Retailers 'Sell' to Young Virtually
Kohl's, Sears Build Brands
As Children Clothe Their Avatars Online
By Cheryl Lu-Lien Tan - Wall Street Jounal
August 19, 2008

Retailer Kohl's Corp. this month launched a new line of apparel, but the plaid skirts and printed T-shirts won't be sold in its 957 stores. Instead, it's selling them on Stardoll.com, a virtual community for teens and tweens where kids can fork over "Stardollars" -- purchased online at a nominal sum -- to buy apparel for their online characters.

With back-to-school sales off to a slow start, more old-line retailers and clothing labels are reaching out to kids online, enticing them to try virtual versions of their togs in hopes of making actual sales later. Kohl's first virtual line features pieces from its new Abbey Dawn collection, designed by singer Avril Lavigne. In its first 16 days, Kohl's Stardoll boutique logged some 2.2 million visits and sold 1.8 million items. Kohls.com lured 97,000 visitors who clicked through from the boutique site.

This month, casual-wear maker K-Swiss Inc. and lingerie and swimwear designer Eberjey rolled out virtual clothes on There.com. And in late July, retail pioneer Sears Holdings Corp. opened its first online boutique featuring back-to-school apparel and dorm-room furniture on teen site Zwinky.com. Sears said the boutiques logged 750,000 visitors and sold 850,000 virtual items during their first 16 days through mid-August.

These mainline retailers hope the virtual showrooms will be more effective than traditional ads in hooking tweens and teens. Users of the sites already can spend virtual dollars on virtual clothes designed by the sites, or by early adopters such as American Apparel Inc. that went virtual two years ago. The sites are places to fashion digital personalities, called "avatars," that participants use to explore new styles, relationships and behaviors. Typically, these sites now offer a click through to buy the real products.

"When you look at an ad, it's pretty quick," said Jennifer Weiderman, vice president of global marketing for K-Swiss. "But when they're in this virtual world, this gets them to spend more time [viewing] your product. It's a little bit more sticky."

Ms. Weiderman said she is dialing back her spending on TV ads this year and expects to allocate 15% of her marketing budget to online initiatives, up from 5% last year. Sears and J.C. Penney Co., which last month made virtual versions of its teen and young-adult clothing available to users of Yahoo's instant messenger service, say they've increased online ad spending this year. Kohl's also said it is allocating more of its online ad dollars this year to targeting teens. None would detail the scale of the budget shift.

Details of the arrangements vary, but a retailer or brand typically pays a fee to have a virtual community host and develop its store and products. At There.com, the fee ranges from a few hundred dollars to a few thousand, depending on how elaborate the store is and how many items will be sold. The brand and the Web site sometimes split revenue from the virtual purchases. But since virtual clothes cost from under $1 to $5 -- brands regard this revenue as negligible.

"It's really a way to get shoppers to test-drive your product," said Carlos Mejia, chief financial officer of Eberjey, a maker of lingerie, swimwear and sleepwear. The brand, which largely sells to women ages 20 to 45, hopes to attract teenagers with its virtual line.

Penney decided this year to put back-to-school outfits on Yahoo after learning that, during a seven-week experiment last summer, 1.5 million avatars wore its clothing on Yahoo and 5 million Penney outfits were tried on. "It casts a very modern, current light on the brand with teens," says Mike Boylson, Penney's chief marketing officer. Before Penney's presence on Yahoo, "perhaps J.C. Penney wasn't on their radar before," he says.

Sears is marketing its virtual boutiques on billboards in the virtual world, and is hosting daily fashion shows on the site promoting its products through the end of August.

Not everyone is pleased. Patti Miller, vice president of Children Now, an Oakland, Calif.-based national children's advocacy group, expressed concern over marketing to youngsters via these virtual shops. The Federal Communications Commission in 1990 established rules governing the hourly amount of advertising directed at children. But the newer, Web-based virtual communities that have replaced TV viewing for some kids have no similar restrictions.

"Some of these younger kids, those younger than 8 and even kids up to 12, can't make the distinction between what's advertising and what's not," says Ms. Miller. She says children may not grasp that the virtual stores function as a brand advertisement.

Dave Bazant, Sears' marketing manager for online and emerging media, argues that children who frequent the virtual sites are savvy enough to know that the stores also function as a branding tool.

"It's fairly transparent -- kids are not very naïve these days," says Mr. Bazant. He notes that Sears is careful to not aggressively push its wares in these sites because teens and tweens are "turned off by direct advertising. We're not giving away our product for free. Most of these items, they have to purchase."

The online pitches are striking a chord with Jen Rediger's daughters, 13-year-old Tyler and 9-year-old Kenzie. In the first week that the Kohl's store opened on Stardoll, they spent about 70 Star Dollars, or $7, on virtual skirts and shoes. Ms. Rediger, 32, an interior designer who lives in Hoschton, Ga., says she doesn't mind her daughters being exposed to such marketing because "it's not worse than what they see on television."

Tyler has already asked her mom to take her to Kohl's to buy the real versions. "They look really cool on my doll," she says. "It's my style so I think I'll wear it a lot."

Wal-Mart enters the ad age
Long envied for its logistical prowess,
the big-box retailer is learning the power of marketing.
By Suzanne Kapner, writer - Fortune Magazine
August 18, 2008 issue

If you've been watching TV lately, you may have come across Wal-Mart's new back-to-school ad. It features a well-scrubbed teenager wearing the California surf brand Op, as her Everymom exults that the giant retailer satisfied her daughter's fashion cravings without breaking the family bank. On the surface the spot doesn't look radically different from the company's advertising in years past. But its creation, part of Wal-Mart's "Save money. Live better" campaign, is a result of dramatic changes taking place behind the scenes.

Wal-Mart famously amassed its daunting market share by using sophisticated systems for logistics and operations. By contrast, its marketing was always something of a backwater, and the retailer's ads looked homemade, with Wal-Mart's price-slashing smiley-face character in a prominent role. An attempt to inject some pizzazz by hiring Chrysler marketer Julie Roehm resulted in a culture clash, and she departed in a 2006 mini-scandal.

Now the company is bringing new sophistication to its marketing, and the changes are generating eye-opening results. Analysts say the latest campaign, which launched in September 2007, has helped Wal-Mart deliver strong sales growth - repeatedly beating expectations - at a time many retailers are gasping for breath.

"Marketing had been considered a support function at Wal-Mart," says Stephen Quinn, who was promoted to chief marketing officer last year. "I had to convince people that it could have a direct impact on sales."

When Quinn, 49, joined Wal-Mart fromPepsiCo (PEP, Fortune 500) in 2005, the behemoth was slumping. Consumers complained that its stores were too big and too difficult to navigate. Advocacy groups blasted Wal-Mart's treatment of employees. Big-box stores were losing cachet.

The company got panicky enough that it tried to emulate its much smaller but infinitely cooler rival Target (TGT, Fortune 500). Wal-Mart introduced relatively chic clothing and pricier home goods. The results were forgettable, to be kind. (Remember Wal-Mart's ill-fated Metro7 fashion line and its ads in Vogue? I didn't think so.)

One reason Wal-Mart struggled to adapt was its insular mindset. Says Craig Johnson of the consulting firm Customer Growth Partners: "Wal-Mart was inward-looking, not outward-looking."

