Northwest Living
Mail-Order Remade . . . 1911 House by Sears
By Valerie Easton - Seattle Times
January 7, 2007

When a young couple approached them about a remodeling job in Wallingford, architects Steve Hoedemaker and Tom Bosworth turned them down. "Our initial reaction was no, don't do anything, it's too charming," recalls Hoedemaker.

Eric and Karen Lonergan found the pagoda-style bungalow mid-renovation. The windows were boarded up, the inside dark and dreary. The porch off the dining room was decrepit, and the cement basement was creepy. The generous corner lot was a messy construction zone. But the young couple fixed the place up a bit, moved in, and loved the location and the neighborhood. While they wanted to retain the bungalow's essential character, they needed more space than the existing two bedrooms and single bath. "There were lots of pieces of this house that were pretty funky," says Karen of the1911 house originally ordered from the Sears catalog.

In autumn of 2003 the Lonergans began brainstorming with Hoedemaker. They'd worked with JAS Design Build in the past, so they felt comfortable hiring the contractor bid-free. The result of the collaboration is a seamless addition that looks as if it's always been there. In fact, you're sure the new second story should have been sent mail-order along with the rest of the house nearly a hundred years ago.

A good deal, indeed

The Lonergan home is bungalow floor plan No. 264, page 244, in the Sears Modern Home Mail Order Catalog. The advertisement reads:

"While the bungalow on this page is neither extreme nor extravagant, it has all the ear-marks of a cozy, well planned, artistic little home.

"Cost? For $1,106.00 we will furnish all the material to build this Five-Room Bungalow. . . By allowing a fair price for labor, cement, brick and plaster, which we do not furnish, this bungalow can be built for about $2,800.00 including all material and labor."

Read it and weep.

Sears, Roebuck and Co. shows prescience: "Bungalow authorities all agree that this style of architecture has come to stay. They claim that as the years go by the bungalow will even be in more demand than at the present time, and should one wish to sell he will have little difficulty in finding a buyer if his building is constructed along the new lines."

Hoedemaker's design repeats the home's pagoda roofline, emphasizing its curvaceous appeal. The powerful column detailing around the porch, red front steps and deeply textured gray stucco exterior all accentuate the home's distinction. "This house has such history. It comes from a time when craftsmanship was so important," says Hoedemaker.

The handcrafted look continues out into the garden where low, dry-stack stone walls define the edges of the property, flower beds soften the stone, and a corner cutout in the wall forms a little street-side garden.

Early on, the Lonergans reassured neighbors that they didn't plan to ruin the character of the beloved old house. "There's such a long, bad history of second stories in Wallingford that people were really worried," says Karen Lonergan.

Although most of the work called for was above the existing roofline, structural issues required that the house be penetrated all the way to the basement. Most of the surprises came in the engineering and design phase rather than during construction, and in the end, few rooms remained untouched. The Lonergans don't even want to think about how much the 700-square-foot addition ended up costing per foot. Of course, they also got a new porch off the dining room, new wooden windows that open out, and a fresh look throughout the old home. "It snowballed from a small addition to a big project, although it doesn't look like it from the outside," says Hoedemaker.

The stairway leading up to the new master suite is flooded with natural light, making it seem larger than its minimal dimensions. Built-in bookshelves and a large window make walking up the stairs a pleasant journey. At the top, there's a new bath tiled in crisp white hexagons, a master bedroom, view to downtown Seattle, and a little nursery for the baby who arrived in November. A floating wall allows flexibility for future reconfiguration, but for now, it's all working just fine.

Photos Included
By Benjamin Benschneider - The Seattle Times

Multiple-paned windows, French doors and pale paint and floors create light, airy interiors.

The new master bath is part of the 700-square-foot, second-story addition. Its clean, simple lines harmonize with the home's style while the little hexagonal floor tiles add instant age.

The new second story, containing master bedroom, reading room and bath, fits seamlessly on top of the old house, with a roofline echoing the distinctive pagoda style of the main floor.

The Asian feel of the porch beams and pagoda roofline have a modern sensibility, though the original design is nearly a century old.

The built-in breakfast nook at one end of the kitchen used to be a storage space that wasted the beautiful windows. Now the nook is so well used that the family calls it the bistro.

The new master bedroom has an appealing, tucked-beneath-the-eaves feeling despite plenty of light and headroom.

You'd never guess that this stairway to the second floor didn't exist before the remodel. Its materials, trim, lighting and quiet, Zen-like feel integrate so well with the rest of the house.

Saving Sears
Sears Store Saved...as Hotel, Condos and Apartments
By Linda Mack, Minneapolis Star Tribune
January 6, 2007

That the retail white elephant was saved at all was a miracle.

After the historic 1927 store at Lake Street and Chicago Avenue closed on Christmas Eve 1994, the giant brick structure sat empty, a black hole in the city's heart. For a decade, developers and their ideas came -- and went. Thankfully, threats to raze the place were never carried out.

When the city of Minneapolis put out a new request for proposals in 2003, Ryan Companies offered a plan that included housing and an anchor office tenant, Allina Hospitals and Clinics, that had decided to consolidate 1,650 employees near its flagship Abbott Northwestern Hospital a block away.

The master developer put together a topnotch design team: retail and restaurant masters Shea for the public areas and global market; Elness Swenson Graham for the hotel and the condos and apartments, which were developed by Sherman Associates; the Collaborative Design Group to coordinate the project and design the shell and parking ramp, and Close Landscape Architecture for the urban design.

"It reminds me of Ben Hur -- epic proportions and a cast of thousands," said Mark Swenson of ESG.

After getting development approval from the city in January 2004, Ryan cut two atria in the main building, cleaned out asbestos and other pollutants, built a seven-story parking ramp and proceeded to complete Allina's offices by December 2005.

Residents began moving into the condos and apartments last January, and the Global Market opened in June. The Midtown Exchange Condos, developed by Project for Pride in Living across 10th Avenue S. and designed by UrbanWorks Architecture, were recently completed.

A Director Decides to Override a Friendship
By Landon Thomas, Jr. - New York Times
January 5, 2007

Everyone who knows him says it: In a tough fight, Kenneth G. Langone is a guy you want in your corner.

But when Robert L. Nardelli, the former chief executive of Home Depot, refused to bend to the will of an exasperated board and accept a pay cut, he lost the crucial support of a friend who as lead director not only recruited him but presided over his compensation contract that would later draw so much fire.

For Mr. Langone, a voluble man whose passions include Italian meatballs, golf and the Roman Catholic Church, it was a surprising reversal. Mr. Langone prides himself on his loyalty to his friends and, as a director who has served on the compensation committees of General Electric, Yum Brands and the New York Stock Exchange, he has never been shy about paying his chief executives well.

Now, people who have spoken with him in recent days say, he is angry with Mr. Nardelli over his unwillingness to have his pay reduced.

In an era of escalating pay, with chief executives on Wall Street taking in $50 million a year and former General Electric executives like David Calhoun getting $100 million compensation deals from private equity investors, being paid well was a way for Mr. Nardelli, a scrappy former football player, to keep score.

In light of Mr. Langone’s vocal and unyielding support for the $190 million pay package that was awarded to Richard A. Grasso, the former chief executive of the New York Stock Exchange, he might have been expected to fight to the bitter end to save Mr. Nardelli.

But as friends who have served on boards with him say, beneath the bluster and occasional histrionics lies a more pragmatic man well aware of his fiduciary duties as a director — especially at Home Depot, a company that he helped found and that has made him a billionaire.

“Ken does not back down, but he also has a strong sense of propriety,” said Gary E. Earlbaum, a real estate executive who introduced Mr. Langone to Bernard Marcus, a founder of Home Depot, more than 30 years ago. “His loyalty is to the enterprise.”

Mr. Langone declined to comment. Mr. Nardelli did not return messages left for him.

At age 71, when many corporate executives start slowing down a bit, Mr. Langone continues to manage a full schedule of corporate, political, legal and philanthropic activities. He is a top financial supporter of Rudolph W. Giuliani, who is weighing a possible run for the White House, and he is the chairman of New York University Medical Center. Mr. Langone also still devotes considerable time and energy to contesting the lawsuit brought against him and Mr. Grasso by Eliot Spitzer, the former attorney general for New York who is now the state’s governor.

That’s all in addition to his day job, running Invemed Associates, the small investment bank he founded.

But it has been his passionate and unstinting defense of Mr. Grasso’s pay, much of which was set during his time on the exchange’s compensation committee, that has come to define Mr. Langone’s public image.

His detractors see him as a living symbol of the excesses of runaway executive compensation, a bullying old-school titan whose tendency to befriend his chief executives blinds any objective ability he might have had to keep a ceiling over their pay.

Mr. Grasso’s huge compensation package, and, according to the lawsuit brought by Mr. Spitzer, his efforts to keep other directors in the dark about it, are perfect examples of this, they say.

“Ken Langone is the root of the problem; his philosophy is that you can never pay a C.E.O. too much money,” said Richard Ferlauto, the director of pension investment policy at the A.F.L.-C.I.O. “That was revealed in his defense of Grasso. Now we are focusing on the role of Langone” at Home Depot, he said. “We blame him and his cronies for the original contract.”

His defenders, on the other hand, point to his long experience as a director and his acute knowledge of a director’s responsibilities, honed from more than 30 years’ experience as an independent investor. Yes, he has a big heart and an inclination to overpay at times, they say, but his ethics are beyond dispute.

“I don’t care what kind of a battle I’m in but I would want Ken Langone on my side, because he is on the side of honor and righteousness,” said Frank Borman, a former director at Home Depot.

Mr. Langone’s pursuit of Mr. Nardelli, whom he met in 1999, when he became a G.E. director, was infused with a sense of glee at the prospect of landing such a corporate star. Mr. Nardelli, well aware of the value of the G.E. pedigree, drove a hard bargain. A result was the 2000 contract, which, with its guarantees and perks, may well be an anachronism today as rich pay packages come under increasing scrutiny.

At Home Depot, Mr. Langone is a particularly involved director. He is chairman of the nominating committee and has played a significant role in shaping the current board. He is also a member of the executive and audit committees. He would frequently start his mornings with a call to Mr. Nardelli, and he thrilled in digesting the latest sales data as well as updates about Lowe’s, the retailer’s main competitor. And, while walking the floors at store outlets was a responsibility for directors, Mr. Langone did more than his share, as well as inspiring the Home Depot sales force at the frequent pep rallies he attended.

Still, when it became clear that a combination of the poor performance of Home Depot’s stock and Mr. Nardelli’s obstinate demeanor had made his position untenable, Mr. Langone threw his support with the rest of the board.

In a 2004 interview for an article about Mr. Langone and his role in the Grasso controversy, Mr. Nardelli said: “Change is difficult. But it is the only constant in today’s environment. It takes courage and leadership.”

“I think Ken stands by good business judgment.”

More Problems Remain After CEO's Departure;
Daunting Competition
By Ann Zimmerman – Wall Street Journal
January 5, 2007

Investors in Home Depot Inc. may soon discover that Bob Nardelli wasn't the only wrench in the works.

The home-improvement company's stock price rallied after the chief executive left. But plenty of problems remain for the retailer, from a decline in home prices to vigorous competition from Lowe's Cos.

Those twin issues are daunting enough, but Home Depot has a host of internal flaws that are hampering its ability to meet those challenges. The company in recent months has lost several executives, and the top ranks are generally lacking in much-needed retail experience. Home Depot's customer service is lackluster, according to analysts, and its stores are still run by antiquated systems that too often leave shelves short of popular items.

Getting on top of all these issues will take time. The departure of Mr. Nardelli was a quick fix, perhaps clearing the way for some needed changes. But restoring the retailer's once-vibrant stock price will be more of a long-term project for successor Frank Blake.

And views differ over whether Mr. Blake is the right man for the job, considering his lack of retail experience.

Mr. Blake was unavailable for questions, according to a Home Depot spokesman.

Already the stock has given back some of Wednesday's gains. In 4 p.m. composite trading yesterday on the New York Stock Exchange, Home Depot's shares were down 50 cents, or 1.2%, to $40.57, giving the company a market value of $82.8 billion. Many on Wall Street think the stock will fall back more, or, at best, remain at the current price for a while before it starts rising again.

"The question is, 'How does the business perform from here?' " said Colin McGranahan, a retail analyst at Sanford C. Bernstein & Co. who has a "market perform" rating on Home Depot's shares. "Say what you will about Bob Nardelli, but he was a hard worker and knew how to fix problems. That means there is no easy fix. There's no white rabbit."

Mr. McGranahan, who doesn't own any Home Depot shares, is particularly pessimistic about any near-term rebound for Home Depot. He has a near-term price target of $37 on the stock. Sanford Bernstein hasn't done any business with Home Depot in the past year and doesn't own more than 1% of the company.

Most of all, Wall Street is hoping that Mr. Blake hires some top-notch retail talent.

Analysts had criticized Mr. Nardelli for failing to establish a stronger management bench. Some senior Home Depot executives who had been loyal to the founders, Bernie Marcus and Arthur Blank, left in 2001 and 2002 after chafing under Mr. Nardelli's micromanagement and disdain for some of the company's existing practices.

The departure of executives accelerated again last year as questions arose about Mr. Nardelli's future at the company and as investor sentiment soured. In the past six months, the company lost its executive vice president of operations and its longtime marketing head.

Despite claiming to reinvest in Home Depot's stores, Mr. Nardelli never replaced the head of operations -- which was a mistake, analysts said. Instead, Mr. Nardelli reassigned duties in what he said was an effort to streamline the bureaucracy. But Wall Street thought the company's upper-management ranks were too thin.

Investors have made it clear that they want the company to continue investing in the stores, updating inventory and delivery systems, hiring more workers and freshening displays. That will help Home Depot compete against the faster-growing Lowe's with its newer, brighter stores and better customer service. Lowe's has a market value of $49 billion. Its stock was up 14 cents, or 0.4%, to $32.18 on the NYSE yesterday.

In the third quarter, Home Depot's stock rallied when Mr. Nardelli announced that the company was investing an additional $350 million in the store base, even though the company also said its sales and profit were being hurt by a steep slowdown in home sales. But many critics believed this was still too little and much too late.

Matt Fassler, a Goldman Sach retail analyst, is a little more bullish. "I think the stock will be in a wait-and-see mode," he said. Mr. Fassler has a near-term price target of $42. "I think the stock is fairly valued on its fundamentals; its margins are relatively high; and its growth opportunities are modest from here." He rates Home Depot's shares as "neutral," and the retailer has been a client of Goldman Sachs in the past 12 months.

The chief challenge facing Mr. Blake at Home Depot will be selling investors on the retailer's foray into commercial supply, something Mr. Nardelli mostly failed to do.

"I would be coming up with ways either to sell the story to Wall Street or take the two companies -- Home Depot supply and Home Depot retail -- and make them separate companies," said Patricia Edwards, a retail analyst and portfolio manager in the Seattle office of investment firm Wentworth, Hauser & Violich, which manages assets of $7.9 billion and holds 690,000 Home Depot shares. "There's got to be some way to unlock this value."

Regardless of what changes the new management makes, no one thinks the stock will climb soon. "Don't expect the margins to improve and the comps to go up overnight," Sanford Bernstein's Mr. McGranahan said. "The ship doesn't turn that fast, and the environment isn't favorable right now."

---- Kris Hudson contributed to this article.

The Future of Luxury: Custom Fashion, Cheap
Designer Tom Ford on Finding Individual Style Today; 'To Have Something Different'
By Teri Agins – Wall Street Journal
January 4, 2007

Vera Wang, famous for her couture bridal gowns, is coming out with a line of $69 dresses and $99 handbags at the Kohl's department-store chain. French fashion house Christian Dior is expanding its line of $3,500-and-up customizable handbags, allowing shoppers to choose their own skins, colors and hardware. And pop star Gwen Stefani, on the strength of her successful L.A.M.B. fashion collection, will launch a line of fragrances with Coty Inc. in the fall.

Tom Ford

These are only a few of the changes in store for fashion this year as the industry enjoys a boom in luxury goods and wrestles with a glut of fashion designers.

What can shoppers make of it? With so many sometimes contradictory currents in fashion, we sought out Tom Ford, former creative director of Gucci Group who became a major force in international fashion in the 1990s, to discuss where the industry is going and how to create your own personal style.

Though best known for flourishes such as hip huggers and plunging necklines for women in the 1990s, he is also considered one of the industry's most articulate predictors of the zeitgeist. The 45-year-old Texas-born designer, who left Gucci in 2004, will dive back into fashion apparel this spring when he introduces his first signature menswear line at a new Madison Avenue boutique.

As he surveys the global luxury-goods landscape today, Mr. Ford sees several big trends since his heyday at Gucci. In a shift from the era of mass luxury, which he himself helped usher in, consumers are demanding ever more uniqueness and customization in fashion. The designer also thinks that as high fashion becomes more democratic -- with designer clothes available at Target and Wal-Mart -- everyone is capable of pulling off a stylish individual look.

A perfume called Tom Ford Black Orchid starts at $90 an ounce.

"You should never be intimidated by fashion," he says. "It is meant to be fun."

Mr. Ford's approach to high fashion has always been a blend of innovation and accessibility -- a characteristic that has caused some critics to deride him as more of a marketer than an artiste. But Mr. Ford shrugs. "I have always had very mass tastes -- mass taste on a high level -- and I'm proud of it," he says. Mr. Ford's mission as a designer was always "to be ahead of the curve but never too far ahead," he says.

His own personal style is a variation of an open shirt with a blazer. "I never wear a tie," he says. "Tight things around my neck give me a headache."

Since he left Gucci, Mr. Ford has worked on several projects, introducing Tom Ford sunglasses that average $350, and a new fragrance under license with Estée Lauder Cos. -- the exotic Tom Ford Black Orchid at a starting price of $90 a bottle. Mr. Ford's new menswear boutique will serve up a spread of pricey menswear -- including custom tailored suits -- as well as shirts, ties, shoes, luggage, jewelry and cosmetics with a "new level of service -- a niche that doesn't exist today," he says. He plans to open Tom Ford boutiques in cities such as London and Milan.

Here's a look at some key themes Mr. Ford sees in fashion in the future, as well as a few tips on how people can define their own personal style today:

Mr. Ford says consumers will flock to personalized luxury goods. Christian Dior caters to individual tastes with its line of customizable handbags.

Personalization of Luxury Goods

Mr. Ford's tenure at Gucci occurred during a pivotal moment in high fashion, when Gucci, LVMH Moët Hennessy Louis Vuitton and Prada Group transformed the international fashion scene into multi-brand, billion-dollar empires, fueled by demand for $1,500 and up "it" handbags, the new status totems. From then on, upscale designer togs would be referred to as "luxury goods," steeped in red-carpet hype and snob appeal.

Today, however, consumers no longer want to have the same thing at the same time. "Now everybody wants to have something different," Mr. Ford says. "A woman doesn't necessarily want the same bag her friend has. That is part of the appeal of vintage fashion -- you don't see yourself coming and going. It's something that you found."

Next spring, Mr. Ford will launch 12 new individual fragrances under his eponymous label marketed by Estée Lauder. The idea is "to give everyone something they will be able to latch on to," he says. "People want the ability to be an individual. And that is why luxury keeps growing."

Trends such as the expansion of the customized Dior handbag line suggest other companies also share his vision. For the first time, Coach introduced last fall a collection of handbags and accessories that can be monogrammed with up to three initials.

With more stores offering "cheap chic," such as this Viktor & Rolf outfit from H&M, the democratization of fashion continues to spread, says Mr. Ford.

Cheap Chic Will Stay Chic

As more mass chains -- from H&M, which has most recently teamed with Viktor & Rolf, to Target, which has deals with Isaac Mizrahi and others -- produce low-priced designer clothes and accessories, high fashion is becoming more democratic than ever before.

Sitting in his London home, Mr. Ford says he himself is wearing a pair of Levis and a T-shirt. His T-shirts are always "from Gap or Banana Republic or some underwear label," he notes. Such basic togs can hang in a women's closet alongside, say, a $3,000 Chanel jacket because "the same chord is authenticity," he says. "The idea is that good design should be affordable to all."

"With Target, for example, you go in there and find something that is a great price and wonderful for its intrinsic value. This is democratization of fashion. I love this high-low concept," he says, adding: "There is all this accessibility -- everything is now online."

Tom Ford used the Gucci logo to convey cachet. With many brands having followed suit, he warns that consumers may become skeptical about logos' value.

Logos Lose Their Luster

During his years at Gucci, Mr. Ford used the GG logo as a launch pad for creating cachet, updating it and putting it on everything from shoes to handbags to dog beds.

Nowadays designers of every stripe high and low plaster logos on a broad array of merchandise, so that logos no longer carry the connoisseurship and cachet they once did. "I never thought logos were the way to sell products," he says. Too often they are showy labels that don't represent merchandise that is high quality. A logo is "only as valuable as the brand it represents," Mr. Ford says. "People now are maybe more suspicious of that hollow product behind the logo."

Still, he understands why many consumers are fixated on wearing logos: It demonstrates they belong to an elite group. "It's just part of human nature," he says.

Tom Ford has a new line of sunglasses, with an average price of $350.

Celebrity Marketing Is Here to Stay

"It has become so formulaic -- the celebrities and the party pictures that run all over the world -- and I am just tired of it," says Mr. Ford, who spends part of the year at his home in Los Angeles. "I have a lot of friends who are actors and actresses, and in some cases [all this publicity centering on fashion] hurts their careers. It demystifies them -- you get so tired of seeing someone's face on an advertising billboard."

In 2006, several luxury goods makers, including Versace, veered away from stars to showcase models in their ad campaigns. Yet celebrities continue to dominate most fashion advertising and product endorsements. And a growing number of stars including Gwen Stefani and Beyonce have been pushing their own fashion lines.

"In a way, it is understandable [that celebrity marketing thrives]. They are a constant in our lives. In a way, they have become our family," Mr. Ford says. "You can move from one city to another, but you can pick up a magazine and know what Lindsay Lohan is doing. You know everything about them."

Sensual Is the New Sexy

At Gucci, Mr. Ford was the designer most responsible for ushering in the ultra-sexy style of the 1990s. There have always been sexy fashions, but that decade's look, from low-cut pants to gowns with plunging necklines, sizzled with sex appeal.

"Right now, sexiness in fashion has given way to sensuality" -- a more subtle look, he notes. But "everything is cyclical," says Mr. Ford. Sexiness in fashion "is never going to go away. Because we are human beings and that is one of our fundamental drives: our attraction to other people."

The reality is that while beauty standards come and go, people "want to look beautiful and want to look attractive in clothing."

Pressure's on for CEOs to deliver--now
By Susan Chandler - staff reporter – Chicago Tribune
January 4, 2007

The best thing about being a CEO these days may be the exit package.

More corporate chieftains are getting the boot after relatively short tenures even as the size of their severance checks balloons, management experts say. Robert Nardelli, the autocratic chief executive of Home Depot Inc., became the latest example Wednesday as he was shown the door at the world's largest home improvement retail chain.

Nardelli, once a rising star at General Electric Co., had much to do with his downfall, experts said. But his departure is part of a larger trend: Boards are running short on patience.

"The average tenure of a CEO is 48 months. That's not very long," said Wally Scott, professor of management at Northwestern University's Kellogg School of Management. "Boards are intervening much more strongly to make changes when they think change is required. They have itchy trigger fingers."

CEOs have the same short-term mind frame, adds Peter Crist, a headhunter in Hinsdale who specializes in filling the top three positions at large publicly traded companies.

"Whether they know it or acknowledge it, everybody in my world lives on a five-year cycle. That manifests itself in how long people stay in the chairs but also how the contracts are written. Check the contract of a coach, a CEO or even a head of a not-for-profit. They tend to run in five-year cycles."

Nardelli managed to anger his critics even on his way out. His exit package totaled $210 million, an extraordinarily large number even by today's high corporate compensation standards and a figure that is roughly seven times what Home Depot set aside last year to reward stores and store-level employees for good customer service.

"It's an egregious amount any way you slice it. It's not a number you will see in today's climate," said Crist.

He noted that Home Depot may have been legally obligated to pay much of that amount as part of the contract Nardelli signed when he joined the company in 2000 at the top of a long bull market.

That's little comfort to Richard Ferlauto, director of pension and benefits for the American Federation of State, County and Municipal Employees, the public-employees union that owns 23,000 Home Depot shares. The union has been a frequent critic of Nardelli's compensation and other issues.

The size of Nardelli's package, Ferlauto says, makes it more like a "platinum helicopter" than a golden parachute.

Ferlauto vows that the union's fight with Home Depot is not over. "It's a continuing story. We're going after the board."

That's exactly what companies' board members are hoping to avoid by dumping underperforming CEOs faster, corporate governance experts say.

"The last thing you want is to be sued, successfully or not," said Scott at Northwestern. "That's not the reason you join boards."

The stress on boards is coming from the world of big money--managers of pension funds, hedge funds and private-equity funds--all of whom are under pressure themselves to produce fat returns for their clients.

"Shareholders definitely have a shorter fuse these days. It's just the world we live in," said Anthony Sabino, a law professor at St. John's University and a New York attorney who specializes in corporate litigation. "It's been a long time since the investing public had any patience with year-to-year results. Now we focus on quarterly results, and sometimes it's daily results."

For examples of CEOs who have been on a short leash, one need look no further than Kraft Foods Inc. in suburban Northfield. Kraft promoted Betsy Holden to co-CEO in 2001 and then moved her aside in 2003. Roger Deromedi, who became Kraft's sole CEO in 2003, was ousted himself three years later.

In December J.C. Penney Co. fired its chief operating officer, Catherine West, after just five months, reportedly because she had not learned the retail business quickly enough. Previously she had worked in the credit card industry.

This week, Mike Zafirovski, the new chief of Nortel Networks Corp., expressed concern about his job security in The Wall Street Journal after only 13 months on the job.

When Nardelli arrived at Home Depot's Atlanta headquarters six years ago he seemed a natural to lead the company into the next era. Under founders Arthur Blank and Bernard Marcus the chain had prided itself on hiring former plumbers and electricians and paying them good wages to help customers navigate the world of home improvement. It kept prices low with no-frills warehouse-type stores and encouraged local managers to tailor their product selections to the taste of local markets.

Boosted by growth in home ownership Home Depot had expanded to 1,000 stores in 20 years, displacing Sears, Roebuck and Co. in the Dow Jones industrial average and becoming the country's second largest retailer, behind Wal-Mart Stores Inc.

Top-down management

But after Nardelli arrived he quickly imposed a top-down style. In one of many efforts to cut costs Nardelli replaced many full-time workers with part-timers. He slashed the bonus pool for front-line employees even as his own pay package hit $28.5 million in 2004. Customer-service ratings last year hit the bottom of the barrel among major U.S. retailers in the University of Michigan's annual survey.

At the same time, rival Lowe's Cos. was gaining market share by opening bright, welcoming stores that contrasted sharply with Home Depot's concrete floors and towering shelves.

Nardelli also worried retail analysts about his commitment to the core big-box business by going on an acquisition binge and expanding into endeavors that included contractor supply outlets and convenience stores.

In the world of corporate governance, Nardelli's approach was unusually high-handed.

Last year, for example, Nardelli moved Home Depot's annual meeting out of town, told board members not to make an appearance and severely limited shareholders' time to ask questions.

In May, Nardelli stopped issuing monthly sales results, a key measure Wall Street analysts use to assess the health of retail chains.

Declining stock price

Despite the fact that Home Depot had posted yearly sales increases averaging 12 percent and profits had doubled, the company's stock went nowhere. Home Depot's stock, which traded around $60 per share the year he arrived, closed Wednesday at $41.07 a share, up 91 cents on the news of Nardelli's departure.

Home Depot's stock price translates into a price-earnings ratio of slightly more than 14. Wal-Mart Stores Inc., which has been having its own troubles these days, trades at a P-E multiple of more than 18. Sears Holdings Corp., which has been losing market share rapidly, trades at a P-E of nearly 20.

Nardelli reversed course slightly last year, saying he would refocus Home Depot on providing good customer service. But it was too late.

He might take comfort in the fact that he is not the only high-profile person in Atlanta who lost his job this week. Jim Mora, coach of the Atlanta Falcons, was fired after his team failed to make the playoffs. The Falcons happen to be owned by Home Depot co-founder Arthur Blank.

"Sports or business, it's all the same," attorney Sabino said. "The team doesn't win, fire the coach."

Executive's Fatal Flaw:
Failing to Understand New Demands on CEOs
By Alan Murray – Wall Street Journal
January 4, 2007

Robert Nardelli's demise as chief executive of Home Depot resulted, in part, from his failure to understand how profoundly the job of CEO has changed in recent years.

Mr. Nardelli was old school. In an interview last fall, as his public-relations problems were compounding, he acknowledged he had gotten "too focused on the idea that you do your job, you take care of your numbers, and the rest will take care of itself." Some of Mr. Nardelli's numbers were hard to argue with. In six years on the job, he doubled Home Depot's sales and more than doubled its earnings.

Did Home Depot Chief Executive Bob Nardelli deserve to lose his job? And if so, why? Join the discussion.1 Alan Murray will read your thoughts and post replies.What Mr. Nardelli missed, however, is that in the post-Enron world, CEOs have been forced to respond to a widening array of shareholder advocates, hedge funds, private-equity deal makers, legislators, regulators, attorneys general, nongovernmental organizations and countless others who want a say in how public companies manage their affairs. Today's CEO, in effect, has to play the role of a politician, answering to varied constituents. And it's in that role that Mr. Nardelli failed most spectacularly.

There were plenty of other reasons a board might want to dump him. He provided no return to shareholders. He pursued a controversial strategy of expanding into the low-margin wholesale business. And he accepted an exorbitant pay package.

But other CEOs have survived similar criticisms. Mr. Nardelli's failure to do so reflects, at least in part, his inability to adapt to a new era of greater scrutiny.

"I used to play football," he said when asked about the challenges of being a public company CEO today. "In football, you always know the score. Now, it's like we are ice-skating, and you've got a bunch of judges on the sideline shouting out the scores."

As failures go, Mr. Nardelli's isn't half bad. He walked away with an exit package of $210 million -- and that figure was calculated before announcement of his resignation boosted the potential value of his stock options yesterday.

Much of the package is due to the rich employment contract he negotiated with the Home Depot board before leaving General Electric Co., where he was one of three finalists to succeed Jack Welch. Mr. Welch convinced his board to give all three finalists large batches of stock options, telling board members they would have to make good on only one man's options, one director says. Upon leaving GE, the board was told, the two runners-up likely would use those awards to negotiate pay at their next jobs -- which is exactly what Mr. Nardelli and James McNerney, who is now CEO of Boeing, did.

Yet Mr. Nardelli's extravagant pay became his biggest problem. It prompted an attack from shareholder advocates like Richard Ferlauto, who runs investment policy for the American Federation of State, County and Municipal Employees, one of the nation's largest labor unions.

Political Error

Mr. Ferlauto helped organize protests at Home Depot's annual meeting last year, prompting Mr. Nardelli to commit his gravest political error: Aware of the protests to come, he convinced other board members to stay away from the meeting, and restricted shareholder questions to one minute. That sealed his public image as a callous and entrenched corporate leader, and even prompted a call from his former boss, Mr. Welch.

In response, Mr. Nardelli belatedly tried to become a politician. He went on a "listening" tour to visit 25 of the company's largest shareholders, and he granted interviews to a number of television and newspaper reporters. He apologized for his ham-handed handling of the annual meeting.

But he didn't apologize for his pay package. And he didn't reduce it.

That left him vulnerable last month when an investment firm, Relational Investors LLC, announced it was mounting a proxy battle to put new directors on the Home Depot board. Ralph Whitworth, who heads Relational, said his complaint had less to do with Mr. Nardelli's pay than his strategy. Mr. Whitworth believes Home Depot erred in expanding into the contractor-supply business. But Mr. Nardelli's weakened standing greatly increased the odds that Mr. Whitworth might win his proxy battle. So Home Depot's directors acted first.

Raised in a blue-collar family and educated in public schools, Mr. Nardelli was upset when informed by Mr. Welch that he had lost out to Ivy Leaguer Jeffrey Immelt for the top job at GE. He believed he had been a better performer, building revenue at the company's power-turbine business from $770 million in 1995 to $2.8 billion in 2000.

But subsequent events have confirmed the wisdom of Mr. Welch's choice. Like Mr. Nardelli, Mr. Immelt has struggled with a languishing stock price. But in addition to generating good operating results, Mr. Immelt has played the CEO's political role with great skill. He has tied his own pay closely to performance. He has eschewed the kind of employment contract that is now rewarding Mr. Nardelli. He has reached out to a wide range of constituent groups. And he has adopted a number of popular initiatives, such as his "eco-imagination" program which, among other things, includes an effort to reduce GE's emissions of greenhouse gases.

As a result, Mr. Immelt wins awards, graces magazine covers, and is widely praised as one of America's best CEOs.

Learned the Lessons

Procter & Gamble Co.'s A.G. Lafley is another CEO who has learned the lessons of the post-Enron era. Instead of catering just to shareholders, he makes a broad appeal to "stakeholders" -- a group that, by his definition, includes shareholders, employees, customers, consumers and the communities in which all these people live. When I asked him last year whether that makes his job sound like that of a global politician, he responded: "Like it or not, we are in a global political world. I've concluded I'm in it anyway, and I might as well deal with it anyway."

No one exemplifies the new CEO more than Wal-Mart Chief Executive Lee Scott. When Mr. Scott found his company under attack by a well-organized political campaign, he responded in kind. He reached out to his opponents, took polls of opinion leaders and hired political consultants. He also embraced environmentally friendly policies, improved employee health-care coverage and began advocating policies like an increase in the minimum wage.

Mr. Scott insists the environmental positions he's taken and the other policies he's adopted are all good for the company's bottom line. In an interview in his office in Bentonville, Ark., last year, Mr. Scott said: "The generation of people I work with -- like A.G. Lafley, who has been here in this office in the last two months, or Jeff Immelt, who has been in this office in the last three weeks -- feel there is a business reason to do this."

Taking the political route may be necessary to success in the post-Enron world, but it, alone, is not sufficient. Citigroup CEO Charles Prince has tried to appease his critics by making ethics a hallmark of his time at the top, but that hasn't helped the bank's lagging performance or silenced its critics.

In any event, it's clear Mr. Nardelli never bought into the approach favored by his colleagues like Mr. Immelt, Mr. Lafley, and Mr. Scott. Instead, he fretted that the corporate system is under attack.

"I am very concerned with the future of business and the capitalistic system in this country," he said last fall, expressing his concern about the repeated attacks on public companies. "Somebody has yelled fire in the auditorium. If you stand back, you've got to say that we as a country should share a growing concern as it relates to the capitalist system. The things that got us to where we are are under attack."

One consequence of the increased pressures on public companies and their CEOs, Mr. Nardelli noted, is a rush of both money and talent into private equity, which is shielded from many pressures that affect public companies. "Not everyone can go private," he said.

Not everyone, but how about Mr. Nardelli? He wasn't giving interviews or any hint of his plans yesterday. But his strong background in operational management, his distaste for the public spotlight and his hefty severance check in need of investing may make him the perfect candidate for a private-equity firm.

Market Place
A Warning Shot by Investors to Boards and Chiefs
By Gretchen Morgenson – New York Times
January 4, 2007

Arrogance has never been attractive in a leader. Now, in corporate chief executives anyhow, it may be a career ender.

The surprising defenestration yesterday of Robert L. Nardelli, head of Home Depot and one of the nation’s most imperious and highly paid chief executives, was a victory for shareholders hoping to force corporate directors to be more accountable on the increasingly incendiary issue of executive pay.

Even though the board gave him $20 million that was not a part of his employment contract, perhaps smoothing his way out the door, the departure seemed to be a watershed. No longer can executives demand — and directors happily grant — contracts worth hundreds of millions of dollars without at least some shareholders uttering a peep.

Indeed, Mr. Nardelli’s resignation seems to indicate a rising fear among Home Depot’s directors that they would be subject to even more investor ire and personal embarrassment during the 2007 proxy season than they encountered in 2006, when Mr. Nardelli ran the annual shareholder meeting like a lord over his fief.

“The departure of Nardelli is good news for shareholders,” said Frederick E. Rowe Jr., a money manager in Dallas and president of Investors for Director Accountability. “To borrow from Winston Churchill, this is the end of the beginning in the war to make directors accountable to the shareholder owners they represent.” Mr. Nardelli’s fall from the executive firmament was fairly stunning. In just six years, he went from being one of the most sought-after chief executives, forged in the management crucible that is General Electric, to a top target of investors outraged by his $245 million in total pay over the last five years. That amount was seen as completely at odds with the dismal performance of Home Depot stock on his watch. Yesterday, the shares closed at $41.07, almost 6 percent lower than they were the day Mr. Nardelli arrived at Home Depot in December 2000.

