Breaking News
October 2000 - December 2000
Cuts
in Health Benefits Squeeze Retirees' Nest Eggs
By Milt
Freudenheim, New York Times
December 31, 2000
To help pay medical bills left behind
when her husband, Gordon, died of skin cancer complications last summer,
June Yeager, 82, of Oakdale, Minn., was forced to use a third of his
$10,000 in life insurance. It was not that the Yeagers lacked health
insurance; they were eligible for Medicare and received benefits from
Minnesota Mining and Manufacturing, from which Mr. Yeager retired in
1975 as a shipping clerk.
But 3M decided in 1994 to alter its
benefits package for retirees: Retired employees said it increased the
annual out-of-pocket deductions for retired blue-collar union members,
for example, to $1,500 from $140, and cut back on payments for doctor
bills not covered under Medicare.
The Minneapolis company was hardly alone
in instituting such changes. Most employers, in fact, have cut or
dropped coverage for retirees in the last six or seven years as health
care costs have soared. (Health care premiums will increase between 10
and 30 percent in 2001, according to the major insurers.) And a growing
number of elderly Americans like Mrs. Yeager have been forced to dip
into savings to pay for hospital deductibles or prescription drugs,
which are not covered under Medicare.
Fewer than one in four employers now
provide medical coverage of any kind for Medicare-eligible retirees; 40
percent provided retiree coverage in 1994, according to a recent
national survey of companies with 500 or more employees by William M.
Mercer, a benefits consulting company. About 31 percent of employers
still cover retirees under age 65, who are not yet eligible for
Medicare, but that, too, is down * from 43 percent in 1994 and 46
percent in 1993, Mercer said.
The largest companies, those with at
least 5,000 employees, are more likely to cover retirees, said Frank
McArdle, research director in Washington for the benefits consulting
firm Hewitt Associates. However, even many of them, like 3M, have
limited the benefits by raising deductibles, or placing caps or ceilings
on how much they will pay, and shifting other costs to the former
employees, he said. Employers are eager to try a defined contribution
approach, much like the 401(k) retirement plan, that would pass on the
responsibilities of meeting rising health care costs to the employees.
Many retirees had expected their
comprehensive health coverage to last forever. Mrs. Yeager, whose
husband was employed at 3M for 34 years, and a group of other 3M
retirees and their spouses contend that the company had promised
lifetime benefits. But they say that, without being consulted, their
benefits were reduced in 1994 in bargaining with the Oil, Chemical and
Atomic Workers union. The group is seeking class action status for a
lawsuit against 3M in Federal District Court in Minneapolis.
"We were just about breaking even
under the old contract," said Edward Hughes, 75, of Maplewood,
Minn., a factory worker at 3M for 46 years who was diagnosed with
Parkinson's disease after he retired in 1991. "Under this one, my
wife and I are having to go into our savings."
Helen Braumberger, 79, a 3M factory
worker for 37 years, says she now struggles to pay for cancer
treatments. "I had to give up my car," a seven-year-old Buick,
to save on expenses, she said.
Katherine Hegmeyer, a 3M spokeswoman,
said the company did not discuss pending lawsuits.
Retirees have been hit hardest by
cutbacks in prescription drug coverage. Bruce Vladeck, who used to head
the federal agency that runs the Medicare and Medicaid programs, calls
drug coverage for retirees "a disappearing phenomenon." As
employers retreat, "the pressure to expand Medicare benefits to
include prescription drugs obviously increases," said Mr. Vladeck,
who now directs a Medicare policy center at Mount Sinai Hospital in New
York.
More than a decade after Congress
repealed a Medicare expansion that had included prescription drug
coverage, bipartisan debate over bringing some form of drug coverage
back continues. President-elect George W. Bush and Vice President Al
Gore supported the idea during the election campaign. Mr. Bush said he
favored a drug benefit as part of an overhaul of Medicare.
"Corporate America is also
interested in a Medicare drug benefit," said John Rother, director
of legislative and public policy at AARP, the retiree advocacy
association. "Prescription drugs are a growing burden for any
company with a unionized labor force" strong enough to insist on
keeping retiree drug benefits, he said.
The retreat from retiree health benefits
has accelerated since 1993, when a new accounting rule forced companies
to reduce their reported income by an amount equal to the present value
of future promises for retiree health care. Later, after the promises
were sharply reduced, many companies added back the projected savings to
increase their annual net income.
Among the first to abolish retiree health
benefits was J. P. Morgan, the investment banking company. Starting in
1989, Morgan reduced these benefits for existing employees and
eliminated them for new hires. To ease the transition, Morgan employees
could take cash from a portion of the company's retirement life
insurance benefit, which was also later abolished.
Last year, Boeing joined the list. It
eliminated company-subsidized retiree medical coverage for employees
hired after Jan. 1, 1999. Retiree health benefits continue for those
hired earlier, except for former employees of McDonnell Douglas; they
were buying their own health insurance before McDonnell and Boeing
merged.
Changes are also planned at General
Motors. The automaker provides generous health benefits for nearly
700,000 retirees and their dependents, at a cost approaching $2 billion
in 2000. But coverage for retired salaried workers not protected by
union contracts will drop over the next few years. G.M. has said it will
no longer take responsibility for retiree health coverage for tens of
thousands of salaried workers hired after January 1993. To cushion the
blow, G.M. is building a fund for these workers to use when they retire,
setting aside 1 percent of their salaries each year.
G.M. and other large automakers have been
working with the unions to try to slow health care costs by promoting
the use of generic drugs and disease management programs to assure
appropriate use of pharmaceuticals, said Preston Crabill, G.M.'s
director of health care plans. The change in health coverage at G.M.
resembles the switch from pensions to 401(k) plans that swept corporate
America in the 1980's and 1990's. In both cases, the employee assumes
the risk of accumulating enough to cover expenses that may grow with
inflation.
Benefits consultants say many companies
are moving toward providing employees with a predetermined amount of
money, called a defined contribution, for health care, instead of
guaranteeing defined benefits with open-ended costs.
In a tight labor market, employers have
been reluctant to change to defined contributions for health care for
active workers, who could easily find jobs with better benefits
elsewhere. But health care experts say the changes that have been felt
by many retirees are in the cards for active workers, too, when the
economy slows and employers regain the upper hand. A 1999 survey of
employers for the Kaiser Family Foundation said more than half would
seriously consider a defined contribution approach.
"Because of the economy and the
labor market, you can't squeeze worker health benefits," said
Deborah Steelman, a Washington lawyer who represents insurance companies
and drug makers, and a member of a bipartisan commission on Medicare
reform. "It's logical for employers to say, `These people don't
work for me any more.' It's a place to cut."
But Patricia Wilson, an independent
health benefits consultant in Rosemont, Pa., pointed out that promises
of retiree medical benefits had been essential during the last decade of
corporate downsizings when many companies reduced their payrolls.
After all, she said, "adjustments in
the work force could not have been accomplished without the existence of
retiree medical benefits" to attract volunteers to take early
retirement.
Gordons'
Comment: Have you written a letter, phoned, e-mailed your
Congressman in support of HR 5405, The Emergency Retiree Health
Protection Act? Representative John. F. Tierney of the 6th Mass. 6th
District has introduce H.R. 5405, The Emergency Retiree Health Benefits
Protection Act. The Bill proposes preventing employers from changing or
eliminating health benefits promised to retirees by making necessary
changes to ERISA. The purpose of H.R. 5405 is to ensure reasonable
health benefit expectations of retirees from ERISA-regulated group
health plans are fulfilled, to minimize the incidence of prolonged legal
disputes arising from post-retirement cancellations or reductions of
retiree health benefits from such plans, and to prevent further adverse
effects on retiree health arising from such post -retirement changes.
The complete text of the bill can be found at: http://thomas.loc.gov/ In
the appropriate box enter: H.R.5405 Additional informational web site on
pensions can be found at: www.pensions-rus.org/index.html
Again, this bill would prevent employers
from changing or eliminating health benefits promised to retirees, which
they are allowed to do by the current law. By making the necessary
changes to ERISA through H.R. 5405, it will insure that no employer
fails to honor a commitment made to a retiree in terms of providing
adequate health benefits. It may be the only hope to protect ERISA in
the future as illuminated by what has happened to Sears
retirees/employees as well as those in other organizations.
