Source: www.maytag.com, Maytag Corp.
Too many save
too little to be retirement ready
John Lux, contributing editor for
Your Money: A Weekly Guide to Personal Finance
Chicago Tribune
May 29, 2005
Most Americans are pretty sure they'll do just fine in
retirement. The latest Retirement Confidence Survey, released in April,
found that 65 percent of workers are either very confident or somewhat
confident they'll have enough money to live comfortably in their
retirement years. A lot of us are kidding ourselves. The survey by the
non-partisan Employee Benefit Research Institute in Washington, D.C.,
reported that 20 percent of those who say they are very confident are not
currently saving for retirement. And 37 percent of workers who have not
saved a dime for retirement are somewhat confident they'll do all right.
The raw numbers are not encouraging. According to the
Brookings Institution's Retirement Security Project, in 2001 half of all
American households headed by people between 55 and 59 had less than
$10,000 in sheltered retirement plans such as 401(k)s or IRAs.
Even if you take out the 36 percent of people who had no
accounts at all, the median balance in these accounts was still only
$50,000. While statistics show that more than 80 percent of eligible
workers have balances in their company's plan, many of them are currently
contributing little or nothing to their accounts on payday.
Why aren't we putting more away, especially in
retirement plans that save us money upfront on income taxes?
"One of the big reasons is simply procrastination,"
according to Peter Marathas of Boston, partner in the law firm Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo. "They simply don't fill out the
forms."
Marathas, who advises companies on employee benefits,
said, "People don't see the benefit, especially if there is no employer
match. But it's mystifying that they don't even if there is a match."
Opting out of your company's 401(k) wasn't so mystifying
in the years when Social Security seemed really secure and most companies
offered pension plans that didn't cost you a dime. But things are
different now.
"Increasingly, the 401(k) is the only retirement vehicle
sponsored by the employer, with pension plans and even medical plans being
dispensed with," said Lori Lucas, director of participant research at
benefits consultant Hewitt Associates in Lincolnshire. "So this is much
more important."
Nobody denies that it takes discipline to save, but just
about everyone agrees that saving in a tax-sheltered plan is the way to
go. Here's why:
Free money. Most large companies and lots of smaller
ones match all or part of an employee's 401(k) contribution up to a
certain percentage of pay.
But don't expect a lot of generosity. "Because costs are
so much higher today," Marathas said, "companies aren't devoting the
resources to make these benefits as rich as they were."
To make sure a company isn't using its 401(k) merely to
feather the nests of its top people, plans must pass the government's
"top-heavy test," according to financial planner and certified public
accountant Scott Coleman, of KRD Financial in Schaumburg.
A plan is considered top heavy if "highly compensated
employees" (those making more than about $91,000 a year) collectively have
more than 60 percent of total plan assets. The company has to even things
out, either by giving contributions back to the highly compensated group
(and creating some disgruntled employees), or increasing contributions for
all employees.
When the employer is in violation of the top-heavy
rules, a common corrective measure is for the company to make a
non-elective contribution of at least 3 percent for all eligible employees
(not just those participating in the plan). But Marathas said many
employers are going to the new "safe-harbor plan," where they agree to
contribute roughly 4 percent to every participant in the plan. But you've
got to be contributing to the plan yourself to get in on the free money.
Immediate tax benefits. Neither the worker's nor
employer's contribution is subject to income taxes until you take the
money out after retirement.
Compound growth. If you keep retirement savings in a
mutual fund outside a 401(k), you pay taxes each year on any increase in
the fund's value, slowing the growth of your nest egg. The same money in a
tax-deferred account grows faster, and because you may be in a lower tax
bracket when you retire, you'll pay less tax when the time comes. To
compare returns on taxed and tax-deferred investments, see the calculator
at www.fincalc.com/INC(underscore)07.asp d=13377
Almost painless savings. The IRS says you can put up to
$14,000 a year into your 401(k) in 2005, plus another $4,000 if you're
over 50. But plans vary from company to company, and the rules may limit
your contribution to a certain percentage of your pay. If you want to save
more, see if your company will start a Roth 401(k), a new savings vehicle
that beginning in January will let you put money you've already paid taxes
on into a 401(k).
You aren't even seeing the money, so you don't feel
deprived. And you'll be feeling downright smart as you watch your balance
grow. "This works," Marathas said. "People start seeing statements, seeing
a buildup, and participate even more."
Out of sight, out of mind works when you're just
starting a job, but it also works at raise time. If you choose to put half
your raise into the 401(k) you'll still see a little boost in your
take-home pay. This is especially smart when a raise bumps you into a new
tax bracket, the biggest surge coming at $58,101, from 15 percent to 25
percent.
The company must put your contribution into the fund no
later than the 15th of the month after it's collected.
Stay vigilant once your money is in the plan.
"People forget it's their money," Marathas said. "A
typical employee looks just once a year and then sometimes rebalances. But
[401]k accounts are like any other investment: The rule of attention and
the rule of diversity apply."
Your human resources department must give any plan
member who asks a "summary plan description," which details eligibility,
company contributions, distribution options, the plan provider and how to
contact them.
The investment choices in the plan are key to how well
it serves employees of all ages, and the trend is to outsource management
of the plan and let workers divide their money among a variety of
investments.
"The retirement-plan market is extremely competitive
among different types of vendors, including insurance companies, mutual
fund companies, payroll companies and CPA [certified public account]
firms," Coleman said. "I often see employers taking a very simple approach
by going with the lowest-cost provider in terms of direct dollars. But the
compensation models in the 401(k) market are very complex.
"Knowing the differences between classes of mutual funds
is important," he said, and "insurance companies often package their
retirement plans within group annuities, which can present separate costs
of their own."
And if costs are too high they can have a dramatic
effect. "Just a couple of basis points can make a difference of tens of
thousands of dollars on the back end," Marathas said.
He thinks employers should put the administration of the
plan out to bid "every couple of years, particularly if the fees are
coming out of the employee account."
SOME WAYS TO SAVE
1. Automatic enrollment plans capture reluctant
investors
The sooner you start saving for retirement, the better
chance you have of having a comfortable old age, but statistics show that
only 45 percent of workers in their 20s participate in 401(k) plans.
Some in the industry and Congress think automatic
enrollment is the answer.
Lori Lucas, director of participant research at Hewitt
Associates in Lincolnshire, said, "Automatic enrollment dramatically
improves participation by younger people."
Peter Marathas, a partner in the Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo law firm, said, "In the very first paycheck it
sets the tone for how much you have to live on. For low- and
middle-earners this is a real boon."
The follow-up to automatic enrollment, which might begin
at 3 percent of compensation, is an automatic step-up of the contribution.
While Lucas hasn't seen it happening much yet, she says the response has
been positive.
"As their pay increases, [employees are] much less
likely to opt out of the maximum at raise time. If they get a 3 percent
pay increase and the contribution is upped by 1 percent," Lucas said, most
people will go along. "Never underestimate the power of immediate
gratification. The beauty of contribution escalation is all about inertia.
People who do nothing at all can get to a robust place in their 401(k)
with escalation. The same with lifestyle funds ... you've come close to a
foolproof plan."
The key element of a lifestyle fund is that the
allocation of assets changes as you get older. So without your doing
anything, the fund manager might move you from a mix of 70 percent stocks
and 30 percent bonds and cash at age 40, to 60-40 at age 50 and 35-65 at
age 60.
Some employers are wary that automatic enrollment and
step-up contributions violate state laws against unauthorized pay
deductions. Rep. Rahm Emmanuel (D-Ill.) has introduced legislation to
address the problem.
2. Lack a 401(k)? Tax benefits of IRA similar
If your company doesn't offer a 401(k) plan, you can get
many of the same benefits with what the IRS calls an individual retirement
arrangement, and the rest of us call an individual retirement account.
If you have earned income and are under age 70 1/2, you
can contribute up to $4,000 ($4,500 if you're over 50) to an IRA in 2005.
If you are covered by any sort of retirement plan at
work, the amount you can contribute to an IRA is reduced if you make more
than $50,000 a year ($70,000 if married and filing jointly) and drops to
zero when your income hits $60,000 ($80,000 for joint returns).
The rules get more complicated when one spouse is in a
plan at work and the other has only an IRA. For details, go to the IRS Web
site (www.irs.gov/pub/irs-pdf/p590.pdf) or call 1-800-829-3676 and ask for
Publication 590.
3. Few qualify for low-income saver's tax credit
The retirement savings tax credit, also known as the
saver's credit, which took effect in 2002, sounds like a great way to
encourage lower-income workers to start contributing to 401(k)s and IRAs.
The program allows low-income workers to take part of
their retirement savings contributions as a tax credit, which is much more
valuable than a deduction.
The problem with the law, according to Bo Harmon of the
Retirement Security Project at the Brookings Institution, is that the
earning limits are set so low that very few people can take advantage of
the credit because they don't owe enough in taxes.
A couple earning up to $30,000 a year and filing
jointly, for example, will get a 50 percent credit on the first $2,000
they put into a retirement account in 2005. But if they make $30,100 the
credit drops to 20 percent. At $32,501 it's 10 percent, and at $50,000
it's gone.
"If you're at the very bottom of the scale, you often
have no tax liability and can't use the credit," Harmon said. "A little
higher up the scale and the benefit disappears."
Of the 59 million tax filers with less than $30,000 a
year in income in 2003, between 5 million and 6 million used the credit.
But Harmon said only 43,000 got the full benefit because all the rest had
tax liability of less than $1,000.
Threat rises for outliving money - Fewer jobs offering traditional pension
plans
Staff and Wire Reports – Ft. Myers, Fl
News-Press
May 28, 2005
WASHINGTON ˜ The risk of outliving your
money is on the rise.
Blame it on the creeping increase in longevity. The
average life expectancy in the United States was up to 77.4 years in 2002,
up from 77.2 the year before. At the same time, more than 41 percent of
American families do not have retirement savings, according to the
nonpartisan Employee Benefit Research Institute.
That means the monthly income guarantee from Social
Security has become increasingly important at a time when President Bush
is suggesting a reduction in future benefits to address the long-term
funding shortfall. Experts say there are many reasons for the trend: a
drop in the personal savings rate, fewer major employers offering
traditional pensions, a plateau for participation in Individual Retirement
Accounts, and a failure of 401(k)-type savings plans to capture wide
participation.
Ominously, a growing number of major American
corporations are pulling the plug on traditional pensions, from United
Airlines to US Airways, Sears and IBM.
Curtis Miners, 75, of Estero, said he thinks companies
are being disloyal to their workers. "You work all your life for a
company, they should be able to do something for you for retirement," said
Miners, who doesn't collect a pension.
Sears will curtail new benefits under its traditional
pension plan after December for employees age 40 and older, offering them
a more generous employer match in the 401(k) savings plan. Back in
January, Sears cut off pension eligibility to younger employers and new
hires, offering them the 401(k) instead. Likewise, IBM has been offering
new hires only a 401(k) since Jan. 1 and not offering them enrollment in
its controversial cash-balance pension plan that is embroiled in a federal
age discrimination lawsuit.
United and US Airways are among a wave of financially
troubled employers in the airline and steel industries that are attempting
to, or have already severed, their responsibility for underfunded pension
plans and turned them over to the federally chartered Pension Benefit
Guaranty Corp.
"Traditional pension plans are basically on their way
out," observed New York University economics professor Edward Wolff, who
predicts in 20 years the only active employees with them will be
government workers. Wolff and economist Christian Weller of the
liberal-leaning Center for American Progress have released a new study
arguing that the guaranteed income from Social Security has become more
important to retirees in recent years.
Roger Williams, 62, of Punta Gorda Isles, is a 32-year
employee of Delta Airlines who receives pension payments. He said the
changing nature of the work force is helping to squeeze pensions out. "I'm
part of a dying breed to spend that much time with one company," Williams
said. "These kids out there now have to have a half-dozen titles with a
half-dozen companies to try to get ahead. If I were just starting out now,
I would get as many skills and as much experience as I could and, sooner
or later, start my own business. That's the only way you can get ahead
anymore."
Even among the millions of workers who have retirement
savings plans such as 401(k)'s and Individual Retirement Accounts, there
is a risk they will exhaust their savings by living longer than they
anticipated.
And because of Social Security's increasing importance,
the personal savings accounts proposed by President Bush would introduce a
new level of risk for people who live to very advanced ages. The president
frequently talks about owners of personal accounts leaving behind an
inheritance for the next generation, but that probably won't happen to
retirees who live into their 90s and beyond. "The only way you are going
to leave money to your heirs in this context is if you die early," said
Dallas Salisbury, president of the Employee Benefit Research Institute.
The average 30-year-old has a 50 percent chance of
living past age 79 and the average 65-year-old has a 50 percent chance of
living past age 83, according to the National Center for Health
Statistics. Average life spans increase with age. The average 80-year-old
has a 50-50 chance of living past age 89. President Bush hasn't spelled
out the details of how people with personal savings accounts would be
allowed to cash out their money, except that they would be protected from
falling into poverty.
Defenders of Bush's approach say the government can't
safeguard Americans from all adversity.
"We've got to get people into the mind-set that there's
no guarantee we're going to take care of you, but we will give you
mechanisms so you can accumulate the wealth to take care of yourself,"
said Sylvester Schieber, vice president of the employee benefits
consulting firm Watson Wyatt Worldwide. Schieber, who was interviewed
during a recent roundtable on Bush's proposal at the Treasury Department,
also stressed that people with the lowest incomes would be protected.
"We're talking about still having a very fundamental
platform of Social Security benefits, and we're talking about people
having a mechanism for people to accumulate some wealth over and above
that," Schieber said. "Everybody. Not just people who are covered by
pensions." Rep. Bill Thomas, R-Calif., chairman of the House Ways and
Means Committee, said recently his panel may try to create a new type of
retirement savings plan where employees and employers make 401(k)-style
contributions, but the retirement income is paid out with a lifetime
guarantee like a traditional pension.
"There's no reason why you can't reinvent," said Thomas.
The House Committee on Education and the Workforce also
is working on a retirement savings package that will be unveiled in June.
˜ The News-Press staff writer Tim Engstrom contributed to this report.
Kmart a winning bet for
financier
Investor magazine ranks Lampert No. 1
By Becky Yerak,
staff reporter -
Chicago Tribune
Bloomberg News contributed to this article
May 28, 1005
Edward Lampert, who bought Kmart out
of bankruptcy, nursed it back to health and then engineered its $12
billion acquisition of Sears, Roebuck and Co. in March, was the
world's most highly paid hedge fund manager last year, according to
Institutional Investor's Alpha magazine.
The Greenwich, Conn., financier
earned an estimated $1.02 billion in 2004, making him the first to
crack the $1 billion mark, the magazine said Friday.
Meanwhile, the average income for the
25 top hedge fund managers in 2004 rose 21 percent to $251 million.
By comparison, the CEO of a typical
top-500 U.S. company made $10 million last year.
Lampert, a Yale graduate, moved up
from fourth place on the magazine's previous list, which put his
earnings at $420 million in 2003. His fund returned 69 percent last
year, largely due to his Kmart stake more than tripling in value as
investors rode Lampert's coattails and bet that Kmart was sitting on
valuable real estate.
Knocked from the top perch was George
Soros, 74, who earned $750 million in 2003.
Soros slipped to sixth place in 2004,
earning $305 million, the report said.
As chairman of ESL Investments Inc.,
Lampert, 42, had been chairman and majority investor of Kmart.
The Troy, Mich., chain lost market
share in its stores but improved profits and saw its stock price
skyrocket.
Lampert also had been a longtime
owner of about 15 percent of Sears. The two retailers announced
plans to merge in November, and the deal was completed in March,
forming Sears Holdings Corp.
Now chairman and 40 percent owner of
the nation's third-biggest retailer, Lampert has wasted no time
cutting jobs and other spending, as well as looking for new ways to
generate more revenue by adding exclusive Sears products to select
Kmart stores.
A different kind
of Sears
"Sears Holdings will be a different type
of company than Sears Roebuck has been," Sears Roebuck Chief
Executive Officer Alan Lacy told Sears workers in a March town hall
meeting.
"We have a 40 percent shareholder in
Eddie Lampert. The subjectivity of what creates shareholder value
won't be very subjective because Eddie is a brilliant investor.
"His track record is better than
Buffett's," Lacy said, referring to Berkshire Hathaway's legendary
Warren Buffett.
Sears stock holds
gains
Sears Holdings' stock closed about 1.2
percent higher Friday to $149.20, just short of its highest close of
$149.63.Following Lampert on the magazine's list was James Simons of
Renaissance Technologies Corp. Simons, 67, made $670 million last
year.
Alpha's formula for determining
managers' earnings was based on two key factors: share of the fees
generated by the funds they managed, and gains on their own capital
in the funds.
Moneymaking
managers
The 10 hedge fund managers with the
highest pay:
1. Edward Lampert $1.02 billion ESL
Investments
2. James Simons $670 million Renaissance Technologies
3. Bruce Kovner $550 million Caxton Associates
4. Steven Cohen $450 million SAC Capital Advisors
5. David Tepper $420 million Appaloosa Management
6. George Soros $305 million Soros Fund Management
7. Paul Tudor Jones $300 million Tudor Investment
8. Kenneth Griffin $240 million Citadel Investment
9. Raymond Dalio $225 million Bridgewater Associates
10. Israel Englander $205 million Millennium Partners
Hedge-fund manager's pay tops
$1B
ESL Investments chief unseats Soros in latest
survey
By Kathie O'Donnell - MARKET
WATCH
May 2 7, 2005
BOSTON (MarketWatch) -- Move over, George Soros. Edward
Lampert of ESL Investments was the world's highest-paid hedge-fund manager
last year -- earning an estimated $1.02 billion -- and the first to crack
the billion-dollar mark in the history of a survey released Friday.
Lampert, chairman of Greenwich, Conn.-based ESL, was the
mastermind behind Kmart Holding Corp.'s $11 billion blockbuster deal to
buy Sears Roebuck and Co., which created the country's third-largest
retailer, now called Sears Holdings Corp. . He is the company's largest
shareholder, through ESL.
Soros, the No. 1 earner in last year's survey, with $750
million, slipped to sixth place, earning $305 million in 2004, according
to a ranking by Institutional Investor's Alpha magazine of the world's
highest-paid hedge-fund managers.
"Lampert, the first to crack the $1 billion mark in our
4-year-old survey, was hardly the only hedge-fund manager to break the
bank despite decidedly lackluster returns for hedge funds as a group," New
York-based Institutional Investor said in a release.
James Simons of Renaissance Technologies Corp. ranked
second at $670 million, followed by Bruce Kovner of Caxton Associates at
$550 million. Steven Cohen of SAC Capital Advisors earned $450 million and
David Tepper of Appaloosa Management earned $420 million to round out the
top five.
Sears
Tries Out Craftsman in
Kmart Stores
By Becky Yerak - staff
reporter – Chicago Tribune
May 27, 2005
Sears Holdings Corp. will test gift
displays of Craftsman tools in 365 Kmart stores, the first broad rollout
of an exclusive brand in its new retail sibling.
When Hoffman Estates-based Sears, Roebuck
and Co. merged with Kmart Holding Corp. in March, the retailers said
they'd share proprietary brands.
Sears said it will add about 10 Craftsman
products--including a laser level, a ruler, a floor jack, a cordless
screwdriver and a device that removes broken screws--to 365 Kmart stores
in time for Father's Day.
"We're testing a Craftsman gift display,"
said specialty marketing director Toure Claiborne.
Last month, a Kmart in Norridge became one
of nine U.S. stores to carry extensive lines of Kenmore appliances and
Craftsman tools, previously carried only at Sears.
In March, Sears also cited opportunities to
carry its proprietary DieHard battery line in an additional 1,500 stores.
Separately Thursday, Sears renewed its
sponsorship of the NASCAR Craftsman Truck Series for five years.
Terms weren't disclosed, but IEG Marketing
Newsletter valued the deal at $4 million a year, Bloomberg News reported.
Sears revs up Craftsman,
NASCAR pairing
By Sandra Guy -
Business Reporter – Chicago Sun-Times
May 27, 2005
Sears will showcase its Craftsman tools' partnership
with NASCAR at 300 Kmart stores, further boosting the retailer's efforts
to attract more male shoppers.
The Kmart stores will feature a display of Craftsman
tools as Father's Day gifts in the stores' lawn-and-garden departments.
Local Kmart stores participating in the gift-display
test are in Chicago and suburban Homewood, New Lenox, Norridge, Oak Lawn,
Round Lake Beach, Tinley Park and Zion, and in Portage, Ind.
The displays are a prelude to a bigger push to showcase
Sears' title sponsorship, through its Craftsman brand, of the NASCAR
Craftsman Truck Series.
Sears announced Thursday that it had renewed its title
sponsorship of the pickup-truck races, and reupped the status of Craftsman
as the "official tools" of NASCAR.
The Father's Day gift test will give Sears the data it needs to determine
whether the Craftsman promotions should be expanded to more than the
initial 300 Kmart stores, said Toure Claiborne, Sears' director of
specialty marketing.
Sears stores take an inconsistent approach to displaying
the Craftsman-NASCAR tie-in, Claiborne said.
The new, stepped-up effort will impose a standard way of
packaging, displaying and advertising the relationship, both in Sears
stores and in select Kmart stores.
Morgan Stanley's
Discover signs Chinese deal
By Belinda Goldsmith
- Reuters
May 26, 2005
NEW YORK, May 26 (Reuters) - Morgan Stanley's Discover
credit card unit said on Thursday it had struck a deal with a Chinese bank
card group giving it a foothold in China as it dresses up to be spun off
by the Wall Street bank.
In its first major international foray, Discover
Financial Services Inc. signed an agreement with China UnionPay, China's
only national bank card association, for Discover cards to be accepted at
its automated teller machines (ATM) and point-of-sale terminals.
In return, China UnionPay cards will be accepted on
Discover's Pulse ATM and debit card network, with talks ongoing to extend
the alliance to the larger Discover Network. Discover receives a fee for
transactions processed on its network.
Discover, the U.S.' No. 7 credit-card issuer, did not
give the financial terms of the deal, which it described as "long-term,"
nor the likely impact on volumes, stressing it was a strategic move as it
focuses on its independent future.
Roger Hochschild, Discover's president and chief
operating officer, said the agreement gave Discover the broadest
acceptance in China, above rivals Visa, Mastercard and American Express.
"From a network standpoint, in China there is nothing
better to be had (than China UnionPay)," Hochschild told Reuters in an
interview, adding that Discover had 50 million card members, while China
UnionPay had 800 million cards.
Hochschild said it would take some time to implement the
agreement with no start date yet finalized, but it would be ready well in
advance of the 2008 Olympics in China.
Analysts said the alliance was an important
international step for Discover whose cards are at present only accepted
outside the United States in the Caribbean, Mexico and Canada. Discover's
cards are not accepted in Europe.
Morgan Stanley in April signaled it would spin off
Illinois-based Discover Financial, which owns the Discover Network and
Pulse ATM and debit card network, within six months to placate investors
unhappy with the bank's returns.
David Robertson, publisher of The Nilson Report, which
tracks the credit card industry, said the deal was probably more
beneficial for China UnionPay currently than Discover as there are few
points of sale in China accepting card payments.
"But it reminds investors that there is upside potential
and it will grow over time inevitably. It is not a plug in play because
ubiquity does not exist in China now," said Robertson.
The Discover credit card unit -- which deals directly
with consumers unlike banks that issue credit cards managed by
associations like Visa and MasterCard -- is
expected to raise over $10 billion, but it could be spun off in stock.
Discover's Pulse network, acquired last November, serves
more than 4,100 banks, credit unions and savings institutions while its
Discover Network involves more than 4 million merchant and cash access
locations.
China UnionPay began expanding internationally last year
with its cards now accepted in Hong Kong, Macao, Singapore, Thailand and
South Korea.
City Stores Accused
of Overcharging
Dorothy Tucker
reports - CBS 2 Chicago WBBM-TV
May 26, 2005
The city of Chicago is cracking down
on hardware stores and home and garden centers, accused of a number
of violations, including overcharging customers.
Undercover investigators went
shopping and filled their baskets with lots of problems.
CBS 2's Dorothy Tucker shows you what
to look out for so you don't get ripped off.
Sears, Kmart, Menards, Ace, these are
just some of the major stores accused of overcharging customers.
City investigators allegedly caught
the stores during a month-long investigation when they posed as
shoppers and visited 73 stores.
“They targeted items that were on
sale and they went to scan , they found they were being overcharged,
items not properly marked or they did not get a receipt,” said Norma
Reyes, commissioner with the Department of Consumer Affairs.
Reyes says the overcharges ranged
from 4 cents to $40. The Ace Hardware on Sheridan has the $40
charge. A jar of odor absorber gel was priced at $4.49, but the
undercover shopper was charged $44.49.
“What happened was my cashier made a
mistake. She had a bunch of stuff to ring up and she made a
mistake, that's it,” said an Ace employee.
At another Ace Hardware downtown,
investigators reported being overcharged $2 for trash bags. Managers
declined to talk.
But at the Ace on Orleans, the
manager blamed three overcharges totaling $6.50 on a computer
problem.
“We have a computer system that's
tied into both stores and that's the only reason that happened,”
said store manager Les Melnick.
Managers from other stores also had
explanations for the overcharges, from human error to computer
glitches.
“It's either sloppy business practice
or intentional. If intentional, we will put you out of business in
the city,” Reyes said.
We did talk to the spokesmen for the
major stores. The Sears spokesman pointed out that the company makes
millions of price changes every month and sometimes mistakes do
happen. He said it wasn't intentional.
Menard's blamed its price differences
on store clerks who forgot to remove a sales sign, even though the
sale had ended.
And at Kmart, the spokesman said he
was disappointed inspectors had experienced an incorrect charge and
he apologized for any inconvenience.
All the store managers will have a
chance to explain what happened at a hearing next month.
Corporate Pensions Going Away As Old Firms Decline, Struggle
By Marilyn Alva –
Investors Business Daily
May 25, 2005
Over the last 20 years, corporate pension plans have
undergone a slow but sure death.
Now, as United Airlines prepares to dump its pension
obligations on the federal government in the largest default in U.S.
history, it looks like the last curtain is about to fall on traditional
pension programs.
Only 20% of the work force still participates in defined
benefit plans "where you get a pension check for
life after you retire" vs. about 40% in
the mid-'80s.
Of the 30,000 defined benefit plans left, down from
112,000 in 1985, many are in declining, old-line industries. In contrast,
about 700,000 401(k) tax-sheltered savings plans are offered by new and
old economy companies.
The government estimates that defined-benefit programs
are underfunded by $450 billion.
Of that underfunding, $96 billion is at companies with
junk bond ratings. That's up from $34 billion in 2002 and $4 billion in
2000.
"The majority of plan sponsors of defined-benefit plans
have underfunded pension plans at this time," said Kevin Wagner,
retirement practice leader at Watson Wyatt Worldwide.
Since many of those plan sponsors are financially
healthy, their funding obligations will not materially impact their
business, he said.
"However, for companies in financial distress, the
additional funding requirement may very well be the straw that breaks the
proverbial camel's back," Wagner said.
Manufacturers and transportation firms remain those most
likely to end their pension plans.
General Motors and Ford debt has recently been
downgraded to junk. Delta Airlines has said it may follow United into
bankruptcy.
Watchers worry those American institutions might follow
former steel giants such as Bethlehem and bygone legacy airlines such as
Eastern and turn their pensions over to the Pension Benefit Guaranty Corp.
The government insurer will take over United's nearly $10 billion
underfunded pension plan.
In 2004, nearly 200 underfunded pension plans were
turned over to the PBGC, the most since 1990, when it started counting.
Those moves affected 147,500 workers in 2004. United's
four pension plans hit more than 120,000.
