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January 2000 - March 2000

Possible Move for Sears' Walters 
Keeps Retail Sector Buzzing
Top Job in United States

By Zena Olijnyk, The Financial Post
April 11, 2000

Retail watchers on both sides of the border are debating over whether Paul Walters, Sears Canada Inc. chairman, is a candidate for the top job at Sears, Roebuck & Co., the U.S. parent of Canada's most successful department store chain.

Since Sears, Roebuck announced last month that Arthur Martinez, its chief executive and president, will be retiring by the end of the year, retail experts and executive recruiters have been speculating about who will take over, and whether Mr. Walters is an internal candidate for the position. "His name has certainly been mentioned by those speculating on successors," said Peggy Palter, spokesman for Sears, Roebuck, based in Hoffman Estates, just outside Chicago, though neither confirming or denying whether he is on any internal list.

Even two Chicago daily newspapers, the Chicago Tribune and the Chicago Daily Herald, have printed stories quoting sources that name Mr. Walters as a potential candidate for the job, with the Tribune calling him a "turnaround wiz."

"He's the head of one of the most profitable divisions of Sears, Roebuck," said Richard Talbot, a Toronto-area retail consultant. "It would be natural that they [Sears, Roebuck officials] might consider bumping him further upstairs."

Mr. Walters' name has come up along with Sears, Roebuck executives Julian Day, chief operations officer, and Alan Lacy, president of the Credit and Home Services division. Others are suggesting an external candidate with a fresh perspective, perhaps someone outside retailing, would better fit the needs of Sears, Roebuck.

Sears has hired the Atlanta-based executive recruiting firm Heidrick and Struggles International to identify potential candidates. A spokeswoman for Heidrick and Struggles, reached yesterday, would only confirm "we have landed the search contract."

Some are suggesting it would be a long shot that the Canadian-born Mr. Walters would be vaulted to the top at the parent company, which owns 55% of Sears Canada. They point out that both Mr. Day and Mr. Lacy, for example, have worked closely with Mr. Martinez in an "office of the chief executive" that was created last September.

"I just don't know if someone with a background in Canadian retailing would be considered for the CEO of one of the largest chains in the U.S.," said one analyst, though he suggested Mr. Walters might be a good candidate to go to the United States as a vice-president with Sears, Roebuck.

But others say it would make imminent sense for Sears, Roebuck to consider Mr. Walters among internal candidates. They point to Mr. Walters' role in coming to Sears Canada in 1996, after the chain had announced massive layoffs, and helping to set it on a course of double-digit sales and profit gains.

Ms. Palter also pointed out that Mr. Walters first job after leaving his position as president of Zellers Inc. was as a special assistant to Mr. Martinez. This was before he was appointed chairman and chief executive of Sears Canada.

As for Mr. Walters, he demurred on answering the question of whether he was on any internal shortlist, saying in a recent interview the whole issue was "speculation" and "it would be better if you talked to Sears, Roebuck yourself."

One industry watcher suggested that even if Mr. Walters were being considered for the top post at Sears, Roebuck, he might not be interested -- at least at this point in his career. "There is still a lot for him to do here in Canada," said the source, pointing to the growth of Sears Canada's Internet business and the company's most recent coup, the purchase of the insolvent T. Eaton Co. chain.

Sears Wins First Round in Dispute Over Retiree Benefits

By Susan Chandler - Chicago Tribune  
March 21, 2000

U.S. District Judge James B. Moran has dealt a serious blow to retirees of Sears, Roebuck and Co., ruling in the giant retailer's favor on two class-action claims in a lawsuit over reducing life insurance benefits.

In a decision issued Friday, Moran agreed with Sears that language in its benefit-plan document reserved the company's right to reduce or eliminate retiree life insurance benefits "at any time."

The 80,000 retirees affected by the cuts had argued that other parts of the plan indicated the life insurance vested upon retirement. In a 1997 cost-cutting move, the Hoffman Estates-based retailer announced it would begin reducing their company-paid life insurance benefits from a maximum of $100,000 to $5,000 during a 10-year period.

Because Moran knocked out the lawsuit's only two claims with class-action status, retirees have little choice but to proceed with individual lawsuits, a time-consuming and costly process that makes their case less attractive to lawyers who are working on a contingency basis, legal sources said.

Michael Mulder, the lead attorney representing the retirees, was not available for comment Monday.

Despite the obstacles, Everett Buckardt, chairman of the National Association of Retired Sears Employees, vowed to fight on. "This is just round No. 1. We expect the court to turn its attention to breach of fiduciary duty and other claims in the case," he said.

Sears said it expected Judge Moran to rule in its favor because of several recent similar outcomes for federal cases involving reductions in retiree benefits.

Separately, Sears disclosed details about its executive compensation in a filing with the Securities and Exchange Commission. Sears Chief Executive Arthur Martinez received $4.1 million in total compensation during 1999, a 73 percent increase from the prior year, according to the retailer's proxy statement filed late Friday with the SEC.

Martinez, who announced last week he would retire before year-end, was paid a bonus of $2.2 million, more than double the $980,088 bonus he received in 1998. He received a 4 percent hike in base salary to $1.2 million and long-term incentive compensation of $455,835, among other items.

Sears' directors said Martinez deserved the big raise because the retailer's 1999 earnings per share surpassed a pre-approved target level for bonus payouts.

Sears' four other top executives also received bonuses that exceeded their base salaries.

No Curtain Calls for Departing Sears Chief
David Greising
Mar 20, 2000

What F. Scott Fitzgerald knew about Americans, Arthur Martinez has proven true in the shopping business: There are no second acts in American retailing.

It took Fitzgerald a hard life to decide Americans can't encore their successes. It took Arthur Martinez six hard years at Sears.

Martinez last week announced he is leaving, and his defenders at Sears claim the board did not pressure him to go. Sears shareholders can only hope that's not true.

If Michael Miles and other board members did not force Martinez out, they should have: The situation is dire at Sears. Martinez had every opportunity to develop a turnaround plan, but he could not deliver.

Martinez came up empty even after the board last fall forced a reshuffling that created an unorthodox "office of the chief executive."

At that time, I wrote that Sears' board should give Martinez until February to create a new strategy. If he couldn't do it by then, it would be time to go. A surgical "execectomy" would give a new CEO the chance to save the 2000 holiday-selling season.

It's too late for that now. The board has just now begun its successor search, and Christmas 2000 buying will be done before a new CEO is picked. Watch for another slight Christmas at Sears.

The Martinez melt-away is one of the more amazing Chicago business stories of the past decade. In the mid-1990s, you could have navigated to Hoffman Estates just by following his rising star.

Forget gold, frankincense and myrrh. Martinez in 1992 brought to Sears a bold store redesign plan, a makes-some-sense upgrade of women's apparel, and a murderous focus on bottom-line results.

It helped plenty that by the time he arrived, his predecessor, Edward Brennan, had finally given up on the disastrously distracting foray into selling investments and insurance in Sears stores.

Brennan dropped "stocks and socks," and turned the proceeds over to Martinez to modernize Sears stores.

This led to the creation of the "Softer Side of Sears," the marketing campaign that launched a million bad puns. Sears' retail operations turned around from a $3 billion loss in 1992 to a $750 million profit in 1993--a breathtaking reversal.

Martinez had pulled off the impossible: He had turned around the old Sears battleship with the quickness of a ski boat. Martinez quickly rose to become Sears' CEO, and even began writing a book in which he planned to take bows for Sears' amazing turnaround.

Then the turnaround turned back around. Company-wide earnings peaked at $1.8 billion in 1995 and have fallen since--to $1.45 billion last year. The Martinez magic had turned mortal.

"Softer Side" brought new women to the new stores. But they were scared away by the same old Sears merchandise.

Nothing has worked since, and Sears is hurting on every front: from low-end competitors like Target and Wal-Mart, from high-end retailers and boutiques, from appliance and electronics cutthroats like Circuit City and Best Buy, and even from tool-and-hardware interlopers like Home Depot and Loews.

Martinez has failed to come up with the next Big Plan.

His one apparent winner, the "Great Indoors" in-store boutique, is good, but goes only so far. Perhaps a successor can roll out the concept to other departments and other merchandise. A mall-under-one-roof concept might just work.

All the rest has led to little. And lately, Martinez seemed positively hexed. A hip new Benetton's line bit him when Benetton's started using murderers to market its clothes.

The ultimate metaphor for the Martinez malaise is the new Sears shopping cart. It takes an icon of something Sears is not--a Target-like discounter. And it further removes Sears from the status of places where so many of them are going--the high-end retailers.

Still the shopping carts may not prove entirely worthless.

Martinez couldn't deliver a second act, so he has to go. But the board won't need a big hook to get him off the stage.

Rolling him away in a Sears shopping cart will work just fine.

Gordon's Comments:
I could not have said it much better....Thanks , Dave!

Sears Public Relations Dept. has been working overtime lately has put out more blue smoke to the media in support of Arthur than a thousand 747 aircraft. Hopefully, this administration, including many members of the Board, will be out during or before the annual meeting in May and Sears will get executives who are merchants and a board who is responsive and actively involved. One can only hope so, and that new leadership may be infused into our once great organization before the Titanic sinks or is acquired by another firm! In any event, the May Annual Meeting should be extremely interesting. Perhaps into retirement, while counting his money, Arthur can find time to complete his book?

Sears Paid CEO Martinez 
$4.12 Million in 1999
Reuters
March 17, 2000

WASHINGTON, Arthur Martinez, the chairman and chief executive of Sears, Roebuck and Co.,  who will retire later this year, received $4.12 million in compensation in 1999, a 73 percent increase over the prior year.

Pay for Martinez included a $2.2 million bonus, $1.2 million in salary and $455,835 in long-term payouts, according to the No. 2 U.S. retailer's proxy statement filed with the Securities and Exchange Commission on Friday.

In comparison, he received $2.38 million in 1998, including a $980,088 bonus and in $1.15 million salary.

``Martinez's 1999 target bonus was based on a pre-approved target level of improvement in the Company's earnings-per-share over the prior year,'' the company's compensation committee said in the proxy.

The company posted $1.45 billion in net income last year, or $3.81 per share, compared to $1.05 billion, or $2.68 a share, in 1998.

Martinez, 60, announced on Wednesday that he would step down as chief of the Chicago-based company by the end of the year to spend more time with his family.

Sears operates 850 full-line department stores and 2,100 specialized retail locations.

He also was awarded 247,742 options worth about $3.84 million at the time of the grant, the proxy showed. Martinez held about $8.3 million worth of exercisable, in-the-money options as of January 1.

Additionally, he received $269,851 in other compensation in 1999, which includes corporate transportation and matching contributions under the Sears 401(k) savings plan, among other things.

The prior year he received $252,987 in other compensation.

Sears shares closed up 5/16 to 30-15/16 on the New York Stock Exchange.

Arthur's Letter to the Troops
March 16, 2000

By now you have heard about my plan to retire by the end of the year and the succession planning that has been set into motion regarding that decision. I would have liked to have been able to tell you about my plans at a time of my choosing. Unfortunately, a leak to the Wall Street Journal robbed me of that opportunity. Our attached Sears press release corrects the misinformation found in the Wall Street Journal article.

The timing of this announcement results from a desire to spend more time with my family, and from my confidence that Sears is well on its way to delivering consistent growth and excellent earnings. I want to say that though I intend to retire, I have not left. I am still vitally interested in the success of this company. The future of Sears is of utmost concern to me and the board of directors. That is why and outside executive search firm has been retained to assure the best candidate from inside company or from the retail industry, is chosen. I am pleased that we have strong viable internal candidates to be apart of the process.