Montgomery
Ward To Close Operations
Retailer Closing All 250 of
Its Stores After More than 125 Years in Business
Martha
Irvine - Associated Press Writer - December 28, 2000
Retailer Montgomery Ward Inc. is shutting down after
more than 125 years in business and numerous attempts to entice shoppers
back to its struggling stores, employees said Thursday.
Wards spokesman Chuck Knittle declined to comment but
said the company planned to make an announcement later in the day.
Dozens of employees were seen leaving the company's
headquarters with boxes in hand Thursday. Several said they had been
told at a meeting that General Electric Co.'s GE Capital Unit, owner of
the 250-store retailer, was pulling financial support from Wards in the
wake of sluggish holiday sales. GE Capital referred all calls to Wards
headquarters in Chicago.
``I'm just devastated,'' Anece Rich, a 28-year Wards
employee who worked in the company's mail room, said as she left Wards
headquarters. ``They took care of us as best they could.''
A supplier said Wards officials had stopped accepting
orders at its distribution centers and had told him they were closing
all 250 stores.
``They are shutting down. It's official,'' said Ronnie
Goldfinger, senior VP of Highland Park-based Performance Marketing Inc.,
a manufacturer's representative that sold consumer electronics to Wards.
Retail analysts also said they had heard the end of
the company was near.
``It's sad. It's too bad because a lot of effort has
gone into trying to save the thing,'' said Sid Doolittle, a
Chicago-based retail consultant who spent 28 years as a Wards executive.
Begun in 1872, Wards pioneered mail-order catalogs
when it came out with a single sheet of dry-good items for sale. It was
the first U.S. mail-order house to sell general merchandise. Sears,
Roebuck & Co. wasn't founded until 1886 and didn't put out its first
general merchandise catalog until a decade after that.
Ward opened its first store in Plymouth, Ind., in
1926.But the company, which now employs about 37,000 in 31 states, has
been financially unstable for years.
Hope had been rekindled in August 1999 when the
company emerged from Chapter 11 bankruptcy, announcing a plan to revamp
many of its stores.
But some analysts said it was too little too late.
``Wards has not established themselves as anything
distinctive in the marketplace,'' said George Whalin, president of
California-based Retail Management Consultants. ``There's just no reason
to go there -- unless maybe they're the closest store to your house.'' Whalin said it had become increasingly difficult for
Wards to survive in a retail market swamped with competitors --
everything from Home Depot to Best Buy and Target.
News of Wards' apparent demise comes two days after
Massachusetts-based discount retailer Bradlees Inc. announced that it is going out of business.
``It's brutal. It's as competitive as anything out
there,'' Whalin said.
Wards had been shooting for sales growth this year of
about 9 percent. Instead, it hovered at a sluggish 2 percent.
``It's like leaving part of your life behind. My
heart's breaking, but I'm going to go and look for another job, because
that's all you can do,'' Sharon Bray, a 35-year employee who worked in
systems quality assurance, told WBBM. She held out little hope that anything would save her
job. ``No more Wards, not unless someone jumps in and buys
us,'' she said.
Sears
Names New V P Human Relations
December
29, 2000
Sears, Roebuck and Co. has named Greg
Lee, senior vice president, human resources, effective Jan. 1, 2001.
Lee, 50, will lead and oversee all human
resources-related functions. He will report to Sears President and CEO
Alan J. Lacy. Lee succeeds John Sloan. Sloan will be leaving the company
to pursue other interests. During his tenure, Sloan lead a number of
successful efforts to improve HR processes and practices.
Lee will join Sears from Whirlpool Corp.,
where he was senior vice president, human resources since June 1998.
Prior to joining Whirlpool, Lee served in the same capacity for St. Paul
Companies, a property and casualty insurance company.
Lee also held a variety of executive
human resources positions at PepsiCo, including vice president, human
resources for the company's international restaurant business and for
Frito-Lay.
"Greg is a proven human resource
executive whose broad experience with consumer goods and services
companies is highly relevant to Sears," Lacy said. "His
talents and skills will allow him to make immediate and significant
contributions to Sears success."
Holiday
Sales Fall Flat
Dow Jones
Newsroom - December 27, 2000
Despite a big surge of last-minute
shoppers, the country's largest retailers said that their same-store
sales for the crucial shopping season were flat or up only slightly.
Hoffman Estates-based Sears, Roebuck and
Co., Wal-Mart Stores Inc., Target Corp. and Federated Department Stores
Inc. all reported that sales at stores open at least a year are falling
below their expectations for December.
A variety of factors conspired to depress
sales, including higher energy prices, a shaky stock market and bad
weather throughout much of the month. But perhaps the biggest obstacle
was the enormous strength of last year's sales, which got a boost from the red-hot economy and millennium
expectations.
When the final numbers are counted, total
sales for this year are expected to be up about 3%, compared with a 6.2%
increase last year, according to William Ford, senior economic adviser
at TeleCheck Services Inc., a unit of First Data Corp. TeleCheck clears
purchases made by check, which account for roughly one-third of consumer
spending. Mr. Ford's numbers do not include Internet or catalog sales.
Sears said in a statement that same-store
sales would fall below its expectation of 1% to 2% growth, but didn't
say whether results would be below last year's.
Bentonville, Ark.-based Wal-Mart said
sales at stores open at least a year are running below the 3%-to-5%
increases it had projected for December. The giant discounter noted that
the five-week reporting period doesn't include the Friday and Saturday
after Thanksgiving.
Including those shopping-heavy days,
Wal-Mart said it would have met the low end of its same-store sales
projection, indicating that people either shopped early or late.
The company said that based on trends so
far, its five-week reporting period ending Friday will fall short of its
original projections. One reason is that the final week of last year reflected
"pantry-loading" and other preparations for the rollover to
2000.
Minneapolis-based Target Corp. said sales
are running "way below plan" for December, due to weak volume
that persisted right up until Christmas. The company had expected a
total sales increase of about 5% at its discount stores, Mervyn's and
department stores.
In a report released after the stock
market's close Tuesday, Target said it saw strong sales in pharmacy
operations, sporting goods and intimate apparel. Sales were weakest in
men's clothing, electronics, domestics and home improvement. Stores on
the East Coast and in selected sites along the West Coast performed the
best, while sales were softest in the middle of the country.
Federated, which owns Macy's and
Bloomingdale's, said strong fourth-week sales weren't enough to offset
weak sales earlier in the month. The Cincinnati company said it expects
same-store sales growth to be slightly below 3% for the month.
Jewelry stores were hit particularly
hard. Zale Corp. said its comparable-store sales declined between 3% and
4% for the November-December period., compared with a 16% in the
year-ago period. The Irving, Texas, jewelry chain earlier lowered lofty
projections and said it expected holiday sales to rise 3% to 4%.
The only companies that saw their
expectations turn into reality were those expecting sales declines. J.
C. Penney Co., of Plano, Texas, which has struggled in recent years,
said its percentage sales decrease was in the low-to-mid single digits.
Shopko Stores Inc., Green Bay, Wis., also said it expects to report a
sales decrease of 2% to 5%, in line with its plan.
Economy
is in a Blue Mood
By Dr. Irwin
Kellner, CBS.MarketWatch - Dec 26, 2000
It takes an awful lot to undermine
confidence, but when the consumer's mood
finally sours, it's tough to shake the blues. People had their annual
post-holiday hangover before the holidays this year, and the economy is
paying the price.
By all accounts, the holiday shopping
season was a bust. There were no items hot enough to get shoppers to
open their wallets -- even with discounts of as much as 50 percent.
Readers of this column should not be
surprised. I first warned back on Sept. 12 that the nation's retailers were at risk of finding a lump of coal in their
stockings come Christmas morning. That's because, even then, attitudes
were beginning to darken.
The stock market was falling while
interest rates and energy prices were rising. The Middle East was
flaring up, and, to top it off, layoffs were climbing as both heavy
industry (manufacturers) and light industry (the dot-coms) began to cut
staff.
Then came the presidential election
stalemate.
One week after the election, I pointed
out that political uncertainty was something that had to be reckoned
with, since it usually involves uncharted territory (see my column of
Nov. 14).
Twice before -- in 1974, when President
Nixon resigned, and in 1990, when President Bush shut down the
government -- political uncertainty was enough to undermine confidence
and turn a mild slowdown into a full-blown recession.
