National Retiree Association Welcomes
Membership of Working Sears Associates
July 29, 2006

After many months of review, discussion, and input from Sears retirees and associates, the National Association of Retired Sears Employees (NARSE) voted to amend its by-laws and open its membership to currently employed Sears associates contemplating retirement at some future date.

The revised by-laws also set forth that in furtherance of the association’s purpose, NARSE, among other things, will: (a) provide a means to coordinate the efforts of Sears retirees, and associates contemplating retirement, through various means of communication, including newsletters, a web site, and other informational materials as needed; (b) develop an ongoing public relations campaign through the media to get retirement issues before the public; (c) liaison with other retiree groups in the formulation of programs and activities that are beneficial to retirees; and (d) provide information and speakers to Sears local retiree clubs concerning issues of concern to retirees and associates contemplating retirement.

NARSE shall be operated exclusively for the benefit of Sears retirees and associates contemplating retirement. These amendments were approved at NARSE’s recent 9th Annual Meeting held in Chicago. The vote on these by-law amendments was unanimous.

NARSE’s Beginning
As background, in 1997 thousands of retired Sears employees formed a national association to protest Sears drastic cut-back of their promised, paid-up retirement life insurance, earned by their contributions and years of dedicated service. The eventual federal court settlement favored the Company, and was a great disappointment and lesson for retirees in how the legal system operates.

The federal judge who heard this case was sympathetic to the plight of the Sears retirees but he stated that the law prevented him from granting the relief requested by the plaintiff retirees. He said that the law as currently written, in his opinion, would not permit it. Congress must grant the relief that the retirees were seeking, the judge added.

Since 1997 NARSE has continued to act as an advocate, an independent national voice for Sears Retiree Clubs and individual Sears retirees everywhere on issues affecting their remaining retirement benefits.

NARSE regularly communicates with thousands of retirees with its Straight Talk newsletter, and web site, www.narse.org, updated daily with current retiree and retail industry news and comments.

The PBGC
Over the last decade, millions of American workers have experienced a serious decline in their retirement expectations and plans, threatened by both their formerly trusted employers and the U.S. Government’s promise of Social Security.

Now, overly compensated corporate executives, with boards of directors beholden to such executives, repudiate long-standing retirement benefits promised to both working associates and retirees, or seek bankruptcy protection, shifting under-funded corporate responsibilities to the government’s Pension Benefit Guarantee Corporation (PBGC). The PBGC is itself drowning in red ink, and is on the verge of bankruptcy, without some sort of major bailout from Congress.

The PBGC is the quasi-government agency that “insures” private pension plans. According to a June 27, 2006 “Review & Outlook” report published in The Wall Street Journal, “The theory behind the PBGC was that it would collect enough premiums from companies to cover future liabilities.” But since “2002, far too many airline, steel, auto and other companies have dumped their pension plans on the PBGC.”

As a result of this irresponsible, corporate dumping binge, the PBGC “has gone from a $10 billion surplus in 2000 to more than a $23 billion deficit last year and it is the financier of last resort for a private defined-benefit pension system that is under funded to the tune of $450 billion. On present trends, this could become a fiasco on the order of the savings and loan collapse.”

Even the Social Security Trust Fund, raided for years by legislative opportunists, is projected to go broke in the coming years. Not “if,” just when!

Plan Now For Retirement
Against this dismal national background, NARSE continues to represent retiree interests and concerns involving their former trusted employer, Sears, Roebuck and Co., now the hedge fund owned and Kmart dominated Sears Holdings Corp.

At the same time, American workers and Sears associates realize they must begin serious financial planning for their retirement years while they are still working. Current associates must start the planning process much earlier than ever before. Even ten years earlier may not be soon enough! In addition, these associates must take an active role in speaking out about retirement concerns and benefits with their employers, with their government representatives, and with the media.

Increasingly, over the past year, NARSE has been contacted by working Sears associates who find their own retirement future security quickly slipping away, or already gone entirely. These same Sears associates have also told us that any information about Sears comes to them, not from Sears itself, but first from the media, from NARSE’s web site, and from NARSE’s Straight Talk publication.

While earned and promised benefits are important to retirees, associates and their families, they are also concerned that the proud Sears traditions of customer service, guaranteed satisfaction, quality merchandise values and trust and fair treatment of employees and retirees will be continued by the new hedge-fund owned, Kmart dominated, payroll reducing, cost-cutting Sears Holdings administration.

Sears Associates Welcome!
In sympathy with and in response to concerns of these associates, NARSE decided to revise its by-laws to open its membership to currently employed Sears associates contemplating their retirement at some future date to join with the many thousands of Sears former employees who have already retired. Where retirement security is concerned, we’re all in this together!

Accordingly, NARSE, the all-volunteer retiree association will welcome the membership of actively employed Sears associates, and will continue being an independent, national voice for their retirement concerns.

As our mission statement sets forth, “NARSE is a nonprofit membership organization dedicated to communicating with and educating the retiree membership regarding the protection of their retirement benefits and planning for their future economic security. NARSE is a vehicle of information to Sears Holdings conveying the concerns and experiences of its members. As a service organization, we provide information and resources, and offer a range of special services for our members. These include our periodic newsletter, Straight Talk, the NARSE website, legislative and regulatory advocacy, and other informational elements as needed.”

Any Sears associates interested in information about joining NARSE can either visit NARSE’s web site at www.narse.org; or contact NARSE’s chairman, Ron Olbrysh at cro922@comcast.net or 630-613-9039. 

Investors warn against war on guidance
By Emily Chasan – Reuters.com
July 28, 2006

NEW YORK (Reuters) - Giving up the quarterly guidance game may sound like a good idea, but investors caution it is a dangerous one.

Despite calls this week from two influential think tanks for companies to stop giving quarterly earnings forecasts, investors are saying such talk could lead to much less transparency from U.S. companies, as well as more inefficient and volatile markets.

"I hear all the arguments that you don't want to have such a short-term focus," said Sasha Kostadinov, a portfolio manager at Shaker Investments. "But if I'm going to buy shares in a company and they can't tell me what they are planning to do for the quarter, I feel uncomfortable buying the stock."

In a joint report, the Business Roundtable Institute for Corporate Ethics and the CFA Center for Financial Market Integrity recommended that companies stop providing quarterly earnings guidance because it encourages management to focus on stock prices in the short-term rather than long-term value.

Instead, they recommended that companies should provide other longer-term gauges of performance and tie executive compensation to those measures rather than have it based on short-term earnings goals or share price moves.

Investors, though, say they are worried that companies will use such a move as an excuse to cut off the lines of communication with markets. Some major companies, such as retailer Sears Holdings Corp. (SHLD.O), not only don't provide quarterly forecasts, but they hardly talk to the Street at all between quarterly reports.

"There's no arguing with a guidance policy that reinforces long-term goals over short-term goals," said Jerome Lande, a portfolio manager at MMI Investments in New York. "But what I don't like is blanket criticism of quarterly earnings guidance used as a cover for companies to issue no guidance."

GUIDANCE MORE GOOD THAN BAD?
The reason investors are so attached to company forecasts, they say, is that there are few signals investors can use to evaluate a company that are as clear and accurate.

The numbers are not just used to determine whether results are better or worse than expected but can be a good indicator of the quality of management running a company, Kostadinov said.

Some investors say that the rapid growth of hedge funds, which are largely unregulated, has exacerbated the market's focus on quarterly earnings guidance because those funds often take short-term equity positions that can increase the weight of forecasts when earnings miss the mark.

Many investors empathize with executives scared at the power of markets to wipe out billions of dollars of market value if a company misses its own earnings forecasts.

After all, Wall Street analysts are still going to come out with their own forecasts, and if they are uninformed then the chances of even more volatile trading increases.

"Less communication with investors means that people are going to have to guess more and I would expect there would be greater volatility from that," Shaker's Kostadinov said.

In fact, shares of the majority of companies that stop giving forecasts typically fare poorly in the 12 months preceding the decision to stop, suggesting the companies are already having trouble, according to a study from the University of Washington.

For example, decisions to stop providing some types of forecasts at computer maker Dell Inc. (DELL.O) and chipmaker Intel Corp. (INTC.O) have been followed by sales or earnings warnings and slumping share prices.

SILENCE IS RISKY
nvestors fear that more companies will head down a road taken by Sears Holdings, which has become reluctant to share information since Chairman Edward Lampert created the company through a merger with Kmart in March 2005.

In a letter to shareholders last year, Lampert said substantial amounts of time spent on investor relations activities "distract and detract from accomplishing our fundamental objective of creating value for all our owners."

The company no longer reports monthly sales, does not give financial forecasts and has stopped holding big analyst briefings and conference calls, as it had in the past.

In turn, many retail analysts have decided not to follow Sears. At last check, there were six analysts following the company, which is the third-biggest U.S. retailer, compared with 17 for smaller rival J.C. Penney Co. Inc. (JCP.N).

Some even fear that a market without forecasts would be a less valuable one.

"If they don't communicate with the investing public what's likely to happen is everybody's price-to-earnings ratios may shrink, due to the fact that nobody knows what's going on," said Cummins Catherwood, managing director at Walnut Asset Management in Philadelphia.

The green machine
By Marc Gunther - Fortune Magazine
July 28, 2006 issue

Lee Scott is no tree-hugger. But Wal-Mart's CEO says he wants to turn the world's largest retailer into the greenest. The company is so big, so powerful, it could force an army of suppliers to clean up their acts too. Is he serious?

"Doesn't it feel good to have this kind of commitment made by the company that you are part of? Don't you feel proud?"

The 800 Wal-Mart Stores employees gathered in the home office for an all-day meeting were used to this kind of rah-rah talk. Top executives from Fortune 500 companies regularly trek to Bentonville, Ark., to pay homage to one of the world's most powerful companies and to shout out the Wal-Mart cheer.

This time, though, the cheerleading was coming from an unlikely source: Al Gore.

Wal-Mart had invited America's most famous environmentalist to show his movie, "An Inconvenient Truth." "Having the former Democratic Vice President was a shock" to some people at the company, chief executive Lee Scott told the crowd. "At least based on a couple of my e-mails."

But as the credits rolled, Gore strutted onto the stage to a standing ovation. Dressed in a blue suit and cowboy boots, he joked with the audience, answered questions in his best Southern drawl, and coyly denied that he had any plans to run for President again. (This wasn't exactly his base: He took just 32% of the vote in Benton County in 2000.)

Before heading off to dinner with Wal-Mart chairman Rob Walton and Scott, Gore delivered a parting thought: As Wal-Mart embarks on a far-reaching plan to adopt business practices that are better for the environment, he said, the world will learn that "there need not be any conflict between the environment and the economy."

Wal-Mart, you see, has decided to help save the earth.

Environmental values
Just listen to Scott. "To me," he says, "there can't be anything good about putting all these chemicals in the air. There can't be anything good about the smog you see in cities. There can't be anything good about putting chemicals in these rivers in Third World countries so that somebody can buy an item for less money in a developed country. Those things are just inherently wrong, whether you are an environmentalist or not."

In a speech broadcast to all of Wal-Mart's facilities last November, Scott set several ambitious goals: Increase the efficiency of its vehicle fleet by 25% over the next three years, and double efficiency in ten years. Eliminate 30% of the energy used in stores. Reduce solid waste from U.S. stores by 25% in three years.

Wal-Mart says it will invest $500 million in sustainability projects, and the company has done a lot more than draw up targets. It has quickly become, for instance, the biggest seller of organic milk and the biggest buyer of organic cotton in the world. It is working with suppliers to figure out ways to cut down on packaging and energy costs. It has opened two "green" supercenters.

Credibility questioned
Plenty of people won't buy it - or anything else from Wal-Mart. To labor leaders, left-wing elites, and the small-is-beautiful crowd, the $312-billion-a-year retailer stands for everything that's wrong with big business.

They see the company in a race to pave the planet and turn it into a giant emporium of cheap goods built on the back of cheap labor. The union-funded website walmartwatch.com dismisses Wal-Mart's environmental push as a "high-priced green-washing campaign."

Wal-Mart, though, has a whole lot more to worry about than convincing a few ideological critics that its eco-intentions are pure. Its business, for starters.

Its same-store sales growth has slowed down, trailing Costco's and Target's. Its stock price is another big concern. After rising 1,205% during the 1990s, the stock has fallen by 30% since Scott took over as CEO in January 2000.

It's no wonder that inside Wal-Mart some veteran executives grouse that Scott's green crusade will be a costly distraction. Many remember the last time Wal-Mart set out an initiative this broad: founder Sam Walton's 1985 "Made in the U.S.A." campaign.

That move burnished Wal-Mart's red-white-and-blue image, but it wasn't long before critics noted that Wal-Mart continued to seek out goods from the absolute lowest-cost supplier- and typically that meant "Made Anywhere but America."

Indeed, Wal-Mart's single-minded desire to save its customers money has been its raison d'être for 44 years. Which raises two questions: Why is the world's largest retailer so determined to become the greenest? And how green can a company that operates 6,600 big-box stores really get?

Rob Walton, his son Ben, Pearl Jam guitarist Stone Gossard, and conservationist Peter Seligmann were scuba-diving off Coco Island, a lush, uninhabited Costa Rican national park populated by manta rays, dolphins, and sharks.

High-level influence
During a ten-day trip in February 2004, Seligmann, co-founder and CEO of Conservation International, a big Washington, D.C., environmental organization whose mission is to protect the world's biologically rich habitats, had been pointing out fleets of fishing boats that were destroying the delicate Costa Rican marine habitat. Toward the end of the trip, Seligmann looked Walton in the eye: "We need to change the way industry works. And you can have an influence."

Like all Sam Walton's children, S. Robson "Rob" Walton, 60, grew up in the Ozarks with a love of the outdoors. "All our family vacations were camping trips," he says in a rare interview. His younger brother John, who died last year in a private plane crash, was a conservationist. And his son Sam, who worked as a Colorado River guide, sits on the board of Environmental Defense, a nonprofit group.

About four years ago, after a trip to Africa, Rob Walton began to think about ways his family could help preserve wilderness areas through its foundation, which has assets of about $1 billion. (The Walton family's 40% stake in Wal-Mart is worth about $80 billion.)

A mutual friend then introduced Walton to Seligmann. Over the next two years the preppy ex-biologist guided Rob and his two sons on a series of adventures. They hiked in Madagascar. They took a boat trip through the world's largest freshwater wetland, in Brazil. They went diving in the Galápagos Islands.

"We spent a lot of time diving and talking," says Seligmann. The family foundation eventually made a $21 million grant to CI for ocean-protection programs, and Walton joined the group's board.

But Seligmann had another agenda, one that he finally put on the table in Costa Rica. Whatever money the foundation could contribute would pale in comparison to what Wal-Mart the corporation could do. "I suggested to Rob that Wal-Mart could be a driver of tremendous change," Seligmann says.

Huge footprint
He wasn't exaggerating. The company is the biggest private user of electricity in the U.S.; each of its 2,074 supercenters uses an average of 1.5 million kilowatts annually, enough as a group to power all of Namibia.

Wal-Mart has the nation's second-largest fleet of trucks, and its vehicles travel a billion miles a year. If each customer who visited Wal-Mart in a week bought one long-lasting compact fluorescent (CF) light bulb, the company estimates, that would reduce electric bills by $3 billion, conserve 50 billion tons of coal, and keep one billion incandescent light bulbs out of landfills over the life of the bulb.

If Wal-Mart influenced the behavior of a fraction of its 1.8 million employees or the 176 million customers that shop there every week, the impact would be huge. And because of the extraordinary clout Wal-Mart wields with its 60,000 suppliers, it could make even more of a difference by influencing their practices.

Walton was intrigued, but he had taken himself out of an operational role at Wal-Mart years ago. He didn't want to overstep his bounds. "We are really, really careful about mixing personal interests and the business," he says. Still, he agreed to introduce Seligmann to Lee Scott.

PR play
The timing was fortuitous. Scott had just undertaken a review of Wal-Mart's legal and PR woes - and it wasn't a short list. A lawsuit alleging that Wal-Mart discriminated against its female employees had been certified as a federal class action. Opponents blocked new stores in the suburbs of Los Angeles, San Francisco, and Chicago.

A study found that Wal-Mart's average spending on health benefits for its employees was 30% less than the average of its retail peers. The company's environmental record was nothing to boast about either: It had paid millions of dollars to state and federal regulators for violating air- and water-pollution laws.

For years Wal-Mart simply brushed off such criticism. "We would put up the sandbags and get out the machine guns," Scott recalls. After all, business was good. They were saving their customers billions, fighting for the little guy.

But as the upstart rural retailer grew into one of America's biggest companies and clashed with unionized competitors, it made powerful enemies. Expectations of business were rising, and Wal-Mart was failing to meet them.

A McKinsey & Co. study leaked to the press by walmartwatch.com found that up to 8% of shoppers had stopped patronizing the chain because of its reputation.

Scott wondered, "If we had known ten years ago what we know now, what would we have done differently that might have kept us out of some of these issues or would have enhanced our reputation? It seemed to me that ultimately many of the issues that had to do with the environment were going to wind up with people feeling like we had a greater responsibility than we were, at the time, accepting."

In a drab Bentonville conference room, Scott, Rob Walton, Seligmann and Glenn Prickett of Conservation International, and a friend of Seligmann's named Jib Ellison, a river-rafting guide turned management consultant, convened a pivotal meeting in June 2004. For a presentation to the man who is arguably the most powerful CEO in the world and the man who is inarguably one of the richest, the pitch was surprisingly informal.

The five men chatted about the environment and about ways Wal-Mart could improve its practices. Seligmann and Prickett talked about their work with Starbucks, which developed coffee-buying methods to protect tropical regions, and about McDonald's, which was helping to promote sustainable agriculture and fishing.

Their argument was simple: Wal-Mart could improve its image, motivate employees, and save money by going green.

If there was any group that could deliver such a message to Scott, it was CI, whose board members include former Intel chairman Gordon Moore, BP chief executive John Browne, and former Starbucks CEO Orin Smith. CI works closely with corporations, and about $7 million of its $93 million in 2005 revenues came from such consulting arrangements.

Accepting responsibility
Scott hired CI and Ellison's management consulting firm, called BluSkye, and asked them to measure Wal-Mart's environmental impact. The assessment would include not just Wal-Mart's operations, but the impact of growing or producing all the products it sells and shipping them to stores.

Wal-Mart was defining its responsibility broadly, in a way that would bring its vast supply chain - where its environmental impact is greatest - into the picture.

About a dozen people from BluSkye, CI, and Wal-Mart spent nearly a year measuring the company's impact. Fairly quickly, the environmentalists spotted waste that Wal-Mart's legendary cost cutters had overlooked.

On Kid Connection, its private-label line of toys, for instance, Wal-Mart found that by eliminating excessive packaging, it could save $2.4 million a year in shipping costs, 3,800 trees, and one million barrels of oil.

On its fleet of 7,200 trucks Wal-Mart determined it could save $26 million a year in fuel costs merely by installing auxiliary power units that enable the drivers to keep their cabs warm or cool during mandatory ten-hour breaks from the road. Before that, they'd let the truck engine idle all night, wasting fuel.

Yet another example: Wal-Mart installed machines called sandwich balers in its stores to recycle and sell plastic that it used to throw away. Companywide, the balers have added $28 million to the bottom line.

"Think about it," Scott said in his big speech to employees last fall. "If we throw it away, we had to buy it first. So we pay twice - once to get it, once to have it taken away. What if we reverse that? What if our suppliers send us less, and everything they send us has value as a recycled product? No waste, and we get paid instead."

That was talk any Wal-Mart executive could understand, even if few knew it came straight from the pages of Natural Capitalism, an influential book by Paul Hawken, Amory Lovins, and Hunter Lovins that lays out a blueprint for a new green economy in which nothing goes to waste.

Not coincidentally, Lovins and his Rocky Mountain Institute were also hired as consultants by Wal-Mart to study a radical revamp of its trucking fleet.

Casting a wide net
Wal-Mart was pulling ideas from everywhere-consultants, NGOs, suppliers, and eco-friendly competitors such as Patagonia and Whole Foods. This open-source approach worked so well that the company decided to form "sustainable value networks" made up of Wal-Mart executives, suppliers, environmental groups, and regulators; they would meet every few months to share ideas, set goals, and monitor progress.

Today there are 14 networks, each with a focus: facilities, internal operations, logistics, alternative fuels, packaging, chemicals, food and agriculture, electronics, textiles, forest products, jewelry, seafood, climate change, and China.

Experts from the World Wildlife Federation, the Natural Resources Defense Council, and even Greenpeace have made the pilgrimage to Bentonville. "I can honestly say I never expected to be at Wal-Mart's headquarters watching people do the Wal-Mart cheer," says John Hocevar, a Greenpeace campaigner. Environmental Defense announced plans to open a satellite office in Bentonville.

Though hundreds of people are in the networks, only five Wal-Mart employees, led by corporate strategist Andy Ruben, work full-time on the initiative. Key decisions are decentralized. "If you are a buyer, sustainability is going to be your business," says Scott.

Some environmentalists who are part of the networks worry the initiative is understaffed. They say that the Wal-Mart people responsible for keeping the networks going, all of whom already had full-time jobs like running truck fleets or buying jewelry, are stretched thin.

Still, getting tree-huggers and Wal-Mart lifers in the same room led to some unexpected benefits. "Sustainability helped us develop the skills to listen to people who criticize us and to change where it's appropriate," Scott says.

His managers are learning "not to be so afraid of venturing out there, thinking that if people see our warts, they're just going to castigate us." It also gives them another reason to feel good about Wal-Mart, a sense of working for a "higher purpose," he says.

Scott, too, was filled with the zeal of the newly converted. "I had an intellectual interest when we started," he says. "I have a passion today." As a lifelong angler from Baxter Springs, Kan., Scott, who is 57, was particularly worried about pollution in the world's rivers and oceans.

He visited Mount Washington in New Hampshire, where he chatted with a maple-sugar producer about the impact of global warming. And he traded in his Volkswagen Beetle for a hybrid Lexus SUV.

Hurricane Katrina, after which Wal-Mart employees mobilized to deliver vital supplies to victims, deepened Scott's resolve. "We stepped back from that and asked one simple question: How can Wal-Mart be that company - the one we were during Katrina - all the time?"

The environmental campaign that Scott admits started out as a "defensive strategy" was, in his view, "turning out to be precisely the opposite." His people were feeling better about the company. They were saving their customers money. That was one of Wal-Mart's strengths. Another was twisting the arms of suppliers - who would soon learn all about Wal-Mart's new crusade.

Sustainable agribusiness
In the cold waters off Kodiak Island, Alaska, where the sockeye salmon are running in early June, a 45-year-old third-generation fishing-boat captain named Mitch Keplinger is having a disappointing day.

Operating under Alaska's strict regulatory regime, Keplinger and his crew labor for more than 12 hours to haul in about 1,000 pounds of sockeye, which they sell for 70 cents a pound to Ocean Beauty, a Seattle-based processor and Wal-Mart supplier. They catch another 500 pounds of pink salmon, which sells for 35 cents a pound. That's $1,050 before expenses, to be shared by the four of them - barely worth the effort.

What does that have to do with Wal-Mart? Keplinger - and fisherman like him who play by the rules - are getting killed by competition from unregulated fisheries and farmed salmon. In February, Wal-Mart announced that over the next three to five years it would purchase all its wild-caught seafood from fisheries that, like Alaska's salmon fishery, have been certified as sustainable by an independent nonprofit called the Marine Stewardship Council (MSC).

The company is working on a similar certification system for farmed fish, and it hopes consumers will come to value "brands" like MSC-certified as they do the organic label. Says Rupert Howes, chief executive of the MSC: "It's supply-chain pressure of the best kind."

Keplinger and his buyers at Ocean Beauty are watching Wal-Mart closely. Says Tom Sutherland, Ocean Beauty's vice president of marketing: "When Wal-Mart hiccups, it's all we can talk about."

It's not just Alaskan fishermen who are talking. So are corn farmers in Iowa (who want to sell more ethanol through Wal-Mart), coffee growers in Brazil (who are being promised higher prices for their beans), and factory bosses in China (who are being told to cut their energy and fuel costs).

Organic clothes, too
Wal-Mart's campaign has already turned the small world of organic cotton upside down, thanks in part to Coral Rose, a ladies' apparel buyer for Sam's Club. In spring 2004 - just before Wal-Mart held its first meeting with CI - Rose ordered a yoga outfit made of organic cotton for Sam's Club; the tops sold for about $14, the loose-fitting pants for $10. The 190,000 units sold out in ten weeks

That got Scott's attention. Sales of organic food had grown at Wal-Mart; he wondered if organic cotton could do as well. With Scott's encouragement, Wal-Mart's buyers visited organic cotton farms. They learned about the environmental risks posed by conventional cotton farming, which uses more chemical pesticides and synthetic fertilizer than any other crop.

Wal-Mart's purchases of organic cotton have eliminated millions of tons of chemicals, Scott says. Today, Wal-Mart and Sam's Club stock a range of organic-cotton products - baby clothes under the Baby George brand, teenage fashion, and a line of bed sheets and towels.

The organic-cotton industry had found its best customer. Five years ago global production of organic cotton amounted to about 6.4 million metric tons, and some farmers who converted to organic methods, which can cost more, could not find buyers willing to pay a premium.

In 2006, Wal-Mart and Sam's Club alone will use between eight million and ten million metric tons, and they've made a verbal commitment to buy organic cotton for five years, giving farmers an assurance that there will be a market for their crops.

Wal-Mart is also increasing the amount of organic food it sells, but some even find fault with this, assuming that it buys only from massive corporate organic farms. Not true. Wal-Mart buys locally in two dozen states, striving to reduce "food miles" to save shipping costs and increase freshness.

Peer pressure
Scott, meanwhile, is personally pushing his cause with Fortune 500 CEOs. He has talked with Jeff Immelt at GE about LED lighting for Wal-Mart's buildings. He's talked with Tom Faulk, the CEO of Kimberly-Clark, about "compressed toilet paper," which squeezes three rolls into one. Steve Reinemund, PepsiCo's CEO, just sold Wal-Mart on a massive recycling contest involving Aquafina water.

Wait a minute. Recycling's great. But why consume Aquafina in the first place? Bottled water is bad for the environment, period. But neither PepsiCo nor Wal-Mart will stop selling it as long as consumers want to buy it. This is one place where tensions arise between what's good for business and what's good for the planet.

Packaging is another thorny issue. On my grocer's shelf are a bulky, 100-fluid-ounce, orange plastic jug of Procter & Gamble's bestselling Tide and a slim 32-ounce aqua plastic bottle of Unilever's "small and mighty" All.

Both contain enough detergent for 32 loads of wash, but the smaller package, made possible by condensing All, saves energy, shipping costs, and shelf space - a big win all around, right?

Not quite. Bigger packages command more shelf space, provide more surface area for advertising, and suggest to consumers that they're getting more for their money. Unilever executives voiced all those worries when they went to see Scott. He agreed to make "small and mighty" All a VPI (that's Wal-Mart code for "volume-producing item," and it means that Wal-Mart will promote it heavily). "That helps to increase their confidence," he says. You can now find "small and mighty" All in supermarkets everywhere.

And guess what? This fall Procter & Gamble will replace the bulky plastic jugs with condensed, slimmed-down versions of all its liquid laundry detergents - Tide, Cheer, Gain, Era, and Dreft - in a test in Cedar Rapids, Iowa, to prepare for a likely national rollout.

We wondered if Wal-Mart had anything to do with that. "We've been doing sustainability for quite some time," replied a P&G spokeswoman. "And we're pleased to work with all our distributors, including Wal-Mart." You figure it out.

This is why Wal-Mart's eco-initiative is potentially more world-changing than, say, GE's. GE sells fuel-efficient aircraft engines and billion-dollar power plants to a few customers. Wal-Mart sells organic cotton, laundry soap, and light bulbs to millions. When shoppers see a display promoting "the bulb that pays for itself, again and again and again," they'll be reminded of their own environmental impact.

By buying CF bulbs they'll also save money on their utility bills, leaving them more money to spend at, you guessed it, Wal-Mart. The bigger idea here is that poor and middle-income Americans are every bit as interested in buying green products as are the well-to-do, so long as they are affordable.

Plenty of places sell fair-trade coffee, for example. Only Wal-Mart sells it for $4.71 a pound. "The potential here is to democratize the whole sustainability idea--not make it something that just the elites on the coasts do but something that small-town and middle America also embrace," says CI's Glenn Prickett. "It's a Nixon-to-China moment."

Eco-stores
Several weeks ago a dozen Japanese supermarket industry executives flew halfway around the world to visit a store in a suburb of Denver that is unlike any they had ever seen. They snapped pictures of wind turbines and solar cells and listened as a tour guide explained how dirty cooking oil from the deli and used motor oil from the lube department are recycled to heat the store.

They ran their fingers across jewelry cases built of renewable bamboo and peered into the dairy case at the superefficient light-emitting diodes that illuminate rows of organic milk.

The visitors wandered among shelves stocked with tuna certified by the Marine Stewardship Council and coffee endorsed by the Rainforest Alliance. They learned that spoiled food was composted into fertilizer and resold. They walked on sidewalks that are - no joke - made of recycled airport runways.

This is Wal-Mart Store No. 5334, which opened last winter. It's one of two experimental stores the company built to test ways to cut energy and reduce waste.

It sounds terribly futuristic, but this isn't totally new ground. In 1993 the company debuted a Bill McDonough - designed eco-store in Lawrence, Kan., with great fanfare. Two more stores followed, but the concept quietly died.

Wal-Mart's more serious now, but skeptics remain. Jeffrey Hollender is president of Seventh Generation, a Burlington, Vt., maker of nontoxic household products. Though Scott met with Hollender in Bentonville and offered to carry some of his line, Hollender declined. "We might sell a lot more products in giant mass-market outlets, but we're not living up to our own values and helping the world get to a better place if we sell our soul to do it," he says.

Scott understands there are some critics he will never win over. He knows that not everyone at Wal-Mart shares his vision. But he's quite certain that one person would.

Midway through the daylong sustainability summit, the one where Al Gore showed his movie, Scott did what Wal-Mart executives always do when they want to get people's attention: He invoked the name of Sam Walton.

"Some people say this is foreign to what Sam Walton believed, that Sam Walton focused solely on the customers, driving prices down so the average person can have a higher standard of value," Scott said.

"What people forget is that there was nobody more willing to change. Sam Walton did what was right for his time. Sam loved the outdoors. And he loved the idea of building a company that would endure. I think Sam Walton would, in fact, embrace Wal-Mart's efforts to improve the quality of life for our customers and our associates by doing what we need to do in sustainability."

Then he posed a challenge to the audience: "What other company in the world could do this? This company is uniquely positioned. But we will not be measured by our aspirations. We will be measured by our actions." Of that there's no doubt. This is Wal-Mart, after all. The whole world will be watching.

Reporter associates Doris Burke and Jia Lynn Yang contributed to this story.

From the August 7, 2006 issue

Original Sears Tower Celebrates 100 Years
The Real Estate Capital Institute
July 28, 2006

Chicago, July 28, 2006 -- Believe it or not, the original Sears Tower is 100 years old. And, it’s not the tallest building in America.

Most people equate the Sears Tower with the renowned skyscraper which opened in 1973. However the idea for the Sears Tower originated in 1906 with the construction of the Sears Catalog Plant.

The plant featured a tower anchored to a three-million-square-foot building -- considered the world’s largest commercial building of the time.

The Original Tower was made famous years before the current Sears Tower. During the first years of operation, about half the US population received Sears catalogs which were published on site. Often, Tower and related buildings were illustrated on the cover pages.
At the same time, Henry Ford visited and studied the complex as a model of industrial efficiency. By the early 1920s, over 20,000 employees worked here. [By way of comparison, if the facility still operated today, it would rank as the largest private employer in the State of Illinois.]

WLS Radio ("World’s Largest Store") started here (1924) as did the first Sears retail store (1926). As late as the 1960’s, Sears Roebuck continued to promote the structure by using "Tower" brand (cameras, typewriters, office supplies).

The Tower still stands as a milestone. The building is the oldest skyscraper in Chicago outside of downtown. Located about four miles west of the current Sears Tower, the structure is a national landmark reaching fourteen stories (225 ft).

Fortunately much of the original Catalog Plant is preserved including the Powerhouse, Administration Building and the first Allstate Insurance headquarters. Substantial sections of the area are now known as "Homan Square" and "Sterling Park." These various buildings are being redeveloped into residential, recreational, retail, office and academic uses.

