Discover ringing new era
By Michael Sean Comerford – Daily Herald – Suburban Chicago
June 30, 2007

Sorting through top 100
By Sandra Guy – Chicago Sun-Times
June 29, 2007

Chicago's old-time retailers are still among the biggest in the country, even under new owners and in radically different formats.

Yet they face tougher competition than ever and faster-growing rivals, according to experts who spoke prior to today's release of the list of "Top 100 Retailers" by revenue.

Sears, Walgreen, McDonald's and the out-of-state owners of Macy's (formerly Marshall Field's), Carson Pirie Scott & Co., and Jewel and Dominick's grocery stores earned spots on the list, which is being released today by STORES, a retail trade magazine.

The list shows Sears is the largest retailer headquartered in the Chicago area, though it dropped two spots from last year to land at No. 6. During the 1990s, the Hoffman Estates-based retailer, run by hedge fund billionaire Edward Lampert, stood at No. 2 or No. 3 in the rankings, but with smaller revenues.

Susan Reda, executive editor of STORES magazine, said she believes Sears has "big strides to make to stay No. 6 on our list." She said she remains unsure about Sears' off-mall superstore format, and she questioned Sears' decision to put its valuable Craftsman and Kenmore brands in Kmart stores. A Sears spokesman said the retailer has designed its Sears Grand stores so shoppers will frequent the stores more often, and its best brands are now accessible to more shoppers.

Next is Walgreen at No. 7, the Deerfield-based drugstore giant whose stores seem to pop up on every corner.

Walgreen's rival, CVS, appears at No. 9.

Next, at No. 10, is Safeway, the California-based owner of Dominick's grocery stores, which has had surprising success with its Lifestyle store format, featuring fresh produce displayed in baskets, a proprietary "O" organics brand, and upgraded deli, bakery and flower shops.

Supervalu, the Eden Prairie, Minn.-based owner of Chicago market-leader Jewel grocery stores, appeared at No. 12, with $28 billion in sales.

Experts say traditional grocery stores, despite their healthy numbers, will continue to lose market share in the next five years to supercenters, "fresh" stores such as Whole Foods and specialty stores such as Trader Joe's, Aldi and Save-A-Lot, according to a report released this week by the Food Institute and Barrington-based consulting firm Willard Bishop.

Reda said consumers are growing tired of supermarkets' "pile it high and let them buy" strategy.

Other stores with local significance include Macy's, owner of Macy's and Bloomingdale's, at No. 13, with $27 billion in revenues; McDonald's at No. 16 with $21.6 billion; J.C. Penney at No. 17 with $19.9 billion; Kohl's at No. 23 with $15.5 billion; Nordstrom at No. 39 with $8.6 billion, and Carson's owner, Bon-Ton, at No. 86 with $3.45 billion in revenues.

TOP 10 U.S. RETAILERS

1. Wal-Mart, $348.7 bil.
2. Home Depot, $90.8 bil.
3. Kroger, $66.1 bil.
4. Costco, $60.1 bil.
5. Target, $59.5 bil.
6. Sears Holdings, $53 bil.
7. Walgreen, $47.4 bil.
8. Lowe's, $46.9 bil.
9. CVS, $43.8 bil.
10. Safeway, $40.2 bil.

Source: STORES magazine, Top 100 retailers list

Price-Floor Ruling May Have Small Effect
Mark-Ups Are Most Likely For High-End Products;
Antitrust Door Left Open
By Gary McWilliams, Joseph B. White and Jess Bravin – Wall Street Journal
June 29, 2007

Machine age

Factory-built components playing a larger role in home construction
By Leslie Mann – Special to the Chicago Tribune
June 29, 2007

If the term "prefabricated house" conjures visions of double-wide trailer homes, think again.

Today's factory-built houses run the gamut from log chalets as massive as their boulder fireplaces to rambling, farmhouse-style residences that look like they've been in the family for generations.

Although houses built "on site" (also called "stick-built") still comprise the majority of today's new houses, prefabs are gaining ground. About 30 percent of today's new houses are at least partially built off-site, according to Building Systems magazine. This is up from 10 percent a decade ago.

The prefab house isn't a new idea. Catalogs, including those of Sears Roebuck and Co., sold thousands of them prior to World War II.

Lustron Corp. made steel houses in the 1940s that are architectural collector's items today. And renowned architect Frank Lloyd Wright dabbled in the prefab concept in the 1950s.

But "prefab" and "high-style" didn't find themselves in the same sentence until recently.

Now manufacturers offer factory-built homes and components in a wide range of price points and architectural styles, plus customization.

"Prefab" is an inclusive industry term that refers to houses made completely or partially in factories.

"Modular" houses are comprised of box-like sections that are trucked to the job site, then hoisted into place by cranes.

"Kit" houses are the modern-day versions of the Sears houses; they arrive unassembled with instruction books.

Prefab, modular and kit houses are built according to local building codes that are enforced where they will be erected. So in some cities, that may mean they are a no-no.

Mobile homes, on the other hand, have been called "manufactured houses" since 1976, when the Department of Housing and Urban Development building code that regulates them went into effect. They are built entirely in a factory and hauled to the site.

"I call mine a 'poor man's Mies van der Rohe,' " says artist Marian Anderson, describing her 1,400-square-foot kit building that serves as her studio in South Haven, Mich.

Built in 2005 near her lakeside house, she uses the kit house as a place to make sculptures. Clad in glass, it echoes van der Rohe's revered minimalist houses.

Purchased from Perryville, Mo.-based Rocio Romero LLC, Anderson's studio has a steel-post-and-beam frame.

Inside, she ditched bedroom walls in favor of a large, sunlit space. She figures she spent about $120,000 on the project, including labor to construct it and to dig the crawl space under it.

Rocio Romero, the company's principal, says she's seeing prefab houses appear across the U.S., after they were embraced in California years ago.

"When I first started in 2003, there was a huge learning curve," says Romero. "Now buyers get it."

"The industry has matured," reports Tom Beers, vice president of the National Modular Housing Council in Arlington, Va. "It's been growing every year except in '07, when new housing has been down overall."

Prefab manufacturers don't compete with traditional builders, Beers said. Rather, they supplement their businesses because most prefab home buyers hire contractors to erect their houses.

"The builders tend to be small builders who build on scattered sites, as opposed to large ones that build big developments," added Beers.

The advantages of building prefab benefit both the builder and the homeowner, says Beers.

"Material cost is lower because the manufacturer can buy in bulk and labor cost is lower because it takes less time to erect the structure," he says.

Because the prefab house is built in less time than its stick-built counterpart, the homeowner can avoid additional costs such as carrying two mortgages or renting while waiting for the new house to be completed.

"The whole assembly took two weeks," says Julian Guerrero of the prefab house he and his wife Nancy had built in north suburban Park City in 2003. "We sat in lawn chairs and watched."

The Guerreros' 2,100-square-foot ranch arrived via truck in three modules from Hi-Tech Housing in Bristol, Ind., then was assembled by R.J. Construction from Twin Lakes, Wis. Counting their full basement and labor, they estimate they spent $200,000. That includes extras such as a skylight and whirlpool tub.

"The craftsmanship is awesome," says Guerrero. "It has 2-by-6 insulated exterior walls, so our gas bills are lower than those of neighbors with stick-built houses."

Indeed, many prefab home manufacturers tout the "green," or Earth-saving, aspects of their products.

Mifflinburg, Pa.-based Ritz-Craft Corp., for example, makes all its homes Energy Star-compliant. Modular manufacturers say their methods produce less waste for landfills. And, it is in their best interests to minimize transportation costs, which translates into less use of fossil fuels.

Kit houses made by Enertia Building Systems in Raleigh, N.C., employ envelopes of air between their all-wood exterior and interior walls. The houses become their own heat pumps, extracting warm air from underground.

Buyers of prefab log structures have long recognized the green aspect of their homes.

"The logs soak up the heat in the summer, so we rarely use air conditioning. In the winter, the logs hold the heat in and we use the furnace less," says Conrad Golonka of the kit log house he bought from Expedition Log Homes in Oostburg, Wis., in 2001.

"This house is bigger than our old house but our utility bills are lower," he said.

Built in St. John, Ind., the Golonka house has 3,000 square feet.

Meanwhile, back at Chicago-area cornfield subdivisions, many builders of stick-built houses are using more factory-built components.

These include SIP (structural insulated panels) walls, roofs and floors. SIPs are sandwiches of OSB (oriented strand board) or plywood on the outside and foam on the inside. They arrive with window and door openings already cut out. They can hold in more heat or cooling than traditionally insulated walls.

Other builders use walls, floors and ceilings that are pre-cast of concrete. These are especially popular in hurricane-prone areas. Like SIPs, they are joined together on the job site.

"Panelized" houses are made of factory-built walls, floors and roofs that are fastened at the job site. The term "panelized" typically means the sections are made of wooden studs. But steel frames also are made in factories and shipped to job sites. The latter can span wider lengths because of its greater strength. .

Thanks to computer-aided design, prefab houses now can be tailored to fit rugged terrain, too, thereby junking the notion that they are all flat boxes plunked down on empty lots.

Mark and Peter Anderson's book, "Prefab Prototypes: Site-Specific Design for Offsite Construction," shows prefabs that dangle from cliffs, hug hills and hide among treetops.

"You can't tell a prefab from a stick-built one," says Guerrero. "But I think you get a better-built house for less money. I encourage other people to consider it."

Wal-Mart still retail's big kahuna; Sears slips
By Jennifer Waters, MarketWatch
June 29, 2007

CHICAGO (MarketWatch) -- Sears Holdings Corp., whose namesakes stores were once the most powerful in the U.S., lost ground this year in the industry's annual tally of the 100 top retail chains.

The parent (SHLDsears hldgs corp com (SHLD ) of Sears Roebuck and Kmart stores fell to No. 6 on the National Retail Federation's Stores magazine list released Friday, losing two places to Costco Wholesale and Target Corp.

Those discount retailers took the fourth and fifth spots, moving up a notch in the past year in the list. Rankings are determined by total sales.

"Sears is the one to watch," said Stores' Executive Editor Susan Rada. "It didn't fall dramatically, but I don't know what to expect from Sears anymore."

Sears Holdings catapulted to a top-10 spot two years ago when the two retailers were brought under one corporate umbrella. But sales growth has been sluggish, while competitors have seen their top lines expand at a faster clip.

In fiscal 2006, for example, Sears Holdings sales climbed 7.9% to $53.01 billion while Target's jumped 13.1% to $59.49 billion and Costco's leapt over that with a 13.6% increase to $60.15 billion.

Hefty as those revenues might be, they still paled in comparison to the perennial top-of-the-heap retailer, Wal-Mart Stores (WMTWal-Mart Stores, Inc
The parent of Wal-Mart and Sam's Club stores rang up $348.65 billion in sales last year, eclipsing all other companies in the world, according to Fortune's list of the top 500.

In the retail world, Wal-Mart's revenues are so high that they exceed those of the next five largest retailers combined. "Aggregate revenues for the companies on the Stores Top 100 list are just over $1.6 trillion," the magazine said. "Wal-Mart accounts for nearly 22% of that total."

Holding on to the No. 2 and No. 3 places - spots they're not likely to lose anytime soon - were Home Depot, the world's largest home-improvement retailer, and Kroger Co., the nation's largest grocery-store business.

"The same three at the top of the list is a sign of resiliency in retail," Rada said. "Even though these three get beat up sometimes and have their share of problems ... they still continue to innovate and still continue to address customer needs."

Rounding out the top 10 in order were Walgreen Co., Lowe's Cos., CVS Corp. and Safeway Inc.

Best Buy moved up to the 11th position after its sales jumped 16.5% last year to $35.93 billion.
Supervalu took a big leap to 12th with a 163.4% surge in sales, thanks to its acquisition of Albertsons.

Also losing ground this year was Limited Brands and its 26.2% pop in sales to $10.71 billion at No. 32 and Jean Coutu Group, the Canadian-based drug-store chain whose revenues more than doubled to $11.14 billion through its Rite Aid acquisitions.

At least some of the movement on the chart came from this year's addition of restaurants to the list. Rada said restaurants such as McDonald's Corp. at No. 42, among others, were counted in because of their striking importance in the consumer-spending picture.

"Restaurants are taking an increasing portion of the consumer-spending dollar, and that is something we need to consider," she said. "Quick-service and casual restaurant brands are on par with brand names we frequently refer to in retail."

Moreover, the reigning trend in new retail centers is lifestyle centers that mix big-name stores with restaurants and other forms of entertainment on a more manageable scale than most shopping centers and malls.

"Lifestyle retailing is growing at the expense of traditional malls because it's more in sync with the way the customer shops today," she said.

Jennifer Waters is a reporter for MarketWatch based in Chicago.

Chains try inside move
By Sandra M. Jones - staff reporter – Chicago Tribune
June 29, 2007

At 4 Kmarts scattered across the U.S., Sears Holdings Corp. is allowing Sears' dealer stores'  to set up shop within and sell goods not usually found at the discount retailer

In the past year, Sears Holdings Corp. has been moving its best Sears brands into Kmart in an effort to reach more shoppers and jump-start years of declining sales.

First Craftsman tools and DieHard car batteries appeared on Kmart shelves. Then roughly one out of every 10 Kmarts began selling Kenmore appliances.

Now, in the boldest move yet, the retailer is experimenting with putting free-standing Sears stores inside of Kmart.

The discount chain is renting about 7,000 square feet inside existing Kmarts to Sears dealers in four towns -- Claremont, N.H.; Freedom, Calif.; Pell City, Ala.; and Zephyrhills, Fla. -- carving out a separate entrance and hanging a Sears sign over the door. The dealers sell hardware, appliances, lawn equipment and some consumer electronics.

The combination comes closer than any effort to date in merging Sears and Kmart into one entity, a process many investors were skeptical would happen after hedge-fund investor Edward Lampert engineered Kmart Holding Corp.'s acquisition of Hoffman Estates-based Sears, Roebuck and Co. more than two years ago.

"We thought it was going to be more of a land bank story than an operating story, but the operating story has been surprisingly strong," said William Dreher Jr., a Deutsche Bank Securities analyst in New York who rates the stock a "buy" and who owns Sears shares.

Sears has a network of 822 so-called dealer stores, run by entrepreneurial-minded business owners. They are well-versed in selling big-ticket items such as refrigerators and lawn tractors, products foreign to Kmart. And they have incentive to generate sales.

The dealers have invested their own money into the Sears business. Although Sears owns the merchandise and sets the prices, the dealers pay operating expenses and receive sales commissions.

Inside of Kmart, the dealers continue to operate as they always have, but rent payments go to Kmart instead of the landlord, lowering the Kmart store's overhead costs and in turn helping profits. And, if all goes as planned, the higher-income customers that go into Sears to buy a lawn mower or dishwasher will wander into Kmart and do some shopping.

Putting dealer stores inside of Kmart also is a way to boost sales without investing a lot of money in the stores, a textbook Lampert strategy.

Sears calls the move a test and plans to expand it, CEO and President Aylwin Lewis told shareholders at the company's annual meeting in May.

"All indications are that it's something we will take a look at," Steve Titus, vice president and general manager of dealer stores for Sears, said in an interview last week.

If successful, the experiment could go a long way in helping Lampert's efforts to fix the two troubled retailers.

When Lampert took control of Kmart in bankruptcy court, he turned the retailer around by selling real estate and cutting costs. As Sears' chairman and its largest shareholder, with a 43 percent stake, Lampert has not sold much Sears real estate but has still managed to improve profits by cutting overhead costs and trimming capital spending.

But without the asset sales, Lampert's strategy is starting to reveal limitations.

Slipping sales eat at profit

After holding steady for two years, sales at Kmart stores open at least a year fell 4.4 percent in the first quarter of fiscal 2007, as the company reported in May, hurting overhead expenses and cutting into total profits. Same-store sales at the Sears chain fell 3.4 percent, dragged down by a what Sears called "a notable decline" in home appliance sales, which are facing increased competition from Home Depot, Lowe's and Best Buy. Home appliances accounted for about 15 percent of Sears Holdings' revenue in fiscal 2006, or about $8 billion.

"Recent missteps have left investors wondering if this is a temporary stumble or a sign that cost savings are drying up," wrote Goldman Sachs Group Inc. analyst Adrianne Shapira, who rates the stock a "neutral" in a June 13 report. Shapira predicts profit improvement will return but warns it "could be somewhat choppy given that success increasingly hinges on top-line results."

Sears Holdings' net income came within its predicted range for the first quarter, but after removing one-time gains and charges, Dreher estimates profits from continuing operations fell slightly.

On Thursday, shares closed at $168.53, up 46 cents, but that's a 12.6 percent decline from its record close of $193 on April 17. Still, shares of the merged company have increased 28.5 percent since closing at $131.11 on March 28, 2005, the first day of trading as Sears Holdings.

A chance to minimize rivalries

Sears established the dealer stores in 1993 after shutting down its legendary Big Book catalog. The stores, many of them former catalog outlets, gave Sears a way to reach rural Americans who lived far from a traditional Sears store. But since Kmart bought Sears in March 2005, scores of Sears dealers compete directly with Kmart. Craftsman tools and DieHard batteries, products once exclusive to Sears, now are available at the more than 1,300 Kmart stores. About 180 Kmarts sell Kenmore appliances, and more stores are on the way.

"You need to have a 3 to 4 percent sales increase each year just to keep up with the overhead," said Thomas A. Redington, a former Washington, Mo., Sears dealer. "If Kmart sells the same products where you had an exclusive, you lose volume."

About 200 dealers banded together in June 2005, shortly after the merger, and sued Sears for infringing on their territory. A federal judge dismissed the lawsuit, saying in essence that Sears had individual contracts with each dealer, not the group as a whole.

By sharing customer traffic, both stores could benefit.

"If you want a tractor, Kmart walks the customer over to the Sears dealer store," Titus said. "If someone wants a smaller microwave than the built-in microwaves the dealer sells, the customer walks over to Kmart."

Sears undertook a similar strategy at its department stores with Lands' End. Sears bought the preppy direct-mail business in 2002 with the hope that selling the upscale clothing inside of Sears department stores would attract higher-income consumers.

But the initial execution faltered. Lands' End, a higher-priced line that rarely went on sale, hung on racks next to Sears' promotional in-house brands. The presentation confused the traditional Sears shopper and lacked cachet for Lands' End fans.

Lands' End fared better after Sears carved out a separate "store" for the brand. The company tested the in-store shops in a handful of Sears stores before rolling them out to 100 stores last year and plans to have Lands' End shops in 200 stores this year.

"It's like what they did with Lands' End to drive traffic into Sears," said Love Goel, chairman and CEO of Growth Ventures Group, a Minnetonka, Minn.-based retail investment firm. "They're trying to use appliances to drive traffic to Kmart."

High Court Eases Ban Minimum Prices
By Christopher S. Rugaber – Associated Press – Forbes.com
June 28, 2007

Manufacturers will have greater leeway to set prices at the retail level without violating antitrust laws under a Thursday Supreme Court ruling that could hurt consumers and small merchants.

By allowing minimum price agreements, the court's 5-4 decision could lead to higher prices, dissenting justices said, as it becomes more difficult for smaller stores and Internet retailers to offer lower-priced goods.

The court said agreements on minimum prices are legal if they promote competition, meaning accusations of antitrust violations will be evaluated case by case.

In a 1991 decision, the Supreme Court had declared that minimum pricing agreements always violate federal antitrust law. But Justice Anthony Kennedy wrote in the majority opinion that the principle that past decisions should be left alone "does not compel our continued adherence" in this instance.

Minimum price agreements can benefit consumers, Kennedy wrote, by enabling retailers to invest in greater customer service without fear of being undercut by discount rivals. The agreements also could make it easier for new products to compete, he added, because a retailer could recoup the costs of marketing a new good by charging a higher price.

Dissenting from that view, Justice Stephen Breyer wrote: "The only safe predictions to make about today's decision are that it will likely raise the price of goods at retail."

The Consumer Federation of America said in court filings that the ban on minimum price agreements allowed "innovative retailers to continually enter the market, offering new and lower priced alternatives to consumers."

But Roy Englert, an antitrust attorney at Robbins Russell, said the court's decision does have boundaries that will protect entrepreneurs. The ruling only allows minimum price agreements between manufacturers of a single brand of a product and retailers, Englert said, while other brands of the same product can still compete on price.

Moreover, if only one brand is available, retailers and consumers can still sue manufacturers for anticompetitive conduct, Englert said. The courts will now evaluate such suits on the merits, rather than automatically finding them illegal.

Englert helped prepare a brief in support of Leegin.

Some antitrust experts say consumers shopping on the Internet will be hurt by abandoning the 96-year-old rule.

Richard Brunell, director of legal advocacy for the American Antitrust Institute, said price floors pose little risk to large chains such as Wal-Mart Stores Inc. (nyse: WMT - news - people ) because "it is no longer the new kid on the block" and has sufficient clout to get whatever products it wants without any price restrictions.

Today, incumbent retailers like Wal-Mart actually might find price floors to be an effective tool against Internet discounting, Brunell said.

In recent decades, the Supreme Court has chipped away at what many economists traditionally regarded as vital consumer protections against anticompetitive conduct. For example, exclusive dealer territories and setting price ceilings are no longer automatically unlawful.

The current case involves Leegin Creative Leather Products Inc., based in City of Industry, Calif. The company entered agreements with retailers setting minimum prices for the Brighton brand of women's fashion accessories.

Leegin said that by maintaining price consistency among niche retailers it sells to, businesses can offer improved customer service. This enables smaller stores to compete against rival brands sold by discounters, Leegin argues.

Several retailers in Dallas selling Leegin's products lowered prices below the minimum. family operated Kay's Kloset said it followed suit to stay competitive. Phil and Kay Smith say that when they refused to raise prices back up, Leegin cut off their supply.

Kay's Kloset sued and the Smiths won a $3.6 million judgment following a trial that laid out details of the price floor arrangement between Leegin and many of its retailers. The 5th U.S. Circuit Court of Appeals upheld the lower court's finding.

Joining Kennedy in the majority were Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Samuel Alito. With Breyer in dissent were Justices John Paul Stevens, David Souter and Ruth Bader Ginsburg.

The case is Leegin v. PSKS, 06-480.

Foolish Book Review: "You Can Be a Stock Market Genius"
By Jim Mueller – The Motley Fool.com
June 26, 2007

Investor and author Joel Greenblatt sure comes up with some quirky ways to address investing. In his 2006 book, The Little Book That Beats the Market, he touted a magic formula based on two strong value investing pillars. In his earlier book, You Can Be a Stock Market Genius, published in 1997, the title alone is enough to throw people off. I can, huh? Pull the other one; it's got bells on.

That title sounds absurd because conventional wisdom says that individual investors cannot beat the market or professional investors. In the opening chapters, though, Greenblatt goes to some length to explain why the small investor -- without portfolios totaling hundreds of millions or billions of dollars --has an advantage over professional investors. One, we can stay focused. We don't have to invest in our eightieth or hundredth best idea, but we can stay within our best 10. Two, we can judge ourselves on a much longer time scale than next quarter. Three, we can afford to wait for that fat pitch, that situation that will have an outsized impact on our portfolio.

The rest of the book highlights some of the situations Greenblatt has found in his investing career that can lead to outsized returns. He starts off with a relatively simple area of investing, spinoffs. By looking at several case studies, he shows why investing in this type of corporate restructuring can lead to good things.

The spinoff opportunity

One reason is that the value of the underlying business becomes clearer after it sheds some of its divisions. For instance, in 1992, Sears spun off its Dean Witter (now a part of Morgan Stanley (NYSE: MS)) and Allstate (NYSE: ALL) businesses. Based on the market prices of those two businesses and the market price of Sears itself, one could calculate that the retail business that Sears was back then was priced at only $5 per share, for a business doing $79 per share in sales -- drastically undervalued. It wasn't until the masking effects of Dean Witter and Allstate were removed that the overall market was able see this. Within the next several months, the price of Sears rose 50%.

In an interesting follow-up to the above story, Morgan Stanley is now spinning off Discover (to be listed as NYSE: DFS), obtained with its 1997 merger with Dean Witter, as a separate company on June 30. Those who like Greenblatt's chapter on spinoffs should take note.

Greenblatt then ranges a bit further afield, discussing risk arbitrage and mergers, bankruptcies, warrants and options, and other related areas. While most people have witnessed a spinoff or even experienced one firsthand -- as shareholders of Disney (NYSE: DIS) recently did -- the other areas discussed in this book are a bit less common. This, Greenblatt feels, is part of their charm; where fewer people play, the chance of a mispriced opportunity is higher.

Not for everyone

Now whether or not the average investor should use these more out-of-the-way types of investing is a topic for debate. But the general lesson holds true -- for potentially high returns, look in areas where others are not and employ a margin of safety.

Despite its tease of a title, this book is not for beginning investors. Not taking the time to learn and understand the situation can lead to poor results. And even then, bad things can happen, as Greenblatt himself admits. For instance, when he discusses the risks inherent in risk arbitrage investing, he writes:

When deals fall apart, it's always unexpected. There's just no point in putting yourself, your money, and your stomach through the hassle. If you still want to run around the house with scissors, go ahead. But there are easier, and safer, ways to make a buck.

You can make a lot of money sticking to the tried and true method of investing long and holding good companies for many years. However, if you are a more experienced investor looking for other areas to invest part of your portfolio in, this book will give you several new places to explore.

Retiree Health Access
Posted by: HR Policy Association
June 23, 2007

HR Policy Association to offer a first of its kind retiree health insurance offering for pre- and post-65 retirees.

Beginning January 1, 2008, participating companies in the Association will be able to offer their retirees access to comprehensive, guarantee issue health benefits through the Retiree Health Access (SM) program.

Finding guaranteed access to affordable retiree medical health care coverage, especially for pre-65 retirees who are not yet eligible for Medicare, presents a vexing problem for large employers, their retirees, and their families. Accounting rule changes in the early 1990s (FAS 106 obligations) required employers to begin to account for future retiree medical obligations. This and skyrocketing health care costs have made it fiscally impossible for many employers to continue paying for retiree coverage at previous subsidy levels, and FAS 106 discourages others not currently offering coverage from doing so.

Against the backdrop of difficult economic and social forces, Retiree Health Access offers a unique solution by providing access to a fully-insured, pre- and post-65 retiree medical solution that will be available to retirees regardless of their health status or their employer's level of premium contribution.

Retiree Health Access was developed for the Association by the Health Care Policy Roundtable, LLC. Following a rigorous selection process, Aetna was chosen as the carrier to provide this unique offering because of its willingness to work creatively with the members of the Association. Jeffrey C. McGuiness, President of HR Policy Association, said, "With Retiree Health Access, we tried a different approach to health care reform -- help the marketplace understand what the consumer wants instead of settling for what is currently on the shelf. We've definitely had a breakthrough by getting a guarantee from Aetna that all retirees can get access to comprehensive insurance regardless of health status. The key question now is if we can make this affordable for retirees regardless of how much their employer subsidizes coverage."

Association Chairman and Senior Vice President, Human Resources for IBM Corporation, J. Randall MacDonald said, "The past system of offering retirees medical benefits has proven difficult to maintain and cost prohibitive for many employers. This Association recognizes that new solutions are needed if companies are to remain economically competitive, and it is committed to developing ways to create affordable and accessible retirement options for workers."

Retiree Health Access features significant advantages for employers and their retirees:

-- Guaranteed-issue comprehensive coverage: Employees considering retirement are primarily concerned with securing coverage that protects their assets against significant health care costs. Retiree Health Access guarantees access to an array of comprehensive coverage options for individuals who enroll at retirement are regardless of their health status.

-- Fully insured solutions: Aetna has agreed to bear the risk of Retiree Health Access through a fully insured arrangement.

-- Coverage for pre- and post-65 retirees: Employers need a retiree health insurance solution for all their retirees -- early retirees (those younger than 65, the age of Medicare eligibility) and Medicare eligible retirees -- and Retiree Health Access is the first program of its kind to offer a comprehensive, fully insured, guaranteed-issue coverage for both categories of retirees.

-- Flexible employer contribution: Retiree Health Access is available to retirees of participating employers regardless of how much their employer contributes to their premiums.