When the PBGC takes over pension plans, benefits are
often reduced due to legal limits. Of United's underfunded $9.8 billion,
just $6.6 billion is guaranteed.
Even so, the PBGC estimates it has a $23 billion
deficit, including United. It's backing Bush administration pension
reforms, including hiking employers' pension insurance premiums to the
agency.
Other recently introduced legislation aims to extend the
time airlines can finance their underfunded pensions. Airlines would have
to freeze their pension plans and replace future benefits with 401(k)s.
Pension reform isn't likely to stop the steady decline
in traditional pension plans, experts said. In fact, higher premiums might
push some employers to phase out pensions.
"From 1994 to 2004, half of the defined benefit plans
terminated. The vast majority of those plans were well-funded," said James
Klein, head of the American Benefits Council.
Those terminations don't include scores of plans frozen
or closed to new hires. Such moves can be a precursor to outright
termination.
Phasing Out Pensions
Sears Holdings recently told employees it'll cease
further accruals to its pension plans after Dec. 31, 2005. Retirees won't
be affected.
IBM and Motorola this year stopped offering new hires
traditional pensions. IBM had already watered down pension plans for
current staff. Avaya stopped accruals to its pension plan at the start of
2004.
"Once large employers no longer cover new hires, it's a
matter of time before these plans shrink away," said Sheldon Gamzon, a
principal at PricewaterhouseCoopers. Other firms will soon follow suit, he
says.
Companies are required by law to kick in money to their
pension plans to make up for any shortfalls.
In a rising stock market, that wasn't a problem. Many
firms didn't even need to bolster their pension funds in the go-go '90s.
In a down market, even a healthy company might have to
make up for the shortfall.
One problem pension consultants see is that companies
must use unrealistic interest rates to determine future pension
liabilities. Most assume a modest 5.5% return on assets.
"Most pension plans have every reason to expect that
their long-term investment return will be 8% or higher," Gamzon said,
noting 60% to 70% of pension portfolios are invested in equities.
"If one substituted an 8% rate for the 5.5% rate used,
most pension plans would find themselves 90% to over 100% funded," Gamzon
said.
"Through the '90s, companies weren't troubled much by
(accounting rules) because they were earning pension (asset) returns from
15% to 20% per year," he added.
"But now when returns are significantly below the 1990s,
this is becoming a lot more painful," he said. "We're being forced to use
low interest rates that don't reflect the long-term expectations of the
assets."
The defined-benefit system "is in more dire straits"
than Social Security, PBGC executive director Bradley Belt has said.
While Social Security is moving toward a two-to-one
worker to retiree ratio, the pension system has just one active employee
for each retired or deferred-vested worker, he said.
GM has 2.5 retirees for every current worker. Firms
typically replace pensions with enhanced 401(k)s. Avaya decided to chip in
2% of employees' salaries, even for workers who didn't put anything into a
401(k) plan. Avaya also raised its match for workers who do.
Employers say they're offering 401(k) plans because
workers job hop rather than stay with one firm.
Competition is a big factor too. Legacy airlines face
low-cost rivals without the same pension burdens.
In the 1990s, big U.S. steel companies with heavy
pension obligations buckled under to global competition, including lean
U.S. minimills.
Many new tech firms never offered defined benefit plans.
So big techs with old-model pensions have trimmed back to stay
competitive.
"A lot of technology companies offered enhanced 401(k)
plans. So we wanted to be as attractive to newer workers as our
competitors," said Avaya spokesperson Lynn Newman.
China, New Land of Shoppers, Builds Malls on Gigantic Scale
By David Barboza – New York
Times
May 25, 2005
DONGGUAN, China - After construction workers finish
plastering a replica of the Arc de Triomphe and buffing the imitation
streets of Hollywood, Paris and Amsterdam, a giant new shopping theme park
here will proclaim itself the world's largest shopping mall.
The South China Mall - a jumble of Disneyland and Las
Vegas, a shoppers' version of paradise and hell all wrapped in one - will
be nearly three times the size of the massive Mall of America in
Minnesota. It is part of yet another astonishing new consequence of the
quarter-century economic boom here: the great malls of China.
Not long ago, shopping in China consisted mostly of
lining up to entreat surly clerks to accept cash in exchange for ugly
merchandise that did not fit. But now, Chinese have started to embrace
America's modern "shop till you drop" ethos and are in the midst of a
buy-at-the-mall frenzy.
Already, four shopping malls in China are larger than
the Mall of America. Two, including the South China Mall, are bigger than
the West Edmonton Mall in Alberta, which just surrendered its status as
the world's largest to an enormous retail center in Beijing. And by 2010,
China is expected to be home to at least 7 of the world's 10 largest
malls.
Chinese are swarming into malls, which usually have many
levels that rise up rather than out in the sprawling two-level style
typical in much of the United States. Chinese consumers arrive by bus and
train, and growing numbers are driving there. On busy days, one mall in
the southern city of Guangzhou attracts about 600,000 shoppers.
For years, the Chinese missed out on the fruits of their
labor, stitching shoes, purses or dresses that were exported around the
world. Now, China's growing consumerism means that its people may be a
step or two closer to buying the billion Cokes, Revlon lipsticks, Kodak
cameras and the like that foreign companies have long dreamed they could
sell.
"Forget the idea that consumers in China don't have
enough money to spend," said David Hand, a real estate and retailing
expert at Jones Lang LaSalle in Beijing. "There are people with a lot of
money here. And that's driving the development of these shopping malls."
For sale are a wide range of consumer favorites -
cellphones, DVD players, jeans, sofas and closets to assemble yourself.
There is food from many regions of China and franchises with familiar
names - KFC, McDonald's and IMAX theaters.
Stores without Western pedigree sell Gucci and Louis Vuitton goods. While
peasants and poor workers may only window-shop, they have joined a regular
pilgrimage to the mall that has set builders and developers afire. The
developers are spending billions of dollars to create these supersize
shopping centers in the country's fastest-growing cities - betting that a
nation of savers is on the verge of also becoming a nation of tireless
shoppers.
For the moment, the world's biggest mall is the
six-million-square-foot Golden Resources Mall, which opened last October
in northwestern Beijing. It has already sparked envy and competitive
ambition among the world's big mall builders, who outwardly scoff at the
Chinese ascent to mall-dom, even as they plot their own path to build on
such scale in China.
How big is six million square feet? That mall, which is
expected to cost $1.3 billion when completed, spans the length of six
football fields and easily exceeds the floor space of the Pentagon, which
at 3.7 million square feet is the world's largest office building. It is a
single, colossal five-story building - with rows and rows of shops stacked
on top of more rows and rows of shops - so large that it is hard to
navigate among the 1,000 stores and the thousands of shoppers.
The shopping-mall building spree, like much economic
activity in China these days, is so aggressive that some economists and
officials have started to worry that it may be another sign of an
overheated economy, and that the country's building frenzy may be lurching
toward a fall.
So far, though, there is no end in sight - and no
evidence that China's long boom is likely to suffer anything more than a
modest slowdown.
"These shopping centers are just huge," said Radha
Chadha, who runs Chadha Strategy Consulting in Hong Kong, which tracks
shopping malls and the sales of luxury goods in Asia. "China likes to do
things big. They like to make an impact."
Retail sales in China have jumped nearly 50 percent in
the last four years, as measured by the nation's biggest retailers,
government data says. And with rising incomes, Chinese are spending their
money on shoes, bags, clothing and even theme-park-style rides.
"We like this place a lot," said Ruth Tong, 27, an early
visitor to the South China Mall here in Dongguan with her husband and
5-year-old son. "They have a lot of fun things to do. They have shopping
and even rides. So we like it and yes, we'll come back again."
The central government recently ordered state-controlled
banks to tighten lending to huge shopping mall projects. But that has not
yet tempered the plans of aggressive developers and local government
officials for transforming vast tracts of land into huge shopping centers.
After all, the demand is certainly growing. Income per
person in China has reached the equivalent of about $1,100 a year, up 50
percent since 2000.
China is still a land of disparity, though it has a
growing middle class that has swelled to as many as 70 million.
And as the country rapidly urbanizes and modernizes,
open-air food markets and old department stores are being replaced by
giant supermarkets and big-box retailers.
Ikea and Carrefour, the French supermarket chain, are
mobbed with customers. And China's increasingly affluent young people are
adopting the American teenager's habit of hanging out at the mall.
Big enclosed shopping malls, which came of age in
America in the late 1970's and Europe in the late 80's, are sprouting up
all over China. According to retail analysts, more than 400 large malls
have been built in China in the last six years.
And at a time when the biggest malls under construction
in the United States measure about a million square feet, developers here
are creating malls that are six, seven and eight million square feet.
The current titleholder, the Golden Resources Mall,
where 20,000 employees work, is the creation of Huang Rulun, an
entrepreneur who made a fortune selling real estate in coastal Fujian
Province. Six years ago, Mr. Huang acquired a 440-acre tract of land
outside Beijing to create a virtual satellite city, which will soon have
110 new apartment buildings, along with schools and offices planted like
potted trees around his neon-lighted mall.
Perhaps the most aggressive mall building is taking
place in Guangdong Province in the south, the seat of China's flourishing
Pearl River Delta region. In January, more than 400,000 people showed up
in the principal city, Guangzhou, for the opening of the Grandview Mall,
which also calls itself the world's largest mall, with three million
square feet. It even says it has the tallest indoor fountain.
Exactly who has the world's largest shopping mall
appears to be in dispute. Some Chinese malls claim the largest floor size;
others count leased space. Still others say that what counts is that there
is only one roof.
Indeed, the Triple Five Group, which owns the Mall of
America (2.5 million square feet of leased shopping space) and the West
Edmonton Mall in Canada (3.2 million square feet), has not conceded
defeat.
"They are just shops, like a bazaar in the Middle East,"
Nader Ghermezian, one of the company's principals, said dismissively - and
mistakenly - about the Golden Resources Mall, which is under one roof.
"They shouldn't be considered. We are still the largest in the world."
But that raises another question: Are the malls in this
country too big?
"It's not so easy to shop at these locations," Mr. Hand
of Jones Lang LaSalle said. "Most shopping centers survive on repeat
customers. To go to a shopping mall so big and so congested, it may be
difficult to have repeat customers."
The developers beg to differ.
"Shopping malls are a new concept in China, and we are
trying to find our own way to do it," said Cai Xunshan, vice president of
the Golden Resources Mall. "We don't think we can just copy the format
from the U.S."
In Dongguan, the developers of the South China Mall say
they traveled around the world for two years in search of the right model.
The result is a $400 million fantasy land: 150 acres of palm-tree-lined
shopping plazas, theme parks, hotels, water fountains, pyramids, bridges
and giant windmills. Trying to exceed even some of the over-the-top casino
extravaganzas in Las Vegas, it has a 1.3-mile artificial river circling
the complex, which includes districts modeled on the world's seven "famous
water cities," and an 85-foot replica of the Arc de Triomphe.
"We have outstanding architecture from around the
world," Tong Rui, vice chief executive at Sanyuan Yinhui Investment and
Development, the mall's developer, said as he toured a section modeled on
Paris. "You can't see this architecture anywhere else in shopping malls."
Hu Guirong, the man behind the development, made his
fortune selling noodles and biscuits in China. His aides say he built his
mall in Dongguan, a fast-growing city whose population is estimated as
high as eight million, with one of the highest car-to-household ratios in
the country, because it is situated at a crossroads of two bustling South
China metropolises, Shenzhen and Guangzhou.
"We wanted to do something groundbreaking," Mr. Tong
said, referring to his boss. "We wanted to leave our mark on history."
But just to keep a seven-million-square-foot shopping
center from looking deserted, some retailing specialists say, requires
50,000 to 70,000 visitors a day.
Officials of the South China Mall say they will easily
surpass those figures.
But before the mall is fully open, the Triple Five Group
is working to reclaim the world title, with three megamalls in the
planning stages that will expand its operations from its base in North
America into China.
Two of them, the Mall of China and the Triple Five
Wenzhou Mall, are each projected to be 10 million square feet.
"You'll see," Mr. Ghermezian of Triple Five said. "We
are also expanding the Mall of America. There's going to be a Phase 2."
Investors optimistic about Sears since Kmart takeover
By Sandra Guy,
Business Reporter – Chicago Sun-Times
May 25, 2005
Investors are staking their bets on a
turnaround at Sears Holdings Corp., as evidenced by the stock's 13.6
percent climb since Kmart took over Sears two months ago.
Meanwhile, Sears will close three
Chicago area hardware stores, and has pared to two from three the
number of suburban Kmart stores to be converted into Sears
Essentials stores, a convenience-store-like format.
Investors anticipate that hedge fund
manager Edward S. Lampert, Sears' chairman and major shareholder,
will continue cutting jobs and expenses, selling off assets and
closing unprofitable stores, said John Dorfman, president of Dorfman
Investments, a value-oriented investment management firm in Newton
Centre, Mass.
Dorfman said he would advise
investors to wait until Sears' stock drops before they buy it.
Dorfman considers Sears' stock price,
$149.63 at Tuesday's close, too rich.
"It's trading at 29 times earnings
for the past four quarters, and 23 times earnings for the fiscal
year," he said. "It's a fairly optimistic valuation."
Dorfman believes a combined
Sears-Kmart will attract mid-market shoppers, but it won't be an
easy marketing sell. "I would be more interested in Sears' stock
when it hits a bump," he said.
Another analyst, Richard Hastings of Bernard Sands, said Sears'
stock is helped by big hedge-fund investors who look for the same
kind of value as Lampert -- slashing expenses while building cash.
Already, Sears has lopped off
hundreds -- estimates run to 1,300 -- jobs at its Hoffman Estates
headquarters.
Sears confirmed on Tuesday that it
will close Sears Hardware stores in south suburban Lansing,
northwest suburban Rolling Meadows and west suburban Montgomery,
near Aurora, as soon as liquidation sales are complete.
A Sears spokesman said the stores are
closing because their leases are expiring, and the decision had
nothing to do with Kmart's takeover on March 24.
In April, Sears canceled plans to
turn a Kmart in Crestwood into a new Sears Essentials store, which
sells everything from hair spray to soda pop under the same roof as
Craftsman tools, Apostrophe women's clothing and, likely, Martha
Stewart home furnishings.
Sears now plans to convert a Kmart in
Palatine to a Sears Essentials for a June 18 opening, and transform
a Kmart in southwest suburban Homer Glen for an Aug. 20 opening.
Keeping Tabs on
Your Pension
By Lorene Yue -
staff reporter – Chicago Tribune
May 21, 2005
Data on a plan's health is available if you know where to look;
deciphering it not easy
United Airlines' move to terminate its union pension
plans was the biggest pension default to date, but it's unlikely to be the
last.
Other airlines are said to be eyeing the idea, and there
are worries that automakers may not be far behind. The Pension Benefit
Guaranty Corp., which picks up payments for failed plans, estimates that
America's pension funds are short by about $450 billion.
That probably leaves you wondering how your plan is
doing.
There are ways to keep tabs on a pension plan, but the
information may be tough to decipher.
"It's a difficult thing for an individual to diagnose
the health of a pension plan because there are different ways to evaluate
it," said Daniel Ishac, a retirement consultant for human resources firm
Watson Wyatt in Chicago.
But getting the raw data is a good first step.
Where to look
Here are the reports that must be made available to
employees:
- Summary plan description:
Provided automatically within 90 days of joining a pension program,
or when you ask human resources for a copy. This document details what the
plan provides and how it operates.
- Form 5500 and the
accompanying Schedule B: This is the form pension and welfare
benefit plans generally are required to file annually with the Department
of Labor to report on their financial condition, investments and
operations. You can get copies at www.freeerisa.com, after registering for
free. When you look online, make sure you have your specific plan name, as
some companies have many. If the most recent form isn't online, ask human
resources for the report; they should give it to you
Once you get the filing, look on Schedule B to check
entries for current assets and accrued liability. Ideally, the assets
should be the larger of the two numbers.
- Annual reports:
Companies are required to disclose pension plan assets and obligations in
a footnote of their annual reports, so scan the fine print until you find
it. Also, look in the management discussion and analysis section for any
news or updates.
- Summary annual report:
This is distributed every year to plan participants or provided upon
request. It should contain basic information, such as total assets in the
plan, but often doesn't cover much else, including shortfalls. "Most
people don't read it, and to tell you the truth, it is not a helpful
document," Ishac said.
- Report to government
insurers: Each year, by April 15, companies with plans that are
more than $50 million underfunded are required to file a report
calculating the cost to terminate the pension plan, but it's not available
to the public. The Bush administration may change that, said PBGC chief
Bradley Belt.
What you can do
You can try to raise the issue with management, at
annual meetings or in the media, to put pressure on the company. But if
that doesn't work, it doesn't put any money in the bank.
If you find your plan is underfunded, you may want to
step up other savings. There's not much an employee of a financially
struggling company can do when there's a serious shortfall in pension
program funding.
When to worry
When a company can't pay its pension obligations, the
PBGC steps in. The quasi-government agency acts as a safety net for
failing pension plans, taking them over and continuing pension
payments--to a point.
For workers in plans that were terminated in 2005, the
agency will pay those who retire at age 65 up to $3,801.14 a month. The
amount decreases for early retirees and increases for those who work
beyond 65.
The agency estimates that 90 percent of the participants
in plans it takes over see no reduction in benefits. But those who were
promised higher payments, like many United workers, see reductions in
their monthly payments.
If you wouldn't receive more than $3,801 a month, you
don't have much to worry about unless Congress makes major changes at the
PBGC, which is a possibility. The agency, which is funded by pension plan
sponsors, ended last year with a record $23.3 billion deficit. It will
assume $6.6 billion in liabilities from United.
"Know how much your pension benefit is worth," said
Nevin Adams, editor of Plan Sponsor magazine, which follows the retirement
industry. "If you're under the PBGC threshold, you're covered."
Overhaul puts JCPenney on track
By Mark Albriight – Staff
Writer – St. Petersburg Times
May 21, 2005
With lots of cash, distracted weakened
competition and a new direction, the company seems poised to flourish.
PLANO, Texas - A lot has changed at J.C. Penney Co. in
the past year.
The department store giant was caught up in the angst,
turmoil and big losses of unraveling its ill-fated Eckerd Drug venture
last May while assuring impatient shareholders that its own comeback was
well under way.
When shareholders gathered for the company's annual
meeting here Friday, however, Eckerd was somebody else's problem, the
chain was sitting on a mountain of cash and the new management team
predicted department store industry turmoil will start working to
JCPenney's advantage.
Indeed the big players in the moderately-price apparel
world are facing some very unsettling distractions.
Kmart and Sears Roebuck and Co. are in the painful
throes of making their once-improbable merger work. Federated Department
Stores Inc., which owns Macy's, is swallowing its biggest rival May
Department Stores Inc. Saks Inc, which operates a dozen chains, is casting
off less profitable divisions and is knee-deep in an SEC-inspired
accounting probe that cost the brother of chairman and CEO Brad Martin his
job.
Against that backdrop JCPenney, which has spent the past
four years overhauling the way it does business, has comparatively clear
sailing. The chain also is armed with $4.7-billion in cash and in the past
year bought back $2.1-billion in outstanding shares and retired
$1.7-billion in debt.
The company plans to spend $2.4-billion renovating
stores and accelerating the pace of store construction by a factor of four
over the next five years.
"We see all this industry turmoil as a tremendous
opportunity," said Myron Ullman, a veteran retailing executive who took
over as chief executive a few months ago. "It gives us an opening to
become the preferred shopping choice of Middle America."
Ullman, whose mobility has been restricted by a spinal
injury, scoots around the company's sprawling marble-floored headquarters
on his a two-wheeled Segway. But that has hardly slowed this well seasoned
retail executive. He ran R.H. Macy & Co., then the world's biggest chain
of Duty Free Shops and most recently was group director at the luxury
house LVMH Moet Hennessy Louis Vuitton.
But Ullman promises not to take JCPenney upscale while
making the chain's once-dowdy apparel offering more fashionable at a sharp
price.
He hopes a steady drumbeat of advertising and compelling
merchandise will "make an emotional connection" with shoppers age 35 to 54
in households with $35,000 to $85,000 annual income.
Long-term shareholders who have been on a wild roller
coaster ride the past few years like what they heard.
Adding credence was a runup in JCPenney's stock price,
which soared 60 percent in the past year. Penney shares closed Friday at
$50.67, down 43 cents, on the New York Stock Exchange.
While most of the runup is a result of the company's
improved performance, some of it was triggered by takeover speculation
drawn to that unspent cash in Penney's bank account. Industry trade papers
have been rife with rumors that private equity firms will bid to take
JCPenney private like they recently did with Neiman Marcus and Belk.
Ullman declined to comment on the rumors.
Analysts don't count out a bid, but are dubious. Deborah
Weinswig of Citigroup/Smith Barney said it's just as likely JCPenney will
bid to make an acquisition itself, a sentiment expressed in trade papers
that now see JCPenney buying Carson Pirie Scott in the Midwest from Saks
Inc.
Shareholders are just happy the good news outweighs the
bad.
"I thought my life was all over when the stock dropped
to $8 a few years ago," said Bob O'Toole, a 91-year-old retiree who
started his 36-year career with the company in 1948. "These guys have the
company back on the right path. I still cannot get my daughter to shop
JCPenney instead of Neiman Marcus. But my granddaughter goes to JCPenney."
About 40 percent of JCPenney's business is private
label, and the company has been turning to bigger name design labels to
seize on lifestyle trends. The most recent are are nicole, a line by
Nicole Miller; and Nick(it), a young menswear creation of Nick Graham, the
promoter behind Joe Boxer.
The company also came up with W, a casual work clothes
line spun from its Worthington label.
Repeated waves of cost cutting and store closings pretty
much left all 1,000 JCPenney's stores in malls. The company is now among
the first department stores to go back into new outdoor shopping centers.
The first new standalone Penneys in Florida is under construction at the
Shops of Wiregrass in Wesley Chapel.
As a major mail order house before the dot.com boom, the
company had a leg up on competitors. Its online shopping site did
$800-million in sales in 2004, and Ullman said it will break $1-billion
this year.
The company is trying to blend the Internet into its
stores. Products ordered online can be picked up at a JCPenney store or
delivered.
A test of letting customers noodle with personal
computers tuned to jcpenney.com on the sales floor was dropped. Nobody
used them.
Instead the company is installing LCD screens that will
be linked to the Internet site at each of its cash register stations by
the end of 2006.
The $250-million investment means clerks will be able to
quickly access for shoppers any size, color or item offered by the company
at the checkout counter. The displays will show pages of the online
shopping site.
"It will be 35,000 more touch points to our online
shopping service inside our stores," Ullman said.
Scott's Wal-Mart
Opens Store Targeting Amish
By Greg Levine – Forbes.com
May 20, 2005
Doers and doings in business, entertainment and
technology:
Raising the roof.
The Wal-Mart Stores deal this week to shift its online DVD business to
Netflix drew a lot of attention from industry observers and customers
alike.
But in Middlefield, Ohio, the deal is not likely to
cause much of a stir. The Mahoning Valley town is the site of one of the
newest Wal-Mart locations, and probably the most unique so far: It's a
unit geared to the region's large Amish community.
With stores ranging all the way to China, the firm, led
by Chief Executive H. Lee Scott Jr., is used to adapting to local colors
and ways. But the Middlefield store goes a step further by taking a step
back, all the way to the 18th century customs of its clientele. According
to the online edition of the Tribune Chronicle, the retailer's parking lot
will feature 84 spots to hitch horse-and-buggy transportation.
The store's usual dizzying abundance of merchandise will
naturally also be geared to the self-styled "plain people": Store manager
Paul Franz says the unit will feature such low-tech goods as 25-pound
blocks of ice for ice boxes, canning supplies, denim and other sturdy
solid-colored textiles that the Amish use to make their clothes.
So after the "English"--as the ancient sect calls
non-Amish Americans--are done stuffing their SUVs with purchases like
South Beach Diet meals from Kraft Foods and Microsoft Xbox 360s, it is
hoped they'll brake at the exit...and yield to slow-moving carts.
Employer
coalition extends health benefits to uninsured
Tom Anderson - BenefitNews.com
- Employee Benefit News
March 2005
Beating government to the punch in thinning
the ranks of the uninsured, a coalition of 60 large companies plans to
offer voluntary health benefits to workers ineligible for employer-based
coverage.
The program, called National Health Access, is designed
to help part-time workers, temporary and seasonal employees, contract and
franchise workers, pre-Medicare retirees and dependents. It will be
launched in September by the coalition, which includes Ford, General
Electric, McDonald's, IBM and Sears.
"The problem of the uninsured is a national one that requires national
solutions. We can begin that process by building a structure that the
nation's largest employers can use to offer health benefits to hundreds of
thousands of working Americans without employer-provided care," says Greg
Lee, Sears' senior vice president of human resources and chair of the
coalition. Sears has about 100,000 part-time retail workers who are
eligible for the benefit. |
The coalition is organized by the HR Policy Association, which represents
the senior HR executives at more than 240 large U.S. employers. The group
estimates that about 3 million workers will be eligible for the benefit.
About 45 million Americans are uninsured.
The number of people eligible for employer-sponsored health insurance has
been declining for years, observes Paul Ginsburg, president of the Center
for Studying Health System Change. He calls the initiative a good step in
the right direction, but says his "initial reaction is, why have they
waited so long?"
The number of workers without employer-sponsored health benefits will
continue to rise if the private sector ignores the uninsured, observes Tom
Beauregard, lead health care strategy consultant for Hewitt Associates who
assisted the coalition in designing the benefit. "If the population of
uninsured reaches 20%, employers know there are going to be state and
federal mandates," he says.
The economy continues to move from manufacturing jobs
with health benefits to service jobs without them, increasing the ranks of
the insured, notes Beauregard. "Employers recognize the need to create a
balanced risk pool for their part-time workers because the uninsured have
an impact on company health costs."
The rise of outsourced workers, consultants and early retirees prompted
UnitedHealth Group to look for new markets, which is why the company
worked with the coalition to create the voluntary health benefit, says
Andy Slavitt, chief executive of consumer solutions for the company.
"It's been a benefit-less recovery for job growth," Slavitt observes.
"Employers, providers and carriers know something needs to be done for the
uninsured. Everyone was waiting for someone else to make the first move."
Crafting the benefit
UnitedHealth Group will be the primary provider of the coalition benefit.
Humana and Cigna also are participating in certain regions, says HR Policy
Association president Jeff McGuiness, who worked with employers and
insurers to help craft the benefit.
UnitedHealth has been studying the insurance market for
part-timers for more than a year to determine what types of health
benefits they would want, Slavitt notes. "We didn't want to create a
benefit no one would buy. Frankly, insurers have been pretty terrible at
marketing health insurance to individuals."
The benefit has six levels of health coverage, ranging
from a discount network to a high-deductible health plan that could be
used with a health savings account. The lowest level costs $5 a month, and
the high-deductible plan varies in price from $70 a month to more than
$390 a month. (See graphic.)
For example, a 19-year-old single male who works
part-time in Orlando, Fla., would pay $101.23 a month for medical coverage
that has $1,100 deductible and $5,000 maximum. A female part-timer in
Chicago would pay $394.96 a month for the highest level, which includes
optional maternity coverage.
The lowest four levels of the benefits are guaranteed
issue, meaning workers can't be turned down for the coverage based on
their health status. The two benefit levels that include major medical
coverage have lower underwriting requirements than what one would find in
the individual market, Beauregard explains. Hewitt is administering the
benefit for the coalition through call centers and a Web site.
