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.

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

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:

*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!)

Sears couldn't seem to pull off its long-promised turnaround even during economic boom times. Will it really fare better during a major recession? Sears fans who hope the company can surprise analysts with its future growth may be pinning their hopes on a feat far beyond the company's reach. Fools, beware.

A terrible stock for 2010?

Keeping a stock like Sears in your portfolio could be the kind of mistake that costs you a fortune. Who wants to have that kind of regret when contemplating their new year's resolutions for 2011?

There are obviously cheaper stocks out there with far better historical growth (and more growth potential), not to mention superior brands and customer loyalty. As I pointed out in the table above, Wal-Mart, Costco, and Target all look like far more reasonable stocks for investors' portfolios.

Former Kmart Chief Conaway Loses Bid to Reverse Jury Verdict
By Margaret Cronin Fisk and Steven Raphael
Bloomberg.com
January 21, 2010

Former Kmart Corp. Chief Executive Officer Charles Conaway lost a bid to reverse a 2009 jury verdict finding him liable for misleading shareholders in the months before the retailer filed for bankruptcy in 2002.

The U.S. Securities and Exchange Commission sued Conaway in 2005, accusing him of duping investors in the management discussion and analysis, or MD&A, portion of a third-quarter 2001 securities filing and during a Nov. 27, 2001, conference call. Conaway failed to tell investors that Kmart faced a cash shortage and was delaying payments to vendors in the months before it filed for bankruptcy, the SEC said.

A federal jury in June found Conaway hid information about the company’s cash shortage, aiding and abetting Kmart’s misstatements. U.S. Magistrate Judge Steven Pepe in Ann Arbor, Michigan, yesterday denied Conaway’s request for a new trial or a judgment erasing the jury’s finding.

“The record supports a conclusion that Conaway provided ‘substantial assistance’ to Kmart in the commission of the fraud and the MD&A inadequacies,” Pepe said in his 211-page decision. “The jury could conclude that Conaway was the driving force behind the fraud in its inception, and in the lies and non- disclosures that perpetuated it.”

The judge didn’t rule on the SEC’s request for other penalties including fines.

Penalties Sought
The SEC asked Pepe in court filings on Sept. 25 for $12.7 million in penalties, including the return of a $5 million retention loan to Conaway that Kmart had forgiven. The SEC initially sought more than $20 million. The SEC also asked Pepe to bar Conaway from working as an officer in a public company.

“We are very disappointed,” Scott Lassar, Conaway’s lawyer, said in an e-mailed statement. “We will wait until the judge rules on the SEC request for penalties” before deciding whether to appeal, he said. Kmart sought bankruptcy protection Jan. 22, 2002, subsequently shedding 599 stores and firing about 57,000 workers. Conaway was fired in March 2002.

The company exited bankruptcy in May 2003. Kmart Holding Corp. later bought Sears, Roebuck & Co., creating Sears Holdings Corp., based in Hoffman Estates, Illinois.

The SEC said Conaway was responsible for the company’s failure to disclose that delaying vendor payments was a primary source of working capital.

‘Never Honest’
Conaway hid the company’s financial situation from the Kmart board and “was never honest with the vendors,” SEC lawyer Alan Lieberman told the jury in Ann Arbor at the beginning of the civil trial in May. Lieberman said yesterday the agency would provide a statement later.

Kmart began delaying payments because of a cash crunch set off by an “extraordinary” $850 million purchase of inventory in the summer of 2001 by the company’s chief operating officer, “made without the approval or knowledge of other senior managers of the company,” the SEC said in its complaint. Kmart didn’t disclose the “inventory overbuy,” the government said.

In the third-quarter conference call, Conaway blamed slow payments on a new system that had caused invoices to be dropped, the SEC said in its complaint. “These statements were false and misleading,” the government said.

Conaway testified at a hearing in September that he didn’t withhold any important financial information. Kmart did experience a cash crunch in late 2001 and used payment slowdowns to help deal with it, Conaway testified. “We reversed and corrected it and it worked,” he said.

Liquidity Crisis
Conaway testified that Kmart faced a new liquidity crisis in January 2002 as a result of slow sales and a tight credit market. This was compounded by an analyst’s report that month saying the company was heading for a strategic bankruptcy, he said. The report set off “the proverbial run at the bank,” Conaway testified. “I made plenty of mistakes,” Conaway testified of his management of Kmart. He said he spent too much time in the field while trying to turn around the struggling retailer, leaving corporate governance and legal issues to others at the company.

In a lawsuit brought by Kmart creditors, Conaway was cleared of allegations that he contributed to the bankruptcy, his lawyer said in court in September. An arbitration panel determined Conaway did nothing wrong, Lassar said.

The jury found the statements in the 2001 quarterly filing were materially misleading and Conaway was responsible in part, Pepe said.

“The jury could reasonably assume that Mr. Conaway knew, or was reckless in his stubborn refusal to acknowledge, that Kmart’s liquidity discussion in its MD&A for the third quarter could not cavalierly ignore the most significant liquidity crises in Kmart’s history,” Pepe said.

“The jury could also find that Mr. Conaway took multiple and decisive steps, including repeated deceptions, to assure that these disclosures were not made,” he said.

The case is Securities and Exchange Commission v. Conaway, 05-cv-40263, U.S. District Court, Eastern District of Michigan (Ann Arbor).

Struggling Sears Scrambles Online
By Miguel Bustillo and Geoffrey Fowler - Wall Street Journal - Page 1
January 15, 2010

Five years after hedge-fund billionaire Edward S. Lampert brashly merged Sears and Kmart, the storied merchants keep shrinking.

So on the fourth floor of its grand Chicago flagship that epitomizes the 20th-century approach to shopping, a team of 180 e-commerce whizzes is searching for fresh ways to sell Kenmore appliances and Craftsman tools in an age of iPhone apps and Twitter.

The group—a brain trust that includes veterans from Web stalwarts such as Amazon and Orbitz—is giving a digital makeover to Sears, the 124-year old merchant that rose to prominence on the strength of its eclectic mail-order catalog.

Over the past 12 months, Sears Holdings Corp. has launched a flurry of Web sites and mobile-phone applications in an attempt to stretch sales beyond the physical borders of its aging stores. The strategy, dubbed "Shop Your Way," is to market millions of items virtually, as well as in retail outlets, while offering various delivery and pickup options. As the main Sears Web site now boasts: "Buy online, then go to the store and get your item within five minutes."

Among other things, Sears is testing a concept called MyGofer that consists of converting an entire Kmart into a pickup-only site for Internet orders, replete with a drive-through. Over the holidays, Sears managed to boost revenues with a new take on an old sales lure: online layaway.

Like most companies trying to exploit the Internet, the once-mighty Sears isn't exactly treading new territory. What it is attempting is a fast game of catch-up to stay relevant in the brutal retail sphere. "We have taken the good ideas out there and evolved them," says Imran Jooma, the company's senior vice president of e-commerce. "We are trying to create an assortment online that is almost limitless."

When Mr. Lampert combined Sears and Kmart into one company, he promised the sum of the new entity would eventually be worth more than its parts. That hasn't happened, as mass merchants such as Target Corp. and Wal-Mart Stores Inc. have continued to wrest away market share. Sears's revenues fell 7.8% last year to $46.8 billion; its same-store sales have dropped off every year since the merger.

Management, meanwhile, has been in flux. Mr. Lampert—who is chairman and controls the majority of Sears's shares through his ESL Investments Inc. and its related funds— has no chief executive in place. Kmart veteran W. Bruce Johnson has served as interim CEO since Aylwin Lewis was forced out in 2008. Mr. Lampert, who doesn't like to fly, rides herd over most major decisions from his offices in Connecticut, according to current and former executives.

Jim Barr, hired away from Microsoft Corp. in 2008 for the job of online president, left the company late last year. Mr. Barr declined to discuss his departure, as did the company. Mr. Lampert and Mr. Johnson both declined to be interviewed.

In light of the turmoil, Sears' 2.0 venture is now among the most closely watched in the industry. The outcome, say analysts, could also be a matter of life or death for the Hoffman Estates, Ill., company.

"When I walk through Sears, I feel I have to hold my nose sometimes. But if I know they have the lowest price because I researched it online, I will go, and others will too," says Love Goel, the head of retail private-equity firm GVG Capital Group. "The question is whether there is time to grow the online business while the knife on the stores is falling."

Sears executives say that the online business has increased by double digits in the past two years. It notched an estimated $2.7 billion in 2008, about 6% of total company sales—more than Wal-Mart's $1.7 billion, according to trade publication Internet Retailer. During the critical 2009 shopping month of November, unique visitors to Sears.com and Kmart.com grew by 22% and 42% respectively, according to Compete Inc.

Most traditional merchants, including Sears, first launched their e-commerce efforts about a decade ago. But many initially managed online and offline branches as separate channels competing for the same customers, including Kmart, which operated a side venture called Bluelight.com.

The emphasis has shifted under Mr. Lampert. Known for ruminating over every expense, he is loath to pour money into Sears's crumbling stores, say people familiar with his thinking. He is far more bullish on Web ventures, with their small capital requirements and vast potential audiences. While e-commerce represents between 5% and 7% of U.S. retail today, many in the industry believe the figure might grow to be as high as 20%.

"If they can do this right, it may save the company," says Maggie Gilliam, president of the retail consulting firm Gilliam & Co. "There is a sea change happening in retail right now and it is not clear what stores are going to look like in 10 years, so why spend money now? It may make sense for some companies, like Wal-Mart, as a defensive posture, but that is not the position Sears is in."

On a recent morning at the flagship Sears in downtown Chicago, the youthful, caffeine-fueled team of e-commerce designers and engineers was abuzz. Among their latest projects: mobile applications that tap into smart-phone global-positioning systems and offer customers merchandise based on their location: Yankees sweat shirts in New York, Dodgers caps in Los Angeles.

To test their phone creations, the engineers descend into the department store with handsets and grab customers in the aisles. To obtain feedback on Web sites, workers take shoppers upstairs to a small laboratory that resembles a recording studio.

Inside, testers sit across a plate-glass window from the subjects and speak to them via microphone while a camera watches their eyes wander the computer screen. A recent quiz gauges shopper reaction to a new application that lets people check out shoes from every angle.

"We are not batting a thousand. There are failed apps," says Tom Emmons, a former programmer for the Orbitz.com travel site who spearheads Sears's mobile e-commerce team. "But we are being asked to take risks, and we're taking them...If you look at the demographics of our shoppers and iPhone apps, there doesn't appear to be a lot of overlap. But people use this stuff."

To Mr. Emmons's surprise, customers are buying things like lawn tractors on their iPhones as well as electronics and clothes, suggesting a potential audience broader than foreseen.

Sears has also been tapping into the power of social-networking sites as a way to drive sales and win customer loyalty. With the help of industry veterans at a Chicago company called Viewpoints Network, in the spring it launched sites called MySears.com and MyKmart.com. Combined, the sites now have 400,000 registered users.

Members can sign into the sites with their Facebook accounts to ask questions about products and review them. Company employees monitor the conversations to stay abreast of complaints and customer-service problems.

"You can quantify the value of the insights customers bring," says Viewpoints CEO Matt Moog. "If consumers are rating products very low consistently, that would trigger the merchandise person to talk to the manufacturer—and reduce returns."

The appeal of e-tailing is ultimately about scale. Amazon.com Inc., the largest online retailer, has managed to post record revenue in recent quarters, owing to a growing customer base and the efficiency of not having any physical stores.

To that end, Sears took a page from Amazon and eBay Inc. by creating the Sears Marketplace. Ramped up last July, the Marketplace lists items from other sellers on its Web pages in exchange for a cut of sales. For every purchase made through one of its new retail partners, Sears collects a commission of 7% to 20%. Thanks to the partnership, Sears said last week that its total online merchandise assortment now tops 10 million items. Other retailers, including Wal-Mart, are building similar marketplaces.

Despite its seeming advantages, the marketplace concept carries its own set of risks.

Jack Sheng is the CEO of eForCity Corp. which sells millions of electronics accessories through its own Web site as well as eBay and Amazon's marketplaces. As these online forums expand, he worries about oversaturation, and how Sears and others might emphasize competitors' offerings over his. "If we simply throw all the products at all marketplaces, will it dilute our own direct channels or will it bring in incremental sales, which we love?"

The marketplace is one of several ideas borrowed from e-commerce thought leaders. A new iPhone app, called Sears Personal Shopper, allows customers to photograph a passerby's shoes or other objects of desire and dispatch images to workers who can track them down for sale. Amazon launched a similar app in 2008.

The MyGofer concept is also a bit of a retread. As early as the 1960s, Service Merchandise allowed customers to browse items from catalogs and collect their items at pickup sites much in the same way. Wal-Mart is currently testing its own drive-through for online orders in Mount Prospect, Ill.—less than an hour from Sears's first pilot in Joliet, Ill.

MyGofer, though, is as much a rebranding effort as a sales tool. Moms in sport-utility vehicles pull up to kiosks to swipe their credit cards then wait while workers resembling hamburger-stand carhops bring out the goods they ordered earlier online. There's not a mention of Sears or Kmart in sight. Most of the old retail space has been converted into a warehouse. Hardly anyone steps inside.

Some retail experts have reacted with skepticism. Mara Devitt, a partner at Chicago based consulting firm McMillan Doolittle, thinks it is wise for Sears to try selling under new marquee names. But she tried MyGofer twice and left disappointed after finding the drive-through terminal broken. The MyGofer Web site was also replete with "rookie" mistakes, she said, such as failing to tell shoppers how much they were saving with promotions.

Still, efforts such as MyGofer represent a potential endgame for Sears, which confronts the big hurdle of transforming its real-estate holdings in second-tier malls and downtowns throughout the U.S. Retail analysts estimate that Sears is operating at least 400 money-losing stores that it cannot afford to close because the short-term costs would exceed the savings.

To help spread the word about MyGofer, workers known as "guides" have been dropping by day-care centers and community events in hopes of building an organic following. But as employees stood outside the bright green MyGofer facade in Joliet recently, beckoning passersby, some people seemed confused.

"I didn't even know what it was until someone told me," said Megan Diaz, who headed for a Target store instead. Asked whether she would ever consider the newest incarnation of Sears, the 21-year-old student at Joliet Junior College replied, "I don't really shop at those stores."

Founding Prodigy Chief Created Online Services for Consumers
By Stephen Miller - Wall Street Journal
January 13, 2010

After selling and manufacturing some of the first business computers, Theodore Papes helped create one of the earliest online services for consumers.

Mr. Papes, who died Jan. 8 at the age of 81, led the development of Prodigy Services Co., a digital enterprise that provided online news, email, shopping and other services years before the World Wide Web.

A joint venture of International Business Machines Corp. and Sears Roebuck & Co., Prodigy was meant to introduce online services to a mass audience. Founded in 1984 and rolled out regionally starting in 1988, Prodigy caught on with the help of intensive marketing. In 1991, it passed the million-subscriber mark. But not long after, it began to flag in the face of competition from rivals such as America Online.

"We were the pioneers, but we ended up with some arrows in our back," says Les Briney, Prodigy's director of technology.

Mr. Papes, a career IBM executive who had led the company's European operations and systems products divisions in the 1970s, was appointed in 1984 to head the new venture, which initially included CBS as a third partner. From Prodigy's White Plains, N.Y., headquarters, he oversaw focus groups and software developers as they decided what might appeal to consumers on a dial-up computer network.

They settled on a mix of services that foreshadowed today's Internet, though with key differences. Prodigy featured a graphical user interface, one of the first at a time before Microsoft's Windows had been widely introduced. Early competing services such as Compuserve Inc. were run with typed commands. Prodigy was supported in part with something similar to today's browser banner ads, custom-delivered according to the user demographics.

One of Mr. Papes's key moves was to convince Hayes Microcomputer Products Inc. to produce a low-price modem, one of the first aimed at the consumer rather than business market. Most home-computer owners at the time had no means of connecting their computer to a network.

"All the things we take for granted today were just pie in the sky," says Ross Glatzer, who worked alongside Mr. Papes at Prodigy.

Some experiments, such as online grocery shopping, were failures. But others, like online flower ordering, airline reservations and stock quotes, gained more traction. More surprising to Prodigy's designers was the popularity of its email and bulletin-board systems. The bulletin boards became the center of controversy in 1991 when it emerged that Prodigy pre-screened and deleted postings. A few months later, the company was again in the spotlight when it defended on free-speech grounds the rights of users to post anti-Semitic hate messages.

The intense debate surrounding the bulletin boards foreshadowed many fights over freedom of expression on the Internet. But it was hardly the kind of thing Mr. Papes expected as a button-down IBM executive responsible for some of the most powerful business computers on the market.

The son of a Greek immigrant who established a home- furnishings business in Gary, Ind., Mr. Papes was president of his senior class in high school and a Navy veteran. He was hired out of college in 1952 by IBM, where he sold some of the earliest computers to banks. He later became an executive responsible for developing communications terminals, storage drives and operating systems. He moved quickly up the IBM hierarchy, becoming a vice president in 1968 at age 40.

Although he took on a series of more responsible positions, family members say, it became evident that he wouldn't become chief executive of IBM itself, and so in 1984 he was open to heading up a new online joint venture, initially called Trintex.

Three years later, when Prodigy was about to be rolled out, Mr. Papes told Fortune, "We're creating something so compelling that you'll say, 'I've got to have it.' "

First, though, users had to learn about it. Alvin Toffler, the author of "Future Shock," was hired to star in television ads promoting the service. Another spokesperson was journalist Linda Ellerbee.

"We were trying to change the way people had always done things," says Mr. Glatzer, who became Prodigy's CEO after Mr. Papes retired in 1992.

When Mr. Papes stepped down, Prodigy claimed 1.4 million subscribers. But the company soon began losing ground to rivals like AOL, which brought new marketing muscle, vibrant graphics and a Microsoft Windows platform to the nascent online world. Prodigy was sold by IBM and Sears to a private-equity firm in 1996 for a fraction of the companies' investment.

While Prodigy was eventually eclipsed by its rivals, the company played a pivotal role in introducing the early home-computer users to online networking, says Barry Berkov, former executive vice president of Compuserve. "AOL would probably never have been successful without the mass promotion that Prodigy did."

Sears makes retail change
Chicago Tribune
January 13, 2010

Sears Holdings on Tuesday tapped an outsider, who most recently worked in China, to head the Hoffman Estates-based company's retail services unit.

James Haworth, who will join Sears on Jan. 31 as an executive vice president and president of retail services, succeeds Kevin Holt, who will leave the company later this month "to pursue other opportunities," Sears said.

Haworth, 47, is charged with charting the strategic growth of retail services for Kmart and Sears stores. He most recently was chairman, president and CEO of Chia Tai Enterprises International Limited & CP Lotus, a Hong Kong-based investment holding company that operated shopping centers in China. He also spent 20 years at Wal-Mart Stores Inc., including a stint as chief operating officer.

Lampert Fiddles While Stores Burn
Chicago Tribune.com
January 12, 2010

Analysis by: Kenneth Leonard
Analysis of: Sears Shares "Marketplace"
Published at: www.chicagotribune.com

Summary

An article ostensibly about Sears new online marketplace but one that reveals some never-before-revealed insights into the inner workings of the company.

Analysis

One of the first things a careful reader sees in this article is that the revolving door of senior executives continues to revolve. It is well known that few of the seasoned executives are willing to put up with Mr.Lampert's dictatorial style of micro management. This time it was the President of Sears online division, Jim Barr, the former Microsoft exec hired in 2008 with much fan fare to get Sears into thew internet business. He lasted just one year. Although Mr. Lampert has agreed to spend a few bucks to get this new "Marketplace" off the ground, it appears to this writer that it is hardly more than a classic case of retailing "slight-of-hand" to divert attention away from the cancer growing in the Sears store division.

The Sears stores fell another 6% on a comp store basis for the quarter. The Sears stores are down 8.8% for YTD on a comp basis. Yet Mr. Lampert is forecasting profits well above most industry analysts expectations. A neat trick that is only partially explained by the freeze on spending and a ruthless cost cutting program that many insiders say is long past cutting fat and now is cutting into muscle and bone.

There are two additional very wrong headed observations I have not seen in print in recent months that seem to continue to fascinate analysts the likes of Sean Egan of Eagan-Jones Ratings Co. and reporters like Sandra Jones of the Tribune. The first is the notion that Lampert "missed the market for selling Sears real estate". The second is that "the Sears ability to break leases has declined".

Both are way off the mark because most of the savvy analyst who follow SHLD have long since realized, (even if they have been unwilling to admit they were wrong), that SEARS NEVER HAD ANY OPPORTUNITY TO BREAK LEASES OR SELL UNDERPERFORMING STORES. The only stores that Sears could have sold were some of Sears highest volume producers and even Mr. Lampert is enough of a retailer to realize the fallacy behind that move.

Sears names Wal-Mart veteran Haworth to run retail services
By Monée Fields-White - Chicago Business
January 12, 2010

(Crain’s) — Sears Holdings Corp. tapped James Haworth, former chairman of a retail investment holding company, to head its retail services business.

Mr. Haworth, 48, will join the Hoffman Estates-based retail chain as its executive vice-president and president of retail services. He replaces Kevin Holt, who’s leaving the company to “pursue other opportunities,” the company said.

For 20 years Mr. Haworth held various positions at Wal-Mart Stores Inc., including executive vice-president of operations for Sam’s Club and executive vice-president and chief operating officer of Wal-Mart.

Most recently he was chairman, president and CEO of Chia Tai Enterprises International Ltd. & CP Lotus, an investment holding company that operates shopping centers in China. He also founded Business Decisions Inc., a retail, merchandising and supply-chain consulting firm, in 2005.

“He brings a wealth of global retail experience, demonstrated success in retail operations, merchandising and strategic planning,” said Bruce Johnson, interim CEO and president of Sears Holdings. “We thank Kevin for his contributions to the company and wish him well in all future endeavors.”

Mr. Holt joined Sears in September 2007 as a senior vice-president and was promoted to head up retail operations in the midst of a re-organization at the retail chain, which divided the company into five business groups. Prior to Sears, he worked for 13 years at Meijer Inc., a privately held Grand Rapids, Mich. Grocer and general merchandise chain.