-- Comprehensive administrative support: Retiree Health Access allows employers to take advantage of comprehensive administrative support, minimizing resources that employers would need to provide retiree benefits while giving retirees all the support that they need.

-- Built in incentives for aggressive disease management: Because Retiree Health Access is being offered as a fully insured product, Aetna bears the insurance risk and has a direct incentive to aggressively promote effective disease management and healthy lifestyle decisions among enrolled retirees.

HR Policy Association, established in 1957, consists of chief human resource officers representing nearly 250 of the largest corporations in the United States. From nearly every major industry sector, HR Policy members have a combined market capitalization of more than $8.2 trillion and employ more than 18 million employees worldwide. Due to extreme concern over skyrocketing health care costs in the United States and deficiencies in efficiency and quality, the Association has been working through its public policy agenda and market reform initiatives to address the problems that plague our nation's health care system.

Atlanta developer outlines plans for Sears site
By Kevin Duffy - Atlanta Journal-Constitution
June 26, 2007

In 15th century Italy, the powerful Medici family supported artists and scholars during a period of great cultural flowering — the Renaissance.

Now, developer Emory Morsberger is thinking along the same lines with his huge City Hall East redevelopment project in Midtown.

Morsberger wants to attract leaders in science, academics and the arts to the mixed-use project he's spearheading, Ponce Park. So he's proposing creating the "Medici Center" at Ponce Park — housing for thinkers.

"We're going to superheat their interaction to create new ideas," Morsberger said at a recent meeting of the Urban Land Institute, a nonprofit organization of land use professionals and businesspeople. "Maybe they'll think of a different way to cure AIDS."

Medici Center residents would work at the various universities in the metro area, at the Centers for Disease Control and Prevention, and at arts organizations.

Morsberger, an Emory University history graduate, said he foresees 300 to 500 teachers, scientists and artists — some retired — living permanently, or for a short time, at Medici Center.

They could rent, use it as a hotel or own; some might pay below-market rates, he said. Details are still being worked out.

Last year, Ponce Park LLC, a consortium of developers, including the Morsberger Group, bought the old Sears, Roebuck and Co. store and distribution center on Ponce de Leon Avenue for $33 million.

Roughly 1,000 city employees are still using the building, one of the Southeast's largest at nearly 2 million square feet. They are scheduled to move out in September 2008.

Most are police and fire employees who will head to a new public safety building under construction on Garnett Street downtown. The rest will go to other locations, according to the city.

The developers plan to take control of the property in October 2008. As early as 2010, the first units could be for sale, Morsberger said.

Redevelopment of the Sears building is the showiest portion of a much larger transformation of the area bounded by Ponce, Glen Iris Drive, Ralph McGill Boulevard and the old Norfolk Southern rail line.

The bigger picture includes creating a park of 20 to 40 acres with a small lake. Parcels for the park are still being put together.

Across from the Sears site, Lane Development and Investment LLC will build Ponce Park South on North Avenue. That project will contain approximately 415 residential units and 12,500 square feet of retail.

South on Glen Iris, Wood Partners is building more than 300 apartments and condos at the site of the old National Linen Service building, which was razed.

At the Sears site, structures that were added to the original 1926 monolith will be demolished, and six new buildings are planned. One is slated to be 14 stories of living space on the proposed Beltline, the historic 22-mile-long loop that someday may provide intown rail service.

The main entrance to Ponce Park will be a wide piazza on North Avenue, big enough for motorists and pedestrians. Parking for 2,000 vehicles will be built, but only about 100 parked vehicles will be visible from the street, said David Laube, Morsberger Group vice president.

Ponce Park and Ponce Park South — together, close to a $500 million investment when all is done — will end up being home to approximately 3,000 new residents. Other nearby projects could boost that figure to more than 5,000. "We envision a number of Nobel laureates living here," said Morsberger, utterly serious.

Keeping Early Retirees Afloat
By Milt Freudenheim – New York Times
June 23, 2007

What with years of layoffs, employee buyouts and sending jobs offshore, corporate America has helped create a pool of about 800,000 early retirees who now find themselves in a health care bind.

They are no longer eligible for employer insurance programs, too young to qualify for Medicare and unable to afford private insurance on their own.

But now corporate America, having created the problem, is trying to help solve it.

A group of some of the nation’s biggest companies plans to announce today a program meant to make health insurance available to their former employees ages 55 to 64.

Not only would the insurance policies be relatively affordable, but no one could be turned down for coverage, regardless of medical condition. That is a crucial provision, because high blood pressure, heart disease, cancer and other medical afflictions of late middle age can make it hard for early retirees to find an insurer willing to cover them at any price.

The specifics will vary from employer to employer, with some companies helping subsidize the coverage. Other employers might simply create large pools of retirees, making them eligible for discounted group rates.

Typically, the policies will carry a moderately high annual deductible — perhaps $500 to $1,100 or so in out-of-pocket medical expenses before coverage kicks in. The retirees’ monthly premiums will range from $400 to $1,200 or more, depending on whether the employer defrays part of the cost.

That is significantly lower than what people in this age range can expect to pay, if they can find individual insurance at all.

“If I have had a triple heart bypass, there’s not a snowball’s chance of getting coverage in the individual market,” said Richard J. Lueders, who oversees benefits at the big Michigan utility DTE Energy, a member of the employers’ committee that created the program.

The sponsor, the HR Policy Association, represents 250 large companies, including General Electric, I.B.M., Sears, Starbucks and United Parcel Service. Although the association says it does not know how many total early retirees there are among its members, a few of the bigger companies have tens of thousands, while some newer technology businesses have none.

The HR Policy group acknowledges that its effort can probably not help more than a small fraction of the 800,000 pre-Medicare retirees currently without insurance — or others among the nation’s more than four million people in the 55-t0-64 age group who are not working and may be at risk of losing insurance if the costs continue to soar.

People in that precarious category include Larry Little, a 58-year-old retiree in Charlotte, N.C. Mr. Little spent 32 years as a tire factory worker but is having trouble keeping up with the rising premiums of the insurance offered by his former employer, Continental Tire North America.

“I was just getting by on my pension,” said Mr. Little, whose monthly pretax income is $1,740. “Now with these costs — an extra $500 a month — I’m using up my savings.”

Continental Tire North America is not part of the HR Policy Association, so Mr. Little would not be helped by that group’s new program.

In fact, in 2008, during the HR Policy program’s first year, no more than about 20 of the member companies are expected to offer the new health coverage. But many others are considering joining for 2009, according to the group’s president, Jeffrey C. McGuiness, who said he was not yet free to identify the participants until they told their own people about the program.

United Parcel, however, has said it is among those planning to participate.

Despite the program’s limited reach the HR Policy group hopes it can help “shape and influence” the national debate on health care reform, said Ronald A. Williams, the chief executive of Aetna, the big insurer that will administer the coverage.

If the effort seems a change of heart for corporate America, in some ways it is.

Since the early 1990’s, when new accounting rules forced companies to start reducing their profits to reflect the future costs of retiree medical benefits, many have simply stopped providing such coverage. Early retirees, who even in the best of times were not widely eligible for health benefits, have been especially hard hit.

These days, only 18 percent of large employers still contribute to the cost of health benefits for retirees younger than 65. That is down from 30 percent in 1993, according to a 2006 survey by the Mercer Health and Benefits consulting firm. But some companies now see the drawbacks of treating older employees and retired employees primarily as a financial liability — if only because of the signal it sends to workers still on the payroll in the prime of their careers.

“This is a burning issue for corporations,” said J. Randall MacDonald, a senior vice president at I.B.M., which has 30,000 early retirees. “Employees have become increasingly concerned.”

With many companies now facing shortages for certain types of skilled employees, many want to keep or recruit experienced people by saying “we can give you access to coverage when you retire,’ ” said Helen Darling, the president of the National Business Group on Health, another organization of large employers.

And even among companies that may still be eager to move older workers to retirement before age 65, some employers see the virtue of not letting health benefits be a reason for an employee to cling to his or her job long after losing interest in the work itself.

Maybe of most significance, the new HR Policy program, to be called Retiree Health Access, will in many cases cost relatively little for employers.

Aetna has agreed to offer the policies in part because the big employers are able to amass large enough pools of early retirees to help spread the risks and costs of insuring people of an age susceptible to major medical expenses.

“The new program will help companies stay in the retiree medical game,” Mr. Lueders said. His company, DTE Energy, has already been providing health coverage for about 3,000 early retirees, mainly from its Detroit Edison unit.

Preliminary versions of the program have received an unpublicized two-year trial run at several big employers, including United Parcel.

As the program proceeds beyond the experimental stage, United Parcel plans to start offering about 6,000 nonunion early retirees and their spouses a range of options, including a safety-net catastrophic coverage policy, said Al Rapp, United Parcel’s corporate health manager. Such policies typically cost less than fuller coverage because they pay only for major illnesses and injuries.

Aetna, which already covers more than 1.5 million retirees in traditional employer health plans, hopes to keep costs down for the new plans through “medical management” programs that advise and monitor people with chronic problems like diabetes and heart failure, said Mark T. Bertolini, an Aetna executive vice president.

General Motors, an HR Policy Association member that has been closing production lines and pushing thousands of workers into early retirement, is studying the program, said Bruce E. Bradley, G.M.’s director of health care strategy and public policy.

“This could be important in improving both the G.M. picture and the national picture, as a contribution on the issue of the uninsured,” he said.

G.M. has been staggered by its current health benefit obligations to more than 430,000 retirees. But nonunion employees hired at the company after 1993 — a category that happens to include Mr. Bradley — were no longer promised retiree health benefits. Instead, they received money through a tax-deferred savings plan.

“I can spend it on anything I like,” he said. But if General Motors adopts the new Retiree Health Access program, Mr. Bradley, who is 62, could make that money go a lot further by buying into it.

“For me,” Mr. Bradley said, “it would be a soft landing.”

Macy's Shares, Options Soar on Takeover Speculation
By Danny King and Allen Wan – Bloomberg.com
June 22, 2007

Shares of Macy's Inc., the second- largest U.S. department-store chain, rose the most in more than a year and stock-option volume soared on speculation the company may be bought.

“There is talk of a private-equity buyout this weekend” at $52 a share by Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc., said Marc Weinberger, head trader at W. Quillen Securities in New York. At that price, the company would be valued at $23.9 billion.

Macy's spokesman Jim Sluzewski said the company doesn't comment on market speculation. David Lilly, a spokesman for KKR, and Goldman Sachs spokesman Michael DuVally declined to comment.

The former Federated Department Stores Inc., based in Cincinnati, changed its name to Macy's this month.

The shares rose $2.56, or 6.6 percent, to $41.43 at 4:06 p.m. in New York Stock Exchange composite trading, the largest jump since November 2005.

Trading in call options to buy the shares surged to a record 121,312, more than 35 times the 20-day average. The price of the most actively traded contracts, July $42.5 calls, jumped 16-fold to $1.70 from 10 cents.

Each call option gives investors the right, without the obligation, to buy 100 shares of a company at a specified price by a given date. A put conveys the right to sell 100 shares. Put volume also reached a record 12,332, a ninefold rise.

Sears Holdings Corp. is the biggest U.S. department store chain.

At Wal-Mart, a Back Door Into Banking
By Michael Barbaro and Eric Dash – New York Times
June 21, 2007

Wal-Mart failed to get approval for a bank. But the giant discount chain is effectively building one anyway.

Wal-Mart said yesterday that it would rapidly expand the financial services offered in its vast network of stores, extending the reach of its retailing empire into its shoppers’ wallets and the traditional turf of the American banking industry.

Over the next year, the company plans to introduce a prepaid debit card, intended for low-income consumers, and install money centers — which currently offer check cashing, bill paying and money order services — into at least 1,000 stores, up from 225 now.

The moves are seen as a precursor to even wider offerings, like mortgages and home equity loans, which could turn Wal-Mart into a significant force in the banking world. Jane J. Thompson, the president of Wal-Mart financial services, called the prepaid cards and money center services “foundational products” that the retailer would build upon. “Our concept is to go up the credit ladder of financial services,” she said in an interview.

The introduction of such services is something of an end run around the federal government, which was considering Wal-Mart’s application to open a bank last year when the retailer withdrew its bid. The new products, like the prepaid debit card, will be offered through third-party partners, allowing Wal-Mart to sell banklike services without a government license.

Given Wal-Mart’s penchant for squeezing costs out of every business it enters — from changing oil to dispensing prescription drugs — the move is expected to jolt the financial services industry.

With plans for 875 new money centers by the end of 2008, Wal-Mart’s presence would be roughly equivalent to Citibank’s in the United States, and its daily foot traffic would dwarf that of most credit unions, check-cashing outlets and convenience stores. While it may not immediately threaten those businesses, Wal-Mart’s pricing power and proximity may give it an advantage in serving the tens of millions of consumers who do not have a checking account or are unlikely to set foot in a bank.

At the same time, the moves could help bolster the retailer’s sagging sales by giving low-income customers, who represent much of its business, another reason to shop at its stores. “The logic behind a lot of these services is to increase traffic and do it in a way that puts money in people’s hands,” said Andrew Dresner, a payments industry consultant at Oliver Wyman Financial Services. “You give them a couple hundred dollars,” when they cash their paycheck, “and they will buy other things.”

But the services themselves will also aid Wal-Mart’s bottom line. Ms. Thompson said that Wal-Mart’s financial services products provide “healthy margins,” and that she expects the overall business to grow 30 to 40 percent over the next year.

Much of what Wal-Mart announced yesterday will be directed at consumers who do not use banks. Wal-Mart says, for example, that 20 percent of its customers — about 27 million people — do not have checking accounts. The so-called Wal-Mart Money Card, to be issued with GE Money, a division of General Electric, would allow customers to transfer their paychecks directly onto their cards and make purchases at any retailer that accepts Visa cards. It will also allow them to check their balances online or on mobile phone, pay certain bills or withdraw cash from A.T.M.’s.

The prepaid card will initially cost $8.95, and comes with a $4.95 monthly maintenance fee. Cash can be loaded on the card free by cashing a payroll or government check at Wal-Mart or having the money directly deposited; otherwise, cardholders must pay $4.64 to reload it.

Those without a bank account can “finally take advantage of more mainstream financial services,” Ms. Thompson said. It also could position the retailer to offer new services, like an interest-bearing savings feature that Ms. Thompson said Wal-Mart was considering.

Analysts said there was ample evidence that Wal-Mart would lower the costs of banking in the United States. The chain has already cut the cost of cashing checks by 50 percent, and its financial services saved customers $245 million last year, according to company executives.

Wal-Mart has never hidden its banking ambitions, but it has arguably masked them from time to time. In 2005, Wal-Mart said it would seek permission to open a bank in Utah that would process credit and debit card transactions for its 4,000 American stores. At the time, it vowed that it would never use the bank to enter the consumer financial services business.

Nevertheless, opposition to its plans, which required the approval of federal regulators, swelled. Dozens of banking and corporate watchdog groups testified at hearings outside Washington.

In mid-March, Wal-Mart abruptly abandoned those plans. Instead, company executives said they would begin aggressively rolling out new financial products through third-party partners. Wal-Mart already offers a Discover credit card (through a similar partnership with General Electric) and money transfer services (through a partnership with MoneyGram.) Now, many in the financial industry say that mortgages and other types of consumer loans may be next.

Although Wal-Mart would still be barred from collecting customer deposits, the new services would effectively allow the retailer to offer its customers a small suite of financial products — just like a credit union or small local bank.

Of course, opposition may well re-emerge. Ronald K. Ence, vice president for Congressional relations at the Independent Community Bankers of America, a trade group, said Wal-Mart’s intentions suggest that the company misled the public when it said repeatedly that it did not plan to enter the consumer banking business.

“Clearly this was their intention all along,” he said. “The proof is in the pudding.

Wal-Mart Expands Financial Services,
Plans to Sell Debit Card From Visa
By Mike Barris – Dow Jones Newswire
June 20, 2007

Lands' End Seeks to Resuscitate Sears
By George Anderson – RetailWire
June 18, 2007

It's been a continuing story at Sears. One quarter follows another and sales just continue to drop. The chain, which has been criticized for not doing enough to get its business turned around, thinks it may have found at least one answer to help it reverse its downward spiral.

Sears is banking on its Lands' End store-within-a-store concept (approx. 10,000-square-foot departments) to help it attract shoppers like Jennifer Leonard of Millstone, New Jersey to its stores to buy clothes even though they've never bought any apparel from the chain before.

Ms. Leonard told the Asbury Park Press why she went clothes shopping at Sears for the very first time. "I came specifically for the Lands' End brand," she said. "I knew it was good-quality stuff. I knew that bathing suits in particular would be a good price and better than anything I can find in Lord & Taylor's and Macy's."

Lands' End spokesperson Michele Casper, said, "We are actually able to attract new customers as well as bring a higher level of customer service to a retail format. If people are great Lands' End shoppers, they can now experience that great customer service and assortment within a store setting."

Eric Romero, a Sears' store manager in Freehold, New Jersey, told the Asbury Park Press, that the Lands' End store-within-a-store "has been a great success."

Ms. Casper said that consumers that see the Lands' End department as a destination are discovering Sears in the process. "If they haven't been a Sears shopper... it is also opening their eyes to the Sears retail floor as well," she said.

Discussion Questions: Will a significant commitment to Lands' End bring in a whole new group of consumers to Sears? Will it introduce them to other aspects of Sears in the process?

Changing Clothes - Asbury Park Press

How likely is Lands' End to bring new customers into Sears to shop for clothing?

Very likely
Somewhat likely
Somewhat unlikely
Very unlikely
Not sure/no opinion

I have to agree with the store-within-a-store concept. Sears is already known for carrying a wide array of products. Now, they are taking a stab at product quality and differentiation. Lands' End will hopefully draw in a higher-end crowd, and that will hopefully draw attention to some of the other upgrades they have been making in other product lines as well.

Gregory M. Belkin, Product Marketing Manager, SeaTab Software Inc.

I think Sears has done a fabulous job with Lands' End in my local Sears. The merchandising is very well done and matches the overall Land's End brand. They make good use of freestanding displays, the lighting is effective and the product presentations are outstanding. I especially like the inclusion of a monogramming kiosk right in the store, which allows immediate follow-through on a key offering of Lands' End. I think they've hit a home run with it.

Now, the big question is will it attract new customers? I think the short answer is yes. While I doubt they are really new Sears customers, more importantly they are returning Sears customers who have left them for other retailers. The real question is will they be able retain these customers and increase their shopping frequency. The answer lies in their ability to execute beyond setting up the store-in-a-store and keep the area well stocked, well merchandised, and well staffed. I for one will shop there but only if it is a good shopping experience.

Can Sears deliver that? The jury will be out a while on that one....

Doug Fleener, President and Managing Partner, Dynamic Experiences Group

Yes, one of the reasons for the department store comeback is that savvy department stores are featuring a number of specialty stores-within-stores. The fact that these stores-within-stores often have their own buyers, marketing, advertising and sales and management personnel is what gives them the ability to be closer to the market, and why they are more likely to feature the products and items that consumers desire.
Lands' End offers distinctive products, one of the keys to success.

Also, Sears has (finally) embarked on serious multiple channel strategies, another key.

I give this strategy a good chance of success. Sears is coming back.

Roger Selbert, Editor & Publisher, Integrated Retailing

Lands' End might be the best thing Sears has going for it with regards to
retail, but they are small and insignificant compared to the overall disaster.
Lands' End is too little and too late for Sears.

David Livingston, Principal, DJL Research

Let's see...Sears bought Lands' End in 2002. They have had five years (of almost
uninterrupted sales declines) to leverage this acquisition. What's taking so long, and is it really working?

Sears' original stab at Lands' End shops inside its stores looked like an afterthought, and out of sync with their overall promotional strategy...so devoting more square footage in otherwise underperforming apparel space is probably a good idea. But is the customer drawn to the Lands' End shops really buying other softlines product at Sears before she leaves?

Sears has a few credible "legacy" brands in its portfolio, especially Kenmore and Craftsman. One of their challenges is how to treat Lands' End as one of their "legacies" without tainting the brand's own longstanding reputation. This is just one of dozens of issues that the Sears team must be wrestling with right now.

Richard Seesel, Principal , Retailing In Focus LLC

The Lands' End store-within-a-store is a good idea and will draw in some new customers. But this will not be the "golden nugget" for Sears. It will help but they need a new makeover. Sears apparel merchandising has improved over the last four years except no one knows about it. When someone goes apparel shopping, the last place you think to go is Sears.

Image and branding is necessary to improve numbers for Sears. In a poll of women concerning where they shop for clothing, one lady answered "Sears" and everyone looked at her in astonishment. Why? She said, "they are the best kept secret; they have good trendy clothing at great prices." Being the best kept secret is not what a retailer strives to achieve! They need to reposition themselves while not losing their positions in other areas like tools and appliances. Sears needs to be more in touch with the consumer and react faster. The market won't wait for them to take years to decide what to do. Speaking of their strongholds, who wants to buy an appliance at Sears and wait a week to get it? Sears needs to get with the program; we are a "want it now" society.

Susan Rider, President, Rider and Associates, LLC

Sears' issue, like Wal-Mart, is with changing its past image and reason for being, to something relevant to the targeted consumer. Research will define this area(s). And, this image change isn't easy and/or secured quickly.

Yes, you target your current shoppers. But, it is the one-timers and non shoppers that are critical. Sears is known for tools, appliances, and whatever. But a meaningful effort in an unknown market to Sears' target audience--even if Lands' End is known--isn't a cake walk.

Service to the consumers who might go to Sears for the new Lands' End products
better be supported by very qualified sales associates, with meaningful knowledge and administration skills.

One bad shopping experience, even with a noted consumer centic brand like Lands'
End will direct the consumers back to the catalog alternative.

Makes sense to this consumer who is bypassing Sears for the catalog and web site
of Lands' End! Hmmmmmmmmm

Stephan G. Kouzomis, Faculty and Staff Member,
University of Louisville's College of Business

I am not sure the concept will really work for the existing Lands' End customer since the selection is so limited. That is what I have observed at a local Sears store. I would consider adding an in-store computer kiosk where customers could order products directly from Lands' End website in the event a certain size or color was not available in store. Other retailers like Coldwater Creek offer this ability and it adds significantly to their customer service. Sears could also do more to advertise that Lands' End returns are handled at store level, thus saving consumers the postage, while bringing them into their
stores.

But the store-within-a-store will likely invite new customers who may not be familiar with the quality and variety of Lands' End merchandise.

Odonna Mathews, President, Odonna Mathews Consulting

Sears has destroyed most of the value of the Lands' End brand. Yes, a shop within the store will stand out and look good in relation to its surroundings but it is not "the answer" for Sears since the brand no longer has meaning to its original upscale, catalog, sailing clientèle (how non-Sears can you get?) and it is also not relevant to the value seeking mall/Sears regular (if there is such a thing left) customers. We all know Sears dropped the ball when it did not seek to emphasize the hard goods, male product strength that was its roots. If it chose the right path when it had the chance it could now be the Bass Pro, Cabela's of the mall world instead of the floundering giant of soft goods that it is.

Mike Tesler, President, Retail Concepts

Sears needs a total revamp, not a piecemeal approach. The feeling in the average Sears store is similar to that of a store closing sale. Craftsman and Kenmore will not carry Sears.

The staff I have met are indifferent at best. I remember the enthusiasm and friendliness of Sears employees when I was much younger. I remember well-stocked stores with energy and life.

Good concepts dropped into an unpleasant environment will not work. The Sears executives need to get out into their stores and see what the store experience is. Then these executives need to visit Anthropolgie, West Elm, Best Buy, Crate & Barrel, Nordstrom, and Target to see what is working in retail. I want them to take lots of notes and set 3 to 6 month targets for change. 4 years from buying Lands' End to a store-within-a-store is American Automakers idea of speed, and you can see the results in Sears and with the American automotive business.

Sears used to be one of the most shopped American stores; they are now an afterthought. Good luck.

Arthur Corbin, Owner / President, Corbin & Hendrix

I agree with most of the other comments here that the store-within-a-store concept is a great idea and can work. Sears is not the only retailer practicing this concept today. JCPenney is a good example of another retailer putting this into action with their partner, Sephora. I don't know if this will be the golden nugget as stated before but to answer the original question, will this bring new customers into the stores? I say YES! For the first time, I shopped in Sears for apparel and went there specifically for Lands' End. They got me...they will get more.

'BRetail'

As far as I'm concerned, Sears has never met the mark when it comes to fashion apparel. I don't shop there for the same reason I never shopped there as a teenager. They simply don't sell fashion. As exciting as it might seem, having Lands' End come to the stores just isn't cutting it. Lands' End is not the quality it used to be, and what I saw in one of the stores was sports related only.

There is a reason they say "The softer side of Sears." It's just that: SOFT. They need to figure out who they are and more importantly, who the customer is. I say abandon the clothing and focus on the hardlines.

'3642245'

It has always seemed to me that Sears never quite understood that it was hard for women to see Sears as a place for fashion when it is the same place you go to get your tools and washing machines.

Like the Lands' End brand a lot, but don't think it solves this fundamental problem.

Dan Gilmore, Editor, SupplyChainDigest

I have consistently contended that Sears would take Lands' End down if they held on to it
long enough, that Lands' End shoppers would not accept a Sears banner association with their beloved khaki pants and polo shirts. But a new possibility has emerged. Perhaps the Sears brand has finally become so irrelevant that the Lands' End brand can now surface unencumbered? Anything's possible, right?

Ben Ball, Senior Vice President, Dechert-Hampe

Yes, it will bring them in. But will it keep them coming back? Many of us seem to be in agreement that this is the challenge. Sears has a lot of work to do and I applaud this creative "first step." But Arthur is right, the brand needs an overhaul and their executives need to get out there and get a firm grip on the competition--and the opportunity. They have a great shot if they get smart and move quickly. Otherwise, I don't think their
few benchmark store brands will carry them into our hyper-competitive, hyper-demanding retail future.

Laura Davis-Taylor, Founder and Principal, Retail Media Consulting
 

At first glance I loved the concept--then remembered that, as a bunch of folks have pointed out, Sears should have done this years ago, and in a much bigger way.

I can't see exactly where Sears has destroyed the Lands' End brand. If, like me, you only encounter it online and in the mail, it's pretty much the same as ever.

But if I had been Sears' management when they'd acquired LE years ago, I'd have immediately converted all but the trendiest soft-goods departments to Lands' End and leveraged hell out of the brand when they could. The price points have always been reasonable, and Dodgeville could have instantly propelled Sears to the top of the game in the sort of basics that everyone buys at both the top and middle of the market (news flash--even the most upscale shopper needs a good $10 cotton tank top/$20 polo).

Mary Baum, Chairman, Mary Baum Creative Services

Nobody can accuse Sears-Kmart of being a fast mover when it comes to its long-anticipated image overhaul. And it certainly took its time getting to this multi-channel
strategy for Lands' End. But if the company has truly been attending to its operational housekeeping, as Mr. Lampert keeps insisting, then maybe it's time to capitalize on its "house of brands" legacy.

This topic stimulates the following a fantasy scenario:

1) Sears Corporate continues to strategically acquire brands on the softline side, by adding more strong e-catalogs and rolling out in-store boutiques to make them truly multi-channel. Why not an online jeweler, an online shoe site, an online sporting goods site, an online cosmetics brand? How about acquiring the remnants of CompUSA?

2) The company draws a clear line of definition between the Sears and Kmart chains while also emphasizing their connection. A name change for Kmart might help this (how about S Mart?). Sears-only brands and S Mart-only categories get carefully and clearly defined. A comprehensive store decor program updates the present institutional feel of the Sears stores and makes them fashionable.

3) Key brands with cross-platform potential, like Craftsman, Kenmore, Martha Stewart, get merchandised across both platforms. Crappy brands get thrown out. Web kiosks in both stores offer full-line ordering and returns across both chains. An Amazon-like shopping portal links all together on the Web, and Sears credit is accepted for all purchases system-wide.

4) Both chains prominently feature gift cards for each other, including brand-specific gift cards for marquee own labels like Craftsman and Lands' End.

