Breaking News
September - October 2004 

Sears to Pay for Not Reporting Defects
By Associated Press - Chicago Tribune
October 29, 2004

WASHINGTON -- Sears, Roebuck and Co. has agreed to pay $500,000 to resolve federal allegations that it failed to report known defects on riding lawnmowers, federal safety officials said Friday.

From April 1999 to September 2001, Sears learned of about 1,600 instances of fuel leakage and fuel tank cracking on some models of Craftsman lawnmowers, but the company did not report the problems as required by federal law, the Consumer Product Safety Commission said.

As part of the settlement, Sears denies any violations, the commission said.

About 36,000 of the Craftsman rear-engine riding lawnmowers were recalled in 2003. The manufacturer, Brentwood, Tenn.-based Murray Inc., later paid a $375,000 civil penalty to settle allegations of belatedly notifying the CPSC.

Federal law mandates that companies must inform the CPSC within 24 hours of discovering any product defects that pose injury risks or violate federal safety standards.

Retiree Groups Mobilize to Fight Deep Cuts in Health Coverage
By Ellen E. Schultz and Shawn Young - Staff Reporters
The Wall Street Journal
October 29, 2004

Retiree groups are trying to draw more attention to the steep cuts they have faced in company-sponsored health coverage this year, making a last push before the elections to try to get more seniors to the polls.

"Elderly Americans have to vote like their lives depend on it," said Edward F. Coyle, executive director of the Alliance for Retired Americans, a nationwide organization that advocates on behalf of seniors.

Stung by steep increases in premiums, or even the elimination of coverage altogether, groups representing both management and union retirees have set up voter registration drives, written lawmakers, attended rallies and have even taken out advertisements in major newspapers criticizing companies for cutting retiree benefits while boosting executive pay.

"A growing fear and even anger about broken retiree health-care promises is mobilizing thousands of retirees," said Michael Calabrese, director of the retirement security program of the New American Foundation, which is a nonpartisan policy institute in Washington.

Neither presidential candidate has focused on retiree health care, though it has been an important theme for Reps. Bernie Sanders, a Vermont independent, and John Tierney, (D., Mass.), who have backed legislation to prevent companies from curtailing benefits after workers retire.

Most retiree groups, as nonprofit organizations, aren't allowed to endorse presidential candidates. But the Alliance for Retired Americans, affiliated with the AFL-CIO, has endorsed Sen. John Kerry. The group, which represents three million retired union workers, has organized registration drives to boost senior turnout in such battleground states as Pennsylvania, Ohio and Florida.

The elections coincide with the annual enrollment periods, when retirees are being notified of increases in costs for benefits in 2005. Retirees from International Business Machines Corp., Boeing Co., Lucent Technologies Inc. and dozens of others have been comparing and complaining about the changes on retiree Web sites.

Lucent retirees have been especially vocal. "We feel that Lucent has really broken its commitment to retirees," said Edward Beltram, a retired human-resources manager who is a spokesman for the Lucent Retirees Organization. His health-care premiums have jumped to $516 a month this year for him and his wife from $42 a month when he retired in 2001.

The Communications Workers of America and the International Brotherhood of Electrical Workers are negotiating with Lucent on a contract that expires Sunday night.

The CWA, which represents more than 70,000 Lucent retirees, has taken out advertisements criticizing Lucent for cutting retiree health care even as top executives are richly compensated. The ads ran in the New York Times, the Washington Post, The Wall Street Journal and USA Today last week and this week. The union says Lucent is proposing increases in the cost of retiree health care that could cost a retiree as much as $700 a month.

"We realize this is going to be hard on retirees," said Lucent spokeswoman Mary Ward, but she says Lucent's revenue has shrunk from $33.8 billion in fiscal 2000 to $9 billion in fiscal 2004.

Ex-Macy's Executive to Lead J.C. Penney
By Constance L. Hays - The New York Times
October 28, 2004

J. C. Penney said yesterday that Allen I. Questrom, the chief executive who has restyled the once-beleaguered chain into a sleeker and more profitable entity, would be succeeded by Myron E. Ullman III, another longtime retail executive.

Mr. Ullman led Macy's during its bankruptcy and most recently led the luxury conglomerate LVMH Moët Hennessy Louis Vuitton.

The announcement, made after the stock market closed, means Mr. Questrom will step down a year before his contract expires.

Mr. Ullman, who is known in the industry as Mike, inherits a department store chain that has closed underperforming stores, freshened its apparel to include more fashionable items, and shed its Eckerd drugstore division during Mr. Questrom's four-year reign.

At the same time, his appointment leaves Vanessa Castagna, who had been the top internal candidate for the job and who has been credited with leading many of the changes at Penney in recent years, without a clearly defined future.

Ms. Castagna has been essentially second in command, holding the title of chief executive of the company's retail stores as well as its catalog and Internet businesses and reporting directly to Mr. Questrom. Her contract expires next month, the company said.

"We don't have any indication of how this decision will affect her career plans," a spokeswoman for Penney said.

One retail expert said she might leave the company. "It's a question of pride here," said Walter Loeb, editor of The Loeb Retail Letter, an industry publication. "She was identified by Questrom as being the inside candidate." The company will hold a conference call this morning to discuss the change in senior management.

The spokeswoman for Penney, Carolyn Covey Morris, said that the board had chosen Mr. Ullman because of his extensive experience as an executive and as a director of other companies.

"They thought Mike's experience as a C.E.O. and chairman and great breadth of experience was a better fit for this company," she said. "They were looking for a chairman and C.E.O. to take the company forward into the future."

Mr. Ullman, 57, will take over at a time when shoppers have become increasingly drawn to the opposite poles of discount stores like Wal-Mart and of luxury chains like Coach. The trend has left little growth for traditional department stores, although Penney is one chain that has shown higher sales in recent months.

Mr. Ullman left LVMH in 2001 and has been active with charitable foundations as well as with public and privately held companies. He is a director of Starbucks, the Taubman Centers and Polo Ralph Lauren. He said in a statement yesterday that he would step down from the Polo and Taubman boards as a result of his new job, which begins Dec. 1. He is a former chairman of Global Crossing and is a director of Segway, the scooter makers, as well as the Kendall-Jackson vineyard.

In a brief interview last night, he described his last several years as "pretty frenetic," but added that he was pleased to be offered another top position at a retailer. "This is a company with a great legacy and hopefully, an even more exciting future," he said. Asked whether he would keep executives like Ms. Castagna in place, he replied, "It's a fair thing to ask for time to get to know the people and to get to know the issues." Mr. Questrom, he added, has "agreed to stay on" as long as necessary.

Mr. Questrom's retirement had been announced months ago and the pursuit of his successor was led principally by a committee of Penney directors headed by Vernon Jordan.

Before arriving at Penney in September 2000, Mr. Questrom ran Barneys New York. He also was leading Federated Department Stores when it acquired Macy's in 1995 when it was in bankruptcy. Mr. Ullman competed against him while holding the top job there.

"I was in the process of trying to get value for our creditors," Mr. Ullman said yesterday, noting that he ultimately sold Macy's to Federated for $4.1 billion. "For about six months there, we weren't on the same page."

Now, however, Mr. Ullman will take over the process of determining Penney's place in a constantly shifting retail industry. When it comes to Wal-Mart, he said, "Wal-Mart impacts everybody to some degree," adding that Penney's fashion lineup, and its pricing, had kept the two distinct.

J.C. Penney Names Ullman New CEO, In Early Decision
By Teri Agins and Ann Zimmerman - Staff Reporters - The Wall Street Journal
October 28, 2004

J.C. Penney Co., in the midst of a major turnaround effort, named Myron E. Ullman III as its chairman and chief executive effective Dec. 1, succeeding Allen Questrom, 64 years old, who had been expected to step down next year.

Mr. Ullman, 57, who is known as Mike, won the job over candidates who included insider Vanessa Castagna, Mr. Questrom's 55-year-old second in command. He had identified her as his top choice to succeed him.

Mr. Ullman's retail experience appears to dovetail with the current strategy of the Plano, Texas, retailer, which successfully has been moving in a more upscale direction. A former chairman and chief executive of R.H. Macy & Co., he also is a former senior executive at LVMH Moët Hennessy Louis Vuitton SA, where he oversaw the French conglomerate's duty-free stores and retail operations, among other responsibilities.

Mr. Ullman's department-store and luxury-goods experience dovetails with Penney's recent shift in direction since Mr. Questrom arrived in September 2000. In an effort to distance itself from mass-market rivals such as Wal-Mart Stores Inc., Penney has taken on a more fashion-conscious orientation, attracting top new designers to boost its private labels.

Ms. Castagna, who presides over Penney's stores, catalog and Internet operations, is a retailer lifer who is best known for her operational smarts. The former senior vice president at Wal-Mart widely is credited with overhauling Penney's buying and merchandising operations.

"The board had high regard for Vanessa, but their choice was based on who they thought had the best experience," Mr. Questrom said. "They wanted the experience of a CEO, and Mike has broad experience running a lot of retail businesses -- different kinds of retailing, not just apparel. The board wanted to make sure the turnaround continues."

Mr. Questrom, a 40-year retail veteran, is considered a turnaround king in retailing after successfully overhauling Neiman Marcus Group Inc., Federated Department Stores Inc., Barneys New York and, most recently, Penney. During the past four years, he has closed underperforming locations, recruited a top new management team and centralized purchasing. Penney's stock nearly has tripled since he joined the company, and sales at stores open at least one year are up 6.8% over a year earlier, even as core middle-market consumers get squeezed by high energy prices.

Some investors argued that precisely because Mr. Questrom put Penney's operations in order, the company needed a chief executive who was good at "branding" and could add a stylish sheen to the department store, which has struggled to shake its dowdy image.

In addition to finishing up Mr. Questrom's five-year turnaround strategy, Mr. Ullman will face the more difficult task of identifying the future strategic direction of the company.

"There's obviously still work to be done," says Deborah Weinswig, senior analyst at Smith Barney. She notes that Penney still lags behind rival Kohl's Corp. in sales per square foot, a closely watched retail measure. At the end of last year, Penney averaged $143 in sales a square foot, well below Kohl's average of $232. Ms. Weinswig, who has a buy rating on Penney, believes investors worrying about succession issue have weakened Penney stock recently.

Last month the stock fell 10% to $35.28, hurt both by signs that retail sales are slowing as well as rumors that Penney was accelerating the search and considering nonretailing candidates, investors say. The company has since regained some ground.

Mr. Ullman, who worked for LVMH from 1997 until 2001, resigned as a group managing director when he was suffering from an unspecified "neurological and motor issue." His condition has since been diagnosed as a spinal cord injury, and his doctor recently gave him the green light to return to full-time employment, he said. "I do struggle walking long distances," he says. He often uses a motorized Segway when making store visits.

Vernon Jordan Jr., the company's longest-serving board member, conducted the executive search along with recruiting firm Heidrick & Struggles International Inc. They vetted a half-dozen leading candidates before narrowing the choice to Ms. Castagna and Mr. Ullman. The board voted on the two candidates yesterday.

J.C. Penney Taps Former Macy's, LVMH Head to Replace Questrom
Associated Press
October 27, 2004

J.C. Penney Co. Inc. named a former chairman and chief executive of Macy's to lead the department store company, replacing Allen Questrom.

Myron E. Ullman III, also formerly an executive with luxury retailer LVMH Moet Hennessy Louis Vuitton, will take Questrom's place on Dec. 1, Penney said Wednesday.

Questrom, 64, had led a 4-year turnaround effort that recently resulted in rising sales at Penney's department stores. He had hinted he planned to leave when his 5-year contract expired in September 2005, and the company had hired a search firm, but the timing of his departure came as a surprise.

Questrom said in an interview with The Associated Press that he had planned to finish his contract but left early when the company had a chance to hire Ullman, whom he knew from his days leading Federated Department Stores Inc., which bought Ullman-led R.H. Macy & Co. Inc. in the mid-1990s.

"When you find a candidate that you think is the best candidate, you move forward," Questrom said.

Questrom said the board considered six or seven finalists and narrowed its choice to Ullman and Vanessa Castagna, Penney's CEO of department stores. He said Ullman's broader experience and background as a CEO were deciding factors.

In a telephone interview, Ullman said he was eager to return to a CEO's job
- it's been nine years since he left the top spot at Macy's - and was impressed with Penney's turnaround since 2000.

Ullman, 57, said he would continue Penney's push into off-mall locations - the company plans to open 75 to 100 freestanding stores in the next few years - and to stress more fashionable merchandise. He declined to discuss specific changes he might pursue.

"Retailing being a very competitive business, there is always going to be a certain amount of change in taking the business to the next level," he said.

Penney shares lost 4 cents to close at $37.36 Wednesday on the New York Stock Exchange before the news. They gained 9 cents in the after-hours session.

Questrom was chairman and CEO of Barneys New York when he took the top job at Penney in September 2000. At the time, Penney was losing sales to discounters and other rivals.

Questrom closed poorly performing stores, updated hundreds of others, overhauled the company's purchasing system and sold the struggling Eckerd chain of drugstores for $4.5 billion. Last year, Penney posted its first sales increase in several years.

Ullman was chairman and CEO of Macy's from 1992 to 1995. He joined Macy's months after it filed for bankruptcy protection and led it during a time of major organizational and financial upheaval and its acquisition by Federated in 1995.

"Macy's was quite distressed - a weak company. He did a lot to stabilize it and get it to the point where it could be rescued by Federated," said Richard Hastings, a retail analyst at the Bernard Sands credit-advisory firm.

For the first time in several years, Penney is opening a number of new stores. Hastings said Ullman's challenge will be to guide the company through a period of measured growth.

"I wouldn't even describe Penney as a turnaround anymore," he said. "Now it's time for them to become a little bigger. There's still room to grow for a moderately priced department store."

Cheryl Bridges, associate director of a retailing center at Texas A&M University and a vice president at Sanger Harris in Dallas when Ullman was chief financial officer there, said he understood all facets of retailing, from finances to running stores to the personnel office.

Ullman sits on several corporate boards and served on the board of troubled telecommunications firm Global Crossing.

Ullman was identified by a board search committee led by Vernon Jordan Jr., a Washington, D.C., attorney and a director at Plano-based Penney for more than 30 years. Penney had also hired search firm Heidrick & Struggles.

Castagna, a former executive at Wal-Mart Stores Inc. who joined Penney shortly before Questrom, had widely been seen as the leading candidate for Questrom's job. She had signed deals with designers to create a buzz around Penney and guided remodeling of many stores.

Castagna declined to comment Thursday, a spokesman for the company said. Questrom praised Castagna but said he did not know whether she planned to stay.

Fitch Pessimism Translates into Sears Debt Downgrade
By Sandra Guy - Business Reporter - Chicago Sun-Times
October 26, 2004

Fitch Ratings downgraded Sears, Roebuck and Co.'s debt Monday to one notch above junk status because it fears that Sears' poor sales and operating performance will persist into next year.

The downgrade, along with Fitch's negative outlook, follows Sears' disappointing earnings performance last week. The Hoffman Estates-based retailer reported a worse-than-expected $61 million loss versus $147 million in net income a year earlier.

The rating affects Sears' $2.9 billion in senior unsecured notes.

Fitch also lowered Sears' rating to F3 from F2 on commercial paper -- unsecured corporate IOUs.

The pessimistic assessment reflects Sears' declining sales, particularly in apparel, even after the company's seemingly endless cost cuts, technology upgrades and revamps of its store assortments.

"They've made some progress, but it's not evident when you look at sales," said Fitch analyst Philip M. Zahn.

Sales at Sears' mall-based stores fell 4 percent in the July-through-September period, adding to a three-year string of losses.

Sears has started canceling some of its holiday deliveries to try to keep unsold goods from piling up, but the retailer still may have to resort to clearance sales in the final three months of the year, Sears Chief Financial Officer Glenn Richter told analysts last week.

The bad news reflects Sears' vulnerability amid tough competition from J.C. Penney and Kohl's in apparel, and from Lowe's and Home Depot in tools and home appliances.

Fitch's Zahn said Sears still benefits from the $100 million it receives quarterly from Citigroup, to whom Sears last year sold its credit-card business. The sale helped Sears amass $2.9 billion in cash and investments as of Oct. 2. Sears plans to use the money to reduce its debt and continue buying back its stock.

The real problem is the weak economy and Sears' lack of execution, Zahn said.

Sluggish job growth and high oil, gasoline and grocery prices make shoppers wary of spending money.

But Sears could do a better job of enticing the shoppers, Zahn said.

The retailer needs a sharper focus on ensuring that its clothes are fashionable and that its goods are priced competitively, he said.

"There's no big magic wand that you can wave," Zahn said.

Sears CEO Alan Lacy last week boasted about new executives whom Sears hired from rivals Target Corp., J.C. Penney and Kohl's.

But Zahn said it will take time for the new people to make meaningful changes. While the executive team tries to right its 870 mall-based stores, their attention will be diverted to Lacy's off-mall strategy of building huge Sears Grand stores designed to be one-stop shops. The Sears Grand stores offer toys, some groceries and a tire-and-battery center under the same roof as tools, electronics and clothes.

Latest Sears Strategy Yet to Pay Off
Daily Herald - Suburban Chicago
October 22, 2004

Loss Socks Sears Stock, puts CEO Lacy on Hot Seat
By Sandra Guy - Business Reporter - Chicago Sun-Times
October 22, 2004

Sears Roebuck and Co. on Thursday reported income and sales losses, inventory missteps and a new scaleback in apparel buying, but CEO Alan Lacy clung to his vision of better days ahead.

Nevertheless, Sears lowered its outlook for this year's earnings and said store sales in the critically important holiday season will be flat, largely because it expects apparel sales to keep declining.

