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January / February '99

Sears "Softer Side" May Be Too Limp to Survive

Susan Chandler
Chicago Tribune, Feb 18, 1999

The Softer Side of Sears may be on its last legs.

The highly acclaimed advertising campaign that put Sears, Roebuck and Co. back on track in the 1990s is being completely re-thought, top executives said Wednesday. The Softer Side pitch may be making people feel more positive about Sears, but it is apparently no longer motivating them to snap up its apparel, as demonstrated by 1998's lackluster sales.

Mark Cohen, Sears' new marketing chief, said it is too early to say what new theme will emerge from the brainstorming exercise.

But one thing already is clear: Sears will be doing less image advertising in the future. Instead, Sears' ads will talk about the overall value proposition that Sears represents.

"We've done some wonderful ads. But in 1998, it became apparent that our marketing programs were no longer producing acceptable results," Cohen told an audience of Wall Street analysts gathered at the company's Hoffman Estates headquarters. "Our TV advertising is too aspirational and doesn't track with the store experience."

Sears' sales tumbled at the end of last year as discount stores offered more fashionable apparel at lower prices and specialty stores such as Gap Inc. attracted younger shoppers.

The advertising overhaul was only one of a number of initiatives Sears laid out in hopes of improving 1999 results. Other efforts include rolling out new products such as dishes and flatware, expanding its Great Indoors home remodeling chain and lowering prices on commodity apparel items.  

Arrogance on Parade

King Arthur will be a guest speaker at the "Retailing Smarter" ‘99 Symposium at the Renaissance Orlando Resort, Orlando, Florida. Arthur speaks on Friday, April 16 from 8:15 to 9:30 am.

With typical modesty, the King’s remarks are titled “Transforming an American icon.” The Company is in dire merchandising straights; with the exception of credit income, sales and profits are awful; there is an ongoing public relations debacle involving 84 thousand wronged retirees; and allegations of ethical lapses abound.

It’s enough to make you reconsider what kind of “transformation” he has brought to that once beautiful organization called Sears. 

Analyst Meeting Update

An attendee at the Feb. 17 analyst meeting hosted by Sears at Hoffman Estates left the meeting unimpressed. New marketing VP Cohen’s presentation was described as "poor." He had difficulty articulating significant marketing changes.

The company plans to allocate capital expense monies to better merchandise presentations, increase traffic items, tell a more impressive value story, roll back some prices, cut back 15 per cent on the number of merchandise sources, and marketing appliances on the Internet (including Maytag appliances).

It was reported that the Denver "great indoors" has “met” sales projections and additional “great indoors” stores are planned for Scottsdale, Dallas, and Orlando.

One attendee reaction suggested that the discount store customer who has abandoned Sears will not stop going to Wal-Mart so that they can trudge through a mall to find a good price on fleece at Sears. 

USA Today, Feb. 18, 1999

Sears On Line: Sears Roebuck, the U.S.A's second largest retailer says it will offer 2000 major appliances for sale on the Internet this spring. Sears appliance Web site will offer delivery, installation, repair scheduling, and credit services, the company said. 

Sears Promises Overhaul in Business

By Cliff Edwards, AP Business Writer

HOFFMAN ESTATES, Ill. (AP) -- The softer side of Sears last year saw sharply softer sales, prompting the nation's largest retailer to begin implementing aggressive new measures aimed at producing a ``second revolution'' in its stores.

Sears, Roebuck & Co. executives said Wednesday they hope to revitalize sluggish sales at their department stores with new lines of clothing and in-store displays aimed at younger audiences, price cuts of up to 15 percent on certain clothes, the introduction of dinnerware, flatware, gardening and other housewares and new credit card promotions.

The nation's largest department store chain also revealed it is considering dumping or sharply scaling back its long-running ``Softer Side of Sears'' advertising campaign as it struggles to win back customers lost to such competitors as Kohl's Corp., Target, the Gap (NYSE:GPS - news) and Abercrombie & Fitch.

``The softer side has brought us a long way indeed,'' company chairman and chief executive Arthur Martinez said during a meeting with Wall Street analysts and investors. ``But we expect it to morph into something else. I don't think it disappears, I think it transforms and modifies itself.''

Sears executives acknowledged they became too complacent following the retailer's phoenix-like rise from the brink of bankruptcy earlier this decade. They promised more aggressive measures against the increasingly tough competition.

``It's all about focus,'' Martinez said. ``The issue we saw emerging in the business was lack of sales momentum. We're working to restore focus and accountability.''

Department stores last year generally lagged in sales to specialty chains and discounters as shoppers sought bargains and wide selections. But Sears performed worse than most.

Sears in 1998 saw sales at stores open at least a year, an industry measure of performance, tumble 4 percent in the men's wear category, 1 percent in women's wear and 2 percent in children's wear. During the crucial holiday shopping period, the retailer saw overall same-store sales fall 1.6 percent, well below the average increase of other retailers.

Sears executives said some of the chain's clothing has gone stale for shoppers, with Martinez noting its mall-based stores continued to heavily stock Levi's jeans last year, while competitors were turning to the more popular cargo and painter's pants favored by younger shoppers.

Robert Mettler, Sears' president for merchandising, said the company consistently beats mall-based stores on price but last year failed to get that message across in promotions. The company is working with its advertising agencies to develop new print, television and radio campaigns that focus more intently on price and less on Sears as a quality place to shop, he said.

The company this fall will launch new lines of casual clothes called Crossroads and Fieldmaster, as well as clothes made by Bennetton.