As part of the centennial celebration, the Real Estate Capital Institute will be opening the Sears Catalog Plant Museum. The Institute is donating a collection of artifacts, photographs and rare memorabilia honoring the people, buildings and products that made this area famous during the past century. The Museum will be headquartered in the original Sears Tower located at 900 South Homan Avenue.

Researching commercial realty finance rates and trends, the Real Estate Capital Institute is headquartered in the area. Its founder is a former Sears employee.

Sears Names New Finance Chief
A Wall Street Journal News Roundup
July 28, 2006

Sears Holdings Corp. named Craig Monaghan chief financial officer as Chairman Edward Lampert, who led the Kmart takeover of Sears Roebuck, continued to reshape the retailer.

Mr. Monaghan, 49 years old, is joining Sears from AutoNation Inc. He will report to William Crowley, who was Sears' chief financial officer before taking on the additional role of chief administrative officer last September.

Mr. Lampert's ESL Investments hedge fund owns about 24% of AutoNation's stock, according to a May filing with the U.S. Securities and Exchange Commission.

Mr. Lampert brought Kmart out of bankruptcy in 2003 and engineered the takeover of Sears. ESL owns more than 40% of Sears stock. Prior to joining AutoNation, Mr. Monaghan served as chief financial officer of iVillage.com.

Citing suppliers, analyst sees slower growth at Sears
By Lorene Yue - Crain's Chicago Business Online
July 28, 2006

Sears Holdings Corp. suppliers may be starting to see the company’s softer side.

In a research report issued Wednesday, Credit Suisse First Boston analyst Gary Balter said comments from various Sears’ suppliers seem to indicate that “business is slowing.”

“While that likely implies slightly lower sales growth this quarter at Sears than in Q1, we remind investors that this story is not a comp story but a margin story,” he wrote.

Chris Brathwaite, a spokesman for Sears, said the Hoffman Estates-based company does not comment on analyst reports and he declined to provide any sales forecasts. Sears no longer provides monthly sales updates, but the company’s second quarter ends Monday, with an earnings announcement expected to come in the weeks following.

In an earnings release, Martha Stewart Omnimedia on Wednesday mentioned “modestly lower sales” of Martha Stewart Everyday products at Kmart, which is now owned by Sears Holdings.
Meanwhile, other Sears suppliers have been grumbling that Chairman Edward Lampert, the hedge fund manager who help finance Kmart’s emergence out of bankruptcy and eventually sold it to Sears, has been too aggressive in cutting marketing budgets, which has translated into lower sales. Sears Holdings trimmed marketing costs $226 million last year.

In his report, Mr. Balter wrote that Whirlpool Corp., which manufactures Kenmore washers and dryers for Sears, said that “near term demand is softer,” although sales have been up overall for the past year. The head of Whirlpool’s North America division recently said that fewer Kenmore orders contributed to a 2.4% drop in North American shipments in the first half of 2005 and urged Sears to promote the product more.

Mr. Balter wrote that sales were slightly down at Danaher Corp., which provides Craftsman tools, but the company was “bullish” on its relationship with Sears.

While the supplier outlook is mixed, Mr. Balter said that “Sears remains one of our favorite stories.” He continues to estimate $3.6 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) for this year and $4.2 billion in EBITDA for fiscal 2007.

Wal-Mart Plans to Exit Germany
By Selling Its 85 Stores to Metro
By Emily Nelson – Dow Jones Wires – Wall Street Journal Online
July 28, 2006

In a humbling admission of defeat, Wal-Mart Stores Inc. said it will exit Germany by selling its 85 stores there to European supermarket chain Metro AG.

Wal-Mart, the world's largest retailer, has had choppy results overseas, an area of increasing importance as it seeks new sources for sales growth. In Germany, since it entered by acquiring two smaller chains eight years ago, it ran up against strong headwinds from shoppers, rivals and employees. German shoppers, accustomed to buying goods strictly based on price, were turned off by many of its American approaches such as grocery baggers. Rivals were the so-called "hard discounters," stores which sell largely private-label brands at rock-bottom prices. They were tougher competition than Wal-Mart anticipated and undercut one of its core appeals: low prices. And employees blanched at some of its American-style workplace rules.

Friday, Wal-Mart said it will book a pretax loss of about $1 billion from the transaction in the second quarter of its year ending in January. Terms of the deal weren't disclosed. Wal-Mart has been unprofitable in Germany but had taken steps recently to lower its operating costs and work more closely with suppliers.

In a statement, Wal-Mart said "it has become increasingly clear that in Germany's business environment it would be difficult for us to obtain the scale and results we desire. This sale positions us to increase our focus on the markets where we can achieve our objectives."

Wal-Mart's international operations account for 20% of the company's total sales and are the fastest growing business at the Bentonville, Ark.,-based retailer.

In comparison with its global rivals, however, Wal-Mart has far less global reach. Wal-Mart sold its 16 outlets in South Korea in May to exit that country. After the sale in Germany is completed, it will operate in 13 countries around the world. By contrast, Carrefour SA, the world's No. 2 retailer by sales, operates in 29 countries.

A big question for Wal-Mart going forward will be how to expand internationally. Some argue that the retailer should advance through larger acquisitions which give it immediate scale. That plays to its advantages such as supply-chain efficiency and logistics know-how. Finding the right acquisition targets, however, can be tricky, and they require deft integration. Wal-Mart has taken that approach at times. When it entered the U.K., it did so by acquiring Asda, a large chain. Another entry strategy is buying up and cobbling together smaller chains. Wal-Mart did that in Germany and it didn't work, but it has worked for others.

After the sale, Wal-Mart will have stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the United Kingdom.

Big-box vote fuels concern, indifference
By Gregory Meyer - Crain’s Chicago Business Online
July 27, 2006

Is Chicago out of bounds for big retail?

That was the question a day after the City Council passed an ordinance mandating minimum wages and benefits for workers at “big box” and other outsize retail stores inside city limits.

The stakes are high for major retailers planning new 10 Chicago big-box stores through 2008.

They are also a big deal for Mayor Richard M. Daley, who is seeking the stores’ sales tax revenues as he mulls a veto.

But stakeholders on Thursday were divided on whether the measure will hobble job creation and development or be just another cost of doing business.

Most targets of the ordinance declined comment, did not return calls and referred inquiries to the Illinois Retail Merchants Assn. David Vite, the association’s president, took the more pessimistic view. He repeated the association’s assertion that the ordinance is unconstitutional.

“If the mayor doesn’t do something to tear down this barrier to economic development in this city, to take down the ‘Closed For Business’ sign, I’m sure we’ll end up either at the state or the federal courthouse,” he said.

But spokesmen for two big retailers affected by the ordinance were not quite so strident.

At Home Depot Inc., which has 10 stores in Chicago now, construction of a South Loop store and plans for another on the Far South Side are moving ahead, said spokesman Yancey Casey.

Since most Home Depot workers are paid pretty well – in a range of $7 to $22 an hour, nationally – Mr. Casey sees only a small percentage of Chicago workers affected by the new law.

“We don’t expect it to have a material financial impact on our business operations,” he said.

Menard Inc., which has two big-box stores on the North Side and a third planned at North and Kostner avenues, sounded similarly unalarmed.

“It appears that at first glance, since we pay wages higher than typical retailers, there isn't much of an issue to discuss,” said Jeff Abbott, a spokesman for the Eau Claire, Wis.-based retailer.

Of the 10 big-box developments in the works in Chicago, six are scheduled to open this year, according to data from Mid-America Development Partners LLC of Oak Brook. They include the city's first Wal-Mart at North and Kilpatrick avenues and the Home Depot at Roosevelt Road and Jefferson Street. Future projects include a Target at 67th Street and Stony Island Avenue and a Target-anchored mixed-use project in the former Wilson Yard property in Uptown.

Target Corp. did not return calls, but in the past has said it would reconsider new development if the ordinance passed.

Wal-Mart issued a statement after the 35-14 council vote Wednesday saying, “Just as every business weighs the costs and complications associated with each potential location, we will try to provide Chicago residents with the savings, choices and jobs they clearly want, without subjecting ourselves to a discriminatory marketplace and a competitive disadvantage.”

Other affected retailers include Sears Holdings Corp., which has eight Sears and four Kmart stores that meet the ordinance's 90,000-square-foot size threshold, and Federated Department Stores Inc., which owns two downtown Marshall Field’s and two Bloomingdale’s stores that meet the law’s criteria.

John Melaniphy, president of Melaniphy & Associates Inc., a Chicago shopping center consultancy that has done work for several big-box retailers, said that existing stores will have to take a hard look at whether sales volumes justify increased costs.

He said that retailers looking to add stores have an incentive to wait and watch the fate of the ordinance in City Hall or in court. Once that happens, they may revise their views on which neighborhoods are worth investing in.

“Two things can happen: One, they don’t build any stores in the City of Chicago,” he said. “Or two, they only build stores at selective locations where they do business above, say, $60 million.”

David Bossy, the chairman of Mid-America Development Partners, said many big Chicago retailers already pay the minimum required by the law.

“My sense is that what the big boxes are more concerned about is the precedent-setting nature of this,” he said. “I don’t think they like being pushed around by politicians.”

Retired, and Rehired to Sell
Retail Presents 2nd-Career Opportunities for the Older Set
By Amy Joyce - Staff Writer - Washington Post
July 27, 2006

When today's snowbirds pack their bags to head south for the winter, they throw in their beach towels, golf clubs and tennis rackets -- right alongside their orange Home Depot aprons.

Snaring those northern residents who spend winters in the South is the latest recruitment tactic being employed by large companies such as Home Depot Inc. and CVS Corp., which rely heavily on part-time employees willing to work flexible hours.

While some industries try to thin their ranks with early retirement offers, others, particularly in the high-turnover retail industry, have been bracing for a labor shortage as the baby boomers head toward retirement. Looking for new ways to recruit and keep older workers, Home Depot and CVS are now offering retirees jobs that move with them, from summer home to winter home and back again.

Edward Wright, 72, an electrical contractor for 50 years, started working for Home Depot in Lake Wales, Fla., because he was restless after retiring from his business in Burlington, N.J. The company hired him to work in its electrical department four days a week from 7 a.m. to 1 p.m., showing customers and co-workers wiring and other electrical do-it-yourself skills.

When it came time for Wright to return to New Jersey, Home Depot told him he could work there, too, and he went to work at a store over the border in Pennsylvania.

"I love it, to be honest with you," Wright said. "It feels like you're needed. Naturally when you get up there in age, lots of companies want to get rid of you."

According to a Merrill Lynch & Co. report released earlier this year, 60 percent of people age 51 to 70 have taken steps to prepare for a new line of work in retirement. And it's not all about the money. Of those who plan to work in retirement, 60 percent say they will do so to keep mentally active, while 47 percent cite the money.

Often, the companies are getting highly experienced employees willing to work at bargain rates. Pay for a general merchandise worker in the retail industry averaged $10.58 an hour in April, according to the Bureau of Labor Statistics.

On the downside, older workers may run up more health expenses. Costs for the 50-to-65 age group average 1.4 to 2.2 times as much as health care for workers in their thirties and forties, according to Towers Perrin, a human resources consultant. Many older, part-time workers, however, don't take part in company health plans. All in all, companies say, circumstances argue in favor of older workers.

"If we were not able to retain, train and hire and keep older people, we wouldn't have a business," said Stephen M. Wing, director of government programs with CVS. "The younger folks, there's just less of them. We need those older people to stay in the workforce, and people are living longer, healthier lives."

Whereas 38.3 percent of people 50 and older participated in the labor force in 1985, that figure had climbed to 47.1 percent last year, according to labor data.

"At one point, 65 was retirement age," Wing said. "To be honest, at 65 people are at their best. They have all those life experiences they can share. We see that as a real plus."

In studying its employee demographics in the early 1990s, CVS found that less than 7 percent of its workforce was over the age of 50. That did not match up with the demographics of the general population, and it certainly did not match the customer population. So CVS began to actively recruit older workers, and this year, 18 percent of its employees are over 50.

Home Depot began to focus on older workers as it opened stores in Florida in 1981. "We discovered the value of hiring older workers," said Don Harrison, spokesman. "Obviously, Florida is a retirement mecca. . . . The experience they bring, the customer service, work ethic, you just can't beat it."

Home Depot hired Vivian Burgess at its store in the District's Brentwood neighborhood two years ago, after she had spent time in retirement taking care of her ailing mother. After a year or so working in the appliance department, she took a job in flooring. "I wanted to learn something new," she said. "I wanted to learn the computer system."

Some companies are getting recruitment help from AARP, which last year signed up 24 companies to its National Employer Team, which links the companies' Web sites to the AARP site so retirees can search for jobs. AARP offers companies recruiting workshops, and participants are part of a sort of laboratory where they can experiment with new ways to recruit and retain older workers, said Emily Allen, manager of workforce programs for AARP.

Borders Group Inc. joined the AARP program last year. Older workers, said Suzann Trevisan, senior manager for diversity programs, fill a need for employees who can work flexible hours. Trevisan also said older workers closely mirror the typical Borders customer.

"Our target customer is over the age of 45. We have done studies at Borders that found where we're able to most reflect our customer, our sales are better," she said. "There is such a large propensity of people who buy books over age 50."

Wing said that CVS has found customers often head straight for older employees. "I think they know that older person has probably had the same aches and pains."

Tom Ruprecht, 58, manager of the CVS in Wheaton, took an early retirement offer from Giant Food in 2004 after 32 years working for the company. Retirement wasn't really an option -- he and his wife are helping to raise their toddler grandson who lives with them. He said he thinks CVS hired him "because of my experience dealing with people of all ages and types."

On a recent hot afternoon, a customer who spoke only Spanish came in with a cough and a handwritten note seeking an over-the-counter medicine. Ruprecht took him to the medicine then mimed instructions to take two tablespoons every six hours. The man nodded, grateful, and went off to pay.

"I felt I was young enough, if I was going to work for a new company, I might as well start over," Ruprecht said.

Bill Duclos, 79 and a pharmacist for 55 years, spends half his year working one day a week at the CVS near his Naples, Fla., home, and the other half working one day a week at the Lakeville, Mass., store. He and his wife lived in New Bedford, Mass., and when they decided to spend winters in Florida, he took the Florida boards so he could practice there. ("After I had been out of school for 40 years!" he said.)

"I don't want to quit. I like what I'm doing. I like meeting the people," he said. "I've always done this. I can't stand hanging around, doing nothing."

Researcher Richard Drezen contributed to this article.

Sears Holdings Names Craig Monaghan as New Chief Financial Officer
Sears Holdings News Release
July 27, 2006

HOFFMAN ESTATES, Ill., July 27 /PRNewswire-FirstCall/ -- Sears Holdings Corporation News today announced that Craig T. Monaghan will join the company as its chief financial officer beginning September 1, 2006.

Monaghan will assume direct responsibility for Sears Holdings' financial organization, reporting to William C. Crowley, Sears Holdings' chief administrative officer.

"Craig brings with him strong experience and an impressive record of accomplishments, having most recently served as executive vice president and chief financial officer for over six years at AutoNation, Inc., a Fortune 150 company," said Crowley.

Prior to joining AutoNation, Monaghan served as Chief Financial Officer of iVillage.com, the leading women's Internet network. He spent a combined 13 years at Reader's Digest Association, Inc., Bristol-Myers Squibb Company and General Motors Corporation where he held various important financial positions.

Monaghan holds an engineering degree from Lehigh University and an M.B.A. from The Wharton School at the University of Pennsylvania.

Wal-Mart focus on close-in suburbs
Passage of city bill requiring big-box stores to pay `living wage' likely to cause retail giant to turn to strategy of ringing city with Supercenters
By Sandra Jones - staff reporter – Chicago Tribune
July 27, 2006

The world's largest retailer suffered a blow on Wednesday when Chicago aldermen passed a bill that requires big-box stores, including Wal-Mart, to pay a so-called living wage. The ordinance could curb Wal-Mart's appetite to build stores in the city limits.

But it's not stopping the company's longstanding plans to blanket the Chicago suburbs with Supercenters, the giant stores that sell general merchandise and groceries.

Indeed, Wal-Mart for the first time has a veteran supermarket executive planted in Chicago, signaling that big changes are ahead.

Michael J. Lewis, president of Wal-Mart's Midwest division, sees millions of consumers hungry for Wal-Mart's low-priced groceries and envisions operating 40 Supercenters in the Chicago area in the next three years by building new stores and expanding existing stores. Wal-Mart currently has only a handful of Supercenters in the outlying suburbs.

"Our share of the market is relatively low in Chicago," said Lewis. "And that's an opportunity for us. We think there's tremendous opportunity to double or even triple our market share in Chicagoland."

That expansion is a threat to Jewel and Dominick's, the Chicago area's two major supermarket chains, where workers are unionized and where prices are generally 15 to 30 percent higher than those at Wal-Mart.

In an interview at Wal-Mart's Chicago office last week, Lewis said if the city council approved the bill, Wal-Mart would "put more time and effort in the suburbs," in particular focusing on those close to the city in order to draw shoppers across city lines.

"It would stand to reason that we would ring Chicago with Supercenters," Lewis said.

Late Wednesday in a written statement issued after the Chicago vote, Lewis added, "Our preference is to serve the people of Chicago in their communities and we will do what we can to keep up with significant consumer demand from city residents." The official statement didn't address whether Wal-Mart would carry through with threats to avoid opening stores within the city limits.

Wal-Mart is on track to open its first Chicago store in September on the West Side and has been trying for two years to open more stores in the city.

Even though Wal-Mart has operated stores in the Chicago area since 1992, the company avoided establishing a high-level executive presence here until last November--a nod to Wal-Mart's impending push into Supercenters, the 150,000-square-foot to 200,000-square-foot stores that sell groceries along with general merchandise. It is also a signal of how dicey things have become for Wal-Mart as it attempts to carry out its plan to open 270 to 280 Supercenters nationwide this year.

Lewis, 55, took the job as senior vice president and president of the Midwest division overseeing 278 traditional Wal-Mart discount stores and 458 Wal-Mart Supercenters. He opened Wal-Mart's Chicago office in May in a high-rise just east of O'Hare International Airport and now has a staff of 25. Unlike Wal-Mart's reputed sparse offices in Arkansas, the outpost is sleek and modern with warm wooden cabinets, new carpet, slim desks and window views. Wal-Mart is leasing the space and got a good deal, says one of Lewis' assistants.

Traditionally, Wal-Mart has housed its division chiefs at headquarters in Bentonville, Ark. Lewis' predecessor, who retired, had been based at the home office. Putting Lewis closer to the action is part of Wal-Mart's efforts, begun earlier this year, to move top executives into the field where they can mingle with community groups and customers as the retailer battles opposition to opening new stores crucial to fueling its growth.

"They needed to put a senior executive here who can talk to local community leaders and politicians and some of the people who are influencing the conditions under which Wal-Mart's growth will occur," said Bill Bishop, founder of Willard Bishop, a Barrington-based grocery consulting firm.

A competitive squash player and expert skier, Lewis enjoys the outdoors. He plays tennis and golf and escapes to a cabin in the woods north of Toronto, where he attempts to get away from the constant blast of e-mail. A fan of the arts, he also makes a point of reading Vanity Fair and People magazines and watching American Idol. "If you want to connect with the consumer, you have to read what they read," he said.

He spent the 1980s working for Loblaw Cos. Ltd. in Ontario, the largest supermarket operator and wholesale food distributor in Canada. He led the retailer's discount division, called No Frills. Most recently, he was president of the retail division at Minnesota-based Nash Finch Co., a wholesale distributor to grocery stores.

That experience will come in handy here. Wal-Mart opened an 880,000-square-foot warehouse in Sterling, off Interstate Highway 88 in western Illinois, for food and other perishable items earlier this year in preparation for its expansion into the Chicago area.

Last year, Wal-Mart skirted a big-box ordinance in Dunkirk, Md., that put a 75,000-square-foot cap on store size by proposing a 74,998-square-foot store next to a 22,689-square-foot garden center, each with separate entrances and cash registers. When asked if Wal-Mart would attempt the same in Chicago, Mr. Lewis declined to comment, saying only that "consumers like our Supercenters best."

The Chicago ordinance requires big-box retailers that are 90,000 square feet or more and generate $1 billion in annual sales to pay workers a minimum wage of $10 an hour and $3 in benefits by 2010. It's the first ordinance of its kind in a major city and affects a total of 19 retailers, including Target, Sears, Home Depot and Bloomingdale's.

David Vite, president and CEO of the Illinois Retail Merchants Association, said the battle isn't over. Retailers are holding out hope that Mayor Richard Daley will veto the bill. If that doesn't happen, they will file a lawsuit, he said.

"We recognize Chicago is our biggest business opportunity going forward," said Lewis. "I certainly believe they're paying too much for groceries in the city of Chicago."

Wal-Mart Adopts Tougher Defense
By Marcus Kabel - Associated Press FORBES.COM
July 26, 2006

Wal-Mart Stores Inc. signaled a more aggressive defense against its union-backed critics by naming Democratic Party insider Leslie Dach its new chief of public relations this week.

Experts said Tuesday that, by hiring the former Clinton White House adviser, Wal-Mart is endorsing a proactive defense strategy that Dach authored as a consultant for the world's largest retailer. For the past year, Dach headed a 35-member team from global public relations firm Edelman, which Wal-Mart hired last year as it came under fire from unions and others.

Wal-Mart on Monday named Dach its executive vice president for corporate affairs and government relations. For the first time in Wal-Mart history, the head of communications will be a member of its top executive team and report to the CEO.

"I think they are institutionalizing a more pro-active approach to public relations," said corporate reputation management expert Steven Silvers, who has worked for 25 years advising public and private companies.

"Edelman did a very good job of bringing Wal-Mart into the 21st century in terms of using communications," said Silvers, whose Denver-based firm GBSM, Inc. does no work for Wal-Mart or its critics.

The company has opened local communications offices around the country to smooth relations with communities that have often opposed new Wal-Mart stores. It has also asked environmental groups to help draft plans for reducing energy use, greenhouse gas emissions and packaging waste.

Dach himself said he believes he can help the company continue a transformation that has included adopting ambitious environmental goals.

"I think that on issues like sustainability, the company is going to make a big difference, and do things the government can't or won't do," Dach wrote to friends, explaining his decision in an e-mail that was then circulated to reporters and others.

With Edelman's help, Wal-Mart has become much more assertive after years of stonily ignoring critics. The change came under pressure from two union-funded campaign groups using public pressure to end what they call low pay and skimpy benefits at America's largest employer.

Wal-Mart now touts changes such as new lower-cost health plans for employees, has reached out to selected critics including environmentalists, and started an outside support group called Working Families for Wal-Mart - chaired by former civil rights leader Andrew Young.

It has also adopted political campaign-style tactics including a rapid response "war room" and an attack Web site, paidcritics.com.

Retail analyst Don Gher at Coldstream Capital Management in Bellevue, Wash., which manages about $1 billion in assets, including Wal-Mart shares, said hiring Dach was an effective way to counter union efforts to make Wal-Mart's business practices a political issue for Democrats.

"Here's an individual who is very entrenched in the Democratic Party. By bringing him on board, you have brought in somebody who is hopefully very adept at dealing with issues that are near and dear to Democratic hearts, like health care and unions," Gher said.

Clinton administration officials praised Dach as an experienced communicator with an interest in genuine change rather than in just spinning the news.

"He is not interested in putting some wash on an issue. He is about finding a real solution to a problem," said former Environmental Protection Agency head Carol Browner, who said she has known Dach since they both worked in the environmental movement in the 1980s.

Former Clinton chief of staff Mack McLarty said Dach's reputation "is sterling in both a personal and professional sense." McLarty's advisory firm Kissinger McLarty Associates consults for Wal-Mart on international issues.

Wal-Mart's union-backed opponents said Dach's hiring would not defuse their criticism.

"Our advice to (Chief Executive) Lee Scott is to save the PR money and realize that only real change, like providing affordable health care and a living wage to all your workers, will set Wal-Mart free from fast becoming the nation's greatest poster boy for corporate greed and irresponsibility," said Chris Kofinis from WakeUpWalMart.com.

Lampert hacks away at Sears brands
Screw-tightening at Sears is cutting marketshare and squeezing suppliers
By Shruti Daté Singh – Crain’s Chicago Business
July 24, 2006

Craftsman tools and Kenmore appliances helped fuel Sears' rise to the top of American retailing and kept it afloat even as it lost ground to rivals in the past decade.

But those brands and others face a murky future as parent company Chairman Edward S. Lampert, the hedge fund manager who merged the retailer with Kmart last year, wrings hundreds of millions of dollars in savings from the combined company.

Sears Holdings Corp. cut its marketing costs $226 million last year, with Craftsman and Lands' End's ad budgets being slashed. Kenmore's spending rose 4%, but only after a key supplier pressured Sears to promote the brand more vigorously.

Once among the country's best-known names, these three brands could become faded memories if cuts continue, retail experts warn. "If you starve those brands, Sears has no hope," says brand consultant Jack Trout, president of Trout & Partners Ltd. in Old Greenwich, Conn.

Investors think Mr. Lampert's true game plan is to sell large amounts of the company's real estate, but the current market isn't favorable for such sales. And brand values can erode quickly unless supported by advertising, an investment Mr. Lampert seems reluctant to make.

Deteriorating brands could drive key suppliers — and ultimately, customers — to competitors, which is bad news for a company already losing sales to Home Depot Inc., Lowe's Cos. and J. C. Penney Corp.

Sears, which declines to comment, doesn't report sales or profits by brand name, but an analyst estimates Craftsman, Kenmore and Lands' End make up around 22% of company revenue.

SEEING'S BELIEVING

Some suppliers have complained publicly about the damage done by Mr. Lampert's cost-cutting.

P&F Industries Inc., a Craftsman tool supplier, says sales to Sears fell $1.4 million in 2005.

In a May conference call with analysts, P&F CEO Richard A. Horowitz said Sears officials promised they would step up orders, but added that he was skeptical. "Until we see it, we don't really believe it," Mr. Horowitz said.

Another Craftsman tool supplier, Danaher Corp., says Sears' promotional cuts curbed sales for the first half of this year.

Sales of Deerfield-based Fortune Brands Inc.'s Waterloo toolboxes dropped during the first three months of this year because Sears did "significantly less promoting" of the products, said Fortune CEO Norman H. Wesley.

"This is a business that's sensitive to promotions," Mr. Wesley said during an earnings call in April. "We're still working closely with Sears to try to recover that top line."

Michael Setola, president of Lands' End supplier Oxford Industries Inc., called the relationship "challenging" during a June 1 earnings call.

Sears' most important supplier had to take its case directly to the retailer. After Whirlpool Corp.'s North American shipments fell 2.4% in the first half of 2005 — mainly the result of lower Kenmore orders — the appliance maker told Sears to boost promotions, Whirlpool North America President David Swift told Reuters at a New York retail conference last month. Sears' appliance marketshare fell about 8% last year, according to Twice magazine's 2005 top 100 retailers survey.

Suppliers say they don't want to lose Sears as a customer and they hope the company will increase promotions. But "they will replace Sears if they have to," says Fitch Ratings analyst Thomas Razukas, managing director for corporate finance who specializes in consumer product companies. Some suppliers have already headed for the exits. Nike Inc. left shortly after the merger last year and Martha Stewart Living Omnimedia Inc., which has a contract to develop home goods for Kmart through January 2010, recently signed a contract to develop products for rival Macy's stores.

In a statement, Martha Stewart says it will honor its contract with Kmart. Sales of Martha Stewart Everyday products at Kmart decreased 8% in 2005. Mr. Lampert cut ad spending at Kmart 21% last year to $190 million, according to data from Crain's sister publication Advertising Age.

'CLEAR DISSATISFACTION'

Retail consultant George Whalin says Martha Stewart's move is a "clear sign of supplier dissatisfaction." Unhappy suppliers can help competitors by developing exclusive products, providing money for promotions and even giving their orders priority over Sears'. If frustration grows, they could cut ties completely.

Sears brands resonate more with customers than the store overall, say Robert K. Passikoff, president of Brand Keys Inc. in New York, a brand and customer-loyalty consultant.

Craftsman is the only draw to Sears for Christopher Bondy of Elmhurst. Otherwise, "every time I have to do something for the house, it's Home Depot," the 24-year-old said on a recent trip to the home improvement giant's Oakbrook Terrace store.

The danger is that Sears' brands will continue to erode if suppliers leave or invest more in competitors, says Tim Calkins, a marketing professor at Northwestern University's Kellogg School of Management. "Sears could become dependent on selling second-tier brands at lower prices. That's a terrible place to be, because Wal-Mart is strong there."

Sears' move to replace branded apparel with new private labels hasn't worked well in the apparel division, where sales dropped 14% in 2005.

Perry Ellis International Inc. CEO George Feldenkreis says he was surprised when he learned Sears would stop carrying his company's shirts and buy only some pants and outerwear. Sears accounted for 7% of Perry Ellis' revenue in 2004 and now accounts for just 1%, which is "frustrating."

"If the store doesn't offer a variety of brands, (customers) might not want to shop there," he says.

In a letter to shareholders in March, Mr. Lampert said, "While we are absolutely focused on profitability, we believe that in order to achieve that objective, we should strive to return Sears and Kmart to the position of prominence that both brands and companies held in American retailing."

So far, that hasn't happened. In the first quarter, cost-cutting boosted profit but depressed sales at Sears stores open at least a year across all merchandise categories, except home appliances, which increased slightly from added marketing and launches of new energy-efficient products. Sears earned $180 million, or $1.14 a share, in the first quarter vs. a $78-million first-quarter loss last year, mostly related to merger costs. Sales at stores open at least a year, a key industry measure, declined 5%.

The marketing cuts will only fuel doubts about Mr. Lampert's longterm commitment to Sears' retail business.

"If you are a supplier, you are concerned about your future with Sears," says Howard Davidowitz, a retail consultant and investment banker in New York. "You are wondering: Can a retailer be in business with a continuous drop in same-store sales? The answer is: impossible. If Ed Lampert is right, (Wal-Mart founder) Sam Walton is wrong."

Grading the big 10: Sears Holdings Corp.
By Sarah A. Klein – Crain’s Chicago Business
July 24, 2006

Although Sears' board has nine members, it's really a one-man show starring Edward S. Lampert, the Connecticut-based hedge fund manager who orchestrated the takeover of Sears by Kmart Holding Corp. in 2004.

Mr. Lampert, whose hedge fund owns approximately 41% of Sears' stock, has stacked the board with friends, colleagues and investors, including former college roommate Steven T. Mnuchin; Richard C. Perry, who worked with Mr. Lampert at Goldman Sachs, and Thomas J. Tisch, whose family has invested in Mr. Lampert's hedge fund.

Corporate governance experts don't like to see such close ties between independent board members. But analysts view it differently. "In general, when you are trying to turn something around, it is good to know you don't have to worry about the board breathing down your neck," says Greg Melich, an analyst with Morgan Stanley in New York.

They also have a lot of confidence in Mr. Lampert.

"The guy has a phenomenal track record," says Jaison Blair, an analyst with Rochdale Securities LLC in New York. "There aren't a lot of guys who can operate a turnaround in the retail sector the way he does."

But what about the fact that most of the directors have hedge fund expertise, rather than retailing backgrounds? It depends how you view the future of Sears.

"We still don't know if we are in the retail game for the long haul," Mr. Melich says. If the goal is to run Kmart and Sears, "it behooves them to have more people with retailing experience." If the goal is to buy, sell or trade assets, the experience of the current board is quite relevant, he says.

The result for investors isn't bad. The stock has appreciated 40% since Mr. Lampert's takeover was announced in November 2004.

A Sears spokesman declined to comment.

Sears Holdings Corp.

2005 REVENUE: $49.12 billion
CHAIRMAN: Edward S. Lampert, 44

HEAVY HITTERS:
Steven T. Mnuchin, chair and co-CEO of Dune Capital Management L.P., a private investment firm, and Mr. Lampert's college roommate.
Richard C. Perry, co-founder of a private investment management firm and a Goldman Sachs Group Inc. alum.

MEMBERS:
Donald J. Carty Jr., 59
William C. Crowley, 48
Alan J. Lacy, 52 (departs July 29)
Aylwin B. Lewis, Sears' president and CEO, 52
Steven T. Mnuchin, 43
Richard C. Perry, 51
Ann N. Reese, 53
Thomas J. Tisch, 51

OVERALL BOARD GRADE: B

Hoarding names no game
Federated keeps tight grip on dearly departed department stores to protect its star brand
By Sandra Jones - staff reporter - Chicago Tribune
July 23, 2006

Federated Department Stores Inc. is sitting on a treasure trove of mothballed store names, and Marshall Field's is about to join the heap.