People stopped buying, business stopped
hiring, and the stock market tanked. The ripple effects from these
decisions continued long after the event was over.
The same thing is happening today.
Concern over the election caused consumers to spend less, leaving
retailers with mounds of unsold merchandise. This means less restocking,
which, in turn, will mean fewer orders, and eventually reduced output.
All the talk in the media about a
possible recession isn't helping things, either. There is such a thing
as a self-fulfilling prophecy.
If things are allowed to run their
course, there will be a recession. That's because it takes a downturn to
get prices of goods and stocks low enough to make them attractive once
again. It also takes a recession to get taxes and interest rates down,
thus making money more available.
Of course, a recession will exact its
toll in rising unemployment and falling profits. So why not shorten the
process by cutting interest rates and taxes sooner, rather than later?
It might just be enough to reawaken those
animal spirits we supposedly harbor, bringing back some much-needed
exuberance.
U.S.
Retailers Rely on Busy Weekend to Shore Up Holiday Sales
By
Heather Landy - Bloomberg, December 22, 2000
Wal-Mart Stores Inc., Circuit City Group
and other U.S. retailers are banking on a last- minute rush by holiday
shoppers this weekend to make up for sluggish sales the first three
weeks of the month.
Tomorrow probably will be the busiest
shopping day of the year as consumers finish buying gifts and start
hunting for year- end bargains, analysts said. Visa U.S.A. said it
expects to process 4,100 transactions a second at its weekend peak, a 22
percent jump from the record set on Dec. 24 of last year.
Brisk business this weekend is crucial to
Sears, Roebuck & Co., Target Corp. and other chains that haven't
kept pace with December sales forecasts. Analysts blame higher fuel
prices, stock- market volatility and Midwest snowstorms for the
shortfall. Stores are slashing prices now to lure shoppers and help
salvage what has shaped up to be a disappointing season, analysts said.
``They're going to have to pull out all
the stops,'' said Tracy Mullin, president of the National Retail
Federation trade group, who spoke at a news conference in Washington.
``They're going to have to do well'' on Saturday.
Retailers plan for a certain level of
discounts and other promotions each year to fuel business and clear
their shelves of leftover inventory. If sales fall short of forecasts,
stores may have to resort to steeper-than-expected price markdowns,
which reduce the amount of profit made on each sale.
``All indications are that retailers at
this point are pushing the panic button, not wanting to get stuck with a
large inventory overhang after Christmas,'' said Kurt Barnard, president
of Barnard's Retail Trend Report.
Kmart Corp. is discounting some goods by
as much as 70 percent. Bloomingdale's, a Federated Department Stores
Inc. chain, is offering 20 percent-off coupons for certain items.
`Aggressive Step'
Home Depot Inc. is offering a rare 10 percent discount on most items
through Dec. 24. The last time the No. 1 retailer of home-improvement
supplies held such a promotion was in 1993.
``This is an aggressive step on the
company's part to invigorate its business,'' said Lehman Brothers
analyst Alan Rifkin, who has an ``outperform'' rating on the stock.
Retailers have reason to expect a late
surge in business. Last year, when Christmas fell on a Saturday, the top
four shopping days of the holiday season came on Dec. 18 or later,
according to the International Council of Shopping Centers.
With Christmas on a Monday this year,
consumers have a full weekend to complete or, in some cases, start their
shopping. The last time the holiday fell on a Monday was in 1995. That
year, the final two weeks of the season generated more than 60 percent
of all holiday sales, according to the ICSC.
Overall, December same-store sales are
expected to rise 2 percent to 4 percent from last year, according to
Bank of Tokyo- Mitsubishi economist Mike Niemira, who previously
forecast a gain of 4 percent. He adjusted his estimate earlier this week
to allow for a disappointment after Wal-Mart, Sears and other chains
said sales still trailed expectations as of last week.
Same-store sales, or sales at stores open
at least a year, are a key measurement of a retailer's business because
they exclude results from stores that were opened or closed within the
year.
With
Sales So Sluggish,
Retailers Are Hoping for a Holiday Miracle
By
Rebecca Quick, The Wall Street Journal - Dec.21, 2000
As the clock runs out on holiday
shopping, major retailers are counting on a frantic end-of-the-year
buying binge to save them from one of the most disappointing gift-giving
seasons in recent years.
For them to pull it off, it will take
nothing less than a Christmas miracle.
So far this holiday season, the nation's
largest retailers, from Wal-Mart and Sears to Federated Department
Stores, all say sales have come in below plan for three weeks running.
The rare retailers that seem to be hitting their sales plans are those
that expected the worst. J.C. Penney Co., for instance, says sales are
coming in at the lower end of its December sales plan, which means sales
have dropped about 5% from the year-earlier period.
Last weekend, after the nation finally
turned away from an endless presidential election, there was a brief
window of hope that sales would pick up. But even that was shut after
much of the country was hit by snowstorms and drastic weather kept
shoppers away from malls. For the season to date through Sunday, overall
sales were running 8.2% below a year earlier, according to the
International Council of Shopping Centers, a New York-based trade group
that tracks sales at mall specialty stores.
Nevertheless, despite these predictions
of doom and gloom, many retailers and analysts have been reluctant to
drastically downgrade their initial projections. Many stores are going
all out -- including staying open 24 hours -- to pull in last-minute
shoppers, in the belief that this final weekend really could still save
the season. Jeff Feiner, retail analyst at Lehman Brothers, says he
still expects sales to grow in the 3% to 5% range he predicted before
the holiday season began.
There's precedent for his optimism: In
1995, which was the most recent time Christmas fell on a Monday leaving
two extra weekend shopping days, "it added 1% to 2% of overall
sales for the holiday season," says Mr. Feiner. "It's
extremely difficult to gauge until that last weekend comes in."
According to the National Retail Federation, holiday sales rose 3.7% in
1995, which is basically in line with what some analysts think is still
possible this year.
Meanwhile, ever-hopeful retailers say the
combination of a late Hanukkah and the nation's propensity for putting
off their gift buying to the last minute has helped sales pick up this
week. "I'd say it's probably going to be a soft Christmas but not a
disaster," says Leonard Riggio, chairman of Barnes & Noble Inc.
"But I just don't know for sure -- this has been a booming
week."
If online sales are any indicator,
there's plenty of last-minute shopping left to be done. BizRate.com, a
Los Angeles firm that tracks sales at 2,400 online retailers, says
online sales peaked on Dec. 18, when shoppers spent $254.1 million on
the Internet. That's well past the Dec. 13 date it had expected sales to
peak online, which means consumers' apartment lobbies and doorsteps may
still be snowed under with boxes for a few more days.
"We're seeing legs we didn't expect
this late in the season," says Seth Geiger, a vice president at
BizRate -- despite the fact that closely-watched Web retailer eToys Inc.
last week warned that its holiday sales so far are only about half what
it had expected.
Catalog sales, meanwhile, seem to be
faring better than traditional stores. The Direct Marketing Association
has surveyed about 70 of its catalog members, who say their catalog
sales have increased this holiday anywhere from 5% to 15% over last
year. Still, catalogs are seeing a bit of a growth slowdown too. Last
year, the group's members were experiencing sales growth closer to 20%
above the year before.
Whether a blockbuster last weekend can
save the entire holiday season, however, is still a long shot to some.
"Just about everything that could go wrong this season has,"
says Dan Barry, senior retail analyst at Merrill Lynch. This week, Mr.
Barry lowered his holiday sales growth estimates for stores open at
least a year to 2.4% from 2.8% for the group of leading retailers he
covers, which includes Wal-Mart Stores Inc., Kmart Corp. and Federated
Department Stores Inc. If he's right, it will be the slowest holiday
sales growth since the recession in 1990, when shoppers spent just 2.6%
more than the year before.
That's not preventing retailers from
holding out hope, though. Wal-Mart has been quick to note this calendar
year's similarities to 1995. In fact, the Bentonville, Ark., discounter
even made a point of reminding analysts that it missed its sales
forecasts the first three weeks in December 1995. But during the week
that included Christmas, Wal-Mart's sales jumped 32%, a boost that
helped the retailer catch up with its sales forecasts for the season.
"The procrastination factor seems to get pushed back more each
year," says Wal-Mart spokesman Tom Williams.
