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Breaking News
November 1999 - December 1999
What
Do I Do About Sears and/or Goodyear?
Motleys Foolish
Four
Dec 22, 1999
This is one of those questions with at
least two very definite but contradictory answers.
If you are renewing your entire portfolio
now and your intention is to follow the strategy exactly, then you would
sell it (them) and reinvest the money in next year's stocks when you do
your normal renewal. That's not because they aren't good turnaround
possibilities, but simply because they aren't part of the Dow anymore so
they won't be "on the list."
If you bought sometime after the start of
the year last year and your intention was to follow the "start any
time but hold until the end of the NEXT year" plan, then you simply
hang on to Sears (NYSE: S) and Goodyear Tire (NYSE: GT) until December of
2000.
Apparently it bothers some people to sell S
and GT when they are down, especially since they would almost certainly be
on the Foolish Four list today if the Dow hadn't thrown them out. I am
very sympathetic to that argument and certainly don't object to anyone who
wants to hold them for that reason. It's not my recommendation, though,
because I base my recommendations on the past history of the strategy. We
simply don't have enough similar instances from which to draw conclusions.
Those return
numbers we so often quote come from a strategy where a stock that was
removed from the Dow was always replaced on the portfolio renewal date.
That's all we know.
However, the stocks that have been removed
from the Dow in the past suffered
no particular ill effects (although some were already in big trouble).
It's not a death knell or even a wake-up call, in most cases, and I see no
reason for Sears and Goodyear not to go through the same (probable)
recovery cycle off the Dow that they would follow if they were on it.
I want to duplicate your portfolio but I
will be skiing in the Alps. Can I get the stocks a day early?
I love it when people ask me for the
Foolish Four picks in advance. Last year I was offering to sell them for
some cash under the table, but no one took me up on it. Maybe that's
because I told them, in the nicest way possible, that if they were asking
that question, they weren't ready to invest any real money anyway. First,
start with the Foolish Four Explained, I would say.
For the record, whenever you are ready to
invest, the Foolish Four for you will be those stocks over there on the
right. If you want a more up-to-the minute list or you want to see all the
underlying numbers, you can use the Today's Stock Lists link, also on the
right. You should also understand that the stocks we pick for our
portfolio are at least partly a
function of the day we chose to invest. If you decide to invest on
December 31, you don't want to buy our stocks, you want to buy the ones on
the December 31 list. They will be similar, sometimes even the same, but
the idea is to buy the stocks when their prices are relatively lower.
As Sears and Goodyear buyers know, that
doesn't guarantee that you will be buying the stocks at their low, but it
does usually give you a relatively good buy-in point.
Do you really think this strategy is still
working?
That's a very good question. Until Caterpillar (NYSE: CAT) collapsed, we
were comfortably ahead of the Dow for the year, and I thought we might be
returning to a kind of "normal" after several years of
under-performance.
Now it doesn't look like that, although
obviously one year and one stock are not determining factors for this kind
of strategy. (Think Long Term!!!)
But I do think that it's quite possible
that the strategy isn't working as well as it did in the '70s and '80s for
two reasons. One, it's a "value" strategy, i.e., it's based on
buying stocks that are priced low relative to their intrinsic value. The
bull market of the '90s has all been based on "growth" stocks,
stocks whose price is based on their potential for rapid growth. These are
two fundamentally different kinds of investing and there
isn't much doubt that growth investors have faired better in recent years.
The markets undergo regular shifts from
value investing to growth investing. A lot of experienced growth investors
are keeping some cash in the Foolish Four as a hedge against that kind of
shift. When it happens it isn't pretty. If this is the case, then a good
long term attitude is all that we need. But....
The other reason why the strategy may be
under-performing the market lately is of more concern to me. It's the idea
that the Dow has been shifting its emphasis on substantial dividends as a
criteria for inclusion. If the editors of The Wall Street Journal, the
people who select the Dow stocks, have been using different criteria to
define a Dow stock
(which is probably a good idea if they want their index to reflect a
market that increasingly disdains dividends), then the pool of
high-yielding stocks from which our Foolish Four stocks are selected is
shrinking and that would naturally lead to lower returns.
That is something we can do something
about, though. See Is Something Wrong
With the Foolish Four? and Heresy for a more thorough discussion of this
topic.
Other frequently asked questions, with
links to answers, have been:
When is the best time to start? 03/31/99:
When to begin and 09/04/98: Fun
with Statistics
Wondering about the changes in the Foolish
Four and why it doesn't match the books? The Foolish Four Evolves
Want to know how to avoid investing in
Philip Morris or other socially controversial companies? Or just wondering
if you should drop XYZ because it looks like a sure loser? 10/21/98:
Messin' With the System
Want to get started but not sure how, or
even if it's feasible?
9/21/98: Let's Talk Money, Pt. 1
Things not going as well as you expected?
10/09/98: It's Not Working!
If you're planning to do the Foolish Four
switch with us on Thursday, please make sure you've "done your
homework." Then you will be ready to take the plunge.
Fool on and prosper!
Sears
Internal Memo
December 22, 1999
To. 1DGN To:
Sears Associates
From: Arthur C. Martinez
Re:
Additional 10 Percent Off on December 30
Last weekend's sales were not what we had
planned for; however, our margins continue to hold up well. Competitors'
promotional activity is more intense than ever, and I believe, put
pressure on their gross margins. The final week is still very important to
us, and we hope to make up some lost ground. Support Sears in any way you
can, and encourage friends and families to shop us.
I would like to thank each of you for your
contributions this year and extend to you and your families my best wishes
for a wonderful holiday and a prosperous New Year. As a last thank you for
the holiday shopping season, the year and the century, we will offer Sears
associates an additional 10 percent off at all retail stores on December
30, 1999. This will be similar to our special family night, but for the
entire day and evening of the 30th. Besides the additional 10 percent
discount, there are some special sale items that include a broad range of
apparel, all treadmills, all mechanics tool sets, tool storage, and all
tires. Christmas merchandise is 50 percent off. There also will be 0
percent financing on appliances until January 2001 or free delivery for
items more than $399.
I look forward to a challenging and
successful 2000. We have taken many important steps toward building a
great future for this company in 1999. We have listened to our customer
and have made changes based on their input. We have restructured to
eliminate silos and present a united Sears to our customers. I am
gratified with the progress to date, but we have a very long road ahead. I
look forward to traveling that road with you.
Again, I hope you have a wonderful holiday.
Editor's
Note:
We Wonder - - - Does this include Retirees????
Dec. 24
Update:
We have conferred with Chicago. The 10% does extend to retirees.
Ongoing
Shuffle at Sears. Another Top Executive Leaves. Earlier Shakeup Left Position Diminished
By Susan Chandler,
Chicago Tribune
Dec 16, 1999
Another
high-ranking Sears, Roebuck and Co. executive is jumping ship as the
nation's second-largest retailer heads for its fourth consecutive year of
disappointing results.
Richard Srednicki, president of Sears' Home
Services division, has resigned to take a credit card post at Chase
Manhattan Bank in New York, Sears confirmed Wednesday. Srednicki could not be reached for comment,
but his departure doesn't come as much of a surprise, Sears observers
said. Srednicki, who arrived at Sears only last
year, recently had seen his position diminished in importance as part of
an executive reshuffling in September. Before then, he reported directly
to Sears Chief Executive Arthur Martinez.
After the management reorganization, which
was prompted by weak sales at Sears' department stores, Srednicki reported
to Alan Lacy, one of the two executives Martinez elevated to serve with
him in a newly formed Office of the CEO.
Another likely reason for Srednicki's exit
is the sagging performance of the Home Services division he headed. Home
Services, which includes everything from appliance repair services to
kitchen remodeling, was supposed to triple its revenue by 2001, to $10
billion. But its growth hasn't come anywhere near
that grandiose goal. Last year, Home Services revenue increased a mere 1.3
percent, to $3.11 billion.
For
the moment, Srednicki's duties will be assumed by Lacy, who also heads
Sears' credit unit, according to company spokesman Tom Nicholson. Lacy, who stepped in as head of credit when
the formerly high-flying unit landed in trouble with soaring levels of bad
debt, has become a major fix-it guy for Martinez, Sears observers say. Nicholson denied that Srednicki's
performance had anything to do with lagging performance at the Home
Services unit.
"While he was here, Rich did an
absolutely great job instilling processes, procedures and quality control.
He made some really significant contributions and built a great senior
team," Nicholson said.
Meanwhile, another top-ranking Sears
executive who was ousted in the September reorganization has landed a new
job. Robert Mettler, the former head of
merchandising at Sears, has been hired by Macy's West, a division of
Federated Department Stores Inc., as its new president and chief operating
officer. Mettler will report to Jeremiah Sullivan,
who was promoted Wednesday to chairman and CEO of Macy's West.
Moody's
Cuts Sears Debt Rating
Approximately
$24 Billion of Securities Affected
Moody's Investors Service
Dec 15, 1999
Moody's Investors Service lowered the debt ratings
of Sears, Roebuck and Co. and its subsidiaries, including Sears Roebuck
Acceptance Corp.