The New York-based department store operator, which is slated to change Marshall Field's name to Macy's in September, has amassed a collection of more than 30 department store trademarks as it gobbled up regional chains.

Burdine's in Florida, Bon Marche in the Northwest, Broadway and Bullock's in Southern California, Block's in Indiana, Stern's in New Jersey, Rich's in Atlanta, Wanamaker in Philadelphia and Filene's in Boston. The list goes on.

Most of the names have been around for more than a century, a legacy of the immigrant entrepreneurs who moved to America and helped build the nation's cities. The founding families sold their stores years ago, but their monikers lived on.

Wedding dresses, baby shoes, lunches with mom, meeting places for first dates--the department stores in each town became interlaced with all sorts of family memories and personal histories.

Today, all the brands Federated has acquired over the years have disappeared, and the final 11 will be converted, along with Field's, to Macy's as part of Federated's plan to create a national department store.

Federated, for the most part, isn't using the mothballed brand names in any substantial way. And the retailer has expressed no interest in selling or licensing them. But it doesn't want competitors to gain access to the names, either. It's a common tactic, and one that has become more widespread, particularly in the technology industry, as American business consolidates.

"The value of companies today, whether it's technology or retail, is more and more about intangibles," said Ray Millien, a patent and trademark attorney at Ocean Tomo, a Chicago-based intellectual property auction firm. "Big companies will buy up patents just to take them off the market."

Exactly how much Federated's basket of store names is worth is hard to say. But at least two separate suitors have attempted to buy specific brands from Federated.

One group pursued the I. Magnin name, which Federated acquired in 1964 and stopped using in 1994, and the other sought Marshall Field's, according to people familiar with the negotiations. Both offers were spurned.

Federated spokesman Jim Sluzewski declined to comment on specific offers but said the company is "always looking for ways to use" the names.

"Those are assets we need and may use in the future, so we of course want to keep ownership of them," he said.

Federated Chairman and CEO Terry Lundgren is well-versed in the power of image. By combining a motley assortment of regional brands into one nationwide chain called Macy's, Lundgren hopes to resurrect the department store as a place to shop and fend off the relentless assault of discounters and specialty stores. The idea of keeping the local brand names alive, even if it's as simple as putting Burdine's name on a costume jewelry collection or Rich's moniker on a single boutique, would remind shoppers of the department stores they lost and make Lundgren's job that much harder.

"Federated is very intelligent in that they don't want to create their own competition," said Love Goel, chairman of Minnesota-based consulting firm Growth Ventures Group and a former Federated executive. "The money they could make by selling the brand is less material compared to the potential market share they could lose. The trade-off is pretty risky." At the same time, companies with storehouses of brand names need to use them from time to time in order to keep them alive. Federated, for example, can point to Field's plaque on the outside of the State Street store and an assortment of Field's souvenirs for sale to prove that name is still in use and prevent competitors from taking it over.

Typically, trademark names are considered abandoned under federal law if they haven't been used in three years, but there is a large swath of gray area in how to define use. Even an intention to use can keep a trademark alive in the eyes of the courts.

"The intent question is sticky," said Jerome Gilson, trademark attorney at Brinks, Hofer, Gilson and Lione in Chicago. "Many companies will do what they can to show modified use in some fashion."

Take the case of River West Brands. The Chicago-based brand revival firm waged a year-long battle starting in 2003 to gain access to the I. Magnin name by trying to convince the federal government that the trademark had been abandoned, according to documents filed with the U.S. Patent and Trademark Office.

Federated discontinued I. Magnin operations in 1994, selling some stores, including three stores in the Chicago area, and converting others to Macy's or Bullock's.

River West wanted to revive the I. Magnin brand and either license it to manufacturers of apparel and accessories, or work directly with a retail chain to develop products exclusive to that retailer, according to the patent office filings. The firm also had a preliminary agreement with the Magnin family through the estate of Cyril I. Magnin, which no longer has rights to the department store name, to share royalties in the venture, the filings said.

River West withdrew its petition in August 2004, about the same time that Federated resurrected the I. Magnin label and put it on sleepwear sold at Macy's. Officials at River West declined to comment.

Like many regional department stores, I. Magnin has a storied past. Dutch immigrants Isaac Magnin and his wife, Mary Ann, founded the store in San Francisco in 1876, bringing European fashions to society ladies and dance hall girls. Their offspring became colorful fixtures in San Francisco society, mingling with presidents and movie stars.

Similar tales surround department stores in other cities, putting Federated in the unusual position of owning well-established commercial names that connect romantically to their cities.

Nowhere is the attachment as strong as in Chicago where shoppers have threatened to cut up their credit cards and hold boycotts once the big store from New York swoops into town.

"I hate to think that department stores play as important role in our cultural memory as churches and colleges, but perhaps we've reached that point," said Siva Vaidhyanathan, assistant professor of culture and communication at New York University. "The Wanamaker's near me is now a big Kmart. It's the Kmart in Manhattan. We shop there because Kmart gives us stuff cheap. These are the brutal ebbs and flows of capitalism."

Whether there is a sustainable market for defunct department store names is still a question. But a few entrepreneurs have made a go of it.

A couple in Florida bought the Jacobson's name for $25,000 out of bankruptcy court last year and opened up one shop in Winter Park. The upscale Michigan-based department store chain shut its doors in 2002 after 134 years. It had 23 stores in Michigan, Indiana, Ohio, Kentucky and Florida. Owners Jon and Tammy Giaimo are looking to open more Jacobson's stores in the former markets.

"The reason I bought the name is that it represented quality and tradition," said Tammy Giaimo. "That warm and fuzzy feeling they got from [the old] Jacobson's gets people back in my store. They had such a loyal following."

Susie Hilfiger, the former wife of designer Tommy Hilfiger, resurrected Best & Co., a name familiar to wealthy New Yorkers. The upscale department store went out of business in 1971. A generation later, Susie Hilfiger acquired the abandoned trademark rights for free, opening a luxury children's store by that name in 1997 in leafy Greenwich, Conn., and a second outpost in 2001 at Bergdorf Goodman in New York.

Even River West, the group that lost its fight for the I. Magnin name, bought the North American rights to the name of Bonwit Teller, the defunct luxury department store, and plans to roll out fashion merchandise under the legendary name later this year.

"At a human level, I think [Federated] is making a mistake," says Al Gini, professor of business ethics at Loyola University's business school. "People want big-box stores for better pricing. But they also want that familiarity. The MBAs are saying we want a homogeneous brand, but psychologically, customers feel like they lost a friend."

Hot Issue: Turnarounds
Edward Lampert: The Straight Shooter
By George Anderson 
July 21, 2006

Not many believed Sears Holdings' Edward Lampert when he said he wanted to return Sears and Kmart to their glory days as retail chains. Most, it's pretty safe to say, were looking for Mr. Lampert to liquidate the company, selling off its vast real estate holdings and smile with investors all the way to the bank.

Now, it appears as though Mr. Lampert may have been telling the truth all along.

Despite both chains continuing to lose market share, Mr. Lampert seems intent on turning the businesses around. That is precisely why Michael Winer, portfolio manager of Third Avenue Real Estate Value Fund, is pulling his fund's investment from the Sears Holdings.

According to a report in the Chicago Tribune, Mr. Winer believes Sears Holdings "should be valued as a going concern, as opposed to the theoretical liquidation value."

Third Avenue's moves are of interest to other investors in the company because it was the fund that joined with Mr. Lampert in 2002 to gain control of Kmart.

Last year, the fund sold most of the 2.25 million shares it owned in Sears Holdings because of the high price of the stock and because of its acknowledgment that Mr. Lampert and company's plans to resurrect the retailers was "far from assured." Biff Ruttenberg, president of Atlas Partners LLC, is among those who have come to the conclusion that "Eddie Lampert may have been shooting straight. He won't turn it into a real estate play. That's Plan B.

Plan A is, let's run a retail business. If he can't run it profitably, he's got a back door." Mohnish Pabrai, managing partner at Pabrai Investment Funds, doesn't see Mr. Lampert turning around Kmart and Sears.

"If you don't buy into the story that Sears can turn around, you're betting on real estate or on Eddie's abilities as a master capital allocator," he said. "I think the real estate values for Lampert give him a huge margin of safety."

Wal-Mart's Bid to Remake Itself Weighs on Sales
By Kris Hudson – The Wall Street Journal
July 21, 2006

Aside from $3-a-gallon gasoline and high utility bills, another factor shares the blame for Wal-Mart Stores Inc.'s sluggish sales momentum: Wal-Mart itself.

The world's largest retailer by sales is attempting a sweeping makeover aimed at paring its inventory and labor costs while enticing affluent customers, some of whom now buy groceries in its stores, to spend more in other areas. As part of that effort, Wal-Mart will remodel nearly half its U.S. stores over the next year. Pulling this off will be no small feat for a retailer with more than $300 billion in annual sales. Even Chief Executive Lee Scott has acknowledged that missteps may occur.

The result of so much upheaval in many of Wal-Mart's 3,900 U.S. stores is additional pressure on the retailer's already-tepid sales gains, some analysts and investors say. That, coupled with Merrill Lynch's July 13 downgrade of the stock to "neutral" from "buy," has pushed the stock down about 9% so far this month. The price could fall further in coming months if sales actually decline, as some anticipate, and put pressure on earnings.

Yesterday in 4 p.m. New York Stock Exchange composite trading, Wal-Mart edged up nine cents to $44.29, but is down 5.4% year to date and less than 3% above its 52-week closing low last September.

"While external economic factors such as rising gas prices and higher interest rates are certainly acting as a head wind, the impact on same-store sales from Wal-Mart's remodeling efforts and other remerchandising initiatives cannot be dismissed as negligible," says Charles Grom, an analyst with J.P. Morgan Securities, who rates the stock "neutral" and owns no shares. His firm has done business with Wal-Mart in the past year.

Wal-Mart declined to comment.

The retailer launched its effort to remake itself and crank up sales a year ago. It shifted its advertising to focus less on repeating Wal-Mart's "always low prices" mantra and more on building its image as a "lifestyle" retailer offering trendy apparel and housewares. As part of the revamp, Wal-Mart is pruning the number of products it carries in each store to focus on top sellers. It is overhauling workers' shifts in its stores to have more employees on hand during each day's busy periods and fewer during slow times.

Perhaps the most disruptive aspect of the program is Wal-Mart's plan to remodel 1,800 of its U.S. stores by mid-2007, adding faux-wood floors, wider aisles and nicer restrooms, among other things. As many as 1,300 stores are slated for remodeling before this year's holiday season. The stores will remain open during the remodeling, meaning that shoppers will see entire departments displaced as floors are redone.

Mr. Grom of J.P. Morgan predicts that, based on sales declines that other retailers incurred during remodeling efforts, each Wal-Mart store going through the change could see its same-store sales, or sales at stores open at least a year, drop by three to seven percentage points, likely resulting in sales declines compared with year-earlier results. As a result, he predicts Wal-Mart's U.S. stores, excluding its Sam's Club warehouses, could within the next four months post their first monthly decline in same-store sales since at least 1995.

Same-store sales are considered a key measure gauging a retailer's ability to generate profitable growth against the fixed costs of established stores. Virginia Genereux, a Merrill Lynch analyst who recently downgraded Wal-Mart to "neutral" from "buy," notes that the retailer also appears to be getting fewer sales per square foot out of its new stores. This might be because Wal-Mart is opening many stores in new markets rather than as expansions or relocations of existing stores, she says. Those new stores have no established base of customers to rely on for early sales growth. That coupled with Wal-Mart's weak same-store sales will result in Wal-Mart this year posting its first decline in sales per square foot since at least 1997, Ms. Genereux predicts.

Ms. Genereux doesn't own Wal-Mart stock. Merrill Lynch has done business with Wal-Mart in the past year.

Bullish investors, however, see the stock's slide as unwarranted and say the changes Wal-Mart is making will reignite sales down the road. "We continue to buy," says David Katz, chief investment officer of New York-based Matrix Asset Advisors, which holds nearly 1.1 million Wal-Mart shares. "We're very upbeat about the prospects of the company."

Kevin Grant, co-manager of Harris Associates' $5 billion Oakmark Fund, sees Wal-Mart's slide as a buying opportunity. "We look at this as a high-quality business selling at 1999 prices when earnings have more than doubled since that time and sales have more than doubled," he says. Harris held roughly 10.75 million Wal-Mart shares in its funds at the end of March.

Last month, Wal-Mart, based in Bentonville, Ark., posted a sales gain of just 1.2% at stores open at least a year, on the low end of its projections and well below the 4.7% gain in same-store sales that it logged in June 2005. June isn't a trivial month; in the past four years, it has yielded Wal-Mart's second-highest sales volume, behind December.

In May, Wal-Mart's same-store sales gain of 2.5% landed on the low end of its expectations and below its 2.6% gain in the previous May. More recently, the retailer set a tepid forecast for a July gain of 1% to 3%.

As Wal-Mart struggled in May and June, its peers struggled less. While Target Corp. on July 17 lowered its projections for July same-store sales to a 3% to 4% gain from its earlier range of 4% to 6%, that forecast still outpaces Wal-Mart's, as did Target's 4.8% gain last month.

What is more, the two largest dollar-store chains topped Wal-Mart's same-store sales gain in June. The two -- Dollar General Corp. and Family Dollar Stores Inc. -- serve customers who are as cash-strapped, if not more so, than Wal-Mart's. To be sure, expanding Dollar General's base of $8.6 billion in annual sales is easier than expanding Wal-Mart's $312.4 billion base, but the discrepancy in growth rates still hints that something in addition to pricey gasoline is sapping Wal-Mart's sales momentum.

Tom Montalto, supervising investment analyst at New Jersey's Division of Investment, says the state's pension funds are generally cautious on retailer stocks because of fears of a slowdown in U.S. consumer spending. He says the state's funds have reduced their holdings in Wal-Mart by nearly 3.5 million shares in the fiscal year ending June 30, to 7.3 million shares, and likely have sold more recently, though they haven't issued a report.

Sears shareholder exiting
Third Avenue fund sells 250,000 shares
By Sandra Jones - Tribune staff reporter - Chicago Tribune
July 21, 2006

Since engineering the combination of Sears and Kmart last year, billionaire Edward Lampert has tried to convince investors that he intends to run the new company as a retailer.

Wall Street, for the most part, has turned a deaf ear, betting that Lampert will turn Sears Holdings Corp.'s massive real estate holdings into cash.

Perhaps he will, eventually. But one prominent real estate investor isn't waiting around to find out.

Michael H. Winer, portfolio manager of Third Avenue Real Estate Value Fund, cut his fund's Sears stake roughly by half in the quarter ended April 30 and expects to liquidate the rest of the holdings in January, according to Third Avenue's second-quarter letter to shareholders mailed in June. He sold 250,000 shares worth roughly $35 million.

The reason: a combination of an "attractive price"--about $140 a share; a fourteenfold increase from what the fund paid for them--and "our view that the company should be valued as a going concern, as opposed to the theoretical liquidation value," Winer wrote.

Sears investors watch Third Avenue's actions closely. The New York-based fund teamed with Lampert to gain control of Kmart Holding Corp. when it was in Chapter 11 bankruptcy in 2002, purchasing debt that converted into stock in the reorganized Kmart.

Third Avenue's flagship value fund, run by value investor Martin J. Whitman, sold the bulk of its Sears stake, 2.25 million shares, last year when the stock was trading between $134 and $163 a share. Mr. Whitman, in a letter at the time to his shareholders, noted that Sears' success as a retailer was "far from assured."

The belief that Sears would liquidate its real estate grew out of Lampert's dealings at Kmart. As chairman of the ailing discount retailer, Lampert raised more than $1 billion in cash by selling Kmart stores to retailers including Home Depot Inc. and the old Sears, Roebuck and Co. Some analysts estimate Sears' portfolio of stores to be worth as much as $10 billion.

Although Lampert has said that he would operate Sears as a retailer, the belief that he would sell off real estate has persisted.

"It seems Eddie Lampert may have been shooting straight," says Biff Ruttenberg, president of Atlas Partners LLC, a Chicago-based real estate firm and turnaround consultant. "He won't turn it into a real estate play. That's Plan B. Plan A is, let's run a retail business. If he can't run it profitably, he's got a back door."

In his most recent letter to shareholders on March 15, Lampert wrote his goal is to "strive to return Sears and Kmart to the position of prominence that both brands and companies held in American retailing."

But both Sears and Kmart have been losing market share for years and sales have continued to slip on Lampert's watch.

Sales at stores open at least one year, a key measure of a retailer's health, fell 8.4 percent at Sears and less than 1 percent at Kmart in the first quarter, while profits benefited from payroll and selling expense cuts.

Mohnish Pabrai, managing partner at Irvine, Calif.-based Pabrai Investment Funds, who follows Lampert but doesn't own Sears, said he is skeptical Lampert can turn around the ailing Sears-Kmart stores.

"And if you don't buy into the story that Sears can turn around, you're betting on real estate or on Eddie's abilities as a master capital allocator," Pabrai said. "I think the real estate values for Lampert give him a huge margin of safety."

Philip Zahn, a Chicago-based credit analyst at Fitch Ratings, agreed. "Real estate is something they can fall back on if the company deteriorates to the point where operations aren't working."

Sears spokesman Chris Brathwaite declined to comment. Winer referred calls to a spokeswoman who also declined to comment.

Winer's real estate fund originally paid $10 per share in May 2003 for Kmart shares that converted into Sears shares in March 2005 when Troy, Mich.-based Kmart purchased Sears for $12.3 billion. Winer hedged his investment by using options to lock in a floor and ceiling on about half of the 500,000 shares held. Those options expire in January and "it is likely that the entire position will be liquidated at that time," he wrote.

After the second-quarter sale, the real estate fund held 272,951 Sears shares and 2,443 options. The real estate fund boasts an annual average return of 19.5 percent from its inception in 1998 through June 30, according to Third Avenue. Whitman's flagship fund has returned an annual average of 16.7 percent since it was founded in 1990.

Scott Rothbort, president of Lakeview Asset Management in Millburn, N.J., who counts Sears as one of his top holdings, said, "A lot of people were saying it was just a real estate play, but that was a story spun by bears and shorts and naysayers. The real estate is a factor, but only one of many."

Out of Fashion
A Clothes Horse Sets Out to Remake
Department Stores Federated CEO Lundgren Plans
810 Macy's Nationwide; The End of Marshall Field's Betting Big on Martha Stewart
By Ellen Byron – The Wall Street Journal
July 17, 2006

When Terry Lundgren planned his wedding last summer, he painstakingly deliberated the reception room's layout, chose the menu and handpicked the wine selection. Then he went a step further, designing the wedding gown for his fiancée, Tina Stephan.

"I wanted something very unique, that no one had done before," Mr. Lundgren explains. Over the course of five fittings, during which Ms. Stephan was blindfolded, Mr. Lundgren worked with designer Vera Wang to construct the dress he had in mind. "I envisioned a clean, simple design," he says. Ms. Wang, who says she's never helped a groom make his bride's gown before, convinced him to include a more-dramatic back to the gown but otherwise worked from Mr. Lundgren's drawings. "It was a totally collaborative effort," Ms. Wang says.

Ms. Stephan saw her gown for the first time just before she walked down the aisle. Ten days later, Mr. Lundgren completed another significant merger: Federated Department Stores Inc., where he is the chief executive officer, acquired May Department Stores Co. for $17 billion. It was the biggest acquisition in department-store history, joining Federated's Macy's and Bloomingdale's chains with their chief rivals. The result: the first national department-store chain, ending an era when every sizable American city had its own homegrown version.

Now Mr. Lundgren is betting he can reverse the 20-year decline of a storied industry. For two decades, the department store has been under siege as more consumers turn to big discounters, specialty retailers and the Internet. Since 1999, department-store sales have fallen 14% to $86.7 billion in 2005. Sales in warehouse chains and membership clubs have grown 128% and clothing stores have grown 31% over the same period, the U.S. Census Bureau estimates.

Mr. Lundgren, 54, thinks he can revive the business by creating a huge nationwide chain and applying his lifelong prodigious attention to detail, passion for fashion and belief in the power of store display on a vast scale. In September, he plans to name 810 of the company's stores Macy's -- all of the company's outlets except its 40 Bloomingdale's stores. At the same time, he plans to roll out the company's first national ad campaign. He wants to impose better dressing rooms, uncluttered floors and clearer signs throughout the chain. And he's betting Federated will now have clout to negotiate exclusive merchandise with vendors.

"This is a chance to get the market share back that we deserve," says Mr. Lundgren.

A Bigger Problem
Some on Wall Street wonder whether the combination of the two biggest department-store chains is just making a big problem bigger. Though the May acquisition boosted Federated's 2005 annual sales to $22.4 billion, over the previous four years sales had stagnated at around $15.6 billion. Federated's stock, including a split, has nearly tripled in price since Mr. Lundgren became CEO in 2003, thanks in large part to a belief that Mr. Lundgren has improved the quality of its merchandise and stores and Wall Street's confidence in his management. But this month, the company reported that June sales in stores open at least a year rose just 1.7% from the year before, missing the company's forecast of a 2% to 3% gain.

"They've put together two companies in a niche that no one wants to be in anymore," says Carol Levenson, director of research for Gimme Credit, an independent bond-research firm. "They haven't yet come up with a magic bullet to cure the malaise facing...the all-purpose department store." At 6-foot-3-inches, Mr. Lundgren is famous for wearing impeccable suits and never having one steely gray hair out of place. In 1972, Mr. Lundgren was Bachelor Number 2 on The Dating Game, and won the date. "He's a retail CEO straight from central casting," says former Saks CEO Arnold Aronson, now a consultant. home where fashion wasn't a priority, he says. His father assembled JBL speakers and later sold real estate. His mother was a homemaker who served the family dinner every night at 5:30 p.m. "If I wanted clothes, I was buying them," Mr. Lundgren says. Still, as a teenager, he became interested in fashion and honed his look: Sperry topsiders and Farah slacks.

"They were a tailored pant with a cuff -- they were so different than just a jean," says Mr. Lundgren. "No one was wearing them at school. They were higher-end."

For Christmas, each Lundgren sibling was expected to get the others a $2 gift. "I told them, 'If you're going to get me something for $2, get me a pair of really nice socks,'" he says. "Through that process I got my first pair of cashmere socks -- they were a little warm for Orange, California, but I thought they were great."

The first in his family to go to college, Mr. Lundgren paid his own way through the University of Arizona by working full time at a restaurant, first peeling shrimp and eventually as a manager. After graduation, he planned to take a sales job with Xerox, because it paid the most. He changed his mind when he visited Bullock's and met Allen Questrom, then a young, ambitious executive at the Federated-owned chain in California.

"I was thinking, maybe in 10 to 12 years from now, maybe I could do what this guy is doing," says Mr. Lundgren.

In 1975, he went to work as an assistant buyer in the stationery and electronics department at Bullock's. Three years later he became the buyer in the lamp department, where he quickly learned the dynamics of "good, better, best" merchandising fundamentals: Having a variety of lamps at high, middle and low prices helps the middle-priced lamps sell more quickly. "It allows the consumer to make his or her own choice," says Mr. Lundgren. "It's one of the greatest advantages of the department store."

Susan Kronick, today one of Federated's vice chairmen, recalls visiting Bullock's successful home-furnishings department, which Mr. Lundgren oversaw. "He had set up this gigantic, 14-foot table dressed to the hilt with china, silver, crystal -- I never saw something that huge in a department store before," Ms. Kronick says. Mr. Lundgren was an early believer in glitzy store events to generate excitement -- for instance, to promote up-and-coming jewelry designers. "He was doing shows with them back in the early '80s, when department stores didn't do 'shows,'" says Gary Kusin, former Kinko's CEO, who knew Mr. Lundgren when they were young Federated executives.

His boyhood interest in the minutiae of style blossomed. Janet Grove, a Federated vice chairman who oversees merchandise, recalls a plane ride last year when Mr. Lundgren had to keep reaching down to pull up his socks. The socks, made by a Federated private label, perturbed Mr. Lundgren, who told Ms. Grove they lacked enough elastic in the band. After accusing Mr. Lundgren of having skinny legs, Ms. Grove then conceded. "We reengineered the socks to have better elastic, and he had new ones a few weeks later," says Ms. Grove.

In 1988, Mr. Lundgren followed Mr. Questrom to Neiman Marcus, where Mr. Lundgren worked as executive vice president. In 1990, he was named CEO of Neiman's when Mr. Questrom moved on to become chairman of Federated after it filed for bankruptcy protection.

After nearly six years at Neiman Marcus, in 1994 Mr. Lundgren rejoined Mr. Questrom at Federated. About three months later, Federated agreed to buy R. H. Macy & Co. The chain gave them a brand known across the country, thanks, in part, to the Macy's Thanksgiving Day parade. The notion of creating a national department-store chain, called Macy's, began to percolate, say Mr. Questrom and Mr. Lundgren.

While Federated digested the Macy's acquisition, Mr. Lundgren ran Federated's Merchandising Group, and changed the way the company sold private-label brands. Rather than use them to inexpensively supply their basic, low-priced products, Mr. Lundgren developed fashionable private-label lines, and advertised them as brands in their own right.

He forced store managers to make room for large displays for the Federated brands next to department-store stalwarts such as Ralph Lauren. Last year, Macy's private-label merchandise accounted for 18% of total sales, and over the past four years sales of these products have grown three times as fast as national brands, the company says.

Some competitors have moved more aggressively into making their private labels more fashionable, cutting into Federated's advantage.

J.C. Penney, for example, has invested heavily to improve the quality of its merchandise, especially its private-label brands, which accounted for more than 40% of its sales last year. Penney also has begun a campaign to open more stores, and hopes to buy some of the 80 stores Federated plans to close. Beginning next year, Penney says it plans to open 50 new stores a year.

Ambitious Bet
A big part of Mr. Lundgren's formula is an ambitious bet that a more-pleasant environment will draw shoppers back into his stores. He plans about $4 billion in capital spending over the next three years on new and old stores. Over the past three years, Federated has added seats and television sets outside some 1,400 dressing rooms, so women can take their time trying on clothes as their husbands or kids are amused. More-prominent signs in stores make navigation easier for customers. Self-serve electronic scanners display sale prices.

Still, shopper Susan Weiss says she skips shopping at Macy's because she sees the stores as too crowded with merchandise, and help is nowhere to be found. "Every one sells basically the same thing, so it's service, definitely service, that I will drive out of my way for," says the Sands Point, N.Y., resident who works in the jewelry business. "I'm busy and I want to get right to the point, I'm not strolling around most of the time."

With the muscle of a national chain nearly double the size it was a year ago, Mr. Lundgren wants to offer more exclusive products to lure customers. In April, Federated announced plans to launch a line of home furnishings and cookware designed by Martha Stewart.

"In our former self, we'd never be large enough to satisfy the demand potential of the Martha Stewart product offering," Mr. Lundgren said at the time of the launch announcement.

Federated has run into turbulence as it prepares to convert the names of its newly acquired stores to Macy's. Many of the current names, including Filene's, Meier & Frank and Kaufmann's, have been fixtures in their markets for more than a century.

Last year, film critic Roger Ebert wrote an editorial in the Chicago Sun-Times warning Mr. Lundgren not to "mess with Chicago, and don't mess with the name Marshall Field's. You will generate rage beyond your wildest nightmares."

Federated also faces a challenge attracting young shoppers, who are drawn to specialty retailers in malls and dismiss department stores as staid places for their mothers to shop. "The future of department stores in general, and Federated in particular, relies on being innovative and not to live by its past," says Walter Loeb, a retail consultant.

Home Depot retooling image with home decor
Catalog-only furniture sales aimed at affluent female demographic
By Susan Chandler - Tribune staff reporter - Chicago Tribune
July 16, 2006

The dark wood dining room table is set with black-and-white dishes, crisp white napkins and bulbous wine goblets. The six curvy arms of the glass chandelier overhead are topped by mini lamp shades. Silk-like curtains brush the floor on a nearby window. It's a scene familiar to any loyal Pottery Barn customer.

But this catalog page isn't from Pottery Barn. It's a vignette from a Home Depot Direct catalog mailed this summer, and it's one of the many ways the giant home improvement retailer is trying to soften its image and cozy up to affluent female shoppers.

When the Pottery Barn overtones are mentioned to Harvey Seegers, president of Home Depot Direct, he is anything but offended.

"Thank you for the compliment," he said in an interview this week. "We regard Williams-Sonoma (Pottery Barn's parent) as a great competitor. I wouldn't say we are trying to create the Williams-Sonoma look and feel, but it is designed to be a high-end presentation, the kind that people associate with Williams-Sonoma."

By trying to sell everything from slipper chairs to chandeliers, Home Depot is entering a market crowded with retail heavyweights who know how to play the furniture game.

Crate and Barrel, Restoration Hardware, Ethan Allen, Z Gallerie, Room & Board all target upper middle-income consumers with trendy furniture collections. At slightly lower prices, Pier I and Bombay Co. are major players, and at the value end of the game, Target and IKEA continue to expand their home furnishings collections.

It's not going to be easy to win market share, predicts Steen Kanter, the former president of IKEA US and chief executive of Kanter International, a business branding firm.

"Buying at Home Depot is a `head' decision. The shopper decides, `I'm going to make these changes to my home.' Buying at Pottery Barn is very much a `heart' experience," Kanter said. "Home Depot is not a natural go-to place for someone who is going to buy these products."

Christie Nordhielm, clinical associate professor of marketing at the University of Michigan's Ross School of Business, agrees that finding a clear niche and the right pricing strategy is going to be tough.

"There's a fine line between vision and desperation," she said. "If they're trying for the middle, I'm not sure one exists. You've got Target coming in from one end, and Crate and Barrel and Pottery Barn pushing prices up at the other."

Also complicating Home Depot's efforts is the fact that most furniture shoppers want to give furniture "the tush test," says Ray Allegrezza, editor-in-chief of Furniture Today, a trade paper for the home furnishings industry. "They want to see if the fabric has a nice hand, see how it sits."

Those other furniture retailers have extensive networks of brick-and-mortar stores that allow shoppers to do that. Home Depot Direct doesn't. Right now, it is a catalog-only operation although Home Depot will test furniture boutiques inside two or three regular Home Depot stores that open during the next 12 months. Retail chain Expo Design Center--another Home Depot attempt to get a piece of the cocooning phenomenon--fell short because prices were too high and customer service was poor. In the past year, Home Depot has closed 20 of 54 Expos, including three in the Chicago area.

Customer satisfaction low

Not only is the playing field crowded, Home Depot is struggling with an image problem. Many consumers dread shopping there, turned off by unknowledgeable salespeople, out-of-stock items and long lines. Home Depot's customer satisfaction rating has fallen so low it now ranks below Kmart, according to the American Customer Satisfaction Index compiled by the University of Michigan.

If people dread shopping for light bulbs at Home Depot, how are they going to feel trusting the same company to deliver a $1,000 chaise lounge or a $495 ottoman? The question is whether a retailer associated with drywall and screwdrivers has the credibility to sell fashionable home furnishings.

"We don't know the answer to that," acknowledges Seegers, a former GE executive recruited to run the home furnishings catalog operation by Home Depot CEO Robert Nardelli. "But the early returns show the answer is yes. Our customers are going upscale with us."

To ensure that Home Depot Direct's furniture doesn't get tainted with the regular chain's dust, the catalog operation has a completely separate logistical system. Instead of loading the catalog merchandise on Home Depot's fleet of trucks, the catalog is contracting with independent truckers and using Federal Express ground delivery to ensure that merchandise arrives on-time and without smudges or chips that could result in costly returns.

Getting it there is only part of the battle.

The bigger challenge is figuring out what kinds of home decor looks will be hot in time to get the merchandise produced by a complicated array of manufacturers. To do that, Home Depot Direct has its own dedicated merchant team. So do two other catalogs in Seeger's domain, including 10 Crescent Lane, a high-end book that sells everything from $5,500 teak bathtubs to $10,000 gazebos, and Paces Trading Co., which specializes in expensive lighting. Those catalogs, though, don't have the Home Depot name emblazoned on them.

"The creative end will always be decentralized," Seegers said.

As long as Home Depot doesn't make any serious style missteps, its global sourcing network should allow it to keep prices down, retail experts say. For instance, a queen-size panel bed in Home Depot Direct costs $599, compared to $1,099 for a similar bed from Pottery Barn's "Sumatra Collection," a 45 percent differential.

But the price differential is much narrower on other items such as an outdoor teak dining table with six chairs. Home Depot's price: $1,475. Pottery Barn's price: $1,558, making the HD version only 5 percent cheaper.