``We would like to attract the younger customer base,'' Martinez said. ``I hate to use the words 'hip or cool' ... but in terms of customer attraction and customer interest, we would like to talk not just to a chronologically younger customer but a younger attitude customer.''

The ray of light in Sears' operations last year was its strong credit operations, which came as customers continued to flock to big-ticket items such as refrigerators and washing machines and as delinquencies improved.

But Alan Lacy, the company's chief financial officer, said improvements can be made by targeting existing customers with special sales and rewards programs for using their Sears card. The company also is offering lower percentage rates for more credit-worthy customers, he said.

Sears also announced it plans in coming months to increase its presence on the Internet with the launch Appliance.com, a site that will sell major appliance brands and models online. Sears now sells tools on its site, Craftsman.com.

The retailer hopes to dominate the category by promising delivery in most areas within 48 hours and by leveraging the Sears name, said Jane Thompson, president of Sears Direct division.

 Sears to Revamp Advertising to Boost Flagging Sales

By Gregory Crawford

HOFFMAN ESTATES, Ill., Feb. 17 (Reuters) - Sears, Roebuck and Co.(NYSE:S - news), the second largest retailer in the United States, said on Wednesday it would revamp its advertising and marketing campaigns in an effort to boost flagging sales at its full-line stores.

Mark Cohen, Sears's executive vice president of marketing, told analysts at the company's headquarters that in 1998 ``it became apparent that our marketing (message) was not producing results.''

He said the company's marketing mission for 1999 was ``retaining what is relevant and improving or replacing what is ineffective.''

The fate of the company's vaunted ``Softer Side of Sears'' campaign, which has been its main marketing message since the early to mid-1990s will be a key focus of the mission, but Chairman and Chief Executive Officer Arthur Martinez said the campaign would not be scrapped completely.

``I don't think it disappears. I think it transforms and modifies,'' Martinez told reporters after the analysts' meeting. ``Don't expect it to disappear. Expect it to morph.''

Martinez told analysts that in terms of marketing, the company was not planning any ``big events'' this year but would step up the pace of its target marketing.

``We need to focus on winning with the customer,'' he said. ``It's all about winning with the customer -- new customer acquisition, young customer acquisition and customer retention.''

Cohen, who was named the retailer's chief marketer last December, said the company would redesign its print advertising campaigns by the middle of the year, part of which will include moving to a weekly promotional calendar from a monthly one.

The plan will include more use of single-day promotional events and refocus in-store marketing efforts to become more ``overt'' in support of merchandise, merchandise categories and special events, Cohen said.

In 1998, total domestic revenues from Sears's retail operations rose just 1.1 percent to $30.4 billion from $30.1 billion in 1997, while operating profit from the domestic retail business fell 21 percent to $734 million from $928 million.

Sears is estimated to have spent almost $1.4 billion on worldwide advertising in 1997, according to trade publication Advertising Age. Of the total, nearly $1.3 billion was spent in the United States.

Robert Mettler, Sears's president of merchandising for its full-line stores, said that in conjunction with the refocused marketing, the retailer would become more aggressive on pricing and would try to make it easier for consumers to shop. Sears had 845 full-line stores at the end of last year,

Mettler said the company would reduce its vendor base by about 15 percent and shift some capital spending from remodeling to rolling out new merchandise. He said underperforming product categories would be eliminated.

``That doesn't mean we discontinue our remodeling program,'' Mettler added.

Sears plans to cut prices by 15 percent in select categories, particularly ``commoditized'' apparel like children's clothing, T-shirts and so-called fashion basics. ``What we're trying to respond to is the emerging pressure from discounters'' like Wal-Mart Stores, Martinez said.

He said the merchandise areas that will see the 15 percent price cuts represent about $8 billion of annual revenue.

 Sears Faces Cranky Gang on Wall Street

Melissa George
Crains Chicago Business, Feb. 15, 1999

With his company's stock off more than a third from its peak 18 months ago,Sears, Roebuck and Co. CEO Arthur Martinez meets this week with his toughest customer of all: Wall Street. The critical question at Sears' annual conference with analysts and top investors in Hoffman Estates is: How will Sears revive sales growth, which slowed last year to the lowest rate since Mr. Martinez's arrival in 1992?

To combat views that Sears' turnaround has stalled, Mr. Martinez is expected to unveil details of a new advertising program and a merchandising overhaul aimed at winning back customers lost to competitors such as Kohl's Corp.

Sears is cutting its number of suppliers by 20% and will pare apparel offerings to its best-selling lines. Also, its selling floors will be freshened up to reduce clutter. This year's meeting is significant because, unlike the past two years, when a scandal in Sears' credit card operation and weakness at the specialty stores took center stage, the core retailing operation now is in trouble.

Sears' sales at stores open at least a year fell 1.6% during the fourth quarter, which includes the crucial holiday season, compared with an average increase of about 3% for other retailers.

For 1998, profits were flat at $1.30 billion, or $3.32 a share, excluding extraordinary items, and might have fallen had results from the credit operation not offset weakness at the stores. Operating income for Sears' flagship retail operation fell more than 20% to $734 million.

Sears stock is trading at about $39, down sharply from its peak of $65.25 in August 1997.

"Radical steps are clearly indicated," says Richard Church, an analyst with New York's Salomon Smith Barney. Sears has had trouble distinguishing itself from competitors, he says, because it "doesn't offer the brands of department stores or the discounts of discount stores."