The worse-than-expected news sent Sears' stock plunging. Shares fell $3.18, or 8.6 percent, to $33.74. The stock price has fallen 31 percent from a year ago.

Lacy told Wall Street analysts during Thursday's third-quarter earnings announcement that he is confident that store reassortments and a team of new executives at the Hoffman Estates-based retailer will turn things around.

But Sears' rejiggering backfired in appliances, children's clothing, bed-and-bath, and consumer electronics, where sales failed to rebound as expected in the July-through-September period.

Apparel orders again missed the mark, leaving Sears to scramble to cut its apparel buys to keep inventories of unsold goods from piling up during the winter holiday season.

Earlier this year, Lacy conceded that Sears had ordered too little clothing for the spring season, and that Lands' End apparel orders had arrived late, causing Sears to miss out on shoppers' spring buying sprees at rival retailers.

One analyst questioned how long Lacy should survive, even though some on Wall Street point to Sears' cash hoard and supply-chain improvements as bright spots.

"The company is a train wreck," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm based in New York City.

Sears had a net loss of $61 million, or 29 cents a share, in the quarter ended Oct. 2, compared with last year's profit of $147 million, or 52 cents a share. Last year's results were helped by Sears' sale of its credit-card business and the National Tire & Battery chain.

Revenue plunged 15 percent, to $8.3 billion, from $9.8 billion in the year-ago period, reflecting sales declines and the loss of revenues from the credit-card unit. Same-store sales fell 4 percent, adding to a more than three-year string of falling sales.

Sears' operating income had a $106 million loss, compared with a $222 million profit a year ago that was partly boosted by the credit-card business.

Sears blamed higher fuel prices for crimping shoppers' wallets; hurricanes in the Southeast for lowering apparel sales; unseasonably cool weather in July and August for hurting sales of air conditioners, and unseasonably warm weather in September for crimping sales of Lands' End jackets and fall clothing.

The weaker-than-expected sales and the need to clear out unsold goods hurt profits. Poor sales of children's apparel during the important back-to-school season forced Sears to slash prices so it could clear the sales floor.

Indeed, Sears has decided to cut back its Lands' End apparel offering for infants and toddlers, said Glenn Richter, Sears' chief financial officer.

Sears, which bought Lands' End for $1.9 billion two years ago, had already pared its Lands' End children's clothing assortment, and is relegating Lands' End apparel to the back of its new multicultural stores aimed at Asian, Latino and African-American shoppers.

The results led to further speculation about Lacy's future and questioning of Sears' decision to open off-mall stores that compete with Target and Wal-Mart.

"Who does the board (of directors) hold accountable, and when do they hold him accountable?" Davidowitz said of Lacy.

Ironically, Lacy told Wall Street analysts during Sears' earnings announcement Thursday that Luis Padilla, the ballyhooed former merchant at Target Corp. and Marshall Field's, had joined in a recent review of Sears' businesses.

Analysts have for years begged Sears to hire a merchant as its CEO.

"Sears chose a financial man (Lacy is a former chief financial officer) who cut costs and who moved the decks around on the Titanic," said Davidowitz.

Under Lacy's tenure, Sears has slashed its operating costs, its workforce -- it employs 201,000 compared with 275,000 in 2002 -- and relied on buying back its stock to boost earnings.

Sears also took advantage of its credit-card unit sale to cut its debt to $2.9 billion from $22.7 billion a year ago.

Sears is working to cut costs further by buying goods directly from manufacturers and automating back-office jobs at Sears stores.

Analysts also voiced stronger doubts about Sears' new stand-alone stores, called Sears Grand, which sell milk, soda pop and convenience foods.

Morningstar analyst Kim Picciola said Sears should focus on improving its merchandising efforts at its 870 mall-based stores.

Richard Hastings of Bernard Sands LLC said that "better results from Sears Grand could be a long time coming" because such a major shift in a retailer's strategy takes 12 to 18 months to generate better comparable results.

Lacy said Thursday that the big-box stores' sales results are exceeding expectations.

Sears is less optimistic about its mall-based stores' results. It now expects its full-year earnings to range from $1.46 to $1.66. That's down dramatically from Sears' initial forecast of $3.60 to $3.80, which it lowered in July to $2.66 to $2.86 a share.

Analysts had already slashed their forecast for Sears' third-quarter results to 1 cent per share from 44 cents, based on Sears' increasingly dire outlook. Standard & Poor's said Thursday that it may lower Sears' credit rating one notch to BBB-, the lowest investment grade.

Sears Moves to Save Christmas After Posting Loss
By Any Merrick - Staff Reporter - The Wall Street Journal
October 22, 2004

Sears' Stumbles a Surprise $61 million Loss for 3rd Quarter
By Becky Yerak - Tribune Staff Reporter - Chicago Tribune
October 22, 2004

Sears, Roebuck and Co. reported a "disappointing" $61 million loss for the third quarter and warned its year-end numbers would fall short of earlier forecasts--surprise announcements that drove the retailer's stock price down almost 9 percent on Thursday.

Casting blame on everything from record fuel prices to heavy merchandise markdowns to disruptive store renovations, Sears lost 29 cents a share in the third quarter, compared with a profit of 52 cents a share in the same period last year. Investors were counting on the nation's biggest department store chain to earn a penny a share, according to a Thomson First Call analyst survey.

As Sears' enters its fourth year of falling sales, Chief Executive Alan Lacy has been under increasing pressure to deliver better results, and he warned investors won't see them next quarter.

"Based on our sales and margin performance over the past two quarters, coupled with a more cautious holiday outlook ... we believe it's appropriate to lower our fourth-quarter sales and margin assumptions," Lacy said. Hoffman Estates-based Sears has taken pains to improve its merchandise offerings and store presentation. That's particularly critical since Sears sold its profitable credit card business in 2003 and now depends solely on its struggling retail operation. Same-store sales, which are those at stores open at least one year, were down 4 percent from the year-earlier period.

"We really thought we had valid reasons for expecting a better performance in the third quarter, but what we got was awful," said Retail Forecasting President Kurt Barnard. "Sears needs a credible strategy, or even tactics, that will prevent a recurrence of this kind of performance."

Lacy, meanwhile, "is on the spot," Barnard noted.

Lacy, a former chief financial officer who was named Sears' CEO in 2000, acknowledged that third-quarter sales were soft across most of Sears' key businesses, including the preppy Lands' End clothing line that Sears bought in 2002 to improve its apparel sales.

It's a situation that prompted Standard & Poor's on Thursday to say it is considering downgrading Sears' debt, citing "another disappointing quarter."

Another retail observer was less charitable, calling Sears' results a "debacle" and raising comparisons between Sears and J.C. Penney Co. Both retailers are largely mall-based, middle-brow department store chains. But Penneys has a narrower array of products and has a CEO who came up through the merchandising, not finance, ranks.

"The first question is, `Who is accountable?' Penneys hired a merchant to get the pricing right, the product right and the promotions right. Sears has a financial man," said Howard Davidowitz, chairman of New York retail consulting firm Davidowitz & Associates. "The results are predictable."

Under Lacy, Sears has reconfigured several departments, including electronics and bed and bath products. That tinkering, while intended to improve sales over the long run, was "more disruptive than we originally anticipated," Lacy said.

Even when the tweaking ended, the sales boosts weren't as hefty as Sears expected, he conceded.

Also, in some instances, Sears had to mark down merchandise to clear out inventory before it rearranged the sales floor. Markdowns in apparel, which Sears has struggled with for years, were particularly deep.

"Management at Sears has been slow to get serious about doing whatever they have to do to be a competitive retailer" of such lines as apparel and bed and bath products, said Richard Hastings, retail analyst for Bernard Sands LLC.

Sears has been expanding its presence away from shopping malls by buying freestanding stores from Kmart Holding Corp. and Wal-Mart Stores Inc. It also has made a spate of new hires, prompting Prudential Equity analyst Wayne Hood to publicly ask Sears whether it is biting off more than it can chew. Lacy responded that 2005 will probably be a "less intense" year for Sears than 2004 or even 2002.

Some results, however, were encouraging, Lacy said, citing sales of certain proprietary Kenmore products and certain lawn and garden goods.

Sales for Sears' trendier Apostrophe apparel line are up 15 percent. The early response has been "quite good" to A/Line, a Jones Apparel Group Inc. women's line for which Sears has exclusive rights, as well as Structure, a men's line that Sears bought from Limited Brands. Sears also is "very pleased with the initial customer response" of online apparel sales that began last month.

Aside from its earnings problems, Sears' balance sheet is in good shape, S&P confirmed.

In July, Sears launched a search for a new executive--president of retail--to oversee all store operations. He or she would be a possible heir to Lacy.

But in August Sears hired former Target Corp. executive Luis Padilla to oversee marketing and merchandising. Sears said then that it was in no rush to fill the retail president's role.

Thursday, Lacy was asked whether Sears still intends to fill the post. "That position still makes sense to be filled at some point," Lacy said, but Sears has upgraded its management team in recent years. Plus, with Padilla on board, "we're in no rush right now given his arrival."

Sears expects fourth-quarter sales to be flat. For the year, it expects to earn $1.46 to $1.66 a share, including some special charges and depreciation. The average estimate from Thomson First Call was $2.67.

Lacy told analysts Thursday that there was "still much more work to be done" in making Sears more productive, including additional automation of back-office jobs inside stores.

Slumping Sears Reports Loss
Crain's Chicago Business Online
October 21, 2004

(AP) - Mired in a deepening retail slump, Sears, Roebuck and Co. reported a $61 million third-quarter loss Thursday and warned that 2004 earnings will be lower than expected following back-to-school and fall sales that were even weaker than usual. The results and profit warning prompted a selloff in shares of the Hoffman Estates, Ill.-based company, where same-store sales have been falling steadily for more than three years.

Sears' stock sank $2.94, or 8 percent, to $33.98 a share in heavy afternoon trading on the New York Stock Exchange. It is down 25 percent this year. The loss for the July-through-September period amounted to 29 cents per share, compared with net earnings of $147 million, or 52 cents per share, for the same period in 2003. Analysts surveyed by Thomson First Call had expected a penny-per-share profit.

Revenues declined 15 percent to $8.3 billion from $9.8 billion, reflecting sagging sales and the 2003 sale of its credit-card unit to Citigroup.

Sears lowered its estimate for 2004 earnings to between $1.46 per share and $1.66 per share, anticipating flat same-store sales in the fourth quarter. That's far below the $2.70-a-share estimate of analysts.

Chairman and CEO Alan Lacy, whose job is considered to be in jeopardy as the tailspin continues, said August and September sales were disappointing due to a combination of factors. He cited record fuel prices, economic uncertainty, warmer weather that hurt back-to-school sales and hurricanes that affected sales in the Southeast.

As a result, Lacy said, the company is canceling some inventory purchases as it heads into a critical holiday period.

"While we remain cautiously optimistic for a robust holiday season, the third-quarter results versus our expectations were not encouraging," he told analysts on a conference call.

Wall Street sees little cause for optimism with the continuing slide of Sears' comparable or same-store sales - those from stores open more than a year. Same-store sales fell 4 percent in the third quarter from a year earlier, decreasing across most categories at its 870 department stores.

Chicago-based retail consultant Sid Doolittle said Sears is suffering from the nationwide decline of shopping malls and, unlike rival Target, has failed to adapt to changes in customer preferences. He praised its new Sears Grand concept but said it can't significantly help results any time soon, since only a handful of those stores exist.

Sears Grand stores, introduced last fall, offer grocery and convenience items in addition to traditional Sears fare such as clothing, home appliances and tools.

"I'm not optimistic about Sears' ability to turn it around in the near term," Doolittle said. "This is a company that's been in business a long time and has been in gradual decline. They've been working hard to try to stop that decline, but it's hard to turn such a big company around."

Changing CEOs is a possibility but would be "extremely risky," he said, without a seasoned replacement candidate on board. Sears has brought in a series of new executives under Lacy, but most remain relatively new at the company.

Through the first nine months, Sears had a net loss of $867 million, or $4.03 a share, compared with income of $648 million, or $2.17 a share, for the same period in 2003. Revenues were $24.6 billion, down from $24.7 billion.

Slumping Sears Reports $61M 3Q Loss
Forbs.com
October 21, 2004

Mired in a deepening retail slump, Sears, Roebuck and Co. reported a $61 million third-quarter loss Thursday and warned that 2004 earnings will be lower than expected following back-to-school and fall sales that were even weaker than usual.

The results and profit warning prompted a selloff in shares of the Hoffman Estates, Ill.-based company, where sales at stores open at least a year have been falling steadily for more than three years.

Sears' stock sank $2.70, or 7.3 percent, to $34.22 a share in heavy afternoon trading on the New York Stock Exchange. It is down 25 percent this year.

The loss for the July-through-September period amounted to 29 cents per share, compared with net earnings of $147 million, or 52 cents per share, for the same period in 2003. Analysts surveyed by Thomson First Call had expected a penny-per-share profit.

Revenues declined 15 percent to $8.3 billion from $9.8 billion, reflecting sagging sales and the 2003 sale of its credit-card unit to Citigroup Inc.

Sears lowered its estimate for 2004 earnings to between $1.46 per share and $1.66 per share, anticipating flat same-store sales - sales at stores open at least a year - in the fourth quarter. That's far below the $2.70-a-share estimate of analysts.

Chairman and CEO Alan Lacy, whose job is considered to be in jeopardy as the tailspin continues, said August and September sales were disappointing due to a combination of factors. He cited record fuel prices, economic uncertainty, warmer weather that hurt back-to-school sales and hurricanes that affected sales in the Southeast.

As a result, Lacy said, the company is canceling some inventory purchases as it heads into a critical holiday period.

"While we remain cautiously optimistic for a robust holiday season, the third-quarter results versus our expectations were not encouraging," he told analysts on a conference call.

Wall Street sees little cause for optimism with the continuing slide of Sears' same-store sales, which are considered a better measure than overall sales of retail health. Such sales fell 4 percent in the third quarter from a year earlier, decreasing across most categories at its 870 department stores.

Chicago-based retail consultant Sid Doolittle said Sears is suffering from the nationwide decline of shopping malls and, unlike rival Target Corp., has failed to adapt to changes in customer preferences. He praised its new Sears Grand concept but said it can't significantly help results any time soon, since only a handful of those stores exist.

Sears Grand stores, introduced last fall, offer grocery and convenience items in addition to traditional Sears fare such as clothing, home appliances and tools.

"I'm not optimistic about Sears' ability to turn it around in the near term," Doolittle said. "This is a company that's been in business a long time and has been in gradual decline. They've been working hard to try to stop that decline, but it's hard to turn such a big company around."

Changing CEOs is a possibility but would be "extremely risky," he said, without a seasoned replacement candidate on board. Sears has brought in a series of new executives under Lacy, but most remain relatively new at the company.

Retail consultant Kurt Barnard, president of Barnard's Retail Forecasting in Upper Montclair, N.J., said he thinks Lacy still has the support of Sears' board of directors but could be ousted at any time if Wall Street demands a change.

"I understand that Sears Grand is doing well," he said. "But meanwhile, how do you attract customers to your apparel departments in the 870 full-line stores? I think it is time for Sears to come up with a plan of action. ... They have to be able to come up with tactics that hold the promise of better days ahead."

Through the first nine months, Sears had a net loss of $867 million, or $4.03 a share, compared with income of $648 million, or $2.17 a share, for the same period in 2003. Revenues were $24.6 billion, down from $24.7 billion.

Sears Posts Surprise Loss, Shares Fall
By Belinda Goldsmith - Reuters
October 21, 2004

NEW YORK, Oct 21 (Reuters) - Sears, Roebuck & Co. (S.N: Quote, Profile,
Research) , the largest U.S. department store chain, on Thursday posted an unexpected third-quarter loss and slashed full-year forecasts as sales slid across the board, sending its shares down 8 percent.

Sears is battling to reverse years of falling sales by revamping stores, bringing in more fashionable merchandise and new management to re-establish itself as a retail entity after selling its credit card operations to Citigroup (C.N: Quote, Profile, Research) in 2003.

But analysts said more drastic action was obviously needed after the Hoffman Estates, Illinois-based company posted a net loss of $61 million, or 29 cents a share, for the quarter ending Oct. 2, compared with net income of $147 million, or 52 cents per share, a year earlier.

Analysts on average had expected Sears to report earnings of 1 cent per share, according to Reuters Estimates.

"They need to diagnose what is wrong and take the necessary steps," said Kurt Barnard, president of industry forecaster Retail Consulting Group.

Some shareholders said it was time to replace Chief Executive Alan Lacy, who has been at the helm of the beleaguered retailer for four years.

"He hasn't done that great," said Emil Rossi of Boonville, California, who owns nearly 3,300 Sears shares.

Sears has struggled in recent years to compete against discount retailers such as Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research) and Target Corp. (TGT.N: Quote, Profile, Research) who are stealing shoppers for clothing and general merchandise while home improvement retailers, such as Home Depot Inc. (HD.N: Quote, Profile, Research) and Lowe's Corp. (LOW.N: Quote, Profile, Research) , lure customers for appliances.

Sears has been adding new clothing lines to spruce up its apparel business, such as the women's Aline and men's Structure brands, but this has had little impact so far with its retail business posting an operating loss of $106 million in the third quarter against income of $222 million a year ago.

FLAT FOURTH QUARTER

Domestic same-store sales -- a key measure of retail strength -- fell 4 percent in the quarter as total revenue fell 15 percent to $8.3 billion.

Lacy said the third quarter was disappointing, with the company cutting prices more than expected to clear goods.