Sears Holdings Names President of Retail Services Business Unit
Jim Haworth to Lead Retail Services for Nation's Fourth Largest Broadline Retailer
CNN Money.com
January 12, 2010

HOFFMAN ESTATES, Ill., Jan. 12 /PRNewswire/ -- Sears Holdings (Nasdaq: SHLD) announced today that James H. Haworth will join the company as EVP and president – Retail Services succeeding Kevin R. Holt who will be leaving the company to pursue other opportunities.

Haworth will be responsible for the oversight, leadership and strategic growth of retail services for all Kmart and Sears stores. He will serve as a member of the internal holding company business unit board of directors as well.

Haworth most recently served as chairman, president and CEO for Chia Tai Enterprises International Limited & CP Lotus, an investment holding company principally engaged in the operation of one-stop shopping centers within China. In 2005, he founded Business Decisions Inc., a consulting firm specializing in strategic product marketing for the retail, merchandising and supply chain industries. Previous to Business Decisions Inc., Haworth spent 20 years with Wal-Mart Stores, Inc., in roles of increasing responsibility including executive vice president of operations for Sam's Club and executive vice president and COO, Wal-Mart Stores, Inc.

"We're very pleased that Jim is joining our executive team," said Bruce Johnson, interim CEO and president of Sears Holdings. "He brings a wealth of global retail experience, demonstrated success in retail operations, merchandising and strategic planning along with a great understanding of how to create lasting relationships with customers. We thank Kevin for his contributions to the company and wish him well in all future endeavors."

Haworth, who earned a bachelor's degree from University of Central Missouri, will join the company on Jan. 31.

Sears reveals online 'Marketplace'
Shares close at 15-month high
By Sandra M. Jones - reporter  - Chicago Tribune
Inside Retailing
January 8, 2010

Keeping quiet works when operating elite hedge funds, but it's usually not a great strategy when running a retailer.

For the past six months, Sears Holdings Corp. has been operating an online marketplace that allows third-party vendors to sell goods on its Web site. But few consumers knew about it.

Sears waited until Thursday to unveil "Marketplace at Sears.com," disclosing that its Web site carries more than 10 million products, including furniture, art, cosmetics, appliances, sporting goods and shoes.

Perhaps Sears could learn a lesson from Wal-Mart Stores Inc., which at the start of this decade also shunned the spotlight, but changed its strategy after too much bad publicity. Now, Wal-Mart goes out of its way to be heard, even as it spends relatively little on advertising.

Like Sears, Wal-Mart, the world's largest retailer, began selling merchandise from outside vendors on its "Walmart Marketplace" in August. But it took a different approach, bragging in a press release the same month that its Web site had 1 million new products.

By late fall, Wal-Mart's Web business dominated headlines. It initiated a price war over books with Amazon.com Inc. and sent Raul Vazquez, CEO of Wal-Mart's online unit, on a media tour preaching the retailer's newfound Web religion.

While Wal-Mart was going after Amazon this fall, Sears was dealing with another in a long line of executive defections. This time it was the president of Sears' online division, Jim Barr. The former Microsoft Corp. executive, hired in 2008 to ramp up Sears' Internet business, resigned late last year, Sears spokesman Chris Brathwaite said Thursday. Imran Jooma, senior vice president for Sears online, now heads the Internet division.

Sears chairman and billionaire hedge fund manager Edward Lampert made money by keeping his investment ideas close to the vest. That rarely works in retailing because merchants need to keep their names in front of consumers to remind them to visit the stores -- or their Web sites.

It's clear Lampert is keen to build Sears' Internet business, but true to his hedge fund roots, he hasn't talked much about it.

After missing the market for selling Sears' real estate, he turned his attention to reshaping Sears.com into a Web portal akin to a cyber version of the old Big Book Sears catalog. While Lampert drastically cut capital spending across the company, the Internet division got money to expand.

For now, Sears is holding on thanks to the trading down behavior of consumers who boosted sales at Kmart over the holidays.

Sears stock jumped 12 percent to close at a 15-month high of $99.18 Thursday after Sears said it expected its fourth-quarter profit to exceed last year's results, fueled by stronger sales at Kmart.

Sales at stores open at least a year, a key measure of retail health, fell 2 percent at Sears Holdings for the quarter to date, with sales down 6 percent at the Sears unit and up 2.6 percent at Kmart. For its fiscal year to date, total sales fell 5.2 percent, with an 8.8 percent drop at Sears and a 0.7 percent decline at Kmart. Kmart got a boost from assuming operations of its footwear business from a third party in January 2009.

Sears anticipates earning between $385 million and $465 million, or $3.36 to $4.06 a share, for the period ending Jan. 30, excluding special gains or charges.

"Eddie Lampert is becoming more of a retailer and less of a capital allocator given the fact that the ability to break leases has declined," said Sean Egan, managing director at Egan-Jones Ratings Co. "The company has dodged a bullet for this quarter."

Sears expands online efforts
Chicago Tribune.com
January 7, 2010

Sears Holdings Corp. says it's letting third parties -- including some competitors -- sell things on its Web site.

The change adds more than 10 million products from 1,500 vendors to those available at the company's Web sites. A spokesman says that will more than double the number of products available on Sears.com.

The service officially began Thursday. It puts Sears in the company of Walmart.com and Amazon.com, which already sell millions of items from third parties.

Hoffman Estates-based Sears will receive a commission on sales made through the service, which it calls the Marketplace at Sears.com. It also will get a fee for listing the items.

Sears Holdings expects 4Q gains on Kmart strength
Chicago Tribune.com
January 7, 2010

HOFFMAN ESTATES, Ill. - Sears Holdings Corp. expects its fourth-quarter adjusted profit to come in sharply above last year's results thanks to stronger sales at its Kmart chain -- a sign fortunes slowly may be improving for the long-struggling retailer.

The news Thursday morning sent Sears shares to a more than 15-month high, passing $100 per share -- something not seen since September 2008.

Sears and Kmart, both led by financier Edward Lampert, have seen shoppers flee to larger rivals with more prestige and more products at better prices. But late last year, glimmers of resilience began to emerge when shoppers returned to Kmart stores as the recession wore on.

On Thursday, Sears predicted a fourth-quarter profit between $385 million and $465 million, $3.36 to $4.06 per share, for the period that will end Jan. 30. Those figures exclude the impact of store closings, impairment and restructuring charges and gains and losses on hedge transactions. The company did not specify how great the impact of each exclusion could be.

Despite the wide range, Sears' forecast is sharply above the $2.65 per share expected by analysts surveyed by Thomson Reuters. Those estimates generally exclude one-time items.

During the same period last year, Sears' adjusted profit was $360 million, or $2.94 per share. That figure excluded one-time items, which often vary quarter to quarter.

For the full year, Sears anticipates an adjusted profit between $190 million and $270 million, or $1.61 per share to $2.29 per share, excluding one-time items.

Analysts expect a full-year profit of $1.10 per share.

Last year, Sears' adjusted profit amounted to $215 million, or $1.69 per share.

Meanwhile, the retailer said Kmart continued to show signs of life during the critical holiday season, helping Sears Holdings post a slight increase in a key sales figure for December.

The merchant, based in the Chicago suburb of Hoffman Estates, reported a 0.4 percent rise in sales at stores open at least a year for the period ended Jan. 2.

It was largely helped by a 5.3 percent increase in sales at Kmart stores open at least a year, where shoppers snapped up toys, home goods and clothing at the discount chain.

Sears typically doesn't release monthly sales results. Sales at stores open at least a year are a key indicator of retailer performance since they measure growth at existing ones.

Kmart began to show a glimmer of hope during the third quarter, when sales at stores open at least a year edged up less than 1 percent. While the improvement was small, it was the first time in at least seven years that the sales figure increased at the chain's stores.

Sears sees profit above estimates
Reuters
January 7, 2010

(Reuters) - Sears Holdings Corp <SHLD.O> posted a slight rise in December same store sales, driven by Kmart, and forecast fourth-quarter earnings ahead of estimates.

The company, which has built a reputation for selling affordable home goods, said it expects to earn between $385 million and $465 million, or $3.36 a share and $4.06 a share, for the fourth quarter ending January 30.

Analysts on average were expecting Sears to earn $2.65 a share, according to Thomson Reuters I/B/E/S.

For December, Kmart same store sales rose 5.3 percent, while total comparable sales grew 0.4 percent.

Better sales of toys, home and apparel goods helped Kmart comparable sales for the month, as did its footwear business.

In January last year, Kmart took back its shoe operations from Footstar, which operated within the discount chain's stores but used its own inventory and staff.

Sears shares had closed at $88.87 Wednesday on Nasdaq.

(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Ratul Ray Chaudhuri)

Several Retailers Boost Forecasts
By Joan E. Solsman - Wall Street Journal.com
January 7, 2010

Retailers generally reported December sales that exceeded Wall Street's modest growth expectations, leading numerous companies to boost forecasts.

Analysts had been expecting some retailers to increase their forecasts for the fiscal fourth quarter. Promotions during the holiday season were more limited and inventory planning more rational than the panicked discount pricing of last year. As a result, better earnings were expected even if traffic and purchases remained sluggish. The retailers boosting forecasts included Limited Brands Inc., Macy's Inc. and American Eagle Outfitters Inc.

Unusually cold weather and big snowstorms along the East Coast slowed sales, but stores appeared to compensate for any lost traffic from weather with online sales and strong business after Christmas. Macy's online sales were up 29% from a year earlier, for example.

Comparisons from last year started to ease in September after stores suffered for more than a year as consumers cut spending. This December's results follow last year's 3.6% drop in sales at stores open at least a year, according to Thomson Reuters. The results exclude Wal-Mart Stores Inc., which stopped issuing monthly sales figures in May.

A modest 2% increase was forecast for this December, with discounters continued sales strength expected to outperform the results at other retailers. Apparel retailers performed second best thanks to easy comparisons with last year's rough results. But further declines had been expected in teen and child retailers.

Discounter BJ's Wholesale Club Inc. posted a 2.7% increase excluding gasoline sales. The company said the growth would have been double that absent the mid-December snowstorm that socked the East. Larger rival Costco Wholesale Corp. had a 2% rise in the U.S. minus gasoline.

Unadjusted global same-store sales rose 9%, topping expectations. Target Corp. surprised analysts by posting a sales gain in December after two months of declines and said its fourth-quarter profit would beat expectations.

Teen and child retailers performed well, with the exception of Abercrombie & Fitch Co. Analysts had worried that the company's eagerness to discount this year—after maintaining a company tradition of avoiding promotions well into the recession—would hurt the retailer. Its same-store sales dropped a deeper-than-forecast 19%, compared with a 24% drop the previous year.

But Buckle Inc.'s 6.6% increase beat expectations in spite of a difficult comparison from last December, when it had double-digit sales growth. The company has been posting sales increases throughout the recession.

Among more generalized apparel sellers, those with a focus on low prices performed best. TJX Cos., which buys items below typical wholesale prices and sells them at steep discounts at its T.J. Maxx and Marshalls stores, posted a 14% jump in sales, more than double analysts' expectations. It raised its earnings forecast.

Gap Inc.'s and Limited Brands Inc.'s sales fell shy of analysts forecasts, but the results were good enough for Limited to boost its earnings outlook.

Department stores beat Wall Street forecasts across the board, with Saks Inc. and Nordstrom Inc. standing out in spite of their reputation for higher-priced items. The posted 9.9% and 7.4% sales increases, respectively. Sales expectations for the group were mixed but leaned to the downside.

Elsewhere, Sears Holdings Corp. set its fiscal fourth-quarter earnings estimate well above analysts' expectations as it reported a 0.4% gain in same-store sales. The company credited a 5.3% rise at Kmart stores to strength in toys, home furnishings and apparel. Sales at the Sears chain fell 4.3% amid weakness in high-ticket items like tools and automotive products.

Liddy rejoins private equity firm
By Becky Yerak - staff reporter - Chicago Tribune
January 6, 2010

Edward Liddy, the former Allstate Corp. chief executive who was handpicked to run American International Group when the U.S. government saved it from a full collapse, has rejoined private equity giant Clayton Dubilier & Rice LLC.

Liddy had retired as CEO at Northbrook-based Allstate in December 2006 and as chairman of the nation's biggest publicly traded home and auto insurer in 2008.

He initially joined CD&R, based in New York and London, in spring 2008 as a partner.

In September 2008, when the U.S. government arranged a then-$85 billion bailout plan for AIG, then-Treasury Secretary Henry Paulson asked Liddy to step in as CEO. Liddy took the job for $1 a year.

During his AIG tenure, which ended in August, Liddy got hammered publicly by Congress and threatened by a public angry over bonuses paid to executives at the unit responsible for its biggest losses.

CD&R was founded in 1978. Its portfolio companies include Hertz, Culligan, HD Supply, Sally Beauty Holdings and ServiceMaster.

Morgan Stanley Wins Ruling vs. Discover
By Aaron Lucchetti and Robin Sidel - The Wall Street Journal
January 6, 2010

Morgan Stanley won a legal ruling in its battle with former credit-card subsidiary Discover Financial Services Inc. over almost $800 million Morgan Stanley says it is owed.

In a ruling Monday, New York state Supreme Court Justice Barbara Kapnick ruled that Discover was obligated to pay the amount as a special dividend to Morgan Stanley.
At issue is money stemming from a $2.75 billion 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 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.

In Monday's ruling, Justice Kapnick wrote that "Morgan Stanley's alleged violation of" its spinoff agreement with Discover "cannot form a basis for excluding Discover's obligations" to pay the special dividend to Morgan Stanley.

The ruling means that Morgan Stanley stands to get that figure added to its bottom line in coming quarters, assuming the case isn't reversed on appeal.

Discover, of Riverwoods, Ill., said it intends to appeal the ruling, but said it has no effect on the claims for damages the firm is seeking from Morgan Stanley "for their breach of contract and tortious interference in settlement negotiations between Discover, Visa and MasterCard." Discover claims Morgan Stanley "engaged in unauthorized negotiations" and "negatively affected the outcome of our final settlement." Discover has sued over the settlement payment. The case is pending.

5 Stocks Making Cash
By Rich Duprey - The Motley Fool.com
January 5, 2010

Had Jerry Maguire been an investor instead of a fictional sports agent, he might have become famous for yelling, "Show me the cash flow!"

Earnings come and go, and the green-eyeshade types can legally manipulate it to mask a company's true operations. Yet its ability to generate cash -- what comes in the register and goes out the door -- remains the preeminent indicator of company's worth. In short, cash is king.

Below, we'll look at companies that have proven them-selves prodigious generators of free cash flow (FCF) -- the amount of money a company has left over that it could potentially pay to its investors. We'll find companies that have generated compounded free cash flow growth rates exceeding 25% annually over the past five years, then pair them with the opinions of the more than 145,000 members of the Motley Fool CAPS investor intelligence community to see which ones might have the best chance of outperforming the market.

Source:
Capital IQ, a division of Standard & Poor's;
Motley Fool CAPS.
CAGR = compounded annual growth rate.

Generating copious amounts of cash doesn't make a company an automatic buy. But having looked at Enron's cash flows instead of its earnings would have saved many investors a lot of grief. Warren Buffett understands that the value of a company today is calculated by its discounted future cash flows, so use this list as a jumping-off point to dig deeper into the piles of cash.

Ka-ching!
One thing that happens when you make money hand over fist is competitors are attracted to your niche like moths to a flame. Network services provider Akamai Technologies might be the best stock to buy this year because it not only generates prodigious amounts of free cash flow, but revenues and profits have also followed this northward trajectory over the past five years.

Which means rivals like Limelight Networks and Amazon.com (Nasdaq: AMZN) want to horn in on what Akamai's doing, and causing some analysts to express consternation that Akamai's lower-tier customers will defect to the new entrants. Investors like CAPS All-Star member FreeMortal, however, shrug off the chance they'll be able to muscle in very far: Huge and expensive infrastructure and market share present a fairly deep and wide moat. They are pervasive, yet subtle. Just by cruising the web, your computer will communicate with Akamai servers more than Google.

If Google and Oracle had an 800 pound baby... More than 2,700 CAPS members have voiced their opinion on Akamai, and 96% of them feel it's going to outperform the market going forward. Head over now to the Akamai Technologies CAPS page and let us know whether the network services provider will continue to swing from the trees.

Laughing all the way?
Even if Sears Holdings manages to hang on for another Christmas or two, it's hard to imagine it will be competing in the marketplace from a position of strength. A series of ill-timed choices has eviscerated its customer base and slowly gnaws away at its once-vaunted cash hoard.

But it's equally hard to argue with the fact that somehow, some way, Sears does manage to make money. Not GAAP earnings, mind you, at least not consistently, but free cash flow, and value investors will argue that's the more important number to watch anyway. We'll have to wait to see how Sears did in the fourth quarter, but in the trailing 12 months ended last October, the hitherto-venerable retailer generated more than $1.5 billion in free cash flow, a hefty increase over the year- ago period.

Yet negative sentiment surrounding Sears is palpable. Fully 30% of CAPS members rating the retailer think it will underperform the market averages, let alone, as JackCaps says, rivals Amazon and Wal-Mart (NYSE: WMT).

It's not all doom and gloom, though. sheltonclan finds the bevy of well-known brands is Sears' saving grace: Over the long haul, the branding wrapped up in SHLD will pull through. Craftsman, Lands End, Kenmore, DieHard...these are BRANDS people want even if they don't consider themselves "Sears Shoppers." I think Lampert can pull it together.

Sears Epic Pricing Error Leaves Hundreds With Canceled Snowblower Orders
By Meg Marco - The Consumerist: Shoppers Bite Back
January 5, 2010

A Sure Sign of Excess: The World’s Tallest Building
By Floyd Norris - The New York Times
January 5, 2010

There is something about putting up the world’s tallest building that screams “financial excess,” and warns that a bubble is ready to burst.

Today’s paper reports that the latest entry in the World’s Tallest Building contest has opened in Dubai. The name was changed to the name of the ruler of Abu Dhabi, which Dubai hopes will bail it out.

This building is taller than I can imagine. As the accompanying graphic shows, the Empire State Building, which became the world’s tallest building in 1931, is 1,250 feet high. The Sears Tower (since renamed) in Chicago, which gained the honor in 1974, is 1,451 feet tall. If you somehow put one of those buildings on top of the other, you would get a building 2,701 feet tall. That would come close to the Burg Khalifa, but would still fall short by 16 feet.

What interests me now is whether this race is over for the time being. There was a big contest in New York back in the 1920s, in which the Chrysler Building took the lead by going higher than it was expected to do. The Empire State Building began just before the 1929 crash, and by the time it was finished, there was no appetite, or financing, for any building to go higher.

It was not until the 1970s that the World Trade Center in New York, now gone, set a new record, although the Sears Tower quickly exceeded it.

By the time that opened, the biggest recession since World War II was on. It was the last American building to claim the title.

Then it became Asia’s turn. Malaysia took the lead in 1998, which was also the year that much of Asia suffered an economic collapse. Then Taiwan claimed the lead in 2004. China is building what was to be the No. 1 building, at 2,073 feet, but Dubai went way beyond that.

There is something uneconomically absurd about this competition, which is one reason that you can suspect that plans for such a building indicate financial excess. Skyscrapers make sense if land is scarce and expensive, but land scarcity is hardly a factor in some of the places that have entered the race. Moreover, the taller a building, the more space must be set aside for elevators, which reduce the usable space on all floors. Per square foot, the cost of a very, very tall building gets to be excessive compared to the cost of a tall building. Will the prestige make the difference? The article today indicates it might be doing so in Dubai, but I doubt that will pan out in the long run.

The world economy is now in recovery. Will that mean a new contestant trying for 3,000 feet? Not any time soon, I suspect.

Two Dowdy Clothing Brands Go for Vogue
Catalog Retailers L.L. Bean and Lands' End Launch Lines Aimed at Younger Customers; a 'Relaxed, Lived-In Style'
By Ray A. Smith - Wall Street Journal
January 2, 2010

L.L. Bean and Lands' End don't exactly bring to mind the word "cool."

But both catalog retailers are trying to amp up their style quotient with new lines aimed at younger customers. That means tighter women's shirts, low-rise pants and the virtual disappearance of the baggy pleated khakis that once were prevalent in both lines. L.L. Bean, a 97-year-old icon of New England style, is also introducing dressier clothes—suits for men and heels for women—and updating classic items like its buffalo plaid shirt, canvas tote bag and hunting boots with new colors and materials.

The new catalog for L.L. Bean's Signature line will look more like a fashion magazine than the label's usual mailings, with models wearing the clothes in glamorous settings. The shift isn't dramatic; there are no skin-tight jeans or lingerie looks here. But it is a big step away from the fleecy outdoors apparel and the boxy, middle-of-the-road styles for which both retailers are known.

'Americana' Style

L.L. Bean and Lands' End see an opportunity to engage younger consumers amid a vogue for "Americana"—plaid shirts, chino pants and oxford shirts. Newer designer brands recently have been creating modern versions of classics that Bean and Lands' End have been selling for years, and the catalog retailers are determined not to be outdone by hipster upstarts.

As part of the push for younger customers, L.L. Bean and Lands' End are using social media like Facebook, Twitter and YouTube videos to promote their new lines. The two plan to lean more heavily on Web sites created for the lines; Lands' End is even eschewing a catalog for its new Canvas line, though it is considering a "magalog" aimed at driving consumers to order online. "It's a different step forward for us, but one that makes sense for where this customer shops," says Nick Coe, president of Lands' End, which is owned by Sears Holding Corp.

L.L. Bean Inc., meanwhile, is creating a catalog for its new line that looks like a fashion magazine, with models moving about on city streets, along boardwalks and inside fabulous apartments—a big departure from the clothier's trademark pages of product shots.

Still, the two brands face hurdles in making themselves relevant to consumers in their 20s and 30s. Younger people generally don't shop by catalog. And when Mintel International earlier this year surveyed adults who had recently bought merchandise from a catalog, just 8% of 18-to-24-year-olds said they had ordered something from L.L. Bean.

The figure was 10% for 25-to-34-year-olds. The trends were similar for Lands' End.

Alex Gardell, a 22-year-old college student and dance instructor who says she loves to shop at stores like J. Crew and Forever 21, is the kind of customer both brands are targeting. She is also an example of what the brands are up against.

