
Bruce Graham, architect of Willis Tower
and John Hancock Center, dies at age 84
By Blair Kamin -
Tribune Critic - Chicago Tribune
March 9, 2010
Bruce Graham, the hard-driving
architect of the WillisTower, once the world’s tallest building, and
the John Hancock Center, the X-braced giant that became a symbol of
Chicago's industrial might, died Saturday at his home in Hobe Sound,
Fla., about 100 miles north of Miami.
He was 84 years old. The cause of
death was complications from Alzheimer’s disease, said his son
George.
At the peak of his influence, from
the 1960s through the 1980s, Graham was the top man at Chicago’s
biggest architectural firm, Skidmore, Owings & Merrill, and had the
ear of the city’s leading business leaders and politicians. From
that power base, he shaped a legacy that suggests the epitaph on the
tomb of Sir Christopher Wren, who is buried in his masterpiece, St.
Paul’s Cathedral in London: “Reader, if you seek his monument, look
around you.”
Besides the Willis (originally Sears)
Tower and the Hancock Center, which bracket the Chicago skyline like
enormous black parentheses, Graham played a major role in designing
such landmark Chicago structures as the Inland Steel Building, Three
First National Plaza, One Magnificent Mile and the 1986 expansion of
McCormick Place.
And Graham’s impact extended beyond individual designs. Though his
name is often linked with the planning for the aborted 1992 Chicago
World’s Fair, he helped produce the visionary Chicago 21 plan of
1973, which led to such improvements as the Museum Campus.
“He was the Burnham of his
generation,” said the Chicago architectural historian Franz Schulze,
referring to the legendary Chicago architect and urban planner
Daniel Burnham.
Graham’s best designs lent a
Chicago-style muscularity to the lean, crisp modernist look brought
to perfection by Ludwig Mies van der Rohe.
Sears Tower and the Hancock Center
became pop icons, their dark, big-boned look featured on everything
from postcards to television news sets. In one measure of its
broad-based appeal, the Hancock was nicknamed “Big John,” after
London’s “Big Ben.”
Reviewing Sears Tower in 1974, the late Tribune architecture critic
Paul Gapp called the skyscraper “a building whose exterior profiles
are a bold, vital and exciting departure from orthodox mediocrity; a
finely engineered piece of sculpture, even if its interior is
largely nondescript in the big-corporation manner.”Graham’s
detractors, who at first included Chicago architect Stanley Tigerman
(the two later became allies), termed Graham a businessman rather
than an artist. Yet few disputed that Graham was the most powerful
Chicago architect of his generation or that he was a leader, along
with the SOM structural engineer Fazlur Khan, in shaping supertall
structures that were unthinkable to old-fashioned architects
wielding T-squares.
Soaring more than a quarter of a mile
into the sky, the 1,451-foot, 110-story Sears Tower epitomized
Graham’s technical prowess. It reigned as the world’s tallest
building from 1973, when construction workers raised a beam
autographed by the late Mayor Richard J. Daley to the top of its
structural framework, to 1996, when it lost its title to the
spire-topped Petronas Twin Towers in Kuala Lumpur, Malaysia. The
Chicago high-rise remains the nation’s tallest building.
Though Graham was slim and had a
kindly, craggy expression, he invariably was described as tough, as
forceful as a steamroller. At SOM, the office credo was: “If you
disagree with Graham, shut up.”
Graham designed corporate
headquarters, universities, hotels and other buildings in London,
Barcelona, Cairo, Guatemala City, Seoul, Los Angeles, Houston,
Boston, Atlanta, Kansas City, Milwaukee, Wichita, Nashville, Tulsa,
Madison, Kalamazoo, Mich. and north suburban Deerfield (the Baxter
Travenol Laboratories). He played a major role in planning for
London’s vast Canary Wharf development.
Yet his most profound influence came
in Chicago, where he sought to express the essence of a pre-high
tech city that still forged steel in the mills along Lake Michigan
and made clothing and other durable goods in the large loft
factories around downtown.
“To my mind, American architecture, born in the Middle West, is an
architecture born of people who know how to make things,” Graham
said in a 1992 video about Chicago’s skyscrapers.
Born on Dec. 1, 1925 in La Cumbre,
Colombia, a small mountain town outside the city of Cali, Columbia,
Graham was the son of a Canadian-born international banker and
Peruvian mother. He grew up in Puerto Rico, where he demonstrated an
early interest in cities, making maps of unchartered slums. Spanish
was his first language.
Graham originally came to the United
States in the 1940s to study engineering. But during a stint in the
Navy from 1943 to 1945, which included a stop at the wartime naval
training center at Navy Pier, he discovered that his real interest
was architecture.
After serving in the South Pacific,
he got his bachelor of architecture degree from the University of
Pennsylvania in 1948. He then journeyed to Chicago, the hometown of
his first wife, and sought out Mies, the master of the
steel-and-glass box.
Mies told him to work for Chicago
architects Holabird, Root and Burgee because they still knew how to
build “permanent buildings,” as opposed to the inexpensive,
temporary buildings put up during the Depression and World War II.
Graham did his apprenticeship at the
Holabird office from 1949 to 1951, then left for the up-and-coming
firm of Skidmore, Owings and Merrill, which was filled with rising
young talents, such as Walter Netsch, who would go on to design the
Chicago Circle campus of the University of Illinois. At SOM, Graham
and Netsch would start a long-running feud.
“Bruce Graham is very tough,” Netsch told the Tribune in a 1981
interview. “Seldom do you find a good guy who is a great architect.”
Graham replied: “If I had wanted to
destroy Walter Netsch, I would have. I could have. As it was, I
encouraged him.”
The two rivals will be forever linked
because they both had a hand in one of SOM’s finest projects, the
Inland Steel Building of 1957 at 30 W. Monroe St. Following the
Depression and World War II, it was the Loop’s first office building
in more than 20 years.
Graham inherited an early plan from
Netsch, who was pulled off the project to work on the U.S. Air Force
Academy campus in Colorado Springs, Colo.
The building turned out to be
path-breaking, its open expanses of office space made possible by
the placement of structural columns on the building’s perimeter and
the consolidation of elevators and other services in an adjoining
service tower. A leader in using silvery stainless steel as a
cladding material, Inland Steel was an aesthetic triumph. The City
of Chicago named it an official landmark in 1998, just forty years
after its completion.
Elevated to design partner at SOM in
1960, Graham enjoyed other successes, such as the Equitable Building
of 1965 at 401 N. Michigan Ave., an olive-colored essay in
structural expressionism.
But Graham’s greatest triumph came in
the 1970 with the completion of the mixed-use Hancock Center, which
housed stores, parking, offices, apartments (now condo-miniums),
an observatory and a bar and restaurant under its 1,127-foot-tall
roof.
Located at 875 N. Michigan, the Hancock was originally conceived as
a separate office building and apartment building. Upon hearing that
the office space would be hard to rent because the site was far from
downtown’s train stations, the project’s original developer, Jerry
Wolman of Philadelphia, reduced the size of the office building and
opted to place apartments on top of it. Graham and Khan did the
rest, combining blue-collar muscle and black-tie elegance in a giant
truncated obelisk.
Unlike earlier skyscrapers, in which
an internal cage of steel carried most of the building’s load, the
Hancock’s exterior columns, beams and X-shaped braces formed a rigid
tube that did most of the heavy lifting and braced the building
against the wind. The arrangement allowed the Hancock to be erected
for the same cost as a conventional 45-story office building. And
the stacked X-braces offered an instantly recognizable skyline
image, quickly silencing detractors who had likened the Hancock to
an oil derrick.
So deeply did the building become
ingrained in the Chicago psyche that, in 1989, Mayor Richard M.
Daley attacked the owner’s plan to fill in the tower’s sunken plaza
and add a three-story retail atrium to its base. “Don’t put a skirt
on Big John,” signs carried by protestors said. The plan was
replaced by a belowground elliptical plaza that allowed the tower’s
monumental synthesis of architecture and engineering to remain
undefiled.
Though the Hancock shattered the fragile scale of the old Michigan
Avenue and its low-rise, Beaux-Arts buildings, it paved the way for
other tall mixed-use buildings, creating a dense, but thriving,
high-rise district. “It really is easy to shop from the Hancock
building, you just go down the elevators and you’re in the shopping
center,” Graham told Betty Blum, who interviewed him in 1997 for the
Art Institute of Chicago’s architects oral history project.
In 1999, the Hancock won the American
Institute of Architects’ prestigious 25-Year Award, which is
annually conferred upon a design of enduring significance that is 25
to 35 years.
Sears Tower offered an even taller
variation on the tube theme, consisting not of a single tube, as at
the Hancock, but nine interlocked tubes that created the world’s
tallest building.
The tower was built for Chicago-based
Sears, Roebuck and Co., then the world’s largest retailer, which
originally had wanted a building of just 60 stories. (It was renamed
the Willis Tower in 2009 in recognition of the British insurance
brokerage company that has office space there.)
As Graham, a smoker, related the
story of Sears Tower’s beginning, he went to lunch with Khan at the
Chicago Club. At the table, he grabbed a handful of cigarettes,
cupped some in his hands and placed a smaller group on top,
demonstrating what came to be called the “bundled tube” concept.
Khan, who is credited with developing the idea, later said that it
“constituted a whole new architectural vocabulary.”
The 75-foot square tubes rose together until two dropped off at the
50th floor, two more stopped at the 66th, and three more at the 90,
leaving only two to rise to a summit that frequently disappears in
low-lying clouds.
The tubes at once delivered column-free office space and created a
lightweight framing system that did not put a financial premium on
height. They also allowed Sears to occupy the tower’s lower floors
while renting the smaller, prestigious upper floors, with their
uninterrupted views, to law firms and other tenants.
The tower brought the world’s tallest building title back to Chicago
from New York, where the Empire State Building had held it for
decades and the World Trade Center had grabbed it briefly in the
early 1970s. And Sears won critical praise, at least initially,
because its strong skyline profile broke out of the straitjacket of
the steel-and-glass crackerbox.
But as time passed, Sears’ luster dimmed. It barren ground-level
plaza was rarely used. Many Sears employees found their new home
antiseptic compared with Sears’ old low-rise headquarters on the
West Side.
“Sears workers used to brag about the
fact that each light in the massive West Side complex was turned off
at night in the spirit of corporate loyalty, but now a computer
turned off the lights,” Donald R. Katz wrote in “The Big Store:
Inside the Crisis and Revolution at Sears.” “Instead of the sound of
children at play after school, a voice came over the intercom
speakers at four o’clock every day to tell you if it was raining
outside, because it was often impossible to tell from inside the
upright city.
The final blow came when the Sears
Merchandise Group left the tower in 1992 for a low-rise office
complex in northwest suburban Hoffman Estates.
Graham rejected the idea that his
design was inhumane. “I don’t care whether people say that or not,
it doesn’t matter,” he told Blum. “The insults that all the big
buildings have had to endure in the past makes me feel good.”
By the time Sears opened, a major
revolt against modernism was underway in American architecture--one
that would shake Graham and SOM’s dominance in Chicago.
With the advent of postmodernism in
the 1970s, architects such as Philip Johnson and Michael Graves
rejected the sterile, steel-and-glass boxes turned out by Mies and
his followers and embraced decoration, whimsy and eclecticism,
epitomized by the scooped-out “Chippendale” top of Johnson’s AT&T
Building in New York City.
Graham responded with tentative
departures from the Miesian mold, such as the slope-roofed 33 W.
Monroe St. of 1980, the first office building with three stacked
atriums.
A more definitive break came in the granite-clad Three First
National Plaza of 1981, located at Dearborn and Madison Streets. Its
sawtooth shape created numerous corner offices. In One Magnificent
Mile, a 1983 trio of towers at 940-980 N. Michigan, Graham recycled
the bundled tube concept of Sears, but dressed the structure in pink
granite.
Yet the Quaker Tower of 1987 (now 321 N. Clark St.) marked a
reversion to boxy steel-and-glass modernism. And the McCormick Place
North expansion of 1986, with its diamond pattern expressing the
building’s concealed truss system, represented “a faint echo” of
Mies’ unbuilt Chicago convention hall project of the 1950s,
according to the American Institute of Architects “Guide to
Chicago.”
If Graham’s architectural influence
was waning by the early 1980s, his urban planning impact was not.
He already had worked with SOM
partner William Hartmann on the Chicago 21 Plan of 1973, which
recommended several major public works that would subsequently
transform Chicago’s lakefront: the rebuilding of once-rundown Navy
Pier into a recreation attraction for families, the straightening of
the notorious Lake Shore Drive “S” curve and the relocation of
another section of the Drive to create the Museum Campus.
The plan, whose name reflected its
desire to prepare Chicago for the 21st Century, was commissioned by
the Chicago Central Area Committee, a powerful group of downtown
business leaders that Graham himself would lead in the mid-1980s.
From 1980 to 1985, Graham was at the
center of another controversial civic undertaking--the planned 1992
Chicago World’s Fair. Business leaders wanted Chicago to recapture
the glory of the great Chicago world’s fairs of 1893 and 1933-34 and
to demonstrate that Chicago was more than another aging Rust Belt
city. Mayor Jane Byrne backed their plans for an extravaganza along
the Near South Side lakefront.
With backing from the city’s business
community, Graham and SOM, aided by Tigerman and other notable
architects, drew up a master plan that included 500 acres of
lakefill and huge exhibition buildings. The new lakefill would have
created an archipelago of islands and lagoons, a proposal that civic
groups had long advocated.
But community activists criticized
the project, calling it a grab by downtown business interests for
resources needed by the neighborhoods. The late Mayor Harold
Washington was too busy fighting the white-ethnic block of aldermen
in “Council Wars” to put much effort into a project started under
Byrne. Illinois House speaker Michael Madigan delivered the final
blow by withholding the state legislature’s financial support.
The fair, which was declared dead in
1985, represented Graham’s last major Chicago undertaking.
In the late 1980s, Graham led SOM’s
master plan for the Canary Wharf docklands area of London. He also
handled the firm’s mix-used Broadgate complex in the same city.
Graham retired from SOM in 1989 and started the firm of Graham and
Graham with his second wife Jane, who died in 2004. “My mother was
an architect in her own right. She was in charge of the interiors
department at SOM,” George Graham said. “My mother was his partner
in more than just a marital sense. When he would design buildings,
they would talk about them and she would critique.”
Graham was a fellow of the American
Institute of Architects and a trustee of the Art Institute of
Chicago, the Museum of Contemporary Art Chicago, Northwestern
Memorial Hospital, the Urban Land Institute, and the University of
Pennsylvania. He was chairman of the university’s board of
overseers.
In his retirement, Graham lived in a
low-slung modern house, set on stilts, in the Florida town of Hobe
Sound. Marshes, pines and palmettos made up his “front yard.”
When a reporter from the Fort Pierce
(Florida) Tribune called on him in 2004, nearly three years after
hijacked jets toppled the twin towers of the World Trade Center in
2001, Graham demonstrated that he had lost none of his fire or
self-assurance.
“If that plane would have hit the
Sears Tower,” he told his visitor, “the plane would have fallen, not
the tower.”
Survivors include his three children: George, of New York City; Lisa
Graham Langlade-Demoyen of Paris; Mara Graham Dworsky of Altadena,
Ca; his sister, Margaret Graham Lewis of Gibson Island, Md.; and six
grandchildren.
A private memorial service will be
held in Hobe Sound, Fla. A memorial service will be held in Chicago,
at a date to be determined.
Posted at 04:54:37 PM
Comments
Fix the headline...He was the
architect of the Sears Tower, later renamed the Willis tower.
BK: The building's name is Willis Tower. I am a journalist who deals
in facts. I am not going to change the facts to suit your
preferences. This is an obituary devoted to an important architect's
career. Let's focus on that and not the name change.
Posted by: No Thanks | March 08, 2010 at 05:05 PM
Bruce Graham didn't design the Willis Tower, he designed the "Sears
Tower" (which it will always be the Sears Tower). Not only did he
design "Buck and Big John", but he helped to transcend the Skyline
of Chicago, and to make it one of the premier architectural centers
of the world. His gift of the "height, modernism and design" that he
provided to Chicago, can never be overlooked, under-appreciated or
never forgotten.
Posted by: kpchitownfan | March 08, 2010 at 05:36 PM
It should be of little concern what name we now call Sears Tower.
What is more significant to me is the effect Mr. Graham had on the
field and practice of architecture. Along with Fazlur Kahn, he
defined a new vocabulary that influenced many great architects who
worked with him. He will be missed. My condolences to his family and
friends.
Posted by: Jon Miller, President - Hedrich Blessing Photographers |
March 08, 2010 at 06:20 PM
He was an amazing talent.
Posted by: Wendy C | March 08, 2010 at 06:25 PM
Bruce Graham designed the SEARS TOWER, not the WIllis Tower. The
difference is subtle, but to claim he desgned the Willis Tower is
factually incorrect.
Posted by: CynicalSuburbanite | March 08, 2010 at 06:32 PM
Yeah . . . . he was a big time operator . . . . .but he ended up
like all the rest of us will.
Posted by: Robert M Kraus | March 08, 2010 at 06:43 PM
I had the honor and pleasure of working for Mr. Graham in the early
90s. He was gruff and direct, but a great man and a true visionary.
He and Mr. Kahn were great partners and produced some of the world's
great architecture. That such a great mind was taken by such a
horrible disease, is truly, a great tragedy.
And yes, it is the SEARS Tower.
Posted by: David L. Fisher | March 08, 2010 at 06:53 PM
BK, while I agree with the rest of the commentors that it is the
Sears Tower...
This was quite an exceptional article and tribute to Mr. Graham.
Well done.
Posted by: JJ | March 08, 2010 at 09:31 PM
I didn't realize Bruce Graham (The name we should remember - not
worrying about a name of a building. Just like when Marshall Fields
changed to Macy's - people were upset but we moved on. yes?)
designed Inland Steel Building! Awesome.
Bruce Graham you will be missed :)
Posted by: Zora Mae | March 08, 2010 at 10:10 PM
BK-
Great column. One error though: the Sears Tower lost its title to
the Petronas in 1998 not 1996.
BK: I'm sorry, but you're wrong. The title changed hands in 1996.
March 08, 2010 at 10:43 PM


Macy’s wrapping
it up on gift-wrapping
By Sandra M. Jones,
Chicago Tribune
March 5, 2010
The legacy of the department store as
an oasis of customer service fell another notch this week when
Macy's Inc. disclosed it is shutting down its gift-wrap department.
The retailer, like most these days,
has been under pressure to cut costs. Staffing stores with clerks to
cut paper and fold ribbons doesn't come cheap.
Department store services have been
fading away for years. So it's no surprise that one more vestige of
the traditional department store is going the way of coat checks,
tea rooms and hair salons.
Still, there is something ironic in
eliminating gift-wrapping in a culture where shoppers, even those on
a budget, are short of time and looking for convenience.
"It's penny-wise, but pound-foolish,"
said Pamela Danziger, president of Unity Marketing, a luxury market
research firm. "It doesn't make sense. In our research, people are
willing to pay extra to get a good presentation. By the time you buy
the ribbons and bags yourself, it's $5 to $10, and you still have to
do the work to wrap it."
Macy's gift-wrap prices range from
$5.95 for a small box to $15.95 for an extra-large box, said Macy's
spokesman Jim Sluzewski. Bridal registry gifts are $7.95 for all
sizes.
Macy's isn't alone. J.C. Penney Co.
used to offer gift-wrap around the holidays but doesn't anymore. It
stopped offering the perk six or seven years ago as a cost-saving
move, said Ann Marie Bishop, spokeswoman for the midtier department
store chain. Lord & Taylor also no longer offers gift-wrap.
On the other hand, Bon-Ton Stores
Inc., a rival midtier department store chain that includes Carson
Pirie Scott, has kept its gift-wrap operation intact, said
spokeswoman Mary Kerr.
As far back as the 1960s, retail
pundits started to worry that department store cost structures
wouldn't be able to support all the perks that made them so
enticing, from no-questions-asked return policies to valet parking.
And indeed, by the 1980s, discount chains, including Target,
Wal-Mart and Kohl's, began to take over the retail landscape,
betting that shoppers would tolerate bare-bones service in order to
get a good price.
One way to get around the expense of
hiring gift-wrappers is to create a box and ribbon that sales clerks
can package at the counter.
Nordstrom Inc., for example, stocks
shiny, silver gift boxes and instructs clerks to wrap purchases
carefully in tissue paper and walk around the front of the counter
to present the finished package to shoppers. The gift box is free.
Even Neiman Marcus keeps it simple,
with a silver box adorned with a bow and a special trinket, such as
a key chain or small picture frame. The standard charge is $7.50,
and for big spenders it's free.
Family-run Von Maur stands out as an
exception. The Midwestern department store chain has been offering
free gift-wrap since 1988 and has a separate gift-wrapping counter
tucked away in a corner of the store, with eight separate choices of
paper.
Macy's has been considering cutting
out its gift-wrap operation for three years, said Sluzewski. The
retailer tested the move in a few places before instituting the
change at its more than 800 stores nationwide with a few exceptions,
including Macy's flagship Chicago store, he said.
Macy's online wedding-registry
service will also start offering engaged couples the option of
asking their guests to send unwrapped gifts, Sluzewski said.
"There has been concern about the
cost structure of department stores for many years, particularly the
labor costs," said Homer Johnson, professor of management at Loyola
University Chicago's school of business administration. "But they
are between a rock and a hard place because their attraction was
that they offered service, whereas the discounters didn't. So if
they cut service, they cut out the very characteristic that made
them attractive."


Opinion Declarations:
What a Disaster Looks Like
ObamaCare will have been a colossal waste of time
—if we're lucky.
By Peggy
Noonan - Wall Street Journal
March 5, 2010
It is now exactly a year since
President Obama unveiled his health care push and his decision to
devote his inaugural year to it—his branding year, his first, vivid
year.
What a disaster it has been.
At best it was a waste of history's
time, a struggle that will not in the end yield something big and
helpful but will in fact make future progress more difficult. At
worst it may prove to have fatally undermined a new presidency at a
time when America desperately needs a successful one. In terms of
policy, his essential mistake was to choose health-care expansion
over health-care reform. This at the exact moment voters were
growing more anxious about the cost and reach of government.
The practical mistake was that he did
not include or envelop congressional Republicans from the outset,
but handed the bill's creation over to a Democratic Congress that
was becoming a runaway train. This at the exact moment Americans
were coming to be concerned that Washington was broken, incapable of
progress, frozen in partisanship.
His political mistakes were myriad
and perhaps can be reduced to this
There are all sorts of harm a new
president can do to his presidency. Right now, part of the job of a
new president in a hypermediaized environment is harm avoidance.
This sounds defensive, and is at odds with the wisdom that
presidents in times of crisis must boldly go forth and break
through. But it all depends on what you're being bold about.
Why, in 2009, create a new crisis
over an important but secondary issue when we already have the Great
Recession and two wars? Prudence and soundness of judgment are more
greatly needed at the moment. New presidents should never, ever,
court any problem that isn't already banging at the door. They
should never summon trouble. Mr. Obama did, boldly, perhaps even
madly. And this is perhaps the oddest thing about No Drama Obama: In
his first year as president he created unneeded political drama, and
wound up seen by many Americans not as the hero but the villain.
In Washington among sympathetic
political hands (actually, most of them sound formerly sympathetic)
you hear the word "intervention," as in: "So-and-so tried an
intervention with the president and it didn't work." So-and-so tried
to tell him he's in trouble with the public and must moderate,
recalibrate, back off from health care. The end of the story is
always that so-and-so got nowhere. David Gergen a few weeks ago told
the Financial Times the administration puts him in mind of the old
joke: "How many psychiatrists does it take to change a lightbulb?
Only one. But the lightbulb must want to change. I don't think
President Obama wants to make any changes."
Sometimes when I look at the past
three chief executives, I wonder if we were witnessing not three
presidencies but three psychodramas played out on an intensely
public stage.
What accounts for Mr. Obama's
confidence and certainty?
Well, if you were a young progressive
who'd won the presidency by a comfortable margin in a center-right
country, you just might think you were a genius. You might not be
surprised to find yourself surrounded by a cultish admiration: "They
see him as a fabled figure," said a frequent White House visitor of
some on the president's staff.
You might think the great strength
you demonstrated during the campaign—an ability to stay in the game
you're playing and not the game someone else is playing, an ability
to proceed undistracted by the crises or the machinations of your
opponents, but to just keep playing your slow and steady game—is a
strength suitable to your presidency. If you choose to play health
care, that's the game you play, straight through, no jeers from the
crowd distracting you. If you were a young progressive who'd won the
presidency against the odds, you probably wouldn't see yourself as
someone who lucked out, with the stars perfectly aligned for a
liberal victory. And you might forget we are more or less and
functionally a 50-50 country, and that you have to keep your finger
very much on the pulse of the people if you're to survive and
prosper.
And now here are two growing problems
for Mr. Obama.
The first hasn't become apparent yet,
but I suspect will be presenting itself, and soon. In order to
sharpen the air of crisis he seems to think he needed to get his
health-care legislation passed, in order to continue the air of
crisis that might justify expanding government and sustaining its
costs, and in order, always, to remind voters of George W. Bush, Mr.
Obama has harped on what a horror the economy is. How great our
challenges, how wicked our businessmen, how dim our future.
This is a delicate business. You
can't be all rosy glow, you have to be candid. But attitude and mood
matter. America has reached the point, a year and a half into the
crisis, when frankly it needs some cheerleading. It can't always be
mourning in America. We need some inspiration from the top, need
someone who can speak with authority of what is working and can be
made to work, of what is good and cause for pride. We are still
employing 130 million people, and America is still competitive in
the world, with innovative business leaders and practices.
The president can't be a hope
purveyor while he's a doom merchant, and he appears to believe he
has to be a doom merchant to justify ramming through his
legislation. This particular legislation is not worth that
particular price.
All this contributes to a second
problem, which is a growing credibility gap. In his speech
Wednesday, demanding an "up or down" vote, the president seemed
convinced and committed—but nothing he said sounded true. His bill
will "bring down the cost of health care for millions," it is "fully
paid for," it will lower the long term deficit by a trillion
dollars.
Does anyone believe this? Does anyone
who knows the ways of government, the compulsions of Congress, and
how history has played out in the past, believe this? Even a little?
Rep. Bart Stupak said Thursday that he and several of his fellow
Democrats won't vote for the Senate version of the bill because it
says right there on page 2,069 that the federal government would
directly subsidize abortions. The bill's proponents say this isn't
so. It would be a relief to have a president who could weigh in
believably and make clear what his own bill says. But he seems to
devote more words to obscuring than clarifying.
The only thing that might make his
assertions sound believable now is if a group of congressional
Republicans were standing next to him on the podium and putting
forward a bill right along with him. Which, obviously, won't happen,
for three reasons. First, they enjoy his discomfort. Second, they
believe the bill is not worth saving, that at this point no matter
what it contains—and at this point most people can no longer retain
in their heads what it contains—it has been fatally tainted by the
past year of mistakes and inadequacies.
And the third reason is that the past
decade has taught them what a disaster looks like, and they've lost
their taste for standing next to one.


President Launches Last Push
on Health-Care Overhaul
By Laura Meckler
and Janet Adamy - The Wall Street Journal
March 4, 2010
President Barack Obama opened the final act of a year-long drama
over health-care legislation Wednesday, calling on Democrats in
Congress to approve the sweeping bill despite political risks and
Republican opposition.
The president vowed to rally
Americans and wavering lawmakers alike. White House aides said a
pair of trips next week will be followed by a stream of public and
private lobbying. The White House wants final votes by month's end.
"At stake right now is not just our
ability to solve this problem, but our ability to solve any
problem," Mr. Obama told a crowd of white-coated doctors and nurses
in the East Room, where a year ago he started the drive for the
legislation.
With polls showing that the
legislation is unpopular and congressional Democrats bracing for big
losses in this fall's elections, the president urged them to ignore
the politics. "I do not know how this plays politically, but I know
it's right," he said. "Let's get it done."
Democrats and the White House are
balancing high risks and rewards. Passing the health overhaul would
fulfill a decades-old Democratic dream, bringing insurance to some
30 million Americans, and represent the greatest expansion of
coverage since Medicare was created in 1965. But if the public
judges the overhaul harshly, it is likely to cost some Democrats
their seats, and the party's majority in the House could be at risk.
The White House argues that, despite
the negative poll numbers, Americans will like the measure if it
becomes law, since the focus then could shift from the legislative
process to the measure's impact. Polling does find stronger support
for the bill's individual provisions than for the package as a
whole.
Mr. Obama Wednesday also highlighted
a handful of Republican ideas used in the legislation. Republicans
dismissed the gesture as insufficient.
"You can't add a couple of Republican
sprinkles on the top of a 2,700-page bill and claim that it's
bipartisan," said House Minority Leader John Boehner (R., Ohio).
Rejecting Republican calls to start
again, the president said that given the "honest and substantial
differences between the parties," there was no point. "Everything
there is to say about health care has been said," he said to
laughter, "and just about everybody has said it."
For the first time, the president
explicitly called on Congress to use a procedural technique that
will let the Senate give its final approval with a simple majority
vote. He didn't use the word for that technique—"reconciliation"—but
characterized the process as a way of calling a simple "up or down
vote" that has been used for big bills before.
Republicans say the reconciliation
process was never intended for such major legislation. "History is
clear: Big legislation always requires big majorities," Senate
Minority Leader Mitch McConnell (R., Ky.) said on the floor
Wednesday.
Democrats need to approve the changes
in the Senate through reconciliation because they no longer have 60
Senate votes necessary to end a standard debate, due to the loss
last month of the Massachusetts seat long held by the late Edward
Kennedy. White House press secretary Robert Gibbs downplayed the
significance of the reconciliation measure, calling it a set of
"technical corrections" to the original Senate measure. The
reconciliation version contains some significant differences from
the Senate bill, including taxes on the wealthy and lower levies on
high-value health-insurance plans.
Under the Democratic plan, the
process would work like this: First, the House would vote on the
bill that the Senate approved in late December. House leaders hope
to pass both that Senate bill, and then the reconciliation package,
by March 17. After that, the Senate would need to pass the
reconciliation bill. By month's end, Democrats hope, the measure
would go to the president to be signed into law.
The final push by Mr. Obama amounts
to a critical test of his powers of persuasion. Democrats could face
a tough decision, balancing the risk of passing potentially
unpopular legislation against the risk of inaction and the stigma of
having labored for more than a year to produce nothing. Democratic
leaders say lawmakers who already voted yes once will be attacked no
matter what, but will be in better shape politically if they have
something to show for it.
White House aides vowed the president
would use all tactics at his disposal to rally support. That
includes speeches around the country, starting with a trip to
Philadelphia on Monday, media interviews and direct communication
with supporters.
He'll also be lobbying lawmakers
directly, aides said, including at a White House reception Wednesday
that includes a half-dozen Democrats who voted no last year and are
being targeted to change their votes.
On Capitol Hill, Democrats have
started writing the formal reconciliation bill and are close to a
final agreement, aides said. They intend to send it to the
Congressional Budget Office for evaluation by the end of the week, a
leadership aide said.
To assure the House that the Senate
actually will pass the reconciliation measure, senators are
considering sending a letter next week with at least 51 senators'
signatures promising action, a Senate leadership aide said.
House leaders face the tougher task
in rallying support. Speaker Nancy Pelosi has said she will be able
to corral the votes, but she hasn't yet secured them. It will
require persuading several Democrats who voted no last year to
change their votes to yes, to make up for supporters who have turned
against the measure or left Congress.
Navigating reconciliation in the
Senate poses its own hurdles. Republicans plan to make a series of
rule-oriented challenges to the process in order to slow it down and
stoke public unease. Republicans "will employ every strategy
possible because we know that this will be a disaster for this
country," said Sen. Orrin Hatch (R., Utah).
Some Democrats say the partisan
rancor the process would generate could drain so much political will
from the Senate that it will make it tough to complete other major
legislation this year. "It would probably bring everything else to a
stop," said Sen. Evan Bayh (D., Ind.).
The reconciliation process prevents
Republicans from blocking the bill using a filibuster. But it
doesn't stop them from introducing an unlimited number of
amendments. Democrats say that, under a worst-case scenario, that
could eat up weeks of time on the floor and force the Senate's
parliamentarian to rule that the amendments weren't offered in good
faith.
Wednesday's address capped two weeks
of intense intervention into the health debate by the president, who
has been criticized for staying too hands-off previously. White
House aides say his steps were needed to propel the bill following
the Massachusetts loss and hope it is enough to move the legislation
over the finish line.


Paul Ryan v. the
President
The Republican dissects ObamaCare's real costs. Democrats stay mute.
By Paul D. Ryan -
Review & Outlook - The Wall Street Journal
March 4, 2010
'Every argument has been made.
Everything that there is to say about health care has been said, and
just about everybody has said it," President Obama declared
yesterday as he urged Democrats to steamroll his plan through
Congress. What hasn't been heard, however, is even a shred of White
House honesty about the true costs of ObamaCare, or its fiscal
consequences.
Nearby, we reprint Wisconsin
Republican Paul Ryan's remarks at the health summit last week, which
methodically dismantle the falsehoods—there is no other way of
putting it—that Mr. Obama has used to sell "reform" and repeated
again yesterday. No one in the political class has even tried to
refute Mr. Ryan's arguments, though he made them directly to the
President and his allies, no doubt because they are irrefutable. If
Democrats are willing to ignore overwhelming public opposition to
ObamaCare and pass it anyway, then what's a trifling dispute over a
couple of trillion dollars?
At his press conference yesterday,
Mr. Obama claimed that "my proposal would bring down the cost of
health care for millions—families, businesses and the federal
government." He said it is "fully paid for" and "brings down our
deficit by up to $1 trillion over the next two decades." Never
before has a vast new entitlement been sold on the basis of fiscal
responsibility, and one reason ObamaCare is so unpopular is that
Americans understand the contradiction between untold new government
subsidies and claims of spending restraint. They know a Big Con when
they hear one.
Mr. Obama's fiscal assertions are
possible only because of the fraudulent accounting and budget
gimmicks that Democrats spent months calibrating. Readers can find
the gory details in Mr. Ryan's pre-emptive rebuttal nearby, though
one of the most egregious deceptions is that the bill counts 10
years of taxes but only six years of spending.
The real cost over a decade is about
$2.3 trillion on paper, Mr. Ryan estimates, and even that is a
lowball estimate considering how many people will flood to "free"
health care and how many businesses will be induced to drop
coverage. Mr. Obama claimed yesterday that the plan will cost "about
$100 billion per year," but in fact the costs ramp up each year the
program exists. The far more likely deficits are $460 billion over
the first 10 years, and $1.4 trillion over the next 10.
What Mr. Ryan calls "probably the
most cynical gimmick" deserves special attention, which is known in
Washington as the "doc fix." Next month Medicare physician payments
are scheduled to be cut by 22% and deeper thereafter, though
Congress is sure to postpone the reductions as it always does.
Failing to account for this inevitability takes nearly a
quarter-trillion dollars off the ObamaCare books and by itself wipes
out the "savings" that the White House continues to take credit for.
Some in the liberal cheering section
now claim that this Medicare ruse isn't Mr. Obama's problem because
it was first promised by Republicans and Bill Clinton in 1997. But
then why did Democrats include the "doc fix" in all early versions
of the bill to buy the support of the American Medical Association,
only to dump this pricey item later when hiding it would make it
easier to fake-reduce the deficit?
The President was (miraculously)
struck dumb by Mr. Ryan's critique, and in his response drifted off
into an irrelevant tangent about Medicare Advantage, while
California Democrat Xavier Becerra claimed "you essentially said you
can't trust the Congressional Budget Office." But Mr. Ryan was
careful to note that he didn't doubt the professionalism of CBO,
only the truthfulness of the Democratic gimmicks that the budget
gnomes are asked to score.
Yesterday Mr. Obama again invoked the
"nonpartisan, independent" authority of CBO, which misses the
reality that if you feed the agency phony premises, you are going to
get phony results at the other end.
The President also claimed the reason
his plan is in trouble, and the reason Democrats must abuse the
Senate's rules to ram this plan into law, is that "many Republicans
in Congress just have a fundamental disagreement over whether we
should have more or less oversight of insurance companies." So most
of Mr. Obama's first year in office has been paralyzed over nothing
more than minor regulatory hair-splitting. This is so preposterous
that the President can't possibly believe it.
Congress's spring break begins on
March 29, and Democratic leaders plan on jamming this monster
through Congress before then. Americans have to hope that enough
rank-and-file Democrats aren't as deaf to fiscal honesty as this
President.


