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News Release
National Association of Retired Sears Employees
8700 W. Bryn Mawr, S-800 South
Chicago, Illinois 60631-3507
Phone: 630-627-7488  
www.narse.org

FOR IMMEDIATE RELEASE Contact: Ronald Olbrysh
March 24, 2005 -  630-627-7488

The End of Sears – Or a New Beginning?  

NARSE opposes the $11 billion dollar Kmart-Sears “merger” takeover for a number of reasons: (1) This “merger” will not result in a competitive, powerful merchandising organization accepted by the shopping public; (2) This deal is not a solid, attractive stock investment for associates, retirees and investors; (3) No share dividends will be payable for the foreseeable future; and (4) It is highly unlikely that Sears Holdings Corp. will honor its commitments/benefits to both associates and Sears retirees. NARSE’s opposition statement is posted on its web site.

NARSE’s opposition is based upon a review of Kmart & Sears press releases, SEC filings, proxy statements, annual reports and prospectuses. Such documents, loaded with risk disclaimers, disclose a company that will be controlled by Wall Street financiers, not retail merchants wanting to restore Sears to its position as a premier American retailer.  

NARSE conducted a survey about the Kmart-Sears “merger” earlier this month. There were 1,060 responses. Almost 40% of the respondents identified themselves as “Sears employees.” Only 4.8% of the respondents approve of this takeover. The complete results of the survey are on NARSE’s web site at www.narse.org.

The “status quo” under Chairman Alan Lacy and his Board for the past five years has been a series of costly, failed ventures. The top executives who now are tapped to run Sears Holdings Corp.--Chairman Eddy Lampert, Co-Chair Alan Lacy, President Aylwin Lewis, Chief Financial Officer William Crowley and all of the directors-- are not merchants who know anything about turning around a stagnant retailer and making it a top-notch merchant again.

Depending upon the outcome of the Kmart-Sears “merger” vote today, it will mark either the beginning or the end of a 119-year old company known as Sears, Roebuck and Co. If the takeover is approved by the shareholders, Sears end is near. The Kmart-Sears deal is more concerned with real estate than focusing on customers and growing sales. If the takeover is rejected, then Sears has a chance to save itself, but only if radical steps are taken.

The current administration and Board must be replaced. Visionary merchants must be found, along with an independent Board that knows the real meaning of corporate governance, not corporate greed, and has a true understanding of what it takes to be a “premier American retailer” again.

Layoffs, transfers begin at Kmart
By Greta Guest - Business Writer - Detroit Free Press
April 30, 2005

Layoffs and transfers at Kmart's fortress-like headquarters in Troy began this week and are expected to continue for several months, the retailer said in a filing with the U.S. Securities and Exchange Commission on Friday.

While some employees are losing their jobs, many are relieved to know one way or the other. They have been waiting since the $12.3-billion merger of Sears Roebuck and Co. and Kmart Holding Corp. was announced last November to find out their job status.

But some key employees including buyers working in Kmart's merchandising department won't know their fate until May 9, according to current and former employees who requested anonymity.

"The terms of the benefit packages being offered are being communicated to a substantial number of its affected employees beginning on April 26," Sears Holdings said in the filing. "The registrant expects the process of identifying and notifying all affected Kmart personnel to continue for the next several months."

Many of Kmart's 1,899 headquarters employees should know soon whether they can transfer to Sears Holdings' headquarters in Hoffman Estates, Ill., stay on the reduced staff in Troy or look for a new job, a spokesman said.

"The restructurings will substantially reduce each company's workforce at these locations," the filing said. The company added that it could not predict how many Kmart employees would eventually be laid off.

The layoff notices and transfer offers are being made piecemeal in each department, so it is difficult to get an exact number of people in Troy who will be let go, sources said. The merger was expected to eliminate duplicative staffs at the two retailers.

Sears Holdings said in the filing that the number of Kmart employees affected depends on how many accept relocation offers. The company said it would account for severance benefits in the quarters in which they occur.

One Kmart employee, who requested anonymity, said that this week some administrative staff members had been let go in small numbers. Kmart's middle managers and executives have already been informed about whether they will remain with the merged company and some are scouting around Chicago for new houses, the employee said.

Roughly half of those who have been asked to relocate are declining the offer, the employee said.

Each employee, based on the job he or she does, who is not asked to relocate or chooses not to, was given a date that would be the last on the job. So the layoffs will happen in waves on May 31, July 31, Aug. 31 and on subsequent dates, the employee said.

Employees who leave before their end dates would lose severance benefits. The severance pay is equal to one month of pay for every year worked, with a minimum of three months' pay, the employee said.

Kmart officials already have said that they would depart the Troy headquarters within a year.

Knowing their fates has lessened tensions for workers in Troy. "It's just a relief now. People are more social," the employee said.

A former Kmart executive who requested anonymity estimated that close to 1,000 employees could be transferred to Chicago initially to smooth the transition for key departments such as accounting, information technology and merchandising.

Chicago media reported that the same process is ongoing in the Chicago suburb this week, where a larger number of people are expected to lose their jobs since the Troy staff already has gone through a series of large layoffs since 2002. Sears employs 4,000 workers at its headquarters and layoffs there could range from 500 to 2,000, according to reports.

The company has said it expects to keep an undisclosed number of workers in metro Detroit.

Marathon meetings in Troy on Thursday and Friday were expected to deliver "major pink slips," said a source close to the company.

Earlier in the week, up to 10 administrative support staff members were let go in the legal department, said a Kmart employee. But about 200 information technology employees in Kmart's data center won't have to worry, the employee said, as all IT functions for both companies were being shifted there.

Sears Holdings spokesman Chris Brathwaite said the company would keep its promise to inform employees of their standing with the company around the end of April. But not everyone was expected to know by Friday.

"Things could change, particularly in Troy where the decisions may involve moving," Brathwaite said.

Kmart's buyers and co-buyers were told this week that they would receive notification by May 9 if they will be asked to relocate and would have a week to respond, said a source close to the company.

Ahead of the Tape - Wall and Main
By Justin Lahart – Wall Street Journal
April 29, 2005

Wal-Mart long has been the world's biggest retailer, and yet it keeps on growing. For its fiscal year that finished in January, it had sales of $285 billion. That was 11% better than the year before and 73% ahead of five years ago.

Sears Holdings is the company that resulted from the recent merger of Kmart and Sears, Roebuck & Co., two companies that had lost a lot of ground to Wal-Mart. Together, they had sales of $55 billion in their past fiscal year. That was 7% lower than the year before and 22% lower than five years ago.

But while Wal-Mart has won on Main Street, it's been the loser on Wall Street. Over the past year, its shares have fallen 19%. An owner of Kmart stock, which began trading as Sears Holdings in March, is more than 200% ahead. Wal-Mart trades at 20 times its earnings last year. Based on Lehman Brothers estimates, Sears Holding trades at a steeper price-to-earnings ratio of 27.

The rally in Sears Holdings stock, perversely, finds its roots in Wal-Mart's continued success in gaining market share. It was Wal-Mart that sent Kmart and Sears, Roebuck into one another's arms. Sears Holdings now can "rationalize" the business, streamlining operations and selling off valuable real estate. Bulls on the company believe such moves will help it generate gobs of cash.

Jeff Matthews of hedge fund Ram Partners (which has no position in either company) says the situation is reminiscent of the early 1980s when shares of struggling energy companies carried heady prices because the value of their oil reserves made them seem like valuable takeover candidates, while the stock of juggernauts like Exxon were cheap. Now it is real estate rather than reserves that catches investors' eyes.

Yet over the long haul, Wal-Mart should benefit from a less crowded marketplace, just as Exxon did when companies like Gulf Oil and Getty Oil were out of the picture. Fewer stores and one fewer competitor mean more customers and an easier pricing environment.

To be sure, Wal-Mart does face headwinds. A cooling economy and high gasoline prices have cut into sales. But the recent decline in its stock price may have had little to do with its business. A shift in the way shares are weighted in the Standard & Poor's 500 stock index caused index funds to lighten up their Wal-Mart stakes in late March. Many traders appear to have bought the cheapening stock at the time, expecting a bounce-back. When it didn't, these short-term players bailed, sending the stock still lower.

Sears will tie workers' pay to its profits
By Becky Yerak - Tribune staff reporter – Chicago Tribune
April 29, 2005

The cuts keep coming at Sears Holdings Corp.

Employees who survived this week's layoffs at the Hoffman Estates-based retailer learned Thursday that pay increasingly will be tied to individual performance, but also to company profitability.

At the end of December Sears also will stop contributing to its pension fund. Benefits earned through the end of the year will not be affected, however.

Sears cutting benefits
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 29, 2005

Sears employees were told Thursday that many of their benefits will be cut, and that their pay will be based on the retailer's profitability.

Many of Sears' benefit programs are more generous than those of the retailer's toughest competitors, including Wal-Mart, Home Depot and Best Buy, according to an internal memo sent to employees Thursday from CEO Alan Lacy and Aylwin Lewis, Kmart's former CEO who is now president of Sears Holdings and CEO of Kmart and Sears Retail. The memo was obtained by Pioneer Press.

"As you know, we have not performed well in recent years," the memo stated.

"Our toughest competitors have continued to grow and become significantly more profitable, which allows them to invest more money in their stores and their growth plans," according to the memo.

Sears employees already had their stock-option grants and guaranteed pensions eliminated on Jan. 1. Sears also had ended company-subsidized retiree medical insurance to all new hires and to employees younger than 40, and dramatically cut bonuses to some of its salaried workers. Sears also will eliminate its tuition-reimbursement program, which fewer than 3 percent of its full-time employees used.

A Sears spokesman said Thursday that the specific levels of employee benefits such as holiday and vacation time have yet to be determined for next year.

"We're going to closely tie future pay and benefits to how the company and we as individuals perform," said Edgar "Ted" McDougal, head of Sears public relations and government affairs.

There were a few bright spots.

For example, on Jan. 1, Sears will accelerate its fixed match contributions to employees' 401(k) accounts, and employees will get a 5 percent discount if they choose to buy Sears Holdings Co. stock, according to the internal memo and a source who asked not to be named.

Furthermore, sources say that fewer people at Kmart's headquarters in Troy, Mich., are choosing to relocate to Hoffman Estates. So that might mean fewer layoffs for local employees. Sears refuses to say how many people are being laid off at its headquarters, but estimates range from 500 to 2,000. No layoffs will take place at Sears or Kmart stores.

Meanwhile, several laid-off workers said they were surprised that their severance benefits were lower than Sears had provided in previous layoffs.

"It was definitely a surprise," said one laid-off Information Technology (IT) worker who asked to remain unidentified.

In Sears' last major layoff in November 2001, workers got one week of severance pay for each year they had worked at Sears, plus another eight weeks of severance.

This time, many workers got a flat 10 weeks of severance, regardless of their years of experience.

"A lot of people felt that wasn't fair," the employee said.

A Sears spokesman said the benefits policy is posted on the company's intranet, and hasn't changed in five years.

"We have informed employees. They may not have chosen to listen or remember or look [at the policy]."

Another quirk in Sears' layoff policy is that workers age 40 and older were told that they will receive in the mail two lists -- one of the titles and birth dates of people laid off, and a list of the titles and birth dates of employees who will remain at Sears.

In the 2001 layoff, Sears gave those lists to employees at the time they were laid off. The information is required under a federal law designed to protect workers from age discrimination.

A Sears spokesman said the list will be mailed in a few days, and that it had to be delayed because layoffs are continuing.

Employees have 45 days from the time they receive the lists and other documentation to decide whether to accept the severance benefits and, by accepting, waive their rights to sue Sears.

The laid-off IT worker said Sears was "like a big family" before its November 2001 layoff of 4,900 salaried workers. In the 2001-2002 layoff, 1,300 jobs were cut at Sears headquarters, leaving 6,350 workers at the Hoffman Estates campus. Sears gradually cut its headquarters employment to 4,000 before the latest layoffs.

The laid-off worker said he understands that businesses are not charities, but he thinks workers got shortchanged on their severance benefits "while these bigwigs walk away multimillionaires."

Indeed, Sears Holdings board member Julian Day cashed in another $1 million in options on Thursday, on top of about $115 million he's already reaped.

Vornado Realty Trust, a New York-based real estate trust that owns the Merchandise Mart, reported gains of $94 million on its ownership stake in Sears in the first quarter of its fiscal year, according to a regulatory filing.

New stock option grants also will cease for all but top executives starting May 1.

"We're making changes to make the company more competitive and better positioned for long-term growth and profitability," spokesman Ted McDougal said.

The company, formed by the merger of Sears, Roebuck and Co. and Kmart Holding Corp., is trying to get its cost structure more in line with that of rival retailers.

At least 500 employees were laid off at the headquarters this week. When the two companies announced their merger in November they said they planned to cut costs by $300 million annually.

Compensation policy changes will affect both executives and lower-ranking workers, McDougal said.

"The philosophy of the company is to align future pay and benefits with how well the company and the individual perform," he said. "If the company is not performing, we should not be compensating as well," he said.

The company will "slightly" reduce the amount of its standard contribution to employees' 401(k) plans but will tack on a "performance match" if the company reaches its financial goals.

The new Sears also is copying the Kmart that emerged from bankruptcy when it comes to granting options: Only top executives will get them.

Prior to its merger, Sears had been moving in that direction. In early 2004 Sears reduced the number of employees eligible for stock options from about 17,000 to about 2,000.

On Thursday, about a month after the merger was consummated, the company confirmed that only the top executives will receive options, mirroring the practice of Kmart and other companies.

In fiscal 2004 Kmart Chief Executive Officer Aylwin Lewis was the only Kmart employee to receive options.

"Companies are beginning to move away from broad-based stock options because of accounting rules and shareholder concerns about stock-based compensation," McDougal said.

Starting in 2006, Sears will reduce the employee discount it gives for company stock purchases from 15 percent to 5 percent.

The company says the move is in accord with new accounting rules.

No changes are expected to be made to employees' merchandise discounts, health benefits or paid time off, including vacations, holidays and leaves of absence.

Layoffs rampant at Sears headquarters
By Patrick Corcoran and Sandra Guy – Staff Reporters – Chicago Sun-Times
April 28, 2005

Sears Holdings Corp. employees are getting oversized white envelopes instead of pink slips, but the meaning is the same: layoffs.

A corporate spokesman refused to say how many workers are being laid off at Sears headquarters in Hoffman Estates this week. But four groups of up to 50 employees, many of whom were laid off on Monday and Tuesday, gathered Wednesday at exit seminars at the Chicago Marriott Northwest.

Employees said the meetings offered information ranging from job training opportunities to emergency child-care services. They also filled out unemployment forms.

According to a schedule provided to former Sears employees, six exit seminars took place Monday and Tuesday, and eight additional seminars are scheduled for Thursday and Friday.

Linda Grigg, who worked in contract sales for the last nine years, said employees expressed a range of reactions following the layoffs. Some people are happy because they don't want to go through all the changes that Kmart's $12.3 billion takeover of Sears will create, while some are upset, she said.

The company has not disclosed details about the financial package given to employees. Grigg said she received 10 weeks' severance pay upon receipt of her termination notice, which she said she believed was fair.

She intends to take advantage of the job training Sears has offered.

"I'm discouraged a little bit right now, but at the same time I know there are opportunities out there," Grigg said.

Michael Riley, a nine-year employee in Sears' marketing department, said his co-workers are anticipating additional layoffs.

"You're going to see many more people coming here over the next few days. Morale is low right now. Some people are panicked. What are you going to do? It's cost-savings," he said.

Sources say the layoffs could total anywhere from 500 to 2,000.

Amid the job cuts, Sears still must contend with the after-effects of its move from Chicago to Hoffman Estates 10 years ago.

The Legislature and the village of Hoffman Estates granted Sears Roebuck and Co. tax relief 15 years ago to keep the retailer from leaving the state.

Sears sits in an economic development area similar to a tax increment financing district, in which property-tax money is diverted to redeveloping the business district. The designation expires in eight years.

Hoffman Estates granted Sears a $79 million economic development bond based upon business growth in the Prairie Stone Business Park, a 786-acre campus where Sears' headquarters occupies 200 acres.

Sears has consistently paid the village $10 million to $12 million a year under terms of the bond because development in the business park has been slower than expected.

About 300 acres, or nearly 40 percent of the business park, remain vacant.

Sears must sell more land in the business park for development in order to reduce or eliminate its yearly payments.

"Sears is pushing to get that increment [of development] up," said Mark Koplin, Hoffman Estates' economic development area project manager. The latest development is a proposed office and distribution center for Mary Kay Cosmetics, scheduled to start construction in May.

Meanwhile, Sears retirees and the workers who remain at Sears headquarters fear their benefits will be cut, even as top executives reap millions by cashing in their stock options and selling their stock. Sears CEO Alan Lacy realized $27 million from the sale of his stock options, for example.

"Everyone is obviously on edge, trying to figure out what's going to happen and what it will look like," one employee said.

Patrick Corcoran is a reporter for Pioneer Press.

As layoffs wash over Sears, emotions run high
Retailer's tightly knit culture a thing of past as hundreds lose jobs
By Becky Yerak, Tribune staff reporter.
Carolyn Rusin and Tribune staff reporter Mike Hughlett contributed to this report
Chicago Tribune
April 28, 2005

They have been coming to the Chicago Marriott Northwest in waves this week from their cubicles a mile down the road in Hoffman Estates.

Some drive cars, others arrive in a shuttle bus. Some are angry, others relieved. They all have one thing in common: They leave the hotel with a pink slip.

More than 500 workers--and perhaps 1,000 or more--are in the process of being told by Sears Holdings Corp. that their services are no longer needed.

The mass layoff at the Hoffman Estates headquarters this week, where about 4,000 people worked as the week got under way, were not unexpected after the March merger of Sears, Roebuck and Co. and Kmart Holding Corp. formed Sears Holdings.

But to a company known for its tightly knit culture and top-shelf benefits that kept workers loyal to it for years, this cutback is a stark reminder that Sears' new owners don't much care about the past.

The culture going forward at Sears will be "cutthroat," said one administrative assistant who lost her job. Leaving the Marriott, she also noted that Wednesday was Administrative Professionals Day.

Among the biggest complaints from fired workers this week: Severance checks that are less generous than ones in prior layoffs.

To industry analysts, the culture shift is not surprising: It's a sign of the pressure Sears and Kmart stores now face against the likes of Wal-Mart and other competitors.

Besides trying to fashion a leaner corporate structure, the company is trying to become more relevant by expanding away from shopping malls, putting its famed Kenmore and Craftsman brands in Kmart stores and determining which assets to sell.

While the swift changes are designed to lure more shoppers and boost profits, the job cuts at a company founded 119 years ago as R.W. Sears Watch Co. is a painful reminder that in today's always-low-prices retail environment, every penny counts.

Many employees said they were first notified by an early morning e-mail that they needed to meet with a Sears manager. It was followed by a phone call immediately before the meeting to provide the location, some workers said. It was in those private meetings that workers were told they were no longer a Sears employee.

"We were met by a slew of smiling people where they gave us a packet and presented us with information pertaining to our exit," said one former information technology worker. "It was kind of eerie," he said of the cheerfulness.

Finally, workers were directed to the Marriott, where they were counseled by outplacement-services firm Lee Hecht Harrison and officials from the state's unemployment office.

"You go through a range of emotions. I'm a little apathetic at this time," said the worker, who has a mortgage, two teenagers and a wife on unemployment. He received 10 weeks of severance pay, but "if I don't secure a position in the next seven months, there could be issues."

About 200 to 300 workers from the IT department were let go this week, according to another worker in that group.

Sears officials would not disclose how many workers, and from what departments, they are letting go this week.

"They said because of the merger your job has been eliminated," said an administrative assistant in the IT department who asked that her name not be used.

Ex-colleagues gather

A Sears veteran for eight years, she was among about 40 former workers who gathered Wednesday afternoon at the nearby Penny Road Pub in unincorporated Cook County.

There was a general sense of relief and an upbeat mood among the workers in the pub that the anticipation over losing their jobs was over.

Several expressed anger about the severance packages and toward new management, including Sears Holdings Chairman Edward Lampert, the financier who bought Kmart out of bankruptcy court nearly two years ago. Lampert watched the stock of the discount chain surge as he nursed the retailer back to financial health.

"We're losing money," said Rose Bertini, 37, of Elgin who worked as a communications specialist. "I don't mind them laying me off, but to not pay me what they said they were going to pay me, I don't understand."

"Severance packages were cut compared to what was handed out for previous mass layoffs," said an administrative assistant sitting with 15 former co-workers from the IT department. "Eddie Lampert is a money mogul, and I think it's pretty cheap on his part. He always said he's not out to make money on this, but we see better."

Though unhappy about her severance, Bertini remained positive Wednesday.

"I knew I would no longer have a job because of my position. It was an orphan position," said the Elgin resident. "But they hired a company to help us create resumes, update resumes, find a job. For me, I can get that help for up to three months."

A former administrative assistant leaving the Marriott on Wednesday morning echoed the general unhappiness about the severance packages.

"I found it interesting that they let management people who were here less than a year have four months' severance, and associates here for four or five or six or seven years got 10 weeks," said the 5-year Sears veteran.

Sears did not disclose its severance terms publicly.

Pay, benefits may face cuts

As for workers remaining at Sears, they could see reduced levels of compensation and benefits.

Indeed, Sears Holdings Chief Executive Alan Lacy said during an early March meeting with Sears workers that compensation and benefits might be reduced to levels more in line with what the lower-cost Kmart offers.

"Generally speaking the Kmart benefit structure is lower than the Sears structure," Lacy said. But "we've not made these decisions yet."

To some, the news they were being cut was a relief after weeks of speculation.

"The minute I heard this morning, it was like a huge brick off my shoulders. The tension in the last month has been unbelievable," said one worker. "I feel sorry for the ones that will remain because they will work them to death."

Jeremy Dedic, manager of online promotions for Sears.com, said he was told at 8:05 a.m. Wednesday that his job had been outsourced to an advertising agency. He had worked for Sears for three years, including the last 16 months as a salaried employee.

"I was informed by my director that due to the merger they had to do a lot of realignment and merge the talent of the Kmart and Sears teams," the Chicago resident said.

After meeting with his director, Dedic said, "I had plenty of time to take care of business in the office, and I wanted to take advantage of coming over here" to the Marriott for the outplacement seminar on skills assessment, interviewing techniques and resume writing.

"I feel fine," Dedic said. "If I were in my directors' shoes, I probably would have had to make the same business decisions, so no grudges. It's a fact of business."

Sears' plans to lay off at least 500 people were disclosed in a filing with federal, state and local officials. If Sears opts to lay off more people, it would file an amended layoff notice with the state, revealing how many more jobs will be cut, a spokesman for the state said Wednesday.

"I would be surprised if it's 1,000. That would be upsetting," Hoffman Estates Mayor William McLeod said Wednesday, concerned about the drop-off in workers and customers visiting local businesses. "Companies restructure to make the company stronger, but individuals suffer from that."

Sears is Hoffman Estates' largest private employer, followed by SBC, said McLeod. The city also is hopeful that workers moving from Kmart's Troy, Mich., headquarters will help offset at least some of the cuts at Sears' home office.

A tax-increment-financing deal requires Sears Holdings to stay there until 2013, he said.

The economic impact of the Sears job cuts is minimal in a labor market as big as Chicago's, said Paul O'Connor, executive director of World Business Chicago, a public-private organization that leads city efforts to attract and retain big companies.

Such a layoff is an emotional issue in the short term and hurtful to Sears workers getting pink slips, he said. But laid-off workers are entering a relatively decent job market.

"The skill sets [of the workers] out in Hoffman Estates are in strong demand," O'Connor said.

Sears Canada Sees Benefits From Sears/Kmart Merger
By Andy Georgiades – Dow Jones Newswires – Wall Street Journal Online
April 27, 2005

TORONTO -- Sears Canada Inc. (SCC.T) also stands to benefit from the creation of Sears Holdings Corp. (SHLD), the result of last month's merger between department store operators Sears Roebuck and Kmart.

Sears Holdings owns about 54% of Sears Canada.

Speaking at Sears Canada's annual meeting Wednesday, its president and chief executive, Brent Hollister, said the mega-retailer's increased buying power will help the Canadian subsidiary and its customers.

"There's lots of upside to merchandising procurement," Hollister told the meeting.

Speculation that Sears Holdings will make an offer to buy the minority stake in Sears Canada has heated up in the last few months, boosting Sears Canada's share price as high as C$23.89 on April 6. In Toronto Wednesday, Sears Canada is trading at C$20.76.

Hollister told reporters after the meeting that the same options for Sears Holdings remain with respect to Sears Canada - buy all of Sears Canada, sell its majority stake in Sears Canada, or do nothing. While he doesn't know what the future holds, he said Sears Canada has a great relationship with its parent.

Hollister was more keen on talking about the deal the company announced with Amazon.com Inc.'s (AMZN) services division to re-create the company's online channel, Sears.ca. Amazon will design a site, expected to be launched in the summer of 2006, that's easier to navigate and offers a more personalized shopping experience for which Amazon is known.

But Hollister revealed that the relationship could turn into much more than that, as the two have also discussed various opportunities related to cross-merchandising and fulfillment.

During his presentation, he said the company has a solid strategy for growth that focuses on three components.

The first is merchandising, which refers to its so-called destination businesses (apparel, cosmetics and fragrances, bed and bath, home furnishings and major appliances), productivity and profitability improvements, and its value program.

Second is its retail channel, where it's concentrating on improving mall-based stores and rolling out its new free-standing department-store prototype, the first of which opened in March. Indeed, Hollister said he's a believer in the single-floor design, and will open more where real estate permits.

Third, Sears Canada is always looking at new initiatives, and the acquistion of Cantrex, which will close April 30, and the Amazon partnership, are the most recent examples.

"The strategic plan will provide the enterprise with a growth agenda that focuses on continuous profit improvement," Hollister said during his presentation.

Although the weather didn't co-operate in the first quarter - Sears Canada reported disappointing earnings last week - he told reporters that the weather hasn't been a negative factor so far in April.

Sears Layoffs Continue in Hoffman Estates
By Mike Comerford and Joseph Ryan - Daily Herald Staff Writers
Daily Herald – Suburban Chicago
April 27, 2005

Layoffs and layoff concerns at Sears Holding Co.’s Hoffman Estates headquarters intensified this week and could continue through July.

Sears, which is merging with Kmart Holding Co., told local and state officials earlier this month that more than 500 workers will be victims of a “mass layoff.”

A spokesman for Sears said most of the layoffs will be completed by week’s end but declined to comment on the layoff total. A letter obtained by the Daily Herald notified village officials in March that layoffs could continue through July 1.

Meanwhile, employees this week are filing into offices at the Sears headquarters to hear the bad news. Most of the job cuts, the retailer has said, will be made at the sprawling headquarters campus rather than the store level as Sears merges with Troy, Mich.-based Kmart Holdings Inc. Those leaving will get severance pay.

“It’s part of our plan to better compete at a level of our best-of-class competition,” said Chris Brathwaite, Sears spokesman. He declined to say how many workers are being replaced by Michigan employees on the 4,000-worker Hoffman Estates site.

Kmart last year announced a $13.2 billion takeover deal for Sears. From the outset, analysts predicted deep cuts at the merged headquarters.

Sears notified the village of Hoffman Estates on March 24 of the imminent job cuts. As a result, Village President Bill McLeod has been expecting the move. “Unfortunately, as with any sort of change like this, it may make the company stronger in the long run, but individual families have to suffer,” McLeod said Tuesday.

A Sears employee on Tuesday said short meetings with employees in various departments have been scheduled through the end of the week.

Hoffman Estates village attorney Richard Williams said the layoffs will not trigger penalties agreed to when Sears received tax breaks and other benefits to locate in the village.

However, last year Sears paid $10.8 million to the village because development in the Prairie Stone Business Park has been less than expected.

Sears Merger-related Layoffs Under Way
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 27, 2005

Sears Holdings Corp. has started laying off workers in waves at its headquarters in northwest suburban Hoffman Estates in the cost-slashing aftermath of Sears' takeover by Kmart.

The layoffs have mushroomed this week because department managers and administrative assistants are being let go, according to a former Sears employee who asked not to be identified.

Employees are reportedly required to say nothing about their severance benefits.

A Sears spokesman has refused for weeks to say how many workers are being let go, but sources say total layoffs could range from 500 to 2,000. Sears employs 4,000 at its headquarters.

The former employee said Tuesday that departments that provide support functions are being cut more deeply than those that are directly involved in store operations.

Sears' Chairman and hedge fund guru Edward S. Lampert told reporters after Kmart's $12.3 billion takeover of Sears on March 24 that the biggest head-count cuts would come from combining the headquarters staffs of Sears and Kmart.

Kmart's headquarters building is in Troy, Mich., a suburb of Detroit.

The newly combined company, Sears Holdings Corp., will maintain its headquarters in Hoffman Estates, with an unknown number of Kmart employees moving here from Michigan. The transition has already started. The Detroit media have reported that as many as half of Kmart's 1,899 employees at the Troy, Mich., headquarters could be let go.

Among the hardest hit departments are duplicate ones such as law, human resources, public relations and information technology.

James Norris, the Hoffman Estates village manager, said the village is concerned about residents who may lose their jobs.

"It's our understanding that jobs will be brought here from Michigan, and that the Sears headquarters [in Hoffman Estates] will be staffed as fully as it needs to be to operate the business," he said.

Sears started laying off its top executives at the end of March. At least 10 of them have left.

One week later, selected vice presidents of departments were let go; and the following week, directors were told their fates. The layoffs are to be finalized this week.

Sears Headquarters Feels Chill of Layoffs
By Becky Yerak - staff reporter – Chicago Tribune
Carolyn Rusin contributed to this report
April 27, 2005

Sears Holdings Corp. has started a major wave of layoffs at its Hoffman Estates headquarters in the wake of last month's merger with Kmart Holding Corp.

The job cuts mark the turning point of what will ultimately be a leaner, lower-cost corporate structure at Sears, which has been accused of having a mind-numbing bureaucracy.

Sears, which has about 4,000 employees at its Hoffman Estates headquarters, is directing workers who are losing their jobs to a suburban hotel to receive outplacement services. That journey is expected to continue the rest of this week.

Departures of about a dozen high-level executives occurred a few weeks ago, and the cuts have been winding their way down to the lower levels of the company.

"We are offering severance packages and outplacement to headquarters associates," Sears spokesman Chris Brathwaite said Tuesday.

He declined to be more specific on the number of jobs being cut. Sears has informed local, state and federal officials that at least 500 workers--the minimum threshold for alerting the federal government--will be let go as part of a "mass layoff."

But one former Sears executive has said that he hears cuts range from several hundred to more than 1,000. Rumored numbers exceed that figure but fluctuate wildly almost from hour to hour.

"Things are pretty tense at headquarters," said another former Sears executive with friends still there.

At a local watering hole Tuesday night, two Sears employees wondered about their immediate futures. They were told that the layoffs would hit their department on Wednesday.

"What happens, we don't know," said one worker, who has been with Sears for five years. He declined to give his name or department.

"I know people (were laid off)," said the other worker, who has spent 20 years at Sears. "The thought that you could work for a company for a large number of years and not be able to retire with them is disappointing, is regrettable and really a microcosm of what corporate America has become today."

Sears, the nation's third-biggest retailer, wants to achieve $300 million in savings by gaining purchasing clout and cutting expenses, including jobs.

On the day that the merger was consummated, company officials said they aspired to create a corporate culture similar to that of Internet pioneers Yahoo Inc. and Amazon.com.

One government employee at Hoffman Estates who preferred not to be named said they're not sure whether the job cuts will exceed 500.

The number, however, could be revised later. As of Tuesday, the notice was still at 500.

Sears stores are not affected by the job cuts.

GlobalNetXchange Moving Headquarters to Chicago
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 27, 2005

The merger of two online marketplaces for consumer-goods retailers and manufacturers will mean a new technology headquarters in Chicago.

One of the companies, GlobalNetXchange LLC, is moving its headquarters to Chicago from San Francisco.

GlobalNetXchange employs 120, but only a handful of the workers in California are expected to move into the new offices at 200 W. Monroe in the Loop, according to an insider who asked not to be named. GlobalNetXchange got its start five years ago with the backing of Sears Roebuck and Co. and French retail group Carrefour.

GlobalNetXchange announced Tuesday that it intends to merge with a rival, WorldWide Retail Exchange LLC, to create a big enough online marketplace to compete against retailers such as Wal-Mart that tightly control their inventory. The newly merged company will be backed by some of the world's largest retailers, including locally based Sears Holdings and Walgreen Co., and the parent companies of Jewel and Dominick's grocery stores.

The online exchanges connect manufacturers, suppliers and retailers of virtually every product that's consumed or worn. The participating companies include textile manufacturers and key players in the food, beverage and packaged goods industries.

