Penney CEO Says Profit Won't Suffer
By Karen Talley
Wall Street Journal
January 27, 2012

J.C. Penney Co. will handle its more than $1 billion transformation without borrowing and sees its earnings next year standing up to the upheaval, executives at the retailer said Thursday.

The company will fund the transformation with cash flow from operations, said Chief Executive Ron Johnson at the second day of a two-day analyst meeting. Investors were cheered as Penney vowed that 2012 earnings will meet or exceed those of 2010, which were $2.16 a share on an adjusted basis, or $1.59 on a Generally Accepted Accounting Principles reporting basis. The retailer's shares were up 17% midday on Thursday morning to about $40.14.

J.C. Penney expects to spend $800 million this year as it begins the transformation. The retailer will spend $80 million a month on its promotional marketing.

The Penney transformation includes, among other things, a new pricing strategy that brings a halt to nonstop markdowns from artificially inflated prices, putting in its place an everyday low price plan with only occasional special promotions. The changes also involve a rearrangement of the selling space, opening up an area for entertainment and a place where customers can hang out, and building scores of "stores within a store" to better highlight and focus the merchandise.

"We are fundamentally reimagining every aspect of our business and we fully expect the bold and strategic changes we are making to our operations will result in improved profitability," Mr. Johnson said. "This should enable us to fund the transformation of J.C. Penney's store experience, while at the same time returning value to shareholders with steady earnings growth.

Mr. Johnson joined Penney only a few months ago. He formerly worked at Apple Inc., where he was credited with Apple stores' sleek appearance.

Still, J.C. Penney is adopting some caution, dropping quarterly sales or earnings guidance, and no longer reporting monthly same-store sales results.

The company said it is targeting $900 million in expense cuts to be completed over the first two years of its transformation, ultimately lowering expenses below 30% of sales in two years.

While executives from J.C. Penney steered clear of discussing head count, there may be some shaving of the ranks. Chief Operating Officer Michael Kramer said there are "savings here" when it comes to simplifying the management structure at the retailer's Plano, Texas, headquarters, where there are 5,900 employees.

In addition, there likely won't be a need for as many store clerks changing price tags constantly for promotions, as one-day sales will be sharply curtailed.

The retailer will adopt three pricing tiers: everyday prices, monthlong values, and best prices, or clearance on the first and third Fridays of the month. The approach is a marked departure from the current percent-off, coupon, and limited-time promotions pervasive among department stores.

"The moves by J.C. Penney could help reinvigorate the mid-tier department stores," said Edward Yruma, retail analyst at KeyBanc Capital Markets.

Ultimately, though, "it is all subject to the economy and consumer spending trends," Carol Levenson, director of research at Gimme Credit, said.

Renovation Work: Building a Case for Home Depot and Lowe's
By Justin Lahart
Wall Street Journal
January 27, 2012

The only thing not to like about Home Depot and Lowe's may be the high price of their shares. And even that may not be a good reason for investors to avoid them.

After years spent slogging through the aftermath of the housing bust, it looks as though the two big home-improvement retailers may finally be on firmer ground. The uptick in new home construction, and the improvement in home builders' moods, suggests better sales of building materials could be in the offing. An improving real-estate market should also reinvigorate sales of appliances.

But hopes of a revival have sent housing stocks of all stripes higher lately, and Home Depot and Lowe's valuations are looking rich as a result. Home Depot shares are up 58% from the low it logged during the stock-market selloff in August and now trade at about 19 times the past year's earnings. That matches the earnings multiple Home Depot carried in January 2005, when the housing bubble was in full swing. Lowe's shares, up 46%, also trade at 19 times earnings, compared to a lofty 22 times in early 2005.

Better times for the companies don't depend solely on housing doing better. Americans have been spending more on sprucing up their homes lately: In the three months ended in November, home-improvement spending was 4.3% higher than a year before, according to the Census Department. The moribund state of many of the foreclosed-upon homes now on the market augurs a further pickup in renovation work this year.

The companies should also see a pickup in sales of big-ticket items, thanks to increased credit availability and an improving job market—and the fact that Sears Holdings, country's biggest seller of household appliances, is on the rope.

Home Depot shares now trade at the earnings multiple they carried when the housing bubble was in full swing.

Home Depot had $3.5 billion in appliance sales in 2010, according to This Week in Consumer Electronics, which amounted to about 5% of revenue. At Lowe's, the $5.4 billion in appliance sales accounted for 11% of its total take. With $7.5 billion in appliance sales, Sears trumped them both, but amid store closings and questions about its viability, some of its customers could migrate.

Any improvement in sales could quickly drop through the home-improvement retailers' bottom lines. Home Depot has for several years been focusing efforts on boosting store productivity, and Lowe's has lately gotten religion on that front, too.

There will be wobbles if uncertainty rises, as it almost certainly will, over the tractability of a housing recovery. The hot money will flow out of the stocks. But that should be treated as an opportunity to get in the door.

Penney CEO Brings 'Reality Distortion Field' From Apple
By George Anderson
Retail Wire
January 26, 2012

Current J.C. Penney CEO Ron Johnson must have spent a lot of time with Steve Jobs when he was at Apple because it appears as though he too has the power to create a "reality distortion field." The question is whether he has the same ability to make everyone around him believe and then create results that match his grand vision. With yesterday's announcement of J.C. Penney's "transformation" plan, customers, employees, vendors, competitors and others will get to find out.

"Just like Apple, we're going to learn that the best days aren't in the rear-view mirror, they're right down the road," Mr. Johnson told Advertising Age. "I believe the department store is the No. 1 opportunity in American retail. And this isn't something I decided last June when I took the job. This is something I decided 10, 15 years ago."

Mr. Johnson outlined three key initiatives to remake the department store chain including "fair and square pricing," "Main Street merchandising" and new marketing initiatives.

"Pricing is actually a pretty simple and straightforward thing," Mr. Johnson told The Associated Press. "Customers will not pay literally a penny more than the true value of the product."

According to Mr. Johnson, the majority of Penney customers have only been buying items when on sale so the perceived real value of the goods sold is much lower than the chain's everyday retail. With the new initiative, Penney's sale prices, typically about 40 percent lower, will become the everyday price on goods throughout the store.

To keep things simple, Penney will also reduce the number of promotions it runs. Mr. Johnson noted that Penney ran 590 separate sales last year even though the average customer shopped the chain only four times a year.

"I thought to myself, 'This is desperation,'" Mr. Johnson told The Wall Street Journal.

Now, Penney will run only two types of special discount events: Month-Long Values, and Best Prices, which always happen on the first and third Fridays of every month to make room for new items.

"We want customers to shop on their terms, not ours. By setting our store monthly and maintaining our best prices for an entire month, we feel confident that customers will love shopping when it is convenient for them, rather than when it is expedient for us," Mr. Johnson said in a statement.

Penney is also set on "reinventing the in-store experience" and to achieve that the company is launching its Main Street initiative with the entire store merchandised in a series of 80 to 100 brand shops such as the deal recently announced with Martha Stewart.

"Some may call it crazy, but I don't think there is an alternative," Mr. Johnson was quoted by the Journal. "In an internet age where you can have exactly what you want with one keyword, people won't tolerate big stores. You have to break it down for them."

The chain will also feature its Town Square section at the center of the store offering services that "customers will enjoy before they buy, while they shop and afterwards." The section, which will be at least 10,000 square feet will offer rotating attractions such as free hair cuts one month or free food in another. Penney said the Town Square "will merge the physical and digital worlds, assuring the physical retail stores' vital role as the centerpiece of retailing's future."

Finally, Penney introduced a new red, white and blue logo and its new spokesperson, Ellen DeGeneres.

Michael Francis, president of J.C. Penney, said in a statement, "We are redefining the J.C. Penney brand so we become a store for all Americans, by offering an experience they cannot get anywhere else."

Discussion Questions: What do you think is the most exciting aspect of the plan to turn J.C. Penney around? What if anything leaves you underwhelmed? Will the plan make Penney into "a store for all Americans?

Comments:

Our research has shown for a long time that a) retailers continue to increase the number of price changes sent to stores and b) they truly have no idea of the impact of these price changes. Someone finally did the math. I am really excited to see a reduction in the number of promotions. I think it's also true that consumers don't like to shop in "big boxes," but I'm not sure that stores-within-a-store will have legs. Still, it's the most exciting thing to watch in retail since, well...since the Apple stores. -- Paula Rosenblum, Managing Partner, RSR Research

The changes around pricing, promotions, and personality all seem good for JCP. We know it's tough to compete on pricing and promotions these days, so the personality changes are what will determine success. The Main Street and Town Square concepts sound intriguing, so I can't wait to eventually visit a new store. If Wall Street allows for the full four-year transformation, I predict success. -- David Dorf, Sr. Director of Technology Strategy, Oracle Retail

The new pricing strategy at JCPenney is a bold experiment, and time will tell whether it will cause JCP to gain or lose market share. (It's certainly a "statement" about brand differentiation.) I do wonder how the re-pricing affects national brands with broad distribution and "suggested retails"...everyone from Cuisinart to Nike to Seiko. But I often find that retailers should address issues of merchandising and the store experience before (not after) dealing with branding and other marketing issues. JCP is tackling its brand position first, perhaps because it was the easiest to get done right away. Mr. Johnson drew several parallels to the Apple "narrative" during his presentation yesterday, and many skeptics have pointed out the differences. (The Apple Store sells a narrow assortment from a single brand with a "cool factor" drawing crowds to new product introductions.) As JCP evolves its merchandising and store experience -- on a rather slow timetable -- it would be smart to infuse the sort of excitement surrounding short-duration promotions that has driven traffic to retailers like Target and H&M. -- Richard Seesel, Principal, Retailing In Focus LLC