The downgrades reflect that Sears' debt protection
measures have not improved as rapidly as anticipated as well as Moody's
expectation that a more competitive environment will constrain improvement
in Sears' financial performance over the intermediate term,
notwithstanding our expectations for a good fourth quarter
performance.
The ratings also recognize Sears, Roebuck's strong
franchise with consumers in the United States, the strength of many of its
brands, as well as the market share gains it continues to garner in home
appliances.
The rating outlook is stable based on an expectation
of improved performance in Sears' retail business and enhanced near-term
earnings from its credit operation, resulting in large part from reduced
bad debt expense.
Ratings downgraded are:
Sears, Roebuck and Co. -- notes, medium term notes, debentures, and
issuer rating to A3 from A2; senior unsecured shelf registration to (P)A3
from (P)A2, subordinated shelf registration to (P)Baa1 from (P)A3;
preferred stock shelf registration to
(P)``baa1'' from (P)``a3.''
Sears Roebuck Acceptance Corp. -- notes, medium term
notes, senior notes, debentures, global notes, global bonds, eurobonds to
A3 from A2, senior unsecured shelf registration to (P)A3 from (P)A2,
subordinated shelf registration to (P)Baa1 from (P)A3, and the company's
rating for commercial paper to Prime-2 from Prime-1.
Sears DC Corp. -- medium term notes to A3 from A2,
and
Orchard Supply Hardware -- senior notes to A3 from A2.
Sears' financial performance and debt protection
measures have been weaker than expected during the last few years. The
sales, earnings and cash flow momentum begun earlier in the decade, as
Sears increased its focus on soft-lines, has not been sustained.
Recent stronger comparable store sales gains are being achieved against a
backdrop of weak comparable store sales performance during the same months
in the prior year, and sustaining such growth over the intermediate time
frame may become increasingly
challenging.
The company has also experienced increased
competitive pressures in its credit business. Although near-term earnings
should benefit from a significant reduction in consumer credit bad debt
expense, Moody's expects that earnings gains from further
significant reductions in bad debt expense may be difficult for the
company to achieve in the intermediate-term given the substantial progress
already made and the more competitive consumer credit environment.
During the mid-1990s, Sears rapidly expanded its
credit card account origination. However, because other credit grantors
were luring the better credit quality consumers to alternative credit
products, Sears' rapid growth came disproportionately from weaker
credit quality consumers causing it to experience significant increases in
charge-off rates in 1997.
Since that time, Sears has implemented various
controls to address deterioration in its credit card portfolio, including
tightening underwriting and collection procedures. A decline in the
charge-off rate since April 1998 reflects that improvement and continued
adherence to tighter credit controls should have a positive effect on
long-term portfolio quality.
The charge-off rate on Sears Credit Account Master
Trust II, reflecting trends evident in the Sears portfolio as a whole, has
ranged between 6.8% - 8.6% since that time, down from the peak 9.3% - 9.5%
range in late 1997/early 1998. However, the industry trend towards fewer
sales generated on department store private label credit cards will likely
continue. Lower penetration could result in a reduction in receivable
balances on which Sears can generate finance revenues and fees.
During the last 15 months, Sears transitioned its
credit operation to a systems platform that can provide enhanced
underwriting, collection, and pricing capabilities. But, there is more
competition for all credit grantors including Sears, and as such,
maintaining
market position and portfolio size, as well as significantly increasing
credit earnings will be challenging. Similarly, challenges facing Sears'
merchandising business may also constrain portfolio size and resultant
cash generation.
Declining consumer loyalty and cross-shopping of
retail formats are exacerbating the challenges of an intensely competitive
shopping environment. Increased focus on value is polarizing consumer's
shopping habits, such that consumers are trading up to
designer brands or are purchasing based on low price and acceptable
quality.
Moody's believes that these trends are hurting
mid-range department stores, such as Sears, making it more difficult for
the company to grow sales and sustain retail margins.
Additionally, Sears faces strong competition from
specialty apparel chains that also offer merchandise at a reasonable price
point. The competitive pressure from upper-tier department stores,
lower-priced discounters, and certain specialty stores - - all of which
have improved their merchandising execution - - will continue to challenge
Sears as it endeavors to differentiate its merchandise offering.
Sears clearly enjoys a strong market position,
especially in its hard-lines business, with the U.S. consumer. This is
underscored both by the strength of its brands, such as Kenmore,
Craftsman, and DieHard as well as by a growing market share in its
appliance business.
However, Sears' hard-lines business competes in a
marketplace in which
gross margin rates are low, typically five to ten percentage points below
apparel products. The lower gross margin of hard-lines merchandising
necessitates that retailers of these products maintain a low cost
structure. Although Sears benefits from
owning or holding long term leases on many of its locations, the company's
hard lines business is likely to have higher operating costs than do
competitors with free-standing locations because it primarily competes
using its regional mall-based store format.
Additionally, the mall based store format lacks the
convenience of a free-standing store. Sears' initiative to sell these
products via the Internet could potentially lower its cost structure for
products sold in this manner and may partially mitigate the margin issue,
but Internet sales and sales in the company's off-the-mall stores may not
be of sufficient magnitude near-term nor have a sufficiently higher
margin, to provide substantial profit gains for Sears in this business.
Difficulty in improving the low margin structure in
this segment is exacerbated by the expanded product offerings by firms,
such as The Home Depot and Amazon.com, which previously have not
aggressively targeted these categories. Because competitive
market conditions, ongoing industry consolidation, and the potential for
further commoditization of these products through Internet selling will
likely continue, Moody's does not expect industry-wide gross margins to
improve in the foreseeable future. Therefore, substantial earnings gains
may remain challenging to achieve.
________________________________________________________________________
Sears
Statement Regarding Moody's Rating Change
December 15, 1999
To. 1.DGN
To: Corporate Strategic Leadership Team
Situation:
Moody's Investors Service placed Sears debt securities "on
review" for a possible downgrade in September. Sears met with
Moody's and although we had lengthy discussion, Moody's chose to
downgrade Sears ratings today.
Sears Statement:
This decision ignores recent improvements in our business. Considering
Sears strong sales performance in recent months - we reported solid
sales
increases for September, October and November - it is disappointing that
Moody's chose this course of action. Sears continues to generate strong
positive cash flow and has a solid balance sheet. We have significant
flexibility when it comes to securing capital and continue to have broad
access to the capital markets.
Today's announcement was not a surprise; we
believe our current borrowing rates anticipated Moody's action. This
action will not affect our day-to-day operations, customers, suppliers
or employees.
Q: Is this announcement a signal that Sears is
experiencing financial difficulties?
A: Absolutely not. We reported solid sales increases in September,
October and November. Sears continues to show a strong cash flow and a
solid balance sheet.
Q: How will this affect Sears vendors? Will there
be any problems paying current suppliers?
A: This will in no way affect Sears vendors. Moody's ratings do not
affect our ability to pay for goods and services used in our day-to-day
business operations.
Q: How will this affect Sears stock price?
A: While we cannot speculate on how this action may affect the price of
Sears shares, we can tell you that Moody's announced it was placing
Sears on review in September. It is not unreasonable to assume that this
information already may be factored into our stock price.
Q: How much will this cost Sears?
A: While the cost of obtaining capital may be slightly higher in the
short term, it will not be a significant increase for the balance of
1999 or 2000.
Q: Will this affect Sears Credit business?
A: The debt securities Moody's downgraded does finance Sears Credit
receivables. While the cost of obtaining capital for this purpose may be
slightly higher in the short term, it will not be a significant increase
for the balance of 1999 or 2000.
________________________________________________________________________
Ed Comments:
It appears another of Arthur's failed programs has hit again
"Sales at all costs." Gross margins are dropping and Moody's
notes its effect on the company. Who will Arthur blame now for
"poor advise"? Who next will hit the revolving door of top
executives?
Sears
Dumps Softer Side for Hard Sell
Focus is on Price in
Make-or-Break Holiday Season
By Eddie
Baeb,
Crain's Chicago Business
Dec. 13, 1999
Call
it the cheaper side of Sears.
The holiday shopping season the most important time of the year for
any retailer is crucial this year for Sears, Roebuck and Co.,
struggling to bounce back from a third-quarter earnings warning, a sharp
decline in its stock price and monthly same-store sales that have been
relatively flat most of the year.
Unlike past years, when the Hoffman
Estates-based merchant tried to burnish its image with its "Softer
Side" campaign, the strategy this season is to emphasize price,
aggressively touting markdowns throughout the store in hopes of drawing
holiday bargain-hunters.
Of course, early-bird specials and
40%-to-50% markdowns are as commonplace during the Thanksgiving weekend as
gravy boats and leftovers. But Sears' new value-oriented approach reflects
subtle and not-so-subtle changes to its marketing strategy changes
that Sears says helped boost sales in October and November, when it
outperformed several rivals.
Through redesigned ad circulars peppered
with the word "sale" and a new tagline that underscores the
focus on price "The Good Life at a Great Price. Guaranteed."
Sears is aiming to win back some of the value-conscious shoppers it's
lost to big-box chains like Best Buy, home-improvement giants like Home
Depot and discounters like Target.
But some observers warn that it's a
short-term fix that's likely to create long-term problems.
