Former Sears CEO dies
Daily Herald Online – Suburban Chicago
December 28, 2007

In 1956, a young and impressionable Sears sales associate named Edward A. Brennan stood in awe as the manager of the Madison, Wis., store said the company had earned $2.5 billion in sales the year before.

"I remember thinking $2.5 billion! Have I come too late?" a then-retiring Brennan had said in May 1995 as he presided over his last annual meeting as Sears CEO. "Now, as I look at this company (then with $54.5 billion), I say to myself, truly the best is yet to come."

Brennan, who was responsible for fulfilling shareholders' dreams by spinning off Sears businesses, died Thursday. He was 73.

"We were saddened (today) to learn of the passing of Sears' former Chairman and CEO Edward Brennan," said Sears spokeswoman Kim Freely. "Our thoughts and prayers are with the entire Brennan family during this difficult time."

Brennan retired from Sears, Roebuck & Co. as chairman and chief executive officer in August 1995 after a 39-year career.

At that last shareholder meeting, he told a Daily Herald reporter that "I would like to be remembered as an agent of change that was responsible for the company in an era where the business was evolving."

Brennan also served on the boards of Exelon Corp. and McDonald's Corp.

"Ed was a true leader and a man of great integrity. He made a tremendous contribution to McDonald's," McDonald's CEO Jim Skinner said in a statement today. "His strong leadership and experience were absolutely invaluable to us. Our thoughts and prayers are with Ed's family. We will miss him greatly."

In addition, Brennan served on the boards of Allstate, 3M, Morgan Stanley, and AMR (parent of American Airlines). He was executive board chairman of AMR in 2003 when American Airlines was on the brink of bankruptcy and then-CEO Don Carty was pressured to leave.

Brennan also was chairman of the board of Rush University Medical Center in Chicago and member of the U.S. Naval Academy Foundation Board.

He leaves behind his wife, Lois, and six children.

• Daily Herald Business Writer Anna Marie Kukec contributed to this report.

Sears technician made a career of tinkering
Calvin George 'Cal' Wolthausen: 1929 - 2007
By Graydon Megan – Special to the Chicago Tribune
December 28, 2007

Calvin George "Cal" Wolthausen, a retired senior technical manager for Sears, Roebuck & Co., enjoyed fixing things -- ranging from televisions at his first job in the 1950s to watches and clocks in retirement.

"Cal would never say no to anybody," said Mike Ferrell, a friend and watch repairer. "If somebody had something to repair, he'd fix it."

Mr. Wolthausen, 78, died of pulmonary fibrosis Saturday, Dec. 22, in Rush University Medical Center in Chicago, family members said. He had lived in the Barrington area most of his life and in Lake Barrington since 2003.

"My dad was a quiet man who loved to fix things," said his son, Eric.

Mr. Wolthausen had been twice married and divorced when in 1988, while taking the train to work at Sears, he met Jackie Conner, a divorced mother of three adult children, including Olympic gold medal-winning gymnast Bart Conner.

The two married in 1991 and traveled to Romania in 1996 for the wedding of Bart Conner and Romanian Olympic champion Nadia Comaneci.

"Cal's relationship with my mom came along at the perfect time for both of them," Bart Conner said. "He was a sweet, caring and gentle man."

Mr. Wolthausen grew up in the Barrington area and graduated from what was then Ela-Vernon High School, now Lake Zurich High School, in 1946. He worked briefly as a lathe operator before becoming interested in electronics. In 1948, he took a home study course in electronics and went to work for an Evanston company.

"He became one of the first television repairmen in the Evanston area," his son said. "He had his own little business, Radio and Television Repair of Skokie."

Mr. Wolthausen sold the repair business in the late 1950s, his son said, and went to work for a company installing components of a national defense system called the Distant Early Warning Line. He worked about 70 miles east of Point Barrow, Alaska, on a series of radar stations intended to detect approaching Soviet bombers during the Cold War.

In 1966, Mr. Wolthausen joined Sears, overseeing electronic repair work in the company's regional repair centers across the country, his son said.

"He would help them diagnose and repair problems," his son said. "He was in charge of repair operations for electronics across the country."

About 1982, Mr. Wolthausen became senior technical manager for Sears mechanical and electronic products, a job that he held until he retired in 1990.

Mr. Wolthausen's first marriage to Irene Warren ended in divorce, as did a brief second marriage. Jackie Conner Wolthausen died of complications from lung cancer in 2000.

"He sure loved my mom and was solid as granite through her struggle with cancer," Conner said. "I remained close with Cal."

After retirement, Mr. Wolthausen had a home-based repair business, specializing in clocks, but also including typewriters and computers.

"He never turned down any repair job," Ferrell said. "Cal would work on it as long as it takes, and he would charge only a little for it. Even obsolete things."

Ferrell said Mr. Wolthausen had business cards that read, "If nobody can, Cal can."

Mr. Wolthausen also was a board member and vice president of membership for the Barrington Area Historical Society.

"He was just a stellar member," said Michael Harkins, the group's president. "He advised us on engineering matters, and he really moved us forward into the age of technology."

Harkins said Mr. Wolthausen had deep roots in the Barrington area, where relatives have lived since before the Civil War.

"He was really committed to this town and its history," Harkins said.

Other survivors include two daughters, Robin Tredup and Wendy Franks; two stepsons, Bruce and Michael Conner; a brother, Edward; six grandchildren; five great-grandchildren; four stepgrandchildren; and two stepgreat-grandchildren

Visitation will be held from 3 to 8 p.m. Friday in Davenport Family Funeral Home, 149 W. Main St., Barrington. Services will be held at 10 a.m. Saturday in the funeral home.

Ruling Allows Employers to Shift Retiree Health-Care Tab to Medicare
Dow Jones Newswire – Associated Press
December 27, 2007

WASHINGTON -- Employers may continue the long-standing practice of taking Medicare into account when structuring the health-care benefits voluntarily provided to their retired workers, the Equal Employment Opportunity Commission said in a rule published in response to a 2000 court decision.

In essence, the ruling says employers can spend more on benefits for retirees under 65 years of age than those over 65 without running afoul of age discrimination laws. The idea is that retirees in both age groups get essentially the same benefits, but employers can shift some, or all, of the tab over to the government once a retiree becomes eligible for Medicare.

"Implementation of this rule is welcome news for America's retirees, whether young or old,'' Commission Chairwoman Naomi C. Earp said in a statement posted Wednesday on the commission's Web site.

"By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits which are increasingly less available and less generous. Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law.''

The EEOC said it proposed the rule in response to a decision in 2000 by the U.S. Court of Appeals for the 3rd Circuit that held that the Age Discrimination in Employment Act requires employers to spend the same amount on health insurance benefits provided Medicare-eligible retirees as those received by younger retirees.

The commission said that after the 2000 decision, labor unions and employers alike maintained that complying with the decision would result in companies reducing or eliminating the retiree health benefits they were providing -- leaving millions of retirees under 65 with less health insurance, or no health insurance at all.

"In fact, that is what happened when the Erie County, [Pa.] case was settled in March 2002,'' the EEOC said.

"The county's plan gives older retirees the same benefit they had prior to the litigation, but requires younger retirees to pay more for health benefits that offer fewer choices.''

The same federal appeals court that brought the original decision in 2000, ruled last June that the EEOC was authorized to issue exemptions to a strict interpretation of the age discrimination law would be contrary to the public interest.

"We recognize with some dismay that the proposed exemption may allow employers to reduce health benefits to retirees over the age of 65 while maintaining greater benefits for younger retirees,'' the court said. But it said the commission had shown that the exemption was "a reasonable, necessary and proper exercise'' of its authority.

The EEOC said its ruling had the support of members of Congress, as well as the employer and labor communities, including such organizations as the Society for Human Resource Management, the AFL-CIO, the American Federation of Teachers, the National Education Association, the American Benefits Council, and other groups.

The commission noted that employers who provide retiree health benefits generally "coordinate'' those benefits with Medicare by supplementing the government health care or by offering retirees a "bridge'' benefit to cover health expenses after employees retire until they become Medicare-eligible.

EEOC Legal Counsel Reed Russell said: "Our rule makes clear that it is lawful for employers to continue to provide retirees with the health benefits they currently receive. Contrary to what some interest groups have erroneously asserted, the rule will not require any cuts to retiree benefits.''

U.S. Ruling Backs Benefit Cut at 65 in Retiree Plans
By Robert Pear – New York Times
December 27, 2007

WASHINGTON — The Equal Employment Opportunity Commission said Wednesday that employers could reduce or eliminate health benefits for retirees when they turn 65 and become eligible for Medicare.

The policy, set forth in a new regulation, allows employers to establish two classes of retirees, with more comprehensive benefits for those under 65 and more limited benefits — or none at all — for those older.

More than 10 million retirees rely on employer-sponsored health plans as a primary source of coverage or as a supplement to Medicare, and Naomi C. Earp, the commission’s chairwoman, said, “This rule will help employers continue to voluntarily provide and maintain these critically important health benefits.”

Premiums for employer-sponsored health insurance rose an average of 6.1 percent this year and have increased 78 percent since 2001, according to surveys by the Kaiser Family Foundation. Because of the rising cost of health care and the increased life expectancy of workers, the commission said, many employers refuse to provide retiree health benefits or even to negotiate on the issue.

In general, the commission observed, employers are not required by federal law to provide health benefits to either active or retired workers.

Dianna B. Johnston, a lawyer for the commission, said many employers and labor unions had told it that “if they had to provide identical benefits for retirees under 65 and over 65, they would just drop retiree health benefits altogether for both groups.”

In a preamble to the new regulation, published Wednesday in the Federal Register, the commission said, “The final rule is not intended to encourage employers to eliminate any retiree health benefits they may currently provide.”

But AARP and other advocates for older Americans attacked the rule. “This rule gives employers free rein to use age as a basis for reducing or eliminating health care benefits for retirees 65 and older,” said Christopher G. Mackaronis, a lawyer for AARP, which represents millions of people age 50 or above and which had sued in an effort to block issuance of the final regulation. “Ten million people could be affected — adversely affected — by the rule.”

The new policy creates an explicit exemption from age-discrimination laws for employers that scale back benefits of retirees 65 and over. Mr. Mackaronis asserted that the exemption was “in direct conflict” with the Age Discrimination in Employment Act of 1967.

The commission, by contrast, said that under that law, it could establish “such reasonable exemptions” as it might find “necessary and proper in the public interest.” The United States Court of Appeals for the Third Circuit, in Philadelphia, upheld this claim in June, in the case filed by AARP, which has asked the Supreme Court to review the decision.

In its ruling, the appeals court said, “We recognize with some dismay that the proposed exemption may allow employers to reduce health benefits to retirees over the age of 65 while maintaining greater benefits for younger retirees.” But the court said the commission had shown that the exemption was “a reasonable, necessary and proper exercise” of its authority.

Under the new rule, employers may, if they choose, provide retiree health benefits “only to those retirees who are not yet eligible for Medicare.” Likewise, the rule says, retiree health benefits can be “altered, reduced or eliminated” when a retiree becomes eligible for Medicare.

Further, employers will be able to reduce or eliminate health benefits provided to the spouse or dependents of a retired worker 65 or over, regardless of whether benefits for the retiree are changed.

Employers and some unions contend that retirees under 65 have a greater need for employer-sponsored health benefits because they are generally not Medicare-eligible. Large employers have often provided some health benefits to retirees 65 and older, to help cover costs not paid by Medicare. But employers have for years been trying to reduce retiree benefits or to shift more of the cost to retirees.

Lawyers for the commission said the new Medicare drug benefit, now nearing the end of its second year, had strengthened the case for the regulation because it guaranteed that retirees 65 and older would have access to drug coverage. Younger retirees have no such guarantee, so employers may want to provide drug coverage to them in particular, the lawyers said.

Helen Darling, president of the National Business Group on Health, which represents large employers, welcomed the rule.

“If employers could not coordinate with Medicare, they would be far less likely to provide health coverage” to retirees, Ms. Darling said. “They could not afford to.”

A study by the Government Accountability Office in 2001 estimated that one-third of large employers and fewer than one-tenth of small employers offered health benefits to retirees. Ms. Darling said newer retirees often received not comprehensive coverage but instead a fixed amount of money, based on years of service, to help them with their medical costs.

James A. Klein, president of the American Benefits Council, a lobby for large employers, said: “The new rule is a victory for common sense and for retirees. Retiree health coverage has been declining for many years. Without this rule, many more retirees, especially early retirees, could find themselves without employer-sponsored coverage.”

Gerald M. Shea, assistant to the president of the A.F.L.-C.I.O., also saw merit in the new rule.

“Given the enormous cost pressures on employer-sponsored health benefits,” Mr. Shea said, “we support the flexibility reflected in the rule as a way to maximize our ability to maintain comprehensive coverage for active and retired workers.”

Schoolteachers, like many other public employees, often retire early and rely on employer-provided health benefits until they become eligible for Medicare. At a Congressional hearing in 2005, the National Education Association and Representative John A. Boehner of Ohio, who is now the House Republican leader, supported the proposed rule. The teachers union said it feared that employers would cut health benefits for early retirees if they had to provide identical benefits to those over 65 and those under.

Cutting Retiree Insurance In Order to Save It
By Joseph Schuman – The Morning Brief – The Wall Street Journal Online
December 27, 2007

Amid the post-Christmas Washington lull, the U.S. Equal Employment Opportunity Commission yesterday issued a "final rule" exempting employers from
age-discrimination regulations if they cut benefits for retirees when they're old enough to get help from Medicare.

The EEOC said the rule would support companies' longstanding practice of coordinating their retiree-health-care benefits with Medicare, the federal
medical-insurance program for senior citizens. And Commission Chair Naomi Earp said in a statement that the EEOC was trying "to preserve and protect"
employer-provided programs that are increasingly threatened by soaring health-care costs that discourage companies from covering their workers. "Implementation of this rule is welcome news for America's retirees, whether young or old," Ms. Earp said. But AARP and other activist groups representing
older Americans didn't see it that way, as the New York Times reports. "This rule gives employers free rein to use age as a basis for reducing or eliminating health-care benefits for retirees 65 and older," AARP lawyer Christopher Mackaronis tells the Times.

AARP took the EEOC to court in 2004 after the commission first issued a rule exempting employers' retiree-benefits programs from the 1967 Age Discrimination
in Employment Act, as the Kansas City Star explains. A U.S. appellate court had ruled in 2000 that the age-discrimination law required companies to treat former
workers aged 65 years and older the same as younger retirees. That ruling upset employers -- which argue younger retirees need more help since they can't get
Medicare -- and some unions, including the AFL-CIO, which view a more flexible reading of the law as a way to maximize employee-health-care coverage in the
face of rising cost pressures. The EEOC said yesterday that no federal law requires employers to provide health benefits in the first place, as the Times
points out. In June, another federal appellate court backed the EEOC's assertion that it could exempt retiree-health-care plans from age-discrimination rules if
such policies serve the public interest. And the result was yesterday's new rule.

How local employers support the troops
WAR EFFORT | Keep troops on payroll, maintain benefits
By Neil Versel – Chicago Sun-Times
December 25, 2007

An e-mail that's been making the rounds during the holiday shopping rush for the last several years encourages people to patronize Sears stores in recognition of the company's treatment of employees called to military duty.

Federal law requires that employers hold open the jobs of employees on active duty in the military. Like many of the Chicago area's biggest employers, Hoffman Estates-based Sears Holdings Corp., parent company of the Sears and Kmart chains, goes beyond that minimum requirement by making up the difference between the typically lower military pay during deployment and the worker's Sears salary. Sears also pays any bonuses employees might be entitled to.

The company also keeps benefits in place for up to two years, so families of deployed service men and women continue to have health insurance.

The e-mail reads: "I submit that Sears is an exemplary corporate citizen and should be recognized for its contribution. I suggest we all shop at Sears, and be sure to find a manager to tell them why we are there so the company gets the positive reinforcement it well deserves."

Skeptics might note that so many similar chain e-mails that friends, family and co-workers like to share are nothing more than urban legends. In this case, however, the information is true. The company says so, as does Snopes.com, a popular site for debunking Internet myths and confirming truths. In fact, the Sears story is the "hottest" urban legend on Snopes.

Sears Holdings won a Secretary of Defense Employer Support Freedom Award in October 2005.

"I don't know how and where it started, but it's been circulating for a number of years," said Sears Holdings spokeswoman Brenda Storch. Snopes says the message dates to 2003, but doesn't give the original source.

Sears is not alone in providing extra benefits to employees in the military. Here's a rundown of the policies among the Chicago area's 10 largest private employers:

JEWEL-OSCO: The area's largest grocery chain makes up any pay differential for employees deployed in the military. Near the end of the year, SuperValu, the parent company of Jewel-Osco, sends a holiday card to deployed personnel, signed by CEO Jeff Noddle, human resources VP Dave Pylipow and the particular employee's line manager. Jewel-Osco also sends holiday cards to employees' families, typically with $100 store gift cards inside.

ADVOCATE HEALTH CARE: Employees of the largest private health care system in Illinois receive full pay for two weeks after being called up to active duty. Those in the National Guard and reserves also are paid during their annual two weeks of training. Some Advocate sites also provide "benevolence" funds from accumulated paid time off to help struggling families.

UNITED PARCEL SERVICE: UPS, which has its North Central Region headquarters in Aurora and a major distribution center in Bedford Park, provides differential pay for up to 12 months during military deployments. Health and life insurance benefits continue for spouses, children and stepchildren for the same time period. UPS also has a program to help employees in the military find new jobs within the company when re-stationed.

WAL-MART STORES: The retail giant makes up the difference between private-sector and military wages for Wal-Mart and Sam's Club workers deployed to a combat or danger zone, and workers can earn differential pay during military vacations. Health and life insurance coverage continue, as do profit-sharing and 401(k) benefits, with employee premiums deducted from paychecks as usual. Disability insurance is suspended during the military tour. Policies for time off vary by employment status. Following discharge from active duty, employees have 90 days to return to their jobs, a period extended to two years if the worker is recovering from a service-related injury.

UNITED AIRLINES: Families of deployed service men and women receive unlimited, free, space-available travel on the carrier's worldwide network.

JPMORGAN CHASE: Salaried employees -- those working at least 20 hours a week -- who have been with the company at least 90 days before deployment receive full pay and continuation of health and 401(k) benefits for their entire tours of duty. Long-term disability benefits stop after 12 weeks, and certain plans have exclusions for injuries caused by acts of war.

ABBOTT LABORATORIES: Abbott makes up the differential between military pay and a reservist's current salary for up to one year per deployment. Medical and dental benefits continue for employees and their dependents at Abbott's expense for up to a year per deployment. Abbott also pays the difference between military salary and Abbott salary during the two weeks of mandated reserve training, and for two weeks for special duty assignments, such as when reservists are called up to provide local support for emergencies like the recent fires in California.

Upon return from duty, employees are offered the same jobs (or comparable). Employees on military leave continue to accrue service credit toward their pension and retirement. Abbott was honored earlier this month as a Home-Front Hero by the State of Illinois in part for a recent donation to the Marines.

AT&T ILLINOIS: The phone company makes up the pay difference for employees called to active duty and offers "benefit options" for military families. Nationally, AT&T says it has donated nearly $4 million in prepaid phone cards to military members and their families since 2005, and has set up 70 calling centers in Iraq, Kuwait and Afghanistan.

MOTOROLA: Employees receive regular pay, benefits and service credit for nine to 13 weeks following a call-up, depending on the nature of the deployment. Under some deployments, Motorola then makes up the pay difference for an added 39 weeks, a period that can be extended for 26 more weeks for employees who remain on active duty.

SEARS HOLDINGS CORP.: The parent company of Sears and Kmart stores provides differential pay, including raises and bonuses, as well as benefits continuation for up to 60 months. The company also participates in an employment program for Army spouses.

Hold the Tears for Eddie Lampert
His big bet on Sears looks dicier as profits plunge, but the chairman has a built-in safety net
By Robert Berner – Business Week
December 24, 2007

When Sears Holdings (SHLD) posted a 99% drop in profits last quarter and the stock sank 11% in one day, ESL Investments took another beating. The hedge fund, run by Sears Chairman Edward S. Lampert, owns 45% of the retailer, whose stock has fallen to 111 from a peak of 195 earlier this year. Given its other laggard holdings, such as Citigroup (C) and Home Depot (HD), ESL is on track for losses of 20% to 30%, the worst in its 20 years, according to estimates from one ESL investor.

But don't jump to conclusions. Lampert's well-heeled ESL investors stuck with him through the other dark periods, 1990 and 2002, getting richly rewarded in later years. It can take a while for Lampert's highly concentrated bets to work out, and a five-year lockup period makes it hard for fickle investors to sell. Lampert declined to comment.

Meanwhile, Lampert has cut expenses drastically since he used his controlling stake in Kmart to buy Sears Roebuck in 2005. So the combined company has a hefty pile of cash, which may buy management time to figure out how to fix Sears and survive an extended industry downturn.

Even if the turnaround doesn't pan out, he still can sell the chain's real estate for a tidy profit. "Lampert has far more financial flexibility [than do other retailers]," says Deutsche Bank (DB) analyst Bill Dreher. "He should be appreciated for being so prudent."

Like many retailers, Sears has struggled to attract shoppers in an overcrowded sector and a slumping economy. But compared with other mid-market chains, Sears is in a stronger financial position, giving it more breathing room during these lean times. The company has $1.5 billion in cash, more than J.C. Penney (JCP), Kohl's (KSS), and Macy's (M)—its biggest rivals—combined. Lampert also has been paying down Sears' debt in recent years. As a result, its debt load is only 25% of the total capital on its balance sheet, compared with 46% for Penney's and 53% for Macy's. "There's wisdom in holding back in uncertain times, being cash-rich when your competitors are not," says Charles W. Mulford, an accounting professor at Georgia Institute of Technology, who recently studied retailers' cash flow.

For now, Lampert remains committed to Sears. The value investor, who is not shy about dumping assets if he thinks the money could be more productive elsewhere, has sold few Sears locations since coming on board. He also has been buying back shares aggressively. In the third quarter he spent nearly $1 billion on repurchases, a sign that he thinks the stock is a good deal. He's not the only one. Activist investor William Ackman of Pershing Square Capital Management bought a 3.5% stake in the third quarter, while Steven Munchin, a Sears board member and Lampert's roommate at Yale, picked up 75,000 shares.

The question, though, remains whether Lampert can fix the troubled retailer. Its recent results were especially ominous: the third straight quarter of deteriorating profit margins and sales at stores that have been open more than a year. And after months of slashing headcount and expenses, there's nothing left to cut. Some analysts say Lampert has grossly underspent on store improvements, contributing to the poor results.

Mostly, Lampert has to find the right retail formula. In November, Sears launched a bid to buy Restoration Hardware (RSTO), the home-goods purveyor, which is facing sluggish sales as well. If that deal works out, Sears could decide to create an upscale boutique within stores. It did the same, somewhat successfully, with the once catalog-only brand, Lands' End, says Credit Suisse (CS) analyst Gary Balter.

And if the situation at Sears sours too much, Lampert can always sell off his prized properties. The problems in real estate haven't spilled over much into retail. The reason: supply. Fewer malls are being built, and it's hard to find space for big-box stores in metro areas. That makes Sears' assets attractive to players like Target (TGT). Sears owns 518 of its 816 locations outright, and many of the 1,333 Kmarts are located in strip malls close to big cities. So Lampert can get some juice out of Sears even if the turnaround doesn't materialize.

Sears CEO Apologizes To Boston-Area Customers
Team 5 Investigates Receives Hundreds of New Complaints
WCVB BOSTON
December 19, 2007

BOSTON -- One of the biggest names in appliances has tried to repair its reputation after Team 5 Investigates uncovered a pattern of customer service problems and received hundreds of new complaints.

In response, the CEO of Sears sent letters to its Boston customers, apologizing for the long delays.

Zaida Crespo is forced to use electric portable heaters because the new furnace she bought from Sears last September for $5,100 has never worked. And the company hasn't fixed it.

"That's the only resource I have right now, so what can I say?," Crespo said. "I don't want to die from the cold."

After repeated calls and no-show appointments over two and a half months, a Sears technician finally came to Crespo's house a couple of weeks ago. Using rubber bands and old plywood, he tried to get the furnace working, but couldn't. He told her it was missing a part that has yet to be delivered.

"This is the story of my life," Crespo said.

Team 5 Investigates first reported on the company's poor service record last month. Then, a Sears spokesman blamed a shortage of technicians during their busiest time. He called it temporary. But a month later, Team 5 Investigates has received hundreds of new complaints.

"I was so happy to see your piece," said Sandy Lish, another Sears customer. "To know I wasn't alone."

Lish said she had a six-month-long nightmare with Sears over a broken refrigerator that left her with no way to keep food in the house for her family.

"It was weeks and weeks of having no refrigerator, having people be rude to me on the phone, being hung up on, being disconnected, having people not show up," Lish said.

Anne-Marie Rollo and her husband took days off from work to wait for a Sears tech to fix their $2,000 washer/dryer, but no one ever showed.

"You know, it's one thing to even have to sit there for a long window of time and wait," Rollo said. "But then to have them not show up is the icing on the cake!"

"I will never step foot in that store and purchase anything again," she added.

"The worst part was that they just didn't care," Lish agreed.

Sears denied Team 5's request for an on-camera interview, but in a statement defended itself saying, the company "is starting to see improved response times" and it "will continue to focus on improving service levels."

In the meantime, after our Team 5 investigation, Sears CEO Aylwin Lewis sent Boston-area customers a letter of apology and a 12-month extension to their Sears Protection Agreement. But that's little consolation to some customers who feel forever alienated.

"Nothing will ever be fixed for me because I will never go back," Lish said.

Sears wouldn't tell Team 5 Investigates how many complaints they've had, how many letters went out to customers, or how many warranties they've been forced to extend.

Sears also can't tell Team 5 Investigates when it will be able to accomodate all of the service calls. That's information you might find valuable when you're shopping for a new appliance.

Statement from Sears

“Through a combination of the efforts of our associates, along with the additional capacity we’ve added in the Boston market, Sears is starting to see improved response times for our warranty and service contract customers and we continue to aggressively work through our backlog of open orders.

We want our customers to know that we take their satisfaction very seriously and will continue to focus on improving service levels in that area.

In addition, beginning this week, any customer after Sept. 1 who had a cycle time (from first call to completed service) longer than 14 days will receive a letter from our CEO, along with an extension of the term of their product warranty or service contract.”

As a reminder, here are the steps we’ve been taking to improve our service levels:

The current workforce is scheduled for 6 day weeks.

We have temporarily reassigned technicians from southern New Hampshire, Boston’s North and South Shore areas and from Rochester, NY to the western suburban Boston areas to increase capacity.

We will be using authorized outside contractors where available and appropriate.

We are prescreening scheduled service calls for parts that need to be ordered & shipped to avoid unnecessary trips and to decrease cycle times.

We’ve hired additional service techs over the past six weeks who have started running service calls this month, and intend to continue to recruit additional techs into that market until our service response time returns to an acceptable level. "

Chris Brathwaite | DVP – Corp. Public Relations Sears Holdings

Charles Bacon, retired Vice President of Sears,
dies at 88
Island Packet – Hilton Head Island, South Carolina
December 18, 2007

Charles Fraser Bacon, born July 21, 1919, of Hilton Head Island, passed away Friday, December 14, 2007 at Broad Creek Care Center. He was 88 years old.

Mr. Bacon, son of Dr. Charles M. Bacon and Elma Fraser Bacon of Chicago, Illinois, was the beloved husband for 63 years of Dorothy S. Bacon, who passed
away this September.

Mr. and Mrs. Bacon met at Beloit College in Wisconsin. At Beloit, Mr. Bacon served as Class President, College Social Chairman, President of Beta Theta Pi
Fraternity and was a letterman in basketball and track.

Mr. Bacon also attended graduate studies at the University of Chicago. Mr. Bacon proudly served in the U.S. Army for 51/2 years. He was an Infantry Company
Commander for 2 years in the Aleutian Islands, a General Staff Corp officer in the Pentagon, an instructor at Washington and Lee University and at Carlisle
Barracks, PA.

Following his military service, Mr. Bacon had a 36-year career with Sears, Roebuck and Company in New York, Philadelphia and Chicago. The last ten years he served as Corporate Vice President of Personnel and Labor Relations.

Mr. Bacon was a member of the Board of Chicago Crime Commission, the National Labor Policy Association, was chairman of the Employee Privacy Committee of the Business Roundtable and was Chairman of Personnel Policy and Compensation for the National Boy Scouts.

Mr. Bacon was also active in the community. He served as President of Lulu Temple Country Club of Philadelphia and Mission Hills Country Club of Chicago. He was a member of Bear Creek Country Club and a Board Director of Seabrook. Mr. Bacon was a Founding Director of Sea Pines Associates and their Chairman for a term. He was instrumental in the founding of the Tide Pointe Retirement Community. He served as President of the Advisory Committee, and President of the Board of Directors of the Tide Pointe Community Association.

Mr. Bacon was an active member of the Sea Pines Country Club and served as Director of the Heritage Classic Foundation. He was an avid reader and golfer and a member of Providence Presbyterian Church.

Mr. Bacon is survived by two children, a daughter and son-in-law, Leslie B. and David B. Williams of Ellicott City, Maryland, a son and daughter-in-law, Robert
S. and Jennifer S. Bacon of Clemson, South Carolina; four grandchildren; two great-grandchildren; and a brother, A. Melville Bacon, of Chicago, Illinois. A memorial Service will be held at 4:00 P.M., Thursday, December 20, 2007 at Providence Presbyterian Church, with Reverend Carmen S. Fowler presiding. Memorial contributions may be made to Providence Presbyterian Church, 171 Cordillo Parkway, Hilton Head Island, South Carolina, 29928 or to Hospice Care of the Low Country, P.O. Box 24158, Hilton Head Island, South Carolina, 29925 or to a favored charity in his name. The Island Funeral Home and Crematory is in charge
of arrangements.

Why Penney Will Perk Up
By Lawrence C. Strauss – Barron’s
December 17, 2007

JUST IN TIME FOR THE HOLIDAYS, J.C. PENNEY is having a terrific and unintended sale...of its shares.

At 44 and change last week, they had lost about half their value since peaking in May. The main culprit: a slowing economy that has hurt the company's core customers, who earn $40,000 to $100,000 annually and are getting squeezed more than their better-heeled counterparts at, say, Saks.

Signs of the slowdown were apparent in the disappointing third-quarter results at the American retailing icon, which was founded in 1902. Despite this, better comps, margins and earnings look as if they're lurking ahead. So does a higher stock price. For one thing, the shares (ticker: JCP) are very cheap, trading at around nine times the $4.97 analysts expect the company to earn next year. Penney is also cheaper than its arch rivals Kohl's (KSS) and Macy's (M), both of which fetch more than 10 times forward earnings.

"Based on enterprise value to earnings before interest, taxes, depreciation and amortization, this is as cheap as J.C. Penney has gotten in the last 15 years," says S. Basu Mullick, portfolio manager of the Neuberger Partners Fund, which owns two million Penney shares -- its biggest holding of any retailers' stock. "The market has priced in a recession."

Penney has the biggest Web business of any department-store chain -- with about $1.3 billion in sales last year -- effective leadership and a sound growth strategy that includes building more stores away from the mall. Penney also relies heavily on private brands and has launched a joint venture with Sephora, a cosmetics and perfume retailer.

Stores away from the malls are boosting weekday traffic.

STILL, THE LAST QUARTER was lousy, partly owing to warmer-than-usual fall weather in parts of the U.S., which hurt sales of coats and other outerwear. Operating income was $411 million, 19% below the level a year earlier. Gross margin, a measure of operating efficiency, fell 1.80 percentage points, to 39.7%, thanks largely to markdowns.

Another weakness was sales of big-ticket items like furniture and window coverings. (The home category accounted for 21% of total sales in 2006, second only to women's apparel at 22%. Men's apparel and accessories accounted for 20%.) In the quarter, direct sales, including those done over the Internet and through catalogs, were off 3.6%; a big chunk of that business is home products. And same-store sales in the department stores were down 3.5% -- the first quarterly decline since 2003.

The company is cautious about the crucial fourth quarter, even though the day after Thanksgiving generated strong sales. It's also wary about making forecasts for fiscal 2008. It now expects to earn $4.63 to $4.78 a share in fiscal 2007, which ends Jan. 31, down from $5.50 a share, owing to the weaker outlook for consumers.

Nevertheless, there's a lot to like about the retailer, including its brand name, reach and ability to reinvent itself.

Based in Plano, Texas, Penney operates about 1,070 stores in the continental U.S. and Puerto Rico. It's had a volatile ride in the new century. A decade or so ago, it became rudderless, losing $738 million, or $2.81 a share, in 2000. But it revived after industry veteran Allen Questrom was named CEO in 2000. He pushed Penney to adopt centralized merchandising and to shake off its reputation for somewhat dowdy merchandise. As Barron's noted six years ago ("Texas Two Step1," Aug. 20, 2001), Questrom & Co. emphasized selling fashionable, quality goods at affordable prices.

It worked. Questrom, who departed in 2004, along with another top executive, Vanessa Castagna, put the company on firm footing. Revenue, profits and margins rose and the balance sheet was bolstered by unloading Eckerd's, the drugstore chain, for $3.5 billion in 2004. The proceeds helped pare debt and buy back shares. Over the past five years, the stock has risen 101%. In the same span, Kohl's slid 8%.

The bull case now is that Penney, powered by more private brands and the continued rollout of its successful "off-mall" store locations, has the wherewithal to make capital investments needed to weather the current downturn and position itself for sustained double-digit earnings growth.

"We remain confident and committed to the long-range plan," says Robert Cavanaugh, the chief financial officer. "We've got the financial flexibility to do that."

At the end of the third quarter, Penney's cash totaled $1.7 billion, versus debt of $3.8 billion, a manageable load considering the company's strong cash flow.

Mullick says that Penney has "effectively managed to monetize its assets and transform from a value to a growth company" and that "it's still in the early stages of margin improvement, with significant balance sheet flexibility."

WHEN QUESTROM EXITED, the board surprisingly tapped Myron E. "Mike" Ullman III as the new CEO, passing over Castagna, who soon left the company. Ullman, 61, whose strong retailing résumé includes working at the luxury brand retailer LVMH from 1999 to 2002 and serving as Macy's CEO in the mid-1990s, was brought in to build on the momentum. "Customers are very open to the idea that a department store can be relevant if there's something there for them," he tells Barron's.

Says Citigroup analyst Deborah Weinswig: "He has really worked hard to develop a culture that asks customers what they want and then to actually give it to them." Weinswig has an Outperform rating on the stock, with a 12-month price target of 69. Others who like it think it can go higher than that when the economy turns.