'Value-oriented' message For the $41-billion retailer, the weak spot is apparel, a category it sought to revive when it launched the "Softer Side of Sears" advertising campaign in 1993, which featured lingerie next to lug nuts in an effort to convince women shoppers that Sears was a good place to shop for clothing.

To breathe life into its apparel sales, the company needs to "maintain the excitement around the 'Softer Side' campaign," says Mark Picard of Lazard Frères & Co. LLC in New York. Sears is attempting to do just that. This fall, the company is expected to introduce a more promotional theme to its ads by spotlighting chic clothing and popular apparel brands at competitive prices. The ads also may incorporate some hard-goods lines.

With this "value-oriented" message, Sears in some ways would mimic Kohl's ads, which tout well-known brands like Levi's at low prices. Wisconsin-based Kohl's, whose same-store sales climbed 6.4% in the fourth quarter, has been stealing customers from Sears, as have other retailers.

Mark Cohen, the new chief of marketing who joined Sears last year from East Coast discounter Bradlees Inc., has not put finishing touches on the ad program, sources say. But the campaign, which is being created by Sears' existing agency, New York's Young & Rubicam, is not expected to replace the "Softer Side of Sears" message -- although an additional tagline could be added.

"We're in the midst of really reshaping our message for Sears," said Robert Thacker, a senior vice-president who oversees creative and media marketing, during a retailing industry advertising conference in Chicago last week. "In our new work, value is going to be an important part of our message."

Sears also is reviewing ways to cut the clutter in its stores to make shopping easier, according to analysts and vendors. It plans to trim by 20% its list of vendors, to get rid of unpopular merchandise and create room for hot items. It also is remodeling stores to enable shoppers to navigate aisles more easily and to modernize clothing and houseware displays.

Lacks a growth vehicle... "They're going to go with proven styles and proven fashion looks," says Jack Benun, president of Happy Kids Inc., a New York maker of children's clothing. "It's more of what the customer wants."

Sears executives, led by Merchandising President Robert Mettler, are scrutinizing lines to weed out the winners from the losers, a company spokesman says, but he declines to be specific about the merchandising strategy.

Compounding the company's problems is the lack of a growth vehicle. Last year, Sears sold majority stakes in its HomeLife furniture chain and in Western Auto, both of which had been part of a strategy to increase sales by growing specialty store businesses.

Sears also has toned down forecasts for growth of its Home Services business, which includes product repair and installation, analysts say. A couple of years ago, Sears projected Home Services sales would reach $10 billion in five years, but analysts think the unit's performance will fall short.

While Sears still could acquire a competitor to boost sales, it needs to focus on fixing its core business first, analysts say. "They were very successful five years ago" when they launched their advertising campaign, says Wayne Hood of Prudential Securities in Atlanta. "But they stuck too long with what was working" and didn't change fast enough when sales slowed

 January U.S. Store Sales Bode Well for Profits

Gregory Crawford

CHICAGO, Feb 4 (Reuters) - Retailers in the United States posted strong sales in January, indicating that fourth quarter earnings due over the next several weeks could be better than expected.

``Overall, I think January was very strong,'' Mark Larson, national director of retail at management consultants KPMG, said Thursday. ``Sales were stronger than expected and I don't think promotions were any deeper than expected, so that should translate to a better bottom line overall for retailers.''

January is a transitional month as retailers cut prices to clear their shelves of winter merchandise and replace it with spring items, but analysts said clearance sales were not the main driving force behind the activity.

Instead, the still-strong economy kept shoppers flocking to stores across the country.

``The pattern is a shopper who is comfortable and confident about his and her own economic future, aware that jobs are plentiful and a shopper who is willing to spend,'' said Kurt Barnard, publisher of Barnard's Retail Trend Report in Upper Montclair, N.J.

Buying was strong across the retail spectrum, with specialty apparel and discount stores continuing to attract the most shoppers but department stores also drawing solid activity.

Lehman Brothers' same store sales growth index rose 8.7 percent in January compared with a 5.9 percent increase in December and a 5 percent increase in January 1998.

Wal-Mart Stores Inc. (NYSE:WMT - news), the world's largest retailer, said comparable store sales in January rose 10.3 percent while total sales surged 17.3 percent to $9.5 billion from $8.1 billion.

Comparable store sales, also known as same store sales, count sales at stores open at least a year.

Sales at another leading discounter, Dayton Hudson Corp.'s (NYSE:DH - news) Target unit, rose 9.6 percent in January.

But the real story for Dayton Hudson, the No. 5 U.S. retailer, was in its department stores division, where same store sales rose 11.8 percent, the unit's best performance in 10 years. The division includes Marshall Field's stores.

``Sales in January were above expectations at each of our divisions,'' Dayton Hudson's chairman and chief executive officer Bob Ulrich said in a statement.

The numbers boosted shares of Minneapolis-based Dayton Hudson, which were ahead $2.06 at $65.44 on the New York Stock Exchange in afternoon trading, bucking broad market weakness.

Dean Ramos, retail industry analyst at George K. Baum & Co., said that, with tight inventory control, clearance-driven sales at Dayton Hudson will not hurt its profitability.

``Good business on the margin is going to translate into disproportionately good news on the profit line.''

Sears, Roebuck and Co. (NYSE:S - news), the No. 2 U.S. retailer, said its same store sales in January rose 2.6 percent but total domestic store revenues slipped 0.4 percent to $1.82 billion from $1.83 billion in January 1998.

In the specialty apparel segment, Gap Inc. (NYSE:GPS - news), which also owns Old Navy and Banana Republic stores, said same store sales were up 15 percent and total sales in January jumped 38 percent to $528 million from $384 million a year ago.