Dissecting the Real Cost
of ObamaCare
By Paul D. Ryan -
Opinion - The Wall Street Journal
March 4, 2010
The following are remarks made by
Congressman Paul Ryan of Wisconsin, the ranking Republican on the
House Budget Committee, about the cost of the House and Senate
health-care bills at President Obama's Blair House summit on health
care, Feb. 25:
Look, we agree on the problem here.
And the problem is health inflation is driving us off of a fiscal
cliff.
Mr. President, you said health-care
reform is budget reform. You're right. We agree with that. Medicare,
right now, has a $38 trillion unfunded liability. That's $38
trillion in empty promises to my parents' generation, our
generation, our kids' generation. Medicaid's growing at 21 percent
each year. It's suffocating states' budgets. It's adding trillions
in obligations that we have no means to pay for . . .
Now, you're right to frame the debate
on cost and health inflation. And in September, when you spoke to us
in the well of the House, you basically said—and I totally agree
with this—I will not sign a plan that adds one dime to our deficits
either now or in the future.
Since the Congressional Budget Office
can't score your bill, because it doesn't have sufficient detail,
but it tracks very similar to the Senate bill, I want to unpack the
Senate score a little bit.
And if you take a look at the CBO
analysis—analysis from your chief actuary—I think it's very
revealing. This bill does not control costs. This bill does not
reduce deficits. Instead, this bill adds a new health-care
entitlement at a time when we have no idea how to pay for the
entitlements we already have.
Now let me go through why I say that.
The majority leader said the bill scores as reducing the deficit
$131 billion over the next 10 years. First, a little bit about CBO.
I work with them every single day—very good people, great
professionals. They do their jobs well. But their job is to score
what is placed in front of them. And what has been placed in front
of them is a bill that is full of gimmicks and smoke-and-mirrors.
Now, what do I mean when I say that?
Well, first off, the bill has 10 years of tax increases, about half
a trillion dollars, with 10 years of Medicare cuts, about half a
trillion dollars, to pay for six years of spending.
Now, what's the true 10-year cost of
this bill in 10 years? That's $2.3 trillion.
[The Senate bill] does [a] couple of
other things. It takes $52 billion in higher Social Security tax
revenues and counts them as offsets. But that's really reserved for
Social Security. So either we're double-counting them or we don't
intend on paying those Social Security benefits.
It takes $72 billion and claims money
from the CLASS Act. That's the long-term care insurance program. It
takes the money from premiums that are designed for that benefit and
instead counts them as offsets.
The Senate Budget Committee chairman
[Kent Conrad] said that this is a Ponzi scheme that would make
Bernie Madoff proud.
Now, when you take a look at the
Medicare cuts, what this bill essentially does [is treat] Medicare
like a piggy bank. It raids a half a trillion dollars out of
Medicare, not to shore up Medicare solvency, but to spend on this
new government program.
. . . [A]ccording to the chief
actuary of Medicare . . . as much as 20 percent of Medicare's
providers will either go out of business or will have to stop seeing
Medicare beneficiaries. Millions of seniors . . . who have chosen
Medicare Advantage will lose the coverage that they now enjoy.
You can't say that you're using this
money to either extend Medicare solvency and also offset the cost of
this new program. That's double counting.
And so when you take a look at all of
this; when you strip out the double-counting and what I would call
these gimmicks, the full 10-year cost of the bill has a $460 billion
deficit. The second 10-year cost of this bill has a $1.4 trillion
deficit.
. . . [P]robably the most cynical
gimmick in this bill is something that we all probably agree on. We
don't think we should cut doctors [annual federal reimbursements] 21
percent next year. We've stopped those cuts from occurring every
year for the last seven years.
We all call this, here in Washington,
the doc fix. Well, the doc fix, according to your numbers, costs
$371 billion. It was in the first iteration of all of these bills,
but because it was a big price tag and it made the score look bad,
made it look like a deficit . . . that provision was taken out, and
it's been going on in stand-alone legislation. But ignoring these
costs does not remove them from the backs of taxpayers. Hiding
spending does not reduce spending. And so when you take a look at
all of this, it just doesn't add up.
. . . I'll finish with the cost
curve. Are we bending the cost curve down or are we bending the cost
curve up?
Well, if you look at your own chief
actuary at Medicare, we're bending it up. He's claiming that we're
going up $222 billion, adding more to the unsustainable fiscal
situation we have.
And so, when you take a look at this,
it's really deeper than the deficits or the budget gimmicks or the
actuarial analysis. There really is a difference between us.
. . . [W]e've been talking about how
much we agree on different issues, but there really is a difference
between us. And it's basically this. We don't think the government
should be in control of all of this. We want people to be in
control. And that, at the end of the day, is the big difference.
Now, we've offered lots of ideas all
last year, all this year. Because we agree the status quo is
unsustainable. It's got to get fixed.
It's bankrupting families. It's
bankrupting our government. It's hurting families with pre-existing
conditions. We all want to fix this.
But we don't think that this is the .
. . the solution. And all of the analysis we get proves that point.
Now, I'll just simply say this. . . .
[W]e are all representatives of the American people. We all do town
hall meetings. We all talk to our constituents. And I've got to tell
you, the American people are engaged. And if you think they want a
government takeover of health care, I would respectfully submit
you're not listening to them.
So what we simply want to do is start
over, work on a clean-sheeted paper, move through these issues, step
by step, and fix them, and bring down health-care costs and not
raise them. And that's basically the point.


Jeep enters Sears store
By Connie Duvall
- Moberly Monitor-Index - Moberly,
Mo.
March 3, 2010
Moberly Police Department Public Information
Officer Commander Kevin Palmatory released the following information
to the Moberly Monitor-Index Wednesday morning about a vehicle being
driven into the local Sears building.
On Wednesday, March 3, about 8:10 am, Moberly Police were dispatched
to the Sears store at 643 North Morley Street in reference to a
vehicle that had struck the building.
The accident occurred when a 1998 Jeep Cherokee, driven by Richard
Hill, 76, of Moberly, was southbound on the parking lot and Hill
started to slow. Hill inadvertently depressed the accelerator pedal
instead of the brake which startled him and he turned the steering
wheel causing his vehicle to cross the sidewalk, strike a propane
tank storage compartment, containing tanks commonly used for
barbecue grills, and continued through the glass store front.
Hill sustained a facial injury from the air bag deploying on his
vehicle, but declined transport for medical attention.
An odor of propane was detected, which was found to be from a
returned tank. As a precaution, Moberly Fire Department personnel
ventilated the area which dissipated the odor quickly, eliminating
the danger of a fire or explosion.
Moberly police were assisted by the Moberly Fire Department,
Randolph County Ambulance District and the Randolph County Sheriff’s
Office.
Cheri Galaske, co-owner of the local Sears, spoke to the Moberly
Monitor-Index Wednesday and said there was product damage at the
front of the building which included front load washers and a lawn
tractor. “The vehicle shifted the support frame of the front of the
building,” says Galaske. She was glad there were no injuries and
says the building will be secured by tonight and they will be open
for business on Thursday.


Sears finally focuses
on retailing
By Laura Heller
- Wallelt Pop.com (blog)
Filed under: Shopping
March 2, 2010
Sears may be allowing brands like Craftsman to be
sold in rival stores, but there's at least one product category
being re-emphasized. And it has nothing to do with a softer side.
Sears is aggressively building its electronics
business, an area that people haven't traditionally associated with
Sears. In fact, according to Karen Austin, president of Sears Home
Electronics, a good number of customers didn't even realize Sears
carried consumer electronics. "We're known for our appliances and
tools," says Austin. "So we launched Sears Blue Electronics Crew in
August (2009) to drive awareness." That campaign used spokesman
Brett Favre during the NFL season to remind people of Sears
participation in the category.
According to Austin, there were a lot of
misperceptions about Sears electronics programs that needed to be
cleared up.
Such as real time price matching, a program that
lets Sears' customers in the stores compare prices at rival
retailers. This eliminates the need to bring in advertisements
touting competitor sale prices. Sales associates will even call
other stores to check prices, says Austin.
"Everything on sale, is on sale at Sears." Sears
reputation, however tarnished, makes building an electronics
business a logical move for the retailer.
Sears is also expanding online. A prototype store
called "mygofer" opened last year in Joliet, Ill., in a former Kmart
store and is letting Sears experiment with and fine tune a virtual
and physical retail experience. Shoppers can order online and pick
up at the store within a very short period of time -- two hours in
many cases.
There are initiatives like TV Matchmaker and
Camera Matchmaker that ask a series of questions and make
suggestions based on a shopper's' answers. There are active
discussion boards with moderators on hand answering questions. Sears
is even using Facebook and Twitter to communicate and connect with
customers.
As old school as Sears may be, online efforts are
a good fit for the retailer. Sears' legacy as a catalog retailer
with an established distribution network make online retailing a
natural extension. According to retail consultant Neil Stern,
programs like TV matchmaker, real-time price matching, online
ordering and in-store pickup, are all natural fits for Sears.
"They're establishing themselves as leaders in e-commerce, which is
a really good place to play," says Stern. "It's the one undeniable
growth area."
Some of the better publicized initiatives, like
selling Craftsman tools at Ace Hardware stores or licensing the Die
Hard name for branded power accessories, are designed to add revenue
to the parent company, Sears Holdings. Letting rival retailers sell
Sears best brands may just give shoppers more reason NOT to go to
Sears stores, but building up these other product categories and
sales programs actually speak to Sears strength as a retailer.


Inside Eddie Lampert's Brain:
His Plan to Make Sears Both Bigger and Smaller
By Mike Duff
- BNET
March 1, 2010
Eddie Lampert says less is more when it comes to
Sears.
The Sears chairman rarely discusses
what he thinks of the country’s fourth-largest retailer, so the
shareholder letter he writes in the annual report is always keenly
awaited. In this year’s version, Lampert makes the case that the
retailer can generate new revenues without big investments as it
pays down debt.
In the letter Lampert describes the
strategy of “creating lasting relationships with customers by
empowering them to manage their lives,” in part by selling a whole
bunch of new or reconfigured goods and services. Among the most
important:
1. Sears’s
international shipping option incorporates a filter that allows
customers to select only the items that are available for shipping
to their selected destinations. It also tallies duties, VAT taxes
and shipping as part of the checkout process, all of which can be
accomplished in a range of currencies. Third-parties work with
Sears, with an outfit called FiftyOne shipping products to Brazil,
for instance.
2. Marketplace adds more products to
the Sears online assortment, and also provides access for other
sellers who cut the retailer in on the money they make via its
website. The Home Furnishings section of Sears.com, for example,
includes products available through UnbeatableSale.com. Click on the
website name and Sears.com provides a rating of the merchant with a
description and information about its return policy. The company
began testing Marketplace in July and has now launched it. (It
didn’t take long for Walmart to announce a similar service.
3.
The expansion that rendered ManageMyHome.com
as ManageMyLife.com remains anchored to ideas that work in and
around the house but extends to areas such as gardening and
electronics. The site provide forums, expert advice and product
manuals, and connects with a wide range of services offered by Sears
and affiliated providers such as home renovation contractors.
In addition, Lampert noted:
We created or expanded marketing programs including ShopYourWay,
“Life. Well spent,” Sears Blue Appliance Crew, Sears Blue
Electronics Crew, Sears Blue Tools Crew and “there’s smart, and
there’s kmart smart.” We grew our online engagement platforms,
MySears.com and MyKmart.com, allowing our customers to interact with
each other and us, and get advice before they buy. We launched the
ShopYourWay Rewards program at Kmart and Sears that will provide
even more value and opportunities for our customers. We also
re-launched a Christmas Club program at Sears and Blue Light
Specials at Kmart to offer more convenience, value, and excitement
for our customers.
What it comes down to, is that Sears
is building new revenue streams directly, by providing services
through its Blue crews, and indirectly, by offering social networks
that tune customers in to its product and service pitches. Even when
one of its retail brands is slated to appear in actual buildings,
Sears won’t be footing the bill for the real estate. That, at least,
is the case with the expansion of Sears Automotive Centers, which
are being offered on a franchise business largely to former car
dealers who were left out in the cold by retrenching in the auto
sector. Developed as independent businesses, these operations could
be sold off or reconstituted with alternative ownership
arrangements.
Finding new ways to generate more
dollars from existing operations is theoretically sound, of course.
The difficulty is to monitor and maintain standards. Yet, by
offering Automotive Center franchises to former car dealerships,
Sears is bringing in partners with expertise and reputations. Also,
the company’s previous work with outside contractors in its home
business provides a framework it can apply to newer operations.
Whether the eventual idea is to sell
the real estate on which Sears sits, or simply to keep costs down,
structuring sales and service functions that act independently of
stores makes sense. But it is tough to manage.
Though the letter was generally
optimistic in tone, Lampert complained about the “reckless expansion
of retail space leading to lower profitability for many retailers
and to low or negative returns on the investment required to expand
space.”
He added, “In other industries,
consolidation rather than expansion has led to a more sensible
competitive environment and better returns for shareholders.” Sears
has been doing its own consolidation, closing 60 stores last year,
with more to come.
In a sense, Lampert is moving in two directions at once, contracting
the number of stores, while expanding their operations. If he gets
it right, Sears will become a more valuable, and less leveraged,
business, and therefore one more likely to fetch a good price when
Lampert’s hedge fund, ESL Investments, eventually puts it — or at
least profitable parts of it — up for sale.
Look for more from the Lampert letter
in future posts.
Tags: Sears Roebuck & Co.,
Eddie Lampert, Retail, Financial Accounting, Automotive, Finance,
Mike Duff
Mike Duff has written about
retail and related fields over 20 years. His work has appeared in
publications as diverse as Retailing Today, Drug Store News,
Supermarket Business, Consumer Digest, MarketingWeek, American Food
a
Voice your 2cents
Web Buzz:
Lampert Bets Sears Brands to Win
Bigger for His Hedge Fund
BNET Retail - 6 days 4 hours 5
minutes ago
So now America has one less reason to go to Sears (SHLD), and maybe
one more reason to try to get into Eddie Lampert’s ESL Hedge Fund.
Sears has struck an agreement that will make its exclusive Craftsman
tool line a little less exclusive. Ace Hardware will beginning
selling the Sears popular private label – among the foremost store
brands...
Craftsman
Tools, as related in this blog yesterday, Eddie Lampert, Sears
Holding (SHLD) chairman, and chairman of the ESL hedge fund that
owns the retailer, looks like he is cashing in assets. In the short
term, the Craftsman deal is likely to dilute the value of the Sears
brand because a bunch of...


With new name, tenants and amenities,
the shine is back on Willis Tower
By: Andrew Schroedter
- Chicago Business
March 01, 2010
Willis Tower was still recovering
from a post-Sept. 11 swoon that pushed its vacancy rate to almost
22% when one of its largest tenants, Ernst & Young, announced in
2008 that it would let its lease expire.
With a tough economy forcing so many
other tenants in the 3.8-million-square-foot building to downsize,
the announcement was the haymaker in a decade-long series of blows
that had stripped the once-iconic skyscraper of its luster.
Still, amid the worst office real
estate market in memory, the tower has mounted an improbable
comeback. With lower rents and investments in attention-grabbing
upgrades that followed a recent refinancing deal, Willis Tower last
year added leases totaling 880,000 square feet with new and existing
tenants — marquee name United Airlines among them — and halved its
vacancy rate to almost 10%. Then, of course, there is the new name.
"It was time for a change," says
Katherine Scott, a managing director at Chicago-based U.S. Equities
Realty LLC, which took over the property's leasing and management
from CB Richard Ellis Inc. in 2007. "In our opinion, the building
needed to wake up."
The question now is, can the
37-year-old edifice at 233 S. Wacker Drive, still known to most
Chicagoans as the Sears Tower, secure its hard-won revival? Given
the rough economy and sleek, new competition around town desperate
for tenants, not everyone is convinced it can.
"They've made some improvements and
done significant leasing," says Christopher Wood, managing director
of the Chicago office of tenant-representation firm UGL Equis. "But
some people are still skeptical."
Since its completion in 1973, the
tower's financial history has been rocky. That was especially true
in the wake of Sept. 11. Recurring fears that the tower was a
terrorist target rocked its reputation in the years that followed,
hurting its ability to charge competitive rents and keep its space
filled.
"People were afraid of being in that
building," says tenant rep David Stein of Chicago-based Steinco Inc.
By mid-2008, there was talk that key
tenants nearing the end of their leases might walk away, leaving
vast portions of the building vacant.
Some have. Ernst & Young US LLP,
whose 387,000-square-foot lease expires in 2012, is moving to a new
tower at 155 N. Wacker.
Luring United and Willis Group
Holdings Ltd., the London-based insurance broker that negotiated the
name change along with its 142,000-square-foot lease, plugged much
of the gap; including those deals, the tower is about 90% leased,
Ms. Scott of U.S. Equities says. That fourth-quarter vacancy rate
easily trumped the overall downtown rate of 16.2%.
Willis has moved 500 employees to the
building, while United, which signed a 15-year lease for up to
450,000 square feet, plans to begin reassigning 2,800 workers there
this fall.
The tower's owners got plenty of help
landing United, including a $25-million city subsidy for the
airline. The fact that the tower's size and vacancies made it one of
the few Loop buildings with enough available space also played a
major role.
"Even at Willis, it was a challenge
putting it all together," says David Matthews, a managing director
at Jones Lang LaSalle Inc., who represented United. "There aren't
six existing options downtown that have 500,000 square feet."
In announcing the move last August,
Glenn Tilton, CEO of United parent UAL Corp., said, "This facility —
both from an economic perspective and a quality-of-work-life
perspective — was the best facility in the running."
The biggest challenge now may be
keeping the tower's momentum alive, says John Huston, an executive
vice-president at Skokie-based American Landmark Properties Ltd.,
which joined New York investors Joseph Chetrit and Joseph Moinian to
buy the building in 2004 for $840 million.
Among the big factors in the
building's headline-grabbing revival are the recent updates to the
103rd-floor Skydeck, as well as plans for an adjacent hotel and a
$350-million project to "green" the building and its operations.
But the biggest factor in its
makeover may be a purely financial one. Willis Tower has slashed
rents, which ran more than $30 per square foot on some upper floors,
tenant reps say. The $14.50-per-square-foot rent that Willis Group
pays, albeit on lower floors, is said to be closer to the new
reality. Ms. Scott of U.S. Equities declines to comment on rents.
The ownership group appears to have
given itself plenty of leeway to make deals. It refinanced its debt
in 2007, before the credit markets froze, securing a $780-million
fixed-rate loan from Swiss bank UBS A.G.
The 10-year mortgage, reportedly at
an interest rate of 6.29%, replaced $825 million in mostly
floating-rate debt that financed the 2004 acquisition but became a
liability as short-term rates began to outstrip long-term ones.
Through the first nine months of last
year, the most recent financials available, Willis Tower had net
operating income of $55.4 million, plenty to cover debt payments of
$31.7 million and capital expenditures of $3 million, according to a
loan report.
On an annualized basis, the
building's net operating income was projected at $73.9 million last
year, which would be an increase of 8.2% from 2008.
Unlike most Loop office buildings,
the tower has significant revenue streams aside from rent. Radio and
television stations pay to put their transmitters on the roof, and
the Skydeck attracts more than 1 million paying visitors annually.
That number could increase this year
thanks to the Ledge, a series of glass bays that allow Skydeck
visitors to look straight down 1,353 feet. Opened in July, the
attraction has generated positive publicity and more foot traffic.
Still, major obstacles loom.
A 228,000-square-foot lease held by
Sonnenschein Nath & Rosenthal LLP expires in 2014. The law firm
hired Jones Lang in 2008 to advise on a possible move. "We are
looking at different options, including continuing to talk to Willis
Tower as well as others," a Sonnenschein spokesman says.
On another front, Mr. Moinian, of the
ownership group, has run into financial trouble with some of his New
York properties. A spokesman for his company, Moinian Group,
referred questions to U.S. Equities and American Landmark. Mr.
Huston, of American Landmark, downplayed the significance, saying
the "ownership structure is solid." Mr. Chetrit did not return calls
seeking comment.
Observers say that trouble pales in
comparison to the two biggest threats the tower faces: stiff
competition from newer skyscrapers such as 155 N. Wacker, which
lured Ernst away, and lingering safety fears.
Nearly a decade after Sept. 11,
tenant reps say, memories of bomb- sniffing dogs in the lobby and
concrete barricades blocking the entrance are too fresh in the minds
of some office-space seekers.
Still, as the tower buffs up its
image, there are signs that the anxiety is fading. OfficeLinks
opened its first location outside New York in the tower last year.
On the 86th floor, the firm subleases designer office space to small
firms, which haven't voiced concerns about safety, says OfficeLinks
General Manager Lori Ziesmer.
"We are past 9/11 for the most part.
It rarely comes up," she says. "If there is a better building in the
city, I would like someone to tell me what it is."
Eddie Baeb contributed.


Women buying
clothes for themselves again
By Sandra M. Jones,
reporter - Chicago Tribune
February 26, 2010
Women’s apparel market slowed its
decline to 3 percent in the fourth quarter from a year ago,
encouraging retailers as spring approaches
Women are starting to buy clothes for
themselves again, an encouraging sign for retailers as spring
approaches.
A new report suggests that women,
middle-income ones in particular, finally are feeling good enough
about the economy that they will splurge on a piece of clothing.
The women's apparel market slowed its
decline to 3 percent in the fourth quarter from a year ago, better
than the 5.1 percent drop in total U.S. apparel sales, according to
NPD Group.
Women's clothing purchases have been
in the doldrums for the past several years as the recession took
hold and family budgets focused on food, car payments, medical bills
and clothing for children.
"For the fashion industry this is a
very important sign," said Marshal Cohen, chief industry analyst at
NPD, a Port Washington, N.Y.-based market research firm.
Women account for more than half of
fashion industry sales — a basket of goods that includes clothing,
shoes and accessories for men, women and children. Women also are
behind the buying decisions for an additional 25 percent of fashion
industry items, according to NPD.
"Without them, a true recovery will
not occur," Cohen said.
For 2009, total U.S. apparel sales
fell 5.2 percent to $188.5 billion, the report said. Women's
clothing made up the bulk of the market and fell 4.9 percent to $104
billion.
Even as consumer spending retreated
last year, there were a few bright spots: Sales of dresses rose 2.3
percent, tights rose 2.4 percent and bras gained 1.1 percent. Sales
of jeans for both men and women were strong as well, rising 3.5
percent.
Sears has designs on West Coast:
Sears Holdings Corp. opened a design office in San Francisco, headed
by newly hired apparel and home chief John Goodman.
The 25,000-square-foot office at 760
Market St. in the historic Phelan Building will focus on
merchandising for Sears and Kmart stores, according to Sears
spokeswoman Kimberly Freely. Sears has yet to determine how many
workers the West Coast outpost will employ, Freely said. Its primary
focus will be on buying and merchandising.
Tara Poseley, a former Gap Inc.
executive who joined the Hoffman Estates-based retailer as president
of Kmart apparel this month, also will be based in that office.
Sears opened its first design studio
in the SoHo neighborhood of New York City in 2006 where it employs
about 200 workers. The center, which focuses on designing Kmart
apparel, will continue to operate under the leadership of Lisa
Schultz, another former Gap executive who is executive vice
president of apparel design at Sears Holdings.
Goodman returned to Sears Holdings in
November in a new role as executive vice president of apparel and
home with the understanding that he would establish a San Francisco
beachhead. The former head of Gap Outlet stores had served as chief
apparel officer of Sears Holdings for a short period after Kmart
bought Sears in March 2005. In May 2005, Goodman took a job as head
of Levi Strauss & Co.'sDockers business and subsequently held CEO
posts at Mervyns LLC and Charlotte Russe Holding Inc.
Both Schultz and Goodman did apparel
stints at Kmart.
Goodman said that "by creating a
presence in California, we will greatly enhance our ability to
attract talent."
Separately, Sears disclosed the
downtown Chicago location for its Kenmore pop-up shop, first
reported in the Tribune on Sunday. The Kenmore Live Studio, a
temporary venue for showcasing the brand's newest products, will
open at 678 N. Wells St. on March 11.


Book Excerpt: Denial at
Sears
By Richard S. Tedlow
- Business Week Online
February 26, 2010
From Denial: Why Business Leaders
Fail to Look Facts in the Face—and What to Do About It, Richard
S. Tedlow tells how the retailer let ego get the best of it
Beware the monument.
Please bear with me for a moment and
read the following short poem that Shelley published in 1818,
entitled Ozymandias:
I met a traveler from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read,
Which yet survive, stamped on these lifeless things,
The hand that mocked them, and the heart that fed.
And on the pedestal these words appear quot;
My name is Ozymandias, King of Kings:
Look on my works, ye Mighty, and despair!"
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.
Ozymandias was a heavy hitter in days
gone by. He built a huge statue of and to himself. If the meaning of
the statue was not clear enough, he had inscribed on the pedestal
that he was such a big shot that "ye [other] Mighty" were reduced to
despairing at his magnificence.
But, look! The ruins of the statue
were all that survived, and it has become nothing more than a
"colossal wreck." Whatever the "works" were that should have caused
despair to the mighty have now disappeared into the sands of time.
Gordon Metcalf became CEO of Sears in
1967. Odds are, he had never read Shelley's poem. "Being the largest
retailer in the world," he said, "we thought we should have the
largest headquarters in the world." So, just as cracks began to
appear in the armor of Sears—despite a seemingly robust bottom line,
some metrics, like return on equity and employee productivity, had
begun to flag—Metcalf decreed that Sears would construct the world's
tallest building. The 110-story Sears Tower, renamed Willis Tower in
2009, came to be known as "Gordon Metcalf's last erection."
On the surface, Metcalf's explanation
for building the Tower seems to make sense. But when you really
think about it, it doesn't. The two clauses have nothing to do with
one another, and the declaration cannot survive one single word:
Why? Why is it that the world's largest retailer should have the
world's largest headquarters?
In 1993, when Intel was experiencing
its spectacular growth, CEO Andy Grove, like the rest of the
company's employees, had not an office but a cubicle. It was tiny.
Fortune, in a clever variant of a classic retail metric, conducted a
return to the shareholders survey that year. It measured return to
the shareholders per square foot of the CEO's office. Grove led the
pack by far, as Intel returned $1.64 per square foot of his cubicle.
It was not apparent that Intel needed
a giant building to celebrate how wonderful it was. Why was it so
obvious at Sears?
Building monuments deserves a file
drawer along with trash talking when you are looking for companies
in denial. I recall interviewing top executives in the Sears Tower
in the summer of 1980. The pictures on their walls were quite
beautiful. I wondered whether the average Sears customer could have
afforded the frames. The furniture was plush. It didn't look like it
came off the floor of a Sears store.
I remember looking out the windows.
The view up Chicago's lakeshore was spectacular. And there was not a
competitor in sight. The people down below looked like ants. Those
ants were supposed to be Sears's customers. Of all industries, it is
most important for a retailer to keep his or her ear to the ground.
The Tower was a symbolic denial of that reality.
The year the Tower was dedicated,
1973, was the first year of the chairmanship of Arthur Wood. Writer
Donald Katz described him as "patrician," "elegant," "the consummate
old-world gentleman-businessman." His opulent office included works
from his private art collection by Degas and Monet.
Wood was unlike Kmart's great
merchant Harry Cunningham. An even bigger problem is that he was the
antithesis of the incomparable Sam Walton.
Just prior to the first oil shock in
1973, retail sales in the United States began to decline in real
terms. Sears's economist (this is prior to the oil shock) felt the
country was looking at a severe recession the following year. A
"senior officer" of the company, according to Katz, told the
economist that if he publicized an official forecast to this effect,
he would be fired. There appears to be a persistent belief in
once-great companies that have lost their way that if you simply
avoid speaking the blunt truth, all the problems will just go away.
It is almost as if by telling the truth, you are endowing problems
with a reality that they would not otherwise have. It is this brand
of magical thinking that leads to shooting the messenger.
Sales in 1974 actually increased
seven percent, which would not have been bad if the company had not
forecast a rise of fifteen. Profits were off almost a quarter, a
dramatically steep slide. Here indeed is the essence of the problem
of denial. Reality is always just around the corner.
Sears wandered in the wilderness amid
intermittent signs of life from 1973 until it was bought by Kmart
owner Eddie Lampert in 2005. The company abandoned its Tower in
1992, a year in which it lost almost $4 billion, and relocated
outside of Chicago to a town called Hoffman Estates. Kmart adopted
Sears's name and the combined company is today called Sears
Holdings.
Sears began to hire consultants in
the 1970s, but they were no more helpful than the homegrown
executives. Sears convinced itself that its market was "saturated."
The way to grow, therefore, was to enter whole new lines of
business. The company bought the real estate franchise Coldwell
Banker and the financial broker Dean Witter. Why the company's CEOs
thought they would do better managing businesses in industries they
did not understand than they would in general merchandise retailing
remains one of life's mysteries.
In fact, there was a fortune to be
made in the very classes of trade in which Sears made its name. We
know this—and everyone at Sears should have known it at the
time—because Wal-Mart's spectacular success was no secret. Sam
Walton had become the richest man in the world. He dressed in a
grass skirt and did the hula on Wall Street itself in 1984 because
Wal-Mart's stock had so outperformed what he had bet it would be.
You had to be wallowing pretty deeply in denial to miss this.
Sears executives should have been
focused on nothing else. Instead, they were playing around with the
"store of the future" and telling themselves they would succeed
selling "socks and stocks."
For the sake of symmetry, we should
note that Walton did not pay much attention to Sears. In his
autobiography, he only mentioned it once, and not very flatteringly.
"One reason Sears fell so far off the pace is that they wouldn't
admit for the longest time that Wal-Mart and Kmart were their real
competition," he wrote. "They ignored both of us, and we both blew
right by them."
It has often been observed there are
no mature markets, only tired marketers. Unfortunately, nobody at
Sears was making that observation, and there is no company which it
described—or which demonstrates the pitfalls of denial—more
perfectly.
Adapted from Denial by Richard S.
Tedlow by arrangement with Portfolio, a member of Penguin Group
(USA), Inc., Copyright © 2010 by Richard S. Tedlow.
Tedlow is the Class of 1949
Professor of Business Administration at Harvard Business School. His
previous books include Andy Grove, Giants of Enterprise, and The
Watson Dynasty.


Kohl's Commands A Lead As An Expansion-Minded Retailer
By Karen Talley
of Dow Jones Newswires
February 26, 2010
NEW YORK --Kohl's Corp. (KSS) is
expanding while its rivals are remodeling stores to get through the
recession.
Kohl's will open 30 stores this year,
as the retailer takes further advantage of real estate opportunities
and while other department stores like J.C. Penney Co. (JCP) and
Wal-Mart Stores Inc. (WMT) use much of the time for refurbishments
in order to please existing customers and hopefully draw in new
ones.
For Kohl's, it's a matter of building
off of success, as its fourth-quarter profit rose 28%, the company
said Thursday.
"Our goal is to gain," said Chief
Executive Kevin Mansell in an interview with Dow Jones Newswires.
"Customers will be choosing a certain number of stores (to shop at
this year) and we're going after market share."
While the same "market share" mantra
was being heard from other retailers this week as they posted
results, virtually all said they planned to make their U.S. stores
more appealing aestetically, not to expand into new locations.
Mansell is not even ruling out moving into some of the 21 sites
Sears Holdings Corp. (SHLD) will leave this spring, as the retailer
has declined to renew leases. Kohl's has taken over abandoned Sears
stores in the past, Mansell said. It all depends on whether it is a
geographic fit with Kohl's existing footprint. Finding the right
place is also a way of keeping the strategy from blowing up as
Kohl's opens locations at a time when consumers still are not doing
a lot of shopping.
Kohl's is also doing very well at
managing to demand, with inventory up about 1% at the end of its
fiscal year that closed on Jan. 1, after being down 10% the year
before as it had, like other retailers, to engage in markdowns to
get rid of the items.
Now, with low inventories, Kohl's is
demonstrating it can meet demand, and with ongoing supply chain
improvements, get fresh merchandise into its 1,058 stores more
quickly, Mansell said.
The retailer is also going after the
Internet and private brands in a big way, with its own lines of
apparel and those of names like skateboarder Tony Hawk. Its private
label and exclusive offerings now account for almost 45% of entire
offerings and will grow in 2010, including a hole-filling hip line
for teen boys, Mansell said.
So far, Kohl's strategy is paying
off. The retailer as of the fourth quarter has passed J.C. Penney to
become the nation's third-largest department store based on sales,
said Craig Johnson, president of Customer Growth Partners, a retail
research firm.
"Perhaps more notably, this year
Kohl's became the nation's largest department store based on
operating earnings," Johnson, said, with operating income of $1.71
billion, exceeding No. 2 Macy's Inc. (M) at $1.06 billion and
once-dominant Sears at $713 million.
Unlike most of its competitors,
Kohl's is pursuing a strategy of holding down costs, providing full
merchandise lines and service that customers want, and driving
demand and traffic by increasing advertising and marketing spending,
Johnson said.
Shares of Kohl's, despite offering
conservative first-quarter guidance, are up 5.1% at $54.19.


Sears to
offer first 3D capable TVs: report
By Chuck Ross
- Chicago Business
February 25, 2010
(Crain’s) — In March the first 3D
capable TV sets will be available in the U.S. through Sears outlets,
the New York Post reports.
The sets will be manufactured by
Samsung, and two models will be available — one 46-inches, one
55-inches.
The 46-inch TV will go for $2,599;
the 55-inch set will be priced at $3,299, the report says.
Glasses will be required to get any
3D effect. And the only 3D programming, initially, will be
exclusively from DVDs.
And those DVDs won't be available
until the spring, the report says, adding that a 3D disc of the hit
movie "Avatar" is expected in November. DirecTV has said it will
have a 3D channel up and running later this year. Also, "ESPN says
it will be ready this summer to broadcast some World Cup soccer
games in the new format," the report says.
(This story originally appeared on
ChicagoBusiness.com’s sister site TVWeek.com.)

Judge Rings Up
Former Kmart CEO For $10M
By Eric Morath
- Dow Jones Newswires
February 25, 2010
There will be no Blue Light Special
discount for former Kmart chief executive Charles Conaway, who was
ordered Thursday to cough up more than $10 million for misleading
statements he allegedly made to investors in the months before the
retailer filed for Chapter 11 protection in 2002.
In a 70-page decision, U.S.
Magistrate Judge Steven Pepe required Conaway to repay a $5 million
loan he received from the company, plus interest and fines, the
Associated Press reported. Last year, a jury found Conaway liable in
a federal civil trial.
The Securities and Exchange
Commission said Conaway hid Kmart’s crumbling finances by failing to
tell investors that the retailer was delaying payments to suppliers
in order to stock pile cash.
The charges mainly stemmed from
Conaway’s call with Wall Street analysts in November 2001 and the
company’s quarterly filing with regulators.
In that call, Conaway reported
sliding sales but did not disclose the changed vendor payment policy
or an ill-timed purchase of $800 million in merchandise. In court,
Conaway said that it never crossed his mind that he was withholding
critical information.
Investors’ negative reaction to the
quarterly report “would have been significantly worse” had Conaway
made disclosures about “the magnitude of the liquidity crisis
including its extensive slow-pay systems,” the judge wrote.
Pepe denied the SEC’s request to bar
Conway from serving as an officer at another public company, saying
the fines and damage to his reputation were deterrent enough from
committing future violations.
Conway was forced out of Kmart as the
company emerged from bankruptcy protection in 2003 under the control
of investor Edward Lampert. The following year Kmart merged with
Sears, Roebuck and Co., creating Sears Holdings Corp.


Wal-Mart Sets
Plan To Cut Gas Emissions
By Miguel
Bustillo - Dow Jones Newswires
February 25, 2010
Wal-Mart Stores Inc. said it plans to
cut 20 million metric tons of greenhouse-gas emissions by 2015.
However, Wal-Mart will make its
suppliers do the dirty work of reducing the carbon footprints of
their global supply chains.
The retailer has a separate effort to
reduce energy use and cut the environmental impact of its 8,400
stores world-wide.
The pledge, equivalent to taking more
than 3.8 million cars off the road by the company's estimate, comes
after Wal-Mart last year unveiled a plan to reduce the overall
environmental impact of products it sells.
Wal-Mart stated that it will now
select the product it sells in part by judging whether manufacturers
are on board with its green initiatives, suggesting that those who
are not will have an increasingly hard time getting products on
shelves. But company executives downplayed any friction Thursday,
arguing that the goals could be achieved without burdening business
partners.
"Reducing carbon in the life cycle of
our products will often mean reducing energy use," Chief Executive
Mike Duke said in a webcast with Fred Krupp, head of the
Environmental Defense Fund, which helped develop the plan.
"That will mean greater efficiency,
and with the rising cost of energy, lower costs, making our business
stronger."
Wal-Mart, based in Bentonville, Ark.,
didn't estimate the total carbon footprint of its far-reaching
global supply chain. and conceded that the reductions wouldn't
dramatically curtail its current overall contribution to the
heat-trapping gases many scientists have linked to climate change.
Instead, the company estimated that the reduction of 20 metric tons
would be one and a half times the anticipated growth of its global
carbon footprint during the next five years.
The 20 million metric tons represents
the amount of greenhouse gases the products would release over their
entire life, it said.
To check whether reduction claims are
legitimate, Wal-Mart said it is asking measuring expert ClearCarbon
Inc. and auditor PricewaterhouseCoopers LLC to verify the claims.


Sears's Lampert Is
Feeling Testy
Despite Profit, Chairman Vents on Amazon,
Taxes, And 'Simplistic' Analysis
By
Michael Corkery - Deal Journal - Breaking Insight
WSJ.com
February 24. 2010
Your company reports better-than-expected results
for the fourth quarter, as profits jumped and the Internet business
began to gain traction. It's "Going to Disney World" time, right?
Not if you listen to Sears Holdings Chairman Edward
Lampert, for whom the sun is setting on the U.S. economy and
entrepreneurial spirit.
Mr. Lampert penned a 13-page shareholder letter to
accompany the company's fourth-quarter earnings where, after
praising the company's progress, opined on how the government is
unnecessarily interfering with the free markets by proposing to
regulate the financial system:
"Self-regulation is a better idea and it is a better
choice, whether for an individual or a corporation. Any corporation
can choose to limit or make investments, increase or decrease
compensation, and manage risk at different levels. Companies can
compete by promoting their 'safety and soundness' or by their
'willingness to take risks.'"
Here are more of Mr. Lampert's pet peeves:
The echo chamber: "Business leaders, regulators,
public officials and journalists have become an echo chamber of
self-support and self-congratulation. … Their words and their
actions are often self-serving (whether right or wrong)..."
On Amazon.com and sales taxes: "If state and local
governments are going to require retailers like Sears and Kmart to
collect sales taxes and not retailers like Amazon.com, they should
recognize that over time their sales tax base will erode
significantly and that they place companies who have chosen to
locate stores locally at a competitive disadvantage."
Credit raters and "simplistic" analysis: "When we
inquire why our ratings are not higher than some competitors with
credit metrics that are weaker than ours, one factor cited is that
some analysts prefer their business models. Meanwhile, we have a
higher market capitalization and less debt than many of these
competitors. We increased our earnings, while many others have seen
their earnings decline. We have a diversified business portfolio and
a significant revenue base and scale."