He blamed four factors including softer retail demand, adverse weather conditions, larger-than-expected costs associated with moving in new seasonal goods, and a slower ramp-up of sales following changes in business segments.

"Record fuel prices as well as continued uncertainty around macroeconomic conditions weighed on consumer confidence and discretionary spending," Lacy told a conference call.

Lacy said the process of renewing product lines in home fashions and consumer electronics was more disruptive than anticipated, taking longer and with prices then marked down.

Apparel sales were weak and not helped by cooler-than-normal summer temperatures. Chief Financial Officer Glenn Richter said sales in Sears' 870 full-line stores were about 3 percentage points below expectations.

Lacy said it was hard to predict the economic environment for the fourth quarter which is the key retail season, but Sears expected flat sales with a low-to mid-digit percentage fall in apparel sales offsetting any rise in other sales.

He said October had started well but Sears expected more markdowns in the fourth quarter in case it could not cancel enough merchandise shipments to meet lower forecasts.

Lacy said Sears now expected full-year earnings per share of between $1.46 and $1.66, down from an earlier forecast $2.66 to $2.86. This included 24 cents a share related to second-quarter special charges and additional depreciation and 20-25 cents a share from a negative debt-related carry.

Sears shares were down $2.89 at $34.03 on the New York Stock Exchange on Thursday afternoon. (Additional reporting by Nichola Groom in Los Angeles)

Sears Posts 3rd-Qtr Loss of $61 Mln as Sales Plummet
Bloomberg
October 21, 2004

Sears, Roebuck & Co. posted a third- quarter loss of $61 million, missing its forecast for a profit, after sales had the biggest decline in more than eight years. Shares fell after Sears cut its annual earnings forecast. The largest U.S. department-store chain's net loss of 29 cents a share compared with net income of $147 million, or 52 cents, a year earlier, when results included profit from a credit-card unit and tire and battery business that Sears sold. Revenue fell 15 percent to $8.29 billion, the Hoffman Estates, Illinois- based company said in a statement.

Sales at U.S. stores open at least a year decreased for the 13th out of the last 15 quarters. Chief Executive Alan Lacy's addition of Lands' End clothing failed to spur growth as Sears lost market share to retailers Kohl's Corp. and J.C. Penney Co., Bill Dreher, a New York-based analyst at Deutsche Bank, said. .

"Both J.C. Penney and Kohl's devote a lot more square footage and attention to clothing and home furnishings, while Sears still devotes more to its hardware, appliances and electronics business," said Jeff Stinson, a Cleveland-based analyst at FTN Midwest Research, who rates Sears "neutral" and doesn't own the stock. "The biggest issue is that Sears needs to look at its clothing business and see what needs to be done."

Sears was expected to have profit of 1 cent a share, the average estimate of 10 analysts surveyed by Thomson Financial. Analysts slashed their forecast from 44 cents in July after Sears said that net income would break even or be as little as 10 cents a share.

Shares of Sears fell $3, or 8.1 percent, to $33.92 at 10:14 a.m. in New York Stock Exchange composite trading. The stock had declined 19 percent this year.

Sales

The retailer expects earnings this year will be $1.46 to $1.66 a share, including some costs and excluding the cumulative effect of accounting changes, the company said. The average estimate from Thomson Financial was $2.67.

Discounts on clothing and home goods in the third quarter hurt profit margins, the company said.

Same-store sales, which are an important retail indicator because they exclude new and closed locations, fell 4 percent in the third quarter. Fourth-quarter same-store sales may be little-changed from a year earlier, Sears said.

Sears bought Lands' End in 2002 to boost clothing sales when customers visited its stores to shop for Kenmore dishwashers and Craftsman tools.

Lacy last year sold Sears' credit-card unit to Citigroup Inc. because of rising delinquencies, and is focusing on improving Sears stores' performance. The absence of the credit-card unit left Sears dependent on merchandise sales and services such as appliance installation.

Lacy is spending $575.9 million to buy 50 Kmart Holding Corp., part of his strategy to open locations outside of malls to compete with Target and Kohl's. He also is opening Sears Grand stores to expand into food offerings such as milk and cookies in addition to tools and appliances.

Sears Posts $61M Net Loss, Lowers Yr View
Dow Jones Newswires
October 21, 2004

CHICAGO (AP)--Sears, Roebuck and Co. (S) posted a $61 million loss in the third quarter and lowered its estimate for full-year earnings as its tailspin continues.

The results were worse than Wall Street expected and extended a long slump at the Hoffman Estates, Ill.-based retailer, where same-store sales have been falling steadily for more than three years.

The loss for the July-through-September period amounted to 29 cents a share, compared with a profit of $147 million, or 52 cents a share, for the same period in 2003.

Revenue declined 15% to $8.3 billion from $9.8 billion, reflecting not only sagging sales, but also the 2003 sale of its credit-card unit to Citigroup Inc. (C).

Sears said it now estimates 2004 per-share earnings at between $1.46 and $1.66, anticipating flat same-store sales in the fourth quarter. Analysts had expected full-year earnings of $2.70 a share.

The company said same-store sales fell 4% from a year earlier, decreasing across most categories at its 870 full-line stores. It reported a $106 million operating loss for its stores and corporate functions.

"A number of factors contributed to a disappointing third quarter, including softer retail demand, larger-than-expected costs associated with seasonal transitions and a slower ramp-up of sales following certain business resets," Chairman and Chief Executive Alan Lacy said.

Sears Gives Stores a Makeover to Appeal to Minority Shoppers
By James Covert - The Wall Street Journal
October 20, 2004

NEW YORK -- Sears, Roebuck & Co. eventually may upgrade more than half of its stores in the name of multiculturalism during the next few years, a company executive said.

The Hoffman Estates, Ill., retailer said this month it is revamping 97 of its 870 full-line department stores as part of a pilot program to add and strengthen apparel lines designed for minority shoppers. In addition to new signage and display formats, some of the revamped stores will staff more bilingual sales associates to serve Hispanic customers.

The makeovers will take place in markets that average 60% or more minority customers, including New York, Miami, Los Angeles and Chicago. However, a two-year study of customer demographics by Sears found that 58% of its stores are potential candidates for the makeover, said Cynthia Maignan, Sears's director of multicultural merchandising.

If results at the pilot stores are a success this holiday season, Sears will roll out the new format to the rest of its stores identified in its study during the next few years, Ms. Maignan said. "There are probably 300 good stores that might be worth looking at next year," she said.

The store upgrades, which will create more distinct selling areas for multicultural apparel brands, follow the introduction of several brands during the past year that have been aimed at minority customers, Ms. Maignan said. Those brands include A-Line, a casual and career clothing brand from Jones Apparel Group Inc.; Curve, a casual brand by Liz Claiborne Inc.; Russell Kemp, a women's career label; and Azucar Bella, which makes evening wear aimed at Hispanic women.

Sears isn't prepared to give many details on the performance of the minority-focused brands thus far, Ms. Maignan said. She did say, however, that the brands have won an especially strong reception in the Southeast markets, which include Mississippi and New Orleans.

The company's minority customers in the Southeast were among those who "do not understand Lands' End," Ms. Maignan said, referring to the apparel brand Sears acquired in 2002 for $1.86 billion. Lands' End's preppy, suburban styles flopped in minority markets after they were rolled out to all of Sears's full-line stores in 2003.

Since then, Sears has reduced -- although not eliminated -- the amount of Lands' End merchandise it carries at stores in those markets, Ms. Maignan said. Now, those same stores have moved the minority-focused brands to prominent displays near store entrances, and pushed Lands' End back, Ms. Maignan said. "I would think we would continue in that direction," she said.

A Giant Pay Day at K-Mart
By Suzanne Kapner - New York Post
October 19, 2004

Julian Day, who stepped down yesterday as Kmart Holding's chief executive to make way for his successor, restaurant pro Aylwin Lewis, will walk away with a multimillion-dollar pay package for steering the retailer through a dizzying financial recovery.

Day's takeaway for just 30 months of work, including severance, pension benefits and stock options, is estimated to be as much as $130 million, according to filings with the Securities and Exchange Commission.

The package includes about $120 million in options, based on yesterday's closing price, the value of which has soared along with Kmart's stock price.

Of course, Day's pay day pales in comparison with the holdings of Edward Lampert, the hedge fund manager, who is now Kmart's chairman and majority shareholder with 53 percent of the stock - an amount currently worth about $4.5 billion.

Since emerging from bankruptcy and issuing new stock that began trading in May 2003, Kmart's shares have risen five-fold to close yesterday at $91.02, up $4.31, or 4.97 percent, in Nasdaq trading.

Day, who will retain his board seat, is largely credited with returning Kmart to profitability, by selling less desirable real estate and trimming inventory. In the process, Kmart has amassed a war chest of $2.6 billion in cash and cash equivalents as of July 28.

Lewis, who most recently spent 13 years with Yum! Brands, owner of KFC, Pizza Hut and Taco Bell, is seen as more of an operational and marketing expert, and analysts said yesterday that they expect him to solidify Kmart's turnaround.

The question for Lewis, said Craig Johnson, president of consulting firm, Consumer Growth Partners, is, "How do we find our niche in the new world of retailing? Kmart still has significant marketing and merchandizing problems."

The change in leadership, coming so soon after Kmart's emergence from bankruptcy protection and more than a year before Day's contract expires, took some observers by surprise and may underscore differences between Lampert and Day in their long-term vision for the company.

Some Wall Street observers have characterized Kmart as a real estate play, with the underlying value of its leases supporting the soaring stock price, even as sales at stores open at least a year have continued to decline.

But with the change in management, Kmart, these people said, is clearly prepared to tackle its operational problems, which essentially include stocking more merchandise that people actually want to buy.

Kmart Appoints Lewis Its CEO, President
Associated Press
October 18, 2004

Kmart Holding Corp. has chosen fast-food industry veteran Aylwin Lewis to lead the retailing company, a decision some analysts said could point to a new push to improve operations following the discounter's successful financial turnaround. Its shares rose more than 4 percent in afternoon trading.

Kmart announced Monday that Lewis, formerly an executive at the restaurant operator Yum Brands Inc., will replace Julian Day as chief executive and president.

Lewis, 50, is a 13-year veteran of Yum, whose brands include Pizza Hut, KFC, Taco Bell, Long John Silver's and A&W All-American Food, and most recently served as president and chief operating officer.

In a statement, Edward Lampert, Kmart's chairman and majority shareholder, praised Lewis as "the ideal leader and agent of change for Kmart at this time."

Lewis, who also sits on the boards of Halliburton Co. and Walt Disney Co., is Kmart's first black chief executive. Yum chairman and chief executive David Novak noted in a statement that Lewis had been the highest-ranking black executive in the restaurant industry.

Day, who became chief executive in January 2003 when the company was in bankruptcy, will remain on the board of directors and assist Lewis in the transition, Kmart said.

Under Day, Troy-based Kmart has achieved a speedy financial turnaround since emerging from bankruptcy in May 2003. It has posted a profit for three quarters in a row. Its shares, which closed at $19.60 following their first day of trading in June of last year, were up $3.86, or 4.5 percent, at $90.57 in afternoon trading Monday on the Nasdaq Stock Market.

Much of the excitement over Kmart on Wall Street has been fueled by speculation that Lampert plans to slowly dismantle the company and turn it into an investment vehicle akin to Warren Buffett's Berkshire Hathaway Inc.

That theory was boosted by Kmart's recent sale of 50 stores to Sears, Roebuck and Co. for $575 million and 18 stores to The Home Depot Inc. for $271 million. And in August, Kmart said it had delegated authority to invest surplus cash to Lampert. At the time, Kmart said it was sitting on $2.6 billion.

But as a retailer, Kmart has failed to shake its dowdy image and continues to lose market share to rivals Wal-Mart Stores Inc. and Target Corp. The company's same-store sales, which measure sales at stores open at least a year and are commonly considered the best measure of a retailer's health, have been sliding for several years.

Gary Balter of UBS Investment Research said Lewis' appointment could be "the first move to expand executive talent and experience, should Kmart begin to invest outside of the pure retail area."

At the same time, Balter said the appointment signals that Kmart is putting more emphasis on retail operations now that its financial house is in order.

"Julian Day is viewed as a strong, financially oriented executive and has been a key component behind the margin-expansion success to date," Balter said in a research note. "He is less noted for his operational skills, and this change could point to a transition to more focus on operations."

Richard Hastings, retail sector analyst at Bernard Sands, a New York-based credit advisory firm, said that because Lewis comes from the restaurant business, he has expertise in branding and customer satisfaction. Those are areas where Kmart needs work right now, he said.

Kmart has taken some steps in that direction, notably by hiring new design and marketing executives and by revamping its apparel lines.

"Lewis fits in with that culture," Hastings said.

Louisville, Ky.-based Yum replaced Lewis as chief operating officer with chief financial officer David Deno, 47, who has 21 years' experience in the restaurant industry. He will retain his job as Yum's CFO until Rick Carucci takes over as CFO in a year.

Deno previously worked as an executive at Pizza Hut and at Yum's international operations. The company's burgeoning international sales have become a key contributor to Yum's earnings.

Carucci, 47, was named senior vice president of finance after most recently serving as executive vice president and chief development officer of Yum's international segment, where he was responsible for franchising and development.

Yum shares were up 22 cents at $43.09 in afternoon trading on the New York Stock Exchange.

Kmart Names YUM Brands President Lewis
President, CEO
Dow Jones Newswires
October 18, 2004

TROY, Mich. -- Kmart Holding Corp. (KMRT) named Aylwin Lewis president and chief executive, effective immediately.

Lewis will also join the Kmart board. He replaces Julian Day, who served as Kmart's president and CEO since January 2003. Day will remain on the board and assist Aylwin Lewis in the transition, the mass merchandising company said in a press release Monday.

Lewis joins Kmart from YUM! Brands Inc. (YUM), where he was president, chief multi-branding and operating officer.

Kmart's new CEO, Aylwin Lewis, is a veteran of the restaurant industry. At restaurant company Yum! Brands, he was responsible for executing the company's global operating platform, multi-branding expansion, and restaurant information systems.

A Kmart representative was not immediately available to comment on the management changes.

Separately, Yum confirmed that Lewis had resigned and named David Deno, 47 years old, to replace him as chief operating officer. Yum's restaurant brands include KFC, Pizza Hut, Taco Bell and Long John Silver's.

Kmart shares recently traded at $86.50, down 21 cents, or 0.2%, on volume of 20,667 shares. Average daily volume is 2.6 million shares.

How Target Does It
In a Wal-Mart world, the retailer thrives through superior style.
But can it stay hip and grow?
By Julie Schlosser - Fortune
October 18, 2004

If Wal-Mart did not exist, you can be dead sure that business school first-years would be forced to study the Target phenomenon. Nicollet Mall, Target's home base in Minneapolis, would have the kind of cult status now reserved for Bentonville, Ark.-mecca for the world's vendors. Budding retailers would dissect the Target way, its in-your-face marketing, its constant store makeovers, its surprisingly deep connection with customers. Target's size and scale would be the benchmark, not that other discounter's. The business press would trumpet Target's $48 billion in annual sales-larger than Coke's and PepsiCo's combined, nearly double Kmart's, and $5 billion greater than that of warehouse club Costco. Even in the thin profit margins of the discount store business, Target's $1.8 billion in 2003 income is countless times higher than nearly every rival chain's-and even fatter than those of five major department stores (Federated, May, Kohl's, Dillard's, and Saks) combined. And then there's Target's stock performance to consider. The company has returned a total of 603% to shareholders over the past ten years, stomping Berkshire Hathaway (up 356%) and shaming the S&P 500 (up 176%). Rival retailers would wince with envy every time a Sarah Jessica Parker chatted up her $12.99 Target pajamas on Conan O'Brien's couch (which the style maven and Sex and the City star did before becoming a paid spokesperson for Gap). They'd ruefully wonder how it was that style editors were finding inspiration in this discount soap-and-socks retailer, how fashionistas from East Hampton and Melrose Avenue were forsaking chichi boutiques for Target's $26.99 Isaac Mizrahi fall loafers. Yes, Target would be the king of the retail mountain by any stretch of the imagination.

That Target's success has occurred in the shadow of its giant rival, however, is hardly a stain on its reputation-more like a badge of honor. Dozens of retailers have tried to challenge Wal-Mart on price over the past few decades and lost badly, ending up in bankruptcy or, worse, out of business. By contrast, Target has grown into its current position as a discount superpower by daring to be different. The company has built its reputation using a trendy assortment of distinct products, and crafted a unique approach to marketing both itself and the goods it sells. It may have only a fifth of the sales and profits of Wal-Mart, but it reels them in with ten times the panache.

But maintaining the company's status as the king of cheap chic while continuing to meet Wall Street's growth demands presents a challenge for CEO and chairman Bob Ulrich, 60, and his management team. For one thing, Target has yet to expand beyond the U.S. market. For another, if it makes the decision to grow its business aggressively in SuperTargets-discount stores with full-service groceries, similar to Wal-Mart's Super Centers-the company will be going head-to-head with its rival in the low-margin, high-risk food business.