“C.E.O.’s now will understand that they’ve got to put their conscience and shareholder wealth well above their personal gain,” said Jeffrey M. Cunningham, chairman and chief executive of Directorship, an online information service for board members. “Boards create termination packages when no one even contemplates there is going to be a termination and they are extraordinarily rich. You are going to see all those plans rethought and rationalized for the new environment.”

Shareholders of Home Depot have been smoldering for several years about the company’s executive pay practices. Back when Mr. Nardelli arrived, for example, shareholders raised eyebrows after the company granted him a $10 million loan that it subsequently forgave. He has earned $20 million to $37 million each year since he joined the company.

In 2004, the company quietly changed the measurement it used to calculate long-term incentive pay for executives, upsetting investors when they learned of it later. Previously, the performance measure was based on a peer-group comparison, but the new measure involved only the company’s growth in earnings per share. It was more easily reached because it was based solely on Home Depot’s performance not that of other companies.

To some shareholders, changing the performance target in the middle of a year seemed an attempt to ensure a payout despite a dismal performance.

“We had a problem with that change,” said Bess Joffe, manager for the Americas at Hermes Investment Management, a money management firm owned by the British Telecom Pension Scheme, the largest pension plan in Britain. “After all, shareholders don’t get to change the terms under which they bought their shares midstream.”

But it was not until last year that Home Depot’s shareholders began to express serious disenchantment with the company’s directors over Mr. Nardelli’s pay. Last March, about two months before Home Depot’s annual shareholder meeting, the board was named one of the 11 worst executive pay offenders by the Corporate Library, a corporate governance research firm. In the weeks leading up to the meeting, shareholder advisory firms recommended withholding votes from Home Depot directors to voice their dismay over the disconnect between performance and pay at the company.

But Mr. Nardelli’s biggest error, and the act that may have set his demise in motion, was his shocking decision to run the annual meeting last May alone, insisting that his directors stay away and limiting questions from the shareholders.

“I’ve never heard of anything like that happening before, where directors don’t show up,” Ms. Joffe said. “It’s the one time of year that shareholders have a right to be present and stand up and speak their mind and directors have to respond.”

Stockholders were outraged. At least 30 percent of shareholders voting at the meeting withheld support from 10 of the company’s directors. Some 32 percent withheld support from Mr. Nardelli. Almost 36 percent of those voting withheld support from Claudio X. Gonzalez, chairman and chief executive of Kimberly-Clark’s Mexico operations and the director who had headed the compensation committee when the company changed its performance goals midstream.

Many shareholders also favored a proposal urging the Home Depot board to allow its investors to vote on an advisory basis to approve the company’s compensation; 40 percent voted for the measure.

Shareholders also supported a measure that would have required the board to accept resignations from directors who failed to receive support from a majority of votes cast. After the meeting, Home Depot said it would require such a vote from shareholders for the election of its directors.

Even so, the company continued to tinker last year with its pay practices in a way that may have been intended to generate pay for Mr. Nardelli in periods of poor performance at the company. Last November, a Home Depot spokesman disclosed that the company’s huge stock buybacks, which have the effect of increasing earnings when measured per share, would be included in the calculation of long-term incentive targets. In previous years, the effects of the buybacks were excluded from the calculations.

John A. Hill, the chairman of Putnam Funds, was one investor whose organization voted against Home Depot management at last year’s meeting. He said he was optimistic that Mr. Nardelli’s resignation signaled a new responsiveness among corporate directors. But he is uncertain.

“I think if a lot more shareholders withhold their votes for this board in the upcoming proxy season over their agreement with Nardelli, then it will really start to have an impact,” Mr. Hill said. “But as long as it is a minority, it won’t.”

Mr. Hill personally experienced Mr. Nardelli’s disdain toward his shareholders. As chairman of Putnam Funds, he wrote a letter after the annual meeting to Mr. Nardelli explaining why he had not earned the funds’ support at the election. He did not get a reply until August, when a reporter asked Home Depot why the chief executive had not responded to one of its large shareholders.

“He had become a lightning rod with the stock down,” Mr. Hill said. “But his not replying to our letter showed an arrogance there that came in on him.”

It seems that “my way or the highway” — Mr. Nardelli’s message to Home Depot’s beleaguered shareholders in recent years — does not play that well anymore.

Goody's Family Clothing Names Mary Kwan President
PRN Newswire
January 3, 2007

Mary P. Kwan has been named president of Knoxville, Tenn.-based Goody's (Goody's Holdings Inc.), a retailer of moderately priced family apparel. In her new role, Kwan will oversee merchandising, licensing and planning, allocation, product development and design, quality assurance, sourcing, marketing and e-commerce.

"Mary has deep experience in both the art and science of retail," said Isaac Dabah, CEO of Goody's and GMM Capital LLC. "She can seamlessly cross over from merchandising to planning and allocation to marketing. I'm looking forward to the implementation of her winning strategies as we refocus the Goody's brand."

Prior to joining Goody's, Kwan served as senior vice president for Quiksilver Incorporated in Huntington Beach, Calif. While there, Kwan led the merchandising and design efforts for the Roxy brand, as well as sales and profit growth of juniors, girls, accessories and footwear. Her impressive career in retail apparel also includes executive positions at Levi Strauss & Company; Lane Bryant, a division of The Limited Inc.; Sears Roebuck & Co.; and Mervyn's, a division of Target Corporation.

Kwan got her retail start on the department store floor at Mervyn's, working her way up to divisional vice president of children's apparel. She then refined her experience to incorporate specialty retail at Lane Bryant. Her next ventures at Levi Strauss and Quiksilver focused on wholesale in addition to traditional retail. Kwan successfully launched Levi Strauss Signature(TM) Brand, a line of casual clothing, to the masses. In the mid- '90s, Kwan's top-to-bottom merchandising efforts were pivotal in helping transform Sears, increasing revenue and margin growth to the top tier.

Throughout her career, Kwan has been involved in numerous civic activities, including serving on the board of directors for Oasis for Girls, Columbus Family and Child Guidance Center, and K.I.D.S. - Kids in Distressed Situations. In 1995, Kwan was awarded Working Mother's "Mothering That Works" Award for maintaining balance between family, work and community involvement.

"I'm thrilled to join Goody's at this exciting stage in its growth and look forward to empowering our people," said Mary Kwan, president of Goody's. "This opportunity is a perfect collaboration between my passion for retail and the passion and fun inherent in Goody's heritage."

Goody's targets value-conscious customers and provides a broad selection of merchandise featuring labels such as Adidas, Alfred Dunner, Carter's, Dockers, l.e.i., Lee, Levi's, Mudd, Nike, Reebok, Requirements, Sag Harbor, U.S. Polo Association and Zana-di. It is also the exclusive retailer of Duck Head.

To complement these brand names, Goody's has introduced its own clothing lines for men, women and children. The signature lines include Ivy Crew for men; Mountain Lake and Goodclothes for women; OCI for juniors, young men and children; and Baby Crew for infants and toddlers. With departments for each member of the family, Goody's provides a wide assortment of active, casual and career wear in a variety of colors and sizes for all body types.

Wal-Mart Seeks New Flexibility In Worker Shifts
By Kris Maher – Wall Street Journal
January 3, 2007

The nation's biggest private employer is about to revamp the way it schedules its work force, in a move that could shake up many employees' lives.

Early this year, Wal-Mart Stores Inc., using a new computerized scheduling system, will start moving many of its 1.3 million workers from predictable shifts to a system based on the number of customers in stores at any given time. The move promises greater productivity and customer satisfaction for the huge retailer but could be a major headache for employees.

The change is made possible by a software system that can crunch an array of data, part of a shift toward computerized management tools that can help pare costs and boost companies' bottom lines. But it also could demand greater flexibility and availability from workers in place of reliable work shifts -- and predictable paychecks.

WSJ assistant managing editor Alan Murray discusses Wal-mart's new worker scheduling system2.Wal-Mart began implementing the new system for some workers, including cashiers and accounting-office personnel, last year. As the world's largest retailer, the Bentonville, Ark., company often sets the standard for others, and many chains already are heading in the same direction.

Others that have rolled out advanced scheduling systems in the past year or are currently doing so include Payless ShoeSource Inc., RadioShack Corp. and Mervyns LLC. Payless expects to have its system in 300 of 4,000 stores by the end of January. The system, designed by Kronos Inc., tracks individual store sales, transactions, units sold and customer traffic in 15-minute increments over seven weeks, and compares data to the prior year's, before scheduling workers.

Payless hopes to "optimize our schedules to better anticipate when customers will be in our stores so that we can better engage them," says Larry Leibach, the shoe retailer's director of project management.

A company using these fine-tuned programs might start the day with a few employees on hand at many stores, bring in a bunch more during busy midday hours, and gradually pare down through the day before bulking up for the evening rush.

Staffing is the latest arena in which companies are trying to wring costs and attain new efficiencies. The latest so-called scheduling-optimization systems can integrate data ranging from the number of in-store customers at certain hours to the average time it takes to sell a television or unload a truck, and help predict how many workers will be needed at any given hour.

Companies also hope the scheduling systems will cut litigation by helping them comply with federal wage-and-hour laws, and variations at the state level on everything from the timing and frequency of breaks to how many hours minors can be scheduled. Moreover, retailers say tighter scheduling lets them better serve customers by shortening checkout lines.

"There's been a new push for labor optimization," says Nikki Baird of Forrester Research Inc. "You want to have the flexibility to more closely match ... shifts to when the demand is there."

But while the new systems are expected to benefit both retailers and customers, some experts say they can saddle workers with unpredictable schedules. In some cases, they may be asked to be "on call" to meet customer surges, or sent home because of a lull, resulting in less pay. The new systems also alert managers when a worker is approaching full-time status or overtime, which would require higher wages and benefits, so they can scale back that person's schedule.

That means workers may not know when or if they will need a babysitter or whether they will work enough hours to pay that month's bills. Rather than work three eight-hour days, someone might now be plugged into six four-hour days, mornings one week and evenings the next.

Some analysts say the new systems will result in more irregular part-time work. "The whole point is workers were a fixed cost, now they're a variable cost. Is it good for workers? Probably not," says Kenneth Dalto, a management consultant in Farmington Hills, Mich.

Unions have criticized Wal-Mart for its scheduling changes, saying the company is forcing people to be available to work more hours each week but to sacrifice a more regular schedule. Paul Blank, campaign director for WakeUpWalMart.com3, funded by the United Food and Commercial Workers union, says the new scheduling system has "devastating implications" for employees. "What the computer is trying to optimize is the most number of part-time and least number of full-time workers at the lowest labor costs, with no regard for the effect that it has on workers' lives," he says.

Wal-Mart spokeswoman Sarah Clark says the system isn't intended to schedule fewer workers, and hasn't where it has been implemented so far. The company says that in one test last year in 39 stores, 70% of customers said the checkout experience had improved. "The advantages are simple: We will benefit by improving the shopping experience by having the right number of associates to meet our customers' needs when they shop our stores," Ms. Clark said.

In the past, store managers for Wal-Mart and other huge retailers, including Sears Holdings Corp.'s Kmart, Payless and J. Crew, scheduled workers based on store promotions and weekly sales figures from the previous year. By comparison, the software systems created by workforce-management software companies such as Workbrain Inc., Kronos and CyberShift Inc. rely on real-time data feeds, such as sales rung up at the cash register and customer traffic.

The systems can boost productivity by freeing up managers. While it can take managers an entire day to create schedules for several hundred workers at a single big-box store, staffing can now be drawn up across an entire company in a few hours. Workbrain says it generates schedules for Target Corp.'s 350,000 U.S. employees at 1,500 locations in less than six hours. Target declined to comment on its scheduling system.

Store chains spent $55 million on licensing fees for work-force-management software in 2005, up from $44 million in 2004, according to AMR Research Inc. in Boston. AMR analyst Robert Garf estimates revenue for these systems grew by 15% to 20% in 2006. "We're really at this tipping point today," he says.

Wal-Mart is rolling out the new "optimizer" system from an outside vendor in all its stores and for all employees this year. Wal-Mart asks hourly employees to fill out the hours they can work on "personal availability" forms. A copy provided by WakeUpWalMart states that all full-time cashiers and customer-service workers are encouraged to consider including "if at all possible" a weekend shift every week. "Limiting your personal availability may restrict the number of hours you are scheduled," the form reads.

Some workers say the form has been used to pressure them to be open to more shifts. Tami Orth, a full-time cashier in Ludington, Mich., says she used to work a regular schedule of nearly 35 hours a week, with Mondays and Wednesdays off. In May, managers began to assign her as few as 12 hours a week, and her shifts began to fluctuate. "You can't budget anything," says Ms. Orth, who earns $9.32 an hour.

Some longtime workers also say they believe managers use the system to pressure them to quit. After working 16 years at a Wal-Mart in Hastings, Minn., Karen Nelson says managers told her she had to be open to working nights and weekends. After she refused, her hours were trimmed, though they have been restored in recent months. "The store manager said he could get two people for what he pays me," says Ms. Nelson, who earns about $14.50 an hour.

Ms. Orth and Ms. Nelson both had contacted union critics of the company in recent months.

Ms. Clark denied managers use the system to pressure people to change their availability or force out seasoned workers. She also said the new system makes schedules more consistent.

Nardelli Resigns as CEO, Chairman of Home Depot
By Kevin Kingsbury – Dow Jones Newswires
January 3, 2006

Home Depot Inc.'s board and Chairman and Chief Executive Bob Nardelli have agreed that he should leave the company, and he will take a $210 million severance package with him.

The news sent shares of the home-improvement retailer 4% higher in premarket trading. The stock was recently at $41.86, compared with Friday's closing price of $40.16.

The departure, effective yesterday, comes as Mr. Nardelli and the board have been heavily criticized about his $245 million package coupled with the company's languishing stock price since joining Home Depot.

Mr. Nardelli will be succeeded by Vice Chairman Frank Blake.

In a statement, the board expressed its gratitude to Mr. Nardelli "for his strong leadership of The Home Depot over the past six years. ... The Home Depot has delivered strong and consistent growth and gained market share under Bob's leadership, and we believe that the company is well positioned to continue to do so."

Mr. Nardelli took the top job at Home Depot after being passed over to take over General Electric Co. after Jack Welch's retirement.

Mr. Blake, who served as deputy Energy Secretary, has been on the board since 2002. Prior to that, he served in a variety of executive roles at GE.

Mr. Nardelli and Home Depot have agreed in principle to the terms of a separation agreement agreed to as part of his contract upon joining the company. That would give him consideration currently valued at approximately $210 million, which includes $20 million in cash, the acceleration of unvested deferred stock awards now worth about $77 million, the payment of previously earned and vested deferred shares worth nearly $44 million and the payment of retirement benefits currently valued at approximately $32 million.

Home Depot said Mr. Nardelli has also agreed not to compete with the company for one year, not to solicit employees or customers for four years and other restrictive covenants.

The Energy Challenge
Power-Sipping Bulbs Get Backing From Wal-Mart
By Michael Barbaro – New York Times
January 2, 2007

As a way to cut energy use, it could not be simpler. Unscrew a light bulb that uses a lot of electricity and replace it with one that uses much less.

While it sounds like a promising idea, it turns out that the long-lasting, swirl-shaped light bulbs known as compact fluorescent lamps are to the nation’s energy problem what vegetables are to its obesity epidemic: a near perfect answer, if only Americans could be persuaded to swallow them.

But now Wal-Mart Stores, the giant discount retailer, is determined to push them into at least 100 million homes. And its ambitions extend even further, spurred by a sweeping commitment from its chief executive, H. Lee Scott Jr., to reduce energy use across the country, a move that could also improve Wal-Mart’s appeal to the more affluent consumers the chain must win over to keep growing in the United States.

“The environment,” Mr. Scott said, “is begging for the Wal-Mart business model.”

It is the environmental movement’s dream: America’s biggest company, legendary for its salesmanship and influence with suppliers, encouraging 200 million shoppers to save energy.

For all its power in retailing, though, Wal-Mart is meeting plenty of resistance — from light-bulb makers, competitors and consumers. To help turn the tide, it is even reaching out to unlikely partners like Google, Home Depot and Hollywood.

A compact fluorescent has clear advantages over the widely used incandescent light — it uses 75 percent less electricity, lasts 10 times longer, produces 450 pounds fewer greenhouse gases from power plants and saves consumers $30 over the life of each bulb. But it is eight times as expensive as a traditional bulb, gives off a harsher light and has a peculiar appearance.

As a result, the bulbs have languished on store shelves for a quarter century; only 6 percent of households use the bulbs today.

Which is what makes Wal-Mart’s goal so wildly ambitious. If it succeeds in selling 100 million compact fluorescent bulbs a year by 2008, total sales of the bulbs in the United States would increase by 50 percent, saving Americans $3 billion in electricity costs and avoiding the need to build additional power plants for the equivalent of 450,000 new homes.

That would send shockwaves — some intended, others not — across the lighting industry. Because compact fluorescent bulbs last up to eight years, giant manufacturers, like General Electric and Osram Sylvania, would sell far fewer lights. Because the bulbs are made in Asia, some American manufacturing jobs could be lost. And because the bulbs contain mercury, there is a risk of pollution when millions of consumers throw them away.

Michael B. Petras, vice president of lighting at G.E., concedes that “the economics are better with incandescent bulbs.”

All that has only spurred Wal-Mart to redouble its efforts — and, in typical fashion, it is asking those who may be hurt by the change to help achieve it.

During an extraordinary meeting in Las Vegas in early October, competing bulb makers, academics, environmentalists and government officials met to ponder, at times uncomfortably, how Wal-Mart could sell more of the fluorescent lights.

The proposals discussed at what Wal-Mart dubbed the “light bulb summit” ranged from the practical (advertise the bulbs on the back of a Coke 12-pack) to the quixotic (create a tax on incandescent bulbs to make them more expensive).

Selling 100 million bulbs “is not a slam dunk by any stretch of the imagination,” Stephen Goldmacher, an executive at Royal Philips, the Dutch company that is one of the world’s largest light-bulb makers, told the group. “If this were easy, it would have happened already.”

The attendees did not need to look far for evidence. Wal-Mart had asked the owners of the Mirage Hotel and Casino, where the conference was held, to commit to using the energy saving bulbs in its guest rooms in time for the meeting. The hotel politely declined.

It is not alone. Compact fluorescent bulbs, introduced in the United States with much fanfare in 1979 by Philips just as the nation’s second energy crisis of the decade was getting under way, have never captured the public imagination.

The new bulbs — lighted by sparking an efficient chemical reaction, rather than heating a metal filament — were ungainly, took several seconds to light up and often did not fit into traditional light fixtures.

Since then, refinements have made them far more convenient to use, reducing their size and price as well. But Wal-Mart sold only 40 million in 2005, compared with about 350 million incandescent bulbs, according to people briefed on the figures.

And it would have stayed that way unless Wal-Mart decided to go green. More than a year ago, Mr. Scott, the company’s chief executive, began reaching out to some of environmental groups, telling them that Wal-Mart, long regarded as an environmental offender, wanted to become a leader on issues like fuel efficiency and greenhouse gas emissions.

Mr. Scott viewed such a move as a way to use Wal-Mart’s influence to improve the environment, cut costs and, of course, burnish the company’s bruised image. In September 2005, Mr. Scott and Andy Ruben, Wal-Mart’s vice president for strategy and sustainability, drove 6,000 feet to the Mount Washington Observatory in New Hampshire with Steve Hamburg, an environmental studies professor at Brown University, and Fred Krupp, the president of the advocacy group Environmental Defense.

At the summit, where scientists measure climate change 24 hours a day, the men discussed global warming, acid rain, the hole in the ozone layer and what Wal-Mart could do about them.

“You need to look at what is being sold on the shelf,” Mr. Hamburg recalled telling Mr. Scott over a dinner of turkey and mashed potatoes. He began talking excitedly about compact fluorescent bulbs. “Very few products,” he said, “are such a clear winner” for consumers and the environment.

Soon after returning from the trip, Wal-Mart publicly embraced the bulbs with the zealotry of a convert. In meetings with suppliers, buyers for the chain laid out their plans: lower prices, expanding the shelf space dedicated to them and heavily promoting the technology.

Light-bulb manufacturers, who sell millions of incandescent lights at Wal-Mart, immediately expressed reservations. In a December 2005 meeting with executives from General Electric, Wal-Mart’s largest bulb supplier, “the message from G.E. was, ‘Don’t go too fast. We have all these plants that produce traditional bulbs,’ ” said one person involved with the issue, who spoke on condition of anonymity because of an agreement not to speak publicly about the negotiations.

The response from the Wal-Mart buyer was blunt, this person said. “We are going there,” the buyer said. “You decide if you are coming with us.”

In the end, as Wal-Mart suppliers generally do, the bulb makers decided to come with the company.

Philips, despite protests from packaging designers, agreed to change the name of its compact fluorescent bulbs from “Marathon” to “energy saver.” To keep up with swelling orders from the chain, Osram Sylvania took to flying entire planeloads of compact fluorescent bulbs from Asia to the United States.

“When Wal-Mart sets its mind to something with a narrow objective like that, they are going to make it happen,” said Jim Jubb, vice president for consumer product sales at Sylvania.

At the same time that it pressured suppliers, Wal-Mart began testing ways to better market the bulbs. In the past, Wal-Mart had sold them on the bottom shelf of the lighting aisle, so that shoppers had to bend down. In tests that started in February, it gave the lights prime real estate at eye level. Sales soared.

To show customers how versatile the bulbs could be, Wal-Mart began displaying them inside the lamps and hanging fans for sale in its stores. Sales nudged up further.

To explain the benefits of the energy-efficient bulbs, the retailer placed an education display case at the end of the aisle, where it occupied four feet of valuable selling space — an extravagance at Wal-Mart. Sales climbed even higher.

In August 2006, the chain sold 3.94 million, nearly twice the 1.65 million it sold in August 2005, according to a person briefed on the numbers.

But to reach 100 million, Wal-Mart has to do much more — and that, executives concede, is where the biggest challenges rest. In the fall, the company began reaching out to competing retailers, Internet companies and even filmmakers.

The goal was to turn its sales campaign into a broader cultural movement.

One proposal, headed by Lawrence Bender, who produced Al Gore’s 2006 documentary, “An Inconvenient Truth,” is to create a Web site that would track sales of compact fluorescent bulbs at major retailers like Walgreen’s and Target. The result would be a real-time map, with data collected by a third party, showing how much Americans have saved by using the energy-efficient bulbs.

Mr. Ruben said such a map “helps consumers see this as something bigger than buying a bulb.”

At the same time, Google and Yahoo are in talks with Wal-Mart about how to use their search engines to promote the bulbs.

But Home Depot and Lowe’s balked at the idea of cooperating with their larger rival. “We don’t think we need an organization like that to sell more CFLs,” said Ron Jarvis, the vice president of environmental innovation at Home Depot, using the bulb’s industry nickname.

Then there is the mercury inside the bulbs, a problem Wal-Mart is working with the federal government and environmental groups to resolve, possibly by collecting the bulbs at its stores or off-site locations for recycling.

In the end, though, the biggest obstacle to overcome is America’s love affair with cheap, familiar-looking incandescent bulbs — a habit 130 years in the making.

For that to turn around, Wal-Mart will have to persuade its traditional consumers that it is worth paying a bit more at the checkout counter to save a significant amount money down the line, a seemingly simple task that few companies ever accomplish. It is particularly difficult at a retailer that has long emphasized “always low prices.”

“It has taken the American public forever to grasp this,” said Charlie Jerabek, the chief executive of Sylvania.

Helen Capone encapsulates the challenge. Ms. Capone, 68, said she “curses the energy company every month” because of her electricity bill and loves the five-year-old, trouble-free compact fluorescent bulb in her attic. But she won’t switch to the energy-saving bulbs in the rest of her house in Secaucus, N.J. “They are not the prettiest things in the world,” she said, surveying the bulbs at a Wal-Mart.

That has put Wal-Mart in the strange position of racing ahead of its customers and coaxing them, bulb by bulb, toward energy conservation.

“We start with the premise,” Mr. Ruben, “that customers make good choices.”

J.C. Penney Fires Operating Chief After Five Months
By Joann S. Lublin and Cheryl Lu-Lien Tan – Wall Street Journal
December 29, 2006

J.C. Penney Co. abruptly terminated its chief operating officer after just five months on the job because the industry newcomer failed to quickly learn how to be an operational retail executive, according to one person familiar with the situation.

Penney announced the firing in a terse press release. The firing of Catherine West, the former president of the U.S. credit-card business for Capital One Financial Corp., highlights the hazards of recruiting executives from outside the retail industry.

Among the industry outsiders joining retailers in senior roles during the past decade, "more have failed
than succeeded," said Kirk Palmer, chief executive of New York recruiter Kirk Palmer & Associates, which focuses on the industry. "I'm hard-pressed to come up with too many examples from outside who have registered success in the retail environment." Among the retailers that have brought in top executives from different industries in recent years are Gap Inc., Levi Strauss & Co. and Home Depot Inc.

Ms. West's severance package will total close to $10 million, including accelerated vesting of stock options and restricted-stock units that she was granted to compensate her for forfeiting benefits at Capital One, according to spokeswoman Darcie Brossart.

Ms. West oversaw store operations, property development and logistics, responsibilities that Chairman and Chief Executive Myron E. "Mike" Ullman III will assume. Mr. Ullman had overseen those areas before Ms. West's arrival in July.

Penney, of Plano, Texas, which is in the midst of a big store-expansion plan, had put Ms. West in "an operational role with a lot of detail and substance" because "retailing is about 1,000 different details a day," the person familiar with the situation said. But "the operating assignment was not her best fit," this individual said, adding that Ms. West's commute to her home in Maryland every weekend also was a factor.

Rather than try to find a new role for her inside Penney, top executives suggested that she quit, the person familiar with the situation said. But she refused to resign, partly because a voluntary resignation would have made her ineligible for the severance benefits, this person said. She also resisted resigning because she believed she "thought it was going to work [out]," this person said.

Ms. West, who is 47 years old, couldn't be reached for comment.

Penney officials believed that she would be a good fit because the credit-card business has such a strong customer focus and successful information systems, the person familiar with the situation said.

Penney, which has updated its fashions in recent years, has been gaining market share. Profits are up. So is the company's stock price, despite slipping 76 cents, or 1%, to $77.64 in 4 p.m. New York Stock Exchange composite trading.

The chain, which currently operates 1,037 department stores in the U.S. and Puerto Rico, opened 28 stores this year and plans to open 150 more over the next three years, including free-standing locations. It is also trying to win over midmarket customers who used to shop at the hundreds of stores operating under such names as Filene's, Hecht's and Foley's that Federated Department Stores Inc. recently converted to Macy's.

A.G. Edwards analyst Robert F. Buchanan said he had considered Ms. West "an unconventional choice" for the job, given Penney's expansion and her lack of retailing experience. "It's very hard for someone from a nonretailing background to transition to a retailing job," he said. "It's a highly peculiar, tough and fast-moving business that does not lend itself to quick, on-the-job training."

Penney isn't the only retailer to go outside the industry in recent years. In October, Liz Claiborne Inc. chose a top Johnson & Johnson official, William L. McComb, to succeed its retiring chief executive. In 2004, Gucci Group appointed Robert Polet, a 26-year veteran of Unilever, as CEO. Paul Pressler, a 15-year executive at Walt Disney Co., became CEO of Gap in 2002.

Lampert 'Just Says No' to Wall Street Convention
Seeking Alpha.com
December 28, 2006

Andy Kern submits: As soon as Eddie Lampert and his fund, ESL Investments, put together the surprise takeover of Sears Roebuck to create Sears Holdings (SHLD), changes in the temperament of the company began to surface. Lampert, in his role as Chairman of the new company, immediately began insisting on undertaking only value-creating projects.

Quit selling products at a loss just to compete with Wal-Mart (WMT). Quit carrying excess inventory. Quite simply, get more efficient. The most interesting change, though, is much more subtle. Within months, Lampert had decided to abandon the ingrained Wall Street convention of hosting quarterly conference calls, writing quarterly letters to shareholders and providing earnings guidance in anticipation of the conference calls and earnings announcements.

Humorously, once Lampert ceased issuing earnings guidance, analysts quit following the stock! As if the analysts agreed in unison, “Well if the company won’t tell me how to rate the stock, then I won't bother trying.” We can infer what we wish about what this says of the stock analyst’s role in the market, but to put things in context, SHLD currently has seven analysts following the stock. Companies of similar size such as Best Buy (BBY), Starbucks (SBUX) and Charles Schwab (SCHW) generally have fifteen to twenty ratings.

Lampert’s dismissal of this standard Wall Street practice can be interpreted in one of several ways. On one hand, it may indicate his arrogance or contempt for the individual investor. This is plausible, as Lampert’s hedge fund owns 40% of the company – the individual makes up a comparatively small chunk of the ownership picture. On the other hand, perhaps Lampert and management simply want to avoid the burden of constantly having to answer to the market about matters of which it is not concerned. This is one explanation given by the company for its decision.

On yet another hand, perhaps it is indicative of his focus on the long-term prospects of the company. A couple of years ago, I was fortunate to meet and hear Professor Michael Jensen speak to our college. The famed Harvard scholar has, more or less, written the book on incentives for corporate managers and appropriate ways to compensate them. On this particular day, his message was remarkably simple and clear: “We must stop the earnings guidance ‘game.’”

His contention, later formalized in a paper called “Just Say No to Wall Street,” was that focus on the short-term expectations is responsible for many of the corporate governance issues in our recent history, particularly when executive compensation is directly tied to these short-term expectations. Further, he claims that an “overvalued stock can be as damaging to the long-run health of a company as an undervalued stock.”

This struck a chord with me as an admirer of Berkshire Hathaway (BRKA), which provides no earnings guidance, and of Warren Buffett, who has insisted for years that he would rather Berkshire stock trade at a fair value than a high value. Since the overwhelming majority of companies today provide earnings guidance to analysts and host quarterly conference calls, we cannot expect to invest only in companies that do not. However, when we observe a company abstaining from these practices, such as Sears Holdings, I feel we can be somewhat more confident that the managers are indeed managing in the long-term investor’s best interests.

One more reason why SHLD may be an interesting ride.

FD: I own shares of SHLD

J.C. Penney Terminates Operating Chief West
By Angela Moore – Dow Jones Newswires
December 28, 2006

Department-store operator J.C. Penney Co. on Thursday said it terminated Chief Operating Officer Catherine West, effective immediately, without citing a reason.

The areas previously reporting to Ms. West, consisting of store operations, property development and logistics, will again report to Chairman and Chief Executive Myron Ullman, which he had held prior to West assuming the COO role in July.

A company spokeswoman wasn't immediately reachable for comment.

Ms. West's base salary at Penney was $750,000, to be reviewed annually beginning in 2007, according to a company filing with the Securities and Exchange Commission. She was also eligible for annual cash incentive with a target award equal to 75%% of her base salary and a maximum award equal to 150% of her base salary, based upon actual company and individual performance. For 2006, Ms. West was slated to receive a minimum cash incentive award of $1 million in recognition of "forfeited benefits" at Capital One. Also in connection with the relinquishment of benefits provided by her former employer, Penney said at the time that it would issue restricted stock units valued at $3 million and stock options valued at $17.1 million, the filing said.

Before she joined Capital One in 2000, West spent nine years at First USA Bank, where she joined as senior vice president of Card Member Services and rose to executive vice president of Marketing Services and Operations. From 1985 to 1991, she served as the vice president of Credit Card Operations for Chevy Chase Bank FSB. She began her career at Peoples Express Airline in 1981, after receiving a B.A. from Lynchburg College.

Wal-Mart Blames Short-Term Woes,
But Some Expect Challenges to Remain
By Kris Hudson - Wall Street Journal
December 28, 2006

Wal-Mart Stores Inc. cites a clutch of short-term problems behind its slowing pace of sales late this year, but bearish observers say looming challenges could hinder the retailer through 2007 and beyond.

Wal-Mart executives fingered disruptions from store remodeling, an overly aggressive bet on a new line of women's apparel and a slip from sales temporarily boosted by 2005 hurricane-recovery efforts to explain lackluster results at its established stores.

Same-store sales, or sales at U.S. stores open at least a year, fell 0.1% last month from the year-earlier period -- the second such decline for the Bentonville, Ark., retailer in 27 years.

Wal-Mart should work through the short-term issues next year, say some analysts and investors, who are more concerned by a possible long-term drag from Wal-Mart's maturing grocery business and its expansion into urban and suburban areas.

This year, Wal-Mart has seen same-store gains in food sales fall below the major grocery chains, on average. And new stores Wal-Mart has opened as it pushes deeper into more densely populated locations apparently haven't produced the hefty gains the retailer needs to boost overall same-store sales.

Same-store sales gauge a retailer's gains or losses against the relatively fixed costs of operating established stores. They are an important indicator of a retailer's return on the money spent on stores, which in turn reflects on overall profitability. Wal-Mart has posted smaller annual same-store-sales gains in recent years, sliding to 3.4% last year from 9% in 1998.

Wal-Mart's latest monthly sales, which are compared with those from the same month a year ago, fared even worse. Wal-Mart posted a 0.5% gain for October and a 0.1% decline for November. Wal-Mart predicts that its December figure -- to be released Saturday -- will come in anywhere from "flat" to a 1% gain.

Wal-Mart declined to comment for this article.

The sales figures have contributed to a decline in Wal-Mart's stock price, which has fallen 11% from its 52-week closing high of $51.75 Oct. 26. The stock was up five cents to $46.16 in 4 p.m. composite trading on the New York Stock Exchange yesterday.

Several analysts don't foresee Wal-Mart's same-store sales rebounding until well into 2007, or even later.

Richard Hastings, an analyst for retail credit-rating agency Bernard Sands LLC, predicts that same-store sales for Wal-Mart's main U.S. division -- consisting of roughly 3,300 supercenters, discount stores and Neighborhood Market grocery outlets -- "will now trend flat to slightly negative for the foreseeable future." The division doesn't include Wal-Mart's Sam's Club stores. Mr. Hastings doesn't own Wal-Mart stock.

Even some Wal-Mart bulls are cautious. Bear Stearns Cos. analyst Christine Augustine, who rates Wal-Mart's shares "outperform," with a 12-month price target of $54 to $55, says it will be several months before Wal-Mart's sales benefit significantly from its efforts to remodel stores and tailor merchandise to customers. "It's our belief that same-store sales may remain under pressure for the first half of 2007," Ms. Augustine says. She doesn't own any Wal-Mart stock. Bear Stearns has done business with Wal-Mart in the past year.

Some investors warn against putting too much emphasis on same-store sales. Wal-Mart has posted strong earnings and maintained solid profit margins, thanks in part to managing labor and inventory costs. Its average store generates far more in sales per square foot than the average Target Corp. store. Wal-Mart, which operates more than 6,700 stores globally, posted sales of $312.43 billion and net income of $11.23 billion for the fiscal year ended Jan. 31.

Other investors worry that a prolonged run of scrawny results from established stores could begin to erode Wal-Mart's bottom line. Another concern: Wal-Mart's base of lower-income shoppers remains vulnerable to high utility bills and other energy-related costs that have soared with the rise in oil prices.

The retailer's results also have been pinched by its recent emphasis on more-populous markets, some analysts say.

As Wal-Mart opens its doors in more urban and suburban areas, it faces stiffer competition for prime store locations and finicky shoppers who aren't always wooed simply by low prices, says Gregory Melich, a Morgan Stanley analyst. Mr. Melich rates Wal-Mart's shares "equal-weight" and doesn't own any Wal-Mart stock. Morgan Stanley owns 1% or more of Wal-Mart's stock and has done business with the retailer in the past year.

Already established in those urban and suburban markets and strengthening its grip is rival Target. The cheap-chic retailer has exceeded Wal-Mart's U.S. same-store-sales gains in 28 of the past 30 months and anticipates a gain of 3.5% to 5.5% for this month. Target already has 83% of its U.S. stores in urban and suburban counties, and 87.5% of the stores it has opened since October 2002 are in more densely populated counties, according to ACNielsen's Homescan & Spectra division.

Investors also give Target a higher valuation, with price-to-earnings ratio of about 19, compared with Wal-Mart's P/E ratio of about 17.

Retail experts look to stores open between one and four years to provide most of a retailer's momentum for same-store results. Of the 599 stores Wal-Mart opened between October 2002 and October 2006, 76% were in urban or suburban counties rather than rural and semirural locales, according to ACNielsen.