Table: J.C. Penney at a Glance2Some fault Ullman and his team for not buying back more shares -- Penney has repurchased $400 million worth this year -- at the depressed prices. But the company argues that it makes more sense to invest in sprucing up and adding stores. Capital expenditures are expected to total $1.2 billion this year and nearly $1.3 billion in 2008.

A priority under Ullman is to get the right amount of the right items into the right stores quickly, at suitable times and in the correct sizes. That minimizes markdowns and the chance of being out of stock. Nonetheless, markdowns plagued the third quarter. The problem was that too much inventory built up in advance of this year's longer-than-usual holiday season and to prepare for the opening of new stores in the current quarter. The glut is now dwindling.

"We believe they've made a lot of progress improving their inventory positions," says Robert Drbul, a Lehman Brothers analyst, who last week upgraded the stock to Overweight, with a 12-month price target of 58. He notes that department-store comps rose 2.6% last month, in line with guidance.

One factor that should help Penney control its inventory is that 50% of its revenue comes from private labels or exclusive arrangements, more than any other department store. Retailers typically have more clout and better margins when they work with a private-label maker, rather than a national brand.

Penney's private labels include St. John's Bay, Stafford, Worthington and a.n.a. The last-named focuses on casual fashion for women and generated more than $300 million in sales after it was launched last year. Among the national brands it sells are Levi's, Dockers and Haggar.

Last year, Penney started putting Sephora outlets into some of its own stores. The company, which is owned by LVMH, is now in 47 Penney sites.

Sephora helps drive traffic. In addition, says Ken C. Hicks, Penney's president and chief merchandising officer, "On average, Sephora customers are younger than our average customers." Those who shop at Sephora are apt to make purchases elsewhere in the store.

In February, Penney plans to roll out its American Living concept, an exclusive brand created by Polo Ralph Lauren that encompasses apparel for men, women and children, along with other accessories and home furnishings. It will be the biggest brand launch in the company's 105-year history.

PENNEY ALSO IS DEFTLY TARGETING minority groups, including Hispanics, as evidenced by the bilingual signs and employees in many of its stores. At its Queens Center store in the Elmhurst neighborhood of the New York borough -- one of the retailer's top revenue generators -- a fascinating amalgam of ethnic and religious groups is on display.

Another strategic goal is to build more off-mall stores, as Kohl's has done. This makes sense because mall traffic has been slipping industrywide, according to Drbul. Also, off-mall stores, which Penney launched in 2003 and which typically are smaller than mall outlets, tend to attract more weekday shoppers because they're often closer to these folks' homes.

The Bottom Line

Penney -- and its stock -- will revive. The shares, which have stumbled into the mid-40s, should be in the high 50s or 60s within 12 months. Penney opened 43 of these stores this year, along with renovating 65 stores. It plans to add 250 facilities in mostly off-mall locations by the end of 2011, though some analysts believe the total will be cut next year if the economy doesn't buck up.

That shouldn't hurt Penney over the long run. "All in all, this is a very well-managed company," says David Williams, a portfolio manager of the Excelsior Value & Restructuring Fund, which holds the stock. "They tend to do what they say they are going to do. This company is really growing, and that's what you pay for."

Sears Makes Restoration Bid
Wall Street Journal
December 15, 2007

HOFFMAN ESTATES, Ill. -- Sears Holdings Corp. said it recently sent Restoration Hardware Inc. a draft of an agreement offering to acquire all of the company's outstanding shares for $6.75 each through a cash tender offer.

Sears, which holds a 13.63% stake in the specialty home retailer, expects to continue to discuss the terms of its proposal and the merger agreement with Restoration's special committee, according to a regulatory filing with the Securities and Exchange Commission.

Restoration Hardware has agreed to be acquired for $6.70 a share, or about $267 million, by a group associated with private-equity firm Catterton Partners. That group also includes Restoration Hardware's chief executive, Gary Friedman.

In November, Sears said it was prepared to offer $6.75 a share in cash for Restoration Hardware, but was seeking information that would help it decide whether to submit a binding proposal to acquire the company. Earlier this week, Sears and Restoration Hardware, of Corte Madera, Calif., entered a confidentiality agreement.

Restoration Hardware's independent committee previously said it was encouraged by Sears's proposal of $6.75 a share.

Mistrial in Sears Tower Bomb Plot Trial
Jurors Deadlock in 6 of 7 Defendants in Sears Tower Plot; Prosecutor Plans to Retry Case
By Curt Anderson – The Associated Press
December 13, 2007

MIAMI — In a stinging defeat for the Bush administration, one of seven Miami men accused of plotting to join forces with al-Qaida to blow up Chicago's Sears Tower was acquitted Thursday, and the case against the rest ended in a hung jury.

Federal prosecutor Richard Gregorie said the government planned to retry the six next year, and the judge said a new jury would be picked starting Jan. 7.

The White House had seized on the case to illustrate the dangers of homegrown terrorism and trumpet the government's post-Sept. 11 success in infiltrating and smashing terrorism plots in their earliest stages.

Lyglenson Lemorin, 32, had been accused of being a "soldier" for alleged ringleader Narseal Batiste. He buried his face in his hands when his acquittal was read.

Lemorin, a legal U.S. resident originally from Haiti, was subject to an immigration hold and would not be immediately released, his lawyer said.

The jury gave up on the other defendants after nine days of deliberations on four terrorism-related conspiracy charges that carry a combined maximum of 70 years in prison. The jury twice sent notes to the judge indicating they could not reach verdicts but were told to keep trying.

U.S. District Judge Joan Lenard declared a mistrial after their third note, which she quoted as saying: "We believe no further progress can be made."

Prosecutors said the "Liberty City Seven" — so-named because they operated out of a warehouse in Miami's blighted Liberty City section — swore allegiance to al-Qaida and hoped to forge an alliance to carry out bombings against America's tallest skyscraper, the FBI's Miami office and other federal buildings.

The group never actually made contact with al-Qaida. Instead, a paid FBI informant known as Brother Mohammed posed as an al-Qaida emissary.

The defense portrayed the seven men as hapless figures who were either manipulated and entrapped by the FBI or went along with the plot to con "Mohammed" out of $50,000.

The group never actually made contact with al-Qaida and never acquired any weapons or explosives. Prosecutors said no attack was imminent, acknowledging that the alleged terror cell was "more aspirational than operational."

But then-Attorney General Alberto Gonzales said after the arrests in mid-2006 that the group was emblematic of the "smaller, more loosely defined cells who are not affiliated with al-Qaida, but who are inspired by a violent jihadist message."

And U.S. Attorney R. Alexander Acosta of Miami said: "Our mission is to disrupt these cells if possible before they acquire the capability to implement their plans."

Outside the courtroom, jury foreman Jeff Agron said the group took four votes but was split roughly evenly between guilt and innocence for the other six men. They spent hours viewing and listening to FBI recordings of meetings and conversations involving Batiste and the others, he said.

"People have different takes on what they saw, on what was said and what that meant," said Agron, 46, a teacher and lawyer. "My personal belief is that there may have been sufficient evidence on some of them as to some of the counts."

Agron said the evidence was weakest against Lemorin, who had moved with his wife and children to Atlanta and gotten a job at a shopping mall after splitting with Batiste months before the group was arrested.

In a statement to the FBI, Lemorin said he never wanted to be associated with al-Qaida and that he knew "nothing good would come from this."

The judge, who imposed a gag order on all lawyers in the case, refused a request by Lemorin's lawyer, Joel DeFabio, for Lemorin to be allowed to speak with reporters after the verdict.

The Liberty City Seven, who included immigrants from Haiti and the Dominican Republic, adhered to a sect called the Moorish Science Temple that blends elements of Islam, Christianity and Judaism.

The government case was built largely on FBI surveillance video and some 12,000 telephone intercepts.

One key piece of evidence was a video of the seven men taking an oath of loyalty to al-Qaida and Osama bin Laden in a March 2006 ceremony.

Also, the group's leader, 33-year-old Batiste, was overheard talking about starting a "full ground war" against the U.S. government by bringing down the 110-story Sears Tower — an attack he said would be "as good or greater than 9/11."

Batiste also supplied the informant with detailed wish lists that included assault rifles, bulletproof vests, uniforms, motorcycles and $50,000 in cash, prosecutors said.

However, Batiste testified he faked interest in the plot and really only wanted the money.

Members of the group also took reconnaissance photos of the FBI office and downtown federal buildings at the informant's request.

Defense lawyers contended that the informant and an overzealous FBI were responsible for pushing the alleged conspiracy along.

"This was all written, directed and produced by the FBI," said defense attorney Albert Levin.

Court Toughens Rules for Inclusion In Wal-Mart Discrimination Suit
By Gary McWilliams – Dow Jones Newswire
December 11, 2007

HOUSTON -- A U.S. appeals court, in an unusual move, tweaked its decision in a sex-discrimination suit against Wal-Mart Stores Inc., toughening the rules for including workers in the massive suit.

Wal-Mart said it would again appeal the decision to the full Ninth Circuit Court of Appeals.

While reducing the potential number of plaintiffs, the revisions "may make it that much harder" to overturn the panel's decision supporting class-action status, said Joseph M. Sellers, plaintiffs' co-lead counsel and a partner at Cohen, Milstein, Hausfeld & Toll.

The 2001 suit alleges gender discrimination in pay and promotions at the world's largest retailer. The women claim Wal-Mart, of Bentonville, Ark., systematically paid them and other women less than men with similar qualifications, and frequently overlooked women for promotions. Wal-Mart has denied it discriminates and maintains any pay disparities were isolated. It is the largest discrimination case ever filed.

The tweaks "make further review more elusive," Mr. Sellers said in an interview. He said the court appears to have revised its earlier opinion to respond to arguments by Wal-Mart and others in court briefs.

Tuesday's decision by the three-judge, Ninth Circuit Court of Appeals panel again affirmed a lower-court's decision to grant class-action status to a group of more than 1.6 million current and former Wal-Mart workers. The 2-1 opinion, with Judge Andrew J. Kleinfeld dissenting, mirrors the decision released earlier this year by the same panel. The opinion was again written by Judge Harry Pregerson.

However, in a significant change the majority ruled that women who left the company before the case became effective and could not benefit from changes to the company's pay and promotion rules should be excluded. The decision could exclude between 75,000 and 250,000 former employees out of the more than 1.6 million members, estimated Mr. Sellers.

The potential impact varies because the effective date of the suit may change depending on what the court allows. Originally, plaintiffs sought to include all women who worked at the company between December 1998 and the present. The effective date may change to when the case was filed in June 2001 or to October 1999, when the Equal Employment Opportunity Commission accepted the case, Mr. Sellers said.

Theodore J. Boutrous Jr., Wal-Mart's lead counsel and a partner at Gibson, Dunn & Crutcher LLP, said the retailer will again seek a hearing before the full court. "The revisions do not cure the problem with the panel's ruling," Mr. Boutrous said.

"The court's order makes clear that Wal-Mart can now file a new rehearing petition in light of the new opinion. We intend to do that and believe that our arguments are very strong," he added.

Sears, Restoration Hardware Enter Confidentiality Pact
By Kathy Shwiff and Brian Coyle – Dow Jones Newswire
December 10, 2007

Sears Holdings Corp. and Restoration Hardware Inc. said Monday that the two parties recently entered into a confidentiality agreement.

The news came as Restoration Hardware, a home-furnishings retailer, said its fiscal third-quarter net loss widened on weaker consumer spending and lower traffic levels. It also withdrew its previous earnings guidance.

Sears previously said it was prepared to offer $6.75 a share in cash for Restoration Hardware but was seeking information that would help it decide whether to submit a binding proposal to acquire the company.

Restoration Hardware previously said it would agree to provide Sears the confidential information it requested, if Sears agreed to execute a customary confidentiality and standstill agreement on similar terms to those other parties have signed. Restoration Hardware's independent committee said it was encouraged by Sears' proposal of $6.75 a share.

Restoration Hardware has agreed to be acquired for $6.70 a share, or about $267 million, by a group associated with Catterton Partners that includes its chief executive, Gary Friedman.

Sears currently holds a 13.67% stake in Restoration Hardware, with beneficial ownership of about 5.3 million common shares, according to a regulatory filing with the Securities and Exchange Commission.

Separately, for the quarter ended Nov. 3, Restoration Hardware reported a net loss of $15.2 million, or 39 cents a share, compared with a net loss of $5.7 million, or 15 cents a share, a year earlier.

The latest results included 4 cents a share in costs associated with the merger agreement announced Nov. 8 with affiliates of Catterton and 1 cent a share in costs related to job cuts at the company's headquarters.

Revenue rose 11% to $173.7 million mainly because of growth in the direct-to-customer segment. Direct-to-customer revenue climbed 71% to $97.2 million.

Analysts' mean estimates were for a loss of 23 cents on revenue of $183 million, according to a poll by Thomson Financial.

Gross margin was 33.4%, down from 34.3% a year earlier.

CEO Friedman said, "Weakening consumer spending and traffic levels continued to affect our business in the third quarter, particularly higher ticket durable categories. Revenue did not achieve our expectations, driving substantially all of our larger than anticipated operating loss in the quarter."

Mr. Friedman added, "While we are encouraged by some of the early holiday trends in our business, we remain cautious due to the macro economic environment, which has proven highly challenging for the home furnishings sector this year."

The Corte Madera, Calif., company said it would not give guidance on future earnings. The company said, "Due to uncertainty regarding the company's holiday outlook as well as the pending merger agreement and go shop process, prior guidance is withdrawn and the company will not be providing guidance regarding fourth quarter and full-year 2007 financial results."

Analysts' mean estimates were for fourth-quarter earnings of 51 cents a share on revenue of $250 million and a 2007 loss of 28 cents a share on revenue of $759 million.

Stationery at Sears not written in stone
By Sandra M. Jones – Inside Retailing – Chicago Tribune
December 8, 2007

Dear Sears,

I was walking through your store at Golf Mill Shopping Center when I stumbled upon a Papyrus greeting card kiosk across the aisle from the jewelry counter. You know who they are, the upscale stationery company that hires freelance artists and photographers to create fashionable greeting cards and gift bags.

What a surprise. I learned you have been testing these kiosks in 22 stores across the country -- in Chicago, New York, L.A. and even Hawaii -- since this summer and that once the all-important holiday season is over, you and the Papyrus people will decide if the test will continue.

It has been more than a decade since you've carried greeting cards in your store. Remember when you handed over your greeting card department to American Greetings in the 1980s? Those cards were a lot more affordable.

These days it costs so much to fill up the gas tank in my car, and many people are concerned about the value of their homes. I can't help but wonder if $4.95 to $6.95 for a greeting card is a bit steep. The average greeting card typically costs about $3.

Still, these Papyrus cards are beautiful and elegant -- like the Mistletoe Christmas card with die-cut leaves, embossing, gemstones and gold foil for $5.95. If we shoppers will fork over $4.41 on a venti caramel macchiato from Starbucks, perhaps you're thinking it's not that much of a stretch to hope consumers will spend that much on a little piece of art.

I asked Neil Stern what he thought you were up to. He is a retail consultant at McMillan Doolittle LLP in Chicago and has been following Sears for a long time. He said that since Sears has so much real estate (more than 800 department stores) and sales have been falling for so many years, it makes sense to try just about anything to make that space more useful.

"Sears has big stores, and if they could use that space to get rent or a percentage of sales, it's not bad for them," Stern said. "They've got a lot of space that isn't being used productively."

Papyrus operates 180 stores and supplies 4,500 others, including Whole Foods and Borders. Papyrus used to have a shop in the basement at Marshall Field's flagship on State Street in Chicago but shut that down after Macy's took over because the new store didn't fit with Papyrus' high-end environment. It raises the question of how this will work at Sears.

Ken Rendina, chief operating officer at Papyrus in Fairfield, Calif., just outside San Francisco, told me Sears approached Papyrus with the idea. Papyrus, which is in the middle of an aggressive expansion, decided it was worth a try. It certainly is cheaper than opening its own stores, which, by the way, Papyrus has been doing a lot of lately. The 55-year-old family-run company had just 60 six years ago. And in 2006 it went through a makeover, creating its trademark hummingbird icon, redesigning its stores and hiring executives from the likes of Godiva and Gap.

"We didn't know enough about the Sears consumer to know if it would be a match with our customer," said Rendina. "That's why we agreed to do it as a test phase. We both have to decide if it makes sense."

A similar test is under way at 200 Target stores (including about a dozen in Chicago). That test began in October and involves less space per store than the Sears test. Rendina didn't disclose results but said he anticipates the test will expand in January. Target already has a well-established stationery department.

After years of decline in the e-mail age, some experts see a comeback afoot for greeting cards. I asked your spokeswoman, Kirsten Whipple, if she thought the typical Sears shopper would spend $5 on a greeting card or $10 on a gift bag. She told me that while Papyrus is indeed an upscale brand, so is Lands' End, the preppy clothing company that Sears bought five years ago and now operates as a free-standing shop in 200 Sears stores.

"We may find it's too upscale, or we may find that people appreciate it," said Whipple. "It's an open book right now."

Edward Lampert, the billionaire hedge fund manager who is chairman of Sears Holdings Corp., has said that the Hoffman Estates-based retailer is a "learning company," and that he intends to experiment with ways to make the firm run more efficiently, as long as it doesn't cost him too much money.

Bringing in other retailers, like Papyrus, frees him from spending capital on fixtures and upkeep.

Maybe that's why Sears is also planning to soon open an Argo Tea -- the tea lover's equivalent of Starbucks -- at the Sears State Street flagship in Chicago. Sears has struggled to make that sprawling store profitable since it opened in 2001.

Sears took a lot of flak last week when it earned a mere penny per share in the third quarter, a 99 percent profit decline. If not for the money made on investments, it would have been in the red.

Papyrus sells stationery for most occasions, but my note to you seemed more appropriate here.

Your faithful correspondent,

smjones@tribune.com

Allstate's Smart Policies
By Andrew Bary – Barron’s
December 10, 2007

INVESTORS IN ALLSTATE HAVEN'T BEEN IN GOOD HANDS this year. The decline in financial shares has hurt the big auto and homeowners insurer, whose stock rarely has traded at such low multiples of earnings and book value since Sears Roebuck took it public in 1993.

The stock, down 19% this year to about $53, now fetches 7.6 times projected profits of $6.94 a share for 2007 and 7.9 times estimated earnings of $6.68 for 2008. Insurers often are valued on shareholder equity, or book value, and Allstate looks inexpensive that way. The company, based in Northbrook, Ill., now sells for just 1.4 times its Sept. 30 book value of $37.45 and 1.3 times its projected 2008 year-end book value of $42. In fact, the stock isn't much higher than it was in 1998.

Bulls argue that Allstate has limited downside risk and that the stock (ticker: ALL) could trade up to 65 or 70 in the next year, assuming no major decline in profits, a better environment for financial stocks and no Hurricane Katrina-size catastrophes.

"Allstate is cheap," says Joshua Shanker, a Citigroup analyst who last month upgraded the stock to Buy from Hold and set a price target of $66. "Allstate is a much less risky company than it was five years ago, and its brand equity continues to grow."

Shanker says the brand -- burnished by the famous "You're in Good Hands" slogan -- is one of the insurance industry's best.

In a note to clients, Credit Suisse analyst Charles Gates said Allstate's virtues include: "the expectation of a high level of earnings through the bottom of the cycle, management's effort to reduce its risk profile, the highest dividend yield among large-capitalization peers, a larger share-repurchase program than that of others, and continued high-single-digit growth in book value." He rates it Outperform, with a $68 price target.

One Allstate insider, director Robert Beyer, has been backing his bullish view with some dough. He bought 10,000 shares in the open market when the stock dipped below $50 in November.

Allstate's 2.9% dividend yield beats those of many rivals, including American International Group (AIG), Chubb (CB) and Travelers (TRV). Long-stingy AIG pays just 1.4%; Chubb and Travelers, about 2%.

With 17 million customers, Allstate is the second-largest U.S. auto insurer, behind only State Farm, and one of the biggest home insurers. Auto policies generate about two-thirds of Allstate's projected $27 billion of 2007 premium income and an even larger percentage of profits. Homeowners coverage produces about 20% of premiums. Allstate's return on equity was an impressive 21% in the first nine months of 2007, despite mediocre returns in the company's life-insurance operations, which some investors would like to see sold.

Wall Street is happy Allstate has reduced risk by not renewing homeowners' policies in hurricane-prone areas such as Florida and the Gulf Coast; stopping the issuance of new policies in many states, including California and New York, and purchasing reinsurance. The issue in California is earthquakes; in New York, hurricanes. Allstate's aggressive approach hasn't sat well with homeowners and regulators in affected states, but the company insists it is needed to keep its finances strong.

Allstate's stock is depressed because Wall Street is concerned about the company's subprime-mortgage exposure and competition in auto insurance that threatens to erode profits. Many institutional investors like to buy property and casualty stocks when pricing is improving and earnings are rising. That isn't the case now. Allstate's premium revenue this year is expected to be unchanged from 2006, and could decline slightly in 2008.

Some investors worry that Allstate relies almost exclusively on selling policies via brokers, including its captive network, while the best growth is coming from insurers like Geico, a Berkshire Hathaway (BRK-A) unit that deals directly with consumers. Allstate has done well without a direct-sales channel, but that could change.

ALLSTATE ISN'T THE ONLY inexpensive property and casualty insurance stock. AIG, Chubb and Travelers all trade at low multiples of earnings and book value. A solid investment case can be made for any of them. Allstate's advantage is its far greater exposure to the auto sector, which faces less pricing pressure than commercial areas, such as workers' compensation. Allstate has received approval this year to raise rates by 4% on average, in 28 states, while rivals such as Geico have been cutting rates.

Allstate's profits may have peaked at about $7 a share and could be headed lower. The good news is that the shares probably discount a sharp profit drop, given their current P/E of seven. If annual net holds in the $6-a-share range, Allstate is apt to boost its dividend and continue to buy back stock aggressively.

The company bought back $3 billion worth of shares in 2007's first nine months, which shrank its total outstanding by about 8%, to 571 million shares. For the full year Allstate is apt to return all its earnings to shareholders via dividends and buybacks, for a "total yield" exceeding 13%. Its stock-market value is $30 billion.

While most analysts applaud big buybacks, Citigroup's Shanker felt Allstate was making a mistake when it paid as much as twice book value for its stock in recent years. He maintained that the company would have done better to invest the money in stocks or bonds. But Shanker turned bullish on Allstate a month ago because of its low valuation. He now says the buyback isn't really a negative at today's depressed price.

The company seems committed to more buybacks. But if it shifted its approach and paid out half its earnings in dividends, its yield would hit 6%. That might really put a floor under the stock. Allstate executives weren't available to speak with Barron's.

In an environment where many investors view subprime mortgages as toxic waste, it doesn't help that Allstate had $4.5 billion of subprime-mortgage securities on its books at the end of the third quarter, along with $1.3 billion of securities backed by so-called Alt-A loans, which are a notch above subprime.

Table: Less Risky, More Rewarding1In an October conference call, CEO Thomas Wilson insisted that the company is valuing those securities appropriately, after taking a modest $300 million write-down. The vast bulk of Allstate's exposure is to subprime-mortgage securities and not to dicier collateralized-debt obligations (CDOs) involving subprime loans.

Over 90% of Allstate's subprime mortgages are rated triple-A or double-A and almost 20% of the securities are backed by bond insurers. Even a steep $1 billion write-down of the subprime portfolio would be manageable. Shanker calls a $1 billion hit unlikely.

Like many insurers, Allstate was badly burned in 2005 by Katrina, which produced far greater losses than the company's computer models would have predicted. Allstate suffered pre-tax catastrophe losses of $4.7 billion in the third quarter of 2005, owing to Katrina and other storms. Allstate had figured a Katrina-type event would happen once in 500 years. The monster hurricane was a wake-up call for all U.S. insurers; since it hit they have been reducing exposure to hurricane-prone regions, raising rates and stiffening terms on existing policies.

The Bottom Line:

Allstate is trading at a depressed level, but investors are focusing too much on potential risks and too little on potential rewards. Barring a Katrina-like catastrophe, the stock could rise at least 25% in a year.In auto coverage, Allstate is holding its own despite fierce competition from rivals led by Geico, which has become the leader in policy growth by spending heavily on clever ads featuring modern cavemen and a talking gecko. Geico is offering attractive rates without sacrificing profitability.

In recent years, Allstate has benefited from more sophisticated auto-policy pricing formulas and such innovations as Your Choice, which lets motorists choose their level of coverage. One option: paying a higher premium in return for a guarantee that an accident won't trigger a rise in premiums; they sometimes go up by as much as 40%. This option might add $100 to a standard policy costing $1,000 annually.

Shanker says Allstate benefits from Your Choice because many risk-averse drivers with good records buy protection they don't need, cutting Allstate's risk while fattening its wallet.

Investing, like insurance, is all about sizing up risk, and Allstate's depressed share price cuts the downside danger for investors. The stock easily could rise 25% in the next year, putting shareholders in good hands again.

Supreme Court to Hear Wal-Mart Disability Case
By Christopher S. Rugaber - Associated Press – Washington Post
December 8, 2007

An Arkansas woman who claims Wal-Mart Stores discriminated against her after she became disabled has successfully appealed her case to the Supreme Court.

The justices said yesterday they would rule on a lawsuit by Pam Huber, who remains a Wal-Mart employee. The case centers on how far employers must go under the Americans with Disabilities Act to accommodate disabled employees.

The dispute is over whether Wal-Mart was required to provide Huber with an equivalent position after her disability prevented her from performing her job, or whether the company simply had to allow her to compete for an equivalent job.

Huber's lawyers argued in court filings that the federal appeals courts have split on the issue and asked the justices to resolve the split.

Huber filled orders in a Wal-Mart distribution center in Clarksville, Ark., earning $13 an hour, when she was hurt on the job in April 2001. The company agreed she was disabled and no longer able to perform her job.

Huber applied for a job as a router, which paid $12.50, but the position was given to an employee Wal-Mart considered more qualified. Huber was offered a janitorial position that paid $6.20 an hour, her lawyers said in court papers.

Huber sued in June 2004, arguing that under ADA rules, she only had to be qualified for the equivalent position, not be the most qualified, and should have been reassigned to the router job.

Wal-Mart said in court papers that the job went to the most qualified candidate under a "standardized, legitimate, and non-discriminatory" process that is allowed under the ADA.

A federal court in Arkansas sided with Huber, but the 8th U.S. Circuit Court of Appeals in St. Louis ruled in favor of Wal-Mart.

The ADA "only requires Wal-Mart to allow Huber to compete for the job, but the statute does not require Wal-Mart to turn away a superior applicant," the appeals court said.

"We're confident that the 8th Circuit's decision represents the correct interpretation of the law and that the Supreme Court will affirm the ruling," Wal-Mart spokeswoman Sharon Weber said.

Justice Stephen G. Breyer, who owns Wal-Mart stock, recused himself from the decision.

The case will be argued before the court next year.

Dream spree -
Woodworker wins $10,000 worth of tools
By Sandra Guy – Chicago Sun-Times
December 7, 2007

Richard Ommert realized his dream when he won a Craftsman tools shopping spree at the downtown Sears store, and not just for the adrenaline rush of spending $10,000.

Ommert, 58, of Greencastle, Pa., will use his new tools to convert his father's tractor- and mower-repair shop into a woodworking shop to bring special joy to his mentally challenged 26-year-old daughter, Elizabeth.

"She is with me every time I do my woodworking," Ommert said. "She is my rock."

Ommert's other daughter, Carol, 30, has multiple sclerosis. Carol entered her dad's name in the Craftsman contest, and he vividly remembers getting the news that he won Craftsman's 80th anniversary sweepstakes prize.

He said he asked his wife to read the FedEx letter because he was in tears.

"I've never won anything," he said. "This is my dream come true."

Carol entered her dad in the online sweepstakes contest sponsored by Sears, which has the exclusive right to sell Craftsman tools.

Sears flew Ommert and Carol to Chicago on Nov. 14 and put them up in the executive tower of the Palmer House Hotel.

"What Sears has done is just beyond my imagination," Ommert said.

The Ommerts spent their first visit to Chicago sampling pizza, walking through Navy Pier and shopping for souvenirs.

"This is probably the cleanest city I've ever seen," Ommert said. "And people go out of their way to help you. ... You have so much to be proud of."

They arrived at the Sears store at 2 N. State St. on Nov. 15 for the shopping spree.

Ommert chose tool cabinets, miter saws, joiners, planers, band saws, nail air guns and a dust-collection system.

Ommert's woodworking projects have earned so much praise he has a waiting list of requests. His projects include a corner cabinet of oak, a coffee table of walnut and crucifixion crosses, with a steel cross on top of a wooden cross and a replica of Jesus' body affixed. He has given some of the crosses to people who lost relatives in the World Trade Center terrorist attacks six years ago.

Mike Cassar, Craftsman brand manager, said the sweepstakes drew 200,000 entries -- four times the 50,000 that Sears expected.

Loyalty to the Craftsman name and quality run deep, Cassar said.

The Craftsman Club mailer is sent to 14 million people each month, and Cassar said he has received photos from people who have painted the Craftsman logo on their garage floor or had it tattooed on their arm.

"This year, Craftsman was voted America's most trusted brand and the brand with the highest expectations, over that of Rolls Royce and Tiffany," Cassar said of a study by EquiTrend research.

"People dedicate their lives to their craft and treat Craftsman as a notch above," Cassar said.

Analyst Seth Sigman of Credit Suisse has calculated that Sears' private brands, including Craftsman, Kenmore and DieHard, are worth $3 billion to $5 billion.

Craftsman got its start in 1927 when Sears hired Arthur Barrows to head the company's Hardware Department, according to a history posted on the Web.

Barrows wanted to create a brand name for Sears hardware that distinguished it from other manufacturers. Barrows liked the name Craftsman used by the Marion-Craftsman Tool Company and offered Marion-Craftsman a reported $500 for the rights to use the Craftsman name on Sears products, according to the historical account.

When Sears promoted Barrows to West Coast manager, he hired Tom Dunlap to take over the hardware department. Dunlap upgraded the tools' quality and appearance by adding chrome plate and improving their finish, trim and color. He threw out soft screwdrivers and cheap, cast-iron hammers and wrenches.

Craftsman full polish wrenches quickly became popular, and the brand became the top-selling hand tool line in the country.

Cassar said Sears initially planned to ask Craftsman fans to compete for the best project. But Cassar said he favored the sweepstakes because it was open to everyone.

Sears advertised the sweepstakes and the Craftsman Web site in newspaper circulars, the Craftsman catalog, the Craftsman Club mailers and on Web sites such as AOL, MSN and Yahoo.

Everyone who entered received a $5 gift certificate to Sears.

Cassar said Ommert would have won the sweepstakes if it had been based on an essay, given Ommert's inspiring circumstances.

Ommert offered a deeper meaning for his good fortune.

He took the news as a sign.

"God must want me to make something," he said. "I feel extremely blessed."

Eddie Lampert Called Worst CEO Of The Year
By Herb Greenberg – Fortune – Dow Jones Newswire
December 6, 2007

SAN DIEGO (Dow Jones) -- The winner of this year's Worst CEO of the Year, awarded annually by this column, isn't a CEO at all, but might as well be: Sears Holdings (SHLD) Chairman Eddie Lampert, who is highly regarded by many on Wall Street for delivering a steady stream of super-sized returns as head of ESL Investments.

If it's any consolation, Lampert didn't win by a landslide. There were simply so many excellent contenders and reader nominations that it was hard to choose.

Some, like Chuck Prince, formerly of Citigroup (C), and Ed Zander (MOT), of Motorola, are out of their jobs, which takes them out of the running. Also on the list until Wednesday was Peter van Stolk of Jones Soda (JSDA), an entrepreneur who appeared to be in well over his head as his company attempts a transition to the big time. However, like Zander, he has agreed to leave his job by year-end.

Then there are those like Angelo Mozilo of Country Financial (CFC), the most obvious choice to many readers. By his company's sheer size, he has become the poster child for a mortgage market gone wild.

However, aside from ill-timed stock sales as his company was buying back stock, which if nothing else looked bad and Countrywide's aggressive push into subprime loans at just the wrong time it's hard to single out Mozilo.

Why, for example, shouldn't it be Kerry Killinger of Washington Mutual (WM), whose company is loaded with subprime, option arms and home equity lines and loans in some of the hardest-hit housing hotspots? Or Jimmy Cayne of Bear Stearns (BSC), whose firm took on more than a few bad mortgage-related investments? Or Scott Hartman, of subprime lender NovaStar (NFI), whose company is about to be booted off the New York Stock Exchange to the bulletin board while on life support?

Away from financial services, Mesa Air's (MESA) Jonathan Ornstein received the most write-in votes by employees, investors and employees of competitors. (It was an impressive, concerted campaign.) Not only does the company suffer the lowest margins and boast the worst-performing stock among regional airlines, with "skyrocketing" pilot attrition (per an Air Line Pilots Association press release), but it recently was embarrassed after a judge ruled that Mesa must pay $80 million to Hawaiian Air for using confidential, proprietary information to start its inter-island Hawaiian competitor, "go!" (Mesa says it plans to appeal.)

Others on the list include: Phil Schoonover of Circuit City (CC), whose stock is down nearly 70% this year as he tries to turn the company around; so far, financial results suggest the turnaround isn't working as several top executives, including one who was recently promoted, have fled; Jim Tobin of Boston Scientific (BSX) back for a second year as his company and stock continue to reel from its Guidant acquisition several years ago; Pat Russo of Alcatel-Lucent (ALU), whose dismal stock performance is a throwback to the pre- merger Lucent; Daryl Brewster of Krispy Kreme (KKD), who seems to be dreaming the impossible sugar-coated dream, and (last but not least) Overstock.com's ( OSTK) Patrick Byrne back for his third consecutive year - as his company continues to struggle (despite a remarkably resilient stock.)

Then there's Lampert, who pre-Sears and Kmart could have won "investment manager of the year" many times over. This award is nothing personal. I'm among those who thought ESL's purchase of Citigroup shares earlier this year was a no- brainer. But Sears has put him in a position to be judged differently.

Last week, after Sears reported yet another dismal quarter, I suggested in my blog that maybe the worst CEO should be Sears CEO Aylwin Lewis, whose concedes quarter after quarter that the company needs to do a better job. "To be fair," commented hedge fund manager Jeff Matthews of Ram Partners, "he doesn't have much to work with."

Matthews was right. While it's technically Lewis' show, how can he turn around the company, as CEO, when the capital decisions aren't his? (Answer: He can't.) Sears is Eddie Lampert, whose quarterly letters to shareholders, which turned annual last March, reflect his vision for the company.

My skepticism of the Sears turnaround is nothing new and, truth be told, I was a skeptic of the JCPenney (JCP), turnaround, as well. (And wrong, I might add.) The difference is that Penney was being run by a skilled merchant who had turned around multiple retailers. It has since become the place where middle America shops. By contrast, Sears is being run by Lampert and Lewis - a hedge fund operator and former executive of YUM! Brands (YUM), which is restaurants, not pure retail certainly not retail in the vein of Sears.