Quinn pushed to change that. He applied practices common at consumer product companies like PepsiCo's Frito-Lay North American unit, where he'd been chief marketing officer. Quinn spent two years conducting quantitative research - something Wal-Mart had avoided - to determine why consumers shop at the retailer and what they want. When, for example, pharmacy customers told researchers that they broke pills in half because they couldn't afford their full prescription, Wal-Mart conceived its wildly successful $4 prescription drug plan.

Perhaps the most important finding: Wal-Mart's most profitable customers are also its most price-sensitive. That told Quinn's team that Wal-Mart didn't need to mimic Target; the low-price mantra still resonated. "We simply needed to articulate it in a modern way," Quinn says.

J.C. Penney Net Sinks, Gives Tepid Outlook
By Aja Carmichael - Dow Jones Newswire
August 15, 2008

J.C. Penney Co.'s fiscal second-quarter net income dropped 36% amid falling margins and sales, and the department store operator said projected earnings for the current quarter were below analysts' expectations.

Shares fell in premarket trading to $35.75 from a previous close of $36.83.

For the period ended Aug. 2, the Plano, Texas, company posted net income of $117 million, or 52 cents a share, down from $182 million, or 81 cents a share, a year earlier. Penney last week boosted its profit target to 50 cents to 52 cents from May's view of about 38 cents. Analysts polled by Thomson Reuters were projecting earnings of 50 cents a share, on average.

Gross margin fell to 37.5% from 38.1%.

The company said last week that sales fell to $4.28 billion from $4.39 billion on a same-store sales decline of 4.3%.

Chairman and Chief Executive Myron E. Ullman III noted Friday that the company successfully controlled its operations "in this difficult consumer environment," with inventories down 3.5% on a comparable- store basis.

Looking ahead, Penney expects fiscal third-quarter earnings of 70 cents to 75 cents a share on a low-single-digit drop in revenue and a midsingle-digit drop in same-store sales. Analysts were projecting earnings of 76 cents on revenue down 2% to $4.64 billion.

The company has yet to adjust its February outlook for fiscal 2008 earnings of $3.75 to $4 a share, despite sharply cutting its first-quarter estimates in March. Analysts' most recent estimate was $3.32.

In April, Ullman aggressively scaled back the retailer's plans for renovations and new stores amid the uncertain economic climate. Department stores have stumbled as customers have faced macroeconomic pressures like higher energy costs, falling employment levels and issues in the housing and credit markets that have severely limited discretionary spending.

As the U.S. economy falters, retailers are seeking different ways to lure cash-strapped shoppers. J.C. Penney, along with other retailers, are counting on celebrity names to help boost the back-to-school season. This year, the company is relying on runway-model-turned- designer Kimora Lee Simmons's Fabulosity midpriced collection, which will be sold exclusively at its stores.

Wal-Mart's Net Rises 17% As Shoppers Seek Deals
By Donna Kardos - Dow Jones Newswire
August 14, 2008

Wal-Mart Stores Inc. posted a 17% rise in fiscal second-quarter net income, topping raised expectations and prompting the company to boost its fiscal-year target.

But the company gave cautious initial guidance for the current quarter, largely falling below analysts' estimates, as the world's largest retailer expresses some concern about how U.S. shoppers will fare in coming months now that a boost from federal stimulus checks is running its course.

Nonetheless, Chief Executive Lee Scott said: "While inflation and higher fuel costs are pressuring suppliers, retailers and customers worldwide, we're confident that Wal-Mart is well positioned for this economy."

For the quarter ended July 31, Wal-Mart reported net income of $3.45 billion, or 87 cents a share, up from $2.95 billion, or 72 cents a share, a year earlier.

Earnings from continued operations, excluding gains last year, rose to 86 cents form 73 cents. In July, Wal-Mart boosted its earnings outlook to 82 cents to 84 cents.

Net sales climbed 10% to $101.6 billion from $91.99 billion. Excluding fuel sales, U.S. same-store sales increased 4.5%, better than the company's May estimate for flat to up 2%. The increase was 4.6% at namesake stores and 3.7% at the Sam's Club warehouse chain.

International sales and profits both jumped 17%. Meanwhile, earnings at Wal-Mart U.S. stores grew 11%, but Sam's Club's profits fell 2.9%. Gross margin edged up to 23.6% from 23.3%.

Looking forward, Wal-Mart expects fiscal third-quarter earnings of 73 cents to 76 cents a share. Analysts were expecting earnings of 76 cents a share. Wal-Mart also projected U.S. same-store growth will be 1% to 2%. Chief Financial Officer Tom Schoewe said same-store sales will reflect "some sales volatility from week to week."

For the fiscal year, the company boosted its earnings guidance to $3.43 to $3.50 a share, up from February's forecast of $3.30 to $3.43 a share. Analysts' latest estimate was $3.49 share.

Wal-Mart, which is often viewed as a barometer for the retail industry, has been faring better than most non-discount retailers as economy battered consumers trade down and seek bargains. The big-box chain has benefited from its strategy of focusing on low prices, using the tagline "Save Money. Live Better." to lure budget-conscious shoppers grappling with rises in food costs and gasoline prices. Federal rebate checks, as well as store-layout improvements and recent product launches, also helped boost Wal-Mart's performance.

In contrast, sales at department stores and specialty retailers have been lagging in part because of their bigger exposure to discretionary merchandise. But after Wal-Mart issued a cautious outlook last week for its August same-store sales, shareholders have begun worrying the chain may stop standing out so far from the pack as the effects of the stimulus checks wane and commodity costs continue to rise.

That presents Wal-Mart -- which has pegged much of its success to its low-price advantage -- with a common retailer dilemma: whether to raise prices at the risk of losing shoppers or to hold price increases in check at the cost of profit margins.

But Eduardo Castro-Wright, chief executive of Wal-Mart's U.S. division, has maintained that Wal-Mart "will do whatever it takes to retain price leadership." Instead of announcing any price increases to cope with the tough economy, the company has slashed its expansion plans. In June, Wal-Mart cut its forecast for capital outlays this year, as it continues to put the brakes on its once-breakneck growth in building stores.

Macy's Profit Eases, But Tops Expectations
By Andria Cheng - Wall Street Journal
August 14, 2008

Department-store operator Macy's Inc. said its second-quarter profit fell 1.4%, hurt by restructuring costs and consumer cutbacks on discretionary purchases.

While profit excluding special items exceeded Wall Street's expectations, the Cincinnati-based retailer lowered its full-year outlook, saying it's difficult to forecast results given the current economic backdrop. The reduced outlook signals a tough holiday season ahead for the sector, analysts said.

Nevertheless, Macy's shares rose 39 cents, or 1.9%, to $20.66 in New York Stock Exchange 4 p.m. trading.

Department stores have been hurt across the board as shoppers tighten their budgets, cut back on spending for apparel and other non- essential items and trade down to discounters. At the same time, near record gasoline prices have reduced shoppers' trips to malls, further lowering demand.

"The consumer is just not spending," said Standard & Poor's analyst Marie Driscoll. "It's hurting most brands and most retailers. You are seeing people trading down. There's an increasing focus on price unless it's a must-have signature item."