To up their odds for a comeback,
retailers intend to keep selling until the last possible moment. Kmart,
based in Troy, Mich., is going a step further and plans to keep its
stores open 24 hours throughout this weekend. The retailer's 2,100
stores will open at 6 a.m. on Thursday, Dec. 21st and won't close again
until 8 p.m. on Christmas Eve.
The hope is that round-the-clock access
will help recoup lost sales. "It's no secret that it's a really
late season this year, so it's an opportunity to provide a convenience
to our customers," says Mary Lorencz, a spokeswoman for Kmart.
"Also, we can recapture lost sales from customers who weren't able
to get out because of the weather." An advertising circular, set to
arrive in homes on Thursday, will promote the longer hours, as well as
discounted merchandise.
Others are resorting to special
promotions. Nordstrom Inc., based in Seattle, ran unplanned newspaper
ads this week in Chicago, Detroit, Dallas and Minneapolis in an effort
to spur late shopping. Meanwhile, the retailer's Nordstrom.com unit on
Tuesday began e-mailing shoppers to remind them that they must order by
10 a.m. on December 23rd for guaranteed Christmas delivery. Sears,
Roebuck & Co. based in Hoffman Estates, Ill., says sales for the
three weeks ending Dec. 16 have been below its plans for
"low-single-digit growth" for the month. But there's still
time to draw in shoppers.
On Saturday, Sears will give shoppers who
come to the store between 7 a.m. and 8 a.m. a $10 coupon to be used at
any time during the day. The strategy behind the early-opening coupon:
"If you're the first retailer that consumers come to, you'll have
them for the better part of the day," reasons Lee Antonia, a Sears
spokeswoman.
Target Corp.'s Target discount store
division hasn't planned any special promotions or extended hours for the
weekend. But Target, based in Minneapolis, reported its sales for the
third week of December already were on plan for a
"mid-single-digit" increase. In a last-minute rush, sales
could soar. "We're still kind of holding out hope," says Patty
Morris, a spokeswoman.
Already, some sectors are starting to
perk up. Sales picked up markedly this past weekend at the Forum Shops
at Caesars Palace in Las Vegas, with jewelry sales showing particular
improvement. "Our retailers are very optimistic that things are
picking up into a very good season," says Maureen Crampton,
marketing director at the Forum Shops, which is owned by Simon Property
Group Inc.
Certainly, some shoppers got a later
start than usual this year and plan to finish up last-minute --
something retailers are counting on. Indeed, with two extra days between
Thanksgiving and Christmas this year, plenty of shoppers felt like they
had more time to put things off. Andrea Draths, for example, is usually
done with her shopping by Thanksgiving, but on Monday, the 44-year-old
administrative clerk still had several gifts to buy. "The weather
was so warm for so long, I didn't think about it until it was a month
away," explains Mrs. Draths, who lives in the Chicago suburb of
Glen Ellyn.
Meanwhile, Joedda Sampson, who owns a
women's clothing shop called Full Moon Rising and a home furnishings
annex in Pittsburgh's Station Square, says holiday sales at her two
stores are down 10% and 15%, respectively. But she's holding out hope
for Saturday and Sunday. "I suspect we will be slammed," she
says.
Retail
Stocks eke Small Gain
By
Jennifer Waters, CBS.MarketWatch.com, Dec 20, 2000
Following their usual pattern, retail
stocks managed to post some gains in the face of widespread carnage in
the broader markets.
After an early tumble, by the end of the
session, the S&P Retail Index eked out a rise of 1.3 points, or 0.2
percent, to close at 785.90.
That didn't keep some major players from
taking a beating, though. Sears Roebuck & Co. (S: news, msgs) ,
which dropped nearly 8 percent at one point in the session after a
Lazard Freres analyst cut the department store retailer's rating to
"outperform" from "buy" closed at $32.40 for a loss
off 97 cents.
Target Corp. (TGT: news, msgs) missed the
bulls-eye again Wednesday after reporting weekly sales Monday that were
below expectations. The stock closed at $28.19 for 56-cent loss.
Down Jones Industrials' component Home
Depot Inc. also got floored again as it fell $1.50 to $41.13.
On the upside grocery store issues
Winn-Dixie Stores Inc. and Safeway Inc. were ended up gainers. Give
thanks to Merrill Lynch analyst Mark Husson, who added Safeway to his
firm's Focus 1 list.
Winn-Dixie was up 63 cents, or 3.5
percent, to $18.63 and Safeway gained $1.50 to close at $60.
IBM
Sends Letter to SEC Seeking Permission to Exclude New IBM
Employee-retiree Stockholder Resolution on Executive Compensation, Vapor
Profit and Transparent Profit Reporting
December
18, 2000
IBM sent a letter to the SEC seeking to
exclude a new stockholder resolution on executive compensation and an
IBM employee countered that in a letter the SEC should be receiving in
the mail today. The stockholder resolution calls on IBM to pay
executives incentive pay based only on profit from real company
operations. IBM has been including "vapor profit" in the
executive compensation pay formula. Vapor profit is pension fund money
the company must count as profit under an accounting rule, FAS 87, but
all the money actually stays in the pension fund and none gets
transferred to the company.
"Mr. Gerstner and four other IBM
executives got $15 million in cash and another $8 million worth of stock
grants last year in part based on vapor profit," said proponent
Donald S. Parry,. "Executives have boosted the surplus in the
pension fund to increase the vapor profit under the accounting rule so
they can get more incentive pay. They boost the surplus by slashing
retirement pay with cash balance plan conversion and by refusing to
grant adjustment for inflation." Mr. Parry is an IBM retiree who
has not seen a cost of living increase in his retirement pay in over ten
years.
IBM's letter to the SEC argues that the
resolution can be excluded under SEC rules because it deals with
ordinary company business and because it includes what IBM considers to
be false and misleading statements. In the letter responding to IBM the
employees answer every point made in IBM's letter. "IBM is seeking
to exclude this resolution not because it is false but because it
clearly and accurately reports how IBM executives are acting in a self
serving manner that hurts stockholders, employees, retirees, and the
company as a whole," said IBM employee James Marc Leas, who drafted
the response letter for Mr. Parry. Mr. Leas successfully overcame IBM's
attempts last year to exclude a resolution he proposed concerning IBM's
cash balance plan conversion. That resolution went on to receive the
support of 28.4% of the stockholders in April, the largest vote ever for
any IBM stockholder resolution opposed by management. That resoluton won
the support of all the institutional investor advisory services,
including ISS, Proxy Monitor, and Marko. Mr. Leas submitted that
resolution again this year. So far IBM has not sought to exclude it.
The resolution calls for executive
incentive compensation to be determined by profit from real company
operations not including accounting rule profit from pension fund
surplus. It also calls for IBM to provide transparent financial
reporting of profit from real company operations. The resolution
describes how IBM boosted the profit report using pension fund surplus
that cannot be transferred to the company. It shows how employees and
retirees are being hurt by this scheme while no real money is coming
into the company so there is no real advantage for stockholders.
"IBM executives should not get
millions of dollars of real company money based on an accounting rule
profit report that provides no real money to the company," said Mr.
Parry. "They are the only ones to benefit from this scheme."
The referenced correspondance can be
found at:
http://www.allianceibm.org/resolution1.htm
(Mr. Parry's resolution)
http://www.allianceibm.org/resolutions/SECletter.htm
(The text of IBM's letter to the SEC)
http://www.allianceibm.org/resolutions/resptoIBM.htm
(The IBM employee response letter)
Mr. Parry and Mr. Leas can
be reached at the phone numbers below.
The SEC lawyer handling the matter is Carolyn Sherman, and she can be
reached at 202 942-2900.
For Further
information, contact:
James M. Leas: 802 864-1575 day and
evening
Donald S. Parry: 904 287-7720 Janet Krueger: 507 529-8777(w) 507
289-9030(h)
Phil Nigh: 802 769-7316(w) 802 652-4090(h)
Bill Syverson: 802 769-9590(w) 802 863-6479(h)
Hans Heikel: 802 769-1692(w) 802 862-1692(h)
Holiday
Sales a Lump of Coal
By
Anna Driver, Reuters - December 11, 2000
Santa Claus delivered another round of
disappointing holiday sales to U.S. retailers last week, as a slowing
economy continued to mute cash registers and procrastinating shoppers
held back on purchases.
Consumers, mindful of higher interest
rates and a spike in fuel costs, have cut budgets this year. With Dec.