You have to give Ron Johnson high marks for his Apple-esque boldness. He essentially is turning Penney into a whole new concept. This is understandable for soeone who was running a chain of stores with average sales per square foot of over $2700. There was not much there you could do without success. What puzzles me is his haste. This is not a new channel. It has a long history and is continually evolving. It has daunting competition. Penney specifically has lots of baggage. Will these changes work? Maybe. Will they work exactly as he and his advisers think? Unlikely. Why would you make changes on a scale this dramatic without testing them in a couple of markets and then adapting empirically? -- Bill Emerson, President, Emerson Advisors

First of all there isn't -- and maybe shouldn't be -- a, "store for all Americans." If you are trying to be something to everybody you probably aren't being enough to anybody. The Town Square idea is the most interesting idea in the article, in large part because it is the most unconventional. And here -- contrary to my usual position -- I'm not necessarily associating unconventional with good. I've done a ton of pricing research over the past decade so the move to EDLP -- or rather a modified EDLP with fair and honest pricing at its core -- is one I would have recommended. Ditto for decreasing the number of promotions. Johnson is dead right, excessive promotions and promiscuous promotion don't do anything except erode margins, confuse shoppers and, in the end, drive business out the door to retailers with more easily understood pricing models. As for the Main Street initiative I guess it all depends on what "shops" are featured. And there's the bottom line. The Devil, as always, is in the details. Unless somebody has a crystal ball out there, at this point nobody can say whether or not Johnson's plan will work. That said, I'll go out on a very thick limb and note if he doesn't do something drastic he is certain to lose. Oh ... as for the new logo ... it always amazes me that companies that are in financial trouble always seem to have enough free cash lying about in the file cabinets to invest in new logos and/or rebranding activities. Maybe Johnson should ask Gap how well that pays off. -- Ryan Mathews, Founder, ceo, Black Monk Consulting

Hats off to Mr. Johnson and JCPenney for thinking big! Unless retailers start coming to terms with the fundamental shift of their relevancy in this digitally empowered shopper world and having the commitment to make changes, they will simply become irrelevant and go out of business. There are a myriad of challenges ahead for JCPenney, but their willingness to distort their reality may be the one thing that saves them in the years ahead. The 'town square' and the 'shop-in-shop' concepts are bringing back the days of the street bazaar where the shoppers can indeed discover and be surprised and delighted by their 'finds'. Additionally, the vendor brands can control their unique brand message. This concept may open the way to a less antagonistic, and more collaborative relationship between the retailer and their brand vendors. Now that would be shift in the reality distortion field! -- Adrian Weidmann, Principal, StoreStream Metrics, LLC

I like the philosophy. But the phrase "a store for all Americans" feels off to me. It implies that Americans are a homogenous group. Nothing could be further from the truth. It appears the merchandising concept will offer choices, but the marketing concept could use a tweak to recognize and celebrate the differences of both the shoppers and the merchandising that will hopefully suit them better. The services offerings, priced right, could easily give shoppers more solutions. The watch out is that over thirty years, shoppers have abandoned many of the same services classic department stores used to offer. I hope they did some shopper homework to determine if that kind of investment might pay out. -- Anne Howe, Founder, Anne Howe Associates

I think it's all exciting. In particular The Town Square concept is a means of engaging the shopper every visit...just for a look see. I worry a wee bit about that daily low pricing will set expectations for even lower pricing. However, that part is up to the consumer. Hat's off to JCP! -- Joan Treistman, President, The Treistman Group LLC

Cutting out 529 "desperate" price promotions a year, creating a diverse sense of theater in Penney stores, and using a popular contemporary spokesperson (Ellen DeGeneres) all enhance what Penney stores will be offering tomorrow. JCPenney has come a long way from its early roots in Wyoming, but it got real tired; a bloated persona and overworked its past practices. Now, at least, it will go off on a new retail adventure and that will increase its chances for future success. But the jury is still out. -- Gene Hoffman, President/CEO, Corporate Strategies International

The Board of Directors wanted change, and they got what they asked for. I am very surprised that JCP is making this depth of change without testing first, but their management likely wasn't given the "luxury," so I am certain some depth of qualitative and quantitative study was executed. I agree that the "fresh" concept within the store is intriguing. It will create some buzz within the mall and g-d knows we haven't seen much of that in a long time. The store has a heavy commitment to private label goods and apparel. Who thinks the logo is fashion forward? Awful. I hope that as this new store concept and pricing strategy will be given time to evolve. Certainly will give us plenty of things to observe and comment on in the months to come! -- David Slavick, VP, Retail Consulting, Customer Communications Group

Love the pricing model -- but do they have the supply chain excellence to support it? Department stores have struggled for years and this is certainly a differentiated approach to turning them around. I agree with the comments about "America's stores" though. Freebies in the store don't really work for me because it's just another discount to draw people in. I'd love to see them feature local merchandise in the town square or special experiences, something that makes you want to come in and shop and see what's new. That's what the Apple store has in spades -- people just want to hang out there. Tall order for JCP but I think they could get more creative and lasting than "free haircuts." -- Lisa Bradner, CGO, Geomentum

These are certainly bold moves that will generate a lot of short-term excitement. The question is whether these are actions based on a comprehensive strategic analysis of JCP's business situation, marketplace equity and customer base, or if they are driven move by a dream to create an "Apple" in the department store space. Clearly, JCP could not continue to follow the path to obsolescence, and bold new steps were required. But I question whether JCP can easily be transformed so dramatically from discount to cool. -- Raymond D. Jones, Managing Director, Dechert-Hampe & Co.

The appearance of a radical move is exactly what JCPenney needs right now. And promoting and cultivating that perception is exactly what the retailer needs -- the exciting aspect of the plan. The approach is nothing new, it's already in practice by other retailers. The marketing and re-branding aspect of the effort will determine if JCPenney survives. -- Carlos Arámbula, Managing Partner, Arámbula-Phillips Communications, Inc.

The most exciting aspect of this turnaround is Ron Johnson's willingness to reinvent a long broken retail model. I look forward to watching this transpire over the next few years. Too many retailers, especially the supermarket channel, have buried their head in the sand and refused to disrupt their own business models. Whether of not the store becomes a store for all Americans is yet to be seen, but I think targeting the main street concept for all Americans is a good focus. This will be a very exciting transition to stay on top of -- Phil Masiello, President, VALUChain Associates

Arthur Martinez, during his tenure at Sears, tried the everyday value pricing tactic and it failed miserably because U.S. Dept stores have programmed the shopping behavior of the average American. Jordan Marsh (remember that chain?) in Florida use to run a major sale or event the third weekend of every month. And customers only frequented the stores on the third weekend of every month. The rear view mirror analogy that Mr. Johnson states seems appropriate as he is perhaps repeating history. -- John Hyman, President, Celerant Consulting LLC

I think it is the most dramatic strategy change in retailing in decades. Time will tell if it is successful, but I find it wildly appealing. I had started to see the ads before hearing the news and they immediately grabbed my attention. I think this has been executed well. -- 'karenk'

Cutting the promotions is intended to reduce consumer confusion over pricing. But, the consumer may ultimately be more confused by the change, assuming JCP's competitors continue with their aggressive promotional strategies. I think EDLP works great for supermarkets because it's a routine shopping experience for the consumer -- like a commodity. EDLP provides a convenience for pricing; the consumer doesn't need to worry about who has the best promotion this week for cereal, for example. Department stores are a more discretionary spending opportunity, where the consumer has been trained to shop promotions. Can JCP break this consumer habit? -- 'mikeb22'

Creating something new and exciting is necessary to create an attractive shopping experience. Changing the pricing strategy to an EDLP or monthly low price strategy is reasonable, but does not create an exciting shopping experience in and of itself. While the Main Street and Town Square ideas are unique, this appears to be an in-store copy of what the newer shopping malls are trying to create. The success of this idea remains to be seen -- what is in these sections? Is it attractive to consumers? How does it relate to the rest of the store? Will consumers want to shop in these sections AND the rest of the store? If the new experience is exciting and fresh, consumers will want to shop there even if the logo stays the same. If the new experience is not exciting to consumers, they will not shop there, new logo or old. And why change the logo and confuse consumers? I can not see how this helps solve JCP's problem. Is taking a shopping center concept into a department store and creating a monthly pricing strategy the solution? The proof is in the details and it remains to be seen how this idea is transformed into reality. -- Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

I perceive both pros and cons to Mr. Johnson's revamp of JCPenney. On the positive side are the simplification and sharpening of the stores' price image, and the focus on shopper experience. On the negative side, the Town Square seems like a tacit admission that its existing store footprints are simply too big. On the pro side, the Town Square might add some actual fun for shoppers. I particularly like the idea that the retailtainment will vary month to month, giving customers a non sale-related reason to stop in. On the con side, the "store for all Americans" does not seem to address the innate variation in shopper needs, wants and preferences from region to region and store to store and time to time. To plagiarize a little bit from its rival, "My JCP" should ensure that both store experience and merchandise mix are relevant. On the pro side, the company is talking big and with persuasiveness about its strategic concept. It seems to embrace change and define the benefits in shopper-centric terms. On the unbelievably con side is the "scream" commercial JCP started running last night to launch the changeover. I can't recall another ad so obnoxious and grating. It's plenty disruptive, but in such a bad way that I fear I won't be able to go near a revamped store without becoming physically ill. On the pro side, the commercial could be donated to the folks at Guantanamo for use in breaking hardened terrorists, thereby preserving American global hegemony. -- James Tenser, Principal, VSN Strategies