Sears Posts Profit Jump
By Karen
Talley & Nathan Becker - Wall Street Journal
April 24, 2010
Sears Holdings Corp.'s fiscal-fourth-quarter
earnings more than doubled compared with a year earlier, when it
took $336 million in write-downs, as cost cutting and fewer
markdowns offset flat sales.
Sears Chairman Edward Lampert said earnings without
items had risen more than $200 million over 2008. "While this may be
surprising to some, it isn't to me," Mr. Lampert wrote in his annual
letter to stockholders, citing the diversity of Sears businesses and
brands.
For the quarter ended Jan. 30, Sears reported a
profit of $430 million, or $3.74 a share, up from $190 million, or
$1.55, a year earlier. Excluding items such as the year-earlier
write-downs, per-share earnings rose to $3.69 from $2.94.
The company in January had forecast per-share profit
of $3.36 to $4.06 but clarified Tuesday that the outlook had
excluded any store closings or hedge gains or losses, which amounted
to 25 cents a share.
Revenue declined 0.2% to $13.25 billion. Analysts
polled by Thomson Reuters had recently forecast $12.9 billion in
revenue. Same-store sales declined 2.5% overall, dropping 6.1% at
Sears while rising 1.7% at Kmart. Sears said it expects a $7 million
charge for first-half store closings.


Home Depot Undergoes
Renovation
Chain Retools Business Practices After Lowe's Chips Away at Market
Share
By Miguel
Bustillo - Wall Street Journal
February 24, 2010
Home Depot Inc. is regaining momentum
after belatedly tackling its biggest fix-it task to date: remodeling
itself.
The world's largest home improvement
chain—which on Tuesday reported its first rise in sales at stores
open at least a year since 2006—is redesigning the way it ships
merchandise to stores, answers customers' questions, and showcases
its wares on the Internet.
The goal is to improve productivity
and expand profits by revamping a slew of business practices that
never changed during the company's mushrooming growth in the 1980s
and 1990s, and that look primitive compared to current trends in
retailing.
The most dramatic change is that Home
Depot is phasing out the antiquated practice of having suppliers
send dozens of half-empty trucks directly to its more than 2,200
stores.
A network of "rapid deployment"
warehouse centers being completed this year will combine shipments,
trim costs and cut truck trips to stores by up to 50%. That will let
more of Home Depot's orange-apron-wearing workers shift from
shipping docks to store aisles, in hopes of tackling a festering
reputation for bad service.
"We realized we were dissatisfying a
fair number of our customers," said Chief Executive Frank Blake in
an interview, adding that he believes the company has found "the
path to fix it."
Wall Street's big question is why it
has taken Home Depot, which until recently had lost market share to
rival Lowe's Cos. for years, so long to hammer flaws in its
foundation.
"It's fair to say we took our eye off
the ball," said Chief Merchandising Officer Craig Menear.
Mr. Blake, a former Deputy Energy
Secretary under George W. Bush who fell into the chief executive
position three years ago following the ouster of predecessor Robert
Nardelli, tries to accentuate the positive, arguing that a
"late-mover" advantage will allow Home Depot to avoid the costly
mistakes that other retailers made modernizing operations.
Lowe's, which reported a 27% jump in
fourth-quarter earnings Monday, has seen its stock double in the
past decade, whereas Atlanta-based Home Depot saw its shares lose
half their value over the same period. Lowe's Chief Executive Robert
Niblock said the company was confident its supply chain would
continue to give it a competitive edge.
"We have a sophisticated distribution
network that has better capabilities than what Depot is putting in,"
Mr. Niblock said. Lowe's is based in Mooresville, N.C.
Home Depot executives concede that
the company's supply chain still won't be state of the art after the
upgrade, though it will be a big step forward.
Analysts believe Home Depot will
struggle to regain all the business it ceded to Lowe's, due in part
to a lingering reputation for lousy service that sprung up during
Mr. Nardelli's reign as the retailer slashed full-time jobs.
Mr. Nardelli, now an adviser at
Cerberus Capital Management LP, declined comment, citing terms of
his separation from Home Depot.
Some analysts say Home Depot may be
poised to reap more benefits when the housing market bounces back.
Home Depot reported a profit of $342 million, or 20 cents a share,
for the quarter ended Jan. 31, compared to a loss of $54 million, or
three cents a share, the year before.
"That's pretty impressive when you
considered how mismanaged they have been," said Gary Balter of
Credit Suisse Group.
To tackle the perception that Home
Depot workers are always too busy to help customers, the company is
spending $60 million on hand-held devices that will help workers
check on the spot if something is in stock. Marvin Ellison, a former
Target Corp. executive who is Home Depot's executive vice president
of U.S. stores, conceded there was no good reason it took so long to
devise the devices, which replace consoles resembling EKG heart
machines that workers would constantly leave customers to go use.
The important thing, he said, is that
progress is being made: Home Depot said its internal customer rating
scores have shown improvement for 14 straight months.
Some consumers remain skeptical.
Mitch Ross, a network engineer and former home builder in
Richardson, Texas, said he wished customer service were better at
Home Depot, because it is closer to his home than Lowe's.
"I have no ax to grind one way or
another, but I find that shopping at Lowe's is much more pleasant,"
he said. "Both have cut back on the number of customer service
people, but for some reason Lowe's people go out of their way to
help. I have a hard time finding anyone at Home Depot."
Home Depot's Mr. Ellison said that it
"takes time to change any retail environment, but if you look now
compared to two years ago, it is a huge difference."
Communication was also a problem at
Home Depot. Mr. Ellison said he was stunned to discover that store
managers were drowning in hundreds of emails from headquarters.
So Mr. Ellison says he cut it to one
email a week, on Monday, and set up a hotline for managers to
complain if the edict is violated. In addition to its supply chain
fixes, Home Depot is waking up to the Internet.
Chief Financial Officer Carol Tome
said she was embarrassed that Amazon.com Inc. sold more drills
online than Home Depot, which initially operated its Web site as a
separate business that, by design, sold Xbox videogame consoles and
other items not found in stores.
Now the company is building a site
that not only sells what stores do, but features do-it-yourself
videos to help customers with projects. "We're now building a site
that fixes people's problems," Home Depot online president Hal
Lawton said.
—Ann Zimmerman contributed to this
article


Sears
Holdings delivers its best profit in 3 years
By Sandra M. Jones,
reporter - Chicago Tribune
February 24, 2010
Sears Holdings Corp. posted its best
quarterly profit in three years, fueled by improved sales at Kmart
and cost cuts.
The owner of Sears and Kmart earned
$430 million, or $3.74 a share, during its fiscal fourth quarter.
That's more than double the profit of $190 million, or $1.55 a
share, during the same period last year. Excluding one-time items,
including $336 million in charges from the year-ago quarter,
earnings rose to $3.69 a share from $2.94.
Revenue for the quarter ended Jan. 30
fell 0.2 percent, to $13.2 billion, from a year ago. Sales at U.S.
stores open at least one year, a key retail metric, fell 2.5
percent.
Kmart same-store sales rose 1.7
percent, helped by holiday toy sales, home goods and the benefit of
assuming footwear operations from a third party in January 2009. It
was the second consecutive quarter of improvement at the discount
chain.
Sears fared worse. Same-stores sales
at the company's namesake U.S. stores fell 6.1 percent, weighed down
by declines in its core home-appliance business, along with a
falloff in lawn and garden and home electronics sales.
The watershed quarter comes as the
Hoffman Estates-based company seeks to bolster declining sales by
selling some of its in-house brands, including Craftsman and DieHard,
through rival retailers. This month, for example, Sears agreed to
sell some Craftsman hand tools at 100 Ace Hardware stores starting
in May.
"I recognize that our financial
results, while substantially improved from 2008, remain well below
where we would like them to be," Sears Chairman Edward Lampert said
in his annual letter to shareholders.
Lampert, the majority shareholder in
Sears, rarely speaks publicly, making his yearly letter one of the
few times investors hear his point of view.
The 13-page letter highlighted Sears'
online business and its proprietary brands as worthy of investment
for future growth.
Lampert, a billionaire hedge-fund
manager, also praised Amazon and eBay for their retail prowess and
suggested that online merchants have an unfair advantage by not
having to collect sales tax, a debate the retail industry has been
having for years.
Moody's Investors Service issued a
report Tuesday praising Sears' attempts to sell its brands through
outsiders, but also noting it is waiting to see how the move affects
traffic at Sears stores and how well Sears will be able to protect
the quality of its brands through third parties.
"While the company's overall
performance surpassed our expectations, the company's low operating
profitability continues to weigh heavily on its credit metrics," the
Moody's report said.
Since Lampert engineered the
combination of Sears and Kmart in 2005, Sears has dramatically cut
back spending on maintaining and improving its stores.
Sears closed 27 stores in the fourth
quarter and 62 stores for the full fiscal year. It is closing
unprofitable Kmart and Sears stores while adding smaller format
Sears dealer stores and investing in its online business.
Sears Holdings operated 3,921 stores
as of Jan. 30, up from 3,918 a year ago. Sales for the year fell 5.9
percent, to $44 billion.
Sears shares on Tuesday fell 1.9
percent, to $93.80.


Retailers Profits Rise, but Customers Hold Back
By the
Associated Press - New York Times
February 24, 2010
CHICAGO (AP) -- A fleet of the
nation's biggest merchants reported mostly better fourth-quarter
profits Tuesday after a holiday season marked by cautiously stocked
shelves and well-managed markdowns.
But the rosier results mask a tough
reality: To build on their halting improvements, retailers will need
shoppers who are willing and able to spend more. That's not
happening yet.
''They have a bit of momentum to
carry them into 2010 and they have the right formula,'' said
Morningstar retail analyst Kim Picciola. ''But they're just waiting
on the consumer to come back.''
They may have to keep waiting if
Tuesday's surprisingly steep drop in consumer confidence figures
offers any insight. The measure fell in February its lowest level in
10 months, according to a private research group, largely
precipitated by mounting worries about job security.
''The economy is not out of the woods
yet,'' The Home Depot Co. Inc. CEO Frank Blake told investors during
a conference call Tuesday to discuss the home improvement retailer's
results, which went from a loss last year to a profit of $342
million, or 20 cents per share. ''We're not projecting robust
growth. Our expectation is that 2010 will be a transitional year.''
From Sears to Macy's to Target,
profits rebounded in the fourth-quarter after a downright dismal
2008 holiday season.
The increase -- more than double the
previous year's figures at Sears; a 54 percent boost at Target; and
a reversal of last year's loss at Macy's -- came from cost cutting
and carefully ordered merchandise. That let retailers sell without
drastic markdowns that were standard the year before.
But sales were mostly stagnant,
ranging from a 1 percent decline in Macy's department store to a 3
percent gain at cheap-chic Target. Shoppers will stay cautious until
the nation's economy and job outlook is rosier, experts said.
Unable to keep waiting out that
return, retailers are trying everything they can to make their
stores and their products more inviting to customers.
''We're now getting to a point where
retailers are going to have to break a stalemate,'' said Wendy
Leibmann, CEO of consulting firm WSL Strategic Retail. ''They're
going to have to now invest in getting shoppers back into the store
and not just invest in cutting their expenses. And if they don't
start innovating and being aggressive in their marketing again,
shoppers are just going to continue to sit on their hands.''
At Target Corp., which earned $936
million, or $1.24 per share, in the quarter, there's a push toward
marketing low prices and expanding grocery selections. The company
is also rolling the dice on a new store format starting in April
that will feature spruced-up home furnishings, larger grocery
sections and better video game displays.
''We believe that collectively this
set of innovations will be a powerful catalyst for future market
share growth,'' Target chairman, president and CEO Gregg Steinhafel
said during a conference call Tuesday to discuss the fourth
quarter's results.
At Sears Holdings Corp., which is
blanketing the marketplace with its latest e-commerce experiments,
Chairman Edward Lampert said he's confident the owner of Sears and
Kmart stores will be able to leverage online presence and well-known
brands like Kenmore, Craftsman, Diehard and Lands' End.
Last week, Sears said it would begin
selling some of its famous brands at other retailers, including some
selected Craftsman tools at Ace Hardware locations.
Its profit -- its best in three years
-- was $430 million, or $3.74 per share, although revenue dipped.
''Sears has a long tradition of
building lifetime relationships with our customers, and the focus
that we have on updating and improving our service businesses
continues that tradition,'' Lampert, who acquired Kmart out of
bankruptcy in 2003 and Sears two years later, wrote in a lengthy
annual letter to investors.
Meanwhile, Macy's Inc. CEO and
Chairman Terry Lundgren said the department store chain plans to
capitalize on the success of its holiday shopping season and is
carefully planning its 2010 sales and discounts. Sears shares fell
$1.86, or 2 percent, to close Tuesday at $93.80, while Target's
stock dropped 58 cents, or 1.2 percent to $50.06.
Macy's climbed 20 cents to $18.67
while Home Depot added 43 cents, or 1.4 percent, to $30.75.
Shares of Barnes & Noble, whose
results were short of Wall Street forecast, fell $1.28, or 6
percent, to end at $20.23.
------ AP Retail Writers Mae Anderson, Michelle Chapman and Anne
D'Innocenzio contributed to this report from New York.


Why Sears Is Rebranding
Kenmore
By Elaine Wong
- Brandweek Magazine
February 24, 2010
Sears Holding Corp. has undertaken a
huge task: To completely revamp and relaunch approximately 450
Kenmore appliance models. The move is part of a larger effort for
the home appliance brand, which is sold exclusively at Sears. Right
now, the changes are rolling out on washing machines, and soon, on
refrigerator units. Kitchen appliances will follow later this year.
The goal is to contemporize Kenmore, an 83-year-old, iconic American
brand, said Betsy Owens, Kenmore vp and general manager. Female
consumers, primarily, saw Kenmore as a brand that their grandmothers
and mothers bought, but that didn’t necessarily speak to them, Owens
said. So to update the brand and its image, a new television,
in-store and social media campaign was launched. The push also
includes a new visual brand identity and a Web site, with features
that speak to this modern female demographic. Despite the unstable
economy, Owens said now is the perfect time for the rebranding and
the related campaign. “We have a product for every pocket, and from
a value [standpoint, the Kenmore brand is so aligned with where
Americans are right now that I don’t think we could’ve picked a
better time to do this,” she said. What follows are excerpts from
Brandweek's conversation with Owen, who further discussed the
rebranding.
Brandweek: Sears
Holding Corp. is relaunching Kenmore in a downturn. Why so? Betsy
Owens: Kenmore is one of those great, iconic American brands.
It’s been around forever. It invented many of the categories it
competes in today and it has been the leader in appliances for many,
many years. It’s always been a highly innovative brand: It was the
first one to bring front-loading washing machines to the U.S., the
first to introduce color on [these] machines, the first to
[introduce] induction on freestanding ranges. It has a lot of firsts
behind it. But even great brands like Kenmore need to adopt and
adjust and reinvent themselves periodically, and that is really what
we’re doing [in this campaign].
BW: So how did consumers
perceive of the brand before this?
BO: We’re hearing from customers that “My grandmother and my
mother had Kenmore. I grew up with Kenmore. I love it for that
reason, but it doesn’t necessarily speak to who I am.” So, we saw an
opportunity to reach out to consumers with a more stylish product.
BW: Define that customer more
precisely.
BO: It’s more women, although we recognize more and more often
now, males are involved in the purchasing decisions. But first and
foremost, it’s women from their 20s—when you’re first setting up a
house—all the way up to their 50s. What we’ve done differently than
in the past is we really focused on attitudinal segments, so our
sweet spot for the core consumer is someone we’re calling the “savvy
mom.” We see her as someone who is true to the Kenmore spirit. She’s
practical and resourceful, but she’s also someone who doesn’t feel
that she should have to trade off among style, performance and
price. She is someone who believes she can get it all and not make
any compromises. We think we’ve got the sweet spot in terms of a
product that will appeal to her at that level. She is also someone
who sees stylish design and technology as a way to make a statement
about who she is and her home. She is someone who prioritizes her
role as mom and wife, but she feels younger than her mom did at that
same age.


Sears logs best quarter in 3 years,
Chairman Lampert answers critics of his strategy
By Monée Fields-White
- Chicago Business.com
February 23, 2010
(Crain’s) — Sears Holdings Corp.
posted its best quarterly profit in three years amid rising sales at
Kmart Corp. and ongoing cost-cutting throughout the retail chain.
The Hoffman Estates-based parent of
Sears and Kmart said it earned $430 million, or $3.74 per share,
during the fourth quarter. That's up from a profit of $190 million,
or $1.55 per share, during the same period last year. Excluding
one-time items, the company's fourth-quarter profit amounted to
$3.69 per share.
Revenue for the three months ended
Jan. 30 declined less than 1% to $13.25 billion, the company said.
Same-store sales, a key industry performance gauge, declined 2.5%
overall. Comparable sales at Sears stores dropped 6.1%, while Kmart
posted a 1.7% gain.
“I am pleased to report that we
delivered both stability and progress,” Sears Chairman Edward
Lampert wrote in his annual letter to shareholders. "While this may
be surprising to some, it isn't to me." Sears’ shares were down
nearly 2% to close at $93.80 on Tuesday.
For the full year, Sears earned $235
million, or $1.99 per share. That's significantly up from its 2008
profit of $53 million, or 42 cents per share. Full-year revenue
slipped 5.8% to $44.04 billion, down from $46.77 billion last year.
Mr. Lampert’s 13-page annual letter
is one of the rare moments, outside of the company’s annual meeting,
when shareholders get to hear from the billionaire hedge fund
manager who combined Sears and Kmart in 2005.
In this year's message, he continued
to defend his company’s strategy against critics who've said he’s
reduced expenses to the point where a large chunk of his more than
3,500 stores are in poor condition.
The company has begun liquidating 21
of its underperforming stores, including eight Sears’ locations and
13 Kmart stores.
Last week, Sears announced it will
begin selling a selection of Craftsman-brand tools at Ace Hardware
stores. In recent weeks, the retail chain reached a licensing deal
to allow sales of some DieHard-brand products at non-Sears stores,
and it plans to franchise its Sears Auto Centers to car dealerships.
Mr. Lampert also has been investing heavily in his company’s online
business.
“We have chosen to invest primarily
in areas of our business that we believe will yield long-term growth
and attractive returns,” he said. Mr. Lampert also railed against
the credit-rating agencies. “When we inquire why our ratings are not
higher than some competitors with credit metrics that are weaker
than ours, one factor cited is that some analysts prefer their
business models," he said.
He added that "we increased our
earnings, while many others have seen their earnings decline. We
have a diversified business portfolio and a significant revenue base
and scale. Obviously, we don't agree with all of the critical
qualitative conclusions and the quantitative metrics speak for
themselves."
Mr. Lampert offered his views on
federal regulation and policies relating to issues such as job
creation. He even criticized local governments for allowing rival
Amazon.com to continue to sell its products without charging sales
tax in most states.
"Either we all collect taxes or
nobody collects taxes," Mr. Lampert wrote. "If state and local
governments are going to require retailers like Sears and Kmart to
collect sales taxes and not retailers like Amazon.com, they should
recognize that over time their sales tax base will erode
significantly and that they place companies who have chosen to
locate stores locally at a competitive disadvantage."


Sears Profit More Than
Doubles
By The
Associated Press - New York Times.com
February 23, 2010
CHICAGO (AP) -- Kmart shoppers and cost-cutting
helped Sears Holdings Corp. boost its profit as the retailer posted
its best quarterly profit in three years,
the department store chain said Tuesday.
Led by financier Chairman Edward Lampert, Sears has
spent years struggling as customers skipped out on its brands for
competitors.
But in the fall, business began to turn around at
its Kmart discount chain when sales at those stores rose for the
first time since 2002 as deal-seeking shoppers returned to stores.
The owner of Sears and Kmart says it earned $430
million, or $3.74 per share, during the fourth quarter. That's up
from a profit of $190 million, or $1.55 per share, during the same
period last year. Excluding one-time items, the company's
fourth-quarter profit amounted to $3.69 per share.
Revenue for the three months that ended Jan. 30
dipped less than 1 percent to $13.25 billion.
Analysts surveyed by Thomson Reuters expected the
merchant to earn $3.54 per share on revenue of $12.90 billion.
Those estimates typically exclude one-time items.
Sales in stores open at least a year grew again in
the fourth quarter, climbing 1.7 percent at the chain, as shoppers
bought toys and products for their home. That's a key measure for
retailers because it excludes the effects of newly opened stores.
At the same time, the retailer worked to control
expenses and amped up its promotions.
''Our improved performance is especially encouraging
given the challenging economic environment, particularly related to
big-ticket items,'' W. Bruce Johnson, Sears Holdings' interim CEO
and president, said in a statement.
Sears hasn't had such a strong quarter since the
fourth quarter of 2006, when it earned $820 million.
For the full year, Sears earned $235 million, or
$1.99 per share. That's up dramatically from its 2008 profit of $53
million, or 42 cents per share.
Full-year revenue slipped 5.8 percent to $44.04
billion, down from $46.77 billion last year.
Separately Tuesday, Lampert released his annual
letter to shareholders. The missive, which this year tipped the
scales at 13 pages and nearly 7,200 words, is a rare time the
typically reclusive billionaire communicates with investors.
In this year's message, Lampert continued to defend
Sears' business strategy against critics who've cautioned he's cut
expenses and left much of its massive 3,900 stores in poor
condition. He also railed against the credit rating system, which he
said unfairly gives Sears a rating below many of its competitors.
''When we inquire why our ratings are not higher
than some competitors with credit metrics that are weaker than ours,
one factor cited is that some analysts prefer their business
models,'' he said. ''We increased our earnings, while many others
have seen their earnings decline. We have a diversified business
portfolio and a significant revenue base and scale. Obviously, we
don't agree with all of the critical qualitative conclusions and the
quantitative metrics speak for themselves.''
He also argued for less government spending and
regulation and criticized governments for allowing rival Amazon.com
to continue to sell its products without charging sales tax in most
states.
''Either we all collect taxes or nobody collects
taxes,'' Lampert wrote. ''If state and local governments are going
to require retailers like Sears and Kmart to collect sales taxes and
not retailers like Amazon.com, they should recognize that over time
their sales tax base will erode significantly and that they place
companies who have chosen to locate stores locally at a competitive
disadvantage.''
Sears is based in Hoffman Estates, Ill.
Its shares climbed $1.34, or 1.4 percent, to $97 in
pre-market trading.
Shares closed Monday at $95.66.


Sears has
best quarterly profit in 3 years
By Sandra M. Jones
- Chicago Tribune.com
February 23, 2010
Sears Holdings Corp. posted its best
quarterly profit in three years, fueled by improved sales at Kmart
and year-earlier write downs.
The owner of Sears and Kmart says it
earned $430 million, or $3.74 per share, during the fourth quarter.
That's up from a profit of $190 million, or $1.55 per share, during
the same period last year. Sears hasn't had such a strong quarter
since the fourth quarter of 2006, when it earned $820 million.
A 1.7 percent increase in Kmart
same-store sales marks the second consecutive quarter of improved
performance at the discount chain. Kmart sales rose as cash-strapped
shoppers bought more toys and home goods. It also reflects a sales
boost from assuming footwear operations from a third party in
January 2009. .
In contrast, same store sales at
Sears stores in the U.S. fell 6.1 percent, driven by declines in its
core home appliance business along with a fall off in lawn and
garden and home electronics sales.
"I recognize that our financial
results, while substantially improved from 2008, remain well below
where we would like them to be," said Sears Chairman Edward Lampert
in his annual letter to shareholders.
Lampert, the majority shareholder in
Hoffman Estates-based Sears, has no investor relations department
and rarely speaks publicly, making his yearly letter one of the few
times he puts forth his point of view.
The 13-page letter highlighted Sears
online business, one of its bright spots and discussed pension
reform, a steady thorn in Lampert's side, given Sears' large pension
expense. It also took the credit agencies to task once again for not
giving Sears a higher rating and advocated for less government
regulation as a way to create jobs.
Lampert also praised Amazon and eBay
for their prowess and suggested that online merchants have an unfair
advantage because they don't have to collect sales tax -- a debate
the retail industry has been having for years.
Under Lampert's aegis, Sears has
dramatically cut back spending on maintaining and improving its
stores. But, the hedge fund manager outlined areas he sees worth
investment that he believes "will yield to long-term growth and
attractive returns." They include the online business, home
services, the marquee Kenmore and Craftsman and Lands' End brands,
as well as the smaller format Hometown, or dealer, stores and outlet
stores.
Sears closed 27 stores in the fourth
quarter and 62 stores for the full fiscal year.
"Most of those stores have
underperformed for some time and, despite focused efforts to improve
them, we felt that we could no longer afford to wait for those
stores to turn around," Lampert said in the letter. "With expiring
leases, we have been able to reduce our money-losing stores while at
the same time generating cash from the liquidation of inventory."
Excluding one-time items, the
company's fourth-quarter profit amounted to $3.69 per share. Revenue
for the three months that ended Jan. 30 dipped less than 1 percent
to $13.25 billion.
Analysts surveyed by Thomson Reuters
expected the merchant to earn $3.54 per share on revenue of $12.90
billion.
Those estimates typically exclude
one-time items.
Cash at year end increased to $1.7
billion from $1.3 billion.
Credit Suisse analyst Gary Balter
said in a Tuesday report that in spite of the improved quarterly
performance, rivals Home Depot and Lowe's -- which have been
spending money to improve their stores, are still gaining share from
Sears.
"If one were to read Mr. Lampert's
letter accompanying Sears' earnings release this morning, one would
sense a tone of victory throughout the letter," Balter said in the
report. "While we will resist the temptation to compare it to the
U.S. hockey team declaring a similar victory despite only winning a
preliminary round game, we would just say that both may be
overconfident.
"The road for Sears from here is
quite different than the road we believe Home Depot, Lowe's and
other cheaper (stocks) will take over the next few years," he said.
Sears had an easy comparison with the
year-ago quarter when $336 million in charges related to asset
impairments and costs associated with stores closings and severance
cut into profit. Operating income was $749 million in the quarter
ended Jan. 30 compared to $325 million for the year-ago quarter.
Sears Holdings operated 3,921 stores
as of Jan. 30 up from 3,918 a year ago.
The number of Kmart stores fell to
1,327 from 1,368 and full-line Sears stores shrunk to 908 from 929,
while the number of specialty Sears, or small format, stores have
risen to 1,284 from 1,233.
-- The Associated Press contributed
to this report


ObamaCare at Ramming Speed
The White House shows it has no interest in compromise.
Review & Outlook - The Wall Street Journal
February 23, 2010
A mere three days before President
Obama's supposedly bipartisan health-care summit, the White House
yesterday released a new blueprint that Democrats say they will ram
through Congress with or without Republican support. So after
election defeats in Virginia, New Jersey and even Massachusetts, and
amid overwhelming public opposition, Democrats have decided to give
the voters what they don't want anyway.
Ah, the glory of "progressive"
governance and democratic consent.
"The President's Proposal," as the
11-page White House document is headlined, is in one sense a notable
achievement: It manages to take the worst of both the House and
Senate bills and combine them into something more destructive. It
includes more taxes, more subsidies and even less cost control than
the Senate bill. And it purports to fix the special-interest favors
in the Senate bill not by eliminating them—but by expanding them to
everyone.
The bill's one new inspiration is a
powerful federal board that would regulate premiums in the
individual insurance market. In all 50 states, insurers are already
required to justify premium increases to insurance commissioners,
who generally have the power to give a regulatory go-ahead, or not.
But their primary concern is actuarial soundness and capital
standards, making sure that companies have enough cash to pay
claims.
The White House wants to create
another layer of review that will be able to reject any rate
increase that is "unreasonable or unjustified." Any insurer deemed
guilty of such an infraction by this new bureaucracy "must lower
premiums, provide rebates, or take other actions to make premiums
affordable." In other words, de facto price controls.
Insurance premiums are rising too
fast; therefore, premium increases should be illegal. Q.E.D. The
result of this rate-setting board will be less competition in the
individual market, as insurers flee expensive states or regions, or
even a cascade of bankruptcies if premiums are frozen and the cost
of the care they are expected to cover continues to rise. For all
the Dickensian outrage about profiteering by WellPoint and other
companies, insurance is a low-margin business even for health care,
and at least 85 cents of the average premium dollar, usually more,
is devoted to actual health services.
Price controls are always the first
resort of national health care—i.e., Medicare's administered prices
for doctors and hospitals. This new White House gambit is merely a
preview of ObamaCare's inevitable planned medical economy, which
will reduce choice and quality.
The coercive flavor that animates
this exercise is best captured in the section that purports to
accept the Senate's "grandfather clause" allowing people who like
their current health plan to keep it. Except that "The President's
Proposal adds certain consumer protections to these 'grandfathered'
plans. Within months of legislation being enacted, it requires plans
. . . prohibits . . . mandates . . . requires . . . the President's
Proposal adds new protections that prohibit . . . ban . . . and
prohibit . . . The President's Proposal requires . . ." After all of
these dictates, no "grandfathered" plan will exist.
Meanwhile, the new White House plan
further vitiates the remnants of cost-control that remained in the
House and Senate bills. Now the highly vaunted excise tax on
high-cost insurance plans won't kick in until 2018, whereas it would
have started in 2013 in the Senate bill, and this tax will only
apply to coverage that costs more than $27,500.
Very few plans ever reach that
threshold, and sure enough, this is the same $60 billion deal the
White House cut in December with union leaders who have negotiated
very costly benefits. Now it is extended to all to avoid the taint
of political favoritism.
While the White House claims to
eliminate the "Cornhusker Kickback," the Medicaid bribe that bought
Nebraska Senator Ben Nelson's vote, political appearances are
deceiving. As with the union payoff, what the White House really
does is broaden the same to all states, with all new Medicaid
spending through 2017 and 90% after 2020 transferred to the federal
balance sheet. Governors will love this ruse, but national taxpayers
will pay more.
And more again, because the White
House has adopted the House's firehose insurance subsidies. People
earning up to 400% of the poverty line—or about $96,000 for a family
of four in 2016—will qualify for government help, and, naturally,
this new entitlement is designed to expand over time.
The Administration also claims to
have discarded the House's 5.4-percentage-point surtax on
joint-filers earning more than $1 million a year, but it sneaks it
back in by expanding the Senate's expansion of the 2.9% Medicare
payroll tax to joint income about $250,000. The White House would
now apply that tax for the first time to income from "interest,
dividends, annuities, royalties and rents," details to come.
***
The larger political message of this
new proposal is that Mr. Obama and Democrats have no intention of
compromising on an incremental reform, or of listening to
Republican, or any other, ideas on health care. They want what they
want, and they're going to play by Chicago Rules and try to dragoon
it into law on a narrow partisan vote via Congressional rules that
have never been used for such a major change in national policy. If
you want to know why Democratic Washington is "ungovernable," this
is it.