Lampert's mantra has been profits over sales, which makes sense if it works. As recently as March, in his shareholder letter, he suggested better times were imminent when he said, "We believe we have stabilized Kmart's Ebitda and are now in a position to grow from that base." But retailers, especially those trying to improve themselves, require considerable capital infusions to drive sales.

So far, for all of Sears, including Kmart, the strategy has failed miserably. Not only have same-store sales (which Lampert says are "overrated" as a metric) gone deeper into the red, but gross margins, Ebitda and operating income for Kmart are also going in the wrong direction.

While all of this is going on, from out of the blue Sears emerged as a bidder to buy Restoration Hardware (RSTO), which despite long-time efforts to turn itself around remains a troubled retailer. Investors, meanwhile, keep talking about Sears, somehow as an asset play. Maybe one day it will be, but until then it's still largely a retailer. On that score, it's doing so poorly that following the most recent earnings, analyst Gary Balter of Credit Suisse, a long-time fan of the Sears story, told clients, "Unfortunately, visits to the stores show very little evidence that Mr. Lampert has figured out the magic sauce that makes good retailers profitable and we doubt that we will see that in the near and medium term." Hardly a ringing endorsement.

The silver lining, if you can call it that, is that unlike all prior winners all of whom are no longer in their jobs job security at Sears is the last thing Lampert has to worry about.

Wal-Mart takes control of Japan chain
Ownership of Seiyu increased to 95.1%
Associated Press - Chicago Tribune
December 6, 2007

TOKYO-- Wal-Mart Stores Inc. has raised its stake in money-losing Japanese retailer Seiyu to 95.1 percent, the retailers said Wednesday,
giving it managerial control of the chain and solidifying its foothold in an intensely competitive market.

Wal-Mart, the world's biggest retailer, had owned 50.9 percent of Seiyu Ltd. It offered to buy outstanding shares to gain full ownership
in hopes of speeding management decisions for Seiyu's turnaround.

Since entering the Japanese market in 2002, Wal-Mart has been gradually raising its stake in Seiyu, the fifth-biggest retailer in the country,
with about 400 stores nationwide.

But Wal-Mart has struggled to make money in this market, where mall-style shopping is increasingly popular, but where shoppers
tend to go to neighborhood stores for everyday food and other needs.

Still, the move puts to rest questions about whether Wal-Mart would exit Japan after the retailer sold its operations in Germany
and South Korea last year.

"We are very pleased with the positive response to this tender offer," Wal-Mart Vice Chairman Mike Duke said.

"This successful result paves the way to achieve our stated goal of full ownership of Seiyu, which will enable Seiyu and Wal-Mart together
to accelerate the delivery of long-term benefits to our customers, the communities we serve, our associates and our business partners."

Under the $843.9 million deal for more than 411 million shares, Wal-Mart paid $1.27 for each Seiyu share it didn't own. The offer ended Tuesday.

Wal-Mart said it aims to acquire all remaining Seiyu shares, which will result in Seiyu's delisting from the Tokyo Stock Exchange.

In Japan, Bentonville, Ark.-based Wal-Mart has stuck with the Seiyu brand, familiar to Japanese, instead of using the Wal-Mart name.

But Seiyu has struggled amid intense competition from smaller retail chains and major local companies that are introducing Wal-Mart-style
megastores and price slashing.

Wal-Mart officials have introduced large-scale distribution centers that have proved successful in the U.S. and have tried to adapt its global brands to the Japanese market. But some analysts say Wal-Mart may lack intimate knowledge of how the Japanese market works.

Jun Kawahara, analyst at Shinko Securities Co. in Tokyo, said Japanese tend to frequent neighborhood shops on their bicycles and engage in a great deal of comparison shopping at many stores, rather than the typical American shopper who might drive to Wal-Mart for one-stop shopping.

"Japanese consumers are very sophisticated. It's not enough that products are cheap," he said.

Wal-Mart also faces competition from Japanese retail giants such as Aeon Co. that have adopted Wal-Mart-style tactics, including in-house brands and supercheap prices, and have succeeded in wooing suburban shoppers.

Lampert vs. Sears' critics: Who's right?
By Suzanne Kapner, Fortune writer – Fortune.com
December 4, 2007

The Sears chairman says the retailer has reduced debt and invested more than $1 billion in its stores, but on closer inspection, these arguments are less than they appear.

Maybe Sears' critics have it wrong.

After the company's dismal third-quarter earnings report Thursday, which sent the stock down more than 10 percent late last week, its chairman, Edward Lampert, fired back. Contrary to Sears Holdings' (Charts, Fortune 500) detractors, who have warned for two years that the company's subpar investment in stores and lack of expertise in merchandising would erode profits, Lampert contends that Sears is making progress.

"In fact, over the past several years, we are one of the few retail companies that have actually reduced our overall debt levels, while at the same time investing over $1 billion on capital expenditures," Lampert wrote in an open letter to employees.

The letter also touts Sears' investment in inventory as well as other measures to improve sales. Lampert says the beleaguered retailer should get more credit for its strengths and be less penalized for weaknesses.

Lampert's comments, made public late last week in a regulatory filing that followed the company's earnings report, helped Sears' shares claw back some of their losses. In fact, Sears shares gained $4.95, or nearly 5 percent, to $110.46 on Monday.

On closer inspection, however, the letter's arguments are less than they appear.

Take the $1 billion in capital investment that Lampert refers to in his letter. Sure, this sounds like a lot of money, but it pales in comparison to what other retailers spend on store upkeep and expansion. Over the past 12 months, Sears spent 1.2 percent of its overall sales on capital expenditures. That compares with 7.1 percent for Target (Charts, Fortune 500), 4.4 percent for Wal-Mart (Charts, Fortune 500), and 2.2 percent for Costco (Charts, Fortune 500), according to Credit Intel, a credit research firm.

Analysts expect Sears to spend no more than $700 million on capital expenditures this year, a slight increase from the $513 million spent in 2006 -- paltry sums for a retailer with $30 billion in annual sales.

Plus, it's taken Sears nearly two years to get to that $1 billion mark. Consider that over the same period, Lampert has spent $3 billion buying back Sears' stock.

On the question of inventory, Lampert blamed Sears' bloated ,merchandise levels on a slowing economy that has caused consumers to delay purchases of items like appliances, tools and lawn and garden equipment, which account for a large chunk
of Sears' sales. "Had the economic environment been different, certain actions may have led to different results," Lampert wrote.

To be sure, slowing consumer spending has hurt all retailers, Sears included. But the problems at Sears run deeper. Even in the best of economic times, Sears would still be struggling, because it has yet to find a formula to entice shoppers. Investing in inventory is worthless if a company is investing in the wrong inventory, as Sears seems to be. Analysts and frustrated consumers alike talk about how stores are frequently bare of essentials, but laden with out-of-season goods.

A visitor to the Oak Brook, Ill., Sears recently complained of a dozen unsold bicycles parked in the alley to the men's room. At the same time, shelves in the store's Lands' End department were bulging with summer shirts, this person said.

Lampert rightly points out that many of his rivals, including J.C.Penney (Charts, Fortune 500), Kohl's (Charts, Fortune 500) and Home Depot, have spent millions to open new stores and remodel existing locations and still experienced a sharp drop in earnings as the economy has faltered. "Spending lots of money doesn't always lead to the results people expect," Lampert wrote.

But by starving existing stores of capital, Sears is no better than a homeowner who forgoes that new roof. It can only rain for so long before the roof starts to leak.

Don't Mess With Eddie Lampert
By Morgan Housel – The Motley Fool.com
December 4, 2007

Sears Holdings (Nasdaq: SHLD) chairman and hedge fund manager Eddie Lampert has taken his lumps lately, as his merger of retailers Sears and Kmart continues to struggle. But while this brilliant investor may seem down, only a small-f fool would entirely count him out.

A bit of background

After breezing through Yale University, Lampert began his career at Goldman Sachs (NYSE: GS) where he was mentored under future Secretary of the Treasury and current Citigroup (NYSE: C) Chairman Robert Rubin. Never one to follow the crowd, a 25-year-old Lampert decided to strike out on his own -- against Rubin's advice -- and start his own hedge fund.

Lampert then gained the respect of billionaire Richard Rainwater, who funded Lampert's hedge fund, ESL Investments, with $28 million in seed money. Not a bad first day at the office.

Since forming ESL in 1988, Lampert has produced purported returns of 29% per year, turning an original $1 million investment into $230 million today. With results like these, it isn't hard to see why so many people have already deemed Lampert "The next Warren Buffett."

Not too shabby

Lampert's investing style stays close to that of his hero Buffett. He's neither a trader nor a speculator. He's a businessman at heart, with a passion for purchasing companies on the cheap and holding them indefinitely.

That's exactly what he did in 2004 with embattled retailers Kmart and Sears. Everyone else had all but given up on these firms, each feverishly losing ground to competition from Wal-Mart (NYSE: WMT) and Target (NYSE: TGT). Lampert saw an opportunity to merge the two diminished companies, sell underperforming stores, cut costs, and milk the new company for cash. He could even use the cash for investments in other realms of the finance world at his discretion.

Sound familiar? It isn't too far off from what Buffett did with another failing company called Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) several decades ago. I need not remind you how that turned out.

You're buying what?

Lampert certainly surprised the market when he began purchasing Kmart from bankruptcy court back in 2003. The Buffett philosophy of investing puts little emphasis on turnaround situations, yet at the time, it appeared that was what Lampert had in mind. Perhaps the criticism was justified; when asked about his worst investments ever, Buffett himself has often quipped, "Buying Berkshire Hathaway probably wasn't a good idea."

While Berkshire has indeed turned out to be one of the most successful investments of all time, thanks to Buffett's investing prowess, the original Berkshire -- an Omaha textile mill -- would have undoubtedly turned out to be a flop.

Such may be the case with Sears Holdings, too. Since Lampert took over in 2004, the combined company has done a complete about-face, turning two companies on the brink of collapse into a money machine that has churned out billions in cash, which Lampert has used to retire debt and repurchase shares.

The results of Lampert's wizardry have been certainly been Buffett-esque in their own right. In four years, shares of Sears Holdings surged well more than tenfold, making Lampert a billionaire many times over.

Head for the hills? Please....

That is, until recently. Investors have become restless with Sears' progress. Its slowing sales and rising inventories show that customers have lost their affinity for Sears-brand merchandise. Add that to last Thursday's 99% drop in earnings, and the fact that few if any investors will argue that Kmart stands much of a competitive chance against Wal-Mart, and you start to wonder what Lampert's been smoking lately. Investors haven't been shy about their doubts, cutting Sears Holdings shares by nearly half since April. Easy come, easy go.

But is it really time to give up on Lampert and dump Sears Holdings like there's no tomorrow? Hogwash! Again, like Buffett, Lampert is a long-term investor, and while the results of the past few months certainly haven't been pretty, I can assure you that Lampert isn't losing much sleep over them. Regardless of the retail results, the real rewards will come down the line, when Lampert begins to put Sears Holdings' cash to work in other investments outside the retail world, as most expect him to do. Still, that will undoubtedly take time.

Lampert is an undisputed genius, and the ultimate success of the company certainly can't be measured in any 90-day time period -- but that's exactly what investors are currently doing. If you're looking to make money over any time period less than five years, you probably should stay away from Sears Holdings. But if you're in a the market for what is essentially an investment in one of the greatest investors of this generation, the recent turbulence in Sears Holdings could give you an exceptional opportunity to take part in one of the best ways to piggyback off a phenomenal investor.

Medicare cuts back on drugs covered by Part D
By Julie Appleby, USA Today
December 4, 2007

Medicare beneficiaries are likely to see a smaller number of drugs covered under their Part D insurance plans next year, as insurers have revised offerings and the government has culled hundreds of products from a list of approved drugs.

On average, the number of drugs offered by the 10 insurers with the largest enrollment shrank by 26% from this year to next, according to data analyzed by Washington consulting firm Avalere Health.

Two of the largest insurers — UnitedHealth (UNH) and Humana (HUM) — saw drops of 30% in some of their plans, from more than 3,750 drugs to just more than 2,620, Avalere's analysis shows. Even so, the two insurers still have among the largest drug lists of the 10 biggest insurers.

The drop came mainly because of changes made by Medicare, which shrank the list of drugs it will pay for, culling those that have been pulled by the FDA, are no longer being made, had duplicative billing codes or were drugs deemed "less than effective" by the FDA.

Medicare officials and the insurers say most beneficiaries are unlikely to be affected. Enrollees taking drugs that were pulled will usually be able to find alternates or can go through an appeals process to try to stay on their current drugs, they said.

"Most of those (removed) drugs were not used," says Jeff Kelman, chief medical officer for Medicare's Center for Beneficiary Choices.

UnitedHealth spokesman Daryl Richard says even with the drop, the company's Medicare Rx Preferred plan covers "100% of the drugs" on Medicare's approved list.

Humana spokesman Tom Noland says, "As the Part D program develops, the size of the formulary is becoming more aligned with utilization patterns, consumer preferences, health outcomes and value for consumers."

Avalere's Jon Glaudemans says the enrollees should check the drug lists of plans they are considering before signing up, to see if the medications they take are included. The deadline for enrolling is Dec. 31.

"Every year, insurers revise their formularies, and every year, beneficiaries should reassess their choices," Glaudemans says.

One group that may be particularly affected by the change are some beneficiaries who qualify for government premium subsidies because they are low-income.

About 2.1 million low-income-subsidy enrollees will be automatically switched to new insurers in 2008 because their current insurers raised premiums above a government benchmark.

An Avalere analysis of those being switched from plans in Texas to other plans found that, on average, enrollees will be switched to coverage with 14% fewer drugs than if they had been able to remain with their current insurers, based on the revised 2008 drug lists.

In addition, the new insurers require prior authorization on 15% of all drugs offered, compared with 10% under the plans no longer eligible to take low-income enrollees in Texas. That means the patient has to get approval from the insurer before getting the drug.

"This means they will have a harder time accessing what they need," says Dan Mendelson, president of Avalere.

Medicare spokesman Jeff Nelligan says there is no way to determine if the Avalere findings from Texas also hold true nationally.

Nelligan said that insurers must meet Medicare's requirements for offering drugs in all classes of products, provide at least a 30-day transition for those who must change drugs and offer an appeals process.

He added that subsidy-eligible enrollees can change insurers even after the open enrollment period closes. Other enrollees cannot change.

How drug reductions affect largest insurers

Fewer drugs are included next year under offerings from many insurers in the Medicare Part D program. This chart shows the average change among the five largest insurance plans, by enrollment size.

Part D plan July 2007 enrollment Number of drugs in 2007 Number of drugs in 2008 %. change, 2007-08

AARP MedicareRx Preferred 3.1 million 3,763 2,627 -30.2%

Humana PDP Standard 2.1 million 3,752 2,623 -30.1%

Humana PDP Enhanced 1.1 million 3,755 2,623 -30.1%

Community Care Rx Basic 1.0 million 1,835 1,627 -11.3%

AARP MedicareRx Saver 0.9 million 3,167 2,184 -31.0%

Source: Avalere Health

Credit-Card Gamble Comes Due
Discover Financial To Take a Hit in U.K.; Slip for Morgan's Mack?
By Kevin Kingsbury – Wall Street Journal
December 4, 2007

Discover Financial Services plans to write down about $422 million in value at its Goldfish credit-card business in the United Kingdom, acknowledging damage inflicted by disruption in the financial markets there.

The expected fiscal fourth-quarter hit reflects another misstep by John Mack, chief executive of former parent Morgan Stanley, which paid $1.76 billion to buy Goldfish from Lloyds TSB Group PLC in February 2006.

The agreement signaled Mr. Mack's commitment at the time to the credit-card business, which some investors had said should be sold off. Instead, Discover was spun off to Morgan Stanley's shareholders five months ago and began trading at $28.50. Since then the stock has slumped. Yesterday, in 4 p.m. New York Stock Exchange composite trading, Discover's shares were down 98 cents, or 5.6%, to $16.39.

Last month, Mr. Mack's effort to boost returns by getting Morgan Stanley to take on more trading risk sustained a blow, when the bank said it expects to book $3.7 billion in losses from a mortgage-related trade that went bad. Some analysts think the hit could be bigger.

A point in Mr. Mack's favor is that Morgan Stanley decided to distribute Discover stock to shareholders in early 2007, well before the full extent of the Goldfish weakness took hold. A Morgan Stanley spokesman added, "Discover achieved record results as part of Morgan Stanley, and its spinoff in July created a stand-alone company with a market value in excess of $13 billion."

Discover said it will write off "all or substantially all" of Goldfish's goodwill and other intangible assets, which as of Aug. 31, the end of its fiscal third quarter, totaled about $422 million. Such assets generally reflect the premium paid over book value in an acquisition.

"We have concluded that continued disruption in the U.K. financial markets, higher interest rates and our decision to reduce our loan exposure to the U.K. market have negatively affected the book value of our Goldfish business," said Discover Chief Executive David Nelms.

While other financial companies have seen softness in the U.S. offset by strength overseas, Discover's international card business continued to show weakness in the third quarter. The segment, dominated by Goldfish, had a pretax loss of $67 million, compared with a year-earlier loss of $30 million.

Meanwhile, Discover's board authorized as much as $1 billion in stock buybacks over the next three years. The company is set to release its fourth-quarter results on Dec. 20.

In a research note, Lehman Brothers said the buyback "is considerably more positive than the goodwill impairment is negative." But it acknowledged some investors expected a more dramatic move with the U.K. operations. Thomas Weisel said in a note that the write-down shows "aggressive restructuring" at Goldfish, adding, "We are cautiously optimistic that transitions may help return the segment to profitability by late 2008."

Morgan Stanley's trading losses helped result in the replacement of co-President Zoe Cruz Thursday. She had been criticized for not having a good handle on the risks the firm took in its huge bond division, a business Ms. Cruz had grown up in and built over the years.

Lampert's Lament
By Rich Smith – Motley Fool.com
December 3, 207

"... much of the commentary in the media and on Wall Street following the results ignores the strength of [Sears Holdings] and the progress that we have made. ...
[M]any retailers, including Home Depot, Lowe's, Macy's, Kohl's and JC Penney, have suffered from the economic environment of the past year and have had disappointing sales and earnings results. Much of the commentary following their results focused on the difficulties in the housing markets, the overall macro environment ..."
-- Sears Holdings (Nasdaq: SHLD) Chairman Edward S. Lampert, Nov. 30, 2007

Pity Eddie Lampert. He just don't get no respect. But Friday's letter to "associates" of the venerable retailer that he bought and merged with Kmart three years ago does get my attention. For years, pundits and investors have debated the question: Is Sears Holdings (1) a struggling retailer playing second fiddle to Target (NYSE: TGT) and Wal-Mart (NYSE: WMT), or (2) a hedge fund in drag? Seems to me that Sears' chairman answered this question pretty clearly on Friday.

Sears is a retailer

In his letter, Lampert boasts that "we are one of the few retail companies that have actually reduced our overall debt levels, while ... investing over $1 billion on capital expenditures ... contributing significantly to our pension plans for our past and future retirees and repurchasing over $3 billion of our shares." He promises to "manage the business closely and opportunistically," "deliver better results in the future," and -- most telling of all -- to "earn [investors'] respect by our performance on the retail playing field."

So, news flash: Sears is a retailer.

But what kind of retailer?

This question is key to Sears' success. I mean, anybody can sell stuff, but a retailer doesn't thrive until it becomes "known" for something -- or at least, known for being an alternative to something. Consider, for example:

Wal-Mart: Always low prices.
Target: Wal-Mart, but with style.
Kohl's (NYSE: KSS) and J.C. Penney (NYSE: JCP): Cheaper than Macy's (NYSE: M), and better than Target.

So the question becomes, what does Sears mean to you?

Three things

Personally, I think of three things when I think of Sears. Sears is:

Craftsman tools. High quality, reasonable price, backed by a lifetime warranty.
Kenmore appliances. The same quality as a Whirlpool (which makes the machines for Sears), but because it's labeled "Kenmore," it costs less.
And of course, Sears also has a softer side, helped by the acquisition of quality clothier Land's End.
In a word (actually, three words), Sears means affordable, dependable quality.

Or it should

At the risk of overgeneralization, and the certainty of un-political correctness, I'd sum up Sears' primary competitors' wares with three words: "Cheap Chinese stuff."

Problem is, when everyone's selling the same stuff, it's hard to differentiate one seller from the rest -- and in this Fool's view, that helps to explain Sears' massive earnings whiff last week. Sears is selling the same stuff as the other guy, and not always at a better price. To differentiate itself from the competition, I offer Sears the following suggestion for how to establish an identity, earn better margins on its sales, and steal a march on the competition in the process.

Dance with the one that brung ya

Rather than compete with other retailers in a race to the bottom on margins, Sears needs to capitalize on (what's left of) its core identity as an American brand selling affordable, dependable quality. Ideally, it should play the "patriotism card" and advertise itself as a purveyor of "Made in the USA" merchandise. Granted, doing business in a flat world may make going 100% American impossible. But Sears can win the PR game if it goes as little as 51% "Made in the USA," and ensures that the remaining 49% of its products measure up, quality-wise.

It's hard to imagine a better time for Sears to make this move. Sears' rivals are beginning to see the cost of their foreign merchandise rise as the Chinese yuan appreciates in value. That's certain to squeeze margins, and makes Sears competing in a race to the bottom look pretty unattractive. Simultaneously, U.S.-made goods will become relatively cheaper thanks to the incredible shrinking dollar, making "affordable quality" a price worth paying.

It all adds up to a singular opportunity for Sears to get ahead of the curve, and brand itself as the "Made in the USA"-quality retailer.

Eddie can't whitewash Sears' troubles: analyst
By Sandra Guy – Staff Reporter – Chicago Sun-Times
December 3, 2007

Sears is benefiting from discount holiday shoppers, but a Wall Street analyst disputes the company chairman’s arguments that Sears is being unfairly criticized.

Wall Street analyst Gary Balter of Credit Suisse wrote in a note to investors today that Sears Chairman and hedge fund guru Edward S. Lampert ignored key facts in a letter to employees Friday stating that Sears is being picked on.

On Thursday, Sears Holdings Corp. released the worst earnings results since Lampert engineered Kmart’s $12.3 billion takeover of Sears Roebuck in March 2005. Sears reported a 99 percent drop in third-quarter profit on continued declining sales and investment losses.

On Thursday, Lampert wrote: “Much of the commentary in the media and on Wall Street . . . ignores the strength of our company and the progress that we have made.”

Balter took issue with some of Lampert’s statements, while still maintaining that Sears could be a $188 stock if Lampert would sell valuable assets such as Sears Canada, Lands’ End, distribution centers, Sears’ headquarters in Hoffman Estates, and brands such as Craftsman and Kenmore.

Lampert said times are tough in retailing today. Balter said while that’s true, Wal-Mart and Target are enjoying good years. Balter said: Kmart’s net-profit margin is expected to decline to 3.6 percent this year from 5.1 percent; Wal-Mart’s projected flat operating margin is 7.4 percent this year and Target’s is 11 percent.

Sales productivity is $135 a square foot “and shrinking” at Kmart. That compares with Wal-Mart’s $584 and Target’s $314, according to Balter’s report.

Kmart also has failed to benefit from the addition of the Sears’ Craftsman tool brand to Kmart stores, Balter wrote.

Sears is in better shape, but it will continue to be hurt by the housing crisis, Balter said.

Lampert is headed in the right direction when he promises to reduce inventory, as he did in the letter to employees, Balter said.

“Freeing up inventory not only helps gross margins but could add up to $8 billion to the cash flow story, or enough to take out all of the non-ESL shareholders,” he said, referring to Lampert taking over all of Sears’ stock in a privatization move.

Balter believes Lampert would be making a mistake to take over Restoration Hardware and try to sell more upscale goods at Sears because Sears shoppers want discounts.

Balter believes the answer is for Sears to get rid of its most valuable assets and realize that there’s no more profit to be squeezed from cutting costs at Kmart and Sears stores.

“Retailing is a very humbling profession, as Eddie is discovering,” Balter wrote. “Your lowest paid employee is the one who makes an impression on the customer. . . . One better instill a sense of customer service in the associates to be successful.”

Meanwhile, a poll out today shows nearly half (49.4 percent) of Americans went Christmas shopping this past weekend, with 73 percent visiting one or two stores.

The poll shows the top destinations were Wal-Mart with 32.3 percent of shoppers, Sears with 19 percent, Target with 18.8 percent and JC Penney with 18.1 percent, according to America’s Research Group, a consumer research firm based in Charleston, S.C.

Sears Is Down, Not Out
Barron’s
December 3, 2007

SEARS HOLDINGS GOT SMOKED THURSDAY, falling more than 10%, to around $104, after the retailer disclosed a shockingly bad third quarter.

Earnings fell 99%, from $1.27 a share a year earlier to just a penny. Sales at stores open at least a year sank 4.2%. Gross margins, or what Sears (ticker: SHLD) and Kmart earn before figuring in general administrative and sales costs, also sank far more than analysts anticipated. Obviously, Sears had to indulge in heavy discounting just to clear its floors. And yet inventories still grew 4.5%. Hedge-fund manager Eddie Lampert, whose ESL owns more than 45% of Sears, saw the company's selling expenses rise relative to sales, despite extensive cost-cutting.

In an Oct. 22 article entitled "A Storied Name on Sale?3", we argued that the stock, then around 134, was cheap in relation to Sears' net asset value, mostly its real estate and valuable brands like Kenmore and Craftsman. Yet we warned that it might be a long slog before these values were monetized, since Lampert seems bent on using Sears' cash flow to buy in its stock.

Deutsche Bank analyst William Dreher apparently agrees with our thesis, though he has cut his 12-month price target on the stock from $182 to $161, which more closely approximates his $150-a-share estimate of Sears' net asset value. We think that number is conservative. Lampert, now caught in what Dreher calls the current "Bermuda Triangle of retailing," may speed up his restructuring plans. If successful in his offer last Monday for Restoration Hardware (RSTO), he'd have an excellent potential tenant for some of Sears' mall space.

In the meantime, at least one hedge fund we contacted said it is backing up the truck to buy more Sears shares.

-- Jonathan R. Laing

Lampert reminds Sears workers of strengths
By Sandra M. Jones – Inside Retailing - Chicago Tribune
December 1, 2007

Don't believe the bad press.

That is the message Sears Chairman Edward Lampert sent in a letter to employees Friday morning in the wake of a dismal third-quarter earnings report Thursday that sent Sears shares tumbling 11 percent.

"While we were not pleased with these results, much of the commentary in the media and on Wall Street following the results ignores the strength of our company and the progress that we have made," Lampert said in the letter, which was filed with the Securities and Exchange Commission.

Wall Street analysts and news reports raised the question of Sears' long-term viability and Lampert's ability to turn around Sears and Kmart stores, given an extended sales slide that is taking its toll on profits. Credit Suisse titled its earnings note, "Death Spiral?" and Morgan Stanley wrote, "That was worse then even we thought."

Lampert's 650-word letter asserted that earnings at many retailers - J.C. Penney Co., Kohl's Corp., Home Depot Inc. and others -- have suffered lately from the housing market downturn and credit crunch.

"All of these companies have spent enormous amounts to open new stores and to remodel existing stores and still ended up with lower earnings," Lampert wrote. "Spending lots of money doesn't always lead to the results people expect."

The Hoffman Estates-based company reported a 99 percent drop in third-quarter earnings over the year-ago period, its worst quarter by far since the billionaire hedge-fund investor took control of the department store chain and combined it with Kmart in March 2005.

Sears eked out a profit of a penny per share, missing by a long shot the 50 cents Wall Street had expected. Sales at stores open at least a year -- a key measure of health -- fell 4.2 percent at Sears and 5 percent at Kmart, continuing a decline that began in 2001.

Lampert disclosed in the letter that Sears is adjusting its inventory level so that by the end of the fiscal year the company expects inventories to be below last year's levels.

The investor, Sears' largest shareholder with a 46 percent stake, closed by noting that "retail is a fickle business. And he urged employees to remember, "not everybody likes rooting for the underdog."

TAXING TIMES AT KMART: In a week of bad news for Sears Holdings Corp., a displeased Kmart shopper in Monroeville, Pa., grabbed national headlines in a tussle over toilet paper.

It wasn't quite a Boston Tea Party, but Mary Bach claimed victory for all citizens of Pennsylvania when a district court awarded her $100 plus court costs after she sued Kmart for illegally collecting 28 cents' tax on a 12-roll package of toilet paper, according to an Associated Press report. Toilet paper is considered a non-taxable necessity by the state's Department of Revenue.

Kmart offered to settle the case before a Thursday court hearing in western Pennsylvania. But Bach refused because she would have had to sign a confidentiality agreement, which in turn would have prevented her from warning others about the incident, she told the AP.

How to Get Ahead By Going Backward
Lessons from those who took career risks --
and succeeded
Wall Street Journal
December 1, 2007

LEAP OF FAITH

The Usual Route: Most executives see promotion as the cure for a stagnating
career. If they've learned all they can at one job, they figure they'll step up to a better one, with new challenges and rewards.

The Riskier Path: Instead of trying to move up, some executives make sideways or even backward career moves. These jobs may mean a lower salary and profile in  the short term -- but in the long term they can impart valuable new skills and serve as steppingstones to better positions.

The Road Map: Executives say there are some crucial caveats to keep in mind when making a counterintuitive move. For instance: Know exactly what skills you're after, and be passionate about the job you're pursuing. "The joke was that I was in charge of 'other,' as in other businesses," he recalls. "Then one day a new
boss came in, who told us we were going back to our core business and core competency. When he gave that speech, it occurred to me that 'other' was out of business, and it was indeed."

By William J. White

When it comes to advancing a career, sometimes the best way to take a step
forward is to take a step back.

For most people, a promotion is the cure for a stagnating career. They've
accomplished and learned all they can at one job, so they aim for the next one up the ladder, hoping it will bring them bigger personal and financial rewards.

But a few pursue a much riskier strategy. Instead of trying to move up, they take a lower-level job that gives them valuable new skills and experience. They're prepared to accept a short-term loss of income and prestige, betting that the knowledge they gain will lead to a better job down the road.

To figure out the best way to move ahead by moving backward, we interviewed  successful executives who have made contrarian career moves. A few common themes emerged in their stories. For one, the executives said they knew exactly what they were getting into when they took backward steps. They knew what skills they were seeking in the new job, and since they had a broader career plan in mind, they were prepared to accept lower pay or a diminished profile to achieve it.

Moreover, they were pursuing a goal they felt passionate about; they weren't
running away from problems or dissatisfaction at a current job. Their backtracks were also grounded in success in one venture, which provided confidence and often a financial cushion to pursue an interest elsewhere. Finally, with a secure cushion, they were confident enough to take a backward step at any stage of their career -- even on the cusp of retirement.

Of course, this strategy is not for everyone, nor does it automatically lead to the proverbial greener grass. But for people willing to plan their career several steps ahead, and take some risks to achieve a goal, it can be a rewarding strategy.

Here's a closer look at the lessons we gleaned.

Understand What Skill Gap You Are Trying to Fill.

Successful career transitions are grounded in the desire to gain a new skill or
experience in a different part of a company -- for instance, moving from finance to operations -- or in a different industry. Those who navigated the change successfully knew exactly what they were looking to acquire by making the move.

Alan J. Lacy, who among other things is a senior adviser to a private-equity firm, recalls a strategic career move he made in the late 1980s. Mr. Lacy made a "development move" from the treasurer's job at Dart & Kraft -- now Kraft Foods
Inc. -- to a divisional finance job. After being a corporate officer for three years, he realized that the treasurer position tended to be a lifelong job; the person he succeeded had held the title for more than 20 years.

Still in his 30s, Mr. Lacy wasn't ready to commit to the job for the rest of his
career. So he decided to get some hands-on experience in operational finance, as
well as international exposure, at Kraft's overseas arm. His goal: to become the chief financial officer of a public company.

"One of the things I've counseled people on over the years is when you make a
couple of lateral moves and take jobs that might even be perceived as a demotion
in the early part of your career, you are building breadth," Mr. Lacy says. "You
have to have depth, whether in marketing, finance or operations, but you should
also try to build as much breadth as you can."

The move paid off. Mr. Lacy became CFO of a public company at age 35, and became CFO of Sears, Roebuck & Co. at age 41.

He later made a similar decision: He decided he didn't want to be a CFO for the
rest of his career, so he left the job to run Sears's credit business in 1997. Once again, the development move paid off: In 2000, he was named chief executive of Sears.

Run Toward Something Positive Rather Than Away From Something Negative.

A backward career move is not an escape plan to pursue fantasies: quitting the
9-to-5 job for a cabin in the woods to write poetry or trading in one's wingtips for hiking boots. Nor does it involve running away from responsibilities, personal problems and unfinished business -- moves that are steeped in failure and destine an individual to encounter the same challenges again, just in a different
environment.

Instead, the shift should be rooted in a strong desire to take on the job in question -- such as rediscovering a passion or building professional breadth in order to achieve a dearly held goal.

For Thomas Ryder, the passion came from a sense of obligation to help his
company and his peers. The retired chairman and chief executive officer of Reader's Digest Association Inc., Mr. Ryder was a member of the senior
management committee at American Express Co. until about 1990, managing noncore businesses.

Mr. Ryder could have jumped to another company or marketed himself aggressively to the company's core businesses. Instead, he decided to take on the challenge of selling the noncore businesses -- even though it meant leaving the executive committee and taking a psychological demotion. In spite of an uncertain outcome, he did not run away: not from the difficult tasks ahead nor from the responsibilities he faced.

His sense of responsibility to his subordinates and superiors, as well as the
opportunity to gain valuable experience in the tougher side of operations --
liquidating businesses -- was a backward step that paid off in the short and long term.

"In the process of what I did, I earned an extra measure of respect from my new
bosses," Mr. Ryder says. "It wasn't too long before they invited me back to take
on a much bigger job -- one of the biggest and most important jobs at the
company at that time." The new assignment: president of Establishment Services
Worldwide, the division that dealt with all the merchants who accepted the
American Express card.

Embrace the Intrinsic Rewards.

Executives who made abrupt departures from their career paths were willing to
accept pay cuts and less prestige. They recognized that the temporary losses were less important than the intrinsic rewards of the new challenge -- such as
learning skills or fulfilling a long-held dream.

It's crucial to bear those intrinsic rewards in mind in the face of incredulity from peers. Consider Mr. Lacy. When he took his strategic step, fellow executives "were shaking their heads," he says. "They didn't understand why I would do that."

Although he didn't suffer a loss of salary, "from a status standpoint, it was a huge shift," he says. "I had been a corporate officer, going to board meetings and being in charge of the finance committee. Treasury departments also have relationships with people outside the company, including partners at investment-banking firms.... Then I went into this very internal job, where the only external relationships would probably be with the auditor."