That is a big change for a retailer that grew into a colossus by dominating rural markets amid little competition. Even with Wal-Mart's recent focus on higher-density markets, 44.8% of its U.S. stores are in rural and semirural counties.

A slowdown in Wal-Mart's grocery sales at established stores also is giving some analysts pause. Groceries accounted for 30% of Wal-Mart sales last year at its supercenters and discount stores.

"In the past, their mix of food has helped out their same-store sales. But as Wal-Mart reaches more of a maturation in that area, those sales have slowed down," said Chris Kagaoan, an analyst at J. & W. Seligman & Co., an investment firm that holds 761,000 Wal-Mart shares after selling 145,000 during the third quarter.

After several years of trailing Wal-Mart, the top five U.S. grocers in the past two quarters posted average same-store-sales gains that outpaced Wal-Mart's slowing sales gains in groceries, said J.P. Morgan Securities analyst Charles Grom. While Wal-Mart has gained overall market share by adding groceries to its stores at a fast clip, its rivals have focused less on expansion than on improving stores and merchandise. Among them, Safeway Inc. opened 20 stores in the past year and remodeled 275.

Mr. Grom sees the rivalry from existing grocers as "a systemic problem" for Wal-Mart. "It could take a couple of years to work out," says Mr. Grom, who rates Wal-Mart's shares "neutral" and doesn't own any of the company's stock. J.P. Morgan has done business with Wal-Mart in the past year.

Sears Canada names new CEO and chairman
Reuters
December 22, 2006

OTTAWA (Reuters) - Sears Canada Ltd. (SCC.TO: Quote) announced on Friday the appointment of Dene Rogers as president and chief executive officer, effective December 21.

Rogers, acting president since May 2006, was previously a vice-president of restructuring and business improvement for U.S. parent Sears Holdings Corp. (SHLD.O: Quote) and has served as executive vice president and general manager of Kmart Stores.

The company also named William C. Crowley as board chairman, effective Thursday.

Eight Retail Buyback Heroes
David Fried, Forbest.com - Buyback Letter - Adviser Soapbox
December 21, 2006

Many retail stocks look good right now, and to the benefit of shareholders, many retailers also like the idea of buying back their own stock. Repurchasing is an expression of company management‚s confidence in the future, their belief that the stock is a good value right now, and buying back often gives a nice bump to earnings per share, as well, since there are fewer shares outstanding.

The investing philosophy behind the Buyback Letter is buying top-notch, solid companies that are robust repurchasers, and we have found a number of worthy retailers who fit that bill.

Big Lots: Discount stores are a good pick in a crummy or waffling economy. Big Lots keeps a flexible inventory, has well located and plentiful retail locations, and its sheer size gives it international buying power smaller chains cannot match. A new CEO has focused them, closing underperforming stores and introducing a new goal to encourage existing customers to spend more per visit.

What really got our attention was a $150 million stock buyback program that management said was sized to approximate the company‚s free cash flow; the stated goal is to use buybacks as a way to build value for shareholders. Shares outstanding have declined 4.3% over the past 12 months. We think company management knows the real bargain going forward is in the stock price right now.

Analysts believe in Eddie Lampert, who took control of Kmart during bankruptcy proceedings and then handily used Kmart‚s stock to buy Sears. He‚s now only in midstride in the midst of this marathon turnaround, but analysts and investors have formed a cheering section as he takes on Target and Wal-Mart. And let‚s not forget that Sears Holdings is a virtual land bank. When cash is needed during this resurrection, they might look to badly underperforming stores as a source of real estate money. The company reduced shares outstanding by 4.3% in the last 12 months.

Rex Stores: Rex has carved out a business by operating in markets that are too small for the big box retailers. Like Sears, Rex is real estate rich, and owns some 70% of its stores. Another interesting part of the Rex story is that they invest in alternative energy projects that provide substantial tax reductions, and currently have about $70 million in ethanol manufacturing projects. These investments shelter almost all of RSC‚s earnings!

Rex has been flat in share reduction in the past 12 months, perhaps due to this additional investment. We like to see companies use their money in the wisest possible way, so if other opportunities make more sense at the moment than buying back, so be it.

With steady margins, good operating cash flow and impressive free cash flow (up from $70 million to $258 million), Family Dollar has a lot going for it, including a consistent history of paying dividends. FDO‚s current buyback plan began in October 2002, and in August its board authorized the repurchase of an additional five million shares. During the fiscal year that ended August 2006, FDO repurchased 15.4 million shares at a cost of $367 million, leaving 1.1 million shares still authorized to be repurchased under previous decrees.

TJX Companies: The leading off-price retailer of apparel and home fashions in the U.S. and worldwide delivers a rapidly changing assortment of brand name merchandise at prices that are 20% to 60% less than department and specialty store regular prices. Target customers are middle- to upper-middle income shoppers who are fashion and value conscious.

Third-quarter earnings for the period ended Oct. 28 show a strong balance sheet and working capital accounts that track sales growth. Free cash flow improved greatly and same store sales were up a smokin‚ 6%, especially impressive for a mature retailer. Some 76 stores were added in the third quarter. Meanwhile, in January 2007, TJX plans to close the 34 A.J. Wright stores that are only marginally profitable to tighten up that end of the business, leaving the stronger stores intact; this will result in an 8-cents-a-share charge to fourth-quarter income. TJX has reduced shares outstanding 2.4% in the last year.

Limited Brands: Victoria‚s Secret is the dominant brand in Limited‚s lineup, accounting for more than half of LTD‚s $10 billion in sales, and even more of its earnings. Pink, a young brand within Victoria‚s Secret that sells pajamas and lingerie to a slightly younger-skewing demographic of 19- to 22-year-old women, already accounts for $700 million of sales, and can take credit for LTD‚s new healthy glow.

LTD‚s same-store sales for November jumped 12%, and Limited expects earnings for the full year to increase at least 29%. The company's stock, so-so for five years, is up 35% so far in 2006. As Paris Hilton would say, that‚s hot!

Limited has completed some $70 million of its current outstanding $100 million share repurchase program and has authorized an additional $100 million share repurchase. It has reduced shares outstanding by 1.3% in the last year.

Staples: Staples opened 37 new stores in the latest quarter, including moving into new markets such as Miami and Chicago. It also has ambitious goals, such as increasing operating margins for the international business from a current 1.5% to 7.5% in a few years. In North America, plans are to add more stores, including smaller, standalone copy centers in prime real estate locations where larger stores would not fit. Management targets 10% to 15% sales growth for the next few years.

November same-store comps were up 4% in the U.S. and 5% in Europe. Third-quarter financials were strong, too. For the period ended Oct. 28, sales increased by 12% to $4.75 billion, due to improved performance in office supplies such as ink and toner, paper and portable computers. Net income was up a whopping 29.2% to $290 million. A dedicated repurchaser, Staples has decreased shares outstanding 1.2% in the last year.

Home Depot: Home Depot is flexing a bit this holiday season, adding interior holiday decorations such as candles and tree skirts, which it had traditionally shunned, as well as consumer electronics such as DVD players, iPod speaker systems and plasma TVs, to try to lure December gift money and more female shoppers during this traditionally slower time.

Home Depot's stock has been depressed recently due to a deflated housing market. Maybe CEO Bob Nardelli‚s $225 million paycheck for the past six years is overcompensation, as critics say, since the stock dropped by half in that time. Then again, maybe it isn‚t, considering HD has solid cash flow (about $6.5 billion in cash flow from operations last year with $3.9 billion spent on capital costs, mostly on new-store openings and remodeling of older ones). Look at it this way: during the same time he was supposedly overpaid, he helped HD achieve spectacular financial results--dividends are up, book value per share is up, earnings per share is up, sales per share up, revenue has grown, the company is doing very well, is profitable, and has beaten Wall Street‚s estimates. HD is projected to continue growing in the double digits. What‚s not to like about a company with favorable long-term growth prospects?

Make no mistake about it; this is one of the biggest and best companies in the world. With 355,000 employees and 2,000 big box warehouse stores that average 125,000 square feet, it‚s a giant in every sense of the word. And, like Sears, Home Depot is another virtual real estate bank: The company owns some 87% of its stores.

HD has reduced shares outstanding by 2.8% in the last 12 months, a substantial amount for a rock-solid company with a mega-market capitalization. HD is a bedrock stock, has a world-class brand and franchise, a good market position and consistently gives money back to shareholders through dividends and buybacks. We think HD will get its mojo back.

Spinoff Set by Summer for Discover
By Landon Thomas, Jr. - The New York Times
December 20, 2006

He built it. Now he is taking it apart.

John J. Mack, in his boldest strategic move since he became chief executive last year, said yesterday that Morgan Stanley would spin off its slow-growing credit card unit, Discover.

For Mr. Mack, a mastermind behind the 1997 merger with Dean Witter, Discover & Company that brought Discover into the Morgan Stanley fold, the decision is a tacit recognition that the firm’s future success lies with its traditional heart, its lucrative trading and investment banking business.

The results the firm released yesterday underscored that reality. Propelled by trading and banking, Morgan Stanley’s operating earnings rose 26 percent in the fourth quarter, which ended Nov. 30. For the year, earnings rose 44 percent.

Yet while the 2006 profit of just under $7.5 billion was a record for Morgan Stanley, it lagged the $9.5 billion generated by its archrival, Goldman Sachs, whose profit rose 76 percent for the year.

The Morgan Stanley chief has clearly taken note of the extraordinary results being generated by Goldman Sachs, which spurned the financial supermarket model that Mr. Mack once embraced when he spearheaded the 1997 merger as president of the investment bank. A decade later, Goldman Sachs has replaced Citigroup as the financial archetype. The emphasis is now on concentrated specialties in trading and banking and not on diversification and synergies.

To sharpen the firm’s focus and recharge its faltering asset management business, Mr. Mack has invested nearly $1 billion in stakes in a variety of hedge funds. He has also signaled his intent to build an internal private equity unit, trying to replicate the successes of Goldman Sachs and others in that business. And Mr. Mack has allocated larger amounts of capital to his traders.

“The soul is back,” said Anson M. Beard Jr., an advisory director at Morgan Stanley. Mr. Beard was part of a group of former executives who started a shareholder revolt that forced the departure last year of the previous chief executive, Philip J. Purcell. “You have to give John credit for that.”

Ties between Mr. Mack and the original group of eight Morgan Stanley dissidents have warmed noticeably in the last year. They had become strained when it became clear that top executives like Vikram S. Pandit and Joseph R. Perella would not return to the firm.

A few months ago, Mr. Mack invited Mr. Beard; a former president, Robert G. Scott; and a former chairman, S. Parker Gilbert, among others, to lunch at the firm’s headquarters, where he brought them up to date on his strategic thinking.

The outside directors and many shareholders have long called for a spinoff, but Mr. Mack and his management team proceeded at their own pace in weighing the pros and cons of such a move. While they recognized that Discover had few synergies with the firm’s securities businesses, the question was how best to make use of Discover’s growing value as an asset. This topic became the thrust of a full-scale management review, headed by a co-president, Robert W. Scully, and Robert A. Kindler from the firm’s investment banking division, that began in the last couple of months.

When it became clear soon thereafter that a tax-free spinoff would be the most efficient approach, the board was briefed. It signed off on Mr. Mack’s proposal on Monday. The spinoff is scheduled for the third quarter of 2007.

Shares of Morgan Stanley rose $1.33, or 1.7 percent, yesterday to close at $81.70 — their highest level since February 2001.

“We believe this will maximize value for Morgan Stanley and Discover shareholders,” Mr. Mack said. “We are confident that Discover will be a strong stand-alone company.”

He said the division could tap the capital markets more successfully as an independent company.

In 2005, Mr. Purcell proposed a spinoff of Discovery, only to have that move reversed by Mr. Mack when he took over. Since that time, market conditions for credit card companies have improved, along with Discover’s performance. This year, the unit reported a record pretax profit of $1.6 billion, up 72 percent for the year, driven by a sharp improvement in its credit portfolio as delinquencies reached lows not seen in 10 years.

Other credit card companies have taken advantage of the market conditions. Since its initial public stock offering this year, MasterCard’s stock price has more than doubled.

Analysts said Discover, as a separate company, could achieve a market value as high as $10 billion. And while the card’s prestige does not rank as high as that of some others, its $50 billion portfolio and its improved performance may make it a takeover target for larger card-issuing banks like Bank of America, J. P. Morgan or Citigroup.

Despite the firm’s strong performance, Mr. Mack was careful yesterday to assert that Morgan Stanley had more work to do.

“For a number of quarters we have had record results, but there is still room for improvement in many of our businesses,” he said.

Those are the asset management and brokerage divisions, which are both in wide-ranging revamping programs under new management. In a conference call with analysts, Mr. Mack shot down the prospect of any similar disposal of these units, saying he was committed to keeping them.

The brokerage unit showed marked improvement, with pre-tax profit up 104 percent from the quarter a year earlier. Under James P. Gorman, the former retail chief of Merrill Lynch, Morgan Stanley has fired underperforming brokers and replaced them with more productive financial advisers. Margins increased to 12 percent from 7 percent.

Asset management, which has undergone even more substantial change, had a 50 percent decline in profit for the quarter as fund outflows continued to be a problem.

The firm’s institutional business carried the load, as usual. Its pretax profit increased 46 percent on the back of a robust showing from the mergers and acquisitions bankers, who have benefited from a strong deal-making environment. With interest rates low and liquidity high, the firm’s bond traders also prospered, as did its prime brokerage unit, which serves the hedge fund industry.

Surprisingly, given the quarter’s bountiful trading conditions, the firm’s principal trading revenue declined 20 percent from the third quarter.

“Trading should be up 20 percent, not down 20 percent,” said Richard X. Bove, a securities analyst at Punk Ziegel & Company. “I think Mack is moving in the right direction, but that trading number was horrible.

Discover spinoff to give Chicago a new HQ
Crain's Chicago Business Online
December 19, 2006

Chicago won a new publicly traded company headquarters Tuesday without offering a penny’s worth of public subsidies.

Morgan Stanley Inc.’s decision to spin off its Discover credit-card business will create a Fortune 500, stand-alone company headquartered in north suburban Riverwoods.

A market valuation of more than $20 billion, which is possible given the stock-market performance of other credit-card companies, would make Discover Financial Inc. one of the Chicago area’s 15 largest publicly traded by companies by that measure. Discover’s tenure as an independent company could be short-lived, though. The spinoff, which is expected to be completed in the third quarter of 2007, will make Discover more vulnerable to a takeover, especially if the traditionally growth-challenged card issuer can’t continue the profit and revenue growth it’s enjoyed in 2006.

“Because they’ll be independent, they will be much more vulnerable to an offer that’s friendly or not friendly,” says Mark Lane, an analyst at William Blair & Co. LLC in Chicago.

Discover CEO David Nelms, 45, who will be chairman and CEO after the spinoff, says that’s not his intention.

“Ultimately our independence will be dependent on our ability to generate significant shareholder value, which we are committed to doing,” he says.

He points to other stand-alone credit card players, like New York-based American Express Co., which have stayed independent over many years despite the pressures in the credit-card business for size because of thinning profit margins.

Morgan Stanley CEO John Mack, who took the reins of the New York securities firm last year after the ouster of longtime CEO Philip Purcell, had committed to keeping Discover within Morgan Stanley, reversing a decision Mr. Purcell made in early 2005 to spin off Discover in a last-ditch effort to save his job.

But Mr. Mack concluded more recently that the two would be better off separate, bowing to investor concerns that Discover’s mass-market business didn’t fit with Morgan Stanley’s other units, which are focused on wealthy individuals and institutions.

“Both the securities business and Discover had record years in terms of profit and growth,” Mr. Nelms says. The spinoff “is happening this time out of strength.”

Discover employs 3,500 in Riverwoods and 14,000 people around the world. Mr. Nelms says the spinoff will result in a “modest increase” in local jobs.

For his part, Mr. Purcell, who now runs a small private-equity firm in Chicago, thinks the spinoff will help Discover grow. "It's a really energizing event," he says. "If you look at the track records of most spinoffs, they're successful."

In the fiscal year ended Nov. 30, Discover’s net income was $1.1 billion, up 86% from the $581 million recorded in 2005. The increase was attributable in part to unusually low loan writeoffs caused by the passage last year of the federal bankruptcy reform law. Still, net managed credit card loans increased 7% to $49.5 billion.

Morgan Stanley To Shed Discover, Posts 4Q Results
By Jed Horowitz - Dow Jones Newswires
December 19, 2006

NEW YORK (Dow Jones)--In a move that closes a tortured part of its history, Morgan Stanley (MS) said it will spin off its Discover credit card business. The announcement came as the Wall Street investment bank reported a 26% rise in its fiscal fourth-quarter operating profit.

Including an after-tax gain in the year-earlier quarter of about $700 million from the sale of its aircraft leasing business, Morgan Stanley's net income fell 11% to $2.21 billion, or $2.08 a share, from $2.47 billion, or $2.32 a share.

But earnings per share on an operating basis rose 27%to $2.08, or total income of $1.75 billion, compared with $1.64 a share in the fiscal fourth quarter of 2005.

Analysts had expected earnings per share of $1.77, according to the mean estimate of 19 analysts surveyed by Thomson Financial. The firm's net revenue rose 24% to $8.6 billion while noninterest expenses were up 19% to $5.8 billion. Analysts had forecast quarter revenue of $8.3 billion.

Morgan Stanley shares rose 2%, or $1.61, to $81.98 in premarket trading on news of the Discover spinoff. Shares closed up 1.4% on Monday, hitting a 52-week high of $80.37. Morgan Stanley is up 42% year to date.

The decision to spin off Discover in the third quarter of 2007, pending regulatory approval, caps several years of on-again, off-again decisions on whether to keep the profitable but slow-growing credit-card unit. Shareholders for years complained that the business, absorbed when Dean Witter Discover merged with Morgan Stanley in 1997, was an odd fit for the securities firm.

"Discover and the securities businesses are going to be better served by being standalone," Chief Financial Officer David Sidwell said in a phone interview. "Both will be well capitalized, have independent boards and each will make their own decisions."

Morgan Stanley will not have any ownership in Discover after the tax-free spinoff, he said, and the ratio of shares that will be given to current stockholders has not yet been determined.

Sidwell said the company has no plans to spin off its retail brokerage unit or its asset management businesses, areas that some investors have criticized for sluggish profitability.

Former Morgan Stanley Chairman and Chief Executive Philip Purcell, who helped form Discover, had long argued that Discover generated huge cash flow and steady revenue while creating diversification from the volatile securities business. Shortly before he was forced to resign in June 2005, however, he recommended to the firm's board that it spin off the unit.

His replacement, John Mack, reversed the decision pending his review of all business areas. On Tuesday, Morgan Stanley said Discover "has improved considerably its business fundamentals over the past year" and will be more valuable to shareholders as a standalone unit. The unit had pretax income of $1.6 billion in fiscal 2006 on record revenue of $4.3 billion, but it continued to rank behind the industry's top credit-card issuers in charges and merchants accepting the card.

Morgan Stanley's record quarterly earnings were driven by fixed-income and equity sales and trading in its dominant institutional securities unit. The division generated 64% of the company's revenue and a whopping 80% of its pretax profit in the fiscal fourth quarter.

Revenue from the division, which includes sales, trading and investment banking operations, rose 34% to $5.56 billion from $4.15 billion a year earlier, while profit numbers soared. Pretax net income increased 46%, profit margin climbed to 41% from 38% and return on common equity - a key measure of its efficiency in redeploying profits - inched up to 36% from 35%.

Revenue from global wealth management, a retail brokerage unit inherited from the Dean Witter merger that some investors also have disdained, rose 12% to $1.45 billion from $1.3 billion a year earlier. Profits in the unit more than doubled to $171 million, while pretax profit margin climbed to 12% from 7% and return on equity moved to 16% from 9%. Mack has said that it will take another two to three years to bring the unit to the profitability levels the firm has targeted internally. In the last three years, the firm's broker count has fallen from over 10,000 financial advisors to 8,030 in a conscious effort to eliminate low producers.

Revenue in asset management - another area involved in a multiyear recovery plan - fell 19% to $718 million from $890 million a year earlier "driven by significantly lower investment revenues" in private equity and other areas, the company said in its earnings release. Pretax income was down 29% to $711 million, profit margin declined to 26% from 35% and return on equity sunk to 19% from 36%.

The profit dives reflect in part a rise in expenses in asset management. Morgan Stanley has spent heavily to build the unit's alternative investment prowess, buying stakes in five hedge funds since June 1.

At Discover revenue rose 39% to $963 million during the quarter from $694 million a year earlier, while pretax income more than tripled to $199 million. Pretax profit margin more than doubled to 21%, reflecting credit improvement as bankruptcy filings that spiked in the year-earlier quarter returned to normal levels. However, the company said that excluding the one-time bankruptcy boost, pretax profit actually fell 19% because of a big rise in expenses. Return on equity, excluding some one-time tax benefits, was a slender 11%.

In November, company executives said they had made substantial progress toward Chief Executive Mack's goal of taking more risk in trading, lending and investing to generate higher returns and were more than halfway to the goal of having made $2.5 billion of principal investments. The firm this year also has bought a subprime mortgage company, is expanding its substantial presence in trading commodities and owning energy storage and pipeline firms, and early next year plans to raise a multibillion-dollar private equity fund after having abandoned the business under previous management.

Morgan Stanley also is reorganizing its retail brokerage operations, having cut its broad-based national network of brokers by more than 2,000 people while making selective hires who focus on very wealthy investors. In asset management, it has been buying hedge funds to give clients access to a broader array of investments than traditional stocks, bonds and mutual funds.

Morgan's results wrap up a great year for big Wall Street firms ending their fourth quarters in November. Goldman Sachs Group Inc. (GS) last week reported a 97% year-over-year gain, followed by jumps of 38% at Bear Stearns Cos. (BSC) and 22% at Lehman Brothers Holdings Inc. (LEH).

Merrill Lynch & Co. (MER) doesn't report fourth-quarter results until January.

Private companies confront pensions
The Deset Sun – Palm Springs, California
December 19, 2006

City governments aren't the only ones grappling with how to pay for pensions. Across the country, several major private companies from Sears Roebuck to Hewlett-Packard have frozen pensions or face problems with how to compensate their retirees. Among them:
General Motors: Following $10.6 billion in losses in 2005, the world's largest automaker is slashing more than 34,000 jobs, reducing production and freezing accrued pension benefits for its 42,000 salaried workers.

Those hired after Jan. 1, 2001 - about 10 percent of GM's white-collar workforce - will shift from traditional, defined benefit pensions to defined contribution 401(k) plans.

It's an attempt by GM to regain competitiveness while saddled with staggering employee benefit costs - particularly health care, which cost the company $5.3 billion last year and adds $1,525 to the price tag of every vehicle it sells. One of every 87 Americans over the age of 65 gets their medical bills paid for by GM, according to a Detroit News investigation.

Ford Motor Co.: The automaker in September announced plans to cut 40,000 hourly and 15,000 salaried jobs and close 16 North American plants in an effort to return to profitability. The benefits the company provides to its current and past workers are among its heaviest burdens.

Delphi: The bankrupt auto parts supplier, once a part of General Motors, reduced its unionized workforce by about 62 percent - more than 20,000 employees - through early retirement and other buyouts over the past year. In March, Delphi outlined plans to cut about four-fifths of its U.S. hourly workforce, and 21 of 29 U.S. union plants.

It expects to drop several business lines and thousands of salaried employees as well. Pay and benefit cuts were also instituted in an attempt to overcome more than $22.5 billion in benefits owed to retirees.

IBM: The information technology company in January froze pension plans for about 120,000 U.S. workers, meaning anything earned through 2007 remains intact, but after that, benefits will not increase. Instead, the company is offering a 401(k) plan. New employees also do not get the traditional pension. It's all an effort to save $2.5 billion to $3 billion through 2010.

Delta Air Lines: The bankrupt airline in September received court approval to eliminate its pension program for its 6,000 active pilots and 5,800 retired pilots. The federal Pension Benefit Guaranty Corp., the national insurer for private pensions, is taking over its plans, and the net result will likely be reduced benefits for both active and retired pilots.

Verizon Communications: The phone company froze its pension plan for 50,000 managerial workers and increased benefits with its 401(k) program in an effort to save nearly $3 billion in the next 10 years. Enron: Employees lost billions when the energy company filed for bankruptcy in 2001 because much of their pension was invested in Enron's own stock.

United Airlines: Thousands of employees learned their retirement benefits would be cut and they would not be earning future pension benefits when the airline's parent company went through bankruptcy and a company reorganization in 2005. The federal Pension Benefit Guaranty Corp. took over the employee pension program.

Sears Holdings: Take The Bull By Its Horns and Ride
Seeking Alpha
December 19, 2006

Anand Krishnaswamy submits: First everyone thought that it was a classic turnaround story with Kmart. Next, it was about the prime real estate that went with the Kmart Stores. And now, it is the "investment activities" that make retail investors looking to enter Sears Holdings (SHLD) nervous [if not bearish]. A few things to ponder if you are in this boat:

Past Performance: This stock has been a 10 bagger since Eddie Lampert got his hands around it back in 2003. I know, I know, I can almost hear the bears screaming disclaimers about past performance and how it can't serve as an indicator of future returns. However, I am not saying that one should go out and buy this stock because of past returns. All I am saying is that given the right scenario, management is fully capable of delivering outsized returns, if the last three years are any indicator.

Use of Derivatives: Investors have also been expressing concern that the derivatives strategies employed by ESL Investments may be too risky. While there may be some truth to that, there are a plethora of strategies available where one does not have to bet the farm to get decent returns. While I am no expert, I will try to explain.

It is popular believed that selling naked put options are a risky strategy. True, but this statement has to be taken in the context of portfolio size. For example, in a $10,000 portfolio, if one goes out and sells, say, 100 naked put contracts on a volatile tech stock, then yes, that IS risky for a $10,000 portfolio. However, consider the scenario where you want to buy a stock at a given price, and instead of buying it all at once, you buy a fraction of your intended position and continually sell short-term put options at the desired entry point [called the strike price]. That would give you a much better cost basis, if and when you get assigned on the contracts.

Bottom line, derivatives are "risky" only if you don‚t know what you are dealing with. And given that Lampert has a Wall Street background, you can be pretty darn sure that he would not hire inexperienced quants to run the operation.

Declining Store Comps/Lack of Transparency: Same Store Sales growth, the key metric for retail stocks have been declining for Sears in recent quarters. However, management puts a different spin by asking analysts to focus on the bottom line rather than revenues. After all, it is profits that matter, not revenues they say.

Which argument is one to believe? The declining SSS or rising profitability? Let us analyze. It is straightforward to see that management has cut under performing product lines [contributing to the declining top line] while continuing to sell the more profitable ones, leading to an increase in profits. Is this sustainable? Yes and no.

No, because there is a natural limit to the number of product SKUs one can cut. [After all, you can only milk a cow so much!]

Yes, because a similar strategy of cutting under performing assets can now be applied stores [instead of product lines]. This would likely continue to deliver earnings in the short to medium term. Longer term however, the sustainability of this strategy is not apparent.

However, with the firm being structured as a holding company, it definitely gives one the flexibility to compartmentalize and/or acquire new assets under one umbrella as necessary. Plus, of course, the Sears brand could [and probably will] be guided back to growing its top line given the attention to detail Eddie has exhibited in the past. In my opinion, a realistic long term target for the sales growth is the mid to high single digit range.

The Real Deal

This is the short version of the Sears story that is unfolding.

What happened: Wall Street financier Eddie Lampert with a great track record recognizes Kmart as an opportunity, buys it, refocuses operations and turns it around to profitability, delivering a 10 bagger return in the process.

Current Scenario: Beginning to cut/sell off under performing product lines/ stores to enhance top and bottom lines. Started channeling the excess cash from retail into high risk/return alternate investment strategies. This strategy has already contributed to one quarter‚s bottom line.

What the future will likely bring: Continue selling off under performing assets and investing in alternate investments. Buy back shares aggressively. Possibly acquire new retail assets as a source of excess cash.

Sound Risky? Sure. But with Uncle Eddie at the helm controlling a 41% stake in the company, I am sure he has tricks up his sleeve that Wall Street hasn‚t recognized as yet.

Investors wanting in have two choices: continue to be „skeptical on earnings quality‰ and remain on the sidelines, or if you are like me, turn cautiously bullish, slowly adding positions to what may well turn out to be a ride of a lifetime.

Anand Krish is a technology professional with an MBA. He is long-term bullish and owns shares of Sears Holdings (SHLD) in his portfolio at the time of writing.

Latest Deal in Real Estate for $9 Billion
By Andrew Ross Sorkin and Michael J. De La Merced – New York Times
December 18, 2006

Realogy, the giant real estate franchisor that owns Coldwell Banker, Century 21 and Sotheby‚s International Realty agreed yesterday to be sold to Apollo Group, the private equity firm, for about $9 billion.

The deal marks the latest play by private equity firms to buy into the real estate business just as it appears to have peaked. Just two weeks ago, Blackstone Group led a $36 billion deal to acquire Equity Office Properties Trust, the nation‚s largest office building owner and manager, for about $36 billion, which was the biggest buyout in history.

The deal will be another huge payday for Henry R. Silverman, the architect behind Cendant, the conglomerate that Realogy was part of until it broke itself into four pieces earlier this year in an effort to revive its flagging stock price.

Mr. Silverman, who had been criticized for huge paydays while he was at Cendant, stands to make about $135 million by selling all of his shares and stock options as part of the deal. Mr. Silverman, who is now the chairman and chief executive of Realogy, is expected to stay on until his contract expires at the end of next year. However, Mr. Silverman will not be an equity participant with Apollo in the deal, and his out-of-the-money stock options (those below the strike price) will be canceled.

"I think it is a conflict to be the C.E.O. and to be the buyer," Mr. Silverman said in an interview, taking a swipe at management-led buyouts where the chief executive buys out his own company.

Realogy is among the biggest players in the real estate field, taking part in a fourth of all home sales nationally. It has more than 300,000 agents among its franchises, almost three times more than its closest rival, Re/Max International. It is also a player in commercial real estate through its Coldwell Banker Commercial arm.

Yet the company has seen its fortunes decline as the real estate market has slumped. Sales have dropped from 2005, a record year, and more homes are staying on the market longer. The rise in home prices has slackened to the slowest pace seen since 1998, according to government reports. And the National Association of Realtors said earlier this month that it expected home sales to continue to decline next year.

Moreover, Internet-based brokerages and discount shops may have dealt a further blow to traditional real estate brokerages. Commissions have fallen to an average of 5 percent from 6 percent a decade ago, although experts say that slide had begun before the entrance of the discounters.

For the quarter that ended Sept. 30, Realogy reported net revenue of $1.73 billion, a decline from the $2.08 billion it earned as a part of Cendant a year ago.

“Our earnings are going down,‰ Mr. Silverman said. „We‚re probably not going to see a recovery until 2009. This deal is an insurance policy.”

He said he had decided to pursue the deal with Apollo, which approached the company earlier this year, because, "we need to be owned by someone with a five-year time horizon,” suggesting that many public shareholders, including hedge funds, have a "five-second horizon."

Under the terms of the deal, Realogy shareholders will receive $30 a share in cash, a premium over the stock‚s Friday closing price of $25.50. Apollo said it would commit $2 billion of equity to Realogy.

The deal is expected to close in the spring of 2007, but Realogy may solicit other buyout proposals until Feb. 14. in what is known as a "go shop" provision. Should it accept another offer, Realogy will pay Apollo a breakup fee.

Mr. Silverman said the company decided against a full auction because it could be "very destabilizing to the staff and customers." He said that the deal with Apollo meant "an outcome is guaranteed" that company would be sold and that a potential higher offer could still be sought.

Apollo, which said that it was strongly positioned to take Realogy forward, is no stranger to the company or the industry. In 1997, Apollo and Cendant formed NRT, or National Realty Trust, as a joint venture to consolidate various fragments in the residential real estate market. NRT revenues then grew to $3 billion by 2001, and it made 200 acquisitions and added $1.5 billion in annual commission revenues. Cendant bought out Apollo's stake in NRT in 2002.

"Realogy's powerful real estate brands and their long heritage of leadership in the industry serve as a strong platform for future growth and we are pleased to again have it as part of our investment portfolio," Marc Becker, a partner at Apollo, said in a statement.

Realogy, along with the rest of its former Cendant brethren, has long been seen as a potential target for a private equity buyer. Its $500 million in annual cash flow and relatively small debt were seen as attractive to such firms. And analysts have said that residential real estate companies like Realogy often find rough times on Wall Street, where the cyclical drops in the housing markets have taken a toll on such companies‚ share prices. Some of Realogy‚s competitors, like Re/Max, are already privately held.

Evercore Partners advised Realogy on the deal, while Skadden Arps Slate Meagher & Flom served as legal counsel. J. P. Morgan Chase and Credit Suisse were Apollo‚s financial advisers, while Wachtell Lipton Rosen & Katz worked as its legal counsel. J. P. Morgan, Credit Suisse and Bears Stearns will provide Apollo with debt financing.

Retiring Allstate CEO unloads $33 million in shares
By Lorene Yu - Crain's Chicago Business Newsroom
December 18, 2006

(Crain’s) ˜ Edward Liddy, who is retiring as CEO of Allstate Corp. at the end of the year, exercised stock options and sold the stock for $33.14 million.

Mr. Liddy, who remains Allstate‚s chairman, disclosed the sale of 518,994 shares at $63.95 each in a document filed Dec. 11 with the Securities and Exchange Commission. He paid $35 to $61.39 for the shares, according to the filing.

The transaction occurred on Dec. 7 and was part of a prearranged trading plan. “His execution of the options does not in any way reflect a lack of confidence in the company,” said Mike Trevino, spokesman for Allstate Corp.

Mr. Liddy is still Allstate‚s largest individual shareholder, Mr. Trevino said. In the past, Allstate executives have generally executed prearranged trading plans for portfolio diversification or estate-planning purposes, Mr. Trevino said.

Allstate Corp. shares closed Monday at $65.52, a 52-week high. It hit an intraday high of $65.72. When Mr. Liddy filed his prearranged trading plan on Nov. 22, the company's stock price closed at $64.77.

“He just may have done some profit-taking on a successful career,” said Clifford Gallant, analyst at Keefe Bruyette & Woods Inc.

David Anthony, analyst at Argus Research, called Mr. Liddy’s stock sale “insignificant” in the scheme of things.

“I don’t think he thinks the stock will imminently go down in the next two to three quarters,” Mr. Anthony said.

Mr. Liddy, who has been CEO since 1999, will be replaced as CEO by Thomas Wilson, Allstate’s president and chief operating officer.

Miracle on 34th Street
Commentary: The Weekend Interview - Terry J. Lundgren
By Judith Dobrzynski  – The Wall Street Journal
December 16, 2006

NEW YORK -- Approaching Christmas, Terry J. Lundgren, the chairman and chief executive of Federated Department Stores, is always a man on the run -- and especially so this year. In September, a year after Federated completed its $17 billion merger with May Department Stores, every remaining May store was renamed Macy's (or, in a few cases, Bloomingdale's), making this the first Christmas season that Macy's has a truly national presence -- about 825 stores in 45 states. Mr. Lundgren has to keep the cash flowing and the credit cards flying at all of them.

So, after a few preliminaries, it seemed natural to ask Mr. Lundgren what his Christmas season is like, starting with the day after Thanksgiving, the retailing industry's big "Black Friday" sales day.

"Mine actually starts on Thanksgiving day," he corrected. "I go to the parade, always sitting in the same seat," one that is highly visible to television viewers. "My friends were text-messaging me, saying 'I can see you, right behind Barry Manilow.'" He grinned at the thought.

"On the day after Thanksgiving," he continued, "I did 21 interviews with the press, starting at 6:30 a.m." -- all in Macy's flagship 34th St. store. "I moved from one camera to the next; they were all set up, they always come here because they can see thousands of customers, our window displays, all the decorations . . ."

* * *
If that many encounters with the Fourth Estate sound like a nightmare to most executives, it helps to know that they are also a dream come true for Mr. Lundgren this year -- money-can't-buy-it publicity that played right in to Macy's first national marketing campaign, an event-loaded, all-media effort also launched in September. If all goes well, Mr. Lundgren may be the guy who buries the canard, repeated incessantly for at least 30 years, that traditional department stores are history, squeezed to death by trendy specialty stores like Abercrombie and Fitch and social-climbing discounters like Target.

Mr. Lundgren, a taller, thinner version of Richard Gere, with a better wardrobe, seems made for the role. After years in the retailing trenches, all at Federated except for six years at Nieman Marcus, Mr. Lundgren took the top job in January 2004. By then, Macy's had swallowed more than a dozen department store chains, brands like Lazarus, Goldsmith's, Bon Marché, and Abraham & Straus. With May, he added Hecht's, Kaufmann's, Marshall Fields, Filene's, Foley's and other stores to Federated's domain, boosting annual revenues to about $27 billion.

