pose to the financial system.

The step marks a dramatic turnabout for the federal government, which had been strongly resisting overtures from AIG for an emergency loan or some intervention that would prevent the insurer from falling into bankruptcy. Just last weekend, the government essentially pulled the plug on Lehman Brothers Holdings Inc., allowing the big investment bank to go under instead of giving it financial support. This time, the government decided AIG truly was too big to fail.

The U.S. negotiators drove a hard bargain. Under terms hammered out Tuesday night, the Fed will lend up to $85 billion to AIG, and the U.S. government will effectively get a 79.9% equity stake in the insurer in the form of warrants called equity participation notes. The two-year loan will carry an interest rate of Libor plus 8.5 percentage points. (Libor, the London interbank offered rate, is a common short-term lending benchmark.)

The loan is secured by AIG's assets, including its profitable insurance businesses, giving the Fed some protection even if markets continue to sink. And if AIG rebounds, taxpayers could reap a big profit through the government's equity stake.

"This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy," the Fed said in a statement.

It puts the government in control of a private insurer -- a historic development, particularly considering that AIG isn't directly regulated by the federal government. The Fed took the highly unusual step using legal authority granted in the Federal Reserve Act, which allows it to lend to nonbanks under "unusual and exigent" circumstances, something it invoked when Bear Stearns Cos. was rescued in March.

As part of the deal, Treasury Secretary Henry Paulson insisted that AIG's chief executive, Robert Willumstad, step aside. Mr. Paulson personally told Mr. Willumstad the news in a phone call on Tuesday, according to a person familiar with the call.

Mr. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp.

AIG's bailout caps a tumultuous 10 days that have remade the American financial system. In that time, the government has engineered rescues that insert it deep into the housing and insurance industries, while Wall Street has watched two of its last four big independent brokerage firms exit the scene. The U.S. on Sept. 6 took over mortgage-lending giants Fannie Mae and Freddie Mac as they teetered near collapse. This Sunday, the U.S. refused to bail out Wall Street pillar Lehman Brothers, which filed for bankruptcy-court protection and is now being sold off in pieces. That same day, another struggling Wall Street titan, Merrill Lynch & Co., agreed to sell itself to Bank of America Corp.

The AIG deal followed a day of high drama in Washington. The Treasury's Mr. Paulson and Federal Reserve Chairman Ben Bernanke convened in the early evening an unexpected meeting of top congressional leaders. Late in the trading day Tuesday, anticipation that the government might assist the insurer helped propel the Dow Jones Industrial Average to a 1.3% gain.

In bailing out AIG, the Federal Reserve appeared to be motivated in part by worries that Wall Street's financial crisis could begin to spill over into seemingly safe investments held by small investors, such as money-market funds that invest in AIG debt.

Indeed, on Tuesday the $62 billion Primary Fund from the Reserve, a New York money-market firm, said it "broke the buck" -- that is, its net asset value fell below the $1-a-share level that funds like this must maintain. Breaking the buck is an extremely rare occurrence. The fund was pinched by investments in bonds issued by now collapsing Lehman Brothers.

Money-market funds are supposed to be among the safest investments available. No fund in the $3.6 trillion money-market industry has lost money since 1994, when Orange County, Calif., went bankrupt. A number of money-market funds own securities issued by AIG. The firm is also a big insurer of some money-market instruments.

Credit Downgrade

AIG's financial crisis intensified Monday night when its credit rating was downgraded, forcing it to post $14.5 billion in collateral. The insurer has far more than that in assets that it could sell, but it could not get the cash quickly enough to satisfy the collateral demands. That explains the interest in obtaining a bridge loan to carry it through. AIG's board approved the rescue Tuesday night.

AIG's board said in a statement that the deal would "protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis."

The final decision to help AIG came Tuesday as the federal government concluded it would be "catastrophic" to allow the insurer to fail, according to a person familiar with the matter. Over the weekend, federal officials had tried to get the private sector to pony up some funds. But when that effort failed, Fed Chairman Bernanke, New York Fed President Timothy Geithner and Treasury Secretary Paulson concluded that federal assistance was needed to avert an AIG bankruptcy, which they feared could have disastrous repercussions.

Staff from the Federal Reserve and Treasury worked on the plan through Monday night. President George W. Bush was briefed on the rescue Tuesday afternoon during a meeting of the President's Working Group on Financial Markets.

That the government would prop up AIG financially offers a stark indication of the breadth of the insurer's role in the global economy. If it were to have trouble meeting its obligations, the potential domino effect could reach around the world.

For one thing, banks and mutual funds are major holders of AIG's debt and could take a hit if the insurer were to default. In addition, AIG was a major seller of "credit-default swaps," essentially insurance against default on assets tied to corporate debt and mortgage securities. Weakness at AIG could force financial institutions in the U.S., Europe and Asia that bought these swaps to take write-downs or losses.

Crisis on Wall Street

AIG's millions of insurance policyholders appear to be considerably less at risk. That's because of how the company is structured and regulated. Its insurance policies are issued by separate subsidiaries of AIG, highly regulated units that have assets available to pay claims. In the U.S., those assets can't be shifted out of the subsidiaries without regulatory approval, and insurance is also regulated strictly abroad.

Tuesday afternoon, after the market closed, AIG put out a statement saying its basic insurance and retirement services businesses are "fully capable of meeting their obligations to policyholders." AIG said it was trying to "increase short-term liquidity in the parent company," but said that didn't "include any effort to reduce the capital of any of its subsidiaries or to tap into Asian operations for liquidity." Asia is one of AIG's largest markets.

Financial Pain

Where the company is feeling financial pain is at the corporate level, even while its insurance operations are healthy. The urgency of federal aid came into stark relief Tuesday as other options fell off the table and pressures continued to build. On Tuesday, AIG's attempt to raise as much as $75 billion from private- sector banks failed. The banks advising the firm concluded it would be all but impossible to organize a loan of that size, making the government AIG's chief hope.

As a result of its credit downgrades, the insurer has to post $14.5 billion in collateral to bolster its credit rating. In the debt markets, AIG also has to post additional collateral to investment banks and others it trades with.

Adding to AIG's woes, investors continued to pummel the company's stock on Tuesday, pushing the share price down 21%, to $3.75. It was the third double-digit percentage decline in the past three trading days. AIG's shares are now down 94% for the year.

AIG's cash squeeze is driven in large part by losses in a unit separate from its traditional insurance businesses. That financial- products unit, which has been a part of AIG for years, sold the credit-default swap contracts designed to protect investors against default in an array of assets, including subprime mortgages.

But as the housing market has crumbled, the value of those contracts has dropped sharply, driving $18 billion in losses over the past three quarters and forcing AIG to put up billions of dollars in collateral. AIG raised $20 billion earlier this year. But the ongoing demands are straining the holding company's resources. That strain contributed to the ratings downgrades on Monday. Those downgrades, in turn, ratcheted up the pressure on the company to come up with more cash, quickly.

Most insurance companies don't have financial-products units like these. But over nearly four decades, former CEO, Maurice R. "Hank" Greenberg built AIG into a firm that resembled no other. He transformed its insurance business, both by expanding abroad -- notably in China, where AIG has its roots -- and by buying up other firms.

Mr. Greenberg pushed into areas that have little to do with bread-and- butter businesses like selling life insurance or protecting companies against property losses. In 1990, for instance, he bought International Lease Finance Corp., which leases planes to airlines.

In 2005, Mr. Greenberg stepped down amid an accounting scandal. But Mr. Greenberg, who is fighting civil charges related to the scandal and has denied wrongdoing, didn't fade from the scene. He still heads a firm that is AIG's largest shareholder, and on Tuesday, he sent a letter to current CEO, Mr. Willumstad, saying he was "ready to offer any assistance that I can."

'I'll Do It'

Now, however, Mr. Willumstad himself will be leaving, after having been asked to step aside by the Treasury's Mr. Paulson. Mr. Willumstad, who recently took over as AIG's chief executive to try to turn around the firm, was surprised by the request. "If that's what you want, I'll do it," he said to Mr. Paulson, according to a person familiar with the call. AIG's board was unhappy with the decision but felt it had no choice but to go along, as the only other option was bankruptcy.

The fate of a corporate chief executive is normally the province of a board of directors. The decision by the Treasure Secretary to essentially oust Mr. Willumstad underscores further the magnitude of the government's intervention.

Mr. Willumstad's departure marks the end of a brief, tumultuous run. He joined AIG as a director in early 2006, after leaving the No. 2 post at Citigroup Inc., and became AIG's chairman later that year. In June, as AIG was reeling from record losses, the board forced out Mr. Willumstad's predecessor and gave him the top job. He had planned to unveil his own strategy for AIG on Sept. 25.

By tapping Mr. Liddy as AIG's next CEO, the government is turning to someone with deep experience in the insurance industry, having served as chief executive of Allstate from 1999 to 2006. He stepped down as chairman earlier this year. Allstate is a different type of insurer than AIG, focusing on selling car and home insurance to Americans, whereas AIG sells an array of insurance policies to individuals and businesses world-wide.

Mr. Liddy also has experience pulling apart empires, having helped dismantle Sears, Roebuck & Co. (from which Allstate was spun off) in the 1990s. Before joining Sears, Mr. Liddy worked under Donald Rumsfeld at drug maker G.D. Searle & Co. Mr. Liddy is on the board at Goldman Sachs Group, the investment bank that Mr. Paulson led before becoming Treasury Secretary.

As confidence in AIG declined recently, the amount of money it felt compelled to raise to calm its constituents continued to rise. Over the weekend, the figure was $40 billion. That climbed to $75 billion on Monday and, according to a person close to the company, rose further on Tuesday.

--Diya Gullapalli, Serena Ng, Damian Paletta and Ashby Jones contributed to this article.

Former Allstate Chief Picked by Government to Run AIG
By David Mildenberg - Bloomberg
September 17, 2008

Former Allstate Corp. Chief Executive Officer Edward Liddy was hired by the U.S. government to run American International Group Inc. as part of a plan to avert a collapse of the country's largest insurer.

Liddy, 62, was picked after discussions between regulators and AIG, said a person familiar with the matter, declining to be identified because no formal announcement was made. He replaces Robert Willumstad, who's leaving after the government took control of New York-based AIG in an $85 billion bailout.

At AIG, Liddy, who ran Allstate from 1999 until 2006, will need to stem record losses tied to mortgages and preside over the sale of units, ranging from a home and auto lender to the biggest U.S. airline leasing company. AIG plummeted 94 percent this year in New York Stock Exchange trading, erasing more than $125 billion of market value.

Liddy, a partner at private-equity firm Clayton Dubilier & Rice Inc., is "a brilliant financial strategist,'' said Robert Pike, a retired chief administrative officer who reported to Liddy at Northbrook, Illinois-based Allstate, the largest publicly traded U.S. home and auto insurer. ``He's able to take an extraordinary amount of data and synthesize it, probably better than anybody I ever met,'' Pike said.

Treasury Secretary Henry Paulson made the decision to oust Willumstad, 63, who became AIG's CEO in June, and informed him of the news yesterday, the Wall Street Journal reported, citing a person familiar with the matter. Liddy was elected as a director of Goldman Sachs Group Inc. in 2003, when Paulson was CEO of the New York-based investment bank.

Hurricane Katrina

AIG spokesman Nicholas Ashooh declined to comment about the management change, and Liddy and Willumstad weren't immediately available for comment. When Willumstad took control of AIG three months ago, he promised to complete a strategic review by Sept. 25. AIG unraveled before he was able to unveil his plan.

Liddy joined Allstate in 1994 to oversee the spinoff from retailer Sears Roebuck & Co., where he had been chief financial officer. He was named CEO five years later and led the insurer in 2005 when hurricanes Katrina, Rita and Wilma cost Allstate a combined $5 billion.

Liddy began an effort that continued under current Allstate CEO Tom Wilson to scale back the coverage of homes in catastrophe-prone regions. In Louisiana, the insurer stopped covering wind damage in some parishes, restricted the sale of new policies, and bought extra reinsurance to protect itself against losses exceeding $500 million in the state.

Planes to Factories

Allstate sells home, auto and life insurance, almost exclusively in the U.S., and mostly to individual customers. AIG, which operates in more than 100 countries, competes with Allstate and also covers planes, shipping and factories, and protects commercial property owners against terrorist attacks. AIG sold financial guaranties on fixed-income investments that led to $25 billion of writedowns over the past year.

"Liddy is a respected insurance executive, whose experience and expertise will be tested given the challenging situation he has been given,'' said Tom Kersting, an analyst at Edward Jones in St. Louis.

Liddy does have experience in mortgage insurance, a business that lost money for AIG for four straight quarters and is expected to be unprofitable this year. He served as chairman of PMI Group Inc., the No. 2 U.S. mortgage insurer, about 14 years ago. Mortgage insurers reimburse lenders when borrowers fail to pay their debts.

Shaking Up Management

Shortly before Liddy took over as Allstate CEO, he told a meeting of 200 managers that a number of them wouldn't be around in a year, according to a May 2005 Crain's Chicago Business story that Pike confirmed. Liddy ended up ousting executives including the finance chief and investment officers.

"Ed looked around and picked those people he felt would add value and complement their culture, and I think he did pretty damn well,'' said Pike, who worked at Allstate for 35 years.

Allstate gained about 9.5 percent a year in New York trading under Liddy, beating the Standard & Poor's 500 Index during his tenure.

"Ed Liddy led Allstate from being a typical average performance subsidiary of Sears to becoming one of the best- capitalized and best- managed insurers in the U.S.,'' said Cliff Gallant, an analyst at KBW Inc. in New York. ``He is known for integrity and strong leadership.''

Allstate ranks second to policyholder-owned State Farm Mutual Automobile Insurance Co. of Bloomington, Illinois, in the U.S. home and auto insurance market.

New Jersey Roots

Liddy grew up in New Jersey and worked at Ford Motor Co. before moving to Chicago in 1981 to join G.D. Searle & Co., where Donald Rumsfeld, later the secretary of defense, was CEO. He moved to Sears in 1988 to work under CEO Edward Brennan. At Sears he helped oversee the spinoffs of Discover Financial Services, real estate broker Coldwell Banker Corp. and securities brokerage Dean Witter.

Liddy has an undergraduate degree from Catholic University of America and an M.B.A. from George Washington University, both in Washington, D.C. He was previously chairman of Northwestern Memorial Healthcare, which operates one of Chicago's largest hospital systems.

"Unlike a lot of CEOs, Ed doesn't take on a regal air and he's not pompous in any way,'' Pike said.

Big law firm to stay at Sears Tower
By Thomas A. Corfman - Chicago Business
September 16, 2008

(Crain’s) — Law firm Schiff Hardin LLP has decided to keep its offices in Sears Tower, waiving an option for an early termination of its lease for 205,000 square feet.

The law firm is the fourth-largest tenant in the iconic skyscraper, and its defection to another building would have been a blow to Sears Tower’s owners, a group that includes Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinian.

Schiff is the second big tenant to decide against an early termination of its lease.

“Tenants at Sears Tower enjoy incredible views and unique, open floor plans, inside a world-class building that is an icon for success,” Michael Kazmierczak, a senior vice-president with U.S. Equities Realty LLC, which manages the building, says in news release. As a part of the deal, Schiff is partly expanding its space to more than 217,000 square feet.

Schiff tested the market on a possible move, but may have found it difficult to find a deal that would match the economic terms of its current lease. The firm was paying $32 per square foot gross rent, including taxes and operating expenses, according to a financial summary of the building issued last year by Sears Tower’s lender, UBS A.G.

Now that the law firm has passed on the termination option, Schiff’s lease runs until 2024.

Rosemont-based real estate firm Colliers Bennett & Kahnweiler Inc. represented Schiff.

Sears Holdings Names President for Jewelry Business Unit
Trading Markets
September 15, 2008

HOFFMAN ESTATES, Ill., Sept 15, 2008 /PRNewswire -- Sears Holdings Corporation announced today that Michelle Pearlman has joined Sears Holdings as SVP and president -- Jewelry.

Pearlman was most recently with Ann Taylor Stores Corporation, where she served as EVP, ATC Direct, leading the internet sales division, including AnnTaylor.com and AnnTaylorLOFT.com. She was responsible for e-commerce merchandising, marketing, technology and operations. She joined Ann Taylor in 2004 after five years at McKinsey & Company, most recently as an Associate Principal where she managed turnaround and growth strategies with numerous retail clients and prior to that, spent seven years with Procter & Gamble where she held brand management and customer business development roles.

"Michelle brings a wealth of expertise in managing profitable online and traditional retail businesses and driving operational turnarounds," said Bruce Johnson, Interim CEO and president of Sears Holdings. "As we continue to work to transform our business, we have been concentrating on strengthening our leadership bench. Since we announced our new business unit structure, we have been able to add a number of talented business presidents with extensive experience running related operations including: Jim Barr (Microsoft Corporation), John Froman (Namco, LLC and Circuit City), Nick Grayston (Foot Locker, Inc.), Craig Israel (Robinson's-May/Meier & Frank and Kaufmann's), Stu Reed (Motorola) and Guenther Trieb (Procter & Gamble)."

Pearlman holds a MBA from the University of Chicago, Graduate School of Business. She also earned a Bachelor's degree from Stanford University.

Kmart Gets a New CMO
Former Holiday Inn Exec Mark Snyder Will Succeed Bill Stewart
By Natalie Zmuda - Advertising Age
September 11, 2008

NEW YORK (AdAge.com) -- Kmart has a new chief marketing officer: Mark Snyder, formerly of Holiday Inn.

Kmart's parent, Sears Holdings, said Mr. Snyder would take on the role of VP-CMO. He succeeds Bill Stewart, who left the company to become a full-time volunteer on a campaign to protect gay marriage in California.

Mr. Snyder joins the company from InterContinental Hotels Group, where he was senior-VP of global brand management for the Holiday Inn family of brands. Prior to working with InterContinental, Mr. Snyder spent time at Hilton Hotels and Harrah's Entertainment. He will report to Richard Gerstein, chief marketer for Sears Holdings.

Mr. Snyder worked on a relaunch of Holiday Inn in 2007, which was meant to create a more contemporary brand image. That background, said Mr. Gerstein, will be a boon to Kmart.

A 'proven leader'

"Mark comes to Sears Holdings with over 20 years of experience in hospitality branding, competitive market positioning, consumer experience development, advertising and promotional marketing," Mr. Gerstein said in an internal announcement. "He is a proven leader who has designed and implemented successful branding strategies, along with building and developing results-oriented teams."

The search is still on for a chief marketer for the Sears, Roebuck & Co. division. Mr. Gerstein said that both internal and external candidates are being considered.

Last month Maureen McGuire, Sears Holding's chief marketing officer, departed the company. Mr. Gerstein, who had been CMO at Sears, Roebuck & Co., then ascended to the top spot.

Major vacancy at Sears Tower?
Sources say tenant Ernst & Young ready to exit, a blow to landmark's image
By David Roeder - Chicago Sun-Times
September 10, 2008

The consulting firm Ernst & Young has its landlord, the owners of Sears Tower, in a tight spot. Sources said E&Y is close to a deal to move its offices from the 110-story tower, where it has been one of the largest tenants since 1974.

The deal could shake up the downtown office market and deal a blow to the image of Sears Tower. One possibility, sources said, is that E&Y will move to an office building now under construction at 155 N. Wacker.

The John Buck Co. building is due to be completed in mid-2009. Buck has executed leases for about half of its 1.1 million square feet.

Sources said Buck is considering a novel agreement to lease space to E&Y even though the tenant's deal at Sears Tower doesn't expire until 2012. Buck would essentially hold space for E&Y until it was ready to move. Buck could be betting that downtown leasing will remain slow, so it's best to snag a large tenant even if it doesn't start paying rent for two or three years.

E&Y occupies about 387,000 square feet at Sears Tower. If it moves, it is believed to be seeking less than 300,000 square feet in a newer building that would allow more space efficiencies. E&Y spokeswoman Nicole Thomas said the firm has made no decision about its office location.

Executives at the Buck firm could not be reached. Jones Lang LaSalle Inc., which represents E&Y in lease negotiations, declined to comment.

Sears Tower's owners are New York investors Joseph Chetrit and Joseph Moinian, plus Skokie-based American Landmark Properties Ltd., who could not be reached. Many real estate executives here say that since gaining control of the tower in 2004, they have cost it several lucrative deals because of an abrasive way of dealing with people. They also forced from the building highly regarded Larry Levy restaurants.

Sears Tower keeps B of A through 2015
By Thomas A. Corfman - Chicago Real Estate Daily
September 10, 2008

(Crain’s) — Sears Tower has retained a key tenant in the iconic skyscraper, as Bank of America Corp. has decided against an early termination of its lease for about 181,000 square feet.

The decision is an important win for the owners of the 110-story structure: Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinian.

“We are pleased that Bank of America has chosen to remain . . . at Sears Tower and that the company views (the building) as part of its growth strategy here in Chicago," Michael Kazmierczak, a senior vice-president with U.S. Equities Realty LLC, which manages the building, says in a written response to a request for an interview. Sears Tower officials decline further comment.

The Charlotte, N.C.-based banking giant is the trophy tower’s fifth- largest tenant and one of four large tenants that have been testing the market on a possible move.

Sears Tower’s largest tenant, Ernst & Young U.S. LLP, continues its negotiations with John Buck Co. about moving to a new tower. Previously, the target of the talks was a proposed tower by Buck at 222 W. Randolph St.

But sources say the talks have shifted to include E&Y moving to the Chicago developer’s skyscraper under already construction at 155 N. Wacker Drive. Tower tenants mulling moves CB.com #30156 In a deal that has had several twists and turns, this isn't the first time that E&Y and Buck have considered 155 N. Wacker, but timing is an obstacle. 155 N. Wacker will be completed next year, three years after E&Y's lease expires.

Sears Tower's owners have expressed confidence they will keep E&Y. Buck executives decline to comment.

B of A has been evaluating its downtown space needs in the wake of its acquisition last year of the parent company of LaSalle Bank. B of A, a tenant in Sears Tower since 1995, had an option to terminate its lease in 2009, which would otherwise run until 2015.

But the bank is instead in negotiations to restructure its existing agreement and extend its lease, sources say. As a part of those talks, the bank may give back a portion of one of its four floors, those sources say.

An executive with Chicago-based real estate firm Jones Lang LaSalle Inc., which is advising B of A, did not return a call requesting comment. A B of A spokesman confirms that the bank did not exercise the termination option, but declines to comment on the negotiations.

“The bank is committed to maintaining a presence in the building through 2015,” the spokesman says an e-mail message.

At Sears Tower, B of A is on the 25th through 28th floors, where it has an expensive trading floor operation.

The bank’s real estate strategy considers several factors, such as employee recruitment and maximizing the bank’s investment, the e-mail message says.

But affordable rent doesn’t hurt. B of A’s current lease was signed in 2005. In the agreement’s final year, 2015, B of A will pay net rent of slightly less than $16 a square foot, not including taxes and operating expenses, sources say.

Best Buy International appoints David Berg COO
RTT NEWS.com
September 9, 2008

Best Buy Co. Inc. (BBY), a specialty retailer of consumer electronics, said its business unit, Best Buy International, has named David Berg as chief operating officer amid several other executive appointments.

Berg was previously the enterprise's executive vice president, International Strategy and Corporate Development, and will report to Robert Willett, chief executive officer of Best Buy International.

Berg will manage the operations of all Best Buy's brands and businesses outside the United States. Berg joined Best Buy in 2002 as vice president and associate general counsel. Berg was promoted to senior vice president, Strategic Alliances, in 2004 and was promoted to executive vice president in 2008.

Best Buy noted that Berg played crucial roles in the company's sale of its Musicland subsidiary, the development of its strategic relationship with Accenture, and its acquisition of a majority interest in Jiangsu Five Star Appliance. In addition to helping Best Buy establish a presence in China, the company noted that Berg also played significant roles in its expansion into Mexico and Turkey and was instrumental in the creation of its venture with The Carphone Warehouse in Europe.

Additionally, Tasso Koken has been named senior vice president, international merchandising and global sourcing. Koken also leads the development of the company's international ecommerce strategy, working in partnership with Neville Roberts, the CIO of Best Buy International. Koken reports to Berg.

Koken joined Best Buy in 2006 as senior vice president, merchandising, prior to which he served as senior vice president and general merchandise manager of home electronics at Sears, Roebuck and Co.

Keith Nelsen has been appointed senior vice president, Commercial, and reports to Berg. Prior to joining Best Buy in 2005, Nelsen was chief administrative officer and general counsel at Danka Business Systems PLC.

Alejandro Montoya was named vice president, international strategy, reporting to Berg. Most recently, Montoya was the Best Buy vice president responsible for the company's global wireless initiatives.

Paul Antoniadis has been appointed chief executive officer of Best Buy Brands, a division of Best Buy Europe, the company's new venture with The Carphone Warehouse. Antoniadis reports to both Berg and Roger Taylor, the chief executive officer of Best Buy Europe.

BBY is trading down $1.81 or 3.86% at $45.12 on a volume of about 7.7 million shares.

Sears' softest side? Its P&L statement
By Marine Cole - Financial Week
September 8, 2008

Sears Holdings announced at the end of August that second-quarter net income from operations that include Sears and Kmart stores fell a stunning 62%, to $65 million, from the year-earlier period. But a closer look at the company's quarterly filing with the Securities and Exchange Commission paints an even grimmer picture: a Sears Holdings with almost no earnings at all on some $11.8 billion in revenue for the quarter.

This suggests not only that Sears has fallen victim to a struggling economy but that owner Edward Lampert's strategy to turn around the company isn't working. As a result, much of the investor interest in the company continues to come from those betting on its bankruptcy.

Sears reported several non-recurring items in the second quarter that boosted earnings, which otherwise would have amounted to only a few million dollars. The items included a $62 million gain from a reduction in reserves no longer necessary thanks to a recent favorable jury verdict. Sears said that gain increased net income after taxes by $37 million.

There was also a $6 million gain on the sale of assets and a $23 million gain from insurance proceeds. The last item was mentioned briefly in the footnotes to the SEC filing, but not in the press release announcing results.

“Taking into consideration all these special items, normalized earnings in the second quarter were practically non-existent,” Carol Levenson, an analyst with GimmeCredit, wrote in an e-mail to Financial Week.

“There probably are no earnings,” echoed Charles O'Shea, vice president and senior analyst at Moody's Investor Services.

Sears wasn't available for comment and doesn't hold conference calls after its earnings releases. The company stated in its SEC filing that the income decline was primarily the result of lower sales and reduced gross margins in domestic operations, mainly because of higher markdowns used to clear inventories and increased competition in the retail sector.

“There's a double whammy,” said Monica Aggarwal, an analyst with Fitch Ratings, going on to explain that while the economy has hurt the entire retail sector, Sears has also been unable to remain competitive with its peers.

“The hard-line business is getting pounded by the economy,” Mr. O'Shea said, referring to Sears' focus on selling home appliances, furniture and other so-called “hard” goods. “[But] some of it is self- inflicted. There isn't a coherent apparel strategy over there.”

And it's still too early to see the payoff, if any, from chairman Lampert's reorganization of Sears' structure and operating model, announced in January, ostensibly to simplify the way business lines are managed.

As a result, operating income at Sears Domestic tumbled more than 43%, to $77 million, in the second quarter. And even though discount retailers like Costco and Wal-Mart have fared better than other retailers, the Kmart division is the one that suffered the most within Sears, with operating income falling almost 83% in Q2, to $22 million.

The only bright spot on the balance sheet: Sears Canada, where operating income rose more than 30%, to $88 million. But even that wasn't due to operating performance, instead reflecting the Canadian dollar's strength against the greenback. Excluding the impact of currency translation, operating income at Sears Canada would have declined by about 40%.

Even the cost side of the equation provides less reason for optimism than it might at first seem to. Selling, general and administrative expense declined due to decreases in outlays for advertising, display and payroll.

But after excluding the $62 million one-time item, expenses as a percentage of total revenue at Sears Holdings went up to 23.4% during the second quarter, from 22.9% a year ago. At Sears Domestic, the rate rose to 25.3%, from 24.4% in the second quarter last year. Margins continued to decline as a consequence.

Sears has also been burning through its cash. Total cash and cash equivalents were down more than 40% at the end of the second quarter, to $1.5 billion, from a year earlier. Part of the cash—$179 million—was used to repay long-term debt, and another $277 million was used for capital expenditures. But the company also bought back $477 million in stock and increased short-term borrowing by $812 million.

Cash also went down once the company no longer needed to post cash as collateral to support letters of credit in a $1 billion credit facility. This could be seen as good news, since it freed up some cash for the business, but it also suggested nervousness from one of Sears' major lenders about the retailer.

“The $1 billion facility didn't get renewed, even under the most restrictive terms,” said Ms. Aggarwal.

Indeed, Bank of America declined to renew Sears' letter of credit agreement earlier this year under existing terms. In its most recent filing, Sears said the facility was renewed—but for a mere $5 million. The company transferred the letters of credit to another existing $4 billion facility, which is backed by inventories and receivables and doesn't require cash as collateral.

Sure enough, after climbing in the wake of the earnings release, to around $96 a share in intraday trading last Wednesday, the stock has since lost all the ground it had gained. Much of the interest among investors is based on the company's real estate holdings, whose value would most likely be realized only through liquidation following bankruptcy.

“There's significant value in the stores,” said Mr. O'Shea. “The question is what do you do and when do you do it.”

Considering the current state of the real estate market, this isn't a good time to sell anything, he added.

Analysts predict business will remain soft at Sears, even though the company continues to reduce inventories.

“We are cautious on the whole space,” said Fitch's Ms. Aggarwal. “The second half [of the year] will continue to remain challenging, but a lot of retailers are going into the second half with cleaner inventories.”