Home Depot also is bolstering its efforts with outside expertise. In April, the Atlanta-based company spent an undisclosed amount of money to buy Home Decorators Collection, a home decor catalog chock-full of items for the growing number of consumers who want to adorn their own homes rather than hire a decorator to do it. With a customer file of 3.5 million names and addresses and 65,000 products, Home Decorators Collection puts Home Depot in the sweet spot of the growing market for do-it-yourself home decor, Seegers said.

"They have mastered the art of delivering furniture to the home 12 times over," he added. "We're learning a lot from them."

Logical extension, experts say

Plenty of marketing experts say Home Depot's move into home furnishings makes sense.

"This is a logical extension of their business. It's a lot easier to change image with a nice catalog than renovating 2,000 stores," said Cynthia Cohen, president of Strategic Mindshare, a retail consulting firm based in Florida. "They have a brand like Kenmore appliances at Sears. Home Depot stands for reliability and value."

Home Depot's makeover is coming from two directions.

By offering home furnishings, the $81.5 billion company is trying to convince existing shoppers that they can outfit the rooms they just remodeled without going to another store. At the other end of the business--building supplies--it is reaching out to contractors to do more of their materials buying at Home Depot.

Meanwhile, Home Depot is remodeling its current base of stores to make them more consumer friendly, an effort to better compete with Lowe's, a do-it-yourself superstore that has sanded off some of its rough edges.

The success of Lowe's, in fact, may have something to do with Home Depot's move into the "soft home" area, retail analysts say. Lowe's, where the slogan is "Improving Home Improvement," has gained ground on its larger competitor by making its boxy stores more attractive to women shoppers.

"Lowe's has done a good--a better job than Home Depot--of tapping into the brain of the female consumer," said Allegrezza of Furniture Today. "The studies I've read say a female customer is more comfortable in Lowe's. There's less testosterone, better lighting, wider aisles."

Home Depot is trying to remodel itself in a tough environment. High gasoline prices have cut into consumers' discretionary spending and the housing market is slowing down as some consumers postpone trading up or remodeling their homes in hopes that interest rates will come down. Those distressing trends and questions about Home Depot's prospects for growth have weighed heavily on the company's stock, which trades around $34 a share, far below the $50 it hit in early 2002.

Even Pottery Barn is feeling pinched. Williams-Sonoma Inc. announced last week that Pottery Barn's second-quarter sales would come in lower than the company had expected.

For now, Home Depot is proceeding slowly in the home furnishings area with no plans to open a stand-alone chain of Home Depot Direct furniture showrooms. It will open a seventh Home Decorators Collection store in Lake Zurich in August. These 20,000-30,000-square-foot stores have enough room, the company says, to test Home Depot Direct merchandise and experiment with other concepts.

After only a year into Home Depot Direct, Seegers says he is encouraged by customer's response. "The financial results are exceeding plan and have been every quarter since the start of Home Depot Direct. We are on a course to double the business this year.”

Reinventing the Luxury Department Store
By Vanessa O’Connell – The Wall Street Journal
July 15, 2006

From edgier designers to martini bars and five-person dressing rooms, the high-end retail formula is changing for the first time in decades. Our survey.

The epitome of old-world elegance, Bergdorf Goodman has long been a leading destination for wealthy ladies who lunch. The very layout of its Manhattan flagship -- with its circular maze leading shoppers past $5,000 Oscar de la Renta gowns -- takes for granted that shoppers have platinum credit cards and hours of leisure time.

So those getting off the elevator on the fifth floor this summer could be forgiven for feeling slightly disoriented by the sight of a deejay spinning lounge music, a panini bar and racks of clothing from cutting-edge designers.

Bergdorf's fifth-floor revamp

For decades, luxury department stores have stuck to the same formula: offer expensive designer clothing in an elegant setting to win over well-heeled middle-aged customers. But amid fierce new competition -- from "cheap chic" emporiums like Target to high-end designer boutiques -- that is now changing. Nordstrom is testing "girlfriends" dressing rooms for as many as five friends, while Barneys New York is aggressively expanding its standalone Co-op stores to cities like Troy, Mich., and Austin, Texas. Later this month, Neiman Marcus will open the first of four stores, called Cusp, geared to the Gen-X crowd.

Is any of this working? We evaluated high-end department stores across the country, surveying the merchandise, testing the knowledge of staffers and evaluating everything from restaurants to fur salons. Along the way, we assessed such factors as which chain has the best lineup of top designers -- and which store's salespeople give off the most attitude.

For all of Nordstrom's vaunted reputation for helpful service, when it came to getting useful advice on putting a work outfit together, the staff at Barneys came out on top. For shoppers who want to take care of everything on their list at one store, Neiman Marcus wins out. And those who appreciate a luxe bathroom should head for the loo at Bergdorf's in New York City, where there are Central Park views.

We also saw evidence of how these stores are changing in ways that may seem odd to their longtime customers. At its new store in Boston, Barneys has introduced two "smelling columns," chamber-like structures to inhale fragrances without environmental impurities. At Bergdorf's men's store, a deejay will download and organize music into customers' iPods and create a customized library of music for shoppers.

The biggest driver behind many of these changes: demographics. Like so many other industries, luxury retailers are struggling with the aging of baby boomers and the movement of money into the hands of younger generations. Children of the wealthiest generation in American history, the echo-boomers (teens through early 20s) and Gen-Xers (30-somethings) have grown up bombarded by designer brands since they were toddlers.

Bergdorf's

Unlike their parents, this so-called millennial generation is unapologetic about ogling $1,600 Marc Jacobs handbags or $900 Zac Posen jeans, even if they can't afford them. That's one reason why wealthy Gen-Xer households spent an average of $52,781 each on luxury goods in 2005 -- including travel, cars, home goods and fashion. That's 6.3% more than wealthy boomers spent last year, according to Unity Marketing, a Stevens, Pa., firm that tracks spending through quarterly online surveys of 1,200 consumers with average household incomes of $140,000.

"We realized that [the typical younger customer does] a lot of her shopping in specialty stores, and thought, what if we did a specialty store for a younger customer?" says Karen Katz, president and chief executive of Neiman Marcus Stores, whose new Cusp stores will sell pricey designer goods, such as Chloé handbags, as well as less-expensive lines, such as J Brand jeans.

There's a lot riding on this. While overall retail sales rose some 24.2% over the past six years to $2.2 trillion, department-store sales declined nearly 14% to $86.7 billion last year from $100.3 billion in 2000, according to the National Retail Federation, a Washington trade group. And the youth pursuit is a tricky strategy for luxury stores to execute. A sudden move into giant platform heels, micro minis and low-riding jeans can easily alienate boomer parents and older shoppers, who remain the most important clientele for luxury stores.

Barney's Boston store's designer men's department

"I am not 20-something, and I wouldn't want to go into Nordstrom's and see a bunch of stuff for 20-somethings, which would dig into the inventory of stuff I like," says Dick Evans of Roswell, Ga., a 77-year-old retired IBM sales executive and longtime shopper at Nordstrom's men's department.

Saks Fifth Avenue learned the hard way that moving too quickly to attract a younger clientele can backfire. Over the past several years, Saks, whose average customer is 45 to 48 years old, added more young designers and launched an irreverent marketing campaign last year called "Wild About Cashmere" featuring goat-shaped mannequins and logos. Saks turned off many of its core 40-something consumers, the company's new CEO, Steve Sadove, admitted at last month's annual meeting. Saks's sales at stores open at least a year consistently lagged behind competitors'. Saks shook up management in January, replacing its CEO with Mr. Sadove.

To repair its image and recapture defectors, Saks is refocusing marketing and merchandise. It is reintroducing its own Saks Fifth Avenue lines, while petites departments return in November -- two features that appealed to older customers but had been discontinued. At the same time, the chain is targeting 20-somethings by renovating the contemporary-clothing sections of its stores and adding a denim bar, equipped with "denim doctors" who help shoppers choose jeans with the best fit.

Other stores are moving cautiously as they figure out what young consumers want. "We are finding that the young shopper isn't like her mother, who might wear the same designer head to toe," says Ms. Katz at Neiman Marcus Stores. "The daughter is all about mixing high and low."

While traditional luxury items, such as Hermès Birkin bags, Louis Vuitton bags and Ferragamo ties, can appeal to both parents and children, the younger group has its own distinct tastes. It considers many of the designers that their parents love -- such as Valentino, Chanel and St. John -- just plain old-fashioned.

"The children of wealthy boomers are more style-driven than people in the same age group were in the past," says C. Britt Beemer, chairman of America's Research Group, a Charleston, S.C.-based consumer-behavior research company. "But unlike their parents, they aren't loyal to particular brands or individual stores."

Experts say many Gen-Xers are better informed about designers and new trends than their parents and often pride themselves on being first to discover what's new. Priya Sopori, a 33-year-old lawyer in Los Angeles, dresses in Chloé and Dolce & Gabbana and occasionally buys shoes at Barneys in Beverly Hills. But she doesn't rely on department stores for fashion guidance. "By the time a particular designer is carried in department stores, it's usually already gotten too publicized."

To distance itself from its more conservative parent, Cusp won't use the Neiman name anywhere in its stores. As opposed to the extravagant marble floors and authentic Picassos hanging at Neiman's, Cusp will feature flea-market-finds, store-room shoe-racks and ottomans covered with 1970s car upholstery as part of its interior designs. Opening in Georgetown, Los Angeles and McLean, Va., Cusp will sell an eclectic mix of books and CDs, and edgier labels like 3.1 Phillip Lim, Morphine Generation and Salvador Sapena.

The fragrance chambers at Barney's Boston store

The new stores will compete directly with Barneys's new Co-op stores, which the New York retailer is rapidly expanding this year and next. Geared to 20- and 30-year-olds, Co-ops carry less-expensive but hip merchandise such as $200 Radcliffe jeans, a $300 LuLu Frost Plaza Hotel-inspired necklace and $260-to-$330 studded Co-op brand sandals. The Co-ops will number 14 by next year, outnumbering Barneys's flagship locations. Barneys, which Jones Apparel Group bought in 2004, hopes expanding its flagships and Co-ops will help more than double its current sales volume to at least $1 billion by 2008, says CEO Howard Socol.

Seattle-based Nordstrom boosted its hip factor recently when it bought a majority interest in the ultra-chic Jeffrey New York and Jeffrey Atlanta boutiques. With that deal, store founder Jeffrey Kalinsky became the director of designer merchandising at the chain, with an eye toward bringing in more cutting-edge brands.

For talented young designers, Nordstrom is adding "via C" areas to its new stores. Eager to boost its sales online, Nordstrom also just added virtual designer boutiques for Michael Kors, Dolce & Gabbana and others on its Web site. For now, shoppers have to call an 800 number to order the merchandise, though come fall, online orders will be accepted.

But for all the new efforts, some evidence suggests that when it comes to deciding where to shop, many consumers consider more basic factors. In a recent survey by the Luxury Institute, a New York consulting firm, U.S. consumers with a net worth of at least $750,000 said they consistently value superior quality, exclusivity and a department store's ability to make a customer "feel special." For our test, we also worked with Harris Interactive to survey 680 luxury-store shoppers around the country about how they decide where to shop. The two attributes that came out on top: service and selection.

One thing that stood out when we tested the country's top five luxury department stores, is each chain's distinct personality. For instance, those interested in top designers and understated, elegant looks, should look to Bergdorf Goodman; although it has only one store, in New York, it has built an impressive Web site for online shoppers around the country. We found one of the broadest selections of house-brand clothing and shoes at Nordstrom's stores, except when it came to women's suits, which had only limited choices when we visited the Short Hills, N.J., store.

Even within a chain, some stores stand out. That's partly because stores put most of their bang into their flagships and key markets, with mall outposts more uneven. Also, top designers such as Chanel and Jimmy Choo intentionally limit the distribution of certain of their merchandise to just one or two retailers in a local market. For example, up to half of the 99 Nordstrom stores nationwide don't carry any clothing from runway-caliber designers.

At Neiman Marcus in Dallas NorthPark, we found Chanel sunglasses, shoes and makeup. But the highly sought-after Chanel clothing -- $1,000 blouses, skirt suits starting at $5,800 -- is stocked at the downtown Dallas flagship. A Neiman spokeswoman says about 23 of its 36 stores nationwide carry Chanel apparel, and any store can call it in

One point that favors all the chains we tested over many boutiques is their relatively generous return policies. Nordstrom, for one, has no time limit on returns, while Bergdorf's store credit never expires.

Department-store officials say the millennial-generation efforts are paying off. Since it introduced the "5F" floor with a deejay and merchandise geared toward younger shoppers, Bergdorf's sales of pricey contemporary clothing "have been phenomenal," says CEO Jim Gold, who provided no additional specifics.

Still, the new ventures will need to win over a generation of shoppers like Ms. Sopori, the 33-year-old lawyer who is wary about department stores in general.

"If there's a particular designer collection you like, it's much better to go to the boutique where you can see the collection in its entirety," she says. "At department stores, you're essentially at the whim of the store's buyers, who might be from a different age group."

-- Kris Hudson and Ann Zimmerman in Dallas, Stephanie Kang in Los Angeles, Stephanie Chen in Atlanta, Timothy W. Martin in Chicago and Monica M. Clark in New York contributed to this article.

Bill Gates's giving opens windows of moral flattery.
By Daniel Henninger - Wonder Land – The Wall Street Journal
July 14, 2006

So what would you do with $30 billion? Warren Buffett gave his to Bill Gates, but they're bridge-playing buddies. Bridge remains a mystery to me, but aficionados say you can learn things about a man's judgement by the way he bids a hand. So let's assume Mr. Buffett has bid wisely by betting on Mr. Gates.

Aficionados of philanthropy tell me the one thing that distinguishes expertise in business (or bridge) from expertise in philanthropy is that in philanthropy no one keeps score. It has no institutionalized bottom line. The very act of philanthropy is often its own validation.

Required by U.S. law to spend 5% of their assets annually, philanthropic foundations by the tens of thousands dole out billions of dollars (some $30 billion in 2005, according to the Foundation Center) on thousands of projects. But no one systematically evaluates which projects succeed or just keep squads of well-intentioned individuals tilting at windmills. Certainly the well-run foundations know what fails. But with no public accounting of results, performance evidence that might help others avoid altruistic dead-ends goes aglimmering. One might ask, even as a moral equation, whether some of these billions might not have done more social good if simply left in an account for banks to lend by vetting for-profit small businesses.

Rich men don't become so by wasting one day longer than necessary with failed projects. So this may be why the very richest men entering the world of philanthropy often take on pharaoh-sized projects for which no one will hold them to account--"eradicating disease," "eliminating poverty," protecting all the world's species, or "controlling" the population of entire nations or even continents. You could throw billions at any of these for years, make no progress and no one would know. One philanthropy executive told me it is "the most intellectually lazy and complacent field I have ever been around."

Julius Rosenwald, the man behind Sears Roebuck and one of the greatest if least-known philanthropists of the last century, said, "It is nearly always easier to make $1,000,000 honestly than to dispose of it wisely." Enter the Bill and Melinda Gates Foundation. There is some expectation that Mr. Gates will be a Yoda-like wise man who changes philanthropy's operating paradigms. A good start would be to create a Team B of outside, independent auditors using common benchmarks of performance to rate his and others' philanthropic inputs.

Still, no matter how smart or efficient Mr. Gates makes his foundation, it still must function in the world as it is, whether the project site is diseased Africa or undereducated San Diego. Of course, the Gates Foundation now has a third trustee, Warren Buffett. In the coverage of this happy union, two relevant and intriguing remarks have been attributed to Mr. Buffett that may help to frame the issues ahead for this $60 billion foundation and all of the new money behind 21st-century philanthropy.

The most widely quoted is Mr. Buffett's assertion on "The Charlie Rose Show" that "A market system has not worked in terms of poor people." This drew expectable slings and arrows. But he was also quoted in the Economist as saying that "in philanthropy, the most important problems are those which have already resisted both intellect and money." True. And given how many newly arriving philanthropic billions from the Gates and other foundations are about to be launched at these fortress problems, the issue of what "has not worked in terms of poor people" becomes more than a political debating point.

Several days ago an article in this paper noted what might be called a subsidiary union between Mr. Gates and Bill Clinton to combat HIV/AIDS. The piece noted that Mr. Clinton represents large-government, G-8-type approaches to the hard problems. It quoted Richard Holbrooke, a former Clinton janissary and now head of the Global Business Coalition on HIV/AIDS as calling the Clinton-Gates relationship "the beginning of what you might call the first super NGO." But the article also noted that Mr. Gates tends to be averse to processing his grant money through politicians. This brings us to the sine qua non of any successful philanthropic effort--the founder's vision. A good philanthropy, as when Andrew Carnegie ran his, does what the founder wants, not what the world says he should want.

If the idea here is that Mr. Gates's vision will be to put his vast resources behind super NGOs and the like, then the Gates Foundation will at bottom be an extension of the existing public-private status quo. Specialists in philanthropy say that a big foundation--for the Gates Foundation the 5% rule means outputting $3 billion annually--in time staffs itself with people whose life experience is spending big money, that is, former government officials rather than the efficient managers typically found at, say, Microsoft.

As Mr. Gates knows, he's already in a private-public "partnership" with most of the G-8 industrialized nations through the European Union's antitrust office, which on Wednesday hit Microsoft with a fine of $357 million for not handing over software codes to its Old Europe rivals. The EU promised further muggings absent Microsoft's willingness to fund Europe's social vision. This is about more than one company's business problems. The most intractable philanthropic problem in the U.S. is improving the state of K-to-12 inner-city schools, a mess for which "the market" bears zero responsibility. The public-school bureaucracies and unions that thwart innovative foundation ideas in the U.S. are cut from the same mindset that runs antitrust for the EU or the ministries of poor African nations. Surely many decent foundation projects "fail" merely for having to pass through this sieve.

The major challenge in our time for big-problem philanthropy may be creating a project model that subverts the public-sector status quo, which, whatever its historic claims to lifting the poor, now looks paralyzed and exhausted. And the greatest danger to the new philanthropists is the old siren song of moral flattery from that same hat-in-hand status quo. As always, spending money is the easy part.

Mr. Henninger is deputy editor of The Wall Street Journal's editorial page. His column appears Fridays in the Journal and on OpinionJournal.com.

Falling store mirror kills child
3-year-old Sun Valley girl hit in freak accident in Burbank
By Jason Kandel – Staff Writer – Los Angeles Daily News
July 13, 2006

BURBANK - A 3-year-old Sun Valley girl died in a freak accident when a mirror at Sears fell off the wall and landed on her head, authorities said Wednesday. Maria Victoria Rocha suffered severe head injuries about 12:30 p.m. Saturday at Sears on Magnolia Boulevard in Burbank, officials said.

Maria, her mother and her grandmother were in a waiting area adjacent to the dressing rooms when the mirror, 2 feet by 6 feet, somehow came loose and fell on her, said Lt. Fred Corral of the Los Angeles County Coroner's Office. She was later pronounced dead at Childrens Hospital Los Angeles.

"Our thoughts are with the family," Sears spokesman Chris Brathwaite said. "This was a very tragic accident, and I know that our associates at that store were deeply touched by this." Sears officials were looking into why the mirror fell.

"We take the safety of our customers very, very seriously," Brathwaite said. "We're still looking into how it happened and why it happened." The Rocha family could not be reached for comment Wednesday. Company officials have tried to get in touch with the family but have been unsuccessful.

Burbank police ruled the death an accident, Lt. David Gabriel said. "It wasn't a crime. It was an accident," he said. "It's very disturbing."

The California Occupational Safety and Health Administration is not investigating because the agency only looks into incidents involving employees, spokesman Dean Fryer said.

Some Leeway for the Small Shoplifter
By Michael Barraro – New York Times
July 13, 2006

Wal-Mart refuses to carry smutty magazines. It will not sell compact discs with obscene lyrics. And when it catches customers shoplifting — even a pair of socks or a pack of cigarettes — it prosecutes them.

But now, in a rare display of limited permissiveness, Wal-Mart is letting thieves off the hook — at least in cases involving $25 or less.

According to internal documents, the company, the nation’s largest retailer and leading destination for shoplifting, will no longer prosecute first-time thieves unless they are between 18 and 65 and steal merchandise worth at least $25, putting the chain in line with the policies of many other retailers.

Under the new policy, a shoplifter caught trying to swipe, say, a DVD of the movie “Basic Instinct 2” ($16.87) would receive a warning, but one caught walking out of the store with “E.R. — The Complete Fifth Season” ($32.87) would face arrest.

Wal-Mart said the change would allow it to focus on theft by professional shoplifters and its own employees, who together steal the bulk of merchandise from the chain every year, rather than the teenager who occasionally takes a candy bar from the checkout counter.

It may also serve to placate small-town police departments across the country who have protested what the company has called its zero-tolerance policy on shoplifting. Employees summoned officers whether a customer stole a $5 toy or a $5,000 television set — anything over $3, the company said.

At some of the chain’s giant 24-hour stores, the police make up to six arrests a day prompting a handful of departments to hire an additional officer just to deal with the extra workload.

“I had one guy tied up at Wal-Mart every day,” said Don Zofchak, chief of police in South Strabane Township, Pa., which has 9,000 residents and 16 officers. He said the higher threshold for prosecution “would help every community to deal with this.”

J. P. Suarez, who is in charge of asset protection at Wal-Mart, said it was no longer efficient to prosecute petty shoplifters. “If I have somebody being paid $12 an hour processing a $5 theft, I have just lost money,” he said. “I have also lost the time to catch somebody stealing $100 or an organized group stealing $3,000.”

The changes in Wal-Mart’s theft policy are described in 30 pages of documents that were provided to The New York Times, a group backed by unions that have tried to organize Wal-Mart workers in the United States.

The group said it received the document from a former employee at the chain who is unhappy with the new policy.

In interviews, several current and former Wal-Mart employees said the new shoplifting policy undermines their work and would, over time, encourage more shoplifting at the chain.

But Wal-Mart said it would closely track shoplifters it did not have arrested, and would ask that they be prosecuted after a second incident. (Under the new policy, it will also seek the prosecution of all suspected shoplifters who threaten violence or fail to produce identification, no matter how much they are trying to steal. Not carrying identification is a popular tactic among professional shoplifters to avoid arrest.)

“There is not a lot of margin for success for those intent on making a living stealing from us,” Mr. Suarez said. “We will put them in jail just as we always have.”

Still, the new policy, which became effective in March, is in many ways a striking departure from Wal-Mart traditions. In the past, the company has proudly defended its aggressive prosecution of shoplifters, saying it helps hold down prices.

“Other retailers might offset the cost of shoplifting with higher prices,” a spokeswoman said in a 2004 interview. “But we don’t do that.”

Indeed, Wal-Mart’s zero-tolerance policy can be traced to its founder, Sam Walton, who tied employee bonuses to low theft rates at stores. Stolen merchandise, he wrote in his autobiography published in 1992, the year he died, “is one of the biggest enemies of profitability in the retail business.”

Over all, American retailers lose more than $30 billion a year to theft, according to the National Retail Federation, a trade group.

In the book, “Sam Walton: Made in America,” Mr. Walton boasted that the amount of merchandise lost to theft at Wal-Mart was half that of the retailing industry’s average.

With the new policy, though, employees “are confused,” said a former Wal-Mart employee who worked in the loss prevention department at a store outside San Jose, Calif..

“They want to stop shoplifters,” she said. “They want to do what they are trained to do.”

But if the shoplifter is under 18 or steals less than $25 worth of products, “they can’t do anything,” said the former employee, who left the company shortly after the new shoplifting policy was put into effect and spoke on condition of anonymity because she said she feared retribution.

Chris Kofinis, director of communications at WakeUpWalMart.com, said the policy “is a head-in-the-sand strategy that is far different than what Sam Walton would ever have wanted, and it’s not clear this is the best strategy for Wal-Mart workers.”

Mr. Suarez, the Wal-Mart executive, said there was “overwhelming” employee support for the new policy because it would more effectively deter theft.

Wal-Mart is not alone in giving shoplifters some leeway. Its new policy “is consistent with guidelines many retailers use,” said Joseph J. LaRocca, vice president for loss prevention at the National Retail Federation.

Retailers, he said, have learned that prosecuting small shoplifting cases “does not warrant the store resources or the judicial resources required, given the dollar amount that was stolen.”

In some cases, loss prevention executives said, retailers will prosecute only shoplifters who steal at least $50 or $100 worth of merchandise. The legal costs required for prosecution, they said, are simply too high. Stores must hire a lawyer for employees who become witnesses in a trial, for example, and pay workers overtime to appear in court.

Until now, they said, Wal-Mart was the exception. “They would arrest somebody for stealing a pair of socks,” said Chief Zofchak in South Strabane Township. “I felt we were spending an inordinate amount of time just dealing with Wal-Mart.”

Since Wal-Mart enforced its new shoplifting policy, arrests have fallen at the store in Harrisville, Utah, according to authorities there. But the town’s chief of police, Maxwell Jackson, still prefers the original zero-tolerance rule.

“Once the word goes out that there is a dollar limit,” he said, “there will be more stealing.”

Will J.C. Penney Shares Lose Fashion?
By Johanna Bennett – Barron’s Online
July 13, 2006

SINCE THE STOCK HIT a 20-year low in December 2000, J.C. Penney has morphed from a dreary and doddering department-store chain into a retail industry darling.

Riding high on the company's successful turnaround and trendy new image, the stock has jumped more than 530% since hitting bottom more than five years ago, trouncing the S&P 500 and leaving rivals in the dust, says Thomson Financial/Baseline.

But that might be as good as it gets for J.C. Penney's stock for a while.

With a slowdown in consumer spending on the horizon and challenges facing the department-store giant as its tries to pull off an aggressive expansion, there's a good chance that the stock could languish.

"There are better places to put money in the retail sector," says Jonathan Armitage, head of U.S. large-cap equities at Schroder Investment Management. "The company has done an excellent job and their strategy is smart. But things are going to get tougher."

Rising interest rates, high gas prices and a weak housing market are forcing consumers to tighten their wallets, which has already started to squeeze retail sales.

Same-store sales for the chain stores in June climbed a tepid 2.6% from June a year earlier. By comparison, sales rose 5.3% in June 2005 from a year before.

Talk about bad timing. Last year, J.C. Penney started a five-year growth plan and envisions itself eventually transforming into the retailer of choice for Middle America. For now, the company plans to open 250 new stores by 2009, and boost the profits an average of 16% annually.

"Their strategy is good, but they are exposed to slowing consumer spending," says Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm. "Like a lot of retailers, they will get squeezed."

Others appear to agree.

In May, Deutsche Bank Securities downgraded the stock to Hold from Buy, arguing that moderately priced apparel retailers will get hit hardest. And this week, Prudential Securities launched coverage at Neutral.

"Middle-income shoppers are more likely to trade down to lower-price retailers like Target," says Bill Dreher Jr., an analyst with Deutsche Bank. "Apparel is very discretionary. Closets are already full after a decade of strong sales, and apparel is the easiest thing to avoid buying."

Named after its founder, James Cash Penney, a Missourian who began opening stores in Wyoming and Colorado over a century ago, J.C. Penney operates 1,021 stores, hawking apparel, jewelry, housewares and furniture.

Back in the late 1990s, the stores fell out of style. Marked as a dowdy fashion disaster, the chain lost market share and profits.

Between 2000 and 2005, J.C. Penney, whose slogan is "It's All Inside," reinvigorated earnings, improved operations and spruced up its image with more trendy merchandise, gaining back customers and profits.

Missteps at Sears and store closings by Federated Department Stores also helped business. And in June, same-store sales rose 4.3% from a year earlier, beating expectations.

"Retail is a contact sport," Chief Executive Myron Ullman told Barron's Online during a recent interview. "It is not about just running your own business. You want to take business away from others."

But these victories are already reflected in J.C. Penney's stock price. Meanwhile, profit and sales increases have started to moderate, and now the company faces tough comparisons to last year.

An advertising campaign launched earlier this year targets shoppers who still view the 104-year-old company as a fashion faux pas.

The company is opening more stores outside shopping malls to boost same-store sales. It plans to cut by half the time it takes new looks to hit the stores, and add new brands that are fashionable, or well-priced.

In April, it announced a deal with cosmetics retailer Sephora to open ministores in J.C. Penney department stores this fall.

But for investors, "the question is can they execute," says Schroder's Armitage.

To get merchandise on shelves faster, contracts will have to be renegotiated with outside suppliers, Armitage says. Also, as new stores open, the ratio of sales per square foot (a measure of productivity) could weaken, he added

And a weakening retail-sales environment "adds another layer of complexity," Armitage says.

Meanwhile, the company must take care not to alienate its core clientele of shoppers age 35 to 54 with household incomes of $35,000 to $85,000 looking for good prices.

"J.C. Penney is walking a thin line as they try to attract more affluent shoppers," says Davidowitz. "But so do all retailers."

Sure, at 15 times forward earnings, the stock trades below its five-year median, an 8% discount to its industry peers, says Baseline.

Yet the stock is changing hands at price-sales and price-to-book multiples well above five-year medians and at big premiums to the department-store industry, Baseline says.

Of course, those multiples will look cheap if J.C Penney pulls its plans off without a hitch. And fans insist that J.C. Penney's management knows how to execute.

"Our board has made it quite clear that they are up for a major transformation of the business," says Ullman, insisting that eventually, J.C. Penney will earn a growth multiple. "If you can't handle execution risks, you should not be in retail."

Meanwhile, J.C. Penney often gives conservative guidance. And if same-store sales exceed the 2% projected by management, profits could easily exceed expectations.

Still, the months to come will pose a challenge for retailers. And if consumer spending continues to fall, then investors may be left with buyer's remorse.

Sears' Lacy Ends Tenure With More Than $50 Million
By Jennifer Waters - Dow Jones Newswires
July 12, 2006

Alan Lacy will end his mostly troubled tenure at Sears Holdings Corp. (SHLD) later this month with an exit and stock package worth more than $50 million.

Sears said late Tuesday that Lacy, the vice chairman of the company, will leave the retail conglomerate on July 29. He also will give up his seats on the boards of both Sears Holdings and Sears Canada.

A 12-year veteran of the ubiquitous Sears Roebuck & Co., Lacy was at the helm when Edward Lampert, through his controlling stake in Kmart Corp., launched a takeover of Sears.

Lacy and the Sears Roebuck board didn't fight the move, which put shareholders in extremely good financial stead by the time it was completed in March 2005, and in even better shape today as the value of the old Sears shares has nearly tripled.

However, Sears Roebuck's stature as one of America's leading department stores has lost luster and market share under Lacy, and even more so under Lampert, who is chairman of Sears Holdings.

Though Lacy was named chief executive of the combined retailing concern at the time of the acquisition, he was stripped of the title - and a third of his annual salary - only six months later. Lampert gave the title to Aylwin Lewis, chief executive of Kmart, and pared $500,000 from Lacy's wages, to $1 million a year.

Though Lacy's ego may be damaged by all this, his wallet has not been. According to the Sears Holdings proxy filed in March this year, a provision to accelerate vesting on stock-option grants would kick in if he left the company in a 30-day period after June 30. That day also was when he could buy restricted shares given to him at the time of the merger.

Here's what Lacy gets: a $7.5 million exit payment, the ability to vest 200,000 options priced at $131.11, and 75,000 restricted shares becoming unrestricted. Sears shares closed Wednesday at $148.37. Coupled with an estimated $27 million he made on his options in the old Sears ahead and at the time of the acquisition, he has about $50.4 million.

But it could be even more. The 200,000 options accelerated don't have to be exercised for three years, if Lacy chooses to wait and the stock rises appreciably. He also has straggler options still out there with later vesting dates, as well as other restricted stock that won't vest until next year and beyond.

Sears Vice Chairman to Get $50M Exit, Stock Package
ASSOCIATED PRESS
July 13, 2006

SAN FRANCISCO (AP) - Sears vice chairman Alan Lacy will end his tenure at the company later this month with an exit and stock package worth more than $50 million.

Sears Holdings Corp. said late Tuesday that Lacy, the vice chairman of the company, will leave the retail conglomerate on July 29. He also will give up his seats on the boards of both Sears Holdings and Sears Canada.

According to Sears' proxy filed in March, a provision to accelerate vesting on stock-option grants would kick in if Lacy left the company in a 30-day period after June 30. That day also was when he could buy restricted shares given to him at the time of the merger.

Here's what Lacy gets: a $7.5 million exit payment, the ability to vest 200,000 options priced at $131.11, and 75,000 restricted shares becoming unrestricted. Sears shares closed Wednesday at $148.37. Coupled with an estimated $27 million he made on his options in the old Sears ahead and at the time of the acquisition, he has about $50.4 million.