Each of you should be proud of the progress that Sears has made in the past eight years. First the turnaround and transformation of the company and the renewed efforts last year which resulted in record profits. Sears is a much stronger company than it was a decade ago. The list of accomplishments is dizzying. From becoming a major force in the appliance business to adopting a leadership position in e-commerce--from rejuvenating the credit business to innovations in retailing like The Great Indoors and dealer store organization. We have been dealt blows that would have destroyed lesser companies, and we have not only survived, we have flourished.

I believe we have succeeded because of the strength and conviction of our managers and every associate in the company. We have a strong management team that will lead the company throughout the next few months as we plan for my succession.

Please keep focused on what really matters to the company - our customers, our associates and our investors. The continued success of Sears is really the only thing that matters.

I want to thank you for your support over the years. I look forward to working together to make 2000 a huge success.

Signed: Arthur C Martinez

Sears Chief to Retire
By Sandra Guy,  Chicago Sun Times
March 16, 2000

Sears, Roebuck and Co.'s search for a new chairman and CEO to succeed Arthur
C. Martinez came as little surprise to analysts Wednesday because the Hoffman Estates retailer's stock has fallen to nearly the same low that he inherited.

Martinez, hailed in 1996 as the savior of the nation's No. 2 retailer, told the board of directors that he plans to retire by the end of the year, Sears confirmed Wednesday.

Sears said it chose Chicago search firm Heidrick & Struggles to evaluate internal and outside candidates for the position.

"I think we need someone who can approach today's business problems with a clear set of today's eyes," said Martinez, 60. "This job requires a deep and intense knowledge of our current competitors and an understanding and a willingness to use the Internet as a new weapon in the battle for success." Analysts agreed.

"It's a great company with a great name, and it needs to be repositioned," said Robert Obernesser, partner with Chicago retail consultant McMillan and Doolittle.

"He's leaving because he doesn't have a viable strategy," said George Rosenbaum, CEO of Leo J. Shapiro & Associates research firm.

When Martinez was hired in 1992 to head Sears Merchandise Group, Sears' retail operations had lost about $267 million for the year. Last year, the company earned $1.4 billion.

He discontinued the money-losing retail catalog, cut 50,000 jobs, closed more than 100 stores, spun off Allstate Insurance and transferred ownership of the Sears Tower into a trust.

He was credited with reviving profit and the stock, and he was named chairman and CEO in 1995. The next year, the company boasted better sales, profits and equity price. In 1997, the stock price stood at $65.

But there were missteps, too, such as extending Sears credit cards to people who were poor credit risks. Though new credit card accounts soared to 6.5 million in 1996 from 3.7 million in 1992, the company was forced to restrict its credit policies in 1997 because of loan losses.

Last year, Sears pleaded guilty to a federal bankruptcy fraud charge and paid a $60 million fine for illegally collecting credit card debt from bankrupt customers.

On March 31, Sears ended its Bonus Club program that offered 1 percent rebate coupons on Sears card purchases of more than $300. But the company said it plans to introduce new rewards for its most profitable cardholders.

Further, apparel sales stalled and the company was embroiled in scandals involving a wheel-balancing service offered at its auto centers and charges that the company sold used Exide Corp. automobile batteries as new.

Locally, Sears retirees remain enraged over cuts in their life insurance
policies. A Web site operated by the National Association of Retired Sears
Employees lists Martinez's ratings as 1 on a scale of 1 to 10 in commitment,
leadership, dedication, consistency, willingness and respect. Anonymous
comments include, "Just look at the performance of the competition in good
times. Then look at Sears," and "There is no direction. All actions appear
to be reactionary."

Sears also caused controversy in late January when it terminated a five-year contract with one of its largest contractors and left the business of installing roofing, gutters, entry doors, garage doors and fencing. In September, after warning that third-quarter results would miss forecasts because of slow sales, the company appointed Chief Financial Officer Julian Day and Sears Services President Alan Lacy to the new office of the chief executive to assist Martinez.

The next quarter, Sears reported a 29 percent jump in profit as it discounted fewer items during the holiday season.

Martinez acknowledges that his successor will have a tough job ahead as rivals, both on and off the Internet, vie for the company's middle-market customers. The toughest competitors include Macy's on the high end and Old Navy and Target among discounters.

"The challenges continue to revolve around the relentless march of stronger and stronger competition," he said. "It won't get any easier for this company."

Yet analysts credit Sears with making significant headway in e-commerce.

On Tuesday, Sears entered a pact with America Online Inc. to cross-market products and services. And on Feb. 28, Sears announced its agreement with French retailer Carrefour and software company Oracle in detailing plans to start an Internet-based retail supply exchange.

Martinez also was executing further improvements. He announced plans at a Banc of America Securities conference in February to further cut apparel offerings by 15 percent to 20 percent and to focus on appliance, hardware and electronics. 

Indeed, Sears announced last week it is creating a Web site with home improvement personality Bob Vila and expanding the Sears.com site to include electronics and lawn-and-garden products.

Sears has predicted about a 20 percent rise in earnings for 2000 because of improvements in its credit card division and in Internet sales.

The company, which has more than 850 department stores and 2,100 specialty
stores, is expected to earn 46 cents a share, an increase from 38 cents a year earlier. That would follow a 29 percent jump in fourth-quarter profit. Wall Street declined to pronounce the news a setback for Sears without knowing who will succeed Martinez. Sears stock rose 93 3/4 cents a share, or 3 percent, to $29.06 1/4 on the New York Stock Exchange.

"Sears' performance over time, including achievement of record earnings in 1999, are a tribute to Arthur's leadership," said Warren Batts, Sears' longest-serving director.

Martinez said he began considering retirement last year when he turned 60. Confidence in current Sears management and recent changes at the company--the biggest U.S. retailer behind Wal-Mart--helped him make his decision, he said.

Names popped up across the retailing spectrum Wednesday as analysts speculated on a possible successor to Arthur Martinez as head of Hoffman Estates-based Sears, Roebuck and Co. 

Two internal candidates are obvious because they share power with Martinez. Alan Lacy, president of Sears Services, which includes Sears Online, made a name for himself by overseeing the company's troubled credit card unit. Sharing the CEO office is Chief
Financial Officer Julian Day. 

Analysts suggested these other possibilities:

* Robert Nakasone, former CEO of Toys R Us. His Midwestern ties include a previous management stint at Jewel-Osco, which he left in 1984 as vice president of Midwest stores outside the Chicago area. 

* Joe Attore, CEO of Ames Department Stores. Ames, based in Rocky Hill, Conn., bought the last seven Goldblatt's Department Stores in the Chicago area in early February. 

* Michael Bozic, vice chairman of Kmart, based in Troy, Mich. Bozic also was
chairman and CEO of Levitz Furniture Corp. of Boca Raton, Fla. Bozic is credited with turning around Hills Department Stores. Bozic worked for Sears for 28 years before rising to chairman and CEO of the Sears Merchandise Group in 1987. 

* Bob Stevenish, former CEO of FedCo, a California discount co-op. He worked at Montgomery Ward and served a short time as Bozic's successor at Hills, said George Rosenbaum, CEO of Leo J. Shapiro & Associates, a Chicago market research firm. Analyst Walter Loeb said the fast-changing nature of the retail business makes it wise for Sears to look elsewhere for a leader with Internet or global retailing experience.

Sears Chief to Leave by Year-End
By Susan Chandler, Chicago Tribune 
March 16, 2000

Arthur Martinez, once hailed as the turnaround hero at Sears, Roebuck and Co., said Wednesday that he will step down before the end of the year, and the Hoffman Estates-based retailer has started an aggressive search for a new boss.

The 60-year-old executive brought marketing pizazz and financial smarts to the hidebound behemoth when he arrived eight years ago, quickly becoming a national star in the business world.

Yet his departure is coming sooner than expected, reflecting a raft of troubles that has beset Sears in recent years. Martinez has been under pressure from his mostly hand-picked board of directors because of embarrassing management gaffes.

He has been under particularly close scrutiny since September, when directors forced him to share power through an "office of the chief executive" that included Alan Lacy, president of Sears Credit, and Julian Day, the retailer's chief operating officer.

Adding to a desire for change among board members was Sears' sinking stock price and a recent ranking by Business Week magazine that rated Sears' board as one of the worst in the country, sources close to Sears said.

Even though Martinez pulled out a better-than-expected year-end performance, Sears' stock has remained under pressure, closing Wednesday at $29.06 a share, off from a 52-week high of $53.18. Only two years ago, Sears stock hit a high of nearly $65 a share.

Martinez denied Wednesday that his pending departure is anything but his own idea. Turning 60 last year made him mindful of his father's sudden death from a heart attack at age 59, Martinez said.

"It's really about putting balance in my life," he said. "I was never a guy who was going to be dragged out of here at 11:59 p.m. on the day before my 65th birthday."

He said he also believes Sears' business has stabilized. "The business fundamentals are very good and improving," he said. "While there is no perfect time to come to these conclusions, it was the right time to get into action on succession planning."

Chicago business executive Warren Batts, Sears' longest serving director, called the company's 1999 record earnings "a tribute to Arthur's leadership," and said the board was "certainly pleased with his record of accomplishments as chairman and CEO."

Yet some shareholders have been extremely critical of Martinez's track record. "He's got to go. Look at the price of the stock, the operations of the company," said Martin Glotzer, an activist Sears shareholder who submitted a proxy proposal this year to put the retailer up for sale.

One difficult question: Who will fill Martinez's shoes?

There aren't many retail executives with turnaround experience who are ready to run the nation's second-largest retailer, industry experts said. That has led to speculation that Sears may turn to someone outside the industry for a fresh perspective.

"This is tough. Maybe it has to be somebody from a company like AT or MCI WorldCom," said Walter Loeb, a veteran retail consultant in New York. "We have to think out of the box."

Consumer products companies and e-commerce players also might yield potential candidates, added George Whalin, president of Retail Management Consultants in San Marcos, Calif.

But Martinez, who joined Sears after a stint as chief financial officer of Saks Fifth Avenue, said that going outside the retail industry "introduces a double-barreled risk. I consider that to be a strategy of last resort."

Internal candidates present the least risk because they know the territory, Martinez said. Among current Sears executives, Lacy and Day are considered front-runners because they already share power with Martinez. Both have strong financial backgrounds like Martinez but lack merchandising and store management experience. Also in the running is Paul Walters, a Sears Canada turnaround whiz.

Next in line would be other retail executives, Martinez said. Those could include Daniel Jorndt, chief executive of Walgreen Co., the Deerfield-based drugstore giant, industry experts said. Walgreen's market capitalization of $26.16 billion is now more than double Sears' $10.98 billion.

Other contenders could include Terry Lundgren, the second-in-command of Federated Department Stores Inc.; Leonard Roberts, chief executive of Tandy Corp. who turned around its RadioShack unit; and Robert Ulrich, chief executive of Target Corp., the fast-growing discounter that has taken market share from Sears in the apparel area.

Sears has hired Heidrick Struggles International, an executive search firm, to identify candidates.

To be sure, Martinez deserves credit for reinvigorating a moribund Sears after he took over as merchandising chief in late 1992, retail experts said.

He closed the money-losing Sears Catalog, began remodeling stodgy stores and introduced the "Softer Side of Sears" advertising campaign to entice female shoppers back into the store.

Those efforts paid off in the early years, boosting Sears' revenue and profits. Also helping the bottom line was his decision to ramp up Sears' lucrative credit card operation, where profit margins dwarfed those from the retail stores.

Martinez also changed Sears' corporate culture, shifting a much bigger percentage of pay toward annual bonuses based on a mix of individual performance and corporate profitability.

Employee morale and profits both headed up in the mid-1990s. Martinez was declared the golden boy of the retail industry and found himself on the cover of major business magazines.

But Sears' near-miraculous comeback began unraveling about three years ago.