5) Sears overhauls its services arm and establishes a strong quality control and vigorous ad program to keep its contractors on the straight and narrow. Think "Geek Squad" but for all sorts of installation and maintenance professionals--Sears Certified Home Solutions has a nice ring to it. Again, these services should be prominently available in Sears stores, S Mart stores and online, with a central clearinghouse to ride herd on it all.

6) Sears/S Mart launches an industry-leading sustainability program that includes chainwide energy conservation and solar rooftops on all structures within 10
years. It overhauls merchandise sourcing and adds "carbon footprint" descriptions to all products sold in its stores. It simultaneously becomes the first national chain to add a line of home energy management products, including solar panel systems, passive solar pool heaters, windows, etc.

OK, maybe that's enough free brainstorming for one post. If Mr. Lampert needs my
help with this, he can find me right here on the RetailWire....

James Tenser, Principal, VSN Strategies

The other day I was in my local Sears looking for a lawn mower and came across the Lands' End department, it was very sharp, spacious and polished. I was pleasantly surprised. It reminded me of the soft shops at Field's. I liked the navy and cream color scheme, very clean and elegant. Unfortunately all it did was show up the rest of the store as being cluttered and "discounty" with clothing stacked all the way up to the ceilings and hanging off of her square inch of the columns and clothes racks spaced 10' between each other. The Lands' End department had a very different aesthetic. Now if someone with vision can take that aesthetic and transform it to the entire store, that would be
something! I wish Lands' End and Sears the best of luck. Great job!

'jameseastbay'

The Lands' End store within a store concept is great. It's been in my local Sears for at least two years now. I'm not sure why it's taken Sears so long to exploit this with promotions, as they seem totally distracted by the competitive onslaught in appliances.
However, as the format is now, once you leave the Lands' End department, which
is nice enough, you enter into a retail nowhere land of miscellaneous assortments and brands, before hitting the appliances and tools in the back.

Sears needs to find a way to better complement the rest of its apparel and accessories with Lands' End. What they have right now is not enough.

'mikeb22'

I was in Sears last week to buy a refrigerator, and while the actual errand went fine, the overall experience wasn't very uplifting: the store seemed understaffed and cluttered, and the exterior dirty...in short, while Sears' problems are extensive, they also seem traditional and easily fixed. Stop cutting expenses and upgrade the stores.
'csundstrom'

I consistently believe that consumers need to be given a 'reason' to enter a retailer. Why Sears acquired Lands' End was to do just that--wasn't it?

Basically, what they are asking for is a 'do over'. Lacking virtually any other reason, they are likely not to get a 'do over' on this one. It's simply just not going to happen when the consumer can, if they really want it, buy the products with a much better experience on the net or over the phone via the catalog.

So, from my point of view, I still don't have a 'reason' to go there. I've given them too many chances. Yet, I do still thank them for the washer and dryer that I received for free from them years ago. Alas, a story for another day.
'Scanner'

Having been a Sears employee and a loyal Lands' End purchaser from their beginning on Elston Avenue in Chicago, I think putting Lands' End stores in Sears would only hurt Lands' End and not help Sears. The culture in the stores would chase away the Lands' End customer. A better idea would be to open separate Lands' End stores.
'clkarl'

The experience at the Lands' End department is decidedly better than what consumers find in the rest of Sears. That is not a good omen for Sears' chances to convert first-time shoppers who came to the store because of Lands' End.
'retailveteran'

You used to be able find anything in a Sears store or Sears catalog - log cabin homes, appliances, clothes, tools, even great gifts with a distinctive Sears wrapping paper. My grandfather would spend his Saturday mornings perusing the aisles, seeing if there was anything he didn't have or might want. That was 50 years ago.

Today? Well, there's this little thing called the Internet and if I need to find just about anything, I either use the search box or go to Amazon. Let's face it - Sears lost its relevance long before the softer side of Sears campaign.

Buying the company was a masterstroke financially for Lampert and the guy is a genius when it comes to analyzing and utilizing data. He has a goldmine in Lands' End and a portfolio of incredible brands - Kenmore, Diehard, Craftsman. Timeless. Securitizing them was brilliant! He instantly created value and if his retail strategy fails, he's got brands, real estate, and a huge services business from which to gain value.

But let's face it - Lampert is not an operator or a merchant. Amazingly, no one on his management team is either. His CEO? Came from a franchise-based fast food business. His CFO? His business partner at ESL Investments. His chief merchant? Unknown at this point. His chief marketing officer? Came from IBM and while she's well respected, she hasn't managed a transformation at such a true multichannel operation. The chief customer officer? Came from McKinsey. And the CIO? She spent 21 years at Kmart, a failed and bankrupt operation before Lampert bought it.

Where are the first round draft picks? Where's someone like Allen Questrom, a classic merchant who can cut costs and create a differentiated brand and merchandising roadmap? Data and analysis is one thing - creating customer centric assortment and differentiated experiences is another.

And that's where Lands' End comes into play. It has a very core vision of the customer persona - families who want timeless product and superior value. It's what Sears should have leveraged long ago... I would argue the current portfolio of proprietary brands have essentially run their course (Covington? Structure?) and the company should have turned over its "softer side" to a viable brand like Lands' End when they purchased the company 5 years ago. The store within a store concept is heading in the right direction, but it can't work on its own and needs similar concepts to develop greater relevance for a younger, family-oriented consumer.
'4thGenerationRetailer'

Having recently shopped the State Street Lands' End at Sears' boutique store, introducing Lands' End and marketing it effectively is the only way for Sears to go in selling soft goods.
'weo'

Street Smart: Face-Off: Sears Holdings
Can Lampert Save Sears?
By Dyan Machan - SmartMoney
July 1, 2007

YES: "Sears Chairman Edward Lampert appears committed to a long-term perspective, and Sears will likely be guided by that perspective."

-- William Dreher Jr., Deutsche Bank Securities

YES: Sears Holdings is offering what no other retailer can -- a chance to benefit from one of the greatest investment minds of our time. You could compare Sears Holdings with Berkshire Hathaway in its infancy.

YES: Sears is an improving story. Profit margins have improved in each of the six quarters since the merger with Kmart, and domestic store-to-store comparisons have stopped bleeding, from high-single-digit declines to a low-single-digit decline. The company has shown a laser-like focus on cutting costs, driving these strong results.

YES: We see an additional $6 billion in value that could be unlocked by securitizing real estate and intellectual property assets like Craftsman, Kenmore and the Sears brand itself. Adding this to our price target of $238, we see a price range of $250 to $290.

YES: At 7.1 times estimated 2007 cash flow, Sears is not expensive. Target is at a price/cash-flow ratio of 7.7, and Wal-Mart, 7.4. We expect the shares to benefit from impressive profit and cash-flow growth as well as multiple expansion as the critics are answered.

---

NO: "Sears has been a good performer, but game over. Sears Chairman Edward Lampert is not investing in the future; he's milking it for cash."

-- Larry Haverty, Gabelli Asset Management

NO: Lampert [whose hedge fund, ESL Investments, owns 41 percent] has made a fortune on Sears. The stock is up eight times over the past four years. Trees don't grow to the sky.

NO: The capital-expense budget -- money spent on store improvements -- is well under what it should be as a percentage of sales. In other words, the stores and other assets are getting older. You can't run a retailer and have it look shabby. Plus, inventories are too high and growing more rapidly than sales.

NO: The problem is that there is no one to buy this real estate. The properties are in industrial areas and not appropriate to turn into, say, rental developments. When you securitize something, you are putting debt on the balance sheet. And I'm not sure there is significant value to atrophying brands Kenmore and Craftsman.

NO: Both Sears and Kmart are directed at low to middle-income consumers. That shopper is under pressure. Cash flow is going to deteriorate pretty quickly. Sears's stock is up, and its competitors are down. Something doesn't smell good. It's a short.

SEARS HOLDINGS: SHLD, $180
Sales: $53 bil*
Net Income: $1.49 bil*
Earnings per Share: $9.57*
P/E Ratio: 17.4
Market Value: $27.7 bil

Buyer finances Ward’s Catalog House deal
with $265-mil. loan
By Eddie Baeb — Chicago Real Estate Daily
June 15, 2007

The buyer of the Montgomery Ward & Co. Catalog House financed the acquisition with a $265-million loan, almost 90% of the purchase price, from LaSalle Bank.

The fixed-rate, interest-only loan for the office and retail portion of the historic complex at 600 W. Chicago Ave. was arranged by Holliday Fenoglio Fowler L.P., the brokerage firm says in a statement.

A New York investment group that included investor David Werner and attorney Victor Gerstein bought the landmark building for $300 million from Chicago developer Centrum Properties Inc. and its New York-based partners Angelo Gordon & Co. and Taconic Investment Partners LLC, according to real estate sources. The transaction closed in May.

Centrum and Angelo Gordon first bought the sprawling, 2.2-million-square-foot former warehouse in 1999 and then converted a portion of the complex into condominiums and later redeveloped about 1.5 million square feet into office and retail. The mixed-used complex is now about 80% leased, according to the statement by New York-based Holliday Fenoglio.

Senior managing director Mike Kavanau, who is based in Holliday Fenoglio’s Chicago office, and New York-based managing director Evan Pariser placed the loan for the buyer.

Mail-order home experts hammer out a truce
By Adam Jadhav – St. Louis Post-Dispatch
June 14, 2007

The fighting apparently has ended between two women who each claim almost obsessive expertise in a small slice of American history — the mail-order homes sold by Sears, Roebuck & Co. in the decades before World War II.

Both Laurie Flori of Carlinville, and Rosemary Thornton, at the time a Godfrey resident, wrote books on the homes that were usually built by the owners themselves and in many ways symbolized arrival to the good life.

Apparently, their research overlapped, and the resulting collision led to allegations of plagiarism and defamation.

In February 2006, Flori sued for defamation, claiming she and her book were trashed by Thornton. Thornton countersued, alleging she was a victim of Flori's plagiarism.

Now, more than a year later, both parties have settled uneasily. A final dismissal order and stipulation is expected to be entered Friday in U.S. District Court in Springfield.

"Pretty much any time someone litigates an issue both sides in the end have lost something," said Flori's attorney James Fahey. "It's a passion among both of the parties and both felt strongly they had been wronged."

Thornton published her first book, "The Houses That Sears Built," in 2002. She followed that with three other books on the kit homes.

Flori's "Additionally Speaking" was published in 2005. It focused on the historic Standard Addition in Carlinville, believed to be the largest collection of Sears homes in the world.

Flori claimed victory in the matter because Thornton agreed to apologize for alleging that she stole work without attribution.

Flori had contended that her reputation and public speaking career was ruined by Thornton, who allegedly contacted various libraries and Oprah Winfrey's show to claim she was a copycat.

Flori denied the allegation and said she had researched the homes in the Standard Addition neighborhood — built in by Standard Oil in the early 20th century to support mine workers — since she and her husband bought a home there in 1983.

Though Thornton retracts her claims, neither woman is paying any damages.

"I just never dreamed that me writing an advocacy book for Standard Addition would get me into a lawsuit," Flori said. "What I will say is that she needs to do her thing and I'll do mine and we'll stay away from each other."

Thornton, who has since left the Godfrey area, could not be reached. Her St. Louis attorney, John Pawloski, declined to comment and claimed the settlement was confidential.

Companies like Standard Oil purchased Sears homes for expanding operations. Future homeowners, accustomed to ordering the staples of life from the Sears catalog, suddenly found cheap homes made of quality materials.

Homes ran from several hundred to several thousand dollars, sometimes 30 or 40 percent below market rates for a home. Buyers provided the land, and the muscle.

South lags in report card on health care
By Julie Appleby, USA TODAY
June 13, 2007

Where you live may help determine how long you live, with residents of the lowest-ranking five states dying prematurely at a rate twice that of those in the top-ranked five.

The rate of premature death in Minnesota, Utah, Vermont, Wyoming and Alaska is half of that of the lowest-performing states, South Carolina, Tennessee, Arkansas, Louisiana and Mississippi. Premature death is defined as dying before age 75 from conditions that could be delayed or prevented by appropriate medical care.

That kind of tremendous variation among states cuts across more than just premature death, says The Commonwealth Fund in a report out today that details 32 measures of cost, insurance coverage and medical quality, ranking states by how well they perform on each of the measures.

"Where you live matters for getting care when you need it, getting the right care and the opportunity to live a long and healthy life," says Cathy Schoen, a senior vice president at the fund and one of the report's co-authors. The New York-based Commonwealth Fund is a private foundation that studies health issues.

The report, "Aiming Higher: Results from a State Scorecard on Health System Performance," is one of the first to compile in one place a broad array of measures for each state. It comes amid a growing focus on efforts to rate and report on medical quality, from hospital death and infection rates tracked by Medicare to efforts by insurers to measure the performance of doctors and hospitals.

Using data mainly gleaned from government agencies, such as Medicare, the Census
Bureau and the Centers for Disease Control and Prevention, the report concludes that all states could do better. But even lower-ranking states do some things right.

Across all measures, the top-performing five states are Hawaii, Iowa, New Hampshire, Vermont and Maine. The lowest-performing states were Kentucky, Louisiana, Nevada, Arkansas, Texas, with Mississippi and Oklahoma tying for last place.

Most of the findings have been reported separately in other places, but Schoen says she hopes that compiling the data into one report, which is available online at www.commonwealthfund.org, will spur states to take action. The Commonwealth Fund backs efforts to cover more residents with insurance.

"One purpose of the state scorecard is to stimulate discussion and action," Schoen says. Part of that discussion, she says, needs to revolve around expanding insurance. "The country needs to take a big step forward on health insurance: start insuring the entire population."

Possibly controversial but still useful Efforts to measure and compare quality can be controversial. Medical providers often question whether the data were adjusted properly to account for variations in age or sickness or whether the items measured are an accurate reflection of performance.

The Commonwealth Fund report will likely garner the same kind of concern, but observers say that the report will prove useful. "It's part of the entire movement toward measurement," says Hoangmai Pham, senior health researcher at the Center for Studying Health System Change, a non-partisan think tank in Washington. "It's an important first step. What happens from here on out is really hard work."

The highest-ranked states, the report says, often have policies designed to improve access to health insurance. Hawaii, for example, gets top marks due, in large part, to a 1974 law requiring employers to offer health insurance to employees who work more than 20 hours a week, the report concludes. Eighty-seven percent of adults in the state are
insured, as are 94.7% of children, according to the report.

States that generally had more people covered by health insurance also tended to score higher on quality measures, the report says.

On the other end, Mississippi and Oklahoma — which tied for last place in the overall ranking of 50 states — generally have high levels of uninsured and restrictive limits on who is eligible for state-sponsored care through Medicaid, the report says.

"The report does provide an opportunity for states to look at where they rank as compared to others and take it as a challenge to improve," says Mike Crutcher, Oklahoma's commissioner of health. Some things, he says, need a national solution.

Pham says she is cautious about drawing conclusions from the report about what causes the states to vary so much.

"It raises a lot of questions about the underlying causes and those questions are not easy to answer," she says. "It is difficult to draw any one conclusion about what one state did that affected its performance."

Diane Rowland of the Kaiser Family Foundation says that having insurance has clearly been demonstrated as better than not having insurance. But she, too, says that it is just one variable in overall health of residents.

"We also know that quality of people's health is dependent on the environment, whether they live in an area with clean or dirty air, for example," Rowland says.

Many ways to assess performance

Insurance coverage rates are just one measure of performance of a state, and the report includes many others, such as how many Medicare patients are readmitted to a hospital within 30 days of discharge, infant mortality rates, the percentage of children who receive recommended vaccinations and how much it costs to buy health insurance.

"This does as good a job as any report I've seen in bringing in a range of both acute and preventative measures in trying to assess the performance of the health services system for the state," says Christopher Atchison, associate dean of the College of Public Health at the University of Iowa.

Iowa scored high, he suspects, for a variety of reasons, including efforts by hospitals and doctors in the state to work together to promote quality efforts. He also says most residents are within 25 miles of a hospital and that the state is fairly homogenous. It also has a high percentage of residents who have health insurance coverage.

The Iowa health care Collaborative, a partnership between the state's hospital association and the state's physicians' association, works together to promote quality guidelines, improve safety and publish data on how well doctors and hospitals are doing in meeting quality goals.

"When we look at these numbers in the Commonwealth report, we think it's great, but you ain't seen nothing yet," says Tom Evans, president of the collaborative. "We're proud of where we are and excited about the future."

CHART: Grades for each state alphabetically

States were evaluated on 32 measures, then ranked into four equal parts or quartiles, represented by the grades A, B, C and D and the numbers 1-4, with 4 being the lowest.

Access means percentage of population insured, quality considers how often people received recommended care, avoidable costs include re-admissions to hospitals, equity compared state performance by income and race/ethnicity, while healthy lives considered deaths before age 75 from certain conditions. (Read story)

CNBC's Faber: Lampert Plans to Raise Billions for ESL Fund
By David Faber – CNBC.com
June 11, 2007

Macy's Drops 'Mock Homes' for Martha Stewart
By Vanessa O’Connell – Wall Street Journal
June 11, 2007

Last spring, Macy's Inc. Chief Executive Terry Lundgren came up with an ambitious plan to display a massive new line of home goods produced exclusively by Martha Stewart: creating 3,000-square foot mock "homes" in key stores. Home builder KB Home planned to build the huge showcases inside Macy's stores in such cities as New York, Chicago and San Francisco.

But Macy's now has canceled the mock-home plan, citing a sharp decline in the housing market.

In interviews Friday, Macy's officials said the company won't scale back the launch of Martha Stewart merchandise. Some items from the new collection -- a line of roughly 1,500 home accessories such as stainless-steel cookware, china and glassware, collapsible colanders and a wide array of towels, linens and bedding -- will begin appearing in Macy's stores next month, followed by the full collection in mid-September. That launch will be accompanied by a massive nationwide media and marketing campaign.

But Macy's furniture and home-goods sales have been sliding in recent months. "It's no secret that our home store has been the softest part of our business over the past few years," Mr. Lundgren said at Macy's annual meeting May 18. Just last week, the retailer formerly known as Federated Department Stores Inc. posted a larger-than-expected drop in May same-store sales. Sales of big-ticket items such as furniture are taking the biggest hit, a Macy's spokesman said Friday. He noted that a number of retailers, including J.C. Penney Co., Wal-Mart Stores Inc. and Sears Holdings Corp., have recently said sales of home-related goods were weak.

Macy's retreat highlights the difficulties facing Mr. Lundgren as he continues to integrate the former May Department Store Co. locations that had long operated under names such as Hecht's, Foley's, Filene's and Marshall Field's at a time of growing competition for middle-income shoppers. Rivals such as Penney and Kohl's Corp. have gained market share by adding brands and designer lines to their clothing and home departments.

Other elements of Mr. Lundgren's plan to get shoppers excited about the national chain, which now numbers about 825 stores, haven't panned out either. Late last month Macy's replaced its marketing chief just 15 months after hiring her and acknowledged that its shift away from promotional marketing to brand-image advertising, such as a flashy TV ad campaign intended to create a glamorous new image for Macy's, failed to boost sales in some markets, especially where local shoppers were more accustomed to being offered coupons and discounts. "We probably moved too far too fast," says Macy's spokesman Jim Sluzewski.

Macy's is now reemphasizing coupons and savings to draw customers to the 400 stores it acquired from May. Last week, Mr. Lundgren said in a prepared statement that he expects sales trends to improve this month and next, due to the increased promotional activity. Mr. Sluzewski says it will involve more "public" promotions such as coupons published in newspapers. Coupons and discounts tend to be especially critical to sales of home goods.

Mr. Lundgren and Macy's still view the Martha Stewart line as key to their plan to turn Macy's into the only major national retailer of upscale home goods. At the shareholder meeting last month, he said the line is expected to "have a positive effect on sales in the fall." Sales of furniture and home goods account for about 15% of Macy's annual sales, which totaled nearly $27 billion last year.

"It's about market share," says Timothy M. Adams, CEO of Macy's home division. "There's some business being done and if we do [the Martha Stewart products] right, we can still win, no matter how tough the business is." Macy's Merchandising Group CEO Janet Grove says Macy's "never launched anything of this magnitude before" nationally in all stores. The company typically tests a new brand in a small group of 50 to 100 stores before taking it chainwide.

The merchandise will include, among other things, kitchen gadgets with unusual features -- such as a can opener with built-in bottle opener and oversized spatulas for frying pans -- and a mainly white bedding ensemble with lace trim in a design based on Ms. Stewart's heirloom bedding. Other basics will include towels in a variety of colors. There will also be seasonal items such as ornaments and decorations that can be used to assemble an entire Christmas tree. China and crystal intended for formal use are scheduled to hit the stores in early 2008.

Deborah Weinswig, an analyst at Citigroup with a "hold" rating on Macy's, says a range of samples shown to analysts were "attractive and of high quality."

Martha Stewart Living Omnimedia Inc. hopes the new line will capture about 10% of the $4 billion in sales that Macy's generates from home goods and that it will help Macy's build an even larger business, says Susan Lyne, president and CEO. As for the mock home project, "I think that as we got closer to launch, we realized you can't do something like that in more than a few locations and we were better served initially in putting resources in some other form of marketing that works in 820 locations," Ms. Lyne says. "It isn't a dead idea," she adds, noting that the companies might attempt it in the future.

Kmart sells just under $1 billion in Martha Stewart Everyday branded products and ready-to-assemble furniture in an arrangement that is due to expire in 2010. The Martha Stewart goods to be sold at Macy's generally have more embellishments and higher prices than the mostly bargain-priced basics sold at Kmart, a unit of Sears. The Macy's line is based on designs and patterns in Ms. Stewart's homes and on items shown in her magazines.

Macy's also carries Martha Stewart furniture by Bernhardt. But it isn't part of the exclusive Martha Stewart Collection.

KB Home spokeswoman Caroline Shaw says the idea for KB Home to build a mock Martha Stewart Home inside Macy's was sort of a "daredevil discussion" between former KB Chief Executive Bruce Karatz and Macy's Mr. Lundgren. She says the discussions were preliminary and the companies never hashed out details, such as how much KB Home would be compensated for the project or how much it would cost. "It was one of those fun ideas that they talked about," she says, adding that Mr. Lundgren reached out to Mr. Karatz, who had a knack for building model homes to attract attention.

Early in his career, Mr. Karatz built a model house on top of an Au Printemps department store in France. In 1997, KB Home launched "The Simpsons House Giveaway" contest, building a replica of the home from the "Simpsons" television show in Las Vegas. In 2003 the company built a model home on the ABC studio lot in midtown Manhattan of "LIVE with Regis and Kelly" for an on-air giveaway.

The 'Trousseau' bedding ensemble from the Martha Stewart Collection
The mock homes at Macy's were supposed not only to promote the Martha Stewart merchandise but also help promote the Los Angeles builder's co-branded Martha Stewart homes. Ms. Shaw says KB Home decided to back off the idea last fall because the housing market had slowed and KB wanted to focus on building homes in the field rather than in Macy's stores. "Building a house inside a department store takes an immense amount of logistics and resources that both sides were not ready to allocate at that time," Ms. Shaw says.

The decision wasn't related to Mr. Karatz's departure in November, after the company said an internal investigation found he backdated stock-option grants, Ms. Shaw says. The retailer and builder remain open to future marketing initiatives, she says, adding that KB intends to showcase the Martha Stewart Macy's products in its Martha Stewart communities. So far, five of the 10 licensed subdivisions planned for this year have opened, in communities including Fairburn, Ga.; Perris, Calif.; and Katy, Texas. New communities are slated to open this year in Raleigh, N.C.; Orlando, Fla.; and Denver. Overall the program is likely to result in 2,300 homes, ranging in price from more than $200,000 to more than $500,000.

--Michael Corkery contributed to this article.

There's something about Eddie
By David Roeder – Chicago Sun-Times
June 10, 2007

It all comes down to the Cult of Eddie. That's the only way to explain the performance of Sears Holdings (SHLD), a stock that, despite projected dips in quarterly earnings, despite fall-offs in same-store sales for Kmart and Sears stores, despite a pronounced lack of reinvestment in its stores, has gone aloft on gossamer wings.

For the year, SHLD shares have risen 5.6 percent to Friday's close of $177.40. Since March 2005, when SHLD was created by the union of Sears and Kmart, the shares are up around 33 percent.

The performance is a sign of investor faith in Edward Lampert, the hedge-fund whiz who serves as Sears' chairman, because his investment vehicle owns 42 percent of the company. Lampert, a follower of renowned investor Warren Buffett, has exhibited his own gift for making money over the last 20 years. At the top of an industry that fancies itself as a capitalistic meritocracy, Lampert is believed to have collected annual earnings of more than $1 billion from the outsized returns in the accounts he manages.

So investors have every reason to follow his moves. Some became enchanted with Sears when Lampert completed his takeover in 2005, figuring he had a grand plan for a turnaround. Among Lampert's moves lately is an aggressive buyback of SHLD shares. Despite the stock's gains under Lampert, it still trades at a lower price-earnings ratio than its peers. The general thought is, "Eddie sees value so we should, too."

Morningstar analyst Kimberly Picciola is in that camp, although she can enumerate all the danger signs. "They continue to lose market share. There is little investment going back in the business," she said.

But she's got Morningstar's most bullish tag, a 5-star rating, on SHLD. It's because she sees Lampert as a genius at managing capital, really his overriding job as chairman. She thinks he will engineer something--an acquisition, a private buyout, maybe selling of real estate--that will send the shares higher.

Lampert, however, has yet to prove his stuff in operations. Many experts say the consolidation of Sears and Kmart has been unconscionably slow. He's propped up profits by cutting expenses, but the merchandising decisions have gone over poorly and the company has acknowledged that it has to retool Sears Grand, its off-mall concept.

September 15, 1933 - June 9, 2007

Sally, a beautiful and gracious wife, mother and lady passed away unexpectedly, due to health reasons, in Bellevue at the age of 73. A lifelong resident of Bellevue and Tacoma, she exemplified true class and elegance. Born in Tacoma, Washington to Frederick and Marion Hill and leaves behind her loving and devoted husband of 53 years, Gordon H. Muschett and loving daughter Laura A. Allison.

She graduated from Lincoln High School in Tacoma, the youngest remaining of three girls known as the "Hill Sisters". The sisters were actively competitive in bowling leagues, then became instrumental in the development of the Maude Piper Orthopedic Guild for Mary Bridge Children's Hospital. She met the love of her life, Gordon, at a dance in Tacoma in the Fall of 1953. Their first date and kiss was New Year's Eve at the Officer's Club at Fort Lewis. They were quickly engaged on Valentine's Day 1954 and married April 24, 1954. Their union produced three children, of which two have preceded her in death as infants: Debra - born 1956 and Gregg - born in 1962. She was known as "Grandma" to her namesake niece, Sally Englund's, two sons: Sean and Austin. She was also known as "Aunt Sal" to her other nieces and nephews: Jim, Michael, Larry, Janet, Donna, Jack and Richard.

Sally was always dressed to the "nines" and gave her warm caring smile to all. One of her greatest achievements in life was being the best mother she could possibly be to her daughter. She appreciated all the beautiful and simple things in life: flowers, birds and trees, gardening, going for drives, holding hands with Gordon, BBQ dinners with friends and family, good wine, champagne, world travel, Broadway plays, symphonies, cruising on their boat, fine jewelry, beautiful cats, and let's not forget... an avid fan of the Seattle Mariners. Each gift or card given to her are all saved as treasures. She was a member of the Yarrow Bay Yacht Club, Duwamish Yacht Club, Tacoma Orthopedic Association, Newport Hills Community Club.

A viewing will be held on Tuesday, June 12th, from 3:00 pm until 7:00 pm at Sunset Hills Funeral Home, 1215 145th Pl SE, Bellevue, WA 98007, 425-746 -1400. The memorial service and celebration of her life will be held on Wednesday, June 13th at 1:30 at the same location.

Our special thanks to all that cared for her at Overlake Hospital.

So that others may be helped, in lieu of flowers, we respectfully request that contributions be made in honor of Sally to: Overlake Hospital, South Tower Muschett Memorial Fund, 1135 - 116th Ave NE, Bellevue, WA 98004

Her wonderful, bright smile that always lit up every room in our lives will continue to live in our hearts forever!

Wal-Mart to offer prepaid payment cards
By Kathy Chu and Jayne O'Donnell,  - USA Today
June 7, 2006

Wal-Mart plans to launch a prepaid payment card to appeal to its large segment of customers who don't have bank accounts.