Rather than be intimidated by Wal-Mart's heft, Target's executives take inspiration from the success of their competitors in Arkansas. Sitting in his office at Target's Minneapolis headquarters, for instance, vice chairman Gerald Storch ponders what you might call retail's Amazing Race. He pulls out the company's 2003 annual report and flips to page 26. "I discovered this once by accident," he says, and points to a column showing Target's revenue from the year before: $43.9 billion. Storch, a former McKinsey consultant, scribbles in a second sales figure right beside it: $43.9 billion. "This is Wal-Mart in 1992," he says, pointing to the second number. "This is uncanny. You could say, 'We're ten years behind.' Or you could say, 'Wow, we're the same size as the world's largest company was ten years ago!' "

As tenuous as that connection between Target now and Wal-Mart then may seem, investors have been making it for a while: Target, some believe, may be just beginning its Wal-Martian growth spurt-and may even have a steeper growth curve over the next few years than its enormous rival. Few analysts will come out and say it-but that's what the stock charts of the two companies imply. Target's stock, which of course reflects the market's expectations for the company's growth, has far outpaced Wal-Mart's over the past one, three, five, and ten years. "Target is flourishing against Wal-Mart in the same business, while almost all their competitors have either disappeared or are struggling," says Daniel Barry, a retail analyst at Merrill Lynch. Operating margins are better at Target. Same-store sales are strengthening. Its omnipresent logo has become a trademark of urban cool.

Target's secret, in fact, is that while it may be in the same general business (discount retailing) as Wal-Mart, it doesn't seem to act like it. And never did. That may help explain its phenomenal success so far. And yet that factor may ultimately be the biggest impediment to rocket-fast growth.

To understand how Target keeps its edge, it helps to examine its roots. In 1962 an already 40-year-old Minnesota retailing firm named Dayton's opened the first Target store in a suburb of Minneapolis called Roseville. The idea was, in effect, to take the best-quality merchandise of a high-end department store's "bargain basement" and sell it in a standalone shop. The discount-store model had been around for years. But Target was to be an updated, up-style retailer with prices just above the cut-raters. Target co-founder Doug Dayton says the store offered customers everything from toys and household items to artificial Christmas trees (no one believed they'd sell) and even newfangled FM radios. Eight years later Dayton's had 17 Target stores with over $200 million in sales.

But it wasn't alone. Just 62 days after the first Target opened its doors, a man in Rogers, Ark., named Sam Walton introduced a store called Wal-Mart. The folks in Minnesota hardly noticed. They were more worried about S.S. Kresge's Kmart chain, launched that same year, which was expanding fast. And there was that new low-end department store called Kohl's, in Milwaukee, which set up shop the same year (for more on retail, see "Our Malls, Ourselves").

But 1962, a year the Fed funds rate hovered under 3%, was a banner year for optimism when it came to low price points. "What Target did was figure out how to eke out a position on that [retail] landscape that was not about solely playing the cost game," says Nancy Koehn, a Harvard Business School professor and retail historian. "They went a very different direction from Wal-Mart." And pretty much everybody else. (It was a good thing: The corporate graveyard is filled with discount retailers. Many once-big names like Woolco, Ames, Bradlees, Caldor, and E.J. Korvette have closed their doors. Others, like Kmart, have struggled to come back from bankruptcy.)

From the start, Target found ways to sell style as well as steals. Even back in the 1960s, shoppers noted the company's Parisian flair by dubbing the discounter "Tar-zhay," says Laura Rowley in her recent book on the company. By 1975 it had started an ad circular for Sunday papers that was so bright and colorful it stood out from the other coupon cutters, becoming a must-read mini-style section for many. (Today Target circulates 150 million of the newspaper inserts each week.) The store's wide, squeaky-clean aisles were filled with sleek and often artful displays. In the late 1990s, Target settled on a marketing style that more closely resembled Andy Warhol-inspired pop art than the drab price-focused ads of its competitors.

But mostly Target managed to turn its shoppers into treasure hunters. Customers would race into the store to grab the Coach's Whistle teapot, a $35 gem designed by architect Michael Graves that's a cousin of the much pricier kettle he did for Italian design firm Alessi. Graves has followed up with a branded wireless keyboard, a dartboard, and poker chips. Target would license hot fashion-name brands that were suffering financially on their own-and remarket the lines to the masses. For example, after Isaac Mizrahi's financial backers pulled out from his high-priced ready-to-wear business because of poor sales in the late '90s, Target scooped him up. Now his line, from $23 multistriped sweaters to $50 sienna suede pants, is drawing style hunters to Target. (Ironically, Mizrahi's success with Target helped him launch a new line of couture clothing at tony department store Bergdorf Goodman.) The same strategy worked in bringing Californian sportswear designer Mossimo Giannulli to the heartland. His jeans are big sellers this fall.

The store has also had great success turning completely unknown brands into hits, sometimes helping the small companies market and expand their product lines. That's what it did in 2002 with Method, a tiny, environmentally friendly soap-and-detergent line out of San Francisco. Method's bright-purple hand soap and nontoxic dryer sheets now vie for shelf space with established brands like Colgate's Palmolive. "We've gone from about two to ten product lines in under two years," says Method CEO Alastair Dorward. Another successful strategy has been Target's longtime practice of teaming with high-end manufacturers to offer exclusive products to its shoppers. Sony now sells an iPod-white electronics line, from clock radios to boom boxes.

Target, of course, sometimes misses the bull's-eye. It was "too early," says Greg Duppler, a senior vice president of merchandising, on its 2001 launch of designer Philippe Starck's organic food line. "Our guest [Target's term for customer] wanted Cheerios."

But the company's style hits have clearly been outnumbering its misses. One possible reason: Target solicits everyone in the company to find the next new thing. Marketing chief Michael Francis leads a quarterly contest he calls the Big Idea. "Every team leader throws out two or three things he's thinking of-what's the next concept for food packaging or what's the next way we can reinvigorate pets?" says Francis. "We put that challenge out to the whole organization. Some people who come back with good ideas are not in the core [marketing or product development] areas. We might get someone from finance doing [ad] storyboards." Additionally, Duppler credits the company culture with institutionalizing curiosity. "Everybody is always looking for trends, from the top down," he says.

That's how Target found Andrea Immer. Three years ago a Target employee was flipping through a wine book Immer had written. He tracked down the then-34-year-old master sommelier, and within months she began selecting nearly every bottle of wine Target sells. Last year Immer helped the company launch its wine-in-a-box-or, in Tar-zhay-speak, the wine cube. Each richly colored cardboard box holds four bottles of select California wine.

But Target doesn't make its money selling designer treasures on the cheap. It makes it on diapers. On paper towels. On DVDs. Its slivers of profit come from the same kinds of things that Wal-Mart sells. The strategy is to lure its customers with a few wow-'em products and then sell them doughnuts on their way to the register.

The challenge is to know which treasures will do the trick-and equally important, to know when a hot item has run its course. On a Tuesday morning in August, doughnuts are about to get the boot. Ulrich walks into the Crystal, Minn., Target and stops at a lifeless display of Krispy Kreme cartons a few yards from the entrance. "We do extremely well with Krispy Kreme," says the CEO, dressed in a navy jacket and cowboy boots, "but frankly, I am starting to question whether it should be up here in the front. It's at every gas station and at every drugstore or 7-Eleven. I think we need to quit treating it like it's special."

Ulrich's quest to stay fresh goes beyond glazed doughnuts. His team rethinks and reworks its store designs more often than a bored housewife. "Normally, every three to four years we do a new prototype," says Ulrich, vastly enlarging the floor space devoted to one category (this year it's baby products) and shrinking another (men's clothing). In 2004, 76 of its 1,272 stores will undergo a major renovation. But one thing never changes: The company's iconic color, Target red, is everywhere. As is the famous bull's-eye.

That two-ring, red bull's-eye is just one of many weapons Target uses to grab the attention of potential customers. This year in Washington, D.C., bull's-eye-emblazoned rickshaws padded around the Jefferson Memorial tidal basin during the popular Cherry Blossom Festival. Thirty-five clones of Target's mascot, a white bull terrier named Bullseye, invaded New York City's celebrity-filled Fashion Week in February.

Target has also perfected the art of the stunt store. In 2002, the company docked a 220-foot floating shop on Manhattan's West Side filled with holiday fare. The U.S.S. Target's two-week furlough was just long enough to whet local appetites and to garner hundreds of press clips globally. A year later an Isaac Mizrahi Target boutique "popped up" for six weeks in Rockefeller Center. Then, this summer, "Deliver the Shiver" rolled through Manhattan. One of two bull's-eye-branded trucks stopped on a busy corner in the trendy SoHo neighborhood. Standing behind a red rope, in standard nightclub protocol, Target ambassadors sold air conditioners. Over a thousand of them. For $75 apiece. On Oct. 1, Target opened a temporary shop in Times Square with all the proceeds earmarked for breast cancer research. (The company gives away 5% of its pretax profits annually to charity.)

New York, New York. It's a hell of a town for buzz, it seems, despite the fact that there was, until very recently, no Target store in the city. No matter. "The buzz that generates from there has an amazing amplifying impact on our advertising budget," answers Francis. "Many may spend more than we do, but if we can harness the power of that sort of media exposure, the implication is enormous." Last year, according to Advertising Age, Sears spent $627 million, Wal-Mart $467 million, and Target $442 million on U.S. television, print, and Internet ads. Whose logo do you remember?

It's not only quirky events that give Target the allure of cool. It is also a select group of tastemakers-shoppers in key cities who morph into one-on-one marketers. (You may be one of them.) "We have a baker's dozen buzz markets," says Francis, and you probably know if you live in one. "If we can convert guests into evangelists, the credibility factor is significant. Someone else telling the Target story has far more impact than my running another consumer ad," he says.

Four Ways Target Transforms Into Tar-Zhay

1. Mixing High Style with Low Prices Household products by Michael Graves are Target's best-known designer goods on the cheap. Inexpensive versions of Liz Lange's maternity wear have also flown off shelves.

2. Resurrecting Brands In Decline Target bought exclusive rights to Mossimo designs in 2000. Now shoppers can get the jeans custom-made for under $40. A slightly older crowd snaps up trendy duds from Isaac Mizrahi.

3. Co-Branding with High-Profile Partners An exclusive line of electronics products from Sony and Virgin are available only from the manufacturers or at Target-no danger of finding them marked down at another store.

4. Building Boutique Products Into Big Names Before Target took interest, Method soaps were sold only at select shops. Now you can buy the sexy, Karim Rashid-designed bottles of dish soap as easily as Palmolive.

Which brings us to the question of how Target can grow while still retaining that je ne sais quoi-that hard-to-explain quality that transforms this big-box retailer into a mass-couture Casbah. That in turn leads us to the fine balance between organic cereal and Cheerios-and how to grow a 42-year-old company.

And the fact is, Wal-Mart is so far ahead in selling cereal that it will be hard to catch up.

This battle comes to life off the Germantown Parkway in the posh Memphis suburb of Cordova. In this über-strip mall, where you can throw a baseball from a Wal-Mart Super Center and hit a SuperTarget, the two discounter's superstores are facing off.

To most shoppers SuperTargets probably look pretty similar to Wal-Mart Super Centers, except for the Starbucks inside. (Wal-Mart has McDonald's.) But while neither store is particularly busy on a hot summer morning, inside Wal-Mart, 15 of 37 checkouts are lit and active. Across the lot at SuperTarget, three of 32 registers are open.

The issue, in a nutshell, is groceries. Target has not yet figured out how to sell its brand of cheap chic in butter and lettuce, analysts say. And interestingly enough, its upscale image could be its Achilles' heel in this market. The average consumer thinks Target's Cheerios cost a lot more, says A.G. Edwards analyst Bob Buchanan. The reality is, they don't. Last March, Buchanan priced 309 items at those same two locations. Target came in 0.8% lower on a total basket-price basis. Fortune did its own price comparison of 17 miscellaneous items, such as a one-pound bag of Nabisco's Chips Ahoy and a box of Kraft's Thick 'N Creamy macaroni-and-cheese. Target came in $2.38 under Wal-Mart.

But the company hasn't done enough to get the message through to shoppers. One problem: It doesn't have many grocery-selling superstores to begin with-compare the 126 SuperTargets with Wal-Mart's 1,615 Super Centers-or the infrastructure that goes with them. "Wal-Mart saves a lot of money by doing its own logistics, and doing it well," says Buchanan.

Neither company breaks out numbers for its grocery business. "SuperTarget is really struggling in the Southeast and Southwest," says retail consultant Burt Flickinger III. He has just visited stores in Houston, Huntsville, Ala., and Birmingham, Ala. "They've got some of the best-looking European patisserie pastries and prime meat, but the stores are far too clinical and sterile on the food side," he says.

"The SuperTarget question, I believe, is frequently misframed," responds Storch, the vice chairman. Only a third of the stores the company plans to open are slated to be superstores, the company maintains. Target also says it is using the extra big-box outlets to woo shoppers into making more-frequent visits. (On average, shoppers visit SuperTargets at least 75% more often than regular stores.) "We survive by being clever, by being smart," says Storch. "We have no desire to copy every step that Wal-Mart has taken. If we did that, that would be a fool's errand."

The next question, then, is whether Target plans to follow Wal-Mart into international markets. Some analysts expect the company to make an acquisition abroad in the near future. But Target's CEO says he isn't rushing into anything that doesn't make sense for shareholders. "Sometimes overseas becomes a little sexy, and everyone kind of follows, like China now," says Ulrich. "We still have the opportunity at a minimum to double in size in the U.S." In fact, Target says that by 2010 it plans to have 2,010 stores-almost double the current figure.

One thing Target does want to copy is Wal-Mart's monumental growth. (Wal-Mart already has over 3,000 U.S. stores.) Can it get there? Storch certainly believes that will happen if Target keeps doing what it's doing now. "We have to keep innovating, keep being ourselves," he says. "But we don't have to invent cold fusion."

Federal Agency Sues Allstate, Claiming Age Discrimination
By Joseph B. Treaster - New York Times
October 8, 2004

Allstate, the second-largest insurer of cars and homes in America, was sued yesterday by a federal agency and accused of age discrimination in the latest development in a long battle with agents over a plan intended to cut costs and streamline the company's operations.

The insurance company was already struggling with a broader discrimination lawsuit protesting its decision to dismiss more than 6,000 agents in the summer of 2000.

Yesterday's lawsuit, which was filed in Federal District Court in St. Louis by the Equal Employment Opportunity Commission, focused on Allstate's refusal to consider any of the dismissed employees - 94 percent of whom were 40 years old or older - for other jobs for at least a year.

C. Felix Miller, the commission lawyer in charge of the case, said the company also erred in making an exception to its one-year ban; it rehired an agent who was younger than 40.

A spokesman for Allstate, Michael J. Trevino, said the company denied the latest accusations.

"The intent was to have the program apply to everyone regardless of age,'' Mr. Trevino said.

In Washington, a spokesman for the commission, David Grinberg, said the agency received more than 80,000 complaints a year from workers but only 350 to 400 resulted in lawsuits.

"When we do bring a lawsuit, it has to be a very strong case,'' he said.

Mr. Grinberg said the Allstate lawsuit was distinctive in part because only about 5 percent of the agency's lawsuits are related to age discrimination. "This is a major employer in a big industry,'' he said.

The dispute grew out of a plan by Allstate, announced in fall 1999, in which the company said it was eliminating its employee-agent jobs. But, it said, the agents could become independent contractors, without employee benefits.

Roughly 4,000 became contractors and received a $5,000 bonus. The other 2,000, who left the company, received an average of $100,000 in severance pay and were permitted to sell their agencies and keep the proceeds. To receive the bonuses, severance pay and sell their agencies, the agents were required to sign a release promising that they would not sue Allstate for discrimination under federal employment laws.

The E.E.O.C. later determined that the requirement to give up the right to sue violated several laws that prohibit employment discrimination because of race, religion, color, age or other factors.

While the agency was trying to negotiate a resolution with Allstate, the agents independently sued the company in summer 2001. They asserted that Allstate had illegally stripped them of their employee benefits and pushed them out because of their age.

The commission filed its own lawsuit against Allstate on behalf of the agents in late 2001.

Eventually, the lawsuits were combined in a federal court in Philadelphia. In April, Judge John P. Fullam of Federal District Court in Philadelphia cleared the way for a trial on some aspects of the lawsuit. But he was equivocal on the issue of age discrimination.

At one point in his ruling, he declared that there had been no age discrimination. But he also said his reason for permitting the case to proceed was that some of Allstate's actions had violated the Older Workers' Benefit Protection Act.

Mr. Miller of the commission said the lawsuit filed yesterday involved "a completely different issue and completely different facts'' that arose from the same dispute.

Retailers Log Modest Sales Gains
Chicago Tribune
October 8, 2004

Consumers spent frugally for a fourth straight month in September, giving major retailers modest gains during the critical back-to-school season and raising questions about the strength of holiday shopping to come.

The New York-based International Council of Shopping Centers said Thursday that same-store sales at 71 retailers rose 2.4 percent, the second-smallest gain in 15 months. Same-store sales, or sales at stores open at least a year, are considered the best indicator of a retailer's health.

The increase was better than the 2 percent gain forecast by the council and the 1.3 percent gain in August, but well off the average 6 percent increase of January through May.

Sales hadn't been as sluggish since they fell 0.2 percent in March 2003.

"The consumer is not in great shape," said Larry Jones, a money manager at Durham, N.C.-based NCM Capital Management Group. "Confidence is weak and getting worse."

Hoffman Estates-based Sears, Roebuck and Co. posted a 3.2 percent decline, below the 2.7 percent drop Wall Street had expected. Total domestic sales fell 4.9 percent.

"Fashion fragmentation and growing personalization of styles" contributed to sluggish sales in clothing, footwear and accessories, said Richard D. Hastings, retail analyst at Bernard Sands LLC in New York.

Analysts said a 13 percent jump in gas prices from September 2003 crimped spending. Consumer confidence fell in September because of concerns about rising energy prices and slower job growth.

Wal-Mart Stores Inc., the world's largest retailer, and J.C. Penney Co. reported sales that were in line with estimates. Wal-Mart said sales rose 2.4 percent, while Penney posted a 2 percent increase.