AnnTaylor Stores Corp. (NYSE:ANN - news) recorded a 13.3 percent same store sales gain and a 23.7 percent gain in total sales, to $57.9 million from $46.8 million.

At Buckle Inc. (NYSE:BKE - news), which caters to teenagers, same store sales in January climbed 14.9 percent and total sales rose 26.1 percent to $18.4 million from $14.6 million.

 Sears Subsidiary Charged With Fraud, Agrees to Plead Guilty & Pay Record $60M Fine, Reports U.S. Attorney

BOSTON, Feb. 9 /PRNewswire/ -- The United States Attorney charged a wholly owned subsidiary of SEARS, ROEBUCK AND COMPANY (``SEARS'') in a one-count criminal Information with an extensive scheme to defraud bankruptcy debtors nationwide. The subsidiary has agreed to plead guilty and pay a $60 million fine.

United States Attorney Donald K. Stern and Barry W. Mawn, Special Agent in Charge of the Boston Field Office of the Federal Bureau of Investigation, announced the filing of the criminal Information, which charges a SEARS subsidiary known as SEARS ANKRUPTCY RECOVERY MANAGEMENT SERVICES, INC., with one count of bankruptcy fraud for a fraudulent scheme involving SEARS' bankruptcy reaffirmation practices that began in 1985 and continued until early 1997.

Also filed today was a plea agreement which provides that the SEARS subsidiary will plead guilty to the charges and pay a $60 million fine. The plea agreement must still be accepted by the U.S. District Court. SEARS has already paid over $180 million in restitution to about 188,000 debtors and $40 million in civil fines to 50 state attorneys general. The criminal fine agreed to in this case is the largest fine ever to be paid in a bankruptcy fraud case. The fine also is believed to be the largest criminal fine ever in Massachusetts, and one of the largest nationwide.

U.S. Attorney Stern also announced the settlement of a civil action which the United States initially filed against SEARS in April, 1997, seeking an injunction, restitution and civil penalties. Immediately upon filing the action, the United States obtained a nationwide injunction against SEARS in April of 1997, in which SEARS agreed to halt its reaffirmation practices, identify all debtors throughout the country affected by the illegal practice and stop collection activities from these debtors. Today's settlement permanently enjoins SEARS from ever again repeating its illegal practices and recognizes that SEARS' has made full and complete restitution to the debtors. Because of the substantial criminal fine, the United States agreed to forego its claim for civil penalties.

U.S. Attorney Stern said, ``Sears intentionally misled bankrupt debtors without attorneys and defrauded the Bankruptcy Court for over a decade. This was not the haphazard action of a few employees. It represented an outrageous company policy, carried out by those responsible for debt collection, which plainly violated federal law. Fortunately, Sears has now taken strong steps to clean up its act, to make sure that this does not happen again.''

U.S. Attorney Stern also commented, ``The civil case provided us the tool to ensure that SEARS halted its illegal practices immediately, permanently, and throughout the country, so that the criminal investigation could advance without concern that SEARS would carry on with its reaffirmation practices.'' U.S. Attorney Stern also commended the U.S. Trustee's Office for its vigilance and assistance during the pendency of the case.

Special Agent in Charge Mawn stated, ``The Sears prosecution highlights the consequences which occur when Corporate America blindly pursues profitability over their obligation to treat the consuming public with fairness and honesty. It is gratifying that Sears has recognized the inappropriateness of their conduct and taken the necessary steps to accept responsibility for their actions. This investigation demonstrates the benefits which can be derived from pursuing parallel civil and criminal actions in complex white collar crime matters.''

U.S. Trustee J. Christopher Marshall stated, ``The successful outcome of this case resulted from the strong cooperative efforts of the U.S. Attorney, the FBI, and the U.S. Trustee. With the record number of consumer bankruptcy filings, the U.S. Trustee's role as watchdog of the bankruptcy system becomes ever more crucial in ensuring that all parties are protected in bankruptcy cases. We will continue our focus on detecting and redressing abuses by debtors and creditors alike.''

SEARS' fraudulent scheme involved its practices relating to bankruptcy reaffirmation agreements. Such reaffirmation agreements, when executed in compliance with the Bankruptcy Code, have the effect of maintaining legally binding debts which would otherwise be discharged in bankruptcy. The discharge of debts is the principal benefit to a debtor filing for bankruptcy. The discharge prohibits all creditors from taking any collection action against the debtor for prebankruptcy debts that are not reaffirmed.

If all the Bankruptcy Code requirements are not met, a reaffirmation agreement has no legal effect and the debts listed in it are discharged along with all others. The Bankruptcy Code requires that all such agreements be filed with the Bankruptcy Court. It also requires that where the debtor does not have a lawyer, that the Bankruptcy Court hold a hearing, advise the debtor of the effects of the reaffirmation agreement, and make an independent determination that the reaffirmation agreement does not impose an undue hardship on the debtor or a dependent of the debtor and that it is in the debtor's best interest. The purpose of these filing and hearing requirements is to protect debtors from being coerced into signing such agreements and to assure that they fully understand the consequences of such agreements. They also permit the Bankruptcy Courts to maintain some oversight of the reaffirmation process.

According to the criminal charges filed today by the U.S. Attorney, beginning in 1985 and continuing until April, 1997, SEARS and its subsidiary unit engaged in a scheme to induce bankruptcy debtors to enter into reaffirmation agreements concerning their credit card debts with SEARS and lead them to believe that the agreements would be filed with the Bankruptcy Court and were binding contractual obligations, when in fact the agreements were not going to be filed and the debtors had no obligation to pay the debt.