Sales at its core chain of more than 850 department stores stagnated as shoppers shunned Sears' apparel offerings in favor of less-expensive, trendier looks from discounters such as Target and Old Navy.

Martinez admitted the problems last year, declaring that Sears needed a "second revolution" to stay competitive. He also did an about-face on apparel, dumping the "Softer Side" campaign in favor of more price-oriented advertising. Sears now is reducing its apparel offerings by 15 percent to 20 percent.

Meanwhile, Martinez's growth strategy of rolling out new "off-the-mall" stores stalled. Sears' free-standing HomeLife furniture chain never achieved its profit targets and was sold off in 1998.

Likewise, its once highly profitable Western Auto unit turned into a money loser after its format and name were changed. It, too, was sold off.

About the same time, the company's credit card business suffered as millions of new accounts added in the mid-1990s began to sour. Loan losses rose dramatically, hurting earnings and forcing Sears to rein in its aggressive growth.

But perhaps most distressing to Sears' board was a series of scandals that threatened to undermine the company's reputation for integrity. In the most embarrassing case, Sears admitted in 1997 that it had been illegally collecting debts from bankrupt credit card holders for more than a decade.

The retailer eventually pleaded guilty to criminal bankruptcy fraud and agreed to pay a $60 million fine. Sears previously had taken a pre-tax charge of $475 million to account for the cost of paying restitution and other legal expenses.

Since then, Sears has paid $1 million in fines to settle charges that it sold used batteries as new. It also paid $325,000 in fines to the U.S. Labor Department for alleged violations of child labor laws.

Sears Chief Starts Search for Successor 
Reuters, March 15, 2000

Sears, the second largest U.S. retailer behind Wal-Mart Stores Inc., is quietly searching for a successor to long-serving Chairman Chief Executive and President Arthur Martinez, people familiar with the matter told the Wall Street Journal.

Martinez, 60, instigated the search and is part of the process, according to the Journal's Wednesday edition.

Martinez met with six other directors in Chicago last week to pick an executive search firm, the Journal said. Board members at the meeting indicated they are interested in pursuing candidates from outside the industry, the Journal said.

Martinez also expressed openness about his successor initially taking the No. 2 slot or immediately becoming CEO, the Journal said.

Editor's Comment:
This is great news! 
Do you suppose NARSE has had anything to do with the decision??

Buying Washers and Wrenches Online? 
By Eddie Baeb, Crain's Chicago Business 
Mar 13, 2000

Chicago rules Region hosts four Internet ventures.

Home field: Michael Toll left a job as an executive with Sears' home-services business to become CEO of online contractor referral service iCastle.com.

Chicago is no e-commerce powerhouse, but it dominates one small corner of the dot.com universe — online sales of hardware and home-improvement services.

No fewer than four local online ventures have been launched in the past year, including Evanston-based Ourhouse Inc., backed by Ace Hardware Corp., iCastle.com Inc., a contractor referral service that recently moved here from San Jose, Calif., and e-commerce sites operated by hardware cooperative TruServ Corp. and hardware giant Sears, Roebuck and Co.

The confluence is no surprise, as Chicago has been the traditional distribution center for goods ranging from doorknobs to dishwashers — a hub of the $165-billion home-improvement industry.

"We're the Silicon Valley of the home-improvement industry," says Neil Hastie, chief information officer of Chicago-based TruServ, referring to the region's role in bringing the industry online.

But of Chicago's entrants, Ourhouse is most widely considered a front-runner, with its clicks-and-bricks strategy and about $115 million in venture capital backing. Old-line firms such as Sears, TruServ and Ace face additional challenges in trying to lure talent away from the dot.com startups.

"We couldn't have attracted the kind of talent it takes to launch a successful e-commerce initiative," says Ken Nichols, a vice-president of retail operations at Ace. Of course, consumers aren't snapping up screwdrivers on the Web at the same clip that they're buying books, CDs and computer software online.

Indeed, experts believe that consumers will be slow to adopt online shopping for home-improvement products. A major portion of hardware store purchases are for immediate needs, and it doesn't pay to ship inexpensive goods such as a box of nails or heavy items like a table saw.

New York-based Jupiter Communications Inc. expects online home-improvement sales to grow to $700 million in 2004, still less than half of 1% of the total industry.

"The (online) market is so small, and it will continue to be small," says Mike May, a Jupiter senior analyst. "Calling a winner now is like pointing at the guy in the lead 100 meters into a marathon."

And while the Chicago merchants have a modest head start, the most-feared home improvement retailers, Atlanta-based Home Depot Inc. and North Carolina-based Lowes Cos., have not even begun to sell items online.

Other competition looms, including Seattle's Amazon.com and a handful of lesser-known, pure Internet plays such as California-based cornerhardware.com.

With more than a dozen companies chasing a several-hundred-million-dollar industry, consolidation and fallout are inevitable.

For now, Ourhouse has the longest running start among the local entries, having raised about $115 million in three rounds of financing from venture capital firms including New York's J&W Seligman & Co. and Liberty Digital Inc. An initial public offering (IPO) is likely later this year.

The 'do-it-for-me' crowd "Internet consumers (typically high-income) regard home improvement as an avocation," says Philip Airey, a co-founder and CEO of Ourhouse, and former consultant to Ace with Boston Consulting Group.

And iCastle, which executives claim has raised between $10 million and $15 million from unnamed backers, is staking its fortunes on the "do-it-for-me" consumer looking to hire a contractor.

Michael Toll, who left a job as president of Sears' home-improvement services business to become iCastle's CEO, says his company will catch up with rival Improvenet Inc. The California-based company already has filed for a $30-million IPO, and last year had $2 million in revenues.

And iCastle, which has had only nominal sales to date, scored points recently by persuading the Sears home services unit to become part of its contractor network.

Everyone needs someone Online sales of tools have exceeded expectations since Sears began selling them at www.sears.com in November, says Dennis Honan, vice-president and general manager of Sears Online. So, the retailer went looking for an additional Internet offering. That led to Sears becoming majority owner in a venture to relaunch BobVila.com as an online home-improvement resource offering project guidance, tools for sale and contractor referrals.

Sears says the new venture, to be based in the Boston area, will rely on strategic partnerships — such as potentially linking with a firm like iCastle for contractor referrals.

"No one's going to be able to succeed in this space without good partners," says John Parolisi, director of strategy and partnerships for Sears Online. "For a true solution, no one player has it all."

Another Look at Sears Recent Alliance
 By David Zielenziger, Bloomberg Forum
Mar 9, 2000

Trust, Not Merger, Brings Success, Author Says

New York (Bloomberg) -- Mega-mergers and electronic commerce may be beloved by Wall Street, but they can't replace personal relationships as the key to success, said management expert Jordan D. Lewis. ``There are 30 percent to 50 percent more alliances formed every year, and two-thirds are failing because the companies don't have the skills to build trusting relationships that give you the result that 1 plus 1 is greater than 2,'' he said.

Mergers such as those that created Citigroup Inc., the biggest U.S. financial-services provider, or DaimlerChrysler AG, the German-American automaker, are failures, he told the Bloomberg Forum. Citigroup hasn't meshed its banking and insurance staffs, while Daimler executives have eased out their Chrysler counterparts.

Also doomed to fail, he said: the forthcoming Internet global purchasing alliance between Sears, Roebuck & Co., the second- largest U.S. retailer, and Carrefour SA, France's biggest retailer. ``They are using the Internet as a transaction-aiding device rather than building trusting relationships with others,'' he said.

Jordan, 62, isn't a naysayer. He's consulted for companies like Citigroup, Nortel Networks Inc. and Ford Motor Co. for years. His new book, ``Trusted Partners'' (Free Press, $30) is filled with examples of how rivals created alliances that succeed and make money when people work together.

Hewlett-Packard Co. became the biggest maker of computer printers using laser engines from Canon Inc. of Japan -- without signing a contract. Wal-Mart Stores Inc., the world's largest retailer, created a profitable alliance with Procter & Gamble Co., the No. 1 maker of detergents and cleaners.

Power of Alliances
``The beauty of alliances compared to mergers is that they are subjecting their relationships to the marketplace,'' Lewis said. H-P tells Canon about its product plans, hoping to receive the best laser engines; Canon could sell them to another company.

The Hewlett-Canon alliance is 20 years old and thriving. It even survived a rough patch when H-P wanted to introduce a color laser printer against Canon's wishes, so H-P bought laser engines from Konica Corp.

Takashi Kitamura, Canon's top executive, told H-P, `` `I'd prefer you not go somewhere else, but I certainly understand why you need to,' '' Lewis said. The response was ``universal, a wonderful statement about business, the common humanity of all of us.''

When Wal-Mart complained that Procter & Gamble soaps cost too much, retail managers were invited to their partner's laboratories. After P&G proved how it ``was constantly pushing detergent cleaning power and effectiveness and scientists everywhere,'' Lewis said, the Wal-Mart staff said, ``Now we understand.''

The Fight of Its Life Again
Seattle Times, Ellen Simon, Newhouse News Service
Mar 5, 2000

SEARS, the 114 year-old bastion of American commerce, " must reshape itself once more as the marketplace leaves it behind."

HOFFMAN ESTATES, Ill. - At Sears' gleaming headquarters, the message on the in-house TV channel flickers like a dare: Home Depot founder Bernie Marcus saying he soon expects his company will be No. 1 in appliances.

At Sears, Roebuck & Co., these are fighting words.

In December, Home Depot announced it would sell refrigerators and dishwashers, muscling in where Sears forever has been No. 1. The competition has been so weak that Sears sells more appliances than the next 17 companies combined.

Sears Chief Executive Arthur Martinez has strong words for Marcus' plan. "He and I will be long in the grave by the time they have a chance to do that," Martinez says.

The competition, however, is quite a switch from Sears' history as an undisputed retail ruler. Started when railroads were the country's new technology, Sears saw its sales roar past Montgomery Ward & Co. in 1900 and didn't look back. In the late 1970s, Sears was the second-largest U.S. company, trailing only General Motors. Three of four Americans shopped there, and half read its catalog.

But tough competitors - Target, WalMart, Kohl's and Home Depot - have bruised Sears' market share, Wall Street has hammered its stock, and the once dominant retailer is struggling to adapt. 

The challenges have left Sears once again betting on Martinez, the man credited with rescuing the chain from the brink of bankruptcy when he joined in 1992.

"Everybody is their competition," said Michael Exstein, a retail analyst at Credit Suisse First Boston.

Sears bets less is more
To compete, Martinez has the 114-year-old Sears focusing on its stores. "Our customers tell us we have a crowded and confusing store," Martinez told analysts recently. "We're trying to do too much in our stores: present too many categories and too broad of an assortment. One of our initiatives is to simplify what we do, to do fewer things better and to execute them very well."

Sears is clearing out store aisles to make stores more "shopable," mirroring Kohl's major advantage. All Sears stores will have shopping carts by the end of the year, just like Target, Kohl's and Wal-Mart. Shoppers with carts in mass-merchandise stores buy 7.2 items, compared with 6.1 for those without carts, according to a study by America's Research Group. To make room for the shopping carts, Sears is imposing a 3-foot clearance rule between racks. It's also adding more centralized checkouts, like all the major discount stores.

"You need only walk into a Kohl's store to see how many moms with kids shop that store," Martinez said. "Same with Target. We want a piece of that business."

As Martinez tweaks the business, he's cutting back on store brands, testing 16 new stores with different designs and mixes of merchandise, and beefing up the company's Internet presence, which it expects will be profitable in 2002. Sears changed its advertising last year to focus more on value. The new slogan is "The good life at a great price. Guaranteed."

Sears has had hard times before. In the 1970s, it stumbled trying to sell higher priced, higher-fashion clothes. In the late 1980s and early 1990s, it had become more of a conglomerate than a retailer. Then Martinez jettisoned the non-retail parts of the business, such as Allstate insurance. The turnaround worked for a while, then sputtered.