Wal-Mart (WMT) wouldn't confirm details about the card. But a website for the Wal-Mart MoneyCard, www.walmartmoneycard.com, says it will be a Visa-branded card, issued by GE Money (GE), that can be used almost anywhere that Visa debit cards are accepted, including at ATMs. Three people with direct knowledge of the plans confirmed that the card will be offered.

About 28 million people -  9% of the U.S. population - do not have bank accounts, according to the Federal Deposit Insurance Corp. A survey by the Federal Reserve shows that these "unbanked" consumers prefer not to deal with banks or feel they don't write enough checks or have sufficient cash to open an account.

For these people, prepaid payment cards that can be used to pay bills or make purchases are becoming increasingly popular. Consumers can add money to the cards at participating stores, but the cards are not linked to a checking or savings account.

A few retailers, including Safeway (SWY) and Walgreens (WAG), already offer prepaid Visa cards that can be used anywhere, but Wal-Mart, as the largest retailer in the USA, would be able to reach a far greater number of consumers.

Prepaid cards have been around for years. But the most common type, gift cards, often can't be reloaded and sometimes can be used only at a specific retailer.

Purchases with a branded prepaid card, such as with a Visa logo, are expected to increase from $14 billion in 2005 to $38 billion this year, says financial consulting firm Aite Group.

"There's a considerable opportunity here," says David Robertson, publisher of Nilson Report, a payment newsletter. "The unbanked have historically had to buy money orders and cashier's checks to pay their bills."

Bart Narter, senior analyst at financial industry consultant Celent, says he expects any fees on Wal-Mart's card to be less than for similar products on the market.

Wal-Mart has said it planned to venture more into financial services after it withdrew its application to operate a bank earlier this year. Wal-Mart already offers check cashing and bill paying, making the prepaid cards a natural extension of services.

"Wal-Mart has long stood for low prices and value, and this plan is another page out of that book," says John Champion, a retail strategist at global consulting firm Kurt Salmon Associates. "The only surprise is that it didn't occur sooner."

Wal-Mart spokesman Alfredo Padilla said the company won't comment on the card for a few weeks.

GE Money spokesman Michael Ettlemyer said Wal-Mart and GE will announce a partnership in the next few weeks.

The Financial Times first reported on Wal-Mart's plans for the cards on Wednesday.

Prepaid payment cards surging

Purchases made with branded prepaid cards have nearly doubled in the past year and are expected to top $100 billion by 2010.

Note: in billions; 2007-2010 are estimates; figures do not include prepaid gift cards that can only be used at specific retailers. Source: Aite Group

Ackman may target Sears
By Sandra Guy - Chicago Sun-Times
June 6, 2007

Wal-Mart Pushes Financial-Services Menu
By Kris Hudson - Wall Street Journal
June 6, 2007

Acknowledging that it won't gain a bank charter anytime soon, Wal-Mart Stores Inc. is pushing ahead with plans to carve out store space for its existing financial services, such as check cashing and money transfers.

The world's largest retailer by sales now operates MoneyCenters in 170 of its 4,000 U.S. stores, and it plans to increase the number. The shift takes those services from behind customer-service desks and offers them from a separate MoneyCenter counter.

"When we started this process, you went to the customer-service desk and waited behind someone who wanted to do an exchange and a refund before you could get your money order," Wal-Mart Vice Chairman John Menzer told analysts after Wal-Mart's annual shareholder meeting Friday. "So we now have started to put out our own Wal-Mart MoneyCenters. ... We'll also have more [financial-services] products to come."

The focus on check cashing, bill payment and other nonbanking services is key for the Bentonville, Ark., retailer as it attempts to find ways to bolster its sales expansion amid a pullback in its construction of new U.S. stores. State-and-federal regulators have stymied Wal-Mart's attempts to get into banking. In March, Wal-Mart dropped its pursuit of a charter to operate an industrial-loan company, a form of bank, due to intense opposition and a federal moratorium on reviewing such applications.

Wal-Mart then pledged to increase its sales by further pursuing nonbanking services. The retailer has yet to unveil its new offerings. Wal-Mart Chief Executive Lee Scott has encouraged company executives "to accelerate the development of those things ... where we can add value in customers' lives through Wal-Mart financial services."

Wal-Mart's approach seems far less lucrative than banking. The more than 8,000 community bankers in the U.S. generated income of $139 billion last year, according to the Independent Community Bankers of America, an industry-advocacy group. In comparison, Wal-Mart reported $348.7 million last year in "other income," a category that includes its financial services. Wal-Mart says its financial-services sales are increasing 30% annually. Yet one of the services that Wal-Mart has quietly unveiled this year -- a low-cost investing service from ShareBuilder Corp. -- will produce little or no revenue for Wal-Mart due to restrictions on revenue sharing with nonbrokerage entities.

Camden Fine, president of the community-bankers group, said it is unlikely Wal-Mart can generate the type of revenue increase it needs without adding some type of regulated service, such as banking or mortgage lending, for which it would need state or federal approval. "I think they could do a lot ... to bring more publicity to what they're already doing," said Mr. Fine, whose group actively opposed Wal-Mart's bid to land an industrial-bank charter. "I think they're going to want to be more robust in terms of commercial financial services."

Wal-Mart caters heavily to customers with little or no access to banking services, often described as the "unbanked" or "underbanked." Jane Thompson, Wal-Mart's president of financial services, has said roughly 20% of the U.S. population fits that description, and that segment is well represented within Wal-Mart's customer base. According to ACNielsen, 42% of Wal-Mart shoppers have household incomes of less than $40,000.

That makes Wal-Mart a destination for check cashing, bill payment and money transfers. Last year, it handled an average of 1.5 million to two million such transactions each week. Among the buyers are immigrants sending money to their families abroad.

Wal-Mart is among many U.S. companies serving the low-income and immigrant populations as big portions of their customer bases. Others have ignited controversy, as was the case with Bank of America Corp. this year for offering a credit card in Southern California for which applicants weren't required to provide a Social Security or federal tax-identification number. Bank of America says the card isn't specifically targeted at undocumented workers, and that most of the cardholders have one of the two identifying government numbers.

Can Lee Scott Overcome Retailer's Growing Pressures?
By Alan Murray - Wall Street Journal
June 6, 2007

At Wal-mart's annual meeting last week, Chief Executive Lee Scott confessed to the intimate group of 15,000 assembled in the University of Arkansas' Bud Walton Arena that friends have asked him: "Lee, it seems like sometimes your job must be a drag. How do you get through all that?"

Good question. It's also worth asking: How much longer will he do it?

Wal-Mart's stock has risen about $3 a share since Friday's festival, which featured speeches by top executives interspersed with jokes from comedian Sinbad and a performance by "American Idol" winner Jordin Sparks.

Yet the stock's rally itself is a sign of Mr. Scott's troubles. It happened because his critics forced him to raise the white flag of surrender and scale back plans for new-store construction in the U.S. by more than 25%. Instead of spending that money on new stores, the company now plans to return $15 billion to shareholders through buybacks.

Other retailers have cut growth plans, and other companies are turning to share buybacks. But for the world's largest retailer, the latest retreat is an uncomfortable acknowledgment that shareholders have better uses for that money than Mr. Scott does. "This hasn't been an easy year," Rob Walton, Wal-Mart's chairman and son of company founder Sam Walton, told the crowd.

The company made a big misstep by trying to sell upscale products to its no-frills customers. Meanwhile, Democratic politicians continue to use it as whipping boy for alleged corporate callousness. Sen. Barack Obama said recently that he wouldn't shop at a Wal-Mart store, while fellow presidential candidate Sen. Hillary Clinton -- once a director of the company -- called its success a "mixed blessing."

Then there is Julie Roehm, the advertising executive who won't go away. Wal-Mart says it fired Ms. Roehm because she had an affair with a subordinate, Sean Womack, and took gifts from an advertising firm, DraftFCB, that was angling for Wal-Mart's business.

Ms. Roehm is now defending her honor by trying to trash Mr. Scott's. Her latest court filing accuses the Wal-Mart CEO of buying "yachts" and "a large pink diamond" at "preferential prices," and accepting private-plane rides from entrepreneur Irwin Jacobs, whose companies do business with Wal-Mart. She also charged that Mr. Scott's son, Eric, created "the appearance of a conflict" by going to work for Mr. Jacobs.

The courts will have to sort out the truth in all of this. But a close reading of the documents shows Ms. Roehm is far more spirited in attacking Mr. Scott's supposed misdeeds than in defending her own. She denies the affair with Mr. Womack, but has little to say about the email provided by Mr. Womack's wife in which he writes to Ms. Roehm: "I think about us together all of the time. Little moments like watching your face when you kiss me."

Likewise, Ms. Roehm denies that she and Mr. Womack were angling for new jobs with DraftFCB. Yet she has scant explanation for an email in which Mr. Womack told Tony Weisman of DraftFCB that he and Ms. Roehm were "both interested in having a [equity] stake in our next gig" and that "in the two of us you have a team that can help lead your organization in a powerful way." The email, Ms. Roehm says, is "out of context."

Ms. Roehm deserves credit for chutzpah. But she may have met her match in Irwin Jacobs. On Friday, Mr. Jacobs filed a defamation suit against her, saying the accusations involving him are simply untrue. In an interview yesterday, Mr. Jacobs told me that Ms. Roehm and her lawyers "will wish to God they never heard my name, because I will not go away....I will hang onto this thing until I get 100% satisfaction."

Mr. Jacobs says the "yachts" cited in Ms. Roehm's filing are a couple of fishing boats made by a company controlled by Mr. Scott and purchased at full price. He says he doesn't own any private airplanes. And while Eric Scott used to work for him, the younger Mr. Scott never did any business involving Wal-Mart. As for the diamond, Mr. Jacobs says he knew nothing about it until he read about it in the newspaper.

"Lee never lets me pick up a check for anything," says Mr. Jacobs. "It's almost comical."

Still, the combination of sluggish stock performance and persistent attacks must be taking their toll on Mr. Scott. And they are clearly taking their toll on the company he runs.

At Friday's meeting, Rob Walton, whose family owns 40% of the company's stock, gave the CEO what seemed to be a ringing endorsement. "The board and the Walton family have absolute confidence in your leadership, Lee. We appreciate you and we thank you."

But when such public displays of support become necessary, you have to wonder how long they will last.

Morgan Stanley to spin off Discover in June
Investment bank to sell capital-intensive credit card business,
to trade under new symbol July 2
Reuters.com
June 1, 2007

NEW YORK (Reuters) -- Morgan Stanley plans to complete its spin-off of Discover Financial Services on June 30, according to a regulatory filing Friday, letting the U.S. investment bank cut its credit card ties for good.

Morgan Stanley (up $1.03 to $86.07), which intends to focus on securities trading, investment banking and money management, also said the Internal Revenue Service ruled the distribution of Discover shares would not be subject to federal income taxes.

The investment bank expects a limited "when issued" trading market for Discover common stock to begin on or about the week of June 11. Regular trades, under the symbol "DFS," would start July 2 on the New York Stock Exchange.

Morgan Stanley shares rose $1.00, or 1 percent, to $86.02 in afternoon trade. A spokeswoman for Morgan Stanley declined to comment beyond the filing.

Since it was launched as a unit of retailer Sears Roebuck & Co. in 1986, Discover has grown to become one of the largest credit card companies in the world with $46.3 billion in outstanding loans as of Feb. 28.

Yet investors pushed Morgan Stanley in recent years to shed the business, arguing that Discover slowed the overall growth of the securities company, while focused Wall Street firms like Goldman Sachs Group (down $0.36 to $230.46, Charts, Fortune 500) generated record results.

Last December Morgan Stanley announced it would issue 100 percent of Discover to shareholders in a tax-free spin-off in its fiscal third quarter. The bank will issue one Discover share for every two Morgan Stanley shares held to shareholders of record on June 18.

Analysts say Morgan Stanley's return on equity will rise without Discover, a capital-intensive business.

Up until the past year or so, Discover struggled to build up loan balances, offering a card many view as downscale. Indeed, Discover touts more than 50 million card holders, but only 18.4 million active accounts.

It also runs a mostly-U.S. payment network with 4 million merchants, trailing much larger systems operated by Visa, Mastercard (up $1.35 to $150.90, Charts) and American Express (down $0.08 to $64.90, Charts, Fortune 500) that are accessible around the world.

Riverwoods, Illinois-based Discover earned $1.89 a share last year and 42 cents a share in the first quarter. It reported $5.43 billion in stockholder equity at the end of February, according to the filing.

The spin-off is intended to boost the market value of both companies by letting Morgan Stanley focus on the securities business and by giving Discover independence and a currency it can use to expand its card and payment network businesses.

"Discover will be able to build on its strong brand and significant scale to execute its growth strategy," Morgan Stanley Chief Executive John Mack said in a statement Friday. Morgan Stanley executives and analysts expect shares of Discover, as a pure-play card and payments company, to fetch a higher multiple to earnings than Morgan Stanley, which trades at about 10.4 times estimated 2007 earnings.

In April, Credit Suisse analysts estimated Discover shares could trade at $10 to $14, based on a multiple of 12 to 16.

Wal-Mart Scales Back Expansion,
Approves $15 Billion Stock Buyback
By Gary McWilliams - Dow Jones Newswires
June 1, 2007

FAYETTEVILLE, Ark. -- Wal-Mart Stores Inc., responding to criticism its U.S. business is maturing, said it would cut by more than a third its planned additions of new U.S. supercenter stores, delay some openings and sharply limit future U.S. store expansion.

The world's largest retailer had been under pressure on Wall Street to slow its U.S. store expansion and use the savings to prop up its flagging stock price. The move will cut capital expenditures this year by $1.5 billion, to $15.5 billion, leaving the total about flat with last year.

Thomas Schoewe, Wal-Mart's chief financial officer, told investors at its annual meeting here that the company would repurchase up to $15 billion in shares through an undefined period. It will fund the buybacks with new borrowings with savings from the fewer store openings.

Investors had been urging the company to slash spending on new stores and use the savings to boost per-share earnings by buying back shares. Wal-Mart said its square footage growth rate will be approximately 6% for this year and next. It estimated U.S. square footage growth of about 4% to 5% during the next two years. Wall Street had been pushing for the company to halve its about 8% growth in square footage.

News of the capital-spending cutback and share repurchase cheered investors, sending shares up nearly 4.4%, or $2.12, $49.72 in afternoon trading on the New York Stock Exchange.

Wal-Mart this year will now open or relocate 190 to 200 U.S. stores, down from the planned 265 to 270 new store openings. Last fall, the company had said it would trim new store construction this year but then announced plans to add about 265 to 270 stores this year, a slight reduction from the prior year.

The Bentonville, Ark., retailer said it will open about 170 new U.S. stores annually through 2010. "While we feel comfortable with these estimates, we will continue to review and evaluate our expansion strategy on an annual basis," John Menzer, the company's chief administrative officer said in a statement.

In addition to curbing new store expansion, Wal-Mart said it will delay some of the planned new stores. About 80 of the about 200,000-square-foot supercenters that it originally expected to open next January won't be opened until later in calendar 2008. It has about 4,000 stores in the U.S. today. It said store expansion for its Sam's Club wholesale unit and its international operations would be unaffected by the U.S. cutbacks.

H. Lee Scott Jr., Wal-Mart's chief executive officer, praised the company's performance but added, "Make no mistake about it: The macro economic environment is difficult for our customers."

U.S. same-store sales, a measure of the efficiency of existing stores, have been weak for much of the last year. Its same-store sales in April tumbled 3.5%, a larger-than-expected figure.

Separately, Wal-Mart Chairman Robson Walton, whose family controls about 40% of the stock of the world's largest retailer, strongly endorsed the company's chief executive at its annual meeting here.

His remarks, amid the pomp of its annual meeting extravaganza, came a week after a fired former executive accused Mr. Scott and other executives of violating the company's ethics code governing relationships with suppliers. The company has denied the allegations.

"Few people are as passionate about our mission and our people as the man who stands at the center of that mission, Lee Scott," said Mr. Walton, a son of Wal-Mart founder Sam Walton. "I know it's not always easy. You should know our board and the Walton family have absolute confidence in you, Lee. We appreciate you and we thank you."

Supply and Command: Interview with Gus Pagonis
By Mitch Mac Donald - The DC Velocity Q&A
June 1, 2007

He's moved ammo for the army, and he's moved dishwashers for Sears. But Gus Pagonis says that no matter what's in the trucks or on the ships, the same principles of logistics management apply.

An old adage has it that generals always do a great job of fighting the last war. But in the case of one general - three-star lieutenant general Gus Pagonis - that shot couldn't be farther from the mark. When masterminding the military supply chain in the first Gulf War, Pagonis didn't hesitate to use all that modern technology had to offer, revolutionizing military logistics in the process. Under his command, for example, the Army began using GPS technology to track the movement of the food, water, gas and ammo needed to feed and clothe battalions of GIs and keep them equipped for battle - a management feat that General Norman Schwarzkopf lauded as a gigantic accomplishment.

In the months following the Gulf War, Pagonis wrote a book about his experiences. That book, Moving Mountains: Lessons in Leadership and Logistics from the Gulf War, caught the eye of Arthur Martinez, then chairman and CEO of Sears, who hired Pagonis to run the giant retailer's supply chain. Pagonis soon found himself applying the same management techniques he used for moving nearly 500,000 soldiers and seven million tons of supplies halfway around the world to the home delivery of appliances. Although Pagonis retired from the retailer last year, his legacy remains at Sears, where staffers still hold his trademark "standup" meetings (Pagonis famously banned chairs from staff meetings to discourage non-essential discussions) and submit their ideas in summaries that fit on a 3 by 5 index card.

Given Pagonis's military and business accomplishments, it's hardly a surprise that he remains much in demand today - as a consultant, as a speaker at meetings and conferences, and as an advisor and board member for some leading logistics companies. Pagonis currently serves as chairman of the board at RailAmerica Inc., the world's largest short line railroad. He is the vice chairman of the board for Genco - a logistics service company that specializes in reverse logistics. He also chairs the volunteer Department of Defense Business Board, established by Secretary of Defense Donald Rumsfeld to encourage the sharing of ideas among private sector companies and the military.

Pagonis spoke recently with DC VELOCITY Editorial Director Mitch Mac Donald, sharing his thoughts on the similarities between military and private-sector logistics, the importance of salesmanship to logistics success, and how he would shake things up if he came to work at DC VELOCITY.

Q: During your career, you've masterminded the supply chain for both the military and in private industry. As you look back, what strikes you most about your career?

A: I'd say it's the way my work experiences have mirrored the changes in the profession overall - including some big shifts in the terminology we use. When I started out at Penn State as an undergraduate, the discipline was called physical distribution and was
pretty much limited to transportation and warehousing. When I joined the military back
in 1964, the term logistics was coming into wider use, though not really in the private sector at that point. As I migrated from the military world to the private sector, I saw the wider use of the term logistics and an expansion of  what that meant in terms of overall management of the process, well beyond just transportation and warehousing. Then the term supply chain management came along, which in essence, is just a deeper, more integrated approach to improving logistics operations and processes.

But I want to emphasize that this isn't a case where we've just kept doing the same things and found new, splashy names for what we do. The whole approach to logistics and supply chain management has forced us to take a closer look at what we do and how we get things done.

We've learned that it's better to be fully integrated across a company, and we've seen a lot of companies establish a track record of using logistics and supply chain excellence as a driver of business success.

Q: Why do logistics and supply chain management have such a deep impact on a
business's fortunes?

A: It's the connection with the customer. There are few, if any, other parts of  a company's operations that have more steady or direct contact with the customer. In fact, my career in logistics didn't grow out of an interest in the discipline. It really evolved from my interest in the customer. I joined the military and I went into the infantry because that's where the "customer" was. I feel that for logisticians to be successful, they really need to understand
their customer, whether it is in the military or in the main sector.

Q: Do you think a typical logistics professional understands the customer?

A: That a tough one to answer. Some do. Some don't. Overall, though, I think more and more at least understand the relationship between logistics and customer service. You have to remember that although some of today's logistics leaders grew up in the
profession and have a strong tactical knowledge of logistics, an awful lot of today's high-level logistics executives didn't start out in that field. They were simply talented executives who migrated to leadership positions in this discipline when a logistics job opened up, as a way to advance their careers.

I think the executives who have backgrounds in areas other than logistics might  
bring a bit more of a customer-service focus to their jobs, while those executives who are career logistics pros bring a deeper knowledge of the actual operations of logistics. Together, it can lead to good things. If you can bring together that mix of skills and backgrounds, you can achieve both logistics and customer service excellence.

That's where you start seeing some of the basic principles of successful supply chain management. When you bring together folks with different perspectives and areas of focus-like sales, marketing and customer service - and place them all on a team that has wide-ranging and comprehensive responsibility to serve the customer, you have a chance for a
real breakthrough in performance.

You have to keep in mind that this whole supply chain thing is unique. There are
probably only a couple of people in the entire world who can truthfully be said to manage a supply chain from end to end. Most of them are facilitators or coordinators. They coordinate the various functions because they don't own all of the process.

We see people with the title "VP of Supply Chain," but really, there are only a few guys in the whole world who own the supply chain. After all, the supply chain includes every step in the process: bringing up the raw materials, processing them, transporting them, moving them to a plant, manufacturing and converting those raw materials into a product, delivering that product to a distribution center, delivering it to a retail store for sale to a consumer, and then recycling it after the customer is done.

Q: From what you've just described, there's actually very little that happens within a company that doesn't touch the supply chain.

A: Yes. That's why I maintain that most of us, including myself at Sears, are what I think of as "supply chain coordinators." In other words, at Sears, I commanded certain functions of the supply chain, no question about it. I coordinated or facilitated the transportation, the warehousing, and a lot of the other processes, right? Here's the rub, though. I wasn't truly in charge of Sears' entire supply chain because a truly integrated supply chain extends
far beyond the borders of any single company. It's a sprawling network that stretches from that company's vendors and partners all the way to that company's customers. Some executives in the private sector find this all terribly frustrating. Everyone wants ownership and control of the complete process. It's simply not possible to have that and have a top-flight supply chain process. It's interesting, in the military, we use a lot more dotted lines to describe areas of responsibility and accountability and process. I found in the civilian
sector people have a much harder time with that.

Q: Everybody wants one boss, and they want it to be very clear whom they work for.

A: Don't get me wrong. I'm a great believer in that. There should be a single point of contact. There should be one person in charge, but you absolutely can and will have dotted lines. As a supply chain coordinator, you do not own the buying of the merchandise, but you'd better have a system in place for coordinating with the people who do because details like the way the merchandise is packaged or where the bar-code label is placed on the boxes have a major effect on how efficiently that box moves through the supply chain to the end customer. Again, the critical component of that is knowing the customer. As I said, I went into the infantry, then I migrated to transportation and
eventually I became a logistician. In each instance, my job was to serve the customer.

Q: That's the second time you've said that. You said you selected the infantry
because that's where the customer was. Can you expand on that a little bit?

A: Yes. In the military, the guy carrying the rifle is the customer. He's the one carrying out the core mission of the military: He has to close in on and destroy the enemy. But he can't do it alone. For every guy carrying a rifle, there are about 12 people in the Army to support him. Everything the other 12 folks do is all about helping that soldier, the customer, fulfill his or her mission. If it weren't for the guy carrying the rifle, no other service
would be needed.

Q: There you are. And in the private sector, if it weren't for the customer, there wouldn't be any need for all the activities we call logistics and supply chain management, right?

A: None at all.

Q: On the subject of comparisons between your experiences in military logistics
and your time in the private sector, have you come across any situations in which
principles of military logistics simply didn't apply in the private sector?

A: I've got to tell you, I can't think of anything. Everything logistical in the military has a direct application in the civilian sector. The difference is the consequences aren't so dire - it's not a matter of life and death. For example, if you don't get the ammunition to the troops in a timely manner - or water or medical supplies, for that matter - lives can be lost. That's why I had a lot of fun at Sears because without that kind of stress, there's hardly anything you can't accomplish.

Q: It must have been a relief to be able to practice your craft without the pressure of knowing someone's life depended on your actions.

A: There is no question about it. You still have to have urgency. You still have to be dynamic because you're competing against competitors and all that, but it certainly helps you keep your perspective.

Q: In your experience, what's the single most important trait of a successful  supply chain manager?

A: Leadership. Supply chain management is truly one discipline in the business
world for which you must possess leadership abilities if you hope to succeed. If  you're leading a marketing or finance operation at a very high level, for example, you're working with and supported by college graduates. They are themselves experts in their fields. When you're working in the supply chain, by contrast, in many instances the person executing your great new idea drives a truck or a forklift. It's much more important, even critical, to get through a chain of command from the top to the bottom. That means your rules have to be simple, understandable and concise. They have to be translated into the
right language for the person executing the mission.

Q: You've gained a certain amount of fame for importing some leadership practices you used in the military to your management job in the private sector. I'm talking about your "stand-up" staff meetings, where you banned sitting in order to keep the discussions moving, and your insistence that staffers submit reports and proposals boiled down to fit on index cards, not multi-page memos. What reaction did you get when you brought these
principles to Sears? Did people embrace them or did they just roll their eyes?

A: It takes some selling. For example, if I were to come to work for your publishing company and wanted to implement stand-ups, the first thing I would do is gather everybody in a room and give them a class. I would sell them on the idea. I would list the benefits. I would demonstrate the value of doing this. If you do it that way and get a buy-in from everybody, people will embrace your management style, no matter what it is.

When I joined Sears, I went on a campaign of sorts, selling these concepts. I spent the entire first month doing nothing but visiting all my people at all my facilities. I presented my leadership style. I explained my view on how we could most effectively communicate. I laid
out my vision for, essentially, how we were going to function. I got a total buy-in. By the beginning of my second month on the job, my ideas were being implemented everywhere. Many places in Sears now use stand-ups and the index card reporting format. I'm gone, but the practices remain.

Q: Did you get a lot of push back from people?

A: Not really. I don't try to force my management techniques on anyone. If they're working directly for me, they have to either show me a better way of doing it or use my techniques. If other people within the organization who don't [report] to me want to use them, that's fine with me, but I don't force it on them. I have found through the years that people like to communicate. They like to keep it short and concise. They just need to have some guidelines.

Q: Sure. It forces them to cut through the fog of details and get to the point, right?

A: Yes. Just think about it. Our society has changed dramatically with the use of information technology. We're inundated with information every minute of every day. There are still many of us who are getting 300 e-mails a week. Nobody has time to read them all.

Q: So you're saying that in addition to strong leadership traits, a successful leader in this field also needs to possess a certain amount of salesmanship?

A: Salesmanship and an understanding of how to put together a team. I once went
to a rodeo whose events included a race among teams of six horses, with each team pulling a covered wagon. I happened to meet the guy driving one of those teams after the event. He explained to me how the fastest horse wasn't the lead horse because it would kill the other five horses. The lead horse was a steady horse, one who was pretty fast. The fastest horse was placed second. He urged them on. The same thing goes with human beings. You have to work as a team. A team effort means the leader determines the capability of all his subordinates and then he puts together a team. In the military, teamwork is absolutely essential to everything you do. There's absolutely no room for anybody who is not a team player.

Q: If you were talking to young folks who were thinking about entering the logistics field, how would you advise them to proceed?

A: First of all, I'd suggest that they check into the wonderful programs of study in logistics and supply chain management offered by colleges in the United States. In addition to seeking out formal instruction, I would tell them that they've got to have a strong understanding of the capabilities technology can offer. Information technology is the cement that holds everything together in the supply chain. It takes you into a high-speed world. It allows you to do the analytical work needed to determine where your problem areas are. The next thing I would tell these kids is if you have a chance to sign up for electives, take an industrial engineering course. It's a wonderful tool for analytically
laying out functions and that's what you do in the supply chain.

Q: How about advice for those already in the profession - the people who face new
challenges every day in the form of rapidly changing technology, globalization and ever-more-demanding customers. Any thoughts on things they should be doing to stay up to date?