Mark Good joins Public Storage as COO
Trading Markets
September 8, 2008

GLENDALE, Calif., Sep 08, 2008 (BUSINESS WIRE) -- Public Storage (PSA:Public Storage, Inc announced today that Mark C. Good has joined the Company as Senior Vice President and Chief Operating Officer of Public Storage reporting to Ronald L. Havner, Jr., the Company's President and Chief Executive Officer.

Before joining Public Storage, Mr. Good was with Sears Holdings Corporation since 1997, where he was Executive Vice President and General Manager of Sears Home Services, the nation's largest home appliance repair and home improvement services organization with annual revenues of approximately $3 billion. In this position, he was directly responsible for 30,000 associates, five parts distribution centers, 31 automated repair facilities for "carry-in" products, 360 branch locations, domestic and offshore call centers, 110 home delivery distribution centers and other support operations. Mark received his B.A. from the University of California at Berkeley in 1978 and an M.B.A. from San Francisco State University in 1981.

"During his tenure at Sears, Mark implemented industry changing operating processes through change management and leading technologies, while aligning associates' goals and behavior with customer and shareholder expectations," said CEO Ronald L. Havner, Jr. "I am delighted to have Mark join our management team and bring his broad business experience to Public Storage."

Mall order bride:
Couple marries at Sears store where they met
By Phillip Ramati - Macon, Georgia Telegraph
September 8, 2008

The bride was resplendent in her white gown and blue sash as she walked along the red carpet. The groom was dashing in his i -length black coat and tuxedo as he stood on the landing of the staircase, waiting for her.

Yes, the wedding seemed fairly traditional in all aspects save one - the location.

William Studer and Kelly Sisson had elected to tie the knot on a staircase inside the Macon Mall, right in front of the Sears store where they met.

Originally, the ceremony was supposed to be inside the store, but it was moved to the front of the store because of the logistics involved.

Still, as far as anyone knows, it's the first for Sears.

"The choice was hers," Studer said. "She wanted to get married where we met; I got to choose the date. (Sunday) is her birthday, so I chose it so I'd never forget."

Destiny took place about a year and a half ago, when William went to the mall to get his cell phone fixed and spotted Kelly, who had gone to Sears to buy a new miter saw. He lost sight of her in the store and had given up hope that he would see her once more when he opened the outside door in the section of the store where the power tools are and there she was.

"I had never seen him before," she said. "He tried to open the door for me and I was going to say 'no' - I'm kind of an independent woman. Then I looked up and saw him, and said, 'OK!' "

"I gave her my number, but she didn't call me for two days," he said. "When she finally did, she told me she didn't want me to think she was desperate."

It's William's fourth marriage and Kelly's second, but the first department store wedding for either of them. When they decided to get married, Kelly told William of her Sears plan.

"I laughed, but she said she wasn't kidding," he said.

The local Sears employees were very enthusiastic when the couple approached them.

"I know (William)," said Reginald Stubbs, the assistant manager for the home improvement section at the store. "He shops here all the time. When they told me, I said, 'Well, good luck. Whatever was needed, just let us know.' "

The couple contacted Sears' offices in Dallas, which loved the idea. But the corporate office in Chicago was less than enamored, William said.

Eventually, they were able to make it work.

"My first thought was you can drive sales by having a big thing like this," Stubbs said. "We welcomed it. It was taking care of the customer, to me."

The couple wasn't going to be able to fit everyone in comfortably within Sears' confines.

So they went to the mall office, which was happy to help, said Lili Donaldson, the mall's marketing director.

After pastor Ronnie Campbell of God's Church of Worship and Praise performed the traditional ceremony - his first in a mall - the Studers made a long procession from the stairs into the store.

They passed the luggage display, the chain saws and patio furniture before they reached the magic doors where they first met.

So, will this start a new trend for Sears and the mall? Will we see anniversaries, bar mitzvahs and graduation parties join the ranks of weddings?

"It seems to be a real fit," Stubbs said. "We'll welcome it."

If nothing else, Sears may have a new marketing campaign - come in for a miter saw, leave with a spouse.

"You never know what you'll find at Sears!" Stubbs said with a laugh.

The Virtues of Flameproof Plastic
By Jonathan R. Laing - Barron's
September 8, 2008

Discover has been the tortoise in the race to exploit consumers' shifting preference for plastic. Turns out, slow and steady has its advantages.

IN A FIELD OF FLASHY PERFORMERS like the blue-chip American Express and the giant card networks MasterCard and Visa, Discover Financial Services has long been an also-ran. The Discover card's dorky, Middle American image -- it was launched in 1986 by Sears Roebuck -- is by now so firmly ingrained that it has been lampooned on the hit cartoon show Family Guy.

And in truth, Discover (ticker: DFS)has been something of a tortoise in an industry of hares, companies racing to exploit the tectonic shift of U.S. consumers using plastic rather than currency or checks for most of their purchases.

Discover not only started late but has also posted halting growth in credit-card receivables in recent years compared with its peers. The Discover card has a materially lower acceptance rate by merchants than the MasterCard (MA) and Visa (V), both in the U.S. and particularly abroad. This, of course, gives it a much lower "share of wallet" rate among the globe-trotting big-spender crowd, who typically yield fatter profits to credit-card companies in merchant fees and interest earned on credit balances.

Yet Discover may well be a tortoise worth betting on these days, just 14 months after it was unceremoniously dumped by Morgan Stanley in a spin-out. For one thing, Discover, as a result of its conservative credit policies, is likely to weather the surge in delinquencies and loan charge-offs that bad times are now unleashing on the U.S. credit- card industry.

At the same time, the company has negotiated a flurry of deals in the U.S. and overseas that figure to boost its cards' market penetration to levels close to the reach of Visa and MasterCard. Discover would benefit mightily from any growth in business volume because, unlike most other card issuers, it runs a "closed loop" network in which it not only issues credit cards but also does most of its owns transaction processing. That means that additional volume helps not only on the credit side but also in processing efficiencies.

On top of all that, Discover could be an attractive takeover candidate, regardless of whether the company succeeds in improving its competitive position. Buckingham Research Group stated in a July report that while Discover on a stand-alone basis has a sum-of-the- parts value of about $18.50 -- it's currently trading at around $16 -- it would command a premium of 20% to 30% more to an acquirer looking for scale in both credit-card issuance and processing.

The Bottom Line

Discover is poised to grab market share in the U.S. and abroad, reaping big economies of scale. And in a takeover, the company might go for 30% or more than today's stock prices. William Ryan of financial-research boutique Portales Partners thinks that any takeover of Discovery would garner a price in the high 20s to the low 30s. A bonus to any acquirer is Discover's fast-growing Pulse debit card network, which handles electronic transfers on behalf of some 4,500 banks, credit unions and savings institutions across the U.S. and boasts links to about 265,000 ATMs and point-of-sale equipment.

TO BE SURE, DISCOVER FIGURES to encounter some rough seas over the next year or so. Consensus analyst forecasts see Discover earning $1.52 a share for the fiscal year ending Nov. 30 of this year and $1.42 in fiscal 2009. That compares with operating earnings of $1.81 a share in fiscal 2007. Yet Discover doesn't seem to be taking the clobbering of some of its peers. American Express, for example, shocked Wall Street in July when it announced a greater-than-30% earnings drop in the second quarter, compared with both consensus forecasts and the year-earlier number.

The credit card tsunami will pass in time. And this cycle may prove to be somewhat less lethal than expected because so much of the bad consumer debt that would normally have savaged the card industry was instead rolled into home mortgages during the refinancing boom of 2003-2006.

Discover learned credit conservatism the hard way. After gunning growth in its card issuance and account balances in the late '90s, Discover paid for its excesses over the next three years, culminating in net charge-offs of 6.6% in 2003.

This time around, Discover consciously lowered its exposure to geographic areas where insensate mortgage borrowing had driven debt- to-income ratios to absurd levels. According to securitization data collected by Portales Partners, only 15.8% of Discover's receivables are concentrated in the mortgage graveyards of California and Florida, while American Express has a 25.9% exposure and Citigroup and Capital One have concentrations of 21.7% and 18.7%, respectively. Among other things, American Express made the fateful mistake during the current cycle of assuming that households with multiple mortgages represented better credit risks.

Discover also has a higher percentage of accounts -- some 79% -- that have been with the company for over five years. Its peers, by contrast, have a much lower percentage of seasoned accounts, with only 46% of Capital One's accounts reaching that hoary level.

Accounts of some longevity generally perform better since the borrowers have been battle-tested over a credit cycle and a level of trust exists between both borrower and creditor. Discover has also sacrificed card growth over the past three years by intentionally marketing cards only to customers with gold-plated credit scores.

THIS RESTRAINT BODES WELL FOR Discover in the current economic downturn. True, debt charge-offs did hit 4.99% in the second quarter, up from 3.97% a year earlier. While management was unavailable for comment because of a quiet period before reporting third-quarter earnings, most analysts don't expect the charge-off number to climb much above 5.5% over the next year. Capitol One, Citigroup and Bank of America all reported net charge-offs above that level for the first quarter of this year, compared with Discover's 4.4% for the period. And the charge-off rates for its competitors are heading much higher.

According to Ryan, Discover may have gained a perverse advantage from being many card holders' second or even third card. "If a borrower is going to default on a credit card it will typically be on his primary card," where he has racked up the most debt, Ryan says. "Everybody needs to keep one card clean for the sake of emergencies and convenience, and that card is increasingly Discover."

Over the years, critics have knocked Discover for being stodgy, even though it was the first to offer a cash-back rewards program. Many big spenders and heavy card users have avoided Discover because the card has lower merchant penetration in both the U.S. and abroad than Visa and MasterCard.

But that situation is rapidly changing. The company says it will be hooked up to just as many merchants and business establishments as Visa and MasterCard by sometime next year. Currently, Discover is accepted by roughly 20 fewer businesses than those two rivals. It is achieving this by cutting deals with a number of card processors such as First Data Corp. and Wells Fargo Merchant Services, which, like MasterCard and Visa, supply terminals on-site to link merchants to different payment networks.

Discover has also been active overseas, extending its merchant locations far beyond Canada, Mexico, South America and the Caribbean. Within the past two years, Discover has entered into reciprocal deals with Unionpay, the largest Chinese bank-card payment network, and JCB in Japan. Under the Unionpay deal, Discover not only gets to process all Unionpay card transactions in the U.S. but, more important, the Discover card is also now being accepted by the 480,000 merchants and 90,000 ATMs in Unionpay's Chinese network.

In addition, last month Discover completed a $165 million purchase from Citigroup of its Diners Club business. This will give Discover card holders access to eight million merchants in 185 countries around the world once the two systems are electronically integrated over the next two years or so. Meantime, Discover's processing income will experience a nice bump.

So Discover certainly has rich growth potential if management delivers on its latest strategic moves. Yet if management fails, an acquirer will surely swoop in at a stock price nicely above current levels. Amusing as Family Guy may be, shareholders could have the last laugh.

Table: A Winning Hand

In the first quarter of 2008, Discover's $47.5 billion in credit card balances were just 7% of the $666 billion in outstandings of America's six largest issuers. By comparison, Bank of America (BAC), JPMorgan Chase (JPM) and Citigroup (C) all had market shares of over 20%, and Capital One (COF) and American Express (AXP) each boasted shares of 10%.

How Wal-Mart Really Beats Expectations
by: Todd Sullivan - Seeking Alpha.com
September 5, 2008

This is a classic: just last month when Wal-Mart (WMT) came in at 3% comps and people were inexplicably disappointed and then guided for 1% to 2% for August, I said, "Anyone want to bet Wal-Mart is lowering projections to avoid the current scenario next month? Now Wall St. will lower "estimates", Wal-Mart will beat them and everyone will be happy...strange stuff." Guess what happened yesterday?

Wal-Mart said Thursday, sales of groceries and back-to-school products helped its August same-store sales rise 3 percent, beating expectations.

Sales in stores open at least one year, a measure known as same-store sales, rose 2.8 percent at Wal-Mart Stores and 4.2 percent at Sam's Club for the four weeks ended Aug. 29. Analysts polled by Thomson Reuters predicted a 1.6 percent rise.

Including fuel, the world's largest retailer's total same-store sales rose 3.5 percent. Total company sales rose 9 percent to $30.67 billion in the four-week period.

"The underlying business performance for Wal-Mart U.S. continued to show strength, and the improved relative performance has resulted in market share gains," said Eduardo Castro-Wright, Wal-Mart U.S. President and Chief Executive, in a statement.

Isn't this just great? Same number but because the company issued different guidance, people were upset before and are thrilled now. Maybe Sears' (SHLD) Eddie Lampert, and Berkshire's (BRK.A) Warren Buffett are onto something by not issuing guidance.

It also goes to show that most of Wall St. simply bases their expectations on those set by the company.

Oh yeah...the company said it expects September same-store sales to rise 2 percent to 3 percent. Now if we come in at 3% again, we'll "meet the high end of expectations" and that will be good news. Four percent and people will be dancing. Such nonsense...

Disclosure: Long WMT, SHLD

HEARD ON THE STREET
The Squishy Results At Sears Holdings
By Peter Eavis - Wall Street Journal
September 5, 2008

When companies hit hard times, it pays to keep a close eye on their financial reporting for signs they may be overstating their strength.

Take Sears Holdings' second-quarter results. Alongside slumping sales and earnings, there was a bright spot: a sizable drop in selling and administrative costs.

That contributed to a 4.2% pop in the stock price when earnings were posted Aug. 28. But Sears subsequently released a filing with the Securities and Exchange Commission showing the expenses in question were substantially reduced by insurance payments relating to a matter from March 2000.

That is hardly a recurring source. Arguably, it should have been flagged in the earnings release, especially because another one-time gain, a reversal of legal reserves, was clearly broken out.

The numbers involved aren't a trifle.

Sears, led by Chairman Edward Lampert, said second-quarter selling and administrative costs fell $46 million year-on-year, excluding the reserve reversal. The retailer added that the $46 million drop came "mainly as a result of our focus on controlling costs."

But the subsequent SEC filing said the insurance payment reduced selling and administrative expense at Sears-branded U.S. stores by $23 million, which is more than 12% of companywide second-quarter operating income of $187 million.

Sears responds that the insurance payment was offset by other special items, thus keeping its cost-reduction claims intact. But those $22 million in offsets, which weren't disclosed in the SEC filing, include legal charges, store closures and severance payments, which sound like general costs of doing business.

If not, Sears might want to break them out as exceptionals in its next filing.

Shopping for a TV -- and Staying Sane
We Head to Sears, Best Buy for Advice; Pushing the Extras
By Charles Passy - Cranky Consumer - Wall Street Journal
September 4, 2008

So you're finally ready to buy that jumbo flat-screen high-def television of your dreams. But are you also prepared for the potential shopping nightmare that lies ahead?

It's not just that television sets have gotten so complicated in recent years, with competing formats (LCD vs. plasma), myriad "must have" accessories (surround sound systems, Blu-ray players) and even choices involving installation and setup (do you really need to have your set "calibrated"?). It's also that electronics retailers don't always have the best record when it comes to guiding consumers through the process. At the same time, salespeople aren't exactly hurting for buyers, particularly as prices of many of these once- costly sets drop well below the $2,000 mark: Shipments of flat-screen models surged 28% in the second quarter of 2008 compared with the year-earlier period, according to DisplaySearch, an Austin, Texas, company that tracks the industry.

With a new fall television and football season upon us, we decided to put the issue to the test. We shopped at four national retailers for a flat-screen high-def set. We were hoping not to replay our last TV- buying mistake: We've long regretted our previous purchase of a lesser-quality 46-inch set. And we've been fairly clueless about what to buy in its place.

Before we hit the stores, we got a crash course in television technology -- and in electronics retailing -- from Rohan Q. Stewart, a technology expert and partner in Associates Interactive, a Buffalo, N.Y., company that provides sales training to retailers. Mr. Stewart warned us about salespeople who push sets that go beyond a customer's current demands. Another concern for Mr. Stewart: Salespeople who keep "adding to the basket," hawking one accessory or service after another as a way to "create bigger sales."

Sure enough, Mr. Stewart's warnings came to mind when we shopped at Circuit City Stores Inc., the popular electronics chain based in Richmond, Va. (We visited one in our home state of Florida, as was the case with the other retailers we surveyed.) Here, an enthusiastic and knowledgeable salesman gave us a 58-minute tutorial in all things television-related, making his the longest and most detailed sales pitch of them all. At times, it was almost too much information to take in. But he was also upfront about the fact that he was going to sell us far more than a television, since he considered a surround- sound system essential. "It adds to the experience," he said, before he sat us down in a comfy display area, replete with a massage chair, that showcased the sonic technology. We admit we were impressed, but we were not quite as convinced when he went on to mention other extras, including a "power cleaner" (essentially, a better version of a surge protector) and a service fee for cal ibrating (adjusting color, brightness and other settings to your liking), the Sony 46-inch 1080p LCD set he recommended. (Mr. Rohan said that the cleaner, sometimes also referred to as a "power conditioner," is not a bad idea, but he was more skeptical about the need for the calibration service.)

The total bill for our $1,800 television? A suddenly not-as- affordable $3,600, including an extended warranty and even a bottle of solution to clean the screen, plus the physical installation of the system in our home. (As television sets have gotten bigger and more complex, retailers have increasingly gone from just delivering the sets to offering a full range of installation services.) But the salesperson did give us a 0% financing option and also indicated he could likely shave $200 off the package price. And just when we thought he was going to morph into one of those cartoonishly pushy salespeople most associated with car dealerships, he surprised us by politely letting us walk away.

At Sound Advice, a high-end electronics retailer that's a division of Canton, Mass.-based Tweeter Opco LLC, a salesman offered a more compact 38-minute pitch. That meant that while he suggested some of the same extras, he didn't go into as much detail explaining them. We were especially surprised he didn't demonstrate surround-sound technology, given that Sound Advice had the nicest showrooms of any retailer we visited. More disconcerting: His grasp of gaming systems -- and their various cable requirements -- wasn't as finely honed as salespeople at other retailers. Pricing was also somewhat vague: Perhaps sensing that we weren't ready to make a purchase that day, he ended his presentation by talking in general terms, saying that we should be prepared to spend between $4,000 to $5,000 for a system, including a Sony 46-inch 1080p LCD set.

When we shopped at an electronics department at Sears, a division of Hoffman Estates, Ill.-based retail giant Sears Holdings Corp., we discovered the true meaning of low-key. Our salesman offered a 40- minute pitch that was devoid of the slightest hint of pressure, but that covered lots of ground in easy-to-understand terms, beginning with the differences between LCD and plasma and moving all the way through to the advent of televisions with USB ports for accommodating flash drives. If anything, the salesman may have been too low-key: We nearly had to goad him into explaining surround-sound technology to us, since he indicated it was an option he didn't like to push. ("I'm a thrifty guy," he said.) When we finally succeeded in getting him to include surround sound into a package with a Samsung 46-inch 1080p LCD set, we ended up at around $3,500 -- very similar to Circuit City. The good part: There was no haggling involved since Sears maintains a no-negotiation policy.

If there was a retailer that stood above the rest, it was Best Buy Co., the Minneapolis-based industry sales leader. The difference? It wasn't so much that the tech-savvy salesman at the store we visited gave us more of his time (his presentation clocked in at 37 minutes) or offered better pricing (he indicated a system could easily run us $4,000). It's that he seemed to best grasp the concept of selling us the right television as opposed to the most feature-rich or popular one. He was the only salesman to make a convincing case for plasma, which many experts prefer for its warmer, more realistic colors. When he started talking about surround sound, he mentioned that Best Buy offers an in-home service to better assess what kind of speakers a buyer might want and where to place them. (The price of the consultation -- $100 -- is deducted if you go ahead and purchase a system.) He thought the latter might make sense given certain particulars of our home, such as the fact it has cathed ral ceilings -- something he garnered by asking question after question. (No other salesperson mentioned ceiling heights and the role they play in acoustics.)

We didn't leave Best Buy with a new set that day. But we'll likely be back.

RETAILER LENGTH OF PITCH SALES PERSON'S APPROACH PRICING BOTTOM LINE

Best Buy 37 minutes Tech-savvy and customer-oriented. In other words, he asked enough questions to better determine the best kind of television for our needs. $3,100 to $4,250 for a home-theater system with 46-inch plasma television and surround sound, plus installation, extended warranty and accessories. The range was fairly wide since a lot would depend on the quality of the surround-sound components and the type of installation we chose after further consultation, the salesman explained. Apart from the fact the salesman may have suggested one too many extras -- lots of consumer experts warn against the need for extended warranties -- we left Best Buy feeling confident we'd end up with the right television.

Circuit City 58 minutes Extraordinarily thorough, but we were a bit overwhelmed with the extensive tech talk. Plus, he applied slightly more buy-it-today pressure than the rest. $3,600 for a home-theater system with 46-inch LCD television and surround sound, plus installation, extended warranty and accessories. Salesman indicated we could opt for a three-year 0% financing offer, plus he could likely shave $200 off the package price. There's no doubt that Circuit City gave us the information we needed. But between the television specs and the pricing info -- the salesman also quoted us a monthly figure if we took advantage of the financing -- we left the store with too many numbers in our head.

Sears 40 minutes Almost too low-key. Salesman was great at explaining the technology in a measured, step-by-step manner. But did we really have to talk him into selling us surround sound? $3,500 for a home-theater system with 46-inch LCD television and surround sound, plus installation, extended warranty and accessories. No negotiating on price, but salesman told us there's almost always a special offer advertised in the periodic store circulars. Sears might be the place to head if you want a television, but aren't as concerned about all the bells and whistles. The store sells some accessories, but don't be surprised if you have to ask about them.

Sound Advice 38 minutes Good-natured and gentlemanly, befitting the store's more upscale orientation. But salesman's knowledge on gaming systems definitely wasn't as strong as others and he neglected to offer us a demonstration of surround sound. $4,000 to $5,000 for a home theater system with 46-inch LCD television and surround sound, plus installation, extended warranty and accessories. The salesman didn't break down the particulars as much as some others, but did indicate that he would definitely give us a discount. If you're looking for a super high-end system, Sound Advice may be the way to go. Our salesman indicated he could easily sell us a system for more than $20,000. But we left wondering if bottom-shelf shoppers are taken as seriously.

Big Sears Tower tenant hires broker
By Thomas A. Corfman - Chicago Business
September 3, 2008

(Crain’s) — Unable to get Sears Tower’s ownership group to engage in early lease renewal negotiations, giant law firm Sonnenschein Nath & Rosenthal LLP has hired Jones Lang LaSalle Inc. to test the market on a possible move from the iconic skyscraper.

Sonnenschein is the fourth-largest tenant in the 110-story structure, with about 205,000 square feet, accounting for about one tenth of the building’s annual rental revenue, according to a 2007 financial summary of the building by lender UBS A.G.

In addition to that space, Sonnenschein subleases roughly 50,000 square feet from another tenant. Sonnenschein, whose lease expires in 2014, is just one of four big tenants considering leaving Sears Tower.

Landlords often do not engage in lease renewal negotiations until pushed to do so, acknowledged real estate lawyer Linda White, a Sonnenschein partner who is heading up the firm’s review of its space needs. Sears Tower’s owners, which include Skokie-based American Landmark Properties Ltd., are apparently no exception.

“I went to the building, and they have not reacted,” Ms. White said.

A timetable for a decision on whether to move, and where, has not yet been set, she said.

“We would like to get out to the market as quickly as we can possibly can, so that we can see what the alternatives are, and whether or not we can renegotiate here, or if we are really going to be forced out into the marketplace entirely,” she added.

A spokesman for the building’s owners said, “While we understand that our tenants need to take steps to ensure they are making the best business decisions, we remain confident that the Sears Tower is the best location for their long-term business objectives.”

Sears Tower signed about 100,000 square feet of leases last month alone, said the spokesman for the owners, which also include New York investors Joseph Chetrit and Joseph Moinian.

Recruiting is a key factor for big law firms such as Sonnenschein, which had revenue of $478 million last year.

As a part of a review of its space needs, Sonnenschein is expected to consider several factors, including what effect anxiety about a terrorism attack on Sears Tower might have on hiring.

“Some of my partners would tell you it has had an impact; talk to others, and they don’t think it has,” Ms. White said.

Sonneschein becomes a likely candidate for one of the proposed new office towers. In the last year of its lease, Sonnenschein will pay a net rent of more than $39 per square foot, not including taxes and operating expenses, sources said, a figure in line with the rents charged in the newest buildings.

Ms. White said the $39 per square foot figure was “close” to the actual rent.

The Model T's Chicago Connection
By Austin Weber, Senior Editor - Assembly Magazine
September 2, 2008

When most people think of Henry Ford, the Ford Motor Co., or iconic cars such as the Model T, they automatically think of Detroit. But, believe it or not, Chicago (the hometown of ASSEMBLY magazine) actually played a key role in Ford’s fortunes and contributed to the company’s mass-production success story.

The Windy City helped shape Henry Ford’s vision during a unique 15-year period. In particular, several trips to Chicago proved to be “eureka!” moments for him and helped spawn the famous assembly line applications that ushered in the mass-production era.

In 1893, Henry Ford boarded a train and headed west. Like millions of Americans, his destination was the World’s Columbian Exposition in Chicago. Ford was fascinated by the thousands of exhibits from around the world that were housed along the shore of Lake Michigan in Jackson Park, near the location of today’s Museum of Science and Industry. In particular, one small display caught his attention.

It was a horseless carriage that was created by an obscure mechanical engineer from Stuttgart, Germany, named Gottlieb Daimler. Just a few years before, he had built the world’s first four-wheeled automobile.

The one-cylinder Daimler quadricycle was hidden in a corner of the huge Transportation Building at the Chicago world’s fair. It was the only gasoline-powered “horseless carriage” on display and the tiny vehicle was dwarfed by steam locomotives, streetcars and other state- of-the-art machines. In fact, the vehicle was so obscure that it wasn’t even listed in the fair’s official catalog. Daimler also displayed some small stationary engines that could be used for applications on land, water and air.

However, the brief encounter made a big impact on the 30-year-old Ford, who became inspired to tinker with his own vehicle designs. Many years later, Ford Motor Co. printed an advertisement in which Henry Ford recalled studying a two-cylinder Daimler engine mounted on a fire hose cart at the 1893 world’s fair.

“He had been working a long time to develop just such a power plant,” the ad explained. “Here was proof that his plans were sound. He hurried home to his little shop in Detroit, and by 1896 produced a horseless carriage that would really run.”

On another trip to Chicago a few years later, Henry Ford found inspiration for the moving assembly line that would eventually help make the Model T such a huge success. He visited several meatpacking plants on the southwest side of the city, such as Armour & Co., Swift & Co. and Wilson & Co. In his autobiography, My Life and Work, Ford claimed that the “disassembly” lines of Chicago meatpackers served as a model for flow production at the Highland Park plant that first implemented moving assembly lines in 1913 (magneto production) and 1914 (chassis production).

Henry Ford also visited the Sears, Roebuck & Co. plant that processed orders for the company’s famous mail-order catalog. The 40-acre operation was called “the world’s greatest mercantile institution.” Shortly after the huge facility on the West Side of Chicago opened in 1906, Ford was one of the first visitors and he delighted in its operation. The Sears warehouse contained numerous elevators, conveyors, endless chains, moving sidewalks, gravity chutes, pneumatic tubes and “every known mechanical appliance for reducing labor” to reduce time and improve productivity.

Another source of inspiration for the moving assembly line concept came from Ford’s visit to Chicago’s Continental Can Co. Its plant used automated machinery and an elaborate conveyor system to mass- produce tin cans for the food industry.

Sears to launch clothing line inspired by
Army infantry division
Chicago Business
September 2, 2008

(AP) — Sears Holdings Corp. said Tuesday it will launch a sportswear collection inspired by the First Infantry Division of the U.S. Army. It is the first time the U.S. Army has licensed the use of its marks and insignias.

The license fee paid by Army Brand will help support programs that benefit the troops and their families. The sum was not disclosed.

The collection will debut in 550 Sears stores and on Sears.com in October.

Sears Joins Up With U.S. Army
Military-Inspired Apparel Will Support Programs for Troops
By Natalie Zmuda - Ad Age.com
September 2, 2008

NEW YORK (AdAge.com) -- The latest fashion trend: soldier chic.

Sears, Roebuck & Co. has signed a deal with the U.S. Army to launch the All American Army Brand's First Infantry Division clothing collection. The collection will simultaneously raise the profile of the U.S. Army and round out Sears' military program. It marks the first time the U.S. Army has officially licensed its marks and insignias; licensing fees will be used to support military programs for troops and their families.

Craig Israel, president of Sears Apparel, said the brand will be prominently featured during the retailer's Fall Forward fashion exhibit at next week's Mercedes-Benz Fashion Week in New York. The line will also be included in future marketing campaigns, including those slated for the holiday season.

"Over the years, military-inspired clothing has played a distinct role in shaping fashion trends," Mr. Israel said. "We are now able to exclusively offer a line that is pure to the origins of that inspiration."

The collection, slated to launch nationwide in October, will be made up of "authentic lifestyle reinterpretations" of the fit, design and performance of regulation uniforms and military-issued gear. There will be styles for men, women and boys, including T-shirts, hooded sweatshirts, denim and outerwear. Price points will range from $11.99 to $119.99.

"By incorporating the Army's timeless traditions with iconic styling and unparalleled standards for performance, fit and function, consumers can wear the pride they feel for our troops," said a U.S. Army spokesperson.

Military booster

The collection dovetails with Sears' "Heroes at Home" program, which provides home renovations to military families and has been promoted through twice-a-year marketing campaigns. Sears also has an extensive military-support program that includes community outreach and employee assistance, among other things.

This week the Army also announced another initiative that will raise its public profile. An Army Experience Center, an educational facility, opened inside Franklin Mills Mall in Philadelphia. The facility is meant to help visitors virtually experience aspects of Army life and is the centerpiece of a pilot program to test and evaluate new marketing strategies, along with build recruitment.