The Information alleges that the scheme began in response to an increased volume of bankruptcy filings by SEARS' credit card customers, and SEARS' perception that some bankruptcy judges were hostile to it and/or to reaffirmation agreements.

The charges allege that SEARS and its subsidiary unit used several means to mislead debtors about the effect of the so-called reaffirmation agreements: 1) it used a reaffirmation agreement form that represented that it would be filed with a Bankruptcy Court; 2) it did not tell debtors that the agreement was not to be filed or that it was not a legally binding document and was unenforceable; 3) to the contrary, it misled debtors to believe that the agreement was in fact a legally binding contractual obligation; 4) it sent regular monthly bills to debtors, misrepresenting that they were obligated to pay; 5) it called debtors who stopped paying; and 6) in some cases it sued to recover on the unenforceable debt, believing that the debtor would not know the reaffirmation agreement had not been filed and was unenforceable.

According to the Information, these practices were part of SEARS' written policy which was reinforced during bankruptcy training seminars conducted jointly by members of the credit business and legal department. The practices were known of and approved by now former Sears' credit business employees and now former legal department lawyers.

The case was first brought to light when an unemployed bankruptcy debtor sent a letter to Chief Judge Carol J. Kenner, of the U.S. Bankruptcy Court in Boston, discussing his inability to make payments on a bankruptcy ``reaffirmation agreement'' solicited by SEARS. Chief Judge Kenner reviewed the court file and determined that SEARS had not filed the reaffirmation agreement with the court, as required by the Bankruptcy Code. A series of court hearings revealed that SEARS had also failed to file the reaffirmation agreements of many other debtors, including more than 3,000 debtors in Massachusetts and over 188,000 nationwide.

In announcing the charges and the plea agreement, U.S. Attorney Stern praised SEARS for its extraordinary cooperation, beginning in April, 1997, when senior management and the Board of Directors became aware of the criminal conduct. Stern said that SEARS' cooperation was a significant factor in determining the amount of the fine. Stern also noted SEARS' efforts to effect prompt and full restitution to debtors for its conduct.

The $60 million criminal fine, will be deposited into the Crime Victims Fund, a major funding source for victim services throughout the country. The Fund supports state crime compensation programs and over 3,000 local victim service agencies, such as domestic violence shelters and rape crisis centers. Revenue for the Fund comes solely from the federal criminal fines, special assessments, forfeited bail bonds, and penalty fees collected by the U.S. Attorneys' Offices, U.S. Courts, and the Federal Bureau of Prisons.

The case was referred by the Office of J. Christopher Marshall, U.S. Trustee in Massachusetts, and investigated by agents of the Federal Bureau of Investigation. The criminal case is being prosecuted by Assistant U.S, Attorney Mark J. Balthazard of Stern's Economic Crimes Unit. The civil portion of the case is being handled by Assistant U.S. Attorney Susan Poswistilo of Stern's Civil Division. 

Sears Unit Pleads Guilty to Bankruptcy Fraud

The subsidiary, Sears Bankruptcy Recovery Management Services Inc., had been under investigation for failing to file reaffirmation agreements that cover individual creditors who had filed for bankruptcy in bankruptcy court.

The agreements are individually negotiated deals in which debtors avoid repossession of goods by agreeing to make monthly payments after emerging from bankruptcy.

In the nearly two-year investigation, U.S. Attorney for Massachusetts Donald Stern sought to establish whether Sears employees intentionally engaged in overzealous debt collection tactics.

In June 1997, Sears paid $40 million to settle cases with all 50 state Attorneys General, and $273 million in refunds and costs to settle class action lawsuits.

Sears said the anticipated fine will have no effect on its current-quarter earnings. In the second quarter of 1997, the company took a pre-tax charge of $475 million for refunds, penalties and expenses stemming from improper handling of agreements with its Chapter 7 debtors.

Sears Closes Books On Improper Debt Collection

Gregory Crawford

CHICAGO (Reuters) - After nearly two years and $475 million, Sears, Roebuck and Co. (NYSE:S - news), the nation's second largest retailer, closed the books Tuesday on its improper collection of debts from bankrupt customers by pleading guilty to a criminal charge and paying a $60 million fine.

The United States Attorney for Massachusetts said the fine was the largest ever to be paid in a bankruptcy fraud case and was believed to be one of the largest criminal fines nationwide.

Sears Bankruptcy Recovery Management Services Inc., a subsidiary of the Hoffman Estates, Ill. retailer, agreed Tuesday to plead guilty to one count of bankruptcy fraud and pay the $60 million fine.

Sears had been under investigation since April, 1997 by U.S. Attorney David Stern for failing to file reaffirmation agreements with debtors in bankruptcy court from 1985 until early 1997.

In a reaffirmation agreement, a debtor agrees to pay a debt even though it would be otherwise discharged in bankruptcy. The agreements are not valid if not filed in court.

``Sears intentionally misled bankrupt debtors without attorneys and defrauded the Bankruptcy Court,'' Stern said in a statement Tuesday from his Boston office. ``Fortunately, Sears has now taken strong steps to clean up its act to make sure that this does not happen again.''

Sears also settled a civil action filed against it in April 1997 by agreeing to continue to file all reaffirmation agreements as required by the U.S. Bankruptcy Code.

Tuesday's agreements with the U.S. Attorney are subject to U.S. District Court approval. A hearing date has not been set.

Sears said the agreements did not require any change in the day-to-day operations of Sears or its subsidiary and that the fine would have no effect on its earnings.