25 falling on a Monday, shoppers will have a full weekend to do
last-minute gift buying.
``While the expectations were relatively
modest, it seems that the later season is possibly causing consumers to
take a 'wait and see' approach to buying in hopes that maybe they can do
better on pricing, or maybe they are just choosing to wait,'' Mark
Picard, a retail industry analyst with Lazard LLC, said on Monday.
Wal-Mart Stores Inc., the world's largest
retailer, said customer traffic was sluggish, and sales at its stores
came in below company forecasts for the week ended Dec. 8. The results
marked the second week in a row that sales for the Bentonville,
Ark.-based retailer have fallen short of its expectations. Most
retailers have seen shopping traffic fall off considerably since a burst
of activity during the Thanksgiving holiday weekend in November.
Sears, Roebuck and Co., the No. 2
retailer behind Wal-Mart, said same-store sales for the latest week came
in below company forecasts that sales would grow 1 to 3 percent. Sales
of home appliances and tools were the strongest, the Hoffman Estates,
Ill.-based retailer said.
Shares of Wal-Mart ended off nearly 6
percent, or $3-1/6, at $51-3/8 on the New York Stock Exchange. Sears
closed off 34 cents at $34.77 on the NYSE.
Federated Department Stores Inc., parent
of Macy's and Bloomingdale's department stores, also noted that sales
slowed last week, but the company still expects to meet its forecast for
same-store sales growth of 3 percent in December.
``As we suspected could happen, customers
appeared to slow down their shopping in the second week of December, and
as a result, sales this past week were disappointing,'' the company said
in a recording for investors.
Shares of Cincinnati-based Federated
ended 1/16 higher at $34-5/16 on the NYSE. Shares have a 52-week low of
$21 and a year high of $53-7/8.
Data from the National Retail Federation
and retail consultant RCT Systems Inc. showed that year to date, foot
traffic in U.S. malls fell 0.5 percent from a year ago, while customer
traffic at department stores fell 3.8 percent.
Prospects for this week don't look much
better, following a blast of wintry weather that hit the middle of the
country on Monday. The season's first major snowstorm brought blizzard
conditions to much of the nation's midsection, and also brought the
possibility of a slowdown in mall traffic.
But, Lazard's Picard said that snow is a
boon to some retailers.
``You see some businesses that sell
shovels and snow blowers and the clubs -- where people stock up on
things -- have historically done okay with snow,'' he said.
Home
Depot, Wal-Mart Seek to Be Top Appliance Sellers
By
Delbert Ellerton, Bloomberg, November 24, 2000
Home Depot Inc. and Wal-Mart Stores Inc.
are turning up the heat in the appliance business as they team with
manufacturers to cut prices and lure customers from industry leaders.
By year-end, all 1,064 Home Depot stores
in the U.S. will sell ovens, washers and other appliances, while
Wal-Mart in the next two years may have appliances in about half of its
3,050 discount and Sam's Club stores, analysts said.
This move into appliances is being felt
by competitors such as Sears, Roebuck & Co., which is lowering
prices and spending more to advertise. Home Depot and Wal-Mart may force
other retailers to follow Circuit City Group and exit the $17 billion
U.S. appliance business, analysts said.
``Home Depot and Wal-Mart are magnets,''
said appliance analyst Efraim Levy of Standard & Poor's Equity
Group. ``They are brands that people trust and (customers) feel they can
get a low price.''
Both retailers have exclusive marketing
agreements with General Electric Co. and Maytag Corp. This lets them
sell their appliances for 3 percent to 4 percent less than Sears, Lowe's
Cos. and Best Buy Co., analysts said.
Market Share
In as little as three years, home-improvement retailers such as Home
Depot and Lowe's may control as much as 25 percent of the appliance
market. Wal-Mart alone may command as much as 10 percent, said analyst
Nicholas Heymann of Prudential Securities.
``They're definitely going to get market
share,'' Sears Chief Executive Alan Lacy said in an interview.
Sears now is the biggest U.S. seller of
appliances, with about 38 percent of the market. Lowe's is second with
about 6 percent to 7 percent and Best Buy is third with about 4 percent
to 5 percent, analysts said. Circuit City, which decided to stop selling
appliances four months ago, held about a 9 percent share.
Home Depot and Wal-Mart already have
proven that they can dominate any product category they enter, said
Angela Auchey, a portfolio manager at Federated Investment Management
Co., which owns shares of both companies.
Wal-Mart, for example, surpassed Toys
''R'' Us Inc., the largest U.S. toy chain, as the top seller of toys in
the U.S. in 1998 by offering lower prices. In the grocery business, the
company is opening more supercenters, warehouse-size stores that have
full grocery departments, and is taking business from chains such as
Albertson's Inc., analysts said.
Virtual Inventory
Unlike their rivals, Home Depot and Wal-Mart carry a limited
inventory of appliances, just enough for consumers who want to take
their purchases home the same day. This so-called virtual inventory
arrangement keeps storage and distribution costs low, allowing the two
retailers to discount appliances.
``We don't have to have high (profit)
margins,'' said Don Galloway, Home Depot's national appliance merchant.
This lets the No. 1 home-improvement retailer charge about 3 percent
less, he said.
Wal-Mart, the world's biggest retailer,
is expected to offer discounts of 3 percent to 4 percent, said retail
analyst John Lawrence of Morgan Keegan & Co. The company recently
expanded a test of appliances to 100 stores from 12 stores.
Wal-Mart sells General Electric
appliances in its namesake stores and Maytag products at Sam's Club
centers.
Kiosks located in Home Depot and Wal-Mart
stores let customers select and order appliances directly from General
Electric or Maytag warehouses through General Electric's distribution
network.
``We never touch it,'' Galloway said.
General Electric and Maytag, the No. 2
and 3 appliance makers, are the only manufacturers that offer Web-based
sales and one-day delivery from their regional warehouses, analysts
said.
Bentonville, Arkansas-based Wal-Mart will
only devote about 900 to 1,500 square feet of space at the front of its
stores to appliances, said Lawrence, who rates Wal-Mart's shares
``long-term buy.''
Fighting for Customers
Home Depot and Wal-Mart were given a chance to enter the appliance
market in July when the No. 2 seller Circuit City said it would stop
offering the products, leaving as much as $1.6 billion in annual sales
up for grabs.
The following month, Heilig-Meyers Co.,
the biggest U.S. furniture chain, filed for bankruptcy and said it would
close 300 stores, cutting its sales of appliances.
Home Depot and Wal-Mart are expected to
win former Circuit City and Heilig-Meyers customers because they already
attract a large number of shoppers with low prices on other goods,
analysts said.
Some customers may visit a Wal-Mart
supercenter two or three times a week, said Morgan Keegan's Lawrence.
Wal-Mart said its stores attract 100 million shoppers a week.
Cutting Prices
Competition has increased as retailers wrestle to win customers
abandoned by Circuit City and Heilig-Meyers.
In September, Home Depot ran national
television and print ads offering General Electric and Maytag products
at reduced prices, including Maytag's Neptune washer for $898. The
Neptune cost about $1,000 when it was introduced in 1997. The average
price of a washer is around $400.
Sears has run national advertisements to
promote interest- free financing. Manufacturers are cutting prices as
well and are offering rebates in conjunction with retailers.
Best Buy, the No. 3 U.S. appliance
seller, also had promotions offering interest-free loans on some
appliances and cut prices on others. The retailer has denied analyst and
investor speculation that it may exit the appliance business by the end
of the year.
``Best Buy will decide sooner rather than
later that they should get out, (especially) once Home Depot and
Wal-Mart are geared up,'' said portfolio manager Tim Ghriskey of Dreyfus
Corp., which owns Home Depot and Wal-Mart shares.
If it does, that may mean there's more
easy-pickings for Wal- Mart and Home Depot.
New
Retail Chiefs Face Ghosts of Profits Past
By Leslie
Kaufman, New York Times - Nov. 26, 2000
It's never easy being the new kid on the
block. If it is Christmas and you are a retail executive, it's worse.
Every move you make is scrutinized, tallied, weighed against your
future.
Whether selling gold-sequined pants,
plain microwaves or hot new MP3 phones, the nation's merchants have
always seen the holidays season as a do-or-die time. The six weeks from
Thanksgiving to Christmas bring in some 50 percent of most stores'
revenue, and as much as 60 percent of profits, according to Jeffrey
Feiner, a retail stock analyst at Lehman Brothers.