The exchanges' goal is to eliminate much of the excess inventories that companies carry, to cut costs by helping companies find cheaper goods to buy, and to enable everyone's computer systems to communicate using the same language.

Worldwide Retail Exchange, with 125 employees, will keep its offices in Alexandria, Va., a spokeswoman said.

The CEO of the combined companies is Joe Laughlin, CEO of GNX and a former senior vice president of corporate finance and business development at Sears Roebuck and Co. The new chairman is Christopher Sellers, CEO of Worldwide Retail Exchange.

The merged company has yet to be given a name.

The deal leaves Transora, an online exchange founded in Chicago, the lone exchange out. Transora, formerly an online marketplace, had previously sought to merge with Worldwide Retail Exchange in the past, and had once worked with GNX.

Now, Transora focuses solely on helping companies synchronize their data. The newly merged exchange will compete with Transora in that niche.

Kmart Staff to Learn Fate this Week
By Tenisha Mercer – Detroit News
April 27, 2005

Troy workers will find out if they get to keep their jobs after merger with Sears.

After months of anxious waiting, the 2,000 employees at Kmart's executive offices in Troy will find out this week if they will keep their jobs as Sears Holdings Corp. begins consolidating its corporate work force at offices in Michigan and Illinois.

"This particular activity is aimed at creating a new organizational structure," said Chris Brathwaite, a spokesman for Sears Holdings, based in Hoffman Estates, Ill., near Chicago. "Stores will not be affected."

Brathwaite would not say how many jobs will be affected or how.

Retail analysts expect Sears Holdings to eventually eliminate 4,000 to 5,000 corporate and retail jobs -- including more than 2,500 at Kmart -- through the summer.

Kmart is only expected to retain a few hundred jobs in Troy after it consolidates its headquarters. "What two people were doing, one person can do now," said Kenneth Dalto, a Farmington Hills turnaround expert.

Sears Holdings, the nation's third largest retailer, was created when Kmart Holding Corp. bought Sears, Roebuck & Co. in a $12.3 billion deal. The merger was announced in November and completed last month.

Sears Brands Give Kmart a Makeover
By Becky Yerak - staff reporter - Chicago Tribune
April 26, 2005

A Kmart in Norridge is one of the first stores to benefit from the corporate marriage with Sears

In the first tangible sign that Sears, Roebuck and Co. and Kmart Holding Corp. have become a corporate twosome, a Kmart store in suburban Norridge is among the first in the nation to carry Kenmore appliances and Craftsman tools.

It's also among the first nine Kmart locations to receive an extreme makeover that includes a new color scheme, faux-wood tile flooring, a Coffee Beanery stand and an enlarged grocery selection.

The addition of exclusive Sears products to a Kmart store comes less than a month after the retailers' $12.3 billion merger was completed, suggesting that Sears Holdings Corp. Chairman Edward Lampert is wasting no time in trying to wring more sales from stores.

When the deal was announced in November, Lampert said Sears' stores generate $80 more in sales per square foot than Kmart's 1,429 stores. By removing what was once an eating area in the Norridge store, Kmart was able to make room for some of the big-ticket goods that have been Sears' bread and butter--seven aisles devoted to Craftsman and nine aisles devoted to major appliances, including Kenmore.

Since reopening April 17, customers have been buying the pricier merchandise, including $399 Craftsman Pressure Washers and a $1,000 two-door Kenmore refrigerator.

"I think the first day we sold a refrigerator and we were all like, `Wow,'" said Melissa Schilling, a district coach for Kmart.

At least one retail consultant thinks the brand integration is a good idea. Kmart stores are profitable, but they've been losing market share to other discount chains such as Wal-Mart Stores Inc. and Target Corp.

"All they're looking for is a competitive edge," said Gary Ruffing, of consulting firm BBK Ltd. and a former Kmart vice president. "Anybody can compete with Black and Decker, but nobody else has Craftsman. The more they can do to differentiate themselves from Wal-Mart, the better off they'll be. The way to do it is with brands."

Another link to Sears is through a computer kiosk that connects to the Sears.com Web site. There shoppers can browse items from Sears and purchase them online. But kinks still need to be worked out: One of the two computers linked to Sears.com was having technical difficulties on Thursday.

Upon entering the store, the shopper now sees an inlaid "K" in the tile.

Service desk relocated

The customer service desk has been moved to the side of the store. That serves two purposes: It enables shoppers to better view merchandise when they enter the store and it keeps those shoppers taking care of business at the customer service desk away from the elements as the doors slide open.

Also, Kmart's signature red is taking a back seat in the stores to green columns, orange signage and yellow, which is used for accents and backdrops to better draw shoppers' eyes to merchandise.

"We worked with a color firm to determine what colors draw people's eyes," said Kmart spokesman Stephen Pagnani.

Following in the footsteps of such other retailers as Federated Department Stores Inc. and May Department Stores Co., Kmart also has de-cluttered its clothing department.

"If you've got a cart with a child, you can get in there," he said. "You don't need to leave the child."

He didn't have a figure on what percentage of the selling floor has been removed to improve the shopping experience. Shelves and displays have been lowered to give customers a better view of the store. Mannequins, which Kmart historically has eschewed, will be added eventually.

Where it sells baby furniture, Kmart has added faux wood flooring to give the appearance of a real room.

Kmart, which about a decade ago beefed up its grocery offerings, has also expanded the size of the pantry by an undisclosed amount in the remodeled stores. New products include Polish and other ethnic foods.

And "we added Perrier," said store coach Vern Miller, whose title was formerly store manager.

Kmart already sold food

Pantries, as well as pharmacies, are two areas in which Kmart has more expertise than Sears.

But through Sears, Kmart has begun selling major appliances, including the new $3,000 Kenmore washer and drier sets in Sedona orange, Pacific blue and champagne. It also has a home-improvement service kiosk where people can order custom windows, siding, countertops and cabinets from Sears.

The merger with Sears also marks Kmart's re-entry into the lawnmower business. "We got out of lawnmowers a few years ago, so this gave us a good opportunity to jump back in," Pagnani said.

"It's amazing how many more men you see with their wives," district manager Schilling said. "Now they have a place to hang out."

The workers staffing the appliance department are Kmart employees, who are hourly.

"We have a test program going on now" to study compensation, Schilling said. "We're debating on whether we should go to what Sears does, or what's the best mix."

Sears has a compensation system that includes commissions for its appliance salespeople.

"Those are things we'll be looking at as we go forward," Pagnani added.

Fast Eddie Roughs Up Sears' Staff
By Patricia Sellers - Fortune Magazine – Office Politics
May 2, 2005 edition

Sears’ new boss, Eddie Lampert, is squeezing suppliers, slashing spending, and cutting heads.

When billionaire investor Eddie Lampert forged his deal to merge floundering Sears with Kmart last fall, he tossed Alan Lacy a lifeline. As Sears’ CEO, Lacy was so ineffective that many people were amazed he survived as long as he did. Now the $12.3 billion merger is complete, and Lacy is CEO of Sears Holdings. Already his lifeline looks more like a noose.

For one thing, it is Lampert, not Lacy, who is calling the shots. The hard-nosed hedge fund manager is digging deep into Sears, as he did at Kmart—squeezing suppliers, slashing spending, and cutting heads. How many, Lampert has not said. (He declined to talk to FORTUNE for this story.) But sources close to the company say he aims to cut 40% of the 5,000 employees at Sears’ headquarters near Chicago, and he’ll likely close Kmart’s headquarters in Michigan. Lampert, 42, likes to ask senior executives, "Are you on the team?!" So far, ten of Sears’ former top brass are not. Lampert has been replacing them with people from the Sears and Kmart benches. Or his own loyalists: Sears Holdings’ CFO is Bill Crowley, Lampert’s No. 2 at ESL Investments. Officially Crowley reports to Lacy at Sears, but given the relationship (Crowley and Lampert work together out of Connecticut), he’s really reporting on Lacy as well as to him.

Meanwhile, judging Lacy in the boardroom is Sears director Julian Day, his former archrival. Five years ago Lacy and Day were executives at Sears, competing for the CEO job. After Lacy—who is said to loathe Day—won the contest, he unceremoniously pushed Day out. Day moved to Kmart as CEO and scored big. He brought Kmart out of bankruptcy in 2003 and stepped down as chief last October but remained on the board. Now Day is one of seven former Kmart directors on Sears Holdings’ ten-member board. How tough he’ll be in challenging Lacy, no one knows. But Day is Lacy’s looming threat. One executive who knows Day says the setup is "Julian’s sweet revenge."

While his enemy is at his back, Lacy, 51, has been marginalized. Lampert has put Aylwin Lewis, Day’s successor at Kmart and now Sears Holdings’ president, in charge of the $43 billion main business—Sears and Kmart stores, plus new the Sears Grand and Sears Essentials (renovated Kmart outlets that sell both stores’ goods). Lacy oversees $12 billion in sideline operations such as Lands’ End, Orchard Supply, and Sears Canada. Given that Lacy, a onetime CFO of Sears and Philip Morris, is generally better at pruning than growing businesses, he could work himself out of a job. Although he just signed a five-year contract, most people predict he’ll be gone by next year. (Lacy declined to comment.)

Retail experts say Sears Holdings needs a merchant at the helm—rather than finance pros and a fast-food veteran. (Lewis was previously COO of Yum Brands.) One possible candidate: Vanessa Castagna, the well-regarded former No. 2 at J.C. Penney. Penney’s board last year passed her over for the CEO job, contending that she lacked enough financial expertise. In April she joined Cerberus, a hedge fund with big interests in retail, and she aims to fill out her résumé so she can run a major retailer. So far Lampert has shown no interest in recruiting Castagna or other retail hotshots, but he may need to load up on that kind of talent sooner than he thinks.

Sears Workers Soon Will Learn About Jobs
By Becky Yerak - staff reporter – Chicago Tribune
April 25, 2005

Many of the 4,200 workers at Sears Holdings Corp. headquarters in Hoffman Estates will learn this week whether they will have a future with the nation's third-biggest retailer. Hundreds, and possibly as many as 1,000, could be sent packing.

Formed by the merger of Sears, Roebuck and Co. and Kmart Holding Corp., the $55 billion company said only days after the deal's March 24 consummation that job cuts would likely be announced by the end of April.

In early April, Sears Holdings notified federal, state and local governments that 500 workers would lose their jobs as part of a "mass layoff" at the Hoffman Estates headquarters. The number reported to the state is supposed to be an accurate number of planned layoffs, but it can be adjusted by the company. As of Friday the notice was still at 500.

Under a 2004 Illinois law, employers with at least 75 workers must give 60 days' notice of pending plant closings or mass layoffs. That includes job cuts at a single site, typically during a 30-day period, of at least 250 employees. Federal law requires companies to report when 500 or more workers are affected.

Sears has declined to comment beyond the filing about how many workers will ultimately be cut from the payroll, but some expect the cuts to reach well beyond 500.

"There's still a lot of noise around the numbers," said one former executive who still has friends at Sears. "The people I talk to say hundreds and maybe it'll even get into 1,000" or more. Another former Sears executive predicts that cuts could reach as high as 800.

The layoffs began March 24 and are expected to continue until July 1, Sears said in a March 24 letter to Hoffman Estates Mayor William McLeod. Nearly a dozen high-level executives have already left.

The day of the merger, Sears Holdings Chairman Edward Lampert--the former Kmart chairman who engineered the deal--suggested that there was much fat to be cut at Sears Roebuck. "If Kmart has 10 people buying ladies' clothes and Sears has 60 people buying ladies' clothes, we can do better than 60," he said.

Wal-Mart Target of U.S. Probe
By Becky Yerak and Stephen Franklin - staff reporters – Chicago Tribune
April 23, 2005
Grand jury looks at allegations of anti-union activity

Wal-Mart Stores Inc., which has been on a mission to rehabilitate its public image, suffered a setback Friday when it confirmed it is the subject of a federal grand jury investigation.

The probe involves accusations that the former vice chairman at the world's biggest retailer misspent up to $500,000, some of it allegedly for widely criticized anti-union activity.

"We're aware that there's an investigation," Wal-Mart spokesman Marty Heires confirmed Friday. "We're cooperating." He wouldn't say whether any Wal-Mart workers or documents had been subpoenaed.

Wal-Mart stock on Friday fell 2 percent, or 97 cents, to $46.81, nearly its lowest close in two years.

On March 25, former Vice Chairman Tom Coughlin resigned from Wal-Mart's board amid an internal investigation over personal reimbursements, payment of third-party invoices and the use of company gift cards.

Wal-Mart referred the matter to a U.S. attorney's office in Arkansas. The resulting investigation by federal prosecutors is the latest blemish to show up on the $285 billion discount chain.

Wal-Mart faces slower sales growth and a stock price that has been under pressure. Besides being taken to task for being anti-union, Wal-Mart has been criticized for putting small mom-and-pop shops out of business, providing meager health benefits to employees and receiving government subsidies for infrastructure improvements near its stores.

In January, the company bought full-page color advertisements in more than 100 U.S. newspapers, including the Chicago Tribune, to address criticisms about its wages and benefits, and to cast itself as a career option for the upwardly mobile. Yet the criticism is taking its toll.

Starting earlier this year, investment firm Prudential Equity Group has surveyed consumers who have shopped at Wal-Mart during the past year, and found that 8 percent of respondents expressed negative sentiments regarding Wal-Mart's reputation as a corporate citizen, including its treatment of workers.

"While we expected some negative feedback regarding corporate policy, this figure was a little higher than we anticipated," analyst Wayne Hood said in an April 12 report.

At least one retail analyst was nonplussed by the grand jury investigation.

"I'm not concerned about it. Operationally, the company is doing pretty well. Sales have been trending a little better over the past three months compared to the prior six months," said Richard Hastings, head of SpendingSpending.com, a consulting firm. "I'm not concerned about the spillover of negative publicity. The many negative PR events that we're used to seeing won't be a factor in 18 months."

Wal-Mart assured investors last month that the Coughlin matter will have "no adverse financial impact" on the firm.

The company also has denied that any of the alleged improper spending was related to anti-union activities.

Still, the United Food and Commercial Workers Union, which has been waging a long, costly battle against Wal-Mart, said in a statement Friday that it's pleased that the "legal process" against the company is "going forward." It also urged the company to release all related documents.

"Clearly, the American people deserve to know how deep Wal-Mart's anti-union rabbit hole goes," the union said.

Prompted by news accounts earlier this month detailing Coughlin's alleged payoffs to union members willing to tattle on pro-union Wal-Mart workers, UFCW officials said they want to see Wal-Mart's documents to further their own investigation.

The UFCW has led organized labor's effort to sign up members at the global giant, but so far it has not organized even one of the company's U.S. stores.

Wal-Mart has made moves that some believe were aimed at countering union activities. Soon after 11 butchers in Texas five years ago voted to join the UFCW, for example, Wal-Mart said it was shifting to pre-packaged meat and no longer needed meatcutters.

Similarly, the company said earlier this year that it would close a store in Quebec after workers there voted in favor of the UFCW. The company explained that the store was unprofitable.

But the union has maintained organizing efforts at a handful of Wal-Marts in Canada, where unions claim labor laws give them more of a chance at signing up members than in the U.S.

In the U.S., the union recently put its store-by-store organizing drive "on hold" and shifted to a massive publicity campaign, said Paul Blank, a UFCW official in Washington, D.C. "You can't get enough leverage, and they are too ruthless to be organized store by store."

Last month, Wal-Mart invited about 100 reporters to its headquarters in Bentonville, Ark. for a two-day conference to hear about everything from its financial performance to its hiring practices. About 50 reporters attended.

"I find it interesting that the UFCW didn't really care much about pay and working conditions at Wal-Mart until we began opening grocery stores in the 1980s, directly threatening their turf," said Wal-Mart Chief Executive Lee Scott.

Sears Partners with Latina Magazine
to Sell New, Broader Fashion Line
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 20, 2005

Sears is dropping its much-publicized Lucy Pereda line of Latina apparel and introducing a more varied lifestyle brand in partnership with Latina magazine.

"Lucy [Pereda] had a limited appeal. It was barer, more sexy, more clubby-type looks," said Gwen Manto, Sears executive vice president and general merchandise manager of clothing, shoes and accessories.

"Its sales results were not great," Manto said.

The new apparel line, called Latina Life, will show up in 425 Sears stores in August. It will include clothes for casual, career and evening occasions in prices ranging from $36 to $79.

"If you want great jeans, you can also find a career jacket, or a sexy top for the evening," Manto said, describing the apparel as "very body-conscious with a lot of detail and print" but not "cha-cha-cha."

The market is critical for Sears because 25 percent of its shoppers are Latino.

Sears' research showed that its Latina women shop as a family, so the Latina Life brand will be Sears' first to offer sizes 2 through 20. Other brands feature separate "plus" or "petite" sizes.

In Sears' 150 top-selling stores, Latina Life will be part of a redesigned apparel department reflecting Sears' focus on three lifestyle groups -- Update, Relaxed and Classic.

Latina Life will be made by Jones Apparel Group, whose subsidiary designs the Anne Klein brand, under the direction of the bilingual Latina magazine. Sears will pay Latina magazine an undisclosed licensing fee.

"We're celebrating more exclusive, more differentiated styles," including fashions by well-known design companies Max Azria and Liz Claiborne, Manto said.

New Anti-Wal-Mart Group Launches Ads
Associated Press – Forbes.com
April 20, 2005

A newly formed, union-backed anti-Wal-Mart group, which draws support from environmentalists, political activists, and women's rights groups, launched its first media campaign Wednesday to call for the world's largest retailer to reform its business practices.

In its campaign called Wal-Mart Watch, Five Stones, formed in December 2004 along with its larger umbrella The Center for Community and Corporate Ethics, took out an ad in Wednesday's New York Times. The ad accuses Wal-Mart Stores Inc. of low pay and meager employee benefits that force their workers to rely on Medicaid, food stamps, and federal housing to survive.

Wal-Mart accused the group of engaging in a partisan attack, and questioned the group's information.

Andrew Grossman, Wal-Mart Watch director, who is also the president of Service Employees International Union, said it wants "to provoke a national debate." He hopes the group will help improve Wal-Mart as a neighbor, employer and corporate citizen.

The moves follow stepped-up campaigns against Wal-Mart by the United Food and Commercial Workers International Union, which is trying to organize workers at the discounter. Earlier this month, the UFCW announced it was funding a new Web site called wakeupwalmart.com, a grass roots movement to rally Americans to change practices at Wal-Mart, which has been criticized for taking advantage of its employees and hampering competition.

Unlike other anti-Wal-Mart groups, the Center for Community and Corporate Ethics, based in Washington,D.C., encompasses a wide network of members on its board including the Sierra Club, National Partnership for Women & Families and Common Cause. The non-profit group plans to distribute Wal-Mart-related data and draw on hundreds of other anti-Wal-Mart organizations through its Web site called walmartwatch.com and offline efforts.

"This is just one more example of labor unions playing fast and loose with the facts in an attempt to discredit Wal-Mart," Wal-Mart spokeswoman Mona Williams said. "We don't know where they got these numbers. And most sources they cite are from dubious studies they commissioned."

Wal-Mart Watch claims in the New York Times ad that Wal-Mart's pay and benefits structure costs taxpayers $1.5 billion per year in government assistance that some of its 1.2 million domestic workers receive.

As part of its campaign, the group pledged to mail information to each state legislator in the nation and to local officials on "how they can pass laws to put the brakes on Wal-Mart and the Wal-Mart Tax once and for all."

Williams said the company was eager to work with "people with legitimate concerns about smart growth, the environment, health care and the like." She said backers of the anti-Wal-Mart group likely include people with legitimate concerns but the group comes across as "critics (who) are simply focused on their own self-interest and narrow political agendas."

"We just hope the sincere, open-minded people are smart enough not to be misled by the others," Williams said.

The Center for Community and Corporate Ethics started with initial funding from the Service Employees International Union, but now has diversified with individual and institutional donors, according to Tracy Sefl, a spokeswoman.

Sears Canada Could be Retail Comeback Kid if it Sticks to Game Plan: Expert
By Rita Trichur – Canadian Press
April 20, 2005

TORONTO (CP) - After disappointing profits, a threat of a credit-rating downgrade and a sharp rebuke over its advertising practices, Sears Canada Inc. may be down, but it is far from being knocked out of the retail game, says an industry expert. Ken Jones, director of Ryerson University's Centre for the Study of Commercial Activity, said the beleaguered department store operator could even loosen Wal-Mart's retail chokehold if it stays the course with its strategic plan - the execution of which will be scrutinized Thursday when Sears releases its first-quarter results.

"People say they are dying. Well, they are not dying in everything," Jones said, adding that Sears could mount a comeback by capitalizing on its competitive edge in children's wear, lingerie, cosmetics, furniture, bedding and linen.

And while it has shown weakness in electronics and hardware, Jones says Sears has plenty of fight left in it yet.

"Retail changes all the time. It is probably the one sector that changes most radically," Jones said. "They've tried to respond but it is slow and difficult."

Sears Canada runs 121 full-line department stores, 219 off-mall stores and 64 home improvement showrooms, plus catalogue merchandise pickup locations, Sears Travel offices and a national home maintenance, repair and installation network.

It is 54 per cent owned by Illinois-based Sears Holding Corp., formerly known as Sears, Roebuck and Co. before it merged with Kmart Holding Corp. last month.

Much like arch-rival Hudson's Bay Co., Sears Canada has seen its profits squeezed in recent years as bargain-hungry consumers migrated from aging shopping centres to new suburban big-box outlets, Internet retailers and trendy specialty stores.

To combat that decline, the company hired an outside consultant last year to map out a strategy, which could include downsizing. It has also begun experimenting with new off-mall formats, including its Sears Home, Appliances, and Mattresses stores.

"So they are starting to think of a 'Sears Village' and a smaller department store concept," Jones said.

Investors will learn Thursday if that game plan is panning out.

Analysts surveyed by Thomson One Analytics were on average expecting earnings of 12 cents per share, up from nine cents a year ago.

But some suggest the retailer's challenge runs deeper than just revamping its look.

"Sears has been struggling for several years. They've been opening up stores and yet people would not flock to these new stores, and sales have bee declining," said an industry analyst who spoke on condition of anonymity.

He suggested that wider offerings of financial services could offset sagging sales.

"The credit card business, in a booming economy, is not such a bad thing for Sears. (Its 2004) results would have been even worse without it."

Ex-Sears Credit-Card Chief, CEO Lacy Settle Out of Court
By Sandra Guy – Business Writer – Chicago Sum-Times
April 20, 2005

Kevin Keleghan, the ousted former leader of Sears' credit-card division, has reached an out-of-court settlement in his defamation lawsuit against Sears CEO Alan Lacy, Keleghan's attorney said Tuesday.

Keleghan had accused Lacy of defaming him when Lacy told analysts Keleghan was fired because he "was not being forthcoming" about problems at Sears' credit-card business. Lacy told Wall Street analysts at a meeting on Oct. 17, 2002 that he had lost confidence in Keleghan's credibility.

At that meeting, Lacy announced that Sears would increase its allowance for future uncollectible credit-card debts by $189 million, and would boost by $33 million its charge-offs for uncollectible accounts.

Keleghan had also alleged that Sears had failed to pay him severance benefits he was promised in an employment contract.

The suit was settled "to the parties' satisfaction," said Keleghan's attorney, Thomas G. DiCianni, partner with Chicago law firm Ancel, Glink, Diamond, Bush, DiCianni & Rolek. DiCianni declined to reveal terms of the settlement.

The case is expected to be dismissed at a status hearing today in Lake County Circuit Court.

A Sears spokesman declined comment Tuesday.

Sears sold its credit-card division to Citigroup for $3 billion in November 2003.

Sears Drops Lucy Pereda, Adds Line of Latina Life
By Becky Yerak - Tribune staff reporter – Chicago Tribune
April 20, 2005

Sears Holdings Corp. is saying adios to Lucy Pereda and hola to Latina Life.

The Hoffman Estates-based retailer has ended its relationship with the TV personality known as the "Hispanic Martha Stewart" after less than two years of selling her apparel in 227 Sears stores.

The Pereda line had "weak" results, said Gwen Manto, general manager for Sears' soft lines, which include clothing. "We're having our last deliveries of Lucy Pereda now," she said.

But Sears, whose retail Achilles' heel has been apparel, continues to try to lure Hispanic shoppers--which account for a quarter of the company's sales--with an exclusive line called Latina Life.

The line is part of a partnership with Latina magazine and consists of clothing, shoes and purses.

Cuban-born Pereda, whose line of clothing sizes 6 to 16 was launched in a quarter of Sears stores in fall 2003, couldn't be reached for comment.

Meanwhile, Latina Life separates, which come in sizes 2 to 20, will be designed by Jones Apparel Group under the magazine's fashion direction.

Jones also makes A/Line, a sportswear, outerwear, jewelry and purse line, exclusively for Sears.

Latina Life, priced from $36 to $79, will debut at 425 Sears stores this fall. Accessories, including jewelry, will be added in 2006. The line includes pink animal print faux fur jackets, rhinestone-embellished camisoles and sheer mesh tops with velvet piping.

"We expect Latina Life to appeal to a diverse population of fashionable women," Manto said.

J.C. Penney Says Off-The-Mall Stores Exceeding Plans
By James Covert – of Dow Jones Newswires
Wall Street Journal Online
April 20, 2005

NEW YORK -- J.C. Penney Co. (JCP) says that a new, off-the-mall store format it has been testing is showing better-than-expected results and that the idea may have more growth potential than the company previously thought.

"The concept works, and it's exceeding our plans," J.C. Penney Chairman and Chief Executive Myron Ullman said at the retailer's annual meeting with analysts Wednesday. The meeting was broadcast over the Internet.

"This gives us a lot of confidence about our decision to invest in this area," Ullman said.

The Plano, Texas, retailer said its fledgling chain of off-the-mall stores have achieved average sales per square foot of around $200. That's well ahead of the company's mall-based department stores, which average sales per square foot of around $150, said Michael Texter, executive vice president of stores.

Texter added that Penney believes the off-the-mall stores - which are far smaller than the mall-based department stores and which can occupy either one or two stories in a building - have the potential to generate an average of $250 in sales per square foot.

Accordingly, Penney believes that it can build more of the stores than it previously thought, with the ability to site them closer together, Texter said.

Penney said in late February that it expects to add 20 new department stores this year, with more than half of them under the new, off-the-mall format. The new stores are expected to increase the company's square footage by about 1%.

At the start of Penney's annual analyst meeting on Tuesday, CEO Ullman noted that Penney might find new real-estate locations as competitors in the mid-priced retail tier merge and consolidate. He mentioned in particular the Mervyn's chain, which was sold to a consortium last year by Target Corp. (TGT), as well as Sears Holding Corp. (SHLD), which was formed last month by the merger of Sears Roebuck & Co. and Kmart Holdings Corp.

Ullman also emphasized that Penney aims to steal customers from such mid-tier competitors by improving its stores and merchandise, and by better focusing its marketing efforts for middle-income customers.

Shares of J.C. Penney recently changed hands at $46.14, up 62 cents, or 1.4%, on volume of 2.4 million. Its average daily volume is 2.9 million shares.

Sears to Target Hispanic Women
Joint venture between Sears Holdings and Latina magazine publisher
Crain's Chicago Business,
April 19, 2005

(AP) ˜ Sears Holdings Corp. and Latina Media Ventures, the publisher of Latina magazine, Tuesday said they would create a new line of apparel, footwear and handbags designed for Hispanic women. The new line, called Latina Life apparel, is designed by Jones Apparel Group Inc. under the fashion direction of Latina magazine.

It will make its debut at 425 Sears stores this fall, Sears Holdings said. The brand will be extended to include costume jewelry and other accessories next spring. Sears Holdings, based in Hoffman Estates, Ill., said the Hispanic market is an important audience for retailers, representing more than 13 percent of the U.S. population. Sears Holdings, the nation's third-largest retailer, was formed by the acquisition of department store operator Sears, Roebuck & Co. by Kmart Holding Corp. in March. The companies continue to operate separately under their own names.

Alex M. Patino, Sears Architect, Dies at 81
Daily Herald: Suburban Chicago
April 16, 2005

Visitation for Alex Patino, 81, of Hoffman Estates and Schaumburg for 42 years, will be from 2 p.m. until the time of services at 8 p.m. Sunday, at Ahlgrim & Sons Funeral and Cremation Services, 330 W. Golf Road, Schaumburg.

Alex was born on May 17, 1923, in Mexico City. He passed away on Thursday, April 14, 2005, in Elk Grove Village. Alex attended Lane Tech High School and the University of Illinois, Champaign.

Retail Suppliers: Crushed in the Aisles
By Peter Lattman - FORBES.COM
April 15, 2005

It's as if one big "For Sale" sign has been plastered across the corporate headquarters of every big retailer in America. Kmart and Sears Roebuck launched the frenzy in November when they announced a merger (the deal closed last month) creating Sears Holdings, a $55 billion (sales) behemoth. In February, Federated Department Stores agreed to acquire May Department Stores for $17 billion, combining the nation's two largest department store chains. In March, a consortium of private equity and real estate firms announced a deal to buy Toys "R" Us for $6.6 billion. Other big retailers may also be on the block.

Investors owning retail stocks are benefiting from these events, but all of this consolidation could spell hard times for the companies that sell their products to these chains, as stores are closed and purchasing power is concentrated into a smaller number of powerful retailers.

For example, the Toys "R" Us transaction will likely mean the closing of 200 money-losing Toys "R" Us stores nationwide, according to Howard Davidowitz, chairman of retail consulting and investment banking company Davidowitz & Associates. Other retail commentators predict that Toys "R" Us' new owners will liquidate its real estate and focus on the more profitable Babies "R" Us unit.

Based on latest filings, Toys "R" Us represents 15% of Hasbro's revenue and 16% of Mattel's. Not only will a downsized or nonexistent Toys "R" Us create a hole in toymakers' revenue base, but they will be increasingly forced to deal with Wal-Mart Stores and Target, two companies notorious for driving hard bargains with manufacturers.

Davidowitz notes that unlike Toys "R" Us, Wal-Mart and Target are far more interested in pushing high-volume bestsellers than in testing and nurturing new toy concepts. "Without Toys "R" Us, the toymakers are in trouble," he says. Hasbro and Mattel both sell for 16 times estimated 2005 profits.

On the apparel side, the proposed combination of Federated and May is causing migraines for clothing vendors. Not only will a combined Federated and May close stores, but the merged company will also have greater negotiating leverage over the vendors, meaning lower revenues and thinner margins.

For example, Federated and May, combined, accounted for 26% of both Jones Apparel Group's and Liz Claiborne's revenues in 2004. No wonder both apparel companies are developing other channels to distribute goods. Last year, Jones acquired upscale department store chain Barneys New York for $400 million. And in 2001, Liz Claiborne bought European specialty retailer Mexx.

The consolidation in the real estate industry is also likely to have a negative impact on real estate investment trusts that focus on mall properties. According to Carey Callaghan, REIT analyst at Goldman Sachs Group, the largest mall operators, like Simon Property Groupand General Growth Properties, will smart from this, but their premium properties and diversified tenant base should largely protect them. Look for smaller mall owners with less diversified revenue streams--such as Glimcher Realty Trust and Pennsylvania Real Estate Investment Trust -to suffer more pain.

Suppliers, REITs Feel Retail Squeeze

Prices as of April 14.

*Based on Funds From Operations (FFO) Sources: FT Interactive Data and Thomson First Call via FactSet Research Systems

Sears' New Creation is Coming to Palatine
By Michael Puente – Daily Herald
April 13, 2005

Big Kmart on Hicks Road will become Sears Essentials

The Big Kmart is undergoing a big transformation.

Once it’s all said and done, the Big Kmart store at 537 N. Hicks Road in Palatine will turn into a Sears Essentials.

According to Palatine Village Manager Reid Ottesen, the Kmart store is one of about a dozen stores nationwide that Sears hopes to open as a Sears Essentials store as soon as possible.

The targeted month for the grand opening in Palatine is June, according to Ottesen.

Sears Roebuck and Co. will transform 400 Kmart sites nationwide into Sears Essentials within the next few years. One hundred of the revamped Sears Essential stores are expected to open this year alone.

According to company officials, Sears Essentials will offer Sears appliances, lawn and garden, tools, electronics, apparel and home fashions, while also offering things like soda pop and the other household items Kmart currently offers.

Sears Essentials in Palatine will also offer an automobile service center, located in the old Kmart-Penske Auto Service Center.

“Sears Essentials will lead the way as we embark on the most aggressive growth initiative in company history,” Sears chairman and CEO Alan Lacy stated in a written statement earlier this year.

“This new store format enables Sears to grow its brand off-mall and better meet the everyday needs of our customers,” Lacy said.

The interior of the Kmart store in Palatine is being remodeled. The store will not close during the process.