"It's all very well to have strong
(same-store sales) numbers, but if they're being attained at the cost of
margins, that's a negative," says Asma Usmani, an analyst with Edward
Jones in St. Louis.
In fact, Sears' retail gross margins dipped
in the second and third quarters. In each instance, Sears blamed a
"greater level of promotional activity" at its full-line stores
for undercutting margins.
Under Mark Cohen, president of soft lines
and chief marketing officer, who's headed Sears' marketing efforts over
the past year, the store has held more sales promotions than in 1998.
Sears has told analysts that in the second
and third quarters, customers snapped up the sale items, but picked up
few, if any, additional items. Contending that it's now past that problem,
Sears argues that it's not sacrificing margins to bolster monthly sales.
However, it does acknowledge that its main
focus currently is on increasing business at the full-line stores. Many
industry observers consider this a make-or-break holiday for CEO Arthur
Martinez.
Momentum needed
Sears posted strong month-to-month same-store sales gains in October
(4.7%) and November (5.9%), outstripping gains at Wal-Mart Stores Inc. and
Gap Inc.. and declines at J. C. Penney Co.
But Sears stock has fallen 27% this year,
and is down about 40% from a 52-week high of $52.44 reached in May.
News of a strong Thanksgiving weekend
boosted shares to $35 from $31. But the price fell below $31 last week
after news reports that sales for the first week of December were in line
with lowered expectations: a low, single-digit increase.
Mr.
Martinez, who has headed Sears for the past seven years, needs some
momentum if he is to pull off another turnaround, prop up the stock and
carry any holiday-season gains into next year.
That's where the price strategy comes in
this Christmas.
Sears has redesigned its newspaper ad
inserts, for example, to feature one sale item on the cover, and has
enlarged the type on prices throughout.
In a circular that appeared the day after
Thanksgiving, prices were reduced 50% from 7 a.m. to 11 a.m. on all
slippers, candles and Sears-label women's sweaters and men's dress shirts.
On Pages 2 and 3 of the broadsheet insert, the words "save" or
"sale" appeared 44 times. Sale prices representing more
modest markdowns also were offered on national brands such as Reeboks
and Levi's Dockers khakis.
"We always had sales and appealing
prices, but we didn't shout it," says a Sears spokeswoman.
"Consumers are value-conscious, and we needed to play in that arena.
We needed to make more noise about (value)."
But too much noise about sales carries
risks, as well. Promotions can be overhyped to a point where customers are
no longer motivated. Another danger: Customers become reluctant to buy
full-price items when retailers seem to hold continual sales.
"It's like a drug," says George
Whalin, president of Retail Management Consultants Inc. in San Marcos,
Calif. "It gets easy to run a promotion every week and drive
customers through your doors. But you have to show some constraint and
pick and choose your spots."
Criticism of strategy
This year, Sears reintroduced "Super Saturdays," one-day,
storewide sales that don't coincide with traditional sales events like
Thanksgiving Friday, President's Day or Memorial Day. The company held
five such events this year, the last one on Dec. 11. Sears would not say
whether the events are on next year's calendar.
Another new promotional push in '99 has
focused on Sundays and Mondays of Monday-holiday observances such as Labor
Day. Among the features: low prices on inexpensive items such as batteries
and videocassette tapes, aimed at drawing in customers who'll then buy
additional goods.
While retail experts don't think Sears has
become overly promotional yet, some believe its strategy is flawed.
"Next year, it will be tough to meet
that level of sales with a steadier strategy rather than hyping it with
sales," says Walter F. Loeb, a New York-based retail analyst and
publisher of Loeb Retail Letter. "Sears needs to maintain a quality
image rather than becoming a place where people only respond to
sales."
But Sears doesn't think it's saturated
customers with too many sales.
"Many retailers have eroded their
brand by cheapening who they are. We have coupled our sales with
news," the company spokeswoman says. "We're far from diminishing
the value of Sears."
Sears'
Shuttered Wheel Balance Unit Probed by U.S.
Hoffman
Estates, Il.,
Dec. 7, 1999
Sears,
Roebuck & Co., the No. 2 U.S. retailer, said federal prosecutors are
investigating the AccuBalance automobile wheel-balancing service offered
at its auto centers between 1989 and 1993.
The investigation into the now-closed
business shows the U.S. probe into Sears' auto-service unit is broader
than previously reported. A federal grand jury is looking into charges
Sears sold used auto batteries made by Exide Corp. as new.
Sears fell 1 7/8 to 33 1/16 on trading of 3
million shares, 25 percent higher than its three-month daily average of
2.4 million shares.
Exide, the world's biggest battery maker,
yesterday disclosed the investigation into Sears' wheel-balancing
business, seeking to deflect attention from charges that cut one-fifth off
its market value -- about $42 million -- since they were reported Nov. 30.
Today, it fell 3/8 to 8 1/16. ``This is not an investigation that is
focused solely on Exide,'' said Bruce
Boyle, an Exide spokesman. He said the company obtained a copy of a grand
jury subpoena issued to Sears seeking information about its auto wheel
balancing business, as well as its sales of Exide auto batteries. Boyle
declined to provide a copy of the Sears subpoena, or explain how Exide
obtained it.
Cooperation
Sears is cooperating with the federal
investigation, said spokeswoman Jan Drummond. In 1997, the Hoffman
Estates, Illinois- based company paid $580,000 to settle civil allegations
by Florida's attorney general that it charged customers for wheel
balancing services they may not have received.
Sears declined to comment on whether it
received a subpoena. The office of the U.S. Attorney for the Southern
District of Illinois, W. Charles Grace, in East St. Louis, declined to
comment.
Last
week, Bloomberg News reported a federal grand jury is investigating sales
of Exide auto batteries by Sears, and subpoenaed dozens of boxes of
material gathered by Florida. The subpoena was issued months after Sears
and Exide paid $3.7 million to settle civil claims by Florida's attorney
general that they sold used auto batteries to consumers as new.
The subpoenaed material included sworn
testimony by a former Exide executive given to Florida investigators that
he paid $20,000 in bribes to a former Sears battery buyer at the direction
of Exide's former top executives.
The Reading, Pennsylvania-based company was
the chief supplier of the batteries to
Sears, the world's second-largest retailer, until Sears terminated their
contract on March 1.
Exide said it contacted federal prosecutors
in Illinois last week and pledged its full cooperation with the grand
jury.
Exide Boyle
added that Exide hasn't been subpoenaed or contacted by federal
prosecutors in Illinois. He said the company has replaced its board of
directors, chief executive, chairman, and other members of management
since March 1998. ``The current management team at Exide has changed both
the culture and the personnel allegedly responsible for these events,''
said John Van Zile, general counsel.
Exide said it notified the Securities and
Exchange Commission of issues raised by Florida's investigation including
the allegations of bribery and selling used batteries as
new.
In 1997, after the earlier investigation,
Florida Attorney General Bob Butterworth accused Sears of deceiving wheel-
balancing customers. ``The company continued promoting and charging for
AccuBalance even after the machines needed for the process were removed
from Sears auto shops,'' said Butterworth.
Ed. Comments:
Sears stock down again today. There well may be more trouble for Sears in
the near future. One wonders who may be called to testify before the grand
jury? A few former officers may get a free trip to southern Illinois to
tell their story. May not be a happy New Year for some.
(12/7)
American
Express and Discover Sued for Online Loans
Reuters
Dec 6, 1999
A California man who lost $25,000 gambling
online has sued American Express news and Discover Financial Services,
arguing the credit card companies encouraged his gambling.
The suit filed in Marin County Superior
Court, north of San Francisco, seeks to stop American Express and Discover
from extending credit for Internet gambling to California residents.
The lawsuit alleges the credit card
companies participate in and profit from illegal online gambling by
issuing merchant accounts to Internet casino operators who accept bets
from web surfers located in California where such gambling is illegal.
American Express spokeswoman said the
company has not been served with a complaint yet and added it prohibits
merchants from accepting the American Express card via the Internet for
gambling purposes.
Officials at Discover, owned by Morgan
Stanley Dean Witter Co. news were not aware of the suit.
The plaintiff, Frank Marino, lost over
$25,000 to online gambling casinos while web surfing in California using
his American Express and Discover credit cards, a prepared statement by
Marino's attorney said.
The statement said the credit card companies
and their affiliated banks are paid a fee by the Internet casinos, usually
between 2 and 5 percent for each online gambling transaction. It added
that consumers pay the companies interest and late fees on the gambling
loans.
American Express shares closed up 1-1/2 at
158-5/8 on the New York Stock Exchange.
Good
News for Sears
Is the stock finally turning around?
Ann Coleman
Dec. 2, 1999
All of a sudden, Sears is looking good.
Several analysts have upgraded their ratings on Sears, and a whole passel
of positive stories have hit the wires.
Sears gets brownie points for selling
energy-efficient appliances .
Sears starts Christmas shopping season off
with a strong Thanksgiving weekend.
And the biggie -- Sears expands its website
with online gift cards, online credit applications, instant processing,
and my favorite: Tool Territory. It sounds like Sears is playing to its
strengths.