'A Functional Fleece'

Ms. Gardell, who lives in Manhattan, says she can't remember the last thing she ordered from L.L. Bean or Lands' End. "It might have been a functional fleece to go skiing," she says. "I go through the catalogs, and I don't really see anything that jumps out at me and makes me want to buy. It's kind of dowdy. What comes to mind is pleated khaki pants and zip-up fleeces that come in 18 different colors but don't really have style."

Still, she says she would be willing to give the new collections a look. "If there is something different, I'll try it," she says.

For both brands, the biggest difference lies in fit. To design its Signature line, which launches in March, L.L. Bean tapped Alex Carleton, who founded fashion line Rogues Gallery and once worked as a designer at Bean. Signature alters the silhouettes of the label's clothing, such as men's work shirts and cargo pants and women's camp shirts and shirt dresses. In some cases, it changes the fabrics, using chambray rather than poplin, for instance. Also, pants for both men and women have shorter rises, the length of the fabric from the crotch seam to the top of the waistband. Prices will be slightly higher than those in L.L. Bean's core line.

'A Closer Fit'

"Younger consumers tend to be looking for a closer fit and have a different way of wearing their clothes," explains Chris Vickers, vice president of L.L. Bean Signature. The buildup of dressier clothing was intended to help consumers build a complete L.L. Bean wardrobe, he says, rather than being limited to casual weekend wear.

Similarly, Lands' End's Canvas collection, which went on sale in November, updates clothing from the brand's archives—chinos, oxford shirts, cardigans—with a more modern fit. Lands' End, whose origins lie in sailing apparel, even warns on Canvas's Web site that a women's oxford shirt runs small.

The clothes are also characterized by a softer, more relaxed feel. They are prewashed for a more broken-in look, and many of the poplin, oxford and polo shirts arrive unpressed and minimally packaged to give them a "relaxed, lived-in style," according to Canvas's Web site. Mr. Coe says Web feedback from consumers in their 20s and 30s so far has been positive.

Tom Julian, president of brand-consulting firm Tom Julian Group, says it's almost mandatory for older brands like these to incorporate contemporary touches, but they shouldn't try to be too trendy, which could alienate existing fans and risk looking like they are trying too hard.

It can be done. Abercrombie & Fitch, Banana Republic and J. Crew each at first had limited appeal with a particular look (safari/travel for Banana Republic, for example) but found ways to expand appropriately, he notes.

In addition to their ability to tap the vogue for classic American workwear and casual clothes, L.L. Bean and Lands' End have several things in their favor. Both brands' apparel is reasonably priced—an important attribute for today's cost-conscious consumer.

Shopping From Home

In addition, shopping from home has been more popular since the bust of the conspicuous-consumption bubble. While sales of apparel fell 2.4% at direct-mail retailers like L.L. Bean during the 12-month period that ended Oct. 31, things were worse at department stores, where sales fell 9.6%, according to market researcher NPD Group. (Both L.L. Bean and Lands' End are opening stores for these new collections.) Madison Riley, managing director at retail consulting firm Kurt Salmon Associates, notes that both brands' long histories as direct-mail merchants will help them. "Should demand increase [from younger consumers], they'll be able to rapidly adjust and service that demand," he says.

But keeping up with young consumers is not an easy task, as successful brands freshen their lines with new styles frequently these days. "Just jumping on Facebook doesn't mean you're going to be relevant with young people," says David Bassuk, a managing director at business-advisory firm AlixPartners's retail practice. The brands "will have to do some work bringing consumers what they want at the speed they want … and responding more quickly to trends. It's a very different capability."

Michael Williams, the 31-year-old founder of style blog "A Continuous Lean," notes that the Americana trend has already gone mainstream. "People who led the look are starting to move on," he says. Of course, the mass audience is still wearing the style. But "L.L. Bean and Lands' End are coming at the tail end of this from a trend-setter perspective," he says.

Retirees Snared By Medicare
As People Work Longer, They Risk Penalties For Missing Deadlines
By Ann Tergesen - Wall Street Journal
December 30, 2009

Rules for enrolling in Medicare are complex. But when people postpone retirement past age 65, as many people are doing these days, it's easy to get caught up in red tape.

Older adults can't get into Medicare any time they want. The easiest time to sign up is when you turn 65, and, if you're already collecting Social Security, enrollment is automatic. But if you keep working beyond that age and opt instead to stay with your employer's group health plan, your options for getting Medicare can be sharply limited. It's important to pay attention to strict enrollment deadlines, or you may face a fine and risk going without coverage for months.

That's what happened to Barbara Gardner, 66, who chose to continue on her former employer's plan instead of signing up for Medicare when she retired last year. "My employer's plan offers much better coverage," says the Austintown, Ohio, resident, who suffers from rheumatoid arthritis and asthma.

Now, Ms. Gardner realizes her decision caused her to run afoul of a Medicare rule that required her to enroll within eight months of leaving her job. As a result, Ms. Gardner's next chance to sign up for Medicare is in January, and her coverage won't begin until July. With her current health plan due to expire in March, Ms. Gardner is facing several months without insurance. And as a penalty for missing the deadline, her monthly Medicare premium will permanently be increased by 10%.

"I don't know what I am going to do," she says, adding that she can't afford to purchase an individual policy for the months she'll be without insurance.

Medicare advocates say a growing number of older adults are getting ensnared in the program's complex rules, as more seniors return to work or put off leaving their jobs. The nonprofit Medicare Rights Center says that before the recession it typically received a handful of calls each month from people trying to sort out the enrollment rules. Now, the organization says it gets several such calls a day.

In January, Rep. Kurt Schrader (D., Ore.) plans to introduce a bill designed to make it easier for those 65 and older who leave jobs to switch from their employer's group health insurance to Medicare, his office says. Among other things, the bill would eliminate the delays that some experience before their Medicare benefits go into effect.

"Many seniors are going without coverage because of problems transitioning into Medicare and are unable to pick up temporary coverage because of their age," Rep. Schrader says.

A spokesman for the Centers for Medicare & Medicaid Services, which administers Medicare, says the agency is just following the laws governing the insurance program. "We just don't have the discretion" to accommodate those who miss enrollment deadlines, he says.

Some workers postpone enrolling in Medicare because their health coverage on the job can be less expensive. Even though Medicare Part A, which covers hospitalization, is free for most people 65 and older, Medicare Part B, which covers doctor visits and other forms of outpatient care, charges a monthly premium of between $96.40 and $353.60, depending on a beneficiary's income.

Many people also choose to purchase private "supplement" policies, which pay for expenses Medicare doesn't cover, and so-called Part D prescription-drug plans. Others choose to receive benefits through private Medicare Advantage plans, which generally charge premiums, co-payments and deductibles.

But it's important to do some homework before deciding to stick with an employer's plan alone. Those who are employed can switch at any time from a group health plan to Medicare. But once an employee stops working—voluntarily or not—he or she has only eight months to sign up for Medicare Part B. Those who miss this window—called a special enrollment period—must wait for Medicare's general enrollment period, from Jan. 1 to March 31, to sign up. Worse, their Part B benefits won't go into effect until the following July, and late-enrollment penalties may apply. Common Traps

One common trap: Many people on Cobra, a federal law that permits workers temporarily to stay enrolled in an employer's health plan, or those receiving retiree medical benefits are unaware that the eight-month deadline applies to them, says Pamela Meliso, senior attorney at the nonprofit Center for Medicare Advocacy Inc. in Mansfield, Conn.

Other people get into trouble by failing to check whether their company's plan requires them to sign up for Medicare Part B upon turning 65. Such rules are typical of companies with fewer than 20 employees and also often apply to former employees on Cobra. After age 65, these plans at best provide only supplementary coverage, paying only for expenses that Part B won't cover, says Hannah Oakland, a health advocate at Medicare Rights Center. Limits of Cobra

Carla Arnett, of Dripping Springs, Texas, found out too late the limits of opting for Cobra instead of signing up for Medicare when she turned 65 last year. When she recently left her job in a retail store, she discovered she had to wait until January to sign up for Part B and wouldn't begin receiving benefits until July 2010, according to her son, Edward Arnett.

He says his mother was diagnosed with lung cancer this summer and didn't want to be without insurance. So she paid to continue her former employer's coverage through the Cobra program, not realizing that she was buying a plan that only provided supplementary coverage.

Mr. Arnett says his mother recently learned that the Cobra plan will only cover a small fraction of the more than $20,000 in medical bills she has incurred since her cancer diagnosis.

"They informed me that they consider their coverage to be secondary," or supplementary, to Medicare Part B, says Mr. Arnett. She is "fighting for her life and watching as the bills stack up higher and higher," he says. Mr. Arnett says his mother has little choice but to continue the Cobra coverage, at a cost of $376 a month, until she can qualify for Medicare next year.

If you plan to delay signing up for Medicare, experts recommend keeping good files about your decision and copious notes from phone conversations with officials you contact for advice, including employees at Medicare and Social Security Administration, which handles Medicare enrollments. Misinformed

Bill Bregar, a former software engineer, accepted a voluntary retirement package from his employer in June 2007. Now 68, Mr. Bregar and his wife were able to remain on the company's health insurance plan, via Cobra, for two years. "The cost was very reasonable and the plan covered everything," says the Lake Oswego, Ore., resident. He says he was assured by a representative at Social Security that he would be able to switch to Medicare when this coverage expired on May 31, 2009.

But when Mr. Bregar tried to enroll in Medicare Part B in May, he was told he was out of luck. Because he had missed the eight-month deadline in which to sign up for Medicare Part B, which expired in early 2008, he was relegated to Medicare's general enrollment period from Jan. 1 to March 31. And, when their Medicare benefits finally would be set to kick in next July, the Bregars would also be subject to a 10% late-enrollment penalty. "We were stunned," Mr. Bregar says.

With help from Rep. Schrader's office. Mr. Bregar submitted a request to Social Security asking for "equitable relief," a legal protection that allows for immediate enrollment in Medicare Part B without penalty.

He attached a letter documenting his earlier conversation with the Social Security representative who had misinformed him about Medicare's rules. A few weeks later, the Bregars received notice from Social Security that the agency was granting the couple's request for enrollment.

A Social Security spokeswoman says people requesting "equitable relief" should submit a letter explaining their case. Generally, Social Security looks for evidence that the person was misled by an agent of the federal government, she says.

Deals Few and Far Between
It took a strong stomach, and a lot of luck, to get commercial real-estate deals done in 2009.
By Maura Webber Sadovi  - Wall Street Journal
December 30, 2009

With lenders loath to extend credit and property values plummeting, transaction activity was scant. As of Monday, $48.8 billion of commercial-real-estate deals had closed, down from $150.8 billion in 2008 and $533.4 billion in 2007, according to Real Capital Analytics, a New York real-estate-research firm. Real Capital counted transactions valued at $5 million and above.

Here is a look back at a few of the more interesting transactions highlighted in past Deal of the Week columns.

• Sears Tower Name Game:
The iconic Chicago building formerly known as the Sears Tower served up an example of just how far the pendulum has swung in the tenant's favor. In March, Willis Group Holdings Ltd. announced that the name of North America's tallest building would be changed to the Willis Tower. The change was a condition of Willis signing a 15-year agreement to lease about 140,000 square feet of office space in the 3.8-million square-foot building.

Willis made its request early on in its negotiations with the tower's owners, which include American Landmark Properties Ltd. of Skokie, Ill., and New York investors Joseph Chetrit and Joseph Moinian of the Moinian Group. With Willis eager to increase its North American brand awareness, the insurer made the "had-to-have" name requirement clear as far back as the summer of 2008 when it first toured the tower, said Kent Ilhardt, executive vice president of Cushman & Wakefield of Illinois who represented Willis in the negotiations. Willis agreed to pay $14.50 a square foot annually, at the low end of typical rates in the building.

In a better economy, Mr. Ilhardt said the London insurer mightn't have had much of a shot at getting such a good deal. "The timing was good," Mr. Ilhardt said. "The market was down."

• A Not-So Big Easy Deal:
The $42.1 million sale of a largely empty office tower, mall and parking garage next to New Orleans's Superdome almost didn't happen. Hertz Investment Group of Santa Monica, Calif., acquired the former Dominion Tower, New Orleans Centre Mall and a parking structure in 2003 for $36 million. After the buildings were damaged by Hurricane Katrina, Hertz struggled to sell or fill them.

Last year, the state-appointed agency charged with running the Superdome let an option to buy the properties for $45 million lapse as it grappled with the deteriorating economy. It was the property's location near the Superdome that helped trump the financial crisis. Judah Hertz, chief executive of Hertz Investment Group, said he still is amazed the deal closed given the lack of buyers for office buildings nationwide. "It was a fluke," Mr. Hertz said.

A company wholly owned by the family of Tom Benson, owner of the National Football League's New Orleans Saints, purchased the complex in September and will lease most of the office building back to the state of Louisiana. The deal helped pave the way for Mr. Benson to sign the Saints to continue playing in the Superdome through 2025 and for New Orleans to host the Super Bowl in 2013.

• LA Buzz Off:
One of the most watched office-sale sagas in Los Angeles has fizzled out. Macquarie Office Trust, an Australian real-estate investment trust, took One California Plaza off the market last week, according to a person familiar with the property. The decision comes about one year after the 992,000-square-foot, glass-clad office building in the tony Bunker Hill neighborhood was put on the block.

The lukewarm response of bidders likely led in part to the decision. The 42-story building was in negotiations with at least one potential buyer for a price in the $220 million range.

Additionally, the difficulty that potential buyers have had nationwide cobbling together financing also likely was a factor, some brokers said. A Macquarie spokesman declined to comment on the status of the building. But the move also may signal the company's confidence in a recovery. In a briefing with unit holders this month, Macquarie executives seemed to suggest a change in its U.S. asset strategy. This year, Adrian Taylor, Macquarie's chief executive, said the company would sell some U.S. assets. In the more recent briefing, the company said it planned to invest in the U.S. portfolio as the markets start to recover rather than to sell assets at a low point in the cycle, according to a document posted on the company's Web site.

What Doctors and Patients Have to Lose Under ObamaCare
By Scott Gottlieb - Opinion - The Wall Street Journal
December 24, 2009

Democrats are touting the American Medical Association's endorsement of President Obama's health plan. But there's an important reason why the American College of Surgeons and 18 other specialty groups are opposed.

The plan's most tangible efforts to restrain medical costs are through its controls on specialist physicians. Based on the government's premise that they often make wasteful treatment decisions, the health-care legislation in Congress will subject doctors to a mix of financial penalties and regulations to constrain their use of the most costly clinical options. The penalties and regulations are aimed first and foremost at surgeons and the medical devices that they use, largely because that's where the bulk of spending is.

It all starts with the sweeping power that the Senate bill gives to the Centers for Medicare and Medicaid Services. The agency will be given the authority to unilaterally write new rules on when medical devices and drugs can be used, and how they should be priced. In particular, the Obama team wants to give the agency the power to decide when a cheaper medical option will suffice for a given problem and, in turn, when Medicare only has to pay for the least costly alternative.

The government has already sought to acquire this same power administratively. But on Tuesday the Obama Justice department got swatted down by the U.S. Court of Appeals for the D.C. Circuit, in what the judges described in their opinion as an attempt by Mr. Obama's legal team to "end-run around the statute [Medicare]."

Hays v. Sebelius involved a patient who said Medicare unfairly denied her a prescribed treatment for her serious lung disease. Medicare decided instead to pay for a different drug that bureaucrats argued was a suitable but cheaper alternative.

Now the Obama team will use murky provisions embedded in the Senate bill to subtly attain in law those powers they couldn't more artfully acquire in court. In fact, the bill lets Medicare seek almost any restrictive payment authority it wants from a Medicare Commission established for the purposes of cost control.

If Congress believes Medicare has overreached, it has to pass a separate law to explicitly block the agency's newly acquired powers. These provisions are deliberately designed to leverage Congress's inability to act in a timely fashion.

The Senate health-care bill also exempts Medicare's actions from judicial review, taking away the right of patients to sue the government. Unlike existing Medicare coverage laws, patients won't have the ability to appeal any of the decisions of this new Medicare Commission.

Ironically, private health insurers must comply with new patient appeals rights under the Senate bill. The government has exempted itself from the same sort of protections.

Thus Medicare will have the power to control which medical devices surgeons use. But clamping down on expensive procedures also means the agency will need to have authority over the specialists themselves. The organization of doctors into mostly small, disaggregated practices always made it hard for a central bureaucracy to control individual physicians. ObamaCare tries to fix this by putting doctors on the financial hook for their treatment decisions.

Primary-care doctors who refer patients to specialists will face financial penalties under the plan. Doctors will see 5% of their Medicare pay cut when their "aggregated" use of resources is "at or above the 90th percentile of national utilization," according to the chairman's mark of Section 3003 of the bill. Doctors will feel financial pressure to limit referrals to costly specialists like surgeons, since these penalties will put the referring physician on the hook for the cost of the referral and perhaps any resulting procedures.

Next, the plan creates financial incentives for doctors to consolidate their practices. The idea here is that Medicare can more easily apply its regulations to institutions that manage large groups of doctors than it can to individual physicians. So the Obama plan imposes new costs on doctors who remain solo, mostly by increasing their overhead requirements—such as requiring three years of medical records every time a doctor orders routine medical equipment like wheelchairs.

The plan also offers doctors financial carrots if they give up their small practices and consolidate into larger medical groups, or become salaried employees of large institutions such as hospitals or "staff model" medical plans like Kaiser Permanente. One provision, laid out in Section 3022, allows doctors to share with the government any savings to the government they achieve by delivering less care—but only if physicians are part of groups caring for more than 5,000 Medicare patients and "have in place a leadership and management structure, including with regard to clinical and administrative systems."

While these payment reforms are structured as pilot programs in the legislation, this distinction has little practical meaning. Medicare is being given broad authority, for the first time, to roll these demonstration programs out nationally without the need for a second authorization by Congress.

Regulation of medicine has always been a local endeavor, and it's mostly the province of medical journals and professional medical societies to set clinical standards. This is for good reason. Medical practice evolves more quickly than even the underlying technologies that doctors use. This is especially true in surgery, where advances flow from experimentation by good doctors to try different surgical approaches.

The regulation of medical devices and their pricing will also have consequences for patients by discouraging innovation. Most improvements in medical devices come incrementally, with each generation of a device having small but clinically relevant advance over prior versions. This owes to the underlying hardware, which turns on embedded software and microprocessors that themselves undergo constant upgrades.

But if Medicare starts pricing similar devices off one another—a form of the same "reference" pricing schemes used in Europe—manufacturers will start holding back the small changes. Instead, they will introduce new models every four or five years that are sufficiently unique to fall outside of Medicare's pricing scheme. Meanwhile, patients will have lost the benefit of regular improvements and annual upgrades that characterize medical devices today.

The impact of these provisions won't be confined to Medicare. Private insurance sold in the federally regulated "exchanges" will take cues from Medicare, since they're both managed from the same bureaucracy. Medicare will set the standard for medical care across the entire marketplace.

Mr. Obama promised that under his plan people wouldn't have to change their doctors. But it's clear that doctors will be forced to change how they make their medical decisions.

Dr. Gottlieb, an internist and a resident fellow at the American Enterprise Institute, is a former senior official at the Centers for Medicare and Medicaid Services. He is partner to a firm that invests in health-care companies.

John E. Jeuck, 1916-2009:
Retired University of Chicago business school fixture
By Jared S. Hopkins - Staff Reporter - Chicago Tribune
December 23, 2009

Something must have felt right to John E. Jeuck when he was born in the hospital at the University of Chicago because he returned to teach at the campus for nearly 40 years.

Dr. Jeuck, 93, a professor at the U. of C. business school who helped create an influential scholarship program after his retirement, died of congestive heart failure Friday, Dec. 18, in his Evanston home, said his friend Harry Davis.

By the time he retired in 1988, Dr. Jeuck had established a reputation as a devoted and creative mentor who changed the direction of the business school, now the Booth School of Business.

His 1950 book "Catalogues and Counters: A History of Sears, Roebuck & Co.," co-written with Boris Emmett, chronicled one of the nation's leading businesses at the time.

Former students said Dr. Jeuck stood apart because, in an era when instructors emphasized math, he instead chose to emphasize lessons of the gritty real world of business. A popular course with computers was designed to simulate situations students would see upon graduation: running companies, buying and selling products, and negotiating deals.

Philip J. Purcell, former chairman and CEO of Morgan Stanley, recalled when his team's company was leading a simulated business competition only to have Dr. Jeuck sink their ships and burn a factory, calling it an "act of God" and forcing the students to recover.

"He would just introduce uncertainty," said Purcell, whose family vacationed regularly with Dr. Jeuck. "It was a great lesson."

Dr. Jeuck attended De La Salle Institute and Parker Experimental School, then received his bachelor's, master's and doctorate degrees from the U. of C.

During World War II, he was a Navy officer aboard a destroyer in the Pacific.

He joined the U. of C. faculty in 1946 while completing his doctorate from the business school. Aside from three years teaching at Harvard Business School, he remained there until retiring.

As dean from 1952 to 1955, Dr. Jeuck reorganized the school's curriculum and led the way to establish a location downtown for part-time students in the business school. The downtown location eventually moved to the Gleacher Center off North Michigan Avenue and now is attended by more master's degree students than the Hyde Park campus.

Dr. Jeuck also eliminated a requirement for faculty members to turn over their consulting fees to the university, which was considered a major deterrent to faculty retention in the 1950s.

In 2003, with help from friends and former students, he formed the Distinguished Fellows Program, which provides five top MBA students with tuition, a stipend and an education program.

Bill Uhrig, a former student who became friends with Dr. Jeuck and was his guardian for the last 25 years, said his teacher valued friendships with his students. The classes, he said, were eye-openers.

"Most people taking these courses are very junior, and they aren't used to the rough and tumble world of hardball negotiating and people driving for the last penny -- essentially not getting what you want," said Uhrig, who now runs an investment firm. "You look back at that course and you think it was the best course you took."

Dr. Jeuck had no immediate survivors. A service will be held in the spring at the University of Chicago.

Day One: How Obamacare Will Alienate Americans
By Dick Morris & Eileen McGann - DickMorris.com
December 22, 2009

Obama's health care bill, the poisoned Kool-Aid making its way through the Senate, will not confer any of its supposed benefits on Americans until 2013. But they will find themselves chafing at its restrictions and paying its taxes immediately after the law takes effect. Then, they will see no gain, but plenty of pain, for the next three years.