Battling flat revenues
Martinez must find a revenues, which have remained flat - around $41 billion - for the years, at a time when Wall Street is smitten with growth. Sears was yanked from the Dow Jones industrial average and replaced with Home Depot..

"The demise of Sears for a third time would be a very discouraging thing," said Eric Segal, president and chief operating officer of Kenzer, an executive research firm in New York. "I would hate to see an American institution like that go down."

But Sears is still a player. The company that once sold build-it-yourself houses still sells everything from infant socks to flooring at more than 850 U.S. stores. "They've got the team," said Gary Balter, a retail analyst at Donaldson Lufkin & Jenrette. "They've got the senior management."

Clothing is 'main problem'
Detractors say Sears must fix its clothing departments to flourish.

"At the end of the day, the main problem is still there," said Howard Davidowitz, chairman of Davidowitz & Assoc., a retail consulting firm based in New York. "If it doesn't get fixed in the next year or so, something has to happen. They have to fix the merchandise, period, and they have to get someone who knows how to fix it."

Mark Cohen, Sears' senior vice president in charge of merchandise, has a mixed record: A star at Federated Department Stores, he led Bradlees into bankruptcy by carrying more expensive clothes, exactly the move that got Sears in trouble in the early 1970s.

In Martinez's view, Sears has a strong team in place. It isn't broken.

"People have the perception that we've had a tough couple years," Martinez said. "Every year, our earnings per share has increased. For a couple years, not at the rates we like. We have not been in an earnings slide. While we could have done some things better, we've come through a stall point." 

Gordon's Comments: 
Arthur has forgotten, or perhaps never learned, the very basics of successful management. There are four pillars: MEN (WOMEN), MERCHANDISE, METHODS, & MONEY! The true strength of Sears was always in its people who were imbued with the right image of our once great company. The proper merchandise, priced competitively, presented well, with advertised traffic and transaction producing items, followed secondly. Methods, which sources now find confusing, followed thirdly, and money, lastly.

There are many who feel that Sears lacks experienced and effective top management. Store morale is at a low point and an insider tell us has gotten lower after learning of the huge bonuses paid to Credit, Hoffman Estates, & Automotive, while the Field left wanting! They vitally need someone who knows how to fix the broad spectrum of problems. It appears that Sears does not even have a effective Board of Directors that could influence the direction. Sears should look to its prior strengths and build on them.

Now, Sears is thrashing into another strategy, and one again can not wonder if Arthur will write this horrendous expense of relaying the stores off as "Bad advise"? Arthur needs to look to its people, and improve merchandising and advertising! Could Sears be looking beyond the ill-fated "The Store of the Future", but to the STORE OF THE PAST"? One needs to look at all the lost experienced great people and prior franchises that has allowed competition to grow while Sears stagnates.

Sears Net Plans Give Some the Willies
Salespeople, Vendors Wonder About the Future
By Susan Chandler, Chicago Tribune
Mar 5, 2000

Willy Loman had it rough.

The Arthur Miller character was engulfed in existential angst about the sorry plight of the salesman back in the late 1940s, when many people still bought encyclopedias and pots and pans from door-to-door sellers. Fifty years later, latter-day Lomans routinely handle million-dollar orders. But even in today's strong economy, Willy's worries haven't gone away.

Sears, Roebuck and Co. announced last week it was moving its entire purchasing operation for everything from apparel to paper clips to the Internet, beginning in the next 30 days. That news has some futurists envisioning a time when salesmen become anachronisms.

Purchase orders will be posted electronically on the Internet and a bevy of suppliers will compete in an auction to fill them, driving down prices.

Even so, the people-oriented nature of the retail business may delay--or prevent--the death of the salesman. In this field, the squeezing of suppliers and salespeople will happen slowly, retail experts say, just as new-economy predictions of a "paperless office" and a "checkless society" haven't yet come to pass.

And when cyberspace purchasing becomes commonplace, the experts add, it won't necessarily eliminate the need for the face-to-face relationships with suppliers.

"I don't think that will ever change," said Jay Diamond, president of Halmode, a division of St. Louis-based Kellwood Co. that sells dresses to Sears. "In our business it's very touchy and feely. The buyers like to feel the fabric. It's not like jeans. There are different fabrics and colors every season."

To be sure, the idea of Internet purchasing has increased anxiety levels among some vendors. Many already have seen their profit margins squeezed.

Now they are awaiting word about which vendors will be dropped as part of Sears' campaign to reduce its number of apparel suppliers by 15 percent to 20 percent in 2000.

"We're waiting for the dust to settle," said Alan Bobin, chief executive of the Generra Co. in Seattle, which sells juniors and young men's apparel to Sears.

As vendors await word of their fate from Hoffman Estates, the idea of transacting business on the Internet is something new to worry about. But as the hype over Internet purchasing begins to dissipate, it's becoming clear that Sears will be taking baby steps in moving its complex buying functions to the Web.

The first step is to train Sears' buyers to use the new system, which is having the finishing touches put on it by

Oracle Corp., the database software-maker that is partnering with Sears and French retailer Carrefour SA in a new company called GlobalNetXchange.

Then suppliers have to be brought up to speed. At the top of the list for Sears are large suppliers who already communicate with the retailer electronically through a costly mainframe-based computer system known as electronic data interchange.

Through EDI and related systems, Sears' suppliers receive electronic purchase orders and are able to track inventory levels at the retailer, giving them guidance about which items are selling well and may need to be reordered.

But even a large Sears vendor such as Florsheim Group Inc., which already communicates electronically with customers, including Sears, on 60 to 70 percent of its footwear orders, isn't quite ready to switch to the Internet.

"We don't do the Internet today. We haven't even thought about doing it," said Richard Anglin, Florsheim's co-chief executive officer.

After Sears announced its Internet purchasing initiatives Feb. 28, "Our goal is to have a strategy in place and execute it by the end of the year," Anglin said. "Those that aren't able to support business-to-business in the near future will be lost."

Julian Day, Sears' chief operating officer, admits the transition from EDI to the Internet will be incremental. The simplest change will be moving existing electronic purchase orders to the Web.

"Through time, EDI will go away. But I'm not going to junk those systems tomorrow," Day said.

Another thing that will take time is figuring out how to organize on-line auctions. The plan is for Sears and other retailers to post product specifications on the Internet and then invite qualified suppliers to bid on filling the orders.

An intriguing idea, to be sure. But right now nobody at Sears knows how to set up an on-line auction, Day said.

"As rapidly as we can we will have to come to grips with new things we can do. You'll have to test your way category by category to see how you might use the auction capability. We'll want to do some of that to capture the imagination of everybody who works here," he said.

Even when auctions are up and running, the sales process won't be radically different, predicts Sid Doolittle, a veteran retail consultant with Chicago's McMillan/Doolittle.

Take the case of boys' underwear. There are only about five or six U.S. companies that are large enough to supply the quantities required by a retailer the size of Sears. Probably only two or three of them make underwear that is close to Sears' specifications.

Sears already has been jockeying with those same three suppliers to get the best price and delivery dates, Doolittle said, so an auction wouldn't really change much except to speed up the process.

Sears' Day acknowledges that although auctions are the most eye-catching part of the Internet venture, they will be a small part of Sears' purchasing on the Web.

In fact, retailers can't really hold auctions for branded products because they have to deal directly, in most cases, with the company that holds the trademark.

Still, Day believes the auction process will save a bundle when it comes to procuring more generic things such as copier paper.

"There are thousands of suppliers of that. That is something you could credibly auction. This thing is going to be different category by category."

But will Internet purchasing fundamentally disrupt the balance of power that now exists between buyers and sellers, giving retailers a convincing upper hand?

Few experts think so.

Retailers have become more dependent on their suppliers in recent years for everything from putting price tags on garments to providing trend data and market analysis.

"Retailers and vendors have moved much closer together," said Mark Larson, national partner in charge of the retail industry practice at KPMG, the accounting firm.

The process of identifying hot merchandise that fits with Sears' middle-income focus will always require collaboration between Sears' buyers and manufacturers.

Vendors are even beginning to play a role in reducing shoplifting by incorporating microchip devices in garments as they are being manufactured.

That kind of productive relationship won't be going away, said Generra Co.'s Bobin.

"If it's a strictly mechanized bidding world, then retailers will become their own vendors, and they won't need us," he said. "But right now, we understand each other's needs, the urgency. We must understand what the retailers stand for in the marketplace. It's incumbent on us to help them get there."

Sears Rallies the Troops 
Retailer's 900 Store Managers to Attend Meeting 
By Susan Chandler, Chicago Tribune
Feb 28, 2000

For the top brass at Sears, Roebuck and Co., it's do or die in 2000.

The nation's second-largest retailer has been losing ground for the past three years as aggressive competitors such as Kohl's Corp. and Target have increased their market share among Sears' core middle-income shoppers.

Now it's time to rally the troops.

For the first time in 15 years, Sears will be flying in almost 900 store managers for a field meeting this week at the retailer's sprawling Prairie Stone headquarters in northwest suburban Hoffman Estates.

"It's sort of a sales rally," said Sears spokeswoman Peggy Palter. "But more importantly, they'll be getting information about what our strategy is and what areas they should be focused on."

The troops also will have the rare chance to talk directly to top management about their concerns and what's happening on the front lines in their stores, she said.

But much of their intensive two-day trip will be spent listening. The overarching message: Sales growth is important, but not as important as boosting the bottom line.

"The message is `Let's squeeze a little more out of the orange,'" said Sid Doolittle, a veteran Chicago retail consultant. "The survival issue is boosting shareholders' return on equity."

That was the same theme Chief Executive Arthur Martinez was selling to Wall Street analysts when Sears announced its 1999 results last month. Although Sears' revenue decreased in 1999, profits were up almost 39 percent because of fewer markdowns.

Still, a fatter bottom line hasn't been enough to get Sears' stock price out of the basement. The company's shares are trading around $26 a share, which is down more than 50 percent from its 52-week high of $53.18.

The depressed stock price is expected to be a hot-button issue at the meeting, Sears sources say, because many store managers hold stock options with exercise prices of $40 a share and $60 a share, far above where the stock has been trading.

The store manager group is so large it will be divided into two sessions. The first group will arrive Monday and leave two days later. The second wave will land Thursday.

The expense involved in the mass meeting is considerable, Sears concedes. But Palter said the expense won't be that much greater than what Sears has incurred in other years, when Sears gathered its district general managers, who supervise a number of stores in a region, for an annual strategy session in Hoffman Estates. Then those district general managers would hold regional meetings to pass on the strategic vision.

Sears also is saving money another way, Palter confirmed. Instead of holding its annual chairman's conference at a plush Arizona resort, the April gathering of the top 200 Sears corporate executives will take place in Hoffman Estates.

The savings will be considerable, Palter said, because most attendees live in the Chicago area.

Still, the mass meeting has caught the attention of Sears' retirees, many of whom are still angry over cuts in their company-paid life insurance policies.

The National Association of Sears Retirees has hired an airplane to fly over headquarters with a banner reading, "Sears Unfair to Retirees," for an hour beginning at 7 a.m. Monday, when the first group of store managers is arriving by bus.

The point, according to retiree George O'Hare, is to show the store managers that the life insurance issue isn't going away. Many Sears retirees have cut up their credit cards and stopped shopping at Sears, he said.