WW II Pacific campaign filled with misery
By Ron Simon - Mansfield, Ohio News Journal
September 1, 2008

LUCAS -- In the summer of 1943, Lt. Bernard Kasten only saw the sun twice.

As Kasten, 90, a retired Sears and Roebuck store manager recalls, "It's 1,000 miles from Dutch Harbor to Attu. They are the most brutal miles in the Pacific Ocean. For 15 months, that is where we fought one of the toughest campaigns of World War II."

Kasten believes the long Aleutians Islands campaign has been mostly forgotten.

It began with the Japanese bombing Dutch Harbor's naval base. It included one battle on Attu Island and a huge surprise, when it was found the Japanese had evacuated Kiska Island.

The rest, Kasten said, was pure misery.

He said the only authentic book written on this campaign was "The Thousand Miles War" by Brian Garfield.

"In the context of the global war, it was a relatively small campaign. About 500,000 men took part through land, sea and air.

There were few American casualties at the battle on Attu Island but one of them, the death in action of 2nd Lt. "Shorty" Brewer, brought tears to Kasten's eyes.

Brewer was a good friend and Kasten believes he may have died himself, in Brewer's place, had his own infantry company been in reserve.

Otherwise, Kasten's memories of the Aleutian Islands are of fog, cold, damp, wind, and black muck a foot deep.

Kasten's unit landed on a forsaken island called Amchitka to establish an air base.

"My memory of the first 10 days on that island is mostly a blur," Kasten said. "The weather conditions were constantly bad."

Just getting a tent erected in the wind was hard, he said.

Wheeled vehicles sank in the black muck so everything had to be carried ashore and moved by hand.

But the men did eat well for those first 10 days. A supply ship was driven ashore by the wind.

Its cargo of food was quickly devoured before it could go bad, Kasten said. From that point, it was field rations all the way.

Water was nearly undrinkable despite being purified with chlorine.

"The G.I.s called it 50-50," Kasten said.

Establishing an air field was difficult and Japanese fighter and bomber planes made it even harder with their daily raids.

Kasten said morale got a boost when some American fighter planes managed to ambush the Japanese during one of those raids. Otherwise, he said, the Japanese often had the advantage.

The Japanese occupied two of the outermost islands, Attu and Kiska.

Kasten said there were few Japanese on Attu and most died in a final suicide charge.

He said the Americans hit Kiska hard, only to find there were no Japanese there.

That was the end of what turned out to be an 18-month campaign for Kasten's 7th Infantry Division.

He said his unit had been trained to fight in the deserts of North Africa. So the shift to the chill, windy Aleutian Islands was a shock.

A native of Grand Rapids, Mich., Kasten earned a degree in business administration and paid for his schooling by owning and operating the East Lansing Heating Co.

"We cleaned and repaired coal furnaces in homes," he said.

Sears and Roebuck officials liked Kasten's background and hired him as a trainee. His training was in Cleveland. That's where he met his wife, Mary June, at Euclid Beach Amusement Park.

He was drafted in early 1942. After basic training, he attended Officers Candidate School.

Not long after graduation, he and Mary June were married. There wasn't much time to celebrate. After training in California, Kasten's 7th Division was on its way to the Thousand Mile War.

When he got home from Alaska, Kasten was promoted twice and became a captain in the infantry.

He was assigned to Fort Benning, Ga., where he instructed trainees in the 82nd Airborne in infantry tactics. That's where he was when the war ended.

He said Sears kept his job open for him and he eventually became a store manager. His last store was at Great Northern Mall in North Olmsted. He retired in 1974.

Kasten and June spend summers on the shores of Charles Mill Lake and their winters in Florida.

He enjoys painting and gardening and she has a large doll collection. They are active in the United Methodist Church and he is a member of Disabled American Veterans.

"I'm still a Michigan boy at heart," Kasten said. "I still root for the Detroit Tigers and Lions and for Michigan State."

The couple had four boys and three of them, Bernard Jr., William Richard and James C. are physicians. The fourth son, Robert Mark, is a businessman in Cincinnati.

There are 14 grandchildren and 10 great-grandchildren to date. There are more doctors on the way," Kasten said.

Recalling his war in the Aleutians, Kasten believes the entire campaign was largely mismanaged and didn't provide much in the way of glory for those involved -- just misery.

"Frostbite was our biggest problem," he said.

"Attu was one of the biggest operations in the Pacific War and to this day you won't hear much about it," he said.

Kmart may be casualty of Sears' dismal profits
2nd qtr. earnings off 62% for Hoffman Estates retailer
By Sandra Guy - Chicago Sun-Times
August 29, 2008

After Sears Holdings Corp. reported Thursday a worse-than-expected 62 percent drop in fiscal second-quarter earnings, experts predicted Kmart's extinction and wondered how much longer the retailer will take to hire a CEO.

The Hoffman Estates-based retailer cut its full-year earnings forecast because the weak economy is keeping shoppers away from Sears and Kmart stores.

Net income in the quarter ended Aug. 2 stood at $65 million, or 50 cents a share, vs. $173 million, or $1.15 a share, a year ago. The results could have been worse. A verdict in a bond-redemption dispute was overturned, so Sears got to keep $62 million it had reserved for the dispute. Revenues dropped 4 percent, to $11.76 billion.

Sales continued to decline, but not quite as steeply as in the first quarter. Sales at Sears stores open at least a year dropped 6.7 percent, and declined 5.6 percent at Kmart stores vs. the year-ago quarter.

Revenue after tax, interest, depreciation and amortization stood at $366 million, down 38 percent from a year earlier. Cash on hand declined to $1.5 billion on Aug. 2, vs. $2.6 billion a year ago, as Sears used cash to pay for share repurchases, capital expenses and long-term debt repayment.

A bright spot was Sears' $500 million cut in inventories, whose bloat had caused the retailer to take markdowns during the back-to-school shopping season.

Analysts see deeper-seated problems, however.

"I see the company stumbling along without a new CEO and without a new vision," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based national retail consulting and investment banking firm.

A Sears spokesman said Thursday there was no update on a search to replace former CEO Aylwin Lewis, who left Feb. 2 after a disappointing holiday season, and there was no time frame for hiring a new leader. Chairman Edward S. Lampert chose W. Bruce Johnson to serve as interim CEO.

Several executives have departed in recent months, including Chief Marketing Officer Maureen McGuire, home services division head Mark Good, and Lands' End leader David McCreight.

Gary Balter, analyst at Credit Suisse, wrote in a note to investors, "Sears is in a secular decline," adding that comparable-store sales have been declining for more than three years.

Davidowitz repeated his earlier assertions that Kmart cannot survive fierce competition from faster-growing discounters.

"Kmart is finished," he said.

Morningstar analyst Kim Picciola said Sears has been hurt more than some of its rivals by the tough housing market because Sears sells tools and appliances.

Sears had predicted last quarter that its revenue after expenses would exceed last year's level. But Johnson said Thursday that it will be "comparable to" last year's results.

In contrast, other retailers that cater to bargain hunters and middle-market shoppers, such as Zale and Big Lots, have raised their outlooks for the holiday season.

Sears' shares, which stood at $193 on April 17, 2007, finished the day Thursday at $90.62.

Mr. Lampert, Fire Thyself
Sears Chairman Devised Retailer's Failing Strategy; Challenging the Entrenched
Comment from Breakingviews - Wall Street Journal
August 29, 2008

Another dismal quarter shows that Sears Holdings' strategy is failing. The retailer's stock has fallen 36% in the past year. Rivals are eating its lunch. And it missed out on reaping potential gains from the credit and property booms. As Sears's top shareholder, activist investor Edward Lampert should fire the chairman and architect of this woeful strategy -- himself.

Mr. Lampert's approach was simple, if radical by industry standards. Retailers, he argued, invest too much to meet Wall Street's expectations. If capital expenditures were cut, returns on investment would go up. It hasn't quite worked out that way. Sure, the company invests less than rivals -- its capital expenditure in the past three years has averaged about 1% of sales. Rival Wal-Mart Stores spends five times as much. But its declining sales and earnings show the perils of underinvestment.

Customers don't like the increasingly tatty Sears and Kmart stores -- sales at stores open more than a year fell again last quarter, this time by 6%. And why should they? The retailer's trouble getting the right goods to stores in an efficient manner means prices at rivals such as Target often are lower -- and the goods more stylish. A revolving door for top executives doesn't help, either.

Moreover, Mr. Lampert's investment skills haven't picked up the slack. Some hoped the hedge-fund manager could apply his financial- engineering acumen. But seized-up credit markets and a real-estate bust limited his options. The best time for acquisitions or creating value by stripping out and selling embedded assets such as real estate is, for now, past.

Mr. Lampert hasn't been shy to challenge entrenched managers of poorly performing investments in the past -- even when his holdings were relatively insignificant. This time, he should take his own medicine. It is time for Mr. Lampert to get off the retailer's floor.

Sears net falls 62% in 'difficult quarter'
By James P. Miller - reporter - Chicago Tribune
August 29, 2008

Sears Holdings Corp., citing the deteriorating economy's chilling effect on consumer spending, reported a 62 percent drop in fiscal second-quarter earnings.

In the quarter ended Aug. 4, Hoffman Estates-based Sears earnings tumbled to $65 million, or 50 cents a diluted share, from $173 million, or $1.15 a share, a year ago. Per-share results benefited from a 15 percent year-over-year drop in the number of shares outstanding.

Sears' revenue declined 4.1 percent, to $11.76 billion from $12.26 billion, in part because the company was making use of heavy price discounting in order to move product off its shelves.

The fiscal second-quarter results "reflect the continued effects of a slowing economy, which contributed to the earnings declines we have experienced since the third quarter of 2007," said interim Chief Executive W. Bruce Johnson.

The underlying results were worse than the net figure suggests: Sears' latest earnings were helped by the reversal of an after-tax $37 million legal reserve. Without that one-time item, earnings would have been 21 cents a share, well below the 33 cents analysts expected.

Although Johnson said the company had experienced a "difficult quarter," he said Sears has lowered its inventory levels by $500 million, which should lead to less promotional pricing and better profit margins in the year's second half.

Not everyone was buying that scenario.

"While they now have the excuse of a slower economy to hide behind, and they used it as such in their release, results were weak," Credit Suisse analyst Gary Balter said in a research note. Despite the shaky results, he said, Sears "is clinging to the belief that its second half will be stronger, helped by massive expense cuts and by pulling inventory lower. We have seen this picture before, and it is not a happy ending."

Sears has been struggling for some time, despite ongoing revamping efforts from Chairman Edward Lampert, and a number of investors are concerned that the company's sales format has simply grown obsolete in a competitive landscape that includes hyperefficient, low-cost big box retailers such as Best Buy, as well as rival general retailers such as Target and Wal-Mart.

Thursday's results did little to allay such fears.

"Eddie Lampert is holding an empire that belongs to a bygone era," Claire Gruppo, president of the retail adviser and investment banking firm Gruppo, Levey & Co. told Dow Jones Newswires.

"The general merchandise retailer has almost gone away, and Sears hasn't evolved in an ever-evolving market. At the same time, Lampert is no retailer, which furthers the company's difficulties."

Lampert, a hedge-fund manager, acquired Kmart Corp. out of bankruptcy in 2003 and used the discount chain's then-resurgent shares to purchase Sears, Roebuck and Co. in 2006.

The combination has proven a disappointment, and the latest quarter offered more evidence of Sears' fundamental weakness.

Both of the holding company's operating segments saw a decline in the closely watched comparable-store sales, which measure sales at outlets open at least 12 months. Sears stores had a 6.7 percent decline in comparable-store sales, while Kmart's drooped 6.2 percent.

As bad as they were, the declines were less damaging than the 9.8 percent drop-off Sears stores suffered in the first quarter or the 7.1 percent first-quarter decline Kmart stores experienced.

As the nation's leading appliance retailer, Sears has been hard hit by the housing decline, and big run-ups in the cost of gasoline and food have forced its customers to spend a higher proportion of their disposable income on such staples.

In the latest quarter, Sears spent $437 million to buy back 5.6 million of its common shares; its share-buyback authorization has now dwindled to $206 million.

The company's cash position had fallen to $1.53 billion at the end of the most recent quarter, down from $2.63 billion a year earlier.

Sears shares climbed $3.64, or 4.2 percent, to $90.62. They are more than 40 percent below their 52-week high of $152.91, although they have rebounded from their recent low below $68 a share in mid-July.

Sears Posts 62% Drop in Profit, Lowers Outlook
By Ann Zimmerman - Wall Street Journal
August 29, 2008

Retail pioneer Sears Holdings Corp.'s second-quarter profit tumbled 62% as increased competition and a slowing U.S. economy continued to undermine the retailer's latest turnaround efforts.

The company, which owns Kmart discount stores and Sears department stores, launched a restructuring earlier this year to revive the mature retailers, but Wall Street analysts see the latest results as further proof of a company in disarray. Sears lowered its forecast for its fiscal year's profit but said its efforts to reduce inventories and slash costs will benefit earnings in the second half of this year.

Sears and Kmart are losing share to better run competitors, from Wal- Mart Stores Inc. and Kohl's Corp. to Home Depot Inc. and Lowe's Cos. "A strategy of retrenching through lower inventory levels and through lower expenses [is] the beginning of a slide down a slippery slope from which there is rarely a return," Gary Balter, retail analyst at Credit Suisse, said in a research note Thursday.

Sears Chairman Edward S. Lampert, a billionaire hedge fund executive, has sought to improve operations despite calls to break up the iconic retailer, or invest its cash in other businesses. He has used its cash to build inventory and to buy back shares.

The company this year has been dogged by executive turnover and has yet to name a permanent chief executive officer since Aylwin B. Lewis stepped down in January. Mr. Lampert began restructuring the company earlier this year into semiautonomous units.

The pieces of Sears Holdings, including apparel brand Lands' End, Craftsman tools and Kenmore appliances, along with vast real-estate holdings including some 3,500 stores, "are worth more than the whole," said Robert Passikoff, president of Brands Keys Inc., which assesses brands and customer loyalty.

For the quarter ended Aug. 2, Hoffman Estates, Ill.-based Sears posted net income of $65 million, or 50 cents a share, down from $173 million, or $1.15 a share, a year earlier. A court victory in a bond- redemption case led Sears to reverse a $62 million reserve, which boosted the latest quarter's earnings by 29 cents a share.

Analysts polled by Thomson Reuters were looking for earnings of 33 cents a share on $11.71 billion in revenue.

Revenue fell 4.1% to $11.76 billion, as sales at stores open more than a year fell 6.7% at Sears U.S. stores and 5.6% at Kmart. Same- store sales have declined at both chains for more than three years. Shares were up $3.64, to $90.62, in 4 p.m. trading on the Nasdaq Stock Market as investors reacted to favorable economic news.

Quarterly demand again weakened across most major categories, including appliances, tools and other categories directly hurt by the declining U.S. housing market, Sears Holdings said.

Moody's Investors Service in June lowered its rating outlook on Sears to negative from stable, citing a "lackluster operating performance for the past three quarters, which has resulted in deteriorating debt protection measures." The ratings firm noted that despite having acquired Kmart more than three years ago, the combination "remains very much a work in progress."

--Andria Cheng, Donna Kardos, and Karen Talley contributed to this article.

No Future in Sight for Sears Holdings
By Rich Duprey - The Motley Fool.com
August 28, 2008

Does anyone still shop at Sears?

If you've been tracking comps trends over the past few years, you'd be pondering the same question. Sears' parent company, Sears Holdings (Nasdaq: SHLD), continued on its seemingly endless streak of declining same-store sales in the second quarter and this time reported a 6.2% drop. I'm amazed I haven't lost count by now, given the number of quarters I've had to track, but the company has completed a full three-year period without a single instance of comps gains.

Of course, that was only the beginning of the company's problems. Earnings per share of $0.50 got an artificial boost of $0.29 from a one-time item for an overturned jury award. Without that gain, profits were just $0.21 per share, well below analyst expectations and abysmally lower than last year's earnings posting of $1.15 per share. Let's also not ignore that there were 5.6 million fewer shares outstanding this quarter (or 22 million fewer than last year) -- Sears Holdings spent nearly another half a billion dollars buying back shares as they've steadily fallen in value.

Even the government stimulus checks weren't enough to help out. While the sequential quarterly decline in same-store sales improved slightly (comps fell more than 8% in the first quarter, a suggestion that perhaps a few people absentmindedly wandered into a Sears store this time around), Sears Holdings just can no longer compete effectively against Wal-Mart (NYSE: WMT) or mid-level retailers such as J.C. Penney (NYSE: JCP) and Kohl's (NYSE: KSS).

With a cash hoard that's being depleted as Sears Holdings continuously dips into it to buy back shares, it's becoming more apparent that there is no plan in place to make the once-venerable Sears name a viable retailer again. The stores remain tired, some deplorably so, and though I thought marketing improved a bit this quarter, you're not going to get people to part with their dollars in any appreciable amount if they're fatigued just going into the stores.

Perhaps the deal with rap star LL Cool J will inject the stuffy retailer with a bit of coolyo. With Martha Stewart leaving Kmart in 2010, maybe Eddie Lampert is thinking of positioning her possible replacement, Jaclyn Smith, next to LL in an ad that would be reminiscent of Martha's Macy's (NYSE: M) ad being fawned over by singer Usher.

In reality, there doesn't seem to be anything on the horizon that can provide any respite from the tide of bad news that's been rising up against Sears Holdings. Nor does the company itself expect any good news, as its guidance says investors can expect more of the same for the rest of the year.

Shares are down 12% so far this year and more than 37% over the past 12 months. Since reaching an all-time high of around $191 back in early 2007, Sears Holdings' stock has fallen by nearly half. Where are the catalysts to turn the company around? Nobody has stated a clear vision -- and nothing suggests that there even is a vision.

This is not a retailer on sale -- it's one that's being marked "return to vendor." Investors would be wise to apply for a refund.

Sears profit drops 62%, outlook weak
By James P. Miller - staff reporter - Chicago Tribune
August 28, 2008

Sears Holdings Corp., citing the deteriorating economy's chilling effect on consumer spending, reported fiscal second-quarter earnings that were down by a worse-than-expected 62 percent.

The Hoffman Estates retailer's results would have been even gloomier had Sears not recorded a one-time gain related to a legal dispute.

In the quarter ended August 4, Sears earnings dropped to $65 million, or 50 cents a diluted share, down from the year-ago quarter's $173 million, or $1.15 a share. Per-share results benefited from a 15 percent decline in the number of diluted shares outstanding.

Revenues declined 4.1 percent to $11.76 billion from $12.26 billion a year earlier.

The second-quarter results "reflect the continued effects of a slowing economy, which contributed to the earnings declines we have experienced since the third quarter of 2007, said interim Chief Executive Officer W. Bruce Johnson.

While it was a "difficult quarter," Johnson said, the company has lowered its inventory levels by $500 million, which should lead to less promotional pricing, and improved profit margins, in the year's second half.

Sears' earnings were helped by the reversal of a pretax $65 million reserve the company had earlier been obliged to take in connection with a jury's verdict in a bond-redemption dispute. Without the help of that onetime item, earnings would have been 21 cents a share -- well below the 33 cents that analysts had been anticipating.

Both of the holding company's operating segments saw a decline in "comparable-store" sales, which measure sales at outlets open at least twelve months. At the parent's U.S.-based Sears stores, comparable-store sales showed a punishing 6.7 percent decline; at the company's lower-end Kmart segment, comp-store sales drooped 6.2 percent.

As bad as they were, the declines were less damaging than the 9.8 percent drop-off Sears stores suffered in the first quarter, or the
7.1 percent first-quarter decline Kmart's stores experienced.

The August quarter's results "reflect increasing competition and weakness in the general economy," the company said, and sales were off "across most major categories."

Consumer electronics sales showed an upturn, Sears noted, but sales of home appliances and tools were down in response to the U.S.
housing market's implosion. Sales were also pressured because consumers are being obliged to spend significantly higher proportion of their expendable income on staples such as food and gasoline.

In the latest quarter, Sears spent $437 million to buy back 5.6 million of its common shares; its share-buyback authorization has now dwindled to $206 million. Since the program was first instituted in late 2005, the company noted, Sears has spent a total of $4.8 billion to buy back 38.7 million of its shares.

Sears Stumbles on Slowing Economy
By Donna Kardos - Dow Jones Newswire
August 28, 2008

Sears Holdings Corp. reported a 62% drop in fiscal second-quarter net income on weakness at the retailer's U.S. stores.

Interim Chief Executive W. Bruce Johnson said the results "reflect the continued effects of a slowing economy," prompting the company to project weak fiscal-year sales and cut its fiscal-year view for earnings before interest, tax, depreciation and amortization to one Johnson said is "comparable to, but no longer exceeds, last year's Ebitda."

Still, he said a $500 million cut to domestic inventory levels should lead to higher Ebitda, lower markdowns and help margins the rest of the year.

For the quarter ended Aug. 2, the department- and discount-store operator controlled by hedge-fund manager Edward S. Lampert posted net income of $65 million, or 50 cents a share, down from $173 million, or $1.15 a share, a year earlier. The overturning of a 2007 verdict in a bond-redemption case led Sears to reverse a $62 million reserve, boosting the latest quarter's earnings by 29 cents.

Revenue fell 4.1% to $11.76 billion, as domestic same-store sales fell 6.2% - down 6.7% at namesake stores and 5.6% at the Kmart discount chain. Still, the declines were less than in the first quarter.

Analysts polled by Thomson Reuters were looking for earnings of 33 cents a share on $11.71 billion in revenue.

Gross margin slid to 26.5% from 27.7%, which Sears said reflects "increased markdown activity as a result of the intense competition for consumer business."

Ebitda -- a gauge of cash flow from core operations -- was $366 million, up 76% from the first quarter but down 38% from a year earlier.

Looking forward, the company said sales and gross margin "will likely continue to be pressured" by unfavorable economic factors for the rest of the year, during which Sears expects flat-to-modest same- store-sales declines.

Sears has been struggling with waning business and rising complaints about stores and service that made it hard to stop customer losses to more focused rivals. The retailer's namesake and Kmart stores have been plagued by a reputation for shoddy customer service, high out-of- stock levels and poor presentation.

Amid the troubles, Moody's Investors Service in June lowered its rating outlook on Sears to "negative" from "stable," citing a "lackluster operating performance for the past three quarters, which has resulted in deteriorating debt protection measures." The ratings firm noted that despite having acquired Kmart more than three years ago, the combination "remains very much a work in progress."

To recover, Sears has been under a massive restructuring into a five- unit holding company, while also trimming its marketing expenses and work force. The revamping is intended to make the 121-year-old retail pioneer a more nimble and profitable company. But investors and analysts are still wary, as dwindling cash flows have prompted them to consider the direst scenario - suppliers possibly wondering whether Sears has the cash to pay them.

 

Sears Holdings expected to post weak results
By Karen Jacobs - Reuters
August 27, 2008

What: Sears second-quarter results expected to drop
* When: Aug 28
* Sears shares down this year, investors seek firm plan

ATLANTA, Aug 27 (Reuters) - Retailer Sears Holdings Corp (SHLD.O: Quote, Profile, Research, Stock Buzz) is expected to post a steep drop in quarterly profit, and investors will be looking for deeper changes to lift the company out of a year-long earnings slump.

Sears, which is due to report second quarter results on Thursday, has been rebuilding its management and revamping its merchandise.

But some analysts say the company controlled by hedge fund manager Edward Lampert may have few opportunities left to combat the tough retail environment.

"Sears and Kmart are both viable businesses," said Standard & Poor's Equity analyst Jason Asaeda. "But I just don't see any catalyst to drive near-term improvement."

Asaeda expects a steep fall in second-quarter per-share earnings as revenues decrease about 6 percent. Analysts on average expect Sears to report profit of 33 cents a share, down from $1.13 a year earlier, according to Reuters Estimates.

Lampert, who gained favor at Kmart for making shareholders rich before the 2005 merger with Sears, Roebuck, has come under increased criticism as earnings growth has stalled at the combined company in the past year.

Sears Holdings reported a surprise first-quarter loss in May and declining earnings for the previous three quarters. Sales at stores open at least a year have fallen for the past two years at its Sears, Roebuck and Kmart stores.

"We're frankly not expecting a lot of good news," said Craig Johnson, president of Customer Growth Partners, a retail consulting and research firm. "It's a storied, wonderful U.S. retail franchise that has been heading steadily downhill for several years now."

Johnson said Sears needs an experienced retail executive to run its business if it has any hope of a turnaround as rivals fine-tune their product offerings and marketing messages.

"They need a true retail veteran to take the helm at the top," he said.

The Hoffman Estates, Illinois, retailer has been looking for a permanent CEO since January and has seen a number of executives depart lately.

SEARS SHARES LAG

Sears and Kmart compete with such retailers as Wal-Mart Stores (WMT.N: Quote, Profile, Research, Stock Buzz) in general merchandise, Kohl's Corp (KSS.N: Quote, Profile, Research, Stock Buzz) and J.C. Penney Co (JCP.N: Quote, Profile, Research, Stock Buzz) in the sale of clothing, and Home Depot Inc (HD.N: Quote, Profile, Research, Stock Buzz) and Lowe's Cos (LOW.N: Quote, Profile, Research, Stock Buzz) in appliances and tools.

But while many of those rivals have gained this year on expectations that consumers will turn to them for lower-priced goods, Sears shares are down about 14 percent this year although they have risen 29 percent from a year low of $67.36 in July.

Since the start of 2008, Wal-Mart has gained 25 percent, Kohl's is up more than 5 percent and Home Depot has advanced about 1 percent.

Just last week, Sears Holdings said in a federal filing that Chief Marketing Officer Maureen McGuire was resigning at the end of this month. In July, David McCreight, president of Sears' Lands' End division, was named president of Under Armour Inc (UA.N: Quote, Profile, Research, Stock Buzz).

At the same time, new talent has been brought in as the company separates its business into different units to simplify the way they are managed.

This month, Sears Holdings said it hired executives who had previously worked at Procter & Gamble Co (PG.N: Quote, Profile, Research, Stock Buzz) and Motorola (MOT.N: Quote, Profile, Research, Stock Buzz) to head two key business units, and named presidents of its tool and appliance businesses earlier this year.

Changes have been made in its stores, too. For example, next month Sears, Roebuck will start selling a line of clothing named for hip- hop star LL Cool J to lure new customers.

"We think some of the changes within the stores have been to the positive in terms of the merchandising, the signage," Johnson said. "The question is whether it's too little, too late."

Shares of Sears Holdings fell 64 cents to $86.98 on Nasdaq on Wednesday.

Earnings Preview: Sears Holdings Corp.
Conde Nast Portfolio.com
August 27, 208

Sears Holdings Corp. reports earnings for the second quarter on Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Led by hedge fund financier Edward Lampert, Sears continues to struggle to attract its dwindling number of customers to stores despite a high-stakes restructuring aimed at reconnecting with shoppers and reinvigorating atrophied same-store sales, which have fallen for the past nine quarters.

This spring, the company cautioned that it expects its sales and margins to be pressured for the rest of the year due to tough economic conditions. Meanwhile, a slew of executives have departed the Hoffman Estates-based retailer, that is continuing to search for a permanent chief executive to replace interim CEO and President W. Bruce Johnson.

During the second quarter, Sears announced a partnership with hip-hop star LL Cool J, who will to launch a line of clothing and accessories in the company's stores this fall. The apparel for children, teen girls and young men will initially be stocked in 450 Sears stores in mid-September. The retailer says it hopes to expand the collection to more of Sears' 2,400 stores by the end of the year.

BY THE NUMBERS: Analysts polled by Thomson Financial predict a profit of 33 cents per share on revenue of $11.71 billion for the quarter.

ANALYST TAKE: Deutsche Bank analyst Bill Dreher Jr. told investors in a recent research note that he continues to maintain a "Sell" rating on Sears, "given the company's exposure to big-ticket, discretionary, home-related merchandise, (and a) lack of investment in inventory management systems."

WHAT'S AHEAD: Analysts will be waiting to hear an update on Lampert's plans to find a new, permanent chief executive, as well as an update on the company's turnaround efforts.

STOCK PERFORMANCE: During the quarter, which began May 4, shares fell about 21 percent to end the period at $80.98. Shares are down about 14 percent for the year.

 

Sears recalls 145,000 coffee makers
on fire risk
Daily Herald - Suburban Chicago - Associated Press
August 26, 2008

HOFFMAN ESTATES -- The U.S. Consumer Product Safety Commission says Sears Holdings voluntarily recalled 145,000 Kenmore brand coffee makers because the wiring can overheat and cause fires or burns.

Tuesday's recall includes 12-cup Kenmore and Kenmore Elite Coffee makers sold through Sears, Sears Hardware and Kmart stores as well as online from August 2007 through April.

The Hoffman Estates-based company and the agency say there have been 20 reports of coffee makers overheating, including 12 fires and causing damage to counter tops, cabinets and the floor. No injuries have been reported.

The retailer advised consumers to stop using the coffee makers and return them to Sears or Kmart stores for a free replacement.

Former Sears manager returns to fold
By Bill Radford - Colorado Springs Gazette
August 22, 2008

It seems Jerry Case just couldn't stay away from Sears.

He spent 30 years with the company before retiring in 2002 as manager of the Chapel Hills Sears. Last year, he - along with son Jordan and son-in-law Daniel Shepard - opened a Sears dealer store inside the Kmart at Powers and Palmer Park boulevards. They are building a second Sears dealer store in Monument, with a mid-October opening planned. Jordan Case, who manages the Powers store, will manage the other store as well.

Dealer stores are smaller Sears stores that focus on big-ticket items such as appliances. The Searswithin-a-Kmart concept is an attempt to capitalize on the marriage between Kmart and Sears, Roebuck and Co., which merged in 2005 under the umbrella of Sears Holding Corp. The Monument dealer store, though, will be a free-standing one.