Beauregard estimates about 300,000 workers could enroll
in the benefits during the first year. He expects low-income part-timers
to enroll in the lower levels of the benefit and contractors, agents and
consultants to choose the high-deductible plans. Workers will upgrade
their levels of coverage as they earn more, Beauregard says.
What's next?
HR Policy Association members must now decide whether to
offer the benefit. The association is limiting participation to companies
with more than 5,000 workers, says McGuiness. It costs employers $20,000
to participate, and they must agree to market the benefit to eligible
workers.
Employers who sign up to offer the benefit will soon
launch an effort to educate part-time workers about the financial and
health need for insurance, Beauregard says. He expects more than 60 large
employers to offer the voluntary benefit, and there's been a lot of
interest from employers outside the coalition as well. "You'd think this
program is purely a retail or service sector play, but we have
manufacturers and tech firms interested too," he notes. Employers with
more than 5,000 employees who are interested in the National Health Access
program can contact the HR Policy Association at (202) 789-8670 or visit
their Web site at www.hrpolicy.org.
National Health Access plan
options
Level 1: Discount network
Provides various discounts on medical, pharmacy, dental, hearing and
vision.
Level 2: Scheduled wellness
Covers 80% of in-network office visits, 100% preventive care up to plan
maximums. Pays $20 per prescription, covers two dental visits and one
vision visit per year and includes Level 1 discounts.
Level 3: Scheduled outpatient
Covers 100% of in-network office visits, preventive care and outpatient
surgery up to plan maximums. Pays $20 per prescription, covers two dental
visits and one vision visit per year and includes Level 1 discounts.
Level 4: Scheduled inpatient and outpatient
Covers 100% of in-network office visits, preventive care, emergency room
visits and outpatient surgery up to plan maximums. Pays $20 per
prescription, covers two dental visits and one vision visit per year and
includes Level 1 discounts.
Level 5: Major medical
HSA-eligible plan has deductible of $2,000 for single/$4,000 for family
coverage, out-of-pocket maximum of $5,000 for single/$10,000 for families,
prescription coverage, 70% co-insurance and includes Level 1 discounts.
Level 6: Major medical plus
HSA-eligible plan has deductible of $1,100 for single/$2,200 for family
coverage, out-of-pocket maximum of $5,000 for single/$10,000 for families,
prescription coverage, 70% co-insurance and includes Level 1 discounts.
Coalition of the willing
The following companies are some that formed a coalition with the HR
Policy Association to create a group of voluntary health benefits for
part-time workers. Coalition members must decide whether they want to
offer those benefits to part-timers starting Sept. 1.
Source: HR Policy Association
ACS
Aerojet
ALCOA
American Airlines
Anheuser-Busch
BellSouth
Caterpillar
Circuit City
Cox Enterprises
DTE Energy
Eaton
Emerson Electric
EMC
Federal-Mogul
First Data
Ford Motor
FPL Group
Gap Inc.
General Dynamics
General Electric
General Mills
The Home Depot
Honeywell
IBM
International Paper
Johnson Controls
Limited Brands
Lockheed Martin
Maersk
Manpower
Marathon Ashland
Marathon Oil
Marriott
McDonald's
Parker Hannifin
Prudential Financial
Sears
Shell Oil
Starbucks
Starwood Hotels & Resorts
SYSCO
Temple-Inland
Texas Instruments
Textron
Toys "R" Us
United Parcel Service
United Technologies
Visteon
Source: HR Policy Association - T.A.
Promotion
cements executive as CEO Liddy's successor
By Steve Daniels – Crain’s
Chicago Business
May 19, 2005
Allstate Corp. named Thomas J. Wilson president and
chief operating officer today, cementing him as successor in waiting to
CEO Edward Liddy. With Mr. Wilson’s promotion, Mr. Liddy relinquished his
president title, retaining his CEO and chairman positions. Mr. Wilson
formerly was executive vice-president of the corporation.
Mr. Wilson, 47, will oversee all of Allstate’s insurance
operations, adding life insurance to his existing management of the
Northbrook giant’s principal property and casualty business. He reports
directly to Mr. Liddy, 59, who is expected to retire within the next few
years. In addition to his Allstate duties, Mr. Wilson serves on the boards
of Rush
Presbyterian-St. Luke’s Medical Center and Francis W. Parker School.
Messrs. Liddy and Wilson both were executives at Sears Roebuck & Co. in
the early 1990s when Sears spun off Allstate, the nation’s second largest
car and home insurer, into its own publicly held company. The two joined
Allstate soon thereafter.
Health Costs: Good News At Last
Business Week
May 30, 2005
Slower price hikes and higher copays have helped
companies. Now they're testing new ways to find more savings
Everyone knows health-care costs are spinning out of
control, right? Well, not exactly. Here's some surprising news: The growth
rate of corporate medical costs is slowing significantly. For the 12
months ended in March, 2005, health insurance costs per hour worked were
up 7.5% for private employers, according to the Bureau of Labor
Statistics. Sure, that's still well above the overall inflation rate. But
it's down from the 9.3% rate for the year that ended in March, 2004 -- and
well off the recent peak of 11.4% seen in mid-2002. Among the key reasons
for the slower pace: a slackening of price increases on everything from
hospital procedures to doctor visits and the shifting of a larger share of
health costs to employees in the form of higher copayments and
deductibles.
The question now is whether Corporate America can
continue its run in taming those monstrous costs. Companies certainly
would like to: After all, if healthcare costs had continued to soar at
earlier rates, earnings for many of them would look far less robust today.
Yet employers know there is a limit to how much of the cost burden they
can shift to employees. Says David Scherb, vice-president for compensation
and benefits at PepsiCo Inc.: "You can burn
through the goodwill of your people."
That's why big players such as General Electric, Ford
Motor, Boeing, and others are rolling out a variety of approaches aimed at
injecting more "consumerism" into the health-care system. The term
encompasses everything from offering health plans that give employees a
fixed sum of money to spend on health care to programs that encourage
workers to use the most efficient hospitals and doctors. The goal: to make
employees more discriminating consumers of health-care services. Says
Blaine Bos, a principal at Mercer Human Resource Consulting: "We are now
focusing on making consumers aware of what things cost and encouraging
them to take greater care in making decisions."
MORE GENERIC DRUGS
Truth is, few things focus the mind like a hit to the
wallet. From 2002 to 2003, the average deductible went from $300 to $500 a
year, according to Mercer. Last year 64% of prescription-drug plans
offered by employers used tiered copayment systems, up from just 28% in
2000. Under those arrangements, employees shell out lower copayments for
generic drugs and higher fees for branded drugs. That has encouraged use
of less costly generics.
At the same time, medical inflation has been slowing.
The rise in the producer price index, a government measure that detects
inflation at the corporate level, is slowing in key medical areas such as
drugs and hospital stays. The expiration of key patents, along with the
growth of tiered copayment programs, have led to the slackening of
drug-price hikes, while hospital pricing has slowed in part because of
technological advances that have cut the overall cost of some procedures
by shortening hospital stays.
With their own costs still growing at 7.5%, however,
employers can't afford to stand pat. After all, that pace will face upward
pressure thanks to forces such as an aging workforce and the increasing
prevalence of expensive diseases like diabetes.
FAMILY
ACCOUNTS
That's why companies across the country are
experimenting with a host of creative new ways to keep hammering away on
health-care costs. Oshkosh Truck Corp., for example, has veered away from
the old -- and costly -- health maintenance organization it used for its
4,500 nonunion employees. The plan's low copayments encouraged doctor
visits and contributed to the double-digit annual growth in Oshkosh's
health-care bill.
So in January, 2004, the company switched to what's
known as a consumer-driven plan. Under the new plan, annual physicals and
other preventive tests such as mammograms and prostate cancer screenings
are fully covered. After that, workers and their families receive a $1,000
annual health-care account. Any unspent portion can be rolled into the
following year. But once that account is tapped out, workers are
responsible for the next $1,500 of medical expenses. If expenses go beyond
that, the company steps back in and will pick up 90% of expenses. Oshkosh
is betting that the gap will discourage wasteful spending while still
ensuring workers are covered for serious illness. Oshkosh Vice-President
for Human Relations Michael K. Rohrkaste says a pilot test of the program
showed costs going up in the high single digits -- a big improvement over
the double-digit increases the company saw with its HMO plan.
But for employees to become better health-care
consumers, they need better information. Increasingly, insurers and big
companies are filling the void. Two years ago a number of large employers,
including GE, United Parcel Service, and Ford, linked up under a program
dubbed Bridges to Excellence to identify the most efficient physicians to
treat costly conditions like diabetes or heart disease. Physicians such as
Dr. A. O'tayo Lalude in Louisville must show that they meet certain
guidelines, such as conducting regular foot and eye exams on patients with
diabetes. That helps cut down on the incidence of blindness and amputation
that people with unchecked diabetes suffer. If doctors meet the program's
requirements, the participating companies will pay a $100 annual bonus per
employee and encourage workers to use those physicians. For Lalude, who
figures he has close to 100 patients from local units of the companies
sponsoring the program, "it could amount to real money."
While Bridges to Excellence is still young, early
results are encouraging. A study in one of the four markets where it is
being tested found that the average annual cost to treat a person with
diabetes was about 15% lower for doctors who participated in the program
vs. those who did not. One reason: fewer hospitalizations. Bridges to
Excellence is now being expanded to include back disorders and cancer. "We
don't know that quality always saves money," says Dr. Robert S. Galvin,
director of global health care at GE. "But we know that for diabetes and
heart disease it does."
That same approach is being used to go after the
notoriously inefficient hospital system. A group of big employers and
insurers founded the Leapfrog Group back in 2000. The idea: to identify
hospitals that meet criteria such as moving toward computerized systems
for ordering drugs, which reduce the risk of dangerous medication errors.
Fewer medical errors, they bet, would mean lower costs. Health plans and
insurers now post that information on Web sites in an effort to show
employees which hospitals have the highest quality. And under a 2002
contract with machinists and engineers, aerospace giant Boeing Co. agreed
to pay the entire cost of a hospital stay after the deductible instead of
the normal 95% if workers use hospitals that use Leapfrog standards. The
program is too new to know whether it can save money, but experts are
optimistic. University of Washington health economics professor Douglas
Conrad has estimated that computerized orders for drugs alone could save
$9 to $16 per day for a hospital stay.
KEEP 'EM IN THE PINK
To keep folks with chronic conditions out of the
hospital in the first place, more companies are also turning to operators
such as Nashville's American Healthways Inc., which has a booming business
providing disease-management services. Under these programs, companies
teach employees suffering from costly or chronic conditions such as
asthma, diabetes, or heart disease how to better manage their health with
improved diet, exercise, and medication. Since 2002 home-improvement
retailer Lowe's Cos. has had such a program in place aimed at workers with
diabetes and heart problems. The company's annual medical and drug costs
for employees enrolled in the program have fallen by an average of 7%,
Lowe's says.
Of course, companies with healthy employees may be best
placed to save medical dollars. That's why PepsiCo, American Standard
Cos., and others have launched ambitious programs to identify workers at
risk for major health problems -- and prod them to clean up their acts. At
PepsiCo, employees can fill out a health appraisal that looks at
everything from their cholesterol levels to their family medical
histories. An outside consultant reviews that information and evaluates
their chances of developing heart disease, diabetes, and other ailments.
Those at high risk can tap health-care coaches paid for by PepsiCo. Some
16% of the company's 50,000 employees now work with a coach.
Among them: Roger W. Babb, a 45-year-old manager in
Frito-Lay Inc.'s Fresno (Calif.) office. Last fall, when Babb signed up
for the program, he weighed 289 pounds, had sky-high blood pressure, and
was borderline diabetic. Initially he filled out the health appraisal just
to get the $100 PepsiCo offered to every employee who did. But within
months he got serious. With the help of his coach, who called him monthly
to offer encouragement and tips on diet and exercise, as well as daily
e-mail messages from the Internet health site WebMD, Babb has dropped 47
pounds. His blood pressure and blood sugar are back to normal, too.
Babb's case sounds like an all-too-rare victory for
lifestyle change. Such programs can be costly, with an uncertain payoff.
But employers have no choice, insists Pepsi benefits guru Scherb. "Sooner
or later you come to the conclusion that you have to help people stay
healthier," he says.
That's an ambitious goal -- but one worth shooting for
when the alternative is a return to runaway health-care costs.
Target to add 600 stores
By Chris Serres, Minneapolis
Star-Tribune
May 19, 2005
It's more likely than ever that a Target store will be
coming to a neighborhood near you.
At the company's annual shareholder meeting Wednesday,
Target executives said they planned to open more than 600 stores within
the next five years, bringing to 2,000 the total number of stores it
operates in the United States.
Looking beyond five years, Target believes it can double
the number of stores and triple its sales volume before it will exhaust
its growth possibilities in the United States, Chairman and Chief
Executive Bob Ulrich told reporters after the meeting. Target currently
has 1,330 stores, including 141 SuperTarget stores that sell groceries.
Ulrich said the company's expansion could include a
store in downtown St. Paul, though he stopped short of committing to one.
"We'd always be interested in any quality location,"
said Ulrich, when asked about the possibility of expanding in St. Paul.
"We're in the South Loop of Chicago. We're in Brooklyn
and we're in Queens. We're certainly looking at a lot of metro locations."
Some retail analysts said it will be difficult for
Target to open so many new stores, especially in urban areas, at a time
when opposition to big-box retailers of all types is growing. Legislators
in more than a dozen states have introduced bills that would restrict the
growth of big-box retailers.
About one-quarter of Target's new stores will be
SuperTargets, which are often more than twice the size of the stores
allowed under some of these ordinances.
Though Target has avoided the sort of public relations
quagmire that has slowed down Wal-Mart's expansion in recent years, its
opponents have become more vocal. On Wednesday, the powerful United Food
and Commercial Workers Union picketed Target's shareholder meeting because
the union is concerned about the company's wages and benefits.
The UFCW, which is trying to organize Target workers,
distributed leaflets at the meeting that said Ulrich made $19,050 an hour
in 2004, compared to $13,000 a year for an average Target worker.
"If Target really does double in size within the next
decade, it will inevitably attract more attention from big labor, consumer
advocates and city planning commissions," said Joseph Beaulieu, a retail
analyst at Morningstar.
Yet there are wide swaths of the country where Target
has relatively few stores, and the opposition to Target is likely to be
minimal. Target has a 9 percent market share nationwide but less than 5
percent in much of the Southeast.
The company stands to benefit from widespread
consolidation in the retail sector, which has prompted major
department-store chains to sell unprofitable locations.
May Department Stores Co., the parent company of
Marshall Field's, agreed to be acquired by Federated Department Stores
Inc. in a deal that would create a department store behemoth with more
than 1,000 stores. And this March, Sears, Roebuck & Co. finalized its
merger with Kmart Holding Corp.
Analysts expect hundreds of store sites to come on the
market as these companies reorganize.
"I don't think there's any reason to expect Target will
face the sort of [local] opposition facing Wal-Mart," said Keri Spanbauer,
a retail analyst with Thrivent Investment Services in Appleton, Wis. "They
already have a relatively significant store base and they haven't been
slowed" by state and local leaders.
When
Pensions Change Hands,
Retirees Can Be Lost in Shuffle
By Ellen E.
Schultz – Staff Reporter – The Wall Street
Journal
May 18, 2005
Mergers Shift the
Obligation To Pay, Leaving Oldsters
Baffled if Problems Arise
'Please Repay All You Received'
For 18 years, Charlie Craven, a retired mine supervisor
in Tucson, Ariz., received a pension of $348.48 a month.
But in late December, instead of a check, he got a
letter saying an audit showed he was receiving the benefit in error.
"You must repay the overpayment of $18,363.44 in one
lump sum by January 31, 2005," said the letter from the pension
administrator. "If you are unable to make a one time lump sum repayment
and wish to set up a repayment plan, your payments are as follows:
$1,530.29 per month for (12) months." The letter added: "If you do not
comply within the stated timeframe, the plan sponsor may take additional
steps," such as reporting the "overpayment" to tax authorities or taking
"more formal collection action against you."
Mr. Craven, who is 79 years old and nearly blind from
macular degeneration, had a friend read him the letter. "How can they come
to me all these years later and tell me this?" he asks. The monthly
repayments would exceed his $1,080 monthly Social Security.
Mr. Craven is one of millions of pensioners whose
benefits have been shuffled around in corporate deal-making over the past
two decades. And when pensions get lost in the shuffling, retirees can
find that the deck is stacked against them. If a company says the pension
should be smaller or not paid at all, proving otherwise is up to the
recipient -- no small burden for an aging retiree who typically has little
grasp of either federal benefits law or corporate restructurings.
Retirees often are puzzled to learn their benefits are
being paid by a company they never worked for. In fact, obligations to pay
retiree benefits frequently are transferred to other companies in mergers
and spinoffs, and also handed over to outside administrators. The
administrators, in turn, often comb through the plans looking for
ineligible beneficiaries or other ways to cut costs.
These audits can bring unpleasant news to people like
retired pilot Chuck Ackerman. When a plan administrator determined that
his pension checks had been too high for years, it began withholding his
payments, sending him on a long odyssey to figure out what was wrong.
In the case of Mr. Craven, a pension administrator
concluded that a different company should have been paying his pension
throughout the years. But, owing to the vagueness of federal pension law,
the administrator felt no obligation to pursue that other company, instead
demanding that Mr. Craven repay.
His case reflects the copious rounds of corporate
mergers that have redirected many retirees' benefit obligations. Mr.
Craven first went to work at a company called Cyprus Mines in 1962 and
left in 1979, a year when Amoco Corp. took it over. He returned to Cyprus
two years later and retired in 1985.
The year he retired, Amoco spun off Cyprus as an
independent company called Cyprus Minerals, transferring to it the pension
liabilities of current employees. Cyprus Minerals began paying Mr. Craven
a pension for his last five years of work, $52 a month. More than a dozen
years later, Phelps Dodge Corp. acquired a portion of Cyprus Minerals, and
kept paying the small pension.
Mr. Craven also had begun receiving a second monthly
pension for his earlier work stint, for $348. Amoco paid this, and when
Amoco became part of British Petroleum in the late 1990s, the combined
company paid this second pension. The two small pensions arrived like
clockwork. Mr. Craven remained ignorant of these rounds of corporate
restructuring.
Then came another shuffle: BP, as it's now called,
outsourced the administration of its pensions. It handed the job in 2000
to Fidelity Investments Institutional Operating Co., which handles
benefits plans covering about 19 million employees and retirees. The BP
plan alone encompasses about 49,000 U.S. retirees, plus 70,000 workers and
former employees who'll get pensions someday.
Last year, Fidelity, a unit of the big mutual-funds
company, audited the BP plan. It concluded that BP never should have been
paying Mr. Craven a pension -- someone else should have. In December,
instead of sending him his January pension check, Fidelity wrote to Mr.
Craven demanding repayment of the pension money he had received over the
years.
The letter said that based on Amoco's "sale" of Cyprus,
Mr. Craven's pension was the responsibility of "a new plan sponsor,"
Foundation Coal Corp. The letter didn't further describe Foundation or
mention that this had taken place nearly 20 years ago. But it said if Mr.
Craven had questions about his benefit, he should direct inquiries to the
coal company at an address in Maryland.
In a second letter about three weeks later, Fidelity
advised Mr. Craven to write to its own office in Cincinnati or call a
toll-free number. If he disagreed with the demand for repayment, the
letter said, he could file a claim stating "the specific grounds upon
which your request for review is based." That letter, it said, should go
to BP's claims and appeals coordinator in La Canada Flintridge, Calif. The
second letter outlined various appeal steps that would lead up to a final
ruling by BP, after which Mr. Craven could go to court if he still thought
he was due a BP pension.
Mr. Craven was stumped. Besides his vision problem, he
didn't know how to research the history of corporate restructurings to try
to determine the paternity of his pension. He had never heard of
Foundation Coal. He wasn't a whiz at math, either, and didn't notice that
his nearly 18 years of pension payments didn't add up to $18,363, as
Fidelity said, but to more than $70,000.
His companion, Ruth Emley, also 79, started digging
through old boxes of canceled checks, and his granddaughter offered to
come over and go through tax returns. A volunteer at the Pima Council on
Aging in Tucson helped him send a letter to the Fidelity address in Ohio,
stating that he couldn't make the repayments and that it was Fidelity's
problem to sort out. By then, he'd been without his pension for three
months.
BP, asked by a reporter about Mr. Craven's case in early
March, at first said it couldn't comment on an individual retiree. But
after looking into the situation, Ronnie Chappell, a spokesman in the big
oil company's Houston office, said the administrator, Fidelity, had
mistakenly sent BP pension checks in 2003 and 2004 to 314 people who
should have been paid by successors of Cyprus Minerals. He added, in a
March interview, that these retirees were asked to repay amounts ranging
from $1,200 to $18,000, and that so far 21 had paid or agreed to repayment
plans.
If another company should have been the payer, such as
Foundation Coal, it might seem that BP or the administrator would target
that company. But Mr. Chappell said Foundation Coal had no duty to make
restitution to BP: "That obligation belongs to people who sought and
mistakenly were paid benefits from BP," he said.
Federal law says pension administrators have a duty to
protect plan assets. Even when money truly is being paid out by mistake --
as sometimes happens -- the law doesn't explicitly say whom the plan must
try to recoup the money from. In fact, the Labor Department, in an opinion
letter, has concluded that if the recovery leads to hardship, "it would be
prudent [under the law] for the Fund not to seek recovery from the
participant or beneficiary of an overpayment made to him."
The BP spokesman said retirees who got BP pensions that
the company didn't owe should seek benefits from the rightful payer, and
when they got them they could reimburse BP. It would be flexible in
hardship cases. "We want retirees to contest decisions with which they
disagree," said Mr. Chappell. "When we make mistakes, we acknowledge them
and correct them. We regret and apologize for the confusion and the stress
the mistakes have caused people in this instance."
A Fidelity spokeswoman, Jennifer Engle, confirms that
her firm erroneously sent out hundreds of BP pension checks, and that in
notifying Mr. Craven, Fidelity incorrectly added up the pension money he
had received.
Still, there was one more mistake: Fidelity, in twice
telling Mr. Craven that BP never owed him a pension and that he must repay
it, was wrong.
After BP looked into the matter, following questions
from a reporter, the oil company concluded that it was responsible for Mr.
Craven's pension after all. On March 12, he got the happy news. "We are
glad to tell you that your monthly pension has been reinstated, beginning
with your April 2005 check," said a letter from the company.
BP was "unaware you wished to dispute our actions until
this week," it said. "We immediately researched your particular situation
and discovered you had two periods of employment...which caused the
confusion." The letter said he would receive his back payments, with
interest, which has now happened.
Fidelity's Ms. Engle, asked about the Craven case this
week, said: "It's a complex industry, and sometimes mistakes get made. And
when that happens, Fidelity works collaboratively with its clients to
resolve any issues that might arise."
Says Mr. Craven: "I'm just glad I can get my finances
back in order."
A bit of history helps explain today's retiree-benefits
merry-go-round. After World War II, many industrial companies, in lieu of
larger raises, offered deferred compensation, in the form of pensions and
health care in retirement. The deal was mutually beneficial: Companies
retained cash to put into operations, and workers got the prospect of a
more comfortable old age. Moreover, compensation in this form isn't
subject to Social Security tax.
It was an accounting shift years later that made
companies start to see their debts to retirees as distinct portfolios to
be managed or moved. In the late 1980s and early 1990s, the Financial
Accounting Standards Board told companies to measure their liability for
retiree benefits and carry it on their books. These liabilities and the
assets to pay for them became more readily shuffled in mergers and
spinoffs, and firms developed inventive strategies to profit from them.
For Mr. Ackerman, the retired pilot, a pension he earned
at one company ended up in the hands of a second firm, and administered by
a third. Then in January 2000, eight years after his retirement, his check
didn't arrive. Soon came a letter from the administrator. His pension, it
said, had been miscalculated, and for years he'd been getting too much.
Result: Instead of being due a check, Mr. Ackerman now owed one -- for
$31,904.
The letter said his pension would be withheld for the
next year and a half until the "debt" was paid off.
Mr. Ackerman flew corporate jets for Hughes Aircraft Co.
for 26 years, delivering executives to meetings, to ski vacations and to
second homes in places like Baja California and Taos, N.M. Though he loved
being a pilot, he faced mandatory retirement at age 60 in 1992. He then
plowed his savings into an 18-acre farm outside of Santa Maria, Calif.,
called Wind Willow, where he and his wife, Audrey, grew grapes to sell to
wineries.
In 1997, Raytheon Co. bought Hughes Aircraft. Raytheon
also gained thousands of retirees from Hughes and other companies it
acquired that year -- in effect a portfolio of $5.6 billion in pension and
health-care liabilities and $6.4 billion in pension-plan assets. To
administer these benefits, Raytheon hired Hewitt Associates LLC.
Hewitt audited the plan and concluded that Mr.
Ackerman's pension had been incorrectly calculated: The monthly rate was
too high, it said. Like Mr. Craven, Mr. Ackerman was told he must repay
all the money he was overpaid in a lump sum or within a year through
installments.
Mr. Ackerman argued with the clerk at Hewitt's call
center, who he said seemed unfamiliar with the type of pension Mr.
Ackerman had with Hughes. Because pilots must retire early, Mr. Ackerman
received a pension supplement until he reached 65. As the Ackermans
understood it, Hewitt was saying that Mr. Ackerman had been getting the
supplement for too long. Asked about this by a reporter, Hewitt declined
to explain, saying it doesn't comment on specific clients.
The couple scrambled to find
the details in old documents. They sent letters trying to make their case.
"We couldn't prove that we hadn't been overpaid," Mrs. Ackerman says.
"When your pension gets shifted from one company to another, there's no
recourse. They've got you over a barrel."
Mr. Ackerman got the pension letter four days after
learning that esophageal cancer that he'd been treated for had spread to
his liver and lungs. He appealed to the pension plan to forgive the debt.
While awaiting an answer, he began chemotherapy at a hospital near Santa
Barbara.
There, he ran into a retired vice president of Hughes
Aircraft and told him about his pension problem. A few weeks later, when
he checked his mailbox, Mr. Ackerman found a note from the retired
executive, with a personal check for $5,000. He also found a letter
denying his appeal of the decision to dock his pension.
The Ackermans told the plan administrator that repaying
more than $31,000 in 12 months would consume all of their pension plus
most of their Social Security, leaving them almost nothing to live on.
They said the administrator relented, and later in 2000 agreed to let them
repay at a rate of $500 a month.
Mr. Ackerman poured himself into farm work, trying to
provide more income to make up for the shrunken pension. He began grafting
pinot noir grapes onto the root stock, hoping they would yield a higher
price than the orange muscat vines he and his wife had planted. He also
made improvements to the farm, fixing a roof and mending outbuildings,
even as his 6-foot-4-inch frame dwindled to 140 pounds.
"He did all this work, even though he was really sick,
because it was the only thing he could do to help me financially," Mrs.
Ackerman says. "He was a very tough human being." Mrs. Ackerman, too,
worked on the small farm, digging, pruning, "getting gophers." Together,
the couple built a pump house.
Mr. Ackerman died in February 2002, aged 70. "He had a
hard end," his widow says, not just because of the cancer but because of a
feeling of betrayal. "After all those years of taking care of them, making
sure they were safe, he felt like the company considered him a liar and a
cheat."
After his death, she continued to work on the farm as
Hewitt, which administered Raytheon's plan until 2003, deducted $500 from
each monthly pension check. In August 2004, the overpayment was finally
paid off. But for three months, Mrs. Ackerman says, $500 continued to be
mistakenly withheld from each check, until she complained to Raytheon by
phone and letter.
