The Equal Employment Opportunity
Commission said Sears Roebuck & Company had agreed to a $6.2 million
settlement in a case under the Americans with Disabilities Act. A
federal court judge approved a consent decree in the case, in which
Sears was accused of firing employees instead of providing
reasonable accommodations for them.
In a statement, the commission said
the settlement was the largest ever among the disability-related
cases it had handled. Agency lawyers said they had found more than
100 cases of Sears employees who sought to return to work with an
accommodation and were fired.
A spokeswoman for Sears, Kimberly
Freely, said that although the company “continues to believe that it
reasonably accommodates” employees on leave because of work-related
injuries or illnesses, it settled the case because the legal
proceedings could have taken another five years and “considerable
expense” to resolve.
Facing a Christmas without a new
blockbuster gadget to excite shoppers, electronics retailers hope
they can make up the difference by selling a greater number of
smaller, cheaper items.
As they fight grim forecasts that
sales this holiday season will be as bad as last year's, leading
electronics sellers Best Buy Co., Wal-Mart Stores Inc.,Sears
Holdings Corp. and RadioShack Corp. are counting on merchandise such
as $300 netbook computers, private-label speakers and
electronic-book readers to appeal to customers who have put thrift
at the top of the list.
"The frugality trend is still the
overriding sentiment out there," said Jin Chang, the Best Buy
executive charged with predicting shoppers' mindset. "Consumers are
willing to spend money, but they want value."
The weak economy looms large, but two
other trends also are working against electronics manufacturers and
merchants. The first is that most Americans who lusted for laptops
or flat-panel TVs earlier this decade have already bought one,
giving retailers the harder job of persuading them to upgrade to a
new one or buy additional units.
The second is that this year's new
electronics offer largely incremental technology, such as Internet
capability in flat-panel TVs. That contrasts with recent Christmas
seasons, when fresh devices such as Nintendo Co.'s Wii videogame
console and Apple Inc.'s iPhone created a buzz that boosted the
entire retail sector.
As a result, industry experts expect
companies will try to maintain sales and profits with promotions
such as buy-one-get-one-free specials, and by pushing add-ons such
as installation services and home network devices that help
electronic components talk to one another.
"The fact is that with most of these
products, people already have one," said Stephen Baker of market
researcher NPD Group. "In this environment, retailers are scuffling
trying to get customers to buy another."
Wal-Mart believes shoppers will
eagerly embrace lower-priced electronics such as videogame consoles
now that Sony Corp., Microsoft Corp. and Nintendo have each cut
system prices in recent weeks. But it will take a lot of $300 gadget
sales to make up for fewer sales of pricey HDTVs, and not everyone
thinks that is going to happen. Consultancy Retail Forward last week
forecast that holiday sales, including electronics, would be the
second worst in 42 years.
A key exception may be the burgeoning
market for electronic-book readers, which have finally started to
garner mainstream interest this year thanks toAmazon.com's Inc.
Kindle device. But even there, falling prices offer little help to
retailers.
Convinced that more people would buy
the gadgets if they could see them in person, Richfield, Minn.-based
Best Buy is making an aggressive push for e-reader sales by
launching new store sections that let customers try out $200 to $400
competitors to the Kindle, which is sold only at Amazon.com.
RadioShack is expanding its
private-label electronics lines in hopes of burnishing sales and
profits. The Fort Worth, Texas-based retailer is selling 7-inch
portable LCD televisions for $199 under its new Auvio electronics
line. In November it plans to debut a new, slim, high-definition
camcorder for $179 under another private-label line called Gigaware.
It is also focusing on practical add-ons such as wireless speaker
systems that connect to an iPod.
"We think budget-conscious shoppers
will be looking for great deals this holiday season rather than one
big ticket item," said a RadioShack spokeswoman.
To be sure, electronics sellers are
still highlighting cutting-edge devices, such as ultrathin LED
televisions for $2,000 and up. But retailers say that value-priced
electronics are likely to be the big focus, and some analysts
believe manufacturers may be holding back some products until the
consumer mood brightens. The Journal reported in August that Sony
was delaying the rollout of next-generation Organic LED televisions
due to concerns about potential losses.
While product makers are tempering
their electronic extravagance, many believe consumers are ready to
upgrade now that prices have dropped.
Bob Perry, executive vice president
of Panasonic Corp.'s Panasonic Consumer Electronics Co., said he
expects strong demand for TVs, digital cameras and Blu-ray videodisc
players. Many brand-name Blu-ray players now retail for less than
$200, and discounters such as Wal-Mart have priced some below $99.
Laynie Newsome, co-founder of HDTV
marketer Vizio Inc., said the Irvine, Calif., company has high hopes
for its first Internet-enabled model rolling out this fall. It
contains a slide-out keyboard and Yahoo software that allows
picture-in-picture display of services including movies from
Blockbuster on Demand. The 47-inch model will cost about $1,700.
Karen Austin, vice president of home
electronics at Sears, said that while Sears and its Kmart unit are
offering plenty of lower-priced electronics for budget-conscious
shoppers, such as digital picture frames, the retailers are seeing
plenty of interest in more expensive holiday gifts.
Electronics are the most popular
items in Kmart's layaway program, she noted, citing the new pink
Nintendo DSi handheld gaming system. Like Best Buy, Sears, of
Hoffman Estates, Ill., is also focusing on e-readers and plans to
carry three models, including a pink Sony device that highlights
breast cancer awareness.
"You will definitely see a lot of
customers focused on value, but there's a significant group of
customers who are techies and want the latest thing," Ms. Austin
said. "There is still a lot of innovation going on."
(Crain’s) — Sears Roebuck & Co. has
agreed to pay $6.2 million to settle a federal lawsuit that claimed
the retailer violated the Americans With Disabilities Act by firing
disabled employees instead of accommodating them on the job.
The settlement, approved Tuesday by a
federal judge, is the largest obtained by the U.S. Equal Employment
Opportunity Commission for a single suit, the agency says. Sears
does not admit any guilt as part of the settlement.
“This will provide relief to a lot of
people,” said John Hendrickson, a regional attorney for the EEOC.
“People are going to get some monetary compensation for the
discrimination they suffered.”
Sears Holdings Corp., the parent of
Sears Roebuck, said in a statement that it chose to settle the suit
“because the factually intense nature of the case would take quite
some time and considerable expense” to litigate.
“Despite the settlement, Sears
continues to believe that it reasonably accommodates its associates
on leave due to work-related illnesses or injuries under the
Americans With Disabilities Act,” the company said in the statement.
“We have always proceeded and will continue to proceed in good faith
when considering and making reasonable accommodations for our
associates.”
The EEOC suit, which sought
class-action status, was filed in November 2004 in federal court on
behalf of John Bava of Barrington and other employees. Mr. Bava took
workers compensation leave after being injured on the job, but he
says he was fired at the end of his one-year leave and his attempts
to return to work were never accommodated.
Mr. Bava said he learned he had lost
his job “for medical reasons” when he called Sears’ corporate
offices to determine why his employee discount card was rejected
during a store purchase.
The EEOC claimed in its suit that
Sears’ workers comp leave policy was inflexible and that it violated
the Americans With Disabilities Act by failing to work with disabled
employees.
The settlement also requires Sears to
amend its workers’ comp leave policy and train its employees in
American With Disabilities Act compliance.
“I’m very happy with it,” Mr. Bava
said of the settlement.
A February hearing has been scheduled
to determine how the $6.2 million will be distributed.
Fort Worth, Texas — RadioShack's
chief merchandising officer Peter Whitsett has left the company to
pursue other interests. According to an 8-K report filed with the
Securities and Exchange Commission, Whitsett's duties will be
temporarily assumed by various members of the chain's senior
management while it launches an executive search for a permanent
successor. RadioShack chairman/CEO Julian Day brought Whitsett
aboard nearly two years ago from Sears Holdings, where he had been
responsible for the retailer's general merchandising businesses.
Whitsett had risen through the ranks at Kmart, where Day was
president and later CEO prior to its merger with Sears.
His departure follows the launch this
summer of a new rebranding campaign for RadioShack. Day told
investors at a Goldman Sachs retail conference earlier this month
that he is turning his attention to other areas of the business now
that its financial and operational functions have been strengthened.
Aeropostale Inc., a multichannel
retailer of apparel for children and young adults, has appointed
Mindy Meads, a former executive of Victoria’s Secret and Sears, and
former Brooks Brothers executive Thomas Johnson as co-CEOs to
succeed Julian Geiger when Geiger leaves the top executive spot at
the end of January 2010.
Aeropostale, No. 156 in the Internet
Retailer Top 500 Guide, also promoted executive vice president and
chief financial officer Michael Cunningham to president and chief
financial officer, also effective at the end of January, which marks
the end of the company’s current fiscal year.
Geiger, who has been Aeropostale’s
CEO since 1996, will keep his position as chairman of the board.
Meads joined Aeropostale in March 2007 as president and chief
merchandising officer. Before Aeropostale, she was president and CEO
of Victoria’s Secret Direct, the Victoria’s Secret online and
catalog division of Limited Brands Inc. Earlier, Meads held senior
executive positions at Lands’ End and parent Sears Holdings Corp.,
including president and CEO of Lands’ End and executive vice
president of Sears Apparel. Meads is also a former senior vice
president, merchandising, design, planning and allocation, for
children’s apparel retailer Gymboree Corp. and a former senior vice
president of apparel for R.H. Macy & Co., now a part of Macy’s Inc.
Johnson has been executive vice
president and chief operating officer of Aeropostale since March
2004, and for three years before that was senior vice president and
director of stores. Prior to joining Aeropostale, Johnson was
director of stores for David’s Bridal Inc. and, earlier, senior vice
president and director of stores for Brooks Brothers Inc. He had
also held several executive positions at Aeropostale before joining
Brooks Brothers in 1997.
Cunningham, who is a certified public
accountant, joined Aeropostale in 2000 as senior vice president and
chief financial officer. Earlier, he was chairman of Compass
International Services Corp., a business services company he
co-founded, and held several executive positions at financial
services provider American Express Co.
Aeropostale operates the retail web
sites Aeropostale.com and ps4u.com, plus 940 Aeropostale stores in
the U.S. and Canada and nine P.S. from Aeropostale stores in the
U.S.
William Edward LeRoy, age 80, of
Lincolnshire, IL, returned home to the Lord on Sept. 18, 2009, after
a courageous battle with kidney cancer. He was born on Aug. 14, 1929
in Detroit, MI to Theodore and Gladys (Finney) LeRoy.
A 1947 graduate of Mackenzie High
School, he retired from Sears Roebuck & Co. after 42 faithful years
of service. He was a merchandise manager (Men's) in the Chicago
Group, sales promotion manager and then store manager in Dundee, IL.
He passionately added his energy and
expertise to many community service activities, especially at
Sedgebrook Retirement Community.
Beloved husband of 60 years to Mary
Ellen (Roth) LeRoy, Lincolnshire; loving father of Deacon Michael
(Mary), Algonquin, IL, Kathleen (Michael) Dorsch, Royal Oak, MI, and
Douglas (Bonnie), Kennesaw, GA, and daughter-in-law Jorjean Londdn,
Flower Mound, TX; cherished "Bapa" of William (Kristen), Christopher
(Melissa), Michelle (William), Kristie, Matthew, Katie, Melissa,
Bradley (Brittani), Mark, Kevin; great-grandfather of James,
Kathleen, Jacob, Regan, Julia, William, Jenna; dear brother to
Theodore James (Betty), the late Robert (Virginia) LeRoy,
brother-in-law, the late Robert (Betty) Roth; and numerous nieces
and nephews.
Visitation 3 to 8 p.m., Sunday, Sept.
20, at Wenban Funeral Home, 320 E. Vine Ave., Lake Forest, IL 60045,
(corner of Vine and Western), and from 10 to 11 a.m., Monday, Sept.
21, prior to the 11 a.m. Funeral Mass at St. Patrick's Church, 950
W. Everett Rd., Lake Forest, IL 60045. Contributions may be made to
the Kidney Cancer Foundation, P.O. Box 3516, Oak Brook, IL or to the
Benevolent Fund at Sedgebrook, 800 Audubon Way, Lincolnshire, IL
60069. Info.: Wenban Funeral Home, 847-234-0022.
Williams Charles Kunkler III
bought 20,000 shares of the retailer.
IT'S NO SECRET THAT Sears Holdings
(ticker: SHLD) has been struggling to draw the crop of returning
retail consumers into its stores. Analysts say the company has lost
relevance, but at least one insider is showing his commitment to its
turnaround, buying $1.3 million in stock.
William Charles Kunkler III, a Sears
director, bought 20,000 shares for $65.60 on Sept. 16. After the
purchase, Kunkler owned 24,700 shares, up from 4,700, but still far
less than one percent of Sears' outstanding shares.
Year-to-date, Sears shares are up
70%, far better performance than the 11% decline for Wal-Mart Stores
(WMT) and significantly topping the 40% gain for Target (TGT).
Shares are still trading 35% below their 52-week high in September
2008Kunkler is executive vice president for operations of CC
Industries, a Chicago private-equity firm focused on manufacturing
companies and real-estate investments. He was appointed to the Sears
board on Sept. 15, and the purchase likely relates to his position
Sears doesn't have ownership
requirements for directors, but its proxy statement says the company
"believes that it is important to align the interests of directors
with those of our stockholders, and therefore encourages each
director and director nominee to own shares of our common stock in
an amount that is meaningful to that individual."
A spokeswoman for Sears declined to
comment on the stock purchase.
Sears has a strong culture of insider
ownership; billionaire investor Eddie Lampert, who serves as
chairman, owns more than 50% of the company's stock.
The company, which owns Sears and
Kmart stores, is the leading home-appliance retailer and has had
significant market share in tools, lawn and garden care, home
electronics and automotive repair and maintenance. It is known for
its proprietary brands, including Kenmore, Craftsman, DieHard and
the apparel label Lands' End.
Its contract for the Martha Stewart
Everyday line of products -- one of the few bright spots for Kmart
-- is set to expire in January.
In August, Sears reported a surprise second-quarter loss as
same-store sales tumbled 13%. Analysts had expected it to report a
profit.
W. Bruce Johnson, Sears' interim
chief executive officer and president, said in a statement released
at the time that the company was taking actions to increase the
efficiency of its operations and had reduced selling and
administrative expenses by approximately $1 billion over the past
four quarters.
Lon Juricic, president of StreetInsider.com, says Kunkler's purchase
isn't good timing, but rather a sign that he sees ownership as one
of his obligations as a director.
"Ultimately it's a positive. The
directors are aligning their interests with those of the
shareholders," he says. "That being said, Sears really needs to get
their stores in line and hope that the consumers start coming back."
Gregory Melich, an analyst with
Morgan Stanley, doesn't see that happening anytime soon. He rates
Sears at Underweight.
The company has among the lowest-productivity per foot in its
industry, Melich wrote in a recent research report. And even its
cost-cutting measures have not staved off continued comparable-sales
declines. This makes sustainable profitability less likely unless
something fundamental changes.
"Sears Holdings is a weak retail
asset. Both Sears and Kmart have secularly lost share and struggle
to maintain consumer relevance," he wrote.
Citigroup Inc. Chief Executive Vikram
Pandit said Wednesday he expects the bank to eventually divest its
entire stake in Morgan Stanley Smith Barney LLC.
In June, the New York bank formed a
joint venture with Morgan Stanley that includes Citigroup's Smith
Barney brokerage businesses. Mr. Pandit said Citigroup "anticipates"
Morgan Stanley's power to amass full ownership of the combined
operation "will take us out of our remaining 49% stake."
Speaking at a Barclays conference in
New York, Mr. Pandit wouldn't disclose whether delinquencies and
losses from soured loans at Citigroup improved in the third quarter
or give a timetable for repaying Troubled Asset Relief Program
funds.
"Unfortunately for us, Citi was on
the forefront of much of what went wrong, and our losses were
substantial as a result," Mr. Pandit said. Still, he added, "this is
a different company than it was 18 months ago," noting that
Citigroup has "turned the corner" on key issues, including capital.
After the financial crisis ebbs,
Citigroup will generate industry-leading returns, Mr. Pandit said.
Citigroup aims for an annual return on assets of 1.25% to 1.5%.
Mr. Pandit is continuing his push to
get rid of businesses and assets separated earlier this year into
the Citi Holdings unit. The unit has agreed to sell Nikko Cordial
Securities and Nikko Asset Management in Japan and will likely
strike a deal for its Japanese call-center operations next month.
Among U.S. assets of Citi Holdings are the credit cards Citigroup
issues for retailers Sears Holdings Corp. and Macy's Inc., which the
bank intends to sell, according to a person familiar with the
matter. CitiFinancial and Primerica are some of the largest units
Citi Holdings will eventually divest itself of.
"The creation of Citicorp and Citi
Holdings reflects our strategy to refocus the company on our
greatest strength: our global institutional and consumer banking
businesses, while exiting noncore businesses and reducing risk
assets," a Citigroup spokeswoman said. "Citi continues to make
progress on its strategy."
It's been less than a month since Wal-mart
(WMT) launched their own third-party marketplace to much fan-fare.
Wednesday, I was tipped off by a reader that noticed the text: "Are
you a merchant? Sell your item on Sears." while shopping on
sears.com.
The text+link is down now, but it is
in Google cache and points to www.searsmarketplace.com which is live
as of this writing. We were able to ascertain quite a bit about the
forthcoming system from the help files and other documentation.
In this post we'll look at both the
buyer-experience and the seller-experience. First, I wanted to put
this in perspective. According to Internet Retailer's top 500
retailer list, Wal-mart is ranked number 14 with $1.7b in GMV. Sears
Holding corp (SHLD) (sears/kmart/landsend/etc.) comes in quite a big
higher at number 7 with $2.7b in GMV - a good 60% greater than Wal-mart.
So while Sears doesn't have the offline cachet that wal-mart does,
in the on-line world, sears holding is considerably larger than wal-mart.
That was a long way of saying that this is actually a bigger deal
than the Wal-mart announcement.
Buyer-experience
I poked around on the buyer-facing
site and didn't find any live third-party merchants, but you can
clearly see how this will work as it appears Kmart (part of the
Sears Holding family of ecommerce sites) uses the 3P platform to
'sell' on sears.com.
In this screenshot, I've added three
red circles. The first on the left shows that for most search result
pages there is a list of the stores selling for that term. Then for
the first two products you can tell that the name of the merchant
(sears and kmart in this example) are now denoted vs. everything
being sold just by Sears (first party). Thus, this site appears to
be pretty well developed and interesting because it not only will
allow Sears to on-ramp third parties, but they can now on-ramp their
multiple first-parties.
Seller-experience
Unlike Wal-mart, the Sears
Marketplace (SMP) appears to be an open marketplace where anyone can
sign up. There are two different ways a merchant can work with SMP:
• CPC - Cost Per Click - I wasn't able to see examples of this
program, but my assumption is this is like Amazon's ProductAds
program. • FBM - Fulfillment by Merchant - Like Amazon's merchants@
program, FBM allows the merchant to upload products and then
basically receive orders to fulfill. Also unlike Walmart, Sears has
published their rate card: (click to enlarge)
On the surface this looks pretty rich
compared to Amazon (AMZN) in some categories, but generally at
parity/cheaper in most (CE for example). Above is a screen shot of
the merchant dashboard. It's very simple, but gets the job done with
three tabs: • Products - Under this tab the merchant can upload
their inventory, update quantities/price and download the catalog. •
Orders - In this tab, the merchant is able to download a flat file
with all of the orders to ship for a given time period. • Account
Settings - Where the merchant changes billing, payment settings and
what-not. While there aren't many bells and whistles, the system
provides the basics that any merchant large or small would need to
get started. Conclusion: Another entrant in the Marketplace Wars As
we predicted in the Wal-mart marketplace post, there are going to be
a LOT more marketplace options for buyers and sellers hitting the
streets in the next 2-12 months. We'll keep you posted on any new
developments.
Disclosure: I am long Amazon
and Google. I am CEO of ChannelAdvisor where eBay is a minor
investor.
HOFFMAN ESTATES, Ill., Sept. 15
/PRNewswire-FirstCall/ -- Sears Holdings Corporation (Nasdaq: SHLD)
announced today the election of William C. Kunkler, 52, executive
vice president - operations of CC Industries, Inc., a private equity
firm focused on manufacturing companies and real estate investments,
to membership on the Sears Holdings board.
"We are pleased to add the strong
business acumen and experience of William Kunkler to our board of
directors. As Sears Holdings continues the work of transforming and
strengthening our company, we look forward to his leadership and
contributions," said Chairman of Sears Holdings, Edward S. Lampert.
Mr. Kunkler has served in a number of
other officer positions with CC Industries, an affiliate of Henry
Crown and Company, since 1994. He has over 30 years of manufacturing
industry experience. In addition, Mr. Kunkler is a director for
Envestnet Asset Management Inc., a financial services company, and
NIBCO Inc., a manufacturer of valves and fittings.
Within the Chicago area, Mr. Kunkler
serves as a director of the Northwestern Memorial Foundation; a
trustee and Chairman of the Board for the Brookfield Zoo, a trustee
of The Field
Museum of Natural History and a trustee of Loyola
University.
Woman slips and falls on vomit at
Sears store CHICAGO (STNG) -- A woman is suing Sears for negligence,
claiming she slipped and fell because vomit and paper towels were on
the ground at the Chicago Ridge store in July.
Glinda Bridgeman claims she was
injured in the incident and that Sears Brands, LLC. was negligent
for failing to maintain the floor and remove dangerous objects,
according to the suit filed Tuesday in Cook County Circuit Court.
Bridgeman was in the television
department at the store, 6501 W. 95th St. in Chicago Ridge, when she
slipped and fell due to the vomit, and paper towels that were placed
on it by an employee of Sears, the release said.
The suit states Sears was negligent
for failing to warn customers of the presence of vomit and paper
towels on the floor, and allowing the dangerous objects on the floor
where customers walked.
NEW YORK (AdAge.com) -- It's been a
rough few years for Sears Holdings, even before the recession took
hold and consumers fled stores. Cut budgets, fierce competition and
management shifts all have dogged the organization's flagship
retailers, Sears and Kmart, which continue to fight to prove their
relevance to consumers.
Same-store sales were down 13% at
Sears and 4% at Kmart in the last quarter. And Sears Holdings'
annual advertising budget was cut from $2.2 billion in 2007 to $2.1
billion in 2008.
Meanwhile, Chairman Eddie Lampert, a
self-made billionaire investor who had been anointed as the next
Warren Buffet, has proven to be an endless source of fascination.
Plenty are keen to see how his grand experiment -- the retail novice
took over Kmart in 2003 and purchased Sears in 2004 -- will turn
out.
Still, the retail giant keeps
kicking, making $46.8 billion in sales last year at its 3,900
stores. And the recession has diffused the spotlight, as other
retailers grapple with slowing sales.
"A lot of things are coming together
at the right time to help us succeed," said Richard Gerstein, senior
VP-marketing at Sears Holdings, adding that Sears' appliance
division has gained market share in the past four quarters, after 27
quarters of declines. "There are a lot of fundamental issues that we
are fixing."
One priority is tightening up core
brand propositions for Sears and Kmart. The organization has been
retooling marketing programs to focus on integrated content plays
and digital assets, Mr. Gerstein said, such as Good News Now, a
Sears and AOL collaboration that delivers uplifting news, and
KmartDesign.com, which houses profiles of Kmart designers. Y&R,
Chicago, handles Sears' creative, while DraftFCB handles creative
for Kmart. MPG is responsible for media buying at both retailers.
Mr. Gerstein, who reports to W. Bruce
Johnson, interim president-CEO, says Kmart is the choice for smart
consumers on a budget, while Walmart is for those customers shopping
only on price, and Target is for those who care about being hip.
While that view may be overly simplistic, Kmart has been attracting
media attention and new customers, thanks to recession-friendly
programs such as layaway and Smart Assist, which is being tested in
Michigan and offers 20% off private brands to the unemployed.
Such programs reflect a
test-and-learn culture Mr. Gerstein -- an Alberto Culver Beauty and
Procter & Gamble alum who spent a year as CMO of Sears before being
tapped for the top marketing post last summer -- is implementing.
Mr. Gerstein also has used the
recession to take a tougher stand with media partners and agencies
-- "we're leveraging our scale, which we have a lot of, to challenge
our external partners to deliver more for less" -- as well as
implement back-office technologies to drive organizational
efficiency, and seek out top talent.
In an interview with Advertising Age,
Mr. Gerstein talked about why cutting $94 million from his budget
isn't that big of a deal, why recession-friendly advertising is more
reflective of core brand positioning rather than a reaction to the
economy, and why the Sears store experience isn't as bad as critics
say.
Ad Age: At Sears, you're all
things to all people. You compete with Home Depot and Lowe's but
also JCPenney and Macy's. Doesn't that split your focus?
Mr. Gerstein: We look at it as
an opportunity. Sears can either run from being a general
merchandiser or embrace it. Are we going to carry everything in
store? No. But when you go online, you'll find not just more and
more depth within categories but more and more new categories.
Ad Age: How do you keep Sears
relevant moving forward?
Mr. Gerstein: If you look at
how we're going to market, we are under the concept of "Life. Well
Spent." We have a very strong hard-lines campaign called Sears Blue
Crew, which is growing the business. And we're going to have a
soft-lines campaign that you'll start to see coming out in spring
and summer.
Ad Age: Store experience is
something critics always point to as a cause of Sears' and Kmart's
image problems. Is that something that's being addressed?
Mr. Gerstein: It's an overused
excuse, frankly. I go into lots of different stores. What makes a
Costco a great-looking store? What makes a Walmart a great-looking
store? These things aren't dramatically beautiful by any means. We
are looking to improve our stores. But we're focused on the 80% of
our stores that look good. Sometimes when your businesses are soft,
those fundamental issues are overplayed by people as the reason for
a lack of success.
Ad Age: Sears and Kmart have
traditionally been big spenders in measured media. How is your media
buy evolving?
Mr. Gerstein: We are very
aggressively shifting our assets to either mass media that we think
is more equity building and relationship building or media where we
can build a more targeted one-on-one relationship with customers.
Examples would be Good News Now for Sears and KmartDesign.com. Those
are both content plays.
Ad Age: You're showing a
willingness to experiment, which means you're bound to fail
sometimes. Is that acceptable?
Mr. Gerstein: Absolutely.
There's a lot of patience for trying things, though doing it smartly
and managing the financial risk associated with it. If you go back
three or four years, what we were doing wasn't driving the results
we wanted. So we need to be trying new things.
Ad Age: Your $2.2 billion
advertising budget has been cut, though, by $94 million last year
alone. Are you able to have the same impact with less money?
Mr. Gerstein: Yes. If you look
at our working dollars our money is flat to up. What we've been
doing is really leveraging our scale, which we haven't done in the
past. And we're using technology to remove inefficient spend, as
well as negotiate better rates for the same assets. I'm able to
negotiate my media at a dramatically lower rate for the same gross
rating points. I'm able to negotiate with a newspaper who
distributes my circular and get them to distribute exactly what they
did before for less money.
Ad Age: Do you expect that
after the recession you'll see that money come back?
Mr. Gerstein: Nothing would
make us happier than to double the marketing budget. Part of the
reason you saw some of the reductions over the last year is because
we weren't using technology to optimize [our buys], we weren't
bringing [to the table] the right programs to invest in. I don't
care whether I'm up 10% or down 10%, what I care about is if my ROI
is improving.
Ad Age: Some are saying that
we're nearing the end of the recession or even that it's already
over. What sense do you get from your customers?
Mr. Gerstein: There is a
fundamental shift in how the American consumer is thinking about
what they buy moving forward. Even when the economy recovers, it
will be different. [Right now] it's still tough. Unemployment is
still increasing. We're focused on helping the family with things
like layaway.
Ad Age: You're charging ahead
with recession-friendly advertising. At what point do you start to
tone down some of that messaging, or do you?
Mr. Gerstein: If you look at
our advertising, it's not, "Hey there's a recession; come shop with
us." It's about our core brand positioning. Because of our business
situation, we've really tightened that up in the last year. But it's
more about us as a company as opposed to a reaction to the economy
Jeff Matthews says it's over for
Sears (SHLD). Eddie Lampert is a genius (really), but he wasn't
smart enough to bring in a guy who knew how to run a national
retailer. And now it's too late:
Peter Gorenstein, TechTicker:
The long awaited turnaround story at Sears may never happen. Why?
Because reclusive hedge fund impresario and Sears Holding Corp.
Chairman Edward Lampert doesn't know to run a retail business, says
Jeff Matthews of hedge fund RAM Partners.
After Sears posted a surprise quarterly loss, a Barron's report on
August 24 stated the stock could fall another 50%. Lampert shot back
with a letter claiming the article was "inaccurate" and "biased."
Matthews says facts are facts: Shopping at Sears remains a
lackluster experience, five years after Lampert bought the company
and merged it with Kmart. "They've totally lost touch with the
American consumer," says Matthews, who has no position in Sears
stock.
Here's what bothers him about Lampert's management of the once
fabled retailer: • Lack of investment in stores. "The stores are terrible;
they don’t look any better than they did five years ago. In fact,
they look worse." Matthews notes Wal-Mart spends tens of billions a
year on stores, while Sears is spending about $200 million. That's
no way to compete.
• No retail expert at the helm. For more than 18 months, Sears has
had an "interim" CEO, Matthews notes. Until they hire someone more
permanent with retail know-how they're doomed, he says. "I kept
waiting for five years: when is he going to hire the guy? Never
happened."
Will it ever?
Henry Blodget is CEO &
Editor-in-Chief of The Business Insider.
Sept. 11 8:50 AM
Nothing new here. Any consumer will tell you, there's no help in the
stores except tools, their website is a mess, and they can actually
refer you to another retailer when they don't have something.
Senses said:
Sep 11, 9:22 AM
This Jeff Matthews guy needs to get a life. Another hedge fund
manager criticizing how a company is run. From what I remember Sears
is doing well and this article is just an empty piece at nothing.
This guy probably wants to drive down the stock so he can take a
position. Shame on you!!!
Doctor K said:
Sep 11, 9:44 AM
From an small time insiders view of the stores I am amazed that they
micro-manage the weekly staffing on the floor without regard for the
current level of sales. Their in-store technology is extremely slow.
I don't pretend to have the answers but I've made these observation
as an associate.
StM said:
Sep 11, 10:19 AM
I used to shop at Sears all the time, but they never have what I
want any more and their website, as was mentioned, is a joke - buggy
and unreliable. And while the clerks, when I can find one, are
usually willing to find out if another store has what I want, they
won't even try to use the in-store tech to do it. As one of them
told me to my face, most of the time it doesn't work and when it
does work it gives answers which can't be relied upon.
I saw this first-hand last year when
my wife wanted a particular exercise treadmill. After going to two
stores which the "system" said had it and finding none (although to
be fair perhaps the employees were just incompetent) I started
calling around myself with the SKU and requesting that the employee
go and look to see if it was really there. This was NOT an
inexpensive piece of equipment, and it's not like there should have
been a lot of shrink on it! But their system didn't even know how
many they had, let alone where they were.
Neil Patel said:
Sep 11, 10:43 AM
Wonderful reporting Henry. I visit the site daily and read just
about everything published. You have the makings of a great
investigative journalist. Keep up the good work and I hope to read
more interesting stuff.
JAS said:
Sep 11, 10:48 AM
I think it's hard to make sweeping statements about 4000 stores &
$44 billion in sales. I've been to some Sears & Kmart that look
fantastic with great customer support, and I"ve been to some that
leave a lot to be desired. I think that Jeff Mathews is right about
one thing...Lampert needs to get a CEO in there that bleeds blue for
them...Sears blue that is. Still there are interesting things
happening at Sears...the locally owned stores is a great model for
them...website has greatly improved...market share in appliances
continues to grow....solid balance sheet..etc. I think they have the
stores, the brands, the balance sheet, etc. they need a leader to
drive the culture there....
SS said:
Sep 11, 11:05 AM
@ Jas
Some good observations. In addition I have the impression that the
downturn is bringing back some customers to Sears. The Sears Master
Card Award program is great and they still have some other trump
cards going but I agree they need a retailer to make it all work. If
there is another leg down to the economy, Sears should pick up
share, people think of them as low, cost basic retailer.
SS
Joe said:
Sep 11, 11:39 AM
Sears has too many issues to count. They have been a dying company
for well over a decade and will not be missed in their current form.
They've been living off of the remnants of their once thriving
catalog business model and have been unable to adapt and keep up
with Lowes, Home Depot, Costco, Walmart, and Kohls
Joe said:
Sep 11, 11:49 AM
Sears had a bit of an advantage when their Kenmoore appliances and
Craftsman tools were on top. As the quality of those has waned,
there's been a significantly reduced driving force to go to Sears.
Now, some of the best refrigerators
are from Samsung, LG, Amana, etc. No need to go to Sears for those.
Some of the best tools are from Snap and there are plenty of others
offering a lifetime "craftsman-esque" warranty. Again, no need to go
to Sears. Expertise on the power tools is severely lacking --->
might as well go to Home Depot or to the local True Value hardware
store.
The Barron's Aug. 24 article that
discusses Sears and ESL Partners was misleading, inaccurate, and
poorly researched. Without responding to each inaccuracy, I want to
correct some of the more important misstatements and address the
overall negative bias in the presentation of facts.
First, let me be clear, as I have
been in my recent letter to shareholders: the performance of the
company is not where I would like it to be. The executive team and
associates of Sears have all been hard at work in attempting to
change this performance in an environment that has been less than
friendly to the entire retail industry. At the same time, contrary
to the theme of the article, we have made some important progress in
2009. During the first half of this year we amended and extended our
revolving credit facility through 2012 and we improved our Adjusted
Ebitda by 9% over last year's first half. By contrast, most of our
major competitors saw a decrease in their Ebitda performance. In
addition, during the year-to-date period through August 21, 2009,
our stock price increased 70%, outperforming all of our large
competitors.
Turning specifically to the article,
the author [Jonathan R. Laing] begins by rehashing much of the
speculation surrounding the merger of Kmart and Sears that was
generated by so-called industry experts and analysts. During 2006
and 2007, several analysts' reports speculated about value inherent
in the company that was significantly above the trading value of the
company at the time. Those reports were neither encouraged nor
generated by our company and the author of the current article cites
his own reporting from two years ago that argued for such
significant "hidden value." Having set up the situation with such
speculation, many of these same analysts and commentators then
proceeded to criticize us for not being able to deliver on the
speculation or the values that they themselves created.