Meanwhile, the stock has bounced back at
least part of the way from that dread moment when it was kicked off the
Dow. It dropped as low as $27 after the Dow announcement, but closed today
at $34.50 -- up 28% in six weeks. It still has a long way to go before it
gets back to the price range of $40 to $50 where many Foolish Four
investors bought it last spring, but at least it's going in the right
direction, at the moment anyway. More important than the stock price may
be the more positive attitude I seem to detect about the company's future.
If I may be permitted a small sermon -- O,
Ye of little faith! Six weeks ago Sears was the dog that would never bark
again.
The whole point of the Foolish Four
strategy is to find the companies that people think are on death's door.
Because we deal only with blue-chip stocks, the chances are good that most
of the weeping and wailing is over-reaction.. Sure, these companies are
having a hard time, but in most cases the problem is temporary (as in, it
goes away in a year or two, but usually not in a month or two).
The discipline of the Foolish Four strategy
helps us pick those stocks when no one else wants them. Naturally, they
are not going to turn around the day we buy them, and some will never turn
around. But you buy them, you wait a year or two, sometimes three, and at
some point management wakes up, or the economy changes, or the rest of the
investing world discovers that undervalued gem, and your patience is
rewarded.
The problem with Sears isn't that it didn't
turn around soon enough, but that it continued to drop after a lot of
folks in this community bought it. When they made their actual purchase
will ultimately affect how this stock does for them.
That's one of those unfortunate truths, and
the basic underlying reason why investing in stocks pays better in the
long run than investing in sure things.
By the way, now that I have called Sears a
"turnaround," you can expect it to start another decline
beginning right... about... now. But I'm not worried. I'm heading over to
Tool Territory!
Sears
Stock Upgrade
Brenon
Daly, Susan Lerner & Tomi Kilgore - MarketWatch
Dec. 1, 1999
Sears, Roebuck and Co. is gaining 11/16 to
34 7/8. In Banc of America's mid-day report, analyst Thomas H. Tashjian
upgraded the retailer to "buy" from "under-perform." He
believes the stocks current valuation offers an "excellent entry
point in the face of strong holiday performance." The 12-month price
target for the former Dow Industrials component is $44. Tashjian also
lifted his fourth-quarter EPS estimate to $1.50 from $1.47, but the
repurchase program of 10 percent of its outstanding shares "could
offer further upside."
Sears
Statement Regarding Exide Battery Investigation
Hoffman
Estates, Il.
Nov. 30, 1999
Attorneys
for Sears have been in communication with the U.S. Attorney's Office for
the Southern District of Illinois regarding allegations stemming from
Sears former sales of Exide batteries, and the company is cooperating
fully.
In April 1999, Sears reached agreement with
the State of Florida to close its two-year investigation into the
company's purchase, distribution, and sale of automotive batteries
supplied by Exide Corporation. Sears strongly contested the State's
assertion that Sears was selling used batteries as new, and the State did
not file any charges against the company. Sears paid the State's $985,000
cost of investigation. Sears has always sold and continues to sell new
first quality automotive batteries in all of our stores.
Sears
recently obtained the sworn statement, which was given to the Florida
Attorney General's office by Joseph Calio, Exide's former senior vice
president for sales and marketing. In his sworn statement, Mr. Calio
admitted that Exide paid a former Sears battery buyer $20,000 in cash.
Sears has filed a claim against Exide and Mr. Marks with respect to this
matter. Sears was outraged to learn of the payments and is seeking civil
recourse. Sears has ceased doing business with Exide as of March 1, 1999.
Through its network of more than 850
full-line stores and 2,100 specialty stores, Sears provides apparel, home
and automotive products and related services for nearly 60 million
American households.
Sears
Shareholder Lays It On the Line
Steven R. Strahler, Crains Chicago Business
Nov. 22, 1999
A Sears, Roebuck and Co.
stockholder has asked the company for a shareholder vote on hiring an
investment banking firm "to arrange for the sale of all or parts of
the company." William Steiner, a Great Neck, N.Y., investor who says
he owns 1,350 shares, argues, "Present management has been unable to
do anything. They need more than a shake-up."
Ed.
Comments: If it is brought to a vote on the proxy, this could
mean big trouble for Arthur Martinez! There are many institutional and
private investors that are exceedingly unhappy with Arthur's performance.
Michigan
Sues J. C. Penney Over Price Scanning
Reuters
Nov. 24, 1999
Michigan sues J.C. Penney over price
scanning NEW YORK, Nov 24 (Reuters) - The State of Michigan is suing J.C.
Penney Co. Inc., charging the No. 4 U.S. retailer with deceptive sales
practices after an in-state survey found Penney's check-out scanners were
wrong on a third of purchases of on-sale items, the state attorney
general's office said.
The Michigan Attorney General's Office
surveyed 19 stores, including four J.C. Penney department stores, and found an overall
scanner error rate of 16.8 percent, an increase over the prior two years.
The survey also found that 85 percent
of the scanner errors were overcharges that are unfavorable to customers.
Officials focused on goods that were on
sale, since those items are used to draw customers to stores and also show
most of the scanning errors, the attorney general said.
In the survey, J.C. Penney, which has
1,150 department stores nationwide, inaccurately scanned 18 of 54 items
purchased, the attorney general's office said.
This topped Hudson's and Sears news, which made errors in 11 of 59 items and 11
of 63 items, respectively. Mistakes were found in 26.7 percent of the 15
sale items scanned at Montgomery Ward, but one of the four mistakes was an
undercharge.
Target had two overcharges of the 30
sale items purchased and Mervyn's had one undercharge of the 32 items
purchased.
J.C. Penney spokesman Duncan Muir said
J.C. Penney has not yet seen the lawsuit, but acknowledged that the
scanning mistakes came from ``human error'' by leaving promotional signs
up too long.
The Plano, Tex.-based retailer said in
a statement issued on Tuesday that it works ``diligently'' to ensure
customers are getting the correct price and that it is disappointed with
the results of the survey.
``Over the past several years we have
built a cooperative relationship with the Michigan Attorney General's
office,'' the retailer said. ``On more than one occasion, we have made our
stores available for the training of the Attorney General's inspectors. We
expect to address their current concerns in the same spirit of
cooperation.''
In this year's survey, J.C. Penney,
Hudsons, Mervyn's, Montgomery Ward, Sears, Kohl's, and Target stores were surveyed. In 1998,
15 percent of items purchased showed scanner errors and 13 percent showed
errors the prior year.
In the holiday season of 1996, scanner
mistakes appeared in 19.8 percent of sale items purchased in the survey.
Sears
Retirees Rally Over Benefit Cuts
Chicago Daily Herald
Nov 24, 1999
Two years ago after Sears, Roebuck and
Co. announced a cutback in its life insurance, about 100 retirees showed
up on a Tuesday at the Oakbrook Center Sears store to protest. The
National Association of Retired Sears Employees continue to be active,
with a mailing list of 26,000 and a Web site, www.narse.org. Retirees also
have a pending class action suit against the Hoffman Estates-based
retailer.
Ed. Comments: Another indication
to Arthur Martinez that we are not going away! It was an enthusiastic and
excellent turnout. NARSE is growing much faster than our expectations, but
we have a ways to go to be able to contact all 133,000 retirees. Now that
you are probably starting your Christmas card list, why not create a
separate list of known retirees and send to NARSE to be added to our
mailing? Advise me of any email addresses. Send your mailing list to:
NARSE c/o Mr. Bud Defano, V/P Membership 1602 Cedar Lane Mt. Prospect, IL
60056-1518, Phone: 847-299-6844 If you are sending Bud a fax, phone first.
There are two courts in the United
States that NARSE is utilizing: (a) The court of public opinion, (b) and
the court of law. Either will have an effect on the company, but the court
of public opinion may well hurt the most. Arthur, why don't you just give
us back our long promised paid up life insurance?
Sears
Board of Directors Dysfunctional?
The 10 Red Flags that
Signal Dysfunctional Boardrooms
Crain's Chicago Business,
Frederick W. Wackerle
Nov. 22, 1999
As shareholders continue to clamor for more
board accountability and a membership list that reflects less cronyism,
more public corporations are searching outside their old boy and old girl
clubs for new board members.
The search beyond their own Rolodexes has
resulted in more non-CEOs and functional executives on their corporate
boards than ever before.
In most cases, this means that neophytes
are being tapped for these important corporate directorships.
But some boards are like dysfunctional
families. They may seem very healthy and productive to the fledgling board
member with little high-level governance experience, but beneath the
veneer of corporate calm, they're often consumed by conflicts that can
render them ineffective and sour the experience for rookie members.
If you're contemplating a directorship at a
public company, watch for these 10 warning signs:
1) The board includes more insiders than
just the CEO.
2) A director is a vendor.
3) A director is a lawyer, consultant or
venture capitalist.
4) Many of the directors have served for
more than 15 years.
5) There are no term or age limits.
6) There's no diversity.
7) The company consistently ranks below its
competitors, or the stock price has languished for several years.
8) The former CEO sits on the board.
9) Board members don't own company stock,
or management ownership is insignificant.
10) The CEO is two years from retirement
but hasn't identified a successor.