The 2000 holiday shopping season is
shaping up to be the biggest pressure cooker in a decade. With the
American economy flying high for the last decade, the holiday season has
been all rum punch and mistletoe for retailers: sales have grown at 4 to
5 percent a year since the mid-1990's. But the dawn of the millennium
has been rough: the stock market is volatile, gasoline prices have
soared, interest rates are higher and consumers' appetite seems largely
sated by earlier buying binges. And concern about the undecided
presidential election is distracting shoppers just as the holiday season
starts to peak.
Dan Barry, the chief retail economist at
Merrill Lynch, is predicting "the worst Christmas for sales and
profits since 1995" and the worst Christmas sales since at least
1990. In his latest holiday report, Mr. Barry predicted that comparable
store sales at major retailing chains this Christmas season would rise
only "a paltry 2.5 percent," half as much as they did last
year.
Ouch. In recent months, the largest
national retailers from Target to Gap Inc. to even the usually
invincible Wal-Mart Stores warned that sales growth was slowing going
into the fourth quarter. Consumers could scent a whiff of desperation in
the air as some stores, trying to rev up spending, put up holiday
decorations as early as September or offered early, aggressive
promotions through coupons or other discounts.
In this turbulent year of all years,
executive turnover at the top of the nation's retailers has been
particularly high. Among those appointing new chief executives or chief
operating officers were Wal-Mart, the country's largest retailer, and
Wal-Mart.com; Sears, Roebuck, the largest department store chain; Kmart,
the second-largest discounter; J. C. Penney, the second-largest
department store chain; Toys "R" Us; Nordstrom; Lord &
Taylor, a division of the May Company; Polo Ralph Lauren; and the
Victoria's Secret catalog unit, a division of Intimate Brands.
"It is really unusual to have so
many major, major broadline retailers with new C.E.O.'s," said
George Strachan, retail analyst at Goldman Sachs.
Each new boss faces a very different
task. H. Lee Scott Jr.'s responsibility, to stay on top of the
well-oiled Wal-Mart colossus, is hardly the staggering challenge facing
Charles C. Conaway as he moves to halt a slow sinking at Kmart. Each new
executive brings a different range of experience and confidence to the
task, and each has had a different amount of time to try to shape the
holiday season.
Alan J. Lacy was a six-year veteran of
Sears who had already tackled some of the company's worst financial
messes before moving up to become chief executive on Oct. 1, but Roger
Farah arrived at Polo Ralph Lauren after spending six years hawking
sportswear at the former Woolworth, now Venator. Jeanne Jackson left Gap
Inc. to become the chief at Wal-Mart.com last April, but Allen Questrom,
formerly of Barneys, took the helm at Penney only in mid-September.
Whatever their backgrounds, the
executives face a common challenge: Whether the expectation is fair or
not, they have to make this Christmas a success.
"The financial market has a very
short memory in terms of how long people are in their jobs," said
Robert Kerson, president of the global retail practice at Korn Ferry,
who conducted the recent searches that led to the hiring of Jane Elfers
at Lord & Taylor and John Eyler at Toys "R" Us.
"They've got to show improvement. They've got to build some
momentum. They are going to be judged to some degree by the performance
of this last quarter."
The difficulty is this: Everyone in the
business knows that a new chief executive can do very little to improve
sales at Christmas, especially if she or he arrives just weeks or months
earlier. The vast bulk of merchandise is bought months in advance. The
merchandising strategies, the advertising buys and the schedule for
putting key products on sale are already choreographed.
They are all dealing with "inherited
plans," said Herbert Mines, chairman of Herbert Mines Associates,
an executive recruiting firm that specializes in retailing. "So the
trick with Christmas is to make sure that the stores are well manned,
that day-to-day advertising is good, that the merchandise gets into the
stores. It's the execution part of the job."
Still, it would be folly not to take some
sort of stand. So when four of these newly initiated executives were
asked about their plans for making a difference this holiday season,
they had answers. Surprisingly, perhaps, they were almost completely
different.
Nordstrom: Reinvigorating Customer
Service
In September, at a moment of crisis, Blake Nordstrom stepped to the
presidency of the company that bears his name. Despite the boom in
retailing, the company, based in Seattle and once a model of
merchandising and service, has been struggling with disappointing sales
and earnings. Its previous management team, the first to contain no
family members, had taken many steps toward refashioning the stores from
modernizing the clothing assortment to updating the computer system to
allowing for centralized inventory and purchasing.
But the rapid moves created unrest among
the chain's rank-and-file, who felt left out of the decisions in a
system that increasingly concentrated decisions at headquarters.
While Mr. Nordstrom, representing the
fourth generation of his family to run the business, thought that the
company had perhaps gone too far out on fashion statements, alienating
longtime customers, he also felt that re-energizing the sales force
should be his No. 1 task.
In the days after his ascension, Mr.
Nordstrom toured stores, meeting with some 4,000 employees in 10 days.
Nordstrom's longstanding reputation for service and the personal
relationship that its clerks are encouraged to develop with customers is
a key point of differentiation in the market, he explained.
"If our people don't feel positive,
customers are going to feel it immediately," he said. "You
can't edict a smile or excellent service."
Mr. Nordstrom had been one of six company
co-presidents until February, then president of the Nordstrom rack
group, a major division. In his short tenure as chief, he has enacted or
is considering changes both large and small, many of them in response to
suggestions from his 10-day staff tour. He said, for example, that he
intends to introduce soon a package that could increase compensation as
well as incentives for sales associates.
Beyond that, he said, he is using the
resources of headquarters "to remove barriers, real or perceived,
between sales people and customers."
In response to complaints by employees
that the worst way to hurt a customer relationship is to be out of stock
on a desired item, Nordstrom is testing an Intranet service in two
regions. It will allow sales staff at one store to post needed items on
a central computerized list that all stores can check eliminating the
need to call stores one at a time. "This is a Band-Aid to help out
sales people until we have a system that is more appropriate," Mr.
Nordstrom said. In contrast to the practice of previous years, clerks
receive additional compensation when they find the product in another
store and make a sale.
In another change, customers no longer
have to pay delivery charges when items are out of stock in one store
and available for purchase from another.
Last month, the stores also made
consumer-friendly changes to a credit certificate program. Originally,
customers could accumulate points by making purchases through the
Nordstrom credit card, eventually earning a gift certificate that could
be redeemed only for merchandise. Now, the customer can use the
certificates against a credit-card account balance. "These are all
small changes," Mr. Nordstrom said, "but when you add them
they signal a 100 percent commitment to the customer."
Wal-Mart.com: It All Comes Down to
Fundamentals
The leviathan of the retail world has not led a charmed life online.
Started in 1996, Wal-Mart.com lagged behind other virtual powerhouses
like Amazon.com and eToys.com in attracting customers and building a
significant revenue stream. In the summer of 1999, Wal-Mart.com
announced that it was undergoing a major overhaul for the holidays; in
fact, it did not get its revamped version up and running until January
2000. But soon after, Wal-Mart, determined to tackle the problem more
systematically, spun off the site into an independent entity with
venture capital backing. In April, it brought in Ms. Jackson, a
well-respected retailer, who most recently had been running Banana
Republic and Gap Online, to be chief executive of its online arm.
Ms. Jackson found that some of her
long-term goals were at odds with her holiday wish list. In October, she
shut down Wal-Mart.com for almost a month while it switched to a new
technology platform; the timing of the move caused worried murmuring
among analysts.
Acknowledging that it was
"risky" to close up shop for a month during the run-up to the
holidays, she said that the costs of operating the old Web site while
she worked to start the new one were prohibitive. "It was just
better business to devote 100 percent of staff effort to the new
system," she said.
But knowing full well the importance of
the Christmas season, she set out to improve her site accordingly. Last
holiday season, on-time delivery and customer responsiveness had been a
trip wire for the site. Yet while Wal-Mart.com broke ground on a new
fully automated fulfillment center this summer, it will not be nearly
ready this December. So Ms. Jackson hired a team to work with the
third-party contractors that handled the order-taking and package
delivery.
"We have to make sure that when the
customer orders something, that order gets sent to the distribution
center immediately," she said. "And we had to make sure the
mechanisms were in place that, in case that did not happen, we caught
it."