The Use of Ebitda as a Performance
Metric: The author emphasizes that Sears likes investors to
focus on a "number of its own confection" called adjusted earnings
before interest, taxes, depreciation and amortization (Ebitda). Any
sophisticated reader will recognize that Ebitda is not some made up
metric that we invented out of thin air but rather one that is used
as a metric of performance by countless companies and industries. In
fact, we use this number for internal management and for
compensation purposes (adjusting it for special charges and items we
believe are non-recurring), and I would think that it is appropriate
to describe our results in those terms for investors and analysts
who care about how we are measuring the operating performance of the
business. Your criticism of this measure is surprising both because
we place GAAP (Generally Accepted Accounting Principles) accounting
numbers first in our press release and also because the parent
company of your publisher, News Corporation, highlights a non-GAAP
financial metric called "Adjusted Operating Income" in the title of
its own earnings releases. In addition, among our largest retail
competitors, Home Depot, J.C. Penney, Macy's and Best Buy report
similar non-GAAP adjusted operating metrics in their press releases.
The Value of Disclosing Special
Charges: Analysts are free to evaluate the "special charges" as
they wish. We have broken them out to highlight the results from
operations as opposed to the results from items that are not
expected to repeat like the litigation win in the second quarter of
2008. We follow the same convention as J.C. Penney regarding
breaking out and adjusting for our legacy domestic pension expense
to promote operating performance comparability and because reported
pension expense has no bearing on pension funding. No company can
disclose absolutely everything, but the way we disclose our
information gives analysts an opportunity to make their own
judgments using these measures or to ignore them.
The Cash Flow Impact of Store
Closings: The author also emphasizes that there will be "a lot
more red ink" because the company has so many under-performing
stores that will need to be closed. We have been and will continue
to evaluate the performance of under-performing stores. We base our
decisions related to store closures on the cash flow as opposed to
the accounting impact. We expect that closings of unprofitable
stores, if any, will generate cash (as they have historically), even
after including all costs of closing the stores such as severance,
and will eliminate ongoing losses from operations. So, the assertion
in the story about how any future store closings will bleed the
company is just not consistent with reality or historical precedent.
Our Measured Approach to Cost
Cutting: Another misleading feature of the article is the
exaggeration of the extent of our cost cutting in an attempt to make
it appear that what we are doing is somehow extreme or unproductive.
What we have done at Sears is prioritize our spending, both in terms
of capital and expenses, in areas that we believe will contribute to
future profitability and competitiveness, while reducing and
reallocating certain expenses that those who are more conventionally
focused might disagree with. Our performance and the performance of
many other companies would be significantly worse had we not been
disciplined about our expense management and, following the author's
logical conclusion, had we not cut costs or had we actually
increased our spending.
The Ability to Extend our Credit
Agreement: With respect to our credit agreement extension, the
author asserts that the amended and extended credit agreement has
"onerous terms compared with its predecessor." While it is true that
the new credit agreement is less favorable than the prior one, this
is a reflection of many factors and is true of almost every company
not eligible for TARP funding or debt guaranteed by the FDIC
associated with such funding. In fact, the Sears revolver is one of
the largest transactions completed in the market over the past year
and is a reflection of the confidence of our financial partners as
well as the substantial asset base of the company. The accordion
feature in the agreement provides the company with the ability to
increase the size of this secured facility by $1 billion. This
feature provides a significant potential benefit to the company, and
the agreement by the lenders to allow for this feature reflects
their recognition that the facility is substantially
over-collateralized given the very significant inventory underlying
the facility.
The ESL Partnerships: The
depiction of what the author, in language disparaging both to my
partners and to ESL itself, describes as an attempted "jail break"
continues the article's theme of inaccuracy and bias. How and from
whom he got that information is unknown to me (he references other
hedge fund investors) and the lack of accuracy describing the
situation is obvious to anybody who knows the actual details.
Last fall, during the market
meltdown, I initiated an amendment to the partnership agreement when
it became clear that a performance provision, which had never before
been triggered, might result in a request (not a requirement) for
redemptions that could undermine the long-term commitment that was
and is the basis on which my partners invest with me. My partners,
both new and longer term, were strongly supportive of the change and
overwhelmingly approved the amendment. In fact, even if the
amendment had not been approved, the provision was never triggered
-neither at the end of 2008, nor in the first two quarters of this
year.
Finally, while Sears Holdings is a
large and important investment for ESL, its proportion of the
overall portfolio is substantially less than the over 50% referenced
in the article. My track record as an investor and as a partner is
clear to those who know me, and I take great pride in the long term
relationship I have with my partners.
While I am sure that skepticism and
criticism of the company and our approach will continue, at least
until such time as it becomes more clear that our transformation is
gaining traction from a customer and financial viewpoint, I would
hope that Barron's would base any criticism on the facts and present
a balanced and fair analysis of the situation.
Edward S. Lampert
Chairman of Sears Holdings,
Chairman and CEO of ESL Investments
Hoffman Estates, Ill.
Jonathan R. Laing replies:
Edward Lampert may favor adjusted Ebitda for Sears Holdings, but
it's a misleading number since, as a mature company, Sears has to
pay the taxman, meet interest payments and invest in its huge asset
base of stores. Moreover, special items like store closing costs and
pension fund contributions are now hitting the income statement on a
recurring basis. Free cash flow is the superior measure; on that
score, Sears is losing ground, even after chopping maintenance
capital spending. Sears was emphatically more than half of his hedge
fund as of the date we cited, according to his own 13-F SEC filing
in the fall of 2007.
NEW YORK (Reuters) - In a letter to Barron's, Sears
Holdings Corp (SHLD.O) Chairman Edward Lampert defended the retailer
from what he called an inaccurate and biased report in the August 24
edition of the paper.
The billionaire was responding to a
report that suggested Sears stock could fall 50 percent after
extreme cost-cutting depleted its ability to generate cash flow
needed to win back market share from rivals.
"The article exaggerates the extent
of our cost-cutting in an attempt to make it appear that what we are
doing is somehow extreme or unproductive," Lampert said, adding
Sears is prioritizing spending and "reducing and reallocating
certain expenses that those who are more conventionally focused
might disagree with."
The chairman also defended an amended
credit deal, an amended partnership agreement related to his hedge
fund ESL Investment Inc, as well as possible store closings, which
he said will generate cash and eliminate ongoing losses from
operations.
The article was "misleading,
inaccurate and poorly researched," Lampert said in the letter,
published in Barron's September 7 edition, which also defended
Sears' quarterly reporting of "special charges" and "adjusted
earnings before interest taxes, depreciation and amortization," or
EBITDA.
Jonathan Laing, who wrote the
article, said in a reply on the same page that free cash flow is the
best measure of the company's performance, on which score "Sears is
losing ground."
Sears shares are down 15.4 percent
since the company reported a surprise quarterly loss on August 20,
which dampened hopes Lampert could turn the company around. The
shares closed at $62.38 on Friday.
(Reporting by Jonathan Spicer;
Editing by Marguerita Choy)
Donald P. Gustafson,
1925-2009:
Retired Sears exec who strove to help the disabled Key in raising
money for Over the Rainbow Association By Trevor Jensen -
reporter - Chicago Tribune
September 4, 2009
Taking early retirement in 1983,
Donald P. Gustafson put the sales and marketing skills perfected in
34 years with Sears, Roebuck and Co. to work for a group that
provides housing for the disabled.
Mr. Gustafson led efforts by the Over
the Rainbow Association to transform an old hospital in Evanston
into apartments for residents that would include his son Robert,
born in 1961 with an array of issues that left him deaf, unable to
speak and in a wheelchair.
Mr. Gustafson, 84, died of prostate
cancer on Sunday, Aug. 30, at his home in Chicago's Lakeview
neighborhood, said his daughter Mary Ann King.
The Over the Rainbow Association was
started in 1974 by a group of parents who wanted to ensure that
their disabled children had a place to live after they were too old
to take care of them.
Like other parents of their
generation, Mr. Gustafson and his wife had been frustrated with the
services available for their son. They had taught Robert, mentally
alert despite his severe disabilities, to read at home before he was
accepted into a public school when he was 12.
Over the Rainbow's first building was
at Halsted Street and Belden Avenue in Lincoln Park. In 1984, with
Mr. Gustafson leading the way, the association embarked on a plan to
create 33 apartments in the former Evanston Community Hospital.
Mr. Gustafson leveraged his contacts
in business and put together a fundraising plan that resulted in the
Hill Arboretum Apartments, where technological assistance like
chairlifts allows Robert Gustafson and his neighbors to live
independently.
"He didn't build a home for Bob. He
built a home for people like Bob," King said.
With help from his daughter Nancy
Gustafson, Mr. Gustafson started a December fundraising concert that
is now in its 20th year and has raised as much as $600,000 annually.
Over the Rainbow today manages 128
units in buildings around northern Illinois, including the Gustafson
Apartments in Waukegan.
"He brought so much attention to what
we were trying to do," said Eric Huffman, the association's
executive director. "He was really the standard-bearer for the
organization."
Mr. Gustafson grew up in Evanston
where his parents, immigrants from Malmo, Sweden, settled after
working on farms in the Midwest. His father was a church organist.
After graduating from Evanston
Township High School and spending two years stateside with the Army
Air Forces, he studied music at Northwestern University. He married
the former Susan Warner.
A buyer for several departments at
Sears, Mr. Gustafson was for many years in charge of buying
televisions, first from American firms and later from Japanese and
Korean manufacturers. There was a TV in every room of his Evanston
home, including the bathrooms, his daughter said.
"He had to test them," she said.
Mr. Gustafson got a job for his son
at Sears, and Robert worked at the company for 17 years. It was one
of many ways Mr. Gustafson and his wife worked to make sure their
son got the most out of life despite his limitations.
"That gave him a cause, and he
stepped up to the challenge," King said. "He and my mom used to say
that every family has challenges, but every family also has
resources."
In addition to his wife, son and two
daughters, Mr. Gustafson is also survived by another son, David;
three grandsons; and two great-grandsons.
Services are set for 2 p.m. Friday in
St. James Episcopal Cathedral, 65 E. Huron St.
Wal-Mart Stores Inc., the nation's largest private
employer, is eliminating paper payroll checks in the U.S.,
transferring workers' earnings to a debit card if they decline
direct deposit to a bank.
Wal-Mart is the biggest company yet to make the move that it said
will save paper and money. It estimates the move will save 257,572
pounds of paper a year. It declined to specify the savings but said
the shift will reduce its payroll costs.
Government agencies such as the
Social Security Administration have recently begun using similar
cards to dispense payments to benefit recipients.
Some Wal-Mart workers last month
received earnings electronically in the form of credit to a
MasterCard Inc. debit card. All the company's more than 1.4 million
U.S. workers at Wal-Mart and Sam's Club warehouse will be paid
electronically by month's end, it said. About half of its U.S.
workers now receive paper checks.
Though the debit cards save companies
money by reducing payroll costs, consumer advocates have criticized
some card programs, noting that workers are often charged fees to
access their money or even check balances.
MasterCard, however, said it agreed
with Wal-Mart to offer some of the lowest fees available among such
cards, and noted that many workers already pay fees for cashing
checks. It said employees' first ATM transaction a pay period is
free; subsequent ones cost $2 each.
Laura Kelly, senior vice president of
global prepaid cards at MasterCard, said the arrangement benefits
both companies and workers, who "won't have to go to stores to pick
up their paychecks anymore."
Workers will be able to use the cards
wherever debit cards are accepted, including at ATMs, and will be
able to withdraw cash without fees at Wal-Mart and Sam's club
registers.
In addition, Wal-Mart workers can
receive checkbooks that they can use to write checks on their debit
accounts to baby sitters and others who don't accept MasterCard. The
workers will still be able to access electronic pay stubs if needed.
With a new e-commerce executive
firmly in place and having made-over all three of its e-commerce
sites, Charming Shoppes Inc. is taking definitive steps to grow its
Internet channel, CEO James P. Fogarty told analysts on the
company’s recent second quarter earnings call.
The web sites–LaneBryant.com,
FashionBug.com, and Catherines.com–were overhauled to give their
core online customers, plus-sized women, a better and more
personalized shopping experience. “The new online stores represent
fresh and upgraded e-commerce platforms to support our core brands,”
Fogarty told analysts. “The new e-commerce platform delivers many
state-of-the art features, including improved navigation, better
product presentation, personalized wish lists that can be retained,
and an improved checkout process, all of which we hope will propel
us in our quest to increase our Internet conversion and our
e-commerce penetration.”
The online makeovers are paying off,
he said. Charming Shoppes, No. 98 in the Internet Retailer Top 500
Guide to Retail Web Sites, doesn’t typically break out quarterly
e-commerce sales. But for the first six months of the year:
• Web sales increased slightly by 5.1% to $41.0 million from $39.0
million in the prior year.
• Total sales for the first two quarters declined 17.8% to $1.06
billion from $1.29 billion.
• Combined comparable store sales declined 14%.
• Charming Shoppes posted a loss net of $1.6 million compared with a
net loss of $57.5 million for the first two quarters of 2008.
• The web accounted for 3.9% of total sales in the first two
quarters compared with 3.0% in the prior year.
“Our objective is to provide an
improved online customer experience which will result in increased
sales conversion and higher e-commerce penetration,” Fogarty said.
In addition to overhauling its
e-commerce sites, Charming Shoppes in July announced that Bill Bass
would permanently accept the job as president of the company`s
Charming Direct division. Bass, the former head of direct channel
sales at Sears, Roebuck and Co. and senior vice president in charge
of e-commerce at Lands’ End before it was acquired by Sears, had
been serving as president of Charming Direct in an interim capacity
since February.
Charming also hired two veteran
e-commerce directors to oversee daily operations: Lisa J. Batra,
formerly the executive in charge of marketing for Lowes.com, as
director of e-commerce for the Fashion Bug brand, and Kimberly
Aylward as director of e-commerce for Catherines.com. Aylward
previously spent 12 years at Garnet Hill Inc., where she most
recently was director of web merchandising and cross-brand business
development.
“We are focused on increasing our Internet business across all of
our brands,” Fogarty told analysts.
Stores at Woodfield mall, Irving Park
Road part of national pilot for full-service beauty counters
Next time you are in a Sears store
looking for a refrigerator or set of tires, you also may be able to
pick up some lipstick and wrinkle-repair cream.
Sears Holdings Corp. is bringing back
the cosmetics business, eight years after getting out of the
category in a high-profile flip-flop. The retailer is opening
full-service beauty counters at 13 Sears stores in Chicago, New York
and Los Angeles this week, banking that the high-margin cosmetics
and skin-care business can give Sears a much-needed profit boost.
The goal is to roll out the beauty
business to 100 Sears stores next year and, if all goes well, expand
to as many as 400 locations by 2012, Andrea Goldner, divisional
merchandise manager for cosmetics and fragrance at Sears, said in an
interview. Hoffman Estates-based Sears operates 852 department
stores in the United States.
"There is absolutely an opportunity
for beauty products at Sears," Goldner said. "The time is right to
get back into that business."
The pilot is the latest in a wave of
new concepts Sears has been testing -- from a drive-through general
store to free-standing appliance boutiques -- under the direction of
majority shareholder, hedge fund manager and Chairman Edward Lampert.
Beauty products are thought to be
recession-proof. Cosmetics, skin care and fragrances are selling
better industrywide than other discretionary items, such as apparel,
said Karen Grant, vice president of beauty and global industry
analyst at NPD Group, a Port Washington, N.Y.-based market research
firm.
Mass merchants and drugstores
including CVS, Walgreens, Wal-Mart and Target have been beefing up
their beauty offerings to appeal to cost-conscious shoppers coping
with the economic downturn. At the same time, specialty retailer
Ulta Salon is adding showcase stores, and Sephora is expanding its
outposts at J.C. Penney. Even fast-fashion clothing store Forever 21
announced plans to get into the beauty business later this year.
"Of the industries to get into, it
seems to be a bit more stable," Grant said. "It could be a good
venture for them if they could execute it, which they've had trouble
with in the past."
Sears eliminated the beauty business
in 2001 under former Chairman and CEO Alan Lacy as part of a broader
effort to peel away poorly performing businesses. The exit was less
than graceful.
Just weeks before the company was set
to launch a partnership with Avon Products Inc. inside scores of
Sears stores, it decided to abandon the cosmetics business
altogether, leaving only some fragrance and bath products. The
last-minute decision cost Sears a settlement fee with Avon that led
to a $53 million charge to quarterly earnings.
Sears has been in and out of the
beauty business for decades. The business grew to a reported $125
million in the 1970s before fading in the 1980s. The retailer got
out of cosmetics in the mid-1980s only to return with an in-house
brand called Circle of Beauty in 1995, developed with former Lancome
USA President Pierre Rogers.
Goldner worked at Sears during the
Circle of Beauty years. She pegged part of the problem with the old
program to the lack of brand-name recognition. This time, Sears is
carrying nationally recognized and specialty brands, including
L'Oreal, Maybelline, CoverGirl, Rimmel, Lumene and Burt's Bees.
Sears also will be the exclusive U.S. retailer for Yves Rocher
botanical products.
In addition, the new Sears beauty
business will differ from its rivals by mixing mass-market prices
and displays with department store service inside a mall, Goldner
said. Taking a page from drugstores and discounters, products are
displayed on open shelves instead of behind glass counters. Like
department stores, beauty advisers are trained on the products and
earn commission. A limited selection of beauty products will be
available to sample in the stores.
Sears will carry additional products
online, including more than 3,000 fragrances. If shoppers don't find
the product at the store, they can order online from a kiosk inside
the 3,000-square-foot beauty department.
Sears' latest beauty makeover has
been in the works for the past 18 months. Goldner had been in charge
of Kmart's beauty department until last year when she turned her
attention to the Sears project. Kmart already has a self-serve
cosmetics aisle and won't be part of the Sears program, Goldner
said.
The Chicago-area pilot stores are
located at Woodfield mall in Schaumburg and on Irving Park Road on
Chicago's Northwest Side. There are seven pilot stores in the Los
Angeles area and four in the New York metropolitan market.
Last week, Sears posted a surprise
second-quarter loss as sales declined faster than the retailer could
cut costs. Sears has been closing dozens of stores, mostly Kmarts
and free-standing Sears Essentials stores, over the past year. And
the retailer has been looking for ways to make remaining stores more
productive.
"The challenge is that both Sears and
Kmart aren't particularly relevant," said Ted Hurlbut, a retail
consultant at Hurlbut & Associates in Foxboro, Mass. "But at least
they're active. They're trying to see what categories they can carve
a space for themselves."
Sears Holdings Corp. is testing a
return to the cosmetics business, a department store mainstay it
exited eight years ago.
The Hoffman Estates-based retailer
plans to open full-service beauty counters at 13 Sears stores in
Chicago, New York and Los Angeles this weekend and offer the
products online. The Chicago-area stores are located at Woodfield
Mall in Schaumburg and on Irving Park Road on Chicago's northwest
side.
The cosmetic counters will employ
trained beauty consultants and carry a mix of cosmetics, skin care,
bath and body and fragrance products brands including L'Oreal,
Maybelline, CoverGirl, Calvin Klein, Rimmel and Burt's Bees. Sears
is also the exclusive U.S. retailer for Yves Rocher botanical
products.
The pilot is the latest in a wave of
new concepts Sears has been testing -- from a drive-through general
store to freestanding appliance boutiques -- under the aegis of
majority shareholder and Chairman Edward Lampert.
Sears eliminated the beauty business
from its department stores in 2001 under former Chairman and CEO
Alan Lacy as part of a broader effort to peel away poor performing
businesses. It continued to sell some fragrance and bath products in
about half of its stores.
Mass merchants and drug stores
including CVS, Walgreen, Wal-Mart and Target have been beefing up
their cosmetics offerings lately to appeal to cost-conscious
shoppers coping with the economic downturn.
Last week, Sears posted a surprise
second-quarter loss as chronically declining sales weigh on the
company's future.
Millions of older people face
shrinking Social Security checks next year, the first time in a
generation that payments would not rise.
The trustees who oversee Social
Security are projecting there won't be a cost-of-living adjustment
(COLA) for the next two years. That hasn't happened since automatic
increases were adopted in 1975.
By law, Social Security benefits
cannot go down. Nevertheless, monthly payments would drop for
millions of people in the Medicare prescription drug program because
the premiums, which often are deducted from Social Security
payments, are scheduled to go up slightly.
"I will promise you, they count on
that COLA," said Barbara Kennelly, a former Democratic congresswoman
from Connecticut who now heads the National Committee to Preserve
Social Security and Medicare. "To some people, it might not be a big
deal. But to seniors, especially with their health care costs, it is
a big deal."
Cost-of-living adjustments are pegged
to inflation, which has been negative this year, largely because
energy prices are below 2008 levels.
Advocates say older people still face
higher prices because they spend a disproportionate amount of their
income on health care, where costs rise faster than inflation. Many
also have suffered from declining home values and shrinking stock
portfolios just as they are relying on those assets for income.
"For many elderly, they don't feel
that inflation is low because their expenses are still going up,"
said David Certner, legislative policy director for AARP. "Anyone
who has savings and investments has seen some serious losses."
About 50 million retired and disabled
Americans receive Social Security benefits. The average monthly
benefit for retirees is $1,153 this year. All beneficiaries received
a 5.8 percent increase in January, the largest since 1982.
More than 32 million people are in
the Medicare prescription drug program. Average monthly premiums are
set to go from $28 this year to $30 next year, though they vary by
plan. About 6 million people in the program have premiums deducted
from their monthly Social Security payments, according to the Social
Security Administration.
Millions of people with Medicare Part
B coverage for doctors' visits also have their premiums deducted
from Social Security payments. Part B premiums are expected to rise
as well. But under the law the increase cannot be larger than the
increase in Social Security benefits for most recipients.
There is no such provision for drug
premiums.
Kennelly's group wants Congress to
increase Social Security benefits next year, even though the formula
doesn't call for it. She would like to see either a 1 percent
increase in monthly payments or a one-time payment of $150.
The cost of a one-time payment, a
little less than $8 billion, could be covered by increasing the
amount of income subjected to Social Security taxes, Kennelly said.
Workers only pay Social Security taxes on the first $106,800 of
income, a limit that rises each year with the average national wage.
But the limit only increases if
monthly benefits increase.
Critics argue that Social Security
recipients shouldn't get an increase when inflation is negative.
They note that recipients got a big increase in January -- after
energy prices had started to fall. They also note that Social
Security recipients received one-time $250 payments in the spring as
part of the government's economic stimulus package.
Consumer prices are down from 2008
levels, giving Social Security recipients more purchasing power,
even if their benefits stay the same, said Andrew Biggs, a resident
scholar at the American Enterprise Institute, a conservative think
tank.
"Seniors may perceive that they are
being hurt because there is no COLA, but they are in fact not
getting hurt," Biggs said. "Congress has to be able to tell people
they are not getting everything they want."
Social Security is also facing
long-term financial problems. The retirement program is projected to
start paying out more money than it receives in 2016. Without
changes, the retirement fund will be depleted in 2037, according to
the Social Security trustees' annual report this year.
President Barack Obama has said he
would like to tackle Social Security next year.
Michael Duke is the president
and CEO of Walmart, which has more than 8,000 stores and 2.1 million
employees around the world.
Have you seen changes lately in
consumers’ buying habits?
This difficult economy has caused families across America to change
their spending patterns. So, for example, parents still want to take
good care of their babies, but at the end of the pay cycle when
money is short, they buy a very small pack of diapers. When they get
paid, they come back and buy the economy pack. We’re also seeing
many people who might not have shopped with us before. We believe
that consumer behavior has shifted permanently. Everyone wants to be
smart about how they spend.
What’s your best-selling item? Bananas are the number-one food item around the world. Whenever
I visit a store, I check the price to make sure ours is the lowest.
As the nation’s largest private
employer, what would you like to see happen with health-care reform?
We believe that every American should have access to quality,
affordable health care. We’re proud of the coverage we offer all of
our associates, and we’re actively involved in the reform debate.
The health-care system should have a focus on information technology
that enhances efficiency, and there needs to be a way to guarantee
cost savings. We also think there should be incentives for employees
to maintain healthy lifestyles.
Four years ago, Walmart announced
plans to conserve energy and reduce waste. Are environmental goals
still a priority? Yes. In fact, I want it to be an even bigger priority for us to
use renewable energy, to reduce waste, and to put environmentally
friendly products on the shelves for our customers. It’s very
practical for us.
Operating a more efficient truck
fleet, for example, is good for the environment and keeps prices low
for our customers. And products like energy-efficient lightbulbs
help customers save on utility bills while being more
environmentally responsible in their own lives.
Yours is one of only two companies
whose stock price rose on the Dow Jones Industrial Average last
year. What are you doing differently from everybody else?
It goes back to Sam Walton, our founder, who built this company and
created a culture based on saving people money. We also have cleaner
stores, better service, and a better assortment than our
competitors.
That combination is leading to new
customers whom we’ll keep when the economy improves.
Walmart already has more stores
than any other retailer. Are you still growing?
Our greatest opportunities are ahead of us, not behind us. We can
serve more customers in more places across this country. Outside the
United States, we’re really just beginning. It doesn’t matter if
it’s mature markets like the U.K. and Canada, where we have very
good success, or emerging markets like China or Brazil. Customers
want to save money and live better, and we want to serve them.
EVER SINCE 2005, when hedge-fund star
Edward Lampert began running Kmart and Sears, many have eagerly
waited for him to work his magic.
The veteran investor, whose ESL Investments' RBS Partners Fund now
controls 55% of Sears Holdings , the combined operation, espoused
cost cuts as a sure-fire way to improve profitability. Redundant
stores would be shuttered. Inventories would be carefully calibrated
to sales. Only the most profitable products would be nurtured and
featured. And if his plans didn't pan out, Lampert would liquidate
the old retailers, stores and all, for unimaginable values. At
least, that's how the script read. The dream, even in the absence of
strong financial results, proved so beguiling that the stock soared,
from around $100 a share to more than $190 by April 2007. And even
after Sears crashed and burned over the following two years, pulling
the stock down to around $30 both last fall and this March, true
believers weren't deterred.
This summer, after the stock roared
past $75 on a stronger-than-expected first-quarter report, the
Lampert claque crowed that the all-important gross margins were on
the mend and that Eddie had his mojo back. Thus, Thursday's
announcement that Sears Holdings had lost $94 million in the second
quarter hit Wall Street like a massive bunker-busting bomb. The
stock (ticker: SHLD ) tanked nearly 12% that day, to 65. It ended
the week at about 66.
Analysts scurried to trim their estimates and to heap gratuitous
scorn on Lampert. Gary Balter of Credit Suisse, for example,
entitled his earnings note "Put A Fork In It," while dropping his
estimate for the current fiscal year, which ends next January, to 64
cents from $1.45. And next year's estimate sits at $1.03, making
Sears' forward price/earnings ratio an absurd 63.
The second quarter was horrible in any number of respects. Despite
heavy cost-cutting, sales dropped even faster. Sales at the old
Sears U.S. stores fell a disastrous 12.5%, year over year.
Comparable sales at stores open at least a year slid 8.6% when Kmart
and Sears Canada (in which Sears has a 73% stake) were included.
The prospective closing of 28 stores cost the company $61 million in
severance and various reserves. With at least 400 other
poor-performing stores among Sears Holdings' 3,900, a lot more red
ink from closings is coming.
LAMPERT AND HIS HEDGE-FUND partners are backed into a blind alley
that affords no escape. The cost-cutting has been so extreme at
Sears that it can no longer generate the cash flow to mount a
turnaround. Nor can the company borrow at the level necessary for a
revival. Sears seems faced with the sad prospect of continuing to
lose market share to more aggressive rivals such as Wal-Mart Stores
(WMT), Lowe's (LOW), Target (TGT), Home Depot(HD) and Kohl's (KSS)
-- and watching its earning power dwindle.
Sears' stock could fall by as much as 50% as the problems drag on.
Morgan Stanley analyst Gregory Melich has a "base case" number of
$35. The breakup scenario, for example, would be difficult if not
impossible to pull off. There's no financing for retail-real-estate
deals. Mall owners are already choking on vacant space.
The agonies of Sears are of vital
importance to the investors in Lampert's hedge fund since the stock,
even after falling from its peak, still accounted for more than half
the value of the once $14 billion fund. The fund's performance
numbers are hard to come by. Several investors tell Barron's that
Lampert makes his partners sign stringent confidentiality
agreements. But we did learn that some investors who had joined the
fund in the summer of 2007 attempted a jail break in November 2008
when Sears had sunk to just 25% or so of its value when they signed
on, but Lampert was able to snuff the rebellion. (Lampert failed to
return our call seeking an interview.)
Sears likes investors to focus on a number of its own confection
called adjusted earnings before interest, taxes, depreciation and
amortization. A measure of all the cash the businesses throw off, it
not only excludes pesky interest, tax, depreciation and amortization
that normal Ebitda does, but eliminates special charges like those
related to pensions and store closings. This, of course, represents
the profitability of Sears Holdings in an ideal, parallel universe
bereft of any frictional costs like those of paying the tax man. By
this measure, Sears seems to be spewing cash -- $2.5 billion in
fiscal 2007 and $1.6 billion in its latest fiscal year, ended Jan.
31, 2009.
But in the real world according to GAAP, cash generation is starting
to dwindle badly at the big retailer. For one thing, the largely
ignored special charges now seem to recur each quarter with
metronomic regularity, thus punishing earnings. Sears is staring at
a pension shortfall of $1.7 billion that has resulted in charge-offs
of $42 million in each of the first two quarters of this year; and
there are further pension obligations of about $100 million this
year and up to $325 million next year. Likewise, future
store-closing costs are likely to exceed those that have produced
charge-offs totaling $155 million over the past four quarters, given
the number of poorly performing stores in the huge Sears empire and
the lugubrious environment of retail real estate.
All of this is apparent when one computes another measure of Sears'
financial health -- the free cash flow that the retailer has
actually generated over the past three years, after deducting
capital spending from the net cash provided by operations. It's not
a pretty picture, despite the boast of bulls that Sears Holdings, in
normal circumstances, is a money machine throwing off a billion
bucks a year for Eddie Lampert to do with what he will.
In fact, Sears produced $495 million in free cash flow in 2008, down
from $977 million in 2007 and $920 million in 2006. And the
company's cash flow is bound to be stunted this year and next, given
the U.S. consumer's straitened circumstances. Moreover, of the $1.2
billion in cash and equivalents carried on the Sears balance sheet
at year-end 2008 (Jan. 31 of this year), $663 million belonged to
its 73%-owned Sears Canada unit, whose shares trade in Toronto under
the ticker SCC. Thus, that cash is beyond Lampert's reach.
THERE ARE SIGNS THAT CASH problems are beginning to pinch the
parent. Perhaps most important, since taking over Kmart in 2003 and
merging it with Sears in early 2005, Lampert has consistently
scrimped on capital spending and advertising.
He argues -- to some, persuasively -- that he's running the company
to maximize profit and cash flow and not to compete against the
likes of Target, Kohl's, Wal-Mart, Lowe's and Best Buy (BBY) in
rolling out new stores and frequently upgrading store formats.
Yet Lampert seems to be starving his company, driving away customers
with frequently uncompetitive pricing, inattentive service and
increasingly shabby facilities. One need only look at the chart on
this page comparing the quarterly sales of stores open at least a
year at Sears to a blend of comp sales from Wal-Mart, JCPenney (JCP),
Kohl's and Target and quarterly nominal gross domestic product going
back to 2004's first quarter. (The Sears numbers include both Sears
and Kmart on a pro forma basis, even though the pair didn't tie the
knot until 2005.)
Sears Holdings consistently trails the pack and the general economy
in both good times and bad. So, even when the economy finally revs
up, Sears isn't likely to enjoy the rebound as much as its
competitors will.
The danger in milking the stores is that a retailer can pass a point
of no return, in which falling sales trump tight cost controls and
profitability goes into irreversible meltdown. Some analysts see
Sears Holdings inevitably facing that fate down the line.
Morgan Stanley's Melich argues that Sears' capital spending falls
far short of what is needed just to maintain current levels of
business and market share, let alone expand them. Just to stay even,
he contends, a retailer must invest in technology, keep its stores
and parking lots spruced up, advertise properly and close or open a
number of stores equal to about 2% or so of its total outlets
annually, to adjust to shifts in its customer base.
BY THESE MEASURES, SEARS falls
dramatically short.
In a recent report, Melich estimates that the company is making only
"maintenance" capital expenditures of about $2 a square foot, while
Lowe's, Target and Wal-Mart are spending $6 to $8 a square foot.
"The way Sears has been under-spending implies continuing loss of
market share and declining cash flows," Melich insists.
For some time after the 2005 merger of Sears and Kmart, Sears
Holdings stock enjoyed a "Lampert premium" because of the hedge-fund
manager's towering reputation. After all, Lampert had been
christened "the next Warren Buffett" in a now-embarrassing Business
Week cover story in the fall of 2004. Sears Holdings was deemed to
be Lampert's Berkshire Hathaway, a vehicle he could use for further
takeovers and the canny investment of excess cash.
By 2006's second half, that thesis seemed credible. Margins were
improving at the old Sears, the stock price had heft and in that
year's third quarter, Lampert even scored a $101 million gain by
investing excess company cash in total-return swap derivatives. That
fall, Deutsche Bank analyst William Dreher called Lampert "one of
the greatest investment minds of our time" and dubbed Sears "The
Working Man's Hedge Fund."
But that scenario soon came a cropper. Lampert lost $27 million on
the swaps in 2006's fourth quarter and an additional $21 million in
the company's first quarter of 2007. Then the derivatives program
went radio silent. Of greater moment, Sears stock began a relentless
slide after topping out above $190 in April 2007. In fits and
starts, it kept sagging until it fell below $30 in November 2008.
Lampert fought hard to halt the slide, particularly in the summer of
2007, when his ESL hedge fund was in the midst of raising $3 billion
of new money from investors and Sears Holdings made up more than
half of its $14 billion portfolio. A falling stock price was hardly
good for marketing. Sears share buybacks hit a crescendo in the
second fiscal quarter (May through July) when the company bought
$1.5 billion of stock at an average price of $153.52. In the
following quarter, it repurchased $888 million in shares, at an
average price of $131.72.