Sears Holdings 2009
Results
Chairman's Letter
February 23, 2010
To Our Shareholders:
Today we announced our financial results for our
2009 fiscal year. I am pleased to report that we delivered both
stability and progress, resulting in roughly $1.8 billion of
Adjusted EBITDA, an improvement of more than $200 million over 2008.
While this may be surprising to some, it isn’t to me. The dedication
of our associates and leadership team led by Bruce Johnson and the
diversity of the Sears Holdings business portfolio—Sears Full Line
stores, Kmart stores, our Home Services business, Sears Auto
Centers, Outlet Stores, Hometown Stores, the Kenmore, Craftsman,
DieHard and Lands’ End brands, our majority interest in Sears
Canada, and our online business properties including sears.com—have
allowed us to successfully manage through the economic and financial
crisis of the past two years.
Today, the United States stands with an unemployment rate close to
10%, a housing market that appears to be stabilizing at depressed
levels, and uncertainty over government policy and geopolitical
events. Despite this, Sears Holdings continues to make progress
against our strategic initiatives and our long-term financial goals.
I recognize that our financial results, while substantially improved
from 2008, remain well below where we would like them to be. At the
same time, we have seen significant improvements in our focus on
customers and the transformation of our culture.
I would like to do several things in this letter.
First, review 2009 at Sears Holdings. Second, look ahead to 2010 and
beyond. Third, discuss some policy issues generally including job
creation, and finally, address some consequences of ecommerce tax
practices.
2009 in Review
In 2009, we kept expenses under control and stayed focused on our
vision and strategic, operational, and financial goals. We were both
prudent and opportunistic in spending money and in allocating
capital at a time when many others had to make major adjustments.
Early in the year we amended and extended our
revolving credit facility through June 2012. In one of the most
difficult financing markets in recent memory, we found significant
support from numerous financial partners led by Bank of America,
Wells Fargo and General Electric, and we executed one of the largest
revolving credit facilities in the past couple of years. Our
substantial asset base and our strong cash flow management were
important factors in this successful deal. When people take a close
and objective look at our company, our strengths are not difficult
to see.
Our customer satisfaction scores have continued to rise in both
Kmart and Sears stores. While we know we still have room to improve,
we are pleased that we are making progress against the five key
pillars of our strategy that I outlined in last year’s letter.
Creating lasting relationships with customers by
empowering them to manage their lives: In 2009, we executed a number
of initiatives to improve our relationships with customers. These
initiatives focused on increasing the breadth and depth of our
product offerings, improving our multichannel capabilities, creating
platforms that engage with customers, and improving our ability to
deliver customer services and solutions. Specific initiatives for
2009 included the introduction of Marketplace on sears.com, which
dramatically increased our assortment by giving customers access to
millions of products, and the launch of online shipping capability
to 90 countries. We also introduced ManageMyLife.com, expanding our
ManageMy Home.com site into an online
destination that supplements sears.com by providing information that
helps people get things done by themselves or with the help of
others. We created or expanded marketing programs including
ShopYourWay, “Life. Well spent.”, Sears Blue Appliance Crew, Sears
Blue Electronics Crew, Sears Blue Tools Crew and “there’s smart, and
there’s kmart smart.” We grew our online engagement platforms,
MySears.com and MyKmart.com, allowing our customers to interact with
each other and us and get advice before they buy. We launched the
ShopYourWay Rewards program at Kmart and Sears that will provide
even more value and opportunities for our customers. We also
re-launched a Christmas Club program at Sears and Blue Light
Specials at Kmart to offer more convenience, value, and excitement
for our customers.
Attaining best in class productivity and efficiency:
In 2009, we focused throughout the year on delivering quality
products and services to our customers in a more productive and
efficient manner. We delivered better results by focusing on product
sourcing, supply chain efficiencies, franchising, labor model
optimization, and consolidation of functions. Year over year, our
gross margin rate was up 60 basis points and we reduced our selling
and administrative expenses by over $400 million.
Building our brands: In 2009, we continued to improve and expand our
brands. We are in the process of completely redesigning our entire
Kenmore product line and introducing more innovation to Craftsman
products. We created and launched the Lands’ End Canvas brand to
target a new customer segment. We also launched or expanded new
footwear brands, including Protégé, and introduced a complete
product line for the home with the Cannon, Jaclyn Smith and Country
Living brands. We also continue to look for ways to give more
Americans more opportunities to purchase our brands, as evidenced by
the recent announcement of the trademark license agreement with
Schumacher Electric Corporation, which will enable DieHard branded
power accessories to be sold to retailers in the United States,
Puerto Rico and Mexico, as well as our agreement with Ace Hardware
that will introduce a selected assortment of Craftsman products to
customers who prefer to purchase in a smaller and different type of
retail channel.
Reinventing the company continuously through
technology and innovation: We continued to improve convenience for
our customers by investing in technology. We also focused on being
more innovative across all business units. We improved our point of
sale systems for faster check-outs, improved the customer experience
on our websites, launched new mobile applications, including
Sears2Go and Personal Shopper, and offered our customers multiple
forms of payment both in-store and online, including express
checkout, PayPal, eBillme, check electronification, and an expanded
version of our successful Layaway program.
Reinforcing “The SHC Way” by living our values every
day: In 2009, we also strove to improve our work environment and our
impact in the communities in which we live. We harnessed technology
solutions to increase real-time feedback from our associates and
customers, which has had a transformative impact on our culture and
customer focus. We also made progress towards our commitment to
environmental responsibility by launching a corporate environmental
sustainability program and announcing a new sustainable paper
procurement policy. Our community programs, such as Heroes at Home,
the March of Dimes, and St. Jude’s Research Hospital, continue to
grow.
We are striving for more consistency, better
customer service, increased transparency, and tighter integration of
our stores, our service businesses, and our online experiences. Our
early efforts in these areas are bearing fruit. Stay tuned for more
ahead.
On a less positive note, we regret the closing of
roughly 60 stores in 2009. Most of those stores have underperformed
for some time and, despite focused efforts to improve them, we felt
that we could no longer afford to wait for those stores to turn
around. With expiring leases, we have been able to reduce our
money-losing stores while at the same time generating cash from the
liquidation of inventory and the monetization of some of the stores
that we closed. We continue to evaluate our store portfolio, over
2,200 Kmart and Sears Full Line stores combined, and experiment with
new and different ways to serve our customers and avoid additional
store closings. Like any retailer, we would expect that our store
portfolio will require continuous evaluation and transformation as
we strive to have every store contribute to the creation of future
value.
In the middle of last year, I responded to an errant
published story that repeated unfounded claims from a Wall Street
analyst regarding the cash impact of our store closings. As I
explained, in most cases, when we close stores we generate cash, net
of any cash required for severance and other store closing expenses.
The GAAP accounting losses arise from the markdown of inventory,
write-off of fixed asset balances, associate severance and any
remaining payments on leases that expire in the future. Our ability
to close stores is in no way hampered by any cash requirements.
Instead, our preference is to operate stores profitably and to
transform unprofitable or marginally profitable stores into money
makers by evolving our formats to better meet the needs of the
communities in which we operate. We know that when we operate our
stores well, we have the ability to serve our customers well and to
make money.
The pace of expansion in retail generally and in
big-box retail more specifically has slowed dramatically in the past
year. I have written previously about what I believed was the
reckless expansion of retail space leading to lower profitability
for many retailers and to low or negative returns on the investment
required to expand space. In other industries, consolidation rather
than expansion has led to a more sensible competitive environment
and better returns for shareholders. If you examine the level of
capital expenditures over the past decade at many large retailers
and compare that expenditure to value created, it would not paint a
pretty picture. Additionally, the dramatic declines in capital
expenditures over the past couple of years at most large retailers
are strong evidence that the level of maintenance capital
expenditures for a big box retailer is materially below what many
analysts and experts previously believed. Most of the capital spent
over the past decade has been largely for store expansion, with some
lesser amount required for maintaining existing stores. For a
company like Sears Holdings, with over 2,200 stores in the Kmart and
Sears Full Line store formats, our need to expand our physical store
footprint is much less than many of our competitors. At the same
time, our need to improve the productivity of our space is much
greater than many of our competitors. We are pursuing a number of
alternative solutions in parallel to address this challenge.
We have chosen to invest primarily in areas of our
business that we believe will yield long-term growth and attractive
returns. These areas include our online businesses, our service
businesses, our Kenmore, Craftsman and Lands’ End brands, and some
of our alternative formats like Hometown Stores and Outlet Stores.
We will continue to experiment and explore ways to materially
improve our Kmart and Sears Full Line store experience and
competitiveness. To this end, we have made substantial investments
in our online platform and in the in-store and mobile technology
that enables multichannel experiences under our ShopYourWay banner.
We believe that we are on the right track, with an acute customer
focus internally, which should yield improved results for our
customers and our shareholders externally.
Despite perceptions, we have not hesitated to open
new stores when the economics make sense, including opening new
Sears Outlet and Sears Hometown stores in 2009. With roughly 100
Outlet stores and almost 1,000 Hometown stores, these alternative
formats represent both sources of profit and sources of growth for
Sears Holdings. While both are small relative to the Kmart and Sears
Full Line store formats, they serve their customers well and provide
a Sears presence in smaller spaces and less populated communities.
While a number of our major competitors saw their EBITDA decline in
the past year, we were pleased to report a meaningful improvement in
Adjusted EBITDA from 2008 to 2009 and we aspire to repeat this
improvement again in 2010. With unemployment near 10%, many of our
current and potential customers have had to tighten their belts and
have had their access to credit reduced and the associated costs
increased, leading to a cut back in their spending, especially for
big ticket items. This has impacted the Sears Full Line stores
format to a greater extent than some of our other businesses. This
change in customer behavior is not unique to Sears. You can see it
reflected in our major mall-based competitors as well as Home Depot
and Lowe’s in the home improvement categories.
2009 Awards and Recognition
Let’s look at some of the awards and recognition Sears Holdings
businesses and associates received during 2009:
Sears Holdings was named one of the Top Customer Experience Web
Sites for 2009 by e-Tailing Group's Annual e-Commerce Customer
Experience Index.
Sears Holdings was recognized by Retail Touchpoints
as the winner of the 2009 Channel Integration Award in the Mass
Merchant/Department category. The Channel Integration Award honors
retailers who have achieved cross-channel integration and improved
the shopping experience for their customers.
Sears placed third in Mobile Commerce Daily’s
ranking of the 2009 Mobile Retailer of the Year.
Sears Holdings was named the Overall Best-in-Class
Company and Best-in-Industry for the Department Stores/Mass
Merchandise category for adaptation of mobile e-commerce initiatives
by Acquity Group, a leading services firm focusing on digital
solutions, in its mobile study of the 2008 Internet Retailer 500
list.
Three of Sears Holdings e-commerce Web sites ranked
in the Top 25 on STORES Magazine’s list of 50 Favorite Online
Retailers of 2009. sears.com ranked number 10, LandsEnd.com was
number 15 and kmart.com was number 23.
Sears Holdings online community MySears.com was
ranked the top retail-branded community site in North America and
ranked number four out of the top five-branded communities in a
study sponsored by the Word of Mouth Marketing Association.
Sears was listed in the The Vitrue 100: Top Social Brands of 2009.
The Vitrue Social Media Index assigns brands and products a score
based on overall buzz from status updates, videos, photos and blog
posts. Sears moved up four places to 96 this year and was the number
seven retailer.
Sears received Special Recognition in 2009 for
Retail Commitment from the U. S. Environmental Protection Agency.
Organizations recognized have achieved major energy savings and/or
help consumers save money while also increasing energy efficiency
and reducing carbon emissions by offering high-performance products,
educating consumers or offering incentives for better ways to use
energy.
Craftsman was voted the favorite hand tool brand by
over 7,000 Popular Mechanics’ readers.
Lands' End ranked number eight in the National
Retail Foundation/American Express Customer's Choice Survey for
2009. This is the fourth consecutive year that Lands’ End has been
named in the top ten.
Sears Holdings was honored with the Stars of Madison
Avenue Award presented by the ADVERTISING Club. Sears Holdings was
recognized for our efforts with Heroes at Home and Rebuilding
Together.
Sears Holdings was ranked by BusinessWeek as one of
the Top 100 best places to launch a career in 2009.
Crain’s Chicago Business named Michelle Pearlman,
SVP and President, Jewelry, one of their “40 under 40” to Watch in
2009. Crain’s “40 Under 40” highlights Chicago-area leaders under
the age of forty who are considered to be among the best and the
brightest in the Chicago business community.
US Banker magazine named Susan Ehrlich, SVP and
President, Financial Services, to its annual list of The Top 25
Non-bank Women in Finance.
Sears Holdings was ranked by G.I. Jobs Magazine as
number 25 on their Top 100 Military Friendly Employers list for
2009.
Sears Holdings Corporation was named by Black
Engineering, Hispanic Engineering and Women of Color magazines,
which are part of Career Communications Group, as one of the Most
Admired Employers for minority professionals based on a survey
regarding their impressions of diversity initiatives at top
organizations.
Sears Holdings was listed as one of the Best Places
to Work for GLBT Equality by the Human Rights Campaign and received
a 100 percent score in the Corporate Equality Index (CEI) for a
sixth consecutive year.
Sears Holdings won the Volunteer Leadership award from the March of
Dimes for our on-going support in raising public awareness of
maternal and baby health issues.
Sears Holdings was ranked as the number-two retailer and number 48
out of 100 by The Dave Thomas Foundation for Adoption in 2009.
Sears Holdings was ranked in the Top 100 for the Reputation
Institute’s Most Reputable and Recommended U.S. Companies for 2009.
We are proud of these accomplishments, in addition to the progress
made on our financial and strategic priorities, and hope that those
who may have doubted us in the past are willing to keep an open
mind. For example, critics have cited our investment choices for our
declining sales, while the economy has been cited for our
competitors’ declining sales. Likewise, our reduction in debt is
ignored while our competitors’ expansion in debt is not taken into
account. While we continued to repurchase shares during the economic
crisis because the value was attractive and because we had
significantly lower leverage than others in our industry, many of
our competitors suspended their repurchase programs to appease
credit rating agencies only to resume them again after their share
prices recovered significantly.
We can understand rating agency caution surrounding economic events,
the retail environment, and the potential for things to get worse.
In our case, it turns out that our performance far exceeded many
observers’ expectations and we hope to receive credit for this
performance in the form of higher credit ratings and more balanced
analysis.
Rating agencies play an important role in how
investors allocate capital by “qualifying” debt for certain
investors. By overrating companies and securities, rating agencies
can lead to systemic issues and investor losses. Similarly, by
underrating companies they can lead to lower growth, less risk
taking, and less job creation. Simplistic analyses, which
automatically prefer capital investment to share repurchases as a
use of cash that “benefits“ bondholders, ignore the fact that
negative or below market returns on invested capital are as harmful
to creditors as to shareholders.
When we inquire why our ratings are not higher than some competitors
with credit metrics that are weaker than ours, one factor cited is
that some analysts prefer their business models. Meanwhile, we have
a higher market capitalization and less debt than many of these
competitors. We increased our earnings, while many others have seen
their earnings decline. We have a diversified business portfolio and
a significant revenue base and scale. Obviously, we don’t agree with
all of the critical qualitative conclusions and the quantitative
metrics speak for themselves.
We do some things differently than others, and we have certain
beliefs that differ from theirs. Our culture is owner-oriented,
because we have owners who serve on the board that governs the
company. We believe that ownership makes a difference, especially
when owners have significant financial interests in the company and
a long-term perspective. Instead of this raising concern, rating
agencies should welcome and value owners with a demonstrated track
record of long-term value creation and conservative capital
policies, even when some of the capital allocation preferences
differ from those that others believe lead to higher long-term
credit performance.
Looking Forward
I expect us to continue our journey in 2010 to deliver improved
customer experiences, new ideas, and better financial performance.
It would be great to see a slight tailwind in our economy this year,
though we will stay focused on the five pillars of our strategy and
driving improved financial results regardless. We recently announced
new and innovative products in our Kenmore laundry business as a
result of our work towards a complete brand redesign that I
mentioned earlier. We have an exciting Kenmore product line being
delivered throughout 2010. In laundry, in refrigeration, and in
cooking, we will demonstrate renewed innovation and reinvigorated
leadership with heavy marketing and customer experience support. It
has taken us some time, but we feel confident that we are on the
right track, as the leader in the appliance business, to
differentiate and extend our leadership and financial results in
this important business.
At Lands’ End, we expanded our business on three dimensions in 2009
and will continue building on these in 2010. First, we added Lands’
End shops to an additional 68 Sears stores. Second, we expanded
internationally for the first time in over a decade, into France and
Austria. Third, we introduced Lands’ End Canvas, an updated version
of the classic Lands’ End styling, which has been very well received
and which extends Lands’ End’s relevance to a new demographic. And,
all of this comes with the exceptional and widely recognized
customer service excellence that has always been, and which we
expect will continue to be, a hallmark of the Lands’ End brand.
\Our Home and Auto
Services businesses have identified new growth opportunities that we
began to execute in 2009. As we progress through 2010, we expect to
continue to innovate and update our service businesses, which extend
our reach to our customers outside our stores and help them not only
purchase products but install, maintain, and repair those products
as well. Sears has a long tradition of building lifetime
relationships with our customers, and the focus that we have on
updating and improving our service businesses continues that
tradition. Expect us to reinforce our services capabilities and
presence in the pursuit of helping our customers manage and improve
their lives.
In 2010, we also plan to continue to expand our
online and multichannel capabilities as well as our ShopYourWay
Rewards program in order to help us build digital and personalized
customer relationships. We aim to give our customers vastly more
convenience and choice in terms of 1) what they buy (through our
online Marketplace and expanded assortments), 2) where they shop
(online, in stores or on their mobile devices), 3) when they receive
what they want (including the popular option of same-day buy online,
pick up in store which is “ready in 5 minutes--guaranteed”), and 4)
how they choose what to buy (through improved access to content and
feedback from our product and service experts as well as other
customers). We think online social networking and social media have
only just begun to have an impact on shopping, and it is a
revolution we intend to harness going forward.
Finally, we continue to develop our associates and
leaders. We expect that Sears Holdings will become more widely
recognized as a great place to begin one’s career as well as a
company that develops great talent by providing them with a variety
of challenges and opportunities. Opportunities to lead are
widespread and numerous at Sears Holdings. The business unit
structure that we put in place two years ago has created many more
general management positions, and we will continue to break down our
business units to create even more opportunities for our associates
to demonstrate their leadership capabilities. At the same time, we
expect our leaders to perform and deliver results. With the
increased opportunities for responsibility comes more clearly
defined accountability. Strong leaders will welcome this challenge,
and it helps us identify better performers earlier in their careers.
****
Making Sense of Business and Policy
I just finished Thomas Sowell’s most recent book, Intellectuals and
Society. For those not familiar with his writings, Thomas Sowell is
one of the clearest and most insightful writers of our era. I look
forward to every book and column he publishes. In this book, he
discusses the “vision of the anointed” and how their views shape
society regardless of their merit. He describes how often these
views conflict with reality without altering these views and,
paradoxically, sometimes strengthening them. I couldn’t help
noticing the parallels between his comments and the “vision of the
anointed” in the financial and business world over the past few
years.
Business leaders, regulators, public officials, and journalists have
become an echo chamber of self-support and self-congratulation,
whether on TV, in print or at numerous conferences. Their words and
their actions are often self-serving (whether right or wrong), and
they are typically regarded and reported on as if they were obvious
and selfless. They get repeated as if there were no alternative
views or possibility of error in their thinking. Dominant narratives
develop and get defended primarily by repetition and secondarily by
attacks on those who disagree with those narratives. When these
favored people and views become endorsed in laws and regulations,
some may benefit, but many get harmed.
There are several examples of issues that have been
smothered by dominant narratives. Accepting these narratives without
critical evaluation can be a contributing factor to some of the
negative unexpected consequences they produce. Did the seizure of
Fannie Mae and Freddie Mac (the largest nationalization in our
country and likely in history) calm or ignite fear in the financial
markets and did those urging or supporting the seizure profit from
it? Has raising minimum wage rates helped or harmed the individuals
that those advocating such policy intended to help? Is there any
link between a higher minimum wage and high unemployment? Has the
consolidation in financial services helped or hurt depositors and
borrowers? Why were some institutions saved and others seized,
merged or left to fail? How does regulatory and policy uncertainty
impact investment and risk-taking in society?
I fear that Americans have been provided a false choice between a
little more and a lot more regulation and taxes. We keep hearing
more ideas to create jobs and generate growth that almost
exclusively require more government spending. Jobs can come from
government, but those jobs get paid for by taking money from the
private sector, reducing the private sector’s ability to provide
jobs. On the other hand, there are many who believe that less
regulation, less government interference, less arbitrary regulation
when it does exist, and lower government spending will generate more
growth and more jobs. I agree with those views.
As one of the largest private sector employers in
the United States, Sears Holdings recognizes the challenges of
finding good talent, developing good talent and keeping good talent.
We have created not just new jobs, but new job categories and job
descriptions as our industry changes and as new technology provides
both new opportunities and new challenges.
Some contend that there is an inherent conflict
between labor and capital, yet they fail to appreciate that without
investment there will be no growth and no jobs. For there to be
investment there needs to be an expectation of profit, and, for
there to be an expectation of profit, there needs to be hope and
belief in the future and confidence in the rules of the game.
The straw man frequently used to justify more
regulation and to criticize free markets is to assert that the
proponents of free markets blindly believe that they always work and
that they always produce good results. Most free market advocates
don’t actually make this claim, and they know that it is not true.
Free markets respect individual rights and freedom, preserve choice
and accountability, and produce superior results compared with
non-free markets. When free markets experience problems and produce
poor results, critics are fast to proclaim that things would have
been better if only there was more, but better regulation. However,
in most industries and societies where there is more regulation,
there is typically lower growth, lower employment, and less
innovation.
Self-regulation is a better idea and it is a better
choice, whether for an individual or a corporation. Any corporation
can choose to limit or make investments, increase or decrease
compensation, and manage risk at different levels. Companies can
compete by promoting their “safety and soundness” or by their
“willingness to take risks.” Investors, customers, and workers can
choose which companies and their associated behaviors and
philosophies appeal to them. Let the media and politicians explain,
compare, criticize, and contrast the various policies, so there will
be little doubt that success or failure is determined by choice and
not by ignorance. Then, make sure that government doesn’t reward
failure and punish success by interfering with outcomes based upon
political contributions, undue influence, or the personal beliefs of
the policymakers.
Putting Americans to Work
I have written in the past about the need for pension funding
relief. The simple and appropriate relief that I mentioned in my
letter to shareholders last year has not been enacted. It has gotten
bogged down in Washington. We have closed several stores and may
choose to close more in the future, in part so that we can liquidate
inventory and reduce losses to invest capital in our pension plan.
There is nothing about the relief we are advocating that makes it
less likely that we can meet our pension obligations. Rather, the
ability to spread our payments into the plan over an additional two
years would have allowed us to keep some of those marginally
performing stores open and retain the jobs that they require.
Compare our situation to major financial firms and the deferrals
they were granted practically overnight and with great subsidy to
those firms. By allowing financial firms to issue FDIC guaranteed
debt, the repayment of their short-term debt was effectively
extended by up to three years. Despite this support, there was a
significant reduction in jobs in the financial services industry and
a significant reduction in lending and risk taking as well.
At Sears Holdings, amending and extending our short term debt in
2009 required significant fees and more onerous terms than our
previous facility. Providing an extension in funding our pension
plan for two years costs the government nothing (in fact
Congressional Budget Office scoring shows it to be a significant
revenue generator), requires no subsidy, and will not reduce the
benefits paid to pension recipients. Furthermore, it allows
companies to invest and increase - or at least maintain - employment
rather than reduce investment in order to meet accelerated pension
contributions brought about by both the reduction in asset values
and the reduction in interest rates that has accompanied many of the
liquidity policies that have benefited the very same financial
institutions.
You would think that pension relief would have been quickly
forthcoming and would have been completed a year ago. We are hopeful
that reason will prevail and such relief will be forthcoming
shortly. This is not about skirting responsibility for our pension
plan (we have contributed more than $1 billion over the past 4
years). It is not about getting a single penny of subsidy from the
government, and it is not about reducing a single penny of pension
benefits that associates will receive. It is about creating the
ability for us and others to focus on improving operations rather
than closing operations.
Sears Holdings shares the stated goal of many public officials of
creating jobs. But, we don’t believe that we need large government
programs to generate these jobs. Public officials often fail to
recognize the obstacles they place in the way of job creation. For
example, over the past year proposal after proposal has been put
forward to reform health care, reform the financial system, increase
taxes, and add regulations, all with the intention of making the
United States a better and stronger country. Yet, as a business,
trying to understand which of these proposals might become law, what
their impact might be on business prospects and competition, and
what additional costs they might impose creates a great deal of
uncertainty. It has led our management team and board (and I am sure
those managements and boards of other companies) to spend inordinate
time trying to determine which investments we should make, defer, or
cancel and which jobs to create, maintain, or eliminate. The removal
of this uncertainty and the constant drumbeat of new threats against
various businesses would go a long way to allowing American
entrepreneurial energy to be unleashed.
Our budget deficit has left many searching for ways to raise
revenues through new taxes, rather than reducing spending and
generating new revenues through growth and through the removal of
the impediments to growth from existing regulations and threats of
new regulations. Here are a few ideas, none original, that can
contribute to reducing unemployment over the near term without
additional government spending: reduce U.S. corporate tax rates
(amongst the highest in the world), extend individual tax programs
that are scheduled to expire or that are subject to debate (freeing
up individual time and attention devoted to tax planning and
strategies), deal with entitlements and don’t create additional ones
(we can’t afford the ones we currently have), and stop providing
selective benefits to individual companies or industries (it creates
an uneven playing field).
Capital can quickly reorganize and provide financing for businesses
and projects that create value for our society, without the heavy
hand of government planning and policy. I disagree with most people
calling for a gigantic overhaul of our financial system led by new
and “improved” regulations. Instead, begin the process of allowing
more competition in financial services and begin the removal of
implicit and explicit government guarantees that provide the
perception that some are “too big to fail.” While there are those
that claim that their institutions are not too big to fail, they
surely recognize the significant competitive advantages that come
from this perception. Of course they will accept regulations as long
as these regulations do not permit additional competition from
entities and institutions that do not take insured deposits, do not
have access to Federal Reserve funding, and do not have government
guarantees associated with their debt offerings. Regulatory capture
comes when there is little competition allowed outside regulated
entities and a “freezing” of competitors and innovation in an
industry.
We need innovation in our society, including financial innovation.
Large institutions believe that they can innovate, create value, and
create growth. But history has shown that regulations that provide a
sense of certainty and stability by limiting risk, also lead to
lower innovation, lower growth, and fewer jobs. Innovation is a
messy process. Some efforts succeed, others fail. Those who desire
to compete based upon limiting competition usually protest and
criticize innovation (regardless of industry) and the companies and
leaders leading that innovation. The intervention of regulators and
politicians to slow down or prohibit new ideas and innovation,
however well-intended it may be, inhibits growth, value,
- Chicago Business
and job creation.
Sears.com and the E-Commerce Competitive Environment
Sears has a long legacy in serving customers beyond physical stores.
In many respects, The Sears Catalog was the 20th century model for
selling products through the mail. To be successful, Sears had to
earn the trust of its customers who purchased products sight unseen
and who had to feel confident that they would receive what they
purchased and, if they were not satisfied, they would be able to get
their money back. “Satisfaction Guaranteed or Your Money Back.”
The merger of Sears and Kmart in 2005 expanded the reach of each
company, both in terms of physical stores and in terms of categories
and customers served. With this increased reach comes the ability to
serve more customers, more frequently -- in our stores and in their
homes and businesses. In order to do so effectively, we have
invested significantly in building our technology and customer
experience capabilities, with the goal of making it easy for
customers to do business with Sears Holdings anywhere, anytime, and
in many ways.
We united our initiatives under the banner ShopYourWay and launched
ShopYourWay Rewards in 2009 to further emphasize the value and
capabilities we bring to our customers. We have been working
intently to make it easy for customers to engage with us online
through the numerous websites that we operate including sears.com,
kmart.com, LandsEnd.com, Craftsman.com, MySears.com, mygofer.com,
ServiceLive.com, and ManageMyLife.com. It should be easy for a
customer to access any of the myriad products, services, and
information we make available online, regardless of which website
they choose to begin their particular shopping mission.
The two leaders in online commerce are Amazon.com and eBay. Despite
operating no physical stores of their own, these two companies have
built tremendous businesses over the last decade serving millions of
customers every day in a broad number of categories. They have taken
significant market share from traditional retailers by providing
convenience, service, and competitive prices. One has to give each
of these companies tremendous credit for their foresight,
persistence, and execution through the collapse of the internet
bubble, early skepticism, and competition against larger and more
established retailers.
There remains, however, one advantage that the major online
retailers retain that is both unfair and problematic, for
competition and for communities and jobs as well. For customers in
many states, Amazon and other online retailers are not required to
collect sales taxes on purchases made by their customers. Since the
1992 Quill Supreme Court decision, businesses without a local
“nexus” have sold goods through the mail or online without being
required to charge and collect the related sales or use tax. Amazon,
in particular, has argued that when it doesn’t have a physical
presence in a state or local jurisdiction, it is not benefiting from
police, fire protection, and other local services and therefore
shouldn’t be forced to pay for them. Analyses by others suggest that
the real issue is competitive advantage, more than other
explanations put forward in the past.1
The real story here is that it is not the payment of taxes or the
charging of taxes that is at issue. It is the collection of taxes on
behalf of local governments from purchasers of goods and services
from stores in a locality or for use in such locality. It is the
latter fact that is often ignored. A person who buys products from
Amazon.com is required by law to pay sales or use tax to their local
jurisdiction. In practice, almost nobody does so. The cost and
unpopularity of enforcing such laws has allowed customers to avoid
paying sales or use taxes, even though they are required in many
states and localities. If you buy a work of art or piece of jewelry
in NYC, for example, and have it shipped to New Jersey or
California, the seller does not collect sales tax on that purchase
but the buyer would be required to pay sales or use tax on the
purchase where they receive the merchandise and use the merchandise.
So, a piece of jewelry shipped to California would require the buyer
to pay California sales or use tax.
Amazon’s domestic business has grown to $12.8 billion in revenues
for the year just ended. If you were to apply a 6% sales tax to this
revenue (reflecting a rough average of sales taxes across multiple
jurisdictions), that would amount to almost $800 million in sales
and use taxes owed to state and local governments that is likely not
being paid. The good news is that it is $800 million that remains in
the hands of the purchasers of products from Amazon, but at the cost
of jobs and new fees and taxes required to make up for lost revenue.
Having delayed a level playing field for as long as they have
already, Amazon has been able to build relationships with many
customers that give it an advantage, even playing under the same
rules as those it competes against.
I would propose that there be a leveling of the playing field for
e-commerce merchants. Either we all collect taxes or nobody collects
taxes. If state and local governments are going to require retailers
like Sears and Kmart to collect sales taxes and not retailers like
Amazon.com, they should recognize that over time their sales tax
base will erode significantly and that they place companies who have
chosen to locate stores locally at a competitive disadvantage. This
will lead to a loss of revenues, the closing of local businesses,
the loss of tax revenue, and ultimately to the increase in other
types of taxes to compensate for the lost jobs and revenues. Alaska,
Delaware, Montana, New Hampshire, and Oregon are states that
currently charge no sales tax at all. Let me be clear, we have no
issue with continuing our current practice of collecting tax on
behalf of state and local governments. We just don’t believe that
the current set of rules is sustainable without severe competitive
and community damage over time.
****
I look forward to seeing many of you on May 4, 2010, when we hold
our annual shareholder meeting in Hoffman Estates. I hope to have
updates on our progress and the numerous initiatives and
opportunities that we are pursuing.
As always, I want to thank all of our associates and leaders for
staying focused and dedicated through difficult times and pursuing
excellence in their jobs and in delivering outstanding customer
experiences. I want to thank our customers for their tremendous
feedback, both good and bad, that helps us to get better every day
and to serve you better in the future. And, finally, I want to thank
all of our shareholders for continuing to support us with your
investment in the company. I know you appreciate what we are trying
to do to create long-term value in a deliberate and logical fashion,
while remaining cognizant of the risks and challenges that we face.
Respectfully,
Edward S. Lampert


Sears Profit Soars on 2008 Items;
Kmart Improves Again
By Karen
Talley and Nathan Becker - Dow Jones Newswires
February 23, 2010
Sears Holdings Corp.'s fiscal fourth-quarter
earnings more than doubled after taking $336 million in year-earlier
write-downs, as the latest results saw same-store sales strength
continue for its Kmart stores.
In his annual letter to shareholders, Sears Chairman
Edward Lampert said earnings without items had risen more than $200
million over 2008.
"While this may be surprising to some, it isn't to
me," Mr. Lampert wrote, citing the diversity of Sears businesses and
brands, which range from department stores, to auto centers, to the
Web.
"I recognize that our financial results, while
substantially improved from 2008, remain well below where we would
like them to be," but given tough economic times are being aided by
"significant improvements in our focus on customers and the
transformation of our culture," Mr. Lampert said.
The comments are part of a broad ranging letter in
which Mr. Lampert included opinions on such subjects as regulation,
policy issues generally including job creation, and, he said,
consequences of ecommerce tax practices.
"Self-regulation is a better idea and it is a better
choice, whether for an individual or a corporation," Mr. Lampert
wrote.
"I expect us to continue our journey in 2010 to
deliver improved customer experiences, new ideas, and better
financial performance," Mr. Lampert said. "It would be great to see
a slight tailwind in our economy this year."
Mr. Lampert also spoke about a recent book,
"Intellectuals and Society," agreeing with the author's take on "the
'vision of the anointed' and how their views shape society
regardless of their merit."
Among questions Mr. Lampert raises, "Did the seizure
of Fannie Mae and Freddie Mac calm or ignite fear in the financial
markets and did those urging or supporting the seizure profit from
it? Has raising minimum wage rates (which some retailers use as
their base salary) helped or harmed the individuals that those
advocating such policy intended to help?"
Americans "keep hearing more ideas to create jobs
and generate growth that almost exclusively require more government
spending," Mr. Lampert said. "Jobs can come from government, but
those jobs get paid for by taking money from the private sector,
reducing the private sector's ability to provide jobs."
Many Americans "believe that less regulation, less
government interference, less arbitrary regulation when it does
exist, and lower government spending will generate more growth and
more jobs," Mr. Lampert said. "I agree with those views."
Of Internet commerce, Mr. Lampert wrote, "there
remains, however, one advantage that the major online retailers
retain that is both unfair and problematic, for competition and for
communities and jobs as well. For customers in many states
Amazon.com and other online retailers are not required to collect
sales taxes on purchases made by their customers." Amazon could not
immediately be reached for comment.
He said he proposes "a leveling of the playing field
for ecommerce merchants. Either we all collect taxes or nobody
collects taxes."
Sears' improved performance "is especially
encouraging given the challenging economic environment, particularly
related to big-ticket items," said Interim Chief Executive Bruce W.
Johnson. Sears is a big marketer of appliances that can be costly
for struggling consumers.
In recent weeks, Sears has turned to outsiders to
help expand its business. The company recently started allowing
franchises to open Sears Auto Centers, agreed to sell its popular
Craftsman tool brand through Ace Hardware stores and also entered a
deal with a maker of battery accessories to sell DieHard brand
accessories to outside retailers. The operator of Sears stores, like
many department stores in general, had seen slumping results for
some time, but its Kmart stores began to post better sales results
recently.
"While we may criticize Sears for its lack of
investment into its stores, it deserves credit for thinking outside
the box," said Credit Suisse retail analyst Gary Balter. "The
question is what is the cost?"
Sears' and Kmart's sales per square foot indicate
that the retailer is one of the least visited stores in retailing,
with the brands like Craftsman "the few bright spots," Mr. Balter
said. "It has already tried to move Craftsman and other brands to
Kmart but with little success. How much pain will the core stores
suffer as a customer goes to Ace instead of to Sears to buy a
Craftsman tool?"
For the quarter ended Jan. 30, Sears reported a
profit of $430 million, or $3.74 a share, up from $190 million, or
$1.55, a year earlier. Excluding items such as the year-earlier
write-downs, earnings rose to $3.69 from $2.94. The company in
January had forecast earnings of $3.36 to $4.06 but clarified today
that the outlook had excluded any store closings or hedge gains or
losses, which amounted to 25 cents a share.
Revenue declined 0.2% to $13.25 billion. Analysts
polled by Thomson Reuters had most recently forecast $12.9 billion
in revenue.
Same-store sales declined 2.5% overall, dropping
6.1% at Sears while rising 1.7% at Kmart. Sears said it sees a $7
million charge for first half store closings. The retailer on Sunday
began liquidation sales at 21 poor-performing stores nationwide,
with the bulk being its more discount-oriented Kmarts. Much of the
charge is related to severance and other employee costs. All 21
stores were leased.
Gross margin rose to 28.5% from 27.5%.


Sears
profit more than doubles, revenue slips
February
23, 2010
NEW YORK (Reuters) - Sears Holdings Corp's <SHLD.O>
quarterly profit more than doubled as lower costs helped blunt the
impact of slightly weaker revenue.
The operator of the Sears and Kmart store chains
said net income more than doubled to $430 million, or $3.74 per
share, in the fourth quarter ended on January 30 from $190 million,
or $1.55 per share, a year earlier.
The company's cost of sales, buying and occupancy
was 1.7 percent lower, helping to boost its gross margin rate by 1
percentage point to 28.5 percent.
Revenue slipped 0.2 percent to $13.25 billion, hurt
by 62 fewer stores and a 2.5 percent decline at U.S. stores open at
least a year.
Same-store sales fell 6.1 percent at domestic Sears
stores and rose 1.7 percent at Kmart stores. The gain at Kmart was
primarily driven by increases in toys and home goods while the
decline at Sears was caused by decreases in the home appliance, lawn
and garden and home electronics categories.
Sears' Craftsman tools and Kenmore appliances make
it somewhat more dependent on the housing market than other more
general retailers.
In the past, analysts have expressed concern that
Sears, run by hedge fund manager Edward Lampert, relies too much on
cost cuts to improve profitability rather than investments to drive
sales.
Yet in recent weeks, Sears announced three efforts
to extend its reach, with plans to franchise its Sears Auto Centers,
sell its Craftsman tools at Ace Hardware stores, and to license its
DieHard power accessories to be sold at other retailers.
In a research note Credit Suisse analyst Gary Balter
applauded the deals as evidence of Sears "thinking outside the box"
but cautioned that Sears stores could suffer as a result, since
customers will be able to go to other stores to buy some its most
valued brands.
(Reporting by Martinne Geller; Editing by Lisa
Von Ahn and Derek Caney)


Sears
Closing 8 Namesake Stores,
13
Kmarts Across US
By Karen Talley
- Dow Jones Newswires - New York
February 22, 2010
Sears Holdings Corp. (SHLD) is shuttering 21
poor-performing stores nationwide, with the bulk being its more
discount-oriented Kmarts.
Sears, which expects to post fourth-quarter results
on Tuesday, will shut eight Sears stores and the rest Kmarts in
strip centers - with over 1,000 workers losing their positions. Each
of the stores employs 50 to 60 workers, said Sears spokeswoman
Kimberly Freely. The workers will be able to apply for open
positions at nearby locations, she said.
Sales to liquidate merchandise began Sunday, with
the closings expected to be complete by May 9. Freely declined to
provide what kind of initial charges or longer term savings Sears
expects from the moves. All of the stores are leased and are being
closed because they are performing poorly, she said.
Sears on Tuesday is expected to post fiscal
fourth-quarter earnings of $3.54 a share on $12.9 billion in sales,
according to analysts polled by Thomson Reuters. The same period a
year ago, Sears posted earnings of $2.94 per share on $13.3 billion
in sales.
Kmarts slated for closing include stores in
high-population areas like Cleveland, Jacksonville, Fla., and
Dayton, Ohio. Half the Sears stores being shut are in malls and the
others are free standing, and include locations Houston, Texas,
Plainfield, N.J., and Wilson, N.C. Sears Holdings operates roughly
3,900 stores in the U.S.
J.C. Penney Co. (JCP), which opened 16 of its 17
stores at off-mall locations last year, could be a candidate for the
freestanding Sears sites. A J.C. Penney spokesperson declined to
discuss the prospect, saying the retailer is mainly focused this
year on improving its existing stores.
All told, Sears announced 56 closing in the last
year, including the 21 this month. Freely declined to say how many
Sears or Kmart stores were opened over the same period. The average
size Sears is 133,000-sqare-feet. The average Kmart is
92,000-square-feet.
While Sears has been paring back physical locations,
it has taken to the Web ambitiously to sell goods. The retailer has
also, in the last two weeks, turned to outsiders to help grow
business. The retailer is allowing franchises to open Sears Auto
Centers, agreed to sell its popular Craftsman tool brand through Ace
Hardware stores and also allowing the maker if its DieHard auto
batteries to sell DieHard accessories like jump starter cables to
outside retailers.
"The investment question is not will Sears make
money from the third party extension; they likely will," said Credit
Suisse analyst Gary Balter. "The question is at what costs to the
core? Sears and Kmart's sales per square foot points to it being one
of the least visited stores in retailing, with these brands the few
bright spots."
Sears Pitching
Kenmore To Competitors
By Alan Wolf -- TWICE,
February 22, 2010
Hoffman Estates, Ill. -
Sears is looking to sell its Kenmore appliances through other
retailers.
According to a report
in the Chicago Tribune, the chain has already approached local majap
competitor Abt Electronics about carrying its venerable
private-label appliance line.
Abt passed on the opportunity, the newspaper reported.
The effort is part of a larger strategy, announced two years ago, to
sell Sears' proprietary brands through other retail outlets. At the
time, chairman Eddie Lampert said the plan would increase market
share and "create value," and brought in former Proctor & Gamble
executive Guenther Trieb to spearhead the effort as president of
brands.
The strategy gained momentum this month after Ace Hardware agreed to
begin carrying Craftsman tools in May, and Sears licensed out its
Diehard brand for an open line of power accessories.
"Our mission is to develop a brand-building factory that grows the
business, the brand equity and shareholder value of Craftsman,
Kenmore and DieHard," Trieb reportedly wrote in an internal Sears
publication obtained by the Chicago Tribune.
To help promote Kenmore, the company plans to showcase the line in a
temporary storefront called the "Kenmore Live Experience Studio"
next month in Chicago, the newspaper reported.
Credit Suisse retail analyst Gary Balter gave the company kudos for
literally "thinking outside the box," but said that selling its
house brands in competitors' stores could further weaken traffic for
Sears and Kmart.
"The investment question is not will Sears make money from the
third-party extension. They likely will," Balter wrote in a research
note. "The question is at what costs to the core? Sears' and Kmart's
sales-per-square-foot points to it being one of the least visited
stores in retailing, with these brands the few bright spots. It has
already tried to move Craftsman and other brands to Kmart but with
little success. How much pain will the core stores suffer as a
customer goes to Ace instead of to Sears to buy a Craftsman tool?
Time will tell."
On the other hand, he argued, "Expanding distribution ... to other
retailers could boost sales of those products, help Sears gain
greater scale with its suppliers, boost brand recognition and grow
the base of loyal customers for those brands, and in doing that,
perhaps even drive some consumers back into Sears or Kmart stores
over time to shop the full line of products its own stores will
continue to offer."
Sears will report its fourth-quarter and full-year earnings for 2009
on Tuesday.