If the board you're considering includes
more than four of these pitfalls, there's a very good chance that this
"corporate family" or CEO is dysfunctional.
By dysfunctional, I mean you've encountered
a potential "rubber stamp" board that has little dedication to
effective governance a frustrating scenario for new directors flush
with the passion for and commitment to innovative thinking and leadership.
Indeed, an acquaintance of mine, after his
first years as director of a public company, was asked by the CEO how he
liked being on the board. His honest response: "This has been the
most enjoyable rubber stamp board I've served on."
He didn't stand for re-election, nor was he
asked to.
By the same token, I've discovered that
even outstanding boards of successful companies well-run by talented CEOs
can demonstrate some of these characteristics. Board members are reluctant
to "rock the boat" or challenge either the CEO or themselves
when business is good, the stock price is high and competition is getting
killed. Their mild dysfunction isn't critical.
Troubled companies are another story.
Before joining the board of one, ask how the company's problems developed
and why the board didn't head off the decline. Scrutinize the board for
the 10 red flags, and determine its commitment and game plan to
overcome its problems.
So, be careful. It's an honor and
career builder to sit on the board of a public corporation. But if
you're a neophyte, check out your would-be "family" first. Don't
respond with a rapid "yes" when it makes more sense to be wary.
Frederick W. Wackerle is a Chicago-based
consultant who advises boards of directors and CEOs on succession and
senior management issues.
Ed Comments:
Certainly Sears is a troubled company! Having served on a
number of boards, I find the authors comments well founded. If you
rationalized the above comments reflecting upon the current Sears Board of
Directors, one would most certainly determine that the Sears Board would
be considered dysfunctional! Keep writing your letters to them expressing
your opinions.
Deep
Discount for Sears' Plans
Susan Chandler,
Chicago Tribune
Nov. 20, 1999
It must be New Math. How else can city
officials explain how a $30 million commitment by Sears, Roebuck and Co.
to renovate its six Chicago stores could shrink to $12 million?
Mayor Richard M. Daley himself boasted
about the $30 million figure on the September day he announced the city
was providing $9 million in taxpayer-funded assistance to Sears to build a
new store on State Street.
The quid pro quo was all part of City
Hall's attempt to drive a hard bargain with Sears, which requested about
twice as much public money as the city originally expected.
Yet somehow, when the Sears financial
assistance package came before the City Council Finance Committee for
approval this week, Sears was only committing to spend $12 million.
The math goes like this, City Hall
officials explained. Sears is getting credit for $18 million it already
spent renovating its Chicago stores from 1993 to 1999. So $30 million
minus $18 million is $12 million.
Don't worry, they assured the skeptical
City Hall press corps. Sears will spend the full $30 million on those
stores anyway; it just doesn't want to be on the hook for it.
Considering how Sears has missed its
earnings targets and fumbled its retail turnaround lately, no wonder.
Psychic elf: Every mall has its Santa
Claus during this time of year to delight children and help parents figure
out what the kiddies have their hearts set on.
Gurnee Mills is marching to the beat of
a different drummer boy.
The giant outlet mall in far north
suburban Gurnee has hired a psychic. Clairvoyant Joanna Ammons will be on
hand Saturday afternoons from Nov. 27 to Dec. 18 to help clueless shoppers
read the minds of those hard-to-please types on the gift list.
"Who doesn't have someone on their
list who is hard to shop for?" said Peg LaFond, general manager of
Gurnee Mills. "Ms. Ammons has a remarkable record for accurately
predicting future events and discerning personal preferences."
The Psychic Aid Station at Gurnee Mills
is located in Grange Hall, near Bed Bath & Beyond. Readings are free
to shoppers. But Ammons won't be available to help with returns.
Mama Martha: Many things come to mind
when the name Martha Stewart is mentioned. Extravagant weddings. Turkeys
wrapped in pastry. Perfectionist. Newly minted billionaire.
Maternal, however, doesn't make that
list.
Nevertheless, Kmart Corp. is expanding
its very successful Martha Stewart line of home accessories and linens to
include baby stuff.
The new line offers everything from
soft cotton crib sheets and baby bumpers to hooded bath towels. There is
even a set of burp cloths, each embroidered with the day of the week.
Warning to new moms: It's definitely a
Martha no-no to burp on Friday with a cloth that says Monday.
On the move: Eric Lane has been
promoted to director of e-business for TruServe Corp., the Chicago-based
hardware co-op owned by 10,000 independent retailers.
Lane, a Lisle resident, will have his
hands full. Giant Internet retailer Amazon.com recently began selling home
improvements on-line and Home Depot Inc. is planning to launch its own
e-commerce site next spring.
Ed Comments:
Is Martinez reneging another promise? Could it be that Martinez is now
finding difficulty with capital expenditures? One can't help but wonder
what he'll sell next?
Upcoming
Social Security - A Key to Planning Future
Charles Jaffe,
The Boston Globe
Editor's Note:
I'm aware that there are some personnel on NARSE's email loop that are not
old enough to collect Social Security or may have family members who are
considering retirement. The article below may give guidance to them.
In the next year, you are almost
certain to be part of what is almost certainly the largest direct-mailing
in history.
Before you start groaning about another
one of those publisher's sweepstakes memos cluttering your mailbox and
vowing to throw away whatever junk mail comes your way, consider that this
mail comes from the Social Security Administration and will help you plot
your financial future.
Beginning Oct. 1, workers aged 25 and
up will begin receiving ''Social Security Statements,'' a new four-page
form that will help recipients figure out how Social Security fits into
their future.
By the time it finishes what will
become an annual task, Social Security will have mailed 125 million of its
new statements, or roughly 500,000 per business day. You will get yours
roughly three months before your birthday, meaning that the first letters
will go out next month to people born in January..
Social Security officials will say only
that this is the largest ''customized mailing'' ever undertaken by any
federal agency. It is possible, but doubtful, that some private company
has undertaken a bigger direct-mail campaign..
But the size of the mailing is less
important than the realization that the Social Security Statement is not
junk mail.
The new statement is an updated version
of the badly named Personal Earnings and Benefit Estimate Statement that
Social Security has sent out for years to those workers who request it. In
an average year, however, no more than 4 million people request the form.
''In the past, many people would turn
55 or 62 and walk into a Social Security office and say `I'd like to
retire,' and they were guessing at the benefits they were entitled to,''
says Kenneth S. Apfel, commissioner of the Social Security Administration.
''It's a little late at that point.
''We think that the new statement will
help people plan better for retirement.''
And it will, provided recipients pay
attention.
Says Apfel: ''The 30-year-old will read
it a little less carefully than the 40-year-old, who will read it less
carefully than the 50-year-old. The closer you get to retirement, the more
accurate the information and the more important it is for planning.''
Half of the new statement is a
refresher course in what Social Security is and how it works. Blah-blah,
important stuff but dull.
So look for the numbers.
First, there are your estimated
benefits, which tell you if you have enough credits to qualify for Social
Security and how much you would get - based on your current earnings - if
you stopped working and started taking Social Security at 62, 67, or 70.
It also shows the benefit you would get if you became severly injured or
that your family would receive if you died.
The second part of the equation
involves a history of your earnings.
This is the part of the statement you
will want to compare with your own records, so you can make sure you have
been properly credited for taxed Social Security earnings from the past.
If something looks wrong or does not match your records, contact Social
Security to get the data changed (and your benefits improved). The whole
procedure is outlined in the statement.
While the Social Security
Administration does not know what percentage of statements contain
earnings mistakes, the agency is forecasting complaint calls at a rate
that suggests possible mistakes in 1 to 3 percent of all statements. Those
errors could be the fault of Social Security, or of citizens' former
employers.
Past tax paperwork, such as W-2 forms
or tax returns, should clear up problems, but there may be other solutions
if you do not have old tax returns dating back to the start of your
working career.
''It's always easier to reconstruct
those records today than tomorrow,'' says Apfel. ''So even the people who
aren't close to retiring will want to look at their earnings history and
make sure things are right. You don't want to wait 10 or 20 years and then
try to fix a problem.''
The further you are from retirement
age, the more likely the numbers in the Social Security Statement will
scare you. That's because the benefits are based on your current income
and are not adjusted for the inflation we are likely to experience between
now and when you retire.
Apfel said the lack of an inflation
kicker was based on the fact that some people might look at the blown-up
numbers and be more likely to see Social Security as a complete source of
retirement income, rather than a supplement to other savings.
As for earnings projections, there was
no practical way for the agency to make them. Still, you can get a
customized statement if you have some idea how your income will change
over time. You can get the form needed to request a personal earnings
statement from Social Security's Web site, www.ssa.gov or you can request
a form by calling 1-800-772-1213.
(If you request a report in the next 12
months, you will not be part of the Social Security mailing over the next
12 months; because the statement includes earnings projections and should
be more accurate, the agency will skip the extra paperwork to focus
instead on your 125 million closest neighbors.)
Ideally, the new statement will become
a planning tool, a wake-up call for those people who somehow still believe
Social Security is more than just a financial crutch in retirement. Says
Apfel: ''Clearly, a number of people will see the numbers and say `Social
Security, wow, it's going to be hard to live on that.' And if that
happens, the statement will provide a spark for those people to save
more.''