Protests & Executive Bonuses, New Option
Feb. 28, 2000

PROTEST 
On Monday, Feb.28th, Sears retirees were at Hoffman Estates to greet the attending South Store Managers at the first meeting of national store management meetings in 15 years and protest our loss of the long promised paid-up retiree life insurance. There was live coverage from two major radio stations in Chicago, one major local TV station and newspaper reporters. The weather was perfect and the airplane was magnificent with the banner "Sears Unfair to Retirees" flying over Hoffman Estates for one hour, 7-8 a.m. The radio reported employees driving into Hoffman Estates were honking their horns and giving the thumbs up sign in support. The store managers found a copy of Straight Talk in their rooms when they returned that evening. Retired and active Sears associates should be very proud of the efforts and support of NARSE personnel.  NARSE is getting outstanding support from reporters at Crain's Chicago Business and Chicago Tribunes writer Susan Chandler. It's very nice to have the media make unbiased reports, particularly in support of Sears retiree families and active associate interest. What was seen and reported must be somewhat embarrassing for Arthur today.

BONUSES 
A number of former colleagues and Sears insiders indicate the bonuses, approved by the Board of Directors, report that checks are now being distributed and are unbelievably and significantly lower for the Field Stores than Hoffman Estates and Credit. It appears, if our reported percentages are reconfirmed, that the Field Stores, depending on local results, have taken a real hit. It is questionable that those attending the will learn the amounts at Martinez's Spring Sales Rallies being held this week in Chicago? Hoffman Estate executives are now in the process of happily receiving their bonus checks. The distribution of Field bonus checks will probably be made by Regional Mgrs. upon their return home. Without any question, based on reports we have received, the Field Stores will be very disappointed in their bonuses. Particularly, it will be in relationship to those received by executives at Hoffman Estates and in Credit. The reported differentials are so great, even though we've received a number of reports, that we are absolutely astounded and rechecking further for their accuracy prior to publishing. It will be interesting what bonus Arthur will receive. It will be a matter of record in the Annual Report. Arthur appears to have a way of taking care of himself!

FIELD UNREST & CONCERNS 
Field unrest may well be outlined in our Sundays transmission of Q&A's for the Spring Sales Rally, where Store Managers even asked the question, " Why are field associates incented based on revenues and profits but sales support associates who do the buying and replenishing incented on turnover?" The question went on further to illuminate concrete problems, by stating, "At many critical times last year, we did not have sufficient goods, especially in hardlines, to cover our ads or 4th quarter needs because of a reluctance on the part of LLR's /MA's to get caught with too much inventory."

NEW STOCK OPTION 
In addition, a new stock option reported at $32 per share is being offered. Distribution is unclear at this time. Many executives expressed concerned about former options, calling them a "joke to our managers" and questioning whether the former ones may be recalled and reissued.

One wonders if Arthur has the courage to adequately answer all the questions in the Q&A? The questions asked are indicative of a real morale problem with many of its executives and rank & file workers!

Kup's Column
Sears Tears
Chicago Sun-Times  -  Feb 27, 2000

Retirees of Sears, Roebuck will gather at the company's headquarters in Hoffman Estates Monday morning to demand the company restore their canceled insurance benefits. The protesters also have arranged a "fly-over" with a plane carrying their message.

Reverse Incentive
By Susan Chandler, Chicago Tribune - Feb 26, 2000 

Most credit card issuers are adding bonus programs in the hot competition to retain profitable customers. Sears, Roebuck and Co. appears to be heading in the other direction.

In recently issued credit card statements, Sears informed customers that on March 31, it will end its Bonus Club program, which provided a 1 percent rebate on credit card purchases in the form of a coupon toward future credit purchases. The bonus didn't kick in until customers had spent $300 on their Sears card.

The change is more complex than it appears. While Sears is dropping the bonus club, it is adding new incentives and rewards for its "premier" cardholders, a new class of card designed to reward Sears' best customers. Those perks, which haven't been announced yet, could include things like special discounts and invitations to events, said a Sears spokeswoman.

Here's the catch: Sears has granted premier status to only 13 million cardholders. That's about one-third of its 38 million active credit accounts. The other two-thirds will have to muddle along without rewards.

Sears Tests New Wheels of Fortune
By Susan Chandler, Chicago Tribune
Feb 24, 2000

In the retail world, where appearances count for a lot, a shopping cart connotes a certain lack of class.

To be sure, those shiny metal, four-wheeled contraptions seem perfectly natural at a Kmart "blue light" special or a sale on potato chips at the local Jewel store.

Yet when it's time to load up on upscale fashions at Marshall Field's or Neiman Marcus, the shopping cart is nowhere to be found. Nor has the lowly cart been welcome at Sears, Roebuck and Co.—until competitor Kohl's Corp. proved its appeal to family shoppers.

Sears, which saw its turnaround story unravel in 1999, has been testing shopping carts in some of its stores in Chicago and New York state since last November. This fall, the Hoffman Estates-based retailer will roll out an expanded cart test in 15 stores in Milwaukee, Indianapolis and Cincinnati, and one in the Spring Hill Mall in far northwest suburban West Dundee.

If the carts stimulate sales, as some consumer research suggests they might, the retail giant that once tried to lure its customers with its "softer side" will be inviting them out for a spin. Still, the move puts Sears in a precarious position: leveraging its improved image as an outlet for fashion apparel against the hope that the convenience of carts will lure new shoppers and entice them to spend more.

Even before the larger test begins, plenty of critics say the cart experiment is ill advised, carrying with it a whiff of desperation. Sears' stores aren't set up for carts, they argue, because of narrow aisles and densely packed merchandise assortments. Moreover, deploying the carts will require Sears to consolidate checkout stations, an expensive and disruptive proposition.

Shopping carts also could hamper chief executive Arthur Martinez's efforts to bring some glamour to the nation's second largest retailer. The shopping cart introduction, critics say, is another sign of Sears' ongoing schizophrenia about whether to be a moderate-priced department store or a discounter.

"They're taking the progress they've made in upgrading their fashion image and putting it in jeopardy," warns Leonard Berry, professor of marketing and director of the Center for Retailing Studies at Texas A&M University. "It will really change the shopping experience in a Sears store, moving it from a department store setting to a discount store setting."

Nevertheless, carts are what shoppers want, Sears says. "It's a customer convenience issue. It's obvious customers love these things, particularly women who shop with children," said Jan Drummond, Sears spokeswoman.

If shoppers at Sears' store in the Spring Hill Mall are any gauge, Sears is on the right track.

"I love them," said Joy Woolf, a South Elgin resident who was shopping last week. "I've been here before when I thought, 'We need a shopping cart.' It's a big store."

Gerald Barnas of Elgin concurs that the carts make Sears "more user friendly."

And MaryAnn Benson of Hampshire says the new carts don't hurt Sears' image in her eyes.

"It lets me know that they know that changes need to be made, even in small ways," she said.

As far as Martinez is concerned, the shopping cart trial run "has been a home run," Sears' Drummond said.

Still, it's a big switch for Martinez, a former Saks Fifth Avenue executive who has spent years trying to make Sears look more like Carson, Pirie Scott and less like Kmart. During a five-year store remodeling campaign, Sears has brought in classier displays, laid down carpeting and introduced new branded lines such as Vanity Fair in lingerie and Nike in footwear.

But Sears' turnaround during the mid-1990s seriously stalled last year. Sales of apparel, which carry higher gross profit margins, were particularly disappointing. Martinez was forced to admit that Sears is losing business to Kohl's, the Menomonee Falls, Wis.-based chain that sells loads of Levis, T-shirts and Nikes to suburban families.

In fact, several of Sears' new initiatives, including the centralized checkout stations, will make it look more like Kohl's than any other retailer. Even the new black shopping carts, which also function as strollers, are almost carbon copies of the ones at Kohl's.

But even if he wanted to Martinez couldn't transform Sears into Kohl's or Target, retail experts agree. Sears' stores carry a broader mix of apparel and hard lines such as appliances and consumer electronics. And its expensive rent in many of the nation's premier shopping malls means Sears' higher overhead will never allow it to consistently match discounters' prices. A brief Sears experiment with "everyday low prices" during the 1980s quickly fizzled.

Sears has little choice now but to change direction, said Sid Doolittle, a veteran retail consultant with Chicago's McMillan/Doolittle. "Why should they chase dinosaurs?" Doolittle said, referring to department stores. "Maybe it's time to go after the guys who are winning. Those are the guys with shopping carts." To be sure, shopping carts and Sears aren't a match made in heaven. About half of Sears' stores are multi-level, requiring shoppers to use escalators. Shopping carts and escalators are a bad combination, retail experts agree, unless a store was designed with carts in mind. Also, the aisles in most Sears stores are too narrow and the merchandise too packed for carts to be easily maneuvered. Sears is addressing those issues in the test markets, Drummond said. As for the escalator problem, Sears' multi-level stores have elevators, she added.

"Customers have said they've found our stores to be cluttered," Drummond noted. That may be true, but redesigning and remodeling a chain of 850 stores is a daunting and extremely expensive proposition that would take years to pull off, critics point out.

Sears isn't the only retailer hoping to imitate Kohl's success. After a promising test in its Orland Park store last fall, Montgomery Ward & Co. is introducing carts into at least 20 of its stores. "They were very well received," said Chuck Knittle, Wards' spokesman. "These carts are very attractive, not like the carts at Treasure Island." Eventually, even upscale retailers may embrace shopping carts, consultant Doolittle is betting.

"I predict that in 25 years, Saks Fifth Avenue will have shopping carts because customers seem to like them. I don't know exactly what they're going to look like, but they're going to look like Saks Fifth Avenue shopping carts." 

Gordon's Comment's: 
When I was managing retail stores, for those customers who wanted to be able to carry proposed purchases around the store, we had shopping baskets stationed at key locations around the store. There was NEVER, in multiple level stores any consideration for shopping carts. Just imagine the effect it may cause on escalators, stairs, in the aisles, and expensive fixturing!

Sears Will Try Out Big Hardware Stores 
Crain's  - Feb 21, 2000

Sears, Roebuck and Co. this summer will start testing a larger hardware store format. At 55,000 square feet, the new format is twice as large as the current Sears Hardware store layout. The Hoffman Estates-based retailer plans to open six of the larger stores by year end, primarily in the Northeast. The stores, fashioned after Sears' Orchard Supply Hardware stores in California, will include a greenhouse, a much larger assortment of garden supplies and a drive-through pickup area. 

A spokesman says the 55,000-square-foot Orchard stores, which Sears bought in 1996, have been more successful than the 25,000-square-foot Sears Hardware stores.

Scoopsville . . .
By Michael Sneed, Sun-Times, Chicago
Feb 18, 2000

I love the story behind the story. Check this one out:

Sneed hears that hours before Sears, Roebuck and Co. decided to pull the plug on an exclusive line of Benetton casual clothing because of its repugnant ads featuring men on Death Row . . . there was a showdown at City Hall.

Sneed is told Ald. Tom Allen (38th) and Ald. Ed Burke (14th), chairman of the city's Finance Committee, threatened to pull the plug on Sears' $13 million TIF redevelopment deal recently adopted by the City Council . . . if Sears didn't pull the plug on its association with Benetton.

* Background: At 10 a.m. Wednesday, the aldermen told Sears reps they were preparing to introduce an ordinance that could lead to the repeal of the redevelopment agreement. Sears will receive $13 million in TIF funds for the new store on State Street.

* Foreground: "Chairman Burke gave us one factor in our consideration of what to do about Benetton," said Tom Nicholson, a Sears spokesman. "There is no doubt about it. We want to maintain a good relationship with the city. But it wasn't the only deciding factor. Our chairman, Art Martinez, had contacted Benetton about his concern over the ads long before one of our customers called to complain."

* Battleground: Burke, a former cop, echoed the anger of FOP chief Bill Nolan over the use of an Illinois Death Row inmate who had killed Jim Doyle, a Chicago police officer, in 1982.

Editor's Note:
Arthur, Is this your final answer ? ? ? 

The Hoffman Estates-based retailer said Wednesday it will stop all sales of Benetton USA merchandise and remove it from the 400 Sears stores that currently sell it.