Asked about this, a Raytheon spokesman, in an email,
said, "Raytheon regrets the Ackermans' unfortunate experience. When the
$31,000 overpayment situation was discovered by the administrator of the
plan, we worked with the Ackermans to minimize the impact on a mutually
agreeable basis." He added, "In any large population, administrative
errors can occur. Our policy is to correct them as soon as they are
discovered."
Home Depot posts
profit, to shrink Expo chain
By Karen Jacobs
May 17, 2005
ATLANTA, May 17 (Reuters) - Top U.S. home improvement
chain Home Depot Inc. on Tuesday reported a 14 percent rise in quarterly
profit, topping estimates, as expense controls and demand for
higher-margin goods offset a shortfall in sales.
Home Depot said it would close nearly a third of its
Expo design stores, and shares of the retailer, a component of the Dow
Jones industrial average, rose 4 percent.
First-quarter profit rose to $1.24 billion, or 57 cents
a share, from $1.1 billion, or 49 cents a share, a year earlier. The
latest quarter included costs of 3 cents a share related to the closure of
the underperforming Expo Design Center stores.
Analysts on average expected a profit of 55 cents,
according to Reuters Estimates.
"There's positive sentiment around the home improvement
space right now," said Keith Davis, an analyst with Farr Miller
Washington. "Things aren't slowing down" despite concerns about rising
interest rates and store saturation, he added.
Home Depot affirmed its sales and profit growth goals
for the full year. Deutsche Bank upgraded the retailer to "buy" from
"hold," citing improved gross margin.
Total sales increased 8 percent to $19 billion, and
sales at stores open at least a year rose 2.1 percent, below company goals
due to bad weather in some markets.
Home Depot, which is spending millions on technology
upgrades and store remodels, cited market share gains in appliances and
said its services business grew 16 percent, fueled by installation of
roofing, kitchens, counter tops and carpet. Its average sale rose 5.7
percent to $58.25.
U.S. remodeling spending has climbed steadily among
higher-income households, with kitchen and bath renovations the most
popular home projects, Harvard University researchers said earlier this
year.
The Atlanta retailer, which had less shares outstanding
as it bought back stock, also cited widening gross margin as shrink, or
goods lost to theft, was lower. Reduced cost of goods and decreased
penetration of lower-margin products like lumber also helped margins.
The world's largest home improvement retailer plans to
close 15 Expo stores, which feature kitchen and bath showrooms and carry
higher-priced products, and sell its interest in the underlying real
estate. Five other Expo stores will be converted to Home Depots, while the
remaining 34 profitable Expo stores will continue to operate, the retailer
said.
The Expo stores to be closed include three stores in
Illinois, four in Texas, two in Michigan and one each in California,
Colorado, Georgia, Kansas, Massachusetts and Ohio. Workers at shuttered
stores are expected to find work elsewhere within Home Depot, the company
said.
"We are pleased that the company is closing unproductive
stores and would not be surprised to see the division closed in total in
the long run due to below-average returns," Prudential analyst Wayne Hood
said in a research note.
But Home Depot Chief Financial Officer Carol Tome said
the store closures will help Expo, which had not been expanded in recent
years. "Our announcement today positions Expo for continued growth and
success," she said.
Geoff Wissman, a vice president at Retail Forward, said
Expo is a niche concept with high operating costs that can work in limited
markets. He noted that at one time, Home Depot planned to open 200 Expos.
"It certainly isn't going to be the growth vehicle that
Home Depot hoped," Wissman said. He noted that a similar chain operated by
Sears called the Great Indoors had also been scaled back.
The Expo downsizing comes as Home Depot looks to expand
its global presence. The retailer has more than 1,900 stores in the United
States, Canada and Mexico and is looking to enter China.
Home Depot backed its full-year guidance of sales growth
of 9 percent to 12 percent and per-share earnings growth of 10 percent to
14 percent.
On Monday, Lowe's posted a 31 percent rise in
first-quarter profit, but missed estimates, saying that cold, rainy March
weather slowed sales.
Home Depot shares were up $1.49 to $38.86 on the New
York Stock Exchange, while Lowe's gained 6 cents to $55.86.
Penney's Beats
Estimates, Saks Disappoints
Associated Press –
Fobes.com
May 17, 2005
J.C. Penney Co. continues to sparkle amid mid-tier
department stores, while rival Saks Inc. languishes.
Penney, helped by improved sales of fashions and sharply
higher Internet business, announced Tuesday a fourfold first-quarter
earnings rise that beat estimates and upgraded its outlook. But Saks,
which is selling its Proffitt's and McRae's department stores, reported a
lower-than-expected profit for the first quarter as its moderate price
department-store business continues to struggle.
Shares of Saks were down more than 1 percent, while
Penney's shares rose close to 2 percent in late morning trading.
Penney's strong performance is a bright spot in the
otherwise drooping mid-price sector, whose customers have been hit by
higher gasoline prices and a weak job market. The tier has been squeezed
by high-end players like Neiman Marcus Group Inc., whose well-heeled
customers have been first to benefit from a recovery, and discounters like
Target Corp. and Wal-Mart Stores Inc., which offer budget consumers
low-price goods.
"Our vision is to become the preferred shopping choice
for middle America, a customer segment that continues to show that it is
resilient and rewards retailers that meet or exceed customers'
expectations," said Myron E. Ullman, chairman and chief executive at J.C.
Penney, in a prepared statement.
Penney's earnings jumped to $172 million, or 63 cents
per share, in the three months ended April 30. That compares with $41
million, or 13 cents per share, in the year-ago period. On a continuing
operations basis, prior-year earnings were 38 cents per share, the company
said.
J.C. Penney's earnings beat by 2 cents the average
estimate of analysts surveyed by Thomson Financial.
Overall net sales totaled $4.19 billion, a gain of 4
percent from $4.03 billion and ahead of analysts' estimate for $4.17
billion in sales.
At stores open at least a year, sales rose 3 percent,
compared with growth of 9.5 percent the year before. Catalog and Internet
sales also expanded by 5.4 percent, with Internet sales alone climbing 35
percent as the store continues to attract new, younger customers, J.C.
Penney said.
Second-quarter earnings are forecast in the range of 25
cents to 30 cents per share - including about 3 cents in charges for
retiring debt and expensing stock options - with same-store sales expected
to increase at a low single-digit percentage.
For the year, J.C. Penney projects income of $2.96 to
$3.08 per share, including charges of about 13 cents. The company had
earlier forecast that annual profits would be in the range of $2.94 to
$3.06.
Analysts see a quarterly profit of 31 cents per share
and annual earnings of $3.17 per share. Those estimates usually exclude
extraordinary gains and charges.
Shares of J.C. Penney rose 58 cents to $48.41 in midday
trading on the New York Stock Exchange, where they have traded in a
52-week range of $31.10 to $53.44.
Meanwhile, Saks reported income of $17.1 million, or 12
cents per share, for the three-month period ended April 30.
Saks' latest results include a gain of a penny per share
from disposing of closed stores, offset by a penny per share related to
expenses from an investigation of alleged improper collections of money
from vendors at its Saks Fifth Avenue division.
On average, analysts surveyed by Thomson Financial were
expecting earnings of 16 cents per share in the latest quarter.
Sales totaled $1.55 billion, a slight 0.6 percent
increase from $1.54 billion a year earlier and a bit below the $1.56
billion expected from Wall Street analysts.
Same-store sales rose 1.9 percent last quarter, with a
5.5 percent increase at Saks Fifth Avenue stores offsetting a 0.9 percent
drop in its mid-tier department-store group.
Saks did not report its year-ago profit results because
it expects to restate financial results for fiscal 1999 through the third
quarter of fiscal 2004 due to the investigation of markdown money and
other related financial and accounting issues.
Markdown money is what suppliers pay to compensate
stores when they don't sell products or are forced to take deeper
markdowns than expected. Last week, the company announced it fired its
chief accounting officer and other top officers as a result of the
investigation.
The company, which is also the target of an informal
inquiry by the Securities and Exchange Commission and U.S. Attorney's
Office in New York, said Tuesday it is working to confirm the amount of
total vendor markdown allowances determined to have been improperly
collected. As a result, all the results are preliminary and remain subject
to change.
Last month, Saks said it agreed to sell its Proffitt's
and McRae's department stores to privately held retailer Belk Inc. for
$622 million in cash. The stores have annual revenue of about $700
million. The company also said it's exploring strategic options for its
northern mid-price department store division, which consist of 143 stores
under the names of Carson, Pirie Scott, Bergner's, Boston Store, Younkers
and Herberger's.
Sears ends $1.6B
outsourcing pact with CSC
Carol Silwa and Sharon
Machlis - Computer World
May 16, 2005
Claims failure to live up to contract terms; CSC
disputes termination
Sears, Roebuck and Co. ended its $1.6 billion IT
outsourcing agreement with Computer Sciences Corp. as of May 11, citing
CSC's "failure to perform certain of its obligations" under the 10-year
contract, according to a filing issued Friday with the U.S. Securities and
Exchange Commission.
Sears last June tapped El Segundo, Calif.-based CSC to
provide IT infrastructure support services for its desktops, servers, Web
site systems, voice and data networks and decision-support technology (see
story) <http://www.computerworld.com/managementtopics/
outsourcing/story/0,10801,93581,00.html> .
In its own filing today, CSC disputed Sears' charge and
said the termination for "cause" was "contrived to avoid or reduce
termination fees of tens of millions of dollars." CSC said that Sears also
had an option to terminate the contract for "convenience" or "upon mergers
and acquisitions involving Sears." The termination fee varies depending on
the type of termination and the date, according to the CSC filing with the
SEC.
Kmart Holding Corp. and Sears on March 24 announced the
completion of a merger that combined Sears and Kmart into a major new
retail company named Sears Holdings Corp.
CSC claimed it had made investments in conjunction with
its outsourcing agreement with Sears, and those assets included software,
property, plants and equipment. The company said it will vigorously pursue
recovery for its assets and commitments. Sears said it expects to incur no
penalties as a result of the termination.
The matter has already reached the courts. According to
Sears' SEC filing, a federal court judge denied CSC's request for an
injunction that would have stopped Sears from terminating the contract for
cause. In a pending arbitration proceeding, CSC also failed to get an
emergency hearing. There was no ruling on the merits of Sears' assertion
in either case, and additional legal action is pending.
In the meantime, CSC is obligated to continue providing
services for an extended period of time, according to Sears' SEC filing.
Christopher Brathwaite, a spokesman for Sears, declined to comment on the
length of time that CSC will continue to provide services.
At the time that Sears and CSC announced their
outsourcing deal, the companies said that the majority of the 200 Sears
employees who were responsible for managing Sears' technology
infrastructure were expected to take jobs with CSC.
Neither Sears nor CSC would comment about the
termination of the contract.
Former Sears CIO Gerald Kelly Jr. had orchestrated the
outsourcing deal with CSC, but Kelly left the company shortly after the
merger closed in March. At the time of his departure, Karen Austin, who
had been the CIO at Kmart, had already been named CIO at the newly formed
Sears Holding Corp.
Chicago area CEOs raking in healthy
compensation
By Sandra Guy – Business Reporter – Chicago
Sun-Times
May 16, 2005
For the second year in a row, Chicago area CEOs reaped
healthy pay packages that included significant sums with no
pay-for-performance strings attached.
Seven of 16 CEOs at large publicly traded companies
included in a Sun-Times survey received double- and triple-digit
percentage pay increases in 2004 because their companies' boards of
directors granted them large chunks of restricted stock in 2004.
Restricted stock and cash-based long-term plans started
gaining favor over stock options in 2003, and have retained their
popularity in 2004, according to the CEO salary analysis for the Sun-Times
by Pearl Meyer & Partners, a New York-based executive compensation
consulting firm.
Restricted stock is common stock that typically vests
within a certain number of years. CEOs can take advantage of it only if
they stay with a company for a specified number of years, or until they
retire.
Critics complain that restricted stock is parceled out
for survival and rarely is based on a CEO's or the company's performance.
Stock options, on the other hand, give executives and
employees the right to buy company stock at a discount in the future.
Options are usually granted because a CEO has met performance goals, even
though critics charge that the goals can be set so low they pose no
challenge to competence.
Changes afoot in restricted-stock grants to CEOs
Shareholders enraged that CEOs are being granted
restricted stock on the basis of longevity should take heart that changes
are under way.
Experts in CEO pay say companies are increasingly tying
restricted stock to a CEO's performance. Here are the kinds of reforms
they are seeing in restricted-stock grants:
*Link the grants to a company's return on capital
employed, which shows growth in a firm's value.
*Tie the grants to economic value added.
*Set up a combination of goals, such as growth in
earnings and return on equity.
*Allow early vesting of the stock grant if the CEO hits
a performance goal on time.
*Require the company's stock to perform in the upper
quartile among its peers for three years in a row in order for the
restricted stock to vest.
*Determine the amount of restricted stock based upon a
CEO's cumulative compensation.
Sources: Don Delves, president of the Delves Group;
Tracy Davis, senior consultant at Hewitt Associates, and Paul Hodgson,
senior research associate at the Corporate Library.
--Sandra Guy
"The widespread move toward restricted stock seems to
me, and to most other pay experts, a backward move," said Paul Hodgson, a
senior research associate at the Corporate Library, a leading advocate of
good governance in business. "At least with stock options, if the price of
the stock goes down, the CEO gets nothing. With restricted stock, if the
stock price goes down, the executive still makes money on the deal."
Motorola CEO Ed Zander, who took over the struggling
company in January 2004, received the highest value of restricted stock of
any CEO in the survey, $9.15 million. Zander also was awarded a $1.5
million salary, a $4.6 million bonus and $13.26 million in stock-option
holdings.
Zander agreed to delay taking his bonus until he leaves
Motorola or until the amount becomes tax-deductible to the
Schaumburg-based technology company.
Part of the restricted-stock grant to the former Sun
Microsystems president was a signing bonus, and the rest was meant to
reward him for doing a good job, a Motorola spokeswoman said.
Motorola's board consulted with executive-pay experts
and concluded that they had rewarded Zander a proper amount, given that he
oversaw earnings growth of 136 percent, a 35 percent revenue spurt and a
total return to MOT shareholders of 38 percent in 2004, the spokeswoman
said.
The largest overall pay gain went to Brunswick Corp. CEO
George Buckley: up 168 percent from a year earlier, according to the
survey.
Buckley's total pay skyrocketed to $18.5 million in
2004, largely because his restricted stock award ballooned almost
four-fold to $11.4 million in 2004. He also received more than $2 million
in cash-based long-term incentives.
A Brunswick spokesman pointed out that Buckley has no
assurance that he will pocket the special restricted stock award, or that
its value will remain stable. Buckley must stay until Feb. 23, 2009, in
order to obtain the restricted stock grant.
Brunswick's board of directors wants Buckley to stay to
"complete what the board believes has been a significant transformation
under his leadership," said Brunswick spokesman Dan Kubera.
During Buckley's four-year tenure, Brunswick's stock
price and its market capitalization have more than tripled on a 16 percent
compound growth rate in net sales.
A contrast is evidenced at investment-manager Nuveen
Investments, where CEO Timothy Schwertfeger received a relatively paltry
$1.2 million in restricted stock.
Schwertfeger's base salary of $750,000 was the lowest in
the survey, but his $5.5 million bonus was the highest. Schwertfeger's
restricted stock award was valued at $1.2 million.
Schwertfeger will receive his restricted-stock award if
he remains with Nuveen another three years.
Two CEOs saw their total pay packages decline --
Walgreen Co. CEO David Bernauer and Allstate Insurance Co. CEO Edward
Liddy.
Bernauer's stock-option values accounted for the drop.
He received a special stock-option grant in 2003, but not in 2004, so the
value of his options fell to $1.68 million in 2004 from $3.9 million in
2003.
The drop was offset by $530,400 Bernauer was granted in
restricted stock in 2004, versus restricted stock worth $376,679 in 2003.
Walgreen requires that Bernauer meet performance
requirements tied to the Deerfield-based drugstore chain's earnings in
order to obtain the restricted stock, a Walgreen spokesman said. The stock
vests in equal amounts over a four-year period.
At Allstate, Liddy's cash bonus dropped about $200,000,
and his long-term incentive pay dropped in value to $4.16 million in 2004
from $7.1 million in 2003. Almost half of the 2004 award was tied to a
performance-based long-term plan that pays out in cash instead of stock.
The decreases reflected new performance criteria and the
company's changed fortunes.
In 2003, Liddy's long-term incentive pay was based on
operating income per diluted share, and the company did well. In 2004, his
pay was based on operating income per share, weighted equally with the
performance of the Northbrook-based company's investments, life-insurance
and auto-and-home insurance units, an Allstate spokesman said. Allstate's
finances were hurt in 2004 by catastrophe losses from hurricanes in
Florida and on the East and Gulf coasts.
Allstate executives' restricted stock vests every four
years.
Mounting criticism of restricted stock awards could
force a change in how such awards are granted, one pay expert predicted.
"The big trend next year will be that companies will tie
restricted stock awards to a CEO's performance and to the value that is
created for shareholders," said Jim Sillery, a vice president at Pearl
Meyer & Partners' Chicago office. (See related article, page 67).
Boards of directors began awarding restricted stock
rather than stock options partly because they were trying to conserve
shares. Restricted stock requires fewer share giveaways than do stock
options.
"Shareholders, the media and institutional investors are
closely watching how quickly companies are burning through shares for
employee compensation," Sillery said.
Further, many employees have been burned by stock
options. The dot-com bust and resulting stock-market downturn left many
employees' stock options worthless, though CEOs' pay kept going up.
Corporate directors and managers also are concerned
about a new accounting rule that will require reporting stock options as
an expense, which will reduce corporate profits.
The rule, which takes effect in a company's first annual
reporting period after June 15, is a double-edged sword, however. It also
will require that expenses a company incurs for a restricted-stock grant
cannot be reversed if the CEO doesn't stick around long enough to obtain
the stock.
At the same time, board members are under greater
scrutiny to ensure that CEOs are being paid for their performance.
Any company can argue that its leader is worth every
penny he receives.
To that, Pearl Meyer's Sillery said, "It's still a lot
of money."
THE BOSS' PAY
Here's how 25 prominent Chicago area companies compensated their top
executives in 2004. The concept of paying big bucks for performance is
beginning to gain some traction.
1 -- Total cash compensation includes salary and bonus.
2 -- Total direct compensation includes total cash plus
restricted-stock awards and long-term incentive compensation.
3 -- Total remuneration includes total direct
compensation plus the current value of stock options awarded in 2004.
4 -- Total return is the change in the price of a stock
including price change and dividends paid. Total return figures supplied
by Moringstar.com.
+ -- UAL and USG are in bankruptcy reorganization, and
are prohibited from granting stock options. Their compensation levels are
excluded from the averages. UAL's stock disappeared into the ether after
the company declared bankruptcy.
SOURCES: Pearl Meyer & Partners, Chicago; Moringstar.com
(total return figures only)
Joseph H. Batogowski, 65
- Ex-Sears executive, entrepreneur
By Ana Beatriz Cholo - Tribune staff reporter
– Chicago Tribune
May 16, 2005
It was quite a career climb to go from drilling holes in
bowling balls at Sears to becoming the No. 2 executive at the retail
giant, but Joseph H. Batogowski accomplished that feat through creativity
and keen business acumen, his family and friends said.
Mr. Batogowski also made many loyal friends as he rose
to the top of his field and pursued other endeavors.
Mr. Batogowski, 65, was surrounded by his entire family
when he died Thursday, May 12--minutes before the sun set over the 11th
hole of the golf course at his home in Rancho Mirage, Calif. After a
nine-month struggle, Mr. Batogowski, a devoted golfer who spent most of
the year in the desert and the rest of the time at his Oak Brook home,
died of leukemia.
Mr. Batogowski was born in New Britain, Conn. He met his
future wife, Ann, in high school while they were both dating other people.
They married in 1962.
After a stint in the Army as a paratrooper in the 101st
Airborne, he attended Central Connecticut State University with dreams of
becoming a high school economics teacher.
But a temporary job at a Sears store in West Hartford
after college took him in a different direction.
When he was offered a spot in a management-training
program making about $25,000 a year, he jumped at the chance. Two years
later, his salary doubled, and in 1969 he was transferred to company
headquarters in Chicago.
In 1982 Mr. Batogowski was put in charge of buying all
products for Sears and named senior executive vice president for
merchandising.
When asked how one can move steadily up the company
ranks, he was quoted in a New York Times article as saying, "Pay attention
to what you are doing."
"Joe," as everyone called him, was often the "smartest
guy in the room" and practiced consensus-building before the term even
came into being, said Jeff Long, a close friend and senior vice president
of business development for Newspaper Services of America, a business Mr.
Batogowski helped start after his career at Sears.
For a man who went from modest beginnings to wealth, Mr.
Batogowski had no airs about him, friends said. "He always made people
feel like they were part of a solution instead of part of a problem," Long
said.
After he left Sears in 1988, Mr. Batogowski co-founded
Newspaper Services of America and worked as a consultant and director of
several advertising and marketing companies.
With his wife of 43 years, the couple raised their five
children in Naperville and then Oak Brook.
"He always wanted to be more of a family guy. But during
the Sears days, he didn't have the time," his son Dean said. "But then he
made up for it."
In 1997 he treated his entire family, including in-laws
and grandchildren, to a 10-day vacation in Kenya, complete with safari
trips to view animals in their natural habitats and a stay with an African
tribe.
Two years later, he rented a 200-foot sailboat for his
extended family to sail around the island of Sicily.
Mr. Batogowski was an avid reader of anything relating
to golf or his business. He also wrote poems to his family.
Friends, especially those from his "Sears family," were
incredibly important to him, as was loyalty, his wife said.
"Once you were a friend, he was there through good
times, bad times," she said.
Also surviving are daughters Tracy, Kory and Lindsay;
another son, Craig; three grandchildren; and a brother, Edward.
Visitation is scheduled for 3 to 8 p.m. Wednesday at
Adams-Winterfield & Sullivan Funeral Home, 4343 Main St., Downers Grove.
There will be a memorial service at 10:30 a.m. Thursday at Christ Church
of Oak Brook, 31st Street and York Road.
Joe
Batogowski, Sears Merchandising Leader, dies at 65
CHICAGO TRIBUNE
May 15, 2005
Joseph H. Batogowski of Oak Brook, Illinois died
peacefully at his vacation home in Rancho Mirage, California on May 12th.
He was 65.
Joe was born in New Britain, Connecticut. Prior to
graduation from Central Connecticut State University, Joe volunteered for
the United States Army and served as a Paratrooper in the 101st Airborne
Division.
Joe spent his career in the retail industry with a
particular focus on advertising and marketing. He had a humble beginning
as a trainee at the West Hartford, Connecticut Sears store where he
drilled holes in bowling balls.
During his exceptional tenure at Sears from 1966-1988,
Joe ascended to the second in command at the world's largest retailer at
the time serving as Senior Executive Vice President of Merchandising and
Marketing.
Joe had an uncanny ability to know what 'sells' and how
to sell it. While at Sears, he was responsible for numerous notable
product lines such as The Die Hard Battery and Steady Rider Shocks.
After he left Sears, Joe continued to utilize his gift
for understanding merchandising and the mindset of the people in the
industry. He served as a consultant and director of several advertising
and marketing companies, and co-founded Newspaper Services of America.
He was a long-time contributor to several charitable
organizations and foundations including Over The Rainbow and City of Hope.
He was a passionate golfer, an avid reader and was revered by his family,
friends and co-workers.
Joe fought a courageous battle with Leukemia with his
characteristic determination and steadfast strong will. He is survived by
the family he adored - his beloved wife Ann of 43 years, five children
Tracy (Mark) Kalfas, Kory (Brian) Kozlowski, Dean (Tonia), Lindsey (Ryan)
Griffin, and Craig; three much loved grandchildren, Russell, Jak and
Sophia; his brother, Edward, his wife, Ann, and their four children and
five grandchildren; and last but certainly not least, his cherished dog
Suzy. We all love him deeply and will miss him tremendously. He will be
remembered for his generosity, integrity, perseverance and creativity.
There will be a visitation at Adams, Winterfield &
Sullivan Funeral Home, 4343 Main Street (1 blk S. of Ogden), Downers
Grove, Illinois on May 18th from 3 to 8 p.m. and a memorial service at
Christ Church of Oak Brook on 31st and York Road in Oak Brook, Illinois on
May 19th at 10:30 a.m.
In lieu of flowers, the family suggests that donations
in his memory are sent to the Leukemia & Lymphoma Society, Donor Services,
P.O. Box 4261, Pittsfield, MA 01202. For further details, call
630-968-1000
www.adamswinterfieldsullivan.com
Kmart home to be sold in days
By John Gallagher –
Business Writer – Detroit Free Press
May 14, 2005
Sears Holdings Corp. is expected to announce within days
a buyer for the 45-acre site of the former Kmart Corp. headquarters in
Troy.
The Hoffman Estates, Ill.-based company, formed by the
merger announced late last year between Kmart and Sears, has been in
discussions with several development firms that want to buy the site on
Big Beaver Road.
Among them are Southfield-based Forbes Co., owner of the
Somerset Collection luxury mall across the street from the Kmart
headquarters; and Hines Interests, a Houston-based real estate firm that
manages the GM Renaissance Center and other key properties.
Nate Forbes, managing partner of Forbes Co., confirmed
Friday that his firm has been in the running and said that he expects
Sears to finalize a decision by early next week. Other real estate
professionals who have followed the proposed sale said this week that
negotiations apparently had reached a final stage. A spokesman for Hines
Interests declined to comment Friday.
One real estate industry professional who has followed
the deal estimated the winning bid would be about $40 million. This
professional spoke on condition he not be named because he may have future
dealings with some of the parties involved.
Whoever buys the site, the new owners are expected to
raze most or all of the current Kmart headquarters. Demolition costs are
estimated to run around $4 million.
Most of the Kmart employees are expected to leave the
center by the end of the year as the company shifts many corporate tasks
to its Sears headquarters in suburban Chicago. Under the pending real
estate sale, Sears likely would continue to use a 90,000-square-foot data
processing center on another portion of the Troy site for two to three
more years even as the main building is razed.
When built in 1972, the headquarters was one of the most
modern structures in metro Detroit, and at one time it held about 5,000
employees. But as Kmart's fortunes declined, so, too, did the number of
employees. About 1,800 work there today.
The big question is what will replace the headquarters.
The site is among the most important and visible to come on the suburban
market in years. Today the site is zoned for office buildings, but Doug
Smith, director of real estate for the City of Troy, said the city is
willing to accommodate a mixed-use development.
Several real estate professionals have suggested in
recent months that a mix of a hotel, some residential, one or more
restaurants, and perhaps some retail could go on the site.
It is also possible that Troy's city planners might
consider a high-rise development of some kind. Although the Big Beaver
market is primarily low-rise and medium-rise office and retail,
the city has been considering allowing a high-rise project.
"Many, many developers come to us and say, 'What can we
do here?' And I say, 'What do you want to do here?,' " Smith said this
week.
The Kmart headquarters came on the market following the
announcement last November that Sears and Kmart, two legendary retailers
troubled by slumping sales and competition from Wal-Mart and Target,
announced a merger that created the nation's third-largest retailer.
Sears stock closed Friday at $137.13, down $1.31 or 1%,
on the Nasdaq stock market.
Sears Holdings ends IT deal
Chicago Tribune staff,
wire reports
May 14, 2005
Less than a year into a 10-year deal, Sears Holdings
Corp. has terminated a $1.6 billion agreement with Computer Sciences Corp.
for information technology services. In a Securities and Exchange
Commission filing, the Hoffman Estates-based retailer said it scrapped the
pact because of CSC's "failure to perform certain obligations." Both Sears
and CSC, based in El Segundo, Calif., declined to comment.