Of course, plenty of people still
question whether they will ever see benefits, given the long-term solvency
problem of the administration (which currently forecasts running out of
money in 2034). Apfel clearly is disappointed that there is no consensus
yet on how to fix/save Social Security, and that none seems forthcoming
this year.
He tap dances carefully around the
issues of how saving Social Security could mean invalidating the personal
statements the agency sends out. ''The estimate is not just a projection
based on current income,'' he says, ''it's based on current law. Both
could change.''
Still, all indications are that Social
Security is likely to keep providing benefits (one way or another) for the
work force that receives the new statements.
Because of that, this is one mass
mailing you should not ignore.
Charles A. Jaffe can be reached by
e-mail at jaffe@globe.com or at The Boston Globe, Box 2378, Boston, MA
02107-2378.
Sears
Languishig Stock Price/Missed Opportunities
Numbers You Won't See in the Sears Annual Report
David
Snyder, Crains Chicago Business
Nov 15, 1999
Nowhere
is the unsuccessful turnaround and uncertain future of Sears,
Roebuck and Co. more evident than in its languishing stock price. As I
write this column, Sears shares are hovering near a 52-week low of less
than $30. That's a drop of about 45% from their 1999 high, and roughly the
same price at which they traded in October 1993.
If you've held Sears shares for the past
six years, your return (exclusive of a modest dividend) has been zip. If
you bought Sears as recently as six months ago, you've taken a bath.
What is so significant about the decline in
Sears' market value is not so much what it says about the company's
current condition, but that it indicates how little confidence investors
have in Sears' future even after two months of positive sales reports.
A new merchandising strategy? Investors
have heard promises before. In the end, those promises turned out to be
more hype than reality.
A new management team? Sears CEO Arthur
Martinez in September created a three-person office of the chief executive
as a damage-control move following a grave earnings warning. Joining Mr.
Martinez in that crowded office are two of his former CFOs. What Sears
desperately needs now are merchants, not more numbers guys.
Its e-commerce strategy? This is perhaps
the biggest tragedy of all, and it's likely to be the company's most
costly mistake.
What's ironic is that Sears had a chance to
be an early Internet leader. Remember, it was once a 50% owner of Prodigy
one of the first commercialized online services. But along with
partner IBM Corp., it never really managed Prodigy well, and it lost
bundles. Mr. Martinez sold Sears' Prodigy stake in 1996 for an estimated
$125 million. Today, Prodigy is no America Online Inc. (AOL), but it has a
market cap of $1.4 billion.
And in terms of a distribution, fulfillment
and direct-marketing operation, which even the most successful e-tailers
are struggling to build?
Sears
had one, but dismantled it when it closed its catalog in 1993.
To add insult to injury, Sears also had a
30% stake in a high-speed data networking company called Advantis, which
it sold to IBM in 1997 for $450 million. Late last year, IBM sold its
global Internet communications network, a majority of which was Advantis,
to AT&T Corp. for $5 billion.
So, Sears had all the pieces to be a
dominant e-commerce player, but it blew the chance. To get a sense of how
costly the mistake was, consider this: Sears today has a market
capitalization of less than $11 billion. Amazon.com Inc. has a market
value of more than $24 billion. EToys Inc., which competes in just one
sliver of the retail arena, has a market cap of nearly $6 billion.
And of course there's AOL the company
Prodigy could have been. Its market capitalization tops $160 billion
more than 10 times higher than Sears'.
Now, Sears has embarked on a push to make
up for lost time. It went online with sales of its Craftsman tools in
1997, with its holiday Wish Book in 1998, and this year, it launched an
appliance site.
But the market doesn't believe Sears will
be a winner, and its skepticism is well-founded.
With Sears' core business on the ropes, can
the company really afford to absorb the development and marketing costs
needed to be a winner in online retailing?
And even with a key strategic advantage
the ability to offer online shoppers a bricks-and-mortar option for
pickups and returns one must ask if Sears can simultaneously fix its
traditional retail business and successfully launch a new e-tail business.
The answer is likely to be no. Which is why
Sears which earlier this month was removed as one of the 30 stocks in
the Dow Jones Industrial Average is yesterday's story on Wall Street,
not tomorrow's.
Shocks to
Shoppers Shake Retail Sales Stock Volatility, Rate Rise Slow Growth
Susan
Chandler, Chicago Tribune
Nov. 5, 1999
Rattled by stock market volatility and
higher interest rates, U.S. shoppers took a breather in October, causing
sales to slow at many of the nation's largest retailers.
While the overall monthly sales increase
was still a healthy 5.3 percent, that represented a considerable
slowdown from the 7.2 percent average earlier this year when consumers
were spending with abandon.
In fact, retailers have been enjoying one
of the strongest years in recent memory, boosted by low unemployment and
high levels of consumer confidence. But October's numbers cast some
doubt whether the holiday season will be as strong as retailers hope.
"The consumer fundamentals have
turned more negative, and we are seeing a change of pace for the
industry," said Michael Niemira, a retail analyst at Bank of
Tokyo-Mitsubishi in New York.
It was a particularly rough month for
some previously hot retailers such as Gap Inc. But other merchants who
have been struggling, including Sears, Roebuck and Co. and Neiman Marcus
Group, did better than expected.
Hoffman Estates-based Sears, which is
trying to entice shoppers with a more value-oriented marketing campaign,
said its same-store sales, or sales at stores open at least a year, rose
a healthy 4.7 percent in October.
Chief Executive Arthur Martinez said the
strong showing was evidence that customers were responding to "more
focused merchandising in our stores."
Among the retailer's best-sellers were
home appliances, particularly Sears' new Kenmore Elite line of high-end
dishwashers and refrigerators.
Other popular categories included home
electronics, jewelry, cosmetics and outerwear. But women's apparel
continued to be a trouble spot.
Sears' better-than-expected performance
was in sharp contrast to J.C. Penney Co., where same-store sales
decreased 5.7 percent. Penney, based in Plano, Texas, also is trying to
reinvent its moderate-priced apparel business.
The discount segment continued to benefit
from shoppers' quest for value.
Sales at Wal-Mart Stores Inc., the
nation's largest retailer, rose 6.2 percent, while Kmart Corp. racked up
a 3.7 percent increase.
Target, the discounter that is part of
Dayton Hudson Corp., continued its robust performance with a 5.4 percent
sales increase.
At Kohl's Corp., the moderate-priced
apparel and housewares chain from Menomonee Falls, Wis., sales rose 6.2
percent.
Meanwhile, department stores turned in a
mixed performance, with some chains actually posting sales declines.
St. Louis-based May Department Stores
Co., parent of Lord & Taylor, said sales declined 2 percent last
month. Dayton Hudson's Department Store Division, which includes
Marshall Field's, posted a 1.4 percent decrease. Overall, Dayton
Hudson's three divisions posted a 2.9 percent increase.
Federated Department Stores Inc., the
nation's largest department store chain, said sales rose 5.3 percent,
and Saks Inc.--parent of Carson, Pirie Scott--reported a 4 percent
increase.
Upscale retailer Neiman Marcus beat them
all with a 9.4 percent jump in sales.
Specialty retailers, which were some of
the strongest performers early in the year, saw their performance
diverge widely last month.
Ann Taylor Stores Corp. and Limited Inc.
continued their comebacks. Ann Taylor, the women's apparel chain, said
sales rose 11.2 percent. Limited, which owns Express, Structure and Lane
Bryant, reported an 8 percent increase.
But Gap, one of the industry's strongest
performers, stumbled as sales slowed in its Gap store division. For the
first time, Gap provided rough guidance to analysts about how each of
its divisions was doing.
At its core Gap chain, sales declined by
a single-digit figure, Gap said. Its Banana Republic chain turned in a
mid-single digit increase, on top of a 20 percent-plus increase in the
same month last year.
Nov. 5, 1999
Exide
Corporation Responds to Sears
Counterclaim in Lawsuit
Exide Corp. Press Release
Nov. 19, 1999
Exide seeks damages in an
amount not less than $15 million for batteries Exide shipped to Sears, and
a return of bonuses and credits Exide paid to Sears.
In a counterclaim filed last
week, Sears alleges Exide made cash payments of $20,000 or more to a Sears
employee. According to the Sears counterclaim, the payments were made
after Sears awarded Exide an initial supply agreement.. Sears states in
its counterclaim that the employee did not have the authority to select
battery vendors.
Exide denies that any current
member of its senior management team, manager, or agent of the company
made or authorized the alleged payments.
John R. Van Zile, Exide's vice
president and general counsel, said, ``In my opinion, the Sears
counterclaim is an attempt to divert attention from the fact that Sears
owes Exide more than $15 million.''
Van Zile also noted that Sears
raised these issues only after Exide sued Sears and more than a year after
Exide disclosed to Sears that the payments might have been made by former
Exide managers.
In addition, Exide management
also said that it has resolved customer claims concerning the quality of
its batteries at no additional cost to Sears or its customers. Exide
management said it would vigorously pursue its lawsuit against Sears.