Like many of the other commentators, I agree that the switch to an EDLP strategy is a wise one. It will immediately reduce complexity in store ops and merchandising and will eventually retrain the behavior of the core Penney consumer. The rest of the strategy is a huge bet that Johnson is right that department store retail presents a big opportunity. The store remodel costs to create Main Streets and Town Squares may be significant enough that if the strategy fails, Penney won't have the resources or the time to recover. The current consensus is that the department store is a dying breed, so we will see if Johnson proves us all wrong. I'm also perplexed by the absence of a multi-channel strategy in these announcements. Given the strength of Apple's digital retail channel, you'd think Johnson would more strongly emphasize extending Penney's online presence. -- Martin Mehalchin, Principal, Lenati, LLC

Overall, I like the message. Consumers want an experience and clearly Mr. Johnson understands that from his years with Apple. Creating a unique Town Square theme that incorporates 80+ mini stores within the store is a great idea. This allows JCPenny to quickly change out mini stores keeping the shopping experience fresh. The idea of incorporating services like back-to-school haircuts is great. Amazon can't offer that experience. I really like the new logo and want to encourage Mr. Johnson to back it up by carrying a lot more Made in America items. Yes, they may cost more, but it creates jobs and people that have jobs shop. I truly believe there is a growing group of Americans (me included) that are searching for Made in America, American brands. With the new logo and the Town Square theme Mr. Johnson has the potential to be the destination for those brands. Made in America, by Americans for Americans Mr. Johnson is taking some really bold and exciting steps that have real potential. -- John Boccuzzi, Jr., SVP National Retail Sales, Affinion Group

Brand shops? Thumbs up. Finally, a move to differentiate the brandapalooza that is Penney's. I still think a bit of pruning is in order. Cleaning up promotions? Thumbs up. Speaking of brand, when Penney's upscale brand launches such as American Living hit the floor at 25% off, the message is clear "You're paying too much." Martha is getting in at a good time. Logo? Thumbs down. What the . . .? -- Carol Spieckerman, President, newmarketbuilders

It is not difficult to find comparable models tried in similar ways in the past to each element of the strategy articulated, and to point out that most of them failed. That said, I agree with the point of view that a revolutionary approach is needed to produce distinctly different results. Tweaking the existing model won't break the paradigm or materially change the P&L. An observation that I think bears reinforcing is the need to make the in-store changes as quickly as possible in the wake of the announcement of the intention. And to do them all together, efficiently, and with fanfare. Which is so much easier to do than it is to type. -- Don Delzell, Managing Director, Retail Advantage

Pursuant to a comment above, I remember the Sears failure. Could you re-post this in September after "Back to School" is finished? It should be evident at that time if Mr. Johnson is a visionary or a latter day Mr. Martinez. -- 'grcddisp'

There are a lot of interesting ideas here, and I suspect some will work and some won't. What will determine how successful Penney's is with this plan is how quickly they will figure out which components are working and which aren't. Take the brand shops, for example. It will be easy to tell which generate the most sales. Harder is understanding which brand stores -- by location -- actually drive incremental traffic and sales across other brand stores and the rest of the store. That will be the key to creating a coherent store offering. JCP has plenty of work ahead to make those calls the right way, but done right it has a lot of potential. -- Jonathan Marek, Senior Vice President, Applied Predictive Technologies

Of course the strategy is risky...but staying stuck in the middle with no growth and six quarters of lower profits is even riskier. I love how JCPenney brought in Ron Johnson to reinvent itself, and he's doing it. Will it all work? Probably not. But it will get them moving forward so they define their future rather than stay stuck in the past. I thought what was interesting was the moving away from private label and more into brands. All the multiple brand store-in-a-stores makes me think JCP will be a mini-mall at the mall. And I think it will work! I like the Town Square element IF they really work on developing that space beyond seating and music. I think the key will be how much of a destination the Town Square really is, and how much they also invest in elevating the experience the JCP staff delivers. -- Doug Fleener, President and Managing Partner, Dynamic Experiences Group

By some miracle known only to the blog gods, I ended up reading a different article than everyone else. They read about, apparently, "big,""bold,""exciting" changes; I read about EDLP ( which we read about earlier in the week, and which Macy's and Walmart -- among hundreds -- have tried), a center ring (which P.T. Barnum tried), and a new logo (which as Ryan noted, every troubled company on earth has tried). OK, maybe I'm being bit cruel. The Town Square concept is innovative, and if we overlook its vaudevillesque aspects (and the fact that a seemingly random set of events offered up at the store's calling rather than the customer's is exactly what they claim to not want), some claim of new thinking can be offered; but mostly what I see is tweaking. Maybe that's all that is needed, or all that's possible, but it's evolutionary, not revolutionary. All my life -- thru 3 or 4 logo changes -- JCP has been a store that was nicer than Ward's or Sears, but not as nice as (insert here your local department store that's now Macy's)...and I don't see any of this changing that. -- 'notcom'

Count me as not sold. Much of this has been tried before with little success. Transitioning from a promotional pricing model to ELDP is particularly problematic. Customers have been trained to equate value with discount percentages. Customers respond to promotional offerings. There's very little about ELDP which creates any sense of urgency, so they just wait for your competitor's promotion. Promotional pricing is a very slippery slope and it's very difficult to get back off it once you've stepped out onto it. -- Ted Hurlbut, Principal, Hurlbut & Associates

Well here we go again -- anyone remember Montgomery Ward and the different "shops" concept? "You have to break it down for them" seems to have been tried and failed. Many questions to this program and few answers: What will they do about the goods that have been sold during this transition period at the old higher price -- when they lower the price, will they refund the difference to the customer that requests it? If not they can kiss that customer goodby. With month-long promo periods, how well will they stay in stock so the customer on the last week will be able to purchase the product? If they had issues with a three day ad, what will 30 days do to them? How will they interest a customer in coming in to shop if they only run a large tab once a month (and we all know the staying power in the home for an ad)? I could go on but just one other comment -- JCP is not Apple and if he came up with this 10 or 15 years ago then TIME WILL TELL just as it has for others. -- 'TuckerMoo'

How J.C. Penney Was Minted: James Cash Penney Eschewed Haggling and Had a Nose for the Right Locations
By Dana Mattioli
Wall Street Journal
January 26, 2012

Before Ron Johnson could reinvent the 20th-century department store, James Cash Penney had to help invent it. And even though their efforts are separated by 110 years, they've got a few tricks in common, including trying to set prices low and hold to them.

Mr. Penney founded his eponymous chain of stores in 1902 at age 26. As lore has it, he was a religious man disenchanted by a retail environment overrun by snake-oil salesmen, saloons and murky pricing.

Unlike most retailers of the time, Mr. Penney priced items low and didn't permit haggling, according to the J.C. Penney Museum. Now, Mr. Johnson, alarmed by J.C. Penney Co.'s heavy reliance on discounting, is making a similar move to low, steadier prices, beginning in February.

Born on a farm near Hamilton, Mo., in 1875, Mr. Penney later moved out West on the advice of his doctor, seeking a drier climate. In Wyoming in 1898, he took a part-time job as a sales clerk at a store called Golden Rule during the holiday rush and stayed on after Christmas. Its credo was "only doing unto others as you would have them do unto you." The owners became impressed by his work and made him a partner.

Mr. Penney began scouting locations for the small but growing West Coast chain.

His first pick was an unlikely location—Kemmerer, Wy.—a coal-mining town brimming with saloons and brothels, says Joan Gosnell, an archivist at the J.C. Penney Collection at DeGolyer Library at Southern Methodist University. His partners tried to dissuade him, but on the store's first day it brought in $466, a formidable sum for the time, Ms. Gosnell says.

By 1906, Mr. Penney had bought out his original partners. In 1913, he changed the chain's name to J.C. Penney. Penney's grew to 175 stores in 22 states and registered sales of $14 million in 1917, according to papers compiled by the DeGolyer Library.

Penney incorporated in Delaware in 1924. Americans looking for bargains flocked to its stores during the Great Depression.

The retailer also had a writerly streak, with much of his work aimed at spreading his wholesome philosophies about work and commerce. One on display at a museum at Penney's headquarters in Plano, Texas, is titled, "The Homely Philosophy of the Man With a Thousand Partners." It covers Mr. Penney's policy of interviewing and grooming future partners before sending them out to manage stores.

A museum still stands in his hometown of Hamilton, which celebrates Mr. Penney's life each year in June.

Says Ms. Gosnell, "He's squeaky clean."

J.C. Penney Chief Thinks Different: With Apple in His Head, New CEO Tosses Out Old Pricing Models and Formats at Department Store
By Dana Mattioli
Wall Street Journal
January 26, 2012

Shortly after taking the top job at J.C. Penney Co. last fall, Chief Executive Ron Johnson signed up for the company's email alerts. He was shocked by what landed in his inbox.