Macy's sales at stores open at least a year, or same-store sales, dropped 2.1%. Chief Executive Terry Lundgren said that while sales are down, Macy's is taking market share and outperforming its major rivals in same-store sales. Mr. Lundgren has launched a "My Macy's"
campaign to tailor store assortments to individual local markets, and he has consolidated divisions, cut jobs and lowered inventory.

"The things he can control, on inventory, he really has done a terrific job," said analyst Wayne Hood of BMO Capital Markets.

Macy's, which had been hurt by its purchase of May Department Stores Co. that alienated former May shoppers, also said the gap between the former May stores and Macy's has narrowed significantly.

Macy's net income in the quarter ended Aug. 2 fell to $73 million, or 17 cents a share, from $74 million, or 16 cents a share, a year earlier. Sales fell 3% to $5.72 billion from $5.89 billion.

The mean estimate of analysts polled by Thomson Reuters was for per- share earnings of 19 cents and revenue of $5.75 billion.

Macy's trimmed its full-year profit forecast to $1.70 to $1.85 a share from a previous projection of $1.85 to $2.15 a share, excluding restructuring costs. It forecast same-store sales to fall 1% to 1.6%.

Sears Tower wins 3 new tenants
By Andrew Schroedter - Chicago Business
August 12, 2008

(Crain’s) — A company that provides temporary office space is among three new tenants totaling more than 50,000 square feet that have agreed to move into Sears Tower.

In the largest of the three deals, New York-based OfficeLinks is leasing 30,000 square feet on the 84th floor of the iconic skyscraper, a spokesman for the 110-story structure announced. The location is the first in the Chicago-area for OfficeLinks, which has three New York locations.

With Tuesday's announcement, the tower is 80% leased, the spokesman said.

The announcement follows last week's news that four companies had leased 42,583 square feet at the nation's tallest building, which has struggled to attract and retain tenants.

In the second deal, an unidentified global real estate investment banking advisory firm leased approximately 16,000 square feet, according to a news release. Sources identified the tenant as Chicago- based M3 Capital Partners LLC, which was previously known as Macquarie Capital Partners LLC. The firm was cofounded in 2001 by the real estate arm of Australian banking giant Macquarie Group Ltd.

M3 Capital is moving from the UBS Tower, 1 N. Wacker Drive. The company also has offices in New York and London.

In the third lease, health care communications company AS&K Mercury has leased about 4,500 square feet in the low-rise section of Sears Tower, 233 S. Wacker Drive. The company, which also has an office in London, is moving from the Civic Opera Building, 20 N. Wacker Drive.

The 3.8 million-square-foot tower is managed by Chicago-based U.S. Equities Asset Management LLC.

Engineering a Change at Wal-Mart
U.S. Stores Chief Says Timely Overhaul Will Drive Sales After Economy Rebounds
By Ann Zimmerman - Wall Street Journal
August 12, 2008

Eduardo Castro-Wright took over as chief executive of Wal-Mart Stores Inc.'s U.S. stores division in 2005. The economy was relatively robust, but sales growth at the $240 billion unit was slowing as its rivals' surged.

One solution the Bentonville, Ark., discounter tried -- luring higher- income shoppers with trendier fashions -- had flopped, eroding profit. Mr. Castro-Wright, an engineer trained at Texas A&M University, devised a three-year plan to overhaul stores marred by cluttered aisles and slow checkout lines.

As Wal-Mart prepares to report fiscal second-quarter earnings on Thursday, the changes appear to be paying off. Its U.S. stores have beat or hit sales targets for the last six months, besting most of its competitors. Sales slowed somewhat in July, though, as the last of the federal tax-rebate checks were spent, and Mr. Castro-Wright noted that consumers are growing more cautious.

The company's return to its low-price roots has been seen as a boon to consumers. But recent efforts to warn its work force about proposed legislation that could make it easier to unionize companies have given Wal-Mart's opponents new ammunition.

In an interview, 53-year-old Mr. Castro-Wright talked about how his strategy is progressing. Excerpts follow:

WSJ: How much of the credit for recently improved sales goes to bargain hunters turning to Wal-Mart in a weak economy, and how much to your overhaul plan?

Mr. Castro-Wright: I wouldn't say a significant part of the current results is related to the economic environment. The changes in merchandising, marketing and improved service in the stores ... have vastly improved the shopping experience, and that will continue to drive sales after the economy rebounds.

WSJ: Costco Wholesale Corp. recently issued a profit warning it blamed on rising merchandise costs. Is Wal-Mart facing the same pressure to accept price increases from suppliers that it will have to pass on to consumers?

Mr. Castro-Wright: Wal-Mart is the price leader and we will do whatever it takes to retain price leadership.

WSJ: What were your marching orders from Chief Executive H. Lee Scott Jr. when he put you in charge of the Wal-Mart Stores division?

Mr. Castro-Wright: Something like, "We need to fix the customer experience in the stores." Now that does not mean ..."Clean up the stores." That's easy. Providing a good customer experience starts with providing customers with the product choices they deserve, maintaining clean environments, and having friendly associates [employees] so that the customers would want to come back.

WSJ: Wal-Mart's senior leaders traditionally grew up in the company. You worked at RJR Nabisco and Honeywell International Inc. before heading Wal-Mart's Mexico-based stores. And your senior leaders cut their teeth at Target Corp., PepsiCo's Frito-Lay and Diageo PLC. How important was that outside experience to devising and implementing changes?

Mr. Castro-Wright: I think that the power of a leadership team is in diversity, especially diversity of thought. You want people who have different backgrounds, who think differently and have different experiences, so they can contribute in ways that are always additive.

WSJ: What did the three-year plan entail?

Mr. Castro-Wright: First, we had to reinforce our price leadership. We needed to ask ourselves what we stood for and it was more than just low prices, but [rather] saving people money to make their lives better. That gave us a unifying marketing message and gave 1.3 million associates a powerful sense of purpose.

Then it included everything from improving navigational signs in the stores so people could find things more easily to investing in technology to allow for a faster checkout. We took down high shelves to reduce clutter and improve sight lines throughout the store.

We learned that providing customer choice wasn't about more products, but carefully selected products that customers cared about. We made big bets in growth categories such as consumer electronics, providing brands that gave us authority. It's still not finished yet.

WSJ: Did you make any mistakes along the way?

Mr. Castro-Wright: Many. The one thing I would do differently is I would have done things faster, which is counterintuitive. When you think about changing a big organization rooted in its history, you think the changes should be gradual. I think that the faster you move, the faster you make the tough calls and the better off you're going to be. You don't want to have organizations in what some people think of as a liquid state. I'm an engineer by training so my physics comes back. An organization is something very solid and when you apply a lot of heat to change it, it becomes fluid. You want to make sure that you don't keep it fluid too long, because liquids move in many directions that you might not have intended.

WSJ: Wal-Mart's culture was Bentonville-based, with divisional and regional presidents fanning out across the country every Monday, visiting stores, then reporting back by the end of the week. You moved all of those executives into the markets they managed. How hard was it to make that change?

Mr. Castro-Wright: The idea of having people out there day in and day out where they are part of the community, where they live the same issues and opportunities, root for the same local football team, that all that creates ownership. And in business, results are directly linked to how much you believe that you own the results that you're accountable for. Because of that, while very difficult and culturally challenging, I believe that from a customer point of view it was the right thing to do.