Exide Corporation, with annual
revenues of approximately $2.4 billion and operations in 19 countries, is
the world's largest manufacturer of automotive and industrial lead-acid
batteries. Further information about Exide's businesses and products is
available at www.exideworld.com
Not all of my investments are in Foolish Four stocks. This is good
because it constantly reinforces the value of a disciplined mechanical
strategy as I grope and twist my way to a reasonable portfolio return.
But man, I hate to sell a stock that is down. I just can't stand to let go. I
always think that it will come back, especially if there is no good reason for
the drop. (See, I'm doing it already -- rationalizing away!)
Why can't I sell a loser? I've thought about it a lot and have come to the
conclusion that it isn't my belief in the company, it isn't my belief in the
long-term buy-and-hold approach, it isn't even because I am afraid it will go
up after I sell it (although that seems to happen fairly often). It's because
selling it at a loss means I've really lost money on that investment. It means
I was WRONG. That's right, it's really about ego.
This is not good. I pride myself on being a rational person. It's not rational
to hold on to a stock when you are pretty sure that it has very little
possibility of going up. It's really irrational to hold when think you
have better places to put your money. In fact, it's downright stupid. I do it
anyway.
This is one of many reasons why I also invest in the Foolish Four and our
Workshop strategies. They are unemotional, mechanical strategies that tell you
when to buy and, more importantly, when to sell. Hey, they might be wrong, but
at least I have the excuse that I was just following the strategy.
A fair number of Foolish Four investors are coming up against a tough call --
selling Sears and/or Goodyear Tire. As most of you know, those two companies were dropped from the Dow at the
beginning of this month. Many people that bought their Foolish Four stocks
early this year are still holding Sears and Goodyear, and holding them at a
loss.
The dilemma is this: Now that they are no longer Dow stocks, they won't be on
any new Foolish Four lists. Therefore, anyone strictly following the strategy
will sell them when their renewal date comes along. BUT, if they were still on
the Dow, they would be classic slow starters, stocks that one would renew for
a second term, and the chances are pretty good that they will turn around
sometime next year.
So if, like me, you hate to sell a stock that is down, you will be thinking:
Why can't I just pretend that they are still on the Dow?
Hey, you can! With my blessing. Despite the fact that I constantly talk about
following the strategy and the discipline that a mechanical strategy imposes,
this IS The Motley Fool where you are in charge of your financial
decisions.
Now, whether that is the "best" thing to do is a whole 'nother
question. And I don't know the answer.
But here's something to think about. Which decision ultimately turns out to be
the "best" decision isn't about whether Sears or Goodyear rebound
next year. The real question is, What would you invest in otherwise, and how
will it do? (Yes, I'm paying attention to this message, too.) In one
sense, that's a useless question because we can't possibly know the answer.
But in another sense it is an excellent question, because it changes the way
we think about buying and selling stocks. If you own 100 shares of Sears right
now, your holding is worth almost $3,000. So let's look at it this way:
Suppose, instead, you had $3,000 in cash right now. How would you feel
about using the "old Dow" stocks (meaning you hold Sears) vs.
switching to the new Dow?
(Ignore commissions. Commissions are so low these days that for all but the
smallest portfolios, they don't even need to be considered in decisions like
this. Any commission rate below $15 means that you can buy the new stock and
sell the old one for less than 1% of $3,000.)
What it comes down to is this: Your current ownership of Sears or Goodyear
should have no bearing on your decision to own it next year.
Fool on and prosper!
"Leading Companies
Have Great Leaders"
Ed Carson
Investors Business Daily, Oct 19, 1999
Quote...Why do some
companies put together a few quarters of strong earnings before flaming
out while others deliver outstanding profit growth year after year? The
bottom-line difference often starts at the top. Poor management can sink a
company despite having great products. And good managers can squeeze out
strong profits out of an ordinary business. So you'll want to learn a few
things about top management. How long has the CEO, Chairman, CFO and
others been in their current slots at the company? How have sales and
profits done during their tenures? Where did they work before and what
were their tack records? We look to see if management has the strategy to
be able to take these companies larger. If they have that vision and can
execute. It's good for the company and good for our
shareholders."....end quote.
Editorial comment.......
 |
Great leaders create assets
not sell off assets. |
|
Great leaders develop
strategies that work. |
|
Great leaders do not force
retiring loyal, ethical, long service executives to sign "gag"
orders. |
|
Great leaders trust their
senior management team. |
|
Great leaders are not
paranoid. |
|
Great leaders do not
reorganize...reorganize.. reorganize. |
|
Great leaders create jobs not
work force reductions. |
|
Great leaders company's are
not found guilty of fraud. |
|
Great leaders company's are
not beseiged with class action law suits. |
|
Great leaders do not record
hundreds of millions of dollars in special charges against profit,
annually. |
|
Great leaders make money the
old fashion way, sales and profits. |
|
Great leaders are not driven
by a "what is in it for me first" attitude. |
|
Great leaders do not destroy
corporate knowledge. |
|
Great leaders do not manage
through a revolving door. |
|
Great leaders do not blame bad
decisions on flawed advice. |
|
Great leaders rely on
experienced executives not hired consultants. |
|
Great leaders manage by
instinct not from an Office of (financial) Executives. |
|
Great leaders do not make
profit at the expense of its retirees and associates. |
|
Great leaders do not refer to
their retirees as burdens and dinosaurs. |
|
Great leaders do not count
need a friendly a Board of Directors. |
Leading
companies have great leaders................
why
not Sears?
Shoppers
Aren't Seeing the Silly Side of Sears
Susan Chandler
Nov. 13, 1999
Paco Underhill makes his living figuring
out what makes shoppers tick. He and his employees spend hours tracking
shoppers in stores, recording their every movement and gesture, like Jane
Goodall studying chimpanzees in Tanzania.
Why did that woman buy the house brand of
shampoo instead of the name brand? How many towels did that shopper touch
before making her purchase?
How many men will walk away if they can't
find a dressing room without asking directions? Answer: Almost all of
them.
Paco's findings may not be as revolutionary
as Goodall's discovery that chimps eat meat, but they translate into big
bucks for the retailers who pay for his services.
So while Underhill, managing director of
Envirosell Inc. and author of "Why We Buy," was in Chicago
speaking to a group of J. Walter Thompson executives and clients Thursday,
we asked him what has gone wrong with the turnaround saga at Sears,
Roebuck and Co.
It's simple, Underhill says. Sears isn't
taking enough risks or having enough fun. When shoppers roam the store,
nobody is giggling.
"What you have to do is romance the
product. People come into a store for something other than shopping. They
want to be entertained," Underhill says.
So how exactly should one of America's most
staid merchants pull that off?
Sears executives already had the secret,
but they didn't follow through, Underhill says. They should have
translated the quirky humor of their popular "Softer Side"
advertising campaign onto the selling floor.
Remember the ads? They were clever puns on
Sears' well-known hardware products.
Using the same theme on the selling floor,
Sears' display artists could create a pyramid of real tool boxes next to
the party handbags, for example. Or they could stack cans of Weatherbeater
paint next to the Circle of Beauty cosmetics display.
It's the kind of offbeat juxtaposition that
has made Restoration Hardware so popular with consumers, Underhill says.
The store markets everything from inexpensive kazoos and Slinkies to
$1,600 leather chairs and $3,000 couches--all with the same passion and
sense of fun.
Of course, it's hard for Sears to lighten
the mood when sales are disappointing and investors are howling. But with
so much sharp competition out there, retailers don't have a choice,
Underhill says.
Instead of asking themselves, "What's
happening with same-store sales?" maybe Sears executives should
inquire, "Are we having fun yet?"
For sale: Ever wanted to own your own
shopping center? Now's your chance.
Dorchester Commons, a strip center at
1400-1420 E. 53rd St. in Hyde Park, will be on the auction block Dec. 7 at
the Westin Hotel, 909 N. Michigan Ave. The center, which is 100 percent
leased with tenants such as Osco Drug, Pizza Hut and H Block, takes in
more than $500,000 a year in gross income, according to auctioneer Benj.
E. Sherman Sons.
Opening bid: $1.95 million. A nice
stocking-stuffer for the man or woman who has everything.
On the move: Marigale Walsh, the former
manager of Bottega Veneta at 840 N. Michigan Ave., is on the move, but
she's only around the corner. She now works as director of the Escada
boutique, which also has an 840 N. Michigan address.
Kudos: Gordon Segal, founder and chief
executive of Crate Barrel, has been named retail executive of the year by
the National Retail Federation, the industry's largest trade group.
Segal will receive the 2000 Gold Medal
Award for Excellence at the retail group's annual convention in
mid-January.
Sears
Future Web Sites
Richard
Karpinski,
Oct. 26, 1999
INTERNETWEEK via NewsEdge Corporation:
Despite big talk from a few quarters, most large brick-and-mortar
retailers are still struggling to move online in a way that would
challenge-much less intimidate-e-retail leaders such as Amazon.com.
Top-line retailers such as Wal-Mart, Home
Depot, Toys "R" Us, Best Buy and Walgreens have all pushed back
their online launches in recent weeks, in some cases even sacrificing the
lucrative holiday 1999 season.