The former Apple Inc. retail executive was deluged by sales announcements, sometimes two a day. He and his team counted 590 separate sales last year. They didn't bring in shoppers—Mr. Johnson's team found the average customer purchased only four times a year—but they did crush prices. Alarmingly, he learned nearly three-quarters of Penney's products sold at discounts of 50% or more.

"I thought to myself, 'This is desperation,'" Mr. Johnson said.

Now three months into his job, the new chief executive is hoping to turn things around with a far-reaching but risky overhaul of the department store format in an effort to lure consumers back to a chain that's often criticized as dowdy.

Mr. Johnson, who won plaudits for reinventing the retail experience with Apple stores' clean lines and empty space, laid out an ambitious plan Wednesday that involves carving stores into a warren of specialty shops, turning the high-traffic center selling space into an entertainment and hang-out area, and eschewing constant "sales" in favor of lower prices every day.

The idea is to make stores more inviting, highlight brand names and gain more control over pricing.

Penney's Changes

• Beginning in February, Penney will lower the initial price for items by about 40% from where they start now. In tandem, he plans to sharply reduce the number of sales at the chain.
• A number of in-season items will be on sale for an entire month. There will have two clearance sales, on the first and third Fridays of the month, called "Best Price Fridays."
• The center of the store—where department stores typically concentrate cosmetics, accessories and other high-margin impulse buys—will be turned into a "Town Square," where shoppers can hang out amid seasonal events and other attractions.
• Floor space will be carved into as many as 100 "stores within a store"—including branded spaces like "Martha Stewart's Kitchen," space for the company's Liz Claiborne line, and thematic stores geared toward seasons and trends.

"Some may call it crazy, but I don't think there is an alternative," Mr. Johnson said in an interview. "In an Internet age where you can have exactly what you want with one keyword, people won't tolerate big stores. You have to break it down for them."

But overhauling the chain's fleet of 1,100 stores will pose costly challenges, and consumers have been reluctant to spend without the incentive of big markdowns.

Penney has been battered in recent years by competition from rivals like Macy's Inc. and Kohl's Corp. Under former Chief Executive Myron Ullman, Penney shed its catalog business and invested in exclusive brands and partnerships with hot sellers like fast-fashion line Mango and Sephora cosmetics. But it continued to struggle with lackluster sales and the need to discount heavily to clear merchandise.

At an interview at the Plano, Texas, headquarters last week, Mr. Johnson said he determined that the store's initial prices needed to be realigned with what customers feel comfortable paying. Beginning in February, Penney will lower the initial price for items by about 40% from where they start now.

He also plans to sharply reduce the number of promotions. Penney will pick a number of in-season items that will be on sale for an entire month. It will have two clearance sales, on the first and third Fridays of the month, called "Best Price Fridays," an idea he picked up while working at Mervyn's, a now-defunct regional department store. Prices will be expressed in flat dollar amounts without cents.

Penney plans to spend $80 million a month on the program.

The move is risky, as shoppers have become rabid bargain hunters. But the old strategy wasn't working. Sales at stores open at least a year, a key measure of a retailer's ability to draw customers, rose a thin 0.7% in the 11 months through December, down from a 2.7% increase the year before and well behind Macy's 5.4% gain.

A poor holiday showing led Penney to sharply cut its profit outlook for the fourth quarter. Its shares are up about 6.7% in the past year, but that's compared with Macy's gain of nearly 47%. On Wednesday, Penney's shares fell 1%. Macy's fell 3.1%.

Department stores increasingly are setting up "stores in a store" and carving out areas for specific brands. Mr. Johnson, however, wants to set up as many as 100 of them—including branded spaces like a new Nanette Lepore shop and "Martha Stewart's Kitchen," private-label stores for the company's Liz Claiborne line, and themed areas for seasons and trends.

Penney's plans to launch 10 new shops in the fall and add new stores monthly until it reaches its goal by 2015.

The new CEO also plans to replace the "center core"—the highest traffic middle area where department stores typically concentrate cosmetics, accessories and other high-margin impulse buys—with what he calls "Town Square." The section will be a minimum of 10,000 square feet and rotate monthly attractions and services, such as free haircuts during back-to-school season or free hot dogs and ice cream in July.

Mr. Johnson equates Town Square with Apple's "Genius Bar," where customers have their products serviced. "Just like in the Apple store, you have to walk through the products to get to the Town Square," he says.

Two things Mr. Johnson isn't interested in are celebrity lines and private label apparel. Mr. Johnson, a believer in brands, says in-house labels lack distinctiveness and pricing power.

As a result, Penney is slashing the number of private-label lines it has from hundreds to a few strong ones, Chief Operating Officer Mike Kramer said.

The company acknowledges that the changes will require investments, but Mr. Johnson says cost cutting and the elimination of sales have been "engineered to pay for it."

"It's going to be funded internally from our own cash flow from operations, but it's going to be on steroids, because we're becoming more efficient and cutting out a lot of cost," says Mr. Kramer, whose major task is funding the changes.

Mr. Kramer says the new strategy is simpler and will save money. For instance, Penney will cut the number of promotional packs it sends to stores to just one a month from three a week.. It also will eliminate jobs related to retagging merchandise for perpetual sales.

Mr. Kramer, who reported to Mr. Johnson at Apple, recalls phone conversations the two men had years ago when Mr. Kramer was at the helm of Kellwood Co., an apparel manufacturer. Mr. Kramer says he'd vent his frustrations about working with department stores, and the two would mull ideas for transforming them, Mr. Kramer says.

Mr. Johnson says he became intrigued by the decline of department stores during his Apple days, noting on mall trips he could park easily near department stores while spots were taken near specialty stores.

"I kept going, 'Department stores have all the competitive advantages: low real estate, big marketing budgets, lots of space, he said. "Something is fundamentally wrong here."

With Apple in His Head, New CEO Tosses Out Old Pricing Models and Formats at Department Store
By Dana Mattioli
Wall Street Journal
January 25, 2012

Three months into the job, J.C. Penney Co. Chief Executive Ron Johnson is planning a far-reaching but risky overhaul of the department store format.

The former Apple Inc. executive, who won plaudits for reinventing the retail experience with the tech company's clean lines and empty space, laid out an ambitious plan Wednesday that involves carving expansive stores into a warren of specialty shops, turning key selling space in the center of the floor into a shopper hang-out area, and sharply paring back "sales" in favor of lower prices every day.

Among Penney's Changes:

• Beginning in February, Penney will lower the initial price for items by about 40% from where they start now. In tandem, he plans to sharply reduce the number of sales at the chain.
• A number of in-season items will be on sale for an entire month. There will have two clearance sales, on the first and third Fridays of the month, called "Best Price Fridays."
• The center of the store—where department stores typically concentrate cosmetics, accessories and other high-margin impulse buys—will be turned into a "Town Square," where shoppers can hang out amid seasonal events and other attractions.
• Floor space will be carved into as many as 100 "stores within a store"—including branded spaces like "Martha Stewart's Kitchen," space for the company's Liz Claiborne line, and thematic stores geared toward seasons and trends.
• The idea is to make stores more inviting, highlight brand names and gain more control over pricing. But overhauling the chain's fleet of 1,100 stores will pose costly challenges, and consumers have been reluctant to spend without the incentive of big price breaks.

"Some may call it crazy, but I don't think there's an alternative," Mr. Johnson said in an interview. "In an Internet age where you can have exactly what you want with one keyword, people won't tolerate big stores. You have to break it down for them.

"Penney has been battered in recent years by competition from rivals like Macy's Inc. Under former Chief Executive Myron Ullman, the chain shed its catalog business and invested in exclusive brands and partnerships with hot sellers like fast-fashion line Mango and Sephora cosmetics. But it continued to struggle with lackluster sales and the need to promote huge discounts to draw in shoppers and clear merchandise.

At an interview at the Plano, Texas, headquarters last week, Mr. Johnson said he was alarmed to find upon taking the helm that close to two-thirds of Penney's products are sold for a discount of 50% or more.

"Pricing was crazy," said Mr. Johnson said, describing observations he made during an initial store walk-through. "Every rack has a topper with a sales sign."

He determined that the store's initial prices were set too high and needed to be realigned with what customers feel comfortable paying.

Beginning in February, Penney will lower the initial price for items by about 40% from where they start now. In tandem, he plans to sharply reduce the number of sales at the chain.

After accepting the CEO spot, Mr. Johnson signed up for Penney emails, only to be inundated by sales daily—and sometimes twice daily. He and his team counted 590 sales last year, but found the average customer only shopped four times at the store. "I thought to myself, 'This is desperation,'" he said.

Instead, Penney will pick a number of in-season items that will be on sale for an entire month. It will have two clearance sales, on the first and third Fridays of the month, called "Best Price Fridays," an idea he picked up while working at Mervyn's, a regional department store that's no longer around. And prices will be expressed in flat dollar amounts without cents.

The move is risky following a holiday season that hammered home the lesson that shoppers demand a bargain. But Penney's previous strategy wasn't working. Sales at stores open at least a year, a key measure of a retailer's ability to draw customers, rose a thin 0.7% in the 11 months through December, compared with a 2.7% increase the year before and well behind Macy's 5.4% gain.

Penney's poor holiday showing led the company to sharply cut its profit outlook for the fourth quarter. Its shares are up 14% in the past year, but that's compared with a 53% gain for Macy's.

Mr. Johnson also plans a major overhaul of the department store layout, including a gamble that he can draw more traffic by replacing a key sales area in the center of the store with an area for customers to hang out.