WSJ: When you ran Wal-Mex, you opened smaller stores that proved very successful. Do you think the smaller-format stores you are testing in Arizona will play a big part in Wal-Mart's future?

Mr. Castro-Wright: We are a multiformat retailer in most of our foreign markets and there's no reason why being a multiformat retailer in the U.S. wouldn't allow us to serve our customers better.

WSJ: You have been mentioned as a possible successor to Lee Scott as CEO. What do you think is next for you?

Mr. Castro-Wright: I enjoy what I do today. I think that we haven't completed what we set out to do, so I'm focused on how do I help my team achieve the objectives that they have.

Sears Tower wins new leases
By Eddie Baer - Chicago Business
August 8, 2008

(Crain’s) — A former software subsidiary of Hewitt Associates Inc. is moving to the Sears Tower, the biggest among several new leases signed at North America’s tallest building.

In total, the four deals amount to 42,583 square feet, which is a significant win for Sears Tower given the high vacancy in the building and the struggles ownership has had with attracting and retaining tenants.

“We’re seeing momentum in leasing,” says a Sears Tower spokesman. “And I do think we’ll have more to announce soon.”

Accero Inc., the former Hewitt unit that had been known as Cyborg, has leased 18,521 square feet on the 36th floor of the 110-story skyscraper, sources say.

Two other existing tenants that subleased space from with Merrill Lynch & Co. on the 54th floor signed direct deals for their space with Sears Tower. Meanwhile, a second software firm, Soverain Software LLC, recently moved into Sears Tower.

Accero, which provides payroll and human resources software and service, is to move this fall from 120 S. Riverside Plaza, where Hewitt leases about 36,000 square feet on the 18th floor.

Executives with Accero and a spokesman with the venture capital firm that acquired the company earlier this year didn’t return calls seeking comment. Studley Inc. represented Accero in the lease transaction. A Studley spokeswoman declines to comment.

The company had been known as Cyborg until February, when its name was changed to Accero.

Lincolnshire-based Hewitt bought Cyborg in 2003 and sold the company for an undisclosed sum to San Francisco-based Vista Equity Partners in a deal first announced in January. Vista, which was founded in 2000 by several former Goldman Sachs & Co. investment bankers, has invested more than $2 billion in technology and software companies, according to the company’s Web site.

In the second-largest of the deals at Sears Tower, two firms with overlapping ownership together leased 13,601 square feet on the 54th floor for about 2½ years. The two firms, which had subleased the space Merrill Lynch, are Andes Capital LLC, a small investment banking and trading firm, and Unicous Marketing Inc., a consumer coupon company.

“To have a presence in an internationally known building is like telling somebody you live in the Trump building in New York — everybody knows where that is,” says Imran Mukati, a partner with Andes.

In the two smaller deals, law firm Rockey Depke & Lyons LLC is leasing 8,599 square feet from Sears Tower on the 54th floor that the firm had subleased from Merrill Lynch, and Soverain Software LLC leased 1,862 square feet on the 94th floor in a five-year deal, and moved from 120 S. Riverside. Soverain was represented by Anthony Karmin, an executive vice-president with Transwestern Commercial Services.

Sears Tower ownership, Skokie-based American Landmark Properties Ltd. and New York investors Joseph Chetrit and Joseph Moinian, was represented by U.S. Equities Realty LLC. Chicago-based U.S. Equities took over leasing and management last spring.

The deals are welcome news for the tower’s owners, who bought the iconic building in 2004. Four of the tower’s five largest tenants, accounting for 40% of the building's rents, are considering moving out when their leases come due. The five biggest leases expire from 2009 and into 2014.

For Soverain, which owns patents on several online commerce applications and is a descendant of one-time local tech star Divine Inc., Sears Tower won out because of its location and low taxes and operating costs, says company president Katharine Wolanyk.

“Sears Tower was nicely positioned for us,” Ms. Wolanyk says. “We wanted West Loop access to the Kennedy (expressway) and trains. . . .And you can’t beat it for the views.”

Sears: Finally, a Reason to Brag
The retailer's Lands' End unit has proved a bright spot in dark times.
Now it faces a leadership vacuum
By Ann Moore - Business Week
August 4, 2008

Recently, Sears (SHLD) no longer seems to be where America shops for much of anything. Sales skidded 9.8% in the latest quarter, leading to a $56 million loss as consumers shunned the dreary shopping experience for more focused low-price options such as Wal-Mart (WMT) and Target (TGT). With Chairman Edward S. Lampert warning that bad times could last into 2009—and the search for a CEO still under way—the stock has fallen by more than half in a year. The numbers are the worst since Lampert combined Kmart and Sears in 2005.

But one part of the $50.7 billion company is sparkling: Lands' End (SHLD). The apparel subsidiary is thriving with its reputation for impeccable customer service and sturdy-but-stylish designs. While Sears doesn't break out numbers, retail analyst Anne Brouwer of Chicago's McMillan/Doolittle estimates the unit made $200 million on $2.2 billion in sales last year. The Lands' End Web site, where the brand rings up 80% of sales, is among the retailing industry's top 10 by several measures. And offline sales are rising as Sears has put Lands' End boutiques in more than 200 of its 935 mall stores. Retail consultant Howard Davidowitz calls the business "Sears' shining star."

The challenge is to keep the momentum going. On July 18, after barely three years as Lands' End chief, David W. McCreight left to become president of athletic-apparel maker Under Armour (UA). While McCreight, 45, generated record earnings growth at the unit, some feel he never adjusted to rural life at Lands' End Dodgeville (Wis.) headquarters. Hired as chief merchant in 2003, McCreight came up with the idea of stand-alone boutiques in Sears. As president, he freshened product lines and spurred innovation, including a new packing process. McCreight also moved a half-dozen customer service agents to a space right outside his corner office, so he could pull up a chair and participate in calls.

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Now Lands' End finds itself without a captain at a time when the retail environment and the parent company are both ailing. Hiring a successor is complicated by the fact that Sears itself doesn't have a permanent chief executive: Lampert appointed supply chain executive W. Bruce Johnson as interim CEO last February after Aylwin B. Lewis stepped down (See "Aylwin B. Lewis: Now, to Lunch"). For now, Lands' End veterans Lisa Fitzgerald and Kelly Ritchie are running the unit until a replacement is found. "David took this company to the next level," gushes Ritchie. "He expected greatness."

Lands' End was not such a gem when Sears acquired the company in 2002 for $1.9 billion. At the time, its apparel was available only online or through catalogs, and was generally seen as well-made but staid preppy gear. Seeking a chance to broaden its apparel offerings, Sears quickly began stocking Lands' End shirts and slacks in stores, though it kept the two brands' Web sites separate. But Lands' End got lost in the aisles until Lampert took over Sears and pushed to build the brand. In mid-2005, a month after McCreight became president, Sears opened the first Lands' End boutique in a White Plains (N.Y.) store.

