Federated = (Macy's,
Bloomingdale's)
Saks = (Saks Fifth Ave., Carson Pirie Scott)
* Excluding catalog, drug
stores
**Domestic stores only
Source: AP
Sears Sues
Bondholders Over Right to Retire Debt
By Becky Yerak - Tribune staff
reporter - Chicago Tribune
February 4, 2004
Sears, Roebuck and Co. has sued nearly 20 firms that own
its bonds, claiming it has the right to retire about $700 million of its
debt with proceeds from the November sale of its credit card business to
Citicorp Inc.
The Hoffman Estates-based department store chain filed
the complaint Monday in Cook County Circuit Court. Defendants, which
include Prudential Insurance Co., U.S. Steel Corp. and Carnegie Pension
Fund, and J.P. Morgan Securities Inc., don't want Sears to redeem the
debt.
But doing so "will permit Sears to eliminate the
substantial amount of interest" that would otherwise be paid to the
bondholders, the complaint said.
Sears' complaint states that, under certain
circumstances, including if customer receivables fall below a certain
level, the retailer can retire the debt before it matures.
"Sears believes that the assertion that it can't redeem
its debt securities is without merit," Sears spokesman Chris Brathwaite
said Tuesday.
In a Dec. 24 letter, Sears told its trustees to send out
notices Jan. 2 that it planned to redeem the debt Feb. 2. Sears said it
had the right to do so, since receivables have dropped below a certain
level as a result of the sale of the credit card business.
"Sears has since received a letter dated Jan. 29 from
counsel representing all of the defendants, except J.P. Morgan, asserting
that Sears lacks any legal basis to redeem its debentures," the complaint
said.
J.P. Morgan sent a separate letter saying it, too, might
object to Sears' redemption.
The letters threatened that certain bondholders might
sue Sears in various foreign courts.
J.P. Morgan declined to comment; none of the other
defendants could be reached.
Long Used to Getting Full Price,
A Retailer Faces New Pressures
By Shelly Branch - Staff
Reporter - The Wall Street Journal
February 3, 2004
Despite Recent Stumbles,
Talbots Vows
to Keep Holding Line on Discounts
For his wife's 40th birthday, Tom Charles wanted to do
something special. So he rounded up 12 of her girlfriends and told them to
meet at an unusual place: the Talbots in State
College, Pa.
"I was in shock," says Christine Charles, a physician,
who watched her friends pop out from behind racks of wool skirts and faux-shearling
coats. As the women grazed on poached salmon filets ordered in by Mr.
Charles, they shopped at his wife's favorite store, eventually spending
more than $3,000 -- all of it on full-price
merchandise.
The party offered a glimpse of the formula that for
years let Talbots Inc. become a retail star selling sensible women's
clothing. It relentlessly courts its best customers -- they get a
Christmas gift from the CEO every year -- and offers them private-label
clothes they can't find anywhere else. Above all, the chain of 977 stores
shies away from the barrage of discounts that eat into so many retailers'
profits. It limits sales to four a year. Talbots sells up to 70% of its
cardigans, suits and shoes at their original price, compared with about
46% for other apparel marketers, according to retail consultant NPD Group.
But lately, Talbots has had some high-profile stumbles
that show the difficulty of holding the line on discounts. It delayed its
midseason fall sale on summery items by two weeks, a costly move that the
company says resulted in low traffic and "sputtering" sales because
customers had moved on to winter clothes. Key sales numbers have faltered
for more than two years, and the company's normally impressive stock has
been lagging.
With increased competition in women's career apparel --
the retailer's signature look -- pressure is building for Talbots to
loosen its constraints on promotions. But the company, which also sells
clothes for men and kids, insists it won't stray. "If you're constantly
marked down, it does present questions about what the original value of
the item was," says Arnold Zetcher, Talbots president and chief executive.
The issue of how to keep prices up in a world of
discounting is one of the biggest challenges facing retailers today. Ever
since the explosion of low-price formats such as Wal-Mart Stores Inc. and
Target Corp. in the 1990s, stores of every stripe have fired back with an
ever-expanding number of sales. In addition to the traditional markdown,
retailers try to entice shoppers with one-day sales that often stretch to
two, White Sales, Back to School Sales and sales for every major holiday.
Trained to wait for a discount, consumers now approach
department and specialty stores with a cynicism once reserved for the
airlines. "Every Wednesday, every weekend, stores have a sale," says
Kathie Rose, 53, director of a Boston child-welfare program and a Talbots
devotee. "You can pay one price one day, then ... it goes on sale the next
day. It's a big hassle."
Though likely to boost sales in the short-term,
aggressive discounting has the side effect of damping long-term profits.
That's why many retailers are trying to wean themselves. In September,
Limited Brands Inc. retired its "day-in, day-out discounting" model, after
blaming high markdowns for weak apparel margins. The company's Express and
Limited divisions now hold weekly "key item" promotions -- rather than
storewide discounts -- as well as periodic major sale events. Department
stores, heavy users of coupons, also have vowed restraint.
"Promotionality has become an addiction," says Mike
Gould, chief executive of Bloomingdale's. Over the holiday season, the
unit of Federated Department Stores Inc. dropped two coupon events from
its calendar and shortened its "BIG" sale to five days from seven. The
moves cost the stores some volume but led to higher profit margins. The
company aims to cut promotional days 15% by next year.
On Wall Street, analysts now focus on a retailer's
ability to charge full freight. For the past six months, Lazard analyst
Todd Slater has dispatched his "mall rats" -- a team of incognito shoppers
-- to take notes on store activity such as traffic and inventories. The
resulting reports also assess a "quality of sales" score, which gauges the
level of promotional activity in stores. The logic: "the more aggressively
a company promotes," says the analyst, "the clearer indication of
increasing desperation and decreasing margins."
But as the recent troubles at Talbots indicate,
full-price selling isn't the panacea it might seem. Talbots began to
eliminate sales and discounts more than a decade ago, as part of a
company-wide overhaul. In a case study that continues to unfold, the
company's full-price approach has yielded plenty of ups and downs.
During months when it is not conducting one of its four
annual sales, Talbots's "quality of sales" score on the Lazard report has
been among the highest in apparel retailing. And over the past four years,
the company's earnings per share have more than doubled to $2.01 in the
fiscal year ended Feb. 1, 2003, its most recent annual figure. Its
operating margin over the past three years was 14%, beating competitors
such as Ann Taylor Stores Corp., Liz Claiborne Inc., and Limited Brands
Inc., according to a BancOne analysis.
Yet some plans specifically designed to boost full-price
sales have backfired. In September, regular sales were going so well that
the company decided to prolong the momentum and defer its midseason sale
by two full weeks. But once the fall clearance rolled around, the goods --
leftover shorts, T-shirts and other summery remnants -- didn't appeal to
the cold weather crowd. The event was a bust and Talbots' same-store sales
for October fell 8%. In a more recent snafu, the company's December
same-store sales fell 3.8% after Talbots was unable to re-order some key
items, such as hand-embroidered and embellished sweaters and blouses.
On Thursday, Talbots is expected to post its 10th
consecutive quarter of negative same-store sales, a key barometer that
measures sales of stores open at least a year. (An index of 29 specialty
apparel retailers, compiled by SG Cowen Securities, shows falling
same-store sales for only five of those 10 quarters.) The slump has
spurred Talbots to search for some newer looks in its clothing, and to
sharpen the distinction between its categories, from dressy to casual.
Due in part to recent weak sales trends, analysts
surveyed by Thomson Financial expect the company to see earnings decline
by almost 10% for the fiscal year ended Jan. 31. Talbots's stock price has
risen 24% over the past 12 months, compared with a 34% rise for the Dow
Jones index of 73 apparel retailers.
Some on Wall Street now think Talbots needs to offer
more deals. "The competitive landscape is much more aggressive and we
believe it is time Talbots added some flexibility to its plans," said
Merrill Lynch analyst Mark A. Friedman in a Nov. 6 report.
Talbots stands by its methods as fiscally prudent. Over
the past decade, "we've had eight good years and two that were weaker than
expected," says Chief Financial Officer Ed Larsen. "Long term, it's our
strategy that's made us as profitable as we are."
"Everybody says to me 'why don't you have more sales or
markdowns?' " says Mr. Zetcher, the CEO. "It's tough, but you stick to
your guns. We can't totally ignore the environment and act like our head
is in the sand. So we do some promotional things, but in the way Talbots
does them."
Talbots's full-page, holiday ad in USA Today typified
the retailer's approach. The ad, which showed a blond model cradling a
small red box, was designed to position Talbots as a holiday gift
destination. It invited readers to stop by Talbots for a weekend "open
house" and enter a drawing for one of several $100 gift certificates.
Deliberately, the ad copy mentioned no prices or
discounts -- even though women who showed up got refreshments and a small
concession: 25% off certain sweaters, after one was purchased at full
price. The event, repeated from 2002, was Talbots's only discount deal
throughout the holiday season. Others, meanwhile, such as competitor Ann
Taylor, marked down entire groups of cashmere sweaters, jackets, skirts
and accessories by as much as 50%. "When you walked into our stores, you
got the sense that something was on sale, but it was not the sale mode
that everybody else is generally in," says Mr. Zetcher.
Talbots's full-price credo is helped by its store
locations. About 60% of its signature red-doors are in small shopping or
"strip" centers, which means they are less susceptible to the sales and
promotions that can sweep through malls like a virus. To stay competitive,
district managers canvas the retail landscape in their region each week,
sometimes shuffling merchandise in the process. If it looks like cashmere
sweaters are a hit with women in other stores, Talbots will send its own
cashmere to nearby locations.
Some customers score extra treats and discounts.
Regulars such as Phyllis Netherton, president of a plumbing supply company
in Fresno, Calif., say they appreciate Talbots's "little extras," such as
rewards and bonus programs the company uses to provide the illusion of a
sale when it isn't having one.
As a charge-card holder, Ms. Netherton gets
"appreciation dividends," a $25 gift certificate for every $500 she spends
in the store. She also receives a birthday card from Mr. Zetcher inviting
her to take 10% off a day's shopping at a single store. In the case of Ms.
Charles's birthday party, Talbots paid for the printed invitations ($34)
and managed the RSVP list.
Opened in 1947 by Rudolph and Nancy Talbot, Talbots was
originally a single store selling traditional, New England-style women's
clothing in Hingham, Mass. The company produced its first black and white
mailer a year later, mining names from The New Yorker magazine's
subscription list.
General Mills, then diversifying, purchased the business
in 1973 as its catalog sales took off. By 1988, the company had grown to
126 stores and was acquired by a Japanese investment firm then called
Jusco Inc. Talbots went public in 1993, and today about 58% of its shares
are controlled by Aeon Co., a Japanese retail conglomerate that is the
successor company to Jusco.
When Mr. Zetcher arrived as president in 1987, the
veteran of Federated Department Stores Inc. and the now-defunct luxury
outpost Bonwit Teller concluded that there "was nothing special" about the
specialty retail chain. Only about a quarter of items on the floor were
private label, with the rest being supplied by ubiquitous makers such as
Jones New York, Ecco and Sesto Meucci. Sales, from Mother's Day to Labor
Day, were a constant. Mr. Zetcher wanted to shake things up.
As the company headed for an initial public offering,
Mr. Zetcher focused on a new structure that would rely on Talbots's own
designers, factory relationships and unique products -- all ingredients
for his full-price formula. "When you have branded merchandise, if the guy
down the street is marking it down, it becomes very uncomfortable for you
not to," he says.
By replacing branded goods with its own stock of
private-label merchandise, Talbots was able to better control costs and
set its own price targets. Store employees needed to learn details such as
fabric and sizing for just one collection, rather than several. Stressing
the new value of its garments and service, the chain also began to cut
back its dozen or so annual sales and promotions. By the time it offered
shares to the public, in 1993, it had switched over to subtler draws, such
as a Valentine's Day card and a box of chocolates from Mr. Zetcher, who
became CEO in 1988.
In doing so, the retailer invited the risks of
disgruntled customers and bumpy sales patterns. It got both. Four years
after its IPO, in 1997, Talbots made an error that would test its
full-price commitment. Seeking to update its classic casual and career
fashions, the company rolled out knee-grazing dresses and other youthful
items that its conservative, 40-something female customers detested. "Holy
cow," thought Mr. Zetcher when he realized the extent of the design shift.
One woman in Kansas City shouted at him: "How can you do this to me!'" Yet
rather than slash prices on the goods, Talbots stuck to its policy and
paid the price. That year, Talbots showed its worst sales and earnings
performance of the decade.
Talbots, which is currently clearing its stores of fall
goods in one of its four annual sales, says that full-price springy items
-- pastel skirts and sweaters and flirty floral dresses -- are moving
swiftly. Based on early demand, the company is increasing its inventory
levels and plans to expand its marketing, if not its sales dates. "We know
pretty much what everyone else is doing, but you just can't look at the
moment," says Mr. Zetcher. "You have to look at the whole story, and that
works for us."
Companies Limit
Health Coverage of Many Retirees
By Milt Freudenheim - New
York Times
February 3, 2004
Employers have unleashed a new wave of cutbacks in
company-paid health benefits for retirees, with a growing number of
companies saying that retirees can retain coverage only if they are
willing to bear the full cost themselves.
Scores of companies in the last two years, including the
telecommunications equipment giants Lucent Technologies and Alcatel and a
big electric utility, TXU, have ended medical benefits for some or all of
their retirees and instead offered to let them buy coverage through a
group plan. This coverage is often more expensive than many retirees can
afford.
Experts expect that the trend, driven by the fast-rising
cost of health care, will continue, despite the billions of dollars that
the government will distribute to companies that maintain retiree health
coverage when the new Medicare drug benefit begins in two years. In
contrast to pension financing, companies are not obligated to set aside
funds to pay for retirees' health benefits, and the health plans can
usually be changed or terminated at the company's choosing, with no appeal
available to the retirees.
The costs can be a shock. According to surveys by
benefits consultants, companies that offer health benefits to retirees
typically have subsidized about 60 percent of the premium. Losing that
support all at once can mean hundreds of dollars a month in unexpected
costs.
Moreover, in dropping their subsidies, many companies
push retirees into insurance pools that are separate from those of
younger, healthier workers, executives said. That lowers the company's
costs for insuring its current workers, while raising the premiums charged
to retirees even further.
James Norby, president of the National Retiree
Legislative Network, an advocacy group that is urging Congress to
strengthen legal protections for retired workers, said companies that
charged for formerly covered benefits had found "a clever way of getting
out of the contract they made to people who had been retired for 15 or 20
years."
Employers that are shifting costs to their retirees
often present the change as a benefit: although the company is no longer
subsidizing coverage, premiums are usually lower than for individual
policies, and the retirees do not have to worry about being rejected by
insurers because of their age or prior health problems.
The emergence of these plans "is a very significant
trend," said Frank McArdle, a health policy expert with the Hewitt
Associates benefits consulting firm in Washington. "Even though it's not
subsidized health coverage, retirees, particularly early retirees under
age 65, still have access to a group product that they could not readily
duplicate on their own." Those with medical problems are often rejected by
commercial insurers, he noted.
But those considerations are little comfort to some
early retirees. Eloise Bolt, 56, who took early retirement in October 2002
from her job as an information technology project manager at TXU in
Dallas, said that she was "really hurt and really angry" when her monthly
insurance premium — which also covers her self-employed husband — soared
from the $100 she had paid when she was working.
According to Ms. Bolt, TXU said that the $100
represented 20 percent of the total premium, and that on retirement after
24 years with the company, she would be paying 60 percent. But instead of
rising to $300 or so, as she had expected, her monthly premium jumped to
$659, and rose to $725 this month, with a higher deductible.
"The math does not work out," said Ms. Bolt, who
abandoned her retirement plans and took a $9-an-hour job as a secretary to
pay for the insurance.
Debbie Dennis, a TXU vice president, said that retirees'
premiums were figured separately from those of active employees and then
"segmented" within the retiree group according to age, length of service,
medical history and actuaries' estimates of a person's future use of
health services.
When TXU trimmed its retiree benefits at the start of
2002, the company announced that all employees hired since Jan. 1 of that
year would have to pay the full cost of health benefits when they retired.
Like other companies, TXU — which has 12,000 employees and 8,000 retirees
— is encouraging younger workers to save for their future health costs.
TXU is promoting participation in the company's 401(k) retirement plan. It
matches employee contributions up to 6 percent of their salary.
"New employees can plan for these costs with money in
their savings plan," Ms. Dennis said. "They will still have access to the
lower cost of the company's buying power."
Last year, only 36 percent of companies with 500 or more
workers still offered a retiree medical plan to at least some retirees not
yet eligible for Medicare, down from 50 percent in 1993, according to a
recent survey by Mercer Human Resource Consulting.
Last month, a study for the Kaiser Family Foundation by
Hewitt Associates found that among employers that have maintained retiree
coverage, about 15 percent have required at least some retirees to assume
the full cost of their insurance in the last two years. Another 31 percent
said they would probably adopt these so-called access-only health plans
within the next three years.
"Twenty years from now, no company will offer retiree
health care," Uwe Reinhardt, a health economist at Princeton University,
said.
Mr. McArdle of Hewitt said that the roster of companies
offering retiree health benefits had dwindled as medical costs soared and
employers encountered new competitors, both overseas and at home, that
rarely covered retirees.
According to the Kaiser-Hewitt survey, the average
monthly health insurance premium for an employee who took early retirement
last year was $845, including coverage for the spouse. So early retirees
who lost the typical 60 percent subsidy would face added costs of more
than $500 a month.
The impact would be less severe for people 65 or older
who are covered by Medicare; retiree benefits for them, when they are
offered, are usually the equivalent to so-called Medigap supplements to
Medicare. In the Kaiser-Hewitt survey, the average premium for employees
who retired at 65 last year was $419, including coverage for a spouse.
Lucent Technologies, whose business went into a free
fall with the popping of the telecommunications bubble, adopted an
access-only health plan this year, but only for the spouses of 9,000
management retirees who had retired since March 1990 with annual pay of
$87,000 or more.
William Price, a company spokesman, said the cutbacks
were necessary to keep Lucent — which has 22,000 United States employees
but provides health benefits to 240,000 retirees and their spouses —
"viable and competitive."
Many retirees are bitter about such changes. "I took the
offer to retire in 2001 mainly because they were protecting health care
benefits," said Edward Beltram, 58, a former Lucent human resources
manager who lives in Woodland Park, Colo., and must now pay $375 more a
month to maintain coverage for himself and his wife.
Mr. Beltram, who worked for Lucent and for units of a
predecessor company for 31 years, added, "I feel they have reneged on
their promises."
Jerry Martin, who retired in 2002 after 17 years with
TXU, planned to pay the full cost of the company's retiree health benefit
for himself and his wife. But he dropped the coverage after TXU's
actuaries revised their estimates, and his premium jumped from $1,224 a
month last year to $2,066 on Jan. 1, 2004, dwarfing his $1,276 monthly
pension and leaving him angry.
"They say, `We won't worry about these people that are
going to get old,' " said Mr. Martin, a 56-year-old computer technician.
With retiree health costs continuing to spiral, more and
more companies are planning to reduce or eliminate retiree health benefits
— especially prescription drug coverage — without waiting for the new
Medicare drug benefit to become available in 2006, said Marianne Fazen,
executive director of the Dallas-Fort Worth Business Group on Health, an
employers' group.
One employer in her area, Alcatel, a French-owned
telecommunications company whose North American operations are based in
Plano, Tex., recently announced that it would reduce subsidies for all
retirees immediately, and end them in 2006.
Many companies, especially retailers with high turnover
and low-paid work forces, and technology companies with relatively young
workers, do not provide retirees any health benefits. Intel, an exception
among technology companies, provides an access-only plan for retirees and
helps out by providing $1,500 for each year of eligible service, to be
used only for premiums in the Intel retiree health plan, said Gail Dundas,
an Intel spokeswoman.
People who retire and start their own business or join a
small firm may welcome the chance to pay a group rate, said Helen Darling,
president of the National Business Group on Health, a research
organization supported by large employers.
"It's an important interim step," said Tricia Neuman, a
Medicare policy expert at the Kaiser Family Foundation, which sponsors
health care research. "This is better than tossing people out into the
individual insurance market, and it is a richer benefit than is available
under Medigap," the supplementary coverage that Medicare beneficiaries can
buy.
Encouraging workers to save for these costs, employers
like Deere & Company, the tractor manufacturer, and financial service
firms like Fidelity Investments are calling on Congress to establish new
retirement medical benefit accounts that would resemble 401(k)'s for
health care.
"We're looking for a tax-advantageous way for folks to
start saving," said Mert Hornbuckle, vice president for human
resources at Deere.
Wal-Mart World's No. 1 Merchant
By Becky Yerak - Inside Retailing
- Chicago Tribune
February 3, 2004
The latest ranking of the world's 200 biggest retailers
saw 21 new players in 2002, but Wal-Mart Stores Inc. maintained its global
domination, standing more than three times bigger than the No. 2 merchant,
France's Carrefour.
The study, Deloitte Touche Tohmatsu's seventh annual
Global Powers of Retailing, was released at last month's 93rd annual
National Retail Federation convention.
Among the world's top 10 retailers, six are based in the
United States, according to the study. Besides Wal-Mart, they include Home
Depot Inc. (3), Kroger Co. (4), and Target Corp. (6).
Costco Wholesale Corp. jumped three spots to No. 9,
while Sears, Roebuck and Co. was ranked 10th.
The 2003 financial results for all retailers are not yet
available.
Among the top 10, only Sears saw a drop in its 5-year
compounded annual growth rate for retail sales, down 2.9 percent. As
recently as 1998, the Hoffman Estates department store chain did more
business than Home Depot, Target and Costco.
Sears, with $35.7 billion in 2002 retail sales, risks
losing its top 10 status. Albertson's Inc., a U.S. grocer, had $35.6
billion in 2002 sales.
Falling eight notches to 17 was Kmart Holding Corp.
The U.S. retail scene is more vibrant than in other
countries. The number of European retailers has shrunk to 68 from 74 in
1997, while the ranks of U.S. companies has grown to 85 from 81. Japan
remains at 26. Other countries' retailers snagged 21 spots, up from 19.
Creditor's lawyer weighs in: Spiegel Inc. continues to
shop around its Newport News catalog unit, a moderately priced women's
clothing line that the bankrupt Downers Grove company put up for sale last
September.
"We hear that the process is going well and that there's
real interest in it," said Howard Seife, a Chadbourne & Parke lawyer
representing Spiegel's unsecured creditors committee.
As for its Eddie Bauer chain, Spiegel plans to open 17
new stores. Never mind that December sales at stores open at least a year
dropped 3 percent.
Unsecured creditors, however, don't think Spiegel is
frittering away assets by sinking more into Eddie Bauer, which Seife calls
a "robust business."
"The new stores will have new locations, better
returns," he said.
The Securities and Exchange Commission earlier charged
Spiegel with securities fraud, alleging it hid its crumbling financial
state. To settle the case, Spiegel let an examiner review its books.
Many people instrumental in Spiegel's downfall are gone
but could still be vulnerable to lawsuits. Creditors are mulling whether
to sue "based on facts contained in the report," Seife confirmed.
Sears apology: When Sears Chief Executive Alan Lacy
talked about the temptation of offshore outsourcing at the NRF convention,
he noted that there are "four to five times as many smart and driven
people in China than in the United States." He also cited India.
Even math-challenged audience members understood that
the executive was talking about countries with populations that dwarf his
homeland.
But Sears later issued an apology anyway, referring to
Lacy's "unfortunate wording" and "misstatement."
"He knows that the United States has the best-educated
workforce in the world," the company said.
Wal-Mart Tired of Critics'
Complaints
MSNBC News
February 1, 2004
Retail giant goes on PR offensive to repair image
CHICAGO - Wal-Mart Stores Inc. is tired of critics who
say it is a behemoth bent on destroying small-town America, driving down
wages and shipping jobs to foreign sweat shops.
Wal-Mart, Fortune magazine's "most admired company," is
also among the most sued. Dozens of cases claiming sex discrimination and
wage violations have stained its image. Editorials deplore how low-paid
Wal-Mart workers must sign up for welfare to make ends meet.
Even men's magazine Playboy got in on the act, calling
Wal-Mart's Bentonville, Arkansas, headquarters the "epicenter of
retailing's evil empire."
But after years of abiding unflattering views, the
empire is striking back with a tough new public relations strategy.
"No one likes to hear someone say something negative
about their family," said Wal-Mart spokeswoman Sarah Clark. "There are
some things out there that are totally inaccurate, and we're looking to
set the record straight."
Officials at the world's largest company have started
firing off letters to the editor responding to critical news articles and
editorials. Once-reticent Wal-Mart executives are speaking out more in the
hopes of cleaning up the world's largest retailer's stained image.
The company has also altered its advertising campaign to
showcase women managers and others who have benefited from working there.
"We all want to defend our company," Clark said.
Besides top management, she said, store employees have
taken it upon themselves to write letters, with no directive from
headquarters.
"As we have become the most visible company in the U.S.,
we have increasingly become a target of criticism and even attacks," she
said. "We are really in the position of protecting and enhancing an
already good reputation, not trying to repair a bad one."
‘Diatribe against our company’
In the last few weeks, Wal-Mart's benefits manager wrote
to The New York Times to explain the retailer's much-maligned health
insurance plan, and a district manager sent a letter to The Salt Lake
Tribune to "share some things that aren't so bad about us" after a series
of stories.
Chief Executive Lee Scott wrote to Ohio's Akron Beacon
Journal after a columnist said Wal-Mart deserved some blame for the
closing of a local factory owned by Newell Rubbermaid Inc., one of the
retailer's major suppliers.
Scott called the column a "diatribe against our company"
that did not reflect the facts.
In January, he became the first Wal-Mart CEO to speak at
the National Retail Federation trade group's conference. In a speech that
he acknowledged sounded defensive at times, he chided the media for heavy
coverage of the company's legal troubles, massive imports from China and
employee health-care policies.
Other executives have also started banging the drum.
"We are not popular with a lot people," Vice Chairman
Tom Coughlin said at the grand opening of a new Wal-Mart store in San
Antonio in January.
"If our wages and benefits were so bad, we wouldn't have
had that type of attraction with the customer," he was quoted as saying in
the San Antonio Express-News. "The chain wouldn't be the size it has
become if we were doing as many things wrong as people like to attribute
to us."
Bad PR
Despite the more aggressive approach, public relations
experts say Wal-Mart's image-improvement efforts are not enough to shore
up its reputation.
"For years they've been a classic example of the wrong
way to do PR," said Jonathan Bernstein, president of Bernstein Crisis
Management and author of "Keeping the Wolves at Bay: A Media Training
Manual."
"They're going to continue to get beat up as long as
they basically have a reputation for being unfair or unreasonable to their
employees," he said. "All the damage control in the world can't help them
unless their policies change.
This year Wal-Mart faces two key tests that should help
determine whether reports of worker mistreatment are isolated incidents or
widespread.
A California judge is set to decide later this year
whether a sex discrimination lawsuit should proceed as a class action
covering 1.5 million current and former women employees.
Meanwhile, an investigation into illegal workers at some
Wal-Mart stores will be back in the spotlight when a Pennsylvania grand
jury completes its deliberations in a few weeks.
"If they lose one of those cases in California or
Pennsylvania, it will hurt," said Paul Argenti, professor of corporate
communications at Dartmouth College's Tuck School of Business.
Argenti, who advised Kmart in the early 1990s when it
was struggling to compete with Wal-Mart, said Wal-Mart's "most admired
company" ranking in Fortune's annual poll of executives, directors and
analysts should help the company through the worst of the image problems,
but it needs to change its insular corporate culture if it hopes to make
new friends.
"They've been very, very internally focused for most of
their life," he said. "That's built into their culture. They've never
really had to reach out. Now they do."
A Risk in Sears Compensation
Cuts
By Becky Yerak -
Tribune Staff Reporter - Chicago Tribune
February 1, 2004
Retailer needs
dedicated staff to remake stores
Not long ago, Sears, Roebuck and Co. fancied itself a
leader in the pay-for-performance movement.
The Hoffman Estates retailer granted stock options to
all salaried workers, currently numbering 17,000, and put more
compensation toward bonuses for relatively low-level managers.
Sears was so proud of its efforts that it penned a
15-page article for Harvard Business Review in 1998. The changes, Sears
argued, would better ensure customer satisfaction.
Now Sears is backpedaling. Last week it told workers
that it would curtail stock option awards and generally reduce the bonuses
for senior executives and most salaried workers.
The paring of compensation and benefits comes at a time
when Sears apparently can ill afford to alienate its workers.