But it could be even more. The 200,000 options accelerated don't have to be exercised for three years, if Lacy chooses to wait and the stock rises appreciably. He also has straggler options still out there with later vesting dates, as well as other restricted stock that won't vest until next year and beyond.

A 12-year veteran of the ubiquitous Sears Roebuck & Co., Lacy was at the helm when Edward Lampert, through his controlling stake in Kmart Corp., launched a takeover of Sears.

Lacy and the Sears Roebuck board didn't fight the move, which put shareholders in extremely good financial stead by the time it was completed in March 2005, and in even better shape today as the value of the old Sears shares has nearly tripled.

However, Sears Roebuck's stature as one of America's leading department stores has lost luster and market share under Lacy, and even more so under Lampert, who is chairman of Sears Holdings.

Though Lacy was named chief executive of the combined retailing concern at the time of the acquisition, he was stripped of the title -- and a third of his annual salary -- only six months later. Lampert gave the title to Aylwin Lewis, chief executive of Kmart, and pared $500,000 from Lacy's wages, to $1 million a year.

Lacy jumps into $12.6 million parachute
By Susan Chandler - Tribune staff reporter – Chicago Tribune
July 12, 2006

He is leaving but not empty-handed.

Alan Lacy, vice chairman of Sears Holdings Corp. and the man who sold Sears, Roebuck and Co. to Kmart Corp., resigned Tuesday, triggering a range of "golden parachute" provisions in his contract worth more than $12.6 million.

His exit, which will officially occur on July 29, came as little surprise.

Such alliances between old and new management at merged companies are inherently unstable, management experts say. And Lacy, who had hoped to run Sears in partnership with Kmart Chairman and hedge fund operator Edward Lampert, quickly found out that his services were not highly valued.

In September, six months after the Sears/Kmart deal closed, Lampert took the title of Sears Holdings chief executive away from Lacy and gave it to Aylwin Lewis, a fast-food executive he had hired only a year earlier to be CEO of Kmart Holdings Corp.

Lacy's bonus and salary were cut, and he was put in charge of Sears' Canadian operations while Lampert assumed direct responsibility for key areas such as merchandising and marketing.

It was a big comedown for Lacy, who was named the 13th CEO of Sears in Sept. 2000.

During his time at the helm Sears' sales declined for four consecutive years and Wall Street complained about a lack of a growth strategy.

"He very seldom made a number, and he lost credibility with Wall Street. There also were questions whether he extracted the maximum price for Sears given the value of its real estate and key brands," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm in New York City. "But in the end, I think Alan Lacy did what was in the interest of shareholders. He sold the company and the shareholders came out OK."

Shares in the old Sears were trading in the mid-$30s before the merger was announced in November 2004. Those shares are worth about $78 today based on the conversion ratio at the time of the merger.

Sears Holdings closed at $156.45 per share Tuesday.

Others have judged Lacy much more harshly. Many former Sears executives and employees believe Lacy handed over the 120-year-old company to Lampert because he was unable to turn it around. Since Lampert has been running the company, Sears' market share has declined at an even faster pace, thousands have lost their jobs and benefits have been pared.

In a press release Lampert thanked Lacy for "his many contributions to the company" and praised him for recognizing that the Sears-Kmart merger "would be a powerful opportunity to significantly improve the strategic and financial position of both franchises."

In the same statement Lacy said he remains convinced the merger "provides a greater opportunity for growth and prosperity than either company would have had independently. I'm excited about the future of Sears Holdings and what it can achieve."

Lacy's departure was foreshadowed in his original employment agreement with Sears Holdings, which gave him a window in July 2006 to accelerate the vesting of stock options if he left the company during that 30-day period.

Lacy's demotion would have allowed him to trigger a similar provision nine months ago, but back then Sears Holdings' stock was trading around $131 a share, close to the strike price of Lacy's options. That means he would have earned little or no profit from exercising them.

So Lacy chose to stick around, hoping that Sears Holdings' stock price would rise. It did.

As part of his package Lacy is entitled to a $7.5 million exit payment, according to Sears Holdings' 2006 proxy. He also will take home a profit of $5.1 million if he exercised his options at Tuesday's closing price, although he has three years to make that decision.

On top of that, Lacy's 75,000 shares in Sears Holdings' restricted stock vested June 30. Those shares are worth about $11.7 million at current prices. Lacy also reaped an estimated $27 million when his options in the old Sears vested at the time of the merger, putting his take from the deal at around $51 million.

Shakeup at Sears
By Sandra Guy – Business Reporter – Chicago Sun-Times
July 12, 2006

Alan J. Lacy, the 52-year-old chairman of Sears Holdings and former Sears Roebuck CEO, is leaving the company at month's end with extra millions of dollars and a legacy of having sold Sears to Kmart.

He will resign by July 29 and will also depart from the board of Sears Holdings, the company created when Kmart bought Sears for $12.3 billion in March 2005, and from the board of Sears Canada.

Lacy will leave the Hoffman Estates-based retailer within a 30-day window that lets him take an extra $7.5 million in cash on top of $5.1 million worth of stock options that vest when he leaves. He had already received $11 million in restricted shares plus $20 million in previously uncashed stock options that vested after Kmart's takeover of Sears.

Lacy was unavailable for comment but said in a statement that he is proud of what he accomplished during his 12-year tenure at Sears, including five years as CEO of Sears Roebuck. Sears Chairman Edward S. Lampert took the CEO title away from Lacy last September and put him in charge of an increasingly messy takeover of minority shareholders of Sears Canada.

"I'm convinced the merger of Sears and Kmart provides a greater opportunity for growth and prosperity than either company would have had independently," Lacy said in the statement.

Lampert thanked Lacy for his service and said, "As vice chairman, he's been focused on the integration of Sears and Kmart as well as his responsibilities as chairman of the board of Sears Canada, which has seen its stock price double since he was named to that post."

Lacy, who called himself a "small-town Southerner" from Cleveland, Tenn., when he took the CEO's job in October 2000, vowed to reinvent the dowdy mass merchandiser into a clicks-and-bricks operation that fulfilled customers' lifestyle needs.

He tried everything from installing central cash registers to buying -- critics said overpaying for -- Lands' End's preppy apparel, to building off-mall Sears Grand mega-stores, but he never managed to reverse years of sales declines.

Lacy, who had served as president of Sears' credit department, also oversaw a meltdown in Sears' credit-card business that led the company in October 2002 to increase its allowance for future uncollectible debts by $189 million. Sears sold its credit-card division to Citigroup for $3 billion in November 2003.

Retail expert Howard Davidowitz said despite Lacy's missteps, he enriched Sears' shareholders in the end.

"Selling the company was the right thing to do for the shareholders," said Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting and investment banking firm.

Sears' shares leaped to a six-month high on March 15, after the retailer reported its profits exceeded analysts' estimates because of cost-cutting and fewer markdowns at Sears stores. The stock ended the day Tuesday at $156.45, up $3.66, or 2.4 percent.

Sources said Lacy intends to team up with private-equity players who could install him as interim CEO of a company targeted for a takeover. He could make another killing in pay and stock options by doing so, the sources said.

Sears Holdings Vice Chairman Alan Lacy to Leave Company at End of Month
Sears Holdings News Release
July 11, 2006

HOFFMAN ESTATES, Ill., July 11 /PRNewswire-FirstCall/ -- Sears Holdings Corporation (Nasdaq: SHLD) today announced that Alan Lacy, vice chairman of Sears Holdings, has decided to leave the company effective July 29, 2006.Mr. Lacy will also resign from the boards of directors of Sears Holdings and Sears Canada at that time.

"I want to thank Alan for his many contributions to the company," said Sears Holdings Chairman Edward S. Lampert. "Under Alan's leadership, Sears, Roebuck and Co. took the steps necessary to create a more competitive company.

Most importantly, he recognized that the merger of Sears and Kmart would be a powerful opportunity to significantly improve the strategic and financial position of both franchises." "I also want to thank Alan for his dedication to Sears Holdings," Mr. Lampert added. "He took on the important role of vice chairman last September, when we both recognized the need for a more efficient organization structure and yet wanted the recently merged companies to continue to benefit from Alan's knowledge and judgment.

As vice chairman, he's been focused on the integration of Sears and Kmart as well as his responsibilities as the chairman of the board of Sears Canada, which has seen its stock price double since he was named to that post."

Mr. Lacy commented, "I am proud of what we've accomplished. We have faced many challenges and yet have been able to significantly change the face of Sears and create significant value for shareholders. In doing so, I have been deeply impressed by and grateful for the dedication and capability shown by our associates during this period of rapid change. I'm convinced the merger of Sears and Kmart provides a greater opportunity for growth and prosperity than either company would have had independently. I'm excited about the future of Sears Holdings and what it can achieve."

Prior to being named Sears Holdings' vice chairman, Mr. Lacy served as chief executive officer for Sears Holdings Corporation and before that he served as chief executive officer for Sears, Roebuck and Co. beginning in October 2000. In December 2000, he also was named chairman of the board of directors of Sears, Roebuck and Co.

Mr. Lacy joined Sears as senior vice president, finance in 1994 and became executive vice president and chief financial officer the following year. He was appointed president, Sears Credit in 1997 and served as president, Services before becoming CEO.

First Green Group Opens Near Wal-Mart To Advise Retailer
DOW JONES NEWSWIRES
July 11, 2006

BENTONVILLE, Ark. (AP)--The greening of Wal-Mart Stores Inc. (WMT) will get another push when the first national environmental advocacy group opens an office near the headquarters of the world's biggest retailer.

Environmental Defense said Tuesday it plans to base a project manager in Bentonville later this year. Hundreds of Wal-Mart suppliers have set up offices over the years to nurture closer ties with the retailer, but no advocacy groups yet, according to local business experts.

The group is one of several environmental organizations that have been working with Wal-Mart on a host of changes under a green initiative launched last year by Chief Executive Lee Scott.

On the eve of a visit to a Wal-Mart environmental conference by former vice president and anti-global warming campaigner Al Gore, Environmental Defense said it believes Wal-Mart has taken credible steps.

"We think their actions demonstrate they are serious about sustainability and the environment," said Environmental Defense Executive Vice President David Yarnold.

"Being geographically close to Wal-Mart will increase the number of opportunities to advise them on environmental issues," Yarnold told The Associated Press.

Wal-Mart had no comment on Environmental Defense's move.

Started in 1967 as the Environmental Defense Fund, the group's efforts include partnering with major corporations to improve their environmental practices in ways that make business sense, including helping FedEx Corp. (FDX) introduce hybrid-electric delivery trucks that cut fuel use and greenhouse gas emissions by one-third. It says it accepts no donations from its corporate partners.

In Wal-Mart's case, Environmental Defense was one of several groups Wal-Mart contacted in early 2005 to help formulate a green policy unveiled by Scott last October. Under that plan, Wal-Mart set goals of using 100% renewable energy, creating zero waste and selling more products that sustain the environment.

Gwen Rutta, director of corporate partnerships at Environmental Defense, said her group advised the company on most of those goals and has been part of several of 14 issue groups set up by Scott to pursue changes.

Wal-Mart founder Sam Walton's grandson, Sam R. Walton, is on the board of trustees of Environmental Defense, but the group said he was not involved in the Wal-Mart project and recused himself whenever it came before the board.

Wal-Mart is taking the environmental offensive at a time when it is under attack from organized labor and other groups for its business practices, including employee pay and health benefits.

Rutta says Wal-Mart can potentially have a major environmental impact because of its influence over the roughly 60,000 companies it buys from. As the world's largest retailer, environmental standards it sets for suppliers can spread throughout the industry as suppliers compete to gain space on Wal-Mart's shelves.

"We've come to believe through experience that you really can create environmental progress by leveraging corporate purchasing power. And who's got more corporate purchasing power than Wal-Mart?" Rutta said.

Rutta said she hoped a presence near Wal-Mart would help her group take part in more meetings, without the need to fly in from its offices in New York, California and elsewhere, and participate more directly in decision making.

"Opening up this office in Bentonville is the most efficient way to work with them," Rutta said.

Rutta said Wal-Mart has made a credible start toward its longer-term environmental goals by rapidly making a number of changes in daily operations.

For example, the company told drivers of its 7,000 trucks to stop idling while they load and unload, reducing fuel consumption, and it replaced standard lighting in its nearly 4,000 U.S. stores with more efficient bulbs.

Wal-Mart also is selling more organic food and organic cotton clothing, which reduces pesticide use by growers, and it started a three-year program to improve the environmental standards of all the fleets it buys wild ocean fish from.

"By challenging itself and its supply chain, we really believe that Wal-Mart can create a race to the top for environmental benefits," Rutta said.

Sears Holdings Vice Chmn Alan Lacy
To Leave Company At End Of Month
The Wall Streeet Journal Online Dow Jones Newswires
July 11, 2006

Sears Holdings Corp. (SHLD) said Vice Chairman Alan Lacy is resigning, effective July 29, and will also step down from the boards of the company and Sears Canada at that time.

A Sears spokesman said Lacy, 52 years old, has been vice chairman since the company's merger with Kmart in March 2005.

The spokesman declined to comment on the reason for Lacy's resignation and couldn't disclose if a replacement would be named.

Hoffman Estates, Ill., Sears Holdings is the nation's third largest broadline retailer.

Sears agrees to settle 10-year-old disability suit
Bloomberg News – Daily Herald – Suburban Chicago
July 11, 2006

Sears, Roebuck and Co., the largest U.S. department store chain, has agreed to pay $150,000 to settle a lawsuit over the company’s employment practices for disabled workers, the U.S. Equal Employment Opportunity Commission said.

District Judge Charles R. Norgle in Chicago entered a consent decree in the decade-old suit. The action settled the government’s claim that Sears, a unit of Sears Holdings Corp., based in Hoffman Estates, discriminated against a sales clerk in violation of the Americans With Disabilities Act.

The retailer was accused of refusing to provide a lingerie saleswoman in its store in Calumet City with a reasonable accommodation for medical conditions that kept her from walking more than short distances. After Sears refused to accommodate her, the employee gave up her job, the EEOC said.

The suit was twice thrown out by a lower court. The Seventh U.S. Circuit Court of Appeals reinstated the case for a second time in August 2005.

The Americans With Disabilities Act requires employers to find ways to accommodate disabled workers. The EEOC sued Sears in November 2004 for discriminating against workers who spend more than a year on disability leave.

Retailers want a place in your wallet
By Jayne O'Donnell, USA TODAY
July 10, 2006

SOME OF THE LATEST DEALS

• Lord & Taylor. Offers 15% off the first purchase with new cards and special sales.
• Old Navy, Gap and Banana Republic. Offers 10% off the first purchase for new card holders, a $10 gift card for every $200 spent and free shipping on purchases of $50 or more that are charged.
• Circuit City. Promotes its Visa card, which helps consumers accumulate "rewards" points that go toward certificates for store merchandise. Card holders also are eligible for any special no-interest-financing deals in effect instead of the rewards points.
• Ann Taylor. Offers 10% off the first purchase when a new account is opened and notices of special offers for card holders.
• Barnes & Noble. Touts several perks with its co-branded MasterCard: a $25 gift card, a 5% credit every time you use the card and a "reward" point for every dollar spent outside of Barnes & Noble. When you reach 2,500 points, you get another $25 gift card.

The latest lures to open store credit card accounts can certainly be alluring. And there's no shortage of offers. Determined dealmakers on any given day could enjoy myriad special offers and have wallets full of store cards — ranging from Barnes & Noble to Macy's to Best Buy — to show for it.

But should they? Even the top lawyer for the National Retail Federation cautions against making too much merry with all the promotional deals for store credit cards.

"It would be a disservice to tell people to load up their wallets," says Mallory Duncan, NRF's general counsel and senior vice president. "People should balance their entire card portfolio carefully. Only take cards with genuine value to you as a customer."

What the stores get

So what's all the promoting about?

Duncan says stores are "looking at all sorts of alternatives to keep down the ever-increasing Visa-MasterCard fees." Visa and MasterCard charge a fee equal to 2% of every transaction, which will cost retailers up to $26 billion this year, he says. When stores offer cards that are co-branded with Visa or MasterCard, they save some money in fees. When they offer their own cards, they avoid the fees completely.

"The cost of accepting other cards is so great that retailers can provide very significant benefits to consumers if they are willing to use their cards," Duncan says.

Sarah Henry, a retail analyst at Sovereign Asset Management, follows Target, which offers a Target Visa card. She says the card allows Target to track its customers' spending habits, ensure customers aren't being mistreated by a bank and use the profits to help smooth earnings.

Retailers are also using the cards to build customer loyalty, which Home Depot credit services director Spencer Allen is quick to acknowledge.

Home Depot has a regular six-month, no interest or payments promotion for new or existing Home Depot credit card holders. A few times a year, the home-improvement chain also promotes a 12-month version of the offer, in part to attract new card holders.

"More new cards creates more loyalty and it creates 'future spend,' " Allen says. "The vast majority of people who open up an account, continue to spend."

Pros and cons

Consumers need to take into account both the pros and cons of accepting a store credit card:

• Having too many store credit cards can hurt your credit, and they don't help your credit as much as bank cards.

Linda Sherry, director of national priorities for the non-profit group Consumer Action, recommends that customers steer toward bank cards or co-branded retail cards that are issued with Visa or MasterCard because they are rated higher in credit scores. "In some cases, having too many store credit cards can pull your credit score down," Sherry says. "If you're really good with credit card management ... (and) trying to get the discount, pay the first bill and call and close the account."

Sherry also recommends that consumers simply wanting to take advantage of discounts open store credit cards only when making big-ticket purchases.

• As with any financial deal, you need to read the fine print closely on store credit card offers.

Like Sherry, Allen warns balances as part of no-interest/no-payment offers have to be paid off by the time the deal expires or consumers are hit with back interest. But Allen says many customers are happy to put purchases ranging from gas grills to $50,000 kitchens on their Home Depot card and get a year to pay without penalty.

• Store cards tend to have higher interest rates, but customers who are late with store card payments may be treated more leniently than those late with bank card payments.

Duncan says the actual interest payments tend to be lower because consumers typically carry smaller balances on store cards. "They aren't revolving $10,000 for the rest of their lives," he says. Also, he notes, because retailers want you to pay your card down so you will buy more, they typically require that more of the balance be paid off each month than a bank card.

Although she has store credit cards for Macy's, Nordstrom, J.C. Penney and Kohl's, Denda Martino of Columbus, Ohio, gets the most use out of her Kohl's card. A 10% discount persuaded her to sign up, but the special shopping dates and discounts for card holders bring her back. "I do a lot of my shopping at Kohl's during those periods of extra discounts," Martino says.

For bigger spenders, Neiman Marcus' loyalty rewards program, called InCircle, increases the chance customers will charge purchases — and lots of them — on their Neiman's cards. To further boost card usage, Neiman's accepts only its own card and American Express, not Visa or MasterCard.

Neiman's card holders are eligible to participate in and receive rewards through InCircle after they spend $5,000 on their cards. Once they charge $40,000, customers can receive rewards including a Sony flat-screen TV.

But at seven figures, the rewards really get impressive: Spend $5 million and you can have a private, in-home concert by jazz trumpeter Chris Botti.

Many Americans retire years before they want to
When it comes to retirement, 59 is the new 65
By Sandra Block and Stephanie Armour - USA TODAY
July 10, 2006

Richard Rocco, 60, of Voorhees, N.J., planned to work as a sales representative until age 65. It hasn't quite worked out that way.

In January 2005, Rocco's employer, a graphics arts company, downsized and cut his position. Despite 27 years of sales experience, Rocco couldn't find a job. Employers “could get college guys for less than half of what I wanted to work for,” he says.

Rocco, who's single, says he couldn't afford to retire. So he used his 401(k) savings and home equity to buy a PostNet franchise, which provides printing and graphics services. He enjoys running his own business, but the hours are long. Rocco puts in about 12 hours a day and has yet to draw a salary. He's living off his savings until his business gets off the ground.

Rocco's story could serve as a cautionary tale for boomers who think they'll be able to fill the gaps in their retirement savings by working longer in their current jobs. It also illustrates the challenges for those who assume they alone will determine exactly when they'll retire.

The stark reality is that most of today's middle-age workers who want to continue working after 60 or even 65 will need to find a new source of income. While nearly half of baby boomers expect to work past 65, only 13% of current retirees surveyed this year by consulting firm McKinsey & Co. actually worked until that age. Forty percent of current retirees were forced to stop working earlier than they had planned, the survey found. The average age when current retirees left the workforce: 59.

Boomers have a financial incentive to work past 65. Older boomers can't receive full Social Security benefits until 66 or later; those born in 1960 or later aren't eligible until 67. Individuals can start taking partial Social Security benefits at 62, but if they do, they'll continue to receive a reduced amount for the rest of their lives.

As of 2005, just 60% of 60-year-olds, 32% of 65-year-olds and 19% of 70-year-olds were employed, according to the Bureau of Labor Statistics. Current retirees cited two primary reasons for quitting sooner than planned:

•Illness. About 47% of current retirees who retired earlier than planned were forced to stop working because of health problems, according to McKinsey & Co. Less-affluent retirees were far more likely to cite health problems as the reason for forced retirement than higher-income workers were, the study found. “At lower-income levels, many of these people have jobs that require physical labor,” says David Hunt, a senior partner at McKinsey. As they age, some are no longer able to handle the demands of their jobs, he says.

•Unemployment. Forty-four percent of current retirees who retired earlier than planned blamed job loss or downsizing. Unemployment was the most frequently cited reason for early retirement among retirees with more than $250,000 in investments, the McKinsey study found. “Even at reasonably high levels of pay, if you're laid off when you're 53 or 54, it's much harder to get retrained and back in the workforce,” Hunt says.

Frank Baker, 57, learned three years ago that his company was laying him off after more than 12 years as a technology consultant. But to get $20,000 in severance, he says, he was asked to train his cheaper — and younger — replacement.

“I was one of the highest-paid guys, and then I found myself out interviewing for jobs and being interviewed by people in their late 20s,” says Baker, who now works as a consultant and who believes his age hurt his ability to find new jobs at the same pay scale.

To test whether age bias is real or imagined, researcher Joanna Lahey sent out about 4,000 résumés to firms in Boston and St. Petersburg, Fla., and measured response rates from employers. The results: A younger worker is more than 40% more likely to be called for an interview than a worker 50 or older, according to the 2005 study done through the Center for Retirement Research at Boston College.

Another sobering statistic: The average period of unemployment in 2005 was 24.1 weeks for job seekers 55 and older, compared with just 17.8 weeks for those under 55, a report by AARP found.

“It's a huge issue, and it really comes down to, ‘How do I, the established job seeker who is 50-plus, how do I establish my differential advantage so it distinguishes me from my younger counterpart?' ” says Damian Birkel, a career counselor and founder of Professionals in Transition, a support group for the jobless in Greensboro and Winston-Salem, N.C.

Some frustrated late-middle-age workers have filed age-bias claims.

The federal Equal Employment Opportunity Commission collected nearly $78 million in settlements involving age-discrimination charges in fiscal year 2005, the most since at least 1992, when the agency took in $57 million. The EEOC received 16,585 charges of age discrimination in fiscal 2005 and resolved 14,076 similar claims.

Nearly 90% of executives are worried they may soon be discriminated against because of their age, and more than 60% believe age discrimination has become more widespread in the past five years, according to a 2005 survey by ExecuNet, a job search and recruiting network. Most believe age becomes a factor at ages even below 50. About three in 10 executives fear that age bias could force them into retirement.

David Ulfik, 55, of Oxford, Ga., who sells analytical instruments, says the concept of retirement has shifted drastically since his father retired a generation ago. He's had seven different jobs since turning 40.

When prospective employers check his résumé, Ulfik says, “They see this guy is 55, and they're apprehensive. You see these old-timers at Wal-Mart. Are they there because they want to be or because they have to?”

He adds, “I think there will always be jobs for seniors who want to remain in the workplace. Whether they are jobs that they want to work remains to be seen.”

Frustrated by the dearth of good jobs, older workers are increasingly becoming independent contractors or starting their own businesses.

Among workers 50 and older, 16% are self-employed vs. 10% for the overall workforce, according to a 2004 AARP study. About one-third of older self-employed workers started their businesses after 50, AARP said.

Self-employment allows older workers to put their years of experience to use. It usually also offers more flexibility than a traditional job. Fifteen percent of self-employed workers 51 and older reported having a health condition that limited the type of work they could do, compared with 8% of salaried workers in that age group.

Still, older workers who start their own businesses face a serious challenge: finding health insurance. Only 13% of private-sector employers offer health benefits to retirees. Medicare doesn't kick in until 65. Private insurance policies are expensive for older individuals. And some older workers can't buy insurance at any price.

That's what Richard Rocco discovered after he lost his job. Otherwise healthy, Rocco was unable to buy a private insurance policy because he has high blood pressure. He maintained his insurance coverage for a while through COBRA (the Consolidated Omnibus Budget Reconciliation Act). COBRA lets workers keep their former employer's group coverage for up to 18 months. But to keep the coverage, Rocco had to pay $500 a month.

After starting his business three months ago, Rocco was able to buy a group policy for himself and his sole employee. The cost: about $1,000 a month.

Some analysts, though, see cause for hope. They think job opportunities for older workers will increase as boomers retire in large numbers.

Employers are expected to face a skills shortage in coming years, and baby boomers provide a varied and experienced labor pool. Over the 2004-14 decade, total employment is projected to rise by 18.9 million jobs, or 13%. Over the previous decade (1994-2004), total employment grew at the same annual rate and rose by 16.4 million jobs, according to the Labor Department.

Tim Driver, CEO of Wellesley, Mass.-based RetirementJobs.com, a job service for mature workers, says he's optimistic that employers facing skills shortages will eagerly welcome experienced workers. While age can be a liability, he says, it can also be an advantage.

“If you are an employer and your customer base is getting old, you're much better off having older employees relate and sell to that customer,” Driver says. “Historically, you'd never use retirement and jobs in the same sentence. Now, it's an everyday expression.”

In addition, boomers are more educated than previous generations and more likely to hold white-collar jobs. “For them, the odds of having to retire early because of health problems are less than for somebody who has been doing physical work,” says John Rother, policy director for AARP.

But there are also major hurdles. More experienced workers command fatter salaries, which some employers will be loath to pay. They're also more likely to have health problems, which place greater demands on company-provided health benefits.

AARP, which advocates on behalf of older Americans, disputes the notion that older workers are more expensive. A 2005 study conducted by Towers Perrin for AARP contends that the additional cost of retaining workers 50 and older is modest, ranging from zero to 3% a year. Those costs are much lower than the cost of hiring and training new employees, the study said. The study was based on an analysis of four industries — energy, financial services, health care and retailing.

The study acknowledged, though, that companies are slow to adapt to an aging workforce. Instead of tapping this labor pool, employers may turn more to outsourcing or push for relaxed immigration rules to fill hiring needs, says Sara Rix, a senior policy officer at AARP. “Things are changing, and more and more (companies) will turn to older workers,” Rix says. “But age discrimination does rear its ugly head. If you leave the labor force, getting back is difficult. Bagging groceries may be all you get.”

Larry Yoder says he feels lucky. At 62, the Kansas City, Mo., salesman, who provides books to stores, is one of the oldest on the sales force. He says his employer values his experience. “I'm the old man on the sales force,” Yoder says. “I can't do what I used to do, but you do what you can do. (Travel) is a killer on you physically.”

He says friends in his age bracket haven't fared as well. Many say they want or need to stay employed after they hit retirement age. But there's a palpable fear that well-paying jobs may not exist for them then.

“There's no sense of retirement like my parents had,” Yoder says. “You work 'til you drop. I hear a lot of fear that their bosses are going to let them go.”

Lacy at crossroads with options
Sears' vice chairman must quit to cash in
By Susan Chandler - Tribune staff reporter – Chicago Tribune
July 10, 2006

Twenty days and counting. That's how long Alan Lacy has to accelerate the vesting of 200,000 stock options in Sears Holdings Corp., a move that would provide him with a profit of about $4.3 million at the retailer's current stock price.

But there's a catch.

Lacy, Sears Holdings' vice chairman, has to leave the Hoffman Estates-based company. According to the amended terms of Lacy's contract, the options will vest on an expedited basis "if he elects to terminate his employment in the 30 days following June 30, 2006."

There is strong financial incentive for Lacy to depart.

Sears Holdings' stock is trading around $153 a share, significantly above the options' strike price of $131. If he doesn't leave during July, the options will continue to vest at regular intervals during the next three years, putting his potential gain at risk over an extended period of time.

There may be an ego component at play as well. In September, Lacy was demoted and lost the chief executive title at Sears Holdings, the retail giant that had been formed only six months earlier by the merger of Sears, Roebuck and Co. and Kmart Holding Corp. His pay was cut from $1.5 million to $1 million a year.

Even so, the Sears-Kmart merger has paid off handsomely for Lacy.

At the time of the merger, he received an estimated $27 million before taxes from cashing out his options in the old Sears. He also was awarded 75,000 shares in restricted stock in Sears Holdings. Those shares vested June 30 and are worth about $11.5 million before taxes. That puts Lacy's potential payout from the deal, including the new options, in the neighborhood of $43 million.

According to several people who know Lacy well, he intends to use his Sears' proceeds to become a private equity investor.

Sears Holdings declined to comment on Lacy's plans, and Lacy could not be reached for comment.

"I won't speculate on whether he will or won't exercise his rights under his contract. He has given no notice to that effect," said Sears Holdings spokesman Chris Brathwaite.

The pay cut and reduction in responsibilities were events that could have allowed Lacy to depart with a hefty severance package, according to Sears' regulatory filings.

Lacy's decision to stay on since the demotion likely was related to Sears Holdings' stock price. It was hovering in the high $120s and low $130s in early September, close to the $131.11 strike price on his options, making them worth little or nothing. The options give Lacy the right to buy a certain stock at the "strike price," allowing him to profit from the difference between the strike price and the current market price.

Instead, Lacy bought himself nine more months for Sears Holdings' stock price to come back, and it has paid off. Prone to big price swings, Sears Holdings jumped almost $18 a share, to near $156 on May 18, the day the company's first-quarter results handily beat Wall Street estimates. It went on to hit a new 52-week high of $167.95 in early June. The stock has since drifted back into the $150s, closing Friday at $152.80.

If he doesn't take advantage of the window, it means Lacy expects Sears Holdings shares will be worth much more in the future, compensation experts said.

Corporate compensation expert Paul Hodgson is critical of accelerated vesting of options as a form of a "golden parachute" that benefits outgoing executives at the expense of shareholders. In Lacy's case, the parachute is configured to let him pull the ripcord if he wants.

"Those equity awards were granted to measure performance over the long term and also to be a retention tool. If they vest early, they have done neither of those things," said Hodgson, a senior research analyst with The Corporate Library, a corporate governance research group. "It's a waste of shareholder resources."

But Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, isn't bothered much by the Sears situation because of the large controlling stake held by Sears Holdings Chairman Edward Lampert, the hedge fund operator who engineered the Sears-Kmart merger.

"The fact that half of whatever is paid will come out of Mr. Lampert's pocket means it was reasonably negotiated. It's very different from directors giving someone a golden goodbye," said Elson.

If Lacy does leave, it wouldn't be particularly disruptive to Sears, retail experts say. The impact would be "zero," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm in New York City. "I think he is expected to leave."

Under the current structure, Lampert runs the show with key areas such as merchandising and marketing reporting directly to him. Lacy's main responsibility is shepherding the buyout of minority shareholders in the firm's Sears Canada unit.

This week, the proposed buyout ended up before the Ontario Securities Commission after dissident investor William Ackman accused Sears Holdings of using coercive techniques to round up votes, and Sears Holdings accused Ackman and others of illegally colluding to stop the transaction.

The fight started in December after Sears Holdings declared its intention to buy the 46 percent of shares in Sears Canada that it didn't own. In February, it offered $16.86 per Sears Canada share, less than the $19 to $22.25 fair market value set by an outside firm hired by Sears Canada's independent directors. After shareholders squawked, Sears Holdings raised the price to $18 and continued to add to its share holdings.

Shares in Sears Canada closed Friday at $19.45 per share, up $1.25..

A more assuring place of business
Allstate's new office concept has consumers and agents in mind
By Becky Yerak - Tribune staff reporter – Chicago Tribune
July 9, 2006

In an undisclosed location in a Chicago suburb, the humble insurance agent's office is getting a makeover.

As advertising spending by insurers reaches unprecedented levels, one of the ways that Northbrook-based Allstate Corp. is looking for an edge is to revamp the usually nondescript office where consumers go to pay their bills or shop for new coverage.

