-  + - + -  QUESTION OF THE WEEK  -  + - + -
RESULTS  from week of July 19

1. Have you participated in the Shop Your Ways program?
Yes:  40%           No:    60%

2. Have you heard of the  the Shop Your Ways program?
Yes:  80%           No:    20%

3. Have you entred the One Billion points contest?
Yes:  0%           No:    100%

Comments:
1. Have already rec'd a $40 gift card with my points
2. You have to know about something before you can decide if you want to do it or not. I hope someone who knows about it wins.
3. Don't think this program was very highly publicized or advertised.

Aetna Contracts CVS to Run PBM
By Avery Johnson - Wall Street Journal
July 28, 2010

Aetna Inc. is contracting out long-term administration of its pharmacy-benefit business to CVS Caremark Corp., in a 12-year agreement that could offer prescription-drug discounts to some 10 million members, the companies said Tuesday evening.

Aetna, a Hartford, Conn., health insurer, will become CVS Caremark's biggest customer under the arrangement. Aetna will retain ownership of its pharmacy-benefit manager, which runs prescription-drug programs for companies and negotiates prices for pharmacies, where prescriptions are actually filled.

CVS Caremark, of Woonsocket, R.I., will administer $9.5 billion in annual drug spending through its pharmacy network. The idea is that the pharmacy-benefit giant can wring bigger ...

The Antiquated Side of Sears: Its Pricing Systems
By Carol Tice - bnet.com
July 21, 2010

More evidence that Sears Holding Corp. (SHLD) isn’t investing in its Sears and Kmart chains came this week, with the company’s $1.1 million payout to settle a lawsuit that alleged the two chains charged customers more for merchandise than the prices they advertised.

Though Sears didn’t admit guilt, you can bet it was a real problem. This embarrassing development highlights the need for a systems upgrade at the chains if they’re to have a hope of staying competitive with other department-store chains.

The suit, filed by district attorneys in five California counties, also alleged the two department-store chains overcharged customers on recycling fees, and sometimes also charging the fee on items that don’t require it.

Oh brother.

This is basic, 21st Century retailing 101-level stuff. The prices your little checkout scanner comes up with for goods need to match your ads, or you can do massive damage to customers’ trust. Not to mention that getting it wrong breaks consumer-protection laws. And in this economy, more people are traipsing into stores clutching those ad circulars, and checking their receipts to make sure they got the sale price, so the timing of this revelation wasn’t good.

Now, to make the lawsuit go away, Sears and Kmart had to agree to conduct weekly in-store audits and submit to an independent, annual audit to make sure they’re not still ripping customers off. That’ll be fun. These kind of bonehead mistakes can only be happening two ways:

Either inventory and pricing systems aren’t up to snuff, or company IT professionals are asleep at the wheel in programming in prices. Or both.

Sears chairman Eddie Lampert has become renowned for his stinginess with Sears and Kmart, preferring to try to leverage the Internet and slash overhead to make more profits. But it may be impossible to ignore the need for modernized systems any longer.

Some retail-watchers scoffed when Nordstrom (JWN) spent $200 million to overhaul its systems for merchandise-tracking and pricing, nearly a decade ago. But the project has paid off in spades, allowing the company to reap fatter margins and increase sales.

Advanced inventory systems making it easier to locate items customers want, move merchandise to where it’s selling, and improve timing on markdowns. It costs, but it also can yield a fat payoff at a big chain.

Oh, and top-flight systems also make sure customers are charged advertised prices. Sears and Kmart need to get the hang of this basic retail skill, before customer disgust sends them into a sales tailspin.

Photo via Flickr user rutlo

Related:
Sears’ “Unrecognizable” Future Could be Fashion Outlets and the Internet
Sears Chairman Lampert Grasping at Straws in Apparel and With an Amazon-like “Marketplace”
Inside Eddie Lampert’s Brain: His Plan to Make Sears Both Bigger and Smaller

Power Move
(Refers to Sears Homan Avenue Power House)
By Conor Risch
July 20, 2010

In 2006 Chicago-based architectural and fine-art photographer Darris Lee Harris was among a group of artists given access to The Homan Square Power House, a massive structure built in 1905 that provided heat and electricity for the Sears, Roebuck and Company administrative headquarters complex on Chicago’s West Side. The power house was designed by noted Chicago architect George Nimmons and is listed, as part of the Sears complex, on the National Register of Historic Places.

Before the Illinois-based, non-profit Homan-Arthington Foundation began renovating the power house to turn it into a high school—part of a larger renovation of the entire Sears complex begun in the late 1980s—the organization reached out to artists in the Chicago area offering them access to the structure for the purpose of creating artwork that took the historic building as inspiration.

Harris received word of the opportunity in an email from his gallery, ArchiTech, and was immediately intrigued when he saw a single jpeg of a valve wheel in the old building. A week later he was exploring the power house with his camera. The foundation, Harris says, didn’t require anything of him, nor was there a stated goal for the work he produced. “Just do your thing and we’ll see what we get,” was the modus operandi, he recalls.

What began as an unguided artistic opportunity eventually grew into a book project and solid promotional opportunity for Harris. “The very first time I walked into that space my gut told me it was going to be a positive thing,” he recalls. “I wasn’t quite sure how, but I just knew that I wanted to be in there photographing and eventually good things would come of it.”

The huge range of light in the old power facility, which was a maze of boilers and generators and piping, was the biggest challenge to photographing there, Harris says. The skylight roof, four stories overhead, was the main lightsource, and as he worked his way down to the lower floors of the open-plan buidling he was faced with gradually darker conditions.

“The views that encompass more than one or two levels, even though the quality of light is kind of flat, that was achieved through post production afterwards, and blending out that high contrast of light quality,” Harris says. “A lot of images were on 4x5 film, so at f/32 you’ve got 25-minute exposures. I was able to take a nap on some of the shots because they were so long.”

Harris photographed at the Power House in October and November of 2006. But after exploring the space, which he says was a “visually dense array of catwalks and tubes going in every direction,” he knew he wanted to return following the renovation to take the “after” images that would complement the “before” photographs he’d been making. He was able to get back into the renovated building, now known as the Henry Ford Academy: Power House High, in September 2009.

When Harris suggested the foundation create a book about the renovation project, they were initially hesitant due to budgetary concerns. But after Harris showed them a Blurb book of his photographs that he’d created they were “bowled over,” he says. The book has been used as a gift for donors who supported the renovation project and sold through the school.

Harris, who shoots commercially for Padgett and Company, a Chicago architecture, exhibit and retail photography firm, was also able to license his images to the construction company who worked on the renovation. He also licensed the images to the school, then donated the money from the licensing fees back to them.

The book has made a great piece to carry to client meetings with his portfolio and to send to potential clients, he says. The project conveys “my vision and my ability to find a creative image,” and it also illustrates that he’s capable of executing a major project. Harris believes the project will also help him appeal to architecture clients as an increasing amount of their work involves re-purposing and rebuilding existing structures.

Life lessons learned at Sears
Bill Eggert - for the Tribune-Democrat  - Johnstown, PA
July 17, 2010

— Do you remember your first job?

Not counting mowing neighbors’ lawns, my first job was as a part-time sales clerk at Sears, Roebuck and Co. – or as my dad would say, “Sears and Sawbucks” – when I was in college.

Back then Sears was at University Park Plaza (in the building that now houses Blockbuster and Big Lots), and I was there when they moved up to the “new” Richland Mall (now the site of Wal-Mart).

Its advertising slogan at that time was “Sears has everything.”

While the store did not really sell everything (such as important things like comic books and baseball cards) it did seem to have all the essentials, from clothing to electronics, paint, and sporting goods, even candy and flowers.

If you walk through the latest version of Sears (in The Galleria now for about 20 years) you will find it still has many of the items that it had in the past.

But this is not a commercial about Sears the store. This is a column about Sears employees and what things I learned about life as an impressionable kid.

What I learned, besides the fact that the customer was always right, was how to deal with people – not only the customers, but with my fellow employees and bosses. And what was that? Just that everyone is different; everyone responds differently to different situations, different stressors.

Many guys were named John, Don, Jim, Bob, Henry and Bill.

I used to do imitations of many of them at work because their personalities were so distinctive.

The electronics manager, “Hap,” used to call everyone “Doctor.” Why, I don’t know, but we enjoyed it.

Johnny G. was the head of displays, and his two lieutenants, Glenn and Bob, were constantly in motion changing displays.

Johnny used to call me “young fellow.” Back then, I guess I was.

Another John, Johnny B. from Windber, sold appliances and used to tell me stories about ice fishing. He was a nice, middle-aged guy with a dry sense of humor. He also told me that when customers exhibited bizarre behaviors on any particular night, I should check the sky when I left work.

“You will always see a full moon, Bill,” he said. And I always did.

Another of my favorites was Paul T., the tailor. Everyone teased Paul about his coffee breaks, but I had never seen anyone work more diligently.

Paul was also a very nice guy who was always cheerful and friendly to everyone.

My best friends were guys my own age who worked in my department or near it: Scott W. (a fellow Richland grad), Rick T,. Bud N,. Frank G. and Bernie R.

We are still friends and keep in touch to this day. Of course, we are now the middle-aged guys, but the years seem to melt away when we discuss the old days.

Almost everyone was friends with each other at Sears. It seemed like family back then.

Recently I met with a group of Sears retirees and enjoyed the reunion.

I still run into old Sears employees even now: Bob S. at Elks’ events, Bob N. at Wal-Mart, Henry S. around town.

I’ve been thinking about Sears because I read in the obituaries that my old boss, Don H, passed a few days ago. Don was my boss in the menswear department.

Don resembled Johnny Carson and was always the best-dressed guy at Sears. I took my style cues from Don and grew to appreciate suits and sport coats.

Don was a low-key guy with a good sense of humor. Nothing seemed to rattle him, and working in a sometimes stressful environment like retail, I always appreciated that. He was approachable and down to earth, and yet he quietly commanded your respect as boss.

That was a rare quality back then and still is today.

Don joins the ranks of other Sears employees who have left us, and I mourn their passing.

But I will always remember those life lessons they taught me by example when I was just a “young fellow.”

Bill Eggert is a Johnstown resident and regular community columnist.

Sears and Kmart to pay $1.1M in pricing lawsuit
By  Kelly Puente, Staff Writer
Long Beach, California Press-Telegram
July 19, 2010

LOS ANGELES - Sears, Roebuck and Co. and Kmart on Monday agreed to pay $1.1 million to settle a civil lawsuit alleging the retailers engaged in dishonest business practices by charging customers more than the advertised prices.

Both companies agreed to the settlement without admitting liability, according to a statement from the Los Angeles County District Attorney's Office, which filed the complaint along with five other California counties - Marin, Alameda, Sonoma, Santa Clara and Santa Cruz.

The civil action stems from an investigation into pricing and scanning practices conducted by various California weights and measures agencies. That investigation revealed that Sears and Kmart charged more than the advertised prices. The investigation also revealed that Kmart violated the California Beverage Container Recycling and Litter Reduction Act by charging more for California Redemption Value (CRV) beverage containers than allowed by law. Consumers pay CRV when they purchase beverages from a retailer, which is then refunded when they recycle the containers at a recycling center. Kmart also charged consumers the CRV fee for containers not covered under state law, according to the statement.

Sears and Kmart, whose headquarters are based in Hoffman Estates, Ill., agreed to pay civil penalties and other legal costs. The companies further agreed to stop making false or misleading statements to the public with respect to the price of items advertised for sale.

Sears and Kmart will be required to conduct in-store audits once a week and will be subject to independent, third-party audits at least once a year.

Retired executive dies pursuing sport he loved
By Charles Keeshan and Bob Susnjara - Daily Herald Staff
July 12, 2010

John T. Sloan started pursuing his passion for swimming after retiring in his early 50s from a corporate career that included top jobs at United Stationers Inc. and the former Sears Roebuck and Co.

Mr. Sloan, 58, of Lake Forest, died Saturday morning while participating in the sport that his wife said took him to masters competitions from California to Australia.

"I remember him smiling and always enjoying himself," Barbara Sloan said of her late husband Sunday afternoon.

Mr. Sloan also became certified in his retirement so he could serve as one of the coaches for the prestigious Lake Forest Swim Club, his wife said.

Preliminary McHenry County coroner's office findings show Mr. Sloan suffered a heart attack during a swimming competition on Crystal Lake.

He was pronounced dead a little after 9 a.m. Saturday in the emergency room of Centegra Hospital-Woodstock, where he had been rushed after unsuccessful efforts to revive him on the lakeshore, Deputy McHenry County Coroner Curt Bradshaw said.

Additional tests will be conducted, including toxicology, although there is no indication drugs or alcohol played a role in Mr. Sloan's death, Bradshaw said after Sunday's autopsy.

Officials said Sloan was participating in the Crystal Lake Park District's Open Water Swim Race when he was observed going off course Saturday morning.

A lifeguard in a boat approached and asked if he needed assistance, according to a park district statement. Mr. Sloan continued swimming, and the lifeguard again asked if he needed help before extending a rescue tube to him.

"At that point, the swimmer became passive and the lifeguard immediately entered the water and brought the swimmer to shore where trained lifeguards responded immediately," reads the park district's statement on the incident.

Park district officials said there were 210 swimmers participating in the race, another 150 spectators on shore and 50 lifeguards keeping watch. Mr. Sloan, a New Jersey native who attended Fordham and Cornell universities, started his corporate career with the former Philip Morris Cos. Inc. He worked his way to Sears where he moved up to executive vice president of human resources, then jumped to a similar post at United Stationers' headquarters in Deerfield in 2002 before his retirement about four years ago.

Barbara Sloan said she and her husband were married 28 years. Mr. Sloan also is survived by three children.

Mr. Sloan participated in at least 100 swim meets since his retirement, his wife said.

HEALTH CARE REFORM BILL TIMELINE

Recently, the Kaiser Family Foundation published a Health Reform Implementation Timeline that provides a very concise description of the Health Care Reform bill and when its various elements will be implemented. Set forth below is the KFF timeline summary.

The implementation timeline reflects the provisions of the Patient Protection and Affordable Care Act, which President Obama signed on March 23, 2010, as well as provisions in the Health Care & Education Reconciliation Act, which was signed on March 30, 2010.

It includes more than a dozen key provisions scheduled to take effect in 2010, including the creation of a national high-risk pool for people with pre-existing conditions that can't buy insurance on their own, tax credits for small businesses that obtain health coverage for their workers and assistance for Medicare beneficiaries with high drug costs who get hit by the drug benefit's coverage gap or "doughnut hole," and continues through 2014, when the major reforms to expand access to health coverage are fully implemented.

2010

Insurance Reforms
Establish a temporary national high-risk pool to provide health coverage to individuals with pre-existing medical conditions. (Effective 90 days following enactment until January 1, 2014)

Provide dependent coverage for adult children up to age 26 for all individual and group policies.

Prohibit individual and group health plans from placing lifetime limits on the dollar value of coverage and prior to 2014, plans may only impose annual limits on coverage as determined by the Secretary. Prohibit insurers from rescinding coverage except in cases of fraud and prohibit pre-existing condition exclusions for children.

Require qualified health plans to provide at a minimum coverage without cost-sharing for preventive services rated A or B by the U.S. Preventive Services Task Force, recommended immunizations, preventive care for infants, children, and adolescents, and additional preventive care and screenings for women.

Provide tax credits to small employers with no more than 25 employees and average annual wages of less than $50,000 that purchase health insurance for employees.

Create a temporary reinsurance program for employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare. (Effective 90 days following enactment until January 1, 2014)

Require health plans to report the proportion of premium dollars spent on clinical services, quality, and other costs and provide rebates to consumers for the amount of the premium spent on clinical services and quality that is less than 85% for plans in the large group market and 80% for plans in the individual and small group markets. (Requirement to report medical loss ratio effective plan year 2010; requirement to provide rebates effective January 1, 2011)

Establish a process for reviewing increases in health plan premiums and require plans to justify increases. Require states to report on trends in premium increases and recommend whether certain plan should be excluded from the Exchange based on unjustified premium increases.

Medicare
Provide a $250 rebate to Medicare beneficiaries who reach the Part D coverage gap in 2010 and gradually eliminate the Medicare Part D coverage gap by 2020.

Expand Medicare coverage to individuals who have been exposed to environmental health hazards from living in an area subject to an emergency declaration made as of June 17, 2009 and have developed certain health conditions as a result.

Improve care coordination for dual eligibles by creating a new office within the Centers for Medicare and Medicaid services, the Federal Coordinated Health Care Office.

Reduce annual market basket updates for inpatient and outpatient hospital services, long-term care hospitals, inpatient rehabilitation facilities, and psychiatric hospitals and units.

Ban new physician-owned hospitals in Medicare, requiring hospitals to have a provider agreement in effect by December 31; limit the growth of certain grandfathered physician-owned hospitals.

Medicaid
Create a state option to cover childless adults though a Medicaid state plan amendment.

Create a state option to provide Medicaid coverage for family planning services up to the highest level of eligibility for pregnant women to certain low-income individuals through a Medicaid state plan amendment.

Create a new option for states to provide Children's Health Insurance Program (CHIP) coverage to children of state employees eligible for health benefits if certain conditions are met.

Increase the Medicaid drug rebate percentage for brand name drugs to 23.1% (except the rebate for clotting factors and drugs approved exclusively for pediatric use increases to 17.1%); increase the Medicaid rebate for non-innovator, multiple source drugs to 13% of average manufacturer price; and extend the drug rebate to Medicaid managed care plans.

Provide funding for and expand the role of the Medicaid and CHIP Payment and Access Commission to include assessments of adult services (including those dually eligible for Medicare and Medicaid).

Require the Secretary of HHS to issue regulations to establish a process for public notice and comment for section 1115 waivers in Medicaid and CHIP.

Prescription Drugs
Authorize the Food and Drug Administration to approve generic versions of biologic drugs and grant biologics manufacturers 12 years of exclusive use before generics can be developed.

Quality Improvement
Support comparative effectiveness research by establishing a non-profit Patient-Centered Outcomes Research Institute.

Establish a commissioned Regular Corps and a Ready Reserve Corps for service in time of a national emergency.

Reauthorize and amend the Indian Health Care Improvement Act.

Workforce
Establish the Workforce Advisory Committee to develop a national workforce strategy.

Increase workforce supply and support training of health professionals through scholarships and loans.

Tax Changes
Impose additional requirements on non-profit hospitals. Impose a tax of $50,000 per year for failure to meet these requirements.

Limit the deductibility of executive and employee compensation to $500,000 per applicable individual for health insurance providers.

Impose a tax of 10% on the amount paid for indoor tanning services.

Exclude unprocessed fuels from the definition of cellulosic biofuel for purposes of applying the cellulosic biofuel producer credit.

Clarify application of the economic substance doctrine and increase penalties for underpayments attributable to a transaction lacking economic substance.

2011

Long-term Care
Establish a national, voluntary insurance program for purchasing community living assistance services and supports (CLASS program).

Medical Malpractice
Award five-year demonstration grants to states to develop, implement, and evaluate alternatives to current tort litigations.

Prevention/Wellness
Eliminate cost-sharing for Medicare covered preventive services that are recommended (rated A or B) by the U.S.

Preventive Services Task Force and waive the Medicare deductible for colorectal cancer screening tests. Authorize the Secretary to modify or eliminate Medicare coverage of preventive services based on recommendations of the U.S. Preventive Services Task Force.

Provide Medicare beneficiaries access to a comprehensive health risk assessment and creation of a personalized prevention plan and provide incentives to Medicare and Medicaid beneficiaries to complete behavior modification programs.

Provide grants for up to five years to small employers that establish wellness programs.

Establish the National Prevention, Health Promotion and Public Health Council to develop a national strategy to improve the nation's health.

Require chain restaurants and food sold from vending machines to disclose the nutritional content of each item.

Medicare
Require pharmaceutical manufacturers to provide a 50% discount on brand-name prescriptions filled in the Medicare Part D coverage gap beginning in 2011 and begin phasing-in federal subsidies for generic prescriptions filled in the Medicare Part D coverage gap.

Provide a 10% Medicare bonus payment to primary care physicians, and to general surgeons practicing in health professional shortage areas. (Effective 2011 through 2015)

Restructure payments to Medicare Advantage plans by setting payments to different percentages of Medicare fee-for-service rates.

Prohibit Medicare Advantage plans from imposing higher cost-sharing requirements for some Medicare covered benefits than is required under the traditional fee-for-service program.

Provide Medicare payments to qualifying hospitals in counties with the lowest quartile Medicare spending for 2011 and 2012.

Freeze the income threshold for income-related Medicare Part B premiums for 2011 through 2019 at 2010 levels, and reduce the Medicare Part D premium subsidy for those with incomes above $85,000/individual and $170,000/couple.

Create an Innovation Center within the Centers for Medicare and Medicaid Services.

Medicaid
Prohibit federal payments to states for Medicaid services related to health care acquired conditions.

Create a new Medicaid state plan option to permit Medicaid enrollees with at least two chronic conditions, one condition and risk of developing another, or at least one serious and persistent mental health condition to designate a provider as a health home. Provide states taking up the option with 90% FMAP for two years for health home related services including care management, care coordination and health promotion. Create the State Balancing Incentive Program in Medicaid to provide enhanced federal matching payments to increase non-institutionally based long-term care services. Establish the Community First Choice Option in Medicaid to provide community-based attendant support services to certain people with disabilities.

Quality Improvement
Develop a national quality improvement strategy that includes priorities to improve the delivery of health care services, patient health outcomes, and population health.

Establish the Community-based Collaborative Care Network Program to support consortiums of health care providers to coordinate and integrate health care services, for low-income uninsured and underinsured populations.

Establish a new trauma center program to strengthen emergency department and trauma center capacity.

Improve access to care by increasing funding by $11 billion for community health centers and by $1.5 billion for the National Health Service Corps over five years; establish new programs to support school-based health centers and nurse-managed health clinics.

Workforce
Establish Teaching Health Centers to provide payments for primary care residency programs in community-based ambulatory patient care centers.

Tax Changes
Exclude the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed through a health reimbursement account or health flexible spending account and from being reimbursed on a tax-free basis through a health savings account or Archer medical savings account.

Increase the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% of the disbursed amount.

Impose new annual fees on the pharmaceutical manufacturing sector.

2012

Medicare
Make Part D cost-sharing for full-benefit dual eligible beneficiaries receiving home and community-based care services equal to the cost-sharing for those who receive institutional care.

Allow providers organized as accountable care organizations (ACOs) that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program.

Reduce Medicare payments that would otherwise be made to hospitals by specified percentages to account for excess (preventable) hospital readmissions.

Reduce annual market basket updates for home health agencies, skilled nursing facilities, hospices, and other Medicare providers.

Create the Medicare Independence at Home demonstration program.

Establish a hospital value-based purchasing program in Medicare and develop plans to implement value-based purchasing programs for skilled nursing facilities, home health agencies, and ambulatory surgical centers.

Provide bonus payments to high-quality Medicare Advantage plans.

Reduce rebates for Medicare Advantage plans.

Medicaid
Create new demonstration projects in Medicaid to pay bundled payments for episodes of care that include hospitalizations (effective January 1, 2012 through December 31, 2016); to make global capitated payments to safety net hospital systems (effective fiscal years 2010 through 2012); to allow pediatric medical providers organized as accountable care organizations to share in cost-savings (effective January 1, 2012 through December 31, 2016); and to provide Medicaid payments to institutions of mental disease for adult enrollees who require stabilization of an emergency condition (effective October 1, 2011 through December 31, 2015).

Quality Improvement
Require enhanced collection and reporting of data on race, ethnicity, sex, primary language, disability status, and for underserved rural and frontier populations.

2013

Insurance Reforms
Create the Consumer Operated and Oriented Plan (CO-OP) program to foster the creation of non-profit, member-run health insurance companies in all 50 states and the District of Columbia to offer qualified health plans. (Appropriate $6 billion to finance the program and award loans and grants to establish CO-OPs by July 1, 2013.)

Simplify health insurance administration by adopting a single set of operating rules for eligibility verification and claims status (rules adopted July 1, 2011; effective January 1, 2013), electronic funds transfers and health care payment and remittance (rules adopted July 1, 2012; effective January 1, 2014), and health claims or equivalent encounter information, enrollment and disenrollment in a health plan, health plan premium payments, and referral certification and authorization (rules adopted July 1, 2014; effective January 1, 2016). Health plans must document compliance with these standards or face a penalty of no more than $1 per covered life. (Effective April 1, 2014.)

Prevention/Wellness
Provide states that offer Medicaid coverage of and remove cost-sharing for preventive services recommended (rated A or B) by the U.S. Preventive Services Task Force and recommended immunizations with a one percentage point increase in the federal medical assistance percentage (FMAP) for these services.

Medicare
Begin phasing-in federal subsidies for brand-name prescriptions filled in the Medicare Part D coverage gap (to 25% in 2020, in addition to the 50% manufacturer brand-name discount).

Establish a national Medicare pilot program to develop and evaluate paying a bundled payment for acute, inpatient hospital services, physician services, outpatient hospital services, and post-acute care services for an episode of care.

Medicaid
Increase Medicaid payments for primary care services provided by primary care doctors for 2013 and 2014 with 100% federal funding.

Quality Improvement
Require disclosure of financial relationships between health entities, including physicians, hospitals, pharmacists, other providers, and manufacturers and distributors of covered drugs, devices, biologicals, and medical supplies.

Tax Changes
Increase the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of adjusted gross income to 10% of adjusted gross income for regular tax purposes; waive the increase for individuals age 65 and older for tax years 2013 through 2016.

Increase the Medicare Part A (hospital insurance) tax rate on wages by 0.9% (from 1.45% to 2.35%) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly and impose a 3.8% assessment on unearned income for higher-income taxpayers.

Limit the amount of contributions to a flexible spending account for medical expenses to $2,500 per year increased annually by the cost of living adjustment.

Impose an excise tax of 2.3% on the sale of any taxable medical device.

Eliminate the tax-deduction for employers who receive Medicare Part D retiree drug subsidy payments.

2014

Individual and Employer Requirements
Require U.S. citizens and legal residents to have qualifying health coverage (phase-in tax penalty for those without coverage).

Assess employers with 50 or more employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. Employers with 50 or more employees that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees from the assessment. Require employers with more than 200 employees to automatically enroll employees into health insurance plans offered by the employer. Employees may opt out of coverage.

Insurance Reforms
Create state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage.

Require guarantee issue and renewability and allow rating variation based only on age (limited to 3 to 1 ratio), premium rating area, family composition, and tobacco use (limited to 1.5. to 1 ratio) in the individual and the small group market and the Exchanges.

Reduce the out-of-pocket limits for those with incomes up to 400% FPL to the following levels: 100-200% FPL: one-third of the HSA limits ($1,983/individual and $3,967/family in 2010); 200-300% FPL: one-half of the HSA limits ($2,975/individual and $5,950/family in 2010); 300-400% FPL: two-thirds of the HSA limits ($3,987/individual and $7,973/family in 2010).

Limit deductibles for health plans in the small group market to $2,000 for individuals and $4,000 for families unless contributions are offered that offset deductible amounts above these limits.

Limit any waiting periods for coverage to 90 days.

Create an essential health benefits package that provides a comprehensive set of services, covers at least 60% of the actuarial value of the covered benefits, limits annual cost-sharing to the current law HSA limits ($5,950/individual and $11,900/family in 2010), and is not more extensive than the typical employer plan.

Require the Office of Personnel Management to contract with insurers to offer at least two multi-state plans in each Exchange. At least one plan must be offered by a non-profit entity and at least one plan must not provide coverage for abortions beyond those permitted by federal law.

Permit states the option to create a Basic Health Plan for uninsured individuals with incomes between 133-200% FPL who would otherwise be eligible to receive premium subsidies in the Exchange.

Allow states the option of merging the individual and small group markets.

Create a temporary reinsurance program to collect payments from health insurers in the individual and group markets to provide payments to plans in the individual market that cover high-risk individuals.

Require qualified health plans to meet new operating standards and reporting requirements.

Premium Subsidies
Provide refundable and advanceable premium credits and cost sharing subsidies to eligible individuals and families with incomes between 133-400% FPL to purchase insurance through the Exchanges.

Medicare
Reduce the out-of-pocket amount that qualifies an enrollee for catastrophic coverage in Medicare Part D (effective through 2019).

Establish an Independent Payment Advisory Board comprised of 15 members to submit legislative proposals containing recommendations to reduce the per capita rate of growth in Medicare spending if spending exceeds a target growth rate.

Reduce Medicare Disproportionate Share Hospital (DSH) payments initially by 75% and subsequently increase payments based on the percent of the population uninsured and the amount of uncompensated care provided. Require Medicare Advantage plans to have medical loss ratios no lower than 85%.

Medicaid
Expand Medicaid to all non-Medicare eligible individuals under age 65 (children, pregnant women, parents, and adults without dependent children) with incomes up to 133% FPL based on modified adjusted gross income (MAGI) and provide enhanced federal matching for new eligibles.

Reduce states' Medicaid Disproportionate Share Hospital (DSH) allotments.

Increase spending caps for the territories.

Prevention/Wellness
Permit employers to offer employees rewards of up to 30%, increasing to 50% if appropriate, of the cost of coverage for participating in a wellness program and meeting certain health-related standards. Establish 10-state pilot programs to permit participating states to apply similar rewards for participating in wellness programs in the individual market.

Tax Changes
Impose fees on the health insurance sector.

2015 and later

Insurance Reforms
Permit states to form health care choice compacts and allow insurers to sell policies in any state participating in the compact. (Compacts may not take effect before January 1, 2016.)

Medicare Reduce
Medicare payments to certain hospitals for hospital-acquired conditions by 1%. (Effective fiscal year 2015.)

Tax Changes
Impose an excise tax on insurers of employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage. (Effective January 1, 2018.)

Stamp prices Going Up Again: 46 cent Rate Asked
By Randolph E. Schmid, AP
July 6, 2010

Buy those Forever stamps now. The cost of mailing a letter is going up again.

Fighting to survive a deepening financial crisis, the Postal Service said Tuesday it wants to increase the price of first-class stamps by 2 cents — to 46 cents — starting in January. Other postage costs would rise as well.

The agency's persisting problem: ever-declining mail volume as people and businesses shift to the Internet and the declining economy reduces advertising mail.

"The Postal Service faces a serious risk of financial insolvency," postal vice president Stephen M. Kearney said, an indication that without significant changes a time could come when the agency would be unable to pay its bills.

The post office lost $3.8 billion last year, despite cutting 40,000 full-time positions and making other reductions, and Kearney said it is facing a $7 billion loss for this year and the same for fiscal 2011, which begins in October. The rate increase would bring in $2.5 billion, meaning there still would be a large loss for next year.

The post office, though part of the government, does not receive a tax subsidy for its operations.

While the cost of a first-class stamp would go up, people who bought Forever stamps at the current 44 cents or at lower prices would still be able to use them without paying the difference.

Officials also said they plan a new design for Forever stamps, which currently have am image of the Liberty Bell. New Forever stamps will have images of evergreen trees. All Forever stamps would remain valid.

Under the proposed increases, in addition to the 46-cent rate for the first ounce, the cost for each additional ounce would go up a penny to 18 cents. The cost to mail a postcard would go up 2 cents to 30 cents.

The price to send periodicals would go up about 8 percent, and other rates for advertising mail, parcels and services would rise by varying amounts.

The current 44-cent first-class rate took effect May 11, 2009.

The rate increases proposed Tuesday now go to the independent Postal Regulatory Commission, which has 90 days to respond. If approved the new prices would take effect Jan. 2, Kearney said. Besides the first-class increase, postage costs would rise an average of 5 percent.

After going more than three years without an increase, the post office has raised stamp prices annually since 2006.

The latest increase is part of a series of deficit-fighting plans, announced in March, that include reducing mail deliveries to five days a week, closing offices and making other cuts in expenses. Congress would have to agree to eliminating deliveries on Saturdays.

The weak economy has sharply reduced mail volume as companies cut their advertising. At the same time there has been a significant drop in lucrative first-class mail, with more and more people turning to the Internet to communicate with each other as well as to receive and pay bills.

The proposal drew a quick complaint from the mailing industry.

"This proposed rate increase amounts to another tax imposed on Americans at a time when the economy can least afford it," said Tony Conway, executive director of the Alliance of Nonprofit Mailers, a group representing charities and other organizations.

"Consumers everywhere will pay more for the letters and packages they need to send; businesses — large and small — will suffer, and even more jobs will be lost," complained Conway, who was designated spokesman for the Affordable Mail Alliance, a coalition of businesses, charities and other mailers formed to oppose the increase.

Post office finances are complicated by a requirement that the agency make annual payments of more than $5 billion to fund future health benefits for retirees, something not required of other government agencies. The post office avoided financial disaster last year only after Congress allowed it to delay $4 billion of that payment.

The postal inspector general also contends that the Postal Service has been overcharged billions of dollars for retirement benefits for employees who worked for the old Post Office Department before it was converted to the Postal Service in 1970.

Wal-Mart Executive Departs as Retailer's Top Ranks Shift
Merchandising Chief Fleming's Resignation
Follows Naming of U.S. Stores Head
By Miguel Bustillo - Wall Street Journal
July 3, 2010

The shake-up of top executives at Wal-Mart Stores Inc. continued Friday when the retailer announced that its chief merchandising officer is leaving the company.

John Fleming, a former Target Corp. executive, was widely credited with helping rejuvenate Wal-Mart's product assortment.

But Mr. Fleming, 51 years old, came under pressure more recently as a Wal-Mart strategy to drastically reduce the number of items it carries backfired, costing the company sales.

After he was passed over for the U.S. stores chief position this week in favor of U.S. Chief Operating Officer Bill Simon, Mr. Fleming decided it was time to reconsider his work-life balance and leave the Bentonville, Ark., retailer, people familiar with the matter said.

Mr. Fleming, whose children still live in Minnesota near Target's headquarters, is set to depart Aug. 1. He has a noncompete agreement that bars him from joining rivals for two years. He couldn't be reached for comment, and Wal-Mart declined to make him available.

"John's been thinking about how he could spend more time with his family," Wal-Mart spokesman David Tovar said. "The changes announced earlier this week presented him with an opportunity and he decided it was the right time for him to leave the company."

Wal-Mart has reported sales declines for four consecutive quarters at U.S. stores open at least a year—a prolonged slump for the world's largest retailer.

The company saw its U.S. sales jump during the start of the recession two years ago, but they have lagged since, even as other retailers report a slow rise in consumer spending.

Some analysts said Friday that Mr. Fleming's departure may be a good time for Wal-Mart to shift tactics in light of its recent struggles.

"We look for Wal-Mart to take a fresh look at its current merchandising/marketing strategy, which frankly needs a major overhaul in light of declining traffic and sales trends," Charles Grom of JP Morgan wrote in a note to investors, adding that Mr. Fleming's departure may be related to "the aforementioned lack of success of his strategies and Mr. Simon's desire to begin his term with a fresh viewpoint."

Wal-Mart has acknowledged that the move to simplify its offerings by removing thousands of brands and products from shelves went too far, and has since brought back items to keep consumers from searching elsewhere.

But executives played down the ramifications of the slipup, characterizing the shift to a less-cluttered product lineup as an overall success.

Mr. Fleming's departure came three days after Wal-Mart announced that Vice Chairman Eduardo Castro-Wright was leaving his position as U.S. stores chief to focus on initiatives to reduce global sourcing costs and expand the company's e-commerce business around the world.

Mr. Castro-Wright, 55, was once considered a candidate for Wal-Mart chief executive but was passed over in favor of Mike Duke, who became CEO last year.

Mr. Castro-Wright said in a memo to employees that the job change would allow him to spend more time with his ill wife, who recently underwent a heart transplant in California.

Mr. Simon, 50, is now seen by people inside and outside Wal-Mart as a more likely successor to Mr. Duke than Mr. Castro-Wright, though international head Doug McMillon remains the leading candidate.

Mr. Simon thanked Mr. Fleming for his contributions over the past 10 years in a memo to employees on Friday, calling him an "architect of groundbreaking efforts," and said that two executives would take his place until a permanent replacement is found.