According to W. Eric Elieson, construction manager at the Palatine store, not much will change on the exterior besides a sign change.

The planned transformation of Kmart into Sears was announced last September, about a month before the troubled retail giants announced plans to merge.

In all, Sears bought 50 Kmart and six Wal-Mart stores nationwide for $575 million as an effort to expand into areas not in shopping malls.

Other areas to see new Sears Essential stores replacing old Kmarts include Crestwood and Willowbrook.

It is not known what Kmart brands will remain in the newly refurbished Sears Essential stores.

Sears Essential stores are considered smaller than Sears Grand stores.

Some experts say the merger of Kmart and Sears is good for both companies.

“The merger will help both ailing companies. Together, they can march forward on solid footing,” Kurt Barnard, of Barnard’s Retail Trend Report, based in New Jersey, told the Daily Herald in a story in late March.

Village Councilman Warren Kostka is hopeful that once Sears Essential opens that it will spark renewed interest in the aging strip mall off Hicks and Baldwin roads.

 

Whirlpool Corporation Receives Sears 'Partner in Progress' Awards
Company selected from more than 10,000 suppliers to receive prestigious awards
PRNewswire-FirstCall
April 13, 2005

BENTON HARBOR, Mich., April 13 /PRNewswire-FirstCall/ -- Alan J. Lacy, Sears Holdings Corporation's vice chairman and chief executive officer, honored Whirlpool Corporation on April 12 with two Partner in Progress achievement awards. Whirlpool received the awards for excellence in Product Repair Services and Advertising/Creative. The prestigious awards are presented annually to a select group of supplier companies that have provided Sears, Roebuck and Co. with quality products and services, from apparel, appliances and tools to marketing, transportation services and technology. More than 10,000 sources competed for this award in 2004. "It is truly an honor to have been recognized again this year by our largest trade partner for excellence in providing consumer solutions," said David L. Swift, executive vice president of Whirlpool North America. "These awards demonstrate that the mutual commitment between Whirlpool and Sears to deliver innovative, customer-driven products and advertising to market is working."

Started more than 20 years ago, the Partners in Progress program recognizes suppliers that make significant contributions to the growth of Sears' businesses and the creation of new ways to better serve Sears' customers. The winners were selected from nominations submitted by Sears' employees who purchase goods and services for the company.

About Whirlpool Corporation
Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances, with annual sales of over $13 billion, 68,000 employees, and nearly 50 manufacturing and technology research centers around the globe. The company markets Whirlpool, KitchenAid, Brastemp, Bauknecht, Consul and other major brand names to consumers in more than 170 countries. Additional information about the company can be found on the Internet at http://www.whirlpoolcorp.com.

About Sears, Roebuck and Co.
Sears, Roebuck and Co., a wholly owned subsidiary of Sears Holdings Corporation, is a leading broadline retailer providing merchandise and related services. Sears, Roebuck offers its wide range of home merchandise, apparel and automotive products and services through more than 2,400 Sears-branded and affiliated stores in the United States and Canada, which includes approximately 870 full-line and 1,100 specialty stores in the U.S. Sears, Roebuck also offers a variety of merchandise and services through sears.com, landsend.com, and specialty catalogs. Sears, Roebuck offers consumers leading proprietary brands including Kenmore, Craftsman, DieHard and Lands' End -- among the most trusted and preferred brands in the U.S. The company is the nation's largest provider of home services, with more than 14 million service calls made annually. For more information, visit the Sears, Roebuck Web site at http://www.sears.com or the Sears Holdings Corporation Web site at
http://www.searsholdings.com.

About Sears Holdings Corporation
Sears Holdings Corporation is the nation's third largest broadline retailer, with approximately $55 billion in annual revenues, and with approximately 3,800 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and  maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. For more information, visit Sears Holdings' Web site at http://www.searshc.com.

Citigroup Employment Reaches 1,300 in Louisville
Business First of Louisville
April 14, 2005

Financial giant Citigroup Inc. is well on its way to reaching its promised goal of employing more than 1,600 workers at its Citi Cards call center in Louisville.

The company announced Thursday during the grand opening of the 170,000-square-foot facility that it now employs more than 1,300 workers.

New York City-based Citigroup (NYSE: C) announced in March 2004 that it would build the Louisville call center for its Citi Cards division as part of an expansion of the former Sears, Roebuck & Co. credit-card operation in Louisville.

Citigroup (NYSE: C) acquired Sears' Louisville call center in November 2003 as part of its $32 billion purchase of Sears' credit-card portfolio. Sears employed about 500 workers when it was acquired by Citigroup.

The call center, which is located at 12501 Lakefront Place, is expected to employ more than 1,600 workers by the end of the year. The center has a capacity for 2,100 workers, according to a news release.

The Louisville call center is one of more than 30 Citi Cards facilities in North America that service the company's more than 100 million credit-card customer accounts. Employees in Louisville handle customer service and collections services for their Sears Credit Card customers.

"This is a tremendous economic development opportunity for the Greater Louisville area," Kentucky Gov. Ernie Fletcher said in the release. "Many Kentucky families will benefit from the jobs generated from the opening of this facility."

Big Investors: Too Sold on Retail?
By Gregory Zuckerman and Ellen Byron – Staff Reporters
The Wall Street Journal
April 14, 2005

It May Be a Mistake to Count On Unloading Store Real Estate
For Top Dollar, Slashing Costs

A new breed of investors is on a shopping spree for retailers, but they could find any fit poorly suited.

Teams of private-equity investors are circling several retail titans, preparing billion-dollar acquisition offers that could transform the retail landscape. Heavyweight buyout firms are considering bids that could lead to a $5 billion acquisition of Dallas-based Neiman Marcus Group Inc. The field has now narrowed to three teams: Texas Pacific Group and Warburg Pincus; Thomas H. Lee Partners LP and Blackstone Group; and Bain Capital LLC and Kohlberg Kravis Roberts Group, according to people familiar with the matter. Leonard Green & Partners LLP and Apollo Management have dropped out of the bidding, according to a person familiar with the matter.

Other large private-equity firms, including TPG, are examining bids for Saks Inc.'s 238 department stores, either in their entirety or piecemeal, according to people familiar with the matter. Speculation about a takeover also has lifted the shares of J.C. Penney Co. and Tiffany & Co.

Financial players anticipate sizable gains from retail deals. They argue that they can improve struggling retailers, while at the same time taking advantage of a thriving real-estate market to sell a number of well-located stores. An acquirer of a retailer also may be able to add debt to its balance sheet in a leveraged buyout, pay the debt off over a number of years, and then profit by selling the retailer in the public market or to another buyout firm.

But some industry experts warn that the rush into retail by private-equity and hedge funds, which are sitting on record sums of investment dollars, could end badly.

Much of the retail sector has been under pressure for years, as well-run competitors such as Wal-Mart Stores Inc. and other discounters encroach on their turf. So it isn't clear how much new investors would be able to improve the underperformers. Better-run retailers, such as Neiman Marcus, already trade at expensive prices. They would have to maintain their top-notch performance for a number of years in the fickle retail environment for private-equity investors to profit.

While some investors, such as Edward S. Lampert, chairman of the new Sears Holdings Corp., have been able to unlock value in the prime real estate that some retailers own, record numbers of stores are set to come on the market at the same time in the months ahead, which could weigh on real-estate prices. "People are getting carried away with the belief that operationally these firms can be run much better," says Prof. Edward J. Fox of Southern Methodist University's Cox School of Business in Dallas, who studies the retail market. "And far fewer companies are real-estate plays" than many investors believe.

Representatives for Thomas H. Lee, Warburg Pincus, Saks Blackstone, TPG, Bain, KKR and Apollo declined to comment. Leonard Green and Neiman Marcus didn't return a call for comment.

"Retailing is particularly hands-on -- you have to take care of customers, and they're very expensive to take care of," says retail-turnaround veteran Allen Questrom, who has led Federated Department Stores Inc., Neiman Marcus and, most recently, J.C. Penney. "There's not always a huge opportunity to throw off costs," unlike other industries that financial players have targeted.

The current bidding frenzy is the latest sign that big private-equity funds have become enthralled by retail. Earlier this year, a consortium of private-equity firms including KKR, Bain and Vornado Realty Trust spent about $7 billion to buy Toys "R" Us. Last Friday, discount-stores operator ShopKo Stores Inc. said it would be acquired by Minneapolis-based private-equity firm Goldner Hawn Johnson & Morrison Inc. in a $715 million deal.

Financial firms are window-shopping at Neiman Marcus, but Neiman's most heavily traded class A shares already are up more than 80% in the past year, and trade at almost 20 times expected 2005 earnings. Its average sales per square foot now total $555, a company record that far surpasses that of its competitors. In 4 p.m. composite trading yesterday on the New York Stock Exchange, Neiman's shares rose $1.75 to $95.70, giving the company a market value of $4.6 billion.

"Someone acquiring it now has to expect that Neiman Marcus's profitability is going to continue the dramatic improvement they have shown heretofore," says Deutsche Bank AG senior analyst Bill Dreher, who has a "hold" rating on Neiman's stock.

Financial bidders looking at Saks, an underperformer, may have more luck improving operations. But Saks's department stores -- including the Proffitt's, Younkers and Parisian chains -- suffer from many of the same pressures of other middle-market department stores that are being squeezed by both discounters and upscale retailers. Now it will face the heft of a merged Federated and May.

One reason retailers are so attractive to financial investors is they sit on leases, or own stores, that have climbed in value amid the overall surge of the real-estate market.

But the retailers' real estate isn't nearly as undervalued as it once was. On the heels of the merger between Kmart Holdings and Sears, and the Federated and May deal, Deutsche Bank analyst Louis Taylor estimated that as many as 190 so-called anchor spaces in malls could be sold.

At the same time, many retailers need larger spaces. Saks's department-store division outlets, for example, average 120,000 square feet, much smaller than the size of a typical department store, according to estimates by Smith Barney managing director Deborah Weinswig.

In a Shopping Frenzy
By Tracie Rozhon – New York Times
April 14, 2005

The "for sale" signs are everywhere: Neiman Marcus, Saks and Bill Blass.

Already this year, America's biggest department store chain, Federated Department Stores, has bought the second biggest, May Department Stores, in a deal valued at $16 billion. K-Mart bought Sears. Jones Apparel Group bought Barney's. Toys "R" Us was bought a few months ago by a group of private equity firms and a real estate trust. The retail industry is rife with rumors of who's next: Is it KB Toys? Or J.C. Penney? Or Blockbuster? Or Pier One?

"These days, pretty much everything is for sale," said Gilbert Harrison, the chairman of Financo, a New York investment bank that specializes in retail. "All it takes is money."

The retailing industry is gripped by frenzy. Chain stores are selling for prices that would have been considered exorbitant a few years ago. The price for Neiman Marcus, which has only 37 stores and some clearance centers, is a minimum of $5 billion, say executives familiar with the offering. The opening bid for the 232 stores in the Saks department store group, they said, was around $3.5 billion.

Fueled by billions of dollars of private equity and venture capital that must be spent or returned to investors, plus low interest rates that are inexorably moving higher, sellers are feeling there may never be a better time to get out of the fundamentally risky business of retailing, which is based largely, after all, on the whims of fashion.

"This is a kind of perfect storm for the retailers," said Peter J. Solomon, the chairman of the Peter J. Solomon investment banking firm. "These deals are being fueled by real estate expectations and cheap money and not wanting to be left behind."

Next week, Myron E. Ullman, the chief executive of J.C. Penney, will lay out what he calls his long-term plans for the company, according to a spokesman, who stressed the phrase "long term." Privately, executives close to Mr. Ullman said that he was angry at a published report that Cerberus Capital and two partners were planning to make a bid for Penney - a report that has since been privately denied by all parties.

But Penney is a public company, run by a board of directors. If a group of private investor firms offered significantly more to shareholders than their stock was trading for, retail and legal consultants say, the company would have a fiduciary responsibility to at least consider a deal. Only a privately owned company can turn a deal down flat.

Since most of the companies in play are public, it makes for uncertainty, analysts and bankers say.

And it creates a lot of business for head hunters, who help anxious executives search for jobs before their companies are absorbed. Head hunters also find executives for private equity firms that want to buy some stores and know they had better hire somebody with retailing experience.

"I'm doing six C.E.O. searches, and five of them are for the private equity firms who are looking for new management, either for companies they own or companies they want to own," said Harold D. Reiter, chief executive at Herbert Mines, an executive search firm.

That's what happened with Vanessa Castagna, who was passed over by Penney for Mr. Ullman's job and who, two weeks ago, went to work for Cerberus after a search conducted by Mr. Reiter. "Not so long ago, it was a preposterous notion to think of a private equity fund buying Neiman Marcus," Mr. Reiter said. "But now the hedge funds have become market makers."

When a company announces it has hired an investment banking firm to help it consider its options -meaning the company is in play - its stock usually goes up. With the first talk of a possible Federated-May merger after May's chief executive was ousted, May's stock soared 16 percent on Jan. 18, and rose by 9 percent two days later. Neiman Marcus's stock started climbing long before the company hired Goldman Sachs to help it consider its options. Yesterday, several investment bankers said KB Toys, which is still in bankruptcy protection; Blockbuster Entertainment, which is no longer a subsidiary of Viacom; and Pier One, which has been struggling for the last two years, are possible targets for acquisition. Bill Blass has hired UCC Capital, and is preparing a "black book" of confidential information about the company for potential bidders, said an executive with knowledge of the company's plans.

Corporate raider Carl Icahn has been steadily buying shares of Blockbuster, and was widely reported to be unhappy that Blockbuster did not pursue its bid to take over Hollywood Entertainment, a leading competitor. Mr. Icahn has threatened to buy enough stock to control Blockbuster, and bankers say they are examining it for other possible buyers. A Blockbuster spokesman declined to comment; press officers for Pier One and KB Toys did not return calls.

Shoppers, meanwhile, are starting to see changes. For example, Federated is altering the name plates on the regional department stores it owned before the May acquisition.

Now, analysts debate which stores Terry J. Lundgren, the chairman of Federated, will close. But they agree on one thing: the retailing world changed on Nov. 17, 2004, when Edward S. Lampert announced that he would buy Sears. Mr. Lampert popularized an increasingly important way for potential buyers to look at chains: for their valuable real estate. And now, most private equity firms hire a real estate consultant to advise them or may even ask it to become part of a joint venture.

In the secretive retailing world, many companies, especially private ones, "don't put a 'for sale' sign up, but they are conducting very private discussions," said Allan J. Ellinger, the senior managing director at M.M.G., an investment banking firm. "They don't want their employees, their customers or their vendors to know they are being shopped."

But Mr. Ellinger agrees with Mr. Harrison. "Right now, in the fashion business, every company fits into one of three columns," said Mr. Ellinger. "There's buyers, and there's sellers, and third, there's those who are temporarily undecided which they are going to be."

Revamped Tory Kmart debuts with Sears goods
By Tenisha Mercer and Charles V. Tines - The Detroit News
April 14, 2005

Updated store features colorful displays, new layout and splashy signs.

A variety of Craftsman tools formerly offered only by Sears are now available at Kmart.

TROY -- It's official: You can now buy Sears products at some Kmart stores.

On Wednesday, Kmart showed off a revamped store concept at its location on Maple Road in Troy. In addition to splashy signage, a shopper-friendly layout and the debut of mannequins modeling clothing, the store's shelves were stocked with Craftsman tools.

Kmart is selling Sears' Craftsman tools -- from $1.99 drill bits to $620 tool chests -- at nine stores nationwide as part of a market test.

It's a small but meaningful first step in the integration of Sears & Roebuck Co. and Kmart Corp., which completed its $12.3 billion deal last month.

The new Sears Holding Corp., based in Hoffman Estates, Ill., plans to leverage the best of both stores. The company hasn't said when it will roll out Craftsman tools and other Sears brands at all of Kmart's 1,000 stores. About 400 Kmart locations will be converted to Sears Essentials.

For Kmart, the eventual addition of venerable Sears brands such as Craftsman and Kenmore could help it compete with market leaders Wal-Mart Stores Inc. and Target Corp.

"Kmart has been shooting a smaller gun with less ammunition than Wal-Mart and Target while expecting to hit more customers," said Gary Ruffing, a retail analyst at BBK Ltd. in Southfield. "Now they can play a more offensive position with these brands and it should help draw new customers to stores -- a whole new strategy."

The revamped Troy store stocks a limited selection of Craftsman products -- about six aisles lined with drill bits, mitre saws, wrenches, garage door openers and lawn tools.

"Kmart has really come up," said Brian Linke, 48, of Royal Oak, a former Kmart employee shopping at the Troy store Wednesday. "This store is the nicest looking Kmart in a long time. It's a lot cleaner. There's more variety and it's very comfortable -- a lot more open and customer friendly."

Other Kmart test sites -- in Boca Raton, Fla., White Plains, N.Y., Bohemia, N.Y., Silver Spring, Md., and Burbank, Calif. -- also are offering Craftsman tools as well as some Kenmore appliances, said Kmart spokesman Stephen Pagnani.

Sears products at each store will be sold based on demand. Kmart officials are considering bringing Die-Hard batteries to the Troy store, for example, but there are no plans right now to add Kenmore appliances, the company said.

The test stores -- including Troy -- feature colorful displays, a revamped store layout and new signs. The stores are brighter with wider aisles and clear signs visible from the entrance. Shelves and displays have also been tweaked. Counters are lower, to allow customers to see more of the store. Renovations at all nine stores will be completed next week.

The changes are a huge shift for the retailer, which has struggled to carve out its niche after it closed nearly 600 stores and eliminated 57,000 positions during its Chapter 11 bankruptcy restructuring.

Kmart emerged from bankruptcy in May 2003.

A big part of the renovations involve store displays. Kmart is using mannequins for the first time in the women's and men's departments; large, colorful shelving that holds summer accessories like shorts, hats and T-shirts; and three-tiered wooden displays that spotlight basics like T-shirts.

Clothing is displayed against bright orange and bright yellow backdrops and wood paneling.

Departments are separated by different colors and there are new, bolder signs at each department.

The look: less cluttered, more like specialty retailers like the Gap or Marshall Field's.

"It's a lot easier for people to touch, see and feel," said Julie Younglove-Webb, vice president of space planning at Kmart.

"It's adding more visual appeal, more color."

Customers have responded favorably to the Sears additions at Kmart stores.

"Sales have been strong so far," said Julie Younglove-Webb, a Kmart executive who is responsible for the renovations.

"We are really surprising customers with the products."

If the experiment is successful, look for Sears products to show up in more Kmart stores.

"This is a good example of what people can expect to see locally," Pagnani said.

"We are looking at other opportunities as they present themselves."

Sears spokeswoman Lisa Gibbons said there are no plans yet to put Kmart products in Sears stores.

Sears Director Selling
Chicago Tribune Staff – Wire Reports
April 13, 2005

A day after selling nearly 570,000 Sears Holdings Corp. shares for about $80 million, director Julian Day unloaded another 380,937 shares of the Hoffman Estates-based retailer for about $52.3 million, according to filings with the Securities and Exchange Commission. He paid about $5.5 million for the shares, which he sold last Friday, according to the filings. The sales put Day atop Bloomberg News' weekly list of insider selling by officers at Standard & Poor's 500 companies.

 

Top Executives Make Killing on Sears Stock
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 12, 2005

Top Kmart executives are exerting power in the new Sears Holdings Corp. by taking advantage of the huge run-up in the retailer's share price.

Hedge-fund wunderkind Edward S. Lampert, Sears' chairman, converted his options to buy Kmart stock at $13 a share into options to buy Sears' stock. He converted the Sears options into shares at $132.52 a share, according to filings with the Securities and Exchange Commission.

The transactions gave Lampert a 39.4 percent stake in Sears Holdings Corp., the company that includes both Kmart and Sears Roebuck and Co. Lampert ended up paying $84.2 million to acquire the Sears shares valued at $858.7 million.

Julian Day, a Sears Holdings board member who previously lost out to Sears CEO Alan Lacy for leadership of Sears Roebuck, paid $5.7 million for Sears Holdings stock. He then sold the stock for nearly $80 million, according to the SEC reports.

Sears Holdings' shares closed Monday up $4.89, or 3.4 percent, to $146.96.

Field's Employees Receive Severance-package Updates
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 12, 2005

Marshall Field's employees at stores and in the Milwaukee headquarters have gotten updates about their severance packages in case they lose their jobs in Federated Department Stores' pending takeover of Field's owner, May Department Stores.

"We felt it was the right thing to do to tell everyone at every level what their severance package would look like, if, when the change in control comes, they do not have ongoing employment," said May company spokeswoman Sharon Bateman.

Federated expects its $11 billion takeover of May, including the Marshall Field's and Lord & Taylor department store chains, to conclude sometime between August and October, the retailer's third quarter.

Regulatory agencies and shareholders of Federated and May must approve Federated's takeover of the St. Louis-based May. Last week, both retailers announced that the Federal Trade Commission is seeking more information about the buyout, and the Securities and Exchange Commission will review the deal.

Marshall Field's employees in Chicago will be glad to have new ownership.

They are upset about a change in the way they receive discounts when they make purchases at Field's, according to sources who asked not to be named.

Under Target Corp.'s ownership, Field's employees could pay in cash and get their discounts up-front.

Now, they must charge their in-house purchases to their Field's cards and wait to get their discount on their card statements.

Several employees say they've stopped using their Field's cards as a result.

The May spokeswoman confirmed the discount-policy change, but declined to comment on any effect it might have had.

Some Field's employees also are upset about May installing a new computer system that they consider outdated.

And they are looking forward to possibly selling upscale brands that Field's hasn't carried for 15 years, such as purses by Gucci, Chanel, Hermes and Louis Vuitton.

Separately, May said it has updated the Field's Web site, Fields.com, to let shoppers create an online gift registry; buy Frango chocolates and prom dresses, and pay monthly bills online.

New Line of Ty Pennington Accessories Available at Sears
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 12, 2005

Sears is introducing new lines of bedding, bath and table-top accessories designed by Ty Pennington, the bullhorn-toting star of the ABC-TV show, "Extreme Makeover: Home Edition."

Three lines of the "Ty Pennington Style" collection will be sold at Sears stores nationwide, and four others will be sold online.

The effort to boost Sears' standing in the competitive home-fashions arena is apparent in the retro, colorful styles: Caliente Stripe, featuring "hot oranges and peppery reds;" Lemongrass, with embroidery and more neutral colors, and Bali Hai, showing off what Sears described as "soft blues, bold florals and lush fabrics."

The collections available at Sears.com are called Red Dragon, Chocolatte, Plum Crazy and Luscious Lava.

The Ty Pennington collection is more expensive than similar Martha Stewart Everyday items at Kmart stores, in keeping with Lampert's aim to differentiate the two retailers.

A Ty Pennington Style complete bedding set costs from $120 to $200; the same offering from Martha Stewart ranges from $79.99 to $109.99.

Ty Pennington's decorative pillows range from $16.99 to $29.99. Martha Stewart Everyday prices range from $9.99 for a toss pillow to $19.99 for a floor pillow.

Sears expects the Ty Pennington brand to be its third-largest private-label home fashions brand by the end of the year, behind its proprietary Whole Home and New Traditions lines.

Sears has appointed Steve Ryman as vice president of home brands, a new position.

He will lead a design team of 13 people at Sears' Hoffman Estates headquarters, and will report to Luis Padilla, president of merchandising and marketing for the retailer.

Janet Taake, formerly vice president of merchandise operations for apparel, will take Ryman's old job as vice president and general merchandise manager of home fashions.

Sears already is facing tough competition from J.C. Penney's Chris Madden home fashions and Wal-Mart's new offerings of 400-thread-count bed sheets.

Target's Image Trumps Wal-Mart's
Crain's Chicago Business:
 April 11, 2005

While Wal-Mart Stores Inc. fought a three-year battle for permission to open its first store in Chicago, rival discount chain Target Corp. expanded rapidly in the city unopposed.

Unions, community activists and politicians lined up against Wal-Mart, protesting at City Council meetings and picketing the February groundbreaking for the company's first city store. Meanwhile, last fall, city officials toasted the opening of Target's sparkling new South Loop store, its sixth in the city. Target is now looking at another site east of the Loop on Columbus Drive.

Why the differing receptions? After all, both chains are non-union, pay low starting wages, source their goods from offshore suppliers and threaten independent local retailers.

At least part of the answer lies in Target's success in cultivating an aura of political correctness that plays well in "blue state" markets like Chicago. It hails from politically progressive Minnesota. It appears on Working Mother magazine's list of the best companies for working moms and on Forbes' list of most philanthropic companies. It runs hip, sophisticated ads aimed at yuppies and touts a clothing line from a prominent gay, Jewish designer from New York, Isaac Mizrahi.

POLITICS AS USUAL

Wal-Mart, meanwhile, comes across as pure "red state." It's based in conservative, Bible-Belt Arkansas. It shuns publicity, yet makes headlines as the target of nasty public labor disputes, including the largest class-action gender discrimination lawsuit in history. Jay Allen, the company's senior vice-president of corporate affairs, ranked among President George W. Bush's top fund-raisers. Vice-president Richard Cheney lauded Wal-Mart as an "economic powerhouse," while Democratic presidential nominee John Kerry bashed the company in stump speeches.

A veneer of political correctness has helped Target run circles around Wal-Mart in Chicago. Does perception match the facts? Photo: Callie Lipkin"Target's politically correct image has helped them in Chicago, while Wal-Mart's has been a lightning rod," says Paul Vogel, principal at Realty Development Research Inc., a Chicago-based retail real estate consulting firm. "They just manage to alienate people with their anti-union stance. Target may be anti-union, too, but they're much more sophisticated about how they handle it."

Accurate or not, Target's image is a real business advantage. Both Wal-Mart and Target need to grow in urban markets now that they've blanketed rural and suburban America.

Target is spreading fast in the city, opening five of its six Chicago stores in the past three years and planning more. The six stores are expected to generate a combined $500 million in sales this year, analysts say. Sales at Target's first Chicago outpost, which opened in 1994, approach $150 million a year ˜ three times the take at a typical suburban Wal-Mart or Target.

Bitter local opposition forced Wal-Mart to drop plans for a South Side store at 83rd Street and South Stewart Avenue last year. The company plans to open its first city outlet next year, at North and Kilpatrick avenues on the West Side.

"Wal-Mart is being subjected to an entirely different standard than our retailing counterparts that have made inroads into Chicago," says John Bisio, Wal-Mart's Midwest community affairs director.

WAL-MART: A BIGGER TARGET

Wal-Mart took the unusual step of holding its first-ever press conference last week at its Bentonville, Ark., headquarters. CEO H. Lee Scott Jr. lambasted critics for attacking the company and asserted that Wal-Mart was good for consumers and good for workers.

Last week, the Wall Street Journal reported that a top Wal-Mart executive who recently resigned had misused company funds. The imbroglio also involves claims that Wal-Mart spent money on improper anti-union activities, a charge the company denies.

Target officials, for their part, didn't return repeated phone calls seeking comment for this story.

Union leaders and other activists say they concentrate their fire on Wal-Mart because it's the biggest retailer ˜ indeed, the biggest company ˜ in the world. At $285 billion in sales last year and 1.3 million employees, it dwarfs Target's $46 billion in sales and 300,000 workers.

"We don't see that Target has anything to recommend it as far as wages and benefits," says Madeline Talbott, executive director of the Illinois chapter of Community Organizations for Reform Now, a grassroots group fighting Wal-Mart's expansion. "But, quite frankly, we see Wal-Mart as bigger and as having more impact on the economy. You have to address the industry leader first, then the others will follow."

Alderman Howard Brookins Jr. (21st), who fought a losing battle to get City Council zoning approval for a Wal-Mart in his South Side ward, says he's often criticized by other politicians and community leaders for siding with Wal-Mart. He saw the proposed store as an opportunity to bring jobs to a community abandoned by independent businesses during the 1960s and '70s.

"I have to do what's best for my community," says Mr. Brookins.

Sears Retools Its Home Offerings With Celebrity Designer's Wares
By Amy Merrick – Staff Reporter - The Wall Street Journal:
April 11, 2005

Following competitors who are beefing up their home departments, Sears Holdings Corp. is making its own foray into celebrity design with home-décor products created by Ty Pennington, the star of ABC's "Extreme Makeover: Home Edition."

Although the deal was in the works before Kmart Holding Corp. launched its bid for Sears, Roebuck & Co. last year, it nevertheless shows that the company formed by the acquisition is moving ahead with plans to shake up its stores.

The move is aimed at modernizing a home department that has struggled in recent years. The new line, Ty Pennington Style, has about 300 brightly colored, whimsical products, from comforters to shower curtains to dinnerware, grouped under collection names like "Bali Hai," a floral South Pacific motif, and "Caliente Stripe," a pattern of zesty reds and oranges. Sears, based in Hoffman Estates, Ill., will begin selling the brand next week.

Sears is one of a number of discount and department stores vying to improve their home merchandise. J.C. Penney Co. has produced hits with its Chris Madden bedding and bath lines and Colin Cowie dinnerware. Target Corp. has upgraded its furniture quality and, in January, launched its "Global Bazaar" collection of furniture and decorations from around the world. Even Wal-Mart Stores Inc. is touting its new 400-thread-count sheets.

Then, of course, there's Martha Stewart, whose line of home furnishings for Kmart is the quintessential example of celebrity design. Kmart completed its acquisition of Sears Roebuck on March 24 to form Sears Holdings. The company declined to comment on whether Sears stores will add the Martha Stewart Everyday brand of home furnishings, currently exclusive to Kmart in the U.S. Mr. Pennington's line will debut only in Sears stores

Sears says Ty Pennington Style is different from rivals' merchandise because the color schemes coordinate across bedroom, bathroom and dining-room products. Its pricing is comparable with J.C. Penney's Chris Madden line and is more expensive than Martha Stewart Everyday.

"I like when you walk into a room and you're hit immediately by something fun," said Mr. Pennington, a graphic designer and carpenter by training.

He said he chose the colors and patterns himself, inspired by his food and travel preferences.

Layoffs at Sears Holdings
500 to lose jobs in Hoffman Estates; executive leaves
By Becky Yerak - staff reporter - Chicago Tribune
April 8, 2005

At least 500 workers will lose their jobs as part of a "mass layoff" at the Hoffman Estates headquarters of Sears Holdings Corp., according to a revised filing on a state government Web site.

The Illinois Department of Commerce and Economic Opportunity last week posted that Sears was eliminating 250 jobs. Earlier this week, the number on its Web site was revised to 500.

Also, Sears said Thursday that Janine Bousquette, who had been chief customer and marketing officer for Sears Roebuck, is leaving the nation's biggest department store chain.

Sears spokesman Chris Brathwaite declined to comment beyond the filing and said it has not been determined how many workers will be let go. Sears has said that job cuts will be announced at the end of April.

Under a 2004 Illinois law, employers with at least 75 workers must give 60 days' notice of pending plant closings or what the law terms mass layoffs. That includes job cuts at a single site, typically during a 30-day period, of "at least 33 percent of the employees and at least 25 employees, or at least 250 employees regardless of the percentage."

Sears and Kmart merged to form Sears Holdings, now the nation's third-largest retailer with annual sales of about $55 billion, on March 24.

Kmart has about 2,000 workers in its Troy, Mich., headquarters. More than 4,000 people work at Sears' headquarters.

At least one executive won't be around to see how things shake out.

Bousquette, a former marketing executive with eToys and PepsiCo, joined Sears in 2002. She immediately dumped the company's "Sears. Where Else?" campaign and resurrected the more pointed "Good life. Great price" tag line.

But although she controlled one of corporate America's biggest advertising and marketing budgets--about $1 billion--her power waned even before Kmart and Sears announced their merger in November.

In August, facing its fourth straight year of falling sales, Sears recruited former Target Corp. executive Luis Padilla to lead merchandising and marketing for Sears. Padilla reported to Chief Executive Officer Alan Lacy.

Bousquette, who had reported to Lacy, kept her title but reported to Padilla.

In the new Sears Holdings, Padilla's title is president of merchandising and marketing for Sears stores, and he reports to Aylwin Lewis, president of Sears Holdings and CEO of Kmart and Sears stores. Lacy is CEO of Sears Holdings.

"We're disappointed that Janine, who we hoped would be an important part of the organization, will be leaving the company," Padilla said in a statement.

Her accomplishments, he said, included the campaign with handyman spokesman Ty Pennington, the alliance with ABC-TV's "Extreme Makeover: Home Edition" show and new campaigns for Sears' exclusive Kenmore and Craftsman brands. Sears said it would immediately begin a search for her replacement.

Explanations differed for why the number of layoffs increased from 250 to 500.

"All they did was send in a supplemental notice and change the number," a spokeswoman at the Department of Commerce and Economic Opportunity said Thursday.