A: Yes. I personally think there are wonderful conferences going on out there, probably too many. Someone told me - though I don't know how accurate this figure is - that there are more than 5,000 supply chain/logistical conferences held each year. You need to pick the right ones for you and go out there and get yourself educated by listening to other people. You're never too old to learn. I like to seek out conferences that have very strong keynote speakers. Keynote speakers are essential. You go there. You listen to the keynote speaker. It gets you revitalized. It gives you new ideas. It is a wonderful way to really get yourself up to speed.

Private party for Sears?
By Sandra Guy - Chicago Sun-Times
June 1, 2007

Could billionaire hedge-fund manager Edward Lampert's next step be buying the 58 percent of Sears Holdings Corp. he doesn't already own?

Or could he use the retailer's cash hoard for big share buybacks?

Analyst Sean Egan, managing director at Egan-Jones Ratings Co., raised the speculation Thursday after Sears Holdings reported flat fiscal first-quarter profits, excluding one-time gains, and continuing declines in same-store sales at Sears and Kmart.

If the stock market fails to suitably value Sears' shares, Lampert could take the company private, according to Egan's analysis. Thursday's market performance began to set the stage as investors punished the stock, sending it down $3.23, or 1.8 percent, to close at $180.02 and wiping out $497 million in market value.

Analysts clearly want Lampert to make a move to turn around the flailing retailer.

Sears would be an attractive buyout target by either Lampert himself or a private equity firm. Egan based his analysis on Sears' healthy cash flow and a share price of about $180 -- attractively low compared with Sears' earnings before interest, taxes, depreciation and amortization, commonly called EBITDA, or earnings before the bad stuff. EBITDA is a key measure of cash generated by a company, and indicates a company's ability to pay its debts.

Sears' cash flow and ability to pay debts are very good indeed, totaling about $4 billion this year, according to Egan's calculations.

A buyer could put up 30 percent of his own money for Sears -- valued at $29.9 billion -- and borrow money for the remaining 70 percent, paying 12.5 percent interest on the debt.

Using Sears' free cash flow, the prospective buyer could pay interest on his debt, and still earn a return of a stunning 92 percent on his equity investment, according to the analysis.

But a Sears' takeover by a private-equity firm would have to be hostile because Lampert appears firmly in control for the long term, the analysis concluded.

Analyst Richard Hastings of Bernard Sands wrote in a note to investors Thursday that Sears has reached a crossroads because the retailer's income from net property assets is plunging.

Sears Holdings' total income before deductions of interest and taxes, called EBIT, grew 13.07 percent in the quarter versus last fiscal year's "stunning" 47 percent increase, Hastings wrote.

Lampert must shutter weak stores and spend to improve others, or risk a slowdown in his strategy of building cash, Hastings said.

Sears CEO Aylwin Lewis conceded Thursday that the retailer needs to do a better job appealing to shoppers.

Sales at stores open at least a year -- a telling sign of a retailer's health -- were down 3.4 percent at Sears -- 1 percentage point worse than predicted -- and down 4.4 percent at Kmart. The combined drop was 3.9 percent year over year.

The only bright spot was Lands' End apparel at Sears, where sales increased by an unspecified amount.

Same-store sales for Sears and Kmart combined have declined each year since Lampert engineered Kmart's $12.3 billion takeover of Sears on March 24, 2005.

The last same-store sales increase occurred during Christmas 2006, when Kmart's year-over-year sales inched up 0.9 percent. It was the first increase at Kmart in four years.

For the first quarter of 2007, one-time gains boosted Sears Holdings' profit 20 percent in what would have otherwise been a flat quarter, the Hoffman Estates-based retailer announced.

Total sales also dropped, down 2.5 percent, to $11.7 billion.

Sears blamed tough competition, bad weather and pressures on its shoppers ranging from high gasoline prices to a slowing housing market, for the poor results.

Lewis said, "As an organization, we need to overcome these factors by better controlling costs and developing innovative solutions that better meet our customers' needs" and generate more profit.

For the quarter, which ended May 5, net income rose to $216 million, or $1.40 per share, from $180 million, or $1.14 cents per share, a year earlier.

Without the one-time items, profit would have equalled $1.10 per share versus $1.11 a year ago. The one-time items included a lawsuit settlement, insurance payments for hurricane damage and a gain from freezing the pension benefits and eliminating post-retirement medical, dental and life-insurance benefits for future Sears Canada retirees.

Analysts had expected a quarterly profit of $1.22 a share on revenue of
$11.6 billion.

As has been Lampert's strategy, Sears benefitted from cost-cutting and fewer markdowns.

Return swaps, a risky kind of trading in exotic derivatives that Lampert controls, hurt Sears in the first quarter by reducing pre-tax income by $13 million, or 8 cents a share.

Lampert outlined a variety of turnaround initiatives at the retailer's May 4 shareholders' meeting, including taking another stab at celebrity fashions, expanding its Lands' End shops inside Sears stores and introducing an advertising campaign that harkens to the glory days of the Sears catalog.

Sears also has started a test in which its in-home repair crews pitch sales of new appliances when a broken appliance looks beyond repair.

Sears reports 8th-straight sales decline
Net income up 20%,
but profit falls short of Wall St. forecasts
From Chicago Tribune news services
June 1, 2007

Sears Holdings Corp. on Thursday said first-quarter net income grew 20 percent thanks to one-time gains, but excluding items the Hoffman Estates-based retailer's earnings missed estimates and sales fell for the eighth-straight quarter.

Net income climbed to $216 million, or $1.40 a share, from $180 million, or $1.14 a share, a year earlier. One-time items lifted profit by $44 million, or 30 cents a share. With one-time items stripped out, Sears said it earned $1.10 a share, well below Wall Street forecasts of $1.21 a share.

Revenue declined 2.5 percent, to $11.7 billion. Sales at Kmart and Sears stores open at least a year fell 3.9 percent, the eighth drop in a row since Chairman Edward Lampert merged the two retailers in March 2005. Such sales, called same-store sales, are considered the best indicator of a retailer's health.

Same-store sales fell 3.4 percent at the Sears division, more than the retailer had forecast on May 3. Kmart's same-store sales declined 4.4 percent on lower sales of home goods, health and beauty products and most other categories.

The company is beginning new advertising campaigns for Sears and Kmart to win back sales lost to J.C. Penney Co. and Kohl's Corp., which have added designer clothes to appeal to more trend-conscious consumers. Lampert said last month that fixing retail operations was "a priority" for Sears.

"They have to take a page out of J.C. Penney's playbook and revitalize the brands and improve sales," said Arun Daniel at ING Investments LLC in New York. Sears is ceding market share to rival department stores, he said.

Sears said shoppers trimmed purchases of appliances and other home goods because of higher gasoline costs and a slumping U.S. housing market. Gasoline prices rose 39 percent during the quarter, and house prices in the first quarter increased at the slowest pace in a decade, according to government data.

"In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market," said Sears Holdings Chief Executive Aylwin Lewis.

But some analysts weren't buying such comments.

"In addition to the usual excuses of weather, energy costs and the housing market, management also cited 'competition,' surely not a novel factor in retailing," Carol Levenson of bond analysis firm Gimme Credit said in a report. "Much as management would like investors to ignore such trivia as same-store sales, we can't help but think they would be the first to point to these figures if they weren't so consistently lousy."

Sears had $3.4 billion in cash and cash equivalents as of May 5. Lampert has said he'll use surplus cash for investments.

"The basic business is doing OK," said Scott Rothbort, president of Millburn, N.J.-based Lakeview Asset Management, which counts Sears among its top holdings.

"The real reason people invest in Sears is because of the strong balance sheet and the future potential which Eddie Lampert brings," he said.

Shares of Sears lost $3.23, to $180.02, on the Nasdaq stock market.

Preston Martin, vocal former Fed vice chairman and
S&L regulator, dies at 83
By E. Scott Reckard - Los Angeles Times
June 1, 2007

Preston Martin, an economist and financial regulator who served as the outspoken vice chairman of the Federal Reserve in the mid-1980s and later took part in private efforts to revive troubled savings and loans, has died.
He was 83.

Martin, a Los Angeles native, died peacefully Wednesday at his home in San Francisco after a brief battle with cancer, daughter-in-law Margaret Lowrie Robertson said Thursday.

As the top S&L regulator for California and then the nation in the late 1960s and early 1970s, Martin foresaw the looming problems that would later cripple the thrifts, advocating adjustable-rate mortgages and a secondary market for buying loans to diminish the risk of the business, said William J. Popejoy, a banking executive ally.

Adjustable-rate mortgages didn't become widely available until after the collapse of the S&L industry in the 1980s; earlier, Martin had overseen the creation in 1970 of the Federal Home Mortgage Corp., or Freddie Mac, which buys loans and packages them into securities for sale to investors.

"Freddie Mac was his baby," said Popejoy, who joined Freddie Mac shortly after its founding and whom Martin promoted to be its president and chief executive less than two years later.

The affable Martin was "irrepressible" in arguing his positions, Popejoy added: "Sometimes people would sort of get blown back by him, because he was almost evangelical about the things he believed in."

As a teenager, Martin delivered newspapers in the Hollywood Hills after his father died, then paid his way through USC by grading papers and working the graveyard shift at a Lockheed plant, said his wife, Genevieve Martin. After Army service, he earned a doctorate in monetary economics at Indiana University before returning to USC, where he taught finance and economics to graduate students for 15 years.

But he was inclined to business as well as academia, starting a mortgage company and a real-estate development firm, and consulting for S&Ls. Publicly berating the thrift industry for its stodginess in the latter role, he caught the attention of then-California Gov. Ronald Reagan, who appointed him commissioner of S&Ls for the state in 1967.

Two years later, President Nixon named Martin chairman of the national S&L regulator, the Federal Home Loan Bank Board, which under Martin liberalized the rules for thrifts, allowing them to issue long-term certificates of deposit as well as passbook accounts and to write consumer loans in addition to mortgages.

He plunged back into private business in 1972, founding PMI Mortgage Insurance, which he sold to Allstate Insurance, then part of Sears, Roebuck & Co. He stayed on to manage PMI and later became head of Sears' financial services group but became frustrated with the corporate bureaucracy and eager to return to public service, his wife said.

The opportunity came in 1982, when Reagan, then president, named him Fed vice chairman. Violating unwritten rules of deference at the central bank, Martin spoke openly about his differences with then-Chairman Paul Volcker, causing Fortune magazine to headline one story: "The Man Who Would Be Volcker."

When reporters read Martin's comments on the international debt crisis to Volcker, the Fed chairman shot back, calling them "incomprehensible" as reported. Martin resigned from the Fed in 1986 at the end of his four-year term as vice chairman amid reports that he had sought the chairmanship himself; instead, Alan Greenspan would be appointed.

In the attempt to breathe life into failing thrifts and banks, Martin joined a partnership headed by former U.S. Treasury Secretary William Simon, which took control of failing institutions with the help of the federal government. The group succeeded in turning around two Hawaii-based institutions but was unsuccessful in saving several Southland S&Ls, notably Western Federal Savings & Loan and Southern California Savings.

In recent years, Martin devoted time to nonprofit work on inner-city housing and financial education issues, wrote a book, "The Complete Idiot's Guide to the Federal Reserve," and was a frequent commentator on economic issues for television and radio networks.

"He was a bit of a ham, and he liked being on TV," his wife said.

In addition to his wife and daughter-in-law, Martin is survived by a son, Pier, of Las Vegas, two granddaughters, Audrey and Emily; three stepdaughters; and five step-grandchildren.

Sears 1Q Net 20% Up On Items, Sales Fall 2.5%
Dow Jones Newswires
May 31, 2007

Sears Holdings Corp. (SHLD) said fiscal first-quarter net income rose 20%, boosted by extraordinary items including a legal-settlement gain and a gain from Sears Canda's post-retirement benefit plans curtailment.

However, the Hoffman Estates, Ill., broadline retailer's sales fell 2.5%, reflecting the weak retail and housing markets.

"In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market," said Chief Executive and President Aylwin Lewis. Lewis added that the company needs to better control costs and develop programs that meet customers' needs.

Net income increased to $216 million, or $1.40 a share, from $180 million, or $1.14 a share, a year earlier.

Excluding items, earnings for the quarter ended May 5 were $1.10 a share, down from $1.11 a share a year ago.

On average, analysts polled by Thomson Financial expected earnings of $1.22 a share. Earlier this month, Sears said it expected first-quarter earnings of $1.30 to $1.53 a share and net income between $200 million and $235 million.

Sears said revenue fell to $11.7 billion from $12 billion a year earlier. Analysts were looking for revenue of $11.55 billion.

Same-store sales, or sales at stores open at least a year, fell 3.9%. Sears domestic same-store sales fell 3.4%, while Kmart's same-store sales fell 4.4%. Sears said same-store sales were hurt by rising energy costs, a slower housing market and poor weather conditions in the latter part of the fiscal first quarter.

Earlier this month, Chairman Edward Lampert said Sears is considering acquisition and investment opportunities after laying low for two years following the acquisition of Sears by Kmart.

Sears shares fell 2.3% to $178.95 in recent premarket trading.

Clearance Sale at Sears
By Evelyn M. Rusli - Forbes.com
May 31, 2007

Billionaire Eddie Lampert managed to squeeze out a bit more value out of Sears Holdings, even as sales at its Kmart and flagship lines continued to stumble. First quarter profits surged 20.0% on one-time charges, according to the company on Thursday, but shares continued to fall as investors questioned the retailer¹s health.

The giant broadline retailer said earnings jumped to $216 million, or $1.40 a share, versus $180 million, or $1.14 a share, from a year ago.

But on a continuing operations basis, which excludes one-time items, such as a legal settlement and retirement benefits, the company netted only $1.10 a share‹ far below analysts¹ expectation of $1.22 a share. At $1.10 a share, the company also fell from the year ago period¹s result of $1.11 a share. Revenue also fell 2.6% to $11.7 billion, from $12 billion.

Now, investors are wondering whether Lampert, whose hedge fund ESL Investments owns a 40% stake, can keep the Searscash machine chugging. Since Lampert came on board in November 2004, by merging Kmart with Sears, the stock has skyrocketed over 71%. But after drastically cutting operating costs and improving margins, Lampert, America's 67th richest person, seems to be running out of tricks.

In the first quarter, Sears managed to improve operating results at Sears Canada and minimize expenses in U.S. Sears stores. But these gains were largely offset by poor sales at Kmart, where same store sales dropped 4.4%. Same store sales data, which are sales at stores open at least a year, is considered an important yardstick in gauging a retailer¹s health. Same store sales also slipped 3.4% at the company¹s namesake line, where home appliance sales were notably poor.

The company deflected blame on Thursday, by pointing the finger at macro-economic trends. "In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market," said Sears chief executive officer Aylwin Lewis.

"Although one quarter does not justify hitting the panic button, the negative data points in retail are starting to pile up," Adranne Shapira, a Goldman Sachs analyst, said in a research note this month.

Analysts have long speculated that Lampert primarily wants to use Sears to raise capital for outside investments at the expense of the retailers. In the past, Lampert has said he will consider investments beyond retail. To allay shareholders' concerns, Lampert has adamantly reiterated his commitment to developing the beleaguered brand this year.

"I want there to be no doubt about one thing: It is certainly our intent to grow Sears Holdings, '' Lampert said in a letter to shareholders in March. "Some commentators have asserted that we want to shrink the company, but that is simply not so.''

Under Lampert's stewardship, Sears has amassed a sizable cash reserve of $4 billion. He has used some to make hedge-fund-like investments in derivatives called total return swaps. The company reported that in fiscal 2006 it made
$74 million in pretax income on the transactions.

It remains to be seen exactly what Lampert has in mind for Sears, but he has some wiggle room before investor confidence snaps. Although "in Eddie we trust," remains the mantra of the day, this buoyant optimism is increasingly tempered by a growing suspicion that while Lampert knows how to raise profit margins in the short term, he doesn't know how to sell Kmart and Sears to the consumer.

Sears' Q1 Net Income Climbs 20 Percent
By Ashley M. Heher - Associated Press
May 31, 2007

Retailer Sears Holdings Corp. said Thursday that its first-quarter earnings grew 20 percent on one-time gains while U.S store sales dropped.

For the quarter ending May 5, net income was $216 million, or $1.40 per share, compared with $180 million, or $1.14 cents per share, a year earlier.

Excluding one-time items, including a legal settlement and retirement benefit, the company earned $1.10 per share compared with an adjusted figure of $1.11 per share during the first-quarter in 2006.

Revenue fell to $11.7 billion, from $12 billion during the year-ago period.

On average, analysts surveyed by Thomson Financial forecast a quarterly profit $1.22 per share on revenue of $11.6 billion. Analyst estimates typically exclude one-time items.

The Hoffman Estates-based company said its improved operating results at Sears Canada and lower expenses at Sears stores in the U.S. were offset by declines at Kmart.

Overall, the company said comparable store sales, a retail industry metric of sales in stores open at least one year, fell 3.9 percent. At Sears' U.S.
stores, same-store sales dropped 3.4 percent while Kmart sales fell 4.4 percent.

The discount chain saw its revenue fall $239 million, or 5.6 percent, because of lower sales volumes for home goods, health and beauty products and food.

"In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market," Aylwin Lewis, Sears Holdings chief executive officer and president, said in a statement.

Sears said it had $3.4 billion in cash and equivalents at the end of the first quarter, up from the $3.2 billion last year.

Sears Profit Rises 20% on Insurance, Settlement Gains
By Lauren Coleman-Lochner and Heather Burke - Bloomberg
May 31, 2007

Sears Holdings Corp., the largest U.S. department-store chain, said first-quarter profit rose 20 percent, helped by insurance payments and a legal settlement.

Net income climbed to $216 million, or $1.40 a share, from $180 million, or $1.14, a year earlier. Sales fell 2.5 percent to $11.7 billion, Sears said today in a statement.

A dividend from an investment in Mexico, insurance money from stores damaged by 2005 hurricanes, a legal settlement and other one-time items boosted profit by $44 million, or 30 cents a share. Sales at locations open at least a year fell 3.9 percent on less demand for home appliances at Sears and slower sales of health and beauty products at Kmart.

"They still have to make a lot of investments in those stores,'' said Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, which doesn't hold Sears stock. "From a retailing standpoint, Kmart-Sears has not done a good job.''

Excluding the one-time items, the company said it earned $1.10 a share. On that basis, analysts had estimated the company would earn $1.21 a share, the average of seven projections compiled by Bloomberg.

Shares of Sears, based in Hoffman Estates, Illinois, fell $4.75 to $178.50 at 8:25 a.m. New York time, before the regular open of the Nasdaq Stock Market. Before today, they had gained 9.1 percent this year.

Same-Store Sales

Sales at stores open at least a year, considered an important performance gauge because it measures established locations, declined 4.4 percent at Kmart and 3.4 percent at Sears. They have fallen every quarter since the companies combined in March 2005.

Chairman Edward Lampert said at the company's shareholder meeting earlier this month that fixing retail operations was ``a priority.'' Sears may add exclusive brands, he said, a strategy that has helped rivals such as J.C. Penney Co. and Kohl's Corp. prosper.

There's a ``newfound willingness on Chairman Eddie Lampert's part to spend money to improve the business,'' Gregory Melich, an analyst at Morgan Stanley in Purchase, N.Y., wrote in a May 8 report. The company will need to invest more in stores and operations, Melich wrote.

The company lost $13 million, or 8 cents, on investments in total-return swaps.

Total-return swaps are agreements in which one investor makes payments based on any coupons and capital gains or losses of an asset and the other makes fixed or floating-rate payments.

Earlier this month, the company began a new advertising campaign with the slogan, ``Sears, where it begins.'' At Kmart, it introduced Mr. Bluelight, an animated character who will highlight bargains and unique items for sale. Kmart was known for ``Blue Light Special'' sales in the 1970s and '80s.

Lampert, 44, joined Sears with Kmart in March 2005 in a $12.3 billion union that created a company with 3,800 stores in the U.S. and Canada.

Sears' net jumps on one-time gains
Falling market share, pinched sales mark core results
By Jennifer Waters, MarketWatch
May 31, 2007

CHICAGO (MarketWatch) -- Sears Holdings Corp. posted a 20% jump in first-quarter profit Thursday, thanks to gains not related to its core retail business, as the parent of the Sears Roebuck and Kmart chains struggled with declining sales of home appliances and lower transactions.

For the three months ended May 5, Hoffman Estates, Ill.-based Sears Holdings said net income rose to $216 million, or $1.40 a share, up from $180 million, or $1.14 a share, earned in the year-earlier first quarter.

The latest quarter's results were boosted mostly by gains from a legal settlement, a post-retirement benefit and a hurricane-related insurance claim.  Adjusted to exclude items from both reporting periods, Sears Holdings' profit disappointed Wall Street, declining to $1.10 a share compared with $1.11 a share last year.

Deutsche Bank analyst Bill Dreher called the results "disappointing" but said they weren't disconcerting considering that they were reflective of what close competitors such as Wal-Mart Stores Inc. (WMTWal-Mart Stores, Inc WMT ) saw in the quarter and account for a very small piece of Sears Holdings' total fiscal-year picture.

"There were clearly elements missing in this performance," Dreher said. "The company has had some hiccups in the past, and this is one of those weak quarters. "Sears Holdings' performance is indicative of weak results for many of the retailers during the first quarter," he said. "In the context of first quarter's contribution to Sears Holdings' annual earnings, it's only about 10%.

"The changes that Sears Holdings is making to the long-term fundamentals of the business are good and continue to make progress," he said. Dreher has a buy rating on the stock with a 12-month price target of $238.

In the latest quarter, Sears said the legal settlement raised earnings per share by 12 cents, while a change in post-retirement benefits at Sears Canada added 11 cents a share. The recoveries from insurance claims tied to property damage from hurricanes in 2005 accounted for another 6 cents a share and an investment in Sears Mexico netted 8 cents a share.

Sears Holdings also had a gain of a penny a share on sales of assets, though the company did not explain what it sold. Partly offsetting these was a loss of 8 cents a share, linked to the derivatives tool called total return swap investments. And for the first quarter since Sears Roebuck and Kmart were merged, the company did not record a restructuring charge.

Sales fell 2.5% to $11.7 billion from $12 billion. Sears has conceded that it has lost market share in sales of big appliances such as its Kenmore washers and dryers due to the weakening in housing, but showed gains in children's apparel during the latest quarter.

Analysts, on average, had been expecting the company to post a profit of $1.22 a share on revenue of $11.5 billion, according to Thomson Financial. Shares of Sears Holdings sank more than 2% in early trading.

Competition and 'external factors'

Same-store sales, the industry's important measure of receipts rung up at stores open longer than a year, were off 3.9% in the U.S., reflecting a 3.4% drop at the company's Sears Roebuck stores and a 4.4% decline at its Kmart properties.

"We believe these declines reflect both increased competition and the impact of external factors such as rising energy costs, a slower housing market and poor weather conditions during the latter part of the first quarter," the company said in its earnings release. Sears Holdings does not hold conference calls with analysts as do most of its rivals.

Ahead of this year's annual meeting, Sears Holdings warned that earnings would miss original projections. It forecast then earnings of $1.30 to $1.53 a share, and net income from $200 million to $235 million.

Sears Holdings, flush with cash and borrowing capacity, this month launched major marketing campaigns -- the first since the two retail chains were merged under a single owner.

The company said it ended the quarter with $3.4 billion in cash and cash equivalents, slightly higher than the $3.2 billion of a year ago but off from $4 billion on Feb. 3. The company said the decline from February is mostly because of increases in inventory as the retailer shifted from the spring to summer selling seasons.

At the annual meeting, Sears Chairman Edward Lampert said he was adding $150 million to $200 million of pharmacy products to inventories as he shifted from an outside source to in-store, a move aimed at cutting costs to consumers.

Sears Holdings said it spent $113 million on capital expenditures and repaid about $47 million in debt.

Also of note, the company didn't repurchase shares during the quarter, leaving it with $604 million in authorization under the existing stock-buyback plan. The company said it did receive about 114,000 shares of common stock as part of bankruptcy-related settlements.

Jennifer Waters is a reporter for MarketWatch based in Chicago.

Sears deals with fallout on cops story
By Marc Hanse - Columnist - Des Moines Register
May 31, 2007

Please leave. You're scaring away the criminals.

That's what a manager at the Merle Hay Mall Sears store told the uniformed Des Moines cop this week.

Not in those words exactly, but that's the way it came out. And it wasn't the first time.

About three weeks earlier, another Des Moines police officer was ordered to leave the same store.

The police are upset about it. The corporate office is embarrassed and apologetic.

With good reason. It's like telling the fire department to leave because you're expecting an explosion.

What happened at the Merle Hay Sears is a slap in the face to police in general and a public relations blow to a once-great retail giant.

It isn't quite as bad as the incident at Menards in 1995. Des Moines Police Officer Willie Smith was responding to a shoplifting call then. As he was leaving, a store security guard stopped him, told him to open the trunk of his car, and conducted a search. Smith got a lawyer and walked away with a settlement.

According to a Register report published Wednesday, the police officers were asked to leave the Sears store because they were making the shoplifters nervous.

In most places of business, this is a good thing. You want the shoplifters to be nervous. What thief in his right mind is going to swipe a lawn mower or a bench vise or a car battery with an officer standing in full uniform nearby?

About three weeks ago, Sgt. David Coy was working off-duty security at the mall. He was walking through the store when he was told to beat it.

Apparently, the store was monitoring suspicious characters, and he was a distraction.

Coy thought that was a little strange. One might reasonably conclude that he was preventing thefts as much as interfering.

Then on Monday, Officer Richard Glade was told to get lost. He was on duty at the time but on a break. His wife was picking out a dishwasher and she wanted him to check it out.

Sears responded quickly. A spokesman out of the home office apologized and called the problem a misunderstanding and a mix-up.

Store management was "attempting to address an ongoing issue of excessive socialization between mall security officers and store associates, which had been hampering associates' productivity."

It's important to address ongoing issues. And it's good to see Sears has nothing against the police.

Most businesses like having the police around. Off-duty officers work the ballpark and the State Fair. You see them at weddings and at malls and grocery stores.

They pack more authority than the average security guard. Not only can they arrest people, but they're also obligated to take action if they see a crime going down.

Some make as much as $35 an hour. If the spouse is home with the kids every day, the extra bucks come in handy.

I'm told off-duty police were in high demand 20 or 30 years ago when the pay scale was much lower. Shops, grocery stores and restaurants fed them for free to keep them coming back. Police in uniform hopped on the city buses without having to pay for the ride. These are probably ethics violations now.

The good news is that Sears is still in business. At one time, the Chicago-based company dominated the retail landscape. Every family had the catalog. Everyone bought the apparel, the appliances, the tools.

Not anymore. Stores like Wal-Mart and Home Depot passed Sears by years ago.
Profits were down, merchandising strategies were dumb. The stores were located in all the wrong places.

The merger with Kmart two years ago produced the nation's third-largest retailer, but the old attraction hasn't returned.

By the way, Officer Glade's wife didn't buy that dishwasher, but at least nobody walked off with it.

Is Wal-Mart Too Cheap for Its Own Good?
By Michael Barbaro - New York Times
May 30, 2007

Low prices, it turns out, can be bad for business.

A confidential report prepared for senior executives at Wal-Mart Stores concludes, in stark terms, that the chain¹s traditional strengths - its reputation for discounts, its all-in-one shopping format and its enormous selection - "work against us" as it tries to move upscale.

As a result, the report says, the chain "is not seen as a smart choice" for clothing, home décor, electronics, prescriptions and groceries, categories the retailer has identified as priorities as it tries to turn around its slipping store sales, a decline likely to be emphasized Friday during Wal-Mart¹s shareholder meeting.

"The Wal-Mart brand," the report says, "was not built to inspire people while they shop, hold their hand while they make a high-risk decision or show them how to pull things together."

The document, prepared in October 2006 by the company¹s former advertising agency and based on interviews with scores of consumers, offers a candid, wide-ranging explanation for why Wal-Mart, the No. 1 seller of everything from laundry detergent to underwear, has stumbled badly when it comes to higher-end merchandise like silk camisoles and shag accent rugs.

The report contends, for example, that "our low prices actually suggest low quality" for products like high-definition televisions. And it says that Target, with its designer-inspired clothing and furniture, feels "like the new and improved," while Wal-Mart often feels like the "old and outdated."