Last year, the situation at ESL became more dire. For not only was
Lampert getting smoked in Sears, but a number of other positions
he'd established in financial stocks were getting toasted. He was
torched for a nearly $1 billion loss on an ill-timed bet on
Citigroup, and he lost around $300 million on Fannie Mae after
investing in the home-mortgage giant just weeks before the
government seized it last September.
ESL has long insisted that those investing in it agree to lock up
their money for five years. However, according to several hedge-fund
sources, the partnership agreements also let investors cash out if
the fund should slide more than 50% from its value on the date of
their original investment. Many investors who'd signed up in the
summer of 2007 had suffered such a loss. Yet Lampert avoided being
forced to redeem their shares by having the hedge fund's investors
vote on a provision to alter the partnership agreement. In the vote,
his original investors used their comparatively larger interest to
force the change on the newbies.
For many investors, the ultimate value of Sears resides in its
liquidation value rather than the cash flow it can generate as a
going concern. Much hidden value is seen in its valuable brands,
like Kenmore, Land's End, Craftsman and DieHard, and the 73%
interest in Sears Canada. A major holder "conservatively" estimates
the retailer's breakup value at about $75 to $100 a share. (A
confession: In an Oct. 22, 2007, article in Barron's, I surmised
that there might be more than $300 a share in hidden value in Sears
stock.)
Given the recent performance of the company and the agonies of the
U.S. consumer and credit markets, these sum-of-the-parts estimates
have plummeted. In a May report, Morgan Stanley's Greg Melich came
up with a value of $33 a share. Last week, he said that the new
value would be somewhat but not dramatically higher when he releases
his latest calculations in the next few weeks.
Nonetheless, the entire exercise is somewhat academic, according to
Melich. Sears, for example, couldn't dump all its 250 million square
feet of retail space without destroying the values of retailing
properties for years to come. Likewise, who knows when shell-shocked
mall-owning real-estate investment trusts and once-expansion-minded
rivals like Target, Kohl's and Lowe's will be buying again,
particularly with the current glut of space on the market and the
drying up of mortgage financing. And the Kenmore, DieHard and
Craftsman brands (but not Land's End) are so closely identified with
Sears that it's difficult to ascribe much value to them if they are
offered independent of Sears.
LAMPERT SEEMS TO BE running out of bullets. Profits are waning. The
stores continue to deteriorate. He has little to show for the more
than $5 billion in stock buybacks at Sears, since most were struck
at prices far above the current level. Even though the first-quarter
buybacks were done at an average price around $41 a share and the
second-quarter stock purchases at $54.87, the company mustered only
$134 million in the effort. In comparison, during 2007's second
quarter, the big retailer spent $1.5 billion to buy back stock at
$153 a share.
In May, Sears was able to roll over its credit lines when some
feared that its deteriorating financial condition left it
vulnerable. The stock opened up some 20% to 60 the morning after the
news, ending the day at 55. But the new credit agreement has onerous
terms compared with its predecessor.
As of next March, Sears' credit line will drop from the current $4.1
billion to just $2.4 billion. Sears says that this will be more than
adequate to meet the company's needs. Perhaps so, if their
comparable-store sales keep falling. But during last year's holiday
season they tapped their lenders for $2.9 billion in credit lines
and letter-of-credit backup.
The new agreement also contains an "accordion" feature, permitting
Sears to request $1 billion in addition to the $2.4 billion. The
accordion seems to be somewhat out of tune, however. For buried in
the new credit agreement is a provision stating that no lender in
the syndicate "shall have any obligation to increase its
commitment." Huh? And the effective interest rate, now around 1.3%,
will jump to nearly 6%, based on the higher margin the company would
then have to pay over the London interbank offered rate.
Sears and Kmart were poorly run for years before Lampert came on the
scene. Perhaps the hedge-fund chief should've heeded the famous
adage of his hero, Warren Buffett: "When a management team with a
reputation for brilliance tackles a business with a reputation for
bad economics, it's the reputation of the business that remains
intact."
But that assumes that Lampert is as brilliant as he thinks he is.
NEW YORK (Dow Jones)--Sears Holdings
Corp. (SHLD) missed on just about all cylinders in the second
quarter, swinging to a big loss as revenue fell, while gross margin
and bottom line widely missed expectations. The showing reversed two
prior quarters of results that beat projections.
The retailer was the odd man out in
terms of seasonal outdoor furniture, among its biggest categories,
seeing drops in revenue while Home Depot (HD) and Lowe's (LOW) both
reported improvements in the segment earlier this week.
Sears' shares are trading down 4.3%
at $70.59 in premarket action.
Sears decided to close 28 stores
during the second quarter, mostly at its Kmart units across the
country as the economy and Sears' own reputation for cluttered
aisles and other customer service misses take a toll.
Cash on hand dropped to $1.1 billion
from $1.5 billion year-over-year in part to pay severance and other
costs associated with closings.
The company's cost cutting has
reduced expenses by about $1 billion over the past four quarters,
including $212 million for the second quarter.
For the period ended Aug. 1, Sears
posted a loss of $94 million, or 79 cents a share, compared with
year-earlier income of $65 million, or 50 cents a share. The latest
results included $103 million in charges related to pensions,
severance and store closings, while the prior year's included a $62
million gain from a favorable legal verdict. Excluding items, the
loss was 17 cents a share, compared with earnings of 21 cents a
share a year earlier. Revenue decreased 10% to $10.55 billion.
Analysts polled by Thomson Reuters
expected earnings of 35 cents and revenue of $10.73 billion.
Gross margin was flat at 26.5%. The
Wall Street consensus was for a gross margin of 27.2%.
U.S. same-store sales fell 8.6%. The
second-quarter same-store sales decline was driven by categories
hurt by the housing market conditions, including the home-appliances
category, as well as lower apparel sales.
Sears missed in a big way during the
second-quarter "as expectations got ahead of reality," said Brian
Sozzi, retail analyst at Wall Street Strategies. "There is only so
much inventory a company can cut."
Inventory dropped to $9.4 billion in
the second quarter from $9.7 billion a year ago. Sears is prepping
for Christmas, opening toy departments in 20 stores to try and
counter the squeeze it has seen from mass merchants like Wal-Mart
Stores Inc. (WMT) and pure-play merchants like Toys 'R' Us.
The retailer this week announced a
Christmas Club program where customers can add money to a Sears
holiday card and receive a return of 3%, or up to $100. Sears is
also again offering a layaway program for the holidays.
Other recent high profile efforts to
bring in customers that other retailers have been siphoning off
include a month-long promotion that started in July to allow
customers who lost their jobs after buying an appliance to keep
their purchase. Sears can write off the purchase if the customer's
job loss last a year.
Sears Holdings Corp., the biggest
U.S. department-store company, reported an unexpected second-
quarter loss on pension-plan expenses, severance payments to fired
employees and costs to close stores.
The net loss was $94 million, or 79
cents per share, compared with a profit of $65 million, or 50 cents,
a year earlier, Hoffman Estates, Illinois-based Sears said today in
a statement distributed by PR Newswire. Analysts had projected
earnings of 35 cents per share, the average of six estimates
compiled by Bloomberg.
The “severe decline” in capital
markets last year increased Sears’ pension expenses by an estimated
$160 million to $175 million for 2009, the company said. Sales fell
to $10.6 billion, below the $10.7 billion average estimate of
analysts, as consumers spent less on home appliances and clothing.
Like other retailers, Sears suffered as consumer spending declined
in the face of rising joblessness.
“The overall retail market remains
difficult,” Bruce Johnson, the company’s interim chief executive
officer, said in the statement.
Expenses rose to $103 million in the
13 weeks ended Aug. 1, Sears said, after the company closed 28
outlets.
Sears fell 65 cents to $73.76
yesterday in Nasdaq Stock Market trading. Chairman Edward Lampert,
47, combined the Sears and Kmart chains in 2005.
NEW YORK (AdAge.com) -- As Sears
Holdings grapples with slow sales and a tough economy, its ad budget
has gotten the ax.
In its fiscal first quarter, the
retail giant slashed its advertising expenses by $107 million. That
was followed by a $45 million cut in the second quarter. In 2008,
the retailer cut $94 million from its advertising budget. While the
cuts to advertising were not as pronounced in the second quarter as
they were in the first quarter, sales continued to slide. During the
second quarter, which ended Aug. 1, domestic sales dropped 10%, to
$10.6 billion. Same-store sales at Sears Roebuck & Co. dropped 13%,
while sales at Kmart fell 4%. In the first quarter, sales declined
9%, to $10.1 billion. Sears reported a 12% drop in same-store sales,
and Kmart slipped 2%.
Richard Gerstein, Sears Holdings
senior VP-marketing, has said the retailer is leveraging its scale
as a major retailer to get better media deals for its ad buys, which
has helped it slim down its budget. A spokesman for Sears did not
immediately respond to a request for further comment.
The retailer said the $45 million cut
from advertising expenses in the second quarter included reductions
at its Sears Canada division. According to the company's annual
report, it spent $2.1 billion on advertising in fiscal 2008.
It seems that additional cuts could
be in the works as the retailer seeks to align its slowing sales
with operating expenses. The company reported a $94 million loss in
the second quarter.
Interim Sears Holdings CEO W. Bruce
Johnson highlighted the company's cost-cutting efforts in a
statement.
"While the overall retail market
remains difficult and its impact is reflected in our results, we
continue to take actions to increase the efficiency of our
operations," he said. "We have reduced our selling and general
administrative expenses by approximately $1 billion over the past
four quarters, including a reduction of $212 million this quarter."
Kim Picciola, an analyst with
Morningstar, pointed out that in a research note the retailer
continues to underperform its peers. "As we expected, Kmart held up
better in this retail environment than Sears," she said.
"While the top line remains weak,
management is taking the right steps, in our view, to better align
inventories and operating expenses with the reduced level of sales."
Sears Posts Loss
as Sales Sag Further
Cost Cuts at Kmart Parent Fail to Stop Hemorrhaging
as More Shoppers Go Elsewhere By Miguel Bustillo and
Karen Talley - The Wall Street Journal
August 21, 2009
The swoon in sales at Sears Holdings
Corp. has spread to the company's profits, leading investors to
question again the future of the pioneering retailer controlled by
financier Edward S. Lampert.
After surprising investors with a
small profit earlier this year, Sears posted a quarterly loss
Thursday on a 10% drop in revenue from a year earlier.
The $94 million loss spooked
investors who had been expecting Sears Holdings to post a profit.
Sears shares tumbled 12%, or $8.76, to $65 in 4 p.m. trading
Thursday on the Nasdaq Stock Market as analysts surmised that the
previous quarter's $26 million profit, achieved largely due to
aggressive cost cuts, may have been an anomaly.
Mr. Lampert was hailed by some
analysts as the next Warren Buffett when he combined the struggling
Sears and Kmart chains in 2005 and vowed to return them to
prosperity. But the billionaire investor, who controls most of Sears
Holdings stock through his Greenwich, Conn., hedge fund, ESL
Investments Inc., has been unable to reverse longstanding sales
declines at Sears and Kmart.
Sales at U.S. stores open at least a
year dropped 3.9% at Kmart and 12.5% at Sears. The company
attributed the declines to lower clothing sales and the effect of
the housing slump on appliance and furniture sales. Sears declined
to make Mr. Lampert or company executives available for comment.
"Sears is going to emerge from this recession with a significantly
weaker store base, and very little ability to squeeze cash out of
its business. The low-hanging fruit has been picked," said Deutsche
Bank retail analyst Bill Dreher. Retail industry experts said Sears
Holdings is struggling to compete against stronger chains that often
offer lower prices and bigger assortments. A monthly Goldman Sachs
comparison of prices at Wal-Mart Stores Inc., Target Corp. and Kmart
on basic goods such as health and beauty aids consistently finds
that Kmart is the most expensive.
"Given better mousetraps" at Home
Depot Inc., Lowe's Cos. and Wal-Mart, among others, Credit Suisse
analyst Gary Balter said in a report to investors, "we envision
continued market share losses" for Sears. Under Mr. Lampert's
leadership, Sears Holdings has all but abandoned remodeling aging
stores and focused instead on a strategy of slashing operating costs
in stores while directing new investment to improving the company's
Internet sites.
Sears also continues using cash to
buy back its stock, a move that effectively consolidates Mr.
Lampert's controlling stake. The company spent $134 million to
repurchase roughly 2.7 million shares during the 26 weeks ending
Aug. 1.
His decisions have led to fewer
employees at many Sears stores around the country.
At a Sears in Dallas's Southwest
Center Mall, about a dozen shoppers perused the racks Thursday.
Mattie Johns, 73 years old, arrived at the store with her
10-year-old great-granddaughter to look for back-to-school shopping
deals. Scoping out a white shirt and a pair of black slacks, Ms.
Johns said it had been a struggle to find what they needed.
"I think there is one person working
this whole floor," she said.
Sears, of Hoffman Estates, Ill.,
closed dozens of stores in the past 12 months, including 28 in its
fiscal second quarter ended Aug. 1. It has also cut overhead by $1
billion in the past year, including $212 million in the most recent
quarter.
"While the overall retail market
remains difficult and its impact is reflected in our results, we
continue to take actions to increase the efficiency of our
operations," interim Chief Executive W. Bruce Johnson said in a
prepared statement.
Sears recently reopened toy
departments at 20 stores, and launched a Christmas Club card that
gives customers a 3% bonus when shopping.
* Billionaire accused of false
statements for own benefit
* Lower court judge rejected plaintiffs' contentions
NEW YORK, Aug 21 (Reuters) - Sears
Holdings Corp (SHLD.O: Quote, Profile, Research, Stock Buzz) and its
chairman, Edward Lampert, face an appeal of a federal lawsuit by
former Kmart Holding Corp shareholders accusing them of making false
statements to drive down Kmart's share price.
According to a notice made public on
Friday, the plaintiffs in the class-action lawsuit plan to appeal to
the U.S. Second Circuit Court of Appeals a July 21 lower court
ruling that they failed to show wrongdoing by Sears, Lampert and
Julian Day, a former Kmart chief executive officer.
Lampert, a billionaire investor, got
a controlling stake in Kmart and became its chairman when the
retailer emerged from bankruptcy in 2003.
The plaintiffs allege that he and Day
publicly undervalued Kmart's real estate assets to conceal that
Lampert had gotten control of the company at a price far below fair
market value, and to allow both men to buy more shares at bargain
prices.
They said that when Kmart sold some
of those assets to Home Depot Inc (HD.N: Quote, Profile, Research,
Stock Buzz) and the former Sears Roebuck & Co, its shares rose more
than 60 percent in fewer than four months, giving Kmart and Lampert
the ammunition to merge with Sears.
The plaintiffs contend that they sold
their Kmart shares at artificially low prices because of the
misrepresentations, but U.S. District Judge Lewis Kaplan rejected
the claims.
In his ruling, he said the plaintiffs
failed to show that defendants represented that Kmart real estate
was worth just $10 million when it was actually worth about 1,000
times that, or $9 billion to $18 billion. He said that this "rather
dramatic" theory "piles one unsubstantiated assumption on another."
The judge also said the plaintiffs
failed to demonstrate any intent to deceive. He added that because
Lampert and Day were obligated to buy Kmart shares and exercise
Kmart stock options at fixed prices under contracts made during the
retailer's bankruptcy, "it defies logic and common sense" for them
to want to drive the share price down.
The lead plaintiffs in the case are
the Plumbers and Pipefitters National Pension Fund, the Mississippi
Public Employees' Retirement System, and Fred Campo.
Sears posted a surprise quarterly
loss on Thursday as falling sales overshadowed efforts to cut costs.
The stock fell 11.9 percent on
Thursday and is down by roughly two-thirds from its April 2007 peak.
The case is In re Sears Holdings Corp
Securities Litigation, U.S. District Court, Southern District of New
York (Manhattan), No. 06-4053. (Reporting by Jonathan Stempel;
Editing by Lisa Von Ahn)
Is the Sears cupboard bare? The
retailer's shares have almost doubled since March, with investors
encouraged by many peers showing sales improvements and rosier
profit outlooks.
But the enthusiasm faded Thursday
when Sears Holdings said same-store sales for both Sears and Kmart
had fallen even harder in the second quarter than in the first. The
company had a loss of $94 million. The stock fell 12%.
The trouble is that Sears's strategy
will likely hold it back while other retailers participate in any
recovery. Since Edward Lampert took control of the company in 2005,
expenses per square foot have fallen every year, according to Credit
Suisse, hurting service levels. And Kmart continues to have
significantly higher prices than Wal-Mart for many products.
That has made it hard to lure
customers into its stores. Domestic Sears locations have seen
same-store sales decline every year this decade.
Sears has tried to make headway by
closing weak stores. But it can't afford to shut as many as it
should. It cost $61 million in expenses and severance to close 28
locations last quarter, but at least 400 more are bleeding cash,
according to Morgan Stanley.
Cash might be more plentiful if Mr.
Lampert hadn't been buying back stock aggressively since 2005. Now,
the company has $1.8 billion of net debt. None of this means Sears
is sunk. The company's $4 billion credit line should be more than
enough to cover holiday inventory needs, given it used only about $3
billion last year.
But Sears will have to negotiate with
creditors next year to maintain the facility at that level.
Investors stocking up on Sears are betting on a strong consumer
rebound.
CHICAGO (AP) — Once a mainstay in
American shopping culture, the parent of Sears and Kmart stores took
another step backward Thursday, announcing a surprising
second-quarter loss that dimmed hopes about the ailing merchant's
future.
Although Sears Holdings Corp. is
paying down debt and has a $1.3 billion cash war chest — enough to
give investors confidence in its financial footing for now — experts
say it desperately needs to end years of declining sales if it wants
to stay viable.
Led by Chairman Edward Lampert and an
interim CEO who's been at the helm for more than 18 months, Sears
continues to struggle to attract shoppers who, even before the
recession, were taking their wallets to competitors that offered
more products at cheaper prices with more appealing store
atmospheres.
Since acquiring control of Kmart out
of bankruptcy in 2003 and adding Sears, Roebuck and Co. in 2005,
Lampert has had the retailer spend billions buying back stock and
trimming debt. A renowned and reclusive financier, he carefully
guarded how much money the Hoffman Estates-based company spent
updating its mostly aging store base.
And so, while investors eventually
began viewing the retailer as a way to buy into Lampert's hedge-fund
mystique, customers continued to abandon its brands.
"At some point, we need to see a
rebound in the top line, and that's going to depend on consumers'
willingness to shop at Kmart and Sears," said Morningstar analyst
Kim Picciola. "I think they still haven't quite figured out what's
going to draw consumers back into their stores."
It hasn't been for lack of trying.
Sears has tried wooing shoppers by emphasizing its Kenmore,
Craftsman and DieHard brands, along with offers of trendier clothing
and housewares backed by celebrities, layaway deals, a series of
online ventures and the ill-fated Sears Essentials stores, which
sold merchandise from both stores but never resonated with shoppers.
This week, the company started a
program mimicking old-fashioned Christmas club accounts to help
shoppers save to buy presents.
That hasn't been enough for shoppers
like Kathy Tiggs, a 48-year-old from Milwaukee who regularly shopped
Sears for clothing but has largely abandoned the store, claiming the
merchandise targets younger and older shoppers, leaving out the
middle.
"They don't have what I'm looking
for," she said while browsing wallets Thursday in a store in the
Milwaukee suburb of Glendale. "They used to be a really good store."
Since the merger, the company's
revenue has declined virtually every quarter. Meanwhile, sales in
stores open at least a year have decreased every period.
The trends got worse during this
year's second quarter when the company lost $94 million, or 79 cents
per share — its third loss in six quarters. Sales careened 10
percent to $10.55 billion.
That compares with a profit of $65
million, or 50 cents per share, a year ago when revenue was $11.76
billion.
Executives said results were dragged
down by lower sales of clothing and home appliances along with
one-time costs.
Excluding one-time items, Sears lost
$20 million, or 17 cents per share.
Sales at stores open at least a year
dropped 12.5 percent at Sears' U.S. stores and 3.9 percent at Kmart
locations.
Sears stopped offering operating
forecasts late last year, making it hard for investors to predict
how it will fare. But Thursday's results were far below expectations
and sent the company's shares plunging $8.76, or 11.9 percent, to
close at $65 Thursday.
Analysts polled by Thomson Reuters
forecast profit of 35 cents per share on revenue of $10.73 billion.
Despite the dismal performance,
observers say Sears isn't in imminent danger of following
now-defunct retailers Circuit City Stores Inc. and Linens N Things
into bankruptcy.
Still, the company will most likely
face difficult choices, especially about its real estate holdings,
considered by many to be among Sears' most valuable assets. But even
those have lost their luster as commerical real estate values
plummet.
"All roads lead to hell," said Howard
Davidowitz, chairman of retail consulting and investment banking
firm Davidowitz & Associates, who's been skeptical of Lampert's
efforts for years. "It doesn't look to me like he has any good
options, but he has to pick the best of the worst."
Among them, Davidowitz said, is
keeping the company as is, a move tantamount to holding onto a
shrinking asset. Other choices are selling and closing more stores,
or selling off some of the company's assets like its popular brands
or online ventures.
Meanwhile, any innovative steps the
company takes to differentiate itself from competitors Wal-Mart
Stores Inc., Target Corp. and The Home Depot Inc. are likely to
offer minimal help.
"Even if they find something that
really sticks, it doesn't mean that their close competitors can't
copy it," Picciola said.
___
AP Retail Writers Michelle Chapman
in New York and Emily Fredrix in Glendale, Wis., contributed to this
report.
HOFFMAN ESTATES, Ill., Aug. 20
/PRNewswire-FirstCall/ -- Sears Holdings Corporation ("Holdings,"
"we," "us," "our" or the "Company") (Nasdaq: SHLD) today reported
its results for the second quarter of 2009.
In summary, we reported:
-- A net loss attributable to
Holdings' shareholders for the quarter of $94 million ($0.79 per
diluted share) as compared to net income attributable to Holdings'
shareholders of $65 million ($0.50 per diluted share) in the second
quarter of 2008;
-- Reductions in selling and
administrative expenses, adjusted for significant items discussed
below, of $212 million during the second quarter of fiscal 2009 as
compared to the same quarter in 2008;
-- Maintained gross margin rate at
26.5% for both the second quarter of 2009 and the second quarter of
2008; and
-- Continued progress in managing our
financing obligations and commitments as long-term debt and capital
lease obligations were reduced by $416 million (to $2.2 billion) and
domestic letters of credit were reduced by $200 million (to $0.8
billion) at August 1, 2009 as compared to August 2, 2008.
"While the overall retail market
remains difficult and its impact is reflected in our results, we
continue to take actions to increase the efficiency of our
operations. We have reduced our selling and administrative expenses
by approximately $1 billion over the past four quarters, including a
reduction of $212 million this quarter," said W. Bruce Johnson,
Sears Holdings' interim chief executive officer and president.
Second Quarter Revenues and
Comparable Store Sales
Total revenues decreased $1.2 billion
to $10.6 billion for the 13 weeks ended August 1, 2009, as compared
to total revenues of $11.8 billion for the 13 weeks ended August 2,
2008. The decrease was primarily due to lower comparable store sales
and included a $126 million decline due to the impact of foreign
currency exchange rates.
Domestic comparable store sales
declined 8.6% in the aggregate, with Sears Domestic comparable store
sales declining 12.5% and Kmart comparable store sales declining
3.9% for the quarter. The decline at Sears Domestic continues to be
driven by categories impacted by housing market conditions
(including the home appliances category) as well as lower apparel
sales. The decline in comparable store sales at Kmart was driven by
a decline in apparel and was partially offset by an increase in
sales of home electronics and the impact of assuming the operations
of its footwear business from a third party effective January 2009.
Operating Income (Loss)
Holdings' operating loss was $58
million for the 13 weeks ended August 1, 2009, as compared to
operating income of $187 million for the 13 weeks ended August 2,
2008. Our operating loss for the second quarter of 2009 includes
expenses of $103 million related to domestic pension plans and store
closings and severance. Operating income for the second quarter of
2008 includes the positive impact of the reversal of a $62 million
reserve because of a favorable verdict in connection with a
pre-merger legal matter. Excluding these items, operating income
decreased $80 million and was primarily the result of lower gross
margin dollars given lower overall sales. The total decline in gross
margin dollars of $310 million (adjusted for $17 million of
markdowns recorded in connection with store closings) includes a $40
million decline related to the impact of foreign currency exchange
rates on gross margin at Sears Canada. The decline in gross margin
dollars was partially offset by reductions in selling and
administrative expenses of $212 million (adjusted for significant
items). Selling and administrative expenses declined as a result of
a $92 million reduction in payroll and benefits expense, a reduction
in advertising expenses of $45 million (primarily due to reductions
at Sears Canada), and a $23 million decline related to the impact of
foreign currency exchange rates at Sears Canada.
For the quarter, we generated $2.8
billion in gross margin as compared to $3.1 billion in the second
quarter last year. While gross margin dollars declined, we
maintained our gross margin rate at 26.5% for both the second
quarter of 2009 and the second quarter of 2008. While our gross
margin rate was not changed for Holdings, we experienced an increase
in gross margin rate of 50 basis points at Sears Domestic and 100
basis points at Sears Canada, mainly as a result of improved
inventory management, as well as an increase in gross margin rate in
the home electronics category for Sears Domestic. These increases
were offset by a decline in gross margin rate of 80 basis points at
Kmart due primarily to markdowns recorded in connection with store
closings announced during the quarter.
Significant Items
A number of significant items
affected our second quarter results in fiscal 2009 and 2008.
Excluding these items, the net loss attributable to Holdings'
shareholders for the second quarter of fiscal 2009 would have been
$20 million ($0.17 per diluted share) as compared to net income of
$28 million ($0.21 per diluted share) in the second quarter of 2008.
Significant items affecting our second quarter results in fiscal
2009 and 2008 include:
-- a charge for costs associated with
store closings and severance in the second quarter of 2009 of $61
million ($38 million after tax or $0.32 per diluted share); --
domestic pension plan expense in the second quarter of 2009 of $42
million ($26 million after tax or $0.22 per diluted share); --
mark-to-market losses on Sears Canada hedge transactions in the
second quarter of 2009 of $22 million ($10 million after tax and
noncontrolling interest or $0.08 per diluted share); and -- the
positive impact of the reversal of a $62 million ($37 million after
tax or $0.29 per diluted share) reserve during the second quarter of
2008 because of the overturning of a February 2, 2007 adverse jury
verdict relating to the redemption of certain Sears, Roebuck and Co.
bonds in 2004.
Costs incurred for store closings and
severance include charges related to the second quarter 2009
decision to close 28 underperforming stores, as well as costs
incurred for previously announced stores which completed operations
in the second quarter of 2009. We expect to record an additional
charge of approximately $5 million during the second half of 2009 as
the stores we decided to close in the second quarter complete
operations. Similar to our other store closings, we expect that
these will be additive to earnings, and given that the closure of
these stores eliminates negative cash flows incurred from their
operations, will generate cash from the liquidation of inventory and
from other proceeds. The list of stores closed can be found at
www.searsmedia.com. We plan to continue to evaluate our business in
an effort to improve the operating results of the Company.
As we noted in our first quarter 2009
earnings release, the Company has a legacy pension obligation for
past service performed by Kmart and Sears, Roebuck and Co.
associates. The annual pension expense included in our financial
statements related to these legacy domestic pension plans was
relatively minimal in recent years. However, due to the severe
decline in the capital markets that occurred in the latter part of
2008 our domestic pension expense has increased by an estimated $160
to $175 million in 2009. As a result, we present pension expense as
a significant item affecting earnings and as a separate line item in
our Adjusted EBITDA reconciliation to promote operating performance
comparability. We expect each remaining quarter of 2009 to contain
domestic pension plan expense consistent with the first and second
quarters.
Financial Position
We had cash balances of $1.3 billion
at August 1, 2009 (of which $468 million was domestic and $824
million was at Sears Canada) as compared to $1.5 billion at August
2, 2008 and $1.3 billion at January 31, 2009. Significant uses of
our cash during the first half of 2009 include $134 million for
share repurchases, contributions to our pension and post-retirement
benefit plans of $96 million, capital expenditures of $122 million
and debt issuance costs of $81 million. These amounts were partially
offset by borrowings. Mr. Johnson further commented, "We have
strengthened our balance sheet by retiring over $400 million of
consolidated long-term debt and capital lease obligations while
maintaining the same level of usage on our domestic revolving line
of credit as this time last year."
Merchandise inventories were
approximately $9.4 billion at August 1, 2009 as compared to $9.8
billion at August 2, 2008. Domestic inventory levels declined from
$8.9 billion at August 2, 2008 to $8.6 billion at August 1, 2009 due
to improved inventory management. Inventory levels at Sears Canada
decreased $91 million mainly due to the impact of foreign currency
exchange rates.
Total debt (consisting of short-term
borrowings, long-term debt and capital lease obligations) at August
1, 2009 was $3.2 billion, as compared to $3.6 billion at August 2,
2008. The decrease in outstanding debt was mainly the result of a
reduction in domestic long-term debt and capital lease obligations
of $390 million. Total short-term borrowings at August 1, 2009 of
$1.0 billion increased by only $41 million over our level of
borrowings at August 2, 2008 of $974 million. Long-term debt of the
parent (which excludes the debt of our Sears Canada ($282 million)
and Orchard Supply Hardware ($297 million) subsidiaries, which is
non-recourse to the parent) is less than $1 billion, with no
significant required repayments until 2011.
Share Repurchase
During the 13- and 26- week periods
ended August 1, 2009, we repurchased approximately 1.7 million and
2.7 million common shares at a total cost of $94 million and $134
million, respectively, under our share repurchase program. Our
repurchases for the 13- and 26- week periods ended August 1, 2009
were made at average prices of $54.87 and $49.90 per share,
respectively. As of August 1, 2009, we had remaining authorization
to repurchase $371 million of common shares under the share
repurchase program. The share repurchases may be implemented using a
variety of methods, which may include open market purchases,
privately negotiated transactions, block trades, accelerated share
repurchase transactions, the purchase of call options, the sale of
put options or otherwise, or by any combination of such methods.
Timing will be dependent on prevailing market conditions,
alternative uses of capital and other factors.
For a complete copy of the Sears
Holdings Press Release, click on the link below...
CHICAGO -- Appliance manufacturers
are counting on a "cash for clunkers"-type rebate program to revive
slumping sales of refrigerators, washing machines and dishwashers.
Beginning late this fall, federal
rebates will be available for purchasers of high-efficiency
household appliances, furnaces and air-conditioning systems.
Congress authorized $300 million for the program earlier this year
as part of the federal economic-stimulus bill.
After seeing the recent surge in
new-car orders attributed to the federally funded clunkers program,
appliance industry executives are hoping to lure consumers back into
appliance store showrooms with rebates that are expected to reach
$200 on some types of appliances.
"It's a good way for the consumer to
get back into the marketplace," said J.B. Hoyt, director of
governmental relations for Whirlpool Corp., the world's largest
producer of household appliances by revenue. "Clearly, anything that
boosts business is good for us."
Whirlpool has been pushing for such a
program for years. The 2005 energy bill included an authorization
for $300 million over six years for energy-efficiency rebates on
appliances. That authorization was never funded, but in the 2009
stimulus bill, the entire $300 million was authorized.
Appliances covered by the program
include dishwashers, washing machines and refrigerators. They must
carry Energy Star ratings, indicating they meet energy-efficiency
standards set by the Environmental Protection Agency and Department
of Energy. To qualify for rebates, buyers won't have to trade in
older, less-efficient models, which is a key component of the car
program. Appliances made by companies based overseas will be
eligible for the rebates if they have the Energy Star label.
In 2008, about 55% of newly produced
major household appliances qualified for the Energy Star
designation, according to the Association of Home Appliance
Manufacturers in Washington.
Whirlpool, Electrolux, General
Electric Co. and other appliance companies are mired in severe sales
slumps linked to the collapse of the U.S. home construction industry
and prolonged by an economic recession that has damped consumers'
interest in buying expensive durable goods.
The $300 million was distributed to
states based on the number of households. But the federal government
left most of the details, including specific rebate amounts for each
type of appliance, up to state governments to decide. States' plans
for the program are due to the Department of Energy by Oct. 15.
WILMINGTON, Delaware (Reuters) -
Sears Holding Corp (SHLD.O: Quote, Profile, Research, Stock Buzz)
reported a quarterly loss on Thursday instead of the profit Wall
Street was expecting as the retailer struggled to cut costs to keep
up with falling revenues, and its shares fell nearly 13 percent.
The company controlled by hedge fund
manager Edward Lampert said its net loss was $94 million, or 79
cents per share, in the second quarter ended August 1, compared with
a year-earlier profit of $65 million, or 50 cents per share.
Excluding the cost of closing stores
and other special items, the loss was 17 cents per share. Analysts
on average were expecting a profit of 35 cents.
Sales at the company's Sears, Roebuck
and Co department stores continued to suffer from the crash of the
U.S. housing market, which has sapped demand for its Craftsman tools
and Kenmore appliances.
Sales at Sears stores that have been
open for at least a year fell 12.5 percent, while Kmart's same-store
sales slid 3.9 percent. Overall, same-store sales fell 8.6 percent,
and the decline accelerated after slowing during the past two
quarters.
"While the overall retail market
remains difficult and its impact is reflected in our results, we
continue to take actions to increase the efficiency of our
operations," said interim Chief Executive Officer W. Bruce Johnson.
While the company cut total costs and
expenses 8 percent, revenue fell 10.3 percent to $10.55 billion.
Analysts on average were expecting revenues of $10.73 billion,
according to Reuters Estimates.
The Hoffman Estates, Illinois-based
company has been focused on cutting costs through better management
of its inventory and other expenses. It said it decided to close 28
stores during the quarter, out of about 3,900.
Sears continued its share buyback
program, spending $94 million during the quarter. It said it still
had authority to buy $371 million of its shares.
Moody's cut Sears credit rating
deeper into junk territory earlier this year, citing the company's
share buybacks as well as weak apparel sales.
The company ended the second quarter
with $1.3 billion in cash, down from $1.5 billion a year ago.