Doing quantitative consumer research and using a design consultant that has worked with such clients as Block 37, the Gap, and MGM Mirage, Allstate has designed an "office of the future" that it hopes the exclusive Allstate agents running 12,000 company-branded locations in North America will want to adopt.

It includes stronger branding elements intended to draw in passersby. Prominent glass walls are meant to evoke openness and transparency. A children's play area goes beyond the usual fire-safety coloring books to include hand-held DVD players so distracting can-we-go-now pleas are kept to a minimum as mom tries to figure out her homeowner's policy.

"Only 22 to 25 percent of our customers walk into the office. But as relationships become more important--particularly as Allstate does more on the financial side--if you're going to walk into an office and hand somebody a $25,000 check, you want it to look nice," Chief Marketing Officer Joseph Tripodi said in a recent interview. "You don't want it to be lawn furniture."

Even as shopping for insurance online becomes more important, Allstate isn't the only insurer experimenting with new retail programs.

Since December, Columbus, Ohio-based Nationwide Insurance has opened five locations called "Nationwide Stores," which have more of a look and feel of a trendy boutique than a typical insurance office. Nationwide has two stores in Columbus, and one each in Allentown, Pa., Hartford, Conn., and Overland Park, Kan. A sixth is planned for Salt Lake City.

"There is a lot of experimentation being done by financial-services companies in the quasi-retailing area," said Bob Hartwig, chief economist for the Insurance Information Institute in New York. He has visited one of Nationwide's offices, which also features interactive kiosks and play areas. Hartwig's verdict: "It does not look like a traditional insurance agent's office."

The trick for Allstate now: persuading its exclusive agents, who are independent contractors, to invest in all or at least parts of the optional new design, which also features daisy-yellow walls complementing Allstate's signature blue, plus flat-screen televisions airing "Good Hands TV" and blown-glass blue pendant lighting.

Until now, the only design guidelines that Allstate has provided to its exclusive agents had to do with signage.

"We've talked about having Wi-Fi," said Maria McNitt, Allstate assistant vice president of brand identity and image management. "I'm doing some research on whether there's some aroma that would be appropriate." Also up for discussion is whether music should be piped in.

Allstate wants to keep the location of its suburban prototype, which opened in October, under wraps so it doesn't skew results. At a recent vendor fair for agents, a design mockup got an "extremely positive" response, said McNitt, who joined Allstate in 2004 and whose career includes 20 years working at Leo Burnett USA. Two offices in Michigan and Delaware that have agreed to adopt the program have gotten good customer feedback and increased their foot traffic.

Since an Intranet site detailing the "Are You Open?" program got a soft launch in May, the Web site has received 2,000 hits.

But regardless of what they think of the aesthetics of Allstate's company-run prototype, the exclusive agents have economic considerations to think about, one Chicago-area agent said.

"If Allstate wants to spend its own money to make us all look alike," that would be great, said the agent, who preferred to remain anonymous. "Allstate has a lot deeper pockets than agents do."

Allstate's quantitative research, with current and prospective customers, was done in late 2004 and early 2005.

Due partly to the findings, few details were left to chance in the new Allstate office.

"We know from research that customers like to be welcomed and greeted when they walk into an agency," McNitt said. "We recommend a reception desk," preferably one with a high counter, partly to impart more of a feeling of privacy.

Good Hands TV, a looped airing of messages about auto, home, life and retirement products, runs about 10 minutes in the reception area. But Allstate wants to edit it down to 5 minutes so consumers in the waiting area catch high points of all of the company's products.

It even agonized over whether the yellow chairs in the waiting area should have arms. They ultimately decided yes, in a nod to older consumers who need the armrests to launch themselves out of their chairs.

Near a pair of yellow chairs in the waiting area is a fabric screen as well as a cylinder-shaped table.

Why fabric, why circular? "It's a feeling of softness instead of plastic," she said. "The curves are soft, the gesture of the good hands logo is soft."

The company's slogan, "You're in Good Hands" with Allstate, can be identified by 9 out of 10 consumers, the insurer maintains. On an unaided basis, the Good Hands icon alone can be identified by nearly 7 of 10 consumers, Allstate says.

As such, for the first time ever, the prototype office includes round signage with simply the outstretched, cupped hands, a la Target Corp.'s recognizable bull's-eye.

"It's lit day and night. You don't even have to say Allstate and people understand," McNitt said. "Branding is the name of the game."

Another new branding element is an abbreviated expression of its slogan on its entrance door--simply "Good Hands."

In designing the prototype office, Allstate consulted with Gensler in New York.

"They've done things at Target, McDonald's, Gap, at other financial institutions," McNitt said. "We'd sit down with them and talk about our brand. What does it feel like to be in good hands and how can we replicate that feeling in our retail environment?"

Allstate did much of its thinking in-house as well.

"We have a little place in our home office where we're putting things up, taking them down," she said. "It's a place we play with colors, fabrics, paint swatches, lighting."

Allstate has no projections on what percentage of offices might go whole hog on the new design or even revamp their offices piecemeal over a period of time on a do-it-yourself basis.

McNitt declined to say how much was invested in the prototype office. It's also in the process of measuring how much more business the prototype does than other typical offices.

One recent day at Allstate's prototype office, Bridget Bevis stopped by for an insurance quote. She said she was driving by and caught a glimpse of the Allstate sign and the decisively yellow wall.

That's music to Allstate's ears.

Says McNitt: "When you think about retail, it says, `Come in and do business with us.'"

Shares up 23% on CEO choice
RadioShack hires ex-Kmart chief
From Tribune staff and news services – Chicago Tribune
July 8, 2006

FT. WORTH -- RadioShack Corp. on Friday hired former Kmart Holding Corp. Chief Executive Julian Day as chairman and CEO, and RadioShack stock surged more than 23 percent, the biggest one-day gain in the company's history.

Day, 54, was named CEO five months after David Edmondson was ousted for lying on his resume. Former McDonald's Corp. executive Claire Babrowski, who was acting CEO and one of the candidates to succeed Edmondson, will remain as president and chief operating officer.

Day wasn't available for comment, but said in a statement that RadioShack is a "trusted and respected brand. I look forward to working with the management team, the board and the dedicated associates of RadioShack to produce levels of return that we and our shareholders expect."

Day has experience helping struggling companies revive profits. He was brought in as CEO of Kmart by hedge fund operator Edward Lampert and helped Lampert guide the company out of bankruptcy, a feat that reaped Day an estimated $90 million in stock options.

He also was chief financial officer and chief operating officer of Hoffman Estates-based Sears, Roebuck and Co., where he lost the race to succeed Arthur Martinez as CEO in 2000. When Kmart acquired Sears last year, Day was named to the board of the new Sears Holdings Corp. but has since resigned.

Prior to Sears, Day served as executive vice president and chief financial officer at Safeway Inc.

"It took him about a year to fix Kmart. This will take him longer," said Ulysses Yannas, a broker who tracks the retail industry for Buckman, Buckman and Reid. "RadioShack is not in bankruptcy, but it's in dire straits, and if it continues down this road, it will be in bankruptcy."

Day's appearance at the troubled retailer spurred speculation that Sears Holdings might be interested in kicking the tires at RadioShack. Some Sears investors and others continue to believe that Lampert will put Sears' $3 billion in cash to work in other acquisitions.

Retail consultant Kurt Barnard, for one, thinks a Sears-RadioShack combination makes sense because it would increase the combined companies' buying clout.

"The merchandise carried by Sears and Radio Shack is pretty similar, only you would be able to add the sales volume of a much larger number of stores," said Barnard, president of Barnard's Retail Forecasting.

But others such as Morningstar's retail analyst Kimberly Picciola don't see what RadioShack brings to the party. "They have kind of lost their way in terms of what their compelling offering is. There doesn't seem to be one."

Some analysts question whether Day is the right guy to fix those problems.

"It's kind of a surprise that RadioShack didn't find someone with a little more merchandising flair," said David Keuler of Milwaukee-based Mason Street Advisors LLC.

"Day seems like a finance guy. He understands retailing, but didn't come up through the ranks of buying products and making a store exciting. I think that's what they needed, and I don't know if they have it here or not."

Many investors apparently think they do. RadioShack shares on Friday jumped $3.20, to $16.96, on the New York Stock Exchange.

RadioShack has been losing market share for years as "category killers" such as Best Buy and Circuit City have become the dominant players in the razor-thin margin consumer electronics business.

The chain lost more customers after it terminated a deal with Verizon Wireless last year and started offering Cingular Wireless service.

The company, which receives about 35 percent of its revenue from the sale of cell-phone plans, said the move confused employees and customers.

Sales at RadioShack, the nation's third-largest electronics retailer, have grown an average of 3.7 percent in the previous three years.

Sales at No. 1 Best Buy grew an average of 14 percent, while they rose an average of 5.3 percent at No. 2 Circuit City.

"Regardless of who is at the helm, RadioShack still has a very, very significant turnaround ahead of them," said Alan Rifkin, an analyst at Lehman Brothers Holdings Inc.

Two other analysts--Stifel Nicolaus & Co.'s David Schick and Credit Suisse's Gary Balter--raised their ratings on RadioShack shares because of Day's hiring.

RadioShack got off to a rough start this year, reporting an 85 percent drop in first-quarter profit.

Day "can only be a hero," said Hal Reiter, chairman of Herbert Mines, a retail executive search firm. "No one is going to blame him if it doesn't work."

Day will receive $1 million a year, participation in a bonus plan and the option to purchase 4 million shares of RadioShack's common stock at $13.82 a share.

RadioShack makes waves
By Sandra Guy – Business Reporter – Chicago Sun-Times
July 8, 2006

RadioShack on Friday named Julian Day, a former Sears executive and former Kmart CEO, as its new CEO and chairman, prompting one analyst to speculate that Sears might be interested in acquiring RadioShack.

Day beat out acting CEO Claire Babrowski, a former McDonald's Corp. executive, for leadership of RadioShack, which is closing 480 stores and liquidating unprofitable goods after suffering steep declines in profit.

RadioShack's shares jumped as high as 16 percent on the news of Day's hiring, before closing Friday up $3.20 at $16.96.

Kurt Barnard, president of Barnard's Retail Consulting Group in Nutley, N.J., said Friday that Day's ties to Sears Chairman Edward S. Lampert might be a key indication of Sears' intentions.

Lampert could duplicate the cost-cutting, cash-building strategy he has used at Sears to try to revive RadioShack, Barnard said.

RadioShack's strength is its network of neighborhood stores, but there is plenty of room to cut costs, Barnard said.

"An opportunity exists," he said, noting that RadioShack would provide Sears a new market share in high-flying electronics.

Lampert, a billionaire hedge-fund guru, is authorized to invest the $3 billion cash stash built up by Sears Holdings, the Hoffman Estates-based parent company of Sears and Kmart. Investors and Wall Street analysts have long speculated that Lampert will engineer a dramatic acquisition to boost Sears Holdings' shares.

Lampert, with Day as Kmart CEO, took Kmart out of bankruptcy in 2003. Lampert then spearheaded Kmart's audacious $12.3 billion takeover of Sears Roebuck in March 2005.

Analyst Gregory Melich at Morgan Stanley noted that Day didn't take the RadioShack job because he needed a paycheck.

The British-born Day, while serving as a director at Sears, gained $130 million by exercising his Kmart stock options and selling the shares at a far higher price than he paid for them. Day left Sears' board in April. Lampert praised Day at Sears' annual shareholders' meeting for Day's hard work and business smarts.

Day will receive $1 million a year as CEO of RadioShack, and he could collect another $68 million in stock option exercises if he can bring RadioShack's stock up to $30. Half of Day's 4 million options at RadioShack are tied to stock price targets.

Spokesmen for Sears and RadioShack declined to comment on the speculation.

Other analysts aren't so sure Day is the man to turn around RadioShack. Analyst Gary Balter at Credit Suisse wrote in a memo that Day probably will close more RadioShack stores, especially those in malls, but that Day has yet to show he can build up a company after he has cut costs.

"The tougher question is, does RadioShack have the market position to be fixed or is this a model, a la Pep Boys, that does not need to exist?" Balter wrote.

RadioShack's turmoil started in February when the Fort Worth Star-Telegram questioned whether its then-CEO, David Edmondson, had earned a college degree. Edmondson resigned shortly afterward, saying he had inflated his resume.

Babrowski, who left McDonald's in December 2004, was hired as RadioShack's executive vice president and chief operating officer in June 2005. She was promoted to acting CEO in February.

RadioShack had reported its first-quarter earnings plunged 85 percent as it struggled to sell Cingular wireless products after having severed ties with long-time partner Verizon Wireless.

OSC could derail Sears takeover, observers say
Shares rise to $19.45
By Hollie Shaw - Financial Post – Ccanada.com
July 8, 2006

Sears Canada Inc. could remain a public company for quite some time if an Ontario Securities Commission panel concurs with its staff lawyers over the proposed buyout by Sears Holdings Corp.

If the commission effectively scuttles the U.S. retailer's $18-per-share bid for the minority stake of Sears Canada Inc., it is not likely that Sears Holdings chairman Edward Lampert would raise his offer to a level that is acceptable to the dissenting minority shareholders, industry observers said yesterday, even as speculators pushed the stock up almost 7% to close at $19.45.

"Lampert is a disciplined, hard-nosed, stubborn individual," one analyst said of the billionaire hedge-fund manager, who has forged his reputation buying distressed assets at bargain prices.

"If you think this ends with the OSC, forget it. At the very least, [Mr. Lampert] will try to appeal if things don't go his way."

In an OSC hearing that wrapped up late Thursday, commission lawyers supported the argument of New York-based hedge funds Pershing Square Capital Management LP, Hawkeye Capital Management LLC and Knott Partners Management LLC that Sears Holdings showed preferential treatment to Scotiabank and Royal Bank of Canada in extending the bid's deadline by eight months to December. The deadline was extended so the banks could save $79-million in taxes, the OSC panel heard.

While Pershing has said the shares are worth up to $46, most in the industry are debating whether Mr. Lampert would even raise his bid to $19 -- the low point of a valuation provided by Sears Canada's independent financial advisor, Genuity Capital Markets.

"That would put them in line with what [South Carolina financier Jerry] Zucker paid for Hudson's Bay Co. without the credit card business," one analyst said. "The [Sears Canada] board could support it. Everybody, with the exception of Sears Holdings, would save face."

Mr. Lampert has some incentive to close the deal sooner rather than later. If Sears Holdings takes Sears Canada private, it gains access to annual free cash flow of $200-million and will also save the cost of operating the Canadian unit as a separate public company.

The mid-point of the independent valuation range ($20.63) could be viewed as a reasonable offer by Sears Canada's board, one analyst said, but added that might not be enough to appease the sophisticated dissident shareholders.

"If Sears Holdings walks away from the bid, that could be a preferred outcome for some shareholders because they would then be Lampert's partner and they would share in the rewards of the value-creation measures he presumably wants to realize."

Others noted Mr. Lampert might want to hold off on putting forth another bid until 2009. Vornado Realty LP, which tendered its 7.5 million shares to Sears Holdings at $18, will receive the difference if the U.S. retailer raises the bid before Dec. 31, 2008.

In any event, a delay in the transaction is likely to bring greater uncertainty to Sears Canada, whose sales have been flat for the past five years, given its status as a predominantly American-run retailer still operating as a public Canadian company.

"I would not be shocked if [Sears Holdings] essentially shut down the Canadian office," one analyst said.

"The U.S. operation is essentially being run by non-retailers, and their sensitivity to retail is not high. Why have two buyers for [clothes], one north of the border and one south? All you really need to have up here is operations."

In addition to eliminating the dividend, analysts expect Mr. Lampert will want to sell off some of Sears Canada's assets, including real estate and its large trucking fleet.

The OSC panel, which reserved its decision, must decide whether to accept its counsel's advice to exclude the banks' shares from a critical vote to take the retailer private.

In order to privatize the subsidiary, Sears Holdings, which holds 54% of the Canadian unit's shares, needs the consent of the majority of the minority shareholders, and needed the banks' votes in order to push the current offer through.

SEARS CANADA INC.

Ticker: scc/TSX

Close: $19.45, up $1.25

Volume: 95,733

Avg. 6-month vol.: 145,744

Rank in FP500: 57

Sears Bid for Rest of Canada Unit Is Dealt a Setback by Regulators
By Mike Spector – Wall Street Journal
July 8, 2006

Sears Canada Inc. shares owned by two banks shouldn't be counted during an anticipated vote on a takeover bid by Sears Holdings Corp., because the banks engaged in improper side deals with the American parent company, lawyers for the Ontario Securities Commission said.

The staff's recommendation, if adopted by a three-member panel of OSC commissioners, could thwart an attempted takeover bid made by Edward Lampert, Sears Holdings' chairman. The OSC, Ontario's version of the U.S. Securities and Exchange Commission, isn't bound by recommendations made by its litigators, but usually follows them.

Sears Canada owns over 120 department stores, about 150 smaller dealer stores and a number of other specialty stores. Sears Canada sales have been declining -- a 2.4%-a-year drop since 2001 -- as it faces increasing competitive pressures. It closed up 6.9% at 19.45 Canadian dollars (US$17.49) a share on the Toronto Stock Exchange Friday.

The OSC recommendation represents a victory for dissident shareholders who have been fighting the takeover bid, in which Sears Holdings, of Hoffman Estates, Ill., wants to buy the 47% of Sears Canada it doesn't own and then take the company private. The opposing shareholders, who brought the original complaint to the OSC and are led by Pershing Square Capital Management L.P.'s William Ackman, say that Sears Holdings' offer of C$18 a share undervalues the company. Mr. Ackman declined to comment pending a final decision by OSC commissioners.

At issue are agreements that Sears Holdings made with Royal Bank of Canada, Bank of Nova Scotia and Scotia Capital, which is Bank of Nova Scotia's investing arm. Under the agreement, the banks pledged to support Sears Holdings' takeover bid if it extended its offer deadline to December from August.

The arrangement would save the banks an estimated $79 million in taxes by allowing them to wait until the end of the year to submit their shares. But the tax-saving benefits of the agreement weren't available to other shareholders, OSC lawyers found, making the deals a potential violation of the Ontario Securities Act. Kelley McKinnon, OSC's chief litigator in the case, was unavailable to comment. Royal Bank and Bank of Nova Scotia both declined comment on the OSC staff recommendation.

The two banks own a combined 7.6 million shares of Sears Canada, a crucial voting block that would help Mr. Lampert complete a successful takeover. Under Canadian securities law, Sears Holdings needs a majority of minority Sears Canada shareholders to vote for any takeover.

The OSC staff also recommended that Sears Canada shares owned by Vornado Realty Trust, a U.S. company, be excluded. Vornado Chief Executive Steven Roth had reached another potentially exclusive deal with Sears Holdings, agreeing to tender his 7.5 million shares in exchange for protection from any lawsuits. A representative for Vornado couldn't be reached.

A spokesman for Sears Holdings declined to comment on the OSC staff's recommendation.

Radio Shack picks ex-Sears, Kmart exec as new CEO
Reuters
July 7, 2006

NEW YORK, July 7 (Reuters) - U.S. computer and electronics retailer RadioShack Corp. named Julian Day as its new chief, hoping his experience turning around the likes of Safeway, Sears and Kmart would help with RadioShack's own revamp. Day, 54, was elected as chairman and chief executive following a four-month search after David Edmondson, who had mis-stated his academic record, resigned on Feb. 20.

The Fort Worth, Texas-based firm passed over acting CEO Claire Babrowski.

RadioShack said Day had a deep understanding of the North American retail industry and was known for his ability to create value for shareholders.

Under Day's leadership, the value of Kmart Holding Corp., the former parent company of Kmart Corp., increased to $9 billion from $1.5 billion, RadioShack said.

Prior to Kmart, Day spent two years at Sears, first as chief financial officer and then as chief operating officer. Day also was an executive vice president and CFO at Safeway, where he improved the company's balance sheet and credit rating, and increased return on capital expenditures.

The board thanked Babrowski, who was president and COO before taking over as CEO in February, for her contributions to RadioShack.

It did not say what role she would play at the company after Day's selection as CEO and chairman.

In May, the company said it was making progress with its turnaround, which includes closing at least 480 stores, but said it would experience "significant costs" related to the plan in its second and third quarters.

Ex-Sears exec. Day named CEO of RadioShack
Crain’s Chicago Business Online
July 7, 2006

Retailer passes over interim CEO and former McDonald's veteran Claire Babrowski

(Reuters) — RadioShack Corp. on Friday named Julian Day as its new chief executive, hoping his experience with struggling retailers such as Safeway, Sears and Kmart would help with RadioShack's own revamp.
Day, 54, was CEO of Kmart and a director of Sears Holdings Corp., the retailer formed when Kmart bought Sears, Roebuck & Co. last year.

He was elected as RadioShack's chairman and chief executive following a four-month search after David Edmondson, who had misstated his academic record, resigned on Feb. 20.

Fort Worth, Texas-based RadioShack passed over acting CEO Claire Babrowski. A former long-time McDonald's Corp. executive, she was president and chief operating officer before taking over as CEO in February, and had been viewed as a strong internal candidate for the top post.

"A dramatic change in strategy and culture was needed most at RadioShack, and we think Mr. Day's appointment could spur just that," David Schick, an analyst with Stifel Nicolaus, wrote in a note to clients. "We expect the shares to react favorably."
He raised his rating on the stock to "hold" from "sell".

Day, who was CEO of Kmart when it emerged from Chapter 11 bankruptcy protection in 2003, arrives at RadioShack as the retailer is closing hundreds of stores and adding more popular merchandise such as MP3 digital music players in the hope of reversing steep profit declines.

First-quarter earnings dropped 85 percent as the company struggled with weak sales of mobile phones. Last year, in an effort to revive sales, RadioShack cut ties with long-time partner Verizon Wireless and signed a deal to start selling Cingular products on Jan. 1.

But RadioShack had trouble keeping hot Cingular products in stock and training its staff to sell the new items.

In May, the company said it was making progress with its turnaround, which includes closing at least 480 stores, but said it would experience significant costs related to the plan in its second and third quarters.

A LONG ENGAGEMENT?

Kurt Barnard, president of consultants Retail Forecasting Group, said Day's experience at Sears and Kmart would no doubt serve him well as he tries to revitalize RadioShack, but his years of working with Sears Holdings Chairman Edward Lampert may also be key.

Lampert, the hedge fund manager who helped finance Kmart's Chapter 11 exit and spearheaded the acquisition of Sears, Roebuck and Co., is authorized to invest excess cash for Sears Holdings, and investors have long awaited a big acquisition.

Sears Holdings has built up more than $3 billion in cash by cutting costs and eliminating profit-eroding clearance sales at its stores.

"This may be the beginning of a courtship which may end up a marriage," said Kurt Barnard, president of consultants Retail Forecasting Group.

RadioShack and Sears Holdings both declined to comment.

Wall Street still has some doubts that RadioShack can successfully turn around its business when it faces intense competition from much larger rivals Best Buy Co. Inc. and Circuit City Stores Inc.

RadioShack shares trade at about 13.9 times analysts' profit forecasts for the current fiscal year, compared with 19.1 times for Best Buy and 23.8 times for Circuit City, according to Reuters Estimates.

RadioShack's shares are down some 42 percent in the past year, while Best Buy's are up 13 percent and Circuit City's are up nearly 45 percent.
 

\Sears Canada shares up amid privatization bid
CANADIAN PRESS
July 7, 2006

 rose nearly four per cent Friday as investors anticipated a sweeter offer by parent company Sears Holdings to privatize the Canadian subsidiary.

The department store retailer’s stock gained 66 cents to $18.86, a jump of 3.63 per cent, in trading of more than 42,000 shares on the Toronto Stock Market.

The stock rise suggested investors expect Sears Holdings may be forced to raise its privatization bid after Ontario’s stock market regulator came out against side deals the Chicago company negotiated with two major Canadian banks to buy shares of its Canadian subsidiary.

At an Ontario Securities Commission hearings this week in Toronto, lawyers for the regulator argued that Bank of Nova Scotia and Royal Bank of Canada received preferential treatment by the U.S. parent that breached securities laws. Consequently, those shares should not count as part of the voting thresholds required for a takeover bid.

Together the banks own a significant voting block of 7.6 million shares in Sears’ Canadian arm.

The hearings follow a complaint filed by three dissident shareholders of Sears Canada, who want the banks’ shares to be excluded from the bid thesholds. They said an offer of $18-per-share is too low.

A lawyer for Sears Holdings said there was no special treatment given to the banks and urged the commissioners to reject the OSC staff’s claims.

Sears Holdings controls nearly 54 per cent of its Canadian subsidiary and wants to buy the rest of the stock as it weighs its strategic options for the Toronto-based unit.

As a wholly owned subsidiary, Sears Canada could be more easily restructured by its parent, or sold to another company as part of a broader move by Sears Holdings to improve its efficiency and focus on core operations.

The OSC commissioners reserved their decision on Thursday and are scheduled to rule later.

Earlier this year, former Sears Canada chairman and CEO Richard Sharpe said he refused to shake hands with Alan Lacy, chairman of Sears Canada’s board, during a meeting.

“I believe that the whole approach has been corporate cannibalism, just devouring the assets of this company,” said Sharpe, who served as CEO between 1979 and 1988 but spent a total of 45 years with Sears Canada.

Sears Canada has a network of 188 corporate stores, 181 dealer stores, 66 home-improvement showrooms, over 2,100 catalogue merchandise pickup locations, 107 Sears Travel offices and a national home maintenance, repair and installation network.

Al Gore to Address Wal-Mart Executives
By Marcus Kabel – Associated Press
July 7, 2006

Former Vice President Al Gore will take his campaign against global warming to Wal-Mart Stores Inc. next week, speaking at Wal-Mart headquarters to executives seeking to make the world's largest retailer more environmentally friendly, a company spokesman said Friday.

Gore will talk to a quarterly conference of Wal-Mart managers working on ways to implement Chief Executive Lee Scott's plans to make the retailer a leader in cutting emissions, energy use and solid waste and selling more environmentally friendly products.

Gore will speak about global warming, the subject of his recent documentary film, "An Inconvenient Truth," Wal-Mart spokesman Dan Fogleman said.

The daylong meeting Wednesday at Wal-Mart's Home Office in Bentonville, Ark., is a quarterly gathering of 14 individual groups it calls sustainability networks, which include Wal-Mart managers and outside experts.

Each network works on specific areas, such as logistics or food, to put into practice a broad environmental initiative launched by Scott last October.

In recent months, Wal-Mart has taken steps including doubling the number of organic food items in its stores, reducing fuel consumption by its fleet of 7,000 trucks and installing energy-saving light bulbs in stores.

Wal-Mart is taking the environmental offensive at a time when it is under attack from organized labor and other groups for its business practices, including employee pay and health benefits.

Kohl's Becomes Third Largest Department Store Chain
Milwaukee Journal-Sentinel
July 7, 2006

Kohl's is now the third largest department store chain in the United States, according to a new ranking from the National Retail Federation.

The trade group lists Kohl's Corporation, based in Menomonee Falls, Wisconsin, behind Federated Department Stores Inc., and JC Penney Co.

Mergers and acquisitions in the retail industry have affected the rankings in the past few years. The giant Sears Holdings Corporation is no longer considered a department store chain by the trade group because it owns both Sears and Kmart stores.

Federated became the largest department store chain by buying St. Louis-based May Department Stores in 2005. The transaction pushed Federated's annual revenue to $22.4 billion for 2005.

The Marshall Field's chain was part of May and will be re-named as Macy's later in 2006 as Federated consolidates all its department store groups under the Macy's name.

JC Penney, based in Dallas, ranks second in the department store category with sales of $18.8 billion. Kohl's is next with $13.4 billion in annual sales.

But Kohl's is nipping at JC Penney's heels with a fast growth plan that calls for 500 new stores during the next five years. JC Penney's growth plan calls for 175 new stores during the next four years.

This year, Kohl's will open 85 stores. Most of the openings are scheduled for fall, when the company will enter Seattle for the first time.

Sears takeover in doubt
By Boyd Erman - Financial Post – Canada.com
July 07, 2007

Ontario Securities Commission lawyers say there is a basis for not allowing the shares of three major shareholders to count in a vote to take private Sears Canada Inc. by U.S. parent Sears Holdings Corp.

If their opinion is shared by an OSC panel, which yesterday concluded three days of hearings into whether the bid by Sears Holdings should go ahead, it would mean that dissident shareholders fighting the takeover will have won a big victory.

That's because 4.5 million shares of Sears Canada held by Bank of Nova Scotia and 3.1 million shares held by Royal Bank of Canada were the key blocks of stock that Sears Holdings needed to complete its $899-million takeover of the Canadian retailer.

OSC chief litigator Kelley McKinnon said the agreements that Royal Bank, Bank of Nova Scotia and Scotia Capital (the investment bank arm of Bank of Nova Scotia) struck with Sears Holdings to support the bid confered upon the banks tax savings that were not available to other shareholders. In return for the support of the banks, Sears Holdings extended and structured the closing of the bid to accommodate the banks, Ms. McKinnon said.

The panel heard evidence the total tax savings would have been $79-million.

"Staff are of the view that the votes of the shares held by Royal Bank of Canada, Bank of Nova Scotia and Scotia Capital should not be counted," Ms. McKinnon said.

The OSC staff's argument is in line with that of lawyers for the dissident shareholders -- Pershing Square Capital Management LP, Hawkeye Capital Management LLC and Knott Partners Management LLC, which collectively own 14.1% of Sears Canada's outstanding shares. The three dissidents say the $18-a-share offer is too low.

The OSC lawyers provide only guidance to the three-member panel that will decide the case. It is not known when a decision will be handed down.

Kent Thomson, lawyer for William Ackman, who runs Pershing Square Capital and who has been the most vocal opponent of the takeover bid, said, "The commission can send, and must send, the strongest possible signal" that the conduct of Sears Holdings fell short of proper standards.

Lawyers for Sears Holdings and the banks argued this week that the support agreements and tax benefits did not constitute an illegal side benefit.

Earlier this week, Mr. Thomson argued that Sears Holdings had used coercive tactics and offered illegal "carrots" to select shareholders to lock up their votes for the takeover.

The battle began not long after Sears Holdings, which owns 53.8% of Sears Canada, declared on Dec. 5, 2005 that it would make an offer to buy up the stake it did not own of the Canadian retailer.

On Feb. 7, Genuity Capital Markets, which was hired by an independent committee of Sears Canada's board to assess a fair market value for the retailer, said Sears Canada shares were worth $19 to $22.25. Two days later, Sears Holdings unveiled a bid of $16.86 a share.

On Feb. 21, Sears Holdings' offer was rejected by the independent directors on Sears Canada's board, saying it was "financially inadequate." Soon after, and amid rumours of escalating acrimony with Sears Holdings brass, the independent directors of Sears Canada said they would not stand for re-election at the May 9 annual shareholders' meeting. For its part, Sears Holdings reiterated its firm offer of $16.86 and referred to Genuity's valuation report as "flawed."

After the $16.86 bid failed to win over enough investors, Sears Holdings increased its bid to $18 a share on April 4 and announced it now planned to privatize Sears Canada. It would need to obtain two-thirds of all Sears Canada shareholders, and a so-called "majority of the minority," which is 50% plus one share of those shares it does not already own.

On April 9, Sears Holdings revealed that it had secured "support agreements" with an unnamed group of shareholders who agreed to tender their shares to the $18 offer. Sears Canada's shares were trading in the $18.50 to $18.75 range at the time.

The unidentified shareholders had also agreed to endorse the privatization of Sears Canada by the end of the year. With that, Sears Holdings extended the expiration date of its $18 offer to Aug. 31 and indicated that the going private transaction would not be completed until December.

In April, the Financial Post revealed Scotiabank -- whose Scotia Capital arm had worked as a financial advisor to Sears Holdings starting in early January -- was among the group of unnamed shareholders agreeing to tender their 4.5 million Sears Canada shares to the $18 offer.

The three dissidents threatened legal action to block the transaction, saying Scotiabank's engagement as financial advisor to Sears Holdings, as banker to Sears Canada and as shareholder in the subsidiary -- the details of which were not disclosed in Sears Holding's February offering circular -- created a conflict of interest.

Former Kmart Chief to Become RadioShack Chairman, CEO
By Mike Spector - The Wall Street Journal
July 7, 2006

RadioShack Corp., afflicted by management controversy and market woes, is expected to announce today a former top Kmart executive as its new chairman and chief executive officer.

Julian Day, 54 years old, would take over a retailer reeling from shrinking profits, a plummeting stock price and the recent departure of its former CEO, David Edmondson. Mr. Edmondson resigned in February after revelations that he had exaggerated his academic credentials on his résumé.