Sears, however, said it sent certified mail on March 24 to various constituencies, from the mayor of Hoffman Estates to the state government, with the 500 number.

Sears Holdings is headed by Edward Lampert, a Connecticut financier who in 2003 bought Kmart Holding Corp. out of bankruptcy and nursed it back to profitability.

"I don't know what the level of head count reduction will be. We should get at that relatively soon," he told the Tribune on March 24. "If Kmart has 10 people buying ladies' clothes and Sears has 60 people buying ladies' clothes, we can do better than 60," he said.

Other areas targeted for cuts include human resources, information technology and public relations.

Sears said it also plans to announce benefits changes in April, though they won't take effect until 2006. Sears previously said that pay and benefits might be reduced.

Sears 'Mass Layoff' Now 500
Daily Hearld,
April 8, 2005

Sears Holdings Corp. said it plans a "mass layoff" of at least 500 workers at its Hoffman Estates headquarters, according to a revised report filed with the state's Department of Commerce and Economic Opportunity.

Last week, the department posted on its Web site that Sears Holdings planned a mass layoff of at least 250 employees. But this week, the department posted a revised filing that said the company would eliminate at least 500 workers.

The state defines a mass layoff as 250 or more full-time employees or at least 25 employees if they make up at least one-third of the employer's work force. According to a 2004 state law, employers with at least 75 full-time workers must give 60 days notice to workers and the state of mass layoffs or a plant closing.

Sears Holdings was created last month through a $12.3 billion acquisition of Sears, Roebuck and Co. by Troy, Mich.-based Kmart Holding Corp. The buyout, which created the third-biggest U.S. retailer based on sales, should save $500 million over the next three years, Sears has said.

Company spokesman Chris Brathwaite declined to comment on the filing and said it has not been determined how many people will lose their jobs.

Sears Holdings has said some layoffs will be announced by the end of April from among the 5,000 people working at the headquarters, but the vast majority of the work force of 400,000 will keep their jobs and the company will maintain a corporate presence in Michigan.

Wal-Mart is Going Upscale. Well, at Least a Little
By Tracie Rozhon - The New York Times
April 8, 2005

The sheets were soft and silky, with subtle stripes.

The bedroom console had a wood veneer with a honey-maple finish - "not paper," said the Wal-Mart representative, showing off the new model.

"But then, it's quite a bit more expensive," she added. An older nightstand, designed with the wood-grained paper coating, was $29. The newer, larger stand was $89.

Wal-Mart is upgrading a lot of its merchandise, while trying to maintain the loyalty of its core customer - the woman who is struggling to provide for herself and her family - executives at the company's headquarters in Bentonville, Ark., said this week.

While whispering comparisons to Wal-Mart's rivals - Target, Gap and Bed, Bath & Beyond - Wal-Mart buyers this week showed off a kaleidoscope of new offerings at a temporary showroom near the company's headquarters, from polo shirts to plasma television sets to gourmet roast beef.

Executives admit the company is struggling to keep its competition at bay.

Yesterday Wal-Mart, blaming an early Easter and rainy weather, said that it expected its earnings for the quarter that ends this month to be close to the low end of its estimates of 56 cents to 58 cents a share. Sales growth at stores open at least a year, known as same-store sales, may be unchanged or rise as much as 2 percent in April, it said.

Yesterday afternoon, Bob Buchanan, a retail analyst with A. G. Edwards & Sons, downgraded Wal-Mart stock. Shares fell 60 cents, to $48.90.

Told of the new merchandise displayed this week in Arkansas, Mr. Buchanan was unimpressed. "They're trying a lot of things but today, spring 2005, their overall assortment lacks creativity and originality. They have missed on key products many times."

The last holiday season, he said, Wal-Mart "didn't have iPod  because they got in some kind of snit with Apple, which amounted to a good way to shoot yourself in the foot." Wal-Mart, he said, is currently "offering big-screen TV's but no service warranties. The customer wants service warranties."

Gus Whitcomb, a Wal-Mart spokesman, said last night that the company began offering warranties last year, but sold them only on the Internet. The store did offer iPods in "a few hundred stores for Christmas," he said, and expected to have more for sale soon.

The new premium additions are "barking up the right tree," Mr. Buchanan said, "but it'll be awhile before they can re-establish merchandise creativity at 3,000 stores across America. In recent years, they have not done as good a job as Sam Walton did in identifying merchandise trends."

Wal-Mart is trying to change that. This week, Wal-Mart's top executives, speaking at a conference for print journalists, seemed eager to point out that same-store figures, which many analysts said they believed were the best indication of sales, were not always a good indication of growth.

In one speech, Thomas Schoewe, the chief financial officer, said that because of Wal-Mart's practice of building as many new stores as an area can support, same-store sales might slip. (With a string of new stores opening five miles apart, as they have in Phoenix, sales volume in the old ones will suffer, he said.)

Wal-Mart, the largest retailer in the world, with $288 billion in sales last year, has decided to go head-to-head with its competition on its higher-priced products, across the board. Its newest supercenter in Jane, Mo., features a whole aisle of new merchandise: circus-colored summer plastic plates and cocktail glasses that look like Target's. Here were big plastic wine goblets with an emerald-green top and a clear stem, selling for $1.97.

And the silky vanilla-color bedding?

"We found that 54 percent of the people who shopped in Wal-Mart didn't even visit our home furnishings department," said Shawnda Schnurbusch, the vice president for home furnishings. "They headed off to places like Bed, Bath & Beyond."

Yesterday, Claire Watts, Wal-Mart's executive vice president for merchandising, was not shy about proclaiming the new strategy.

"We will never abandon our core customer," she said, "but we do have 100 million-plus people in our doors weekly and we are trying to reach out. For example, we want to reach the women who come in to buy food, but don't go near our fashion areas."

To bring the clothing selection up to the level of its higher-income shoppers, Wal-Mart has given more responsibility to its New York design team, Ms. Watts said. The designers are collaborating with the designers at George, the British clothing chain Wal-Mart gained when it purchased the Asda European supermarket chain.

The influence of George (and of J. Crew) was seen in some of the spring and summer clothes shown in Bentonville this week. There was a short fitted jacket in fabric with a tiny green and cream stripe ($24), as well as a cotton skirt with sewed-down pleats and a pink grosgrain ribbon waistband ($14.97).

Wal-Mart executives said they were ramping up the George brand, clearly to take some business away from the Isaac Mizrahi line at Target, which is priced similarly.

"We've upgraded some of our fabrics, our linens, our cottons, our silk blends in our sweaters - we're using a lot of spandex - and we've concentrated more on details," Ms. Watts said.

At the same time, Ms. Watts said Wal-Mart's prices for many of these items was still 20 to 30 percent less "than our core competitor."

As an example, she pointed to the 400-thread cotton sheets, which were introduced in the stores this month.

At Target, she said, 400-thread sheets sell for $69.99 for a queen-size set. At Wal-Mart, the sheets sell for $48.77.

For now, Ms. Watts said, the strategy was not to lure new customers to the store - that, she added, might come later.

"We're looking to take advantage of who's coming in now," she said. "There's so many people we can serve today. That's our first initiative. Then we can figure out how to get the other half of the country."

A Wal-Mart Legend's Trail of Deceit
By James Bandler and Ann Zimmerman – Staff Reporters – The Wall Street Journal
April 8, 2005

Mr. Coughlin Told Others Bogus Expenses Hid
Plot Against Unions

Retailer Disputes His Claim

BENTONVILLE, Ark. ˆ Last November, Thomas M. Coughlin, Wal-Mart Stores Inc.'s vice chairman, approached a lieutenant with an unusual request. He wanted Jared Bowen to approve around $2,000 in expense payments without any receipts.

Mr. Bowen, then a 31-year-old vice president, recalls that Mr. Coughlin briefly mentioned the money had been used for a "union project."

Concerned that the request seemed fishy, Mr. Bowen eventually alerted another executive, helping trigger an internal probe. Mr. Coughlin, who retired as an executive in January, abruptly resigned on March 25 from his board seat after Wal-Mart found what it said was a pattern of expense-account abuses and the use of false invoices to obtain reimbursements. Several other Wal-Mart employees also have been fired. The U.S. attorney for the Western District of Arkansas is investigating the matter.

Documents reviewed by The Wall Street Journal suggest that Mr. Coughlin, 55 years old, periodically had subordinates create fake invoices to get Wal-Mart to pay for his personal expenses. The questionable activity appears to involve dozens of transactions over more than five years, including hunting vacations, a $1,359 pair of alligator boots custom-made for Mr. Coughlin and a $2,590 dog pen for Mr. Coughlin's Arkansas home.

The 6-foot-4 Mr. Coughlin was a Wal-Mart legend -- a protégé and old hunting buddy of founder Sam Walton and for five years the second-highest-ranking executive in a company of more than a million employees. The suggestion that he might have betrayed the company he served for 27 years has shocked many at Wal-Mart and around Bentonville, where the world's biggest retailer is based.

For a man of Mr. Coughlin's means -- his total compensation topped $6 million last year -- the alleged abuses seem surprisingly petty. In a terse announcement, Wal-Mart said it found questionable transactions totaling between $100,000 and $500,000.

The tale involves another mystery: the "union project." Mr. Coughlin told several Wal-Mart employees that the money was actually being used for antiunion activities, including paying union staffers to tell him of pro-union workers in stores, according to people familiar with the matter. The fake invoices, Mr. Coughlin told these people, were simply a roundabout way of compensating him for out-of-pocket expenses in his antiunion campaign.

If Mr. Coughlin did pay union staffers for information, it would represent a criminal offense under the federal Taft-Hartley Act and ratchet up debate over the retail giant's labor policies. Wal-Mart has vigorously opposed unions since the time of Mr. Walton, who founded the company in 1962. That stance has roiled the retail industry as competing companies with unionized workers have tried to slash wages and benefits in an attempt to keep up with Wal-Mart's rock-bottom prices.

People familiar with the matter say that Mr. Coughlin is expected to use the "union project" as part of his defense to the charges about misappropriation of funds. These people give an explanation that wouldn't necessarily involve criminal activity: The payments went to former, rather than current, union people who had information about union activities at Wal-Mart. Even such payments, if made, could raise legal questions. According to Fred Feinstein, the former general counsel of the National Labor Relations Board, they could violate the National Labor Relations Act and carry civil penalties.

However, it remains unclear whether any payments were made or whether the union project existed. It is possible that Mr. Coughlin's talk of antiunion work was a cover story to conceal misuse of Wal-Mart funds for personal or other purposes.

Wal-Mart's director of corporate communications, Mona Williams, said in a statement yesterday that the company conducted a "thorough internal investigation" of the assertions about union payments and "found no evidence whatsoever to support it. To the contrary, the evidence shows that corporate funds were misappropriated and used for the personal benefit of specific individuals."

Ms. Williams also said: "Neither Mr. Coughlin nor anyone else at Wal-Mart was ever authorized by the company to make payments to anyone about union activity." She said the company reported the assertion about union payments to the U.S. attorney and asked for an investigation. Ms. Williams said Wal-Mart wouldn't comment beyond the statement.

Mr. Coughlin couldn't be reached for comment. In a statement, his lawyers, William W. Taylor III and Blair G. Brown, said: "Mr. Coughlin did not seek nor obtain any improper reimbursements from Wal-Mart." And they criticized Wal-Mart for not providing Mr. Coughlin with any documents related to the case.

"It is unfair to Mr. Coughlin, after his many years of service to Wal-Mart, for the company to refuse to provide him with the very documents it has publicly said are questionable," the lawyers' statement said. "Mr. Coughlin believes that Wal-Mart should be as interested as he is in a full and fair investigation of the matter. Preventing him from seeing the documents not only prevents him from defending himself, it also assures the investigation will be one-sided."

When Mr. Coughlin resigned, Wal-Mart cited "alleged unauthorized use of corporate gift cards" as one explanation. According to people familiar with the matter, Mr. Coughlin had subordinates obtain free Wal-Mart gift cards, which he used to shop at Wal-Mart stores. It's not clear how much money was involved in this activity or whether it had anything to do with the supposed union project.

Mr. Coughlin at one point was considered a candidate to become Wal-Mart's chief executive. As the No. 2 man, he ran the U.S. retail arm of the company. When he visited individual stores, employees often asked him for his autograph.

Mr. Coughlin and his wife, Cynthia, who live on a 2,000-acre ranch about 10 minutes outside Bentonville, are well-known donors to charitable causes. In downtown Bentonville, a new 38,000-square-foot library is being named after the Coughlins.

Common Touch

The son of a former Cleveland police officer, Mr. Coughlin began his career at Wal-Mart in 1978 as director of loss prevention. He later played a key role helping Mr. Walton build up the company's Sam's Club warehouse chain, often spending the better part of each week on the road with the company founder. The two men frequently went hunting together.

Mr. Coughlin also had Mr. Walton's common touch, sending store workers birthday cards and always stressing to colleagues that no matter how big Wal-Mart got, they should listen to store employees, because they were closest to customers. "He was the one executive who always made the associates feel like he was one of us," says Jimmie Howell, a 10-year Wal-Mart veteran in Tifton, Ga.

Mr. Coughlin was an outspoken critic of corporate chicanery. "Anyone who is taking money from associates and shareholders ought to be shot," he told the Cleveland Plain Dealer in 2002. "That greed will catch up to you."

Mr. Coughlin embraced another longtime Wal-Mart tradition: antiunionism. Led by the United Food and Commercial Workers International Union, labor organizers have tried for years to unionize Wal-Mart's U.S. workers, who currently number 1.3 million, but they have met with fierce and well-organized opposition. Whenever Wal-Mart headquarters gets word that union sentiment is growing in one of its stores, it quickly dispatches a "labor team" to the site. A Wal-Mart spokeswoman says the team, which includes a company lawyer, makes sure that store managers obey laws on organizing.

A group of meatcutters at a Wal-Mart in Texas voted to unionize in 2000. Several weeks later the retailer announced it was introducing a new nationwide policy of stocking only prepackaged beef and would no longer need butchers. This month, Wal-Mart is set to close a store in Canada that voted to unionize. Wal-Mart says the store is not profitable.

Asked if the United Food and Commercial Workers have any knowledge of Mr. Coughlin paying current or former union members for information, UFCW spokesman Greg Denier said: "Right now we have no evidence of that."

John Tate, a retired labor lawyer for Wal-Mart who is credited with many of the company's early victories against organized labor, says he worked closely with Mr. Coughlin to defeat several attempts to unionize Wal-Mart stores. In one instance during a union election, Mr. Tate recalls he and Mr. Coughlin personally put up posters around the workers' coffee-break area, depicting union corruption and abuses. Mr. Tate, who retired from Wal-Mart in the early 1990s, says he doesn't believe payments have ever been made by Wal-Mart to union workers.

One person Mr. Coughlin relied upon in his alleged deceit was a deputy, Robert Hey, according to people familiar with the matter. Mr. Hey's duties included arranging payment for vendors. Mr. Hey was recently fired from his vice president's job as part of Wal-Mart's internal probe. He declined to comment.

According to people familiar with his account, Mr. Hey has said that he was first told by Mr. Coughlin about the "union project" in the late 1990s. Mr. Coughlin would explain to Mr. Hey that he had made payments to people inside an unidentified union to gather information on pro-union Wal-Mart workers. Because Mr. Coughlin couldn't directly bill Wal-Mart for such sensitive costs, he wanted to be reimbursed indirectly by having Wal-Mart pay some of his personal expenses, according to people familiar with Mr. Hey's account.

In some cases, the account continues, Mr. Coughlin would forward a bill for something he had bought personally. Mr. Hey or a subordinate would then create a dummy invoice for the item, making it appear that a vendor was billing Wal-Mart for a legitimate business expense. Mr. Hey would attach the phony invoice to a Wal-Mart "request for check" form, asking for payment to the vendor. In most cases the dollar sums for the fake invoices appear to be identical to the real ones down to the penny.

Only a few documents reviewed by the Journal contain copies of checks. However, according to people familiar with his account, Mr. Hey has said he believes Wal-Mart typically cut checks as requested. He has said he went along with the maneuver because Mr. Coughlin was a powerful executive and he was worried he'd be fired.

John Everett, Mr. Hey's lawyer, declined to discuss any liability Mr. Hey might face for his actions. "I can say at the end of the day, I'm confident that the investigation will show he followed instructions and did what he was told to do," Mr. Everett said.

Later, Mr. Hey started a handwritten ledger. According to a person familiar with the matter, the purpose of the ledger was to make sure the reimbursements were matching the amounts Mr. Coughlin had supposedly spent on union matters. Titled "Current Expenses," the ledger records items running from March to November 1999. It does not mention the word "union." The ledger lists 16 reimbursements, ranging from $85 for "Norm the Tire Man" to $6,500 for "Drews Guide Service," a hunting-guide service.

Boot Prints

One it mentioned on the ledger is a $1,359 payment from Wal-Mart to Kimmel Boot Co. on April 22, 1999.

Eddie Kimmel, owner of the Comanche, Texas, bootmaker, recalls getting a call from a Wal-Mart executive, Terry Pharr, asking him to craft Mr. Coughlin a pair of boots made from hornback alligator skin and providing Mr. Coughlin's size information. When the boots were complete, Mr. Kimmel says he shipped them to Mr. Pharr's Lowell, Ark., home on April 12. The documents contain a bill addressed to Mr. Coughlin, care of Mr. Pharr, for $1,359.50.

Not long after, someone at Wal-Mart created an invoice purporting to be from Kimmel Boot. It listed "five boots/shoes samples" at $271.90 apiece, totaling $1,359.50. Wal-Mart frequently obtains samples of pricey products in order to create cheaper alternatives. However, Mr. Kimmel says he never made boot or shoe samples for Wal-Mart. Mr. Kimmel says he was paid, but doesn't recall by whom.

Wal-Mart fired Mr. Pharr in December for a matter it said was unrelated to the investigation of Mr. Coughlin. He could not be reached for comment.

It appears that some Wal-Mart money went to the care of Mr. Coughlin's hunting dogs. In October 1999, an employee of Priefert Manufacturing, a Mt. Pleasant, Texas, ranch equipment maker, sent a fax to a Wal-Mart employee at his office saying he would be pleased to accommodate "your executive's request" for a steel dog pen at the dealer price of $2,589.64. The letter did not specify which executive made the request.

A couple of months later, an employee at Wal-Mart created an invoice for the same amount. The explanation for the requested payment to the canine fence builder: hotel, meals and mileage.

David Fillebrown, a sales and marketing official at Priefert, says he installed the dog enclosure at Mr. Coughlin's ranch. "Normally we don't do installation, but I personally did these," he says, adding that he felt the extra service might help get his firm's products into Sam's Club, the membership warehouse chain owned by Wal-Mart. "We were paid on a Wal-Mart check," Mr. Fillebrown says.

Asked if anything seemed odd about installing a fence paid for by Wal-Mart at a residence, he says: "There wasn't anything [that] seemed suspicious to us. We're kind of dumb country people down here. We take people for their word." He says Priefert never did get any Sam's Club business.

Among more than 100 pages of documents reviewed by the Journal, there are only a few references to union activity of any kind. One October 2002 document lists the contact information for an executive at a hunting-gear clothing firm, Sammie Knight. Handwritten on it is a note, apparently from Mr. Hey: "Tom asked me to send $10,000 in two payments to Sammie Knight for stuff the 'union' people in Vegas needed."

At the time, there was a big drive by the United Food and Commercial Workers union to organize Wal-Mart stores in Las Vegas. It failed.

Also included in the documents are copies of apparently phony invoices that instruct Wal-Mart to pay Mr. Knight's company, Haas Outdoors Inc. of West Point, Miss. Mr. Knight, the company's vice president of sales and licensing, didn't return repeated messages seeking comment.

Another note that appears to be in Mr. Hey's handwriting, dated November 2002, says: "Tom requested $8722 for union work." Underneath is another notation received three days later about a $10,500 bill for "hunting truck: flatbed and dog boxes."

Between 2001 and 2004, documents indicate that Wal-Mart may have subsidized hunting trips for Mr. Coughlin, an avid game hunter. During this period, documents show Mr. Coughlin contracted for a hunting lease on the storied Kenedy Ranch in southern Texas. Each January and July, Charles W. Gordon IV, whose El Alazon Corp. in Corpus Christi made the hunting-lease contract with Mr. Coughlin, sent the Wal-Mart executive a letter to his office requesting "a semi-annual lease payment" of $6,500.

On at least three occasions, shortly after Mr. Coughlin received these requests, someone in Mr. Hey's office created invoices with an El Alazon corporate logo for the same amount but addressed to Wal-Mart. The written explanation for the expenses varied.

One invoice, dated July 22, 2002, said the payment request was for "facilities for Dallas meeting...room, mileage, meals." Another dated Jan. 31, 2003, said the ranch was used by "contest winners" of a seminar for sporting-goods department managers. An Aug. 15, 2003, invoice said the ranch was used for a "summer hunt" by unnamed department managers and winners of an unexplained contest. It isn't clear whether any of the meetings or seminars took place.

Mr. Gordon of El Alazon did not return repeated calls seeking comment.

Mr. Hey got a promotion and in 2004 Mr. Bowen took over his job. Mr. Bowen says he started with the company at age 19 as a cashier at a Flagstaff, Ariz., store earning $4.50 an hour.

Sitting at a picnic table near an Arkansas lake on a recent evening, Mr. Bowen recalls regarding Mr. Coughlin with a mix of fear and admiration. "He is a larger-than-life individual," Mr. Bowen says.

Last December, Mr. Coughlin announced that he would retire in early 2005. He had suffered a coronary blockage in 2003 and was a member of an old guard at Wal-Mart that was increasingly being supplanted by outsiders and younger executives appointed by Lee Scott, a logistics expert who became CEO in 2000.

In late November 2004, a few months before his retirement, Mr. Coughlin approached Mr. Bowen with a request that the younger executive says made him nervous. "He told me some expenses were coming through for the union project and just to approve them," Mr. Bowen says. The request, he says, involved about $2,000 of expenses for one of Mr. Coughlin's subordinates, ostensibly for travel costs such as automobile mileage and meals.

But there were no receipts, which Mr. Bowen says was unusual at the tight-fisted company. And Mr. Bowen says he didn't know anything about a union project. "They were so bogus," he says. "Meals, mileage, no receipts, nothing." Mr. Bowen decided to sit on the request for a while.

At a meeting in January in Kansas City, Mr. Coughlin told Mr. Bowen that the expenses hadn't been approved, according to Mr. Bowen. "Go approve them," he remembers Mr. Coughlin saying. Mr. Bowen was scared, partly because several fellow workers in his group had been fired the previous year in an apparently unrelated ethics scandal.

Soon after, Mr. Bowen says he went to a top Wal-Mart executive. "There's some questionable expenses y'all might want to look at," Mr. Bowen recalls saying. Wal-Mart, Mr. Bowen says, quickly called in corporate security and opened its probe.

Last week, Mr. Scott, the Wal-Mart chief executive, admonished his employees in a companywide broadcast, "If someone asks you to do something that you know is wrong -- whether that is a buddy or a supervisor or Lee Scott -- you must have the courage to say, 'No.' We all have to do this, no matter our role or position within the company."

The following day, Mr. Bowen was fired. He says he doesn't understand why, given that he blew the whistle on the expense payments. He says Wal-Mart officials told him during the investigation they believed he wasn't being forthcoming. The official explanation came to him this week: "a general lack of confidence.

We're all pretty excited' by spinoff: Discover COO
By Michael J. Martinez – Associated Press – Chicago Sun-Times
April 7, 2005

The spinoff of Discover Financial Services from parent Morgan Stanley will give the credit-card issuer more flexibility as it goes into the debit-card business, increases its loan offerings and expands into other transactional and deposit businesses, the division president said Wednesday.

''We're all pretty excited here,'' said Roger Hochschild, president and chief operating officer of Riverwoods-based Discover. ''As a stand-alone business, Discover will have the strength to compete very well and grow the company.''

On Monday, Morgan Stanley's board announced that it had approved a spinoff of Discover, which many analysts said had never been a good fit with Morgan Stanley's traditional Wall Street investment banking, asset management and institutional securities businesses.

''The decision from the board was a way to maximize shareholder value by splitting into the two businesses,'' Hochschild said. ''Each business is very well positioned with their brands, momentum and growth.'' He added, however, that the Discover unit had never achieved the kind of synergies with the rest of Morgan Stanley that investors might have hoped for.

While analysts valued Discover at between $8 billion and $9 billion, Hochschild declined to comment on the spinoff's value. Likewise, he said the financial details of the spinoff -- how many shares of Discover investors would receive for each share of Morgan Stanley stock they held, for example -- were still being determined in a process that could take three to six months.

In the meantime, Discover has big plans to expand on its core credit-card business, which now boasts 50 million cardholders. With last year's Supreme Court ruling allowing U.S. banks to issue a wide variety of debit cards other than just Visa or MasterCard, Discover plans to enter the debit-card business.

That move was bolstered Nov. 15 by the division's $311 million acquisition of the Pulse EFT Association, a network of 4,100 banks and more than 1 million merchants that handles debit- and credit-card transactions.

Hochschild said the company also plans to expand its loan and deposit services. Currently, Discover offers home-equity loans, lines of credit and savings and money market accounts. While not ruling out other banking and financial services, Hochschild said it was ''too soon to talk about specific products, but we do have a wide range of opportunities before us.''

The spinoff of Discover became almost a secondary consideration in the battle between Morgan Stanley and a group of former executives and shareholders, who are calling for the resignation of Morgan Stanley Chairman and Chief Executive Philip Purcell. While many of the dissidents had called for Morgan Stanley to shed Discover, their calls for Purcell's job only intensified after Monday's decision.

On Wednesday evening, the dissident group was scheduled to meet with institutional investors to discuss their goals, including the candidacy of former Morgan Stanley President Robert Scott for Purcell's CEO post. The meeting was closed to the media.

Morgan Stanley Fight: Round 2
Now, Alumni Tout Ousted President To Return to the Firm as CEO;
An Anti-Purcell Meeting Tonight
By Randall Smith and Ann Davis Staff Reporters - The Wall Street Journal
April 7, 2005

The battle for Morgan Stanley turned into a grudge match as an alumni group put forward former President Robert G. Scott to run the firm, instead of Chief Executive Philip Purcell.

Mr. Purcell, who has run the Wall Street firm since 1997, forced the resignation of Mr. Scott, 59 years old, in October 2003. That was based partly on the weak performance of the retail brokerage business catering to individual investors, people at Morgan Stanley have said. Both the brokerage and credit-card businesses reported to Mr. Scott at the time.

Morgan Stanley alluded to the issue in a statement yesterday, saying that its board "is well acquainted with Mr. Scott and his record while running our Individual Investor and Discover Card businesses," and that the directors reiterated their support for Mr. Purcell.

Yesterday, Mr. Scott was forced to defend himself in an appearance on CNBC-TV to drum up more support for the alumni group's campaign to oust Mr. Purcell. Although brokerage revenue declined about 14% from 2001 to 2003 after a market downturn, Mr. Scott said the results also were hurt by restructuring costs and that Mr. Purcell didn't allow him free rein with the business.

The debate about Mr. Scott's performance also highlights critics' contention that Mr. Purcell has given easier treatment to executives from his side of the firm, the former Dean Witter, Discover & Co., which acquired Morgan Stanley in 1997. Critics point out that Mr. Purcell has left in place John Schaefer, a former Dean Witter investment banker who has run the individual-investor group since 2000. A person close to Morgan Stanley said Mr. Schaefer was merely executing a "failed strategy" of cutbacks mandated by Mr. Scott.

The alumni said they proposed Mr. Scott to lead the firm and provided some details of their plans to change the firm in response to questions from institutional investors, whose support they are seeking to oust Mr. Purcell. For example, they said they would seek to rehire three executives from the Morgan Stanley side whom Mr. Purcell either ousted or replaced last week.

The alumni group plans a presentation for 6 p.m. today for investors at the offices of Sanford C. Bernstein & Co., a securities firm whose Wall Street analyst, Brad Hintz, is a former Morgan Stanley treasurer. More than 120 institutional investors have indicated they plan to attend.

Although the alumni group also contacted Merrill Lynch & Co., home of analyst Guy Moszkowski, about hosting the meeting, Merrill executives declined to provide the forum partly to avoid the appearance of acting against a competitor, people on Wall Street said.

Morgan Stanley's stock price declined $1.85, or 3.2%, to $56.45 in 4 p.m. composite trading on the New York Stock Exchange yesterday, in the first market reaction to the firm's announcement late Monday that it would pursue a possible spinoff of its Discover credit-card unit by distributing Discover shares to Morgan Stanley holders. The stock had climbed Monday in part on speculation of such a move.

The stock-price decline was the first after four consecutive daily gains after the alumni-group siege raised the possibility last week that the entire firm might be broken up or sold. Some investors said it was because the Discover announcement seemed to reduce the likelihood of more-radical actions, including Mr. Purcell's removal.

One money-management firm, Evergreen Investments, said it sold Morgan Stanley shares last week as they shot up in price on takeover speculation, based on fundamental issues as well as the current turmoil.

Jimmy Moynihan, a financial-services analyst at Evergreen, an asset-management unit of Wachovia Corp., said the Discover announcement surprised him, "especially when Purcell has been saying he wanted to see if he could leverage this division and hang in with it." While Discover hasn't been a great fit for Morgan Stanley, he noted that its steady cash flow helped Morgan Stanley's return on equity. At year end, Evergreen held 4.7 million Morgan Stanley shares.

Mr. Moynihan said the news also didn't alleviate concerns about how the rest of the company was functioning. "I still think the shop overall is ... broken is not the right word, but it's not working to the best of its ability." He said that the investment-banking division still does a good job but that the brokerage and asset-management divisions need to be improved. "And selling the credit-card division doesn't change that."

Bob Maneri, a financial-services analyst at Victory Capital Management Inc., a unit of KeyCorp, said the Discover news and the recent turmoil has had the effect of shortening the time that investors will wait to see results.

Mr. Moszkowski, the Merrill Lynch analyst, explained yesterday's stock-price decline by noting that the Discover move, which could take effect in three to six months, "would appear to preclude anything more significant, such as a sale of the whole entity." He added, "This would seem to remove some of the pressure" for more drastic action.

During his 33 years at Morgan Stanley, Mr. Scott also served as head of investment banking and chief financial officer. He became president in March 2001 after the resignation of John Mack, who had clashed with Mr. Purcell repeatedly. Mr. Scott suffered a heart attack in 1997, shortly before the merger, after which he had quadruple-bypass surgery.

Sears Gets Slap for Making Customer Wait
By Eileen Ambrose - Sun Staff – Baltimore Sun
March 16, 2005

Baltimore County lawyer sued for repair call scheduled when store knew no one would work; Makes point, wins $1

We've all been there: The utility or appliance dealer says you must be home within some large window of time on a certain day for its employees to come hook up your phone or deliver your refrigerator. Then they don't show up.

When that happened to Baltimore County lawyer Joseph T. Williams, he called Sears Roebuck & Co. to complain. He learned that no one could have come to fix his washing machine during most of the four-hour span he was told to be home because Sears technicians were in a regularly scheduled staff meeting.

So he did what many consumers might only fantasize about -- he sued. And won.

A Baltimore County District Court judge ruled in the small-claims case last Friday that Sears violated Maryland's consumer protection laws, according to Williams' lawyer, Jane Santoni.

The award -- $1, according to the court docket -- might be less than satisfying to a public tired of cooling its heels waiting for a repairman. But Williams said the money wasn't as important as the principle.

The judge "was very stern with Sears and said at the hearing, 'You don't treat people this way,'" Williams said. "That was everything I wanted."

Williams can still pursue legal action against Illinois-based Sears. Because of this, Bill Masterson, director of communications for Sears, said he couldn't discuss the details of the case.

But he added, "We regret that Mr. Williams didn't receive the service in the time he expected."

The case reflects consumers' growing frustration in their pursuit of service.

"Time is extremely valuable to many families, and far too many companies have become insensitive to the time constraints that many Americans are under," said Travis Plunkett, legislative director for the Consumer Federation of America.

"People are just fed up with being kept waiting by companies, whether it's at home waiting for something to be deliv ered or on line waiting for a real person to answer their call."

Paying attention

Some companies appear to be responding, though.

Comcast said it started evening service times, in addition to daytime hours, in response to customer demand. The cable company calls customers the day before the appointment as a reminder, and technicians call the day of service to say they are on the way, said Kirstie Durr, a Comcast spokeswoman.

The cable company doesn't use specific times to set up appointments because it's difficult to know how long each job will take.

"When a technician arrives at a home, it can be a 10-minute job or sometimes people try to wire things themselves and ... it takes the technician longer than expected," Durr said. Using a four-hour service window makes customers happier, she said.

And when a Comcast technician misses the window, the customer gets a $20 credit on his or her bill or free installation, she said.