Department stores increasingly are setting up "stores in a store" and carving out areas for specific brands. Mr. Johnson, however, wants to set up as many as 100 of them—including branded spaces like "Martha Stewart's Kitchen," private-label stores for the company's Liz Claiborne line, and thematic stores geared toward seasons and trends.

Penney's currently has 30 shops in development, with the first 10 slated to launch next fall. It will then launch new stores monthly until it reaches its goal of more than 80 by 2015. Stores will be swapped out to respond to trends in the industry and new brand launches, Mr. Johnson says.

The new CEO also plans to replace the "center core" —the highest traffic middle area where department stores typically concentrate cosmetics, accessories and other high-margin impulse buys—with what he calls "Town Square." The section will be a minimum of 10,000 square feet and rotate monthly attractions and services, such as free haircuts during back-to-school season or free hamburgers, hot dogs and ice cream in July.

Mr. Johnson equates Town Square with Apple's "Genius Bar," where customers have their products serviced. "Just like in the Apple store, you have to walk through the products to get to the Town Square," he says.

Two things Mr. Johnson isn't interested in are celebrity lines and private-label apparel. Mr. Johnson, a believer in brands, says in-house labels lack distinctiveness and pricing power.

As a result, Penney is drastically slashing the number of private-label lines it has, from hundreds to some key ones, says Chief Operating Officer Mike Kramer.

The company acknowledges that the changes will require investments, but Mr. Johnson says cost cutting and the elimination of sales have been "engineered to pay for it."

"It's going to be funded by internally from our own cash flow from operations, but it's going to be on steroids, because we're becoming more efficient and cutting out a lot of cost," says Mr. Kramer, whose major task is funding the changes.

Mr. Kramer says the new strategy is simpler and will result in cost savings. For instance, Penney sends out three promotional packs a week to each store to support all of the sales. Beginning in February, each store will receive only one a month, he says. Earlier this week, the company said it will eliminate jobs related to retagging merchandise, a task that will be needed less with the new pricing strategy.

Mr. Johnson, who started his career at Mervyn's, says he became intrigued by the decline of department stores during his Apple days. On visits to Apple stores, he'd park in the empty lots of department stores to access the more crowded parts of the mall where specialty stores were located.

"I kept going, 'Department stores have all the competitive advantages: low real estate, big marketing budgets, lots of space, he said. "Something is fundamentally wrong here."

One More Discount Needed at J.C. Penney
By John Jannarone
Dow Jones Newswire
January 25, 2012

Ron Johnson traded Apple for a lemon. In his new role as chief executive of J.C. Penney, he wants to break one of the department store's worst habits: deep discounting.

Mr. Johnson, who previously ran Apple's wildly successful retail business, now oversees a weak constituent of the struggling department-store category. Based on sales in recent years, Penney has lost market share to both higher-end Macy's and less-expensive Kohl's. Its operating margin has also shrunk, to about 4%, compared with a peak near 10% in 2006.

Mr. Johnson has a rational plan. Realizing that aggressive discounts hurt the store's status and pricing power, he wants to reset initial prices to levels customers will actually pay. Virtually none of the company's sales are made at full price, and more than 72% of revenue comes from items discounted by at least 50%, he said Wednesday. Starting in February, initial prices will be cut significantly. And rather than offer hundreds of sales each year, Penney will have just two pricing events: month-long sales and twice-a-month events for the deepest cuts.

Implementing this will be hard. Many shoppers now expect large price reductions before making purchases. So even if Penney resets the price of a product 40% below its old price, customers may not bite. Instead, they may simply wait for Penney to discount and concentrate their purchases on those days.

And Penney's rivals are unlikely to abandon discounting strategies. Even if shoppers can't find identical items at Kohl's, it shares many categories with Penney with similar price ranges.

Even a brilliant pricing strategy won't work unless consumers get more excited about Penney's products. To mirror the specialty-retail strategy, Mr. Johnson plans to make each Penney's location a store of 100 shops by 2015. Each department store will get two or three new shops a month between now and then. That should help generate more traffic, especially when Penney introduces recently signed labels Martha Stewart and Nanette Lepore.

Adding those to strong existing Penney brands like Sephora could draw more crowds over time. But the cost of the store improvements could pile up before Penney sees significant results.

Investors appear to have high hopes in Mr. Johnson, with the stock trading at 20.7 times 2012 earnings, compared with 9.6 times for Kohl's and 10.7 times for Macy's. While Penney may eventually turn itself around, now may be a good time for shareholders to consider a price reset themselves.

Macy's Sues Martha Stewart Living
By Chad Bray and Dana Mattioli
Wall Street Journal
January 24, 2012

Macy's Inc. sued Martha Stewart Living Omnimedia Inc. to block a new licensing agreement with rival J.C. Penney Co., saying the agreement violated its own exclusive arrangement with the brand.

The lawsuit, filed under seal in state court in Manhattan, comes about a month after J.C. Penney inked a deal with the company founded by celebrity homemaker Martha Stewart. Under the deal, J.C. Penney will sell its own line of Martha Stewart-branded home and kitchen items and will create Martha Stewart stores within its department stores beginning in February 2013. Penney also paid $38.5 million for a 16.6% stake in Martha Stewart Living.

The move angered Macy's, which has carried a line of Martha Stewart home and kitchen products since 2007. The line, which includes everything from bedding to dinnerware and furniture, is the department store's top-selling home brand, a person familiar with the matter has said.

On Monday, Macy's said it was suing Martha Stewart Living for breaching its contract by cutting a deal with Penney to sell products that are allegedly covered by the Macy's agreement. "The right for Macy's to sell product exclusively in these categories was clearly outlined," Macy's said.

Martha Stewart Living declined to comment on the lawsuit. The company's president, Lisa Gersh, said in December that the Penney line would be "completely different" from the products carried at Macy's.

Penney didn't respond to requests for comment.

The dispute gets at core issues for the companies. Home is an important segment for department stores. The category made up 15% of Macy's $25 billion in sales in 2010. Home sales were 18% of Penney's total sales in 2010, but have been the department store's worst performer.

Martha Stewart Living's licensing business, meanwhile, is a key source of profit for the media and merchandising company. It has exclusive deals with several companies, covering a variety of products.

Macy's asked for the suit to be sealed to protect confidential information related to the agreement with Martha Stewart Living, but made the broad outlines of the dispute clear in an argument for an injunction and a news release Monday.

In its motion, Macy's asked for preliminary and permanent injunctions barring Martha Stewart Living from violating its contract.

Macy's also said that it renewed its contract with Martha Stewart Living for another five years, until January 2018. Martha Stewart Living acknowledged receiving notice that Macy's would extend the contract, and said the decision "is a testament to the strength of the Martha Stewart brand among consumers."

When the Penney deal was announced, Macy's said it would review its Martha Stewart product line for "potential changes" in light of "the proliferation of Martha Stewart-branded product in the marketplace."

This isn't the first time Martha Stewart Living has had a contentious relationship with a partner. In 2009 around the time her contract with Sears Holdings Corp.'s Kmart stores was ending, Ms. Stewart bashed Kmart during a television interview saying, "Have you been to a Kmart lately? It's not the nicest place to shop."

Seniors decide retirement doesn't suit them, keep working
By Janice Lloyd
USA Today
January 23, 2012

When Frank Pascarelli was a senior at Hofstra University interviewing for a management job with Sears Roebuck, he was told he would receive such a substantial retirement package that he would never have to work a day over 55.

"I didn't know if I ever wanted to do that, but I took part in their training program anyway," Pascarelli says with a quick laugh. Pascarelli has not stopped working, not because he can't afford to stop or because he saw investments go sour. He'll be 80 next month and is financially set, he says. He just enjoys working.

He tried retiring, leaving Sears after 38 years, but leaped back into the workforce in a second career, selling Cadillacs, his favorite car. "I played golf for about a month and a half and said, 'That's not for me,' " Pascarelli says. "If I leave the car business, I will never do nothing. I will not stay home and play Monopoly. I will keep going."

And probably keep succeeding. Pascarelli led sales at Linus Cadillac Buick GMC in Vero Beach, Fla., "for well over a decade, and still does better than the majority of the salespeople," says Vincent Perez, general manager. "His work is exemplary. I'm very proud to have him."

By Keith Carson for USA TODAY

Frank Pascarelli, 79, takes a phone call in his office at at car dealership in Vero Beach, Fla.

Experts say Baby Boomers are starting to copy Pascarelli's drive to work past conventional retirement age, a trend fueled by an uncertain economy, improved health in older life and an understanding that staying engaged leads to a better sense of well-being.

The percentage of people who work and people who want to work has increased markedly in both the 65-and-older and 75-and-older groups, says Sara Rix, senior adviser for the AARP Public Policy Institute. For 2011, the participation rate for 65 and older was 17.9% compared with 10.8% in 1985. For 75 and older, the rate jumped from 4.3% in 1990 to 7.5% in 2011.

"Those are whopping increases," Rix says. "I see these rates continuing to increase as we move into the future."

Hitting 65 and "getting the gold watch" is not on the must-do list anymore for many people, says Jacquelyn James, research director at the Sloan Center on Aging and Work at Boston College.

"Their emphasis isn't just to keep working but to do things that add life to years and not years to life,'' James says. "People who are very work-oriented and love their jobs don't want to give them up, especially if they're healthy."

An April Gallup survey had similar findings: 534 working people were asked whether, when they reached retirement age, "you think you will continue working and work full-time; continue working and work part-time; or stop working altogether?" Those who answered that they would continue to work were then asked, "Would you do it because you want to, or because you will have to?"