Jack Sinclair, executive vice president of grocery, will lead the food and health and wellness merchandising teams, while John Westling, executive vice president of planning, pricing and replenishment, leads the team in charge of general merchandise.

Everyday Low Politics
How Wal-Mart gamed financial reform
By Stephen Moore - Wall Street Journal Politial Diary
July 2, 2010

"Big is bad" is one of the themes of the financial services reform bill, but not when it comes to retailers. Wal-Mart is emerging one of the biggest winners, thanks to new rules giving the Federal Reserve the power to regulate credit and debit card "swipe fees."

A lobbyist for one of the country's largest credit card issuers calls the FinReg bill "a transfer of $20 billion from the credit card companies to the retailers, and a big share of that wealth will go into the pockets of Wal-Mart."

The credit card firms think they smell a rat. Just days before the vote in the Senate to knife the banks with caps on credit card fees, Wal-Mart announced a $20 million donation to Chicago-area charities. The retail giant also announced an intention to open several new stores in the Windy City. So what's the connection to the legislation? The man who carried the ball almost single-handedly on the bill was Illinois Senator Richard Durbin. "This bill wouldn't have happened without Durbin," says one credit card spokesman.

Wal-Mart dismissed any idea of a payoff for a big political favor. The company says it routinely gives to Chicago charities -- $10 million over the last five years -- though the latest gift for 2010 still represents about a 10-fold increase in Wal-Mart's generosity.

The story doesn't end there. Behind the scenes, Senator Blanche Lincoln, one of the chief architects of the Wall Street bill, is working to attach an amendment to benefit an Arkansas bank, the Arvest Bank Group Inc. of Bentonville. Arvest is predominantly owned by the Walton family, founders of Wal-Mart. So who says the financial services bill is bad for American businesses? Some -- like Wal-Mart -- come out smelling like a rose.

Wal-Mart tops retailers list as dollar stores jump ahead
Among top 10, Target climbs from 5th to 3rd; Ikea debuts on top 100
By Sandra M. Jones, reporter - Chicago Tribune
July 1, 2010

In one more sign that the recession has left a surge of frugal consumers in its wake, dollar stores and discounters climbed the ranks of the retail industry's annual list of biggest retailers.

The National Retail Federation's list of the top 100 U.S. retailers by revenue, to be released Thursday, saw Dollar General, Family Dollar and Dollar Tree make substantial gains in 2009.

All three dollar-store chains added more locations in the past year as unemployment rose and Americans trimmed their budgets. The stores, once known for their unruly shelves of odds and ends, have moved into the mainstream during the recession, attracting new shoppers with brighter, well-organized stores carrying a broader assortment of food, clothing and home goods.

Dollar General climbed seven spots on the list to No. 28, Family Dollar rose 11 notches to No. 45 and Dollar Tree jumped 15 places to No. 61.

Similarly Big Lots, the general merchandise closeout retailer, rose five slots to No. 70. Aldi, the discount grocer that has been on an expansion tear, soared to No. 44 from No. 59. And Ikea North America, the low-priced home goods and furniture chain, joined the list for the first time at No. 92.

Wal-Mart again held its standing as the world's largest retailer with $304.9 billion in U.S. sales, generating almost as much revenue as the next five biggest U.S. retailers combined: Kroger, Target, Walgreens, Home Depot and Costco. Rounding out the top 10 list are CVS Caremark, Lowe's, Sears Holdings (which includes Kmart) and Best Buy.

"It's hard to imagine a list without Wal-Mart at the top anytime in the foreseeable future," said Mary Brett Whitfield, senior vice president at Kantar Retail, the market research firm that compiled the list. "However, as Ikea's debut and the movement of the small-format value retailers indicates, there is still plenty of opportunity for the rest of the list to be reshaped as the retail landscape evolves."

Among the top 10, Target made the biggest gains, rising to No. 3 from No. 5, as the trendy discount chain expanded its grocery business and emphasized price over fashion in its stores and advertising campaigns.

Meanwhile, Costco slipped from the No. 3 slot last year to No. 6. The wholesale club, known for rows of tables stocked with an ever-changing array of designer jeans and stacks of name-brand cookware, saw sales fall as shoppers cut back on impulse purchases.

Among the retailers that fell off the list: Blockbuster, the money-losing video rental chain that has been closing stores and reorganizing as it battles a growing list of rivals, including mail-order firm Netflix and kiosk vendor RedBox.

Brick-and-mortar stores add to online arsenals
Retailers are hoping to claim some of the market share from their online-only rivals by improving their Web sites, online customer service and adding a pickup option
By Andrea Chang, Tribune Newspapers - Chicago Tribune
July 1, 2010

When shoppers at J.C. Penney Co. stores can't find what they want, sales clerks are steering them to the Internet — not at their home computers, but at new kiosks inside the stores.

Meanwhile, even Macy's Inc. is doubling down on its dot-com. The company, whose name is almost synonymous with "department store," has seen its online sales rocket more than 50 percent in the last two years. It recently junked its standard cash registers for 50,000 high-tech ones that can check online for items that are out of stock in the store and place orders directly for customers.

Welcome to Online Retailing 2.0. Traditional brick-and-mortar retailers once outsourced their online sales to specialty "fulfillment" companies. Today, they are running their own online operations — and increasingly challenging their executive brainpower to find more sophisticated ways to compete with online retailers such as Amazon.com Inc.

"When you look at the big retailers, they clearly have not grown online at the same rate as Amazon has," said Marshal Cohen, chief industry analyst at market research firm NPD Group. "The online business has been the redheaded stepchild. That's starting to change."

Online revenue still accounts for a small percentage of total retail sales. Although online sales totaled $134 billion last year, the National Retail Federation estimates that's only about 7 percent of all retail sales.

But growth has been rapid, with online sales soaring nearly 400 percent since 2000.

Analysts say economics are driving the trend. It costs less to process online orders than to lease retail space and field an army of sales clerks. There are almost no limits on inventory, and bulky items such as luggage can be shipped from a warehouse instead of taking up precious floor space.

Many time-starved consumers also are finding it more convenient to browse items online instead of driving to the mall, where they may not find the right size shoe or the exact color bedsheets they want.

Retail executives are spending much of their brainpower on the challenge of boosting online sales. Besides offering more discounts and deals such as free shipping, they also are moving into more sophisticated models of online selling. Those include combining e-commerce and store divisions and expanding online selections and services.

"It's gotten to the point where you can't think about online retail the way retailers have thought about it in the past," said Kasey Lobaugh, a principal at Deloitte Consulting who advises major retailers on developing their online channels.

Lobaugh said his advice centers on making the buying process faster. He recommends systems that recognize customers and feature fewer clicks, such as a single-page checkout.

Gap Inc. is expanding its e-commerce network to Canada and Europe in the fall; Ann Taylor Stores Corp. is expanding its online selection, implementing a faster checkout process and adding personalization capabilities to its Web site; and Kohl's Corp., like J.C. Penney, is adding do-it-yourself online kiosks to its stores.

The transition is not without challenges.

Nordstrom Inc., for example, has long focused on customer service to sell its products. When the retailer found that many online shoppers had questions because they couldn't touch and feel the merchandise, Nordstrom added a live Web chat feature and staffed it with specialists in beauty, designer brands and other categories.

And to better integrate the store and online sides of its business, and to respond to Web shoppers' desire to obtain their products quickly and without having to pay shipping costs, Nordstrom, like many other traditional retailers, implemented a "buy online, pick up in store" feature.

In many cases, competition is increasing between online-only outlets and old-school retailers that are no longer content to lose market share to Internet rivals.

As brick-and-mortar retailers seek a bigger market share online, they're up against tough pure-online competitors such as Amazon and shoe seller Zappos.com, which have honed their Web sites through years of trial.

As e-commerce continues to grow at robust rates — the sector posted a 10 percent year-over-year sales increase in the first quarter, according to market research firm ComScore Inc. — experts have predicted that online sales could grow to as much as 30 percent of total retail sales over the next few decades.

"The entire retail industry, in one way or another, is becoming driven by digital, and the days of just going to the store and shopping are really declining," said Andrew Lipsman, senior director of industry analysis at ComScore. "We're really at the tip of the iceberg."

America's Top Stores
Consumer Reports Magazine
July 2010

Last year shoppers spent $405 billion at Walmart, the world's largest retailer. But according to a new study by the Consumer Reports National Research Center, they might be better off if they switch stores.

For all the talk about Walmart's low prices, 30,666 subscribers we surveyed said the prices at 10 other retailers, including JCPenney, Sears, Dillard's, and Meijer, were at least as good. And bigger wasn't necessarily better when it came to the overall shopping experience.

Almost three-quarters of respondents who shopped at Walmart found at least one problem to complain about, and half had two or more complaints about the store or its staff.

Walmart and Kmart scored notably lower than the other chains, but Costco stood tall. In addition to citing the warehouse club's rock-bottom prices, survey respondents praised its bang for the buck: It was the only store judged much better than average for value. In our surveys over the years, Costco has earned high marks as a source of a surprisingly large selection of goods, including mattresses, electronics, small appliances, groceries, and books. In recent years, the chain's Kirkland Signature products have often performed well in our tests.

"Costco surprises consumers with great products and brands at exceptional prices," says Will Ander, senior partner in McMillanDoolittle, a retail-consulting firm in Chicago. "They don't promise to have everything, but they do offer a true treasure hunt where everyone seems to find that exceptional item at an unbelievable price. Most customers will give you great satisfaction marks if you exceed their expectations, and Costco is light-years ahead of the other discount competitors in that respect."

Among our other findings:
Four chains earned outstanding scores for merchandise quality: Costco (watches and jewelry, personal-care items, hardware, home décor, kitchenware, electronic entertainment such as music and DVDs, and sporting goods and toys), Dillard's (men's, women's, and children's clothing; personal-care items; home décor; and kitchenware), Macy's (home décor and personal-care items), and Sears (hardware).

Target's "cheap chic" goods didn't wow everyone. Despite its high-profile partnerships with fashionistas Cynthia Vincent, Eugenia Kim, and Zac Posen, survey respondents judged the quality of Target's women's clothing and watches and jewelry below average, and the store's kitchenware, home décor, and men's and children's apparel average.
When it came to service, Dillard's stood out from the pack. According to Jack Abelson, president of Jack Abelson & Associates, a retail-consulting firm in Leawood, Kan., service is deteriorating industry-wide because of retailers' fixation on low prices. "The trouble today," Abelson says, "is that the staff is not trained to be anything but glorified cashiers and security guards." Shoppers at Kmart, Walmart, and Sam's Club (Walmart's warehouse club spin-off) were more likely than others to complain about the staff.
In addition to a lack of sales help, the most prevalent problems were that desired items were out of stock and that checkouts were jammed. In fact, 29 percent of shoppers we surveyed complained about long lines. The problems were much worse than average at Kmart, Walmart, and Meijer, a Midwestern chain of superstores.

 

Wal-Mart Taps New Chief
By Miguel Bustillo - Wall Street Journal
June 29, 2010

Wal-Mart Stores Inc. put a new executive in charge of its slumping U.S. stores division Tuesday following four straight quarters of sluggish sales growth.

Bill Simon, who has been serving as chief operating officer for the U.S. stores, will immediately succeed Eduardo Castro-Wright, who had overseen American Wal-Mart stores for the past five years.

The 50-year-old Mr. Simon was heavily involved in two of the retailer's most important changes in recent years: the adoption of a $4 prescription drug program and the ongoing remodeling and de-cluttering of the company's aging U.S. stores. Mr. Simon wasn't made available for an interview.

Mr. Castro-Wright will remain with Wal-Mart to head a global sourcing initiative aimed at cutting costs, as well as a recently created "global.com" effort to bolster the retail giant's international e-commerce business. He will also retain his title as vice chairman, the company said.

"Eduardo has made extraordinary contributions to Wal-Mart U.S. over the past five years, and many contributions are still to come," Chief Executive Mike Duke said in a statement.

A demanding, hard-charging executive, Mr. Castro-Wright, 55, was once considered a potential chief executive officer of Wal-Mart, but he was passed over in favor of Mr. Duke, who became CEO last year.

People inside and outside the company say that Doug McMillon, who was promoted last year from head of Sam's Club to chief of Wal-Mart international, is now considered the most likely successor to Mr. Duke.

Mr. Castro-Wright, who didn't return calls seeking comment, was widely credited with turning around Wal-Mart's domestic business when its sales and profits soared during the start of the recession two years ago. But he came under increasing pressure in recent months as U.S. sales and store visits slipped, and the company's apparel business in particular looked in disarray compared to the cheap chic fashions of rival Target Corp.

Mr. Castro-Wright is also tending to his wife, who recently underwent a heart transplant and is being treated in Los Angeles. The job change will allow him to relocate to California and reduce his responsibilities.

Mr. Castro-Wright will be wooed for CEO spots once his wife recovers from her illness because he no longer seems likely to snare Wal-Mart's highest job, one retail-industry recruiter predicted. Among the companies that may pursue him are grocery chains or specialty retailers, this recruiter said. "There's no company that would be too big" based on his Wal-Mart experience, he said.

Like other top Wal-Mart executives, he signed a non-compete agreement barring him from working for rivals for two years after any exit.

Mr. Castro-Wright, who formerly headed the company's Mexico business, said in a memo to employees that a full recovery is expected for his wife, "but it will be a slow process and I have made the decision that I need to spend as much time as possible with her."

Analysts were split on whether the executive changes would lead to a strategic shift at Wal-Mart's U.S. division, which includes the trademark supercenters and is more than 3,750 stores strong. The 600-store Sam's Club warehouse chain business is managed separately.

"The company will continue to test small-store formats, target underpenetrated urban markets, and experiment with new promotional policies," Michael Exstein of Credit Suisse said in a note to investors. However, David Strasser of Janney Montgomery Scott LLC called the appointment of Mr. Simon a "big change," saying, Wal-Mart has lacked direction recently in the U.S. stores."

"We must remember who we are," Mr. Simon said in a staff memo, repeating a mantra Mr. Castro-Wright recently embraced about focusing on Wal-Mart's roots as a hard-core discounter.

Mr. Simon added that he also sought to build on partnerships with suppliers, noting that their "ideas, products and energy [have] helped fuel our growth for almost 50 years."

Some inside and outside the company interpreted the remark as a shift away from the more confrontational negotiating tactics of Mr. Castro-Wright, which had chafed some suppliers, as Wal-Mart tries to get its U.S. business back on track.

Prior to joining Wal-Mart in 2006, the former Navy officer was a senior vice president of global business development at Brinker International Inc., the parent of the Chili's and On the Border restaurant chains. Mr. Simon also served as secretary of Florida's Department of Management Services under former Gov. Jeb Bush.

—Ann Zimmerman and Joann S. Lublin contributed to this article

Kmart's online delivery service coming to area
By Sandra Guy - Chicago Sun-Times
June 29, 2010

Kmart's online delivery service, mygofer.com, will start delivering groceries, prescriptions, electronics and other products in a part of the Chicago area beginning July 4. The service will be available initially from the northern suburbs into unspecified areas south of the Loop.

The service delivery area is described as from a northern boundary in the Waukegan-Lincolnwood area, into the Loop and into some areas south of the Loop. A spokeswoman said the service boundaries could be expanded, but she could not give a date when that might happen.

Examples of items delivered from online orders include a bunch of (five to six) organic bananas for $1.39; a weedeater for $29.99; a microwave for $51.99; 1 pound of Oscar Mayer bacon for $6.29, and a five-piece quilt bedding set for $19.99. Delivery timetables are specified at checkout. Deliveries are made on the same day, the following day and up to two weeks out.

The mygofer service lets shoppers set up one-time deliveries or deliveries for specific times each week, said Morgan Calef, the spokeswoman for mygofer.

Until now, Chicago-area shoppers could order at mygofer.com, but were required to either have the order shipped or travel to the mygofer store in Joliet or to a Kmart store that offered the service to pick up their delivery.

Sears Holdings Corp. Chairman and billionaire hedge-fund guru Edward S. Lampert has made a point of lauding Apple, Amazon.com and other technology companies who've changed the retail paradigm, and he wants Sears and Kmart to join the revolution.

"It's as much a service as a store," Lampert has previously told shareholders of mygofer. "There are displays, but they are small. It's functioning more as a fulfillment warehouse."

The mygofer delivery service is already operating in Manhattan and the Hamptons in New York, and is slated to launch soon in Atlanta, Boston, Denver, Los Angeles, Miami, Philadelphia, Phoenix, Miami, San Francisco, Seattle and Washington, D.C.

Sears to sell movies, TV shows online through deal with Sonic Solutions
Chicago Business
June 22, 2010

(Reuters) — Sears Holdings Corp. on Tuesday became the latest retailer to partner with digital media company Sonic Solutions to sell movies and television shows through an online website.

The California-based Sonic has similar deals in place with Blockbuster Inc. and Best BUY Co Inc.

Under Sonic's latest multiyear deal, the operator of Sears and Kmart stores has licensed Sonic's RoxioNow platform to sell digital entertainment under the Sears and Kmart brand names.

Sears is expected to launch the portal later this year, which will allow consumers to access Hollywood content on TVs, Blu-ray players and mobile phones.

"This is an opportunity for Sears to get their consumers up and running with digital content, and offset what is happening as consumers move from physical media to digital delivery," said Mark Ely, executive vice president of strategy for Sonic.

Sonic this month reported net revenue of $104.3 million for the last fiscal year.

The company allows consumers to access its online portal for buying and renting movies and TV shows, through its built-in technology on televisions and Blu-ray players from manufacturers such as LG Electronics Inc. and Samsung Electronics.

Sears Holdings already sells some of those devices at its stores. But the latest partnership will allow the retailer to create its own online platform to sell Hollywood content, just as Wal-Mart Stores Inc. has done with its purchase of the video-streaming service Vudu.

"Teaming up with Sonic is a great opportunity for Sears and Kmart to quickly establish a position in digital video entertainment," Karen Austin, president of home electronics for Sears Holdings , said in a statement. Ely said only 3 to 5 percent of consumers who buy TVs and Blu-ray players equipped with Sonic Solutions' technology actually connect online to the portal, where they can buy and rent content.

Sonic hopes its deals with retail outlets such as Best Buy and Sears Holdings will increase consumer awareness, and drive more consumer adoption of RoxioNow.

The Hollywood studios that create the movies and TV shows sold through Sonic's RoxioNow platform typically reap at least 70 percent of sale proceeds, with Sonic and its retail and manufacturing partners sharing the rest.

Storm blows out windows at 110-story Chicago tower
Associated Press
June 19, 2010

CHICAGO — A swift-moving storm carrying high winds and pelting rain knocked out windows at Chicago's 110-story Willis Tower.

Police on Friday roped off areas around the imposing black building long known as the Sears Tower. Chicago Battalion Chief Michael Gubricky says windows were blown out in a 29th-floor air conditioning mechanical room and a 25th-floor unoccupied office.

Glass was on the sidewalk, but no injuries were immediately reported near the tower. Authorities say a woman did receive minor injuries from flying glass at the downtown Daley Center blocks away.

Chicago fire officials say another person was seriously injured by a falling tree on the city's west side.

The National Weather Service says winds in excess of 70 mph were recorded as the storm whipped into Chicago.

Death of a Legendary U.S. Retail Industry Founder Reminds Sears to Reclaim Its Identity As One of the Great American Retail Brands (SHLD)
Barbara's Retail Industry Blog
By Barbara Farfan, About.com
June 18, 2010

Sixty-two years ago today, the U.S. retail industry1 lost a leader who we now recognize as a legendary founder of a great American brand. Alvah Roebuck was a watchmaker from Indiana who answered an employment ad, and was hired by Richard Sears to repair the watches that Sears was selling with a then-revolutionary direct marketing system.

Somehow the two men went from a watchseller-watchfixer relationship to become business partners, and in 1893, Sears Roebuck and Co. was incorporated in the state of Illinois. Roebuck stayed involved with the company in several different capacities until he died on June 18, 1948 at the age of 84.

The relationship between Sears Roebuck and Co. and the American consumer has endured 117 years, and like any relationship, it's had its high points and low points. Currently, that relationship seems to be at a low point, and perhaps on its way to an even lower point.

Sears Holdings2 (SHLD) stock prices have dropped 7% since the beginning of 2010, and are about 37% lower from their 2010 high in April. Sears' stock losses can be compared to the 350% increase of Cost Plus, retail's best performing stock so far in 2010, or to the 5.0% increase of the S&P Retail Index in 2010. Either way Sears doesn't come out looking good in the comparison. It's clear that Sears is bucking the retail trend in 2010, and not in a good way.

Sears saw its first quarterly sales comp increase in six years in the first quarter of 2010. A plus sign is always better than a minus sign when it comes to sales comps, but it was only a 0.3% increase in domestic same store sales3, and it took a "dollars for dishwashers" government incentive and some deep discounting to eke that out. After a six-year downward trajectory, it's easy to believe that Sears might be feeling a little bit desperate these days, and its recent throw-it-against-the-wall-and-see-if-it-sticks approach to retailing seems to indicate that may very well be true.

I wonder what the dearly departed founders of Sears Roebuck Co. would think about the company's recent moves and management philosophy? By all accounts Roebuck and his partner Sears were wildly successful retailers back in the 1800s. Richard Sears started the R.W. Sears Watch Company. in 1886, and sold it in 1889 for $82,000. Adjusted for inflation, that's the equivalent of selling a 3 year-old mail order company for $1.7 million today. It wasn't YouTube4, but it's respectable.

The Sears Roebuck Co. sales exceeded $1 billion way back in 1945. Again, adjusted for inflation, that's the equivalent of $12.1 billion today. Compare that to 2010 revenue of $44 billion for Sears Holdings, which included $15.7 billion from Kmart5 and $4.6 billion from Sears Canada.

Effectively, Sears sales have only grown 95% since 1946, an average of 1.46% per year. It seems as if the first 52 years were relatively more successful than the last 65. So, what might Sears and Roebuck, the men and the founders, have to say about the Sears of today?

Founded on Innovation

The Gofer.com grocery and merchandise delivery concept that Sears piloted last year and is expanding this year is seemingly far beyond Sears' core competencies. But the original Sears and Roebuck leadership duo would probably point out that that this new offering actually harkens back to the company's roots. Grocery delivery was a cornerstone of Sears' business beginnings.

Rural families felt like they were being price gouged by locally-owned general stores in the late 1800's. Sears and Roebuck didn't compete with the general stores, they created a retail system that bypassed the general stores instead. Today we may see the Sears brand as steady and stalwart, but its retail legacy is all about innovation.

The multi-channel integration6 of the Gofer.com concept really isn't all that innovative or radical, but the successful execution of it for household consumables in a new century could be. Reportedly Sears executed its fulfillment processes so well back in the 1900's that Henry Ford studied their conveyor system before developing his own.

Because of the company's successful beginnings with innovative merchandise delivery, I think the original Sears and Roebuck management duo would wholeheartedly support the Gofer.com concept. They'd probably have a few valuable suggestions about how to make it work better too.

Giving Away the Store

When SHCRealty.com was launched in May, many were surprised that Sears Holdings was quite publicly advertising its belief that other retailers could make better use of Sears Holdings real estate than Sears and Kmart were making of it. This probably did not boost shareholder confidence much, and might help explain the 37% stock price drop that has occurred since April.

There are four ways that Sears Holdings is proposing that other retail companies can capitalize on its retail real estate. One option is a store-in-store concept, which Edwin Watts Golf Shops is trying out in 12 Sears stores this year. Another option is "demised space," which divides a Sears or Kmart space and allows another retailer to operate adjacently, but separately from Sears. Reportedly Forever 21 is planning to do this with 40,000 square feet of a Sears mall store in Orange County, CA.

The most logical (and most humorous) option is the "outlot" option which allows another retailer to establish a presence in a Sears or Kmart parking lot. As long as there aren't any shoppers' cars making use of the parking lots, the company might as well let another retailer make the space productive.

Perhaps the least appealing option presented is the "inline leasing" option which allows retail businesses to operate or build adjacent to an existing Sears or Kmart store and "enjoy all the benefits that proximity to our store has to offer." With all due respect, if there was a substantial amount of Sears or Kmart customer traffic to benefit from, the company probably wouldn't be looking for retail tenants to help pay the property taxes.

It would be very easy (and expected) for Sears to be too arrogant about its behemoth status to publicly pursue junior retailing partners in this transparent way. Kudos to the Sears management team for realizing that there's no such thing as a too-big-to-fail retail organization. If these kind of location partnership strategy is the alternative to store closings7 and selling off real estate in what is still a greatly recessed commercial market, then I think the original Sears and Roebuck leadership team would vote "yes" on these actions too. Sometime you just do what you need to do in order to set yourself up for success in the next 117 years.

Fathers Day Promotion and Hail Mary Marketing

To convince consumers that shopping at Sears for Father's Day is "life well spent," the retailer is giving a $50 bonus to shoppers who purchase $50 worth of men's clothing. It's a clever way of offering a 50% discount during a gift-buying occasion.

The extra $50 might beef up the perceived value of the Father's Day gift itself, or the shopper may decide to keep the $50 for themselves as compensation for their gift-giving generosity. The only downside to this offer is that some fathers or grandfathers are going to have to wear those Sears fashions.

There's something about Sears promotions in the past year that has the feel of Hail Mary marketing8. For some reason their marketing efforts come off as desperate, but perhaps that's just my perception. The Sears and Roebuck Co. was wildly successful for 39 years before the first physical retail location was even opened. Much of that success is due to its low-margin, high-volume business model, and its creative marketing. According to Sears history archives, Richard Sears established an ultra low-tech affiliate program way back in 1905 and gave commissions to customers for purchases made by their neighbors, family and friends.

So, it seems plausible that the Sears and Roebuck management duo would support any kind of marketing and sales promotions, as long as they didn't confuse activity with the accomplishment of some kind of profit margin, no matter how small.

Come See the Techno Side of Sears

Sears released its Personal Shopper app in January, which allows shoppers to take a photo of an item, and put the Sears Personal Shopper Crew to work locating the item. In April Sears made an iPhone app available that is integrated with GPS satellite technology. The company opened up its API in April to attract some more developer creativity (free from the hassle of paying developer health insurance benefits).

As further proof that Sears Holding is embracing technology, the Sears and Kmart brands each have their own "social" website, Facebook9 page, Twitter account, and YouTube channel. Mostly these social media outlets are being used as promotional broadcast channels rather than interactive touchpoints, but at least the companies will have the infrastructure in place when they decide to adopt a more engaging social media strategy. Props to them for at least showing up on social media platforms and making the effort.

Most recently, Sears signed on as one of the inaugural iAd advertisers and it will pilot a program in Sears stores to give store credit for trade-ins of old electronic devices with the purchase of the latest and greatest gadget. Obviously, SHLD is participating in the quickly-evolving retail technology game, but are consumers viewing the legacy retailers as viable contenders on that playing field?

Maybe it's just a generational thing, but I have a hard time getting my head around seeing "the techno side of Sears." But just as the "softer side" campaign of the 1990's successfully brought females through their doors, perhaps a similar "techno side" image campaign could shift perceptions and attract techno savvy shoppers to its portals. The problem is, once they have arrived, what will the techno generation find at Sears that they want to buy?

The Great American Retail Opportunity

And that's what I think the original Sears and Roebuck leadership team would see as the major challenge for today's Sears and Kmart businesses - identity crisis. The standard 4P's marketing formula doesn't seem to be "right" right now.

Sears and Kmart don't seem completely certain about where they fit into the American retail landscape any more. Every major retailer is infringing on its product offerings, and consumers of all generations seem to have the opinion that Sears and Kmart stores are "so yesterday." Theoretically the greatest value of the retail organization rests in its well-known proprietary brands, and yet it seems like the company is having to pimp out those brands10 and use a fair amount of promotional bribery to persuade consumers to take those valuable brands home.

I suspect the ghost of Richard Sears and Alvah Roebuck would want to remind the current SHLD management team that their greatest competitive advantage lies in something that very few of their competitors can lay claim to. Sears and Kmart are part of a dwindling group of great American brands. Both companies have roots that stretch back to the 1800's, and for that alone they have a certain amount of well-deserved consumer respect just for surviving.

While there is no suggestion that Sears and Kmart are going to become successful in the future by taking a giant step back into the past, it could work to their advantage to own and embrace their great-American status. In order to do that, though, they're going to have to embrace what it means to be an American in a new decade of a new century after the bubble of unconscious consumption has burst.

The original Sears and Roebuck team knew the American farmer and aligned the company's Four P's behind that knowledge. Then they knew rural America, and aligned the company's Four P's behind that knowledge. It's not clear what the Sears Holding management team of today knows about the American consumer of today or what to align its P's behind today.

Tonight I took a spin through a Sears mall store to see how the Father's Day weekend was kicking off. Even though the mall's parking lot was Christmas-season busy, the Sears store was mid-recession empty. No one - and I literally mean no one - was even looking at the Father's Day promo men's clothing. No one - and I literally mean no one - was looking at the merchandise with the valuable Craftsman, DieHard, and Kenmore brands.

I saw four members of the Sears "blue crew." One of them was pacing around the empty television department talking on his cellphone. Two of them were behind the cash register counter talking to each other. One blue crew member was engaging with a couple that was looking at grills. Actually he seemed to be hovering, but we'll give him the benefit of the doubt and call it "engaging." None of the blue crew members seemed to notice or care that I was wandering around their store in all of the departments where I might be looking for a Father's Day gift.

I couldn't tell by looking at the merchandise in the store who Sears thinks the typical American customer is. Where was the merchandise for the quality-minded Americans who are re-evaluating their priorities and rethinking what they really need to own in order to have a happy life?

Where was the merchandise for the principle-centered Americans who want to work for and do business with companies with character and integrity? Where was the made-in-America merchandise for those who want to help put their neighbors, friends, and family members back to work? Where was the eco-friendly and socially responsible merchandise for the Americans who want to stop having a negative impact on the planet that their children will occupy?

It would be easy for Sears leaders to say, "We're not that kind of store." In response, the lack of bodies in the store tonight seems to be sending the message to Sears that "But we are those kind of consumers and you don't have much to interest us here."

This particular Sears store couldn't even plausibly use the frugality excuse to explain its lack of sales transactions on the Friday before Father's Day. There was a plentiful number of neon yellow "additional 30% off" signs attached to the red 50% clearance signs in just about every department of the store. No one - and I literally mean no one - was looking at any of these uber deals.

Few U.S. retail chains11 are in a better position to align with the newly emerging American identity than Sears and Kmart. But in order to avoid the fate of becoming one of the great American brands of yesteryear, the SHLD management team is going to have to prove that they know what the emerging American identity is, and then realign the 4Ps of their business plan to service those consciously-consuming, environmentally-responsible, politically-active, professionally-ethical American consumers.

If every marketing tactic and every retailing solution in the company's playbook is just a permutation of "sell-as-much-as-you-can," perhaps the SHLD leaders should consider closing the boardroom door, ordering a pizza, reading the comments on their Facebook page, and trying again.

Perhaps the sterilized version of Sears corporate history makes Sears and Roebuck, the founders, seem more savvy than they actually were. There's no harm, though, in believing that, especially if the philosophies you imagine that Richard Sears and Alvah Roebuck used to launch the business could also be used to launch the company onto an upward trajectory again.

"You must first be who you really are, then do what you need to do, in order to have what you want." Neither Richard Sears nor Alvah Roebuck actually said that, but it seems like they might have, if they had thought of it before singer Margaret Young did. In any case, it might be a good motto to hang in the SHLD boardroom for a while.

Sears Tries Grocery Delivery, Because Anything Goes As Eddie Lampert Flails About
By Mike Duff - BNET
June 16, 2010

In the never-say-die world of Sears Holdings (SHLD), the latest brainstorm involves… home delivery of groceries. However dicey that may sound, failure will only drive the company to try something — anything! — else as long as it can be done on the cheap.

Sears is testing home grocery delivery in Manhattan and the Hamptons, and will soon extend it to Chicago and other points west. The trial effort is an extension of an initiative launched last year, known as MyGofer, which allows consumers to purchase a variety of general merchandise and food products on the Internet, then pick them up at Kmart stores — at least for the most part. As with auto center franchising and private label licensing, MyGofer represents another attempt by Sears chairman Eddie Lampert to squeeze more blood from a stone revenues from the company’s existing operations.

Sears launched a single dedicated MyGofer outlet as a pick up point and showcase in Joliet, Ill., one that bears some similarities to the catalog showrooms the retailer closed a few years earlier. That debut was neither a misguided effort to revive past glories nor an impetuous launch of a new retail chain, even if some observers saw it that way at the time. When MyGofer launched, no one yet knew that Sears’ new strategy was to pursue growth on the cheap. The MyGofer showroom is less a prototype and more a laboratory to determine how best to connect consumers to a new, primarily online business. Sears can adapt Internet-based MyGofer operations in numerous ways at minimal cost, and Lampert clearly sees online as an opportunity to increase revenues as he pays down debt. A stronger balance sheet and low-cost growth prospects should boost Sears share price and the value of his hedge fund’s investment in Sears Holdings.

In his last chairman’s letter, published in February, Lampert wrote of Amazon and eBay admiringly, emphasizing their ability to take business away from traditional retailers without building actual stores. Looking forward, Lampert suggested that Sears might integrate existing stores and distribution facilities with a growing Internet capacity to provide more points of interaction with consumers online.

The company’s MySears and MyKmart social networks encourage interaction even when consumers aren’t actually shopping and, when they do, its ShopYourWay loyalty card program, with one percent cash back and other rewards, provides its own incentive to visit stores and websites. Sears also is keeping in touch with consumers through emerging digital channels with a MyGofer mobile initiative.

The expansion of MyGofer operations into home delivery is another way Sears is executing on Lampert’s agenda. With online ordering and Kmart stores as fulfillment centers, the retailer only has to employ enough workers to get the merchandise arriving out to the customers who ordered it. New stores require not only buildings but a full staff to support them, all in the hope shoppers show up and spend enough to make the operation pay.

Expanding MyGofer operations through a food initiative isn’t surprising. Kmart has experience as the first of the three national discount chains to operate supercenters. Lampert has tried food in Sears’ Grand stores, and even if that didn’t pan out, he clearly remains interested in a chance to sell something folks can’t live without.

Home grocery delivery may never get past the test phase. Even if it does, it may not expand much beyond the special case environments where people don’t have the time, the inclination or, in the Manhattan case, the car to go shopping. Yet the MyGofer concept is a nice, inexpensive vehicle that the company can keep retooling as it seeks to develop its own Amazon- or eBay-type success.

Mike Duff has written about retail and related fields over 20 years. His work has appeared in publications as diverse as Retailing Today, Drug Store News, Supermarket Business, Consumer Digest, MarketingWeek, American Food and Ag Exporter magazines.

Richard Sears' Perfect Pitch: Retailing By Catalog
By Marilyn Much - Investors Business Daily
June 16, 2010

Richard Sears was born in 1863, rolled out his first catalog in 1888, retired as company president in 1908 and died in 1914.

When Richard Sears launched his first catalog in 1888, he was armed with a blueprint for luring buyers.

He had learned mail-order basics while building a booming business. It involved selling watches directly to consumers on a c.o.d. basis by advertising in weekly newspapers and farm periodicals.

Sears (1863-1914) showed a real flair for all types of promotions, including direct mail.
In one mailing, he sent 8,000 postcards pitching a watch for $8.95. It pulled in a huge 25% response rate of 2,000 orders, at 4 cents an order.

As Sears expanded his business, he drew more consumers by:
• Offering a money-back guarantee on all products.
• Pricing products so low that customers couldn't resist buying them.
• Pitching items with strong ads.

Sears' Keys
He laid the foundation for what became the nation's largest retailer — Sears, Roebuck & Co.

"The company's success was due to far more than the environment. (Richard Sears') advertisements exerted a telling effect on farm readers. His compelling messages pulled the reader into his copy and kept that reader's attention to the end. That end was usually the dispatching of an order to Richard Sears for merchandise," wrote Boris Emmet and John Jeuck in "Catalogues and Counters."