With its own look and branding, McCreight's store-within-a-store worked. He says transforming the brand's catalog image into a physical space was "a once-in-a-lifetime career opportunity." Analyst Brouwer figures the Lands' End boutiques bring in at least $200 in sales per square foot annually. That's just a third what a top retailer such as Nordstrom (JWN) produces, she says, but it's far ahead of the $137 per square foot Sears averages from its goods and apparel.

Lampert also let McCreight run the place without interference from Sears' main office in suburban Chicago. That allowed Lands' End to do things that tight-fisted bosses at Sears might never have O.K.'d. Only manufacturing is outsourced. Design, packaging, and—most important—customer service are kept close by. Call center staff have no time limit with customers. When a woman who had had a double mastectomy phoned to ask for the bathing suit she loved, minus the bra, her suggestion was passed along to designers who created one for her. The company went on to sell thousands more.

Such moves make for satisfied customers. Robin Bourjaily, 34, a stay-at-home mom from LaGrange, Ill., has shopped at LandsEnd.com for years. Now she's been swinging by the Lands' End boutique at a nearby Sears to let her three kids try on the clothes. And if Bourjaily can't find what she wants in stock, she can order at an in-store kiosk, and Lands' End pays for the shipping. It's a winning combination that McCreight's successor will need to build on.

The changing face of the department store
by Heather Larson - Retail Customer Experience.com
August 4, 2008

For the first two-thirds of the 20th century, the department store was the heart of retail. At Frederick and Nelson in Seattle, shoppers could see a fashion show before taking to the aisles. In Chicago, Marshall Fields kept shoppers in the store longer by enticing them into its Walnut Room restaurant.

Today most department stores don’t provide customer experiences like that and many of the stores no longer exist.

The growth of suburbia hurt these downtown stores, which had traditionally seen their customers arrive by public transportation, said Jan Whitaker, author of "Service and Style: How the American Department Store Fashioned the Middle Class."

"In the last quarter of the 20th century, many downtown stores closed, leaving city centers forlorn and many people feeling they had lost local institutions, which defined their city’s character," said Whitaker. "The feeling has only grown stronger with further consolidations and takeovers."

Merchandise Mix

Mass market discount retailers like Wal-Mart, Target and Costco have become the shopping destination of choice for most shoppers, said George Whalin, president and chief executive of Retail Management Consultants in Carlsbad, California. "For many years, Sears was the largest retailer in the country. The National Retail Federation now lists Sears Holdings, which includes K-Mart, as the 8th largest retailer, based on sales volume."

In 2007 Sears Holdings had sales of $50,703,000, compared to Wal-Mart’s $378,799,000.

The retail merchandise mix has changed dramatically over the past two decades according to Whalin. Most department stores have narrowed their mix substantially by eliminating consumer electronics, appliances and in some cases even furniture – to their detriment, he believes.

"If they are to serve the consumer better, department stores need to offer more products and services," said Whalin. "And go back to being a true department store."

Whalin defines a department store as a store with a broad variety of departments, including a florist, furniture, jewelry, apparel, etc. Even though Wal-Mart has multiple departments, it’s not considered to be a department store. Macy’s is a better example because they have apparel, jewelry, cosmetics and in some stores, furniture.

Kelly Tackett, a senior consultant for Retail Forward in Columbus, Ohio, argues that the changes in the merchandise mix of soft goods over the past twenty years has been for the better and now customers aren’t seeing the same brands in every store.

"Two decades ago, it was largely national brands and all the stores had a similar mix. Customers would see Ralph Lauren, Liz Claiborne, Tommy Hilfiger, etc., in all the stores," says Tackett. "Now it’s shifted to a mix of private, exclusive and national brands because retailers are trying to differentiate themselves from one another. Department stores don’t want their merchandise to be interchangeable with their competitors."

According to Tackett, department stores are evolving, partially by partnering with other brands to lure the customer back into the stores. J.C. Penney has partnered with Sephora, for example, and Macy’s is bringing the Lush brand of skincare into its stores.

"Department stores are realizing that in order to drive traffic in their direction, they might not be able to do it alone. They may have to partner so they can offer the one-stop shop," says Tackett.

Bringing back the excitement: Five ways department stores can draw customers back

Offer more services: utility payment desks, watch repair, alterations, gift wrap, etc.

Hold infrequent, yet meaningful sales. Bon Marché used to only hold month-end clearance sales; Nordstrom has an anniversary sale and its half-yearly sales. Provide a special experience for men. In 1928 Filene’s had an indoor putting green; in 1947 Hudson’s held a three-day baseball coaching clinic with the Detroit Tigers; department stores often held sales events where men could holiday shop without their wives.

Invite customers to in-store fashion shows.

Stage events: musical concerts, lectures, celebrity appearances, painting exhibitions, contests and product demonstrations free of charge.

Ex-Sears CEO gets a second shot
By David Sterrett - Chicago Business
August 3, 2008

(Crain's) — Aylwin Lewis has held a CEO title before, but now he's out to prove he can run a company. In three years as CEO of Sears Holdings Corp., Mr. Lewis had to work in the shadow of Chairman Edward Lampert, who controls the retailer and makes all strategic decisions.

Now, Mr. Lewis has a new job as CEO of Potbelly Sandwich Works and a mission to take the closely held 200-store Chicago chain national. It's a chance to show his skill as a corporate strategist and company leader, the opportunity denied him at Sears.

Running the show is important to Mr. Lewis, who wouldn't consider any non-CEO jobs after being ousted from Sears in February.

"I was only going to come back to work as a CEO," he says. "I'm qualified to be a CEO, and there is nothing like being a CEO. Once you have a taste, it's hard to give it up."

Mr. Lewis, 54, who started in June, is working on a smaller stage than previous jobs with Sears and Yum Brands Inc., the parent of Pizza Hut, KFC and Taco Bell. But there are parallels with Sears.

He now answers to Bryant Keil, who, like Mr. Lampert, is a chairman with a big ownership stake. Mr. Keil spent more than a decade as Potbelly CEO and plans to stay "pretty involved" in the business. Still, Mr. Keil says that Mr. Lewis has "full authority" to make decisions and expand the company.

"He has vastly more experience than I in the restaurant sector," Mr. Keil says. "I wouldn't have been able to take us to the next level, and he is the right person to do it."

The challenge will be preserving the Potbelly character Mr. Keil built over 12 years — including the kitschy décor, fresh-baked cookies and perky employees — even as Mr. Lewis draws up plans to ramp up expansion. He aims to develop a multiyear plan to expand the company and says, "Everything is on the table except changing the culture."

Mr. Keil says he envisions several thousand Potbellys nationwide. Mr. Lewis says his goal is to accelerate the growth rate, which is about 40 restaurants a year.

When asked about taking the company public, Mr. Lewis took a long pause before saying, "I don't think (going public) is an end game, but that could be a byproduct of all our hard work."

Mr. Keil says the company, which generates more than $200 million in annual sales, has plenty of capital to continue growing. He says franchising is something he will consider, but he voices some reservations. Selling franchisees would be a major strategic change for Potbelly, which owns and operates all of its stores.

"You go down the franchise path, you lose some control and you have to be very cautious about it," Mr. Keil says.

Franchising is the quickest way to expand because the franchisees, not the company, provide the capital for the restaurant, and the company then receives a portion of the sales in royalties. But franchising is also one of the quickest ways to damage brands, says Darren Tristano, an executive vice-president with food industry consultant Technomic Inc. in Chicago.