Shares of Sears were down 12.8
percent at $64.33 in trading before the market opened.
At Wednesday's close, the stock had risen about 80 percent this
year, outperforming shares of rivals such as J.C. Penney Co Inc (JCP.N:
Quote, Profile, Research, Stock Buzz), Kohl's Corp (KSS.N: Quote,
Profile, Research, Stock Buzz) and Wal-Mart Stores Inc (WMT.N:
Quote, Profile, Research, Stock Buzz).
Cool weather and tighter consumer
pockets put downward pressure on Sears Canada Inc.'s second-quarter
sales and earnings.
Sales were down 12 per cent at $1.25
billion, including a 10 per cent fall in same-store (open at least a
year) sales, as rising job losses and slow housing markets bit into
consumer confidence and delayed purchases of big-ticket home
appliances long a Sears strength.
Earnings were $49.1 million or 45
cents a share, down from $61.5 million or 57 cents a share a year
earlier.
"Revenues were negatively impacted by
lower consumer discretionary spending ... that affected most of
Canada except British Columbia," said president Dene Rogers. At the
operating level, the company's performance was among the best in
Canada's retailing industry, he added.
The company employs 33,000 in its
network of 196 corporate stores across Canada, 193 dealer stores, 41
home improvement showrooms and 1,800 catalogue pick-up locations.
CHICAGO — Sears Holdings Corp.
reports results for the second quarter on Thursday. The following is
a summary of key developments and analyst opinion related to the
period.
OVERVIEW: Investors will find
out Thursday if Sears Holdings Corp. was able to keep its momentum
from the first quarter, when the owner of Sears and Kmart stores
topped forecasts and reversed a loss.
Despite that stronger-than-expected
performance, the retailer led by Chairman Edward Lampert — who
acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005 — has been
struggling to control falling same-store sales, an important retail
industry metric of sales in stores open at least a year.
During the quarter, the Hoffman
Estates, Ill.-based merchant announced plans to offer a purchase
protection program on home appliances to help consumers who lose
their job during the recession. The free program covers payments on
appliance purchases of more than $399 made on a Sears card.
The company also announced plans to
relaunch two collections of maternity clothes from retailer
Destination Maternity Corp., whose Two Hearts Maternity collection
will be available in 600 Sears and Kmart stores in the fall.
BY THE NUMBERS: Analysts
polled by Thomson Reuters predict a profit of 35 cents per share on
revenue of $10.73 billion for the quarter. Last year, Sears earned
$65 million, or 50 cents per share, on revenue of $11.76 billion.
ANALYST TAKE: Credit Suisse
analyst Gary Balter told investors that he expects Sears will
surpass Wall Street forecasts as sales improve slightly. And he
expects Sears and the Kmart stores to show incremental improvements
in same-store sales.
"We believe the company is benefiting
from a number of competitor closings, its own store closings, some
better seasonal trends and a number of promotions," he wrote in a
research note.
WHAT'S AHEAD: Analysts will be
paying close attention to any updates the company offers on its
ongoing search for someone to take the reins from interim CEO W.
Bruce Johnson, who replaced Aylwin Lewis a year and a half ago.
STOCK PERFORMANCE: During the
quarter, which ended Aug. 1, shares climbed 10 percent to end the
period at $66.34. The shares, which had a 52-week range of $26.80 to
$108.75, closed Tuesday at $74.41.
News that as many as 130 million
debit and credit cards may have been breached highlights the growing
risk of fraud. Here is what it means for consumers.
Q: How can I tell if my
information has been compromised?
A: In almost every state, companies that suffer a data breach will
have to notify customers if their personal data may have been
breached. Meantime, consumers should monitor their bank and
credit-card accounts and report any unusual activity to the
financial institution.
Q: How do I protect myself?
A: First, get copies of your credit report to make sure the
information is accurate, said Adam Levin, co-founder of Credit.com,
a credit-education site, and co-founder of Identity Theft 911. Under
federal law, consumers are entitled to one free copy of their
reports each year from each of the three credit reporting bureaus.
Consumers can also notify the fraud department of a credit bureau
and request that a fraud alert be put on their file. They can also
ask for a credit freeze on their accounts to help prevent further
fraud and identity theft. Spend five to 10 minutes a day looking
online at bank and credit-card accounts to make "absolutely sure
that every transaction you see is yours," adds Mr. Levin.
Q: What is my liability if
someone steals my card data?
: With credit cards, consumers are generally liable for no more than
$50 in unauthorized usage under federal law, although it's common
for most issuers to have "zero liability" protections for
unauthorized activity. With a debit card, liability can vary, often
depending on how soon you report any loss and whether you used your
signature. A growing number of banks and companies including Visa
Inc. and MasterCard Inc. offer zero-liability programs, although the
protection generally covers signature-based purchases.
Q: Is there any way to gauge
the security of a company's computers?
A: Not really. "There are so many ways that a company's sensitive
personal data can be compromised," said Beth Givens, director of
Privacy Rights Clearinghouse, a nonprofit consumer advocacy group.
Still, you can check to see if the company has had any other data
breaches. Privacy Rights Clearinghouse, for example, maintains a
historical database of company breaches
A 28-year-old American, believed by
prosecutors to be one of the nation's cybercrime kingpins, was
indicted Monday along with two Russian accomplices on charges that
they carried out the largest hacking and identity-theft caper in
U.S. history. Federal prosecutors alleged the three masterminded a
global scheme to steal data from more than 130 million credit and
debit cards by hacking into the computer systems of five major
companies, including Hannaford Bros. supermarkets, 7-Eleven and
Heartland Payment Systems Inc., a credit-card processing company.
The indictment in federal district
court in New Jersey marks the latest and largest in at least five
years of crime that has brought its alleged orchestrator, Albert
Gonzalez of Miami, in and out of federal grasp. Detained in 2003,
Mr. Gonzalez was briefly an informant to the Secret Service before
he allegedly returned to commit even bolder crimes.
Authorities have previously alleged
that Mr. Gonzalez was the ringleader of a data breach that siphoned
off more than 40 million credit-card numbers from TJX Cos. and
others in recent years, costing the parent company of the TJ Maxx
retail chain about $200 million. Mr. Gonzalez is in federal custody
in Brooklyn, N.Y., awaiting trial for alleged efforts to hack into
the network of the national restaurant chain Dave & Buster's Inc.
He also faces charges in Boston in
the TJX matter. The alleged thefts in Monday's indictment took place
from October 2006 to May 2008. Mr. Gonzalez is "a very important
player in a sophisticated ring that has real results at the street
level of bank, retail, debit- and credit-card fraud," said Seth
Kosto, an assistant U.S. attorney in New Jersey who specializes in
computer fraud.
The indictment, interviews and recent
court documents in the cases pending against Mr. Gonzalez paint him
as a rising star in the cyber underground. He launched what he
called "operation get rich or die tryin," targeting Fortune 500
companies with his data-theft operations, according to a sentencing
memo filed in federal district court in Massachusetts in the TJ Maxx
matter. These documents say he threw himself a $75,000 birthday
party and at one point lamented he had to count more than $340,000
by hand because his money counter had broken. Such large sums,
primarily in $20 bills allegedly stolen from ATMs, proved tough to
manage, the sentencing memo says.
He was considering investing in a
club, but told one of his co-conspirators in the TJX heist that he
would only be able to pull together $300,000 in a "legitimate
appearing form" like a check, according to the documents. Federal
investigators say Mr. Gonzalez is a high-school graduate and
self-taught programmer who cut his criminal teeth as a leader in the
self-styled Shadowcrew, an online credit-card hacking ring. In 2004,
26 leaders of the 4,000-person ring were arrested and convicted. "He
was one of the key leaders," said Scott Christie, a former U.S.
prosecutor who worked on the case.
Mr. Gonzalez wasn't charged when he
was arrested in 2003 because he agreed to become an informant for
the Secret Service following his arrest, say Justice Department
officials. In November 2004, the government permitted him to move
from New Jersey to Florida. Much of the subsequent hacking took
place there, according to court records. He was arrested in
conjunction with the Dave & Buster's hacking scheme in May 2008 and
has been in detention since. Subsequent investigations into breaches
at Heartland and others led investigators back to Mr. Gonzalez. They
found that he and his co-conspirators in Russia, which the
indictment does not name, staged their crime on a network of
computers spanning New Jersey, California, Illinois, Latvia, the
Netherlands and Ukraine that would infiltrate the computer networks
of the victim companies.
In computer attacks lasting more than
a year, the trio allegedly scooped up credit- and debit-card numbers
and installed so-called back doors in the victims' computer networks
to enable them to steal more data in the future, the indictment
said. They also installed "sniffer" programs to capture card data
and send it to the hackers.
The indictment didn't estimate the
losses associated with the alleged activities, nor did it spell out
how the alleged co-conspirators may have made money off the stolen
numbers. Typically, hackers sell batches of credit-card data online
-- the current asking price in online forums is $10 to more than
$100 per account profile, depending on the account's limit. The trio
made extensive efforts to conceal their activities, registering the
computers they used under false names and communicating online under
a variety of screen names, the indictment alleges. Mr. Gonzalez
often used the online alias "soupnazi," an apparent reference to a
character in the sitcom "Seinfeld."
The three were charged with gaining
unauthorized access to computers, computer fraud and conspiracy to
commit wire fraud. Mr. Gonzalez faces up to 25 years in prison and
$500,000 in fines. His lawyer did not return phone calls Monday.
"We're pleased that the authorities have aggressively pursued this
case to be in a position to bring an indictment against the alleged
perpetrators," said Michael Norton, a spokesman for Hannaford Bros.
Heartland commended the government's
sleuthing in the case; 7-Eleven declined to comment. Wire fraud,
conducted in cyberspace because wire transfers now use networks that
connect to the Internet, has exploded in recent years. The Treasury
Department recently reported that of the more than 55,000 incidents
of wire fraud since 1998, more than half of them occurred in the
past two years.
"The financial sector may be more
secure than most, but it's hemorrhaging," said Tom Kellermann, a
former cybersecurity official with the World Bank who is now a vice
president with Core Security Technologies, a cybersecurity company.
"For too long a time they have not paid enough respect to the
sophistication and organization of the underground economy."
—Robert Tomsho, Joseph Pereira
and Timothy W. Martin contributed to this article.
WASHINGTON – Three men were indicted
Monday on federal charges of conspiring to hack into computer
networks of major U.S. retail and financial organizations and
stealing data related to more than 130 million credit and debit
cards.
Prosecutors called it the largest
credit- and debit-card data breach ever charged in the U.S. Albert
Gonzalez, 28 years old, of Miami, and two unnamed co-conspirators
were charged with conspiracy and conspiracy to engage in wire fraud
and accused of using a sophisticated hacking technique, which tries
to find a way around a computer network's firewall to steal credit-
and debit-card information. Among the corporate victims named in the
indictment are Heartland Payment Systems Inc., a New Jersey-based
card-payment processor; 7-Eleven Inc., a Texas-based nationwide
convenience store chain; and Hannaford Brothers Co., a Maine-based
supermarket chain.
A data breach allegedly led by Mr.
Gonzalez also siphoned off more than 40 million credit-card numbers
from TJX Cos. and others, costing TJX $200 million.
If convicted, Mr. Gonzalez, who is in
federal custody, faces up to 20 years in prison on the wire-fraud
conspiracy charge and five years in prison on the conspiracy charge
and fines of $250,000 for each charge. According to the indictment,
Mr. Gonzalez, also known as "segvec," "soupnazi" and "j4guar17," and
his co-conspirators started in October 2006 to penetrate computer
networks and steal credit- and debit-card data, then sent the data
to computer servers they operated in California, Illinois, Latvia,
the Netherlands and Ukraine.
The indictment also alleges the three
used sophisticated techniques to avoid detection by antivirus
software.
In May 2008, Mr. Gonzalez was charged
with hacking a computer network run by a national restaurant chain.
Trial on those charges is scheduled to begin in Long Island in
September.
A year ago, the Justice Department
announced separate indictments against Mr. Gonzalez and others in
connection with a number of retail hacks affecting eight major
retailers involving the theft of data related to 40 million credit
cards. Mr. Gonzalez is scheduled for trial on those charges next
year.
NEW YORK — Ed Reimers, the actor who
told television viewers "you're in good hands with Allstate" for
decades, died Sunday in upstate New York, a relative said. He was
96.
Reimers, who also served as an
announcer for several TV shows in the 1950s and '60s, died at his
daughter's home in Saratoga Springs, said Dean Lindoerfer, his
nephew by marriage. The cause of Reimers' death wasn't immediately
clear. With his white hair and resonant voice, Reimers was best
known for delivering the Allstate Corp.'s famous slogan. He was the
insurance giant's TV spokesman for 22 years, starting in 1957,
according to the Northbrook, Ill.-based company's Web site.
Meanwhile, Reimers was an announcer
for programs ranging from the popular Western "Maverick" to the game
show "Do You Trust Your Wife?", later known as "Who Do You Trust?"
and hosted for much of its run by Johnny Carson. Reimers also
appeared in episodes of several shows, including "Star Trek" and the
1950s hit "The Millionaire."
His movie credits included the 1965
comedy "The Loved One," starring Robert Morse.
Edwin W. Reimers was born Oct. 26,
1912, in Moline, Ill. After early jobs at radio stations in cities
including Des Moines, Iowa, he lived in Los Angeles for most of his
life. He moved to Saratoga Springs after his wife's death in 2007.
Survivors include his daughter,
Kathryn, two grandsons and a niece.
J.C. Penney Co. swung to a $1 million
loss in its fiscal second quarter as falling sales and
pension-related expenses weighed on the department-store chain's
bottom line.
In light of the company boosting its
second-quarter forecast last week, the retailer on Friday raised its
fiscal-year forecast to earnings of 75 cents to 90 cents a share
with sales down 5.5% to 6% and a same-store-sales decline of 7% to
7.5%.
In May, it forecast a
weaker-than-expected profit of 50 cents to 65 cents a share, with
sales off 7% to 10% and same-store sales down 9% to 12%.
Analysts brightened their forecasts
in recent days and on average most recently expected earnings of 89%
and a 5% revenue drop to $17.57 billion.
However, the retailer expects
break-even results in the current quarter, plus or minus 5 cents,
with revenue down 3% to 5% and same-store sales off 5% to 7%.
Analysts expect a 14-cent a share profit on a 4% sales decline to
$4.15 billion.
Penney's stock fell 1.7% premarket to
$32.74. Shares through Thursday were up 69% this year.
Retailers, who for months have been
paring inventory amid sharp consumer-spending cutbacks, lately have
seen signs that stocks may be starting to fall in line with demand
amid expectations of a grim back-to-school sales season.
The National Retail Federation has
predicted a 7% drop in back-to-school spending, though Penney could
benefit because of its private-label apparel lines, said Citigroup
analyst Deborah Weinswig. When Penney boosted its second-quarter
view last week, it attributed the improved outlook to
better-than-expected July sales, stronger margins and lower
operating expenses.
For the period ended Aug. 1, Penney's
loss was $1 million, compared with a year-earlier profit of $117
million, or 52 cents a share, a year earlier. The latest results
included 28 cents in pension-plan expenses. The company last week
projected a 1-cent loss.
At that time, Penney also said sales
dropped 7.9% to $3.94 billion as same-store sales fell 9.5%.
Gross margin rose to 38.5% from 37.5%
on less clearance selling.
Penney said Friday its strongest
categories were shoes and women's apparel, and the best performance
geographically was in the Southwest.
In a sign of the reshaping of the
retail industry, Penney, which operates moderate-priced department
stores, late last month unveiled its first Manhattan store.
Specialty shops like Gap Inc.,
discount chains such as Wal-Mart Stores Inc. and traditional
department stores are now all descending from different parts of the
industry to lure the same shoppers in tough times.
Wal-Mart Stores Inc.'s fiscal second-quarter
earnings were flat on lower same-store sales, resulting in revenue
falling short of expectations.
Still, shares were recently up 1.7%
at $51.39 in premarket trading as President and Chief Executive Mike
Duke said the company's earnings exceeded its expectations and it
had strong inventory performance "in a sales environment more
difficult than we expected."
He added Wal-Mart is speeding up its
focus on cutting expenses.
The company has been faring better
than most nondiscount retailers, benefiting from its low prices as
shoppers look for bargains. In contrast, sales at department stores
and specialty retailers have been suffering, in part because of
their bigger exposure to discretionary merchandise.
Wal-Mart stopped reporting monthly
sales data in May, leaving analysts and market-watchers with a less
clear picture of how it's faring.
Chief Financial Officer Tom Schoewe
called the quarter's performance good despite "headwinds from price
deflation, the effects of the recession and currency exchange
rates." Analysts had said they expected the results to show slowing
food costs pressuring the company.
For the period ended July 31,
Wal-Mart posted income of $3.44 billion, or 88 cents a share, down
from $3.45 billion, or 87 cents a share, a year earlier. There were
1.5% fewer shares outstanding in the most recent period. In May, the
company said it expected earnings of 83 cents to 88 cents.
Net sales decreased 1.4% to $100.08
billion. Excluding the impact of foreign-currency exchange, sales
would have increased 2.7%. Analysts polled by Thomson Reuters
expected $103.08 billion.
Excluding fuel sales, U.S. same-store
sales fell 1.2%, with a 1.5% decline at namesake stores and an 0.6%
gain at its Sam's Club warehouse chain. International sales fell
5.1% as profit declined 6.2%. Meanwhile, earnings at Wal-Mart's U.S.
stores rose 5% while Sam's Club profit fell by the same amount.
Looking forward, the company said it
expects fiscal third-quarter earnings of 78 cents to 82 cents.
Analysts were projecting 80 cents. Wal-Mart also sees same-store
sales flat to up 2%.
Meanwhile, the company raised the low
end of its fiscal-year earnings outlook by a nickel.
The company in June announced a $15
billion share-repurchase plan, replacing a similar program announced
two years ago that had $3.4 billion left under it. It had suspended
buybacks in December because of instability in the credit markets
and the economic crisis. Wal-Mart, which has a market value of about
$200 billion, has bought back some $21 billion worth of its shares
in the past five years. Kohl's Earnings Fall 3%, Raises View Kohl's
Corp.'s fiscal second-quarter earnings fell 3% on weaker sales,
though the department-store chain was able to boost margins.
The retailer also raised its profit
target for the year to $2.59 to $2.70 from May's boosted view of
$2.19 to $2.42. But it projected earnings for the current quarter
below analysts' expectations.
Kohl's expects fiscal third-quarter
earnings of 40 cents to 44 cents on flat sales, plus or minus 1%,
and same-store sales down 3% to 5%. Analysts polled by Thomson
Reuters were looking for earnings of 47 cents and total sales up 1%
to $3.85 billion.
President and Chief Executive Kevin
Mansell said in May the difficult economy was helping the company
gain market share from competitors, but warned the effects of the
recession could still be felt. He reiterated Thursday that results
indicated market-share gains and said the company continues to
improve inventory management and margins.
For the period ended Aug. 1, Kohl's
posted income of $229 million, or 75 cents a share, down from $236
million, or 77 cents, a year earlier.
Kohl's said net sales increased 2.2%
to $3.81 billion as same-store sales fell 2.3%. Gross margin rose to
40% from 39.6%.
HOFFMAN ESTATES, Ill. — Sears
Holdings Corp., the retail chain lead by chairman and hedge fund
financier Eddie Lampert, said Wednesday it will begin to offer toys
in 20 of its Sears stores starting Saturday.
In-store toy shops will offer brands
including Mattel's Fisher Price, Hasbro, LeapFrog, Spin Master's
Bakugan and VTech toys, the company said. It will also offer
specialty toy brands including Schylling, Thomas Wooden Railway,
Gund Plush and My First Annabelle Madame Alexander. Sears will also
carry exclusive brands such as My First Craftsman, My First Kenmore
and Just Kidz.
Toys will also be available online
and stores in Chicago, Los Angeles, San Francisco, New York and
other locations.
Toy retailers have faced a rocky road
in the recession, with both KB Toys and FAO Schwarz filing for
bankruptcy protection. KB Toys liquidated and FAO Schwarz was
acquired by Toys R Us.
Sears will enter the fray that also
includes discounters such as Target Corp. and Wal-Mart Stores Inc.
"Sears Toy Shops offer parents a new,
convenient option to shop for toys, in the mall, just in time for
the holiday season, " said Dev Mukherjee, president, seasonal and
toys for Sears Holdings, in a statement.
Hoffman Estates, Ill.-based Sears
Holdings, which also operates Kmart and Land's End, among of their
brands, operated 2,171 domestic stores as of May 2, according to its
most recent quarterly filing with the Securities and Exchange
Commission.
Shares rose $1.90, or 2.5 percent, to
$77.49 during midday trading. The stock has traded between $26.80
and $108.75 over the past year.
NEW YORK — Sears Holdings Corp. aims
to get an edge over its competition this holiday season by getting
shoppers to start saving for Christmas presents now through a new
card that mimics an old-fashioned Christmas club account.
Shoppers can put aside money on a
regular basis through Nov. 14 to add value to what it calls its
Christmas Club card, according the Hoffman Estates, Ill.-based
retailer, which operates Sears, Roebuck and Co. and Kmart stores.
When activated between now and Oc.
31, card holders can earn a 3 percent reward, up to a maximum of
$100, based on the card's value.
The launch follows Sears' move last
holiday season to resurrect its layaway program at its namesake
department stores after a two-decade hiatus.
The next great
bailout: Social Security
Fortune's Allan Sloan takes a look at
the troubled retirement program, why it's more important now than
ever -
and how lawmakers can repair it.
Allan Sloan - senior editor
at large - Fortune
August 17, 2009 issue
In Washington these days, the only
topics of discussion seem to be how many trillions to throw at
health care and the recession, and whom on Wall Street to pillory
next. But watch out. Lurking just below the surface is a bailout
candidate that may soon emerge like the great white shark in Jaws:
Social Security.
Perhaps as early as this year, Social
Security, at $680 billion the nation's biggest social program, will
be transformed from an operation that's helped finance the rest of
the government for 25 years into a cash drain that will need money
from the Treasury. In other words, a bailout.
I've been writing about Social
Security's problems for more than a decade, arguing that having the
government borrow several trillion dollars to bail out Social
Security so that it can pay its promised benefits would impose an
intolerable burden on our public finances.
However, I've changed my mind about
what "intolerable" means. With the government spending untold
trillions to bail out incompetent banks, faddish mortgage borrowers,
General Motors, Chrysler, AIG (AIG, Fortune 500), GMAC (GJM), and
Wall Street, it should damn well bail out Social Security recipients
too. But in a smart way.
Unlike the pigs feeding at Uncle
Sam's trough, the people who qualify for Social Security old-age
benefits -- the ones who'll benefit from the bailout -- have played
by the rules and paid Social Security taxes for decades. It would be
immoral to tell them, "Sorry, we have to trim your cost-of-living
adjustment because we can't afford it," while expecting them to
continue footing the bill for bailing out imprudent people and
institutions.
Why am I talking about Social
Security when health care is sucking up virtually all the oxygen in
Our Nation's Capital? Because Social Security is a really big deal,
providing a majority of the income for more than half the people 65
and up, and also supporting millions of disabled people and
survivors of deceased workers; because the collapse of stock prices
and home values makes Social Security retirement benefits far more
important even to upscale baby boomers than they were during the
stock market and home-price highs of a few years ago; and because
the problems aren't that hard to solve if we look at Social Security
realistically instead of treating it as a sacred, untouchable
program (liberals) or a demonic plot to make people dependent on
government (conservatives).
Finally, this is a good time to
discuss Social Security because the Obama folks say it's next on the
agenda, after health care. No one at the White House, Treasury, or
Social Security Administration would discuss specific Social
Security proposals, however.
It ought to tell you something that
Peter Orszag, director of the White House Office of Management and
Budget, is a noted Social Security scholar. He's co-author of an
influential 2004 book, Saving Social Security: A Balanced Approach,
that advocated substantial tax increases (and a few benefit trims)
to preserve the program. Alas, he wouldn't tell me what he plans to
propose this time around. "Health care first" was all he'd say.
Meanwhile in Congress, Rep. Steny
Hoyer (D-Md.), the House majority leader, says he intends to deal
with Social Security as soon as possible. But he also declined to be
specific. "I've been more inclined toward a commission" than to
introduce legislation, he said.
That makes this a good time -- and
maybe our last chance -- to have a rational conversation about
Social Security. After proposals start getting leaked and the
game-playing and finger-pointing start, it won't be possible.
So I'd like to show you that Social
Security has a real and growing cash problem even as its trust fund
is getting bigger than ever, explain how the program really works,
and -- immodest though it may seem -- propose a few simple solutions
to fix it, restore it to its roots, and make its finances less
incomprehensible.
Social Security's cash-flow
problem
How can Social Security possibly need
a bailout when by Washington rules it's "solvent" for another 26
years? To understand the problem, all you have to do is look at me.
I'm the distinguished -- okay, old -- guy above and to the right,
holding an ancient (but real) Social Security card that Fortune's
photo mavens have doctored to display an invalid number (so don't
try using it).
I'll turn 66 near the end of next
year, making my wife and me eligible for full Social Security
benefits. They'll be about $42,000 a year starting on Jan. 1, 2011,
and are scheduled to rise as the consumer price index rises.
Social Security, which analyzed my
situation at Fortune's request, values those promised (but not
legally binding) benefits at a bit more than $600,000. In other
words, that's how much Social Security would have to set aside today
to pay benefits to my wife and me, assuming that we live out
statistically average lives, and that the current benefit formula
stays in place.
Even though 600 grand is a lot of
money, Social Security is way ahead on my wife and me because the
value of our benefits is far less than the Social Security taxes we
and our employers will have paid by the end of next year, plus the
interest Social Security will have earned on that money in the
decades since we started working. Those taxes and interest will have
totaled more than $800,000 by Dec. 31, 2010. For example, the $5.18
my employer and I paid in 1961 -- the year I got that card I'm
holding -- will have grown to $140 by the end of next year.
I don't have a problem with this
$600,000-to-$800,000 disparity, by the way. One of the principles of
Social Security is that higher-paid folks like me -- I'll get the
maximum old-age benefit because I earned the maximum Social
Security-covered wage (currently $106,800 a year) for 35 years --
support the lower paid. That's as it should be, given that the
Social Security tax (12.4% of covered wages, split equally between
employer and employee) is regressive, far more costly as a percent
of income to a $40,000-a-year person than it is to me. According to
the Tax Policy Institute, five out of six U.S. workers pay more in
Social Security tax (including the employer's portion) than in
federal income tax -- something that makes it especially important
(and only fair) to preserve the program for lower earners, who get
old-age benefits of up to 90% of their covered wages, while I get
only 28%.
How can my wife and I pose a problem
to Social Security when our benefits are valued at $600,293, while
our tax payments ($271,508 through next year) plus interest will
total $804,686? Answer: because the obligation is real, but the
$800,000-plus asset is illusory, consisting solely of government
IOUs to itself.
Now let's step back a bit -- to 1935,
actually -- to see how we got into this mess. Franklin Delano
Roosevelt set up Social Security to look like an insurance company
and a funded-benefit program, even though it's neither (a point, by
the way, that Fortune made almost 75 years ago, in our December 1935
issue).
No, it's not a Ponzi scheme as some
folks claim. A Ponzi uses money from today's investors to pay
yesterday's investors and -- the key element -- lies about it.
Social Security, in contrast, doesn't lie about what it is: an
intergenerational social-insurance plan, with today's workers
supporting their parents (and disabled and survivors) in the hope
that their children will support them. It's not a pension fund. It's
not an insurance company.
Social Security exists in its own
world. In this world taxes are called "contributions," though
they're certainly not voluntary. "Trust funds," which in the outside
world connote real wealth bestowed on beneficiaries, are nothing but
IOUs from one arm of the government (the Treasury) to another (the
Social Security Administration). And "solvency," which in the real
world means that assets are greater than liabilities, means only
that the Social Security trust fund has a positive balance.
Alas, the trust fund is a mere
accounting entry, albeit one with a moral and political claim on
taxpayers. It's Social Security's cash flows, not its trust fund,
that will determine what the system can actually pay. It's really a
pay-as-you-go system, its trust fund notwithstanding.
To understand why I say that Social
Security will soon need a bailout while most people say everything's
fine through 2035, we have to examine the trust fund. It currently
holds about $2.5 trillion of Treasury securities and is projected to
grow to more than $4 trillion, even as Social Security begins to
take in far less cash in taxes than it spends in benefits. For
instance, in 2023 it projects a cash deficit of $234 billion.
However, the trust fund will grow because it will get $245 billion
of Treasury IOUs as interest -- the Treasury pays its interest tab
with paper, not cash.
"The trust fund has no financial
significance," says David Walker, former head of the General
Accountability Office and now president of the Peterson Foundation,
which advocates fiscal responsibility. "If you did [bookkeeping
like] that in the private sector, you'd go to jail."
Let me show you why the Social
Security trust fund isn't social or secure, has no funds, and can't
be trusted, by returning to my favorite subject: myself.
The cash that Social Security has
collected from my wife and me and our employers isn't sitting at
Social Security. It's gone. Some went to pay benefits, some to fund
the rest of the government. Since 1983, when it suffered a cash
crisis, Social Security has been collecting more in taxes each year
than it has paid out in benefits. It has used the excess to buy the
Treasury securities that go into the trust fund, reducing the
Treasury's need to raise money from investors. What happens if
Social Security takes in less cash than it needs to pay benefits?
Watch.
Let's say that late next year Social
Security realizes that it's short the $3,486 it needs to pay my wife
and me our Jan. 1, 2011, benefit. It gets that money by having the
Treasury redeem $3,486 of trust fund Treasury securities. The
Treasury would get the necessary cash by selling $3,486 of new
Treasury securities to investors. That means that $3,486 has been
moved from the national debt that the government owes itself, which
almost no one cares about, to the national debt it owes investors,
which almost everyone -- and certainly the bond market -- takes very
seriously.
Think about this for a second. The
Treasury has to borrow money to make good on the Social Security
trust fund's obligations. Remember that the Treasury and Social
Security are both part of the government. This example shows you
that the trust fund is of no economic value to the government as a
whole (which is what really matters), because the government has to
borrow from private investors the money it needs to redeem the
securities. It would be the same if the trust fund sold its Treasury
securities directly to investors -- the government would be adding
to the publicly held national debt to fund Social Security checks.
See? The trust fund isn't a savings vehicle -- it's nothing but a
bookkeeping entry.
If you look at the "Social Security
cash flow" chart, above and to the right, you'll see that Social
Security's projected annual cash-flow deficit starts small but grows
quickly to 12 digits. It's like having an AIG every year, then two
AIGs, then more. It's simply unsupportable.
You won't find anything like our
chart in Social Security's annual trustees report -- we used
information from a special online version of a table buried on page
196 of this year's 222-page report.
Social Security's "solvency"
calculations -- and the insistence by the status quo supporters that
there's "no problem" until 2036 because the trust fund will have
assets until then -- assume that the Treasury can and will borrow
the necessary money to redeem the trust fund's Treasury securities.
They also assume that our children, who by then will be running the
country, will allow all this money to be diverted from other needs.
I sure wouldn't assume that.
This whole problem of Social Security
posting huge surpluses for years, using proceeds from a regressive
tax to fund the rest of the government, and then needing a Treasury
bailout to pay its bills is an unanticipated consequence of the 1983
legislation that supposedly fixed Social Security.
In order to show 75 years of
"solvency," as required by law -- a law that should be changed --
Congress, using the bipartisan 1983 Greenspan Commission report as
political cover, raised Social Security taxes sharply, cut future
benefits, and boosted the retirement age (then 65, currently 66,
rising to 67). That was the first such step-up in retirement age,
even though life spans have increased greatly since Social Security
was founded in 1935, when someone who reached 65 really was old.
The changes transformed Social
Security from an explicitly pay-as-you-go program into one that
produced huge cash surpluses for years, followed by huge cash
deficits. No one in authority seems to have realized that the only
way to really save the temporary surpluses was to let the trust fund
invest in non-Treasury debt securities, such as high-grade mortgages
(yes, such things exist) or corporate bonds. That way, interest and
principal repayments from homeowners and corporations would have
been covering Social Security's future cash shortfalls, rather than
the Treasury's having to borrow money to cover them.
This problem has been metastasizing
for 25 years. Now I'll show you why the day of reckoning may finally
be here, using numbers to back up my earlier assertion that Social
Security could go cash-negative this year.
Just last year Social Security was
projecting a cash surplus of $87 billion this year and $88 billion
next year. These were to be the peak cash-generating years, followed
by a cash-flow decline, followed by cash outlays exceeding inflows
starting in 2017.
But in this year's Social Security
trustees report, the cash flow projections for 2009 and 2010 have
shrunk by almost 80%, to $19 billion and $18 billion, respectively.
How did $138 billion of projected
cash go missing in just one year? Stephen Goss, Social Security's
chief actuary, says the major reason is that the recession has cost
millions of jobs, reducing Social Security's tax income below
projections. But $18 billion is still a surplus. Why do I say Social
Security could go cash-negative this year? Because unemployment is
far worse than Social Security projected. It assumed that
unemployment would rise gradually this year and peak at 9% in 2010.
Now, of course, the rate is 9.5% and rising -- and we're still in
2009.
I'd love to be able to give you a
report on Social Security's cash flow so far this year, which is
more than half over. However, it's impossible to get interim
numbers. So I don't know where we stand, and we probably won't find
out before next spring, when the 2010 trustees report comes out.
Social Security's having negative
cash flow this year would be a relatively minor economic event --
what's a few more billion when the government's already borrowing
more than $1 trillion? -- but I think it would be a really important
psychological, political, and journalistic event.
OMB's Peter Orszag -- remember, he's
a Social Security maven -- pooh-poohed my thinking when I met with
him. He says I'm wrong to harp on Social Security's near-term cash
flow -- a term, by the way, that he won't use. "I think the real
question of Social Security is how we bring long-term revenues in
line with long-term expenses," he said, "not whether the primary
surplus within Social Security turns negative within the next few
years." I guess we'll see.