Now that Sears has jettisoned its profitable credit card
business, it will succeed or fail on the performance of its department
stores. While about one in five hourly workers will receive pay raises
under the new system, the future compensation and benefits of midlevel
store managers is still uncertain.
Sears says it has no choice but to fall in line with
what other retailers are doing.
"Our goal is to get our cost structure in line with our
competition," said Greg Lee, senior vice president for human resources.
Personnel costs of the 118-year-old company are
"significantly higher" than those at younger rival chains such as Target
or Wal-Mart, which are also feasting on Sears' market share.
Sears, which has seen its stock price drop more than 20
percent in less than two months, concedes that the compensation change is
not without risks.
"There's always risk when you change things," Lee said.
To lessen the impact, some of the changes do not take effect until 2005.
Randall Brett, managing director for the Sagacity Group,
a Plainsboro, N.J., personnel consulting firm, said Sears has a particular
challenge. The fact that Sears seems to be struggling for a retail
identity, coupled with the benefit and compensation changes, could confuse
workers.
"You used to know what the company represented and what
you represented to the company," he said.
Two years ago Sears significantly changed the way its
stores were organized and cut the salaried workforce by about a third by
moving away from the classic department store model to a more self-serve
setup.
"What we did was making our processes less complicated.
We didn't need as many people," Lee said. "We still have a long way to go.
But we've come a long way since 2001."
Gary Ruffing, head of the retail services group at
consulting and turnaround management firm BBK Ltd., said that while
employees never like to have things taken away, they could be helped in
the long run if it makes Sears a stronger company.
"They're not going to go somewhere else and find a
better program," he said, noting that Sears likely studied what other
retailers are offering in the way of compensation and benefits.
He said Sears' plan to standardize its bonuses is a good
thing, in terms of fairness. Many companies are curbing their compensation
and benefits these days, but the trick is how to do it, experts say.
Initially Sears said it would limit the stock options to
directors and vice presidents, but its resolve appears to be softening as
some lower-level managers voice displeasure over the change.
"The store's general manager will continue to receive
stock options," said Alan Lacy, Sears chief executive. "The level below
them we've not determined. But we're clearly migrating away from a
broad-based grant."
The changes also include phasing out pension plans for
younger workers in favor of an enhanced 401(k) plan and asking future
retirees to shoulder more of the cost of their medical care.
"The pension changes are a very good thing," said a
former Sears executive. "The notion of a defined benefit pension for a
retailer is a non-starter; none of Sears' competitors have such an expense
load."
Given that retail is a high turnover industry, the
tradeout of a pension for a 401(k) is a win-win, he said.
In fact, on a typical day, about 30 workers sign up for
Sears' 401(k) plan. On Wednesday, the day after Sears announced the new
program, about 155 signed up for the enhanced plan, which increases the
company's contribution.
Curtailing stock options also makes sense in this day
and age, the former executive said. "In the mid-1990s, stock options had
no cost," he said.
Regulators are pressuring companies to include the
awarding of options on their profit-loss statements. "It's a very heavy
load, and I can understand why they had to step back and think about it,"
the former executive said.
That was one reason for Sears changing its policy on
options, Lee said.
"The other aspect is there are very few competitors
offering stock options up and down the organization," Lee said.
Also, lower-level workers with options tended to
exercise them and then would turn around and sell them.
"That was never the intention of the program," Lee said.
"The objective was to build ownership in the company and have associates
hold their stock."
But the former executive cautioned that Sears must come
up with a way to give those having their stock option hopes taken away
some equity opportunity, possibly through grants of restricted stock.
Sears
Profit Jumps On Sale of Unit; Outlook Hits Stock
By Amy
Merrick - Staff Reporter - The Wall Street Journal
January 30, 2004
Sears, Roebuck & Co. said its fourth-quarter net income
jumped sharply after a big gain on the sale of its credit-card business,
but the retailer forecast full-year profit that trailed analysts'
expectations.
For the quarter ended Dec. 28, Sears reported net income
of $2.75 billion, or $10.84 a share, compared with $848 million, or $2.67
a share, in the year-ago quarter. The most recent quarter included a
pretax gain of $4.14 billion, or $10.38 a share, from the sale of its
credit business to Citigroup Inc. Sears also took a pretax charge of $791
million, or $1.98 a share, for early debt retirement linked to the sale.
In addition, Sears had a pretax gain of $81 million, or 20 cents a share,
from the sale of its National Tire & Battery business.
In the year-ago quarter, Sears had a pretax gain of $265
million, or 56 cents a share, from the sale of its investment in Advance
Auto Parts Inc.
Excluding the impact of these gains and charges,
per-share earnings would have increased only 6.2% on a 20% reduction in
shares outstanding, the retailer said.
For its current fiscal first quarter, Sears said it
expects to report a loss of 9 cents to 14 cents a share, before the effect
of an accounting change related to its pension program. The company said
it will take an $840 million after-tax charge in the first quarter to
begin valuing gains and losses in its pension plan on a more current
basis. Sears didn't specify the effect of the charge on per-share results.
In the prior-year period, Sears earned $192 million, or 60 cents a share.
For all of 2004, the company predicted earnings of $3.60
to $3.80 a share. That estimate includes a cost of 20 cents to 25 cents a
share to carry remaining debt linked to the credit business, but excludes
the effect of the pension accounting change. Analysts were predicting a
estimate of $4.36 a share, according to Thomson First Call.
After falling nearly 9% early in the day, shares of
Sears, based in Hoffman Estates, Ill., closed down $1.43, or 3.1%, to
$44.37 in 4 p.m. New York Stock Exchange composite trading.
Bill Dreher, a Deutsche Bank retail analyst, said Sears
could benefit from opportunities to cut costs and buy back shares. "Their
assumptions look very conservative," he said.
During the fourth quarter, Sears' revenue fell 2.1%, to
$12.25 billion from $12.52 billion.
In a conference call with analysts, Sears Chief
Executive Alan J. Lacy said apparel sales improved throughout much of the
year but were disappointing overall during the fourth quarter. He said he
was unhappy with how Sears managed its profit margins, "based on a more
intense promotional environment than we had anticipated, particularly in
the fourth quarter." The Lands' End brand beat the retailer's sales plan
during the quarter, he added. Sales of major home appliances also were
strong.
Operating income from Sears' retail and services
business increased 3.7% to $753 million from $726 million in the year-ago
quarter. Sears attributed the increase to having an additional week of
sales included in the most recent quarter and to payments from Citigroup
linked to the credit-card sale.
Sales at stores open at least a year, a closely watched
measure of a retailer's health, declined 2.1% in the quarter, excluding
the extra sales week in that period.
Sears to
Make Lands' End Changes for Different Regions
By Sandra Guy - Business
Reporter - Chicago Sun-Times
January 30, 2004
Sears, Roebuck and Co. CEO Alan Lacy said
Thursday the retailer is tailoring its Lands' End clothing for its stores'
different ethnic, regional and income groups -- an oversight that has
caused inventory problems.
Lacy spoke about a particularly troubling area for Sears
after the retailer reported Thursday that its apparel sales during the
holidays proved disappointing, although fourth-quarter 2003 earnings got a
huge boost from the sale of Sears' credit-card unit to Citigroup.
Wall Street was more disappointed in Sears'
first-quarter and full-year 2004 earnings forecasts, which fell short of
analysts' expectations.
The news drove Sears' stock down as much as 8.8 percent
before ending the day Thursday at $44.38, down 3.1 percent, or $1.42. The
one-day decline was the largest since October 2002, when Sears' ability to
fall back on earnings at its credit-card operations crumbled. At that
time, Lacy fired the head of credit-card operations and announced that
Sears would increase its allowance for future uncollectible debts by $189
million, and increase its charge-offs for uncollectible accounts by $33
million.
Sears sold its $32 billion credit-card business to
Citigroup in November, even though credit-card income accounted for more
than 60 percent of Sears' operating profit.
On Thursday, Sears forecast first-quarter 2004 earnings
between 9 cents and 14 cents per share, with comparable-store sales flat
to slightly higher. Analysts had expected a far more robust 20 cents a
share.
For 2004, Sears predicted earnings per share of $3.80 to
$4.05, excluding 20 to 25 cents per share to carry debt related to its
credit-card business. Analysts had expected Sears to earn $4.36 a share.
Sears also failed to impress with its crucial and
closely watched holiday sales.
In the final three months of 2003, same-store sales
dropped 2.1 percent when results were adjusted to exclude a 53rd week in
the fiscal year. Revenues fell 2 percent to $12.25 billion as Sears was
forced to mark down slow-moving merchandise and piled-up inventory.
Earnings -- pumped up by sales of the credit-card unit
and the National Tire and Battery operations -- more than tripled to $2.7
billion, or $10.84 cents a share, compared with $848 million, or $2.67 a
share, in the same quarter a year earlier. Nearly all the gain, or $10.38
a share, came from a $4.1 billion pretax gain from the sale of the
credit-card unit.
Excluding the one-time items, Sears' fourth-quarter
earnings would have been $2.24 a share, compared with $2.11 in the same
quarter in 2002. That beat analysts' earnings forecast of $2.02.
Sears' traditionally strong home-improvement business
lived up to its reputation in the final three months of 2003, but apparel
sales fell 4 to 6 percent from the same quarter a year earlier.
Lacy told analysts Thursday that Lands' End's total
catalog, Internet and retail sales were up 20 percent this year from 2002.
But Lands' End apparel proved too heavy-duty for shoppers in warm Southern
locales and failed to impress lower-income, bargain-seeking shoppers who
had never heard of the brand.
Lands' End's new children's apparel didn't take off,
either.
Sears had inventory problems with Lands' End apparel --
in some cases, the clothes sold out, while in others, inventory didn't
sell because shoppers had never heard of the brand. Indeed, more than 90
percent of the shoppers who bought Lands' End merchandise in Sears' stores
were first-time buyers of the brand, Lacy said.
Sears pinned much of its apparel hopes on Lands' End,
which it bought in June 2002 for $1.8 billion.
While Sears continues to refashion its apparel lines, it
also is looking for more cost cuts than its previously announced $1.1
billion goal.
Sears will keep cutting jobs and operating costs,
particularly at its Hoffman Estates headquarters, as it concentrates on
surviving solely on its retail stores, officials said.
Sears' initial cost-cutting program of $600 million,
which Lacy announced in October 2001, resulted in 4,900 job cuts, or 20
percent of Sears' salaried work force at headquarters and in its stores.
One year later, in October 2002, Lacy announced an
additional $500 million in annual cost cuts.
Sears has cut $800 million in costs so far, and expects
to slash the remaining $300 million over the next two years. Sears now
employs 210,000 people, down from 267,000 in 2000.
Sears also will keep buying back its own shares, thereby
helping boost its stock price. Over the last three years, Sears has
repurchased 154 million shares at a cost of almost $6 billion. It began
2004 with $2.9 billion in proceeds available to repurchase shares.
Investors
Not Buying on Sears'
Forecast
Stock Slips;
Lacy Sees More
Changes
By Becky Yerak
- Tribune staff reporter - Chicago Tribune
January 30, 2004
Sears, Roebuck and Co., which had struggled
through a difficult holiday season, on Thursday issued a forecast for 2004
that further soured investors already worried about the company's future.
The Hoffman Estates company said it expects profit for
the year to range from $3.60 to $3.80 a share.
That is more than 13 percent less than the consensus
estimate of 10 analysts surveyed by Thomson Financial/First Call.
Sears also said Thursday it would lose 9 cents to 14
cents a share in the first quarter, traditionally the year's weakest
quarter for retailers.
In the first quarter of 2003, Sears earned 60 cents a
share--thanks largely to its since-divested credit card business.
For the first quarter of 2004, Sears expects sales at
stores open at least a year to be flat to slightly improved.
That hardly inspired investors, who sent Sears stock
tumbling 3 percent Thursday to close at $44.37.
The company's share price has fallen more than 20
percent from its 52-week high in less than two months since it began
reporting disappointing sales.
Alan Lacy, Sears chief executive, also cautioned that
"we still have a number of things that we're working our way through" that
will hurt sales.
In an interview after a conference call with analysts,
he cited plans to ditch certain merchandise categories and said "we have
very significant physical changes to certain departments in the store this
year that will be disruptive to sales patterns."
He declined to specify which product lines Sears planned
to exit. But he did say that home decor departments would be renovated in
the second quarter in a way that is more in line with the self-serve
concept that Sears has embraced.
"We have a lot of fixtures in our stores that date from
the quote `department store days,' and we want to move to a much more
self-select, clean, simple, easy merchandise presentation, particularly in
bed and bath," he said.
In the third quarter Sears will renovate its electronics
departments, he said.
"When you start rewiring things, store by store, that's
a very disruptive process," Lacy said.
In the conference call Lacy told analysts that Sears is
pleased with its acquisition in June 2002 of Lands' End and that Sears
sold more than $400 million of the line in its stores. Sales in all three
Lands' End channels--stores, online and catalog--rose more than 20 percent
in 2003.
Lacy would not specifically break out Lands' End's
online and catalog sales, but he said in the conference call that Lands'
End's direct-to-consumer operation had been cannibalized some since the
goods were rolled out in stores. Online sales are doing better than
catalog, he said.
Sears earned $2.75 billion, or $10.84 a share, in the
fourth quarter.
But after stripping out gains from recent asset
sales--including Sears' credit card business and its National Tire &
Battery unit--the retailer earned $2.24 a share.
That beat analysts' consensus estimate of $2.02 a share,
according to Thomson First Call. In the same quarter last year, Sears
earned $2.67 a share.
Revenues were $10.08 billion, up nearly 4 percent. But
sales at stores open at least a year--the most meaningful indicator of a
retailer's performance--dropped 2.1 percent in the quarter.
During the holiday season, Sears had to slash prices by
as much as 60 percent to lure shoppers. That discounting took its toll.
Sears said Thursday its gross profit margins fell to 28.9 percent from
29.4 percent due to price cuts, particularly in its struggling apparel
business.
In the fourth quarter, Sears repurchased 36.2 million of
its shares at an average price of $48.72 for a total of $1.8 billion. Some
have said Sears would be better off investing the money in its business
rather than propping up its per-share results, but Lacy scoffs at those
critics.
"We have plenty of money, cash flow far in excess of
what we need to fund the business, to do important acquisitions like
Lands' End, and still money left over to buy back stock when we think it's
an appropriate thing to do for shareholders," he said.
Quarterly Net
Jumps; but Lacy Sees Hurdles Ahead
Weak outlook hits Sears' stock
CRAIN'S CHICAGO BUSINESS
ONLINE
January 29, 2004
(Reuters) "Sears, Roebuck and Co. Thursday
forecast weaker-than-expected profit for 2004, sending its stock lower, as
it tries to fend off intense competition ranging from discounters to
home-improvement chains.
The largest U.S. department store chain also posted a
huge jump in quarterly profit thanks to a $4.1 billion gain on the sale of
its credit card unit to Citigroup in November.
Stripping out unusual items, quarterly earnings beat
Wall Street expectations, helped by good holiday season demand for digital
electronics, tools and Lands' End clothing.
But Sears forecast 2004 earnings in the range of $3.60
to $3.80 per share, including costs of 20 cents to 25 cents per share for
carrying some credit card-related debt.
Wall Street had expected $4.38 per share, according to
Reuters Research, a unit of Reuters Group Plc.
The retailer expects 2004 sales at stores open at least
a year to show an increase in the low-single digits.
``They're saying that they expect sales to be up a
little bit, and still this huge earnings shortfall,'' said Heather
Brilliant, retailing analyst with Morningstar. She rates the stock ``one
star'', Morningstar's lowest possible rating.
Prudential Securities analyst Wayne Hood lowered his
2004 earnings estimate to $3.70 per share from $4.39, but said the
company's forecast could prove conservative.
Sears has been under intense pressure to prove that it
can thrive without its credit card operations, which accounted for a huge
chunk of profit in recent years and somewhat shielded its retail stores
from scrutiny of sluggish sales.
As a stand-alone retailer, Sears is squeezed between
mid-tier department stores and discounters, which are luring customers
with expanded brand-name clothing offerings. Sears is also grappling with
tougher competition from home-improvement chains for appliances, a
category Sears had dominated.
``They have nothing to differentiate themselves
anymore,'' Brilliant said. ``I don't necessarily think they're going the
way of the dinosaur, but I think it will be a long time before (the
business) stabilizes.''
SEARS POST-CREDIT
Sears Chief Executive Alan Lacy said he was not
surprised that the stock dropped, saying it would take Wall Street some
time to understand the new Sears.
``Analysts, generally speaking, haven't done a lot of
work thinking through Sears post-credit, partly because we haven't given
them much to work with,'' he told Reuters in a telephone interview.
The Hoffman Estates, Illinois-based retailer said it
earned $2.7 billion, or $10.84 per share, in the fourth quarter ended Jan.
3. That compares with earnings of $848 million, or $2.67 per share, a year
earlier.
Excluding one-time items in both periods, earnings per
share would have been $2.24 in the latest quarter, compared with $2.11 a
year earlier.
Analysts, on average, expected Sears to earn $1.98 a
share, according to Reuters Research.
The latest quarter includes a pretax gain of $4.1
billion, or $10.38 per share, from the sale of the credit card division, a
pretax charge from early debt retirement, and a gain on the sale of its
National Tire & Battery business.
The company also had 20 percent fewer shares outstanding
this quarter because of hefty share repurchases.
Quarterly revenue rose 3.6 percent to $10.1 billion,
while sales at stores open at least a year — a key retail gauge known as
same-store sales — fell 2.1 percent.
Sears also said it would phase out its domestic pension
plan and replace it with a more generous 401k retirement plan for
employees hired in 2004 and those under age 40.
Lacy said the current pension system puts Sears at a
competitive disadvantage because it must pay for some 115,000 retirees,
while other major retailers have no such costs.
Sears shares fell $1.88, or 4.1 percent, to $43.92 on
the New York Stock Exchange Thursday afternoon.
Sears Plans to Offer
Citigroup Services
Reuters
January 29, 2004
CHICAGO (Reuters) - Sears, Roebuck and Co. plans to
offer financial services such as home mortgages in its stores through a
partnership with banking giant Citigroup Inc., Sears Chief Executive Alan
Lacy said on Thursday. "We know that customers will buy financial services
products from us," he said in a telephone interview. "Now, with us in
partnership with the world's largest financial services company, their
entire product line becomes available."
Lacy said Sears, which sold its credit card business to
Citigroup in November, is in the very early testing stages of its new
program, but hopes to offer mortgages, money transfers and other services
in its stores.
The Hoffman Estates, Illinois-based retailer has
previously offered credit protection and term life insurance, which have
proven popular with customers, Lacy said.
The retailer also plans to test what he called a
"Citigroup presence" at its new Sears Grand store in Gurnee, Illinois,
north of Chicago, which is slated to open in April. Lacy said that might
consist of a self-service kiosk or a minibranch staffed by Citigroup
employees.
Citigroup wasn't immediately available to comment.
With the sale of the credit card business, Sears has
left behind its long history in financial services. The company once owned
such well-known companies as Allstate Insurance Co., Coldwell Banker and
Dean Witter Discover.
Sears Records Big
Gain from Credit-Card Sale
A Wall Street
Journal Online News Roundup
January 29, 2004
Sears, Roebuck & Co. said its net income surged in the
fourth quarter, as a gain from the disposal of its credit-card business
outweighed a slight drop in revenue.
The Hoffman Estates, Ill., catalog and department store
retailer reported profits of $2.75 billion, or $10.84 a share, compared
with $848 million, or $2.67 a share, a year earlier. The results compare
the 14 weeks ended Jan. 3, 2004, with 13 weeks ended Dec. 28, 2002.
The latest quarter saw a gain of $4.1 billion, or $10.38
a share, from the company's sale of its credit-card business to Citigroup;
a charge of $791 million, or $1.98 a share, for early retirement of debt
related to that business; and a gain of $81 million, or 20 cents a share,
from the sale of National Tire & Battery, all pretax. The year-earlier
quarter included a pretax gain of $265 million, or 56 cents a share, from
the sale of the remainder of its stake in Advance Auto Parts.
Excluding these items, the company said adjusted
earnings per share were $2.24 in the latest quarter, compared with $2.11 a
share a year earlier.
Revenue fell 2.2% to $12.25 billion from $12.52 billion.
The company's retail division had operating income of
$753 million, up 3.7% from a year earlier thanks to the slightly longer
quarter and cash generated by a marketing agreement with Citigroup that
resulted from the credit-card sale. Revenue at the division rose 3.6%, but
sales at stores open at least a year fell 2.1%. The company's acquisition
of Land's End and placement of those more-expensive items in its stores
contributed about $400 million in sales for the year.
For all of 2003, net income more than doubled to $3.40
billion, or $11.86 a share, from $1.38 billion, or $4.29 a share, a year
earlier. One-time items resulted in a net gain of $2.2 billion, or $7.50 a
share, in 2003, compared with a net charge of $202 million, or 63 cents a
share, in 2002.
Revenue for the year fell slightly, to $41.12 billion
from $41.37 billion.
The retailer also said Thursday it expects full-year
2004 earnings before a change in accounting at its pension and health-care
program to be between $3.60 and $3.80 a share. Domestic sales at stores
open at least a year are forecast to grow "in the low single-digit range."
For the first quarter, the company expects a loss before
the accounting adjustment of between nine cents and 14 cents a share.
Same-store U.S. sales are expected to be flat or slightly higher when
compared with the first quarter of 2003.
The company also announced it is adjusting its operating
segments, now that the credit-card business has been sold. The company
will now report results for two segments, domestic and international. The
domestic division will include its former retail segment and the
"corporate and other" business, while the international segment will
represent the results of Sears Canada.
Sears Reports Fourth
Quarter 2003 Results
January 29, 2004
HOFFMAN ESTATES, Ill., Jan 29, 2004 /PRNewswire-FirstCall
via Comtex/ -- Sears, Roebuck and Co. (NYSE: S) today reported net income
of $2.7 billion, or $10.84 per share on an average base of 253.6 million
common and dilutive common equivalent shares, for the fourth quarter ended
Jan. 3, 2004, compared with net income of $848 million, or $2.67 per share
on an average base of 317.6 million common and dilutive common equivalent
shares in the fourth quarter of 2002.
Sears' 2003 fourth quarter results include the following
significant items:
A pretax
gain of $4.1 billion, or $10.38 per share, related to the sale of the
company's domestic Credit and Financial Products business; a pretax charge
of $791 million, or $1.98 per share, on the early retirement of debt that
occurred as a result of the sale of the company's domestic Credit and
Financial Products business; and a pretax gain of $81 million, or $0.20
per share, related to the sale of the company's National Tire & Battery ("NTB")
business. The 2002 fourth quarter results included a pretax gain of $265
million, or $0.56 per share, related to the sale of the company's
remaining investment in Advance Auto Parts, Inc.
Excluding the effects of these significant items,
adjusted earnings per share for the current quarter was $2.24 on an
average base of 253.6 million common and dilutive common equivalent
shares, compared with $2.11 on an average base of 317.6 million common and
dilutive common equivalent shares in the prior year quarter.
"We made significant strides in restructuring the
company and repositioning our retail and related services business in
2003," said Chairman and CEO Alan J. Lacy. "Our accomplishments in 2003
position us well to achieve our 2004 goals of building topline momentum,
improving our margin structure and growing key businesses to further
enhance our competitiveness."
Retail and Related Services
As a result of the sale of the domestic Credit
and Financial Products business on Nov. 3, 2003, the Retail and Related
Services segment now includes the revenues and related costs associated
with the long-term marketing and service alliance with Citigroup from the
sale date through the end of the quarter. In addition, on Nov. 29, 2003,
the company completed the sale of its NTB business. The fourth quarter
segment results include the results of operations of NTB through Nov. 29,
2003.
Retail and Related Services reported operating income of
$753 million for the fourth quarter of 2003, compared with $726 million in
the fourth quarter of 2002, with the current year period benefiting from
an additional week in the fiscal quarter and the revenues generated from
the program agreement with Citigroup.
Revenues for the fourth quarter were $10.1 billion, an
increase of 3.6 percent over the same period last year. Retail and Related
Services revenues in the current year quarter were favorably impacted by
approximately 6 percent due to the additional fiscal week. Comparable
store sales for the quarter, excluding the 53rd week, decreased 2.1
percent. Overall comparable store sales trends were impacted by later than
anticipated consumer seasonal purchases and a difficult promotional
environment. In the home group, the lawn and garden business continued to
experience strong performance throughout the quarter. Sales of consumer
digital products and tools also did well in the quarter. Within the
apparel and accessories group, improved merchandise offerings resulted in
comparable store sales increases in the core women's ready to wear and
footwear categories.
"Overall, we made progress in our full-line stores again
this year," Lacy said. "We enhanced the overall customer proposition of
our home appliance business, delivered exceptional sales across every
major category of lawn and garden and saw apparel sales trends improve
throughout much of the year, especially in our core women's ready to wear
business. Lands' End generated more than $400 million of in-store sales in
2003, with our Covington, Apostrophe and Canyon River Blues brands also
contributing to the improved apparel momentum."
The gross margin rate for the quarter declined to 28.9
percent in the current year from 29.4 percent in the prior year as
increases in promotional and clearance activities, particularly within the
apparel businesses, were partially offset by a favorable LIFO inventory
credit.
Selling and administrative expenses as a percentage of
revenues declined to 19.2 percent in the current year quarter from 19.9
percent in the prior year due to expense reductions in most retail
business formats from ongoing productivity initiatives as well as
Citigroup's support of credit promotional activity for the last nine weeks
of the fourth quarter.
Credit and Financial Products
On Nov. 3, 2003, the company sold its domestic
Credit and Financial Products business to Citigroup. The fourth quarter
segment results include the results of operations of the Credit and
Financial Products business through Nov. 2, 2003.
Credit and Financial Products reported an operating loss
of $645 million for the quarter, compared with operating income of $363
million for the prior quarter. The current year quarter operating loss
includes a $791 million loss related to the early retirement of debt.
Fourth quarter domestic Credit and Financial Products revenues were $526
million in the current year, compared with $1.4 billion in the prior year.
Sears Canada
Sears Canada reported operating income of $109
million for the fourth quarter of 2003, compared with $90 million in the
fourth quarter of 2002, benefiting from the additional week in the current
year fiscal quarter, as well as favorable foreign currency rates.
Revenues for the fourth quarter were $1.5 billion,
compared with $1.3 billion in the prior year quarter. Revenues for the
53rd week favorably impacted sales in the current year quarter by
approximately 4 percent.
The gross margin rate declined to 30.9 percent in the
current year quarter from 32.3 percent in the prior year, primarily due to
an increase in promotional activity. Selling and administrative expenses
as a percentage of revenues decreased to 23.5 percent in the current year
quarter from 23.9 percent in the prior year.
Full-Year 2003 Earnings
The company also reported full-year 2003 net
income of $3.4 billion, or $11.86 per share on an average base of 286.3
million common and dilutive common equivalent shares, compared with net
income of $1.4 billion, or $4.29 per share on an average base of 320.7
million common and dilutive common equivalent shares, for 2002.
The company's 2003 full-year results include several
significant items, such as the gain on the sale of the domestic Credit and
Financial Products business, whose 2003 results included a gain from the
sale of previously charged-off credit card receivables, the gain on the
sale of NTB, the loss on the early retirement of debt and a charge
resulting from the company's refinement of its business strategy for The
Great Indoors. In aggregate, these items increased 2003 net income by $2.2
billion, or $7.50 per share.
The company's 2002 full-year results also included
significant items such as the adoption of new accounting standards for
goodwill, a charge for the conversion of Eaton's stores to Sears Canada
stores, a change in accounting estimate for the allowance for
uncollectible accounts and a gain on the sale of the company's investment
in Advance Auto Parts. In aggregate, these items reduced 2002 net income
by $202 million, or $0.63 per share.
Share Repurchase Program
During the 2003 fourth quarter, Sears
repurchased 36.2 million common shares for a total cost of approximately
$1.8 billion, at an average price of $48.72 per share. As of Jan. 3, 2004,
the company had remaining authorization to repurchase approximately $1.6
billion of common shares by Dec. 31, 2006, under its existing share
repurchase program approved by the Sears board of directors in October
2003. The remaining shares may be purchased in the open market, through
self-tender offers or through privately negotiated transactions. Timing
will depend on prevailing market conditions, alternative uses of capital
and other factors.