Despite such delays, 64 percent of retail
industry managers view the Internet as a significant competitive weapon,
according to InternetWeek's 1999 Transformation of the Enterprise survey.
And 62 percent say IT has become more involved in planning corporate
strategies.
So what's holding some of them back? In
many instances, major IT challenges-supporting direct-to-consumer
distribution, building bullet-proof Web infra- structures, and perhaps
more than anything, figuring out how to create fleet-of-foot e-commerce
teams within their corporate bureaucracies.
Most retail supply chain systems are
designed to move products from warehouse to warehouse and track that
information, versus catalog systems used by pure Web retailers that take a
single order from a customer.
Yet Web retailers-despite a tremendous
head-start in serving customers online and deploying state-of-the-art
e-commerce technologies-aren't exactly setting the world on fire either.
Amazon.com, for one, won't post a profit anytime soon. Conventional
retailers still are well ahead of their online counterparts in revenue and
brand awareness.
This competition is still in its earliest
stages and has many industry watchers predicting major consolidation
between online and offline retailers, perhaps as early as next year.
"What we see in the long term is click and mortar-true integration
between online and offline channels," says Lauren Cooks Levitan, a
retail analyst with BancBoston Robertson Stephens.
Fact is, e-retailers and brick-and-mortar
retailers are starting to look more alike. As Amazon builds and acquires
physical warehouses, for instance, its astronomical market capitalization
is down about 25 percent from its summer high.
"The business models have converged,
and so have the valuations," says Levitan. "E-tail is looking
more and more like a technology-enabled distribution challenge, not a
whole new world."
Forrester Research calls such integration
"post-Web" retail, with companies aggregating customer data and
selling simultaneously into all channels, not just the Web but also
in-store, catalogs, call centers, interactive TV and mobile devices.
"None of today's merchants are prepared for post-Web retail,"
says Forrester analyst Seema Williams.
For retail IT managers, their to-do list
starts with finding supply chain systems suited for e-commerce
fulfillment. Supply chain execution and warehouse management vendors are
adding e-commerce capabilities, but the technology is still new.
Also at the top of the list is overhauling
the corporate call center to support new systems for managing online
inquiries, especially e-mail but increasingly live chat and Web-callback
capabilities as well.
And finally, once a simple Web catalog is
in place, most top-shelf Web retailers quickly want to create more
personalized relationships with their customers, which requires new data
mining and personalization systems.
For instance, Sears is doing its best to
move its e-retailing sites to the next level. It initially launched
several "super sites" focused on tools and appliances-not your
typical online categories, but ones that Sears thinks it can dominate.
Now, it's rolling out a personalization platform from Broadvision to get
closer to its new online customers.
"We want to be more intimate with our
customers, tailor what we do more to their needs," says Andy Wetmore,
project director for Sears.com. " We're creating a brand new image
for Sears online, and it may be different from Sears offline."
Still, Sears isn't trying to be a mere
dotcom. It sees its stores as a strength, not an albatross. "We can't
look at any of our businesses as islands," he says. "If we only
let you do business with us on the Internet and don't make it seamless to
return merchandise or get store information on the Internet, then we've
failed. We believe the linkage with brick-and-mortar stores is going to be
a huge advantage for us. It's something the pure virtuals will never be
able to do."
Indeed, brick-and-mortar vendors will have
to play to their strengths. " You have to be willing to sell and
return into all three channels" -in-store, catalog and Web, says Tony
Spring, executive vice president of marketing for Bloomingdale's and a
driving force behind Bloomingdales.com. "When you begin to deliver
personal shopping into somebody's home, the customers' expectations go up.
They demand immediate gratification, and the quick receipt and delivery of
merchandise."
Jerry Storch, president of new businesses
at Dayton Hudson Corp., agrees that multichannel retailers "will be
the greatest winners." Storch oversees the e-commerce launch of all
of Dayton's brands, including its namesake stores and Target.com. The
company also bought a catalog company, Rivertown Trading, mainly to get
access to its direct-to-consumer warehouses and IT.
"We have viewed this from the
beginning as an opportunity, not a risk, " says Storch.
"Traditional retailers tend to be defensive. They refuse to do
anything online that will cannibalize their sales. We find this totally
ridiculous. Far from being threatened, we see this as another way to
win."
More and more brick-and-mortar retailers
are coming to the same conclusion. For example, electronics retailer
Electronics Boutique is taking a stab at e-commerce with EBWorld.com. The
company's existing IT systems didn't cut it, so it bought a
direct-to-consumer order management system from vendor CommercialWare and
recently opened a massive customer care center in Las Vegas.
The e-retailer made these huge investments
this year, after an an onslaught of customers last Christmas.
"We absolutely learned the fulfillment
and customer service standards that we had committed to work with were
overwhelmed by the business," says Seth Levy, president of
EBWorld.com. "Now we look at them as our core strengths. We are
masters of our own destiny."
Whether Amazon.com and company fall back to
the pack, or Dayton Hudson, Sears, et al. catch them from behind, the year
2000 is likely to see tremendous consolidation and the emergence of true
click-and-mortar players.
"The gap is closing from both
directions," says Karl Salnoske, IBM's vice president of e-commerce
and a watcher of e-retailing trends. " Traditional retailers are
becoming much more Internet-savvy. And they've certainly moved past the
toe-in-the-water position they were in a year ago and are much more
heavily committed, with a CEO-level focus, on their Web selling
initiatives. The dotcoms are also moving more to provide the kinds of
services and capabilities of traditional retailers, with more focus on and
bigger investments in back-end systems."
Salnoske says he wouldn't be surprised to
see dotcom companies open brick-and-mortar stores, or be acquired by a
brick-and-mortar chain. He adds: "Everybody is beginning to realize
that real success and the key to maintaining customer loyalty is to do
business with the customer whenever and wherever they want."
Copyright c 1999 CMP Media Inc.
Most
Retailers Post Modest October Sales Gains
Anna
Driver
Reuters, Nov. 4, 1999
CHICAGO, Most retailers showed
modest sales growth in October as warm weather depressed clothing sales at
department stores, but consumer demand for other goods was strong, retail
analysts said on Thursday.
"Most of the apparel related sales
were not quite as strong as they planned," said Jeff Edelman, retail
analyst with PaineWebber. "Discounters did better than department
stores because they have less apparel."
According to a Lehman Brothers index
measuring sales at stores open more than one year, sales rose 5.1 percent
in October, versus a 6 percent gain in September and a 4.5 percent
increase a year-ago.
Analysts were encouraged by figures from
Sears Roebuck and Co. , which reported sales at domestic stores rose 4.7
percent in October.
"Sears was definitely a bright
spot," said Alan Mak, retail analyst with Argus Research.
"Hopefully this is the start of a positive trend for them, and we'll
see if their new marketing message is working."
Minneapolis-based Dayton Hudson Corp. said
sales at all of its stores open more than one year rose 2.9 percent. Sales
at its discount Target unit were up 5.4 percent, while sales at its
Mervyn's department store unit fell 6.7 percent from last October.
"The hardlines business--home
improvement and consumer electronics, housewares--those businesses are
very good," said Dean Ramos, analyst with George K. Baum and Co.
"What was really weak was apparel and that shows up in Mervyn's,
which doesn't have much hardlines exposure."
Good results from retailers selling
electronics, home appliances and other higher priced items also helped to
dispel worries that consumer confidence is slipping, analysts said.
"I think there is no doubt that the
edge is off a little bit in terms of demand, but there are categories that
are performing quite well," Ramos said. "The big-ticket items
are the ones that you might think would be more economically sensitive,
but people are still buying high definition TVs, and that leads me to
believe there is still some strength in the economy."
For example, consumer electronics retailer
Circuit City Stores based in Richmond, Va., said its October sales climbed
8 percent from October 1998.
No. 1 retailer Wal-Mart Stores Inc. said
comparable sales in October rose 6.2 percent from last October. Total
sales for the four weeks ended October 29 rose 25.2 percent to $13 billion
from $10.38 billion in October 1998.
Kmart Corp , the nation's No. 2 retailer,
reported a 3.7 percent increase in comparable sales in October, and said
the retail environment remains slow so the Troy, Mich.-based company
expects only a slight improvement in its third quarter earnings.
Specialty retailer San Francisco based Gap
Inc. said sales in October increased 1 percent compared to an 18 percent
increase in the year-ago period.
"I thought the number was
disappointing this morning, in particular at Old Navy and Banana Republic,
" said Marcia Aaron, retail analyst at Deutsche Banc Alex Brown.
In past months, strong sales gains at Gap's
Old Navy and Banana Republic units have helped offset a weaker performance
at Gap stores, Aaron said.
Luxury specialty retailer Neiman Marcus
Group Inc., based in Chestnut Hill, Mass., said its monthly sales rose
9.4 percent on a strong performances from its Neiman Marcus stores and
catalog as well as Bergdorf Goodman.
Neiman Marcus also said it expected strong
earnings gains in its fiscal first quarter, and said earnings per share in
that period should range from 74 to 76 cents.
Analysts had expected Neiman Marcus to
report first quarter earnings of 64 cents, according to First Call/Thomson
Financial, which tracks such data.
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