Despite some resistance to the name changes -- especially in Chicago -- so far the numbers look good. Federated's November same-store sales figure, up 8.5% from last year, was the best performance "in the company's history," Mr. Lundgren said. Federated has since raised its internal growth forecast for the 4th quarter to 5% to 8%, from 3% to 5%.

Better yet, the sales growth is coming from mall stores, which Mr. Lundgren claims is evidence that department stores are gaining market share from rivals. "There's a resurgence," he says. "It is indeed growing, but it's relatively new." He dismisses the idea that department stores owe their better numbers to the buoyant economy, or to the fact that the total number of department stores is shrinking, inflating the same-store sales of the survivors.

"Consumers are finding that we have choice and value and, at Macy's, fashion that is affordable," he says. "We have more fashion than the off-the-mall stores, the discounters, the other guys."

Then, the conversation gets personal: Mr. Lundgren, renowned for his perfectly coiffed silver hair, points to the grey pinstripe suit he is wearing, along with a white shirt and silver tie. "This two-button Armani," he says, is the latest in fashion -- and in stock. It is not to be confused with the two-button Armanis that preceded the three-button Armanis that were fashionable until, say, five minutes ago.

I take his word for it. Mr. Lundgren is, after all, so much the fashion maven that he designed, along with Vera Wang, his second wife's wedding dress, blindfolding her during fittings to keep it a secret until just before she walked down the aisle. (He also, I noticed, keeps a huge gilt-framed mirror in his large, wood-paneled office on the 13th floor of the Macy's 34th St. building -- the largest mirror I have ever seen in any executive's office.)

"There is definitely a fashion-conscious customer who wants to see what's next," he says. They want brands like Ralph Lauren and MAC Cosmetics at Macy's, and Juicy Couture at Bloomingdale's. That's why he has made "affordable fashion" the Macy's watchword.

According to Mr. Lundgren, even young fashionistas are coming to Macy's now: a new survey among 18- to 24-year-olds, he says, found that 43% said Macy's would be the primary place for them to shop this season. "I think it's because we worked on our assortment to make it relevant to them."

This high priest of department store revivalism hasn't converted everyone -- yet. But Macy's is just getting started; there'll be more changes. Over the next five years, Mr. Lundgren believes that department-store chains "will define the lane we travel in more clearly." By that he means that stores will settle into a hierarchy, with Bloomingdale's and Nieman at the top, followed by Nordstrom, Macy's, J.C. Penney and Kohl's, and so on down to Wal-Mart.

"In our case," he adds, "it's defined by the brands we carry, and more and more of our brands will be unique to Macy's or to Bloomingdale's." (To some extent, this plan takes Macy's back to the origins of the department store in the mid-19th century, when many manufactured their own apparel.)

Last year, Macy's got about 18% of its sales from in-house brands, like INC, Alfani and Charter Club, and that figure will increase. Unquestionably, too, there will be more deals with designers like the one Mr. Lundgren forged last April with Martha Stewart for a new, upscale line of linens, dishes, glasses, flatware and the like. "I've seen it, and we're going to knock the socks off of the home-furnishings business," Mr. Lundgren crows. It's so good, he claims, that Macy's will not test the merchandise in 50 or 100 stores, but is going "all the way" to put it in every Macy's, right off the bat, next year.

Mr. Lundgren remained coy about discussions with other designers, but said there will be at least one announcement "as soon as the deal is done," at least by February.

These exclusive arrangements are another sign of Macy's resurgence, Mr. Lundgren argues. For one thing, "more of those ideas are coming to us than we can handle. But I want, actually, to pursue designers, rather than be pursued." For another, Macy's in-house designers are in demand, courted by rivals. "They're trying to raid us all the time, but our turnover in the talent pool is minimal," he says.

The motive behind offering fashionable, exclusive merchandise is, of course, to attract more buyers and move the basis of competition with other stores away from price. Going forward, Macy's will not be as "promotional," which means everyone will see fewer discount coupons in newspapers or flyers. Unless you are a Macy's charge-card customer, you'll be getting fewer deals.

Macy's has also been sprucing up its stores, trying to dispel the dowdy, department-store image via Mr. Lundgren's "Reinvent" strategy to make shopping easier. When customers complained that stores were too big and they didn't know where departments were, Macy's installed big signs directing them to departments and sometimes to specific brands; when they said they didn't know where they could try things on, Macy's put in bigger, more clearly marked fitting rooms and built lounges, often with plasma TV screens tuned to sports and cartoons, for the men and children who waited outside. When customers said that, given the plethora of "take 25% off the last marked price" signs and coupons, they couldn't do the math and didn't carry a calculator, Macy's bought electronic price scanners that calculate the final price of marked-down items for customers before they go to registers. Now in 600 stores, and headed for all Macy's, "they are getting used millions of times in each store," he says. Mr. Lundgren also widened store aisles and is upgrading restrooms.

Simple as those things sound, customers had to tell Macy's about them in surveys. "This was a big ah-hah moment for us," Mr. Lundgren remarks. As a result, the Reinvent program "will never be over" -- though he claims not to know what's next.

Mr. Lundgren is a big believer in research. "Tons" of it is underway in new areas, he says. For example, Macy's is surveying 450,000 customers about its service. Implementation of the resulting advice will rest in the hands of local stores managers, whose performance will be assessed on their grades and improvements. Meanwhile, a new marketing research team under a new chief marketing officer, Anne MacDonald, brought in from Citibank and PepsiCo, is searching for ways to burnish the Macy's brand nationwide. Surveyors are talking to customers right now, asking what they think of the advertising and other variables that affect Macy's image.

This is a busy time for Mr. Lundgren, remember, but there were a few minutes to talk about Macy's international aspirations (they're there, if the potential payoff is "meaningful," so maybe China, parts of South America, possibly Russia and maybe India would be ripe) and the Internet (Macys.com is the fastest-growing part of the mix, clearly set to be a billion-dollar business in the next few years). And then my time was up.

* * *
Outside, the sun had set. I didn't ask what was next on Mr. Lundgren's agenda, but I knew it would soon involve travel and communication. He had already told me that he and his lieutenants make unannounced trips to eight to 11 stores a week during December, swooping in to make sure the stores look good and clean, with all the key sellers (cashmere sweaters, mufflers, boots, coffee machines) in sight and in order. Other days, they do the same in videoconferences, showcasing a fabulous display that everyone should emulate.

It's detail work. With enough of it, Mr. Lundgren wants to show he can catapult department stores to the top of the retail heap. If so, disbelievers would no doubt say it was nothing short of a new miracle on 34th Street.

Ms. Dobrzynski is a writer in New York.

Sears Tower close to losing Bain as tenant
By Thomas A. Corfman - Crain’s Chicago Business Online
December 13, 2006

Bain & Co. is close to a deal to move to 190 S. LaSalle St. in what would be the first high-profile tenant to bolt from Sears Tower after several years of relative calm.

The high-powered consulting firm would lease two floors totaling about 50,000 square feet at 190 S. LaSalle, about the same amount of space as it has at Sears Tower, where it is on the 44th floor, sources say.

The Boston-based firm has been a tenant in the 110-story skyscraper at 233 S. Wacker Drive since 1998, according to real estate research firm CoStar Group Inc.

The defection would come at a time when Sears Tower can little afford to lose any tenants.

The vacancy rate has soared this year to about 21%, compared to nearly 12% during the second quarter, CoStar says. A flurry of tenants left the building in the wake of Sept. 11, but their leases didn‚t expire until this year, resulting in the recent run-up in vacancy.

Bain‚s reasons for the move could not be fully determined, but in part the firm is said to like the image of 190 S. LaSalle, an ornate tower designed by New York architect Philip Johnson that features a 55-foot-high vaulted, gold leaf ceiling and a 28-foot-tall bronze sculpture.

Representatives of Bain and Sears Tower‚s owners decline to comment. Jeffrey Samaras, an executive vice-president with real estate firm Cushman & Wakefield Inc., which represents Bain, could not be reached for comment.

The deal would be a boost for 190 S. LaSalle St., which was purchased earlier this year by CB Richard Ellis Investors LCC in a bet on the recovery of the downtown office rental market.

The nearly 800,000-square-foot building is more than half vacant, CoStar says. A spokesman for the Los Angeles investment firm declines to comment.

Bain‚s departure has been in the works for several months, but comes during a critical transition for Sears Tower, which is owned by a group made up of Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinian.

The building‚s owners have been interviewing real estate firms to take over leasing and management of the prominent skyscraper after last month‚s surprising announcement that CB Richard Ellis Inc. would resign the assignment.

But finding a replacement may be proving more time-consuming than expected. CB’s resignation was originally to be effective by Jan. 1, but the firm will stay on until Feb. 1 or March 1, a Sears Tower spokesman says.

Macy's faces the music,
Sears looking better
By Sandra Guy – Business Reporter - Chicago Sun-Times
December 12, 2006

Holiday shoppers' spending mood is anybody's guess, but Marshall Field's-as-Macy's is looking like a tough sell, and Sears is looking better in retail and real estate assets, according to separate analyst reports issued Monday.

The shock of Federated Department Stores CEO Terry Lundgren's decision to eliminate beloved names such as Marshall Field's, Kaufmann's and Famous-Barr is proving a more difficult and time-consuming fight than expected for Macy's owner, wrote analyst Dana Cohen at Banc of America Securities.

Cohen estimated that sales plunged 11 percent in November from a year earlier at Field's and the other former May department stores, all now Macy's.

Another analyst, Carol Levenson of Gimme Credit, has put the stores' sales decline at anywhere from 20 percent to more than 30 percent for the three months that ended Oct. 28.

Cohen lowered her rating for Federated to neutral and cut her holiday-season and 2007 earnings forecasts based on the Macy's revamp decision and four other Federated missteps.

Cohen cited a "sharp reduction" in the cadence of promotions at the new Macy's stores; "dramatic" changes in merchandise assortments; a lack of compelling marketing, and "not enough change in the store environment and service levels."

"Federated tried to do too much too quickly" at Field's and the other department store chains previously owned by May Department Stores, Cohen wrote in a report to investors.

Chicagoans are increasingly bitter at what they see as lower levels of merchandise and customer service at Macy's compared with Field's.

Cohen sees no upturn in the fortunes of the newly minted Macy's stores until spring at the earliest, but she believes Federated's executives will turn things around eventually.

A Federated spokesman said the company's third-quarter sales and earnings were within its forecasts, and the balance sheet and cash flow have remained strong.

A sharp contrast was an analyst's glowing report about Sears Holdings Corp., whose Sears and Kmart stores have failed to attract shoppers.

Bill Dreher at Deutsche Bank said Sears Holdings could spit out an extra $6 billion in cash -- $5 billion by borrowing money through issuing debt, using its real estate as collateral, and another $1.1 billion from selling or leasing brand names such as Kenmore, Craftsman, Lands' End and Die Hard.

Dreher praised Sears Chairman Edward S. Lampert, a billionaire hedge-fund guru, as "one of the greatest investment minds of our time," who could spin the assets into earnings gold.

Dreher said Lampert's investing smarts could add 93 cents to $7.97 to Dreher's forecast of $11 in earnings per share for fiscal 2007. Dreher believes Sears' real estate is worth $8.8 billion.

Dreher also applauded Lampert for improving store profitability, cutting costs and trying to improve shopper traffic by putting Lands' End boutiques and Internet cafes in stores.

 

The Lands' End Brand Plan: Insanity or Genius?
By George Anderson – Retail Wire
December 11, 2006

Shopping for a winter coat or cashmere sweater for the holidays? Would you like that monogrammed? How about getting Peppermint Crunch chocolate wafers, a Panasonic 42" Plasma Television, a China Pearl Necklace, a NordicTrack Audio Strider or a Cool Blue Dog Squall for that special person or pet in your life?

If you wish to buy any of the above then check out your most recent Lands' End catalog or go to www.landsend.com/gifts. There, you'll find a lot of items that you probably wouldn't associate with the retailer that has made its brand name selling preppy clothing and home furnishings.

David McCreight, president of Lands' End, recently told the Wisconsin State Journal that the retailer is looking to create "a one-stop shopping experience" for its customers.

Mr. McCreight is a believer in Lands' End strategy to branch out beyond its core business. Others see the move as necessary while others seen it as brand suicide.

Count George Rosenbaum, chairman of Leo J. Shapiro & Associates, as one of those who see Lands' End new direction going in the wrong direction.

"I think it probably reflects some rather incompetent meddling on the part of Sears," he said. "To attempt to extend the Lands' End brand name to toys and plasma TV, I think, is very risky, in terms of degrading its value as an apparel brand."

Howard Davidowitz believes that selling Crafstman tools, an iBeanbag chair wired for iPods, and cashmere water bottle covers is necessary for Lands' End to remain relevant in the consumer marketplace.

"Lands' End is a great brand, but nothing is forever. Any brand has to continually move to the next level," Mr. Davidowitz said.

Mr. McCreight said Lands' End's new direction a result of "talking to customers, trying to surprise and delight them." He added, "We're trying to bring the customer even closer to the company."

Lands' End is looking to create that closeness by being more accessible to consumers. The company is moving beyond its catalogs, web site, company and outlet stores to branded departments within select Sears' locations as well as placing kiosks in stores.

It is also looking to personalize the shopper experience by expanding monogramming. Lands' End has moved beyond simple initials embroidered on a shirt or other garment by, as an example, placing children's artwork on tote bags.

"If you listen to your customers and have your customers' best interests at heart, you're bound to be successful," said Mr. McCreight. "I plan to not only maintain that focus but further it."

Listening to its customers is what led to Lands' End developing its newest line of clothing -- women's intimate apparel. "Customers were saying, 'you fit me so well in (swimsuits), would you help me in intimate (apparel)?'," he said.

Discussion Question: What is your assessment of Lands' End current marketing strategy?

Lands' End is branching out - Wisconsin State Journal

What are your thoughts on this subject?

Which initiative will be most beneficial to the top line performance of Lands' End?

Branching out into categories beyond apparel and home furnishings
Expanding within its heritage to add new product lines such as women's intimate apparel
Increasing its visibility with departments and kiosks in Sears
Offering more customized services such as advanced monogramming
Not sure/no opinion

Comments... Send in Yours!

The further they move away from their roots of high-quality clothing and the equity they've built up with their customer base the more they have to lose. It appears they're working to make their website nothing more than an alternative to Amazon.com and when they do the consumer will no longer know what it is they stand for and their brand will no longer be the brand of choice that they've worked so hard to create.
Mark Hunter, President, TheSalesHunter.com

A winning retail strategy: be dominant in the categories you enter. A losing retail strategy: one stop shopping. No American wants to buy everything in one place. Everyone knows that no one place can be the best place for everything. Lands' End is great for preppy clothing. Maybe they can be great in related clothing. Trying to be great in consumer electronics? Why not sell cars or burgers or lawn care services? Preppies buy those too. Best thing about free enterprise: any retailer is free to embarrass themselves.
Mark Lilien, Consultant, Retail Technology Group

Extending its product lines to electronics and other unrelated lines is going too far. If a consumer wants to buy electronics they'll go to Best Buy or Circuit City, not Lands' End. Consumers are already inundated with too many ads and promotions and many are about to cry out "enough." When will some retailers understand that strategic product extensions, not greedy extensions are what consumers want.
Barry Wise, President, Wise Retail Consultants

No question that Lands' End's offer is being tinkered with by Sears and it is no surprise that their new president, David McCreight hailing from Smith & Hawken -- an upscale chain that doesn't sell apparel -- is tasked to leverage the Lands' End brand in a revenue generating way. I can't imagine any other reason you would bring in an executive from outside the apparel industry to run a "dyed in the wool" apparel catalog retailer.

Will it work? Well, Sears wasn't too successful at launching Lands' End Departments within their stores and while they attempted to integrate this concept, they took their eyes off the cash generating portion of the acquisition -- the successful catalog customer.

I spoke with Lands' End employees during and after the purchase in order to track the impact of the acquisition to their core business. Folks on the inside didn't paint a pretty picture, with both morale and execution falling considerably over the first couple of years. Mistakes in catalog printing and product offers combined to drive morale and customer satisfaction downwards.

Will this new venture work? I think it is very ambitious and a gutsy move, but I believe that it is going to be very tough to execute from an operational and a customer service perspective. In my opinion they should focus on expanding their core offer, but do it in phases allowing their customers to absorb and react.

This may be one bullet the guys in Dodgeville just aren't able to dodge.
Charles P. Walsh, President, The Network of NWA

Mr. Davidowitz's comment that "nothing is forever" certainly will apply to Lands' End, the longer they pursue this misguided strategy. It's one thing to develop product and line extensions that are true to the brand; intimate apparel, for example, makes perfect sense if the design is appropriate to the target customer rather than imitation-Victoria's Secret. It's another thing entirely to muddle the brand image with irrelevant product and clashing brands (such as Craftsman), and turning the business into a "bunch of stuff."

This looks like somebody's idea of corporate synergy: How to leverage the investment in Lands' End by driving sales of Sears merchandise in an inappropriate channel. Short-term, this may please investors in Sears Holdings, long-term it's a great way to kill a respected brand with a well-defined image.
Richard Seesel, Manager and Owner, Retailing In Focus LLC

Lands' End is doing the right thing. Many of my panelists are too quick (IMHO) to silo Lands' End as just a clothing retailer. Today's successful retailers have all extended their presence to other products, recognizing that their customer is the same one that purchases these products in other places. One of the things which has made LE distinctive has been their warranty, ability to merchandise, and the value that they bring to their competitive landscape. How they continue doing this with other branded products will determine their future success. If they can continue to offer a unique channel, with standards that exceed their customer's expectations in customer service and product reliability, they will be successful. Otherwise, they will stall and fail. It is the follow-through with their channels and customers which makes LE the success it is today.
Kai Clarke, President, Miraclebeam Products, Inc.

The day they were purchased by Sears was "the day the music died" for Lands' End. End of brand, at least end of the quality, targeted, upscale brand they were...end of story.
Mike Tesler, President , Retail Concepts

With its new strategy, Lands' End is simply doing what every loyalist power brand worth its name recognition salt has already been doing: becoming a true "lifestyle" brand (which should go down in history as the brand buzzword for 2006). From that perspective, LE is actually behind the curve and should be applauded for waking up and smelling the opportunity. No worries about stepping out into unprecedented waters though. They can simply pick and choose winning ideas from many who have gone before: Eddie Bauer, Jeep, Aeropostale, Juicy Couture, Napapirji, Nautica, Baby Phat, Vuitton, Gucci....
Carol Spieckerman, President, newmarketbuilders

Change is essential to stay relevant, so Lands' End does need to change. However, trying to morph into a general retailer does not seem to be the way for Lands' End to go. Not every retailer can or should be everything to everyone. Lands' End probably would do much better by defining its lifestyle brand and building on it. While some of the extra items may be higher margin, they really subtract in the long run from what the brand means. Lands' End seems to be moving towards the point of meaning nothing to anyone because they tried to be something to everyone.
Kenneth A. Grady, General Counsel and Secretary, Wolverine World Wide, Inc.
 
I couldn't respond to the poll question because there was no "get divested" option....

...But one observation on the "our consumer's are telling us" comment. There is a "forest and the trees" aspect to consumer research that is difficult to see (yes, pun intended). If we look closely enough and ask the questions correctly, we can get some of our consumers to tell us just about anything we want them to. This does not result from malicious intent or poor research practice. Rather, it is human nature to follow the threads that appeal to us and to hear the things that fit our own paradigms and support our own ideas.
Ben Ball, Senior Vice President, Dechert-Hampe

I like it.

I received the catalog and have to admit, it held my attention. It was nice to see a few new surprises other than the 2006 version of the last 10 years of polos & fleece.

It's all in the mix. I think they can pull it off with smart merchandising and unique findings. They'll screw it up if the product additions are just "me too" offerings broadly found elsewhere.
'SILVERSTONE'

Bill Ford recently said that his customers told him that they are "building cars that people want to buy." Now, depending upon your perspective, you could interpret that differently. If you have shifted, like so many, to a completely different brand long ago with no intention of looking back, you might chuckle. Some, however, do agree with Mr. Ford since they still do sell millions of them (just not as many as before).

The same holds true for Lands' End. Some are still buying. The question is, will their consumer base that has already diminished, buy more and different things? Or, are they potentially, like Mr. Ford's past consumers, longing for a better day?

For myself, I made the shift to L.L.Bean some time ago. Why? Well, it's sort of like my dream of owning a Jag or a Volvo. Both went away when Ford bought them. When Sears bought LE, and for no reason other than that, I sought an alternative. Why? Perception. LE had never done anything wrong, in fact they had been terrific for years. However, when purchased by Sears, it was my immediate perception that they couldn't possibly be the same. Fair? Not really. But, they did prove me out when they failed miserably in launching LE product in their stores.

From one cycle of purchases, L.L.Bean won me over. But, to be honest, there was nothing that I ever disliked about LE other than the Sears tag. The problem is, now having found a far superior online and catalog retailer in L.L.Bean, can I go back? Not likely; my loyalty has shifted. (And without a frequent shopper card too -- imagine that!)

I'll be doing my Christmas shopping tonight from the couch. I could in fairness give them a try, but not for a television. That's just silly. But I might give them a side by side comparison with L.L.Bean and see what happens.

There was a day when Sears was on top. And they still have valuable brands that stand on their own as a value. Is it possible that LE could become the outlet for the best of what Sears once had to offer? That just might be the better day. The problem is, I don't think the merchants at Sears are smart enough to re-package all that was once great....
'Scanner'

I think Kai said almost everything I was thinking better than I could myself.

The only thing that I would add is that I don't think it is fair to compare this move to the merchandising of Lands' End in Sears. In my viewpoint, the problem there is that the demographics of the Sears customer didn't match the Lands' End demographics. I think in this case the demographics do match and if they can execute with quality, this should be a winner.
'karenk'

This discussion really isn't about Lands' End; it's about Sears. They have purchased Lands' End and obviously believe that LE offers not only quality merchandise but another distribution method for Sears' own products. However, Lands' End didn't get to be as successful as it has been by selling plasma televisions. It's clear that Lands' End needs to stick to its strength: clothing, luggage, related preppy attire. However, Sears is in serious need of finding its core. Rather than purchase and then disembowel a strong brand like Lands' End, Sears should take a step back and find its own strengths to capitalize on.
Tonya Hamilton, Owner, Hamilton Strategic Marketing

Lands' End built its emotional base with customers through understanding who they were as people and catering to their clothing needs in a personal and informative way. I was there, reporting to founder Gary Comer during this period in the 80's - and it is sad to see the erosion of this great brand.
Gary used to tell us "think small, big will take care of itself. Treat each customer as if they were the most important person." This served us well and would continue to serve Lands' End well today if they focused more on service and customer experience in their core of clothing versus selling bells and whistles, and phones and air conditioners and, well, the kitchen sink.
jeanne bliss, ceo, customerbliss

I have to vote brand suicide based on initial concept and perhaps not fairly, forecasting results based on Sears/Lands' End's execution so far. Some mentioned lifestyle brands. Neither TVs nor pearls seem to build a casual/preppy lifestyle retail stop, or their own brand. Why not have Lands' End treadmills instead of Nordic Track exercisers that can be bought at Nordic shops? There are so many other categories, with even more room for expansion, that would be a better tie in to their lifestyle -- pets, camping, accessories for Jeeps and SUVs, hiking, messenger bags, an organic clothing section, and so on -- that would reinforce their brand versus possibly "muddying the water."
George Andrews, Principal, Delta Associates

For some people, the first job in retirement involves a good deal of ho-ho-hoing
By Kelly Greene – The Wall Street Journal
December 11, 2006

Richard Christie, a 73-year-old retiree in Sunland, Calif., was struck by the idea of becoming Santa Claus seven years ago while vacationing in Big Sur.

"I was walking on the pier when I saw a man dressed all in red with a full beard, and I watched children flock to him and talk to him as Santa," recalls Mr. Christie, who had retired from Sears, Roebuck & Co. several years before and was looking for something "noble to do where I could interact with children."

The Santa who would become his mentor, Bill Gibson, told Mr. Christie -- who already sported a small beard -- that he could find work as Santa, too.

THE JOURNAL REPORT
The small town of Brunswick2 in southern Maine is very cold -- and very inviting. Plus, our annual gift ideas3 for the travelers on your shopping list.

Mr. Christie never shaved again.

Within two years, the transformation was complete. He found an agent who helped him land work at corporate events, private parties, malls and even in television commercials. Last year, he flew to Shenzhen, China, where he greeted thousands of guests in a chalet set up in the lobby of a five-star hotel -- and pulled down a paycheck in "the mid-five-figures" for two hours of work a day, six days a week, for about a month.

About two weeks ago, Mr. Christie returned to Asia. This season, he is listening to wishes of girls and boys at Pacific Place, one of Hong Kong's most popular shopping malls.

Second Calling

For no small number of male retirees, it's their first foray into life as an independent contractor: playing Santa Claus during the holidays. Many are ideally matched to the role of the Jolly Old Elf, given their real beards, which are sought after by photo companies manning Santa's workshops, and their real waistlines, reflecting decades of good cooking by their respective Mrs. Clauses.

Shopping malls, of course, are where most St. Nicks ply their trade. Such work requires lots of time -- and endurance. (One Santa's secret: soccer shin guards to protect legs from preschooler kicks.) On average, each Santa visits with more than 80 children daily, according to a survey of 150 malls by the International Council of Shopping Centers, a New York trade group. And each mall snapped an average 4,000 photos of Santa mugging with those children in 2004.

Instead of logging long hours in a chair, some retirees-turned-Santa work the party circuit, often mixing charity events with paid gigs. Few make it to national TV commercials, which are dominated by younger, professional actors, but most retired Santas have made an appearance or two on the local news, often helping to promote a toy drive.

Patrick Farmer, a 63-year-old retired caterer who lives in Yuma, Ariz., spent the summer doing an off-season job: He and his wife greeted visitors as Santa and Mrs. Claus at Santa Claus House, a tourist stop in North Pole, Alaska, where the couple lived in their recreational vehicle. Mr. Farmer, who has traveled widely throughout the U.S., was able to converse with children from different parts of the country about features of their hometowns.

"It makes Santa that much more real to them," he says. "I see everything when I'm in my sleigh, you know."

Branching Out

Some entrepreneurial Santas have created lucrative sideline businesses along the way. Mr. Christie, for example, markets a line of leather belts, buckles and other accessories, some costing nearly $300. Others, finding themselves with too much work to handle on their own, have become agents for fellow Santas. And a few of the sagest St. Nicks have written and published instruction manuals for the business and hold regular Santa workshops -- turning out trainees rather than toys.

The pay can help beef up retirement savings. Santas working at shopping malls typically make $8,000 to $20,000 a season, with most landing in the $10,000 to $12,000 range. Santas on the party circuit pull in about $100 an hour, depending on the region and type of event. The larger photo companies, such as Noerr Programs Corp. in Arvada, Colo., pay most of their Santas on the lower end of the scale, but also provide their wardrobe, training and living expenses for employees working in malls far from home.

But there's always the lure of the big time. "I saw Robin Leach interviewing a Santa going to appearances in a limo, and I thought, 'If I can do that in retirement, my wife would be really happy,' " recalls Timothy Connaghan, 58, a retiree and a Southern California Santa who now heads an industry trade group, the Amalgamated Order of Real Bearded Santas, based in Riverside, Calif.

The tradition of visiting Santa dates back more than a century, to the late 1800s, when department stores started using St. Nick to lure shoppers. After World War II, the U.S. Army sold leftover cameras to photographers, who began snapping Santa photos in the department stores. The business surged with Polaroid instant pictures in the 1970s, and more recently with the rise of digital photography.

Bill Sandstrom, a 57-year-old retired minister in Braselton, Ga., has always had an unmistakably ho-ho-ho-like laugh. Three years ago, after his first grandson was born, "my daughter said, 'If you're ever going to do this, now would be a great time.' "

The new grandfather called AmuseMatte Corp., the Chatsworth, Calif., photo company that runs the Santa scene at North Point Mall in nearby Alpharetta, Ga., in hopes of working there. Instead, he was placed at the Rock Hill Galleria in South Carolina in 2004. His start-up costs -- $2,000 for three red suits and $200 to professionally whiten his beard, plus more for touch-ups -- meant he broke even compared with the retirement job he holds the rest of the year as a local truck driver.

But the following year, AmuseMatte gave Mr. Sandstrom a raise and sent him to Burbank Town Center in California. Mr. Sandstrom is spending this season there as well, working eight hours a day, seven days a week, as the sole Santa on the scene. His wife, Peggy, took the job of set manager, and they're sharing an all-expenses-paid apartment.

His first day in the chair was demoralizing: Three children showed up with a computer-generated list, single-spaced, that ended with a request for $2,000 in cash. Last, year, though, he was inspired by a little girl who told him, "Santa, Christmas isn't about you. It's about the Baby Jesus." Mr. Sandstrom, a retired Church of God minister, told her that Santa agreed.

"Even in Hollywood, which is so materialistic, there are kids who don't ask for anything for themselves," Mr. Sandstrom says. "There was a little girl whose sister had drowned around Christmas the year before, and all she wanted was for her parents to be happy again."

Another job requirement -- persuasively handling tough requests -- draws from retirees' reserves of life experience. And having your own grandchildren helps, veteran Santas say. When asked to bring parents back together, or to bring a family member home from Iraq, "I usually tell children that Santa feels really sad for them and I'll pray for them," Mr. Sandstrom says.

The digital age -- and children's increasing skepticism -- makes it tougher today to keep children believing in St. Nick. That places more emphasis on the authenticity of Santa's beard, and makes men of a certain age that much more desirable as candidates.

"If one of the ways people can get a child to believe in Santa one more year is to see a real-bearded Santa, that's what [families] seek out," says Mr. Connaghan, in California, who grew his beard about a decade ago to bolster his credentials as a Santa-for-hire.

Making the Transition

Like many retirees-turned-Santa, Mr. Connaghan dabbled in the role before walking away from the office. In fact, he first transformed into Santa while stationed in Vietnam, fashioning his beard from shaving cream. As he phased into full-time retirement from hotel marketing, he expanded his Santa enterprise. This year, as executive director of the Amalgamated Order of Real Bearded Santas, a group of more than 1,000 such men, Mr. Connaghan organized the group's first convention, in Branson, Mo., where 300 participants could meet with representatives from several photo companies and attend workshops on subjects ranging from Santa ethics to modeling work.

(Among 322 real-bearded Santas who responded to a survey earlier this year, the average age was 59, average height was 5 feet 10 inches, average weight was 257 pounds, average length of marriage was 24 years, average number of children and grandchildren was 2.7 and 3.5, and the average number of years they had been Santa with a real beard was nine. Favorite movie? Fifty-six percent said "Miracle on 34th Street.")

Mr. Connaghan, whose own appearances have included the Hollywood Christmas parade and the "Dr. Phil" TV show, shares what he has learned with new initiates for $89 apiece (including a "Behind the Red Suit" manual) in one-day workshops called the International University of Santa Claus.

Santa Helpers

Among his tips: Market yourself, rather than hiring an agent, by combing your hair and beard before heading out on errands and making up a distinctive business card to hand out around town. (His looks like a driver's license.) When in character, don't eat (except breath mints) or drink (except for water), scratch, sleep, chew gum or smoke. The most professional Santas invest in custom-tailored velvet suits and learn how to use foundation and rouge (DR-3 Raspberry from Ben Nye, a theater-makeup company, is a popular choice), Mr. Connaghan says.

And the biggie: "Santa should always have his hands showing in the photo," usually with one arm around the child and the other in his own lap, Mr. Connaghan says. "We work hard to keep our image untarnished. One weak link can ruin the whole thing." His book includes information about buying liability coverage in case a parent sues.

It's a concern shared by many Santas: Mr. Sandstrom says that he always wears white gloves so parents can watch his hands.

The best part of the job? The adoration coming from children, and some adults. Mrs. Sandstrom recalls a dinner at Red Lobster shortly after Christmas last year when Mr. Sandstrom excused himself to use the restroom -- and then took about 45 minutes to make his way back to the table. Though he wasn't in costume, his beard and hair had been dyed white before Christmas, so he still looked the part.

All of this can be tough on the real-life Mrs. Clauses, who, after all, didn't necessarily sign up to play second fiddle to Santa. In fact, one of the most popular workshops at last summer's convention in Missouri was titled "Dealing with the Male Peacock: How to Live with Santa."

"But even for me," Mrs. Sandstrom says, "seeing the wide-eyed innocence in the children's eyes when they see Santa makes it worth it."

--Ms. Greene is a staff reporter in The Wall Street Journal's Atlanta bureau.

Rocky Return to the Roots at Wal-Mart
By Michael Barbaro and Stuart Elliott - New York Times
December 9, 2006

It was the kind of bold advertising campaign that Wal-Mart executives agreed was needed to attract style-hungry consumers: a series of commercials featuring two sisters — one a regular Wal-Mart shopper, the other not — trying to redecorate their homes.

In commercials set to run throughout this holiday season, the sisters were to discover that Wal-Mart offers a lot more than low prices.

But in July, as gasoline prices spiked, senior executives abruptly scrapped plans for the so-called sisters campaign, sending a marketing team led by Julie Roehm scrambling to create a replacement, according to people involved in the process. The reason was that the ads did not focus enough on low prices.

Wal-Mart ousted Ms. Roehm — and abandoned her choice for new ad agencies — this week after determining that she violated company policy by accepting gifts from potential vendors and maintaining a personal relationship with a subordinate, according to people briefed on the matter. She has denied any wrongdoing.

But Ms. Roehm’s near-operatic downfall exposes deeper tensions within the Wal-Mart empire, as a company that has been identified for four decades with working-class consumers tries to appeal to more affluent Americans.

A year ago, the company surprised the marketing world by hiring brash outside executives like Ms. Roehm and introducing ads that emphasized style and played down price. Then, in a sudden reversal, the company began trumpeting price-slashing for the 2006 holiday season.

In an interview, John Fleming, the chief marketing officer at Wal-Mart, said the company had indeed begun to backtrack from sleeker advertising that emphasized style over price. Customer research, he said, showed that, rich or poor, Wal-Mart customers “care about unbeatable prices.”

“I don’t think Wal-Mart advertising is ever going to be edgy,” he said last night. “ I do not think that fits our brand. Our brand is about saving people money.”

But Ms. Roehm was the very essence of edgy — and her hiring was widely viewed as a signal that Wal-Mart wanted to shake up its marketing.

As an executive at DaimlerChrysler, Ms. Roehm approved a commercial for Chrysler in which a mother explained to her daughter that her brother was conceived in the car, spurring customer complaints that led to the spot’s being dropped.

And after arriving at Wal-Mart, she referred to herself as a “change agent,” and set about turning the company’s annual shareholder meeting — a traditionally PowerPoint and numbers-heavy affair — into a three-hour musical.

Ms. Roehm, in an interview, said she believed that her job at Wal-Mart was to buck convention. “I had to assume they felt I brought the right skill set in this quest for transformation,” Ms. Roehm said.

But Ms. Roehm said it was clear from the start that she did not fit in. “Culturally, I clearly was an anomaly,” she said, likening her personality to a vacuum that can, at times, suck all the oxygen out of the room. “I come in, and I am extremely high energy, and it can be overwhelming.”

And, she said, her background at Chrysler — where her specialty was eye-popping, sexually charged commercials to sell trucks — may have alienated her colleagues.

“My ideas were viewed with greater skepticism,” she said. “People understood my background and where I came from and they were probably more concerned about the kinds of ideas I might bring. It caused a greater level of pause when I suggested something.”

In several cases, Wal-Mart approved her ideas, only to reverse course later.

After a handful of consumers complained about a holiday commercial that was overseen by Ms. Roehm and focused on lingerie, the company stopped running it.

Mr. Fleming said that Wal-Mart changed the holiday ads every week and decided, after receiving negative feedback, “to move on” with new commercials.

He also replaced the holiday campaign focused on the two style-conscious sisters with commercials built around a family whose curmudgeonly father is obsessed with low prices.

Mr. Fleming said the family in the new campaign “provided a broader reach” than the sisters — with each family member representing a different gift idea available at Wal-Mart.

In all of its advertising, he said, “we are looking for the right balance between price and products.”

Advertising executives who have worked with Ms. Roehm at Wal-Mart said she never seemed at home there.

“Julie’s one of those celebrity” figures in marketing, said an advertising executive who was involved in the review process who spoke on the condition of anonymity because he was not authorized to discuss the process publicly. “When Julie walks into the room, it’s Julie’s room.”