Jerry Case, 62, and Shepard are also partners in a mortgage business.

Question: Are you surprised to be back in the Sears family, so to speak?

Answer: I'm not tremendously surprised. I enjoyed it so much, and it's kind of fun to see it from a different perspective.

Q: How did you end up opening the Powers dealer store?

A: A friend of mine who was a store manager when I was a store manager is now the district manager over all of the dealer stores. He said, ‘Jerry, you miss it, don't you?' I said, ‘Yeah, I do.' So he twisted my arm and we got in it and I found that I really enjoyed it, more so for me watching my son learn the business. It brings the family closer. And it's a good business.

Q: When and why did you decide to open a second store?

A: Sears started to say, ‘Hey, have you ever thought about doing another one?' In fact, they tried selling me a couple of others that were already up and running. But I like starting from scratch. We looked at the demographics in Monument and we feel it will do very well up there.

Q: How is the Powers store doing? I assume OK, since you're opening another store.

A: It's amazing the traffic that we get every day. We have more people coming in the store than I anticipated. Sales have been excellent. Customers start talking about it as their store because it's in their neighborhood, and that's what we think is going to happen in Monument. It becomes a little more personal.

Q: Have you talked to the folks at the Kmart? Has having the dealer store there been beneficial for them?

A: It is a little different customer. The Kmart customer is one who is going in there for smaller items; they're just in and out of there fast. Whereas in Sears dealer stores, sometimes we'll have a customer come in four or five times before they buy. It really becomes a complex thing because they're sometimes spending $5,000 to $8,000 buying a whole new kitchen and all the appliances. So we become more involved with their lives. If you were to ask Kmart, I think they would say it has been positive for them. But I don't think it has had the synergy that we thought it would have.

Q: Don't you have worries about opening a store in this economic climate, with stores closing and bad news seeming to come every day?

A: Yes, there is some trepidation. But on the other hand, we have opened one and we have been successful. We know it is a tough economy out there, but the economy is going to come back.

Q: You say the business has brought the family closer together. Are there disadvantages with keeping it in the family?

A: At the beginning, there were some conflicts as far as each of us wanted to do it our way. What we have found is that Jordan is now to the point where he really does run the store. He comes to us in an advisory capacity, but he makes the decisions. There were some tough times early on, but I think that's good, because you grow out of conflict.

Q: Speaking of family, how long have you and your son-in-law been in the mortgage business?

A: I've been in it for six and a half years and he's been in with me for four years.

Q: So you jumped into it as soon as you retired from Sears?

A: It's a funny story. I retired and we were in a situation where I probably didn't have to work. But my wife said, ‘You can't be home.' I was driving her crazy. And so the mortgage business was something to get me out of the house for a while, but I fell in love with it. I've been with three different companies, and now Daniel and I are the branch managers of 1st Metropolitan Mortgage. They treat us well. It's a fun business.

Q: I wouldn't think it's been too much fun lately.

A: It hasn't been as fun or profitable as it was three years ago. But we're still hanging in there and doing well.

Q: Every month we look for signs that the housing crisis is ending. Have we reached the bottom?

A: I'd like to tell you that we have, but we haven't. I think that we have a tough year ahead of us. But what I anticipate is that sometime next summer, we will start seeing positive movement.

Sears loses top-level execs
Heads of home services, marketing leave;
new chief for brands hired
By Sandra M. Jones - reporter - Chicago Tribune
August 22, 2008

They don't sell revolving doors at Sears, but maybe they should.

The retreat in consumer spending and the slide in the housing market are taking a toll on Sears Holdings Corp. But keeping a stable senior management team in place to navigate the economic slowdown appears to be a tough challenge facing Edward Lampert, the retailer's chairman and controlling stakeholder.

The turnover among top-level executives escalated this week as the company prepared to report on Thursday what analysts predict will be another grim earnings performance.

Mark Good, the veteran chief of Sears' home services business, one of the better-performing units at the ailing retailer, said he plans to leave the company Friday. He will be replaced by Stu Reed, the former president of Motorola Inc.'s mobile devices division, effective Monday.

Chief Marketing Officer Maureen McGuire, a veteran IBM Corp. marketing executive that Lampert wooed to Sears three years ago, told her team she is leaving at the end of the month.

And on Thursday, Sears moved forward with its plan to reorganize the company along asset lines, grouping its major brands together and hiring Procter & Gamble Co. executive Guenther Trieb as Sears' first brand chief to run them

Trieb, most recently vice president of P&G's feminine-care business in Europe, is charged with expanding Sears' Kenmore appliance, Craftsman tool and DieHard car battery businesses.

There has been an exodus of top executives in the past year, including most recently Lands' End chief David McCreight, who took the No. 2 post at Under Armour Inc. in July, and Bill Stewart, Kmart's chief marketing officer, who left in June to work on a campaign to protect gay marriage in California.

Sears has yet to name a permanent replacement for CEO Aylwin Lewis, who was ousted early this year. Lampert appointed supply chain executive W. Bruce Johnson, a former Kmart executive, as interim CEO and president in February.

In the meantime Sears, still the largest seller of appliances in the U.S. by far, has been losing market share steadily for years as Lowe's and Home Depot moved aggressively into the business. Sears' appliance sales accounted for 15 percent of its fiscal 2007 revenue, according to Sears' annual report, and it is one of the main reasons customers visit a Sears store.

Problems grow

"Sears is suffering from a lot of problems," said Nick McCoy, senior consultant for home goods at TNS Retail Forward in Columbus, Ohio. "They need to find a way to bring consumers back to Sears. There's a sector of consumers who still believe Kenmore is the best appliance brand and Craftsman is the best tool brand. But those consumers are getting older and Sears hasn't done anything to revitalize those brands."

McGuire joined Sears in October 2005 after a 30-year career at IBM Corp., where she was a strategy and marketing executive. She worked closely with Lampert at offices in Greenwich, Conn., where the billionaire operates his hedge fund ESL Investments Inc.

Under McGuire, Sears tapped into its past to come up with the "Sears. Where it begins" ad campaign, dusting off the store's legendary Big Book catalog heritage. In it, actors walk among the pages of Sears catalogs, looking at larger-than-life images of everything from diamond rings to dishwashers.

McGuire was not available for an interview. Sears said she is leaving the company for personal reasons. Richard Gerstein, head of marketing at the Sears division, becomes head of marketing for the combined company.

Good joined Sears in 1997 and led its home services business since 1999 as executive vice president and general manager, overseeing its expansion. The home services business offers parts and repairs for home appliances, among other products, and includes home improvement services such as home siding, carpet cleaning and kitchen remodeling. Good was not available for comment.

Brand experience

As for the Sears newcomers, Trieb worked at P&G for 24 years in brand management, marketing and planning.

"It's a good move for Sears to bring in somebody who knows something about maintaining and developing a brand," said Michael Stone, CEO of the Beanstalk Group, an Omnicom Group-owned brand licensing agency and consulting firm. "These are major assets of Sears' that have not been maximized the way they could be."

Earlier this year, Lampert opened the door to considering selling brands such as Kenmore and Craftsman outside of Sears stores, a controversial idea that could backfire if it drives shoppers away from Sears to other outlets.

In May, Sears posted its biggest quarterly loss since Lampert combined Sears and Kmart three years ago. Shoppers cut back spending on appliances and clothing, and the firm stepped up promotions to clear inventory.

Morgan Stanley analyst Gregory Melich estimates that in the second quarter Sears will earn 22 cents a share, down 81 percent from $1.17 a year ago, as sales at stores open at least a year decline 6.5 percent, according to an Aug. 14 report.

Profits likely took a hit as Sears increased discounting to clear inventory, Melich said.

Sears' home services executive leaves
Chicago Tribune
August 21, 2008

Sears Holdings Corp.'s home services chief Mark Good plans to leave the company effective Friday.

The Hoffman Estates-based company announced Good’s departure in a memo sent to employees on Tuesday, according to company spokeswoman Kimberly Freely.

As executive vice president and general manager of the home services business, Good ranked as one of the last top-level executives from the old Sears regime. Most of the senior executives running Sears today hail from Kmart Corp., which bought Sears in 2005, or were brought in from outside the company after the merger.

Good, who is in his early 50s, joined Sears in 1997 and led its home services business since 1999, overseeing its expansion.

The home services division is considered one of the healthier businesses at the troubled retail chain and has been pegged at times as a possible candidate for sale. The business offers parts and repairs for home appliances, among other products, and includes home improvement services such as home siding, carpet cleaning and kitchen remodeling.

Good also served as a member of Sears Canada’s board of directors.

Sears gave no reason for Good’s departure and declined to make him available for comment, saying only that the company expects to announce a new leader for the home services business “in the very near future,” according Freely.

Sears has experienced an exodus of top executives since last year, including most recently, Lands’ End chief David McCreight, who took the No. 2 post at Under Armour Inc. in July and Kmart chief marketing officer Bill Stewart, who left in June to work on a campaign to protect gay marriage in California.

Sears has yet to name a permanent replacement for CEO Aylwin B. Lewis, who was ousted early this year. Controlling stakeholder Edward Lampert appointed supply chain executive W. Bruce Johnson, a former Kmart executive, as interim CEO and president in February.

McGuire Leaves CMO Post at Sears Holdings
Sears Brand Marketing Chief Gerstein Will Take Over
By Natalie Zmuda - Advertising Age
August 21, 2008

NEW YORK (AdAge.com) -- Sears Holdings Chief Marketing Officer Maureen McGuire is leaving the retail company. She will be replaced by Richard Gerstein, the CMO for the Sears, Roebuck & Co. brand, the marketer said today.

Ms. McGuire has been CMO of Sears Holdings since 2005. Since joining the retailer, parent company of Sears, Roebuck & Co. and Kmart, Ms. McGuire has been working to reshape both the company's marketing division and reignite customer interest in the flagging brands.

Key hire

Mr. Gerstein, who joined the company in August of last year from Alberto-Culver Beauty, was one of Ms. McGuire's key hires.

Since joining the retailer, Ms. McGuire had named CMOs at Sears, Sears Home and Kmart, as well as a senior VP-customer relationship marketing and a VP-marketing services. She also introduced The Sears Book -- a throwback to the much-loved Sears catalog -- and Mr.
Bluelight, a nod to Kmart's famous blue-light specials.

"During her time with Sears Holdings, Maureen oversaw the creation of new brand positionings for both Sears and Kmart, revitalized and improved marketing for our brands and championed a heightened commitment to spending our marketing dollars in more impactful ways," said Christian Brathwaite, a spokesman for the company. "She has rebuilt the marketing organization, attracting strong talent and expertise from outside the company as well as helping develop the good talent that was already here."

Personal reasons cited

Ms. McGuire told her team yesterday that she will be leaving at the end of the month for personal reasons, the company said. She has said she had been commuting to Sears Holdings headquarters in Hoffman Estates, Ill., from Connecticut.

Sears Holdings Corp. Chairman Edward Lampert personally approached Ms. McGuire with the offer of a chief-marketer position, based on her experience with the turnaround of the IBM brand, where she had spent 30 years.

Woman to Watch

"The opportunity was so fascinating," Ms. McGuire told Ad Age this past spring. "Here are really great iconic American brands that were [struggling]. We needed to put some luster on them and bring them back into the 21st century. ... I felt like I had experience doing that."

Ms. McGuire was honored as an Ad Age Woman to Watch at a luncheon in New York last week.

In June, Kmart Senior VP-Chief Marketing Officer Bill Stewart left the company to become a full-time volunteer on a campaign to protect gay marriage in California. Andrew Stein is serving as interim CMO for Kmart. A permanent replacement has not yet been named.

The departure of two high-level marketing execs in such a short period of time is surely a blow for the already struggling retailer.
The company posted a net loss of $56 million in the first quarter. It is slated to post second-quarter results Aug. 28.

Sears shuffles execs
Daily Herald News Services - Suburban Chicago
August 21, 2008

HOFFMAN ESTATES -- Sears Holdings Corp, said Thursday it has hired former Motorola executive Stu Reed as Sears Holdings' new president of its Home Services unit.

Reed was most recently with Motorola as president of its Mobile Devices business and will be remembered for cutting down the company's supply chain plants and staffing since 2005.

"As part of our new operating model and in an effort to continue to leverage those businesses that separate us from our competition, we're very pleased to be able to add a leader with Stu's experience and strong operational background to our executive team," Bruce Johnson, Interim CEO and president of Sears Holdings, said in a statement.

The hiring of Reed is part of a re-shuffling of Sears' top management.

The company said Chief Marketing Officer Maureen McGuire will leave the company at the end of the month for personal reasons. She will be replaced by Richard Gerstein, a senior vice president who led the marketing team for the company's Sears chain during the past year, the retailer said.

McGuire joined the company in 2005 and directed efforts to improve the Sears and Kmart brands.

Also, Guenther Trieb will join Sears Holdings as senior vice president and president of Kenmore, Craftsman and DieHard and will be responsible for overseeing and working to grow the value of the company's major brands.

Trieb joins Sears Holdings after 24 years with Procter & Gamble, Co., where he was most recently vice president for P&G's Western European Feminine Care Global Business Unit. He held a variety of senior leadership roles in brand management, marketing and strategic planning while with Procter & Gamble.

"The addition of Guenther to our team moves us another important step forward in the transformation of our businesses," Bruce Johnson, interim CEO and president of Sears Holdings, said in a statement. "He brings a winning attitude to our company and has demonstrated a commitment to enhancing relationships with customers, profitable sales growth and navigating through organizational change."

Sears Holdings is being reorganized by Chairman Edward Lampert, who ousted Chief Executive Officer Aylwin Lewis early this year after revenue and profit declined.

Sears Holdings names new unit presidents
Reuters
August 21, 2008

ATLANTA, Aug 21 (Reuters) - Retailer Sears Holdings Corp (SHLD.O: Quote, Profile, Research, Stock Buzz) said on Thursday that Guenther Trieb has been named president of its Kenmore, Craftsman and DieHard brands and that Stu Reed was named president of its home services unit.

Trieb, who will be responsible for the company's major brands unit, joins Sears Holdings from Procter & Gamble Co (PG.N: Quote, Profile, Research, Stock Buzz), where he worked for 24 years, most recently as vice president for the consumer product maker's Western European feminine care global business unit.

Kenmore, Craftsman and DieHard are Sears' proprietary brands for appliances, tools and batteries, respectively.

Reed was most recently employed at Motorola (MOT.N: Quote, Profile, Research, Stock Buzz), where he served as president of the mobile devices unit. He joined Motorola in 2005 after more than 20 years at IBM (IBM.N: Quote, Profile, Research, Stock Buzz).

Sears, the Hoffman Estates, Illinois, company that is controlled by hedge fund manager Edward Lampert, announced a plan in January to separate its operations into five types of units -- operating, support, brands, online and real estate -- in a bid to allow its businesses to operate more efficiently and give them greater power to serve consumers. (Reporting by Karen Jacobs; Editing by Phil Berlowitz)

Sears Holdings Names President of Key Business Unit
Guenther Trieb to Lead Kenmore, Craftsman and DieHard Brands
Market Watch.com
August 21, 2008

HOFFMAN ESTATES, Ill., Aug 21, 2008 /PRNewswire-FirstCall via COMTEX/-- Sears Holdings Corporation announced today that Guenther Trieb will join Sears Holdings as SVP and president -- Kenmore, Craftsman and DieHard and will be responsible for overseeing and working to grow the value of the company's major brands.

Trieb joins Sears Holdings after a successful 24-year career with Procter & Gamble, Co., where he was most recently Vice President for P & G's Western European Feminine Care Global Business Unit. He held a variety of senior leadership roles in brand management, marketing and strategic planning while with Procter & Gamble.

"The addition of Guenther to our team moves us another important step forward in the transformation of our businesses," said Bruce Johnson, Interim CEO and president of Sears Holdings. "He brings a winning attitude to our company and has demonstrated a commitment to enhancing relationships with customers, profitable sales growth and navigating through organizational change."

Sears' chief marketing officer,
home services executive leaving
By Sandra M. Jones - staff reporter - Chicago Tribune
August 21, 2008

Two top Sears Holdings Corp. executives announced they are leaving the company, the latest in a string of senior executives departing troubled retail chain.

Chief Marketing Officer Maureen McGuire told her team on Wednesday that she will leave the company at the end of the month, according to Sears spokesman Chris Brathwaite. Home services chief Mark Good announced his departure in a memo sent to employees Tuesday. Good's last day will be Friday, said Sears spokeswoman Kimberly Freely.

The departures come one week before the Hoffman Estates-based company is scheduled to report second-quarter earnings.

Both executives played a big role in hedge fund manager Edward Lampert's efforts to turn the combination of Kmart and Sears into a thriving retailer. That effort has to date met with little success, fueling speculation that Lampert may be forced to sell Sears real estate or other assets.

McGuire, who is in her mid-50s, joined Sears in October 2005 after a 30-year career at IBM Corp where she was a strategy and marketing executive. She worked closely with Lampert at offices in Greenwich, Conn., where Lampert also operates his hedge fund ESL Investments Inc.

Good, who is in his early 50s, joined Sears in 1997 and led its home services business since 1999 as executive vice president and general manager, overseeing its expansion.

The home services division is considered one of the healthier businesses at the troubled retail chain and has been pegged at times as a possible candidate for sale. The business offers parts and repairs for home appliances, among other products, and includes home improvement services such as home siding, carpet cleaning and kitchen remodeling.

Sears declined to make McGuire available for an interview and said she is leaving the company for personal reasons. Richard Gerstein, head of marketing at the Sears division, will take her place as head of marketing for the combined company.

Sears also declined to make Good available for comment and gave no reason for Good's departure, saying only that the company expects to announce a new leader for the home services business "in the very near future," according to Freely.

There has been an exodus of top executives at the retailer in the past year, including most recently, Lands' End chief David McCreight, who took the No. 2 post at Under Armour Inc. in July and Kmart chief marketing officer Bill Stewart, who left in June to work on a campaign to protect gay marriage in California.

Sears has yet to name a permanent replacement for CEO Aylwin B. Lewis, who was ousted early this year. Controlling stakeholder Edward Lampert appointed supply chain executive W. Bruce Johnson, a former Kmart executive, as interim CEO and president in February.

In May, Sears posted its biggest quarterly loss since Lampert combined Sears and Kmart three years ago as shoppers cut back spending on appliances and clothing and the company stepped up promotions to clear inventory. The retail industry has continued to face a grim shopping environment this summer with many retailers either ratcheting back expansion plans or closing stores.

Kohl's Makes Changes in Top Ranks
By Cheryl Lu-Lien Tan - Wall Street Journal
August 21, 2008

Department store chain Kohl's Corp., which has been hurt by the consumer spending slump, announced Thursday that Larry Montgomery is stepping down as chief executive officer after nine years in the post and President Kevin Mansell is taking over.

Mr. Montgomery will remain chairman and continue to oversee strategic growth initiatives, human resources, and legal and real estate departments at the Menomonee Falls, Wis., company. "I have no plans to retire," the 59-year-old said in an interview Wednesday. He said the company's recent sales weakness was not a factor in his decision. "I have faced no pressure to step down," he said.

The change in command is part of a succession plan that Mr. Montgomery has been discussing with the board for a few years, he said. The board delayed announcing the management change by "a couple of months" to avoid giving the impression that Mr. Montgomery was being pressured to resign because of poor performance, said Frank Sica, a Kohl's director since 1988.

"We were hoping for better news so it didn't seem like this [downturn] was the reason," Mr. Sica said, adding: "We're very happy with Larry. If he wanted to stay, we'd be happy with him staying."

Sales and profits at Kohl's, which operates 957 stores in 47 states, have tumbled as consumers responded to rising prices for gas and food by cutting back spending on clothing and other discretionary items. Last week, the retailer said net income fell 12% in its second fiscal quarter ended Aug. 2. It forecast sales at stores open at least a year, a key measure of retail market share gains, will decline through the second half.

Shares were off $1.08, at $47.74, in 4 p.m. New York Stock Exchange composite trading Wednesday. Investment house Goldman Sachs Group Inc. lowered its rating on the retailer's shares to neutral from buy, citing a recent rally in its shares. However, the stock has lost 21% of its value in the last 52 weeks.

Mr. Mansell, 56, said he has no plans to alter the company's strategy. "This is about continuity, stability," he said. "There has not been a decision made that hasn't been a collaborative effort -- that will continue." He is expected to continue Kohl's store expansion and pursuit of exclusive brands.

The pair have sought to boost retail profits by embracing exclusives such as the Chaps menswear line by Polo Ralph Lauren and the Simply Vera Vera Wang women's wear and home lines. It also recently added new house brands, such as a teenage line called Abbey Dawn, designed by singer Avril Lavigne.

Kohl's director Peter Sommerhauser said the company's directors felt it was important to promote Mr. Mansell to signal to future managers that they will have a chance to move up. Mr. Montgomery has been CEO since 1999 and chairman since 2003. Mr. Mansell, a 26-year company veteran, has been president and a director since 1999.

Kohl's appears to be slowing its store expansion plans. Last year, it said it expected to add about 550 stores over the next five years. Last week, the company, which has said it expects to open 75 stores this year, said it will open just 50 in fiscal 2009.

AutoNation, Sears, and Autozone
Getting Closer Together
So when will the combination of the three happen?
By: Todd Sullivan - Seeking Alpha.com
August 20, 2008

AutoZone (AZO) added two new Board Members the other day. They are: William Crowley, a former managing director of Goldman Sachs (GS). Crowley also has served as a director of Sears Holding (SHLD) since 2005. He has served as a director of Sears Canada Inc. since March 2005 and as the chairman of the board of Sears Canada since December 2006. Since 1999, he has been president and CEO of ESL Investments Inc., a private investment firm run by Sears largest shareholder Eddie Lampert. Crowley also serves as a director of AutoNation (AN) Inc.

Robert Grusky founded Hope Capital Management LLC in 2000 and serves as its managing director. That same year he co-founded the private equity firm New Mountain Capital LLC and served as principal, managing director and member. He's now a senior adviser. Grusky is a director of AutoNation (AN) and Strayer Education Inc.

The additions were part of a late June agreement with ESL and Lampert regarding his ownership.

This now means the three boards have overlapping representation. Lampert controls the Sears Board, and will have 20% to 30% of the AutoZone Board after the 2008 Meeting in December and 25% of AutoNation's.

What does it all mean? Is he taking them private? No. There is no way with the incestuous Board relationships that Lampert could pass any "fairness" test in a "taking private" scenario.

What then? Lampert will eventually own all three under the Sears Holdings umbrella. Sears in one swoop will become the nation's largest auto dealer, auto parts and auto repair company, with considerable pricing and cost savings power.

When? Not this year. Next, maybe. But wait you say, ESL owns the shares of both AutoZone and AutoNation, not Sears. So what? Lampert can sell the shares to Sears in a private sale and in a day Sears owns almost 50% of both companies. Lampert needs no authority from either group of investors (ESL or Sears) as he has full authority to allocate capital as he wishes now. ESL investors would most likely be happy to take less for their AN and AZO shares now (than a public auction would garner) recognizing they are still the largest shareholders of Sears and will make the money in spades later.

Folks who have $5 million to let Lampert lock up and play with for 5 years see the bigger picture.

If this eventually happens, one has to think it has been in the cards for years now. That would possibly make Lampert the most patient man in the world...

He Opened the Way to Kmart
By Kevin Harlin - Investor's Business Daily
August 20, 2008

In retail, everyone copies. The trick is to find what works, then do it better than anyone else. Sebastian S. Kresge figured that out early. Kresge, whose name supplied the K in Kmart, didn't make his name in that discount big-box arena.

He was successful and famous long before, with his variety store chain, S.S. Kresge Co.

He didn't invent its 5-and-dime format — so named because everything originally cost 5 or 10 cents. Most historians credit Franklin Winfield Woolworth for that. But Kresge, who admired Woolworth, took that low-price, high-volume idea and ran with it, creating one of the most successful companies of his time.

"I don't think he was a particularly innovative retailer. But he took that concept and made it his own," said Robert Spector, a retail historian and author of the upcoming book "The Mom & Pop Store."

Kresge's genius, Spector says, was simply effective management.

His chain was one of the fastest growing retailers during the 1920s. S.S. Kresge dime stores dotted downtowns across America. The company evolved into the discount giant Kmart.

Kresge was born in 1867 in a rural community in eastern Pennsylvania, the fifth of seven children. His parents, Sebastian and Catherine, didn't have much money, so Kresge had to work hard.

He tried it all. He taught school briefly when he was 19, according to a 1914 who's who, "The Book of Detroiters." After graduating from a business college in Poughkeepsie, N.Y., he clerked at a hardware store and worked as a traveling salesman.

Nickels And More

At age 30, Kresge went into business with John G. McCrory, who was starting off his own 5-and-dime empire, J.G. McCrory's.

The venture was a success, but in 1899, Kresge wanted his own name over the door. He traded his share of the McCrory's store in Memphis, Tenn., for his partner's half of the one in downtown Detroit.

S.S. Kresge Co. was born.

By 1912, it had grown to 85 stores with sales of $10.3 million — worth $227 million today.

In the 1920s, chain 5-and-dime stores were replacing mom-and-pop operations in downtowns across America. Kresge's company contributed to that wave. The firm boomed from 233 stores in 1924 to 451 four years later.

He put in 20-hour days early on. But the key to his success, he would later say, was in finding high-traffic locations where most of a town's shoppers would pass.

Investors took notice. During a 3 1/2-year period in the 1920s, the stock ran up more than 1,000%. The dime-store magnate knew the value of a penny.

Kresge gave up golf because he didn't want to pay for the balls he was losing. He took the upper berths in Pullman train cars because the fare was cheaper than for the lower bunks. He used to spring for 10-cent shoeshines, but gave up the luxury when the shoeshine boy raised the price by a nickel, his Time magazine obituary noted.

The frugal retailer wasn't credited with many new ideas. But he tried just about every idea.

He opened dollar stores next to his dime stores to sell more expensive items. Eventually he raised prices as inflation demanded. His company would be one of the first to spend heavily on circulars distributed in newspapers to promote the stores.

He was an early adopter of the checkout system, where customers picked their goods off shelves and brought them to a register, rather than handing a list to a clerk.

"He was not so much a format builder or inventor so much as a great experimenter," Nancy Koehn, a professor at Harvard Business School who teaches retail history, told IBD.

His company began trading on the New York Stock Exchange in 1918. Kresge stepped down as president in 1925, becoming chairman of the board, a position he held until shortly before his death in 1966.

As chairman, he oversaw the firm's biggest transformation.

In the 1950s, suburbs were spreading. Kresge's stores were mostly in downtowns, some of which were struggling.

So in 1962, S.S. Kresge Co. opened its first Kmart in a suburb of Detroit. Kmart would eventually lose focus, money and autonomy. It's now part of Sears Holdings. (SHLD) But in the '60s, Kmart was the undisputed king in that new discount department store format.

In the first five years, S.S. Kresge Co. opened 250 Kmarts and increased sales to $800 million.

Today's discount king, Wal-Mart, (WMT) also opened its first store in 1962. It hardly competed the next five years, growing to only nine stores and $19 million in sales.

All the while Wal-Mart patriarch Sam Walton was copying Kmart.

"I was in their stores constantly because they were the laboratory, and they were better than we were," Walton wrote in his autobiography, "Sam Walton: Made in America." "I spent a heck of a lot of my time wandering through their stores talking to their people and trying to figure out how they did things."

The secrets? Effectively manage costs and inventory, and sell for less. Walton learned the lessons well.

Kmart stayed on top during Kresge's years.

And he didn't forget those who taught him. Historians say Woolworth likely created the 5-and-dime format when he opened his first store in Utica, N.Y., in 1878.

As a traveling salesman, Kresge met Woolworth and sold him pots and pans. When Woolworth died in 1919, Kresge ordered the lights at all of his stores turned off briefly in mourning, Spector says.

Kresge also believed in giving back to his employees and the community. His company was one of the first to offer paid vacations and sick leave.

And he gave to universities and causes such as fights against alcohol and tobacco.

He wasn't a bombastic CEO. When dedicating Kresge Hall at Harvard Business School in 1953, the 85-year-old Kresge offered only the tautest ribbon-cutting speech.

"I never made a dime talking," he said, according to an account in Time magazine. Then he sat down.

Sharing The Wealth

Toward the end of his life, he had given away most of his fortune, including $60.5 million — worth $409 million nowadays — to the Kresge Foundation, today one of the nation's largest philanthropic organizations.

With his eyesight failing at age 98, Kresge finally retired, then died after turning 99.

The year of his death, 1966, the company he built posted $1 billion in sales for the first time — the equivalent of $7 billion today — and had 915 variety stores and Kmarts.

Kresge's grandmother had lived to 101, his mother to 103. He expected to at least match them, according to the Time magazine obituary.

"For the founder of the S.S. Kresge Co.'s far-reaching chain of variety stores, not attaining the century mark was one of the few failures in a long and productive life," the magazine noted.

Allstate Taps OfficeMax for New Chief Financial Officer
Trading Markets.com
August 20, 2008

NORTHBROOK, Ill., Aug 20, 2008 (A. M. Best via COMTEX) -- OMX | -- Allstate Corp. did not go far to find its new chief financial officer. The Northbrook, Ill-based insurer said it has hired Don Civgin, former CFO of OfficeMax Inc., based in Naperville, Ill.

Civgin, whose experience also includes being the CFO of General Binding Corp., will also hold the title of senior vice president at Allstate (NYSE:ALL), effective Sept. 8, according to a company statement. Civgin's resignation from OfficeMax is effective Aug. 29.

"Don's broad base of experience and leadership, in combination with out strong financial team, will help us continue our focus on creating shareholder value," said Thomas J. Wilson, chairman, president and chief executive officer.