Gap Inc. showed a 3 percent decline, worse than the 1.4 percent drop that Wall Street anticipated. Federated Stores Inc., owner of Bloomingdale's and Macy's, reported a 0.1 percent gain, better than the 0.7 percent decline analysts had predicted.

Analysts had forecast that May Department Stores Co., owner of Marshall Field's and Lord & Taylor, and Saks Inc. would be on the plus side, but May reported a 3.4 percent decline and Saks a 4 percent drop.

A couple of bright spots: Upscale merchant Nordstrom Inc. and Target Corp. surpassed estimates with gains of 6.2 percent and 5.6 percent, respectively.

The back-to-school season, when merchants get about one-sixth of revenue, is the second-biggest selling period, after Thanksgiving to Christmas.

But shopping last month wasn't as brisk as expected, said Ken Perkins a retail analyst at RetailMetrics LLC.

"It's probably best characterized as being lukewarm," Perkins said.

Hurricanes Frances, Ivan and Jeanne hurt department store traffic in Florida, wrote Smith Barney analyst Deborah Weinswig in a research note.

"Discounters and clubs benefited from the `stocking up' phenomenon, while department stores experienced a decline in traffic, as retailers were forced to close stores at various times," she wrote.

Sears September Same-Store Sales Fell 3.2%
Dow Jones Newswires
October 7, 2004

HOFFMAN ESTATES, Ill. -- Sears Roebuck and Co.'s (S) September same-store sales fell 3.2%, hurt by soft demand for apparel this year versus strong apparel sales last year.

The same-store sales slide was steeper than the 2.7% decline analysts expected, on average, according to Thomson First Call.

According to the company's prerecorded telephone message, comparable apparel sales were down in the low double-digit range during September. The company also said comparable sales of its home group, which includes products like appliances, consumer electronics, tools and home furnishings, were down in the low single-digits. Sales at its auto centers were down in the low double-digit range.

In a press release Thursday, the department-store chain reported total domestic sales for the five weeks ended Oct. 2 fell 4.9%, to $2.33 billion from $2.45 billion in the same period a year ago.

For the year-to-date period, same-store sales declined 2.5% and total sales declined 3.8%, to $16.76 billion from $17.42 billion.

Discover Sues Visa, MasterCard
Crain's Chicago Business Online
October 4, 2004

(Reuters) - Riverwoods-based Discover Financial Services Inc.'s credit card unit said on Monday it is filing a lawsuit against credit card associations Visa and MasterCard. The suit, Discover said, stems from antitrust violations and comes on the heels of a U.S. Supreme Court decision on Monday to keep intact a lower court ruling that said Visa and MasterCard business practices were anti-competitive.

The Supreme Court let stand a ruling that the Visa and MasterCard credit card associations violated U.S. antitrust law by barring member banks from issuing credit and charge cards on rival networks owned by American Express Co. and Morgan Stanley, which owns Discover. Without any comment, the justices rejected separate appeals by Visa and MasterCard of a ruling that found their so-called exclusionary rules harmed competition.

"A new era of greater choice for U.S. consumer and financial institutions has begun," American Express Co. Chairman and Chief Executive Kenneth Chenault said in a statement.

The appeals stemmed from a lawsuit brought in 1998 by the Justice Department over membership rules by Visa and MasterCard, which operate as joint ventures owned by member banking institutions.

A federal judge in New York ruled in 2001 the rules were unlawful and ordered Visa and MasterCard to repeal them and a U.S. appeals court last year upheld the decision. Visa and MasterCard then appealed to the Supreme Court.

Visa's attorneys said the case will have "extremely broad practical consequences for U.S. companies and consumers. The necessary effect of invalidating Visa's loyalty rule will not be to lower prices for consumers."

MasterCard's attorneys said the appeals court ruling "will undermine the incentives for vigorous competition that have produced compelling consumer benefits in an industry of fundamental importance to the economy."

The decision is expected to benefit American Express and Discover and creates big headaches for the bank associations.

Within an hour of the decision, Morgan Stanley's Discover unit announced it filed a lawsuit against the associations, seeking undisclosed compensation.

Discover complained association rules limited its share of the general purpose card market and locked it out of the fast-growing debit card business. American Express said it may also take legal action.

Wal-Mart Bets on Bigger Stores
By Becky Yerak - Tribune staff reporter - Chicago Tribune
October 4, 2004

Super center or bust: That's the message that Wal-Mart Stores Inc. sent when asked whether it'll step up its introduction of 43,000-square-foot neighborhood markets in areas where 187,000-square-foot super centers have run into opposition.

The short answer: no.

"Our neighborhood markets do the best when they're close to the super center and live on the credibility that Wal-Mart has established in food in the super center," Lee Scott, chief executive officer of the Bentonville, Ark., retailer, said during a Goldman Sachs & Co. retail conference in September.

"We'll grow neighborhood markets, but we don't want to take the emphasis today off of super centers." The latter's return on investment is better.

Wal-Mart has 1,625 U.S. super centers, which sell general merchandise and include full-scale supermarkets. It also has 76 neighborhood markets, as well as 1,383 mid-sized stores.

"Although you'll read about those that are turned down, don't forget we're opening 230 to 240 super centers this year," Scott said. "We plan to open more every year over the next five years-more than we opened the prior year-because we'd like 8 percent square footage growth."

Wal-Mart has won a zoning change to build a store on Chicago's West Side. It dropped plans, however, for a South Side store. Many aldermen welcome the jobs and shopping options, but critics complain about Wal-Mart's wages and benefits and anti-union stance.

Scott conceded last month that Wal-Mart has failed to adequately convey positive stories about his company as an employer. Two-thirds of his management team, for example, came up through the hourly ranks.

Also, at a new store in Phoenix, Ariz., 5,000 people applied for 500 jobs. "People don't line up for a new job that pays less and has less benefits," he said.

World domination: If Wal-Mart's international operations were a standalone company, they'd be the world's ninth-biggest retailer, according to Goldman Sachs.

Also, since 1997, despite Wal-Mart's unprecedented scale, there has been only one year it has failed to achieve double-digit sales growth.

Other retail hotshots: Goldman Sachs also is high on Home Depot Inc., Coach Inc., Liz Claiborne Inc., Kroger Co., Best Buy Co. and Supervalu Inc. Also, Kohl's Corp.-one of the few department stores that Goldman likes-"could at least double in size."

Jones on Sears: Jones Apparel Group Inc. CEO Peter Boneparth was asked which of his 28 active brands-which include Jones New York, Nine West and Anne Klein-has the best potential for sales growth.

Boneparth first mentioned the mid-priced Bandolino line. But the second rolling off his tongue was A/Line, a mid-priced sportswear, outerwear, jewelry and purse line for which Sears, Roebuck and Co. has exclusive rights through 2005.

"We think A/line is a sizable opportunity as Sears reinvents itself," Boneparth said at the Goldman conference. "There's a huge void there, and we're shipping terrific product."

Separately, Boneparth divulged that Rena Rowan will be relaunched this spring exclusively through the Hoffman Estates retailer.

It meets Sears' need for a "more career driven but slightly updated" line, he said.

IBM Retirees to Get Cash, but What's it to You?
Linda Stern - Newsweek
October 11, 2004 issue

IBM retirees will get their cash, but what's it to you? It's too soon to tell. Last week IBM agreed to pay $300 million to settle old pension claims, and agreed to pay $1.4 billion more if a recent ruling, which struck down its "cash balance" pension plan, holds.

Older IBMers said they were treated unfairly by the cash-balance plan, which tends to favor younger workers and job switchers. About 1,200 companies use cash-balance plans, covering 7 million workers.

If the courts do throw out the IBM plan, others would be in jeopardy. Some experts say Congress will then write a law to allow cash-balance plans. There's free advice at the Pension Rights Center (pension rights.org). Meantime, keep feeding that IRA, just in case.
-Linda Stern

Retiring Minds Want to Know
By Aystan Goolsbee - New York Times
October 1, 2004

Even as I.B.M.'s pension difficulties make headlines - the company has agreed to pay current and former employees $320 million to settle some charges that changes to its plan discriminated against older workers - a more serious financial disaster looms for the pension system. Taxpayers could face an even larger bill from corporations' failure to put enough money into their pension funds.

Yet neither candidate for president even mentions the problem, and Congress has actually made it worse. The crisis concerns the Pension Benefit Guaranty Corporation, the federal agency that insures workers' pensions in case their employer defaults. The agency charges employers a premium for the insurance, and that money is supposed to cover its costs. The system is not supposed to cost taxpayers anything. But a dreadful lack of judgment, coupled with a new federal law, could leave the public with a $100 billion bill.

In the past two years, the agency has watched its net financial position deteriorate by $20 billion. Overall, corporate pension plans have some $450 billion less than they need to meet their commitments. While corporations are legally required to make these payments unless they declare bankruptcy and can prove they are under "severe financial distress," as much as $100 billion of this bill is owed by companies that are in financial trouble. Just this month, for example, United and US Airways, both of which are already in bankruptcy, announced plans to renege on their pension requirements.

Why doesn't the agency have the money to cover this shortfall? Fundamentally, it is an insurance company. Higher risk ought to mean higher prices; a regular sky diver, for example, pays higher life insurance premiums. But the pension agency doesn't work that way.

The agency's fees are unrelated to investment risk. It charges a fixed amount per corporation and an additional fee based on the amount its pension fund is underfinanced. United had about two-thirds of its pension fund in risky investments, including junk bonds and a Ghanaian gold-mining company. Yet if United had invested every dollar in United States Treasury bonds, it would have paid exactly the same premium to the pension agency.

Thus corporations have little incentive to invest workers' retirement savings wisely. If a bet wins big, a corporation can add that money to the pension plan and keep the funds it would otherwise have been required to contribute. If it loses big, the government will bail it out.

Congress is doing its best to make financial catastrophe more likely. In April, it passed a law that changed accounting rules to make it easier for companies to underfinance pensions. It also gave some companies in the two industries with the worst pension problems - airlines and steel - a two-year waiver from the usual requirement that they close their pension gaps with their own money and allowed them to defer some payments.

Unsurprisingly, they are taking advantage of the opportunity. Continental Airlines, for example, recently announced it would not make a contribution this year to its employees' pension plan. If these corporations declare bankruptcy and default on their pensions, the government bailout will need to be that much larger. According to the pension agency, this law could reduce company contributions by more than $80 billion.

Congress should not be making it easier for corporations to shirk their pension obligations - and neither President Bush nor Senator John Kerry should remain silent when they do. (While Mr. Bush signed the bill into law, neither Mr. Kerry nor his running mate, John Edwards, were present the day the bill passed in the Senate.) If Washington were truly concerned about workers, it would ensure that the pension agency remains solvent. One step in the right direction would be to have the agency charge higher premiums for corporations that make risky investments.

In the meantime, workers with old-style pensions should know that they are at risk of losing a great deal - a prospect that has become all too real for many employees in the airline industry, who frequently gave up wage increases in part for the promise of more generous pensions. Those pensions will be greatly reduced if the pension agency takes over.

It may be too late for many such employees to rescue their pensions. But it's not too late for Congress to act to ensure that employers, not taxpayers, pay more to protect the retirement of working Americans.

Austan Goolsbee is a professor of economics at the University of Chicago Graduate School of Business.

Sears Finalizes Store Acquisition With Kmart, Announces Wal-Mart Sites
PRNewswire
Sepember 29, 2004

Sears, Roebuck and Co. (NYSE: S) today announced that the company has closed the acquisition of ownership or leasehold interest in 50 stores from Kmart Holding Corporation (Nasdaq: KMRT) for $575.9 million. Sears has paid 30 percent of the overall purchase price for these properties, with the remaining 70 percent to be paid upon Sears taking possession of the stores.

The newly acquired stores are located primarily in large, densely populated markets with home, family and income demographics that are attractive to Sears. Sears will take possession of the stores in spring 2005 and the majority of the stores are expected to be converted by fourth quarter 2005 to Sears nameplates.

As part of the initial announcement on June 30, Sears also said it would acquire additional off-mall locations from Wal-Mart. Sears will make lease payments to Wal-Mart under subleases for six Wal-Mart stores. These stores are located in mid-size markets that fit well into Sears' market and demographic profile.

With this transaction, Sears is doubling its total number of stores in San Diego, adding five new stores to the New Jersey market and significantly increasing the total number of stores in key markets including Florida, the Northeast and Puerto Rico.

"The completion of this transaction moves Sears another step closer to its strategic goal of growing our store base and the Sears brand off-mall," said Alan Lacy, Sears chairman and CEO. "We look forward to an increased presence in these key markets and serving new and existing customers."

Representing the largest full-line store growth in company history, these new stores give Sears stronger presence in markets where the opportunities to find sites for store growth would be limited. "Opening more doors in these strategically selected locations allows Sears to compete more effectively and operate in areas closer to the customer," said Jerry Post, senior vice president, Sears off-mall strategy. "With these new locations, plus the Sears Grand stores already in development, we will quickly open more doors and dramatically boost our off-mall retail presence in attractive markets," added Post.

A New, Mid-sized Store Format

A Sears store at its core, the new mid-sized format will provide customers with traditional Sears product categories, such as apparel, home appliances, home electronics, home improvement and home fashions, plus consumables and transactional items. The floor design of the new stores will be on one level, utilizing an open racetrack design with exit cashiering at the door -- a common off-mall layout similar to that of Sears Grand stores.

As Sears begins looking to staff these new stores, the company plans to provide Kmart associates at these locations an opportunity to be considered for employment with Sears.

The locations of the former Kmart and Wal-Mart locations are as follows:

National Business Group on Health Forms Committee
to Foster Evidence-Based Health Benefit Design
Market Wire
September 27, 2004

Linking Benefits to Medical Treatments with Demonstrated Effectiveness Called an Important Step Towards Promoting Quality and Efficiency in Health Care

WASHINGTON, DC -- (MARKET WIRE) -- 09/27/2004 -- The National Business Group on Health announced today that it has formed the National Committee on Evidence-Based Benefit Design. Committee members will recommend ways employers can use health benefit design to promote greater use of evidence-based treatments and procedures, thereby improving the value of their health care investment and enhancing employees' health and quality of life.

"So much of the medical care delivered today is neither recommended nor based on scientific evidence," explains Helen Darling, President of the National Business Group on Health. "It's time for that to change. We have an opportunity to promote evidence-based medicine and in turn, value and effectiveness in health care. We can modify coverage policy and financial incentives to reward excellent care."

Composed of business leaders, large employers, health plan officials, coverage policy experts, physicians, hospitals and academics, the committee is co-chaired by E.J. Holland, Jr., vice president of compensation, benefits, labor and employee relations for Sprint Corporation, and Carol Wilkinson, M.D., M.S.P.H., well-being director for IBM Corporation.

"Evidence-based medicine truly is high-quality care," says Holland, co-chair. "It allows treatments to be consistent with scientific studies reviewed by medical peers and places more emphasis on fostering greater efficiency and medically-appropriate utilization. This gives employees the most affordable and appropriate health care possible."

The committee's charge is to:

1) Create a forum for large employers and national experts to consider a new framework for health care benefits that supports evidence-based medicine;

2) Develop a "message guide" and other employee communication tools related to evidence-based medicine for use by employers;

3) Identify a core schedule of benefits for which there is already scientific evidence of effectiveness;

4) Define a process for quickly translating evidence-based assessments to coverage and provider payment policies;

5) Identify areas for fast-tracked research and technology assessment;

6) Promote an information technology infrastructure for health care; and

7) Liaison with the consumer-directed health plan industry to enhance the value of plan offerings, fine tune insured services and help consumers maximize their health care spending.

Dr. Wilkinson, co-chair, concludes, "Health benefits currently offered by large employers provide little incentive for medical treatment based on what we know about effective practice. Coverage policy can be used to speed adoption of evidence-based practices and reduce the use of unproven and ineffective treatments. Consumers and patients want to know what treatments are best for them. We can help them know about best practices in health promotion and medical care."

In addition to Sprint Corp. and IBM Corp., the committee includes representatives from 3M Company; Cisco Systems, Inc.; Dell, Inc.; Exxon Mobil; Fidelity Investments; Ford Motor Company; JPMorgan Chase; Morgan Stanley; PepsiCo, Inc.; Pitney Bowes, Inc.; Saks, Inc.; Union Pacific Railroad Company; Starwood Hotels and Resorts Worldwide, Inc.; Quebecor World, Inc.; Wal-Mart Stores, Inc.; Assurant Health; Blue Cross Blue Shield Association; California HealthCare Foundation; Cigna HealthCare; Definity Health; Empire Blue Cross Blue Shield; Harvard Medical School; Joint Commission on Accreditation of Healthcare Organizations; Medco Health Solutions; National Committee for Quality Assurance; Permanente Medical Group; RAND Corporation; UnitedHealth Group; and Watson Wyatt Worldwide. Sean Tunis, M.D., of the Centers for Medicare and Medicaid Services is a liaison to the committee and serves as an expert resource. For a complete list of the members, please visit the committee website at http://www.businessgrouphealth.org/healthcarecosts/evidenced_benefits.cfm.

About the National Business Group on Health

The National Business Group on Health, representing 219 members, is the nation's only non-profit organization devoted exclusively to finding innovative and forward-thinking solutions to large employers' most important health care and related benefits issues. The Business Group identifies and shares best practices in employee health, wellness and productivity. It promotes development of a quality health care delivery system and treatment based on scientific evidence of effectiveness. Members of the Business Group, primarily Fortune 500 employers, provide health coverage for more than 45 million U.S. workers, retirees and their families.