Now he wanted a method where consumers could see the goods before deciding to buy.
Enter the catalog.

Using this approach, Sears laid the foundation for what became a retail powerhouse and the biggest mail-order house: Sears, Roebuck & Co.

Sears became the nation's largest retailer by 1965, with $6.4 billion in sales, says Richard Tedlow, a professor of business administration at Harvard Business School.

The company, now called Sears Holdings (SHLD), consists of Sears and Kmart. It's the nation's fourth-largest broad-line retailer, with about 3,000 full-line and specialty stores in the U.S. and Canada. As of Jan. 30, 908 Sears stores stood across America and Puerto Rico.

In fiscal 2009 ended Jan. 30, Chicago-based Sears Holdings had sales of $44 billion, $23.7 billion of which came from Sears' U.S. operations.

By The Book
Through his catalogs, Richard Sears helped start a new era in U.S. retailing. "His single greatest contribution was helping to establish a national mass market in the U.S. for a wide variety of goods, which otherwise would not have been available at affordable prices or available at all if you lived on a farm or farm community," Tedlow told IBD.

Sears got rolling in 1886 by selling watches to supplement his income as a railroad station agent in North Redwood, Minn. He bought the watches from manufacturers at wholesale prices and sold them at a profit to other station agents, who sold them to consumers at a markup. So Sears and the agents made money.

In six months, Sears pulled in $5,000, worth $118,000 today. He quit the railroad and formed R.W. Sears Watch Co.

In 1887, Sears started selling watches directly to consumers. Now he needed someone to repair the watches. That person turned out to be Alvah Roebuck (1864-1948).

By 1932 and the opening of the Sears on Chicago’s State Street, the company’s store sales had topped its mail-order sales.

Roebuck said Sears "almost lived with the business," Frederick Asher wrote in "Richard Warren Sears: Icon of Inspiration."

The boss would show up in the office most mornings with his pockets stuffed with ads and plans.

Soon the partners expanded the catalog offerings to include jewelry. Business boomed — so much so that in March 1889 Sears got an offer of $72,000 (worth $1.7 million today) for the firm. He took the money and split it with Roebuck.

Sears dabbled in other ventures, including a retail store and a mail-order sewing machine business. By 1892, he was running what would become Sears, Roebuck & Co.
The next year, the two men issued a 64-page catalog that sold everything from clothing and farm wagons to sewing machines and baby carriages. Along with c.o.d. was a "money refunded" guarantee.

To emphasize low prices in the catalog, Sears used phrases such as the "book of bargains," "the cheapest supply house on earth" and "a money saver for everyone."
Such terms represented to many people a reason to buy in a catalog instead of at a store, says Herschell Gordon Lewis, president of Lewis Enterprises, which offers creative services for direct marketers.

The money-back guarantee was a key to Sears' success, he adds.

Advertising Age magazine called Sears' "Satisfaction or your money back" promise "the Gettysburg Address of business literature," according to Robert Steck in D&B Reports.
Sears knew he had to keep shoppers happy. So he wrote: "We can't afford to lose a customer."

He came up with slogans such as "Send No Money." And he included testimonials in his catalogs that quoted satisfied customers by name.

His efforts proved fruitful. By 1895, sales were $745,595, worth almost $20 million today.
That year, Roebuck left the company because of ill health and put his stock in Sears' trust. Roebuck later came back to the firm and was put in charge of the department of watches, jewelry and optical goods until 1899, when he left again.

Meanwhile, Sears was expanding the business, launching spring and fall catalogs and offering specialty catalogs and items such as groceries and washing machines.

When Sears entered the mail-order business, Montgomery Ward was the kingpin. So Sears battled. He used bold headlines pitching "extremely cheap" watches.
After a run of such marketing, Sears was the victor.

Nowadays shoppers can order Sears items online.

His company's sales rocketed to $40.8 million in 1908 from $137,743 in 1891. By 1913, Sears' sales had hit $91.3 million (worth $2 billion today), with a market share of 69.7% vs. Ward's 30.3%.

Over time, Sears catalogs were more widely circulated than any publication, said D&B Reports.

Why Such Success?
"The sum and substance of Richard Sears' strategy was volume," Tedlow wrote in "New and Improved: The Story of Mass Marketing in America." "He wanted to do as much business as possible as quickly as possible. Sears' philosophy was profit through high volume, leading to high turnover made possible by low prices, which were themselves made possible by low margins."

Also, Sears had a gift for ad copy. "He got a great deal of pleasure out of the act of persuasion," Tedlow said. "He loved the catalog."

Sears' salesmanship and genius as a copywriter propelled the company toward parity with Montgomery Ward, said D&B Reports.

In 1904, Sears gave birth to loyalty programs with a customer profit-sharing plan. With each buy, a customer received a certificate showing the amount purchased and invoice number, according to Asher's book. When the shopper amassed enough certificates, he could exchange them for items in the Customer's Profit Sharing Catalogue.

Sears' firm went public in 1906. He retired as president two years later.

Sears closed its big-book catalog in 1993. It continues to offer specialty catalogs.
Richard Sears' innovative methods laid the foundation for a burgeoning company.
A century after his death, the firm hit bankruptcy, was restructured and in March 2004 started a 370% stock run to its April 2007 peak.

Sears was born in Stewartville, Minn. His father was a blacksmith who lost a large sum of money speculating in various ventures.

Young Sears had more of a flair for business than his father. One day in 1886, while working at the train station, Richard received a shipment of watches that was refused by a jeweler. He contacted the watchmaker, who offered him a special price of $12 each. Sears sold the watches to other agents for $14 each.

He kept on building.

Retail Stock Sears (SHLD) Struggles to Reinvent Itself
By Jeff Reeves, Editor, Investor Place
June 15, 2010

Poor Sears. Sears Holdings Corp. (SHLD), the retail stock behind the largest U.S. department-store chain Sears and discount retailer Kmart, peaked at nearly $200 a share in 2007. SHLD stock hasn’t come anywhere close to that number in the last few years. More recently, the company has only had one quarterly profit in the last four reporting periods -- including an unexpected loss in the first quarter of 2010.

There’s little wonder Sears stock has struggled recently, as big markdowns on pricey appliances like its Kenmore line have been part of an effort to connect with consumers. While sales haven’t really budged, margins have dropped through the floor – narrowing to a slim to 28.2% in the most recent quarter, from an already anemic 28.6% the year before.

So what’s Sears’ solution to this mess? A series of ill advised gambits that include giving up exclusivity on its iconic Craftsman tool line, a goofy online marketplace crowded with 12 million products and a home delivery scheme that hearkens back to the Webvan failure of the dot com bust. Here are the details:

ACE Hardware to Sell Craftsman Line: The retail cooperative ACE is now pushing Sears’ craftsman line of tools. At first blush you would think the move wise, since a quality product with bigger exposure will naturally do well. However, Sears is up to its eyeballs paying for the retail space in malls and outlets around the country and letting ACE ring up those sales – and take a cut of the profits – may not be for the best. Besides, Sears had a captive audience with this iconic brand and now it’s allowing shoppers to pick up the tools elsewhere instead of strolling the aisles and perhaps picking up a few extra items. This plan could easily backfire and do more harm than good.

More Products and a PersonalShopper Program: As if Sears didn’t already have enough products on its shelves, the retailer is going to give customers even more choices with its Marketplace on Sears.com. The venue enables individual merchants to list their products on Sears.com or even allow their goods to be picked up directly at Sears stores. And if you can’t find exactly what you want, Sears’ PersonalShopper Program will make suggestions along the way. Since Sears is simply skimming a bit off the top of third-party merchants, this deal makes more sense than the Craftsman idea. Except that SHLD stock is no Amazon.com (AMZN), and has a long way to go if it wants to brand itself as an online marketplace instead of a brick and mortar retailer. Besides, in an already crowded online marketplace, we don’t need another one-stop-shopping site without a specialty. If Sears.com can’t carve out a niche, it’s 12 million products will have trouble finding an audience.

Sears Grocery Delivery Service: Sears has begun testing home delivery of groceries in New York City and the Hamptons area of Long Island, N.Y., and plans to begin testing in Chicago later this summer. The home-delivery service, which delivers groceries from Kmart locations, is an extension of MyGofer.com, a site that allows Sears and Kmart customers to order items online and pick them up at the store. This idea may work in dense urban areas -- after all, even McDonald’s (MCD) delivers in NYC -- but hardly makes sense on a larger scale. This test will assuredly fall flat in less populated areas since there simply isn’t the necessary volume to make such a venture profitable. Ill-fated tech startup Webvan found that out the hard way and has been a cautionary tale on Wall Street for the better part of a decade.

All may not be lost at Sears, of course. The stock showed signs of life earlier this year and edged up above $120 in a share in April, the first time since late 2007 that SHLD stock crossed this mark. But now the retailer is trading off about 33% from that high at around $81 a share. Shareholders who thought SHLD stock have been waiting eagerly for the company to regain the $100 mark with no avail, but a favorable earnings report could give Sears a lift. After all, the company has seen two upwards revisions to earnings estimates in the last month so it could perform well when its Q2 earnings hit Wall Street.
Of course, the current projection is for an -18 cent loss, hardly anything to cheer about. And considering Sears has fallen short of earnings estimates for each of the last four quarters, the company could be in for more trouble if it misses the mark again.
As of this writing, Jeff Reeves did not own a position in any of the stocks or funds mentioned here.

Q&A: Sears Styles Fashion Revival in Denim, Down-to-Earth Dressy
by Mike Duff - BNET
June 14, 2010

When it comes to apparel, Sears is in the shadow of its sibling Kmart, but it’s working hard to emerge.

Dyan Jozwick, vice president and general merchandising manager, told BNET in a Q&A that the retailer is staying on top of critical trends.

The retailer wants to enhance its relevance to consumers who want stylish wardrobes that can move from day to evening and workweek to weekend with ease, as captured in its latest fashion lookbook.

Sears, in fairness, has had a tougher comeback than Kmart. A decade or so ago, Sears apparel program was a smorgasbord of private labels and lacked direction.

Then, the company began to consolidate its apparel offering around such store brands as Covington and Apostrophe. As Sears Holdings (SHLD) began to create a fashion function within the company, history helped Kmart break from the gate faster.

A decade earlier, Kmart had a fashion business that was winning notice. Martha Stewart was building an ever-stronger following in home fashion, but Jaclyn Smith and Kathy Ireland were helping the retailer grab attention on the apparel side. Not only that, but they pushed management to maintain quality standards and execute display programs effectively.

The Smith brand faded a bit in mid-decade, but when Sears decided to rejuvenate its apparel program, it made Jaclyn the symbol of Kmart’s fashion efforts.

Sears lacks a personality to represents its apparel brands. The company has tried that approach in home fashion by creating a Ty Pennington label for its namesake stores but hasn’t made it a special priority. Developing private labels is tough, and Kmart has struggled over the years to establish and maintain its Route 66 denim brand. Yet, Sears and Kmart fashion operations are bolstered by a New York-based design office that is featured in their web-based promotions. Sears Holdings has invested in fashion, and it seems to be paying off as apparel has contributed to recent gains in comparable stores sales, those in locations open for at least a year.

Jozwick told BNET that Sears typically positions its apparel ahead of Kmart in the fashion cycle but still with a classic sensibility. Sears is making a particularly strong play in denim, given the trends that already have helped retailers such as Gap (GPS) and its sister Old Navy gain. Denim at Sears ranges form looks appropriate for the casual workplace to so-skinny-they’re-almost-leggings jeggings.

BNET: Sears looks seem a little younger and more contemporary than those for Kmart, is that an accurate appraisal?

Jozwick: Yes and no. Sears’ ready-to-wear in lines like Apostrophe is more contemporary and targets a younger customer. However, in the juniors category, we are targeting the same age as Kmart but offering more fashion-forward items.

BNET: Denim seems more central to the fashion assortment. How important was it for the line to bridge the casual and the dressy? The denim seems sophisticated enough for an evening out while more formal clothes seemed to incorporate the work/after work sensibility.

Jozwick: I think that is a fair assessment. Our jeans work back to every look, whether it’s career, dressy, club, casual, etc. We feel that denim is critical to all of our fashion brands. We pay homage to the importance of denim and the need for it to bridge those casual to dressy gaps in most of the lines we design. In addition, we obviously strive to bring newness and relevance each season with varied cuts and washes, including a strong assortment of jeggings, which marry a classic with contemporary nicely.

BNET: The colors are contemporary without being too contemporary. Was the idea to provide a little urban sensibility across the line to provide an appeal and a use across style/occasion lines?

Jozwick: We strive to have colors that are on trend, but never lose sight of the fact that certain hues are essential. Now we’re offering a mix of the newest, contemporary palettes — like blush/pales — while working in current best selling colors like purple.

Pushing private labels, in fashion product categories particularly, is a struggle to gain credibility. Personalities can be an expedient, one that Kohl’s (KSS) has used to effect. J.C. Penney (JCP), which has a private label focus in apparel, has worked hard but also seems to have occasionally struggled in establishing its store brands. For example, when it rolled out American Living a couple of years ago, the primary identification was with J.C. Penney. Soon after, however, the company began promoting the brand’s development by Ralph Lauren. Still, Sears has built a fashion infrastructure and linked it to its web initiatives including its social networks. Getting customers involved there certainly commits Sears Holdings to making fashion work in stores. Now, it’s a matter of making consistent effort and improvement to ensure customers aren’t let down as their expectations grow.

Sears to test grocery delivery in Chicago
By Sandra M. Jones - Chicago - Tribune
June 12, 2010

Sears has been delivering refrigerators and washing machines to U.S. homes for decades. Now the company is looking into delivering groceries too.

The service, an expansion of Sears' year-old MyGofer online shopping portal, quietly launched on Memorial Day in Manhattan and in the Hamptons, according to Tom Aiello, spokesman for the Hoffman Estates-based company. The home delivery service -- which brings groceries, prescriptions, electronics and other goods from its Kmart stores -- is slated to roll out to other markets including Chicago-area Kmart stores later this summer, he said.

Sears Holdings Corp. launched MyGofer last year as a way to combine bricks-and-mortar retailing with Amazon-style online shopping. The MyGofer.com Web site allows shoppers to search tens of thousands of goods online, place orders from the computers or iPhones, and pick them up in a Kmart store, in as little as two hours--without getting out of their cars.. Sears also converted a shuttered Kmart store in Joliet into a warehouse and showroom with a drive-thru and renamed the Kmart store MyGofer. The store, which opened in May, is the only one of its kind in the country.

The retailer's plans to start home delivery of groceries and other products appeared as part of a video highlighting Sears' online prowess that Imran Jooma, Sears' top online executive, showed during a keynote address the Internet Retailer trade show at McCormick Place in Chicago Wednesday.

"Customers are looking for instant gratification," Jooma told the audience. "They want it today. They want it now."

In an interview later, Jooma said plans for expanding MyGofer inside Kmart stores are moving ahead.

"We're expanding the MyGofer service," he said. "There will be more MyGofers."

Jooma declined to comment on the prospect of opening another MyGofer store like the one in Joliet.

Internet Retailer, the host of the show, estimates Sears Holdings generated almost $3 billion in online sales in 2009, making it the eighth largest online retailer. Sears' annual revenue fell 5.8 percent to $44.04 billion last year.

Farewell, Medicare Advantage
Democrats strike up the funeral parade for private insurance options.
Review & Outlook - The Wall Street Journal
June 11, 2010

The White House is launching its latest Willy Loman campaign to resell ObamaCare, helped by $125 million that unions and other interest groups say they'll spend to make Americans love their new entitlement. Seniors in particular should curb their enthusiasm.

"First and foremost," President Obama told seniors on Tuesday in Wheaton, Maryland, "what you need to know is that the guaranteed Medicare benefits that you've earned will not change, regardless of whether you receive them through Medicare or Medicare Advantage." First and foremost, nothing about that sentence is true.

Advantage gives almost one of four seniors private insurance options, and Democrats are about to cut its funding by some $136 billion over the next decade even as health costs rise. The Congressional Budget Office says these cuts will cause enrollment to drop by 35%, the Administration's own Medicare actuaries predict 50%, and both outfits take for granted that benefits will also decline.

The President knows this, so he and his fellow Democrats are gearing up to blame these cuts on . . . insurers, rather than on their own policies. In a letter last week, Democratic Congressional leaders Henry Waxman, Pete Stark, Max Baucus and Jay Rockefeller demanded that the Health and Human Services Department reject "any effort" by insurers to "reduce benefits next year."

Secretary Kathleen Sebelius followed up by warning insurers to "focus on price and quality rather than asking seniors who need health care the most to pay more for it." The Medicare regulator, CMS, is also reshuffling staff so Advantage is run by actively hostile bureaucrats.

The politics here is that Democrats loathe Medicare Advantage because it sanctions the private choices that might eventually liberate the U.S. health market from government price controls. They also wanted to raid Advantage to finance their new subsidies. But now they desperately want to dodge any near-term blame when seniors who use Advantage start to lose its benefits. Ergo, blame insurers first.

All of this is a replay of what Democrats did in the 1990s to a similar program called Medicare+Choice, which was created in 1997 but starved of funds by the Clinton Administration. "Dozens of HMOs Quit Medicare, Patients Face Upheaval," ran one Washington Post headline in 1998. The insurers served as political spear-catchers then too.

The larger debate is about how best to organize the health-care market. In an important new paper for the National Bureau of Economic Research, David Cutler explores entrepreneurial spirits in health care, or rather their peculiar absence in a $2.6 trillion industry. The Harvard economist notes annual productivity growth of minus-0.2 in the official data—"almost surely an underestimate"—and asks why there has been so little organizational innovation akin to Wal-Mart's supply-chain or Toyota's quality control.

Mr. Cutler, a close White House ally, cites many dysfunctional incentives, though one he singles out is "the stagnant compensation system of public insurance plans." In most markets, he observes, "higher quality is associated with higher prices. That is not true in medical care, however, largely because of the public sector." Original Medicare—about 25% of hospital and physician income—pays fixed fees to any provider a patient visits, regardless of the quality of the services rendered. "A less good job earns as much as a better job," Mr. Cutler writes.

Mr. Cutler is convinced that Medicare's dysfunctions will end with ObamaCare's multiple pilot programs—even though the current system was designed by the last generation of technocrats to solve the problems created by the previous generation. Such people have faith in ObamaCare on the theory that they are the ones they've been waiting for.

Yet no planner had to tell Wal-Mart how to revolutionize the retail industry. In the same way, Advantage offers the flexibility necessary for decentralized innovation, market pricing and competition that might rationalize the entitlement state. The program isn't a miracle worker, and some plans are far better than others. According to the Medicare Payment Advisory Commission, the Advantage HMOs that serve 15% of all seniors in Medicare cost on average two percentage points less for the same benefits than the traditional program, without fiat pricing.

Using government data, the insurer trade group AHIP estimates that Advantage beneficiaries in California spend 30% fewer days in the hospital than fee for service, 23% fewer days in Nevada. These successes and others have come about because Advantage allowed insurers and providers to collaborate, pay for value and coordinate care.

These successes are threatening to politicians because they are a model for true Medicare reform, which would reduce the health-care powers that Congress has exercised for nearly a half-century and let patients decide. This terror explains why Democrats are so intent on killing Medicare Advantage, and on blaming someone else for destroying a program that millions of seniors prefer.

Rival Chains Secretly Fund Opposition to Wal-Mart
By Ann Zimmerman - Wall Street Journal
June 7, 2010

MUNDELEIN, Ill.—Robert Brownson long believed that his proposed development here, with its 200,000-square-foot Wal-Mart Supercenter, was being held hostage by nearby homeowners.

He had seen them protesting at city hall, and they had filed a lawsuit to stop the project.

What he didn't know was that the locals were getting a lot of help. A grocery chain with nine stores in the area had hired Saint Consulting Group to secretly run the antidevelopment campaign. Saint is a specialist at fighting proposed Wal-Marts, and it uses tactics it describes as "black arts."

As Wal-Mart Stores Inc. has grown into the largest grocery seller in the U.S., similar battles have played out in hundreds of towns like Mundelein. Local activists and union groups have been the public face of much of the resistance. But in scores of cases, large supermarket chains including Supervalu Inc., Safeway Inc. and Ahold NV have retained Saint Consulting to block Wal-Mart, according to hundreds of pages of Saint documents reviewed by The Wall Street Journal and interviews with former employees.

Saint has jokingly called its staff the "Wal-Mart killers." P. Michael Saint, the company's founder, declines to discuss specific clients or campaigns. When read a partial list of the company's supermarket clients, he responds that "if those names are true, I would say I was proud that some of the largest, most sophisticated companies were so pleased with our success and discretion that they hired us over the years."

Supermarkets that have funded campaigns to stop Wal-Mart are concerned about having to match the retailing giant's low prices lest they lose market share. Although they have managed to stop some projects, they haven't put much of a dent in Wal-Mart's growth in the U.S., where it has more than 2,700 supercenters—large stores that sell groceries and general merchandise. Last year, 51% of Wal-Mart's $258 billion in U.S. revenue came from grocery sales.

In many cases, the pitched battles have more than doubled the amount of time it takes Wal-Mart to open a store, says a person close to the company. And the fights generate negative publicity for the retailer.

A Wal-Mart spokesman declined to comment on activities Saint has undertaken on behalf of its competitors.

In Mundelein, a town of 35,000 about 20 miles northwest of Chicago, it was Supervalu, a national grocer based in Eden Prairie, Minn., that hired Saint to work behind the scenes, according to Saint documents. Supervalu's objective was to block Wal-Mart from competing with its nine Jewel-Osco supermarkets located within three to ten miles of the proposed shopping center, the documents indicate.

City officials say the effort stalled the development for three years and cost Mundelein millions in lost property and sales taxes.

Mr. Brownson, who has developed shopping centers in 15 states over 25 years, says he learned about Saint's involvement only recently when someone phoned him and spilled the news. "A huge national company conducts a dirty tricks campaign for its own goals, and a city and a developer become collateral damage," he complains.

Supervalu didn't return calls for comment. Mr. Saint declines to discuss the situation in Mundelein. In general, he says, "developers always say the world is coming to an end because the project that would have made them millions wasn't approved."

Mr. Saint, a former newspaper reporter and political press secretary, founded his firm 26 years ago. It specializes in using political-campaign tactics—petition drives, phone banks, websites—to build support for or against controversial projects, from oil refineries and shopping centers to quarries and landfills. Over the years, it has conducted about 1,500 campaigns in 44 states. Mr. Saint says about 500 have involved trying to block a development, and most of those have been clandestine.

For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say.

They hire lawyers and traffic experts to help derail the project or stall it as long as possible, in hopes that the developer will pull the plug or Wal-Mart will find another location.

"Usually, clients in defense campaigns do not want their identities disclosed because it opens them up to adverse publicity and the potential for lawsuits," Mr. Saint wrote in a book published by his firm.

Mr. Saint says he "encouraged" his employees not to use their real names in campaigns in order to protect the client's identity and "to protect our employees, who have been followed, threatened and harassed by the opposition."

Safeway, a national chain based in Pleasanton, Calif., retained Saint to thwart Wal-Mart Supercenters in more than 30 towns in California, Oregon, Washington and Hawaii in recent years, according to a Saint project list and interviews with former employees. Former Saint employees say much of the work consisted of training Safeway's unionized workers to fight land-use battles, including how to speak at public hearings.

Former Saint workers say the union sometimes pays a portion of Saint's fees. "The work we've funded Saint to do to preserve our market share and our jobs is within our First Amendment rights," says Jill Cashen, spokeswoman for the United Food and Commercial Workers Union. Safeway declined to comment.

In Pennsylvania, Saint's work roster in August 2007 listed 53 projects, almost all directed at stopping Wal-Mart on behalf of client Giant Food Stores, owned by Amsterdam-based supermarket company Ahold. Saint documents from 2007 say it had lost one battle in Pennsylvania, defeated 13 projects and delayed the remaining ones from four months to four years.

In 2005, Giant Foods hired Saint to stop a proposed Wal-Mart in North Cornwall, Pa., a town of 6,000, a Saint report indicates. Saint planned to charge Giant $7,500 to $10,000 a month for legal services, mailings, phone banks and 60 hours a month of Saint staff time, according to a preliminary budget.

Locally, there was strong opposition from a citizens group that wanted to preserve the proposed site as farmland and was concerned about traffic. Nevertheless, Wal-Mart received conditional approval.

Before construction began, with support from Saint, the opponents filed suit, claiming that when the land was rezoned for commercial use three years earlier, neighbors had not been properly notified.

One member of the citizens group, Kip Kelly, says a woman he assumed was from a labor group or anti-Wal-Mart coalition had offered to fund the effort. Former Saint employees say the woman was a Saint operative and that Giant was paying the group's legal bills through Saint. Tracy Cadzow, the lawyer who represented the group, says she had no idea that the grocer was behind the effort. "This is new information to me," she says.

As the suit dragged on, Giant abruptly changed its game plan, according to two former Saint employees. Giant had decided it wanted to erect a supermarket directly across from the Wal-Mart location, according to former Saint workers and Saint documents. Giant needed Saint to switch sides in the political battle over commercial zoning, the former employees say.

Saint workers were directed to withdraw support for the anti-Wal-Mart group, called Citizens for Responsible Growth, according to the former Saint workers. "We had to kill a community group we started, and I was told to stop paying the attorney," says a former Saint employee.

Town officials reapproved commercial zoning for the land, this time giving proper notification to homeowners, which rendered the lawsuit moot.

Giant and its parent company, Ahold, did not return calls seeking comment.

Asked about the situation, Mr. Saint said his company is an advocate for its clients but doesn't determine overall strategy. "If it's legal to perform a service, we'll do it," he said.

Mr. Saint says there is nothing illegal about a company trying to derail a competitor's project. Companies have legal protection under the First Amendment for using a government or legal process to thwart competition, even if they do so secretly, he says.

The protection is known as the Noerr-Pennington doctrine, which grew out of several U.S. Supreme Court cases. Some legal experts say that, under the doctrine, a company has to reasonably expect it can win a lawsuit or a zoning battle—it cannot just use the process to interfere with a competitor's business.

"If a company routinely files suits and does it to delay a competitor, there is a pattern exception to the Supreme Court decisions," says Timothy Muris, former chairman of the Federal Trade Commission and a law professor at George Mason University. "If a competitor in this instance is spending millions [of dollars] to repeatedly sue, it is hard to believe they are doing so because they care about zoning."

Former Saint employees say that the goal of many legal or political challenges was merely to delay projects.

"That may be the result," responds Mr. Saint. "But our goal is always to kill Wal-Mart."

In Mundelein, where Supervalu wanted to protect its Jewel-Osco stores from Wal-Mart, Saint first focused on a vote on the 100-acre development by the city's Plan Commission, scheduled for May 2007, Saint documents indicate. Saint's Chicago-based regional director, Jay Vincent, who drives a Honda CRV with the license plates BLKOPS 1, assigned the job to a project manager, Saint documents indicate. That manager, who is a baseball fan, borrowed an alias for each of his assignments from a major leaguer. For the Mundelein job, he took the name of a former catcher for the Minnesota Twins, Greg Olson.

"For this project, delay is a substantial weapon," the project manager wrote in a report. He sent a flyer to neighbors of the proposed development that outlined purported evils of a neighborhood Wal-Mart, including increased police calls and more traffic. The flyer listed his alias and an email address, according to several residents.

Tom Budwick, a retired crane operator in Mundelein, responded. The project manager told him that a Wal-Mart built behind his own parents' home had prevented them from selling it and having a comfortable retirement, Mr. Budwick recalls.

Several former colleagues of the baseball-loving project manager say he frequently told that story, which is false, in connection with Wal-Mart projects.

Mr. Budwick says the project manager told him that the fight in Mundelein would be lengthy and expensive, but it would cost the residents nothing because he was involved in politics and had sympathetic donors willing to fund their campaign.

"I didn't know where the money was coming from, and I didn't want to know," says John Abraham, a landscape-company owner whose large home abuts the development site.

The project manager arranged for a lawyer, William Graft, who had experience fighting land-use battles, to represent neighbors who opposed the development, according to Saint documents. Although the public hearing on the development was packed with opponents, according to city trustee Ed Sullivan, the city's board of trustees approved the project in July 2007.

Mr. Graft filed suit on behalf of four local residents with properties adjacent to the proposed development, appealing the board's decision and claiming their rights had been violated. He sent monthly bills ranging from $20,000 to $55,000 to the project manager, who forwarded them to Saint, according to copies of the bills viewed by the Journal. Mr. Graft confirms that Saint paid those bills.

The suit remained in court for two and a half years—until March 26 of this year, when a judge ruled in favor of the city, saying its decision to approve the development was not "capricious, irrational or arbitrary." The development is still in limbo. The plaintiffs have asked the judge to reconsider his decision. The developer, Mr. Brownson, says he and his partners have spent more than $3 million on legal fees, expert testimony and other expenses. He lost almost all the tenants he had lined up three years ago, including Kohl's and Petsmart, according to documents he provided the city. All except Wal-Mart.

City Administrator John Labaido says the village and school district have lost an estimated $6 million a year in sales and property-tax revenue.

"It is disheartening to hear that a corporate competitor was behind this whole thing," he says.

—Dionne Searcey contributed to this article. WALL STREET JOURNAL June 7, 2010

 

Lampert Receives $756 Million of Stocks From His ESL Fund
By Miles Weiss - Bloomberg - Business Week
June 4, 3020

June 3 (Bloomberg) -- Billionaire Edward Lampert withdrew about $756 million of assets from the hedge fund that he founded more than 20 years ago and will receive a second payout by the end of July, according to regulatory filings.

The hedge fund, ESL Partners LP, distributed part of its stakes in Sears Holdings Corp., AutoNation Inc., and AutoZone Inc. to Lampert and his partner William Crowley yesterday, the filings show. Other ESL affiliates distributed shares in the companies to Lampert yesterday, giving him a combined payout of about $864 million, based on today’s prices.

Lampert’s hedge-fund group, based in Greenwich, Connecticut, holds majority stakes in both Sears and AutoNation and owns about 37 percent of AutoZone’s shares outstanding. By distributing shares in the companies to Lampert rather than cash, the funds avoid sales that could disrupt the market for the stocks and generate tax bills for its investors.

“The internal restructuring transactions described herein,” ESL said in its filings with the U.S. Securities and Exchange Commission, “will result in direct ownership by Mr. Lampert and Mr. Crowley of a portion of their respective indirect ownership interests” in Sears, AutoZone and AutoNation.

Steven Lipin, a spokesman for ESL, declined to comment. The share distributions won’t change the overall stakes held by ESL and its affiliates, including Lampert, because they report their holdings on a combined basis, according to the filings.

Second Distribution

ESL Partners plans to make a second distribution to Lampert after obtaining clearance under federal antitrust rules, the filings show. The filings included a June 2 agreement laying out the terms under which the “securities, cash and cash equivalents set forth on the books and records of ESL Partners LP” would be distributed to Lampert and Crowley by July 30.

Lampert set up the predecessor to ESL Partners in 1989 and holds an undisclosed stake in the fund through affiliates including RBS Partners LP. The hedge-fund group reported holding stocks with a market value of $12.3 billion as of March 31, with AutoZone, AutoNation and Sears accounting for about $11.4 billion of that. Holdings included Citigroup Inc., Genworth Financial Inc. and Capital One Financial Corp.

The hedge-fund group acquired Kmart Corp. through bankruptcy reorganization and merged it with Sears, Roebuck & Co. in a $12.3 billion deal completed in 2005, creating the nation’s largest department-store chain. Lampert is chairman of Sears, based in Hoffman Estates, Illinois.

According to one of the SEC filings, ESL Partners distributed 3.79 million Sears shares with a market value of about $316 million to Lampert and Crowley yesterday. Lampert received 3.72 million of the shares, Crowley 77,470.

AutoZone, AutoNation

The partnership also distributed 2.28 million AutoZone shares with a value of about $438.5 million to the two money managers. They got an additional 517,266 shares in the Memphis- based auto-parts retailer from a second fund, ESL Investments Inc., according to a separate SEC filing.

Lampert and Crowley received 665,660 AutoNation shares from ESL Partners, along with 491,929 shares from an affiliate called CBL Partners, the filings show. AutoNation, based in Fort Lauderdale, Florida, ranks as the largest new car dealer in the U.S.

--Editors: Josh Friedman, Christian Baumgaertel.

Wal-Mart CEO Outlines Global Growth Plans
By Miguel Bustillo - Dow Jones Newswires
June 4, 2010

FAYETTEVILLE, Ark.—Wal-Mart Stores Inc. plans to communicate its low-price message more aggressively online as retailing enters "a new era of price transparency," Chief Executive Mike Duke said Friday during the retail colossus's annual shareholders meeting.

Speaking before a basketball arena packed with Wal-Mart workers on the University of Arkansas campus, Mr. Duke described a path forward for the world's largest retailer that would take it from serving 200 million customers a week to one billion over the next 20 years.

"These are achievable goals," Mr. Duke said, explaining that the discount chain Sam Walton founded translates world-wide—from Mr. Duke's home state of Georgia, to Guatemala, to Guangdong, China.

Wal-Mart has struggled for four straight quarters with tepid U.S. sales growth and is encountering limitations to its once-breakneck domestic expansion after carpeting rural and suburban America with its trademark supercenters. The company also continues to contend with issues tied to its labor practices.

Meanwhile, Wal-Mart shares have fallen 5.7% this year, while shares of U.S. rival Target Corp. have risen 9.2%.

Still, the company's profits have remained steady because of cost cuts, and total revenue has continued to accelerate thanks to increasing international sales in developing nations such as Brazil and China.

Annual revenue from Wal-Mart's international division now tops $100 billion, roughly a fourth of the company's $405 billion.

Mr. Duke, who estimated that Wal-Mart would create 500,000 new jobs world-wide over the next five years, reiterated that the company plans smaller stores, which could break the U.S. growth logjam by making it easier for Wal-Mart to enter urban areas where it has met union opposition. Such plans were previously profiled in The Wall Street Journal.

Yet Mr. Duke emphasized that Wal-Mart's future expansion couldn't be limited to brick-and-mortar stores at a time when shoppers increasingly browse selections on smartphones. He said Wal-Mart would become more adroit at transferring its discount formula to the Web, an area where he conceded the company has fallen behind competitors.

Wal-Mart Chief Financial Officer Tom Schoewe also announced a new $15 billion stock buyback program, replacing a similarly sized one from last year that had $4.7 billion of authorization remaining.

While the tenor of Friday's meeting was upbeat, Wal-Mart's history of employee relations dogged the company, as stockholders questioned the liabilities it faced regarding labor violations and sexual discrimination.

In December 2008, Wal-Mart agreed to pay up to $640 million to settle 63 state class-action lawsuits pertaining to overtime. It also faces the largest sex-discrimination suit in U.S. history, which a federal appeals court recently ruled could proceed as a class action.

"I don't understand so many lawsuits," investor Johnny Self, 73 years old, of Tulsa, Okla., told the executives at the meeting.

Wal-Mart has repeatedly argued in court that no systemic discrimination existed at the company and the cases should be tried individually.

However, six years before the sex-discrimination case was filed, the company hired a prominent national law firm that concluded Wal-Mart was vulnerable to just such a lawsuit.

The results of the 1995 report showed that, in fact, female workers were paid and promoted at significantly lower rates than their male counterparts. The New York Times on Friday first reported the study.

Law firm Aiken Gump Strauss Hauer & Feld conducted the confidential study, which found, among other things, that men employed by Wal-Mart as department managers, an hourly position, earned 5.8% more than women in those positions in 1993. In addition, men were 5 1/2 times as likely as women to be promoted into salaried, management positions.

Wal-Mart confirmed the existence of the study but questioned the validity of Akin Gump's methodology, saying the firm was asked to mimic the type of "aggressive" statistical analysis done by plaintiffs' lawyers in class-action cases, Wal-Mart spokesman David Tovar said.