The thing to remember is that "a backward step is in the eye of the beholder," says Jon Fieldman, chief operating officer and general counsel of Crestview
Capital Partners, a hedge fund. Mr. Fieldman has made several career transitions, seeking out jobs that could help him develop skills such as teamwork and transforming organizations. Along the way, for instance, he left a large and prestigious Chicago law firm and eventually became chief information officer of a Xerox subsidiary. His goal in making the moves, he says, was "to grow and stretch as a leader so that I develop my gifts, improve upon my weaknesses and contribute to the world as best as I can."

Success begets success. Having achieved goals, found recognition and enjoyed the rewards of their successes in one area, executives were able to handle the
psychological challenge of backward moves.

Indeed, many of the executives interviewed made more than one backward move in
their careers; the success of previous tactical shifts gave them confidence and
experience for future moves.

Building on previous successes may also provide another type of safety net, at
least temporarily: a financial cushion to make up for the loss of salary or bonus.

Don't Move for Emotional Reasons.

Counter-directional moves may carry emotional rewards, but they shouldn't be
emotionally driven. Sudden, radical changes that are driven by anger -- at a
boss, a company, the loss of a promotion, because of a merger, and so forth --
or other negative catalysts rarely result in well-founded, successful change.
Usually, people making a successful decisive move have put a lot of time into
evaluating their next career steps -- which allows them to capitalize on
opportunities.

It's Never Too Late to Transition.

Most of the executives spoke of having made one or two backward moves early or
mid-career. From the late 20s through early 40s, it may be easier (and more
acceptable) to switch career gears and make contrarian moves. But transitions
can be made at virtually any career phase -- as long as one has sufficient
psychological and financial cushions.

After a lifetime in publishing, Larry Kirshbaum wanted to make a move before he retired as CEO of Warner Books. In 2005, at age 61, after enjoying a record year for his division, he left to become a literary agent, pursuing his lifelong love of books and working with authors.

This premeditated backward move brought a dramatic step down in salary for a
former corporate officer and head of a business that last year was acquired for more than $500 million, as well as a decline in prestige. Mr. Kirshbaum believes
such moves are better made sooner rather than later -- but the timing doesn't matter as much as your attitude.

"If you have a strong predilection for entrepreneurship, exercise it as early as you can," he says. "Build something up with more time. You won't be taking as much of a financial jolt as I have. But it seems to me that if anyone today feels the way I do at the age of 60, which is as if I were 30, then the timing doesn't matter. It's a state of mind."

Part of the state of mind is what Mr. Kirshbaum describes as the "fertile void,"
literally a space of time and attention that is purposefully left vacant -- rather than being crammed full of obligations and responsibilities.

"If you don't fill up all the time and space around you, and you leave some open
time, the void will be filled with very interesting things you haven't anticipated," he says. "Out of the blue have come some wonderful opportunities that would never have occurred to me...if I had not gone out on my own and opened myself to a more freewheeling situation."

Those new opportunities include moving into private equity as a board member of
a wholesale book distributor, expanding his charitable activities, and
representing a range of interesting and successful books. Moreover, after
representing a cardiologist's diet book, Mr. Kirshbaum says he has "stopped
eating junk food, lost 12 pounds and started working with a personal trainer three days a week. I feel better, and I look healthier."

In conclusion, a caveat. The element of risk and the possibility of failure in this strategy can't be understated. There is no guarantee that if you make a backward move, you will automatically propel yourself forward on a different track. Ultimately, only you can judge your ability to handle the emotional upheaval, and the risks involved in making a bold step off the career path.

The stories from these executives are peppered with the phrases I wondered, I
had a feeling, I thought. They were really comfortable with their own psyches
because they knew what worked for them.

With that knowledge, they boldly but strategically stepped off the career path
laid out for them and blazed their own trails.

--Mr. White, retired chairman and chief executive of Bell & Howell Co., is
professor of industrial engineering and management science at Northwestern
University.

Lampert says Sears Holdings underestimated
Chicago Business.com
November 30, 2007

(Reuters) — Sears Holdings Corp. Chairman Edward Lampert on Friday took the media and analysts to task for underestimating the company, saying the retailer is being criticized for the same practices that elicit praise when used by its competitors. "When other companies manage expenses carefully, it is often characterized as a sign of good management and prudence. In the case of Sears Holdings, meanwhile, expense controls are often cited as a root cause of poor performance," he said.

His comments came in a letter to employees that was filed with the U.S. Securities and Exchange Commission one day after the owner of Kmart and Sears, Roebuck posted a 99 percent drop in third-quarter earnings and a 3 percent decline in sales.

"Much of the commentary in the media and on Wall Street following the results ignores the strength of our company and the progress that we have made," Lampert said in the letter.

When other retailers, including J.C. Penney Co. and Home Depot Inc. suffered from the economic environment in the past year, commentary on their earnings was different than on Sears' results, he said.

Comments on those retailers focused "on the difficulties in the housing markets, the overall macro environment, and the highly promotional nature of the retail environment that has existed recently," Lampert said, while commentary on Sears' looked at its expense controls.

But he added: "All of these companies have spent enormous amounts to open new stores and to remodel existing stores, and still ended up with lower earnings. Spending lots of money doesn't always lead to the results people expect."

Some analysts have argued that Sears has focused too much on cost cutting at the expense of store improvements, systems upgrades and other efforts to drive sales and better manage the business.

Sears shares were up $2.63 at $106.78 Friday on the New York stock Exchange, after falling more than 10 percent on Thursday.

Sears Profit Drops, Bringing Forecasts of a Restructuring
By Gary McWilliams – Wall Street Journal
November 30, 2007

Edward S. Lampert, lionized until recently for his ability to turn a ho-hum retailer into a dazzling financial play, finds himself in a box with Sears Holdings Corp.

Falling sales and sharply weaker earnings could force the Sears chairman to restructure the company at a time when weak credit and real-estate markets will make such a move more difficult.

The Hoffman Estates, Ill., retailer yesterday reported third-quarter profit plummeted 99% on a modest sales decline. It also forecast glum year-end results, noting markdowns on bulging inventories would hurt margins in what is historically the company's most profitable quarter.

Evidence of a new crack in the Sears turnaround story led Sears shares to drop $12.25, or 11%, to $104.09 in 4 p.m. Nasdaq Stock Market composite trading. The stock had traded as high as $195.18 earlier this year. (See related story1.)

The company blamed the sales and earnings declines on competitive pressures, economic worries and the impact of warmer-than-usual weather on apparel sales, which generally account for about 30% of revenue. Such rivals as Target Corp. and Wal-Mart Stores Inc. have struggled with weaker home-decor and apparel sales this year but have still managed to boost sales and earnings.

Sears, which gets about 40% of its revenue from home goods and appliances, has been especially hard-hit by the housing slowdown. It launched new marketing campaigns for its appliances and branding campaigns for its Sears and Kmart stores over the summer in an effort to halt falling sales. But same-store sales, a key measure of market share, fell 4.2% at Sears and 5% at Kmart in the quarter ended Nov. 3.

In 2003, Mr. Lampert snapped up a hobbled Kmart at a bargain-basement price and then cut costs and sold off properties to boost results. Since 2005, the hedge-fund manager has attempted a similar turnaround at Sears, slashing spending on store remodeling to finance stock buybacks and investments.

Sears declined to make an executive available to comment on the company's earnings. In a statement, Aylwin B. Lewis, chief executive officer, said: "We cannot blame our results entirely on the retail and macroeconomic environments. We have much on which to improve and are working hard to do so."

The latest results signal that a makeover at Sears, which has $53 billion in annual sales, is likely early next year, Wall Street analysts say. Investors expect the company to shutter underperforming stores and possibly sell assets, such as stakes in Sears Canada or its brands. A Sears spokesman declined to comment.

"They need to raise cash and can sell assets to do that," says Gregory S. Melich, retail analyst at Morgan Stanley. He blames the company's anemic sales on a lack of investment in the retail business.

The business won't get any easier. While retail sales overall are projected to rise 4% this year, analysts forecast that next year's increase will slow to 2.5%. Sears had geared up this year for stronger sales, adding about $500 million in inventory.

Wall Street, which earlier this year forecast fiscal-year earnings of as much as $8.81 a share, now expects the company will earn $7.71 a share.

As recently as the spring, hopes for a Sears rebound were much higher. At the company's annual meeting in May, Mr. Lampert declared the integration of Sears and Kmart complete. He also rolled out new marketing and merchandising campaigns that targeted unique customers for the two chains. But same-store-sales declines at Kmart have worsened since earlier this year, and the drop at Sears has held steady at about 4%.

The company now faces the prospect of taking hefty markdowns to move its merchandise even as the overall retail market is getting tougher, Mr. Melich says. He believes Mr. Lampert must step up investment in its dowdy stores to lure shoppers back at a time when its ability to raise new cash is declining. He figures Sears spends about a third of what rivals spend to maintain their stores, resulting in outmoded store decor, crumbling parking lots and unkempt shelves.

Last month, activist investor William Ackman, who has pressured Target and other retailers to raise their stock prices by selling operations, disclosed he had acquired a stake of about 3.5% in Sears. Based on his past practice, Mr. Ackman, who runs the Pershing Square Capital Management LP hedge fund, is expected to press for asset sales to boost Sears's returns.

Gary Balter, a retail analyst at Credit Suisse Group, says Sears's future is more dependent on credit markets than wooing back consumers to its stores. Its retailing business "isn't ever going to get very good," he says. "That leaves capital transactions to create value."

But pulling new cash out of Sears could be complicated by the credit-market squeeze. Fewer private-equity buyers are willing to acquire retail businesses these days, and commercial property isn't in as much demand as it was earlier in the year.

"The view that Sears has of what its real estate is worth and how buyers perceive its value is different," says Mr. Balter. Credit Suisse recently evaluated Sears's real-estate holdings at between $19.4 billion and $26.3 billion.

Selling properties could be more difficult now than just a few months ago. Target, which acquired Kmart stores when Mr. Lampert was selling them several years ago, recently announced it would spend $10 billion on share buybacks. And Wal-Mart said earlier this year that it would sharply curtail U.S. store expansion. The two are among the larger potential buyers of big-box retail sites.

Mr. Balter says that Sears could still dispose of its 70% stake in Sears Canada or spin off its Lands' End mail-order apparel business to raise cash.

Sears's Stature Markdown
Falling Fortunes May Dim Chairman's Reputation for Investment Acumen
Wall Street Journal
November 30, 2007

Sears Holdings is an unusual creature. Depending on your point of view, it is either a struggling second-tier retailer or a hedge fund in disguise. The company's disappointing third quarter makes it look more like the former. Eddie Lampert, Sears chairman and hedge-fund impresario, may yet have a plan for putting the cash he has been squeezing from Sears to work in more productive ways. If so, the time has come to spell out his strategy. Sears's declining fortunes risk tarnishing Mr. Lampert's reputation as a savvy investor.

Sears shares have plunged nearly 50% from the April high. Yesterday, the stock chalked up its biggest one-day decline since Mr. Lampert engineered the merger of Sears and Kmart two years ago. Meantime, Mr. Lampert's highest-profile investment this year, in Citigroup, also has soured. The bank's stock has plunged about 40% since Mr. Lampert's ESL Investments beefed up its holdings before the summer's credit crunch.

Investors were delighted with Sears's unorthodox structure while consumer sentiment and financial markets were buoyant. The idea of a superstar hedge-fund manager operating a retailer for cash that he could invest more profitably elsewhere was a compelling story. It even earned Mr. Lampert comparisons with Warren Buffett.

As the housing slump and credit crunch worsen, the Lampert mystique is at risk. With greater volatility in credit markets, his capacity to pull off large-scale financial transactions may be limited. Sears's recent bid to add Restoration Hardware to its portfolio is an interesting gambit, but too small to move the needle.

Meanwhile, in its core business, Sears is in an awkward spot. Apart from the general malaise affecting the sector, Sears lacks a compelling strategy to attract more customers to its stores. It offers little of interest to wealthier customers, who may withstand a coming recession, and it faces fierce competition at the lower end of the spectrum from Wal-Mart Stores and Target. Both J.C. Penney and Kohl's have proved to be worthy midtier rivals.

Since Mr. Lampert shuns the public eye and Sears doesn't host calls to discuss quarter earnings, investors are left guessing at the company's next move. Public shareholders have shown a willingness to forgive occasional missteps at investor-run vehicles like Berkshire Hathaway or Loews. But Sears isn't an investment vehicle. As Mr. Lampert's adherents now appear to understand to their regret -- it is a second-rate retailer.

Eddie Lampert Loses His Luster
DEAL JOURNAL – Wall Street Journal
Breaking insight from WSJ.com
November 30, 2007

Warren Buffett may need to look for someone else to take from him the "world's greatest investor" baton.

The earnings debacle at Sears Holdings, the retailer that is 46% owned by Eddie Lampert's hedge fund, highlights a string of bad news for an investor often mentioned as the heir to the Buffett investor throne. Mr. Lampert, whose ESL Investments has posted a loss in only two years, also has investments in AutoZone, AutoNation, Citigroup and Home Depot that have been hit lately.

His stakes in AutoNation and AutoZone have cost him about $250 million and $100 million in paper losses this year, respectively. (To be sure, he still has made a bundle on both investments, which he has owned since 2000 and 1999, respectively, according to FactSet Research Systems.)

On his ill-timed investment this year in Citigroup, Mr. Lampert appears to have paper losses totaling hundreds of millions of dollars more. He recently boosted an 11-million-share stake in Citi by about 17 million shares since January. The stock has fallen by $23 a share this year as the bank absorbed massive credit losses.

The mother of all Lampert lapses this year is Sears, where he also serves as chairman. The roughly 40% decline in Sears stock means Mr. Lampert's about 65 million shares have lost roughly $4 billion in value.

ESL has recorded only two down years, in 1990 and 2002, according to Reuters. In a year when most other hedge funds are up an average of 11.8%, according to a Chicago Tribune report last week, Mr. Lampert may qualify as "the world's most disappointing investor."

--Dana Cimilluca

Sears Profit Plunges; Cost Cuts Get Blame
By Michael Barbaro – New York Times
November 30, 207

Edward S. Lampert, the billionaire financier and chairman of Sears Holdings, is fond of saying that a company must be regularly “pruned,” like a tree or a wardrobe. But “you can’t cut your way to success,” he warned investors in his annual letter this year.

Yesterday, Wall Street wondered whether Mr. Lampert had ignored his own advice.

Sears Holdings, the owner of the Sears and Kmart chains, said profit for the third quarter plunged a startling 99 percent, from $196 million last year to just $2 million, as customers flocked to rival stores during the back-to-school shopping season.

Anxious investors punished Sears stock, sending it down $12.25 a share, or 11 percent.

The dismal performance reignited a long-simmering debate over the company’s cost-cutting strategy for the two historic retail brands, which have struggled since Mr. Lampert merged them in 2005.

Sears said a one-time gain of $101 million elevated its results for the period a year ago, and made this quarter’s numbers pale in comparison. The company also blamed factors outside its control, like warm weather, a weak housing market and stiff retail competition.

But frustrated analysts pointed to what they saw as a bigger problem inside Sears: an unwillingness to invest in aging Sears and Kmart stores, which has left the two chains unable to compete with chains like Wal-Mart, Target, Home Depot and Lowe’s.

“Taking too much cash out of the company and away from the consumer has caught up with Sears,” said Burt Flickinger, a retail consultant, who called Sears “a ticking time bomb.”

From the start, Mr. Lampert has cut or restricted spending in areas like marketing and information technology, which the retail industry considers indispensable, as he sought to create a leaner, more profitable business, analysts said.

But the result, Mr. Flickinger said, is ragged-looking stores with shelves at times bare of essential products, like ketchup and mustard during the height of the summer barbecue season.

Even those who support Mr. Lampert’s vision of increasing profits at the expense of sales were left exasperated yesterday. “It was a disastrous quarter,” said Bill Dreher, a retail analyst at Deutsche Bank Securities. “I am not pleased.”

During the quarter ended Nov. 3, sales at Sears Holdings fell 3 percent, to $11.5 billion, from $11.9 billion a year ago. Sales at stores open at least a year, a crucial yardstick in retailing, fell 4.2 percent at Sears and 5 percent at Kmart.

Income dropped to 1 cent a share, from $1.27 a share.

“We are very disappointed in our performance,” the chief executive of Sears, Aylwin Lewis, said in a statement, adding that the company could not blame its troubles on the economy alone. “We have much on which to improve.”

The merger of Kmart and Sears three years ago was heralded as an inventive move by Mr. Lampert, widely considered a brilliant hedge fund manager.

Mr. Lampert vowed to resuscitate the ailing chains by giving Kmart popular Sears brands like Craftsman and Kenmore and turning hundreds of outdated Kmarts into more-polished Sears stores. He moved away from deep discounts, preferring to sell merchandise at full price.

Much as planned, the combined company became more profitable, for a while. Sears Holdings’ earnings per share rose from $5.59 in 2005 to $9.57 last year. Mr. Lampert and the rest of Sears management expressed approval of the new, leaner companies.

But consumers were not as enthusiastic. Sales at stores open a year had been falling before the merger; Mr. Lampert managed to slow that trend but not stop it. Less advertising, higher prices and few new stores left Sears and Kmart vulnerable to competitors who aggressively invested in their business.

Wal-Mart, J.C. Penney and Kohl’s, for example, open dozens of stores a year and typically remodel aging stores at a faster pace than Sears and Kmart, analysts said. At the same time, those competitors have struck agreements with designers like Vera Wang (at Kohl’s) and Ralph Lauren (at J. C. Penney) to create exclusive product lines, giving them another edge.

Sears has tinkered with the big clothing brand it owns, Lands’ End, creating small Lands’ End stores in the middle of each Sears store, but sales are lackluster, analysts said.

Martha Stewart, who has lent her name to a popular line of housewares at Kmart, is considering taking her merchandise out of the stores when her contract expires in 2009, according to people briefed on the matter. Her big concern is that Kmart’s reputation and stores are struggling.

With the economy seemingly headed for trouble this fall and consumers pulling back on spending, neither Sears nor Kmart topped consumers’ list of shopping destinations.

“When the economic headwinds became a hurricane force,” Mr. Flickinger said, “Lampert had not invested back in the business to ride out the storm, the way Target, Wal-Mart and Kohl’s have.”

Sears' comeback falling far short
By Sandra M. Jones, staff reporter – Chicago Tribune
Tribune staff reporter James P. Miller contributed to this report
November 30, 2007

A generation ago, Sears made its name as the place where America shops -- a haven for middle-class strivers looking for good deals on clothes and washing machines and tires.

It became dramatically clear on Thursday that the retailer is unlikely to reclaim that title anytime soon, if ever, as Sears Holdings Corp. Chairman Edward Lampert's attempts to restore Sears' fortunes are failing.

The Hoffman Estates-based company reported a 99 percent drop in third-quarter earnings over the year-ago period, its worst quarter by far since the billionaire investor took control of the department store chain and combined it with Kmart in March 2005.

Buffeted by more nimble competition from the likes of Wal-Mart and Target, the company barely escaped going into the red for the quarter, eking out a profit of a penny per share and missing by a long shot the 50 cents Wall Street had expected. Sales at stores open at least a year -- a key measure of health -- fell 4.2 percent at Sears and 5 percent at Kmart.

The poor performance sent Sears stock plummeting 11 percent, to close at $104.09 Thursday, after flirting with $200 as recently as April. Since then Lampert, Sears' biggest shareholder, has lost roughly $6 billion in the value of his investment.

With sales continuing to fall, no room left to cut his way to profitability and the economy sputtering, Lampert faces growing pressure to sell assets to generate cash, something investors have been awaiting for more than two years.

"It should be clear to investors that if Sears continues to try to make it as a retailer, it will likely not happen," Credit Suisse analyst Gary Balter said in a Thursday report. "The hope and value for investors is that Mr. Lampert recognizes this and sells the pieces that have value."

Balter, a Lampert admirer, suggested in the report he is keeping his "buy" rating for now in hopes that the board of directors will make a decision to do something to "add value," especially given that there is "little evidence that Mr. Lampert has figured out the magic sauce that makes good retailers profitable."

Sears has plenty of assets to sell: its 70 percent stake in Sears Canada, direct merchant Lands' End, the Craftsman and Kenmore brands, and its much-ballyhooed mall real estate. Or Lampert could continue to buy back shares and eventually take the company private.

"This is really straightforward," said Brian Hamilton, CEO of Sageworks Inc., a Raleigh, N.C.-based financial information firm. "They have revenue constraints and they are trying to operate from a cost-control perspective. I don't know who could take that company and reposition it in the market."

Lampert captured the imagination of investors several years ago when he spotted the value of Kmart's store real estate as the discount chain went through Chapter 11 bankruptcy. The hedge fund operator gained control of Kmart by buying up its debt and used the reorganized Kmart's highflying stock to take over Sears.

He kept the new Sears stock soaring by eliminating jobs, putting pressure on suppliers to lower costs and generating occasional investment gains that stoked his reputation as a dealmaker. But without a clear retail strategy and with no big deals in sight, Wall Street's confidence has collapsed.

Standard & Poor's analyst Jeff Sexton downgraded Sears shares to "sell" from "hold" on Thursday and cut his 12-month stock price target almost in half, to $90, adding in a report that "chances of a executing a turnaround are slim."

Sears has lost market share for years to Wal-Mart, Target, and most recently to J.C. Penney. Sears remains the nation's biggest seller of appliances, but even that position has been eroding as Home Depot, Best Buy and Lowe's join the market.

"You can look like a hero for a while by cutting costs, but that catches up with you," said James Schrager, clinical professor of entrepreneurship and strategic management at the University of Chicago Graduate School of Business. "Things can get out of whack very quickly."

Net income for the quarter ended Nov. 3 was $2 million, or a penny a share, down from the year-ago quarter's $196 million, or $1.27 a share. Last year's quarterly earnings got a boost from one-time investment gains. Total revenue dropped 3.3 percent in the most recent quarter, to $11.55 billion from $11.94 billion a year ago.

Sears blamed the drop-off on tougher competition from other retailers, increased consumer caution caused by the softening U.S. economy and less-favorable weather conditions. The financial drag of the slower sales was amplified by Sears' decision to mark down many items in order to clear the merchandise. Sears deepened the gloom by noting in its earnings release that "we don't expect any significant near-term improvement in the overall retail environment," and profit margins "will likely continue to be pressured."

Sears' closely watched cash position was $1.5 billion, down from $4.0 billion in February. Lampert used much of that cash to buy back stock.

Sears CEO and President Aylwin Lewis said, "We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so."

It was the fourth consecutive quarter Lewis pledged the company would improve results by working harder.

Sears profit dries up
Falling sales, investment losses cause 99% drop in 3rd-qtr. earnings
By Sandra Guy – Chicago Sun-Times
November 30, 2007

Shortly after hedge-fund billionaire Edward Lampert engineered Kmart's $12.3 billion takeover of Sears, Roebuck and Co. on March 24, 2005, one retail expert likened Lampert's task to rearranging the deck chairs on the Titanic.

The Titanic just struck the iceberg.

Sears Holdings Corp., the owner of Kmart and Sears, on Thursday reported a 99 percent drop in third-quarter profit on continued declining sales and investment losses -- its worst results since Lampert took over Hoffman Estates-based Sears.

Net income for the quarter ended Nov. 3 dropped to $2 million, or a penny a share, on a sales decline of 3.3 percent, to $11.5 billion. Same-store sales at Sears declined 4.2 percent for the quarter, and fell 5 percent at Kmart.

Sears' stock plunged 10.5 percent, or $12.25, to close Thursday at $104.09. The stock had dropped as much as 16 percent earlier.

Analyst Howard Davidowitz's early skepticism appears well-founded.

Davidowitz told the Sun-Times two-and-a-half years ago that he believed Kmart would last no more than three years, and the Sears brand would be dead within six years.

"Lampert is a short-term player. ... His strategy is short-term asset maximization rather than long-term building of a business," said Davidowitz, chairman of Davidowitz & Associates, a retail-consulting and investment-banking firm based in New York.

What happens next?

Lampert's options have narrowed because Sears is weakened by Lampert's poor investments ($30 million in interest and investment losses for the quarter, and $112 million for the year), a smaller cash horde ($1.5 billion in the latest quarter versus $4 billion 10 months ago while net debt rose nearly $2 billion), increasing inventories of unsold goods ($12 billion in the quarter, up from $11.5 billion in October 2006), a tightened credit market, a weaker position with merchandise vendors and a share-buyback program that, if met, prevents Sears from being able to make a significant acquisition, analysts say.

Davidowitz said Lampert could:

• • Sell Kmart stores that operate with substantially below-market-rate leases, and rename the rest Sears. Lampert has already sold Kmart's choicest owned real estate as part of his restructuring of the company after it emerged from bankruptcy.

• • Halt his contested bid for Restoration Hardware, a quirky, high-priced California home furnishings chain that has lost money and has little synergy with Sears' and Kmart's merchandise. Among the California-based Restoration's goods are a $799 hand-tufted rug and an $800 candle-holder chandelier.

As the Sun-Times reported Nov. 21, some analysts speculate that Lampert could replace Kmart's Martha Stewart Living Omnimedia line, which will expire in 2009, with Restoration Hardware's home decor.

• • Name new top brass. Pundits have predicted for the past year that Lampert's hand-picked CEO, Aylwin Lewis, one of the top-ranking African Americans in the Fortune 50, will take the fall for the retailer's continued dismal showing.

Lewis has repeated virtually the same phrase each quarter, saying the retailer is disappointed in its results and needs to work harder on fundamentals and pleasing customers.

On Thursday, he said, "We have much on which to improve, and are working hard to do so."

Analyst Gary Balter at Credit Suisse suggested two other ideas to investors:

• • Take the company private. The Sun-Times reported in June that analyst Sean Egan, of Egan-Jones, was the first to suggest that option, given Sears' poor performance.

• • Sell off valuable assets before they lose more value. Investors expected two years ago that Lampert would quickly sell Sears' most valuable real estate and leverage the value of its brand names, including Die Hard, Craftsman and Kenmore.

The future is anyone's guess, but no one sees a bright one.

Even Sears said in its earnings statement, "We expect difficult economic conditions to persist in the near term."

S & P Downgrades Shares of Sears Holdings to Sell from Hold
From Standard & Poor's Equity Research
Business Week.com
November 29, 2007

SHLD; $101.12

October-quarter operating EPS of one cent, vs. 80 cents one year earlier, misses our 48 cents estimate on heavy seasonal merchandise markdowns and lack of expense leverage off of a 4.1% same-store sales decline. Given limited success of remerchandising efforts at Sears and Kmart segments, increased competition, and a projected slowdown in consumer spending, we think the company's chances of executing a turnaround are slim. We are cutting our fiscal 2008 (Jan.) operating EPS estimate by $1.00 to $6.75, fiscal 2009's by $1.65 to $6.55, and lower our 12-month target price by $40 to $90 on a revised peer-P/E-based valuation. /J. Asaeda

Sears stock plunges as profit drops 99%
Chicago Business.com
November 29, 2007

(AP) — Sears Holdings Corp. stumbled to its worst performance yet under Edward Lampert, earning just $2 million in a dismal third quarter that heightened questions about his strategy and Sears' future as a retailer, prompting a huge selloff in its stock Thursday. Sears blamed its 99 percent profit decline on stiff competition and economic factors that weakened margins and sales at its Sears and Kmart department stores.

The company signaled little hope for improvement in the near future, either, in a challenging retail environment.

Wall Street pummeled Sears' stock amid a growing exodus of those who had believed Lampert, the hedge-fund guru who combined the two faltering chains in 2005, would figure out a way to turn the company around.

Shares tumbled $12.25, or 10.5 percent, to close at $104.09 Thursday, after earlier hitting an annual low of $98.25 — down nearly half from their peak of $195.18 in April.

"I think a lot of people who had been hanging on departed this morning," said Neil Stern, a retail consultant for McMillan/Doolittle in Chicago. "Until the performance of retail comes around, it's a bit difficult to see what other rabbits are going to come out of the hat."

The Hoffman Estates, Ill.-based company, which earlier this week said it may buy out the rest of retro-themed retailer Restoration Hardware Inc., narrowly avoided its first loss with net income of a penny a share.

That was down from a profit of $196 million, or $1.27 per share, a year ago and far off the consensus estimate of 50 cents per share from analysts surveyed by Thomson Financial.

Sales for the quarter ended Nov. 3 slipped 3 percent to $11.5 billion from $11.9 billion.

"We are very disappointed in our performance for the third quarter," said Aylwin Lewis, chief executive and president. "We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so."

Lampert, who heads ESL Investments Inc., no longer comments routinely on quarterly earnings.

Retail consultant George Rosenbaum thinks acquiring Restoration Hardware — a widely questioned move — would be a "bold and correct move," enabling Sears to add a trendier brand to its current offerings. But that's not nearly enough, he indicated.

"They can't cut costs any more, or only marginally," he said. "They have to become merchants."

Comparable sales, or those from stores open at least 13 months, declined 4.2 percent for the quarter at Sears stores and 5 percent at Kmart, with notable declines in clothing and lawn and garden goods at both.

Sears attributed the weaker sales to increased competition, light consumer spending because of the weak housing market and credit concerns and unseasonably warm weather, which hurt sales of apparel and other seasonal merchandise. A falloff in home construction has cut into its sales of major appliances.

"I think Sears is feeling the pain more than some of its close rivals, given its weak competitive position and its exposure to the home furnishings sector," said Morningstar analyst Kim Picciola.

Strong investment income had initially brought higher profits under Lampert but that trend has long stopped, leaving Sears without a strong buffer for lackluster sales. Sears had $30 million in interest and investment gains for the quarter, compared with $140 million during the same period last year.

Cash and cash equivalents declined to $1.5 billion at the end of the quarter, down from $2.1 billion a year ago and $4 billion on Feb. 3. Gross margin declined 90 basis points to 27.4 percent, hurt by markdowns taken to clear seasonal merchandise and higher inventory levels due to lower sales.

Retail consultant Howard Davidowitz said the company is too low on cash now for Lampert to carry out the major acquisition he had long been expected to make, especially having committed to share buybacks.

"He's got to do something that moves the needle," said Davidowitz, chairman of New York-based Davidowitz & Associates. "Restoration Hardware doesn't do anything and his cash is disappearing. ... I think it's starting to get scary."

Lampert's options, according to various analysts, include continuing to attempt a retail turnaround against daunting odds, taking the company private, selling off assets such as Lands' End or more real estate, or liquidating, which Davidowitz said would take 15 years.

Sears, which has 3,800 stores, warned it expects difficult economic conditions to persist in the near-term, with sales and gross margin likely continuing to be pressured through the rest of the year.

For the first three quarters, profits were $394 million, or $2.66 per share, down from $670 million, or $4.29 per share, a year earlier. Revenue declined 3 percent to $35.5 billion from $36.7 billion.

Sears Barely Shows a Profit; Stock Falls 11%
By Michael Barbaro – New York Times
November 29, 2007

Sears Holding, the owner of Sears and Kmart, said today that profit for the third quarter plunged an eye-popping 99 percent, from $192 million last year to just $2 million, as customers flocked to rival stores during the back-to-school shopping season.

The dismal performance reignited a long-simmering debate over the company’s cost-cutting strategy for the two historic retail brands, which have struggled for relevance since Edward S. Lampert, the billionaire financier, merged them in 2004.

The company’s stock took a pounding, closing down 10.5 percent at $104.09, a decline of $12.25.

Sears attributed the results to a one-time gain of $100 million during the comparable period a year ago and a variety of factors outside its control, like warm weather, a tight credit market and stiff retail competition.

But frustrated analysts pointed to what they see as a bigger problem inside Sears: an unwillingness to invest in aging Sears and Kmart stores, leaving the two chains unable to compete with chains such as Wal-Mart, Target, Home Depot and Lowe’s.

“Taking too much cash out of the company and away from the consumer has caught up with Sears,” said Burt Flickinger, a retail consultant, who called the company “a ticking time bomb.”

As chairman, Mr. Lampert has slashed or frozen spending in areas, like marketing and information technology, that the retail industry considers indispensable, to create a smaller and more profitable business.

But the result, Mr. Flickinger said, are ragged looking stores whose shelves are at times bare of essential products, like ketchup and mustard during the height of the summer barbecue season, because of outdated computer systems.

Even those who support Mr. Lampert’s vision — bolstering profits at the expense of sales — were left exasperated.

“It was a disastrous quarter,” said Bill Dreher, an analyst Deutsche Bank Securities. “I am not pleased.”

During the quarter ending Nov. 3, sales at Sears Holding fell 3 percent, to $11.5 billion, from $11.9 billion a year ago. Sales at stores open at least a year, a crucial yardstick in retailing, fell 4.2 percent at Sears and 5 percent at Kmart.

The merger of Kmart and Sears three years ago was heralded as an inventive move by Mr. Lampert, widely considered a brilliant hedge fund manager.

Mr. Lampert vowed to resuscitate the ailing chains by giving Kmart popular Sears brands like Craftsman and Kenmore, and turning hundreds of outdated Kmarts into more highly polished Sears stores.

He moved away from deep discounts, preferring to sell merchandise at full price.

Much as planned, each chain became more profitable — but it was at the deliberate expense of sales. In essence, the company was giving up on thousands of loyal customers. Still, Mr. Lampert and the rest of Sears management expressed approval of the new, leaner companies.

But consumers did not embrace them. Less advertising, higher prices and few new stores left Sears and Kmart vulnerable to competitors who aggressively invested in their business.

Wal-Mart, J. C. Penney and Kohl’s, for example, open dozens of stores a year and remodel aging stores are a faster pace than Sears and Kmart. At the same time, they have struck agreements with designers like Vera Wang (at Kohl’s) and Ralph Lauren (J. C. Penney) to create exclusive product lines.

With the economy headed for trouble this fall and consumers pulling back on spending, neither Sears nor Kmart topped consumers’ list of shopping destinations.

“When the economic head winds became a hurricane force,” Mr. Flickinger said, “Lampert had not invested back in the business to ride out the storm, the way Target, Wal-Mart and Kohl’s have.”

Sears CEO: Worst of the Year?
By Herb Greenberg – Market Watch.com
November 29, 2007

After going through nominations for dozens of people who are vying for CEO of the year, a light bulb went off this morning. Even though he wasn’t nominated, I’m beginning to think that Sears Holdings CEO Alwyn Lewis will be a shoe-in. It’s not official yet — and I hate to steal my own thunder before results will be announced next week, so don’t assume anything. However, this morning’s press release from Sears may be the last straw. Doug McIntyre, at 24/7 Wall Street, is going so far as to wonder whether Lewis will be fired. (If he is before my Worst CEO column comes out, he will be disqualified from the running.)