Mr. Day has experience with troubled companies, serving as Kmart Holding Corp.'s chief executive in 2003 when the company was emerging from bankruptcy. Earlier, he was chief operating officer at Sears, Roebuck & Co. Both companies are now part of Sears Holdings Corp.

Mr. Day succeeds interim CEO Claire Babrowski, who had been RadioShack's chief operating officer. RadioShack had said earlier that Ms. Babrowski was among the candidates to become the permanent CEO.

RadioShack's leadership was thrown into turmoil in February, when the Fort Worth Star-Telegram questioned whether Mr. Edmondson had received a college degree. Mr. Edmondson resigned shortly thereafter, admitting he had inflated his résumé, in which he claimed he had received a bachelor of science from Pacific Coast Baptist College in California.

Mr. Edmondson said he believed he had received a ThG diploma -- typically a certificate with fewer requirements than a bachelor's degree -- but said he couldn't document receiving it. The registrar at the college, which moved to Oklahoma in 1998 and renamed itself Heartland Baptist Bible College, told the Star-Telegram it had no record of a diploma and that Mr. Edmondson attended for only two semesters. Mr. Edmondson insisted that the school lost his paperwork.

The ethical lapse compounded RadioShack's woes, as the retailer has struggled to turn around its operations. The company's first-quarter profit sank 85%, mostly due to disappointing sales of wireless phones. In February, the company said it planned to slash costs, close up to 700 lackluster stores, and replace old, slow-selling items with newer products as part of an 18- to 36-month turnaround plan.

The company's stock has steadily lost ground, hitting a 52-week low, trading at 4 p.m. at $13.76, down 11 cents, in New York Stock Exchange composite trading.

RadioShack hires veteran Kmart executive as
chairman and CEO
By Heather Landy - Star-Telegram Staff Writer Fort Worth, TX
Bloomberg News archive / Tannen Maury
July 7, 2006

FORT WORTH - RadioShack Corp. has hired Julian Day as chairman and chief executive, passing over internal candidate Claire Babrowski in favor of a finance specialist who most recently led Kmart Corp. out of bankruptcy, according to sources close to the selection process.

The appointment, to be formally announced Friday, concludes a search to replace former CEO Dave Edmondson, who resigned nearly five months ago after he admitted to misstating the academic credentials on his resume.

Day won over the board with his CEO experience at Kmart and with his history of contributions to turnarounds at Safeway Inc. in the mid-1990s and, later, at Sears, Roebuck & Co., the sources said.

Babrowski, by comparison, is an operations expert who spent her entire career at McDonald’s Corp. before joining RadioShack last year as president and chief operating officer. More accustomed to working behind the scenes, Babrowski was thrust into the spotlight in February when she was named acting CEO after Edmondson left. Former Chairman Len Roberts retired in May.

Babrowski is expected to remain at RadioShack as president and COO, according to the sources, who asked not to be identified because the official announcement had not yet been made.

Day, who currently lives in Montana, is not expected to be in Fort Worth on a day-to-day basis until July 24, but his appointment is effective immediately. The search was conducted by executive placement firm Spencer Stuart.

RadioShack is in the middle of a turnaround plan conceived earlier this year under Edmondson and put into action by Babrowski. The effort includes closing 400 to 700 stores, a large-scale expense review, and the replacement of slow-selling merchandise with new items.

The changes are not expected to yield results until later this year at the earliest, Babrowski said at the company’s annual shareholders meeting in May. RadioShack’s first-quarter earnings plunged 85 percent from the same period last year. The electronics retailer’s second-quarter results are scheduled to be disclosed on July 21.

With its stock languishing - the shares (ticker: RSH) closed Thursday at $13.76, down more than a third this year - and its once-dependable wireless business under attack from competitors, RadioShack has been under pressure from Wall Street to pick a new CEO and create a sense of stability at the top.

Day, 54, has a reputation for questioning the old guard at tradition-bound companies, soliciting input from rank-and-file employees, and taking an instructor-like approach to communicating his ideas, according to published reports. In an April 2005 article in the Chicago Tribune, an executive who had worked with Day at Sears said he “would always challenge those who said, ‘No, it’s not done that way.’ But he always did it as a gentleman.”

Day was born in Yorkshire, England, and according to published biographies, holds degrees from Oxford University and the London Business School.

The former McKinsey & Co. consultant, who went on to do consulting work for buyout firm Kohlberg Kravis Roberts & Co., made a big splash in the corporate world when he became chief financial officer at Safeway 15 years ago.

Day is credited with reviving the supermarket chain’s balance sheet, boosting its credit ratings, and re-engineering its real estate development process. After five years in the job, he resigned in 1998, saying he wanted to pursue a top executive post with a publicly traded company. He was 46 at the time.

Ten months later, he joined Sears as its CFO and quickly entered a two-man contest for the CEO post there. But his goal would elude him for several more years. The other candidate, Alan Lacy, was named CEO, and he pushed Day out of Sears soon after.

In 2002, Day resurfaced as president and chief operating officer of Kmart, which had just started Chapter 11 reorganization. He was promoted to CEO the next year, when he shepherded Kmart out of bankruptcy and worked closely with Kmart investor Edward Lampert.

Day stepped aside as CEO in the fall of 2004, just before Kmart stunned the industry by announcing plans to acquire Sears for $11 billion. After the merger, he reportedly made more than $130 million exercising stock options he collected during his brief tenure. The options windfall raised the eyebrows of some observers, but others rushed to his defense, saying he earned his pay.

When Day left the board of the renamed Sears Holding Corp. in March, Lampert, Sears’ chairman, described him as “a key factor in one of the most dramatic recoveries in the history of retail.”

OSC Says Sears Canada Shares Held by Banks Shouldn't Be Counted
BLOOMBERG.COM
July 6, 2006

The staff of the Ontario Securities Commission recommended that Sears Canada Inc. shares held by two Canadian banks shouldn't be counted in a takeover bid by parent Sears Holdings Corp.

The recommendation was made by OSC lawyer Kelley McKinnon to a three-member panel of the securities commission at a hearing in Toronto today.

Investors led by William Ackman's Pershing Square Capital Management LP filed a complaint with the OSC in April. They said Bank of Nova Scotia, whose Scotia Capital unit advised on the takeover offer, was in a conflict of interest because the lender tendered shares to the offer, ensuring the bid's success.

McKinnon said the OSC staff also recommended that Sears Canada shares tendered by Royal Bank of Canada should not be counted either.

The investors asked the OSC to halt the sale of the stock, including Scotiabank's 4.5 million shares, to Hoffman Estates, Illinois-based Sears Holdings, and to order that they not be counted in a shareholder vote on the bid.

The C$899 million ($802 million) offer needs approval from a majority of the shareholders, not including Sears Holdings, which owned about 53 percent of Sears Canada before the bid.

 

Pershing's Ackman Says Roth Reneged on Sears Canada Deal
Bloomberg.com
July 6, 2006

Hedge-fund manager William Ackman said he was forced to appeal to Canadian regulators to halt a takeover bid by Sears Holdings Corp. for its Canadian unit after fellow Sears investor Steven Roth reneged on an agreement to not tender his shares.

Ackman, chairman of Pershing Square Capital Management LP, told a Canadian regulator in Toronto that he had a deal with Roth in which both investors would keep their Sears Canada Inc. shares, forcing the parent company to increase its offer. Roth, chief executive of Vornado Realty Trust, instead agreed to tender his 7 percent stake in April after Sears Holdings Chairman Edward Lampert offered a three-year price guarantee.

“Roth screwed me,'' Ackman told an Ontario Securities Commission panel, under questioning by Sears Holdings lawyer Mark Gelowitz. Roth's decision to sell to Lampert "screwed us and every other minority shareholder.''

Ackman is trying to convince regulators to scuttle the takeover deal because he says Lampert's offer is unfair, and that Sears tried to ``bully'' investors to accept the C$18 a share bid. Ackman, who has said the shares are worth twice that much, said he wouldn't have needed to spend a day before an OSC panel had Roth agreed to sell his shares to him, rather than Lampert. The three-day hearing to consider Ackman's complaint ends today.

Roth, whose realty trust is the second-largest U.S. property owner by market value, didn't return a call yesterday seeking comment. Wendi Kopsick, an outside spokesperson for Roth, declined to comment.

Takeover Bid

Ackman said New York-based Pershing Square owns 12.5 million Sears Canada shares, worth about C$230 million ($207 million) at yesterday's share price. Sears Holdings bid C$899 million in April for the 47 percent of Sears Canada it doesn't own to reduce costs and compete with Wal-Mart Stores Inc.

Sears, based in Hoffman Estates, Illinois, says Ackman's Pershing Square is part of a group of hedge funds and arbitragers who have colluded to block the sale to boost the share price, Gelowitz told the hearing. Sears asked the OSC to dismiss the Pershing complaint and allow the sale to go through.

Ackman and Roth had a deal under which they agreed to work together to buy shares of Sears Canada, Ackman told the commission panel. Roth bought Sears Canada shares after Ackman recommended the stock and Roth made $120 million from a special dividend when the company sold its credit card unit. In February, in a phone call ``out of the blue,'' Roth agreed to pay Ackman a $2.5 million finder's fee, Ackman said.

Willing to Sell

Ackman said he began hearing rumors Roth might be willing to sell to Lampert. He offered to buy Roth's shares for C$18.25 each, while Lampert was offering C$16.86 in an initial public bid.

“He laughed at me,'' Ackman said. “He said he had no intention of selling.''

Lampert offered Roth a three-year guarantee that ensured he'd get the highest price Sears pays for its Canadian unit. That was in contrast to the three-month protection Lampert gave Natcan Investment Management Inc, the biggest independent shareholder to sell to the original offer, Ackman said.

Private-Label Card Program from GE Offers 'Road to Credit' to Tap Greater Portion of Market
By Kathryn Kranhold and Robin Sidel – Wall Street Journal
July 6, 2006

General Electric Co. wants to expand the ranks of card-carrying consumers.

GE, one of the largest providers of private-label credit cards for retailers, including Wal-Mart Stores Inc. and J.C. Penney Co., is expanding its "road to credit" program, which offers private-label cards with credit lines as low as $75 to consumers who normally don't qualify for plastic. Over time, GE hopes to move many users to higher-limit and more-versatile cards.

GE is among a growing number of financial companies trying to expand their reach into the ranks of the "underbanked," those who use few or no traditional services such as checking accounts and credit cards. Marketing-research firm Phoenix Marketing International and consulting firm BearingPoint Inc. estimate there are 80 million Americans in this category who are at least 18 years old, including many students and recent immigrants.

Other big financial players who are pitching credit cards to these consumers include Citigroup Inc. and J.P. Morgan Chase & Co. J.P. Morgan, the nation's second-largest card issuer after Bank of America Corp., is offering private-label Circuit City Stores Inc. credit cards to some applicants who don't qualify for its general-purpose Circuit City Visa card. The private-label cards carry lower credit limits and can be used only at the electronics store.

Citigroup lets consumers build a credit history with a MasterCard secured with money the consumer puts in a certificate of deposit. After 18 months, consumers deemed creditworthy may be offered a regular Citigroup credit card, and the original deposit, plus interest, is put into the holder's credit-card account. Others can renew the CD or close the account and get the deposit back, with interest.

Banks are eager to grab the billions of dollars that may be generated by these new customers because the explosive profit growth that propelled the industry for the past decade is slowing. The market for consumers with top-notch credit is saturated and competitive, forcing issuers to offer expensive rewards programs and other incentives. Adding customers through big acquisitions is also expensive.

Private-label cards are a relatively low-risk way for issuers to test the market. Unlike general-purpose cards that can be used at millions of locations, private-label cards are used at specific merchants and typically carry lower credit limits. That means less risk if cardholders don't pay. Big banks and GE have been buying these portfolios from merchants who no longer want to manage their credit programs.

The issuers say they are treading carefully and tracking payment habits closely, so they aren't saddled with bad loans to nonpaying customers. GE, for example, calls new customers to make sure they understand their bills, interest rates and potential late fees.

Consumer advocates also are watching. They want more alternatives to corner shops that charge huge fees to cash checks and lend money. GE is offering the same interest rate it charges on any private-label credit card to these consumers -- currently 18% to 23% annually, depending on the retailer.

By comparison, neighborhood loan shops often charge more than 200% annual interest, says Linda Singer, executive director of Appleseed Foundation, which develops financial programs for Hispanic immigrants. "Having access to conventional credit is preferable," she says.

But some consumer advocates are more cautious. Joe Ridout, a spokesman for Consumer Action in San Francisco, says private-label cards carry higher interest rates and offer fewer rewards. J.P. Morgan's private-label Circuit City card, for example, carries an annual interest rate of 23.99%, compared with the 17.49% rate on its Circuit City Visa card.

"It is certainly in a person's interest to start building a credit history, but if someone can get a [private-label card], chances are that there is a card issuer out there that can provide a [general-purpose] card with more flexibility and benefits," Mr. Ridout says.

GE Consumer Finance started the road-to-credit program with 12,000 consumers in late 2004. It now has 50,000 previously underbanked customers holding private-label cards through seven retailers, including Wal-Mart. It added two pilots with retailers last month and expects to reach 70,000 cardholders in coming months. The company declined to identify participating retailers other than Wal-Mart.

"We work with our financial-services partners to educate customers about financial matters, including credit, and to develop programs that help customers build and improve their financial well-being," a Wal-Mart spokeswoman said in a written statement.

GE has a total of 50 million U.S. cardholders, mostly through its private-label partners such as J.C. Penney Co., Brooks Brothers and Gap Inc. GE also offers Visa, MasterCard, Discover and American Express cards in retailers' names.

GE also has reached into the underbanked market with its 2004 acquisition of CashWorks, which provides automated check-cashing services and prepaid debit cards, aimed at people without bank accounts. CashWorks machines are typically at convenience stores and other small retailers. Its check-cashing fees are a maximum 2.99% of the amount of the check.

In GE's credit-card program, Margaret Keane, chief executive of the company's retail consumer-finance unit, says GE is testing credit lines from $75 to $300 to see what consumers can handle. (Credit lines on private-label cards typically range from $250 to $5,000.) The extra monitoring and small credit lines means the program is less profitable in the short run, analysts say, but GE and others are hoping for a longer-term payoff as users migrate to higher limits and cards that can be used widely.

The goal is to "help this customer be a stronger credit customer down the road," Ms. Keane says.

To manage the risk, GE is drawing on its experience in emerging markets such as Eastern Europe and Asia, where its consumer-finance business offers a broader range of products from mortgages to auto and personal loans. In Eastern Europe, for instance, GE built its own database on consumers since extensive customer data weren't available from another provider. GE started by offering consumers small loans for items such as vacuum cleaners, tracked bill payments and expanded credit over time as customers developed a history.

--Ann Zimmerman contributed to this article.

Scotiabank, RBC sought secrecy over Sears role
By Janet McFarland - Globe and Mail, Canada
July 6, 2006

Two major Canadian banks asked Sears Holdings Corp. to keep their identities secret when they agreed to throw their support behind the U.S. company's takeover bid for Sears Canada Inc., the Ontario Securities Commission heard yesterday.

Sears Holdings chief financial officer William Crowley testified yesterday that Bank of Nova Scotia and Royal Bank of Canada wanted complete confidentiality, which he said meant Sears Holdings could not even give copies of the support agreements to directors on the board of Sears Canada.

"What they said was they didn't want the publicity," Mr. Crowley said.

"They didn't want to be in the middle of this whole thing."

But a Scotiabank official yesterday said the confidentiality clause wasn't extremely important to the bank.

Kieran O'Donnell, a director in the capital markets group at Scotiabank, testified yesterday the bank wanted to keep a low profile, but was willing to waive the confidentiality request soon after the support agreement was finalized on April 6.

Sears Holdings revealed that Scotiabank was a party to the support agreement in a press release issued May 1, following weeks of public and media speculation about the secretive deals. But The Wall Street Journal ran a story on April 12, quoting a Scotiabank spokesman confirming the bank's role.

Mr. O'Donnell said Scotiabank told lawyers for Sears Holdings they could disclose their identity "soon after" the deal was completed.

"It was not a big deal for us," he said.

The OSC is holding a hearing into a complaint from three dissident shareholders of Sears Canada who are opposed to Sears Holdings takeover bid.

They have asked the OSC to order that 7.6 million shares owned by the banks and pledged under the support agreements should not be allowed to count toward the threshold of support required to complete the deal.

The shareholders -- Pershing Square Capital Management LP, Knott Partners Management LLC and Hawkeye Capital Management LLC -- argued material information was withheld from shareholders, including the identity of the banks and fact they would reap a tax benefit of $79-million due to changes made in the timing of the offer by Sears Holdings.

They also argued Scotiabank should be considered a "joint actor" with Sears Holdings because Scotia Capital Inc. is its financial adviser on the deal. They say the bank's shares should not be considered when assessing whether a majority of the minority shareholders support the bid.

OSC commissioner Carol Perry yesterday asked Mr. Crowley how he could have entered into an agreement with the banks to keep their identities so confidential they could not even be revealed to independent directors on the board of Sears Canada

Mr. Crowley replied that the special committee could have launched an action with the OSC to seek an order requiring Sears Holdings to turn over the support agreements if they had really wanted to see them.

"The restriction was not something we wanted," he testified.

The hearing yesterday also heard more details about a separate motion launched by Sears Holdings against the minority shareholders, accusing them of secretly working together in March and early April to artificially inflate the price of Sears Canada shares and block the takeover bid.

Hawkeye Capital founder Richard Rubin testified he met on April 6 with William Ackman, managing partner of Pershing Square, to discuss the takeover bid, but insisted there was no plan to work together to block the Sears Holdings bid.

He said he only asked for the meeting because he wanted to find out if Mr. Ackman was one of the parties to the secret support agreements. "I went over to Bill's office just to look him in the face and say: 'Was that you?' " he told the hearing.

But Sears Holdings lawyer Mark Gelowitz pointed out Hawkeye bought shares later that same day. He said trading records from Merrill Lynch & Co. Inc. showed both Hawkeye and Pershing each bought 50,000 shares through Merrill at the same price that afternoon, splitting the purchase of a 100,000 share block.

"It's just a coincidence on the same date you met with Mr. Ackman that you both split a trade to 100,000 shares?" Mr. Gelowitz asked.

"Absolutely," Mr. Rubin replied.

Can Wal-Mart Cash In On Financial Services?
By Robin Sidel and Ann Zimmerman – The Wall Street Journal
July 6, 2006

Retailer Plans to Expand Offerings To Lure 'Underbanked' Customers; Critics Question Motives, Results

When Juan Pedroza needed to make a last-minute monthly payment on his truck loan last month, he didn't go to a local bank branch, post office or check-cashing store. Instead, the school maintenance worker stopped in at a Wal-Mart in Farmers Branch, Texas, on his way home and headed for the "money-services" department at the customer-service desk.

"I always use Wal-Mart when I am going to be late. It will get there tonight," said the Spanish-speaking Mr. Pedroza, who made his comments through a bilingual Wal-Mart store manager.

As the Bentonville, Ark., retailer's efforts to enter the nation's banking business -- even in a limited way -- trigger an outcry of opposition, Wal-Mart Stores Inc. has built a sizable presence in the financial-services business.

During the past few years, Wal-Mart has been selling financial products to low-income customers who may shop in its stores, but don't have relationships with traditional banks -- those that the industry defines as the "underbanked." Among the offerings: check cashing, bill payment, money orders and a partnership with MoneyGram International Inc., of Minneapolis, that enables immigrants to send money to their home countries from a Wal-Mart store.

Wal-Mart is becoming more vocal about its strategy in the part of the financial-services sector that competes with banks, check cashers, postal services and money-transfer companies like Western Union, a unit of First Data Corp., of Greenwood Village, Colo. Wal-Mart is trying to enter the check-cashing business in Massachusetts, could get help in doing the same from proposed legislation in Rhode Island, and has explored offering college-savings plans.

"We have only scratched the surface of what's possible," said Jane Thompson, president of Wal-Mart's financial-services operations, in a speech at a banking-industry conference in Chicago last month.

Ms. Thompson's remarks triggered murmurs from audience members, who appeared surprised by Wal-Mart's efforts. Wal-Mart said it averages 1.5 million to two million money-services transactions a week. On one recent day, the retailer processed 328 money orders in Selma, Ala., 163 money transfers in New Orleans and 151 check-cashing transactions in Birmingham, Ala., Ms. Thompson said at an earlier banking-industry event in New York.

All of this comes as Wal-Mart awaits word on its applications to obtain an industrial-bank charter in Utah and federal deposit insurance. The world's largest retailer by sales said it is seeking the approvals in order to process its own credit-card transactions, which would cut costs. The company said it doesn't plan to open bank branches.

To date, the financial-services business represents a fraction of Wal-Mart's $312 billion in annual revenue. The company doesn't break out financial results for the business, reporting it as a contributor to "other income" in its financial statements. A spokeswoman declined to discuss financial results for the business.

Since its financial-services operations don't accept customer deposits, Wal-Mart can pursue these business segments even though it doesn't have a bank charter or federal deposit insurance. States typically regulate check cashers and often cap their service fees.

Wal-Mart's prices for the financial services are lower than many competitors. Wal-Mart charges 46 cents for a money order, compared with as much as $1.30 at the post office. The company also charges a maximum of $3 to cash a payroll check; check-cashing firms usually charge 2% to 3% of the check's face value. Wal-Mart sets up separate financial-services areas in some of its larger stores; elsewhere, it processes the transactions at the customer-service desk, the cash register or at special booths.

Wal-Mart offers money transfers, money orders and express bill payments across the U.S. It also cashes payroll and government checks for customers in 45 states, targeting people who don't have checking accounts or who can't afford to wait for a check to clear. The average paycheck cashed at a Wal-Mart store is for $300, the company said. Conventional banks often won't cash a check if the customer doesn't have an account. These consumers commonly go to check-cashing outlets.

Like its effort to get a banking charter, Wal-Mart has drawn opposition to its plan to expand in the check-cashing business. Bankers in Massachusetts oppose Wal-Mart's efforts to operate check-cashing facilities in its 44 stores there. The state, which has 90 licensed check cashers, held seven public hearings to consider Wal-Mart's application. A public-comment period ended last week, and the state's banking division is expected to issue a decision soon. "Wal-Mart wants people to cash their checks in their stores so they can then make impulse purchases in the store," said Bruce Spitzer, spokesman for the Massachusetts Bankers Association, which represents 210 banks that operate in the state. "We don't think this is a good service for consumers."

Wal-Mart disputes that notion, saying about 14% of people who cash checks at the store make purchases at the same time.

Joe Baginski, who owns two check-cashing stores in Massachusetts, figures that Wal-Mart will quickly grab as much as half of the state's check-cashing market and put some local stores out of business. "There is no question we can't compete with them on a price basis," he said. His two Bay State Check Express outlets charge 2% of the value of a paycheck and as much as 3% for larger amounts like insurance settlements.

ACE Cash Express Inc., the nation's largest check-cashing concern as measured by number of stores and market value, hasn't changed its pricing in areas where it competes with Wal-Mart, spokesman Eric Norrington said. The Irving, Texas, company, which doesn't operate in Massachusetts but has stores in 38 states, charges an average 2.5% of face amount of a paycheck.

Wal-Mart doesn't have a check-cashing license in Rhode Island, but that could change if the state enacts pending legislation that would eliminate requirements for bulletproof glass and steel partitions at companies where check-cashing isn't the primary business. Wal-Mart didn't comment on its Rhode Island plans, and the state legislators who sponsored the bills didn't return calls.

Sears Agrees to Settle with OSHA for 2005 Safety Violations
Katherine Torres – Occupational Hazards – Cleveland, Ohio
July 5, 2006

After being fined $135,000 for work safety violations by OSHA, Sears, one of the nation's largest retailers, has agreed to adopt a safety and health program to ensure all powered industrial trucks are operated safely as part of a settlement agreement with the federal agency.

"We are pleased to resolve this matter and avoid the time and expense of litigation," said Edwin G. Foulke Jr., assistant secretary of labor for OSHA. "We can quickly move forward with steps to ensure safe practices when operating powered industrial trucks and better protect Sears' employees."

OSHA cited a Sears store in Monaca, Pa. on Sept. 29, 2005 for exposing workers to 15-foot falls from powered industrial trucks. The agreement settles citations issued by OSHA following an accident investigation in which the agency found that employees were allowed to ride on unsecured platforms – without guardrails – on the forks of the trucks. OSHA also found that fork truck operators were not trained and the company failed to provide personal fall arrest systems to employees or equip trucks with overhead guards to protect employees from falling objects. For this violation, Sears was fined $10,000.

According to Robert Szymanski, area director of the Pittsburgh OSHA office, the practice of lifting personnel up on forks of a forklift and climbing onto storage shelves was a common one at the facility. "Management in the store was fully aware of OSHA standards but continued to allow untrained workers to perform these dangerous tasks," he said.

A call made to Sears for comment on June 29 was not returned.

Foulke stated that Sears' desire to resolve the matter demonstrates their commitment to ensure safety for its employees. "This agreement represents a major commitment to ensure safety and provide the employees the needed training and protection," he said. "Sears has agreed to implement changes not only at the Pennsylvania store but also at all locations within federal OSHA jurisdiction."

Under terms of the agreement, Sears' safety and health program will include formal instruction, practical training and the evaluation of each truck operator's performance at least once every 3 years. The company also has committed to maintaining all powered industrial trucks in safe operating condition, and implementing and enforcing a corporate-wide policy that allows only properly trained employees to be elevated and operate the trucks.

Sears Gave Unfair Benefits to Canada Banks,
Ackman Lawyer Says
BLOOMBERG.COM
July 4, 2006

Sears Holding Corp., the biggest U.S. department store company, offered two Canadian banks benefits not available to other shareholders in its attempt to buy out its Canadian unit, a lawyer for investor William Ackman told a regulatory panel.

Sears, based in Hoffman Estates, Illinois, also attempted to “bully'' other investors into selling their shares by saying they may not be easily traded, Kent Thomson, a lawyer for Ackman's Pershing Square Capital Management LP, told an Ontario Securities Commission panel today.

It's the “quintessential coercive bid,'' Thomson said at the start of a scheduled three-day hearing into Sears Holding's C$899 million ($812 million) bid for Sears Canada. Sears Holding “shrouded'' its conduct during the takeover in a “virtually impenetrable veil of secrecy,'' Thomson said.

The investors led by Pershing Square are trying to scuttle the takeover at the current offer of C$18 a share, saying the stock is worth twice that much. They asked the OSC to halt the sale, including the tender of 4.5 million shares owned by Bank of Nova Scotia. Scotia Capital, the investment banking arm of Canada's third-biggest bank, advised Sears on the deal. The investors also want the OSC to order that Scotiabank's shares not be counted in a shareholder vote on the bid.

Hedge Funds

The minority shareholders opposed to the takeover are primarily arbitragers and hedge funds, Sears Holdings lawyer Mark Gelowitz told the three-member panel in Toronto.

They are “an organized, collusive group that's seeking a blocking position,'' he said, urging the panel to throw out Ackman's complaint and allow the sale to go through.

Toronto-based Bank of Nova Scotia, Scotia Capital and Royal Bank of Canada struck a deal with Sears that allowed them to take advantage of a tax law that resulted in a pre-tax benefit of a combined C$122 million, or C$15 for each share of Sears Canada they owned, Thomson said.

It was a “vote buying arrangement'' the details of which were not divulged to other shareholders, Thomson said.

Tax treatment of shareholders should not be considered by the OSC in reviewing a takeover, Gelowitz of Sears said. Shareholders in different jurisdictions get different tax breaks and the OSC can't try to even that playing field, he said.

“A wrong decision on this issue could have very detrimental effects on the whole takeover regime,'' Gelowitz said.

Tax Benefits

Shareholders are entitled to maximize their tax benefits and it should not be seen as a separate benefit, Scotiabank's lawyer Paul Steep said.

The takeover offer needs approval from a majority of Sears Canada's shareholders, not including Sears Holdings, which owned 54 percent of Sears Canada Inc. before the bid. Pershing holds 12.5 million shares of Sears Canada, Ackman said. The shares are worth about C$237 million at today's share price.

Shares of Toronto-based Sears Canada, the country's No. 2 department store chain, rose 66 cents to C$18.99 at 4:10 p.m. in trading on the Toronto Stock Exchange.

Medicare Fights Against New Schemes to Defraud Beneficiaries
From Sears Retiree Website
July 3, 2006

DEPARTMENT OF HEALTH & HUMAN SERVICES
Centers for Medicare & Medicaid Services
Room 352-G
200 Independence Avenue, SW
Washington, DC 20201
Office of External Affairs
MEDICARE CONSUMER ALERT
FOR IMMEDIATE RELEASE Contact: CMS Media Affairs
Friday, June 16, 2006 (202) 690-6145

MEDICARE FIGHTS AGAINST NEW SCHEMES TO DEFRAUD BENEFICIARIES

Medicare Beneficiaries Warned To Be Aware of Telephone Scams Surrounding New Medicare Drug Benefit

The "$299 Ring" scheme to defraud seniors and people with disabilities has changed into a higher priced scam involving in some cases a new Medicare card, instead of a prescription drug plan.

The Centers for Medicare & Medicaid Services (CMS) said today the dollar amount now requested by phone callers is usually $379, but cases have also occurred where the callers asked for $350 or $365. Medicare has already referred nearly 250 cases involving attempts to steal beneficiaries’ funds to federal law enforcement officials. These are pending further action.

"By getting the message out to Medicare beneficiaries about how they can avoid scams, we’ve seen the number of incidents go down," said CMS Administrator Mark B. McClellan, M.D., Ph.D. "To protect all people with Medicare from being victimized, we are taking further steps to prevent, identify and help law enforcement officials apprehend these scam artists. And, if you think you may be a victim, call 1-877-7SAFERX."

The reported incidence of people with Medicare falling victim to these scams, by actually paying money, has decreased from 51 percent of the cases reported between Nov. 15, 2005, and April 30, 2006, to 25 percent between May 1, 2006, and June 7, 2006.

As part of the new scams, callers are now asking for bank information or telling beneficiaries they can provide a new Medicare card for a fee. Similar to the reported "$299 Ring," callers asked Medicare beneficiaries for bank account numbers that the callers use to electronically withdraw the money. The new Medicare card or prescription drug plan they claim to be selling is not legitimate.

Callers may use the names of fictitious companies, such as Pharma Corp., National Medical Office, Medicare National Office and National Medicare.

It is against Medicare’s rules to call a person with Medicare and ask for bank account or other personal information, or cash payment, over the telephone. No beneficiary should ever provide that kind of information to someone who calls them. Such calls must be placed by the beneficiaries themselves or handled by a follow-up letter to which the beneficiary may choose to reply. If someone calls asking for personal information, or the call doesn’t seem right for some other reason, a beneficiary should hang up the phone and contact Medicare at 1-877-7SAFERX (1-877-772-3379) or his or her local law enforcement or consumer protection agency.

Tips for People with Medicare to Protect Against Scams

Medicare beneficiaries can take steps to protect themselves by remembering:

Magazine: Only Wal-Mart is bigger than Home Depot
Atlanta Business Chronicle
June 30, 2006

The Home Depot Inc. maintained its position as the nation's second-largest retailer in 2005, according to the annual list of top 100 retailers in Stores magazine, a publication of the National Retail Federation released June 30.

Atlanta-based Home Depot had $81.5 billion in sales in 2005, an 11.5 percent increase over 2004. Its profit hit $5.8 billion last year.

Stores magazine noted the housing boom in 2005 resulted in strong profits for home improvement retailers. Home Depot rival Lowes Cos. ranked seventh on the retailers list with $43.2 billion in sales in 2005 -- an 18.6 percent increase from the previous year.

The No. 1 retailer in 2005 was again Wal-Mart Stores Inc. maintained its post as the third-largest retailer.

Sears Holdings Corp. 's merger with Kmart helped propel the combined chain to the fourth spot on the list. In 2005, Sears ranked No. 9 and Kmart, No. 14.

Costco Wholesale Corp. came in at No. five; Target Corp. ranked sixth; Walgreen Co. is eighth; Albertsons, now owned by SuperValu Inc. placed ninth; and Safeway Stores Inc. rounded out the list at No. 10.

Navigating the 5 phases of retirement
By Mindy Fetterman, Sandra Block and John Waggoner
USA Today
June 26, 2006

ESTATE-PLANNING CHECKLIST

• Review your assets and debts
• Decide whom you want to inherit your assets
• Draft or update your will
• Choose an executor
• If you have dependent children, choose a guardian
• Get a durable power of attorney
• Draft a living will
• Obtain medical power of attorney
• Consider whether you need a trust for your assets
• Discuss an estate plan with your heirs
• Write a letter of instruction
Source: Financial Planning Association

If you retire at 65, there's a chance your retirement will last more than 30 years. And that raises a lot of questions: What will you do with your time? Will you stay in the same house? Will you become a Wal-Mart greeter at 85 because you've run out of money? Even if you're in your 40s, it's not too early to start making plans. Here is a road map that will help you navigate the five phases of retirement.