This odd juxtaposition of "suffer now, benefit later" is the byproduct of the Administration's sleight of hand in specifying ten years worth of cuts and taxes in the legislation, but deferring its benefits for the first four years. By comparing six years of spending with ten years of taxing, it managed to appear deficit neutral under the rules of the Congressional Budget Office. In fact, the annual revenues fall far short of covering any single year's worth of spending, adding to the deficit for each of the last six years over the next ten, but, viewing the decade as a whole, it appears deficit neutral.

Yet the political price is hardly neutral. Democrats who misguidedly vote for this monstrosity will face immediate political repercussions.

The harshest of these backlashes will come from the elderly who will suddenly visit their doctors and be told "no" when they ask for therapies or treatments. The rationing of medical care will start immediately on enactment and, one hopes, the outraged phone calls will start to descend on those whose votes enabled it. The first "no" will hit the ten million elderly who now rely on Medicare Advantage to pay for the care Medicare itself does not cover. In a payoff to AARP, Obama gutted this program in his bill, ending over $100 billion in federal premium subsidies. These ten million voters will get the grim news that their premiums are going up and their benefits dropping early in 2010. The goal, of course, is to force them to drop Medicare Advantage and sign up, instead for Medigap insurance -- offered, not coincidentally, by the AARP -- which provides less coverage at higher cost.

Young people without health insurance can expect to start writing $750 annual checks to Washington to pay the fines written into the bill. (And, after the Conference Committee finishes its work, the fines may be higher).

All Americans will soon find their insurance premiums rising as a result of the bill. The young, uninsured will not buy policies. Why should they? Why not just pay the $750 fines each year? Why pay between 2% and 10% of their household income before subsidies kick in? It makes no financial sense for anyone making more than $30,000 to pay for coverage. (And most of those under that threshold will be covered by Medicaid, not by private insurance).

There is no reason for the young to buy private insurance. The legislation requires that health insurers take all comers and not raise rates based on pre-existing conditions. So the young can get coverage when they need it, having only paid $750 per year beforehand. The difference in cost will, of course, be borne by families throughout America who will see their health insurance premiums increase. President Obama and his Democratic rubber stamps may appreciate that they are not raising taxes on the middle class, just raising mandatory health insurance premiums, but the distinction is likely to be lost on swing voters.n From now on, any increase in health insurance premiums will become the political responsibility of the Obama Administration. As General Colin Powell once said of Iraq "You break it. You own it." Since these premiums have been rising by an average of 10% per year for more than the past decade, this is a legacy most politicians would sensibly avoid if they could.

Judge tosses 2004 lawsuit filed by Sears Shareholders
By Karen Gullo - Bloomberg News
December 22, 2009

Sears Holdings Corp., the largest U.S. department-store company, won dismissal of a 2004 shareholder lawsuit claiming the company and former CEO Alan Lacy misled investors by failing to disclose talks about Sears' sale to Kmart Corp.

U.S. District Judge Robert Gettleman in Chicago granted Sears' request to throw the case out in a ruling Friday.

He said merger talks began after the period shareholders claimed the company had a duty to disclose them and Sears didn't have to publicize the negotiations even after they became material Friday.

The lawsuit was filed in 2004 against Sears and Lacy, Sears' CEO until 2005, by Maurice Levie on behalf of other shareholders. Levie said he lost money because he sold Sears stock before a Nov. 17, 2004, announcement that Kmart would acquire Sears. Sears shares jumped 17% on the announcement.

Levie alleges statements by Sears and Lacy before the announcement were misleading because they failed to reveal the talks between Sears and Kmart.

Mark Miller, an attorney for shareholders with Wexler Wallace LLP in Chicago, didn't immediately return a message left on voicemail.

Chris Brathwaite, a Sears spokesman, had no immediate comment.

WLS a farm-targeted Sears spinoff
By Diana Dretske - Columnist - Daily Herald - Suburban Chicago
December 22, 2009

On April 19, 1924, WLS Radio in Chicago aired the first National Barn Dance program. It became one of the most popular and longest-running Country and Western radio programs next to the Grand Ole Opry.

To understand why a Chicago radio station would broadcast a country-themed program, you need to explore the origins of WLS radio with Sears, Roebuck and Company.

Sears was founded as a farmers catalog in 1888, and incorporated in Chicago in 1893. In the 1920s, the company did radio advertising and decided to create its own program to broadcast information to farmers.

The first official broadcast at its own Chicago studio was April 12, 1924, with the call letters WLS for World's Largest Store.

The 1925 Sears catalog stated: "WLS was conceived in your interests, is operated in your behalf and is dedicated to your service. It is your station."

While the focus was farm and civic programming, the station also aired popular music, comedies and radio serials.

The National Barn Dance was one of the station's first programs, but when it aired, Sears' management was appalled by the "disgraceful lowbrow music." The listening audience disagreed and sent telegrams telling WLS they wanted more.

The Barn Dance served rural farm audiences, and city dwellers who had come from rural communities. It also appealed to folks who wanted to hear songs from the "good old times."

The Barn Dance continued to grow in popularity, and a live studio audience was added, along with broadcasts being picked up by other stations coast to coast. Tickets were sold out for the live shows eight weeks in advance.

All of the performers were thought of as "family" by the listeners. Popular performers included Rex Allen, the "King of Cowboys" in 1950s films; Gene Autry, who began on WLS in 1930 as the Oklahoma Yodeling Cowboy; the Maple City Four from LaPorte, Ind., who specialized in barbershop harmony and clowning around; and Lulu Belle and Scotty, the Sweethearts of Country Music.

The Barn Dance theme was so successful that the radio program went on the road to date fairs. Local communities, including Antioch and Grayslake, also imitated the format as fundraisers, especially during the Great Depression.

By the 1950s, audience numbers began to dwindle, and in 1957 the National Barn Dance stopped its live performances. The program continued on WLS until the station was sold and switched formats to contemporary music. The Barn Dance found a home on WGN for several years before it went off the air.

Lawsuit against Sears dismissed
By Sandra M. Jones - Staff Reporter - Chicago Tribune
December 21, 2009

A federal court in Chicago dismissed a longstanding shareholder lawsuit against Sears Holdings Corp. that stemmed from Kmart Holding Corp.'s 2005 takeover of Sears Roebuck and Co.

The lawsuit, filed in 2004, alleged that Sears and its then-Chairman and CEO Alan Lacy along with Kmart's then-Chairman Edward Lampert and Lampert's hedge fund ESL Partners LP misled investors because they didn't disclose talks between the two retail chains.

Sears and Kmart began to explore a possible deal in February 2004, one in which Sears would buy Kmart, according to court documents. By October 2004, Lampert broached the subject of Kmart acquiring Sears during a meeting with Lacy at Lampert's house, the court filing said. In the end, a deal for Kmart to buy Sears was announced Nov. 17, sending Sears stock up 17 percent that day.

A shareholder group, led by Maurice Levie and H. Robert Monsky, allege the two retailers had a duty to disclose the discussions, noting the shareholders who lost money because they sold Sears stock before the announcement. U.S. District Judge Robert Gettleman threw out the case in a ruling Friday, saying in essence that the retailers had no such obligation to make the talks public.

Officials at Hoffman Estates-based Sears declined to comment. Shareholder attorney Mark Miller at Chicago-based Wexler Wallace LLP couldn't be reached for comment.

As Stores Sputter, Sales Sizzle Online
By Geoffrey A. Fowler - Wall Street Journal
December 21, 2009

Dec. 15 Sets Record for Web-Site Revenue;
Sears, Macy's, Other Big Retailers Lure Internet Shoppers

A holiday season of Web price wars and aggressive online promotions by store-based retailers is leaving e-commerce a larger force in American retail.

While sales conducted at brick-and mortar stores are about flat this season compared with 2008, online retailing grew 4% from the beginning of November through Dec. 18 to $24.8 billion, according to Web tracking company comScore Inc. Online sales on Dec. 15 totaled $913 million, marking a one-day record for the industry.

Most online holiday sales began winding down Friday with the expiration of deadlines to receive free shipping. But Web analytics company Coremetrics Inc. reported that sales Friday and Saturday broke expectations to increase 24% compared to the Friday and Saturday before Christmas last year, as snowstorms in the eastern U.S. prompted some consumers to do last-minute shopping online. EBay is taking a "mobile boutique" of its top-selling products around the U.S. over the holidays, as part of an effort to win shoppers back to the online marketplace. WSJ's Geoffrey Fowler reports. While e-commerce accounted for 6% of all U.S. retail sales excluding cars, travel and prescription drugs in 2008, it could end the holiday season this year representing about 7%, said Sucharita Mulpuru, an analyst at Forrester Research.

 "Price and convenience are probably the biggest factors—you can often save money shopping online," she said. Online sales just over the holidays likely will reach 10% of all retail, she added. The lion's share of the online growth went to larger retailers that were in a better position to offer deep discounts and lures such as free shipping. Out of the top 500 retail sites, the percentage of visits to the top 20 such sites rose 9% over the past five weeks, versus the same period last year, according to Experian PLC's Hitwise Web-tracking service. The percentage of visits to the rest—including sites such as Petco.com and Hallmark.com—fell 9%.

Amazon.com Inc. appeared to be the biggest winner, at least in terms of site traffic. Its share of traffic among the top 500 retailers rose nearly 31% to more than 16% in the week ended Dec. 12. That's more than double its nearest competitor, Wal-Mart Stores Inc., which launched aggressive price wars with Amazon on books, video games and other products. Amazon, which declined to divulge sales statistics, has said only that December marked the best month ever for sales of its Kindle e-reader.

 Sears.com, owned by Sears Holdings Corp., leapt from No. 6 last year to No. 4 this year on Hitwise's traffic rankings, thanks to an 11% pickup in share during the week ended Dec. 12. Sears has been promoting a service that lets online shoppers pick up their purchases in its stores and created an online community called MySears.

 "Everybody raised their game," said Fiona Dias, executive vice president for marketing and strategy at GSI Commerce Inc., which runs about 100 retail Web sites. "People are going to have to be much more creative in a world where the big guys are consolidating."

To compete with the mega-sales from the largest retailers, this year GSI encouraged about 30 online merchants to band together and email each others' best customers for a "world's greatest friends and family event" last Sunday and Monday.

Yet some of the sales growth came at the expense of profit. MyBuys Inc., which tracks sales by individuals at dozens of client sites to provide product recommendations, said that for the month of December through the 17th, the average discount on promoted items rose 5.6% to total 26.4%, compared to last year.

Large retailers got the biggest boost from discounting, with sales from such promotions leaping 213% among the top quarter of retailers by size that MyBuys tracks. Some smaller online retailers say they are having a harder time standing out. Vanessa Barcus, the owner of the designer-clothes site Shopgoldyn.com, said she can't compete with the holiday marketing budgets of large sites and has tried to rein in discounting as the economy picks back up. "No one wins—big or small—when we all cut down our margins so much," Ms. Barcus said. Still, her holiday sales so far are up 37% compared to last year's, and selling online has become more important than sales in her Denver showroom.

EBay Inc.'s giant online marketplace, where traffic has slumped in recent years, lost shoppers every week since the end of November compared to the same period of last year, according to Compete Inc. EBay, which has cut back on coupons this year to instead focus on a multimedia marketing campaign and cross-country mobile shopping display, declined to comment.

But some of the largest merchants on eBay.com reported a pickup, especially last week. ChannelAdvisor Corp., which helps brands sell on a variety of online destinations, said its comparable-store sales on eBay were up 4% from Dec. 1 to Dec. 15. Including merchants that were new to eBay this year, sales were up 20% year over year, the company said.

 Yet comparable-store sales among ChannelAdvisor clients on Amazon's marketplace were up 74%. "Clearly, Amazon continues to do very very well and is taking share from everyone in the ecommerce world," said ChannelAdvisor's chief executive, Scot Wingo.

Change Nobody Believes In
A bill so reckless that it has to be rammed through on a partisan vote on Christmas eve.
The Wall Street Journal - Review & Outlook
December 21, 2009

And tidings of comfort and joy from Harry Reid too. The Senate Majority Leader has decided that the last few days before Christmas are the opportune moment for a narrow majority of Democrats to stuff ObamaCare through the Senate to meet an arbitrary White House deadline. Barring some extraordinary reversal, it now seems as if they have the 60 votes they need to jump off this cliff, with one-seventh of the economy in tow.

Mr. Obama promised a new era of transparent good government, yet on Saturday morning Mr. Reid threw out the 2,100-page bill that the world's greatest deliberative body spent just 17 days debating and replaced it with a new "manager's amendment" that was stapled together in covert partisan negotiations. Democrats are barely even bothering to pretend to care what's in it, not that any Senator had the chance to digest it in the 38 hours before the first cloture vote at 1 a.m. this morning. After procedural motions that allow for no amendments, the final vote could come at 9 p.m. on December 24.

Even in World War I there was a Christmas truce.

The rushed, secretive way that a bill this destructive and unpopular is being forced on the country shows that "reform" has devolved into the raw exercise of political power for the single purpose of permanently expanding the American entitlement state. An increasing roll of leaders in health care and business are looking on aghast at a bill that is so large and convoluted that no one can truly understand it, as Finance Chairman Max Baucus admitted on the floor last week. The only goal is to ram it into law while the political window is still open, and clean up the mess later.

• Health costs. From the outset, the White House's core claim was that reform would reduce health costs for individuals and businesses, and they're sticking to that story. "Anyone who says otherwise simply hasn't read the bills," Mr. Obama said over the weekend. This is so utterly disingenuous that we doubt the President really believes it.

The best and most rigorous cost analysis was recently released by the insurer WellPoint, which mined its actuarial data in various regional markets to model the Senate bill. WellPoint found that a healthy 25-year-old in Milwaukee buying coverage on the individual market will see his costs rise by 178%. A small business based in Richmond with eight employees in average health will see a 23% increase. Insurance costs for a 40-year-old family with two kids living in Indianapolis will pay 106% more. And on and on.

These increases are solely the result of ObamaCare—above and far beyond the status quo—because its strict restrictions on underwriting and risk-pooling would distort insurance markets. All but a handful of states have rejected regulations like "community rating" because they encourage younger and healthier buyers to wait until they need expensive care, increasing costs for everyone. Benefits and pricing will now be determined by politics.

As for the White House's line about cutting costs by eliminating supposed "waste," even Victor Fuchs, an eminent economist generally supportive of ObamaCare, warned last week that these political theories are overly simplistic. "The oft-heard promise 'we will find out what works and what does not' scarcely does justice to the complexity of medical practice," the Stanford professor wrote.

• Steep declines in choice and quality. This is all of a piece with the hubris of an Administration that thinks it can substitute government planning for market forces in determining where the $33 trillion the U.S. will spend on medicine over the next decade should go.

This centralized system means above all fewer choices; what works for the political class must work for everyone. With formerly private insurers converted into public utilities, for instance, they'll inevitably be banned from selling products like health savings accounts that encourage more cost-conscious decisions.

Unnoticed by the press corps, the Congressional Budget Office argued recently that the Senate bill would so "substantially reduce flexibility in terms of the types, prices, and number of private sellers of health insurance" that companies like WellPoint might need to "be considered part of the federal budget."

With so large a chunk of the economy and medical practice itself in Washington's hands, quality will decline. Ultimately, "our capacity to innovate and develop new therapies would suffer most of all," as Harvard Medical School Dean Jeffrey Flier recently wrote in our pages. Take the $2 billion annual tax—rising to $3 billion in 2018—that will be leveled against medical device makers, among the most innovative U.S. industries. Democrats believe that more advanced health technologies like MRI machines and drug-coated stents are driving costs too high, though patients and their physicians might disagree.

"The Senate isn't hearing those of us who are closest to the patient and work in the system every day," Brent Eastman, the chairman of the American College of Surgeons, said in a statement for his organization and 18 other speciality societies opposing ObamaCare. For no other reason than ideological animus, doctor-owned hospitals will face harsh new limits on their growth and who they're allowed to treat. Physician Hospitals of America says that ObamaCare will "destroy over 200 of America's best and safest hospitals."

• Blowing up the federal fisc. Even though Medicare's unfunded liabilities are already about 2.6 times larger than the entire U.S. economy in 2008, Democrats are crowing that ObamaCare will cost "only" $871 billion over the next decade while fantastically reducing the deficit by $132 billion, according to CBO.

Yet some 98% of the total cost comes after 2014—remind us why there must absolutely be a vote this week—and most of the taxes start in 2010. That includes the payroll tax increase for individuals earning more than $200,000 that rose to 0.9 from 0.5 percentage points in Mr. Reid's final machinations. Job creation, here we come.

Other deceptions include a new entitlement for long-term care that starts collecting premiums tomorrow but doesn't start paying benefits until late in the decade. But the worst is not accounting for a formula that automatically slashes Medicare payments to doctors by 21.5% next year and deeper after that. Everyone knows the payment cuts won't happen but they remain in the bill to make the cost look lower. The American Medical Association's priority was eliminating this "sustainable growth rate" but all they got in return for their year of ObamaCare cheerleading was a two-month patch snuck into the defense bill that passed over the weekend.

The truth is that no one really knows how much ObamaCare will cost because its assumptions on paper are so unrealistic. To hide the cost increases created by other parts of the bill and transfer them onto the federal balance sheet, the Senate sets up government-run "exchanges" that will subsidize insurance for those earning up to 400% of the poverty level, or $96,000 for a family of four in 2016. Supposedly they would only be offered to those whose employers don't provide insurance or work for small businesses.

As Eugene Steuerle of the left-leaning Urban Institute points out, this system would treat two workers with the same total compensation—whatever the mix of cash wages and benefits—very differently. Under the Senate bill, someone who earned $42,000 would get $5,749 from the current tax exclusion for employer-sponsored coverage but $12,750 in the exchange. A worker making $60,000 would get $8,310 in the exchanges but only $3,758 in the current system.

For this reason Mr. Steuerle concludes that the Senate bill is not just a new health system but also "a new welfare and tax system" that will warp the labor market. Given the incentives of these two-tier subsidies, employers with large numbers of lower-wage workers like Wal-Mart may well convert them into "contractors" or do more outsourcing. As more and more people flood into "free" health care, taxpayer costs will explode.

• Political intimidation. The experts who have pointed out such complications have been ignored or dismissed as "ideologues" by the White House. Those parts of the health-care industry that couldn't be bribed outright, like Big Pharma, were coerced into acceding to this agenda. The White House was able to, er, persuade the likes of the AMA and the hospital lobbies because the federal government will control 55% of total U.S. health spending under ObamaCare, according to the Administration's own Medicare actuaries.

Others got hush money, namely Nebraska's Ben Nelson. Even liberal Governors have been howling for months about ObamaCare's unfunded spending mandates: Other budget priorities like education will be crowded out when about 21% of the U.S. population is on Medicaid, the joint state-federal program intended for the poor. Nebraska Governor Dave Heineman calculates that ObamaCare will result in $2.5 billion in new costs for his state that "will be passed on to citizens through direct or indirect taxes and fees," as he put it in a letter to his state's junior Senator.

So in addition to abortion restrictions, Mr. Nelson won the concession that Congress will pay for 100% of Nebraska Medicaid expansions into perpetuity. His capitulation ought to cost him his political career, but more to the point, what about the other states that don't have a Senator who's the 60th vote for ObamaCare?

"After a nearly century-long struggle we are on the cusp of making health-care reform a reality in the United States of America," Mr. Obama said on Saturday. He's forced to claim the mandate of "history" because he can't claim the mandate of voters. Some 51% of the public is now opposed, according to National Journal's composite of all health polling. The more people know about ObamaCare, the more unpopular it becomes.

The tragedy is that Mr. Obama inherited a consensus that the health-care status quo needs serious reform, and a popular President might have crafted a durable compromise that blended the best ideas from both parties. A more honest and more thoughtful approach might have even done some good. But as Mr. Obama suggested, the Democratic old guard sees this plan as the culmination of 20th-century liberalism.

So instead we have this vast expansion of federal control. Never in our memory has so unpopular a bill been on the verge of passing Congress, never has social and economic legislation of this magnitude been forced through on a purely partisan vote, and never has a party exhibited more sheer political willfulness that is reckless even for Washington or had more warning about the consequences of its actions.

These 60 Democrats are creating a future of epic increases in spending, taxes and command-and-control regulation, in which bureaucracy trumps innovation and transfer payments are more important than private investment and individual decisions. In short, the Obama Democrats have chosen change nobody believes in—outside of themselves—and when it passes America will be paying for it for decades to come.

A Sampling of Policies on Accepting Returns
New York Times
December 19, 2009

What follows is a sampling of retailers’ return policies. Some retailers make it easier than others.

L.L. Bean No time limit on returns. Receipts aren’t required but they’re encouraged. Customers can choose to receive a refund in their original form of payment, make an exchange or receive store credit. Merchandise purchased online or through the catalog can be returned to any of its retail stores or outlets.

LANDS’ END No time limit on returns. Customers can receive a refund in their original form of payment if they have a receipt; otherwise, they receive a store credit. Merchandise can be returned at Sears, even if the product wasn’t purchased there. No time limits or fees on gift cards, and they do not decline in value over time.

J. CREW Allows 60 days for refunds with an original receipt; refunds will be made in original form of payment (you need a government-issued ID to get cash back with a receipt). If you don’t have a receipt, you’ll also need ID, and can make an exchange or receive merchandise credit based on the current selling price. Gift receipts are good for merchandise credit or exchanges. After 60 days, you can still make an exchange or receive a credit for the price at the time of sale if you have the original receipt, or for the current selling price if you don’t have the original receipt. Merchandise purchased online can be returned to stores.

GAP, BANANA REPUBLIC, OLD NAVY Banana Republic and Gap shoppers have 30 days to return goods. But Banana shoppers who purchased items from Oct. 30 through Dec. 15 can make returns through Jan. 15. At the Gap, items bought Nov. 2 through Dec. 31 can be returned through Jan. 31. All online purchases can be returned at any of the stores within 45 days of your order date. (That goes for their online-only store Piperlime as well, though its Athleta brand allows returns with no restrictions). Old Navy shoppers have 90 days to return merchandise all year round. Gift receipts will get a store credit. (At Banana, you can get a gift card that can be used at any of Gap’s properties, online or off.) Refunds in the original form of payment are available at all stores with original receipt.