Financial Position
The company ended the year with approximately $9
billion of cash and cash equivalents, an increase of $7 billion from the
prior year primarily due to the sale of the company's domestic Credit and
Financial Products business. As a result of the sale and related liability
management actions, the company's domestic term debt position has been
reduced to $5.3 billion as of the end of the current fiscal year, down
from $23.8 billion last year-end. The company expects to retire an
additional $2.6 billion of domestic term debt by year-end 2004, $2.4
billion of which is expected to be retired in the first half of 2004, and
pay $1.4 billion for taxes and other expenses associated with the sale of
the domestic Credit and Financial Products business. The company plans to
target, exclusive of seasonal working capital requirements, domestic
funded term debt, less cash and investments, of approximately $1.5
billion.
Pension and Post-Retirement Medical
Benefit Plans
Sears has undertaken a comprehensive evaluation
of its domestic pension and post-retirement medical benefit plans to
ensure that the benefits provided by the plans are the most appropriate
for today's workforce and competitive landscape. The evaluation involved
pension funding, plan design and related financial reporting
considerations.
Three important changes related to the company's pension
and post- retirement medical benefit plans are being implemented as a
result of this evaluation. First, Sears contributed $1.1 billion on a
pretax basis to its domestic pension plan in 2003, placing the plan in a
sounder financial and economic position, using proceeds from the sale of
the Credit and Financial Products business and operating cash flows.
Second, the company decided to enhance its 401(k) defined contribution
plan and begin phasing out participation in its domestic pension plan.
This change is designed to provide an employee benefit more closely
aligned with today's more mobile workforce. Associates hired in 2004 and
those under the age of 40 as of Dec. 31, 2004, will receive an increased
company-matching contribution to the 401(k)
plan, but will no longer earn additional pension benefits, starting in
2005. Pension benefits continue to accrue for associates age 40 and over
as of Dec. 31, 2004, unless they elect to participate in the enhanced
401(k) defined contribution plan. In addition, the company eliminated its
pre-65 retiree medical insurance contribution for associates hired in 2004
and those under the age of 40 as of Dec. 31, 2004, and capped the
contribution at the 2004 level for associates age 40 and older.
The third change in connection with the company's
evaluation of its pension and post-retirement medical benefit plans
involved a change in its accounting principle. Effective Jan. 4, 2004, the
company will recognize experience gains and losses on a more current
basis, while under its previous methods the company amortized experience
gains and losses over future service periods. In connection with this
change in accounting principle, the company expects to record a cumulative
one-time, non-cash, after-tax charge of $840 million in the first quarter
of 2004. This represents the recognition of unamortized experience losses
at the beginning of 2004 in accordance with the new methods.
Preliminary 2004 Guidance
The company's preliminary outlook for 2004,
before the effect of the cumulative change in accounting principle, is for
earnings per share to range from $3.60 to $3.80. This includes the
negative carrying cost of approximately $0.20 to $0.25 per share on the
company's remaining legacy debt related to its Credit and Financial
Products business. The preliminary outlook encompasses several important
factors, including: a 52-week fiscal year in 2004, versus the 53-week
fiscal year in 2003; pension costs reflected under the new accounting
method; the amount of outstanding debt; and the number of shares
outstanding due to the ongoing share repurchase program. The company
expects domestic comparable store sales to grow in the low-single digit
range for the year.
In regards to the first quarter of 2004, the company
expects domestic comparable store sales to range from flat to slightly
higher versus the prior year first quarter, with a loss per share before
cumulative effect of change in accounting principle ranging from $0.09 to
$0.14.
With the sale of the Credit and Financial Products
business, the company will be a more focused retailer and thus, the
company's financial reporting segments will be changed to reflect two
operating segments - a Domestic segment and an International segment. The
Domestic segment will comprise the former Retail and Related Services
segment, including the revenues earned from the Citigroup relationship,
and the former Corporate and Other segment. The International segment will
continue to represent the results of operations of Sears Canada.
Sears
Orders Fashion Makeover From the
Lands' End Catalog
By Amy Merrick - Staff
Reporter - The Wall Street Journal
January 29, 2004
As Mail-Order
Executives Run Clothing Department,
Two Cultures Clash
Inside Sears, Roebuck & Co., a new guard is making an
ambitious bid to turn around the ailing clothing department, long a venue
for matronly dresses and shapeless sweaters. The new team? The home of
Marinac fleece jackets, 7-Day Twill pants, Drifter sweaters and Kindest
Cut swimsuits.
Sears has begun handing over its apparel operations to
executives of Lands' End, the preppy, upscale clothier it bought for $1.86
billion in May 2002. Lands' End executives now head the Sears women's
apparel business, its design business and its Internet and catalog sales.
Before it was acquired by Sears, Lands' End was a mail-order company,
which didn't operate retail stores.
As the Lands' Enders try to revive the $4.7 billion
apparel department at Sears, they are sparking culture clashes inside the
nation's biggest department-store chain in terms of revenue. Accustomed to
making decisions informally over beer, the Lands' End executives are
balking at Sears's thick bureaucracy and hodgepodge of clothing for sale.
In some Sears stores, you can buy a Sears-brand "Classic Elements"
sweatshirt embroidered with a squirrel and acorns for $16.80, baggy black
jeans from the independent urban brand FUBU for $40.60, or a Lands' End
cashmere cardigan for $139 -- with few signs to tell shoppers what is
stocked where.
"You need a machete" to get through it all, says Sid
Mashburn, Lands' End's vice president of design, and now also Sears's new
design chief. "We should give them out at the door." Mr. Mashburn refers
to Sears's 2.3 million-square-foot headquarters, with its alphabetized and
numbered zones to subdivide offices, as "the Battlestar Galactica."
The newcomers are also running into confusion about just
who Sears's customers are. One in three Sears customers is Hispanic or
African-American, while Lands' End customers tend to be affluent, white
baby boomers -- similar to the shoppers who buy electronics and appliances
at Sears. Lands' End executives have searched for ways to explain their
brand to millions of new shoppers and even to some Sears veterans.
"Sometimes we take for granted that everybody knows what
a squall parka is, and that's just not true," says Patti Simigran, a
former Lands' End executive, who heads Sears women's apparel. "It's a
struggle sometimes when we think something is great and the other side is
thinking it's not."
Soon after the acquisition, Sears Chief Executive Alan
J. Lacy gave Lands' End executives broad authority over their merchandise
as it was introduced into Sears stores. David Dyer, former chief executive
of Lands' End, argued that Lands' End merchandise should be excluded from
Sears's typical discounting -- concerned that markdowns would cheapen the
brand's image. "Part of my assignment was to be Dr. No," says Mr. Dyer,
who left in August to become chief executive of Tommy Hilfiger Corp. But
when too many Lands' End goods were brought into stores for its first fall
season, the stores ended up having to mark some of it down anyway.
The process, Mr. Lacy says, taught the Lands' End
leaders that they still had much to learn. "Having seen what it's taken to
roll their brand out to 870 stores in the course of basically 10 months,
they probably have a much greater appreciation of the complexity of the
retail business and the effort it takes to do things like this," he says.
It's crucial for Sears to get its stores in shape
quickly. It has spent the last two decades starting businesses outside of
retail operations -- and then getting rid of them. In the 1980s, it
expanded into financial services and real estate. In the 1990s, it spun
off or sold those operations in order to focus on its stagnant stores. For
the past five years, Sears has repeatedly restructured and cut costs in
its retail business, promising an eventual payoff in rising sales. Revenue
from its department stores dropped 8.1% from 2000 to 2002, while sales per
square foot declined to $303 from $332.
After closing the sale of its enormous credit business
to Citigroup Inc. in November, Sears must survive solely on its stores,
which until recently accounted for a smaller portion of its operating
income than its credit cards did.
In recent months, sales at stores open at least a year,
an important measure of a retailer's health, have fallen. Operating
earnings from Sears's retail division posted a decline or a loss in the
first three quarters of last year, and fourth-quarter earnings are likely
to be hurt by weak holiday sales and discounting. Sears's stock price,
which rose steadily last year after the retailer said it would sell the
credit business, has fallen 15% since the beginning of December.
Mr. Lacy, the Sears chief executive, says Lands' End is
performing ahead of its acquisition plan, but he declined to be more
specific.
The apparel riddle bedevils executives at Sears, which
has a long track record of anticipating consumer wishes in other areas.
Sears created a mass market for goods previously reserved for the wealthy.
Electric refrigerators were a largely unattainable luxury until the 1930s,
when Sears developed an inexpensive model. One of the first retailers to
recognize the revolutionary effects of the automobile, it sold tires,
Craftsman tools and DieHard batteries.
Today the Sears tool business is strong. One of every
two American homeowners has an appliance from its store brand, Kenmore,
and Sears has a leading 39% market share in the category. In the past six
months, its appliance sales have regained ground, after it added cheaper
goods and more products that customers could lug home with them --
measures to fend off competition from Lowe's Cos. and Home Depot Inc.
But its clothing department has never held up its end of
the store. A walk through the flagship Sears store in Chicago this month
turned up boxy, neon-flowered tunics, dark blouses in pleated polyester
and bright, faux-suede jackets with spongy shoulder pads. Sears says its
clothing department is "evolving" and that the attention it has been
giving to apparel will pay off in improved products this year.
In 2002, Sears scrapped 570 apparel brands or labels --
Bold Spirit, Crossroads and Trader Bay, to name a few -- and replaced many
with a single brand called Covington. But Covington was designed before
the Lands' End purchase, and many items look similar side-by-side. It is
tough to charge a full-price $49 for a zip-up Lands' End sweater when a
Covington look-alike costs $26.60. Sears says it has been reworking the
Covington brand to distinguish it from Lands' End.
Women, the most important customers for apparel
retailers, often say they prefer to shop elsewhere. A 2002 survey by
Retail Forward Inc., a consulting and market-research firm, found 24% of
respondents bought women's casual clothing most often at Wal-Mart Stores
Inc., J.C. Penney Co. and Kohl's Corp. Each received 8% of the votes,
followed by discounters Target Corp. and Kmart Holding Corp., at 4% each.
Only 3% of respondents said they bought women's casual clothing most often
at Sears.
In the split between discounters and department stores,
Sears got left in the middle. In the 1960s and '70s, more department
stores were like Sears, selling a wide array of electronics, toys and
other goods in addition to clothes. As discounters such as Wal-Mart and
big-box stores such as Best Buy began to dominate those areas, some
department stores, such as J.C. Penney and Kohl's, started focusing more
on clothing. Because Sears continued to do well in appliances and tools,
it wasn't as critical that it become expert at selling clothes. In the
past five years, Wal-Mart and Target have also been beefing up their
clothing businesses, with lower-priced goods.
As Mr. Lacy looked for a well-recognized brand to give
Sears a premier apparel label, Lands' End seemed like a good fit on paper.
But the companies had many differences in style. The Lands' End offices in
Dodgeville, Wis., are an hour outside the nearest big city and reached by
a lightly traveled road that weaves around farms. At Lands' End, which had
$1.6 billion in annual revenue before the acquisition, strategic decisions
were sometimes made by a small group debating casually after work, company
executives say.
Sears has 241,000 employees, $41.37 billion in revenue
in 2002, and a history of excess: It built what was, at the time, the
world's tallest building as its headquarters; it once had 29,000 pages of
company guidelines.
Bill Bass, who headed the Internet business for Lands'
End, says he planned to bolt when he heard Sears was likely to acquire the
company. He says he changed his mind, though, after Mr. Lacy convinced him
Lands' End would never be forced into the Sears mold. Mr. Bass now heads
the online business for both Sears and Lands' End.
Mr. Bass fumed at the Sears formality during a recent
meeting. Employees were hashing out a plan to begin selling apparel online
this year -- a major effort for the company. According to Mr. Bass, one
said, "We've been out interfacing with stakeholders to obtain consensus."
Mr. Bass snapped back: "Do you know what you just said? Normal people
don't talk like that!"
A vocal critic of Sears's idiosyncrasies, Mr. Bass
grouses about colleagues who seem more obsessed with making PowerPoint
slides than making decisions. At another recent meeting about shipping
rates, he says a Sears employee gave a presentation with nine slides. When
Mr. Bass grumbled, he says he was told: "This is good. It was 45 slides, and we got it down to nine."
He adds: "At Sears, the first thing out of someone's
mouth tends to be about the shareholder. At Lands' End, the first thing is
about the customer." Mr. Lacy, the chief executive, disagrees. "Our No. 1
priority for the last four years has been to be customer-driven," he says.
Jeff Jones, formerly chief operating officer at Lands'
End, found it best to erode ingrained habits slowly when he took over The
Great Indoors, Sears's decorating and remodeling chain. The venture is
important to Sears, which needs to find ways to grow other than opening
big stores.
Mr. Jones asked his bosses if he could use software and
analysis to sift through customer-purchase information. The response:
Sears doesn't do that. So he began buying beers after work and cafeteria
lunches, he says, talking up his arguments with Sears managers. "A long
time ago, I figured out that to be successful when you go into a company,
you need to work through a culture, not against it," he says. "That
doesn't mean I can't get on the edge and make changes."
Sears says that since Mr. Jones arrived, it has upgraded
its software and data-mining abilities. He eventually got permission to
perform the data analysis. Now he knows the store needs to focus on
customers with incomes of $50,000 to $100,000 and higher. It is a more
upscale group than Sears had been targeting; in fact, 15% of customers at
The Great Indoors have homes valued at more than $1 million, the company
says. The data helped his team develop a new marketing campaign that will
begin this spring.
Lands' End continues to have its own catalog, separate
from Sears. Lands' End customers are a loyal bunch who peruse the detailed
write-ups in a catalog that was, until recently, edited by Lee Eisenberg,
former editor-in-chief of Esquire magazine. An entry in the winter issue
explained that flannel for its men's plaid shirts came from "the historic
mills of Guimaraes, nestled in the foothills of Northern Portugal." A
typical Sears ad reads: "boot-cut corduroy pants, sale 19.99, reg. 32.00."
To spruce up Sears's brands, Mindy Meads, formerly head
of merchandising and design for Lands' End, was called in. She held about
15 meetings with designers and merchants to imagine who the customer would
be for each brand. For example, the "Apostrophe" customer is a
25-to-45-year-old woman who needs fashionable work clothes, likes
exercising and socializing, and describes herself as "sexy," according to
Sears. In a photo chosen to represent her, she is tall, slender and
dark-haired, wearing a short jacket, sleek pants and pointy-toe heels. The
exercise -- something leading retailers do routinely -- is an example of
the detailed strategy work Sears had neglected over the years.
By spring, there will be a clear distinction between
Sears's five private-label women's clothing brands, with better store
signs to highlight the products, Ms. Meads says. During the holidays, she
says, Sears was still learning how shoppers in different stores would
respond to Lands' End. "We didn't necessarily have all the right units in
the right stores, and we've corrected that," says Ms. Meads, who became
chief executive of the Lands' End division this month.
Sears Says
Benefit Cuts Meant to Help it Compete
By Sandra Guy - Business Reporter
- Chicago Sun-Times
January 28, 2004
Sears Roebuck and Co. will eliminate stock-option grants
to most of its 17,000 salaried employees, and end guaranteed pension
benefits and company-subsidized retiree medical insurance to all new hires
and to employees younger than 40, starting Jan. 1, 2005.
Sears also will dramatically cut bonuses to some of its
salaried employees.
However, Sears will raise the wage rates for 20 percent
of hourly employees who Sears has decided make less than competitors pay.
The benefit cutbacks are necessary so the retailer can
compete more effectively against rivals such as Wal-Mart, Target, Lowe's
and Circuit City, which offer no guarantees of pensions or retiree
benefits to workers, said Greg Lee, Sears' senior vice president of human
resources.
Sears declined to reveal the expected savings or the
number of employees affected.
Sears employees younger than 40 -- an estimated
one-third of Sears' current 401(k) participants
-- will be switched to a stock-market-based 401(k) plan from the
defined-benefit pension plan in which they now participate. In return,
Sears will increase its matching contribution to 5.5 percent of their base
pay from the current 3.5 percent.
Sears said the pension change is needed because
employees stay with the company for shorter periods than in the past -- 10
years on average in 2002 compared with 20 years in 1990. Therefore,
employees can benefit by taking their 401(k) savings with them to a new
job, a Sears spokesman said.
New hires as of Jan. 1, 2004, are automatically eligible
to participate in Sears' 401(k) plan. Their vesting period will be three
years. Previously, employees were eligible one year after they were hired
as long as they had been on the payroll Dec. 31 of the previous year.
Employees 40 or older will have until this summer to
decide whether they, too, want to opt out of the pension plan.
Sears also will cap its contribution to retiree medical
insurance coverage for employees age 40 and older at 2004 levels.
Sears Pares its Benefits
Program
By Becky Yerak
- Tribune staff reporter - Chicago Tribune
January 28, 2004
Some pensions shifted to
401(k)s
Sears, Roebuck and Co. is cutting compensation and
benefit programs, announcing plans to reduce bonuses, curtail stock option
grants and phase out pension plans for younger staffers.
The changes are the latest sign that Sears is adjusting
its business model to better compete against low-cost operators such as
Wal-Mart, Target and Home Depot, all of which are making big inroads into
Sears' franchise.
Sears hasn't closed a year with a sales gain since 2000.
"In the world of retailing there are very few
competitors with pension plans and retiree medical benefits," said Greg
Lee, senior vice president for human resources. "That puts Sears at a
disadvantage."
Lee declined to say how much Sears will save over time
on any of the new personnel initiatives.
Last week Sears divulged plans to outsource as many as
270 information technology jobs, one of the latest moves by Sears Chief
Executive Alan Lacy to adjust to the new retail landscape.
He's also testing a new retail concept called Sears
Grand, a Wal-Mart-reminiscent big box that sells everything from
appliances and auto parts to greeting cards and vitamins.
The company, however, did have good news for its 135,000
hourly workers. About 20 percent will receive raises. "In some areas,
current pay rates are below competitive levels for hourly associates,"
Sears said. Pay decisions will be made on a market-by-market basis.
Other elements of Sears' compensation and benefits
overhaul include:
Shifting more workers from a pension plan into a 401(k)
plan. "Most retailers are moving from pension plans to 401(k) plans,"
Sears said. Sears' previous 401(k) plan offers a 3.5 percent company
match; the new plan offers 5.5 percent.
Current workers age 40 and over may stay in the pension
plan or move to the new 401(k) plan.
All other workers will be shifted to the new 401(k) plan
beginning in 2005.
Employees keep pension benefits already earned.
Eliminating stock options for most salaried workers.
Starting in 2005, stock option grants will be limited to directors and
vice presidents.
Reducing bonuses for senior executives and most salaried
workers. Bonuses "will be reduced to industry average levels and
standardized as a percentage of base pay," said Sears, which has 17,000
such workers. Affected workers will receive a transition payment to offset
the difference in the new bonus.
Eligible workers under age 40 will have access to
medical insurance at Sears' group rates upon retirement, but they must pay
for it themselves. For workers 40 and older, Sears will continue to
subsidize retiree medical insurance coverage, but the subsidy will be
capped at 2004 levels.
Current retirees won't be affected by the changes.
"These are smart and necessary moves to make the company
more competitive with other retailers," one former executive said. "It's
also smart to start with these rather than headcount reductions."
Sears also is reviewing its corporate structure, which
it has said could lead to a third round of layoffs in as many years.
Lands' End
Likes Living at Sears
By Becky Yerak - Tribune
staff reporter
Chicago Tribune - Inside Retailing
January 27, 2004
Sales of Lands' End merchandise in 2003 rose more than
20 percent over 2002 largely due to the brand's introduction in all Sears,
Roebuck and Co. stores.
Sears finalized its purchase of the Dodgeville, Wis.,
cataloger and online retailer in June 2002. By September 2003, the preppy
clothing line was in all 870 Sears stores.
"In 2003, the Lands' End brand across all three channels
has grown around 20 percent," said Sam Taylor, a Lands' End Inc. vice
president.
But although the Lands' End brand is more prominent, it
hasn't been able to turn around the fortunes of Sears' clothing .
In October, November and December, Sears' overall sales
of apparel and accessories fell compared with the same months in
2002--despite having Lands' End in all stores.
Are you more J. Lo or Calista? Someday, folks manning
the phones at Lands' End might ask callers about the size of their
bras--or even their backsides.
No, the company's not diversifying with a talk-dirty
line.
But with this week's mailing of a men's spring catalog,
the clothier will offer custom-made clothes over the phone, starting with
men's dress shirts.
Until now, Lands' End Custom was available only to
online shoppers.
"One concern about doing it through the catalog is talk
time on the phones," said Taylor, the Lands' End vice president of
e-commerce. "Also, how comfortable would customers be sharing personal
information with a total stranger on the phone? `What's your bra size?
Describe the shape of your seat: regular, flat,
prominent?'"
To reduce hemming and hawing, Lands' End devotes two
pages to the process, asking men's shirt shoppers--before calling--to
ponder preferences in fabric, color, pattern, cuffs and pleats, as well as
identifying which rendering most resembles their chest and stomach.
"The idea is to help the customer, before they pick up
the phone, to decide what they want," Taylor said.
Lands' End began customizing men's and women's chinos in
2001. In 2002 it added men's dress shirts and men's and women's jeans.
Women's blouses and men's tailored pants became options in 2003.
Customization sales were up 72 percent in 2003, Taylor
said.
Lands' End, Casper split: After the "search" key, it's
the most popular tool on Lands' End Web site: My Virtual Model. Key in
such vital statistics as height, bust and waist, and get a sense of how
you'd look in everything from jeans to a polo shirt.
But someone new is guiding shoppers now, as Lands' End
has replaced its model of six years.
The old model was faceless and ghostly, with no clothing
options on the page. "We used to call her Casper," Taylor said. A shopper
had to answer four pages of questions before seeing a personalized model.
There were only four faces to choose from.
The new model is more lifelike and has clothing and
color options on the page. Now shoppers can see the model's look evolve as
they answer the questions, and there are six faces from which to choose.
Manufacturing plants closing: Lands' End, which makes
only about 1 percent of its products, soon will be a pure designer.
In April, it'll close its only two plants, both in Iowa.
The plants make luggage, blankets, duffel bags, hats, scarves and mittens.
Some of the 139 workers will land jobs at another company assuming one of
the plants. Others will be offered Lands' End jobs elsewhere. Also laid
off will be 37 fabric cutters at headquarters.
Sears Call Hub Closing;
800 Jobs Cut Off
By Stewart Yerton - Business
writer
New Orleans Times-Picayune
January 27, 2004
CitiGroup Axes Facility in
Eastern New Orleans
The nation's largest financial services conglomerate
announced it will cut more than 800 positions at a credit card customer
service center in New Orleans.
Citigroup Inc. last week told employees that it would
shutter its Sears credit card center in eastern New Orleans by October,
said Maria Mendler, a spokeswoman for Citigroup's Citibank unit. The
office employs 847 workers who handle customer-service and collection
calls, Mendler said.
Citigroup's move comes less than three months after the
financial giant finalized its acquisition of Sears, Roebuck and Co.'s
customer credit card portfolio for $3 billion in November.
That deal allowed Sears to jettison a consumer credit
division that had grown into a behemoth rivaling its retail business, with
accounts and outstanding balances of $29 billion. Citigroup, meanwhile,
solidified its position as the nation's largest provider of private-label
credit card services. In its latest earnings statement, the company
reported 129 million credit card customer accounts with $149 billion in
receivables.
The deal also allowed Citigroup to reduce costs by
cutting jobs at operation centers previously operated by Sears. In
addition to closing the New Orleans center, Citigroup has announced it
will close a 930-employee call center north of Philadelphia as well as
centers in Atlanta; Cleveland; Salem, Mass.; and Tempe, Ariz., Mendler
said.
The move comes less than a week after city leaders
inaugurated a business organization that aims to create 30,000 net new
jobs in the region over the next five years.
Staying stateside
City officials learned of the closing late Friday and
were still digesting the news on Monday.
Beth James, director of the New Orleans Mayor's Office
of Economic Development, said initial information indicated that Citigroup
was moving the jobs to call center operations in India, but the company
said Monday that the jobs were staying in the United States.
Mendler said that Citigroup doles out some work driven
by domestic business to overseas call centers, but that it is a "very
small percentage" of the total. The company has 30,000 call center
employees in the United States, she said.
James said the fact that the jobs are not leaving the
United States might give New Orleans officials a chance to keep the work
in the region.
"I think there's an opportunity to go after it and keep
it if it's staying stateside," she said.
In the meantime, James said, her office is working with
state agencies, such as the Louisiana Department of Labor, to find work
for the Sears center employees.
"We want to make sure these people have jobs," she said.
"These are good employees with good training."
The city is also calling for an on-site help center to
assist call center employees who will be losing their jobs.
"We are doing all we can to keep those jobs in New
Orleans or to find other jobs for the workers," Mayor Ray Nagin said. "We
will work with city, state and federal lawmakers to make that happen."
Saving the center
Eugene Green, president of the New Orleans Business and
Industrial District, where the center is located, said the loss of the
center was a blow. However, he said, the city's economy should be able to
absorb the workers, particularly given that the center will not close
until October.
"It would be much worse news if we learned that the
doors were going to be closed tomorrow," he said.
Green said he is maintaining hope that state and city
leaders can persuade Citigroup to change course and keep the center open.
"They haven't told me that there's no hope whatsoever,"
he said.
City Councilwoman Cynthia Willard-Lewis said she was
prepared to travel to New York to meet Citigroup executives to "discuss
with them why this decision was a mistake."
"If this is a national trend, it must stop," she said,
"and we must follow up with Gov. Blanco to further protect Louisiana jobs
from corporations that weaken the fabric of Louisiana's economic
stability."
In a statement, Gov. Kathleen Blanco said the call
center is important to New Orleans, and she has pledged to help retain it.
She said she'd work to market the work force to other call centers looking
to expand.
"If we are unable to save the call center or attract
another one quickly," she said, "we will make sure that retraining
opportunities are provided to those workers impacted by this decision."
Mendler on Monday left little doubt that Citigroup's
decision was final.
"The decision was made after careful evaluation," she
said. "We don't make these decisions lightly."
Replacing the jobs
Mendler said Citigroup will work with state and city
officials to help workers make the transition into new jobs with other New
Orleans firms or with other Citigroup facilities. The company is offering
severance packages for employees and paying relocation expenses of workers
who take a Citigroup job in another city, she said.
Citigroup's announcement came less than a week after
business leaders joined Blanco to hail the formation of Greater New
Orleans Inc. A reincarnation of the New Orleans Regional Chamber of
Commerce, the group aims to create 30,000 new jobs and $1 billion in new
payroll during the next five years.
Barbara Johnson, interim president and chief executive
of Greater New Orleans Inc., said the Sears call center jobs represent
mostly entry-level positions in the back-office operations sector. She
said Greater New Orleans Inc. sees opportunities to replace such jobs,
which typically pay $8 to $11 an hour, with higher-wage jobs, such as
technical-support jobs for computer companies.
"We clearly see opportunities for job creation in this
sector in the higher end," she said.
Johnson said that about one-third of the 30,000 new jobs
Greater New Orleans Inc. intends to help create will be in the information
technology sector and include data-processing and technical-assistance
positions.
Louisville Tries to Win 1,620 jobs...
Citigroup May Expand Call Center
By Wayne Tompkins, The
Courier-Journal Louisville Courier-Journal
January 27, 2004
Economic development officials are trying to persuade
Citigroup Inc. to add more than 1,600 call-center jobs in Louisville
rather than move its existing staff of 500.
Citicorp Credit Services Inc., a Citigroup subsidiary,
is considering a proposal to expand the company's local credit-card
operations, and a decision is expected within two months. Under the plan,
the company would invest more than $35.8 million in the project and create
1,620 jobs paying an average of $32,000 per year.
"It's a big deal ... the largest we have in the
pipeline," Metro Mayor Jerry Abramson said. "Multiply it out and look at
the kind of dollars you're looking at in terms of payroll" — nearly $52
million from the new jobs alone.
Talks have been under way since mid-October, and in
meetings with Citigroup officials during the past several weeks, Abramson
has been helping pitch a city that is already home to more than three
dozen call centers.
"When I have been meeting with them ... they feel very
good about the work-force availability and they've looked at several
real-estate opportunities that fit their needs," Abramson said. "I'm very
optimistic, but it's not over until they make the ultimate decision.
They're still comparing our community to others around this region."
The Citigroup jobs bonanza is one many communities are
coveting.
"It's a very competitive project," said Joe Reagan,
chief operating officer for Greater Louisville Inc., the Metro Chamber of
Commerce. "I can't speculate on who we are competing with, but we know
they are looking at communities all over the country. Many communities of
a similar size would be in the running."
On Thursday, the Kentucky Economic Development Finance
Authority will consider a local and state incentives package for
Citigroup, including training grants and an industrial revenue bond.
Citigroup officials did not return calls yesterday, but
a company spokeswoman said last week that Louisville is "a potential
expansion site for us." The company also operates a large call center in
Florence, Ky., near Cincinnati.