This morning Lewis was quoted as saying, “We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working to do so.”

It’s hard to argue with humble and candor; it’s good for deflecting criticism. However, eventually you have to shut up or get up — and Lewis keeps saying the same thing every quarter.

As I noted back on July 10, when I proclaimed that the concept of Sears as a retailer was officially bust, Lewis was equally humble when he said: “Our recent performance underscores our ongoing need to become more relevant to consumers while improving our discipline around expense management.”

On May 31, when announcing first quarter earnings, he said the company needs to do “better controlling costs…”

When fourth quarter earnings were announced March 1: “…We still have much work to do.”

Second quarter results August 17: “”While we are making progress, we must continue to focus on our customers, improve the shopability of our stores and continue to give our customers reason to shop our stores more frequently.”

And with the first quarter of a year ago, he referred to the need to “dramatically” improve “the customer experience.”

The only defense of Lewis is that his job was nearly impossible from the start, via Eddie Lampert’s ill-conceived Sears strategy, which only made sense to many observers as a play on real estate, not retail. Lewis now risks getting hung out as the scapegoat.

Sears, meanwhile, is now trying to buy Restoration Hardware. Restoration Hardware?! That’s a retail concept always sounded better in principle than in practice. How it fits the Sears strategy is anybody’s guess. Jeff Matthews has the best take on this. And while there, make sure to read his piece on Alan Greenspan.

The beat goes on…

9 Comments

On 11/29/07 Martin Lowenthal wrote:
I warned about this one and others on Oct 22. Read it at http://www.lompie.blogspot.com or at Trading, Investing and a look into the future.

On 11/29/07 Jerry Lofstead wrote:

With Sears no longer providing service in their stores or repair services!! it is no wonder they are failing. You can not even get spare parts for their appliances and the repair personel they have are inept and incompetent! to say the least. Lewis deserves to be canned immediately if not sooner. Sears of today is not the Sears of 10 years ago where a customer was valued. Alos with all Sears employees being part time, there is no incentive to be customer friendly.

On 11/29/07 Bob Orem wrote:

Herb: Why is it that you and all other market watchers applaud stock buy back plans as a good thing. While they may provide an insignificant boost to the small shareholder, they are for the most part a transparent effort by the insiders to use shareholder wealth to boost the value of the stock options they grant themselves…ultimately diluting the shareholder value in the process.

On 11/29/07 Herb Greenberg wrote:

Bob, I’m your wrong guy. I’ve never been a fan of buybacks, especially at companies that are doing poorly. Can’t speak to others.

Herb

On 11/29/07 Ary wrote:

The stores look dreadful, partying like it’s 1979. The stock is merely a real estate investment play as their sales have gone down the heap. While the stock gets lower, see Eddie buy back more shares or overspend for a niche retailer like Restoration Hardware. Glad I got out at $130.

On 11/29/07 Patrick Gondek wrote:

I used to be in retailing with Federated Department Stores, and unfortunately, I own SHLD stock.

Sales and marketing programs won’t help. Sears needs to get back to basics and manage employees at the store level. Every time I enter my local Sears, I see employees standing around talking to each other, and they run for the stock room if you approach them with a question. This is no way to run a retail store, and it does not make for satisfied customers who want to return to Sears for all of their shopping needs.

On 11/29/07 Jeff Matthews wrote:

Herb,

In Lewis’ defense, he doesn’t have much to work with. But you’re right about his endless excuses.

My favorite line in today’s press release is, “Importantly, we believe that our stores and websites are ready to serve our customers and provide them more reasons to shop with us.”

That alone–the self-delusion is staggering–ought to keep him in the running for your list.

On 11/29/07 john wrote:

I was in need of a serious vacumm cleaner , air filters and some other odd ball stuff. I went to HD and a local vacumn dealer . Sear hardware in Midland Park NJ beat them hands down. They were right there to help . And they did so. HD in Paramus NJ was so bad when i asked where the fans were the guy said we don’t have any. I found it myself but decided to walk out.

On 11/29/07 philosifur wrote:

As I have posted before, Sears is my 2nd favorite retailer to hate primarily (for me) due to their almost predatory credit practices (my #1 retailer to hate is still OSTK). Two weeks ago I was in a Sears store looking for replacement vacuum bags. Found the bags, but had to wander almost the entire floor to find a cashier to actually buy the stuff. After a brief discussion with the cashier, I realized that the corporate culture at Sears is that of defeatism and failure. Management has successfully infused a ‘I don’t give a crap anymore’ attitude throughout its workforce.

Nice job.

The customer experience at Sears stores is so bad nobody wants to go back. What is the point of keeping the doors open if you don’t staff the store?

I am sticking with my vote of Patrick Bryne as worst CEO for his deplorable much-discussed antics. But Sears is bad, really bad, and Management is entirely responsible for that.

About Herb Greenberg

Herb Greenberg is senior columnist for MarketWatch. His column also appears in the weekend edition of the Wall Street Journal. He joined MarketWatch after six years as senior columnist for TheStreet.com. He previously spent 10 years as a six-day-a-week business columnist for the San Francisco Chronicle. Before that, he was the New York financial correspondent for the Chicago Tribune, where he covered the food and restaurant industries.

Tears for Sears
Posted By David Gaffen
Market Beat.com
November 29, 2007

It’s another lousy day for shareholders of Sears Holdings, as the stock has fallen 13% on poor earnings results amid a tough retail environment and rough sailing for the company itself, which was already down 30% coming into today’s ugly trade.

Shares of Sears have stumbled this year.

Analyst commentary, in the wake of the falloff in earnings, was pessimistic. Credit Suisse’s Gary Balter went so far as to suggest the company is entering a “death spiral,” suggesting that the decline in same-store sales “showed no signs that they have their hands around running a retailer in a more challenging retail environment.”

And the thing is, we’ve seen this movie before. In its statement, CEO Alwyn Lewis says “we have much on which to improve and are working to do so,” echoing similar “mea culpas” made in previous quarters, which Herb Greenberg of MarketWatch.com recaps well.

“It’s hard to argue with humble and candor; it’s good for deflecting criticism,” he writes. “However, eventually you have to shut up or get up — and Lewis keeps saying the same thing every quarter.”

Basically, Sears, like General Motors, has been hit by more than one of the larger economic problems that corporations are dealing with. In this case, it’s the housing sector and the weakness in apparel, of which Sears sells a lot. “It should be clear to investors that if Sears continues to try to make it as a retailer, it will likely not happen,” says Mr. Balter, who, despite this pessimistic outlook, maintains an “outperform” rating on the stock. (A third economic problem could be thrown into the mix — losses on investment income, as a result of derivatives trading initiated by chairman Ed Lampert.)

Investors, meanwhile, were geared up for volatility today, with options activity centering around the $115 December straddle — where investors buy puts and calls at the same price. That’s a bet on volatility, and the market was dead-on with that bet. Meanwhile, overall open interest shows call options outnumber put options by a ratio of 1.6-to-1, according to Rebecca Darst, equity options analyst at Interactive Brokers. “It tends to suggest there’s a degree of confidence in Sears’s prospects going forward,” she says.

Sears Holdings Profit Plunges
The Associated Pres – New York Times.com
November 29, 2007

HOFFMAN ESTATES, Ill. (AP) -- Department store retailer Sears Holdings Corp., led by hedge-fund manager Chairman Eddie Lampert, said Thursday its third-quarter profit plunged due to a $223 million drop in gross margin, reflecting both lower sales and inventory-clearing markdowns.

The operator of Sears and Kmart stores, which earlier this week said it may buy out the rest of retro-themed retailer Restoration Hardware Inc., reported net income declined to $2 million, or a penny per share, from $196 million, or $1.27 per share, a year ago, which included investments gains of 42 cents per share.

Excluding these gains, earnings for the 2006 period totaled 85 cents per share.

Sales for the quarter ended Nov. 3 slipped 3 percent to $11.5 billion from $11.9 billion in the fiscal 2006 period.

The results widely missed the consensus estimate of analysts surveyed by Thomson Financial, who predicted profit of 50 cents per share. Two analysts had forecast revenue of $11.61 billion.

''We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so,'' said Aylwin Lewis, Sears Holdings' chief executive and president.

The company said it had cash and cash equivalents of $1.5 billion at Nov. 3, down from $2.1 billion a year ago and $4 billion at Feb. 3, 2007. Gross margin declined 90 basis points to 27.4 percent, hurt by markdowns taken to clear seasonal merchandise and higher inventory levels due to lower sales.

Sears also warned it expects difficult economic conditions to persist in the near-term, with sales and gross margin likely continuing to be pressured through the rest of the year.

Sears Posts Sharp Drop in Net Amid Year-Earlier Gain
By John Flowers – Dow Jones Newswires
November 29, 2007

Sears Holding Corp. reported a sharp drop in fiscal third-quarter net income due to a year-earlier gain, narrower margins and lower same-store sales.

The company also said that it doesn't expect "any significant near-term improvement" in the overall retail environment.

For the quarter ending Nov. 3, the Hoffman Estates, Ill.-based retailer recorded net income of $2 million, or one cent a share, versus net income of $196 million, or $1.27 a share. Year-earlier results included a 42 cents a share gain on investments. Revenue was down 3.3% to $11.55 billion from $11.94 billion. The mean estimates of analysts polled by Thomson Financial were for earnings of 50 cents per share on revenue of $11.6 billion.

Gross margin fell to 27.4% from 28.3%. The company said it was forced to take incremental markdowns "to clear seasonal merchandise and higher inventory levels due to lower sales."

Total same-store sales dropped 4.6%. Same-store sales for the company's namesake domestic stores declined 4.2%, with Kmart down 5%. The company cited increased competition, economic conditions and unseasonably warm weather as factors.

"We are very disappointed in our performance for the third quarter," said Chief Executive and President Aylwin Lewis. "We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so."

Mr. Lewis added: "Nevertheless, the company continues to generate cash, and we continue to invest in our customer relationships, our multichannel experience, and our information technology systems."

Merchandise inventory levels rose 4% to $12 billion. The company said that it intends to reduce its fiscal year-end domestic merchandise inventories to levels below last year's as it expects "difficult economic conditions to persist in the near term."

Same-store sales have been flagging as the retailer has sought to boost shareholder value by cutting expenses and buying back stock -- $900 million of shares repurchased this quarter.

The firm has been willing to forsake some sales, while trying to make others more profitable. The strategy, to find value through cost-cutting, is the same Chairman Edward Lampert used when he helped bring Kmart out of bankruptcy in 2003. The profit earned there helped him use Kmart to then buy Sears in 2005.

That deal earned him nicknames like "Eddie Money", not to mention a reputation as a Warren Buffet who likes risk. However, two years and an economic downturn later, and the merger is back under the microscope.

Sears Profit Declines More Than Analysts Estimated
By Lauren Coleman-Lochner – Bloomberg.com
November 29, 2007

Sears Holdings Corp., the largest U.S. department-store company by sales, reported quarterly profit that fell more than analysts estimated on lower revenue. The stock declined 5.4 percent in Europe.

Net income dropped to $2 million, or 1 cent a share, for the third quarter through Nov. 3 from $196 million, or $1.27 a share, a year earlier, Hoffman Estates, Illinois-based Sears said today in a statement. Sales fell 3.3 percent to $11.5 billion.

The results marked the first consecutive quarterly profit drop since Chairman Edward Lampert merged Sears Roebuck & Co. and Kmart Holding Corp. in March 2005, while sales at stores open at least a year have declined every period over that time. Retailers are cutting prices to lure consumers besieged by higher food and energy costs.

"We are very disappointed in our performance,'' Aylwin Lewis, chief executive officer, said in the statement. ``We cannot blame our results entirely on the retail and macro- economic environments. We have much on which to improve.''

The average profit estimate of seven analysts surveyed by Bloomberg was 53 cents. Last year's earnings included an investment gain of 42 cents a share.

Sales at U.S. Sears stores open at least a year fell 4.2 percent, while they dropped 5 percent at Kmart. Total domestic same-store sales slumped 4.6 percent.

Sears's German shares fell to the equivalent of $110.05 at 1:10 p.m. in Frankfurt, 5.4 percent below yesterday's close in Nasdaq Stock Market composite trading.

Losing Ground

Sears in losing ground to other department-store companies such as J.C. Penney Co. and Kohl's Corp., analysts say. Sears shares have held appeal for some investors because of assets including cash, totaling $1.5 billion at the end of the third quarter, and property, not because of the retailer's operations.

``I don't see how they can make themselves into a destination retailer where people want to go,'' David Keuler, an analyst at Mason Street Advisors in Milwaukee, said Nov. 26. ``Everybody else keeps getting better and they seem for the most part to stand still.''

Mason Street has more than $70 billion in assets including Sears stock. It holds shares only in index funds and not in actively managed portfolios.

Last month, activist investor William Ackman said he bought 5 million Sears shares, fueling speculation he'd pressure the retailer to sell stores. Ackman thwarted Lampert's December 2005 move to buy the 46 percent of Sears Canada Inc. the parent company didn't already own.

Through his Pershing Square Capital Management LP, Ackman has pushed the boards of McDonald's Corp. and human-resources manager Ceridian Corp. to sell assets and cut spending.

Restoration Bid

Lampert said in August 2006 that he's looking for Sears to acquire companies both in and out of retailing.

This week, Sears said it made a $269 million bid to buy Restoration Hardware, the Corte Madera, California, purveyor of furniture, fixtures and bedding. The offer of $6.75 a share topped its initial bid of $4 a share. Sears holds a 13.7 percent stake in the chain.

Earlier this month Catterton Partners agreed to buy Restoration for $267 million.

Restoration has lost money in three of the last four quarters. It said it would solicit higher offers until Dec. 13.
 

MORE DETAILS FROM RHA ABOUT
MAKING YOUR 2008 HEALTH CARE DECISION

As a result of the new type of medical plan that RHA is offering in 2008, retirees have many questions after reviewing their enrollment kit. Their primary concern was the extremely short two-week enrollment period to decide what plan to select for 2008. Will their health care providers agree to the new Aetna program? Are their medications on the formulary list?  Why was AARP dropped for next year?

As a result, retirees have been trying to reach the Retiree Health Access Service Center at 800-762-7327 with mixed results!  One retiree in Iowa finally got through after a two-hour wait.  Another retiree in Illinois was waiting at least one hour and when he finally got through was “cut off” when RHA attempted to transfer his call!!  Another retiree in Arizona did get through but the service center could not answer his question.

Needless to say, RHA is overwhelmed with inquiries, some of which was brought about because of their self-imposed two-week enrollment periods. RHA had established earlier deadlines to insure that ID cards are received prior to the first of the year. 

However, RHA recently sent a letter to retirees providing them with “additional considerations” to think about; and informing them that the enrollment deadline has been extended:

“If you need more time, you have the opportunity to call and make any changes through December 31, 2007. Please note: Any enrollment or change you make after the enrollment deadline does not guarantee ID cards will arrive by January 1. In late December, you should receive a letter which will provide instructions should you need to access care before you receive your ID card.”

What should be considered when deciding your coverage for 2008?   RHA suggests the following:

“Make sure to review the monthly premiums and what each plan covers to best meet your personal needs.  If you are enrolled in AARP, you might want to compare AETNA PFFS rates and plan coverage to AARP.  If you are considering the Aetna Rx PDP, make sure to also review and compare the formulary list.  Check with your provider(s) (doctors and hospitals) to ensure they agree to the Private Fee for Service Plan with Aetna.  If not, call Aetna to request they contact your provider(s) to educate them on the benefits of the program.  Aetna’s customer service number is 1-800-254-2239.”

Restoration Hardware Willing to Negotiate With Sears
By Josh Fineman – Bloomberg
November 27, 2007

Restoration Hardware Inc., the California-based home-furnishings chain, said it may consider Sears Holdings Corp.'s $269 million takeover bid and provide confidential financial information if Sears agrees not to start a tender offer for its shares.

Sears, the biggest U.S. department-store company, has so far refused to sign an agreement that precludes that from happening, Restoration Hardware said in a statement today.

Sears's revised bid of $6.75 a share is a "vast improvement'' over its previous offer of $4, Restoration Hardware said. Buyout firm Catterton Partners and the home-furnishing company's chief executive officer, Gary Friedman, agreed earlier this month to acquire it for $267 million.

"We welcome its participation in the process along with the other interested parties,'' Ray Hemmig, chairman of a committee of Restoration Hardware board members, said about Sears in the statement. Others have signed an agreement, and allowing Sears to avoid that would be "preferential.''

Sears spokesman Chris Brathwaite declined to comment.

Restoration Hardware, based in Corte Madera, California, said earlier this month it would solicit higher offers until Dec. 13. Sears, the retailer run by Edward Lampert, last week disclosed that it holds a 13.7 percent stake in the chain, including 3.4 million shares purchased after the buyout was announced earlier this month.

Investors that own almost half of the company, including Glenhill Advisors LLC and Palo Alto Investors, agreed to the original deal.

Restoration Hardware fell 6 cents to $7.01 by 4 p.m. in trading in Nasdaq Stock Market composite trading. Sears, based in Hoffman Estates, Illinois, gained $3.79, to 3.5 percent, to $111.56, the most in five weeks.

Lampert swings, misses
By Sandra M. Jones, staff reporter – Chicago Tribune
Tribune staff reporter James P. Miller contributed to this report
November 28, 2007

For more than two years, investors have been waiting for Sears Holdings Corp. Chairman Edward Lampert to unveil a blockbuster deal.

It finally happened. Sort of. And the response on Wall Street was underwhelming.

Sears is in the midst of a takeover battle for Restoration Hardware Inc., a money-losing, upmarket home-goods chain with a retro flair, whose wares span a $12 doorknob, $40 Turkish bath towel, $159 handmade birch sled and $4,000 leather love seat -- not exactly the merchandise shoppers expect to find at Sears.

Restoration has demonstrated little enthusiasm for Lampert's overtures, already having worked out an agreement to sell itself to an investment group that includes Restoration's chief executive. Investors are equally indifferent.

"I can't get excited about this, and I can't get upset about it either," said Scott Rothbort, president of LakeView Asset Management, a Millburn, N.J.-based shareholder in Sears.

Morgan Stanley analyst Gregory Melich put it more bluntly in a report, noting it is "not the transformational deal some have been hoping for."

Anticipation has been growing on Wall Street ever since Lampert engineered the combination of Sears and Kmart in 2005 that the top-ranked hedge-fund manager would make a big play for another retailer. Stocks at Gap Inc., Home Depot Inc. and Anheuser-Busch Cos. all surged at some point on speculation that Lampert was making a move for them.

Luster disappearing

In spite of Lampert's declarations that he sees himself as a retailer, investors focused instead on the billionaire's reputation as an investment mastermind, building what came to be known as a "Lampert premium" into the stock.

Shares topped $190 in April. On Monday, the stock hit $107.55, far below the $131 closing price on its first day of trading as a new company. Shares closed Tuesday at $111.56, down 2.3 percent since the proposed Restoration deal was quietly disclosed in a filing with the Securities and Exchange Commission on Nov. 19.

With Lampert's luster fading, Sears' long-standing troubles are being exposed. The initial profit improvement under Lampert, thanks to cost cuts and gains on investments, has run out of gas. Sales have been falling for years. And the combination of rising gas prices, tighter credit and falling home-equity values is taking its toll on just about all retailers. Sears is scheduled to report third-quarter results Thursday.

Sears officials declined to comment beyond the SEC filings, leaving investors to scratch their heads over what Lampert is doing.

Analyst sees a 'portfolio play'

Some of the guesses making their way around Wall Street: Sears could be looking for a brand to replace Martha Stewart Everyday once the licensing agreement expires in 2009. Or the company could be angling to replicate the Lands' End acquisition of 2002 by looking to expand the Restoration chain into the more than 800 Sears department stores.

Or this could simply be Lampert investing in an undervalued company that could benefit from cost cutting and signal the kinds of smaller deals he plans to make to build Sears into a true holding company.

"I think it's a portfolio play," said Don Delzell, an independent retail research analyst and chief executive of Future Merchants, a New York-based e-commerce start-up. "The big monster deals just aren't out there right now." Gimme Credit analyst Carol Levenson said the roughly $270 million Sears is offering for the retailer would be better spent on fixing up its own stores.

With $713 million in sales last year and about 100 stores, most of them leased, Restoration would be a blip in Sears' approximately $50 billion, 3,800-store operation. But Lampert has been after the company since at least June, according to filings with the SEC, and he has proven to be a tenacious suitor.

On Tuesday, Restoration held out an olive branch to Sears, saying it would be "pleased" to provide Sears with the non-public financial data Sears is seeking, after initially denying the Hoffman Estates-based company access to the information.

Sears, which has taken a 13.7 percent stake in the home-furnishings chain, complained in a regulatory filing that Restoration had been rebuffing its efforts to conduct an in-depth review of the company's books.

That filing made public a letter sent Friday by Sears to Restoration's board, in which Sears appeared to suggest Restoration wasn't being receptive to its efforts to buy the company because Restoration is focusing on a $6.70-a-share, $267 million buyout offer it recently accepted from a private-equity group. Sears offered $6.75 a share.

Once a highflying Wall Street favorite, with a stock price that briefly traded in the mid-$30s, Restoration has been out of favor for the past several years, and the collapse of the U.S. residential construction market only has added to the Corte Madera, Calif.-based company's difficulties. Its stock closed Tuesday at $7.01, off 6 cents.

Restoration officials declined to comment Tuesday.

Hardware chain cool to Sears' courtship
Retail giant enters bid for Restoration; access to data denied
By James P. Miller - staff reporter - Chicago Tribune
November 27, 2007

Sears Holdings Corp. disclosed Monday that it has made a tentative $269 million bid to acquire Restoration Hardware Inc. but complained that the upscale home-furnishings retailer continues to refuse it access to confidential financial data.

Sears' conditional proposal of $6.75 a share tops by only 5 cents a share a buyout offer the California company accepted from a private-equity group this month and represents a much more tepid offer than many investors had been anticipating.

Sears shares dropped $4.81, or 4.3 percent, to $107.77. Restoration stock ended the day at $7.07, up 1 cent. Both trade on the Nasdaq stock market.

Still, the Hoffman Estates-based retail giant, which is controlled by hedge-fund investor Edward Lampert, signaled that Lampert isn't giving up on his months-long effort to acquire Restoration. Among other things, Sears said pointedly in its filing that the target company seems interested only in the offer Restoration has accepted from a group that includes Restoration's chief executive.

Once a highflying Wall Street favorite, with a stock price that briefly traded in the mid-$30s, Restoration has been out of favor with investors for the past several years, and the collapse of the U.S. residential construction market only has added to the Corte Madera, Calif.-based company's difficulties.

In early November Restoration definitively agreed to be taken private through a $6.70-a-share buyout that values the struggling company at $267 million. The buyout group, led by the private-equity firm of Catterton Partners, includes Restoration Chairman and CEO Gary Friedman.

Less than two weeks later, Sears disclosed in a regulatory filing that it had amassed a 13.7 percent stake in Restoration and was considering making a buyout bid for the company. In that Nov. 19 filing, Sears also disclosed that Lampert had made an initial expression of interest to Restoration in June. And after learning in October that Restoration was in talks regarding a possible private-equity buyout, the filing said, Sears made an unsuccessful $4-a-share buyout proposal.

When Sears made that filing, Restoration shares surged above the buyout price to top $7, as investors laid bets that Sears or another suitor would make a higher offer.

Under Restoration's accord with the Catterton group, the retailer is to hold what's known as a "go shop" period, in which it will entertain any competing legitimate bids until Dec. 13.

But Sears' filing indicates that Lampert's company hasn't gained much traction in its effort to oust the Catterton group or to get Restoration to open its books to Sears.

The centerpiece of the filing is a letter that Sears Executive Vice President William Crowley sent Friday to Restoration's board. In it, Crowley said Sears is "disappointed" that its "numerous" requests to receive confidential data from Restoration haven't been granted.

Noting that Restoration wanted Sears to submit a proposal superior to the one in hand before it lets Sears conduct an in-depth due diligence review of Restoration's books, Crowley said Sears is prepared to offer $6.75 a share, assuming the review proves satisfactory.

But on Sunday, Sears' Monday filing said, Restoration said it was unwilling to enter into a confidentiality agreement based on Sears' offer. Restoration has not made any filings about the matter. Restoration declined to comment Monday, according to The Associated Press, as did Sears and Catterton.

Crowley went on to adopt a tougher tone in the letter, by telling Restoration's board that Sears, now the California company's largest stockholder, is "concerned" by some aspects of the management-led buyout Restoration has accepted.

The letter doesn't specifically point out that U.S. securities law requires directors to seek the best deal available for shareholders. But Crowley gets the point across, as he contends that since Restoration signed its confidentiality pact with the private-equity group in July, it has apparently "been focused exclusively on the insider deal since that time, rather than exploring [Sears'] known interest."

Sears, he said, believes that "providing us with information and the opportunity to offer all stockholders more consideration than they would receive pursuant to the current merger agreement" would be in stockholders' best interest.

Why I'm Never Shopping At Sears Again
The Consumerist.com
November 27, 2007

Reader Chris writes the CEO of Sears to let him know why he'll never step foot inside Sears ever again.

Dear Mr. Lewis,

We are writing to you to document the abysmal experience we recently had with Sears following break-down of our Kenmore refrigerator/freezer.

The unit broke down on November 2nd, less than 1 year since we purchased it, and we called for repair service under the factory warranty. We were surprised to find that it would take a week before a technician could come to take a look, but we treated this as just 'bad luck' and resigned ourselves to throwing away 100's of dollars of frozen and refrigerated groceries.

The technician came out on November 10th and replaced what he thought was the problem part and left. Within hours the unit was no colder and so we immediately called Sears again and were dumbfounded to be told that it would take another week for someone to come out again!

This was not acceptable to us and so we emailed you to request assistance and as a result were contacted by Carla in Sears Executive Office. When we spoke to her it transpired that she was unable to get our local Service department to respond to her. She said that she would call us back if and when they got in contact. As we did not hear back from her we can only assume they did not respond. If the Executive Office cannot get in contact with the Service Department, we as customers surely stand no chance!

At this point we waited until November 17th until the technician came out again. This time he diagnosed that the compressor was broken and that he'd have to order a new one. The earliest appointment we could get to install it was quoted as November 26th . This would mean that we would have been without a fridge & freezer for some 3 ½ weeks and our big family Thanksgiving Dinner plans would be ruined.

We decided to approach the Sears store that we purchased all our appliances from to see if they could help. The floor manager on duty was extremely unhelpful :

* She said that she couldn't help us as, in her opinion, this was purely a Service issue and the Service department "is a separate organization". Clearly your employees do not feel that they represent Sears Holdings as a single entity.

* She said that Kenmore appliances were very reliable but that we should have paid extra for the Extended Service Agreement to get timely repairs. It is extremely annoying to be told this when we already have a broken appliance and are trying to it repaired UNDER WARRANTY.

* She said that if we wanted to buy a new refrigerator she could give us a 10% discount. You can perhaps imagine how angry we were to have it suggested that spending another $1100 on a fridge was a good solution to Sears not being able to repair our existing one in less than a month.

* Understanding that her powers appeared to be limited, we tried to be flexible in accommodating any reasonable alternative approaches to addressing the situation, but even when pressed she could not suggest how we could escalate the issue other than calling the 1-800 number again

We can only hope that this is not how Sears would wish to be represented.

We contacted the Store Manager, who is our one positive experience with Sears in all this. He was very apologetic, and really made an effort to listen to the problem and try to find reasonable and creative ways to address it. He made some calls and we were in turn contacted by Executive Level Customer Support who modified the service date to November 21st (still a huge 19 days after the original problem occurred). Although apparently only having been an employee with Sears for a month, we really feel that the Store Manager treated the issue as his own and with respect, unlike other Sears people we had dealt with until this point.

We hope you would agree that there seem to be some serious problems with Sears Service, and the communication lines between them and the rest of the company. While the Store Manager is a good representative for your company and did his utmost to restore our faith in Sears, we see no indication that we would not encounter a similar situation with Sears Service in future. We were without refrigeration for 19 days, which is bad enough, but if we hadn't engaged in vigorous, time-consuming and stressful chasing of this problem we may have been without this crucial appliance for nearly a month. We know from frank conversations with everyone involved in this (from Sears technicians to executive customer support) that our problems with getting timely service are not unusual exceptions, but are persistent and endemic.

Your Vision Statement says that "Sears Holdings is committed to improving the lives of our customers by providing quality services, products and solutions that earn their trust and build lifetime relationships." For us, you have failed spectacularly on all counts.

Our entire family has purchased from Sears for many years based on your historical reputation for good customer service, but they will no longer make any purchases in your stores. We hope that by bringing our problems to your attention it will allow them to be fixed promptly and permanently for the good of other customers. We will not be buying from Sears again.

Yours faithfully,

Chris

Medicare Offers Overhaul Of Hospital Reimbursing
By Theo Francis – Wall Street Journal
November 27, 2007

Medicare proposed sweeping changes to the way it reimburses hospitals, outlining a plan that would essentially redistribute cash by reducing payments across the board and then giving providers a chance to "earn back" money by meeting quality-of-care thresholds.

The proposal, outlined yesterday in a 104-page report to Congress, expands on existing Medicare efforts to align federal payments to hospitals and doctors more closely with the quality of care they offer. But such a change has the potential to squeeze hospitals already facing financial difficulties even as it offers monetary incentives to improve medical care.

"We think this is another step down the pay-for-performance road," said Tom Valuck, who led the project for the federal Center for Medicare and Medicaid Services, or CMS. "That's the heart of pay for performance -- if you're not performing, you're not paid as much."

As laid out in the report, Medicare would cut payments to all facilities by a flat 2% to 5%. That money would then form an incentive pool for distribution to hospitals that show the most improvement or that meet or surpass certain thresholds on a variety of quality measures. The plan, dubbed "value-based pricing," would require congressional action to implement.

The agency said the program is designed to be cost-neutral to the government, and could even save money if Congress decides not to require redistribution of all the withheld cash. Lawmakers ordered up the report in 2005 as part of a deficit-reduction act.

One hospital group that has previously championed Medicare pay-for-performance programs sounded a cautionary note. "We want to make sure what we're doing here is rewarding hospitals for quality gains and not developing a cost-cutting program," said Stacey Brown, a spokeswoman for Premier Inc., a hospital consortium that worked with CMS on an earlier pay-for-performance pilot project. She added that an incentive program "should not be used for any punitive measures."

Some health-policy experts warn that incentive programs can backfire if structured poorly. Medicare makes up nearly half of some hospitals' revenues, and many operate on razor-thin margins. Half of all hospitals netted less than 3.75% in 2005, according to a study by Cleverley + Associates, a consulting firm in Worthington, Ohio.

Reducing payments overall in order to fund the bonuses "is going to be a challenge for a hospital that's got a very tight margin, and many hospitals do," said Arnold Epstein, chairman of Harvard University's Department of Health Policy and Management.

Medicare officials said they would monitor the program closely and adjust it as necessary, and at the same time expand the quality criteria used to determine whether hospitals earn back the lost revenue. "We want to make sure we're not causing some unintended or perverse consequences," said Kerry Weems, acting administrator of CMS.

Market Scan
Sears, Restoration Deal 'Insane'
By Melanie Lindner – Forbes.com
November 26, 2007

Sears Holdings shares a taste for bargains with its customers.

On Monday, Sears Holdings filed with the Securities and Exchange Commission announcing a proposal to outbid Catterton Partners in an attempt to buy Restoration Hardware for about $368.4 million, including assumed debt.

In late October, Sears offered to buy Restoration Hardware for $4.00 per share, which the Corte Madera, Cal.-based company refused. On Nov. 8, Restoration Hardware announced that it agreed to a management-led buyout from Catterton Partners, a private equity firm, for $6.70 per share, or about $366.5 million. However, the deal allowed for Restoration to solicit competing bids for a 35-day period ending Dec. 13.

That solicitation clause left the window open for Sears to reevaluate its offer. On Nov. 19, Sears disclosed that it owned a 13.7% stake in Restoration Hardware, which led investors to believe the Hoffman Estates, Ill-based company planned to challenge Catterton's agreement.

According to Christine Augustine of Bear Stearns, while Restoration Hardware appeals to a "higher demographic" than Sears or its subsidiary Kmart, "there may be cost savings that Sears could generate and perhaps some sourcing expertise," which would be valuable to Sears' broader needs.

Retail consultant Howard Davidowitz of Davidowitz & Associates thinks Sears' intent to buy Restoration Hardware is "an insane idea." He noted that with Restoration falls in the lagging home furnishings category, and therefore he cannot see how the addition will be beneficial to Sears. "If you're trying to turn around Sears why would you buy a company in the worst segment of retailing?"

Investors agreed with Davidowitz, sending Sears' stock down $4.81, or 4.3%, to $107.77, in Monday trading while Restoration Hardware slipped 6 cents, or .8%, to $7.00.

According to Monday's SEC filing, Sears, which is run by billionaire Eddie Lampert, made a second bid in a letter dated Friday to Restoration, offering $6.75 per share. While the letter asked a special committee of Restoration's board for a confidentiality agreement regarding the new proposal, the committee denied that request on Sunday. Thus, the offer was based solely on public information.

Under the Catterton-Restoration Hardware agreement, a competing bidder would have to pay a break-up fee of approximately $10.7 million. While Sears appears anxious to swipe Restoration from Catterton, the company is seeking to decrease that fee.

Sears Prepared to Offer Restoration Hardware Hldrs $6.75/Shr
Dow Jones Newswires
November 26, 2007

Sears Holding Corp. (SHLD) on Monday disclosed that it is prepared to offer $6.75 a share in a cash tender offer for Restoration Hardware Inc. (RSTO), which has already agreed to be taken private.

According to a filing with the Securities and Exchange Commission, a special committee of Restoration Hardware told Sears that it was unwilling to enter into a confidentiality agreement with Sears.

Sears, which is controlled by billionaire investor Edward S. Lampert, said in a letter to Restoration Hardware that it is willing to enter into an acquisition agreement on terms substantially similar to the company's current merger pact.

Restoration Hardware, a high-end furniture company, has agreed to be taken private by its chief executive and private-equity firm Catterton Partners for $6.70 a share.

Shares of Restoration Hardware closed Friday at $7.06.

After Rush, Retailers Try New Shopping Lures
By Cheryl Lu-Lien Tan, Gary McWilliams, and Amy Merrick –
 Wall Street Journal
November 26, 2007

Holiday shopping started with a bang, delivering stronger-than-expected sales Friday, but retailers still fearing a weak season quickly began pulling out the stops in an effort to keep up the momentum.

Over the weekend, Wal-Mart Stores Inc. offered a second wave of "in-store specials," touting Saturday as another "Black Friday," the nickname for the traditional post-Thanksgiving shopping kickoff. Toys "R" Us Inc. held back a number of its discounts, revealing them on its Web site Saturday and Sunday to lure shoppers who look for gifts online. And for the first time, J.C. Penney Co. gave Black Friday shoppers $10-off coupons that could be used only in its stores on Saturday.