When you look back at numbers from
previous years, as I did while reporting this article, you suddenly
realize that Social Security's finances have been deteriorating for
a long time. As the "2009 cash-flow projections" chart, above and to
the right, shows, Social Security's cash flow (and thus its trust
fund balances) has fallen well below earlier projections. Seven
years ago, the projected 2009 cash flow was $115 billion, which as
we've seen had fallen to $87 billion by last year and is now $19
billion. Ten years ago the trust fund was projected to be $3
trillion at the end of this year, rather than the currently
projected $2.56 trillion.
In 1983 the system was projected to
be "solvent" until the 2050s. This year it's only until 2036.
Social Security's Steve Goss says the
major reason is that over the past two decades the wages on which
Social Security collects taxes have grown more slowly than
projected. He said Social Security projected them to grow at 1.5%
above inflation, but they've been growing at only 1.1%. While this
reduces future obligations because benefits are based on salaries,
for now the below-projected salaries cut sharply into cash-flow
projections.
The scariest thing, at least to me,
is that even as its financials erode, Social Security is as
important as ever -- maybe more so.
Let me elaborate on what I said
earlier, about how older people depend heavily on Social Security.
It accounts for more than half the income of 52% of married couples
over 65, and 72% of that of 65-and-up singles, according to the
Social Security Administration. For 20% of such couples and 41% of
singles, it's more than 90% of their income.
What's more, this dependence -- which
Goss says isn't projected to change -- comes despite 30 years of
broadly popular self-directed retirement accounts such as 401(k)s,
IRAs, 403(b)s, and such.
Why haven't those reduced dependence
on Social Security? Part of the reason is that it takes a lot of
money to generate serious retirement income: about $170,000 for a
$1,000-a-month lifetime annuity. Inflation protection, if you can
find it, is ultra-expensive. Vanguard, which offers a lifetime
inflation-adjusted annuity in conjunction with -- shudder! -- an AIG
insurance company called American General, quoted me a staggering
price for an annuity mimicking my wife's and my Social Security
benefit. Would you believe ... $774,895? Yes, that was the number.
Another problem is that the stock market has been stinko, the
post-March rally notwithstanding. Stocks are below their level of
April 2000, when the great bull market (August 1982 to March 2000)
ended. It's hard to make money in stocks when they've been down for
nine years. The Employee Benefit Research Institute estimates that
the average retirement account balance of people 65 to 74 was about
$266,000 in 2007 but had fallen to about $217,000 as of mid-June.
Then there's the problem of lost home
equity. According to a study conducted for Fortune by the Center for
Economic and Policy Research, people in the lower-income to
upper-middle-income ranges have lost a far greater proportion of
their net worth as a result of the housing bust than the most
wealthy people have.
The bottom line is that many older
people who felt reasonably well-fixed for retirement a few years ago
now need Social Security more than ever. That makes it even more
important to come up with a way to sustain it and to show our
children a realistic plan to give them benefits, rather than to rely
on the trust fund and the supposed political clout of the geezer and
the approaching-geezerhood classes to keep benefits flowing when
cash flow goes negative.
Solutions
So how do we fix these problems? Let
me divide it into three categories: what to do, what to change, and
-- this is crucial -- what not to do.
What to do
Many of the old standbys: raising the
"covered wage" limit, but not to outrageous levels; tweaking the
benefit formulas so that high-end people like me get a little less
bang for the buck; modifying cost-of-living increases for us
high-end types; and most important, raising the retirement age to
70, with a special "disability" earlier-retirement provision for
manual laborers, who can't be expected to work that long.
What to change
The law requiring 75-year solvency.
It's hard to predict what will happen 75 days from now, let alone 75
years from now. But the obsession with 75-year solvency and the
status of the trust fund has obscured what's really going on in
Social Security.
This requirement forces Social
Security's actuaries --who are among the best and smartest public
servants I know -- to make all sorts of impossible projections, such
as the one we show, above and to the right, about how many
beneficiaries we'll have per worker decades from now.
As we've seen, even one faulty
projection -- such as overestimating wage growth -- can cause
substantial problems. Would you bet your life on the
beneficiary-to-worker ratio, given the rising pressures for people
to work longer? I sure wouldn't.
The trust fund. Before the Greenspan
Commission-related changes in 1983, the trust fund was a checking
account. The workings of Social Security post-1983 have turned it
into something it was never intended to be: an investment account.
Let's gradually draw down the trust
fund by having the Treasury redeem $100 billion or so annually (less
than the current interest the fund earns) by giving the fund cash
rather than Treasury IOUs, gradually increasing the redemptions.
That will let the fund buy assets that will be useful when serious
cash-flow deficits hit -- things like high-grade mortgage securities
and high-grade bonds.
That way we'll be bailing out Social
Security a bit at a time, which is realistic, rather than in huge
chunks, which isn't. Combine that with the lower costs and higher
revenues we've mentioned, and today's kids could see there really is
a way they'll get benefits when they attain geezerhood. They'll be
looking at what will have become a pay-as-you-go system with a
checking-account-size trust fund. That would give any numerate
person more confidence in Social Security's future than the current
system does.
What not to do
Depend on taxing "the rich." One of
the solutions you hear in Washington is restoring "covered wage"
levels to the good old Greenspan Commission days, when 90% of wages
were subject to Social Security tax, compared with 83% now. Sounds
simple and fair, doesn't it? However, that would increase the Social
Security wage base to about $170,000 from the current $106,800,
according to Andrew Biggs of the American Enterprise Institute -- at
12.4%, a huge new tax to middle-class workers. (And yes, that's
middle-class income, not rich-person income, in large parts of the
country, including much of the East and West coasts.)
During the presidential campaign,
President Obama proposed (and then dropped) a plan to leave the
Social Security wage cap where it is but to apply the 12.4% Social
Security tax to all wages above $250,000. That -- like the
90%-level-of-income idea -- would be an enormous new tax that would
greatly weaken support for Social Security among higher-income
people. I'm not saying "rich people," because truly rich people
generally have huge amounts of investment income, which isn't
subject to Social Security tax.
Don't means-test benefits. It's
already being done. We'd be making a terrible mistake to means-test
Social Security by saying that people above a certain income level
can't get it. That would violate the current social compact that
everyone pays Social Security taxes and everyone gets something. It
would turn Social Security from an earned benefit into a flat-out
welfare program. Remember what happened to welfare when Bill Clinton
was in office? Imagine what would happen to a welfare Social
Security program the next time we have a conservative administration
and a conservative Congress.
Besides, Social Security is already
means-tested, indirectly. That's because if you have enough
non-Social Security income -- about $23,000 a year in my case -- you
pay federal income tax on 85% of your benefit.
Given the three pensions I stand to
collect from previous employers, I'm reasonably sure to hit that
level. So, for the final time, let's go through the numbers on me.
If my wife and I are in the 28% federal tax bracket when we start
collecting benefits, we'll be giving almost a quarter of our benefit
right back to Social Security (0.28 x 0.85).
It would also mean that the $600,000
benefit I talked about earlier would cost Social Security only about
$450,000 -- just 55% or so of the $800,000-plus value of our taxes.
I don't mind that big haircut -- but
I'd be furious if the government decided to just confiscate all the
money my wife and I put into Social Security over the decades by
saying we were "rich" and had no right to any benefits. And I
wouldn't be alone.
Given the way health care has bogged
down, Social Security may not make it onto the agenda until next
year. But it's going to show up sooner or later, probably sooner,
because the numbers are so bad that something's going to have to be
done. As I hope I've shown you, we're going to have to bail out
Social Security or else risk hurting a lot of low-income older
people or putting the whole program's future at risk by gouging and
alienating upper-income Social Security sympathizers like me.
So let's fix this, already. By the
numbers. And by the right numbers, not fantasy ones.
UAL Corp. next year will move its
operations center to the former Sears Tower in Chicago, making the
airline company the largest private employer headquartered in the
city.
The parent of United Airlines has
corporate headquarters in Chicago, with operations based in Elk
Grove Township, Ill., near O'Hare International Airport. Those
facilities are currently only about two-thirds used, said Glenn
Tilton, UAL chairman and chief executive, on Thursday. The
50-year-old facilities need $50 million to $90 million in upgrades,
and their age recently has led to service interruptions at the
airline.
United said it would be more
cost-effective to move to a new location, and this spring began
shopping around the Chicago area. On Thursday, the airline said it
will move 2,800 employees to the former Sears Tower, now known as
Willis Tower, beginning as early as the the second half of 2010.
Pete McDonald, United's chief
administrative officer, said most employees will be willing to
transfer to the downtown location, which is easily linked to public
transportation. He said United isn't planning for additional hiring
related to the move. While United will maintain a backup operations
center away from the Willis Tower, Mr. McDonald said the Elk Grove
property will be sold.
United employs 650 people at its
headquarters building a few blocks away from Willis Tower.
The airline said Thursday that
financial incentives offered by the city more than outweighed
cheaper real-estate prices at suburban locations.
United will spend $35 million on the
"buildout" in the tallest building in the Western Hemisphere,
Chicago Mayor Richard M. Daley said at a news conference Thursday.
Subject to approval by Chicago's city
council, UAL will get an incentive package valued at more than $25
million, including tax incentives, grants and job-training programs.
With the airline industry struggling
to earn money during the recession, and industry mergers possible
ahead, reporters asked Mr. Daley whether he believed that backing
United is a good use of taxpayers' money. Mr. Daley didn't comment
specifically on United's situation, but said he thought the airline
industry should lobby for government stimulus money.
Mr. Daley has been a strong supporter
of expanding Chicago's O'Hare airport, where United, along with AMR
Corp.'s American Airlines, is a dominant competitor. "The economic
engine of all these cities is an airport," Mr. Daley said. "You have
to be optimistic and have a vision of the future." He said the city
will recoup its investment as United employees spend money on train
tickets and meals and maybe even buy condominiums or rent apartments
closer to work.
United, the third-largest U.S.
airline by passenger traffic, last year held merger talks with
Continental Airlines Inc., but later opted to form a joint venture
with the Houston carrier. In the coming year, more airlines are
expected to consider merger options as they face shrinking revenue
and rising fuel prices.
Forget the new name given to the
former Sears Tower. The nation's tallest building is in effect
becoming Chicago's real "United Center." United Airlines owner UAL
Corp. will move its operations center from the northwest suburbs to
the recently renamed Willis Tower, 233 S. Wacker. Chicago Ald.
Robert Fioretti, whose 2nd Ward includes the building, confirmed the
move this morning.
Fioretti said he is meeting with the
company today to discuss details of UAL's request for a city subsidy
covering part of the relocation's cost. He said the request is for
about $25 million. UAL will move about 2,500 employees into Willis
Tower, Fioretti said. Others say 2,800 will move there.
"It's going to bring a lot of
vitality down to the whole West Loop," he said. Fioretti said a
subsidy is justified because the average UAL worker will spend about
$6,700 a year at downtown businesses.
The company is expected to lease
450,000 square feet in Willis Tower. The workers would be moved from
a building on Algonquin Road in Elk Grove Township that United has
deemed too costly to modernize.
A UAL spokeswoman and an executive
representing Willis Tower declined to comment. Fioretti said an
official announcement with the mayor's office will occur Thursday.
The 110-story former Sears Tower has
been renamed for Willis Group Holdings Ltd., an insurance firm that
leased 140,000 square feet in the building with a naming rights deal
lasting 15 years. So a renaming as "United Tower" is out of the
question and probably is undesirable for UAL, which is trying to
hold down expenses.
The company already has it name
attached to the United Center, the West Side home of the Chicago
Bulls and Blackhawks.
A move by United would have an
economic impact that dwarfs that of other high-profile corporate
relocations into downtown, such as by Boeing Co. and MillerCoors
LLC. Those moves involved smaller numbers of workers but promised
the cachet of a new corporate headquarters. UAL moved its corporate
operations downtown in 2006, setting up at 77 W. Wacker in a deal
that included $5.5 million in city aid.
Fioretti said he has discussed
security concerns with UAL since the tower is a potential terrorist
target. But the alderman said security at the building is extensive
and he expects no danger to the workers or the public.
He also said the Department of
Homeland Security pays close attention to the tower. An official
with the Daley administration, asking to remain anonymous, said
assistance under the tax-increment financing program is justified
because of the long-term economic benefits of hosting United's work
force.
"We are working on a final package
that ensures the the city is competitive with the other locations
that United is looking at," the official said.
The airline had considered space in
Rolling Meadows.
A $25 million subsidy from Chicago
taxpayers would come at the worst possible time. Most of the city’s
unionized employees have been forced to swallow furlough days and
other concessions to eliminate a threatened $300 million year-end
shortfall, while 431 members of two unions that refused to make
concessions have been laid off. Next year, threatens to be even
worse. Mayor Daley’s preliminary 2010 budget has $520 million gap.
Even so, the $25 million subsidy is justified, according to Rita
Athas, executive director of World Business Chicago.
“The collateral benefit to all the
small businesses that surround the tower: the deli stores, the shoe
shops, the stores people will be shopping in because they’re here,”
Athas said, citing a study by the International council of Shopping
Centers that shows each worker contributes $7,249 to the annual
downtown economy. “The other thing is having the Willis Tower
leased. This is 450,000 square feet. To get a tenant that big in
there is substantial in such an iconic structure. It shows the
vitality of the city?how attractive it is for businesses to locate
here.”
If not for the $25 million subsidy,
Athas said she’s convinced United would have stayed in the suburbs.
“There’s a substantial gap between the city and suburbs in terms of
office rentals. We never close the gap entirely because we have
other things we can offer. But, to be competitive, we have to try to
make up some of that,” Athas said.
She added, “It’s not out of the
realm. We’ve offered that much per-job before. On the $5.5 million
they already got [to move United’s corporate headquarters downtown],
they told us they were gonna bring in 300-some employees and they’re
up to 700. Here they’re saying 2,800.”
Athas scoffed at those who suggest
that United is rolling the dice by relocating its 2,800 employees to
a building that is a prime target for terrorists.
“I would move into the Sears Tower
tomorrow. I don’t quite understand why people feel like that,” she
said. “Who know what the next target will be? Who knows if it’s
gonna be a tall building? Should we all go and hide?”
Catherine David has been named
executive vice president of merchandising for Fort Worth,
Texas-based Pier 1 Imports.
Most recently, David was president
and chief operating officer for Jackson, Tenn.-based Kirkland's
where she led merchandising, planning, marketing and store teams.
Previously, she was vice president and general manager with Sears
Essentials, Sears Grand and The Great Outdoors. She has also held
the position of president of the Burnes Group, a photo and
accessories supplier. Prior to that, David spent 13 years with
Target Corp., where she held a number of positions in buying,
planning and stores. She was vice president and general manager of
target.direct when she left the company.
"We are excited to welcome Cathy to
our executive team," said Alex Smith, Pier 1's president and CEO.
"She brings great retail expertise and is extremely well prepared to
lead our merchants in continuing to develop a best in class buying
organization that creates merchandise assortments that exceed our
customers' expectations."
When Terry J. Lundgren became chief executive of
Macy's Inc. five years ago, he set out to revitalize the
151-year-old retailer, and further reshape an industry that had
undergone two decades of consolidation.
He engineered the biggest takeover in department
store history -- the $17 billion acquisition of May Department
Stores Co. -- and rebranded regional chains including Marshall
Field's and Filene's under a national Macy's banner. Then came the
worst economy since the Great Depression. Today, Mr. Lundgren is
managing through growing unemployment, slumping consumer spending
and falling profits. Macy's, one of the nation's largest department
stores by revenue, saw sales at stores open at least a year fall
8.9% in June, its 14th consecutive month of year-over-year declines.
In an interview with The Wall Street Journal, the
57-year-old retail executive said he is using the recession to
remake Macy's again. He's reshuffled management and launched an
effort to better tailor store merchandise to regional tastes. "This
is the best time to figure out what you'd like to look like in the
future," he said.
Is the consumer showing any signs of life?
Terry Lundgren: It looks to us that we've bottomed
out and are bumping along the bottom. It's not good news but it's
not getting worse, I think, for us and for other retailers.
Our purchasers are women. She's spending the same
amounts but just shopping with a great deal of discretion. Value is
the word, even if it's at regular price. The intrinsic value of what
she's buying is very important. That message is probably going to
stay with us for some time.
Do you want to see more of a stimulus package?
I want to see more stimulus in the hands of those
who need it, and I want to see more jobs created with the stimulus
package. I want to get more people to work. I don't think our
[national] unemployment number is done yet.
So do you think more of a package is needed?
No, not more of a package, just more of what already
has been agreed to be distributed. What I was enthusiastic about was
this whole term of "shovels in the ground," getting this in the
hands of people who can work on infrastructure, build those things
that need to be built anyway -- highways, transportation and the
like, get people working. That works for me. That's my customer, as
well as Wal-mart's and Penney's and Kohl's. That's what we need. We
need jobs and job security. Were you expecting the unemployment
numbers to be as bad as they were? How will they affect consumers
during back-to-school sales? I was expecting them. I think we're
going to get to 10%, which is really unfortunate. I think you'll see
continued weakness in back-to-school. I lowered my inventory levels
in proportion to the business, so I am fully expecting these weak
trends we've seen in the last couple of quarters to continue into
the third for sure.
Do you think about lowering your average selling
price or changing your product blend, as some of your competitors
have done?
Here's the challenge. We have [a men's pants brand],
and they typically go out the door between $29.50 and $32.50, with
all the coupons and everything. We and the manufacturer together
agreed to mark them down to $21.99 or something like that. Selling
like hotcakes. Every other pants around them stopped selling.
So we were getting tremendous sell-through at low
price points and no margins. And I am not making my pants sales for
last year, because my average sale dropped by 30%. It's really hard
to make the math work. I have to have 30% more transactions on this
product to break even.
Are you worried that customers are trained to wait
for discounts, particularly after last holiday season?
I'm not worried about it. I'm counting on it. If we
get an upside surprise, that would be a wonderful thing. But they
will not forget the value they had last year.
The only way customers are going to start buying at
full price again, [is] when they can't have their way on discounts.
The key is you have to give good value, but it doesn't have to be
80% off.
Do you think the level of consumption will ever get
back to what it was, once the recession is over?
None of us know that. But I think it will not be
what it is today. There was a period of time when it was easy, there
was no price resistance in certain product categories. I think
that's over. I think there will be price resistance, but [consumer
spending] will come back. It will be better.
I think it's all part of the human psyche. There is
a certain release valve associated with shopping and having someone
take care of you for a change. There's something to that hunt for a
special jacket. That psychology may be hard to explain, but I do
think that will return over time.
In recent years, the quality of the
advertising created to help sustain Hoffman Estates-based Sears as a
viable retailing behemoth has been, to say the least, uneven. What
has been most problematic, of course, is the absence of a coherent
advertising strategy that clearly defines what the iconic brand is
all about. Or one that tells consumers why they should choose Sears
over competing retailers, such as Target.
An upcoming example of the wildly
eclectic advertising for Sears from its agency of record Young &
Rubicam/Chicago will feature former high-profile football star Brett
Favre, who recently decided he will not come out of retirement for a
second time to join the Minnesota Vikings. Favre's decision
effectively puts him on the football sidelines now -- and presumably
for the rest of his life. His finished football career
notwithstanding, Sears apparently was interested in highlighting
Favre and his indecisive tendencies.
Toward that end, Young & Rubicam
secretly flew Favre to Chicago on July 20 to shoot a Sears
commercial to promote LED televisions and what is being billed as
the "Sears blue electronics crew."
This new Sears crew, we're told, is
not unlike the blue-shirted young men and women in Best Buy stores
who are there to counsel customers, especially when they are buying
big-ticket items like televisions and computers.
Blue crews already exist in other
Sears departments, such as home appliances, but they are being added
to the electronics department later this month.
Though it was shot in Chicago two
weeks ago, the new Sears spot with Favre won't debut until
September, perhaps to coincide more closely with the start of the
football season. From what we can glean about the new spot's
content, however, it will center on a discussion between Favre and a
blue crew team member played by Second City improv comedian Brad
Morris.
The ad copy includes a lot of
back-and-forth banter between Morris and Favre, who at one point
says he hates indecisive people, apparently unaware he's got a bit
of a problem in that area himself. Favre's cluelessness, we suspect,
is where the intended humor in the new commercial is supposed to be
generated. And it is supposed to be a funny spot.
Favre may have many talents, but we
haven't heard that he's a great comedian, especially when performing
opposite a professional funny man such as Morris. But we'll see. Let
us know if you laugh.
DETROIT — Federal regulators are
seeking more than $22 million from the former head of Kmart Corp.,
who was found liable for misleading investors about the company's
finances before a bankruptcy filing in 2002.
In a court filing, the U.S.
Securities and Exchange Commission is asking a judge to punish
Charles Conaway for "intentionally lying" to Wall Street and
concealing information from Kmart directors.
The SEC accused Conaway of failing to
disclose that Kmart was delaying payments to suppliers to save cash
in late 2001. In June, a federal jury in Ann Arbor, Mich., ruled in
favor of the government.
Conaway's lawyer, Scott Lassar (LA-sar),
says there were no ill-gotten gains. A hearing is set for Sept. 16.
Kmart now is part of Sears Holdings Corp.
BIRMINGHAM, ALA. — Sears Holdings has opened its first Sears-branded
appliance store inside a Kmart.
The store-within-a-store debuted last
month inside what had been the garden department of a Birmingham,
Ala., Kmart. The 4,000-square-foot shop holds less than two-thirds
of the assortment found in a typical Sears store, but substantially
more SKUs than are found in the approximately 280 Kmarts that
presently carry appliances, where the departments typically average
about 2,500 square feet.
The new Sears shop has its own
entrance, checkout counters and sales team, which was reassigned
from a recently shuttered Sears store nearby, and will offer the
chain's full suite of in-store and at-home support services,
including price comparisons, installation and repair. The appliance
store will also carry Sears branding, including the chain's “Blue
Appliance Crew” marketing collateral, and the main exterior sign
atop the Kmart was amended to read “Kmart Sears Appliances.”
According to Sears' home appliances
president Doug Moore, the closing of the local Sears created a
unique opportunity to test the concept, which he described as an
“early stage initiative.” While it's too soon to evaluate the
results, he said, the relocation into the minimally fixtured space
was fast, efficient and supported in part by the local Birmingham
government, and the several hundred Kmarts nationwide with garden
shops present a significant opportunity “to expand the number of
places we sell appliances.”
Sears has long tested various formats
to extend its appliance and electronics franchise beyond the chain's
mall-based box, including stand-alone specialty stores. The latter
include the new Sears Home Appliance Showrooms, which target
underserved metropolitan areas; more than 110 Sears Hardware and
Appliance Stores, conceived as convenient neighborhood centers
averaging 40,000 square feet; and about 60 independent Home
Appliance Stores, which are operated under Sears' Hometown dealer
network.
Utilizing the garden departments can
help Sears boost majap sales and market share by leveraging Kmart's
largely strip-mall real estate, a format preferred by shoppers for
its easy access to stores. The strip-mall sites would also help
Sears more readily tap into “take-with” sales, an advantage held by
national competitors The Home Depot and Lowe's with their
freestanding stores, and Best Buy with its stand-alone and
strip-mall locations.
Moore said ongoing majap efforts like
the stores-within-stores, the Blue Appliance Crew campaign and a
recent buyer protection plan that safeguards purchases in the event
of job loss, will ensure that Sears is well-positioned when the
economy eventually rebounds.
“Times are still tougher than a year
ago, and the unemployment news is particularly daunting,” he said.
“It's a great time to help consumers.”
'Twas 147
Shopping Days Before Christmas . . . Rocked by Slump, Retailers Get Jump
on Santa; 'Let's Get Past Halloween,' a Shopper Laments By Ann Zimmerman - Wall
Street Journal
July 31, 2009
It's the time of year when Dad's
mowing the lawn, Mom's packing up a picnic, and the kids are
splashing in the pool. Yep, it's beginning to look a lot like
Christmas.
At the mall at least. America's
retailers are responding to the recession with Christmas in July. A
number of retailers and toy makers launched Christmas sales and
promotions this month, hoping to boost sagging sales and help
cash-strapped consumers stretch out their holiday spending.
Toys "R" Us Inc. decided to market
its summertime Christmas discounts with an image of Santa lounging
on the beach in sunglasses. Sears.com and Kmart.com used a vintage,
snowy street scene accompanied by offers of free shipping. The
effort is a case of life imitating art. Texas songwriter Jeffrey
Barnes had the idea in 1992 when he penned the tune "Christmas in
July" about what he thought was a far-fetched solution to the
nation's economic doldrums:
"The president was passing laws, Gave
a call to Santa Claus He said, 'Get that toy machine on high Economy
is in a slump I know what could pick it up This year let's have
Christmas in July.' "
The Christmas sales are getting mixed
reviews. Some love it, saying the early discounts help them budget
and avoid big credit-card bills come January. Some who confess to
being Christmas addicts -- or who are just extremely well organized
-- say they just can't start shopping early enough. They like the
idea of avoiding December crowds. "I say go shop to your heart's
content," says Leslie Johnson, a grandmother from Plano, Texas. "It
really doesn't matter to me whether it's a scheme to bring in
business now. Bottom line is, a bargain is a bargain." But for
others, Christmas in July translates to commercialism at its worst.
Holly Linskie was taken aback this
week when confronted with a Christmas display in a Dallas-area Sears
store as she was shopping for sneakers with her 7-year-old grandson.
"It's ridiculous," she said, as the boy ogled an old-fashioned
police-car collectible featured in the display. "Let's get past
Halloween first."
Maria Frisa, a Las Vegas bookkeeper,
says she has always had a problem with the early advertising of
Christmas, but this summer she says it has gotten totally out of
hand. "Give me the old times, when everyone was together and family
celebrated within their means."
To Joe Rhodes, a Los Angeles writer,
the Christmas-in-July promotions "reek of desperation. After last
year's lousy Christmas season, I guess the retailers are trying a
do-over," he says.
Sears Holdings Corp.'s Sears and
Kmart stores for the first time this year attempted to pump some
Christmas spirit into customers while their children are still in
summer camp.
On their Web sites, the two retailers
have invited shoppers to take a stroll down "Christmas Lane,"
anchored by a "Holiday Décor Shoppe" and "Gift Shoppe," while
snowflakes drift over the scene and holiday music plays in the
background.
Customers are awarded free shipping
if they pile up a tab of at least $60 on items ranging from holiday
decorations to snowblowers. About a third of Sears stores nationwide
made the virtual Christmas Lanes a reality, converting a corner of
their brick-and-mortar stores into a holiday department peddling
décor items such as Lemax Village Collectibles, lighted tabletop
Christmas-scene displays. Not all stores embraced the concept
equally. At the Sears outlet in the Dallas suburb of Frisco, the
Christmas section was limited to just a single table and several
shelves of the items tucked away on the second floor between the
garden rakes and shower curtains. Mrs. Linskie, the shopper, found
the lack of commitment annoying, too. "Either don't do it or do it
bigger, for heaven's sake," she said.
"This was only planned as a glimpse
of what's to come for the holidays," says Sears spokeswoman Natalie
Norris-Howser. "The reception from customers has been so good, we're
keeping the display up for a few more weeks."
Celebrating Christmas in July isn't a
new phenomenon. In Australia, for instance, where July is typically
the coldest month of the year, ski resorts and stores get into the
act with special events. With the 1940 release of the Preston
Sturges film "Christmas in July," the term, if not the practice,
became popular in the U.S. Towns around the country have come to
embrace Christmas parties in July -- none more so than Cleveland.
Last weekend, bars and nightclubs throughout the city put up
mistletoe and served Great Lakes Brewery's popular Christmas Ale.
The brewery throws its own annual bash as well. The Ohio town of
Put-in-Bay on South Bass Island has the biggest party of all. Last
weekend, the whole downtown was festooned with Christmas decorations
and there was a big Christmas parade.
Toys "R" Us said it has been running
summer Christmas sales for years at some of its overseas locations.
But last week it tried out the concept for the first time in the
U.S., slashing 55% off the price of a Hannah Montana Malibu Beach
House and 25% off a selection of scooters. On Saturday, the stores
invited children to make Christmas cards, eat candy canes and play
games.
At a Toys "R" Us store in Allen,
Texas, Cindy Smith, a nurse, browsed the sale as her daughter tried
to talk her into buying a PixOs 3-D art toy for $9.99, marked down
from $19.99. Ms. Smith was unmoved, but nevertheless said she
thought the sale was a good idea, especially in the recession.
"People have to stretch their dollars out some way or another," she
said.
Retailers once waited until late
November to roll out their Christmas promotions. In recent years,
St. Nick has donned his furry red coat as early as September as
retailers compete more aggressively for holiday sales.
That's when Wal-Mart Stores Inc.'s
Sam's Club and Costco Wholesale Corp. typically start putting up
some of their big holiday displays, such as a giant inflatable Santa
and other Christmas items. This year's tough economy persuaded QVC,
Liberty Media Corp.'s shopping channel, to put more emphasis on its
two-decade-old Christmas-in-July event.
"Given the dreary economic climate,
we thought we could bring customers a little more cheer in the
middle of summer," said QVC Chief Executive Mike George. Jakks
Pacific Inc., the country's third-largest toy maker, pitched 11
items -- up from just two in 2004 -- during QVC's Christmas event
last weekend. Jakks's best-known brands: Cabbage Patch Kids and
Eyeclops night-vision goggles.
Showcasing products on QVC gives
Jakks "a good, early read" on what will sell best this year, so it
can adjust holiday orders as necessary, said Merryl Reynolds, a
Jakks vice president.
Martin Matkovich, a 45-year-old
finance director for a division of PepsiCo Inc., said he never
misses the QVC Christmas-in-July sale. "I love Christmas, and I love
to buy Christmas presents for everybody." This year, he says, he
bought several Zambi interactive elephants for the neighborhood
children and snapped up a Jakks Star Wars TV game for his
13-year-old nephew.
The event, he says, "lets me buy the
hot toys before they hit the stores and begin to sell out," said Mr.
Matkovich, who divides his time between a house in Connecticut and a
Manhattan apartment.
But Shirley Hoover, a retired
executive secretary from Blackfoot, Idaho, is adamantly opposed to
promoting Christmas in the summer. "Personally, I prefer they wait
until after Thanksgiving -- we would at least be given time to be
thankful for what we have."
One person who is a little nonplused
by the explosion in July Christmas sales is Mr. Barnes, the Texas
songwriter with a band called Brave Combo who wrote "Christmas in
July."
"I wrote it to say that when people
are focused on making money, nothing is sacred," he says. "Of
course, it was mainly intended to be amusing."
LITTLE ROCK, Ark. -- Two union-backed
groups that have spent years criticizing Wal-Mart Stores Inc.'s
wages and benefits say they're going to merge.
Wal-Mart Watch, backed by the Service
Employees International Union, the United Food and Commercial
Workers Union's WakeUpWalmart.com announced Friday they'll combine
efforts to pressure the world's largest retailer. The new group will
operate under the WakeUp WalMart.com name. UFCW spokeswoman Meghan
Scott says the groups share the same goals of pushing
Bentonville-based Wal-Mart to pay higher wages and improve health
coverage and other benefits.
Last month, Wal-Mart and the SEIU
joined together to endorse the Obama administration's proposal to
mandate that employers provide health insurance.
(Crain’s) – Sears Holdings Corp.
launched a new back-to-school marketing campaign Thursday utilizing
one of this generation’s most popular social networking sites.
The new online site, known as Campus
Ready, accessed via Facebook and Sears.com, includes everything from
a gift registry to enabling students to design a dorm room online to
allowing them to learn more about their roommates.
If successful, it also will help
Sears reach younger shoppers.
“Our Campus Ready program allows
Sears to connect directly with students,” said Don Hamblen, chief
marketing officer. “It’s all grounded in great product assortment,
in style and fashion. Building on that, it’s in the latest context
that adds value and speaks to the target audience, which is kids.”
It comes as the Hoffman Estates-based retailer gears up for the
second-biggest shopping event, the back-to-school season, second to
the holidays.
Sears already got a head start on the
holiday season, launching an online Christmas boutique earlier this
month. It also opened holiday decor shops at 372 stores, including
the Woodfield Mall location in Schaumburg.
The Campus Ready digital platform is
available on Facebook at:
www.facebook.com/campus ready or www.sears.com/campus
Sears also announced that it has
teamed up with Disney star Selena Gomez to debut back-to-school
attire for teens and tweens. The 16-year-old “Wizards of Waverly
Place” actress also is working with the retailer to host casting
calls nationwide, including in Chicago, to find the next Air Band.
Marketing is a long-term proposition.
A company can get in trouble if it changes its marketing strategy to
cope with a short-term problem.
Years ago, Packard was the premier
luxury car, not Cadillac. The 1915 introduction of the Twin-Six
Packard, one of the first 12-cylinder automobiles, created a
crescendo of favorable publicity. In its time, Packard was known as
"the American Rolls-Royce."
For many years, Packard outsold
Cadillac by a wide margin. From 1925 to 1934, for example, Packard
sold 243,748 cars versus just 134,341 for Cadillac.
Of course, 1934 was near the bottom
of the depression. Even though Packard outsold Cadillac that year,
the company was concerned because its 1934 sales (6,552) were only a
fraction of the 44,634 cars Packard sold in the boom year of 1929.
What should Packard do? Hey, things
are bad. We need to come out with a cheaper version of our product.
(How often have you heard that said in the boardroom?)
So in 1935 Packard introduced the 120
(pictured above), its first middle-market vehicle. Sales took off.
That year Packard sold 37,653 cars, more than five times as many
vehicles as it sold the year before. Obviously the new strategy was
working.
And it continued to work for more
than a decade. From 1935 to 1941, Packard sold three times as many
cars as Cadillac, 456,503 versus 135,628.
But the brand was getting tarnished.
More and more car buyers perceived Packard to be just another
mid-priced vehicle and Cadillac to be the only luxury car. In 1941,
for example, the cheapest Cadillac sold for $1,445. The cheapest
Packard was just $927. (You can't build a premium perception on a
middle-of-the-road price.)
As soon as the economy improved after
World War II, Packard started to fade. By 1950, Cadillac was way
ahead of Packard. By 1957, Packard was gone and Cadillac was king of
the luxury-car market.
Some companies today are making the
same mistake as Packard. They are ignoring their long-term positions
in order to fix a short-term problem. Marketing people, in
particular, are being asked to prepare programs to deal with the
recession. Far too often, the marketing strategy gets pushed aside
as the company goes for a short-term sales boost.