BEST BUY Purchases made from Nov. 1 through Dec. 24 can be returned through Jan. 31, except for certain electronics. Returns of computers, monitors, projectors, camcorders, digital cameras and radar detectors are allowed for 14 days (if purchased online, 14 days from date you received products), and a 15 percent restocking fee applies if the products were opened. All other products can be returned within 30 days. Refunds will generally be in the same form as the original purchase, but checks will be mailed within 10 days of a return on items worth more than $250 and paid for with cash, debit cards or a check. Some products, like opened computer software, are not refundable but can be exchanged for an identical item. A restocking fee of 25 percent is applied to special orders like appliances, and 10 percent on Apple iPhones. All online purchases can be returned to stores. Gift receipts can be used for exchanges and merchandise credit.

Nice Gift, but Ask if You Can Return It
By Tara Siegel Bernard - New York Times
December 19, 2009

So you think you’ve picked out the perfect gift for your loved one. But there’s one more thing you should consider: how hard will it be to return it?

Before you take out your credit card, take the time to closely read the fine print of the store’s return policy, or ask about it, because there is a huge gulf between the most generous and the most restrictive. And do not assume that the stores you shopped in last year have the same return policies this season. About 17 percent of retailers have tightened their holiday policies this year, according to the National Retail Federation.

Many of the retailers that have changed their rules have good reason: the industry will lose an estimated $2.7 billion during the holidays because of return fraud and about $9.6 billion for the year, according to the federation, a retail trade group. Scam artists produce fake receipts, or they take advantage of stores with lenient policies, steal large quantities of merchandise and then return them without a receipt.

“Generally speaking, a store can set up any return policy it wants,” said Edgar Dworsky, a consumer lawyer and founder of ConsumerWorld.org, a consumer resource guide. But the policy does have to be clearly disclosed.

There are a handful of stores whose liberal return policies are renowned, Nordstrom and Lands’ End among them. Lands’ End likes to point to the old-fashioned London taxi featured on its 1984 catalog cover, which it sold for $19,000 that year. More than two decades later, the customer asked for a refund, and Lands’ End returned the whole $19,000. The black cab lives in Lands’ End’s warehouse today, as a testament to its lenient policy.

At the opposite end of the spectrum are electronics retailers that allow only a couple of weeks to return items like computers and may charge a 15 percent restocking fee. Equally frustrating are companies whose brick-and-mortar stores refuse to make exchanges for merchandise bought online.

Plenty of retailers, however, try to make life easier during the holidays and loosen their rules. Many stores, for instance, will allow items purchased in November and December to be returned through January. But policies can vary widely, even among retailers within the same retailing empire, like Gap. The following tips will help you navigate the various rules of return, both online and off.

DON’T ASSUME If you purchased something online, it does not necessarily mean you can return it to the retailer’s physical location. Many big stores, like J. Crew, will take back anything purchased online, but others, including Sports Authority, American Apparel and Home Depot, will not (but come February, Home Depot will reverse its policy). So you, or the person you gave a gift to, will have to make a trip to the post office and pay for return shipping (though some online-only retailers like Zappos and Piperlime offer free shipping both ways).

DO YOUR HOMEWORK Whether you’re shopping online or in a store, be sure to check the various return policies on the retailer’s Web site or at the cash register. Online store policies may differ, though some retailers provide a little more wiggle room for online purchases — 45 days for online returns versus 30 days for store-bought merchandise. Retailers may also have different return policies for different types of merchandise. Most stores continue to “slice and dice their return policies, creating complicated rules for different categories of items,” Mr. Dworsky said, noting that Amazon.com has about 30 product categories with varying policies. “Electronic items are typically subject to stricter rules than, say, clothing.”

Computers, digital cameras and opened goods may be subject to limited return rights, restocking fees, shortened return periods or no refunds at all, Mr. Dworsky said. These policies were put into place, at least in part, to discourage buyers from “renting” goods for the weekend, and to help retailers thwart fraud, he added. Fancy dresses cannot be rented either. Macy’s, for instance, affixes a special tag to some formal dresses; returns must be unworn, with original tags in place.

Other companies’ policies are so lenient that no formal policy exists. “We evaluate each situation on a case-by-case basis, with the ultimate objective of taking care of the customer,” said Colin Johnson, a Nordstrom spokesman. Nordstrom does not impose time limits on returns, he said, and receipts and original tags are helpful, but not necessary.

KNOW THE RESTRICTIONS It’s often impossible to get cash back, especially if you’re returning a gift. Many retailers will provide refunds only to the person who originally made the purchase, while gift recipients — even if you have a gift receipt — can only make exchanges for merchandise, or receive a store credit or gift card.

If you’re the original purchaser, you’re typically entitled to the tender you originally paid with. But you will need the original receipt, and the credit or debit card used to make the purchase. If you paid cash, you may also need a driver’s license to get your money back at some retailers.

Other companies are more lenient. Target will give customers refunds in their original form of payment for up to 90 days with an original receipt (or will issue a Target gift card for consumers who have a gift receipt). If you do not have the receipt, you can still return up to $70 worth of goods every 12 months without one. If you exceed that amount, you can still make exchanges for items in the same department.

And some stores simply never issue refunds. American Apparel and Brooklyn Industries provide refunds only if the merchandise is defective (though both retailers will provide refunds for items purchased online).

CHECK YOUR CARD’S POLICY Several credit cards offer little-known but highly useful benefits that allow you to secure a refund when a retailer will not grant one, as long as you made the purchase with that card. Some MasterCard and Visa cardholders can receive refunds for up to $250 per item — there is a $1,000 annual limit — within 60 or 90 days of purchase. American Express, meanwhile, will cover up to $300 per item, excluding shipping and handling, for 90 days, up to $1,000 per account each year. And the Chase Sapphire cards covers up to $500 per item, for a maximum of $1,000 annually. There are some restrictions, of course. You cannot exchange animals, for instance, unless they are of the Zhu Zhu variety. Call the number on the back of your card to see what exactly your card covers.

KEEP RECEIPTS This is obvious. Get a folder, toss all your receipts inside and keep them, even long after you’ve handed out your holiday gifts. If you or the gift recipient end up dissatisfied with an item and the retailer refuses to take it back, you may need the receipt to apply for a refund from your credit card company.

Before you go that route, always ask to speak with a store manager, whether you’re at the store or on the retailer’s customer service phone line. “If a satisfactory resolution is not obtained, then a complaint can be filed with the state attorney general’s office or local consumer agency,” Mr. Dworsky said.

Stop Juggling Your Retirement Investments
By Dan Caplinger - Motley Fooll.com
December 16, 2009

4 Stocks Enjoying Their Last Christmas?
By Rich Duprey - The Motley Fool
December 15, 2009

To celebrate the holidays, we here at the Fool are devoting extra virtual ink to all things consumer-focused in a special section called "The 12 Days of Christmas." Over the coming week, we'll have our "12 Days of Content" surrounding consumer-focused names that look set to profit or perish from the holiday cheer.

Some stocks are like roasted chestnuts bought on a snowy streetcorner at Christmastime: You want to get 'em while they're hot.

Over the next decade, toymaker Hasbro will be one of those companies, transforming its portfolio of games and action-figure heroes into movies, TV shows, and other entertainment opportunities. The Motley Fool Stock Advisor recommendation is potentially a huge, multimedia powerhouse.

Others companies, not so much. We'll be lucky if they're still hanging around by next Christmas.

A lump of coal Even with the tight economy, discount retailer Sears Holdings (Nasdaq: SHLD) couldn't maintain a grip on cash-strapped customers, who fled in droves to Wal-Mart Stores (NYSE: WMT) and Target.

Chairman Eddie Lampert favored the financial sleight of hand commonly used at hedge funds to generate cash instead of investing in his stores. Total return swaps, share buybacks at astronomical prices, and Lampert's apparent disdain for remodeling the retailer's aging buildings led many to conclude that he was more interested in the land they sat on than salvaging the company's portfolio of still-iconic brands.

The once-venerable retailer has paid the price of neglect, achieving not one single quarter of positive same-store sales since the combined company emerged from bankruptcy. Unfortunately, investors have bought into the argument that Sears' land will ultimately unlock shareholder value, but a weakening commercial real estate market doesn't bode well for that scenario. As customers continue to avoid its stores, a less robust cash hoard will leave Sears with less room to maneuver.

Enough to make you cry The news parody site The Onion once ran an imaginative interview with RadioShack (NYSE: RSH) CEO Julian Day: "There must be some sort of business model that enables this company to make money, but I'll be damned if I know what it is. You wouldn't think that people still buy enough strobe lights and extension cords to support an entire nationwide chain, but I guess they must, or I wouldn't have this desk to sit behind all day."

Satire, yes, but it also hits pretty close to home. Unless you're looking for some obscure doodad, many people just go to Best Buy (NYSE: BBY) or another big-box electronics store to buy their laptops, large-screen TVs, and other gizmos, rather than the Shack.

Although sales have been on a multiyear downtrend, the company has still managed to earn $192 million in the last four quarters.

However, not even rebranding the company as "The Shack" can offset its own dwindling consumer base. Last quarter, RadioShack was reduced to blaming lower sales of batteries and GPS devices, among other reasons, for its failure to report revenue growth. Coupled with a reliance on stand-alone GPS devices that have themselves been gutted by wireless telecoms incorporating the technology into their phones, the Shack's business model seems even less relevant to today's electronics customer.

A busted business Blockbuster (NYSE: BBI) must also realize that the shelf life of its bricks-and-mortar movie-rental model is reaching the end. While Netflix continues to thrive with its mail-delivery model, and Redbox is a kiosk movie star, Blockbuster grasps at whatever seems currently hot. Total Access -- a supposedly seamless store, mail, and online rental-and-return solution -- was never able to save the chain, and we don't hear much about it anymore. Blockbuster's alleged new saving grace is its own line of branded kiosks, which are now being rolled out. But this seems more an act of desperation than a carefully scripted plot for success.

Blockbuster has become a horrorshow of its own, with a growing debt profile and plummeting sales, making its next starring role likely similar to Circuit City's final performance.

Burn this book Investors will be able to also turn the page on Borders Group (NYSE: BGP), which has lost millions of readers to Amazon.com (Nasdaq: AMZN) and will likely lose millions more as e-books becomes even more popular. It's hard to ignore that one of the most popular iPhone apps is the Barnes & Noble eReader application. While e-readers such as the Kindle and Nook are unlikely to replace a physical book anytime soon, Borders has shown itself incapable of competing effectively in either form.

Wal-Mart, Target, and Amazon are all vying for a larger share of the reading public's dollar by cutting prices on best-sellers to $10. With the company's margins already under pressure, it will have a harder time matching those discounts, which could make this Borders' final chapter.

A wreath of mourning There's no Christmas cheer in pointing out the companies that face chilly prospects in 2010, but these retailers all look like ghosts of Yuletides past. A weakened economy means that some of them -- maybe all of them -- won't be around to welcome in the New Year in 2011.

Do you agree that Sears won't be hoisting a warm cup of wassail next year? Is Blockbuster a burnt-out bulb? Are Radio Shack and Borders ready to be tossed onto the Yule log? Then go caroling in the comments section below, and let us know which company you think is enjoying its last Christmas.

The 'Cost Control' Bill of Goods
How Peter Orszag and the White House
sold a health-care illusion.
Review & Outlook - The Wall Street Journal
December 14, 2009

ObamaCare's core promise—better quality care for everyone at lower costs—is being exposed as an illusion as it degenerates into the raw exercise of political power. Naturally, the White House and its media booster club are working furiously to prop up this fiasco, especially on cost control.

As Obama budget director Peter Orszag put it at a revealing media breakfast earlier this month, the Senate bill does everything the experts recommend to "get at the underlying drivers of health-care costs." While he admitted that "we don't know enough" to produce results right away, the key is to encourage "continuous improvement" through pilot programs and demonstration projects. Cost containment will actually take "years to decades," Mr. Orszag conceded.

The torch was then passed to Ron Brownstein of the Atlantic Monthly, David Leonhardt of the New York Times and editorial writers for the New England Journal of Medicine, among others. Last week the New Yorker ran a 5,000-word apologia from Atul Gawande, who likewise owned up to the fact that there is "no master plan for dealing with the problem of soaring medical costs," only "a battery of small scale experiments." Keep in mind, this is an argument in favor of ObamaCare.

They might have piped up earlier: What they're finally admitting is that all the grandiose talk about "bending the curve" used for months to sell ObamaCare really comes down to their hope that bureaucratic improvisation will make a difference over the long term. Yet the liabilities of the greatest social spending program in American history will be added to the budget almost immediately, and what happens if Mr. Orszag's technocratic revolution doesn't work as promised? Or rather, when it doesn't?

Forgotten in ObamaCare's march-to-the-sea campaign is that during the transition and early on, the White House was divided on whether to pursue health reform at all. Opponents included Larry Summers, worried about the economy and deficits, and David Axelrod, worried about the politics. Another faction led by Tom Daschle preached from the conventional social-equity church of liberalism.

Mr. Orszag proposed another option, citing academic research observing that as much as 30% of health spending is "waste" that doesn't affect outcomes. He argued the country could save $700 billion a year without harming quality—more than enough to pay for universal coverage.

Thus cost control migrated from Orszag theory to free political lunch. Mr. Gawande wrote an influential New Yorker essay on the topic in June, and the theme shaped both the case for a new entitlement and especially the appeal to potential opponents in business.

But then Congressional Budget Office director Douglas Elmendorf testified in July that "the curve is being raised," given that ObamaCare lacks "the sort of fundamental changes" necessary to tamp down costs. Meanwhile, it became clear that Mr. Orszag's favored research was always more nuanced and qualified than his pose of papal infallibility. One of his main gurus, Jonathan Skinner, mused recently that "the key lesson" from a new study challenging some of his findings "is how little we know about the science of health-care delivery."

Well, sure. A field as dynamic and innovative as U.S. medicine, in which costs are largely driven by new technologies and better ways of caring for patients, is rife with complexities and uncertainties. But no one bothered to strike that note of caution when Washington was hopped up on a cost-control gambit that was too painless to be true.

The new cost-control apologists concede that there isn't any actual plan for controlling costs: Throw enough speculative policies against the wall, they say, and some breakthrough will stick. Yet Mr. Orszag's no-less-confident predecessors spent decades trying to pull down Medicare spending with little to no success. Technocracy rarely if ever works as intended. Mr. Gawande points to the case study of U.S. farm policy, and if politically sacrosanct agriculture subsidies and rural price-supports are the best to hope for, then what's the worst?

More relevant examples include Medicare's "relative value" payment scale, which was designed in 1985 by the Harvard economist William Hsiao to encourage more primary care. That's this year's rallying cry too. "Diagnosis-related groups" were introduced into Medicare in 1983 to alleviate hospital cost growth, and what a monumental success that turned out to be. With only brief periods of relatively slower growth, nominal Medicare spending has risen on average at an annual rate of 9.6% since 1980. Over the same period total Medicare spending has grown 13-fold, climbing from 1.2% of the economy to 3.2% today.

Congress lacks the stomach for serious cost control in any case. One policy Mr. Orszag favors—Medicare penalties for hospitals that re-admit certain patients—is limited to only three conditions in the Senate bill, and the penalties are trivial.

Another—a putatively independent commission that is supposed to enforce cost cutting—is barred from going after costs incurred by doctors and hospitals, which leaves out more than half of Medicare spending. Earlier this year Mr. Orszag got into a heated debate with Henry Waxman over such a commission at a dinner party hosted by Connecticut Rep. Rosa DeLauro, precisely because the House baron enjoys the political power that flows from controlling health spending.

Even if Mr. Orszag's Princeton and Yale Ph.D.s really do cook up some hope-and-a-prayer savings plan, it will invariably offend one constituency or another and Congress will block it. Thereupon the political class will do what it always does when costs run over: Tighten price controls across the board, before moving on to denying patient access to costly treatments that will be defined as "wasteful." That is, ration care.

"Basically everything that has been put forward in health policy discussions for a decade is in this bill," Mr. Orszag said on a conference call shortly before Thanksgiving. He then asked critics pointedly: "What specifically else would you do?"

Hmmm. One liberal sage noted in a 2007 paper that "four decades of empirical research" have shown that insulating people through third-party insurance coverage "from the full cost of health care has been responsible for anywhere from 10% to 50% of the large increase in health expenditures." Ultimately, he concluded, increasing cost-sharing would give individuals a direct stake in more prudent purchasing, as opposed to today's invisible health dollars that vanish as more expensive premiums, foregone wages and higher taxes.

Those are the words of Jason Furman, now the White House deputy economic director who seems to have been put into witness protection. Every serious health economist in the country recommends reforming the tax exclusion for employer-sponsored insurance, perhaps by converting it to a deduction or credit. Cost control will never stick unless it is extricated from politics and transferred to individuals to make their own trade-offs.

Such reforms were ruled out by union opposition, so the Senate gestures at them with a 40% excise tax on high-cost insurance plans, on the theory that two wrongs will make a right. But this untargeted tax will simply raise the cost of coverage for all workers in a given pool—it's too clever by 40%—while doing nothing to stem the distortions from first-dollar, third-party insurance.

No doubt there are efficiencies to be had in health care, and maybe Mr. Orszag has even identified some of them. But all of his bright ideas could be taken for a whirl without adding trillions of new liabilities to the federal balance sheet. And the bad faith of the White House and its acolytes is breathtaking.

The White House hawked a permanent entitlement expansion on flimsy and speculative theories that its own partisans now admit—albeit when it is nearly too late—aren't more substantive than the triumph of hope over experience, while simultaneously writing off the one policy that has been effective in the real world. The cost control mantra of ObamaCare was always a political bill of goods, and its result will be the opposite of its claims: poorer quality care at higher costs.

1 Retail Winner We Can All Agree On
By Rich Smith - The Motley Fool
December 14, 2009

In spring, Lord Tennyson tells us, a "young man's fancy lightly turns to thoughts of love." Presumably, the poet knew whereof he wrote. But one thing I'm sure of: When winter rolls around, Fools of all ages turn to thoughts of retail stocks.

Black Friday sales figures. Cyber Monday. 20 lbs. of Christmas circulars arriving with every Sunday paper. For us, 'tis the season to start picking winners and losers in the retail sphere.

Here at the Fool, we aim to steer you right in this paperchase, to help you find the winners and avoid the losers. So in this first installment of our "12 Days of Christmas" saga, I want to make sure you get off to the best possible start -- with the absolute best retail idea out there: Amazon.com (Nasdaq: AMZN).

Forget the rest ... How do I know that Amazon's "the best" retail stock in the world? Well, there was Goldman Sachs' (NYSE: GS) say-so last month of course. But really, that only confirmed my own thinking about Amazon. Every investor takes his own approach to stockpicking, you see. In picking Amazon today, I follow the advice of another famous Briton: "When you have eliminated the impossible, whatever remains, however improbable, must be the truth."

When I surveyed the retail field recently, it began to dawn on me that there's something ... different ... about Amazon. Something that sets it apart from the multiple other investments available to us in this field:

Wal-Mart Stores (NYSE: WMT) The undisputed king of efficient bricks-and-mortar retailing, it's hard to argue with Walmart's success as a business -- but it's even harder to argue in favor of the company, period. Seems every time you turn around, someone's criticizing Wal-Mart for some new supposed offense against humanity. If the company's not mooching off the U.S. taxpayer, it's laying waste the local hardware store. One day it's union-busting; the next it's poisoning babies. The claims may be exaggerated, but the fact remains: With so much negative publicity swirling around, it's awfully hard to love Wal-Mart, Warren Buffett's purchases of the behemoth notwithstanding.

Sears Holding (Nasdaq: SHLD) And then there's Sears. It may not attract as much criticism as Wal-Mart -- but that's only because in the world of retailing, Sears has become an afterthought. Turns out, the "softer side of Sears" refers to its sales figures. And with economies of scale on the wane, Sears continues to post negative profit margins. Long story short, Sears is on the cutting edge of retailing acumen ... for 1950 -- and overmatched today.

Costco (Nasdaq: COST) In contrast to Sears, Costco has figured out a 21st-century way to make big-box retailing work. Selling in bulk, Costco's low prices attract customers by the droves, while it really profits off the annual membership fees it charges 'em for the privilege of visiting its stores. Yet there are concerns over the firm's exposure to the hemorrhaging economy of California and less-than-stellar sales and earnings growth over the last three years (sales up an average 5% per year; earnings off 0.5%).

Overstock.com (Nasdaq: OSTK) Writers take potshots at Patrick Byrne at their own risk -- but recent reports that the Overstock CEO is compiling an electronic "hit-list" of journalists deemed unfriendly to the company are truly frightening (and some have suggested, legally questionable). While the company has done a reasonable job of maintaining sales and generating free cash flow in the middle of the Great Recession, investors would be foolish (small "f") to discount the risks of investing in a company ... run by a madman.

Starbucks (Nasdaq: SBUX) Has the company that brought great coffee to the masses lost its mojo? Starbucks bulls point to cost cutting and a renewed focus on generating free cash flow as factors in its favor. But bears reply that Starbucks sells little more than McCafe ... without the benefit of being ironic.

Just buy the best In short, everywhere you look, there's knocks against these retailers. For every investor who loves 'em, there's another with an axe to grind. But Amazon? Who could hate Amazon?

Oh, I know that some investors worry about the stock's valuation, and yes, that 77 P/E does come a-shocker at first glance. But as I argued back in October, Amazon is "debt-free, and boasting prodigious free cash flow and a rip-roaring growth rate." All of these factors tell me that Amazon's price tag isn't quite as high as it seems.

Simply put, free cash flow concerns are a thing of the past. Sales are going gangbusters as customers flock to the Kindle, and Amazon locks 'em into loyalty plans with its bargain priced "Amazon Prime" deal. And just how genius was it for Jeff Bezos to come up with the idea of shipping every cardboard package ... with a smile emblazoned on the side? It's just not possible to hate a company like this.

Foolish takeaway After eliminating the other possibilities, I'm left with the firm conclusion: Amazon's the best.

Executives Enjoy 'Sure Thing' Retirement Plans
By Elllen E. Schultz and Tom McGinty - Dow Jones Newswires
December 14, 2009

Jacqueline D'Andrea last year lost more than 60% of the 401(k) savings she built over a decade as a Wal-Mart Stores Inc. manager. The 1.2 million employees in the retailer's 401(k) retirement plan lost 18% as the market plunged, corporate filings show.