Only last month, Sears Chief Executive Arthur Martinez told Wall Street analysts he believed Benetton USA could become a "$100 million brand" for Sears.

By objecting to the controversial ad campaign, "We are not taking a stand on capital punishment," said Sears spokesman Tom Nicholson.

"We're objecting to the insensitivity to the victims. Relatives of the victims have written to us and returned their charge cards," he said. Officials of Benetton USA could not be reached for comment.

The Benetton brouhaha could hardly come at a worse time for Sears. The nation's second largest retailer has seen its apparel sales slump as consumers have defected for less-expensive offerings at discounters such as Target.

Sears is in the process of trimming its apparel offerings and lowering prices on some commodity items in an attempt to win back market share.

Taking a stand against Benetton promises to be costly for Sears. Already, the retailer has spent millions of dollars on special store fixtures to showcase the private-label Benetton USA line. Sears also acknowledged that it is violating provisions of a multiyear contract with Benetton USA requiring it to purchase certain amounts of merchandise, Nicholson said.

Benetton, the Italian casual apparel powerhouse known around the world for its knitwear, also has long been known for its shocking ad campaigns, which have included a nun kissing a priest and a dying AIDS victim.

Sears, in fact, was hoping to capture some of Benetton's cachet with young people by creating the Benetton USA line, which was designed by Benetton for Sears and manufactured by a third company in New York.

But a conflict was inevitable, said Sid Doolittle, partner with McMillan/Doolittle, a Chicago retail consulting firm.

"When you're a family supplier, you have to be careful to satisfy the core of your business and not do things to offend people," he said.

"Benetton is not a typical brand. There are other brands they could have pursued that would be much more acceptable to their customers."

That may be true, but Benetton promised, in one fell swoop, to fill an edgy fashion gap in a number of Sears' departments, such as young men's, juniors, boys and girls.

The death row ads, which include interviews with the convicted killers, had nothing to do with the Benetton line at Sears. It was conceived and rolled out for Benetton's United Colors of Benetton stores.

Sears was neither consulted about the campaign nor did it pay for any of the advertising, Nicholson said. But Sears customers made the connection anyway, as Martinez feared.

As soon as Martinez read about the death row campaign in a trade publication in January, he told his lieutenants to contact Benetton and express his serious concern, Nicholson said.

After the campaign was launched and complaint letters began arriving, Martinez felt he had no choice but to pull the merchandise, he said.

Benetton once was a big name in U.S. retailing, with thousands of stores selling its colorful sweaters, skirts and scarves. But aggressive over-expansion hurt the performance of individual stores, and its empire here collapsed in the late 1980s.

Still, the company remained a powerful player in Europe, and its popularity in the U.S. has recovered.

How Sears Fumbled Home Services Biz
Excessive Fees Made Contractors Uncompetitive
By Eddie Baeb, Crains Chicago Business
Feb 14, 2000

``It's a business we were not really anxious to be in, but then we formed this alliance with GE (General Electric) which has turned out to be very successful,'' Bernie Marcus, chairman and co-founder of Home Depot told Reuters before a speech to the Retail Advertising Conference held here.

``We have been rather startled by the amount of merchandise that we have moved out of the stores. The demographics of our customers have indicated to us that in a very short period of time, we will be the No. 1 or 2 server in the appliance business,'' he said.

So far, Atlanta, Ga.-based Home Depot, which is the No. 1 home improvement retailer, has tested selling major appliances in about 50 of its more than 900 stores, analysts estimate.

The national appliance roll-out planned for this summer will be a major one that is accompanied by national advertising, Marcus said.

In its test stores, Home Depot sells General Electric appliances. The retailer had offered Whirlpool Corp. products as well, but in late January, Home Depot confirmed reports that it had stopped ordering that company's appliances.

Marcus said that the home improvement giant was in negotiations with appliance makers other than General Electric, and a supply deal would be announced soon.

``We're negotiating with other brands and we hope to announce this sometime in the near future,'' Marcus said. ``The GE line is so extensive that you could almost cover all bases with it, but we think our customers would like to see another brand.''

Under its current supply arrangement, General Electric delivers appliances directly to Home Depot customers and is also responsible for service.

Shares of Home Depot ended off 2-3/8 at 59 in trade on the New York Stock Exchange.

Medicare Reform Seen As a Long Shot
By Alice Ann Love, Associated Press Writer
Jan 31, 2000

WASHINGTON (AP) via NewsEdge Corporation: With President Clinton and majority Republicans in Congress offering competing plans to improve prescription drug coverage for senior citizens, a compromise bill has a shot this year, albeit a long one.

``There will be a very active debate this year on the issue and whether or not something actually gets enacted depends on how engaged the public gets,'' said John Rother, director of public policy for AARP, the nation's largest organization of older adults.

Political conditions are not ideal for compromise as the political parties try to emphasize their differences before this fall's elections. Yet larger-than-expected budget surpluses have given Republicans some maneuvering room to consider new spending as lawmakers look for accomplishments to tout on the campaign trail.

Democratic pollster Mark Mellman said even younger voters sympathize with older adults' worries about high drug costs. ``The concern is certainly greater among senior citizens, but it's a concern that really does permeate the electorate,'' Mellman said.

Clinton wants to add drug coverage to Medicare as option for all Americans age 65 and older, who would pay about $24 a month for a limited benefit.

``In good conscience, we cannot let another year pass without extending to all seniors the lifeline of affordable prescription drugs,'' Clinton said Thursday in his State of the Union address. Under his plan, the government would contract with the pharmaceutical benefit managers many private health plans use. They negotiate bulk discounts with drug companies and allow consumers to use prescription cards at pharmacies or order by mail.

Republicans say Clinton's approach would waste government dollars replacing the private drug coverage that about two-thirds of senior citizens already have - from former employers, HMOs or supplemental insurance know as Medigap. GOP leaders have promised alternative legislation soon. ``We're working on a responsible plan to make sure senior citizens have access to affordable prescription drugs,'' House Speaker Dennis Hastert announced last week. ``We don't want to jeopardize the good coverage that already exists.'' Hastert said the GOP would focus on helping those who now lack access to or cannot afford private options.

One possibility is a tax credit. A second is a federal block grant to support state programs - already existing in some places - that help low-income senior citizens pay for drugs.

Meanwhile, in the Republican rebuttal to Clinton's speech, Sen. Bill Frist, R-Tenn., said Senate GOP leaders want quick action on legislation that would add prescription drug coverage to Medicare as part of a major overhaul of the program. Under that plan, the government would give Medicare beneficiaries a limited contribution toward the purchase of approved private health plans - a setup similar to federal employees' health benefits. The plans would be required to offer prescription coverage. Although a few moderate Democrats support this approach, party leaders have attacked it as voucher system and the administration has raised concerns it could result in the shift of rising Medicare costs to the elderly.

As lawmakers try to find some common ground, lobbying is expected to be intense. AARP has not endorsed any proposal so far. But the group would prefer drug coverage made available to all senior citizens through Medicare and considers ideas such as tax credits an incomplete solution.

Allied with Republicans are drug and insurance companies that fear government controls and say senior citizens should be empowered to use private options. The Pharmaceutical Research and Manufacturers of America recently pledged to ease off attacks on Clinton's plan. The group still opposes it and is financing an ambitious campaign, including new television ads in which the now famous gray-haired bowler ``Flo'' promotes ``bipartisan solutions,'' like the one Senate GOP leaders favor.

The Health Insurance Association of America last week said the tax credits and state block grants were ``the best approach in the near-term.''

On Clinton's side are prominent consumer groups, including Ralph Nader's Public Citizen and the Consumer's Union, which publishes Consumers Report magazine. They say private drug coverage options available to the elderly are expensive and inadequate and do not give them the advantage of bulk purchasing discounts Medicare would have. ``With prescription prices rising at as much as 15 percent (annually), it's very important to pay attention to what kind of prices people are paying,'' said Consumer's Union health policy director Gail Shearer.

Glimmer of a Turnaround for Sears 4th Quarter 
Profit Jumps, But Revenue is Up Only Slightly
By Susan Chandler, Chicago Tribune
Jan 21, 2000

The bottom line at Sears, Roebuck and Co. received a big boost in the fourth quarter, helped out by fewer markdowns on store merchandise and reduced levels of bad debt at its credit card unit.

Yet overall revenue for the Hoffman Estates-based retailer grew only slightly as the nation's second-largest chain continued to struggle with slower-than-expected sales of women's and men's clothing.

On the bright side, Sears' lucrative credit business continued its turnaround. The retailer added only $175 million to its provision for uncollectable accounts, down 30 percent from $250 million in the same period last year. In addition, Sears wrote off 5.2 percent of its bad debt, down from 6.7 percent last year.

Its freestanding hardware stores also turned in a strong performance, while sales at its handful of Great Indoors home remodeling stores soared.

But those gains were partially offset by a disappointing showing in its Home Services unit, which does appliance repair and home remodeling services. And there was little evidence that consumers have embraced Sears' new value-oriented marketing strategy at its core department stores.

On Thursday, Sears stock closed down $1.69, or 5 percent, at $32.06 per share.

Sears' fourth-quarter net income soared 38.3 percent, to $740 million, or $1.98 a share, from $535 million, or $1.39 a share, in the year-earlier period.

Last year's fourth-quarter results were dragged down by one-time charges related to divestitures of Sears' HomeLife furniture stores and Western Auto unit. Excluding those charges, Sears' fourth-quarter profit was up 29 percent year over year.

However, revenue growth wasn't rosy, as Sears' top line grew only 2.3 percent, to $12.50 billion from $12.22 billion in the year-earlier period.

That reflects weak sales during Christmas. Sears' December sales actually declined 0.6 percent while many other retailers' racked up their best gains in a decade.

But Sears Chief Executive Arthur Martinez said he was satisfied with slower sales as long as profit margins improved.

Analysts congratulated Martinez on the company's improved profit performance, which beat the revised First Call consensus estimate of $1.77 a share.

But analysts agreed there was still much room for improvement.

"It's hard to say much about the numbers. They restored some of the margin they gave up last year, but it doesn't give us really any indication where they are going forward," said Jeffrey Edelman, retail analyst with PaineWebber in New York.

Of particular concern to analysts was Sears' ability to compete with low-priced competitors such as Kohl's Corp. and Target in the apparel area and Home Depot and Lowes Cos. in hardware and appliances.

Martinez said the retailer already was seeing the benefits of its new value-oriented marketing campaign, which touts Sears as the place to find "The Good Life at a Great Price. Guaranteed."

The message is getting across that Sears is competitive with Kohl's on nationally branded products such as Levi jeans, Martinez said.

He said Sears will be imitating Kohl's in an attempt to make its stores easier to shop. "We intend to replicate the ease of shopping they demonstrate, the access, navigation and checkout," Martinez said.

For 2000, Sears should be able to achieve a 10 percent growth in earnings per share, Martinez said.

For 1999, Sears reported net income of $1.45 billion, or $3.81 per fully diluted share, up 38.6 percent from 1.05 billion, or $2.68 per fully diluted share, in 1998.

Revenue for the year decreased 1.2 percent, to $41.07 billion from $41.58 billion last year.

Sears Earnings Rise 38 Percent 
By Dave Carpenter, AP Business Writer
Jan 20, 2000

CHICAGO (AP) -- Sears, Roebuck & Co.'s fourth-quarter profits rose 38 percent from a year ago, benefiting from healthy sales gains at its department stores despite spending less on holiday promotions.

Sears, the nation's second-biggest retailer behind Wal-Mart, cited especially strong sales in appliances and electronics and significant growth at Sears Canada stores. Men's and women's apparel sales, meanwhile, slumped. Improvements in its credit-card business also helped lift profits.