As in the past, the Wal-Mart annual meeting, hosted this year by actor Jamie Foxx, was a spectacle of movie stars and musicians and artists including Enrique Iglesias, Mariah Carey and "American Idol" winner Lee DeWyze, performing before an audience of Wal-Mart associates, some of whom had traveled to Arkansas from as far away as Chile and Japan.

Timeline: Old Sears building, once a boom, then bust
By Rachel Tobin Ramos - The Atlanta Journal-Constitution
June 1, 2010

Pre-1925: The site along Ponce de Leon Avenue had been home to an amusement park, picnic area, skating rink and famous springs. Legend has it that Spanish explorer Hernando De Soto believed he had rediscovered explorer Juan Ponce de Leon’s fountain of youth there.

1925: Sears, Roebuck & Co. announces it will build a giant Atlanta retail store and mail order house there to be far from the congestion of downtown. Sears paid $200,000 for the 16-acre site. The city agreed to extend North Avenue to the new building.

1926: The $3 million first phase of the building opens after six months of construction. On the first day, it has 30,000 visitors. Sears expects to do $30 million in annual sales from the facility, which will carry 35,000 items and employ1,500. Features include a basement cafeteria and doctor’s office to examine prospective employees.

1928: Sears announces two stories will be added at a cost of $500,000.

1929: Sears says it will build a 9-story annex for $750,000.

1930: Sears opens a farmer’s market on the site. Opening day has produce from 150 individual producers in 18 Georgia counties.

1946: Sears builds a new addition to the site.

1960s: Sears adds another building. The facility now totals 2 million square feet.

1979: Sears closes the retail store, but keeps its regional headquarters in the historic building.

1987: Sears announces it will close the building.

1989: Coldwell Banker lists the building for $22 million.

1990: Atlanta says it will buy the building for $12 million and spend $10 million to renovate it to become a second city hall. Mayor Maynard Jackson calls it the “deal of the century.”

1995: Atlanta politicians call the building a “money pit.” Renovation costs are expected to soar to $28 million. Atlanta taxpayers pay $2.4 million annually on debt to improve the landmark.

2003: Mayor Shirley Franklin says she is ready to sell the mammoth building, which the city only half filled.

2004: Lilburn developer Emory Morsberger offers $35 million for the building, with plans to spend $400 million to convert it into 1,200 condos, offices and shops.

2006: Morsberger’s team wires $7 million to the city to start the purchase. The price drops to $33 million.

March 2010: Morsberger says the condo market has tanked. He takes a back seat to a new lead developer, Jamestown, which offers $27 million for the building. New plans call for nearly 400,000 square feet of retail.

Tuesday: A city board approves a zoning change to allow large anchor tenants like Target or REI. Other tenants could be offices, apartments and a “technology hotel” for electronic equipment.

SOURCE: The Atlanta Journal-Constitution archives, staff research.z

 

Sears unloading empty stores
North Fort Myers, Naples locales for sale
By Dick Hogan - Fort Myers, FL News-Press
May 31, 2010

Sears Holding Co. is putting some of its empty stores up for sale, including two in Southwest Florida — and even offering other retailers a chance to lease space in locations that are still open.

The Chicago-based retailer has spent the past several months putting together an in-house team of real estate experts to find a way to make its chain of department and discount stores more productive. Sears expanded the effort in March by quietly setting up shop online under the moniker SHC Realty.

The vacant Sears Essentials store in Merchants Crossing shopping center on U.S. 41 in North Fort Myers and the vacant Kmart in Freedom Square at U.S. 41 and Triangle Boulevard in Naples are for sale, according to SHC's website.

Other than that, Sears isn't saying much about the program. "We don't comment publicly on any specific property," spokesman Chris Drathwaite said, and the company isn't using local real estate agents to help sell or lease.

The move comes five years after billionaire investor Edward Lampert took control of Sears in a deal hailed at the time as a brilliant real estate play. Wall Street expected Lampert to raise billions of dollars by selling Sears and Kmart stores. That didn't happen.

When the real estate bubble burst, Lampert was left with two fading retail chains and a vast network of stores that lagged the industry in average sales per square foot, which is a key measure of productivity.

Selling or leasing vacant buildings as big as the defunct Kmarts or Sears stores won't be easy in a down real estate market, said Karen Johnson-Crowther, a commercial real estate agent with Colliers Arnold Southwest Florida.

"When you get to that size box (about 100,000 square feet) you're probably looking at dividing it," she said - few buyers or tenants would take the entire space.

Leasing part of an existing store that's still operating could work by allowing a small "store within a store" in which a smaller retailer sells something that doesn't compete with the existing store.

But remodeling to put a larger retailer in part of an existing store isn't cheap, she warned. "Obviously you'd have to meet all the code requirements. That can get expensive."

The two stores Sears has for sale aren't the only ones sitting vacant locally, she noted: The 91,000-square-foot Sears Grand (formerly a Kmart) in Coralwood Mall in Cape Coral has been vacant since its lease ran out in November.

Britt Beemer, a retail analyst with America's Research Group in Charleston, S.C., and Orlando, said that if anything, Sears is late getting rid of its un-needed space. "They should have done it years ago."

Stores within a store could work, he said, but only if the newcomer is compatible with the Sears or Kmart clientele. "If the research on your customers suggests that customer is already a Sears customer, that's probably a good strategy."

While it's not unusual for retailers to try to find tenants or buyers for their empty stores, the breadth of Sears' effort is extraordinary.

"I don't know anybody who's done it at this scale," said Alan Barocas, an Atlanta-based retail real estate consultant and the former senior vice president of real estate for Gap Inc. "It's a way for them to generate revenue from their real estate. It's purely an income stream."

Allstate vows to overtake State Farm as top insurer, setting stage for price war
By: Steve Daniels - Chicago Business
May 31, 2010

Allstate Corp. aims to topple State Farm Insurance Cos. as the country's leading insurer of homes and autos within a decade. Northbrook-based Allstate's ambitious new goal to double its premiums in 10 years — outlined in a company memo obtained by Crain's — sets up a clash of the insurance industry's giants, both based in Illinois.

The battle to dominate the $235-billion consumer market could trigger price-cutting that would mean lower insurance rates for drivers and homeowners. But insurers' profits could suffer, as they did during an industrywide price war a decade ago.

The goal marks a dramatic new focus on marketshare growth at Allstate. CEO Thomas Wilson has emphasized Allstate's industry-leading profitability since taking charge of the company in 2007. But Allstate's stock price has languished as its core insurance businesses stalled in the face of competition from Geico and Progressive Corp., which sell policies mostly online, the fastest-growing sales channel.

Mr. Wilson has tried to expand Allstate's life insurance and financial services businesses. Still, auto and homeowners premiums accounted for $26 billion of Allstate's $32 billion in total revenue last year. Reigniting the property and casualty businesses would put a charge into overall growth.

In an April 30 memo, Allstate Senior Vice-president Joseph Richardson told agents, "We've declared our commitment to be the No. 1 provider of consumer protection in the U.S.! That's a powerful statement. It's a statement about being the best! Yes, the best. Doesn't it feel good to say? Just think about how great it will feel when we achieve it, and State Farm — and every other competitor — looks up to us!"

AN OPENING

To reach its goal, Allstate must not only stem customer defections in its property and casualty business but achieve average annual growth of 7% in an industry likely to grow no faster than 3% a year. That means it must lure customers away from Bloomington-based State Farm, the longtime industry leader, with 19% of the market for auto and homeowners insurance.

State Farm, with $45 billion in premiums last year, has been raising rates recently to improve its poor auto-insurance profit margins. That may give Allstate an opening to woo customers with lower prices.

"Competition is great," a State Farm spokesman says. "It's what makes the business world work."

At the same time, Allstate needs to compete more effectively online against Ohio-based Progressive and Washington, D.C.-based Geico, the nation's No. 3 auto insurer. Since 2005, Geico's share of the U.S. auto market has climbed to 8.2% from 6.2%, while No. 2 Allstate's has dropped to 10.5% from 11.1%, according to data provider SNL Financial in Virginia.

In Illinois, Allstate recently offered a 5% discount to Geico customers who switch. Across the country, Allstate also is offering a one-time bonus — one agent says it's around $40 — to customers who buy directly from its Web site.

In his missive to agents, Mr. Richardson wrote, "We have to accelerate our ability to grow by leveraging our agencies and our direct capabilities. We will grow — and win — with both."

Allstate says it's not cutting rates across the board but lowering prices selectively by improving existing discounts, including for customers with multiple policies and those who pay premiums all at once.

Mr. Richardson said Allstate can double premiums in 10 years "while annually meeting leading underwriting profit targets."

Since the industry's last price war, Allstate has worked to bolster profits by using computer programs to target discounts to the most lucrative customers.

Investors, who were disappointed when the financial crisis forced Allstate to cut its dividend in half a year ago but still prize its lush auto-insurance profit margins, likely will worry about the new growth emphasis.

"Everyone says they're going to grow without sacrificing profitability," says analyst Meyer Shields at Stifel Nicolaus & Co. in Baltimore. "And it almost never happens."

ON THE PROWL?

Some think Allstate will need acquisitions to dethrone State Farm. Smaller insurers struggling to compete with online discounters are ripe buyout targets, says J. Paul Newsome, an analyst at Sandler O'Neill & Partners Inc. in New York.

Still, Mr. Newsome says, "I would be very surprised if they were able (to reach their growth goal). I don't think they have the marketing expertise and the distribution that will allow them to grow" like that.

For Allstate's 12,000-plus agents, who are under pressure from the company to expand their agencies or merge with larger ones, the rallying cry from Northbrook can act as a motivator.

"It's good to hear that kind of statement from the top," says Craig Wiggins, whose Huntsville, Ala., agency, with $8 million in annual premiums, is one of Allstate's largest in the Southeast.

"We're kind of like that sleeping dog on the porch," he says. "If you give that dog a kick, you wake it up."

Why Wal-Mart Wants to Take the Driver's Seat
The retail giant wants to grab control of deliveries from manufacturers. Suppliers' shipping costs "more than likely will be passed on to other retailers"
By Chris Burritt, Carol Wolf and Matthew Boyle - Bloomberg Businessweek
May 31, 2010

Wal-Mart Stores (WMT), the world's largest retailer, has become famousand at times infamousfor the power it wields over its suppliers. With its $408 billion in sales for the fiscal year ended Jan. 31, the retailer has plenty of clout to persuade makers of goods sold in its big-box stores to create environmentally friendly packaging and exclusive product sizes, and to participate in joint advertising promotions.

Now, Wal-Mart wants to be their chauffeur as well. The retailer aims to take over U.S. transportation services from suppliers in an effort to reduce the cost of hauling goods. Wal-Mart is contacting all manufacturers that provide products to its more than 4,000 U.S. stores and Sam's Club membership warehouse clubs, says Kelly Abney, Wal-Mart's vice-president of corporate transportation.

The goal: to handle suppliers' deliveries in instances where Wal-Mart can do the same job for less, then use those savings to reduce prices in stores, Abney says. Wal-Mart believes it has the scale to allow it to ship everything from dog food to lawn chairs more efficiently than the companies that produce the goods. "It has allowed our suppliers to focus on what they do best, manufacturing products for us," he says.

"With lower costs usually comes increased sales."

Manufacturers would compensate Wal-Mart by giving the retailer lower wholesale prices for the goods it transports. Wal-Mart isn't saying how much it hopes to save. However, in a slim-margin business such as retailing, even small efficiencies can help the bottom line; in 2009, Wal-Mart trimmed expenses by almost $200 million by packing and scheduling its U.S. truck fleet more efficiently, according to spokesman Lorenzo Lopez.

Until now, suppliers made most deliveries to Wal-Mart's distribution centers. The retailer then used its fleet of 6,500 trucks and 55,000 trailers to ferry goods between the regional centers and individual stores. Under the new program Wal-Mart will increase its use of contractors, as well as its own vehicles, to pick up products directly from manufacturers' facilities.

That will allow Wal-Mart to carry more per truck and improve on-time delivery rates, says Leon Nicholas, a director at consulting firm Kantar Retail. Wal-Mart also would have more sway in negotiating fuel prices, thanks to its larger purchasing volume, he says.

The price cuts Wal-Mart is seeking are twice as much as the cost of transporting goods in some cases, say officials from two suppliers. In two instances, Wal-Mart asked for a 6 percent reduction in the price it pays for products based on its own cost calculation, while suppliers estimated the actual expense was equal to about 3 percent, the people say.

"There may be a disconnect when we walk into the room on what that cost might be," Wal-Mart's Abney says. "But we work collaboratively. As soon as a supplier shares the data, almost always those differences are quickly resolved."

Abney says Wal-Mart has thousands of suppliers and he has taken part in talks with more than 100. Some manufacturers have already shifted their deliveries and associated costs to Wal-Mart, he says.

One side effect of the Wal-Mart plan is that consumer-product manufacturers may face increased transportation costs on deliveries to other retailers as they lose economies of scale on their own delivery fleets, says Randy Huffman, a former Wal-Mart executive who now runs GBD 360, a Bentonville (Ark.) consulting firm that works with suppliers.

"That aligns with Wal-Mart's taking cost out of the supply chain for their benefit and not their competitors," he said. "Suppliers are going to have to apply that increased freight cost somewhere, so it's more than likely it will be passed onto other retailers."

Bentonville-based Wal-Mart is eager to reduce expenses after announcing on May 18 that sales at its U.S. stores open at least a year fell for a fourth straight quarter. Mike Duke, who took over as chief executive officer last year, pledged in October that costs would rise slower than sales. Since then, Wal-Mart has sharpened its focus on transportation expenses, escalating talks to take over trucking from suppliers this year, Abney says.

The retailer also has sought to offer goods like cereal and laundry detergent for less to lure shoppers back to stores; lowering transport costs provides room to do that. The strategy is part of what Wal-Mart calls its "productivity loop"—efficiency reflected in lower bills for shoppers at the cash register.

As for suppliers, they may have to go along with the plan even if their other remaining transport expenses rise because Wal-Mart is so big, says Vic Gallese, an independent retail consultant based in Fort Worth.

"The vendors might say, 'My other overhead costs will rise,'" said Gallese, who has spent 25 years in the retailing industry. "And Wal-Mart will say, 'That's your problem.'"

The bottom line: By attempting to take over the transportation from its suppliers, Wal-Mart hopes to achieve efficiencies to cut its own prices.

Burritt is a reporter for Bloomberg News. Wolf is a reporter for Bloomberg News. Boyle is deputy Corporations editor for BusinessWeek.

Kmart's Unexpected Revival: The Fruit of Solid -- and Basic -- Discount-Store Retailing
By Mike Duff - BNet
May 26, 2010

Kmart has revived its fortunes — not on flash or frantic investment, but on considered innovation and hard work.

Consider: Kmart has returned three straight quarters of comparable store sales gains, even though its parent company Sears Holdings (SHLD) hasn’t invested in the kind of major remodeling efforts that its direct competitors Walmart (WMT) and Target (TGT) have undertaken. Kmart has accomplished this even as its major consumer draw, Martha Stewart Everyday, has been vacating its stores and building up at Macy’s (M), Home Depot (HD) and other retailers. Kmart, sometimes derided as dowdy and old-fashioned, has developed a fashion business based on a revitalized Jaclyn Smith brand (pictured) that is leading sales growth. Many of Kmart’s gains can be attributed to the emphasis the retailer has placed on its fashion brands, in both the apparel and home departments, with Jaclyn Smith established as the focal point. When it started out at Kmart in the 1990s, Jaclyn’s brand was as big as Martha Stewart’s, but it faded at the turn of the millennium.

Two years ago, Kmart instituted a Jaclyn revival. It not only put more products in stores but also invested in a New York design office to guide it and other Sears Holdings brands. That office has been particularly effective for Kmart, developing look books and putting Kmart style on a serious footing.

As a consequence, Kmart developed a good bead on its core customer, who probably is more worried about looking unfashionable than being seen in the latest, unproven, style. The updated classic looks Jaclyn Smith has been able to embody have proven a core Kmart could build around in apparel and, with an expansion of her label, in home furnishings.

Smith isn’t all that has gone right with Kmart. The company revived layaway in the 2008 holiday season, just as its customers began losing access to bank credit. And, Kmart complemented that old-fashion initiative with Internet innovation.

As Sears Holdings dealt with corporate debt and other troubles, Kmart couldn’t count on big marketing budgets. So it came up with initiatives online, including movie-linked online promotions, that enjoyed success.

As Kmart experimented with the Internet, Sears Holdings became interested in online opportunities, which lead to the development of a social networks for Kmart and Sears.

In the discounter’s case, the network is dubbed MyKmart Community, and offers benefits such as online coupons in addition to information and a place where customers can post reviews and experiences. The parent company also launched the Sears Holdings ShopYourWay e-commerce emporium, which Kmart and Sears share. ShopMyWay now sponsors a Kmart loyalty card that provides a one percent cash back reward and promotions such as prizes awarded randomly at checkout to cardholders.

Although Kmart’s comparable store sales gains over the past three quarters have not surpassed two percent, keep in mind that Walmart’s have declined in that period. Given that the Kmart only started posting positive comps in the second half of last year, its advances can’t be written off to consumers trading down in the recession. The chain’s revival has been based on its own initiatives, which suggests they can be sustained.

To an extent, Kmart has found its level. After years of declining sales and store closures, the chain reached a point where it was the best local option for enough people that revenues stopped eroding. The fact that many Kmarts are located in old-line urban and suburban neighborhoods that aren’t attractive to Target and are still a puzzle to Walmart probably played a major role there.

None of that explains the turn around, though. What might is Kmart’s attention to basic, discount store retailing. It developed some clever marketing, pushed brands that had the right image for shoppers and made merchandise affordable for them through a combination of promotions, discounts and, when necessary, secured credit. Sam Walton might be proud.

Commerce could hum again in massive former Sears complex
By Rachel Tobin Ramos - The Atlanta Journal-Constitution
May  26, 2010

The former Sears, Roebuck and Co. complex on Ponce de Leon Avenue, more recently known as City Hall East, cleared a hurdle Tuesday night that would allow it to again hum with commerce.

AJC file photo Sears, Roebuck and Co. began to build the massive retail store and catalog distribution center on Ponce de Leon in the 1920s. More recently, the 2-million-square foot complex housed a second city hall. Atlanta’s Zoning Review Board voted to approve new conditions for the site that would allow a major anchor tenant -- such as a Target or REI -- to occupy a portion of the mammoth building.

The vote allows an anchor tenant to occupy up to 150,000 square feet and changes green-space requirements. Two neighborhood groups attended the meeting to support the proposal, which was introduced by Councilman Kwanza Hall.

Atlanta City Council must approve the new stipulations, but the vote was an important step toward changing the site's master plan. Sears, Roebuck and Co. began to build the massive retail store and catalog distribution center in the 1920s. More recently, the 2-million-square foot complex housed a second city hall. Now, Mayor Kasim Reed wants revenue from the building to bolster the city's cash-strapped budget.

For years, a development group talked of turning the complex into a giant residential project, rimmed with parks, but the recession and housing market crash made that idea less feasible.

More recently, a new lead developer emerged. Although no contract is on the table, Atlanta-based Jamestown is negotiating to pay up to $27 million to buy the complex from the city and develop a retail center.

They also are considering a “technology hotel” for servers and digital equipment, offices and several hundred apartments for the complex. Kit Sutherland lives in the Glen Iris lofts, across the street from City Hall East. Though a Whole Foods, PetSmart and Borders are nearby, she said, “There is no place to buy socks,” in the Old Fourth Ward. She would like to see stores such as Crate & Barrel, with goods for the home, or REI and Target.

Drucker’s Surprising View of Corporate Social Responsibility
Six Sigma & Process Excellence IQ (blog)
Author: William Cohen, Ph.D.
May 26, 2010

Drucker concluded that considerations for workers in and out of the workplace were the responsibility of the corporate leader just as much as the profits, survival, and growth of the business or organization.

Therefore, he taught that there were social responsibilities of business. As a result, Drucker was also called a pioneer of business social responsibility. Yet there were important Drucker differences between what many expect corporations to do under this banner.

The Drucker Difference

Peter Drucker differed with most of those who thought and wrote about the social responsibility of organizations. Here are five of his corollaries to corporate social responsibility.
1. Government cannot solve many social problems
2. The corporate mission comes first
3. There is an unlimited liability clause
4. There are unique ethics of social responsibility
5. There are opportunities for competitive advantage in fulfilling social responsibility

Government Can’t Do It

Drucker analyzed the issue and found increasing disenchantment with government’s ability to successfully initiate or successfully implement social programs.

Although government coordinates 4-H Club activities in the U.S. today, it was a businessman, Julius Rosenwald at Sears Roebuck, who initiated and developed this concept. Drucker noted: “There is now no developed country — whether free enterprise or communist — in which people still expect government programs to succeed.” He gave a number of reasons for an increasing failure of government to assume responsibilities for social problems and to be successful in achieving worthwhile results. However, the overriding reason for Drucker’s belief was that government, by necessity, served too many constituencies.

This made it extremely difficult, if not impossible, to set specific goals and objectives, since powerful constituencies had different goals, and different values. Frequently their goals and objectives were mutually exclusive and without agreed goals and objectives, any social program was hopeless from the start.

Corporate Mission First

If the effort to achieve a positive benefit resulted in harm to the organization initiating it, this is not socially responsible, regardless of good intentions. According to Drucker, the organization’s first responsibility must always be to its own mission regardless of other factors.

The first “social responsibility” of the business is to make a profit sufficient to cover operational costs in the future. The logic in this is that if the organization failed in its own goals because of misallocation of time, resources, or personnel in attempting to fulfill a particular social responsibility, not only would it be prevented from solving any particular social problem, or future social problems, but would fail society in the organization’s mission and waste society’s resources.

Once the organization failed in its primary mission, there was no need for it and it would go out of existence. So if this basic “social responsibility” of fulfilling the organization’s purpose is not met, no other “social responsibility” can be met either.

Unfortunately advocates for various causes frequently demand and pressure organizations to resolve social issues or solve social problems which are totally outside the organization’s area of expertise or ability to comply. These demands are made even though the actions desired by these groups, if adopted, would hurt the organization of which the demand is made and in some instances, society as well. Failing to take the action desired, these organizations are sometimes termed “greedy” or “unethical” or worse.

Drucker recognized that while non-governmental organizations must assume responsibilities for solving social problems, they must above all do nothing which would impede their own capacity to perform their obligations which are the rationale for the organization’s existence.

The Unlimited Liability Clause

Drucker taught that good intentions were of themselves not necessarily socially responsible. Moreover many corporations take actions with the intent of improving a social condition only to create significant and unintended negative impacts.

An unlimited liability clause means that the organization taking the action assumes the responsibility for the outcome, no matter what and not just for the present, but into the future. Most advocates and consumers view high prices as a social responsibility which must be addressed and reduced. Sam Walton recognized this need and in the process built his company, Wal-Mart, into the world’s largest retailer with this goal and initiated cost saving practices and a new focus on low pricing which benefited the consumer.

Unfortunately, for Wal-Mart, there were unintended results for which it was eventually held accountable. The same strategies which brought profit, success, and cheers from consumers earlier, also eventually brought worldwide legal problems, governmental interference and bad press.

For example, Wal-Mart was accused of forcing out smaller local business which could not compete with Wal-Mart’s low prices. Wal-Mart kept prices down partly by closely controlling and limiting the pay and benefits of its employees. Suppliers who felt obligated to deal with the colossus that Wal-Mart had become accused the company of squeezing them into bankruptcy. Other studies claimed that Wal-Mart’s practices had forced jobs into overseas markets to ensure low prices. To some, Wal-Mart went from corporate “Good Guy” to corporate “Bad Actor” without changing anything.

Drucker taught that impacts are inevitable. So the first thing that needs to be done to be socially responsible is to minimize them and to be careful in the name of “doing good” for there is an unlimited liability clause to which, like it or not, corporations are held accountable.

Unique Ethics of Social Responsibility

Drucker struggled with the concept of the ethics of social responsibility. He did not find an exact solution which would cover all contingences.

He did feel that several basic Confucian concepts provided general guidelines which would meet the requirements of the ethic of social responsibility and that one general guide in applying the difficult task of ethics to social responsibility was the injunction: Primum non nocere — First, do no harm.” According to Drucker, this needed to be applied in the area of social responsibility as well as general business ethics.

Opportunities for Competitive Advantage in Social Responsibility

Today social responsibility is the “in thing.” Many corporations have entire departments to encourage social responsibility, look at company actions causing negative actions which need to be attended to, uncover opportunities, and develop and run social responsibility programs. It is easy to forget that this was not always so, and that once, even Alfred P. Sloan, General Motors legendary CEO, claimed that social responsibility was not the responsibility of business and that the two should remain completely and forever separate. In one of the very rare disagreements from Sloan’s management precepts, Drucker proclaimed that fulfilling social responsibility was not only a duty but could result in competitive advantages for a company far and beyond mere public relations with the general public or customers.

Julius Rosenwald, became first vice president and treasurer, and then president of an ailing and unprofitable Sears Roebuck and Company in 1895. Under his leadership, sales climbed from $750,000 a year to over $50 million.

Yet, Rosenwald invested a lot of money over the course of his life for society. This included 70 million dollars for schools, colleges, and universities and included endowing the famous African-American Tuskegee Institute in 1912, a time when prejudice was more in vogue than equal opportunity for American minorities. He put a lot of money into agriculture. Yet, Rosenwald was a city boy who probably didn’t know a thing about farming. Although he implemented the many policies of social responsibility because it was the right thing to do, he also saw that the welfare of the company was primarily based on the knowledge, skill, and wellbeing of the company’s primary customer. In those days, this was the American farmer.

Accordingly, Rosenwald’s social responsibility had a dual purpose. It not only helped people, it built Sears Roebuck’s customer base and developed its market. Within ten years the company went from near bankruptcy to the largest merchant in the world and one of America’s most profitable and fastest growing companies. Social responsibility was a major competitive advantage!

IBM’s original approach to eliminating discrimination was to simply ignore cultural, racial, and other differences among its worldwide workforce of more than 150,000 employees. When Lou Gerstner became CEO in 1993, he dropped this concept and initiated a diversity task force with a different approach and a different objective. The new objective was to uncover and understand the differences among the groups making up the IBM workforce and the markets they served.

Then the task force was to use what was learned to find ways to appeal to a broader set of employees and customers. It worked and understanding and its using its diversity became a major competitive advantage for IBM. As a result of Gerstner’s initiative the number of female executives in the company grew 370 percent and the number of ethnic minority executives increased by 233 percent. All of this had a major effect on bottomline profits. It led to efforts to develop a broader client base among businesses owned by women, Asians, African-Americans, Hispanics, senior citizens and Native Americans. This in turn resulted in a dramatic growth in revenue in the company's small and medium-sized business sales from $10 million to hundreds of millions of dollars in just five years.

Those who follow these Drucker ideas will not necessarily succeed, but the contributions to the organizations of which they are members and to society will be of immense benefit.

Adapted from Drucker on Leadership (Jossey-Bass, 2010)

Discover Financial: Let's Give Credit Where Credit Is Due
By Sue Reisinger - Corporate Counsel
May 24, 2010

To show how much the compact legal department at Discover Financial Services can do, general counsel Kelly McNamara Corley tells a story.

It was 2007, and the credit card issuer had just been spun off as an independent company. Her two-person government affairs staff in Washington, D.C., needed to move into new quarters. So Corley's very first hire at Discover, assistant general counsel Ray Messina, his administrative assistant, and a friend rented a truck and moved everything for about $200.

"In a small law department, you look for people who can flourish putting on and taking off hats in any given day," Corley said.

The legal department at Discover — the country's sixth-largest credit card company, headquartered in the Chicago suburb of Riverwoods — has only 34 lawyers. How do they do it? Corley, who's been GC at Discover and its predecessor business unit since 1999, said it's a combination of being creative about problem-solving and leveraging people into new roles. "If you only have limited resources, you quickly recognize that you have to do it faster, smarter, and better than somebody that has five times the resources," she explained. "You get very clever with your time."

One example: Its tiny litigation team — with just one full-time attorney and two part-time lawyers — handled over 1,000 legal matters in 2009, while resolving 11 of 14 pending class action suits. Working with outside counsel, the team, led by David Oppenheim, brought Discover a big payday last year. The company collected $2.75 billion from an antitrust suit it won in 2008 against Visa Inc. and Mastercard Incorporated. It was the third-largest antitrust victory in history, Oppenheim said. To help make their case, he and Corley persuaded former Discover executives — who normally shun the courtrooms — to describe under oath how the bigger companies had improperly stifled competition.

Oppenheim described his role as "embedding" himself with outside counsel in Chicago, New York, and Washington, D.C., in order to supervise and coordinate the work. For the suit, he and Corley chose some litigators from a big firm, Kirkland & Ellis, and paired them with more from a boutique firm, Constantine Cannon. According to Corley, Constantine's lawyers were the think-tank, Kirkland provided the litigation engine, "and David was the conductor."

The agreement with Visa and Mastercard wasn't the end of the issue, however. "We hadn't even signed the settlement agreement yet," Oppenheim recalled, when Morgan Stanley Group Inc. — which owned Discover from 1997 to 2007 — filed suit, seeking a $1.5 billion chunk of the award. He called it "incredibly awkward" to be in litigation with his former friends and colleagues at Morgan Stanley.

But Oppenheim's team went to work, finally settling the matter this past February. Morgan Stanley accepted a $775 million payout, meaning that Discover's lawyers helped the company preserve the remaining $1.9 billion.

That money came in handy. In March federal regulators approved Discover's plan to pay back $1.2 billion in bailout funds it needed during the 2008 market meltdown and credit crunch. The entire loan process placed immense demands on the legal department, but the five lawyers in the corporate, banking, and securitization unit were affected the most.

In order to be eligible for a bailout, Discover had to become a bank holding company. The five attorneys had to meet hundreds of requests from the company's new banking regulators, examine Discover's corporate governance structure, create a risk office with new policies, adopt new accounting rules, and more — all under tight deadlines. Kim Loies, a senior counsel in the group, said that almost all of the work was done in-house, requiring long hours in an uncertain climate. "But they knew they had to do it to weather the storm," she recalled. "It was a great learning experience, and we definitely came out of it stronger."

Discover's roots go back to 1986, when Dean Witter Financial Services Group Inc. (then a subsidiary of Chicago-based Sears, Roebuck and Co.) launched the Discover card. In 1993 Sears spun off Dean Witter, Discover & Co. as an independent business. In 1997 that company merged with Morgan Stanley, which a decade later spun off Discover Financial Services (just in time for the global credit crunch).

Corley started her career in 1982 in Sears's D.C. government affairs office, first as a summer intern and then as an administrative assistant. She worked alongside another staff member named Christine Edwards, who would later become GC of Morgan Stanley, but who was going to law school at the time. Inspired by Edwards' example, Corley decided to go to law school herself — at night. During the day, she and Edwards focused on legislation affecting Sears' banking services.

Over the years, the two women have climbed the corporate ladder together. Edwards took the helm at the D.C. government affairs office after Dean Witter was spun off from Sears. When Dean Witter promoted Edwards to a job in its main office in Chicago, Corley assumed command of the D.C. office. Edwards then became general counsel at Morgan Stanley after it bought Dean Witter and kept offices in Chicago.

She eventually convinced Corley to join her in the Windy City as general counsel of Morgan Stanley's Discover division in 1999. Corley remained with Discover as GC after it became an independent public company in 2007.

Did Corley consider staying with Morgan Stanley, which would have meant leaving Chicago? "I wouldn't have changed if my life depended on it," she said. "I love Discover, and I want to be in Chicago."

Edwards, who left Morgan Stanley in 1999, is now a corporate partner at Winston & Strawn, where she's working again with Corley, but as outside counsel. Edwards said Corley has always been "an incredibly creative" lawyer, whether in coming up with innovative fee arrangements or with ideas for joint training. "Kelly searches for the elegant solution rather than the luxurious," Edwards said. "By that, I mean she takes the resources she has and does a heckuva lot more with them than any other lawyer I know."

Corley's lawyers at Discover follow her lead in seeking elegant solutions. For example, Carol Sulkes, assistant GC for infrastructure and employment law, came up with a contract model that helped her department execute 700 business technology agreements and about 100 facilities agreements last year. "And none went outside," Sulkes boasted. Under the model, nonlawyer contract specialists in the finance department collect a deal's requirements from the business unit, prepare a first draft, manage the review process, and highlight any issues for the legal department. "When I get a contract," Sulkes said, "all the legwork is done."

Another unit in Discover's law department has since adopted the model. Nancy Brooks, assistant general counsel of the credit card networks unit, explained that her group wanted to decrease the amount that it was paying outside counsel to work on thousands of merchant contracts. So she hired a contract specialist to handle the initial paperwork and write first drafts of contracts. Her lawyers handle any legal issues and sign off on the final version. In 18 months, Brooks said, "we decreased our outside counsel spend by $1 million. It's a very efficient model."

Sulkes and Brooks are evidence of how Corley has given broad operational and legal management responsibilities to the women lawyers on her staff. The GC's senior leadership team is 42 percent female. She's also created several flexible work schedules to allow employees to better balance their work and family life.

Corley isn't all business — she has an easygoing sense of humor with her staff. She laughs as Messina tells his own favorite story, about how one of Corley's very first jobs was as a ride operator at Disneyland. His punch line: "Kelly started her career telling people where to get off, and she still does."

-- Full Best Legal Department Coverage

DISCOVER FINANCIAL SERVICES 2009 NET INCOME $1.3 BILLION GENERAL COUNSEL KELLY McNAMARA CORLEY NUMBER OF IN-HOUSE COUNSEL 34 MAIN OUTSIDE COUNSEL ALSTON & BIRD; DLA PIPER; KIRKLAND & ELLIS; SIDLEY AUSTIN; WINSTON & STRAWN

Eddie cuts, Sears bleeds
By James Covert and Richard Wiler - New York Post
May 23, 2010

Eddie Lampert's status as a retail renegade may be in jeopardy.

The prickly hedge-fund tycoon has long been blasted by industry critics for merging Sears and Kmart in 2005, then skimping on everything from advertising to store upkeep as he hoarded cash to buy back the company's shares.

That, according to retail intelligentsia, has sent shoppers fleeing Sears and Kmart's increasingly dilapidated stores for rivals, from Wal-Mart to JCPenney.

In annual shareholders' letters, Lampert has countered testily that the conventional wisdom of running ads, cutting prices and upgrading stores in order to generate sales isn't always profitable. In his most recent such letter in February, Lampert called his chorus of critics "an echo chamber of self-support and self-congratulation."

Nevertheless, Sears last week reported its first quarterly increase in sales at stores open at least a year -- a closely watched industry metric, long held in contempt by Lampert -- since the merger. While slight, at just 1.2 percent, the same-store sales gain was particularly eyebrow-raising for Sears, as it was driven by aggressive discounts on appliances.

Positive sales at Sears and Kmart are "evidence that customers are shopping our stores and buying our products every day," a company spokesman told The Post.

That's a different approach than what Sears' investors are used to.

Maybe they've been listening to Lampert's cash-obsessed rants for too long. On Thursday, Sears said the appliance discounts fueled a 38-percent profit drop, and the company's shares tumbled 11 percent.

James Covert
 

Sears Net Drops 39%, Hurt by Discounting
By Karen Talley - Wall Street Journal
May 21, 2010

Sears Holdings Corp.'s fiscal first-quarter earnings dropped 39%, as sales were nearly flat and the retailer's domestic unit stepped up promotions of appliances and home electronics.

Sears' results are a bit of a contrast to other mass merchants and department stores that have been reporting revenue gains and expanded margins as they are able to pull back from significant discounting.

Sales at stores open a year or more at sister chain Kmart rose 1.7% in the first quarter, mostly driven by increases in the apparel, home and toys categories, and partly offset by a decline in food and consumable items.

Sears' domestic comparable-store sales increased 1.2%, largely driven by home appliances and partially offset by declines in the tools and home-electronics categories.

Of the comparable-store performance, interim Chief Executive Bruce Johnson said Kmart marked its third consecutive quarter of growth and Sears experienced its first gain in "several years as we effectively partnered with state agencies to sell energy-efficient appliances."