Stores are also focusing on keeping shoppers excited -- and spending -- this week and into early December, when sales typically fall off. Target Corp., which promoted its Black Friday sale as a two-day event, launched a weeklong sweepstakes yesterday, giving buyers of certain items a chance to win prizes such as a trip for four to Los Angeles for the premiere of "High School Musical 3" and the after-party. Penney enhanced its Web site to give shoppers the ability to check online whether a nearby store has an item in stock.

And Macy's Inc. is playing up celebrity brands like Jessica Simpson shoes and Donald Trump dress shirts while trying a new Internet strategy. To appeal to shoppers who research gifts online before buying, it purchased sponsored links on search engines including Google Inc. so Macy's pops up when people type keywords such as "cashmere," "Cuisinart," "boots" and "coat." Having Macy's appear at the top of searches "keeps people actually going to the stores," said Macy's Chief Executive Terry Lundgren.

This year, retailers are under more pressure than usual to try new strategies to draw shoppers. Analysts predict the shopping lull that typically follows the Thanksgiving weekend will be worse than usual because of a combination of factors: a greater number of "door buster" markdowns Friday, a longer period of shopping days between Thanksgiving and Christmas, and the shaky economy, which is likely to cause more shoppers to hold out for bigger bargains. According to the National Retail Federation, 48.3 million people went shopping Saturday, down slightly from 49.1 million last year. Though final numbers weren't yet available for Sunday, the NRF was projecting a 3.1% drop in the number of shoppers.

"The drop-off [in traffic] on Saturday seemed more marked to me than it did in years past -- it could mean we're heading toward a lukewarm Christmas," said Madison Riley, retail strategist for Kurt Salmon Associates. Retailers, he added, might have to continuously cut prices to keep attracting shoppers.

The NRF expects sales this holiday season to rise 4% from last year -- the smallest gain in five years. Last holiday season, sales grew 4.6%, according to the NRF.

On Black Friday -- the day retailers have traditionally gone into the black and begun generating profits -- sales were up an estimated 8.3% from last year's kickoff to $10.3 billion, according to ShopperTrak RCT Corp., which bases its numbers on a formula that involves an electronic count of shoppers at malls nationwide. Saturday, sales increased an estimated 5.4% over the last year to reach roughly $6.1 billion, ShopperTrak said.

Friday's online sales were especially strong, rising 22% to $531 million, according to comScore Inc., a Reston, Va., market-research firm that tracks online sales and traffic. Online sales for Nov. 1 through Friday totaled $9.36 billion, 17% more than last year.

Retailers typically ring up 5% of holiday-season sales on Black Friday and a total of 10% of holiday sales during the Thanksgiving weekend, according to MasterCard SpendingPulse, which tracks spending of all types.

Among the most popular online shopping categories were consumer electronics, computer hardware and software, apparel, toys and videogames, shoes and home and garden, according to Nielsen Online, a market-research firm and unit of the Nielsen Co., which tracks Web-site visits. Visits to consumer-electronics sites, the top category, more than tripled from last year.

According to the NRF, in the period from Thanksgiving Day through Sunday, traffic at stores was up almost 5% from a year ago. But the average amount spent by shoppers fell 3.5% to $347.44, because they mainly bought midprice items like videogames, digital cameras and laptops this year rather than the more-expensive high-definition TVs that were hot sellers last year, NRF spokesman Scott Krugman said.

The most popular category in stores this weekend was apparel and accessories, followed by CDs, DVDs, videos and videogames, he said. Around 28% of shoppers said they bought toys this weekend, practically unchanged from last year. Discount stores drew more shoppers -- 55% of consumers said they shopped at discount stores this weekend, up from 49.6% in 2006. Meanwhile, department stores drew 38.7% of shoppers, up just slightly from last year.

A Sears Holdings Corp. spokesman said consumers were snapping up flat-panel televisions, digital cameras and other consumer electronics, as well as its Craftsman tools. "Plain and simple, it's all about electronics," said a Sears store manager in Dallas, who estimated 60% of his store's early-morning business Friday was in consumer electronics.

Some retailers' efforts to lure shoppers after Friday appeared to pay off. At Queens Center Mall in Queens, N.Y., where the scene was largely sedate on Saturday, the J.C. Penney store was by contrast filled with long lines of shoppers waiting to pay. Many clutched circulars touting the retailer's Saturday specials -- 60% off items from sterling-silver jewelry to men's coats. To attract weekend shoppers, Penney this year extended the deadline for its Saturday specials by an hour from last year, to 1 p.m. The deals, along with the $10-off coupons handed out Friday, attracted more shoppers than usual on Saturday, said Joie Johnston, the store manager. "Before we opened, we already had 50 to 100 people waiting outside," she said.

Stephanie Roach, a 38-year-old baby sitter from Queens, said she usually avoids malls over the Thanksgiving weekend, but was drawn to Penney's by the deals. After two hours of shopping Saturday morning, she got in line to pay for five pairs of jeans and a $200 faux shearling coat marked down to $48.88.

At Woodfield Shopping Center in Schaumburg, Ill. -- one of the largest malls in the U.S. -- stores were well-stocked and orderly on Saturday, in contrast to the usual post-Thanksgiving chaos. Most stores seemed to have more than enough merchandise despite discounts such as "buy one, get one free" sweaters at Limited stores.

In Houston, heavy rains Saturday kept crowds moderate. At a Houston Wal-Mart, a clerk pointed to a leftover $50 rolling tool chest and cabinet as an example of the weekend's tepid turnout. The Stanley tool chests were among the weekend specials that are often scooped up early Friday morning.

On the high end, several retailers and malls, especially in Manhattan, benefited from tourist traffic. "An enormous number of Europeans" flocked to Saks Fifth Avenue's New York flagship, according to Ron Frasch, president and chief merchandising officer. At Saks locations around the country, sales were brisk throughout the weekend, he added. Hot categories included jewelry, all types of men's apparel, which Mr. Frasch said showed "very, very strong" sales, and women's "modern" brands.

A few blocks up, at Henri Bendel, where window displays featured $2,495 gold totes and $22 boxes of candy wrapped in the retailer's signature brown-and-white stripes, shoppers clustered around tables of items such as $78 bangles and $48 snow globes. Steven Van Oost, a 37-year-old real-estate agent from Belgium, said he hadn't heard of Bendel's but was drawn in by the window displays.

Other retailers are trying to play up the exclusive products they carry. Lord & Taylor this year more than doubled the number of holiday exclusives it is promoting in its Christmas book, on its Web site and in stores. The items, which include a $695 Michael Kors fox-fur-trimmed cardigan and a $1,400 Ugg shearling coat, now make up about 20% of the retailer's assortment, said President and Chief Executive Jane Elfers.

But in a troubling sign for retailers, some analysts say the best strategy for drawing shoppers into stores this year will be low prices. "When things are great, saving $200 may not be worth the effort," said Britt Beemer, president of America's Research Group, a Charleston, S.C., retail consultancy. "But when you're struggling to pay bills because of higher fuel or food prices the $200 savings may mean whether you can buy the item for Christmas for your children or not."

--Mylene Mangalindan, Vanessa O'Connell, Nicholas Casey and Ann Zimmerman contributed to this article.

MEDICARE: Big increases in prescription-drug premiums mean it pays to compare plans.
By Kimberly Lankford - Kiplinger’s
December 2007 Issue

Act soon on PART D

Premiums for Medicare Part D will increase by an average of 14% in 2008, to $25 per month, according to the Centers for Medicare & Medicaid Services. That may sound steep, but it still understates the pocketbook pain that will be inflicted on many participants. “The increases are concentrated among some of the bigger players,” says Dan Mendelson, president of Avalere Health, a health-care advisory company. Policyholders covered by such market leaders as United HealthCare and Humana may especially feel the pinch.

Before you’re locked in to a big premium increase, take time to compare your Medicare prescription-drug options during open enrollment, which runs from November 15 to December 31.

For example, the average cost of Humana’s standard plan will jump nearly 69%, from $15.34 per month in 2007 to $25.88 in 2008. Prices for United HealthCare’s AARP plans are also on the rise. In California, the monthly cost of the bare-bones, “saver” plan will more than double – from $9.80 to $21 – and premiums for the “enhanced” plan, which provides additional coverage, will rise nearly 58%.

But premiums are not the only factor to consider when calculating your total out-of-pocket costs for prescription drugs. When you add up premiums, deductibles and co-payments, a plan with higher premiums could actually cost you less by the end of the year.

Once again, the Medicare prescription-drug plan finder (www.medicare.gov/mpdpf) is the best tool to help you compare the total costs for your medications under each plan available in your area. For example, a Winter Park, Fla., resident who takes three typical generic medications for high blood pressure, plus Zocor for cholesterol, would pay $918 in 2008 in premiums and co-payments with a Health Net Orange Option 1 policy.

But click on “Use lower-cost drugs when available” and the price drops dramatically. Just switching from Zocor to the generic Simvastatin lowers the total annual premium to $193. Your best deal including generic drugs may vary by the medication, so be sure to ask your doctor about substituting a generic before you pick a plan.

The plan-finder tool also shows providers’ complaint and customer-service records (click on “Get plan performance information”). If you’d like personal assistance, call 1-800-633-4227 to find the State Health Insurance Assistance Program, or SHIP, in your area.

The Coverage Gap
Avoiding Medicare’s Big Hole
By Stephanie Saul – New York Times
November 24, 2007

The Medicare doughnut hole is the federal provision that older Americans love to hate.

And that is not expected to change next year, when the doughnut hole — the nickname for a big financial gap in each person’s Medicare prescription drug coverage — gets slightly larger. If the past is a guide, many people will struggle to secure a full year’s supply of the drugs they need.

But despite the arrangement’s unpopularity with older consumers, some experts see a positive public policy trend when they peer into the doughnut hole. Because it potentially forces a Medicare enrollee to pay more than $3,000 from his or her own pocket during the gap period, the hole is helping curb growth in the nation’s drug spending by pushing people toward low-cost generic drugs.

And because the cheaper generics generally work just as well, patients are incorporating them into their permanent drug regimen, according to Dr. Tim Anderson, a pharmaceuticals analyst for Sanford C. Bernstein & Company, who is also a physician.

“Clearly, once you’re on the therapy, if you’re tolerating it and you’re saving money, there’s no reason to switch back,” he said.

It may not be a message that brand-name drug makers want to hear. But with the Medicare Part D drug program enrollment period now under way, through Dec. 31, analysts predict millions of older Americans will study generic drug prices and options as they select an insurance plan. Some economists say that many Medicare enrollees, through carefully planned use of generics, can avoid reaching the doughnut hole altogether.

When the Medicare Part D program began in January 2006, makers of name-brand drugs considered it a welcome stimulus to overall use of prescription drugs. The industry knew the doughnut hole might steer some patients toward generic drugs, but not necessarily so soon.

“I don’t think they anticipated how quickly this kind of event could shift patients toward utilizing generics,” said Peter C. Demogenes, a senior director of the research firm Wolters Kluwer.

Congress carved the doughnut hole into the Medicare prescription drug plan as a way to limit the federal outlay. But architects of the plan made sure some costs were covered for all Medicare beneficiaries upfront, while also seeing to it that the sickest would get help with catastrophic drug costs on the far side of the doughnut hole. Once a beneficiary has made it through the coverage gap in any given year — in 2008, after the total cost of drugs has reached $5,726 — prescriptions are generally covered at 95 percent.

About 4.2 million people reached the gap last year, according to a Wolters Kluwer study, and many of them switched to generics as a way to keep their out-of-pocket costs low. Others started using generic drugs even before they reached the doughnut hole to avoid the higher co-payments their policies charged for brand-name drugs.

In 2006, an estimated 59.6 percent of the Part D prescriptions were filled by generic drugs. By the first quarter of 2007, the most recent period for which data are available, the generic rate in Medicare had edged higher, to 61.5 percent, according to Medicare figures.

Billy Tauzin, the president of Pharmaceutical Research and Manufacturers of America, the trade association for brand-name drug companies, said it was clear that the Medicare program, including the doughnut hole, was helping drive the use of generic drugs. And the popularity of generic drugs is cutting into the profit margins of branded drug companies, he added.

Mr. Tauzin, a former congressman, said his group had made several proposals to Congress for shrinking the doughnut hole. Among the suggestions, he said, was to count the free drugs that companies sometimes provide to lower-income Medicare beneficiaries as part of the patients’ running total of drug costs. Doing so would make their catastrophic coverage kick in sooner.

“We can help them, but it doesn’t count toward getting them out of the doughnut hole,” Mr. Tauzin said. “That’s not fair.”

Kerry N. Weems, the acting Medicare administrator, said the doughnut hole was not the only reason that generics were on the rise. The Part D program over all has made consumers more price-conscious, he said, noting that Medicare’s Web site lists the prices of pharmaceuticals dispensed at each drugstore participating in a particular Medicare plan. “It will show you month by month for the entire year what your yearly expenditures are,” he said.

In 2008, the gap in the standard Medicare drug benefit begins when a patient’s total drug costs have reached $2,510, including the portion paid by Medicare and the patient’s own out-of-pocket deductibles and co-payments. The beneficiary must then absorb 100 percent of costs out of pocket for the next $3,216, until total drug costs have reached $5,726. Only then does the catastrophic coverage kick in.

While federal assistance is available to help the poorest patients with premiums, deductibles and co-pays under the Medicare program, those who fall just above the poverty guidelines and cannot get extra help sometimes simply stop taking their medications once they reach the doughnut hole or rack up big credit card debt to pay for them.

Debbie Mullaney, the pharmaceutical coordinator for a community health clinic in Cumberland, Md., said her clinic looked for ways to help such patients get their medications.

When people reach the doughnut hole, she said, they must continue to pay their monthly Part D insurance premiums — typically $30 or so — even as they also pay for their medicines out of pocket. During that period, the clinic tries to help patients switch to generics or supplies them with free samples from brand-name drug companies.

“We always try steps to get them on something they can afford and get them some accessibility,” Ms. Mullaney said.

A recent AARP survey found that among Medicare beneficiaries who reached the doughnut hole, 15 percent decided not to fill a prescription.

Dr. James D. King, a family physician in Selmer, Tenn., estimates that 50 to 70 percent of his Medicare patients hit the doughnut hole — at which point they switch to generics, ask for free samples or simply stop taking their medicine.

In some cases, Dr. King said, patients elect to switch to another type of drug altogether to reduce costs. For example, patients taking Benicar, a blood-pressure treatment that is not available as a generic, may switch to lisinopril, a generic that also lowers blood pressure but sometimes causes the side effect of coughing.

Another example he cited is that patients taking Plavix, a brand-name blood thinner, might simply use aspirin, a blood thinner that is not as effective but is much cheaper. “It’s not unusual to have a patient who is taking anywhere from 7 to 13 medications every day,” said Dr. King, who is president of the American Academy of Family Physicians. “We start to look at which ones you absolutely need to be on and which ones you don’t.”

Lillian Russell, 86, a widow from Hummelstown, Pa., takes eight prescription drugs. Even though five of them are generic, she reached the doughnut hole this year in July. Her prescription drug bill in September, which she paid entirely on her own, was $727.91. Mrs. Russell believes she will remain in the gap for the rest of the year.

“Unfortunately, two of the drugs I have been on are fairly new ones and are very expensive and there is no generic for them,” Mrs. Russell said. Though generics are not always an option, some economists say that with proper planning, some patients who entered the doughnut hole this year could have avoided it.

A study by Express Scripts, the pharmaceutical benefit manager, said that an analysis of 220,000 patients found that 23 percent of those who fell into the doughnut hole in 2006 could have skirted it by using generics to cut drug costs. Such planning, though, requires that patients talk to doctors about their finances. Many people are embarrassed to bring up money when discussing prescription drugs with their doctors, and many physicians never broach the subject with patients.

A study of more than 1,100 patients published by The Journal of the American Geriatrics Society found that four of five wanted doctors to discuss medication costs, but fewer than one in five doctors did. One in three patients in the study who cut back on their drugs because of cost said they had never asked their doctor for help in reducing expenses.

Dr. Ted D. Epperly, a physician in Boise, Idaho, and president-elect of the American Academy of Family Physicians, said that patients were sometimes embarrassed to discuss their finances.

“Usually I’m a little blind to it if they’re in the doughnut hole,” Dr. Epperly said, “mainly because they’re proud people, and they feel their obligation isn’t to share that with the doctor.”

The Coverage Gap
There Are Alternatives: Insuring to Bridge the Gap or Opting Out
By Stephanie Saul – New York Times
November 24, 2007

One way for Medicare Part D enrollees to deal with the “doughnut hole” is to insure themselves against it. Another way is to simply not get involved with Part D in the first place.

Nearly one-third of Medicare prescription drug insurance plans now offer to pay for drugs through the doughnut-hole coverage gap that Congress designed into the program. That is up from only 15 percent of plans that offered gap coverage in 2006, according to the Kaiser Family Foundation.

But the doughnut-hole gap insurance typically covers only generic drugs. That complicates the calculus for patients trying to determine whether to pay the higher premiums for such policies, which typically cost about twice as much as the $28 average premium for plans without gap protection.

For those able to rely solely on generic drugs, the cheapest approach in the short run might be to forgo Part D insurance altogether. Instead, they could simply shop at discount retailers like Wal-Mart, Costco and Target whose pharmacies offer low-cost generics for as little as $4 for a monthly prescription.

To determine what their coverage cost will be under Medicare, and help choose the approach that is best for them, consumers can visit Medicare’s Web site. There, beneficiaries can enter their specific drugs, as well as the pharmacy they want to use, to see their options. The software calculates the best plan for a particular beneficiary among the 50 or so that are typically available in each state. This year’s enrollment period continues through Dec. 31.

The cheapest plan is not necessarily the best. Among things to consider are whether the plan carries a deductible; what it charges for co-payments on individual drugs; whether it covers drugs in the doughnut hole, and whether there are restrictions on some drugs.

Some plans, for example, limit the quantities of drugs a patient may get each month. Others require prior authorization for some drugs — meaning that the doctor has to make a special call to the insurer.

Some plans have recently added extra levels of co-pays or moved drugs from one co-pay tier to another, meaning beneficiaries pay more than they expected when they pick up their drugs.

The Medicare Web site is relatively easy to use, but some people may still need help.

“Many seniors don’t use the Internet and don’t use computers,” said Elisabeth Clayton, a client services associate for the Medicare Rights Center, a nonprofit group based in New York that offers help to Medicare beneficiaries nationwide.

By phone, Ms. Clayton recently assisted a Medicare beneficiary from Oklahoma who was searching for a plan. The woman takes 10 drugs, including 7 generics.

By entering the woman’s list of drugs and her pharmacy in the Medicare Web site, Ms. Clayton determined that the best option for her would be an AARP plan with a relatively high premium — $64.10 a month — but no deductible. The plan also offered gap coverage and few restrictions.

The second-best plan, offered by First Health, had a far lower premium: $16.40 a month. But it would have ended up costing $250 more by the end of the year — and a full $1,100 more compared with the mail-order option on the AARP plan, according to the Medicare Web site.

Similar assistance is available through a program called Area Agencies on Aging in many states. In Hot Springs, Ark., for example, the West Central Arkansas Area Agency on Aging has been offering appointments to assist Medicare beneficiaries in selecting a plan, according to Dody Roberts, director of case management.

“All plans are not going to cover all prescriptions,” Ms. Roberts said.

Elaine Boe - 1919-2007:
'Elegant lady' was a friend to all
She loved to travel and meet people along the way
By Larry Finley – Staff Reporter – Chicago Sun-Times
November 23, 2007

Elaine Boe loved to meet new people and had a way of making strangers feel like friends.

In the 1960s and 1970s, when her late husband, Archie Boe, was a top official at Allstate Insurance, they would go to a lot of parties and dinners, and Mrs. Boe invariably would find someone with an interesting story, said her daughter Constance Garrison.

"She and Arch would go to these executive events, and Mother would be sitting next to some CEO," her daughter said. "She would jabber away and want to know all about them. Afterwards, she would say, 'Did you know that so-and-so now has six grandchildren and they used to live in Hawaii, etc., etc.?'

"And Arch would say, 'How do you know all this?' And she would say, 'I talked to them while you were talking business.' "

Elaine Beverly Boe, 87, died Nov. 17 at Northwestern Memorial Hospital. She had been a life director of the USO of Illinois, a board member of Boys and Girls Club of Chicago and was an honorary member of the president's council of the Museum of Science and Industry.

She danced with Ford

Mrs. Boe's husband, Archie R. Boe, was the former chairman and CEO of Allstate and a director of Alberto-Culver Co., Delta Air Lines, William Wrigley Jr. Co., Lyric Opera and Northwestern Memorial Hospital. He died in 1989.

After Mrs. Boe died this week, there was a photo album sitting on the piano bench in her Chicago home, her daughter said.

"She had this whole album of pictures of her dancing with President Gerald Ford," her daughter said. "It was a reception in Washington for the emperor of Japan. That was a big thrill for her."

In the pictures, Mrs. Boe was wearing "a long baby blue gown," her daughter said. It was a favorite and the dress she was put in for her cremation.

"She was always an elegant lady," her daughter said.

Mrs. Boe was born in Chicago on Dec. 2, 1919, and grew up in the Rogers Park neighborhood. She graduated from Senn High School.

On New Year's Eve of 1942, she met a handsome young Navy officer who was celebrating in a nightclub with a close buddy and fellow officer.

Three months later, she married the officer, James Day, and they moved to California, where she raised three children.

In 1970, the couple divorced. In 1973, she married Archie Boe, who had been the other officer in the club that New Year's Eve in 1942.

While sorting through Mrs. Boe's papers, her daughter found a thank you card from comedian Phyllis Diller, a letter from former Vice President Dan Quayle and other memorabilia.

She met Lucy and Desi, too

"She loved trips," Garrison said, including a family ride on the Orient Express and a cruise where she met Lucille Ball and Desi Arnaz.

"She loved doing fun things and meeting interesting people," her daughter said.

In Mrs. Boe's later years, "she lived vicariously through her children," her daughter said.

"She wanted to know the details of our vacations and even our tennis games. She loved talking to little children and could tell them the greatest stories about the things she had done."

Her other survivors include another daughter, Randee Day; a son, James Day; a stepson Michael Boe; six grandchildren; a great grandson and a sister, Bea Foster.

A memorial service will be at 11 a.m. on Dec. 8 at St. Chrysostom's Episcopal Church, 1424 N. Dearborn Pkwy.

'A warm and loving person'
Elaine Beverly Boe dies at 87
The wife of Allstate's former president gave her time to several charities that were devoted to her interest in the welfare of military personnel and in children
By Emma Graves Fitzsimmons - staff reporter Chicago Tribune
November 23, 2007

Elaine Beverly Boe was more than just a beautiful wife at the side of the former president of Allstate Insurance Co. She was an engaging conversationalist at business events and his partner in philanthropy work.

"She had a gift for talking to people," her daughter Constance Garrison said. "Instead of being stuffy and talking about business, she'd have a CEO of a company talking about his grandchildren and pets."

Mrs. Boe, 87, served on boards and financially supported several local organizations, including the Museum of Science and Industry and the Boys and Girls Clubs of Chicago. She died Nov. 17 from an extended illness in Northwestern Memorial Hospital near her Gold Coast home.

Her life as the wife of a prominent business executive led her to exciting places, her daughter said. She loved telling the story about the time she danced with President Gerald Ford at a state dinner at the White House.

Mrs. Boe grew up in Rogers Park and attended Senn High School. Her first marriage to a Navy officer during World War II ended in 1970. The couple raised three children in California, but Mrs. Boe returned to Chicago when she remarried.

Her second husband was Archie R. Boe, the former president of Sears, Roebuck & Co. and Allstate Insurance Co. He is credited with expanding the company from providing only auto insurance to other types of coverage, becoming one of America's largest insurance firms.

Mr. Boe also became known across the country as a corporate supporter of social responsibility and worked to reduce highway deaths.

"They had a very interesting, colorful life together," her daughter said. "My mother was a great attribute to Archie, and she made him happy."

Her husband's work with nonprofits and foundations led Mrs. Boe to take up her own causes. While her husband served on the board of the Lyric Opera of Chicago, Mrs. Boe focused on three organizations.

She was most proud of her work as a life director for the USO, as an honorary member of the president's council at the Museum of Science and Industry, and as a board member of the Boys and Girls Clubs of Chicago. Because both of her husbands served in the military, Mrs. Boe had a natural interest in helping service members through the USO.

"She was involved for close to 20 years working with the women's board and fundraising," said her stepson, Michael Boe, a former president of USO of Illinois. "She'd always buy a table at the annual ball."

The other two organizations were inspired by her love for children, her daughter said.

"She was so good with children, and she loved telling them stories," she said. "We would always go to the museum for Christmas for the children's train and ornaments."

After her husband died in 1989, Mrs. Boe continued to live a full life and welcomed the arrival of six grandchildren. She loved Chicago and enjoyed living in the middle of things at Water Tower Place on the Magnificent Mile.

Her daughter fondly remembers how Mrs. Boe took her three children on a train trip aboard the famous Orient-Express through Europe to celebrate the 50th birthday of her youngest daughter.

Her stepson remembers frequent lunches with Mrs. Boe at the cafe at the Ritz-Carlton.

"She was a warm and loving person," he said. "Everyone would say hi to her there. She knew everyone, and they knew her."

Mrs. Boe also is survived by daughter Randee Day; son James Day; and sister Bea Foster.

Services will be held 11 a.m. on Saturday, Dec. 8, at St. Chrysostom's Episcopal Church, 1424 N. Dearborn St.

Wish Book was always early present/Holiday dreaming can begin, as Sears catalog returns after 14 years
By Mark Brown – Columnist - Chicago Sun-Times
November 21, 2007

Finally, I have it in my mitts, the new Sears Wish Book, the holiday gift catalog of choice for generations of Americans brought back to life after a 14-year hiatus.

And my first impression is . . . mmmm, it's a little thin.

You could stop a bullet with the old catalog; it was so thick. At a lightweight 188 pages, this one could get lost among the Sunday ad supplements.

But, hey, I'm not complaining, not after 14 years.

Now I can start making my Christmas list.

Plasma TV, check. Pool table, check. In-car portable navigation device, check.

What's that you say, Santa? Each of those items exceeds my price limit? Some things never change.

For years, this is how it was done. The Sears catalog would arrive at home in time for the Christmas shopping season, and everybody in practically every house would spend hours poring over it, either looking for gift ideas for themselves or somebody else. When you were little, you'd sit in your parent's lap and go through it together so they could subtly figure out what interested you. Sometimes they'd get it wrong.

Maybe the item of interest would be purchased from Sears and maybe not. With so many folks choosing to buy elsewhere, Sears finally gave up the catalog altogether in 1993.

Some blame that on Internet shopping, but the catalog was in decline long before the masses had learned to surf. Sears had its own problems, above and beyond the catalog, trying to find a market niche.

Still, my eyes lit up when the company announced in early October that it was bringing back the Wish Book.

Sure, I could find the same stuff on the Sears Web site, probably with more detailed information.

But I couldn't hold the online catalog. Or fold the page corners. Or circle all the stuff I want.

I don't want my computer deciding if it's going to let me turn the page. I'm a big boy now, and I want to turn the page when I decide it's time.

I'll even open the catalog randomly in the middle if I so choose.

And what do I find there? Action-packed "Spider-Man 3" bedding, and matching shoes, slippers, boots, backpacks, fleece hoodies, interactive chairs and electric pinball machine.

OK, I'm not really in the market for any of that right now, but at least I know where to find it if I change my mind.

I just enjoy leafing through the catalog and finding stuff I didn't even know somebody made, such as Battle Zone Fighting Robots, which look like a modern-day version of the old Rock'em Sock'em Robots, except operated by remote control and unfettered by a boxing ring.

I'm glad this toy wasn't around when my boys were little: My First Craftsman All-Terrain Vehicle, running on a 12-volt battery and selling for $249.99.

Here's something the catalog says is new, a battery-operated Duck Tour Boat, like the ones at the Dells.

"It rolls over land and cruises along in the water, making it the perfect vehicle for taking preferred passengers on a tour," says the ad copy. But mom would want to know if it's safe for the bath tub.

Maybe your tastes run more toward the new Amazing Mckayla doll.

"Using voice recognition and sensory technology, this little bundle of joy expresses emotion, learns to speak, plays baby games and 'recognizes' her food and accessories," all for $69.99 in either Caucasian or ethnic versions.

Sorry kids, book has clothes too
You don't open the Wish Book expecting exotic items. After all, this is Sears.

But more than half the Wish Book is devoted to kids' stuff, which is how it ought to be. That doesn't include additional pages of kids' clothes, although I look at them and think, "Oh, no, not clothes on my Christmas list."

I mentioned the new Sears catalog to a colleague who sniffed and suggested my wife would find more of interest in the Neiman Marcus catalog. True, but nothing in Santa's price range.

The Wish Book does have several pages of ladies jewelry, some of it surprisingly pricey, but luckily, that's why I have Scott the Jeweler to look out for me.

Sears has started mailing the Wish Book to customers, although the distribution won't be anything like in the past. It's also supposed to be available in stores, but the State Street location didn't have any Tuesday. Of course, you can order a copy online or by phone.

As always, getting the Wish Book is no guarantee of wishes coming true.

Lampert's move a puzzler
Some analysts perplexed by stake in small retailer
From Chicago Tribune news services
November 21, 2007

For months Wall Street has been waiting for hedge fund wizard Edward Lampert to reveal his plan to turn around ailing retailer Sears Holdings Corp.

Investors got their first puzzling clue to his plan late Monday when Sears disclosed in a regulatory filing that it had amassed a 13.7 percent stake in Restoration Hardware Inc. and was mulling a possible acquisition of the retro-themed retailer.

The news sent the upscale home decor chain's stock into overdrive Tuesday but left some analysts questioning why Sears' chairman would set his sights on a comparatively small company that has few real estate assets at a time when the nation's housing slump is causing heartaches across the retail industry.

"That's it?" asked Morgan Stanley analyst Gregory Melich in a research note Tuesday. "It's not the transformational deal that some have been hoping for."

Others went further.

"I think it's an insane idea," said Howard Davidowitz, a retail consultant who is chairman of Davidowitz & Associates. "If you're trying to turn around Sears, why would you buy a company in the worst segment of retailing?"

Many investors seemed to agree, pushing Sears shares down $2.35, to $111.85. The stock of Restoration Hardware added 85 cents, or 13.4 percent, to $7.18. Both trade on the Nasdaq stock market.

Earlier this month Corte Madera, Calif.-based Restoration Hardware said it planned to sell itself to private-equity firm Catterton Partners for $267 million, or $6.70 a share. It has until Dec. 13 to solicit competing proposals to Catterton Partners' buyout offer.

Hoffman Estates-based Sears spent about $30 million to acquire 5.3 million shares of Restoration Hardware, according to the regulatory filing.

Restoration Hardware, which operates about 100 stores, racked up $713 million in revenue last year through sales of its home decor, furniture and gifts to a mostly affluent customer base. Comparatively, Sears Holdings, which includes the Sears stores and discount chain Kmart, had revenue of $53 billion.

So far Wall Street has been willing to give Lampert, a billionaire investor with a knack for finding undervalued companies, the benefit of the doubt, even as Sears' sales continue to slip.

"He has a pretty impressive track record in terms of his ability to allocate capital," said Morningstar analyst Kim Picciola.

Analysts speculated that a possible acquisition of Restoration Hardware would give Sears an important high-end brand name after the company's licensing agreement with Martha Stewart expires in 2009, enlivening Sears' merchandise and bringing in shoppers who have eschewed the company's products for trendier options.

Meanwhile, Sears could seek out marginal savings through Restoration Hardware's wholly owned furniture manufacturing company.

"I think it's a great idea," said George Rosenbaum, chairman of Leo J. Shapiro and Associates, a Chicago-based consumer research firm. "I think it would fit very, very well with Sears' efforts to make their store more interesting, to attract younger people, and it plays to their strength of hard goods."

Lampert, who merged Kmart Holding Corp. and Sears, Roebuck & Co. in 2005, has said he is exploring acquisitions both in and out of retail.

"He's not the kind of guy who buys at the top," said Scott Rothbort, president of Lakeview Asset Management in Millburn, N.J. "I'm not surprised that he's there trying to look for something."

Last month Sears offered $4 a share for the California company, 39 percent higher than Restoration's shares were trading at the time.

This occurred after Restoration's management informed it of a possible buyout offer, Sears said in the filing.

Raymond Hemmig, the chairman of a Restoration board special committee, responded that Sears should "offer a substantially higher price," according to the filing.

Sears said it is seeking non-public information on Restoration to help it evaluate a potential offer or change in its stake, according to the filing.

Representatives of Sears Holdings and Restoration Hardware declined to comment Tuesday.

Sears tests 'vignettes' in Cincinnati area
By John Eckberg – Cincinnati Enquirer
November 21, 2007

Three Sears stores here - Eastgate, Florence and Tri-County - have a new look and mission and just in time for the holidays.

Elements of the approach, called Solutions Centers, may one day be rolled out to the retailer's hundreds of other full-line stores in North America.

Officials plan to track sales trends through all of 2008 before making any judgment.

Greater Cincinnati and Northern Kentucky were chosen for the initiative because the demographics of the region closely match the rest of America, said Norm Buchanan, Sears district vice president for store initiatives.

Officials think if it works here, it will work in Des Moines and Detroit, too. Cost of the store changes, which include 27 online computer terminals, was not released.

"We are offering a value proposition for the kitchen, laundry, garage, kid's room - vignettes or settings for every price range," Buchanan said. "This is a test-and-learn environment."

The company hopes the new approach will resonate with home renovation do-it-yourselfers, who may want a sneak peak at what the rooms will look like before they invest hundreds if not thousands of dollars.

Design centers in each pod offer computerized imaging to show customers how new cabinets, shelves, flooring and lighting will look.

Nearby, Sears displays floor tiles, lighting and other elements. Some zones have mock-ups with shelves, cabinets and counters in a variety of price ranges.

Another hub involves home theater and other electronic choices for home entertainment.

In the apparel sections of the store, pavilions have been built for women's, men's and youth apparel. Some wrap around large changing rooms and offer Sears' branded clothing.

A Lands' End Shop, a popular clothing line sold largely by catalog, is the focus of another clothing section.

Terminals throughout allow online ordering if the store or other local stores are out of items.

Greg Buzek, founder and president IHL Consulting Group, a Franklin, Tenn.-based retail analysis and consulting firm, estimated that the technology alone would cost close to $100,000 per store.

"I like the approach," Buzek said. "They are showing products in the natural or home environment. Some people can envision how something will look. But most people don't have that ability.