• 18% said they would work full-time, and a third of those said it was because they wanted to, not because they would have to.
• 63% said they would work part-time; almost two-thirds of those said they would do it because they wanted to.
• 18% said they would retire and stop working altogether.

The average age of retirement is 64 for men and 62 for women, according to an analysis of Census data by the Center for Retirement Research. Census data also show the number of Americans living to age 90 and beyond has tripled in the past three decades to almost 2 million and is likely to quadruple by 2050.

"People are beginning to realize that if you retire at age 60, you could easily spend 35 years in retirement," says Richard Johnson, senior fellow and director of the program on retirement policy at the Urban Institute. "And that could get tedious."

There are other reasons to stick it out. Job satisfaction grows with age, Johnson says: 90% of workers age 60 to 64 agree or strongly agree that they enjoy going to work, compared with 95% of workers 65 to 69 and 97% of workers age 70 and older, according to the Retirement Project of the Urban Institute. Stress levels also drop on the job. About one of three workers age 70 and older agree or strongly agree their jobs involve a lot of stress, compared with more than half of workers age 60 to 64.

Another plus: the financial benefits of delaying tapping into Social Security. An analysis by the U.S. Government Accountability Office found that nearly half of retirees who filed for Social Security before their 63rd birthday passed up 25% to 33% in additional inflation-adjusted benefits that would have been available if they had waited until full retirement age.

Edward Gerjuoy, 93, is an emeritus professor in the physics and astronomy department at the University of Pittsburgh. He works in his campus office from noon to 6 p.m. during the week and often returns to work on Saturdays and Sundays. "Sometimes I'm the only one there on weekends," he says.

Gerjuoy has always been a hard worker. He earned his doctorate at the University of California-Berkeley in 1942. Robert Oppenheimer, who went on to develop the atomic bomb, was his thesis adviser. Gerjuoy says he plans to publish at least one more physics paper in a respected journal and might get back into teaching.

He will chair a session on the history of physics at the annual American Physical Society meeting in March in Boston, the largest physics meeting in the world

"I really feel that working keeps me youthful," he says. "But even more than that, I feel if you're here, you should have some function in life. I think this idea that one owes something to society has grown on me."

Johnson says many older people in the workforce have high levels of education.

"It used to be older workers were much less educated than younger workers," Johnson says. "That's not the case now. Older workers do not face the same problems in terms of being outdated as they used to."

One distinguished degree and career wasn't enough for Gerjuoy. After getting his doctorate in physics, he served in World War II. He took his first university physics job at the University of Southern California. He wanted to get a law degree when he was 59, so he taught physics at night when he was working on that degree.

"I don't have any hobbies," he says. "I like work. I have known it all my life. When my wife was living, she'd take vacations without me. I would take her to conferences when I'd be invited, but most of the time I didn't take vacations."

Some people leave a career job and end up doing something they've always wanted to do, says Boston College's James. "There isn't a script for 65 anymore. We recommend the same thing we tell people in their 20s: Go try things."

Sharon and Ed Mahoney have a plan to start talking about retiring when she turns 80. They live in Edgewater Pointe Estates in Boca Raton, Fla.

Sharon is 68 and a registered nurse for the state of Florida in the Department of Elder Affairs. Ed, who formerly was in broadcast and television, says he grew restless in the early 1990s and switched careers to financial advising in 1992. He is 71.

Sharon says her experience — working in hospice and Alzheimer's disease care services — has built her confidence.

"I love what I do," she says. "I'm the oldest person in my office, but I'm going to keep working until I get up in the morning and say I don't enjoy it anymore."

She says being able to help people and form relationships with them is what keeps her going. Helping others is a job quality that enhances life and can even lead to a longer life, according to Howard Friedman, author of The Longevity Project, an eight-decade study of 1,500 people.

"People are being given rotten advice to slow down, take it easy, stop worrying and retire," Friedman says. "The Longevity Project discovered that those who worked the hardest lived the longest — the responsible and successful achievers thrived in every way, especially if they were dedicated to things and people beyond themselves."

Ed Mahoney also likes his work because he helps people, and "95% of people don't know how to plan for the future," he says.

The Mahoneys feel lucky neither has wanderlust.

"We moved here from the Northwest, and we love going back there when we take time off," Sharon Mahoney says. "We might enjoy watching a travel special on television about Russia, but neither of us wants to go there, or anyplace else for that matter."

Both Mahoneys say they learn from others about the value of working. Will they have regrets? Doubtful, he says.

"We see people who are working who are older than us, and they're thriving," he says. "They're not interested in taking cruises, and we're not either."

Contributing: Sandra Block

Showdown Over 'Showrooming': Target Asks Vendors for Help Keeping Comparison Shoppers
By Ann Zimmerman
Wall Street Journal
January 23, 2012

Target Corp. is tired of being used.

In one of the starkest signs yet that chain stores fear a new twist in shopping, Target is asking suppliers for help in thwarting "showrooming"--that is, when shoppers come into a store to see a product in person, only to buy it from a rival online, frequently at a lower price.

Last week, in an urgent letter to vendors, the Minneapolis-based chain suggested that suppliers create special products that would set it apart from competitors and shield it from the price comparisons that have become so easy for shoppers to perform on their computers and smartphones. Where special products aren't possible, Target asked the suppliers to help it match rivals' prices. It also said it might create a subscription service that would give shoppers a discount on regularly purchased merchandise.

Vendors are likely to have little choice but to play ball with Target because of its clout as the second-largest discount chain.

"What we aren't willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display your brands," according to the letter, which was signed by Target Chief Executive Gregg Steinhafel and Kathee Tesija, Target's executive vice president of merchandising.

Showrooming is an increasing problem for chains ranging from Best Buy Co. to Barnes & Noble Inc., at the same time that it's a boon for Amazon.com Inc. and other online retailers. This year store sales overall edged up 4.1% during the holiday shopping season, while online sales jumped 15%. And while online sales represent only 8% of total sales, that is up from just 2% in 2000.

Other retailers also are likely to take steps similar to Target's plan, according to Deborah Weinswig, Citigroup retail analyst, who mentioned the letter in a research note Friday and said it was likely to have gone to suppliers of consumer electronics, health and beauty products and food.

Vendors are likely to have little choice but to play ball with Target because of its clout as the second-largest discount chain. Major suppliers, including Kraft Inc., TV maker Vizio and Procter & Gamble Inc., either wouldn't confirm they received the letter or didn't return calls seeking comment.

Target declined to comment other than to issue a statement saying that it "has long prided itself on having truly collaborative vendor partnerships and we continually work with our vendors to remain competitive in the ever-evolving retail environment."

Some analysts said Target's new tactics are unlikely to reverse the showrooming trend, because they fail to address the root problems traditional retailers face. Online-only retailers have significantly lower labor costs and, at least, for the time being don't collect sales tax in most states.

More important, the growing competition from Amazon is based on a different business model entirely: Amazon can sell products so cheaply because it uses its other profitable units—such as cloud data storage and fees it charges others to sell on its website — to subsidize the rest of its business.

"The traditional retailers are still doing business the old way while Amazon has reinvented the model," says Sucharita Mulpuru, retail analyst at Forrester Research. "Wal-Mart and Target are willing to sell a few things at a loss. Amazon's whole business is a loss leader."

Consumer preferences are also moving to online. "That is where we're heading," said Adrianne Shapira, retail analyst at Goldman Sachs. "You can try and dance around it, but it's a fact."

Retailers like Target and industry giant Wal-Mart Stores Inc. have a lot of catching up to do, as analysts estimate their websites account for only 1% to 2% of their annual sales.

Target had a tough Christmas season, with sales at stores open at least a year rising just 1.7%, about half of what the company expected. As a result, Target recently lowered its fourth-quarter earnings per share range to between $1.35 and $1.43 from $1.43 to $1.53.

The company said sales were particularly disappointing in electronics, movies, books and music—products whose sales have migrated most significantly to the Internet. Those products accounted for 20% of Target's annual sales of $65 billion in 2010, down from 22% in the prior year.

This fall Target relaunched and upgraded its website, which had been operated by Amazon for the last decade. But the site crashed several times, most notably when shoppers rushed to buy a special line of items made by Italian fashion house Missoni.

Target has a long tradition of getting suppliers to provide exclusive products. It has teamed up for years with fashion designers to offer time-limited discount clothing collections, and it recently announced it will open a series of temporary boutiques featuring clothes, food and home furnishings from popular regional stores.

These programs set Target apart from less fashionable rivals such as Wal-Mart, but "they are completely immaterial" to the company's bottom line, said Colin McGranahan, retail analyst at Sanford C. Bernstein.

--Hannah Karp contributed to this article.

Is Your Retirement Doomed?
By Dan Caplinger
The Motley Fool
January 23, 2012

Traditional pension plans have become almost a thing of the past, especially for younger workers. But even if you're fortunate enough to have a pension at work, recent events have shown just how fragile it may be -- and how things could get a whole lot worse in the future.

When your pension falls short

Eastman Kodak's recent bankruptcy filing has again brought employee pensions back into the spotlight. According to SmartMoney, Kodak had about 63,000 workers and retirees covered under two traditional pension plans. Now, some of them may no longer get the pension benefits they expected.