Sears Adopts 'Friendlier' Logo
Crain's Chicago Business Online
September 17, 2004

(AP) - Sears, Roebuck and Co. has adopted a new logo, only the fourth in its 118-year history, to give it what it describes as a "fresher, friendlier" look. The company says it began switching to the revised logo this week in newspaper advertisements and by erecting new signs at a store in Vernon Hills, Ill., 15 miles east of its headquarters.

The logo is brighter blue than its predecessor, with "Sears" no longer in all capital letters. A red arc underlines the word. "We think the logo takes on a fresher and friendlier appearance," company spokesman Chris Brathwaite said. "And we believe this look evokes a more modern, stylish feel."

No radical change was made to the previous logo because customer research found that it was consistently perceived as trustworthy and reliable, according to Brathwaite.

Each of the previous two logos was used for about two decades.

Analysts Not Swayed by Changes at Sears
By Gina Petrelli - Medill News Service - Daily Herald - Suburban Chicago September 17, 2004

Sears, Roebuck and Co.'s plan to resuscitate its business with merchandising and store changes, and by hiring Target Corp. golden boy Luis Padilla and other top executives from competitors, has yet to improve analyst ratings of the stock.

Of 10 analysts who follow the company, one says Hoffman Estates-based Sears is a strong buy, while six rate it a hold and three suggest selling.

"My estimates have not changed," said Joseph Bonner of Argus Research Corp. in New York. Padilla "sounds like a good hire and a pretty good pedigree, but I'm looking for hard evidence."

"The company continues to generate returns on invested capital below its cost of capital," Joe Beaulieu, analyst for Morningstar Inc., wrote in his most recent report.

Sears has hired a slew of apparel executives from the outside. Since September, eight new people have joined the company's upper management - three in August.

On Aug. 23 the retailer lured Padilla from rival Target Corp. to the new post of president of merchandising. Ten days earlier, Sears appointed former Kohl's Corp. executive Paul Jones as vice president and general merchandise manager for men's apparel. And Aug. 8, former J.C. Penney Co. Inc. executive Rodney M. Birkins was hired to oversee apparel sourcing, international buying operations and technical design efforts.

George Strachan of Goldman Sachs Group Inc., who rates the stock underperform, wrote in a July report that the appointments will be too late to have a measurable impact on business in the holiday season and that the newcomers lack experience with Sears.

"This is far from ideal heading into what we believe will be a tougher second-half spending environment," he wrote.

The company earned only $53 million in the second quarter ended July 3, down 83 percent from $309 million in the same quarter last year, below the analysts' expectations. Sears blamed insufficient inventories of spring clothing.

To remedy disappointing apparel sales, Sears will reallocate apparel. For the fall, Sears will stock the 300 highest-income area stores with more of its pricey Lands' End merchandise and remove it from the 300 lowest-income areas.

For the year ended Jan. 3, Sears had sales of $41.1 billion, down slightly from the previous-year sales of $41.4 billion. Second-quarter sales fell 13 percent to $8.8 billion.

Down the road, Sears intends to compete with big boxes by acquiring and converting from Wal-Mart and Kmart off-mall stores, whose suburban locations offer convenience for customers. The company expects to operate approximately 70 new off-mall stores by the end of next year, including 12 to 14 Sears Grands and a new mid-size format.

Meanwhile, Sears predicts a grim third quarter with earnings per share to be between 0 cents and 10 cents. The average estimate of analysts is 4 cents per share, according to Thomson/First Call.

But analysts see an upswing to $2.59 per share for the fourth quarter, up from $2.24 in the same period last year.

Before Social Security, Most Americans Faced Very Bleak Retirement
By Cynthia Crossen - The Wall Street Journal
September 15, 2004

Getting old is rarely regarded as a happy prospect, but before Social Security, aging in America often meant penury and sometimes even the poorhouse.

When America was a nation of farmers, men and women who no longer could do hard physical labor frequently lived with their children and contributed to the domestic  economy by babysitting, tending the garden, sewing or cooking. By 1920, however, when more Americans lived in cities than on farms, old people faced a bleaker future. Urban homes were smaller, and wages paid the rent. Once people became too old to earn a salary, they were, however loved, an economic encumbrance.

"In the U.S.," a government adviser wrote in 1934, "many workers can escape the economic problems of old age only by dying before their period of superannuation sets in."

Ironically, while life expectancy was rising quickly, many employers shunned older workers. A 1930 survey found that almost a third of 224 American factories had maximum age limits for new employees. Four plants wouldn't hire anyone over the age of 40. In another 41 plants, the age limit was 45. The rest had no fixed limits, but they rarely hired people over the age of 50.

Retirement nest eggs, except among the wealthiest Americans, didn't exist. How could they? Even at the peak of the stock-market boom in 1929, the average annual income of all salaried employees was $1,475 -- the equivalent in purchasing power of about $16,000 today. Without health insurance, an aging person's savings could be quickly drained by medical bills.

A handful of people worked for paternalistic companies that would tolerate dead wood while a faithful employee coasted into retirement. And a few companies offered retirement annuities, though in the early decades of the 20th century, only about 2% of employees were covered. "Most private pensions existed not as a right, but a favor," wrote David Hackett Fischer in his 1977 book, "Growing Old in America." At most factories and offices, when older workers' productivity began to slip, they were simply dismissed.

State governments enacted old-age pension plans in the early 20th century, but they were mostly underfunded and undersubscribed. Some old people balked at the idea of "going on welfare." State plans also were vulnerable to regional interests: In Louisiana in 1937, old-age pensions were reduced in June and July so that elderly blacks would help to harvest cotton. In other agricultural areas, relief offices simply closed during the harvest season.

The Depression was a catastrophic blow to almost every American, but none more than the elderly. For many people, said Franklin Roosevelt in 1934, old age is "the most tragic of all hazards." Thousands of old people from across the country wrote to Washington asking for help. "I'm a 60-year-old widow greatly in need of medical aid, food and fuel," wrote a Virginia woman. "I pray that you would have pity on me."

Mrs. M.A. Zoller of Beaumont, Texas, begged for someone to help her 82-year-old mother, who, she wrote, was diabetic, "out of funds completely," and had "no place to go unless it be to the poorhouse."

And over the hill to the poorhouse many older people went. Financed by local taxes, poorhouses were the shelters for all of a region's indigent, and in the early 20th century, most counties had one. The best of the poorhouses provided a meager standard of living. The worst doubled as insane asylums and orphanages. "I was three miles from town but felt like I was 3,000 miles from friends and country," wrote Ed Sweeney in his 1927 memoir, "Poorhouse Sweeney." "I have ate off trays that looked like they had spent the rainy season laying on a city dump."

Germany, Sweden, France and England, among other countries, already had legislated publicly funded old-age insurance before Americans took up the debate. Proponents in the U.S. wondered why men and women who had been diligent, thrifty workers should suffer hunger and insecurity in their old age. In a letter to an editor, a postal worker pointed out that horses owned by the federal government lived out their old age on full rations. "For the purpose of drawing a pension," he declared, "it would have been better if I had been born a horse than a human being."

Opponents argued that sensible people would provide for themselves, and that universal old-age insurance would set the country on the slippery slope to socialism. Children, not the state, were obliged to care for the old, they said; without that responsibility, family ties would loosen. And if employees were guaranteed lifetime support, wouldn't they feel less incentive to work hard?

Even after the Social Security Act became law, it was vigorously challenged in America's courts.

"The hope behind this statute," wrote Justice Benjamin Cardozo for the bare 5-4 majority of the Supreme Court in 1937, "is to save men and women from the rigors of the poorhouse, as well as from the haunting fear that such a lot awaits them when journey's end is near."

Carmakers Face Huge Retiree Health Care Costs
By Danny Hakim - The New York Times
September 15, 2004

DETROIT, Sept. 14 - Ernest Pusey is older than General Motors.

At 109, he once helped build the Stovebolt Six, a heavy cast iron engine that propelled Chevrolets across America, but it has been nearly half a century since he retired from G.M. and moved to Florida. Today, he is one of 240 G.M. retirees or spouses over 100 years old. All of them are older than G.M. itself, which is four years from its centennial.

So what's his secret?

"As far as eating, I eat what I want," he said last week while preparing to tour a G.M. plant in Grand Blanc, Mich., near Flint, where his grandson Craig Pusey works. "Never smoked, never drank very much."

For G.M., the nation's largest private purchaser of health services and of drugs from Viagra to Lipitor, the projected cost of providing health care benefits to current and future retirees like Mr. Pusey is a staggering $63 billion.

While soaring medical costs are an issue for all employers in the United States, for older domestic manufacturers the nation's health care system is a competitive double whammy. That is particularly true for G.M., the world's largest - but far from the most profitable - automaker.

G.M. covers the health care costs of 1.1 million Americans, or close to half a percent of the total population, though fewer than 200,000 are active workers while the rest are retirees, children or spouses. Not only are such costs escalating rapidly, but G.M.'s rivals, based in Japan and Germany, have virtually no retirees from their newer operations in the United States and, at home, the expenses are largely assumed by taxpayers through nationalized health care systems.

Toyota, the industry's most profitable automaker, employs 31,000 Americans and also faces rising health care costs, but not to any great extent for its retirees. So while G.M. faces a $63 billion bill for retiree health care in the coming decades based on its projections for its current and future retirees, Toyota said in its latest annual report that its retiree health care obligation was not even large enough to affect its profits significantly.

"To saddle the cash flow of American businesses with an obligation that other competitors do not have creates serious long-run disadvantages," said Uwe Reinhardt, a Princeton University economist specializing in health issues.

"They are basically social insurance systems," he said of the Big Three domestic automakers: G.M., Ford and the Chrysler division of DaimlerChrysler. "Detroit is like a bunch of countries with older populations."

The United Automobile Workers union negotiated enviable pension and health benefits with the American automakers in an era in which the Big Three essentially made up the world's auto industry. Today, with global competition and the United States health care system putting the burden largely on employers, retiree medical costs are one reason Toyota's $10.2 billion profit in its most recent fiscal year was more than double the combined profit of the Big Three.

"We're spending more on health care and less on the auto business, and frankly that does not work," said John Devine, G.M.'s chief financial officer. "A system that has it solely on the back of U.S. business I don't think is going to be sustainable."

G.M. offers hourly workers and retirees choices of H.M.O.'s, P.P.O.'s or the option of choosing their own doctor and it covers the majority of the costs, with Medicare picking up some of the bill for the retirees. In labor talks last year, the union agreed to increase co-payments for brand name prescription drugs to $10 from $5 for hourly workers and future retirees, though it did not raise co-payments for current retirees. Under the new Medicare legislation Congress passed last year, the government will pay 28 percent of the cost of prescription drugs.

Mr. Pusey was born in 1895, the same year as Babe Ruth. He started at G.M. in 1926 after serving aboard the battleship Wyoming during World War I. When Mr. Pusey retired in 1958, G.M. dominated the American automobile landscape, selling more than half of the cars and trucks sold in the United States.

The biggest challenge for G.M. is not so much that people are living longer today, but that medical costs are going up so fast in an era of mega-marketed pharmaceuticals and big-ticket diagnostic tests. When Mr. Pusey retired, medical spending was about 5 percent of the nation's gross domestic product, compared with about 15 percent today. Average spending per person on hospital care alone is up to about $1,600 from the 1965 equivalent of $318 in today's currency.

For G.M., which earned $1.2 billion last year, annual health spending has risen to $4.8 billion from $3 billion since 1996, even as deaths and job cuts have trimmed its employee and retiree ranks and it has taken numerous steps to trim costs. The company also contributed another $3.3 billion last year to a retiree health care trust fund. Out of the total 1.1 million people it covers, G.M. currently pays health care expenses for 450,000 retirees and their spouses.

For Ford, which calculates its data further back, expenses have risen to $12,443 for every current or former worker, from about $500 in 1970, or $2,300 when adjusted for inflation.

Longevity costs money, because people living longer generally use medical care more intensively and the biggest expenses, which tend to be concentrated in the last few years of life, keep escalating. G.M.'s 240 members of the century club in themselves are not enough to balloon the overall costs of health care for G.M. Indeed, Mr. Devine said, "If you live to be 100 years old, you tend to be in good shape."

But the nearly 13,000 retirees or spouses 90 or older and the nearly 87,000 in their 80's add up to huge health care expenses that will not go away anytime soon.

Mr. Pusey is in remarkable shape.

"He never took a pill until he was 100," said Dora Pusey, his daughter-in-law. "Right now he's on something for his stomach, but he doesn't take many. Maybe four or five a day."

By comparison, at a retiree rally last year during labor negotiations, many 70-something former workers said they had a dozen prescriptions or more.

Mr. Pusey has outlived a son and two wives. He has 4 grandchildren and 10 great-grandchildren. He likes to watch "Jeopardy" and "Wheel of Fortune," he recently told a union newsletter.

His visit to Michigan last week was prompted by the hurricanes back home. On Thursday morning, he stepped out of his daughter-in-law's Buick and walked into G.M.'s Grand Blanc Metal Center, a 39-acre plant that produces hoods, fenders and doors. He is frail but needs no cane and hears well enough to field some questions from plant managers.

Ernest, when did you retire?

"Nineteen fifty-eight," he said.

The eyes of Willie Huddleston, a superintendent in the plant's maintenance department, widened. "That was the year I was born," he said.

Daniel Welton, the plant manager, unfolded a picture of Mr. Pusey and another G.M. retiree from a local newspaper.

"Who's the young gentleman with you?" Mr. Welton asked; the other retiree was merely 100.

Mr. Devine, the G.M. executive, said people his age, in their late 50's and early 60's, were actually the most expensive group because they were not yet Medicare eligible and were often stepping up their use of health care. Unfortunately for G.M.'s bottom line, those age groups are the largest part of its population; it has more than 130,000 people ages 60 to 64.

In an op-ed article in The Detroit News last month, Senator John Kerry laid out proposals for three top industry concerns: He would have the federal government assume some of the soaring costs of covering catastrophic care; work to lower prescription drug costs by, among other things, allowing imports from Canada; and take steps to rein in medical malpractice.

"Motor City has been especially hard hit," he wrote. "Automakers are spending more on health care than they are on steel."

President Bush, on a campaign stop on Monday in Michigan, a battleground state in the election, called Mr. Kerry's broad health agenda "a massive, complicated blueprint to have our government take over the decision-making in health care."

Mr. Bush instead has emphasized helping small businesses, proposing to let them pool resources to buy discounted insurance. He also wants to expand tax credits to encourage businesses and individuals to use personal health savings accounts.

Mr. Devine of G.M. declined to endorse either side but he is glad the issues are on the table. Union leaders strongly favor Mr. Kerry and his plan, though they would ultimately like the kind of nationalized health care system that appears to be a political nonstarter.

By no means is health care the American auto industry's only reason for its vulnerability. Detroit has lost a huge part of the market to its Asian competitors. Toyota has a reputation for consistent quality that has eluded the Big Three over the years; its manufacturing system is considered the industry's model of efficiency. Toyota and Honda have both aggressively pursued more fuel-efficient technologies as regulations tighten around the world.

But the health care spending gap does have ramifications for the nation's economy and energy policies, not to mention Midwestern job growth, because it takes billions of dollars out of the domestic industry's pocket each year that could be spent developing more efficient cars or paying for other efforts.

"The fact that General Motors is using so much of its surplus cash flow to fund its retiree medical liabilities just underscores the significance of the problem," said Scott Sprinzen, a bond analyst at Standard & Poor's.

Mr. Pusey still buys G.M. cars, of course, his latest being a '98 Oldsmobile 88, a brand the company discontinued this year.

"I have a lady that takes care of me and she drives the car," he explained. "I've driven Oldsmobiles before and I like them. Of course they don't make them anymore. I drove a Chevrolet; I drove a Buick, Oldsmobile, different cars."

Last Thursday, while Mr. Pusey and his grandson Craig were meeting and greeting with plant managers before their tour, G.M. was almost ready to put its most senior man back to work.

"Craig, we're hiring temps," said Randy Tuttle, an assistant plant manager. "Is he interested?"

Wal-Mart's Growth Surge Leaves Dead Stores Behind
By Kortney Stringer - Staff Reporter - The Wall Street Journal
September 15, 2004

At a Wal-Mart in La Junta, Colo., boards cover the windows and wiry weeds sprout from cracks in the parking lot. The 69,000-square-foot store has been vacant since 2000, when Wal-Mart Stores Inc. built one of its even-bigger "supercenters" about a quarter of a mile away and vacated a building it had used for less than 10 years.

"There isn't much demand for another retailer to come in and use that space," says Allison Cortner, the head of a local nonprofit economic development group who has been trying to find a tenant for the empty store. Wal-Mart's lease on the building runs through 2017.

La Junta's situation is hardly unique. Throughout the country, hundreds of empty "big box" stores litter the suburban and rural landscape. Some were abandoned by chains that went out of business. Others were orphaned by corporate downsizings. And still others, like the La Junta one, were left behind when their corporate parents decided they weren't big enough.

This build-and-abandon trend occurs everywhere in real estate as needs of tenants change, but it's particularly acute in retailing, where store formats can change as quickly as dress lengths.

This La Junta, Colo., store has been empty since Wal-Mart opened a 'supercenter' nearby.

While big retailers can afford to write off or absorb the cost of closed stores and their ongoing leases, communities are often stuck with a different kind of bill. They complain that the empty buildings are eyesores that can boost crime and vandalism and bring down property values. And where darkened stores anchor strip malls, they can depress sales of remaining retailers.

While the stores' owners typically continue to pay property taxes on the vacant properties -- that is, if they remain in business -- the buildings no longer generate jobs or lucrative sales-tax dollars for state and local governments.