"This will really enhance the potential sale of products. Otherwise, it just looks like a cabinet or something that goes into a garage. If they look and see an entire storage solution for a garage, that gives the retailer an opportunity to double or triple the sale," he said.

"It's no longer about getting more customers, retail is now about getting more sales from the customers you have."

Sears Holdings Corp. is the nation's fourth-largest broad-line retailer with more than $50 billion in annual revenues and approximately 3,800 full-line and specialty retail stores in the United States and Canada.

And while the proposed approach, if successful, may touch stores from coast to coast, for now Sears is directing its efforts to Southwest Ohio and Northern Kentucky.

"The intent is to focus on Cincinnati," said Larry Costello, director of public relations. Other retail experiments are occurring elsewhere, Costello said.

Sears has discovered what many companies already know: Cincinnati shoppers are something of a Petri dish for retail behavior because demographics mirror the nation with a multitude of income levels represented.

"There's also a demographic segmentation of stores with blue-collar and white-collar shoppers," said Stan Eichelbaum, president of Fort Lauderdale, Fla.-based Marketing Developments Inc. and professor in the advertising, public relations and retailing program at Michigan State University.

The retailer is also under attack from big-box electronic, home repair and clothing stores, he said. Connecting with customers through a new approach may bring new customers to stores, too.

"Sears has an unappreciated long-term loyalty that is withering," he said. "The challenge is to bring it forward to a younger segment of society."

What's on Sears' shopping list?
Retailer targets Restoration Hardware
By Sandra Guy – Chicago Sun-Times
November 21, 2007

Analysts wondered aloud Tuesday whether Sears Chairman Edward S. Lampert is seeking a replacement for Kmart's Martha Stewart Everyday collection or trying to divert attention from more bad news with his effort to take over Restoration Hardware.

Sears announced late Monday it had taken a 13.7 percent stake in Restoration Hardware, the California-based high-end home decor and furniture store chain.

The Hoffman Estates-based Sears also said in a regulatory filing that it intended to take over Restoration Hardware, which would require that it fight off a rival suitor, Catterton Partners, a buyout firm. Restoration Hardware had agreed to be bought by Catterton for $267 million, or $6.70 a share, but said it would solicit higher offers.

Investors sent a swift signal Tuesday that the move wasn't the big deal they had expected from billionaire hedge-fund guru Lampert, and sent the shares down more than 4 percent. Sears shares ended the day down 2 percent, or $2.35, to end at $111.85.

Sears and Catterton spokesmen declined comment.

But analysts and industry experts had plenty to say, especially since Sears is performing poorly and Restoration Hardware has been unprofitable for three of the last five years.

"Let's say a magic genie fixed Restoration Hardware. Would that move the needle at Sears? No," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm.

"It looks like a diversion from Sears' real problems, and it won't result in anything positive," Davidowitz said.

Sears reports earnings next week, and Davidowitz forecasts the results will be worse than the previous quarter, in which sales continued to fall, Sears' net income dropped 40 percent, revenue declined 4.3 percent, and inventories rose 7 percent even amid markdowns.

Davidowitz, who has questioned Lampert's retail strategies of cutting costs and eliminating jobs, said Lampert perhaps couldn't resist "a bargain" or has his eye on hiring Restoration Hardware CEO Gary Friedman.

"I don't understand how an edgy, fashion-forward mix of high-end merchandise like Restoration Hardware, with no owned real estate, could fit with Sears," Davidowitz said.

Gary Balter, analyst at Credit Suisse, speculated that Lampert might hope that Restoration Hardware's home goods can fill the void after Martha Stewart's contract with Kmart expires in 2009.

"Sears may be looking to add a new aspirational brand 'store-within-a-store' concept after the success of Land's End," Balter wrote in a note to investors.

Sears recently expanded several of its Lands' End departments at its Sears stores, including more than doubling the size of the Lands' End shop, to 24,000 square feet, at Oakbrook Center Mall in Oak Brook.

Restoration Hardware Confirms Interest Expressed By Sears
Dow Jones Newswires
November 20, 2007

Restoration Hardware Inc. (RSTO) on Tuesday confirmed that it is aware of Sears Holding Corp.'s (SHLD) interest in the company.

Restoration has already agreed to be taken private for $6.70 a share.

Restoration Hardware, a Corte Madera, Calif., high-end home furnishings company, said consistent with its fiduciary duties it is soliciting competing proposals until Dec. 13.

In a filing with the Securities and Exchange Commission, Restoration said although it's common for several parties to enter into confidentiality agreements, it's important to note that there is no assurance any superior proposals will result.

Sears Holding, controlled by billionaire investor Edward Lampert, disclosed in a filing on Monday with the SEC that it intends to evaluate the "desirability" of proposing to acquire Restoration Hardware.

Sears Holding also said it had proposed buying Restoration Hardware before the company agreed on Nov. 8 to be taken private by its chief executive and private-equity firm Catterton Partners.

Restoration Hardware won't comment on the process until it has something more definitive to say.

Shares of the company, which closed Monday at $6.33, were up 16%, or $1.02, in pre-market trading Tuesday.

Investors sour on Sears stake in Restoration Hardware
By Monée Fields-White – Chicago Business
November 20, 2007

(Crain’s) — Investors are giving Edward Lampert’s latest strategic move a thumbs-down. Shares of Sears Holdings Corp. fell more than 4% at one point during the day to $109.26, though came back later Tuesday afternoon to trade down 2% at $111.88 after Mr. Lampert announced the purchase of a 13.7% stake in Restoration Hardware Inc., a harbinger of a possible takeover.

That news resulted in the stock hitting its lowest level since March 2005, when Mr. Lampert merged his Kmart Holdings Corp. with Sears, Roebuck & Co.

Investors have been waiting for Mr. Lampert, Sears’ chairman, who has said he’s looking for takeover opportunities, to finally make a move that will help boost the department store chain’s profit margins.

Restoration Hardware, with $712.8 million in sales last year and an operating margin of 1.4%, isn’t big enough to make that happen, says Greg Melich, an analyst at Morgan Stanley in New York. Sears had $53 billion in sales in fiscal 2006.

It’s “not the transformational deal that some have been hoping for” in terms of turning around Sears, Mr. Melich says in a note to clients. “We’d rather Sears Holdings management focus on valuing the $1.2-billion inventory built over the past two years.”

Disclosed in regulatory filings late Monday, Sears bought the stake in Restoration Hardware and held talks about potentially taking over the California-based home-furnishing chain.

That comes less than two weeks after Restoration Hardware agreed to sell itself to Connecticut-based private-equity firm Catterton Partners for $267 million, raising the possibilities of a bidding war.

Mr. Lampert, through his hedge fund, ESL Investments Inc., recently bought 16.7 million shares of Home Depot Inc., according to regulatory filings.

“Eddie Lampert needs to focus on fixing Sears,” says Howard Davidowitz, chairman of New York-based retail consultancy Davidowitz & Associates Inc. “The last thing he needs is a diversion, and this is a diversion.”

According to the filing, Sears bought 5.3 million Restoration Hardware shares for $30.2 million, including broker fees. Restoration, hurt by the worst housing market in more than a decade, last year had its third unprofitable year in five years.

Wisconsin firm wins $21.5 mil. verdict against Sears
Says company stole its plan for cutting tool
By Abdon M. Pallasch – Staff Reporter – Chicago Sun-Times
November 20, 2007

A family-owned Wisconsin company that makes power tools won a $21.5 million verdict Monday against Sears, Roebuck and Co.

RRK Holdings of Cross Point, Wis., -- the company used to be called Roto Zip -- convinced a jury in federal court in Chicago that Sears stole its plans for the Roto Zip cutting tool and marketed it as the Craftsman "All-in-one" cutting tool.

The Chinese-manufactured Crafstman model sold for about $59, compared to $119 for the Wisconsin version. Both hit the market in 2001, and the Sears knock-off ate into RRK's profits to the tune of $13.5 million, said Mark Grossman, one of RRK's attorneys.

The jury also awarded $8 million in punitive damages against Sears.

Sears plans to appeal the verdict.

"Obviously, we're disappointed with the verdict and we will be addressing the case though our post-trial and appellate opportunities," said Sears attorney Richard Harris.

Before 2001, Roto Zip sold plenty of tools to Sears and also to Home Depot, Menards and other stores, Grossman said. Roto Zip was a cutting tool that could cut any material an inch deep in any direction. In 2001, they went to Sears to offer their "next generation" of the tool, Grossman said.

Sears didn't like the price, so they decided to go to China and have it manufactured at a lower price, he said. "Once the Chinese-made version came out, sales trailed off significantly."

Grossman and his brother, co-counsel Lee Grossman, had to track witnesses to China and Taiwan where they moved after the case started, he said.

Billionaire Edward Lampert Buys $10M Of AutoNation Stock
Dow Jones newswires
November 20, 2007

Billionaire investor Edward Lampert bought $10 million worth of AutoNation Inc. (AN) shares on Thursday, according to a regulatory filing.

The prominent investor and chairman of Sears Holding Corp. (SHLD) bought 598,300 shares of AutoNation for $16.96 each, according to a document filed late Monday with the Securities and Exchange Commission.

Shares of AutoNation, the largest publicly traded automobile retailer in the U.S., closed Monday at $15.79.

According to the filing, Lampert beneficially owns 53.9 million shares of AutoNation, or a 29.3% stake in the company.

Last week, Lampert reported beneficially owning 53.3 million shares in Ft. Lauderdale, Fla.-based AutoNation, or about a 29% stake.

Can Eddie Lampert turn Sears around?
Posted by Zac Bissonnette
Filed under: Management, Magazines, Sears Holdings (SHLD)
Blogging Stocks
November 19, 2007

BusinessWeek's Bob Reed wonders about Eddie Lampert's stewardship of Sears Holdings Corp. (NYSE: SHLD), the parent company of Sears and Kmart. While investors were buoyant about the company's prospects less than a year ago, due largely to Lampert's stellar track record as a hedge fund manager, things have soured. Sears has reported lackluster results, and the retail turnaround appears to be like most so-called turnarounds: not much is turning. Meanwhile, the stock is down about a third from its high.

Reed has this to say about the future of the company: First, consider this possibility: Lampert makes good on his word that he is going to transform Sears Holdings into a dynamic, successful retailer. He pours cash -- lots of it -- into operations, stores, and marketing. More important, he hires a top-notch merchant, a superstar executive to spotlight the five, six, or seven core retail strengths that Sears still possesses, and then embarks on a 5- to 10-year rebuilding effort.
The chances of Lampert signing on for this action? Slim to none. Spending tons of money for a far-off and uncertain payback are not part of his hedge fund manager DNA.

Exactly. His well-documented investment prowess aside, Sears is looking like it could be to Lampert what TWA was to Carl Icahn. A brilliant financial mind takes over the reins of a large, troubled company, and his tightfistedness combined with his lack of operational expertise combine to make an effective turnaround impossible, and shareholders suffer.

Of course, Sears won't end up in bankruptcy like TWA did -- too much real estate for that. As Barrons's wrote back in October: Too, the retailer's real estate has considerable value that is not reflected in the stock. Add up this real estate, valuable brands like Kenmore and Craftsman, and Sears' huge appliance and home-remodeling business, and the company could have a liquidation value of more than $300 a share. The worse Sears performs in the next year or so, the more likely Lampert is to monetize and harvest this potential real-estate bonanza.

So maybe the failing turnaround is bullish. The sooner he gets tired of Sears, the sooner he'll cash out, and the sooner shareholder can reap that big return Barron's alludes to.

Sears takes 13.7 pct stake in Restoration Hardware
Reuters
November 19, 2007

NEW YORK, Nov 19 (Reuters) - Sears Holdings Corp (SHLD.O: Quote, Profile, Research), the retailer controlled by hedge fund manager Eddie Lampert, said it owns a 13.7 percent stake in Restoration Hardware Inc (RSTO.O: Quote, Profile, Research), according to a regulatory filing on Monday.

Restoration Hardware, a specialty retailer, agreed to a $267 million buyout on Nov. 8 in a deal involving its chief executive and private equity firm Catterton Partners.

Sears used $30.2 million in cash, including commissions, to buy the Restoration Hardware shares, the filing with the U.S. Securities and Exchange Commission said.
(Reporting by Michael Flaherty)

Kmart Items Marked Safe Had Lead
By Christopher Maag – New York Times
November 17, 2007

Kmart said yesterday that it would remove all jewelry advertised as “lead free” from its shelves after workers at lead monitoring programs who tested the pieces found that some actually contained high concentrations of the metal.

So far, all the jewelry in question comes from the brand Accessories, which markets low-cost sets of costume jewelry that include matching earrings and necklaces. Several pieces were found to contain elevated lead concentrations, including a charm that was 52 percent lead.

Kmart officials said they did not know whether other brands would be affected or how many items would be taken off shelves.

“Kmart believes these products are safe,” Chris Brathwaite, a spokesman for Kmart, said in a written statement. “However, out of an abundance of caution and to avoid customer confusion, we’re going to pull all jewelry products that are labeled lead free.”

Kmart’s decision comes in the wake of a series of announcements by Mattel, the world’s largest toy company, that it would recall more than a million toys covered in lead paint. Mattel’s woes brought to light a two-year federal investigation into lead in inexpensive children’s jewelry that found dangerous levels in 20 percent of the jewelry inspected. The lead in Kmart jewelry was discovered by Karla Johnson, manager of the Lead-Safe and Healthy Homes Program of the Marion County Health Department in Indianapolis. Ms. Johnson had wanted to buy earrings for her year-and-a-half-old daughter, something inexpensive in case her daughter lost them, she said. But she refrained because recent news reports of lead in jewelry made her wary of cheap, imported metal products.

Shopping in a Kmart on the east side of Indianapolis in September, Ms. Johnson found a rack of costume necklaces and earrings. Many were labeled “lead free.” She paid about $6 for a matching set, which contained three pairs of earrings and a necklace.

“It was cheap, but it said ‘lead free,’ so I figured it was safe,” Ms. Johnson said.

A few weeks after Ms. Johnson placed the earrings in her daughter’s ears, the Marion County program received a new X-ray fluorescent analyzer. The hand-held device, which costs $35,000 and resembles a bar code scanner in a department store, is used by programs like Ms. Johnson’s to determine lead levels in paint, soil and toys.

Ms. Johnson took the machine home to practice using it. On a whim, she aimed it at her daughter’s new earrings. Every part of the “lead free” jewelry contained lead, she said. One piece, a metal charm hanging from a necklace, contained 520,000 parts per million of lead. By comparison, the Consumer Product Safety Commission is considering a ban on children’s jewelry with concentrations of lead higher than 600 parts per million, said Scott Wolfson, a spokesman for the commission.

“As a mother, it really frightens me that there’s something that looks completely benign that could kill my child,” Ms. Johnson said.

She said she complained to Kmart a month ago but received no response. She also filed a complaint with the safety commission. Ms. Johnson has not yet received any word from the commission, which does not comment on specific complaints.

“If we were to find a product with 52 percent total lead, it would be recalled immediately,” Mr. Wolfson said. “That would be a dangerous product for children.”

The jewelry is marketed to adults and is not intended for children, Mr. Brathwaite said in his statement. Kmart declined to disclose which companies make or supply the Accessories line.

After Ms. Johnson’s initial discovery, her friend Janet G. McCabe bought six more sets of jewelry at a different Kmart in Indianapolis. Ms. McCabe is executive director of Improving Kids’ Environment, a nonprofit group in Indianapolis that works on lead poisoning and other environmental issues affecting children.

She bought two identical sets in three different styles. The only difference between each set was that one was labeled lead free and the other was not.

All the jewelry, even the sets marked lead free, contained lead, Ms. Johnson said. The “lead free” jewelry actually had more lead, on average, than the unmarked sets. One earring said to be lead free, made to resemble a diamond, had 3,747 parts per million of lead, more than six times the limit proposed by the safety commission.

“Everybody knows now that there is lead in jewelry,” Ms. McCabe said. “What’s different here is that these products are marked as lead free. I think it’s very misleading to parents.”

Children younger than 7 are more susceptible than adults to lead poisoning, Ms. McCabe said, because their bodies have underdeveloped blood-brain barriers, which filter blood entering the brain.

Lead is often used in jewelry and other consumer goods as an inexpensive filler material. That is a threat to children because they often suck on jewelry and sometimes swallow an entire charm or ring, according to the Consumer Product Safety Commission. Ingesting lead can cause acute poisoning, seizures, respiratory failure and death.

About 20,000 children were admitted into hospital emergency rooms between 2000 and 2005 after swallowing jewelry, according to the safety commission, though it is unknown how many of these cases involved lead poisoning.

A slimmer Sears tries specialty shop approach
By Patti Bond – Atlanta Journal-Constitution
November 17, 2007

Sears is unveiling the latest reincarnation of itself at an old Kmart in Marietta.

It's the first "off-mall" store in Georgia for the storied department store giant. Designed to look like a big-box store but act like a specialty shop, the new Sears format is a slimmed-down version of its larger mall locations, anchored around better-selling brands such as Lands' End and Craftsman.

"The format is really a combination of all of our best elements from all over the country. We're testing what happens when you put it all together," said Lee Syfrett, district coach at Sears.

The 72,000-square-foot east Cobb location, at Roswell and Johnson Ferry roads, is the first of its kind to feature what Syfrett calls "brand pods."

Instead of the mishmash of apparel brands at a typical Sears mall store, for example, the new format features just three — Lands' End, Levi's and Hanes. Sears clearly thinks it has a winner in Lands' End, though, clearing out more than 20,000 square feet for its shoes, clothing and furniture.

Sears acquired Lands' End in 2002, when it was known mostly as a catalog brand, and has steadily rolled out the merchandise to Sears stores. The Lands' End shop in Marietta takes up an entire side of the store and marks the largest such footprint to date.

"We decided to do it really big at this store because of the [higher-end] demographics in this market," Syfrett said. "We already had a high sale rate from the Lands' End catalog here, so we think it'll do really well."

In other departments in the store, Craftsman, Sears' well-known tool brand, is showcased prominently, as is the retailer's array of appliance brands, including Kenmore and Whirlpool.

Sony gets top billing in a corner devoted to big-screen televisions and electronics.

"Everything here is organized around brands," said Syfrett, a 16-year Sears veteran. "It's a new concept we're testing."

The product brand focus is an interesting twist, observers say, for a company that has taken its share of lumps for its own brand.

Sears, once the undisputed king of the department store domain, has been in a decades-long struggle to recoup ground lost to big-box competition and shifting consumer tastes.

"Sears has become in itself a 'background brand,' " said Mark Speece, co-founder of Atlanta-based branding firm 800 Degrees. "Years ago, Sears was very relevant — that's where you went for the TV, the washer, the refrigerator. But now you've got Best Buy or Circuit City right around the block."

In recent years, analysts and consumers alike have been watching for changes brought about by Sears' blockbuster merger with bankrupt Kmart in 2004.

Sears has experimented some with its mall locations, including a test at Gwinnett Place that tinkers with a nostalgic theme.

Outside of Georgia, Sears has turned some off-mall sites into a combination Sears-Kmart format, selling everything from milk to lawn mowers.

The newest, in Marietta, doesn't quite compare to the other 70 or so off-mall stores, though. There's no pantry or optical shop, but there is a pharmacy hearkening to the store's Kmart days.

Like Sears' full-line mall stores, the Marietta store also features a fitness equipment department and toy shop.

The store also employs a few well-worn retail tricks.

Destination items such as TVs and tools are tucked in separate corners, so consumers will have to travel through other departments to get to them.

Checkouts are at the front of the store, unlike the registers scattered throughout most mall stores.

Of all the Sears experiments over the years, executives may be on to something with this one, Speece noted.

"One of the classic problems Sears has battled was getting people to migrate from department to department. There are Craftsman loyalists who have never been to the other side of the store," Speece said.

"Anything they can do to get consumers to go in for something and then look around is definitely worth a try."

Kmart Store Becomes a New Sears
Atlanta residents can experience a new shopping experience in time for the holidays
Sears News Release
November 17, 2007

MARIETTA, Ga., Nov. 17 /PRNewswire/ -- The former Kmart at 4269 Roswell Rd is now a brand new Sears. Local Atlanta residents can expect a one-of-a-kind shopping experience that offers an expanded selection of merchandise including more national brands than ever before and a 23,000 sq. ft. Lands' End shop featuring the largest selection of Lands' End merchandise ever at Sears.

The new Sears will come to life by offering customers a "store-of-shops," and a fresh design layout with different flooring, fixtures, and displays. Marquee brand names now found in the new Sears include Sony, Hanes, Workwear - by Craftsman, Carhartt, Timberland and Diehard apparel, Levi's, and Nordic Track. The store will also feature expanded Home Electronics and Home Appliance showrooms, organized around favorite manufacturers, that will also help customers choose the right look, feel and function with other brands Sears carries.

A newly remodeled hardware department will feature innovative and interactive Garage Organization, Mechanics and Carpentry shops to help customers find the right item quickly and efficiently.

Five central internet workstations located throughout the sales floor will provide free high-speed Web access to enable both the customers and associates to quickly access the internet, verify prices, shop online and contact store personnel if help is needed.

The store will also carry a wide range of convenience items previously available at the former Kmart location including full pharmacy services, health and beauty, cosmetics and greeting cards.

This new format will help customers create the look they want and find the gifts they need all in one convenient location. Shoppers will find the quality brands they have come to know and love like Diehard, Craftsman, Ty Pennington, and Kenmore plus extended assortments of national brands from Nordic Track, Schwinn, Reebok and more. Customers can also shop for great fashions with the first 23,000 sq. foot mega Lands' End shop that brings the legendary brand to life with items for women, men, kids, baby and home. Now families can touch and feel the quality and see the details of Lands' End products. A special monogramming service is also available to easily personalize just about any Lands' End item that will take a stitch. There's even free shipping on any catalog or landsend.com order placed from the store.

"A lot of work has gone into this new format to try to bring the best of Sears to our customers and to really focus on the types of products the Atlanta community has told us they want. This is a wonderful city and this updated store model demonstrates Sears' commitment to the community," stated Jim Hash, Sears Store Coach.

J.C. Penney Cuts Outlook
Retail Woes Mount As Holidays Near;
Kohl's Net Falls 14%
By James Covert – Wall Street Journal
November 16, 2007

J.C. Penney Co.'s 9.1% drop in profit and lowered earnings outlook added to the retail blues, as a weakening economy has hit consumer spending harder than expected this fall.

Sales of apparel have suffered across the sector, with unseasonable warmth coming on top of economic concerns.

Inventory control has taken center stage as some retailers, such as Wal-Mart Stores Inc., have emerged relatively unscathed from this week's parade of somber earnings reports. On Tuesday, Wal-Mart reported that, while year-to-date sales increased almost 9%, its consolidated inventories rose just 2.7%.

Penney, meanwhile, said inventory rose 10% in its third quarter ended Nov. 3, while revenue declined slightly. Penney has made strong bets that sales would continue to get a lift from the company's increasing its stable of stylish private brands, a strategy that paid off earlier in the year.

"Coming into September, we had every anticipation that we would get off to a strong start for the fall season," Chief Executive Myron E. Ullman said in a conference call. "Obviously, that was not the case."

Mr. Ullman emphasized that the sales drop wasn't the result of poor planning, and he said Penney's same-store sales had been better than those of rivals over the past few quarters.

The Plano, Texas, department-store chain said its middle-market customers are being taxed by a toppled housing market, a credit crisis and soaring fuel costs. Penney said it expects the sluggish shopping environment will hit sales and margins during the holidays and beyond, and it is taking "a cautious approach" as it plans for business in 2008.

Gross margin fell nearly two percentage points, to 39.7% of sales, hurt by markdowns as well as an industry calendar shift that added an extra week to year-earlier results.

The news, which set the stage for steep markdowns to clear Christmas merchandise, was a surprise to some investors, despite a holiday sales warning a day earlier from Macy's Inc. Penney shares fell $2.40, or 5.1%, to $44.33 in 4 p.m. New York Stock Exchange composite trading.

Retailers, including Penney, have turned to computer software to aid with pricing and inventory planning in an effort to control quick markdowns if the holiday shopping season starts slowly. As a result, industry observers had anticipated few unplanned holiday markdowns.

Even Macy's, whose sales warning was based on weakness at stores it had acquired and converted to the Macy's brand, said tight inventory controls will minimize holiday markdowns.

Mr. Ullman said the company was surprised by fall's sluggishness, noting that business had been strong during the summer and back-to-school seasons, which had netted solid gains in comparable sales. He noted that slowing home construction and home purchases have weighed on sales of home decor and furniture.

Penney expects earnings in the current quarter of $1.65 to $1.80 a share, down sharply from its previous view of $2.41 a share. Comparable-store sales are expected to decline by a low-single-digit percentage. For the year, Penney expects earnings of $4.63 to $4.78 a share, compared with an earlier forecast of $5.50 a share.

Separately, one of Penney's rivals, Kohl's Corp., said fiscal third-quarter profit dropped 14%, and it lowered its forecast for the rest of the year.

Same-store sales dropped 2.6%, compared with Kohl's August forecast of 2% to 4% growth.

Like Penney, Kohl's, based in Menomee Falls, Wis., has tried to differentiate itself from other mid-priced retailers, signing exclusive deals with the active-wear brand Fila and designer Vera Wang. Earlier this year, it began selling an exclusive line of clothing co-designed with Elle magazine.

Shares of Kohl's, which reported results after the close of regular trading, were down $1.72, or 3.5%, to $47.20 in after-hours trading.

--Andrew Edwards contributed to this article.

Act Fast, Eddie Lampert
As his Sears deal loses luster, shareholders are starting to doubt the prince of retail
by Bob Reed – Viewpoint – Business Week Online
November 15, 2007

When Eddie Lampert took over Sears (SHLD) in 2005, the hedge fund financier was crowned the new prince of the investment world. Now, with his department-store chain sinking, he will soon have to make some tough choices or lose his vaunted position.

The financial trends at Sears Holdings are no longer Lampert's friends. The company's stock price, trading around $135 per share, is down nearly a third from its 52-week high of $195 last April. In the second quarter, profits at the Hoffman Estates company fell 40%, to $176 million, from $295 million a year earlier. That's its lowest net in nearly two years. Meanwhile, revenue dipped 4%, to $12.24 billion, and Sears' cash position shrank to $2.6 billion from $4 billion in February.

The only major number that was up was one that smart companies keep down—inventories, which rose to $10.2 billion. Optimists may argue that Christmas is coming, and holiday sales will save the day for the parent of Kmart and Sears, Roebuck by easing that backlog. But in this slowing economy, nervous shoppers are apt to act more like Scrooge than Santa.

So what's the billionaire-turned-shopkeeper to do? Lampert's turnaround options are narrowing to a precious few. None are especially attractive, and all of them are costly.

First, consider this possibility: Lampert makes good on his word that he is going to transform Sears Holdings into a dynamic, successful retailer. He pours cash—lots of it—into operations, stores, and marketing. More important, he hires a top-notch merchant, a superstar executive to spotlight the five, six, or seven core retail strengths that Sears still possesses, and then embarks on a 5- to 10-year rebuilding effort.

The chances of Lampert signing on for this action? Slim to none. Spending tons of money for a far-off and uncertain payback are not part of his hedge fund manager DNA.

So let's weigh another strategy: Lampert pulls the plug. He sells off part or all of the company's assets in search of a big payday. This is a favorite theory of institutional investors and speculators, who've always doubted Lampert's proclamations about wanting to be a retailer. They expect Lampert to liquidate the place and cash in on a bonanza of commercial real estate that sits underneath all those Sears and Kmart stores.

to buy or not to buy?

But hold on a second. Just who is going to buy these sites, especially those big, beige Sears boxes that anchor regional shopping malls throughout the country? While some locations have their unique appeal, many of them are real dogs. Moreover, does anyone think the housing meltdown and related credit crunch won't be a significant drag on retail property and an impediment to obtaining deal financing? Howard Davidowitz, a retail consultant and investment banker in New York, conjectures that an all-out liquidation would take at least 15 years. The odds of a partial or outright sale of Sears? Less than 50-50.

That leaves one other option: Lampert goes out and buys another big retailer. We know he's raking in money to do something. This summer, Lampert's ESL Investments, which has a 40% stake in Sears, hired Goldman Sachs to raise up to $5 billion. ESL already has $18 billion in assets.

There are rumors that Lampert will make a run at Macy's, Office Depot, or maybe even Home Depot. Merging another chain into Sears Holdings would buy Lampert some time to continue the cost-cutting, asset-leveraging, and periodic stock repurchases that placate investors—all while furthering his image as a brilliant dealmaker. The chances of such a big deal? Let's say better than 70%.

But no matter what he does, one thing is certain: Lampert's retail empire is in trouble, and he needs to find a way out—quick.

Reed is a monthly columnist for BW Chicago.

Lampert Stays Aggressive Amid Downturn
By Nat Worden - Staff Reporter - TheStreet.com
November 15, 2007

Ed Lampert remains acquisitive in the face of a downturn that has whacked holdings in his once-winning portfolio.

The Greenwich, Conn.-based hedge fund maven has a fresh stake in home improvement retailer Home Depot (HD) , and he added to his position in the banking behemoth Citigroup (C) , according to regulatory filings made public on Thursday.

Like Lampert himself, both companies have been recent victims of turmoil in the U.S. housing market. Home Depot and Citigroup have both fired their CEOs and changed strategy, but Lampert, undeterred, is only getting more aggressive.

Shares of his retail empire, Sears Holdings (SHLD) , have lost a third of their value since the beginning of June. Euphoria on Wall Street over the hidden value of the company's real estate assets has died down as the real estate market has gone south. Also, the retailer's sales declines have steepened as consumer spending gets squeezed by the housing crunch.

Lampert presides at the Sears as chairman having cobbled it together by using Kmart to acquire Sears Roebuck in 2004. His fund, ESL Investment Management, owns roughly 46% of the company's shares outstanding. It added to its stake in July, according to filings with the Securities & Exchange Commission.

Meanwhile, the fund acquired a stake in Citigroup through an entity called RBS Partners in the first quarter of 2006. Lampert's acquisition, though modest in relation to the company's total outstanding shares, was embraced as a potential catalyst for change as calls went out on Wall Street for the scalp of its CEO, Chuck Prince.

Since then, staggering write-downs on mortgage-backed securities holdings at investment banking giants, like Citi, became a less-welcome catalyst. Stan O'Neal was forced out of Merrill Lynch (MER) , while Prince was also canned.

While heads are rolling on Wall Street, foreclosures in the housing market are continuing to rise, and investors see further skeletons in the closets of major U.S. financial institutions.

A third of Citigroup's market value has vanished since June, and its shares were recently trading down 2.8% on Thursday despite news that Lampert increased his stake in the company in the third quarter to 27.8 million shares from 24.8 million in the second quarter.

Lampert inspired more optimism at Home Depot, which recently bummed out investors by saying it would put the brakes on its massive share buyback plan in the fourth quarter in the face of further deterioration in the housing market. He acquired 16.7 million shares in the retailer, valued at $541.3 million.

Home Depot reported a 27% drop in third-quarter profits on Tuesday amid same-store sales declines across most categories. It also cut its profit forecast for the year and halted its share repurchasing, which has provided a substantial boost to its earnings per share in recent periods.

The retailer has seen its shares drop 25% since the beginning of June as it bore the brunt of a spending slowdown in all things housing-related,

Filings also show that Lampert abandoned his stake in Motorola (MOT) in the third quarter, and he resumed his position in Clear Channel (CCU) with a stake of 464,600 shares, or $17.4 million, after dropping 881,100 shares, worth $30.9 million, in the second quarter.

While the housing mess has knocked Lampert's star down a few pegs on Wall Street this year, he's still viewed as a value investor who models himself after Berkshire Hathaway's (BRK-A) legendary chairman, Warren Buffett.

With a penchant for contrarian moves towards bargain securities from which the broader market is fleeing, Lampert can be expected to pursue investments where he sees underlying value regardless of the ups and downs of stock indices and the economy.

Lampert, through a spokesman, declined to comment on this story.

SEARS MEDICAL ENROLLMENT PERIODS
SPECIAL EDITION OF STRAIGHT TALK

The first enrollment period for Sears/Aetna medical coverage is from November 19-30. The second enrollment period is from November 26-December 7

During these short enrollment periods, the retiree must determine what medical plan is best for them; are all of their medications on the plan formulary that they are considering; will their health care providers agree to bill Aetna directly; and can they afford the plan premium? These are a lot of decisions to make in a very short period of time.

We have asked Sears why they cannot permit a longer enrollment period, especially since the first period covers the Thanksgiving holiday. Even though Sears may need time to process and send out the new cards for retirees’ health plans, if the U.S. Department of Health and Human Services permits you to change your Medicare prescription drug coverage for 2008 until December 31, 2007, Sears could certainly allow retirees a longer period of time to decide what is the best medical coverage for them.

Enrollment Period Extended?

Sears & Aetna have conducted 18 Medicare Information meetings across the country explaining the new medical program for 2008. As far as we know, only at the Phoenix meeting, after the question was asked, did Sears state that everyone has until December 31 to enroll. That is certainly true for Medicare Part D coverage, as is stated in the “Medicare & You 2008” booklet published by the Centers for Medicare & Medicaid, the U.S. Dept. of Health and Human Services. Of course, if you wait until that date, you may not receive your identification cards until the middle to end of January.

If Sears has in fact extended their own self-imposed two-week enrollment periods, then all retirees should be notified of this significant change immediately.

Special Issue of STRAIGHT TALK

Because of the importance of this medical coverage issue, NARSE is publishing a special issue of STRAIGHT TALK. This issue is now in the mail and is being sent to all paid members of NARSE. This special edition covers the Sears/Aetna plans for 2008; Medicare’s on-line tool, the Plan Finder that will make it easier for you to navigate through all of the Part D choices for 2008; and, if you decide not to enroll in a Sears medical plan, should you cancel or suspend your Sears coverage?

If you are not a paid NARSE member, join now to receive this very special timely issue. This issue will not appear on our web site until January 2008.

Lampert has stake in Home Depot
Investor could employ strategy used at Kmart
Bloomberg News – Chicago Tribune
November 15, 2007

NEW YORK -- Billionaire Edward Lampert, the chairman of Hoffman Estates-based Sears Holdings Corp. who made his fortune by investing in beaten-down retail stocks, bought a $485 million stake in Home Depot Inc. in the third quarter.

ESL Investments Inc., the Greenwich, Conn.-based hedge fund run by Lampert, held 16.7 million Home Depot shares as of Sept. 30, according to a filing Wednesday with the Securities and Exchange Commission.

The hedge fund didn't report owning any shares in the Atlanta-based company, the world's largest home-improvement retailer, as of June 30.