For those who've already retired, the news isn't as dire as it may sound. If Kodak shuts down its pension plans, then the government's Pension Benefit Guaranty Corporation will step in to provide benefits, in most cases ensuring that workers will get the same benefits they were getting before. The only exceptions would be workers who receive more than the PBGC's maximum benefit cap, which stands at the equivalent of about $56,000 per year. They could see their benefits cut, depending on how the bankruptcy proceeding goes.

Obviously, this isn't the first time that a pension plan has left some workers with problems. AMR's bankruptcy in November brought back recollections of numerous airline bankruptcies, many of which resulted in terminated pension plans. In fact, a report from the General Accounting Office in late 2009 suggested that several companies, including United Continental's (NYSE: UAL ) United Airlines and US Airways (NYSE: LLC ) , paid out huge salaries and other compensation to executives shortly before killing their pension plans, leaving taxpayers on the hook for hundreds of millions of dollars of extra benefits. Moreover, with many airline pilots and other highly paid employees earning well over the PBGC limit, some workers ended up paying for their employer's C-suite excesses.

From bad to worse

For current workers, however, the news is even worse. Even if they manage to keep their jobs, a terminated pension plan means that they can't count on getting anywhere near what they might have received from their pensions had the plans continued into the future -- especially for workers who still have years to go before retiring.

That problem isn't unique to bankrupt companies. Several years ago, Hewlett-Packard (NYSE: HPQ ) and IBM (NYSE: IBM ) were among many companies that decided to freeze their pension plans, affecting thousands of current workers. The moves not only prevented new employees from gaining any access to pension benefits but also froze the amount that current participants were entitled to at the level at the time of the freeze. Given that pension benefits often ramp up significantly in the last few years before workers retire, the net impact of pension freezes can be huge -- and leave you in a lurch that's difficult to get out of.

Be prepared

With the economy starting to recover, you can always hope that your employer will be able to weather the storm. But if you have concerns about your employer's ability to pay pension benefits far into the future, consider these options:

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Three Strikes You're Out: Sears No Longer Trying To Lure Customers Into Stores
By Marianne Bickle
Forbes
January 23, 2012

Most retailers aggressive promote its products and brands in an attempt to bring consumers into the stores. Sears’s actions (or lack thereof) makes one think that the company wants consumers to stay away.

Strike One: The initial sign from the company came with the cancellation of the much beloved catalog. The Sears catalog is part of the middle-class American dream. Consumers no longer have a reminder of Sears in their homes. Family members are no able to flip through catalog pages and wish and dream about future Sears purchases.

Strike Two: Instead of updating stores, the interior of Sears stores remain the same over the past decade. The outdated look discourages consumer traffic, loyalty and purchases. Sears located in malls looked even more devastating as competing retailers feature updated fixtures and emphasize personalized customer service.

Strike Three: Standing in a Sears store during the 2011 holiday season, a consumer can barely notice any holiday decorations or sales associates. It takes a lot of effort to find the checkout desk; the question remains is it worth the effort to shop at Sears? Many retailers realized profits during the 2011 holiday season as consumers shop with vigor. This is not true for Sears; Sears Holding announced the closure of 120 underperforming locations.

Sears executives may be able to identify sufficient capital to stay afloat through excess inventory from store closings and different financial management plans. Its biggest obstacle facing the company during 2012 is attracting customers and generating sales. In the meantime, it is painful to watch the once beloved company struggle.

Lessons Learned:

The merchandise is only as new as the store’s environment

Consumers’ decision to patronize a store is more than a 20 percent off coupon, a specific brand or location close to home. The store’s environment plays an important role when deciding to patronize a store. Updated stores provide an upbeat and positive atmosphere to the shopping process. Consumers shop for fun, excitement and escape; this cannot be provided by a dull atmosphere.

Never forget who pays the light bill

You may believe that your controller pays the light bill. Don’t believe it! Your consumers pay the light bill, energy bill and payroll. Never sacrifice the quality and quantity of customer service in the belief that you are saving your customer money by skimping on service. If customers are required to find a checkout stand or employees, it is highly probable you are losing customers to your competition.

Memories are fleeting

Consumers will probably forget 90 percent of what they see in the store. In good and bad economic times, advertising and promotion are essential. The moment your store and its products are out of the consumers’ mind, your business slowly begins to die.

A Sears Wager Stings at Goldman
By Gregory Zuckerman
Wall Street Journal
January 23, 2012

Edward Lampert and shareholders of Sears Holdings Corp. aren't the only ones hoping for a turnaround of the big retailer. Goldman Sachs Group Inc. and some of its clients are sweating it out, too.

Clients of Goldman invested about $3.5 billion in Mr. Lampert's hedge fund through a special deal more than four years ago. Goldman invested about $75 million of its own money as part of the arrangement.

At the beginning of this year, that investment was down several hundred million dollars, in large part due to a 57% plunge in Sears stock in 2011. Sears is one of the largest investments of Mr. Lampert's fund, ESL Investments Inc., according to the most recent securities filings. A sudden rebound in Sears this year has put Goldman and its clients in the black on the deal, although ESL still trails the average return of rival hedge funds since the Goldman money was invested.

Goldman and its investors need to see the Sears rally continue. The reason: They can't withdraw their money until the end of this year, according to terms of the investments. And some analysts are skeptical about whether the recent gains will last.

The ups and downs of the Lampert investment show that even being a favored client of a top-ranked investment bank isn't always a surefire path to investment success.

At the time of the arrangement, it seemed like a home run for all involved. Mr. Lampert was a star fund manager, being compared with Warren Buffett, thanks to annual gains of more than 20% over his career and a recent string of successful investments.

Certain Goldman institutional clients, including endowments and foundations, took up the offer to invest with ESL.

The $3.5 billion that was raised in the summer of 2007 represented one of the larger one-time fund-raising efforts in hedge-fund history, according to people in the business. It increased ESL's size to more than $15 billion, people familiar with the matter said.

The deal allowed Mr. Lampert, who got his start on Goldman's trading floor, to raise a big slug of money without spending months courting potential investors. Mr. Lampert required clients to invest a minimum of $25 million and commit their money for a minimum of five years, an unusually long time for hedge funds.

The deal earned Goldman about $75 million in fees, according to people familiar to the matter, money the firm invested in Mr. Lampert's fund. The arrangement also represented a coup for Goldman, giving it a deal to show to clients at a time when hedge funds were all the rage.

Mr. Lampert's big bet on Sears ran into problems as the stock market collapsed and the U.S. economy fell into recession. Sales at stores open at least 12 months have slid every year since the new company was created in 2005. Recently, Sears decided to close as many as 120 stores. Shares, as high as $191.93 in 2007, closed Friday at $49, up $5.65, or 13%, amid expectations the retailer will be able to reassure companies financing its merchandise that it will be able to meet its obligations.

Goldman clients invested in Mr. Lampert's fund in four stages between August 2007 and January 2008, people familiar with the matter said.

Mr. Lampert's fund lost about 13% in the last three months of 2007, investors said. The fund lost an additional 33% in 2008, according to investors. It then rebounded with gains of 55% in 2009 and 16% in 2010. ESL lost about 12% last year, investors said. So far this year, the fund is up 11.5%, according to a person familiar with the matter.

Mr. Lampert's historic annual return remains higher than 21%, beating the market and most rivals. The average price ESL paid for shares of the combined Kmart and Sears, which merged in 2005, is about $15 a share, suggesting it is still sitting on gains.

But overall, the Goldman clients are up less than 1%, as of the end of trading on Friday, according to people familiar with terms of the deal.

While returns vary depending on when investors got into the fund, the Goldman investment trails the performance of other hedge funds. Hedge funds scored an average gain of about 4.8% between the four points at which Goldman investors placed money in ESL in late 2007 and January 2008 and last week, according to hedge-fund tracker HFR Inc.

If the Goldman clients choose to keep their money with Mr. Lampert's fund beyond this year, they will be required to commit their cash for another five years, according to people familiar with terms of the arrangement.

Mr. Lampert is the largest investor in his hedge fund, so the limp performance has hit his own wallet. But, like other hedge-fund managers in similar circumstances, his losses have been cushioned by fees he has charged over the years.

Like some other hedge funds, Mr. Lampert charges an annual fee amounting to 1% of all the outside money he manages. As such, he has been able to collect hundreds of millions of dollars of management fees over the past decade, investors estimated. Also, like most hedge funds, he charges investors 20% of the gains in the value of his fund each year, resulting in hundreds of millions of dollars from those gains. Mr. Lampert won't be able to charge future 20% performance fees until he regains his fund's losses.

Kmart, Sears show their age in fight for survival: Onetime retail giants struggle for relevance 7 years after merger
By Leslie P. Norton
The Detroit News
January 21, 2012

Kmart, a Detroit-born retail giant known for its blue light specials, is fast joining the long line of Michigan retailers that failed to keep up with the times.

Nearly seven years after Kmart merged with Sears and moved the Troy headquarters to suburban Chicago, Sears Holding Corp. has struggled to remain relevant in the cutthroat retail landscape. The merger was supposed to revive the aging retailer, but it appears to be losing the battle against big-box competitors.

Sears Holdings already plans to close six Kmart and Sears stores in Michigan that were named on a list of 79 stores to be shuttered nationwide. Other stores are vulnerable to the company's plans to close up to 120 of its 2,200 stores after lackluster holiday sales.

Both companies are now well into their third centuries of business and looking tired as they try to go head-to-head with more nimble and attractive general merchandisers such as Wal-Mart Stores Inc., Meijer Inc., Target Corp. and Amazon, analysts said.