You might have thought that Cadillac
would have learned a lesson from its marketing victory over Packard,
but apparently not.
Over the years, Cadillac has
cheapened its brand with low-priced models like the Cimarron and the
Catera. And according to trade reports, Cadillac is currently
working on a line of inexpensive 4-cylinders cars. ("I'm not quite
sure what it is," reported a senior editor of Automotive News, "but
it certainly isn't a Cadillac.") Today, Cadillac has lost much of
its luxury-class luster. Last year, for example, Cadillac was far
behind the three leading luxury-car brands.
Now what do you suppose Cadillac is
going to do about its fourth place position? Of course, keep
expanding the line. "I compete today in about 65% to 68% of the
market," said Mark McNabb, VP of Cadillac-Hummer-Saab sales.
"Obviously we would like to compete in a greater portion of the
marketplace."
Last year, Cadillac-Hummer-Saab had
1.6% of the total automobile market, or 2.4% of the market they
claim to compete in. Those are signs of awfully weak brands.
A strong brand will compete in a
narrow segment of the market and then dominate that narrow segment.
Competing in 10% of the market with a 50% share is a typical
example.
Cadillac, like the rest of General
Motors' brands, is going in the wrong direction. Cadillac is very
likely to follow in the footsteps of Packard.
The most valuable thing a company
owns is its position in the consumer's mind.
When you tamper with this position,
you are asking for trouble. Yet many companies spend much of their
time doing just that. Tampering with the brand's position. Walmart's
move into fashion, for example, was a total failure. Actually,
Walmart was lucky its fashion foray didn't work. That would have
hurt its low-cost reputation.
Sears, Roebuck and Co. made this
mistake. Sears was the Walmart of the '50s and '60s and the largest
retailer in the country until the early 1980s. Then the company
drifted upwards into the mushy middle. Sears wasn't cheap and it
wasn't chic. (Today, Walmart is more than seven times the size of
Sears. Furthermore Walmart's net profit margin last year was twice
as much as Sears: 3.4% vs. 1.6%.)
It can take awhile to damage a strong
brand. American Express is the dominant high-end charge-card brand.
In 1987, it introduced the Optima card, its first credit-card
product. In 1999, it launched a massive marketing campaign behind
its "Blue" card, another credit-card product.
Recently The Wall Street Journal
reported, "As defaults rise, bruised AmEx returns to its roots."
"American Express Co., after
outclassing its rivals for the past 50 years," reported The Journal,
"is looking uncomfortably like just another credit-card company." In
January of this year, its defaults on its securitized loans rose to
8.3%. That's one reason American Express is now offering some Blue
and Optima cardholders a $300 gift card if they pay off their
balances and cancel their accounts.
Why turn American Express into "just
another credit-card company"? (That's exactly what Packard did. Turn
a high-end brand into "just another car company.")
What American Express did makes no
sense to me. Its upscale reputation not only is a powerful
attraction for consumers, but it also allows AmEx to charge
merchants more than Visa or MasterCard does for handling its
charges.
Starbucks is making the same mistake.
What is instant coffee going to do for Starbucks except to cheapen
the brand?
Think about it this way. Why is
Starbucks slowing down? Because consumers are switching from
fresh-brewed to instant coffee? I think not. Starbucks is slowing
down, in my opinion, because the economy is bad. If the company
hangs in there, without damaging the brand, sales are likely to
rebound quickly after the economy turns around.
In spite of what you might have read
in the papers, Starbucks is not doing that badly. Last year, sales
were actually up 10.3% over the previous year. What's down is
Starbucks' net profit margin which dropped from 7.1% to 3%.
What would I do if I were running
Starbucks? I would focus on the core problem. It doesn't take a
genius to know why consumers are lining up at Dunkin' Donuts instead
of Starbucks, or "Fourbucks" as it is commonly known. Consumers need
a reason to go back to Starbucks. If I were running Starbucks, I
would slightly reduce prices across the board. Maybe 10% or 15%. But
I would still keep them significantly higher than McDonald's or
Dunkin' Donuts. The lower prices would give consumers an excuse to
go back to Starbucks.
Wouldn't this hurt the brand? Not
necessarily. As long as Starbucks is more expensive than the
alternatives, the brand will still be perceived as upscale. In the
long run, the only thing that counts is the perception of the brand
in the consumer's mind. That's what marketing people should focus
on. Not current sales which for luxury brands are certain to be hurt
by the economy.
Save the brand and when the economy
improves, so will the brand's sales. Damage the brand in order to
reap additional sales in the short term and you'll wind up like
Packard.
Marketing is a long-term proposition.
A company can get in trouble if it changes its marketing strategy to
cope with a short-term problem.
Years ago, Packard was the premier
luxury car, not Cadillac. The 1915 introduction of the Twin-Six
Packard, one of the first 12-cylinder automobiles, created a
crescendo of favorable publicity. In its time, Packard was known as
"the American Rolls-Royce."
For many years, Packard outsold
Cadillac by a wide margin. From 1925 to 1934, for example, Packard
sold 243,748 cars versus just 134,341 for Cadillac.
Of course, 1934 was near the bottom
of the depression. Even though Packard outsold Cadillac that year,
the company was concerned because its 1934 sales (6,552) were only a
fraction of the 44,634 cars Packard sold in the boom year of 1929.
What should Packard do? Hey, things
are bad. We need to come out with a cheaper version of our product.
(How often have you heard that said in the boardroom?)
So in 1935 Packard introduced the 120
(pictured above), its first middle-market vehicle. Sales took off.
That year Packard sold 37,653 cars, more than five times as many
vehicles as it sold the year before. Obviously the new strategy was
working.
And it continued to work for more
than a decade. From 1935 to 1941, Packard sold three times as many
cars as Cadillac, 456,503 versus 135,628.
But the brand was getting tarnished.
More and more car buyers perceived Packard to be just another
mid-priced vehicle and Cadillac to be the only luxury car. In 1941,
for example, the cheapest Cadillac sold for $1,445. The cheapest
Packard was just $927. (You can't build a premium perception on a
middle-of-the-road price.)
As soon as the economy improved after
World War II, Packard started to fade. By 1950, Cadillac was way
ahead of Packard. By 1957, Packard was gone and Cadillac was king of
the luxury-car market.
Some companies today are making the
same mistake as Packard. They are ignoring their long-term positions
in order to fix a short-term problem. Marketing people, in
particular, are being asked to prepare programs to deal with the
recession. Far too often, the marketing strategy gets pushed aside
as the company goes for a short-term sales boost.
You might have thought that Cadillac
would have learned a lesson from its marketing victory over Packard,
but apparently not.
Over the years, Cadillac has
cheapened its brand with low-priced models like the Cimarron and the
Catera. And according to trade reports, Cadillac is currently
working on a line of inexpensive 4-cylinders cars. ("I'm not quite
sure what it is," reported a senior editor of Automotive News, "but
it certainly isn't a Cadillac.") Today, Cadillac has lost much of
its luxury-class luster. Last year, for example, Cadillac was far
behind the three leading luxury-car brands.
Now what do you suppose Cadillac is
going to do about its fourth place position? Of course, keep
expanding the line. "I compete today in about 65% to 68% of the
market," said Mark McNabb, VP of Cadillac-Hummer-Saab sales.
"Obviously we would like to compete in a greater portion of the
marketplace."
Last year, Cadillac-Hummer-Saab had
1.6% of the total automobile market, or 2.4% of the market they
claim to compete in. Those are signs of awfully weak brands.
A strong brand will compete in a
narrow segment of the market and then dominate that narrow segment.
Competing in 10% of the market with a 50% share is a typical
example.
Cadillac, like the rest of General
Motors' brands, is going in the wrong direction. Cadillac is very
likely to follow in the footsteps of Packard.
The most valuable thing a company
owns is its position in the consumer's mind.
When you tamper with this position,
you are asking for trouble. Yet many companies spend much of their
time doing just that. Tampering with the brand's position. Walmart's
move into fashion, for example, was a total failure. Actually,
Walmart was lucky its fashion foray didn't work. That would have
hurt its low-cost reputation.
Sears, Roebuck and Co. made this
mistake. Sears was the Walmart of the '50s and '60s and the largest
retailer in the country until the early 1980s. Then the company
drifted upwards into the mushy middle. Sears wasn't cheap and it
wasn't chic. (Today, Walmart is more than seven times the size of
Sears. Furthermore Walmart's net profit margin last year was twice
as much as Sears: 3.4% vs. 1.6%.)
It can take awhile to damage a strong
brand. American Express is the dominant high-end charge-card brand.
In 1987, it introduced the Optima card, its first credit-card
product. In 1999, it launched a massive marketing campaign behind
its "Blue" card, another credit-card product.
Recently The Wall Street Journal
reported, "As defaults rise, bruised AmEx returns to its roots."
"American Express Co., after
outclassing its rivals for the past 50 years," reported The Journal,
"is looking uncomfortably like just another credit-card company." In
January of this year, its defaults on its securitized loans rose to
8.3%. That's one reason American Express is now offering some Blue
and Optima cardholders a $300 gift card if they pay off their
balances and cancel their accounts.
Why turn American Express into "just
another credit-card company"? (That's exactly what Packard did. Turn
a high-end brand into "just another car company.")
What American Express did makes no
sense to me. Its upscale reputation not only is a powerful
attraction for consumers, but it also allows AmEx to charge
merchants more than Visa or MasterCard does for handling its
charges.
Starbucks is making the same mistake.
What is instant coffee going to do for Starbucks except to cheapen
the brand?
Think about it this way. Why is
Starbucks slowing down? Because consumers are switching from
fresh-brewed to instant coffee? I think not. Starbucks is slowing
down, in my opinion, because the economy is bad. If the company
hangs in there, without damaging the brand, sales are likely to
rebound quickly after the economy turns around.
In spite of what you might have read
in the papers, Starbucks is not doing that badly. Last year, sales
were actually up 10.3% over the previous year. What's down is
Starbucks' net profit margin which dropped from 7.1% to 3%.
What would I do if I were running
Starbucks? I would focus on the core problem. It doesn't take a
genius to know why consumers are lining up at Dunkin' Donuts instead
of Starbucks, or "Fourbucks" as it is commonly known. Consumers need
a reason to go back to Starbucks. If I were running Starbucks, I
would slightly reduce prices across the board. Maybe 10% or 15%. But
I would still keep them significantly higher than McDonald's or
Dunkin' Donuts. The lower prices would give consumers an excuse to
go back to Starbucks.
Wouldn't this hurt the brand? Not
necessarily. As long as Starbucks is more expensive than the
alternatives, the brand will still be perceived as upscale. In the
long run, the only thing that counts is the perception of the brand
in the consumer's mind. That's what marketing people should focus
on. Not current sales which for luxury brands are certain to be hurt
by the economy.
Save the brand and when the economy
improves, so will the brand's sales. Damage the brand in order to
reap additional sales in the short term and you'll wind up like
Packard.
Julius Rosenwald was one of the great
business leaders and philanthropists of the 20th century.
Too few people know that Rosenwald
made it possible for black children in the rural segregated South to
get an education by opening up 5,000 primary schools.
Even fewer know that he also was an
extremely generous patron of the arts.
Through the Rosenwald Fellowships, he
made it possible for black artists to pursue their creativity even
when the country was reeling from the Depression.
The list of some of the Rosenwald
scholars is a who's who of black achievement. Marian Anderson,
singer; Ralph J. Bunche, political science; W.E.B. Du Bois, creative
writing, and Katherine Dunham, anthropology, are just a few of the
well-known African Americans who benefitted from the Rosenwald fund.
Because Rosenwald believed that
people should give while they live, he set up the fund to go out of
business 25 years after his death.
As a result, his name is often absent
from today's conversations about great philanthropy.
The son of German Jewish immigrants,
Rosenwald made his millions as the CEO of Sears, Roebuck and Co. He
began supporting African-American causes after reading Booker T.
Washington's book, Up from Slavery.
Last week, I took a tour of an
exhibit at the Spertus Museum, which honors the legacy of Rosenwald.
It is the first exhibit to pull together the works of 22
African-American artists who benefitted from the fund.
Paintings by two white Southern
artists who were interested in depicting race in their work also are
in the exhibit.
Daniel Schulman, an art historian,
served as exhibit curator. Schulman has lectured extensively on
African-American art.
"We can learn something about
Rosenwald from both the African-American history and art history,"
Schulman noted.
"Part of what attracted me to this
project is that you get to show black and white artists in the same
show and it becomes a survey of African-American artists including
white artists," he said.
"That is what the Rosenwald Fund did.
He was interested in creativity and expressions that had to do with
race in America between 1928 and 1948. Some of the strongest artists
worked at that time," Schulman said.
Artists who received a Rosenwald
Fellowship, which gave them the time to create without worrying
about the groceries, include famous names, such as Jacob Lawrence
and Elizabeth Catlett, as well as artists who are relatively unknown
outside of the arts community.
Catlett and Eldzier Cortor are still
alive, and some of their most important work was made possible by a
Rosenwald Fellowship.
Many of you may be familiar with
sculptor Augusta Savage's "Gamin," a bust of an African-American boy
that became the iconic image of young blacks during the 1920s and
'30s. Savage received her fellowship in 1929.
Seven years earlier, Savage's
application for a prestigious summer sculpture program in France had
been rejected purely on the basis of her race. The chair of the
American committee expressed concern that Savage's presence on the
trip might offend white Southern girls.
After Savage's sculptures came to the
attention of the Rosenwald Fund, she was awarded funds that enabled
her to study in Europe for two years.
Catlett's linoleum prints that make
up "The Negro Woman" series are part of the exhibit, as are prints
of Jacob Lawrence's series that captured the tumultuous last days of
the famous abolitionist John Brown.
The work of other artists in the
exhibit include photographers Gordon Parks and Gilbert Dwoyid
Olmstead, whose work is rarely seen.
The influence that many of these
Rosenwald scholars had on the arts culture overall still can be seen
today in the works of artists they later taught.
Through this exhibit, an important
part of Rosenwald's legacy has been rediscovered. "A Force for
Change: African Art and the Julius Rosenwald Fund" runs through
Aug.16 at Spertus Museum, 610 S. Michigan Ave.
With Circuit City out of business,
Sears looks to fill the consumer electronics sales void, rebranding
CE salespeople as the Sears Blue Electronics Crew that will help
consumers choose their home electronics -- particularly televisions
-- and can even help with installation and repairs.
"The Blue Crew is going to present
themselves as a selfless group of individuals who work in service of
the customer," Eddie Combs, chief marketing officer for Sears
Holdings electronics, tells Marketing Daily. "We're developing new
programs, so that we're not just a bunch of branded guys standing
around in a store, but rather something that gives the customer
something."
To that end, Hoffman Estates,
Ill.-based Sears is retraining and teaching its electronics sales
people to make them better educated about the products they sell.
They will also be able to help customers -- many of whom have done
hours of research at home -- choose which product is really right
for them and what the prices on those items are, even at other
retailers. They will also be able to help set up installation
through Sears -- something the company has been able to do in the
past, but has not really advertised.
"We think that the real-time price
check will show consumers there's another turnkey provider out
there," Combs says. "People don't think of us as one because we're
part of a department store."
The Blue Electronics Crew will begin
appearing in stores in early fall, right around the start of
football season (a time when many men think about upgrading their
television sets). Sears has already filmed a television commercial
featuring NFL quarterback Brett Favre -- who has famously had
trouble deciding whether to retire from football -- having trouble
choosing an LED television. The commercial will launch sometime
after Favre makes an announcement about his football future. (Favre
is said to be considering an offer from the Minnesota Vikings in
Minneapolis, which is -- not coincidentally -- the headquarters for
Best Buy.)
"What football spokesperson has a
hard time making up his mind and is trying to do it in a way of
having no regrets?" says Combs about choosing Favre as a spokesman.
Other marketing efforts will include print, event marketing, social
marketing and public relations.
The effort to rebrand the electronics
staff as the Blue Crew is intended to make people think of Sears as
more than a place to turn for emergencies, such as when a water
heater breaks, Combs says. "People come to us in times of need, but
we need to be more assertive and proactive," he says. "We need to be
a little more vocal about the services we can offer and sharpen the
pencil on the services we already do."
By doing so, Combs is hoping to
piggyback on some of the goodwill people may already have for Sears
when it comes to appliances (such as Kenmore) and tools (such as
Craftsman). "We're a trusted advisor that's already been in a part
of their homes" such as the kitchen, basement or garage," Combs
says. "We have a lot of relationships with America. We just haven't
taken it into the living room."
(Crain's) — With all the chatter
about Walmart winning in the recession, it's easy to miss another
retailer that's also doing pretty well: Kmart. Yes, Kmart.
In contrast to its sibling Sears,
which has seen same-store sales worsen since December 2007,
same-store sales at Kmart have gradually risen. In the most recent
quarter, Kmart reported a dip of only 2% compared with 4% drop at
Target, though though it's still far behind recessionary darling
Walmart, which posted a same-store sales gain of 3.6%. It's an
impressive showing for Kmart; even though it is lapping weaker
results than its competitors, the boost it's seeing as a result of
the recession is undeniable.
Clearly, Kmart is doing something
right. So what's the secret? First, its messaging doesn't revolve
around price. A value message is essential, of course, but Kmart's
not going to tussle with Walmart. That's a smart move, considering
Walmart is the undisputed low-price leader, and Target's me-too
efforts have largely fallen flat.
Instead, Kmart has developed creative
recession-busting programs and resurrected or reenergized popular
value-oriented promotions. For example, the past two weekends, the
retailer unearthed vintage blue lights (newer locations used blue
balloons) and began touting Blue Light Specials, the limited-time
offers that made the retailer a part of pop culture before being
largely phased out in the early 1990s.
Recession-busting
retailer "We know it has a lot of equity, and
we know that when it's done well it's meaningful to the customer and
has the ability to energize our associates and store experience,"
said Mark Snyder, chief marketing officer at Kmart. "We got some
great traction through apparel, home electronics and a couple of
other categories like sporting goods and seasonal. [Continued
testing] will tell us whether this is a great long-term strategy for
us to have in the promotional arsenal."
Likewise, Kmart's promotion of
layaway last holiday season differentiated it from rivals and
attracted new customers. The retailer struck again with the creation
of Smart Assist, a program being tested in Michigan. It offers
unemployed customers an additional 20% off store brands for up to
six months. If the program expands to other states after the initial
test, you can bet it will pull in new shoppers. The nation's
unemployment rate is hovering at 9.5%, after all, and is expected to
go higher.
"Everyone else is talking about
things on sale and food and consumables, and Kmart has all of those
things," Mr. Snyder said. "But even in a recession, where price and
value are so important, you can't forget about the importance of
going to the marketplace with a differentiated message."
Kmart has also had more cash to put
behind that message. According to TNS Media Intelligence, measured
media spending at Kmart rose 13% to $194 million in 2008. DraftFCB
is Kmart's creative agency, while MPG handles media. Both agencies
referred requests for comment to the client.
The addition of well-loved Sears
brands such as Kenmore, Craftsman and Diehard has also been a boon
for Kmart. The retailer has been adding limited, convenience
assortments to a number of locations, though at least one full-blown
appliance store opened this month in an Alabama Kmart store.
Best of both
brands "Kmart has not only all the Kmart
brands but all the good Sears brands," said one executive close to
the retailer, though of course that gives Sears less of a point of
differentiation.
All of those factors are pulling in
new customers, and Kmart is scrambling to take advantage by playing
up its fashion wares. That's an area in which it has had trouble
gaining traction with consumers, thanks to dowdy images solidified
in consumers' minds years ago.
The recently launched Kmart Design
Web site highlights initiatives that haven't exactly become a part
of the consumer consciousness, such as the fact that the retailer
employs several hundred designers at studios in New York and
Chicago.
Videos on the site document Kmart
designers from its home division on trend trips to Paris and London.
And a Twitter feed related to the site illustrates just how
media-savvy the retailer has become; recent tweets highlight a
styling session with mommy bloggers in Chicago for the annual
BlogHer conference.
Kmart also has purchased a
significant print program with Condé Nast Media Group that will
include an insert in the September issues of Vogue, Glamour and
Lucky. "[We're] building credibility around quality and
trend-forward style while we have the opportunity with a very
willing audience," Mr. Snyder said.
But while Kmart execs are embracing
if not downright enjoying this recession, the mood among Sears execs
is more subdued.
When asked why same-store sales
continue to decline, Sears CMO Don Hamblen said he and his team are
asking themselves that same question. Still, there are few traces of
sibling rivalry. "It's a brand that's starting to hit its stride,"
Mr. Hamblen said, complimenting the Kmart team. "As a mass merchant
in a recession, they're well-positioned."
(This report originally appeared on the Web
site for Advertising Age, a sister publication of Crain's Chicago
Business.)
Allstate Corp., which in 2005 began a partnership
with NASCAR, will drop its sponsorship of the Allstate 400 at the
Brickyard at Indianapolis Motor Speedway, the Northbrook-based home
and auto insurer confirmed Monday.
"The contract was up and we're always reviewing our properties and
how they perform," Allstate spokesman Raleigh Floyd said. "We
enjoyed working with them, and the fans are probably the most loyal
in sports, but our other sponsorships were just performing a little
better."
Allstate will continue to focus on its sponsorships of college
football, including the Sugar Bowl, as well as the Olympics, which
the city of Chicago is vying for in 2016.
And "our plan is to be a big part of that if the Olympics come to
Chicago," he said. "Resources that are freed up from this decision
could very well go toward that."
When Allstate announced the NASCAR sponsorship in 2005, it said it
was the first-ever insurance company to officially partner with the
auto racing league.
Allstate has been cutting jobs and cracking down on travel.
Insurance giant Aetna Inc. has put
its pharmacy-benefit management business on the block, say several
people familiar with the matter, as the industry embarks on a
widescale consolidation.
Aetna's business, which manages
prescription-drug benefits for about 11.2 million members, has been
shopped around by bankers at Bank of America Merill Lynch and Credit
Suisse, say these people. Industry players such as CVS Caremark
Corp. and Medco Health Solutions Inc. are all taking a look, they
added.
The business was also shopped to
Express Scripts Inc., which may have accelerated a consolidation of
the pharmacy-benefit industry in April with its $4.68 billion
acquisition of WellPoint Inc.'s NextRx pharmacy-benefit business.
The Aetna pharmacy-benefit business
has been on the block for a couple months, according to these
people, but no final deal or announcement is likely soon.
Pharmacy-benefit managers run prescription-drug programs for
companies and negotiate prices with pharmacies, where prescriptions
are actually filled. An analyst report in April estimated Aetna
could get at least $2 billion for the pharmacy-benefit business,
which is the fifth-largest with 125,000 prescriptions handled
annually, according to an analysis by Sanford Bernstein research.
The Hartford, Conn.-based insurer
moved up its second-quarter earnings announcement by two days to
Monday morning though it was not clear if that move was tied to the
auction process. An Aetna spokesman declined to comment on the
auction process or the decision to move up the earnings
announcement.
Like other major insurers, Aetna is
facing twin headwinds of recession and health-reform legislation
that could cut into profits. The third-largest insurer in terms of
members, Aetna has held up better than some rivals, but is not
immune to pressures. In June, Aetna surprised Wall Street by cutting
its 2009 profit forecast, citing higher medical costs in its
commercial plans and lower-than-anticipated revenue from Medicare.
When Wellpoint sold its in-house PBM
to Express Scripts in April, some analysts speculated that other
insurers, including Aetna and Cigna, might do the same. But the
Wellpoint deal came with a 10-year contract for Express Scripts to
provide pharmacy-benefit management services to Wellpoint, the
biggest health insurer with 35 million members.
That contract was key in helping
Wellpoint command nearly $4.7 billion in the sale, and it is unclear
if other deals would contain that important provision. Bank of
America Merrill Lynch also advised WellPoint on the deal back in
April.
The deal between Wellpoint and
Express Scripts was the first sign that insurers might reconsider a
long-held strategy to manage their own PBMs. Insurers have long
argued that they are better able to coordinate care by running their
own PBMs and that doing so gives their customers a broader array of
services.
But more recently, some analysts have
argued that the standalone PBMs such as Express Scripts can use
their scale to command lower prices.
Squeezing cost out of the system is
paramount right now as Congress considers legislation to overhaul
the health-care system, and the insurance industry has come under
special scrutiny. Insurers are eager to be viewed as cooperative in
this effort and a sale of a noncore business could allow Aetna to
focus its efforts on improving the quality of care and lowering
prices.
Attention Kmart shoppers: Blue-light
specials are back. Again.
The discount chain is reviving the
gimmick that became famous for creating bargain-hunting mayhem. But
this time blue balloons instead of an oscillating blue bulb will
alert shoppers to the aisle where a few products are on sale for an
hour.
"We asked ourselves: How do we bring
some fun and excitement back to the store?" said Tom Aiello, a
spokesman for Kmart, a unit of Sears Holdings Corp. in Hoffman
Estates. "We have incredibly priced items that we couldn't offer all
day long, but we could offer for an hour."
Kmart tested the blue-light promotion
in stores last weekend. Another sale is scheduled for Saturday.
Deals will be announced over the
loudspeaker at half-hour intervals throughout the day.
Kmart created the blue light in 1965.
It faded in 1990 before being resurrected for a short time in 2001
with much fanfare, which included bathing the Statue of Liberty in
blue light. In 2007 Kmart turned the tagline into a talking blue
light bulb called "Mr. Blue Light," which danced around stores in TV
ads.
For shoppers longing for the
authentic blue light of decades ago, a few stores, including the
Kmart in Norridge, will dust off their original blue bulbs for
Saturday.
(Crain’s) — The parent company of
United Airlines is in talks with the Daley administration and the
owners of the recently renamed Willis Tower about moving a
2,800-employee operations center from Elk Grove Township to the
110-story skyscraper.
UAL Corp. is in negotiations to lease
about 450,000 square feet in the former Sears Tower, 233 S. Wacker
Drive, according to sources familiar with the talks.
If a deal is reached, it would be a
major coup for the city — generating far more jobs than the
much-publicized headquarters moves by MillerCoors LLC, Boeing Co.
and UAL. The deal would also symbolize the trend of jobs migrating
from the suburbs to downtown — about 15 years after Sears, Roebuck
and Co. moved from the tower to northwest suburban Hoffman Estates
in what was a decades-long exodus to the suburbs.
“We have not made any decisions and
we continue to review locations in the Chicago area,” says a United
spokeswoman.
“We informed all of our employees in
April that we were looking at alternative facilities that would
provide an improved work environment for our people and help us to
reduce costs.” She declined further comment. A spokeswoman with the
city’s Department of Community Development confirmed talks are
“ongoing” for a potential tax-increment financing (TIF) subsidy, but
said nothing has been finalized.
“We know that United is looking at
various locations,” the spokeswoman says. “We’re trying to be a
competitive contender.”
The airline is looking to reduce
expenses by moving from a sprawling, 1-million-square-foot complex
it owns in northwest suburban Elk Grove Township near O’Hare
International Airport.
The company has had offices there
since 1961, but the property is now much larger than United
currently needs and is costly to maintain.
UAL received a nearly $5.5 million in
TIF funding — and a $10-million rebate over five years on the jet
fuel tax — from Chicago to move its headquarters in 2006 from the
same northwest suburban location to another downtown office tower,
77 W. Wacker Drive, where it now employs about 650 people.
Sources say a letter of intent to
lease the space at Willis Tower could be signed as soon as this week
with the ownership group, which includes New York investors Joseph
Chetrit and Joseph Moinian along with Skokie-based American Landmark
Properties Ltd.
A spokesman for Willis Tower’s owners
declines to comment. A spokeswoman for Chicago-based real estate
firm Jones Lang LaSalle Inc., which advises United, declined to
comment.
Should the negotiations collapse at
Willis Tower, United could start up talks with another office
building downtown, where there are 10 properties with at least
350,000 square feet available — the minimum amount of space United
is said to require. Or the airline could shift the search to the
Schaumburg area, where the rents — and the potential city subsidies
— would be much lower.
Rolling Meadows City Manager Sarah
Phillips confirms the northwest suburb has been in talks with
United, but wouldn’t identify where UAL has been looking there. She
says the airline had said it hoped to reach a decision by the end of
July.
Landing United would be a big boost
for Willis Tower, where the airline would probably take space
currently occupied by Ernst & Young U.S. LLP, which plans to leave
the building in 2011 to move to a recently completed tower at 155 N.
Wacker Drive.
But a deal at Willis Tower is
complicated by United’s weakened financial condition, which leaves
it without spare cash to pay for the move after much of its reserves
were eaten up by huge losses last year. On Wednesday, a New York
credit ratings agency said it was considering a further downgrade of
UAL’s rating after airline executives said they didn’t see any
improvement in travel demand
Businesses are turning to bloggers to
get their message out. It's all part of efforts to find new ways to
reach consumers.
Many companies use the power of the
internet to pitch new products. But some are now offering popular
bloggers freebies or flights across the country to check out new
product lines. That's left some critics wondering if these companies
are just creating buzz or buying the blogs.
At the headquarters of Sears Holdings
Corporation in Hoffman Estates, bloggers are buzzing.
"Last night we had a cocktail party,
where we had dinner, we got to mingle and meet all the other moms,"
said Amanda Acuna, blogger, mommymandy.com.
Sears flew in 16 bloggers from across
the country to get an exclusive look at their fall lines for sears
and Kmart. The event was so exclusive that Sears kept our cameras
out until the summit was over and the bloggers were ready to head to
the airport.
"I think it's good business," said
Janel Laban, blogger.
Janel Laban says her blog posted on
apartmenttherapy.com reach $150,000 a day.
"I think it makes sense for people
who want to speak to that audience to work with us," said Laban.
"It should almost be a paid
advertisement," said David Koehler.
David Koehler teaches marketing at
the University of Illinois at Chicago. He says by giving bloggers
free products and trips companies are buying positive reviews. "It's
definitely going to taint the credibility of the blog because you
know that that person received benefits, and if you receive benefits
such as what Sears has provided, you are very likely to look at the
positives," said Koehler.
"What we really wanted to accomplish
was more listening than pushing something on someone," said Rob
Harles, Sears.
Rob Harles runs Sears' new media
efforts. He says the company is turning to bloggers to get
unfiltered opinions.
"They have a lot of insight that you
can get from them very quickly and if you hit the right chord with
them they can also influence their own audiences on your behalf,"
said Harles.
Throughout what Sears called the
'Home Design Summit,' the bloggers posted pictures of new products
and updated their Twitter feeds, writing 'wow,' 'it's like heaven,'
and 'my jaw is dropping.'
It's not just Sears that's reaching
out to bloggers. Marketing experts say directly contacting bloggers
directly for product reviews is the latest trend in digital
marketing.
"It's like a business relationship,"
said Tanya Gordon, blogger who attended the summit.
Tanya Gordon's blog is
mommygoggles.com. She reviews all kinds of products such as a brand
new stainless steel refrigerator Frigidaire is sending her for free.
"Technically, it is a job. It's not
just send us something, we're going to review and post about it. We
want to post our positive thoughts and negative thoughts as well,"
said Gordon.
"People are trusting your personal
opinion and insight," said Janice Bond. Digital marketer Janice Bond
says it's important for both bloggers and companies to make sure
product reviews on blogs are unbiased.
"With all of this great information
and these portals to receive this information comes an even greater
responsibility," said Bond.
Later this week, more than 1,000 will
come to Chicago for BlogHer 2009, a conference designed for female
bloggers. Several of the sessions will focus on the business of
blogging, including whether blogging for money influences opinions.
You can't talk about Direct Marketing
in Chicago without going back to what some think is the most
significant book in the Western World short of the Bible -- the
Sears Catalog. For exactly 100 years, this was THE guide to American
living and product consumption: the styles, the aspirations, the
pastimes. The famous "Big Book" Spring and Fall catalogs filled with
everything from shoes to sump pumps died in 1993, a century after
Richard Sears made catalog shopping a way of life, but today they're
avidly collected and perused as records of American culture.
And for many years, writing for the
Sears catalog was a training ground for the best advertising
copywriters. It was my very first job out of college, and until the
1980s was a sought-after gig for honing ones skills. But things
changed, new retailers emerged on the scene, and Sears became less
and less relevant over the years until this week when it's name has
disappeared from the iconic world's tallest building (after all, it
was once the world's largest retailer).
At their peak, the Sears catalogs
were as well written and designed as the leading catalogs of this
century, and are good models of efficient and effective sales
writing that paints word pictures, makes benefits clear and asks for
the order. Aside from some research libraries, they're not that easy
to find today -- but as I've just found, some committed catalog
lovers are trying to make them available on the Web as open source
material, starting with the "Wish Book" Christmas catalogs.
For a nostalgic look at transistor
radios, leisure suits, poodle skirts and whatever was the rage of
the decade, check out the page by page catalogs online at
WishbookWeb.com. You'll find Sears Wish Book catalogs, of course, as
well as JCPenney, Spiegel, Wards and other vintage catalogs. I wish
these guys well, and if I can find my old catalogs that are boxed
away somewhere I'm certainly going to give them a better home at
this site.
Looks like Uncle Sam may be giving
appliance marketers a somewhat merrier Christmas. The U.S.
Department of Energy has clarified the timing of its Energy
Efficient Appliance Consumer Rebate Program, announced back in
March, and it looks like $300 million in rebates will likely begin
to make its way to consumers by late November.
Sears seems especially well
positioned. In March, it launched a marketing campaign based on its
"Blue Appliance Crew," who explain potential energy savings in
various models, and show consumers how to track down and navigate
the many rebate programs out there. The chain now has Energy Star
Rebate Centers, in-store kiosks that make comparison shopping
easier, will continue to offer no-interest financing for 12 months,
and last week kicked off an industry-first Buyer's Protection Plan,
which covers people who buy an appliance with their Sears card in
the event of a job loss.
Currently, Sears is the leading
Energy Star retailer, and its Kenmore brand is the leading Energy
Star brand. "We listened to our customers and know that they want to
do the right thing by purchasing Energy Star-qualified products,"
says Doug Moore, senior vice president and president of Home
Appliances at Sears.
"Using Sears Blue Appliance Crew
members as a resource to assist customers before they go home
encourages them to make environmentally smart purchases, simplifies
the shopping experience and rewards their decision to purchase an
Energy Star-rated appliance. Shoppers deserve their rebate money,
and we want to make it as easy as possible."