Allstate had been searching for a permanent CFO since Dan Hale announced his plans to retire at the end of March. Samuel Pilch, group vice president and controller, was serving as acting CFO.

Civgin's hiring is the latest in what has been some shuffling among Allstate's executive positions the past several years. Wilson, who was named president in 2005 and CEO in 2005, assumed the role of chairman this year when Edward M. Liddy stepped down from the post. In October 2006, Allstate named George Ruebenson, senior vice president, to succeed Wilson as president of Allstate Protection, the company's largest business unit (BestWire, Oct. 10, 2006).

Allstate said Civgin's role will include being a key representative to investors and Wall Street and he will serve as a member of the senior management team.

Civgin was also the senior vice president of finance and senior vice president of merchandise operations at Montgomery Ward. He holds a master's degree from the University of Chicago and a bachelor's of science from the University of Illinois.

Allstate's profit fell 98% in the second quarter this year as a result of major catastrophe losses and investment write-downs. The company has posted four straight quarters of net income declines and saw its net income drop to $25 million from $1.4 billion. Allstate said capital losses in the quarter were driven by $776 million in losses on investment dispositions, including change in intent write- downs and $199 million in impairment write-downs. Catastrophe losses for the quarter totaled $698 million (BestWire, July 24, 2008).

Allstate Insurance Group currently has a Best's Financial Strength Rating of A+ (Superior).

Sears to expand Jaclyn Smith clothing line
By Sandra M. Jones - staff reporter - Chicago Tribune
August 20, 2008

Sears Holdings Corp. is expanding its Jaclyn Smith clothing line at Kmart to include bed and bath fashions. The collection, called Jaclyn Smith Home Collection, is scheduled to debut Sept. 9 at Kmart stores and online.

The discount chain's longstanding contract with the domestic maven to sell Martha Stewart Everyday home goods at Kmart expires at the end of next year, and it is widely expected that the contract won't be renewed. Martha Stewart already has an exclusive deal to sell home goods at Macy's.

Smith, the actress best known for the TV show Charlie's Angels, has been selling her clothing line at Kmart for the past two decades and was one of the first celebrities to have a deal with a mass market chain. When Kmart bought Hoffman Estates-based Sears in 2005 there was talk of expanding the Martha Stewart line to Sears department stores, but an agreement was never reached.

Retailers 'Sell' to Young Virtually
Kohl's, Sears Build Brands
As Children Clothe Their Avatars Online
By Cheryl Lu-Lien Tan - Wall Street Jounal
August 19, 2008

Retailer Kohl's Corp. this month launched a new line of apparel, but the plaid skirts and printed T-shirts won't be sold in its 957 stores. Instead, it's selling them on Stardoll.com, a virtual community for teens and tweens where kids can fork over "Stardollars" -- purchased online at a nominal sum -- to buy apparel for their online characters.

With back-to-school sales off to a slow start, more old-line retailers and clothing labels are reaching out to kids online, enticing them to try virtual versions of their togs in hopes of making actual sales later. Kohl's first virtual line features pieces from its new Abbey Dawn collection, designed by singer Avril Lavigne. In its first 16 days, Kohl's Stardoll boutique logged some 2.2 million visits and sold 1.8 million items. Kohls.com lured 97,000 visitors who clicked through from the boutique site.

This month, casual-wear maker K-Swiss Inc. and lingerie and swimwear designer Eberjey rolled out virtual clothes on There.com. And in late July, retail pioneer Sears Holdings Corp. opened its first online boutique featuring back-to-school apparel and dorm-room furniture on teen site Zwinky.com. Sears said the boutiques logged 750,000 visitors and sold 850,000 virtual items during their first 16 days through mid-August.

These mainline retailers hope the virtual showrooms will be more effective than traditional ads in hooking tweens and teens. Users of the sites already can spend virtual dollars on virtual clothes designed by the sites, or by early adopters such as American Apparel Inc. that went virtual two years ago. The sites are places to fashion digital personalities, called "avatars," that participants use to explore new styles, relationships and behaviors. Typically, these sites now offer a click through to buy the real products.

"When you look at an ad, it's pretty quick," said Jennifer Weiderman, vice president of global marketing for K-Swiss. "But when they're in this virtual world, this gets them to spend more time [viewing] your product. It's a little bit more sticky."

Ms. Weiderman said she is dialing back her spending on TV ads this year and expects to allocate 15% of her marketing budget to online initiatives, up from 5% last year. Sears and J.C. Penney Co., which last month made virtual versions of its teen and young-adult clothing available to users of Yahoo's instant messenger service, say they've increased online ad spending this year. Kohl's also said it is allocating more of its online ad dollars this year to targeting teens. None would detail the scale of the budget shift.

Details of the arrangements vary, but a retailer or brand typically pays a fee to have a virtual community host and develop its store and products. At There.com, the fee ranges from a few hundred dollars to a few thousand, depending on how elaborate the store is and how many items will be sold. The brand and the Web site sometimes split revenue from the virtual purchases. But since virtual clothes cost from under $1 to $5 -- brands regard this revenue as negligible.

"It's really a way to get shoppers to test-drive your product," said Carlos Mejia, chief financial officer of Eberjey, a maker of lingerie, swimwear and sleepwear. The brand, which largely sells to women ages 20 to 45, hopes to attract teenagers with its virtual line.

Penney decided this year to put back-to-school outfits on Yahoo after learning that, during a seven-week experiment last summer, 1.5 million avatars wore its clothing on Yahoo and 5 million Penney outfits were tried on. "It casts a very modern, current light on the brand with teens," says Mike Boylson, Penney's chief marketing officer. Before Penney's presence on Yahoo, "perhaps J.C. Penney wasn't on their radar before," he says.

Sears is marketing its virtual boutiques on billboards in the virtual world, and is hosting daily fashion shows on the site promoting its products through the end of August.

Not everyone is pleased. Patti Miller, vice president of Children Now, an Oakland, Calif.-based national children's advocacy group, expressed concern over marketing to youngsters via these virtual shops. The Federal Communications Commission in 1990 established rules governing the hourly amount of advertising directed at children. But the newer, Web-based virtual communities that have replaced TV viewing for some kids have no similar restrictions.

"Some of these younger kids, those younger than 8 and even kids up to 12, can't make the distinction between what's advertising and what's not," says Ms. Miller. She says children may not grasp that the virtual stores function as a brand advertisement.

Dave Bazant, Sears' marketing manager for online and emerging media, argues that children who frequent the virtual sites are savvy enough to know that the stores also function as a branding tool.

"It's fairly transparent -- kids are not very naïve these days," says Mr. Bazant. He notes that Sears is careful to not aggressively push its wares in these sites because teens and tweens are "turned off by direct advertising. We're not giving away our product for free. Most of these items, they have to purchase."

The online pitches are striking a chord with Jen Rediger's daughters, 13-year-old Tyler and 9-year-old Kenzie. In the first week that the Kohl's store opened on Stardoll, they spent about 70 Star Dollars, or $7, on virtual skirts and shoes. Ms. Rediger, 32, an interior designer who lives in Hoschton, Ga., says she doesn't mind her daughters being exposed to such marketing because "it's not worse than what they see on television."

Tyler has already asked her mom to take her to Kohl's to buy the real versions. "They look really cool on my doll," she says. "It's my style so I think I'll wear it a lot."

Wal-Mart enters the ad age
Long envied for its logistical prowess,
the big-box retailer is learning the power of marketing.
By Suzanne Kapner, writer - Fortune Magazine
August 18, 2008 issue

If you've been watching TV lately, you may have come across Wal-Mart's new back-to-school ad. It features a well-scrubbed teenager wearing the California surf brand Op, as her Everymom exults that the giant retailer satisfied her daughter's fashion cravings without breaking the family bank. On the surface the spot doesn't look radically different from the company's advertising in years past. But its creation, part of Wal-Mart's "Save money. Live better" campaign, is a result of dramatic changes taking place behind the scenes.

Wal-Mart famously amassed its daunting market share by using sophisticated systems for logistics and operations. By contrast, its marketing was always something of a backwater, and the retailer's ads looked homemade, with Wal-Mart's price-slashing smiley-face character in a prominent role. An attempt to inject some pizzazz by hiring Chrysler marketer Julie Roehm resulted in a culture clash, and she departed in a 2006 mini-scandal.

Now the company is bringing new sophistication to its marketing, and the changes are generating eye-opening results. Analysts say the latest campaign, which launched in September 2007, has helped Wal-Mart deliver strong sales growth - repeatedly beating expectations - at a time many retailers are gasping for breath.

"Marketing had been considered a support function at Wal-Mart," says Stephen Quinn, who was promoted to chief marketing officer last year. "I had to convince people that it could have a direct impact on sales."

When Quinn, 49, joined Wal-Mart fromPepsiCo (PEP, Fortune 500) in 2005, the behemoth was slumping. Consumers complained that its stores were too big and too difficult to navigate. Advocacy groups blasted Wal-Mart's treatment of employees. Big-box stores were losing cachet.

The company got panicky enough that it tried to emulate its much smaller but infinitely cooler rival Target (TGT, Fortune 500). Wal-Mart introduced relatively chic clothing and pricier home goods. The results were forgettable, to be kind. (Remember Wal-Mart's ill-fated Metro7 fashion line and its ads in Vogue? I didn't think so.)

One reason Wal-Mart struggled to adapt was its insular mindset. Says Craig Johnson of the consulting firm Customer Growth Partners: "Wal-Mart was inward-looking, not outward-looking."

Quinn pushed to change that. He applied practices common at consumer product companies like PepsiCo's Frito-Lay North American unit, where he'd been chief marketing officer. Quinn spent two years conducting quantitative research - something Wal-Mart had avoided - to determine why consumers shop at the retailer and what they want. When, for example, pharmacy customers told researchers that they broke pills in half because they couldn't afford their full prescription, Wal-Mart conceived its wildly successful $4 prescription drug plan.

Perhaps the most important finding: Wal-Mart's most profitable customers are also its most price-sensitive. That told Quinn's team that Wal-Mart didn't need to mimic Target; the low-price mantra still resonated. "We simply needed to articulate it in a modern way," Quinn says.

Ackman Grabs Falling-Knife
Sears, Target at Short-Interest High
By Lauren Coleman-Lochner - Bloomberg.com
August 15, 2008

Hedge fund manager William Ackman is counting on comebacks for Sears Holdings Corp. and Target Corp., even as earnings declined, in a bet against fellow investors who have sent short interest sales to record highs.

The 42-year-old founder of New York-based Pershing Square Capital Management LP has won these kinds of retail bets in the past, most recently in a gain of as much as $202 million on his against-the-market investment in Longs Drug Stores Corp.

CVS Caremark Corp., the second-largest U.S. drugstore chain, said on Aug. 12 it would acquire the Walnut Creek, California, drug store chain with operations in Western states for $71.50 a share. That was only eight days after a regulatory filing showing Ackman purchased 3.14 million Longs shares in June and July at prices from $40.47 to $45.92 a share. The stock gained 31 percent in trading Aug. 13.

"I'd characterize him as a value investor,'' said "longtime friend'' Whitney Tilson, founder of New York hedge fund T2 Partners LLC. "He simply tries to buy things for far less than their intrinsic value. Sometimes that means being a contrarian, buying deeply out of favor stocks like Sears, but not always.''

The payback on his Target and Sears purchases won't come as quickly. Shares of Target, the second-largest discount chain, have fallen 24 percent since Bloomberg reported he bought a stake last year, while Sears shares are off by 32 percent from his purchase of 5 million shares in October.

Latest Filing
Ackman controlled 73.9 million shares, or 9.5 percent, of Target through a combination of equity, swaps and options according to a regulatory filing yesterday. He owned 6.75 million shares of Sears, or 5.1 percent, as of June 30, according to a separate filing.

"People kind of forget that the man's not infallible,'' said Peter Kwiatkowski, a portfolio manager at Fifth Third Asset Management in Cincinnati.

His fans argue the race isn't over on Target and Sears. "It's easy to say when a stock has declined after you buy it that you've made a mistake, but there's a big difference between being early and being wrong,'' said Tilson.

This month, falling fuel prices have helped boost retail shares, sending the Standard & Poor's 500 Retailing Index 12 percent higher and Target and Sears up 9.8 percent and 16 percent, respectively.

Ackman declined to comment for this story.

Consumer Pullback
No doubt, Ackman has bet on retail before obvious signs of revival in the U.S. economy and indications that Europe is faltering.

Target and Sears have suffered along with other retailers as U.S. consumers, besieged by record gasoline prices and the worst housing market since the Great Depression, defer purchases of non-essentials. Sears in May posted a first-quarter loss after three previous periods of declining profit. Target's net income has shrunk for three consecutive quarters.

Both retailers have reached record levels of short interest as a percentage of publicly traded shares in the last month. Sears led the Standard & Poor's 500 Index with 55.9 percent as of Aug. 12, according to Bloomberg data. Target's reached 7 percent. The rapid pace of share buybacks and both companies' "extremely valuable'' real estate holdings make him bullish on the shares, said T2's Tilson in an Aug. 7 interview, adding that he's increased his own Sears holdings recently. Tilson, 41, is a long-term Sears and Target holder who shares a "similar investment thesis'' on the companies.

Lampert and Ackman
Target is "one of the world's premier retailers,'' Tilson said. For Sears, "we look at it as a portfolio of brands and assets being managed by one of the premier capital allocators in the world,'' he said.

Ackman actually made some money with the help of Sears Chairman Edward Lampert once before. In 2004, Pershing Square bought shares of Kmart Holding Corp., the company merged with Sears, when shares were trading around $29. The firm sold 1.6 million shares two years later when they were trading around $160.

Sears has "fantastic'' real estate in its Kmart stores, coveted by other retailers because of their locations outside of malls, said Dan Poole, senior vice president of equity research at National City Bank, with $34 billion in assets including Target shares.

Breakup or Spinoff
"At some point I think there just needs to be either a breakup or a spinoff of businesses to try and realize that value,'' Fifth Third's Kwiatkowski said. As a retailer, ``Sears just doesn't have enough strength to compete.'' His fund doesn't own Sears and sold its Target shares earlier this year, although the firm, with $21.4 billion in assets, still holds Target.

Poole's firm doesn't hold Sears either. "I'm not sure what the end- game is there,'' he said. ``We have Target on our buy list, but we don't have a lot of near-term hope,'' Poole said. ``The concern from an investor's perspective right now is credit losses.''

Ackman doesn't limit himself to retail. He recommended selling shares of bond insurers MBIA Inc. and Ambac Financial Group Inc. before both fell by at least 80 percent in the past year.

"He was definitely dead on with MBIA and Ambac,'' Kwiatkowski said "In this business it's very, very rare that you don't have some missteps. But it's easy to forget once somebody has one big win.''

Tilson said he expects Target and Sears to be winners, too. "The fact that there are so many naysayers out there,'' he said, "just means that vindication will be all the sweeter.''

J.C. Penney Net Sinks, Gives Tepid Outlook
By Aja Carmichael - Dow Jones Newswire
August 15, 2008

J.C. Penney Co.'s fiscal second-quarter net income dropped 36% amid falling margins and sales, and the department store operator said projected earnings for the current quarter were below analysts' expectations.

Shares fell in premarket trading to $35.75 from a previous close of $36.83.

For the period ended Aug. 2, the Plano, Texas, company posted net income of $117 million, or 52 cents a share, down from $182 million, or 81 cents a share, a year earlier. Penney last week boosted its profit target to 50 cents to 52 cents from May's view of about 38 cents. Analysts polled by Thomson Reuters were projecting earnings of 50 cents a share, on average.

Gross margin fell to 37.5% from 38.1%.

The company said last week that sales fell to $4.28 billion from $4.39 billion on a same-store sales decline of 4.3%.

Chairman and Chief Executive Myron E. Ullman III noted Friday that the company successfully controlled its operations "in this difficult consumer environment," with inventories down 3.5% on a comparable- store basis.

Looking ahead, Penney expects fiscal third-quarter earnings of 70 cents to 75 cents a share on a low-single-digit drop in revenue and a midsingle-digit drop in same-store sales. Analysts were projecting earnings of 76 cents on revenue down 2% to $4.64 billion.

The company has yet to adjust its February outlook for fiscal 2008 earnings of $3.75 to $4 a share, despite sharply cutting its first-quarter estimates in March. Analysts' most recent estimate was $3.32.

In April, Ullman aggressively scaled back the retailer's plans for renovations and new stores amid the uncertain economic climate. Department stores have stumbled as customers have faced macroeconomic pressures like higher energy costs, falling employment levels and issues in the housing and credit markets that have severely limited discretionary spending.

As the U.S. economy falters, retailers are seeking different ways to lure cash-strapped shoppers. J.C. Penney, along with other retailers, are counting on celebrity names to help boost the back-to-school season. This year, the company is relying on runway-model-turned- designer Kimora Lee Simmons's Fabulosity midpriced collection, which will be sold exclusively at its stores.

Wal-Mart's Net Rises 17% As Shoppers Seek Deals
By Donna Kardos - Dow Jones Newswire
August 14, 2008

Wal-Mart Stores Inc. posted a 17% rise in fiscal second-quarter net income, topping raised expectations and prompting the company to boost its fiscal-year target.

But the company gave cautious initial guidance for the current quarter, largely falling below analysts' estimates, as the world's largest retailer expresses some concern about how U.S. shoppers will fare in coming months now that a boost from federal stimulus checks is running its course.

Nonetheless, Chief Executive Lee Scott said: "While inflation and higher fuel costs are pressuring suppliers, retailers and customers worldwide, we're confident that Wal-Mart is well positioned for this economy."

For the quarter ended July 31, Wal-Mart reported net income of $3.45 billion, or 87 cents a share, up from $2.95 billion, or 72 cents a share, a year earlier.

Earnings from continued operations, excluding gains last year, rose to 86 cents form 73 cents. In July, Wal-Mart boosted its earnings outlook to 82 cents to 84 cents.

Net sales climbed 10% to $101.6 billion from $91.99 billion. Excluding fuel sales, U.S. same-store sales increased 4.5%, better than the company's May estimate for flat to up 2%. The increase was 4.6% at namesake stores and 3.7% at the Sam's Club warehouse chain.

International sales and profits both jumped 17%. Meanwhile, earnings at Wal-Mart U.S. stores grew 11%, but Sam's Club's profits fell 2.9%. Gross margin edged up to 23.6% from 23.3%.

Looking forward, Wal-Mart expects fiscal third-quarter earnings of 73 cents to 76 cents a share. Analysts were expecting earnings of 76 cents a share. Wal-Mart also projected U.S. same-store growth will be 1% to 2%. Chief Financial Officer Tom Schoewe said same-store sales will reflect "some sales volatility from week to week."

For the fiscal year, the company boosted its earnings guidance to $3.43 to $3.50 a share, up from February's forecast of $3.30 to $3.43 a share. Analysts' latest estimate was $3.49 share.

Wal-Mart, which is often viewed as a barometer for the retail industry, has been faring better than most non-discount retailers as economy battered consumers trade down and seek bargains. The big-box chain has benefited from its strategy of focusing on low prices, using the tagline "Save Money. Live Better." to lure budget-conscious shoppers grappling with rises in food costs and gasoline prices. Federal rebate checks, as well as store-layout improvements and recent product launches, also helped boost Wal-Mart's performance.

In contrast, sales at department stores and specialty retailers have been lagging in part because of their bigger exposure to discretionary merchandise. But after Wal-Mart issued a cautious outlook last week for its August same-store sales, shareholders have begun worrying the chain may stop standing out so far from the pack as the effects of the stimulus checks wane and commodity costs continue to rise.

That presents Wal-Mart -- which has pegged much of its success to its low-price advantage -- with a common retailer dilemma: whether to raise prices at the risk of losing shoppers or to hold price increases in check at the cost of profit margins.

But Eduardo Castro-Wright, chief executive of Wal-Mart's U.S. division, has maintained that Wal-Mart "will do whatever it takes to retain price leadership." Instead of announcing any price increases to cope with the tough economy, the company has slashed its expansion plans. In June, Wal-Mart cut its forecast for capital outlays this year, as it continues to put the brakes on its once-breakneck growth in building stores.

Macy's Profit Eases, But Tops Expectations
By Andria Cheng - Wall Street Journal
August 14, 2008

Department-store operator Macy's Inc. said its second-quarter profit fell 1.4%, hurt by restructuring costs and consumer cutbacks on discretionary purchases.

While profit excluding special items exceeded Wall Street's expectations, the Cincinnati-based retailer lowered its full-year outlook, saying it's difficult to forecast results given the current economic backdrop. The reduced outlook signals a tough holiday season ahead for the sector, analysts said.

Nevertheless, Macy's shares rose 39 cents, or 1.9%, to $20.66 in New York Stock Exchange 4 p.m. trading.

Department stores have been hurt across the board as shoppers tighten their budgets, cut back on spending for apparel and other non- essential items and trade down to discounters. At the same time, near record gasoline prices have reduced shoppers' trips to malls, further lowering demand.

"The consumer is just not spending," said Standard & Poor's analyst Marie Driscoll. "It's hurting most brands and most retailers. You are seeing people trading down. There's an increasing focus on price unless it's a must-have signature item."

Macy's sales at stores open at least a year, or same-store sales, dropped 2.1%. Chief Executive Terry Lundgren said that while sales are down, Macy's is taking market share and outperforming its major rivals in same-store sales. Mr. Lundgren has launched a "My Macy's"
campaign to tailor store assortments to individual local markets, and he has consolidated divisions, cut jobs and lowered inventory.

"The things he can control, on inventory, he really has done a terrific job," said analyst Wayne Hood of BMO Capital Markets.

Macy's, which had been hurt by its purchase of May Department Stores Co. that alienated former May shoppers, also said the gap between the former May stores and Macy's has narrowed significantly.

Macy's net income in the quarter ended Aug. 2 fell to $73 million, or 17 cents a share, from $74 million, or 16 cents a share, a year earlier. Sales fell 3% to $5.72 billion from $5.89 billion.

The mean estimate of analysts polled by Thomson Reuters was for per- share earnings of 19 cents and revenue of $5.75 billion.

Macy's trimmed its full-year profit forecast to $1.70 to $1.85 a share from a previous projection of $1.85 to $2.15 a share, excluding restructuring costs. It forecast same-store sales to fall 1% to 1.6%.

Sears Tower wins 3 new tenants
By Andrew Schroedter - Chicago Business
August 12, 2008

(Crain’s) — A company that provides temporary office space is among three new tenants totaling more than 50,000 square feet that have agreed to move into Sears Tower.

In the largest of the three deals, New York-based OfficeLinks is leasing 30,000 square feet on the 84th floor of the iconic skyscraper, a spokesman for the 110-story structure announced. The location is the first in the Chicago-area for OfficeLinks, which has three New York locations.

With Tuesday's announcement, the tower is 80% leased, the spokesman said.

The announcement follows last week's news that four companies had leased 42,583 square feet at the nation's tallest building, which has struggled to attract and retain tenants.

In the second deal, an unidentified global real estate investment banking advisory firm leased approximately 16,000 square feet, according to a news release. Sources identified the tenant as Chicago- based M3 Capital Partners LLC, which was previously known as Macquarie Capital Partners LLC. The firm was cofounded in 2001 by the real estate arm of Australian banking giant Macquarie Group Ltd.

M3 Capital is moving from the UBS Tower, 1 N. Wacker Drive. The company also has offices in New York and London.

In the third lease, health care communications company AS&K Mercury has leased about 4,500 square feet in the low-rise section of Sears Tower, 233 S. Wacker Drive. The company, which also has an office in London, is moving from the Civic Opera Building, 20 N. Wacker Drive.

The 3.8 million-square-foot tower is managed by Chicago-based U.S. Equities Asset Management LLC.

Engineering a Change at Wal-Mart
U.S. Stores Chief Says Timely Overhaul Will Drive Sales After Economy Rebounds
By Ann Zimmerman - Wall Street Journal
August 12, 2008

Eduardo Castro-Wright took over as chief executive of Wal-Mart Stores Inc.'s U.S. stores division in 2005. The economy was relatively robust, but sales growth at the $240 billion unit was slowing as its rivals' surged.

One solution the Bentonville, Ark., discounter tried -- luring higher- income shoppers with trendier fashions -- had flopped, eroding profit. Mr. Castro-Wright, an engineer trained at Texas A&M University, devised a three-year plan to overhaul stores marred by cluttered aisles and slow checkout lines.

As Wal-Mart prepares to report fiscal second-quarter earnings on Thursday, the changes appear to be paying off. Its U.S. stores have beat or hit sales targets for the last six months, besting most of its competitors. Sales slowed somewhat in July, though, as the last of the federal tax-rebate checks were spent, and Mr. Castro-Wright noted that consumers are growing more cautious.

The company's return to its low-price roots has been seen as a boon to consumers. But recent efforts to warn its work force about proposed legislation that could make it easier to unionize companies have given Wal-Mart's opponents new ammunition.

In an interview, 53-year-old Mr. Castro-Wright talked about how his strategy is progressing. Excerpts follow:

WSJ: How much of the credit for recently improved sales goes to bargain hunters turning to Wal-Mart in a weak economy, and how much to your overhaul plan?

Mr. Castro-Wright: I wouldn't say a significant part of the current results is related to the economic environment. The changes in merchandising, marketing and improved service in the stores ... have vastly improved the shopping experience, and that will continue to drive sales after the economy rebounds.

WSJ: Costco Wholesale Corp. recently issued a profit warning it blamed on rising merchandise costs. Is Wal-Mart facing the same pressure to accept price increases from suppliers that it will have to pass on to consumers?

Mr. Castro-Wright: Wal-Mart is the price leader and we will do whatever it takes to retain price leadership.

WSJ: What were your marching orders from Chief Executive H. Lee Scott Jr. when he put you in charge of the Wal-Mart Stores division?

Mr. Castro-Wright: Something like, "We need to fix the customer experience in the stores." Now that does not mean ..."Clean up the stores." That's easy. Providing a good customer experience starts with providing customers with the product choices they deserve, maintaining clean environments, and having friendly associates [employees] so that the customers would want to come back.

WSJ: Wal-Mart's senior leaders traditionally grew up in the company. You worked at RJR Nabisco and Honeywell International Inc. before heading Wal-Mart's Mexico-based stores. And your senior leaders cut their teeth at Target Corp., PepsiCo's Frito-Lay and Diageo PLC. How important was that outside experience to devising and implementing changes?

Mr. Castro-Wright: I think that the power of a leadership team is in diversity, especially diversity of thought. You want people who have different backgrounds, who think differently and have different experiences, so they can contribute in ways that are always additive.

WSJ: What did the three-year plan entail?

Mr. Castro-Wright: First, we had to reinforce our price leadership. We needed to ask ourselves what we stood for and it was more than just low prices, but [rather] saving people money to make their lives better. That gave us a unifying marketing message and gave 1.3 million associates a powerful sense of purpose.

Then it included everything from improving navigational signs in the stores so people could find things more easily to investing in technology to allow for a faster checkout. We took down high shelves to reduce clutter and improve sight lines throughout the store.

We learned that providing customer choice wasn't about more products, but carefully selected products that customers cared about. We made big bets in growth categories such as consumer electronics, providing brands that gave us authority. It's still not finished yet.

WSJ: Did you make any mistakes along the way?

Mr. Castro-Wright: Many. The one thing I would do differently is I would have done things faster, which is counterintuitive. When you think about changing a big organization rooted in its history, you think the changes should be gradual. I think that the faster you move, the faster you make the tough calls and the better off you're going to be. You don't want to have organizations in what some people think of as a liquid state. I'm an engineer by training so my physics comes back. An organization is something very solid and when you apply a lot of heat to change it, it becomes fluid. You want to make sure that you don't keep it fluid too long, because liquids move in many directions that you might not have intended.

WSJ: Wal-Mart's culture was Bentonville-based, with divisional and regional presidents fanning out across the country every Monday, visiting stores, then reporting back by the end of the week. You moved all of those executives into the markets they managed. How hard was it to make that change?

Mr. Castro-Wright: The idea of having people out there day in and day out where they are part of the community, where they live the same issues and opportunities, root for the same local football team, that all that creates ownership. And in business, results are directly linked to how much you believe that you own the results that you're accountable for. Because of that, while very difficult and culturally challenging, I believe that from a customer point of view it was the right thing to do.

WSJ: When you ran Wal-Mex, you opened smaller stores that proved very successful. Do you think the smaller-format stores you are testing in Arizona will play a big part in Wal-Mart's future?

Mr. Castro-Wright: We are a multiformat retailer in most of our foreign markets and there's no reason why being a multiformat retailer in the U.S. wouldn't allow us to serve our customers better.

WSJ: You have been mentioned as a possible successor to Lee Scott as CEO. What do you think is next for you?

Mr. Castro-Wright: I enjoy what I do today. I think that we haven't completed what we set out to do, so I'm focused on how do I help my team achieve the objectives that they have.

Sears Tower wins new leases
By Eddie Baer - Chicago Business
August 8, 2008

(Crain’s) — A former software subsidiary of Hewitt Associates Inc. is moving to the Sears Tower, the biggest among several new leases signed at North America’s tallest building.

In total, the four deals amount to 42,583 square feet, which is a significant win for Sears Tower given the high vacancy in the building and the struggles ownership has had with attracting and retaining tenants.

“We’re seeing momentum in leasing,” says a Sears Tower spokesman. “And I do think we’ll have more to announce soon.”

Accero Inc., the former Hewitt unit that had been known as Cyborg, has leased 18,521 square feet on the 36th floor of the 110-story skyscraper, sources say.

Two other existing tenants that subleased space from with Merrill Lynch & Co. on the 54th floor signed direct deals for their space with Sears Tower. Meanwhile, a second software firm, Soverain Software LLC, recently moved into Sears Tower.