Washing machine

Williams' beef with Sears began about a year ago. His Sears washing machine was on the fritz, and the service department said it would send someone to fix it between 8 a.m. and noon on a Friday. Not wanting to be away from the office for four hours, Williams requested the first service call of the day. Sears said no.

So, on the appointed day, Williams waited at home. And waited. About 11:15, he called to find out the repairman's whereabouts. That's when he was told that service crews were in a meeting that morning, and they hadn't even reached their first appointment yet.

"I said, 'You mean I have been waiting for three hours and nobody has even started?' They weren't even apologetic about it," Williams said. "They said, 'Yeah, that's right.'"

He canceled the service call and warned that he would sue.

"Businesses do the things they are supposed to do because of lawsuits," Williams said in an interview Wednesday.

During a court hearing last week, a Sears representative said the company holds meetings between 7:30 a.m. and 9:30 a.m. every other Friday and service crews go out only after that, said Santoni, who represented her law partner in the case.

The Sears representative added that even though the service department knows of the meetings, it still tells customers to wait at home during hours the crew is unavailable, Santoni said.

Sears makes service calls during four-hour windows, six days a week. Several call centers set up appointments around the country.

Staff meetings are set up on an as-needed basis, and while call centers are aware of them, they do not know how long they'll last, Masterson said. When meetings are held, appointments are arranged to give technicians enough time to reach a home within the four-hour window, he said.

Half of a day

"There's enough variability in terms of the repair work done that it's difficult to give customers more than a four-hour win dow," Masterson said. Other service providers, he added, only provide customers the date of the appointment. "We work hard to at least give you half-a-day" appointments, he said.

In his lawsuit, Williams asked for $1,000 to make up for four potentially billable hours he lost while at home. Baltimore County District Judge Robert J. Steinberg lopped off $999 of that, saying Williams hadn't proved he lost wages, Santoni said.

Besides the $1, Sears must pay the $20 court fee, according to court documents.

"What the judge was upset about is that Sears knew that they weren't going to get there for at least two hours and yet demanded [Williams] be there for two hours," Santoni said.

An assistant to Steinberg said the judge cannot comment on cases, and there are no written opinions in small-claims cases.

While Williams can pursue other legal action, it's unlikely. "We made our point," he said.

'Dump Phil' Drive Runs into Chicago Club's Clout
By Susan Chandler – Staff Reporter – Chicago Tribune
April 6, 2005

They've got money. They've got 11 million shares of stock. And they're determined that Morgan Stanley Chief Executive Philip Purcell has got to go. They are the eight former Morgan Stanley executives who are waging a "dump Phil" campaign with full-page ads in the Wall Street Journal.

But despite the furor, Purcell is hanging in there--so far anyway--as CEO of one of Wall Street's top-drawer investment banking firms. Much of his staying power, it turns out, may be coming from Chicago.

Purcell has long and deep ties to his board, which stem from his days as one of the architects of Sears, Roebuck and Co.'s expansion into financial services during the 1980s.

Edward Brennan, the former CEO of Sears and Purcell's former boss, is on Morgan Stanley's board. So is Michael Miles, a longtime Sears board member and former Kraft Foods CEO. Another board member with Chicago connections is John Madigan, the former CEO of Tribune Co., which publishes the Chicago Tribune.

When Sears spun off its Dean Witter brokerage unit and Discover credit card as a separate company in the 1990s, Purcell went with it as CEO. His board at Dean Witter included Brennan and Miles, as well as Michael Marsh, the former CEO of Deerfield paper company Fort James Corp. and C. Robert Kidder, a former principal with Stonehenge Partners Inc.

When Dean Witter Discover & Co. merged with Morgan Stanley in 1997, both Marsh and Kidder joined Morgan Stanley's board.

The apparently clubby Morgan Stanley board is a worrisome issue, say some shareholder activists and corporate governance experts.

Of the boards ranked by the Corporate Library, Morgan Stanley's was the 12th most connected as measured by the number of significant business relationships directors have with each other.

"I'm concerned about the appearance, at least, of a bunker mentality," said Nell Minow, a corporate-governance activist and editor with the Corporate Library. "Purcell's credibility has been badly damaged by this, and he has not responded in a way that will restore it. I'm very troubled by the way he is reacting."

On the surface, at least, Morgan Stanley's board appears to be one of the most independent in the country. Purcell was the only insider among the firm's 11 directors.

Until last week, that is, when he passed over more senior executives to name two new co-presidents--Stephen Crawford and Zoe Cruz--who were then added to the board, bringing the total number of directors to 13.

"He has circled the wagons. He has put two people on the board who will be intensely loyal to him," said Andy Merrill, a spokesman for the group of eight former executives. "And he has a board that is very friendly and loyal to him. This is a business where you need to invite a healthy give-and-take and a healthy dialogue."

But James Drury, a Chicago executive recruiter who knows Purcell and several of his board members, says boardroom friendships don't matter as much as they once did. "Fifteen years ago, a lot of boards were put together from friendships, and that might have gotten in the way," Drury said.

"But today, directors cannot afford to allow the appearance that friendship has superseded their board responsibility. If Phil Purcell is viewed as having made bad management decisions ... the board will step up to the plate and do what they need to do no matter how personally warm they feel about Phil."

Nobody is questioning Purcell's intelligence. He has degrees from the University of Chicago Graduate School of Business and the London School of Economics, and he became one of McKinsey & Co.'s youngest principal directors at 27.

He has a reputation as a gifted strategist and someone who can play corporate hardball with the best of them. But his detractors say Purcell is aloof and distant in a business where personal connections matter a great deal. They also say he has failed to bring forth the synergies promised by the merger of the two financial firms.

Purcell tried to appease shareholders Monday with the news that Morgan Stanley would spin off its Discover credit card unit to shareholders, which might create a new company worth as much as $14 billion.

Morgan Stanley's stock price had risen nearly 9 percent over four days by the close of trading Monday. But investor enthusiasm diminished Tuesday as Morgan Stanley stock fell $1.85 to $56.45 a share.

The spinoff announcement didn't succeed in disarming the dissidents.

"It fails to address our issue," Merrill said. "Our issue continues to be that we're seeking a change of leadership in the firm."

Some people who have worked with Purcell suspect that East Coast elitism has something to do with the revolt.

Many executives at Morgan Stanley, the cream of the crop of New York investment-banking firms, have never adjusted to reporting to Purcell, a Chicagoan who headed a mass-market brokerage like Dean Witter where many clients count their net worth in the hundreds of thousands, not millions.

The fact that Purcell commutes home to the Chicago area--where his family continues to live--hasn't helped.

"If you're running a major investment bank based in New York City, it's important to be part of the fabric of New York City," said a source close to the dissidents. "It's tough to do that when you're commuting back and forth."

High Court Rules  IRAs Untouchable

Unanimous Decision
Means Retirement Savings
Are Protected From Creditors
By Christopher Conkey and Rachel Emma Silverman – Staff Reporters –
The Wall Street Journal
April 5, 2005

In a decision with broad implications for investors worried about protecting their nest eggs, the Supreme Court ruled that creditors may not seize individual retirement accounts in bankruptcy proceedings.

Yesterday's unanimous decision adds IRAs to a list of protected retirement assets that includes Social Security benefits, 401(k)s and pensions. The ruling reversed a lower-court decision that IRAs shouldn't enjoy bankruptcy protection because individuals can make withdrawals before retiring.

The ruling offers a new layer of federal protection for IRA assets, which could make transfers and contributions to IRAs more attractive. That could be good news for many people with creditor concerns -- such as doctors, business executives and other professionals -- who feared moving their assets into IRAs after changing jobs or opening their own business.

PROTECTING AN IRA

The Supreme Court unanimously voted to extend federal protection to IRAs:

 Until now, only employee-sponsored retirement plans were shielded from creditors under federal law.

 IRAs enjoyed protection under many states, but those laws varied. Because of that, many professionals were reluctant to roll over assets into these accounts from employer-sponsored plans.

 The court didn't address whether large IRAs would be fully protected.

The Supreme Court decision comes as Congress is expected to pass a bill this week that would limit the ability of many people to file for bankruptcy protection. President Bush has signaled he will sign it into law.

Last year, more than 1.6 million people filed for bankruptcy, a figure nearly double that of a decade earlier. With the pending legislation making it harder for middle-income Americans to wipe out their debts in bankruptcy, consumer groups hailed the decision as welcome relief.

"By protecting IRAs from creditors in bankruptcy, this decision allows workers to preserve retirement savings when, after a job change, their circumstances force them into bankruptcy," said Jean Constantine-Davis, a senior attorney for AARP.

More workers are contributing to IRAs and rolling over other assets like pensions and 401(k)s into IRAs when they change jobs or retire. Nearly $3 trillion was invested in IRAs at the end of 2003, and the nonpartisan Employee Benefit Research Institute estimates that number rose by more 12% last year.

Thanks to the ruling, "we are probably going to see a wave of IRA rollovers," predicts Ed Slott, a Rockville Centre, N.Y., IRA consultant. "The Supreme Court produced a huge win for everyone with IRAs."

The ruling came out right before the April 15 tax deadline. Individuals have until that date to make contributions to their IRAs for the 2004 tax year. This is the time when many people contribute to their IRAs. "The ruling gives them an added incentive," Mr. Slott says.

In rejecting the lower-court ruling, the Supreme Court emphasized that unlike savings accounts, early withdrawals from IRAs trigger 10% tax penalties. "That penalty erects a substantial barrier to early withdrawal," Justice Clarence Thomas wrote in the court's opinion. "Funds in a typical savings account, by contrast, can be withdrawn without age-based penalty."

The Supreme Court didn't address whether large IRA accounts will be fully shielded, though. The bankruptcy code says that certain assets "reasonably necessary" to support the debtor and any dependents may be protected from creditors. That language means some of the assets in very large IRAs might not be protected from creditors.

However, the bankruptcy bill expected to pass Congress this week would cap the IRA exemption at $1 million, excluding rollover deposits that often make up the bulk of such accounts. This provision would effectively extend protection to most IRA accounts.

Until yesterday's ruling, IRAs generally weren't protected from creditors under federal law -- unlike 401(k)s and other employer-sponsored retirement plans. Instead, IRA protection was covered by state laws, which vary. Some states like New York and Florida offer broad protection for IRAs. But other states have more-limited coverage -- exempting, for instance, only what is reasonably necessary to support IRA owners and their dependents, or limiting the exemption to a specific dollar amount.

James Lange, a Pittsburgh lawyer and estate planner, has several physician clients who have 401(k)s from their prior employers. When they left their jobs, they opted not to roll over their plans into IRAs because they worried that creditors could pierce the IRAs. Better creditor protection made the 401(k) plans more attractive to these doctors -- even though IRAs generally offer broader and more-flexible investment and estate-planning options than 401(k)s.

For tax year 2004, individuals can contribute as much as $3,000 of their annual earnings to an IRA -- or $3,500 for those ages 50 and older. The contribution limits for 2005 are $4,000 and $4,500, respectively.

Yesterday's ruling stemmed from a dispute between an Arkansan couple and the trustee selected to oversee their bankruptcy proceeding. Richard and Betty Jo Rousey, both former employees of defense contractor Northrop Grumman Corp., rolled over $55,000 in company-sponsored pension and 401(k) plans into an IRA after he took early retirement and she was fired in 1998. Lawyers for the couple say they filed for Chapter 7 bankruptcy protection, which liquidates unprotected assets to pay off creditors, after chronic back pain prevented Mr. Rousey from finding another job.

The court-appointed trustee, Jill Jacoway, objected to their attempt to exempt their IRA from creditors because, unlike other retiree funds tied to age, the Rousey's had "unlimited access" to the funds before retirement. Lower courts agreed with Ms. Jacoway until the Supreme Court overturned the decision yesterday.

Corrections & Amplifications
WALL STREET JOURNAL
April 5, 2005; Page A2

NATIONWIDE MUTUAL INSURANCE CO. was one of a group of insurance companies that have dropped their support for a trust fund to pay claims stemming from related lawsuits. The company was incorrectly identified as Nationwide Financial Services Inc. in an initial version of an article Tuesday.

EDWARD BRENNAN, the former chief executive of Sears, Roebuck & Co., was incorrectly identified as Robert Brennan in a page-one article yesterday about Morgan Stanley CEO Philip Purcell. Also, Sears created Allstate Insurance in 1931. The article incorrectly stated that Sears acquired Allstate after 1978.

Morgan Stanley Approves Sale Of Its Discover Card Unit
Wall Streeet Journal Online News Roundup
April 4, 2005

Board Says It Backs Purcell
In Letter to Employees

NEW YORK -- Morgan Stanley's board of directors has approved the sale of the company's Discover Card unit, a person close to the board said Monday.

The board met over the weekend and authorized company executives to divest the credit-card business, the fourth-largest in the U.S.

The board expects the sale to net at least $8 billion to $9 billion, the source told Dow Jones Newswires. A Morgan Stanley spokeswoman declined to comment on the sale. Some shareholders have been pressuring the board and chief executive Philip Purcell to sell Discover and other businesses that became part of Morgan Stanley when it was purchased by Dean Witter Discover in 1997.

Separately, Morgan Stanley's board said in a letter to employees that it stands fully behind Chairman and Chief Executive Philip Purcell and the company's management team.

The memo is the latest salvo in a civil war pitting some former and current executives of the securities businesses of the venerable investment bank against those from Dean Witter Discover, the retail brokerage and credit card firm led by Purcell that bought Morgan Stanley in 1997. The board's support is crucial. Under the terms of the merger, a 75% board vote is required to change Mr. Purcell's duties.

A campaign for Mr. Purcell's resignation intensified after he replaced the firm's president, Stephan Newhouse, with co-presidents Zoe Cruz and Steve Crawford. The units he brought to Morgan Stanley, the Dean Witter brokerage arm and the Discover Card, have significantly underperformed peers, and the stock's performance has lagged behind competitors such as Goldman Sachs and Lehman Brothers.

Three senior capital markets executives quit last Tuesday, after Mr. Purcell the night before put their businesses in charge of the two new co-presidents, Ms. Cruz, who had been head of fixed income and Mr. Crawford, formerly the chief administrative officer.

"There is no fair or compelling case for a change in the CEO, an action that would involve risk and discontinuity," the board wrote in a message to all employees. "But we believe the new organization announced last Tuesday is responsive to the desire to go faster."

Mr. Crawford and Ms. Cruz are "experienced leaders steeped in the Morgan Stanley way of doing things," the letter said. "They bring different skills to the presidency, but a common passion for the firm. We are very positive about consolidating our securities business under their guidance."

Last Tuesday, eight former top executives of Morgan Stanley, including former Chairman S. Parker Gilbert, released a letter calling for Morgan Stanley's board to fire Mr. Purcell, claiming he has squandered the firm's reputation and altered its focus on investment banking. Morgan Stanley officials have said they have no plans to publicly go head-to-head with the anti-Purcell campaign led by Messrs. Gilbert and Scott.

Answering the former directors' complaint that the board didn't respond to their call about Mr. Purcell, the letter said the board had interviewed all but one member of Morgan Stanley's management committee before last month's annual meeting and found "strong underlying support" for Mr. Purcell's vision of a diversified financial firm although there were "some dissenting viewpoints and disagreement about implementation." The board told employees it regretted "the anxiety other events of the last week may have caused," saying that much of the commentary about the firm's directions was "gratuitous, unfair and alarmist."

However, one response by the Purcell team -- seeking public support from about 15 senior executives for an open letter to the alumni -- has not worked as hoped. Some of those asked to sign resisted, or demanded changes, people at the firm said. Analysts have been generally supportive, but some say the turmoil is past the recovery point.

"The battle for the control of the company has reached a point where it is now harming the business," wrote Punk Ziegel analyst Richard Bové, in a note last Thursday. "Yet, the participants in the fray seem to be unable to communicate with each other and are moving to more and more destructive acts. Thus, management must go and the dissidents not allowed to take control."

Sears Names Chris Shimojima Head of Customer Direct
INTERNET RETAILER.COM
April 4, 2005

As part of the merger between Kmart Holding Corp. and Sears, Roebuck and Co., the new Sears Holdings Corp. has named marketing veteran Chris Shimojima vice president and general manager of its Customer Director e-commerce and catalog operations, reporting to Sears CEO Alan J. Lacy. Shimojima replaces his former boss, Bill Bass, who had served as both senior vice president of e-commerce at Lands’ End and head of Sears Customer Direct.

Shimojima has served Sears since 2002 as vice president of marketing and merchandising for Customer Direct. Prior to Sears, Shimojima served in senior marketing positions for Prudential E-Business Group, the former Kozmo.com delivery service, AT&T, PepsiCo and Nestle Foods. Sears has yet to name a second person to fill the position Bass left as head of e-commerce at Lands` End, a spokeswoman says.

Bass tells InternetRetailer.com he is looking forward to entering a new venture outside of the retail business, but declines to be more specific.

Among other personnel changes at Sears Holdings, Kmart veteran Karen Austin will take over as CIO, replacing Garry Kelly, who was CIO of Sears, Roebuck since 2002.

Why you don't want this guy's job
By Steven R. Strahler - CRAIN'S CHICAGO BUSINESS
April 3, 2005

Sears' Alan Lacy lost his board and his company.
Now he has the boss from hell. He won't stay long.

Alan J. Lacy's tenure as CEO and vice-chairman of Sears Holdings Corp. is likely to be shorter than his five-year employment agreement.

Much shorter.

Mr. Lacy was front and center as Sears, Roebuck and Co.'s shotgun merger with Kmart Holding Corp. was sold to Wall Street and Sears employees.

But in the coming months, life at the merged Sears Holdings will get much tougher for Mr. Lacy. Pressure for improved results will quickly mount from controlling shareholder and Chairman Edward Lampert, Mr. Lacy's management responsibilities will shrink as businesses and jobs are shed and his allies from the former Sears board are largely gone.

Meanwhile, Mr. Lacy, 51, will have little financial incentive to endure a less-than-pleasant work life. He pocketed about $28 million in options proceeds from the sale of Sears to Kmart.

Those who have followed Mr. Lacy and Mr. Lampert for years expect Mr. Lacy's tenure to last just six to 15 months.

Here's why:

His new boss is a ruthless, results-oriented investor. Mr. Lampert is a hedge fund manager and a former Goldman Sachs & Co. risk arbitrageur who has made a killing investing in turnaround situations. He bought Troy, Mich.-based Kmart out of bankruptcy two years ago.

People who know him say Mr. Lampert, 42, will view Sears as strictly a moneymaking opportunity and let the chips fall where they may in terms of shedding businesses or people. "He's a complete agnostic" ˜ neither a liquidator nor an operating guy in corporate philosophy, says Robert Monks, a shareholder-rights ally of Mr. Lampert's in the past. "Eddie will make money."

Observers say Edward Lampert views Sears strictly as a moneymaker. A reconstituted board is no longer in Mr. Lacy's corner. Mr. Lampert has stocked the new 10-member Sears panel with Kmart directors. Only Mr. Lacy and two other directors are holdovers from the old Sears board, though one is a crucial Lacy loyalist, former Kraft Foods Inc. and Philip Morris Cos. CEO Michael Miles.

Nevertheless, Mr. Lacy is in a ticklish situation with another director: former Sears executive Julian Day, who competed for the top spot with Mr. Lacy in 2000. He later surfaced as CEO of Kmart. "He will bring a brutal honesty to the company," says Chicago-based executive recruiter James Drury.

Mr. Lacy's Sears management team is dispersing. Glenn Richter, a Sears veteran who was to retain his chief financial officer title in the merged firm, started the same position last week at R. R. Donnelley & Sons Co. Four other top Sears executives left after the $11-billion deal closed last month.

"There'll be a lot more," says Sid Doolittle, founding partner of Chicago-based retail consultant McMillan/Doolittle LLC, who has experience in industry consolidation as a former Montgomery Ward & Co. executive.

Mr. Lacy's portfolio is likely to shrink as Sears sheds unproductive assets. To boost performance, Mr. Lacy could be put in the position of working himself out of a job by unloading lagging or non-core divisions like home improvement chain Orchard Supply, Sears Canada and Sears' Home Services.

Even Lands' End Inc. could go, though Mr. Lampert said he isn't entertaining the thought. Sears bought the Dodgeville, Wis.-based apparel merchant in 2002, and it has been a disappointment. "We're focused on growth and not disposition of assets," adds a Sears spokesman. Neither Mr. Lacy nor Mr. Lampert would comment for this story.

Mr. Lacy's reputation as more of a Mr. Fixit than a visionary may suit Mr. Lampert in the short term. A huge administrative task awaits Mr. Lacy in integrating the two merger partners and realizing a promised $500 million in annual savings ˜ a task for which he has demonstrated aptitude.

As CFO under former Sears Chairman and CEO Arthur Martinez, Mr. Lacy cleaned up problems in Home Services and in a credit card unit that is no longer part of the company. That ˜ and Mr. Martinez's stumbling apparel strategy, the "Softer side of Sears" ˜ helped get Mr. Lacy promoted.

Yet the new Sears, like the old Sears, still lacks a merchant at the top. Sears points to Luis Padilla, hired last year from Marshall Field's. But in the new lineup he has moved down a notch, reporting to Sears President Aylwin Lewis, Kmart's most recent CEO.

Despite its new size ˜ the nation's No. 3 retailer, with $55 billion in annual sales ˜ Sears still confronts fundamental questions about sales growth, increasing price competition and weak performance comparisons with Wal-Mart Stores Inc. and other discounters.

Given those challenges, the question is whether Mr. Lacy is right for the new Sears or whether the new Sears is right for Mr. Lacy.

Some observers think his tenure will not last beyond June 2006 when his 75,000-share stock grant ˜ worth $10 million at current market prices ˜ fully vests.

But many others believe the Lacy-Lampert team will break up much sooner.

Remebering when at Sears Tower....
Winds over and through Chicago
Tom Skilling - Chicago Tribune
April 4, 2005

This is the midpoint of the windiest time of the year (March-April) in Chicago. It has been 17 years (April 6, 1988) since 97 large glass windows were blown out the Sears Tower. The oldest tree in Illinois (a 700-year-old Burr Oak) was toppled in Morgan Park, and a huge rogue wave broke out windows 25 feet above normal lake levels on the 68th Street Crib about three miles out in Lake Michigan. Twice (9:50 a.m. and 10:50 a.m.) 76 m.p.h. gusts were recorded at then Meigs Field (Northerly Island). The huge differences in mixing/colliding air masses this time of the year not only initiate the severe weather season, but also contribute to more sustained widespread low pressure "system-generated" winds.

A tangled web of managers at Sears
Merger reunites rivals Alan Lacy, Julian Day
By Susan Chandler - Staff Reporter – Chicago Tribune
April 3, 2005

If this were an Oscar Wilde novel or a trashy page turner from the 1940s, it might be titled, "The Revenge of Julian Day."

But the drama playing itself out at the Hoffman Estates headquarters of Sears Holdings Corp. is no work of fiction, and its denouement may determine who ends up calling the shots at Sears during one of the most critical periods in its nearly 120-year history.

Julian Day is a British-born, Oxford-educated finance whiz who had a brief, but meteoric, rise at Sears, Roebuck and Co. Within six months of joining the company in 1999, he was named chief operating officer and was vying with Alan Lacy, Sears' former chief financial officer, to succeed CEO Arthur Martinez.

His British accent rubbed some Sears' old-timers the wrong way, but his willingness to solicit input from rank-and-file employees over early morning pancakes in the corporate cafeteria won him a growing fan base, one former Sears executive says. So did Day's willingness to roll up his sleeves and get involved when goals weren't being met.

Yet by the fall of 2000, Day was history. Lacy won the horserace to succeed Martinez as Sears' CEO, and his first major stroke was the elimination of Day's job.

Now that Kmart and Sears have merged, Day and Lacy are back together again.

Two years after Lacy showed him the door, Day ended up as president of Kmart Corp., the faltering discount chain that had sought bankruptcy protection in January 2002. It was hardly a step up, but Day earned the respect of Kmart's new owner, investor Edward Lampert, by leading Kmart out of Chapter 11 a year later.

That relationship, forged in Kmart's dingy Troy, Mich., headquarters, may determine the real hierarchy at the new company, retail experts say.

Lacy is vice chairman and chief executive of the new Sears Holdings, and a member of the board. But Day is a non-executive member of Sears' board and the only board member who has worked in high-level positions at both companies.

Savvy career coaches advise their clients to be nice to people they meet on the way up because they might run into those same folks on the way down. But this kind of turnaround is nearly unprecedented, said James Drury, the Chicago executive recruiter who brought Day to Sears.

"It's got to be a bit awkward for Alan," Drury said. "These days, boards meet in executive session without management. And in those meetings, Julian will be there and Alan won't."

Not a chance appointment

Former Kmart executive Gary Ruffing, now a retail consultant at BBK Ltd. in Southfield, Mich., says he is sure that Day isn't on Sears' board by chance.

Lacy's job at the new Sears will be focused on restructuring the sprawling retailer with $55 billion in combined annual revenue into an efficient competitor. If Lacy doesn't move fast enough, "Eddie Lampert won't be afraid to pull the plug and put Julian Day in there to get things done," Ruffing predicted.

"Lampert has fallback positions for everything. `If retail doesn't work out, I've got real estate. If Alan Lacy doesn't work out, I've got Julian Day.'"

Lampert could do a lot worse, retail experts say.

Day, 52, learned the ropes at Kohlberg Kravis Roberts & Co., the leveraged-buyout firm that aggressively acquired "undervalued" companies during the 1980s. In 1992, he joined the Safeway supermarket chain as chief financial officer at KKR's request and was a key participant in its turnaround.

It was Martinez's idea to bring Day to Sears, Drury said. Martinez needed a new CFO but he also wanted to increase the number of internal contenders to succeed him. Rumors swirled that Day had become Martinez's heir apparent, a view that solidified when he quickly was made a member of a three-person Office of the Chief Executive along with Martinez and Lacy.

Day soon became known for voicing strong opinions which often differed dramatically from Lacy's, say those who knew both men.

"They were like two cats in a room circling each other," said someone familiar with both Day and Lacy. "The more visceral dislike is on Alan's part."

Day liked to see decisions made fast and he had no patience when he ran into Sears' famous institutional inertia.

"He represented a new school of thinking. He would always challenge those who said, `No, it's not done that way,'" the former executive said. "But he always did it as a gentleman. I never saw him yell or scream at anyone."

Still, Day wasn't as decisive as some had expected and his professorial, didactic style of communication probably hurt him. In the end, "He left very few footprints in the sand from his time at Sears," according to another former Sears executive.

One reason Day and Lacy never got along may have been that they were too similar, several sources said. They are close in age. Both have plenty of gray matter and MBAs, although Day's degree from the London Business School has slightly more cachet than Lacy's from Emory University. Both are financial strategists.

"Alan saw Julian as somebody who did what he did, maybe a little bit better," said the person familiar with both men. "Julian saw Alan as someone uninterested in the business, someone who saw the business as a set of numbers on a piece of paper."

A spokesman for Sears said Lacy is "pleased to be working with Julian" and that he "enjoyed their affiliation before." Day could not be reached for comment.

Now that the Sears-Kmart merger is complete, Lacy is essentially starting over.

"Alan, like everybody else, has to prove himself," Lampert said in interviews last week.

Lewis to lead retail initiatives

Lacy's role in the new company already appears less important than that of Aylwin Lewis, the fast-food executive and branding expert who succeeded Day as Kmart's CEO. Lewis is in charge of Sears' retail operations, including the central strategy of converting hundreds of Kmart stores to a new format called Sears Essentials.

Lacy, in contrast, has been given several laggard businesses to manage, including Lands' End, the preppy catalog company Lacy acquired in 2002, and Orchard Supply, a West Coast hardware chain purchased by Martinez in 1996.

Even though he knows their history, Lampert seems little concerned about potential bad blood between Lacy and Day.

"Julian has had a level of success that means there is a different dynamic," Lampert said during a stop at the Tribune on March 24. "I hope they will be good team players, but you never know."

Even if Lacy doesn't find a permanent place on Lampert's team, he won't be leaving empty-handed. Lacy, 51, reaped $20 million from cashing in his Sears options when the merger closed. And under his five-year contract with Sears Holdings, he could walk away with an additional $10 million or so in restricted shares if he is terminated without cause and Kmart stock stays around its current level. For Lacy to make money on his 200,000 options in Sears Holdings, the company's stock would have to remain above the lofty strike price of $131 a share.

Lacy told Sears shareholders last month that he plans to stick around and make sure the merger works out. And those who have worked with him agree that he has something to prove.

"Alan needs victory here," said the former Sears executive. "What he has just wrought has to be validated before he can effectively move on to another opportunity."

Julian C. Day

Sears Chairman Reports 39.4 percent Stake--Filing
Reuters
April 1, 2005

(Washington) Chairman Edward Lampert holds a 39.4 percent stake in Sears Holdings Corp., the retailer formed in the merger of Sears, Roebuck and Co. and Kmart Holding Corp., through his hedge fund, ESL Investments, according to a regulatory filing on Friday.

Lampert, formerly Kmart's chairman, said in a filing with the U.S. Securities and Exchange Commission, that he holds 64.6 million common shares of the third-largest U.S. retailer.

Shares of Sears Holdings began trading on the Nasdaq on Monday. Shares closed at $133.17 on Thursday.

Sears Takes Step up in Women's Fashions
By Sandra Guy – Business Reporter – Chicago Sun-Times
April 1, 2005

Would a Desperate Housewife become a Sears shopper?

Sears Holdings Corp. announced Thursday it has started selling the Parallel clothing brand in an exclusive deal with the hot, fashion-forward French designer BCBG Max Azria.

The Parallel brand, which J.C. Penney discontinued late last year because of slow sales, will be sold through Sears' Web site at Sears.com and at Sears' 150 trendiest stores, including 11 in the Chicago area.

BCBG Max Azria's styles are aimed at fashion-conscious women ages 18 to 35 who look for the latest designs, colors and fabrics at affordable prices. A Parallel rib knit tank-top with lace trim sells for $22, a pleated print skirt for $44, and a pink ruffle trim jacket retails for $72.

A typical Sears apparel shopper is a woman 30 to 55 years old.

Sears intends to win over the most cutting-edge fashionistas among those shoppers, as well as trendy shoppers in its juniors department, said Gwendolyn Manto, Sears' general manager of apparel.

"BCBG is a hot fashion brand. It will be the leading edge of fashion for Sears," Manto said. "It's a design fashion that a broad spectrum of women can wear."

Sears started selling Parallel clothing and shoes in several of the 150 select stores this week, and will roll out the brand in the next two weeks. In the summer, Sears will introduce Parallel handbags and, in the fall, a fragrance, as part of the Hoffman Estates-based retailer's effort to demonstrate how shoppers can outfit themselves head-to-toe in a single brand.

Sears has redesigned its women's clothing into three lifestyle groups, and will continue to add exclusive brands in each group, Manto said.

Parallel is part of Sears' "Update" group, along with the retailer's in-house Apostrophe brand, the A-Line brand by Jones Apparel Group, and another brand to be announced this fall.

The other lifestyle groups are "Relaxed," featuring the Classic Elements brand and two brands to be named this fall; and "Classic," led by Lands' End, Covington and First Issue by Liz Claiborne.

The deal between Sears and BCBG, whose financial terms were not disclosed, is part of a growing movement by apparel makers to sell fashions with runway reputations at modest prices.

"Sears is a natural fit as our new exclusive partner for Parallel because together we are able to make fashion more accessible," said Max Azria, chairman and CEO of BCBG Max Azria Group.

Other examples of retailers with exclusive designer brands include Target's Isaac Mizrahi, J.C. Penney's nicole by Nicole Miller and Hennes and Mauritz's (H&M) lower-cost line by Chanel's Karl Lagerfeld.

One retail analyst took a wait-and-see attitude about Parallel's introduction at Sears.

"Apparel has been down and out in recent years at Sears, so anything that's fashionable yet affordable is a move in the right direction," said Kim Picciola, retail analyst at Chicago-based Morningstar.

"It remains to be seen whether consumers react to this brand. Maybe those consumers have already left the store," she said.

Sears also has expanded its young menswear brand, Structure, to 460 of its 870 department stores, the retailer announced Thursday. The Structure brand, which Sears bought from Limited Brands, debuted last fall in five markets, including Chicago.

Separately, Sears top executives continue to leave the company as Kmart's $13.2 billion takeover continues apace.

So far, 10 Sears executives have left, including Mike Graham, the former controller; Beryl J. Buley, former general manager of retail store operations, and Sara LaPorta, former senior vice president of strategy.

Kmart also has taken over its own in-store merchandising and chosen a new music supplier for 400 of its 1,470 stores as part of its efforts to squeeze savings from suppliers.