A copy of the 55-page report, written by GSD&M Advertising, was provided to The New York Times by WakeUpWalMart.com, a union-financed group highly critical of the retailer. The group said that a person outside of Wal-Mart gave it the report.

GSD&M, which has worked with Wal-Mart since 1974, submitted the report as part of an elaborate campaign to remain Wal-Mart¹s ad agency after the retailer said that it might choose a replacement last year. Ultimately, Wal-Mart chose other firms.

Nick Agarwal, a spokesman for Wal-Mart, said that the seven-month-old report was "out of date and, in some areas, it is just plain wrong." Sales in the chain¹s pharmacy, electronics and grocery departments, for instance, are very strong, he said. GSD&M, a division of the Omnicom Group based in Austin, Tex., declined to comment.

Its report is at times prescient. As Wal-Mart's clothing and home furnishing businesses have struggled, sales at stores open for at least a year fell to the lowest levels in decades over the last 12 months, well below those of Target. The figures are not expected to improve much over the next year, unsettling investors.

The GSD&M document offers a rare glimpse of the concerns that are buffeting Wal-Mart's retailing empire, from its flagging corporate reputation to the ³near catastrophic² economic pressures faced by its working-class consumers.

Wal-Mart attracts 138 million shoppers a week, a staggering figure unmatched in American retailing, but the portion of Americans who say the chain is their No. 1 destination for discount shopping has fallen from about 75 percent two years ago to 67 percent today, according to the report.

No specific explanation for the drop-off is provided, but Wal-Mart's ad agency suggested a combination of factors, like stiff competition and public relations troubles. Those troubles have included a sex discrimination lawsuit filed on behalf of 1.6 million female current and former employees and firings of top executives, like the former vice chairman Thomas M.
Coughlin, for stealing company funds.

Wal-Mart's rating as a company that consumers trust and respect "steadily declined" over the last two years, the report said, as labor groups and elected leaders criticized its wages, benefits and practices. "While corporate respect may not be a highly rated driver of store choice,² it said, "this intangible quality cannot be underestimated."

Wal-Mart has said that its own analysis has found that just 0.04 percent of customers have stopped shopping at Wal-Mart because of its reputation.

Chris Kofinis, director of communications at WakeUpWalMart.com, said, "Wal-Mart needs to realize that improving its public image and its business reputation demands they stop ignoring the fact that the American people care about values, not just value."

The report by GSD&M also says several big-box rivals are meeting shoppers' needs better than Wal-Mart. Best Buy, for example, provides "information and knowledge" to help buy electronics, the report says. Kohl's provides "a wide selection of brand-name apparel" displayed "in a stylish environment that inspires browsing," it says. And Bed, Bath & Beyond has "great displays that provide ideas on how to pull looks together," it adds.

The economy is not helping matters, the report says. After living through the "decade of affluence" in the 1990s, Americans may now be entering the "decade of retreat" as real wages remain flat, fuel prices spike and consumer debt reaches all-time highs, it says, adding, "We have a crisis in the making for America's working and middle classes."

A significant portion of the report portrays Wal-Mart positively. In interviews, shoppers said the chain saves them money, time and stress, which suggests that the retailer¹s low-price heritage is "as relevant today as it ever was." Asked by GSD&M to describe Wal-Mart as if it were a person, some consumers compared it to a handyman, a grandmother and Uncle Sam. The report also asserts that "for most people and for most shopping occasions, Wal-Mart is the smart choice."

The bulk of the report, however, examines the challenges facing Wal-Mart as it tries to transform itself from a chain focused on basic household items sold at low prices into one known for style.

Wal-Mart's 200,000-square-foot stores, brightly lighted, minimally decorated and teeming with signs for price rollbacks, have served the chain well for much of the last 40 years.

But now, as Wal-Mart experiments with contemporary clothing, flat-screen televisions and nine-layer lasagna, that format has become a hindrance. To a shopper who wants to purchase a single dress for an evening out or a DVD player to watch a movie, "Wal-Mart¹s one-stop shopping format becomes a time-consuming irrelevant obstacle," the report says.

That environment is conducive to "zero-time"shopping, in which a customer spends just a few seconds thinking about a product, like a new bottle of dishwashing soap. "But people don¹t buy electronics, home décor and apparel in zero time," the report says.

"They shop for them," it continues. "Those are slow-time shopping trips that require, unique, slow-time environments that provide a level of service, a sense of style and an array of ideas that inspires shopping."

Wal-Mart's advertising agency recommended a series of solutions, though the company has so far not adopted most of them. For electronics, it suggested creating a no-hassle, no-questions-asked returns policy that would make people feel more comfortable buying expensive televisions and stereo systems.

Sears boots 2 policemen over uniforms
The Des Moines officers were told that their apparel distracted security.
By Tom Alex - Staff Writer - Des Moines Register
May 30, 2007

Sears corporate officials Tuesday apologized to two police officers who were told to leave the retailer's store at Merle Hay Mall in Des Moines because their uniforms were a distraction to store security personnel.

"I was dumbfounded," Officer Richard Glade said. "I said, 'You've got to be kidding me.' "

Kimberly Freely, a spokeswoman at the Illinois headquarters of Sears' corporate parent, initially called the incident a "mix-up." She did not elaborate, but later, in a written statement, she described the episode as a case of mistaken identity.

"Our store management was attempting to address an ongoing issue of excessive socialization between mall security officers and store associates, which had been hampering associates' productivity," Freely's statement read. "In no way was this an attempt to prevent on- or off-duty officers from shopping at our store. Sears is issuing a formal apology to the Des Moines Police Department through store management, and we look forward to serving all members of the Des Monies community."

The unidentified store manager in Des Moines who booted Glade on Monday could not be reached for comment.

Police Sgt. David Coy said he, too, was told to leave the same Sears store about three weeks ago.

"I work for Merle Hay Mall security when I'm off duty," Coy said. "I was walking through the store and they kicked me out. They told me that while I was in the store, I'd probably interfere with thefts they were monitoring. I said, 'Well, that's great.' She said no, it's not, and that they paid people to monitor that activity."

Coy said the Sears representative told him he was welcome to come back when he was not in uniform. "The mall is paying me, so I'll go wherever they tell me to go, and I'll stay out of Sears if that's what they want," he said.

Glade said his wife, Irene, was at the store to buy a dishwasher. She found one she liked and called her on-duty husband on the telephone to come take a look. Glade asked for permission to take his morning break and went to Sears.

"I don't think I was in the store for three minutes when I was asked to leave," he said.

"The guy was grinning the whole time he was asking me to leave," he added. "He said I was a deterrent to the store. Then he threw me out."

The Glades decided to buy the dishwasher elsewhere.

Some other stores, such as Dahl's Foods in Des Moines, hire officers part time at some locations and welcome the uniformed presence.

"We certainly wouldn't discourage officers from coming in any time they wanted," Dahl's spokesman Mark Brase said.

Foolish Forecast: Sears Set to Swing
By Rich Duprey - Motley Fool
May 29, 2007

Venerable discount retailer Sears Holdings (Nasdaq: SHLD) will report first-quarter 2007 financial results on Thursday, May 31.

What analysts say:

Buy, sell, or waffle? Of the seven analysts covering Sears, three say buy, three say hold, and one says sell.

Revenues. Only two analysts have ventured an estimate on revenue, which they expect to fall 4% to $11.6 billion.

Earnings. Profits, however, are expected to jump 11% to $1.22 per share.

What management says:

If nothing else since K-Mart and Sears came together, CEO Eddie Lampert has created a company worth discussing again. Although he rebuts charges that he's purposefully shrinking the chain -- "No great company would aspire to become smaller, and we certainly do not. Our objective is disciplined growth" -- he has sold off large swaths of real estate in an effort to "right size" its operations. It becomes a matter of whether the business he is molding is one that can really challenge midlevel retailers like J.C.
Penney (NYSE: JCP) and Kohl's (NYSE: KSS) on one side, and discounters like Target (NYSE: TGT) and Wal-Mart (NYSE: WMT) on the other. Can the value-creation proposition he outlined in his last chairman's letter still be realized with a company that continues to find sales slipping away?

What management does:

With retailers, it's often easy to see how sales -- or their absence -- affect the bottom line. With Sears, that's not always the case, since Lampert, who runs the hedge fund ESL Investments, often operates Sears like a hedge fund, too. Last quarter, a series of one-time items clouded results, including transactions like a total return swap on which the company lost $27 million pre-tax. It also made $50 million on the sale of assets, and the company's large cash horde -- between $3 billion and $4 billion -- can be used at Lampert's discretion. With Sears margins, what you see isn't necessarily what you get.

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:

Sears has become a tricky business to evaluate, confounding analysts time and again. Lampert has proven himself to be, if not genius, certainly smart and adept at melding two failing discount chains into one attention-getting story. Some view him as the next Warren Buffett, and to date, his track record has been impressive. Yet for all the value still locked up in Sears, if he's sincere in his desire to make the retailer a merchandising force again, customer traffic will ultimately be a crucial factor. At least one critic doesn't think much of Sears' start in this regard, but the results of the ad campaign the company hopes will woo back shoppers will have to wait until next quarter's report.

Wal-Mart Sneezes, China Catches Cold
Retailer's Clothing Slump Leaves Factories Scurrying To Find New Customers
By Gordon Fairclough - Wall Street Journal
May 29, 2007

SHANGHAI -- Several months ago, Chinese clothing executive Shao Zhuliang got bad news from his U.S. agent: Wal-Mart Stores Inc., his biggest customer, wouldn't be placing any orders for the spring 2008 season.

Now, Mr. Shao says, he is scrambling to line up other buyers from Europe, Japan and South Korea to keep production lines running this summer at Boshan Linar Garments Co. in eastern China's Shandong province.

Wal-Mart "said they had inventory piled up over there," says Mr. Shao, who heads Boshan's sales department. "It's always hard to make money from Wal-Mart orders, but without them, we are finished."

A softer U.S. economy, rising gasoline prices and business miscues have left the world's largest retailer with a growing amount of unsold goods in its stores, including about $2 billion worth of clothes and home-décor products. With about 10% of Wal-Mart's revenue coming from apparel, the excess has several analysts trimming profit estimates for this year by as much as five cents a share.

And as Wal-Mart struggles to pare down stocks and get sales growth back on track at its 4,000 U.S. stores, some of the company's suppliers in China are feeling the pinch.

"Wal-Mart is no different from any other retailer going through a tough time," says Marc Compagnon, an executive director at Li & Fung Ltd., one of the world's largest apparel-sourcing firms, which matches retailers with manufacturers. "Anyone doing business with a retailer having trouble is going to suffer the consequences."

Mr. Compagnon, who is based in Hong Kong, says that about 16% to 19% of the world's garments are made in China. Production of the remainder is scattered among countries in Asia, Latin America and elsewhere.

It is difficult to tell how much of the cutbacks at Boshan and some other Chinese companies that supply Wal-Mart are related to the company's inventory pile-up and what orders are simply being shifted to firms with lower production costs or different capabilities. Wal-Mart did not respond to requests for comment.

Boshan's challenges are a sign of the risks to China's companies and its economy if U.S. consumer spending slows sharply. About 20% of all Chinese exports go to the U.S., its biggest overseas market. Wal-Mart imported $18 billion in goods from China in 2004.

And Chinese economic growth remains highly dependent on exports by labor-intensive manufacturing industries. But government officials are working to stimulate domestic demand to lessen reliance on sales abroad.

China is likely to weather all but the most extreme of slowdowns, many economists say. But the fallout from Wal-Mart's problems shows how difficulties at one end of the global supply chain ripple through to the other with the potential for significant economic disruptions, at least locally.

For Boshan, the warning signs started the end of last year, when Wal-Mart scaled back its order for the fall 2007 season, from 500,000 pieces to about 100,000, Mr. Shao says.

Workers at Boshan's factory in Zibo, a city of four million, are now sewing denim women's shirts, the last of which will be delivered to Wal-Mart in September. And that's it.

"They used to buy so much we had to devote nearly all of our capacity to them," says Mr. Shao. Last year, Wal-Mart accounted for 80% of the company's business. "It will be impossible to find substitutes easily or quickly," Mr. Shao says.

So far, Mr. Shao says, he has received orders from British retailer Tesco PLC and conglomerates from South Korea and Japan. Boshan employs about 500 people in Zibo, roughly 7,000 miles from Wal-Mart's Bentonville, Ark., headquarters. Many, Mr. Shao says, could lose their jobs or see their pay fall if the company can't win enough other business.

Lu Keqin, a seamstress and workshop supervisor, says seamstresses earn an average of $125 a month -- the result of a piece-work rate of about 38 cents for each garment they sew.

"People want to work here because it's a big company. There's not much work to do at the small factories nearby," Ms. Lu says. Ms. Lu, whose daughter is due to start university this year, says: "I don't want my salary to be affected."

Analysts have blamed much of the slowdown in Wal-Mart's apparel sales on the failure so far of the company's strategy to design and market more expensive and fashionable clothing. Wal-Mart last year sharply cut the number of U.S. stores carrying its Metro7 clothing line and recently pulled its first designer line, George M.E. by Mark Eisen, from several hundred stores that carried it, according to a person close to the situation.

Susan Floyd, a Wal-Mart shopper in Chandler, Ariz., says she noticed earlier this year George M.E. wasn't selling, and "I just waited until they went on sale." Recently, she grabbed a George M.E., gold-foil embossed leather jacket originally priced at $70 for $30, and a pair of slacks for just $3.

But evidence from Chinese manufacturers suggests the chain's problems may not be confined to higher-end clothing. One manufacturer of pajama pants, Zhejiang Furun Co., says it was selling about $3 million in clothing a year to Wal-Mart until this year, when orders ceased.

Chen Jiayong, a manager at Nanjing Yongxin Fashion Co. in Jiangsu province north of Shanghai, says his company is finishing up the last order in its pipeline for Wal-Mart now -- 70,000 cotton coats that will sell for about $10.

That's less than 25% of last year's order, and the company stands to lose about $780,000 in revenue this year, Mr. Chen says.

Nanjing Yongxin is also feeling pressure from the appreciation of the Chinese currency, the yuan, whose value has risen by 8% since mid-2005. "Not only Wal-Mart but many other customers in Europe and America canceled orders this year," Mr. Chen says. The lost orders totaled about $2.6 million.

Yan Erhao, manager of Weifang Zuo Bang Garment Co. in Shandong province, says his 50-person company lost its Wal-Mart business last year and is still struggling to find other customers. Last summer the retailer canceled its orders for the men's casual shirts that Weifang had been delivering for years.

"The buyer said Wal-Mart had problems selling them," says Mr. Yan. "They said it was because of the market in the U.S. They said it had nothing to do with us." In a stroke, Weifang lost 60% of its revenue.

Since then, Weifang has tried to build a knitwear business appealing to customers in Japan and South Korea. "We miss Wal-Mart," Mr. Yan says. "We have to find substitutes," he says, adding: "I'm still hopeful."

Fired Wal-Mart Executive Roehm Claims Ethics Rules
Were Violated
By Gary McWilliams and James Covert - Dow Jones Newswiries
May 25, 2007

Fired Wal-Mart Stores Inc. marketing executive Julie Roehm took aim at the retailer's chief executive and other senior executives, claiming they skirted its ethics policy, accepting travel, concert tickets and preferential prices on yachts and jewelry.

Ms. Roehm contends that Chief Executive H. Lee Scott Jr. and his family have close ties to financier Irwin Jacobs, whose companies provide services and products to Wal-Mart, according to her filing in U.S. District Court, Detroit. She alleged their ties go "beyond a business relationship" that Wal-Mart's ethics policies dictate. Mr. Jacobs, reached today, denied any favoritism.

The court filing is the latest twist in a war of words between the high-profile advertising executive and the world's largest retailer. In March, Bentonville, Ark.-based Wal-Mart described what it said were suggestive personal emails and cited unnamed co-workers describing an admission of an affair between Ms. Roehm and a subordinate, former Vice President Sean Womack.

Ms. Roehm's salvo includes a fierce defense of her short tenure and challenged the company's portrayals of her in its counter-suit. She denied accepting gifts, insisted suppliers were told to bill the company for any meals, and said salacious descriptions of her relationship with Mr. Womack were false.

She also cited an excerpt from an affidavit by Mr. Womack's wife Shelley to dispute the company's contention that she engaged in an affair. Ms. Womack testified that one email Wal-Mart cited to support its claims of an affair didn't include Ms. Roehm's name and Wal-Mart's general counsel believed it wasn't incriminating.

A spokesman for Bentonville, Ark.-based Wal-Mart declined immediate comment.

Ms. Roehm's casts Wal-Mart as hypocritical for accusing her of violation ethical rules while failing to enforce its policies when it comes to other senior executives. She alleged Wal-Mart looked the other way when senior executives conducted affairs with subordinates, permitted Mr. Scott's son to work for a Jacobs' company, and allowed executives who owned retail stores to negotiate with subordinates on leases for those properties.

"Many Wal-Mart executives do not abide by Wal-Mart's alleged 'firm' policy forbidding conflicts of interest," she said in a document filed with the court late Thursday. Despite its policies against conflicts of interest and the misuse of company assets, "actions apparently speak louder than words at Wal-Mart," she said.

Ms. Roehm and a male subordinate were fired last December after the company accused them of violating its policies against fraternization and later claimed they had carried on an affair, improperly accepted gifts and sought jobs with suppliers. Since then, she has been an advertising consultant. She sued Wal-Mart, arguing there was no valid reason for her dismissal and asking the court to award her unspecified damages and compensation including lost pay, stock options, severance, and bonus.

Turning the tables on Wal-Mart, her filing alleges Mr. Scott personally benefited from his relationship with Mr. Jacobs, the chairman of Genmar Holdings Inc. and owner of several private businesses. Without identifying any specific instances, Ms. Roehm said the CEO obtained "a number of yachts" and "a large pink diamond" at preferential prices due to the relationship.

In a telephone interview today, Mr. Jacobs called her allegations "totally outrageous" and without any substance. He said he never provided Mr. Scott with any discounts or travel.

He acknowledged a long friendship with the Scott family that includes joint vacations. "They pay their way; we pay our way," he said. "I've frequently told Mr. Scott, it's very difficult for me to go with him because he always picks up the check Š I'd like at some point to level up. He won't allow that to happen."

Mr. Scott's son Eric had several years ago worked for a boat-manufacturing unit of Genmar and now runs a consulting company that shares office space with a private company that Mr. Jacobs owns, Jacobs Trading. Eric Scott's consulting business helps manufacturers develop retail merchandise programs, providing advice on everything from package design to product extensions. Wal-Mart's attorneys reviewed and approved the son's business dealings with Jacobs Trading, Mr. Jacobs said.

In an interview earlier this year, Mr. Jacobs also insisted there never were any discussions between he and Mr. Scott about hiring Eric Scott at Genmar's Wellcraft unit. "I swear to God Lee never called me about it," he said in that interview. Mr. Jacobs said he saw an opportunity for "putting Eric to work," noting his past experience buying merchandise from overseas manufacturers.

Federated Names New Division Presidents
Former Sears president Mark Cosby heads Macy's East
Federated News Release
May 23, 2007

CINCINNATI--(BUSINESS WIRE)--Federated Department Stores, Inc. today announced new presidents for its New York-based Macy¹s East division and Miami-based Macy¹s Florida division.

Mark S. Cosby, Federated's senior vice president for property development, has been named president and chief operating officer of Macy's East, effective June 4, 2007. He replaces James E. Gray, who is retiring after a distinguished 46-year career with the company. Cosby will join Ron Klein, chairman and chief executive officer, as the principal team at Macy¹s East.

J. David Scheiner, previously vice chairman and director of stores at Macy's Florida, has been named president and chief operating officer of that division. Along with Julie Greiner, chairman and chief executive officer, Scheiner remains a principal of Macy's Florida. He replaces Nirmal K. "Trip" Tripathy, former president of Macy¹s Florida, who has left the company to pursue another opportunity.

"We are fortunate that we have executives of the caliber of Mark Cosby and David Scheiner to fill these key operating roles," said Federated Vice Chair Susan D. Kronick, who oversees Federated's retail divisions, including Macy¹s East and Macy¹s Florida. ³Both Mark and David are experienced leaders who have a track record of success in managing the operations of complex organizations, as well as a clear understanding of our customer and business priorities.

"As Jim Gray retires from Macy's East, we will miss his broad experience and deep commitment to the company," Kronick said. "Jim is a truly special individual who has been president of three Federated divisions over the past 22 years. He is a friend and trusted colleague to everyone in our management organization."

Cosby, 48, joined Federated in July 2006 as senior vice president for property development, a position in which he oversees a range of corporate-level functions, including store design and construction, energy services, real estate and licensed operations.

Previously, Cosby served as president of full-line stores for Sears Roebuck & Co., where his responsibilities included merchandising, store operations and supply chain management. Prior to joining Sears, he was chief operating officer of KFC and chief development officer of Yum Brands, the branded restaurants company spun off from PepsiCo. He began his career as a financial analyst for General Foods Corporation.

A native of Madison, WI, Cosby holds bachelor's and MBA degrees from the University of Wisconsin. He currently lives in Cincinnati with his wife, Kathy, and two children.

Scheiner, 57, first joined Burdines (predecessor of Macy's Florida) in 1972 as assistant buyer of men's slacks. He advanced to group senior vice president and general merchandise manger, overseeing Burdines' fashion office and women¹s apparel and center core categories. In 1988, Scheiner became president of Maas Brothers/Jordan Marsh until the merger of the Burdines and Mass Brothers/Jordan Marsh in October 1991, when he became vice chairman and director of stores for the combined organization.

A native of New York, Scheiner graduated from the University of New Haven with a degree in marketing and management. Scheiner and his wife, Joan, live in Coral Gables, FL.

Gray, 68, has been president of Macy's East since December 1994. Previously, he was president of Burdines (now Macy's Florida) since June 1988. From 1985 to 1988, he was president of Los Angeles-based Bullock¹s (now part of Macy's West) and was also chief executive officer from 1987 to 1988.

Gray joined Federated in 1961 as an executive trainee at Foley's in Houston (now part of Macy's South). Over the next 27 years, his career at Bullock's included positions of increasing responsibility, including manager of electronic data processing, controller, vice president for finance, control and long range planning, executive vice president, and president.

Gray is a graduate of the University of Texas and currently lives in New York with his wife, Sheila.

$740 Mil. Sears Media to MPG
MPG takes over Sears' media from MindShare and MEC Interaction.
By Steve McClellan - AdWeek
May 23, 2007

NEW YORK Sears Holdings has selected Havas' MPG to handle media duties after a review, the client has confirmed.

The other contenders were: incumbents MindShare and MEC Interaction, both units of WPP Group; Aegis Group's Carat; and independent Horizon Media, per sources.

In early April, Sears confirmed placing media planning and buying duties on its nearly $740 million advertising account in play. The competition covered both the Sears and Kmart retail chains.

MPG said the account would be managed out of both its New York and Chicago offices.

"As media planning and buying agency of record we believe this arrangement with MPG aligns us with an organization that can help us connect with and profitably service our customers and achieve our goal of being a more efficient and effective company," said Maureen McGuire, evp, CMO at Sears, in a statement. MPG, she said, "has a proven track record employing media solutions grounded in insghts and facts that will integrate traditional and emerging media strategies seamlessly with the Sears Holdings creative and marketing process."

The client said the scope of work includes media planning and buying for all television, radio, magazines, out-of-home, online and emerging media across all target customer audiences.

"This is a milestone day for our company," and Charlie Rutman, MPG's North American CEO. "What is most exciting to us is [that the client's] commitment to using media to grow their business is second to none."

MindShare handled traditional media and MEC Interaction worked on the interactive business.

The Hoffman Estates, Ill., company consolidated traditional media chores at MindShare last June. The shop had handled Sears' media for several years, but added $200 million from Kmart at that time.

In a statement, MindShare said: "Sears has been a valued MindShare client for more than 20 years and we are, of course, disappointed to have lost the business. Sears is an American icon, and our business partnership with the company has always been a productive and rewarding experience for us. All of us at MindShare are grateful to have had the opportunity to work with such an important client. We wish everyone at Sears and Kmart continued good fortune in all of their future endeavors."

One month ago, Kmart shifted its creative to IPG's DraftFCB in Chicago without a review. WPP's Young & Rubicam in Chicago handles creative on Sears. Those assignments were not affected by the media review.

Sears Holdings was formed in March 2005 after Kmart Holding Corp. acquired Sears, Roebuck and Co. for an estimated $12.3 billion.

The company spent nearly $740 million on advertising last year, according to Nielsen Monitor-Plus, down 3 percent from the previous year.

Santa Monica, Calif.-based consultancy Select Resources International managed the media review process.

J.C. Penney Raises Outlook
By Kevin Kingsbury and Art Daniels - Dow Jones Newswires
May 17, 2007

J.C. Penney Co.'s fiscal first-quarter net income rose 13% on higher profit margins and the company raised its fiscal-year earnings outlook.

For the quarter ended May 5, the Plano, Texas, department-store chain posted net income of $238 million, or $1.04 a share, compared with $210 million, or 89 cents a share, a year earlier. J.C. Penney last month boosted its first-quarter earnings forecast to $1.02 a share from 99 cents.

The company said last week when it released April sales data that first-quarter sales climbed 3.1% to $4.35 billion, with comparable sales at its department stores rising 2.2%. The sales gains were led by women's apparel and accessories and fine jewelry. Home categories saw continued weakness.

Gross margin, or sales minus the cost of goods sold, rose 0.7 percentage point to 41.5%.

Chairman and Chief Executive Myron Ullman III cited "early benefits" in inventory-flow changes that helped to reduce clearance levels and the introduction of several new product lines.

For the fiscal second quarter, J.C. Penney sees earnings of 77 cents a share, which includes 3 cents in debt-redemption costs, with comparable-store sales up by the low- to mid-single digits on a percentage basis. The mean estimate of analysts surveyed by Thomson Financial was for earnings of 79 cents a share.

The company also raised its fiscal-year earnings outlook by five cents to $5.49.

The retailer in recent years has been successful in attracting middle-market shoppers by introducing more stylish private-label clothing to replace frumpy offerings. High-margin private brands, such as Arizona Jeans, now comprise about 45% of its business and helped to raise the company's profit margin a full percentage point in 2006. Next year, it will unveil its biggest private-brand launch, a new line of clothing and furnishings called American Living, to be designed by a unit at Polo Ralph Lauren Corp.

J.C. Penney has also improved its distribution network to reduce inventory and increase efficiency, and expanded its Internet business.

The company said last month that its long-term outlook calls for a 16% compound annual growth rate in per-share earnings for 2008 through 2011, with comparable-store sales increasing by the low- to mid-single digits on a percentage basis. J.C. Penney added it will open 250 stores in the next five years, with most being standalone buildings not connected to shopping malls.

Sears: What's in store next
By Sandra Guy - Chicago Sun-Times
May 17, 2007

Sears is experimenting with encouraging its appliance-repair teams to make sales pitches, and is featuring its repair technicians at workshops inside Sears stores, as the retailer explores ways to exploit its service and repair network.

A service technician who comes to a customer's house to repair an appliance may offer to go online or call Sears to help the customer buy a new appliance if the customer decides a repair is too costly, said Tina Settecase, vice president and general merchandise manager for home appliances at Sears Holdings Corp.

The technician would bring along a booklet of Sears' best-selling appliances to show customers. If the customer chooses a new appliance, the technician would either use the customer's computer or call a dedicated phone line to make the sale. The test of the process will start in mid- to late June in a few markets.

"We are testing a number of options," Settecase said. "We are in the customers' homes. Is there a way, when the customer determines he or she believes a product is beyond repair, that we can put her in touch with a Sears sales person at that moment?"

Sears also has featured a service technician at home appliance "health check" events to answer shoppers' questions about their appliances and how they work. The next one will take place on Aug. 25.

Sears is redefining its Kenmore brand to emphasize innovations. The retailer introduced 25 new Kenmore products at the Kitchen and Bath Industry Show in Las Vegas earlier this month. The products include a washer and dryer that use steam to remove stains and wrinkles.

Sears counts on its appliances, along with its lucrative extended warranties, for its lead over rivals.