Lampert engineered Kmart Corp.'s $12.3 billion purchase of Sears, Roebuck & Co. and now runs the combined company. Before that, he pushed Kmart to fund stock buybacks by selling and leasing back properties, a move that one analyst said the hedge-fund manager could try at Home Depot.

"Wall Street likes the assets locked up in that real estate" owned by Home Depot, said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich. Her firm sold the majority of its Home Depot shares this year, Edwards said.

Home Depot spokeswoman Paula Drake declined to comment on what she phrased as "rumor and speculation" on ESL's investment. Home Depot shares jumped about 8 percent during the second week of September on speculation that Lampert planned to invest in the company.

The SEC filing also shows that Lampert raised his stake in Citigroup Inc. to 27.8 million shares from 24.8 million shares as of June 30.

J.C. Penney Says Net Income Drops, Reduces Forecast
By Lauren Coleman-Lochner - Bloomberg
November 15, 2007

J.C. Penney Co., the third-largest U.S. department-store company, reported its first profit decline in three quarters after sales fell. The company lowered its fourth-quarter earnings forecast.

Net income in the third quarter through Nov. 3 shrank to $261 million, or $1.17 a share, from $287 million, or $1.26, a year earlier, the company said today in a statement distributed by Business Wire.

Higher housing, food and fuel costs have prompted consumers to curtail spending. Seven out of 10 retailers reported October sales below analysts' estimates after record high temperatures in the Northeast curbed sales of jackets and sweaters. J.C. Penney cut its third-quarter earnings forecast last month after September sales fell.

``If you think about J.C. Penney, it really represents your typical average American shopper, and factors like the housing market, gas prices, along with abnormally warm weather, all that is going to impact the company,'' Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, said Nov. 5. The company has $77 billion in assets including J.C. Penney shares.

J.C. Penney fell $1.96, or 4.2 percent, to $44.77 as of 7:58 a.m. in New York. Before today, the shares lost 40 percent this year, compared with a drop of 28 percent for Kohl's Corp. and a decline of 25 percent for Macy's Inc., the fourth and second-largest department-store chains, respectively. Sears Holdings Corp. is the biggest.

Reduced Forecast

J.C. Penney cut its third-quarter forecast on Oct. 11 to $1 to $1.04 a share from an earlier prediction of $1.28.

Net income included 14 cents a share in tax credits, the company said. Sixteen analysts estimated profit of $1.01 a share, on average, in a Bloomberg survey.

Third-quarter sales decreased 1.1 percent to $4.73 billion from $4.78 billion, the company said Nov. 8.

J.C. Penney expects fourth-quarter profit of $1.65 to $1.80 a share, down from a previous forecast of $2.41.

Like Kohl's and Macy's, J.C. Penney added its own brands to attract shoppers, including a new lingerie line and a collection by Liz Claiborne Inc. this year. In 2008, it will sell American Living clothing and home goods by Polo Ralph Lauren Corp.

Baumgarten sold the J.C. Penney shares in his portfolio last month because of concerns about the retail sector, although he said the company was well managed.

A slowdown will affect J.C. Penney more "than initially anticipated,'' Uta Werner, an analyst at Sanford C. Bernstein in New York, wrote in a Nov. 9 report, although customers ``will find their way back into the stores to shop for seasonal merchandise and holiday gifts.''

Werner initiated coverage of the stock last month with an "outperform'' rating.

J.C. Penney says its typical customer is 35 to 54 years old, with annual household income of $40,000 to $100,000.

Sears sending 150 call-center jobs overseas
By Becky Pallack – Arizona Daily Star
November 15, 2007

Sears is outsourcing about 150 jobs from its Tucson call center to locations overseas, including the Philippines.

But affected local workers will be able to move to open positions here, the retailer said.

The cuts are in the teleservices group, where workers schedule in-home repairs for Sears customers, said Kimberly Freely, a spokeswoman for Sears Holding Corp., which operates Sears and the Sears Customer Care Network call centers.

Workers will be allowed to apply for open jobs in other customer service groups at the same call center, and there are enough openings for everyone to transfer, Freely said.

"Our goal is to retain and retrain the talent from the teleservice group," she said.

Around 800 people work at the in-bound call center, 4755 S. Butterfield Drive. Other jobs include answering customer questions about the Sears Web site and online orders.

Sears had increased the number of jobs at the call center in recent years, hiring many of the workers who were laid off from last year's closing of the United Airlines frequent-flier call center in Tucson. In January 2006, the company said it planned to hire 400 new workers to add to 600 existing positions.

The Sears Customer Care Network has been among the largest employers in Tucson since 2001.

Around 5 percent of the Tucson-area work force, or about 16,000 people, work in approximately 40 local call centers, according to Tucson Regional Economic Opportunities Inc., the local economic-development agency.

This week, Contact One Call Center Inc. started handling after-hours calls for California software company Forté Systems Inc., which previously contracted with a center in India.

Lampert hedge fund added Citi stock in 3rd quarter
By Svea Herbst-Bayliss – Reuters
November 14, 2007

BOSTON, Nov 14 (Reuters) - Hedge fund manager Edward Lampert, who built a reputation for finding undervalued stocks, boosted his stake in Citigroup Inc (C.N: Quote, Profile, Research) 12 percent during the third quarter, according to a regulatory filing on Wednesday.

But his holdings are now worth less than they were at the end of the second quarter, sparking speculation among hedge fund industry investors that Lampert's clients might suffer a rare loss this year.

According to the filing with the Securities and Exchange Commission, ESL Investments held 27.8 million Citigroup shares at the end of September. Citigroup is Lampert's third biggest holding after retailer Sears Holdings (SHLD.O: Quote, Profile, Research) and AutoNation Inc (AN.N: Quote, Profile, Research).

Lampert, who has delivered annualized returns of 24 percent since 1988, has been pouring money into Citigroup all year.

At the end of the second quarter he owned 24.8 million shares, up from 15.2 million at the end of the first quarter.

On Wednesday, when Citi's shares closed at $36.04, Lampert's stake in the company was worth roughly $1 billion, down from roughly $1.3 billion the shares were worth at the end the second quarter.

Citigroup, which had been under pressure for some time, recently said it had billions of dollars in losses related to mortgage-backed securities. Its chairman and chief executive officer, Charles Prince, resigned earlier this month.

Lampert also made some other changes to his portfolio, which traditionally holds only a few stocks.

He sold out of his 625,000 shares of wireless handset maker Motorola during the quarter and bought 16.7 million shares of Home Depot Inc (HD.N: Quote, Profile, Research).

He also added 464,600 shares of communications company Clear Channel Communications Inc (CCU.N: Quote, Profile, Research) after having liquidated his Clear Channel holdings during the second quarter.

His pick of Home Depot, whose share price has fallen roughly 20 percent in the last 52 weeks, might also look like a premature move now. During the last three months, the stock has fallen 17.37 percent and this week, the top home improvement retailer said it suffered a 27 percent drop in profits during the third quarter.

Home Depot also forecast a steeper fall in full-year earnings as the slumping U.S. housing market cut into sales and the company lost market share.

Lampert's stake in Sears Holdings was largely unchanged. But here too the stock performance has been poor, with the share price falling 28.70 percent in the last 52 weeks.

All of this puts shareholders in Lampert's fund in a poor position, this year, industry analysts and investors said. Since founding ESL Investments in 1988, Lampert has lost money only twice in 1990 and 2002. (Reporting by Svea Herbst-Bayliss; editing by Andre Grenon)

Sears moves about 150 Tucson call center jobs overseas
Arizona Star, Tucson
November 14, 2007

Sears is outsourcing around 150 jobs from its Tucson call center to locations overseas, including the Phillipines.

The cuts are in the teleservices group, where workers schedule in-home repairs for Sears customers, said Sears Holding Corp. spokeswoman Kimberly Freely.

Workers will be allowed to apply for open jobs in other customer service groups at the same call center, and there are enough openings for everyone to transfer, Freely said.

"Our goal is to retain and retrain the talent from the teleservice group," she said. Around 800 people work at the in-bound call center, 4755 S. Butterfield Drive

Wal-Mart's Net Rises 7.9%
On Tight Control of Costs
By James Covert – Wall Street Journal
November 14, 2007

Wal-Mart Stores Inc. said that tight controls on costs and inventory fueled a better-than-expected fiscal third-quarter profit and that it has "set the stage for a successful fourth quarter," despite mounting economic worries for its lower-income shoppers.

The report offered investors an encouraging sign about retailers' holiday season. Wal-Mart's shares rose $2.65, or 6.1%, to $45.97 in 4 p.m. New York Stock Exchange composite trading, helping drive up the S&P Retail Index, which rose 3.8%.

The Bentonville, Ark., discount retailer said it now expects fourth-quarter earnings at the high end of a forecast given last month.

Sales at Wal-Mart's faster-growing international division, which accounts for about a quarter of the company's revenue, rose 17% to $22.4 billion, led by growth in China, Brazil and Argentina.

At an analyst meeting last month, critics blasted the company's move to pay $875 million to consolidate its ownership in Japanese retailer Seiyu Ltd. Wal-Mart executives said yesterday that Seiyu's quarterly operating income missed expectations amid poor gross margins, despite a recent pickup in customer traffic that boosted sales.

Having stumbled in a bid last year to court a more affluent clientele with trendy merchandise, Wal-Mart has returned to its traditional roots of touting rock-bottom prices on basics. Last month, it cut prices on more than 15,000 items and began hawking "Black Friday" discounts three weeks before Thanksgiving weekend, when the Christmas shopping season traditionally begins in the U.S.

Still, Wal-Mart said store traffic continues to decline as its customers make fewer shopping trips. Its customers are especially vulnerable to soaring prices for food and gasoline and they might see higher heating bills this winter, too.

"We are realistic about the environment we are operating in and competing in," said Chief Executive Lee Scott in a recorded message. "During the past few months, we've prepared for a more challenging and tougher macro environment, and we believe we are well positioned to win in this environment."

Wal-Mart said its supercenters have widened the gap this fall between their food prices and those at traditional grocery stores as costs for commodities, including dairy products, continue to rise. Still, the company said it has protected its profit by cutting prices on higher-margin items and said it is spending more on advertising to reinforce its low-price image.

For the quarter ended Oct. 31, Wal-Mart's revenue rose 8.9% to $91.95 billion. U.S. same-store sales, or sales at stores open longer than a year, rose 1.5%, driven by brisk sales of food and pharmacy items.

Wal-Mart expects fourth-quarter earnings of between 99 cents and $1.03 a share, including a $40 million restructuring charge related to Seiyu. Fourth-quarter same-store sales in the U.S. are expected to be flat or up as much as 2%.

Holiday Sales, Sure -- But Don't Expect Steals
By Gary McWilliams, Cheryl Lu-Lien Tan, Kelly Evans – Wall Street Journal
November 14, 2007

The economy is weakening, crude oil is near all-time highs and subprime mortgage woes are snagging home-buyers and Wall Street traders alike. Time for aggressive Christmas markdowns?

Not so fast. The annual stare down between consumers and retailers isn't a guaranteed win for consumers this year, industry watchers say.

Last year, price cuts on flat-panel TVs hurt Circuit City's bottom line. In the past, high costs and poor inventory planning gave retailers little choice but to quickly slash prices if the holiday shopping season started slow.

Last December, caught off guard by a price war over flat-panel televisions, Circuit City Stores Inc. tumbled into the red after it was forced to refund part of the purchase price of HDTVs. During Christmas 2000, retailers loaded shelves in anticipation of a strong selling season only to dramatically cut prices when bad weather and economic worries kept shoppers away.

At Gap Inc., fourth-quarter profit that year tumbled 34% while Nordstrom Inc.'s profit dropped 59% as a result of the early and deep markdowns.

But after several years of retail mergers and low interest rates, most large chains have stronger balance sheets this year. Many retailers have taken steps to boost profit margins by cutting staff to reduce labor costs and adding pricing and planning software. Slowing sales growth since mid-2006 has curbed expectations -- and inventories.

"We don't anticipate a lot of unplanned markdowns," said Scott B. Krugman, a vice president at the National Retail Federation trade group.

High-end retailers say they don't plan early markdowns. Of course, it wouldn't be Christmas without sales to entice shoppers. But barring a meltdown in consumer spending, many retailers believe they will be able to stick to carefully calibrated sales promotions without resorting to panicky price cuts that siphon off profits.

Wal-Mart Stores Inc., for instance, says it has increased the number of price reductions by 20% over last year, to 15,000. Suppliers say Wal-Mart has in part pumped up the number of discounts by reducing their duration, aiming to lure shoppers into stores with more frequent, but shorter-lived, bargains like those rivals routinely employ. A Wal-Mart spokeswoman said she was unaware of any change in the store's discounting policies.

Wal-Mart yesterday reported that while year-to-date sales increased almost 9%, its consolidated inventories rose just 2.7%. Analysts say leaner inventories mean Wal-Mart won't have to resort to heavy markdowns to clear aging inventory from its stores.

Not everyone believes stores will avoid steep price cuts. The housing bust and rising energy prices have curbed consumer spending on home improvement and apparel. Clothing is a prime candidate for more discounting as warm fall weather has discouraged purchases. John D. Morris, a specialty retail analyst at Wachovia Capital Markets LLC who tracks sales racks at clothing stores, says there were 5% more in his latest survey than a year ago. He expects price cuts to accelerate in the weeks ahead. "The consumer has been trained to wait for the markdown," Mr. Morris says. "It looks to me that the consumer will win out again."

But there are some signs that dour consumer sentiment has been offset by income gains that will allow shoppers to exceed their year-ago holiday budget on electronics, gift cards and personal travel.

"I keep telling myself I'll spend less and consolidate," says Heather Dempsey, a 38-year-old saleswoman in Lakeville, Minn. Still, this year she paid more than list price to snag a hot video-game console on eBay, and the family is planning a vacation to the Caribbean. "That throws it," Ms. Dempsey says.

Consumer surveys estimate holiday spending will rise about 4% over 2006 -- near the 4.8% average increase for the prior 10 years. "Four percent growth is pretty healthy growth. Most retailers should be able to manage acceptable profit levels with that," says Darrell K. Rigby, head of consultant Bain & Co.'s global retail practice.

The industry has embraced price-optimization software that looks at past sales trends to determine where to set the initial price and when to trigger markdowns. The aim is to help store managers avoid panic-driven discounting if early sales are weak. After installing its planning systems, Nordstrom Inc.'s pretax profit margins climbed to 10.6% last year from 5.2% in 2004.

Meanwhile, retailers appear less likely to over-stock this year. Target Corp., for instance, says it anticipated slower going and cut orders earlier this year. Another sign: Traffic at the nation's ports, an indicator of holiday inventories, declined 2% in September after a 1% drop in August. Declines also are projected for October and November, says researcher Global Insight Inc.

Retailers may better weather lower store traffic this Christmas by shifting more emphasis to their online business. Forrester Research estimates online retail sales between Thanksgiving and Christmas will rise 21% compared to a year ago as shoppers do more gift-buying online.

Sears, a unit of Sears Holdings Corp., will offer curbside pickup to customers who order on its Web site and want to retrieve purchases at a store. It's also offering price-promotions to customers who use its online Sears Wish Book. Best Buy Co. is setting aside parking spots and service lines in its stores for those who order online and pick up at the store. Online-only retailers should see strong gains over a year ago.

Retailers are expecting stronger sales in some areas, such as electronics. Sony Corp. says strong demand for high definition TVs, digital cameras and notebook PCs could deliver its best holiday sales ever. In part, that's because Sony and other TV makers trimmed production of 32- to 37-inch flat-screen TVs after prices tumbled earlier this year amid rising competition, said Stephen Baker, vice president at market watcher NPD.

That leaves retailers stocked with pricier 40- to 60-inch sets, he says. "Right now, everybody is betting those consumers who buy the premium products will continue to buy," Mr. Baker says.

The explosion of new private-label clothing and gift lines also could help retailers avoid big markdowns by providing exclusivity, says Jay McIntosh, director of consumer products at consultants Ernst and Young. Kohl's Inc. launched its Simply Vera Vera Wang line by designer Vera Wang. Macy's Inc. signed an exclusive deal with designer Tommy Hilfiger while J.C. Penney Co. introduced a line of moderately priced jeans with premium denim label Chip & Pepper.

At Kohl's, president Kevin Mansell said he is betting on the retailer's exclusive apparel and home lines to draw holiday shoppers. He wouldn't offer discount specifics but said he is poised to offer early markdowns to compete. "Retailers like Wal-Mart are being more aggressive earlier -- we're no different from that," Mr. Mansell said.

The most upscale stores, whose shoppers appear to be least threatened by the slowing economy, are eschewing discounts in favor of testing ways to increase store visits. Henri Bendel in New York will introduce a series of gift items over the next two months to encourage repeat trips. Bergdorf Goodman is installing a block-long display of gifts in its home department, ranging from $30 for fancy pencils to $300 for champagne bottle-stoppers.

With such promotions, retailers hope to keep customers coming back without sapping profits.

The Public Face of Wal-Mart’s Health Care Program
By Reed Abelson and Michael Barbaro – New York Times
November 13, 2007

Linda M. Dillman, who oversees the employee health care program at Wal-Mart, did not ask for the job. Indeed, when the chief executive of the company, the world’s largest retailer, told her of the appointment, she wondered, “Did I make somebody mad? Are they trying to tell me something?”

For much of the last decade, labor groups and state governments pilloried the health care Wal-Mart offered its 1.4 million workers — and the executives who oversaw it. But Ms. Dillman, who took over the company’s health care program in April 2006, has managed to win over some of Wal-Mart’s traditional critics by aggressively reaching out to health care experts (at Microsoft, I.B.M., Starbucks, Union Pacific and S.C. Johnson, to name a few) and expanding the coverage Wal-Mart provides to workers.

A former information technology manager at Hewlett-Packard and then at Wal-Mart, Ms. Dillman, 51, has become the public face of Wal-Mart’s health care changes.

“There is hardly a big health care conference where you do not see Linda Dillman on the speakers’ list,” said Mark D. Smith, the chief executive of the California Healthcare Foundation. “That surprised people.”

What follows are brief excerpts from a lengthy interview with Ms. Dillman, conducted in her office near Wal-Mart’s headquarters in Bentonville, Ark., in October. Questions have been edited for clarity.

Q. Can you summarize the new approach to health care at Wal-Mart?

A. The discussion we’re having internally is how you view benefits as an investment. And that’s saying if you look at an associate [Wal-Mart’s term for its employees], a total associate, and you say, if they are healthy they’ll do a better job at work, they’ll be more productive, they’ll be happier, nicer to our customers, we will have less absenteeism, our turnover will be better. All of those things have a benefit, a return to the company. So we’re really saying, instead of just trying to manage a benefit cost, we’re looking really at returns and saying we think we can impact all these other things.

Q. Before making changes this year, you surveyed workers extensively about what they want in a health care plan. What did they say?

A. They said, we want to be able to select what’s right for us. We don’t want you to — because where we were headed in the past was really to simplify, thinking it was too complicated. And what they said was, no, I don’t want you to decide; I want to have the choice and you give me, you know, help me understand what they mean so I can choose. And I want to make sure that I have that emergency everyday health care covered.

Q. What is your goal with the new plans?

A. My goal is to not move everybody to Wal-Mart’s health care plan. It’s to make sure everybody has health care that needs it. And to make sure if somebody’s choosing not to, that there’s — we can try to eliminate the reasons for them not to come onto our plan.

Q. Would you like the number of uninsured workers at Wal-Mart to hit zero? Would you like to see it 5 percent? What is a reasonable goal?

A. Obviously I’d like to see it zero. Do I think we’ll get there? No. There’s still a group of people who don’t think they need coverage. And even at $5 a month, they aren’t going to pay for it.

Q. The average Wal-Mart worker earns less than $20,000 a year, making the company’s health insurance difficult to afford. What do employees say about that?

A. That was part of the open enrollment question — if you’re eligible and you didn’t take Wal-Mart coverage, why? Is it because you have another source of health care or is it because I can’t afford it? Or I believe I can’t afford it. And that 10 percent [who are uninsured] were just about evenly split between, I think I can’t afford it, and I think I don’t need it.

Q. So affordability is not the major big issue that comes up in company surveys?

A. No.

Q. When you think about solving the American health care crisis what are the roles of an employer like Wal-Mart, the government and the individual worker?

A. Clearly, we need to do something differently. And I don’t believe it’s going to end up being voluntary and actually work.

In an ideal world, that would happen, but I don’t know that we can get there. We believe there is always a role for the employer, as well as the individual and the government. So it’s shared responsibility.

The question is — and that’s why I say I think everything has to be examined — is when you look at employer-based health care, I don’t know if it’s the right answer or not, but I think we need to look at it just because it happened by accident.

It wasn’t really well thought out. We’re the only country that does this. And when 40 percent of the employers can’t participate or don’t participate, maybe there’s something that’s wrong with it. But it doesn’t mean if it’s not employer-based, it doesn’t mean employers don’t contribute.

Q. What changes are required?

A. What we have constructed today almost forces the behavior that’s happening. We have a system that pays for activity, not for outcome. So a doctor loses it if he doesn’t order things to be done. And until we figure out how to structure that differently, the doctors, for the most part, don’t like it either. It drives them to — they would rather be managing somebody’s health than ordering tests. But that’s where they’re driven.

My fear is, by the way, is right now that we’re going to focus on solving the uninsured and we won’t solve the core issue, which is we’ve got to figure out the right way, the right reimbursement model that’s really focused on health and not activity. And we’ve got to figure out efficiencies.

Q. What about the role of technology in managing patient health care records?

A. I mean the lack of the technology was astounding to me. I mean absolutely astounding. And when you’ve been doing this as long as I have, it’s the stuff that already exists that’s easy to install — none of it exists in health care. I mean I always tell people our hourly associate in the store has better tools available to them on the floor than a physician has when he sees you to help you treat an illness. And that’s frightening.

Q. On a personal note, what was your reaction when Lee Scott asked you to run health care at Wal-Mart?

A. Given my background, this really was — it wasn’t like I had this career plan and said I hope they give me risk management and health care, of which I know nothing about ... Lee, who just kind of — always comes to the heart of things — the first time I met with him after this, looked at me in the eye and said: “This is a big job. And we need you to go make a difference in health care.”

A Health Plan for Wal-Mart: Less Stinginess
By Michael Barbaro and Reed Abelson – New York Times
November 13, 2007

For much of the last decade, the retailing behemoth Wal-Mart Stores has been associated with stingy health care as much as low prices.

Across the country, politicians and labor groups derided the company’s health plans for their high expense and bare-bones coverage. Two states, California and Maryland, even passed laws demanding, in effect, that the company spend more on employee health benefits.

“We want this giant to behave itself,” one Maryland legislator, Anne Healey, said at the time.

The giant, it turns out, was listening. All the criticism was hurting its reputation and its ability to expand. So now, after spending two years seeking advice from everyone from Bill Clinton to executives at Starbucks, Wal-Mart is overhauling its health plans.

The company, according to data available for the first time, is offering better coverage to a greater number of workers. Wal-Mart, the nation’s largest private employer, provides insurance to 100,000 more workers than it did just three years ago — and it is now easier for many to sign up for health care at Wal-Mart than at its rival, Target, whose reputation glows in comparison.

Wal-Mart has hardly become a standard-bearer for corporate America: it still insures fewer than half its 1.4 million employees in the United States.

But the changes in its policies have accomplished what once seemed impossible. Many of its most ardent critics have put down their pitchforks. Andrew L. Stern, whose Service Employees International Union set up an advocacy group to attack Wal-Mart three years ago, now concedes that “there is clearly a focus on covering more people.”

Given Wal-Mart’s unparalleled track record of sharply cutting prices and wringing out inefficiencies, its focus on providing more affordable health care also holds significant promise in taming what has become a runaway expense for the nation.

In one sign of its success so far, the company has pushed down the price of 2,400 generic prescription drugs to $4 a month for employees, starting next year, a program that it offers, in more limited form, to its customers.

Now, the chain is even considering weight-loss clinics in its 4,000 stores and is toying with the idea of selling health insurance, hoping to finally bring coverage within reach of most Americans.

The company’s turnabout demonstrates the power of public pressure to change even the biggest corporations like Wal-Mart, which has based its business strategy on low costs at all costs.

What Wal-Mart discovered is that the chorus of critics it had long ignored or blithely rebutted had a point. “We were spending a lot of energy, and we weren’t making any headway,” said H. Lee Scott Jr., the company’s chief executive, who once traveled the country defending the retailer’s practices. “Retrospectively now I say, yes, that plan needed to be improved.”

For a company whose mantra is to pinch every penny, the improvements have not come without a struggle. For decades, tens of thousands of its employees were never eligible for coverage, and what was offered was too costly for a work force whose average wages amounted to roughly $20,000 a year.

The cheapest plan for a family cost about $1,500 a year in premiums and required workers to pay $3,000 in medical bills before Wal-Mart began paying any of their expenses. Even fewer could afford the more than $10,000 in bills they could end up responsible for under the plan.

By 2000, as Wal-Mart became the largest retailer in the country, its health insurance drew heightened scrutiny. Labor groups like the United Food and Commercial Workers, which has members in grocery chains that compete with Wal-Mart, called attention to the company’s meager coverage. The evidence was compelling: Wal-Mart workers routinely showed up in large numbers on state Medicaid rolls from Georgia to Washington.

Encouraged by the passage of the California law in 2003, dozens of states considered bills requiring Wal-Mart to spend more on employee health benefits. None of the laws remain on the books.

In the fall of 2005, Wal-Mart made its first stab at responding to its critics, introducing a health plan with premiums as low as $11 a month.

But even that attempt was undercut when, a few days later, The New York Times disclosed a company memorandum proposing ways to reduce health care spending by hiring more part-time workers and discouraging unhealthy people from working at Wal-Mart. One suggestion would have required cashiers to gather carts as exercise.

A combination of embarrassment, political necessity and internal pressure led to changes inside Wal-Mart’s headquarters. Among those weighing in was Bill Clinton, a close Wal-Mart observer from his days as governor of Arkansas; he urged Mr. Scott to look beyond the motives of his critics and focus on making the company a better employer.

In April 2006, Mr. Scott replaced M. Susan Chambers, the author of the health care memo, with a high-profile colleague, Linda M. Dillman, who ran the formidable information technology division. Ms. Dillman said the assignment gave her pause. “Is this a good thing or a bad thing,” she recalled asking herself. “Did I make somebody mad?”

But she said Mr. Scott emphasized how important her task was, telling her, “We need you to go make a difference in health care.”

Ms. Dillman began by surveying Wal-Mart’s workers, researching the health plans at the nation’s most progressive employers and reaching out to top health policy experts.

The new advisers did not mince words. “You can do better by your employees,” Mark D. Smith, chief executive of the powerful California Healthcare Foundation, told Wal-Mart executives at one meeting.

But in wide-ranging conversations with federal officials like Dr. Julie L. Gerberding, director of the Centers for Disease Control and Prevention, and executives like Michael J. Critelli, the executive chairman of Pitney Bowes, best known for making postage meters but also a leader in employee health care, Wal-Mart’s executives began revising how they thought about benefits.

Wal-Mart “went through an evolution that we went through 17 or 18 years ago,” Mr. Critelli said. Pitney Bowes had tried to shift more health costs onto employees, only to find that after a certain point, “it gets dysfunctional,” he said.

He and others persuaded Ms. Dillman to think of health benefits as an investment in the work force rather than as a cost.

If workers “are healthy, they will do a better job at work, they’ll be more productive, they’ll be happier, nicer to our customers,” Ms. Dillman said, all of which results in less absenteeism and turnover, a longstanding problem in retailing. Mr. Scott, meanwhile, met with several state governors, including Kathleen Sebelius in Kansas, a Democrat.

Mr. Scott “sees this as a collaborative effort,” Ms. Sebelius said. “We’re delighted to have him at the table.”

Wal-Mart also engaged in an all-out effort to win over its critics. Executives sought out policy analysts like Len Nichols, a health economist at the New America Foundation, which supports universal coverage, asking him, among other questions, “What would the liberals say?”

“They just bombarded me with paperwork,” said Ron Pollack, executive director of the advocacy group Families USA, who receives frequent e-mail messages from the company about its changes.

And in a truce that would have been inconceivable several years ago, Mr. Scott held private conversations in late 2006 with Mr. Stern, the powerful union president, that culminated in a public agreement this year to seek universal health coverage.

“I will assume good intentions, though the details will help decide if that is true,” Mr. Stern said. These developments were only possible because Wal-Mart began to improve its health plans.

Last year, it cut the waiting time for part-timers to become eligible for coverage, from two years to one. Nearly half of Wal-Mart’s part-time workers are now eligible, compared with just 30 percent in 2003, according to internal company data. The number of part-timers enrolled in company plans has more than doubled, to about 11 percent.

For 2008, all employees can choose from an array of plans, which the company hopes will allow even more workers to find one that suits their needs. Individual deductibles range from $350 to $2,000, and employees can choose plans with health care “credits” to use for routine care. Those credits are largely paid for through higher premiums.

The company eliminated onerous fees like $150 monthly for covering a spouse and cut out separate deductibles, like an additional $1,000 for a hospital stay.

A family can pay as little as $250 a year in premiums if it is willing to have a $4,000 deductible and be responsible for as much as $10,000 in medical bills, roughly the same plan that cost them $1,500 a few years ago.

Better coverage costs more: a plan where the family pays a $700 deductible and is responsible only for up to $4,000 in medical bills costs nearly $7,000 a year.

Several critics contend that the company’s low-wage workers still cannot afford a plan offering significant coverage. “It’s optics — it looks pretty,” said Charles Rader, who negotiates benefits for the United Food and Commercial Workers.

And Wal-Mart’s insurance still pales in comparison to that offered by Costco, considered the gold standard in retailing because an employee pays just a few hundred dollars a year for generous individual coverage. But Wal-Mart is catching up to retailers like Home Depot and has in some ways surpassed Target, which makes part-timers wait two years to qualify for coverage.

Wal-Mart, which earned $11 billion last year, has not abandoned a corporate philosophy that demands low costs to ensure low prices. It contributes a fixed amount to cover an employee, so workers make up the cost of better coverage. “If Wal-Mart goes out of business because of health care, we won’t have accomplished anything in terms of helping people,” Ms. Dillman said.

The company hopes to save everybody money by promoting healthy living for workers. This year, it introduced a 24-hour telephone medical hot line operated by nurses from the Mayo Clinic and a program that encourages exercise and smoking cessation.

Jan Bennett, who works at a Wal-Mart in Broomfield, Colo., weighed 280 pounds and suffered from diabetes before enrolling in a test program last year. With peer pressure as motivator, Ms. Bennett, 50, cut out fried foods and carbohydrates.

She said she lost 76 pounds and no longer needs to take at least one $30-a-month diabetes drug. “I have the support system of everyone in my store,” Ms. Bennett said.

Overall enrollment in Wal-Mart’s health plans has inched upward, from 44 percent of its total work force in 2004 to 48 percent in 2007. Of the remaining workers, the vast majority receive health coverage through another source. As the sign-up period for next year’s plans ends, enrollment for Wal-Mart plans continues to rise steadily, Ms. Dillman said.

Among the converts is Katrina Wagner, who works in Tulsa, Okla. She did not sign up last year, assuming that as a healthy 20-year-old, she did not need insurance. But she found herself staying away from doctors to avoid the $150 to $200 expense.

This year, after store managers bombarded workers with information, Ms. Wagner chose a plan costing about $500 a year with a $350 deductible. “It’s very affordable for me,” she said.

Ultimately, Wal-Mart may have an even bigger effect as it bring its legendary cost-cutting skills to the broader health industry, selling anything from wheelchairs to health insurance for much lower prices.

“If you really turned Wal-Mart loose and had Wal-Mart against the health care providers,” Mr. Nichols, the health economist, said, “it would be a fair fight.”

Sears Holdings to Announce Earnings
Sears News Release
November 12, 2007

HOFFMAN ESTATES, Ill., Nov. 12 /PRNewswire-FirstCall/ -- Sears Holdings Corporation, today announced the company currently plans to release financial results for its fiscal 2007 third quarter on Nov. 29, 2007, before the market opens. In addition, the company expects to file its Quarterly Report on Form 10-Q for its fiscal 2007 third quarter on or before Dec. 13.

Shopko names W. Paul Jones as president
MSN Money
November 12, 2007

Shopko Stores said Monday that W. Paul Jones has been appointed president and chief merchandising officer for the discount department store chain.

Jones will be responsible for the direction of all merchandising and marketing activities of the Green Bay-based regional mass retailer. His appointment will be effective Nov. 14.

Jones' career has served in senior merchandising roles in the department store sector, mid-tier chain stores and big-box retailers. He has more than 20 years of retail leadership across several divisions of May Department Stores, Kohl's Corp., of Menomonee Falls, and most recently Sears. Jones was senior vice president of menswear merchandising for Kohl's in 2004 when he took a job as vice president and general merchandise manager for men's apparel for what was then Sears Roebuck & Co., of Hoffman Estates, Ill.

Seniors must shop as Medicare drug premiums rise
By Julie Appleby, USA TODAY
November 11, 2007

Starting next week, those eligible for Medicare can begin enrolling in the optional drug plan for 2008, with a dizzying array of choices — and potential premium increases for 74% of those who currently have a stand-alone drug plan.

"If seniors don't switch plans, they could well experience an increase in their premiums and, for some, it could be a fairly large increase," says Tricia Neuman of the non-partisan Kaiser Family Foundation, which analyzed Medicare data. Other changes include:

•Only one insurer — serving Florida — covers brand-name drugs in the coverage gap, known informally as the "doughnut hole." Many insurers do, however, cover generic drugs in the coverage gap.

•About 1.6 million low-income enrollees will be switched from their current plans to other insurers because premiums rose above a government benchmark.

•About 19% of those currently enrolled in stand-alone drug plans will see an increase of $120 or more a year in premiums, unless they switch plans, while 28% would see an increase of $60 to $120 and 27% would see an increase of up to $60, according to the Kaiser analysis. About 25% will see a decrease in their monthly premiums next year, and 1% will stay the same.

Residents of most states have 50 or more stand-alone drug plans to choose from. Nationally, premiums for the drug-only program range from $9.80 to $107.50 a month, varying by insurer, state and plan type, the Kaiser analysis shows. If all enrollees stayed in the same plans they are in this year, average monthly premiums would rise to $31.99, the Kaiser study says.

One of the plans with the heaviest enrollment — Humana's PDP Standard — has seen sharp price increases since the program began in 2006: Humana's standard plan averaged $114 a year in 2006, when the insurer aimed to gain market share by being the low-price leader nationally, but has nearly tripled to $310 in 2008, the Kaiser study says.

Humana (HUM) spokesman Tom Noland says the company has "competitively priced options for 2008," including some that are lower than its standard plan cost in 22 regions.

Medicare officials say that people can avoid premium increases next year: "In every state, people will be able to find a plan that costs less than $20 a month," says Herb K