Top executives at Wal-Mart didn't face such risks. Thanks to a guaranteed 7.4% return, Chief Executive Officer H. Lee Scott Jr. had gains of $2.3 million in a supplemental retirement-savings plan, bringing its total savings to $46.7 million. The company confirms the figures but declines to comment.

One-quarter of top executives at major U.S. companies had gains in their supplemental executive retirement-savings plans in 2008, even as employees had sizable losses in the companies' retirement accounts, according to a Wall Street Journal analysis. The gains in executive retirement accounts often stemmed from guaranteed fixed returns on executive-savings plans.

The disparity underscores a fact of life in America's corporate-pay scene. It's not just bigger paychecks that have led to a growing wage gap—it's the different levels of risk that executives and rank-and-file employees face in their retirement plans. That difference rarely has been more evident than the past year, when 50 million employees lost a total of at least $1 trillion in their 401(k) plans, according to the Center on Retirement Research at Boston College.

Though the stock market has rallied in 2009, most employees still have a long way to go to recoup their losses. The S&P 500 is still down 29% from its October 2007 peak.

Companies say generally that compensation committees determine the returns executives receive on their savings, and in some cases do so to offset the risk executives face by receiving a chunk of their pay in company shares. Nearly all the executives with positive returns on their deferred-compensation plans worked at companies whose share prices were down in 2008.

Comparing executive and employee retirement returns is possible because in 2007 companies were required to begin disclosing earnings on their top officers' deferred-compensation plans. The Journal analyzed filings of Standard & Poor's-500 companies compiled by research firm Capital IQ for fiscal 2008. The latest fiscal year for the analysis ended May 31, 2009. The Journal then extracted investment performance of 401(k) plans at individual companies from their corporate filings.

The Internal Revenue Service limits the amount employees can contribute to a 401(k) plan— $16,500 in 2009—so companies set up supplemental plans to enable higher-paid employees to set aside more money for retirement.

These deferred-compensation plans generally provide notional investment elections that mirror the returns on mutual funds available in the employee 401(k) plan. Because of this, many managers and executives who participate in these supplemental plans also had large investment losses in 2008. But top executives typically also participate in more elite deferred-compensation plans, which can face less risk, largely thanks to guaranteed returns.

Comcast Corp., the cable operator, provides top executives with 12% interest on their supplemental savings. This provided Executive Vice President Stephen Burke with gains of $7.4 million in his deferred-compensation account, helping to boost his total retirement savings to $71 million, according to corporate filings.

The retirement funds of more than 70,000 workers in the Comcast 401(k) plan lost $649 million, a decline of 28%, filings show. Their average account size by year-end was $24,000. The company, which confirmed the calculations, declined to comment.

In their deferred-compensation plans, some executives have access to investment options that aren't available to other employees. For example, top executives at Bank of New York Mellon could invest their savings in a fixed-income fund that had a 6.6% return in 2008; thanks to electing this fund, Steven Elliott, senior vice chairman, had earnings of $1.3 million on his account, according to filings.

The fixed-income fund isn't available in the bank's 401(k) plan. The investments in the employees' retirement accounts fell 30%, filings show. A spokesman confirmed the information.

Top executives at Cummins Inc. could choose among three options: the return on the S&P 500 Index, "the Lehman Bond Index, or 10 year Treasury Bill + 2%," according to filings. The executives at the engine maker had a total of $1.4 million in gains on their accounts, suggesting that none of them elected the stock index, which plummeted last year. By contrast, the employees of the Indiana-based engine maker lost 29% on their 401(k) retirement accounts. A spokesman says the company doesn't disclose which option the executives chose, but says: "These are more senior people who can be expected to make more conservative investment choices than a 25-year-old in the 401(k)."

Some companies note that while fixed returns on executive deferred-compensation plans protect them from losses, they also limit their upside.

Executives at Illinois Tool Works Inc., a maker of fasteners and adhesives, received returns of 6.1% to 8.4% in 2008, while investments in the employees' 401(k) lost 25%. A spokeswoman says so far this year, the average return of employees' 401 (k) plans has been 23%, while the interest credited to the executives' deferred-compensation plan is just 5.6%.

Based on those figures, the average employee's account at Illinois Tool Works would have declined 7.8% from the beginning of 2008; the executive accounts would have gained between 12% and 14.5% in that time.

With the S&P 500 down a third from its October 2007 peak, some employees never will recover their losses. Ms. D'Andrea, the Wal-Mart manager, says her retirement kitty bounced back up to $8,000—about the average size of employee accounts in Wal-Mart's 401(k) plan—from a low of $6,000 earlier this year.

But the 48-year-old Henderson, Nev., resident lost her job in May and cashed out her account. Now, she vows to never join a retirement plan again. "It's too risky," she says

The Lure of Store Credit Cards, and the Hook
By  Tara Siegel Bernard - New York Times
December 12, 2009

You may be tempted this season to give in to the plea from that persistent sales clerk at one of the big retailers — “Are you sure you don’t want to save 15 percent today?” — and open up a couple of store-brand credit cards. After all, a 15 percent discount, or no interest payments for 18 months, sounds enticing when you are buying gifts by the armful.

But before you start filling out the application, there are some things you need to know. If you carry a balance on store-brand cards, known in the industry as private-label cards, or if you miss a payment on your no-interest purchase, you can end up wiping out those initial savings, and then some. And when you open a new credit card, your credit score can suffer, too.

As one expert put it, if you strip away the store discounts and brand names that come with these cards, many are essentially the same products marketed to subprime borrowers, or individuals with tarnished or fairly new credit histories. Would you really chose a card with an interest rate of say, 25 percent, or about 9 percentage points higher on average than many other credit cards?

“You are typically not getting the card because it has a lower interest rate or the financing is attractive,” said John Grund, a partner at First Annapolis, an advisory firm focused on the payments industry. “The first-purchase discount or, in the case of big-ticket items, promotional financing, is attractive to consumers. Then, it’s a function of ongoing benefits.”

Congress was aware of the lure of easy credit, so the credit card legislation it passed this year asked regulators to come up with a way to evaluate consumers’ ability to pay their credit card bills before they get the cards. Indeed, the Federal Reserve’s proposed new rules, set to take effect in February, require consumers to list more information on their card applications, like their income and assets.

But while that sounds like the new rules will make it tougher to get that store credit card, don’t bet on it. Retailers are not required to verify that information, and they have told the Fed that the quick check of credit scores they now do is adequate. Besides, they said, customers standing at the checkout may not be comfortable giving clerks sensitive information like a pay stub.

Chi Chi Wu, a staff lawyer at the National Consumer Law Center, said the proposed rules did not go far enough. “The Fed explicitly cited the fact that it didn’t want to hinder retailers from being able to instantly open credit card accounts at point of sale as the reason for not requiring verification,” she said. “We think that is not a good reason, since the current financial crisis was caused in part by the failure of lenders to ensure consumers could afford the loans they are given.”

In all the bustle of holiday shopping, the retailers will be counting on you to focus on all the benefits of these cards — and the benefits can be valuable, if you know how to use them. But you should also be considering the card’s terms along with the possible effect on your credit score. If you are looking to refinance your home, buy a new one or take out an auto loan, you may need every last point to buoy your score.

“If it costs you 5 or 10 points and it drops your score to 790, it’s a nonissue,” John Ulzheimer, president of consumer education at Credit.com, said. “But if takes your score from 700 to 690, that is a problem.”

There are several reasons opening one or more cards may drag down your credit score. First, the credit-scoring companies do not look fondly on new applications for credit. Inquiries stay on your credit report for two years, though they only count toward your score for the first 12 months.

Once you get the new card, the new account itself also weighs on your credit standing for several months, in part because it reduces the average age of your credit history, which accounts for about 15 percent of your score.

Of course, if you have a pristine credit history and thousands of dollars in available credit on general-purpose cards (the type issued by MasterCard, Visa or American Express), you don’t have to be overly concerned about opening a store-only card, which tends to carry much lower credit lines. You are also more likely to qualify for what is known as a co-branded card, where a retailer like Toys “R” Us partners with a bank that issues a MasterCard, which can be used anywhere and carries somewhat lower interest rates.

“If I am someone who has the optimum mix of six or seven cards, it’s probably not terribly material as opposed to someone who is new to credit or who has a lower score,” said Shon Dellinger, vice president of myFico.com, which provides consumer information and credit products. “But if you’re shopping around and open up four cards to save 20 percent on each, that’s really not the right mind-set.”

In fact, people with less-than-perfect credit can be more harmed by opening a private-label card and carrying a balance than if they opened a general-purpose card. That’s because the credit limits are typically much lower — say, around $500 — than those of a traditional credit card. “So what happens is even modest purchases, a suit or some boots, can cause that card to be highly utilized because of the fact that it has a low limit,” Mr. Ulzheimer said. “The purchase might be negligible on a regular MasterCard or Visa.”

And your so-called credit utilization rate factors into your credit standing. When computing your FICO score, Fair Isaac, the company that developed the score, considers how maxed out each of your individual cards is, as well as your total amount of debt — and how that compares with your total available credit.

There are other reasons to read the fine print before getting these cards. Some retailers offer promotions where you do not pay interest for a certain period, as long as you pay off the balance by the time the promotional period ends. But if you do not pay off the balance, you will owe interest on your average balance during the promotional period — but interest will accrue starting on the date you bought the item. So if you bought a $1,000 television and you have paid off $800 by the end of the promotional period, you will still owe interest on your average balance, dating back to the day you bought the TV.

Sears and Best Buy are now running no-interest promotions. But if you participate in one of these plans, you need to pay attention to the date the promotion ends. At Sears, promotions begin on the date you make your purchase, said Chris Brathwaite, a Sears spokesman. That means if you bought the TV on Dec. 12, 2009, the bill must be paid off by the same date a year later — even if your statement happens to arrive on the 14th of each month, Mr. Brathwaite said.

Since most store cards have higher rates than most general-purpose cards, you do not want to fall behind. And if you do, you can do major damage to your credit score. Those with a FICO score of 780 — the scale ranges from 300 to 850 — who are 30 days or more overdue can lose 90 to 100 points from their scores, Mr. Dellinger said.

“Only get credit if you need it, and if you do get it, make sure you aren’t overextending yourself so you can do some of the basics like paying your bills on time,” he added.

Sears is a dinosaur that may go extinct
Transworld News
December 11, 2009

It's not clear why Sears still exists. Financially Sears has been on the losing end of retail sales for quite some time, between layoffs and store closings and a decline in revenues one can only wonder why its stock is still trading, let alone at over $70.00 a share. Even its reputation for Craftsman tools, DieHard batteries and Kenmore appliances haven’t generated sufficient sales to put, let alone to keep, Sears in the Black.

Sears has an old time appearance dating to the beginning of the last century. While its competitors are modern, new and fresh, Sears appears as the long beard and top hat in comparison. Sears is a dinosaur and like all dinosaurs may go extinct.

The problem with Sears, over the years, it had mostly bad management, which has been part of their ongoing problems and portrayed their bad image. During the 90’s Sears was fined 45 million dollars by the bankruptcy court for consumer fraud. They were strong arming debtors, by deception, to make payments that were already charged off through the court, their fraud was so severe that the court fined them and made them an example. Then there was, for instance during the 60’s the discrimination factor that alienated minorities and the insurance factor that alienated customers. Today it is simply the new and fresh face of competition.

Sears and Kmart, the other retailing dinosaur inside Sears Holdings (SHLD, news, msgs) haven't done much to impress investors or consumers.

Shoppers clearly favor up-to-date competitors such as Wal-Mart Stores (WMT, news, msgs), BJ's Wholesale Club (BJ, news, msgs), Costco Wholesale (COST, news, msgs) and Target (TGT, news, msgs).

Many analysis, don't believe Sears is viable any longer. Sears and Kmart stores (part of Sears Holdings) have experienced large sales declines, which may be attributed to poor merchandising, coupled with poor management and a lack of reinvestment interest.

Sales at Sears Holdings have declined all this year and in 2008 they fell 7.8%. Since the merger of Kmart and Sears in 2005, sales have declined an average of 3.5% annually. Since analysis, believe the trend is not likely to improve, and since Sears does sit on some valuable real estate, it could be ripe for an acquisiition and liquidation.

2009 sales are 44.08 billion but the income was a minus 5 billion, with sales growth in the red 7.80%, its income growth was up 13% and its net profit was down 0.01% this does not appear to be a company with any redemption.

William Ackman Is Big on Sears,
Not Retail-Sales Figures
By Ian Ritter - bnet.com
December 10, 2009

William Ackman and his hedge fund Pershing Square Capital Management are big on the retail industry despite problems that companies are facing in the recession and what looks to be a tough holiday sales season. In fact, at a recent shopping center conference, Ackman said that retailers’ sales aren’t all that important.

“Wall Street’s been too focused on sales,” he said at the International Council of Shopping Centers conference in New York City earlier this week. “You’re going to see a massive increase in retailer profitability.”

That might explain Ackman’s affinity for Sears Holdings (SHLD), a company that continually reports dismal sales figures. The retailer’s two chains, Sears and Kmart, recorded a third-quarter same-store sales decrease of 2.3 percent and total revenues fell $470 million from the same period a year ago. The low sales didn’t help it’s bottom line, though, as the company reported a $106-million operating loss.

Nevertheless, Ackman believes in Sears as a viable operator and said nice things about its often-criticized chairman Edward Lampert. “He’s underestimated,” Ackman told the audience of shopping-center owners and real estate brokers. “He’s going to be running a little mall within your mall.”

Ackman is also a fan of formerly bankrupt mall owner General Growth Properties (GGWPQ), of which he sits on the board of directors. Pershing Square saw promise early on in the firm, buying a major stake in the company when it was trading at less than a dollar per share. GGP is now valued at over $10.

Despite its recently restructed debt load, totaled at $9.7 billion, GGP’s fundamental operations are intact. Occupany at its over 200 malls remains solid at 91.3 percent in the third quarter, up from 91 percent in the second quarter. However, tenant sales slipped to $409 per square foot, down from $455 during the same year-ago period.

Part of the reason Ackman said he is not worried about lagging sales is because retailers really haven’t shut that many stores. “We think store-closure fears were overblown,” he said. Even though Circuit City and Linens ‘n Things went out of business, many big chains actually are ramping up their expansion plans. Chains like Staples are expanding. 7-Eleven is opening plenty of stores. And Sears didn’t curve back its store count in any major way since the economy took a turn for the worst.

Many believe that poor retail sales equal a consumer not willing to spend. But Ackman could be on to something. If store counts aren’t decreasing dramatically, then things might prove better than some industry observors previously thought. But lets see how the holiday season shakes out first and the potential for more retail bankruptcies after the new year before honoring anyone’s crystal ball.

Ian Ritter is the national online editor of commercial real estate news site GlobeSt.com and author of its Counter Culture retail blog.

Senators Strike Health Deal
The Wall Street Journal
December 9, 2009

WASHINGTON -- Senior Senate Democrats reached tentative agreement Tuesday night to abandon the government-run insurance plan in their health-overhaul bill and to expand Medicare coverage to some people ages 55 to 64, clearing the most significant hurdle so far in getting a bill that can pass Congress.

Liberals dropped the public insurance plan that was a central plank of the Democrats' health bill in favor of a more limited alternative, following intense pressure from a small group of Democrats who had insisted for months that it was a deal-breaker. While disputes over abortion coverage and other issues remain, Democrats appeared a whisker away from having enough votes to overcome Republican opposition and pass a sweeping health overhaul in the Senate.

The Senate bill -- including the lack of a public plan -- is likely to form the core of any final legislation, though it will have to be reconciled with a health bill passed by the House last month.

The agreement capped several days of high-stakes negotiations by a group of 10 Democratic senators -- five moderates and five liberals. Senate Majority Leader Harry Reid (D., Nev.) had advanced a bill that would have had the government directly operate a health-insurance plan, while giving states the right to opt out.

In place of that, the senators embraced a more limited proposal that would empower the government's Office of Personnel Management to put in place a new low-cost national health plan, congressional aides said. The office already administers plans offered to federal employees and members of Congress. The new national plan would be run by nonprofit entities set up by the private sector, and would be available to the public on the new insurance exchanges that would be created under the bill.

If no private insurers sign up with the Office of Personnel Management to offer a national plan, the office would be authorized to implement a direct government-run plan, an unlikely prospect, aides said.

The plan must still be analyzed by the nonpartisan Congressional Budget Office and vetted by the full Democratic caucus. But the proposal is aimed at reconciling divisions among Democrats and ensuring that Mr. Reid has 60 votes needed for final passage.

"I believe this moves us way down the road," Mr. Reid said in announcing what he called a "broad agreement."

The arrangement is attractive to Democratic centrists who worry about the government's growing footprint in the private market.

In a nod to Democratic liberals still intent on expanding coverage, the group agreed to a proposal that would open Medicare, the health-insurance program for the elderly, to Americans ages 55 to 64. The proposal would benefit an estimated two million to three million Americans who have difficulty obtaining coverage elsewhere, including those who have lost their jobs. People in the 55-to-64 group who already get health insurance through their employers would continue to do so under the proposal.

Those eligible under the expanded Medicare program would be allowed to buy into it at subsidized rates, but would likely pay more than retirees age 65 and over.

Democrats are now talking about dropping their first idea of a public option. Instead, they are exploring allowing the same agency that oversees health care for federal workers to expand to cover millions of Americans.

Although the public option generated significant dissension among Democrats, the CBO projected that a relatively small number of Americans would use it. It said total enrollment after a decade would be only three million to four million people, in part because the CBO predicted the public option would attract less-healthy employees and charge higher premiums.

Republicans criticized the Democratic negotiations. "What's becoming abundantly clear is that the majority will make any deal, agree to any terms, sign any dotted line that brings them closer to final passage of this terrible bill," said Senate Minority Leader Mitch McConnell (R., Ky.).

Sen. John Barrasso (R., Wyo.) said expanding Medicare "is putting more people in a boat that's already sinking."

The American Medical Association said it opposes expanding Medicare because doctors face steep pay cuts under the program and many Medicare patients are struggling to find a doctor. Hospitals also said expanding Medicare and Medicaid is a bad idea. (Read more on opposition to the Medicare move in the Health Blog.)

"We want coverage -- in the worst way -- expanded, but both of these means are problematic for hospitals and physicians," said Chip Kahn, president of the Federation of American Hospitals, which lobbies on behalf of for-profit hospitals. "It's going to make it difficult to make it work."

After more than a week of debate on the Senate floor, Mr. Reid was working hard to unify his 60-member caucus, which includes 58 Democrats and two independents. A handful of moderate Democrats as well as Sen. Joseph Lieberman, the Connecticut independent, signaled concerns with the government-run plan, threatening to derail the broader bill.

Mr. Reid's decision to tap 10 Democrats from both wings of the party to negotiate a deal on the issue was a gambit that the group could bridge the differences.

Mr. Lieberman sent aides to join the senators' talks. He was among the most vocal in opposing the public option, and on Tuesday he praised the proposal to empower the Office of Personnel Management to work with private insurers to implement a new national plan. "That's an interesting idea," he said. The senator also said he was willing to consider supporting the Medicare expansion, saying the proposal is designed to help those who "have a tough time getting affordable insurance."

He added, "These are trade-offs, not compromises."

The legislation is designed to extend insurance coverage to tens of millions of Americans. It would create new tax subsidies to help low- and middle-income people comply with a mandate to purchase coverage.

It would also bar insurers from engaging in a range of practices, such as denying coverage because of pre-existing conditions, and Senate Democrats were considering adding to those restrictions.

Under discussion among Senate Democrats was a proposal that would require insurance companies to spend no less than 90% of the insurance premiums they take in on health services, effectively limiting how much they can reap in profit. The health bill the House passed last month contains a similar provision, though it sets the minimum at 85%

Also, a proposal to expand eligibility for Medicaid beyond the increase already in the bill was dropped Tuesday, said people familiar with the negotiations. Instead, the Democratic negotiators agreed to a proposal that would extend the Children's Health Insurance Program, a popular federal-state initiative that provides insurance to more than seven million children in low-income families. The current program is funded through 2013 and would be extended to 2015, these people said.

Aides cautioned that the accord reached Tuesday could be reopened if the CBO identifies major problems. Moreover, other issues, such as proposals to control the rapid growth of health costs, may still need to be negotiated over the next few days.

But if Mr. Reid has his way, he could begin the process of shutting off debate late this week. That would set the stage for another test on the Senate floor early next week that will demonstrate whether he has 60 votes for the bill. Final passage could come late next week.

The deal was announced a few hours after the Senate, voting 54-45, rejected a proposal to tighten abortion limits in its health-overhaul legislation.

Supporters said the amendment, offered by Sen. Ben Nelson (D., Neb.), was needed to ensure no federal funds would be used to help women get abortions. Seven Democrats voted for the amendment, while two Republicans voted against it. Mr. Reid, arguing that expanding health care was "also a question of morality," urged that the issue not be brought into the bill. "This is a health-care bill, not an abortion bill," said Mr. Reid, himself an abortion opponent. "We can't afford to miss the big picture."

Democratic leaders have suggested the issue could still be revisited by tightening the limits, though not as far as Mr. Nelson wanted. Mr. Nelson proposed to bar any woman receiving a government tax credit from buying insurance that covers abortion.

With the need for Democratic unity at a premium, Mr. Nelson suggested he's open to further discussion on the issue. "I don't want to be stubborn or closed-minded," he said.

CEOs and ObamaCare
An internal revolt at the Business Roundtable over support for ObamaCare
Review & Outlook - The Wall Street Journal
December 6, 2009

One lesson that Democrats learned from the failure of HillaryCare in 1994 is that they had to buy the silence, if not the outright support, of the business class. They've done this brilliantly by peddling the illusion that ObamaCare will "lower costs" for employers.

But slowly as the legislative details become clear, it is dawning on executives of businesses large and small that reform is boiling down to a huge tax increase to finance a gigantic new entitlement. The cost and quality of care are afterthoughts that will both suffer, as a growing roll of medical experts have been writing on these pages.

The tragedy is that ObamaCare is not inevitable and far better reforms are still possible—but only if the current version is defeated and Democrats are forced back to the drawing board. With only a few exceptions, drug makers and health-care providers have shown that their priority is rent-seeking from government, which means that any last-minute push back will have to come from the other six-sevenths of the economy.