“But Wal-Mart’s never been a culture of stars,” the executive added, pointing to the philosophy of the founder, Sam Walton, who “was about the team and the workers on the floor.”

Wal-Mart has not confirmed why it fired Ms. Roehm, but people briefed on the issue said it was over her conduct during a search for new advertising agencies, which concluded in late October. During that process, these people said, Ms. Roehm accepted gifts from agencies, attended events considered out of bounds for an executive choosing a new firm and maintained a relationship with an employee.

Wal-Mart also fired the employee with whom Ms. Roehm is said to have had the personal relationship, Sean Womack, who answered directly to her. Both deny having a relationship that violated Wal-Mart policies or behaving in any way that tainted the search for a new ad agency. Both said they were in the process of putting their homes near Wal-Mart’s headquarters up for sale.

It was their conduct, people briefed on the matter said, that prompted Wal-Mart to overturn Ms. Roehm’s choice of Draft FCB as the company’s ad agency on Thursday and to bar Draft FCB from participating in a new search.

Numerous agency executives said they expected Wal-Mart to begin next week to reach out to the final group of agencies that Ms. Roehm, Mr. Womack and other Wal-Mart managers had decided against hiring during the first search.

Those agencies include GSD&M in Austin, Tex., part of the Omnicom Group, which has worked for Wal-Mart since 1987; the Martin Agency in Richmond, Va., also part of Interpublic; and Ogilvy & Mather Worldwide, part of the WPP Group.

Bernstein-Rein in Kansas City, Mo., which has worked for Wal-Mart since 1974 but was dismissed during an early stage of the search, may be asked to take part in the search.

A spokeswoman for Wal-Mart, Mona Williams, said the company hoped to complete the second search by the end of next month.

The fallout from the overturned search process played out yesterday at Draft FCB. Howard Draft, chief executive, spent the day trying to bolster the morale of his employees, who were hit hard by the surprise change of heart at Wal-Mart.

“We should all remain incredibly proud of the fact that after a grueling five-month review, we won this business against dozens of worthy competitors,” Mr. Draft wrote in a memorandum to employees that was also signed by three other senior Draft FCB managers.

Chinese company sweeps up Hoover
Whirlpool selling floor-care business for $107 million
By James P. Miller - staff reporter – Chicago Tribune
December 8, 2006

Whirlpool Corp. on Thursday agreed to sell its recently acquired Hoover floor-care operation for $107 million to Hong Kong-based Techtronics Industries Co.

Sale of the floor-care business "allows us to focus on our core appliance business," said Whirlpool Chairman and Chief Executive Jeff Fettig.

Whirlpool announced several months ago that it intended to sell the Hoover operation, which has had difficulty competing with a surge of low-cost imports, in part because the vacuummaker is saddled with relatively high labor costs.

It wasn't immediately clear whether the Chinese purchaser intends to continue using Hoover's manufacturing operations in the United States, the largest of which is a 850-employee unionized factory in North Canton, Ohio.

In recent months, the Ohio workers have been scrambling to put together an employee buyout of Hoover. Thursday's announcement of the sale to the Asian manufacturing concern appears to kill any chance of that, however.

Techtronics is best known as a maker of power tools, sold under the well-known Milwaukee and Ryobi brands. But the Asian company is also a major producer of floor-care appliances, which it supplies under such brand names as Royal, Dirt Devil, Regina and, in Britain, the Vax brand.

The Hoover purchase, expected to close by the third quarter of 2007 at the latest, "will strengthen our market presence globally," Techtronics said.

Although Hoover generates annual sales of $450 million to $500 million, estimated B. Craig Hutson of the bond-analysis firm Gimme Credit, it has been losing money as well as market share "and will require significant investment by Techtronics to improve results."

Whirlpool took ownership of Hoover when the appliance manufacturer acquired Hoover parent Maytag Corp. for $1.7 billion in March. In May, Whirlpool announced plans to shed the financially struggling Hoover operation, as well as three other former Maytag businesses, by year-end.

Michigan-based Whirlpool sold off the Amana commercial microwave operation for $49 million, and the Dixie-Narco vending-machine business drew $46 million in a separate transaction. Still unsold is the Jade commercial-appliance group.

Including non-union operations in Texas and Mexico, Hoover has a total workforce of about 2,600 and is the largest of the operations Whirlpool is divesting.

Under the sale accord, Whirlpool retains responsibility for pension obligations of currently retired Hoover workers.

Hoover probably would have drawn a higher sales price, experts have suggested, but for the fact that its buyer probably will face hefty separation costs if it decides to restructure, particularly if the cuts include the jobs of the unionized Ohio employees.

Part of the rise of low-cost floor-care producers can be traced to the growing importance of "big box" retailers in the United States. High-volume retail chains, such as Wal-Mart Stores Inc., Home Depot Inc. and Target Corp., routinely use their purchasing power to squeeze lower prices from suppliers. That situation puts companies with domestic manufacturing facilities, like Hoover, at a disadvantage.

Jim Repace, head of the North Canton local of the International Brotherhood of Electrical Workers, who has been leading the ill-fated attempt to mount an employee buyout, said union officials hope to meet soon with the new owners.

"We're looking forward to an opportunity to have talks with them and work something out so that we can remain strong here in North Canton," he told The Associated Press. "People here need to have their jobs, make a living and raise families."

In New York Stock Exchange trading Thursday, Whirlpool shares edged down 24 cents, to $86.13.
- - -
Hoover's history

1907 James Murray Spangler, working as a janitor in a Canton, Ohio, department store, develops a prototype for the first portable electric vacuum sweeper using a soap box, an electric fan, a broom handle and a pillow case.

1908 After making improvements and receiving a patent, Spangler sells rights to his "electric suction sweeper" to William H. Hoover.

1943 The Hoover family takes the company public.

1985 Hoover is acquired by Chicago Pacific Corp.

1989 Maytag Corp. acquires Chicago Pacific.

LATE 1990s/EARLY 2000s A rising tide of low-price imports, coupled with the increasing market power of low-cost mass retailers like Wal-Mart and Target, puts heavy pressure on Hoover's profit.

MARCH 2006 Whirlpool acquires ailing appliance-industry rival Maytag and puts Hoover up for sale. Hoover employees in Canton begin exploring an employee buyout.

DEC. 2006 Whirlpool sells Hoover to Hong Kong-based Techtronics Industries for $107 million. As part of the deal, the U.S. company retains pension liabilities for currently retired employees.

Wal-Mart Fires Marketing Star and Ad Agency
By Michael Barbaro and Stuart Elliott – New York Times
December 8, 2006

It was a coup for Wal-Mart: hiring away a top marketing executive whose envelope-pushing advertising campaigns ˜ like a lingerie-filled mock football game ˜ generated big business and big buzz.

But a year later, that executive, Julie Roehm, is out of a top job at Wal-Mart amid allegations, which she denies, that she accepted gifts from ad agencies, maintained a personal relationship with a subordinate and showed favoritism toward potential vendors.

Yesterday, in a surprising rebuke, Wal-Mart overturned Ms. Roehm‚s choice to replace the company‚s longtime advertising agencies ˜ a decision that puts $580 million worth of marketing up for grabs again, two months after the original search process ended.

Her departure has roiled Madison Avenue and sent several major agencies scrambling to dust off their marketing plans for the nation‚s largest retailer.

At the heart of the controversy, everyone agreed, is a culture clash. Ms. Roehm, a 35-year-old rising star who won acclaim in advertising circles for her work in the automobile industry, was never at home within the painstakingly modest by-the-books culture of Wal-Mart.

While some of the details are in dispute, several people briefed on the matter said that Wal-Mart dismissed Ms. Roehm and a lower-ranking marketing colleague, Sean Womack, after deciding that the pair had a personal relationship that violated the company‚s strict ethics policy, which forbids fraternizing with subordinates.

After an internal investigation, these people said, the company also concluded that Ms. Roehm had accepted gifts, including meals, from companies vying to become Wal-Mart‚s advertising agency, a coveted account because the company spends nearly $1 billion a year on marketing.

These people, who have direct knowledge of the situation, spoke on condition of anonymity because they were not authorized to talk publicly about the case.

In telephone interviews last night, Ms. Roehm and Mr. Womack denied that their relationship violated company policies or that they had done anything wrong in dealing with the ad agencies.

Ms. Roehm acknowledged that her style and ideas did raise eyebrows at Wal-Mart. „I think part of my persona is that I am an envelope pusher,‰ she said last night. „The idea of change in general can be uncomfortable for many people, and my persona as an agent of change can prompt that feeling.‰

In one of her first assignments at the retailer, Ms. Roehm transformed Wal-Mart‚s traditionally stodgy shareholder meeting into a three-hour Broadway extravaganza, hiring a troupe of New York actors who sang songs like "The Day That I Met Sam," the company‚s revered founder.

The show elicited groans from longtime company executives.

Several weeks ago, Ms. Roehm courted controversy again when she oversaw production of a holiday TV ad, known inside the company as "Sexy," that portrayed a husband and wife discussing racy lingerie in front of their extended family. The ad drew customer complaints and was immediately taken off the air, a person involved in the matter said.

But the biggest questions about Ms. Roehm‚s conduct surrounded her work on a closely watched hunt for a new advertising agency for Wal-Mart. Over the last seven months, Ms. Roehm, Mr. Womack and three other colleagues crisscrossed the country interviewing candidates. During that time, her conduct surprised and, in some cases, alarmed Wal-Mart executives.

She was spotted taking a ride in an Aston Martin owned by the chief executive of one agency, Draft FCB. At another time, she was seen riding in a BMW convertible with the president of another, GSD&M, according to people familiar with the matter.

And she attended a September dinner given by Draft FCB at the Manhattan hot spot Nobu, during which she lavishly praised the ad agency and appeared to suggest it had the upper hand in the contest more than a month before an official announcement of the winner was due.

At the dinner, Ms. Roehm spoke about how Draft FCB, formed this year by the merger of the Draft and Foote Cone & Belding agencies, might be the model of the ad agency of the future, said one attendee, Linda Fidelman, president of Advice and Advisors in New York, a consulting company that helps marketers search for advertising agencies.

Ms. Fidelman said she asked Ms. Roehm why she appeared at the dinner and whether the other ad agencies being considered along with Draft FCB were upset. Ms. Roehm‚s reply, according to Ms. Fidelman, was along the lines of "if you don‚t ask, you don‚t get."

Ms. Fidelman said guests at the dinner were "all fairly flabbergasted,"adding, "I‚ve never seen an existing client at one of these things ˜"much less a prospective client."

One agency executive familiar with the situation, who spoke on the condition of anonymity because the company might become involved in the search for a new ad firm, said that Wal-Mart executives were "turning green" over the Nobu dinner because of the strict Wal-Mart rules that prohibit employees from accepting gifts of any kind ˜ including drinks or meals ˜ from a supplier or potential supplier.

Wal-Mart‚s tough standards for employee conduct have become even more stringent since its former vice chairman, Thomas M. Coughlin, pleaded guilty in February to stealing thousands of dollars from the company using fraudulent expense documents and gift cards.

After learning of incidents like the evening at Nobu, and the suspected relationship, Wal-Mart fired Ms. Roehm and Mr. Womack around noon on Monday in terse meetings at the company‚s headquarters in Bentonville, Ark.

Three days later, Wal-Mart decided the agency search process had been tainted by the pair‚s behavior and should be reopened, according to people briefed on the matter.

But Ms. Roehm said the process of choosing new agencies "was fair and exhaustive; we showed no favoritism."

Mr. Womack called the process "extraordinarily thorough and fair," and said he had never had "an improper relationship" with Ms. Roehm. "We are friends."

The two were among 10 Wal-Mart executives who overwhelmingly voted to use Draft FCB, people involved in the process said.

Mona Williams, a spokeswoman for Wal-Mart, said yesterday that the company had notified Draft FCB "that we have decided to reopen the bid process for our advertising account and that it will not be eligible to participate." Ms. Williams cited "new information we have obtained over the past few weeks."

A second agency, Carat USA, part of the Aegis Group, which was selected along with Draft FCB, to handle the media part of the account will be eligible to take part in the second review, Ms. Williams said.

Wal-Mart‚s announcement was a crushing blow to Draft FCB, part of the Interpublic Group of Companies, whose stock fell 6.4 percent, or 79 cents a share, to $11.54.

Executives at the agency had been ecstatic to land the Wal-Mart account, which they viewed as a ratification of a merger that married the traditional advertising experience of Foote Cone & Belding with the specialty services of Draft in areas like direct marketing and database management.

Draft FCB was in the early stages of hiring as many as 200 additional employees at its Chicago headquarters to handle the Wal-Mart account. Philippe Krakowsky, an executive vice president at Interpublic, said, „We were disappointed to hear of Wal-Mart‚s decision.

Louise Story contributed reporting.

Wal-Mart Dismisses Ad Agency That It Had Just Hired
By Suzanne Vranica and Gary McWilliams
December 8, 2006

Two days after removing two senior marketing executives, Wal-Mart Stores Inc. dismissed the lead advertising agency the executives had helped pick little more than a month ago.

The company dismissed Interpublic Group's Draft FCB and announced it was reopening the recently completed search for an agency for its $580 million account. The move is a new blow to New York-based Interpublic, which is trying to bounce back from an accounting scandal and major client defections.

Earlier this week, Wal-Mart ousted Julie Roehm, its senior vice president of marketing communications, who had led the agency search, and Sean Womack, vice president of communications architecture. Ms. Roehm oversaw the review of the advertising account. She was also in the midst of choosing an agency for Wal-Mart's multicultural ads at the time of her departure. In a telephone interview earlier this week, she declined comment on whether her departure was a dismissal, saying, "It's time to tackle my next challenge."

People familiar with the situation say that during the review, Ms. Roehm attended an expensive dinner at Nobu, a swank Manhattan eatery, that was thrown by Draft FCB for a group of new business consultants. The move may have violated Wal-Mart's strict corporate policy of not accepting gifts from vendors, those people say. Under the longtime policy, designed to keep suppliers from buying business at the world's largest retailer, Wal-Mart employees aren't allowed to accept even the smallest gratuities.

Ms. Roehm confirmed that at Draft's behest, she had spoken about the selection process to a group of consultants at Draft's New York office, and later attended an event at Nobu that Draft held for the same group. However, she said, her attendance wasn't a violation of Wal-Mart's policy. "As far as I know, there was not a dinner party . . . just hors d'oeuvres. We attended a short period of time and left." She also said it was unclear to her why Wal-Mart dropped Draft.

The agency's dismissal "is a result of new information we have obtained over the past few weeks," Mona Williams, a Wal-Mart spokeswoman, said. "Because of work done during the original selection process, this new review should move quickly," she added. "We are open to including another Interpublic agency in the process. We expect the new agency to be on board by the end of January."

Ms. Williams declined to discuss the "new information." In response to questions about whether it involved perks inappropriately accepted by Ms. Roehm, she said: "Our policy is that our associates cannot accept anything from suppliers, not even a cup of coffee. I'm not saying if it's related to this or not."

Wal-Mart, which has struggled this year with weak same-store sales, hired Draft as part of an effort to trade its mass-market approach for customized appeals to suburbanites, ethnic groups and city dwellers. It had viewed Draft as best able to help it identify and reach such customers.

This year, its push to add more-fashionable merchandise hasn't lured upscale suburbanites, and it may have alienated Wal-Mart's traditional price-conscious shoppers. The retailer revived its price-rollback campaign this fall as sales at stores open at least a year fell below expectations. Wal-Mart had put the campaign on ice earlier this year in favor of ads marketing its higher-margin fashions, home decor and electronics products.

"We're very disappointed by Wal-Mart's decision," said a spokesman for Draft, which referred questions to Wal-Mart.

Some agency executives said they were stunned by the move and unsure whether Wal-Mart intends to reconsider only the three finalists beyond Draft or broadly reopen what had been a five-month search. The dismissal of Draft will have no immediate impact on Wal-Mart's current advertising. The contract was to begin early next year.

The other finalists include Omnicom Group's GSD&M, Austin, Texas; Interpublic's Martin Agency, Richmond, Va.; and WPP Group's Ogilvy & Mather, New York. Aegis Group's Carat was named media buyer at the conclusion of the review. Carat has been invited to reapply for the business, and a spokeswoman for the firm said it will participate in the new review.

People familiar with the situation said that Wal-Mart and Draft had never formally signed a contract, although the hiring was disclosed in late October.

"It definitely changes the landscape," said Rusty Scholtes, executive vice president at independent Bernstein-Rein Advertising Inc., Wal-Mart's longtime agency. Bernstein-Rein is now handling Wal-Mart's holiday "Be Bright" campaign under a contract that expires in January. GSD&M, its other current agency, is also under contract through next month.

Landing the Wal-Mart account was seen as validating Interpublic's move in June to merge its Draft Worldwide, a direct-marketing firm specializing in consumer behavior, with Foot Cone & Belding, a traditional advertising and creative unit. In the past, the ad holding company has been unsuccessful at such combinations. In 4 p.m. composite trading on the New York Stock Exchange, Interpublic's shares were off 6.4%, or 79 cents, at $11.54.

Draft had been viewed as an early favorite because its direct-marketing heritage lent itself to determining returns on each direct-response ad via a 1-800 number or Web address. Ms. Roehm, a former DaimlerChrysler advertising executive, was adamant about consolidating the work under a single lead creative agency, a person familiar with the situation said.

---- James Covert contributed to this article.

Former Focus Media Execs Get Jail Time
By Becky Ebenkamp/Brandweek - AdWeek
December 07, 2006

LOS ANGELES Tom Rubin, the former chairman and CEO of Focus Media, was sentenced Wednesday to five-and-a-half years in federal prison for stealing up to $40 million from Sears and Universal Studios' ad accounts.

Co-defendants Thomas Sullivan, Focus CFO, and Geoffrey Mousseau, an attorney, were sentenced to three-and-a-half years and 21 months in prison, respectively. U.S. District Court Judge Gary Feess said he would order the defendants to pay restitution to the victims, which include Sears and Universal, and scheduled another hearing for Jan. 29, 2007, to determine the specific amount.

"The victims sought to get satisfaction for the wrongs they suffered from the defendants for many years," said Ranee Katzenstein, who prosecuted the case with fellow federal prosecutor Paul Stern. "As the judge said, the defendants used the court systems to further their wrongs. Finally, I trust, justice has been done."

The sentencing all but concludes a legal battle that commenced in September 2004.

In the four-hour hearing that concluded around 7 p.m., Feess appeared unmoved by flowery testimony that painted Rubin as a devoted father, son, friend, pillar of the community and, oddly, helpless alcoholic. The courtroom was packed with 50-plus observers.

The government's written submission to the court characterized Rubin's narrative about himself as "calibrated to achieve a positive and empathetic effect on the court, perhaps not unlike that of a well-orchestrated advertising campaign."

While Feess went to great lengths to justify why he determined a sentence that was lighter than the recommendation, he characterized Rubin as "the goose who laid the golden egg," a person with "disrespect for the law and the legal process" who was driven by "substantial greed."

Rubin was convicted of 25 felony counts including conspiracy, bankruptcy fraud and money laundering earlier this year.

In Rubin's final statement, he said: "I am the most responsible person for the events that transpired." He blamed "personal chaos" in his life "more than greed," though he acknowledged that it might sound "implausible" given the amount of money involved.

The Focus Media executives were convicted of taking money from its advertising clients in 1999 that was intended to pay media outlets such as ABC and NBC, and using it for private purposes, such as taking bonuses and paying taxes.

According to the attorney's office, Rubin and Sullivan continued to misappropriate funds to pay themselves, lawyers and Focus Media employees even after Sears and Universal obtained court orders in early 2000 prohibiting them from doing so.

During the course of the yearlong scheme, Focus received more than $50 million from clients, and less than $10 million was paid to media outlets. ˜with Gregory Solman

Lands' End is branching out
By Judy Newman – Wisconsin State Journal
December 7, 2006

DODGEVILLE - Looking for a pearl necklace for your sweetheart? A handcrafted corkscrew to give your wine-loving friends? How about an iPod- wired beanbag chair for your teenager to lounge in? And maybe a light-up jacket to keep your pooch warm on cold winter walks?

No need to surf the Web to find them.

These are some of the gift items sparking this year's holiday offerings from Dodgeville retailer Lands' End.

Yes, you can order a $250 Lands' End Lionel train or a $2,100 Panasonic plasma TV - courtesy of Sears - and even read Santa's blog, from the same place you buy your goose down jacket and cotton turtleneck sweater.

Strange? Lands' End president David McCreight doesn't think so.

"It's a way to make Lands' End a one-stop shopping experience," McCreight said.

Less than two years after Kmart bought Sears, Roebuck & Co. - Lands' End's parent since 2002 - the company known for its "preppy casual" apparel and bed linens has branched out, with new lines of baby clothes and women's lingerie, investments in specialized equipment, and a Christmas catalog that could be the Midwest's answer to Texas' grandiose Neiman Marcus wish book.

One retail analyst thinks the array of gifts is a big gamble; another praises the move, saying business has to keep changing in order to survive.

"I think it probably reflects some rather incompetent meddling on the part of
Sears," said George Rosenbaum, chairman of the Chicago market research firm, Leo
J. Shapiro & Associates. "To attempt to extend the Lands' End brand name to toys
and plasma TV, I think, is very risky, in terms of degrading its value as an
apparel brand."

But Howard Davidowitz, chairman of the Davidowitz & Associates retail consultant
and investment banking firm in New York, said expanding into new areas is
critical for businesses.

"Lands' End is a great brand, but nothing is forever. Any brand has to continually move to the next level," Davidowitz said.

Spreading the company's wings comes from "talking to customers, trying to surprise and delight them," McCreight said, in his first interview with the Wisconsin State Journal since he was named to head Lands' End a year and a half ago.

It also represents a significant investment by Sears Holdings, formed from the Sears- Kmart alliance in March 2005.

Even as speculation has swirled that Lands' End would be spun off and sold, the company has now opened 100 Lands' End shops within Sears stores, featuring some of the most popular Lands' End merchandise and a computer kiosk for online ordering. The other 700-plus Sears stores still have a smattering of Lands' End products mixed in among Sears displays.

At Lands' End's Dodgeville headquarters, monogramming has expanded, with investments in new technology and equipment. The company also devised a sophisticated warehouse sorting system - and had it patented and installed earlier this year. McCreight wouldn't disclose costs.

Monograms are part of Lands' End's strong emphasis on customizing purchases, not only with initials or names, but now, by embroidering or screen printing children's
artwork onto tote bags.

"We're trying to bring the customer even closer to the company," through personalized service, speedy shipping and innovative products, McCreight said.

The additions also seem to illustrate that fabled billionaire investor Eddie Lampert, 44, - Sears Holdings' chairman and Kmart rescuer - puts his trust in McCreight, 43, as head of the 43-year-old Lands' End.

"It's an honor and a privilege," McCreight said, "to work with a storied company, with a storied culture."

Born in South Carolina, McCreight had been executive vice president of marketing for Lands' End and moved into the president's chair - on an interim basis at first - when Mindy Meads abruptly departed the company in August 2005. (Meads became chief executive officer of Victoria's Secret Direct in August 2006.)

McCreight had been president of Smith & Hawken, an upscale home and garden retailer, and then spent two years as an executive of Disney Stores Worldwide before coming to Lands' End in 2003.

His management team includes four senior vice presidents. Gerard Cunningham, also chief marketing officer, was recruited from the Gap, and Susan Healy, chief financial officer, is a recent arrival from the Goldman Sachs investment firm. Long-term Lands' End executives Lisa Fitzgerald and Kelly Ritchie round out the team, with Fitzgerald heading merchandising and design and Ritchie in charge of customer and employee services.

McCreight reports directly to Lampert, who is "a big supporter of the brand (and believes) in its potential," McCreight said.

"There's been a wonderful partnership during my time in office," he said. "There's tremendous support for the brand to continue to grow and prosper."

Sears Holdings has said little about Lands' End revenues since becoming part of Lampert's domain. McCreight deferred financial questions to Sears headquarters in Hoffman Estates, Ill., where spokesman Chris Brathwaite declined to comment.

Perhaps the most recent hint comes from a Sears annual report, filed with federal regulators in February 2005. It said Lands' End sales made up $1.6 billion of Sears' $1.8 billion in "direct to customer" revenues in 2003.

In 2004, though, "direct to customer" revenues dropped 7.9 percent, primarily
because of decreased Lands' End sales and because the 2003 fiscal year had 53
weeks, instead of the usual 52.

"We're pleased with the progress," McCreight said. "We believe Lands' End is foundational for Sears Holdings, one of its distinctive brands, and we don't see that changing in the near future."

Only one Kmart store - in the tony Hamptons on Long Island - sells Lands' End items.

Lands' End beachwear was sold in a "pop-up tent" at the Bridgehampton, N.Y., Kmart during the summer, and outerwear was sold there this fall, Lands' End spokeswoman Michele Casper said.

"It's a great fit with our customers," she said.

For McCreight, the job has not just been to build the Lands' End brand. He also has had to
repair the morale of employees stunned by the closing of the Cross Plains call center and elimination of 375 jobs, ordered by Meads, his predecessor. Most of the cuts affected Cross Plains and Dodgeville, with a smaller number at Reedsburg and Stevens Point.

A year and a half later, the Cross Plains building remains vacant, village officials said.

Today, Lands' End has 7,000 employees in Wisconsin - including more than 2,500
seasonal workers - and 2,000 others worldwide, with divisions in Britain, Germany and Japan.

Lands' End shops in Sears stores are staffed by Sears employees, who are trained by Lands' End, Casper said.

McCreight is so focused on building bridges to the company's customers - a concept that, he said, already is part of Lands' End's DNA - that he has moved the desks of several customer service representatives so they sit just outside his office. He listens in on some phone calls and talks to customers frequently, he said.

"If you listen to your customers and have your customers' best interests at heart, you're bound to be successful," he said. "I plan to not only maintain that focus but further it."

The new line of women's underwear, for example, branches from Lands' End's popular swimwear. "Customers were saying, 'you fit me so well in (swimsuits), would you help me in intimate (apparel)?' " McCreight said.

Despite problems that Sears continues to face - same-store sales for Sears stores were down 6.5 percent for the first nine months of 2006, compared to the same period a year ago - the company's stock is soaring, with Thursday's close at $174.25 a share.

Analyst Rosenbaum said that's mainly due to Lampert.

"He has a magical aura that anything he touches will make money," Rosenbaum said, "and a lot of people want to bet on him."

Rosenbaum said he thinks Sears will do "relatively well" this year in apparel sales, due in part to Lands' End. "That doesn't mean they've solved their apparel problem or the integration of Lands' End into Sears, which has never really taken off," he added.

Analyst Davidowitz - who had been predicting that Sears would sell Lands' End - now says he is impressed with the Lands' End shops within Sears and the company's diversification.

"This is a serious effort to market Lands' End. It should have been done from the first second," Davidowitz said.

"Lands' End was dead in the water - that's why I thought it was guaranteed to be spun off. I think now there's an attempt to breathe life into the brand," he said.

Lands' End at a glance Dodgeville, since 1979

Headquarters:
Employees: 4,500 year-round and 2,500 seasonal in Wisconsin; 2,000 at other locations worldwide.
Founded: 1963 in Chicago by Gary Comer, who died in October at age 78. A memorial being developed will benefit a Chicago youth center. Parent company: Sears Holdings, Hoffman Estates, Ill.
Products: Casual apparel, linens and accessories for the home, gift items.
Revenues: Undisclosed.

Once Unloved, Medicare's Prescription-Drug Program Defies Critics, but Issues Remain
By David Wessel – Wall Street Journal
December 7, 2006

The Medicare prescription-drug benefit, the biggest expansion of a social program since the Great Society of the 1960s, was panned by critics when it was in previews. Now, after a year's run, the elderly audience seems to be applauding, public and private actors are clicking better in the very complex production, and costs are below initial estimates.

Although the program's launch was marred by bureaucratic glitches, befuddled senior citizens, frustrated pharmacists and physicians, and experts asserting it should have been set up differently, critics' worst fears haven't materialized. That fact is often overshadowed by continuing partisan bickering over the program's design and by persistent public suspicion of drug makers, insurers and pharmaceutical-benefit managers.

Critics said the program, which subsidizes private drug-insurance plans that compete to sell coverage to Medicare's million beneficiaries one by one, would flop because too few insurers would offer policies. Most beneficiaries ended up with more than 40 options. The current complaint is that there are too many choices.

Critics said the program's initial unpopularity proved it was a mistake. It certainly didn't deliver the political boost to Republicans that they had hoped for. But it hasn't been the public-relations disaster that some Democrats suggested.

Now that many seniors are saving money on drugs, instead of struggling to pick a plan, polls have turned favorable. A survey of 3,400 beneficiaries by J.D. Power & Associates found 45% "delighted" with the program, rating their Medicare drug plans 10 on a 10-point scale; another 35% rated them an 8 or 9.

A Kaiser Family Foundation survey found that 80% of seniors enrolled pronounced themselves "satisfied" with their plan, though about one in five reported having "a major problem," most often encountering unexpected costs or having to switch medications from a drug that wasn't covered.

Critics carped about the shortcomings of the twisted, complicated design of the standard benefit, the result of a political compromise aimed at keeping down the cost. Because private insurers aren't required to offer the standard plan, fewer than 20% of enrollees are covered by that standard package.

Still, to the consternation of Democrats and many seniors, most beneficiaries are stuck with the much-derided "doughnut hole," a gap in coverage that requires seniors who avoid catastrophic illness to pay their entire drug tab themselves once they spend $2,250 out of pocket.

Critics said a lot of seniors simply wouldn't sign up, a vexing problem for any voluntary insurance program. Back in 2002, 45% of Medicare beneficiaries lacked prescription-drug coverage for all (18%) or some (27%) of the year. Now, more than 90% of Medicare beneficiaries have drug coverage. In all, 22.5 million people are enrolled in what is known as Medicare Part D, including 6.1 million people on the Medicaid health-insurance program for the poor who were assigned -- with some highly publicized glitches -- to insurance plans by the government if they didn't choose one. Another 16 million have Veterans Administration or employer-provided coverage, often subsidized by the government.

Still, more than one in 10 of Medicare's 43 millions beneficiaries have failed to sign up for drug coverage, including more than three million seniors whose incomes are so low that they would have to pay little or nothing for it. "Everyone agrees that's a big concern," says Mark McClellan, who recently stepped down as Medicare's administrator.

An enthusiastic defender of Medicare Part D, Dr. McClellan says the past year demonstrates consumers "can be a powerful force in health care as they are in the rest of the economy, but they do need support." The government, he cautions, cannot skimp on telephone operators, easy-to-use software and the like if it wants patients to be more involved in managing their own care, as it says it does.

Critics said the drug plans would offer enticingly low premiums the first year, and jack them up the second year. Premiums for many are going to rise in 2007 -- but not sharply. An analysis by Georgetown University's Health Policy Institute of 10 plans that have enrolled nearly 70% of Part D beneficiaries estimated that average premiums in 2007 will be $3.10 a month higher (12%) for those who stick with the same plan.

Critics said the complexity of matching tens of millions of elderly Americans with private-insurance plans would overwhelm the government's bureaucracy, and it has proved to be challenging. More problems are likely to surface on Jan. 1 for seniors who switch plans. Robert Reischauer, director of the Urban Institute think tank, says, "For a highly complex new program, the government and the prescription-drug plans did a remarkable job of implementation. Did it work perfectly? No. Were there little inequities here and there? Yes. But they did an immense amount to make this program work."

Critics said the program would be expensive, so expensive that the Bush administration hid internal estimates before Congress voted, and that it would be a heavy burden on the federal budget for decades to come. It will be. The latest official price tag is $729.1 billion over 10 years, and Congress and the Bush administration didn't offset that with spending cuts or tax increases.

Partly because fewer seniors enrolled than Medicare actuaries projected, Part D will cost taxpayers about $30 billion this year, below the $43 billion originally estimated. Dr. McClellan predicts the official $48 billion estimate for 2007 will be marked down. That isn't only because enrollment is below projections but because prescription-drug plans are pressuring drug makers to hold the line on prices and prodding consumers to use cheaper generic drugs or brand-name drugs for which plans have negotiated discounts.

Democrats argue the program could be even cheaper if the government, rather than private insurance plans, used its clout to negotiate with drug makers. They have vowed to change the law to allow that soon after they take control of Congress next year. They talk about using the hoped-for saving to sweeten the benefit, perhaps eliminate the infamous doughnut hole.

They may have trouble delivering: The official congressional scorekeepers aren't persuaded that the government would actually save money if Congress repeals a provision that bans the Department of Health and Human Services from interfering in price negotiations between drug plans and drug makers. Unless Democrats can take credit for saving money, it will be hard to make the benefit more generous.

Wal-Mart Drops New Ad Agency
Associated Press – Wall Street Journal Online
December 7, 2006

NEW YORK -- Wal-Mart Stores Inc. has dropped its newly hired ad agency Interpublic Group's Draft FCB, following the departure of a top marketing executive that helped lead Wal-Mart's switch to the new agency.

Wal-Mart's spokeswoman Mona Williams said that the decision was "the result of new information that we have obtained over the past few weeks." She declined to discuss further the new information. She added that Wal-Mart notified DraftFCB Thursday morning and is reopening the bid process for its advertising account, which is worth more than $500 million.

The news, first reported on Adage.com Thursday, followed Wal-Mart's announcement earlier this week that Julie Roehm, senior vice president of marketing communications, had left the company after less than a year on the job. Another marketing executive, Sean Womack, vice president of communications architecture, left at the same time. Mr. Womack was hired this spring and reported to Ms. Roehm.

Ms. Roehm was hired in January and reported to Wal-Mart's head of marketing, former Target Corp. executive John Fleming. Under Ms. Roehm, Wal-Mart invited bids from a number of ad agencies on how to better market the image of being both a trend purveyor and a low-price operator.

In the end, Wal-Mart severed ties with its two long-time agencies, Omnicom Group Inc.'s GSD&M in Austin, Texas, and Bernstein-Rein Advertising Inc., based in Kansas City, Mo. Both ad agencies are ending their services in January. Wal-Mart named DraftFCB as its advertising agency and Aegis Group's Carat as its media buying agency in late October.

Ms. Williams said that DraftFCB will not be eligible for the new review, but that Carat will be eligible to participate. She said the review process should "move quickly" and she expects the new ad agency to come on board by the end of January.

Montgomery Ward Comes Back, Sans Stores
By Dave Carpenter – Associated Press
December 7, 2006

There is life after death - at least in retail.

Five years after Montgomery Ward went out of business, its brand name has been revived on the Internet and there's even a 21st-century version of the Wards holiday catalog that was standard fare in American households for decades at this time of year.

Without stores, this Wards is a bit different from the chain that thrived for over a century until liquidating in 2001 after Wal-Mart and other discounters and department stores left it badly out of fashion.

But Direct Marketing Services Inc., the catalog marketer that acquired the Wards name out of bankruptcy in 2004, insists it is faithfully carrying on a legacy that dates to 1872 when Aaron Montgomery Ward established the first mail-order business.

Many of Montgomery Ward's old vendors and products and several former employees are part of the new Wards, which sells 46,000 items online ranging from rugs to recliners and home electronics to Rudolph the Red-Nosed Reindeer yard art. And David Milgrom, the private firm's president and founder, notes that the cataloger shares Wards' Chicago roots and retail industry experience.

"As a retailing pioneer, Mr. Ward would be pleased to know that the tradition of excellence which he began continues in an exciting new way with Wards.com," the Wards Web site proclaims.

Still, it's the famous brand name that the direct marketer is counting on most to draw shoppers. In the fierce competition among retailers, industry experts say a trusted brand - even a heretofore dead one - can be half the battle.

"People are always open to believing that however wayward one got, even for a retailer, given proper management you can go back on the right track," said George Rosenbaum, chairman of Leo J. Shapiro and Associates, a Chicago-based retail consulting firm. "Wards was a good enough name, so there's probably a good amount of hope or willingness to believe that they've come back."

Sue Montoya, a longtime Wards devotee who was "devastated" when her favorite chain shut down, says she was thrilled to get a catalog from the resurrected business this year. She promptly placed an order.

"I am sure that if my dear mother was still alive today she would be just as excited, as she is the one who introduced me to the Wards tradition," the 56-year-old Montoya said from her home in Denver.

Wards isn't the only moribund brand to get rehabilitated under new ownership.

FAO Schwarz toy stores, another century-old retailer that landed in bankruptcy after failing to keep up with the likes of Wal-Mart and Target Stores Inc., reopened on New York's Fifth Avenue and in Las Vegas in 2004 after the failing company's remnants were bought for $41 million by D.E. Shaw Laminar Portfolios.