`Mass layoff ' in store at Sears
Filing: Headquarters to lose at least 250
By Becky Yerak – Staff Reporter - Chicago Tribune
April 1, 2005

Less than a week after Sears and Kmart officially merged, the new company has notified the state about a "mass layoff" planned at the Hoffman Estates headquarters.

Under a 2004 Illinois law, employers with at least 75 workers must give 60 days' notice of pending plant closings or mass layoffs. A mass layoff is defined as job cuts at a single site, typically during a 30-day period, of "at least 33 percent of the employees and at least 25 employees, or at least 250 employees regardless of the percentage."

Sears Holdings Corp. put the state on notice that it was cutting at least 250 workers earlier this week. It was posted Thursday on the Web site of the state's Department of Commerce and Economic Opportunity.

Sears spokesman Chris Brathwaite declined to comment beyond the filing and said it hasn't been determined how many people will lose their jobs. The final tally, however, is expected to exceed 250.

Kmart has about 2,000 workers in its Troy, Mich., headquarters. More than 4,000 people work at Sears' headquarters, even after previous job cuts.

Sears Holdings is headed by Edward Lampert, a Connecticut financier who in 2003 bought Kmart Holding Corp. out of bankruptcy and nursed it back to profitability, along with a soaring stock price.

Kmart has eliminated 57,000 jobs since it filed for bankruptcy in 2002, according to the Detroit News.

Lampert also engineered the $12.3 billion acquisition of Sears, creating the nation's third-largest retailer, and he isn't known for wasting time.

"I don't know what the level of headcount reduction will be. We should get at that relatively soon," he told the Chicago Tribune last week, but he alluded to fat that can be cut from Sears.

"If Kmart has 10 people buying ladies' clothes and Sears has 60 people buying ladies' clothes, we can do better than 60," he said.

Other areas targeted for cuts include human resources, information technology and public relations.

Workers affected by the job cuts will receive severance and outplacement packages.

Sears said it also plans to announce benefits changes in April, though they won't take effect until 2006. The company previously said that compensation and benefits might be reduced to levels more in line with what Kmart offers.

Company records show that Sears Roebuck ended 2004 with about the same number of workers it had in 2003, despite declining sales and the divestiture of some businesses.

It ended 2004 with about 203,000 workers in the United States, including Puerto Rico, and 44,000 in Canada, including part-time employees.

Steep job cuts also are expected at Kmart's headquarters, but Sears said about 395,000 workers in the stores will keep their jobs.

In February, Sears' Lands' End unit in Dodgeville, Wis., announced it was cutting 200 full-time and 175 part-time jobs, as well as 300 seasonal positions. Nearly half of the cuts, which represent 6 percent of its workforce, will occur when a call center in Cross Plains, Wis., closes in June.

Judge Blocks Rule Allowing Companies to Cut Benefits When Retirees Reach Medicare Age
By Robert Pear – New York Times
March 31, 2005

WASHINGTON, March 30 - A federal district judge on Wednesday blocked a Bush administration rule that would have allowed employers to reduce or eliminate health benefits for retirees when they reach age 65 and become eligible for Medicare.

Ten million retirees could have had benefits cut under the rule, which was adopted last April by the Equal Employment Opportunity Commission.

The judge, Anita B. Brody of the Federal District Court in Philadelphia, struck down the rule and issued a permanent injunction that prohibits federal officials from enforcing it.

The rule "is contrary to Congressional intent and the plain language of the Age Discrimination in Employment Act," the 1967 law that bans most forms of age discrimination in the workplace, Judge Brody wrote.

The erosion of retiree health benefits is an explosive political issue. Before issuing the rule, the commission was deluged with letters opposing it.

The rule would have created an explicit exemption to the age discrimination law, allowing employers to reduce health benefits for retirees when they became eligible for Medicare. Under the rule, Judge Brody said, employers could have given older retirees "health benefits that are inferior" to those given retirees younger than 65.

The commission argued that employers were more likely to continue providing health benefits to retirees under 65 if they were allowed to reduce or eliminate benefits for those 65 and older.

AARP, the main plaintiff in the case, rejected that argument. It said the rule would accelerate the erosion of retiree health benefits, a trend that has been evident for more than a decade.

Christopher G. Mackaronis, a Washington lawyer for AARP, said Wednesday: "The rule was an example of executive arrogance. Federal agencies have no authority to rewrite laws passed by Congress. The rule was adopted in April 2004, but officials tucked it in their back pocket while they courted older voters last year. After the election, they moved forward with the regulation."

The rule, written by the commission, was reviewed and cleared by other agencies, including the Department of Health and Human Services.

Cari M. Dominguez, the chairwoman of the commission, said her agency would ask the Justice Department to appeal the ruling to the United States Court of Appeals for the Third Circuit, in Philadelphia.

The appeals court ruled on the same legal issue five years ago, in a case involving retirees who had worked for Erie County, Pa. Judge Brody closely followed the precedent laid down by the appeals court.

The commission's rule would allow employers to engage in "the exact same behavior" prohibited in the Erie County case, Judge Brody said. In that case, the appeals court found that Congress had intended the age discrimination law to apply "when an employer reduces health benefits based on Medicare eligibility."

In the district court, the commission argued that it had the power to exempt certain conduct from the age discrimination law as long as the exemption was reasonable, "necessary and proper in the public interest."

Judge Brody rejected that contention. The commission, she said, was trying to "issue a blanket exemption for illegal behavior," not confined to a few individual cases. "An administrative agency, including the E.E.O.C., may not issue regulations, rules or exemptions that go against the intent of Congress," she added.

The law clearly forbids employers to discriminate on the basis of age in setting pay and employee benefits, Judge Brody said. And the law, as interpreted by the appeals court, "prohibits the practice of coordinating retiree benefits with Medicare eligibility," she said.

No law requires employers to provide health benefits to workers or retirees. Employers can legally provide benefits to active workers and not to retirees. Many employers have eliminated retiree health benefits. But, Judge Brody said, if an employer provides benefits to retirees, it cannot discriminate among them on the basis of age.

Lawyers said the ruling would apply to companies that give health benefits to early retirees and want to reduce coverage when the retirees reach 65 and become eligible for Medicare. Employer-provided health benefits do not duplicate Medicare. Rather, they help retirees pay medical expenses not covered by Medicare. Those expenses could include co-payments and deductibles and prescription drug costs, beyond what Medicare might pay.

Michele Pollak, a lawyer at AARP, said, "It is less expensive for employers to purchase a health plan that supplements Medicare than it is to purchase health benefits for younger retirees not eligible for Medicare."

The American Benefits Council, a trade group for large employers, and the HR Policy Association, which represents human resource executives at 250 large companies, said they were disappointed with Judge Brody's decision.

Daniel V. Yager, senior vice president of the association, said the ruling was "a major setback for many employers that are trying to maintain employer-provided benefits for pre-65 retirees."

Will BCBG deal make Sears more fashionable?
Retailer hopes to reverse slide in apparel sales
By Shruti Date Singh - Crain's Chicago Business
March 31, 2005

Sears, Roebuck & Co. wants to attract fashion-conscious women and reverse the slide in apparel sales by teaming up with hip designer BCBG Max Azria Groupe.

But can women who want to appear chic reconcile buying their latest spring fashions at the same place where they bought the family lawnmower?

“As good as Sears has been selling power tools, that also works against your credibility to have fashion,” said Neil Stern, senior partner at retail consultancy McMillan/Doolittle LLP. “It’s been a challenge for Sears for 50 years, and it will continue to be a challenge.”

Sears announced Thursday an exclusive deal to carry BCBG’s Parallel line of clothing, starting immediately in 150 Sears stores and its Web site. Sears will expand the line, targeted to fashion-conscious women ages 18 to 35, to 425 stores nationally in the fall.

Sears’ goal for many years has been to be a retailer where “fashion-forward” customers shopping in the mall or even in the store also go to buy trendy clothes, Mr. Stern said. But he noted Sears’ customers are usually older, middle-income shoppers who come into the stores for affordable basics not high fashion. He pointed out the Parallel line will cost more than other women’s clothing lines Sears carries.

A Sears spokeswoman said the Parallel line will be comparably priced with other brands the retailer carries.

Mr. Stern said the exclusive agreement to carry Parallel, which J.C. Penny & Co. carried until recently, is a way for Sears to offer more fashionable apparel.

“They are just trying to get into the game, getting any credibility,” Mr. Stern says. “I don’t think they have much.”

The retailer is also expanding Structure, its collection of men’s contemporary fashion, to 460 Sears stores nationally. The line debuted in the fall in Chicago and four other cities.

“Sears has energized its apparel business and is finally earning a reputation within the fashion community and among our millions of customers as a source for affordable, on-trend fashions,” said Gwen Manto, Sears executive vice president and general manager of apparel, in a statement, adding the Parallel collection will offer “contemporary brands that reflect the latest trends, colors and styles at prices they can afford.”

But Ed Nakfoor, an independent retail consultant in Michigan, questioned how Sears will fare since its past ventures into fashion have fizzled.

“(Sears) track record with fashion-forward end of things, it’s a little lacking,” Mr. Nakfoor said.

However, the Sears spokeswoman noted its Apostrophe line of women's clothing - the company's most "fashion forward" brand - experienced at least a 20% rise in sales in 2004.

Plus, he said other retailers such as J.C. Penny and Target have already established themselves in the affordable fashion market.

“Is there really room at the table for another cheap and chic fashion place?” Mr. Nakfoor asked.

Plus, he said while BCBG is clearly revered for high fashion its Parallel line isn’t as well known.

“If you are not accustomed to shopping there (Sears), will this be a draw?” he asked.

Last week, Sears merged with Kmart Corp. to become the third largest retailer in the U.S.

Shares in the parent company, Sears Holdings Corp., ended up $3.17, or 2.4%, at $133.17.

Justices Rule for Over-40 workers
By Joan Biskupic, USA TODAY
March 31, 2005

WASHINGTON ˜ Older workers can sue over pay or benefit plans that favor younger employees, even if no evidence of deliberate age discrimination exists, the Supreme Court ruled Wednesday in a decision that could have a major effect on the nation's workforce.

By a 5-3 vote, the court ruled that in addition to covering intentional bias, the Age Discrimination in Employment Act covers workplace practices that appear neutral but disproportionately affect workers over age 40. (Related: Supreme Court opinions in the case)

Justice John Paul Stevens wrote in the leading opinion that when Congress wrote the law, it was concerned with the "effects" an employer's action had on a worker in addition to the employer's motivation. At the same time, however, the court limited an employer's liability for such "disparate impact" claims. The court said employers could defend their practices based on "reasonable factors" beyond age.

Last year, 72.8 million workers were over age 40, according to the Bureau of Labor Statistics.

The ruling comes as companies face financial pressure to curtail pensions and health benefits.

"Employers will now have to be very careful going into those changes," said Stephen Bokat of the National Chamber Litigation Center.

Business lawyers and human-resource specialists were divided over whether employers would be flooded with new lawsuits. They agreed, however, that companies would have to more seriously review the possible statistical consequences of their policies.

To defend themselves, Bokat said, companies might have to have statisticians look at how their policies would affect older workers and have an "iron-clad reason" for making them.

Wednesday's ruling came in a case brought by 30 middle-aged police officers and dispatchers in Jackson, Miss. Siding with the city of Jackson were several government and private business groups, including the Chamber of Commerce of the United States and the National League of Cities.

On the other side, lawyers representing older workers said the decision would help ferret out more subtle and more common methods of bias. They said that there often is no easy proof of discriminatory intent.

AARP lawyer Laurie McCann said, "You don't often have a smoking gun. This is a huge shot in the arm for age-discrimination plaintiffs."

The AARP, the nation's biggest lobbying group for the elderly, joined with the American Association of University Professors and a dozen other groups in urging the high court to allow workers to pursue claims.

The ruling puts a new category of age claims on the same footing as those filed under Title VII of the Civil Rights Act of 1964, which protects against race and sex discrimination. The high court earlier ruled that Title VII covered not only overt discrimination but practices that appeared fair, but had the effect of being discriminatory.

But because, as Stevens wrote, the law against age discrimination does not sweep as broadly as Title VII, the liability in age cases is limited. The court said employees must identify specific practices that cause the statistical disparities. If an employer shows that the practices were based on reasonable factors other than age, the employees lose their case.

In the Jackson case, the court rejected a challenge to a performance-pay policy by the city that boosted salaries and ended up favoring younger employees. The city argued that it needed higher pay for junior officers than for those in higher ranks, where there were more older workers, to make its salaries competitive.

Dissenting from the part allowing disparate impact lawsuits were Justices Sandra Day O'Connor, Anthony Kennedy and Clarence Thomas. Chief Justice William Rehnquist took no part in the case.

"It is a very significant ruling because it is so hard to prove purposeful age discrimination," said Thomas Goldstein, who represented the older officers.

Glen Nager, who represented Jackson city officials, emphasized that "reasonable employer practices are lawful under the statute.

Sears Sets Lewis' Salary
Chicago Tribune staff, wire reports
March 31, 2005

Sears Holdings Corp. reached a new employment agreement with President Aylwin Lewis under which he will receive at least $1 million a year in salary and an annual bonus with a $1 million target.

In a Securities and Exchange Commission filing Wednesday, Sears Holdings also said William K. Phelan, formerly Sears' assistant controller, was appointed vice president and controller.

Lewis, the former chief executive of Kmart, received a five-year employment agreement last week, the filing said. In addition to the salary and bonus, Lewis was granted $5.5 million worth of restricted stock and options to acquire 150,000 shares.

Sears Execs Set to Fulfill New Roles
Restaurant veteran leads key retail units
By Becky Yerak - staff reporter - Chicago Tribune
March 30, 2005

Despite leaving the fast-food business to become a retail executive just six months ago, Aylwin Lewis is charged with the most important initiative for the nation's third-largest retailer.

In the management structure laid out this week by Sears Holdings Corp., the executive who spent 26 years working with restaurant chains like Kentucky Fried Chicken will oversee Sears' retail operations--including its critical plan to convert hundreds of Kmart stores into a new Sears off-mall brand.

To better compete with Wal-Mart Stores Inc. and Target Corp., Sears has pointed to its emerging strategy of developing free-standing stores that stock everything from Martha Stewart linens to Craftsman tools to lure new shoppers.

Before joining Kmart Holding Corp. in October, Lewis was president of Yum Brands Inc. in Louisville. The fast-food giant's chains include Kentucky Fried Chicken, Pizza Hut and Taco Bell. There Lewis oversaw training and systems support for the chain's 33,000 restaurants worldwide.

He also spearheaded a multibranding initiative known as "fish first," which put Long John Silver's stores with other brands under the same roof.

Lewis was named both president of Sears Holdings and chief executive officer of Kmart and Sears retail when the merger was announced in November.

Former Sears Roebuck Chief Executive Alan Lacy, who is CEO of Sears Holdings, will be in charge of the Lands' End apparel division, the independently owned dealer stores, the Orchard Supply Hardware chain on the West Coast, online and catalog operations, and home and financial services.

The division of labor at Sears is no great surprise despite Lewis' lack of retail experience.

Lacy's job complements Lewis' job and vice versa, Sears' spokesman Chris Brathwaite said Tuesday. And it's not like the store operations are "operating in a vacuum either," he said. "All these leaders work together."

Also reporting to Lewis are top apparel, marketing and creative officers.

"It makes sense to have those people reporting to Aylwin given what his title is," Brathwaite said. "It shows the depth and the strength of the leadership pool at Sears Holdings."

Lacy and Lewis are part of an office of the chairman that also includes Sears Chairman Edward Lampert, the financier who engineered the merger.

Do 3 executives make a crowd?

But one retail consultant sees potential problems in a trio.

"The best organizations thrive because they have leadership. That's singular," said Ed Nakfoor, a Birmingham, Mich.-based retail consultant.

"This division of labor looks like a set up for the right hand eventually not knowing what the left hand is doing," he said. "Something else to think about--this business of three, Lampert, Lacy, Lewis--whenever there's three of anything, two always `side' against one."

Lampert said last week that he considers Sears Holdings' most important assets to be the Kmart stores, Sears mall stores, the existing off-mall Sears stores, and such exclusive brands as Craftsman, Kenmore and Lands' End.

He said that the company will review whether to keep businesses such as Orchard Supply.

"Alan, like everybody else, has to prove himself," Lampert said last week. "So do I."

For his part, Lacy sounds like he doesn't want to go anywhere. At a press conference last week, he said he had a five-year contract at Sears Holdings and wants to see how the plans that he laid for Sears to expand away from malls--now under Lewis--will pan out.

"I've got a high degree of personal ownership and want to see it through," Lacy said.

Another eyebrow-raising wrinkle in the company's structure is that Julian Day, the former CEO of Kmart, is on the board of directors. In 2000, Day lost out to Lacy for the top spot at Sears and left the company.

Lacy faces a formidable task

One former Kmart executive who looked at the new organizational setup said that while running the stores is in Lewis' hands, the task of integrating the retailers appears to fall to Lacy.

And that's no small job, he said.

"I wouldn't downplay Alan Lacy's job as something that won't be a real handful to pull off," said Gary Ruffing, senior director of consulting firm BBK Ltd. and a former Kmart marketing vice president.

Eight top Sears executives will be leaving the company as part of the merger. That includes the departures of Beryl Buley, general manager of retail store operations, and Sara LaPorta, senior vice president of strategy.

Meanwhile, job cuts are expected to be announced at Sears by the end of April. Those affected will receive severance and outplacement packages.

Sears said it also plans to announce benefit changes in April, though they won't take effect until 2006. The company previously said that compensation and benefits might be reduced to levels more in line with what Kmart offers.

Cosmetic Counters Coming to Kohl's
Daily Herald
March 27, 2005

Kohl’s is looking more attractive now that it’s applying makeup to the selection.

The Menonimee Falls, Wis.-based company is slowly adding cosmetics counters stocked with the Estee Lauder line to its 600 stores.

The cosmetics counter, often called the Beauty Bar, features three Estee Lauder lines including Good Skin, a full-line of skin care products; American Beauty, the premiere makeup line with Ashley Judd as its spokesperson and Flirt, a makeup line for the younger, edgier shopper.

These lines were created exclusively for Kohl’s, said spokesperson Lori Sansoucie. “It’s doing as well as we expected,” she said of the new concept.

Everything from mascara to perfumes to nail polish are part of the mix found now at about a third of the stores.

The discount department store chain has been described by industry experts as “the retailer that could do no wrong.”

A beauty sales associate is always on hand to answer questions and help with color analysis.

Retail analysts like what they see at the chain that carries many national brands including Levi’s, Gloria Vanderbilt and Croft & Barrow.

“It’s a great move on the part of Kohl’s. They partnered with the premier cosmetics company,” said Anne Brouwer, senior partner with McMillan/Doolittle in Chicago.

Kohl’s launched its makeup line about the same time its competitors, Sears and J.C. Penney, pulled out of that area, Brouwer said.

“The timing was fortuitous. Cosmetics was clearly a gap in their market,” Brouwer said.

The skincare area at Kohl’s is more upscale than at discount or drug stores, she said.

The selection and colors are updated and change with the season. “This is good because cosmetics are often more of a impulse buy,” Brouwer said.

Fun for kids: “It’s Kids Time Xtreme,” a nationally recognized leader in interactive sports and academic clinics, is coming to Spring Hill Mall.

The show takes place from 1 to 5 p.m. Saturday and next Sunday at the West Dundee mall. The event focuses on families with children between ages 4 and 12.

Educational challenges and Karaoke singalongs, sports clinics, building activities and Super Heroes are all part of the event.

Sears Department Heads Shown the Exit
By Sandra Guy – Business Reporter – Chicago Sun-Times
March 29, 2005

Four top Sears Roebuck and Co. executives were let go and a fifth will retire in the first wave of top-level job cuts after Kmart Corp.'s $12.3 billion takeover of Sears was approved last week.

The heads of Sears Roebuck's human resources, public relations, information technology and customer direct (Sears' catalog and online sales) will be replaced in the hierarchy of the new Sears Holdings Corp., according to an internal memo released Monday.

Two will be replaced by Kmart executives.

Bill Bass, who worked as both senior vice president of e-commerce at Lands' End and as head of Sears' online and catalog operations, will be replaced by Kmart's Chris Shimojima, who becomes general manager of online and catalog sales for Sears Holdings.

Garry Kelly, who became Sears Roebuck's chief information technology officer in October 2002, will be replaced by Kmart's Karen Austin as CIO.

Two others will be replaced by their former employees at Sears Roebuck.

Bob O'Leary, who became head of public relations and government affairs in July 2003, will be replaced by Edgar "Ted" McDougal.

Greg Lee, who left Whirlpool to become head of Sears' human resources in December 2000, will be replaced by Bob Luse.

A fifth executive, William White III, executive vice president of store operations and a 34-year Sears veteran, will retire. White was general manager of Sears Roebuck's specialty stores, including appliance and hardware stores and the Orchard Supply chain.

The duties of White and Jerry Post, who also is retiring and who led Sears' move to build standalone stores away from malls, have been parceled out to others.

Catherine David, whom Sears named to lead its Great Indoors home-decor chain last July, will take over Sears' two other stand-alone formats, Sears Essentials and Sears Grand.

Rob Lynch, who previously reported to White, will become general manager of the Orchard Supply hardware chain.

One key executive will report to a new boss. Luis Padilla, whom Sears hired from Marshall Field's to fill the crucial role of merchandising guru, will now report to Aylwin Lewis, Kmart's former CEO who is now president of Sears Holdings and CEO of Kmart and Sears Retail.

Padilla previously reported to Sears CEO Alan Lacy, who is now the CEO of Sears Holdings.

Separately, the Fitch debt-ratings agency on Monday downgraded to junk the new Sears Holdings Corp.'s $2.7 billion in domestic, unsecured debt.

The operations of Kmart Corp. and Sears Roebuck and Co. are the only assets supporting the debt; no physical assets back it up.

The two-notch downgrade was caused by several factors, including Sears' and Kmart's inability to stem falling sales, the tough competition they face from fast-growing rivals such as Target and Wal-Mart, and the risks that Kmart's $12.3 billion takeover of Sears will be so distracting that it will worsen the two retailers' store operations and customer service, said Fitch analyst Philip Zahn.

"It reflects there's more risk inherent in the new Sears Holdings Corp. than was previously the case at Sears Roebuck and Co. [alone]," Zahn said.

Sears Holdings aims to convert 400 Kmart stores in the next three years to Sears Essentials, a new convenience format that will combine the top-selling brands of Sears Roebuck and Kmart.

Executives believe their strategy can increase sales by $200 million while cutting costs by $300 million.

Also Monday, Sears Holdings announced preliminary results showing that about 95 percent of Sears Roebuck shareholders chose to hold shares in the new company, which will remain headquartered in Hoffman Estates. The rest chose cash.

Sears retirees and shareholder dissidents who opposed Kmart's takeover of the 119-year-old Sears Roebuck said last week that they wanted to keep some stock in the new company so they could continue to air their grievances at shareholder meetings.

Shares of Sears Holdings, with the new ticker symbol SHLD, slipped $1.41, or 1.1 percent Monday in Nasdaq trading to close at $131.11.

Kmart Executives Dominate Top Management of New Sears
By Becky Yerak – Inside Retailing – Chicago Tribune
March 29, 2005

Four days after Sears and Kmart officially merged, the combined company announced a management team in which top Kmart executives appeared to have a higher survival rate than those from Sears.

Of the 15 executives listed in Sears, Roebuck and Co.'s latest annual report, six have been named to senior leadership positions.

Of the 14 executives listed in Kmart Holding Corp.'s latest annual report, nine appear on the list of the senior leadership team of the new company, called Sears Holdings Corp.

Among those leaving Sears is 34-year veteran Bill White, who joined the company in 1971 as an area sales manager in Dallas. White, the former head of Sears' 870 mall-based stores, most recently was general manager of specialty stores.

"He leaves with one critical measure of his recent efforts--customer satisfaction scores--at the best point in years and continuing to trend higher," Sears Holdings Chief Executive Alan Lacy said in an e-mail.

Lacy also noted that Orchard Supply Hardware and the dealer stores will report to him. Orchard Supply is one of the assets that Sears is likely to consider selling.

The seven Sears executives not mentioned in the announcement of the new executive team include Greg Lee, senior vice president of human resources; Gerald Kelly, chief information officer; and Robert O'Leary, senior vice president of public relations and corporate affairs. They are believed to be leaving the company.

Vanessa watch over: Vanessa Castagna won't be joining Sears Holdings.

The former No. 2 executive at J.C. Penney Co. is signing on with Cerberus Capital Management, a New York investment firm that manages $14 billion in assets and was part of the consortium that last year bought the Mervyn's department store chain from Target Corp.

After being passed over for the top job at Penneys, Castagna left the Plano, Texas-based retailer and found herself in hot pursuit by several companies in need of top leadership.

"As one of my first duties, I will assume the role of chairperson of Mervyn's," Castagna said in an e-mail. "I will also be available for other Cerberus investment opportunities."

More recently, Cerberus was believed to be one of the unsuccessful bidders for Toys "R" Us Inc.

Kmart Chairman Edward Lampert, who engineered last week's acquisition of Sears, was reported by Women's Wear Daily in December to be pursuing Castagna, who also has worked at Target, Federated Department Stores Inc. and Wal-Mart Stores Inc.

The retail free agent confirmed to the Chicago Tribune in December that Sears was among the retailers reaching out to her, though she wouldn't say what job was dangled.

Sears Announces Preliminary Merger Stock Breakdown
Reuters
March 28, 2005

Sears, Roebuck & Co. shareholders who wanted stock in the new Sears Holdings Corp. that resulted from the acquisition of the department store chain by Kmart Holding Corp. will get stock for about 59 percent of their shares, Sears Holdings said on Monday.

The rest of their shares will be exchanged for $50 cash per share, the No. 3 U.S. retailer, which begins trading on Nasdaq Monday, said.

Holders of 219.5 million Sears, Roebuck shares chose to take stock in the new company, while holders of 8.3 million shares chose cash, Sears Holdings said. No choice was made by holders of 9.5 percent of Sears, Roebuck shares.

Kmart shareholders receive one share in the new company for each Kmart share, according to terms of the acquisition, which was approved by Kmart and Sears, Roebuck shareholders on Thursday.

The final results of the cash and stock elections are expected to be announced on or around Wednesday, the retailer said.

Under Cloud, Executive Leaves Wal-Mart
By Eric Dash - The New York Times
March 26, 2005

Thomas M. Coughlin, who recently retired as vice chairman of Wal-Mart Stores, resigned from the company's board yesterday after the company raised questions about his knowledge of fraudulent expense reports and invoices.

Wal-Mart said it asked Mr. Coughlin to resign after a disagreement over the results of its investigation into the possible misappropriation of $100,000 to $500,000 in corporate funds. The company is looking into employee reimbursements that were based on false expense reports, as well as the unauthorized use of "corporate-owned gift cards," Wal-Mart said in a statement filed late yesterday with securities regulators.

Wal-Mart, which is based in Bentonville, Ark., said it had fired three employees in connection with that investigation, including a corporate officer. It also said it had referred the matter to the United States attorney's office for the Western District of Arkansas and was cooperating with federal investigators as they reviewed the situation.

Mr. Coughlin, 55, said in a letter included with the regulatory filing that he left with "warm feelings for the company," where he worked for 25 years. He could not be reached for comment last night, and a Wal-Mart spokeswoman declined to offer more information beyond the company's statement. A spokesman for the United States attorney's office said it would not discuss any investigations.

The sudden departure of Mr. Coughlin, who stepped down as vice chairman for unspecified reasons in January but remained on the board, adds to Wal-Mart's recent turmoil as it works to bolster its public image. Inside the company, Mr. Coughlin was considered a corporate standard-bearer for his strong skills in store operations.

After joining Wal-Mart's security division in 1978, he rose through the management ranks and worked in virtually every area of the company before being named second in command.

But over the last few years, the first generation of Wal-Mart senior managers, strong store operators like Mr. Coughlin who were promoted from within, have largely left the company, analysts said. They have been replaced by outsiders who have strong backgrounds in finance, logistics and human resources.

"The younger guard has been aggressively pushing out the older guard," said Burt P. Flickinger, managing director of the Strategic Resource Group in New York. "He's the last person there in the North America base who is closely connected with Mr. Sam," he added, referring to Sam Walton, the retailer's founder. "It's also the first time the board doesn't have any seasoned operating people in the company's history."

But faced with the results of its internal investigation, the company may have had no choice but to let him go.

"This is consistent with Wal-Mart's emerging policy of making sure there are zero negative public relations events," said Richard Hasting, an independent retail consultant based in Charlotte, N.C. "They are scrutinizing everyone's activity at all levels."

The company's action could make it more difficult for Mr. Coughlin to serve on other corporate boards. He is currently the lead director of the board of ChoicePoint Inc., a commercial data broker that is mired in controversy over its sale of thousands of consumer records to thieves masquerading as small-business clients. The company has faced several consumer lawsuits and a barrage of inquiries from state and federal regulators, and it has been the subject of hearings on Capitol Hill.

Other senior managers have left Wal-Mart recently under unusual circumstances. In December, Wal-Mart fired Jim Haworth, the executive vice president for operations, along with two other executives and four employees for violating unspecified rules.

Lampert Sees Limit to Job Cuts
By Sandra Guy – Business Reporter – Chicago Sun-Times
March 25, 2005

Edward S. Lampert sees the new Sears Holdings Corp. -- the company created from the merger of two struggling retailers -- as a growth engine that will close only its poorest-performing stores, and eventually make acquisitions.

The chairman of the newly named Sears Holdings Corp. said Thursday the biggest head-count cuts stemming from the takeover of Sears by Kmart Corp. will come by combining the headquarters staffs from Sears, Roebuck and Co. in Hoffman Estates and from Kmart Corp. in Troy, Mich.

Sears Holdings Corp. is setting up headquarters in Hoffman Estates.

Hardest hit will be duplicate departments, such as law, human resources and information technology.

About this series
Sears, Roebuck and Co. shareholders vote Thursday whether to be acquired by Kmart Corp., as Kmart shareholders vote whether to rename the company Sears Holdings Corp. and move headquarters to Hoffman Estates from Michigan. Sun-Times Business Reporter Sandra Guy examines the forces at work in this stunning merger in a series that runs through Friday.

Monday: Real estate, not customers, drove this deal.
Tuesday: Sears' and Kmart's brands: What stays, what will be jettisoned.
Wednesday: Thursday's vote promises to be raucous with Sears' dissident shareholders venting frustrations and fears.
Thursday: Who's who on the new Sears board, and what they bring to the party.
Friday: The look of the new Sears.

Sears Holdings also intends to tout its appliance repair, installation and delivery businesses as unique strengths, and leverage its heft as the country's third-largest retailer to save money in buying products and supplies from vendors.

The presumption that Sears Holdings will close "hundreds, or tens of dozens" of Kmart and Sears stores is wrong, Lampert told reporters Thursday after Kmart and Sears shareholders approved the $12.3 billion deal.

"Our program is to keep as many stores open as we can," said Lampert, who plans to be intimately involved in the evolution of Sears Holdings.

"By no stretch of the imagination are Sears mall-based stores obsolete," he told the Sun-Times editorial board in a meeting Thursday afternoon.

Sears Holdings will start growing by transforming 400 Kmart stores into Sears Essentials, a new format with convenience-store elements, in the next three years. More conversions will follow in the years ahead. The stores will remain open during the conversions, which are expected to cost $3 million apiece.

Super Kmarts also will remain open, and some will be converted to a Sears format, said Aylwin B. Lewis, the former Kmart CEO who becomes president of the new company and CEO of Kmart and Sears Retail.

Kmart might end up serving lower-income and inner-city neighborhoods, while Sears serves middle- and upper-income communities, Lampert said.

He believes this strategy can hold its own against rivals Wal-Mart and Target. "This goes beyond an investment. It's an opportunity to transform two companies that were once great, to transform them into a great company relative to the 21st century," said Lampert, a Connecticut billionaire and hedge-fund manager who led Kmart out of bankruptcy in May 2003.

Lampert's remarks counter Kmart's outlook, spelled out in a regulatory report filed March 9, which stated: "We have experienced a decrease in market share, in part due to our store closings and the aggressive growth of our major competitors. We expect that this trend will continue in the near term."

Lampert also denied media reports that Sears will sell its preppy Lands' End brand. He called it a "great American brand" that could have a place in the new retailer's strategy. But he allowed that in an alternative strategy, Sears Holdings could retain only a piece of some assets, and spin off others.

Lampert attributed whisperings about Lands' End's sale to rivals and other parties who want to hurt the new Sears Holdings or who might like to obtain Sears' choicest assets. He said he would refuse to comment on every rumor that pops up.

As for the Martha Stewart brand, Lampert said it will feature different designs and offerings for Sears than what is now sold at Kmart.

"We don't want to put identical merchandise in Kmart and Sears stores," Lampert said.