Louisville officials are assuming that, because the
company is looking to consolidate its call center operations, Louisville
stands to lose its existing Citigroup employees if it doesn't get the
expansion.
Gene Strong, secretary of the Kentucky Cabinet for
Economic Development, said the details of the incentive package were still
being finalized yesterday and will be made public on Thursday.
"These are the kind of world-class companies you like
having doing business here," Strong said. "It really sends a signal not
just regionally, but nationally when you have an opportunity like this
with this kind of company."
Citicorp Credit Services already employs more than 500
people in Louisville following its November acquisition of Sears Roebuck
and Co.'s credit-card division. Citigroup acquired Sears' Louisville call
center and most of its employees as part of that deal.
Sears recently announced it was laying off the 240
employees who remained with the retailer at that call center.
"It will be a while before we know if we've won the
project or not," Reagan said. "We have a very good track record with call
centers and a good labor force. One of the first things Citigroup worked
on was assessing the quality of our labor pool."
Humana Inc. consolidated three of its call centers in
Louisville last year, and two more local companies' call centers recently
announced their own major expansions. Greater Louisville Inc., beginning
an economic impact study of the centers, already has identified nearly
three dozen of them in the area — and it's still counting.
The centers have brought several thousand modest-paying
jobs, lured by Louisville's low cost of living, friendly disposition and
relatively neutral regional accent. Work-force skills and the availability
of both technology and cavernous office space for employees also play a
role.
In most cases, Louisville call centers are not involved
in telemarketing. The vast majority of calls come from customers ordering
products, asking questions or seeking technical assistance. In October,
the Customer Contact Center Network was launched as a forum for
Louisville-area call centers to network with peers and exchange ideas.
Still labor-intensive despite their heavy use of
technology, call centers have become both economically and politically
popular for their ability to generate large numbers of jobs quickly while
efficiently routing and consolidating customer service inquiries.
The growth of call centers in Louisville has helped
offset some high profile job losses in recent months, including Frito
Lay's decision in December to close its 41-year-old Southwest Louisville
plant, at a cost of more than 300 jobs. In October, R.J. Reynolds Tobacco
Holdings Inc. bought Louisville-based Brown & Williamson Tobacco Corp.,
taking the company's Louisville headquarters and its 450 jobs.
"We're optimistic that we're going to get some good
news, we hope, in Louisville, because we've certainly had some businesses
there that you don't like to see having layoffs and reductions in
employment," Strong said of the Citigroup talks.
5 Firms
in Running for Sears Systems Work
Bloomberg News
- Chicago Tribune
January 27, 2004
Sears, Roebuck and Co. is considering proposals from
five companies to help run its computer systems.
International Business Machines Inc., Hewlett-Packard
Co., Computer Sciences Corp., Electronic Data Systems Corp. and Affiliated
Computer Services Inc. have submitted bids to handle networking and data
centers, said Gerald Kelly, chief information officer for the Hoffman
Estates-based retailer.
He declined to say what the contract is worth or give an
estimate of savings.
Personal Use
of Corporate Jets Flies on IRS Radar
By Susan Chandler -
Tribune staff reporter - Chicago Tribune
January 25, 2004
The auditors threw up their hands.
The records covering corporate jet use at Hollinger
International Inc. were so confusing that outside accountants couldn't
determine which trips were business and which were personal.
Rather than investigate, the company's audit committee
approved all jet expenses retroactively "for security reasons"--regardless
of who was flying where or why.
Questions about the corporate jets at Hollinger are part
of an internal investigation at the company, which owns the Chicago
Sun-Times. But they also reflect a broader controversy throughout the
business world about use of corporate planes.
The issue comes down to this: The Internal Revenue
Service suspects that many executives, along with their friends and
families, are using company planes for purely personal reasons, including
shopping trips, golf outings--even jetting off to the hairdresser--without
declaring the trips as income.
If the tax agency is right, it means that executives
have been cheating the government out of tax revenue on such perks, which
should have been counted as part of their pay.
Some of the tax rules on the use of company planes have
loosened since the IRS lost a bruising court battle in 2001. But as part
of a new push to scrutinize executive pay, government auditors are poring
over the books of 24 companies, whose names remain secret.
The audits, led by agents trained in Chicago in a
special seminar last fall, include a hard look at benefits funneled to
directors and corporate officers, including use of corporate aircraft.
"We already are seeing it," said David Fuller, the head
of law firm McDermott, Will & Emery's fringe benefits and tax practice.
"We just finished an audit where the corporate jet was a big issue."
Being freed from airport hassles long has been one of
the most-sought-after perks in executive contracts. The desire to fly
privately became greater after 9/11, when heightened airport security
resulted in long lines and occasionally embarrassing searches for busy
travelers.
Some outgoing chief executives have negotiated seats on
the corporate jet as a condition of their retirement.
Billionaire Warren Buffett coyly nicknamed his private
jet The Indefensible. He also joked in a letter to shareholders that "if
our net worth continues to increase at current rates, and the cost of
replacing planes also continues to rise at the now-established rate of 100
percent compounded annually, it will not be long before Berkshire's entire
net worth is consumed by its jet."
Buffett eventually sold The Indefensible, believing he
had glimpsed the future in NetJets Inc., a company that offers "fractional
aircraft ownership" to those who can't afford their own planes. He flew as
a customer for three years before buying NetJets in 1998. The Sage of
Omaha also acquired FlightSafety International Inc., a New York company
that trains pilots.
Targeted by critics
It hasn't been all smooth sailing for the corporate jet
set.
After jet expenses became a target of corporate
governance critics in the late 1990s, some companies began grounding their
fleet. Sears, Roebuck and Co., for example, a few years ago sold a
helicopter and traded in two jets for smaller models after retirees
complained the company was cutting their benefits while executives rode in
style.
Infamous Enron Corp. owned a fleet of corporate aircraft
that executives used for cross-continental shopping sprees and
international vacations. During the Masters golf tournament, eight company
and chartered jets were used to transport Enron executives and guests from
place to place.
"The company's hangars and planes became a high-altitude
playground for the company's big shots," wrote Robert Bryce, the author of
"Pipe Dreams: Greed, Ego and the Death of Enron."
The corporate jet at Tyco International Ltd. has figured
in the ongoing trial of former leader Dennis Kozlowski. The CEO famous for
his $6,000 shower curtain also allegedly tried to generate favorable
coverage of Tyco stock by allowing a Wall Street analyst to fly on the
company's jet.
Surge in sales
But despite increased scrutiny, it looks like corporate
jets are back.
Manufacturers of small jets say business is booming.
Demand for Gulfstream aircraft reached record levels last quarter, and
demand for second-hand corporate jets was so strong that the supply
virtually dried up late last year.
The upturn in sales is in sharp contrast to three
previous years of falling sales, a result of corporate belt-tightening and
criticism of executive perks.
For years, the IRS has said the costs of owning and
operating aircraft were fully deductible for business trips. But when a
company jet was used for personal travel, the company could only deduct an
amount determined by a formula intended to approximate the cost of a
first-class airline ticket. Company executives are required to report that
same amount on their personal tax returns as income.
Then came along Sutherland Lumber-Southwest Inc. of
Kansas City, Mo.
Sutherland, which owned a Learjet that was used for
business and personal travel, wanted to fully deduct its aircraft costs,
but the IRS said no.
Sutherland took the case to U.S. Tax Court and won.
The 2001 verdict was a boon to businesses because the
cost of mustering a jet to fly from New York to London may approach
$100,000, but the executive may have to include only $2,000 for the value
of the trip on his or her personal tax return. And that's all the company
would have been allowed to deduct before.
Since then, an unidentified company asked the IRS
whether it could take a full deduction even though its jet was used for
personal travel 95 percent of the time. The IRS gave the thumbs up.
That may encourage more corporations and business owners
to fly their own friendly skies.
"Now that the deduction rules are being applied more
consistently, owning a corporate jet may become an option that is more
attractive to business owners," said Jarrett Bostwick, a Chicago lawyer
with Gardner Carton & Douglas who specializes in wealth planning.
At Chicago's Hollinger International, corporate jet use
was a big expense for a midsize company--$1.4 million in the first six
months of 2002 alone, according to board minutes. During that same period,
Hollinger posted a net loss of $85.6 million.
Wall Street analysts at Jefferies & Co. estimate it cost
Hollinger $8 million to $10 million a year to operate two jets.
Hollinger CEO Conrad Black acknowledged the company
couldn't really afford the luxury of owning one jet and leasing another
during an economic downturn. But he wasn't prepared to give them up, he
wrote in internal e-mails that were included in a recent suit filed
against Black by Hollinger's board, which wants him and top deputies to
repay $300 million in personal payments and management fees.
"There has not been an occasion for many months when I
got on our plane without wondering whether it was really affordable,"
Black wrote in an August 2002 message to a Hollinger executive vice
president.
"But I'm not prepared to re-enact the French
Revolutionary renunciation of the rights of nobility. We have to find a
balance between an unfair taxation on the company and a reasonable
treatment of the founder-builders-managers. We are proprietors, after all,
beleaguered though we may be."
Black and his wife, Barbara Amiel, who also is an
officer of Hollinger, made frequent personal use of the company aircraft.
Amiel recently redecorated the leased jet at a cost of $3 million.
The Blacks used the jets to shuttle between their four
homes in London, New York, Toronto and Palm Beach, Fla. Amiel reportedly
has told friends she took the jet to shop in New York and have her hair
done in Toronto.
Sun-Times Publisher David Radler also was a frequent
traveler, as were members of his family, who have flown the corporate jet
to Beverly Hills to shop, according to sources close to Hollinger.
Black's personal spokesman declined to comment. A
spokesman for Radler said that "the only time he was in Beverly Hills
since 1994 was on a Hollinger road show," but the spokesman would not say
if family members had used the planes to go there.
Black and Radler stepped down from their posts last
year.
Security designation cuts tax
So what about the Hollinger audit committee's decision
to approve all jet expenses because of security risks to its executives?
The company likely can justify that action because
Hollinger owns prominent newspapers, including the Jerusalem Post, that
may make its executives the target of legitimate threats, tax lawyers say.
While the company can deduct the full cost of personal
travel, citing security concerns means executives pay about 50 percent
less in income taxes for those trips, according to the IRS.
"The security issue does not let you off the hook from
income inclusion. It just cuts in half the income you include," said
Fuller, the tax lawyer.
There are other requirements as well when companies
contend it's unsafe for their top brass to fly commercially. Companies
must hire an outside firm to develop a round-the-clock security program
for executives and then follow it.
In most cases, that means an executive must be driven
around by a chauffeur/bodyguard trained in evasive driving techniques.
If the IRS discovers the security rules haven't been
followed, they have a big hammer, tax attorneys say. They can force
executives to include the full cost of the personal jet travel in their
income, not the reduced-fare amount.
"It's a dangerous gamble," Fuller warned.
Hollinger won't have to worry any more.
The corporate jets were grounded by the board of
directors in November after Black was forced to resign. The Challenger jet
is up for sale, and the leased Gulfstream IV has been returned.
Citibank to Close Facility
in Bucks
By Todd Mason - Inquirer
Staff Writer - Philadelphia Inquirer
January 23, 2004
The former Sears credit-card center in Neshaminy was
acquired by Citigroup Inc. last year and employs 930 people.
Citibank will close a former Sears, Roebuck & Co.
credit-card operations center in Neshaminy, idling 930 workers, the bank
confirmed yesterday.
The collections and customer-service work done there
will be transferred to other Citibank facilities, said Maria Mendler, a
bank spokeswoman.
Citigroup Inc., the bank's parent, paid $3 billion last
year for Sears' credit-card portfolio. The deal was completed in November,
and, Mendler said, "that's when you go in and decide how best to organize
the business.' "
The bank broke the news to employees Wednesday, Mendler
said. "When we can be decisive on a particular acquisition, our goal is to
tell the employees as quickly as possible."
In April, Citibank will close the collections operation
in Neshaminy, which currently employs 600 people. In December, it will
close the customer-service operation, which employs 330.
The bank is offering severance pay equal to two weeks'
salary for each year of service, subject to a minimum of 12 weeks' pay and
a maximum of 52 weeks'.
Mendler said the bank also would help find jobs at its
other locations for employees willing to relocate. Citibank employs 30,000
people at 30 card-operations centers.
Closings are a predictable outcome in credit-card
mergers and acquisitions, said David Robertson, publisher of the Nilson
Report, an industry newsletter.
Two pending deals could result in additional area job
losses. FleetBoston Financial Corp. employs 1,463 people in its card
center in Horsham. Bank of America, its prospective buyer, bases its card
operations in Arizona.
The merger of J.P. Morgan Chase & Co. and Bank One Corp.
will combine two Delaware credit-card operations. Bank One employs 2,700
people in Wilmington. Chase employs 1,600 in Newark.
Even so, Robertson said, the trend is for card
processors to move west.
"You're talking about the difference between union
states and right-to-work states," he said. "It is simply more expensive to
operate in the Northeast than it is in the West."
Sears Cuts 240 Call Center
Jobs
Ed Green - Staff Writer
- Business First of Louisville
January 22, 2004
For the second time this week, hundreds of workers at a
call center in Louisville are being laid off as a national company
consolidates its support operations in other cities.
This time, 240 workers at the Sears, Roebuck and Co.
customer service and call center operation off Blankenbaker Parkway are
being laid off as the retail giant eliminates the remainder of its
operations at the site.
The consolidation follows last year's sale of the
building by Sears -- which employed customer support and collections
workers -- as part of its $32 billion deal with New York City-based
Citigroup, according to Bill Masterson, a spokesman in Sears' public
relations department near Chicago.
The Sears/Citigroup deal was announced in July 2003 and
completed in November.
Masterson said Sears employees, who were told of the
layoffs Wednesday, were part of Sears' retail support operation, which
remained in the building following the sale. He said the employees being
laid off will be phased out between now and mid-May.
As part of the agreement with Citigroup, the building at
12201 Bluegrass Parkway and about 625 of the Sears employees located there
became part of Citigroup's Citi Cards business, said Maria Mendler, a
spokeswoman for Citigroup.
The remaining workers were part of Sears' "national
customer relations team," Masterson said, adding that they handled
"customer-care-type issues." A small group of workers also provided
support for Sears service technicians across the country, he said.
"These were smaller functional areas ... located there
when Sears owned that facility," he said. "We're just moving those
operations to Sears-owned sites."
Workers may be offered other jobs, relocation Unlike the
announcement earlier this week from San Francisco-based Providian Corp. --
which eliminated about 315 workers at a call center on Ormsby Station Road
-- the Sears announcement might have a silver lining for Louisville
workers.
Masterson said many associates and managers are being
offered opportunities to take jobs at Sears call centers in Round Rock,
Texas, and Orlando, Fla. Sears is consolidating its customer-care
functions from Louisville to those locations. He said Citigroup also has
said it might absorb some of the workers at its Louisville credit card
operation grows.
Mendler said Citigroup has no firm plans for growth in
Louisville but has identified the East End location as a site where it can
add employees as its credit card portfolio grows. She said that as part of
the Sears credit card business purchase, the Citi Cards division will
issue Sears credit cards and provide support for Sears credit customers.
She added that her company plans to work with the former Sears workers to
identify opportunities with Citi Cards.
"To be quite honest, there really aren't any changes
planned immediately," she said. "We told employees (on Wednesday) of
changes taking place in other parts of the country ... and told them
Louisville is a location that we identified as a location that fits with
our potential market for expansion. ... Some of the workers affected by
the Sears changes may be able to come work for us."
Louisville Mayor Jerry Abamson said in a statement that
he has been talking with Citigroup officials about the future of the
Louisville operations and "the potential to retain and possibly grow jobs
here.
"I'm hopeful based on those conversations," Abamson
said.
Group to Audit Firms on
Minorities
By Sarah A.
Webster - Free Press Business Writer
January 21, 2004
A group of minority business associations have created a
nonprofit organization that will audit how corporations deal with
minorities and will give consumers advice about what to buy.
The National Minority Compliance Board will be
headquartered in Farmington Hills, said Howard Keating, a Dearborn
businessman who will announce its formation today at the National Press
Club in Washington.
"It will have a huge impact," said Keating, president of
the National Sales Connection, based in Dearborn. The for-profit company
helps minorities secure business contracts, especially in the automotive
sector.
"I just think it's about time there's accountability,"
he said.
The new organization will be headed by Joseph McCurry,
who retired last year as general manager of the Detroit district for
Sears, Roebuck and Co.
It will study how extensively corporations do business
with minority contractors, the quality of the work and pay. It will
circulate its findings widely.
Sears to Outsource
Some Information Tech Jobs
By Becky Yerak
- Tribune staff reporter - Chicago Tribune
January 21, 2004
Sears, Roebuck and Co. plans to farm out as much as 23
percent of its information technology jobs, the Hoffman Estates retailer
confirmed Tuesday.
"We've not yet identified which people will remain with
Sears," said Garry Kelly, Sears' chief information officer.
Some of the 270 workers whose job functions are under
review might remain with Sears, while others might end up at Sears' new
technology provider.
The companies being considered to pick up some of the IT
work include IBM, Hewlett-Packard Co., Electronic Data Systems Corp. and
Computer Sciences Corp. Sears is expected to pick one in March.
Those companies can provide "much better technology at a
lower cost," Kelly said. As part of the deal, Sears will also consider
such factors as employee benefits in choosing the new tech provider.
Sears' IT staff numbers about 1,160 workers. No other IT
jobs are being considered for outsourcing, Kelly said.
The cuts are occurring as the nation's biggest
department store chain undertakes a companywide restructuring that could
result in further layoffs.
"We have 200 ideas on pieces of paper now . . . things
to stop doing that aren't adding value, things to do more of," Sears Chief
Executive Alan Lacy said last week in an interview at the National Retail
Federation's annual convention in New York.
During the holiday season, Sears was forced to lure
shoppers with price reductions, which have reduced profit margins. In
December, sales at Sears stores open at least a year fell 0.8 percent.
Workers Assail Night
Lock-Ins by Wal-Mart
By
Steven Greenhouse - New York Times
January 18, 2004
Looking back to that night, Michael Rodriguez still has
trouble believing the situation he faced when he was stocking shelves on
the overnight shift at the Sam's Club in Corpus Christi, Tex.
It was 3 a.m., Mr. Rodriguez recalled, some heavy
machinery had just smashed into his ankle, and he had no idea how he would
get to the hospital.
The Sam's Club, a Wal-Mart subsidiary, had locked its
overnight workers in, as it always did, to keep robbers out and, as some
managers say, to prevent employee theft. As usual, there was no manager
with a key to let Mr. Rodriguez out. The fire exit, he said, was hardly an
option — management had drummed into the overnight workers that if they
ever used that exit for anything but a fire, they would lose their jobs.
"My ankle was crushed," Mr. Rodriguez said, explaining
he had been struck by an electronic cart driven by an employee moving
stacks of merchandise. "I was yelling and running around like a hurt dog
that had been hit by a car. Another worker made some phone calls to reach
a manager, and it took an hour for someone to get there and unlock the
door."
The reason for Mr. Rodriguez's delayed trip to the
hospital was a little-known Wal-Mart policy: the lock-in. For more than 15
years, Wal-Mart Stores Inc., the world's largest retailer, has locked in
overnight employees at some of its Wal-Mart and Sam's Club stores. It is a
policy that many employees say has created disconcerting situations, such
as when a worker in Indiana suffered a heart attack, when hurricanes hit
in Florida and when workers' wives have gone into labor.
"You could be bleeding to death, and they'll have you
locked in," Mr. Rodriguez said. "Being locked in in an emergency like
that, that's not right."
Mona Williams, Wal-Mart's vice president for
communications, said the company used lock-ins to protect stores and
employees in high-crime areas. She said Wal-Mart locked in workers — the
company calls them associates — at 10 percent of its stores, a percentage
that has declined as Wal-Mart has opened more 24-hour stores.
Ms. Williams said Wal-Mart, with 1.2 million employees
in its 3,500 stores nationwide, had recently altered its policy to ensure
that every overnight shift at every store has a night manager with a key
to let workers out in emergencies.
"Wal-Mart secures these stores just as any other
business does that has employees working overnight," Ms. Williams said.
"Doors are locked to protect associates and the store from intruders. Fire
doors are always accessible for safety, and there will always be at least
one manager in the store with a set of keys to unlock the doors."
Ms. Williams said individual store managers, rather than
headquarters, decided whether to lock workers in, depending on the crime
rate in their area.
Retailing experts and Wal-Mart's competitors said the
company's lock-in policy was highly unusual. Officials at Kmart, Sears,
Toys "R" Us, Home Depot and Costco, said they did not lock in workers.
Even some retail industry experts questioned the policy.
"It's clearly cause for concern," said Burt Flickinger, who runs a retail
consulting concern. "Locking in workers, that's more of a 19th-century
practice than a 20th-century one."
Several Wal-Mart employees said that as recently as a
few months ago they had been locked in on some nights without a manager
who had a key. Robert Schuster said that until last October, when he left
his job at a Sam's Club in Colorado Springs, workers were locked in every
night, and on Friday and Saturday nights there was no one there with a
key. One night, he recalled, a worker had been throwing up violently, and
no one had a store key to let him out.
"They told us it's a big fine for the company if we go
out the fire door and there's no fire," Mr. Schuster said. "They gave us a
big lecture that if we go out that door, you better make sure it's an
emergency like the place going up on fire."
Augustine Herrera, who worked at the Colorado Springs
store for nine years, disputed the company's assertion that it locked
workers in stores in only high-crime areas, largely to protect employees.
"The store is in a perfectly safe area," Mr. Herrera
said.
Several employees said Wal-Mart began making sure that
there was someone with a key seven nights a week at the Colorado Springs
store and other stores starting Jan. 1, shortly after The New York Times
began making inquiries about employees' being locked in.
The main reason that Wal-Mart and Sam's stores lock in
workers, several former store managers said, was not to protect employees
but to stop "shrinkage" — theft by employees and outsiders.
Tom Lewis, who managed four Sam's Clubs in Texas and
Tennessee, said: "It's to prevent shrinkage. Wal-Mart is like any other
company. They're concerned about the bottom line, and the bottom line is
affected by shrinkage in the store."
Another reason for lock-ins, he said, was to increase
efficiency — workers could not sneak outside to smoke a cigarette, get
high or make a quick trip home.
Mr. Rodriguez acknowledged that the seemingly obvious
thing to have done after breaking his ankle was to leave by the fire door,
but he and two dozen other Wal-Mart and Sam's Club workers said they had
repeatedly been warned never to do that unless there was a fire. Leaving
for any other reason, they said, could jeopardize the jobs of the
offending employee and the night supervisor.
Regarding Mr. Rodriguez, Ms. Williams said, "He was
clearly capable of walking out a fire door anytime during the night."
She added: "We tell associates that common sense has to
prevail. Fire doors are for emergencies, and by all means use them if you
have emergencies. We have no way of knowing what any individual manager
said to an associate."
None of the Wal-Mart workers interviewed said they knew
anyone who had been fired for violating the fire-exit policy in an
emergency, but several said they knew workers who had received official
reprimands, the first step toward firing. Several said managers had told
them of firing workers for such an offense.
"They let us know they'd fire people for going out the
fire door, unless there was a fire." said Farris Cobb, who was a night
supervisor at several Sam's Clubs in Florida. "They instilled in us they
had done it before and they would do it again."
Mr. Cobb and several other workers interviewed about
lock-ins were plaintiffs in lawsuits accusing Wal-Mart of forcing them to
work off the clock, for example working several hours without pay after
their shifts ended. Wal-Mart says it tells managers never to let employees
work off the clock.
Janet Anderson, who was a night supervisor at a Sam's
Club in Colorado from 1996 to 2002, said that many of her employees were
also airmen stationed at a nearby Air Force base. Their commanders
sometimes called the store to order them to report to duty immediately,
but she said they often had to wait until a manager arrived around 6 a.m.
She said one airman received a reprimand from management for leaving by
the fire door to report for duty.
Ms. Anderson also told of a worker who had broken his
foot one night while using a cardboard box baler and had to wait four
hours for someone to open the door. She said the store's managers had lied
to her and the overnight crew, telling them the fire doors could not be
physically opened by the workers and that the doors would open
automatically when the fire alarm was triggered.
Only after several years as night supervisor did she
learn that she could open the fire door from inside, she said, but she was
told she faced dismissal if she opened it when there was no fire. One
night, she said, she cut her finger badly with a box cutter but dared not
go out the fire exit — waiting until morning to get 13 stitches at a
hospital.
The federal government and almost all states do not bar
locking in workers so long as they have access to an emergency exit. But
several longtime Wal-Mart workers recalled that in the late 1980's and
early 1990's, the fire doors of some Wal-Marts were chained shut.
Wal-Mart officials said they cracked down on that
practice after an overnight stocker at a store in Savannah, Ga., collapsed
and died in 1988. Paramedics could not get into the store soon enough
because the employees inside could not open the fire door or front door,
and there was no manager with a key.
"We certainly do not do that now," Ms. Williams said.
"It's not been that way for a long time."
Explaining the policy, she said, "Only about 10 percent
of our stores do not allow associates to come and go at will, and these
are generally in higher crime areas where the associates' safety is
considered an issue."
Mr. Lewis, the former store manager, said he had been
willing to get out of bed at any hour to drive back to his store to unlock
the door in an emergency. But he said many Sam's Club managers were not as
responsive. "Sometimes you couldn't get hold of a manager," he said. "The
tendency of managers was to sleep through the nights. They let the
answering machine pick up."
Mr. Cobb, the overnight supervisor in Florida, said he
remembered once when a stocker was deathly sick, throwing up repeatedly.
He said he called the store manager at home and told him, " `You need to
come let this person out.' He said: `Find one of the mattresses. Have him
lay down on the floor.'
"I went into certain situations like that, and I called
store managers, and they pretty much told me that they wouldn't come in to
unlock the door. So I would call another manager, and a lot of times they
would tell you that they were on their way, when they weren't."
Mr. Cobb said the Wal-Mart rule that generally prohibits
employees from working more than 40 hours a week to avoid paying overtime
played out in strange ways for night-shift employees. Mr. Cobb said that
on many workers' fifth work day of the week, they would approach the
40-hour mark and then clock out, usually around 1 a.m. They would then
have to sit around, napping, playing cards or watching television, until a
manager arrived at 6 a.m.
Roy Ellsworth Jr., who was a cashier at a Wal-Mart in
Pueblo, Colo., said he was normally scheduled to work until the store
closed at 10 p.m., but most nights management locked the front door, at
closing time, and did not let workers leave until everyone had
straightened up the store.
"They would keep us there for however long they wanted,"
Mr. Ellsworth said. "It was often for half an hour, and it could be two
hours or longer during Christmas season."
One night, shortly after closing time, Mr. Ellsworth had
an asthma attack. "My inhaler hardly helped," he said. "I couldn't
breathe. I felt I was going to pass out. I got fuzzy vision. I told the
assistant manager I really needed to go to the hospital. He pretty much
got in my face and told me not to leave or I'd get fired. I was having
trouble standing. When I finally told him I was going to call a lawyer, he
finally let me out."
One top Wal-Mart official said: "If those things
happened five or six years ago, we're a very large company with more that
3,000 stores, and individual instances like that could happen. That's
certainly not something Wal-Mart would condone."
Sears Plans
to Outsource Part of
IT Infrastructure
By
Carol Sliwa - Computer World
January 16, 2004
NEW YORK -- Sears, Roebuck and Co. in March
plans to strike a deal to outsource a substantial portion of the technical
infrastructure that its IT department currently maintains. The outsourcing
decision is one of several key IT deals that the retailer plans to
finalize early this year to help reduce costs, improve margins and drive
up sales, CIO Gary Kelly disclosed at the National Retail Federation
conference here earlier this week.
Outsourcing a significant portion of the technical
infrastructure - a decision that Kelly acknowledged is "huge" - will have
an impact not only on technology but also on the Sears IT personnel who
support it. Kelly said about 270 of the company's 1,160 IT staffers
currently manage the systems that the company plans to outsource.
"We don't know how many of them will remain with Sears,
how many will work with the new company. That's yet to be determined," he
said. "Usually, the company that acquires the contract to own and operate
the infrastructure hires some portion of the people that do the work for
the customer."
That's what happened at Target Corp., for instance, when
it signed a major outsourcing deal with IBM Global Services five years
ago.
Kelly, who has been CIO at Sears since October 2002,
said the company spent much of the past year assessing its IT
infrastructure and saw two options to address the weaknesses it found:
"remediate it internally or have it outsourced." Sears chose the latter
for its desktops, server farms, routers, voice and data network,
decision-support technology and systems that support Sears.com, he said.