Kmart experienced softness in the food category, while food was strong at other retailers, such as Target Corp. and Wal-Mart Stores Inc.

Sears does continue to make strides with its online operations. Mr. Johnson said investments in this area were increased during the quarter.

Sears has seen some strength recently, especially from its Kmart stores, and state programs pushing energy-efficient appliances have helped move big-ticket items, which Mr. Johnson cited in February as a sore spot for the company amid the tough economic environment.

For the quarter ended May 1, Sears's profit fell to $16 million, or 14 cents a share, from $26 million, or 21 cents, a year earlier. Revenue slipped 0.1% to $10.05 billion. Sears said it benefited from an increase of $187 million due to changes in the Canadian foreign-exchange rate.

Separately, Sears is coming closer to having complete control of the cash at its Sears Canada Inc. arm. Sears Holdings' purchase last month of the 17.3% stake controlled by William Ackman's Pershing Square Capital Management paved the way for the large special dividend Sears Canada announced Tuesday.

As Sears now owns 90.4% of Sears Canada, it will receive more than $340 million of the roughly $375 million Sears Canada will pay holders via a $3.50-a-share dividend.

Presumably, Sears will use its share of the Canada dividend to pay down some of the $744 million in short-term debt it used to buy the Pershing Square stake, make capital expenditures and fund its pension and post-retirement benefit plans.

Shares of Sears tumbled 11% to close at $88.70 Thursday.

—Nathan Becker and Maxwell Murphy contributed to this article.

Sears tries to cut supplier, employee costs
Pays out millions in special dividend, group complains
By Dana Flavelle - Business Reporter - Toronto Star
May 21, 2010

One of Canada’s largest retailers is trying to cut its supplier costs while paying out hundreds of millions in the form of a special dividend to its mainly U.S.-based owners, a leading trade group alleges.

Sears Canada has notified its suppliers it plans to recover some of the benefit they enjoyed as the Canadian dollar soared, saying it needs the savings to remain competitive.

“We continue to face significant pressure from U.S. based retailers predominantly as a result of cross-border shopping as well due to their e-commerce operations,” Sears says in an April 29 letter to a supplier.

Sears said it will claw back some of the previous payments to the supplier and also apply a 10.27 per cent discount on any purchases made as of April 3.

The retailer blamed a 20.5-per-cent rise in Canadian dollar relative to the U.S. greenback since January 2009. The dollar has fallen back a bit since then.

Sears is trying to achieve lower prices for consumers, a request it considers “fair and reasonable,” spokesperson Vince Power said later.

The suppliers are fighting back.

The Canadian Apparel Federation notes Sears decided to pay a $376.7-million special dividend to shareholders, mainly its U.S.-based majority owner, Sears Holdings Corp.

“In justifying these measures Sears Canada … cites pressure from the Internet and cross-border shopping…. However these conditions have not stood in the way of Sears paying its first cash dividend in almost three years,” noted the Canadian Apparel Federation in a letter dated May 19.

The rising dollar is an issue for many Canadian retailers, whose customers expect them to lower their prices closer to U.S. levels when the Canadian dollar is trading at par.

Retailers say they can’t pass on the savings immediately because they’ve already paid for goods ordered months in advance when the Canadian dollar was lower.

But suppliers don’t see the savings either because they buy forward contracts that hedge against currency risk, said David Schachter, president of the National Apparel Bureau.

Sears has told its suppliers it plans to pay in future with U.S. funds. Meanwhile, Sears confirmed that it has locked out 470 employees at a warehouse in Vaughan. The employees, members of United Steelworkers union local 9537, say the retailer wanted to rollback some of the gains made in the previous contract.

Sears says it is seeking “fairness and equity” with its other 30,000 associates across the country. The warehouse is one of about eight unionized Sears’ locations.

“We’re trying to keep prices low for consumers and to be competitive,” Power said, adding the special dividend is a separate, unrelated issue.

Sears stumbles again
Commentary: Troubled retailer can't get a leg up
By MarketWatch
May 20, 2010

NEW YORK (MarketWatch) -- Sears Holdings Corp. can't catch a break. The retailer (NASDAQ:SHLD) , which operates Sears and Kmart stores, posted a 38% decline in fiscal first-quarter profit. Same-store sales actually rose at Sears and Kmart; for Sears it was the first increase in several years, the company said, but it wasn't enough.

Just last month, Sears reported that shoppers had returned to its stores and sales were on the rise, helped in part by promotions for the sale of energy-efficient appliances. Shares rose to more than $117 each, and there was hope that the company had finally gotten things back on track.

Geoff Fowler tells us how many retailers are speeding up delivery of online orders by using their local stores to ship the merchandise rather than big warehouses in far-away places.

Not so much.

Apparently, it's that very appliance promotion that pinched Sears' profit margins. During the quarter, Sears stores attracted shoppers who were taking advantage of the stimulus program for consumers to buy more efficient machines. Sears offered markdowns on home appliances, eating into its profit. Meanwhile, tools -- one of Sears' marquee areas -- and electronics suffered in the quarter. Shares fell more than 8% to $91.31 Thursday.

What gives? Sears has a good brand name historically for some items, such as appliances and tools, and has been known for low prices. It's got some good locations. But sometimes it seems like the company isn't even trying. Sears has been struggling for years and behaves as if it's not sure if it wants to be a retailer, or if it prefers to be an investment vehicle for hedge-fund investor Eddie Lampert.

With tough competitors like Wal-Mart Stores (NYSE:WMT) , Target Corp. (NYSE:TGT) , Home Depot Inc. (NYSE:HD) , Lowe's Cos. (NYSE:LOW) , J.C. Penney Co. (NYSE:JCP) and Kohl's Corp. (NYSE:KSS) on the scene, Sears needs to figure out what it's doing, and fast.

-- Angela Moore, Commentary editor

Kmart to test laundromat service
By Sandra Guy - Reporter - Chicago Sunp-Times
May 20, 2010

Kmart will open in June a laundromat, called KWash, in the back of a Kmart store in Iowa City, Iowa, aimed at letting shoppers wash their clothes while they buy milk, bread and other groceries.

The laundromat, part of what parent company Sears Holdings Corp. calls its "test-and-learn philosophy," will have 31 washers and 30 dryers, free high-speed wireless Internet access, a wash-and-fold drop-off service, and a rewards system for frequent users. The laundromat also has a full-service Kmart register.

Sears Holdings stock tumbles as profit falls 38%
Chicago Business
May 20, 2010

(AP) — Sears Holdings Corp.'s first-quarter net income fell 38 percent on thinner profit margins at its Sears chain, squeezed by discounts on appliances.

Shares of the retailer fell $10.86, or nearly 11 percent, to finish at $88.70 on Thursday.

The discounts offset a turnaround in revenue at the retailers' Sears and Kmart stores, breaking a long string of declines at Sears stores. It was Kmart's third consecutive quarter of rising revenue at stores open at least a year.

Sears Holdings, which is led by financier Chairman Edward Lampert, said Thursday its net income fell to $16 million, or 14 cents per share, in the quarter ending May 1, down from $26 million, or 21 cents per share, a year earlier. The thinner profit margins are a setback to a company that has posted rising net income in recent quarters, a result of closing stores and slashing expenses. Revenue fell slightly to $10.05 billion from $10.06 billion a year ago because the company has 63 fewer stores than in last year's first quarter.

Adjusted for a gain on the sale of real estate, pension expenses and other one-time items, earnings were 16 cents per share.

Analysts expected the Hoffman Estates-based to report profit of 14 cents per share on revenue of $10.21 billion. Such estimates typically exclude one-time items.

Sears stores' 1.2 percent gain in revenue at stores open at least a year was fueled by appliance purchases under the government's cash-for-appliances program, which offers rebates on energy-efficient items.

That program could fuel Sears' second quarter as well, because the company said much of the revenue for appliance sales in April won't be booked until the items are delivered in that quarter.

Kmart's revenue at stores open at least a year rose 1.7 percent, driven by increases in clothing, home items and toys. Sales of food and other consumables fell. Same-store sales are considered an important measure of a retailers' health because it excludes the effects of new stores and closings.

Sears Holdings’ portfolio also includes mail-order and online retailer Lands' End and popular brands such as Craftsman, Diehard and Kenmore.

Sears plans to focus on its long-struggling clothing business in hopes of attracting new and younger shoppers, officials told investors at the shareholders' meeting. Executives say clothing has been an "Achilles heel" for Sears.

The company will add a line of trendier clothing to Lands' End, which also has its own stores and is an increasing presence inside Sears stores, to draw younger customers. It also plans a line of store-brand products at Kmart.

It also plans to reinvent much of its Kenmore line of appliances, expand layaway at both Sears and Kmart and add more high-end fitness equipment at Sears.

Sears Profit Slides 39%, Hurt by Lower Margins
By Nathan Becker - Dow Jones Newswires
May 20, 1020

Sears Holdings Corp.'s fiscal first-quarter earnings dropped 39%, though results beat analysts' estimates, as the retailer saw lower margins and sales were essentially flat.

But interim Chief Executive Bruce Johnson said same-store sales increased at Kmart for the third-consecutive quarter and rose at Sears for the first time in "several years as we effectively partnered with state agencies to sell energy-efficient appliances."

Sears has seen strength recently, especially from its Kmart stores, though its first-quarter results don't match many retailers, which have posted significantly improved top and bottom lines coming off of moribund year-earlier levels. State programs pushing energy-efficient appliances have started the ball rolling on moving big-ticket items, which Johnson cited in February as a sore spot for the company amid the challenging economic environment.

For the quarter ended May 1, Sears reported a profit of $16 million, or 14 cents a share, down from $26 million, or 21 cents, a year earlier.

Excluding items such as real-estate gains, mark-to-market losses and severance and pension expenses, earnings fell to 16 cents from 38 cents.

Revenue edged down 0.1% to $10.05 billion on fewer stores. Domestic same-store sales rose 1.7% at Kmart and 1.2% at Sears.

Analysts polled by Thomson Reuters had most recently forecast earnings of 14 cents on $10.21 billion in revenue. The company last month gave a largely upbeat view, saying earnings would be as high as 31 cents.

Gross margin fell to 28.2% from 28.6% on declines at Sears stores.

Sears Q1 profit slips 38 pct
Reuters
May 20, 2010

* Q1 net EPS $0.14 vs $0.21 yr-ago
* Q1 revenue flat compared with Q1 of 2009
* Comp sales at K-Mart up 1.7 pct, 1.2 pct at Sears

May 20 (Reuters) - Sears Holdings Corp's <SHLD.O> first-quarter profit slipped 38 percent, hit by weaker margins and slightly higher costs.

Sears, run by hedge fund manager Edward Lampert, posted a quarterly net income attributable to shareholders of $16 million, or 14 cents a share, down from $26 million, or 21 cents a share, a year earlier.

Excluding a gain on sale of real estate, store reserve and severance, it earned 2 cents a share.

Revenue at the company, which operates about 3,900 stores in North America, was flat at $10 billion, compared with the year-ago period.

Analysts on average were looking for earnings of 14 cents a share, on revenue of $10.21 billion, according to Thomson Reuters I/B/E/S. [ID:nASA00DZO]

Gross margins at the company fell to 28 percent, compared with 29 percent in the year-ago quarter, while costs increased slightly to $9.9 million.

Shares of the Hoffman Estates, Illinois-based company closed at $99.56 Wednesday on Nasdaq. (Reporting by Shradhha Sharma in Bangalore; Editing by Aradhana Aravindan)

Sears' net income falls on higher costs
Associated Press
May 20, 2010

HOFFMAN ESTATES, Ill. — Sears Holdings says its first-quarter net income fell 38 percent on thinner profit margins squeezed by discounts.

An important measure of revenue rose at both Kmart and Sears stores. That was helped by purchases of appliances included in the government's appliance rebate program.

Sears Holdings Corp., which is led by financier Chairman Edward Lampert, said Monday that net income was $16 million, or 14 cents per share, in the quarter ending May 1. That's down from net income of $26 million, or 21 cents per share, a year earlier.

Revenue fell slightly to $10.05 billion.

Analysts expected the company, based in Hoffman Estates, Ill. to report profit of 14 cents per share on revenue of $10.21 billion.

Sears Net Falls 38% on Reduced Margins
The Street.com
May 20, 2010

HOFFMAN ESTATES, Ill. (TheStreet) -- Sears(SHLD) said first-quarter earnings fell 38% on lower margin rates.

Sears said net income was $16 million, or 14 cents a share, down from $26 million, or 21 cents a share, a year earlier. Adjusted first-quarter earnings were 16 cents a share.

Sales fell to $10.05 billion from $10.06 billion.

Analysts surveyed by Thomson Reuters expected Sears to earn 14 cents a share on sales of $10.21 billion.

Sears said Kmart had a same-store sales increase of 1.7% during the quarter, the third-straight quarter of gains. Sears domestic same-store sales rose 1.2%.

Sears said the margin rate in the first quarter was 28.2% vs. 28.6% a year earlier.

-- Reported by Joseph Woelfel in New York.

Wal-Mart Struggles to Keep Shoppers
By Miguel Bustillo and Karen Talley - Wall Street Journal
May 19, 2010

Wal-Mart Stores Inc. sounded a pessimistic note about the pace of the economic recovery Tuesday. Reporting its fourth consecutive quarter of sluggish U.S. sales, it cautioned that its customers are still struggling with high unemployment and rising gasoline prices.

The world's largest retailer still posted a 10% profit increase for the quarter ended April 30, thanks to tighter expense controls and strong sales internationally, particularly in Canada, Mexico, China and Brazil.

But the Bentonville, Ark., discount giant said that U.S. sales at stores open at least a year fell 1.1%, and store visits dropped despite recent attempts to attract shoppers with price cuts.

Wal-Mart warned that U.S. sales would continue to be slow in coming months as the working-class customers who form Wal-Mart's base continue to feel economic pain. "Our customers, particularly in the U.S., are still concerned about their personal finances and unemployment, as well as higher fuel prices," Chief Executive Mike Duke said.

During the recession, many Americans left supermarkets and department stores in search of bargains, and Wal-Mart's sales and profits improved.

But as the economy gets better, Wal-Mart is facing the same problems that hindered its U.S. growth before the economy soured: limited opportunities for expansion with its trademark warehouse-sized superstores, a failure to penetrate the largest urban markets amid union opposition, and stiff competition from arch rival Target Corp., whose blend of style and thrift has attracted many moderate-income Americans.

Wal-Mart's forecast was considerably gloomier than recent guidance from other retailers such as J.C. Penney Co., Macy's Inc. and Kohl's Corp., which this month reported that customers had regained confidence and slowly resumed discretionary spending.

Home Depot Inc. on Tuesday reported a 41% jump in profit, for example, as more U.S consumers spent money sprucing up lawns and buying patio furniture and barbecue grills.

Wal-Mart Chief Financial Officer Tom Schoewe conceded that Wal-Mart's struggles may be a sign that it is losing some of the more affluent shoppers it gained during the worst of the recession.

"Have we lost some customers we picked up during the most difficult time? Possibly, yes," Mr. Schoewe said in a conference call with reporters. But he quickly added that the larger factor in the sales decline was economic pressure on Wal-Mart's traditional shoppers.

"More than ever, our customers are living paycheck to paycheck," he said.

Wal-Mart also said that gasoline prices were 41% higher in the three-month period than a year earlier, which reduced the number of store trips some customers made and left them with less money to spend.

Nationally, gas prices have shot up since the beginning of the year, and they now average $2.86 a gallon, according to the American Automobile Association, up from $2.31 a year ago.

But the retailer also acknowledged that some of its U.S. wounds were self-inflicted during its year-long store redesign. In an admission that its effort to simplify product assortments may have gone too far, crimping sales, the company is now returning to the shelves hundreds of products it had removed.

Its clothing business, which has long lagged behind Target's, also continued to struggle.

"Our apparel performance was below expectations and continues to be a work in progress," said U.S. stores chief Eduardo Castro-Wright.

Overall, Wal-Mart reported a profit of $3.32 billion, or 88 cents a share, up from $3.02 billion, or 77 cents a share, a year earlier, thanks in part to benefits in foreign currency exchange rates, which added roughly two cents a share. The results exceeded the company's projections in February of 81 cents to 85 cents a share. Revenue rose 5.9% to $99.1 billion. Wal-Mart shares rose 98 cents to $53.71 in Tuesday trading on the New York Stock Exchange.

Wal-Mart's Growth Constraints
By John Jannarone - Wall Street Journal
 May 19, 2010  

Investors hoping for a Wal-Mart Stores recovery could find themselves in a traffic jam.

The world's largest retailer said Tuesday that its customer traffic at U.S. stores declined for the second quarter in a row. Sales at domestic stores open a year or more also declined, for the fourth consecutive quarter. Wal-Mart appears to be suffering the effects of pricing competition from rivals, especially in categories such as apparel.

Unfortunately, there is no quick fix. For one thing, Wal-Mart has nearly saturated the U.S. market. Even with healthier expansion abroad, Wal-Mart will increase square footage by only 4% this year, compared with 8% in 2001, estimates Colin McGranahan of Sanford C. Bernstein.

Sales growth at new stores is higher than at older outlets, as newer sites ramp up from approximately 70% of a mature location's volume after one year to 95% after three years, he reckons.

That means Wal-Mart is dependent on cost controls and price management to drive earnings. Credit Suisse's Michael Exstein points out that margin improvement made a greater contribution to operating profit than sales growth in 2008 and 2009.

But with traffic slipping, Wal-Mart has had to respond with aggressive price reductions. The company's gross margin actually declined slightly last quarter. For certain items, the competition has become painfully fierce. Dean Foods said last week that some retailers are selling private-label milk below cost.

If Wal-Mart's traffic continues to slide, the retailer would have little choice but to slash more prices. Yet the stock isn't particularly cheap at about 13.5 times 2010 consensus earnings, compared with better-performing Target's 14.2 times. Until Wal-Mart proves it can get traffic moving, there are better deals elsewhere.

CORRECT: Lampert Adjusts Shares in Sears Holding
By Brendan Conway - Dow Jones Newswires
May 18, 2010

("Lampert Trims Shares In Sears Holding Corp.,"
published at 6:20 PM EDT on Monday, and "UPDATE: Lampert Trims Shares In Sears Holding Corp.," published at 7:11 PM EDT Monday, overstated the reduction in holdings of shares of Sears Holding and AutoZone by Edward Lampert.
The correct version follows.)
By Brendan Conway Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--In the first quarter, hedge fund billionaire Edward Lampert took direct ownership of about 4 million shares of Sears Holding Corp. (SHLD), of which he is chairman, and transferred ownership of about 638,000 shares to limited partners of his legacy partnerships, according to regulatory filings.

After the transfers, Lampert-affiliated RBS Partners reported holding 61.4 million Sears shares as of the end of the first quarter, down from 66.1 million shares at the end of 2009.

Lampert created the new Sears company in 2005 by joining Sears and Kmart.

Lampert also took direct ownership of about 900,000 shares of another big holding: AutoZone Inc. (AZO). After the transaction, RBS Partners owned 19.3 million shares at the period's end, compared with 20.2 million in December.

The moves follow a period when Lampert built up substantial bets on the financial sector, some of which were then reversed. Notably, the filing shows Lampert had no stake in Bank of America Corp. (BAC) as of March 31, after building up about 454,000 shares in the fall. He also cut holdings in Capital One Financial Corp. (COF) by about half a million to 9.1 million, lowered his Genworth Financial Inc. (GNW) exposure to 8.1 million from 8.8 million and reduced Sallie Mae (SLM) holdings by nearly two-thirds.

Several of these stocks notched substantial gains over the last several months, including Sears. Sears opened 2010 just under $85 and closed the first quarter on March 31 at $108.43. As recently as the fall, it traded in the mid-$60s.

Many investors, including Lampert, who manage more than $100 million are required to disclose holdings of most type of securities within 45 days of the end of a quarter. The filings give the public a relatively fresh look inside the portfolios of well-known investors.

Lampert Trims Shares in Sears Holding Corp.
By Brendan Conway -Dow Jones Newswires
May 17, 2010

NEW YORK (Dow Jones)--Hedge fund billionaire Edward Lampert trimmed the number of shares he owns in Sears Holding Corp. (SHLD), of which he is chairman, a Monday regulatory disclosure shows.

Lampert-affiliated RBS Partners reported 61.4 million Sears shares as of the end of the first quarter, down from 66.1 million shares at the end of 2009. Lampert created the new Sears company in 2005 by joining Sears and Kmart. The move was previously disclosed in a March filing.

The same disclosure also shows fewer shares in another big Lampert holding: AutoZone Inc. (AZO). The filing lists 19.3 million shares at the period's end, compared with 20.2 million in December.

The moves follow a period when Lampert built up substantial bets on the financial sector, some of which were then reversed. Notably, Lampert had no stake in Bank of America Corp. (BAC) as of March 31, after building up about 454,000 shares in the fall. He also cut holdings in Capital One Financial Corp. (COF) by about half a million to 9.1 million, lowered his Genworth Financial Inc. (GNW) exposure to 8.1 million from 8.8 million and reduced Sallie Mae (SLM) holdings by nearly two-thirds.

Several of these stocks notched substantial gains over the last several months, including Sears. Sears opened 2010 just under $85 and closed the first quarter on March 31 at $108.43. As recently as the fall, it traded in the mid-$60s.

Many investors who manage more than $100 million are required to disclose holdings of most type of securities within 45 days of the end of a quarter. The filings give the public a relatively fresh look inside the portfolios of well-known investors.

Lampert's ESL cuts top holdings, trims some banks
Reuters
May 17, 2010

BOSTON, May 17 (Reuters) - Hedge fund manager Edward Lampert, who made a big bet on U.S. financial stocks in the fourth quarter, slashed his holdings in Wells Fargo (WFC.N) and no longer showed an ownership in Bank of America (BAC.N) during the first quarter.

Lampert's ESL Investments' RBS Partners Fund eliminated the 453,512 shares he owned in the largest, U.S. bank and now owns only 559,290 shares in Wells Fargo, down from the 1.5 million it owned in the fourth quarter. He kept his stake in Citigroup (C.N) unchanged at 31.2 million shares.

ESL is known for taking concentrated bets in a few stocks.

At the same time, Lampert, who put together retailers Sears and Kmart five years ago and remains chairman of Sears Holdings Corp (SHLD.O), reduced the number of shares he owned in his top three holdings during the first quarter, cutting stakes in Sears, AutoZone (AZO.N) and Autonation (AN.N).

Large investors like Lampert are required to report their holdings of U.S. listed equities at the end of each quarter, but not short positions or holdings of other securities such as bonds and over-the-counter derivatives contracts.

At the end of the first quarter, Lampert owned about 61.3 million shares of Sears, down from 66 million at the end of the fourth quarter.

(Reporting by Svea Herbst-Bayliss; editing by Leslie Gevirtz)

Get Briefed: Philip Purcell III
Intelligent Investing Briefing Book
By Alexandra Zendrian - Forbes.com
May 17, 2010

About Philip Purcell III

Philip Purcell III is the president of Continental Investors, a private equity firm.

Before starting Continental, Purcell was chairman and chief executive officer of Dean Witter, Discover & Co. from 1986 until the acquisition of Morgan Stanley Group in 1997. He then became the CEO and chairman of Morgan Stanley.

Purcell launched in the Discover Card in the mid-1980s. While he was at Sears, Purcell was pivotal in the Dean Witter and Coldwell Banker acquisition.

He was previously managing director at McKinsey and Co. Purcell is currently on the board of Northwestern Memorial HealthCare and American Airlines. He is a trustee at the University of Notre Dame. He was the founder and chairman of the Financial Services Forum, which is made up of CEOs from 20 financial services firms. Purcell was on the board of the New York Stock Exchange.

Purcell is a graduate of the University of Notre Dame and got his master's degree in business administration from the University of Chicago and a master of science degree from the London School of Economics.

Debriefing Purcell
Interview conducted by Alexandra Zendrian
May 3, 2010

Forbes: What opportunities is Continental Investors seeing in the market now?

Philip Purcell: Continental Investors is focused on private companies in the financial services or consumer-based Internet space where my partner Eric Carlborg and I have long experience.

Two recent investments were a company helping states regulate financial services to the under-banked--like small dollar unsecured lending and subprime mortgages. And relatively new--a well-positioned and rapidly expanding Florida based retail/private bank catering to the affluent market with deposit and lending products.

Generally, we invest in growth companies and do not use leverage.

Are there any sectors or companies that you think are ripe for investment now?

In the past three years, we have thought ripe areas for investment included the following:

First--providers of services to banks, brokers and fund managers as they cut back their internal costs and investment in services. For example, one investment is Trading Screen, which supplies execution management services to many of the large banks to connect with investment funds in a way that allows them to compete with the large prime brokers (Goldman, Morgan) for equity and option order flow.

Second--talent leaving the major banks to form private, entrepreneurial partnerships is providing a lot of investment opportunities.

The new "conflict free" investment banks--like Centerview and Ondra are an example. We have a small investment in Ondra.

We see more opportunities coming in specialized trading businesses as regulations limit what banks can do. The last three years have been traumatic and there are "corporate entrepreneurs" who will be able to attract capital to fill these voids.

Third--private wealth management businesses that are conflict free "financial advisors or portfolio managers" have arrived. The trends of the '80s, '90s and 2000s to large consolidated and integrated firms--Merrill, Morgan Stanley Smith Barney, UBS, Wachovia--has resulted in many financial advisors believing they and their clients are no longer core to these businesses. As a result, there will be opportunities to create "client focused" and financial advisor owned private firms where the financial advisors and their clients are the core business. We have an investment in one--HighTower--and it shows tremendous growth and promise.

Fourth, the under-banked market has great appeal to us. Banks have all gone "upscale" leaving a large proportion of the population needing services like check cashing, money transfer, small dollar unsecured loans, rent to own, non-standard auto retailing and the like. As the banks serve fewer people, these services will expand which is why Wal-Mart is bringing some of these products to their customers. We are finding opportunities both in helping regulate these markets and in investing directly.

Fifth, Internet consumer goods companies focusing on a narrow product segment and selling only over the Internet.

What role do you see private equity playing in the markets now?

The last four years have been a real education for private equity investors and lenders. Clearly lenders did some unnatural acts that led to private equity firms paying too much for companies and using excess leverage. The winners were the sellers of these companies and the losers were the private equity investors and lenders.

In addition, investors in private equity funds had liquidity problems as public equities declined in value. Private equity firms did not distribute gains but asked for committed capital contributions. Investors will be more careful going forward and lower allocation to private equity funds.

Going forward, I think many if not most of the private equity firms will be
unable to raise new funds. The average fund will end up with middle single digit returns and will go away. The better funds will continue to raise money and prosper and I believe will produce returns in the future higher than the public equity markets.

Small IPOs seemed to have nearly disappeared lately. What do you make of this and is there anything we can do to fix it?

The IPO market has always been cyclical--strongest when the equity markets are high. So it is no surprise they were weak in 08, 09 and 10.If the markets continue to strengthen, you will see a re-emergence of the IPO market. Already, the private equity firms are readying IPOs of their better performing investments. The strategic acquisitions may come first, but we will see a strong IPO market.

The rules on research and banking put in by Spitzer and the SEC may well change who leads the IPOs as some of the larger banks refuse to provide research coverage to smaller issuers. I think many of these IPOs will be done by the smaller, newer investment banks and regionals like R. W. Baird and Stephens Inc. that have strong industry specialties.

What are some lessons you learned from your time at Dean Witter and Discover?

Long-term strategic thinking leads to contrarian capital investments and high returns. We acquired Dean Witter in 1982 because you could see clearly the baby boomers becoming savers and investors in the '80s and '90s, which would lead to rapid growth. In 1981, the broker-dealers were losing money and people thought Sears was crazy to acquire Dean Witter. The Dean Witter investment in 1982 was roughly $300 million in equity and routinely made over $1 billion pre-tax through the '90s and 2000s.

Similarly, everyone thought we were crazy to start Discover Card in 1986, but it was clear banks were earning 60% returns on equity in their credit card businesses and because of problems with real estate and emerging country debt could not respond to a new entrant in the credit card business. As a result, we invested $800 million in Discover Card and it routinely earned $1 billion pre-tax profit.

The second lesson is good people properly motivated can achieve the impossible and at Discover, we had to convince millions of merchants to accept a card that had no cardholders. A seemingly impossible task was achieved by a sales force of predominantly women--most of whom felt they were denied the opportunity for advancement in the bank they currently work for. They did it with perseverance and imagination.

Innovation creates high returns. A no fee reward card was very innovative--clients embraced it and used it and we have always tried to encourage innovation to get ahead of competitors.

How do you think the credit card companies will do in light of the Credit CARD Act?
Credit has been withdrawn from the lower quality credits and the banks are charging more to offset the cost increases imposed. Ultimately it will be a lower return business with more consolidation and less innovation with increased regulatory burden.
What lessons did you learn from your time at Morgan Stanley?

The same lesson as at Dean Witter Discover in terms of thinking strategically and being willing to be contrarian. We acquired Morgan Stanley when everybody thought the future was in retail securities and asset gathering and we believed the high growth in that business had peaked and the capital markets business would be higher growth in the future. This was contrarian in 1997 and we ended up buying Morgan Stanley for about three times their 1999 and 2000 earnings.

PR was more important than shareholder returns as CEOS became public figures like rock stars. From the time we went public in 1993 until I retired in 2005, returns for our shareholders were nine times their original investment or 20% per year (stock went from $6.75 to $58). From the time we acquired Morgan Stanley, our stock price tripled while the S&P increased at 5%. Our return on equity from 1997 to 2005 was higher than any other major financial firm, including Goldman Sachs. All of that got lost in the publicity campaign launched by eight retired grumpy patricians.

Great talent like Morgan Stanley people will innovate and adapt to any market conditions and will be successful under any set of laws and regulations that are applied evenly to all firms.

How do you think Morgan Stanley has been doing lately?
I am very encouraged by recent events at Morgan Stanley. James Gorman, the new CEO, is very bright, he is thoughtful, strategic, analytical and as a result he has always come to good decisions. I was very pleased to see the firm return to profitability in the first quarter after three years of non-profitability. Morgan Stanley is on the right track by focusing on client businesses which has always been their strength and getting away from the extremely high leverage, high risk, high proprietary trading experiment that nearly killed the firm in 2007, 2008 and 2009. I have great confidence in the talent of people at Morgan Stanley and believe they will do very well under Gorman's leadership and their current strategy.

How do you think the financial sector has been doing lately? What effect, if any, do you think the financial reform will have on the sector?
The financial sector has been doing very poorly in terms of public perception which is partly a fallout from mortgage foreclosures, partly from the perceived bailout of some of these institutions and partly from policies on things like late fees, overdrafts, non-sufficient funds that customers view as unfair.

On the other hand financials are returning to strong profitability and increased reserves both of which strengthen the balance sheets of the individual companies and the strength of the financial sector. Because of the very low short-term interest rates lenders are earning unusually high net interest spreads and this is leading the strong profitability.

The most positive actions on financial reform are being taken by the financial regulators independent of Congress. Regulators are doing the right thing by increasing tangible equity capital requirements and focusing on balance sheets that are funded by longer-term core deposits and debt to avoid the risks inherent in short-term funding that exacerbated the financial meltdown in 2008.

With respect to the bill in Congress, the positive is accelerating the movement to centralized clearing for fixed income and derivatives products which will bring more transparency and lower spreads to these markets. The negatives are the creation of the consumer financial products agency which will stifle innovation and duplicate other agencies work.

Purcell In Forbes
OutFront
A New Firm Lures Brokers from Big Wall Street Houses
Matthew Schifrin, 12.31.09, 12:00 PM EST
Forbes Magazine dated January 18, 2010
Former Wall Streeters David Pottruck and Phil Purcell are helping a startup snatch fed-up brokers--and assets--from the big financial firms.

Stockbrokers, a.k.a. financial advisors, were always the other guys on Wall Street, watching their colleagues in the trading and investment banking departments rake in huge bonuses while they were wearing out their fingertips with cold calls. The recent turmoil on Wall Street--the deaths of Bear Stearns and Lehman Brothers, the struggles of Merrill Lynch and Wachovia's brokerage unit-- has made their lives worse. Brokers find themselves having to explain to clients why they should entrust money to the firms that employ them.

"I don't think there are many brokers out there who wouldn't tell you that they feel disenfranchised," says Mindy Diamond, president of recruiting firm Diamond Consultants.

Solution: Break free. The broker or a gang of brokers sets up a new firm to help clients invest. The breakaway broker can use products (like exchange-traded funds) wherever they might come from, clearing services from one firm and custody from yet another.
In 2009 Schwab helped 156 groups of stockbrokers break free of big firms, setting up registered investment advisory firms. Fidelity attracted 185 brokers, and Pershing brought in 32 new RIAs to its custodial platform. TD Ameritrade Institutional attracted 170 advisor groups.

Possibly the most compelling of the new opportunities for breakaway brokers is a Chicago firm called HighTower. It offers brokers with at least $100 million under management what it describes as an "open source" alternative to firms like Merrill and Morgan Stanley Smith Barney.

In the brokerage business so-called open architecture has been around since the 1980s, when Charles Schwab & Co. began allowing independent advisors to choose from a host of investment managers and products. HighTower's two founders, Elliot Weissbluth and Drew Kornreich, expanded this model so that brokers affiliating with their firm also have the ability to choose from various custody firms, including JPMorgan Chase and Schwab, and clearing firms like Pershing and Fidelity's National Financial.
This innovative business model caught the attention of David Pottruck, former chief executive of Charles Schwab. In 2004 Pottruck was unceremoniously ousted from that job and went into exile. Pottruck, 62, decided he wanted back in. So he, along with Philip Purcell, former chief executive of Morgan Stanley and Dean Witter; New York financier Morris Offit; the fund vendor Franklin Templeton; and several others invested $65 million to help get HighTower going in April 2008. In December 2009 Credit Suisse subsidiary Asset Management Finance led a financing round that injected $100 million in capital to pay bonuses to brokers signing on.

One of the first big producers to sign on in 2008 came from Morgan Stanley. The Bapis Group, run by Nicholas Bapis and his two adult children out of Salt Lake City and New York City, brought in $700 million.

"The benefit of having multiple investment managers, custodians and clearing firms all competing for our advisors' business is that you get to drive down costs and increase quality and empower the advisor to be the quarterback for his clients," says Pottruck.
So far HighTower has attracted $16 billion in assets spread over eight offices. Larry Gilbert, 40, was a heavy hitter in Goldman Sachs' private wealth group in Chicago before he joined HighTower in February 2009. "I left Goldman because I wanted to be a true fiduciary," says Gilbert. He says Goldman's pay was structured to encourage advisors to sell Goldman products first. "During the financial crisis these products didn't hold up," he says. Goldman denies Gilbert's claims.

HighTower brokers also run their own profit-and-loss statements, so instead of keeping 30% to 40% of gross fee production in W-2 earnings, they reap the benefit of all revenue associated with their clients, including interest spreads earned by lending idle cash in cash-rich accounts to other clients buying on margin. After paying their own expenses, they are typically left with 70% to 80% of their revenue, which they split with HighTower. Another draw is that its advisors own 25% of the equity of HighTower and have a real say in how things are run. "This model isn't fully baked. We need their help," says Chief Executive Weissbluth, 42.

For Pottruck, who recently announced that he would become co-chairman of the firm, it appears as if this could be his second coming. Says Pottruck, "It is now the full-time focus of my energy. So after four years I find myself back in financial services and having a lot of fun."

Matt Schifrin On ETFs And Mutual Funds
12.17.09, 06:00 AM EST
The epicenter in the battle for boomer assets pits ETF David against the mutual fund Goliath.
The Big Trend
Actively Managed ETFs. There are now more than $750 billion in 800 ETFs outstanding, compared with 7,760 mutual funds with $10.7 trillion in assets. But ETFs are stealing market share from mutual funds daily. Active management is a competitive distinction and edge that mutual funds are loathe to give up. As Powershares, Claymore and ETF upstarts like Grail Advisors are already pumping out these new exotic ETFs, mutual fund companies are girding themselves for battle. Bond fund powerhouse PIMCO has launched an actively managed ETF and even stalwart T. Rowe Price is getting in the game. More will follow.