Accero, which provides payroll and human resources software and service, is to move this fall from 120 S. Riverside Plaza, where Hewitt leases about 36,000 square feet on the 18th floor.

Executives with Accero and a spokesman with the venture capital firm that acquired the company earlier this year didn’t return calls seeking comment. Studley Inc. represented Accero in the lease transaction. A Studley spokeswoman declines to comment.

The company had been known as Cyborg until February, when its name was changed to Accero.

Lincolnshire-based Hewitt bought Cyborg in 2003 and sold the company for an undisclosed sum to San Francisco-based Vista Equity Partners in a deal first announced in January. Vista, which was founded in 2000 by several former Goldman Sachs & Co. investment bankers, has invested more than $2 billion in technology and software companies, according to the company’s Web site.

In the second-largest of the deals at Sears Tower, two firms with overlapping ownership together leased 13,601 square feet on the 54th floor for about 2½ years. The two firms, which had subleased the space Merrill Lynch, are Andes Capital LLC, a small investment banking and trading firm, and Unicous Marketing Inc., a consumer coupon company.

“To have a presence in an internationally known building is like telling somebody you live in the Trump building in New York — everybody knows where that is,” says Imran Mukati, a partner with Andes.

In the two smaller deals, law firm Rockey Depke & Lyons LLC is leasing 8,599 square feet from Sears Tower on the 54th floor that the firm had subleased from Merrill Lynch, and Soverain Software LLC leased 1,862 square feet on the 94th floor in a five-year deal, and moved from 120 S. Riverside. Soverain was represented by Anthony Karmin, an executive vice-president with Transwestern Commercial Services.

Sears Tower ownership, Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinian, was represented by U.S. Equities Realty LLC. Chicago-based U.S. Equities took over leasing and management last spring.

The deals are welcome news for the tower’s owners, who bought the iconic building in 2004. Four of the tower’s five largest tenants, accounting for 40% of the building's rents, are considering moving out when their leases come due. The five biggest leases expire from 2009 and into 2014.

For Soverain, which owns patents on several online commerce applications and is a descendant of one-time local tech star Divine Inc., Sears Tower won out because of its location and low taxes and operating costs, says company president Katharine Wolanyk.

“Sears Tower was nicely positioned for us,” Ms. Wolanyk says. “We wanted West Loop access to the Kennedy (expressway) and trains. . . .And you can’t beat it for the views.”

Sears: Finally, a Reason to Brag
The retailer's Lands' End unit has proved a bright spot in dark times.
Now it faces a leadership vacuum
By Ann Moore - Business Week
August 4, 2008

Recently, Sears (SHLD) no longer seems to be where America shops for much of anything. Sales skidded 9.8% in the latest quarter, leading to a $56 million loss as consumers shunned the dreary shopping experience for more focused low-price options such as Wal-Mart (WMT) and Target (TGT). With Chairman Edward S. Lampert warning that bad times could last into 2009—and the search for a CEO still under way—the stock has fallen by more than half in a year. The numbers are the worst since Lampert combined Kmart and Sears in 2005.

But one part of the $50.7 billion company is sparkling: Lands' End (SHLD). The apparel subsidiary is thriving with its reputation for impeccable customer service and sturdy-but-stylish designs. While Sears doesn't break out numbers, retail analyst Anne Brouwer of Chicago's McMillan/Doolittle estimates the unit made $200 million on $2.2 billion in sales last year. The Lands' End Web site, where the brand rings up 80% of sales, is among the retailing industry's top 10 by several measures. And offline sales are rising as Sears has put Lands' End boutiques in more than 200 of its 935 mall stores. Retail consultant Howard Davidowitz calls the business "Sears' shining star."

The challenge is to keep the momentum going. On July 18, after barely three years as Lands' End chief, David W. McCreight left to become president of athletic-apparel maker Under Armour (UA). While McCreight, 45, generated record earnings growth at the unit, some feel he never adjusted to rural life at Lands' End Dodgeville (Wis.) headquarters. Hired as chief merchant in 2003, McCreight came up with the idea of stand-alone boutiques in Sears. As president, he freshened product lines and spurred innovation, including a new packing process. McCreight also moved a half-dozen customer service agents to a space right outside his corner office, so he could pull up a chair and participate in calls.

TOP VACANCIES

Now Lands' End finds itself without a captain at a time when the retail environment and the parent company are both ailing. Hiring a successor is complicated by the fact that Sears itself doesn't have a permanent chief executive: Lampert appointed supply chain executive W. Bruce Johnson as interim CEO last February after Aylwin B. Lewis stepped down (See "Aylwin B. Lewis: Now, to Lunch"). For now, Lands' End veterans Lisa Fitzgerald and Kelly Ritchie are running the unit until a replacement is found. "David took this company to the next level," gushes Ritchie. "He expected greatness."

Lands' End was not such a gem when Sears acquired the company in 2002 for $1.9 billion. At the time, its apparel was available only online or through catalogs, and was generally seen as well-made but staid preppy gear. Seeking a chance to broaden its apparel offerings, Sears quickly began stocking Lands' End shirts and slacks in stores, though it kept the two brands' Web sites separate. But Lands' End got lost in the aisles until Lampert took over Sears and pushed to build the brand. In mid-2005, a month after McCreight became president, Sears opened the first Lands' End boutique in a White Plains (N.Y.) store.

With its own look and branding, McCreight's store-within-a-store worked. He says transforming the brand's catalog image into a physical space was "a once-in-a-lifetime career opportunity." Analyst Brouwer figures the Lands' End boutiques bring in at least $200 in sales per square foot annually. That's just a third what a top retailer such as Nordstrom (JWN) produces, she says, but it's far ahead of the $137 per square foot Sears averages from its goods and apparel.

Lampert also let McCreight run the place without interference from Sears' main office in suburban Chicago. That allowed Lands' End to do things that tight-fisted bosses at Sears might never have O.K.'d. Only manufacturing is outsourced. Design, packaging, and—most important—customer service are kept close by. Call center staff have no time limit with customers. When a woman who had had a double mastectomy phoned to ask for the bathing suit she loved, minus the bra, her suggestion was passed along to designers who created one for her. The company went on to sell thousands more.

Such moves make for satisfied customers. Robin Bourjaily, 34, a stay-at-home mom from LaGrange, Ill., has shopped at LandsEnd.com for years. Now she's been swinging by the Lands' End boutique at a nearby Sears to let her three kids try on the clothes. And if Bourjaily can't find what she wants in stock, she can order at an in-store kiosk, and Lands' End pays for the shipping. It's a winning combination that McCreight's successor will need to build on.

The changing face of the department store
by Heather Larson - Retail Customer Experience.com
August 4, 2008

For the first two-thirds of the 20th century, the department store was the heart of retail. At Frederick and Nelson in Seattle, shoppers could see a fashion show before taking to the aisles. In Chicago, Marshall Fields kept shoppers in the store longer by enticing them into its Walnut Room restaurant.

Today most department stores don’t provide customer experiences like that and many of the stores no longer exist.

The growth of suburbia hurt these downtown stores, which had traditionally seen their customers arrive by public transportation, said Jan Whitaker, author of "Service and Style: How the American Department Store Fashioned the Middle Class."

"In the last quarter of the 20th century, many downtown stores closed, leaving city centers forlorn and many people feeling they had lost local institutions, which defined their city’s character," said Whitaker. "The feeling has only grown stronger with further consolidations and takeovers."

Merchandise Mix

Mass market discount retailers like Wal-Mart, Target and Costco have become the shopping destination of choice for most shoppers, said George Whalin, president and chief executive of Retail Management Consultants in Carlsbad, California. "For many years, Sears was the largest retailer in the country. The National Retail Federation now lists Sears Holdings, which includes K-Mart, as the 8th largest retailer, based on sales volume."

In 2007 Sears Holdings had sales of $50,703,000, compared to Wal-Mart’s $378,799,000.

The retail merchandise mix has changed dramatically over the past two decades according to Whalin. Most department stores have narrowed their mix substantially by eliminating consumer electronics, appliances and in some cases even furniture – to their detriment, he believes.

"If they are to serve the consumer better, department stores need to offer more products and services," said Whalin. "And go back to being a true department store."

Whalin defines a department store as a store with a broad variety of departments, including a florist, furniture, jewelry, apparel, etc. Even though Wal-Mart has multiple departments, it’s not considered to be a department store. Macy’s is a better example because they have apparel, jewelry, cosmetics and in some stores, furniture.

Kelly Tackett, a senior consultant for Retail Forward in Columbus, Ohio, argues that the changes in the merchandise mix of soft goods over the past twenty years has been for the better and now customers aren’t seeing the same brands in every store.

"Two decades ago, it was largely national brands and all the stores had a similar mix. Customers would see Ralph Lauren, Liz Claiborne, Tommy Hilfiger, etc., in all the stores," says Tackett. "Now it’s shifted to a mix of private, exclusive and national brands because retailers are trying to differentiate themselves from one another. Department stores don’t want their merchandise to be interchangeable with their competitors."

According to Tackett, department stores are evolving, partially by partnering with other brands to lure the customer back into the stores. J.C. Penney has partnered with Sephora, for example, and Macy’s is bringing the Lush brand of skincare into its stores.

"Department stores are realizing that in order to drive traffic in their direction, they might not be able to do it alone. They may have to partner so they can offer the one-stop shop," says Tackett.

Bringing back the excitement: Five ways department stores can draw customers back

Offer more services: utility payment desks, watch repair, alterations, gift wrap, etc.

Hold infrequent, yet meaningful sales. Bon Marché used to only hold month-end clearance sales; Nordstrom has an anniversary sale and its half-yearly sales. Provide a special experience for men. In 1928 Filene’s had an indoor putting green; in 1947 Hudson’s held a three-day baseball coaching clinic with the Detroit Tigers; department stores often held sales events where men could holiday shop without their wives.

Invite customers to in-store fashion shows.

Stage events: musical concerts, lectures, celebrity appearances, painting exhibitions, contests and product demonstrations free of charge.

Ex-Sears CEO gets a second shot
By David Sterrett - Chicago Business
August 3, 2008

(Crain's) — Aylwin Lewis has held a CEO title before, but now he's out to prove he can run a company. In three years as CEO of Sears Holdings Corp., Mr. Lewis had to work in the shadow of Chairman Edward Lampert, who controls the retailer and makes all strategic decisions.

Now, Mr. Lewis has a new job as CEO of Potbelly Sandwich Works and a mission to take the closely held 200-store Chicago chain national. It's a chance to show his skill as a corporate strategist and company leader, the opportunity denied him at Sears.

Running the show is important to Mr. Lewis, who wouldn't consider any non-CEO jobs after being ousted from Sears in February.

"I was only going to come back to work as a CEO," he says. "I'm qualified to be a CEO, and there is nothing like being a CEO. Once you have a taste, it's hard to give it up."

Mr. Lewis, 54, who started in June, is working on a smaller stage than previous jobs with Sears and Yum Brands Inc., the parent of Pizza Hut, KFC and Taco Bell. But there are parallels with Sears.

He now answers to Bryant Keil, who, like Mr. Lampert, is a chairman with a big ownership stake. Mr. Keil spent more than a decade as Potbelly CEO and plans to stay "pretty involved" in the business. Still, Mr. Keil says that Mr. Lewis has "full authority" to make decisions and expand the company.

"He has vastly more experience than I in the restaurant sector," Mr. Keil says. "I wouldn't have been able to take us to the next level, and he is the right person to do it."

The challenge will be preserving the Potbelly character Mr. Keil built over 12 years — including the kitschy décor, fresh-baked cookies and perky employees — even as Mr. Lewis draws up plans to ramp up expansion. He aims to develop a multiyear plan to expand the company and says, "Everything is on the table except changing the culture."

Mr. Keil says he envisions several thousand Potbellys nationwide. Mr. Lewis says his goal is to accelerate the growth rate, which is about 40 restaurants a year.

When asked about taking the company public, Mr. Lewis took a long pause before saying, "I don't think (going public) is an end game, but that could be a byproduct of all our hard work."

Mr. Keil says the company, which generates more than $200 million in annual sales, has plenty of capital to continue growing. He says franchising is something he will consider, but he voices some reservations. Selling franchisees would be a major strategic change for Potbelly, which owns and operates all of its stores.

"You go down the franchise path, you lose some control and you have to be very cautious about it," Mr. Keil says.

Franchising is the quickest way to expand because the franchisees, not the company, provide the capital for the restaurant, and the company then receives a portion of the sales in royalties. But franchising is also one of the quickest ways to damage brands, says Darren Tristano, an executive vice-president with food industry consultant Technomic Inc. in Chicago.

Mr. Lewis says, "If we become another restaurant company and don't remain unique, I don't think our chance of success is very high. Bryant created something special, and my tenure should be measured by if we can duplicate what he has done in 200 stores many times over."

INDUSTRY VETERAN

Mr. Lewis has extensive experience with franchising and public companies. With degrees in English literature and business management and an MBA from the University of Houston, he spent more than 25 years working his way up the fast-food ranks, culminating in overseeing more than 32,000 restaurants worldwide as chief operating officer for Louisville, Ky.-based Yum Brands.

While at Yum, he stressed crew training and standardizing operational procedures, which helped improve speed, accuracy and cleanliness of KFC, Taco Bell and Pizza Hut restaurants. He also led the company's expansion overseas and developed a concept of putting multiple brands at one location. During his tenure as chief operating officer, from 2000 to 2004, the company's income rose 79%, to $740 million from $413 million, as sales rose to $9 billion from $7.1 billion.

Mr. Lewis has an "intense focus on getting the experience right for the restaurant guest," says Cheryl Bachelder, who worked with him at Yum and is now CEO of Popeyes parent Atlanta-based AFC Enterprises Inc.

In October 2004, Mr. Lampert recruited Mr. Lewis to be CEO of Kmart, which would buy Sears five months later. Mr. Lewis became Sears CEO in September 2005.

Mr. Lewis left Yum because he dreamed of running a company, says his wife, Noveline. "He likes being the person who gets to make decisions," she says.

Mr. Lewis declines to discuss Sears. He says he learned from the experience that "culture still counts" and "having a competitive advantage is powerful and if you don't have that, it's tough." While he says he's proud of his accomplishments at Sears, he doesn't want to replicate the experience.

"I wanted to find an opportunity to grow and build something rather than trying to rejuvenate tired brands in a turnaround," says Mr. Lewis, who once scouted Potbelly as a potential takeover for Yum. "I would really love a long successful run here to be a capstone for my career."

Clearly, his successes at Yum didn't transfer to Sears. In executing Mr. Lampert's strategy of cutting costs and raising prices, sales declined for three years. But Mr. Lewis never showed frustration or disappointment during tough times at the retailer and maintained his enthusiasm for the business, says Robert Iger, CEO of Walt Disney Co. and a friend of Mr. Lewis'.

"It was a very challenging situation, but I think he came out of it with his reputation intact," Mr. Iger says.

A towering task:
The rebirth of the Sears Crosstown building
will require hard labor
By Cassandra Kimberly - Memphis Commercial-Appeal
August 3, 2008

Dr. Robert Taylor remembers a time when the area near his home in the Crosstown neighborhood seemed to have a life of its own.

He remembers when people from throughout the Delta poured into the vibrant community near North Parkway and Watkins for its retail stores, movie theater and Sears Crosstown, a massive shopping beacon that stood at the center of it all.

"It used to be exciting," said the 33-year resident, who can see the Sears building from his bedroom window. "I used to avoid driving on Cleveland because there were so many people on the street."

But when the lights went out for good in the 1.4 million-square-foot structure 15 years ago, the neighborhood seemed to grow dim as well, Taylor said.

"Certainly, the closing of Sears had a major impact on our neighborhood," he said. "There was no longer an anchor to draw shoppers. There was a sense of depression with the sight of a derelict building and the uncertainty for what will happen, and the concern for abandoned buildings as a source of crime...."

A ray of hope lit up the Midtown community a year ago when real estate investor Andy Cates, head of Crosstown LLC, bought the landmark Art Deco structure for $3.5 million.

Opened in 1927, Sears Crosstown 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 and the building has been vacant since the distribution center shut down in 1993.

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 -- assembled a team of architects, engineers and real estate developers to decide what to do with the historic structure.

One year later, no visible progress has been made, but the exploration of uses for the 18-acre site, including a mixed-use development with retail, office and residential space, is still under way.

"We continue to review various options for the building, and we're facing the same reality that everyone else is facing in a discombobulated market," Cates said.

But even if the real estate market were thriving, Cates would still be facing a project with challenges as massive as the building itself.

Other cities -- often using public-private partnerships -- have had more success in rehabilitating former Sears catalog distribution buildings, but even those feats took years to accomplish.

"It's a huge, huge process," said Dave Burrill, director of management with Minneapolis-based Ryan Cos. "I've managed properties for 28 years, and this was the most difficult project I tackled. It took three-quarters of our company to put it together."

Built in 1928, the Minneapolis building sat vacant for years after its closing in 1994. The city acquired the property in 2001, and Ryan was awarded the development rights in 2004.

In 2005, Midtown Exchange, a $192 million mixed-use residential, office, hotel and retail center, opened for business. Ryan Cos. later added on-site parking and a Sheraton Hotel to the structure.

About 418,000 square feet of office space in Midtown Exchange is occupied by Allina Hospitals and Clinics, the largest nonprofit health care provider in Minnesota. The project also includes townhomes, condos and apartments, and a "global market" with ethnic vendors and shops.

The costs of renovating a historic building are high. Asbestos and lead paint removal are just the start. The hardest part is figuring out which uses will get the most out of the building's design, Burrill said.

"In virtually all of (the buildings), there are columns ... high ceilings," he said. "You can drive a tank through them, but architecturally if you're trying to lay out your condos or office you have to be very creative."

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 stores, office space and housing.

Seattle touts another successful redevelopment of its 1.5 million square-foot Sears center into the home of a little-known coffee company. It's now called Starbucks Center.

To convert the 1912 warehouse into a Class A office building, Nitze- Stagen & Co. Inc. had a number of hurdles, which took 15 years to overcome, said Carl Shumaker, vice president of construction for Nitze-Stagen.

Putting aside a 2001 earthquake that set the project back a few years, one of the biggest challenges was the half-finished work of former developers, Shumaker said.

"The building had no true direction," he said. "There were a number of master plans that never went through."

Several teams of construction companies and architects worked in quadrants of the building to complete the multimillion-dollar Starbucks Center project.

"The biggest challenge was finding a team and getting the team committed," Shumaker said.

If Memphis developer Andy Cates pays heed to any advice from those other cities, planning and organization are the keys, the national investors agreed.

Slowly but surely, Cates' "feasibility team" is working on a strategy for the Midtown landmark. But projects of this caliber don't happen overnight, said Darrell Cobbins, owner of Universal Commercial Real Estate and part of Cates' coalition.

"It takes a lot of time and a lot of effort to do a modest-size project, let alone a larger project," he said. "One thing you have to think about in taking on that kind of investment is the surrounding area."

Cobbins said he has been working with business owners and residents to acquire derelict properties, to ensure the neighborhood will thrive once the redevelopment is complete.

"You really need to be able to tell ... users, whether it's a corporate user or a residential person, that it will look different three, four, five, 10 years from now," he said. "Part of the balancing act is trying to figure out what you as a developer would need to acquire to ensure the viability."

While Cates and his team continue to work, residents like Taylor wait in hope that they may see the lights of the Sears Crosstown building from their bedroom windows once again.

"I hope that the Crosstown neighbors who have monitored the Sears property over the years ... will remain vigilant and be patient," Taylor said. "I think better times are coming."

Aylwin B. Lewis: Now, to Lunch
Sears Holdings' ex-CEO has a new life in fast food
By Michael Arndt - Business Week
August 4, 2008

When Aylwin B. Lewis resigned as chief executive of Sears Holdings (SHLD) in February amid falling profits, he planned to tour the world with his wife, Noveline. But between trips to Morocco and Sicily, he got an unexpected offer. Today, Lewis is CEO of Chicago's Potbelly Sandwich Works.

Once head of a struggling retailer with 3,800 stores and more than $50 billion in annual sales, the Texas native now runs a fast-food chain with 205 restaurants and sales of roughly $200 million. But Lewis, 54, says he wants to turn a privately held pipsqueak into a sizzling public rival to Subway. "I've always been a frugal, roll-up- your-sleeves guy," he says.

Potbelly—named after a wood-burning stove in its first location—is big on such eccentricities as flea-market signs, wooden tables, and guitar-strumming troubadours. Investors such as Starbucks (SBUX) CEO Howard Schultz like the homey touches, but shareholders might balk at such frills.

Lewis will have principal owner and chairman, Bryant Keil, watching over him. That arrangement didn't work out for Lewis at Sears, where Chairman Edward Lampert directed strategy and even decided on inventory levels and marketing. But Lewis says Keil and the board have put him firmly in charge: "It's very clear that I'm the CEO."

Sears To Teens:
This Is Not Your Parents' Department Store
by Karl Greenberg - Media Post Publications
July 16, 2008

Sears is hoping to convince tweens and teens that it is not their parents' department store.

The Hoffman Estates, Ill.-based retailer is launching an interactive "back to school" marketing campaign, "Don't Just Go Back. Arrive," involving some 13 Web sites and custom animation, virtual worlds and social networking. The Web campaign aims to drive consumers to Sears' online "Arrive Lounge."

The site features a five-part video in which "High School Musical" star Vanessa Hudgens struggles to find the right style for the first day of school. Site visitors can vote for the male cast member who will star with Hudgens in the final episode of the series. An associated sweepstakes dangles a Vanessa Hudgens concert at the winner's school, private jet and limo rides to arrive at school in style and a jet shopping trip to Hollywood.

There is also a music mixing tool that allows site visitors to create music videos and post them to YouTube, Facebook and MySpace. Sears will also have product placement in MTV's romantic comedy feature film "The American Mall."

Sears will include VIP Access Cards in its loyalty program, which dangles entry into various sweepstakes and notification of exclusive sales at Sears and Sears.com.

The Web sites included in the effort are Alloy.com, Disney and Nickelodeon, which will have Sears messaging that directs consumers back to the ArriveLounge, per the company.

Web partners that are offering various virtual versions of Sears stores and boutiques with back-to-school themes are Zwinky.com with a Sears virtual store; a Sears boutique at Meez.com; Sears Back-To- School branded experiences at GoFish.com; a Sears back to school section on Nick.com; custom games for Sears on Addicting.com.

Other teen-centric sites in which Sears will promote the real by using the virtual include FunBrain.com, Poptropica.com, NeoPets.com; Facebook; MySpace. Seventeen and CosmoGIRL! magazines are doing print and online promotions with Sears back-to-school content.

"Expanding our marketing strategy into the online world of user communities and social networking is a critical means of developing engagement and brand loyalty within the youth demographic," says Richard Gerstein, Sears' SVP and chief marketing officer, in a release. "By modifying our strategy to reach tweens in their own environment, we are demonstrating to them how Sears can be a part of their life, from their entertainment to their school wardrobe."

Tears for Sears
By Michael Auslin - American.com
July 16, 2008

Filed under: Boardroom

Like other companies before it, Sears has become a victim of its success in changing the business world.

Will plunging profits soon spell the end of Sears, Roebuck and Company? The 122-year-old retail giant virtually created modern American consumerism. For anyone over the age of 40, its demise is almost unthinkable—yet it is perfectly appropriate in the world of “ creative destruction” that Sears helped shape.

In the 1970s, I grew up down the street from the headquarters of the Sears Catalog. It was Sears’s “Big Book” that really changed American shopping habits, even more so than the large retail stores that still exist. For generations, rural Americans had bought dry goods from local merchants, often paying exorbitant prices due to a lack of competition and inefficiencies in the distribution and wholesale structure.

Along with his partner, Alvah Roebuck, Richard Sears opened one of the first mail-order businesses. In 1895, they rolled out their first catalogue, a 532-page behemoth containing thousands of items, enough to supply every need a family could have. Sears was a master marketer, an apostle of advertising, and it pioneered such innovations as the money-back guarantee. By the 1920s, Sears was selling everything from houses (now highly desirable collector’s residences) to violins. Local merchants couldn’t compete, and the culture of mom-and-pop stores was devastated by modern marketing and low prices.

Sears soon branched out to retail stores, which had already started emerging due to growing consumer demand stimulated by the mail-order business. By the eve of World War II, more than 600 Sears department stores dotted the American landscape. Production and distribution systems evolved and multiplied; thousands of smaller producers whose products were carried by Sears found themselves expanding beyond their dreams, providing employment for tens of thousands more workers.

It seems that Americans have moved on from Sears, just as they did from traditional merchants when the company first appeared a century ago.Sears exemplified the suburban lifestyle of the 1950s and 1960s, and its ubiquity made the suburbs an attractive place to live for consumers who now expected to get anything on a moment’s notice. Sears helped launch America’s credit card culture by issuing its first charge card in 1953. The high point of its attempts to meld commercialism with high taste was the Vincent Price Art Collection of the mid-1960s, for which the famed actor and aesthete chose selected works of art that were sold as high-quality reproductions.

For decades, however, competitors have been chipping away at Sears’s  domain. The lessons it provided in targeted advertising have helped specialty retailers explode in number. Ironically, it was specialty catalogue sellers, such as Land’s End and Eddie Bauer, that first ate into Sears’s staple clothing business. Later, the company found itself under siege from retail outlet master Wal-Mart, which copied the Sears model of putting up megastores selling everything at unbeatable discount prices. By the late 1980s, Sears was dismissed as a middlebrow provider of drab necessities. High-end electronics and furniture stores, designer clothing brands, and hundreds of new specialty catalogs steadily reduced its presence in the consumer landscape.

Sears has been trying to reinvent itself for close to two decades now, shedding its Discover Card business and ties to Dean Witter, revamping stores, and shuttering the iconic Big Book division. Hedge fund manager Edward Lampert bought 49 percent of the retailer in late 2004 and quickly merged it with Kmart, another storied retail chain. But the company’s cash flow is down 65 percent so far this year, and it suffered a $56 million loss in the first quarter alone.

Can Sears survive? In one form or another, the name will likely endure, but its future as a major retailer appears increasingly murky. It seems that Americans have moved on from Sears, just as they did from traditional merchants when the company first appeared a century ago. Like other firms before it, Sears has become a victim of its success in changing the business world.

Michael Auslin is a resident scholar at the American Enterprise Institute.

Pep Boys Appoints Chairman and Odell to the Board
Business Wire
July 16, 2008

PHILADELPHIA--(BUSINESS WIRE)--The Pep Boys – Manny, Moe & Jack (NYSE:PBY), the nation's leading automotive aftermarket retail and service chain, today appointed James A. Mitarotonda non-executive Chairman of the Board of Directors. Mr. Mitarotonda succeeds William Leonard, who resigned from the Board for personal reasons.

In addition, Interim Chief Executive Officer Michael R. Odell was appointed to the Board of Directors. Mr. Odell has been serving as Pep Boys’ Interim CEO since April 23, 2008.

Mr. Mitarotonda said, “I am pleased to accept the responsibility of chairing the Board as Pep Boys strives to be the automotive solutions provider of choice for the value-oriented customer. On behalf of all of our Directors, I also want to welcome Mike Odell to the boardroom. He and his leadership team have the Board’s full support. Finally, the Board would like to thank Bill Leonard for his stewardship of Pep Boys. During his tenure, he has served Pep Boys faithfully in whatever capacity was needed.”

Mr. Leonard said, “I am grateful for having had the opportunity to serve Pep Boys over the last six years as a Director, Interim CEO and Chairman.” Mr. Mitarotonda, 53, has served on Pep Boys’ Board since August 2006

and is the Chairman of the Board and Chief Executive Officer of Barington Capital Group, L.P., an investment firm that he co-founded in 1991. He is also a member of the Board of Directors of A. Schulman, Inc. and Griffon Corporation. Collectively with the other members of a Schedule 13D reporting group, Barington is Pep Boys’ largest shareholder.

Mr. Odell, 45, joined Pep Boys in September 2007 as Executive Vice President and Chief Operating Officer after spending 13 years at Sears Holdings Corp. His last position at Sears was as Executive Vice President and General Manager of Sears Retail & Specialty Stores, a $26 billion business with 1,900 locations.

Retiree Benefits Take Another Hit
GM's Plan to End Medical Coverage For Many 65 and Over
Signals a New Era; Pensions to Increase by $300 a Month
By Vanessa Fuhrmans and Theo Francis - Wall Street Journal
July 16, 2008

General Motors Corp.'s move to eliminate retiree health benefits for salaried workers is a sobering signal to the rest of the U.S. work force: Even those who are in or near retirement shouldn't count on keeping the company coverage they have built up.

But GM's announcement Tuesday that it would cease medical coverage for its salaried retirees age 65 and above signals that a new era of ever-shrinking benefits has arrived. Beginning in January, even former employees who are already in retirement will lose their benefits, which most of the company's retirees use to supplement gaps in their traditional Medicare coverage. The auto maker will boost monthly pension payouts to help offset the cuts. The company's unionized workers aren't affected by the cut to retiree health benefits.

GM isn't the first company to do this, but its heft and influence could help usher in further cutbacks at other companies.

"Usually they did not do anything as draconian as this," says Karen Ferguson, director of the Pension Rights Center, a retiree advocacy group in Washington. "Usually they don't cancel the health insurance -- they'll increase the premium, they'll increase the deductibles."

At this point, employees and retirees "have to feel lucky if they still have retiree [health-care] benefits, and have to start planning for when they won't," says Rick McGill, head of retiree medical consulting for employee-benefits firm Hewitt Associates. He says such benefits are "a dying breed."

Retirement-benefit experts have for some time been recommending that all workers -- even those close to retiring and who've "earned" full retiree benefits -- should assume that those benefits will likely be eliminated, either before or during their retirement, and start planning and saving for it.