In September, Sears will introduce a higher-end Kenmore Elite line of countertop appliances, including a coffeemaker that brews a pot of coffee in less than six minutes, and a toaster that toasts a slice of bread in 70 seconds versus the conventional three minutes.

Chief exec sees turnaround in 3 years
By Sandra Guy - Chicago Sun-Times
May 17, 2007

Billionaire whiz-kid Edward S. Lampert, who engineered Kmart's $12.3 billion takeover of Sears, Roebuck and Co. two years ago, might have met his Waterloo in the quagmire that is mid-America retailing.

But the chairman of Sears Holdings Corp. isn't giving up.

Lampert said he believes Sears will require another three years to turn around.

"I've been here, it seems like forever," Lampert, 44, said as he fought a cough and sniffles at Sears' annual shareholders' meeting and during a question-and-answer period with reporters earlier this month at Hoffman Estates headquarters.

When asked whether he will stay through a turnaround, he declared, "As long as I think I can be of value and be the right person in this position, I'll continue to do so."

Investors initially believed Lampert would sell off the company's most valuable real estate or make a big acquisition. He has done neither, and appears in no hurry to do so.

Lampert, head of $15 billion hedge fund ESL Investments, based in Greenwich, Conn., continues to invest in undervalued stocks of businesses with strong brands. ESL disclosed this week that affiliate RBS Partners LP has built up a $782.6 million stake in Citigroup, leading to speculation that Lampert will push for changes at the largest U.S. bank, which owns Sears' credit-card business.

So how does Lampert turn around a company whose latest sales reports show continued declines?

"This is one of the hardest things I've ever done," he said as he offered a glimpse of his goals and philosophies. Lampert earned $1.3 billion last year, the third-highest pay among his peers, according to a survey by Alpha magazine.

Lampert, who owns 42.5 percent of Sears' stock said Sears must prove to disaffected shoppers, many of whom have lost faith in getting what they want and enjoying the trip to a Sears store, that they will get a consistent, positive experience.

"We need to close the gap in customers' minds about what we stand for as a company," Lampert said.

Blurring the "soft" and "hard" lines by luring appliance shoppers into the clothing aisles is another key goal, as well as training and retaining employees so Sears shoppers understand the breadth of the retailer's products.

Lampert is eager to retain sales people and other staffers who show evidence of being up-and-coming corporate leaders. Sears must prove itself a great place to work, and give young people opportunities to advance, he said.

"It's important to have a pipeline of young people," he said. "We want to grow our leaders of the future from the time they are in their 20s and 30s. We want to get to a point of having people who are really, really good and really really desired" in the marketplace, Lampert said.

WHAT EDWARD S. LAMPERT IS THINKING

At the annual meeting earlier this month the 44-year-old chairman offered these insights into his strategy:

2006

$1.49 billion: Sears Holdings fiscal net income

$53 billion: Sears Holdings fiscal revenue

2007

Down 4.7%: Kmart first-qtr. sales forecast

Down 2.4%: Sears first-qtr. sales forecast

Federated Swings to 1Q Net, But Lowers Sales View
By James Covert Dow Jones Newswires
May 16, 2007

NEW YORK (Dow Jones)--Federated Department Stores Inc. (FD) swung to a fiscal first-quarter profit from a year-ago loss, but the results missed its forecast and the company lowered its outlook for the current quarter.

The Cincinnati-based parent of Macy's and Bloomingdale's maintained its full-year earnings view, but said it will rely on strength in the second half, when it plans to introduce new private brands including home-related goods from Martha Stewart. The company gave a cautious near-term outlook, predicting lackluster results for May on the heels of a weaker-than-expected April, and said it plans to step up TV advertising later this month to boost
sagging customer traffic.

"While April has given us some concern about the consumer and the economic environment, we remain optimistic that our trends will improve particularly in the back half of the year as we reach the first anniversary of the Macy's brand conversion," Chairman and Chief Executive Terry J. Lundgren said in a written statement Wednesday.

Federated has been struggling with disappointing results at more than 400 stores it acquired from former rival May Department Stores Co., which it converted to Macy's in September. Shoppers at some of those stores, which had operated under regional names like Filene's and Foley's, have balked as Federated has eliminated coupons and introduced pricier fashions. Many shoppers in Chicago have protested the conversion of the Marshall Field's chain to Macy's, viewing it as a step down.

Shoppers at former May stores have been "responding positively" to Macy's private brands and exclusive fashions, Chief Financial Officer Karen Hoguet said on a Wednesday conference call. "However, we do need to communicate more effectively," she said. In the meantime, the company continues to gather data on former May customers, and is stepping up TV advertising.

Federated, which plans to change its corporate name to Macy's Inc. at a shareholder meeting on Friday, had net income of $36 million, or 8 cents a share, for the quarter ended May 5, compared with a year-earlier net loss of $52 million, or 9 cents a share. Year-earlier results were weighed down by charges related to the company's $11.5 billion acquisition of May in 2005.

The latest quarter's results include a 3-cents-a-share loss from discontinued operations and 5 cents a share in merger-integration expenses.

The mean estimate of analysts surveyed by Thomson Financial was for earnings of 19 cents a share, while the company had projected a profit of 15 cents to 20 cents a share.

Sales dipped 0.1% to $5.92 billion, missing the company's forecast of $6 billion to $6.1 billion. While demand was strong for dresses, handbags and shoes, weakness persisted in home-related goods. Same-store sales, or sales at stores open at least a year, increased 0.6%.

Federated said it now expects second-quarter earnings excluding merger costs of 35 cents to 45 cents a share on revenue of $6 billion to $6.1 billion. The company's prior forecast was for earnings of 40 cents to 45 cents a share on revenue of $6.1 billion to $6.2 billion.

However, the company reiterated its fiscal-year earnings forecast of $2.45 to $2.60 a share. That includes backing its forecast for second-half sales of $15 billion to $15.3 billion, and same-store sales during that period increasing 2% to 3.5%.

"We feel we will be able to perform well even if the economy ends up softer than what we originally expected," Hoguet said.

Last week, Federated reported a 2.2% decline in April same-store sales, or sales at stores open at least a year, where analysts had expected an increase. The company warned that same-store sales in May could decline as much as 2%. Federated now expects second-quarter same-store sales to be flat or up as much as 2%, versus its earlier forecast for an increase of 1.5% to 2.5%.

Federated operates a national chain of some 800 stores under the Macy's name. Some analysts say competitors J.C. Penney Co. (JCP) and Kohl's Corp. (KSS) are stealing more price-conscious customers away from Macy's.

(Kevin Kingsbury and Judy Lam contributed to this article.)

Allstate rolls out growth plans
New CEO seeking 'emerging businesses'
By Becky Yerak - staff reporter - Chicago Tribune
May 16, 2007

If it has wheels on it, Thomas Wilson wants to insure it.

In his first annual shareholder meeting since replacing Edward Liddy as Allstate Corp.'s chief executive in January, Wilson laid out a growth strategy Tuesday that included everything from boosting Internet sales to revving up motorcycle coverage to becoming a bigger player north of the border.

The Northbrook-based company faces the challenge of increasing revenue in its financial business and its auto insurance line, while at the same time consciously moving over the shorter term to shrink its profit-eating homeowner's exposure in markets prone to natural disasters.

Last week, for example, Allstate, which already has reduced exposure in such states as Florida and New York, announced it would stop selling new homeowner's policies in California to cut potential losses from earthquakes and wildfires.

"At the beginning of this year, we reorganized what we call 'emerging businesses,' which are motor clubs, boats, motorcycles, commercial business," Wilson told reporters after the meeting.

Allstate's market share in those business lines is smaller than its market share in automotive insurance, so the company said there's plenty of room to grow.

"We like to say, 'If it has wheels, we ought to be able to write it,' so we ought to be able to have as large a share in motorcycles as we do cars," Wilson said.

Such emerging businesses should start gaining traction at Allstate in 2008 or 2009, he said.

"We'll continue to find ways to create new products for specific groups of people," Wilson said.

Allstate continues to be committed to expanding its financial arm, believing that if a consumer buys home and auto insurance as well as life insurance and an annuity from Allstate, they're customers for the long haul.

Wilson noted that "Your Choice Auto," which offers options for motorists depending on whether they care about cheap or comprehensive coverage, has been a hit, and plans are in the works for Allstate's financial business to create a similar retirement product. Allstate already offers a similar homeowner's line in certain markets.

"I don't know what that is yet," Wilson said of the Your Choice retirement product. "We've got people working on it, but it seems there is some opportunity there to create something that's easy for consumers to understand and they're not forced to deal with the complexity of 'How much money do I put in life insurance? How much in annuities?' "

Allstate Financial is expected to launch some new products at the beginning of 2008.

Wilson said Allstate doesn't plan to exit the homeowner's business despite pulling back in some markets, fearful that warmer oceans will eventually result in stronger hurricanes.

To be sure, Allstate's homeowner's business will shrink over the next couple of years, but "once it gets the right geographic mix, things like Your Choice Homeowners will help us grow," Wilson said.

The auto business should start to grow "a little faster this year and next year" because of a new product, called Allstate Blue, for higher-risk drivers.

Wilson also said that Allstate is redoing its online presence.

"We have a good information Web site, but it's not as quick to close the sale," he said.

Asked whether he was eyeing any potential acquisitions, Wilson said "not really," but noted that he'd like to step up growth of its unit in Canada, where Allstate's market share is small.

Lampert buys into Citigroup, Motorola
Stake in bank worth about $800 million
By Sandra Jones - staff reporter - Chicago Tribune
May 16, 2007

Edward Lampert, the billionaire hedge fund manager known for making large bets on a few companies, including Hoffman Estates-based Sears Holdings Corp., has turned his attention to Citigroup Inc., the nation's largest bank.

ESL Investments Inc., his Connecticut-based hedge fund, acquired 15.2 million shares worth $783 million as of March 31, according to a filing Tuesday with the Securities and Exchange Commission.

The hedge fund also held 925,000 shares of Motorola Inc. worth $16.3 million and 881,000 shares of Clear Channel Communications Inc. worth $30.1 million, both as of March 31.

ESL has been building its stake in Citigroup for at least a year but delayed disclosing the position until Tuesday.

Lampert, a closely watched investor, received special permission from the SEC to postpone disclosing the details of some of his holdings. That "confidential treatment" expired May 15.

As with most hedge funds, ESL's investments are difficult to track. The SEC filings list some of Lampert's largest stock holdings, but they do not reveal if any of those stock investments are hedged with other financial instruments.

"It's intentionally hard to read the real economic exposures from that type of filing," said Jerome A. Castellini, president of CastleArk Management LLC Investment Counsel, a Chicago-based investment firm. "You can't make a distinct conclusion. But he's been known for sniffing out these restructurings, and Citigroup clearly is in the middle of theirs."

In April Citigroup announced a massive restructuring that includes eliminating 17,000 jobs, consolidating some corporate operations and shifting 9,500 posts to lower-cost locations.

At Motorola Inc., billionaire financier Carl Icahn has been agitating for a restructuring. He lost his bid for a board seat at the Schaumburg-based cell phone-maker earlier this month. San Antonio-based media giant Clear Channel is in the midst of a private-equity buyout.

Investors have been expecting Lampert to make an acquisition for the past two years. At one point or another, Home Depot Inc., Gap Inc., Anheuser-Busch Cos. and Safeway Inc. have been the subject of takeover speculation. None of those companies' shares show up in the SEC documents filed Tuesday.

Lampert, 44, ranked as the nation's third-highest-paid hedge-fund manager, pocketing $1.3 billion last year, according to Alpha Magazine's annual ranking released in April. His fund holds a 43 percent stake in Sears Holdings Corp., the Hoffman Estates-based company he created by combining Kmart and Sears and where he serves as chairman.

Lampert also holds large stakes in AutoZone Inc. and AutoNation Inc.

ESL spokesman Steve Lipin said Lampert doesn't comment on his investments.

Lampert sees the light
By Lewis Lazare - Columnist - Chicago Sun-Times
May 15, 2007

When hedge fund guru Eddie Lampert joined Sears and Kmart at the hip, and created a mega retailing behemoth known as Sears Holdings Corp., Kmart was viewed by many as the poorer stepsister. And with all the attention focused for the past couple of years on what Lampert would do to turn around Sears, Kmart has sort of muddled along out of the spotlight.

Well, fresh on the heels of the debut last week of what was billed as a "new chapter" in marketing at Sears comes a similar effort at Kmart, though the campaign debuts, perhaps tellingly, with no defining tag line. If nothing else, Lampert seems to want to send out the message he hasn't forgotten the role marketing must play in determining the fates of the two retailing chains now under his control.

The new Kmart campaign from Grey Worldwide/New York (which turns over the account and the new creative concept to Draft FCB/Chicago later this summer) brings back an image hugely familiar to longtime Kmart shoppers: The blue light. But beware jumping to conclusions. A Kmart spokeswoman said there is no plan to bring back the Kmart "blue light special," as it was known as long ago as 1965.

Now, however, there will be "Bluelight Finds" to draw attention to limited-time-only merchandise and "Best of Blue" for goods unique to Kmart.

The new ad campaign centerpiece is a walking, talking icon, Mr. Bluelight, who is positioned as an expert on all things Kmart. In the debut commercial, Mr. Bluelight is the host of a standard-issue runway fashion show featuring Kmart's latest summer looks for women. Some effort has been made to give the character a few mildly funny lines -- but nothing too edgy. And certainly not memorable.

As was the case with Sears and its "book" in the ad campaign unveiled last week, K- mart looks to be reaching into its past to find a hook on which to hang its forward-thinking advertising campaign. But it's safe to say Mr. Bluelight has a long way to go to endear himself to the shopping public.

Whether Mr. Bluelight manages to make a lasting mark -- to say nothing of the advertising itself -- will largely depend on how well his character is established over time and on how effectively he is incorporated in future commercials that will play up the discount chain's range of merchandise.

Lew's view: C+

Allstate CEO says company aims to grow in financial planning
By Lavonne Kuykendall - Market Watch
May 15, 2007

CHICAGO (MarketWatch) -- Days after Allstate Corp. (ALLThe Allstate Corporation ALL ) said it will stop writing new homeowners insurance policies in California, President and Chief Executive Thomas Wilson said his vision for the company will see it continue to "shrink" in catastrophe-exposed areas.

Eventually, new products the company is developing will help it make up the growth and attract new customers for homeowners and other insurance products, he told reporters following Allstate's annual shareholders meeting.

The goal is to "reinvent protection and retirement" as a broader concept for new company products, he said, to counter an insurance industry that "sells products instead of solutions."

Allstate, the second largest insurer behind State Farm, launched its `Your Choice' auto insurance widely last year, and will use the same concept for its other products. Your Choice products let customers choose various benefits for their policies. The company has recently begun offering a homeowners version in a few areas.

The company will expand further on the Your Choice theme, enlarging it to retirement planning as well, as the company works to broaden its image beyond insurance, said Wilson, who took over as CEO Jan. 1, replacing Edward Liddy, who remains Allstate's chairman.

While it pulls back from the coasts, Allstate will seek to expand in Canada and possibly in Mexico, where it currently does little business. Allstate is also making a big push into what Wilson called emerging business, such as insuring boats, motor homes and motorcycles.

Wilson said the company's market share for insuring those vehicles was far smaller than its auto insurance market share. "If it has wheels, we ought to insure it," Wilson said. Allstate Blue, or auto insurance for the supbrime market, will also expand, Wilson said.
Rival auto insurer Progressive Corp. (PGRThe Progressive Corporation PGR ) , the third largest auto insurer by market share, has seen its special lines policies, which include such vehicles, grow rapidly over the last several quarters.

Allstate carries a large market share in several regions that are catastrophe-prone, and the market does not allow it to charge rates sufficient to cover potential losses, Wilson said.

He said that in states where it will no longer offer homeowners, such as California, the company will work to win customers for its other products.

From a public relations standpoint, its limited offerings in those markets "is certainly not an advantage" Wilson said. "But it is an issue we can work around."  Shares of Allstate traded down 18 cents recently to $62.68.

Marie Does, Long-Service Sears Executive Secretary,
Dies at 92

Marie M. Does, executive secretary to former Sears chairman and CEO Gordon Metcalf, died April 28 in Dayton, Ohio. She was 92.

Marie retired after 45 years service with Sears. She joined Sears in the personnel department at the Lawrence Ave. store in Chicago, became personnel manager at Western Ave. and Englewood, then went to State St.

She was executive secretary for Mr. Metcalf when he was Vice President of the Midwestern Territory and from 1967 to 1972 when he served as Chairman and Chief Executive of Sears. She then moved with him to the Savings and Profit Sharing Plan of Sears Employees, and after retiring she moved to Sun City, Arizona where she enjoyed many happy years.

She moved to the home of a niece, Diane D. Ege (Wolfgang) of Dayton, Ohio, a few years ago.

A memorial service was held Monday, May 7, at St. Joseph Cemetery Chapel in River Grove, IL.

She is survived by nieces, Diane Ege (Wolfgang) Patricia M. Dieden of Chicago, IL; two great-nieces, Elizabeth and Lynn Ege; one great-nephew, Mark Ege; and a loving friend, Marguerite Ryan of Chicago, IL.

In lieu of flowers, contributions may be made to Hospice of Dayton, 324 Wilmington Ave., Dayton, OH 45420 or the Special Olympics of Greater Dayton, 4130 Linden Ave. Dayton, OH 45432.

Tobias Funeral Home - Far Hills Chapel, Dayton, OH in care of arrangements. Condolences may be sent to tobiasfuneralhome.com

Sears ads just don't get 'it'
By Lewis Lazare - Chicago Sun-Times Columnist
May 9, 2007

For us the tag line almost always says it all. Of course, some so-called experts in the advertising industry will argue the familiar advertising tag is but another outdated fixture in a rapidly evolving ad industry where "hip" is always happening in some cutesy online video or in television product placements, and all manner of unexpected guerrilla marketing tactics.

It's not hard to understand why so many creatives are eager to dispense with tags.

Doing away with tag lines conveniently relieves companies and their agencies of the need to come up with a concise, telling indicator of what brand positioning is. Sears, Roebuck and Co., the retailing behemoth that hedge fund guru Eddie Lampert insists he really wants to turn around, had been without a tag line in its advertising for a while -- as Lampert and his marketing execs huddled and tried to decide on a direction for the company.

Next Sunday the retailer launches a new brand campaign from Young & Rubicam/Chicago that is all about Sears' new positioning -- what is being heralded as a "new chapter" for the company.

It's obvious to us Lampert and company still haven't a clue where Sears is headed. Why do we say this? Because the campaign's new tag line -- "Sears: Where It Begins" -- is so hopelessly weak and non-specific. It's a collection of words that say absolutely nothing, primarily because the "it" meaninglessly hangs there, leaving us feeling frustrated as we wonder what "it" all means.

So we weren't at all surprised to find the television commercials to which that flimsy tag line is attached are also disappointing and hard to fathom. The launch 60-second commercial, "Chapters," tries to convey the feeling of thumbing through a Sears catalog while simultaneously suggesting through the magic of digital manipulation how items from the catalog can transform a home.

Sadly, the overall impression "Chapters" makes is about as thrilling and memorable as randomly flipping through a catalog. Nothing stands out. Nothing sticks in the mind. Nothing about the spot makes you care one whit for Sears or what the company appears to have on offer in its book.

The debut spot has been dressed up just a bit with some bland modern music that ambles along just like the spot itself. Like so much modern music, the song doesn't command attention. It just creates background noise.

So to bottom line it, Lampert and his crew look to be trying to go forward by harkening back to the days when Sears was as much about its catalog as it was about brick-and-mortar stores. Odd, isn't it, how the forward-thinking hipsters who populate the ad industry nowadays seem to be spending so much of their time looking to the past?

Sears Uses Image Of Its Historic Catalog In New Ad Campaign
Dow Jones Newswires
May 7, 2007

NEW YORK (AP)--Sears, Roebuck and Co. is hoping a new marketing approach that focuses on making an emotional connection with shoppers will help turn around its beleaguered business.

The campaign, whose details were announced Monday, has the tag line: "Sears.
Where it begins" and evokes the company's heritage by using the visual image of a catalog in its television ads, circulars, and in-store signage and on the Sears.com Web site.

The TV ad campaign was launched Sunday, while the Web site will bear the new message next Sunday. The company's circulars won't be revamped until the winter holiday season, though the circular's front page now has the feel of a shopping book and is less cluttered, according to Gail Lavielle, a company spokeswoman.

The company, a unit of Sears Holdings Corp. (SHLD), decided to use the image of a catalog to recall Sears' heritage while creating a more story-like presentation, according to Maureen McGuire, chief marketing officer of Sears Holdings Corp., which operates Sears, Roebuck and Co. as a wholly owned subsidiary.

McGuire told reporters that retailers have to not "only think like merchants but also think like customers." By focusing less on items and more on telling stories, surrounding such themes as laundry time and family night, Sears is hoping to get customers excited about buying that dryer or flat-screen TV at its stores.

Sears is joining a number of retailers like J.C. Penney Co. (JCP) that are focusing less on pushing items and prices in ad campaigns and more on touting experiences. But the stakes are higher for Sears, as it faces mounting pressure from investors to turn around its declining sales amid fierce competition.

Last week, Sears Holdings announced that in its first quarter ended May 5, same-store sales were down at both Kmart and Sears stores due to low volumes and impacts from the slow U.S. housing market. Same-store sales are those at stores opened at least a year and are considered the best gauge of a consumer

Sears domestic same-store sales fell 2.4%, primarily due to low home appliances sales. The company attributes a loss in this category to a slower U.S. housing market and increased competition.

Kmart same-store sales decreased by 4.7%, due to low transaction volumes in a majority of stores, according to the company.

Meanwhile the Kmart brand is getting a new mascot: a talking light bulb called "Mr. Blue Light."

McGuire acknowledged that it is going to take a lot more than an ad campaign to bring back Sears; it requires improved merchandising assortment and customer experiences. But she said that Sears' advantage is that it already has had a long-lasting relationship with its customers. Sears just has to reignite it, McGuire said.

Update on the Retiree Life Insurance Mailing
April 20, 2007

Sears has informed us that there was a delay in the mailing of the personalized life insurance statements because the mailing was expanded to include new booklets. The mailing was released at the end of March.

If you are covered under the retiree life insurance and you have not yet received the mailing, please contact the MetLife Retiree Service Center at 1-800-762-7327. MetLife representatives are also available to take down any address changes and answer any additional questions you may have.

Sears shares fall as meeting lacked details
By Mike Comerford - Business Writer - Daily Herald - Suburban Chicago
May 5, 2007

Since orchestrating Kmart¹s takeover of Sears two years ago, billionaire investor and Sears Holdings Corp. Chairman Edward Lampert keeps specifics about his turnaround formula as well-guarded as the secret recipe for Coke.

The 44-year-old Lampert spent two hours Friday answering shareholder and analyst questions at Sears¹ annual shareholder¹s meeting on its sprawling Hoffman Estates headquarters campus.

However, detailed answers to traditional questions on profitability, same-store sales, fall brand strategies and $2 billion in cash reserves each remained elusive.

"What will shake out, especially this year, really is going to depend on what the opportunity set is," said Lampert, not ruling out acquisitions.

Sears was rumored last year to be a potential bidder for everything from Home Depot Inc. to Anheuser-Busch Cos., but no large investment surfaced.

Sears banners fly in the wind at the downtown Chicago store Friday as shareholders gathered for the retailer's annual meeting in Hoffman Estates headquarters. (Associated Press Photo)

Asked if he anticipates layoffs at the Sears headquarters, Lampert emphasized the need for top, young people at Sears in order to grow in the new economy.

"We need a pipeline of new people coming in all the time", Lampert said, adding Sears carries a heavier pension load than competitors and a seniority-based payroll.

Wall Street may have been expecting more specifics.

The company forecast first-quarter earnings below analysts¹ estimates and said Thursday that sales at older stores declined at both its Kmart and Sears stores.

Lampert said an unusually cold winter and a slowdown in the housing market have been tough even on Sears retail competitors.

Nonetheless, Sears shares on Friday fell $8.56, or 4.6 percent, to $179.76, the most in more than five months.

The company did, however, disclose plans for its first big marketing campaign of Lampert¹s tenure, to be rolled out Sunday.

The Kmart brand is getting a new mascot - a talking light bulb called "Mr. Blue Light". The Sears brand will be promoted in commercials and ads under the tag line: "Sears: Where it begins."

Lampert joined Sears with Kmart in March 2005 in a $12.3 billion combination that created a company with 3,800 stores in the U.S. and Canada.

Sears¹ profitability and stock price have since risen but store sales have not met its own targets, Sears officials said.

Some analysts said they are waiting for a clearer picture of the firm or for same-store sales to rise.

"Sears has been donating market share, and J.C. Penney and Kohl¹s have been the beneficiaries", said Arun Daniel, a New York-based analyst with ING Investments LLC, which manages $40 billion in assets including Sears shares.

Sears to light up ad plan
By Sandra Guy - Chicago Sun-Times
May 5, 2007

Sears is harkening back to its roots as a catalog retailer by using the metaphor of a "Sears Book" in a new ad campaign and starting specialty catalogs.

And Kmart, which took over Sears Roebuck two years ago, is introducing "Mr. Blue Light," a talking light bulb, in its own marketing campaign, referencing the old Kmart sales gimmick, the "Blue Light Special."

Sears also intends to use its home-services unit to deliver more than washers and dryers, including possibly furniture and other goods.

The strategies, unveiled at Sears Holdings Corp.'s shareholders' meeting Friday, are among several initiatives that company executives hope will win back shoppers who've defected to J.C. Penney, Kohl's, Wal-Mart and other rivals. Sales at Sears and Kmart stores declined in the first quarter of fiscal 2007 from a year earlier, Sears announced late Thursday. That news sent shares down 4.6 percent, to $179.75, Friday.

Sears Chairman Edward S. Lampert, a 44-year-old billionaire hedge-fund manager, said turning around Sears may take another three years. The process has been one of the most difficult things he has done, Lampert said.

"I've been here, it seems like forever," said Lampert, fighting a cough and sniffles, when asked whether he will stay through a turnaround.

"As long as I think I can be of value and be the right person in this position, I'll continue to do so," Lampert said.

He said he has devoted more than half his time to Sears Holdings Corp., following his engineering of Kmart's $12.3 billion Sears takeover in March 2005. Lampert is exiting as a director of Auto Nation and AutoZone to devote more time to Sears and his hedge fund.

He and Aylwin Lewis, CEO of Sears Holdings, revealed other initiatives:

Lampert said he's interested in making acquisitions, whether it's buying a whole company or a piece of one.

Sears intends to use well-known fashion names to boost its apparel brands.

Shops of Lands' End will expand to 200 Sears stores by year's end, from 100 today.

Craftsman tools will be in Kmart stores nationwide.

Kmart stores doing poorly are likely future sites for Sears Grand stores.

Sears chief no longer hedges on strategy
Lampert details plan to build brands;
new ad campaigns launch
By Sandra Jones - staff reporter - Chicago Tribune
May 5, 2007

Since billionaire investor Edward Lampert combined Sears and Kmart two years ago, the biggest question on investors' minds has been the most basic: Is he running a retailer or a hedge fund?

On Friday, at the annual meeting of Hoffman Estates-based Sears Holdings Corp., Lampert addressed the question. He said he's serious about being a retailer and for the first time outlined a marketing vision for his two store brands, a basic step forward for any chain trying to remake itself.

"A company without positioning is like a ship without a rudder," Lampert said. "We have aspirations for both the Kmart and Sears brands to see them improve."

Lampert is a former Goldman Sachs star who made his billions in financial instruments, not housewares. And since his arrival at Sears nearly all of investors' focus has been on what he would do with Sears' cash and real estate assets. A main reason for the company's high stock price has been Lampert's investment acumen rather than his merchandising skill.

Lampert has insisted from the beginning that he wants to make Sears a viable retailer and not strip its assets for cash. But until Friday he provided no specific vision for the company.

Sears is aiming to be a one-stop shop for the home, while Kmart is turning its discount stores into a "marketplace of discoveries," Lampert's chief marketing officer, Maureen McGuire, said as Lampert looked on.