The Unconventional Wisdom
Many investors wrongly see ETF's solely as smarter ways to buy baskets stocks. Of course they allow investors to get into markets and sectors more efficiently with lower costs. However, the most innovative ETF insiders are looking forward to a whole crop of "outcome-oriented ETFs," which will seek to manage income distributions so that an investor doesn't have to sell units of the ETF to fund his living needs. Instead, tax-efficient transactions will occur inside the ETF to ensure steady predictable income streams to investors. These income ETFs are just what retiring baby boomers will need.

The Misplaced Assumption
The mutual fund business thinks actively managed ETFs could be their savior. But there may be a dark side to this new business. When active mutual fund managers become ETF managers they will be forced to comply with transparency demands which could mean disclosing portfolio holdings and changes daily. This could open a hornet's nest of competitive and regulatory issues. Front-running for example, becomes a big risk as market opportunists seek reverse engineer stock picking methodologies inside the best performing actively managed ETFs. If one were to figure out, for example, Ken Heebner's secret formula and then buy or sell stocks in anticipation of his moves, is it insider trading? One can only imagine the regulatory issues.

The Watch List
Charles Schwab--The company recently announced it would charge no commissions for customers trading in any of its eight domestic and international ETFs. This will help it gain share and endear Schwab even more to financial advisors (who love ETFs) and who already use Schwab for custodial and clearing services. Vanguard, Fidelity and new iShares owner, BlackRock take note.

HighTower--This little-known Chicago firm offers an "open source" advisory platform to FAs fleeing tainted wirehouses. So far they've attracted 10 teams with $16 billion in assets. Advisors get equity in the HighTower, plus the ability to choose freely among custodians and clearing firms. The innovative model is brainchild of Elliott Weissbluth, but has backing of top brokerage house veterans, David Pottruck, former CEO of Schwab and Phil Purcell, former CEO of Morgan Stanley.

The Bold Prediction
The race to the bottom for margins in the retail financial services business will intensify. Already online brokers like Interactive Brokers charge a mere $2.50 in commissions per trade. Low cost index ETFs have become investor darlings. Now actively managed ETFs will push fees down because they cost less to operate than actively managed mutual funds. Schwab just eliminated commissions for its ETFs, and others will follow. In the big business of SMAs or separately managed accounts, hedge fund maven and best-selling author Joel Greenblatt just introduced an online service that charges a low 1% with a minimum of $25,000. How low can prices go? Ask members of the bloodied PC business like Dell, whose 3% net margins are now at grocery chain levels. It's all great for consumers but bad for these firms.

Commentary
The Street Purcell Is Paving
David A. Andelman, 05.04.05, 6:00 AM ET
NEW YORK - There was a time when what's now Morgan Stanley defined Wall Street.

On Black Tuesday in 1929, for instance, a supremely confident Richard Whitney, chief floor broker for J. Pierpont Morgan, walked onto the floor of the New York Stock Exchange and figured single handedly he could stop the panic by announcing, "I'll buy Steel at 205...10,000 shares." After World War II, a senior Morgan partner--the banker for that very same U.S. Steel Corp.--was shipped off to Japan at the request of Douglas MacArthur to rebuild Japan's shattered industry. He did such a bang-up job that those steel companies have now set U.S. Steel back on its heels.

But that torch is borne no longer by Morgan Stanley. It's been passed, it would seem, to Goldman Sachs. Today, Goldman is the platinum brand on Wall Street--perhaps the only firm with enough of the old Morgan hubris to think it can work both sides of the most visible deal of the century--selling the NYSE itself--and still come out on top.

Until recently, there were still some fabulous rainmakers of the old Morgan Stanley breed at the top ranks of the investment bank. But it was clear to many of them that their days were numbered. Under CEO Philip Purcell, today there's a new breed of Morgan banker. He--or she--is an old Dean Witter retail broker with a terrific client list and finely-honed cold-calling skills. It's a culture clash--New York's Wall Street versus Chicago's Sears Tower.

So many of the top New York-based investment bankers have packed up their BlackBerrys and gone. Some to rival firms, but most just to the sidelines where they are hoping that somehow, someday, they might be able to restore the grandeur that was once Morgan Stanley. That's the basic motivation behind the Group of Eight that's been challenging the Purcell reign in recent weeks.

But investors may have other ideas. From a high of more than $60 per share earlier this year, Morgan Stanley stock has plunged to under $50 this week. Not only have individual bankers fled, but headhunters have told Forbes.com that they're beginning to target entire departments for their next big raids.

So the question remains, "Can Morgan Stanley survive in anything like its old form?" The precedents are not encouraging. Few Wall Street powerhouses, once they began losing their top talent, have ever managed to regain their former independent glory. First Boston was snapped up by Swiss bank Credit Suisse. E.F. Hutton folded, as did Kidder Peabody. Lehman Brothers went through a decade worth of tribulations and owners.

"Generally when managements come under pressure, the human capital exodus is the precursor of a preordained demise," said Michael Holland, once a Morgan banker and now head of Holland & Co. "And it's almost all attributable to the actions or inactions of top management. Hubris is normally a part of it. I can't think of any case when it wasn't hubris."

Indeed, the hubris among Morgan Stanley's leadership ranks may have even broader implications for Wall Street. The expectation among many circles is that the firm will survive--in some form--though the suspicion is that, at a minimum, its Dean Witter Discover Card unit will be spun off fairly quickly as one small, well-gnawed bone thrown to investors.

Still, maintaining the brand at Morgan Stanley, especially if defections continue to accelerate, may cost all of Wall Street much more dearly. Insiders say Purcell intends to tough it out all costs for at least two more years, before slipping into a graceful, or not-so-graceful, retirement. If he's to accomplish that, he'll have to maintain at least a semblance of an investment-banking unit.

"He's going to have to pay a boatload of money to lure any kind of talent to the firm," suggests one top outside banker. "That will jack up the stakes across Wall Street."

With Morgan bidding up the price of top-tier investment bankers, rival houses will have to pony up hefty pay packages to retain them. All of which is guaranteed to make Phil Purcell one of Wall Street's less-loved figures.

Market Scan
Morgan Stanley Wallowing In Risk
Carl Gutierrez, 06.27.08, 4:25 PM ET
One wonders what Morgan Stanley's ex-Chief Executive Phil Purcell is thinking now that the firm's risk-taking has come home to roost.

On Friday credit rating agency Moody's said it was reviewing Morgan Stanley's long-term ratings for a possible downgrade. Morgan currently carries an investment-grade Aa3 senior unsecured rating from Moody's. The credit ratings firm says the likely outcome of the review would be a one-notch downgrade to A1, which is still considered investment grade.

While the news is unpleasant, it's nothing the market hadn't already priced in. The brokerage house's stock took a hit when the news broke, but was quick to recover to $36.77 in afternoon trading, effectively unchanged from Thursday's closing price of $36.83. Over the past year Morgan's stock has lost 57.0% of its value.

Moody's said that Morgan Stanley's financial performance and risk management has been inconsistent since the mortgage and credit markets began to fall apart in mid-2007.

Richard Bove of Ladenburg Thalmann agreed. "I believe Morgan Stanley doesn't understand risk management," Bove said.

For Bove though, Friday's roots date back to the high profile struggle for power a few years ago between Morgan's former CEO Phil Purcell, and the group of eight outsiders--with the help of some insiders--that eventually led to Purcell's ouster and current CEO John Mack taking the reins. The eight outsiders, known as the"Group of 8", consisted of eight former Morgan Stanley executives.

At issue was Purcell's risk-averse style of management. Purcell's argument was when there was too much risk, he would invest in building profit margins instead of expanding revenue. Margins grew, but the lack of revenue expansion infuriated the "Group of 8" and others.

"John Mack comes in and goes after revenue, and reallocates assets to the trading department, completely shakes up the money management operation, and the whole thrust of what he does is give Zoe Cruz more liberty to take more risk on the trading desk," Bove said. "But who was right? Purcell by the conservative approach, or Mack by increased risk? In hindsight if they followed Purcell instead of Mack Morgan wouldn't have Moody's threatening a downgrade."

The Purcell Interview
Taking Less Risk
Steve Forbes: Phil, good to have you with us.
Philip Purcell III: Good morning Steve. It's great to be with you.
Forbes: Well thank you for joining us. The events of the last couple years, do you feel a little bit of a sense of vindication? Do you allow yourself a little bit of that? They said you were too risk averse a few years ago.
Purcell: Yes, they did.
Forbes: Turns out you were right.
Purcell: They very much thought I was too risk averse because I did not believe in increased leverage for our company. I didn't believe in subprime mortgages. I thought we should limit our leverage lending and it made me appear to be very risk averse, and I would say it made me somewhat unpopular internally. So, no, I don't feel good about it. I feel very blessed that I wasn't one of the CEOs who had to lead their company through the last three years. They have had an enormous challenge and I'd hate to think the stress toll it's taken on all of them.
Forbes: And what enabled you to see what others didn't see? Was it the fact you came from a different part of the business -- Dean Witter originally? Or what gave you the insight that if something's too good to be true, it usually is?
Purcell: Well, I would love to take the credit for it, but that is not accurate.
Forbes: Why not?
Purcell: That's not accurate. There were many people at Morgan Stanley while I was there, many of whom are still there, that thought the leverage ratios that we were running and others were running at the time were about as high as you should get. There were many that were cautious on how much risk you should take in some of these businesses. And so it wasn't just me; there were a number of others who thought the same thing. Certainly Steve Crawford did, certainly Vikram Pandit did, Zoe Cruz did. So there were many people who had the same point of view but at the same time, there were many people who thought we should be more aggressive and we didn't bend too far.

CEO Stamp Of Approval
Forbes: And the current leadership, Mr. Gorman, you think he's taken the firm, your old firm, in the right direction?
Purcell: I'm very pleased with where the firm is going and I'm very impressed with James Gorman. I think he is very bright. He is strategic. He thinks very hard about decisions before he makes them. He's analytical; he looks at all the different avenues that he can go and can't go. And everything I've seen from James when he was a competitor at Merrill Lynch and everything I've seen from him at Morgan Stanley is that he makes good decisions.
So I'm pleased and I think he's leading the firm in the right direction. He's got them client-focused. Had a great first quarter; which is always a nice way to start as a new CEO. So I've got great confidence in him and I have tremendous confidence in the people at Morgan Stanley. They are very resilient and they've demonstrated over 50 years that as markets change they are innovators, they are talented. And so I have nothing but great hopes for the future of that firm.
Reforming The System
Forbes: Let's now get to the subject at hand: financial reform. Congress is chewing on that now as we speak. What are your thoughts; you've had some thoughts. You've expressed thoughts in everything from capital requirements to profit-based compensation. Why don't we start with what should be done with credit default swaps. Should there be clearinghouses even if it cuts margins? Isn't that a good thing for the system?
Purcell: Well, in financial reform, you look at the whole picture. I think everybody's focused today on what's going on in Washington and legislation.
I think far more important what's going on in the traditional regulators is what's really going reform the financial businesses. And the regulators very clearly, and you've seen this, Steve, they are increasing the capital requirements across the board for all financial firms.
And I think if there's any lesson everybody learned, it is that the financial firms got over-levered. They had less capital than they should and that I think is the biggest change that's going to happen. And it is happening, has been happening for the last year, year and a half. And that I agree with and I'm totally in favor of. The regulators also are focused on having more stable sources of funding. The other great lesson that we learned is if you have daily funding or monthly funding, and you have –
Forbes: As you've referred to it -- recurring revenue streams. Diversified and recurring revenue streams.
Purcell: We need that and we need, you know, longer-dated deposits, longer-dated bonds to support these businesses. And the regulators are seeing that that happens. So those two things are very positive. I think, personally, I think that where Congress is headed, bringing credit default swaps and other fixed income instruments to centralized clearing and to something that is much more exchanged-oriented, where we have more transparency and hopefully someday we even have a tape, I think that's very good for the clients and ultimately anything that's good for the clients, in my experience, turns out to be good for the business too.
So I'm totally in favor of that. On the other hand, I don't think the new Consumer Finance Protection Agency adds much. I think that those duties are already covered by other regulatory agencies. And there will be --
Forbes: So they just opened it up for the Spitzers of the world to play games again?
Purcell: I hope not.
Forbes: Isn't that the danger though when you create these things? That somebody tries to be the Juan Peron, populist.
Purcell: I think it is fraught with danger, I agree. And it'll become very political and I believe that the current agencies that have those responsibilities are totally capable and have the talent to protect the consumer. So that part, I wouldn't do.
Forbes: Right. You have some interesting thoughts on compensation which you call profit-based compensation. Can you elaborate on that for us?
Purcell: Well, yeah, I do. That was the favorite theory of mine my whole career, is that we should pay our people very, very well but we should also reward the shareholder. And I think that's particularly true when you're in a capital intensive business.
It's one thing to think of compensation as a percent of revenues in an advisory business, just a pure investment banking advisory. It makes sense in that environment because you're not taking capital risk.
When you get into the trading businesses, you're taking a lot of capital risk. You're using a lot of capital, you're asking the shareholders to provide you that capital. So it always seemed to me that the right way to think about compensation was a percentage of pre-compensation, pre-tax profits. And if you look at the traditional --
Forbes: Have you invented an acronym for that? Like EBITDA?
Purcell: I'm not from Washington, I don't have it yet. But if you look over history, you will see that by and large the strong firms pay out about 60% of pre-compensation, pre-tax profits as compensation. And if you measure it for, you know, the Goldman Sachs or the Morgan Stanleys and the other major investment banks and look over a long period of time, they're within a percent or two of that ratio. And it has gotten converted to a percentage of revenues, but I don't think any of the partnerships, I know the partnerships didn't think about it that way.
The partnerships, it was their capital. And they husband the capital. So I've always thought that it was a better way to think about it, to think about it as a percentage of the profits should be paid out in compensation as opposed to a percentage of the revenues.
Forbes: Also restricted stock you've been an advocate for.
Purcell: I'm a great advocate for employee ownership of firms that take risk, yes. The more you can align the employees and the managing directors, their financial future with the financial future of the shareholders, to me the better the outcome is.
Forbes: Rainmakers, as you've touched on, used to be thought of as just bring in the revenue and everything else will take care of itself. Is that idea still there on Wall Street? Got a little beaten up, but is the attitude sort of, "You bring in the big whales and, by golly, or big numbers and we'll worship you"?
Purcell: I think you have to think about it differently in the different businesses. I think in the, it's a credible concept in the advisory business. If you are purely giving advice, you are purely getting paid for talent, you are not risking capital, the people who have the clients and bring the revenue in should be rewarded. And you don't have to worry too much about whether it's out of revenue or out of profit because it will be profitable. To me where the big disconnect comes is when you get into the capital intensive businesses where, "I'm a rainmaker and I bring in an M&A deal but now we have to make a $2 or $3 billion loan," and it's a bridge loan and the firm's at risk for six months, 12 months. And what we learned in the credit meltdown is they might be at risk forever. And once you start risking capital, I think you have to think about things a little differently.
Forbes: And do you think the board, you said that the boards of directors should be tied to the whole area of risk much more than they have been in a formal way. Do you see that happening now?
Purcell: I am sure it's happening, Steve. I think the whole financial industry has been seared by a crisis. You know, not as bad as what happened in the Depression but much worse than anything I saw in my 45 years in the business. So that I know it's affected all the CEOs. I know it's affected management and it has to have affected the board of directors and the attention that they will pay to risk management and to the risk the firm's taking and to the capital structure.
Whereas I think people, we had a very, very long, good run from 1982 really to 2007. And maybe people got a little more comfortable than they should have been, but everything was being controlled in terms of risk management. And it's pretty clear that there were some real weaknesses and they showed up. So boards will change; I have great confidence that all directors take their responsibilities very seriously and risk management will now be a board level function.

It Was A Systemic Failure
Forbes: How do we get around this too big to fail doctrine?
Purcell: Well, they passed the amendment yesterday, right, and so I'm glad that Washington is trying to address that question. I think it's quite simple to address the too big to fail issue for one firm. So if one firm gets in trouble with, you know, pick your bank. If Wells Fargo got in trouble, it's very, very large, but if it got in trouble and everybody else was OK, you would let it fail. And that would work its way through the system and be quite alright. It wouldn't be quite alright for their shareholders and some of their bond holders and their employees, but it wouldn't be systemic.
I think the real issue on too big to fail is when you get in a situation which I think some of us thought we were in in October of '08, where it was going to be a series of failures and the whole system was going to fail. And I don't know that there is in history a solution other than a public solution to that crisis. That crisis is the whole system goes down, and I think we've lost sight that what was at risk was the system, not individual firms. And part of the anger that's in America is in order to save the system, it turns out there were some collateral beneficiaries. That is, firms that probably didn't deserve to be successful got the collateral benefit of surviving and being successful. And I think that the bulk of America has a lot of trouble with that concept, that so many of their friends lost their houses, lost their jobs, and yet some of the firms that they think contributed to the crisis got bailed out. And we weren't bailing out firms.
The government didn't bail out firms, they were bailing out the system. It just turns out that there were some firms that I like to call the collateral beneficiaries. And I think that's led to some of the misunderstanding and some of the public anger over the bailout.

Goldman: Get Out Of Light
Forbes: So what PR advice would you give to Goldman?
Purcell: Well, my heart goes out to Goldman because in a sense I'm not, nobody is innocent given the crisis. I'm not saying anybody's perfect. But in terms of risk management, Goldman managed risk through this crisis probably better than anybody. And as somebody who has tried to manage risk, I have a lot of admiration for that. At the same time, the public is upset and Goldman has become the target, both of the public and the press and Washington. And I think the only advice I would give Goldman if they asked for it is they're a great firm.
They have a lot of capital. And they should get out of the government's dog house as quickly as possible, whatever that takes, and move on. You just cannot stay in that white, hot light for a very long period of time and --
Forbes: How do you get out of it, other than somebody else going in to it?
Purcell: That might be the only way. But I don't think the government or the citizens of this country want Goldman Sachs to be a failure. They've been a part of the financial community for a long time and have contributed positively.
So I just believe that, in America, there's a solution with the SEC, with the government, and that you just sit down and say, "There are things that we did that we don't think were wrong but you do and we want to make it right with you. We want to make it right with America and we move on." And I think that's what will happen, Steve.

Credit Card Reform
Forbes: Talking about reforms, you invented one of the great credit cards -- Discover Card.
Purcell: We did.
Forbes: Which a lot of us love because you do get that cash rebate, which the IRS taxes, but that's another issue. But what specifically do you think went wrong in the reforms they've made? Because as you well know, credit cards just aren't to buy groceries or whatever. A lot of people use them for capital for new businesses. A lot of businesses, small businesses, use it as a source of working capital.
Purcell: Well, I think the implications of some of the provisions in the Credit CARD Act have obviously caused the withdrawal of credit from what are referred to as lower quality credits, which are generally the people who need it the most. I think that's an unfortunate side effect of the law. And other things are increasing the cost of doing business. So I think, you know, the cost of credit cards is going to go up to the consumer and I would guess that returns to the shareholders will be less than they used to be. And I would guess that that will force consolidation, which I don't know if that's good for the business or not, but that's what Washington, obviously they passed the law and they think that those are better outcomes. I'm not sure they intended those to be the outcomes, but they already are. It's already clear those are the outcomes.
Forbes: Are there any particular parts of the bill that you thought were destructive or was it just the whole thing just adds up to less for people, as you say, who need it the most?
Purcell: To me it's just the totality. We're wrong to get focused on one, you know, one particular piece of the legislation. You just say, OK, now the legislation's done, now what's happening in the marketplace? And what's happening in the marketplace is less credit. And especially with the economy as weak as it's been, I'm not sure that I would have voted to have less credit available, and that's what's been going on. I mean, it's part of de-leveraging is less credit, but you don't need to exacerbate it with new restrictions.

Tough For Small IPOs
Forbes: IPOs now, as you've pointed out, they go through cycles. And this has been a particularly severe one, so one would expect, unless we fall off a cliff again in the next year or two, there's going be more and more of them coming out. Do you see, what do you see happening with traditionally smaller IPOs, $25, $50 million? Is the system geared for something that small or what's going to happen there?
Purcell: You know, you and I have lived a long time, so we can remember very small IPOs called Cisco, Intel, Microsoft. OK?
Forbes: Wal-Mart.
Purcell: Wal-Mart. And we saw great companies emerge from these teeny IPOs, $50 million, you know some revenue, companies. In today's environment, it doesn't appear that that's really doable. Especially if you look at technology IPOs are usually the great engines of growth and the ones that we think about as being the most important. I don't think you'll see a lot of $50 million revenue IPOs for a number of reasons. It's much more expensive, as you know, to be a public company today than it was, you know, in the early '80s. So you probably need more revenues. You've got to be more mature and have more –
Forbes: Is Sarbanes-Oxley, one of those things --
Purcell: Sarbanes-Oxley is one of those. Yes, it is. And the whole government's, you know, all the emphasis on governance, I'm not arguing with it, but it doesn't work for these size companies. And so what you've seen is the average IPO size is now probably, it'd probably have to be $150 million in revenues to be able to afford the extra overhead of being public. And if you look at the numbers, you know, whereas in the '80s maybe 50% of the venture-financed companies became IPOs and 50% went to strategic buyers, the last three or four years, only 10% have become IPOs. And so I think the unintended consequences of Sarbanes-Oxley and other well-intended and probably very good things for big companies, have affected their ability to go public.
Which means it is now much more important to encourage venture money and private money because they have to finance these companies much longer. Instead of four or five years, they have to finance it nine or 10 years.
Forbes: Right.
Purcell: And one of my fears in the financial reform is that they're going to put additional restrictions on private money going into small companies and make that more difficult. And that will hurt jobs in the United States. There will be less innovation, less entrepreneur financed businesses, and that, I would hope that Washington does not do that.

Going Conflict Free
Forbes: Which gets to your firm, Continental. You have some unusual things you try to go after, including conflict-free financial advisors or conflict-free investment banks. Can you explain that? It's quite interesting in the aftermath of what's happened.
Purcell: Yeah, these are fallouts of what's gone on in the financial world. Continental does have an investment in a small advisor-owned, heavily advisor-owned, securities firm which is, you know –
Forbes: HighTower?
Purcell: HighTower is the name. And it's totally focused on clients, and that's all they do is provide financial advice to affluent clients. And it's comprised mostly of financial advisors who had been with the firms that I grew up with, the Merrill Lynches, the UBS, Paine Webber, Morgan Stanley, Smith Barney, who don't feel an important part of those large, large companies. And they want to get back to feeling that their client is important, that their business is important, and that they're important. And they also, we produce no products. So there's no conflict with product. And I grew up and was very proud to provide our products to our clients at Dean Witter and at Morgan Stanley.
And if I were there, I still would be very proud, and proud of the quality control that we would exert so that we would get them good products. But there have been aberrations from that. And so this HighTower is an environment where there will be no firm products. And everything will be open source. And the financial advisor --
Forbes: So they pick their custodians, they pick everything, right?
Purcell: Yes, they do. We have three different custodians, and whichever, if you want your custodian to be Fidelity, it'll be Fidelity. If you'd rather it's JP Morgan, it'll be JP Morgan. If you want it to be Schwab, it can be Schwab.
So it's totally client-centric, totally, and 25% owned by the financial advisors themselves. So it's their firm and they'll have representation on the board. It's just a, it's something that grows out of the difficulties of being, thinking of yourself as small in a large firm. So it's a very, very good idea, a very talented CEO and we'll see if it'll work. It may work, it may not, Steve. But if it doesn't, somebody else will do something like this and it'll be interesting to see what happens.
Forbes: And conflict-free investment banks. What's the idea there?
Purcell: Well, that's not a, I would have to back off that phrase. I would say, what you're seeing out there is a number of advisory-only investment banks as a, I'm not sure they're totally conflict-free because they've got clients that compete with each other and things like that.
But what they don't, what a number of them are doing is they only give advice. So they're not trading your stock, they're not doing research on your stock, they're not trying to generate trading volume. And they're not doing capital markets for you or against you. So they just give advice. And you've seen some real successes. Centerview's a tremendous success. Little firm I'm familiar with in England, European-based, called Ondra I have a small investment in; been very successful. Moelis has been very successful. Frank Quattrone is back in the business on an advice-only basis with Qatalyst.
Again, it's a fallout from as these firms, I mean, I was part of a consolidation move. I was part of making the firms bigger and stronger and better capitalized, and still believe in everything that we did and know those firms will continue to be the engine of providing capital for the whole world. And they have been; they've done tremendous good that everybody loses sight of. They've basically financed all of the IPOs in China. All the growth in China wouldn't exist without these firms. So the growth in the United States wouldn't exist without them. So they've done social good that gets passed over. But they have also led to some opportunities for smaller, private companies. And as a small, private equity firm that doesn't know anything except financial services, I've got a partner, he knows the Internet extremely well. We're strategically focused on only those two businesses, that's all we do. And so we're looking for niches and little opportunities.
Forbes: You're also looking at an area that some feel is also now under-served. You mentioned a little bit with the credit cards, people who don't have traditional banking services and what used to be called subprime.
Purcell: Yeah, yeah, I'm not looking at subprime. I learned my lesson on subprime back in the '80s when we owned an S&L, so I didn't need to learn it again in the 2000s and I certainly don't need to learn it in the 2000-and-teens. But the under-banked, I would --
Forbes: Call them under-banked.
Purcell: I'd call them under-banked. These are people who have a bank account, they have a checking account usually, but they don't get all the services that we think of, like loans, from banks. And there are lots of them. And statistics would say 40 or 50 million Americans are under-banked and don't feel they can get services from banks. And a number of industries have, you know, risen up to serve them, and we do think there's real opportunities. And it's kind of the opposite of everything I've ever done because we've always been very upscale investment banking, financial advisor-oriented. But some of these businesses are very important to the economy, and they're going to emerge and they'll present opportunities. One that we've pursued is actually a company that helps states regulate these businesses and provides databases to help the states make sure that these people behave themselves, because not all providers in this space are the highest quality.
And so states do need to regulate them. And we've seen an opportunity in getting on the side of the regulatory and the client; not providing the product but making sure it's provided in the right way.
Forbes: Terrific.
Purcell: It's fun, you know. We've had a lot of fun.
Forbes: So you're doing both ends.
Purcell: Yes, sir.
Forbes: Terrific.
Purcell: Yeah, if it's with private equity, you can have multiple different businesses, some of which are different than each other. Might even compete.

Capitalism Works
Forbes: But it does show the adaptability of the American system that, when a crisis happens, people figure out ways, "OK, maybe I go off on my own, maybe we do something a little different structure and move on."
Purcell: You know this better, your whole thesis, your whole career and Forbes' approach has always been that the capitalist system works. It's not pretty, but it works. And it is working right now, working its way back. And we're going to have some new industries and some new leaders. And I think you're going to see private companies being much more important in the future than they have been.
I do think that private equity is going to generate higher returns than public companies over the next 20 years. There's some real advantages to being private in America today. So that's good. OK? So they're going to find new ways to get capital into private companies and it won't just be private equity. I don't know how it's all going to work, but the talented people, and a lot of them are at Morgan Stanley, they're going to figure it out. It's going to be a little different.
Forbes: Terrific, thank you Phil.
Purcell: Thank you very much for having me, Steve, it's great to see you again.
Forbes: Nice to see you, thank you.

J.C. Penney's Profit Rises Sharply
By Tess Styns - Dow Jones Nwswires
May 14, 2010

J.C. Penney Co.'s fiscal first-quarter earnings rose sharply, aided by lower pension-expense charges and a modest improvement in sales.

A number of retailers have been reporting stronger results recently following last year's woes, though they remain cautious about the future of the economy and consumer spending.

J.C. Penney last week reported that its total sales for the quarter ended May 1 rose 1.2% to $3.93 billion, with sales at its department stores open at least a year rising 1.3%. Sales rose in six of seven merchandise divisions, with men's and shoes among the top performers. The Southeast turned in the best sales performance geographically.

The company's profit rose to $60 million, or 25 cents a share, from $25 million, or 11 cents a share, in the year-earlier quarter. The company in April raised its guidance to 20 cents to 24 cents. Excluding items such as pension-plan expenses, earnings from continuing operations rose to 40 cents from 34 cents.

The retailer projected a second-quarter profit of 10 cents to 13 cents a share, with total sales growth of 2% to 2.5% and same-store sales growth of 2.5% to 3%. Analysts polled by Thomson Reuters recently projected earnings of 13 cents and 2% total-sales growth to $4.03 billion. The year's profit target was raised nine cents from February's upbeat view to $1.64 a share.

J.C. Penney is striving to raise its market share this year by focusing on exclusive brands, such as an expanded line by Liz Claiborne Inc. The retailer is also aiming to improve its stores, put more resources into its website and take a "disciplined approach" to inventory and promotions. Its gross margin for the just-ended quarter rose to 41.4% from 40.5%.

Hey! Not so fast Eddie
Lampert leans on suppliers
By James Covert - New York Post
May 13, 2010

Suppliers to Sears Canada -- which is controlled by the penny-pinching hedge-fund tycoon Eddie Lampert -- are accusing the retailer of trying to strong-arm them into sharing profits reaped from the strength of the Canadian dollar.

In a move that industry insiders have called highly unusual, Sears Canada has told its suppliers it will cut its payouts for merchandise shipments because of a recent surge in the value of the Canadian dollar vs. the greenback.

The rise of Canada's so-called "loonie," which has risen more than 20 percent vs. the US dollar since January 2009, has benefited many suppliers who export to the retailer's Canada-based stores.

Sears boss Eddie Lampert has taken pennypinching to a new level— telling Sears’ Canadian vendors he’s holding back a portion of their payments because of the strong Canadian dollar. Sears Canada said it will cut payments for recent and future shipments by as much as 10 percent and it will bill vendors retroactively to claw back its share of past currency-related profits.

"This looks opportunistic, and not in a good way," said Catherine Swift, president and CEO of the Canadian Federation of Independent Business, which has received more than 20 complaints from Sears Canada vendors.

Sears Canada officials didn't respond to phone calls seeking comment. In an April 29 letter to suppliers, Sears Canada execs said the retailer has been hit as Canadians have engaged in more "cross-border shopping" in search of cheaper goods at US stores. Canadian shoppers have likewise been going online for cross-border deals, the letter said.

"This adjustment is only a fraction of the benefit derived by your company" from currency moves, Sears Canada execs wrote in the letter to suppliers. "But [it] represents a shared reflection of the commercial reality of [the] vendor/retailer partnership."

Noting that Sears Canada recently reported more than $1.3 billion in cash on its balance sheet, one supplier groused that "someone is being greedy."

Some critics questioned the timing of the move and said it's likely to backfire. Recent improvements in consumer spending are likely to embolden suppliers, especially larger ones, said Bob Carbonell, chief credit officer at Bernard Sands.

"Vendors can afford to fight this," Carbonell told The Post.

Wal-Mart to spend $2B for hunger relief efforts
By Emily Fredrix - Associated Press - Forbes
May 12, 2010

NEW YORK -- Wal-Mart Stores plans to significantly ramp up its donations to the nation's food banks to $2 billion over the next five years.

The retail giant's announcement Wednesdsay comes as one in eight Americans are receiving food stamps and food banks are straining to meet demand.

Wal-Mart's plan comes in two parts: At least $250 million in grants over five years will go to efforts like buying refrigerated trucks to aid distribution.

The bulk of the donations will consist of more than 1.1 billion pounds of food to food banks. That's about 1 billion meals.

Wal-Mart Foundation President Margaret McKenna says the company and its foundation are now making hunger relief their main charitable focus because the need is now greater.

Most Retailers' 1Q Results Expected To Show Sales Returning
By Karen Talley - Dow Jones Newswires
May 11, 2010

NEW YORK (Dow Jones)--Most major retailers are likely to report solid sales when they post first-quarter results in the next few weeks, reflecting the industry's transition from cost-cutting during the recession to building up the top line to drive earnings.

Wal-Mart Stores Inc. (WMT) is expected to be among the exceptions, with softness in the U.S. dragging on results.

"First-quarter earnings season should be encouraging," said Bill Dreher, a retail analyst at Deutsche Bank. "Sales momentum has been stronger than expected."

Retailers have been building momentum as consumers become more comfortable about spending. First-quarter figures are expected to reflect a tentativeness, though, as full-force buying has yet to return and retailers are still offering products with some promotions. Thomson Reuters is projecting a 2% on-year rise for quarterly same-store sales at the 88 retailers it tracks.

The goal for retailers is for sales to outpace, or at least keep up with, inventory growth. After more than a year of aggressively cutting back on merchandise, retailers are trying to find the best balance under conditions that are still not fully stable.

The first quarter will help set the tone for the rest of the year, and some retailers are seen reinforcing their budding optimism by raising their projections for the full year.

Macy's Inc. (M) gets the ball rolling Wednesday when the mid-priced retailer reports its first-quarter figures. Sales at stores open more than a year, a key gauge of demand, are expected to rise 4.6%, according to analysts' surveyed by Thomson Reuters. Macy's has beaten analysts' same-store sales projections each month so far this year.

Macy's is in the midst of efforts to tailor product offerings more closely to local tastes. In a meeting with analysts two weeks ago, Chief Executive Terry Lundgren said the efforts were panning out, with stores faring well and fresh inventory attracting customers.

Just about every other department store Thomson Reuters tracks is expected to report year-over-year gains in comparable-store sales, with Kohl's Corp. (KSS) a stand-out at 5.7%.

Upper-end retailers Nordstrom Inc. (JWN) and Saks Inc. (SKS) are pegged to post positive sales growth, benefiting from easier comparisons with a year ago amid some return of affluent shoppers. Tiffany Inc. (TIF) is projected to show same-store sales growth of 9.5%.

It is encouraging to see "the slight comeback of the high-end consumer," since the top 20% of U.S. income earners account for about 40% of consumer spending and an even greater percentage of discretionary spending, said Deborah Weinswig, a retail analyst at Citigroup.

Wal-Mart, on the other hand, is projected to report a 0.4% decline in same-store sales when the world's biggest retailer reports results on May 18. Wal-Mart is in the midst of an international expansion and efforts to take its next steps in the U.S., including considering smaller stores and making existing stores better organized and easier to shop at. Coming into next week's report, Wal-Mart has reported three straight quarters of softer sales in the U.S.

Wal-Mart is part of a discount and mass merchant group that includes Target Corp. (TGT), which is expected to show same-store sales growth of 3.5% as it benefits from getting back on track after seeing its sales particularly hard hit during the recession.

Sears Holdings Corp. (SHLD), another mass merchant, is seen posting a 1.2% drop in first-quarter same-store sales, which could temper earnings.

Apparel retailers including Gap Inc. (GPS) and TJX Cos. (TJX) are looking at sales that are stronger than last year, Thomson Reuters said. While conditions appear to be improving, consumers are still acting somewhat constrained and that will keep a full-fledged recovery out of reach for at least the time being. Recent earnings reports from Visa Inc. (V) and MasterCard Inc. (MA) continued to highlight a shift toward debit cards away from credit cards as consumers show a reluctance to extend themselves.

"I am encouraged by improving big-ticket consumer purchases, but as long as credit remains weak, further improvement could be limited," said David Strasser, a retail analyst at Janney Montgomery Scott.

Wal-Mart to ramp up hunger relief donations to $2B
By Emily Fredrix - Associated Press - Forbes
May 12, 2010

NEW YORK -- Wal-Mart Stores Inc. plans to significantly ramp up its donations to the nation's food banks to $2 billion over the next five years, the retail giant said Wednesday.

The retail giant is more than doubling its rate of giving as the number of Americans receiving food stamps has risen to one in eight, and food banks are straining to meet demand.

Wal-Mart ( WMT - news - people's ) plan comes in two parts: At least $250 million in grants over five years will go to efforts such as buying refrigerated trucks, which help fruits, vegetables and meat last longer to make it from store to charity, and programs to feed children during the summer when they're not in school and receiving government meals.