Pepsodent toothpaste, once the No. 1 U.S. toothpaste before fading into oblivion, was purchased by Church & Dwight Co. in 2003 from Unilever and now is a value brand sold in discount stores.

White Stag, a leading maker of ski clothing and sportswear dating to the 1930s and '40s, is now an in-house brand at Wal-Mart Stores Inc. after being bought from Warnaco Group Inc. in 2003.

Not everyone is taken with the brand-revival practice.

Sid Doolittle, a retired retail consultant who worked at Montgomery Ward for 29 years and was president of its catalog division, contends that bringing back the Wards name deceives customers who may not realize it's not the same company they knew.

"It's an old familiar name and there is a halo around the name with some people," he said. "This isn't the old reliable company at all, it's a company leveraging the name."

Milgrom takes exception to that characterization, noting that retailers change owners all the time. He says his company adheres to the Montgomery Ward practice of offering affordable merchandise that's not readily available in retail stores with home delivery, a credit option and a customer satisfaction guarantee.

"We take great pride in offering a wide variety of quality products just like the original Wards did," he said in an interview at the company's two-story offices. "We are in the same lines of business as the original Wards, with many of the same suppliers. The overwhelming majority of customer responses are that they are so happy to see Wards back."

The 48-year-old Milgrom has built a $160 million-a-year company through a strategy of acquiring older, established domain and catalog names. A former lighting products supplier to Sears, Roebuck and Co.'s home furnishings catalog, he licensed the right to use Sears' name on catalogs after founding the firm in 1993 and now mails several Sears specialty titles, gifts book Charles Keath, its core HomeVisions catalog and Wards.

The native Chicagoan outbid several others to acquire the Montgomery Ward name for an undisclosed sum in June 2004, sensing that the historic brand would resonate with middle-income consumers over 40.

"To build a brand today is so expensive. There's only so many Wal-Marts and Amazons out there," he said. "We just picked up where they (Wards) left off."

Within three months, Direct Marketing Services had revived the Web site and begun publishing a slimmed-down version of the catalog that vanished 12 years earlier, culminating in the reappearance of a 150-page holiday book last month.

"The Montgomery Ward name certainly has a lot of brand equity so it makes sense for them to make a serious attempt again, more of a traditional direct marketing approach," said George Hague, senior marketing strategist at J. Schmid & Assoc. Inc., a catalog consulting company in Mission, Kan. "They're able to focus and highlight their best-selling merchandise and use the best industry practices of cataloging to drive traffic to their Web site."

Direct Marketing Services, which has 50 employees in Chicago, still derives the largest portion of its revenue from Sears catalogs. But Milgrom says Wards sales, boasted by nearly 20 million catalog mailings have more than doubled this year to become "a very significant piece of our business." He declined to give dollar figures.

The new Wards' strategy gets a thumbs-up from experts so far. Hague said the Web site has "a nice feel to it" and "a nice brand presence."

Despite all the catalog mailings, the comeback has been quiet and consumers may be surprised to trip over the familiar name from the past during a Web search for home furnishings or bedding.

But Wards' presence is growing. A Montgomery Ward Kids site debuted in June, a Spanish-language version is coming, and the company will soon expand into clothing and shoes.

Explaining the gradual buildup, Milgrom said: "We're rebuilding the brand and we want to do it right."

Sears' flagship store to house Web center
Online development office may employ 100
By Sandra Jones - staff reporter – Chicago Tribune
December 7, 2006

Sears Holdings Corp. plans to turn the fourth floor of its State Street flagship store into a Web development center aimed at invigorating the retailer's online business.

The Loop center is scheduled to open in March and employ up to 100 workers, including software developers, project managers and technical architects. The center will quadruple the number of workers dedicated to Sears' e-commerce site.

The Hoffman Estates-based retailer hopes that by setting up a Silicon Valley-style office in the heart of downtown Chicago, it will attract a new generation of high-tech, creative, urban talent that would otherwise avoid the long trek to the northwest suburbs.

Sears joins the likes of other old-line companies, including Motorola Inc., Wm. Wrigley Jr. Co. and PepsiCo Inc., that have recently established innovation centers in the city in an attempt to keep on the cutting edge of their industries.

"We want to create this high-tech, high-energy, innovative, open-space environment," said Rob Mills, vice president of technology at Sears. "We're trying to create an environment to drive innovation and creativity."

The initiative comes as Sears wrestles with what to do with the giant flagship.

The store, at 2 N. State St., opened with great fanfare in 2001, with the help of $13.5 million in city subsidies, but has failed to live up to expectations.

The store lost money in 2004 and 2005 and generated about half the sales volume that Sears executives initially forecast, according to reports the retailer is required to file with the city as part of a Tax Increment Financing agreement. As of April, the store was still unprofitable.

Under the terms of the TIF, which expires in 2011, Sears is required to employ the full-time equivalent of at least 125 workers and operate in 150,000 square feet of the approximately 240,000-square-foot store. Sears' 2006 report to the city is due by the end of the year.

The Web center will take over space on the fourth floor currently used for storage and training. But it raises the prospect of Sears eventually expanding the office space and scaling back the selling space of the store, which currently takes up three floors above ground and a basement.

Sears Chairman Edward Lampert has said he expects each Sears store to make money, leaving some to wonder if he would eventually close the State Street store or look for a way out of the 20-year lease. Sears spokesman Chris Brathwaite declined to comment on the store's future.

Flagship stores struggling

Setting up office spaces is a strategy that other flagships have pursued in recent years as the big showcase stores become more expensive to operate.

Carson Pirie Scott & Co. converted part of its State Street flagship into offices years ago and earlier this year decided to shutter the flagship completely next spring, saying it was too expensive to operate.

Macy's on State Street, formerly Marshall Field's, plans to convert some of its unused upper floor space into a designer incubator. And Lord & Taylor is considering scaling back its Fifth Avenue flagship in New York.

"I don't see a future for flagship stores," said Homer Johnson, professor of management at Loyola University Chicago's School of Business Administration. "They are costly, take up too much space and can't attract numbers of shoppers. Aside from the Christmas display windows, there's not much unique about a flagship store."

As for Sears' renewed focus on the Web, it comes as traditional department stores and big-box discount chains are turning up the heat on their own Web operations. Lampert took direct control of Sears' online business last year, a signal that he is eager to see it grow.

Sears was one of the first traditional retailers to set up an online shopping site in 1999, initially selling just appliances, but has fallen behind rivals such as Wal-Mart Stores Inc., Target Corp., Best Buy and J.C. Penney in attracting visitors.

Wal-Mart and Target rank as the two largest shopping Web sites operated by brick-and-mortar retailers and the fourth- and fifth-largest online retailers overall, based on the number of unique visitors in October, according to Chicago-based ComScore Networks.

Wal-Mart's audience rose almost 15 percent from the year-ago October, to 27.1 million unique visitors, while Target's audience climbed 11 percent, to 24.3 million, according to ComScore.

Slower growth at Sears

Sears' audience, on the other hand, rose 4 percent, to 8.9 million unique visitors, a slower growth rate than the online retail industry average of 7 percent. It ranks seventh among brick-and-mortar retailers--behind J.C. Penney, Best Buy and Federated Department Stores Inc.--and ranks 23rd overall.

Sears touted a new Web service this holiday season that allows shoppers to order online and pick up their purchase in store in five minutes. It is running TV ads showing a harried mother pulling up to Sears in her station wagon, getting her packages and returning home with a fussy baby in the back seat.

Wal-Mart redesigned its Web site last month, offering Web exclusives and testing ways to drive traffic to Wal-Mart stores. The Bentonville, Ark.-based retailer houses its Web operation in Brisbane, Calif.

Behind the Scenes, PR Firm Remakes Wal-Mart's Image
Political Veterans at Edelman Tackle Woes of 'Candidate'
By Kris Hudson – Wall Street Journal
December 7, 2006

Over the last year, Lee Scott has appeared on the Rev. Al Sharpton's radio show, talked about pro-environment policies and given speeches that repeatedly state his organization's devotion to "working families."

If Mr. Scott, the chief executive of Wal-Mart Stores Inc., seems like he's running for office, it's no accident. For the last 15 months, the Edelman public-relations firm, led by seasoned political operatives, has been directing a campaign it calls "Candidate Wal-Mart." The goal: Rescue the battered image of the world's largest retailer.

Edelman's bipartisan team has been behind the curtain during Wal-Mart's most visible recent initiatives -- and some of its public stumbles. When Wal-Mart decided to sell an array of generic drugs for $4 a prescription, Edelman orchestrated a 49-state rollout, lining up local dignitaries in 79 places for publicity events. The PR giant also organized a grass-roots group called Working Families for Wal-Mart. But it had to scramble when the leader it helped recruit, Andrew Young, made derogatory comments about ethnic shopkeepers and was forced to resign.

Wal-Mart badly needs a boost. Its sales growth has waned in recent years and an effort to reach out to higher-earning shoppers has sputtered, partly because of the company's beleaguered image. Sales at stores open more than a year fell 0.1% in the four weeks ending Nov. 24 -- only the second monthly drop in 27 years. This year Wal-Mart scaled back expansion plans amid pressure from investors and political opposition in New York, Massachusetts, California and elsewhere.

As Edelman and Wal-Mart see it, image is crucial for drawing customers, smoothing the way for new stores in urban areas and beating back legislation that would raise costs. "This is not a public-relations campaign," says Michael Deaver, a former chief of staff for President Reagan who is now helping to oversee the Wal-Mart account as an Edelman vice chairman. "It's a win-or-lose campaign. And if you've been involved in a presidential campaign, that's the way you look at things."

Leslie Dach, a former adviser to Democratic politicians, led the campaign's first year as an Edelman vice chairman. Now Mr. Dach is a Wal-Marter in full: In July, the retailer hired him as an executive vice president for communications and government relations, reporting directly to Mr. Scott, the CEO.

For years Wal-Mart did little to promote itself as a positive social force, believing its low prices would speak for themselves. But as it mushroomed to become one of the world's biggest companies -- with 6,700 stores and $312 billion in sales last year -- it increasingly felt the sting of public criticism and pressure to fight back.

The pressure grew last year when unions started two organizations to hammer Wal-Mart: the Service Employees International Union's Wal-Mart Watch and WakeUpWalMart.com, funded by the United Food and Commercial Workers union. At Wal-Mart's annual meeting on June 3, 2005, Mr. Scott said: "Your company is the focus of one of the most well-organized and well-financed corporate campaigns in history...A coalition of unions and others are spending over $25 million this year alone to try to do damage to this company."

A few weeks later, on June 28, two dozen Wal-Mart executives sat behind tables at a community-college conference center in Bentonville, Ark., Wal-Mart's hometown. They heard pitches from three PR firms chosen as finalists -- Edelman, APCO Worldwide and DCI Group.

War Room of Publicists

In their "Candidate Wal-Mart" pitch, Messrs. Dach and Deaver of Edelman described a campaign with all the trappings of a U.S. presidential bid. A war room of publicists would respond quickly to attacks or adverse news. Operatives would be assigned to drum up popular support for Wal-Mart via Internet blogs and grass-roots initiatives. Skeptical outside groups, such as environmentalists, would be recruited to team up with Wal-Mart. Edelman won and quickly put its plan into practice, with three dozen staffers working on the account in Washington, D.C., and Bentonville.

Wal-Mart had been mulling the $4-per-prescription program before Edelman's arrival, but the firm saw it as a chance to promote Wal-Mart as a catalyst for health-care change. In late September, Wal-Mart executives gathered with Florida officials, including Gov. Jeb Bush, to announce the program's introduction in the Tampa area. That generated national coverage, despite Wal-Mart's initial statements that it wouldn't expand the program beyond Tampa until 2007. Then the company rolled it out in rapid-fire succession to 48 other states, declaring that the low-cost pills were so popular it didn't want to keep people waiting.

The acceleration of the program earned new national coverage, but even more important were local news outlets. The 79 news conferences arranged by Edelman across the country helped the effort win notices from The Dallas Morning News, Vermont's Burlington Free Press and others.

Privately held Edelman is the largest U.S. public relations firm with 2005 revenue of $254 million and clients such as Microsoft Corp. and Pfizer Inc. (Dow Jones & Co., publisher of The Wall Street Journal, has also been a client.) Both Wal-Mart and Edelman decline to disclose Edelman's fee, but outside estimates put it in the millions of dollars annually.

Mr. Dach, a slightly built 52-year-old, was born and raised in the New York City borough of Queens, son of a homemaker and a small-business owner in Manhattan's garment district. He studied neurobiology at Yale but quickly was drawn to politics, working on the advance teams of Sen. Edward Kennedy and President Carter during their 1980 presidential bids.

He went on to play prominent advisory roles for Democrats in five of the next six presidential campaigns. He prepared Al Gore for debates in 2000 and handled publicity for Democratic efforts in 2004 to keep Ralph Nader off the ballot in several states. In between campaigns, he spent 17 years at Edelman advising clients such as a Fujifilm Corp. division and the Nature Conservancy.

Mr. Dach believes his experience trouble-shooting for political candidates can be applied to the corporate world. "Every crisis is an opportunity," he said in a recent interview. "The American people understand imperfection. But what they want to see is a company taking responsibility and then moving forward."

Soon after getting hired by Wal-Mart, Edelman found an opening. In the wake of Hurricane Katrina, Wal-Mart rushed to reopen its stores and speed supplies to the storm-damaged areas. Edelman helped Wal-Mart get coverage for its efforts and spotlighted Jason Jackson, the retailer's emergency-planning director. Mr. Jackson gave interviews, spoke on a conference call with reporters and gave some a peek into his command center for tracking weather and routing supplies.

After the storm, evacuees and local officials proclaimed in the news that Wal-Mart had outhustled the federal government. Also, Wal-Mart quickly made a $15 million donation to the hurricane-relief fund organized by former Presidents Clinton and Bush. The two ex-presidents praised Wal-Mart's generosity.

Another early Edelman initiative was Working Families for Wal-Mart, the grass-roots organization. The idea was to allow Wal-Mart's defenders to strike back against critics without requiring the company's own PR staff to enter the fray. Wal-Mart provided the group's funding and Edelman staffed it.

Edelman executive Greg St. Claire played a leading role in recruiting Mr. Young, the former U.S. ambassador to the United Nations, as the group's chairman, according to people who spoke with Mr. St. Claire. They say Mr. St. Claire told colleagues how Mr. Young had praised Wal-Mart in public comments. Wal-Mart says its diversity department came up with the idea of bringing in Mr. Young. Mr. St. Claire declined to comment and Mr. Young's office didn't return phone messages.

Others recruited by Edelman for the group's 14-member steering committee include Wheelchair Foundation vice president Chris Lewis, the son of entertainer Jerry Lewis, and singer Pat Boone. In its first year, Working Families for Wal-Mart reports amassing 150,000 supporters and assembling steering committees of local dignitaries in six states.

Yet the Working Families group has produced some of Edelman's worst fumbles, too. Union-backed Wal-Mart Watch swooped in to claim the workingfamiliesforwalmart.com Web address, and posted statements there mocking the company-backed group as artificial. In August of this year, Mr. Young raised a stir when he told an African-American newspaper in California that Jewish, Korean and Arab shopkeepers overcharged inner-city African-Americans for stale food. He had been asked about Wal-Mart's impact on mom-and-pop businesses. Mr. Young apologized and resigned from Working Families for Wal-Mart.

Faux Pas

In October, bloggers and mainstream media criticized Working Families for Wal-Mart for not disclosing the full identities of two people -- one the sister of Edelman's Mr. St. Claire -- whom it enlisted to write a pro-company blog. The two drove an RV around the country and posted happy accounts of the Wal-Mart customers and employees they encountered. Edelman's chief executive, Richard Edelman, apologized on his own blog for the lack of disclosure.

The faux pas had union groups crowing. "Edelman stumbled badly on the Wal-Mart account, and the fake-blog episode is fast becoming a case study on the importance of PR transparency," said Wal-Mart Watch spokesman Nu Wexler.

In its pitch for the account, Edelman had warned Wal-Mart that Google results for a "Wal-Mart" search yielded mostly unflattering material, potentially overshadowing the company's own sites. Edelman sought to balance that equation by funneling positive information about Wal-Mart to bloggers. For example, news that 24,500 people applied for 325 jobs at a new Wal-Mart outside of Chicago made its way onto some blogs.

Edelman has also tried to help Wal-Mart gain some control over the issue of health care. In October 2005, Wal-Mart Watch distributed an internal Wal-Mart document detailing strategies for cutting health-benefit costs by discouraging unhealthy job applicants. In January, Maryland enacted a law targeting Wal-Mart that required large employers to spend certain amounts on health-care benefits for workers in the state. The law spurred similar bills prompted by labor groups in more than two dozen states.

Mr. Dach pushed Mr. Scott to discuss health in a February speech to the National Governors Association. "Everybody was telling Leslie, 'We can't do health care now. We don't want to talk about health care.' But Leslie just kept at it," says Mr. Deaver. Mr. Scott took Mr. Dach's advice, announcing in his Edelman-drafted speech that Wal-Mart would improve health benefits for its workers by such steps as loosening eligibility requirements for part-timers.

Company officials are heartened that none of the bills modeled on Maryland's law survived this year, although that may have more to do with a federal judge's decision in July to strike down the Maryland law because he said it encroached on federal authority.

In Mr. Scott's speech at this year's annual meeting, he used an Edelman-inspired line with political echoes: "This company is committed to working families." In all, Mr. Scott used the expression "working families" 10 times in that speech, which Edelman wrote, and 11 times in two other talks around the same time. Since Edelman's hiring, Wal-Mart has issued at least 44 press releases mentioning working families to describe its customers and employees.

Later in the summer, Edelman booked Mr. Scott in several unfamiliar forums, such as Mr. Sharpton's radio show, where the CEO fielded questions from listeners. In July, Mr. Dach arranged for former Vice President Al Gore to speak about environmental issues and screen his global-warming movie "An Inconvenient Truth" at a quarterly meeting of Wal-Mart employees and environmental groups. Mr. Gore's camp initially had concerns about Wal-Mart's sincerity on the issue, but Mr. Dach helped allay them. "Leslie brings some credibility and integrity," said Roy Neel, Mr. Gore's chief of staff.

This summer, Wal-Mart decided to bring Mr. Dach in-house. Mr. Dach was already so intimately involved in planning that he sometimes heard of key developments within Wal-Mart prior to the company's own senior PR staffers, according to people familiar with the situation. Yesterday, Robert McAdam, who has been a top Wal-Mart PR executive since 2000, told colleagues he is leaving the retailer. In an interview, Mr. McAdam said his departure has nothing to do with Mr. Dach's arrival.

In hiring Mr. Dach, Wal-Mart granted him stock then valued at $3 million and nearly 169,000 options. The retailer allows him to split his time between Bentonville and Washington, D.C., with Washington remaining his primary residence. He also gained oversight of the $1 billion Wal-Mart Foundation, a charitable group. "I'm convinced Wal-Mart is changing and the change is real," Mr. Dach wrote in an email to friends announcing the move.

Sears' results split analysts
By Sandra Guy – Business Reporter – Chicago Sun-Times
December 7, 2006

Sears Holdings Corp. gave new details Wednesday about its third-quarter sales results, prompting continued division among analysts about the company's future as a retailer.

Sears stores reported "pronounced" sales increases in women's clothing in the quarter ended Oct. 28, but not strong enough to offset declines in the first half of the fiscal year, according to a quarterly report Sears Holdings filed Wednesday.

The company conceded that its efforts to sell more cutting-edge fashion last year flopped, leading to "significant" sales declines during the first half of fiscal 2005.

Under new merchant Lisa Schultz, Sears has returned to fashion basics and placed Lands' End preppy apparel on display in high-profile shops inside Sears stores.

Sales fell across most other categories, including home decor and lawn and garden. Sales in the quarter dropped 4.8 percent, and at Kmart, sales dipped 0.7 percent from a year earlier.

At Kmart, sales improved in apparel and at pharmacies, but fell in food, home goods and general merchandise.

Rumors are circulating that Sears continues to experience sales declines during the holiday season from a year ago. A company spokesman declined to comment on the latest report, which claimed sales at Sears stores on Dec. 2 dropped 18 percent from year-ago levels.

Analyst Gary Balter of Credit Suisse noted that Sears' same-store sales numbers in the quarter were better than Lowe's and Home Depot, which suffer from weaker appliance and lawn-and-garden sales.

Sears Holdings' stock price also continues to reflect Wall Street analysts' belief that Chairman Edward S. Lampert will turn the company into an investment vehicle similar to Warren Buffett's Berkshire Hathaway.

The stock ended the day Wednesday up 17 cents, to $174.93. It has shot up nearly 50 percent this year on Wall Street analysts' hopes that Lampert, a billionaire hedge-fund owner, will eventually generate terrific returns on investments and perhaps real estate sales. The shares are trading at about 21 times next year's earnings because of the so-called Lampert premium.

One example: Sears reported a $101 million gain in the third quarter from investments in risky deals called total-return swaps.

Retail analysts sharply disagree with Wall Street analysts on Lampert's strategy. Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consulting and investment banking firm, has said of Sears Holdings, "You have a retail entity in collapse, led by a brilliant financier."

Ken Leonard, a Chicago retail real estate consultant, said he believes the value of Sears' real estate is being "tremendously overestimated," largely because Sears department stores operate under restrictions set by mall developers that limits how the property can be used.

"Sears isn't doing anything that a retailer must do to survive and prosper," Leonard said.

Sears Salutes The Spirit Of 'George Bailey'
By: Frank Diamond, Special To The Philadelphia Evening Bulletin
December 6, 2006

Driving out of Philadelphia along Roosevelt Boulevard toward my home in Bucks County, I am struck by the absence of something as I approach Adams Avenue. Even after all these years, I expect to see the Sears Tower looming like a sentry at the entranceway of the Northeast. It's not there, of course, and hasn't been since Oct. 30, 1994 - when it was demolished.

I get sentimental about vanished buildings only inasmuch as they remind me of people who've vanished from my life. Or a life that's vanished altogether. That tower once cast a long shadow. If you grew up in Olney, or Feltonville, or Oxford Circle, or Hill Creek, or Lawncrest, chances are that, at a certain point in your teenage years, you decided that you needed a job, and you just automatically started the hunt by pointing yourself toward the biggest thing on the horizon.

A lot of my friends worked at Sears, earning money for books and tuition and even more important things, like cars, or Saturday night dates. Me? I worked in the kitchen at Friend's Hospital, opposite Sears, right across the Boulevard. I'd take the bus there, either the "R" or the "J," and the clock on that tower told me that I'd be five minutes late. Again.

This was the 1970s, and there was no slice of Americana more ubiquitous than Sears. Except, of course, the movie "It's A Wonderful Life." The copyright for "It's A Wonderful Life" lapsed in 1973, which allowed television for years to play it almost continuously between Thanksgiving and Christmas. Critics and audiences had been cool to the movie when it was first released in December 1946, 60 years ago this month. However, the constant TV exposure snatched the film from the mush of mediocrity, and catapulted it into the pantheon of classics.

Now, everybody knows the story of how George Bailey (James Stewart) is given a chance by his guardian angel to see what the world would be like if he'd never been born. Stewart, an air corps pilot who'd flown 20 bombing missions over Germany, had to be talked into taking the part. He came close to quitting Hollywood. After seeing real men die in real war, he'd come to see making movies as immoral. Ironic then that one of our great morality films happened only because the costar, Lionel Barrymore, and director, Frank Capra, convinced Stewart of its worth.

George Bailey is a businessman who strives to do good, who in fact has done more good than he knows. Not everything is about the bottom line to George. He makes enough to get by, that's all. George Bailey is to business people what Marcus Welby is to doctors or Atticus Finch is to lawyers: An ideal. In an age of corporate scandals, it's nice to know that many companies still strive for that goal.

I sometimes get forwarded e-mail from relatives of servicemen and women overseas. (My nephew is in Iraq.) The buzz lately among these families is to shop at Sears, because the company goes above and beyond in terms of providing benefits and pay for reservist employees who are called up.

Companies are by law required to hold jobs open for reservists, but often soldiers take a big pay cut and lose benefits. Sears is ponying up the difference between the military pay and what reservists would make if still employed in regular jobs. In addition, workers and their families keep their life, medical and dental insurance. Employees receive annual merit raises, as well as incentive pay. Possibly even more important, given how often tours of duty have been extended, Sears holds the jobs for up to five years.

Now, obviously, Sears gets some good publicity out of this, so it's OK to be a bit skeptical. Also, the number of people who swear that they've been mistreated by any big company could fill entire football stadiums. However, the Sears policy is at least unusual enough to spur the gratitude of the families of those serving.

In "It's A Wonderful Life," George Bailey's brother, Harry, would have died young if George had never been born. George wouldn't have been there to pull him out of a frozen river. Harry, a college football star, goes off to war and eventually receives the Congressional Medal of Honor for saving a transport carrier.

George's guardian angel, showing the world as it would have been if George had never been born, tells him that, "Every man on that transport died. Harry wasn't there to save them, because you weren't there to save Harry."

Imagine if some modern Hollywood producer had been pitched this story. "Wait a minute! You're telling me that the one brother does all this action-hero stuff, but the picture isn't about him?"

Director Capra wanted to show that everybody's life matters, and our destinies are linked by acts so minute they're invisible. It never crossed my mind years ago when I looked up at the Sears Tower that someday it would be gone, while a fragile web of connections silently woven would somehow endure.

Hasty exits bring chill at Draft
By Lewis Lazare - Sun-Times Columnist - Chicago Sun-Times
December 6, 2006

It could very well become a devastating bombshell at Draft FCB/Chicago. Julie Roehm, Wal-Mart's senior vice president for marketing communications and the retailing behemoth's reputed agent of change, has abruptly exited after less than a year in her post. Also gone: Sean Womack, vice president of marketing.

A Wal-Mart spokeswoman confirmed Roehm's exit. Tellingly, there was no comment from Wal-Mart thanking her for her efforts or wishing Roehm well in her future endeavors.

''I was hired to do a job as a change agent. My primary function here is done,'' Roehm told Bloomberg News, and declined further comment.

Roehm's departure appears to have sent shock waves through Draft FCB, Wal-Mart's new ad agency of record as of just weeks ago. None of the agency's various representatives was available for comment Tuesday, and calls were referred to Wal-Mart.

Roehm's sudden exit is especially troubling for Draft FCB. By all accounts, Roehm was Wal-Mart's point person in the agency review, and Roehm was believed to be the Wal-Mart executive pushing hardest to hire Draft FCB to handle Wal-Mart's $570 million advertising account.

In fact, in a report on how Draft FCB supposedly wooed Wal-Mart that recently appeared in trade publication Advertising Age, much was made of how Draft founder Howard Draft had tried to impress Roehm during the review process -- going so far as to offer to tool around with her in his pricey sports car.

One source familiar with Wal-Mart and its policies suggested Roehm, in her dealings with Howard Draft, might have played too fast and loose with the company's strict corporate gratuities policy. Or her possible flouting of that policy -- said to be one of the strictest in corporate America -- might just have been a piece of ammunition Wal-Mart used to get rid of Roehm.

A Wal-Mart spokeswoman said the policy simply states no one who works for the company can accept any sort of gratuities from suppliers, even a cup of coffee.

Interestingly, Roehm's sudden departure also comes just a week after reports first surfaced of a mind-boggling blunder by Draft FCB/Chicago. Fresh off its win of the Wal-Mart account in October, the agency placed an ad in a trade publication called Creativity that was intended to honor winners of the coveted Lion Awards at the 2006 Cannes International Advertising Festival, considered the most prestigious of a multitude of annual advertising competitions. Draft FCB's shockingly tasteless print ad graphically portrayed a real male and female lion having sex above a copy line that read "It's Good to Be on Top."

Though a Draft FCB spokesman at the time called the ad "a terrible mistake," the damage was already done. The appearance of the ad could have prompted some within the Wal-Mart organization to begin to have serious second thoughts about Draft FCB, and Roehm might have suddenly found herself under considerable pressure to defend her selection of the agency to handle the retailer's huge ad account.

Additionally, Wal-Mart sales have flagged this holiday season as it tried unsuccessfully to position itself as a destination for high-quality merchandise. In recent days, Wal-Mart has stressed low prices all the time.

Whether Roehm's departure is a signal Wal-Mart might pull the plug on Draft FCB before its relationship has even really begun could not be immediately determined.

Draft FCB's first ads for its new client aren't scheduled to break until the first quarter of 2007. A source in the local post-production business said Draft FCB executives had talked about getting clearance from Wal-Mart to produce more than two dozen commercials, but there had been no talk about any greenlighting of ads in recent days. Sources also told this column the tag line for Draft FCB's first work for the client was intended to be "Life Well Spent."

Sources at other ad agencies that competed in the Wal-Mart review downplayed the likelihood of such a dramatic move by Wal-Mart in the immediate wake of Roehm's exit.

But sources who have worked with Wal-Mart also said this kind of massive upheaval in the giant discount retailer's marketing department is not typical, and does not bode well for Draft FCB.

Said one agency executive who has worked with Wal-Mart, "There have got to be a lot of sweaty palms over at Draft FCB right now."

2 Hired to Overhaul Marketing Leave Their Posts
at Wal-Mart
By Louise Story and Micahel Barbaro - New York Times
December 6, 2006

Two top executives hired about a year ago to help overhaul marketing at Wal-Mart Stores  have stepped down from their posts, the company said yesterday.

The departures coincide with slowing sales growth and several marketing stumbles at Wal-Mart, like designer-inspired fashions that have failed to sell.

Julie Roehm, senior vice president for marketing communications, and Sean Womack, vice president for communications architecture, left the company on Monday, a spokeswoman, Mona Williams, said, confirming a report on BrandWeek.com.

Ms. Williams would not say why they left, whether they would be replaced or whether Wal-Mart would reassess any decisions they had made.

Ms. Roehm and Mr. Womack were hired to move Wal-Mart away from its image as a dowdy discount retailer ╉ an image symbolized, in advertising, by a price-slashing yellow smiley face. Under the leadership of John Fleming, Wal-martâ•˙s chief marketing officer and a former advertising executive at Target, who hired Ms. Roehm and Mr. Womack, Wal-Mart has begun emphasizing its more expensive items in its ads over the last year.

But this holiday season, as sales have slipped, the company has suddenly returned to a low-price message.

Mrs. Roehm and Mr. Womack were instrumental in Wal-Mart's decision this year to replace its longtime advertising agencies, a major event in the advertising industry. Wal-Mart is one of the largest retail advertisers in the country, spending close to a billion dollars on advertising last year, according to TNS Media Intelligence, a research firm.

In late October, Wal-Mart hired DraftFCB, part of the Interpublic Group of Companies, and Carat USA of the Aegis Group to handle $570 million of its advertising after a much watched review.

Sometimes after executives who pick ad agencies leave, companies re-evaluate those decisions, and sometimes they stick with their picks. Wal-Mart declined to comment.

Ms. Roehm, in a statement, said her work at Wal-Mart had reached a natural conclusion." One of my first orders of business was to help spearhead a comprehensive agency review," she said. "Now that I have established the marketing communications organization and completed the agency review, it's time to tackle my next challenge."

Wal-Mart, however, is still deciding which agency to hire to handle its multicultural marketing.

Ms. Roehm is also a leading proponent of a new way to buy and sell ads. She and other marketers at companies including Hewlett-Packard and Microsoft formed a group that hired eBay to develop an online auction system to automate ad sales. The group will test eBay's system next year with cable TV ads.

Mr. Womack declined to comment.

Sears Tower electrical fire extinguished
Chicago Sun-Times News Group
December 6, 2006

A WEHS Channel 60 electrical television transmitter reportedly malfunctioned and caused a fire on the Sears Tower's 101st floor early Wednesday.

The Chicago Fire Department called a still-and-box alarm at 2:12 a.m. for a "small" fire on the 101st floor of the Sears Tower, 233 S. Wacker Dr., according to Fire Media Affairs spokesman Richard Rosado.

The fire, which was mostly smoke, was contained by 2:30 a.m., Fire Media Affairs Director Larry Langford said.

The fire started in a closet when a 100,000-watt WEHS Channel 60 television transmitter malfunctioned, Langford said.

"Electrical components in the closet were burning, which caused a lot of smoke," Langford said.

The fire did not generate enough heat to activate the building's fire alarms or sprinklers, but the fire produced enough smoke to activate the building's smoke detectors.

"A lot of smoke was pouring out of the cabinet when crews arrived," Langford said. "It was more smoke than anything else."

Responding firefighters initially believed a row of cabinets were on fire, but soon realized it was the transmitter inside the cabinets that was burning, according to Langford, who said one hose was used to extinguish the fire.

The transmitter was disintegrated after the blaze and was "all fried up inside," Langford said.

An EMS Plan 1 was called for precaution and was secured at 2:52 a.m., Langford said.

Nobody was evacuated or injured in the fire, Rosado said.

Firefighters were still on the scene at 3:15 a.m. ventilating and cleaning up water used to spray the equipment, Langford said.

The smoke did not get into the building's ventilation system and did not spread to other floors, Langford said.

Martha's a Macy's shopper
Chicago Sun-Times
December 6, 2006

Based on the latest forecasts, it's clear Martha Stewart isn't counting on Kmart any more to boost the bottom line.

Martha Stewart Living Omnimedia Inc.'s exclusive deal with Macy's to design dishes, cookware, linens, holiday decorations and other home goods will help fill the "Kmart gap," Chief Executive Officer Susan Lyne said Tuesday.

Revenue from licensing agreements with Macy's and others will keep merchandise earnings from falling, Lyne said. Merchandising accounted for almost a fifth of sales in the latest quarter.

''We do expect there will be a significantly lower revenue stream from Kmart in 2008,'' Lyne said at a Credit Suisse investment conference in New York.

The Kmart revenue stream will decline because Edward S. Lampert, chairman of Sears Holdings Corp., the owner of Kmart and Sears, decided that Stewart's contract with Kmart was too generous. Lampert, a billionaire hedge fund owner, engineered Kmart's $12.3 billion takeover of Sears Roebuck in March 2005.

Lampert told reporters after a shareholders' meeting this past April that Stewart's contract, which expires in four years, exacted too high a price in guaranteed minimum royalty fees from Kmart, and the two sides had been unable to work out a long-term agreement to sell Stewart's goods at Kmart or Sears.

Stewart will receive guaranteed minimum royalty fees from Kmart of either $20 million or 50 percent of her earned royalty fees for fiscal 2008. That compares with $59 million that Stewart's company received last year, and $65 million to be paid this fiscal year, even if Stewart's merchandise doesn't sell.

Stewart's contract with Kmart was initially scheduled to end in January 2010, but the ending date is under negotiation and could be sooner.

Lyne last April rejected any notion that the domestic diva would sell her goods at Sears Roebuck stores, and revealed that Stewart's new deal with Macy's department stores could be worth $400 million.

Lyne, who took over in November 2004, formed agreements with Macy's operator Federated Department Stores Inc. and home builder KB Home to help reduce dependence on Kmart for sales.

On Tuesday, Lyne said earnings before interest, taxes, depreciation and amortization from the merchandising unit will ''approximate'' those of 2006 thanks to the deals.

The Macy's line will start selling in August or September next year, Lyne said.

Shares in Martha Stewart Living increased 75 cents, or 3.56 percent, to $21.82 on Tuesday. The stock had added 21 percent this year before Tuesday.

Bloomberg News with Business Reporter Sandra Guy contributing

Medicare's 'Doughnut Hole' Help
Cost Estimator on Web Site Can Give Seniors a Glimpse
Of Drug Plan's Coverage Gap
By Jane Zhang – Wall Street Journal
December 5, 2006

The federal government is offering seniors a hand figuring out the infamous "doughnut hole" -- the coverage gap in Medicare's prescription-drug benefit that many beneficiaries will encounter during the year.

A new tool on Medicare's Web site, called a cost estimator, offers monthly and annual spending estimates based on the drugs seniors take and the pharmacy they use. Because it includes both the costs to seniors and to their plans -- the two factors that determine when the doughnut hole kicks in -- seniors can get at least a rough idea of when during the year they will reach the gap under each plan in their area.

For 2007, the doughnut hole begins after seniors and their stand-alone drug plan have spent a total of $2,400. The beneficiary then must bear all costs for his or her drugs until the out-of-pocket expenses reach $3,850. After that, seniors pay only 5% of additional drug costs.

Seniors have four weeks left in the current enrollment season to sign up for the Medicare drug benefit or change plans. Especially for seniors who spend a hefty amount on drugs, the new cost estimator can help decide whether they should change plans. All other things being equal, drug plans that negotiated lower prices with drug makers will have coverage gaps that occur later in the year than plans that pay higher prices for drugs. So a plan with a later coverage gap may mean lower out-of-pocket costs for beneficiaries.