Finding new tenants for big properties isn't easy. Sometimes the very company that abandoned a store blocks a prospective new occupant. Wal-Mart in particular sometimes creates roadblocks when other discount merchandisers or supermarkets have expressed interest in its shuttered buildings, say some real-estate brokers and community officials.

"Wal-Mart clearly says up front, 'We don't want anyone in the buildings with a competing use,' " says Suzanne Chen of Retail Realty Group of Tampa, Fla., which specializes in big-boxes. "Sometimes they would rather sit with a vacant building than budge on letting a competitor in it."

In Fort Myers, Fla., for instance, Wal-Mart blocked a Save-A-Lot grocery store from subletting an abandoned store where it still held the lease, according to Ms. Chen. Wal-Mart runs a supercenter, which sells groceries along with the chain's other items, about a mile away.

Wal-Mart spokesman Dan Fogleman says it actually did try to find a grocery store for the building. "However, there was already a supermarket on the other side of the shopping center, and the other chain chose not to locate there. ... This shows that we are willing to put competitors in our vacant buildings." An office-supply retailer now occupies the building.

Still, another Wal-Mart spokesman, Bob McAdam, says the company won't go out of its way to help a competing retailer take over one of its empty stores. "There are times when it's in our interest to get the property moving faster, but we're certainly not going to give a competitor an advantage," he says.

Retailers including Target Corp., Kmart Holding Corp. and Home Depot Inc. all have vacated big-box locations across the country. But Wal-Mart, because of its rapid expansion, probably has left behind more space than anyone else. It plans to add 50 million square feet of retail space this year around the world, a good chunk of that replacing existing stores it now considers dated. Wal-Mart, which has its own realty unit, says it will fill about 16 million square feet of this empty space this year, but that it still has about 152 vacant stores, or about 13 million square feet, across the nation.

Some big boxes do end up being used by other retail chains. When discounters Ames Department Stores Inc., Caldor Inc. and Bradlees Inc. went out of business, Wal-Mart and other retailers moved into many of their vacated digs. Home Depot and Sears now occupy some of the 600 or so Kmarts that were casualties of its bankruptcy filing in 2002. And Hobby Lobby Stores Inc. has moved into a number of vacant Wal-Marts. Oftentimes, the big boxes are divided up into several small stores: Wal-Mart says that about 60% of its empty boxes that have found new uses have been sectioned up for the new tenants.

Still, many big boxes remain on the market for years. In Clinton, Miss., a Wal-Mart larger than two football fields stood vacant for four years before it recently was demolished. A Wal-Mart in Bardstown, Ky., remained empty for nearly 10 years before a flea market moved in. And La Junta, a town of 8,000 located three hours from Denver, just recently struck a deal to begin using a former Kmart that had been empty for 10 years as a coffee roasting plant, while a former Gibsons Discount Center, a regional discounter, still sits empty three years after its closing.

Communities are getting more aggressive about trying to prevent big boxes from becoming empty in the first place. Some, including Conway, N.H., and Buckingham, Pa., have passed ordinances that limit the size of new stores -- thus making it less attractive to build a new store and abandon the old one. These towns often prohibit building owners from closing stores before the space has attracted a new tenant or plans are in place for the structure to be demolished.

Some communities require retailers to tear down buildings that remain empty for a certain period of time. Others have helped find creative uses for empty big boxes, including a Mercedes-Benz dealership in Florida, a church in Oklahoma, a bingo hall in West Virginia, a Christian school in Arkansas and a pharmaceutical lab in Wyoming.

Ron Kitchens, president of an economic development group in Corpus Christi, Texas, has helped both Wal-Mart and Kmart fill empty stores in his region. One Wal-Mart ended up as a plant for an office-furniture manufacturer, while a Kmart will soon become a phone company's call center. "If the buildings didn't work for the biggest retailer, then they're probably not going to work for other retailers," he says. "Communities have to be creative."

Still, some communities figure they're better off with the added employment and taxes that come from a newer, bigger Wal-Mart even if it leaves them with an empty store. That was the case in La Junta, where the town extended its boundaries to allow the new superstore to be built.

Constantly growing retailers like Wal-Mart, of course, could reduce the number of empty stores by simply expanding on the same site. The problem is that Wal-Mart says it needs 20 acres to build a supercenter, while most of its older discount stores sit on 10- to 12-acre sites. In East Greenbush, N.Y., Wal-Mart expanded one of its stores into a 203,000-square-foot supercenter, but only after smaller retailers in the strip mall were relocated to free up space.

Wal-Mart, which owns about half its vacant buildings and leases the rest, insists it is working harder to fill the buildings by aggressively working with communities and brokers. The company also lists its vacant big boxes on its Web site, which reads like nationwide yellow pages: In Texas, Wal-Mart lists more than 40 empty stores for sale or lease, while Georgia has 23. By the end of the year, the Bentonville, Ark., retailer plans to fill 70% of its empty boxes, says Tony Fuller, vice president of Wal-Mart Realty.

"We recognize the challenges," Mr. Fuller says. "It's been a journey for us. Speed wasn't important to us before, but it's very important to us today."

Sears Adds to Online Apparel
Retailer Targets Growing Sector
By Becky Yerak - Tribune Staff Reporter - Chicago Tribune
September 13, 2004

Sears, Roebuck and Co. is adding a full line of apparel to its Web site in hopes of carving out a piece of the second-biggest market in the e-commerce industry.

The soft launch of women's, men's and children's clothing--as well as bedroom and bathroom products--began during the weekend on Sears.com, and the additions became official Monday.

Previously, the only clothes the Hoffman Estates retailer sold online were school uniforms and items linked to specialty catalogs. Even with that limited assortment, clothing and home fashions historically have gotten the second-highest number of clicks on Sears.com--after appliances.

"At the end of the day, you need to do what your customers want you to do," said Bill Bass, general manager for Sears Customer Direct, adding that Sears.com has a big customer base with its 80 million unique visitors a year.

The debut of national and private clothing brands to Sears.com comes as apparel sales are falling in its brick-and-mortar stores. And Internet selling has been a tough proposition for even the mightiest merchant. For example, Wal-Mart Stores Inc. recently announced it would take another stab at selling apparel online after an earlier effort fizzled. One of the thorniest problems for e-tailers: a relatively high number of returns due to the difficulty of online sizing, particularly for dressier women's duds.

While Saks Fifth Avenue's direct business, including Internet, is growing at a 50 percent clip, "returns in apparel are high" because of sizing issues, Saks Inc. Chief Operating Officer Stephen Sadove said in an interview last week at Goldman Sachs' Global Retailing Conference.

But there are potential rewards. Online clothing sales are expected to rise from $8.2 billion nationwide in 2004 to $20.2 billion in 2010, eventually surpassing computer hardware as the biggest sector in online retail, according to Forrester Research Inc.

Still, online apparel sales are still a small percentage of retailers' overall sales. At specialty clothing merchant Chico's FAS Inc., for example, e-commerce accounts for 3 percent of sales.

To launch online apparel, Sears borrowed heavily from its Lands' End unit, which started selling on the Internet in 1995. Lands' End online sales rose to $511 million in 2003 from $435 million in 2002.

"We had a team from Lands' End help design our online shopping for apparel," Bass said.

Technology on Sears.com will help lessen the chance that shoppers will be unhappy with their purchases, he said.

"We're giving them the ability to visualize how Sears' products will fit into their lives," Bass said.

The technology is called My Virtual Model. To "try on" clothing, shoppers provide body-type descriptions and height and weight measurements to create a customized online "model."

LandsEnd.com rolled out the My Virtual Model, developed by a Montreal firm of the same name, in 1998.

The latest version, available on Sears.com, also allows shoppers to zoom in to scrutinize the fabric, as well as to change colors. Sears.com also said it's the first national retailer to allow online shoppers to mix and match multiple brands.

But Sears.com, at launch, will lack a couple of features of LandsEnd.com. The latter has a "Lands' End Live" feature enabling shoppers to correspond online with a real person. Sears.com won't, but it will list phone numbers to call, Bass said.

Sears.com customers also will be among the first to be able to buy Structure, a men's line bought from Limited Brands. Structure debuts this fall in 115 Sears stores in Chicago and four other markets. A/Line, the women's line made solely for Sears by Jones Apparel Group, also launches online and in 435 stores this fall.

Sears Goes to Lands' End to Boost Web Site
By Sandra Guy - Business Reporter - Chicago Sun-Times
September 13, 2004

Sears Roebuck and Co. goofed its rollout of Lands' End apparel in Sears stores, but it's counting on winning the online war with Lands' End's unique shopping technology.

Sears today starts selling apparel and home decor via its Web site at www.Sears.com.

The Hoffman Estates-based retailer aims to entice Web shoppers with Lands' End's "Virtual Model," which lets shoppers create and dress an online lookalike of themselves, and a "Virtual Decorator" that lets them decorate a bedroom or living room that's identical to their own.

"This is a good example of the cross-fertilization between Lands' End and Sears," said Bill Bass, vice president and general manager of Sears' customer direct business.

Lands' End lends its expertise in packaging and delivering goods to people's homes, a vital skill to selling goods online, Bass said.

Lands' End, which Sears acquired for $1.9 billion two years ago, is also known for its technological prowess, having pioneered toll-free catalog ordering 20 years ago and the Virtual Model six years ago.

The Virtual Model tool enables shoppers to create a clone with their personal measurements, body shape, skin color, hair type, hair color and even the shape of their eyes and nose.

The Virtual Model will propel Sears into the top tier among retailers selling clothes online because shoppers can mix and match clothes from Sears' best-selling apparel brands. (Shoes are excluded from the Web offerings, and Lands' End will continue to sell only its own clothing on its Web site, LandsEnd.com.)

A Sears online shopper can see how his or her virtual image looks in a Covington shirt and Lands' End khakis. If the shopper doesn't like what she sees, she can instantly change her model into a pair of Levi's jeans and a blouse from Sears' in-house Apostrophe brand.

Shoppers can revolve the model to look at how clothes fit, front and back. (Good-bye, dressing room hassles?)

Sears also is using its Web site to offer entire selections of apparel brands online, a far wider variety than it can offer in its stores, and to feature its stores' best-selling items.

For example, Sears will offer the entire Lands' End catalog on its Web site, versus the limited selection of Lands' End apparel it sells in Sears stores. It will sell most of the Structure apparel line for young men, even though only 100 of Sears' 870 stores will carry the brand this fall, and it will feature its new A-Line brand for women, which is being sold in about half of Sears' stores this fall.

Retail analysts have questioned whether Sears paid too much for Lands' End, especially after the retailer botched its spring apparel order and conceded that Lands' End bombed with many of its multicultural shoppers in urban markets.

But Internet analysts see value in the Lands' End play.

One reason: Retailers other than Sears and Lands' End have put virtual models at the bottom of their priority list because of the difficulty of selling a variety of clothing brands online, said Carrie Johnson, senior analyst with Forrester Research in Boston.

"Sears has leap-frogged the normal learning curve because of Lands' End," Johnson said of Sears' use of Lands' End online technology.

Patti Freeman Evans, an analyst with Jupiter Research in New York, said Sears faces tough competition from online rivals such as Target, JCPenney, Kohl's and Gap. But Lands' End is the largest single seller of apparel online.

The Virtual Decorator works much the same way as the Virtual Model.

It lets shoppers set up a room with their choices of flooring, lighting, wall paint and art, window coverings and, in a bedroom, bed coverings and pillows.

Shoppers can rotate the room to see how shadows change, zoom in to get a close look at a fabric and even put a dog or a cat in their virtual bedroom.

A photo and a description pop up to explain the features of each item in the room, such as a lamp's height or a bedsheet's thread count.

Now the challenge is to integrate Sears' in-store and online processes.

"We're trying to make it easy for customers to shop," Bass said. "We're constantly looking at things to add to the Web site to make the shopping experience better."

Online sales boom at Sears, Lands' End
Sandra Guy

Sears, Roebuck and Co.'s online initiatives demonstrate how powerful e-commerce has become as a selling tool.

When Sears bought Lands' End in 2002, it became the parent company to the nation's biggest specialty apparel retailer. Of Lands' End's $1.44 billion in net merchandise sales two years ago, 21 percent came from e-commerce, 71 percent from catalogs and the remainder from retail outlet stores. That compared with Sears' $500 million customer-direct business.

Today, Sears reports that it and Lands' End's online and catalog sales total $2 billion, including $500 million from Lands' End's Web site and $300 million from Sears' online sales, including shoppers who buy a product online and pick it up in a Sears store.

Sears Launches Venture for Online Sales
September 13, 2004

NEW YORK, Sep 13, 2004 (AP Online via COMTEX) Sears, Roebuck and Co., which has successfully sold its tools and appliances on the Web, is counting on having the same magic with bedspreads and sweaters, thanks in part to expertise gained by its purchase of Lands' End Inc.

The company's venture into online sales of home furnishings and apparel, which officially launches Monday, may be considered late. But executives say tapping into the expertise of Lands' End - which it acquired two years ago and is considered a leading innovator of online selling - will enable Sears to jump ahead of the competition.

"We are going to leapfrog further than anybody else right now online," said Bill Bass, vice president and general manager of Sears' customer direct division. "We're starting where Lands' End is and pushing it further."

Sears.com has incorporated some of the same features that Lands' End pioneered on the Web, such as the "virtual model," where customers can enter body measurements such as waist and bust size to get an idea of how the outfit will look. But there are other features not yet available on Landsend.com such as a zooming technology that focuses on fabric and texture of the merchandise. Sears.com customers can also switch colors for all product illustrations, not just on the virtual model.

And while Lands' End sells home furnishings online, it does not have a virtual decorator, something that Sears.com now has. That tool allows customers to click on such choices as bedding, floor finishes and paint to create a bedroom in cyberspace; a virtual kitchen will be added this fall. Other stores like The Home Depot Inc. have similar virtual decorators, but Sears' version is more sophisticated, allowing consumers to pick such details as paintings and lamps.

Industry analysts praised the site for innovation, but wonder whether a positive apparel experience on Sears.com could actually hurt the retailers' efforts to improve sluggish clothing sales at its 820 stores, which has dragged down the company's overall business. A favorable experience online could accentuate a not-so-great experience in the store, according to Carrie Johnson, a senior analyst at Forrester Research, a Cambridge, Mass.-based Internet research company.

That inconsistency, says Johnson, is the company's "strength and weakness."

At the same, Johnson said that the online apparel presence "will remind customers that Sears sells apparel ... If apparel takes off, the stores can learn about the right merchandise, and try to target that merchandise better."

Sears has been struggling to figure out the right apparel merchandise to woo customers.

Bass believes that Sears' online presence in apparel can only help increase sales in the store. He noted that one of every four appliance buyers at the Sears store has done their research on Sears.com.

About 50 percent of Sears' apparel offerings and about 70 percent of its home furnishings merchandise will be available on Sears.com. Bass said the retailer focused on its best-selling items and brands. In addition, shoppers will also be able to buy Structure, a young men's clothing brand that Sears purchased a year ago. The site will also feature A-Line, a career clothing line offered through an exclusive alliance with the Jones Apparel Group Inc., which is in 450 stores this fall.

Almost all the Lands' End products will be offered on Sears.com except for monogrammed products.

Sears' move comes at a time of increasingly strong growth for online apparel, the second biggest category behind computers on the Web, and one that naysayers thought would never take off.

Online sales of apparel and accessories, excluding shoes and jewelry, are expected to reach $7.5 billion, from $6.2 billion last year, according to Jupiter Research, a New York-based Internet research company. By 2008, the number should hit $12 billion, accounting for 4.9 percent of all apparel sales.

There are no published numbers for apparel sales for individual companies. Bass declined to offer projections for Sears' online apparel and home furnishings sales, but noted that last year, overall sales for Sears.com reached $300 million, and business is so far up more than 40 percent this year.

Sears' venture into apparel follows Wal-Mart Stores Inc.'s move this past summer to make another stab at selling clothing, after pulling out three years ago. Amazon.com launched an apparel store in late 2002.

Still, given fit concerns, selling apparel is a lot trickier than selling a chain saw or bedsheets. Chuck Davis, chief executive of BizRate.com, a comparison shopping search site, noted that 10 percent of apparel purchased online is returned, much higher than the online industry average of 4 percent. Still, stores struggled with a 25 percent return rate in apparel on land, he said.

USA: Steven Dennis Joins Neiman Marcus As Senior VP
just-style.com
September 10, 2004

Luxury retailer The Neiman Marcus Group Inc has appointed Steven Dennis as senior vice president (strategy, business development and multi-channel marketing).

Dennis previously worked for Sears, Roebuck and Co, most recently as vice president (corporate strategy).

Neiman Marcus president and chief executive officer, Burton Tansky said: "Steven's depth of experience in the retail industry makes him a very valuable addition to our management team.

The Neiman Marcus Group's operations includes the Neiman Marcus and Bergdorf Goodman stores as well as catalogue and online operations under the Neiman Marcus, Horchow and Chef's Catalog.

 

Great Indoors Might Have Foot Out the Door at Sears
by Sandra Guy - Business Reporter - Chicago Sun-Times
September 10, 2004

Sears Roebuck and Co. is weighing whether its Great Indoors stores are worth keeping, even while it steams ahead toward opening other stand-alone stores away from malls, a Sears executive told Wall Street analysts Thursday.

The Great Indoors chain, which includes stand-alone stores in Lombard, Schaumburg and Deerfield, sells mostly high-end home products from bed linens and lamps to countertops and cabinets.

The chain of 17 stores turned around its long-standing sales slump in August, but still has far to go to convince Sears executives to keep it alive. However, Sears hired a former Target Corp. executive, Catherine David, in July to give the chain another chance.