Yet shoppers and investors will know less about the new company's performance than they did about its predecessor companies.

The new Sears Holdings will report sales results every three months -- rather than once a month -- for stores open at least a year.

Lampert also refused to specify how sales at Lands' End have grown 20 percent over the past two years, a number that company CEO Alan Lacy revealed during the press conference. Lacy, who formerly was Sears Roebuck's CEO and chairman, said the company management is "indifferent" to how the sales grew, whether it was through catalogs, online or in Sears stores.

"It's too much focus on the micro, rather than the macro," Lampert interjected when asked to specify how Lands' End's performance this year compared with last year.

No one believes the transformation of Sears and Kmart into a healthy, well-regarded retailer will be easy, whether it's putting a new emphasis on customer service or setting up new computer systems and supply-chain logistics.

Lampert conceded that his efforts to make Sears Holdings a performance-based company that rewards talent will be "very challenging."

Lewis said about developing a new culture: "It's going to be messy. It's going to be difficult."

The changes will start soon. Senior managers who report to Lacy and Lewis will be named next week, and the future of the companies' headquarters staffs will be known by the end of April. Sears employs 3,900 at its headquarters; Kmart employs 2,000.

Analysts remain skeptical of Lampert's goals.

"We believe the real value [in Sears Holdings] is in cutting costs and selling off some of its assets in the short term," said Morningstar analyst Kim Picciola. "In the long term, we don't foresee this retailer becoming more competitive."

Lacy, who said he has signed a five-year employment contract and hopes to be a part of the new company's future, took a drubbing from Sears shareholders, who booed and yelled for more time than the 20 minutes that was allotted for all shareholder questions.

"This isn't a merger. It's a bank robbery. You're driving the get-away car, and the board is getting its share of the loot," said Doug Liggett, a former Sears employee from Indianapolis who is an outspoken critic. "You have no ethical code, no moral compass." By contrast, Kmart's shareholders' meeting lasted five minutes, and only one of the 21 people in attendance asked a question about investments.

69 percent of vote sends Sears into oblivion

A 119-year-old Chicago icon -- Sears, Roebuck and Co. -- disappeared as a corporation Thursday when shareholders of Sears and Kmart voted to merge the companies to create the third-largest U.S. retailer behind Wal-Mart and Home Depot.

Sears eked out the two-thirds vote of outstanding shares that it required to OK the $12.3 billion deal, which was announced Nov. 17.

Of the outstanding shares voting, 69 percent favored Kmart's takeover of Sears, 9 percent disapproved and 1 percent abstained.

Of the total votes cast, 88 percent approved. But 22 percent of Sears' 217 million outstanding shares cast no vote.

Kmart won approval of 69 percent of its outstanding shares, and 99.9 percent approval of the votes cast.

The new company, called Sears Holdings Corp., will be headquartered in Hoffman Estates and will have 3,500 stores, $5.3 billion in cash and $55 billion in yearly revenue.

It will be run by Kmart Chairman and hedge-fund manager Edward S. Lampert, who will control the new company's 10-member board.

As the takeover was completed, Sears stock closed its final day down $6.76 at $50.04 -- virtually equal to the Kmart bid -- while Kmart added $7.69 to close at $132.52.

Sears Holdings begins trading Monday on the Nasdaq.

Vote close; Merger Comes up Short on Togetherness
By Becky Yerak - staff reporter – Chicago Tribune
March 25, 2005

In a close, vitriolic vote with security guards present, shareholders of Sears, Roebuck and Co. on Thursday approved a merger with Kmart Holding Corp. Their backing essentially mothballs an iconic Chicago name that symbolized retail dominance for many of its 119 years.

Sears faces competitive hurdles never imagined during the department store chain's heyday. Pressure from discounters like Wal-Mart Stores Inc. and retailers like Home Depot Inc. and Best Buy Co. have left both Kmart and Sears bleeding market share.

Sears has been "stuck on 870 stores for 35 years," said Sears Chief Executive Officer Alan Lacy, adding that the Kmart deal enables Sears to expand away from shopping malls on a massive scale.

The new Sears Holding Co. will have about 3,500 stores--including Kmart outlets, 870 Sears' mall locations and 1,100 specialty stores.

Executives of the new company also said that Sears' Lands' End clothing line, which was bought for $1.9 billion three years ago, was not for sale and that scores of store closings were not planned.

"Lands' End isn't for sale," said Edward Lampert, the Kmart chairman who'll hold the same job at the new Sears Holdings Corp. "It's a great American brand, and a brand we could run very well."

Executives gave a glimpse into the Sears and Kmart stores of the future: Martha Stewart products that are added to Sears, for example, will not be identical to those that have sold at Kmart.

They also aspire to create a corporate culture similar to that of Internet pioneers Yahoo and Amazon. Sears, the executives said, would not pay heed to what competitors are doing but focus on providing what shoppers want.

Sears needed two-thirds of its outstanding shares to vote in favor of the merger; it received 69 percent.

Sears' fledging off-mall chain, Sears Grand, has been well-received, Lacy told shareholders, but the company couldn't roll them out fast enough without a merger. Sears' competitors, including Wal-Mart and Home Depot, will finish the year with 10,000 stores and open another 700 this year.

Sears wants to accelerate its expansion away from malls by turning 400 Kmart stores over the next three years into a new Sears' format that sells everything from appliances to groceries.

"There are a lot of things that we'd like to sell that we can't," Lampert told the Chicago Tribune, referring to brands at Kmart. "We don't have Craftsman, Lands' End, Kenmore, DieHard. Even brands like Champion, Adidas, Nike and Reebok.

"All of a sudden that's an opportunity" to better compete with Wal-Mart, he said.

But while Wall Street has responded positively to the deal, some of the 150 shareholders who showed up Thursday expressed anger, shouting down Lacy and General Counsel Andrea Zopp and booing as the meeting wound down.

Sears shareholder Martin Glotzer voted for the merger but repeatedly cried out to Lacy to allow shareholder comments to go on beyond the 20 minutes allotted them because it was the last meeting for Sears Roebuck.

"I know this is short," Lacy said. "We have a transaction to close today."

As Sears investor Raymond Elliott stood at a microphone in hopes of squeezing in one last question, security guards flanked him.

One shareholder who retired from Sears in 1990 said he was disappointed that Sears was being sold for only $11 billion. "It looks like a good buy for somebody," he said.

In reality, the deal closed at $12.3 billion.

Sears retiree George O'Hare called the deal "a betrayal of trust." O'Hare is active in the National Association of Retired Sears Employees, which sponsored an airplane to fly around Hoffman Estates with the banner "Enter Kmart: Exit Sears Jobs and Benefits."

Lacy's $27 million questioned

Also on the list of shareholders' complaints: that Lacy will make $27 million before taxes after cashing out his options as a result of the merger.

"I haven't done the math," Lacy said when asked about the money. Sears has said that Lacy plans to invest about $10 million in the new company.

Lacy pointed out that Sears had a healthy balance sheet and a good cash position, and that the sale of the credit business was good for stockholders because it enabled the company to repurchase shares.

Another shareholder asked about cost savings. Sears and Kmart have estimated the merger will save $300 million, by providing more clout to purchase everything from pens to shopping bags to newspaper advertisements. The companies cited another $200 million in opportunities to cross-sell merchandising.

Company officials have called those numbers conservative.

Lacy said the merger planning has gone well and that the companies are learning from each other how to do things more efficiently. Sears, for example, has better systems on managing labor than Kmart does.

Senior management of the company could be announced next week. The next managerial layer could be announced in the following weeks, with much of the new corporate structure in place in April.

At the press conference, Lacy was asked how long he planned to be CEO of Sears Holdings.

He said he signed a five-year contract with Sears Holdings and added that he has a high degree of personal ownership in the deal and therefore wants to see it through.

Major job cuts are expected at Kmart's headquarters in Troy, Mich., and in Hoffman Estates, which have a combined 6,400 workers in such positions as corporate staff and information technology. But Sears said about 395,000 workers in the stores will keep their jobs.

Kmart's shareholder meeting earlier in the morning lasted less than 10 minutes and was a low-key affair.

Lampert has controlling interest in Kmart, whose stock price has surged tenfold since emerging from bankruptcy.

It's an "incorrect presumption" that there'll be many store closings, Lampert said.

As proof, he pointed out that Kmart had about 1,500 stores when it emerged from bankruptcy and still has about 1,400 two years later.

Sears brands seen as assets

In an interview with the Chicago Tribune, Lampert said he considers the company's core assets its stores and brands such as Kenmore, Craftsman and Lands' End.

He said he believed Sears Holdings could make Lands' End work, just as Kmart was turned around in only two years.

"The issues are--should Lands' End be in Sears stores? If they are, how should they be represented?" Lampert said.

He also floated the idea of Lands' End remaining a Sears asset but not selling Lands' End products in Sears stores.

"Alan has referenced in the past to put them in all the stores. Now they're talking about pulling them out of a bunch of the stores," Lampert said. "It hasn't been quite figured out, but I'm not someone who gives up easily."

- - -

PROFILE

Sears Holdings Corp.

Source: The company

At new Sears, no holding on to old ways
By Susan Chandler - staff reporter – Chicago Tribune
March 25, 2005

Chairman's message: Plenty of changes, hard work ahead

Edward Lampert has a message for employees of the old Sears, Roebuck and Co., and it's one they are likely to find a bit disconcerting: Get ready to work really hard or move on.

And that means everyone, including Sears Chief Executive Alan Lacy.

Lampert, the 42-year-old hedge fund manager who brought Kmart Holding Corp. out of bankruptcy two years ago, looks more like a recent MBA graduate than the man who just pulled off the $12.3 billion acquisition of Sears.

But underneath his clean-scrubbed, perfectly tailored appearance lies a tough-minded approach to business that has earned him a fortune estimated at $2.5 billion.

Lampert isn't about to offer the usual comforting words to calm the fears of Sears employees and executives worried about losing their jobs or having their pay and benefits reduced to Kmart's levels.

"It's not the Sears of yesterday ... when Sears helped bring the American dream to consumers everywhere," Lampert said during a visit to the Chicago Tribune on Thursday after Sears shareholders narrowly voted to approve the merger.

"It's going to be a different challenge for people at Sears today than the jobs they had four months ago. The challenge is do you want to be part of building something really great?"

If employees are to make the cut at the new Sears Holdings Corp., Lampert says, they will have to display the kind of intense round-the-clock commitment of workers at dot-com and technology firms.

"We need to have that kind of energy. ... Other people--and I'm not saying this about the Sears people--I'm saying this generically, some people like to come to a nice office, they like to put in a full day's work. They work hard, but it's a paycheck, it's a career. It's whatever. We can't compete against the Wal-Marts, the Home Depots, the Targets, etc. without that level of passion."

Employees who are let go or don't want to work that hard shouldn't be unhappy, he says. The Kmart deal created $540 million in additional value in Sears' 401(k) retirement plan and another $600 million for the 20,000 workers who held options on Sears shares.

"By virtue of this deal, roughly $1.1 billion was created that is now basically in the pockets of Sears employees, and it's pretty widely distributed," Lampert said. "On the one hand, we're going to be asking people to leave, and in many cases they will have a good amount of money. And in some cases, people will want to leave, and they will have a lot of money."

Lampert expresses bewilderment about why the merger has gotten such negative reviews from Sears employees, customers and the press. Angry Sears shareholders loudly booed at the shareholder meeting held Thursday to approve the deal, and security guards were out in force.

He expected a warmer reception, he said, especially after choosing to keep the new company's headquarters in Hoffman Estates rather than moving it to Troy, Mich., where Kmart is based.

"It wasn't lost on me that J.P. Morgan bought Bank One. Yes, there's still a presence, but it's going to New York," Lampert said. "I thought that it would be very well received that we would be creating this company headquartered in Chicago, and that would be a plus, not a minus."

Being an executive may not be a plus in Lampert's world; it puts you more squarely on the firing line.

"We view ourselves as having to re-recruit the leadership of the company. Somebody may have signed on a year ago, but they didn't sign on for this," Lampert said.

That also applies to Alan Lacy, the 51-year-old former Sears chief executive who accepted Lampert's takeover bid and has now taken on the title of CEO in the new company.

Lacy, whose four-and-a-half year tenure at Sears was marked by a continuing slide in sales, has been criticized fairly for many of the negative things that happened on his watch, Lampert said. But there also were some circumstances beyond his control that made his job more difficult.

Now, it's a clean slate.

"Alan, like everybody else, has to prove himself," Lampert said. "So do I."

Of course, their positions are not exactly parallel. As the majority shareholder in Kmart and the largest single investor in Sears before the merger, Lampert can't be fired.

But he makes it clear that he is rolling up his sleeves and plunging into the messy task of putting two struggling retailers together in hopes of creating a stronger rival to surging competitors such as Wal-Mart Stores Inc. and Target Corp.

He faults old-line retailers such as Sears for taking too long to make decisions and not being quick enough to admit failure. He prides himself on making moves in eight days that would have taken some retail executives eight months.

"I want this company to make lots of mistakes. But I don't want people to be afraid of making mistakes. I want people to own up to it and correct it. That's the way we're going to win.

"I'm sure you've seen it," Lampert said. "People at companies get very invested in something and they don't want to acknowledge they've made a mistake. They're afraid of losing their job. They're afraid of embarrassment. We want to make lots of mistakes in the right way."

Lampert admits he is no merchant but he says he learned a lot from his mother, who worked for 20 years at Saks Fifth Avenue. His retail education was furthered, he said, through his involvement as an investor and director at AutoZone, an auto parts retailer, and AutoNation, a chain of used-car dealerships.

Lampert said he studied the mercurial retail business by looking at annual reports going back a decade and asking himself if he could have predicted whether the retailer would have succeeded.

It's the same in-depth approach he used to build his Connecticut hedge fund firm, ESL Securities.

His fascination with the retail world is easily summed up, and it has nothing to do with predicting the next big fashion trend.

"I bought Kmart to make money. ... I don't get paid a salary. I don't get any stock options. The only way I make money is if the value of the stock goes up."

Lampert isn't ready to lay out a grand retail vision for Sears Holdings, he says--not yet anyway. He doesn't want to be another Sears honcho who declares he has seen the future of the company only to reverse course a year later.

But this much he already knows: "It's very easy to grow a retail company. ... and it's very easy to go out of business."

Not exactly comforting words for anxious folks at Sears.

Catcalls Disrupt Sears Meeting
By Mike Comerford - Business Writer - Daily Herald – Suburban Chicago
March 25, 2005

Catcalls and boos disrupted the Sears, Roebuck and Co. shareholder meeting Thursday in Hoffman Estates to vote on its merger with Kmart Holdings Co.

However, the outburst didn’t stop shareholders from voting by a margin of 69 percent to approve the $12.3 billion acquisition of Sears by Troy, Mich.-based discounter Kmart.

The crowd of about 200 turned raucous when the discussion period was cut off while shareholders were still waiting to be heard.

“Why can’t you let them speak?” said Martin Glotzer, a Chicago-based shareholder activist as he rose to his feet shouting at Sears executives from the audience.

Sears Chief Executive Officer Alan Lacy, who will be CEO of the merged Sears Holding Co., told the crowd the allotted 20-minute discussion period had expired.

Lacy appeared frustrated by the crowd’s swelling opposition.

“If you don’t cease (disrupting the meeting) you will be removed from the room,” Lacy told a shareholder at one point.

Among shareholder complaints was the estimated $28 million Lacy could make on stock options from the merger. But most critics voiced doubts about the merger’s long-term success.

Heightened security measures at Sears sent guards quickly to shareholders shouting criticisms. The measures worked — the meeting of about 200 people soon peacefully adjourned.

The outburst took just minutes but was highly unusual in normally more staid environs of corporate shareholder meetings.

During the meeting, Lacy called the merger Sears’ “bright beginning” and a chance for rapid growth after “essentially being stuck at 870 stores for over 30 years.”

However, the National Association of Retired Sears Employees representative George O’Hare said retirees worry about their benefits in post-merger cost cutting and called the merger a “betrayal of trust.”

Sears Holdings will be the third largest retailer in the country, with $55 billion in revenue and more than 3,800 stores, according to the company.

The deal brings together Sears’ top brands Craftsman and Kenmore with Kmart’s Martha Stewart and Joe Boxer product lines. It also furthers Sears’ strategy of moving away from shopping malls to the more profitable off-mall sites that Kmart stores typically occupy.

Before the well-attended Sears meeting, billionaire and Kmart Chairman Edward Lampert led a sparsely attended Kmart shareholder meeting at the Sears headquarters, which lasted about five minutes before approving the merger.

During a press conference following the vote, Lampert, the new chairman of the merged Sears Holdings, spoke out against his reputation as a financial investor aiming to close stores and sell Sears properties.

“The presumption that you’re going to see a lot of store closings is a wrong presumption,” said Lampert, who made his fortune on hedge fund investments and real estate.

He also dismissed concerns that he wants to sell the preppy clothing line Lands’ End, saying it “is not for sale.”

And he downplayed the fact that Kmart was in bankruptcy two years ago at this time and eventually used Kmart’s stock price, pumped up on real estate sales such as stores sold to Sears, to buy the 116-year-old Sears outright.

A lot of 100-year-old companies develop “issues,” he said, while companies such as “Yahoo, Amazon and Starbucks” have a “spirit that is very, very young.”

“We need that high spirit,” Lampert said. “People don’t care about ‘issues.’ They care about service. They care about price. … We’re going to focus on the customer.”

Lampert led Kmart’s comeback from bankruptcy, which ended in 2003. Its stock price has since soared more than 700 percent.

But because each firm has been experiencing same-store-sales declines, critics worry the merged firm won’t know how to boost sales.

Initially, the biggest growth vehicle will be Sears Essentials, Lacy said. Sears intends to convert 100 Kmarts into Sears Essentials by end of year and, eventually, 400 stores are expected to make the change. The off-mall Sears Essentials will combine products from both retailers and include dry good groceries.

The Chicago market is a testing ground for Sears, with a Sears Essentials being converted in Palatine and a Sears Grand operating at Gurnee Mills Shopping Center. Most Sears Grands are large, off-mall stores, featuring a wide variety of Sears products and dry-goods groceries.

Still, some analysts are skeptical about prospects for a retail turnaround.

“We think Eddie has the Midas touch, and in the short term I expect him to cut costs out of the business and extract value from some of Sears’ non-strategic assets,” said retail analyst Kim Picciola of Chicago-based Morningstar Inc. “But over the long term, we just don’t see this combined retailer effectively competing against the Wal-Marts and Targets of the world.”

Kmart ended Thursday up 6 percent, or $7.69, at $132.52. Sears fell 12 percent, or $6.76, to end at $50.04.

Lacy attributed the stock plunge to “technical reasons” because of the previously agreed merger price of $50 per Sears share. Before Thursday’s trades, buyers could seek to trade their Sears shares for Kmart stock at a ratio that was worth more than $50.

Meanwhile, the historic meetings in Hoffman Estates marked a dramatic turning point for an American icon.

Long gone is the Sears catalog that brought a world of goods to rural America. Long gone is Sears’ position as the nation’s dominant retailer.

On Monday, gone too will be the famous Sears ticker symbol “S” on the New York Stock Exchange.

Henceforth, Sears Holdings will trade under the ticker symbol “SHLD” on the Nasdaq Stock Market.

• Daily Herald news services contributed to this report.

Sears Aims to Keep Lands' End Unit;
Kmart Pact Clears
By Amy Merrick – Staff Reporter – The Wall Street Journal
March 25, 2005

The chairman of the new Sears Holdings Corp., Edward S. Lampert, disavowed the idea of selling off hundreds of stores and said the Lands' End brand isn't for sale, as shareholders approved the acquisition of Sears, Roebuck & Co. by Kmart Holding Corp.

The $12.3 billion deal will create a retailer with about $55 billion in sales and more than 2,300 stores, larger on a sales basis than all but Wal-Mart Stores Inc. and Home Depot Inc. The approvals came in back-to-back meetings at Sears headquarters in Hoffman Estates, Ill.

In a contentious meeting, several Sears retirees expressed anger that Kmart, less than two years out of bankruptcy-court proceedings, managed to buy their former employer. Still, 69% of the shares outstanding at each company were voted in favor of the deal.

Kmart filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code in January 2002 and emerged in May 2003. It then built up a huge cash pile through cutting costs and selling off assets such as store locations.

Mr. Lampert, in an interview, said he sees a niche for the new company between discount stores and department stores. Kmart has improved the quality of its merchandise, he added, but it has to work on communicating the changes to customers.

"Most successful businesses get the benefit of the doubt from the consumer," he said. "Kmart lost that, and we need to earn it back."

Mr. Lampert quashed speculation that Sears would be interested in unloading Lands' End, the catalog apparel retailer it bought for $1.9 billion in 2002. Sears has had inconsistent results with the brand. "It's a silly notion to buy a business two years ago and then sell it for a fraction of the price," he said. "Lands' End is a great American brand."

After the shareholder meetings, Mr. Lampert and the chief executives of Sears and Kmart, Alan J. Lacy and Aylwin B. Lewis, respectively, said they are committed to running Sears Holdings as a viable retailer and aren't planning to sell off big chunks of the company. "There's a presumption that you'll see a lot of store closings, and that's an incorrect presumption," Mr. Lampert said. "Our program is to try to keep open as many stores as we
can."

In the new company, Mr. Lacy will be vice chairman and chief executive, while Mr. Lewis will take the titles of president of Sears Holdings and chief executive of Kmart and Sears Retail.

Sears' stock price was down $6.76, or 12%, to $50.04 at 4 p.m. in New York Stock Exchange composite trading. Officials said the price probably fell because anyone buying the stock now would receive $50 a share in cash and couldn't choose to receive stock in the new company.

Kmart shares were up 6.2%, or $7.69, to $132.52 at 4 p.m. on the Nasdaq Stock Market. Both stocks have been replaced by the symbol SHLD on the Nasdaq.

Sears Down 12%; Shares No Longer Tied To Kmart's
By James Covert – Dow Jones Newswires – Wall Street Journal Online
March 24, 2005

NEW YORK -- Shares of Sears, Roebuck & Co. (S) fell 12% Thursday, with some traders taking advantage of market confusion as buyers lost the right to exchange them for the high-flying shares of the retailer's merger partner, Kmart Holding Corp. (KMRT).

Some investors appeared to see a precipitous early-morning drop in Sears shares as a buying opportunity. Meanwhile, arbritrageurs were apparently aware that, as of Thursday, Sears shares no longer tracked those of Kmart, and shorted them accordingly. Later in the day, those same arbitrageurs appeared to bag a quick profit as they covered their positions at lower prices that appear to be justified by the terms of the merger.

According to the terms of the $12.3 billion deal - announced last November and approved by shareholders Thursday - Sears shares as of the day of shareholder voting no longer track the price of Kmart's stock. Because the merger involves both cash and stock, Sears shares in recent weeks have been boosted by Kmart's lofty stock price. But with buyers of Sears losing their right to ask for Kmart shares on Thursday, the decline in Sears shares doesn't really reflect an apples-to-apples decline in value, analysts said.

Investors who owned Sears shares as of Wednesday have the choice of either asking for $50 per share in cash, or exchanging their shares for one half of a Kmart share. Upon the closing of the merger, Kmart shareholders will receive 55% of the value of their shares in Kmart stock, and 45% at $50 a share in cash.

Those terms help explain where Kmart and Sears shares were trading as of Wednesday, says Bill Dreher, an analyst at Deutsche Bank Securities Inc. in New York. Half of a Kmart share, which had closed at $124.83, would be worth more than $60, but that value would sink to the upper-$50 range once the cash-and-stock payments related to the merger's closing are figured in. In keeping with that math, Sears shares on Wednesday closed at $56.80.

However, the merger agreement also said that the right to choose between cash and Kmart shares would expire for buyers of Sears shares on the day of the shareholder vote on the merger. Instead, investors who buy Sears shares on Thursday will be forced to take a combination of cash and Kmart shares, based on how many shareholders of Sears as of Wednesday opt for cash versus Kmart shares.

That guideline is likely to result in a payment to Thursday Sears buyers that's almost entirely in cash, with a smattering of Sears shares. That's because the vast majority of investors who were Sears shareholders as of Wednesday - including high-profile holders like Kmart Chairman Edward S. Lampert and Vornado Realty Trust (VNO) - are expected to opt for the Kmart shares, leaving little for Sears buyers on Thursday.

As such, it's possible that informed buyers of Sears shares on Thursday were betting that fewer Sears holders will opt for Kmart shares than had been expected, says Scott Keller, President of DealAnalytics.com. Holders that opt for taking the $50 in cash - clearly a mistake, given the current price of Kmart shares - might include individual investors who are "asleep at the wheel," unaware of the premium that's assigned to Kmart shares under the deal, Keller said.

But noting that Sears shares traded at about twice the daily volume on Thursday, Keller added that the activity also likely reflected a combination of investors who mistakenly saw value amid the falling stock price, buying it early on close to the $51 level. Meanwhile, arbitrageurs saw an opportunity to sell Sears short before the reality set in that the shares no longer tracked Kmart's. Sears shares closed Thursday at $50.04, down $6.78.

Kmart shares closed the day 6.2% higher at $132.52. That rally might reflect buying by investors who had bet that Sears shareholders might not approve the deal, or who had hedged long positions in Sears with short positions in Kmart, Keller said.

As complicated as the terms may seem, the "shareholder elections" that offer holders choices between cash and stock aren't unusual in so-called "mergers of equals," or mergers that involve the issuance of stock, Keller said. Under the terms of the Sears-Kmart deal, buyers of Sears shares today have "default election" status. In addition to the rule that restricts their ability to choose Kmart shares over cash, these shareholders didn't have the ability to vote on the merger.

Sears Chairman and CEO Alan J. Lacy on Thursday summed up the complicated explanation for the seeming decline in Sears shares as "technical reasons," adding that "the market in general has strongly supported the merger."

Lacy noted that both companies' stock have posted double-digit percentage gains since the Nov. 17 merger announcement.

Thursday marked the last day of trading for Sears' stock, Lacy said. The merged company is expected to begin trading on the Nasdaq on Monday under the ticker symbol SHLD. Company officials did not specify when the deal would close, but acknowledged it would do so as soon as Thursday.

Lacy Under Fire by Critics
Some resented bounty executives will receive
By Sandra Jones – Crain’s Chicago Business Online
March 24, 2005

Sears, Roebuck and Co. Chairman and CEO Alan Lacy came under fire at the company's special meeting today to approve the sale of the company to Kmart Holdings Corp. for $12.3 billion.

In a 45-minute meeting at Sears' Hoffman Estates headquarters, more than a dozen shareholders stood in line to voice their displeasure with the deal - approved today by 69% of total shares outstanding, just slightly more than the 66.6% required, according to preliminary results.

Not all got a chance to speak. Several shareholders began yelling at Mr. Lacy and Sears' general counsel Andrea Zopp - the only two Sears executives on the podium - when the allotted 20-minute question and answer period ended, demanding to be heard. No extension for more questions was given and prompted a round of "boos" when the shareholder meeting closed.

Shareholder complaints ranged from characterizing Sears' sale price as too low, chastising Mr. Lacy for the annual decline of Sears' sales during his five-year tenure and resentment for the stock option bounty Sears' top executives stand to receive under the terms of the agreement.

Carmen Liggett, a former Sears store manager in Indianapolis and a vocal critic, charged Mr. Lacy with weakening the company and making it ripe for a takeover after selling Sears' cash-cow credit card business in 2003. She told him, "You will now be known to me as 'loophole Lacy.'"

A former Sears financial controller for its headquarters property received applause when he said: "I wish you guys luck but I can't think this is the best thing that could have happened here."

Another shareholder, agitated about the millions of dollars Sears executives stand to collect from their accelerated stock options in the deal, cited a report in Crain's Chicago Business (Feb. 28) that estimated Mr. Lacy would receive $28 million from his options when the sale closes. Mr. Lacy responded, "I haven't done the math, but I think that's about right."

Separately, in a press conference after the meeting, Edward Lampert, the Connecticut billionaire and Kmart Holding Corp. chairman who will become the chairman of the combined Sears Holdings Corp., said he has no intention of selling Lands' End, the direct merchant Sears bought for $1.9 billion in 2002 and that has been reported to be on the block.

"Lands' End isn't for sale," said Mr. Lampert. "There are people out there who have an agenda and don't want us to be successful. We are going to protect the assets of this company."

Kmart Completes $12.3B Sears Acquisition
Associated Press – Forbes.com
March 24, 2005

Kmart bought Sears, Roebuck and Co. for $12.3 billion on Thursday, combining two faded retail icons whose sales have been declining for years into the nation's third biggest retailer with $55 billion in annual sales.

Shareholders signed off on the deal in separate meetings at Sears' suburban Chicago headquarters, which now becomes the base for a company that adopts the name Sears Holdings Corp. It trails only Wal-Mart Stores Inc. and Home Depot Inc. among U.S. retailers.

The votes capped off the stunning proposal unveiled four months earlier by Kmart Holding Corp. Chairman Edward Lampert, the billionaire hedge-fund manager who was the largest individual shareholder in each company.

Lampert, who helped Troy, Mich.-based Kmart turn a $1.1 billion profit last year with the aid of real-estate transactions, denied he has a big sell-off in mind for Sears assets and said the new company "goes beyond being an investment."

"It's an opportunity to transform two companies that once were great - to transform them into a great company relative to the 21st century," he told reporters at a news conference after the meetings.

"I think there's a presumption that you're going to see a lot of store closings. That's a wrong presumption," he said. "Our program is to keep as many stores open as we can."

Contending he has been unfairly labeled as a sell-off specialist, he also denied the company has put the Lands' End casual clothing chain on the market, as an industry publication reported earlier this month.

"Lands' End isn't for sale," the 42-year-old Lampert said. "It's a great American brand, and I think it's a brand that we could run very, very well."

The merger also brings together some other powerful brands that have succeeded while their companies' retail results have sagged, among them Craftsman tools, Kenmore appliances and, from Kmart, Martha Stewart, Jaclyn Smith and Joe Boxer.

Employees have been concerned about widespread job cuts when the new company moves to close stores and convert hundreds of Kmart stores this year to the new Sears Essential convenience-oriented format. But officials said that while some layoffs will be announced by the end of April from among the 5,000 people working at the two firms' headquarters, the vast majority of the work force of 400,000 will keep their jobs as Sears Holdings focuses on improving retail.

"We are determined to be successful," Lampert said. "We will protect the assets of this company."

The deal closed shortly after the back-to-back shareholder meetings - one tame, the other rancorous.

Sixty-nine percent of Kmart shareholders voted to approve the deal in results announced at a sparsely attended session lasting five minutes. About two hours later, CEO Alan Lacy disclosed that Sears shareholders also had voted 69 percent in favor of the deal - but he had to endure shouting and insults by retired and former Sears employees upset about the 119-year-old retailer's acquisition by Kmart.

"This is a sad and dark day for Sears Roebuck," Doug Liggett, formerly a Sears auto center manager, said at the meeting. "It is unbelievable that Kmart, two years out of bankruptcy, would be strong enough to purchase Sears, a company in business for over a century."

Some also voiced criticism that Lacy will pocket about $27 million as a result of the merger.

"Sears Holdings intends to be a great company and a great retailer," said Lacy, responding to their angry complaints and fears the department-store company's assets would be sold off to raise cash.

The deal furthers Sears' strategy of moving away from shopping malls to the more profitable off-mall sites that Kmart stores typically occupy.

But since each firm has struggled on its own, it remains to be seen whether the combined company can manage to keep up with thriving competitors.

Lampert and Lacy, who will be CEO and vice chairman under Lampert at Sears Holdings, say the merger should save $500 million over the next three years.

Retail consultant Howard Davidowitz expects Lampert to take the same approach at Sears to generate cash that he did at Kmart: sell assets, cut costs, reduce inventory and raise prices.

"He recognized Kmart was a cadaver and he monetized it," Davidowitz said.

"For the short term, it's very exciting. But for the long term, watch out," he said of the strategy, forecasting a "bleak outlook" for Sears unless the move away from malls is successful.

Independent retail analyst Richard Hastings thinks that by maintaining Sears' strength in appliances and adding Kmart's Martha Stewart tag, the new company can prosper.

"It's about profitability, it's not about sales," he said. "It may get smaller, but ... it's going to be more profitable, more stable, with a better strategy. And it'll be more competitive with Wal-Mart and Target."

In a stock plunge Lacy attributed to "technical reasons" because of the previously agreed price of $50 per share, Sears shares fell $6.76, or nearly 12 percent, to close at $50.04 on the New York Stock Exchange. Kmart shares rose $7.69, or 6.2 percent, to $132.52 on the Nasdaq Stock Market.

"The market in general has strongly supported the merger," Lacy said, referring to double-digit percentage gains by both companies' stocks since the Nov. 17 announcement, when the deal was valued at $11 billion.