But the bulk of the donations will consist of more than 1.1 billion pounds of food that doesn't sell or can't be sold because it's close to expiration dates, for example.

The company estimates the food will provide 1 billion meals. Store employees will even offer assistance to food banks to help run their operations more efficiently.

The move extends Wal-Mart's sharp increases in donations in recent years. In 2009, the company spent $21 million on hunger relief and donated 116.1 million pounds of food, up from $12 million in cash and 42.7 million pounds of food.

The donations may also represent Wal-Mart playing a bit of catch-up with other grocers. The nation's second-largest supermarket chain, Kroger Co. ( KR - news - people ), donated 50 million pounds of food in 2009.

Certainly, Wal-Mart's donations are small compared with the rising need. Some 39.7 million people received food stamps in February, an increase of 22 percent from the same month last year. Wal-Mart's donation would be enough to feed everyone now on food stamps only about five meals a year.

"As we laid out the case for need over the last couple of years, I think it became clear that this was something that Wal-Mart, as the largest grocer in the country, needed and wanted to do," Wal-Mart Foundation President Margaret McKenna said in an interview.

Food banks are seeing more new people each day. St. Mary's Food Bank in Phoenix, Ariz., has nearly doubled the amount of food it distributes in two years to keep up with the rising need. First-timers are easy to spot, said St. Mary's Food Bank President Terry Shannon.

"They walk in the door, their eyes are down on the ground. They're embarassed to be there. They don't know what else to do," said Shannon, who will help make the announcement at a news conference in Washington on Wednesday.

Wal-Mart's partnership with St. Mary's has grown in the past year and a half, and the food bank now picks up about 1,000 pounds of food per week from each of 53 area Walmart and Sam's Club stores.

Wal-Mart also plans to use its logistics expertise to help food banks operate on a larger scale and run more efficiently. Company experts will help food banks make tweaks such as installing heavier shelving to hold more food or set up their locations more like stores so they are easier to navigate, McKenna said.

Although there are signs of economic recovery as companies make more profits and the stock market rebounds, job creation is still weak. That means needs will remain high, said Vicki Escarra, CEO of Feeding America, the nation's largest hunger relief charity.

"I think people are recognizing as recovery takes place, middle-income jobs are becoming more and more scarce, and so I think this is certainly a crisis in America," she said. "You would think in this country that everyone would have available food, but the reality is they don't."

Wal-Mart to spend $2B for hunger relief efforts
By Emily Fredrix - Associated Press - Forbes
May 12, 2010

NEW YORK -- Wal-Mart Stores plans to significantly ramp up its donations to the nation's food banks to $2 billion over the next five years.

The retail giant's announcement Wednesday comes as one in eight Americans are receiving food stamps and food banks are straining to meet demand.

Wal-Mart's plan comes in two parts: At least $250 million in grants over five years will go to efforts like buying refrigerated trucks to aid distribution.

The bulk of the donations will consist of more than 1.1 billion pounds of food to food banks. That's about 1 billion meals.

Wal-Mart Foundation President Margaret McKenna says the company and its foundation are now making hunger relief their main charitable focus because the need is now greater.

Most Retailers' 1Q Results Expected To Show Sales Returning
By Karen Talley - Dow Jones Newswires
May 11, 2010

NEW YORK (Dow Jones)--Most major retailers are likely to report solid sales when they post first-quarter results in the next few weeks, reflecting the industry's transition from cost-cutting during the recession to building up the top line to drive earnings.
Wal-Mart Stores Inc. (WMT) is expected to be among the exceptions, with softness in the U.S. dragging on results.

"First-quarter earnings season should be encouraging," said Bill Dreher, a retail analyst at Deutsche Bank. "Sales momentum has been stronger than expected."

Retailers have been building momentum as consumers become more comfortable about spending. First-quarter figures are expected to reflect a tentativeness, though, as full-force buying has yet to return and retailers are still offering products with some promotions. Thomson Reuters is projecting a 2% on-year rise for quarterly same-store sales at the 88 retailers it tracks.

The goal for retailers is for sales to outpace, or at least keep up with, inventory growth. After more than a year of aggressively cutting back on merchandise, retailers are trying to find the best balance under conditions that are still not fully stable.

The first quarter will help set the tone for the rest of the year, and some retailers are seen reinforcing their budding optimism by raising their projections for the full year.
Macy's Inc. (M) gets the ball rolling Wednesday when the mid-priced retailer reports its first-quarter figures. Sales at stores open more than a year, a key gauge of demand, are expected to rise 4.6%, according to analysts' surveyed by Thomson Reuters. Macy's has beaten analysts' same-store sales projections each month so far this year.
Macy's is in the midst of efforts to tailor product offerings more closely to local tastes. In a meeting with analysts two weeks ago, Chief Executive Terry Lundgren said the efforts were panning out, with stores faring well and fresh inventory attracting customers.
Just about every other department store Thomson Reuters tracks is expected to report year-over-year gains in comparable-store sales, with Kohl's Corp. (KSS) a stand-out at 5.7%.

Upper-end retailers Nordstrom Inc. (JWN) and Saks Inc. (SKS) are pegged to post positive sales growth, benefiting from easier comparisons with a year ago amid some return of affluent shoppers. Tiffany Inc. (TIF) is projected to show same-store sales growth of 9.5%.

It is encouraging to see "the slight comeback of the high-end consumer," since the top 20% of U.S. income earners account for about 40% of consumer spending and an even greater percentage of discretionary spending, said Deborah Weinswig, a retail analyst at Citigroup.

Wal-Mart, on the other hand, is projected to report a 0.4% decline in same-store sales when the world's biggest retailer reports results on May 18. Wal-Mart is in the midst of an international expansion and efforts to take its next steps in the U.S., including considering smaller stores and making existing stores better organized and easier to shop at. Coming into next week's report, Wal-Mart has reported three straight quarters of softer sales in the U.S.

Wal-Mart is part of a discount and mass merchant group that includes Target Corp. (TGT), which is expected to show same-store sales growth of 3.5% as it benefits from getting back on track after seeing its sales particularly hard hit during the recession.
Sears Holdings Corp. (SHLD), another mass merchant, is seen posting a 1.2% drop in first-quarter same-store sales, which could temper earnings.

Apparel retailers including Gap Inc. (GPS) and TJX Cos. (TJX) are looking at sales that are stronger than last year, Thomson Reuters said. While conditions appear to be improving, consumers are still acting somewhat constrained and that will keep a full-fledged recovery out of reach for at least the time being. Recent earnings reports from Visa Inc. (V) and MasterCard Inc. (MA) continued to highlight a shift toward debit cards away from credit cards as consumers show a reluctance to extend themselves.
"I am encouraged by improving big-ticket consumer purchases, but as long as credit remains weak, further improvement could be limited," said David Strasser, a retail analyst at Janney Montgomery Scott.

Health care law helps companies insure early retirees
By Christopher Weaver, Kaiser Health News  - USA Today
May 10, 2010

The White House unveiled details last week of a $5 billion program to provide financial relief to companies that offer health coverage to early retirees. Officials say the effort, mandated by the new health care overhaul law, will help keep firms from ditching those benefits because of the high costs involved, a trend that has accelerated in recent years. Without health coverage, many early retirees find it difficult to get insurance until they're eligible for Medicare at 65.

The new program, sometimes called reinsurance, should help retirees 55 to 64. It ends in 2014, when other provisions to make it easier for people to find affordable coverage take effect.

Q: How will it work?

A: The program will reimburse employer-sponsored health plans for 80% of the costs incurred by retirees between $15,000 and $90,000 each year — up to a maximum $60,000 a year per person. The program, which begins June 1, runs until Jan. 1, 2014.

Employers, state and local governments, and employer-sponsored health plans will be able to apply for the subsidies, which can be used to reduce their own health care bills, hold down premiums or other costs for retirees or some of both. Companies will have to continue to pay at least as much as they do now for retiree coverage.

Q: How many early retirees currently get health benefits?

A: Only about 2.2 million retired workers age 55 to 64 received health benefits from their former employers in 2007, according to the Employee Benefit Research Institute. Many smaller firms may view the money as not worth the trouble. Health officials expect about 4,500 employers to apply.

Advocates for early retirees and seniors, including the Medicare Rights Center, said the change could help consumers. If the subsidies help companies "maintain the benefits, that's pretty good for retirees," said Alan Reuther, a lobbyist for the United Auto Workers union, which supported the provision. "Premiums are going up and up" for retired workers, but the new subsidies could help slow or reverse that trend, he said.

Q: Is $5 billion enough to last until 2014?

A: Probably not. Officials at the Department of Health and Human Services have acknowledged that, given the number of workers who have early retiree health benefits and the high cost of their care, the $5 billion could well run out before the program's expiration date. In the preface to a recently published regulation on the program, the officials wrote, "Because funding for this program is limited, we expect more requests for reimbursement than there are funds to pay the requests."

Q: Do the companies have anything to gain?

A: The program may help offset money the health overhaul will cost firms. For instance, dozens of firms reported last month that they will write down millions of dollars because of tax changes related to retiree benefits. Telecommunications giant AT&T said the tax change would cost it $1 billion, a one- time charge that reflects losses in future years. Verizon wrote off $970 million, and tractor company Deere took a $150 million charge.

The Business Roundtable, a coalition that includes executives from those firms, said in a statement last week that the $5 billion subsidy "reduces costs and allows many of our member companies to continue providing this critical coverage."

Q: Where did the idea come from?

A: In 2004, Sen. John Kerry, D-Mass., ran for president on a platform that included a very similar, but much bigger, reinsurance plan. Kerry and Sen. Debbie Stabenow, D-Mich., whose state is home to many labor unions, took credit for crafting the current program in statements after the new law passed in March.

Q: Are firms likely to shed benefits for retirees between now and the program's end?

A: The subsidies are meant to help retirees keep the coverage they have now, until the health law is rolled out and they have more options. Valerie Jarrett, the White House business liaison, pointed out in a May 4 blog post that in 1988, 66% of large firms — those with more than 200 employees — offered health benefits to retirees, compared with 31% in 2008. Experts such as Frank McArdle, an executive at benefits consulting firm Hewitt, say the decline has stabilized. But, McArdle said, the recession could put pressure on firms to further cut benefits for early retirees.

Q: What happens in 2014?

A: Workers who retire early will have more insurance options when the rest of the health law goes into effect. For one thing, the new law requires creation of state-based exchanges, or marketplaces, to make it easier for people to buy insurance. It also calls for hundreds of billions of dollars of subsidies to help lower-income people buy the coverage. And it bars insurers from rejecting people because of health problems.

Some experts say that the creation of new options for early retirees might actually contribute to an erosion of health benefits for the group. "One of the reasons (firms) haven't dropped retiree benefits is that retirees have no alternative," said Paul Fronstin of the Employee Benefit Research Institute. "The exchanges are that alternative."

Q: Where can I find details online?

A: The new link for the recently published regulation" is edocket.access.gpo.gov/2010/2010-10658.htm

Sears shopping its space in area malls
By Jonathan O'Connell - Washington Post
May 10, 2010

Sears is no longer the dominant presence in shopping centers that it once was, but its real estate holdings still are.

As it transforms itself into more of an online seller, Sears Holdings Corp., owner of Sears and Kmart, is ratcheting up efforts to lease or sell space at existing stores across the country, creating an online registry of its properties and listing nearly all of its stores there for interested tenants and buyers.

A total of 3,837 properties are being listed by Sears Holdings through its realty company, and it is looking to sell 67 stores it closed as it moves sales online and cuts costs. It operates about 3,900 total stores in the United States and Canada.

In the Washington area, the company is marketing space in 16 suburban Maryland stores, and at another 16 in Northern Virginia. The listings include Kmarts in Hyattsville and Gaithersburg, a Sears Auto Center in Bethesda, and Sears stores in Alexandria, Fairfax, Falls Church and Manassas. There are no Kmart or Sears stores in D.C., except for a Sears appliance showroom in Tenleytown.

Though what space exactly is available at each store isn't listed, some of the opportunities are for in-store leasing, as Sears has done placing H&R Block tax prep stands in hundreds of stores and which Kmart, acquired in 2003, has done with leases for Little Caesars Pizza Stations.

On April 22, Sears Holdings announced that it had signed a multi-year agreement with Edwin Watts Golf Shops to open 12 golf outlets within Sears stores, including Falls Church. The shops will range from 2,700 to 3,000 square feet and be positioned near the eletronics, tools, appliances or sporting good sections.

"Over the course of the recession, retailers, shopping centers, everyone has had to get more creative and look for more sources of revenue," said Jesse Tron, a spokesman for the International Council of Shopping Centers. He said customers frequently don't know the difference between a tenant and other Sears departments. "They basically just build out a little section of the store so you don't even feel like you're in another part of the store," he said.

A Sears spokesperson, Kim Freely, said the company had been seeking lease agreements for years but that it was receiving more and highly varied responses with its increased push for tenants. "Somebody might come to us and say we want to rent a kiosk for 400 square feet and somebody else might want to lease half the store," she said.

Leveraging its real estate assets may have helped Sears quickly increase its profits and stock price in the last year, despite closing stores. Other space being marketed by Sears are areas in "diminished" stores that have been reduced in size, and pad sites in parking lots.

"We just think that we could move things around and still do our business as efficiently as we can and there could still be room for other things," Freely said.

Gary Rappaport, president of the McLean-based retail developer The Rappaport Cos., said anchor retailers like Sears or Kmart that either purchased space or signed leases 20 or 30 years ago often have broad rights to their properties and can offer competitive rates.

"All Sears is doing is taking their retail play and taking advantage of the real estate play," he said. "They're not the only ones who are doing it. But because they are someone who has a lot of older locations they can focus on it."

Lands' End goes back to the future
New store near UW campus serves as showcase for retailer's classic Canvas line
By Doris Hajewski of the Madison Journal Sentinel
May 9, 2010

Madison - The new Lands' End Canvas shop here harkens back to the company's 1963 roots, but its focus is aimed at the future.

The State St. store, near the University of Wisconsin campus, is the only one of its kind in the country, an experimental showcase for the catalog retailer's trendy-classic Canvas line.

With a younger, slimmer fit and a cooler attitude, Canvas is meant to appeal to a generation for whom 1963 is history, not a memory. "It was a really simple decision," said Lands' End President Nick Coe of the Canvas launch. "We're a very classic, collection-driven sportswear brand. We just wanted to make sure we had an opportunity to extend the brand to a new generation."

Lands' End, the Dodgeville-based division of Sears Holdings Inc., rolled out the Canvas line without huge fanfare in November and opened the State St. store at the same time. The location had been a Lands' End Inlet store for years before that, but was gutted and remade with natural-finish wood-plank floors, an open ceiling, stenciled store signs and a subdued nautical influence.

There are no anchors or life preservers on the walls, but there are references to the company's 1963 heritage. Lands' End was founded by the late Gary Comer, a Chicago advertising executive with a love for sailing. In its early years, the company sold gear for sailors.

The Canvas line includes the same categories as the traditional Lands' End offering: tees, sweaters, shirts, pants and swimsuits. The styles are younger and closer fitting, and the bikinis are skimpier. But the company doesn't want to define Canvas as being for a particular age. "It's a mind-set," said Coe. The mind-set seems to be settling in at around age 30, he adds.

Elusive customer

The post-teen but not yet middle-age cohort is an elusive customer to nail down, said Neil Stern, a partner at McMillan/Doolittle, a Chicago retail consulting firm.

"A lot of people have gone after that," Stern said.

In recent years, Abercrombie & Fitch went after the customers who aged out of its stores with a small number of Ruehl stores. American Eagle Outfitters tried the same thing with Martin + Osa. None of the experimental stores made it to Wisconsin, and all of them closed after short, unsuccessful runs.

Gap last year launched a new jeans brand that evokes its 1960s roots, called Gap 1969. And in March, L.L. Bean launched Signature, a line of clothing with the same thinking as Lands' End Canvas. By L.L. Bean's description, the clothing is rooted in classic American sportswear but has a closer-to-the-body fit.

Coe came to Lands' End in 2008 from Banana Republic, where he was head merchant. Some observers have compared the new Canvas brand to J. Crew and Banana Republic.

Coe considers specialty retail brands to be the competition for Canvas, but he is maintaining the pricing in the same range as Lands' End's general apparel line. Women's Canvas cotton tops go for $15 to $45; men's pants are priced from $40 to $70.

The Canvas line has its own Web site, www.landsend.com/canvas, with a blog, and links to people and things that inspire the brand. Names include: Grace Kelly, Charles and Ray Eames, Jacqueline Kennedy Onassis. There's a link to a Web site selling the music of jazz great John Coltrane.

Accessories 'critical'

In an unusual move, Lands' End has started selling Allen-Edmonds shoes as part of its Canvas collection. Lands' End regularly sells merchandise from other companies - Swiss Colony candy at Christmas, for example - but typically doesn't identify the brand name of the supplier.

"It's critical for us to be in the accessory business," Coe explained, adding that he wants to offer brands that stand for the same thing. Allen-Edmonds is a Wisconsin company that makes shoes that last forever, go with everything and never go out of style, the Canvas blog says.

Coe plans to add more accessories to the Canvas line, scarves and hats, for example. But 95% of the product will be the Lands' End brand, he said.

It makes sense for companies to look at brand extensions, as Lands' End is doing with Canvas, Stern said.

"One of Lands' End's issues is their demographic is considerably older than the U.S. population," he said.

While that generation loved to chat with Lands' End's famously friendly phone operators, their young adult children are connecting to Canvas on Facebook. Nearly 19,000 have signed on as fans since Canvas debuted a few months ago.

The company has opened 20 4,000-square-foot Canvas shops inside Sears stores and expects to open more. There are none in Wisconsin Sears stores.

While sales of Canvas merchandise are exceeding expectations, Coe said the future of the freestanding Canvas store concept hasn't been determined.

"We have great access to real estate inside Sears stores," he said. Opening freestanding Canvas stores like the one in Madison would be more expensive, and the decision to go forward with that strategy will be based on the performance of the prototype store, Coe said.

Sears Chairman Lampert Grasping at Straws in Apparel and With an Amazon-like "Marketplace"
By Lydia Dishman - BNET
May 6, 2010

Eddie Lampert, the reclusive millionaire hedge fund investor that lords over Sears and Kmart (SHLD), predicts that in five years his company is going to be “unrecognizable” to decades-long loyalists. But as his management strategy to get there continues to go off in all directions, it’s hard to imagine how it can have a positive effect on Sears bottom line.

My BNET colleague Mike Duff has documented some of Lampert’s contradictory moves lately, most notably with a simultaneous effort to grow and shrink stores -– while failing to refurbish, or at least clean up, the shabbier outlets.

Now a recent initiative to remake apparel is underway. That includes opening a new design office in San Francisco with former Kmart honcho John Goodman at the helm and hiring a whole new crop of minions tasked with bringing tired proprietary brands back to chic.

Sound familiar? That’s because this move echoes a similar one in 2006 when Sears opened a design office in lower Manhattan. And it’s not like the company hasn’t hit its “softer side” hard in other years past. After the installation (and quick dispatch) of former Macy’s (M) exec Kathy Bufano in 2002 to head up a similar effort to beef up its style cred, Sears has limped along in the fashion category.

Lampert’s no doubt buoyed by the recent props showered on a new Lands’ End brand called Canvas aimed at a younger style-savvy consumer. He’s also feeling good about Kmart’s gains in apparel (really? With comps up only 3.2 percent after a dismal 2009? Tut, tut).

What’s also caught Lampert’s eye is the Web. Touting the Internet as a key component to the future of Sears, Lampert walked shareholders through Kmart’s MyGofer pick up service designed to lure a new mobile customer to his stores. That’s in addition to the under-the-radar Marketplace at Sears.com that launched earlier this year, which is reported to carry 10 million products, most from third party vendors. This smacks of a move to compete with Amazon (AMZN), although Lampert is simply billing it as a way to “overwhelm” customers with choices and “not wake up some day and find we missed the big trick.”

To that end, Sears Craftsman brand tools and Kenmore appliances have also been allowed to stretch beyond traditional store borders popping up at Ace Hardware and specialty boutiques.

There’s one possible positive about Lampert’s scatter-shot strategy: if he fires off that many initiatives simultaneously, he may just sink one in the corner pocket.

Tags: Sears Roebuck & Co., K Mart, Amazon.com Inc., Branding, Investment, Financial Services, Marketing, Finance, Lydia Dishman Lydia Dishman has covered business, style, and travel for over a decade. She is currently a regular contributor to Fast Company, Entrepreneur Magazine, and others. Follow her on Twitter.

Chicago-area companies plan to lay off nearly 1,000
 By Julie Wernau - Chicago Breaking News
May 6, 2010

A dozen Chicago-area businesses have given notice to the state that layoffs are planned, affecting more than 920 workers.

Sears Holding Corp., Unilever, Reed Business Information, Continental Casualty Co., Material Sciences Corp., Navistar Financial Corp. and Regional Elite Airline Services LLC at Midway Airport, notified Illinois in April of the impending layoffs as required by the Worker Adjustment and Retraining Notification Act.

WARN offers protection to workers, their families and communities by requiring employers to provide notice 60 days in advance of covered plant closings and covered mass layoffs.

Sears said it is closing the offices at its Schaumburg Parts Distribution Center, a move that will affect 84 workers. Layoffs are planned for an additional 86 workers at the company's Chicago offices at 7601 S. Cicero Ave., which will also close.

Also closing is Material Sciences Corp. in Elk Grove Village, which provides metal coating, engraving and allied services to manufacturers, and layoffs would affect 87 workers. Regional Elite Airline Services LLC at Midway Airport, which provides passenger transportation services, also plan to close, affecting 56 workers. Unilever is closing its marketing operations for its deodorant and hair business products, affecting 192 workers in supply chain support, finance and marketing at 205 N. Michigan Ave.

Sears Chairman Edward Lampert says company to be 'unrecognizable' from what it was
Sears targeting Internet sales, freeing up proprietary brands
By Sandra M. Jones, reporter - Chicago Tribune
May 5, 2010

Sears Holdings Corp. is looking more seriously at selling its proprietary brands outside of Sears and is pouring money into beefing up its online business in an effort to become relevant to a new generation of shoppers.

Sears and Kmart stores aren't going away, but they could be a hybrid of what they are today, said Edward Lampert, Sears' chairman and majority shareholder, at the company's annual meeting Tuesday.

"Five years from now, I believe this company, to some people, will be unrecognizable to what it was 30 years ago," said Lampert, addressing a crowd at the retailer's Hoffman Estates headquarters.

Shopping behavior is changing, and the Internet will be a key component of whatever shape Sears takes, he said.

Lampert, who rarely speaks to investors outside of the company's annual meetings, spent 30 minutes standing behind an Apple computer walking shareholders through Sears' Web sites in detail.

The billionaire investor created "Eddie's grocery list" of milk, Kleenex and allergy pills, bought the goods online at Kmart's MyGofer in-store pickup service and showed the audience how it all could be done from their seats with an iPhone.

Sears has expanded its Web site dramatically in the past year, he said, offering an abundance of items from vendors not available in its stores, akin to an Amazon-style marketplace. To make his point, Lampert searched for sunglasses and pulled up 67,419 choices.

"We don't want to wake up some day and find we missed the big trick," he said.

Sears also is moving forward with a plan to sell its exclusive brands outside of its stores. The company needs to reach customers who don't come into a Sears store, especially young people who shop differently than their parents, he said.

"I don't believe it has been an optimal strategy historically" to sell Craftsman and Kenmore appliances only at Sears stores, Lampert said during the two-hour question-and-answer period that followed his presentation.

"When I think of the great brands of the world, Apple and Nike both operate stores and sell to third parties. Their focus is, how do we expand our customer base? I believe that the Craftsman and Kenmore customer is much broader then the Sears customer."

Earlier this year, Sears agreed to sell some Craftsman tools through 100 Ace stores and began offering its DieHard brand as part of Sears Auto Center franchises offered to shuttered auto dealers. Sears also opened a temporary pop-up shop in Chicago to promote and sell its Kenmore products.

Critics contend that selling the brands outside of Sears will hurt already depressed sales by keeping shoppers out of the retailer's stores.

The Craftsman deal with Ace will expand to almost all Ace stores for Father's Day in June. After that, "the goal is to determine the value add, the effect on Sears stores and the effect on the Craftsman brand, and make a determination at that point," said W. Bruce Johnson, Sears interim CEO and president.

Sears is undertaking a renewed effort to prop up its apparel business, a daunting task that has been attempted repeatedly in the past two decades.

At a press conference after the annual meeting, Sears said it expects to lay off an unspecified number of buyers at its headquarters as it shifts the heart of its apparel operation to San Francisco in search of new talent.

In February, Sears opened an apparel office under newly hired apparel and home chief John Goodman, who made opening the West Coast office a condition of his hire. Sears expects to staff the office with about 200 buyers and merchandisers as it trims the Hoffman Estates staff, Johnson said.

Johnson declined to specify the timing or scope of the layoffs, and he said some workers are being offered jobs in San Francisco or at other parts of Sears.

Sears to revamp merchandise, grow online
By Anna Marie Kukec - Daily Herald Staff - Suburban Chicago
 May 5, 2010

Executives for Sears Holdings Corp., parent of Sears and Kmart stores, said Tuesday that if the company doesn't get federal pension relief soon, it will be forced to close a "significant" number of stores.

But how many are in jeopardy was uncertain as board Chairman Edward S. Lampert and Interim CEO W. Bruce Johnson told shareholders the legendary company aims to grow despite the pension issue and a tough economy.

Part of their plan also includes moving the apparel unit out of its Hoffman Estates headquarters and opening a new apparel center in San Francisco with 200 workers. Some affected workers here were offered positions in San Francisco or elsewhere in the company, so the final layoff count was unavailable.

In addition, Sears will target mobile shoppers, expand its Internet offerings in ways that at times may direct shoppers to other stores, and relaunch its legendary Kenmore brand. Whatever happens, Sears won't look the same in five years, the executives said.

"We're embarking on a very significant transition," said Johnson.

The executives updated shareholders on their initiatives during the annual shareholder meeting in Hoffman Estates.

While high unemployment and the recession have chipped away at retailers and consumers alike, Sears said it has been supporting underperforming stores to keep people employed and to maintain a presence in those communities.

While the banking industry and others have gotten bailouts, Sears instead looked to the federal government for help to keep their pension funded. If the pension legislation now pending before the House doesn't pass, Sears would be forced to close underperforming stores. That would provide enough cash to fund the pension, said Lampert.

Sears needs about two years to help recover from market losses in 2008 and sees funding its pension for loyal workers as a priority, officials said.

Sears has funded its pension with about $1.2 billion in the last five to six years, Lampert said.

If the pension woes don't alter the outlook for the stores, then the Internet will. The traditional model of brick-and-mortar stores has been changing, as more consumers use the Internet for either research or purchase of products. More stores may become a hybrid acting as either a pickup or return site for Internet purchases or just offering displays or demonstrations, the executives said.

"We're looking at what are customers doing? What are their issues, and how do we solve that?" Lampert said.

Other meeting news included:

• Both Johnson and Lampert were vague on how much longer Johnson's "interim" CEO title will last, whether Johnson would be replaced with a permanent CEO, or if Johnson himself was looking elsewhere.

• The Kenmore Live Studio opened about a month ago in downtown Chicago and features many of Sears' appliances along with interactive demonstrations for cooking and fashion, among other interests, to attract the young urban consumer. It was being touted as the Apple store for appliances.

• Sears stores will be selling more 3-D TVs this year, after being one of the first retailers to launch the new technology bundled with the special glasses.

• New products are coming with the Bongo, Dream Out Loud and Country Living lines of clothing and home products.

• Smart Sense will be the new name of Kmart private label products, replacing American Fare and other products.

• Kmart will continue its layaway program.

• Sears will continue to revitalize its tool lines with new technology, including a single battery platform for many and an automatic hammer that instantly drives in nails with a touch of a button.

• Franchising the auto service centers is continuing with one deal signed and others in the pipeline. They're even considering the Sears franchise for some shuttered Chrysler and other dealerships.

• The 150 MyGolfer sites inside Kmart stores and the stand-alone MyGolfer store in Joliet will continue to provide Internet shopping and then pickup in the store. Sears executives said they're exploring a variety of ways to work with this concept.

• Sears will consider other vendors, including mobile phone service providers, who want to set up shop inside their stores, besides the optical, photo and other services already there.

Lampert admits interim status of Sears CEO 'weird'
* Lampert admits interim nature of CEO "weird"
* Still no rush to find permanent CEO
* Johnson's position was fodder for jokes at meeting
By Ben Klayman - Reuters
May 4, 2010

HOFFMAN ESTATES, Ill., May 4 (Reuters) - Sears Holdings Corp <SHLD.O> Chairman Edward Lampert acknowledged that having an interim chief executive for more than two years is not ideal and definitely "weird," but said the retailer is in no rush to find a replacement for Bruce Johnson.

Johnson, who has operated with an interim tag since January 2008, was even elected to the board at the Sears annual meeting on Tuesday at its headquarters outside Chicago. Analysts have criticized the company's lack of urgency in hiring a permanent CEO.

"We've been looking, but we're not looking every day and it's not consistent," hedge fund manager Lampert told reporters after a meeting that lasted more than three hours. "I think I said it last year and I'll say it again, there's not a rush. It's not an ideal situation.

"This is a very weird situation and I think that it would be different if we had not gone through both a major restructuring of the company and the economic environment, where even the most talented executives, a lot of them were under their desks," added Lampert, who rarely speaks to investors and media.

The interim nature of Johnson's title was fodder for jokes during the meeting, which was attended by several hundred investors and employees.

Johnson told how one employee recently greeted him with "Hello, Mr. Interim." He added, however, that his expectations since he was named interim CEO have not changed and he would remain in place as the transition was made to a new CEO.

"No matter whether the title says it or not, we are all interim in our positions," he said to reporters, adding a time would come when he will either move on to other things or the board will replace him.

Later in the meeting, Lampert, who has been described by some investors as autocratic, joked: "Like Bruce, I'm an interim as well, or (so) my wife likes to tell me."

Lampert said good succession planning is part of good corporate governance and added his expectation has always been that Johnson would remain after a permanent CEO was hired.

Shares of Sears, home to the Sears and Kmart store chains, closed down 3.7 percent at $117.81 on Tuesday, compared to the previous day's high above $125 . The shares have more than doubled in value in the past year.

AN UNRECOGNIZABLE SEARS

Last month, Sears forecast a first-quarter earnings range that seemed likely to beat analyst expectations and moved a step closer toward its long-coveted goal of taking full ownership of its Canadian unit.

At the time, it said quarterly sales at stores open at least a year rose 3.2 percent at Kmart and 0.3 percent at U.S. Sears stores. It is due to report results by May 20.

Lampert, who in the past has been hailed as the next Warren Buffett, and Johnson discussed the new products Sears is offering as well as the company's goal to be a world class online retailer.

Lampert joked at the start of Tuesday's meeting that the crowd was bigger than he expected. He used a laptop to show off the latest features at Sears.com, including choosing from more than 67,000 options for sunglasses.

He wanted to show how the company is making the shopping experience easier as well as offering consumers more choice. Lampert said with so many changes in technology and consumers using online and mobile devices more often to shop for products, Sears will look different down the road.

"Five years from now, this company to some people will be unrecognizable," he said.

Lampert also said the company would be less likely to keep money-losing stores open if there is no pension reform in Washington.

He said the company would not close all its money-losing stores, but said it could be a significant number that is more than 10 locations. He declined to provide further detail. The company operates about 3,900 stores in North America.

(Reporting by Ben Klayman; Editing by Michele Gershberg and Matthew Lewis)

Lampert: Sears to be 'unrecognizable' in 5 years
By Sandra M. Jones - Chicago Tribune
May 4, 2010

Sears Holdings Corp. is looking more seriously at selling its proprietary brands outside of Sears.

"I don't believe it has been an optimal strategy historically" to sell Craftsman and Kenmore appliances only at Sears stores, said Chairman Edward Lampert at the company's annual meeting in Hoffman Estates on Tuesday. He said that in five years Sears will be "unrecognizable compared to what the company was 20, 30, 40 years ago."

The retailer needs to reach customers who don't come into a Sears store, especially young people who shop differently than their parents, he said.

"When I think of the great brands of the world, Apple and Nike both operate stores and sell to third parties," Lampert said. "Their focus is: How do we expand our customer base? I believe that the Craftsman and Kenmore customer is much broader then the Sears customer."

After engineering the combination of Sears and Kmart five years ago, Lampert raised the controversial notion of selling Craftsman tools, Kenmore appliances and DieHard batteries through outside retailers.

Earlier this year, Sears agreed to sell some Craftsman tools through 100 Ace stores and began offering its DieHard brand as a franchise to shuttered auto dealers. Sears also opened a temporary pop-up shop in Chicago to promote and sell its Kenmore products.

Critics contend that selling the brands outside of Sears will hurt already depressed sales by keeping shoppers out of the retailer's stores.

Lampert, who owns 57 percent of Sears, said the company wants to "elevate" the Sears name, but at the same time "can't hold back" Kenmore and Craftsman.

As for the Craftsman deal with Ace, Sears will expand to almost all Ace stores temporarily for Father's Day in June. After that, "the goal is to determine the value-add, the effect on Sears stores and the effect on the Craftsman brand and make a determination at that point," said W. Bruce Johnson, Sears interim chief executive and president.

With the Associated Press

James Patrick (Pat) Galloway
Opelika-Auburn, AL News
May 4, 2010

James Patrick (Pat) Galloway died peacefully at his home on Monday May 3, 2010.

Although death is always a sad time, this is primarily a time for celebration of a life well lived, a release from a body damaged by Alzheimer's, and a chance for his soul to join his God and Savior. Pat grew up as the middle of nine children of a Birmingham steel worker.

Although they did not have financial riches, his family was rich with love, Christian faith, belief in hard work, and honesty. He started at Auburn University, before transferring to Birmingham Southern where he graduated Phi Beta Kappa with a Business major. He married his high school sweetheart, Marjorie May, on December 24, 1949. Their 60 years of marriage was a blessing of great love and devotion to each other.

Pat paid for his own way through college by working at the loading docks of Sears. He continued at Sears for the next 38 years, ultimately holding the position of Executive Vice President for the entire company of Sears before his retirement.

His business achievements and recognition were many, and included "Outstanding Zone Manager" while in Memphis, TN, "Outstanding Group Manager" while in Washington, D.C., and "Outstanding Regional Vice President" while in Philadelphia, PA. He consistently left his assignments with higher profits, improved employee satisfaction, and a legacy of integrity.

In every location Pat was also committed to giving back to his community. In 1970 in Macon GA, he was the Chairman of the Downtown Council and was active in improving business opportunities for minorities. In 1980, he was the President of the Washington Board of Trade.

Upon retiring to Auburn in 1986, he and Margie joined the Auburn United Methodist Church, where Pat was a long term member of the Board of Trustees, and they remain loyal members. He was the Campaign Chair of the Lee County United Way in 1990. He was the President of the Auburn University Alumni Association Board of Directors from 1992 - 1994 (the only President who did not graduate from Auburn). The Auburn Alumni Building was built during his term, and the Atrium in this building, as well as scholarships, will be named in the honor of J Pat Galloway.

Pat and Margie enjoyed many wonderful retirement years together. They enjoyed traveling and entertaining friends in their home. Pat believed in strong family ties and since his children and grandchildren were in different states, Pat provided a week long vacation every summer for the large family. Following that week, they entertained their grandchildren in Auburn for another week which they fondly called "Camp Galloway".

In addition to Margie-the love of his life for 60 years, he is survived by his children-Lois Lord of Macon, GA, Lynn and Guy Gullick of Pleasant Garden, NC, Rick and Susan Galloway of Birmingham, AL, and Russ and Sherry Galloway of Murfreesboro, TN. His grandchildren are Steve Lord, Erin and Dave Willis, and Kelly Lord, Charles and Gabriella Durham, Eva Gullick, and Marjorie Gullick, Kathryn and Kimberly Galloway, and Scott and Alex Galloway. He has one great-grandchild Ashley Durham.