Sears, Best Buy, Home Depot, and
Lowe's have all been suffering from steep declines in appliance
sales, as the real estate market remains stuck in the doldrums. "Our
latest numbers show the industry was off another 15% this year,
through the end of June," says Jill Nottini, VP/marketing for the
Association of Home Appliance Manufacturers. "So we're thrilled with
this new program - we see this as a win for everybody. It will help
companies. It will help consumers save as much as 50% on their
energy bills. And it's good for the environment."
The program, funded through the
American Recovery and Reinvestment Act of 2009, will allow
individual states to set rebate amounts, and decide which Energy
Star products to include.
Nottini expects marketers and
retailers to sweeten the government rebates, to further entice
consumers. "This is a first-ever national appliance rebate program,
and could still be coupled with other offers by manufacturers and
retailers," she says. "For consumers who have been putting off the
purchase of a new machine and are willing to do a little research,
there will be plenty of good deals."
More than 36,000 people have signed a
Facebook petition against changing Sears Tower's name to Willis
Tower. I'm with them, though I suspect that their efforts will be
futile.
How would New Yorkers feel if the
owners of the Empire State or Chrysler Buildings sold off the naming
rights to those buildings? How would Parisians react if the Eiffel
Tower changed names? They'd feel like a piece of their identity had
been robbed. Many Chicagoans no doubt feel the same way now.
Sure, it can be argued, other
high-profile skyscrapers have changed names. Chicago's Standard Oil
Building is now the Aon Center. New York's Pan Am Building is now
MetLife. But these are big buildings, not iconic buildings. Few
people associate them with the identity of their cities. Sears Tower
is different: Its design -- strong, simple and structurally
expressive -- is Chicago writ large. Its name evokes the city's
great mercantile tradition. The building, in other words, is firmly
rooted in the prairie soil.
Putting your name on the city's --
and the nation's -- tallest building is a privilege that should be
earned, not simply coaxed out of owners in a real estate deal.
Willis, the British insurance concern that is sticking its name on
the tower, is taking a mere three floors in the 110-story
skyscraper.
Of course, skyscrapers are built to
make money -- they are machines that make the land pay, as Cass
Gilbert, the architect of New York's Woolworth Building, once said.
But at some point, great skyscrapers transcend their grubby
financial origins and take on a civic character, becoming firmly
associated with the identities of the cities they represent.
There's nothing civic about the
Willis renaming. It smacks of the same naming-rights "sell it to the
highest bidder" mentality that gave us Enron Field. Fortunately, the
name change won't affect the skyscraper's architecture. But it will
blur the skyscraper's identity -- and Chicago's identity too.
A name change is not a name change is
not a name change: They all affect us differently and say something
about where we are as a city, and whether we care much about the
edifice in question.
Somehow, it is easier to see Sears
Tower lose its original name than it would have been, say, to see
the John Hancock Center re-christened. That name, after all,
hearkens back to the Declaration of Independence, even if it does
designate the title of a Boston-based insurance firm.
The Willis-nee-Sears Tower, by
contrast, has always been opaque, monolithic and impersonal. Sears
itself bailed out of downtown a generation ago, and its business has
shrunk nearly as fast as its connection to the city.
The name might just as well be
Willis, which has a stately sound. Or, as Willis Group CEO Joe
Plumeri has suggested, it might as well be "The Big Willy."
Here's hoping Plumeri thought before
he spoke. Chicagoans who turned the "Cloud Gate" sculpture into "The
Bean" will gladly embrace "Big Willy" over Willis Tower any day.
Tracking the name changes of
Chicago's landmark structures is an exercise in tracing the business
history of the city.
The Palmolive Building had its racy
mid-life crisis as the Playboy Building. Who knows what went on
during those years. Now the edifice is in hiding as the blandly
titled 919 N. Michigan Ave.
The Standard Oil Building became the
Amoco Building became the Aon Center with barely a press release. No
one seemed to care.
Other names defy efforts at change.
New owners want people to quit
calling the Carson Pirie Scott & Co. building by its name. Good luck
to them. And the Chicago Board of Trade Building will still be
called that long after electronic commerce puts the actual pits out
of business.
The name "Comiskey Park" survived
even after the building the ballpark that first bore it was razed.
Today, Chicagoans call its replacement "The Cell" even though White
Sox Chairman Jerry Reinsdorf would prefer we call the ballpark by
its legal name, U.S. Cellular Field.
"I want U.S. Cellular to get their
money's worth," Reinsdorf said during a chat after the Willlis
ceremony, gamely defending the $68 million, 20-year rights deal.
Prying the Sears name off North
America's tallest building was as simple as asking the leasing agent
from U.S. Equities Asset Management to do it.
"I kept saying, 'Sears Tower, Sears
Tower. I'd rather have it be Kmart Tower,' " said Carmine Bilardello,
the Willis executive who negotiated the lease. "Then I asked them
what it would take to put our name on the building, and they said
that could be arranged."
The name goes on even though Willis
is using but little space -- just two floors. Naming rights are not
formally delineated in the lease, though a valuation was discussed
during negotiations.
The change here is one of both name
and mind-set. London-based insurer Willis will put 430 employees
into its tower right away and has space for 530, but the Willis
board of directors seemed to believe the firm will soon need more.
As the Willis board toured the two
leased floors Thursday following the naming ceremony, much of the
discussion focused on expansion plans. Bilardello assured the board
that he has locked an option for Floor 18, which is vacant.
"Could you cut the rent in half and
double the number of people?" asked board member Bill Bradley, the
former U.S. senator.
If a name change can fill the
once-empty, cavernous spaces of the old Sears Tower with talk of
growth, then Big Willy is a welcome change, indeed.
David Greising's column appears
Tuesdays and Fridays.
First came the puzzled looks. Then
the confused glances. And finally the questions.
"You mean the Sears Tower?"
On the day that the nation's tallest
building was officially renamed Willis Tower, at least a few
Chicagoans were still in the dark -- or, at the least, denial --
about the skyscraper's new identity. Residents, visitor guides and
even some taxi drivers responded with blank stares when asked for
directions to the Willis Tower.
"We don't have Willis Tower. There is
no Willis Tower here," said Momansor Hassan, 43, a cabdriver for 19
years.
Not until Thursday, that is. The new
signs and flags outside the 1,450-foot skyscraper were hard to
dismiss as crowds gathered to witness the building's first day as
Willis. The skyscraper, which opened in 1973 as the
then-world's-tallest building, was named after Sears Roebuck and Co.
It remained Sears Tower even after Sears relocated to Hoffman
Estates in 1992.
Millennium Park Visitor Service
worker Jean Aza, 40, had never heard of Willis Tower as of Thursday.
After scanning a map, he gave up. "This building over here is the
Cultural Center. Go over and ask them," he suggested.
A baffled Simbiat Soaga, 21, who
works a concession stand in Millennium Park, had to flag down a
tourist for help in locating the Willis Tower.
"I don't know of any Willis Tower in
Chicago to be honest," she said. "Let me ask someone."
Lucky for her, the tourist knew of
the name change.
Corderia Cook, 18, knew where Willis
Tower was. The Calumet Park summer camp leader confidently pointed
up at Two Prudential Plaza and said, "The middle one right here.
With the triangles."
Her charges, a group of 5- and
6-year-olds, never heard of Willis Tower either.
Taxi driver Frank Boateng, 31, had
just one question when told to go to Willis Tower. "Do you have the
address?" he asked.
Six of the eight cabbies polled knew
what the Willis was.
Others acknowledged the building's
new moniker brought back memories of another name change: Marshall
Field's to Macy's.
"The new Sears Tower," said Sue
Becker, 53, who splits her time between Chicago and St. Charles.
"They still call it Marshall Field's, so it's always going to be
Sears Tower."
Just don't tell that to Willis Group
Holding, the London-based insurance brokerage that acquired the
naming rights for 15 years. The company is leasing three floors and
moving in 500 employees.
The move earned a warm welcome from
Mayor Richard Daley. Asked if he would call the building "Big
Willie," as Chairman and Chief Executive Joe Plumeri has joked,
Daley said, " 'Big Willie,' Willis Tower, yeah. You know why?
Because they stepped up to the plate."
Stan Ferstadt, 69, of Milwaukee knew
exactly where Willis Tower was when asked. He works for the sign
company that changed the iconic landmark's name.
When asked what he would call it, he
didn't hesitate.
CHICAGO — The sleek black building
that looms over this city's skyline has for 36 years been instantly
recognizable as the Sears Tower. Until Thursday.
The 110-story building — once the
world's tallest, now the tallest in the Western Hemisphere —
Thursday becomes the Willis Tower.
The switch was part of the deal
struck by Willis Group Holdings, an insurance brokerage with offices
in New York and London, when it leased 150,000 square feet in the
famous skyscraper.
Sears moved out in the 1990s, but
Chicagoans take their architecture and history seriously, and name
changes often are met with resistance here — or just ignored.
Online petitions still demand that
Macy's restore the name Marshall Field's to its State Street
department store. That change took effect in 2006.
Many people here still refer to the
ballpark where the White Sox play as Comiskey Park. It became U.S.
Cellular Field in 2003.
"We expect the same wailing and
gnashing of teeth we heard about Macy's," says Jason Neises, vice
president of tour operations for the Chicago Architecture
Foundation.
The group is updating its tours and
promotional material to reflect the name change."Part of Chicago's greatness has to do with its people
feeling strongly about their buildings," says Willis CEO Joe Plumeri.
Still, his job is to "get the Willis
name to be more prominent," Plumeri says, and he couldn't pass up a
chance to put it on "a building as iconic as the Sears Tower."
Phyllis Kozlowski of Wendella Boats
says its guides will tell visitors the building has a new name but
will also mention its original moniker.
"If you just suddenly bleep out
'Sears Tower,' people are not going to know what you're referring
to," she says.
"We're saddened by the change, but
it's really inappropriate to comment on the name change," says Sears
spokeswoman Kim Freely, who adds that she believes most people will
continue to use the old name.
Plumeri hopes his company will earn
its place in Chicago's vocabulary.
Willis, which opened its first office
here in 1885, is donating $100,000 to Chicago 2016, which is trying
to win the Summer Olympic Games, and is donating money and volunteer
time to Chicago Cares, which organizes community service projects.
How long will it take for the new name to take hold?
"Only the gods know," Plumeri says.
Cara Meade, a college professor from
Milledgeville, Ga., who was in the city this week for a conference,
can't envision ever uttering the words "Willis Tower."
The name change "is a tragedy," says
Meade, whose father, Jim Peterman, worked for Sears for 23 years.
"It's just sad. Why would they change it?"
Wal-Mart Stores Inc. unveiled an
environmental labeling program for the products it carries, in a
step that could redefine the design and makeup of consumer goods
sold around the globe but also boost costs for suppliers and
customers.
Wal-Mart Thursday will tell suppliers
they must calculate and disclose the full environmental costs of
making their products, then allow Wal-Mart to distill the
information into a rating system that shoppers will see alongside
prices for everything from T-shirts to televisions.
The world's largest retailer by
revenue, once disparaged by environmental groups, said the new
initiative represents a bold new step in its efforts to reduce
energy consumption, cut waste and introduce sustainable products. It
will take years to fully take form. Some of its earlier efforts have
had wide-ranging impact -- from selling more than 100 million
low-energy fluorescent bulbs to the creation of concentrated
detergents that use less packaging and water.
Consumers are not likely to see the
first labels for years. The company estimated it could take a half
decade or longer, although outside experts involved in the project
said it could start sooner, perhaps as early as 2011. What the
labels will look like and exactly what they will attempt to
illustrate has yet to be determined.
The most immediate impact of
Wal-Mart's latest drive will be felt by its 100,000 suppliers, which
will bear the costs of the company's environmental mandates, at a
time in which many are struggling economically. Wal-Mart said it was
premature to estimate the cost to suppliers. Outdoor clothing maker
Patagonia Inc., which has been an early pioneer in reducing the
environmental footprint of its products, declined to disclose
figures, but said its efforts had been costly.
Wal-Mart insisted there will be no
exemptions. Asked what relationship Wal-Mart would maintain with
suppliers that don't supply the data, Chief Merchandising Officer
John Fleming said bluntly, "We probably don't have one."
Similar pioneering efforts to convey
environmental information to consumers have proved controversial,
with even supporters of the idea complaining that the resulting
"eco-babble" was of little practical use.
Len Sauers, Procter & Gamble Co.'s
global vice president for sustainability, said the labels would need
to be scientifically accurate, yet understandable to consumers. He
said similar efforts in Europe "have been quite difficult, because
they have not really provided the consumer with information that
makes sense."
1. Have you measured your corporate
greenhouse gas emissions? (Y/N)
2. Have you opted to report your
greenhouse gas emissions to the Carbon Disclosure Project (CDP)?
(Y/N)
3. What are your total greenhouse gas
emissions reported in your most recently completed report? (Enter
total metric tons CO2e, e.g. CDP6 Questionnaire, Section 2b -- Scope
1 and 2 emissions)
4. Have you set publicly available
greenhouse gas reduction targets? If yes, what are those targets?
(Enter total metric tons and target date; 2 fields or leave blank)
Material Efficiency
Reduce waste and enhance quality
Scores will be automatically calculated based on your participation
in the Packaging Scorecard in addition to the following:
5. If measured, please report total
amount of solid waste generated from the facilities that produce
your product(s) for Wal-Mart Inc for the most recent year measured.
(Enter total lbs)
6. Have you set publicly available
solid waste reduction targets? If yes, what are those targets?
(Enter total lbs and target date; 2 fields or leave blank)
7. If measured, please report total
water use from the facilities that produce your product(s) for
Wal-Mart Inc for the most recent year measured. (Enter total
gallons)
8. Have you set publically available
water use reduction targets? If yes, what are those targets? (Enter
total gallons and target date; 2 fields or leave blank) Natural
Resources High quality, responsibly sourced raw materials
9. Have you established publicly
available sustainability purchasing guidelines for your direct
suppliers that address issues such as environmental compliance,
employment practices, and product/ingredient safety? (Y/N)
10. Have you obtained 3rd party
certifications for any of the products that you sell to Walmart? If
so, from the list of certifications below, please select those for
which any of your products are, or utilize materials that are,
currently certified.
People and Community
Responsible and ethical production
11. Do you know the location of 100%
of the facilities that produce your product(s)? (Y/N)
12. Before beginning a business
relationship with a manufacturing facility, do you evaluate their
quality of production and capacity for production? (Y/N)
13. Do you have a process for
managing social compliance at the manufacturing level? (Y/N)
14. Do you work with your supply base
to resolve issues found during social compliance evaluations and
also document specific corrections and improvements? (Y/N)
15. Do you invest in community
development activities in the markets you source from and/or operate
within? (Y/N)
Wal-Mart executives said they plan to
develop labeling easily understood by consumers. "I envision the day
that you look at a piece of apparel, you flip a tag over, and learn
about how sustainable it really is," Mr. Fleming said. "It would be
like nutritional labeling is today. But there is some
standardization that needs to take place."
People familiar with the company's
plans said that Wal-Mart is angling to get ahead of potential U.S.
environmental labeling regulations -- they've already begun
appearing in Britain and Japan -- and to set a standard on its own
terms that the retail industry can adopt to communicate the green
hue of goods it sells.
Wal-Mart disputed that it was seeking
to preempt regulations. Mr. Fleming, who is helping lead the effort,
said he wanted to improve the quality of the products sold by the
discounter, which had $401.2 billion in sales last year.
Retail industry groups claim Wal-Mart
made a political calculation recently when it endorsed
employer-mandated health insurance, a key component of President
Barack Obama's plan to expand health-care coverage to nearly all
Americans. Wal-Mart said it supports the mandate in part because it
could help control rising health costs.
Wal-Mart Chief Executive Officer Mike
Duke will formally launch the project on Thursday in a speech to
employees and suppliers. He will call for "a new retail standard for
the 21st Century," and ask the company's largest suppliers to
provide details, such as water use and carbon dioxide emissions, by
October. All suppliers eventually will have to answer a preliminary,
15-item questionnaire, covering waste generation, resource use and
community involvement.
The company's goal is to build what
it terms a comprehensive sustainability index that measures the
environmental impact of each product Wal-Mart sells. For example, an
index might flag how much each contributes to global warming and if
it contains wood harvested in ways that deplete natural stocks.
"You can design something that is
carbon neutral, that does not contribute to climate change, and yet
is still detrimental to human health in other ways," said Jay
Golden, a professor at Arizona State University who will be
co-chairman of a consortium that will help Wal-Mart compile the data
and design standards. "So you have to look comprehensively at what
sustainability really means, and that is what Wal-Mart is trying to
do here in a very big way."
The index will judge products not
only by the environmental cost of producing them, but also by the
impact over their life span. Company buyers will be judged in part
by whether they improve the ratings of the products they purchase
from suppliers over time.
The information will be available to
anyone, Wal-Mart said, including rivals, in hopes it will help mold
a standard. Although Wal-Mart advisers envision spot audits and
dissections of products to determine what they contain, they say
transparency is what will ultimately curb potential cheating by
suppliers.
"A lot of suppliers are scared, but
there is an opportunity here for them," said Michelle Harvey of the
Environmental Defense Fund, which has worked with Wal-Mart in the
past and is assisting on the project. "I think the most significant
improvement will come before the consumer ever sees a score," she
said.
Eventually, through product labels,
the experiment will test whether consumers pay more for
environmentally superior products. Wal-Mart does not believe
consumers now are prepared to pay much more, but it believes that
will soon change as those born in the 1980s become the company's
primary customers.
Known as the Sears Tower since it
opened in 1973, the tallest building in the United States is set to
change its name to Willis Tower.
The London-based insurance brokerage
Willis Group Holdings will make the name change official Thursday
with a ceremony at the downtown Chicago skyscraper. Willis is
leasing 140,000 square feet and moving 500 employees to the
building.
The new name isn't the only recent
change at the tower.
Last month, owners announced a $350
million greening effort, along with plans for a 50-story luxury
hotel. For tourists, glass-bottomed enclosed balconies on the 103rd
floor were opened earlier this month.
Sears Roebuck and Co. was the
original tenant before leaving in 1992. A real estate investment
group now owns the 1,450-foot, 110-story skyscraper.
A small display of snow-topped
villages and ornaments sits nestled between the mattress and
hardware departments at the Sears store in Manassas. Next week, Toys
R Us stores in the area are inviting children to decorate Christmas
cards and slurp away on candy canes while their parents shop
Christmas sales.
Yes, it's July, but some stores have
decided that to get ahead of the poor economy they need to start now
on the holiday shopping season.
Nick White, a consultant in the
Gerson Lehrman Group network, called the strategy a good bet for the
struggling retail industry.
"No one wants to be hit with
Christmas songs and nutcrackers when they walk into the front door
of stores," White said.
But, he added, customers are
realizing they'll be spending less for Christmas this year and are
planning early exactly what to purchase. About 40 percent of holiday
shoppers have made up their mind about big ticket purchases in early
fall, he said. Usually, retailers don't start pushing holiday
shopping until early November, said Ellen Davis, vice president of
the National Retail Federation. But now retailers are trying to
avoid what happened last year when holiday sales declined for the
first time since the NRF began tracking them in the early 1990s.
"Retailers had far more inventory
than they needed, so they were forced to discount heavily and in
some cases give items away with a purchase," Davis said.
As early as January, Davis said,
retailers were planning their special promotions and adjusting their
inventory levels. The push for layaway will continue this year, she
said.
"People are looking for ways to spend
money without having to buy on credit," Davis said. "Layaway makes a
lot of sense right now."
Sears and Kmart, which stirred up
interest in layaway last year, are trying to remind customers of
that option with the "Christmas Lane" villages and ornaments. The
Manassas store is one of the local Sears stores, and one of 372
nationwide, to display the collectibles with signs urging customers
to visit the Web site.
There, shoppers can buy the holiday
collectibles on layaway until July 25, said Natalie Norris-Howser,
director of public relations for Sears Holdings.
Starting Sunday, Toys R Us will
discount items such as the Hannah Montana Malibu Beach House and the
newest version of Guitar Hero. Spokeswoman Jennifer Albano said in
an e-mail that the sale is to give parents the opportunity to
purchase their children's holiday gifts "at prices usually expected
during the holiday season."
On July 25, an in-store promotion
will invite children and their parents for a day of shopping,
holiday-themed games and crafts.
For 20 years, Hallmark has reserved
the second weekend in July for unveiling about half of its holiday
collection of keepsake ornaments.
Collectors generate buzz about the
new pieces among themselves, said spokeswoman Deidre Mize. The
company launched major advertising efforts this year, beginning in
February, trying to reach its reward customers through e-mail and an
online countdown, in addition to large Christmas-colored countdown
displays in stores.
The term "Christmas in July" is not
new, Norris-Howser said, but this year especially consumers are
adapting Christmas shopping to their economic situations.
"They're not sure they'll have a job
in a couple of months," she said. "This kind of gives them the nudge
to start thinking about Christmas earlier than they would have in
the past."
During these dog days of summer, the
nation's department stores are still cold.
According to the retail-sales
statistics released by the Commerce Department on July 14, June
department store sales dipped 1.3% compared to sales in May of this
year, and were down 9.4% compared with June of 2008. So to prop up
sales before the back-to-school season, one major player is asking
Santa, of all people, for some help.
Sears Holding Corp., which runs both
the Sears and Kmart department stores, is running a Christmas
promotion a full five months before Saint Nick leaves the North Pole
with his reindeer. On both the sears.com and kmart.com homepages,
customers are invited to "Shop Christmas Lane," and are directed to
deals on holiday ornaments, stocking stuffers and other
winter-related merchandise. The Christmas goods will also be on
display in 372 Sears stores throughout the country; the promotion
runs through July 25. (See pictures of crazy Christmas traditions.)
With temperatures simmering and
families spending summer days at the shore, most customers aren't
exactly in the Christmas spirit. So what convinced Sears, which has
seen nothing but annual same-store sales declines at both its
namesake and Kmart stores over the past four years, that skeptical
shoppers want to open up their wallets for Christmas gifts now?
"After the last holiday season, customers told us that they wish
they had seen some of our merchandise earlier," says Natalie Norris-Howser,
a Sears spokeswoman. "People are buying earlier today. Also,
customers have grown accustomed to the Christmas-in-July
terminology, so we wanted to leverage that." Norris-Howser also
pointed to the company's generous layaway offers for bigger-ticket
items as an incentive for shoppers to do their holiday buying today.
In today's environment, any move that
attracts attention might be worth it. "Overall, it seems to be a
pretty smart strategy," says Pete Blackshaw, a brand strategist for
Nielsen Online. "Doing it on the Web makes a world of sense. They
are clearly getting some buzz, there's a novelty effect. At a time
when everybody is going to be competing around November to get
attention, this is a good opportunity to potentially get in front of
the line." Blackshaw, who monitors how brands are perceived in the
social-networking sphere, says the Christmas marketing has gotten
positive feedback on Twitter.
The move, however, may also send a
more downbeat message to some shoppers. "It looks more like
desperation than inspiration," says retail consultant Burt
Flickinger III, managing director of Strategic Resources Group. "It
may be a sign that Kmart's spring and summer inventory is not
selling through." And Santa certainly isn't going to save Sears and
Kmart, retailers that seem increasingly irrelevant in the Walmart/Target/Home
Depot world. For example, as Morgan Stanley analyst Gregory Melich
writes in a recent equity research report, "Sears Holdings'
underinvestment in stores has degraded its ability to withstand the
magnitude of the current pullback in consumer spending."
Whether you're a fan of early
Christmas or not, get used to it. To get a jump start on what might
be a horrid Christmas shopping season, experts anticipate that
stores will move up Black Friday, and perhaps begin their holiday
marketing around Columbus Day. "Overall, I think you're going to see
a lot of this on the retail front," says Blackshaw. "They're going
to be looking for novel strategies to drive competitive advantage,
even if they have to rethink the typical calendaring of events." In
this depressed retail environment, however, can Santa deliver the
goods?
Clothing retailer Charming Shoppes
Inc., operator of the Lane Bryant and Fashion Bug chains, said
Monday that it will no longer seek a buyer for its Figi's catalog
business in Marshfield.
Bensalem, Pa.-based Charming Shoppes
(NASDAQ: CHRS) announced in August 2008 that would try to sell the
Figi's Gifts in Good Taste catalog business. At the time, management
said Figi's continued to be profitable and stated that the company
would only enter into a transaction at an acceptable valuation,
which the firm said Monday has not been achieved. The planned sale
was a key part of the firm's plan to focus on its core brands.
Charming Shoppes also announced
numerous executive changes that included the naming of Bill Bass, a
former executive of direct merchant Lands' End Inc. of Dodgeville,
as president of the Charming Direct division, operator of
lanebryant.com, fashionbug.com and catherines.com. Bass's experience
includes leading the e-commerce business of Lands' End and of the
direct to consumer business of Sears Roebuck & Co. following Sears'
acquisition of Lands' End.
As of May 2, Charming Shoppes
operated 2,272 retail stores in 48 states under the names Lane
Bryant, Lane Bryant Outlet, Fashion Bug, Fashion Bug Plus,
Catherines Plus Sizes and Petite Sophisticate Outlet.
Trade
Group Challenges Wal-Mart on Health Care
Federation Urges Members to Take a Stand Against Company's Support
of Plan Requiring Employers to Help Pay for Insurance By Miguel Bustillo and
Janet Adamy - Wall Street Journal
July 13, 2009
The retail industry's biggest trade group is
launching a broad attack against Wal-Mart Stores Inc. for supporting
congressional proposals requiring employers to help pay for health
insurance, an idea that has gained political currency thanks to the
backing of the nation's largest private employer.
"We could stand idly by and allow Wal-Mart to tip
the scales on the health care debate, cower and release an innocuous
statement...or stand up for all retailers and come out swinging,"
Tracy Mullin, chief executive of the federation, writes in the
letter.
In an interview, Ms. Mullin said that companies
ranging from multi-billion-dollar chains to small stores have been
complaining about the giant discounter's political gambit. "They
really don't want Wal-Mart to define the health-care debate," she
said.
The call to action escalates a dispute that has been
simmering since the beginning of the month after Wal-Mart announced
its support of a centerpiece of President Barack Obama's $1 trillion
plan to extend health-care coverage to nearly all Americans.
The prospect of an expensive new health-care
requirement comes at a particularly bad time for merchants. Wal-Mart
has been a rare exception in an industry that has for months
experienced slumping sales. Retailers are under intense pressure
from Wall Street to preserve profit margins by tightening labor
costs.
"I admit nobody is happy with the nation's
health-care plan. But I can't imagine that a government-mandated
health-care plan is going to fix it. I can only imagine that it will
just add costs," said Terry J. Lundgren, chairman and CEO of Macy's
Inc.
The most liberal proposal to have companies help pay
for the health-care overhaul, currently under consideration in the
House, would require all but the smallest employers to provide
workers with basic benefits or contribute up to 8% of their payroll
toward helping the government get them coverage.
A bipartisan proposal being considered in the Senate
would place a greater burden on employers of low-wage workers, a
prospect that particularly worries retailers and that Wal-Mart has
also expressed concerns about.
Industry observers viewed Wal-Mart's break from the
retail pack and support of the initiative as a shrewd political
tactic aimed at strengthening its competitive advantage against
other retailers -- and bolstering its image. Its endorsement letter
to the White House was co-signed by Andy Stern, the president of the
Service Employees International Union, and John Podesta, the chief
executive of the left-leaning Center for American Progress.
While most retailers believe the new employer
health-care obligation would drastically increase their expenses,
and perhaps force them to cut employees to reduce payroll costs,
Wal-Mart believes it can withstand any added costs the plan would
bring.
"We know that others may have a different opinion,
but we believe that we have taken a pro-business position," Wal-Mart
spokesman David Tovar said, adding, "The present system is not
sustainable."
That confidence stems from the head start Wal-Mart
has achieved in recent years after it boosted its employee
health-care programs in response to criticism from unions. Wal-Mart
now provides health care to 52% of its workers, up from 46% three
years ago, and believes a government health-care program could be
beneficial to its bottom line, if it helps curb a nationwide trend
of surging health-care expenses. The retail industry as a whole
provides health coverage to 45% of its workers, according to a 2008
survey of benefits by the Kaiser Family Foundation.
Health-care expenses are a sensitive topic in the
labor-intensive retail sector, where low-paid workers and high
employee turnover are a standard feature. Many companies have
typically offered minimal benefits, partly because their workers
don't earn enough to share much of the cost of premiums, and because
employers haven't seen much advantage in extending coverage to
workers who were unlikely to stay long, benefits experts said.
When retail workers do qualify for coverage, they
usually pay more. Nearly three-fourths of retail workers enrolled in
coverage plans had to meet an annual deductible, compared with
nearly 63% for nonfederal employees overall, according to the Agency
for Healthcare Research and Quality, part of the U.S. Department of
Health and Human Services.
While retailers have typically opted for the bare
minimum in health benefits, firms including Wal-Mart,Toys R Us Inc.
and Home Depot Inc. have begun tinkering with more expansive
programs in hopes of reducing employee turnover, said Shub Debgupta,
who conducts benefits research for more than 300 large companies as
part of Corporate Executive Board Co.
"Retail organizations have thin margins and have
ignored investing in benefits for the longest time, but some are
learning that smartly designed programs can be huge," Mr. Debgupta
said. However, he added that most regard government mandates as a
"huge burden," and predicted many firms would exit health care
altogether and pay a payroll tax to the government.
Macy's, which like most businesses has experienced a
spike in health costs in recent years, manages a complex web of
coverage plans cobbled from the many regional store chains that were
combined under the company. Roughly 60% of workers take part, a
spokesman said.
Costco Wholesale Corp. for years has enjoyed a
reputation for generous health benefits -- more than 90% of its
workers have coverage with the company -- and executives have
defended their strategy as a boon to productivity.
Costco Chief Financial Officer Richard Galanti said
Wal-Mart probably recognizes it is "going to be dragged into
providing coverage one way or another, and might as well drag
everyone else in retailing along with them."
—Rachel Dodes contributed to this article.
Kellwood Faces Debt
Deadline
Apparel Maker Considers Bankruptcy
Filing in Blow to Buyout Firm
By Peter Lattman -
Wall Street Journal
July 11, 2009
Kellwood Co., one of the largest
apparel manufacturers in the U.S., could be forced to file for
bankruptcy soon, after it failed to reach an agreement with its
bondholders, people familiar with the matter said.
The St. Louis-based company, which
employs roughly 2,000 people and owns such popular clothing brands
as Phat Farm, Sag Harbor and Vince, was taken private in February
2008 by buyout firm Sun Capital Partners for $542 million.
The twin effects of a heavy debt load
and a sharp drop in consumer spending have crushed the company's
financial results.
Baby Phat, a flashy fashion label
designed by Kimora Lee Simmons, was bought by Kellwood in 2004 in a
$140 million deal. A model, above, displayed one of the label's
dresses in February at a show in New York.
Kellwood has a $140 million bond
issue maturing Wednesday. Unable to refinance these bonds amid the
constricted credit markets, Kellwood hired financial advisers to
restructure its debt.
The firm has tried to defer the bond
payment through a so-called exchange offer, in which the company
would swap these bonds for ones maturing in 2014 with sweetened
terms. Deutsche Bank AG, the largest holder of the bonds, elected
not to tender the offer and a deal is unlikely to be reached,
according to people familiar with the discussions.
A Chapter 11 filing for protection
from creditors could come as early as next week, though it remains
possible the company could avoid such a move. The company has about
$500 million in total outstanding debt and about $800 million in
annual sales.
Michael Kramer, installed as
Kellwood's chief executive officer 10 months ago, said Deutsche Bank
had indicated it intended to accept the exchange offer, but then
changed its mind.
"They've put us in a bad spot and we
can't understand how they could rationalize this economically in any
way," said Mr. Kramer, who said the company is in the process of
hiring bankruptcy counsel. "We believe this bond offering benefits
everyone and their position is very disappointing."
Spokesmen for Deutsche Bank and Sun
Capital declined to comment. For Sun Capital, a bankruptcy filing by
Kellwood, the firm's largest investment, would be a blow. The
private-equity firm has seen 12 portfolio companies file for
bankruptcy protection since the start of 2008, including the
high-profile Mervyn's LLC filing. Other Chapter 11 filings include
auto-parts supplier Mark IV Industries, pharmacy chain Drug Fair
Group Inc. and clothing stores Anchor Blue Retail Group Inc.
With about 85 companies in the firm's
portfolio and a strategy of buying ailing businesses few others will
touch, Sun Capital executives say they expect failures in its
investments. But the deep recession and effective shuttering of the
lending markets has severely hurt its companies.
Sun Capital's acquisition of Kellwood
was something of a departure for the firm, which typically pays very
little for deeply distressed businesses. In January 2008, Sun
Capital launched a hostile tender offer for the then-publicly traded
Kellwood after building a stake in the company and then trying to
acquire it outright.
Amid the downturn, apparel
manufacturers such as Kellwood have been clobbered as consumers cut
back on spending and retailers slash inventory to adjust for
slackened demand. On Thursday, U.S. retailers reported their 10th
consecutive month of negative year-over-year sales, the longest
decline on record, according to a Thomson Reuters index that
excludes Wal-Mart.
Sun Capital and Kellwood's management
team have worked to streamline the company, which did $2 billion in
sales in 2006. The company has spun off units and exited its
licensing business, which included Calvin Klein's lower-end line. To
raise cash late last year, it sold popular kids-wear brands Gerber
Childrenswear LLC and Hanna Andersson for $179 million to a Sun
Capital fund.
In recent months buyout firms have
scrambled to restructure the debt of their portfolio companies. Some
private-equity-owned companies, such as Harrah's Entertainment Inc.,
have successfully deferred debt maturities through exchange offers.
Others companies have refinanced
their loans, but at a steep cost. Real Mex Restaurants Inc., once
owned by Sun Capital but now controlled by Kohlberg Kravis Roberts &
Co. and others, recently issued junk bonds yielding nearly 18%.
—Rachel Dodes and Keenan Skelly
contributed to this article.
Commentary Sears' Edifice Complex By Richard S. Tedlow
and David Ruben - Forbes.com
July 10, 2009
The Sears Tower is disappearing. Not
the building, but the name. This month, the 110-story Chicago
landmark, the tallest building in the country, will be renamed the
Willis Tower, after the London-based insurance broker that is a
major new tenant.