The drug benefit, which took effect in January, is subsidized by the federal government and offered through private insurers. This year, an estimated three million to four million seniors hit the gap. While more plans are offering coverage through the gap next year, most don't cover brand-name drugs, so seniors still need to watch their spending.

The cost estimator was launched in October as part of the upgraded Medicare Web site. Previously, most enrollees could figure out how much their plans were spending on drugs only when they bought the drugs at the pharmacy. This year, insurers such as Humana Inc., UnitedHealth Group Inc. and WellPoint Inc. also have updated their Web sites so seniors can compare total drug costs from different plans. But the Medicare tool is the most comprehensive -- if a bit harder to navigate. To use it, seniors need to click the compare-drug-plans link on www.medicare.gov, followed by "find and compare plans." They then can begin either a personalized or general search for drug costs and enter the lists or drug names they use. The estimates -- shown in a chart followed by a detailed explanation -- are at the very end of the page with the plans' details.

The site is updated every two weeks based on updated information from the plans, and the costs reflect discounted prices each plan has negotiated with drug manufacturers, not including rebates, says Mary Agnes Laureno, director of beneficiary information services at the federal Centers for Medicare and Medicaid Services. "It should be really close" to what seniors see after each purchase at their pharmacy.

But there's also a caveat: Plans can change their drug prices during the year, so a beneficiary's actual spending may be higher or lower than estimated. "That gives you the best possible estimate, but it's only an estimate," says Tricia Neuman, Medicare policy director at Kaiser Family Foundation.

In addition, seniors can't always predict what drug they will use, and not all seniors are savvy online users. John Rother, policy director at the seniors' group AARP, welcomes the tool but wonders how useful it will be. "Most seniors are not going online for information," he says. A Kaiser survey in April showed that 5% of seniors compare plans themselves on www.medicare.gov, while another 5% had family or friends that did that for them.

In all, 3.6 million seniors enrolled in the drug benefit online in 2006, says Medicare spokesman Jeff Nelligan. The enrollment period ends Dec. 31.

Nordstrom, Sears hear music in CD sales
By Ed Christman - Reuters
December 3, 2006

With music specialty stores dying by the hundreds this year between the liquidation of Tower and Musicland, Nordstrom and Sears may be picking up some of the slack. Both retailers have added an entertainment cache to their stores by carrying CDs. Nordstrom has been testing music in 29 stores in Seattle and will roll out the category to all 157 stores in the chain by mid-December, says Michael Barber, who heads up Barber Entertainment and assists Nordstrom in the selection.

In Chicago, the Sears Holding Company began carrying video and videogames almost two years ago, and in November began testing music in its 789 stores, according to Sears Holding entertainment divisional merchandise manager Jim Stella.

At Nordstrom, the chain sees music as an extension of its presence as the leading fashion department store in the United States. "The key for Nordstrom is it is first and foremost a fashion retailer, and we believe there are parallels between fashion and music," says Barber, who points out that a number of artists have their own clothing lines; Gwen Stefani's brand is carried by Nordstrom.

"We are bringing in titles that are timely and that are right for Nordstrom's customers," Barber says. In fact, Nordstrom is buying all kinds of titles: from new releases to select catalog titles, compilations and custom-designed artist compilations carrying the Nordstrom logo.

In total, each store may carry about 50 titles, ranging from current hits to older titles. There are also exclusive offerings; so far it has licensed custom compilations of Jamie Cullum and Marvin Gaye, with a Chet Baker title coming in 2007.

Titles featured in its young men's section are the Killers' "Sam's Town," John Mayer's "Continuum," Wolfmother's self-titled debut and the Beastie Boys' 1989 release "Paul's Boutique." Its young women's designer department features Beck's "The Information," Justin Timberlake's "FutureSex/LoveSounds" and Feist's "Open Season."

It could eventually mean big business for record labels. Sources say Nordstrom is buying direct from the majors. Barber expects to expand into the independent label community.

Meanwhile, Sears Holding is taking a different approach in carrying music. Since Sears merged with Kmart at the end of 2004, the music industry has been expecting the parent company to add music to Sears stores.

In the States, Sears runs 926 full-line department stores, while its Kmart division operates about 1,400 stores. The latter chain has carried music for decades.

At Sears, the company initially brought in movies and DVD games and began experimenting with music only in November, placing 120 CD titles in each of about 875 of its mall stores.

In addition, about 75 Sears Grand stores, which were converted from Kmart free-standing locations, continue to carry full music departments like Kmart does.

"What we are up to," Stella says, "is trying to see how entertainment can play a role in Sears stores."

Wal-Mart Says Thank You to Workers
By Michael Barbaro & Steven Greenhouse – New York Times
December 4, 2006

Faced with public demonstrations of discontent by its employees, Wal-Mart Stores has developed a wide-ranging new program intended to show that it appreciates its 1.3 million workers in the United States and to encourage them to air their grievances.

As part of the effort, Wal-Mart managers at 4,000 stores will meet with 10 rank-and-file workers every week and extend an additional 10 percent discount on a single item during the holidays to all its employees, beyond the normal 10 percent employee discount.

The program, described in an internal company document, was created during a volatile six months period, starting when the company instituted a set of sweeping changes in how it managed its workers.

Over that time, Wal-Mart has sought to create a cheaper, more flexible labor force by capping wages, using more part-time employees, scheduling more workers at nights and weekends, and cracking down on unexcused days off.

The policies angered many long-time employees, who complained that the changes would reduce their pay and disrupt their families lives. Workers even staged small rallies in Nitro, W. Va., and Hialeah Gardens, Fla., the only such protests in recent memory.

The portion of the new outreach program called "Associates Out in Front" is described in company documents as a way for Wal-Mart to show workers that we do appreciate you and that we have an ongoing commitment to listening to and addressing your concerns."

The documents were provided to The New York Times by WakeUpWalMart.com, a group funded by the United Food and Commercial Workers union, which fears that Wal-Mart will undermine unionized stores.

The program includes several new perks "as a way of saying thank you" to workers, like a special polo shirt after 20 years of service and a "premium holiday" when Wal-Mart pays a portion of health insurance premiums for covered employees. Sarah Clark, a spokeswoman for Wal-Mart, said the program was a "a more formalized, contemporary approach" to communicating with and collecting feedback from its fast-growing work force.

But she said it was not a response to workers"˙ concerns about new company policies. The Associates Out in Front program, much of which is not described in the documents, she said, "is about building on something that is already very good."

In interviews, half a dozen Wal-Mart workers said there was a growing perception within the company that managers did not respond to employees' ideas and complaints.

Kory Uselton, a 35-year-old overnight floor cleaner at a Wal-Mart in Tyler, Tex., said his store manager offered "robotic" company-approved responses during a recent meeting when workers questioned the new attendance policy, which originally called for disciplinary action after three unauthorized absences (although it was later revised to four unexcused absences).

Asked if absence for a family emergency, like a sick child, would be authorized, Mr. Uselton recounted, the manager said, "No, it's not."

"Many of the associates were very upset, Mr. Uselton said. "Management is just not listening anymore. Some Wal-Mart employees said workers might be afraid to speak up because they have seen coworkers retaliated against for instance, transferred to worse shifts when they voiced their complaints.

Ms. Clark said Wal-Mart already had several systems in place that allowed employees to criticize company practices. Among other things, she said, there was a toll-free hotline workers could call to report ethical lapses, a Web site on which chief executive H. Lee Scott Jr. answered questions and a policy, known as the "open door," that permitted anyone to bring complaints to officers at the highest level of the company.

Industry analysts and labor experts generally praised Wal-Mart's new employee outreach effort, which they said appeared to imitate practices from companies known for cultivating a healthy relationship between managers and employees.

"When you look at the list of best employers' said Richard W. Hurd, a professor of industrial and labor relations at Cornell University, “you will find programs that look something like this.”

The question, he said, “is how sincere the effort is and how much change you see in workers” lives."

But he said the perks, like the 10 percent discount and the shirt for long-time workers, are a very token, modest form of appreciation. It is not sufficient.

Adrianne Shapira, a retail analyst at Goldman Sachs who tracks Wal-Mart, cautioned that, whatever the reasons for the new program, the pace of change at the company carried its own hazards.

“I think they are asking a lot of their people right now,” she said. “It’s a lot of change in a short period of time at an already hectic time of year. It has to be pretty challenging for workers.”

The Associates Out in Front program, which Wal-Mart is introducing over the holiday season, was developed by company executives about seven months ago, Ms. Clark said. It is, in part, the result of recommendations from a group called the Care Council, 700 Wal-Mart workers who advise executives on ways to improve working conditions.

Under the program, store managers are to meet each week with 10 employees who sign up to discuss concerns, suggestions and ideas for improving operations. The program also requires regional general managers to conduct monthly town-hall meetings that are open to every worker in the area.

A new management training program, called “Leaders Out in Front,” is intended to encourage hourly workers to advance their careers and help existing managers become “better ambassadors and mentors,” according to the memo.

Not all of these perks are new. During previous holiday seasons, Wal-Mart has paid health care premiums and offered an additional 10 percent discount. But they were sporadic or at store managersâ•˙ discretion, rather than offered annually across the chain, said Ms. Clark, the spokeswoman.

Other perks, like a shirt that states length of employment in five-year increments starting with 20 years of service, appear designed to build morale, but might do the opposite.

Cleo Forward, a 37-year-old support manager at a Wal-Mart in Dallas, said the new program was promising, but that it fell short in recognizing long-time workers who felt unappreciated by the changes.

“They are going to spend $15 on a Polo for you after 20 years? Give me a break,” he said. “We would rather they lift the wage caps.”

Still, Mr. Forward said, he would like to be able to resolve his problems inside the company and viewed Associates Out in Front as step in the right direction. “Maybe the company is willing to listen,” he said. “If that is so, I am happy. I want to be part of that process.”

Sears Responds to Life Insurance Inquiry
December 4, 2006

As reported in the Winter, 2006 issue of STRAIGHT TALK, NARSE has received numerous phone calls, letters and e-mails from retirees and spouses of retirees concerning the exact amount of remaining life insurance coverage that they have.  As a result, NARSE’s Chairman, Ronald Olbrysh, sent a letter to Aylwin B. Lewis, CEO and President of Sears Holdings Corporation, dated October 11, 2006, concerning this reduction in retiree life insurance coverage. The letter reads, in part, as follows:

“Many Sears retirees are still confused about the amount of life insurance they will have in force in January after the final reduction is completed…As a result, it would be a great service to Sears retirees if the Company would send each retiree a certificate indicating the exact amount of life insurance that will be payable to the designated beneficiary at the time of their death.

“It would also be helpful if instructions were included in an accompanying letter detailing the necessary procedures to file a claim upon the retiree’s passing.

“Your positive consideration to this request will be most appreciated by all retirees and their families.”

As background, in 1997 then Sears Chairman Arthur Martinez announced that retiree life insurance benefits would be cut back for all participants who retired after January 1, 1978, at the rate of 10% per year on each retiree’s life insurance amount in excess of $5,000.

A number of lawsuits were filed against Sears by retirees who alleged they had been promised “free” or “paid-up” life insurance for the rest of their lives.  All lawsuits were eventually consolidated in the U.S. District Court for the Northern District of Illinois.

The case was finally settled in the fall of 2001.  Under the terms of the settlement, Sears could not further accelerate the life insurance reduction schedule that began in 1998 and it could not reduce the final insurance amount to less than $5,000.  In addition, all class action members who timely mailed a claim form would be guaranteed at least one less annual reduction than the scheduled ten reductions.  Therefore, their final insurance amount would be at least $5,000 plus the amount of one year’s reduction. 

As promised in our “Life Insurance Coverage” article in the current issue of STRAIGHT TALK, when we receive a response from Sears, we would post it on our web site.  Sears response to NARSE’s letter to Mr. Lewis, dated November 22, 2006, came from Clara Hughes, Sears Holdings Manager of Policy and Benefits Compliance.  It reads:

“In response to your letter dated October 11, 2006, I wanted to assure you that planning is underway to communicate to those retirees who are covered under retiree life.  We will be communicating the life insurance amount as well as the process for updating beneficiary information and filing a claim.  I will be working closely with the carrier to get this information out in a timely fashion.”

We appreciate Sears response to our request. For those retirees who are still covered under retiree life, you should be hearing from Sears in the near future.  Clara Hughes can be contacted by writing to:  Sears Holdings Management Corporation, 3333 Beverly Road A4-170B, Hoffman Estates, IL  60179.  Her direct phone number is:  847-286-3755.

Wal-Mart Confronts a Conundrum:
How Does the Biggest Get Bigger?
By Annys Shin - Staff Writer - Washington Post
December 2, 2006

Wal-Mart has a problem: In 93 percent of American households, one person shops at its stores at least once a year, and that's not good enough for the company.

The retailer wants to continue growing to keep investors happy. But how? If it can't attract new shoppers to push up its sales, it must get the occasional ones, who dash in for bargain dog food or paper towels and then hurry out, to cross the aisle and load up on clothes, bedsheets and flat-panel televisions.

For a year, Wal-Mart has been trying to get those sporadic and mostly higher-income customers to do that. It designed a line of up-to-the-minute clothes. It stocked its shelves with organic cotton sheets and sustainable fish. It wished its customers a "Happy Holiday," not a "Merry Christmas." It hired civil rights leader Andrew Young to burnish its image. It joined the National Gay and Lesbian Chamber of Commerce. This year, it began remodeling nearly half its stores.

On Thursday, Wal-Mart reported a decrease in November sales at stores open at least a year, a rare decline that weighed down holiday prospects for the entire retail sector.

Many of Wal-Mart's core customers disliked the new clothes and skinny jeans, which also failed to set off a serious buzz among the fashion conscious. "Merry Christmas" is back, after the American Family Association and the Catholic League launched a boycott. In May, Wal-Mart pulled out of South Korea, and followed that with a retreat from Germany in July. In August, Young quit after making inflammatory remarks about ethnic grocers in African American communities. In September, Wal-Mart said it was getting rid of layaway, which analysts said sent the wrong message to the 20 percent of its customers who do not have a bank account. Then came the November sales report.

"You got to ask yourself: What happened?" said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm in New York that has done work for Target and Kmart.

More important for Wal-Mart, has the retail approach of stack 'em high and sell 'em cheap, which transformed a little company from rural Arkansas into a chain of more than 3,300 stores and bellwether of the American economy, run its course on its home turf?

"They're in a box," said Charles Fishman, a senior writer for the magazine Fast Company and author of the book "The Wal-Mart Effect." "There's a limit to the market for what they're offering. They're smacking up against it."

Wal-Mart's management does not have to be reminded of its predicament. In October, chief executive H. Lee Scott Jr. acknowledged the rapid switch to hipper clothing worked in urban stores but not nationwide.

"We overloaded the fashion part," Scott told analysts. "That's not who we are."

Management also described a difficult set of circumstances: Company surveys indicate that the pain of high gasoline prices and utility bills lingers for many Wal-Mart shoppers. The remodeling also has hurt sales.

Some factors have been beyond Wal-Mart's control, such as 5 million fewer people shopping on Black Friday this year. Yet Wal-Mart fared worse than many retailers that day, dragging down November sales for the entire industry by 2 percent, the International Council of Shopping Centers said. Without Wal-Mart, November sales would have increased by a healthy 4 percent.

Wal-Mart's biggest competitor may still be itself. In areas where the chain has two stores, the opening of a third siphons off 20 percent of sales from the other two, said Robert S. Drbul, an analyst at Lehman Brothers.

In the short run, Wal-Mart is falling back on what it knows best: cutting prices. Since October, it has slashed prices on toys and electronics. Last Thursday, management said that around Christmas, Wal-Mart would promote low prices on more goods in a series of advertising circulars.

Longer-term, executives say they will stop opening so many new stores to stem cannibalizing their own business and focus on improving productivity at existing ones by finding new ways to get the occasional customer to spend more.

"Unless they abandon the idea of growth," Fishman said, "they need to attract a wider array of customers."

The company is going after what it calls "selective" customers. That would describe Springfield resident Nadine McMahon, 46, who was shopping Thursday morning at the Wal-Mart on Kingstowne Boulevard in southeast Fairfax County . McMahon heads to the discount retailer for household cleaning and school supplies, but she was not the least bit tempted by the racks of the new fashion-forward Metro 7 brand camisoles and skirts she saw.

"I thought they never held up as well as clothes from other stores," she said, adding that she buys clothes from hipper rival Target. She thought for a second, trying to explain her resistance.

"Maybe it's the way the store looks," she said.

That "look" could be seen in the Kingstowne store, where 250-thread-count organic cotton sheets on sale for $52.88 sat in open boxes next to a display featuring a martini set, clear glass cheese serving plates and curvy, white, modernist vases. The sheets and the barware would look at home inside any Target store, except that they were stranded in the middle of a narrow aisle next to shelves piled nearly to the ceiling with consumer electronics.

Retail analyst Patricia Edwards of Wentworth, Hauser & Violich in Seattle said ambience is increasingly critical to holding on to price-conscious shoppers. As gasoline prices have dropped and as "they've gotten discretionary income, the core base is shopping elsewhere," she said.

Wal-Mart has simply made its competitors smarter, she said, as they followed the company's example by making supply chains more efficient and lowering costs.

In responding to competitors, Wal-Mart has struggled through an identity crisis. Management has pulled the plug on troubled undertakings so quickly lately that it has lurched from one extreme to another.

Fishman, however, looks to history. Wal-Mart has been adept at trying new strategies, jettisoning them when they do not work, and moving on. What Wall Street and others forget, he said, is "part of Wal-Mart's DNA is to test things out."

He cited experiments such as full-service auto repair, which the company gave up on, choosing to focus on replacing tires and batteries and changing oil. "That was a passion of Sam Walton: copy, copy, copy, execute brilliantly, abandon what doesn't work," he said.

The difference now is as the nation's largest employer and second-largest company by revenue, Wal-Mart's every move is scrutinized. It has an army of critics ready to pounce, such as the union-backed Wake Up Wal-Mart and Wal-Mart Watch. They are organized and well-financed. They've advocated for anti-big-box store laws in cities and counties across the country designed to keep Wal-Mart from expanding. And as one of the largest companies in the world, its missteps reverberate through the entire economy, as on the Monday after Thanksgiving, when management's warning of poor November sales figures helped drive the Dow Jones industrial average down 158 points.

Fishman said it was important not to lose sight of the fact that while it has lately fallen short of its goals -- and Wall Street's -- for same-store sales growth, the company is enormously profitable and growing overseas. Wal-Mart rang up $28.6 billion in sales in November, up 11.9 percent. Sales have been strong in Mexico, Brazil, Argentina and China, and the company is expanding into India.

But Fishman said, a larger question remains: "How much can one company own of the U.S. retail market?"

Staff writer Ylan Q. Mui contributed to this report.

 

Valuing Eddie Is the Story Line at Sears
Despite Run-Up, Investors May Be Undervaluing
Lampert's Famed Acumen
John Christy, Rob Cox and Lauren Silva - Wall Street Journal
December 2, 2006

Falling same-store sales and rising inventories aren't classic indicators of success in the retail business. Yet that hasn't stopped the steady upward march of Sears Holdings' shares. The company's stock has surged nearly 50% this year. Much of this can be attributed to the faith that investors place in the $26 billion retailer's chairman, hedge-fund kingpin Edward S. Lampert. But as enthusiastic as they've been, could investors actually be undervaluing Mr. Lampert's services?

At current prices, Sears trades at about 21 times next year's earnings -- or a premium of about 10% to the retail sector. This implies a "Lampert premium" of some $2.6 billion. While that might seem large, Mr. Lampert's stellar record as a money manager shouldn't be ignored. Returns of nearly 30% a year over nearly two decades at his firm ESL Investments have swelled the bank accounts of already wealthy clients such as David Geffen and Michael Dell.

Mr. Lampert, who is often compared to Warren Buffett, makes no secret of his admiration for the Sage of Omaha. Many Lampert loyalists are banking on him to turn Sears into a Berkshire Hathaway-like investment vehicle.

That hasn't happened yet. Until it does, valuing Sears remains a tricky exercise. There are two components: the core retailer selling everything from power tools to women's panties, and the implicit value in Mr. Lampert's freedom to put excess cash to work. Last quarter, for example, Sears booked a $101 million gain from trading total-return swaps.

There's still plenty of loot for Mr. Lampert to play with. Sears has $2 billion of cash -- a pile that should grow over time. Then there's the nearly $9 billion worth of property that could be freed up for additional capital. If Mr. Lampert puts most of this to work -- and matches his past returns -- Deutsche Bank reckons that Sears's investment business would be worth a huge $121 a share, or nine times the company's cash on hand.

That's clearly excessive. Still, Mr. Lampert's track record suggests that he can achieve the same with $1 as most others can do with $2. So in his capable hands, Sears's cash pile of $2 billion is worth at least twice that amount to investors, or roughly 7.5% of the retailer's market value. Given the options provided by the company's property portfolio and the strong cash flow from the retailing operations, the 10% Lampert premium looks conservative.

Captain Kirk

Set aside for a moment what Kirk Kerkorian's decision to abandon his investment in General Motors says about the car company. That he would sell his stake was fairly evident from the moment his henchman Jerome York quit the board in a huff in October. More interesting is what his actions say about the future of the U.S. economy.

At 89, Mr. Kerkorian is one of the most experienced investors alive. He has made and lost money in a broad swath of industries -- from movie studios and nightclubs to airlines and automobiles. So, when he parked his limo on the curb outside GM's Detroit headquarters in May 2005, it meant something. It suggested that even though some of the sharpest minds on Wall Street had assumed that GM had little hope of avoiding insolvency, Mr. Kerkorian believed in the possibility of renewal at America's largest industrial concern. His investment helped changed that negative perception.

There's something symbolic in the fact that Mr. Kerkorian is now taking his money out of GM and investing it in Las Vegas casino operator MGM Mirage. Sin City is rising out of the ruins of Motown. Only time will tell whether America's glitzy casino economy is more secure than one based on blood, sweat and hard assets.

Feds at the Gate

The only question being asked more frequently on Wall Street than "How big is my bonus?" is "What will the Feds do to private equity?" That's because the answer to the second question could decide the former. The leveraged-buyout boom has powered investment-bank profits. So the probe into whether some of the industry's titans colluded illegally has many people worried. History suggests they can relax.

In many respects, the current inquiry into private equity resembles another launched by the Justice Department, in the 1940s. In that probe, the Feds accused 17 of the largest investment banks of colluding in underwriting practices. The trial lasted 2Â∏ years and created more than 100,000 documents -- a mountain of evidence in an era before email, faxes and recorded telephone chitchats.

The essential charge was that by ganging together in syndicates to sell securities, underwriters engaged in price-fixing that damaged the capital markets. That charge didn't stick, however. As a result, more than half a century later not much has changed in the underwriting business. Banks still pool their cash for deals.

How is this relevant to the current investigation of big private-equity firms? In theory, by banding together, private-equity firms perform a similar function to the underwriting syndicate. They diversify risk and enable the financing of ever larger deals to take place, such as the recent $33 billion buyout of hospital operator HCA involving Bain Capital, Kohlberg Kravis Roberts & Co. and Merrill Lynch & Co. Shareholders who sell to private equity pick up a premium.

Of course, if club deals were to lead to smaller bid premiums, shareholders would be getting a raw deal. As yet, there's no evidence of this. On average, premiums for club deals have differed little from those when only one buyout firm has been involved, according to Standard & Poor's Leveraged Commentary & Data. The 1940s probe into underwriting practices floundered for lack of incriminating evidence. Unless some explosive emails are uncovered, the current investigation could go the same way.

Smashing The Clock
By Michelle Conlin - Business Week
Cover Story - December 11, 2006

No schedules. No mandatory meetings. Inside Best Buy's radical reshaping of the workplace

One afternoon last year, Chap Achen, who oversees online orders at Best Buy Co., shut down his computer, stood up from his desk, and announced that he was leaving for the day. It was around 2 p.m., and most of Achen's staff were slumped over their keyboards, deep in a post-lunch, LCD-lit trance. "See you tomorrow" "I'm going to a matinee."

Under normal circumstances, an early-afternoon departure would have been totally un-Achen. After all, this was a 37-year-old corporate comer whose wife laughs in his face when he utters the words "work-life balance." But at Best Buy's Minneapolis headquarters, similar incidents of strangeness were breaking out all over the ultramodern campus. In emplo yee relations, Steve Hance had suddenly started going hunting on workdays, a Remington 12-gauge in one hand, a Verizon LG in the other. In the retail training department, e-learning specialist Mark Wells was spending his days bombing around the country following rocker Dave Matthews. Single mother Kelly McDevitt, an online promotions manager, started leaving at 2:30 p.m. to pick up her 11-year-old son Calvin from school. Scott Jauman, a Six Sigma black belt, began spending a third of his time at his Northwoods cabin.

At most companies, going AWOL during daylight hours would be grounds for a pink slip. Not at Best Buy. The nation's leading electronics retailer has embarked on a radical--if risky--experiment to transform a culture once known for killer hours and herd-riding bosses. The endeavor, called ROWE, for "results-only work environment," seeks to demolish decades-old business dogma that equates physical presence with productivity. The goal at Best Buy is to judge performance on output instead of hours.

Hence workers pulling into the company's amenity-packed headquarters at 2 p.m. aren't considered late. Nor are those pulling out at 2 p.m. seen as leaving early. There are no schedules. No mandatory meetings. No impression-management hustles. Work is no longer a place where you go, but something you do. It's O.K. to take conference calls while you hunt, collaborate from your lakeside cabin, or log on after dinner so you can spend the afternoon with your kid.

Best Buy did not invent the post-geographic office. Tech companies have been going bedouin for several years. At IBM, 40% of the workforce has no official office; at AT&T, a third of managers are untethered. Sun Microsystems Inc. calculates that it's saved $400 million over six years in real estate costs by allowing nearly half of all employees to work anywhere they want. And this trend seems to have legs. A recent Boston Consulting Group study found that 85% of executives expect a big rise in the number of unleashed workers over the next five years. In fact, at many companies the most innovative new product may be the structure of the workplace itself.

But arguably no big business has smashed the clock quite so resolutely as Best Buy. The official policy for this post-face-time, location for your work," says the program's co-founder, Jody Thompson. By the end of 2007, all 4,000 staffers working at corporate will be on ROWE. Starting in February, the new work environment will become an official part of Best Buy's recruiting pitch as well as its orientation for new hires. And the company plans to take its clockless campaign to its stores--a high-stakes challenge that no company has tried before in a retail environment.

Another thing about this experiment: It wasn't imposed from the top down. It began as a covert guerrilla action that spread virally and eventually became a revolution. So secret was the operation that Chief Executive Brad Anderson only learned the details two years after it began transforming his company. Such bottom-up, stealth innovation is exactly the kind of thing Anderson encourages. The Best Buy chief aims to keep innovating even when something is ostensibly working. "ROWE was an idea born and nurtured by a handful of passionate employees," he says. "It wasn't created as the result of some edict."

So bullish are Anderson and his team on the idea that they have formed a subsidiary called CultureRx, set up to help other companies go clockless. CultureRx expects to sign up at least one large client in the coming months. The CEO may have bought in, but there has been plenty of opposition inside the company. Many execs wondered if the program was simply flextime in a prettier bottle. Others felt that working off-site would lead to longer hours and destroy forever the demarcation between work and personal time. Cynics thought it was all a PR stunt dreamed up by Machiavellian operatives in human resources. And as ROWE infected one department after the other, its supporters ran into old-guard saboteurs, who continue to plot an overthrow and spread warnings of a coming paradise for slackers.

Then again, the new work structure's proponents say it's helping Best Buy overcome challenges. And thanks to early successes, some of the program's harshest critics have become true believers. With gross margins on electronics under pressure, and Wal-Mart Stores Inc. and Target Corp. shouldering into Best Buy territory, the company has been moving into services, including its Geek Squad and "customer centricity" program in which salespeople act as technology counselors. But Best Buy was afflicted by stress, burnout, and high turnover. The hope was that ROWE, by freeing employees to make their own work-life decisions, could boost morale and productivity and keep the service initiative on track.

It seems to be working. Since the program's implementation, average voluntary turnover has fallen drastically, CultureRx says. Meanwhile, Best Buy notes that productivity is up an average 35% in departments that have switched to ROWE. Employee engagement, which measures employee satisfaction and is often a barometer for retention, is way up too, according to the Gallup Organization, which audits corporate cultures.

ROWE may also help the company pay for the customer centricity campaign. The endeavor is hugely expensive because it involves tailoring stores to local ma rkets and training employees to turn customer feedback into new business ideas. By letting people work off-campus, Best Buy figures it can reduce the need for corporate office space, perhaps rent out the empty cubicles to other companies, and plow the millions of dollars in savings into its services initiative.

Phyllis Moen, a University of Minnesota sociology professor who researches work-life issues, is studying the Best Buy experiment in a project sponsored by the National Institutes of Health. She says most companies are stuck in the 1930s when it comes to employees' and managers' relationships to time and work. "Our whole notion of paid work was developed within an assembly line culture," Moen says. "Showing up was work. Best Buy is recognizing that sitting in a chair is no longer working."

ONE GIANT WIRELESS KIBBUTZ
Jody Thompson and Cali Ressler are two HR people you actually don't hate. They groan over cultis h corporate slogans like "Build Superior Organizational Capability." They disdain Outlook junkies who double-book and showboating PowerPointers. But it's flextime, or Big Business' answer to overwork, long commutes, and lack of work-family balance, that elicits the harshest verdict. "A con game," says Thompson. "A total joke," adds Ressler.

Flexible work schedules, they say, heap needless bureaucracy on managers instead of addressing the real issue: how to work more efficiently in an era of transcontinental teams and multiple time zones. They add that flextime also stigmatizes those who use it (the reason so few do) and keeps companies acting like the military (fixated on schedules) when they should behave more like MySpace  (social networks where real-time innovation can flourish). Besides, they say, if people can virtually carry their office around in their pockets or pocketbooks, why should it matter where and when they work if they are crushing their goals?

Thompson, 49, and Ressler, 29, met three years ago. The boomer and the Gen Xer got each other right away. When they talk about their meeting, it sounds like something out of Plato for HR, or two like minds making a whole. At the time, Best Buy was still a ferociously face-time place. Workers arriving after 8 a.m. on sub-zero mornings stashed their parkas in their cars to foil detection as late arrivals. Early escapees crept down back stairwells. Cube-side, the living was equally uneasy. One manager required his MBAs to sign out for lunch, including listing their restaurant locations and ETAs. Another insisted his team track its work--every 15 minutes. As at many companies, the last one to turn out the lights won.

Outside the office, Thompson and Ressler couldn't help noticing how wireless broadband was turning the world into one giant work kibbutz. They talked about how managers were mired in analog-age inertia, often judging performance on how much they saw you, vs. how much you did. Ressler and Thompson recognized the dangerous, life-wrecking cocktail in the making: The always-on worker now also had to be always in.

The culture, not exactly Minnesota-nice, was threatening Best Buy's massive expansion plans. But Ressler and Thompson knew their solution was too radical to simply trot up to CEO Anderson. Nor, in the beginning, did they feel they could lobby their executive supervisors for official approval. Besides, they knew the usual corporate route of imposing something from the top down would bomb. So they met in private, stealthily strategizing about how to protect ROWE and then dribble it out under the radar in tiny pilot trials. Ressler and Thompson waited patiently for the right opportunity.

It came in 2003. Two managers--one in the properties division, the other in communications--were desperate. Top performers were complaining of unsustainable levels of stress, threatenin g business continuity just when Best Buy was rolling out its customer centricity campaign in hundreds of stores. They also knew from employee engagement data that workers were suffering from the classic work-life hex: jobs with high demands (always-on, transcontinental availability) and low control (always on-site, no personal life).

Ressler and Thompson saw their opening in these two vanguard managers. Would they be willing to partake in a private management experiment? The two outlined their vision. They explained how in the world of ROWE, there would be no mandatory meetings. No times when you had to physically be at work. Performance would be based on output, not hours. Managers would base assessments on data and evidence, not feelings and anecdotes. The executives liked what they heard and agreed.

The experiment quickly gained social networking heat. Waiting in line at Best Buy's on-site Caribou Coffee, in e-mails, and during drive-by's at friends' desks, employees in other parts of the company started hearing about this seeming antidote to megahour agita. A curious culture of haves and have-nots emerged on the Best Buy campus, with those in ROWE sporting special stickers on their laptops as though they were part of some cabal. Hance, the hunter, started taking conference calls in tree stands and exchanging e-mails from his fishing boat. When Wells wasn't following around Dave Matthews, chances were he was biking around Minneapolis' network of urban lakes, and digging into work only after night had fallen. Hourly workers were still putting in a full 40, but began doing so wherever and whenever they wanted.

At first, participants were loath to share anything about ROWE with higher-ups for fear the perk would be taken away or reversed. But by 2004, loftier and loftier levels of management began hearing about the experiment at about the time opposition to it grew more intense. C ritics feared executives would lose control and co-workers would forfeit the collaboration born of proximity. If you can work anywhere, they asked, won't you always be working? Won't overbearing bosses start calling you in the middle of the night? Won't coasters see ROWE as a way to shirk work and force more dedicated colleagues to pick up the slack? And there were generational conflicts: Some boomers felt they'd been forced to choose between work and life during their careers. So everyone else should, too.

Shari Ballard, Best Buy's executive vice-president for human capital and leadership (an analog title if ever there was one), was originally skeptical, although she eventually bought in. At first she couldn't figure out why managers needed a new methodology to help solve the work-life conundrum. "It wasn't hugs and smiles," she says of Ressler's and Thompson's campaign. "Managers in the old mental model were totally irritated." In the e-learning division, many of Wells's o lder co-workers (read 40-year-olds; the average age at Best Buy is 36) expressed resentment over the change, insisting that work relationships are better face-to-face, not screen-to-screen. "We have people in our group who are like, `I'm not going to do it,'" says Wells, who likes to sleep in and doesn't own an alarm clock. "I'm like, `that's fine, but I'm outta here.'" In enemy circles, Ressler and Thompson are known to this day as "those two" and "the subversives."

Yet ROWE continues to spread through the company. If intrigued nonparticipants work for progressive superiors, they usually talk up the program and get their bosses to agree to trials. If they toil under clock-watchers, they form underground networks and quietly lobby for outside support until there is usually no choice but for their boss to switch. It was only this past summer that CEO Anderson got a full briefing, and total understanding, about what was happening. "We purposely waited until the tipping point b efore we took it to him," says Thompson. Until then he wasn't well-versed on the 13 ROWE commandments. No.1: People at all levels stop doing any activity that is a waste of their time, the customer's time, or the company's money. No.7: Nobody talks about how many hours they work. No.9: It's O.K. to take a nap on a Tuesday afternoon, grocery shop on Wednesday morning, or catch a movie on Thursday afternoon.

That's the commandment Achen was following when he took off that day to see Star Wars Episode III: Revenge of the Sith. Doing so felt abnormal and uncomfortable. Achen felt guilty. But Ressler and Thompson had told him to "model the behavior." So he did. It helped that Achen saw in ROWE the potential to solve a couple of nagging business problems. As the head of the unit that monitors everything that happens after someone places an order at BestBuy.com, including manually reviewing orders and flagging them for possible fraud, Achen wanted to expand the hours of op eration without mandating that people show up in the office at 6 a.m. He had another issue. One of his top-performing managers lived in St. Cloud, Minn., and commuted two and a half hours each way to work. He and Achen had a gentleman's agreement that he could work from home on Fridays. But the rest of the staff didn't appreciate the favoritism. "It was creating a lot of tension on my team," says Achen.

RECORD JOB SATISFACTION
Ressler and Thompson had convinced Achen that ROWE would work. Now Achen would have to convince the general manager of BestBuy.com, senior vice-president John "J.T." Thompson. That wasn't going to be easy. Thompson, a former General Electric Co. guy, was as old school as they come with his starched shirt, booming voice, and ramrod-straight posture. He came of age believing there were three 8-hour days in every 24 hours. He loved working in his office on weekends. At first, he pushed back hard. "I was not supportive," says Thompson, who was privately terrified about the loss of control. "He didn't want anything to do with it," says Achen. "He was all about measurement, and he kept asking me, `How are you going to measure this so you know you're getting the same productivity out of people?'"

That's where Achen's performance metrics came in handy. He could measure how many orders per hour his team was processing no matter where they were. He told Thompson he'd reel everyone back to campus the minute he noticed a dip. Within a month, Achen could see that not only was his team's productivity up, but engagement scores, or measuring job satisfaction and retention, were the highest in the dot-com division's history.