CSC must continue to provide services for "an extended
period" after the deal's May 11 termination, Sears said. It also noted
that, both in pending litigation in federal court and in arbitration, CSC
unsuccessfully sought an injunction or an emergency hearing for an order
prohibiting Sears from terminating the deal. Neither the court nor the
arbitrator, however, has ruled on the merits of Sears' action.
CSC claims Sears is liable for unspecified compensatory
and punitive damages, but Sears doesn't expect to incur significant
termination penalties.
Analysts Go Hungry at
Lampert's Sears
By Nat Worden – Staff Reorter –
TheStreet
May 13, 2005
The marriage of Sears and Kmart may have put Ed
Lampert's retail empire in the same neighborhood as Wal-Mart (WMT:NYSE)
and Target (TGT:NYSE) . But analyst coverage of Sears Holdings (SHLD:Nasdaq)
suggests it might as well live in the boondocks.
The combined company now boasts a market cap of $23.1
billion, making it the third-largest discount retailer in the U.S.
Meanwhile, according to Thomson First Call, only three analysts follow the
stock. That compares to Wal-Mart, with a market cap totaling $206 billion
and 33 analysts, and Target, worth $42 billion with 28 analysts.
Even the large number of analysts that followed the old
Sears through its troubled times have abandoned coverage of the new.
With their historic bias toward buy recommendations, one
might surmise that sell-side analysts took one look at Sears Holdings'
soaring valuation and fled. Another factor is the company's refusal to
spoon-feed the Street.
Sears' posture befits its taciturn chairman, whose
strategy of unlocking value through unconventional means fits few Wall
Street models. Lampert has held no quarterly conference calls, issues no
earnings or sales guidance, and doesn't release a monthly comps update by
which investors compare other big chain stores.
While the strategy is an analyst's nightmare, the
results have been a shareholder's dream. After emerging from bankruptcy in
2003, the stock was one of last year's biggest performers, roughly
quintupling in price.
Word circulated on Wall Street this week that Sears
Holdings plans to stop using an active investor relations department,
limiting its communication with Wall Street to regulatory filings required
by the Securities and Exchange Commission.
Sears spokesman Chris Brathwaite refused to comment on
the rumors except to say, "Our investor relations department has been
scaled back, and we're endeavoring to make our Web site as self-sufficient
as possible. But we haven't said anything definitively about what is going
to happen at earnings time."
The company, whose first quarter just ended, has not set
a date for its earnings release, but Brathwaite said it wouldn't be in the
next few days. The average of two analysts surveyed by Thomson First Call
is for Sears to earn 63 cents a share, but it has not issued any guidance.
"This is consistent with the cost-cutting culture of
Eddie Lampert's Kmart," says Richard Hastings, an independent retail
analyst. "People bickered constantly that they wanted to hear more from
Kmart, but the shareholders never complained when they saw their returns
on investment. Lampert goes through every facet of these businesses and
asks, 'Do we really need this?' In this case, the answer is clearly 'No.'
"At the end of the day, the real purpose of all the
machinery surrounding the equity analysts on Wall Street is to help
companies raise money in the public market," Hastings adds. "In the case
of a company that is going to issue more stock or sell debt, they want to
make sure their relationships with the analyst community are very good.
But that's no concern for a guy like Eddie Lampert."
To be sure, Lampert is riding high in a market in which
hedge funds have captured the glamour once reserved for venture
capitalists during the Internet bubble. Among hedge funds, his ESL
Investments could be the most famous of all, and on his name alone, the
market has attached a premium to Sears Holdings that otherwise would be
unthinkable.
The prevailing bull case on the stock theorizes that
Lampert will continue to build up the company's cash horde and eventually
make investments that have nothing to do with retail. The company's recent
announcement that it's considering selling its Orchard Supply Hardware
chain could be a sign that the process is under way. Regardless, with
nearly $8 billion in cash on the latest balance sheets from Sears and
Kmart, it seems unlikely Lampert would be looking to raise money any time
soon.
Lampert's way with Sears Holdings bears a similarity to
that of Warren Buffett at Berkshire Hathaway (BRK.A:NYSE) -- a company
Lampert admires. While pundits and politicians have put a premium on
transparency as a path to good corporate governance, the relative stealth
of Lampert and Buffett can paradoxically result in more transparency, as
shareholders contend with less noise.
Buffett does not provide guidance or any special
communication with analysts outside of his regulatory filings. He
communicates directly with shareholders at his annual meeting and his
annual letters to shareholders, which give a clear assessment of
Berkshire's business in layman's terms. Lampert could be planning to
follow suit.
"Every public company in America ought to learn from
this and operate that way," says Mohnish Pabrai, managing partner with
Pabrai Investment Funds. "Businesses by definition are unpredictable.
There are so many variables that anytime you start getting into giving
earnings guidance, you run the risk of trying to please the short-term
demands of analysts at the expense of the long-term success of the
business."
Among other things, Pabrai says, a lack of volubility
can keep managers from falling prey to gimmicks like "earnings smoothing"
or other accounting tricks that are employed when ill-advised promises
appear to be in danger.
"That has happened with great companies in the past,
like Microsoft (MSFT:Nasdaq) and General Electric (GE:NYSE) ," Pabrai
says. "It appears to be the root of the problem that has been going on at
AIG (AIG:NYSE) ."
Meanwhile, Sears Holdings' closest competitors, Wal-Mart
and Target, are two of the most responsive companies to the sell side on
Wall Street. They are constantly updating monthly sales guidance, meeting
with groups of analysts and forecasting earnings; and their management
teams are highly respected.
The contrast suggests to some observers that Lampert's
dreams lie beyond managing some department stores.
"He's going to use the cash flow to buy assets that have
nothing to do with retail, so he's actually just preparing the investment
community for that eventuality," Pabrai says. "I think he's very smart to
start preparing people."
Wal-Mart Lags but
Target Hits Its Sales Goal
By Tracie Rozhon –
New York Times
May 13, 2005
Wal-Mart Stores, with its less affluent, more rural
customer base, came up short yesterday when it and Target both released
results for the first quarter. Target - with customers a little richer and
more chic - posted a better-than-expected profit, while Wal-Mart reported
its lowest sales growth in more than two years.
Deborah Weinswig, an analyst for Smith Barney, termed
yesterday's results "the tale of two consumers."
High gas prices reduced the number of trips consumers
made to the Wal-Mart Supercenter, analysts agreed, and other rising
household costs cut into the money the average shopper had to spend on
nonessentials once there. Target's more upscale customers continued to
spend.
After Wal-Mart's announcement that sales had grown 9.5
percent, to $70.9 billion - the smallest growth in nine quarters - the
company's stock dropped sharply, losing $2, but it recovered somewhat to
close at $47.65, down 95 cents in a down market. Target's stock rose 60
cents, closing at $48.80. Its sales for the first quarter rose 13 percent,
to $11.5 billion.
Profit at Target rose 15 percent, to $494 million,
exceeding analysts' estimates. Wal-Mart said it would miss its annual
profit forecast, as earnings rose 14 percent to $2.46 billion. Target's
same-store sales, comparing stores open at least a year, rose 6.2 percent;
Wal-Mart's rose 2.9 percent for the quarter. The performance, said a
Wal-Mart spokesman, Marty Heires, "was not up to our standards."
Mr. Heires blamed economics for the results. "As we've
commented in the past, our customers live paycheck to paycheck and they
are pretty sensitive to costs," he said. "They've told us gas is a burden,
and cuts into their discretionary spending."
But more than gas prices hurt Wal-Mart, analysts said.
After a fine February, the company hired extra employees. "Their labor
costs were too high," Ms. Weinswig said. "That's what singed them in
April."
Same-store sales rose 3.1 percent at Wal-Mart in April;
the company had estimated an increase of 3 percent to 5 percent.
Some analysts have said Wal-Mart should expand its core
customer base. "They need to get committed to the middle-income customer,"
said Gary Balter, a retail analyst for UBS, who said the effort may "mean
some near-term sacrifice."
Such sacrifice might entail opening up the floor layout
and giving the clothes more room to breathe - a change that might mean
selling fewer of them. Wal-Mart executives, in recent interviews, conceded
that their store layouts were often too crowded. One of their hottest
clothing lines, George, an English brand the company got when it acquired
the European supermarket chain Asda, often looks "like a rummage sale,"
Ms. Weinswig said.
But Ms. Weinswig said Wal-Mart had some of the right
apparel.
"You go to Asda in the U.K., and the stuff looks very H
& M-esque," she said. "But when they bring it over here, they dumb it
down. The product over there is fantastic. The product exists. They just
need to bring it over - and merchandise it correctly."
Wal-Mart is also trying to change its image of selling
dowdy linens and housewares, and this month had notable successes with its
towels and sheets. Yesterday, Mr. Heires said some items of clothing had
exceeded the company's sales expectations, although most analysts say they
think Wal-Mart is doing a better job of reinventing men's clothing than
women's. The George line "did quite well, along with polo tops and Capri
pants," said Mr. Heires.
Target, on the other hand, is credited with having
recruited the designer Isaac Mizrahi. Wal-Mart executives refuse to be
drawn into a debate over whether they should find their own name-brand
designer, but the trend continues to grow. Yesterday, H & M, the Swedish
discount clothier, announced it had hired Stella McCartney, a low-volume
but high-visibility ready-to-wear designer, to create some new fashions.
"Target's top-line performance was impressive," said Ms.
Weinswig. "Their fastest growth was in food, pharmacy and consumables -
paper goods and things. They are the most sophisticated - no, maybe the
second-best after J. C. Penney - in global sourcing."
That means more bad news for Wal-Mart, which is known
for food and basics like paper towels.
But Mr. Heires said that did not mean Target was beating
Wal-Mart on its home turf.
"Just because they do well in a category doesn't mean
we've done poorly," he said.
Lawmakers Request Wage Data
By Reuters
Congressional Democrats said yesterday that they had
asked Wal-Mart Stores for its wage data so they could examine claims of
pay and promotion bias against women.
In a letter sent yesterday afternoon to Wal-Mart,
lawmakers said the company paid its female hourly workers 40 cents less an
hour than men, and paid female managers nearly $5,000 less a year than
their male counterparts. The letter was written by Representative Rosa
DeLauro, Democrat of Connecticut, and signed by 50 of her colleagues.
The statistics are based on an analysis of the company's
payroll record by Richard Drogin, a professor emeritus at the University
of California, Berkeley, the letter said.
Wal-Mart, which is based in Bentonville, Ark., dismissed
the letter. "We do not believe the letter is factually correct," said Ray
Bracy, a Wal-Mart vice president. "This is motivated by unions who have
declared Wal-Mart public enemy No. 1."
Mr. Bracy said he was not sure the company could comply
with the request for the wage data because of pending litigation. Wal-Mart
faces a class-action lawsuit accusing it of discrimination against women.
Martha
Stewart Living Names Merchandising President
Dow Jones Online
May 11, 2005
NEW YORK -- Martha Stewart Living Omnimedia Inc. (MSO)
said Wednesday it named Robin Marino as president of merchandising.
Marino most recently was president and chief operating
officer of accessories and home products designer Kate Spade Inc.
New York-based Martha Stewart Living's merchandising
programs include its Everyday product line at Kmart and Sears Canada
stores, and its Signature furniture and paint.
Marino also has been senior vice president of
accessories at Burberry Ltd.; president of Donna Karan Collection for
Donna Karan International; and president of Polo Ralph Lauren Handbags and
Luggage.
Martha Stewart Living has four business segments:
publishing, television, merchandising and Internet/direct commerce.
Sears can't drop Footstar shoes
Tribune staff, wire
reports – Chicago Tribune
May 12, 2005
A federal bankruptcy judge in White Plains, N.Y., ruled
Wednesday that Footstar Corp. may continue to sell its products at Sears
Holdings Corp.'s Kmart stores, where it makes 95 percent of its revenue.
Sears had asked the judge to release it from a contract. U.S. Bankruptcy
Judge Adlai Hardin denied the request, ruling that dropping the contract
would frustrate the shoe company's attempt to exit bankruptcy.
Hardin will hold a hearing on alleged breaches of the
contract by Footstar in July, said Jay Indyke, a lawyer representing
Footstar's unsecured creditors committee. A Sears spokesman didn't return
calls seeking comment.
Also Wednesday, Sears Roebuck Acceptance Corp., a wholly
owned subsidiary of Sears Holdings, said it has filed an application to
voluntarily delist its debt securities on the New York Stock Exchange and
deregister them with the Securities and Exchange Commission.
Retirement
Planning -- Is Your Retirement Money Safe?
By Jeff D. Opdyke and
Kelly Greene – Staff Reporters – The Wall Street Journal
May 12, 2005
UAL's Move to Default Highlights
Range of Risks and Protections
For Different Types of Plans
The largest pension-plan default in U.S. corporate
history raises a question of paramount importance to anyone with a
retirement plan: Could this happen to me?
The short answer is yes. But the level of risk -- and
what you can do to protect yourself -- depends on what type of retirement
plan your company offers.
There are two major types of plans. One type is the
traditional pension, which is also known as a defined-benefit plan because
it promises a fixed benefit when an employee retires. The other, more
common variety is a defined-contribution plan such as a 401(k), in which
employees or employers (or both) make contributions but which offers no
guaranteed payout.
It's with traditional pension plans, like the ones that
United Airlines parent UAL Corp. wants to default on, where most of the
problems occur. Companies terminate pension plans all the time, either
because of a bankruptcy, a merger or a conversion into a 401(k)-type
system. The problem is that pension money doesn't technically belong to an
employee until it's paid out, and thus is sometimes vulnerable to the
company's fortunes. Benefits are guaranteed by the Pension Benefit
Guaranty Corp., a quasi-government agency that takes over failed pensions.
Currently, it protects only up to $45,614 a year.
By contrast, defined-contribution accounts like 401(k)s
legally belong to the employee. That means that you're generally protected
even if your employer goes bankrupt. But there have been cases of fraud.
In some situations, for example, an employer collects 401(k) contributions
from workers' paychecks, then fails to deposit the money in the workers'
investment accounts. There were 1,269 cases of missing 401(k) money
reported last year, a sharp increase from the 34 cases reported in 1995.
United Airlines employees picket outside the company's
bankruptcy hearing yesterday.
There isn't much formal protection against 401(k) fraud,
and recovering misused funds is extremely difficult. The federal
government requires annual audits for retirement plans with at least 100
workers. But that leaves out most 401(k)s and other defined-contribution
plans. According to the Labor Department's most recent statistics, 627,905
such plans covered fewer than 100 workers in 1999. Only 55,195 such plans
fell under the rule that requires audits.
What follows is a look at the risks inherent in the main
types of retirement-savings plans, how you can protect yourself and the
safety nets that are in place in case of problems.
Defined-Benefit Plans
What They Are:
Traditional pensions that promise a guaranteed monthly payout at
retirement. They are common at industrial and heavily unionized companies
such as autos and airlines.
The Risks: That the
company you work for files for bankruptcy-court protection, and has
underfunded its plan so that it doesn't have enough to cover promised
benefits
In that stuation, you could see your benefits at
retirement shrink. But that's only if you're a highly paid worker.
Lower-level employees are usually fully protected, and top executives
often have separate pension plans that are protected even in the event of
bankruptcy.
How to Protect Yourself:
Though the risk your company would default on its pension obligations
is small, it's wise to stay on top of your pension plan, particularly if
you're nearing retirement
AFTER A PENSION PLAN TERMINATES
This week, a judge gave UAL permission to terminate its
pension plans, and now an employer-funded entity called the Pension
Benefit Guaranty Corporation (PBGC) will take over the pension plans and
administer the payments. PBGC rules may limit what the employees are
likely to get: The PBGC generally caps the monthly payment it will make
to workers. UAL employees who have worked long enough to earn big payouts
-- and are retiring this year at age 65 -- now won't get more than
$3,801.14 per month in most cases.
Pilots are required to retire at age 60, and the PBGC
does not offer the full $3,801 monthly payout for people who don't work
until 65. A pilot retiring this year will probably be limited to a maximum
of $2,470.74 per month.
The less time junior employees have worked, the
smaller their payments will be once they retire, since they won't be
getting credit for any additional years of service now. They'll also lose
the option of retiring early with larger pension payments. UAL has a
401(k) plan, and there are plans afoot for the company to make additional
contributions to workers' retirement accounts now that the PBGC is taking
over the pension plans.
People who retired more than three years ago and were
getting large pension payments may still, in the future, be entitled to
more than the $3,801 that's usually the monthly cap for PBGC-administered
plans. Whether those people get more money than that will depend on how
much money the company turns over to the PBGC. The PBGC will then use it
to purchase an annuity that will pay for the extra payments to those
workers.
Every year, pension plans distribute to each participant
a summary of the assets and liabilities. Those assets are held in trust
and are generally out of reach of the company. Still, if you work for a
company with shaky finances, or one that's in an industry being buffeted
by change -- such as autos, steel or airlines -- you want to pay special
attention to how much the liabilities outweigh the assets.
If you're near retirement and expect your benefits will
exceed the PBGC maximum, and if you have financial worries about your
employer, one option at some companies is to take a lump-sum payout -- and
then buy an annuity that will pay you a monthly sum. You may get smaller
monthly payments this way, but it protects you if your former company
defaults
Last year, companies terminated 1,381 defined-benefit
plans. The vast majority were fully funded at the end, meaning workers
ultimately will receive 100% of their accrued benefits. Yet 192 were taken
over by the PBGC.
The Safety Net: Your
level of protection depends on the circumstances in which your company
defaults on its pension
In a so-called standard termination -- which accounts
for the bulk of all pension-plan deaths -- a company has enough to cover
the full benefits promised to workers. In this case, the company purchases
for every worker an annuity that guarantees to pay the same monthly
benefit an employee would have received if the pension plan had not died.
In essence, workers lose nothing.
In a "distress termination" -- like the UAL situation --
the PBGC steps in. Plans become distressed when companies fall into
bankruptcy and the plan is so underfunded that it isn't likely to survive
on its own.
At that point, no more benefits accrue. Thus, wherever
you are in your career, your benefits are calculated at that point.
Younger workers with minimal time on the job will earn a smaller benefit
when they hit 65. Higher-paid, longer-tenured employees will receive the
most -- though often much less than they were originally promised by their
employer.
The PBGC limits pension payments to a current maximum of
$45,614 a year, or $3,801 a month. But if your benefit check is smaller
than that, you'll get 100% of what you're due at retirement.
In most cases, retirees already earning a check and who
retired at age 65 are likely to continue receiving 100% of their promised
benefits if their former employer defaults on the pension plan. However,
workers who retired early with a generous payout package are more likely
to see their paychecks cut back, since the PBGC reduces the payout if you
retire before age 65.
Defined-Contribution Plans
What They Are:
401(k)s, 403(b)s, money purchase plans, profit-sharing plans
The Risks: With
defined-contribution plans, the most common risk is that the worker won't
do a good job managing his or her own investments, since many plans are
self-directed.
But theft is also an increasing problem, and it can go
undetected for years since the overwhelming majority of plans have no
audit requirements. In many cases, crooked employers simply collect 401(k)
contributions from their workers' paychecks but never deposit the money
into the workers' investment accounts.
Meanwhile, the resources devoted to regulation haven't
kept up with 401(k) contributions: Workers doubled their investments in
such plans to $1.8 trillion from 1995 to 2003, but the number of federal
investigators into 401(k) irregularities rose 38% from 1995 through the
current fiscal year.
Ann Combs, assistant secretary of the Employee Benefits
Security Administration, says the agency has "a strong track record" of
working with the Justice Department and other federal investigators of
criminal activity "to make sure retirement assets are safe and those who
misuse them are prosecuted."
How To Protect Yourself:
Make sure you're getting all your defined-contribution statements, and
make sure the amount deducted from your paycheck matches the amount
deposited into your 401(k) account. (There's a list of warning signs that
pension contributions are being misused at www.dol.gov/ebsa <http://www.dol.gov/ebsa>
1.) Another option is to roll your money into an individual retirement
account when you retire so you're no longer in jeopardy if something goes
awry with a company plan.
The Safety Net:
There's no way to recoup investment losses in a 401(k), and recovering
retirement funds that are misused or diverted can be difficult as well.
The Employee Benefits Security Administration last year recovered $31.6
million in 401(k) assets, but the agency says it can't calculate what
portion of the lost assets that represents because restitution can take
several years.
Last month, the Labor Department beefed up its
"Voluntary Fiduciary Correction Program," which is designed to help
employers, particularly small businesses, correct 401(k) withholding
violations. It also proposed new rules in March to help get workers' and
retirees' savings released from 401(k) plans that companies have abandoned
-- an estimated $868 million in assets each year covering 33,000 workers.
Deferred Compensation
About 70% of companies offer deferred-compensation
plans, which include everything from salary to stock options, allowing
managers, directors and others to shield income from taxes until they
retire or leave the company. The chief risk to these programs is that the
company may file for bankruptcy.
In that case, you're an unsecured creditor. "You're
having to hope and pray that the company is going to be around long enough
to pay you off," says Bruce Wynn, an Atlanta lawyer. If your employer is
acquired, your deferred compensation is treated like a contract -- but it
still could be a negotiating chip.
There's another risk as well. A new tax law makes it
tougher for executives to take an early payout from their deferred
compensation. Executives who fail to meet new requirements would have to
pay tax immediately, along with interest and a 20% penalty.
Hold on to Sears Holdings?
USA Today
May 11, 2005
Q: I own shares of Sears, which have since turned into
Sears Holdings (SHLD) . Is the stock worth the price?
A: If you've owned shares of Sears over the past year, you should consider
yourself very lucky. Shares of the company have more than tripled over the
past year, which certainly trounces the 2.4% gain by the Standard & Poor's
500 index during that same time.
But the incredible run of Sears shares is making
shareholders understandably nervous. After all, many of the earnings gains
were short-term in nature, ranging from asset sales to cost-cutting and
restructuring benefits. Eventually, the stock will trade based on the
ongoing business metrics of the company.
And here, the company continues to face some difficult
odds. Wal-Mart (WMT) remains a fierce leader in the price war, finding
ways to use its efficient supply chain to drive out costs and lower
prices. Meanwhile, Target (TGT) is the product selection leader, offering
unique offerings that allow it to be a favorite with young buyers looking
for trendy items along with middle-aged shoppers just looking for a good
price on toilet paper.
All of these things combined make it difficult to advise
investors to buy the stock. Much of the easy gains are over now, and it'll
be up to the management to integrate the Kmart acquisition and find
growth. Keep in mind this company's revenue has fallen every year of the
past five. So to buy this stock, you must not only think the management
can curb the sales declines but also find growth.
To help us get our arms around the company's valuation,
we can complete an NAIC Stock Selection Guide on the stock. In the first
step, we need to estimate the company's five-year future earnings and
revenue growth. Even though the company's revenue has been falling, I'll
give Sears the benefit of the doubt and accept the analyst estimate.
Analysts are currently expected the company to grow by 10.5% a year over
the next five years, says Reuters Estimates.
The next complicating factor is that the company has
lost money over the past four out of five years. That gives us just one
year of earnings to work with. Using that year of earnings, puts the
company in the hold range (between the prices of $83.20 to $140.10).
That hold rating reconciles with the "hold" rating from
Standard & Poor's stock research. S&P rates the stock a hold, in part,
because it will take some time before the Sears and Kmart businesses are
integrated. There are also questions about the future of consumer
discretionary spending, which puts further pressure on the stock.
If you already own the stock, there's probably little
harm in keeping it as long as the stock holds up. But, based on a study of
the company's valuation, there aren't any compelling reasons to buy,
either.
Matt Krantz is a financial markets reporter at USA
TODAY. He answers a different reader question every weekday in his Ask
Matt column at money.usatoday.com
Morgan Stanley Says
Earnings May Falter
By Landon Thomas,
Jr. - New York Times
May 11, 2005
Philip J. Purcell defended his strategy for integrating
the retail and institutional divisions of Morgan Stanley yesterday, but
warned that his firm faced deteriorating market conditions that could put
a dent in future earnings.
For a chief executive who has been labeled imperious by
his harshest critics, Mr. Purcell was candid and self-effacing in his
remarks yesterday at an analyst conference. He acknowledged the primary
complaint of dissident retired Morgan Stanley executives: that the firm is
undervalued and has trailed its peers in recent years.
"We have taken that criticism to heart," he said at a
packed conference that included some of Morgan Stanley's largest
investors. "We have always had a premium return on equity."
And he addressed head-on the issue of his lack of
popularity within parts of the firm, saying morale problems still existed
in the investment banking and equity divisions.
"We worry about equity quite a bit because we lost some
key leadership," he said. While warning of future departures - on average
100 managing directors leave the firm each year, Mr. Purcell said - morale
in the rest of the firm is good, he said.
The firm has taken measures to build bridges to its
investment banking division, including naming as vice chairman David W.
Heleniak, a mergers and acquisition expert with the law firm of Sherman &
Sterling. Yesterday, the firm disclosed that Mr. Heleniak would be paid at
least $20 million for the rest of the year in salary, stock and bonus.
(Last year, Mr. Purcell was paid $22 million in compensation.)
Institutional investors have been some of Mr. Purcell's
toughest critics, so his blunt recognition of the firm's problem areas -
and his ideas for fixing them - should come as no surprise. But, in so
doing, he has also put increased pressure on the dissident executives to
either present a detailed plan of their own or to cease their bruising
campaign for his resignation. A spokesman for the retired executives would
not comment on their future plans.
While offering a series of prescriptions for integrating
the firm's retail and institutional businesses, Mr. Purcell gave no hint
of any move he might take to improve the stock's performance, nor did he
offer any quick fixes, like a stock purchase plan. "I think the lack of a
buyback is puzzling," said David Trone, a securities analyst with Fox-Pitt
Kelton.
Mr. Purcell said that many of the firm's core businesses
were seeing double-digit declines this quarter. He also cautioned
investors that the planned spinoff of the Discover credit card unit would
have an impact on earnings. How the stock performs in the months leading
up to next year's proxy season will be a crucial gauge of the strength of
Mr. Purcell's position and his ability to withstand a renewed assault from
the dissident executives.
For Mr. Purcell and his new co-presidents, Stephen S.
Crawford and Zoe Cruz, it was their first public appearance since the
battle over his leadership burst into the open six weeks ago. While Mr.
Crawford focused more on the firm's retail business and Ms. Cruz spent her
time on institutional matters, they said in response to an investor
question that they would not have separate divisions reporting to them.
While co-president arrangements are to be found on Wall Street, such dual
positions without defined divisions of responsibility are rare.
Although the three executives talked up the firm's
achievements, they did not sugarcoat areas of underperformance - like
retail brokerage - that have been the focus of the dissident executives.
Indeed, Ms. Cruz, in her presentation, argued that
performance could be improved across the board, especially in trading and
banking operations, which were the core of Morgan Stanley before its 1997
merger with Dean Witter. Mr. Purcell's critics have said this business,
the institutional securities group, should be separated from the
retail-oriented Dean Witter divisions.
"I don't buy the concept that I.S.G. is the crown
jewel," Ms. Cruz said in a thinly veiled jab at the dissidents. "We are
punching below our weight in all businesses."
Ms. Cruz, who used to run the fixed-income division,
said that to close the gap with its more aggressive trading peers, the
firm needed to adopt a less risk-averse approach to trading, and she
presented a chart showing how the firm's risk profile had increased over
the last years.
In a separate internal announcement yesterday, Mr.
Crawford and Ms. Cruz said that the retail mortgage division of Discover -
Morgan Stanley Dean Witter Corp - would be merged into the firm's
fixed-income mortgage securitization unit. The business developed more
than $4.5 billion in mortgages last year.