Asked by an analyst whether Sears intended to close the Great Indoors, Chief Financial Officer Glenn Richter said, "There are no plans currently." But Richter said the Hoffman Estates-based retailer must reassess where it's going with the chain.

He cited the Great Indoors as an example of how certain formats have failed to incorporate Sears' core products, and cannot piggyback onto Sears' information technology and other support systems.

Sears was forced to retool the Great Indoors last year because it incurred too much expense. Sears took a $141 million pre-tax charge, or 32 cents per share, in the third quarter of fiscal 2003 to close three Great Indoors stores, convert a fourth into an outlet store, and revamp marketing, product selection and inventory controls at the remaining 17 stores.

The Great Indoors, whose stores average 130,000 square feet, cost $16 million to $25 million apiece to build. The construction cost of Sears' newest stand-alone mega-store, Sears Grand, has not been made public, but executives have said it is far less than that of the Great Indoors.

Sears Grand stores are designed to be one-stop shops, selling everything from toys to convenience foods to TVs, and offering a tire-and-battery center under the same roof as tools, electronics and clothing.

Sears Grand stores sell much of the same products as Sears' mall-based stores, and they use the same information technology and other support systems. The retailer also monitors shoppers' responses and keeps its spending tight to keep from repeating the mistakes of its past failed ventures, such as the now-defunct HomeLife furniture unit.

Sears operates three Sears Grand stores, in West Jordan, Utah; Las Vegas, Nev., and alongside the Gurnee Mills mall in north suburban Gurnee. New Sears Grand stores will open this year in Austin, Texas; Cape Girardeau, Mo.; Bonita Springs, Fla.; Thornton, Colo., and Rancho Cucamonga, Calif.

Sears will open another six to eight Sears Grand stores next year, bringing the total to between 14 and 16 by the end of 2005.

Sears also will expand its stand-alone presence by introducing mid-sized stores and small versions of Sears Grand in 58 former Kmart and Wal-Mart stores. Sears acquired the stores for $590 million in June, and expects to spend another $200 million to remodel them. Sears expects to reopen them in time for the 2005 holiday season, Richter said.

The new stores will give Sears a boost in urban markets where the median family income is $56,000 -- appreciably higher than that of Sears' mall-based customers, Richter said.

At Wal-Mart, the New Word Is Compromise
By Constance L. Hays - The New York Times
September 9, 2004

In an apparent mea culpa, the chief executive of Wal-Mart Stores said yesterday that the company's "message has not in fact gotten out" and called it "management's failure."

Speaking at a retail conference in Manhattan hosted by Goldman Sachs, the executive, H. Lee Scott Jr., spoke at length about the image problems that have dogged the giant retailer for the last several years and drew distinctions between the way Wal-Mart's founder, Sam Walton, handled the company and his own management style. His remarks hinted at a culture shift within Wal-Mart, where the teachings of "Mr. Sam," who died in 1992, remain firmly planted in the minds of many executives.

"What we have found is that there is a different group of stakeholders today that are important," Mr. Scott told the audience, "and that is a person who's not familiar with Wal-Mart stores, they're not familiar with what we stand for. So their view of Wal-Mart stores is what they read in the newspaper and what they see on TV. We have decided it is important for us to reach out to that group."

Mr. Walton, he said, "did not get involved in the political process; he prided himself on that." In contrast, he said, the company is now trying "to do an outreach program."

A spokeswoman for the company said Mr. Scott's speech was an admission that what had once worked for the company was no longer quite so effective. "For too long, we thought that if we just focused on our customers then everything else would follow," said the spokeswoman, Mona Williams. "We probably did not realize soon enough how important it was to work with the media,'' she said. "It is an acknowledgement that the media and others offer important venues for telling our story, and we need to continue doing a better job at that."

Wal-Mart's sales grew to $256 billion last year, outpacing all other companies in the nation, and its impact is felt across the retail landscape. At the same time, it has come under increasing scrutiny for its labor practices and huge stores. In May, a federal judge created the largest workplace-bias lawsuit in history by extending a discrimination complaint brought by several female Wal-Mart employees to about 1.6 million current and former employees. Wal-Mart is appealing the ruling, but the case is moving forward, and experts say losing or settling it could cost the retailer billions of dollars.

Mr. Scott also said that when Wal-Mart came under attack, "where appropriate, we will compromise." Ed Fox, director of the JCPenney retailing center at Southern Methodist University in Dallas, said he had never heard the company use the word "compromise" before and that yesterday's remarks represented "a sea change."

Wal-Mart has also been sued over the hiring of hundreds of illegal aliens who worked as cleaning crews in its stores. The company has said it had no knowledge of the practice and blamed a subcontractor.

But the size of Wal-Mart's stores has also been criticized in some communities. Neighborhood groups have successfully banned large-scale stores in some areas, while a recent effort by Wal-Mart to take the issue directly to voters in Inglewood, Calif., failed at the ballot box.

"What's happened here is that Wal-Mart, like its predecessor General Motors, has unwittingly become somewhat imperial and isolated in its attitudes," said Eugene H. Fram, a professor of marketing at Rochester Institute of Technology who has followed the company for years. "You're big, you have 1.5 million people, and with that size and with so many people catering to you, you can become a monarch in the business world. It's a Henry VIII type of thing."

The company has spent millions on television ads and other efforts to try to burnish its image. Most recently, it began underwriting "The Tavis Smiley Show," which is broadcast on PBS, and made Mr. Scott available for a lengthy interview earlier this year.

It has also paid an undisclosed amount to become a sponsor on National Public Radio, where upbeat messages about its stores are broadcast regularly, and announced a $500,000 program to fund scholarships for minority students at journalism schools across the country.

Al Norman, who founded a group called Sprawl-Busters that opposes large stores of all kinds, said Mr. Scott's remarks reflected reality, perhaps more than he intended. "The real story is getting out there," he said. "People are realizing that they've created an underclass of workers in this country. That smell is not going to go away with more corporate speeches. There is nothing new here. They are just coming under increasing heat."

Ms. Williams said the company was resolute about maintaining its culture. "Our culture, our values are the same that they've always been," she said, listing them as "respect for the individual, focus on the customer and always driving for excellence."

"The challenge to Wal-Mart is to change the way we do some things without changing who we are," she said.

Defective Dishwasher Blamed in Fatal Fire
Son says his mother never received 1996 recall notice
Patrick Hoge, Staff Writer - San Francisco Chronicle
September 4, 2004

Investigators have found the cause of a fire that killed 78-year-old Mary Lee in her Pleasant Hill home this summer: a Whirlpool dishwasher that was the subject of a 1996 recall for faulty wiring. Lee, who died July 13 in a late-night fire, apparently never got the recall notice, her son, Rick Lindstrom of Castro Valley, said Friday. She "had every scrap of paper on every appliance she had purchased'' since moving into her home in 1973 stored a steel file-drawer -- but there is nothing about a recall, Lindstrom said.

As a result of her death and another fire last month in Antioch, fire officials in Contra Costa County and Berkeley have issued advisories urging people to stop using the recalled machines and to contact Whirlpool or Sears, which sells Whirlpool machines under the Kenmore brand.

Lee's dishwasher was one of 500,000 made by Whirlpool between June 1991 and October 1992 that were the subject of the recall, said Contra Costa County Fire Protection District Marshal Richard Carpenter.

About half of the machines were sold by Sears, Roebuck and Co. for prices ranging from $350 to $475, according to the federal Consumer Product Safety Commission, which says faulty wiring in the door latches may cause handles to overheat and catch fire.

Lee bought her dishwasher at Circuit City in Concord, according to her son.

The commission was investigating both Contra Costa fires, said Frank Nava, the agency's western regional director in Oakland.

"Who knows how many more of those time bombs are out there ticking in people's kitchens,'' said Lindstrom, who contacted an attorney and was planning to file a lawsuit against various companies, including Whirlpool.

Efforts Friday to get comment from Whirlpool Corp. of Benton Harbor, Mich. , were unsuccessful.

Larry Costello, a spokesman for Sears, said the company had sent letters to customers with names in their database in 1996. "We take recall situations very seriously," he said.

Kim MacDonald of Antioch said she also had not received any notice about her dishwasher, which fire officials say was also made during the 1991-92 recall period. The machine burst into flames Aug. 14 while she was at home with her 2-year-old son, she said.

"We could have been killed,'' said MacDonald, 36, adding that it was a fluke she was not taking a nap with her son at the time.

MacDonald was washing a load of dishes when she turned a corner and saw flames leaping from the machine in her kitchen, she said. After trying to douse the fire with a hose, she was overcome by noxious fumes and fled with her son outside, where she collapsed on the grass.

"To be burned alive -- that's my greatest fear, and it almost happened, '' she said.

MacDonald bought her Kenmore dishwasher in 1993 at Sears in Antioch, she said. MacDonald said she had lived at the same address from the time she bought the machine until 1998 and never received a notice.

MacDonald said she had learned about the recall only days after the fire when an investigator called and asked for identifying information from the machine.

When Whirlpool recalled the machines in 1996, there were about 20 claims of property damage and no reports of injuries, the commission said. Whirlpool has said since that it fixed the problem in machines manufactured after the recall period.

But Karen Eager, an attorney in Kansas City, said that Whirlpool dishwashers made since 1992 had been linked to numerous fires and at least two deaths.

"We don't believe they fixed the problem, and this is evidenced by the fact that there are still fires,'' Eager said.

Eager is representing a Louisburg, Kan., couple whose adult daughter died in a house fire they blame on a Whirlpool dishwasher purchased in 1996.

That lawsuit went to trial in federal court and ended with a hung jury last year, with seven of eight jurors finding Whirlpool at fault, Eager said. Jury verdicts must be unanimous in federal civil trials. A retrial is pending.

Whirlpool settled a case involving a fatality that occurred in New York City, Eager said. In another case, a jury in New Mexico ruled Whirlpool's favor after a jury hung in earlier trial.

DISHWASHER RECALL
Affected Whirlpool brand dishwashers have model numbers beginning with DU8, DP8, DU9 and GDP. Affected Kenmore dishwashers have model numbers beginning with 665. In addition to model numbers, Whirlpool and Kenmore have serial numbers ranging from FA2400000 through FA5299999 or from FB0100000 through FB1899999. Model and serial numbers can be found on a plate on the right front edge of the tub, inside the dishwasher door.

For Whirlpool, call (800) 874-9481.Those who bought machines at Sears, Roebuck and Co. should call (800) 927-1625. Service calls and repairs will be made at no cost to consumers.

U.S. Sues Sears, Accusing It of Racial Bias
By Bloomberg News
September 3, 2004

The Equal Employment Opportunity Commission has sued Sears, Roebuck, contending that it illegally fired an automotive repair store manager because he was black.

Sears dismissed Edwin Broadard, who ran the store in Maple Shade, N.J., for violating company ethics policies, the commission said in federal court in Camden, N.J. Mr. Broadard, who had received high performance ratings, did not previously violate company policies in his eight years there, the agency said.

Sears discriminated against Mr. Broadard, the lawsuit said, "by terminating his employment for alleged ethics policy violations while similarly situated white employees received only warnings for engaging in the same or similar conduct."

The suit seeks to force the company to end unlawful practices against black employees and to recover back pay as well as punitive damages for Mr. Broadard.

A spokesman for Sears, Chris Brathwaite, said it intended to contest the lawsuit, filed on Wednesday.

August Retail Sales Hurt by Job Worries
Associated Press
September 2, 2004

The August start of the back-to-school shopping season was a disappointment for major retailers, giving the industry a third straight month of tepid sales. Higher gasoline prices and consumers' ongoing worries about jobs contributed to the poor showing.

As storeowners reported their monthly results Thursday, the discouraging news came from all sectors, though discounters and wholesale club operators like Wal-Mart Stores Inc. and Costco Wholesale Corp. were particularly hard-hit.

Wal-Mart, usually the industry leader, suffered its weakest performance in more than 3 1/2 years.

The big exceptions were high-end stores whose well-heeled customers have been the first to benefit from the economic recovery and have not been as vulnerable to rising gasoline prices.

"This was a very slow start to the back-to-school season," said Ken Perkins, president and research analyst at RetailMetrics LLC, a Boston-based independent research company. "There are a number of different factors that are coming together to dampen consumer spending."

Retailers found low-to-middle-income shoppers more frugal in response to higher gas prices and grocery bills. Americans are also worried about their jobs - on Tuesday, the Conference Board reported a larger-than-expected decline in consumer confidence, and attributed the slide to concerns about job prospects.

"The consumer senses a lot of uncertainty, whether it is security concerns, the presidential election and gas prices. The overall economic picture remains uncertain," said John Morris, senior retail analyst at Harris Nesbitt.

Stores also blamed Hurricane Charley, which swept through Florida last month, forcing stores to close. And sales were affected by technical factors, a late Labor Day weekend, which will come a week later than a year ago and will push sales into the September reporting period, and the fact that year-earlier results were boosted by the government's one-time child care tax credits.

The International Council of Shopping Centers-UBS sales sales tally of 71 retailers was up a meager 1.1 percent, missing its already reduced forecast for a 1.5 percent to 2 percent increase. That's the weakest performance since March 2003, when merchants reported a 0.2 percent decline. The tally is based on what the industry calls same-store sales, or sales at store opened at least a year. Those sales are considered the best indicator of a retailer's performance.

August's sales figure is below the 3 percent gain seen in June and July, and well off the average 6 percent increase of January through May.

The back-to-school business, which encompasses sales from August and September, is the second most important season behind the holiday period for retailers. The weak start puts more pressure on merchants over the next few weeks to make up lost business.

"It will be an uphill battle," Morris said.

Another problem is that the aftermath of Hurricane Charley could continue to hurt sales this month, as stores in affected areas will probably have a hard time persuading shoppers to buy nonessential items, though the home renovation business is expected to see a pickup. Moreover, residents were leaving coastal areas of Florida Thursday because of Hurricane Frances, and that storm was likely to have an impact on September sales as well.

The disappointing reports from retailers came as the government offered fresh evidence of a slowing economy.

The Labor Department said workers' productivity increased at an annual rate of 2.5 percent in the spring, the smallest gain since late 2002.

Meanwhile, new claims for unemployment benefits rose for the second week in a row, reflecting the lingering effects of Hurricane Charley. For the week ending Aug. 28, new applications rose by a seasonally adjusted 19,000 to 362,000. A little less than half the rise was blamed on the storm.

Wal-Mart, the world's largest retailer, which had muted its August sales outlook in mid-month, posted a slim 0.5 percent increase in same-store sales, its smallest gain since December 2000. Analysts polled by Thomson First Call expected a 1.5 percent gain. Total sales at Wal-Mart rose 8.8 percent.

Based on its disappointing sales, Wal-Mart said it believes third-quarter profits will be at the low end of the 52 cent to 54 cent range. Analysts expect 53 cents per share.

Target Corp. had a 1.8 percent gain in same-store sales, a bit better than the 1.2 percent that analysts forecast. Total sales rose 8.3 percent.

Costco reported a 4 percent gain in same-store sales, missing Wall Street's 7.3 percent forecast. Total sales were up 7 percent.

Mall-based apparel stores also struggled.

Limited Brands suffered a 2 percent drop in same-store sales, worse than the 0.3 percent projected decline. Total sales slipped 0.3 percent.

Talbots had a 4.6 percent drop in same-store sales, a slightly better result than the 5.3 percent Wall Street forecast. Total sales fell 1 percent.

Gap Inc. had a 1 percent decrease in same-store sales, better than the 2.7 percent decline forecast by Wall Street. Total sales rose 1 percent.

Among teen retailers, American Eagle Outfitters Inc. continued its strong sales streak, announcing on Wednesday a 23.9 percent increase in same-store sales. That was well above the 13.9 percent increase that analysts expected. Total sales were up 34 percent.

But rival Abercrombie & Fitch recorded a 5 percent decline in same-store sales, though it was better than the 6.5 percent decrease that Wall Street forecast. Total sales increased 11 percent.

Many high-end department stores again beat expectations. Nordstrom Inc. had a 7.2 percent gain in same-store sales, surpassing Wall Street 4.7 percent estimates. Total sales rose 8.2 percent.

Neiman Marcus Group had a 14.7 percent increase, beating analysts' forecasts of 10.1 percent. Total sales advanced 14.8 percent.

Among mid-range department stores, J.C. Penney Stores Co. Inc. reported a solid 3.8 percent gain in same-store sales in its department store business but missed analysts' forecasts of a 4.8 percent gain. Total sales rose 4.3 percent.

May reported a 5.9 percent decline in same-store sales, worse than the 1.2 percent estimate. Total sales were up 10.5 percent.

Federated Department Stores Inc.'s 2.4 percent drop in same-store sales missed forecasts for a 0.2 percent gain. Total sales declined 2.7 percent.

Sears Same-Store Sales Fall 6.1 Pc
Reuters
September 2, 2004

CHICAGO (Reuters) - Sears, Roebuck and Co. (S.N: Quote, Profile, Research) on Thursday reported a worse-than-expected 6.1 percent drop in August sales at stores open at least a year, hurt by disappointing back-to-school sales. The largest U.S. department store chain said total sales in the four weeks ended Aug. 28 were $1.91 billion, down 7.1 percent from a year earlier.

Analysts had expected a 2.5 percent drop in August same-store sales, according to research firm Thomson First Call.

"While we experienced softer-than-expected back-to-school sales, we continue to look forward to the fall and holiday seasons," Sears Chief Executive Officer Alan Lacy said in a statement.

Sears has been adding new clothing lines, including Structure for men and ALine for women, in hopes of reviving apparel sales. On a recorded message, the retailer said apparel sales were down in the mid-single digits in August, with children's clothing down in the high-single digits.

Consumer electronics sales were down in the low-teens.