The rebranding has rankled Chicagoans
who prefer to keep calling the building by its familiar name. But it
should not come as a shock. Sears has not actually occupied the
Sears Tower since it moved its corporate headquarters to the Chicago
suburbs in 1992. Its naming rights to the building expired in 2003.
The Sears name remained only because no other company wanted to pay
to replace it with theirs. Now a company does.
But if the Sears Tower is history, it
is a history worth recounting. Since its completion in 1973, the
building has borne a glass-and-steel testament to the perils of
corporations erecting monuments to themselves.
To understand why, you first must
recall how great and influential a company Sears, Roebuck and Co.
once was. Founded in 1893, the firm achieved early success as a
mail-order purveyor to rural America. Its famous catalog became the
Baedeker of the emerging consumer economy, a "wish book" that often
occupied a prized place on the table in the living room of a farm
family's home.
Like General Motors (another fallen
corporate idol with its own glitzy tower, the GM Renaissance Center
in Detroit), Sears in the mid-20th century came to embody the
American way of life. Its mass-marketing put products that would
otherwise have been available only to the elite within the reach of
the middle class. By the 1950s, surveys showed that one in five U.S.
consumers regularly shopped at Sears. In 1965, it became the top
American retailer.
Soon thereafter, Sears announced
plans to build the world's tallest building for its new corporate
headquarters. The rationale for the project was simple. "Being the
largest retailer in the world," then-CEO Gordon Metcalf explained,
"we thought we should have the largest headquarters in the world."
Let's examine that statement for a
moment. What sense does it make? There is simply no connection
between the two.
Not every company needs to celebrate
itself with a monument, but Sears did. And like many firms that
do--from GM to AIG--a focus on the trappings of success can signal a
lack of focus on real problems.
What was happening in Sears' market
when the idea for this tower surfaced? Not long before the project
began to occupy the attention of top management, there were signs of
disruptive market entry all over the country. Dayton-Hudson, for
example, established Target. Woolworth founded WoolCo. S. S. Kresge
launched KMart. And a nobody in Bentonville, Ark., named Sam Walton
founded Wal-Mart.
These four firms served the same
market Sears had originally targeted at its birth. Sears, however,
apparently did not view these companies as future competitors. We
compete with ourselves, its executives told each other.
The result: As the Sears Tower
climbed skyward, Sears itself was beginning to head in the opposite
direction. For example, the company had a bad year in 1974, and
layoffs were its response. "As lifelong Sears employees carried
their belongings out of the plush new headquarters," according to
writer Donald Katz, "[they ran] into workmen carrying in hundreds of
thousands of dollars' worth of house plants to decorate the
110-story testimonial to a company that never failed."
But fail it did. The once-dominant
retailer has struggled ever since, lurching from strategy to
strategy, diversifying and pulling back, shedding workers and
stores. Today Sears is a shadow of its former self.
The Sears Tower did not cause the
company's woes, but it certainly symbolized them--particularly
Sears' growing separation from its market, its customers and the
values that made it successful in the first place.
From the premium offices on the Sears
Tower's upper stories, the view up Chicago's lakeshore was
spectacular. There was not a competitor in sight. The people down
below looked like ants. In retail, more than any other industry, it
is vital to stay abreast of one's competition, close to one's
customers and keep one's ear to the ground. The Tower was a symbolic
repudiation of that reality. It was an announcement to the world--to
customers, competitors and even to Sears' own employees--that while
they lived a ground-level life, top executives had their heads in
the clouds.
Not every company with unassuming
offices is on the right track, just as not every firm that affixes
its name to a glittering tower is headed for trouble. But if you are
involved in a company that decides to immortalize itself in glass
and steel, proceed with caution. Are you listening, Willis Group
Holdings Limited?
Richard S. Tedlow is a historian and
the Class of 1949 Professor of Business Administration at Harvard
Business School in Boston. David Ruben is a research associate at
the school and a former business journalist.
* Christmas event last until July 25
* Items include collectibles and home decor
CHICAGO, July 9 (Reuters) - U.S.
retailer Sears is hoping not only to fulfill every child's dream of
Christmas in July, but also its coffers.
With only 168 days left before the
holiday, Sears Holdings Corp's (SHLD.O) Sears department stores have
put out winter merchandise, trying to get customers to do their
holiday shopping early.
Sears, like most retailers, usually
waits until November to begin selling holiday merchandise, but the
deepening recession caused the retailer to rethink its strategy.
Sears spokeswoman Natalie Norris-Howser
said the ninth largest U.S. retailer wanted to give customers an
opportunity to use the store's newly revived lay-a-way plan and
allow them "to purchase or pre-purchase some of these collectibles
that they may not have the money to spend as it gets closer to the
holiday time-frame."
Lay-a-way programs allow customers to
pay for items in installments before taking them home.
The holiday merchandise is on the
shelves of Sears' 372 stores as well as both the Kmart.com and
Sears.com websites where a link for the Christmas sale, which runs
through July 25, sits below photos of a refrigerator, grill, and a
woman in shorts proclaiming the "Sizzling Summer Sale."
"To me, it's a bit odd to be
marketing Christmas products in the summer," said Morgan Stanley
analyst Gregory Melich. "There may be other ways to tell people you
have layaway, but I'm more interested to find out when they'll be
closing stores that are burning cash."
He added that while Sears saw some
success when they announced their lay-away program during last
year's holiday season, the company has still been struggling in
terms of market share. So it is a taking a page from a rival's
playbook and offering winter merchandise in the summer, something
Nordstrom has done for years.
Sears shares have outperformed its
rivals. Since the beginning of the year, Sears stock has risen 39
percent, J.C. Penney Co (JCP.N) is up 24 percent and Nordstrom Inc (JWN.N)
is up 35 percent.
But times are tough for retail. June
sales for most U.S. retailers plunged and it was the 10th month in a
row of falling sales at stores open at least one year; the longest
losing streak since 2000,
* Christmas event last until July 25
* Items include collectibles and home decor
CHICAGO, July 9 (Reuters) - U.S.
retailer Sears is hoping not only to fulfill every child's dream of
Christmas in July, but also its coffers.
With only 168 days left before the
holiday, Sears Holdings Corp's (SHLD.O) Sears department stores have
put out winter merchandise, trying to get customers to do their
holiday shopping early.
Sears, like most retailers, usually
waits until November to begin selling holiday merchandise, but the
deepening recession caused the retailer to rethink its strategy.
Sears spokeswoman Natalie Norris-Howser
said the ninth largest U.S. retailer wanted to give customers an
opportunity to use the store's newly revived lay-a-way plan and
allow them "to purchase or pre-purchase some of these collectibles
that they may not have the money to spend as it gets closer to the
holiday time-frame."
Lay-a-way programs allow customers to
pay for items in installments before taking them home.
The holiday merchandise is on the
shelves of Sears' 372 stores as well as both the Kmart.com and
Sears.com websites where a link for the Christmas sale, which runs
through July 25, sits below photos of a refrigerator, grill, and a
woman in shorts proclaiming the "Sizzling Summer Sale."
"To me, it's a bit odd to be
marketing Christmas products in the summer," said Morgan Stanley
analyst Gregory Melich. "There may be other ways to tell people you
have layaway, but I'm more interested to find out when they'll be
closing stores that are burning cash."
He added that while Sears saw some
success when they announced their lay-away program during last
year's holiday season, the company has still been struggling in
terms of market share. So it is a taking a page from a rival's
playbook and offering winter merchandise in the summer, something
Nordstrom has done for years.
Sears shares have outperformed its
rivals. Since the beginning of the year, Sears stock has risen 39
percent, J.C. Penney Co (JCP.N) is up 24 percent and Nordstrom Inc (JWN.N)
is up 35 percent.
But times are tough for retail. June
sales for most U.S. retailers plunged and it was the 10th month in a
row of falling sales at stores open at least one year; the longest
losing streak since 2000,
Christmas creeps
into July at Sears
Retailer launches sales of holiday gear online and at some stores By Sandra M. Jones -
staff reporter - Chicago Tribune
July 8, 2009
It's Christmas in July at Sears
Holdings Corp.
On Sunday, while most of America was
recovering from Fourth of July fireworks and cookouts, the Hoffman
Estates-based retailer launched an online boutique called Christmas
Lane at sears.com and kmart.com. It also set up Christmas décor
shops at 372 Sears stores, including one at Woodfield Mall in
Schaumburg.
Sears typically waits until Nov. 1 to
unveil its holiday merchandise, said Sears' spokeswoman Natalie
Norris-Howser. But with the recession putting a crimp in spending,
the retailer is hoping to attract holiday shoppers early.
"This is the first year we've done
the Christmas Lane event," said Norris-Howser. "We're allowing
customers to put these items on layaway and pay over time."
Kmart got a boost in sales during the
holiday season last year when it promoted a long forgotten layaway
program as an alternative to credit cards. Sears followed suit in
November introducing a layaway program of its own. Under a layaway
program, shoppers pay for merchandise in installments and take the
goods home after they are paid in full.
The Christmas Lane shop is aimed
chiefly at online shoppers, said Norris-Howser. The Web page
features a drawing of a main shopping street covered in snow and
Christmas wreaths and an airplane flying overhead dragging a banner
that says, "Free shipping for purchases over $75." The site also
showcases cold-weather gear such as snow blowers and electric
blankets.
Last year, worried about a slowdown
in consumer spending, many merchants including Home Depot, Kohl's
and Walgreens began stocking their shelves with holiday wrapping
paper, trim and trees in September.
The phenomenon, known as Christmas
creep, is expected to kick into overdrive this year as retailers
fight for their share of shoppers' shrinking pocketbooks.
Most retailers generate 20 percent to
30 percent of their annual sales during the holiday season, so they
are anxious to do well. Sears took in 28 percent of its annual
revenue in the fiscal fourth quarter last year.
CHICAGO — To truly appreciate how
glass can be used structurally, make your way to 233 South Wacker
Drive in downtown Chicago. More precisely, make your way 1,353 feet
above South Wacker, to the 103rd floor of the Sears Tower.
Once there, take a few steps over to
the west wall, where the facade has been cut away. Then take one
more step, over the edge.
You’ll find yourself on a floor of
glass, suspended over the sidewalk a quarter-mile below. If you
can’t bear looking straight down past your feet, shift your gaze out
or up — the walls are glass, too, as is the ceiling. You’ve stepped
into a transparent box, one of four that jut four and a half feet
from the tower, hanging from cantilevered steel beams above your
head. The glass walls are connected to the beams, and to the glass
floor, with stainless-steel bolts. But what’s really saving you from
oblivion is the glass itself.
The boxes, which opened last week as
part of an extensive renovation of the tower’s observation deck, are
among the most recent, and more outlandish, projects that use glass
as load-bearing elements. But all glass structures have at least a
bit of daring about them, as if they are giving a defiant answer to
the question: You can’t do that with glass, can you?
You can. Engineers, architects and
fabricators, aided by materials scientists and software designers,
are building soaring facades, arching canopies and delicate cubes,
footbridges and staircases, almost entirely of glass. They’re
laminating glass with polymers to make beams and other components
stronger and safer — each of the Sears Tower sheets is a five-layer
sandwich — and analyzing every square inch of a design to make sure
the stresses are within precise limits. And they are experimenting
with new materials and methods that could someday lead to glass
structures that are unmarked by metal or other materials.
“Ultimately what we’re all striving
for is an all-glass structure,” said James O’Callaghan of Eckersley
O’Callaghan Structural Design, who has designed what are perhaps the
world’s best-known glass projects, the staircases that are a
prominent feature of every Apple Store.
Through it all, they’ve realized one
thing. “Glass is just another material,” said John Kooymans of the
engineering firm Halcrow Yolles, which designed the Sears Tower
boxes.
It’s a material that has been around
for millennia. Although glass can be made in countless ways to have
any number of specific uses — to conduct light as fibers, say, or
serve as a backing for electronic circuitry, as in a laptop screen —
structural projects almost exclusively use soda-lime glass, made, as
it has always been, largely from sodium carbonate, limestone and
silica.
“For years, the basic composition of
soda-lime glass has not changed much,” said Harrie J. Stevens,
director of the Center for Glass Research at Alfred University. It’s
the same glass, more or less, that is used for the windows in your
home and the jar of jam in your fridge — and that old elixir bottle
you bought at an antique store.
It’s basic stuff, but far from
simple. “Of course, glass is an unusual material,” said James
Carpenter of James Carpenter Design Associates, who has designed
glass facades and other structures and was a consultant for the
glassmakerCorning in the 1970s. “Since we don’t really know what it
is.”
Although there has long been debate
as to whether glass is a solid or liquid, it is now usually
described as an amorphous solid (there is no evidence that it flows,
extremely slowly, over time as a liquid). The noncrystalline
structure is achieved by relatively rapid cooling below what is
referred to as the glass transition temperature, around 1,000
degrees Fahrenheit for the soda-lime variety.
Cooled further and cut, pristine
glass is very strong. But like a new car that plummets in value the
moment it is driven off the lot, glass starts to lose its strength
the instant it’s made. Tiny cracks begin to form through contact
with other surfaces, or even with water vapor and carbon dioxide.
“If you take the freshly made surface
and blow on it with your breath, you’ve reduced the strength of
glass by a factor of two,” said Suresh Gulati, a mechanical engineer
and self-described “strength man” who retired in 2000 after 33 years
at Corning but still works for the company as a consultant.
Even one gas molecule can break a
silicon-oxygen bond in glass, generating a defect, said Carlo G.
Pantano, a professor of materials science at Pennsylvania State
University. While glass is very strong in compression, tensile
stresses will make these tiny fissures start to grow, bond by bond.
“That’s what makes glass break,” Dr. Pantano said. “And if it
doesn’t break, it weakens it.”
Protective coatings are one way to
avoid new cracks, although they can affect transparency, which is
the main reason for using glass in the first place. Changing the
glass recipe can also make it harder for cracks to form and
propagate. “There is some evidence that you can modify the
composition to make it innately stronger,” Dr. Stevens said,
although that risks altering other properties or making the glass
too costly. (And glass projects are not cheap to start with; the
glass in the Sears Tower project cost more than $40,000 per box.)
The manufacturing process can be
modified, too, to keep the surfaces of the glass as pristine as
possible. In one technique, used for laptop glass, molten glass is
pumped into a V-shaped trough, spills over on both sides and flows
down the outside of the V, joining together at the bottom into a
sheet that continues to move downward as it cools. This way, each
side of the sheet is a “melt surface,” exposed only to the air and
not touched by any part of the equipment.
For structural purposes, glass is
often strengthened the old-fashioned way — by tempering. This puts
the surface under compression, so that even more tensile force is
needed for cracks to grow.
For flat glass, heat tempering is
most often used. William LaCourse, a professor at Alfred, said the
process took advantage of one property of glass — that when it cools
slowly it becomes denser. By rapidly cooling the exterior of a sheet
(usually with air), the surface stays less dense. “Inside it’s still
hot, and tries to cool to a more dense structure,” Dr. LaCourse
said. “This pulls the surface into compression.”
In chemical tempering, sodium ions in
the surface are replaced with potassium ions, which are about 30
percent larger. It’s like taking a suitcase full of summer-weight
clothes and replacing the top layer with winter-weight items; the
suitcase will bulge at the seams when you try to close it. Glass
cannot bulge at the seams, so the surface becomes compressed.
Tempered glass may take longer to
crack, but it can still break. Because surface compression must be
balanced by interior tension, when tempered glass does break it
forms many more smaller pieces than untempered glass, as more
fracturelines release more energy. “The more it is strengthened the
more pieces it will fly into,” Dr. Gulati said. An extreme example
of this is a Prince Rupert’s drop, a small glass ball with a long
tail formed by dropping molten glass into water. You can pound on
the ball end with a hammer and it will not break, but snip off the
tail and the ball will explode into tiny pieces as the tensile
forces are released.
In structural applications, breaking
into smaller pieces is often preferred, because these have less
chance of causing injury. But tempering alone is usually not enough.
A primary concern when building with
glass is what happens if and when a component breaks — what
engineers call “post-failure behavior.” Unlike steel or other
materials, glass does not deform or otherwise give advance warning
of failure. If breakage occurs, maintaining the integrity of the
structure is paramount so that people on or below it are safe.
That’s where lamination comes in. In
a typical project, glass sheets (one-half-inch thick in the Sears
Tower project) are bonded with thin polymer interlayers. The
interlayers add strength and, should one of the glass layers break,
keep the structure together, and the pieces from falling.
But lamination makes fabricating
glass for structural uses very difficult. Since cutting into
tempered glass causes it to break, each sheet must be polished and
drilled for the connecting fittings before it is tempered.
Tolerances are extremely small, to avoid potentially destructive
stresses in the assembled structure. “It’s doable,” said Lou Cerny
of MTH Industries, who managed the installation at the Sears Tower,
where the tolerances were one-sixteenth of an inch. “There’s just
not a lot of people who want to get involved in it.”
No wonder, then, that those who build
with glass look forward to a day when their structures will be
unencumbered by metal or other materials.
“My goal has always been to reduce
the amount of fittings in glass,” said Mr. O’Callaghan, whose Apple
staircases use stainless steel and, occasionally, titanium to join
the glass components.
Already, some engineers are using
different glass shapes to reduce the dependence on metal. Rob Nijsse,
a professor at the Delft University of Technology in the Netherlands
and a structural engineer with the firm ABT Belgium, has used large
sheets of corrugated glass, mounted vertically, for window walls in
a concert hall in Porto, Portugal, and a museum being built in
Antwerp, Belgium. The shape helps stiffen the glass against wind
loads.
Other designers think about using
different kinds of glass. “There are so many amazing types of glass
available,” Mr. Carpenter said. “There’s an enormous potential to
transfer some of their characteristics into architectural uses.”
Using a glass that does not expand
much when heated, for example, would enable components to be welded
together, forming, in effect, a continuous piece of glass.
Conventional soda-lime glass expands too much, so welding introduces
stresses that can lead to failure.
Researchers at Delft have
experimented with welding glass components. But low-expansion glass
is much costlier than soda-lime glass.
Other engineers are starting to use
adhesives to join glass directly to glass. Lucio Blandini, an
engineer with Werner Sobek Engineering and Design in Stuttgart,
Germany, used adhesives to create a thin glass dome, 28 feet across,
for his doctoral thesis in a clearing in Stuttgart. “I think
adhesives are the most promising connection device,” Dr. Blandini
said. “It allows glass to keep its aesthetic qualities.” His firm is
using adhesives in parts of structures being built at the University
of Chicago and in Dubai.
But the long-term strength and
reliability of adhesives has not been proved, so most people who
work in glass think an all-glued structure is a long way off.
“We have way too many lawyers in this
country,” said Mr. Cerny, the installer at the Sears Tower. “It’ll
be awhile before we see that.”
Walking On Air in Chicago
Glass Ledges Give Visitors a Thrill (or Pause)
By Peter Slevin - Washington
Post Staff Writer
July 2, 2009
CHICAGO, July 1 -- Don't look down.
Or do, since that's the idea. But brace for vertigo. In the city of
big shoulders, this is like standing on an eyelash.
It's a glass ledge, 1 1/2 inches
thick and poking out about four feet from the 103rd floor of the
Sears Tower. There is no frame under the floor, only air -- 1,353
feet of it, straight down to the miniature taxis on Wacker Drive.
Picture Wile E. Coyote racing off the
cliff. Think of the moment when he suddenly looks down. Only you
don't actually fall.
The reason is an intriguing feat of
engineering, a team of designers and builders said Wednesday,
swearing on a stack of liability policies as they unveiled the
project. The ledge -- actually four identical glass boxes suspended
near the top of the nation's tallest building -- opens to the
intrepid Thursday.
The natural instinct is to inch out
onto the glass very, very slowly, said sheet metal worker Leo Thier,
who took a break from another job to venture into the box. Still in
his hard hat and construction boots, he delivered his verdict: "It's
fantastic. It's insane."
"I've never seen a helicopter from
that view: eye level," he said as a news chopper drifted in for a
close-up. "See, now all the big wheels in this whole place are going
to want [a ledge] in their office."
The ledges, created off the tower's
enclosed Skydeck, are hardly likely to be duplicated elsewhere in
the 36-year-old building. Knocking out chunks of steel and glass to
install the four structures, with the wind whipping and the clock
ticking, was cost and hassle enough.
If the wind is blowing at 20 mph on
the ground, it is blowing two or three times harder 1,353 feet up,
said construction chief Lou Cerny of MTH Industries. The building
itself moves with the wind on a normal day, creating conundrums for
installers seeking precision within a 16th of an inch.
"It's probably swaying seven to eight
inches while we're standing here," Cerny said. "So the opening
changes. You measure and you get a different dimension and you
scratch your head."
The glass boxes look like square
portholes on the west side of the tower -- or, from a great
distance, dimpled chads on a ballot. From the Skydeck, which draws
1.3 million visitors a year, one steps onto the glass through
openings 10 feet wide and 10 feet high.
Thick panels of glass are bolted to a
steel frame at the top of each box. The 1,500-pound floor, which
connects to the vertical pieces on three sides, is made of three
sheets of glass layered with a special invisible resin called
polyvinyl butyral, or PVB, the same stuff used in car windshields.
"Think of it like bulletproof glass.
Even if the glass were to break, which it's unlikely to do, it stays
inside the frame. It would never fall out," said Ross Wimer, the
project's lead architect.
To make sure, workers used a center
punch to shatter first the top layer of the glass, then all three
layers, Cerny said. The floor held. As installed, each floor is
designed to hold several times more weight than would ever be placed
on it."There's no problem with putting
5,000 or 10,000 pounds without anything happening," Cerny said.
"It's been tested."
Then there is the mechanical part.
Engineers had to figure how to clean the glass for paying customers
and, just as important, allow a clear path for the building's
window-washing platforms, which drop from cables anchored on the
roof, seven floors above.
So, using equipment designed to move
theater sets, they made the ledges retractable. The boxes can be
hauled into the openings in the 103rd floor to allow the window
washers to do their work, then are rolled back out.
Wimer, who typically designs airports
and skyscrapers, was intrigued by the project. Working with
colleagues at Skidmore, Owings and Merrill, the first instinct was a
mesh floor and sides so visitors could "step out there and feel the
wind."
That proved impractical -- and
potentially painful in a city with merciless winters. Mesh would
also impede the views. Wimer was seeking the sensation of "floating
in space," as well as something that was not, as Prince Charles once
said of a proposed London gallery extension, "a monstrous carbuncle
on the face of a much-loved and elegant friend."
"How do we do this in a way that's
consistent with the logic of the building?" Wimer said designers
asked. "We didn't want this to be an amusement park ride, but
simple, elegant and natural, so it felt it belonged in the Sears
Tower."
One reason for designing glass ledges
just four feet deep was to prevent more people from crowding onto
them. Not for safety reasons, Wimer said, but to preserve an open
feeling easier to establish if "they're not standing two-deep."
As the designers pulled back a
curtain on a cloudy Wednesday morning and reporters moved gingerly
toward the ledges, a television reporter said to his cameraman: "I'm
not going to get out there. I'll get close."
"Close," it turned out, was a foot
away. He extended his microphone to interview 11-year-old Isaac
Moldofsky, who stood without fear on the glass and pronounced the
experience "pretty cool."
Later, a visitor named Viesha Arbes
was having none of it. In dressy clothes and heels, she lowered
herself indelicately to hands and knees and crawled toward the
opening. When she caught her first glimpse of the street 103 floors
below, she gasped and lunged away.
"I don't think I have that much
confidence," said Arbes, visiting from Raleigh, N.C. "It feels too
real."
Reality worked for her 12-year-old
daughter, Sarah.
"It's scary like no other. It's like
you're floating," she said, long after Wimer had departed. After 20
minutes of coaxing, Sarah led her mother backward onto the ledge to
pose for a photo. Her mother never looked down.
Staff writer Kari Lydersen
contributed to this report.
For a glimpse at how the retail
landscape has changed since this recession began in December 2007,
look no further than the annual list of the nation's largest
retailers.
Department stores are shrinking.
Discount chains are growing. And Wal-Mart Stores Inc., the
long-standing top seed, is so far ahead of its peers that the second
through seventh largest retail chains combined would still generate
less annual revenue than the $405.6 billion rung up at the world's
largest retailer last year.
"The economy hasn't been a losing
proposition for everyone," said Susan Reda, executive editor of
Stores magazine, an arm of the National Retail Federation and
publisher of the annual list. "And retailers who have made it
through the recession will be well-positioned to grow in the
future."
The Washington, D.C.-based trade
group on Wednesday released its annual list of biggest U.S.
retailers. The ranking, compiled by London-based market researcher
Planet Retail, is based on 2008 revenue.
Among the biggest changes from the
2007 ranking: Home Depot dropped two notches from its No. 2 spot,
where it remained for much of the housing boom, as many homeowners
strapped by the economic downturn put off remodeling projects and
others battled with banks over mortgages to stay in their homes.
Electronics giant Best Buy Co.
appeared on the top 10 for the first time, after a steady climb from
No. 16 in 2000, unseating Supervalu Inc., owner of Jewel-Osco and
Albertsons grocery stores, which dropped to No. 11.
Sears Holdings Corp., parent of Sears
and Kmart stores, clung to the top 10, falling to ninth. The
retailer has been steadily losing ground for more than a decade,
according to the list. In 1992, the two stores held the second and
third spots on the list and together generated more annual revenue
than No. 1 Wal-Mart, according to the trade group's data. As
recently as 2000, Sears ranked fourth and Kmart fifth.
Meanwhile, Lowe's rose a notch to No.
8, a big step up from its No. 14 spot in 2000. The home improvement
retailer took advantage of Home Depot's misstep of cutting back
staff. Home Depot's move, under former CEO Robert Nardelli, hurt
customer service. Nardelli came under fire at Home Depot for his
oversized pay package and management style.
Lowe's positioned itself as a
cleaner, friendlier alternative to Home Depot, and that strategy
helped Lowe's hold its own during the economic downturn, said Paula
Rosenblum, managing partner of RSR Research, a Miami-based retail
consulting firm. Still, she predicts Home Depot, which is in the
midst of a turnaround under Chief Executive Frank Blake, is angling
for a comeback.
"Lowe's was hitting the right note
during the boom," Rosenblum said. "The question is, in the coming
couple of years with so many foreclosures, it implies there is a lot
of remodeling to be done. It will be interesting to see how it will
play out. It's going to be a two-horse race."
Another consistent climber is Costco.
The warehouse club known for upscale merchandise has overtaken
Target as a place to find cool stuff on the cheap. Costco rose two
notches to the No. 3 spot, behind Kroger. Target, for its part,
regained its No. 5 spot, after dropping to sixth in 2007. In
comparison, Costco ranked No. 9 behind Target at No. 7 in 2000.
Retail consultant Burt Flickinger III
points out a common factor among the retailers climbing the ranks:
managers who grew up within the company and know it inside and out.
"They all have continuity of
management," said Flickinger, managing director of New York-based
Strategic Resource Group. "These are people who are born and raised
in the company instead of executives who are more focused on taking
care of themselves than taking care of their team or their
consumers.
"It's like the Chicago Bulls keeping
Michael Jordan and Scottie Pippen around for all [six]
championships."
The Sears Tower Skydeck opens its
lure for thrill-seekers Thursday. It's called the Ledge and it gives
the illusion of standing on air a few feet outside the building, 103
stories off the ground. It could put the Skydeck on the must-see
list for tourists, right up there with the museums and Michigan
Avenue shopping. It's supposed to be an engineering marvel.
The tower's bosses speak assuringly
of the Ledge withstanding every test the public can think of.
Patrons will survey the city from four bays made up of three layers
of half-inch thick glass. But I'm thinking of the "Crowd Crush"
test, in which people jam into the bays, or the "Too Many
Cheeseburgers" test, in which a family with a poor diet challenges
the weight tolerances. And I can just envision the "Hyperactive
Brat" test, with a couple of nervous adults venturing onto the glass
just when somebody's progeny starts jumping on it.
Randy Stancik, the tower's general
manager, said the Ledge will handle it all and may be a little less
scary than some imagine. He said he's been on it five or six times.
"My reaction was, 'Holy cow!' " he
said. "I still get that feeling about how cool it is. You stand over
the boats on the river. You see the different-colored taxis. You see
the city not just out and about, but directly below you." It's a
view for which Skydeck guests have clamored, he said.
The best engineering minds at
Skidmore, Owings & Merrill LLP, the tower's original architects,
designed the Ledge. Critical assistance came from MTH Industries of
Hillside, which helped put the Bean in Millennium Park, and
Chicago-based Berglund Construction. As to costs, Stancik will only
say the Skydeck renovation, which includes new exhibits devoted to
the city's history and architecture, is a multimillion-dollar
effort.
The Skydeck bays are retractable so
they don't block the window-washing equipment. Stancik said each one
is designed to hold 5 tons, about the weight of three Toyota Camrys,
while the city code required only a 2-ton limit.
"Dare to stand out" is one tagline
the tower will use for its attraction, although the Ledge is
strictly optional for Skydeck visitors and included in the $14.95
admission price, which recently was increased $2.
The tower's owners include New
Yorkers Joseph Chetrit, Joseph Moinian and Steve Bederman plus
Yisroel Gluck and John Huston of Skokie-based American Landmark
Properties Ltd. They hope the changes will increase Skydeck
attendance from the current 1.3 million people per year and help
give the tower a new image for the 21st century.
Their plan includes an array of work
to cut the building's energy consumption, plus the eventual
construction of a hotel next door. It also includes renaming the
tower after an incoming tenant, Willis Group Holdings Ltd, later
this year.
But for now, the Ledge is the tower's
leverage for attention and better financial returns.
WASHINGTON -- In a major break with
most other large companies, Wal-Mart Stores Inc. Tuesday told the
White House that it supports requiring employers to provide health
insurance to workers, a centerpiece of President Barack Obama's
effort to provide near-universal coverage to Americans.
The support of Wal-Mart, the nation's
largest private employer, could give momentum to one of the
most-contentious aspects of legislation taking shape in Congress to
fix the health system. To help pay for covering the 46 million
uninsured, lawmakers have proposed mandating that all but small
employers provide insurance for workers or help pay for it. Lobbies
for large corporations have opposed the idea. The U.S. Chamber of
Commerce has fought such a mandate, saying it would prompt companies
to cut jobs, lower wages and possibly drive them out of business.
Wal-Mart -- which provides insurance to employees and wants to level
the playing field with companies that don't -- on Tuesday delivered
a letter to President Obama taking a different stance.
"We are for an employer mandate which
is fair and broad in its coverage," said the letter, signed by
Wal-Mart Chief Executive Mike Duke. Andrew Stern, president of the
Service Employees International Union, also signed the letter, along
with John Podesta, who led President Obama's transition team and is
chief executive of the Center for American Progress, a
liberal-leaning think tank.
The National Retail Federation, the
industry's main lobby, said it was "flabbergasted" by Wal-Mart's
move. "We have been one of the foremost opponents to employer
mandate," said Neil Trautwein, vice president with the
Washington-based trade group. "We are surprised and disappointed by
Wal-Mart's choice to embrace an employer mandate in exchange for a
promise of cost savings."
Mr. Trautwein said an employer
mandate is "the single most destructive thing you could do to the
health-care system shy of a single-payer system," under which the
government handles health-care administration. The mandate "would
quite possibly cut off the economic recovery we all desperately
need," he said. The group believes forcing companies to provide
insurance will raise costs for its members.
Under the plans being discussed in
Congress, small businesses would either be exempt from the mandate
or face a less-onerous requirement.
The U.S. Chamber of Commerce said
most of its members oppose an employer mandate, and it doesn't think
Wal-Mart's stance will change that. "The kind that the groups in
this letter support is the worst incarnation, the most dangerous
policy," said James Gelfand, senior manager of health policy for the
group, which represents three million businesses.
Wal-Mart's support of a broad-based
employer mandate is a shift from its previous stance on health-care
overhaul and follows years of tussles with organized labor, which
has failed in drives to unionize Wal-Mart's store workers. Two years
ago, Wal-Mart joined with the SEIU, the country's largest union, to
call for affordable health care for all Americans by 2012. The group
called for lowering health-care costs and insuring more Americans.
In recent years, Wal-Mart has
improved its health-care benefits, cutting its waiting time for
earning benefits in half for both full- and part-time employees and
offering more plan choices. About 52% of Wal-Mart's 1.4 million U.S.
employees are covered by company-provided insurance, up from 46.2%
three years ago. The retail industry average is 45%, according to a
Kaiser Family Foundation 2008 study.
Wal-Mart isn't changing its policies.
The company says it supports the employer mandate because all
businesses should share the burden of fixing the health-care system.
Wal-Mart also said the mandate will only work if it is accompanied
by a government commitment to rein in health-care costs that is
guaranteed.
Wal-Mart's support for a broad
mandate also appears to be aimed at beating back an alternative that
may be less favorable to the company. The Senate Finance Committee
is considering a measure expected to result in a more burdensome
health-insurance requirement for companies that have lower-wage
workers. The company's letter said: "any alternative to an employer
mandate should not create barriers to hiring entry level employees."
As the White House and Congress began
floating proposals, Wal-Mart felt it needed to shape the debate,
said Leslie Dach, Wal-Mart's executive vice president of corporate
affairs and government relations.
"As a company, we believe the present
health-care system is unsustainable and making the country's
businesses less competitive in the global economy," said Mr. Dach,
who delivered the letter Tuesday to White House Chief of Staff Rahm
Emanuel. Mr. Dach is a former adviser to Democratic politicians.
In a meeting with officials behind
the letter, Mr. Emanuel said, "Cost control and employer mandate are
heads and tails of the same coin."
Most Republicans have opposed an
employer mandate. "Congress cannot take actions placing burdens on
businesses of any size that exacerbate our nation's economic woes,"
Rep. Roy Blunt (R. Mo.) said in response to Wal-Mart's announcement.
Labor groups such as SEIU not long
ago criticized Wal-Mart for what they said were skimpy health
benefits the world's largest retailer provided employees. Nancy-Ann
DeParle, head of the White House Office of Health Reform, said it is
significant that Wal-Mart and the SEIU had joined on this.
"The rising cost of health care is
hurting employers and employees alike, restricting businesses'
ability to grow and keeping workers' wages flat," she said.