Many people planning to retire early should consider working at least part-time to keep active employee health coverage until they're eligible for Medicare at age 65, says Mr. McGill. That's because between 20% and 40% of people between 55 and 64 are either denied individual health coverage or forced to pay much higher premiums than the general population. Those 65 and older can save a lot by working a few years longer, he says. Even with Medicare, a 65-year-old couple's out-of-pocket health-care costs could reach $225,000 in their remaining years, according to Fidelity Investments.

GM, battered by slumping U.S. vehicle sales, Tuesday announced a series of moves aimed at raising $15 billion in liquidity by 2009. The auto maker also said it will suspend the dividend it pays to shareholders and cut its production of pickup trucks, among other measures.

In total, GM spent $4.75 billion last year on all its U.S. retirees' health benefits, including hourly workers and those under age 65. It says those retirees or surviving spouses who are affected will get a $300 a month increase in their pensions to help offset some of the costs of relying solely on Medicare, which has less-generous coverage than many private-sector plans. It also is hiring an outside firm to advise retirees on choosing Medicare drug plans, supplemental insurance or private Medicare plans.

Richard Schwaller, a 79-year-old retired GM regional service manager in Northville, Mich., says he supports GM's move, particularly if his pension rises by $300 a month to make up for the lost health benefits. But he says for some of his fellow retirees, in poor health, getting individual health insurance could prove costly.

"It sounds pretty good, but none of us has ever tried to shop for supplemental insurance," Mr. Schwaller says. "If you've got some serious health problems, I think that's going to make a big difference."

The affected salaried GM retirees join a growing number of active or retired workers who lack such benefits. Overall, about one worker in five had access to employer-sponsored retiree health benefits in 2003, down from one in three in 1997, according to the Urban Institute, a research institute in Washington.

Larger employers are much more likely to offer the benefit than smaller ones: About half of Fortune 100 companies offer it, and about a third of companies with more than 200 employees do, a number that has held roughly steady for more than a decade, according to separate tallies from Hewitt and the Kaiser Family Foundation.

Unlike just about every other kind of compensation, such as salary or pensions, retiree health benefits can be taken away even after workers have built them up. Indeed, unless a union contract prevents it, companies typically have a free hand to reduce or eliminate retiree health benefits for both active employees and retirees.

"Employers can pull the rug out from under their older workers and their retirees at any point -- there's no guarantee these benefits will continue," says Richard Johnson, a retirement researcher at the Urban Institute.

In recent years, many companies have done just that. Some have eliminated retiree health benefits entirely, while others -- including International Business Machines Corp., Delta Air Lines and Coca-Cola Enterprises -- have capped the amount the company will pay in premiums, leaving retirees to shoulder the impact of rising health- care costs.

Last year Ford Motor Co. also eliminated health benefits for Medicare- eligible salaried retirees and replaced it with an annual $1,800 stipend that may be used for Medicare and other health-care costs.

Critics, including the older people's lobbying group AARP, have said it is age discrimination to cut benefits just for those over 65, a position that received support from the federal Third Circuit Court of Appeals.

But other federal courts have backed employers, and in December, the Equal Employment Opportunity Commission did as well, after business organizations said companies might instead eliminate all retiree- health benefits, not just those for older workers.

TOUGH MEDICINE

GM's move to cut retiree health benefits has implications for workers in other industries:

• As of now, all nonunion workers -- even those who've earned full retiree benefits -- should understand that those benefits can be eliminated, either before or during their retirement.

• Workers planning to retire early might consider working at least part-time to keep active employee health coverage until they're eligible for Medicare at age 65.Since the early 1990s, employers eager to get out from under the increasing burden of covering their retirees' health care have been whittling away at those benefits. At some companies, new or younger workers have been excluded from retiree health benefits. Older workers and existing retirees often got to keep the benefits, but had to pay a larger share of the overall costs.

Sears names apparel leader: Report
By Sandra Guy - Chicago Sun-Times
July 14, 20008

Sears Holdings Corp. has reportedly named Craig M. Israel to a newly created job as president of its apparel division, according to a report in Monday's Women's Wear Daily magazine.

Israel will have his hands full as Sears, based in Hoffman Estates, has been burdened by too-large inventories of clothes and resulting markdowns that have pulled down its financial results.

Israel will report to Bruce Johnson, interim Sears CEO. He will oversee clothing and accessories for men's, women's and children's, according to the WWD report.

Sears has set up shops featuring Lands' End clothing, and recently launched a line of young men and girls' casual clothes with rapper LL Cool J.

The retailer also has been reported to be in talks with Steve & Barry's, the low-cost retail chain that has filed for Chapter 11 bankruptcy protection, to take over licenses with celebrities such as the clothing line "Bitten" by Sarah Jessica Parker and "Eleven" by Venus Williams.

Sears Taps Craig M. Israel
As President of Apparel Unit
By David Moin - Women's Wear Daily
July 14, 2008

Sears has a new leader to revive its long-ailing fashion business.

The chain has named veteran department store executive Craig M. Israel as senior vice president and president of its apparel unit.

The company said Israel is taking a newly created position, although in the Nineties, Robert Mettler, who is now president for special projects at Macy's Inc., was president of apparel and home fashion.

Israel will report to Bruce Johnson, interim chief executive officer of Sears Holdings Corp., which also operates Kmart Holding Corp., and will be responsible for all women's and men's apparel and accessories, as well as the children's and cosmetics divisions at the Sears chain.

It's an especially challenging job considering Sears has been plagued by too much merchandise, too many markdowns and uninspired fashion. At the 926 full-line Sears stores, hard goods tends to draw the most traffic, particularly such proprietary brands as Kenmore, Craftsman and DieHard.

However, strides have been made with Lands' End, which is owned by Sears, and with other private labels. They have been pared down, and have clearer fashion messages and improved marketing.

Also, Sears has teamed up with rapper LL Cool J to launch LL Cool J for Sears. The collection of casualwear for juniors, young men's, girls' and boys' will roll out to 450 stores in September and could generate as much as $100 million to $150 million in its first year, sources have said.

There might be an opportunity for Sears to pick up some additional celebrity licenses in light of last week's bankruptcy at Steve & Barry's, which has the Bitten by Sarah Jessica Parker, Dear by Amanda Bynes and Eleven by Venus Williams lines.Sears has been plagued by too much merchandise, too many markdowns and uninspired fashion.In a recent interview on the LL Cool J brand, Irv Neger, Sears' senior vice president of apparel, said the chain knows the urban consumer does visit the store. "But it's a customer we weren't reaching. With this brand, we see tremendous growth opportunity."

Sears is anxious to also pump up its junior offerings, where the competition is far more advanced.

Israel, who joins Sears on Wednesday, could not be reached for comment.

Meanwhile, the competition has been racing to create celebrity lines. Avril Lavigne will soon launch at Kohl's Corp., and J.C. Penney Co. Inc. this month kicked off Fabulosity by Kimora Simmons. In addition, Mary-Kate and Ashley Olsen have made their mark at Wal-Mart Stores Inc. with one brand, and at Bergdorf Goodman with another.

Israel has more than 30 years of retail experience in merchandise roles. In stressing his qualifications for the job, Sears also pointed out that he has tackled turnarounds during challenging economic cycles. According to the company, Israel in previous jobs drove profitable EBITDA growth and elevated the "in-store" customer experience.

Israel was president and ceo of Robinsons-May/Meier & Frank, which operated stores along the West Coast and was a division of the former May Department Stores Co. Ultimately, when Federated Department Stores Inc. acquired May Department Stores in 2005, the stores were all converted to Macy's units.

Earlier, Israel was president and ceo of Kaufmann's, another division of May Department Stores that was based in Pittsburgh.

He also held senior roles in women's, men's, juniors', children's, cosmetics and center core at other former May Co. regional operations, including Foley's, Famous Barr, L.S. Ayres, and Lord & Taylor, as well as Abraham & Straus, which Federated owned and converted to Macy's.

For the fourth quarter ended Feb. 2, Sears Holdings reported profits fell 47.5 percent to $426 million from $811 million a year ago, and revenues slid 6.8 percent to $15.1 billion from $16.2 billion. For the full year, Sears' net income dropped 44.6 percent to $826 million, as sales slipped 4.3 percent to $50.7 billion.

Sears names new head of apparel
By Sandra Jones - staff reporter - Chicago Tribune
July 14, 2008

Sears Holdings Corp. created a new post to oversee the apparel business at its Sears, Roebuck and Co. division and hired a former May Department Stores Co. veteran to fill it.

Craig M. Israel, formerly president and CEO of Robinson's-May/Meier & Frank, was named senior vice president at the corporate level and president of apparel for Sears effective Wednesday. He will report to Bruce Johnson, interim CEO of the parent company Sears Holdings.

Sears said in a prepared statement that Israel brings over 30 years of retail experience to the job and is experienced at "leading teams through operational turnarounds during challenging economic cycles."

Apparel has been a challenge at Sears for years, battered by Wal-Mart on price and cheap chic stores such as Target and Kohl's on fashion.

In May, the Hoffman Estates-based company posted its biggest quarterly loss since billionaire investor Edward Lampert combined Sears and Kmart three years ago, as shoppers cut back spending on appliances and clothing and the company stepped up promotions to clear inventory. Sears warned at the time that it didn't expect the retail environment to improve this year and that the company's sales and gross margin for the remainder of fiscal 2008 "will likely continue to be pressured."

Israel spent most of his career at St. Louis-based May Co., working at its various regional department store divisions. His posts included CEO of Kaufmann's and senior merchandising positions at Foley's, Famous Barr and L.S. Ayres. Macy's Inc. bought May Co. in 2005 and later converted the stores to Macy's.

Sears, Roebuck names Israel president of apparel
Reuters
July 14, 2008

ATLANTA, July 14 (Reuters) - Retailer Sears, Roebuck has named Craig M. Israel, a veteran retail executive, as senior vice president and president of apparel, responsible for men's and women's clothing as well as the children's and cosmetics divisions.

The appointment is effective Wednesday, Sears said on Monday.

Israel has more than 30 years of retail experience, including jobs at the former May Department Stores, a chain that was acquired by Macy's in 2005.

The Sears Holdings Corp noted in a statement that Israel has led "teams through operational turnarounds during challenging economic cycles," has helped drive profitable earnings growth and enhanced the customer experience.

Sears Holdings, based in Hoffman Estates, Illinois, is restructuring operations to improve results. The retailer, which also operates Kmart stores, posted an unexpected first-quarter loss in May as markdowns hurt margins. At the time, the company noted sales declines in apparel and other categories.

To Reach Mothers, Wal-Mart Signs Deal With an NBC Unit
By Stuart Elliott - New York Times
July 14, 2008

Forget about support groups, posses and circles of friends. The first advertising sales deal for a new unit of NBC Universal — signed with Wal-Mart Stores — is all about the “momtourage.”

The fanciful play on entourage refers to the people who help mothers be better parents, including family members (maybe even fathers?), teachers, neighbors and baby sitters. Wal-Mart is sponsoring momtourage material that is to start appearing this week on two NBC Universal outlets: the iVillage Web site (ivillage.com) and the “ Today” show on NBC.

The unit of NBC Universal that landed the multimillion-dollar deal with Wal-Mart, the nation’s largest retailer, is known as Women@NBCU

(for Women at NBC Universal). The unit, formed in May, offers advertisers access to female-friendly assets of the company, a division of General Electric. Those include cable networks like Bravo and Oxygen and shows like “Lipstick Jungle.”

“We are going to get value from our great content through trying to find identifiable consumer targets” coveted by advertisers, said Lauren Zalaznick, president for the women and lifestyle entertainment networks at NBC Universal.

The deal with Wal-Mart covers the third and fourth quarters, Ms. Zalaznick said, when the retailer is eager to sell back-to-school and holiday merchandise. The deal was made by the Wal-Mart media agency, MediaVest, part of the Starcom MediaVest Group division of the Publicis Groupe.

“We’re trying to provide something to the audience of real value,” said Anne Elkins, senior vice president and group client director at MediaVest, “usable, tangible information that ties back to the advertiser in a way that doesn’t hit you over the head.” Another appealing aspect is that “the content is being built to be sustainable” over time, Ms. Elkins said, “and not be a one-off.”

As a result, the deal includes “options to renew all the way through 2009,” she added.

The material on iVillage and “Today” will be focused on subjects like child care and fixing family meals. Vignettes on “Today” will be followed by commercials for Wal-Mart.

Among the prizes in a contest on ivillage.com will be a chance to add to the winner’s momtourage a helper like a house cleaner. Another prize will be dinner cooked for a mother and her momtourage by a cast member of the Bravo series “Top Chef.”

The deal and the formation of Women@NBCU are indicative of increasing efforts by marketers, agencies and media companies to reach women in general and mothers in particular.

Other examples include consultancies like G23, Mom Central Consulting and MomWise; companies like Miles of Marketing; and editorial features like “My Life as a Mom” in Ladies’ Home Journal.

Retailer's Collapse Hits Mall Owners
By Jeffrey McCracken, Peter Lattman and Kris Hudson - Wall Street Journal
July 14, 2008

Steve & Barry's, the discount-clothing chain that collapsed last week, depended heavily on bargain-hunting shoppers and attention-getting celebrity endorsers. But its biggest boosters were the nation's struggling mall owners.

Desperate to fill empty department-store spaces, mall owners courted the retailer with fat payments to outfit its cavernous stores. Those checks, not clothing profits, fueled the company's runaway growth, according to people familiar with the company's finances. When the payments slowed, Steve & Barry's collapsed.

The 276-store chain, regarded just weeks ago as one of America's fastest-growing retailers, now qualifies as one of the industry's most unusual blowups. Its Chapter 11 bankruptcy filing on Wednesday is likely to lead to its liquidation, people involved in the case say. Several retailers, including Sears Holdings Corp. and Gap Inc. have expressed interest in the Port Washington, N.Y.-based company, or at least some of its brands, these people say.

The collapse has thrown into doubt the fate of clothing lines Steve & Barry's launched with A-list celebrities like "Sex and the City" actress Sarah Jessica Parker, big-wave surfer Laird Hamilton and tennis star Venus Williams, who won Wimbledon this month clad head-to- toe in Steve & Barry's apparel.

Dozens of malls around the country stand to lose a big anchor tenant -- a blow to commercial landlords already reeling from weak consumer spending and a string of bad news from retailers. Sharper Image Corp. and Bombay Co., for example, have closed all their stores, while Talbots Inc. and AnnTaylor Stores Corp. are paring back. Vacancies at malls in 76 major U.S. markets rose to 6.3% in the second quarter, the highest level since early 2002, according to real-estate research firm Reis Inc.

Steve & Barry's has not commented publicly about its problems. This story about its rise and rapid fall is based on interviews with current and former employees, including senior executives.

For mall owners, large anchor spaces, which were once occupied almost exclusively by department stores, are especially important. Their role is to draw lots of shoppers into malls, enabling owners to rent their smaller spaces to specialty stores. When anchor spaces go dark, clauses in the leases of smaller tenants often permit them to pay lower rents.

That dynamic played a critical role in the surprising rise of Steve & Barry's, which opened its first store in Philadelphia in 1985 to peddle discount University of Pennsylvania apparel, then spread to several other university towns. In 1998, an executive at Taubman Centers Inc., the large Michigan mall owner, wandered into its University of Michigan store. He decided the concept could bring lots of traffic to malls at a time when department-store consolidation was costing the industry anchor tenants.

Steve & Barry's was "primarily going into previous department-store locations, and in today's market, there are not a lot of department stores left to fill those voids," says Ross Glickman, chief executive of Chicago-based Urban Retail Properties LLC, which has Steve & Barry's stores in three of its shopping centers.

Mall owners have always viewed anchor stores as loss leaders -- owners offer favorable deals to big stores in exchange for bringing traffic to the malls. Financial inducements often come in the form of tenant-improvement allowances, which are upfront payments that retailers use to outfit the interiors of their stores. Landlords seldom monitor how the money is spent.

The mall owners welcomed Steve & Barry's with open wallets. One former Steve & Barry's executive recalls company co-founder Barry Prevor jumping up on his credenza with joy at company headquarters after negotiating the first multimillion-dollar payment in 2003. Mr. Prevor declined to comment for this story.

Cullinan Properties Ltd. of Peoria, Ill., leased space to Steve & Barry's at one of its dozen retail centers. Frank Natanek, Cullinan's president of real estate and marketing, declines to discuss details of that lease. "Most of the time," he says, deals with Steve & Barry's "are loss leaders. You might get $3 to $8 rent [per square foot per year], and pay them $30 to $60 in tenant allowance, so it's kind of a wash. You would not normally do a deal like that, but you'd do it as a traffic generator," or to keep from having to give other tenants rent breaks because of the vacancy.

On some deals, the upfront payment exceeded the total rent to be paid on the life of the lease, according to one executive at the retailer.

Vacant Space

Because Steve & Barry's was often the only retailer willing to occupy large, vacant stores, it didn't often budge on its demands. "They go into a market and say, 'This is what we're going to pay,' " says Mr. Natanek. "There's not a lot of negotiation."

One mall owner says he talked to Steve & Barry's about leasing space, but the terms they demanded were absurd. "Leasing to them would have been like bringing prostitutes to a party to look popular," he says. "They might look good, but you're paying for it."

For the 2003 fiscal year, which ended Jan. 31, 2004, when Steve & Barry's had 31 stores, tenant-improvement payments totaled $17.5 million, according to documents reviewed by The Wall Street Journal. The payments jumped to $58.6 million the next year, the documents say. The peak came in the 2006 fiscal year, when the company received $122.3 million in payments, but spent only about $59 million to build out new stores, leaving about $63 million in unused cash, the documents indicate. From fiscal years 2004 to 2007, the company received $380 million of payments.

The payments helped fuel rapid growth. The company added more than three million square feet of space each year between fiscal 2005 and 2007.

From the outside, the company's unique formula appeared to be a smash hit. Its stores offered everything from basketball sneakers and down jackets to hooded sweatshirts and tote bags. Almost everything was priced at $9.98 or less. To separate itself from its down-market competitors, it positioned the apparel as cheap chic, striking attention-grabbing endorsement deals with celebrities that brought torrents of free publicity.

On the Oprah Winfrey Show last year, Ms. Parker, the actress, talked about her line of discount clothing. "Along comes this company, Steve & Barry's, which really was extraordinary, and I was absolutely gobsmacked," she said. She decided to name the line Bitten, she said, because when she walked into one of the stores, "I was completely bitten."

Representatives of Ms. Parker declined to comment for this article.

Ms. Parker's line quickly became a big seller, prompting the company to go on a celebrity-branding binge. It struck licensing deals with five other celebrities, including Ms. Williams, Mr. Hamilton, and actress Amanda Bynes. (Basketball player Stephon Marbury was already on board.) The agreements called for Steve & Barry's to pay a royalty to these celebrities that ran as high as 4% of sales of their branded goods.

In her Oprah appearance, Ms. Parker admitted to having initial doubts about how Steve & Barry's could sell clothing so cheaply. "I was dubious," she said. "I thought, how could this be affordable?"

Inside corporate headquarters, Mr. Prevor and co-founder Steven Shore tried to cultivate a hip, casual atmosphere. The company's college recruiting poster pictured a man in a suit with a slash across it. "Our CEOs wear T-shirts," it read. It hired from Ivy League schools, and gave recent graduates lots of responsibility. The director of store operations, for example, was a 26-year-old music major from Harvard. Some young employees had difficult jobs such as dealing with the company's far-flung suppliers, who operated in places like Vietnam, Pakistan and the African kingdom of Swaziland, according to suppliers and former employees.

As a private company, Steve & Barry's doesn't publicly disclose financial results. Early on, it posted profit margins of between 10% and 15%, according to one former executive. But internal documents show that in fiscal 2006, the company recorded a loss of $53.3 million on sales of $405.7 million.

In late 2006, TA Associates Inc., a Boston-based private-equity firm with $12 billion in assets, paid $320 million for roughly half of the company. About half of that money went into the business, with the balance going to Messrs. Prevor and Shore, according to people knowledgeable about the deal.

The new celebrity-branded apparel lines boosted sales, accounting for roughly one-third of fiscal 2007 sales, according to court filings. But the related licensing payments cut into profit margins. Ms. Parker, for instance, already has earned millions in licensing fees, according to people familiar with her deal.

As the company grew rapidly, so did its costs. The average cost of opening a new store jumped to $852,000 in fiscal 2006, from $508,000 in 2005.

The company was relying increasingly on the all-important upfront payments from mall owners, along with periodic bursts of sales from store openings, according to employees and people involved with the bankruptcy.

But mall owners were having their own problems. The developing credit crisis was making it harder for them to borrow money. Promised payments to Steve & Barry's were delayed or simply didn't come, according to one senior executive at the company.

That held up about 50 store openings in 2007, which left the company sitting on a pile of extra inventory ordered at the start of the year, according to the senior company executive. The losses mounted.

Price Switch

In June 2007, the company began raising prices in an effort to boost revenue, shooting to have items sell for an average of $14.98, from $9.98, according to two former employees. But sales tumbled, and prices were ratcheted back, they say. By December, everything was $8.98 or less at most stores, they say. One week before Christmas, about 140 of the 500 people working at the headquarters were fired.

In fiscal 2007, the company had a net loss of $16.6 million on sales of $583 million, according to people familiar with its finances.

Earlier this year, the company defaulted on its $200 million credit facility with its main lender, the commercial-lending unit of General Electric Co.

Recently, store managers received an email asking them to reduce the amount of cash kept in store safes from $9,000 to $1,400, according to one store manager. The rest was needed "to pay some bills at the corporate level," this manager says.

Questionable Practices

With the company now in bankruptcy court, its financial practices are likely to be examined closely by its bankruptcy advisers and representatives of its creditors. Already, questions are emerging about at least one aspect of its accounting practices.

Beginning in 2004, the company began including some operating expenses -- a portion of store rents, for example -- in a separate expense category meant to reflect the cost of unsold inventory, people knowledgeable about the accounting say. That potentially benefited the retailer in two ways.

Operating expenses have to be recognized right away; inventory expenses aren't recognized until the inventory is sold. By shifting some expenses to the inventory category, Steve & Barry's was pushing them further out into the future, potentially boosting profits in the short-term.

Secondly, the practice potentially boosted the value of the company's inventory. The inventory is the collateral against which its lenders extend credit. If it's worth more, the company can borrow more.

The accounting change was heavily debated inside Steve & Barry's. "Some retailers don't do it this way, I acknowledge. But it mirrors what many do," says one Steve & Barry's executive. It's "industry practice, as far as I am concerned."

Stevan Buxbaum, executive vice president of the Buxbaum Group, a retail liquidation and turnaround firm, disagrees, as did several other accounting and retail experts who were interviewed. "It is completely uncommon and unacceptable to burden the cost of your goods with occupancy costs," he says.

Company auditor BDO Seidman said in a statement that it "stands by its work."

The bankruptcy proceeding is likely to saddle a bunch of mall owners with empty stores. Mall owners that paid the company millions of dollars to open stores that may now go dark are unlikely to recoup any of that money, according to people involved in the bankruptcy.

TA Associates says it has written down its $320 million investment to zero, its largest write-down ever.

If Steve & Barry's ceases to exist, Ms. Parker is expected to try to take her clothing line to another retailer of her choosing, say people familiar with her plans. But bankruptcy-court procedures could complicate matters. Some other company could buy the right to license the Bitten brand and try to force Ms. Parker to do business with it.

U.S. Consumers Trade Down As Economic Angst Grows
By Gary McWilliams - Wall Street Journal
July 11, 2008

Spurred by economic worries, American shoppers have quickly decided that cheaper is better. They are trading down to store brands from fancy labels, to small cars from SUVs, and to deep-discounters from full-service stores.

Wal-Mart Stores Inc., which last year returned to its discount roots to try to reverse weakening sales, Thursday reported its best monthly sales gain in four years; it benefited from bargain-hunters seeking deals on the most basic stuff. Consumers' use of discount coupons is starting to rebound after a 15-year slide. In June, the lowly Toyota Corolla became the best-selling vehicle in America, a spot held for more than two decades by the beefier (and pricier) Ford F-150 pickup.

Trading down is a common consumer reaction to economic ills. But this time around, the change has come unusually fast and may be touching on the broadest array of goods since the recession of the early 1980s. The combination of historically high fuel prices and soaring food costs, combined with falling housing and stock values and tightening credit, are severely damping the spending habits on which the U.S. economy has long thrived.

The about-face in consumer behavior could bring striking changes to the marketplace, as retailers revamp everything from the size of their stores to the way they stock their shelves, and may force manufacturers to trim niche products in favor of more reliably selling basics.

"There has been a major shift in thinking by shoppers," says Thom Blischok, head of consulting at Information Resources Inc., which tracks spending on consumer goods. "Consumers are moving away from availability, to affordability." Dunnhumby Ltd., a consulting firm that tracks shopping habits for many retailers and manufacturers, says 20% of loyalty-card holders of its U.S. and European retail clients are "radically" reducing spending, according to its analysis of their purchasing data.

The shift challenges a 20-year embrace of ever-pricier exotic foods and a widening array of luxury goods. In the 1980s, Americans warmed to designer labels, Egyptian cottons, and shopping as a form of entertainment.

Now, consumers are pessimistic that their ability to spend will improve any time soon. Two-thirds of Americans expect the current slump to last for several years, according to the latest Reuters/University of Michigan survey of consumer expectations. Consumer confidence has dropped 38% in the monthly index since its January 2007 peak, and last month 57% of those surveyed reported their financial situation had worsened, the highest figure since the survey began in 1946.

Buying Habits

At almost every income bracket, Americans are changing buying habits and deciding they can live without old favorites. Bob Swanson, a 48-year-old Houston software salesman, drove BMWs for most of the past two decades. But as the price of premium gasoline jumped, he traded his 8-cylinder BMW 540 for a more frugal 4-cylinder Honda Accord that he bought secondhand. "I went from an average of 14 miles a gallon to an average of 24," Mr. Swanson says.

Visits to department stores are down 6% this year, down 7% at office-supply stores and down 10% at home-improvement retailers, says market watcher Nielsen North America, which tracks store traffic and spending. But the downturn has proved a boon for retailers at the bottom of the price scale. Family Dollar Stores Inc., a small, discount department-store chain, forecasts same-store gains of 4% to 6% for its fiscal fourth-quarter ending Aug. 30. Dollar General Corp., another discounter, recently reported same-store sales jumped 5.6% for the fiscal quarter ended May 2.

Trying to lure the newly frugal, big retailers and brand-name goods manufacturers are revamping their goods and promotional offers to suit the times, relying on increased efforts to track their consumers' habits. For instance, in Texas, grocer HEB Inc. has begun stocking up on inexpensive fare -- beans, rice and flats of eggs -- toward the end of the month, as customers run out of money.

Wal-Mart says it is putting more multipack items on its shelves at the start of the month when many customers are flush from being paid, then switching to individual items that require smaller outlays later in the month.

Thursday, the nation's largest retailer reported that U.S. same-store sales for the five weeks ended July 4 rose 5.8%, Wal-Mart's highest monthly increase since May 2004. The big results for the June reporting period were partly attributable to temporary factors benefiting many discount retailers. Federal tax-rebate checks were trickling in, and there were two first-of-the-month days in the period, when many customers get paychecks or government payments and visit stores.

Back to Its Roots

But Wal-Mart also returned to its roots at just the right time. Unlike other retailers, the discounter's less-affluent customers felt the pinch of rising energy and credit woes as early as 2006. Wal-Mart ultimately responded by cutting back on new-store construction and revamping its merchandise. It cut inventories and renewed its focus on reducing prices, just as the economy swooned.

This year, its stores were better equipped for consumers looking to trade down. Wal-Mart also increased advertising spending by 42%, rolling out a campaign that highlighted savings.

Sears Holdings Corp., in contrast, last fall loaded up on clothing, home-goods and holiday merchandise. It was forced this spring to cut back on marketing and discount heavily to clear its shelves. Same-store sales in the quarter ended May 3 fell 9.8% at its Sears stores and 7.1% at its Kmart unit.

Some big-name brands are testing new approaches to try to keep customers. "The reality of the business is you've got to come to the table with an offer," says Bryce McTavish, vice president of retail and sports marketing at MillerCoors, a joint venture of beer makers SABMiller PLC and Molson Coors Brewing Co. One new strategy: Placing lower-priced Coors Light alongside Blue Moon premium beers in store displays, to encourage Blue Moon drinkers who want to economize to stay within the brand. Miller Coors also is weighing offering gasoline cards with purchases as an incentive.

The ability to capture trade-down shoppers will be crucial for some companies. New, cheaper favorites among brands or stores can be formed after as little as three or four favorable experiences, retail experts say.

But unfortunately for some retailers, "the tide is going out," says Credit Suisse analyst Gary Balter. He forecasts retail profits will struggle until "2010 at the earliest," when the current spending weakness should lift. Retailers now losing customers such as Borders Group Inc. and Circuit City Stores Inc., both of which reported widening losses compared with a year earlier, won't have relief from slow consumer spending anytime soon, he says.

The next step for retailers and manufacturers is to weed out niche products that don't have mass appeal, says John Rand, a director of retail insights at consultant Management Ventures Inc. Some retailers already are considering dropping suppliers or products that don't generate big sales.

Most at risk are premium-priced items that appeal to convenience over value. Consultants' studies of consumers' food baskets suggest that vitamin waters, 100-calorie snack packages, and children's lunches in a tray are being supplanted by tap water, value-pack snacks and home-made lunches, respectively.

One retail trend already under way may mesh well with the change in consumer habits. Retailers known for their "big boxes" -- Safeway Inc., Tesco PLC and Wal-Mart -- have or will soon introduce small 10,000- to 15,000-square-foot stores that fit into neighborhoods and contain just a few thousand products.

A typical 50,000-square-foot grocery store sells 20,000 items. But most homes buy fewer than 1,000 items a year. Stores that can correctly pinpoint customers' choices will earn higher returns on these smaller spaces.