The Chamber of Commerce and National Federation of Independent Business have finally figured out they were being taken for a ride. And now even the Business Roundtable, the association of CEOs from the largest companies, is engaged in a furious internal debate about the way forward. The Roundtable has been vaguely supportive but restive. But last week Roundtable president John Castellani was informed in a contentious conference call that many of his members will quit if the organization isn't more assertive against ObamaCare.

What the executives leading the revolt understand is that the current reforms bear no resemblance to the more rational system the Roundtable favors. As Ivan Seidenberg of Verizon accurately put it in September, "The problem with the health-care market in this country is that it doesn't really function as a market—leaving major consumer needs unmet, costs unchecked by competition, and basic practices untouched by the productivity revolution that has transformed every other sector of the economy."

Yet in Congress the market-based policies that could encourage such changes have been ignored, dumped or converted into timid pilot programs. Instead of increasing the competition and consumer choice that would result in better value and reduce the annual double-digit cost increases in health spending, ObamaCare will simply expand the status quo and make it more expensive.

Roundtable companies sponsor health insurance for some 35 million employees. Not only would their wages continue to be depressed as costs continue to accelerate, but large and unpredictable costs would remain on corporate balance sheets.

Most Roundtable members also self-insure under the 1974 law known as Erisa that allows large corporations to offer national insurance largely free of regulatory interference. This flexibility will be undermined with mandated benefit packages and limits on employer ability to innovate with consumer-directed health plans. The most powerful Democrats simply have no appreciation for—or interest in—how a decentralized approach like Erisa could make health care more affordable and result in the coverage expansions that corporate America generally favors.

The larger issue for business is the productivity and competitiveness of the U.S. economy. Democrats are about to pass the largest entitlement expansion in more than four decades when federal spending is already at unprecedented levels. The "pay or play" tax on employers and the hike in payroll taxes on top earners in the House and Senate bills are merely teaser rates. The long-term pressures created on the federal fisc would require enormous tax hikes that would depress capital investment and economic growth, to say nothing of the Roundtable's priority of reducing U.S. corporate tax rates that are among the world's highest.

The tendency among business groups is usually to conciliate and speak the language of consensus—especially with Democrats running all of Washington and able to do great harm to anyone who doesn't cooperate. And no doubt the Roundtable is hearing from the CEOs of companies like Pfizer, Wal-Mart and General Electric that are deeply invested in more government control of the economy. Other members favor making marginal improvements to a faulty bill, on the theory that it's a fait accompli anyway.

Yet if the Roundtable in particular and business in general would invest their advertising dollars, lobbying expertise and prestige into a concerted campaign, there is still a chance to move public opinion enough to stop this destructive bill. That would force the Democrats on the left who are driving this process to work with moderates in both parties to focus on meaningful cost control and better value.

Democrats have defined success as dragging any bill into law as quickly as possible, no matter how damaging, while leaving the mess it creates to be cleaned up in the future once the entitlement is entrenched and higher taxes are inevitable. The only way to prevent that outcome is to force them to start over.

The choice isn't between the status quo with all its flaws and ObamaCare. It's between ObamaCare, and a better reform alternative.

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

Blue Cross Blue Patients
Another study predicts higher insurance prices.
Wall Street Journal - Review & Outlook
December 5, 2009

Another day, another study confirming that ObamaCare will increase the price of health insurance. The Blue Cross Blue Shield Association has found that premiums in the individual market will rise on average by 54% over the status quo, which translates into an extra $3,341 a year for families and $1,576 for singles. The White House denounced the report as a "sham" before it was even released, which shows how seriously it takes such concerns.

The Congressional Budget Office also found this week that ObamaCare will boost premiums in the individual market by as much as 13%. But the White House called that a triumph because the higher costs will be offset by taxpayer subsidies that will be transferred to the federal balance sheet.

The Blue Cross study is in fact more precise than CBO's because it is based on real market data, rather than modeling assumptions. The association mined the actuarial data from its six million individual or small-business policies, nearly one-eighth of those sold in the U.S.

Lo and behold, Blue Cross found costs will rise if Democrats force insurers to cover anyone who applies and then limit how much insurers are allowed to charge based on age or health condition. Economists call this adverse selection; people will wait until they're sick to buy coverage, and the Democratic rules make it perfectly rational for them to do so.

"And you can bet as we continue to make progress," communications director Dan Pfeiffer wrote on the White House blog, "the insurance industry will continue to try and distract and misinform because they know their very profitable status quo is in grave danger." He must be referring to the industry's overall profit margin of 2.2% in 2008.

The reality is that all health-care costs are ultimately borne by consumers, whether through more expensive premiums, lower wages or higher taxes. The regulatory schemes favored by Democrats can't change that law of economics but they will ensure that insurance is even more costly than it is today.

When that day comes, the political class will of course blame the insurance companies, and all of the current White House denials will fall down the memory hole.
Printed in The Wall Street Journal, page A20

Holidays Start Slowly at Retailers;
Deeper Price Cuts Loom
Deeper discounts are likely to follow lackluster November sales; apparel and electronics markdowns lure shoppers
By Ann Zimmerman - Wall Street Journal
December 4, 2009

Many retailers are likely to start offering broader discounts and promotions before the end of the holiday shopping season in response to generally lackluster sales the stores reported for November, retailing experts said Thursday.

Overall, sales at stores open at least a year edged up less than 1% last month compared with a year earlier, according to data collected by Retail Metrics Inc., which catalogs sales at 30 retail chains. Wall Street analysts had been expecting a 2.2% increase.

Since discounts appear to be attracting shoppers, retailers are expected to continue and broaden them—though no one expects a return to the extremes of last year's inventory markdowns.

Once again, discounters such as TJX Cos., owner of the T.J. Maxx and Marshall chains, fared relatively well, as did moderately priced department store Kohl's Corp. and midlevel-luxury emporium Nordstrom Inc. But other department stores and many specialty apparel chains took a big sales hit.

The results don't include sales from Best Buy Co. and Wal-Mart Stores Inc., which don't report monthly. But Wal-Mart has indicated holiday sales will be less than robust, estimating fourth-quarter sales to be basically unchanged from a year earlier.

November "was ugly," said Ken Perkins, president of Retail Metrics, which is based in Swampscott, Mass. "This doesn't bode well for the next three weeks," he added. "I think we will see more promotions than planned. Shoppers are focused on deals and necessities and retailers are going to have to make it worth their while" to hit the stores. Economists and analysts are closely watching holiday sales to gauge how consumers are faring in the fragile economic recovery. Last year, November same-store sales plummeted 7.3% as the financial crisis and swooning stock market evaporated Americans' savings and led to tightened credit.

This year, an unemployment rate of 10.2% is weighing heavily on shoppers' minds. About four million more people are out of work than a year ago, and a slowing pace of job losses seems to be of little comfort. Retailers expected the season to be challenging, with estimates for overall November and December sales to be down 1%. But unlike last year, when the sudden drop in consumer spending caught retailers off guard, merchants planned conservatively this year, slicing inventories as much as 25% and paring sales staff. "Sales won't be great this year for retailers, but they will be much more profitable, because they won't have to resort to as many desperation markdowns," said Stephen Hoch, professor of marketing at the University of Pennsylvania's Wharton School.

Off-price retailers, which sell other stores' and manufacturers' excess inventory, were the big winners in November. TJX and Ross Stores Inc. continued their recent strength, both reporting 8% increases in same-store sales, though TJX's gain was less than forecast by analysts. "The close-out stores have a better pick of inventory and are better places to shop than they used to be," Prof. Hoch said.

But sales at traditional discounters softened. Costco Wholesale Corp. experienced weakness in November after two months of solid growth. The warehouse club's same-store sales were flat in the U.S., excluding gasoline sales.

Target Corp. reported a bigger-than-expected 1.5% sales drop. But Chairman and Chief Executive Gregg Steinhafel said weakness during the first three weeks of November was "substantially offset" by better-than-expected results during the company's two-day sale after Thanksgiving.

Among department stores, Kohl's said same-store sales rose 3.3%, topping expectations, while Macy's Inc. and J.C. Penney Co. reported bigger drops than analysts projected, falling 6.1% and 5.9%, respectively.

Nordstrom posted a sales increase of 2.2%. In contrast, Neiman Marcus Inc.'s sales at its Bergdorf Goodman and Neiman Marcus chains slid 13%. Saks Inc., which last year goosed its November sales with big price cuts, reported a 26% sales drop this year.

Limited Inc., parent of Victoria's Secret and Bath & Body Works, surprised analysts by notching same-store sales growth of 3% after a 12% slump last year. The company said sales were buoyed by record results on the Friday after Thanksgiving.

—Kevin Kingsbury contributed to this article.

Big Investors Are Fleeing Stocks. Should You?
By Dan Caplinger - The Motley Fool
December 4, 2009

Many believe that the stock market's rally over the past nine months has brought valuations to far too expensive levels. Now, some institutional investors are putting their money where their mouths are and making some dramatic moves involving their huge pension accounts -- and the results could have a big impact on millions of workers.

Moving pension money
Bloomberg recently reported that a number of companies, including J.C. Penney (NYSE: JCP), Goodrich (NYSE:GR), and General Motors, have been increasing their allocations to corporate bonds within their pension plans. In a particularly extreme move, J.C. Penney plans to boost its bond allocation all the way to 75% by 2014 to 2017, with an increasing amount of that money invested in corporate bonds. That's up from its current level of around 20%.

Pension funds are still reeling from their losses during last year's bear market. The financial crisis left pensions with a $400 billion shortfall as of the end of 2008, according to a Mercer Consulting study. Many companies, including DuPont (NYSE: DD), Lockheed Martin (NYSE: LMT), and Caterpillar (NYSE: CAT), anticipated escalating pension costs earlier this year as a result of those losses. According to one report back in March,Sears Holdings (Nasdaq: SHLD) believed that it might have to triple its pension contributions in 2010 if the markets hadn't recovered.

Selling high
Now, of course, the stock market has recovered significantly, rewarding those pension funds that didn't panic and instead stuck with their stock allocations throughout the crisis and ensuing rally. Yet it's only natural that companies that narrowly dodged the pension bullet might want to take steps to reduce risk in their pension fund portfolios.

In many ways, pension plans face the same challenges that individual investors do. They have to make decisions about how much money to set aside in their pensions and predict when and how much money they'll need to generate from their portfolio to pay benefits. Even if stocks may have a better long-term return, the constant cash-flow needs that active pension plans have makes a mixed investment approach far more prudent in order to avoid the problems that a sustained downturn like last year's bear market can produce.

Out of the frying pan, into the fire
Yet the question that pension funds have to ask themselves is whether trading stocks for corporate bonds really makes sense right now.

Although stocks have definitely risen sharply from their lows, corporate bonds have also put in a stellar performance recently. Although junk bonds have experienced perhaps the greatest returns, even high-quality corporate bond funds like the iShares iBoxx Investment Grade Corporate Bond ETF (LQD) have jumped by double-digit percentages so far in 2009. That's a far cry from the huge losses that long-term Treasury bonds have seen this year.

High-quality bonds have the advantage of giving companies more certainty about returns and cash-flow timing. Pensions often invest in dividend-paying stocks, but recent cuts in payouts have exposed the uncertainty of dividends in comparison to the steadier payouts from a bond. Incorporating more bonds in pension funds will likely smooth returns, reducing volatility and likely making it easier to predict what impact required pension contributions will have on a company's financials from year to year.

The trade-off, though, is that if bonds have lower returns than stocks, then companies have to set aside more money to fund their pension obligations. That will divert profits from a company's bottom line, potentially hurting shareholders that might otherwise see stronger growth in earnings -- albeit with some attendant volatility.

Watch out
From an investing standpoint, these recent moves highlight just how important it is for you to understand how significant pension obligations are to the companies whose stocks you own. Obviously, a company like Ford Motor (NYSE: F) with a huge labor force and long history is more sensitive to the fluctuations of pension balances than newer companies that rely on 401(k) plans and other retirement plan solutions that don't rely on corporate funding. Beware of stocks that aren't taking steps to manage their future pension obligations responsibly.

Just because pension plans are jumping out of the stock market doesn't mean you should, though. Companies typically have the financial resources to cover pension liabilities without a high-risk investment portfolio, but the same isn't true for you trying to save for long-term goals like retirement. Despite the risk, the higher returns that stocks offer will do a better job of helping you reach your goals over the long run.

Your retirement is more uncertain than ever. Find out why John Rosevear thinks the recession might last 20 years and what you can do about it.

Medicare Part D 'Reforms' Will Harm Seniors
An ObamaCare change will cost taxpayers a bundle and lead to poorer drug coverage.
By Tom Scully - Wall Street Journal
December 4, 2009

There is a little-noticed provision buried deep in both the House and Senate health-care reform bills that is intended to save billions of dollars—but instead will hurt millions of seniors, impose new costs on taxpayers, and charge employers millions in new taxes.

As part of the Medicare Modernization Act in 2003, Congress created a new drug benefit—called Medicare Part D—for retirees at a cost of about $1,900 per recipient per year. Many private employers already provided drug coverage for their retirees, and the administration and Congress did not want to tempt employers into dropping their coverage. Actuaries calculated that if the government provided a subsidy of at least $800, employers would not stop covering retirees.

The legislation created a $600 tax-free benefit (the equivalent of $800 cash for employers), and it worked. Employers continued to cover about seven million retirees who might have otherwise been dumped into Medicare Part D.

It was a good arrangement for all involved. An $800 subsidy is cheaper than the $1,900 cost of providing drug coverage. And millions of seniors got to keep a drug benefit they were comfortable with and that in many cases was better than the benefit offered by the government.

But now that subsidy is coming in to be clipped. This fall congressional staff, looking for a new revenue source to pay for health reform, proposed eliminating the tax deductibility of the subsidy to employers.

The supposed savings were estimated by congressional staff to be as much as $5 billion over the next decade.

It sounds smart—except that nobody asked how many employers will drop retiree drug coverage. Clearly, many will. The result is that, instead of saving money, the proposed revenue raiser will force Medicare Part D costs to skyrocket as employers drop retirees into the program.

The careful calculation that was made in 2003 to minimize federal spending and maximize private coverage will go out the window if this provision becomes law. Any short-term cost savings that Congress gets by changing the tax provision will be overwhelmed by higher costs in the long run.

Some members in the House want to mitigate the cost of this provision by mandating that employers maintain existing levels of retiree coverage despite the reduced subsidy. But it's not that simple. A mandate would increase costs on businesses, which in turn would make it harder for those businesses to hire new employees. The mandate would effectively be a tax on employers that provide retiree benefits; this in turn will simply induce some unknown number of employers to terminate their retiree drug programs before the mandate kicks in.

In short, if the changes that are proposed for employer subsidies in the current Medicare Part D program are enacted, everyone will lose.

Unions will lose as employers seek ways to drop retiree drug coverage. Seniors will lose as employers drop them into Medicare Part D. Medicare and taxpayers will lose as they face higher costs. And employers will lose as they find it harder to provide benefits.

To make matters worse, accounting rules for post-retirement benefits will require companies that keep their retiree benefits to record the entire accrued present value of the new tax the day the provision is signed into law. This would cause many employers to immediately post billions in losses, which could significantly impact our financial markets.

There are many reasons to pass health-care reform. There is no reason to hurt seniors, employers and taxpayers in the process. Businesses are struggling, and the Medicare trust funds have plenty of problems as it is. It makes no sense to make these problems worse.

Mr. Scully was the administrator of the Centers for Medicare and Medicaid Services from 2001-04 and was one of the designers of the Medicare Part D benefit.

ObamaCare at Any Cost
A bill that raises prices but lower costs,
and other miracles
The Wall Street Journal Review & Outlook
December 2, 2009

We have now reached the stage of the health-care debate when all that matters is getting a bill passed, so all news is good news, more subsidies mean lower deficits, and more expensive insurance is really cheaper insurance. The nonpolitical mind reels.

Consider how Washington received the Congressional Budget Office's study Monday of how Harry Reid's Senate bill will affect insurance costs, which by any rational measure ought to have been a disaster for the bill. CBO found that premiums in the individual market will rise by 10% to 13% more than if Congress did nothing. Family policies under the status quo are projected to cost $13,100 on average, but under ObamaCare will jump to $15,200.

Fabulous news!

"No Big Cost Rise in U.S. Premiums Is Seen in Study," said the New York Times, while the Washington Post declared, "Senate Health Bill Gets a Boost." The White House crowed that the CBO report was "more good news about what reform will mean for families struggling to keep up with skyrocketing premiums under the broken status quo."

Finance Chairman Max Baucus chimed in from the Senate floor that "Health-care reform is fundamentally about lowering health-care costs. Lowering costs is what health-care reform is designed to do, lowering costs; and it will achieve this objective."

Except it won't. CBO says it expects employer-sponsored insurance costs to remain roughly in line with the status quo, yet even this is a failure by Mr. Baucus's and the White House's own standards. Meanwhile, fixing the individual market—which is expensive and unstable largely because it does not enjoy the favorable tax treatment given to job-based coverage—was supposed to be the whole purpose of "reform."

Instead, CBO is confirming that new coverage mandates will drive premiums higher. But Democrats are declaring victory, claiming that these higher insurance prices don't count because they will be offset by new government subsidies. About 57% of the people who buy insurance through the bill's new "exchanges" that will supplant today's individual market will qualify for subsidies that cover about two-thirds of the total premium.

So the bill will increase costs but it will then disguise those costs by transferring them to taxpayers from individuals. Higher costs can be conjured away because they're suddenly on the government balance sheet. The Reid bill's $371.9 billion in new health taxes are also apparently not a new cost because they can be passed along to consumers, or perhaps will be hidden in lost wages.

This is the paleoliberal school of brute-force wealth redistribution, and a very long way from the repeated White House claims that reform is all about "bending the cost curve." The only thing being bent here is the budget truth.

Moreover, CBO is almost certainly underestimating the cost increases. Based on its county-by-county actuarial data, the insurer WellPoint has calculated that Mr. Baucus's bill would cause some premiums to triple in the individual market. The Blue Cross Blue Shield Association came to similar conclusions.

One reason is community rating, which forces insurers to charge nearly uniform rates regardless of customer health status or habits. CBO doesn't think this will have much of an effect, but costs inevitably rise when insurers aren't allowed to price based on risk. This is why today some 35 states impose no limits on premium variation and six allow wide differences among consumers.

The White House decided to shoot messengers like WellPoint to avoid rebutting their message. But Amanda Kowalski of MIT, William Congdon of the Brookings Institution and Mark Showalter of Brigham Young have found similar results. In a 2008 paper in the peer-reviewed Forum for Health Economics and Policy, these economists found that state community rating laws raise premiums in the individual market by 20.9% to 33.1% for families and 10.2% to 17.1% for singles. In New Jersey, which also requires insurers to accept all comers (so-called guaranteed issue), premiums increased by as much as 227%.

The political tragedy is that there are plenty of reform alternatives that really would reduce the cost of insurance. According to CBO, the relatively modest House GOP bill would actually reduce premiums by 5% to 8% in the individual market in 2016, and by 7% to 10% for small businesses. The GOP reforms would also do so without imposing huge new taxes.

But Democrats don't care because their bill isn't really about "lowering costs." It's about putting Washington in charge of health insurance, at any cost.

Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved

A glimpse at a way of life: 1902 Sears catalog
Blue Ridge Now - Hendersonville, NC
November 29, 2009

Look Who's Stalking Wal-Mart
By Michelle Conlin - Business Week - Cover Article
December 7, 2009

Target is increasingly going downmarket to get through the consumer recession. But can it ape its rival and retain its cachet?

At a Target store, the visual sizzle usually comes from the photos of all the fabulous-looking people wearing fabulous clothes and doing fabulous things. Of late, though, there's an entirely new vibe—supersize signs screaming dirt-cheap prices. Past the cashiers is something else unmistakably novel: a sleek Euro-style mart carrying fresh cuts of sirloin, cheery piles of fruit, and hormone-free dairy.

The lowest prices on the planet! Plus a grocery store. Wait. Doesn't that sound an awful lot like Wal-Mart (WMT)?

Target reinvented American retailing. By democratizing design, it rescued the family budgeter from the aesthetic provinces of dinette sets and acid-washed jeans. Target was one of the first to use famous fashion designers to cast a halo over its brand and draw people into its stores. Before long hipsters had dubbed the retailer "Tarzhay," and everyone from J.C. Penney (JCP) to Wal-Mart was ripping off Target's cheap-chic playbook.

Now the charge is that Target is copying its archrival, and its executives are bristling. They insist they provide a superior store experience. Nor have they any plans to abandon their 15-year-old slogan: "Expect more, pay less." "We're not trying to be anyone else," says Chief Executive Gregg W. Steinhafel. "We're working hard to convey both sides of our brand."

All the same, a kind of role reversal is under way in Retail Land. Wal-Mart has long borrowed from Target. Now Target is stalking Wal-Mart. Target's magic has always been about pushing its low-cost business model relentlessly upmarket. But to get itself through the Great Recession, it appears to be going downmarket. Some critics say the strategy smacks of desperation. Others, pointing to a rebounding stock price and better-than-expected earnings last quarter, believe the strategy may be working. The challenge for Steinhafel is to compete on price without losing the Target twist.

Steinhafel's ascension as CEO in May 2008 represented mostly a change in style rather than substance. His predecessor, Bob Ulrich, the press-allergic, cowboy-booted visionary who made Target a retailing juggernaut and cultural phenomenon, was known as an authoritarian. Meeting with him, says one executive, was "a sphincter-tightening experience." (Ulrich was unavailable for comment.) Steinhafel, by contrast, is a leader people can rally behind. During nine years as president, he became known as Target's nice dad. So while he was expected to change the tone at Target, he wasn't considered likely to deviate much from his predecessor's modus operandi. After all, it was working.

Until it wasn't. The economy imploded, Americans stopped shopping, and Steinhafel found himself confronting a different world. "This was a wake-up call," he says. "We had to do a lot of soul-searching." It didn't help that as the news flashed pictures of Lehman Brothers employees carrying boxes out of their offices in September last year, Target was rolling out pop-up stores selling 22 new things from 22 new designers.

The pop-ups, which came and went in four days, were in the works long before the crash and did well. But for the first time, Target seemed out of touch. Wal-Mart, with its megajugs of cheap contact lens solution, seemed prescient by contrast.