The Hoffman Estates, Ill.-based company reported Thursday that net income for the quarter ended Jan. 1 was $740 million, or $1.98 a share, compared with $535 million, or $1.39 a share, for the same period a year earlier.

The company announced earlier this month that it expected to report earnings that topped Wall Street analysts' estimates of $1.77 a share. Sears stock fell $1 to $32.75 a share in late morning trading on the New York Stock Exchange.

Fourth-quarter revenues edged up 2 percent to $12.5 billion from $12.2 billion a year earlier. Net income for the year was $1.45 billion, or $3.81 a share, compared with $1.05 billion, or $2.68 a share in 1998. Revenues fell 1.2 percent overall in 1999, to $41.1 billion from $41.6 billion.

For Sears, the performance was an upbeat finish to a rocky year. A summer sales slump resulted in a steep drop in third-quarter earnings and led to a management shakeup. Sears, like other mid-priced department store chains, has lost shoppers to higher priced competitors such as Macy's and discount stores such as Wal-Mart and Old Navy.

In a psychological blow, Sears was dropped from the prestigious Dow Jones stock average of 30 leading industrial companies in favor of the fast-growing home improvement chain Home Depot.

In recent months, Sears has taken steps to revamp its business. It is in the process of remodeling its stores and adding more fashionable clothing to its selling floors. During the holiday season, it helped lift profit margins by slashing the number of discount promotions that it offered.

Kurt Barnard, a retail consultant and president of Barnard's Retail Trend Report, called profits for the quarter ``very good'' despite sales that were ``not too overly impressive.'' 

``Their credit business is now doing very well, so they have a combination of good merchandising strategy and a sound credit practice which adds up to good results,'' he said. Sears expects sales to increase ``at a modest rate'' in 2000. Earlier this month, the company predicted about a 20 percent rise in earnings for 2000 thanks to improvements in its credit-card division and in Internet sales.

To:       Corporate Strategic Leadership Team
From:   Jerry Post
Re:       Bob Shamberg Announcement

Effective today, Bob Shamberg has decided to leave his position as Sr. Vice President of Hardware/Lawn and Garden to pursue other interests.

Bob has been a valued and respected member of the Sears team for over 30 years. He has distinguished himself as an innovative and creative marketer as well as an outstanding merchant. His contribution to our company has spanned many years and businesses and those of us who have worked closely with him will certainly miss him.

Please join in thanking Bob and wishing him the very best in the future.

Sears, Roebuck 4th-Qtr Profit Seen at $1.77: 
Earnings Outlook
Hoffman Estates,  - Bloomberg
Jan 18, 2000

Following is a summary of the fourth-quarter earnings forecasts for Sears, Roebuck & Co., the second-largest U.S. retailer behind Wal-Mart Stores Inc. and the biggest department-store chain.

Expected Earnings
Profit is expected to rise to $1.77 a share, the average estimate of analysts polled by First Call/Thomson Financial. On Jan. 4, the company said earnings would beat forecasts by roughly 20 percent, prompting analysts to raise their projections from an average $1.50 a share.

In the year-ago quarter, the company had profit from operations of $572 million, or $1.48 a share, on sales of $12.2 billion. Charges for the sale of Western Auto, accounting changes and other items totaled $37 million, or 9 cents a share, making net income $535 million, or $1.39 a share.

Time
Sears, based in the Chicago suburb of Hoffman Estates, Illinois, is expected to release its results later this week. The retailer doesn't give the specific date, though it typically discloses results on the third Thursday after the quarter's end.

Behind the Numbers
Fewer promotions, higher-than-expected Internet sales and an improved credit-card business lifted profit by a ``high-teen to low-twenty percentage rate'' from per-share results in the year- ago period, Sears said earlier this month.

Same-store sales fell 0.6 percent in December, even as the industry overall enjoyed the biggest holiday sales increases in seven years. Still, Sears made more money on each purchase because it offered fewer steep discounts than last year.

The decline in December sales came after three months of better-than-expected results. Sales at stores open at least a year, an important measure because it excludes the effect of new and closed locations, rose 4.1 percent in September, 4.7 percent in October and 5.9 percent in November.

Sears is trying to revive sales by pushing private labels such as Canyon River Blues jeans and Crossroads women's apparel.

It also ditched its ``Softer Side of Sears'' slogan for ``The Good Life at a Great Price. Guaranteed.'' The new campaign, which started in mid-September, is being used to sell everything from clothes to Kenmore washing machines to Craftsman tools, instead of focusing solely on ``soft'' goods such as clothing.

What the Experts Say ``Promotions are down and gross margins are good,'' said Kurt Barnard, president of Barnard's Retail Trend Report. ``The earnings are going to be better than many people had expected.''

However, some analysts and investors remain concerned about whether the company can resume strong sales increases. ``It remains to be seen how they will maintain the momentum (in profit),'' Barnard said. ``What will they do for an encore? Can they cut out more promotions, and if so, what does that do to sales?''

Previous Market Reaction
Sears shares fell 7/8 to 28 1/8 on Oct. 21, after the company said third-quarter profit from operations fell 11 percent to $265 million, or 69 cents a share, from the year-ago period.

The stock, which was removed from the Dow Jones Industrial Average in November, has lost about a quarter of its value in the past 12 months.

Editor's  Comments: 
Isn't it amazing, that if you take your normal seasonal markdowns in January 2000 rather than in December 1999 and the end of the fiscal year, it improves the 1999 gross profit and resultant net?

Firms Prescribe New Remedies 
for Soaring Health Costs
By Meera Somasundaram, Crains Chicago Business
Jan 17, 2000

ComEd buys 'disease management'

Cost surgeon: Commonwealth Edison Co.'s health and benefits manager, John F.
Diedrich, is devising proactive steps the Chicago utility can take to control medical benefits costs.

With health costs spurting again in spite of managed care and other tourniquets applied in the past, employers are looking at new ways to stop the bleeding.

Radical surgery, such as dropping group medical coverage and letting employees buy their own health insurance, is definitely being considered at many companies, benefits experts say. But simply foisting some or all of the cost increases onto employees is difficult when workforce retention is the top priority.

"Employers can't afford to pass along a huge part of the increase to employees because of the tight labor market," says Linda Ruth, a principal at Lincolnshire benefits consultancy Hewitt Associates LLC.

Between those options, employers are actively looking at ways to clamp down
on cost increases, even if it means spending more money upfront. And they're
taking cost control into their own hands instead of relying on their insurance companies.

For instance, Commonwealth Edison Co. is launching a "disease management"
program in which the unit of Chicago-based Unicom Corp. helps make sure that
employees follow the best treatment regimen prescribed by their doctors.

"We expect to save costs by reducing the frequency of visits to doctors and hospitals, including trips to the emergency room," says John F. Diedrich, director of employee health and benefits at ComEd. "It also reduces productivity costs and improves the person's quality of life by getting the disease under control."

ComEd's voluntary program, administered by Chicago-based CM HealthCare Resources Inc. to avoid privacy issues, works with physicians to prescribe the most efficient treatment methods for chronic illnesses such as asthma and heart disease. Employees and their doctors get financial incentives to participate. ComEd plans to spend $100,000 on the program upfront but hopes to save $500,000 over 18 months.

Exploring defined contribution
When it comes to health care options, some employers are beginning to think that less is more.

Starting this year, the Chicago Public Schools will offer a single health maintenance organization, down from three last year, as a result of sharp price increases.

And Hoffman Estates-based Sears, Roebuck and Co. is considering a cutback in
the number of health plans it offers employees in some cities. "We are going to be taking a look at our benefits, the makeup of our benefit levels, and we'll be looking at the effectiveness," says Lynn Zehnder, director of health and welfare plans at Sears. "We'll also be looking at the number of plans we offer. Do we need to be offering, for example, five plans in one market, or should we be offering one or two plans that put us in a
better negotiating position" with the health plans?

While firms are cutting back on health plans and giving employees incentives to choose the least expensive health maintenance organization, the concept of giving employees an annual sum to pick their own health care & mdash; known as defined contribution & mdash; is a bold step that an increasing number of employers are starting to explore.

In fact, 46% of 103 executives at Fortune 1000 companies said they would be
interested in a defined contribution approach, according to a survey
released in November by New York-based accounting and consulting firm KPMG
LLP.

Locally, Deerfield-based Baxter International Inc. explored the idea of a defined contribution plan last year, but a spokeswoman says Baxter is not currently looking into it.

However, benefits consultants say the defined contribution idea is likely to take off if Congress gives workers the right to sue their health plans. By giving money to employees in lieu of providing group coverage, companies would limit their exposure to malpractice lawsuits.

Not an easy route
However, defined contribution plans pose significant tax implications for employees. While companies can deduct the cost of health insurance, providing the same amount of money directly to employees would increase their taxable income and leave them with fewer after-tax dollars to buy health insurance.

Xerox Corp., for instance, received angry calls from employees after a newspaper report late last year said the Connecticut-based company was planning to give employees $5,000 to $6,000 a year to purchase health insurance instead of itself buying coverage. Xerox has since rescinded the plan.

"It's not going to be an easy route for those employers who (offer defined contribution plans)," says William J. Falk, a principal in human resources consultancy Towers Perrin's Chicago office. "It's difficult for individuals to go out and buy health care coverage at reasonable prices in most local markets."

For now, companies are focusing on strategies that are easier to pursue.

Says ComEd's Mr. Diedrich: "We're taking an active role because, quite frankly, we weren't seeing anything really forthcoming, or proactive steps on the insurance companies' side. It's in our best interest to manage the costs."

Goody's Family Clothing Appoints President and
Special Assistant to the Chairman
Business Wire
Jan 11, 2000

Goody's Family Clothing, Inc., today announced the appointment of Lana Cain
Krauter to the newly created position of President and Special Assistant to the Chairman effective January 10. Ms. Krauter will oversee the areas of Stores, and Marketing and Advertising, and will report to Goody's Chairman and Chief Executive Officer Robert M. Goodfriend.

Lana brings to Goody's a 25-year history of exceptional experience and accomplishments in the retail apparel industry," said Goodfriend. "Her leadership and broad understanding of the business will help Goody's create a singular vision and a strong synergy between store presentation, marketing and merchandising."

Ms. Krauter most recently served as Senior Vice President of Sears Roebuck and Co. where she was responsible for the company's multi-billion dollar women's ready-to-wear, intimate apparel and accessories divisions. Ms. Krauter also managed the Sears import organization and oversaw the development of major proprietary brands in juniors, misses, special sizes and intimate apparel. While at Sears she served on the Chairman's
Strategic Leadership Team and Diversity Advisory Board.

Reporting to Ms. Krauter will be David R. Mullins, Executive Vice President of Stores, and Stanley B. Latacha, Sr. Vice President of Marketing and Advertising. Thomas R. Kelly Jr., Executive Vice President and General Merchandising Manager, will continue reporting to Bob Goodfriend.

Known for its large selection of popular brand merchandise such as Adidas, Alfred Dunner, Arrow, Lee, L.E.I., Levi's and Levi's Dockers, Nike, Sag Harbor and Villager, Goody's is a retailer of moderately priced apparel for women, men and children. Goody's stores offer consumers convenient, one-stop apparel shopping in a bright, friendly, super-specialty store environment.

The Company currently operates 287 stores in the 17 states of Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia.
Editor's Note"
She must have done a great job in fixing Sears' soft line business!!!

The break between Sears, Roebuck and Co. and its retirees has been a painful one. Only a few years ago, the retirees were loyal customers and company boosters who even formed their own social clubs. Sears' executives were often invited to be featured luncheon speakers.

But the amity turned to enmity when Sears retroactively took away company-paid life insurance policies for retirees in 1997. Since then, many of Sears' retirees have become thorns in the company's side, picketing outside stores and its annual meeting.