"There's no competitive advantage to having a better
e-mail system and a different type of voice or data network," Kelly said.
"It's fundamentally a commodity that can be provided better as a service."
However, Sears won't outsource its in-store retail
systems or the wireless application and other technologies that support
its product-repair service business. Kelly said the company wants to
invest more time in creating systems that will differentiate Sears from
its competitors.
Kelly said Sears is evaluating service providers for the
outsourcing contract and plans to make its decision by early March. The
five being considered are IBM Global Services, Hewlett-Packard Co.,
Electronic Data Systems Corp., Computer Sciences Corp. and Affiliated
Computer Services Inc.
Sears will continue to have project managers,
architects, developers, business analysts and testers to support
applications, operations and systems, Kelly said. It will also provide
direction on the technologies being outsourced.
A survey conducted by the NRF Foundation and
BearingPoint Inc., which was released at the NRF conference, found that
26% of the 57 retail executives polled plan to make outsourcing/offshoring
a strategic initiative this year. The top three functional areas they said
they would outsource are application development, integration projects and
application hosting. Most said they would do so to cut costs and to
increase the focus on core competencies, efficiency and performance.
"In many cases, in data center and IT operations, the
infrastructure itself has to be significantly upgraded before it can be
outsourced and turned over," said Scott Hardy, a vice president in
BearingPoint's retail division. He said CIOs assess what they're good at
and then typically adopt a hybrid model, choosing to keep some functions
in-house, some offshore and others "nearshore" in North America.
Sears is keeping control over its in-store systems
because it plans to have a "new generation of selling applications" that
give customers a standard way to make purchases, regardless of channel,
Kelly said.
Kelly said that within 30 days, Sears will select a
point-of-sale application and an operating system that will run on the
35,000-plus IBM hardware devices it started rolling out last year. Sears
is also taking bids from third parties to help with integration.
Sears' DOS-based POS systems, which were built to its
specifications, will be replaced by a POS application running on either
Windows XP Embedded or Linux, said Kelly. "The issue is going to turn on
total cost of ownership," he said.
In addition to beefing up its enterprise selling
systems, Sears will undertake a third major initiative that will focus on
a new integrated tool for merchandise, assortment and demand planning.
Sears plans to choose the vendor within 30 days, Kelly said.
None of Sears' upcoming IT initiatives involve its
affiliate Lands' End Inc., which continues to have its own IT operations.
But Sears plans to retool its systems so that Lands' End customers will be
able to return merchandise at Sears stores, Kelly said. He said he's not
certain about the completion date for that project.
or in part in any form or medium without express written
permission of Computerworld Inc. is prohibited. Computerworld and
Computerworld.com and the respective logos are trademarks of International
Data Group Inc.
Sears Alters Apparel Management
By Kelly Quigley
- Crain's Chicago Business Online
January 15, 2004
Meads heads back to Lands' End,
Manto to oversee clothing ops
After less than a year as head of Sears, Roebuck and
Co.’s apparel division, Mindy Meads is returning to Lands’ End.
Ms. Meads, 51, will become president and chief executive
of the Sears subsidiary, filling a post that’s been vacant since August,
when David Dyer left to take over at Tommy Hilfiger Corp.
Sears tapped Gwen Manto, most recently chief
merchandising officer at Florida-based discount clothing chain Stein Mart
Inc., to oversee the department store's apparel operations. Ms. Manto, 49,
will be responsible for all of Sears’ clothing, footwear and accessories.
The management changes are effective Feb. 1.
Ms. Meads, who lives in the Lands' End home base of
Dodgeville, Wis., joined the direct retailer in 1991 as vice-president and
general merchandise manager, and moved up the ranks to eventually head
merchandising and design.
She held that role after Sears acquired Lands’ End for
$1.9 billion in 2002, and early last year took on the additional post of
Sears’ general manager of apparel.
Sears has since rolled out Lands' End apparel into its
870 U.S. department stores.
Retail consultant Neil Stern, of Chicago-based McMillan
Doolittle LLP, sees the management changes as a positive move for Sears
and Ms. Meads.
"She had more or less an impossible job,” he said. “She
was not only running the Sears’ division, but also Lands’ End. It’s more
responsibilities than anyone can really expect to do."
Questionable performance
At the time of the Sears' purchase of Lands' End,
analysts applauded the deal, which put a well-known, exclusive apparel
brand into Sears' struggling department stores.
Sears has said the brand lifted apparel sales, stating
in August that stores carrying the Lands' End brand reported better
comparable sales than stores without it.
However, some analysts have raised concerns that Lands'
End demand was not as good as expected, particularly during the key
holiday shopping season.
But Ms. Meads said clothing sales have been "solid,"
adding that the synergy between Sears and Lands' End is still in its early
stages.
"I don't feel we've had a slow start. As we learn," the
company aims to "build its apparel offering stronger in certain stores,"
she said.
Sears stores in the U.S. Northeast have seen the
strongest apparel demand, she said, with the best customers being older,
with higher income and education levels.
But Sears aims to change that.
With its Apostrophe apparel brand, the company hopes to
attract younger consumers. Ms. Meads promised more color and more fashion
in its spring and fall clothing.
Brand focus and brand consistency are among her chief
concerns. In addition to Lands' End and Apostrophe, Sears has also owns
the Covington clothing brand.
"We want to display focused items, each brand having its
own identity. Shoppers will know 'this is my
brand,'" Ms. Meads said.
Sears
Promotes Meads to Lands' End President and CEO;
Recruits Top Fashion Merchant to Lead Sears' Apparel Team
PRNewswire
January 14, 2004
HOFFMAN ESTATES, Ill., Jan. 14 /PRNewswire/ -- Sears,
Roebuck and Co. (NYSE:
S) has promoted Mindy Meads to president and chief executive officer of
Lands' End, Inc., effective Feb. 1.
In her new role, she continues as executive vice
president of Sears, reporting to Alan J. Lacy, chairman and chief
executive officer. Meads, 51, currently serves as executive vice president
of merchandising and design for Lands' End and executive vice president
and general manager of apparel for Sears.
"Mindy is an outstanding retailing executive who has
built a solid platform from which we can take Sears and Lands' End apparel
merchandising to new levels," Lacy said. "Her proven leadership and vision
will guide Lands' End to continued success, leveraging the strengths of
both direct and retail distribution."
Meads was named Sears executive vice president and
general manager of apparel in April 2003, simultaneously continuing her
merchandising responsibilities at Lands' End. She began her Lands' End
career in 1991 as vice president, general merchandise manager, and was
promoted with increasing responsibilities to senior vice president and
executive vice president of merchandising and design. She also has held
senior merchandising and operations positions at Macy's, The Limited and
Gymboree Corporation.
Manto to Lead Sears' Apparel Team
Gwen K. Manto, 49, a nationally regarded merchandising
executive with extensive retail experience, will join Sears replacing
Meads as executive vice president and general manager of apparel,
effective Feb. 1. She will report to Mark Cosby, Sears executive vice
president and president of full-line stores. Manto formerly was vice
chairman and chief merchandising officer at Stein Mart, the upscale,
off-price specialty-store chain.
"Gwen brings a depth of leadership experience in
department store and specialty retailing to her new position at Sears,"
Cosby said. "Her track record for driving business results, paired with
her sense of fashion and strong customer focus, will serve us well as she
leads the Sears apparel organization. She will be instrumental in
continuing the forward progress already underway in Sears apparel to grow
the business and position Sears as a destination of choice for apparel
customers."
In her new Sears leadership role, Manto is responsible
for all apparel merchandising and design functions for Sears apparel,
footwear and accessories for women, men and children.
Before Stein Mart, she served as president of Kids Foot
Locker and held senior leadership positions at Kids R Us, Babies "R" Us,
and Federated Department Stores' Macy's, Rich's, Lazarus and Goldsmith's
divisions.
Manto is the fourth new retailing executive to join the
Sears apparel team in recent months. In November, Patti Simigran came from
Lands' End to become Sears' senior vice president and general merchandise
manager of women's apparel. LuAnn Via came to Sears as vice president and
general merchandise manager of intimate apparel, women's accessories and
fragrances in late October. And in September, Carrie Shigetomi joined
Sears as vice president of brand development from Calvin Klein.
Study: Companies Continue to Slash Retiree
Health Benefits
By Theresa Agvino - AP
Business Writer
January 14, 2004
NEW YORK (AP) -- Companies continued to slash retiree
health benefits over the last year, with 10 percent of firms eliminating
coverage for future retirees and 71 percent increasing retirees'
contributions for their coverage, according to a new study.
The survey of 408 large companies released Wednesday
found that a fifth of companies said they were likely to terminate health
coverage for future retirees in the next three years. Eighty-six percent
of companies said they would increase retiree coverage contributions over
that period.
The survey was conducted between June and September 2003
by benefits consulting firm Hewitt Associates and the nonprofit Henry J.
Kaiser Family Foundation. A similar survey the firms did in 2002 found
that in a two-year period, 13 percent of companies eliminated health
benefits for future retirees and 44 percent increased retiree
contributions to premiums.
A separate Hewitt study of employers with more than
1,000 employees found that in 2003, 57 percent of firms offered health
benefits to Medicare-eligible retirees, down from 80 percent in 1991.
"The bleeding hasn't stopped," foundation president Drew
Altman said. "I think it is significant that employers are telling us to
expect more of the same."
Altman said employers' actions on retiree health
benefits indicate their inability to significantly lower overall health
care costs. The survey found the cost for employers and retirees for
health benefits surged an estimated 13.7 percent, while the cost of
providing health benefits to active employers rose 14.7 percent.
The survey was taken before Congress passed a Medicare
prescription drug benefit last year. Many feared that benefit would
provide companies with an excuse to drop coverage. Previous Hewitt studies
found that well over half of employer costs for retirees over age 65 are
from prescription drugs.
To stop the erosion of corporate-sponsored retiree
health plans, the new law includes an $89 billion subsidy for employers
that retain coverage. Experts say it is too soon to say whether that
subsidy will stem benefits' erosion. Most agree that companies won't
terminate benefits for current retirees, but fewer firms will offer them
to younger workers.
"It is a significant amount of money," said Frank
McArdle, manager of Hewitt's Washington D.C. research office. He added
that some companies continue to maintain benefits without any help from
the government, so the subsidy should salvage some coverage.
Of Medicare's 51 million beneficiaries, 15.6 million are
covered by company health benefits. Of those, about 3.8 million would
probably have lost coverage if there was no subsidy, according to
projections by the Congressional Budget Office.
The budget office estimates that 2.7 million retirees
would be dropped from company coverage with the subsidy.
Still, McArdle said he expected the results of next
year's survey to resemble the 2003 findings. He added it will take time
for employers to figure out how their retiree plans will be affected by
the new law and subsidy, which go into effect in 2006. The state of the
economy also will figure into whether employers opt to keep coverage,
Altman said.
IBM
Retiree Mounts
Campaign Aimed to
Lower Costs
By Caroline Humer, Reuters
- USA TODAY
January 12, 2004
NEW YORK — Sandy Anderson is a retired 61-year-old IBM
"lifer" who jokes about revering the company enough to tattoo its initials
on his haunches — but that loyalty soured after his health-care costs
jumped this year.
Anderson is drumming up support on the Internet and,
with his congressman, planning to take his case to the Vermont courts and
to IBM, which he says has breached its promise of free health care.
"I staunchly believe, as an IBM manager, that I got up
and told people that they could rely on this, and so this is a violation
of the social contract," Anderson said.
Workers at companies like IBM, Raytheon, Qwest and
Lucent often stuck with their jobs because of the security it offered —
but some companies say they have not been able to follow through with
their promises in today's competitive climate.
Pensioners are becoming increasingly organized and
vocal, calling for their former employers to restore benefits, and pushing
for laws that would make them do so. Health care, a heavy burden for
retirees on a fixed income, is a hot button.
While IBM still pays medical costs for its retirees, it
capped its contributions in the mid-1990s when accounting rules changed,
as did about one-half of companies with more than 1,000 employees,
according to a 2002 survey by Kaiser Family Foundation and Hewitt
Associates. Health-care costs have continued to rise and retirees end up
covering the difference.
"IBM has fulfilled its promise to provide retirees with
both access to and financial support for health benefits coverage," IBM
spokeswoman Kendra Collins said, adding that IBM told employees in the
1990s that it was capping benefits and that costs might pass over the caps
in the early 2000s.
Armonk, New York-based IBM now pays $3,000 to $7,500
each year per participating former employee, depending on age and
retirement date. After hitting that level on average, the retirees cover
the costs.
"It's substantial out of pocket cost for the retiree,"
Anderson said, pointing to feedback from his Web site,
www.benefitsrestoration.org, that indicated premiums tripled last year for
some ex IBM-ers.
The premium for Anderson and his wife is more than
doubling, even after he decided to drop his college-aged daughter from his
policy. After paying $189 last year per month, he'll pay $433 per month
this year for his Vermont health maintenance organization, or HMO.
IBM said that premiums have risen and that retirees in
states such as Vermont have been affected more than others.
"Some of the Vermont health plans are not as efficient
as no-deductible plans in other places," said Diane Gherson, IBM's vice
president of compensation and benefits. "If employees are choosing to
stick with their old HMO plan, they will see a significant increase."
Gherson said IBM offers five medical plans for retirees
who are under 65 and five others for retirees that are older than 65 and
eligible for Medicare. Those plans include options for high, medium and
low deductibles.
The company offers plans with no premium and has a high
deductible of more than $2,000. After that $2,000 deductible, employees
pay 30% of the health-care costs.
But the anger among IBM retirees about their 2004
health-care premiums is widespread, according to Lee Conrad of
Alliance@IBM-Communications Workers of America, a union that has tried to
organize IBM workers.
"Retirees are very upset around the country. For many of
them this is drastically cutting into their pension check," Conrad said.
John Kotson, a 69-year-old IBM retiree from Fort
Collins, Colorado, who worked for 30 years at the company until 1989, said
his health-care premiums rose by 20% this year.
Kotson is part of a lobbying group called the National
Retiree Legislative Network that includes retirees from other companies
such as Lucent and Raytheon that are fighting to restore pension and
health-care benefits.
Anderson is also working with Democratic Rep. Bernie
Sanders of Vermont, who spoke at a press conference Anderson gave in an
Essex Junction, Vermont inn on Thursday, to support a law that would
protect retirement benefits.
IBM's Collins says IBM spends more than $1.3 billion
each year on medical benefits for its employees and retirees.
Anderson, who retired in 1997 after 36 years, said he
and his group, which includes more than 600 other retirees in 34 states,
have retained a lawyer to look at ways, including the Vermont courts, to
pressure IBM to restore its old policies.
In-House
Audit Says Wal-Mart Violated Labor Laws
By Steven Greenhouse
- New York Times
January 13, 2004
An internal audit now under court seal warned top
executives at Wal-Mart Stores three years ago that employee records at 128
stores pointed to extensive violations of child-labor laws and state
regulations requiring time for breaks and meals.
The audit of one week's time-clock records for roughly
25,000 employees found 1,371 instances in which minors apparently worked
too late at night, worked during school hours or worked too many hours in
a day. It also found 60,767 apparent instances of workers not taking
breaks, and 15,705 apparent instances of employees working through meal
times.
Officials at Wal-Mart, the world's largest retailer,
employing 1.2 million people at its 3,500 stores in the United States,
insisted that the audit was meaningless, since what looked like violations
could simply reflect employees' failure to punch in and out for breaks and
meals they took.
"Our view is that the audit really means nothing when
you understand Wal-Mart's timekeeping system," said Mona Williams,
Wal-Mart's vice president for communications. She said Wal-Mart did
nothing in response to the audit, saying it always strives to comply with
the law.
But missed breaks and lunches have become a major issue
in more than 40 lawsuits charging Wal-Mart with forcing employees to work
without pay through lunch and rest breaks, and several lawyers and former
employees who have sued Wal-Mart said the audit only bolstered their
cases. They said that many employees continued to complain of missing
meals and breaks.
"Their own analysis confirms that they have a pattern
and practice of making their employees work through their breaks and lunch
on a regular basis," said James Finberg, a lawyer who has assisted several
suits against Wal-Mart. "What this audit shows is against their own
company policy and against the law in almost every state in which they
operate."
Several lawyers who sued Wal-Mart also noted that over
the years Wal-Mart had ordered its employees to make sure to clock out
when they took lunch and breaks.
And John Fraser, who ran the federal Labor Department's
wage and hour division during the 1990's, called the sheer volume of
apparent violations surprising and troubling. "When you find the frequency
of this kind of violation in such a large employer, such a pervasive
employer, it has to be a source of great concern," Mr. Fraser said.
The audit was conducted in July 2000; a copy was given
to The New York Times by a longtime Wal-Mart critic hoping to pressure the
company to improve working conditions. Wal-Mart has asked various courts
to seal the audit for the last two years — and they have complied — ever
since the company gave copies to lawyers who accused it of making
employees work off the clock.
The audit, written by Bret Shipley, a Wal-Mart auditor,
indicated that time-clock records for thousands of workers showed tens of
thousands of missed lunches and breaks. Ms. Williams said employees had
probably taken their lunches and breaks but just failed to record them.
She and other Wal-Mart officials also asserted that
time-clock records could have been wrong in indicating that minors had
worked illegally during school hours. Schools might have been closed on a
given weekday, they noted. "The audit that Shipley pulled together doesn't
reflect actual behavior within the facilities," Ms. Williams said.
Wal-Mart officials, she said, always tried to comply
with the law and repeatedly told employees to take lunches and breaks.
Wal-Mart policies state that employees working seven or more hours a day
are to receive a meal break and two 15-minute rest breaks. Federal law
does not require lunch and meal breaks, but most states do for employees
working seven or more hours a day.
Several months after the Shipley audit was finished,
Wal-Mart stopped requiring employees to clock out and in for 15-minute
breaks. Wal-Mart officials said they eliminated this requirement for their
employees' convenience, but Frank Azar, a lawyer involved in the
off-the-clock suits, said Wal-Mart did this to make sure no paper trail
could show that employees were not taking breaks.
The audit warned that its findings could hurt the
company. "Wal-Mart may face several adverse consequences as a result of
staffing and scheduling not being prepared appropriately," it stated.
Commissioned to help Wal-Mart executives determine
whether employees were taking their meals and breaks, the audit came as
the company was facing several lawsuits accusing it of off-the-clock work
and failing to give breaks.
Ms. Williams said that company auditors more senior than
Mr. Shipley had determined that the methodology he used was flawed. "This
audit is so flawed and invalid that we did not respond to it in any way
internally," she said.
But several current and former Wal-Mart employees
confirmed in interviews that violations of state law on child labor and
breaks were a recurring problem at many understaffed Wal-Mart stores.
Leila Najjar said that when she worked for a Wal-Mart in
a Denver suburb at age 16 and 17, she sometimes was forced to miss breaks,
work past midnight and work more than eight hours a day even though
Colorado bars minors from doing that. Time records from a court case
showed that her store sometimes forced her to work illegal hours.
During the holidays, Ms. Najjar, a recent graduate of
the University of Colorado, recalled, "the store closed at 11 and there
were nights we had to stay to clean up until 12:30, 12:45. It was a long
day, and I was tired the next day at school. And sometimes, I'd have to
work 10, 11 hours on a Saturday or Sunday."
If the same rate of violations were found throughout the
Wal-Mart system, that would translate into tens of thousands of
child-labor violations each week at Wal-Mart's 3,500 stores and more than
one million violations of company and state regulations on meals and
breaks.
Company officials said such extrapolations were
misleading, noting that many of the seeming time-record problems could be
explained by legal behavior.
Wal-Mart employees clock in and out by swiping their
identity badges, which the time clock reads electronically. Ms. Williams
said employees sometimes forgot to swipe when they arrived at work or when
they took lunch. Sometimes, she said, workers missed breaks not because
management pressured them but, for example, because they wanted to finish
early to take a child to the doctor.
John Lehman, who ran several Wal-Mart stores in
Kentucky, said he was sure that large-scale violations on child labor,
breaks and meals continued at Wal-Mart. In the months after the company
distributed the audit internally, he said, store managers like him
received no word to try harder to prevent violations.
"There was no follow-up to that audit, there was nothing
sent out I was aware of saying, `We're bad. We screwed up. This is the
remedy we're going to follow to correct the situation,' " said Mr. Lehman,
who said he quit in 2001 because he was disgusted with the company's
treatment of employees. He now works for a union trying to organize
Wal-Mart workers.
"Wal-Mart stores are so systematically understaffed that
they work minors just like they do adults," he said. "They don't have
enough workers to take care of the business. Yes, their prices are low but
then the stores are so understaffed that workers often don't have time to
take their breaks or lunches."
Maria Rocha, who ran the restaurant inside a Wal-Mart in
Dallas, said her workload was so great and the restaurant so understaffed
that she never took breaks and often missed lunch. "It was just too busy
to take a break," said Ms. Rocha, who quit in October. "There were a lot
of customers, and the managers would be mad if you took a break."
Verette Richardson, a former Wal-Mart cashier in Kansas
City, Mo., said it was sometimes so hard to get a break that some cashiers
urinated on themselves. Bella Blaubergs, a diabetic who worked at a
Wal-Mart in Washington State, said she sometimes nearly fainted from low
blood sugar because managers often would not give breaks.
As for claims of child-labor violations and stores too
understaffed for worker breaks, Ms. Williams said, "In a company that has
more than 1 million people in the U.S. alone, I have no doubt that in some
individual instances that can happen."
Sears to Standardize on IBM's Most Advanced Retail
Point-of-Sale Technology
Business Wire
January 12, 2004
RALEIGH, N.C.--(BUSINESS WIRE)--Jan. 12, 2004--Sears
Roebuck and Co. (NYSE:S) is updating its
existing point-of-sale systems with IBM's most advanced, retail-hardened
point-of-sale systems, allowing Sears to speed checkout and enhance
customer service in its full-line stores nationwide, IBM announced today.
Sears will be installing new IBM SurePOS 740 systems,
IBM 4610 receipt printers and IBM flat panel touch displays throughout its
retail stores in the U.S., with the first wave being installed during the
first half of 2004. The entire rollout is expected to be completed by June
30, 2005. Financial terms were not released.
"This is an important part of Sears' commitment to
enhancing customer service, speeding checkout and adding new services that
give Sears' customers a seamless shopping experience whether they are
shopping in the store or online at sears.com," said Michael Buxton, Sears
vice president - Retail Operations. "By partnering with IBM, Sears will
have a more reliable system from a proven retail technology leader. The
new systems give us the ability to run our existing software as well as a
powerful platform for adding new software applications."
The speed and increased power of this new technology
will allow Sears to help their customers complete the checkout process
significantly faster than today. The Internet capabilities of the SurePOS
740 also will help Sears' sales associates better link transactions in the
future from the stores, the Web, and host Enterprise applications, such as
customer history. In addition, the new IBM system will give Sears a sleek
unit that can fit into existing wrap stands or can be distributed easily
in their new formats, such as Sears Grand. The IBM flat panel touch
display also will allow Sears associates and customers to more easily view
transaction details to ensure accuracy.
"Sears has been well known for more than a century for
providing outstanding customer service. Like many of the world's leading
retailers, they are leveraging advanced, on-demand technology to enhance
both their business operations and their customer service," said Tom
Peterson, general manager, IBM Retail Store Solutions. "It's important
that these retailers have the investment protection of a POS system that
can give retailers the flexibility of combining their existing POS
peripherals and software with an advanced new system that features
powerful processors, increased memory, greater storage capacity and
enhanced network connectivity."
Sears chose IBM's SurePOS 740 system, which is used by
many large retailers worldwide, over a PC cash drawer solution that would
have combined different PC components and peripherals. In addition, Sears
has contracted with IBM to provide integration and installation services.
The SurePOS 740, along with the new IBM SurePOS 720 and
780, represent the convergence of two of the most widely used retail POS
systems in the world
-- the IBM 4694 and the newer IBM SurePOS family. Many of the world's
largest retailers use one or the other of these POS technologies, as the
backbone of their stores' checkout system, and IBM is widely acknowledged
as the No. 1 provider of POS systems worldwide.
Holiday Sales Up, but Some
Stores Lag
By Becky Yerak, Staff
Reporter - Chicago Tribune
January 9, 2004
"December retail sales"
chart by the Associated Press
A broad range of retailers posted strong sales in
December, but Sears, Roebuck and Co. and Kohl's Corp. were among those
missing out on the best holiday season since 1999.
Sales gains for nearly 70 publicly traded retailers
averaged 4.2 percent in December, beating an expected 3.4 percent gain.
More than a dozen merchants--from Costco Wholesale Corp.
to Neiman Marcus to Banana Republic--posted double-digit gains at stores
open for at least a year. And about three out of four stores exceeded Wall
Street's expectations, according to Thomson First Call.
The December sales could bode well for the overall
economy in 2004.
"Typically a good holiday season is followed by a good
economic year," said Michael Niemira, chief economist for the
International Council of Shopping Centers. "It was a good--but maybe not
great--holiday season, and that certainly is a good omen for 2004."
In fact, if it weren't for deflationary pressures, which
crimp retailers' ability to raise prices, sales would have been up 6.5
percent--the strongest since 1983, Niemira said.
One remaining wild card: Gift cards, sales of which
reached record levels this year, are not booked as revenue until the cards
are used.
"How much of the gift-card usage was done in the week or
two after Christmas is not clear," Niemira said. He cited estimates that
40 percent of gift cards might be used within two weeks, with as much as
80 percent occurring within 30 days after Christmas.
"There's still this pool of unspent holiday dollars that
will turn up in January and subsequent months," he said.
For all of 2004, Niemira expects same-store sales growth
of 4 percent, following the 3.2 percent increase for 2003.
Business at Sears stores open at least a year declined
0.8 percent in December. The last time that Sears experienced a same-store
sales increase in the Christmas month was 1997.
"A surge in last-minute shopping and post-holiday
clearance activity were not enough to overcome soft sales in early
December," Sears CEO Alan Lacy said in a statement.
Looking at the bright side for Sears, the 0.8 percent
drop was less than the 2 percent erosion Wall Street expected. In fact,
stock of the Hoffman Estates retailer improved 2.69 percent to close at
$46.19 Thursday.
"Shoppers attracted by holiday promotions and clearance
bargains caused many merchandise categories to rally as the season
progressed," Lacy said.
Home electronics, footwear, tools and lawn and garden
products did well at Sears.
Online results
Sears noted that two of its online shopping sites,
Sears.com and Landsend.com, did well in December.
Heather Brilliant, retail analyst for Morningstar Inc.
in Chicago, said Sears' results were "pretty decent."
"Overall, they're still showing declining same-store
sales, and I'm not changing my view on the stock, but results were better
than most were expecting," said Brilliant, who has a "sell" recommendation
on Sears shares.
Sears also said that it expects same-store sales in the
first quarter of 2004 to be flat or slightly improved.
Still, analysts are eager to see what Sears' finances
will look like Jan. 29. That's when the company--which discounted heavily
as the Christmas season wore on--reports fourth-quarter profits. In
December, at least four analysts cut their profit estimates on Sears.
Meanwhile, Kohl's saw its same-store sales drop 1.2
percent in December.
"We're very disappointed with our December sales
performance," Kohl's CEO Larry Montgomery said in a statement. "The
business came very late in the month and at deeper discounts than planned.
As a result, we now expect fourth-quarter earnings to be in the range of
68 cents to 70 cents." Analysts had expected Kohl's to earn 88 cents a
share, according to Thomson Financial.
The announcement sent shares of the Menomonee Falls,
Wis., department store chain down 8.13 percent to $41.80 in Thursday
trading.
Wal-Mart beat estimates
Wal-Mart Stores Inc., the world's biggest retailer, saw
same-store sales rise 4.3 percent in December, better than the 3.3 percent
growth that Wall Street expected. Target Corp., which owns its namesake
discount stores and Marshall Field's, met the low end of expectations with
a 4.1 percent improvement.
Besides Sears and Kohl's, other retailers showing
December sales drops included Abercrombie & Fitch, down 13 percent, and
Field's, down 1.7 percent.
"Presumably, if the economy continues to improve,
there's every expectation that even some of the laggards will show
improvement," Niemira said.
Sales at department stores as a group rose 1.2 percent
in December, beating out only footwear and furniture retailers.
Kurt Barnard, president of Retail Forecasting in Upper
Montclair, N.J., faulted the stores' reliance on apparel.
"Fashion apparel is not uppermost on people's minds," he
said.