In the second quarter of 1997, Sears took a pretax charge of $475 million against earnings for refunds, penalties and administrative expenses stemming from the improper handling of the debt reaffirmation agreements.

``The resolution of the United States Attorney's investigation will conclude the last in a series of legal actions surrounding Sears failure to file some reaffirmation agreements which the company reached with Chapter 7 bankruptcy debtors,'' the retailer said in its statement.

Shares of the company were down 69 cents at $39.44 in afternoon trading on the New York Stock Exchange amid a sharp sell-off in the broader stock market.

Analysts said Sears has been eager to close this chapter of its history so it could focus on improving its merchandise mix and marketing efforts in order to boost profit growth, which has slowed over the last year.

``This is just the final piece in place,'' one analyst said. ''Thank you, now move on.''   

Sears January Same Store Sales Increase

HOFFMAN ESTATES, Ill., Feb 4 (Reuters) - Sears, Roebuck and Co., the second largest U.S. retailer, said Thursday its same store sales in January rose 2.6 percent, compared with a 5.4 percent increase in the same period a year ago.

The department store operator said its total domestic store revenues for the four weeks ended January 30 were $1.82 billion, down 0.4 percent from $1.83 billion over the four weeks ended January 31, 1998.

Excluding the impact of the company's recent sale of its Western Auto stores, total domestic store revenues increased 4.1 percent, Sears said.

``Comparable store sales improved in both our full-line and specialty stores in January,'' said chairman and chief executive officer Arthur Martinez. ``Softgood results included strong sales of women's ready to wear -- spurred by double-digit increases in sportswear and special sizes -- as well as intimate apparel, cosmetics and fragrances. Solid hardgoods results were supported by strong performance in all categories of home appliances.''

Total company revenues over the four week period fell 3.9 percent to $2.51 billion from $2.61 billion in the prior-year period.

Sears operates 845 full-line stores and more than 2,100 specialty stores.

Another Bitter Pill for Sears Retirees - HMO Premiums Soar

Lisa Morrell
Crains Chicago Business, Jan 25, 1998

Mark Southard couldn't believe his eyes when he opened the January bill for his medical insurance premium from the Sears retirees service center. His Aetna U. S. healthcare health plan had skyrocketed 470 per cent to $108 a month from $19 a month in 1998.

There was no explanation just a request for payment by January 10. Seeking answers, he couldn't get through clogged telephone lines at the Southfield, Michigan's, Retiree Service Center. So, resigned, he paid up.

"I'm not going to have to stand on the corner with a tin cup," says Mr. Southard, 62, a Chicago resident who retired and as Managing Director of northern Asia buying in 1993 after 35 years with Sears, Roebuck and Co. "But it's still punitive to have to payee this high, ridiculously increased price."

Across the country, Sears retirees are telling similar tales of sticker shock over the bills for their 1999 health insurance premiums. Though many conceded that the increases -- some as high as 500 percent -- will break them, they contend that any hike can strain the budgets of people living on fixed incomes.

The increases, and the lack of communication about them, have aggravated an already tense standoff between the Hoffman Estates based retailer and its retirees. Sears’ Oct. 1997 move to cut retirees’ life insurance benefits is the subject of a class-action suit in federal court. Of course Sears isn't the only big U.S. company to face hefty increases for medical coverage, as health maintenance organizations (H.M.O.s) continue to be pressed by rising costs.

H.M.O.s have "the passed that along to corporations like Sears, who are passing along to their retirees. It's just something that we have to do," says a Sears spokeswoman.

In addition, an internal Sears memo obtained by Crain’s states that Sears only began offering H.M.O.s to retirees under 65 in 1997. The Company contends that the H.M.0.s underestimated the cost of covering that population and are now adjusting their rates.

Sears in 1996 ended its policy of paying increases of up to 5 percent in retirees’ annual healthcare premiums.

And, according to Richard Bruce, an Elmhurst retiree who analyzed the 1999 premium changes, the company now is basing premiums for retirees aged 50 to 65 on their specific age group, instead of on the entire Sears population.

That's why the under 65 retirees like Mr. Southard, who are not covered by Medicare, have been hit hard.

Sears declined to discuss further specifics of its retiree health benefits.

Mail Glitch Leads to Surprise

The changes came as a complete surprise to at least 700 of Sears 70, 000 plus retirees who receive health benefits because they did not receive annual packets in October describing 1999 healthcare options -- the result of a mailing glitch at the Retiree Center.

And retirees say they're having little luck getting explanations from Sears or their H.M.O.s. Some say they paid their January premiums without knowing what their plans offer or without having the insurance information they need in hand to obtain medical services.

As with the life insurance imbroglio, much of the retirees’ ire is directed at Sears chairman and CEO Arthur Martinez.

"He could have quelled a lot of this by better communication with the retirees as to the changes in their benefits," says Gordon Muschett, 66, a retired Sears store general manager in Bellevue, Washington, who has spearheaded discussions with Sears on behalf of the national association of retired Sears employees. "It's been a shock to a lot of them."

Retirees complained that they can't get through to service center representatives who have been swamped with benefits related calls since the beginning of the year.

But Mr. Muschett says Sears Vice President of benefits Liz Rossman has been cooperative in trying to get retirees there 1999 information and to open up service center communication.

A January 19 fax from Ms. Rossman noted that Sears had received "many inquiries" about 1999 H.M.0. rate increases. Therefore, Sears will give retirees until Feb. 15 to switch medical plans.