Sears' Eddie Lampert moves closer to long-awaited cash-out
By: Monée Fields-White
- Chicago Business
February 22, 2010
Edward Lampert is finally giving
investors a taste of what they expected when he bought Sears
Holdings Corp.
Investors flocked to Sears after Mr.
Lampert's $11-billion takeover, largely in the belief that he would
extract cash from the company's most valuable assets: vast real
estate holdings and popular consumer brands.
Five years later, Mr. Lampert is
making moves that appear to be aimed at exactly that. In recent
weeks, Sears announced a licensing deal to allow sales of some
DieHard-brand products at non-Sears stores. Last week, the Hoffman
Estates-based retail chain said it would franchise its Sears Auto
Centers to car dealerships.
Mr. Lampert also has been investing
heavily in online merchandising — including an initiative to let
other merchants sell through Sears' Web site — and he has created a
new warehouse concept, MyGofer, where consumers can pick up items
they bought online or from a catalog.
All of those moves could hurt store
sales. But they also could help generate higher and higher-profit
sales from Sears brands and reduce the company's reliance on stores.
That could lead to store closings and real estate sales.
"It is definitely a beginning of
attempting to monetize assets of the company," says Neil Stern, a
partner at Chicago retail consultancy McMillan Doolittle LLP. Mr.
Lampert "has been limited with the recession in terms of how much he
can actually do. As we emerge, it's reasonable to expect more
deals."
Investors seem to agree. Since the
DieHard licensing deal's announcement on Feb. 11, Sears shares are
up 6.3%. They could get another boost this week if the company's
fourth-quarter earnings beat analysts' expectations, as many
predict.
To be sure, Mr. Lampert, 47, a hedge
fund manager who became chairman of Sears when he merged it with
Kmart Corp. in March 2005, has never publicly acknowledged any grand
plan to unload real estate. In fact, while he has eliminated about
90 stores since late 2008, Sears' overall store count has gone up to
3,530 under his leadership. Last week, he announced plans to close
another 21 stores.
' It is definitely a beginning of
attempting to monetize assets of the company.' — Neil Stern,
partner, McMillan Doolittle LLP And selling stores — especially
low-earning mall sites — in the current real estate market would be
difficult. Mr. Stern says any meaningful divestiture is likely
several years away.
The total value of Sears' real estate
ranges between $10.05 billion and $23.16 billion, according to
Deutsche Bank estimates.
WINNING CHANCE
Wall Street still views the stores as
a burden on Sears' balance sheet. A report from New York-based
Morgan Stanley analysts estimates that between Sears and Kmart, Mr.
Lampert has "several hundred" stores that produce negative cash
flow. The closure of up to 400 sites could boost free cash flow by
as much as $200 million, they estimate. "The organization could find
renewed vigor and heart by focusing on assets that have a chance at
winning," the report says.
Mr. Lampert has talked openly about
finding new ways to capitalize on Sears' best brands: DieHard,
Craftsman, Kenmore and Land's End. With DieHard, Sears begins its
first foray into selling a segment of its key brands outside the
retail chain.
The licensing agreement with Mount
Prospect-based Schumacher Electric Corp., a maker of car battery
accessories, includes DieHard battery chargers, jump-starters and
power inverters. Sears declines to specify which retail chains would
carry the products.
For the first time, Sears will allow
a New Jersey-based car dealership to open the first Sears Auto
Center franchise. Starting in March, it will sell the same auto
parts and services that are found at Sears' 850 auto centers.
This is all "great for the brands,
but it does nothing for the retailer," says Steven Keith Platt,
director of Hinsdale-based industry research firm Platt Retail
Institute.


Sears retools brand plan, will sell Craftsman at Ace stores
By Sandra M. Jones, reporter
- ChicagoTribune
February 21, 2010
When Sears Holdings Corp. inked its
first deal to license DieHard battery chargers and other accessories
to a little-known Mount Prospect company this month, the response
from Wall Street was underwhelming.
DieHard batteries, the big prize,
wasn't a part of the deal.
Now, the company's attention is
turning to Craftsman, the tool and lawn equipment line that appears
to hold the best hope of making it outside of Sears and Kmart walls.
Sears signed a deal with Ace Hardware
Corp. to sell Craftsman tools at 100 Ace stores starting in May,
marking the first time a retailer other than Sears, and more
recently its sister division Kmart, has sold the 83-year-old brand,
the Chicago Tribune reported late Friday. By June, Ace plans to
promote Craftsman products to its 4,500 Ace stores, independent
dealers that are part of a cooperative.
Sears has been talking to midsize
hardware store chains across the country for the past year about
carrying Craftsman products in their stores, holding discussions
with Oak Brook-based Ace, Do-It-Best Corp. of Fort Wayne, Ind., and
Tractor Supply Co. of Brentwood, Tenn., to name a few, according to
people familiar with the discussions.
The move follows an edict made two
years ago when Edward Lampert, Sears' chairman and majority
shareholder, publicly raised the possibility of selling Sears'
exclusive in-house brands through rival retailers. Lampert grouped
Sears' marquee brands — Kenmore appliances, Craftsman tools and
DieHard car batteries — into a separate brand business unit in 2008
and hired former Procter & Gamble Europe executive Guenther Trieb to
run it.
"Our mission is to develop a
brand-building factory that grows the business, the brand equity and
shareholder value of Craftsman, Kenmore and DieHard," Trieb said in
an internal publication for Sears employees. "We believe this will
be the next big thing in corporate America."
The strategy runs counter to what
most retailers are doing these days. Rivals from Wal-Mart to J.C.
Penney to Kohl's to Home Depot are expanding their in-house brands
as a way to attract shoppers and stand out from competitors.
Just how much money Sears can make by
selling products that it doesn't manufacture itself is questionable.
Critics contend that selling Sears' proprietary brands through other
retailers could raise cash in the short run, but over time give
shoppers fewer reasons to visit its stores and exacerbate the
retailer's decline.
Morgan Stanley Research called the
value of Sears' brands "highly theoretical" in a report in November.
"As (Sears Holdings) does not own any
production assets and its brands are sold only in Sears and Kmart,
one could argue that the value on names like Craftsman, Kenmore,
DieHard or Lands' End is limited," wrote Morgan Stanley analyst
Gregory Melich.
Sears has approached several
retailers to gauge interest in their brands without much luck. The
company talked to Abt Electronics about Kenmore appliances and also
looked at selling Craftsman to Wal-Mart and Costco Wholesale Corp.,
according to people familiar with the process.
Officials at Wal-Mart, Abt and
Do-It-Best declined to comment. Costco and Tractor Supply officials
didn't return calls seeking comment.
As for Ace, carrying Craftsman gives
it an advantage against the big home-improvement chains, such as
Home Depot and Lowe's, which have been hurting its business. Ace has
been making a concerted effort lately to bring in more outside
labels.
Sears plans to showcase Kenmore,
which is its biggest brand, at an estimated $4.9 billion in annual
revenue, at a pop-up shop in Chicago in March. The temporary
location called the Kenmore Live Experience Studio will have a
social media component, Sears spokesman Tom Aiello said.
Sears declined a request to make an
executive available to talk about the brand strategy.
Already, Sears has found it
challenging to convince auto-parts stores to carry DieHard
batteries, according to people familiar with the talks. Johnson
Controls, a major supplier of DieHard batteries, also makes in-house
brands for the major auto-parts stores. The prospect of DieHard
batteries sharing shelf space with Johnson Control's other
private-label products has been an obstacle, according to people
familiar with the talks.
Allen Martin, Johnson Controls' vice
president and general manager for the Americas, declined to comment
beyond saying, "Sears is a longstanding customer (and) we're
committed to supplying the highest quality batteries and services to
support the success of all our customers."
Earlier this week, Sears said it will
allow franchisees to open Sears Auto Centers, signaling another move
to profit off its brands by opening them to outsiders. The first
franchise is slated to open in March.


Daniel J. Danhauer
Note:
Both obituaries are correct -- two funeral homes, two services,
two different days.
Daniel J. Danhauer, 84, of LaGrange,
formerly a 30 year resident of Addison, Daniel is preceeded in death
by his wife Lucille; he is survived by his wife Jeanne; loving
father of Susie Clark, Kathleen (Stephen) Jacobs, Deborah (Dan)
Supis, Daniel A. (Nancy) Danhauer and Sandy (John) Fuelts; Cherished
grandfather of Jamie, Mike, Brian (Nicole), Ann, Kevin, William,
Ashley and Tommy; treasured great-grandfather of Ella and Avery;
also survived by many nieces nephews and friends.
Funeral Service Friday 9 a.m. from
Humes Funeral Home, 320 W. Lake St. Addison (2 Mi E. of Rt. 53, 2 Mi
W. of Rt. 83) to St. Philip the Apostle for Mass at 9:30 a.m.
Interment Queen of Heaven. Visitation 3 to 9 p.m. Thursday.
Daniel worked for Sears-Roebuck and
Co. as a National Merchandise Manager for 35 years and was a member
of the Board of Directors at Hitatchi/Nissay-Sanyo for 15 years. For
info., www.humesfh.com or 630-628-8808.
Daniel J. Danhauer
Daniel J. Danhauer, of LaGrange,
beloved husband of Jeanne and the late Lucille; loving father of
Susie Clark, Kathleen (Stephen) Jacobs, Debbie (Dan) Supis, Daniel
A. (Nancy) Danhauer, Sandy (John) Fuelts, James (Ellen) Newton,
Susan (late Paul) Kreke, Greg (Kathy) Newton, Marilyn (Mike) Rooney,
and Lucy (Billy) March; devoted grandfather of Jamie and Mike Clark,
Brian (Nicole), Kevin and Ann Jacobs, Bill Supis, Ashley and Tommy
Fuelts, Jeff (Heather) , Patrick, Timothy, and Emily Newton,
Matthew, (Melissa), Evan, Kim Kreke, Chrissy (Pat) Crowley, Jake
Newton, David, Colleen, and Ryan Rooney, Erin and Will March, and
Brandi Piper; dear great-grandfather of Ella and Avery Jacobs,
Justin, Lily, and Quinn Newton, Jack and Sean Crowley; fond brother
of Jerome (Pat) Danhauer and Nancy (Robert) King; dear uncle of
many.
Visitation 3 to 9 p.m. Tuesday at at
Hallowell & James Funeral Home, 1025 W. 55th St., Countryside.
Prayers 9:15 a.m. Wednesday at the funeral home to St. Cletus
Church, LaGrange, for Mass at 10 a.m. Interment will be held
privately with the family. In lieu of flowers, memorials to
Alzheimer's Association or Cystic Fibrosis Foundation appreciated.
Funeral Home phone 708-352-6500.


Penney
Offers Upbeat View, Sending Shares Higher
Big Pension Expense Depresses Fourth-Quarter Income,
but Margins Gain as Chain Avoids Deep Holiday Discounts
By Rachel Dodes and Karen Talley - The Wall Street Journal
February 20, 2010
J.C. Penney Co. on Friday forecast a
return to growth following more than two years of monthly sales
declines, even as its fiscal fourth-quarter earnings fell 5.2% on a
pension charge.
Myron E. Ullman III, chief executive
of the Plano, Texas, department-store chain, attributed the
improving outlook to several new initiatives such as the fall 2010
introduction of new lines from Liz Claiborne Inc. and the Spanish
fast-fashion chain Mango and the expansion of Sephora cosmetics
boutiques in its stores. The company said it expects to take market
share from competitors.
"We are assuming that the consumer is
still somewhat traumatized for legitimate reasons, whether it be the
jobs situation or constricted credit and other things," Mr. Ullman
said.
The comments came a day after
Wal-Mart Stores Inc. offered a soft sales outlook.
Penney posted a profit of $200
million, or 84 cents a share, for the quarter ended Jan. 30, down
from $211 million, or 95 cents a share, a year earlier. Sales fell
3.6% to $5.55 billion.
The profit included $71 million, or
18 cents a share, in pension expenses, compared with a 10 cents a
share gain a year ago.
Penney's profit from sales improved
in the recent fiscal year. Gross margin, or sales price less cost of
goods, hit 39.4%, a historical peak, as the 108-year-old company
increased private-label offerings, weaned consumers off aggressive
discounting and improved the flow of new merchandise.
The retailer's gross margin rate is
expected to remain at the fourth quarter's 38.2% level as
year-over-year sales turn higher, said Chief Financial Officer
Robert Cavanaugh.
Investors liked the results and
optimistic outlook, lifting Penney shares 6.6% to $27.66 in 4 p.m.
trading Friday on the New York Stock Exchange.
Penney's focus for the coming year is
to boost store productivity, rather than expand aggressively. "We're
doing this the old-fashioned way," Mr. Ullman said. "We're not just
going out and opening more stores. We don't think there are a lot of
real-estate opportunities out there that make sense."
Some analysts are still skeptical.
"We think management's top-line outlook for this year will likely
prove to be aggressive—especially as Kohl's Corp. looks to get more
aggressive on the pricing front and Target Corp. is showing signs of
improvement in their apparel offerings," said Michelle Clark, a
retail analyst at Morgan Stanley.
Like other retailers, the company has
been battling a sharp decline in consumer spending. Penney has seen
its shoppers focus on essential purchases as home vacancies grow and
joblessness remains high.
Penney said Friday it will unveil a
new five-year plan in April. The company had put its long-range plan
on hold during the financial crisis in favor of a "Bridge Plan," but
feels it is now positioned for growth again.
Mr. Ullman said some macro-economic
indicators have started to "go in the right direction" and predicted
that midterm elections will generate more enthusiasm, as politicians
begin "talking about ways they are going to improve the job
situation, the ways that the government is going to assist in
getting consumers back on their feet."


Health Backlash in the States
The provinces revolt against loss of choice.
Review &
Outlook - The Wall Street Journal
February 20, 2010
The backlash against ObamaCare is
moving beyond the Tea Parties and has now arrived in state capitals.
In more than 30 states, legislators are proceeding to pass statutes
or ballot initiatives that would guarantee the right to choose
medical services and insurance.
These laws are generally called
Health-Care Freedom Acts. If enacted, they will set off a
Constitutional 10th Amendment fight over whether there are
limitations on the powers of the federal government to regulate
health care and override the protections in these state laws.
Almost all these measures would make
it illegal for the government at any level to require a citizen of
the state to purchase health insurance. This would let Americans opt
out of any federal "individual mandate," which makes people buy
insurance or pay a tax, a la Massachusetts and both the House and
Senate bills in Congress.
Second, the bills would guarantee the
right of residents to pay directly for health services without
incurring penalties or fines. This means citizens could go outside
any government-run system to purchase private treatments from the
doctor or hospital of their choice. Often, the federal Medicare
program doesn't let doesn't let doctors charge extra for specialized
care.
Virginia's legislature has already
passed such a law and Republican Governor Bob McDonnell is about to
sign it. The house in both Utah and Idaho passed a similar bill last
week, and the Tennessee senate did so earlier this week by a vote of
26 to 1. Legislatures in Georgia, Kansas, Missouri, Nebraska,
Oklahoma, South Dakota and Tennessee are expected to hold votes in
coming weeks. Last June, Arizona's legislature authorized a November
2010 referendum vote on the Arizona Health Freedom Act. A similar
ballot initiative failed by a slim margin (0.5%) in 2008 after
health insurers spent millions to defeat it.
If Congress passes some version of
health legislation, the federal law may pre-empt these state laws.
But states do have the right to provide extra protections beyond
what federal law guarantees. Many states, for example, have freedom
of speech protections that go beyond federal law.
These bills aren't a "nullification"
of a federal law. Clint Bolick of the Arizona-based Goldwater
Institute notes: "If federal legislation is enacted, individuals
would still have the option to participate in federal health
insurance programs. This act simply protects a person's right not to
participate."
The major constitutional issue is
whether Uncle Sam has the right to supercede state laws, based on
the Commerce Clause of the Constitution, and compel Americans to
join a federal health system, as they must with Social Security and
Medicare.
President Obama and Democrats
continue to maintain their legislation is faltering because
Americans don't understand the good it would do for the quality of
their medical care. But the spectacle of "health-care freedom"
legislation emerging in some 30 states suggests that voters and
state lawmakers do understand that ObamaCare will alter the delivery
of health care in ways that will limit choice and access.
Mr. Obama next week will hold his
televised health-care summit, ostensibly to hear the ideas of
Congressional Republicans. Maybe he should expand the format to
include state legislators who are far out ahead of their Beltway
colleagues.


Sears to close 8 stores
By
Monée Fields-White - Chicago Business
February 19, 2010
(Crain’s) — Sears Roebuck & Co. is
shutting eight of its namesake stores.
The closings — none of which are
local — are part of the Hoffman Estates-based retailer's ongoing
effort to dump underperforming locations.
The news comes a day after parent
Sears Holdings Corp. said it would cut 13 Kmart Corp. stores,
including locations in Woodstock and Crestwood.
Sears currently has 3,530 stores
nationwide, including Kmart locations. With these cuts, Sears will
have closed 98 stores since late 2008.
The company will shut down department
stores in Georgia, Tennessee, North Carolina and Texas. It will also
shutter four Sears Essentials locations in New Jersey, Wisconsin and
New Hampshire.
The stores are expected to close by
May 9, except for the New Hampshire location, which is slated to
shut down on April 4. Sears Holdings is due to announce its
fourth-quarter earnings results on Tuesday.


Sears Agrees to Sell Craftsman Tool Brand
at Ace Hardware
By Mary Ellen Lloyd -
Dow Jones Newswires
February 19, 2010
Sears Holdings Corp. (SHLD) has
agreed to sell its popular Craftsman tool brand through Ace Hardware
stores, as the company turns again to outsiders to help grow its
sales.
Sears and Ace Hardware Corp., the largest retailer-owned cooperative
in the hardware industry by sales, said Friday they
willl start the partnership with 100 Ace stores selling about
10% of the total Craftsman line in May. The move confirms months of
speculation that Sears might turn to an outside hardware or
home-improvement chain to help sell the popular line of hand tools,
portable power tools and tool storage as sales at Sears namesake
department stores have continued to struggle.
Guenther Trieb, president of Sears Brands Management Corp., said in
an interview that Sears will decide later whether to roll out the
store-within-a-store Craftsman offering to all 4,500 Ace stores. But
all stores in June will be allowed to sell a smaller grouping of
Craftsman tools for a Father;s Day promotion.
"We believe it is a great strategic complement to our current
format," Trieb said. "It is a strategic move to drive the overall
value of the brand."
Ace currently sells tools made by Stanley Works (SWK) and by Black &
Decker Corp. (BDK), two companies that are in the process of
merging.
Sears roughly 900 department stores will remain the "headquarters"
for sales of Craftsman, which has some 6,000 stock-keeping units,
Trieb said. And the Ace stores will also complement Craftsman's
presence in about 80 Orchard Supply Hardware stores and 110 Sears
Hardware Stores in off-mall locations, he said.
Sears declined to discuss Craftsman's
recent business trends but said the line remains the market leader
"by far," Trieb said.
With its lifetime guarantee, Craftsman tools have long been popular
in the U.S.
Popular Mechanics magazine readers last year named Craftsman as
their favorite hand-tool brand, and market-research firm Harris
Interactive's 2009 brand-equity ranking
listed Craftsman as tops for tools.
Earlier this week, Sears said it will allow franchisees to open
Sears Auto Centers. And on Feb. 11, the company's
brand-management business announced a trademark licensing deal with
a manufacturer to sell DieHard battery chargers, jump starters and
other accessories to outside retailers.
Sears has said it won;t rule anything out with respect to expanding
sales of other well known brands, including Kenmore appliances.
"We are doing these move because we see great strategic opportunity,
and we currently don't have any specific
plans for Kenmore," Trieb said Friday.
Shares of Sears Holding traded down 0.1% at $94.99 in late trading
Friday. Shares of Stanley Works closed down 0.8% at $55.92, while
Black & Decker ended regular trading down 1% at $70.62.
Analysts have said Sears, which reports fourth-quarter results
Tuesday, must do something to revitalize sales. Sales trends in the
department stores weakened through the first two months of the Jan.
30-ended fourth quarter, according to a Sears update Jan. 7.
Comparable-store sales were running at a 6% decrease, on top of a
10.7% decline a year ago and compared with a 4.6% drop in the third
quarter.
Sears said tools and automotive sales had been stronger, but
large-ticket hardline categories offset the increases.
For its part, Ace seems like it could use a boost to its tools
business. The cooperative earlier this week said domestic
merchandise sales were most hurt by declines in the tools and
electrical categories.
The cooperative reported net income of $95.7 million for the Jan.
2-ended fiscal year, an 11.5% increase. Full-year revenue fell 10.4%
to $3.5 billion.


Ace Hardware
signs on to sell Craftsman
By Sandra M. Jones
- Chicago Tribune.com
February 19, 2010
Sears Holdings Corp. agreed to sell
Craftsman tools at Ace Hardware stores starting in May.
About 100 Ace stores will sell
Craftsman tools including hand tools and portable power tools. By
June, Ace will promote Craftsman products to its 4,500 Ace stores.
Sears has been talking to mid-size
hardware store chains across the country for the past year about
carrying Craftsman products in their stores, holding discussions
with Oak Brook-based Ace Hardware Corp., Do-It-Best Corp. of Fort
Wayne, Ind. and Tractor Supply Co. of Brentwood, Tenn., to name a
few, according to people familiar with the discussions.
The move follows an edict made two
years ago when Edward Lampert, Sears' Chairman and majority
shareholder, raised the possibilty publicly of selling Sears'
exclusive in-house brands through rival retailers.
Lampert grouped Sears' marquee
brands;Kenmore appliances, Craftsman tools and DieHard car
batteries—into a separate brand business unit in 2008 and
hired former Procter & Gamble Europe executive Guenther Trieb to run
it.
"Our mission is to develop a brand
building factory that grows the business, the brand equity and
shareholder value of Craftsman, Kenmore and DieHard," said Trieb in
an interview published and distributed to Sears employees. "We
believe this will be the next big thing in corporate America."
The strategy runs counter to what
most retailers are doing these days. Rivals from Walmart to J.C.
Penney to Kohl's to Home Depot are expanding their in-house brands
as a way to attract shoppers and stand out from their competitors.
Critics contend that selling Sears'
proprietary brands through other retailers could raise cash in the
short run, but over time give shoppers fewer reasons to visit its
stores and exacerbate the retailer's decline.


J.C. Penney Offers
Improved Outlook
By
Rachel Dodes and Karen Talley
Dow Jones Newswires
February 19, 2010
J.C. Penney Co. on Friday forecast a
return to growth following more than two years of monthly sales
declines, even as its fiscal fourth-quarter earnings fell 5.2% on a
pension charge.
Myron E. Ullman III, chief executive
of the Plano, Texas, department-store chain, attributed the
improving outlook to several new initiatives such as the fall 2010
introduction of new lines from Liz Claiborne Inc. and the Spanish
fast-fashion chain Mango and the expansion of Sephora cosmetics
boutiques in its stores. The company said it expects to take market
share from competitors.
"We are assuming that the consumer is
still somewhat traumatized for legitimate reasons, whether it be the
jobs situation or constricted credit and other things," Mr. Ullman
said.
The comments came a day after
Wal-Mart Stores Inc. offered a soft sales outlook.
Penney posted a profit of $200
million, or 84 cents a share, for the quarter ended Jan. 30, down
from $211 million, or 95 cents a share, a year earlier. Sales fell
3.6% to $5.55 billion.
The profit included $71 million, or
18 cents a share, in pension expenses, compared with a 10 cents a
share gain a year ago. Penney's profit from sales improved in the
last fiscal year. Gross margin, or sales price less cost of goods,
hit 39.4%, a historical peak, as the 108-year-old company increased
private-label offerings, weaned consumers off aggressive discounting
and improved the flow of new merchandise.
The retailer's gross margin rate is
expected to remain at the fourth quarter's 38.2% level as
year-over-year sales turn higher, said Chief Financial Officer
Robert Cavanaugh.
Investors liked the results and
optimistic outlook, lifting Penney shares 6.6% to $27.66 in 4 p.m.
trading Friday on the New York Stock Exchange.
Penney's focus for the coming year is
to boost store productivity, rather than expand aggressively. "We're
doing this the old-fashioned way," Mr. Ullman said. "We're not just
going out and opening more stores. We don't think there are a lot of
real-estate opportunities out there that make sense."
Some analysts are still skeptical.
"We think management's top-line outlook for this year will likely
prove to be aggressive—especially as Kohl's Corp. looks to get more
aggressive on the pricing front and Target Corp. is showing signs of
improvement in their apparel offerings," said Michelle Clark, a
retail analyst at Morgan Stanley.
Like other retailers, the company has
been battling a sharp decline in consumer spending. Penney has seen
its shoppers focus on essential purchases as home vacancies grow and
joblessness remains high. Last year, Penney embarked on a push into
urban areas by launching its first store in Manhattan, hoping an
edgier mix of merchandise would boost its credibility among urban
consumers.
Penney said Friday it will unveil a
new five-year plan in April. The company had put its long-range plan
on hold during the financial crisis in favor of a "Bridge Plan," but
feels it is now positioned for growth again.
Mr. Ullman said some macro-economic
indicators have started to "go in the right direction" and predicted
that midterm elections will generate more enthusiasm, as politicians
begin "talking about ways they are going to improve the job
situation, the ways that the government is going to assist in
getting consumers back on their feet."


The Oscar for Best
Retiree Goes to...
Our picks for the 10 best retirement films of all time
Lifestyles - Dow Jones Newswires
February 19, 2010
Retirement, at first blush, isn't the
stuff that Hollywood blockbusters are made of. But with the Academy
Awards scheduled for March 7, and given our focus at Encore, we
began thinking about films in which retirees, or the idea of
retirement, play a central role. As it happens, retirement isn't a
bad way to pick up an Oscar. Or at least a nomination.
Starting with recommendations from
experts (read: my brother Stephen), a thorough search of databases (imdb.com
is a favorite) and some help from The Wall Street Journal's film
critic, Joe Morgenstern, we've assembled a list of the 10 best
retirement films of all time. Even found a blockbuster or two.
Imagine that. —Glenn Ruffenach
About Schmidt (2002) Jack
Nicholson is Warren Schmidt, a newly retired insurance actuary and,
soon after the film begins, widower. With no spouse, no job and no
purpose, he climbs into a 35-foot Winnebago (which he and his wife
had planned to use in retirement) and begins a poignant search for a
life. A remarkably understated performance by the usually
redoubtable Mr. Nicholson. Both he and Kathy Bates, with whom he
memorably shares a hot tub in the film, were nominated for Oscars.
At first blush, retirement films
aren't the stuff that Hollywood blockbusters are made of. But as it
happens, focusing on retirement isn't a bad way to pick up an Oscar.
Or at least a nomination.
Cocoon (1985) Retirement meets
science fiction. Director Ron Howard brings together a group of
listless retirees—led by Don Ameche, Wilford Brimley and Hume Cronyn—and
a group of hearty aliens (the Antareans) and creates a tender (and,
at times, very funny) look at later life in America. Mr. Ameche has
a wonderful scene as a newly energized dancer and, at age 77, won
the Oscar for best supporting actor.
Going in Style (1979)
Retirement is tough for George Burns, Art Carney and Lee Strasberg.
The three men live together in an apartment in Queens, N.Y.,
subsisting primarily on Social Security checks. Days are spent on a
bench in a nearby park, feeding the pigeons. To relieve the tedium
and earn a few extra dollars, Mr. Burns's character suggests—what
else?—robbing a bank. Which they proceed to do, with surprising
results. Although billed primarily as a comedy, this is a remarkably
frank and sometimes heartbreaking portrait of later life.
Harry and Tonto (1974) A
retired teacher in New York, played by Art Carney, is forced to move
when his apartment building is torn down to make way for a parking
garage. After a brief and unsatisfying stay with his son, Mr.
Carney's character and his best friend, a cat named Tonto, take to
the road. Their journey is a series of small but splendid
discoveries. Mr. Carney, at the time known primarily for his
television and stage work, scored one of the biggest upsets in Oscar
history, taking the best-actor award over fellow nominees Albert
Finney, Dustin Hoffman, Jack Nicholson and Al Pacino.
High Noon (1952) Gary Cooper
is trying to retire in this classic western. But the bad guys, and
his conscience, won't let him. Mr. Cooper is Will Kane, a small-town
marshal whose new wife is played by Grace Kelly. It's his last day
on the job, but when he learns that a man he sent to prison years
earlier is returning on the noon train to seek revenge, he stays and
fights. Mr.
Cooper got the Oscar for best actor,
but the film itself lost the best-picture contest (inexplicably) to
Cecil B. DeMille's "The Greatest Show on Earth."
The Lion in Winter (1968) Can
a king retire? It's Christmas in the year 1183, and Peter O'Toole,
as an aging Henry II, hopes to choose a successor from among his
three sons. But the boys and their calculating mother, played by
Katharine Hepburn, have their own ideas about who should inherit the
throne. Brilliant dialogue and inspired performances (including
Anthony Hopkins's first screen role). Oscars for Ms. Hepburn as best
actress (in a tie with Barbra Streisand for "Funny Girl") and best
adapted screenplay.
Lost in America (1985) A very
funny look at early retirement gone wrong. When he is denied his
dream job, advertising executive David Howard (Albert Brooks) and
his wife, Linda (Julie Hagerty), ditch their careers in California,
cash out their savings accounts, and plan to spend the rest of their
days crisscrossing the country in a motor home. Unhappily, Linda,
after just 24 hours on the road, loses virtually all their money in
a Las Vegas casino. (David: "Why didn't you tell me when we got
married that you were this horrible gambling addict?" Linda: "I've
only gambled twice in my life. This was the second time.") David's
subsequent conversation with the casino manager—an effort to get the
couple's money back—alone is worth the price of admission.
On Golden Pond (1981) Henry
Fonda, in his last picture, is a retired college professor
approaching his 80th birthday. He's grappling with his mortality—and
with his estranged daughter, played by Jane Fonda. Much was made, at
the time, of the on-screen pairing of the real-life father and
daughter. But the film belongs to the older Fonda and Katharine
Hepburn, who plays his devoted, indomitable wife. Received three
Oscars: best actor, best actress (Ms. Hepburn's fourth) and best
adapted screenplay.
The Straight Story (1999)
Actor Richard Farnsworth earned a best-actor nomination for his role
as Alvin Straight, a 73-year-old retiree in the small town of
Laurens, Iowa. Straight lives with his daughter ( Sissy Spacek), and
neither is able to drive. This becomes a problem when Straight
learns that his brother, who lives 300 miles away in Wisconsin, has
been felled by a stroke. Wanting to see the brother before he dies
(and unable to afford a bus ticket), Straight boards a riding lawn
mower and (at five miles per hour) sets out for Wisconsin. As with
"Harry and Tonto," the odyssey makes the picture. Based on a real
story.
Unforgiven (1992) Clint
Eastwood is William Munny, a retired gunman turned hog farmer. "I'm
just a fella now," he tells his former partner, played by Morgan
Freeman. "I ain't no different than anyone else no more." But when a
young cowboy offers Munny a chance to avenge a cruel attack on a
prostitute (and to split a $1,000 reward), he mounts up, metes out
frontier justice (giving special attention to a corrupt sheriff
played by Gene Hackman) and becomes, if for just a few moments, the
man he once was. Almost flawless. Oscars for best director (Mr.
Eastwood), best supporting actor (Mr. Hackman) and best picture.


Wal-Mart Foresees
Soft Sales Ahead
By
Miguel Bustillo and Karen Talley - Wall Street Journal
February 19, 2010
Wal-Mart Stores Inc., which benefited
from better sales during the start of the economic slump as
consumers turned to discount merchandise, said its U.S. sales fell
during the holidays even as other retailers saw signs of slow
recovery.
The decline in U.S. sales during the
fourth quarter at the world's largest retailer—which collects
roughly $1 out of every $10 spent at stores in America—was
accompanied by a company warning that soft sales would persist
through April.
"The economy remains challenging for
many of our customers around the world," Chief Executive Mike Duke
said, adding, "We expect first-quarter sales in the U.S. will be
difficult."
With unemployment high and many
Americans still digging out from the housing collapse, many
economists believe consumer spending is unlikely to soon return as
the big driving force it was through much of the past decade.
Still, consumer spending grew at an
inflation-adjusted rate of 2% in the fourth quarter, and economists
expect it will increase at that pace or better in the current
period. Consumer confidence, while still below pre-recession levels,
is substantially stronger than a year ago, and an increase in
savings has offered households more wiggle room.
"Consumers may be becoming a bit less
cost-conscious again," said MF Global economist James O'Sullivan.
Historically, that trend has not
benefited discounters such as Wal-Mart. The 1.6% decline in
same-store sales at its U.S. Wal-Mart department stores and Sam's
Club warehouses came at a time when many retail rivals are beginning
to report that shoppers are gradually gravitating back to
higher-priced merchandise after hunkering down during the recession.
"The benefit they saw last year from
the 'trade-down' effect seems like it's dissipating," said Alan
Lancz, president of Alan B. Lancz & Associates, an investment
advisory firm.
Chief Financial Officer Tom Schoewe
said in a conference call with reporters that Wal-Mart was
continuing to retain the new customers it had gained during the
recession. The retailer has said during the past year that more
affluent consumers were increasingly among its shoppers.
But he acknowledged that increased
competition from other retailers, which had adjusted inventories and
introduced lower-cost goods by late 2009, weighed on Wal-Mart's
results.
"We are a little bit of a victim of
our success from last year," Mr. Schoewe said, noting that Wal-Mart
faced difficult comparisons to its strong quarter a year earlier,
when its U.S. sales at Wal-Mart department stores rose 6% even as
they sharply declined nearly everywhere else. "It has certainly got
more difficult in the fourth quarter," he added.
Wal-Mart still managed to notch a 22%
profit increase for the three months ended Jan. 31, thanks to
improved expense controls and international sales gains. For the
full year, it posted a record $405 billion in annual revenues.
Following a stronger than anticipated
holiday showing, top retail chains reported that sales in stores
open at least a year rose 3.3% in January compared to the prior year
according to a retail index compiled by Thomson Reuters. The index
does not include Wal-Mart, which stopped reporting monthly sales
last year.
Among the stronger performers were
department stores Macy's Inc., which saw same-store sales grow 3.4%,
and Nordstrom Inc., where sales jumped 14%. Wal-Mart rival Target
Corp. also eked out a 0.5% increase, continuing a slow revival after
months of weaker sales.
Restaurant companies including Darden
Restaurants Inc., the parent of the Olive Garden and Red Lobster
chains and a bellwether for casual dining, also have recently
reported better sales after a lengthy period of declines.
Wal-Mart executives said the U.S.
sales declines, were due primarily to falling prices in food and
electronics, two critical categories for the discount retailer. The
drop was below the company's forecast of flat comparable-store
sales, plus or minus one percent.
Other retailers, such as Best Buy
Co., however, have reported that they were overcoming deflation on
items such as flat-panel televisions with higher sales volumes, and
Wal-Mart had managed to do so as well until recently.
Yet despite Wal-Mart's recent
weakening, the discount giant still apparently managed to wrest a
larger share of U.S. spending overall. Craig R. Johnson, president
of Customer Growth Partners, a retail consultancy, noted that
Wal-Mart's U.S. revenues for 2009 represented 10.5% of U.S. retail
spending based to overall figures released by the Commerce
Department for retail sales minus autos, restaurants and fuel.
"Individual retailers are arguably
gaining share on Wal-Mart, including Kohl's [Corp.] and maybe Best
Buy," Mr. Johnson said, "But it's not like consumers are suddenly
opting to pay full price again. Wal-Mart still has tremendous appeal
in this economy, and that's not likely to change."
Wal-Mart posted a quarterly profit of
$4.63 billion, or $1.21 a share, up from $3.79 billion, or 96 cents
a share, a year earlier. Excluding a tax benefit in the latest
quarter and other charges, including the costs of closing 10 Sam's
Club locations, earnings per share were $1.17.
For the current quarter, the
Bentonville, Ark., company projected earnings per share of 81 cents
to 85 cents, and another round of flat U.S. comparable-store sales,
plus or minus one percent. Wal-Mart said it expected stronger
performance during the second half of the fiscal year and forecast
annual earnings of $3.90 to $4 a share.
Wal-Mart's stock declined 1%, or 59
cents, at $53.47 in 4 p.m. trading on the New York Stock Exchange.
—Justin Lahart contributed to this
article.