They certainly aren't shopping at Sears as much, and many cut up their Sears credit cards and mailed them to the board of directors. Now, with its sales sagging, Sears would like to bring them back into the fold.

The retailer has hired an outside consultant to find out from retirees what it would take to bring them back into the Sears family. Tackling that tough job is William Parke, a respected investor relations executive who was laid off by Sears during its downsizing last fall. Parke trekked out to California in mid-December to meet with retirees there. He wanted their reactions to several possible initiatives such as creating a Sears retiree advisory board and increasing the frequency of the company's retiree newsletter, according to those who met with Parke.

One thing Parke said he wasn't empowered to discuss: the life insurance Sears took away.

"He wasn't there to make decisions. He was there to chum the waters and see what we would bite on," said David Micheal Sr., who met with Parke and serves as vice president of the National Association of Retired Sears Employees in Southern California.

Parke's campaign may be short-lived.

The idea of paying a consultant to appease retirees without restoring the insurance benefit irked Everett Buckardt, president of the retiree group. After all, consulting fees were one target of last year's cost-cutting campaign.

Buckardt, the former president of the Sears Catalog, sent a letter to Sears' board complaining about the expense of sending Parke to California when there are "thousands of Sears retirees within 10 miles of his Chicago home."

Parke has since cancelled visits to retirees in Florida. A Sears spokesman said the meetings will be rescheduled.

Sears, Roebuck and Co. has found at least part of the solution to the problems at its retail stores: Make a healthy profit on the goods they sell.

The nation's fourth-largest retailer reported Tuesday that even though its same-store sales skidded 0.6 percent in December, its fourth-quarter earnings could rise as much as 20 percent before special charges. Sears is expected to report its year-end results on Jan. 20.

"Sears is beginning to get it right again," said Kurt Barnard, president of Barnard's Retail Trend Report, and a longtime Sears watcher. "They are finally starting to get things under control," he said.

Even as the stock market took a drubbing Tuesday--the Dow Jones industrial average plunged 359 points--Sears common stock rose $1.50 per share, or 5 percent, to close at $31.56 on the New York Stock Exchange.

"We are seeing improved margin performance in our full-line stores, strong performance in our international and credit businesses, as well as solid results from our cost- containment measures, which more than offset soft performance in our services segment," said Arthur C. Martinez, Sears chairman and chief executive officer. 

Store sales for December fell to $4.523 billion from $4.531 billion, down 0.2 percent. At stores open at least a year, sales were down 0.6 percent--even as other major retailers reported booming sales during the holiday season. For the 48 weeks ended Dec. 31, the company said, sales fell 2 percent, to $28.093 billion from $28.673 billion.

While apparel sales were nothing special, according to Barnard, Sears didn't resort to the heavy discounting that had characterized its fourth quarters in the past two years.

"There is no point in selling merchandise and not making anything on it," said Barnard. Martinez apparently devised a "carefully calculated formula" to protect the margin between what Sears paid for an item and its sales price, Barnard said.

"Martinez is a heck of a good bean counter and a very good manager," said the retailing expert.

He added that Martinez deserves credit for the turnaround engineered since September, when the company warned that earnings would fail to meet Wall Street's expectations.

Martinez confirmed that the company had changed its holiday strategy. "In contrast to last year's high level of promotional activity during the fourth quarter, we adopted a more focused promotional plan in order to deliver stronger margin performance, particularly in our apparel business," said the Sears chief. "Sales were particularly strong in home appliances, electronics, home fashions, fine jewelry, and the infants' and toddlers' category," he said.

Tuesday's announcement suggested that Martinez is focusing on a strategy to
boost store profits, rather than relying primarily on boosting credit card income.

In the early years of Martinez's tenure, Sears made money by ramping up its credit card business. But the easy credit created problems when the company's bad debts soared.

Barnard and other experts said Sears still needs plenty of work. "Sears' apparel sales have really not been very good," said Barnard. Until Sears solves its apparel problem, he said, it can't be considered fixed.

Sears to Charge for Generator Returns 
Reuters, Jan 3, 2000

It usually pays to be prepared, but for consumers who bought power generators from retailer Sears, Roebuck and Co. in anticipation of Year 2000 glitches and want to return them, it will cost a 20 percent restocking fee.

Sears, the second-largest U.S. retailer, said it began notifying customers in October that it would charge a restocking fee for any generators that are returned to the store on or after Jan. 1.

"We started notifying customers when they started buying in early October with signs on the registers as well as notices on their receipts," Sears spokeswoman Peggy Palter said on Monday. "Any generator purchased after signage or notification began will have a 20 percent restocking fee." The prices for Sears generators range from about $400 to $2,000, Palter said.

Because the Year 2000 arrived without any major interruptions caused by the millennium bug, some consumers who bought portable generators and other emergency equipment like lanterns to prepare for trouble are expected to return them.

Other major U.S. retailers such as Bentonville, Ark.-based Wal-Mart Stores Inc., Atlanta-based Home Depot Corp., and Troy, Mich.-based Kmart Corp. are not charging restocking fees on any items, and would follow normal return policies, their spokespersons said.

Another Top Executive Leaves - Byers

To:           Corporate Strategic Leadership Team
From:       Mary Conway
Date:        January 6, 2000
Subject:   Steve Byers

Steve Byers has decided to resign from his position as the Senior Vice President for the Southeast Region, effective today. Steve has accepted a position with Kohl's Department Stores. He came to Sears in August, 1994 as the Senior Region Vice President - North Central Region. He then went to Orchard Hardware, returning to the Full Line Stores in November of 1998 in his current assignment.

Please join me is thanking Steve for his many contributions and in wishing him well in the future.

Editor's Comments: 
Another of Arthur's superstars is leaving the company and abandoning ship to a major competitor. One has to wonder about all his superstars, including Byers, that leave the company after a few short years? 

How many major contributions could this job-jumper have made since 1994? 

We used to look very carefully at management turnover. Low turnover indicates strong, effective management and leadership. 

One can't help but wonder what is the current turnover rate of associates and other executives? If the top executive ranks turnover are a measurement, could it spell morale problems filtering down through the company? Is there a "bench" for qualified personnel in the present Sears with management capabilities left, or must they still continue to hire from the outside?

Used to be that associates went through the chairs and you tracked and promoted them to the highest extent of their capabilities. They were well trained so that when they made the decisions that affected personnel, merchandising, methods, and money, they knew the cause and effect. They stayed with the company and made an investment in Sears and a long time career.

Check out monster.com on the web and you'll see Sears is advertising for management.

The big news out of Sears, Roebuck and Co. on Thursday was that it is developing technology that could one day empower dish-washers and other appliances to e-mail distress calls when they need repair. What a wonderful idea. And if they perfect the technology soon enough, maybe someone can wire it into the office of Chief Executive Arthur Martinez. The dispatch would read something like this: "CEO Martinez, Part No. 1, calls for repair. Spin cycle broken."

Just take a look at Sears' December sales report, and you'll see why Martinez's efforts to spin Sears' financial results work less effectively as time goes on. Martinez had a problem on his hands. As early as Dec. 22, when a Martinez memo told employees sales would fall short of company projections, he knew Sears was facing trouble. A walk through any mall would have told him that Sears was probably alone. The rest of the industry would report a very merry Christmas.

On Tuesday, Martinez did what struggling CEOs have long done. He found a number he liked, and worked it for all it was worth. He declared that profit margins should be the key measure of Sears' December results. Never mind that the rest of the industry always relies on sales. Never mind that the rise of e-tailing has made the raw sales number even more important to Wall Street. Never mind that, when companies distract attention from their sales story, it's always a sign of trouble.

Martinez decided to spin anyway. Sears broke from the retail crowd Tuesday and reported results two days ahead of every other major retailer. "We had a little more complicated story relative to the rest of the industry," a spokeswoman explained, measuring each word like it was a $200-an-ounce truffle. The important number wasn't complicated at all. Same-store sales were down 0.6 percent, sliding from a weak 1998 number. Apparel remained weak, against a fairly good result for home appliances and electronics. The stock jumped $1.50 Tuesday on the "good" news.

Now that the rest of the industry has reported, it's easy to see why Martinez bolted early. Every big retailer but J.C. Penney reported big numbers Thursday, up 7 percent on average. Investors would have clobbered Sears had its number come out amid that happy crowd. They may yet do so. With Sears standing so far apart from the crowd, they'll soon look at the sales shortfall, and at what price Sears paid to pump up its profit margins.

A Sears spokeswoman acknowledged that Sears used short-term markdowns to drive traffic through stores. To retailing experts, the use of short-term sales sounds a warning that there could be some fancy accounting at work. Martinez, a legendary numbers masseur, might be bean-counting his way to a better quarter yet again. 

Permanent markdowns are bad for the bottom line. When companies permanently slash prices, they must register the price change as a loss in their sales reports. Profit margins get hurt. Temporary markdowns are different. If the merchandise sells, it helps Sears' sales number. But if it doesn't, Sears can move the product back to full price, and doesn't have to take a hit on the financial statement. Still, the effect of temporary markdowns is temporary in another, less useful way. Although they briefly help a company report higher margins, they only prolong a final accounting.

Savvy Sears watchers are waiting to see what happens with Sears' margins in the first quarter-when temporary markdowns become permanent, when Sears' big end-of-year inventory finally moves off the shelves. At marked-down prices, most likely.

Martinez is under pressure from investors and his board. This was a make-or-break quarter for him. If the temporary markdowns lead to a January letdown, no amount of spinning will save Martinez from major trouble.

Sears, Roebuck and Co., the nation's second-largest retailer, on Tuesday reported a 0.6 percent decline in same-store sales for December but said fourth-quarter earnings before special items should rise over last year's levels thanks to better margins.

Sears said it expects earnings before non-comparable items to rise at a high-teen to low-20-percent rate over the $1.48 per share posted in year-ago fourth quarter.

The retailer attributed the gains to improved performance at its full-line stores and continuing strength in its credit business.

Based on those current trends, Sears also said it is revising its full-year outlook, expecting an increase at a "high single-digit to low-teen percent rate excluding non-comparable items."

"The business has more earnings power in the current period and the year than we, as well as most of the Street, anticipated an hour ago," Mark Picard, retail industry analyst with Lazard Freres, said.

In response to the earnings preview, Picard said he would raise his fourth quarter estimate to $1.78 a share from his previous estimate of $1.51 a share.

According to First Call/Thomson Financial, which tracks estimates, the consensus estimate from analysts for Sears' fourth quarter is $1.50 a share. For the full year, it is $3.43 a share.

Shares of Sears were up 1-1/16 at 31-1/4 in early trade on the New York Stock Exchange.

For the five weeks ending Jan. 1, 2000, total store sales were $4.52 billion, down 0.2 percent from $4.53 billion previously. Comparable domestic store revenues decreased 0.6 percent, Sears said, giving one of the first indications from a national retailer on how the 1999 holiday season fared.

Picard said Sears' same-store December sales were below the company's expectations, and many Wall Street analysts were looking for the retailer to report flat sales for the month.

"In contrast to last year's high level of promotional activity during the fourth quarter, we adopted a more focused promotional plan in order to deliver stronger margin performance, particularly in our apparel business," said Chairman and Chief Executive Officer Arthur Martinez in a statement. "Throughout the holiday season, we offered customers the values they were looking for on the merchandise they wanted without significantly increasing our marketing or promotional costs. Sales were particularly strong in home appliances, electronics, home fashions, fine jewelry and the infants' and toddlers' category.

Sears also said its Internet sales significantly exceeded its expectations. In September, Sears cut its third-quarter and full-year profit outlook after an aggressive marketing plan failed to boost sales. However, in its third-quarter earnings report, Sears said it saw margin improvement as well as a modest uptick in September retail sales.

Sears operates more than 850 full-line stores and 2,100 specialty stores across the United States, in addition to offering automotive products and related services.