Another big push involved visibility.
"I do not think we hit the customer's radar screen," she said
of previous holiday seasons. To remedy that, she focused on promoting
the hot products, like scooters, that she knew consumers would want this
year. The scooters have been featured prominently in store circulars,
television advertising and online marketing programs.
Wal-Mart's November circular, distributed
to roughly 90 million people, advertised that certain key products were
available at Wal-Mart.com as well as in the stores. The move paid off
when pool tables, for example, priced at $188, sold out quickly at the
stores but were still available online.
"This is all nuts and bolts,"
Ms. Jackson said, "but there was not enough focus on it last
year."
Sears, Roebuck: An Energy Boost at a
Fashion Show
A week ago Wednesday, barely six weeks
into the job, Alan J. Lacy stood before 3,500 Sears employees and
received an unexpectedly thunderous ovation. For the last five years,
Sears had invited its employees to preview its Christmas advertising
campaign. But Mr. Lacy, who took the helm of the enormous chain on Oct.
1, wanted to make a splashier effort to rally the troops.
So he staged a 45-minute runway show to
the throbbing beat of Christina Aguilera, the teen pop sensation. To
showcase the products that the company expects to be hot, Sears hired 18
model-dancers to prance down the aisle, displaying everything from
negligees and boxer shorts to Craftsman screwdrivers the company expects
to sell some 15 million of the tools in the fourth quarter. The audience
went wild, showing an energy that Sears executives said they had not
seen in years.
In many ways, Mr. Lacy faces the toughest
job among the new retailing chief executives. For years, the venerable
Sears has been slowly losing market share to aggressive discounters like
Target and to fast-growing merchants like Kohl's. His predecessor,
Arthur C. Martinez, started to clean up the company's dowdy fashion
image, moved deeper into the hot home furnishings and appliance market
and took several other obvious steps to help put the retailer back on
track.
It is up to Mr. Lacy, who made his
reputation by stopping losses in Sears's credit card business, to
engineer new ways to make the vast chain leaner and more cost-efficient.
Stepping up to the chief's job as late as
he did, Mr. Lacy said he knew he could only tinker around the edges with
the programs in place, which he said pleased him.
That he has done. In response to the
decision by Circuit City last summer to pull out of the appliances
market, Mr. Lacy ordered new commercials to emphasize that Sears, which
makes the popular Kenmore brand, should be the choice for shoppers.
Mr. Lacy also says he has been focusing
on keeping the wheels of the Sears operation well-greased. "We have
to make sure we really execute very well programs in place," he
said. To do that, he is keeping a close eye on plans to keep the sales
floors well-staffed, always a huge concern during the bustling holiday
season, and the seasonal help well-trained.
Then there was that fashion show/ pep
rally. "People are working day and night at headquarters to make
sure things happen properly," he said. "We wanted to get
people fully engaged in what is going to happen at the store level and
also to go back to their desks happy."
Lord & Taylor: Making Big Bets on
Best Sellers
From the moment that Jane Elfers became president of Lord &
Taylor on June 1, "the holiday season was my first and foremost
focus." she said. Despite the short time frame, she added,
"you can have, I think I did have, an effect."
Lord & Taylor, the venerable chain
with headquarters on Fifth Avenue in Manhattan, has been struggling to
remain hip and relevant in an overcrowded retail environment. While its
peers boomed in recent years, Lord & Taylor saw its sales per square
foot drop from $237 in 1997 to $218 in 1999.
Ms. Elfers is determined to turn around
the trend quickly. As a veteran merchant, she has chosen to put all of
her energies into the goods on the store shelves.
She assembled her team of buyers early
last summer and asked them to predict what products would be big for the
holidays. Then she bet big. When everyone agreed that leather was going
to be a runaway hit for the season, she went department to department,
asking how her stores could be bigger than ever in leather goods.
The answer was not only to expand coats
and boots into color, but also to offer leather hats, leather scarves
and leather accessories.
Animal hide was not exactly a secret this
season, but Ms. Elfers said her team got behind other merchandise that
other stores will not receive until spring, like flower pins and chain
belts.
"Many manufacturers were not on the
trend," she recalled of the shiny belts. "It is not like they
were sitting around with this stuff. And we said, `What can you do for
us?' We placed huge orders, and it is doing wonderfully for us on the
accessory floor."
Ms. Elfers said that once the key
products were selected, the store followed up with promotions. "We
made a lot more out of big items instead of doing a lot on many little
items," she said. Leather is featured on the cover of the seasonal
catalog and has been displayed prominently in direct mail promotions and
print advertising.
"Every store chooses key
products," she conceded. "But this year the difference for us
was the intenseness of the focus. We were very, very intense." In a
telephone interview, in fact, she sounded very, very intense and
hopeful.
"I am very optimistic about the
season," she said. "We are already seeing some nice
results."
Sears
CEO Wastes No Time Putting His Brand on Stores
By
Calmetta Coleman, The Wall Street Journal - Nov. 16, 2000
Since taking over as chief executive of
Sears, Roebuck & Co. seven weeks ago, Alan J. Lacy has marched into
27 Sears locations, spending a total of 80 hours in the stores. He has
also had 14 sessions with senior merchants, discussing product lines.
His conclusion: Sears simply has to get
more shoppers into the stores and keep them there longer. To accomplish
that, he is tearing into the retailer's advertising, store features and
corporate culture.
He criticizes Sears' best-known marketing
campaign, the "Softer Side of Sears," for focusing on just one
part of the retailer's offerings. Meanwhile, the current "Good Life
at a Great Price" ads focus too much on price, he says.
"That's been our problem. We've
advertised the lines of business and the promotions better than we've
advertised the destination," Mr. Lacy said during an interview
earlier this week at headquarters in Hoffman Estates, Ill. "But why
should I go to Sears vs. Target?"
Mr. Lacy, 46 years old, said marketing
executives are now reviewing ways to advertise the Sears name as a
brand, rather than focusing just on specific retail brands such as
Craftsman or Kenmore. In the end, Sears might not scrap its "Good
Life" slogan, Mr. Lacy said. It could be included in a revamped
campaign.
Meanwhile, Sears is trying to find ways
to make its stores more appealing. In a program begun under Mr. Lacy's
predecessor, Arthur Martinez, Sears is now testing features such as
in-store cafes and computer labs where customers can check e-mail or
take computer courses -- the idea being to get people to spend more time
in stores. It is under way in just a handful of stores in the Midwest,
and Mr. Lacy said Sears won't decide whether to roll out the features
chain-wide until after the holiday shopping season.
In recent years, Sears -- which sells
everything from tools to dresses -- has been hurt by competition from
discount chains, such as Wal-Mart Stores Inc. and Target Corp.'s Target
stores, as well as higher-priced department stores. And while big
appliances, such as refrigerators, have always been a Sears strong
point, it now faces competition in that area from Wal-Mart and Home
Depot Inc., both of which are pushing into appliances.
"I think they're going to have to
fight harder to keep that business," said Linda Kristiansen, a
retail analyst for UBS Warburg.
While Sears has had no trouble making
profits with the help of its credit business, its retail business has
seen slow growth compared with competitors. Over the past two years, the
company has had relatively modest sales gains, even as a strong economy
boosted retail sales overall. At 4 p.m. in New York Stock Exchange
composite trading Wednesday, Sears was up $1 at $31.46, off its 52-week
high of $43.50.
Mr. Lacy has said he will steer the
company toward "having more of a lifetime relationship with
customers." For instance, Sears typically sends coupon mailings to
people new to a neighborhood, but it rarely follows up. In the future,
Sears might send additional mailings to push merchandise appropriate to
customers' stage of life, whether they just had a baby or need major
home repairs, Mr. Lacy said.
But even as he tries to draw more
shoppers to Sears, Mr. Lacy says he must change the company's corporate
culture, persuading everyone to focus on improving Sears overall, rather
than just their individual departments.
"We have to, as an organization,
work better together and leverage what we do well. It's tough in some
ways to get people to think beyond what is," he said.
As he engineers change, he knows that
some people won't stay with Sears. "I describe myself as a
player-coach. I like to let good people do their jobs. If you're not
good, you don't get on the team," Mr. Lacy said. Already he has
trimmed the number of people reporting directly to him, to 17 from 20,
and he promises more cuts.