Sears
Begins Franchising of Its Auto Centers
By Mary Ellen Lloyd
- Dow Jones Newswires
February 18, 2010
For the second time in a week, Sears
Holdings Corp. (SHLD) said it is turning to outsiders to help expand
its business as the company said Thursday that it is allowing
franchisees to open Sears Auto Centers.
Sears said it is offering auto
dealers that recently lost their new-car franchises a new use for
their space: Sears Auto Centers offering parts and services;
over-the-counter merchandise; and previously owned vehicle sales.
The franchises will have the same
products and services available at about 850 company-owned Sears
Auto Centers, including DieHard batteries. They will offer similar
services as other auto-repair chains, such as Pep Boys-Manny Moe &
Jack (PBY), Meineke Car Care Centers and Monro Muffler Brake Inc. (MNRO).
In some cases, Sears Auto Center
franchises will be allowed to carry other Sears products, such as
Craftsman tools, said Bill Jackson, senior vice president of Sears
Holdings Corp. and president of Sears Authorized Independent Auto
Centers LLC.
Sears will help line up financing for
car purchases, and it hopes eventually to offer Sears-backed
warranties on the vehicles, Jackson said in an interview.
Last week, Sears brand-management
business announced a trademark licensing deal with a manufacturer of
battery accessories to sell DieHard brand battery chargers, jump
starters and other accessories to outside retailers. That agreement
with Schumacher Electric Corp. didn't include DieHard batteries
themselves.
While the two deals are unrelated and
structured very differently, they show the company is seeking
efficient ways to grow, Jackson said.
"Sears has a lot of spectacular
assets, the auto business being one of them and the brands being
another," Jackson said. "What we are looking for is smart ways to
expand them."
Department-store sales at Sears
namesake stores have continued to struggle, despite strong brand
names in Craftsman, Kenmore and other products. Sears will report
its fiscal fourth-quarter results on Tuesday.
The first auto center franchise, in
East Windsor, N.J., is targeting an April 1 opening, and Jackson
said Sears has several other new centers in the works. "We are
looking right now, initially, for 20," he said. "Once we define the
model and get it to work perfectly, we think it could be hundreds.
"Sears has got a great auto business
today," he said, declining to offer specific financial details.
"This was a great opportunity to expand our model."
Franchises must pay an initial fee of
$30,000 for the franchise and $3,000 a month in brand license fees
for the first year and $2,000 monthly thereafter. A service license
fee of 2% of prior year revenue is charged after the first year, and
franchisees contribute 3% of net revenue to a marketing fund to
support national advertising and activities.
Several thousand auto dealerships in
the U.S. have lost their franchises as auto makers have consolidated
amid efforts to become profitable.
"There is a lot of very good talent
in rejected Jeep, Chrysler, Dodge, Saturn, Pontiac and Saab dealers
that already have the facilities in place, the manpower and years of
experience to help Sears sell their products," said Bruce Coleman,
president of the Coleman Auto Group dealership in East Windsor,
N.J., and a partner in what will be the first Sears Auto Center
franchise.
Coleman Auto Group will turn its
former Chrysler and Jeep store into the Sears Auto Center,
converting the former new-car showroom into a shop selling Sears
auto accessories, rooftop carriers, battery chargers and other
items.
Shares recently traded down 1.2% at
$94.20. The stock has more than doubled in value in the past year.

Sears Begins
Franchising of Its Auto Centers
Dow Jones Newswires
February 18, 2010
Sears Holdings Corp. (SHLD) said it
will allow franchising of its Sears Automotive businesses, offering
many auto dealers that have recently lost their franchises to sell
new vehicles a new use for their space.
Sears said franchisees will be able
to open Sears Auto Centers that focus on parts and services,
over-the-counter merchandise and previously owned vehicle sales. The
franchises will have the same products and services that are now
available at about 850 company-owned Sears Auto Centers.
Several thousand auto dealerships in
the U.S. have lost their franchises as auto makers have consolidated
amid efforts to become profitable. Coleman Auto Group of East
Windsor, N.J., is the first dealership to franchise under the Sears
name and will open a Sears Auto Center in March.
The move by Sears comes as
department-store sales at its namesake stores have continued to
struggle. But growth has been reported of late at its Kmart chain.
Sears will report its fiscal fourth-quarter results on Tuesday.
Shares closed at $95.32 on Wednesday
and were inactive premarket. The stock has more than doubled in
value in the past year.

Sears will franchise
auto centers
By
Sandra Guy - Staff Reporter - Chicago Sun-Times
February 18, 2010
For the second time in a week, Sears
Holdings Corp. is making good on Chairman Edward S. Lampert’s goal
of letting outside businesses buy rights to the name of Sears’
once-proprietary brands.
Sears announced this morning that it
will franchise its Sears Auto Center business to auto dealers who
have lost their dealerships in the Chrysler and General Motors
downsizings.
The new franchised centers will offer
the same products and services for cars, light trucks and
motorcycles as do Sears’ company-owned auto centers, according to
the Hoffman Estates-based retailer. Sears Auto Centers offer repair
service and sell products such as DieHard batteries and Michelin,
Goodyear, BF Goodrich and Bridgestone tires.
Some of the franchised auto centers
will be located next to body-shop operations, making them convenient
for customers, Sears said.
The first franchisee is Coleman Auto
Group in East Windsor, N.J., which will operate a Sears Auto Center
on the site of a former Chrysler dealership.
One week ago, Sears announced it had
signed a licensing agreement to sell DieHard battery chargers, jump
starters and power inverters to Schumacher Electric Corp.
Lampert, the hedge-fund billionaire
who engineered Kmart’s $12.3 billion takeover of Sears five years
ago, introduced the idea of selling Sears’ proprietary brands to
outside companies three years ago.
Sears has also advertised for
entrepreneurs to run its Sears Hometown dealer stores, which sell
tools, electronics, lawn mowers and vacuum cleaners.


Wal-Mart's Profit Rises 22%;
Current-Quarter Outlook Is Weak
By Karen
Talley - Dow Jones Newswires
February 18, 2010
Wal-Mart Stores Inc. reported a 22%
gain in fourth-quarter profit but said sales declined at U.S. stores
opened more than a year. The retailing giant also offered tepid
first-quarter earnings guidance. The worse-than-expected sales
results were due primarily to falling prices in grocery and
electronics, the company said. The soft fourth-quarter sales also
may reflect that consumers aren't relying on discounters are much.
"The benefit they saw last year from
the 'trade-down' effect seems like it's dissipating," said Alan
Lancz, president of Alan B. Lancz & Associates, an investment
advisory firm. While higher-priced competitor Target Corp. has been
seeing improving same-store sales, Wal-Mart's are deteriorating
sequentially, Mr. Lancz noted.
For the period ended Jan. 31,
Wal-Mart posted a profit of $4.63 billion, or $1.21 a share, up from
$3.79 billion, or 96 cents a share, a year earlier. Excluding a tax
benefit in the latest quarter and other charges, earnings from
continuing operations rose to $1.17 from $1.03. In November, the
company projected $1.08 to $1.12, largely below analysts' estimates
at the time, which hadn't changed since.
Net sales increased 4.5% to $113.65
billion, falling short of analysts' predictions of $114.36 billion.
Sales at U.S. stores opened more than a year fell 1.6%, excluding
fuel, and were down 2% at namesake outlets and up 0.7% at the Sam's
Club warehouse change. The company had projected a companywide drop
of as much as 1%.
For the current quarter, Wal-Mart,
based in Bentonville, Ark., projects per-share earnings between 81
cents and 85 cents, while analysts on average have been forecasting
85 cents a share, according to Thomson Reuters. For the year, it
said it is targeting $3.90 to $4 a share. On average, analysts have
been projecting $3.97 a share.
For the current quarter, the company
expects U.S. same-store sales to be flat, plus or minus a percentage
point.
Wal-Mart had been faring better than
most non-discount retailers because its low prices appeal to
recession-weary consumers. But increasing signs of stabilization may
be boosting buyers' spending, steering them away from Wal-Mart to
more fuller-priced items.
Other consumer-driven sectors of the
economy also are seeing signs that consumers are loosening their
purse strings. Restaurant chains—such as Darden Restaurants Inc., a
bellwether for casual dining—have been in recent weeks reporting
better sales as the sector shakes off years of declines.


Did Wal-Mart's
Price Cuts Help Bag Sales?
By
Miguel Bustillo - Wall Street Journal
February 18, 2010
Wal-Mart Stores grabbed plenty of
headlines over the holidays with aggressive prices on best-selling
books, movies and videogames.
Now, investors are about to find out
if the hype helped the world's largest retailer snap up extra sales.
The Bentonville, Ark., company, which
reports fiscal fourth-quarter results Thursday, made its reputation
by passing price cuts down to consumers, making up for the smaller
margins with higher sales. That, in turn, let Wal-Mart squeeze
buying clout from vendors that helped the discount retailer push
prices even lower.
Lately, though, Wal-Mart has met or
exceeded earnings forecasts with unusually high gross margins that
suggest the company has been holding onto some of the cost
reductions traditionally passed along to customers.
Chief Executive Mike Duke promised
last year that the "productivity loop" would make a return,
assuaging critics who wondered if the company was veering from
founder Sam Walton's blueprint. Wal-Mart rolled out a flurry of
targeted promotions every week going into the Christmas holidays, in
a bid to underscore its image of having the lowest prices on
everything.
Whether the price cuts sparked sales
growth during an economic slump is the big question. Wal-Mart
already reaped the early benefit of consumers trading down to
discount merchandise.
Wal-Mart set expectations low in
November, forecasting that sales at stores open at least a year
would be somewhere between up 1% and down 1% in the latest quarter.
That suggests the company is challenged just to keep the customers
it gained during the recession.
Still, Wal-Mart predicted earnings
per share of $1.08 to $1.12, above last year's $1.03. The consensus
among analysts is $1.12, according to Thomson Reuters.
Though it faces tougher overall sales
comparisons from a year ago, Wal-Mart is benefiting from rising food
prices and a more favorable exchange-rate environment, which is
expected to be a tailwind for its international business this year.
If Wal-Mart can show it piled up
sales during the holidays, and issues a rosier projection for its
next fiscal year, that would help sway skeptics that the retailer
has more market share to gain with its everyday low prices.


With Big Takeover Bid, Simon Aims to Control 30% of U.S. Malls
By
Michael J. de la Merced - New York Times
February 17, 2010
After months of speculation, the
Simon Property Group on Tuesday finally made an unsolicited $10
billion offer for General Growth Properties, its bankrupt rival. But
General Growth quickly rebuffed the approach, calling the bid too
low.
The New Park Mall in Newark, Calif.,
owned by General Growth Properties. The Simon Property Group offered
$10 billion for the company on Tuesday.
The Roosevelt Field Mall in Garden
City, N.Y., owned by the Simon Property Group, which is well
regarded in the industry.
If successful, Simon, already the
biggest mall operator in the country, would control about 30 percent
of malls in the United States, according to analysts from Bank of
America Merrill Lynch.
Merging the two companies, whose
portfolios are roughly the same size, would also unite two of the
most well-known names in the business.
In a letter sent to Simon late
Tuesday, General Growth’s chief executive, Adam Metz, said that he
would welcome discussions within the confines of the bankruptcy
process.
“We and our board of directors have
given considerable thought to your indication of interest and have
concluded based on discussions with other interested parties that it
is not sufficient to pre-empt the process we are undertaking to
explore all avenues to emerge from Chapter 11 and maximize value for
all the Company’s stakeholders,” Mr. Metz said.
A merger would allow General Growth
to finally remove itself from a 10-month, complicated Chapter 11
case.
Begun 56 years ago as a shopping
center in Iowa, General Growth grew to be one of the nation’s
biggest mall companies, operating prized malls like the Ala Moana
Center in Honolulu, only to run aground because of debt troubles
after acquiring the Rouse Company for $12.6 billion in 2004.
Simon, whose chief executive, David
Simon, is the scion of the company’s founding family, is regarded by
analysts as one of the best-managed mall operators in the business.
Over the last year, Simon has been
building up its war chest to prepare for acquisitions to take
advantage of depressed commercial real estate prices, with General
Growth squarely in its sights. It said on Tuesday that its offer
would be largely financed by its cash on hand and existing credit
agreements.
“They’re the most logical strategic
bidder in the whole world for General Growth,” said James Sullivan,
a managing director at Green Street Advisors, a real estate research
firm. Mr. Sullivan added that other mall operators might be
interested in buying pieces of General Growth’s portfolio.
Simon’s move is meant to pre-empt
General Growth’s own plan to emerge from bankruptcy, which may
include financial help from another mall operator, Brookfield Asset
Management, that owns some of its unsecured debt. A hearing on
General Growth’s motion to extend the exclusivity period for its
plan of reorganization is scheduled for Monday in federal bankruptcy
court in Manhattan.
Simon is portraying its offer as
speeding General Growth’s exit from Chapter 11 by paying off $7
billion in unsecured debt in full and in cash and by assuming about
$21 billion in secured debt. Under the terms of its proposal, Simon
would pay about $6 a share in cash. It would also distribute
ownership in General Growth’s planned community development, valued
at about $3 a share.
“Simon is in the unique position of
being able to offer General Growth creditors and shareholders full,
fair and immediate value,” Mr. Simon said in a statement. “Our offer
provides much-needed certainty to conclude General Growth’s
protracted reorganization process.”
General Growth’s official unsecured
creditors committee said in Simon’s statement that it was
encouraging talks between the two companies. In the world of mall
operators, gaining size and scale gives companies greater bargaining
power over their tenants, especially the national retailers whose
stores serve as anchors. For Simon, which owns many outlet malls as
well as some marquee names like Copley Place in Boston, the merger
would also present a more formidable rival to other owners of
shopping real estate, including Wal-Mart and operators of strip
malls and lifestyle centers, Mr. Sullivan said.
“In the mall business, being bigger
is better,” he said.
Advisers for the two companies have
met several times in the last few months, according to a person
briefed on the matter. Last week, Simon executives formally
presented their offer to General Growth’s chief executive, lead
independent director and advisers to discuss its takeover proposal.
While advisers for the two companies have talked since then, Simon
made the matter public after it received no formal response to its
offer.
One question is how one of General
Growth’s biggest stakeholders, the hedge fund Pershing Square
Capital Management, will respond to Simon’s offer. In a December
presentation, Pershing Square’s head, William Ackman, said that
based on a comparison with publicly traded rivals, he believed
General Growth was worth at least $24 a share.
Simon is being advised by the
investment banks Lazard, JPMorgan Chase and Morgan Stanley and the
law firm Wachtell, Lipton, Rosen & Katz. General Growth’s advisers
include the investment banks UBS and Miller Buckfire and the law
firm Weil, Gotshal & Manges.


Lampert
Raises Exposure To Financials In 4Q
By
Brendan Conway - Dow Jones Newswires
February 16, 2010
(Dow Jones)--Hedge fund billionaire
Edward Lampert built up exposure to the financial sector last
quarter, a regulatory filing Tuesday shows.
Lampert-affiliated RBS Partners
reported a substantially larger Citigroup Inc. (C) stake as of Dec.
31, as well as 1.5 million new shares in Wells Fargo & Co. (WFC) and
about 454,000 in Bank of America Corp. (BAC). Lampert's
Citigroup holdings rose 12.5 million shares to 31.3 million.
The chairman of Sears Holding Corp. (SHLD)
also reported 4.5 million shares in lender CIT Group Inc. (CIT),
after reporting no CIT stake in the previous period.
The moves reverse some of the
adjustments Lampert made over the summer, when he reduced exposure
to several financial stocks and eliminated what was once a stake of
15.4 million CIT shares.
Lampert also kept cutting holdings in
Sallie Mae (SLM), which he reduced last summer as well. Lampert
reported 2.9 million shares in the student lender as of Dec. 31,
down from 4.3 million in the previous quarter.
Other adjustments made by the Sears
chairman include a trimming of nearly 200,000 shares in Capital One
Financial Corp. (COF) and about 400,000 in marketing-services
company Acxiom Corp. (ACXM).
Many investors who manage more than
$100 million are required to disclose holdings of most types of
securities within 45 days of the end of a quarter. The filings give
the public its freshest possible look inside the portfolios of
well-known investors.
The fourth-quarter deadline was
Tuesday.


Simon Bids for General
Growth
By Joan
E. Solsman - Dow Jones Newswires
February 16, 2010
Simon Property Group Inc. offered to
buy General Growth Properties Inc. for about $10 billion as the
world's largest shopping-mall operator seeks to absorb the No. 2
mall owner in the U.S. as it grapples with bankruptcy.
Although shopping-mall real-estate
investment trusts have been struggling with declines in consumer
spending, Simon is viewed as one of the healthiest. It reported
better-than-expected quarterly results last month, and although
Simon's business was still hurt by write-downs and lower occupancy
rates, it predicted brighter days for 2010.
Meanwhile, Simon raised several
billion dollars in the latter part of 2009 looking for opportunities
to take advantage of woes in the commercial real-estate sector.
Simon had said earlier this month it wasn't in active negotiations
with General Growth.
The Chicago-based owner of 200 U.S.
malls, filed for Chapter 11 bankruptcy protection in April, taking
166 of its malls into the case with it. Since then, it has
restructured and extended the due dates of $11.6 billion in
mortgages on its malls. But it still needs to reach similar deals
with holders of another $3 billion of mortgages and to pay its $7
billion of unsecured debt with either cash or equity.
Simon said Tuesday its proposed deal
would accelerate General Growth's emergence from bankruptcy court.
The offer gives creditors about $7 billion in considerations by
providing a 100% cash recovery of par value plus accrued interest
and divided to holders of various debt and securities.
General Growth shareholders would
receive more than $9 as share, including $6 in cash plus assets
valued at more than $3 a share. It is also prepared to offer Simon
common shares instead of cash to General Growth holders interested
in owning Simon stock.
Secured debt on General Growth's
portfolio would remain in place.
A General Growth spokesman wasn't
immediately available to comment. Simon Property's stock closed
Friday at $72 and wasn't active premarket.


Simon makes
$10B offer for General Growth
Dow Jones Newswires
- Chicago Tribune
February 16, 2010
Simon Property Group Inc. offered to buy
Chicago-based General Growth Properties Inc. for about $10 billion,
as the world's largest shopping-mall operator seeks to absorb the
No. 2 mall owner in the U.S. while General Growth grapples with its
exit from bankruptcy.
General Growth, a real estate investment trust
that owns Water Tower Place and more than 200 regional shopping
malls in 45 states, filed for bankruptcy last year.
Although shopping-mall real estate investment
trusts have been struggling with declines in consumer spending,
Simon is viewed as one of the healthiest. Reporting
better-than-expected profit for the fourth quarter last month, Simon
was still hurt by write-downs and lower occupancy rates, but it
predicted brighter days for 2010.
Meanwhile, Simon raised several billion dollars in
the latter part of 2009, looking for opportunities to take advantage
of woes in the commercial real-estate sector. Simon had said earlier
this month it wasn't in active negotiations with General Growth.
The Chicago-based owner of 200 U.S. malls filed
for Chapter 11 bankruptcy protection in April, taking 166 of its
malls with it. Since then, it has restructured and extended the due
dates of $11.6 billion in mortgages on its malls. But it needs still
needs to reach similar deals with holders of an additional $3
billion of mortgages and to pay its $7 billion of unsecured debt
with either cash or equity.
Simon said Tuesday its proposed deal would
accelerate General Growth's emergence from bankruptcy court. The
offer gives creditors about $7 billion in considerations by
providing a 100% cash recovery of par value plus accrued interest
divided among holders of various debts and securities.
General Growth shareholders would receive more
than $9 a share, including $6 in cash plus assets valued at more
than $3 a share. It is also prepared to offer Simon common shares
instead of cash to General Growth holders interested in owning Simon
stock.
Secured debt on General Growth's portfolio would
remain in place.
A General Growth spokesman wasn't immediately
available to comment. Simon Property's stock closed Friday at $72
and wasn't active premarket.


Sears Holdings Names President of Kmart Apparel Business Unit
Sears
Holdings News Release
February 15, 2010
HOFFMAN ESTATES, Ill., Feb. 15 /PRNewswire-FirstCall/
-- Sears Holdings (Nasdaq: SHLD) announced today that apparel
veteran Tara Poseley will join the company as SVP and president –
Kmart Apparel. She will be responsible for the oversight, leadership
and strategic growth of Kmart's apparel business, both in-store and
online.
Poseley brings to the company over 20 years of
diverse retail experience - leading brand and new business launches,
developing Web sites and employing social networking tactics for
several well-known retailers. She most recently held the role of
President for BEBE SPORT, and in six months created and launched PH8
(fate) to replace the BEBE SPORT brand.
Previous to BEBE SPORT, Tara was President for
Disney Stores North America, a division of The Children's Place as
well as CEO and President for Design Within Reach, a preeminent
provider of distinctive modern design furnishings and accessories.
She started her career with Gap Inc., as a merchant trainee.
During her 15 years with the company, she held
numerous senior leadership roles including SVP, GapKids and babyGap
and played a key role in the launch of gapbody. Poseley earned a
bachelor's degree from the University of Wisconsin at Madison.
"We're excited that Tara is joining our apparel
team," said John Goodman, EVP – Home and Apparel. "She is an
accomplished leader and merchant whom I have worked with previously.
She brings to the company excellent product development and brand
management experience and a demonstrated success in creating and
inspiring high performance teams that are focused on satisfying the
customer."
"As we to work to transform our business and
enhance our relationships with our customers, I'm pleased to add a
leader with Tara's wealth of apparel experience to our team,"
added Bruce Johnson, Interim CEO and President. "Under John's
leadership, we are confident that we will continue to attract high
caliber talent to the company."
Poseley will be based in the company's San
Francisco apparel offices.


Discover to Pay $775
Million
Settlement With Former Parent Morgan Stanley Brings Legal
Feud to an End
By Aparajita
Saha-Bubna - Wall Street Journal
February 13, 2010
Discover Financial Services said
Friday it would pay $775 million to Morgan Stanley under the terms
of a settlement, closing the chapter on a legal battle with its
former parent.
The settlement, reported Friday in a
filing with the Securities and Exchange Commission, won't affect
Discover's bottom line.
That is because the company already
had squirreled away reserves, totaling $809 million as of Nov. 30,
in anticipation of a payment to Morgan Stanley.
Morgan Stanley last month won a legal
ruling under which Discover was obligated to pay as a special
dividend over almost $800 million Morgan Stanley said it was owed.
Discover had said it would appeal the
ruling.
"On a positive note, the settlement
limited the amount Discover had to pay Morgan Stanley," said Sanjay
Sakhrani, an analyst at Keefe, Bruyette & Woods, in a research note
published Friday.
Mr. Sakhrani has the equivalent of a
"buy" rating on Discover shares.
At issue is money stemming from a
$2.75 billion antitrust settlement payment Discover received from
Visa Inc. and MasterCard Inc. as part of a 2004 lawsuit.
Morgan Stanley, which had acquired
Discover in the 1990s as part of its merger with brokerage firm Dean
Witter, spun off the card company into an independent entity in
2007.
As part of the spinoff, the companies
agreed that Morgan Stanley was entitled to receive a portion of
Discover's settlement.
But Riverwoods, Ill.-based Discover
contended that Morgan Stanley had breached the spinoff agreement by
meddling in the Visa-MasterCard settlement. It declined to pay the
dividend.
That prompted Morgan Stanley to file
suit against Discover in a New York state court last fall.
Morgan Stanley claimed that it was
owed $1.2 billion of the $2.75 billion settlement.
After taxes, that comes to about $785
million, plus interest.
As part of the settlement announced
Friday, Discover also dropped its pending case against Morgan
Stanley, under which it sought claims for damages from Morgan
Stanley "for their breach of contract and tortious interference in
settlement negotiations between Discover, Visa and MasterCard."
A spokesman for Morgan Stanley said,
"We are delighted with this outcome."
A spokesman for Discover declined to
comment beyond the regulatory filing.


Sears
Canada turns to Web for ‘endless aisle'
Catalogue giant is betting heavily on the
Internet to shore up flagging sales at its bricks-and-mortar
department stores.
By Marina Strauss
- Globe and Mail - Toronto
February 12, 2010
Toronto — Tucked away on the seventh
floor of Sears Canada Inc.'s (SCC-T25.950.712.81%) flagship store in
downtown Toronto is a room filled with computers and youthful
e-commerce specialists whose work may hold a key to better times for
the retailer.
Internally it's known as the war
room, a hub of activity where members of the 80-strong Sears
e-commerce team converge to plot the company's online strategy. For
eight months last year, they worked behind closed doors – sometimes
round-the-clock – to test and redesign prototypes for the re-launch
of Sears.ca in October. Now they're focused on updating the website
with new products and interactive features.
“It's an endless aisle,” Simon
Rodrigue, associate vice-president of e-commerce at Sears, said as
he settled into a seat in the war room. “The goal is to carry not
only everything that exists in the retail channel, but also
everything that exists in the catalogue channel – and even more.”
Sears is betting heavily on its
endless aisle to shore up flagging sales at its bricks-and-mortar
department stores. With an aim of more than doubling cyber sales in
five years, it is also rushing to fill a gap left about a year ago
when Hudson's Bay Co. (owner of the Bay and Zellers) and Canadian
Tire Corp. ditched their e-commerce sites. Despite its rivals'
moves, Sears still faces growing pressure to improve its online game
as other merchants embrace Web selling.
“It would be a mistake if Sears let
its leadership position in e-commerce slip by not upgrading that
customer experience,” said Jim Okamura, senior partner at retail
consultancy J.C. Williams Group.
Sears Canada already has an edge in
online selling. The retailer, controlled by U.S. parent Sears
Holding Corp., is one of the few in this country to run a catalogue
business, which provides a framework for e-commerce distribution.
Today, cyber sales make up less than
10 per cent of Sears Canada's overall $5.7-billion of annual
revenue, but that is up from only 1 to 2 per cent of total sales in
2005, a company spokesman said.
While Sears' overall revenue has been
slipping, its online sales rose “in the single digits” in 2009 after
having jumped 18 per cent the previous year, Mr. Rodrigue said.
What's more, the outlook for
e-commerce in Canada is upbeat. In 2010, online sales are expected
to rise by 9 per cent, to $11.3-billion (U.S.), according to data
compiled by New York-based researcher eMarketer Inc. “Certainly the
Web business is growing faster than the stores,” eMarketer's senior
analyst Jeffrey Grau said.
Sears wants to cash in on the trend
by chasing younger consumers who have largely abandoned department
stores but are prime Internet shoppers. The company is rapidly
introducing new products online, ranging from sports collectibles
(coming soon: a $1,300 autographed Wayne Gretzky jersey) to
eco-clothing and other items that are not carried in Sears' physical
stores or its catalogue. It's running online chats and demo videos
and touting its wares on Facebook and Twitter; it's adding automatic
search techniques that can boost sales by suggesting related
products and services when a shopper looks for an item; and it's
evaluating its parent company's cyber moves, including a
“marketplace” for other businesses to sell their wares at Sears.com.
Ground zero for Sears' e-commerce
planning is the war room, a test lab where a white board on one wall
is covered with scribbles of sales projections. When an online
shopper recently wanted to know how a treadmill could be stored, a
jeans-clad team member and colleague headed down to the store's
basement treadmill section and videotaped him folding the treadmill
and leaning it on a wall. The video was posted on YouTube as well as
on Sears.ca.
The e-commerce team has become so
important to Sears that it has more than doubled to 80 employees
from a year ago, with plans to reach 100 by year's end, even as
Sears has shrunk staffing elsewhere in the company. Cyber team
members come from major e-rivals such as Indigo Books & Music and
Home Depot Canada, where Mr. Rodrigue led the Internet strategy
until moving to Sears in mid-2008.
At Sears Canada, he's borrowing a
leaf from the playbook of U.S. parent Sears Holdings, which has put
a big push on e-commerce to help in its turnaround efforts. The
parent has launched a series of websites and mobile phone
applications, and is piloting a scheme dubbed MyGofer for
drive-through purchase pickups. It runs an online Marketplace in
which other sellers peddle their products on Sears.com, paying the
retailer a commission of up to 20 per cent.
Mr. Rodrigue is keeping a close eye
on the parent's projects for possible ideas to adopt here. His big
task last year was to bring the online operation in-house because,
up until Oct. 22, it was run by e-tailing giant Amazon.
But the Amazon model failed to give
him the flexibility that Sears.com had to quickly tweak the site.
“We felt we needed to have more control of our destiny.”
The economics of cyber-selling also
can be attractive. Profit margins can be 1- to 2-per-cent higher
online than in traditional stores, which are costlier to run, Mr.
Okamura said. Sears.ca benefits because it doesn't have to carry the
risk of stocking the inventory. Instead, suppliers hold on to the
merchandise until it's purchased, at which point it's shipped
directly to the customer.
But perhaps the biggest benefit for
Sears is the endless aisle. With 350,000 products online now – more
than twice the number in its physical stores – Mr. Rodrigue is set
to bump that up by more than 25 per cent this year. “Instead of
having just five fireplaces online, we can have 100 fireplaces
online.”


DieHard accessories to be sold outside Sears stores
Move aims to broaden customer base
By Julie Wernau, reporter
- Chicago Tribune
February 12, 2010
The DieHard brand of portable power equipment is moving beyond the
walls of Sears Auto Centers, marking the first time a Sears brand
will be sold outside the retail chain.
Hoffman Estates-based Sears Holdings Corp. announced Thursday that
it has inked a trademark license agreement with Mount Prospect-based
Schumacher Electric Corp.
that will allow DieHard brand power accessories, such as battery chargers,
jump starters and power inverters, to be sold in stores in the
United States, Puerto Rico and Mexico.
Automotive batteries, the top-selling DieHard product, will continue
to be sold exclusively in Sears and Kmart stores.
Sears Chairman Edward Lampert first raised the possibility of
selling its exclusive brands to other retailers in an annual letter
to shareholders in early 2008, mentioning Kenmore appliances,
Craftsman tools and DieHard battery brands.
Kimberly Picciola, a Morningstar analyst, said Sears is likely
testing the waters to see whether other exclusive products would
fare well in a larger market.
"I think Lampert is looking at ways in which he can really monetize
assets that the company has," Picciola said. "They're doing the
analysis to see how selling their brands in other channels might
cannibalize their existing sales."
Larry Costello, a spokesman for Sears, said customers can expect to
see DieHard products on the shelves of other retailers within six
months. He would not say which retailers were being considered.
Erik Rosenstrauch, general manager for the DieHard brand, said Sears
hopes to expand the brand beyond its typical customers — male
do-it-yourselfers with an interest in vehicle maintenance.
Sears has begun to do that through viral YouTube videos that show a
DieHard battery powering everything from a home stereo and tanning
bed to a hot tub and musical set by Reggie Watts.
"We see this as a huge opportunity to broaden the customer base of
the DieHard brand," said Guenther Trieb, senior vice president and
president of brands at Sears.
Sears' stock ended Thursday at $90.52, up $1.09.


Sears to let
other retailers sell DieHard brand
Monée Fields-White
- Chicago Business
February 11, 2010
(Crain's) — Sears Holdings Corp. said Thursday
that it reached a trademark licensing deal to sell DieHard branded
goods in other retailers' stores.
The agreement with Schumacher Electric Corp.
includes DieHard battery chargers, jump starters, and power
inverters.
"We're excited that this agreement will allow our
customers the opportunity to purchase DieHard power accessories at
additional retail outlets," Guenther Trieb, senior vice-president
and president of brands, said in a release.
Sears Holdings Chairman Edward Lampert has hinted
in the past couple years that the company would look at selling its
key brands, such as DieHard, outside of its department stores.


Sears Reaches Agreement With Schumacher Electric to Sell DieHard(R)
Brand Products
DieHard Power Accessories to be Available at Additional
Retail Outlets
PRNewswire
February 11, 2010
HOFFMAN ESTATES, Ill., Feb. 11 /PRNewswire-FirstCall/
-- Sears Brands Management Corporation announced a trademark license
agreement with Schumacher Electric Corporation today which will
enable DieHard-branded power accessories to be sold to retailers in
the U.S., Puerto Rico and Mexico.
"DieHard is the top selling brand of
power accessories in the U.S.," said Guenther Trieb, senior vice
president and president of brands. "We're excited that this
agreement will allow our customers the opportunity to purchase
DieHard power accessories at additional retail outlets."
The DieHard products to be sold as
part of the agreement include battery chargers, jump starters, and
power inverters. In a 2009 Battery Brand Tracker Survey, DieHard
products were selected by an overwhelming margin as "most trusted,"
"dependable" and "performs in extreme conditions."
"The DieHard name is the most trusted
in the automotive battery industry, and the brand is instantly
recognized by millions of consumers," said Don Schumacher, CEO of
Schumacher Electric. "Through this license agreement, we look
forward to expanding the reach of the DieHard brand and the
availability of DieHard products through retail channels."
In related news, DieHard is serving
as the primary sponsor of the Don Schumacher Racing Dodge Funny Car
driven by Matt Hagan in the 2010 NHRA Full Throttle Drag Racing
Series. The 23-event season begins in Pomona, Calif., Feb. 11-14.
Hagan is in his second season with Don Schumacher Racing.
DieHard has a new home on the Web at
the relaunched DieHard.com and a mobile companion at
mobile.diehard.com. The sites include a help center, battery
selector, maintenance guide and a series of videos documenting
DieHard's performance inside the DieHard Torture Labs.
About Sears Holdings Corporation
Sears Holdings Corporation is the
nation's fourth largest broadline retailer with approximately 3,900
full-line and specialty retail stores in the United States and
Canada. Sears Holdings is the leading home appliance retailer as
well as a leader in tools, lawn and garden, home electronics and
automotive repair and maintenance. Key proprietary brands include
Kenmore, Craftsman and DieHard, and a broad apparel offering,
including such well known labels as Lands' End, Jaclyn Smith and Joe
Boxer, as well as the Apostrophe and Covington brands. It also has
the Country Living collection, which is offered exclusively by Sears
and Kmart. We are the nation's largest provider of home services,
with more than 12 million service calls made annually. Sears
Holdings Corporation operates through its subsidiaries, including
Sears, Roebuck and Co. and Kmart Corporation. For more information,
visit Sears Holdings' website at www.searsholdings.com.
About the DieHard brand
Introduced in 1967, Sears designed
the DieHard to produce 35 percent more usable starting power than
other similar batteries. Featuring a revolutionary tough,
thin-walled case of translucent polypropylene plastic, which was 50
percent thinner than conventional black rubber-type battery
enclosures, the design's extra room meant bigger plates, more acid
and extra starting power. Consumers consistently rate DieHard as
"most trusted," "dependable," "performs in extreme conditions" by
overwhelming margins, according to a 2009 Battery Brand Tracker
Survey.
About Schumacher Electric
Established in 1947, Schumacher
Electric Corporation has been leading change and driving performance
to exceed their customers' expectation. Engineered patent pending
technologies and award winning marketing have paved the way for
Schumacher to be the battery accessories (battery chargers, portable
power sources, 12 volt accessories, etc.) manufacturer of choice.
Schumacher internationally distributes to retailers, distributors,
OE manufacturers and industrial markets. Schumacher's world
headquarters is located in Mount Prospect, Illinois with
manufacturing plants in China and Mexico. For more on Schumacher
Electric, visit
www.batterychargers.com.


Allstate swings to quarterly net profit of $518 million
Operating results exceed analysts' expectations;
investment income
falls
By Alistair Barr, MarketWatch
February 10, 2010
SAN FRANCISCO (MarketWatch) -- Allstate Corp.
swung to a quarterly net profit of $518 million late Wednesday and
operating results released by the insurer exceeded Wall Street
estimates.
Allstate (NYSE:ALL) said fourth-quarter net income
came in at $518 million, or 96 cents a share. That compares with a
net loss of $1.13 billion or $2.10 a share in the same period a year
earlier.
Operating earnings, which exclude net realized
investment gains and losses, were $592 million, or $1.09 a share, in
the latest period. Allstate was expected to make $1.01 a share,
according to the average estimate of 17 analysts in a Thomson
Reuters survey.
The combined ratio, excluding catastrophes and
prior-year reserve re-estimates, was 88.1 in the fourth quarter. In
2010, this ratio will likely be 88 to 90, Allstate said.
The combined ratio measures claims and expenses as
a percentage of premiums. It's a closely watched measure of
insurers' underwriting performance. Brian Meredith, an insurance
analyst at UBS, was expecting a 2010 combined ratio of 88.5 for
Allstate.
Allstate was hit hard by investment losses during
the 2008 financial crisis. The strong rebound in equities and
corporate bonds last year relieved a lot of that pressure. However,
the company still faces challenges from a sluggish economy,
competition in the auto-insurance market and lower investment
income.
Allstate-brand standard auto premiums written
climbed less than 1% in the fourth quarter of 2009. Average premiums
rose 2.6%, but the number of policies in force declined 1%,
according to Allstate.
Net investment income for the fourth quarter of
2009 was $1.1 billion. That was $253 million less than in the same
period a year earlier, it noted.


Judge Divides Up the Money in Sears' Record-Setting ADA Settlement
By Lynne Marek - LAW.com
February 9, 2010
A federal judge in Chicago late last week gave
final approval to the allocation of $6.2 million among 235 former
Sears, Roebuck & Co. employees in the largest settlement ever
reached by the Equal Employment Opportunity Commission in an
Americans with Disabilities Act class action.
The former workers, who said the company fired
them after they went on disability leave, will receive between
$2,500 and $122,500 each, depending on their individual
circumstances, according to the allocation approved by U.S. District
Judge Wayne Andersen of the Northern District of Illinois on Feb. 4.
The workers will receive the money in the next two months. Overall
settlement of the case with a consent decree was reached and
announced last September.
The EEOC sued Hoffman Estates, Ill.-based Sears in
2004 following a complaint from John Bava, an injured appliance
service technician who said Sears fired him after he took a leave
for knee, wrist and back injuries suffered on the job. Bava is the
only plaintiff to get the top $122,500 payout, based on his
initiation and the facts of his particular case, said John
Hendrickson, who leads the Chicago regional EEOC office that pursued
the matter.
The agency found in pretrial discovery that many
other employees at the retailer had encountered treatment similar to
that experienced by Bava. Gregory Gochanour was the supervisory EEOC
trial attorney in Chicago on the case, and he had assistance from
Deborah Hamilton and Aaron DeCamp.
Sonnenschein, Nath & Rosenthal lawyer Amy Bess, an
employment and litigation partner in Washington, D.C., who was part
of the team representing Sears, referred a request for comment to
the Sears legal department, which had no comment on the allocation.