Mr. Lewis says, "If we become another restaurant company and don't remain unique, I don't think our chance of success is very high. Bryant created something special, and my tenure should be measured by if we can duplicate what he has done in 200 stores many times over."

INDUSTRY VETERAN

Mr. Lewis has extensive experience with franchising and public companies. With degrees in English literature and business management and an MBA from the University of Houston, he spent more than 25 years working his way up the fast-food ranks, culminating in overseeing more than 32,000 restaurants worldwide as chief operating officer for Louisville, Ky.-based Yum Brands.

While at Yum, he stressed crew training and standardizing operational procedures, which helped improve speed, accuracy and cleanliness of KFC, Taco Bell and Pizza Hut restaurants. He also led the company's expansion overseas and developed a concept of putting multiple brands at one location. During his tenure as chief operating officer, from 2000 to 2004, the company's income rose 79%, to $740 million from $413 million, as sales rose to $9 billion from $7.1 billion.

Mr. Lewis has an "intense focus on getting the experience right for the restaurant guest," says Cheryl Bachelder, who worked with him at Yum and is now CEO of Popeyes parent Atlanta-based AFC Enterprises Inc.

In October 2004, Mr. Lampert recruited Mr. Lewis to be CEO of Kmart, which would buy Sears five months later. Mr. Lewis became Sears CEO in September 2005.

Mr. Lewis left Yum because he dreamed of running a company, says his wife, Noveline. "He likes being the person who gets to make decisions," she says.

Mr. Lewis declines to discuss Sears. He says he learned from the experience that "culture still counts" and "having a competitive advantage is powerful and if you don't have that, it's tough." While he says he's proud of his accomplishments at Sears, he doesn't want to replicate the experience.

"I wanted to find an opportunity to grow and build something rather than trying to rejuvenate tired brands in a turnaround," says Mr. Lewis, who once scouted Potbelly as a potential takeover for Yum. "I would really love a long successful run here to be a capstone for my career."

Clearly, his successes at Yum didn't transfer to Sears. In executing Mr. Lampert's strategy of cutting costs and raising prices, sales declined for three years. But Mr. Lewis never showed frustration or disappointment during tough times at the retailer and maintained his enthusiasm for the business, says Robert Iger, CEO of Walt Disney Co. and a friend of Mr. Lewis'.

"It was a very challenging situation, but I think he came out of it with his reputation intact," Mr. Iger says.

A towering task:
The rebirth of the Sears Crosstown building
will require hard labor
By Cassandra Kimberly - Memphis Commercial-Appeal
August 3, 2008

Dr. Robert Taylor remembers a time when the area near his home in the Crosstown neighborhood seemed to have a life of its own.

He remembers when people from throughout the Delta poured into the vibrant community near North Parkway and Watkins for its retail stores, movie theater and Sears Crosstown, a massive shopping beacon that stood at the center of it all.

"It used to be exciting," said the 33-year resident, who can see the Sears building from his bedroom window. "I used to avoid driving on Cleveland because there were so many people on the street."

But when the lights went out for good in the 1.4 million-square-foot structure 15 years ago, the neighborhood seemed to grow dim as well, Taylor said.

"Certainly, the closing of Sears had a major impact on our neighborhood," he said. "There was no longer an anchor to draw shoppers. There was a sense of depression with the sight of a derelict building and the uncertainty for what will happen, and the concern for abandoned buildings as a source of crime...."

A ray of hope lit up the Midtown community a year ago when real estate investor Andy Cates, head of Crosstown LLC, bought the landmark Art Deco structure for $3.5 million.

Opened in 1927, Sears Crosstown was home to the Mid-South regional office of Sears, Roebuck and Co., the company's catalog merchandise distribution center and its Credit Central operation. The retail store closed in 1983 and the building has been vacant since the distribution center shut down in 1993.

Cates, who returned to Memphis from Texas in 1999 and kick-started the Soulsville Revitalization Project -- a $20 million nonprofit venture that includes the Stax Museum of American Soul Music, The Stax Music Academy and Soulsville Charter School -- assembled a team of architects, engineers and real estate developers to decide what to do with the historic structure.

One year later, no visible progress has been made, but the exploration of uses for the 18-acre site, including a mixed-use development with retail, office and residential space, is still under way.

"We continue to review various options for the building, and we're facing the same reality that everyone else is facing in a discombobulated market," Cates said.

But even if the real estate market were thriving, Cates would still be facing a project with challenges as massive as the building itself.

Other cities -- often using public-private partnerships -- have had more success in rehabilitating former Sears catalog distribution buildings, but even those feats took years to accomplish.

"It's a huge, huge process," said Dave Burrill, director of management with Minneapolis-based Ryan Cos. "I've managed properties for 28 years, and this was the most difficult project I tackled. It took three-quarters of our company to put it together."

Built in 1928, the Minneapolis building sat vacant for years after its closing in 1994. The city acquired the property in 2001, and Ryan was awarded the development rights in 2004.

In 2005, Midtown Exchange, a $192 million mixed-use residential, office, hotel and retail center, opened for business. Ryan Cos. later added on-site parking and a Sheraton Hotel to the structure.

About 418,000 square feet of office space in Midtown Exchange is occupied by Allina Hospitals and Clinics, the largest nonprofit health care provider in Minnesota. The project also includes townhomes, condos and apartments, and a "global market" with ethnic vendors and shops.

The costs of renovating a historic building are high. Asbestos and lead paint removal are just the start. The hardest part is figuring out which uses will get the most out of the building's design, Burrill said.

"In virtually all of (the buildings), there are columns ... high ceilings," he said. "You can drive a tank through them, but architecturally if you're trying to lay out your condos or office you have to be very creative."

In Boston, the Abbey Group transformed a 1929 Sears warehouse into a 1.5 million-square-foot commercial development called the Landmark Center. The building near Fenway Park was renovated to include a movie theater, retail stores, office space and housing.

Seattle touts another successful redevelopment of its 1.5 million square-foot Sears center into the home of a little-known coffee company. It's now called Starbucks Center.

To convert the 1912 warehouse into a Class A office building, Nitze- Stagen & Co. Inc. had a number of hurdles, which took 15 years to overcome, said Carl Shumaker, vice president of construction for Nitze-Stagen.

Putting aside a 2001 earthquake that set the project back a few years, one of the biggest challenges was the half-finished work of former developers, Shumaker said.

"The building had no true direction," he said. "There were a number of master plans that never went through."

Several teams of construction companies and architects worked in quadrants of the building to complete the multimillion-dollar Starbucks Center project.

"The biggest challenge was finding a team and getting the team committed," Shumaker said.

If Memphis developer Andy Cates pays heed to any advice from those other cities, planning and organization are the keys, the national investors agreed.

Slowly but surely, Cates' "feasibility team" is working on a strategy for the Midtown landmark. But projects of this caliber don't happen overnight, said Darrell Cobbins, owner of Universal Commercial Real Estate and part of Cates' coalition.

"It takes a lot of time and a lot of effort to do a modest-size project, let alone a larger project," he said. "One thing you have to think about in taking on that kind of investment is the surrounding area."