He also is penciling in changes on the
executive-meeting calendar. Sears used to hold quarterly meetings with
its top 200 employees. The meetings lasted four hours and "there
was not a lot of dialogue," Mr. Lacy said. Since he took over, the
meetings have been held every two weeks, for two hours, and he answers
questions from employees. Mr. Lacy says that once he is settled in the
top job, he plans to make the meetings monthly.
Sears is now working on plans for its
businesses in 2001, and Mr. Lacy says he is warning people the company
won't keep holding on to under-performing categories, which he declines
to name. Says Mr. Lacy, who joined Sears in 1994 as vice president of
finance, "We've never had productivity goals before."
That shows in the results. While Sears'
credit business has helped boost overall profits in recent years,
same-store sales have grown at a rate slower than the overall retail
industry.
Mr. Lacy views appliances, where Sears
has strong sales and market share, as a model to turn around the rest of
the retail business. In a meeting with retail analysts in New York last
week, he said, "We have a case study that we would like to
implement elsewhere within our company."
Sears
Grabs Pruning Shears
By Susan Chandler,
Chicago Tribune, Nov. 9, 2000
For Alan Lacy, Sears, Roebuck and Co.'s
new chief executive, less is definitely more.
After only 39 days on the job, Lacy
promised Wednesday that the nation's second largest retailer soon will
be doing "fewer things better."
That means Sears will pare its
home-services offerings, which include everything from kitchen
remodeling to pest control, making sure they are a good fit with the
Sears brand, Lacy said.
It also will result in fewer Sears
catalogs. Right now, the Hoffman Estates-based retailer has its name on
17 catalogs, only two of which are produced by Sears. Many of the
catalogs, which are produced by licensees, sell merchandise that isn't
even available in Sears stores.
"Rather than just lending our name,
we want to make sure this effort supports our retail proposition,"
Lacy told retail analysts and bankers gathered in New York to hear his
first presentation after his appointment to CEO was announced in
September. He declined to specify what license relationships might be
severed.
> From the outset, Lacy said he would
offer no grand plans and no quick fixes. > But the finance whiz
promised to bring a sharper focus to Sears' portfolio of > diverse
businesses as he continues to get a better handle on Sears' retail >
side. > To be sure, Sears investors are hoping Lacy's promotion
represents a new era. Although Sears' hard-line businesses have remained
strong performers in the 1990s, the retailer has been unable to fix its
apparel business despite an eight-year effort by Lacy's predecessor,
Arthur Martinez. Meanwhile, Sears' stock price has fallen to the low 30s
and its market capitalization has plunged.
Lacy didn't shy away from the sore spots,
presenting a frank, sometimes harsh, assessment of Sears' ailing core
retail business. And he vowed to redirect Sears' resources toward
winners and away from losers, promising to "manage for growth and
returns."
One major trouble spot: Sears'
rock-bottom profit margins. Its 3.3 percent retail operating margin is
the lowest among its competitors, trailing even discounters such as
Kmart and Wal-Mart, Lacy said.
By comparison, Kohl's Corp., a
fast-growing, aggressively priced apparel chain from Menomonee Falls,
Wis., boasts a 9.9 percent operating margin, he said.
"We recognize we don't make enough
money in the retail business," Lacy said. "We're not happy
with the underlying financial performance."
To improve Sears' returns, Lacy will
scrutinize the company's off-the-mall chains, touted by Martinez as the
company's future growth source.
Already, Lacy is hinting that he may slow
the growth of Sears Hardware, a chain of freestanding hardware stores
created to appeal to the convenience shopper. Although Sears Hardware
has frequently been cited as one of Sears' few off-the-mall success
stories, Lacy said he is putting expansion plans on hold while he
assesses the chain's financial performance and prospects. One obvious
problem--Sears Hardware was selling too many commodity items with low
profit margins, Lacy said.
"We haven't quite cracked the code
yet," he added.
Lacy also may be hitting the brakes on
NTB, Sears' chain of tire and battery stores. Although it was designed
to appeal to upscale drivers of sports cars and sport-utility vehicles,
NTB has failed to deliver consistent revenue growth and profitability,
Lacy said.
If these businesses can't improve
financial performance, Sears will "withdraw resources," Lacy
said.
The only off-the-mall concepts that Lacy
praised were Sears' dealer stores in rural areas, which are operated by
outside dealers and stocked with inventory by Sears, and the Great
Indoors, a fledgling chain of four upscale home remodeling and
improvement stores. Sears will roll out 10 more Great Indoors stores
next year. Lacy said he envisions a chain of 150 Great Indoors
eventually, but he declined to specify a timetable for the rollout.
"The Great Indoors represents a very
attractive and potentially significant growth vehicle for us," Lacy
said.
As for the dealer stores, which replaced
many Sears Catalog stores, there isn't much room left for growth, Lacy
said. There are 750 dealer stores nationally with prospects for perhaps
another 250.
But Sears can and should be doing a
better job of attracting new customers to its 860 core department
stores, Lacy said. To that end, Sears will be adjusting its marketing
message again.
Under Martinez, image advertising was key
to wooing female shoppers. But the "Softer Side of Sears"
campaign was sacked last year for a more price-oriented strategy with
the tag line "The Good Life at a Great Price. Guaranteed."
Lacy indicated he might move the pendulum
back slightly by doing less price promotion and more advertising that
supports Sears' private-label brands such as Canyon River Blues denim.
He also plans less mass-market
advertising and more one-to-one marketing with customers. "Sears is
the eighth-largest advertiser in the U.S," he said. "Ninety
percent of that is spent as if we don't have a clue who our customers
are."
To better target ad dollars, Sears may
cut back on Sunday newspaper circulars and make more product pitches
over the Internet based on customers' buying habits.
One million Sears shoppers have given the
company permission to e-mail them with ad pitches, he said.
Lacy said he was pleased with Sears
online business, which has grown to $500 million in annual sales, a
figure that includes products researched online. Sears wants to be a
"truly integrated clicks and bricks" retailer, he said.
Despite the growth in online shopping,
however, Sears still is committed to its physical stores and improving
the shopping experience for customers.
"We're going to focus on what really
matters," he said.
Sears
CEO Lacy Says
2001 Will Be 'Transition Year'
By Calmetta Coleman,
The Wall Street Journal - November 8, 2000
In his first address to the
investment community as head of Sears, Roebuck & Co. (S), Chief
Executive Alan J. Lacy said 2001 would be a "transition year,"
as the company focuses on improving its retail business.
Lacy said the company overall will focus on
becoming truly customer centered and will demonstrate a "total
commitment" to productivity and returns. In addition to continuing
retail initiatives - such as editing apparel assortments - set by his
predecessor, Chairman Arthur Martinez, Lacy said the company also would
aim to tailor its marketing to individual customers rather than focusing
primarily on mass efforts, such as newspaper circulars.
However, because of forward planning in
retail, visible changes aren't expected before the second half of next
year. But Lacy, who took the helm as Sears' president and CEO early last
month, insisted change definitely would be forthcoming. "Our sense of
urgency here is high," Lacy told a group of analysts during a
presentation at the Waldorf-Astoria here Wednesday.
"We recognize that we really don't
make enough money in our retail business," Lacy said. In addition to
860 full-line stores, Sears has 2,100 specialty stores. Some store
formats, such as dealer stores - operated by outside dealers and stocked
with inventory by Sears - have done well, while other performance has been
varied and inconsistent.
"We need to force these businesses to
improve their performances and, if they can't, withdraw resources"
and use them on better-performing businesses, Lacy said. He declined to
comment on any specific businesses or product lines that might not be
doing well.
Lacy also reiterated that Sears, Hoffman
Estates, Ill., would continue to be a multi-faceted company, doing
business in retail, credit and services.
The CEO said the company's key growth
initiatives going forward would be its Great Indoors store concept, the
Sears Gold MasterCard and the online business. Sears previously said it
would begin rolling out The Great Indoors, a home decor and improvement
format. Lacy said the stores have the capability to generate about $50
million each in annual sales.
Looking to the more immediate future,
Lacy said he expects holiday retail sales to fare well. "I think our
opportunity for the holiday season is really in December," he said,
noting that the promotional calendar for this November is similar to last
year. In December 1999, Sears cut back on promotional events, which helped
profit margins but hurt same-store sales. This year, the company will
focus on more special events, such as customer appreciation days, which
should boost sales.