Frank
O'Reilly
Chicago Tribune
February 10, 2010
Frank O'Reilly, of Bartlett, Veteran
of World War II, member of US Marine Corp., fought in Iwo Jima and
received a Bronze Star. Beloved husband of Diane, nee Marken;
devoted father of Mark (Donna Lafemina), Sharon (Kevin) Kaufman and
Maureen (Burley) Howard; dear brother of Mary Miller; dear
grandfather of Chris and Kelly Howard, Kyle, Daniel and Rojina
Kaufman. Frank lived all his life by his faith.
Friends and family are asked to meet
Friday at Clare Oaks Independent Living Center, 825 Carillon,
Bartlett, IL, www.clareoaks.com, for a Memorial Mass at 9:30 a.m.
Interment private.
Arrangements by Salerno's Rosedale
Chapels, for info: 630-889-1700 orwww.salernofuneralhomes.com.
Please omit flowers.


Will Walmart, not Whole Foods, save the small farm and make America
healthy?
By
Corby Kummer The Great Grocery Smackdown
- The Atlantic
(March 2010)
BUY MY FOOD at Walmart? No thanks.
Until recently, I had been to exactly one Walmart in my life, at the
insistence of a friend I was visiting in Natchez, Mississippi, about
10 years ago. It was one of the sights, she said. Up and down the
aisles we went, properly impressed by the endless rows and endless
abundance. Not the produce section. I saw rows of prepackaged,
plastic-trapped fruits and vegetables. I would never think of
shopping there.
Not even if I could get
environmentally correct food. Walmart’s move into organics was then
getting under way, but it just seemed cynical—a way to grab market
share while driving small stores and farmers out of business. Then,
last year, the market for organic milk started to go down along with
the economy, and dairy farmers in Vermont and other states, who had
made big investments in organic certification, began losing
contracts and selling their farms. A guaranteed large buyer of
organic milk began to look more attractive. And friends started
telling me I needed to look seriously at Walmart’s efforts to sell
sustainably raised food.
Really? Wasn’t this greenwashing? I
called Charles Fishman, the author of The Wal-Mart Effect, which
entertainingly documents the market-changing (and company-large
repercussions—and told me that what it had decided to do since my
Natchez foray was to compete with high-end supermarkets. “You won’t
recognize the grocery section of a supercenter,” he said. He ordered
me to get in my car and find one.
He was right. In the grocery section
of the Raynham supercenter, 45 minutes south of Boston, I had
trouble believing I was in a Walmart. The very reasonable-looking
produce, most of it loose and nicely organized, was in black plastic
bins (as in British supermarkets, where the look is common; the idea
is to make the colors pop). The first thing I saw, McIntosh apples,
came from the same local orchard whose apples I’d just seen in the
same bags at Whole Foods. The bunched beets were from Muranaka Farm,
whose beets I often buy at other markets—but these looked much
fresher. The service people I could find (it wasn’t hard) were
unfailingly enthusiastic, though I did wonder whether they got let
out at night.
During a few days of tasting, the
results were mixed. Those beets handily beat (sorry) ones I’d just
bought at Whole Foods, and compared nicely with beets I’d recently
bought at the farmers’ market. But packaged carrots and celery, both
organic, were flavorless. Organic bananas and “tree ripened”
California peaches, already out of season, were better than the ones
in most supermarkets, and most of the Walmart food was
cheaper—though when I went to my usual Whole Foods to compare prices
for local produce, they were surprisingly similar (dry goods and
dairy products were considerably less expensive at Walmart).
Walmart holding its own against Whole
Foods? This called for a blind tasting.
I conspired with my contrarian friend
James McWilliams, an agricultural historian at Texas State
University at San Marcos and the author of the new Just Food: Where
Locavores Get It Wrong and How We Can Truly Eat Responsibly. He
enlisted his friends at Fino, a restaurant in Austin that pays
special attention to where the food it serves comes from, as
co-conspirators. I would buy two complete sets of ingredients, one
at Walmart and the other at Whole Foods. The chef would prepare them
as simply as possible, and serve two versions of each course, side
by side on the same plate, to a group of local food experts invited
to judge.
I STARTED LOOKING into how and why
Walmart could be plausibly competing with Whole Foods, and found
that its produce-buying had evolved beyond organics, to a virtually
unknown program—one that could do more to encourage small and
medium-size American farms than any number of well-meaning
nonprofits, or the U.S. Department of Agriculture, with its new Know
Your Farmer, Know Your Food campaign. Not even Fishman, who has been
closely tracking Walmart’s sustainability efforts, had heard of it.
“They do a lot of good things they don’t talk about,” he offered.
The program, which Walmart calls
Heritage Agriculture, will encourage farms within a day’s drive of
one of its warehouses to grow crops that now take days to arrive in
trucks from states like Florida and California. In many cases the
crops once flourished in the places where Walmart is encouraging
their revival, but vanished because of Big Agriculture competition.
Ron McCormick, the senior director of
local and sustainable sourcing for Walmart, told me that about three
years ago he came upon pictures from the 1920s of thriving apple
orchards in Rogers, Arkansas, eight miles from the company’s
headquarters. Apples were once shipped from northwest Arkansas by
railroad to St. Louis and Chicago. After Washington state and
California took over the apple market, hardly any orchards remained.
Cabbage, greens, and melons were also once staples of the local
farming economy. But for decades, Arkansas’s cash crops have been
tomatoes and grapes. A new initiative could diversify crops and give
consumers fresher produce.
As with most Walmart programs, the
clear impetus is to claim a share of consumer spending: first for
organics, now for locally grown food. But buying local food is often
harder than buying organic. The obstacles for both small farm and
big store are many: how much a relatively small farmer can grow and
how reliably, given short growing seasons; how to charge a
competitive price when the farmer’s expenses are so much higher than
those of industrial farms; and how to get produce from farm to
warehouse.
Walmart knows all this, and knows
that various nonprofit agricultural and university networks are
trying to solve the same problems. In considering how to build on
existing programs (and investments),
Walmart talked with the local branch
of the Environmental Defense Fund, which opened near the company’s
Arkansas headquarters when Walmart started to look serious about
green efforts, and with the Applied Sustainability Center at the
University of Arkansas. The center (of which the Walmart Foundation
is a chief funder) is part of a national partnership called Agile
Agriculture, which includes universities such as Drake and the
University of New Hampshire and nonprofits like the American
Farmland Trust and the Sustainable Agriculture Coalition. To get
more locally grown produce into grocery stores and restaurants, the
partnership is centralizing and streamlining distribution for farms
with limited growing seasons, limited production, and limited
transportation resources.
Walmart says it wants to revive local
economies and communities that lost out when agriculture became
centralized in large states. (The heirloom varieties beloved by
foodies lost out at the same time, but so far they’re not a focus of
Walmart’s program.) This would be something like bringing the
once-flourishing silk and wool trades back to my hometown of
Rockville, Connecticut. It’s not something you expect from Walmart,
which is better known for destroying local economies than for
rebuilding them.
As everyone who sells to or buys from
(or, notoriously, works for) Walmart knows, price is where every
consideration begins and ends. Even if the price Walmart pays for
local produce is slightly higher than what it would pay large
growers, savings in transport and the ability to order smaller
quantities at a time can make up the difference.
Contracting directly with farmers,
which Walmart intends to do in the future as much as possible, can
help eliminate middlemen, who sometimes misrepresent prices.
Heritage produce currently accounts for only 4 to 6 percent of
Walmart’s produce sales, McCormick told me (already more than a
chain might spend on produce in a year, as Fishman would point out),
adding that he hopes the figure will get closer to 20 percent, so
the program will “go from experimental to being really viable.”
Michelle Harvey, who is in charge of
working with Walmart on agriculture programs at the local
Environmental Defense Fund office, summarized a long conversation
with me on the sustainability efforts she thinks the company is
serious about: “It’s getting harder and harder to hate Walmart.”
“WE SUPPORT LOCAL FARMERS,” read a
sign at an Austin Walmart. I didn’t see any farm names listed in the
produce section, but I did find plastic tubs of organic baby spinach
and “spring mix” greens with modern labeling that looked like it
could be at Whole Foods. My list was simple to the point of stark,
for a fair fight. Some ingredients seemed identical to what I’d find
at Whole Foods. Organic, free-range brown eggs. Promised Land
all-natural, hormone-free milk. A bottle of Watkins Madagascar
vanilla for panna cotta. I couldn’t find much in the way of the
seasonal fruit the restaurant had told me the chef would serve with
dessert. But I did find, to my surprise, a huge bin of pomegranates,
so I bought those, and some Bosc pears. The sticking points were
fresh goat cheese, which flummoxed the nice sales people (we found
some Alouette brand, hidden), and chicken breasts. I could find
organic meat, but no breasts without “up to 12 percent natural
chicken broth” added—an attempt to inject flavor and add weight. I
wasn’t happy with the suppliers, either: Tyson predominated. I
bought Pilgrims Pride, but was suspicious. The bill was $126.02.
At the flagship Whole Foods, in
downtown Austin, the produce was much more varied, though the
spinach and spring mix looked less vibrant. The chicken was properly
dry, a fresh ivory color—and more than twice as expensive as
Walmart’s. My total bill was $175.04; $20 of the extra $50 was for
the meat.
Brian Stubbs, the tall, genial young
manager of Fino, and Jason Donoho, the chef, were intrigued as they
helped me carry bag after bag into the restaurant’s kitchen. They
carefully segregated the bags on two shelves of a walk-in
refrigerator. The younger cooks looked surprised by the Whole Foods
kraft-paper bags, and slightly horrified by the flimsy white plastic
ones from Walmart.
The next night 16 critics, bloggers,
and general food lovers gathered around a long, high table at the
restaurant. Stubbs passed out scoring sheets with bullets for grades
of one (worst) to five (best) for each of the four courses, and
lines for comments.
The first course, bowls of almonds
and pieces of fried goat cheese with red-onion jam and honey, was a
clear win for Walmart. The Walmart almonds were described as
“aromatic,” “mellow,” “pure,” and “yummy,” the Whole Foods almonds
as “raw,” though also more “natural”; they were in fact fresher,
though duller in flavor. (Like the best of the food I saw at the
Austin Walmart, the packaging for the almonds had a homegrown
Mexican look.) The second course, mixed spring greens in a sherry
vinaigrette, was another Walmart win: only a few tasters preferred
the Whole Foods greens, calling them fresher and heartier-flavored.
And only one noticed the little brown age spots on a few Walmart
leaves, but she was a ringer—Carol Ann Sayle, a local farmer famous
for her greens.
So far Walmart was ahead. But then
came the chicken, served with a poached egg on a bed of spinach and
golden raisins. A woman whose taste I already thought uncanny—she
works as an aromatherapist—compared the broth-infused meat to
something out of a hospital cafeteria: “It’s like they injected it
with something to make it taste like fast food.” I thought it was
salty, damp, and dismal. The spinach, though, was another story:
even the most ardent brothy-breast haters thought the Walmart
spinach was fresher.
Dessert was the most puzzling. I had
thought that Walmart’s locally sourced milk and exotic-looking
vanilla would be the gold standard, but the Whole Foods house brands
slaughtered them (“Kicks A’s ass,” one taster wrote). People
couldn’t find enough words to diss the Walmart panna cotta
(“artificial, thin”) and praise the Whole Foods one (“like a good
Christmas”). I wished I’d bought the identical Promised Land milk at
Whole Foods, to see if there is in fact a difference in the branded
food products that suppliers give Walmart, as there is in the case
of other branded products. The pomegranate seeds, sadly, were wan,
with barely any flavor, particularly compared with the garnet gems
from Whole Foods. But Walmart got points from the chef, and from me,
for carrying pomegranates at all.
As I had been in my own kitchen, the
tasters were surprised when the results were unblinded at the end of
the meal and they learned that in a number of instances they had
adamantly preferred Walmart produce. And they weren’t entirely
happy.
IN AN IDEAL WORLD, people would buy
their food directly from the people who grew or caught it, or grow
and catch it themselves. But most people can’t do that. If there
were a Walmart closer to where I live, I would probably shop there.
Most important, the vast majority of
Walmarts carry a large range of affordable fresh fruits and
vegetables. And Walmarts serve many “food deserts,” in large cities
and rural areas—ironically including farm areas. I’m not sure I’m
convinced that the world’s largest retailer is set on rebuilding
local economies it had a hand in destroying, if not literally, then
in effect. But I’m convinced that if it wants to, a ruthlessly
well-run mechanism can bring fruits and vegetables back to land
where they once flourished, and deliver them to the people who need
them most.


Ten GOP Health Ideas for
Obama
We don't need to study lawsuit reform for one minute
longer.
By Newt Gingrich and John C. Goodman - The
Wall Street Journal
February 10, 2010
'If you have a better idea, show it
to me." That was President Barack Obama's challenge two weeks ago to
House Republicans regarding health-care reform. He has since called
for a bipartisan forum, not to start over on health reform but to
"move forward" on the "best ideas that are out there."
The best ideas out there are not
those that were passed by the House and Senate last year, which
consist of more spending, more regulations and more bureaucracy. If
the president is serious about building a system that delivers more
quality choices at lower cost for every American, here's where he
should start:
• Make insurance affordable.
The current taxation of health insurance is arbitrary and unfair,
giving lavish subsidies to some, like those who get Cadillac
coverage from their employers, and almost no relief to people who
have to buy their own. More equitable tax treatment would lower
costs for individuals and families. Many health economists conclude
that tax relief for health insurance should be a fixed-dollar
amount, independent of the amount of insurance purchased. A step in
the right direction would be to give Americans the choice of a
generous tax credit or the ability to deduct the value of their
health insurance up to a certain amount.
• Make health insurance portable.
The first step toward genuine portability—and the best way of
solving the problems of pre-existing conditions—is to change federal
policy. Employers should be encouraged to provide employees with
insurance that travels with them from job to job and in and out of
the labor market. Also, individuals should have the ability to
purchase health insurance across state lines. When insurers compete
for consumers, prices will fall and quality will improve.
• Meet the needs of the
chronically ill. Most individuals with chronic diseases want to
be in charge of their own care. The mother of an asthmatic child,
for example, should have a device at home that measures the child's
peak airflow and should be taught when to change his medication,
rather than going to the doctor each time.
Having the ability to obtain and
manage more health dollars in Health Savings Accounts is a start. A
good model for self-management is the Cash and Counseling program
for the homebound disabled under Medicaid. Individuals in this
program are able to manage their own budgets and hire and fire the
people who provide them with custodial services and medical care.
Satisfaction rates approach 100%, according to the Robert Wood
Johnson Foundation.
We should also encourage health plans
to specialize in managing chronic diseases instead of demanding that
every plan must be all things to all people. For example,
special-needs plans in Medicare Advantage actively compete to enroll
and cover the sickest Medicare beneficiaries, and stay in business
by meeting their needs. This is the alternative to forcing insurers
to take high-cost patients for cut-rate premiums, which guarantees
that these patients will be unwanted.
• Allow doctors and patients to
control costs. Doctors and patients are currently trapped by
government-imposed payment rates. Under Medicare, doctors are not
paid if they communicate with their patients by phone or e-mail.
Medicare pays by task—there is a list of about 7,500—but doctors do
not get paid to advise patients on how to lower their drug costs or
how to comparison shop on the Web. In short, they get paid when
people are sick, not to keep them healthy.
So long as total cost to the
government does not rise and quality of care does not suffer,
doctors should have the freedom to repackage and reprice their
services. And payment should take into account the quality of the
care that is delivered. Once physicians are liberated under
Medicare, private insurers will follow.
• Don't cut Medicare. The
reform bills passed by the House and Senate cut Medicare by
approximately $500 billion. This is wrong. There is no question that
Medicare is on an unsustainable course; the government has promised
far more than it can deliver. But this problem will not be solved by
cutting Medicare in order to create new unfunded liabilities for
young people.
• Protect early retirees. More
than 80% of the 78 million baby boomers will likely retire before
they become eligible for Medicare. This is often the most difficult
time for individuals and families to find affordable insurance. A
viable bridge to Medicare can be built by allowing employers to
obtain individually owned insurance for their retirees at group
rates; allowing them to deposit some or all of the premium amount
for post-retirement insurance into a retiree's Health Savings
Account; and giving employers and younger employees the ability to
save tax-free for post-retirement health.
• Inform consumers. Patients
need to have clear, reliable data about cost and quality before they
make decisions about their care. But finding such information is
virtually impossible. Sources like Medicare claims data (stripped of
patient information) can help consumers answer important questions
about their care. Government data—paid for by the taxpayers—can
answer these questions and should be made public.
• Eliminate junk lawsuits.
Last year the president pledged to consider civil justice reform. We
do not need to study or test medical malpractice any longer: The
current system is broken. States across the country—Texas in
particular—have already implemented key reforms including liability
protection for using health information technology or following
clinical standards of care; caps on non-economic damages; loser pays
laws; and new alternative dispute resolution where patients get
compensated for unexpected, adverse medical outcomes without
lawyers, courtrooms, judges and juries.
• Stop health-care fraud.
Every year up to $120 billion is stolen by criminals who defraud
public programs like Medicare and Medicaid, according to the
National Health Care Anti-Fraud Association. We can help prevent
this by using responsible approaches such as enhanced coordination
of benefits, third-party liability verification, and electronic
payment.
• Make medical breakthroughs
accessible to patients. Breakthrough drugs, innovative devices
and new therapies to treat rare, complex diseases as well as chronic
conditions should be sped to the market. We can do this by cutting
red tape before and during review by the Food and Drug
Administration and by deploying information technology to monitor
the quality of drugs and devices once they reach the marketplace.
The solutions presented here can be
the foundation for a patient-centered system. Let's hope the
president has the courage to embrace them.
Mr. Gingrich is former speaker of
the U.S. House of Representatives and founder of the Center for
Health Transformation. Mr. Goodman is president and CEO of the
National Center for Policy Analysis.


Court Approves $6.2 Million Distribution in EEOC vs Sears Disability
Settlement
Kansas City infoZine
February 9, 2010
235 Former Employees Terminated at
End of Workers’ Compensation Leaves of Absence to Share Settlement
Proceeds After Participating in Claims Process
Chicago, IL - infoZine - The U.S.
Equal Employment Opportunity Commission (EEOC) today announced court
approval of the distribution of a $6,200,000 compensation fund in
the landmark Americans With Disabilities Act (ADA) litigation
between the EEOC and Sears, Roebuck & Co.
The distribution is being carried out
pursuant to the terms of a consent decree approved by Federal
District Judge Wayne Anderson on September 29, 2009. In its lawsuit
against Sears, the EEOC had alleged that Sears maintained an
inflexible workers’ compensation leave exhaustion policy and
terminated employees instead of providing them with reasonable
accommodations for their disabilities, in violation of the ADA. The
case resulted in the largest ADA settlement in a single lawsuit in
EEOC history. Under the terms of the decree, the EEOC provided claim
forms to certain Sears employees who had been terminated under
Sears’ workers’ compensation leave policy. The claimants were asked
to report to the EEOC, among other things, the extent of their
impairments, their ability to return to work at Sears, and whether
Sears had made any attempt to return them to work. Based on these
criteria, the EEOC found that 235 individuals were eligible to share
in the settlement. The average award was approximately $26,300. More
than twenty claimants were found to be ineligible by the EEOC. As
with all EEOC litigation, none of the settlement fund will retained
by the EEOC; all of it will be distributed.
“It is a satisfying day indeed when
victims finally receive compensation for the wrongful discrimination
they have endured,” said EEOC Acting Chairman Stuart J. Ishimaru.
“The EEOC is pleased and proud that we fought long and hard on this
case to protect the rights of workers with disabilities, and that
many Sears employees will now benefit from our law enforcement
efforts.”
Chicago Regional Attorney John
Hendrickson said, “The Sears case has been a long haul, but now it’s
over—this is it. The court has enjoined future discrimination by
Sears and approved the amount of money each class member will
receive for the particular discrimination he or she suffered. Their
day for compensation is here, and as far as the EEOC is concerned,
that makes it a good day for everyone involved.”
EEOC Trial Attorney Aaron DeCamp
noted that, in addition to the disbursement of settlement funds, the
EEOC is seeing positive effects from the consent decree. “As a
result of the decree, we believe Sears has an improved workers’
compensation leave process, and it has posted notices regarding the
decree. We know that employees have been seeing the notices because
we’ve been receiving inquiries as a result. So we think it’s pretty
clear that our lawsuit genuinely benefited the employees of Sears
and strengthened the company’s human resources processes.”
The lawsuit, filed in November 2004,
was assigned to Federal District Court Judge Wayne Anderson of the
Northern District of Illinois and Magistrate Judge Susan Cox, and is
captioned EEOC v. Sears Roebuck & Co., N.D. Ill. No. 04 C 7282.
Judge Anderson entered the order approving the monetary
distributions on February 4.
The EEOC litigation team included, in
addition to Hendrickson and DeCamp, Supervisory Trial Attorney
Gregory Gochanour and Trial Attorneys Ethan Cohen, Deborah Hamilton
and Laurie Elkin.
The EEOC Chicago District Office is
responsible for processing charges of discrimination, administrative
enforcement, and the conduct of agency litigation in Illinois,
Wisconsin, Minnesota, Iowa, and North and South Dakota, with Area
Offices in Milwaukee and Minneapolis.


Allstate Denies Plans to Terminate 3,000+ Agents
By Pat Speer
- Insurance Networking News
February 8, 2010
Ahead of its earnings call scheduled
for this Wednesday, Allstate denied growing reports in online blogs,
trade journals and in the general press of its plans to reduce its
distribution network by 3,000-plus independent agents.
Maryellen Thielen, senior manager of
Financial Communications, Allstate Corporate Relations, told
Insurance Networking News that Allstate has not set targets for
agency numbers or size, but qualified its goal of seeking to work
with agents who can provide “superior levels of customer service.
“It’s clear that growing agencies is
good for our customers, the agencies and Allstate,” she said. “We’ve
seen that agency locations in the range of $3 million to $4 million
in premiums (between 3,000 to 4,000 policies in force) have the
scale to support the staff and other resources needed to provide
superior levels of customer service.”
Without specifying the metrics that
would be used to measure Allstate’s desired level of customer
service, Thielen did say that Allstate will provide smaller agencies
with the incentives and resources necessary to meet and exceed those
customer expectations.
“Some agencies may choose not to take
this journey with us, but for agency owners committed to providing
consistently superior levels of service, the opportunities have
never been better to grow their agencies,” she said.
Allstate offered the following as
examples of specific resources being promoted to their agents “to
help Allstate agencies enhance the customer experience—and their
success:”
• Agency technology: An Allstate Web
site offers a self-assessment tool and other aids to help Allstate
agents find opportunities to improve service (e.g., location and
staffing) and grow. • 24/7 support from the Allstate call centers
• Education: Allstate is providing
tools to help customers understand their insurance better—for
example, through its new “Auto Insurance Made Simple” brochure
• Detailed customer research down to
the agency level
• Added support for Allstate premier
service agencies, the designation for its highest performing
agencies (based on business results and customer experience)
Analysts, meanwhile, are hedging
their bets on Allstate’s earnings call, stating that, on average,
the company is expected to report earnings per share (EPS) of $1.01.
Last quarter (sequential), Allstate reported EPS of $0.99, missing
consensus estimates of $1.01. For the full year, the company is
expected to post EPS of $3.39, predict analysts.


Retailers
Continued Comeback Into January
Sales Rose 3.3% as Long-Suffering Department and Clothing
Stores Showed Signs That Consumers Are Returning
By
Elizabeth Holmes - The Wall Street Journal
February 5, 2010
Apparel retailers followed up a
strong holiday showing with a good January by turning what is
usually a month for clearance sales into an opportunity to move
spring merchandise at full prices.
Clothing stores kept inventories lean
and held the line on discounts over the holidays, leaving shoppers
hungry for marked-down products in the new year, said Ken Perkins,
president of Retail Metrics Inc. Buyers snapped up whatever
clearance merchandise was left in the first two weeks of the month
then moved on to spring outfits, which sold at or near tagged
prices.
The result was the biggest increase
in sales in nearly two years. That doesn't mean consumers are back
in force: Retailers' terrible showing in January 2009 was an easy
one to beat, and shoppers still need to be lured in by bargains. But
it does show retailers and consumers have a better handle on their
circumstances, which bodes somewhat better for profits and sales.
"You can say you are in a challenging
position and have a tough set of circumstances surrounding you,"
Macy's Inc. Chief Executive Terry Lundgren said, describing the
position consumers find themselves in. "But at least you can
forecast where the future is going to be."
Sales at stores open at least a year,
the retail industry's main performance benchmark, rose 3.3% in
January over the prior year, according to Thomson Reuters and Retail
Metrics Inc. The index doesn't include retail behemoth Wal-Mart
Stores Inc.
January has historically been a
clearance period for retailers and therefore less important to the
fourth quarter than the critical holiday months of November and
December. Still, the result was "a little bit of icing on a cake
that had already been baked," says Todd Slater, an analyst with
Lazard Capital Markets.
The strong showing led retailers
including Macy's, Gap Inc. and TJX Cos. to raise their outlooks for
profits in their fiscal fourth quarters, which ended last weekend.
Several retailers did better than
expected. Teen retailers and department stores, both of which were
expected to post slight declines, reported increases of 6.5% and
2.5%, respectively. Sales at apparel retailers rose 7.3%.
Macy's saw a 3.4% increase in
same-store sales for January, which Mr. Lundgren attributed in part
to low levels of clearance merchandise, which drove more full-priced
selling.
American Eagle Outfitters Inc., which
has said it is working on improving its fashion, reported same-store
sales up 10% for January. Children's Place Retail Stores Inc. saw
sales climb 12%.
Higher-end retailers that added lower
opening prices to their assortments also did well. Nordstrom Inc.,
which has expanded the range of prices on its shelves, had the best
results of the monthly reporters, with an increase of 14%. "We still
have a lot of work ahead of us in order to improve service and
continue earning our customers’ business,” says Blake Nordstrom, the
company's president.
Abercrombie & Fitch Co. reported the
biggest sales surprise of the month, with same-store sales up 8% in
January. Analysts had forecast a decline of 8%. The company said it
benefited from the redemption of $22 million in gift cards, which
were distributed as a promotion to holiday buyers at its namesake
brand and lower-priced Hollister division. The free gift cards
expired Jan. 30.
Discounters faced challenges last
month, in part because the Super Bowl, held in January last year,
has been moved to February. Costco Wholesale Corp. posted flat U.S.
sales, excluding gasoline, that fell short of analysts' estimates.
Thediscounter reported soft TV sales last month, but said that trend
was reversing this month.
January's results underscore the
importance of bargains for shoppers. Some of the best figures came
from low-priced retailers. TJX Cos, which operates Marshalls and T.J.
Maxx, reported a 12% increase in same-store sales. Discount
department store Kohl's Corp. saw a 6.5% increase, while Old Navy,
Gap Inc.'s bargain brand, posted a 10% increase.
Higher-end retailers that added lower
opening prices to their assortments also did well. Nordstrom Inc.,
which has expanded the range of prices on its shelves, had the best
results of the monthly reporters, with an increase of 14%.
January sales typically benefit from
the redemption of gift cards, which usually go towards the purchase
of full-priced merchandise. Sales of merchant-branded gift cards,
meaning cards for a specific store, rose 2.1% in the 2009 holiday
season, according to the Holiday Gift Card Performance Report from
card-processing firms First Data. For specialty retailer, the dollar
value of gift cards sold rose 7.3%. The average gift card value was
$43.14.
— Rachel Dodes contributed to this
article.


Wal-Mart
laying off 300 workers at Arkansas HQ
Wal-Mart to trim 300 jobs at Arkansas headquarters in effort
to cut duplication
By Chuck Bartels, AP
Business Writer - Yahoo Finance.com
February 3, 2010
LITTLE ROCK, Ark. (AP) -- Wal-Mart
Stores Inc. is cutting 300 administrative jobs at its headquarters
as it completes a yearlong series of changes to improve performance.
The company has cut almost 14,000 jobs in the past 13 months.
Wal-Mart President and CEO Mike Duke
told employees about the latest layoffs in a memo on Wednesday.
"With this last major strategic piece
in place, we are beginning our new fiscal year with every part of
our business focused on being even more responsive to our
customers," Duke wrote. He said the world's largest retailer trimmed
its labor force to advance its strategy of improving its "growth,
leverage and returns."
The 300 being laid off this month at
the company's Bentonville, Ark., headquarters include workers in
corporate affairs, finance, human resources, information systems and
legal departments, Wal-Mart spokesman Dave Tovar said.
Wal-Mart, which generated $400
billion in sales last year, has welcomed wealthier consumers trading
down from higher-price stores during the recession. But it also has
noticed financial strain among its core customers, including bigger
swings in spending between paychecks.
Duke said an essential part of
Wal-Mart's culture is always striving for greater efficiency. He
said the company's new fiscal year, which began Monday, is off to a
productive start.
"Last fall, we laid out three
strategic priorities to deliver even more value for both customers
and shareholders: growth, leverage and returns," Duke wrote. "Each
move has been designed to help us become more global, take advantage
of our scale, and move our business even closer to the customer."
The goal, company officials told
investors in October, is to cut costs so it can lower prices for
shoppers and in turn boost sales.
Wal-Mart, which has 2 million
employees worldwide, has changed its global sourcing network and,
last month, cut 11,200 jobs in its 600-store Sam's Club warehouse
division when it turned over in-store demonstrations to an outside
company. The cut amounted to 10 percent of Sam's Club's work force
of 110,000. That cut included 10,000 workers, mostly part-timers,
who offered product samples to customers and 1,200 workers who
recruited new club members.
Sam's also closed 10 underperforming
stores, which cost another 1,500 jobs.
A year ago, Wal-Mart cut between 700
and 800 headquarters workers in its real estate, apparel and health
and wellness departments. That layoff followed a reduction in the
number and size of new stores Wal-Mart said it would build. The
company also plans to renovate many existing stores.
Wal-Mart said last week that it was
realigning its U.S. operations in an effort to give more autonomy to
executives in regional markets and reinvigorate U.S. growth. Vice
Chairman Eduardo Castro-Wright said the changes would help the
company better use its resources and "facilitate our growth as we
seek to enter new markets and develop new segments across the U.S."
Wal-Mart isn't alone in trying to
reduce overhead as consumers continue to spend carefully. Home Depot
Inc., the largest U.S. home-improvement retailer, said last month
would lay off 1,000 employees as it cuts three pilot programs and
some support positions. The cut amounts to less than 1 percent of
Home Depot's more than 300,000 workers.
Bookseller Borders Group Inc.
announced last month it would lay off 164 employees -- less than 1
percent of its work force of 22,5000 -- to cut costs amid slumping
sales.
Wal-Mart, which reports on its
earnings Feb. 18, has experienced some softness in its U.S.
business. In the most recent quarter, its Walmart chain saw sales at
U.S. stores open at least a year fall 0.5 percent, though total
sales rose 1.6 percent in stores abroad. Adjusted for currency
fluctuations, international sales rose 12.1 percent.
AP Retail Writer Anne D'Innocenzio
contributed reporting from New York.


Social
Security could be next to need a bailout
By Allan Sloan
- Washington Post
February 2, 2010
Don't look now. But even as the bank
bailout is winding down, another huge bailout is starting, this time
for the Social Security system.
A report from the Congressional
Budget Office shows that for the first time in 25 years, Social
Security is taking in less in taxes than it is spending on benefits.
Instead of helping to finance the
rest of the government, as it has done for decades, our nation's
biggest social program needs help from the Treasury to keep benefit
checks from bouncing -- in other words, a taxpayer bailout.
No one has officially announced that
Social Security will be cash-negative this year. But you can figure
it out for yourself, as I did, by comparing two numbers in the
recent federal budget update that the nonpartisan CBO issued last
week.
The first number is $120 billion, the
interest that Social Security will earn on its trust fund in fiscal
2010 (see page 74 of the CBO report). The second is $92 billion, the
overall Social Security surplus for fiscal 2010 (see page 116).
This means that without the interest
income, Social Security will be $28 billion in the hole this fiscal
year, which ends Sept. 30.
Why disregard the interest? Because
as people like me have said repeatedly over the years, the interest,
which consists of Treasury IOUs that the Social Security trust fund
gets on its holdings of government securities, doesn't provide
Social Security with any cash that it can use to pay its bills. The
interest is merely an accounting entry with no economic
significance.
Social Security hasn't been
cash-negative since the early 1980s, when it came so close to
running out of money that it was making plans to stop sending out
benefit checks. That led to the famous Greenspan Commission report,
which recommended trimming benefits and raising taxes, which
Congress did. Those actions produced hefty cash surpluses, which
until this year have helped finance the rest of the government.
But even then, it was clear the
surpluses would be temporary. Now, years earlier than projected,
Social Security is adding to the government's borrowing needs, even
though the program still shows a surplus on paper.
If you go to the aforementioned pages
in the CBO update and consult the tables on them, you see that the
budget office projects smaller cash deficits (about $19 billion
annually) for fiscal 2011 and 2012. Then the program approaches
break-even for a while before the deficits resume.
Social Security currently provides
more than half the income for a majority of retirees. Given the
declines in stock prices and home values that have whacked millions
of people, the program seems likely to become more important in the
future as a source of retirement income, rather than less important.
It would have been a lot simpler to
fix the system years ago, when we could have used Social Security's
cash surpluses to buy non-Treasury securities, such as such as
government-backed mortgage bonds or high-grade corporates that would
have helped cover future cash shortfalls. Now it's too late.
Even though an economic recovery
might produce some small, fleeting cash surpluses, Social Security's
days of being flush are over.
To be sure -- three of the most
dangerous words in journalism -- the current Social Security cash
deficits aren't all that big, given that Social Security is a $700
billion program this year, and that the government expects to borrow
about $1.5 trillion in fiscal 2010 to cover its other obligations,
about the same as it borrowed in fiscal 2009.
But this year's Social Security cash
shortfall is a watershed event. Until this year, Social Security was
a problem for the future. Now it's a problem for the present.
Allan Sloan is Fortune magazine's
senior editor at large.


5 Questions
for Thomas Wilson
By Sandra
Block, USA TODAY
February 1, 2010
Thomas Wilson, 52, is the chairman, president and
chief executive officer of Allstate and Allstate Insurance. He
joined Allstate in 1995 from Sears Roebuck, where he was vice
president of strategy and analysis. Prior to Sears, he was managing
director of mergers and acquisitions at Dean Witter Reynolds from
1986 to 1993. Wilson is vice chairman of the Federal Reserve Bank of
Chicago. A native of St. Clair Shores, Mich., he holds a master's of
management degree from Northwestern University's Kellogg School of
Management and a bachelor's degree in business administration from
the University of Michigan.
Q: A new poll by Allstate and the National Journal found that 55%
of Americans believe the country is on the wrong track. Why do you
think Americans have such a negative outlook?
A: We're seeing a continuing trend of people feeling like the
economy is not working for them. What you see then, is this growing
trust deficit. The trust deficit is growing faster than the fiscal
deficit.
Americans are saying we don't trust business or government, and they
point the finger at both. If you say, "Do you think we've learned
our lessons from this economic downturn?" 70% of people say, "No."
Q: As the chief executive of a major publicly held company, what
is your responsibility to address the lack of trust in business?
A: Part of it is making sure people's voices are heard. We
need to do more things in our business to both inform and educate
our customers about the risks they face.
If you ask people who do you trust, three-quarters of them trust
themselves the most. That's not a surprise — Americans are pretty
individualistic. Then you say, do you know enough about mortgage,
credit cards and insurance, and more than half of the people say, "I
don't know enough."
Q: Has the recession caused consumers to cut back on auto
insurance?
A: People are cutting back. I'm not concerned about it because I
think it's in the range of acceptability in terms of what the risks
are.
People are raising their deductibles and they're buying less
insurance. I think if that's what it takes so you stay insured but
you make your budget, that's a good choice. One of the other things
we've been doing is try to simplify our products. You can buy
standard, gold, platinum, value. We're seeing a lot of people who
used to have gold or platinum buying value now.
Q: Some supporters of health care reform argue that mandatory
health care insurance is analogous to mandatory auto insurance
coverage, which is required by most states. Do you agree?
A: We don't really have a strong view on what should happen or
shouldn't happen.
I think there are some differences between health insurance and auto
insurance. (The reason for mandatory) auto insurance is that I can
directly hurt you because of what I do. The linkage on health
insurance is a little less direct. I'm hurting you because I'm not
taking care of myself, therefore, overall health care costs will go
up. I don't think it's as clean a shot as auto insurance. If you ask
consumers, they want to be able to choose. Consumers do not like to
be told what to do.
Q: The earthquake that devastated Haiti last month was the worst
in 200 years. Is there any way to prepare for something like that?
A: We're quick to forget people knew that could happen, and
people didn't build houses they should have built.
I think it should be a learning experience. Let's look at building
codes for houses in the earthquake zones on the coast. They're not
set up to actually protect people and their houses. In Florida, over
a third of the homeowners are insured by a company called Citizens,
which is a state company. If a big hurricane comes, Citizens isn't
going to have enough money. Everybody knows it; everybody's hoping
it doesn't happen; and when it does happen … you're going to have
all this economic turmoil. You see this time and time again, and we
never really learn our lessons.