Cobbins said he has been working with business owners and residents to acquire derelict properties, to ensure the neighborhood will thrive once the redevelopment is complete.

"You really need to be able to tell ... users, whether it's a corporate user or a residential person, that it will look different three, four, five, 10 years from now," he said. "Part of the balancing act is trying to figure out what you as a developer would need to acquire to ensure the viability."

While Cates and his team continue to work, residents like Taylor wait in hope that they may see the lights of the Sears Crosstown building from their bedroom windows once again.

"I hope that the Crosstown neighbors who have monitored the Sears property over the years ... will remain vigilant and be patient," Taylor said. "I think better times are coming."

Aylwin B. Lewis: Now, to Lunch
Sears Holdings' ex-CEO has a new life in fast food
By Michael Arndt - Business Week
August 4, 2008

When Aylwin B. Lewis resigned as chief executive of Sears Holdings (SHLD) in February amid falling profits, he planned to tour the world with his wife, Noveline. But between trips to Morocco and Sicily, he got an unexpected offer. Today, Lewis is CEO of Chicago's Potbelly Sandwich Works.

Once head of a struggling retailer with 3,800 stores and more than $50 billion in annual sales, the Texas native now runs a fast-food chain with 205 restaurants and sales of roughly $200 million. But Lewis, 54, says he wants to turn a privately held pipsqueak into a sizzling public rival to Subway. "I've always been a frugal, roll-up- your-sleeves guy," he says.

Potbelly—named after a wood-burning stove in its first location—is big on such eccentricities as flea-market signs, wooden tables, and guitar-strumming troubadours. Investors such as Starbucks (SBUX) CEO Howard Schultz like the homey touches, but shareholders might balk at such frills.

Lewis will have principal owner and chairman, Bryant Keil, watching over him. That arrangement didn't work out for Lewis at Sears, where Chairman Edward Lampert directed strategy and even decided on inventory levels and marketing. But Lewis says Keil and the board have put him firmly in charge: "It's very clear that I'm the CEO."

Sears To Teens:
This Is Not Your Parents' Department Store
by Karl Greenberg - Media Post Publications
July 16, 2008

Sears is hoping to convince tweens and teens that it is not their parents' department store.

The Hoffman Estates, Ill.-based retailer is launching an interactive "back to school" marketing campaign, "Don't Just Go Back. Arrive," involving some 13 Web sites and custom animation, virtual worlds and social networking. The Web campaign aims to drive consumers to Sears' online "Arrive Lounge."

The site features a five-part video in which "High School Musical" star Vanessa Hudgens struggles to find the right style for the first day of school. Site visitors can vote for the male cast member who will star with Hudgens in the final episode of the series. An associated sweepstakes dangles a Vanessa Hudgens concert at the winner's school, private jet and limo rides to arrive at school in style and a jet shopping trip to Hollywood.

There is also a music mixing tool that allows site visitors to create music videos and post them to YouTube, Facebook and MySpace. Sears will also have product placement in MTV's romantic comedy feature film "The American Mall."

Sears will include VIP Access Cards in its loyalty program, which dangles entry into various sweepstakes and notification of exclusive sales at Sears and Sears.com.

The Web sites included in the effort are Alloy.com, Disney and Nickelodeon, which will have Sears messaging that directs consumers back to the ArriveLounge, per the company.

Web partners that are offering various virtual versions of Sears stores and boutiques with back-to-school themes are Zwinky.com with a Sears virtual store; a Sears boutique at Meez.com; Sears Back-To- School branded experiences at GoFish.com; a Sears back to school section on Nick.com; custom games for Sears on Addicting.com.

Other teen-centric sites in which Sears will promote the real by using the virtual include FunBrain.com, Poptropica.com, NeoPets.com; Facebook; MySpace. Seventeen and CosmoGIRL! magazines are doing print and online promotions with Sears back-to-school content.

"Expanding our marketing strategy into the online world of user communities and social networking is a critical means of developing engagement and brand loyalty within the youth demographic," says Richard Gerstein, Sears' SVP and chief marketing officer, in a release. "By modifying our strategy to reach tweens in their own environment, we are demonstrating to them how Sears can be a part of their life, from their entertainment to their school wardrobe."

Tears for Sears
By Michael Auslin - American.com
July 16, 2008

Filed under: Boardroom

Like other companies before it, Sears has become a victim of its success in changing the business world.

Will plunging profits soon spell the end of Sears, Roebuck and Company? The 122-year-old retail giant virtually created modern American consumerism. For anyone over the age of 40, its demise is almost unthinkable—yet it is perfectly appropriate in the world of “ creative destruction” that Sears helped shape.

In the 1970s, I grew up down the street from the headquarters of the Sears Catalog. It was Sears’s “Big Book” that really changed American shopping habits, even more so than the large retail stores that still exist. For generations, rural Americans had bought dry goods from local merchants, often paying exorbitant prices due to a lack of competition and inefficiencies in the distribution and wholesale structure.

Along with his partner, Alvah Roebuck, Richard Sears opened one of the first mail-order businesses. In 1895, they rolled out their first catalogue, a 532-page behemoth containing thousands of items, enough to supply every need a family could have. Sears was a master marketer, an apostle of advertising, and it pioneered such innovations as the money-back guarantee. By the 1920s, Sears was selling everything from houses (now highly desirable collector’s residences) to violins. Local merchants couldn’t compete, and the culture of mom-and-pop stores was devastated by modern marketing and low prices.

Sears soon branched out to retail stores, which had already started emerging due to growing consumer demand stimulated by the mail-order business. By the eve of World War II, more than 600 Sears department stores dotted the American landscape. Production and distribution systems evolved and multiplied; thousands of smaller producers whose products were carried by Sears found themselves expanding beyond their dreams, providing employment for tens of thousands more workers.

It seems that Americans have moved on from Sears, just as they did from traditional merchants when the company first appeared a century ago.Sears exemplified the suburban lifestyle of the 1950s and 1960s, and its ubiquity made the suburbs an attractive place to live for consumers who now expected to get anything on a moment’s notice. Sears helped launch America’s credit card culture by issuing its first charge card in 1953. The high point of its attempts to meld commercialism with high taste was the Vincent Price Art Collection of the mid-1960s, for which the famed actor and aesthete chose selected works of art that were sold as high-quality reproductions.

For decades, however, competitors have been chipping away at Sears’s  domain. The lessons it provided in targeted advertising have helped specialty retailers explode in number. Ironically, it was specialty catalogue sellers, such as Land’s End and Eddie Bauer, that first ate into Sears’s staple clothing business. Later, the company found itself under siege from retail outlet master Wal-Mart, which copied the Sears model of putting up megastores selling everything at unbeatable discount prices. By the late 1980s, Sears was dismissed as a middlebrow provider of drab necessities. High-end electronics and furniture stores, designer clothing brands, and hundreds of new specialty catalogs steadily reduced its presence in the consumer landscape.

Sears has been trying to reinvent itself for close to two decades now, shedding its Discover Card business and ties to Dean Witter, revamping stores, and shuttering the iconic Big Book division. Hedge fund manager Edward Lampert bought 49 percent of the retailer in late 2004 and quickly merged it with Kmart, another storied retail chain. But the company’s cash flow is down 65 percent so far this year, and it suffered a $56 million loss in the first quarter alone.