"We're doing all we can to share with them the information that they need," the Sears spokeswoman says.

But retirees wonder why Sears premium increases are so high. Many of the hikes outstrip the 7 to 10 percent rise in employers healthcare costs anticipated nationally for 1999, according to health benefits consultant Linda Ruth of Lincolnshire based Hewlitt associates.

Some have no choice higher cost or not, retirees with health problems, like Gary Guthrie of Nooksack Washington, have little choice but to pay up. Mr.Guthrie,63, suffered from cancer nine years ago. He’s now billedd $375 a month -- 560 percent more than last year -- to cover himself and his wife under Blue Cross Premera Health Plus H.M.O. plan.

"I'm a hostage. I have to continue with this insurance regardless of cost," says Mr. Guthrie who retired as a district service manager for Sears in 1991 after three for years.

Some Sears retirees who don't subscribe to H.M.0.s found their bills decreased. But there's a catch.

Ronald Schurter, 58, of Yorba Linda California, says his monthly rate dropped 17 percent to $774 under the Sears preferred provider organization plan. However, his family now has to pay an annual deductible -- of $900.

The health benefits hassle makes many Sears retirees fearful of what's ahead.

"We're just very concerned that more benefits are going to be taken away from us, one at a time," Mr. Schurter says.

But Sears says that's not happening. "We have absolutely no changes to retiree medical benefits to announce other then these increases and cost," the Sears spokeswoman says.

Employees older then 65 who retire beginning next year will not be offered Sears subsidized medical coverage, she says, but they can opt to pay the entire cost of participating in the Sears plan.

Things Seem to Get Worse after Bad Decisions . . Sears Sees Low Double Digit Growth

HOFFMAN ESTATES, Ill., Jan 21 , `999 - Sears, Roebuck and Co., the second largest retailer in the United States, said Thursday it expected 1999 earnings per share growth would be in the low double digit range after reporting no profit growth in 1998 over 1997. ``For 1999, the company expects a low double-digit percentage increase in earnings per share, excluding noncomparable items, over the 1998 level,'' the company said in a statement. Excluding the impact of >significant noncomparable items, Sears had net income in 1998 of $1.30 billion, or $3.32 per share, compared with $1.30 billion, or $3.27 per share for 1997. Including those items, the retailer's 1998 net income was $1.05 billion, or $2.68 per share, compared to $1.19 billion, or $2.99 per share, in 1997. Revenues in 1998 were $41.32 billion, a slight increase over $41.30 billion in 1997, which was 53 weeks long compared with 52 in 1998. Excluding the 53rd week in 1997 and the impact of the company's sale of its Western Auto stores, annual revenues would have increased $946 million or 2.3 percent. Sears shares were down 13/16 at 41-5/8 in morning activity on the New York Stock Exchange.

Benefits Suit against Sears Advances

A lawsuit against Sears, Roebuck and co. filed by a former manager of the Santa Rosa store was granted certification as a class-action suit earlier this month by a U. S. District Court Judge in Illinois.

"We're looking at it as a validation for our side", said Miles "Buzz" Williams, retired manager whose suit now includes thousands of former Sears employees fighting to retain life insurance benefits promised in their retirement packages.

As many as 84,000 former Sears employees were informed in 1997 that Sears planned to reduce life insurance benefits that had been part of retirement packages for 50 years. The reduction will mean an average loss of about $12,000 for each retiree over a 10 year period.

Sears says the cuts are needed to keep the company competitive. Paula Davis, a spokeswoman at the company's headquarters in Hoffman Estates, Ill., said Sears spends about one billion-a-year on retirement benefits now, almost twice as much as competitors.

Judge James Moran ruled January 7 that two parts of the former employees suet could be classified as a class-action, setting the stage for a court trial and creating a deadline -- 2 or a three months -- if the parties are to settle out of court.  

Allentown Demonstration Recap

The following is retiree Steve Mohan`s summary of the December 12th Demonstration at the Allentown Store. Our hats are off to the 40 demonstrators who did so much to tell our story. The newspaper articles were very large, factual, and pro retiree!

We, the Sears Retirees of the Allentown, Pa. area held a demonstration at the Sears store located at the Whitehall Mall in the Allentown area. The peacefull demonstration was held on Saturday December 12, 1998. Approximately 40 demonstratators were either carrying signs, wearing Yellow "T" shirts and handing out flyers. Many customers asked questions, passing vehicles honked their horns. Our feeling was very positive. We were represented by our local TV station Channel 69. They aired the coverage that evening. Our two local newspapers were also there.

The Morning Call, which has a very large coverage area was represented by reporter Ron Devlin and the Easton, Pa. Express was represented by reporter Greg Karp. Dick Raab, the former store Manager of the Whitehall store, Bob Clewell a former "A" srore manager and Mike Picucci our retiree club benefit chairman were very instrumental in the success of the demonstration. The present store manager Denny Moyer offered to buy us coffee. The only thing that he was opposed to was the wording on the back of the Yellow "T" shirts " BOYCOTT SEARS". We are looking forward to doing this again in the Spring.

Steve Mohan  

We Must be Thieves as Well as “Burdens”

Los Angeles retiree Ron Lecour reported the following:

Sears Retirees View Ruling as a Victory

Susan Chandler
Chicago Tribune,  January 20, 1999

Retirees of Sears, Roebuck and Co. have won a few points and lost another in their attempt to sue the Hoffman Estates-based retailer for reducing their life insurance benefits.

Judge James B. Moran of U.S. District Court recently granted class-action status to two counts of a lawsuit filed by retirees in 1997. But he rejected a third count charging Sears with violating its fiduciary responsibility to retirees.