Allstate Agent Association:
Company to
Terminate 3,000 Existing Agents
Insurance News Net.com
February 1, 2010
Thousands of existing Allstate agents
are to be eliminated within the next two to three years as the
company sheds those it thinks are not meeting specified production
quotas, according to the National Association of Professional
Allstate Agents.
Association Executive Director Jim
Fish said more than 3,000 agents are being sent termination notices.
Many agents are "older agents -- 50 to 60 years old -- who might be
servicing their book of business and maintaining high retention and
loss ratios, but that isn't enough for Allstate."
"They (Allstate) are looking to add
high-value, production-oriented new agents" to hit marks on new
business and premiums the NAPAA says are established by Allstate.
Fish said the "so-called" Allstate independent agents are anything
but, constantly controlled by the company in "every aspect of the
business" from hours of operation and holiday schedules, to
personnel requirements, Fish said.
Allstate spokesperson Maryellen
Thielen said the company "has not set targets for agency numbers or
size."
"We intend to grow and succeed with
Allstate agencies," Thielen said.
"We’re providing incentives and tools
for Allstate agencies to provide a consistently superior customer
experience. We’re also incenting agents to grow and enhance the
customer service their agencies provide. We’re actively recruiting
new agents to further enhance and strengthen our local presence."
NAPAA President Bob Isacsen, who said
Allstate "doesn't acknowledge we exist," said the insurer has used
agents as a scapegoat for "ineffective leadership."
"You have non-insurance people
running the company and running it into the ground, if you ask me,"
said Isacsen, who owned an agency for 21 years before selling about
three years ago to retire. Isacsen, who is now the managing director
of risk and insurance services at United Nations Federal Credit
Union, said many agency owners will not be able to sell now due to a
"dearth of available buyers."
Just before Christmas, a federal
judge approved a $4.5 million settlement between the Equal
Employment Opportunity Commission and Allstate Corp. to officially
end allegations of age discrimination. A class of 90 older former
employees of Allstate will share the award. Its lawsuit, filed five
years ago, alleged Allstate Insurance Co. violated the Age
Discrimination in Employment Act (BestWire, Dec. 22, 2009).
The EEOC alleged Allstate in 2000
began a reorganization plan in which it fired all of its sales
agents and offered to make them independent contractors. Part of the
plan said that former Allstate sales agents could not be rehired in
other, nonagent positions for one year. In the lawsuit, the EEOC
said that more than 90% of those agents were older than 40, making
the hiring policy in violation of the federal ADEA (BestWire, Oct.
27, 2009).
Allstate said it chose to agree to
the settlement to avoid further litigation costs but continued to
believe its position was correct and that it would have prevailed in
court.
In afternoon trading on Feb.1, shares
of Allstate Corp. (NYSE: ALL) stock were selling at $29.83, down
0.33% from the previous close.


Allstate may shed
20% of its agents
Insurer also raising expectations for
agents, like target of generating annual premiums of at least $4
million per location
By Becky Yerak, reporter
- Chicago Tribune
January 31, 2010
Allstate Corp. insurance agents are
bracing for a shakeup that they say could winnow their ranks by
about a fifth.
Howard Simpson counts himself among
those on the chopping block.
An Allstate agent in central Ohio
from 1967 until last month, Simpson said he was asked to either sell
his agency by Jan. 1 or accept a $130,000 termination payment.
Allstate was unhappy, Simpson said, because the number of policies
in his portfolio fell 1.5 percent, or about 30 accounts.
"I had negative growth, but the
company's was down more than that," said Simpson, 68.
In 2008, Allstate saw a drop in
policies on its books — down 1.8 percent for autos and 4.2 percent
for homeowners — as well as a loyalty score shy of company goals.
When an Allstate manager issued what
Simpson saw as an ultimatum, his gallows humor kicked in: "I'm
assuming Tom Wilson will be leaving the same day I'm leaving?" he
said of the chief executive of Northbrook-based Allstate.
The National Association of
Professional Allstate Agents expects Simpson's lament to become
increasingly common in coming years as more agents are let go.
"We believe Allstate is planning to
eliminate between 3,200 and 3,300 agents by 2013," said Jim Fish,
the association's executive director.
Allstate, which has 14,700 exclusive
agencies and financial representatives, in 2008 wrote premiums of
$26.6 billion, or $1.8 million an agency. That was down 2 percent
from 2007, a trend Allstate blamed on declining new car sales, a
weak housing market and tough competition.
Allstate's new agency targets include
generating annual premiums of at least $4 million per location,
having one licensed employee for every 1,000 policies, and reaching
certain loyalty goals, Fish said.
"The company wants to get rid of
agents who aren't actively producing new business," he said. "The
ones taking care of customers and servicing the book — they're not
interested in keeping those agents because they think they can
service those policies at a call center."
Allstate said the opportunities have
never been better for agencies "committed to providing outstanding
service."
"We're providing incentives and tools
for Allstate agencies to consistently provide a superior customer
experience," said Maryellen Thielen, a company spokeswoman.
At least one Allstate agent said the
new goals are doable.
Jim Towns, an Allstate agent in
Addison for about 20 years, expects to meet the $4 million premium
mark at each of his three offices and will staff to future company
standards.
"The company feels that if you have
these economies of scale, you'll be able to take care of the
customers" better, Towns said. "They want you to answer the phone,
they want you to be in your office, or have someone who is licensed
taking care of the customer."
In a 24/7 world, the customer expects
more, said Towns, who has seven full-time workers and two
part-timers. "My offices are open six days a week, and four of us
have iPhones and are accessible when the customer needs us," he
said.
Allstate said it is providing agents
with incentives to grow and is actively recruiting new agents.
"Our goal is to grow and succeed with
Allstate agencies," Thielen said. The company said customer loyalty
rose through the first nine months of 2009, but auto and home
policies in force declined 1.3 percent and 4.1 percent,
respectively, in the third quarter.
Many affected agents will have
difficulty selling their shops because of the dearth of available
buyers, partly because of tighter financing. So there could be a
glut of agencies on the market, Fish said.
Two dozen Illinois agents are
advertising on Allstate's Web site trying to sell their businesses.
In August 2008, there were only two.
Meanwhile, the prices that the
company's agencies fetched fell through 2009, according to the
Allstate Agency Value Index. The index is measured by PPC Loan, a
Woodlands, Texas-based loan originator for Allstate agents, and is
based on Allstate agency sales.
"From the first quarter of 2007 to
the end of 2009, the average value for which an Allstate agency has
been sold has dropped from the peak of 2.95 times renewal
commissions to 2.46 times," said the fourth-quarter report, released
Tuesday. That's partly due to a more realistic perception of
Allstate agencies by potential buyers, it said.
As of year end 2009, components of
the Agency Value Index are at their lowest levels since at least
2005.
The good news: Agency prices have
begun to stabilize, and the weeding out of less-effective agencies
could boost values in the future, the report said.
"My cell phone has been ringing off
the hook by agents told that they'll receive, or have already
received, a 90-day termination notice," Bob Isacsen, president of
the National Association of Professional Allstate Agents, noted in a
letter to members.
Allstate wants to set minimum
staffing standards to reduce the time the office is closed for lunch
or vacation and cut down on instances of phones not being answered,
Fish said.
It's hard to argue against the
benefits of proper staffing, but it's only one reason customers
defect, Fish said, noting that they sometimes leave because of
prices. Many agents being terminated have customer retention rates
exceeding 90 percent and earn the company at least $500,000 a year
in profit, he said.
"Plus, they've been loyal to the
company for decades," Fish said. "Their only fault is that they have
not been able to meet their quotas in a difficult market."
Simpson, the Ohio agent, had found
one buyer willing to pay his asking price of $450,000. But he said
Allstate wouldn't approve him. Simpson, who is now self-employed
after starting a mobile notary signing service, eventually found an
approved buyer and sold his agency for $370,000.


Five myths
about America's credit card debt
By Robert D. Manning
- Washington Post
January 31, 2010
They're yuppie food stamps. They give
new meaning to the question "paper or plastic?" And they're in
everyone's wallet. Americans have nearly 700 million all-purpose
bank credit cards, plus nearly 500 million retail store cards -- and
they have transformed how we live and consume. Today, Americans are
more dependent on credit than savings, a radical departure from the
last major economic crisis, in the 1930s. Congress's effort to
change that, with the Credit Card Accountability, Responsibility and
Disclosure (CARD) Act, signed by President Obama last spring, is set
to go into effect in a few weeks. But it won't fix everything. Or
maybe not much of anything. Here are the myths that muddle our
understanding of how we've racked up so much credit card debt.
Middle-class American families have
long depended on bank credit cards to manage their budgets. 1. Not
true. Consumer credit originated with local merchants that offered
"open book" credit to cement customer loyalty and increase sales. As
major retail chains and malls replaced small shopkeepers in the
1950s and '60s, stores such as Sears and Montgomery Ward issued
credit cards for the same reasons. But if you didn't like what Sears
had to offer, you couldn't use its credit card anywhere else.
Universal or bank cards such as Visa
or MasterCard were reserved for high- and upper-middle-income
households. They were offered to reward the banks' best customers
(after all, how many toasters could you use?) and served as "loss
leaders," as most cardholders paid off their monthly balances. Until
the early 1980s, bank credit cards were a symbol of high social
status, used mainly for convenience rather than need. This was the
inspiration for the color-coded cards that emerged in the 1980s and
1990s: Fiscally responsible "convenience" users wanted to be
distinguished from less credit-worthy consumers with a "platinum"
card.
More people have credit cards because
companies got better at managing risk and began marketing to
lower-income customers. 2. Mostly no. Credit card use expanded
dramatically during the golden age of the industry -- beginning in
the early 1980s -- because deregulation suddenly allowed high
interest rates and penalty fees, and credit cards became a major
engine of bank profits. In 1978, a Supreme Court decision
effectively ended consumer interest-rate limits and the federal
usury law. After the 1981-82 recession, industrial restructuring
shifted demand for bank loans from manufacturing companies to
individual households, and national banks aggressively pushed for
deregulatory policies, in line with the '78 decision. A 1996 Supreme
Court ruling that ended state-regulated limits on credit card fees
furthered that cause. Today, only nonprofit credit unions, as
mandated by Congress, must abide by an interest rate ceiling of 15
percent.
As more and more people were
preapproved for credit cards in the '80s and '90s, the "free" credit
used by the most affluent households was subsidized by the high
interest rates and penalty fees paid by the most financially
distressed. A carefully guarded secret of the industry is that about
a quarter of cardholders have accounted for almost two-thirds of
interest and penalty-fee revenues.
Responsible cardholders will have to
pay more to make up for the defaults of irresponsible consumers. 3.
False. Although credit card companies are experiencing record
default rates, irresponsible consumer borrowing is not the main
culprit behind soaring interest rates and fees. Banks have suffered
far more from mortgage foreclosures and home-equity loan defaults.
Major banks encouraged their credit card divisions to relax their
standards at the end of the financial bubble; more customers went
deeper into credit card debt. Those customers were encouraged to
refinance their mortgages, generating high fees for the banks. Banks
then sold credit-card-debt-backed securities to institutional
investors around the world. When the bubble burst in September 2008,
banks could not sell these low-quality securities. They were stuck
with poorly performing credit card portfolios. For cardholders, the
central problem is that the credit card industry's business model is
fundamentally flawed; bankers want consumers to foot the bill for
its reengineering through higher interest rates and fees.
As deregulation gave rise to
conglomerate financial institutions, credit cards continued to serve
as marketing "loss leaders" through the bundling of other financial
products such as loans, brokerage fees and insurance to
higher-income cardholders who typically paid off their monthly
charges. With the recession, these other bank revenues have declined
sharply, which has increased pressure on credit card companies to
boost profits.
The credit card industry is so
competitive that regulation is unnecessary. 4. Rather than a
self-regulating and intensely competitive market of more than 5,000
issuers, the credit card industry is one of the most concentrated in
the nation (and it's increasingly being hit with allegations of
monopoly practices). The top three issuers -- Bank of America,
Citibank and Chase -- control more than 60 percent of outstanding
credit card debt. Consumer choice has declined over the past 20
years as economies of scale for marketing, administration and
customer service have led thousands of card issuers to cash out to
the largest banks.
The CARD Act finally protects
consumers against the credit card industry's most abusive practices.
5. Yes and no. Although touted by the Obama administration as a
major consumer achievement, the long-awaited CARD Act, which goes
into effect Feb. 22, offers a mix of overdue protections and
surprising omissions.
Some of the worst industry practices
are prohibited, including billing systems that generate finance
charges on paid-off balances, retroactive interest-rate increases on
past balances less than 60 days late and unrestricted marketing to
consumers under the age of 21 who don't have an independent source
of income.
On the negative side, Congress
stipulated a nine-month phase-in period for these regulations. For
millions of Americans, especially those suffering from employment
and income interruptions, this is too late. If you're in debt today,
this bill doesn't help you. Companies already have jacked up
interest rates, sharply reduced lines of credit, increased service
fees and diluted the value of loyalty reward programs. These trends
have brought consumer credit scores down, triggering higher
borrowing costs and greater difficulty finding work.
But there is a silver lining to
falling credit scores and fewer preapprovals for cards: More people
are learning that when it comes to plastic, you can leave home
without it.
Robert D. Manning is the author of
"Credit Card Nation" and "Living With Debt." He was the editorial
adviser to the 2007 documentary "In Debt We Trust" and is the
founder of the Responsible Debt Relief Institute.


Good Things in Store
for Wal-Mart
By
Alexander Eule - Barron's.com
January 29, 2010
A major reorganization and an upgrade by Goldman
Sachs are welcome news for the underperforming stock.
WAL-MART SHARES WERE left behind during the market
mania of 2009. It could finally be catch-up time.
Last night, Wal-Mart Stores (ticker: WMT)
announced a significant reorganization that it promises will "ensure
that every part of our business is becoming more global, leveraging
our scale, and moving closer to the customer."
Today Wall Street is applauding that news, along
with an upgrade from Goldman Sachs.
Goldman upgraded Wal-Mart stock to Buy from Hold.
"With expectations seemingly muted, we believe the bar is low for
Wal-Mart," Goldman analyst Adrianne Shapira wrote in a note to
clients. "Given the shift in macro factors in its favor (improving
food inflation outlook, better foreign exchange) and
company-specific initiatives (cost cuts, improved global sourcing),
we see a beat-and-raise EPS scenario unfolding for Wal-Mart in
2010."
Shares are up 2.1% today, but the stock still
looks cheap, with shares fetching just 13.9 times expected-earnings
per share for the next 12 months. Wal-Mart, over the last five
years, has traded at a median multiple of 15.4 times forward
earnings.
The stock is up just 12% over the last 12 months,
compared with a 29% increase for the S&P 500 index. Wal-Mart
disappointed investors in November when it reported a negative
same-store sales figure.
The structural changes are surely an attempt to
cut costs and boost margins by taking greater advantage of
Wal-Mart's massive scale.
Among the changes are a new global merchandising
center and a partnership with a new buying agent.
"We believe the new organization and partner are
game-changers that should finally enable Wal-Mart to more readily
seize the opportunity to leverage its scale, lower its cost of
goods, accelerate its speed to market and improve its quality,"
Shapira wrote. "Its peers have capitalized on this margin
opportunity, and now Wal-Mart has the structure and plan in place to
seize its share."
Wal-Mart also said it was consolidating U.S.
operations across three divisions called Wal-Mart West, Wal-Mart
South and Wal-Mart North.
We're generally skeptical about such realignments,
but it in this case it could portend a larger shift in strategy.
David Strasser at Janney Montgomery Scott wrote today that "the
segmenting of the operations by region could be a precursor to a
more aggressive rollout of smaller/urban stores."
John Lawrence, an analyst at Morgan Keegan, tells
Barrons.com that today's announcement is one more effort to cut SG&A,
or selling, general & administrative expense, a focus since Mike
Duke became chief executive last February.
Lawrence points to recent changes at Sam's Club,
as another example of the effort. "It's all about getting the
returns up in every division, and they just continue to look for
opportunity to squeeze out more productivity," Lawrence says.
As for opportunities, investors should take
advantage of the one being presented in Wal-Mart's stock.


Walmart, others cut TV prices in Super Bowl run-up
By Nicole Maestri, Reuters
January 29, 2010
Wal-Mart Stores Inc is cutting prices
on high-definition TVs ahead of the U.S. Super Bowl championship
game, looking to entice shoppers to spend now that the holiday
season has ended.
In its U.S. Walmart stores, the
discounter is also getting more vocal about promoting its in-home TV
installation service, an offering that it said is helping shoppers
become more comfortable buying larger, and often more expensive,
TVs.
"We do know that there are customers
who are not all do-it-yourself type customers, they do want
professional help for installation," said Alex Cook, senior category
director for consumer electronics at Walmart U.S.
Starting on Sunday, Walmart is
cutting prices on select high definition TVs by $30 to $300. It will
offer a Vizio 55-inch 1080p LCD TV for $1,298, or $200 off; a Sony
Bravia 46-inch 1080p LCD TV for $778, or $300 off; and a Vizio
32-inch 720p LCD TV for $368, marked down by $30.
Electronics retailers typically roll
out discounts ahead of the Super Bowl to entice shoppers to buy a
new TV to watch the game. This year, the National Football League's
Super Bowl is being played on February 7.
Sears has launched an ad campaign
featuring Minnesota Vikings quarterback Brett Favre, and on its
Website it is offering 5 percent off LCD TVs $499 and over.
Best Buy Co Inc is cutting prices on
TVs, offering a Samsung 46-inch 1080p LCD high-definition TV for
$1,599.99, a price cut of $900. It is also promoting its Geek Squad
TV installation service.
In a playful twist, Target Corp is
promoting Super Valenbowl -- a celebration of the Super Bowl and
Valentine's Day. For the event, it is highlighting low TV prices and
touting its home delivery and installation services.
U.S. retailers just completed a
better-than-expected holiday sales season. Holiday retail sales rose
1.1 percent in 2009, according to the National Retail Federation,
beating its own forecast for a 1 percent drop in sales for the
November-December period.
The question now is whether that
momentum will continue into 2010. Many electronics retailers offered
rock bottom prices on TVs during the holiday season -- prices lower
than many of those now advertised for the Super Bowl.
Cook said Walmart knows customers are
watching their discretionary spending, which is one reason it is
highlighting the new price cuts for the Super Bowl.


Wal-Mart Combining Some US Units in
Streamlining Move
By Miguel Bustillo and
Karen Talley - Dow Jones Newswire
January 28, 2010
Wal-Mart Stores Inc. (WMT) is
consolidating its U.S. realty, store operations and logistics
divisions, which will operate under three geographic business units,
as the world's biggest retailer aims to improve efficiency and lower
operational costs.
Wal-Mart said Thursday it plans to
break up its U.S. business into North, South and Western regions,
each of which would have its own real estate teams to scout and
build new stores, and merchandising teams to fine-tune the mix of
products sold to suit local tastes. The new model more closely
resembles the company's international operations, which are headed
by country presidents with similar teams working underneath them.
"This is consistent with what they
have been doing on the merchandising side as they have sharpened
their focus on the specific needs of the local consumer," said Sarah
Henry, retail analyst with MFC Global Investment Management.
Taking broad strokes makes sense,
since "when you have a mature retailer, your focus is on bringing
out productivity per square foot," Henry said. "This a good use of
their analytic power."
Wal-Mart "is always looking for ways
to be more efficient and this seems like a logical step," said Peter
Wood, a senior vice president who follows retail companies at Chase
Investment Counsel, a money management firm.
Wal-Mart's U.S. stores chief, Eduardo
Castro Wright, who will oversee all three new regions, wrote in
another memo the new structure would "facilitate our growth as we
seek to enter new markets."
He suggested that the regionalized
approach would lead to different new store formats around the
country. The company is aligning its store planning team with a
customer experience team, a move that "will also support our efforts
to accelerate our speed to market with new formats," Castro Wright
said.
Rosalind Brewer has been named an
executive vice president and president of the Southern region.
Previously, she was president of the Southeast division for Walmart
US.
Hank Mullany has been promoted
executive vice president and president of Walmart North. He was
previously president of the Northeast division of Walmart US.
Eric Zorn, president of Walmart
Realty, and Johnnie Dobbs, executive vice president of logistics,
will remain in their positions, with their roles expanded as the
operating groups are aligned, the company said.
As of Feb. 1, Wal-Mart is
transferring the responsibility for store merchandising from its
market team to zone merchandise supervisors, a move that will cause
the elimination of market team jobs. Wal-Mart did not disclose the
number of jobs being lost.
Wal-Mart is also aligning its Puerto
Rico business with that in the U.S. as a way of leveraging its U.S.
buying power.
The moves follow Wal-Mart's
announcement on Sunday that its Sam's Club division would lay off
11,200 workers as it restructures its in-store demonstrations unit.
Wal-Mart shares closed down 1.5% to
$52.61, and were unchanged in late trading.


Is This Guy the Next
Buffett?
By Chuck Saletta
- The Motley Fool.com
January 27, 2010
When Warren Buffett first took
control of Berkshire Hathaway (NYSE: BRK-A), it was a struggling
textile manufacturer. Rather than invest an incredible amount of
additional capital in a vain attempt to keep that business
competitive with cheaper offshore rivals, Buffett let it die off.
Instead of throwing good money after
bad, Buffett used the cash the textile business generated in its
dwindling days to invest elsewhere and diversify the company. That
decision helped turn Berkshire into the insurance and investment
giant it is today, and paved the way for Buffett to become a
multibillionaire. It's a great story of his investing prowess and
the benefits of intelligent capital allocation -- but it also helped
accelerate the original Berkshire's demise.
Is
history repeating itself?
Perhaps as a way of foreshadowing things to come, Eddie Lampert
is often described as "the next Warren Buffett." A hedge fund
manager, Lampert took control of the once-bankrupt K-Mart and used
his financial prowess to leverage that investment in fellow retailer
Sears. The resulting Sears Holdings (Nasdaq: SHLD) is a marriage of
two struggling former titans, both of which are worth more to
Lampert as asset plays than as retailers.
Both Sears and K-Mart own plenty of
valuable real estate, bought decades ago and held on the books at
depreciated historical cost. Even in today's real estate slump,
Lampert can sell off those buildings and land to book profits and
raise cash to invest elsewhere. In addition, while the combined
company continues to struggle with accounting profitability, its
operations still generate solid free cash flow.
And in Buffett-like fashion, Lampert
is very concerned about overinvesting that cash in an existing
business that's unlikely to provide a decent return. As a result,
there's a very real chance that Lampert may do what Buffett did for
Berkshire: doom Sears and K-Mart, the retailers, to save Sears
Holdings, the overall company.
That shouldn't be a surprise. After
all, both Lampert and Buffett are value-focused investors who care
about a company's ability to generate cold, hard cash. The more, the
merrier. And both those top-tier investors are even happier when
that cash flow can be bought cheaply. After all, the less they need
to invest to get that cash flow, the more productive their capital
can be.
Invest like those market masters
do
Cash flow is of such paramount importance to these greatest of
capital allocators that they'd rather see a company's business line
die than to invest in something that won't generate cash. If you
want to follow in their investing footsteps, you too should make
cash productivity a key metric you seek in the companies you're
partially buying in the stock market.
Fortunately, it's fairly
straightforward to find companies that generate significant amounts
of cash. Just look for businesses with strong free cash flow (which
is frequently measured by turning to the cash flow statement and
subtracting capital expenditures from operating cash flow). It's an
easy -- and critically important -- metric to measure, but because
it's not typically reported by automated screening tools, it's one
that's often overlooked.
And because free cash flow is so
easily overlooked, you can often find companies trading at
single-digit multiples to their realized cash-generating ability.
Like these, for instance:
Company
Market Capitalization
Free Cash Flow
Market
(in Millions)
(in Millions)
Capitalization-to-
Free Cash Flow Ratio
Pfizer (NYSE: PFE)
$151,546
$16,563
9.1
AT&T (NYSE: T)
$149,472
$19,252
7.8
Comcast (Nasdaq: CMCSA) $
44,819
$ 5,362
8.4
Honeywell (NYSE: HON)
$ 30,499
$ 3,190
9.6
Lockheed Martin (NYSE: LMT) $ 29,023
$ 3,871
7.5
Data from Capital IQ.
As long as there are investors more
concerned with accounting earnings than a business' true
cash-generating capability, you will find chances to buy cash flow
on the cheap. In so doing, you're following in the footsteps of some
of the greatest investing minds of our time.
If it works for them ...
At Motley Fool Inside Value, we've seen just how successful
investors like Buffett and Lampert have been, thanks to their
laser-like focus on buying cash generation on the cheap. We're proud
to have adopted their strategy as our own, and we've been sharing in
some of their success as a result -- outperforming the S&P 500 by an
average of eight percentage points per recommendation since the
service's inception. If you're ready to join us in following the
path those greats have blazed, click here to start your no
obligation, 30-day free trial.
At the time of publication, Fool
contributor Chuck Saletta did not own shares of any company
mentioned in this article. Sears, Pfizer, and Berkshire Hathaway are
Inside Value selections. Berkshire Hathaway is also a Motley Fool
Stock Advisor pick. The Motley Fool owns shares of Berkshire
Hathaway and has a disclosure policy.


Retailers
try new survival strategies for 2010
By Jayne O'Donnell, USA
TODAY
January 26, 2010
NEW YORK — The recession pushed shoppers to pick
necessities over discretionary items, discounts over luxury. But
retailers hope to shift such behavioral changes further in coming
months, affecting what consumers will buy, pay and experience at
stores.
"Retailers are following through on their strategy
to get their houses in order during the recession so they are
positioned to be strong players as the recession ends," says Dan
Butler, vice president of retail operations for the National Retail
Federation, which held its annual conference here this month.
"Whether it's technology, product assortment or sustainability,
they're asking themselves, 'How can we be smarter about meeting the
needs of our customers quickly?' "
The NRF said today it expects retail sales to rise
2.5% in 2010, up sharply from a 2.5% sales decline in 2009.
Increasing sales often means responding to what consumers want, such
as reasonable prices. But many times, the changes are designed to
ensure retailers' survival, such as when they reduce inventory so
they don't have to resort to deep discounting. Sometimes it does
both: Macy's strategy of offering customers different merchandise
around the country allowed the company to downsize its corporate
headquarters.
Such changes will continue in 2010; here are four
ways shopping will be different:
1. What you can buy
Retailing is more competitive than ever, so stores
have to focus on exactly what the customer wants to buy, says Kevin
Sterneckert of the retail advisory firm AMR Research. They need to
have a store-by-store sense of how much to stock.
The 2009 holiday season was the trial run of
retailing's new less-is-more buying philosophy. Largely positive
retail sales and earnings reports bore out the wisdom of the
strategy.
Stores will continue to under- rather than over-buy
so they don't have to resort to costly — for them — clearance sales.
Using software that closely monitors what's selling
where and at what price, they're also trying to offer what consumers
are likely to want at prices they'll be willing to pay.
Aside from eliminating deep discounts, retailers are
well aware of the psychological allure of limited quantities.
Whether it's J. Crew's conservative ordering,
Target's limited-time-only designer duds or Ruelala.com's one-day-
only sales, consumers often buy when they fear they won't get
another chance.
"I never saw anyone go out of business because they
didn't have enough of something," former Neiman Marcus and J.C.
Penney CEO Allen Questrom said at the NRF conference.
Sameness is out, too. Until recently, whether you
shopped at a teen retailer or a department store, merchandise
differed little among competitors. Teen stores were filled with
jeans and graphic tees; department stores with Ralph Lauren and a
host of other popular designers. With online competition, stores
must offer "must-have" merchandise that shoppers want so badly they
"can't wait three days," Betsy McLaughlin, CEO of teen retailer Hot
Topic, said at investment bank Financo's annual CEO event, also in
New York.
Stores are also rapidly adding more private-label or
exclusive merchandise that they hope will draw shoppers to them
rather than some other store.
J.C. Penney, for example, has launched more than 20
private-label or exclusive merchandise lines since 2006, including
brands by celebrity designers Mary-Kate and Ashley Olsen and former
model Kimora Lee Simmons.
These only-at-Penney brands now make up 50% of the
stores' sales. Starting this fall, Penney will also be the only
place where you can buy the Liz Claiborne or Claiborne brands, other
than QVC.
2. How much you'll pay
Everyone from the CEOs of Family Dollar to Saks
talks about "value" these days. But that doesn't mean stores are
going to be doing much deep discounting in 2010. That's so last
year. The trend going forward will be more regularly scheduled sales
and more-attractive starting prices.
Even the dollar stores are having to go more
downscale. Family Dollar CEO Howard Levine says his stores focused
on $5 gift promotions over the holidays and will continue to stress
necessities over nice-to-haves such as apparel and furnishings.
Retailers also will be using smaller packages and
making cheaper versions of products that they can charge less for,
says Janet Hoffman, retail practice leader for consulting firm
Accenture.
Retailers are using software to help them analyze
the precise prices they need to boost sales without cutting too much
into profit margins.
"They're taking the art out of retailing and making
it more of a science," says Jill Puleri, retail chief for IBM Global
Business Services.
"This (holiday) season was very well-planned, while
in the past it was a triage," she says. "We'll see this continue."
3. What you'll see in stores
Stores will be geared more toward service and the
education of consumers about products. They'll also be a lot more
fun.
With consumers shopping less often, "When they think
about going out, you want them to think about you," says Chris Dull,
president of franchising for NexCen Brands, which owns chains
including The Athlete's Foot, MaggieMoo's and Marble Slab Creamery.
Events and entertainment are becoming increasingly
common in stores and malls.
"As online sales go up, retailers have to get
creative to get people in," Hoffman says. "There will be more
tastings, more demos and more gimmicks to get them in the door."
•From Thanksgiving through Christmas, Macerich's 72
malls had "Freebie Fridays," with retailers offering free gifts and
promotions. Even if people are shopping less, they "are still
looking for a great experience and an enjoyable time," says Macerich
spokeswoman Rebecca Stenholm. But it's more than just a good time:
"Events must be directly linked to driving sales."
•Many stores in the sporting goods chain The
Athlete's Foot, now called TAF, are being recast as either
urban-oriented fashion retailers or suburban-oriented running
stores, depending on where they are and what customers they serve.
Eric Gustavsen, whose company worked on the TAF
redesign and rebranding, says retailers have to offer stores and
products in the way consumers want them. Both types of stores will
still have merchandise to suit all consumers, but modular store
designs will allow more flexibility in what's front and center.
•The American Eagle store in Manhattan's Times
Square displays billboard-size photos of customers modeling their
new purchases. Puleri, whose company counts American Eagle among its
clients, says customers have told the retailer they went to New York
just to get their picture taken at American Eagle and to achieve
what Puleri calls their "15 minutes of fame."
•British fashion retailer Topshop, whose lone U.S.
store is in New York City, has a photo studio where a professional
will photograph its young customers with their friends and then post
the pictures to their Facebook pages.
"Consumers have stated now that they are willing to
help retailers through co-creation and collaboration," Puleri says.
"It's about getting the buzz back around retail and what's going to
differentiate these retailers."
4. How green stores will be
Stores, including L.L. Bean, are being redesigned to
be more environmentally friendly. The number of "green" products is
being increased at Wal-Mart, Target and other stores. And you may
find yourself paying for the privilege of using a plastic bag — or
being rewarded for reusing — at more stores.
Much of the environmental emphasis is behind the
scenes and focused on saving energy to save money. When it comes to
energy, "Any savings immediately hit the bottom line," says Peter
Graf, who heads sustainability for the business software company
SAP.
L.L. Bean stressed sustainability, a priority among
its nature-minded customers, in its new prototype store in
Mansfield, Mass. The carpet and rubber for floors were made of
recycled materials, and most other construction materials were
chosen with green qualities in mind. Redesigned stores will also
feature more interactive and educational services, including
fly-fishing and biking classes.
But store shelves are looking greener, too.
The energy consumption of many flat-panel TVs has
been reduced by a third, and all the laptops at Wal-Mart are
compliant with the federal Energy Star program, which sets strict
energy-efficiency guidelines. Wal-Mart also says it is working to
develop a "sustainability index" that would help consumers evaluate
the green-ness of any products they buy.
Target launched the Loomstate brand of organic men's
and women's fashions last spring for a limited time and plans new
designer versions of environmentally sustainable merchandise this
year. Target stores now sell green-friendly Seventh Generation and
Method home products and more than 700 organic food items.
Last fall, Target began offering shoppers a 5-cent
discount for every reusable bag used. CVS, Whole Foods and Trader
Joe's offer discounts for reusable bags as well. Hoffman, who lives
in San Francisco, where retailers are prohibited from using
disposable plastic bags, expects more stores to offer discounts on
reusable bags and for those that have plastic bags to consider
charging for them.
Graf, who lived in Germany for 34 years before
moving to the U.S. 10 years ago, says he was paying 10 cents for a
plastic bag when he was a little boy. He agrees the free plastic bag
may soon be a thing of the past.
"The days where you can go into a grocery store and
get 15 plastic bags" are numbered, he says. "The more people start
being concerned about it, the more they'll expect (retailers) to be
responsible."


Follow-Up -
Sears
Holdings: Leave It on the Shelf
By
Jonathan Laing - Barron's
January 25, 2010
WE PAINTED A GRIM PICTURE OF THE future of Sears
Holdings in our Aug. 24, 2009, cover story, "Washed Out."
As we saw it, the company (ticker: SHLD),
controlled and operated by onetime hedge-fund superstar Edward
Lampert, was suffering from years of underinvestment in the stores
and lackluster merchandising.
As a result, the falling sales figures and
shrinking margins Sears had suffered under Lampert during his five
years of running both Kmart and Sears were bound to continue, until
Sears one day just faded away. Yet the stock, trading at about 66 at
the time of our story, has pushed up to more than 100 in the past
month.

Sears' stock has leaped to more than 100 since our
cover story. Some of the impetus came from the company's
announcement earlier this month that all-important fourth-quarter
sales, though down from a year ago, wouldn't be as bad as expected.
Thus, the company expected profit of between $190 million and $270
million, or $1.61 and $2.29 a share.
That set off a spasm of covering in the heavily
shorted stock. Few of the retailer's 116 million shares are
available for either shorting or covering shorts, and the annual
"borrow," or cost to shorts to maintain their position, stands
around a punishing level of 20%. Lampert's hedge fund alone owns
approximately 57% of the shares outstanding.
Another major holder is Bruce Berkowitz's
Fairholme Fund (FAIRX), which has pushed its ownership interest in
the past year to around 13%.
Berkowitz was recently named Morningstar domestic
stock-fund manager of the year and decade as a result of his
reputation for having a keen sense of value stocks. Except in major
holdings like Sears and Florida real-estate concern St. Joe Co.
(JOE), he seems to gravitate toward thinly traded, low-quality
companies with big short interests.
Finally, other long-term holders in Sears, such as
the Tisch family, allow Lampert and acquaintances to tie up nearly
80% of Sears stock.
So short squeezes are both frequent and vicious in
Sears. The high borrowing costs of the shares pressure the shorts
whenever a corporate announcement of even mildly promising
proportion hits the tape. Also, time costs the shorts dearly.
Lampert may be a nonpareil stock operator, but he
has proven a lousy retailer. Sooner or later, that reality will
obtrude and lay both the company and its shares low.
-- Jonathan R. Laing


The Worst
Stocks for 2010: Sears Holdings
by Alyce Lomax
- The Money Times.Com
January 22, 2010
Many consumers seem to have forgotten
that Sears and Kmart even exist. Once 2010 is done, Sears Holdings (Nasdaq:
SHLD) shareholders may want to forget, too. A few promising signs do
suggest that the retailer could still escape a Circuit-City-like
fate -- but even so, its shares remain way too expensive. I predict
2010 will be a sad year for this stock.
Better isn't good enough
Sears investors recently got very excited when the company announced
that December same-store sales squeaked up by 0.4%. In addition,
impressive comps strength at Kmart actually offset weakness at its
namesake Sears stores. The company was also able to increase its
fourth-quarter earnings guidance to a much greater profit projection
than analysts had been expecting.
These are admittedly heartening signs
that Sears might not be quite as bad off as struggling retailers
like Borders Group (NYSE: BGP) or Blockbuster (NYSE: BBI). But these
glimmers of hope from Sears shouldn't lull investors into a false
sense of security. If anything, they might give Sears shareholders a
great opportunity to cut and run.
Considering the ruthless competitive
landscape in retail, it's a miracle that Kmart was able to perform
as well as it did during the holidays. Tough rivals in the discount
segment abound, including Wal-Mart Stores (NYSE: WMT), Target (NYSE:
TGT), and Costco (Nasdaq: COST). I'd argue that all three of those
names have much stronger brands and customer loyalty than either
Sears or Kmart.
Regardless of whether famed hedge
fund manager and Sears chairman Eddie Lampert is involved -- his
mere presence often seems to make some investors bullish about
Sears' future -- Sears and Kmart are both old-school names that lost
their brand luster a long, long time ago. Lampert's long-expected
magic hasn't really improved operating performance at Sears.
This stock's too pricey!
Meanwhile, recent investor euphoria
over Sears has turned it into an overpriced retail stock doomed to
stumble. Like Abercrombie & Fitch (NYSE: ANF), there's a massive
disconnect between its operational performance and the surge in its
share price.
Sears' shares are up 136% in the last
12 months. Even if you include Sears' earnings projections of $3.36
to $4.06 per share for the upcoming quarter, the company's still
trading at 44 times earnings at best, and 64 times earnings at
worst. Given its still-plunging sales, this stock's been boosted on
little more than hope.
Consider a few of Sears' key metrics
compared to major rivals:
| Company |
P/E (TTM) |
Forward
Full-Year P/E |
PEG Ratio |
| Sears
|
N/A |
45 |
4.3 |
| Wal-Mart |
16 |
14 |
1.3 |
| Costco |
24 |
18 |
1.5 |
| Target |
18 |
14 |
1.1 |
*All data from Yahoo! Finance as of
Jan. 19, 2010.
Sorry, folks. Sears clearly looks
like the massive, overpriced loser when compared to its major rivals
in the discount retail space. Check out its crazy forward
price-to-earnings ratio and the astronomical PEG ratio. (Not to
mention its "not applicable" trailing P/E, since Sears hasn't even
been profitable in the last 12 months!)