December Retail
Sales
RETAILER SALES SALES SAME-STORE 5-WEEK PERIOD ENDING
CHANGE CHANGE
Wal-Mart Stores,
Jan. 2 $33.66 billion +11.3% +4.3%
Target Corp., Jan. 3 $7.74 billion +9.9% +4.1%
J.C. Penney Co., Dec. 27 $4.74 billion +1.8% +4.3%*
Sears, Roebuck and Co., Jan. 3 $3.92 billion -0.6% -0.8%**
Federated (Macy's, $2.78 billion +0.4% +1.2% Bloomingdale's), Jan. 3
Kohl's Corp., Jan. 3 $1.84 billion +12.8 -1.2%
*Excluding catalogs, drugstores
**Domestic stores only
Source: AP
U.S. Drug Subsidy Benefits
Employers
By Ellen E. Schultz
and Theo Francis - Staff Reporters
The Wall Street Journal
January 8, 2004
Some companies with many retired workers are expected to
post big earnings gains for 2003 or 2004, thanks to accounting guidelines
for subsidies under the federal prescription-drug program.
When Congress approved prescription-drug benefits for
Medicare recipients last year, it granted benefits for the 65% of large
employers with retiree health-care plans, providing funds for companies
that maintained their prescription-drug coverage for retirees.
The program is supposed to encourage employers to retain
prescription-drug coverage.
But companies are entitled to the subsidy regardless of
how much of the cost they pick up themselves. As a result, it does nothing
to halt the current rush by some employers to shift more costs to
retirees.
In fact, benefits consultants are designing
employer-sponsored prescription plans to save companies more money by
unloading costs on their former workers without losing out on the new
subsidy.
The subsidy won't be paid for another two years, but the
Financial Accounting Standards Board of Norwalk, Conn., gave permission
Wednesday for companies to book the value of their anticipated government
payments in 2003 financial statements, if they believe they can accurately
predict the effect of the subsidy.
Some of the biggest accounting gains are expected to
show up at such companies as Lucent Technologies Inc., which has 240,000
retirees and dependents, General Motors Corp., Dow Chemical Co., and SBC
Communications Inc. All are members of the Employers' Coalition on
Medicare, which lobbied for the subsidy. Some of these companies won't
take the gains immediately.
GM won't report the impact of the Medicare subsidy in
its 2003 year-end results but will sometime later, said Toni Simonetti, a
spokeswoman for the auto maker.
With roughly 440,000 retirees and dependents receiving
health coverage, "our retiree medical expenses are going up despite the
Medicare relief," she said.
A Dow Chemical spokeswoman said the company is still
calculating the effect of the subsidy, which would be reflected in the
year-end 2003 financial statement released on Jan. 29, but not on the
income statement. The spokeswoman said the effect of the subsidy would be
recognized as an actuarial gain over 10 to 15 years.
The new federal program calls for employers to be
reimbursed for 28% of the cost for prescriptions of more than $250 per
retiree, up to an annual subsidy of $1,330 per retiree, beginning in 2006.
The subsidy will be significant at companies with thousands of retirees
ages 65 or older, because prescription-drug costs make up a large part of
the expenses that employers incur for seniors under their retiree medical
plans.
Thanks to a little-noticed provision in the new law, the
government will calculate the subsidy based on both what the employer
spends for prescription drugs and what the retiree spends.
So if an employer and a retiree each pay $1,000 toward
the retiree's medical costs, the employer's subsidy is calculated on the
full $2,000, bringing the company a total subsidy of $490, rather than the
$210 that it would get if it received a subsidy only on its share.
As a result, when combined with tax and accounting
rules, the program allows employers in some cases to use the subsidy to
erase the entire cost of prescription drugs for retirees, or even turn a
profit from a drug plan. For instance, if a Medicare-eligible retiree's
prescription costs are $2,550, and his former employer pays $1,000 of it,
under long-standing tax rules, the employer can deduct its full $1,000 for
tax purposes, meaning the after-tax cost to the company is $650 at a 35%
corporate tax rate.
Meanwhile, the company doesn't pay taxes on the subsidy
it receives, thanks to another provision of the new Medicare law. So in
this example, the employer would receive a subsidy of $644, based on the
full amount paid by both employer and retiree, reducing the company's cost
for the retiree to $6 for the year.
"It's hard to believe that any of this was an accident
or an oversight," said Rep. George Miller (D., Calif.).
Benefits consultants confirm they are working out the
details necessary to structure drug-benefits programs to take advantage of
this quirk in the legislation. If a company can hold its costs to 40% to
50% of each retiree's prescription costs, shifting the rest to the
retirees, the subsidy means "there is virtually no cost to the employer in
setting up a plan like that," said Mark Beilke, director of employee
benefits research at benefits-consulting firm Milliman USA.
But he said he didn't expect employers to use the new
federal program to cut benefits. "It will keep employers offering whatever
it is that they offer now and possibly offering more -- or offering plans
where there aren't any" currently, Mr. Beilke said.
Critics of the legislation said that is unlikely. "It is
unconscionable for companies to receive billions of dollars in corporate
welfare courtesy of the American taxpayer by slashing prescription-drug
coverage and retiree health benefits," said Rep. Bernie Sanders, an
independent from Vermont.
In December, the FASB had said it might not let
companies start reporting the effect of the Medicare savings until
sometime in the future, because it was premature for employers to estimate
the subsidy.
But companies with big retiree health obligations,
including SBC, asked the standard-setters for permission to report the
savings in their 2003 financial results. "It's important to provide the
best information to shareholders," said John Stephens, SBC's comptroller.
Under FASB's move Wednesday, companies accounting for
the subsidy in 2003 must disclose the effect on a separate line on the
income statement.
In booking the payments, companies will use the value of
the projected subsidies to offset liabilities previously recorded to
reflect drug benefits they promised retirees.
Reversing the liability will generate a noncash
accounting gain that flows to net income.
Those that don't believe they currently can estimate the
subsidy are to wait for additional guidelines from the accounting board,
including over such issues as whether companies must take any resulting
gains immediately or can spread them over years, said Patrick Durbin, an
FASB practice fellow.
Sears Canada Says
2003 Profit to Top Forecast
Reuters
January 8, 2004
TORONTO, Jan 8 (Reuters) - Sears Canada said on Thursday
its 2003 earnings per share will top its previous forecast after a strong
finish in December, led by robust sales of major appliances, furniture and
mattresses.
The company had earlier forecast operating earnings to
be in the range of C$1.10 to C$1.20 a share.
Sears Canada will release fourth quarter results and
full year 2003 figures on Jan. 29.
Sears Holiday Sales Dip
By Kelly Quigley -
Crain's Chicago Business Online
January 8, 2004
Spiegel tumbles, Target posts
gain
Sears, Roebuck and Co. Thursday said sales declined in
December, despite gains from the last-minute holiday shopping rush and
growth in online purchases. The Hoffman Estates-based retail chain posted
a 0.8% drop in sales at stores open one year or longer, while total sales
fell 0.6% to $3.9 billion.
“A surge in last-minute shopping and post-holiday
clearance activity were not enough to overcome soft comparable sales in
early December,” Sears Chairman and CEO Alan Lacy said in a statement.
Home electronics, tools, and seasonal lawn and garden
merchandise were hot items during the holiday shopping period. Shoppers
lured by holiday promotions and clearance sales “caused many merchandise
categories to rally as the season progressed.”
Looking ahead, Sears said it sees first-quarter
same-stores sales ranging from flat to slightly higher, compared with
first-quarter 2003.
Sears was not the only retailer to post disappointing
results for the critical holiday shopping period. While higher-priced
department stores like Nordstrom Inc. and Neiman Marcus Group Inc. had a
strong showing in December, their lower-priced counterparts were less
successful.
Minneapolis-based Target Corp., which owns Marshall
Field's and Mervyn's, hit the low end of its forecast, posting a 4.1%
same-store sales gain companywide, while one of Sears’ biggest rivals,
Kohl’s Corp., said same-store sales slipped 1.2%.
“The trend that we're seeing is, the retailers with
expertise in fashion . . . had strong sales,” said Bill Dreher, retail
analyst with Deutsche Bank. “It's the women's fashion in the moderate
channel that really seemed to miss this holiday. We are seeing sales under
pressure and even greater pressure on the gross margin side.”
Downers Grove-based retailer Spiegel, which has been
operating under bankruptcy protection since March 2003, on Thursday said
its Eddie Bauer unit had a 3% drop in same-store sales for the five weeks
ended Jan. 3. Total Spiegel sales fell 33% during that time, mainly due to
a wave of store closings as part of the company’s restructuring plan.
Sears
Sees Q1 Same-store
Sales Fat to
Slightly jigher
Reuters
January 8, 2004
NEW YORK (Reuters) - Sears, Roebuck and Co. (nyse: S -
news - people), the largest U.S. department store chain, said Thursday it
expects sales at stores open at least a year to be flat to slightly higher
for its first quarter.
Earlier, the company posted a 0.8 percent decline in
December same-store sales, hurt by sluggish demand for clothing and stiff
competition in consumer electronics.
WIT Gets
Serious About
Job Hunting
By Virginia Gerst
- Special to the Tribune
Chicago Tribune
January 7, 2004
It is called Women in Transition--WIT for short--but to
the job-seekers who meet monthly in each other's homes to consider career
alternatives, it is no laughing matter.
WIT members, drawn from the ranks of once high-powered
corporate executives, lawyers and engineers, say that the group provides
not only psychological support of the misery-loves-company variety, but
genuine help in landing that next job or finding that new client.
Marlene Hodges is one of WIT's success stories. A former
director of finance at Sears, Roebuck and Co., she was still reeling over
her forced "retirement" after 31 years with the retailer when a friend
introduced her to WIT.
"I was lost, angry and confused," recalls the La Grange
Park resident, 55. "I had done some outplacement, but it was unfocused."
At a WIT meeting, Hodges heard Carla Carstens describe a
management shakeup that meant job openings at the Abraham Lincoln Center,
a 98-year-old social service agency on Chicago's South Side. Hodges gave
Carstens her name, and was back on the employment rolls two week later.
Today, she is the agency's finance director. "Without WIT and Carla, I
would never have known about the job and probably would never have
considered non-profit work either," she says.
Liz Wain, 42, a designer and product developer from
Highland Park, agrees that WIT opens new vistas to job seekers.
A think-tank for professionals
"It is a great think-tank for professional women who are
making changes in their lives, whether in the same field or more
important, in a new field," she says. Wain recently re-entered the work
force after three years at home tending her children and is now director
of new business development for the Bradford Group in Niles thanks to a
WIT connection. "WIT put me in contact with an entirely new group of
people who were in the game," she says.
Connections are what WIT is all about.
"We want to help connect women in transition to whatever
their next life is going to be," says WIT founder Elizabeth Richter. "In
most cases, that means a new job, but it also might be new clients or even
a volunteer opportunity. Our focus, however, has always been the kind of
connections that lead to the next source of revenue."
Richter, 59, founded WIT in December 2000, soon after
the demise of InLight Inc., a company that delivered online and video
educational content to hospitals and patients. She had been InLight's
senior vice president.
She knew several other professional women who were
similarly unemployed and she invited them--and their jobless friends--to
her Lincoln Park home to brainstorm about their next career moves. Fifteen
women attended that first meeting; 38 signed up for the second a month
later. Today, more than 300 women from Chicago and its suburbs are in the
group.
"In the beginning, we went around the room and each
woman described why she was there," Richter recalls. "Had we just been
laid off? Had our company gone under? Were we re-entering the job market?
Then we described what we were looking for. That, of course, is an
evolving situation. One of the things this group really helps members do
is identify things we had not thought about."
Three years after that first meeting, WIT still operates
much as it did at the start.
Members still gather in each other's homes, though the
size of the group now limits attendance to the first 40 to 60 who reply to
the invitation. After general announcements, the women break into smaller
groups to share experiences, advice, resumes and contacts. In order
broaden the network, they rotate into new groups several times during each
session.
Members pay no dues, and there is no admissions process,
though prospective members must be brought to their first meeting by a
current member.
"We don't exclude anyone," says Richter. "If someone
invites you to a meeting, you come and if you want to join, then you're a
member."
Between meetings, members keep in touch through e-mail.
Richter estimates that she receives two or three messages a day ranging
from job leads to solicitations of information about particular companies
or possible industry contacts. Selling products or personal services is
forbidden by the 11-point operating guidelines distributed to all new
members.
"We don't do shameless self-promotion," says Richter.
"We don't spam, and we don't look for nannies."
They do seek support.
"The members are so interested in helping each other,"
says Nina Adams, 58, an independent consultant from Western Springs."The
welcoming and encouraging atmosphere of the meetings helped me regain my
self-confidence," says Hodges. "The WIT sorority was a godsend."
Continuing involvement
And WIT is a godsend that few women give up, even after
they have found employment. Tessa Burton, 48, of Edgewater, keeps her
membership though she is now director of marketing services at
Northwestern Memorial Hospital. Not only does she see her continuing
involvement with the group as a way to give back ("If I hear about a job
opening, I post it and people do apply," she says), she also understands
that she may need its connections in the future.
"I've been out of work twice in the last five years, and
I know how often it can happen, even if you don't expect it," she says.
"So there is a benefit to staying in touch."
Richter, herself, has no plans to drop out of the
organization, though she now heads the Richter Group, a consulting firm
specializing in the multimedia delivery of educational content with
clients including the Field Museum, the Pritzker Military Library, the
Illinois Network of Charter Schools and PBS.
"I get leads for pitches, I get advice and counsel from
members, and I have gotten to know some very interesting women," she says.
"I can't imagine my life without WIT."
- - -
Tips on forming a group
WIT founder Elizabeth Richter suggests these six steps
to start your own version of a group for job seekers:
- Find a minimum of five friends who share your focus
and set up a meeting in one of your homes. Encourage everyone to invite
like-minded friends.
- Everyone must volunteer to host a monthly meeting or
bring food.
- Set meeting dates one month in advance.
- Create a computer database of members.
- Between meetings, communicate by e-mail. When the size
of the group merits it, hire a hosting company to create a listserv so
that members can receive e-mails sent to a single address.
- Formulate meeting guidelines. At WIT, meetings are run
by the host and are scheduled to run two hours, though they often last
longer because "nobody wants to leave."
-- Virginia Gerst
Sears, Emerson
Settle Equipment
Dispute
By Mary Wisniewski - St.
Louis Post-Dispatch
January 6, 2004
CHICAGO - Sears, Roebuck and Co., the largest U.S. chain
of department stores, will get $10.8 million to settle claims that
Emerson, based in Ferguson, Mo., used Sears-owned machines to make power
tools for rival Home Depot Inc.
In a lawsuit filed in August 2002, Sears said that it
spent $35 million to equip an Emerson facility in Paris, Tenn., with
machines to make parts for its Craftsman-brand line of tools.
The suit, filed in U.S. District Court in Chicago,
alleged that Emerson schemed to gain possession of Sears equipment and
used it to make power tools for Home Depot. Sears is based in Hoffman
Estates, Ill., a suburb of Chicago.
Competition from Atlanta-based Home Depot and other
home-improvement chains has been cutting into sales of Sears' Craftsman
tools, the top-selling U.S. brand.
"The conduct that was alleged in the complaint and
proved in discovery was egregious, but Sears is satisfied that it was the
work of now-former Emerson employees," Sears lawyer Ron Safer said after a
hearing Tuesday in Chicago. "It does not reflect Emerson's general way of
doing business."
Safer termed the settlement an "eloquent admission of
liability."
Emerson, which denied the allegations when the suit was
filed, admitted no wrongdoing in the settlement. The company had no
comment Tuesday.
U.S. District Judge Matthew F. Kennelly approved the
settlement.
The Tennessee facility at the center of the dispute has
been closed.
The lawsuit accused Emerson, the world's biggest maker
of electric motors, of keeping equipment that it was required to return
when a 30-year supply contract with Sears expired in 1998.
Sears claimed Emerson put some Sears equipment in an
abandoned factory and claimed it was obsolete or of little value. The suit
also claimed that Emerson had "devised a scheme" to regain possession and
use of Sears tools that were supposed to be destroyed.
Under the settlement agreement, Emerson will forgive a
$1.3 million Sears debt, said Safer, a partner with the Chicago-based firm
of Schiff Hardin & Waite. Emerson also will pay $4 million in cash and
provide $5.5 million in rebates to Sears under supply contracts for hand
tools and vacuums.
"This lawsuit and this settlement serves notice that
Sears will not be taken advantage of even by vendors with whom it has had
long and friendly relationships," Safer said.
Sears spokesman Chris Brathwaite said that because Sears
has a continuing relationship with Emerson, "We're glad to have a
resolution to this matter."
In trading Tuesday, shares of Sears fell 28 cents to
$45.51, while shares of Emerson rose 13 cents to $65.75.
Will Sears Make the REIT Move?
By Sandra Jones
- Crain's Chicago Business
January 5, 2004
IRS Ruling Allows Tax-Free
Spinoffs
As chairman and CEO of Sears, Roebuck and Co., Alan Lacy
has focused much of his energy converting assets into cash for
shareholders.
A finance guy by trade, Mr. Lacy has kept investors
happy by raising billions of dollars selling businesses and spending
billions of dollars buying back Sears stock. The moves have boosted Sears'
earnings per share and stock price even as the core retail business
flounders.
Now, with most of Sears' ancillary business units sold
or shuttered, the retailer's vast real estate holdings are looking like a
mighty tempting target.
Sears owns about 520 of its 869 full-line stores, most
of them in malls. The portfolio is worth $5 billion to $7 billion,
according to retail real estate analysts' estimates.
Yet, getting cash out of retail real estate is a
delicate matter. Retailers often sell their stores and lease them back to
raise cash when they're facing financial difficulties — not a signal Sears
would want to send, retail experts say.
A new Internal Revenue Service (IRS) ruling could
provide the answer by allowing Sears essentially to convert corporate tax
payments into dividends for shareholders. At least that is what tax expert
Robert Willens, a managing director at New York-based Lehman Bros., is
predicting for Sears and other companies rich in real estate.
Ruling Could 'Open Floodgates'
Three years ago, the IRS ruled that companies with real
estate holdings could spin off those properties tax-free into a real
estate investment trust (REIT). The tax-free status means that companies
like Sears can move their store real estate into a REIT, spin it off to
shareholders and use some pretax company profits to pay rent to the REIT.
Since a REIT is required to pay out 90% of its profits
every year in the form of dividends to shareholders, Sears would be
passing through much of its profits before taxes to the REIT and,
ultimately, to shareholders.
The hitch: The newly formed REIT has to make a one-time
dividend payment based on the parent company's retained earnings.
Companies reluctant to give up their cash backed away from the deals. Oak
Brook-based McDonald's Corp. considered a REIT in 2001 but ultimately
decided against it.
A ruling late last year addresses the cash problem. In
separate letters to two companies — Florida-based timber firm Rayonier
Inc. and San Francisco-based industrial real estate firm Catellus
Development Corp. — the IRS allowed the companies to meet the required
initial dividend payment to shareholders with as much as 80% stock, rather
than all cash.
"Maybe this ruling will open the floodgates," says Mr.
Willens. "It's hard to imagine why there wouldn't be a market for this."
Mr. Willens estimates that if Sears chose to pursue a
REIT, it could be required to pay as much as half of its retained
earnings, $8.95 billion as of Sept. 27, in a special dividend, based on
the value of its real estate and Sears' market capitalization. Since such
an amount would be "unprecedented," Mr. Willens predicts that Sears would
lower the value of the real estate by borrowing against the properties,
keeping the proceeds for store operations and giving the obligation to
repay the borrowing to the REIT.
Such a move could bring the newly formed REIT's initial
dividend payment to about $1 billion to $1.5 billion, of which only 20%,
or $200 million to $300 million, would have to be paid in cash.
'Sitting On Revenue'
"Anytime you can pass on some of your profits tax-free,
there is definitely a benefit to investors," says Erik Hurst, associate
professor of economics at the University of Chicago Graduate School of
Business.
A Sears spokesman says Sears "is not pursuing and has no
intention for a sale-leaseback of any properties" and "performs an
evaluation of its real estate on a regular basis."
As for the possibility of a REIT spinoff, another Sears
spokesman says that company executives are aware of the new IRS ruling but
haven't studied it enough yet to determine what, if anything, it would
mean for Sears.
But some say it makes sense to put the real estate to
better use, especially given Sears' inability to turn around its store
operations. "Sears is sitting on a considerable amount of revenue with all
that real estate," says John Melaniphy III, a retail real estate
consultant at Chicago-based Melaniphy & Associates, "and this would be a
productive use of those resources."
Viewer Shifts Unnerve Industry
By Jim Kirk, Tribune Staff
Reporter
Chicago Tribune
January 2, 2004
As viewers,
especially young men, change their TV habits,
firms are forced to alter their advertising strategies
When Nielsen Media Research, which monitors television
audiences, reported that hordes of young men unexpectedly tuned out of
traditional TV programming this fall, advertisers demanded answers.
What they got, instead, was finger-pointing--more like
you'd find in a partisan debate on Capitol Hill.
Media buyers blamed the networks for lousy programs. The
networks blamed Nielsen for a lack of proper sampling. Nielsen held up its
hands and said its methodology hadn't changed.
In all, males between the ages of 18 and 34, which is
the male group most coveted by advertisers because of its immense spending
power, watched 6 percent less television in this fall's season, through
November, compared with last year. Prime-time ratings for men in the age
group were worse, down 7.7 percent
The mysterious case of the missing men of 2003 is likely
to have the biggest impact on advertising and media in 2004. The decline
of young male viewers, whether the fault of sampling or other forces, has
a lot of advertisers both nervous and angry.
Nielsen, in defending its strategy, later said that
after researching the viewership drop, it determined guys tuned out to
watch more DVDs, play more video games and use more video-recording
devices like TiVo.
Despite the continued exodus of viewers, industry
forecasters are expecting 2004 to be a banner year in terms of advertising
in traditional media due in large part to the Summer Olympics and U.S.
elections.
Big audience generators like the Olympics usually
attract mass advertisers. Election advertising usually fills the coffers
of local television stations.
Overall, U.S. advertising is expected to rise 6.9
percent above 2003 to $266.4 billion, following modest growth in 2003 and
declines in 2002 and 2001.
According to veteran advertising spending forecaster
Robert Coen of Universal McCann, advertising on the four networks, ABC,
NBC, CBS and Fox, is expected to jump 12 percent to $17.4 billion in 2004.
Similar large increases are expected for ads in local
and regional TV markets and cable TV.
Local newspapers, radio and TV stations are expected to
experience increases of 6 percent, 7 percent and 6 percent, respectively.
Whether the forecasts for traditional broadcast stations
hold up, given the fall numbers, is unclear.
Before the startling viewership drop, many advertisers
were already considering major changes in how they try to reach consumers
Traditional methods, such as mass-reach broadcast television, appear to be
fading.
"I suspect it's the beginning of the end of mass
media--in the television world that's broadcasting--as a [mass] audience
deliverer," said Tim Hanlon, vice president of emerging contacts at
Chicago-based media giant Starcom MediaVest Group.
The problem of the missing males may be the start of a
larger audience retreat.
"Today's males are tomorrow's mothers and next week's 2-
to 11-year-olds," Hanlon said.
Instead of marketing "one to many," advertisers will now
be faced with marketing "one to some," he said.
With those forces at work, several advertising and media
observers say that 2004, which is expected to be a comeback year in
advertising expenditures, could be marked instead by dramatic industry
changes as companies look for alternative ways to reach a more fragmented
audience.
How significant an impact those changes will have on the
industry will likely be answered this spring when the advertising buying
frenzy known as the television "upfront" begins.
The traditional selling period for the fall TV season is
usually the biggest indicator of broadcast television's health. In the
past couple of years it has shown strong year-to-year growth.
But many analysts and media executives say 2004 may be
the year mass advertisers begin to shift larger portions of their
advertising budgets away from 30-second spots on broadcast television and
into non-traditional marketing. That includes product placement in reality
shows, more sponsorship of big-audience sporting events and more ad money
put toward niche programming on cable TV.
Late in 2003, advertisers already showed some signs of
shifting. In the fourth quarter, local TV and radio stations saw
advertising sales slip as antsy advertisers began to hold back money or
moved advertising into other areas.
Some advertising and media-buying agencies already have
begun to adjust to the changes. For example, Starcom last summer launched
a new unit called Play, which focuses on imbedding advertising and
marketing programs in video games.
And there are plenty of examples of big media spenders
already sampling alternatives.
Sears, Roebuck and Co., which spends more than $700
million annually in advertising, struck its first big branded sponsorship
program deal in December when it spent more than $1 million to be the main
sponsor of ABC's "Extreme Makeover: Home Edition."
The reality show, which features professional decorators
doing a complete remake of a home while the family is gone, showed a
number of products brought in with prominently displayed Sears bags as
well as Craftsman Tool products and Kenmore appliances.
BMW went so far as to reach customers at New York's JFK
Airport. As part of its marketing plan to launch the new X3 SUV, the
German automaker commissioned people to hold travelers' places in line at
the JetBlue counter at JFK during the busy Thanksgiving holiday so that
passengers could play the BMW X3 Adventure online game on five kiosks set
up especially for JetBlue customers.
"Technology is greatly exacerbating choice and
transferring control to the consumer," Hanlon said.
Citing more difficulty in reaching young males,
Northbrook-based Allstate Insurance Co. has moved more of its advertising
dollars to sports programming and will aggressively promote its
sponsorship of the Olympics.
Bill Lamar, U.S. marketing chief for McDonald's Corp.,
last summer shocked media executives when he said the company was shifting
more of its media dollars into digital media as younger consumers spend
more time online and less in front of the tube.
The company has yet to say how much of its budget will
shift from traditional TV to digital media.
"We know that more and more adult males are spending
more time on the Web. It's something we're doing anyway and not reacting
to monthly data," McDonald's spokesman Bill Whitman said.
As networks try to keep young viewers hooked, they are
scheduling more reality TV starting this month. It's a model that has
succeeded on cable with such hits as MTV's long-running "The Real World"
and newer home improvement shows like TLC's "While You Were Out."
Ad placement based on a specific gender watching a
certain program during a particular time period is waning with the success
of such home improvement shows on cable, which draw a diverse audience.
"It may not get a 10 Nielsen rating nationally, but the
audience is highly concentrated," Hanlon said.
David Leahy, Sears Executive,
First Lottery Panel
Chairman, Dies at 94
By
Alana Baranick, Cleveland Plain Dealer Reporter
January 1, 2004
Kirtland Hills - David F. Leahy, the first Ohio Lottery
Commission chairman and a retired Sears executive, died Tuesday at
LakeWest Hospital in Willoughby after becoming ill at home.
The 94-year-old Kirtland Hills resident retired as
regional manager of Sears, Roebuck & Co. in Cleveland in 1972 after 39
years with the retail company.
A year later, Leahy was named chairman of the newly
created Ohio Lottery Commission. He previously was president of the Ohio
Retail Merchants Council and a member of the Citizens Task Force on Tax
Reform.
In the 1960s and 1970s, Leahy headed the Greater
Cleveland chapter of the American Red Cross and the United Torch Drive,
the precursor to the United Way. He was a trustee of the Convention and
Visitors Bureau of Greater Cleveland, Cleveland Opera Association, Musical
Arts Association and University Circle Inc.
He was a member of the executive committee of Greater
Cleveland Council of Boy Scouts and a recipient of Scouting's Award of
Merit. The American Heart Association honored him for his work with the
Council for High Blood Pressure Research.
In later years, Leahy was president of the trustees of
the Retired and Senior Volunteer Program of Greater Cleveland. He was
inducted into the Ohio Senior Citizens Hall of Fame in 1983.
The New York City native started working for Sears in
Detroit as a stock boy in 1933 after graduating from the University of
Detroit. He advanced to the management level and transferred to Des
Moines, Iowa, in the late 1940s. He was man ager of Chica go's largest
Sears store be fore becoming general man ager of Sears' Cleveland stores
in 1961.
Leahy quickly became a loyal Indians fan and later
served as president of the Wahoo Club. He had season tickets, first row at
first base, and often donated game tickets to charity auctions. He loved
baseball.
"Baseball is good entertainment," he told Bob Seltzer of
the Cleveland Press in 1964. "There is tension and drama in a home run
inside the park, a steal of home and the ballet grace of the pivot man in
a double play. And I like to see the home team win."
He attended his last Indians game about three years ago.
His wife, Jean, died 12 years ago. They married in 1933
and had three children. Their son David died in a car crash at age 20 in
1960.
Leahy is survived by a daughter, Jean Stephenson of
Mentor; son, William of Shaker Heights; seven grandchildren; a
great-grandson; and two brothers.
Memorial services are being planned for Jan. 24 at
Fairmount Presbyterian Church, 2757 Fairmount Blvd., Cleveland Heights.