The move serves two purposes: it gives retail brokers a
new capacity to sell securitized mortgages and other risk-management
products to high net worth clients and it gives the fixed-income unit an
ability to originate its own mortgages.
"This business combination is an excellent example of
leveraging the full potential of our franchise," said Ms. Cruz and Mr.
Crawford in a memo to employees.
On the topic of corporate governance, Mr. Purcell said
that the board's search for two new independent directors was under way
and that the seats would be filled by September, if not sooner.
Mr. Purcell admitted that the uproar over the firm's
future had been a distraction but said that he felt confident that that
his new team would succeed - though he recognized that it would be his
actions more than his pronouncements that would remain the focus of
attention.
"The proof is in the doing," he said. "We are the first
to admit that media frenzy has been disruptive. The sooner we can move on,
the better."
Stewart's strategy: New lines
By Aimee Picchi –
Bloomberg News – Arkansas Democrat-Gazette
May 11, 2005
Martha Stewart Living Omnimedia Inc., which has lost
money for two years during its founder’s legal woes, is investing in new
products as it seeks to turn a profit, said Chief Executive Susan Lyne.
"The best use of our cash is to invest in new products to get to
profitability in the shortest amount of time," Lyne said Tuesday at the
company’s annual meeting. She didn’t predict when the company would post a
profit.
Advertisers may return as the company develops new
products such as a daily TV talk show featuring Martha Stewart, she said.
Martha Stewart Living will name a new president of merchandising today and
is discussing opportunities with Sears Holdings Corp., she said. Sears
Holdings was created when Kmart Holding Corp., which sells Martha
Stewart-brand bath linens and other housewares, acquired the department
store chain.
Lyne didn’t disclose details of the talks. Kmart sold
more than $1 billion worth of Martha Stewart products last year, she said.
New York-based Martha Stewart Living is expected to lose
59 cents a share this year and report a profit of 13 cents a share in
2006, the average estimates of four analysts surveyed by Thomson
Financial.
Martha Stewart Living is also considering a weekend show
for men on its Sirius Satellite Radio Inc. channel, Lyne said. "If they
would like to learn more and be useful, then it would be there," she said.
The company paid $6 million in August for two health
publications, Body & Soul magazine and Dr. Andrew Weil’s Self Healing
newsletter. "The hard times are pretty much over," Martha Stewart, 63,
said at the meeting.
Stewart said she’s filming a version of the reality
series The Apprentice, which will air on NBC in September. She is allowed
to work outside her home 48 hours a week while she serves five months of
house arrest, which began when she was released from prison in March.
Shares of Martha Stewart Living rose 9 cents to close at
$25.20 Tuesday on the New York Stock Exchange. They have lost 13 percent
this year.
Sears
to sell Calif. hardware chain it bought 9 years ago
By Sandra Guy – Business Reporter
– Chicago Sun-Times
May 10, 2005
The big Sears sell-off has just begun.
Sears' announcement Monday that it will sell or spin off
its Orchard Supply hardware and garden stores surprised no one.
After all, Sears Chairman Edward S. Lampert has squeezed
savings out of Kmart by slashing costs and selling off valuable real
estate.
Analysts had speculated since last year that Kmart's
takeover of Sears would result in numerous spinoffs, including that of the
Orchard Supply chain.
The Orchard Supply chain operates 82 stores in
California. The chain offers delivery and product-repair services through
Sears' Home Services division. Of the 82 stores, 13 sell appliances unique
to Sears. The chain is based in San Jose, Calif., and employs 6,000.
A new twist is that Orchard Supply could become a publicly traded company
through an initial public offering, and Sears could keep an ownership
stake in it.
Yet possible buyers include Lowe's and Home Depot
home-improvement retailers, as well as private-equity firms looking to
make a profit from a future IPO, analysts said Monday.
Lowe's and Home Depot declined comment, but both are
rapidly expanding. Lowe's has its eye on the western United States, as
evidenced by its purchase of the Eagle hardware and garden chain in
Seattle six years ago.
Analyst Gary Balter of UBS Securities put Orchard
Supply's worth at $300 million, about one-third less than what Sears paid
for it nine years ago under then-CEO Arthur Martinez. Sears' $415 million
purchase of Orchard Supply was part of its plan to expand in small,
off-the-mall formats such as hardware, furniture, auto services,
appliances and electronics stores.
A Sears spokesman refused to disclose sales at the
hardware chain. Its sales totaled $532 before its takeover by Sears, when
it had 60 stores.
Sears CEO Alan Lacy has dismantled some of Martinez'
strategy. Sears sold its NTB tire and battery stores nearly two years ago
to the country's largest independent tire retailer for $260 million.
Lacy said the merged Kmart-Sears is focusing on its
"core" business of retail stores. The core business now includes
off-the-mall, convenience-store-like formats called Sears Grand and Sears
Essentials.
Sears has hired Citigroup Global Markets and Lehman
Brothers as advisers on the sale or spinoff.
Analysts speculate that Lampert will make another profit
play with Sears' Auto Centers, especially because Lampert holds a stake in
auto-parts retailer AutoZone.
"This is the first of more to come," said Morningstar
analyst Kim Picciola.
Lampert engineered Kmart's takeover of Sears, and aims
to cut costs by as much as $300 million. The cost cuts already include
laying off large numbers of Sears employees at its Hoffman Estates
headquarters, and restricting to a very few the employees eligible for
stock options.
No healthcare for you!
By Michelle Andrews, MONEY
Magazine
May 9, 2005
Companies are slashing
retiree medical benefits.
Here's what you can do about it.
NEW YORK - When Al Rodgers retired in 2001 after
32 years with Lucent Technologies, he didn't worry about how he would pay
for medical care. Under the company's retiree-benefits plan, Rodgers
thought he could count on subsidized health insurance for himself and his
wife, plus dental and drug coverage.
But that was then, this is now. Last year, Lucent
eliminated his subsidized dental benefits; this year the company dropped
subsidized health insurance for dependents for a portion of its former
management that included Rodgers. His drug co-payments have also risen
sharply. As a result, he is now shelling out almost $350 a month more for
less coverage.
To help pay their health-care bills, the couple has cut
back on entertainment such as movie nights and restaurant meals. The
resulting drop in their expenses, combined with their earnings from
part-time jobs at a local weekly newspaper, enables them to just about
cover the additional costs.
But Rodgers, 61, a former public relations specialist at
Lucent's Oklahoma City manufacturing facility, says he feels shortchanged.
He notes bitterly, "This is a real financial hardship."
Unfortunately, there are no easy solutions for retirees
like Rodgers. But there are strategies you can use to better plan for the
medical expenses you'll face when you leave the work force, and to find
the coverage you need if you're already retired.
Planning ahead is critical. Just over a third of
companies with 200 or more workers now offer retirees some form of health
benefits, down from 66 percent in 1988, according to the Kaiser Family
Foundation.
Meanwhile, employers that still offer retiree health
benefits are scaling back across the board and sharply raising premiums
and co-payments on the remaining coverage.
As a result, retirees, already adjusting to life on a
lower income, are faced with an increasingly heavy financial burden,
especially in the years before they become eligible for Medicare.
The Employee Benefits Research Institute (EBRI) projects
that, if recent trends continue, a typical retiree who is 65 now and lives
to be 90 will need to save nearly $300,000 to pay his premiums (including
Medicare) as well as his out-of-pocket medical bills, if he has coverage
from a former employer. That same retiree will need to save around
$180,000 if he instead relies on Medigap insurance to supplement Medicare.
Eric Tashlein, a financial planner in Milford, Conn.,
says, "Health-care expenses are easily the largest underestimated cost in
retirement."
To make sure you don't get caught short, take the
following steps now.
Set up a medical fund
If you are still several years away from retirement, you
can create your own medical reserve fund by opening a separate savings
account that you mentally designate for health-care costs.
"If you create an isolated investment fund, similar to a
college fund, you're less likely to touch it for other, nonmedical
purposes," says Stephen Lovell, a certified financial planner in Walnut
Creek, Calif.
A health savings account (HSA) can also be a good way to
build a reserve fund for medical expenses, especially if you're in good
health. Offered now by a small but growing number of employers, insurers
and financial institutions, these accounts, which must be used in
conjunction with a high-deductible health insurance plan, are like an IRA
for health care, only better.
Like an IRA, an HSA allows for tax-free contributions
and investment earnings. But unlike with a regular IRA, your withdrawals
are tax-free as well, as long as you spend the money on medical care.
Depending on your insurance deductible, you can set aside as much as
$2,650 in an HSA in 2005, plus an additional $600 if you're 55 or over.
You can tap your account at any time, without penalty, to pay most medical
bills.
But HSAs are not a silver bullet, especially if you are
close to retirement. According to estimates by EBRI, someone who makes the
maximum annual contribution starting at age 55 will be able to save only
about $44,000 by the time he reaches 65 -- substantially less than the
health-care expenses he'll likely face.
Stay on the payroll
Your employer's health coverage is probably more
comprehensive and less expensive than any plan you're likely to find in
the individual insurance market, says Bonnie Burns, a policy specialist
with California Health Advocates, a consumer group.
So if the decision about when to retire is in your
control, consider scaling back your hours and responsibilities to keep
your coverage, rather than quitting altogether. (Typically, you have to
work at least 20 hours a week to qualify for benefits.)
Line up alternative coverage
If you're thinking of retiring before you're eligible
for Medicare, try to get health insurance before you leave.
It may not be easy: As an individual, you'll have to go
through medical underwriting, and plans can and do reject applicants for
health conditions ranging from acne to cancer, says Karen Pollitz, project
director for Georgetown University's Health Policy Institute. Premiums
vary widely, depending on your health, the deductible you choose and where
you live.
If you're searching for a suitable policy, you can go to
the Web site of the National Association of Health Underwriters to find an
insurance broker in your area.
If individual insurance isn't an option, you may be able
to continue coverage through your employer's health plan (for up to 18
months after you retire) under the federal law
known as COBRA.
The coverage isn't cheap. Under COBRA, you must pay the
entire premium, plus a small administrative fee. Once COBRA coverage ends,
though, you'll be automatically eligible for an individual policy under
another federal law known as HIPAA, which guarantees access to health
insurance for individuals who leave job-based coverage. But you must
exhaust your COBRA benefits in order to qualify.
Unfortunately, a HIPAA policy, while guaranteed, is not
necessarily comprehensive or affordable, says Pollitz.
Go back to work
If you're already retired and you don't have health
benefits from your former employer, your best bet may be to seek a
part-time job that offers coverage.
If your retirement was voluntary, your former employer
may be willing to put you back on the payroll in a less demanding
position. Or you might seek a job that's related to your old one but is
less taxing. Or consider a service industry job.
IBM retiree Chet Balon, 59, took a four-day-a-week sales
job at Barnes & Noble, which qualifies him for the company's health plan
at $12 a week. Sure, these jobs may not pay very well, but that's not the
point.
Says Clark Randall, a certified financial
planner in Dallas, "Forget about how much you earn; if you can just get
benefits it's worth it."
Sears
Considers Separating Orchard Supply Hardware
Dow Jones Newswires
May 9, 2005
HOFFMAN ESTATES, Ill. -- Sears Holdings Corp. (SHLD)
intends to pursue alternatives for the separation of its Orchard Supply
Hardware business, which could include a sale of the business or initial
public offering.
Orchard Supply Hardware is a chain of 82 hardware and
garden retail stores in California.
"Sears Holdings is focusing its management attention and
capital on the opportunities in our core business presented by the merger
of Sears and Kmart," Sears Chief Executive Alan J. Lacy said in a press
release Monday.
"While we continue to believe in Orchard's business
model and growth strategy, we are pursuing alternatives to provide Orchard
Supply Hardware with the capital to grow its store base, while at the same
time providing appropriate value to Sears Holdings," Lacy said.
Citigroup Global Markets Inc. and Lehman Brothers Inc.
are acting as financial advisers to Sears.
Ever since Troy, Mich.-based Kmart Holding bought Sears
Roebuck in a $12.3 billion acquisition, Wall Street has speculated about
Sears potentially selling another portion of its holdings, Lands' End. An
April 8 Dow Jones Newswires report said although Sears Chairman Edward
Lampert recently denied that the company planned to sell its Lands' End
catalogue business, some in the retail industry believe that a spinoff of
Lands' End as a standalone wouldn't come as a surprise.
Also in April, Sears said it planned a mass layoff of at
least 500 workers at its headquarters, according to an Associated Press
report.
Shares of Sears Holding were trading at $145.30, up 60
cents, or 0.4%, in Nasdaq composite trading.
Sears says may sell Orchard hardware
business
Reuters
May 9, 2005
CHICAGO, May 9 (Reuters) - Sears Holdings Corp. (SHLD.O:
Quote , Profile on Monday said it was considering selling or spinning off
its Orchard Supply Hardware chain of 82 hardware and garden retail stores
in California.
The retailer said it hired Citigroup Global Markets Inc.
as financial advisers, and was considering "strategic alternatives"
including a sale or initial public offering.
In a statement, Sears said it was focusing on "our core
business presented by the merger of Sears and Kmart." The $12.3 billion
Sears-Kmart deal, which closed in March, created the third-largest U.S.
retailer with about $55 billion in annual revenues.
Sears spokesman Ted McDougal said the company would not
break out sales for its Orchard Hardware business.
Familiar Mr. Fix-its tackle companies in
trouble
USA Today
May 9, 2005
Reclusive billionaire buys big stake in a Big Three
automaker. Deep-pocketed financier who made his reputation as a corporate
raider wages proxy fight. Scion of a liquor empire family captains
megabucks deal ˜ in entertainment. Ambitious investor builds business
empire from two troubled companies.
If today's business news seem familiar, it should. In a
year that could set records for mergers, acquisitions and restructurings,
some players from the '80s are back in the news, and newcomers are
adopting strategies popular in the M&A wave 20 years ago. Four who play
leading roles:
Fabled financier Kirk Kerkorian might be nearly 90 years
old, but that apparently hasn't slowed his business chops or hurt his
clout on Wall Street.
Many thought they would never see General Motors, one of
the world's largest corporations, ever put into play as a potential
takeover target.
That is, until news broke last week that Kerkorian's
Tracinda investment firm is proposing to snap up another 5% of the
automaker for nearly $900 million, potentially making Tracinda the
third-largest shareholder in GM, with a 9% ownership stake. Although
described as a passive investment, Kerkorian's move revived memories of
his history a decade ago with Chrysler ˜ when he made an unsuccessful
takeover bid ˜ before Daimler bought the company.
"He's achieved his first objective right out of the
gate: that it's economically feasible to buy GM," says Chas Chandler, a
mergers expert and managing partner at Amherst Partners. "Now, it's making
everybody in the investment community think about what could be done."
Kerkorian, 87, is ranked No. 41 on Forbes' "World's
Richest People" list, with a net worth of $9 billion.
The tennis-playing tycoon made his fortune in deals
involving Metro-Goldwyn-Mayer, MGM Mirage Resorts and other investments.
Last year, MGM Mirage bought Mandalay Resort Group for $8 billion, making
it the world's No. 1 gaming company and Kerkorian the king of the Las
Vegas Strip.
Kerkorian's latest business offensive comes as GM
wrestles with a $1 billion first-quarter loss, weak U.S. light-truck sales
and union battles.
His next move is unclear. He could pressure board
directors to oust top GM management. He could launch a takeover attempt.
Or he could wait and see whether GM executives revamp the company, cut
costs and sell the automaker's finance arm, General Motors Acceptance
Corporation (GMAC).
"This is what keeps him alive and energetic," Chandler
says. "He's not going to let age stop him."
Carl Icahn
Carl Icahn, 69, the maverick corporate raider whose bid
to win three seats on the board of Blockbuster will be decided by
shareholders Wednesday, has been down this road before.
Icahn owns close to 10% of Blockbuster stock and has nominated himself and
two others to the company's board. While not contesting some of current
management's initiatives to grow the business in a declining movie-rental
market, Icahn is bent on holding the company's top executives responsible
for the success or failure of their strategy.
Shareholder advocate Nell Minow criticizes Icahn for
putting his interests ahead of other shareholders' but says he's picked a
good target. Her research group, The Corporate Library, gives Blockbuster
an "F" for overpaying its executives. But she's not convinced Icahn wants
to improve its operations.
"One of Carl Icahn's weaknesses is that he consistently
nominates himself and clones of himself to boards rather than people with
knowledge of the industry," she says.
For almost 30 years, Icahn has demonstrated an expert
eye in identifying undervalued companies. In 1987, he acquired a 12% stake
in Texaco after the oil company had been hit with an $11 billion judgment,
figuring that the number would be reduced. He was right: He helped broker
a deal reducing the sum to a $3 billion payout and eventually sold his
stake and pocketed a $700 million profit.
In the 1990s, Icahn urged RJR Nabisco to split its food
business from its tobacco interests. When the company finally did it,
Icahn made more than $800 million in profit by selling his stock.
More recently, Icahn has been battling for control of
generic-drug manufacturer Mylan Laboratories and Kerr-McGee, the oil and
gas conglomerate.
"He finds opportunities, where management has a cluster
of assets, to use those assets," says Mario Gabelli of Gabelli Asset
Management. "He's opportunistic, a savvy user of cash flow."
Edgar Bronfman Jr.
Redemption is particularly sweet for Edgar Bronfman Jr.,
chief executive of Warner Music, who led the investor group that bought
the music firm for $2.6 billion from Time Warner in 2003.
The third-generation Seagram heir has been trying to
live down his ill-fated decision to sell the family company, including
Universal's entertainment and music properties, to Vivendi for $34 billion
in stock in 2000. The move looked like a Hollywood disaster movie as
Vivendi shares imploded, taking billions of the Canadian family's fortune
with them.
Now as Bronfman nears his 50th birthday on May 16, the
media mogul is riding high again. The onetime songwriter for Celine Dion
and Dionne Warwick sits atop the world's fourth-largest music group. In
the 18 months since Bronfman and private equity groups including Thomas H.
Lee Partners beat out rival EMI for Warner, he's doubled the money of his
Wall Street backers and wrung $250 million in annual cost savings out of
the operation.
The big payoff comes this week with a scheduled initial
public offering worth $750 million that would make Warner the only
publicly traded, stand-alone music company in the USA.
Bronfman and other executives declined to comment
because of the "quiet period" surrounding the IPO. "He's showing he can do
a good business deal," says Hilary Rosen, former chairman of the Recording
Industry Association of America. "Now the next step is to prove he's not
just in it for the money; that he's a manager and a music guy."
That's exactly what Bronfman and his partners are doing,
charge some artists on the Warner roster. Kid Rock issued a statement that
he wants to switch to a label more interested in "music than IPOs."
Inside Warner Music, the public attacks are viewed as
publicity stunts. On Wall Street, analysts say they're helping, not
hurting, Bronfman's image as a guy willing to stand up to outrageous
contract demands.
Edward Lampert
Edward Lampert, the 42-year-old financier behind ESL
Investments, personifies the recent rise of private equity investors. He's
leading the nation's No. 3 retailer, Sears Holdings, after buying a
controlling interest in Kmart last year and then buying Sears.
Bankrolled by minimum $10 million investments from
business celebrities such as DreamWorks SKG co-founder David Geffen, Dell
founder Michael Dell and Four Partners' Thomas Tisch, ESL seeks outsized
returns by buying big stakes in distressed companies and helping them
boost their profits and cash flow.
Since launching ESL in 1988, Lampert has built one of
the leading private equity firms in the USA. Before the Kmart and Sears
deals, he was best known for his work buying big stakes in retailers such
as AutoZone, AutoNation and Payless ShoeSource.
Those deals culminated in Lampert's masterstroke: buying
52% of Kmart and bringing it out of bankruptcy reorganization. Next, he
bought Sears, in which he was a big shareholder. ESL's 39% stake in the
new Sears is now worth about $9 billion.
Lampert's focus now is to manage the combined retail
giant, Sears Holdings, and its 3,800 stores in the USA and Canada. He has
raised roughly $1 billion by selling about 70 of Kmart's 1,500 stores and
stopping the former management's bad habit of selling merchandise at a
loss. He's also working to move Sears beyond malls and add better brands
at Kmart.
He faces a huge challenge in taking on the low-cost
giant, Wal-Mart, while fighting the hip image and interesting merchandise
assortment of Target.
His Rolodex of high-powered backers and his successful
record make him worth watching. Forbes pegs his fortune at $2.5 billion,
which it says makes him Connecticut's wealthiest resident.
So far, Lampert's performance speaks for itself.
BusinessWeek reported ESL Investments has returned 29% a year on average
since inception in 1988. That beats the 25% average annual return of
Warren Buffett's Berkshire Hathaway since 1965.
Sears to show off latest appliances at
bath show
By Sandra Guy – Chicago Sun-Times
May 9, 2005
Sears Holdings Corp. has taken its online
home-decorating tool to the kitchen, and is introducing new kitchen
appliances designed to help harried homeowners save time.
The latest innovations are an oven cooktop that zaps
heat directly to the pots and pans, and a refrigerator with a
fruit-and-vegetable "stand" in the door.
Shoppers can see how the appliances and other items
would look in their kitchen by clicking onto the Sears.com Web site, and
using a "virtual decorator" tool to switch out appliances, cabinets and
wall colors in a make-believe kitchen.
The Hoffman Estates-based retailer will unveil the
latest appliances at the National Kitchen and Bath Show in Las Vegas
opening Tuesday.
"We are finding that customers love new [kitchen]
products," said Tina Settecase, Sears' general manager of home appliances.
"In the past, everything was white, and product lines stayed the same for
three years. Now, the lines change every year."
The refrigerator, a Kenmore Ultra Fresh, features a
fresh-and-ready bin in the door that keeps fruits and vegetables fresh. It
also has a berry basket with holes in the bottom, enabling a nibbler to
carry it to the sink and wash the fruit inside.
The refrigerator has humidity-controlled crispers and
separate temperature controls for fresh and frozen foods.
Shoppers can find it on sale from $1,349.99 to
$1,399.99, depending on the size, starting on Memorial Day weekend.
The oven cooktop is a Kenmore Elite model that uses
electro-magnetic frequency to eliminate the need for gas-fueled fire or
electric burners. The 30-inch cooktop's elements reach full power in one
second, and induce heat directly into the pan holding the food.
The cooktop has 15 temperature settings, and senses the
presence of a pot on its surface. It can hold each pan at a certain
temperature after the food is cooked.
The cooktop surface stays cooler than a conventional
version, making it less likely to burn spilled food or children's hands.
The cooktop will sell for $1,499 when it is put in
stores in September.
Shoppers may have to look around for the new appliances.
Sears has started a new distribution system that sends
different assortments of kitchen appliances to different stores, based on
a community's income, household makeup and ethnic tastes.
The appliances will be sold at Sears stores and Sears
Essentials convenience-store-like formats where the demographics fit, and
at Sears' higher-end Great Indoors home-decor stores.
Sears also has started a new incentive for appliance
buyers -- from June 5-19, shoppers who buy an appliance that costs more
than $399 can choose either a free night at a Fairfield Inn, a Marriott
hotel, or zero percent financing for 12 months. The hotel stay is valid
for two adults and up to three children.
Teaching Wal-Mart New Tricks
By Tracie Rozhon – New York Times
May 8, 2005
WAL-MART' chief financial officer, Thomas Schoewe, had
just returned from a trip to Wall Street, and was still shaking his head
about a question analysts there had directed at him. "They kept asking me
if Lee Scot t didn't know what Tom Coughlin was
up to," he said.
H. Lee Scott Jr. is the feisty chief executive of
Wal-Mart Stores, and until recently Thomas M. Coughlin was its vice
chairman. A hunting and fishing buddy of Sam Walton, the founder, Mr.
Coughlin retired in January amid great fanfare - with a local library
branch named for him. But two months later, he was unceremoniously dumped
from the board after accusations of expense account fraud.
Mr. Schoewe told the Wall Street analysts that Mr. Scott
had known "absolutely nothing" about any problem. Recounting the story
last week, Mr. Schoewe paused. "I mean, if he had known, would we have
named a library after the guy?" Then he looked into the middle distance,
and, as if speaking to himself, said softly: "I'm not sure they believed
me."
Glasnost, Wal-Mart is starting to learn, can be
unsettling. But after decades of battening down the hatches and refusing
to deal with pesky analysts and reporters, the company has decided to open
up and let a little sun in. The less confrontational approach to the
outside world is part of its effort to repair a reputation that,
especially in the last year, has suffered blow after blow, the latest
being Mr. Coughlin's travails.
That is not the only big change taking place at
Wal-Mart, the country's largest company ranked by sales. It is also
beginning to rethink some of Sam Walton's most closely held tenets,
including his determination to sell only the cheapest of merchandise to
some of the least affluent Americans.
Why now? Because Wal-Mart suddenly seems, well,
vulnerable - a word seldom associated with the $288 billion-a-year
juggernaut that once swatted down rivals as if they were so many gnats.
Its stock price has been flat for five years, and competitors like Target
(whose name the cognoscenti love to pronounce the French way: tar-ZHAY)
are giving it fits. "Which would you rather have?" one analyst asked. "A
$1.99 plastic ice bucket from Tar-zhay or one from Wal-Mart?"
While Target long ago enlisted Isaac Mizrahi to design
$19.99 giraffe-printed sweaters and Michael Graves to design tea kettles,
Wal-Mart has been trying to figure out both its men's and women's clothing
lines - with only limited success.
But now Wal-Mart executives say the company is getting
its act together with apparel and home furnishings, which have been weak
spots. In the grocery aisles, it is also experimenting with healthy frozen
dishes and even organic food.
And so Mr. Schoewe finds himself spending much more time
on the company jet, flying to places like New York to sell Wall Street on
not only the company's finances but also, to a certain extent, its
marketing strategies. "Two years ago, I might have held two meetings
annually with analysts," he said. "Now I'm meeting with them all the
time."
Last month, the company also held its first corporate
open house for journalists, where it addressed accusations of
union-busting (it remains staunchly anti-union), of forcing employees to
work off the clock, of hiring illegal immigrants and of discriminating
against women.
This depressing litany was tackled head-on in interviews
last week with a parade of executives, some of whom couldn't quite shake
the "us against them" tone for which Wal-Mart is so well known.
Mr. Scott, who said last month that the missteps were
isolated incidents that should never happen again, has since acknowledged
that some problems still need to be addressed.
He and others, for example, said they would never again
try to go over the heads of local politicians in their quest for store
growth, as they did in Inglewood, Calif., where they sponsored a
referendum last year to try to sidestep city zoning. That failed, amid
cries that Wal-Mart was trying to subvert the political process.
In a telephone interview last week, Mr. Scott added that
Wal-Mart was now "harsher" on rule-breakers, and gave the hypothetical
example of a truck driver who "has been involved with alcohol." A district
manager might once have given the driver another chance, he added, but now
the driver would be fired.
He also struck a conciliatory note with opponents.
"We're trying not to look at critics as annoyances," he said. "The thing
is to find out the truth. We've changed as a company. We listen more to
people coming to us with diversity issues, overseas sourcing, shareholder
rights.
"We're getting past the idea that everyone who
criticizes you has an ulterior motive and wants you to fail."
Analysts said they see change at Wal-Mart but say they
still worry about what they call "headline risk" at the company - the
chance that it will stumble again, very publicly. "That's the biggest
thing," said Gary Balter, a stock analyst at UBS who has covered the stock
for 20 years. "It's bound to be bad for morale.
"How can you think about selling clothes," Mr. Balter
added, "when you're thinking about Tom Coughlin and who's going to be
next?" A federal grand jury recently began an investigation into the
allegations that Mr. Coughlin had abused his expense account and told
Wal-Mart employees to help him cover it up; through a lawyer he denies any
impropriety.