That was the most dangerous count for Sears and potentially the most expensive, sources involved in the case say.

Retiree attorneys had hoped to show that Sears management had implied the life insurance benefits were permanent through a wide range of communications, including brochures, seminars and one-on-one conversations between employees and managers.

In declining to certify the third count, Moran said in his Jan. 7 ruling that the retirees' attorneys would have to show which employees were misinformed through a specific means--a tedious job that attorneys had hoped to avoid.

The legal wrangling is the outgrowth of a 1997 cost-cutting decision by Sears' management to drastically reduce retiree life insurance benefits from a maximum of $100,000 per person to $5,000.

The move sparked a series of public protests against Sears by retirees and led to the formation of the National Association of Retired Sears Employees.

Moran's split decision left both sides claiming victory.

"We are just elated the judge found in our favor. Now we can move forward from here," said Everett Buckardt, former president of the Sears catalog and a leading retiree activist on the insurance issue.

Sears spokeswoman Paula Davis was just as triumphant. "We are pleased with the ruling. We believe it was in Sears' favor," she said.

Sears has strong legal reasons not to fear the two counts approved by the judge.

In recent rulings, federal courts have found that employers can reduce retiree benefits at any time if they reserved that right in the legal language of their benefit plan.

That applies even in cases where retired employees said they were not told the company had that power.

"In terms of the plan document, Sears clearly communicated the right to change or modify benefits," Davis said.

Charles Watkins, one of the lead attorneys for the retirees, said his legal team is reviewing its options on the breach of fiduciary duty claim and may ask the judge to look at the issue again. .  

Sears Sets 3-Month Delay in Benefits

Crain's Chicago Business Jan 20

Hoffman Estates-based retailer Sears, Roebuck and Co. is delaying the start date of benefits for newly hired full-time employees. After Feb. 1, new full-time employees will not be covered for medical, dental, life insurance, and other benefits until the first day of the third month after they have been hired. Sears currently provides immediate coverage for full-time corporate and store associates. In a memo, Sears says the change brings in line with the waiting-period practices of other retailers.  

Desperate for Sales

Sears is in the process of sending a postcard to all retirees. It says "Sears is pleased to announce that the apparel discount for associates and retirees will increase from 10 per cent to 20 percent effective January 1,1999. This includes regular, sale and clearance items." The remainder of the postcard clarifies the merchandise eligible for the increased discount and the merchandise that remains at the 10 percent discount. The postcard closes with "Sears is delighted to provide you with this enhanced retiree benefit."

Compared either to competition or to Sears’ prior year performance, November was a sales disaster; December will be worse. 1998 was a very poor sales year. In fact, sales performance began to soften in the fall of 1997 when Arthur raided your family’s estate. The events may even go together.

If it seems to you that Sears desparately needs sales and has noticed a pattern of reduced retiree buying, you are right on. If it seems that the discount change is prompted by the generosity, the goodness, and the remorse (over his gross mistreatment of Sears retiree families) radiating from King Arthur Martinez, you could not be more wrong.

Consider this change as one that is designed to help Arthur. Consider this change as our inspiration to buy even less at Sears. Buying less will better draw the attention of the Board of Directors and King Arthur to an issue that matters far more than an additional 10 percent discount.

Discount saved pennies will not replace the thousands taken from our families.  

In a Class by Itself

When a once great company flunks an integrity test, is anyone embarrassed or accountable?

A December edition of NBC’s Dateline TV show dealt with the issue of retailers who advertise or provide in-store sign copy that declares one price and then charges a different price at the terminal.

Michigan Attorney General, Frank Kelly, has made it a four-year practice to look at this issue each Christmas selling season. Attorney General Kelly finds one that one out of 20 transactions in all the stores shopped have pricing errors.

Dateline also made it a four-year practice to look at this issue at Christmas time. They spend about $150 on advertised sale items per store. They found problems in one out of seven items that scanned at the wrong price.

At Ward’s, they bought 15 items and five scanned at the wrong price...at Kmart one of 14 items scanned wrong...at Penney’s, 3 items were incorrect. Dateline commended Kmart, Wards, and Penney’s for their ability to quickly correct their pricing problems. When Dateline went back the next day, all errors were corrected at these stores. At Hechts, it took three days to fix the incorrect pricing.

At Sears, an unbelievable 7 out of 13 items scanned incorrectly. Six items overcharged the customer with one item undercharging. The net total overcharge to the customer was $16.00. On day two, three of the overcharging mistakes had not been corrected. On day three, the nightshirt and sleeper pricing had not been corrected. On day four, those two items continued to ring up at full price. On day five, they stayed at the wrong price until dateline went to the store manager’s office with camera and microphone. At that point, the problem was corrected

A national retail spokesperson named Mallory Duncan was quoted in this segment of Dateline saying that there will be pricing errors about five percent of the time, a number consistent with the Michigan Attorney General's findings. An FTC study in 36 states suggests that there will be a pricing problem in one out of 28 items.

In keeping with the new Sears commandment that it must be someone else’s fault, the Sears Corporate spokesperson wrote to Dateline to say that the two items were not sale items.

Sears is in a class by itself. It just happens to be a class that nobody wants to be in. 

Sad But True

The January 4 issue of USA Today summarizes the 1998 stock performance for the DOW 30 industrials .

20 had an increase in stock val;ue for the year 15 enjoyed a double digit increase.

Sears was in the 23rd position with a decrease in stock value for the year...a decrease of 6.1%.