Donations may be made to Retired and Senior Volunteer
Program of Greater Cleveland Inc., 6001 Woodland Ave., Cleveland 44104.
Arrangements are by Brunner Funeral Home & Cremation
Service of Mentor.
Sales Disappoint; Stores Cut
Prices
Chicago Tribune - Tribune News
Services
December 23, 2003
Against a backdrop of disappointing sales over the
weekend, major retailers including Sears, Roebuck and Co. and Federated
Department Stores Inc. are cutting prices, analysts and merchants said
Monday.
Many retailers, in addition to the discounts, are
extending hours to attract procrastinating shoppers and salvage
slower-than-forecast holiday sales.
No. 1 retailer Wal-Mart Stores Inc. said a last-minute
pickup in holiday sales was not enough to make up for a sluggish start to
December.
Analysts said they saw little reason to change their
assessment of the holiday shopping season, which has not delivered on
expectations for a strong rebound from last year's disappointing
performance.
"It certainly is not going to be a barnburner holiday,"
said Robert Mettler, who heads Federated's Macy's West division. "We're
seeing the continuing trend of buying closer to need. That's a bit
nerve-wracking."
Analysts said anecdotal reports suggested weekend sales
were good, but not great, across the sector. The Saturday before Christmas
is usually the busiest shopping day of the year for retailers.
Retailers finally got a snowstorm-free weekend after
back-to-back weekend white-outs in parts of the Northeast, but the U.S.
Department of Homeland Security raised its color-coded terror alert level
to orange on Sunday, its second-highest level, warning of a high risk of
attack.
That may have kept some shoppers away from the major
malls.
Wal-Mart said sales picked up as consumers bought
electronics and toys and spent more per purchase. The retailer still
expects December sales to be at the low end of its forecast.
The Saturday before Christmas was the biggest shopping
day of last year, while the final week before the holiday brought in more
than a third of the season's sales.
Holiday sales forecast
Sales at U.S. stores open at least a year in December
are forecast to rise 4 percent to 4.5 percent, according to economist
Michael Niemira, who tracks the results of about 76 chains for the
International Council of Shopping Centers.
Moderate-income consumers concerned about their jobs and
the economy have limited spending, hurting sales at discount chains.
Luxury-goods retailers such as Neiman Marcus Group Inc.
and Nordstrom Inc. may lead the sales gains because their customers have
benefited from rising stock prices and the economic recovery, analysts
said.
"Customers are walking out of Neiman and Nordstrom, and
they've got bags under their arms," said Britt Beemer, chairman of
America's Research Group, a consulting firm.
"This season has been pretty squishy in the middle," he
added.
Wal-Mart said that same-store sales so far this month
were closer to the lower end of its forecast for a gain of 3 percent to 5
percent.
Target Corp., the second-largest U.S. discounter, said
sales were less than forecast in the past week. Pier 1 Imports Inc.
expects a decline in same-store sales.
U.S. Internet sales excluding travel and auctions rose
31 percent to $1.88 billion in the week ending Friday, according to
ComScore Networks Inc., a Web research company.
ComScore forecasts online sales will rise as much as 30
percent in the November-December period.
Most retailers have kept inventories tight to avoid
ending the season with too many leftover items, creating a need for steep
price cuts after the holiday, analysts said.
That strategy suggests retailers' gross margins, or the
percentage of sales left after subtracting the cost of goods, may hold
steady.
"If they have been able to hold discounts in check, a
mediocre selling season would be OK because margins are going to be
strong," said Jennifer Zlimen, a high-yield analyst at Thrivent Investment
Management in Minneapolis, which oversees about $60 billion in assets.
Longer hours planned
Merchants counting on last-minute shoppers are taking
steps to lure customers and ring up sales until Christmas Eve. Target,
Macy's, and Sears, the biggest U.S. department-store chain, are among
retailers that plan to keep their stores open until 6 p.m. on Dec. 24.
Holiday sales of books, toys, home furnishings and
general merchandise are forecast to rise 5.7 percent in the November-
December period, from a gain of 2.2 percent a year ago, according to the
National Retail Federation. The Washington-based trade group represents
more than 1 million U.S. merchants.
Demand for
Big-Screen TVs
Almost Bowls
Over Sears
By Becky Yerak - Chicago Tribune
- Inside Retailing
December 23, 2003
Big-screen televisions were among the hottest-selling
products at Sears, Roebuck and Co. early in the holiday shopping season,
but by mid-December supplies of some brands were sold out at the Hoffman
Estates-based retailer's stores.
Last July Sears doubled its inventories of plasma and
liquid crystal display sets to ride the wave of rising consumer interest
in TVs with better resolution and thinner screens.
The move made Sears the nation's third-biggest seller of
big-screen TVs--right behind Best Buy Co. and Circuit City Stores Inc.
"Our first goal is to take out Circuit City," John
Schlenner, home electronics merchandising manager for Sears, said Monday.
But by mid-December, Sears had sold out of Sony LCD
"micro-projection" TVs, "the hottest segment in TVs right now," Schlenner
said.
They're too bulky to be hung from a wall like flat-panel
LCD or plasma TVs. But at $3,300 to $5,000, they're cheaper than plasma
sets. And at 8 inches wide, they're slimmer than old-school TVs.
"It's the thinner look at a more affordable price,"
Schlenner said.
Sears has secured more Samsung and Hitachi LCD
micro-TVs, but they're moving quickly out the door. It ran out of Sony LCD
micro-TVs because of a shortage of TV screens--manufacturers are
scrambling for another supplier.
But did Sears also misread demand?
"We didn't get as aggressive as we should have,"
Schlenner concedes, "but there are only so many" being made.
In addition, Sears didn't want to stock up further
because the new technology carries a fairly high price.
For its part, Circuit City isn't "seeing any widespread
inventory issues" in the category.
"Our buyers knew our customers would be interested in
these products, so we invested heavily in them," Circuit City spokesman
Steve Mullen said.
Sears' Schlenner maintains that it's not much easier to
walk out with a micro-TV set from Circuit City. "It depends on what store,
what day of the week," he said.
Sears expects to restock Sony micro sets in late
January. That shouldn't be too late to catch the wave.
"January is one of the largest months of the year in
projection TVs because of the Super Bowl," Schlenner said.
Sears did pick a hot sector to beef up its offerings.
Consider:
- The Consumer Electronics Association says November was
the biggest sales month ever for digital TVs--which include LCD and plasma
sets--since their 1998 introduction. Sales rose 47 percent from November
2002. The group estimates 4.3 million units will be sold in 2003 and 16.2
million by 2007.
- The National Retail Federation said sales at
electronics and appliance stores soared 14.3 percent in November, while
overall merchandise categories saw a 4.8 percent rise.
Sears also has tripled its DVD player inventory to meet
consumer demand.
"We should have bought more," Schlenner concludes.
The eight other items on Sears' top 10 hot-seller list:
tools and tool storage, fitness equipment, grills, digital cameras, game
tables, Sony PlayStation 2, Kenmore Mini-Ultra sewing machines and denim.
In other Sears news, the company has waived the
expiration date for its gift cards. Holders previously had two years.
Customer conflicts: In a customer survey by Circuit
City, more men than women want a new TV--23 percent versus19 percent.
Results were similar for home theater sound systems--17
percent versus 10 percent.
More women than men prefer music CDs, DVD movies and
video games, 22 percent to 13 percent, the survey found.
Gift Cards
Push Revenue into 2004
By Jennifer Waters, CBS.MarketWatch.com
December 19, 2003
Retailers pocket the
cash, but can't count the sales
CHICAGO (CBS.MW) -- Americans will find fewer big boxes
under the tree this year as more people give tiny gift cards instead, and
that means a dramatic shift in holiday results for the nation's retailers.
The credit-card-like gifts, which essentially contain
cash that can be spent later at a particular store, will create a
post-Christmas rush of shoppers who will push "holiday sales" right past
the holiday, sometimes well into February.
While the retailer collects cash when the card is sold,
accounting rules say it's not a "sale" until a real product is delivered.
That doesn't happen until the recipient uses the card to buy something.
That means a sizable share of holiday sales -- 8 percent
or more -- won't show up as revenue in the traditional holiday retail
season.
But Sears spokesman Bill Masterson doesn't mind. "From
our standpoint these are win-win," he said. "Increasingly consumers are
liking them more than presents."
Not just for the lazy anymore
Once shunned as a "no-thought" present, gift cards are
among the hottest purchases at retailers nationwide this year. From
Abercrombie & Fitch (ANF: news, chart, profile) to Zale's (ZLC: news,
chart, profile), shoppers are bagging gift cards in record numbers,
prompting the National Retail Federation to offer its first-ever estimate
of holiday spending on the synthetic currency.
"They're no longer considered the 'lazy man's gift,'"
said Tracy Mullin, president of the NRF.
A whopping $17.25 billion will be added to the
21/2-by-31/2-inch cards during the holidays, according to a survey NRF
conducted with BigResearch. That would account for nearly 8 percent of all
holiday sales this year. And some think that's conservative: Bain and Co.,
a consulting firm in Boston, pegged total 2003 gift-card sales at $45
billion.
Since 1998, gift-card sales have grown annually in
double digits, with the biggest surge coming in the last week, sometimes
the last day, before Christmas.
Big Lots (BLI: news, chart, profile) executive Al Bell
said twice as many gift cards are sold in the seven days leading up to
Christmas than in the prior week.
In fact, 70 percent of all holiday gift-givers said they
will purchase at least one gift card this year, according to BigResearch.
Unlike the paper gift certificates of old, gift cards are often reloadable,
can usually be purchased in any denomination and are as easy to use in a
store as a credit card. In many cases, they can also be purchased and
redeemed online.
Retailers are hot to sell them:
At Best Buy (BBY: news, chart, profile), it's hard to
find an aisle that doesn't flount them.
Sears (S: news, chart, profile) carries 15 different
versions of them, including those Merry Christmas and Happy Hanukkah
greetings.
The Neiman-Marcus (NMG.A: news, chart, profile) web site
allows customers to purchase a virtual gift card.
J.C. Penney (JCP: news, chart, profile) introduced
lenticular cards, three-dimensional-like cards that appear to have moving
objects, and makes them available through the Internet or through
catalogs.
"When you give a gift card, you're giving a shopping
spree to that store," said Bill Kiss, vice president of Sears Promotions
LLC, a subsidiary of Sears.
One card, two visits
The shopping spree comes not just from the value on the
card, which averages $34 according to BigResearch, but from the "up-spend"
that comes along with it. Each card generates two trips to the store. The
first is by the gift-giver, who buys the card and often makes additional
purchases while in the store. The second is by the recipient, who often
will spend the value of the card plus a bit more.
Best Buy CEO Brad Anderson said gift-cards sales this
year "are doing very, very well," but would not offer any numbers. He
said, however, that he's got inventory ready to fill the shelves right
after the holidays to accommodate the rush of people using gift cards.
Gift cards aren't just for "gifts." Wal-Mart (WMT: news,
chart, profile) gift cards are available in denominations as low as $5 and
as high as $5,000. "I've got a gift card I keep around all the time to buy
gas," said Wal-Mart spokeswoman Sharon Weber. "Lots of parents get them
for their kids when they're going off to college. When they run out of
money, parents can just reload them."
While gift cards offer convenience for givers and
recipients, they do create a bit of an accounting headache. Since the
value of the card can't be booked as a sale until after the recipient has
actually bought something, it must instead be listed as a liability.
Cards change sales totals
Wal-Mart highlighted the immediate impact earlier this
week in its update on holiday sales. At locations open longer than a year
-- a key industry benchmark known as same-store sales -- the company said
results would fall to the low end of its previous forecast, which was for
a 3 percent to 5 percent boost in sales, mostly because of the
proliferation of gift cards.
That doesn't mean the sales are lost, only delayed. But
it can impact margins.
While retailers such as Best Buy and Wet Seal (WTSLA:
news, chart, profile) and Pacific Sunwear (PSUN: news, chart, profile)
restock their shelves with new merchandise, many try to clear out the
holiday inventory.
That can lead to discounts that impact margins if the
cards are redeemed in late December or early January during the
post-holiday sales. If recipients wait until February or even longer,
they're more likely to be buying merchandise at full price.
What's more, an estimated 10 percent of all gift cards
are never redeemed.
Even with the liability for unredeemed cards, companies
still reap one strong benefit from getting the cash up front:
"It's a pretty good way to have cash sitting on the
company's balance sheet," said Wedbush Morgan Securities analyst Adrienne
Tennant.
Jennifer Waters is the Chicago bureau chief for
CBS.MarketWatch.com.
After
Huge Raid on Illegals, Wal-Mart Fires Back at U.S.
By Ann Zimmerman -
Staff Reporter of The Wall Street Journal
December 19, 2003
Retail Giant Says It
Believed It Was Helping Long Probe
When Agents Struck
In a series of predawn raids on Oct. 23, federal agents
rounded up 250 illegal immigrants working as cleaning crews in 61 Wal-Marts
across 21 states. Twelve federal agents also descended on Wal-Mart Stores
Inc. offices in Bentonville, Ark. Brandishing a search warrant, they made
off with 18 boxes of documents from the company's operations department --
mostly records related to cleaning contractors dating back to March 2000.
The raids, dubbed Operation Rollback by Immigration and
Customs Enforcement in a cheeky reference to the company's well-known
price-cutting strategy, made the evening news and showed up on front pages
across the country. It was a huge black eye for the world's biggest
retailer. At the time, federal officials who declined to be named were
widely reported saying that the government had wiretaps showing that
Wal-Mart officials knew its contractors were furnishing illegal cleaning
crews.
But now Wal-Mart is opening up a new battle with the
government over the raids. Wal-Mart says managers at many levels knew
about the problem of illegal workers in its stores, because they had been
cooperating for as long as three years in federal investigations in both
Pennsylvania and Chicago.
Wal-Mart says it was led to believe it wasn't a target
of the investigations, and it says it didn't take action to sever its ties
with the contractors because federal officials specifically asked it to
leave the relationships in place.
"It probably sounds a little naive now, but we were
simply trying to help our government and cooperated closely with federal
agents for three years," says Mona Williams, Wal-Mart vice president of
corporate communications. "Throughout that time they specifically told us
we were not the target of any investigation and that we would be given a
heads-up before any arrests were made in our stores. Instead, they
conducted unannounced raids on our stores and created a well-planned media
frenzy by saying they had proof that Wal-Mart executives knew what was
going on. All we knew was what they had told us."
The federal prosecutors in Pennsylvania and Chicago
declined to comment. But from the government's viewpoint, Wal-Mart may not
have been doing enough to cooperate. "If Wal-Mart was cooperating, why
would [the government] have gone ahead with the raids on 61 stores?" a
person close to the investigation said.
The complex relationships between Wal-Mart, its
contractors and subcontractors and federal officials are now being
examined by a federal grand jury in Scranton, Pa. While the full story is
still uncertain, the intriguing outlines are visible in police reports and
court records. They depict an investigation that began with the arrest of
a Russian teenager who had broken into an apartment in Honesdale, Pa., and
spread out into a complicated web of cleaning subcontractors that used
illegal immigrants at dozens of Wal-Marts.
At the center of the web is a little-known St. Louis
businessman named Christopher Walters, who has financial ties to companies
that won millions of dollars of Wal-Mart's business. Last week, the grand
jury began reviewing evidence in the case to decide whether Wal-Mart
should be indicted for violating federal immigration laws. The evidence is
expected to include audiotapes of conversations made between Mr. Walters
and a Wal-Mart middle manager.
Mr. Walters, 40 years old, learned the floor-cleaning
business from his father, Dale, who invented a faster and more effective
cleaning process and began taking on Wal-Mart Supercenters as clients.
Dale Walters, speaking from his home in Bokeelia, Fla., said he left the
business five years ago. By then, his son had set up more than 15
companies, with names such as Intensive Maintenance Care Inc., Comet Floor
Care Associates, Precision Cleaning and Florida Floor Care. The companies
were registered in Missouri, Illinois and Florida. The mailing address
listed for the Florida company was his father's home. Dale Walters says
his son didn't know his subcontractors were hiring illegal immigrants.
Christopher Walters's attorney, Jeff Demerath of St.
Louis, says his client wouldn't talk about the government investigation,
the wiretapping or his cleaning business, which he says Mr. Walters no
longer operates. The status of the government's case against Mr. Walters
is unclear. In April 2002, federal officials from Pennsylvania arrested
Mr. Walters and seized some assets of his businesses. But the court
records in his case have been partially sealed.
High Life
By the time the federal prosecutors had closed in on
him, Chris Walters was a wealthy man. In 1999, bank records show, he had
bought his wife a $20,000 Rolex watch. In addition to a $2.3 million home
Mr. Walters bought in a leafy St. Louis suburb in 2000, another company he
owned, Walters Property Management, purchased property in Fenton, Mo.,
with a $2.3 million cashier's check. Mr. Walters made that purchase in
March, the month before the government seized his property.
Wal-Mart -- and its customers -- have prospered for
decades from the retailer's virtuoso ability to keep its prices low. The
nation's biggest private employer has always been aggressive about finding
new ways to keep its labor and production costs in check. In recent years,
Wal-Mart increasingly has turned to China for a portion of its goods,
putting pressure on factories there to lower prices and stirring debate
over working conditions.
Before and after the raids, Wal-Mart says it did what it
could to ensure that its contractors were hiring legal workers.
Antidiscrimination sections of the immigration code limit an employer's
ability to investigate an employee's legal status, the company said.
Indeed, in 1996, the INS filed a complaint against Wal-Mart for requiring
prospective hires who weren't U.S. citizens to show more verification than
required by law. The company paid a $60,000 fine. "Accordingly, our
company was very hesitant to ask for more assurances about the status of
our contractors' employees," says Ms. Williams, the Wal-Mart spokeswoman.
If Wal-Mart knowingly hired contractors who supplied
illegal workers and had a practice of doing so, it could be found guilty
of a criminal charge that carries a fine of up to $10,000 for each illegal
worker hired. But such cases are difficult to make. Earlier this year,
federal prosecutors suffered an embarrassing defeat in a case against food
giant Tyson Corp., which it had charged with conspiring to smuggle illegal
immigrants to work in its poultry plants.
The government was armed with secretly recorded tapes of
conversations between midlevel factory managers and an undercover agent
for the Immigration and Naturalization Service. The Tyson managers caught
on tape testified that their supervisors were aware of their scheme. But
the jury wasn't convinced that senior management knew what they were up to
or that there was a corporate culture that encouraged managers to hire
illegal workers. Both the company and three high-level managers were
acquitted.
The Wal-Mart case sprang from an unlikely source: In the
fall of 1998, an 18-year-old Russian was arrested for breaking into an
apartment in Honesdale, a small rural town of 5,000, three hours north of
Philadelphia. Police determined that the man had overstayed his visa and
was working on an overnight cleaning crew at Wal-Mart. He gave the police
the name and phone number of his employer, a man he knew only as Stan.
A year later, the police arrested another illegal worker
in the Honesdale Wal-Mart cleaning crew for allegedly assaulting his
former girlfriend. That worker, from Slovakia, was employed by a
subcontractor named Stanley Kostek, according to an affidavit filed in a
Pennsylvania federal court case against Mr. Walters. The worker said Mr.
Kostek knew he was illegal because he had shown him an expired employment
authorization card.
At the time, the Honesdale store manager told local
authorities that he believed his floor-cleaning crew was made up of
illegal workers, according to the affidavit. The store continued to
contract with the same company for replacements, who also were working in
the country illegally, the affidavit says.
Then, in February 2000, police arrested two night
janitors at a New Jersey Wal-Mart on suspicion of theft. The workers,
illegal Russian immigrants, had $25,000 in merchandise stolen from Wal-Marts
in several states in their apartment. Shipping records showed the workers
previously had sent large quantities of goods back home.
In 2000, after the spate of troubles with illegal
cleaning workers, Julio Santana, a special agent with the Philadelphia
Immigration and Customs Enforcement office, started connecting the dots.
The U.S. attorney in Pennsylvania subpoenaed documents from Wal-Mart's
Bentonville headquarters. Agent Santana, with help from the Pennsylvania
attorney general's office, pieced together a web of contractors and
subcontractors supplying illegal workers of mostly Eastern European
descent to more than 80 Wal-Marts in a half-dozen states, according to
court filings.
Miroslaw Dryjak, an illegal immigrant from Russia living
in Virginia, supervised the crews, according to the federal criminal
indictment filed against him. He took his marching orders from Mr. Kostek,
who owned a New York cleaning company. Mr. Kostek, in turn, reported to an
Illinois company, DJR Cleaning Enterprises, which is owned by Vincent
Romano. Mr. Kostek didn't return repeated phone calls. Mr. Dryjak and Mr.
Romano couldn't be reached for comment.
Court filings in the case against Mr. Walters, the
cleaning-company magnate, show that bank records connected all the
companies to St. Louis outfits he ran. Wal-Mart paid companies controlled
by Mr. Walters $18 million in 1999, $29 million in 2000 and $37.4 million
in 2001, according to the filings.
In March 2001, about the same time that Wal-Mart was
tending to the subpoenas from Pennsylvania, two INS agents from Chicago
met with members of Wal-Mart's loss-prevention department and a company
attorney. They told the Wal-Mart representatives that they were working
with the FBI and Department of Treasury and they wanted Wal-Mart to help
with taping and other surveillance. They subpoenaed records related to
several contractors, including one owned by Mr. Walters, according to a
Wal-Mart letter to the Chicago INS office.
Big Debts
The agents told the Wal-Mart officials that the
contractors recruited illegal immigrants through overseas ads and charged
them $10,000 to come to America, which they then had to work off. "They
are indebted to the groups that bring them over, and stealing is one of
the ways they labor to pay off the debts," the agents told the Wal-Mart
employees, according to a Wal-Mart memo chronicling the meeting.
The Chicago federal agents assured the Wal-Mart group
that the company wasn't a target of the investigation and there would be
no arrests at Wal-Marts, according to the memo. Mark Vogel, assistant U.S.
attorney for the Northern District of Illinois declined to comment and
said the investigation is still under way.
But in late March 2001, federal agents from Philadelphia
arrested 27 illegal workers from Eastern Europe at Wal-Marts in four
states. Federal agents also searched the workers' homes, where they found
two illegal workers who were employed by Kmart. They also found a letter
from a subcontractor saying their wages were being cut because Wal-Mart
district managers had to tighten their budgets or take the cleaning
service in house.
Wal-Mart employees asked the Chicago federal officials
if they were working with the INS from Philadelphia. "We were told there
were two separate investigations and there was a race to the courthouse,"
says Wal-Mart's Ms. Williams. Wal-Mart didn't tell the Pennsylvania
federal agents it was cooperating with Chicago, because it was told to
keep it quiet, Ms. Williams says.
In the fall of 2001, Philadelphia officials conducted
more extensive raids, rounding up more than 70 undocumented employees in
four states. They searched the hotels and apartment house where they were
living and found a group living in a trailer park on the outskirts of
Honesdale. The trailer had no lock on the front door, no furniture and no
running water. Sleeping bags were strewn across the floor and the bathroom
was "abnormally dirty," according to a government report.
In those raids, federal officials were hitting some
stores for the second time. When Wal-Mart sought new workers, contractors
had sent over more illegal crews, according to court documents. A Wal-Mart
store manager said he had gotten a letter from one worker who had been
arrested and deported, asking for money to feed and clothe his family in
the coming winter. He said the contractors owed him and the other workers
more than a month's back pay at the time of the raid.
After the fall raids, some Wal-Mart store managers
switched contractors or asked the contractors to send replacement crews
they were certain were legal. Several of the new crews, the INS
determined, were still ineligible to work, according to court documents.
The INS discovered that the new contracting companies were also owned by
Mr. Walters. At one Kansas City, Mo., Wal-Mart, the replacement crews
worked 12-hour shifts and slept in the back room of the stores, where they
kept their personal belongings, according to court documents.
With Wal-Mart's cooperation, the investigators taped
conversations between store managers and employees of Mr. Walters,
according to an affidavit in the asset forfeiture proceedings brought
against Mr. Walters. During these taped conversations, some contractors
claimed to have paperwork for the workers and faxed over copies of I-9
forms -- worker eligibility documents required by the government for new
hires -- with the workers' Social Security numbers. The INS determined
many of the numbers were counterfeit or belonged to other people.
In March 2002, relying in part on Wal-Mart's help,
federal officials in Pennsylvania indicted several subcontractors, who
agreed to cooperate with investigators. In return, the prosecutors
dismissed several charges. Mr. Dryjak pleaded guilty to one count of
harboring and transporting illegal immigrants, and received a year's
probation. Mr. Kostek's company pleaded guilty to the same charge and paid
a $10,000 civil fine. In April, when Mr. Walters was also arrested, a
lawyer for his companies told Wal-Mart that his crews would no longer work
for the company.
Wal-Mart says that beginning in 2002, it once again
began to end relationships with outside cleaning contractors. It did so
not out of concern for the workers or its potential liability, but because
it was cheaper than paying contractors, the company says. In a January
2003 company meeting, store managers were told the company estimated it
could save $66 million if its own crews cleaned and polished its floors.
By October, fewer than 700 stores, or 18% of Wal-Mart outlets, still used
contractors, down from almost half the stores in 2000.
Ms. Williams says that Wal-Mart also adopted new written
contracts in 2002 "that included a stronger contractual commitment by the
outside contractors that they were complying with all federal, state and
local employment laws."
Earlier this year, Mr. Walters met with a company
manager in Bentonville to try to establish new cleaning crews at Wal-Marts.
Wal-Mart says it rebuffed his effort. But the company says it unwittingly
still may have been doing business with subcontractors connected to
companies run by Mr. Walters.
After the raids in October, Wal-Mart says its internal
investigation found that Mr. Walters and others had created layers of
companies, all with separate corporate identities, and that some Wal-Mart
contractors may have been related to Mr. Walters or some of his
associates. However, his name didn't appear as a contact for any of those
companies in Wal-Mart's records.
Mailed
'Wish Books' Let Americans Shop Beyond Their Needs
By
Cynthia Crossen - Wall Street Journal
December 17, 2003
When Mary Price picked up her new buggy at a Jasper
County, Ill., train station in 1896, dozens of people gathered around to
watch it being unloaded and set up. The gawkers were "all looking at how
nice and good it was," Miss Price wrote to the buggy's purveyor, Sears,
Roebuck & Co. "When we get anything, we always try to get something that
shows out right well."
In late 19th-century America, a mail-order buggy was a
miracle, a spectacle and a milestone in history.
Two developments had recently united this far-flung
country into a nation of shoppers. Railroads not only connected coast to
coast, but also stopped at thousands of rural outposts previously
inaccessible to many manufacturers. Then, the federal government decided
the nation's farmers, however remote, should have free mail delivery.
The distribution system and mail service set the stage
for two men -- A. Montgomery Ward and Richard W. Sears -- to revolutionize
the way Americans bought and sold washing machines, undershirts, ribbons,
plows and bust developers.
Before Sears and Ward, most Americans either made what
they used or bought it at the general store. Their purchases were usually
based on need, not desire. The general store had some advantages -- a
stove, chairs, gossip -- but prices were high and inventory skimpy.
Montgomery Ward issued its first catalog in 1872; Sears
Roebuck followed in 1895. Just two years later, the Sears catalog was
advertising 6,000 items, from safety pins to canned oysters to three-piece
bedroom sets. Almost all were illustrated with woodcuts. The Sears catalog
quickly became known as America's "wish book." Many customers acknowledged
reading the 780-page catalog cover to cover, even if they ordered only
five pounds of gum drops or a Schmuck's patented Mop Wringer.
Initially, both Ward and Sears met stiff resistance from
the public, particularly local merchants and their faithful customers, who
pointed out that mail-order companies contributed nothing to the
community. Sears was scorned as "Shears and Sawbuck" or "Rears and
Soreback."
But without retail middlemen, Sears and Ward could offer
almost irresistible bargains. Sears boasted of being "The Cheapest Supply
House on Earth." In 1897, the company sold a gun for 68 cents; a perfume
called New Mown Hay for 25 cents; a 49-pound sack of flour for $1.20; and
a fishing rod for nine cents.
Montgomery Ward's 1895 catalog offered the game of
Tiddledy Winks for 20 cents; a whisk-broom holder for 30 cents; and plays
for amateur performers for $1.30 a dozen, including "Married Life
(side-splitting all through)" and "Twenty and Forty (contains a frisky old
maid)."
Richard Sears wrote much of the copy in his company's
early catalogs. Usually it was folksy and earnest: the "Julia Marlowe"
boot "CONFORMS in vital points to the shape of the foot instead of
pressing the foot into the shape of the shoe" -- an obvious lie. Sears
also tried the occasional hard sell, as with Maison Riviere's hair-removal
preparation: "No worse affliction can befall a woman's face than to see a
horrible growth of coarse hairs springing out like bristles, making it
harsh and repulsive to the touch."