FOR years, Wal-Mart had simply roared along, gathering
up accolades - and enemies. The management was tough then, and it still
is. Mr. Scott, after all, first came to Sam Walton's notice when employees
complained that he was firing too many company truck drivers.
But since it opened its first discount store in 1962,
Wal-Mart was always paternalistic and devoted - some say too devoted - to
giving the customer the lowest price possible. To get that lowest price,
executives still say, the company must be unfalteringly demanding.
During the weekly meeting of company officers, Mr. Scott
asks embarrassing questions like: "Why does Target make a better coffee
maker and sell it for $19.95?" The buyer in charge of small appliances,
put on the spot, may acknowledge that he doesn't have a clue.
But before the meeting is over, the buyer is expected to
get on his BlackBerry, or his phone, and not only find out why but,
ideally, to have found the same or better coffee maker. He is also
expected to bargain with shippers so the company can sell it for less. Oh
- and to place an order.
An announcement that the coffee maker, or whatever
product, will be in stores the next week is the kind of line that gets
applause, and a nod from Mr. Scott.
Such relentless pressure, combined with hiring new teams
of designers and buyers across all merchandise categories, seems to be
paying off.
"They're starting to turn it around," Mr. Balter of UBS
said, singling out the contributions made by Michael T. Duke, the chief
executive of stores, and Eduardo Castro-Wright, who in February became the
chief operating officer of Mr. Duke's division. "They're starting to get
their internal act together again."
Earnings per share rose 19 percent last year. Gross
margin, meanwhile, has grown from 21.2 percent in 2001 to 22.9 percent.
That may not seem like a big change, but for a huge discounter like
Wal-Mart it represents almost $5 billion in additional earnings.
For the first time, Wal-Mart agreed last week to break
out comparable sales figures for several of its most-improved categories.
Youth-oriented handbags, for instance, are up 40 percent over last year.
Sales of flat-screen televisions, music players, DVD players and modems
have doubled. Sheets and towels rose "in the double digits," the company
said.
Wal-Mart is remarketing and expanding its sporting
goods. One sign of the payoff: sales of pedometers are double what they
were a year ago.
Like most retailers, Wal-Mart is wary of giving figures
for actual sales volume, but it did provide a rare example: it expects to
sell 30 million "attitude tees" - T-shirts with slogans - before the year
is out. Last year, it sold 20 million.
Nevertheless, Wal-Mart's same-store sales - the vital
comparison involving stores open at least a year - have not been
impressive, especially when compared with Target's. Last week, Wal-Mart
said its same-store sales in April were only 0.9 percent higher than they
were in the same month a year earlier.
Mr. Schoewe said the increase was so small because
Wal-Mart believes in saturating markets with its stores, a strategy
designed to keep out its so-called big-box competitors. That also results
in a certain amount of cannibalization within Wal-Mart: When a new store
opens near an older one, it drains away some of the sales. "But that's
only for two years or less," he said. "By the end, it's back up to what it
was."
Yet there is no getting around the fact that comparable
sales fall for a time. "And Wall Street puts an emphasis on same-store
sales," he said.
That it does. "For good reason," said Christine K.
Augustine, an analyst at Bear, Stearns. "It's a proxy for market share."
And better news may be coming. While same-store sales
have slipped from healthy to wimpy in the last year, analysts note that
starting in June, the comparisons will improve because sales started to
weaken last June, so the company won't have such high numbers to beat.
Improved sales may offset some of the pain from worrisome
higher-than-normal expenses, caused mainly by higher shipping costs.
So is Wal-Mart's stock undervalued? Mr. Scott certainly
thinks it is. So do 17 of the 29 analysts whose recommendations are
tracked by Bloomberg Financial Markets; they rate the stock a "buy."
Wal-Mart's stock, which traded at $69 at the end of 1999, closed on Friday
at $48.96.
"The fact that everybody hates them now, that's great!"
Mr. Balter said. "People have essentially said: 'We don't know where
you're going, but we know we don't like it.' "
Not surprisingly, Mr. Balter is one of the analysts who
has rated the stock a "buy."
IN the main auditorium of Wal-Mart headquarters here,
where Mr. Scott presides over the famous Saturday-morning meetings and
where division vice presidents meet on Fridays to critique all the latest
toys and blenders and bikinis, the walls are ringed with price signs, the
same ones that are, or will be, posted in the 3,159 stores across the
country.
"Blue Ice - 97 cents," "HP Office Jet 4215v Printer -
$98.74," " Kellogg's Cereal with Star Wars Characters on Boxes - $2.84."
Wal-Mart is offering more new products than ever, its
executives say, and not just cheap stuff at the cheapest prices. In design
studios and in a food-testing laboratory tucked behind the home office
here, Wal-Mart is reviewing merchandise that will be significantly more
middle-income - a necessity in order to stay competitive, according to
analysts like Ms. Augustine. These newer items, some already on the
shelves, are not being designed to replace the cheaper ones - executives
are adamant about not losing their core customers - but to expand the
company's offerings.
In the last nine months, Wal-Mart has developed and
introduced 44 new grocery items, including nine-layer lasagna, Key lime
pie and toffee cookies. It has brought in hundreds of new "branded" items
- products not developed exclusively through the company. These include
more healthy alternatives, like Kashi trail bars and granola mixes.
Higher quality does not always mean higher prices.
Wal-Mart recently started stocking a thick new towel, in hot colors like
orange and more sophisticated tones like taupe, for $4.24. Many stores
also have an entire aisle of newly designed turquoise and orange plastic
goblets and daisy-flowered plates, and they sell them for an average price
of $1.97.
Wal-Mart has introduced hundreds of new, more upscale
products in the last three months, from gourmet roast beef to an $89
two-drawer, two-door console with a wood veneer to 400-thread-count sheets
that are $20 cheaper than Target's 400-count sheets. And more products are
coming, Mr. Scott said, because Wal-Mart's customers love the new lines.
"Just because you don't have a lot of money doesn't mean
you don't have taste," he said.
Wal-Mart is also introducing a variety of gourmet foods
and frozen dinners, some of which come in "healthy" recipes. Compare the
new (healthy) frozen chicken Marsala that serves two for $5.86 with the
new, cholesterol-laden nine-layer lasagna that can feed six for $5.86.
A portion of the chicken Marsala, with portobello
mushrooms, has a saturated-fat content that is 13 percent of the
recommended daily allotment - not more than many so-called energy bars -
and 17 percent of the recommended sodium. A portion of the lasagna, which
is made with béchamel sauce and Bolognese sauce as well as four cheeses,
has 50 percent of the daily recommended limit of saturated fat and 36
percent of the sodium.
Introduced two months ago, the lasagna is already
Wal-Mart's top-selling frozen entree. "We tested 26 lasagnas available at
restaurants," said Nancy Nagle, director of product development. "We found
the best."
This is a different approach for Wal-Mart. "There's a
whole new team, and we're growing exponentially," she said. "When I first
came, it was my boss, Dede, and myself. Now, we have a team of seven."
Wal-Mart, Ms. Nagle said, is a no-nonsense negotiator.
"People are afraid of Wal-Mart," she said. "We're not an ogre. We're not
playing any game: just give us your net-net cost." Wal-Mart, she said,
doesn't accept any "slotting fees," the money demanded by most supermarket
chains in exchange for a prominent place on the shelves. Wal-Mart offers
many brand names, like Kellogg and Nabisco, but also its own labeled
foods, like the newer and pricier Sam's Choice.
For Ms. Nagle and her staff, the tough specifications
are just that, specs - "not a weapon" to use against suppliers, she said.
But, she added, they must be adhered to. Quality controls are rigorous:
"Hello," she said, as if talking to one of these suppliers: "Where are the
bananas? We're supposed to have 3 percent in this trail mix."
Wal-Mart executives said they could not legally pressure
manufacturers to sell their branded goods for less than they offer anyone
else, based on volume. "Where we can offer the savings," said Mr. Duke,
"is through efficiencies in shipping and delivery."
AT the Wal-Mart Supercenter in Rogers, Ark., about seven
miles from the company headquarters, it's been a tough week.
"Yesterday's traffic was down 3 percent from the same
day last year," said Matt Loveless, the store manager. "Sales were down
4.3 percent." On the other hand, "paper goods were up 12.3 percent; paint
was up 16.2 percent; housewares were up 37 percent. ..."
The list was almost endless. So what was down? Because
of the cold weather, Mr. Loveless said later, plants in the garden center
weren't selling as well as they did a year ago. Not so many customers were
ready to buy spring and summer clothes, either. And the crafts and fabrics
departments were weaker than normal, he said.
Still, employees were quick to offer the Wal-Mart cheer,
a high-schoolish recitation of "Give me a W, Give me an A" and so on, with
foot-stomping and a grunt at the end. Then several employees stepped
forward with newly arrived products they particularly liked.
One young man talked about a rocket-launching "air gun"
called Total Extreme. "Show us!" chanted the 40 to 50 workers. He pumped
the plastic gun and a plastic-foam rocket went off, soaring high and long
over all their heads, to applause. "And it's only $2.82," he crowed, to
more clapping and foot-stomping.
Just after the cheers and the individual testimonials
about the new products, Loretta Hartgrave, 48, said she felt that Wal-Mart
has been getting bad publicity lately. She blamed "people that have
already left the company, who didn't feel they were treated right."
The important thing, she added, was to buy into the
company's profit-sharing plans. "I have the stock options," Mrs. Hartgrave
said. "I built my house nine years ago - a three-bedroom brick house in
Lowell - and we paid for it the day we moved in." Mrs. Hartgrave's husband
had worked in the maintenance department of a nearby turkey processing
plant owned by Cargill before he died last November. "What he was making
only paid the taxes," she said.
Wal-Mart's health plans have been attacked by critics,
but Mrs. Hartgrave presents the opposing view. "When we first were
presented with the option for cancer coverage, my husband didn't want it:
'Nobody in my family ever had cancer,' " she recalled him saying. "But for
me, that went in one ear and out the next." She signed up for the extra
coverage for $30 a month; standard Wal-Mart health insurance costs $40 a
month for an individual, $155 for a family.
Altogether, Wal-Mart's medical insurance laid out
$60,000 to treat Mr. Hartgrave's single-cell cancer before he died. "Six
pills prescribed for pain and chemotherapy would have cost $1,000," Mrs.
Hartgrave said. "We paid $50 until we met our deductible. After that, we
paid nothing.
"All these people complain about the benefits," she
added, "but I think they haven't been explained well." She paused, then
added: "I don't know if they don't listen. I preach a lot on it."
Critics say the biggest problem with Wal-Mart's health
insurance is not with the long-term illness and hospitalization coverage,
but with the waiting periods to qualify: six months for full-time hourly
workers, two years for part-time workers. Wal-Mart says the terms are more
generous than those of most retailers.
But Wal-Mart's deductibles are also high: a family must
spend $1,000 a year of its own money before the insurance kicks in -
except on prescriptions, like the ones Mrs. Hartgrave got for her husband.
"We have no H.M.O. where you pay $5 for a doctor's visit," said Mona
Williams, a vice president and the chief spokeswoman for the company.
MS. WILLIAMS, who says that some critics seem to "make
their living by attacking Wal-Mart," conceded she once might have thought
that the Wal-Mart cheer was hokey. "I would have rolled my eyes," she
said. "But now I'm a part of something bigger than myself; it's like being
in the military or in a religion. Here it's like a fanatical mission to
save our customers money."
She rattles off statistics: 30 percent of the company's
1.5 million employees had no health insurance at all when they were hired,
hourly wages are comparable to - or greater than - Target's, and half of
the company's workers are full time.
She said she resented accusations that Wal-Mart's wages
were not enough to support a family. "Only 7 percent of our workers are
trying to support a family," she said. "The rest are seniors, college
kids, people working to supplement the main wage earner. Those are the
people we're recruiting. The average wage is $9.68 an hour."
It may stay there for a while. Mr. Scott was
characteristically blunt last week when he dismissed the idea he might
re-examine Wal-Mart's wage and price structure, if only to satisfy some of
his more vocal critics. "No" was all he said.
He was positively chatty, though, when asked a question
many retailers hate: Who are your biggest competitors?
"Bed Bath & Beyond is phenomenal," he said. "Walgreens
may be as good a competitor as we've got. And of course Target does so
many things well." He went on to list Home Depot, Lowe's, Crate & Barrel,
Pottery Barn, Ikea and Dollar General.
He likes to walk the aisles of other stores. "What are
the colors of the new Coach purses?" he
wondered. "They're hitting on all cylinders now and if we don't have the
same - uh, I mean, something similar - before long, we're in trouble."
SEARS HOLDINGS CORP.:
Citigroup to
include Kmart in credit deal
By Tribune Staff – Chicago Tribune
May 7, 2005
Citigroup is expanding the scope of its 2-year-old
agreement with Sears, Roebuck and Co. to also provide proprietary credit
card services, including zero-percent financing, to Kmart cardholders,
according to a Securities and Exchange Commission filing. Sears and Kmart
merged in March to form Sears Holdings Corp.
The revised deal also increases the amounts that
Citigroup will pay to Sears Holdings based on credit card accounts
generated and credit sales. Citigroup will also chip in more for marketing
support. Kmart is terminating its deal, struck in October 2004, with
Household Bank.
Details are being worked out as to whether shoppers can
use their cards at both stores. Financial terms have not been disclosed.
In July 2003, Sears said it would realize $400 million a year annually
from its Citigroup agreement through payments and cost savings.
Retiree health benefits disappearing
Best option is to plan now for medical costs later
By Jennifer Openshaw – Market
Watch
May 5, 2005
LOS ANGELES (MarketWatch) -- Your mom always told you to
respect your elders. But more and more senior citizens across the country
are experiencing an increasing financial "slap in the face" from their
former employers -- the elimination of retiree health insurance.
Is this yet another trend toward fewer retirement
benefits that began years ago with the elimination of the gold watch?
Health-care costs can be a major problem whether you're
employed or retired. One major difference, of course, is that retirees
typically have a much greater dependence on health insurance than do those
still working. So here is the question: Should seniors have a right to
expect retiree health insurance from their former employer?
In recent decades, health-insurance costs have taken a
much bigger bite out of a consumer's total health-care budget -- 52% in
2003 compared with 35% in 1984, according to the Bureau of Labor
Statistics. Health-care costs in the United States have risen faster than
almost any other area of consumer expenditure, sometimes jumping at three
times the overall inflation rate.
Until 1990, retiree health insurance went largely
unnoticed. But in that year, the Financial Accounting Standards Board
ruled that corporations had to add retiree-health-insurance liabilities to
their balance sheets.
In 2001, General Motors acknowledged in its annual
report that it had a completely unfunded liability for retiree health
insurance - estimated at that time to be $34.5 billion. The value of the
entire company at that time was only $19.7 billion. See any problems
there?
In recent years, a growing number of companies have
announced they will no longer be paying for health insurance for those
retirees who had been promised this benefit. According to a study by the
Economic Policy Institute, only 34% of large firms (those with more than
200 employees) offered retiree health coverage in 2002, down from 66% in
1988.
The final complication is the aging population. In
coming years, the U.S. labor market will experience a shock resulting from
an increase in life expectancy compounded by the retirement of baby
boomers. The percentage of the U.S. population over 65 is expected to
stand at 36% in 2030, up from only 21% in 1997.
Gerry Smolka, a senior policy adviser with AARP's Public
Policy Institute, says that, "unlike pensions, retiree health care is not
a vested or prefunded benefit at most companies."
Her group recently conducted a study showing the typical
retiree could expect to spend an average of $3,455 annually on
out-of-pocket health-care expenses. This number could go much higher
depending on age, health and plan features.
Retiree choices
How can you plan for this potential hit to your wallet?
Retirees' best bet is to first plan a portion of their
retirement budget as a contingent liability for private health insurance.
That way, if employer-sponsored health insurance is changed or even
eliminated they are prepared.
Experts also advise retirees to examine their Cobra
eligibility. Federal laws require that an employee be offered Cobra for 18
months (36 months if you are over 65 and enrolled in Medicare) after
leaving an employer. The Cobra insurance program, though, only grants you
access to the group policies -- you are still required to pay the full
premiums.
Other ideas include exploring whether your professional
organization offers group coverage. Group policies have the benefit of
watering down any one person's specific health liabilities.
Finally, one of the most common methods of dealing with
retiree health-care costs is to get a part-time job with an employer who
offers these benefits. An increasing number of retirees are turning to
this option even though finding employers who offer health benefits to
part-time employees is already difficult.
The irony of needing to work in retirement is that
health issues may prevent you from being able to work, even part-time.
The best advice is to begin preparing now for what looks
to be an emerging national problem with few solutions that are evident
today. To get estimates of what retiree health care may cost, visit
http://www.choosetosave.org/tools/rethlth.htm. See the site. http://www.choosetosave.org/tools/rethlth.htm
For those who think saving for this potential retirement
cost may be beyond their means, the cheapest solution may be to take their
doctor's advice and get started on that nutrition and exercise program
long before retirement. That way you stand a better chance of staying
healthy and not incurring those big medical bills later in life.
Jennifer Openshaw is CEO of Family Financial Network, a
national provider of financial planning and advice to families and
individuals. She is the author of "What's Your Net Worth?" and the host of
a public television show of the same name. Reach her at
jennifer@familyfn.com .
Can't Wal-Mart, a
Retail Behemoth, Pay More?
By Steven Greenhouse – New York Times
May 4, 2005
Bentonville, Ark. - With most of Wal-Mart's workers
earning less than $19,000 a year, a number of community groups and
lawmakers have recently teamed up with labor unions in mounting an
intensive campaign aimed at prodding Wal-Mart into paying its 1.3 million
employees higher wages.
A new group of Wal-Mart critics ran a full-page
advertisement on April 20 contending that the company's low pay had forced
tens of thousands of its workers to resort to food stamps and Medicaid,
costing taxpayers billions of dollars. On April 26, as part of a campaign
called "Love Mom, Not Wal-Mart," five members of Congress joined women's
advocates and labor leaders to assail the company for not paying its
female employees more.
And in a book to be published this fall, a group of
scholars will argue that Wal-Mart Stores, having replaced General Motors
as the nation's largest company, has an obligation to treat its employees
better.
Among workers at Wal-Mart's 3,700 stores across the
United States, the debate is also heating up.
Frances Browning, for example, once earned $15 a hour,
but now at Wal-Mart, where she is a cashier in Roswell, Ga., she is paid
$9.43. She says she is happy to have the job.
"I was unemployed for two and a half years before I
found my job at Wal-Mart," Ms. Browning, 57, said. "Like everybody else
I'd love to make a lot more, but I have to be realistic.
But Jason Mrkwa, 27, a high school graduate who stocks
frozen food at a Wal-Mart in Independence, Kan., maintains that he is
underpaid. "I make $8.53, even though every one of my evaluations has been
above standard," Mr. Mrkwa (pronounced MARK-wah) said. "You can't really
live on this."
Labor groups and their allies are focusing on Wal-Mart
because they say that the campaign will not just benefit its workers but
also reduce the existing pressure on unionized competitors to reduce their
own wages and benefits.
"Wal-Mart should pay people at a minimum enough to go
above the U.S. poverty line," said Andrew Grossman, executive director of
Wal-Mart Watch, the coalition of community, environmental and labor groups
running the series of ads criticizing Wal-Mart. "A company this big and
this wealthy has the ability to pay higher wages."
H. Lee Scott Jr., Wal-Mart's chief executive, vigorously
defends his company, arguing that wages are primarily determined by market
forces and that Wal-Mart pays more than most retailers and provides better
opportunities for advancement.
"If people tell you that Wal-Mart is leading the
so-called 'race to the bottom' in terms of job quality or pay, they're not
only wrong, they're dead wrong," he said to journalists at a
company-sponsored conference here in April, the first time Wal-Mart has
gone out of its way to invite a number of reporters to its headquarters to
hear its views. "We are instead creating a better workplace with more
opportunity and more benefits than have been available in retail."
Mr. Scott contends that the critics, including
competitors, are defenders of an outdated status quo, intent on upholding
a retailing system full of inefficiency and inflated prices.
He said that if Wal-Mart were as greedy as its
detractors say, it would never have attracted 8,000 job applicants for 525
places at a new store in Glendale, Ariz., or 3,000 applicants for 300 jobs
in outlying Los Angeles.
Michael T. Duke, chief of the company's stores division,
said, "Wal-Mart is a very good place to work for our associates, and every
day we make it even better."
Mr. Mrkwa, the food stocker, does not see it that way.
With pay that brings him about $20,000 a year, he said he could not afford
a decent apartment or a vehicle better than his 1991 Dodge Dakota. "I
don't see why Wal-Mart can't pay more," Mr. Mrkwa said. "Unfortunately, in
the market we live in there just aren't many jobs available."
Wal-Mart says its full-time workers average $9.68 an
hour, and with many of them working 35 hours a week, their annual pay
comes to around $17,600. That is below the $19,157 poverty line for a
family of four, but above the $15,219 line for a family of three.
Wal-Mart critics often note that corporations like Ford
and G.M. led a race to the top, providing high wages and generous benefits
that other companies emulated. They ask why Wal-Mart, with some $10
billion in profit on about $288 billion in revenue last year, cannot act
similarly.
"Henry Ford made sure he paid his workers enough so that
they could afford to buy his cars," said William McDonough, executive vice
president of the United Food and Commercial Workers union. "Wal-Mart is
doing the polar opposite of Henry Ford. Wal-Mart brags about how its low
prices help poor Americans, but its low wages are helping increase the
number of Americans in poverty."
Mr. Scott argues that retailers, with narrow profit
margins, face a different competitive situation and cannot afford to be as
generous to their workers as automakers and other capital-intensive
companies.
"Some well-meaning critics," he said, "believe that
Wal-Mart, because of our size, should play the role that General Motors
played after World War II, and that is to establish the post-world-war
middle class that the country is so proud of. The facts are that retailing
doesn't perform that role in the economy as G.M. does or did. Retailing
doesn't perform that role in any country in the world."
Many of those assailing Wal-Mart argue that the company
can, and should, pay its workers at least $2 more an hour and add $1 or $2
an hour beyond that to improve its health benefits. A Harvard Business
School study found that Wal-Mart paid $3,500 a year for each employee for
health care, while the typical American corporation paid $5,600.
If Wal-Mart spent $3.50 an hour more for wages and
benefits of its full-time employees, that would cost the company about
$6.5 billion a year. At less than 3 percent of its sales in the United
States, critics say, Wal-Mart could absorb these costs by slightly raising
its prices or accepting somewhat lower profits.
But company executives dismiss such proposals, saying
they would largely wipe out Wal-Mart's profit or its price advantage over
competitors. Wal-Mart had a profit margin on sales last year around 3.5
percent. If "we raised prices substantially to fund above-market wages, as
some critics urge," the company argued in a recent two-page ad in The New
York Review of Books, "we'd betray our commitment to tens of millions of
customers, many of whom struggle to make ends meet."
Here in Bentonville, Mr. Scott pursued that theme. "If
you're telling me because you're Wal-Mart and you're going to pay $12 an
hour and this other retailer is going to pay $5.15 an hour, the federal
minimum wage, and they're not going to provide any benefits at all and
somehow the consumer is rewarded in all this, all you're doing is
perpetuating the status quo," he said. "You're driving inefficiencies into
the system. It doesn't make any sense."
Wal-Mart argues that, as retailing companies go, it
treats its workers better than average. It says 74 percent of its
employees work full time, compared with fewer than 40 percent at many
other retailers. But critics note that a leading competitor, Costco, pays
$16 an hour - 65 percent more than the average wage at Wal-Mart stores and
33 percent more than the $12 average at its Sam's Club stores. At Costco,
82 percent of the workers are covered by company health insurance,
compared with 48 percent at Wal-Mart.
George Whalin, president of Retail Management
Consultants in San Marcos, Calif., said that Wal-Mart should ignore the
attacks. "Retail has always paid poorly and it probably always will," he
said. "Wal-Mart has a responsibility to serve their customers - to give
them a good product - and to their shareholders. They don't have a
responsibility to society to pay a higher wage than the law says you have
to pay."
But Burt Flickinger, another retailing consultant, said
it would be in Wal-Mart's long-run interest to pay better. "Wal-Mart's
turnover will be close to half a million workers this year," he said. "By
paying higher wages, Wal-Mart will make its employees happier and will
reduce turnover. A lot of its new workers, for instance, don't know where
to stock things. Higher wages will mean more productivity per person, and
that should help raise profits."
The debate is far from over. LaTasha Barker, a single
mother who worked for two years as a cashier at a Sam's Club in Cicero,
Ill., said she earned so little that she could not afford the $1,860 a
year for family health insurance.
"They don't pay a living wage," said Ms. Barker, who
quit her $8.40-an-hour job in 2004 to take a $15-an-hour social work job.
While at Sam's, she said, she qualified for Medicaid and $139 a month in
food stamps.
By contrast, Jamie Schifferer, manager of the health and
beauty aids department at a Wal-Mart in Algonquin, Ill., said Wal-Mart was
a terrific employer. She quit her $25,000-a-year post running a Cingular
wireless shop to go to Wal-Mart.
After 20 months, she earns $12.50 an hour - close to her
previous pay - but now works 40 hours a week rather than the 60 hours at
Cingular.
"I was very miserable," she said. "As soon as I heard
about this store opening, I jumped. It's perfect for me right now."
Vornado's Investments Excite REIT's Holders
By Ray A. Smith – Staff Reporter – The Wall Street Journal
May 4, 2005
Vornado Realty Trust, a real-estate investment trust
that owns about 87 million square feet of office and retail space in New
York, Washington, D.C., and elsewhere, is known for leaving Wall Street in
the dark about what it is up to. The company eschews conference calls and
media interviews, and its news releases are short on elaboration.
Chairman and Chief Executive Steven Roth's annual
letters to shareholders are usually highly anticipated among REIT-holders.
This year expectations were heightened in light of some ambitious,
high-profile investments the REIT made in the past year, including buying
nearly 5% of Sears, Roebuck & Co., and its partnering with two
private-equity firms in a $6.6 billion deal to buy Toys "R" Us. There was
also the promise Mr. Roth made in last year's letter to announce an
endgame for its investment in Alexander's Inc., a failed discount retailer
that Vornado owns for its real estate. In fact, there seemed to be more
interest in those matters than in New York-based Vornado's "core"
business.
The letter, released last week, was written in an
enthusiastic, breezy style. It disclosed what the company was thinking
when it scouted out deals for struggling retailers and why it thinks the
real-estate market will stay strong. "Over the last several years, real
estate has repriced," Mr. Roth says. "I believe this is a long cycle move.
Get used to it; give or take 10%, these prices are here to stay, for some
time."
SEARS: Vornado in November said it bought a 4.3% stake
in Sears. In the letter, Mr. Roth says Sears was generally perceived as a
"slowly but surely" declining retailer in whom Vornado saw "a collection
of truly great (many irreplaceable) assets" in 70% of the best malls in
America, as well as its Kenmore appliance and Craftsman tool brands.
Mr. Roth said he expected the Sears-Kmart Holding Corp.
merger proposed by Edward Lampert of ESL Investments Inc. -- and
acknowledged that it wasn't the REIT's preferred outcome. He says Vornado
investigated numerous alternatives while avoiding "saber rattling," and in
the end it elected to support the merger of the firms into Sears Holdings
Corp. and receive all stock in the deal. He goes on to say the cash
election would have yielded $50 a share, while the Kmart stock alternative
was worth $59.
Mr. Roth regretted that the announcement of the
company's Sears investment triggered a 23% increase in the price of Sears
stock, on 10 times normal volume.
"I think they wanted to buy more than they actually did
but the market took care of that," says Chris A. Capolongo, analyst at
Deutsche Bank Securities Inc.