EXTREME MESSAGE MAKEOVER
At Target's Minneapolis headquarters, Steinhafel turned his airy offices on the 26th floor into a war room. The data pouring in were shocking: Sales at stores open more than a year were falling 3%, then 5%, then 10%. As the stock slid and slid, says Jefferies (JEF) managing partner Daniel Binder, people were asking: "Is there something wrong here with Target that has changed structurally?"

Target had long emphasized the first part of the "Expect More, Pay Less" equation. Research showed consumers perceived Target as pricier than Wal-Mart, when in fact they were only a few cents apart on most items. Given the state of the economy, stressing "Pay Less" seemed eminently rational. Yet Steinhafel hesitated. If he pushed too hard on price, would he lose what made Target "Tarzhay," upending a strategy Ulrich spent 20 years perfecting? Would Target—God forbid—start to look like Wal-Mart? "That's why they were reluctant to do it at first," says Telsey Research chief Joe Feldman. "They don't want to be Wal-Mart."
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Steinhafel, however, soon saw that American consumers might never return to their free-spending ways. It was time to start making a big deal about low prices.

With sales in free fall, Steinhafel needed to move fast. Fortunately, Target is a quick executor. In big-box retail circles, the company is legendary for its ability to tear down and rebuild stores in less than nine months. Inside Target, the store rehab process is called Phoenix. Steinhafel needed to pull a Phoenix on marketing. His partner in this extreme message makeover was Michael Francis, the natty chief marketing officer. Francis draws his marketing philosophy from the 1952 book about retailer Marshall Field, Give the Lady What She Wants! "It's all about making sure we know who the lady is and making sure we know what she wants," says Francis.

hat "lady" is a working mother in her 40s. And over the years Target has spent tens of millions of marketing dollars appealing to her. In TV and print ads, it has long cast her as the hip hero in her own life. (Even her own kids think she's cool.) But as Francis scoured his charts and graphs late last year, he could see that the Target fashionista was turning into a frugalista. "She wasn't seeing herself in the shiny, happy people advertising," he recalls. "It was no longer aligned with what she was dealing with in her life." The trick was to focus on low prices without making Target's target customer feel cheap.

Francis and his team hit on a marketing strategy in which Target essentially plays the empathetic personal shopper. In highly produced two-minute Webisodes on Target's site,Marie Claire fashion director Nina Garcia mentors frayed, broke moms on how they may feel poor but can still look rich. In the show, a riff on TLC channel's What Not To Wear, Garcia teaches shoppers such as "Katie" how to be "frugalista fabulous." We see Katie—who has no winter coat—looking fierce in a double-breasted topcoat ($59.99), a classic peacoat in red ($40), and a motorcycle jacket ($29.99). "Ooo la la," says Katie as she twirls in a Lanvinesque gray cape ($44.99).

For years, Target has focused on the aspirational image of the designers behind its apparel. Now, Francis decided, the company would highlight the notion that good value can be chic, too. This fall, for example, Target introduced designer Anna Sui's collection, starting at $19.99, based on her favorite television show, Gossip Girl. The ads show a grainy, cinema verité New York City with waifs sashaying down the runway in Bohemian glam. Then Sui's voice over: "Anna Sui. Prices to gossip about."

FILLING THE PANTRY
Steinhafel's decision to move more aggressively into groceries represents an even tougher challenge. Wal-Mart has been selling food for years, using groceries to boost store traffic. But selling food is a difficult, low-margin business, and Target has refrained from pushing as hard into groceries as its rival. So while Target has long sold food at its 252 SuperTargets, its regular stores have carried mostly dry goods, cans of soup, and jars of peanut butter. Yet the retailer was desperate for traffic. And Steinhafel couldn't ignore two facts. Target's working-mom customer was obsessing not about thigh-high boots but about the price of milk. Plus, industry and in-house research showed she was popping into the grocery store twice a week but visiting Target only three times a month.

Last fall, Steinhafel began testing a prototype grocery that sold fresh food, which typically commands higher margins than packaged groceries. The company commandeered part of an existing store and quickly turned the space into a sleek, rock-bottom-price grocery with everything one could possibly need to fill the family pantry. The rollout was done stealthily, with almost no publicity. Before long, the food marts were lifting sales at test stores an average 5% to 10%.

When retail chains launch a concept, they usually back it up with a national advertising campaign. But often the items are available only at "select stores." With this effort, Target is going hyperlocal. Instead of a gradual rollout across the U.S., it focused on one market, Philadelphia. In September it began putting food marts in all 30 urban Philly stores.

Once they were ready to go online in October, Target carpet-bombed the city with its message of "Fresh food for less green" and "Quality cuts, lean prices." The blitz was everywhere: e-mail, radio, newspaper circulars, TV, and what seemed like nearly every billboard in town. "If you don't know about it and you live in Philly, you have to be living under a rock," says Citigroup (C) retail analyst Deborah Weinswig. By testing in a single market, Target was able to measure immediately the efficacy of the marketing. The results have been promising, with sales exceeding expectations. Steinhafel plans to roll out the concept to 350 more stores in 2010.

As Target's CEO and his executives take stock and look back on the past year or so, they regret not moving faster. "We may have been a bit slower than we should have been due to how rapidly the economy shifted and to our own advance planning processes," says Francis.

Still, the course correction seems to have helped stop the bleeding. On Nov. 17, Target said net earnings rose 18.4% during its third quarter, the first positive result in eight quarters. It also reported that its gross margins, excluding its credit-card division, rose to 30.8%, from 30.6% in the third quarter of 2008. Meanwhile, Target says its research shows consumers are starting to believe it is indeed competitive with Wal-Mart on price. "Based on our price checks, the price gap between Wal-Mart and Target is the narrowest it has ever been," says Weinswig. "They are now at price parity. But Target does it with a better customer experience." While Target did cut prices on some merchandise, its marketing onslaught is mostly responsible for changing consumers' perception.

Target usually doesn't hammer the price message during the crucial holiday shopping season. Now it does. The company is devoting 75% of its advertising budget to price, vs. 25% last year. Target is making a big bet this holiday season that people will be shopping for key must-have items and solution-oriented products. Door busters include a 32-inch flat-panel TV for $246, electronic hamsters for $7.99, and a $3 coffeemaker.

In truth, Target's focus on price and groceries looks less like strategy than a tactic to buy time. "They have to reinvent themselves," says Nigel Hollis, of the branding shop Millward Brown. "The 'pay less' strategy may not be the one, but at least they can hold their ground until they figure out the next big thing." The trick will be executing a me-too strategy without turning into You Know Who. As marketing chief Francis says: "The world doesn't need a second Wal-Mart."

Sears Holdings launched an e-commerce version of its holiday Wish Book, traditionally one of the most notable yearly catalogs, on November 24.

The interactive portal allows users to “turn pages” on-site from one list of offerings to the next, as well as to download a PDF copy of the whole catalog or sections of it. The Web site also allows consumers to share the site with others and to check off items to create a wish list.

The portal has full e-commerce capabilities, and customers can buy directly from the company via the site. It also features a “top gift list” of items for shoppers on a budget and photos of products from 1933 to the present day.

Sears has considerably expanded its online offerings this year, launching online layaway programs for its Sears and Kmart stores in October, and debuting a home maintenance marketplace in February.

Sears also began testing MyGofer, an online shopping feature that allows consumers to buy items online and pick them up in person. The company introducedthe Sears and Kmart Christmas Club gift card in August.

A representative from Sears could not immediately be reached for comment.

Miami man gets 13-year sentence for Sears Tower plot
Reuters
November 20, 2009

* Ringleader's co-conspirators get lighter sentences
* Men accused of conspiracy to wage war against U.S.

MIAMI, Nov 20 (Reuters) - The ringleader of a group of Miami men convicted of plotting to blow up Chicago's Sears Tower and government offices was sentenced to 13-1/2 years in prison on Friday.

The sentence for Narseal Batiste was handed down by a federal court judge in Miami, who earlier this week announced lighter prison terms ranging from five to eight years for Batiste's four co-conspirators.

The case was touted as a major blow against terrorism and a victory in government efforts to dismantle domestic "sleeper cells" when federal agents arrested the men in Miami's poor and predominantly black Liberty City neighborhood in June 2006.

But the men, accused of conspiring with al Qaeda to wage holy war, insisted on their innocence and two mistrials were declared before a jury finally found them guilty in May.

Defense lawyers said the alleged plot was concocted by the government and overzealous prosecutors with the help of informants who posed as Middle Eastern contacts.

Batiste, who had faced a maximum of 70 years in prison, got 35 years probation along with his 162-month prison sentence. He was convicted of conspiring to provide material support to al Qaeda, conspiring to provide material support to an act of terrorism, conspiring to destroy a building and conspiring to wage war against the United States.

Authorities conceded at the time of the arrests that the Liberty City men posed no real threat because they had neither contacts with Islamic militant groups nor the means of carrying out attacks.

But Batiste was accused of targeting the Sears Tower, America's tallest skyscraper, for one potential attack and other possible targets of the plot included Miami's FBI headquarters and a courthouse.

The Sears Tower was renamed the Willis Tower earlier this year after Willis Group Holdings, a London-based insurance broker, consolidated its regional offices there. (Reporting by Tom Brown; editing by Anthony Boadle)

Sears Tower plot: 4 of the accused get lenient terms
By Curt Anderson - Associated Press - Chicago Tribune
November 20, 2009

Sears shuns spending money on stores but shells out to buy its own stock
3rd-quarter losses narrow;
capital spending trend concerns analysts
By Sandra M. Jones - Chicago Tribune
November 20, 2009

If Sears Holdings Corp. Chairman Edward Lampert were making out his Christmas wish list, you can bet that more Sears stock would be at the top of the page.

When the retailer reported Thursday that its fiscal third-quarter loss narrowed as $101 million in overhead cost cuts helped to offset falling sales, it also disclosed a willingness to spend -- on itself.

Most retailers have suspended stock buyback programs as they conserve resources to cope with cash-strapped consumers who are shopping less and expecting bigger discounts.

Not Sears. It is spending more on its stock than on its stores.

Sears cut capital expenditures, or investment in fixing up its stores, by 44 percent for the fiscal year through Oct. 31. And it trimmed inventory spending 5 percent going into the holiday season.

Amid this frugality, the owner of Sears and Kmart stores spent $224 million to buy back about 3.5 million shares at an average price of $64.30 a share in the third quarter, which is more than it invested in capital expenditures in the first nine months of the fiscal year.

Morgan Stanley analyst Gregory Melich called the move a "questionable practice given the state of the store base," in a report Thursday. He estimates Sears' capital spending at $325 million for 2009 and said it should be "at least $1.6 billion."

Even as rival retailers reduced capital spending this year in response to the recession, Sears still ranks as the cheapest among 13 competitors, according to a Nov. 9 Credit Suisse report.

Since 2005, when Lampert took control of Sears and combined it with Kmart, capital spending as a percentage of sales has hovered around 1 percent annually, according to Credit Suisse.

"We are aware and have read numerous times the letters from Mr. Lampert that ... spending for spending sake is not justified," said Credit Suisse analyst Gary Balter in the report. "We agree up to a point, however, maintenance spending is necessary to keep stores looking fresh (and) to bring customers in."

If the stores look dreary or dirty, shoppers go elsewhere, Balter said. It is a lesson retail outsiders often fail to grasp.

Yet, it is also a market reality that when firms buy back their own stock, the stock price goes up because there are fewer outstanding shares. Lampert, through his exclusive hedge fund RBS Partners, owns 56 percent of Sears. It is the fund's biggest equity investment.

Sears' stock price under Lampert has seesawed from as high as $193 in April 2007 to as low as $34 this past February. Shares fell $2.82, or 3.7 percent, to close Thursday at $72.95, putting Sears' market value at $8.7 billion.

Sears officials declined to comment beyond the earnings release.

Sears is investing in its online business and free-standing home appliance stores, a test concept that has had some promising early results. Some analysts interpret these steps to mean Lampert is biding his time until he can get rid of Sears' real estate and move most business to the Web.

For the quarter ended Oct. 31, Sears reported a loss of $127 million, or $1.09 a share, compared with a loss of $146 million, or $1.16, a year earlier.

Revenue fell 4.4 percent, to $10.19 billion. Sales at stores open at least a year, a key retail metric, fell 4.6 percent at Sears' U.S. stores and rose 0.5 percent at Kmart.

Sears Reports Narrower Loss
By Joan E. Solsman - Dow Jones Newswires
November 19, 2009

Sears Holdings Corp.'s fiscal third-quarter loss narrowed more than expected on higher margins and cost cuts, and posted same-store sales growth at Kmart.

Interim Chief Executive W. Bruce Johnson said Thursday that in addition to the increase in Kmart's same-store sales, the rate of decline at Sears abated from previous quarters. He also credited the strong performance on an adjusted $101 million reduction in overhead costs.

Both chains' continuing reputation for weak customer service and poor store upkeep have diverted discount shoppers toward competitors like Wal-Mart Stores Inc., while department stores in general have been reporting slumping results for some time.

For its part, Sears is seeking to branch away from staple of affordable home goods by exclusively selling a line of luxury kitchen appliances from Whirlpool Corp.'s Jenn-Air, betting they will entice holiday shoppers. But the move comes just as customers have significantly reduced their purchases of appliances during the recession.

For the quarter ended Oct. 31, the company posted a loss of $127 million, or $1.09 a share, compared with a year-earlier loss of $146 million, or $1.16 a share. Excluding items such as store-closing costs and write-downs, the loss narrowed to 81 cents from 90 cents. Revenue decreased 4.4% to $10.19 billion.

Analysts surveyed by Thomson Reuters predicted a $1.09 loss on $9.93 billion in revenue.

Same-store sales fell 2.3% -- down 4.6% at Sears but up 0.5% at Kmart. Gross margin rose to 27.2% from 26.8%.

Merchandise inventories were $10.8 billion at Oct. 31, down from $11.36 billion.

In Pursuit of the Right Medicare Plan
By Jane Zhang and Avery Johnson - Retirement Planning - Wall Street Journal
November 19, 2009

Sears narrows loss, beats estimates but stock falls
Chicago Business
 November 19, 2009

Sears 3Q Posts Better-Than-Expected Loss; Kmart Strong
Dow Jones Newswires
November 19, 2009

Sears Holdings Reports Third Quarter Results
Sears Holdings News Release
November 19, 2009

Earnings Preview: Sears Holdings Corp.
By Ashley M. Heher
(November 18, 2009)

CHICAGO (AP) - Sears Holdings Corp. reports its results for the third quarter on Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Sears Holdings has struggled for years as customers slip away from its Sears and Kmart stores. And it is expected to report that it lost only slightly less than it did a year earlier as its sales sagged further, despite efforts to drum up new business during the quarter, which ended Oct. 31.

Led by financier Edward Lampert, the company has launched a major campaign to win over holiday shoppers — with measures like its new Christmas Club cash savings card good at Sears and Kmart stores — and capitalize on last year's successful holiday layaway program. And it has indicated it's trying to compete with heavyweights Wal-Mart Stores Inc. and Target Corp.

During the third quarter, Sears announced a plan to allow outside retailers to sell products on its Web site. The move, similar to one recently made by Wal-Mart Stores Inc., allows the chains to provide a greater assortment of products to its online shoppers. In August, Sears beefed up its in-store offerings — adding toy shops to 20 locations and more than a dozen beauty and cosmetic departments. And the chain became the only retailer to sell Jenn-Air's newest line of high-end kitchen appliances.

Also during the quarter, William C. Kunkler, 52, executive vice president of the private equity firm CC Industries Inc., joined the retailer's board of directors.

Lampert acquired Kmart out of bankruptcy in 2003 and added Sears, Roebuck and Co. in 2005 to create Sears Holdings, which is based in the Chicago suburb of Hoffman Estates.

BY THE NUMBERS: Analysts polled by Thomson Reuters predict a loss of $1.09 per share on revenue of $9.92 billion for the quarter. Last year the retailer lost $149 million, or $1.16 per share. Revenue fell 8 percent in the third quarter last year to $10.66 billion.

ANALYST TAKE: Deutsche Bank analyst Bill Dreher Jr. told investors that the sales declines at Sears and Kmart likely will continue into next fiscal year. And both probably will continue ceding customers to rivals, even though Sears could remain an important player in the holiday shopping scene this year.

WHAT'S AHEAD: Sears Holdings hasn't had a permanent chief executive for nearly two years, since Aylwin Lewis abruptly departed in early 2008. Interim CEO W. Bruce Johnson has held the post since then, and analysts will want to know whether his appointment will become permanent or a new CEO will be hired.

STOCK PERFORMANCE: During the quarter, shares rose about 2 percent to end the period at $67.86. They closed Tuesday at $76.32 near the high end of their 52-week range from $26.80 to $79.75.

Sears Canada profit tumbles on consumer caution
By Hollie Shaw, Financial Post - Canada.com
November 18, 2009

Profit tumbled 21% at Sears Canada in the third quarter due to consumer caution about the economy, according to the department store retailer.

Sears said Wednesday it earned $47.1-million, or 44 cents a share, in the third quarter ended Oct. 31, down from $59.3-million (55 cents), a year ago.

Revenue fell 9.2% to $1.3-billion compared with $1.4-billion and same-store sales, a leading indicator of health in the retailing sector, sank 6.3%.

“The recession is continuing with increasing unemployment resulting in retracted consumer spending,” said Dene Rogers, president and CEO of Sears Canada, which is owned in majority by Sears Holdings Corp.

“The economic uncertainty continued to affect consumer confidence during the third quarter especially as it relates to future employment.” Sears will market aggressively in the crucial fourth-quarter holiday period, with a focus on driving customer traffic and profit, he said.

Operating earnings before interest, taxes, depreciation and amortization was $103.7-million for the quarter compared to $115.5-million last year, a decrease of 10.2%.

For the 39 weeks ended Oct. 31, 2009, same-store sales were down 8.8%. The retailer reduced total expenses by 9.7%.

Financial Post

J.C. Penney is turning last page on its Big Book
By Maria Halkias - The Dallas Morning News
November 17, 2009

The J.C. Penney Co. Big Book is dead – a victim of shoppers' growing reliance on the Internet.

Plano-based Penney confirmed that its fall/winter 2009 catalog is its last semiannual, telephone-book-size volume.

The Internet has made the 1,000-page shopping venue obsolete, and printing and transportation costs have been rising annually. The move also improves Penney's environmental footprint, reducing its catalog paper use by 30 percent next year.

Smaller, more frequent mailings of specialty catalogs targeting customers' shopping habits make more sense today, said Mike Boylson, Penney's chief marketing officer.

"It became a very ineffective way to communicate to our customers," he said. "It forced us to bring product in too early and locked in pricing. It was an outdated way of shopping and the last big book in America."
Penney has catalogs supporting its large home-goods business, including its private label Cooks kitchen catalog and Rooms Babies Love. Along with several women's and men's apparel catalogs, the company determined that shoppers increasingly use catalogs as "look books" and inspiration for their store and online purchases.

In the last two years, Penney consolidated its buying and marketing teams, which previously operated separately for stores, catalog and Internet sales.

"We had two buyers of everything, like Noah's Ark," he said. "The biggest, more important store items weren't even in the catalog."

Big Book sales have been on a decline since 2000 as more shoppers turn to jcp.com. Penney's online sales hit $1 billion a year in 2006. "It has an aging customer. Younger customers don't shop the Big Book," Boylson said.

Once 1,500 pages, Penney's Big Book dropped to well below 900 pages a few years ago. Since 2003, Penney has been shrinking its catalog operation, closing fulfillment centers and telemarketing operations. By 2004, about 40 percent of Penney's catalog shoppers were placing orders on jcp.com, instead of calling an 800 number.

Sales peaked in 1999 at about $4 billion. Penney stopped breaking out its catalog and Internet sales a few years ago. Penney's Big Book circulation topped out at 14 million. It printed 9 million copies of the final volume.

Catalog history
Penney got into the catalog business in 1963 after it bought a Milwaukee company.

The retailer promoted the catalog with a message similar to the words that it and other retailers use today about their online stores.

On the cover of that fall and winter issue, Penney said, "It's so new ... this new and bigger array of Penney selections ... the new convenient way to shop at Penneys ... the newest of all Penney 'stores' – this catalog."

It showed two sides of a golden seal. The front said, "Serving the American family/1902" and on the back, "A nationwide institution. Growing with the nation."

In 1993, Penney's profit surged on expanding catalog sales as it aggressively pursued Sears' catalog customers by getting its Sears Discover cardholder list and accepting the card as payment.

In January of that year, Sears Roebuck & Co. discontinued its 106-year-old catalog, known to generations as the original "big book." Sears' catalog went to 14 million households, but it had been losing money for years.

Christmas wish lists
The arrival of a big book from Sears, Penney, Montgomery Ward or Spiegel were big events, especially the fall and winter books because they were studied long and hard to come up with Christmas wish lists.

Former Rolling Stone writer Jancee Dunn, whose father and grandfather were J.C. Penney store managers, looks at the Penney catalog from a hilarious perspective in her latest autobiographical book, Why is My Mother Getting a Tattoo? The catalog also was integral in her 2006 book, But Enough About Me.

The catalogs were yearbooks of American life.

In her retrospectives on family life in the 1970s and '80s, Dunn recalled pieces sold through the catalog, such as "the Vidal Sassoon Hard Bonnet Hair Dryer, the Standard Toilet Lid Cover in Dusty Rose or Bronze Gold, the Cozy Recliner in Fashion Colors."

By the numbers: Cataloging sales

$4 billion:    Penney's peak catalog sales year in 1999
14 million:   The Big Book's highest circulation total
9 million:     Number of copies printed of final Big Book volume
40%:           Percentage of catalog shoppers using the Internet by 2004 to place orders
30%:           Reduction in Penney's catalog paper use by eliminating the Big Book

Allstate takes another step in remaking executive suite
By: Steve Daniels - Chicago Business
November 16, 2009

(Crain’s) — Allstate Corp. has named a 40-year-old executive from rival Travelers Cos. Inc. to run its key property and casualty insurance unit — the Northbrook-based giant’s third hiring of an outsider to take over a key executive function in the last six weeks.

Joseph Lacher Jr. will start Nov. 30 as president of Allstate Protection, the unit for the insurer’s core auto and home operations. He succeeds George Ruebenson, a 40-year veteran of Allstate who late last month announced he would retire at the end of the year.

In recent weeks, Allstate has h