Visitation will be at Jeffcoat-Trant Funeral Home on Tuesday, May 4 from 4 to 6 pm. The Celebration of Life Services will be at Auburn United Methodist Church on Wednesday, May 5 at 11 am. There will be a reception following the Celebration of Life in the Atrium of the Auburn Alumni Center. In lieu of flowers, donations may be made to Auburn United Methodist Church, or to Auburn Alumni Association for the James Patrick Galloway Fund of Excellence. Jeffcoat-Trant Funeral Home & Crematory is directing.

Lampert: Sears 'unrecognizable' in 5 years
By Ashley M. Heher - Associated Press
May 4, 2010

HOFFMAN ESTATES, Ill. — The financier who leads Sears Holdings Corp. said Tuesday that the retailer is gearing up to revamp merchandise and services in its stores, while boosting its Internet business.

Sears hopes that two-pronged approach will continue the momentum it gained during the recession as it boosted its profit while cutting expenses.

"Five years from now, I believe this company, to some people, will be unrecognizable comparedto what the company was 20, 30 or 40 years ago," Chairman Edward Lampert said to a crowded room of investors during an annual shareholder meeting.

Based in suburban Chicago, the retailer owns Sears, Kmart and Lands' End along with popular brands like Craftsman, Diehard and Kenmore. But it's increasingly focusing its efforts toward the Web, with its revamped Web site, added emphasis on social media and mobile phone applications that allow customers to grocery shop from their cell phones.

Lampert spent much of the nearly three-hour presentation — typically the only time each year he speaks publicly to shareholders — talking about Sears' online efforts.

Standing behind his Mac laptop, Lampert clicked through Sears' Web site to search for sunglasses (his search on Sears.com turned up more than 67,000 items, which he declared "probably more than enough.") and used an iPhone app to order Cheerios, Kleenex tissues and allergy medicine that could be delivered to his home.

"It's not just us broadcasting to customers any more, he said. "It has to be interactive, and it has to be relevant."

J.C. Penney Spends to Get Ahead On Mobile Shoppers, Other Trends
By Rachel Dodes - Wall Street Journal
May 4, 2010

J.C. Penney Co., betting that better control of inventory and stronger online sales will underpin its growth, is spending heavily to speed up its supply chain and overhaul its website.

The Plano, Texas, department store chain is boosting its tech spending for a second straight year, even as it has cut its broader capital spending in half over the same period as it scaled back store openings.

This year the retailer is adding mobile and interactive features to its e-commerce site, such as product review tie-ins to services like Twitter and Facebook and delivering targeted promotions to shoppers with smartphones.

The 108-year-old retailer isn't just being trendy. The company's online growth has slowed in recent years and it's counting on Internet sales, now just 9% of its $17.5 billion in annual revenue, to deliver $1 billion in sales growth over the next five years.

"This is the next generation of how to make things better, and how to be a better competitor," says Chief Executive Myron E. Ullman III.

Mr. Ullman has invested in programs to unify online and store pricing and shorten product cycles. Penney's new "City Streets" private-label apparel line for teens goes from factory to stores in as little as three months. An initiative called "door to floor" enables store managers to know what's being delivered in trucks 24 hours in advance, which speeds up turnaround times.

After cutting IT spending last year by 8%, retailers are poised to spend $23 billion this year, according to Forrester Research, taking outlays back to pre-recessionary levels and giving a boost to companies like International Business Machines Corp. that sell gear, software and consulting services.

Kohl's Corp. is spending $100 million on e-commerce, including the addition of a new distribution center to fill online orders. Specialty players like Talbots Inc. and The Children's Place Retail Stores Inc. are investing in inventory allocation systems to tailor their style and size assortment by region.

The investments are aimed at keeping sales up in an era of lean inventories and discounts, as well as capitalizing on growth in e-commerce. Jill Puleri, world-wide retail industry leader at IBM Business Services, says she is seeing a pickup in spending on software that helps companies better tailor promotions to existing customers.

"This is a case of necessity being the mother of investment," Forrester analyst Andrew Bartels says.

Penney's moves are part of a broader plan to overhaul the company's infrastructure, an effort that began in the throes of the recession. It wouldn't give an exact figure, but Mr. Ullman says "hundreds of millions" of dollars have been allocated to IT since early 2009.

J.C. Penney spent $139 million on technology last year, according to Citigroup. That was about 23% of its capital expenditures, which totaled $600 million.

Penney has also been trying more experimental technologies such as radio tags to monitor individual products as they pass through the supply chain, a move that the company hopes will improve its ability to keep the right goods in stock.

"A lot of what we're spending on right now isn't that visible to the consumer," Mr. Ullman says.

Within the next 18 months, Penney shoppers will be able to receive location-specific promotions on their mobile devices when they walk into a store. They'll also be able to get deals and see product reviews in stores by taking pictures of bar codes with their phones.

In 1993, Penney became the first large bricks and mortar retailer to start selling online, a natural extension for its long-established catalog business. By 2005, Penney had become the first apparel and home furnishings retailer to exceed $1 billion in sales on its website. But online sales have been flat at around $1.5 billion a year for the past three years.

One problem is until 18 months ago the Web and store divisions operated separately, so they emphasized different goods.

This year the company's website, which was developed internally, is being redesigned by Art Technology Group Inc., a software vendor that will enable the site to offer interactive features, including social media, and translate product information from the Web to mobile devices.

"As recently as two or three years ago there wasn't as much transaction or buying" on cellphones, says Tom Nealon, Penney's chief information officer, but that's changing really rapidly."

—Elizabeth Holmes contributed to this article.

Sears Interim CEO Continues to Mark Time
W. Bruce Johnson, More Than Two Years in a Temporary Job, Will Join Board, but Limbo Leaves Investors Wondering
By Miguel Bustillo and Joann S. Lublin
Wall Street Journal
May 3, 2010

More than two years after Sears Holdings Corp. named him interim chief executive, W. Bruce Johnson still occupies that role, the longest current temporary tenure for the head of a publicly traded U.S. company.

Sears, at its annual meeting Tuesday, is putting Mr. Johnson up for a board seat and has bumped up his base salary to $1 million from $850,000. But 27 months after the board ousted CEO Aylwin Lewis, the retailer still hasn't announced plans to name Mr. Johnson as its permanent chief, raising concerns among some investors.

"There's a leadership vacuum," said Michael P. McCauley, senior officer for investment programs and governance at the Florida State Board of Administration, which runs public-employee pension funds that own 171,000 Sears shares. "The fact that the CEO has been in the interim status for so long suggests there's a serious problem with succession planning."

Mr. Johnson, 58 years old, has been a stopgap chief for so long that he joked at Sears's annual meeting last year that even his children had taken to calling him "interim." According to research firm Equilar Inc., Mr. Johnson has had that title longer than any other boss at a public firm.

Sears said its board has full confidence in Mr. Johnson but declined to make him available for an interview. The Hoffman Estates, Ill., company said stock-price gains show the market isn't worried about leadership. The shares have nearly doubled in the past year, and the company has notched stronger sales in recent months.

"While having a CEO in an interim capacity is not ideal, one has to consider the specific facts and circumstances," the company said. "Arbitrary time frames may have some merit, but often they do not."

Mr. Johnson's extended limbo reflects the unusual balance of power at Sears Holdings under Chairman Edward S. Lampert, who created the company in 2005 by combining Sears and Kmart and controls roughly 57% of its shares through his ESL Investments Inc. hedge fund.

Mr. Lampert has courted a number of executives to head the company in recent years, according to industry recruiters and executives contacted about the job. He has yet to find a leader to his liking and takes a heavy hand in running Sears Holdings, according to more than a half-dozen current and former executives. They report that Mr. Lampert makes all strategic decisions and regularly participates in run-of-the-mill executive meetings via videoconference from his offices in Greenwich, Conn.

"In situations where there is a control shareholder, it is critical that companies have a strong CEO at the helm," said Olayinka Fadahunsi, a spokesman for New York State Comptroller Thomas P. DiNapoli, who manages the state's Common Retirement Fund. It owned 213,759 Sears shares as of March 31. "A two-plus-year search process is much longer than outside shareholders would like." A spokesman said Mr. Lampert wouldn't comment.

Some institutional investors worry that the company's failure to settle on a permanent chief executive could affect its ability to attract and retain other executives. The company has gone through five permanent or interim chief financial officers since 2005. In addition, Richard Gerstein, the company's senior vice president for marketing, has resigned effective May 7. His predecessor, Maureen McGuire, resigned in 2008 after fewer than three years in the job.

Before being named interim CEO, Mr. Johnson oversaw Sears's store operations and was considered adept at managing supply chains—skills that Mr. Lampert lacks as a financier with no experience running a retailer.

Trained as a lawyer, Mr. Johnson spent 16 years in information-technology management at Colgate-Palmolive Co. before moving to French retail giant Carrefour SA in 1998.

Colleagues said he relishes the challenge of turning around Sears's storied brand and takes home briefcases bursting with documents every evening. He returns to work between six and 6:30 every morning, and runs and lifts weights with rank-and-file employees at a ground-level exercise facility that overlooks a pond filled with swans.

"He's just like a good soldier. When he's told to go left, he goes left," a Johnson acquaintance observed. "He's doing everything he can to make it successful."

There have been cases of company founders or board chairmen serving as interim chiefs for long periods. Apple Inc. CEO Steve Jobs retook the helm of the company he co-founded on a temporary basis in 1997 before declaring in 2000 that he was staying on for good.

Eleanor Bloxham, the head of Corporate Governance Alliance, a Columbus, Ohio, consultancy, said the Sears interim-CEO situation sends "a very confused signal both internally and externally" about the company's direction and ultimately shows disrespect for Mr. Johnson.

"No one should have to be a stand-in for 2.5 years," Ms. Bloxham said in an email.

Sears marketing chief Richard Gerstein resigns
Senior vice president of marketing will be leaving company May 7
By Sandra M. Jones, reporter  - Chicago Tribune
April 30, 2010

Sears Holdings Corp. is in search of a marketing chief, again.

The company's senior vice president of marketing, Richard Gerstein, resigned this week, the Tribune has learned. Gerstein is the second top marketing officer to leave the operator of Sears and Kmart stores since investor Edward Lampert took control of the company five years ago.

Gerstein was hired as chief marketing officer for the Sears Roebuck division in July 2007 and was promoted to senior vice president of marketing for the combined companies a year later, when then-chief marketing officer Maureen McGuire resigned.

Gerstein's last day will be May 7, said Kimberly Freely, a Sears spokeswoman.

Under Gerstein's tenure, Sears ran a corporate ad campaign called "Life. Well Spent" and bolstered its core appliance business with "Sears Blue Crew," a blue-shirted team of delivery and repair workers that appeared in TV commercials. Gerstein joined Sears after a career in consumer products marketing, most recently as global chief marketing officer at Alberto-Culver Beauty and before that in various marketing posts at Procter & Gamble Co.

McGuire held the chief marketing officer post from 2005 to 2008, after a 30-year career at IBM Corp. Sears hasn't had an executive with the CMO title since McGuire left.

Scott Freidheim, executive vice president of the operating and support businesses units, will lead the marketing unit until a permanent replacement is named, Freely said.

Sears has been operating without a permanent CEO since February 2008, when Lampert — Sears' chairman and majority shareholder — named former supply chain and operations executive W. Bruce Johnson interim CEO and president.

Separately, Moody's Investors Service on Thursday raised the outlook on Sears' long-term debt to "positive," from "stable," reflecting in part the "good performance" at Sears Canada Inc. and Kmart and the recent steps to "monetize the value of Sears' proprietary brands" by selling Craftsman and DieHard products outside of Sears stores.

Last week, Sears moved a step closer to taking Sears Canada private when it agreed to buy Pershing Square Capital Management LP's 17 percent stake in the Canadian company. The purchase, valued at $550 million, brings Sears' stake to just over 90 percent. In 2006, Pershing Square, the hedge fund owned by activist investor William Ackman, thwarted Sears Holdings' attempt to buy the then 46 percent of Sears Canada it didn't already own, saying the bid was too low. Sears' current offer of $30 Canadian per share is more than two-thirds higher than its 2006 bid.

Sears Canada accounts for $1.3 billion of the total $1.7 billion in cash Sears Holdings had as of Jan. 30, according to Sears' annual report filed last month.

Kmart, for its part, saw its sales at stores open at least one year, a key retail metric, climb 3.2 percent in the fiscal first quarter through April 21, the company said last week. Same-store sales at U.S. Sears locations in the same time frame rose 0.3 percent. Sears' quarter ends May 1.

Sears holds its annual shareholder meeting Tuesday at its Hoffman Estates headquarters. The event marks one of the rare occasions Lampert speaks publicly to investors.

H-P Brings in Sears Marketer
By Justin Scheck and Miguel Bustillo
Dow Jones Newswires
April 30, 2010

Hewlett-Packard Co. said Friday it has hired Richard Gerstein, the former senior vice president of marketing for Sears Holdings Corp.

Mr. Gerstein, who resigned from Sears this week, helped engineer the retailer's "Life.Well Spent" marketing campaign. He is expected to take a leadership role in H-P's personal-computer marketing, people familiar with the matter said.

H-P, the world's largest PC maker by volume, has promoted its consumer PC business with a high-profile marketing campaign involving celebrity pitchmen and advertisements on billboards and TV with the slogan "The computer is personal again."

In recent weeks, two key marketing executives, Satjiv Chahil and David Roman, have left H-P's PC division and the company has been seeking replacements. The company said Mr. Gerstein succeeds Mr. Chahil.

Sears Outlet Announces the First Sears Fashion Outlet at the Discovery Mills Mall in Lawrenceville, GA
Apparel marked 60-80% off the retail price.
Sears News Release
April 30, 2010

 HOFFMAN ESTATES, Ill., April 30 /PRNewswire-FirstCall/ -- Sears Holdings today announced the opening of the first Sears fashion outlet at the Discovery Mills Mall in Lawrenceville, GA.

The fashion outlet will carry end-of-season, discontinued, and overstock apparel merchandise from both Sears and Kmart stores in our women's, men's, kids, shoes and accessories product categories as well as home fashions merchandise such as small kitchen appliances, bedding and bath items at 60-80% off the retail price.

"Sears' first Fashion Outlet provides a great format for shoppers to buy many of our name brands like Lands' End, Dockers, Apostrophe, Country Living and Cannon at bargain hunter prices," said Jamie Brooks, vice president and president, Sears Outlet. "We wanted to bring great customer service and even bigger bargains to our apparel customers with an outlet dedicated entirely to fashion and home and thought the Discovery Mills Mall was the perfect location."

The Sears Fashion Outlet is over 30,000 square feet and will open to the public on April 30th with a Grand Opening celebration on May 15th. Grand Opening sales include $4 Classic Element Shirts and $7 Men's Shorts. Saturday Doorbusters feature a $17.99 (Reg. $59.99) #98020 Mr. Coffee Elume 12 Cup Coffee Maker and a $5.99 (Reg. $19.99) #96540 Continental 2-Slice Toaster, just to name a few.

The Sears Fashion Outlet will receive new shipments of merchandise throughout the week and prices are continually marked down so shoppers are encouraged to check back often.

Sears' top marketing officer Gerstein resigns
By Sandra M. Jones - Chicago Tribune
April 29, 2010

Richard Gerstein, Sears Holdings Corp.'s senior vice president of marketing, resigned Thursday, the Tribune has learned. Gerstein is the second top marketing officer to leave the operator of Sears and Kmart stores since investor Edward Lampert took control of the company five years ago.

Gerstein was hired as chief marketing officer for the Sears Roebuck division in July 2007, and was promoted to senior vice president of marketing for the combined companies a year later, when then-chief marketing officer Maureen McGuire resigned.

Gerstein's last day will be May 7, said Kimberly Freely, a spokeswoman for the Hoffman Estates-based company.

Under Gerstein's tenure, Sears ran a corporate ad campaign called "Life. Well Spent" and bolstered its core appliance business with the "Sears Blue Crew," a blue-shirted team of delivery and repair workers that appeared in TV commercials. Gerstein joined Sears after a career in consumer products marketing, most recently as global chief marketing officer at Alberto Culver Beauty.

McGuire held the CMO post from 2005 to 2008, after a 30-year career at IBM Corp. Sears hasn't had an executive with the CMO title since McGuire left.

Scott Freidheim, executive vice president of the operating and support businesses units, will lead the marketing unit until a permanent replacement is named, Freely said.

Sears has been operating without a permanent CEO since February 2008, when Lampert named supply chain executive W. Bruce Johnson interim CEO and president.

Moody's Lifts Sears' Ratings Outlook To Positive
Dow Jones Newswires
April 29, 2010

Moody's Investors Service lifted its outlook on Sears Holdings Corp. (SHLD) to positive as the retailer delivered strong sales from some sectors and improved margins.

The ratings agency said the outlook change reflects the stellar performance from Sears Canada and Kmart franchises, as well as the positive business trend Moody's sees in the retail markets.

Moody's said the recent effort by Sears to market its brands can also improve profit margins. The retailer's recognized Kenmore and Craftsman brands have helped offset general soft demand.

Moody's has Sears at Ba2, two steps into junk territory. An upgrade could take place if operating margins increase "meaningfully."

In February, Standard & Poor's Ratings Services raised Sears' outlook to stable on its strong fiscal fourth-quarter results. Sears earlier this month projected first-quarter earnings above analysts' expectations on continued sales growth at Kmart.

Shares are up 4.5% at $124.50 in recent trading amid a broad market rally. The stock has more than doubled in the past year.

Allstate Swings To 1Q Profit But Core Earnings Disappoint
Dow Jones Newswires
April 28, 2010

Allstate Corp. (ALL) swung to a first-quarter profit after large investment losses a year earlier, but the insurer's core results fell more than analysts expected. The nation's biggest publicly traded personal-lines insurer reported catastrophe losses jumped 26% to $648 million. Lately, the company had been holding back in its homeowners' insurance unit to lower exposure to catastrophes.

Other catastrophe-prone insurers have taken big hits in the first quarter because of disasters such as storms on the U.S. East Coast, a large earthquake in Chile and damaging windstorms in Europe. The latest period of soaring catastrophe losses follows a period of strengthening for insurers due to a rally in equities and little damage from weather.

Realized investment losses narrowed to $348 million from $359 million.

Allstate has been benefiting from the stock market rally buoying its investment portfolio and in turn its bottom line, while its credit write-downs simultaneously subsided.

Allstate posted a profit of $120 million, or 22 cents a share, compared with a year-earlier loss of $274 million, or 51 cents a share, which included significant investment losses. Operating earnings, which excludes investment gains or losses, fell to 69 cents from 84 cents.

Analysts surveyed by Thomson Reuters predicted 79 cents. Revenue decreased 1.7% to $7.75 billion.

Auto premiums written increased 1.1%, while homeowners' premiums written grew 1.5%.

The property and liability segment's combined ratio--the percentage of each dollar collected in premiums that the company pays out as losses or expenses--rose to 98.9% from 96.8%.

Allstate shares closed Wednesday at $33.77 and weren't moving after hours. The stock has risen 52% in the last year, outperforming the broader market's growth.

By Erik Holm and Joan E. Solsman Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Allstate Corp. (ALL) missed analyst estimates after recording larger-than-expected disaster costs from the wind and snowstorms that struck the East Coast in the first quarter.

The nation's biggest publicly traded home and auto insurer said catastrophe costs jumped 26% to $648 million, making it the second-worst first quarter for disaster claims in the insurer's history.

The company has stepped up efforts to raise prices and pare back the number of houses it covers in some states in an effort to turn a profit in its homeowners business. But extreme weather again foiled the effort in the first quarter after record tornadoes cost the company in the first three months of 2009.

On one level, the strategy shows signs that it's starting to pay off: premium revenue from the home-insurance business rose 1.5% even as the number of policyholders fell. But for every dollar it collected from customers, it spent $1.11 on claims and expenses.

"The homeowner's profitability in the first quarter continued to be below what's necessary for us to get an adequate return," Chief Executive Officer Tom Wilson said in an interview. "Even if it had been a normal quarter for weather, I still wouldn't have been happy with the results."

Other insurers around the world have also taken big hits in the first quarter because of the storms on the U.S. East Coast, a large earthquake in Chile and damaging windstorms in Europe. The latest period of soaring catastrophe losses follows a period of strengthening for insurers due to a rally in equities and little damage from weather.

Realized investment losses narrowed to $348 million from $359 million, with the latest losses coming largely from writedowns on its earlier investments in commercial and residential real estate.

Allstate posted a profit of $120 million, or 22 cents a share, compared with a year-earlier loss of $274 million, or 51 cents a share, which included significant investment losses. Operating earnings, which exclude some investment results, fell to 69 cents from 84 cents.

Analysts surveyed by Thomson Reuters predicted 79 cents.

Allstate shares closed Wednesday at $33.77 and weren't moving after hours. The stock has risen 52% in the last year, outperforming the broader market's growth.

Wal-Mart Thinks Smaller
Big-Box Giant Considers Opening Outposts
to Counter No-Frills Grocery Chains
By Miguel Bustillo and Timothy W. Martin - Wall Street Journal
April 28, 2010

Wal-Mart Stores Inc. became the largest retailer by building sprawling stores in suburbs and rural towns. But now it is exploring opening a number of small outposts to penetrate the nation's cities and fight the spread of no-frills grocery chains, which are luring away some of its core customers.

Wal-Mart declined to discuss the details or timing of its new strategy, but Chief Executive Mike Duke stated in the introduction to the company's annual report last week that U.S. growth will be fueled by "innovative new formats."

It is one of several recent statements by Wal-Mart declaring that its U.S. expansion will center less on its warehouse-sized Supercenters and more on far smaller urban stores, as well as condensed locations where consumers can pick up merchandise they order online.

Wal-Mart has markedly slowed its openings of U.S. Supercenters in recent years—from 132 in 2007 to just 49 in 2009, leaving it with about 2,747. Some analysts believe it is running out of ideal places to build the gigantic outlets.

Bill Simon, chief operating officer of Wal-Mart's U.S. business, told investors at a conference last month the company was focusing on reaching customers in large metropolitan areas with "more-efficient formats." He pointed to smaller prototype Wal-Marts that feature drive-through lanes where customers can pick up online purchases.

Wal-Mart already operates some smaller formats, including 152 Neighborhood Markets, which are grocery-focused stores in small towns and suburbs. But they are relatively large at about 42,000 square feet. The company also has tested Marketside, a smaller concept that has grown to only four stores after disappointing early performance, and Supermercado de Wal-Mart, targeting Hispanic customers that got good early buzz in Houston and Phoenix.

People familiar with the company's thinking also point south to Mexico, where Wal-Mart became that nation's largest merchant by operating seven store formats catering to shoppers across the socioeconomic spectrum,, most of which are smaller than its U.S. Supercenters. The head of Wal-Mart's U.S. operations, Eduardo Castro-Wright, formerly ran Wal-Mart de Mexico.

Wal-Mart's U.S. business, meantime, is increasingly facing competition from discount grocers, including Supervalu Inc.'s Save-A-Lot and U.S. stores of Germany's Aldi chain.

These rivals proliferated during the downturn, luring cash-strapped Americans to relatively small, nondescript locations that offer simplified selections of staples such as milk and canned vegetables at cut-rate prices.

Supervalu CEO Craig Herkert, who formerly headed Wal-Mart's Latin American operations, plans to double the number of Save-A-Lots to 2,400 from 1,197 in the next five years.

Aldi Inc., whose U.S. operations are based in Batavia, Ill., has opened 83 U.S. stores in the past 12 months and recently rolled into Texas. It plans to add 72 more by the end of this year, augmenting its current store total of 1,084 in 31 states.

Retail experts disagree over whether these discounters pose a big threat to Wal-Mart, the nation's largest seller of groceries.

But their rise comes at a tough time for the big-box giant, which has reported three straight quarters of sluggish U.S. sales. In response, it has lowered prices on many products this month.

While Wal-Mart generally benefited from consumers trading down in the bad economy, shunning supermarket chains and department stores in search of bargains, some of the company's core clientele moved further down the retail ladder to discount grocers—and liked what they found.

Trina Fleming, a data-entry worker who lives in University Park, Mo., said she used to buy the bulk of her groceries at Wal-Mart. Now she stocks up at a Save-A-Lot in nearby Overland, and estimates she is saving $40 a month on items such as meat and yogurt.

"If I don't have that much money I come to Save-A-Lot—it's cheaper here," said Ms. Fleming, 37 years old.

A typical Save-A-Lot stocks just 1,800 items, 5% of a supermarket's total. Roughly 80% are private-label products, and they are displayed on shelves in the cardboard boxes they arrived in to save labor costs.

"A typical grocer carries 100 types of mustard," said Save-A-Lot President Bill Shaner. "We have just brown and yellow."

Aldi stores carry 1,400 items, 95% of them private label. Though Aldi still offers an austere shopping experience, it has added fresh meat instead of just frozen, augmented its produce section and added healthy items to broaden its appeal.

Wal-Mart declined to discuss its competitors, but it is well aware of the threat they present. It pulled out of Germany in 2006 after struggling to compete with Aldi and other discounters.

"Aldi literally ran Wal-Mart out of continental Europe, and now they're taking the fight to Wal-Mart in the U.S.," said retail consultant Burt Flickinger of Strategic Resource Group.

Some experts believe the bargain grocers are overexpanding, and could struggle as shoppers feel the urge to return to Wal-Mart and supermarkets for familiar brand names.

"While the challenge for Wal-Mart will be retaining the new customers they gained in the recession, that challenge will be even tougher for Aldi and the other hard discounters," said Gary Stibel of New England Consulting Group, which previously advised Wal-Mart.

Sears Is Following The Failed Montgomery Ward Strategy
Gerson Lehrman Group
April 27, 2010

Analysis by: Kenneth Leonard
Analysis of: Sears Web Site Sells Shuttered Stores Published at: www.foxbusiness.com

Summary

This article from the Fox News network is a good example of what I have been predicting in this GLG "Blog" for the past two years. In retailing as in many other industries, certain companies are virtual "identical twins" simply because they do things in the same manner and appeal to the same customer at the same price points with indistinguishable products. That is the case with Sears and Montgomery Wards.

Analysis

In my opinion, the fact that Sears is trying to sell their stores on line is not the most interesting new strategy brought out in this article. I believe that the announcement of their new "Store-Within- A-Store" (SWS) program is more indicative of how desperate Mr. Lampert is to try to extract value from his under performing stores.

I also believe the SWS program will fail miserably for several reasons. Most importantly is the simple fact that the cost of remodeling and rearranging the Sears merchandise layout will prove to be far more costly than anyone has estimated.

I was in charge of implementing an identical program while serving as V.P. of Real Estate for Montgomery Wards in the late 1980's a few years prior to their final demise. Not only was the renovation costs far higher than anyone anticipated but each new leased space set off a turf war between the operating and merchandising people who were having their sales area reduced and relocated. This frequently set off a "domino effect" throughout the store that had an adverse impact on morale and sales.

Additionally, the new leased departments tend to be selling items that are in competition with existing departments or selling items that Sears has previously determined were not worth the investment of floor space and sales help such as a dedicated camera department.

The program is destined for failure as I can attest, even though I was successful at leasing out over 500,000 square feet of leased departments including 8 entire Toys "R" Us stores which took over the majority of prime first floor selling space and hastened the decline in store sales for the remaining departments.

Lawyers Weigh Strategy After Ruling
By Nathan Koppel and Ashby Jones - Wall Street Journal
April 27, 2010

It's too early to know how lawyers will maneuver in the Wal-Mart Stores Inc. case following a Ninth Circuit court ruling Monday that brings the plaintiffs one step closer to trial.

In class-action lawsuits, both the company being sued and the plaintiffs making the complaint have an incentive to reach a settlement before the case goes to trial, experts say, because juries are so unpredictable—sometimes awarding plaintiffs big sums and sometimes nothing.

The retailer, which faces one of the biggest class-action lawsuits in history, is defended by Gibson Dunn & Crutcher LLP, one of the country's leading corporate firms. Theodore Boutrous, a partner at the firm, said the company was focused now on a Supreme Court appeal rather than on a settlement.

"We feel the majority's ruling conflicts with not only Supreme Court precedent, but the law of several other circuits," Mr. Boutrous said. He said talks of settlement were "premature."

In a conference call Monday Mr. Boutrous said that although Wal-Mart is fighting for itself, it believes this case is important for other corporations and could expose Wal-Mart to large class actions and inflated damages if it became a legal precedent.

Brad Seligman, a plaintiffs' attorney helping to represent the more than one million alleged victims of discrimination by Wal-Mart, said he would be "happy to talk settlement."

But Mr. Seligman, executive director of the Impact Fund, a public-interest litigation organization that funds complex litigation, declined to say if there were any negotiations.

A key issue concerns punitive damages, or the penalties that defendants sometimes must pay above any recoveries for actual injuries. The court left it to the trial judge to decide whether the plaintiffs can seek punitive damages on class-wide basis or whether they must they pursue such damages individually.

But the punitive-damage issue likely will have to wait a Supreme Court appeal, said Joseph Sellers, the co-counsel for the plaintiffs and a partner with Cohen Milstein Sellers & Toll in Washington D.C. He estimated the court would not decide until the fall whether to hear the case.

If the ruling by the Ninth Circuit stands, Wal-Mart faces potentially significant litigation costs, said Lawrence Lorber, a Washington, D.C. defense attorney not involved in the case.

Ahead of any trial, Mr. Seligman said, the plaintiffs would ask Wal-Mart to produce evidence related to "pay and promotions and all the factors that might be relevant to that, such as seniority, performance ratings, and the store location" where the plaintiffs worked.

The lower-court judge has delayed evidence-gathering in the case for five years while the case has wound its way through the appellate courts.

"There could be multiple hundreds of thousands of emails and data related to hiring decisions that Wal-Mart may now to have to produce," Mr. Lorber said, who has defended employment class actions.

Other costs, he said, include flying around the country to conduct depositions of workers and store managers. "Class actions are enormously expensive to defend," he said.

Bias Suit Advances Against Wal-Mart
By Ann Zimmerman and Nathan Koppel - Wall Street Journal
April 27, 2010

A federal appeals court ruled Monday that a gender discrimination lawsuit against Wal-Mart Stores Inc. can go forward as a class-action case, in one of the biggest class-action lawsuits in history.

The 9th Circuit Court of Appeals in San Francisco voted 6-5 to affirm a federal judge's decision to award class-action status to potentially one million women or more.

The ruling increases the pressure on Wal-Mart to either settle claims of unfair pay brought by the women or risk going to trial.

The decision represents a serious blow to Wal-Mart, the nation's largest corporate employer, as a denial of class-action status would have forced the women to pursue their cases individually. Fewer women would likely proceed in that event, due to high legal expenses.

Wal-Mart's defense attorney said the company plans to appeal to the Supreme Court.

"We disagree with the decision of the sharply divided 6-5 court to uphold portions of the certification order, and are considering our options," Wal-Mart said in a statement.

Large class-action lawsuits aggregate many claimants with similar experiences into one action as opposed to presenting each one on its merits.

As a result, individuals with relatively small sums at stake, as in this case, have an incentive to participate in the lawsuit.

"It's generally understood that without a class action, most of the cases will go away," said Brian Wolfman, a professor at Georgetown University Law Center, who also represents plaintiffs in class-action litigation.

"When you are dealing with large companies with large resources, the only way for a plaintiff to be on the same battlefield is to aggregate claims as a class action."

In March, Wal-Mart announced a settlement on a much smaller class-action discrimination case, brought by the Equal Employment Opportunity Commission in 2001 over alleged discriminatory hiring practices at the Wal-Mart Distribution Center in London, Kentucky, from 1998 to February 2005.

The commission alleged that Wal-Mart routinely hired men over equally or better qualified women at the facility. Wal-Mart settled for about $12 million and agreed to improve its hiring and training practices at the center.

On Monday, Wal-Mart said in statement that it is proud of the strides it has made to advance and support women workers. In recent years,

Wal-Mart also has made efforts to rectify problems that led to countless workers in numerous states filing suit claiming that they were forced to work through breaks without being paid.

In Monday's ruling on the much larger case, called Dukes v. Wal-Mart, the court did modify some aspects of the trial judge's ruling.

Specifically, the court said that women who left Wal-Mart before the original suit was filed in June 2001 shouldn't be considered part of the class, but left it up to a trial judge to consider whether to certify their claims under a different legal standard.

Additionally, the appeals court ruled that the trial judge must use new legal standards in considering whether the women could pursue punitive damages.

Companies facing class-action lawsuits—which could involve potentially thousands of alleged victims—almost always settle. Wal-Mart has an incentive to avoid putting such a case in front of a jury, which are unpredictable.

"This really puts pressure on Wal-Mart to settle," said Alan Morrison, a professor at George Washington University Law School, who specializes in public-interest litigation.

"We've seen no indication that Wal-Mart is interested in settling," said Joseph Sellers, a lawyer at Cohen, Milstein, Hausfeld & Toll who is one of the plaintiffs lawyers in the case.

The plaintiffs also have an incentive to reach an agreement before any trial. They and their attorneys generally want as much money as they can get, but going to trial risks getting nothing.

Some of the damage models applied to the case put Wal-Mart's potential liability at a minimum of $1 billion, according to Mr. Sellers.

"That claim is extremely premature and speculative at this early point in the procedure," said Theodore Boutrous, of Gibson, Dunn & Crutcher, who represents Wal-Mart. "We think the current opinion provides ample grounds for an appeal to the Supreme Court," said Mr. Boutrous.

The initial suit was filed in June 2001 by six former and current female hourly workers and managers who accused the world's largest retailer of systematically denying women workers equal pay and opportunities for promotion.

For example, the women said they made less than men doing the same jobs, although they had equal or less experience.

Others said men who had been at the company less time were promoted into manager positions they were denied.

When Betty Dukes, the named plaintiff in the case heard today's news, she said she screamed.

"It's been a long tedious wait," said Ms. Dukes, who has worked as a cashier, customer service manager and greeter at a Wal-Mart in Pittsburg, Calif., since 1994. "We are determined to have our day in court and this is a step in the right direction."

In June 2004, Federal Judge Martin Jenkins of San Francisco granted the case class status. A three-member panel of the Ninth Circuit upheld the trial judge's ruling, and Wal-Mart appealed to have the case heard by the entire 11-member court. That hearing was held in March 2009.

If the case goes to trial, it will be heard by Vaughn Walker, chief judge of the Chief Judge of the U.S. District Court for the Northern District of California.

Mr. Wolfman, the Georgetown professor, said Wal-Mart has 90 days to appeal the ruling to the Supreme Court, but it is far from certain the court will take up the case. "The Supreme Court takes up only about 5% of all cases that come to it," he said.

Some legal observers believe the case is ripe for Supreme Court review, because circuit courts are divided on the legal question of when cases are too big to be brought as class actions.

"Every federal court that faces one of these gigantic classes will likely wait for the Supreme Court to address whether or not [the Wal-Mart case] is an appropriate class action," said Lawrence Lorber, a Washington defense attorney who isn't involved in the case. Parties are likelier to try to settle cases in the wake of a class-action ruling, because they have a better idea of potential damages, said Mr. Wolfman.

In December 2008, Wal-Mart agreed to pay up to $640 million to settle 63 state class-action over-time lawsuits, ending years of legal battles over its treatment of workers.

—Miguel Bustillo contributed to this article.

ObamaCare Mulligan
Review & Outlook - The Wall Street Journal
April 26, 2010

About those lower insurance costs we promised…
When President Obama signed his health-care reform last month, he declared it will "lower costs for families and for businesses and for the federal government." So why, barely a month later, are Democrats scrambling to pass a new bill that would impose price controls on insurance?

In now-they-tell-us hearings on Tuesday, the Senate health committee debated a bill that would give states the power to reject premium increases that state regulators determine are "unreasonable." The White House proposed this just before the final Obama- Care scramble, but it couldn't be included because it violated the procedural rules that Democrats abused to pass the bill.

Some 27 states currently have some form