Can Sears survive? In one form or another, the name will likely endure, but its future as a major retailer appears increasingly murky. It seems that Americans have moved on from Sears, just as they did from traditional merchants when the company first appeared a century ago. Like other firms before it, Sears has become a victim of its success in changing the business world.

Michael Auslin is a resident scholar at the American Enterprise Institute.

Pep Boys Appoints Chairman and Odell to the Board
Business Wire
July 16, 2008

PHILADELPHIA--(BUSINESS WIRE)--The Pep Boys – Manny, Moe & Jack (NYSE:PBY), the nation's leading automotive aftermarket retail and service chain, today appointed James A. Mitarotonda non-executive Chairman of the Board of Directors. Mr. Mitarotonda succeeds William Leonard, who resigned from the Board for personal reasons.

In addition, Interim Chief Executive Officer Michael R. Odell was appointed to the Board of Directors. Mr. Odell has been serving as Pep Boys’ Interim CEO since April 23, 2008.

Mr. Mitarotonda said, “I am pleased to accept the responsibility of chairing the Board as Pep Boys strives to be the automotive solutions provider of choice for the value-oriented customer. On behalf of all of our Directors, I also want to welcome Mike Odell to the boardroom. He and his leadership team have the Board’s full support. Finally, the Board would like to thank Bill Leonard for his stewardship of Pep Boys. During his tenure, he has served Pep Boys faithfully in whatever capacity was needed.”

Mr. Leonard said, “I am grateful for having had the opportunity to serve Pep Boys over the last six years as a Director, Interim CEO and Chairman.” Mr. Mitarotonda, 53, has served on Pep Boys’ Board since August 2006

and is the Chairman of the Board and Chief Executive Officer of Barington Capital Group, L.P., an investment firm that he co-founded in 1991. He is also a member of the Board of Directors of A. Schulman, Inc. and Griffon Corporation. Collectively with the other members of a Schedule 13D reporting group, Barington is Pep Boys’ largest shareholder.

Mr. Odell, 45, joined Pep Boys in September 2007 as Executive Vice President and Chief Operating Officer after spending 13 years at Sears Holdings Corp. His last position at Sears was as Executive Vice President and General Manager of Sears Retail & Specialty Stores, a $26 billion business with 1,900 locations.

Retiree Benefits Take Another Hit
GM's Plan to End Medical Coverage For Many 65 and Over
Signals a New Era; Pensions to Increase by $300 a Month
By Vanessa Fuhrmans and Theo Francis - Wall Street Journal
July 16, 2008

General Motors Corp.'s move to eliminate retiree health benefits for salaried workers is a sobering signal to the rest of the U.S. work force: Even those who are in or near retirement shouldn't count on keeping the company coverage they have built up.

But GM's announcement Tuesday that it would cease medical coverage for its salaried retirees age 65 and above signals that a new era of ever-shrinking benefits has arrived. Beginning in January, even former employees who are already in retirement will lose their benefits, which most of the company's retirees use to supplement gaps in their traditional Medicare coverage. The auto maker will boost monthly pension payouts to help offset the cuts. The company's unionized workers aren't affected by the cut to retiree health benefits.

GM isn't the first company to do this, but its heft and influence could help usher in further cutbacks at other companies.

"Usually they did not do anything as draconian as this," says Karen Ferguson, director of the Pension Rights Center, a retiree advocacy group in Washington. "Usually they don't cancel the health insurance -- they'll increase the premium, they'll increase the deductibles."

At this point, employees and retirees "have to feel lucky if they still have retiree [health-care] benefits, and have to start planning for when they won't," says Rick McGill, head of retiree medical consulting for employee-benefits firm Hewitt Associates. He says such benefits are "a dying breed."

Retirement-benefit experts have for some time been recommending that all workers -- even those close to retiring and who've "earned" full retiree benefits -- should assume that those benefits will likely be eliminated, either before or during their retirement, and start planning and saving for it.

Many people planning to retire early should consider working at least part-time to keep active employee health coverage until they're eligible for Medicare at age 65, says Mr. McGill. That's because between 20% and 40% of people between 55 and 64 are either denied individual health coverage or forced to pay much higher premiums than the general population. Those 65 and older can save a lot by working a few years longer, he says. Even with Medicare, a 65-year-old couple's out-of-pocket health-care costs could reach $225,000 in their remaining years, according to Fidelity Investments.

GM, battered by slumping U.S. vehicle sales, Tuesday announced a series of moves aimed at raising $15 billion in liquidity by 2009. The auto maker also said it will suspend the dividend it pays to shareholders and cut its production of pickup trucks, among other measures.

In total, GM spent $4.75 billion last year on all its U.S. retirees' health benefits, including hourly workers and those under age 65. It says those retirees or surviving spouses who are affected will get a $300 a month increase in their pensions to help offset some of the costs of relying solely on Medicare, which has less-generous coverage than many private-sector plans. It also is hiring an outside firm to advise retirees on choosing Medicare drug plans, supplemental insurance or private Medicare plans.

Richard Schwaller, a 79-year-old retired GM regional service manager in Northville, Mich., says he supports GM's move, particularly if his pension rises by $300 a month to make up for the lost health benefits. But he says for some of his fellow retirees, in poor health, getting individual health insurance could prove costly.

"It sounds pretty good, but none of us has ever tried to shop for supplemental insurance," Mr. Schwaller says. "If you've got some serious health problems, I think that's going to make a big difference."

The affected salaried GM retirees join a growing number of active or retired workers who lack such benefits. Overall, about one worker in five had access to employer-sponsored retiree health benefits in 2003, down from one in three in 1997, according to the Urban Institute, a research institute in Washington.

Larger employers are much more likely to offer the benefit than smaller ones: About half of Fortune 100 companies offer it, and about a third of companies with more than 200 employees do, a number that has held roughly steady for more than a decade, according to separate tallies from Hewitt and the Kaiser Family Foundation.

Unlike just about every other kind of compensation, such as salary or pensions, retiree health benefits can be taken away even after workers have built them up. Indeed, unless a union contract prevents it, companies typically have a free hand to reduce or eliminate retiree health benefits for both active employees and retirees.

"Employers can pull the rug out from under their older workers and their retirees at any point -- there's no guarantee these benefits will continue," says Richard Johnson, a retirement researcher at the Urban Institute.

In recent years, many companies have done just that. Some have eliminated retiree health benefits entirely, while others -- including International Business Machines Corp., Delta Air Lines and Coca-Cola Enterprises -- have capped the amount the company will pay in premiums, leaving retirees to shoulder the impact of rising health- care costs.

Last year Ford Motor Co. also eliminated health benefits for Medicare- eligible salaried retirees and replaced it with an annual $1,800 stipend that may be used for Medicare and other health-care costs.

Critics, including the older people's lobbying group AARP, have said it is age discrimination to cut benefits just for those over 65, a position that received support from the federal Third Circuit Court of Appeals.

But other federal courts have backed employers, and in December, the Equal Employment Opportunity Commission did as well, after business organizations said companies might instead eliminate all retiree- health benefits, not just those for older workers.

TOUGH MEDICINE

GM's move to cut retiree health benefits has implicati