Phase 1

15 years prior to retirement, develop a financial plan

With 15 years to go before retirement, now's the time to get your finances in order.
"A lot of people just cross their fingers and hope they have enough to retire," says Peggy Cabaniss, chairman of the National Association of Personal Financial Advisors.

You need a plan — and we mean more than a stack of 401(k) statements. If you want help from a professional, ask yourself:
Do you want a one-time review or just a couple of sessions? Do you want continuing advice on how to invest?

Most important: credentials. The Certified Financial Planner, CFP, and the Chartered Financial Consultant, ChFC, require rigorous education courses and have tough testing requirements.

Fee-only planners don't "sell" products and earn a commission, as stockbrokers and insurance salespeople do. "That's one of the conflicts with a (stock) broker," Cabaniss says. "You're never quite sure if they're earning a higher commission on what they're selling you than what you need."

Fee-only planners and financial advisers charge any of three ways. Some impose hourly fees; expect to pay $100 to $200 an hour. Others charge a retainer to produce a financial plan with several follow-up meetings; expect to pay $2,000 to $3,000. Or they charge an ongoing management fee and take a percentage.

Where to find a fee-only planner:

• Financial Planners Association, www.fpanet.org, lists planners nationwide in more than 30 specialties.

• National Association of Personal Financial Advisors, www.napfa.org, can link you to fee-based planners nationwide.

Want to move? Start looking.

Money magazine says Ashland, Ore., is the best place to retire in the USA. Kiplinger Personal Finance says it's St. George, Utah. AARP picks Fort Collins, Colo.

Despite all the books, lists and websites that rank the "best places to retire," few people move to another state, or even another house, when they retire. According to AARP, each year, less than 10% of the USA's 60-plus population moves. And half of those who do move stay in the same county.

If you want to move, there are some things to think about. "They're called the Three C's: crime, climate and cost of living," says Jim Miller, editor of savvysenior.org.

Bert Sperling, founder of Sperling's Best Places, a company that crunches statistics on thousands of U.S. cities, recommends you look at:

•College towns. They have arts and education for retirees and college sports for fans, and they usually have excellent medical care through university medical schools.

•State capitals. Economies are stable, and the towns typically bustle with activity and job growth.

Check crime statistics, tax rates, housing affordability and health care quality. You can compare cities on several websites. Look at bestplaces.net.

Do the doctors in town accept Medicare? Find out at www.medicare.gov. Click on "find a doctor" and fill out a form to find doctors in that town.

Or play with aarp.com's new "Location Scout" quiz. Answer questions about what you want in climate, housing, property taxes, culture, job growth and other criteria. The "Scout" will find cities that match your needs.

Don't choose an area just based on statistics, though. Visit places, several times, in several seasons so you won't be surprised to find, for example, that Georgia summers can be really steamy.

If you do decide to move, don't forget details about choosing a specific house that will be livable as you grow older, says Elinor Ginzler, director for livable communities at AARP.

"People retire to townhouses all the time because they want to downsize," she says. "But a townhouse has three if not four or five sets of stairs. You're delightfully healthy in your 50s, but what happens if that twinge of arthritis gets worse?" You should have a bed and full bath on the first floor so, as you age, you can live on one level.

Nursing homes

The average daily cost of a semiprivate room in a nursing home rose 4.1% in 2005. Average rates for major U.S. cities:

Atlanta $144
Boston $253
Chicago $127
Cleveland $171
Dallas-Fort Worth $113
Detroit $150
Honolulu $239
Las Vegas $164
Los Angeles $154
Miami $170
Milwaukee $188
Minneapolis-St. Paul $199
New York $308
Philadelphia $204
Phoenix $142
Seattle $202
St. Louis $127
Washington $268
Source: MetLife

Consider long-term-care insurance

All your best-laid plans for retirement could be derailed if you or your spouse ends up in a nursing home. The average cost of nursing home care is more than $60,000 a year. Should you invest in long-term care insurance?

Perhaps. But first, spend some time researching policies. Long-term care insurance policies offer a bewildering array of choices, and it's hard to determine what kind of care you'll need in 30 or 40 years, says Bonnie Burns, policy specialist with California Health Advocates.

Some policies cover assisted living, a popular choice for older Americans who need some help but don't require full-time nursing home care. But such policies sometimes limit their coverage to facilities licensed by the state where the policy is issued, Burns says.

Likewise, some insurers sell policies that restrict coverage to home health care. Premiums for these policies may be lower, but for most people, "that's a dangerous product," Burns says. "If you buy a home-care-only policy and you can't stay at home, the policy will do you no good, and you'll have no protection for any institutional care."

The younger you are when you buy a policy, the lower your premiums, but you'll have to pay them for a longer period. If you someday can't pay, you'll lose your coverage. In 2002, the average cost for a policy that paid $150 a day and had a 90-day deductible was $564 a year for a 50-year-old, $1,337 for a 65-year-old and $5,330 for a 79-year-old, according to America's Health Insurance Plans, a trade group.

Phase 2

Six years before retirement, get serious about how much money you'll need

You should have estimated how much money you'll need for retirement when you first started planning. Now it's time for a reality check: Do you have to make corrections?

Your best estimate: Assume you'll need about as much in retirement as you do now. If you spend less, you'll be pleasantly surprised — and, possibly, be able to afford one more trip a year to see the grandchildren.

Now add up your other sources of income, such as Social Security and pensions. You can get a Social Security estimate at www.socialsecurity.gov; ask your human resources department for a pension estimate. Your savings will have to make up any shortfall.

Suppose your current expenses are $5,000 a month. You expect $1,600 a month from Social Security and $950 more from a pension. You'll need $2,450 a month from savings, or $29,400 a year.

Generating income

How much a 65-year-old couple would need to invest in an annuity to generate lifetime monthly income:

Source: Immediateannuities.com.

If you like, you can buy an immediate annuity that will pay $2,450 a month until you and your spouse die. For a 65-year-old couple, that will cost $422,654, according to ImmediateAnnuities.com.

The drawback: Inflation will erode the buying power of your annuity payments over time. If you want to give yourself a raise based on the inflation rate, most studies show that your initial annual withdrawal can't exceed 5% of savings. So if you want a raise each year, and you want your money to last 30 years, in this example you'll need about $590,000.

If that seems daunting, remember that you can skip raises from time to time, particularly if your investment returns are low. Or you can work part time.

Plan to work longer? Be sure to have a job

You don't need to play shortstop for the company softball team to demonstrate your youthful vigor. (But offering to play first base isn't a bad idea.)

At a time when many companies are looking to cut costs, "Older workers have to press themselves to go the extra mile to show they're very much engaged in the job," says Bill Arnone of Ernst & Young's Human Capital practice.

It's no secret that many company buyouts are designed to usher older workers out the door. Older workers typically earn more than their younger counterparts. They're also more likely to have health problems, which raise the cost of company-provided health care. Here are some strategies to help you demonstrate you're worth keeping:

• Participate in your company's training and development programs. Many older workers skip these programs because they think they're for junior workers, Arnone says. "That's a fatal mistake," he says. "It gets noted if you participate in training programs. It shows you're there to grow."

• Make sure your experience is recognized. In your performance reviews, point out "things you do and you know that no one else can do and no one else knows," Arnone says.

• Recognize your limits. If you're an office worker, you may be able to remain the captain of your cubicle into your 60s, or even your 70s. But that's not a realistic option for workers in physically demanding occupations. If you have a strenuous job, you might need to start learning new skills.

Even if your job isn't strenuous, health problems could force you to retire early. While working longer may be a good solution for some boomers, Arnone says, "There are a lot of people for whom that's not reasonable."

Phase 3

First year: Know how much you're spending

When you were working, you probably imagined that you'd spend less money right after you retired. You'll no longer spend so much on dry cleaning, commuting and take-out lunches, so you'll start spending less the day you retire, right?

Wrong, says John Sestina, a financial planner in Columbus, Ohio. In his experience, most retirees spend more each year during the first five to seven years of retirement than they did when they were working.

"They do things like travel a lot more, establish a hobby, and they also do a lot of seeing the grandkids and making gifts," he says.

Sestina says expenses start to decline after the initial retirement euphoria. Still, an early spending spree could put a big dent in your savings.

Consider tracking your expenses. You can use a spreadsheet or a software program, but a big notepad divided into 12 columns will also do.

Make sure you include everything, because even small expenses add up over time. "It's the drippy faucet that raises the water bill," Sestina says.

Here are some spending categories to include, from Fidelity's Retirement Income Planner:

•Housing. Mortgage, homeowner's insurance, maintenance costs, property taxes and condo fees.

•Utilities. Electric, oil and gas, phone, cable and Internet service, water and sewer.

•Personal. Groceries, clothing, laundry and dry cleaning, health and beauty products.

•Health care. Health, dental and vision insurance, Medicare premiums, Medicare supplemental premiums, long-term care insurance premiums.

•Transportation. Auto loans or leases, registration fees, gas, insurance, maintenance.

•Recreation. Club memberships, travel, entertaining, dining out, movies, sports events.

Phase 4

Years 2-15: Make decisions about your mortgage

Remember mortgage-burning parties? Chances are, you won't be throwing one any time soon.

More than 25% of married adults age 65 and older are homeowners with mortgages, according to the Center for Retirement Research at Boston College. That percentage is sure to rise as baby boomers retire. Low interest rates and a hot housing market prompted millions of boomers to refinance their mortgages, extending the terms of their loans for years.

One way to deal with the debt is to use part of your retirement savings to pay off your mortgage. But unless you have a sizable nest egg, that's probably not a good idea. You might need to make that money last for a long time, and taking a large withdrawal would reduce the amount available to you for later years. Besides, withdrawals from a regular IRA or 401(k) are taxable; a big withdrawal could push you into a higher tax bracket.

Another alternative is a reverse mortgage. A reverse mortgage is a loan against your home that doesn't have to be repaid until you move, sell or die. You and anyone else on the title to your home must be at least 62 to qualify. You can use a reverse mortgage to pay off your first mortgage. The balance can be taken in a lump sum, line of credit, lifetime monthly payments, or a mixture of the three.

A study last year by the National Council on Aging found that 13 million older homeowners are potential candidates for reverse mortgages.

But closing costs for reverse mortgages are high. Origination fees for a federally guaranteed Home Equity Conversion Mortgage, the most popular type of reverse mortgage, average 2%. You'll also pay a mortgage insurance premium of 2% of your home's value.

Add appraisals, title searches and other expenses, and your closing costs can top 5% of your home's value. You can finance those expenses with proceeds from your loan, but that will reduce the amount available to you.

For that reason, a reverse mortgage usually isn't a good idea for homeowners who plan to move in less than five years.

Federal law requires homeowners to meet with a certified counselor before getting a reverse mortgage. Call 800-569-4287 for the name and phone number of a counseling agency that's been approved by the Department of Housing and Urban Development. For more information about reverse mortgages, go to aarp.org/money/revmort.

Phase 5

Years 16+: Plan for the inevitable path of life

Review your will, trusts and insurance policies to make sure that what's left of your estate ends up where you want it to go. If you're among the 60% of Americans who don't have a will, talk to a lawyer about drawing one up. Otherwise, the state will decide who will inherit your assets.

You should also prepare for the possibility that you may be incapacitated. A durable power of attorney gives someone you trust the authority to pay bills and make financial decisions on your behalf. A medical power of attorney, also known as a health care proxy, authorizes someone to make medical decisions on your behalf. You should also have a living will, which will help your health care proxy carry out your wishes.

And finally, you should think about funeral arrangements. Some funeral homes let you prepay for your funeral, but you may be better off setting aside money in a certificate of deposit or other safe place. State laws governing prepaid funerals vary, and some states offer little or no protection against misuse of the funds. The Federal Trade Commission publishes a consumer guide to funerals. Go to ftc.gov and click on the "For consumers" link. The guide is listed under "Products and Services."

Judge OKs $11.75M Kmart Pension Deal In Ex-Worker Lawsuit
DOW JONES NEWSWIRES
June 28, 2006

DETROIT (AP)--About 125,000 employees and retirees of the former Kmart Corp. will share in the $11.75 million settlement of a lawsuit that said former company executives acted improperly when they invested pension money in now-worthless Kmart stock.

U.S. District Judge Avern Cohn approved the settlement agreement in a final order filed Tuesday. The deal involves those who participated in Kmart pensions from March 15, 1999, to March 6, 2003.

"It is a done deal," attorney Mary Ellen Gurewitz, said Wednesday, adding that recovery amounts will be based on the holdings of individual pension plan participants.

Gurewitz was one of the lawyers representing Quincie Rankin, a former employee of Kmart in Fairfield, Ala., who sued ex-Kmart Chief Executive Charles Conaway and other former executives and board members in March 2002.

Erin Kelly, one of Conaway's lawyers, did not immediately return a telephone message Wednesday.

The suit said company officials invested pension money in Kmart stock after the company filed for Chapter 11 bankruptcy protection on Jan. 22, 2002. It said the officials failed to exercise proper care for the pension money.

Troy-based Kmart emerged from bankruptcy in 2003 as Kmart Holding Corp. In March 2005, the company combined with Sears, Roebuck and Co. to form Sears Holdings Corp. (SHLD). The new company is based in Hoffman Estates, Ill.

A philanthropic powerhouse:
Buffett's gift to Gates will 'deepen' efforts
By Jim Hopkins, USA TODAY
June 27, 2006

Warren Buffett's gift of nearly $31 billion to the Bill & Melinda Gates Foundation cements the role of Microsoft's co-founder as the leader in a new generation of superphilanthropists.

But with that gift, which Buffett detailed Monday, Gates and his wife, Melinda, now hold unprecedented power in bolstering education and global health — their foundation's major focus.

"They are playing God with that kind of wealth," says Daniel Borochoff, president of the American Institute of Philanthropy, a watchdog group. "They're going to be responsible for whether a lot of people live or die."

Gates said Buffett's money will "deepen and accelerate" the foundation's work battling malaria, AIDS and other diseases and in strengthening U.S. inner-city schools.

"We'll do our best to make sure it's all spent well," Gates told a news conference.

In holding to his foundation's core mission, Gates answered speculation that it might expand to new areas with Buffett's money. Buffett's own family foundation, for example, focuses on family planning and slowing the spread of nuclear weapons.

Gates' remarks came in New York as Buffett signed formal pledges earmarking the bulk of his $44 billion in wealth for the Gates foundation — already the world's biggest, with about $30 billion. Most of the rest of his wealth will go to his family foundation and to those run by each of his three children. Monday's ceremonies came the day after Buffett's plans were first disclosed by Fortune magazine.

The annual gifts, beginning with an initial $1.5 billion to the Gates foundation, start moving to the foundations next month. They'll be made in shares of Buffett's company, the Berkshire Hathaway conglomerate.

Buffett set two conditions for the Gates foundation. It must be run by at least one of the two Gateses to receive its annual grant. And all the money must be given away in the year it was received; it cannot be added to the foundation's endowment. The Gates foundation gave away about $1.4 billion last year, so the Buffett mandate will effectively double the annual Gates giving.

The Buffett gift creates a philanthropic powerhouse about five times as big as No. 2 Ford Foundation, with $11.6 billion. Based in Seattle, the Gates foundation has about 260 employees and has given away about $10 billion since its launch six years ago.

Borochoff and other philanthropy watchers welcomed Buffett's move, saying it could inspire other wealthy individuals to give money to charity rather than to children and other heirs.

The Omaha industrialist, who made his fortune at Berkshire Hathaway by investing in a range of companies from insurance to soft drinks, said Monday that he had amply provided for his children.

"I do not believe in inheriting your position in society based on what womb you came from," he said.

Buffett used Monday's ceremonies as an opportunity to again call for lawmakers to retain the federal estate tax, which Congress has considered repealing permanently, Reuters news service reported. Many wealthy people donate money to charity as a lawful way of reducing estate taxes.

There are now about 70,000 foundations competing for causes and money. A century ago, the USA had perhaps two dozen, says Barbara Kibbe, who has studied the future of philanthropy at the Monitor Institute in San Francisco. Still, the Gates foundation stands out because it is the largest and because its growing influence is in the hands of the Gateses.

Bill Gates is 50, and Melinda is 41. Both expect to devote most of the second half of their careers to running the foundation. Buffett, 75, says his health is good and that the timing of his announcement and Gates' was coincidental. He is joining the Gateses as the foundation's third trustee.

The Gates foundation, created six years ago from earlier Gates charitable efforts, has built a mostly strong track record. The World Health Organization has credited it with saving thousands of lives in developing countries.

About half of its nearly $10 billion in giving has gone to improve world health, especially in battling childhood disease, HIV — the virus that causes AIDS — and other illness. Last month, it earmarked $27.8 million over five years to reduce the incidence of cervical cancer.

The foundation's other main focus, bolstering U.S. education, has gotten $2.6 billion. It pledged $21.2 million to Chicago public schools over nearly four years starting in April to better prepare students for college and other post-secondary education.

The Buffett gift could substantially increase the Gates foundation's education giving to as much as $1 billion annually, says Frederick Hess, editor of last year's With the Best of Intentions: How Philanthropy Is Reshaping K-12 Education. That would dwarf all other education philanthropy groups' efforts.

"They are just going to have a massively oversized effect on what gets studied and talked about," he says.

The Gates education giving includes about $1.2 billion to improve high schools, Hess says. It has helped create more than 1,500 small high schools in 40 states and the District of Columbia and given more than $1 billion in scholarships. Still, Hess says, the foundation's education record is "mixed," with top officials acknowledging recently that their efforts in creating small high schools haven't always paid off. Schools created from scratch show promising results, but existing large high schools that had been broken up into smaller "academies" with the foundation's help are disappointing, Hess says.

The Buffett gift will magnify the foundation's wins and losses.

"The cautionary note I would sound is it concentrates a great deal of capital into a single strategy," says Claire Costello, a charitable-giving consultant to wealthy individuals, who formerly directed the Philanthropic Advisory Service at Citigroup Private Bank.

Buffett's gift is significant for several reasons:

• It would be the single-biggest charitable gift in U.S. history, says Dwight Burlingame, who has studied the history of philanthropy at Indiana University.

Steel magnate Andrew Carnegie gave the equivalent of $7.3 billion in today's dollars starting in the late 1800s, money mostly devoted to building and stocking public libraries across the country. Oil kingpin John D. Rockefeller Sr., endowing the Rockefeller Foundation, gave money equal to about $5.8 billion, Burlingame said.

• Buffett's choice of the Gates foundation is a big shift for his family's philanthropy, which has been focused on slowing the spread of nuclear weapons and on family planning and groups that support legal abortion. That's been done through the Susan Thompson Buffett Foundation, named for Buffett's wife, who died two years ago.

Until now, Buffett had planned to give most of his $44 billion to the Buffett foundation, providing money to groups it has supported in the past, such as Planned Parenthood. That money will now instead support the different aims of the Gates foundation.

Even so, the Buffett foundation will get $3 billion on top of about $2.1 billion due from Buffett's wife's estate — gifts Planned Parenthood called a "landmark moment" for philanthropy. "Women and their families worldwide owe the Buffett family a debt of gratitude," Planned Parenthood Federation President Cecile Richards said Monday in a statement.

• Buffett's generosity could encourage other wealthy Americans to give most of their money to charity.

"The visibility of their names and their influence and success in business draw other people to the cause," says Colin Lacon, president of Northern California Grantmakers, a group of some of the nation's biggest foundations, including the $6.5 billion William and Flora Hewlett Foundation.

The 50 largest U.S. foundations

Source: Foundation Center

How $60 Billion Behemoth Will Affect World of Charity
By Sally Betty, Marilyn Chas and Gautam Naik - The Wall Street Journal
June 27, 2006

What impact will a $60 billion megacharitable foundation have on the causes it espouses, and on the world of philanthropy in general?

As the Bill & Melinda Gates Foundation prepares to roughly double in size in coming years with a massive contribution from Warren Buffett, will its financial firepower and entrepreneurial approach change the course of global health care, and even society? Or will its size work against it, sucking oxygen from other efforts and attracting critics at every turn?

The Gates Foundation will receive only a small portion of Berkshire Hathaway Inc. Chairman Mr. Buffett's $30.7 billion gift this year. (An article about investor reaction to the gift. But the charity is already the world's largest philanthropic organization with a $30.6 billion endowment. Since its founding in 1994 it has built a track record in targeting the world's three biggest killers -- AIDS, tuberculosis and malaria -- among other major scourges, and funding programs in prevention, diagnosis and treatment using existing tests, drugs and vaccines. Last year, the Gates Foundation spent $1.36 billion -- already, approaching the World Health Organization's budget for 2006 of $1.66 billion.

In a joint appearance with Mr. Buffett in New York yesterday, Mr. and Mrs. Gates emphasized that their goal is to work collaboratively with other foundations and government agencies. The foundation regularly invites experts from the WHO to brainstorming sessions in Seattle, and has hired experts from the Centers for Disease Control and Prevention and nonprofit groups. Melinda Gates pointed out the Gates Foundation already works with foundations like those of Michael and Susan Dell, Eli Broad, David and Lucille Packard, and the Rockefellers on areas including high-school education and agricultural biotechnology.

Richard Feachem, executive director of the Global Fund to Fight AIDS, Tuberculosis and Malaria, an independent Swiss-based foundation, says the Gates Foundation hasn't tried to compete with or replace traditional donors like governments. Instead, he says, it has used its money to make "strategic investments" with partners for new initiatives like disease-treatment programs and vaccine-development projects that work with initiatives from other funding bodies like the Global Fund.

For example, he says, the Gates Foundation has invested heavily in a HIV/AIDS testing and treatment program in Botswana. He says that is creating "a model that other countries can follow with Global Fund financing."

Many nonprofit officials say they expect the Buffett gift to inspire generosity in other donors, but some worry that could pose challenges by shifting responsibility away from government and onto the private sector. "There could be lawmakers who will look at these wealthy donors and say, 'You solve the problem, rather than us,' " says Diana Aviv, president and chief executive of Independent Sector, a nonprofit group that represents foundations, charities and corporate-giving programs.

The gift promises to give more attention to the Gates Foundation's two main focuses, education and global health, and potentially divert donor dollars away from other causes. The arts, for example, is not a big part of the Gates Foundation agenda, and that could make it harder for cultural institutions to call attention to their needs. "We're not against culture," said Bill Gates Sr., who serves as co-chairman of the Gates Foundations. "We just can't do everything."

The younger Mr. Gates said at the news conference he hopes the foundation's enlarged endowment won't discourage other givers but draw them in. "There will continue to be foundations of all sizes," he said. "If you want to deal with billions of people, you need scale." He said he's optimistic that the Buffett gift will spark more of the nation's superrich to become donors while they are still alive. "I hope we're seeing a rise in philanthropy and that people with wealth will give wealth back and give it back at a younger age," he said. "Ted Turner started it all by scolding people. We're trying to complement that by showing how much fun it can be."

In assuming the role as one of the biggest funders of global health programs, the Gates Foundation has taken an approach long eschewed by pharmaceutical companies and groups like the WHO: to use cutting-edge science to develop drugs and vaccines against diseases that kill millions in the developing world.

Some long-established foundations and international health officials initially worried that Mr. Gates would charge into philanthropy like a bull in a china shop, but some of that fear has abated. Some smirked at his initial hard-landing in places like India, where he quoted dire projections for geometric AIDS growth and ruffled government feathers. But his diplomatic skills have grown since then, along with the foundation's credibility for working with local project managers in countries from India to Mozambique. He also showcases his wife, whose modest demeanor has won over new friends for the foundation.

"I've heard both him and his wife speak," said David L. Heymann, who heads polio programs for the WHO. "They are both keen listeners. They ask the right questions. It's a pleasure to hear the right questions." He gave high marks to certain African malaria projects, that, instead of a single intervention, offer a whole panoply of services from bed nets and spraying, to diagnosis, and treatment. "It's a superb program leaving behind a public-health good."

Government officials say the Gates Foundation is not duplicating the work of public agencies. "They are really apples and oranges," said Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases. (Dr. Fauci's institute is involved in some projects with the Gates Foundation.) "The natural question is not, 'Why do we need WHO?' " he said. "WHO has never been one to put a lot of money into things. They are a coordinating, bully-pulpit kind of organization, and the need for that doesn't change."

The Gates approach has been much more grass-roots. A foundation initiative, known as Grand Challenges in Global Health, was modeled after a public call by a German mathematician in 1900, who challenged his fellow mathematicians to solve a list of the 23 greatest then-unsolved math problems. Similarly, at the Gates Foundation's behest, a group of scientists in 2003 picked 14 such challenges in global health from scores of ideas submitted from around the world.

Since its inception, the Gates foundation has bankrolled scores of causes, from an effort to reduce the devastating impact of sleeping sickness in Africa to the challenging quest to come up with a vaccine for HIV. Indeed, people familiar with the situation said last week that the foundation is readying a grant infusion of more than a quarter-billion dollars to the Global HIV Vaccine Enterprise, a collaborative quest it helped start several years ago. While it has left the actual implementation of global health programs to traditional agencies such as the WHO, it has tried to use its deep pockets to plug a funding gap in global health that many argue ought to be more generously filled by rich nations.

In addition, Mr. Gates yesterday highlighted a new area of interest: microcredit. Helping women start small businesses, save money for their families and preserve their funds after their husbands die will increase family security. Another area is agricultural biotechnology, which is important to food security and dovetails with health goals.

Mrs. Gates said that while touring Africa, she saw people standing in line for their AIDS and TB medications, yet unable to stomach the drugs because their stomachs were empty. "People in line can't swallow it if they don't have at least a banana and some water," she says.

Some question whether the Gateses' largess is being put to the best possible use in tackling global health. Few in the public-health field have dared to criticize the foundation since they are -- or hope to be -- recipients of Gates-sponsored grants. Yet some argue that instead of taking a narrow approach that aims to, say, reduce the number of HIV infections, the Gates Foundation could use more of its money to transform the politics of global health -- and thereby create a more lasting, widespread impact. In other words: Get rich countries to pour more money and take a stronger stand in the battle against the deadliest diseases of the developing world.

Amir Attaran, professor of law and medicine at the University of Ottawa in Canada, said the Gates Foundation has been generous in agreeing to spend $750 million over five years to boost childhood immunization in poor countries. However, he argued, "a more entrepreneurial approach would be to spend $50 million to change the policy environment" that contributed to the problem in the first place.

--Steve Stecklow and Mark Schoofs contributed to this article.

A $31 Billion Gift Between Friends
By Landon Thomas, Jr. - New York Times
June 27, 2006

The friendship between Warren E. Buffett and Bill Gates has been forged over a shared passion for such homespun American treats as cherry Coke, burgers and college football. They delight as well in loftier pursuits, like playing bridge and solving complex math problems.

But, more than anything, what Mr. Buffett's $31 billion gift to the foundation that Mr. Gates runs with his wife, Melinda, shows is a common disdain for inherited wealth and a shared view that the capitalist system that has enriched them so handsomely is not capable alone of addressing the root causes of poverty.

"A market system has not worked in terms of poor people," Mr. Buffett said yesterday, in an interview taped earlier in the day for "The Charlie Rose Show" on PBS.

As for any thought he might have had in giving the bulk of his billions to his three children, Mr. Buffett was characteristically blunt. "I don't believe in dynastic wealth," he said, calling those who grow up in wealthy circumstances "members of the lucky sperm club."

Genuine friendships within the highest tier of corporate America are rare, because of the demands of the jobs as well as the myriad forces that can turn shared interests into embarrassing conflicts.

But the bond between Mr. Buffett and Mr. Gates, the two richest people in the United States and arguably the two most influential in American business in recent years, has lasted more than 15 years. It has been sustained, according to people who know them, in large part by a very high level of intelligence and a conviction that their vast wealth has given them a larger responsibility to society.

"When you are as smart as Warren or Bill, I think it's hard to find people to talk to," said Donald E. Graham, the publisher of The Washington Post, who has spent time together with the two men. He called Mr. Buffett's gift "the most creative thing that anyone has done and the way he has done it underscores how much admiration he has for Bill."

What was most surprising about Mr. Buffett's decision was not so much that he was giving his wealth away but that he was asking someone else to pursue philanthropy on his behalf.

Like Mr. Buffett, corporate titans like Sanford I. Weill, the former chief executive of Citigroup , and Henry M. Paulson Jr. , the chief executive of Goldman Sachs who has been nominated to be Treasury secretary, have promised to dispense with their own wealth. But they, like most of those with huge fortunes, are expected to set up their own charitable foundations to carry out their wishes. For Mr. Buffett, a hallmark of his skill as an investor has been his self-denying quality. He has often described his task running Berkshire Hathaway, the insurance holding company that serves as his investment vehicle, as finding the best corporate managers, investing heavily in them and getting out of the way — an approach that he now plans to follow with Mr. and Ms. Gates.

"I would be terrible at it," Mr. Buffett said yesterday, assessing his abilities as a philanthropist. "I like to look in the mirror and ask myself whether I'm doing O.K. And there are a lot of people whose opinions I don't want to listen to. So you have to be a little more diplomatic than I am."

In past interviews, Mr. Gates, who just turned 50 and is 25 years younger than Mr. Buffett, has referred to himself as the student in the relationship ("I study him," he has said).

But while business itself has not been at the core of their relationship, Mr. Buffett invited Mr. Gates to serve as a director of Berkshire Hathaway and said that he had bought a small piece of Microsoft a long time ago just to keep his eye on Mr. Gates.

Mr. Gates said yesterday that Mr. Buffett had first mentioned the idea in passing on his wealth to the Bill & Melinda Gates Foundation about a year and a half ago. Then in recent months, the two men, who play bridge online and vacation together, delved into more specifics as Mr. Buffett discussed just how impressed he had been with the work of the foundation, which devotes the greatest amount of its resources to improving health conditions in developing countries.

"Then it was like, 'Wow, is he serious about that?' " Mr. Gates recalled in his interview with Mr. Rose. Followed by, "Wow, are we ready for that?"

The two men were first introduced in 1991, when Mr. Gates, who then kept his nose close to Microsoft's grindstone, was persuaded by his mother to attend a meeting where Mr. Buffett and Katharine Graham, then the publisher of The Washington Post, were present.

Mr. Gates was reluctant to go, fearing that Mr. Buffett was only interested in narrow financial subjects. "What were he and I supposed to talk about, P/E ratios?" he recalled for an article in Harvard Business Review.

But they hit it off immediately, plunging into an in-depth dissection of I.B.M.'s prospects. Yesterday, Mr. Gates credited Mr. Buffett for encouraging him, in the early 1990's, to read a copy of the World Development Report, put out by the World Bank, that analyzed poverty levels around the world, thus sparking his interest in philanthropy.

One thing they don't have in common is the way they live. Mr. Buffett, who still inhabits the house in Omaha that he bought for $31,500 in 1959, frequently lured Mr. Gates to his home turf to participate in local bridge tournaments. Mr. Gates built a huge mansion on the shores of Lake Washington not far from Microsoft's headquarters in Redmond, a suburb of Seattle. And he is a much more enthusiastic world traveler, though he persuaded Mr. Buffett to accompany him on a trip to China in 1995.

But they both are devoted workaholics who go to their offices just about every day they are at home. In public, there is a relaxed towel-snapping aspect to their relationship — as if they are making up for all those jocular moments that passed them by during their younger, more intensely ambitious years.

In an earlier interview with Charlie Rose, Mr. Buffett explained the role he played in Mr. Gates's engagement in 1994 to his wife, with whom he has had three children. The couple flew into Omaha, where they met Mr. Buffett at Borsheim's, the jeweler that Berkshire Hathaway has owned for years.

"Look, Bill, this is none of your business, but when I got married, I spent 6 percent of my net worth on the ring," he recalled saying to Mr. Gates, who at the time had a net worth already well into the billions. "I don't know how much you love Melinda."

Mr. Gates can get his jabs in, too. He has said publicly that his daughter calls Mr. Buffett "the man who works at Dairy Queen," a needle at Mr. Buffett's oft-expressed love for the company, which he owns, and its signature product.

Mr. Gates has also credited Mr. Buffett with crystallizing his own feelings about inherited wealth. The son of a successful lawyer in Seattle, Mr. Gates rebelled at his own privileged upbringing, dropping out of Harvard and starting Microsoft with several close associates.