The company said that because of timing restrictions on settlements, anyone trading Sears shares on the NYSE Thursday could not elect to choose stock in the new company for their shares - one of the two options available. As a result, those shares will receive the cash consideration in the merger of $50 per share.

Thursday marked the last day of trading for Sears' stock. The merged company starts trading on the Nasdaq on Monday.

Shareholders Approve Sears-Kmart Merger
By Dave Carpenter – AP Business Writer - Chicago Tribune Online
March 24, 2005

HOFFMAN ESTATES, Ill. -- Shareholders signed off Thursday on Kmart Holding Corp.'s $12.3 billion acquisition of Sears, Roebuck and Co., clearing the way for the two struggling rivals to combine into the nation's third-biggest retailer.

Final approval came in back-to-back meetings at Sears' headquarters, and company officials said the deal could close later Thursday.

Barring a last-minute hitch, Sears' sprawling headquarters will now house a new retail powerhouse named Sears Holdings Corp. with $55 billion in revenue, 3,800 stores and an uncertain future.

Ninety percent of Kmart shareholders voted to approve the deal in results announced at a brief and sparsely attended meeting at the headquarters building. Less than two hours later, Sears said its shareholders had voted 69 percent to 9 percent in favor of the deal.

"The merger is now approved," Sears CEO Alan Lacy told the crowd of about 200 people.

In a stock plunge Lacy attributed to "technical reasons" because of the previously agreed price of $50 per share, Sears shares fell $6.69, or nearly 12 percent, to $50.11 in late morning trading on the New York Stock Exchange. Kmart shares rose $2.17 to $127 on the Nasdaq Stock Market.

"The market in general has strongly supported the merger," Lacy said, referring to double-digit percentage gains by both companies' stocks since the Nov. 17 announcement, when the deal was valued at $11 billion.

The company said that because of timing restrictions on settlements, anyone trading Sears shares on the NYSE Thursday could not elect to choose stock in the new company for their shares -- one of the two options available. As a result, those shares will receive the cash consideration in the merger of $50 per share.

Thursday marked the last day of trading for Sears' stock, Lacy said. The merged company is expected to begin trading on the Nasdaq on Monday. Company officials did not specify when the deal would close, but acknowledged it would do so as soon as Thursday.

The deal will create the nation's third-biggest retailer behind Wal-Mart Stores Inc. and Home Depot Inc. and bring together Sears' top brands Craftsman and Kenmore with Kmart's successful Martha Stewart and Joe Boxer product lines. It also furthers Sears' strategy of moving away from shopping malls to the more profitable off-mall sites that Kmart stores typically occupy.

But since each firm has struggled on its own, it remains to be seen whether the combined company can manage to keep up with thriving competitors.

Edward Lampert, whose investment firm controls Kmart and is Sears' largest individual shareholder, has orchestrated a financial turnaround at Troy, Mich.-based Kmart since it emerged from bankruptcy in 2003. The discounter turned a $1.1 billion profit last year, although it was largely the result of selling off real estate as sales continued to decline.

He and Sears chairman and chief executive Alan Lacy, who will be CEO and vice chairman under Lampert at Sears Holdings, say the merger should save $500 million over the next three years. That means announcements of widespread store closings and staff cuts may be imminent.

After boosting profits at Kmart, Lampert faces a similar challenge at Sears, where sales have slipped lower for four consecutive years and the $1.9 billion acquisition of Lands' End three years ago hasn't worked out. He has already signaled a change in direction last month with the announcement that dozens of earlier-acquired Kmart stores would be converted to a new mid-sized store format called Sears Essentials.

Analysts are skeptical about prospects for a retail turnaround.

"We think Eddie has the Midas touch, and in the short term I expect him to cut costs out of the business and extract value from some of Sears' non-strategic assets," said retail analyst Kim Picciola of Chicago-based Morningstar Inc. "But over the long term, we just don't see this combined retailer effectively competing against the Wal-Marts and Targets of the world."

Retail consultant Howard Davidowitz expects Lampert to take the same approach at Sears to generate cash that he did at Kmart: sell assets, cut costs, reduce inventory and raise prices.

"He recognized Kmart was a cadaver and he monetized it," Davidowitz said.

"For the short term, it's very exciting. But for the long term, watch out," he said of the strategy, forecasting a "bleak outlook" for Sears unless the move away from malls is successful.

Independent retail analyst Richard Hastings thinks that by maintaining Sears' strength in appliances and adding Kmart's Martha Stewart tag, the new company can prosper.

"It's about profitability, it's not about sales," he said. "It may get smaller, but ... it's going to be more profitable, more stable, with a better strategy. And it'll be more competitive with Wal-Mart and Target."

Kmart Shareholders OK Sears Buyout
By Jennifer Waters & Russ Britt - MarketWatch
March 24, 2005

CHICAGO (MarketWatch) - Kmart Corp. shareholders overwhelmingly approved the company's planned buyout of Sears Roebuck & Co., setting the stage for Sears investors to do the same later Thursday.

A total of 69 percent of Kmart shareholders approved the transaction originally valued at $11 billion that would create the third-largest retailing firm known as Sears Holding Corp.

The companies hope the new entity, with $55 billion in annual sales and 3,800 stores, will be more able to compete with leviathan Wal-Mart Stores ranks as number two.

Sears shareholders were scheduled to meet here at the company's headquarters to consider the deal. The Kmart gathering involved only a presentation by Chairman Edward Lampert and the vote.

As trading opened, Sears shares plunged more than 11 percent, but analysts said that was due to the nature of the transaction. Sears fell $6.55 to $50.25.

Analysts say that the deal's approval means there is no more upside for Sears shares. Sears investors who didn't trade in their stock for a half share of Kmart would receive only a flat consideration of $50 cash for each of their shares. Kmart shares, meanwhile, were up 70 cents to $125.71.

Jennifer Waters is the Chicago bureau chief for MarketWatch.
Russ Britt is the Los Angeles bureau chief for MarketWatch.

Can Lands' End Remain True?
Next Owner Faces Major Challenge
By Lynn Welch - Capital Times - Madison Wis.
March 24, 2005

Amy Schmidt stopped ordering clothes from Lands' End years ago.

"They're sturdy and they're good quality, but the style is just a little too bland," the Madison woman said.

She still buys swimsuits for her children there. And when she needed a swimsuit for herself a couple of years ago, she went to Sears to try on Lands' End suits.

Good thing. None of them were just right, and having the in-store option saved her from going through the order and return process.

Traditional catalog firms continue to turn to retail to grow their brand presence, customer base and sales.

But experts say the road from catalog and Internet to store is not always that smooth. And it will be up to Lands' End's next owner to decide how to grow the classic clothing brand with the folksy image tied so closely to southwestern Wisconsin.

Lands' End parent Sears Roebuck & Co. today prepares to merge with Kmart as shareholders of the two firms vote on the $11 billion deal announced last November. Industry reports claim that Lands' End probably won't be part of the new company; that Sears is shopping around Lands' End at a cut-rate price - $1.2 billion versus the $1.9 billion Sears paid for the firm two years ago.

One harbinger of the sale, perhaps, was a reorganization announced last month at Lands' End, which resulted in the largest job cut in company history. Some 375 people were fired throughout the company and a call center in Cross Plains will close in June. Another 375 seasonal positions will be cut at the end of the year, leaving a work force in Wisconsin of 6,400.

Suitors named in recent reports include Redcats, a French-owned catalog firm, Texas Pacific Group, and former Lands' End CEO David Dyer, now head of Tommy Hilfiger.

Whatever its fate, Lands' End is changing. But hopefully not too much for loyal customers.

"If they cut prices to stay competitive and change quality, that's the only thing that will lose me," said Mary Moran, who buys clothing for her three young boys from Lands' End.

Key to its future success is retaining or recapturing Lands' End as a "folksy brand people can identify with."

"Whoever winds up owning (Lands' End), I hope that image will be maintained," said Neil Stern, a senior partner with McMillan Doolittle, a Chicago-based retail consulting firm.

In fall 2002, Lands' End began offering a selection of popular clothing at a Sears department store near Sears' suburban Chicago headquarters, and at Sears' West Towne Mall store in Madison. It eventually was merchandised at all 870 Sears stores as a better brand.

Under Sears, Lands' End quickly gained a retail presence without investing in real estate or creating a new business model.

But results have not followed. Sears clothing sales last year declined 11 of 12 months. And Lands' End direct sales also fell about 5 percent during that period.

"In retrospect, the Sears store and Sears customer is probably not the ideal customer or product placement for Lands' End," Stern said. "It certainly hasn't been as easy as both parties have expected."

One trend among traditional catalog companies is to branch out into retail stores. Some have done it with success, including Williams Sonoma and its Pottery Barn and Pottery Barn Kids divisions, Coldwater Creek women's clothier, and J Jill, also a women's apparel seller. Even L.L.Bean has opened several East Coast stores in the last several years.

But does Lands' End need to have full-line retail stores in order to grow?

"Our view is that the more you can cost-effectively present customers merchandise in the selling venue that they want to shop in, you should," said Harry Chevan, a principal with Gruppo-Leevy & Co. in New York, an investment firm specializing in multi-channel shopping. "What it's hard to know right now is whether stores would make any sense for Lands' End."

Years before it was part of Sears, Lands' End tinkered with retail. It operated some 20 "Not Quite Perfect" outlet stores and "Inlet" shops - stores offering off-price outlet merchandise as well as a selection of first-run catalog goods.

Some of the original locations have closed, but the company continues to operate about 20 retail stores here and abroad. There are seven shops in Wisconsin including an outlet on State Street, an Inlet shop on Junction Road and another outlet in Dodgeville. Lands' End even has a new store in the Pittsburgh airport.

But Moran said she likes having Lands' End clothing available at Sears. She has to make a special trip to go to an outlet shop, while she can shop the selection at Sears when she goes to the mall for other things.

In general, however, Sears and Lands' End did not fit as well as originally hoped.

"It's better off not being part of a traditional retail store chain. Lands' End is on average more upscale than Sears or Kmart and would be better with a more upscale outfit," said Jon Udell, an emeritus business professor at UW-Madison.

Udell said merchandising Lands' End at Marshall Field's rather than Sears or Kmart would make more sense.

Chevan also said a retailing partner like Marshall Field's would better reflect Lands' End's brand image.

"It's a brand that's ubiquitous, but what has happened to the image is that it's perhaps been brought down a notch or two," Chevan explained.

The first order of business for Lands' End is to re-establish the brand, Chevan said.

But even ubiquitous brands hit the wall.

"How much further can they grow?" Chevan questioned. "Is there a natural saturation point beyond which your growth is limited? That's what happens with many of these classic brands."

A good example is Eddie Bauer, whose parent Spiegel Inc. is going through Chapter 11 proceedings and selling off the brand.

Chevan stressed how important it is for Lands' End's next owners to re-establish the brand and not let it fade.

"It's still a very successful company and fabulous brand," McMillan Doolittle's Stern said. "The question is does this brand want to grow and how is it going to grow."

For die-hard customers like Moran, it's essential the company not only grow, but grows in such a way that it can remain true to its roots.

"The most important thing for me is how much mileage am I going to get out of a sweatshirt or pair of jeans. I'm totally dedicated to the quality of their stuff," she said.

Kmart Shareholders Approve Sears-Kmart Deal
DETROIT FREE PRESS
March 24, 2005

HOFFMAN ESTATES, Ill. (AP) -- Kmart Holding Corp. shareholders approved the acquisition of Sears, Roebuck and Co. on Thursday in an $11 billion deal executives hope will create a retail powerhouse while helping to reverse years of lagging sales.

The Kmart shareholders meeting at Sears headquarters in suburban Chicago was perfunctory, lasting just five minutes. Sears shareholders were scheduled to vote on the deal later Thursday.

Kmart Chairman Edward Lampert unveiled the proposed pairing of longtime industry rivals four months ago. Barring a last-minute hitch, Sears' sprawling headquarters will now house a new retail titan named Sears Holdings Corp. with $55 billion in revenue, 3,800 stores and an uncertain future.

Sears shares fell $6.06, or nearly 11 percent, to $50.74 in morning trading on the New York Stock Exchange, while Kmart shares rose $1.19 to $126.02 on the Nasdaq Stock Market.

The deal will create the nation's third-biggest retailer behind Wal-Mart Stores Inc. and Home Depot Inc. and bring together Sears' top brands Craftsman and Kenmore with Kmart's successful Martha Stewart and Joe Boxer product lines. It also furthers Sears' strategy of moving away from shopping malls to the more profitable off-mall sites that Kmart stores typically occupy.

But since each firm has struggled on its own, it remains to be seen whether the combined company can manage to keep up with thriving competitors.

Lampert, whose investment firm controls Kmart and is Sears' largest individual shareholder, has orchestrated a financial turnaround at Troy, Mich.-based Kmart since it emerged from bankruptcy in 2003. The discounter turned a $1.1 billion profit last year, although it was largely the result of selling off real estate as sales continued to decline.

He and Sears chairman and chief executive Alan Lacy, who will be CEO and vice chairman under Lampert at Sears Holdings, say the merger should save $500 million over the next three years. That means announcements of widespread store closings and staff cuts may be imminent.

After boosting profits at Kmart, Lampert faces a similar challenge at Sears, where sales have slipped lower for four consecutive years and the $1.9 billion acquisition of Lands' End three years ago hasn't worked out. He has already signaled a change in direction last month with the announcement that dozens of earlier-acquired Kmart stores would be converted to a new mid-sized store format called Sears Essentials.

Analysts are skeptical about prospects for a retail turnaround.

"We think Eddie has the Midas touch, and in the short term I expect him to cut costs out of the business and extract value from some of Sears' non-strategic assets," said retail analyst Kim Picciola of Chicago-based Morningstar Inc. "But over the long term, we just don't see this combined retailer effectively competing against the Wal-Marts and Targets of the world."

Retail consultant Howard Davidowitz expects Lampert to take the same approach at Sears to generate cash that he did at Kmart: sell assets, cut costs, reduce inventory and raise prices.

"He recognized Kmart was a cadaver and he monetized it," Davidowitz said.

"For the short term, it's very exciting. But for the long term, watch out," he said of the strategy, forecasting a "bleak outlook" for Sears unless the move away from malls is successful.

Independent retail analyst Richard Hastings thinks that by maintaining Sears' strength in appliances and adding Kmart's Martha Stewart tag, the new company can prosper.

"It's about profitability, it's not about sales," he said. "It may get smaller, but ... it's going to be more profitable, more stable, with a better strategy. And it'll be more competitive with Wal-Mart and Target."

Shareholder Revolt Bearing Fruit
By Sandra Guy – Business Reporter – Chicago Sun-Times
March 24, 2005

Deja vu: After a dissident shareholder got the cold shoulder from Sears Roebuck and Co.'s board of directors, he and a supporter lobbied in the news media for Sears to sell its most precious assets so shareholders could see that those assets were propping up faltering stores.

The dissident was Robert A.G. Monks, and his supporter was Nell Minow, the founding principal of the Corporate Library, a leading advocate of good governance in business.

They launched their campaign 15 years ago, and convinced Sears to sell off its brokerage (Dean, Witter), insurance (Allstate) and real estate (Coldwell Banker) divisions.

"Sears really was the worst of the worst in terms of corporate governance," Minow said recently of the early 1990s shareholder revolt.

About this series
Sears, Roebuck and Co. shareholders vote Thursday whether to be acquired by Kmart Corp., as Kmart shareholders vote whether to rename the company Sears Holdings Corp. and move headquarters to Hoffman Estates from Michigan. Sun-Times Business Reporter Sandra Guy examines the forces at work in this stunning merger in a series that runs through Friday. Monday: Real estate, not customers, drove this deal.
Tuesday: Sears' and Kmart's brands: What stays, what will be jettisoned.
Wednesday: Thursday's vote promises to be raucous with Sears' dissident shareholders venting frustrations and fears.
Thursday: Who's who on the new Sears board, and what they bring to the party.
Friday: The look of the new Sears.

Case in point: Then-CEO Edward Brennan held four top jobs -- CEO, chairman of the board, head of the board's nominating committee and leader of Sears' store division, its poorest performer.

"It was like making President Bush the chief justice, the secretary of state and the secretary of defense," said Minow, explaining the lack of oversight inherent in the situation.

Sears' shareholders are still up in arms, for similar but different reasons. They know that Sears' retail division was propped up by the profitable credit-card division. That became obvious in 2003, when Sears CEO Alan Lacy engineered the credit-card businesses' sale to Citigroup, and the corporation's financial condition weakened.

Now they're furious that Lacy stands to get a pay raise, bigger bonus and lucrative stock proceeds from Kmart Corp.'s takeover of Sears, and they refuse to believe that Kmart's hedge-fund manager leader can rescue the Sears they know and love.

Sears' smaller stakeholders, mostly employees and retirees, worry that their benefits will be slashed, and their voices smothered.

When Kmart completes its $11 billion takeover of Sears, the new Sears Holdings Corp.'s 10-member board will include, in addition to Lacy, two controversial Sears, Roebuck holdovers -- Donald J. Carty and Michael A. Miles. Kmart will name seven to the Sears Holdings board because Kmart Chairman Edward Lampert will own more than 40 percent of the merged company's stock. An ironic twist: Julian C. Day, who lost a bid for Sears' top job to Lacy, is one of Kmart's representatives on the new board.

Carty, 58, is the former chairman of financially ailing American Airlines. He was forced to resign from American two years ago after he failed to disclose a plan to give the airline's top managers bonuses and special pension protections when employees were voting to accept wage and benefit cuts.

MERGER FACTS
Three Sears directors will be eligible for $30,000 a year in retirement pay. They are: Michael A. Miles, who is scheduled to serve on the board of the new company, Sears Holdings Corp.; Hall Adams, retired chairman and CEO of advertising agency Leo Burnett Co., and Dorothy A. Terrell, a venture partner at First Light Capital.

Sears' retiring directors will be entitled to receive all of their deferred stock granted after the company's 2004 annual meeting. The stock will vest immediately before the closing of the Kmart deal. An overwhelming majority -- 87 percent -- of respondents to an online poll sponsored by the National Association of Retired Sears Employees, disagreed that Sears' merger with Kmart was in the best interests of shareholders, employees and retirees. Overall, 88 percent opposed the merger and 92.6 percent were concerned about the merger's effect on employee and retiree pensions, medical and health care insurance and discount benefits. Lampert leads list of 7 Kmart will name to board Kmart Corp. will name seven of the 10 members to the new Sears Holdings Corp. board:

Edward Lampert, 42, the Connecticut billionaire who engineered Kmart's takeover of Sears. Lampert, who runs hedge fund ESL Investments Inc., also serves on the boards of AutoNation Inc. and AutoZone Inc. Lampert will serve as chairman.
Aylwin B. Lewis, Kmart's president and CEO. Lewis, 50, will become one of the highest-ranking African-American executives in the United States when he becomes president of the new Sears Holdings Corp. and CEO of Sears Retail.
William C. Crowley, 47, Kmart's senior vice president of finance and a Kmart board member. Crowley previously served as president and chief operating officer of Lampert's ESL Investments.
Julian Day, 52, who served as president and CEO of Kmart until October 2004. He also served as chief financial officer of Safeway Inc., from 1993 to 1998. Safeway bought Dominick's grocery stores in 1998.
Steven T. Mnuchin, 42, a Kmart director who leads Dune Capital Management LP. Mnuchin previously worked at ESL.
Ann N. Reese, 51, a Kmart director who co-founded the Center for Adoption Policy Studies in New York and serves as its executive director. Before that, she held senior corporate posts.
Thomas J. Tisch, 50, a Kmart director who is a managing partner of Four Partners, a private investment firm. --Sandra Guy

Carty is scheduled to be a member of the merged company's audit committee, even though the California Public Employees Retirement System withheld its votes on his Sears re-election bid, because he was a member of the committee that authorized auditor Deloitte & Touche to perform non-audit services, a possible conflict of interest.

Shareholders last year also criticized the other carry-over board member, Miles, because he served on seven other boards at the time.

Miles, 65, a retired CEO of Philip Morris Cos., also served as Sears CEO Alan Lacy's mentor when the two worked at Kraft Foods and Philip Morris.

Miles served as chairman of the Sears board's search committee when the board hired Lacy as CEO in October 2000. At the merged company, Miles will serve on the nominating and corporate governance committees.

Lacy, 51, is Sears' third member on the board of Sears Holdings, and will become vice chairman and CEO when the $11 billion takeover of Sears is complete.

Retail analysts, Sears shareholders and corporate governance activists have expressed bewilderment that Sears' board has kept Lacy on as CEO, and given him raises and lucrative stock-option grants, despite the retailer's poor performance. Sears has posted four straight years of sales declines.

"Who does the board of directors hold accountable, and when do they hold him accountable?" said retail analyst Howard Davidowitz, a retail consultant and investment banker in New York City.

Under Lacy's tenure, Sears has slashed its operating costs, its work force -- it employs 201,000 compared with 275,000 in 2002 --and relied on buying back its stock to boost earnings per share.

Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said Lampert dislikes managers being entrenched at his companies because it can get in the way of generating value for shareholders.

Minow, who is delighted that Lampert is taking over, said, "I know that Eddie will assemble a group who will look at all of the options rigorously but fairly.

"The board's obligation is to keep the company sustainable in the long run," Minow said.

Minow will never forget the lesson that her fellow dissident Monks learned while riding up an elevator in the Sears Tower to see then-CEO Brennan.

The chief financial officer, who was taking Monks upstairs, cut through the tense atmosphere by confessing, "This is the first time bad news has gone above the 72nd floor."

"I completely love that," Minow said. "It shows you what the problem was at Sears."

Ex-Sears executive expects stores to head downhill
Editor's note: A former Sears, Roebuck and Co. senior executive, who asked to remain anonymous, analyzes the Sears-Kmart merger:

I'm feeling sad and angry, to start out with. It's the end of Sears as an independent company. They can slap any words around it they want, but it's a Kmart acquisition of Sears.

It's a sad and tragic feeling, how it got to this terrible situation.

I look at the last four years: declining sales, loss of competitive relevance, disappointing profit performance, loss of control in the credit business that led to it being sold, an ill-priced acquisition of Lands' End (apparel and accessories) and a very poor execution of the Lands' End brand. Sears' debt rating is down to one notch above junk.

It's an unremitting litany of errors and mistakes -- and it's a failure of leadership. The leaders should take accountability for what happens.

After the Kmart takeover, Sears is going to see major work force cuts and major reductions in inventory investment. You need only walk into a Kmart store to see holes in the merchandise assortment.

You will see asset sales. Sears Canada for sure. Lands' End is going to be sold. I wouldn't be surprised to see the Sears appliance service business sold or outsourced or joint ventured.

The Sears retirees are going to look at previous management like their savior, because the management of the combined Kmart-Sears for sure is going to chop benefits left and right, and the retirees will be the first target.

I find it hard to see Sears CEO Alan Lacy, who will be vice chairman and CEO of the new company, surviving that environment, because new Chairman Edward Lampert doesn't need his skills with the kind of program Lampert has.

It would not surprise me to see Julian Day, former Kmart CEO and a nominee to the board of the new Sears Holdings Corp., taking Lacy's job. Julian executed a lot of the game plan at Kmart, and, by Lampert's standards, was pretty successful at it.

I don't think the stores will be as well merchandised. There may be more disappointments for people looking for a particular item, size or quantity of something.

In-store service levels will come down. Sears' proposition is assisted selling: there are sales people in the departments, as opposed to the customer walking to a central checkout. But you may see Kmart with only one checkout lane open in the whole store at any given moment.

If the Sears board could see only this option (the Kmart takeover) as the hope for the strategic future of the company, it was a pretty sad state of affairs.

Sears directors could have and should have realized a couple of years ago that they didn't have the right leadership in place. They were much too patient with a situation that was patently going wrong.

Alan Lacy has plenty of gray matter. He's a bright enough guy. But retailing is a business built on more than the spreadsheets and the computer screen. It's built on empathy for the people, a feeling for the customer. It's built on optimism. He wasn't equipped to change things for the positive. His instinct was, "If something goes wrong, close it down."

But the institutional money doesn't want to bet against Eddie Lampert. He'll make money for himself and his investors very quickly.

I wonder whether there will be a Sears around in the next six to seven years. If so, it will look more like Montgomery Wards did toward the end. It will be a shadow of itself.

As for me, I will be voting "no" on the Kmart takeover today, and will not hold new shares.

An exit poll likely for Sears
Shareholders seem ready to vote for future with Kmart
By Becky Yerak - staff reporter – Chicago Tribune
March 24, 2005

Since buying Kmart Holding Corp. out of bankruptcy court nearly two years ago, investor Edward Lampert has watched the stock of the discount chain surge tenfold, from $13 to about $130.

But will the Kmart chairman have the Midas touch again if his proposed merger with Sears, Roebuck and Co. is consummated?

The consensus seems to be yes--at least in the short run. Even a longtime Sears skeptic believes that the merged company, Sears Holdings Corp., can make money for investors early on regardless of whether shoppers continue to defect to Wal-Mart Stores Inc., Target Corp. and J.C. Penney Co.

On Thursday at Sears' headquarters in Hoffman Estates, shareholders of the nation's biggest department store chain will vote on the merger. Sears needs two-thirds of the votes for approval while Kmart shareholders only need a majority.

If approved, the deal effectively finishes off Sears, Roebuck and Co., founded 119 years ago as R.W. Sears Watch Co. in Minneapolis.

Standard & Poor's already has announced that, after the close of trading Thursday, Sears Holdings Corp. will replace Sears Roebuck in the S&P 500. On Monday, Sears is expected to announce the breakdown of whether investors elected cash, stock or a combination of the two.

The trading of Sears Holdings is expected to begin shortly thereafter on Nasdaq under the symbol SHLD, meaning that Sears will give up the single-letter ticker designation that it has used on the New York Stock Exchange since 1910.

Many shareholders are looking toward the future.

"Sears shareholders are loving it," said Jeffrey Maillet, principal with Noble Asset Management, which owns both Sears and Kmart stock. "Eddie Lampert is one of the most adept managers at unlocking shareholder value."

Vornado Realty Trust, which in early November disclosed a 4.3 percent interest in Sears, came out earlier this week in favor of the merger, effectively killing speculation about a second bidder making a run at the company.

The deal also has a seal of approval from Institutional Shareholder Services, a proxy advisory service that in the past has criticized Sears over corporate governance issues.

Sears Holdings could outperform the market over the next six to eight months, Michael Exstein, an analyst for Credit Suisse First Boston, said in a recent note to clients.

Whatever retail numbers the retailer posts will be just a sideshow because asset sales and cost-cutting will carry the day, he said. "We don't think that the operating performance of the underlying business really matters in the next three to six months."

New York investment banker Howard Davidowitz added: "Eddie Lampert unlocked the value of Kmart, and people believe there will be more of the same at Sears."

At least one Sears' retiree isn't waiting around to find out.

After owning Sears' stock for more than 50 years, he sold his 100 remaining shares recently at about $57.

Under terms of the merger, the deal calls for 55 percent of Sears' shares to be converted into the new company's shares, and 45 percent into the cash offer. Sears' shareholders may elect to receive $50 in cash, or a half of a Sears Holdings share pegged to Kmart stock, or a combination of the two.

"The $50 offer never interested me," said the retiree, who asked not to be identified. "The Kmart price is attractive, but I don't trust it."

He also was upset that Sears Holdings will eliminate the dividend that Sears Roebuck paid regularly since at least 1993. Records show stock splits and dividends dating back to 1911.

Stock's value has soared

But Sears' merger proponents point out that recent stock appreciation has offset the 92-cent a share annual dividend that Sears has been paying.

At least one money manager is cautious for another reason.

"This could be a good deal as a speculative flier, but perhaps not a core holding for a private client portfolio," said Jack Ablin, chief investment officer for Harris Private Bank, which manages $40 billion for individual investors. His retail holdings include American Eagle Outfitters, Nordstrom Inc. and Staples Inc.

The sale of real estate and other assets could prop up the stock in the short run, but there are longer-term questions about Sears Holdings' commitment to retailing, he said.

Ablin agrees with others that the merger will be approved.

"Is the deal in trouble?" New York investment banker Davidowitz said. "I don't think so, but it's not done until it's done."

Some wondered whether Vornado's public backing of the deal was a sign that Sears was having difficulty rustling up a two-thirds vote. But, as Davidowitz sees it, Vornado was merely protecting its investment.

"If the deal doesn't go through, the stock would crater," he said.

The past year has been a roller coaster for Sears shareholders.

As 2004 got under way, Sears' stock traded at about $44. By late October, it had fallen to around $31.

The stock started a slow climb back to $37 in early November. Then Vornado disclosed a 4.3 percent stake, stoking Sears' shares by 23 percent in one day to nearly $46.

The day before Kmart and Sears announced their deal later in November, Sears stock had closed at about $45. After the deal was announced Nov. 17, Sears finished 17 percent higher, at $52.99 a share.

For the first few months after announcing the merger, Sears' stock traded higher than the $50 cash offer as well as half of a Kmart share.

Small investors cried foul but that has since changed.

Sears' stock closed Wednesday at $56.80 while Kmart ended at $124.83. That makes half of a Kmart share worth $62.41.

UBS Securities recently said Kmart stock could be worth $160 and Sears stock $66.50.

Some details unclear

While Credit Suisse's Exstein suggests that Sears Holdings will do well in the short term, he said there are several unanswered questions: How much will it cost to integrate back-office functions? How many overlapping stores will be sold? Will the retailer report monthly sales?

But some Sears shareholders are driving such thoughts from their minds.

"Sears' shareholders have received almost a 100 percent return over the past six months," said Fred Schmitt, vice president of Sage Group, a Los Angeles investment bank that does not own stock in either Sears or Kmart.

"What's not to like?"

Sears Retirees Against Merger with Kmart
Crain’s Chicago Business Online – Associated Press
March 23, 2005

Group fears loss of pensions and benefits

With Sears Roebuck & Co. set to merge with Kmart Holding Corp. following shareholder meetings Thursday, there's at least one group that hasn't been convinced it's for the best.

The National Association of Retired Sears Employees is opposed to the merger, fearing its members will see their benefits slashed.

"Sears retirees are concerned about the loss of benefits," said Ron Olbrysh, chairman of NARSE. "But, it's not only benefits; it's the question of what will happen to a company that was at one time a premier retailer."

Nearly 90 percent of respondents to a NARSE survey released this week said they don't approve of the merger.

More than 92 percent said they were concerned about the future and security of employee and retiree pensions, medical and health care insurance, life insurance and discount benefits.

The survey received 1060 responses from both retirees and current employees. According to NARSE, "almost 40 percent of the respondents identified themselves as Sears employees."

Sears has about 150,000 retirees.

Olbrysh contends Sears Holdings - the name for the combined companies - will be "controlled by Wall Street financiers, not merchants looking to restore Sears to its role as a premier retailer."

Under such a scenario, he doesn't expect employee, and particularly former employee, benefits to be a priority as the merged company looks to trim costs.

There has been speculation that hedge-fund manager Edward Lampert, who also serves as Kmart Holding Corp.'s chairman, is more interested in selling the vast real estate holdings of Kmart and Sears than in building a retailing empire - a view Lampert has disputed.

Chris Braithwaite, a spokesman for Hoffman Estates, Ill., based Sears, said the retailer is aware of retiree concerns but that retiree issues are part of "a whole range of issues to be worked out."

A call to Troy, Mich., based Kmart seeking comment was not returned.

"Everybody has concerns about the way Lampert has done business at Kmart and has cut benefits," said Dan Quaid, who heads the Sears Retiree Club of Chicagoland and is on Sears Retiree Advisory Council.

Quaid, who worked at Sears headquarters for 34 years, said retirees have been guaranteed their benefits only through 2005.

"The medical benefits are probably the biggest concern," Quaid said, adding he receives about $200 per month from Sears toward medical and prescription drug coverage.

Quaid says he has kept 800 shares of Sears stock and voted those shares against the merger: "But, it looks like a slam dunk, so it was more of a protest vote," he added.

Sears Workers, Retirees Fear Merger will Scramble Stocks
By Sandra Guy – Business Reporter – Chicago Sun-Times
March 23, 2005

Employees and retirees with small holdings of Sears Roebuck and Co. stock fear they will suffer more than cuts in benefits and the loss of a dividend if Kmart swallows Sears Thursday in an $11 billion gulp.

They worry that hedge-fund manager Edward S. Lampert, the Kmart chairman who will become chairman of the new Sears Holdings Corp., will sell off Sears' assets just as he did Kmart's, leaving a retail shell.

The dissidents' heroine is Carmen Liggett, a former Sears employee who was fired Dec. 30 after she made public her plan to criticize Sears management Thursday for the second straight year at its shareholders' meeting.

At previous meetings, dissident shareholders have