Electronics chains such as Best Buy Co. and Circuit City are embracing smaller-size stores as a way to boost margins by shedding goods with slow sales. Such limited-assortment, high-turnover stores may be the next big wave in retailing, says Lee Peterson, a vice president at retail-store consultants WD Partners.

In the meantime, shoppers' eagerness to save shows up in all sorts of ways. Consumers do more one-stop shopping, buying groceries only once a week or twice a month to save on gasoline and by buying in bulk. When they do, they are more apt to stick to a grocery list -- and bring coupons.

Matthew Tilley, director of marketing at Carolina Manufacturers Services, a large coupon processor, says coupon redemptions last year already stopped falling for the first time since 1992, and the company forecasts increases for the rest of this year.

Consumer demand for lower-cost private-label and store brands also is leading retailers to license those brands to competitors to broaden their reach and increase sales. Best Buy now sells its Rocketfish private-label electronics through Japanese retailer K's Holdings. Safeway is selling its O brand of organic foods through restaurant supplier Sysco Corp. and the world's second-largest retailer after Wal-Mart, France's Carrefour SA.

Sales of private-label goods are up sharply, especially for staples with escalating prices. The cost of eggs has risen 33% this year, milk is up 18% and flour nearly 11%, says consulting firm Information Resources Inc. And even higher prices may be coming.

"We haven't yet seen the real impacts of rising commodity costs," says Mr. Blischok, IRI's head of consulting. "We're in a transformation that affects how you spend your money, where you go, what you eat," he says.

IRI's grocery-basket surveys show that sales of prepared foods such as Kraft Foods Inc.'s Lunchables have tumbled. Americans are eating at home more, buying multipurpose medications rather than separate medicines, and choosing a single brand of shampoo instead of one for each family member, IRI studies show.

U.S. premium gasoline sales so far this year are off 12.6%, compared with a just 1.3% decline in regular unleaded sales, according to delivery figures compiled by the U.S. Energy Information Administration.

In some cases, saving money is replacing conspicuous consumption as the object of awe. Linda Butler, a Portland, Ore., homemaker who has used coupons for decades, says that in the past six months she has often been approached in the checkout lanes by other shoppers seeking shopping advice. The 51-year-old homemaker routinely cuts a $150 grocery bill down to a $40 outlay through intensive use of coupons.

"People are asking me, how do you do that? Where do you get the coupons?" Mrs. Butler says. She is thinking of setting up classes on how to save money, she adds -- for a fee, of course.

Retail veteran stepping in at Payless Collective Brands'
business groups each has leader
By Barbara Hollingsworth - The Topeka Capital-Journal
July 10, 2008

Collective Brands believes it has found the right fit in putting a longtime retail executive at the head of Payless ShoeSource.

LuAnn Via, group divisional president of Charming Shoppes' Lane Bryant and Cacique retail chains, on Wednesday was named president and chief executive officer of Payless ShoeSource.

Topeka's distribution center for Payless ShoeSource will remain open into next year, said Matthew Rubel, Collective Brands' chairman and chief executive officer.

"They're doing an amazing job," he said. "The team there is operating in an outstanding manner. We are working with them on sometime in the next 12 months exiting that facility."

Officials with Collective Brands, of which Payless is a unit, had declined earlier this year to say that the distribution center would remain open past December. In March, a representative of Teamsters 696 had said the distribution center would remain open through the spring of 2009.

"This will give us the ability to have somebody who can be thinking about Payless every day, every minute," said Matthew Rubel, chairman and chief executive officer of Collective Brands.

As Payless acquired both Collective Licensing and Stride Rite in 2007, the company changed names to Collective Brands (NYSE:PSS). Payless ShoeSource continues to operate as a unit of Collective Brands. Rubel said it has been important to have strong leadership over each of the three Collective Brands units.

"Now that I'll have three outstanding leaders running our different business groups this will enable me to help to build the company into a global operation and focus more on global business development and building business outside North America," Rubel said.

Via was a psychology student at the University of Miami when she first entered the retail world with a part-time job at a department store.

"I really got the retail bug," she said.

Retail became her career. She moved from clerical jobs to becoming an assistant buyer. As she moved up the ranks, Via took jobs in wholesaling and retailing that put her in touch with high-end and more modest products.

Throughout, the studies in psychology she left behind have been an asset, Via said.

"It's all about people and how do you motivate and drive and coach and how do you serve the customer," she said. "What does she want? It's all about her, honestly."

Among her career moves, Via worked at Sears, Roebuck and Co. from 2003 to 2006 as vice president and general merchandising manager for footwear, accessories, fine jewelry and intimate apparel. From 1998 to 2003, she was senior vice president of general merchandising product development at Saks Inc. And Via managed the handbag business for Trade Am International from 1992 to 1998 as executive vice president.

While Via has worked in apparel in recent years, she said she is happy to return to shoes and accessories when she starts work in Topeka on July 22.

"I have to be honest with you — footwear and accessories are my passion," she said.

Via said she plans to listen and observe for the first 30 to 90 days on the job. Payless, she said, is in such good shape that immediate changes aren't necessary.

The company has added recognizable brand names, such as Champion and American Eagle, to its lineup. Even with the tight economy, Rubel said Payless has increased its market share.

"You never want to have a bad economy, but we are doing better than many because we do offer a price option that many other places are unable to offer," Rubel said.

Payless has had its challenges, however. Last month, Collective Brands agreed to pay $30 million as a part of a settlement with K- Swiss over trademark issues. In May, Payless was hit with a $304 million verdict for trademark infringement of Adidas' three-stripe logo. Collective Brands is fighting the judgment.

Rubel called the litigation "remnants of the past." Via said she has been impressed watching the company's changes from her work in Columbus, Ohio.

"It's a great strategy from styling, pricing, etc.," she said. "They've done an absolutely outstanding job."

Bankruptcy Bell Tolls:
Steve & Barry’s Model Collapses Under Crunch
By Vicki M. Young - Women's Wear Daily
July 10, 2008

The Steve & Barry's business model officially collapsed on Wednesday, the victim of razor-thin margins squeezed even more by tight credit and the reluctance of shoppers to either drive or spend.

The troubled retailer of low-priced chic apparel and footwear and 63 of its affiliates filed a voluntary Chapter 11 petition in Manhattan bankruptcy court after a cash crisis highlighted by its default on a $197 million asset-backed loan from GE Commercial Finance Corporate Lending. A feverish search for $30 million in needed financing ensued and apparently failed, despite talks with potential buyers and investors, among them Sears Holdings Corp.

Even if the company can emerge from bankruptcy in some fashion, it will likely bear little resemblance to the way the firm has operated since it was founded 23 years ago.

In their first public statement about the chain's difficulties, the founders and co-chief executive officers, Steve Shore and Barry Prevor, said, "High costs of materials and fuel prices have increased our cost of goods and cost of operating. At the same time, our customers are not in a position to pay higher prices, impacting our operating margins.

"Our customers are feeling the pain of high food and gas prices and declining home values, and many of them are being forced to shop closer to their homes and cut back on discretionary purchases," their statement continued.

Yet, even with these challenges, the pair said their 276 stores in 39 states had registered a 70 percent increase in total sales this year through the end of May, along with a 15 percent increase in same-store sales and a 25 percent increase in average store sales.

Annual sales are believed to be in excess of $1 billion, much of that attributable to the retailer's various celebrity licenses. In its statement, the company said its "exclusive branded lines of merchandise created with high-profile entertainers and athletes have performed exceptionally well."

The company disclosed nothing about its plans to close stores, but did say that it had reduced corporate and field staff positions by 172. It's obtained financing from secured lenders to use cash collateral for operating needs.

Some sources saw the store's emergence from a bankruptcy, either as an acquisition or a scaled-down reorganization, as a long shot.

Stevan Buxbaum, executive vice president of Buxbaum Group, an appraisal and liquidation firm, took a dim view: "Steve & Barry's is most likely a liquidation. While there's talk of Sears looking at the company and some of its assets, that's not going to happen. The reason is there's no proof that Steve & Barry's ever had a working model. The margins were too low. This was just a momentum play. The numbers never worked because there was insufficient margin to sustain the business."

According to Buxbaum, the retailer kept opening stores to sustain its high growth rate, and landlords offered advantageous lease terms to avoid the risk of empty sites. Buxbaum isn't optimistic about the likelihood of new tenants for any vacated sites because "there is no growth at retail."

The company has been criticized for lack of transparency during its recent swoon and didn't state the size of its losses. Neither was that information available in its Chapter 11 petition because Steve & Barry's hasn't yet filed a schedule of assets and liabilities. The petition did state that assets were between $500 million and $1 billion, with a similar range for its liabilities. The petition also said that the company expects there will be some funds available to pay unsecured creditors, but gave no indication of what the potential payout might be.

Among its top trade creditors were a number of landlords, including Simon Property Group of Indianapolis which, with $2.2 million owed on leases, was the fifth-largest unsecured creditor. Also making the top 30 list of unsecured creditors in the leasehold category were CBL & Associates of Chattanooga, Tenn., $1.2 million; General Growth Management Inc. of Chicago, $1.2 million, and Westfield Corp. Inc. of Los Angeles, $812,030.

Most of Steve & Barry's better-known fashion labels — Bitten by Sarah Jessica Parker, Dear by Amanda Bynes and Eleven by Venus Williams, as well as a group of TV-related brands from CBS Consumer Products — are believed to be licensed, but licensing obligations don't appear to have figured in the cash crunch. However, because these labels aren't owned by the company, there's no guarantee that they would be included in a sale.

Of particular popularity among consumers has been Bitten by Sarah Jessica Parker, launched in June 2007. Sources familiar with the Bitten label say it is owned by Parker. Requesting anonymity, an attorney familiar with the license said the line could be transferred to another licensee, a possibility in the bankruptcy, but would require Parker's approval.

Other sources with knowledge of the Bitten operations said Steve & Barry's is current in its royalty payments to Parker under the licensing agreement.

According to bankruptcy court papers, the largest unsecured creditor is Zheng Yong in Nhlangano, Kingdom of Swaziland, for $3.9 million. Other top trade creditors include: Texport Syndicate in Andheri, Mumbai, $3.3 million; Yixing City in Shanghai, $2.5 million, and Gildan Activewear in Quebec, $2.5 million.

For now, the retailer is exploring options regarding the sale of the company or selected assets to repay its outstanding debt.

Shore and Prevor added that the company has invested more in capital expenditures in the last year, but has yet to have the opportunity to "fully realize" the planned returns from those investments.

In addition, many suppliers had cut off access to service and supplies, and money the store expected to get from mall operators in some cases hasn't materialized.

"Landlords have stopped remitting contractually owed payments for construction and store opening work performed by Steve & Barry's," the co-ceo's said. "As a result of all of this, our loans have gone into default, and we have had no alternative but to file Chapter 11 to enable continued operations."

Expressing "grief and disappointment," the two also said that they had "been through 23 years of economic cycles, but we never thought it would be possible for things to change so quickly and dramatically. We brought on the best advisers and experts in the industry, but we were not able to find a solution without filing for Chapter 11 protection."

Court papers said the company hired Weil, Gotshal & Manges as its bankruptcy counsel; Conway, Del Genio, Gries & Co. as financial adviser, and Goldman Sachs Group Inc. as investment banker.

For now, all its stores will remain open with business operations functioning normally. The company's gift cards and store credits continue to be honored, and its return policies remain in place. Steve & Barry's also said suppliers will be paid under normal terms for goods and services provided after the July 9 filing date.

At last year's WWD/DNR CEO Summit, Andy Todd, president of the company, quoted basketball star Stephon Marbury as being incredulous when he saw Steve & Barry's $10 basketball shorts and $12 jerseys, prompting him to develop the Starbury Collection of inexpensive basketball sneakers and apparel in tandem with the stores.

"How do you do that?" the athlete asked about the low prices.

The market, like the athlete, is still waiting for an answer.

 

Martha Stewart Products Hit Shelves at Wal-Mart
By Shira Ovide - Wall Street Journal
July 10, 2008

Wal-Mart Stores Inc. has started selling Martha Stewart-branded craft products, as Martha Stewart Living Omnimedia Inc. leans more heavily on its licensed-products business.

In recent weeks, the majority of Wal-Mart Stores in the U.S. and Canada have started stocking Martha Stewart-branded scrapbooks, jewelry-making kits and other craft products, the media and merchandising company said Wednesday.

Martha Stewart Living collects a high-single-digit percentage of the wholesale price from the nearly 400-product line, according to a person familiar with the deal.

Shares of Martha Stewart Living fell 19 cents, or 2.7%, to $6.80 in 4 p.m. New York Stock Exchange composite trading Wednesday.

The Wal-Mart deal isn't expected to give much of a financial lift to the company's earnings right away. But Martha Stewart Living is under pressure to sign new merchandising deals, which carry higher profit margins than the company's media businesses.

What is more, the company needs to help fill the gap from a shrinking licensing arrangement with Sears Holdings Corp.'s Kmart stores.

For a decade, Kmart has sold a line of towels, cookware and other Martha Stewart products, helping generate one-fifth of Martha Stewart Living's revenue last year.

Investors worry the New York company won't be able to make up the lost revenue as the guaranteed royalty payments fall from $65 million this year to an estimated $20 million next year. The Kmart contract is to expire in January 2010.

Under retail-industry veteran Robin Marino, who heads Martha Stewart Living's merchandising business and was recently named co-chief executive, the company has ramped up a range of new licensing arrangements over the past few years. These include a collection of housewares and holiday decorations at Macy's Inc., a line of plants and gifts sold by 1-800-Flowers.com Inc. and frozen foods sold at Costco Wholesale Corp. stores. The company already sells crafts at arts-and-crafts chain Michaels Stores Inc. and at other retailers.

Bern out at Charming Shoppes
By Maria Panaritis - Staff Writer - Philadelphia Inquirer
July 10, 2008

The misfortunes and missteps that plunged Charming Shoppes Inc. into a spiral of declining profits and attacks from activist investors earlier this year extended into the chief executive's office yesterday with the resignation of embattled president and chief executive officer Dorrit J. Bern.

The $3 billion Bensalem retailer, which commands the nation's plus-size women's clothing market with its Lane Bryant, Fashion Bug and Catherine's stores, said it was parting ways with Bern only a few months after she survived a proxy fight in which she had been a target of dissidents.

Bern's departure was effective immediately, ending the onetime Sears, Roebuck & Co. executive's 13-year tenure at the helm of the company she was recruited to rescue in 1995.

Charming Shoppes tripled in size under her stewardship and Bern had been among a rare breed: One of only a handful of female chief executives in the region.

Board chairman Alan Rosskamm, 58, a former retail executive who has been on the Charming Shoppes board for 15 years, will serve as interim CEO until a replacement is found. The board has formed a search committee and hired an executive recruiter.

Rosskamm, who was named chairman at the company's annual shareholders meeting about two weeks ago, said the board "came to an understanding with Dorrit really very recently" about her departure, which he stopped short of characterizing as a forced resignation.

"The conversation's been ongoing for a short period of time," Rosskamm said, "and got finalized this week."

He said the company would search for Bern's successor "with a great sense of urgency," but added: "There's absolutely no sense of panic here at the company."

Company officials did not say whether Bern was leaving for another job. Bern was not taking interview requests from the media yesterday, said Gayle Coolick, vice president of investor relations.

Pressure to remove Bern began this year, when dissident investors Myca Partners and Crescendo Partners of New York waged a proxy fight for seats on the board.

The investors blamed Bern for company stock's losing more than half its value over the year as consumer spending slowed. They also criticized the board for what they termed high executive pay.

The company stripped Bern of some executive perks when her new, three-year contract went into effect in February.

Bern fought the proxy battle hard, suing the activists, curbing expansion plans and controlling inventory better as sales dropped.

The proxy battle ended with an eleventh-hour negotiated settlement in May. The company made room for two dissidents on the board, stripped Bern of her title as board chairman, and expanded the board so that two more members with retail experience could be added.

The company said Bern's resignation would cost Charming Shoppes between $5 million and $6 million - equal to an after-tax charge of $0.04 to $0.05 per share during the second quarter, ending Aug. 2.

Bern's resignation was not entirely unexpected given the proxy fight. The company has made a number of changes requested by the activists.

Said Philadelphia retail analyst Holly Guthrie of Janney Montgomery Scott L.L.C.: "It looks like the way the dissidents wrote the book on how they wanted things to happen, absolutely."

The company also said yesterday that Brian P. Woolf, the former chairman and chief executive officer of Cache Inc., was appointed president of Charming Shoppes' Lane Bryant brand. He replaces LuAnn Via, who resigned to join another retailer.

Company shares closed yesterday at $4.84, up $0.14 (2.98 percent) from the previous day's close on the New York Stock Exchange, but still a 56 percent decline from their 52-week high of $11.24.

Will Sears try on Steve & Barry?
Rumors of interest follow Chapt. 11 filing
By Susan Chandler - reporter - Chicago Tribune
July 10, 2008

It made its name selling $10 pairs of athletic shoes and $8 dresses, but it turns out Steve & Barry's wasn't making a profit.

The fast-growing New York retailer sought Chapter 11 bankruptcy protection Wednesday, as rumors swirled that Sears Holdings Corp. might be interested in a bailout or picking up some of its brands.

A Sears spokesman declined to comment on any potential interest, and investors were clearly put off by the prospect. Sears' shares lost almost 5 percent of their value Wednesday, falling $3.53, to $72.54 a share. But some retail experts said such an alliance could make sense for Sears Chairman Edward Lampert.

"Eddie Lampert's apparel is in chaos. Eddie Lampert needs traffic. Eddie Lampert needs a big idea. If that's what he needs, this is potentially a very big idea," said Howard Davidowitz, chairman of New York retail consulting firm Davidowitz & Associates.

Steve & Barry's mix of low prices and trendy looks has attracted hordes of shoppers who sometimes stand in line to gain entrance to its stores. The 276-store chain was started in 1985 by a pair of Long Island, N.Y., friends, Steve Shore and Barry Prevor, and in the early days, it focused on apparel with college logos at prices lower than university bookstores.

More recently, however, it got into the celebrity fashion game, signing licensing deals with Sarah Jessica Parker, Amanda Bynes, Venus Williams and Stephon Marbury. NBA star Marbury sells a line of $10 athletic shoes under the brand name Starbury at Steve & Barry's. Parker launched the Bitten apparel line in June 2007, an introduction that has "transformed our stores overnight into a destination for women shoppers," the company said.

Steve & Barry was a hit with bargain-minded shoppers. Average store sales increased 25 percent during the first five months of 2008. A better measure of success, sales at stores open at least a year, rose 15 percent. Such double-digit gains made Steve & Barry's a standout during a slow economy. But sales don't equal profits, retail experts said, and apparently the company was making more money from landlord incentives than it was from selling apparel.

Every time it opened a new store, the chain was receiving payments from landlords in the range of $2 million to $7 million, Davidowitz said.

Landlords were happy to pay such incentives to fill empty anchor spaces in malls left by the consolidation of the department store industry. But those spaces were three, four or fives times larger than Steve & Barry's original format.

"A few years ago, they used to be running stores that were 20,000 square feet," said Neil Stern, a retail consultant with Chicago's McMillan/Doolittle. "Now they're running stores that are 150,000 square feet. They went from selling licensed collegiate T-shirts to being a full-fledged competitor to Old Navy."

With larger stores came higher rents and higher utility costs. Licensing fees to celebrities and athletes also reduced margins.

The company attributed its bankruptcy filing to poor economic conditions as well as a liquidity crunch. But the privately held company was opening new stores as recently as a few weeks ago, funded in part by a $197 million cash infusion in March from the finance arm of GE Corp.

In a statement Wednesday, Steve & Barry's said it was exploring the potential sale of the company or its assets to repay outstanding debt. A spokesman declined further comment about potential options and Sears in particular.

But Steve & Barry's trip through bankruptcy reorganization may make the company particularly appealing to Sears' Lampert. He picked up a bargain in the retail bankruptcy of Kmart, paying pennies on the dollar for the discount chain's debt. He then reorganized the company, exited bankruptcy, took Kmart public again in 2003 and engineered the $12 billion takeover of Sears, Roebuck and Co. in 2005.

Since then, Lampert has proved far less adept at running a retail operation. Both Kmart and Sears have been losing market share at precipitous rates as customers migrate to stores with better prices and more cachet.

An attempt by Hoffman Estates-based Sears last year to acquire struggling home decor retailer Restoration Hardware went nowhere, as did an earlier plan to take Sears Canada private. In its first-quarter earnings release, Sears said it would be cutting its marketing expenditures for the rest of 2008 to cope with the sluggish economy.

Retailer a perfect fit for Sears, Kmart?
By Sandra Guy - Chicago Sun-Times
July 9, 2008

Could Sears Holdings Corp. lure shoppers to its Sears and Kmart stores with Steve & Barry's low-priced celebrity-sponsored clothes?

Analyst Howard Davidowitz says yes, and he believes Sears Chairman Edward S. Lampert could be just the shrewd businessman to work such a deal.

Steve & Barry's is reportedly seeking emergency financing to avert bankruptcy or liquidation after it ran into financial problems, according to reports in the Wall Street Journal and other media.

Lampert could wait until after Steve & Barry's files for bankruptcy protection -- if the retailer resorts to Chapter 11 -- and perhaps set up Steve & Barry's shops inside Sears and/or Kmart stores, said Davidowitz, chairman of Davidowitz & Associates Inc., a New York- based national retail consulting and investment banking firm.

"Steve & Barry's apparel could explode the customer count at Sears or Kmart," he said.

But roadblocks could arise with Steve & Barry's celebrity licensing deals and its $197 million asset-backed loan from General Electric Finance Corporate Lending, Davidowitz said.

A Sears spokesman declined comment.

Steve & Barry's got its start 23 years ago when Steven Shore sold university-themed T-shirts and sweatshirts near the University of Pennsylvania campus in Philadelphia for lower prices than the school's bookstore.

Steve & Barry's to File for Chapter 11
By Jeffrey McCracken and Peter Lattman
July 9, 2008

Fast-growing retailer Steve & Barry's LLC is expected to file for Chapter 11 bankruptcy protection as early as Wednesday, say people familiar with the matter, a collapse that stands to hurt everyone from Sarah Jessica Parker to the nation's struggling mall owners.

The Port Washington, N.Y., company hasn't been able to raise rescue financing in recent weeks, and is considering a plan that would sell off all of its assets. It also has been in last-minute discussions with Sears Holdings Corp., about a bailout or partial sale, say people familiar with the matter.

A filing would be painful to mall owners across the country, who ponied up hundreds of millions of dollars to attract Steve and Barry's into huge, empty spaces, often as large as 100,000 square feet. Many, and potentially all of those 275 stores could close, say people familiar with the matter. As of January, the company had between 16,000 and 17,000 employees; most of those jobs will be eliminated, people familiar with the matter say. Some vendors have already stopped shipping to the company in anticipation of a filing.

Steve & Barry's main lender is the commercial-lending unit of General Electric Co. It provided the company with a roughly $200 million credit facility in March. GE is expected to be made whole in any reorganization, though TA Associates, a private-equity firm that invested $320 million in 2006 faces far worse recovery prospects.

With fashionable clothes priced below $10, Steve & Barry's deep- discount model was built to thrive in a difficult economic environment. In a 2006 interview with The Wall Street Journal, co- founder Barry Prevor said the U.S. market could support 5,000 stores. Last year actress and fashion icon Ms. Parker made a splash launching her exclusive Steve & Barry's line Bitten with an appearance on the Oprah Winfrey Show.

But a souring economy has made this a brutal period for retailers, who are pinched by slackening consumer spending and higher transportation costs. For Steve & Barry's, which ran its operations on the thinnest of margins, these factors made it all the more difficult to survive.

People close to the company's finances say most of the retailer's earnings came in the form of one-time so-called tenant improvement payments from landlords of $2 million to $7 million per store. Mall owners likely won't recoup that money.

Founded by Barry Prevor and Steven Shore, childhood friends from Long Island, N.Y., the chain opened its first store in 1985 in Philadelphia, selling discount University of Pennsylvania apparel.

 

Charming Shoppes CEO Resigns
Amid Struggling Period for Retailer
By Mike Barris - Dow Jones Newswire
July 9, 2008

Charming Shoppes Inc. said President and Chief Executive Dorrit J. Bern has resigned, effective immediately, bringing to an end a tumultuous period during which her 13-year reign was questioned of late by some shareholders.

Chairman Alan Rosskamm will be interim CEO while the troubled women's retailer searches for a permanent replacement for Bern. Mr. Rosskam is the former Chairman and CEO of craft-store chain Jo-Ann Stores Inc. and 15-year veteran of Charming Shoppes' board.

Separately, the company named Brian P. Woolf, former chairman and chief executive of Cache Inc., as president of the Lane Bryant brand, effective immediately. Mr. Woolf succeeds LuAnn Via, who will become president and chief executive at Collective Brands Inc.'s Payless shoe chain. She will start later this month.

Mr. Rosskamm said, "Dorrit and the board agreed that now is the appropriate time for a change in leadership of the company." Ms. Bern's leadership, Mr. Rosskamm added, resulted in "the repositioning of Charming Shoppes as a multi-brand, multi-channel specialty apparel retailer, and the nation's leader in women's specialty plus apparel."

Mr. Rosskam said Charming Shoppes' priority is to "refocus our energies on our core brands -- Lane Bryant, Fashion Bug and Catherines -- and to leverage our leading market share position in women's specialty plus apparel."

The company's balance sheet and cash flows "remain strong," despite the "challenging economy," he said, adding that Charming Shoppes maintains "ample liquidity" through an unused $375 million committed bank revolving credit facility.

Costs associated with Ms. Bern's departure will lead Charming Shoppes to take a charge of $5 million to $6 million, or 4 to 5 cents a share.

The move comes two months after Charming Shoppes swung to a fiscal first-quarter loss amid slumping sales and woes at the non-core catalogs it expected to sell, as a "positive response" to spring merchandise was more than offset by lower demand for the company's core merchandise offerings.

Women's apparel retailers have been posting weak results as they struggle to sell fashions that women have not found compelling to shoppers looking to cut back on their spending amid economic woes.

In May, Charming Shoppes and a shareholder group led by hedge fund Crescendo Partners II LP ended a bitter proxy fight as they agreed to a deal under which both sides saw two of their three nominees get the company's support at its annual meeting. The investor group had been calling for the sale of non-core assets, cost cutting and slower store expansion.

A restructuring announced in February involves the closure of nearly 150 underperforming stores and Charming Shoppes' Petite Sophisticate chain, in addition to a 30% cut to the company's fiscal-year capital budget. In April, the company announced further plans to explore strategic alternatives for its non-core catalog titles in order to focus on its core brands.

Bankrupt Steve & Barry's of interest to Sears?
By Susan Chandler - staff reporter - Chicago Tribune
July 9, 208

It made its name selling $10 pairs of athletic shoes and $8 dresses, but it turned out Steve & Barry's wasn't making a profit.

The fast-growing New York retailer sought Chapter 11 bankruptcy protection Wednesday as rumors swirled that Sears Holdings Corp. might be interested in a bailout or picking up some of its brands.

A Sears spokesman declined comment on its potential interest, but some retail experts said such an alliance could make sense for Sears Chairman Edward Lampert.

"Eddie Lampert's apparel is in chaos. Eddie Lampert needs traffic. Eddie Lampert needs a big idea. If that's what he needs, this is potentially a very big idea," said Howard Davidowitz, chairman of New York retail consulting firm Davidowitz & Associates.

No one knows better how to pick up a bargain in a retail bankruptcy than Lampert, he added, referring to Lampert's takeover of Kmart Corp. for pennies on the dollar five years ago.

But Lampert has proved far less adept at running a retailer since Kmart engineered the $12 billion takeover of Sears, Roebuck & Co. three years ago. Both Kmart and Sears have been losing marketshare at precipitous rates as customers migrated to stores with better prices and more cachet.

In a statement Wednesday, Steve & Barry's said it was exploring "the potential sale of the company and/or its assets, to repay outstanding debt." A spokesman for the company declined further comment about potential options and Sears in particular.

Sears talks of Steve & Barry's bailout: reports
Associated Press - Chicago Business
July 9, 2008

Steve & Barry's LLC, once a growing force in low-priced fashion retailing, said Wednesday that it filed for Chapter 11 bankruptcy protection, the latest merchant to succumb to a harsh consumer spending climate.

The Port Washington, N.Y.-based retail chain also announced that it was considering selling all or some of its assets to repay outstanding debt. The Wall Street Journal and New York Times reported Tuesday that it had been in discussions with Sears Holdings Corp. as recent as this past weekend over a possible bailout.

"What Sears may end up doing is buying some brands," George Whalin, head of California-based Retail Management Consultants Inc., told Crain's. But "this is two really poor companies trying to get together and we've already seen that's not a good concept in any way, shape or form.”

Howard Davidowitz, head of retail consultancy Davidowitz & Associates Inc., disagrees, saying involvement by Sears may be smart.

"Would the Kmart (and Sears) customers go crazy for this?" he said. "They might because customers are already pouring out of secondary locations to buy this fashion merchandise (that's under $10). That's why I say this is a potentially big idea."

A Sears' spokesman said the company doesn't comment on rumors or speculation.

Steve & Barry's, which operates 276 locations in 39 states, said that it and 63 of its affiliates filed the petition in the U.S. bankruptcy court for the Southern District of New York.

Company officials blamed a cash crunch as a result of the tighter credit markets and general sluggish economic conditions. That hurt its plans to open stores and its ability to borrow money.

"The generally poor environment for apparel retailers has reduced funding to our suppliers, landlords and to our company," Steve Shore and Barry Prevor, co-founders and co-CEOS, said in a statement. "It has become increasingly difficult for us to continue operating normally