For years, engagement had been a sore spot for Thompson. "I showed J.T. these scores, and his eyes lit up," says Achen. Thompson rushed to roll out ROWE to his entire department. Voluntary turnover among me n dropped from 16.11% to 0. "For years I had been focused on the wrong currency," says Thompson. "I was always looking to see if people were here. I should have been looking at what they were getting done."

Today, Achen's commuting employee usually comes in once a week. Nearly three-quarters of his staff spend most of their time out of the office. Doesn't he worry that he loses some of the interoffice magic when they don't gather together all day, every day? What about the value in riffing on one another's ideas? What about teamwork and camaraderie? "You absolutely lose some of that," he says. "But what we get back far outweighs anything we've lost."

Achen says he would never go back. Orders processed by people who are not working in the office are up 13% to 18% over those who are. ROWE'ers are posting higher metrics for quality, too. Achen says he believes that's due to the new office paradox: Given the constant distractions, it sometimes feels impossible to get any work done at work.

Ressler and Thompson say all the Best Buy groups that have switched to the freer structurereport similar results. Meanwhile, the two have other big plans for the company. Last month they launched a new pilot called Cube-Free. Ressler and Thompson believe offices encourage the wrong kinds of habits, keeping people wrapped up in a paper, prewireless mentality as opposed to pushing employees to use technology in the efficiency-enhancing way it was intended. Offices also waste space and time in an age when workers are becoming more and more place-neutral. "This also sets up Best Buy to be able to completely operate if disaster hits," says Thompson. Work groups that go cube-free will be able to redesign their spaces to better accommodate collaboration instead of working alone.

Next year Ressler and Thompson plan to pilot their boldest move yet, testing ROWE in retail stores among both managers and workers. How exactly they will do this in an environment where salespeople presumably need to put in regular hours, they won't say. And they acknowledge it won't be easy. Still, they are eager to try just about anything to help the company slash its 65% turnover rates in stores, where disgruntlement is common and workers form groups on MySpace with names like "Best Buy Losers Club!"

Best Buy has transformed its workplace culture in a remarkably short time. Isn't it also true that ROWE could unravel just as quickly? What happens if the company hits a speed bump? Competition isn't getting any less intense, after all. Best Buy sells a lot of extended warranties, an area where both Wal-Mart and Target are eager to undercut the electronics retailer on price. What's more, the current boom in flat-panel, digital TVs will peak in a few years.

If Best Buy's business goes south, human nature dictates that the people who always believed the clockless office was a flaky New Age idea will see an opportunity to try to force a hasty retre at. Some at the company complain that productivity is up only because many Best Buyers are now working longer hours. And some die-hard ROWE opponents still privately roll their eyes when they see Ressler and Thompson in the hallway.

But it's worth remembering that most big companies fail to grow at the rate of inflation. That's true in part because the bigger the company gets, the harder it is to get the best out of each and every employee. ROWE is one of Best Buy's answers to avoiding that fate. "The old way of managing and looking at work isn't going to work anymore," says Ressler. "We want to revolutionize the way work gets done." Admit it, you're rooting for them, too.

 

Ev Franger, veteran Sears controller, dies at 92

NOTE: The following was learned November 30 in a message from his daughter, Susan Franger Singleton, to the NARSE guest book:

Evgen D. Franger passed away peacefully at home on October 31, 2006. His career and colleagues at Sears were a very important part of his life, second only to his family. We were raised as Sears kids, even being taught to play gin rummy. I remember Homan and Arthington, the State Street Store (WLS), the opening of Oak Brook Mall, the erection of the Sears Tower, and possibly, my earliest memory, the Wish Book. My first job - Sears Oakbrook, D/77! Regards, Susan, for the Family of Ev Franger
30 November 2006

CHICAGO TRIBUNE
November 5, 2006

Evgen Daniel Franger "Ev", age 92, of Shorewood, IL and Rancho Mirage, CA, at rest Oct. 31, 2006, beloved husband of the late Margaret Ethel Franger, nee Bowser, whom he married in 1937; the devoted father of Margaret Jane Harper, Joseph Daniel (Mary Ellen) Franger, M.D. and Susan (Peter) Singleton; loving grandfather of Daniel (Julie) Harper, Elizabeth (Rudy) Ramirez, Richard (Linda) Harper, John (Toni) Harper, Margaret (Frank) Franger Urbano, Joseph Franger, Peter Franger and Andrew Franger; cherished great- grandfather of Daniel, Kathleen, Sarah Harper, Peter, Kathryn, Caroline Ramirez, Margaret, Amy Harper, Megan, Amanda, Andrew, Matthew Harper, Madison Rose and Genevieve Urbano; dear brother of Kathryn, Joseph and the late John and Vincent Franger; loving uncle to many nieces and nephews.

Born to the late John and Velma, nee Bollman, Franger in Racine, WI on Sept. 25, 1914, the family moved to Fairbury, IL where he remained until graduation from high school. Thereupon, he moved to Chicago where he attended the University of Chicago, studying finance and accounting. He subsequently earned his law degree from Loyola University, Chicago and MBA from the University of Chicago, Graduate School of Business.

He joined Sears, Roebuck & Co. in 1948 in Chicago where he enjoyed a long and distinguished career, retiring after 38 years of service in 1984. He attained the position of General Merchandise Controller in 1969, responsible for the management of inventory levels throughout the retail and catalog infrastructures. To support this effort, he and his team introduced management systems at point of sale in all stores (RIM) and catalog distribution centers (AIM).

Leveraging this expertise, the US Army GAO engaged him to audit its logistics, purchasing and warehousing systems.

In 1978, he joined Sears International, and led the consulting team for the Japanese retailer, Seibu, in which Sears had a minority interest. His primary focus was the installation of inventory management systems at POS. He traveled world wide, consulting for firms and governments alike.

Lying in state Saturday 8:30 a.m. until Mass 9:30 a.m. at St. Raymond Church, Elmhurst Rd. (Rt. 83) and Lincoln St., Mt. Prospect. Interment will be Saturday 3:30 p.m. at St. John the Baptist Cemetery, Fairbury, IL. In lieu of flowers, memorials to Joliet Area Community Hospice. Arrangements by Friedrichs Funeral Home, Mt. Prospect, IL. For info, 847-255-7800 or www.FriedrichsFH.com

Retailers Expect Strong Holiday,
Despite Grim Wal-Mart Forecast
By James Covert – Wall Street Journal Online
November 30, 2006

NEW YORK -- Retailers began posting mixed November same-store sales, but many said slow sales in the beginning of the month picked up during the Black Friday weekend, positioning them for a good holiday sales season.

Strength at department stores and teen/child sectors were offsetting weakness at Wal-Mart Stores Inc.

Last year major retail chains reported a 3.3% gain in same-store sales, or sales at stores open at least a year, as spending was lifted by soaring home values. But while the housing market has grown shaky over the past year, the job market and wages lately have been strong.

Wal-Mart confirmed a 0.1% decline in its November same-store sales -- short of its earlier forecast for flat same-store sales in November. That would mark Wal-Mart's first same-store sales decline in more than a decade. The company said it expects sales to be flat to up 1% in December

On the bright side, most analysts say Wal-Mart's weakness is a company-specific issue. Wal-Mart recently has missed its monthly sales forecasts despite a late-summer drop in gasoline prices that should have benefited its lower-income consumers. The company blames a botched fashion strategy, remodeling efforts that have disrupted traffic and difficult comparisons with a year ago, when shoppers in the Southeast scrambled to stock up on essentials in the wake of big hurricanes.

J.C. Penney Co. and Federated Department Stores Inc., which both sounded upbeat notes on post-Thanksgiving sales, reported 1.4% and 8.5% jumps in same-store sales, respectively. Federated topped First Call expectations of a 4.8% jump after more than 400 former May Co. stores were converted to Macy's in September.

November's post-Thanksgiving weekend traditionally kicks off the Christmas shopping season. Reports were mixed on how strong a start retailers got. Sales on "Black Friday" rose 6% to $8.96 billion, according to ShopperTrak RCT, a firm that compiles data based on traffic at 45,000 stores in shopping malls around the country. But that information excludes data from many strip centers and free-standing stores, such as Wal-Mart, Prudential Equity Group's Stacy Pak said in a Monday research note.

Warmer-than-usual temperatures in November haven't helped apparel sales, according to weather consultant Planalytics. And while sales of electronics were above average at Wal-Mart, Best Buy Co. and Circuit City Stores Inc. during the Black Friday weekend, gains in apparel were below average, according to credit card transaction data from Visa USA. Department stores will depend on last-minute splurging on cashmere sweaters, coats and leggings to meet outsized expectations for the season, according to Wayne Best, Visa USA's chief economist.

Among the handful of stores that reported November sales early, teen retailer Aeropostale said same-store sales rose 1% for the four weeks ended Nov. 26. Rival American Eagle Outfitters Inc. said its same-store sales rose 14% for the month ended Nov. 25.

Dollar General closing 400 stores
Associated Press
November 29, 2007

NASHVILLE, Tenn. - Discount retailer Dollar General Corp., a major competitor of Matthews-based Family Dollar Stores, said Wednesday it plans to close 400 stores next year and open about 300 new locations to improve profitability.

The plan will cost about $138 million, with $74 million related to store closings and $64 million for higher markdowns to expedite the move away from its "packaway" inventory management model, as well as other expenses. The "packaway" model keeps products on the shelf longer. Under its new inventory strategy, Dollar General plans to sell off some $300 million in older merchandise to make way for newer products that are in season.

Dollar General did not specify where the new stores would open and which stores will close.

About $80 million of the costs will be booked in the third quarter ended Nov. 3.

In the most recent quarter, Dollar General reported a 40 percent decline in profit on increased costs, despite slightly higher sales.

Dollar General shares fell 77 cents, or 4.61 percent, to $15.94 in late morning trading on the New York Stock Exchange.

"These strategic changes are designed to enhance the shopping experience for our customers and put the company on a solid foundation for profitable and sustainable growth in the future," said David Perdue, chairman and CEO. "Fiscal 2007 will be a year of transition for us as our team will be highly focused on executing this plan."

The company also announced plans to repurchase up to $500 million of its outstanding common stock over the next two years in a buyback that expires Dec. 31, 2008.

It also said it has named David L. Bere as its new president and chief operating officer effective Dec. 4. Bere, 53, has served as a company director since 2002. He previously served as corporate vice president of Ralcorp Holdings Inc., a publicly held maker of store-brand breakfast cereals, cookies and snacks. Before that, he spent 17 years at oatmeal maker Quaker Oats Co.

A spokeswoman said the position of president and chief operating officer has been vacant since 2004, when former President and COO Lawrence Jackson left the company.

Dollar General, based in Goodlettsville, Tenn., had 8,276 neighborhood stores in 34 states as of Nov. 24.

The store closings will allow the retailer to open about 300 new stores in fiscal 2007 and another 400 in 2008. Dollar General also plans to relocate or remodel 300 stores each year, with about 700 new store openings in 2009.

The company did not disclose how many workers would be affected.

Despite the hefty markdowns, the retailer said the change will improve the appearance of its stores and will ultimately result in higher sales and lower employee turnover.

Big Employers Plan Electronic Health Records
By Gary McWilliams – Wall Street Journal
November 29, 2006

Several big employers are about to deliver an electronic jolt to the U.S. health-care system.

Next week, Intel Corp., Wal-Mart Stores Inc., British Petroleum and others will disclose a plan to provide digital health records to their employees and to store them in a multimillion-dollar-data warehouse linking hospitals, doctors and pharmacies. Their goal: to cut costs by having consumers coordinate their own health care among doctors and hospitals.

Craig R. Barrett, Intel's chairman, calls portable electronic records "the building-block to modify the U.S. health industry" into a more responsive and cost-conscious system. "I frankly don't think that the industry is capable of modifying itself," he says.

Next week, the companies will announce their collaboration on a records standard to kick-start the plan. Later, about 10 employers are expected to chip in $1.5 million each to construct a data warehouse to store and update the e-records. Once in place, the combination would allow consumers and insurers to evaluate price and performance data from millions of employees. Eliminating duplicate tests and erroneous or lost information would also slash administrative overhead, which is estimated to account for 40% of medical costs. And electronic prescriptions alone could help prevent the 98,000 serious illnesses or deaths that result annually from prescription mistakes.

ONE DOCTOR'S EXPERIENCE

WSJ columnist Benjamin Brewer, a family practice doctor in Illinois, has written about his experience with online patient visits, and how they help build electronic health records.

Doctors could also use the records to measure which treatments worked best for chronically ill groups of patients. In addition, once their records are online, employees could order prescriptions and calculate their out-of-pocket medical costs using software that understands their health plans.

Patient medical records -- often hand-written -- are currently strewn among doctors' offices and hospitals. Computerizing them has long been supported by hospital and doctors' groups, but has foundered on technical and cost grounds. Now, only about 10% of U.S. doctors have a completely electronic record-keeping system.

Coalition members believe that giving consumers control over their own records would help get around the technical and cost issues. But the idea of portable medical records and a massive repository still faces hurdles. Privacy advocates worry that digital records will be misused by employers and insurers to deny jobs or health-care coverage. The watchdog group Patient Privacy Rights Foundation urges employees to shun the approach until there are adequate protections. "The system is leaking information," says Chairwoman Deborah C. Peel, a practicing psychiatrist. "Once out there, it's like a Paris Hilton sex video. It's [there] for the millennium."

The coalition expects to apply a combination of market pressure and incentives to get doctors and hospitals on board. The employers will insist that health-care providers adopt electronic records and prescribing as a condition of future business. Retailer Wal-Mart will apply its purchasing power to get bar codes on products intended for hospitals and clinics. All expect employees to pick doctors willing to use and update their records, though employee compliance is voluntary. According to the companies, the records will be the property of the employees, and the data will be mined by insurers and others only after the patients' identity is stripped off.

"We're trying to bring all the right people to the table and show them what can be done," says Linda M. Dillman, the Wal-Mart executive vice president in charge of the company's budding health-care initiative. A late comer to the health-care debate, Wal-Mart has been criticized for its employee health plans, and it has sought out allies among medical societies and health-care advocates.

Intel and Wal-Mart came together on the initiative last summer at the suggestion of the Centers for Disease Control and Prevention. Each had been meeting separately with the federal agency to discuss its efforts. Wal-Mart's Ms. Dillman describes the linkup as a bit of unexpected luck. "There is only so much you can do internally. To make a difference, you have to reach outside your own four walls," she says.

Both companies' businesses could benefit from the initiative's success. Intel sells chips that power prescription-writing hand-held PCs as well as giant file servers. Wal-Mart, the third-largest pharmacy chain, will soon have 60 "miniclinics" dispensing basic health-care services, and it is rapidly expanding the business.

Wal-Mart and Intel also share a common enemy: benefit costs. Intel figures its health-care spending will be as much as a fifth of its research and development costs by 2009. Wal-Mart says the costs for its 1.3 million U.S. employees, if unchecked, will climb $1 billion annually for the next five years.

While health care in the U.S. has remained paper-based and fragmented. Danish hospitals, pharmacies and general practitioners communicate via a secure, government-supplied network. Danes can go online to book medical appointments, renew prescriptions, view diagnoses and query their doctors.

At the heart of the Intel-Wal-Mart approach is the belief that if price and quality measures apply market pressures, technology can duplicate the integration that government-run health-care systems like the Danish one achieve. The final pieces to the puzzle -- pricing and performance information -- only recently started appearing online. The government posts pricing information using the fees charged to Medicaid. Groups including Hospital Quality Alliance, Ambulatory Quality Alliance and the Wisconsin Collaborative for Healthcare Quality rate hospitals and doctor groups on quality.

"The evidence is beginning to show that what gets measured and reported publicly gets improved faster," says Christopher Queram, president of Wisconsin Collaborative for Healthcare Quality, which began rating southeast Wisconsin hospitals and doctors in 2003.

"If this works, for the first time people and companies will be able to get a sense of how their doctors are doing so they can steer to or from them," says Sheldon Greenfield, director of the health-policy research center at the University of California, Irvine. Costs will fall when consumers can see "other doctors are achieving the same outcomes at lower cost. That's going to eventually affect us," he says.

Suitable quality measures for certain illnesses, such as depression and heart disease, aren't currently available, says Dr. Greenfield. But in other areas, such as diabetes, there are widely accepted ways to measure quality -- and match it to pricing.

The Intel-Wal-Mart plan to offer employees medical records and automatically update those records with hospital, doctor and pharmacy detail "is very ambitious," says Dr. Greenfield, an adviser to Care Focused Procurement LLC., a nonprofit putting together an HMO claims database. "We love the patient as the agent."

"It has always seemed unusual to me that the medical record is seen as the property of the medical system," adds Donald Berwick, chief executive of the Institute for Health Care Improvement, Cambridge, Mass. Tests are duplicated and information lost in the handoff between physicians or clinics. "The best integrator in the end is the patient," Dr. Berwick says.

Sears Holdings Acquires 17.8M Sears Canada Shrs In Offer
Wall Street Journal Online – Dow Jones Newswires
November 28, 2006

Sears Holdings Corp. (SHLD) said Tuesday it acquired a total of 17.84 million shares of Sears Canada Inc. (SCC.T) in its offer which expired last night.

Sears Holdings, Hoffman Estates, Ill., said it now owns, directly or indirectly, 75.57 million shares of Sears Canada, or 70.2% of its outstanding stock.

Sears not so grand, not so essential
By Sandra Guy – Business Reporter – Chicago Sun-Times
November 28, 2006

Sears Holdings Corp. is still struggling with its off-mall superstore format, but holds out hope it will sell Martha Stewart merchandise at Sears stores, according to a report of a talk given by Sears CEO Aylwin Lewis.

Lewis is quoted in the newsletter of the National Association of Retired Sears Employees Inc. as telling Orange County, Calif., retirees that most of the Sears Grand and Sears Essentials superstores have been unsuccessful, especially in the Northeast and in Southern California.

Sears is counting on success from Sears Grand's one-stop-shop aura, complete with toys, pantry items and an outdoor garden shop under the same roof as tools, electronics and appliances, to compete with Wal-Mart, Kohl's, J.C. Penney and other fast-growing rivals.

Sears Grand emerged as Sears' off-mall format in February, after Sears Chairman Edward S. Lampert decided that Sears Essentials, which was meant to combine the best of Kmart and Sears, had flopped.

Sears operates 28 Sears Grand and 46 Sears Essentials stores, and is converting Kmart stores and Sears Essentials stores to the Sears Grand format.

Sears spokesman Chris Brathwaite said Monday the company would not comment on the speech.

The newsletter article comes on the heels of insider reports that Sears and Kmart regular stores suffered sales declines of more than 6 percent from a year ago on the day after Thanksgiving, the crucial start of the holiday shopping season that many retailers rely on to make a profit.

Lewis, a former Kmart CEO, became one of the country's highest-ranking African-American executives on Sept. 8, 2005, when he was promoted to CEO and president of Sears' and Kmart's parent company.

Martha Stewart's popular home decor and kitchenware have been exclusive to Kmart, but Lampert, a billionaire hedge fund owner, grew dissatisfied with the generous terms of her contract.

At the Sears' shareholders' meeting last April, Lampert said the company was unable to negotiate a new long-term deal with Stewart beyond the three years remaining on her present contract, and didn't have any plans to commit to new products just for the short term.

Stewart struck back, announcing that she will design upscale home decor and holiday decorations exclusively for Macy's, starting in 2007, and trumping any such deal at Sears stores.

The Kmart-Sears turmoil has reportedly led to a large-scale turnover at stores. Half of the store managers have departed since Kmart's $12.3 billion takeover of Sears Roebuck on March 24, 2005, according to the report of Lewis' speech.

The Sears spokesman said he could not comment on the number of people who've changed jobs since the merger.

Lewis has said in previous forums that he is in charge of changing the culture at the store level by requiring managers to train their underlings to greet shoppers, work as a team and institute systems that help shoppers find merchandise.

March of the holiday shoppers
By Sandra Guy and Francine Knowles - Business Reporters – Chicago Sun-Times
November 27, 2006

Shoppers gave retailers the gift of big bucks by spending nearly 19 percent more this Thanksgiving weekend than they did last year.

But despite the strong start to the holiday shopping season, the National Retail Federation is sticking to its forecast that overall sales won't be as bright as last year's by the time the season comes to an end.

"Black Friday weekend isn't usually the main indicator for the remainder of the holiday season," said federation spokeswoman Kathy Grannis on Sunday. "There are many other shopping days to gauge sentiment."

The traditional kickoff of the holiday shopping season saw more than 140 million shoppers hit the stores, spending an average of $360.15, according to a federation survey. That was up 18.9 percent from the $302.81 they spent on average last year. The survey of Black Friday weekend -- the phrase refers to retailers turning a profit or being "in the black" -- was conducted by BIGresearch.

The federation still forecasts retailers' holiday sales will rise 5 percent to $457.4 billion, compared with the 6.1 percent increase during the 2005 holiday shopping season.

Special deals on high-definition TVs and apparel, available at retailers who opened during the wee hours of the morning and some who opened at midnight Friday, helped attract customers over the weekend. But many came only for the bargains, such as Wal-Mart Stores Inc.'s $997 37-inch LCD TV.

"It was shocking, because people were only buying 'doorbusters,'" said Howard Davidowitz, chairman of Davidowitz & Associates, referring to low-priced items. Workers at his consulting and investment banking firm visited 50 retailers over the weekend. "You can't have people just come in and buy doorbusters and leave."

Bargain shoppers love the thrill of the chase, but the political and economic climate also affects how people spend. This year, shoppers have to decide how wide to open their pocketbooks while they consider the Iraq war, a weak housing market, political party turnover and a "gas ticker" clicking in their heads, even when gasoline prices drop, analysts say.

Most popular: clothes, books, CDs
Discount stores saw traffic fall substantially this Thanksgiving weekend, compared with last year. But they still attracted the biggest chunk of traffic -- more than 49 percent, compared with more than 60 percent last year. Traditional department stores drew in 39 percent of the traffic, while specialty retailers, including clothing and toy stores, attracted 38 percent.

The most popular items purchased were clothing and accessories, books, CDs, DVDs, videos, consumer electronic products and computer-related accessories.

Gail Lavielle, spokeswoman at Hoffman Estates-based Sears Holdings, which also owns Kmart stores, said Sunday the stores were busy Friday and Saturday. At Sears, flat-screen TVs, digital cameras and Craftsman tools were the hot items. At Kmart, holiday decor -- including Christmas trees -- jewelry and toys were the most popular.

This year's retail season is one day longer and has one more weekend than did last year's, so even though the day after Thanksgiving was expected to be the largest sales day of the season, the Saturday before Christmas -- Dec. 23 -- should be the biggest day for crowds, according to ShopperTrak RCT Corp., a Chicago research firm that tracks sales at more than 40,000 mall-based stores.

Besides traditional gifts of clothing, toys and jewelry, gift cards are expected to remain popular. The cards should account for 10 percent of holiday sales -- an all-time high with sales forecast at $24.8 billion this holiday season. Gift-card purchases are excluded from holiday sales until the cards are redeemed.

Online sales are also expected to be healthy. Last year, online holiday sales grew 25 percent from 2004. This year's increase is expected to come close to matching that percentage gain, with sales of $24 billion to $27 billion.

The busiest online traffic day is expected to be today. More than 60 million consumers plan to shop online from home or work today, a Shop.org survey says.

Contributing: Bloomberg News

Holiday Sales Get Off to Solid Start,
But Wal-Mart Doesn't Share Cheer
By Amy Merrick and Kris Hudson – Wall Street Journal
November 27, 2006

Shoppers started early and splurged on flat-panel TV sets and computers over the long weekend, driving strong electronics sales in what was generally viewed as a solid start to the holiday season. But despite aggressive discounting throughout November and on Black Friday, Wal-Mart Stores Inc. reported its weakest monthly sales in more than 10 years, raising doubts about whether the Christmas cheer will be widely shared.

ShopperTrak RCT Corp. estimated that Friday sales nationwide increased 6% from the previous year, reaching $8.96 billion. "This data show an even larger increase than expected," said Bill Martin, ShopperTrak's co-founder. The research firm compiles its estimate from sales statistics and data gathered from 45,000 electronic counting devices in enclosed malls and strip shopping centers.

The kickoff of the holiday shopping season continued to creep earlier this year, with shoppers taking advantage of special hours that began before dawn Friday, or even earlier, at a growing number of stores.

The biggest sales gains Friday were in electronics. In dollar terms, the average purchase was nearly 9% higher than a year ago, said Wayne Best, senior vice president of business and economic analysis for Visa USA, which tracks purchases made with its credit cards -- roughly $17 out of every $100 spent in the U.S. Increasingly, the nation's shoppers view Black Friday as a time to buy big-ticket items for themselves, often at deep discounts, Mr. Best said. "You don't go out and buy a flat-panel TV for someone else."

Goods dominated by department stores and discounters, such as apparel, didn't sell as briskly, he added.

The National Retail Federation, which predicts that holiday sales will increase 5% this year to $457.4 billion, said more than 140 million people went shopping on Friday. In a survey of 3,090 consumers, the trade association found that shoppers spent an average of $360.15 this weekend, up nearly 19% from last year's $302.81. Discounters were still the most popular shopping destination, but their share dropped significantly from last year; about 50% of those surveyed said they visited a discounter over the weekend, compared with 61% last year.

Online retailers also saw a big jump in holiday sales, even as the e-commerce industry matures into a period of slower growth. Web retail sales, not including travel, jumped 42% on Black Friday to $434 million from $305 million a year earlier, according to comScore Networks Inc., a Web-tracking firm.

Today is another closely watched day for online retailers. "Cyber Monday" is the first back-to-work day after Thanksgiving, which often sees a surge of people shopping online from the office. ComScore expects sales to jump 24% to $599 million today from $484 million last year.

"Since last year, it seems like the general trend is upward," said Mike Morgan, of Mahopac, N.Y., who was out shopping after midnight Thursday, looking for a big-screen TV for his father. "Everywhere I go, people are talking about how much lower gas prices have gotten."

But Wal-Mart doesn't seem to have benefited from the lower gasoline prices. On Saturday, the retail giant said its same-store sales, or sales at stores open at least a year, declined 0.1% for the four weeks ended Friday. It was its worst such performance since April 1996, and only the second time in 27 years that Wal-Mart has registered such a decline. (Read more on Wal-Mart's sales <http://online.wsj.com/article/SB116446151547032781.html?mod=Leader-US> 6.)

The slippage came despite the retailer's much-publicized program offering some generic drugs for as little as $4 per prescription in 38 states. Hampering Wal-Mart's November sales was the outage of its Web site for what a spokeswoman called "a short time" on Friday morning.

Wal-Mart had been moving to broaden its appeal to more-affluent shoppers earlier this year. But its aggressive bet on trendy women's apparel hasn't caught on, and store remodeling has been disruptive. Recently, the company switched gears and tried to dominate the holiday shopping season early on by slashing prices on toys, home goods and electronics throughout November. Some analysts say those efforts generated more of an increase in publicity than in sales.

However, some analysts urge patience, arguing that Wal-Mart's bid to add new customers is the proper course, given that the retailer, with nearly 4,000 U.S. stores and $312 billion in sales last year, no longer can rely as heavily on rapid expansion in the U.S. to propel its sales growth.

"The strategy is the right one, we're just not seeing it in the numbers yet," Goldman Sachs Group analyst Adrianne Shapira said yesterday. She added that Wal-Mart's performance in December will be more telling. To achieve sales growth next month, Wal-Mart won't face as high a hurdle as it did in November because its year-earlier sales for the month weren't up as steeply. The retailer's same-store sales gained 4.7% in November 2005, compared with an increase of just 2.7% last December.

Eager to launch this year's holiday season, dozens of malls from coast to coast lured shoppers out at midnight on Thursday. Packs of teenagers, babies in strollers, pajama-clad shoppers and families with grandparents and elementary-school children flooded the Citadel Outlets mall in Commerce, Calif., east of downtown Los Angeles, where they were greeted by Christmas carols blasted over the loudspeaker, and a 90-foot-tall Christmas tree, lit up with colored lights.

Did the increased traffic bring more incremental sales -- enough to compensate for the expense of the additional staffing? Anita Boeker, spokeswoman for the Outlets, said that several national retail tenants reported sales increases of 35%, doubling last year's Black Friday sales, with one national fashion chain reporting a 400% increase over its projections for the day.

"It definitely exceeded our expectations." said Ms. Boeker, who said stores were already planning for how to manage the midnight crowds again next year. "The key is, where you saw the lines and the stores that were really packed with shoppers are the stores that had great offers at midnight," she said, adding: "Give the shopper a reason to come into your store at midnight."

Many of CompUSA's more than 200 stores were doing just that -- and opening even earlier, at 9 p.m. Thursday. An estimated 500 people filed into the store in Arlington, Texas, in search of doorbuster specials such as a $199 Compaq laptop and a $429 26-inch high-definition-ready TV. "I feel bad for these poor people," one customer, Jason Arntz, said of the CompUSA staffers as he waited in a long line at the checkout counter. "But if their company wants to make that decision, that's fine by me."

Apparel stores were harder pressed to offer steep discounts. Unlike electronics chains that benefit from ever-decreasing prices on new technologies, clothing prices have been relatively stagnant for years and at many stores, there isn't much room to cut. At Old Navy, for example, the fleece pullovers on sale for $10 cost the same last year.

A slow start to apparel sales isn't necessarily a problem. The first five days of the holiday season represent only 13% of clothing sales, compared with the 23% coming in the last five days, said Michael McNamara, vice president of research and analysis for MasterCard SpendingPulse.

"The early buzz that we're seeing is that the weekend might have exceeded expectations in some areas," such as electronics, "but overall I wouldn't necessarily see a reason to raise the bar for all growth," he said. He predicts overall holiday retail sales will increase 4% to 6%, excluding autos.

Henri Bendel is among those making a bigger marketing push, creating its first holiday catalog this year and its most elaborate holiday window and store display so far. The Alice in Wonderland-themed display involves 2,000 crimson fairies covered in marabou feathers and an adult-size spinning Alice suspended from the ceiling.

While 50%-off house-brand cashmere drew many shoppers to the Henri Bendel store on Manhattan's Fifth Avenue, accessories such as evening clutches and cocktail rings, and small gifts such as the store's $30 candles sold briskly on Saturday, Chief Executive Ed Bucciarelli said. "We've had to restock the candles every 10 minutes," he said.

J.C. Penney Co. said Saturday that its season is off to a good start, with brisk traffic in its stores Friday and strength across all regions of the country. Home entertainment, jewelry, children's apparel and housewares were among the most popular merchandise categories.

Target Corp. had its own secret weapon for luring shoppers back into its stores. On Sunday, it unveiled what Target president Gregg Steinhafel described as "collectors' items and unique, nationally branded goods" it has never before sold. They included an autographed guitar by Paul Stanley of Kiss for $199.99 and a Dolce & Gabbana fragrance set for $39.99.

Shoppers also flocked to the Web to track down hard-to-find items that have sold out in many retail outlets. Between Nov. 17 and Nov. 24, 14,675 PlayStation 3 game consoles were sold on eBay for about $1,186 apiece. (The highest amount paid so far for the coveted console: about $7,500, says a spokeswoman.) Meanwhile, on Black Friday alone, 2,537 TMX Elmo toys were sold for about $70 each.

To further spur Cyber Monday shopping, some retailers, including Petco, Home Depot Inc., Barnes & Noble Inc., will be offering additional online discounts. But Web retailers say they are starting to see a surge in Web traffic come earlier and earlier. As of Friday, consumers had spent $8.31 billion since Nov. 1 on nontravel purchases on the Web, up 23% from $6.75 billion a year ago, according to comScore.

Indeed, online spending is still so new that it isn't easy to predict trends. Last year Cyber Monday was only the ninth-biggest day for online shopping. The biggest day last year was Monday, Dec. 12.

In middle, it's Penneys vs. Kohl's
Stores making a grab for more market share
Associated Press – Chicago Tribune
November 25, 2006

Clutching a plastic J.C. Penney bag in one hand and reaching for her 4-year-old daughter with the other, Cathy Lewis sized up the department-store options for shoppers on a budget.

"I like the quality and price of the children's clothes at Penneys," the suburban Dallas woman said. "I like Kohl's too. Their sales are good, but I don't like their selection as much."

That's pretty much the competition as far as Lewis is concerned. She said Macy's and regional chain Dillard's, both in the same mall as her Penney, are just too expensive.

As the holiday season begins in earnest this week, J.C. Penney Co. and Kohl's Corp. will battle each other for the purses and wallets of moderate-income shoppers who feel left behind by Macy's and are looking for a bit more cachet than they find at Wal-Mart Stores Inc.
Penneys and Kohl's have been posting impressive sales gains and hope to carry that momentum through December. Not coincidentally, both are on major expansion binges, building new stores at the fastest pace in years.

The holidays, however, pose their own special challenge to these two retailers.

Being a destination for that special gift "probably wasn't one of our strengths," said Myron Ullman III, Penneys chairman and chief executive. But "Penneys has changed. We are a desirable place to shop and a desirable place to get a gift from."

To convince shoppers of that transformation, Plano, Texas-based Penneys has added more electronics, jewelry, toys and fancier clothes such as cashmere sweaters.

Kohl's holiday plans include increasing inventory and pushing watches and jewelry. Kevin B. Mansell, president of the Menomonee Falls, Wis.-based company, said he expects luxury home items to be big sellers.

Both chains enter the holidays on a winning streak.

Kohl's posted a 16.3 percent September gain in sales at stores open at least one year, a key measurement in retailing, and it slowed to 4.2 percent in October. Penneys put up same-store gains of 8.7 percent in September and 8.1 percent in October.

While Penneys and Kohl's eye each other, they also must contend with other rivals, from discounters to other department stores.

Kohl's touts frequent sales events and is willing to cut prices to steal shoppers from other stores, said Richard Hastings, a retail analyst with Bernard Sands LLC. That pits Kohl's against chains such as Target Corp. and Gap Inc.'s Old Navy.

Hastings said Kohl's is more willing than Penneys to sacrifice some of its profit margin to attract customers, "and it's working for them. They are very aggressive about getting market share."

Penneys has a distinct advantage over Kohl's in at least two areas: It has a strong Web presence and big private-label brands that generate s trong profit margins. "I like Penneys better than Kohl's because they've built out a multichannel approach," said Love Goel, who heads Growth Ventures Group, a Minnesota-based investment firm. "Kohl's hardly has an Internet presence."

Penneys and Kohl's are expanding rapidly. Penneys plans to add 50 stores a year for the next three years, giving it nearly 1,200 by 2010. Kohl's, which has more than 800 stores, also aims for 1,200 in 2010.

Most of the new Penneys stores will be built away from shopping malls. Kohl's, which has avoided crowded malls since its beginning in 1962, is way ahead of Penneys on that score, said Marshal Cohen, a retail analyst at market researcher NPD Group Inc.

"Shopping is a chore when you have to go to the mall," Cohen said. "Shopping used to be an impulse thing. They want to bring it back to being fun again and being convenient again."

Cheap Chic: Who Gets it Right
Snakeskin shoes for $25. Trendy ottomans.
Discount design has transformed retail, but it's generating flops along with fashion coups. Has label mania gone too far?
By Rachel Dodes and Ann Zimmerman – Wall Street Journal
November 25, 2006

At J.C. Penney, a $70 chiffon leopard-print dress carries designer Nicole Miller's name. Kohl's will roll out a collection of lingerie and bedding by Vera Wang next year. Even Payless ShoeSource has teamed up with a high-end designer -- Laura Poretzky, whose Abae for Payless line starts at $25 for a pair of wedges.

In less than a decade, filling the shelves of mass merchants with hip designs has gone from an unusual approach pioneered by Target to one of retail's most widely copied strategies. Stores have scrambled to sign up designers and tout their trendier sides. When Wal-Mart brought in Mark Eisen to update its George line in early fall, it showcased the clothing in a spread in Vogue.

Designer shoes at Payless: Faux snakeskin and suede for $25

But as the concept has spread, the pressure to come up with more goods that project a trendy image yet appeal to a mass audience is taking its toll -- and resulting in some missteps. While Wal-Mart had early success selling a high-fashion line called Metro 7 in urban areas, when it rolled the clothes out more broadly this fall, much of the collection languished on shelves. Target trumpeted a new line of furnishings by Thomas O'Brien, a designer with a boutique in New York's Soho neighborhood, but customers initially balked at some of the price tags, including $140 for a chenille ottoman.

We called in a panel of design experts to help us sort through this season's trendiest new items from major discount retailers, including everything from men's shirts to appliances. With fashion trend