TOYS: In March, Vornado agreed to pay about $450 million
for a one-third interest in a joint venture to be owned with Bain Capital
and Kohlberg Kravis Roberts & Co. to acquire Toys "R" Us.
Originally, the bidders were seeking to buy only the
Toys "R" Us domestic toy business, a deal that would have had a
significant real-estate element. But eventually the $6.6 billion offer was
made to buy the whole company.
Some real-estate analysts have expressed concern that
for Vornado, the bigger deal made the Toys transaction less of a
real-estate play than originally thought. "Now [Vornado] is involved in
the acquisition of the entire company, which is a different prospect,"
says David Harris, senior REIT analyst with Lehman Brothers Holdings Inc.
"Clearly this is not just a real-estate play. It's important for investors
to understand this is a very different transaction." Because the
transaction hasn't closed, Mr. Roth was precluded from going into more
elaborate detail about it. Until then, "we're waiting for more
information," says Mr. Harris.
ALEXANDER'S: Vornado left alone Alexander's, the
retailer-turned-real-estate company in which Vornado owns a 33% stake. Mr.
Roth said Alexander's is "not yet fully cooked," with a large development
planned on land Alexander's has long owned in Rego Park and the expansion
of Kings Plaza, both in New York, implying that there is even more upside
for the stock, which has doubled in the past year.
Nike chooses not to
have its shoes sold at Sears
By Becky Yerak - staff reporter – Chicago Tribune
May 4, 2005
Nike Inc. said Tuesday that it will stop selling its
athletic shoes to Sears Holdings Corp., prompting speculation that the
shoemaker does not want its brand sold in Kmart stores.
The decision by Nike is a setback for Sears--which has
long carried a wide array of both national and exclusive brands--as well
as to Kmart. Sears Holdings was formed in March after the merger of Sears,
Roebuck and Co. and Kmart Holding Corp.
Nike will stop delivering its products to Sears stores
in October, although the contract with Sears expired earlier this year.
The Beaverton, Ore., company had sold its gear at Sears since 1999 after
allowing the relationship to lapse through much of the 1990s.
"We were surprised, and although we're disappointed we
respect their brand decision," said Sears spokeswoman Lee Antonio.
Nike called the move a "brand management decision" that
was part of the "normal process of reviewing accounts." A Nike spokeswoman
declined to elaborate.
Nike decided to stop selling to Sears to prevent it from
putting the brand in Kmart stores, according to a report in Brandweek
magazine, citing anonymous sources.
Retail observers had different opinions on why Nike,
which of late has had success with its pricier sneakers, would opt out of
selling to the nation's third-biggest retailer, with $55 billion in annual
sales.
"My guess is they don't want the products they sell to
Sears to be distributed through Kmart because Kmart is not, at least in
their view, consistent with what Nike means," said Edward Fox, marketing
professor at Southern Methodist University.
Indeed, J.C. Penney Co. has openly discussed how such
brands as Ralph Lauren and Tommy Hilfiger have spurned them in the past,
requiring Penneys to develop its own labels.
Another possibility: "They're using this as an excuse to
stop selling through Sears," Fox said. "They're using the affiliation with
Kmart to say Sears is no longer consistent with the upbeat, youth-oriented
image that Nike wants to maintain."
Sears continues to sell such national shoe brands as New
Balance, Reebok, Skechers and Adidas. And it's not giving up on Nike. "We
plan to continue talking with Nike as our customers feel strongly about
the Nike brand," Antonio said.
When the merger was completed, Sears Holdings Chairman
Edward Lampert was excited about the possibilities of extending the reach
of various Sears brands, including into Kmart stores.
"We don't have Craftsman, Lands' End, Kenmore, DieHard,"
said Lampert, referring to exclusive Sears brands. "Even brands like
Champion, Adidas, Nike and Reebok."
In March, Nike started selling shoes--without its famous
swoosh logo--at Wal-Mart Stores Inc. Nike bought the Starter brand of
sneakers last year to sell into lower-end retail stores.
Another retail observer said Nike likely acted largely
to keep the peace with specialty retailers such as Foot Locker.
"They have thousands of stores in malls," said Howard
Davidowitz, chairman of retail consulting firm Davidowitz & Associates.
Selling to discount chains away from malls would cause a "riot," he said.
While Kmart has been hoping to get its hands on some of
Sears' brands, and in fact has put Kenmore appliances and Craftsman tools
in some stores, plans also are under way to convert hundreds of Kmart
stores into a new format called Sears Essentials. Sears Essentials will
sell everything from appliances to milk.
"When you go off the mall, if you pose as a discounter,
you'll have a problem with brands," Davidowitz said. "Normally discounters
don't care about brands because they're too expensive. If Sears goes
off-mall and starts to discount Nike, it would be a catastrophe for Nike.
"Nike and other brands have to tread carefully because
it'll hurt the brand name with regular customers."
A Rewards Plan for Auto
Insurance
By Jennifer Saranow
– Staff Reporter – The Wall Street Journal
May 3, 2005
Allstate Hopes Discounts
Will Attract New Customers
As Premium Increases Slow
Taking a cue from the credit-card industry, Allstate
Corp. unveiled auto-insurance plans that give such perks as "free
accidents" and discounts on deductibles or premiums to customers who pay
7% to 15% more in premiums or pay electronically.
Allstate's rewards are divvied up much like the
different levels of cards offered by American Express Co., and other
credit-card issuers at one time, with gold, platinum and value plans. For
customers willing to pay an additional 15% in premiums, the platinum
protection plan, for instance, offers a 5% credit toward the next
six-month policy for every six months of accident-free driving.
Both the platinum and gold protection plans also allow
customers a certain number of accidents before their premiums rise and
include an immediate $100 reduction on a collision-coverage deductible.
Previously, Allstate automatically gave accident waivers
just to customers in some states who had been accident-free for five
years, similar to what other insurers do.
The new policies, marketed as "Your Choice Auto," are
available in Oregon, Utah and Tennessee. This month, Allstate plans to
start offering the policies in Texas and Arizona, and in 75% of the
country by year's end. The company plans to roll out similar products for
its homeowners business.
Like most auto policies, the plans offer basic liability
coverage and allow customers to buy additional coverage, such as
collision, based on their needs, with safe-driving and other discounts
sometimes automatically offered. And as with traditional policies, the
coverage and the deductible amount, along with other variables such as car
type, determine customers' premiums, and whether they qualify for special
rates or discounts.
But with Allstate's tiered plans, drivers can pay for
discounts or rewards that they, not the insurer, picked out for
themselves. Customers also can pick packages of protection beyond a
standard package.
Allstate's new take on auto insurance comes as
attracting customers is becoming more difficult. Increases in
auto-insurance premiums have slowed amid a host of factors during the past
couple of years, including a declining number of accidents and a crackdown
on insurance fraud. According to the Insurance Information Institute,
auto-insurance premiums will increase 1.5% this year, down from 2.8% last
year. As a result, customers are less likely to switch providers in search
of lower premiums, forcing the companies to look for ways other than price
to differentiate themselves.
Allstate hopes to lure customers by encouraging them to
consider more than just price and deductibles. The idea of the rewards
plans is to give policyholders not just a choice of coverage options, but
also a choice of discounts. The company expects the plans to boost its
policy-renewal rate, which currently is about 90.7%.
Consumer advocates, however, warn that along with
increasing customer choice, Allstate may be increasing customer confusion.
"The more confusing it gets, the more likely it is people will be thrown
into plans that are more expensive without knowing they have other
options," says J. Robert Hunter, director of insurance at the Consumer
Federation of America.
Each new protection plan comes with the coverage choices
of Allstate's standard insurance policy, including liability. The
company's average six-month auto premium is about $450. Customers of the
gold plan, which is available for an extra 7% in premiums, or $31.50 on
average, get one free accident over three years. (Allstate's accident
surcharges to premiums typically last three years and are imposed when
customers are at fault.) Platinum customers, who would pay an additional
15% or $67.50 on average, would receive perks such as unlimited accidents,
among others.
Both platinum and gold customers can pay an additional
2%, or $9 on average, for coverage that would replace a new car that was
totaled. The value plan adds nothing to a premium but requires customers
to have their premiums automatically deducted from a checking or savings
account in order to get 5% off their premiums.
There are caveats to the perks. Certain types of
accidents, such as those that occur when the policyholder is drunk,
wouldn't be waived.
Tom Wischmeyer, who has had a couple of "fender benders"
in the past 15 years, signed up for the gold protection plan earlier this
year because he felt it was more comprehensive and cost-effective. "The
way I look at it, if there's an accident, your rates don't go up and if
there's not an accident, your costs come down," says the 60-year-old
retiree in West Linn, Ore.
Anita Sally, an Allstate agent in Bartlett, Tenn., says
her sales of the Your Choice products are up 20% to 30% over sales of
Allstate's standard product. She says those that buy into it tend to be
younger drivers ages 18 to 20, single people and individuals who have
caused accidents in the past five years. "Those particular individuals buy
into it really quick," she says.
When deciding whether to opt for the new policies,
consumers might want to look at their likelihood of being in an accident.
Drivers age 24 and under tend to be involved in the most accidents,
according to the National Safety Council. Allstate says the average driver
has an accident every 10 years.
Sears to end defined
benefit pension plan
By Jerry Geisel
- Business Insurance
May 2, 2005
HOFFMAN ESTATES, Ill.—Sears Holdings Corp. will phase
out its defined benefit pension plan, the company said last week.
Benefit accruals in the $2.5 billion plan covering the
Sears Roebuck & Co. operating unit will cease as of Jan. 1, 2006, with
employees receiving coverage under a revamped 401(k) plan.
The cessation of benefit accruals comes on the heels of
a major pension plan change that Sears announced last year and that became
effective Jan. 1, 2005. Under that change, current employees 40 and older
had the choice of continuing to earn benefits in the defined benefit plan
plus a 401(k) plan or they could opt into an enhanced 401(k) plan. New
employees and employees under age 40 could participate only in the
enhanced 401(k) plan.
One factor driving the latest change is that offering a
defined benefit plan has become “an unacceptable risk” due to the
volatility of the cash funding requirements, a spokesman for Hoffman
Estates, Ill.-based Sears said.
Competitive pressures also were a factor, with few of
Sears’ competitors offering a defined benefit plan, making the provision
of such a plan “competitively unsustainable,” the spokesman said.
Additionally, employees increasingly are interested in
more-portable benefit programs such as 401(k) plans rather than
traditional plans, the spokesman said.
Under the 401(k) plan that Sears will offer next year to
all eligible employees, the company will match 100% of employees’ salary
deferrals up to the first 3% of pay and 50% of employees’ pretax
contributions on the next 2% of pay.
Other major employers that have, over the past year or
so, moved away from defined benefit plans include Motorola Inc., IBM
Corp., NCR Corp. and Aon Corp.
Neiman Marcus agrees
to $5.1B sale
Market Watch
May 2, 2005
Cash consideration values
retailer's shares at $100 each
SAN FRANCISCO (MarketWatch) - Neiman Marcus Group agreed
Monday to be acquired by private equity firms Texas Pacific Group and
Warbrug Pincus for about $5.1 billion.
The deal values shares of the Dallas-based department
store operator at $100 a share in cash. Neiman's stock price has risen by
half since it announced a potential sale in March. The stock closed Friday
at $98.32, up 12 cents, but it fell 4.6% to $93.80 in pre-market action on
Instinet.
Texas Pacific and Warbrug Pincus will each own equal
stakes in Neiman upon completion of the transaction. The parties expect
the deal to close by Nov. 1.
"We are very pleased with the results of our strategic
review," said Richard Smith, Chairman of The Neiman Marcus Group. "This
transaction provides outstanding shareholder value and represents an
endorsement of the excellent performance of our entire team."
According to The Wall Street Journal, which reported the
deal was imminent in its Monday editions, Warburg and Texas Pacific were
considered dark-horse candidates in the weeks-long auction for the chain,
which includes 35 Neiman Marcus stores and two Bergdorf Goodman stores in
New York.
But with a bid that values Neiman at roughly nine times
its cash flow, the duo trumped rival bids from Blackstone Group LP and
Thomas H. Lee Partners LP and from Kohlberg Kravis Roberts & Co. and Bain
Capital, The Journal reported, adding that no retailers bid on the firm.
Neiman's new owners are getting one of the most valuable
names in American retailing, known for its opulent catalogs, immaculate
sales floors, and exclusive designer collections, The Journal said.
Neiman Marcus also owns Horchow luxury home furnishings,
and majority stakes in accessories-maker Kate Spade and Gurwitch Products,
which manufactures Laura Mercier cosmetics, according to The Journal.
Sears not opting for options
By Sandra Guy – Business Reporter
- Chicago Sun-Times
May 2, 2005
Edward S. Lampert, the hedge-fund manager who engineered
Kmart's astonishing $12.3 billion takeover of Sears Roebuck and Co.,
invoked the names of Yahoo and Starbucks as examples of the youthful,
lean-and-mean companies that the new Sears would seek to imitate.
"We want to have a performance-based culture -- people
who want to win," Lampert told reporters after shareholders of Kmart and
Sears approved the deal March 24. Lampert is now chairman of Sears
Holdings Corp.
But Sears, long known for its bloated bureaucracy and
generous employee benefits, is emerging as a far different animal from a
Yahoo or a Starbucks.
Only a few top Sears executives will be eligible for
stock options, a reward that many startup and technology companies use to
reward nearly all of their employees.
Sears spokesmen refused to say how many executives would
get stock options under Lampert's regime, but one described it as a very
few.
In fiscal 2004, Kmart CEO Alwyn Lewis was the only Kmart
employee who received stock options. Options give an employee the right to
buy company stock at a discount in the future.
Moreover, Sears is making it harder for its employees to
become stockholders.
Before the Kmart takeover, Sears employees received a 15
percent discount when they bought Sears' stock. The discount ended with
the Kmart takeover, and the new discount will drop to 5 percent, starting
in 2006.
By comparison, all of Yahoo's employees are eligible for
stock options. They are rewarded based on performance.
A Sears spokesman blamed the lower discount on a rule being imposed by the
federal agency that sets U.S. accounting standards.
Sears' top executives have reaped tremendous rewards
from the Kmart-Sears merger because the company's stock soared from $50.04
prior to the takeover, to Friday's close at $135.24.
Lampert, who steered Kmart out of bankruptcy, 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 SEC.
The transactions gave Lampert a 39.4 percent ownership
stake in Sears.
Lampert ended up paying $84.2 million to acquire the
Sears shares valued at $858.7 million.
Julian Day, Lampert's former go-to man at Kmart, has
cashed in options worth an eye-popping $115 million.
Former Kmart employees and stockholders find Day's
reward outrageous because their stock in the pre-bankrupt Kmart is
worthless, including the stock they had in their 401(k)s.
Day, once a rival to Sears CEO Alan Lacy for the top
post at Sears, sits on the board of the new Sears Holdings.
Lacy, CEO of the new Sears, garnered about $27 million
in stock option proceeds.
Morgan
Stanley board backs Purcell - from a distance
By MarketWatch
May 1, 2005
NEW YORK (MarketWatch) -- The directors of Morgan
Stanley (MWD) this weekend reiterated their support for Chairman and Chief
Executive Philip Purcell, but tried to insulate themselves from charges of
being too close to him by approving several governance changes.
"We have said consistently that management enjoys the
confidence of the board and we reiterate that commitment," the company's
directors wrote in a statement Sunday after meeting in special session on
Saturday. "We have thoroughly examined all the issues surrounding
leadership, structure and strategy, and conclude that it is in the best
interest of shareholders that we support management and not split up the
company."
For the past five months, some investors and former
employees have urged the firm's 10 "independent" directors to oust the
61-year-old Purcell, who merged the Chicago-based Dean Witter Discover
retail brokerage and credit card firm he ran with New York-based
investment bank Morgan Stanley in 1997. Blaming the company's relatively
weak earnings and stock prices on Purcell's failure to efficiently meld
the cultures of the two firms, several called for a spinoff of the Dean
Witter businesses and accused many board members of being too cozy with
Purcell.
The company's directors, most of whom have worked with
Purcell for years and are based in Dean Witter's former home base in the
Midwest, announced a series of governance changes aimed at asserting their
independence and protecting themselves from shareholder lawsuits. The
changes include a plan to add two more outside directors to the boards, a
move meant to counter criticism that Purcell tried to pack the board with
loyalists when it named new co-presidents Zoe Cruz and Steve Crawford as
directors. Their appointment as co-presidents in charge of all securities
businesses at the end of March triggered an exodus of more than a dozen
bankers, traders and executives from Morgan Stanley in recent weeks.
A group of eight retired executives, including former
President Robert Scott and ex-Chairman S. Parker Gilbert, who had been
leading the campaign to dethrone Purcell, derided the directors' moves.
"Even when viewed from the perspective of good corporate governance, the
changes announced by the Morgan Stanley board are deficient, as they fail
to allow shareholders to call a special meeting, " the so-called Group of
Eight said in a statement Sunday night. "More importantly, the changes
failed to address the fundamental cause of the crisis at Morgan Stanley,
which is the failure in Philip Purcell's leadership."
In their most direct response to charges of bias in
favor of Purcell, the directors this weekend eliminated a bylaw provision
that requires a vote of 75% of them to fire the CEO. Removal will now take
a simple majority, a formula in place at most corporations.
The boards also accelerated a plan to have every
director stand for election at every annual meeting beginning next year,
rather than phase in the plan over three years. This "destaggering" is
advocated by most corporate governance experts as a way to give
shareholders more power.
The board rejected suggestions to remove Purcell as
chairman but let him remain as CEO. However, it agreed to "shortly" create
a new position of "lead director" to help make sensitive decisions. It
also reaffirmed a policy that directors shouldn't run for election after
they reach their seventy-second birthday. That is meant to deflect
criticism that Purcell again packed the board last December by drafting
his Edward Brennan, the former chairman of Sears Roebuck and his former
boss, to the board. Brennan, a former Dean Witter director, was named
after the board received a private letter from an investor calling for
spinoffs of the Dean Witter businesses and a review of Purcell's tenure.
Finally, the directors said they would broaden the
compensation committee's charter to include oversight of plans for
management development and succession, and begin a practice endorsed by
corporate governance advocates of rotating board committee chairs.
Much of the criticism of Purcell came from the eight
retired executives from the Morgan Stanley side of the firm, who
characterized him as an interloper from Illinois unfamiliar with the ways
of Wall Street. They also complained that he gave his Dean Witter
colleagues too much influence over the firm and, as the crisis mounted in
recent months, forced out executives he suspected of disloyalty. Leaders
of the dissidents met with at least two Morgan Stanley directors in the
past week with a proposal to spin off the retail brokerage, credit card
and asset management businesses into a separate company.
What sounded like sour grapes from some executive suite
losers turned into open warfare in recent weeks when the dissidents'
public call for Purcell's ouster gathered support from some institutional
investors. Pressure on the board mounted as well. Orin Kramer, chairman of
the New Jersey State Investment Council which oversees the $70 billion
state pension system and holds about 3.7 million Morgan Stanley shares,
last month referred to the directors as "governance-challenged."
Scott Sipprelle, a former Morgan Stanley executive who
now runs a hedge fund, publicly said that he would consider suing the
board if they didn't make changes in company management and strategy.
Martin Lipton, a corporate lawyer who is advising the board, did not
return calls for comment. Sipprelle did not immediately return calls for
comment Sunday evening on this weekend's events.
"We have listened carefully to our institutional
shareholders, to our clients and to the leadership ranks within the firm"
in making the governance changes, the board said in Sunday's unsigned
statement. It also said that the board was unanimous in supporting current
management and its strategy of keeping the firm intact.
The Group of Eight responded that the governance changes
"will not enhance shareholder value, nor will they bring back the departed
talented employees, prevent future departures of stem the deterioration of
the firm's reputation."
Purcell's lineage with Morgan Stanley goes back to 1978,
when the former consultant at McKinsey & Co. joined Sears Roebuck & Co.
and quickly was put in charge of its attempt to mix sale of socks with
stocks through its Dean Witter Reynolds Inc. unit. The experiment failed,
and Purcell continued as chairman and chief executive of Dean Witter
Financial Services Group after Sears spun it off in 1986.
Some acquaintances said Purcell, who was raised Catholic
in predominantly Mormon Utah, has long been comfortable with his
outsider's status among Morgan Stanley veterans. Perhaps his best known
innovation in the financial world was his creation of the Discover credit
card unit at Dean Witter, the first in the business to offer cash rebates.
Discover generated stable income but lagged behind its competitors.
Until mid-April, Purcell continually defended the
low-growth business as a good hedge to Morgan Stanley's more volatile
institutional brokerage and banking businesses, but under pressure from
shareholders for a more coherent strategy reversed himself and said he
asked the board to allow him to explore spinning off the unit. The board
said Sunday that reorganizing beyond the proposed spinoff of Discover
would "not be in the best interest of shareholders."
Shares of Morgan Stanley, which have fallen 22% since
January 2001, rose 4.3% to $52.62 in composite trading on the New York
Stock Exchange Friday on rumors that the Morgan Stanley board planned to
meet over the weekend and possibly dismiss Purcell.
The Reappraisal
of Edward Liddy
By Steve Daniels –
Crain’s Chicago Business
May 1, 2005
Allstate turnaround boosts CEO's stock, but growth issue
still unresolved
If a chorus of denunciation from angry agents at
Allstate Corp.'s 2002 annual meeting bothered Edward M. Liddy, he didn't
let it show.
But the CEO was used to that kind of treatment in those
days. Agents were suing the company. Managers were reeling from his moves
to shake up Allstate's hidebound hierarchy. Investors were unhappy with
shrinking profits, a falling share price and the failure of Mr. Liddy's
growth initiatives.
It was a test of mettle for a man whose ascent had been
aided by the likes of Donald Rumsfeld and former Sears, Roebuck and Co.
CEO Edward Brennan. Mr. Liddy refused to yield, and today the agents are
vanquished, profits are up and Allstate shares have climbed 60% in three
years.
"It took some guts to do it," says Mr. Brennan, an
Allstate director.
Still, Mr. Liddy hasn't solved the vexing growth issue.
Allstate operates mainly in the slow-growing property-casualty insurance
business, and his new ventures in banking, mutual funds and other
financial services have yet to bear fruit. The Northbrook company remains
the nation's No. 2 auto insurer, behind State Farm Insurance Cos. of
Bloomington, and its marketshare has slipped slightly in the last three
years.
If moves into financial products eventually improve
growth, Mr. Liddy may no longer be around to take credit. Now 59, he's
expected to turn over the CEO job to heir apparent Thomas Wilson in the
next few years.
Today, Mr. Liddy can take credit for boosting efficiency
and profitability at Allstate, the Chicago area's fifth-largest publicly
traded company, with a market capitalization of nearly $37 billion. Since
he became CEO in 1999, Allstate shares have risen 40%, compared with a 4%
decline for the Standard & Poor's 500 Index and a 22% rise for the S&P
Financial Index.
The first outsider to lead 74-year-old Allstate, he
confronted an organization steeped in militaristic customs that reflected
a penchant for recruiting former military officers. Until the early 1980s,
management meetings often ended with choruses of "Anchors Aweigh" and the
theme songs of other service branches.
In such a culture, process and procedure were supreme,
as was deference to rank and authority. Outsiders were rare, and it took
decades to earn the coveted title "Allstater."
Mr. Liddy gave that culture a jolt in his first
managerial meeting in late 1998, shortly before formally assuming the CEO
job. "A number of you in this room probably will not be with us next
year," he told the gathering of 200 top managers.
Such talk was startling at a company that considered
frankness impolite, says Allstate Vice-president Robert Pike, a 33-year
company veteran. At the next year's meeting, about 10% of the group was
gone. Today, half of Allstate's senior leadership is from outside the
company. "Ed's gone about dismantling that bureaucracy," says W. James
Farrell, CEO of Glenview-based Illinois Tool Works Inc. and an Allstate
director.
SOPHISTICATED APPROACH
Along with cutting red tape and taking away cherished
perks like a corporate helicopter, Mr. Liddy brought a more sophisticated
approach to an insurance business characterized by cycles of brutal price
competition, surges in claims and volatile investment returns. He oversaw
the development of a risk-based rate-setting mechanism that enables
Allstate to offer better rates to drivers who are less accident-prone
while charging others enough to cover claim payments.
Before joining Allstate as chief operating officer in
1994 shortly after its spinoff from Sears, Mr. Liddy was best known as the
executive who jettisoned the legendary Sears Catalog. As chief financial
officer at Sears under then-CEO Mr. Brennan, he helped manage the breakup
of Sears' financial empire, which included Allstate, stock brokerage Dean
Witter, real estate broker Coldwell Banker and credit card issuer Discover
Financial.
Mr. Liddy arrived in Chicago in 1981 to take a job at
pharmaceutical company G. D. Searle & Co., then led by Mr. Rumsfeld, now
U.S. secretary of defense, who was a Sears board member at the time of the
breakup. Mr. Liddy eventually became Searle's CFO.
A New Jersey native who spent his high school years in
Florida, Mr. Liddy's roots are middle-class. His father, a furniture
buyer, died of cancer when Mr. Liddy was 12. A three-sport athlete in high
school, he played basketball for two years at Catholic University of
America in Washington, D.C., where he aspired to be a diplomat.
A minor in economics sparked an interest in business,
and he got an MBA from George Washington University, also in D.C. His
first job was as a financial analyst for Ford Motor Co. in Michigan.
"No one will confuse Catholic University and George
Washington with Harvard and Yale," Mr. Liddy says wryly of his lack of
pedigree.
With blue eyes made more intense by his bright white
hair, Mr. Liddy doesn't raise his voice or slap backs. He prizes data and
preparation; executives are expected to scour 3-inch-thick briefing books
before meetings and are kept honest by the knowledge that Mr. Liddy reads
them, too. He also encourages constructive disagreement.
TOUGHNESS UNDERNEATH
He thoroughly analyzes decisions, even long after
they're made. Mr. Wilson, 47, who worked with Mr. Liddy at Sears and now
heads Allstate's property and casualty operations, recalls the
$850-million deal the two managed at Sears to refinance the Sears Tower in
1994.
"Every year for the next five years, Ed would say to me,
'Did you think we did the right thing on Sears Tower?' " Mr. Wilson
recalls.
Jim Fish can testify to the toughness underneath Mr.
Liddy's mild demeanor. A 28-year Allstate agent who ran the largest agency
in Wisconsin, Mr. Fish led the agent insurgency after Allstate forced
6,400 employee agents in 2000 to become independent contractors, giving up
pension and health care benefits.
Mr. Fish confronted Mr. Liddy at the 2002 annual meeting
about a failed overseas expansion and a disappointing effort to sell
directly through toll-free call centers and the Internet. Mr. Liddy eyed
Mr. Fish impassively and replied: "We wish everything we tried worked and
worked well. Not everything you try can be perfect at the outset."
One month later, Allstate terminated Mr. Fish's
contract, citing "failure to maintain a professional relationship" with
the company. "I miss my agency," Mr. Fish says now, retired at 56 in
Mississippi. "Twenty-eight years of your life, it's hard to let go."
Soon thereafter the agents' lawsuit against the company,
over forcing them to become contractors and their effort to unionize,
collapsed after setbacks in the courts and federal government. Mr. Liddy
betrays no satisfaction over the triumph, saying only "in any sample of
13,000 people, there are people who don't like what you do."
Plenty of people like what Mr. Liddy does now. He's a
sought-after speaker on corporate turnarounds, holds a coveted board seat
at Goldman Sachs Group Inc. and is chairman of Northwestern Memorial
HealthCare.
"This is a guy who's on top of the food chain," says
executive recruiter Peter Crist of Crist Associates in Hinsdale.
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.