Sears unveiled a new TV advertising campaign called "Sears. Where it Begins." that taps into the store's legendary Big Book catalog heritage. In it, actors walk among the pages of Sears catalogs, looking at larger-than-life images of everything from diamond rings to dishwashers, set to sunny, upbeat music.

Kmart's new ad campaign likewise delves into its past. The discount chain has resurrected its "blue light special," turning the famous tagline into a talking blue light bulb called "Mr. Blue Light." The bulb advises shoppers to "turn on" to something new.

The campaigns, which debut for Mother's Day, come after Lampert has spent two years cutting advertising expenses. Before his arrival, Sears ranked among the biggest advertising spenders in the nation.

"We spent the last couple of years in the weeds," he said, apparently addressing questions of why he hasn't moved more quickly. "You don't fix companies from the treetops. You have to get in the weeds, identify their strengths and weaknesses and aggressively recruit people to improve the company."

He acknowledged many times that Sears and Kmart have a lot of catching up to do.

"None of our stores are up to our aspirations," Lampert said. "We have very high aspirations."

The meeting turned into a forum for investors to pepper Lampert with questions, a once-a-year opportunity. Lampert shut down the investor relations department, preferring instead to communicate through his annual shareholder letter and annual meeting.

Lampert dodged questions about financial maneuvers and what he has planned for Sears' $3.3 billion in cash, repeatedly turning back to retail.

At one point in the meeting, Lampert said that while he doesn't have much experience in the business, he knows someone who does, and he pointed to his mother, a former sales clerk at Saks Fifth Avenue, seated in the audience.

Other news to come out of the meeting and the press conference that followed:

-Sears plans to double the number of Lands' End stores within Sears this year to 200. Lands' End made the biggest profit in its history in 2006, the company said.

-Sears Grand, formerly Sears Essentials, is still being tweaked. The free-standing stores, many of them former Kmarts, carry both Sears and Kmart merchandise and are designed to compete with Target and Wal-Mart. Lampert cut back on the rollout of Sears Grand, once considered Sears' primary growth vehicle, but he hasn't given up on the format.

-Sears is considering jumping on the designer brand bandwagon. Kohl's Corp., J.C. Penney Co., Macy's and others have signed deals with designers in the past year to make clothing and home goods exclusively for them.

-An acquisition is always a possibility. "We're looking for investment opportunities," Lampert said at the press conference. "We're always in that mode. It's not easy to find the right thing and get a deal done."

Sears' Lampert ready to put money to work
By Jennifer Waters, MarketWatch
May 4, 2007

HOFFMAN ESTATES, Ill. (MarketWatch) -- Sears Holdings Corp. Chairman Edward Lampert told shareholders Friday that after spending a lot of years "in the weeds," the parent of Sears Roebuck and Kmart stores is now in a cash-flush position to put more meaningful investments in stores and operations, as well as to target acquisitions.

With $3.6 billion in cash flow, a $2 billion cash trove and a huge capacity to borrow, Lampert said that he is comfortable taking risks and deploying money to investments that will pay off in a meaningful way.

In fact, he called himself a "professional risk taker." However, he gave no indication that there were any acquisitions in the offing.

"The opportunities for us to allocate capital are very significant, and we have a lot of choices," he added. "But we don't go into this with a predetermined mind-set."

Last year, Lampert's name popped up as a potential takeover suitor for Home Depot Inc. (HDHome Depot, Inc GPS ) , as well as other businesses, as Wall Street tried to guess what he would do with so much money.

"We are always looking for investment opportunities," Lampert commented. "We're always in that mode, but it's not always easy to find the right thing and actually execute and get that deal done."

The executive, who fielded shareholder questions for more than three hours, said that the company has identified and prioritized a number of initiatives, ranging from marketing and technology to maintaining parking lots, but is willing to shift gears if economics or better deals come along.

Like its rivals, Sears Holdings has been polling customers and consumer surveys to determine who its customers are, what they're looking for and how Sears and Kmart stores can differentiate their store experience.

Kmart stores will hark back to their heritage, bringing back the venerable blue-light icon with a Mr. Blue Light character in advertising and in-store promotions.

More Kmart stores also will be carrying the Craftsman tools by the end of the year, and the retailer will continue to expand its store-within-a-store program.

Branding at Sears outlets will be farther reaching, as the retailer attempts to get more customers to cross the aisles. Lampert said that he wants to be sure that customers who buy Kenmore appliances also look at Lands' End clothing and use Sears Auto shops. Services such as the company's in-home installation and repair or home-cleaning businesses will take on a greater role in the company's growth strategy.

In a commercial shown to the more than 100 shareholders at the meeting, Sears stores were depicted as a one-stop shop for every want and need of a growing family. Every item shown, ranging from lawn mowers and wide-screen TVs to baby clothes, was available at a Sears store.

"That commercial was brilliant," said Deutsche Bank analyst Bill Dreher after the meeting. "It was a contemporary and compelling product overview focusing on the wide variety of products at Sears for all the stages of life."

Lampert wants to be sure that customers who buy Kenmore appliances also look at Lands' End clothing and use Sears Auto shops.

When asked about a stock split, Lampert said only that the board "can and will consider [it] over different periods of time."

"We are trying to create an environment where we have a long-term shareholder base and a base of shareholders who are rewarded based upon their views of the company," he added. Lampert also noted that Sears Holdings and its lofty $179.76 share price (as of Friday's close) has company with other high-priced stocks such as Berkshire Hathaway Inc., Google Inc. and the Washington Post Co.

Jennifer Waters is a reporter for MarketWatch based in Chicago.

Sears unveils brand strategy; Kmart's talking Mr. Blue Light
By Sandra Jones - staff reporter - Chicago Tribune Online
May 4, 2007

For years, shoppers and investors alike have been trying to figure out what Sears stands for.

At the retailer's annual meeting today, Sears answered the longstanding question by unveiling its first brand positioning strategy since billionaire investor Edward Lampert took over Sears two years ago.

Sears is aiming to be a one-stop shop for the home, while Kmart is turning its discount stores into a "marketplace of discoveries."

Sears also unveiled a new TV advertising campaign-called "Sears. Where it Begins." that taps into the store's legendary Big Book catalog heritage.

In one spot, a father and daughter walk among the pages of the catalog, looking at larger than life images of jewelry and other gifts for mom.. In another, a family walks among the pages of an appliance catalog.

Kmart likewise delves into its past, tapping its famous "blue light special" to come up with a talking light bulb called "Mr. Blue Light" that tells TV viewers to "turn on" to something new.

The ad campaign, which debuts on May 13, comes after Lampert has spent two years cutting advertising expenses at Sears, a company that before his arrival was among the biggest ad spenders in the nation.

"A company without positioning is like a ship without a rudder," said Lampert at the annual meeting in Hoffman Estates. "We have aspirations for both the Kmart and Sears brands to see them improve."

Lampert also disclosed at the meeting plans to double the number of Lands' End stores within Sears this year to 200.

Sears eyes possible acquisitions,
rolling out marketing campaign
By Dave Carpenter - AP Business Writer
May 4, 2007

Sears Holdings Corp. Chairman Edward Lampert told shareholders Friday the retail giant is eyeing numerous possibilities for acquisitions or investments after two years since the parent of Sears and Kmart stores was created.

But the billionaire investor and hedge-fund manager gave no indication at the company's annual meeting that the move Wall Street has been eagerly awaiting, based on Sears Holdings' large stash of cash and Lampert's stated interests, is imminent.

Responding to a shareholder question about his plans for the company's more than $2 billion in cash, Lampert said there are "a variety of options to deploy that."

"What will shake out, especially this year, really is going to depend on what the opportunity set is," he said.

Sears was rumored last year to be a potential bidder for everything from Home Depot to Anheuser-Busch, but no large investment has yet surfaced.

While Lampert wouldn't tip his hand on what companies could be targeted, the company disclosed plans for its first big marketing campaign in his tenure, to be rolled out beginning Sunday.

The Kmart brand is getting a new mascot - a talking light bulb called "Mr. Blue Light." The Sears brand will be promoted in commercials and ads under the tag line: "Sears: Where it begins."

CEO Aylwin Lewis said the company is intent on doing a better job in promoting its leading brands in appliances, tools, and lawn and garden.

The "brand positioning" or ad campaign "won't solve all the issues we face, but ... it'll go a long way toward telling the public what do we stand for, what do we want to be famous for," Lewis said. "We think it'll be a real turning point in continuing to build a great company."

Same-store sales of Kmart and Sears, widely seen as a key barometer of retail performance, declined from a year ago in the first quarter, according to data the company released Thursday. But Lampert said the measure is overrated.

"They don't matter as much as people have said," he said during two hours of answering shareholders' questions. "It's not the be-all and end-all."

Despite weak sales, Sears' financial performance has been improving impressively thanks to cost controls and improved margins. The company's net income jumped 74 percent to $1.49 billion last year and its revenue rose 8 percent to $53 billion.

The company said Thursday that its first-quarter income is expected to be $200 million to $235 million, up from $180 million a year earlier, as a result of one-time items including a gain from a legal settlement and a dividend from its stake in Sears Mexico.

The outlook was below analysts' expectations, however, and Sears shares fell $8.57, or 4.6 percent, to $179.75 on Friday. That's still up 24 percent from a year ago and up 37 percent since Sears Holdings' stock began trading on March 28, 2005.

The meeting represented the sole annual chance for investors and shareholders to directly question Lampert, who dispenses with the usual conference calls, meetings and media interviews. Numerous analysts were in the crowd of 200-plus at Sears headquarters to quiz him, receiving lengthy, philosophical and occasionally humorous answers from the man who has been compared to Warren Buffett for his investing savvy.

An expansive Lampert quoted Buffett ("It doesn't count to predict rain; what counts is building the ark."), invoked basketball and baseball metaphors to explain his thinking on separate business issues and held a long question-and-answer session with reporters afterward.

He also made clear that the company plans to plow more money into Sears and Kmart.

"Investing in the core retail business to the extent that it provides decent returns - I would say that's a priority," he told a shareholder.

He and Lewis said the company is:

- Installing Lands' End shops in 200 Sears stores by year's end, up from 100 in 2006.

- Continuing to invest in Sears Grand despite having pulled back on the ambitious original plans for it; "It's a very important part of our future,"
Lewis said.

- Expanding the Sears Craftsman brand's presence inside Kmart stores.

Same Same-Store Sales Story at Sears and Kmart
By George Anderson - Retailwire
May 4, 2007

While Edward Lampert and Sears Holdings haven't shown any real talent for retailing, investors in the company have been able to take solace in the strong performance of the company's stock. That may have made yesterday's share price drop of $9.76 (-5.2 percent) in after-hours trading a bit more jolting.

The drop took place after both Sears and Kmart once again reported declines in same-store sales, this time for the first 12 weeks of its fiscal 2007 first quarter. Sears was off 2.4 percent for stores open at least a year while Kmart was down 4.7 percent.

Sears said it was hurt by slower than expected home appliance sales. The company said the soft housing market and increased competition in the category played roles in its home appliance category performance.

While sales at the two chains continue what may be an inexorable path downward, Sears Holdings remains flush with cash ($3 billion in cash and cash equivalents) to either invest in the retail businesses (when pigs fly) or to purchase another entity. Companies including RadioShack, Home Depot, BJ's Wholesale Club, Safeway and Gap Inc. have all been rumored at one point or another as potential acquisition targets. Mr. Lampert has attempted to purchase the remaining shares of Sears Canada not already owned by Sears Holdings but that bid has been unsuccessful to date.

Discussion Questions:
What do you make of the latest numbers from Sears and Kmart?
What do you expect Sears Holdings to do with all its cash?

What are your thoughts on this subject?

How much longer can Sears Holdings maintain its high stock price with disappointing same-store sales numbers?

Much longer
A little longer
No longer
Not sure/No opinion

I worked at Sears in the late 90s and the writing was on the wall back then--declining hard good sales, brand equity that rarely resonated with a younger consumer and the end of the "softer side" success story. Sadly, in 10 years the company has failed to address the issues that got it there and continues to fade from consciousness for most Americans. When I was there Sears had strong equity and loyalty with their Hispanic market segment--great equity to build and leverage but unfortunately I don't think they knew how to take a customer centric approach to benefit from the good will. Lampert has never been interested in running a retail company. He wants to buy out Sears Canada so he can sell the Sears brand name outright in NA to someone who wants the asset. The rest of the value in the assets is in the real estate. What will he do with all that cash? I don't know but I suspect it will have very little, if anything, to do with retail.
Lisa Bradner, senior analyst, Forrester Research

Does it really matter? It's a holding company of real estate, and poor retailing. Bad market positioning, whether against Wal-Mart or the great Target-type operations. And then you will have Kroger with its Fred Meyer's mass merchandising operations rolling out.

Sears Holdings' operation is in a good position, to _ _ _ _ !

Stephan G. Kouzomis, Faculty and Staff Member, University of Louisville's College of Business

Since the merger with Sears, Kmart the retailer seemed to be indeed much more of a "holding" company than a full scale retailer, however, I have noticed some signs lately that Kmart might be interested in doing "retail" business again with suppliers. In my twenty-five plus years in the business I have learned to view Kmart as sort of an enigma that has gone through more ups and downs, and more cycles and trends, and more changes than the weather in Troy, MI., or, hmm, make that Hoffman Estates, IL. Kmart has been everything from a totally aggressive and dominant hostile market leader, to a homeless group of panhandlers looking for friends and supporters, to a cash rich holding company that seems disinterested in their retail business, to lots of other "things" at any given time throughout the years. Therefore, at my age for as long as I have been wrapped up in this industry, I view Kmart, uhh, make that Sears Holding Company, as just today's crossword puzzle.
David Biernbaum, Senior Marketing and Business Development Consultant,
David Biernbaum Associates

I think they have learned by now that there is no sense in reinvesting in the Sears and Kmart format. Sears/Kmart appear to be retail zombies at this point. The lights are on but no customers in the stores. It's beyond me how they can even stay open with such low sales per square foot results and many of their stores. It's anybody's guess how the cash will be invested. One thing I am glad for is that Sears/Kmart has stopped coming up with the next new retail concept every six months and then pulling the plug after six months. I did go into a Super Kmart recently and some college kid tried to sell me a washer. He looked pretty lonely.
David Livingston, Principal, DJL Research

The hiring of a Chief Customer Officer from Best Buy signals that Sears isn't ready to throw in the towel just yet. It still has enough market share (in some businesses), retail locations and brand equity to be able to regain its relevance. However, they should pull the plug on Kmart as soon as possible, convert whichever locations are worth saving as small-format Sears stores at a much faster pace (to keep up with J.C. Penney and Kohl's) and salvage the few brands at Kmart with credibility, such as Martha Stewart.

Otherwise, Sears Holdings is wasting energy on a "lost cause" (Kmart) instead of focusing its efforts on the parent brand. This is hardly the first time that a RetailWire commentator has made this suggestion; the surprise is how long it's taking Sears to execute a logical strategy.
Richard Seesel, Principal , Retailing In Focus LLC

The recent numbers further confirm what many have believed for a long time, i.e., that Ed Lampert is a very good business man but not a retailer. From his business perspective, he understands that the ROI from internal operations is no match for the profits that can be earned from outside his retail business. So, he's doing what makes sense: disinvesting in retailing and investing in businesses where the returns are better. This is a great example of the power of "creative destruction."
Bill Bishop, Chairman, Willard Bishop

There actually are some signs that Sears Holdings will put the cash into retailing. The company scaled back some multi-channel initiatives while consolidating its merger with Kmart, but the company is looking to make up for lost time, and one of the most significant efforts will be its buy-online-and-pickup-in-store program.

They are consolidating the Sears and Kmart web sites, looking to build a better overall e-commerce foundation, and seeking to create a better multi-channel synergy with its 3800 stores.

Sears has also opened a prototypte 3-dimensional showroom on the virtual reality web site Second Life. Called the Sears Virtual Home, the store allows consumers to experiment with options in virtual kitchens, bedrooms, living rooms, garages, etc. Sears will also be opening an e-commerce development center in its flagship store in Chicago, a testing and user experience laboratory that will conduct design, function and application testing.

Sears may have lost some relevance over time, but the company has set out in a new direction to regain some of the great market share it used to command. The store has a long retail history. They are now recognizing the new multi-channel competitive environment, taking a new approach, and reinvigorating a brand that so many people still trust.

As a wise stock investor has been known to say, buy on the dips. I'm putting Sears Holdings into my "recommended buy" category.
Roger Selbert, Editor & Publisher, Integrated Retailing

Reading this article and the comments caused me to reflect on how far Sears has actually fallen. When I was young, Sears was THE place to buy tools and appliances. They had quality, price and service along with a fabulous warranty. It was a no-brainer to buy washers and dryers and refrigerators from Sears. And Craftsman tools with a life time warranty and less expensive than companies like Snap-On made it easy to just go Sears for anything in this area. Wards and Penney's were OK but didn't measure up to Sears. We lived in a small town in Iowa and the Sears catalog was a big deal!
Especially the Christmas catalog was such a thrill when it came out every year. It was the "dream book" as a kid and you would make your list for Santa from it.

Fast forward...there is no Sears catalog. We don't even consider Sears for appliances anymore. Craftsman tools are still a choice but not an automatic one like they used to be. Home Depot, Lowe's and Menards are now the first place one thinks of when looking for tools. And I have to drive past 2 Lowe's, 2 Menards and 1 Home Depot to even get to Sears.

I feel sorry for all the many fine employees of Sears from the years of excellence to have to see this once fine company go through the ugly death spiral that I believe it is in. Unless a miracle happens, the only question seems to be when will the lights go out for the last time?
Art Williams, Retail Marketing Consultant/Analyst, Independent

Sears expects first quarter net income to rise from $180 million last year to between $200 million and $235 million this year. Comp sales decreases disappoint some investors. Other investors realize that Sears Holdings is measuring its success using a new paradigm: profits, not sales. Getting great comp sales increases by giving away loss leaders isn't the strategy most investors appreciate. Many RetailWire comments demean Edward Lampert's retailing skills. Is the goal of a retailer to increase comp sales? Or is the goal to increase profits? Sometimes these goals are in alignment. But sometimes, it isn't worthwhile to sacrifice one for the other?

Many people criticize executives who sacrifice long run gains for short term improvements. Ed Lampert of Sears and Terry Lundgren of Macy's are both taking extremely unpopular short-term positions with long-term goals in mind. Sears Holdings doesn't want profitless sales and Macy's doesn't want the unnecessary overhead of redundant brands. These executives aren't "customer driven." They're "investor driven." Is that bad retailing?
Mark Lilien, Consultant, Retail Technology Group

Don't bet against Eddie Lambert. He has proved us ALL WRONG! His brain chip is processing at 3x Pentium speed that the rest of our brains are!
Mark H. Goldstein, ceo, Loyalty Lab

Seems to be a lot of hmmmmmmm going around on this topic. And it's no wonder why. Sears has been flailing along losing brand equity by the bushels full. Although Mr. Lambert may be using his cash for non-retail related ventures, I have recently seen some interest in the company to actually try getting on the up-swing. As one of the old fogies who still thinks of Sears as a quality brand to some degree, I'll take the optimistic road and hope they will try to return to being competitive in the market with some fresh, new ideas. Oh, wait. Pass me another beer.
Michael L. Howatt, VP, Strategic Consulting and Analysis, Synovate

Oh ye of little faith. Does anyone remember J.C. Penney's rise from the
(alleged) ashes and transformation from middle American retail antiquity to teen destination and web power house?

As Target, Kohl's and even Wal-Mart push upward, Kmart is uniquely poised to become the one true blue (light) discounter. Kmart's apparel and home private labels, direct sourcing prowess, Manhattan fashion hub (others followed suit), etc. bode well for the future.

As for Sears, its brand equity may have faded a bit; however, it is far from "out of mind." Mr. Lampert has placed some talented individuals in key positions (Lisa Schultz in apparel comes to mind)...don't count 'em out.
Carol Spieckerman, President, newmarketbuilders

With its same-stores customer base declining, how long can Sears/Kmart remain vital retailers? Not forever. One thing we do know is that Eddie Lampert knows money, and how money works, particularly for his and his group's interests. How long would Mr. Lampert lament if there was no more Kenmore or if Martha Stewart's goodies added allure to some other retailers space? Is he a caring Craftsman in that regard?

Perhaps Eddie Lampert will tired of milking his style of retailing, do a reverse stock split until he has all the Sears Holdings stock, then sell the real estate, inventories, any remaining trash and pocket the cash for some other "dash." Whoever said, "Don't go into retaining. There's no big money in it!" We doubt if it was Mr. Eddie.
Gene Hoffman, President, Corporate Strategies International


All I can see right now is fence sitting and maybe a bit of hubris. I think we all know that Eddie's first and primary focus with Sears/Kmart is in the company's real estate value, but it seems he can't resist the challenge of turning around the company and the cache that would come with such a success. Yet as we all know the most important key to retail happiness is customer satisfaction, Eddie believes in customer service just as long as it does not affect profits. Finally start taking a serious look at Sears Canada especially when it comes to the catalogue business, you may be surprised to find this company expanding its operations into the U.S. There is a reason why Mr. Lampert has not been able to buy those outstanding shares.
Bernie Johnson, Owner, A Bit of Everything

I'm hard pressed to describe coherently the Lambert/Sears/Kmart strategy, let alone comment intelligently on it...and judging from the disparate comments here, that can be said of most people.

It is, however, amusing/disturbing to see the large number of >Stock price increasing because Lambert's a genius; - Lambert's a genius because the price is increasing; > circular arguments put forth.
'csundstrom'

Comp sales, or same store sales is a retailing specific metric which would be categorically derided in any other vertical. Consider the reaction of P&G if they were required to report on the gain or loss in revenue of existing brands...and that was the bellwether metric, not total revenue, total market share or any of the other performance measures looked at. If Coke was judged on the market share performance of existing brands...if The Jones Apparel Group was evaluated based on "sales from brands in operation a year ago"....

Comp sales have become the lazy analyst's "do everything" metric. Mr. Lampert is proving that this is not so. In almost any other industry, Sears Holdings would be considered a high performer in a turnaround situation. Many companies in many industries have intentionally allowed volume to decline while improving net profits.

Yes, for long term success, there is a point where the top line erosion needs to turn around and grow. So what if that top line growth is accomplished via acquisition? Since when has that been a "bad" thing to do? If synergies exist within the acquisition (as has obviously been the case with Sears-Kmart)then the overall bottom line will show improvement as well as top line growth.

As an industry, let's stop being so hidebound. Same store sales are not the sole arbiter of health in a retail business.
Don Delzell, Principal, Retail Advantage

Sears in online research push
By Jonathan Birchall in New York - Financial Times MSNBC.com
May 4, 2007

Sears Holdings, the third largest US retailer, has launched an ambitious online customer research effort, backed up by a $5,000 monthly sweepstake prize, in an effort to support the development of its $55bn business.

The move is part of what the company has called "a major ecommerce initiative" that has become one of the main areas for new investment by the company created by the 2005 merger of Sears and Kmart.

The retailer is inviting online customers to sign up for membership of the "My SHC Community", and to participate in forums with senior company executives about "what is working in the retail industry and what is in need of desperate repair".

Sears also requires members to intall an application on their computers that will provide detailed information on all internet usage, ranging from normal web browsing, to behaviour during secure e-commerce sessions, and "the pace and style of internet behaviour".

In return, it says, it will offer incentives including a monthly sweepstake with a top prize of $5,000, as well as offers and promotions, and "free planning and budgeting tools".

The Sears approach recalls similar online tactics developed by consumer goods companies such as Procter & Gamble and Kimberly Clark. But its open approach goes beyond previous efforts by US retailers, who have largely focused on building up small and less publicised online panels of regular users to assist with research into customer behaviour and attitudes.

A new related website acknowleges the extent to which members will offer the retailer an extremely intimate look at their online behaviour. Sears says it makes "commercially viable efforts" to filter out confidential information such as UserIDs, passwords, credit card numbers, and account numbers."

Edward Lampert, the investor who is Sears Holding's chief executive, has stressed the potential of the online presence of both Sears and Kmart, in contrast to his efforts to cut back on spending on the stores themselves over the past two years.

In December Sears announced it would open a new e-commerce development centre in downtown Chicago that is currently recruiting web developers and analysts.

Sears does not publish online sales figures, but the Sears and Kmart websites are believed to have sales of well over $2bn. However, traffic to both sites currently lags behind their main rivals, according to data from comScore Media Metrix, with 8.6 million unique visitors to Sears.com in March, against over 12 million for JC Penney and over 25 million for Wal-Mart and Target.

Sears saw its shares fall on Friday, after it issued a forecast for first quarter revenues that was below analysts' expectations, and published figures which showed a further drop in same-store sales at Kmart. The shares were down almost five per cent at $179.06 in late trading on Friday.

Sears' Chairman Is Cautious On Retail Outlook, Economy
By Gary McWilliams - Dow Jones Newswires
May 4, 2007

HOFFMAN ESTATES, Ill -- Sears Holdings Corp. Chairman Edward S. Lampert sounded a cautious note for U.S. retailers a day after the company warned of unexpected weakness during the first quarter.

Comments by the hedge-fund billionaire turned retailer added to the generally downbeat outlooks for the first quarter issued earlier by Target Corp. and Wal-Mart Stores Inc. Most retailers are expected to report first-quarter sales next week.

Sears and Kmart Thursday warned that results for its fiscal first-quarter ending tomorrow would fall below Wall Street expectations. It cited lower sales at Kmart and weaker demand for home appliances at U.S. Sears stores.

"I'm sort of cautious about the economy," said Mr. Lampert, citing weakness in home sales and rising consumer interest rates. He said as home buying drops, demand for home appliances, lawn mowers and remodeling can fall with it. Mr. Lampert wouldn't rule out future acquisitions for the retailer, but added: "We need to be very vigilant about controlling costs."

Mr. Lampert said the economic picture isn't altogether glum, citing pockets of strength around the nation. "I don't want to extrapolate beyond a short period of time," he added. He also said April sales generally were hurt by unseasonably cold weather and an earlier Easter holiday.

"The trajectory is still upward in this organization. [But] it's not going to be straight line," said Sears Chief Executive Officer Aylwin B. Lewis. "Not withstanding April [sales], we have a bright future." The company is launching a new Sears advertising campaign around the slogan "Where it begins." Kmart is also rolling out a branding campaign this month that plays off its "blue light special" history, using an animated spokesman.

Mr. Lampert, who acquired Kmart then merged it with Sears in March 2005, downplayed the company's use of equity derivatives to boost income last year, saying the use of "total return swaps" played a minor role in profits. Last year, it earned about $100 million from total return swaps while Sears overall produced $3.6 billion of earnings before interest and taxes, depreciation and amortization. "When it got the level of attention it did, we were surprised," he said of the swaps.

The company forecast first-quarter net of between $1.30 and $1.53 a share, including a 27-cent-a-share gain from a legal settlement and other items. Wall Street had been expecting a profit of $1.46 a share excluding items.

Sales at Kmart stores open at least a year are expected to be 4.7% lower and 2.4% lower at U.S. Sears stores. The company said the home-appliance business has been weak in the first quarter. The weakness at Kmart was unexpected. It had been faring relatively better, turning in a same-store sales decline of just 0.6% in the last fiscal year.

Schultz realistic about retail fashion battle
By Sandra Guy - Chicago Sun-Times
May 4, 2007

Don't tell Lisa Schultz, the fashion guru for Kmart and Sears, that the mainstream retailers are headed for the trash heap.

Schultz, an industry veteran who has worked at Ralph Lauren, Calvin Klein and Gap, heads a 200-person design team based in Manhattan's SoHo district that's dedicated to upgrading Sears' and Kmart's clothes.

"The opportunity to have our own in-house design team has really changed the picture for the company," said Schultz, 53, of parent company Sears Holdings, headquartered in northwest suburban Hoffman Estates.

Schultz said she is focused on improving the quality, fit, positioning and heritage of Sears' and Kmart's in-house brands such as Apostrophe, Covington and Classic Elements at Sears, and Jaclyn Smith, Route 66 and Attention -- the last one a new label -- at Kmart.

Gone are Sears' once-ballyhooed labels such as BCBG Max Azria and Latina Life, as well as an alliance with French Connection U.K. Sears, like other retailers, makes a higher prof