Both companies knew Americans would likely balk at
paying strangers in advance for things they hadn't seen. So for many
items, Ward and Sears demanded no money until customers had received the
items and judged them satisfactory. Sears himself devised the pithy slogan
that relieved the anxieties of so many prospective buyers: "Send No
Money!"
One year, a menswear sale almost bankrupted Sears. So
many people ordered suits, without deposit or obligation, that beleaguered
Sears employees simply threw any suit, regardless of color or size, into
any box and shipped it off. Then came the returns and letters of complaint
-- so many that some were eventually disposed of by incineration.
Hundreds of items couldn't be shipped C.O.D., or cash on
delivery. Buyers had to prepay for Laudanum (tinct. opium, the catalog
explained) -- $3 for a four-ounce bottle -- and its antidote, Reliable
Cure for the Opium Habit, 75 cents a bottle.
With no telephones, copiers or computers, Sears's huge
Chicago headquarters was often in hectic disarray. All correspondence was
done in long hand. Many customers were nearly illiterate, and some could
communicate only in a foreign language. Each customer had to compute his
or her own freight or mail charges.
Yet by 1915, Sears Roebuck, which began with $150,000 in
capital, listed assets of more than $100 million. If every item wasn't
perfect, it would usually do: ovens and bureaus were cheap, and if the
stoves cooked and the drawers held clothes, there was little reason to
complain.
"I have shown my wagon to all my friends," wrote Mrs.
F.M. Barnum of Gale, Ore., to Sears. "Everyone says it is a cheap wagon,
the paint is coming off the wheels, but that is caused by the alkali dust.
I am well satisfied with my rig."
Sears Eliminates
Gift Card Expiration Dates
Sears Gift Cards Are Good for Life
December 16,
2003
HOFFMAN ESTATES, Ill., Dec. 16 /PRNewswire/ -- Just in
time for last-minute holiday shoppers, Sears today announced it is
eliminating expiration dates from all Sears gift cards issued beginning
tomorrow.
"Sears customers have told us they want gift cards
without fees or expiration dates," said Kris Crow, vice president of
customer relationship management for Sears, Roebuck and Co. "While other
retailers charge fees and enforce expiration dates, Sears has never
attached maintenance fees to its gift cards and now our gift cards never
expire." Previously, Sears gift cards generally expired two years from the
date of purchase.
"Gift cards have been very popular this holiday season,
and now there is another reason for Sears shoppers to purchase a gift card
for family and friends," Crow said. Sears gift cards can be purchased in
increments of $5-$500 and can be redeemed at all Sears store locations.
Squeezed by Health Costs
By Julie Appleby, USA TODAY
December 15, 2003
If you think your health insurance expenses are high
now, just wait.
Costs for many workers are set to soar as employers
remove the last key feature that helped hold down expenses for many
consumers in the past two decades: lower
out-of-pocket charges for such things as office visits, hospital care and
prescription drugs.
A USA TODAY analysis shows that it was lower
out-of-pocket costs — along with employers' willingness to absorb much of
the increase in premiums — that shielded consumers from part of the rise
in medical inflation.
Consumer spending on health care from 1984 to 2002, for
example, rose at a slower rate than spending on mortgage interest and
education.
But those days are gone.
Gone with them are the restrictive HMOs that pioneered
lower out-of-pocket costs, promising $10 office visits, $5 prescriptions
and no annual deductibles, in exchange for limits on what doctors,
hospitals and treatments patients could access. But the public hated those
restrictions, and tight-fisted HMOs fell out of favor.
Now, for the first time in a decade, many workers are
seeing their out-of-pocket costs for health care go up.
Employers, stung by double-digit insurance premium
increases during the past few years, are shifting more costs to their
insured workforce.
"If you reject managed care, the only other way to
basically control cost is to raise what you pay out-of-pocket," says
researcher Jon Gabel of the Health Research and Educational Trust.
No one is sure if that will work, but many employers are
giving it a try.
As employers present their health plans for next year,
workers are seeing not only an increased monthly payroll deduction for
their share of insurance premiums, but also higher annual deductibles,
policies that cover 80% of charges rather than 90% or 100%, and higher
charges for drugs and doctor office visits. Even many HMOs now have
deductibles for hospital care.
There is no end in sight.
Insurance premiums rose nearly 15% this year and are
forecast to rise about 12% next year. With the average family policy
offered by employers now costing about $9,000 a year, even a 10% annual
rise will mean that same policy would cost nearly $12,000 in three years.
The average percentage of premiums paid by workers for
family coverage currently is 27%, according to a survey by the Kaiser
Family Foundation. That means workers could pay $3,200 or more toward
coverage in three years — just for premiums. On top of that will be annual
deductibles and payments for doctor's office visits, drugs and outpatient
care, all of which are rising. Some employers might also increase the
percentage of premiums that workers must pay.
"What people are seeing is only the beginning of a
long-term trend," says Glenn Melnick, a health care finance professor at
University of Southern California. "It will explode in the next five
years."
Workers say they are already feeling the pain. "In the
past two years, my premium has gone up 21%, and the coverage has gone from
a co-pay system to a deductible and co-insurance system besides," says
Barry Weston, a researcher for Hartford Financial Services, who lives in
Torrington, Conn. "Prescription costs have gone up 160%. Instead of paying
a co-pay, I now pay 20% of the cost of the drug."
Managed care limited increases
Without managed care, health care might be even more
expensive for consumers today. USA TODAY analyzed Labor Department data on
health care spending by households from 1984 to 2002, a period chosen
because 1984 was before the big transition to managed care and 2002 is the
latest data available. (In the Labor Department data, households, or
consumer units, are defined as averaging 2.5 people.)
Consumer spending on health care grew at a lower rate
than overall health care inflation during this period mainly because of
lower out-of-pocket costs and because employers absorbed the majority of
the health cost increases.
The review, based on adjusting for inflation, showed:
• The average household's spending on health care after
inflation rose 29%, or about 1.4% extra a year during that 18-year period.
Meanwhile, consumer spending on mortgage interest and charges grew 37%; on
education (primarily college tuition) grew 43%; and on entertainment grew
14%.
• The amount consumers spent on insurance premiums after
inflation rose 82% from 1984 to 2002. Helping temper that increase was a
25% decline after inflation in the amount spent out-of-pocket for such
things as office visits or hospital care, a direct result of lower charges
for such services by HMOs and other managed care plans.
• Average consumers in 2002 spent almost as much on
meals away from home, $2,276, as they did on health care, $2,350, the data
show.
Not everyone saw out-of-pocket health spending decline.
"Averages do mask enormous misery at the fringes," says
economist Uwe Reinhardt, a health economics professor at Princeton.
Those who buy their own insurance, for example, or work
for companies that don't pick up the majority of the cost of health care,
are paying far more because premiums have risen rapidly in the past few
years. Retirees, those ages 65 to 74, saw their inflation-adjusted costs
rise by 40% during the period, according to the analysis, fueled in part
by an 86% increase in spending on drugs, which are generally not covered
by Medicare.
Low-wage workers, those in the lowest 20% of incomes,
spent about 17% of after-tax earnings on health care in 2002 — or went
without coverage.
Employers say they cannot continue to absorb most of the
rising cost of health coverage. Premiums are rising at their fastest clip
in a decade as consumers use more medical care, new drugs hit the market
and medical providers and insurers seek to bolster profits.
Some employers are moving away from managed care in
favor of the idea that making consumers pay for more services will result
in more judicious use of medical care and slow the growth in medical
inflation. Managed care, they say, shielded many workers from the true
cost of services. "Managed care was an economic success and a political
failure," says researcher Gabel, who co-authored a study published in the
journal Health Affairs in 2001 that showed a 23% decline in what patients
paid in out-of-pocket costs from 1990 to 1997.
But critics fear that employers could go too far,
shifting too much of the cost to workers, making them unable to afford
coverage. Employers could also see their costs rise if younger, healthier
workers opt out of coverage, leaving employers covering only older, more
expensive workers.
Last year marked the biggest jump in the uninsured in a
decade — up 2.4 million to 43.6 million. The increase was blamed partly on
job losses because of the stagnant economy and partly on fewer workers
taking coverage offered by employers as the cost of coverage rose. Since
1989, the percentage of workers covered by the health plans offered by
their employers has dropped from 73% to 68%, according to surveys by the
Kaiser Family Foundation, a research group in Menlo Park, Calif..
A survey of employers by the Kaiser Family Foundation
reflects the changes. It found steep increases — in the 50%-to-60% range —
in what workers pay toward health care since 2000. While the percentages
are large, some of the dollar amounts are small: an office visit
co-payment going from $10 to $15, for example. Others are more profound:
Workers are paying an average of $793 more a year toward the premium for
family coverage since 2000.
"This is a real problem," says Drew Altman of the Kaiser
Family Foundation. "What people are paying is going up much faster than
wages."
Health inflation isn't the only thing hitting the family
budget. Costs such as housing and college tuition are up, too. Property
taxes in many areas have soared along with property values.
"The problem is that people are just struggling as it
is," says Albert Feliu, a project manager with a telecommunications
carrier in Atlanta. "What's killing families are housing costs and health
care costs."
A few years ago, Feliu paid about $25 a month toward his
insurance. His employer picked up the rest. Like many employers, Feliu's
company has passed on some of the premium increases. Next year, he'll pay
$120 a month. Still, Feliu isn't complaining.
The insurance paid for brain surgery that saved his
then-toddler's life about seven years ago. "We currently have a Cadillac
health plan that is extremely competitive with any of the other health
care packages that are offered in the Atlanta area," he says.
To entice workers to join HMOs, which were seen as the
answer to a rapid run-up in health care costs in the late 1980s, employers
offered HMOs without any deductibles or 20% cost-sharing payments.
Patients paid $5 or $10 for a doctor visit or prescription drugs.
That contrasts with traditional insurance plans, popular
at the start of the 1980s, which carried annual deductibles and a
cost-sharing arrangement that typically required workers to pay 20% of
doctor, hospital and drug costs, up to a set annual maximum.
Managed care backlash
For a while, managed care held down costs by limiting
payments to doctors and hospitals, by reducing the amount of time patients
spent in hospitals, by restricting patients' freedom to go to specialists
or have expensive tests, and through underpricing by insurers eager to
gain market share. But backlash against the restrictions of managed care
led to looser forms with a greater choice of doctors and hospitals
becoming popular in the late 1990s. Now, those plans are moving toward
offering workers and patients more choices but having them pay more if
they choose more expensive drugs or treatments.
"Managed care was a form of rationing," says Melnick.
"The industry said, 'Pay us a fixed premium ... and we'll manage things.'
The next wave will be, 'You can have what you want, but have to pay for
it.' It will be a market test of what people are willing to pay for."
One question will be whether the industry sees a renewed
interest in tightly controlled HMOs. A recent survey by the Center for
Studying Health System Change found that 57% of those polled would accept
more restrictions on their medical services in exchange for lower
out-of-pocket costs. But 42% would not. One of the main differences
between the two groups was income: Higher-wage workers generally did not
want to make the trade, while lower-wage workers would.
While managed care did hold down costs for many, its
restrictions irritated.
Doctors and hospitals complained as their revenues were
squeezed by aggressive contracting. Patients were upset when their
insurers required up-front approval for specialist visits or elective
surgeries. Some workers now say they're relieved that the strict managed
care era is over, even if it means higher costs.
Barb Maniuszko, a finance manager for American Express
in Scottsdale, Ariz., says it's easier now to see a doctor or get a needed
test. But she's paying more.
"On a relative basis, I think I'm getting a better deal
now," she says. "It's almost like more bang for the buck."
Sears Canada Gets Federal Approval to Operate Banking Subsidiary
Steve Erwin - Canadian Press - National Post -
Toronto
December 15, 2003
TORONTO (CP) - Sears Canada has won federal approval to
run a bank, the department store chain announced Monday.
Sears said it has received authorization from the Office
of the Superintendent of Financial Institutions to open Sears Canada Bank,
a wholly owned subsidiary.
"The bank now enables us to build upon our Sears card
and Sears MasterCard franchise to offer consumers nationwide the value and
convenience of competitive credit card products," stated Sears Canada
chairman and CEO Mark Cohen.
Sears Canada Bank, operating under the same rules as the
established banks, will initially run the credit cards through the bank
subsidiary, with possible future forays into such fields as chequing
accounts and insurance.
For now, however, Sears plans to concentrate solely on
its own department store card and Sears MasterCard, which was first made
available to about 750,000 Ontarians in August 2002.
"At this point there's no plans to put tellers in the
stores or have people open chequing accounts or savings accounts. None of
that at all," Sears Canada spokesman Vincent Power said. "It's strictly
just the two card products - the Sears card, which is our own proprietary
card, and Sears MasterCard."
Sears MasterCard is being rolled out in Western Canada
but to be made available throughout the country under one set of rules,
Sears required federal approval of bank status, Power said.
"Banks have a status where it allows us to offer
products and services consistently because they're regulated by federal
rule," Power said.
Retailers such as Canadian Tire and Hudson's Bay Co. are
also players in the financial services sector, boosting profits through
the lucrative credit card business.
Sears Canada was forced to accelerate its plans for a
banking arm when U.S.-based parent Sears, Roebuck decided to sell its
credit operation and disband its own bank in the United States.
Sears Roebuck & Co. has a 55 per cent interest in
Toronto-based Sears Canada (TSX:SCC), which runs 123 Sears department
stores, 47 Sears Home stores, 144 dealer stores and 14 outlet stores.
Sears to Restructure,
Maybe Cut More Jobs
By Becky Yerak, Tribune
staff reporter - Chicago Tribune
December 15, 2003
Headquarters
is targeted 3rd time
Sears, Roebuck & Co. has begun an internal review that
could result in a reduction of jobs at its Hoffman Estates headquarters
for the third time in as many years, officials confirmed Sunday.
In a memo distributed to employees last week, Sears
Chief Executive Alan Lacy said a corporate restructuring is under way to
give the department store chain a "more focused and efficient corporate
structure."
Sears, which has sold its credit-card operations to
focus on its retail business, is under pressure, as sales at its stores
have declined. During the holiday season, Sears has been forced to lure
shoppers with price reductions, which have reduced profit margins.
Job cuts aren't necessarily the goal of the
restructuring, but "it's reasonable to anticipate possible reductions as a
result of this project," spokesman Chris Brathwaite said Sunday.
"We're in a very competitive market, where highly
efficient big-box stores are rewriting the rules of competition,"
Brathwaite said.
In November, sales at Sears stores open at least one
year declined 3.6 percent. Analysts had expected sales to be flat or
slightly higher.
Sears now has lowered its sales expectations for the
entire fourth quarter.
Same-store sales are expected to be flat, or down by a
low single-digit percentage, for the fourth quarter.
Sears also completed the sale of its credit card
business last month, a move that resulted in the need for fewer workers at
its Hoffman Estates headquarters.
Leading the restructuring review is Thomas C. Gorey,
vice president of inventory management and merchandise operations.
Gorey is expected to make his final recommendations to
Lacy sometime next month.
"The impact has yet to be determined," Brathwaite said.
But in a "post-credit environment, we're a smaller new Sears."
The company has 4,800 headquarters workers, 9 percent
fewer than the 5,300 it had at the beginning of this year. In early 2002,
Sears cut about 1,300 of 7,000 jobs. In July 1999, former CEO Arthur
Martinez ordered a 10 percent headquarters job reduction.
Sears to See
More HQ Job Cuts
CRAIN'S CHICAGO BUSINESS
December 15, 2003
Sears, Roebuck and Co. plans to eliminate
more jobs at its headquarters—-the third wave of cuts in as many years—-in
a move to bring its high costs in line with those of big-box discount
store chains.
In a memo to employees dated Dec. 8, Chairman and CEO
Alan Lacy says he has commissioned a headquarters reorganization aimed at
creating “a more focused and efficient corporate structure” in keeping
with “what a new, smaller Sears needs.” Mr. Lacy says a report outlining
the reorganization should be ready by the end of January.
The number of jobs targeted for cuts is unknown, but “it
is reasonable to anticipate some reductions next year as a result of this
project,” the memo says. Sears employs 4,800 workers at its Hoffman
Estates headquarters, down from 5,300 at the start of this year, according
to a Sears spokesman, who confirmed the review.
The move comes as Mr. Lacy looks for ways to maintain
profit margins without Sears’ highly profitable credit card business,
which had been contributing roughly two-thirds of the company’s total
profits in recent years.
Sears sold the 94-year-old credit card division to New
York-based Citigroup Inc. in November, leaving the company with only its
stores to generate profits.
Without the cover provided by credit card profits,
inefficiencies in Sears’ core retail operations are on full display.
One key measure of efficiency—sales, general and
administrative expenses as a percentage of cost of goods sold—is 30% at
Sears, compared with 21% at Arkansas-based Wal-Mart Stores Inc. Sears has
to mark up goods an average 39% to cover its costs, compared with 27% at
Wal-Mart, according to an analysis by ABN AMRO Asset Management in
Chicago.
Pressure to cut costs is rising again at Sears after a
brief turnaround in sales lost steam. Sales at stores open at least one
year, a key measure of retail performance, rose in August and September,
ending a long decline. But the slide soon resumed, as same-store sales
fell 2.7% in October and 3.6% in November.
Mr. Lacy has backed off a prediction that same-store
sales would rise in the fourth quarter, telling investors earlier this
month that the figure will be flat to slightly down for the period.
All told, Sears has shed 55,000 jobs, or 19% of its
workforce, since Mr. Lacy’s predecessor, Arthur Martinez, began reducing
staff in 1997, according to Sears annual reports. About half of those jobs
disappeared under Mr. Lacy, who took the helm in October 2000.
IN
JAPAN: Wal-Mart Hopes It Won't Be Lost in Translation
By Ken Belson -
New York Times
Kabane, Japan - December 14, 2003
It's 8:15 on a Friday morning and about 50 managers of
the Seiyu supermarket chain are assembled on the second floor of their
headquarters here, 30 minutes from downtown Tokyo. Surrounded by signs
listing hot products, new promotions and performance rates, many of the
chiefs have already been at work for an hour.
Powered by coffee, tea and Diet Coke, they begin their
daily pledge of allegiance, just as their counterparts do in Bentonville,
Ark., home of Wal-Mart Stores, which owns 38 percent of Seiyu.
"Give me an S!" a Japanese boss shouts.
"S!" comes the reply.
And so on, until the group spells "S-E-I-Y-U."
"Who's No. 1?" he asks.
"Customers!" they reply, punching the air with their
fists.
The routine is one of the small ways in which Wal-Mart
is revamping the struggling Seiyu, Japan's fourth-largest retailer. Unlike
Toys "R" Us, Costco and other outside rivals that opened their own stores
here, Wal-Mart has spent $513 million for a chunk of Seiyu, whose name
still adorns its 400 stores.
The logic is simple: By working through a local partner,
Wal-Mart is hoping that it can better navigate Japan's serpentine and
costly network of suppliers, which has long frustrated other foreign
investors. The company also avoids having to build stores and can take
advantage of Seiyu's well-recognized brand.
But as it dips its toes into Japan, the world's
second-largest economy, mighty Wal-Mart is confronting something it seldom
encounters: skeptics who doubt that it can succeed. The retail market here
is dominated by powerful manufacturers and wholesalers whose high prices
have made the country an inhospitable place for foreign discounters. And
Japanese consumers are famously finicky - as other American retailers who
have simply imported goods with little regard for local tastes have
learned the hard way.
Further complicating matters, Wal-Mart must repair a
chain whose sales peaked a decade ago. Seiyu, which also sells housewares,
appliances and general merchandise, has a debt-to-capital ratio that is
more than twice the industry average in Japan. In the half-year that ended
in August, the retailer lost 8.4 billion yen ($77 million) as sales
slipped 3.9 percent from the period a year earlier. The company expects to
lose 10 billion yen for the full year.
To Wal-Mart, though, Seiyu is a risk worth taking.
Japan's dense supplier network and expensive labor and land give the
American discounter a chance to cut costs and bolster profitability. The
company's "everyday low prices" may also prove a hit with the increasingly
bargain-conscious Japanese consumer, analysts said.
WAL-MART has a lot of work to do, but their timing to be
in Japan is really good," said Hidehiko Aoki, a retail analyst at Goldman
Sachs in Tokyo. "They can bring a new retail model to Japan."
To that end, Wal-Mart has unveiled a five-year plan to
reduce the hours worked by full-time staff members by about 40 percent,
partly through early retirement and by increasing the percentage of
part-time workers to 85 percent from 70 percent. The company is
computerizing operations, remodeling aging stores and trying to do what it
has done so effectively in the United
States: persuade manufacturers and wholesalers to cut prices so Seiyu can
pass along the savings to consumers.
If all goes well, Wal-Mart can use its option to raise
its share in Seiyu to 50 percent by 2005 and to 66.7 percent two years
after that, giving it further management control. It is then, analysts
say, that Wal-Mart will consider opening stores under its own name.
For Wal-Mart to get that far, the company will have to
do to retailing what Carlos Ghosn, the president of Nissan Motor, did to
Japan's automobile industry: introduce
Western-style pricing and smash entrenched and often costly corporate
relationships.
Though Mr. Ghosn has been very much in the spotlight,
Wal-Mart appears content to work in the shadows. In Seiyu's stores, few
overt signs of the discount giant's presence can be found. Since raising
its stake in Seiyu to 38 percent in December 2002, Wal-Mart has spent most
of its time centralizing the retailer's operations. The changes include
giving new product scanners to aisle clerks and creating databases that
provide up-to-the-minute information on sales, inventory and prices.
The company is also teaching Seiyu's employees to sell
the Wal-Mart way. That means using data to analyze sales, not just
following store managers' hunches. To reinforce the lesson, Wal-Mart is
putting store managers through weeklong training sessions and has flown
hundreds of Seiyu workers to Arkansas.
"Japanese might think what we're doing is very tough,
but they have to realize that this is the world standard," said Seiyu's
chief executive, Masao Kiuchi, who, like many Wal-Mart managers, arrived
at the morning meeting in an informal open shirt and no jacket.
After Mr. Kiuchi wrapped up the meeting, dozens of
managers headed back to their desks to pore over spreadsheets on their
laptop computers. Seiyu pools data from all of its stores so that everyone
from clerks to suppliers can see what is on the shelves, what is selling
and when.
The data also makes it easier for Seiyu to order only
what it needs and to pool those orders for volume discounts. Suppliers,
too, can anticipate what Seiyu wants, planning their production and
shipments accordingly and cutting the prices they charge. Wal-Mart hopes
to use the savings to reduce Seiyu's retail prices.
"Wal-Mart has to change the system from the inside out,"
said Seth Sulkin, president of Pacifica Malls K.K., which develops
shopping centers in Japan. Mr. Sulkin said Wal-Mart had made the right
decision to enter Japan through Seiyu because only the biggest Japanese
stores have leverage with manufacturers. "If Wal-Mart did it themselves,"
he said, "they'd get nowhere.''
While the company is squeezing savings out of Seiyu's
operations, it is also refurbishing the chain's older stores. Wal-Mart
chose the three-story Futamatagawa store outside Yokohama as a test case,
spending roughly $7 million to renovate the building. The entire first
floor has been devoted to food; clothing and household goods have been
moved upstairs. The aisles have been widened to allow two carts to pass,
and a deli counter with prepared foods is now open until 11 p.m.
Bowing to local tastes, Wal-Mart has also installed a
small fish market, where workers slice slabs of tuna for customers.
Nearby, baskets of vegetables and fruit sit on casters so workers can roll
them into and out of the storeroom instead of unloading boxes in the
aisles.
The new layout appears to be a hit with customers. Food
sales and traffic have risen 50 percent since the store was remodeled in
June, taking business from three major supermarkets nearby.
Still, Wal-Mart has learned that the Japanese, like
consumers elsewhere, are creatures of habit. The company had stopped
stuffing mailboxes with circulars to publicize twice-a-week sales.
Wal-Mart argued that because its prices were already the lowest every day,
there was no need to have special sales.
But homemakers are addicted to circulars, using them to
dart from store to store in search of deals. So, after some complaints,
the circulars returned, to the relief of customers. "I only come here once
a week," said Hisako Ito, a homemaker who heads to neighboring stores for
other bargains. "I still go to cheaper places by car to get meat and other
things."
More and more shoppers, though, seem to be warming up to
the Wal-Mart-style bulk discounts, which are available every day. Soda is
a case in point. One aisle in the Seiyu store is now a wall of Coke and
Diet Coke, stacked with cans, six-packs and cases. All cans are 198 yen
each, or about 15 percent below the suggested retail price. Soda sales
have tripled since the discounts were introduced.
Other Wal-Mart tactics are translating well, even if the
corporate lingo isn't. Few shoppers recognized the word "Rollback" -
Wal-Mart's jargon for featured discounts. But big signs nearby were
unmistakable: cans of Campbell's Soup were marked down 21 percent, to 195
yen ($1.75), with the prices posted in big letters.
"Customers don't know the name 'Rollback,' but they know
that prices are being discounted," said Kazuo Funakoshi, 49, the store
manager.
Mr. Funakoshi, acknowledging that shoppers in Japan,
like those in the United States, fret about a flood of cheap imports, said
that less than 1 percent of the 50,000 products in his store were imported
from Wal-Mart's network. And those that were on display were getting a
mixed welcome.
Some of the 46-ounce cans of grapefruit juice being sold
under the "Great Value" name, for example, were dented and had labels
ripped, a no-no in Japan, where presentation counts for a lot. The cans
were also too big for most Japanese refrigerators, so shoppers were
invited to buy clear thermoses, too. One customer, typical of the finicky,
grumbled that she didn't "trust the English label."
SATISFYING local tastes is just one hurdle. While
mothers with children strolled through the aisles, several men in blue
suits - managers from rival stores, Mr. Funakoshi said - were snapping
pictures of the store with their camera phones.
The corporate spies are symbolic of Japan's competitive
retail market and the battle that Wal-Mart faces with rivals that have
tried to replicate its no-frills pitch. Japan's two largest chains,
Ito-Yokado and Aeon, have also had some success using their size to
pressure suppliers to cut their prices.
Wal-Mart executives are aware of the challenge from
incumbents like Aeon, whose sales are three times larger than Seiyu's. But
they say that Japanese rivals cannot mimic the low-cost ethic that
pervades Wal-Mart's ranks.
The company has dispatched 50 managers from Bentonville
to teach Seiyu managers the Wal-Mart way. Workers also get a heavy dose of
"culture training" to teach them to be more outspoken, upbeat and
goal-oriented. During weeklong sessions, managers were forced to dance in
front of the class if they broke the rules - showing up late, for example,
or forgetting to turn off cellphone ringers. The tactics apparently helped
the normally wary Japanese relax, and several students in one session
cried when their trainers returned to the United States.
The Japanese, though, have a tough time adapting to the
Wal-Mart practice of continually praising co-workers. Backslapping
compliments are rare in a country where workers are taught to be humble
and bosses often command respect through intimidation.
At the morning meeting, one sales manager reported brisk
sales of Beaujolais nouveau and received a hearty round of applause.
Minutes later, smaller groups of Japanese sat in near silence as their
bosses held sway.
Like workers at most Japanese companies, Seiyu employees
also have difficulty questioning their bosses, particularly foreign
managers who often speak through translators. "People cannot even say what
they want to their supervisor, let alone jump ahead to the next manager,"
said Tamae Kobayashi, who is in charge of the human resources group that
trains Seiyu employees. Wal-Mart appears confident, though, that the
Japanese workers are getting its message.
"Once they understand what you want them to do, you get
follow-through," said Jeff McAllister, Wal-Mart's chief operating officer
in Japan.
Mr. McAllister said the company was "on plan" in Japan.
But Machiko Amano, a credit analyst at Standard & Poor's in Tokyo, said
that even Wal-Mart might not be able to save Seiyu from "stagnant
consumption, severe competition and shortened product cycles.''
Wal-Mart acknowledges that such threats exist, but it
says its decision to enter Japan through a local partner is the right one,
even if it requires more subtlety and patience than simply using its huge
size and muscle to go it alone.
"People ask when we'll be done," Mr. McAllister said.
"But it's going to take hundreds of little things."
Stores Hope
Sales Will Give Holiday Shoppers a Nudge
By Becky Yerak
- Tribune staff reporter - Chicago Tribune
December 14, 2003
Holiday shoppers were warned not to expect the usual
slash-and-burn pricing this year.
But faster than you can say "50 percent off," sales are
back, particularly at some department-store chains.
Sears, Roebuck and Co., the nation's biggest
department-store operat