"It is not rocket science that Sears and Kmart simply have not kept up with the times," said Detroit retail historian Michael Hauser, author of "20th Century Retailing in Downtown Detroit" and "Hudson's: Detroit's Legendary Department Store." The stores are in second- and third-tier locations, poorly lit, inconveniently laid out and less than clean, Hauser said. He said customer service is also subpar.

But Sears Holdings said it has a plan to revive sales and boost its image. The company said it has made significant investment in its stores, adding toy and beauty shops in Sears stores and Craftsman tools and Kenmore appliances at Kmart locations.

"More recently we've focused on restrooms refurbishments, lighting and energy-efficient upgrades, as well as visual updates to interior signage, fixtures, flooring and mannequins and testing new visual in-store elements for sporting goods, jewelry, apparel and home appliances," said spokeswoman Kimberly Freely.

The shopping atmosphere doesn't rankle all customers.

"It doesn't bother me," said Bill Strye, of Waterford, who has shopped at Sears' Summit Place store monthly for the last 25 years.

The store is Strye's one-stop shop for jeans and sneakers as well as automotive supplies and appliances.

"I don't really care much about ambience," Strye said. "I do my research before I go and know what I want when I get there. I'm just in and out."

But he has noticed fewer shoppers in the aisles in recent years.

Kmart evolved from the successful chain of five-and-dime stores Detroiter S.S. Kresge founded in 1899. The successful venture led to the opening of the first Kmart store in Garden City in 1962.

Kmart enjoyed success in the Northern suburbs for decades as its Southern rival, Bentonville, Ark.-based Wal-Mart, spread across small towns, said Birmingham-based retail consultant Ed Nakfoor.

Born in 1886 in Minneapolis, Sears, Roebuck & Co. quickly thrived as the country's first national retailer. It grew into a mighty appliance and general merchandise business, launching brands including Kenmore appliances and Craftsman tools.

Kmart hits trouble

But Kmart made mistakes that led to its 2002 bankruptcy filing, Nakfoor said. It acquired specialty brands beyond its expertise, such as home improvement retailer Builders Square, Waldenbooks and Borders Group Inc., another Michigan retailer that liquidated last year after its own struggles.

"I think Kmart wasn't looking in the rearview mirror or keeping its eyes on the road," he said.

Hedge fund manager Eddie Lampert bought 53 percent of Kmart while it was in bankruptcy. After it emerged from bankruptcy, Lampert helped engineer Kmart's purchase of Sears in 2004, and the merger was completed in 2005.

Since then, Grand Rapids-based Meijer, Minneapolis-based Target and Wal-Mart have opened dozens of stores in Michigan — many of them in Metro Detroit.

Kmart and Sears are playing catch-up. Target is keeping a step ahead, selling out of its popular Missoni line in September and announcing plans this year to test mini-Apple Inc. outlets in more than two dozen stores.

But Sears and Kmart are forging ahead, using Apple iPads and iPod Touch devices to let sales associates check inventory, access product information and sell merchandise.

"We expect this will make us more relevant in shoppers' minds, positioning us as a retailer that absolutely believes that everything begins and ends with putting the customer first in everything we do," Freely said. "We have a collection of assets that separates us from every one of our competitors, and we are going to continue to build on that."

Competitors surge ahead

Still, Sears invests much less in its stores than other chains, which routinely spend between $6 and $8 a square foot on annual maintenance, according to Matthew McGinley, managing director of International Strategy & Investment Group, an investor research firm. Sears is spending about a quarter of that, or $1.90 a square foot, he said.

Meijer, meanwhile, invested more than $1 billion in new stores — including 43 in Michigan — remodelings and distribution center expansions since 2005. About $75 million of that was invested in 2011 in Michigan stores alone.

"Customer service is another area that is severely lacking with both companies," retail historian Hauser said, "whether you try to contact them by phone, at the checkout or approach a sales associate in a particular department."

The future is murky for Sears Holdings. Analysts have speculated on whether the company will file for bankruptcy, become privately held or continue to languish. Others say the company's real value lies in its portfolio of U.S. real estate properties.

Speculation abounds

The company's stock price rose more than 11 percent this week on speculation that the company will go private after reports Wednesday that Sears Holdings Chairman Lampert purchased shares from his own hedge fund. Lampert and his hedge funds already own close to 60 percent of the company.

But the stock price fell last week when retail creditor CIT Group said it wouldn't lend to Sears or Kmart suppliers on fears the vendors wouldn't get paid.

Another problem is other retailers are outdoing Kmart in the categories it used to dominate. Fast fashion, for example, belongs to Target, Forever 21 and H&M. Sears partnered with the Kardashian sisters of the popular TV series "Keeping Up With the Kardashians," but it's likely too little too late, Nakfoor said.

"I just don't think there's a place at the table for Kmart," Nakfoor said. "It's just not top of mind for a lot of people."

Penney Wise? Not Exactly
By Leslie P. Norton
Barron's
January 23, 2012

J.C. Penney shares have climbed on hope that a new CEO will quickly boost the big retailer's fortunes. But investors' bullishness looks premature.

The displays at J.C. Penney's midtown Manhattan store abruptly changed several days ago, the clearance signage replaced by a cryptic photograph of the numbers "2.1.12" soaring above clouds that look like two fat white thumbprints. A security guard was mystified. The sales associates were perplexed, too. Rumors flew that their employer plans a redesign and a new pricing strategy, and they fretted about their jobs. There's reason to worry. Traffic was sparse, compared with that at Macy's flagship, two blocks away on 34th Street.

All that will change if Ron Johnson's coming makeover of J.C. Penney—plans for which he'll unveil at investor meetings this week, starting Wednesday, and that will kick in on Feb. 1, or 2.1.12—is a success. Investors already are betting that it will be. Profit expectations for the retailer's fiscal year ending Jan. 30 have been slashed, to $1.25 a share, from the company's own initial forecast of $2.10. Nonetheless, the stock (JCP), now around $35, is up 12% since Johnson joined Penney in November. But a turnaround takes time. There will be plenty of chances to buy the stock at a lower level before shoppers issue a verdict on the CEO's vision.

JOHNSON HAS AN EXCELLENT TRACK RECORD. He's the mastermind behind Apple's (AAPL) retail stores. He's also the merchandising whiz who revved up Target (TGT) by having it sell a dazzling array of cheap housewares designed by architect Michael Graves.

To reenergize Penney, America's third-largest department-store chain by revenue, behind Sears (SHLD) and Macy's, he must enliven its merchandise, much of it now dowdy, resurrect a moribund housewares department, reduce costs, boost traffic and attract younger, richer customers. The two board members who pushed for Johnson's hiring—William Ackman, the activist investor, and Steven Roth, chairman of Vornado Realty Trust (VNO)—are eager for higher returns.

Speculation about Johnson's plans for Penney abound. Glass stores, just like Apple's! Tie-ups with high-end designers to attract younger customers. "Fashion Bars" like Apple's Genius Bar support stations! Self-checkouts!

There is certainly plenty of room for improvement. Sales, at $156 a square foot, trail the $194 at Kohl's (KSS) and the $171 at Macy's. Penney owns some valuable real estate, but has too many stores. The shuttering of 50 of its 1,100 is certainly possible, though leases are tough to exit. Closing even more would make sense. Penney has already abandoned its outlet-store operation. Says consultant Craig Johnson, "He has to reduce to 900 stores."

The messy clearance racks in many stores will likely disappear. Johnson has said he will adopt a new price structure and hinted at an "everyday low pricing" model. Here's one way it might work: Right now, a handbag might be put on the floor with an original price tag of $69 and a 40%-off ticket. If it doesn't sell, Penney marks its original price down by 60% to 80%. Under the new pricing strategy, the same handbag might go out at $40, without that being labeled a sale price. Penney could later mark down the bag further to move it.

In addition, merchandise lines would be drastically streamlined, as would space devoted to private brands. Analyst Deborah Weinswig of Citigroup expects Johnson to drop stale or duplicative brands, try to add "younger, tech-savvy customers" and train associates to help shoppers select complete outfits. He'll also try to trim selling, general and administrative expenses. They clock in at $62 a square foot, and advertising is 6.6% of sales. Both are higher than Kohl's or Macy's. Penney's chief has already hired a talented roster of former colleagues from Apple and Target. His new chief operating officer, Michael Kramer was CEO of Kellwood, and before that a top executive at Abercrombie & Fitch (ANF) and Apple. His first big deal is to buy a $38.5 billion stake in Martha Stewart Living Omnimedia (MSO) and take two board seats at the company. That could lead to more freestanding boutiques within Penney locations, similar to the Sephora and Mango stores there now, both appealing to a younger, freer-spending clientele.

TROUBLE IS, MARTHA STEWART herself is 70 and not exactly an idol of younger shoppers. And, even if it succeeds, everyday low pricing may only depress the bottom line, at least at first. As for measures like free-standing boutiques, "My fear is the former team tried them before," says Charles Grom of Deutsche Bank.

Penney has announced several restructuring charges; more may be on the way in the current quarter, which ends this month, as it marks down merchandise. Penney trades at 28 times earnings—more than double the multiple for Macy's, which already had done a massive overhaul.

In fact, Penney stock is behaving as if the retailer is about to soon generate the record $4.88 a share in profits it had back in 2006. However, that's not in the cards, regardless of what Johnson announces this week.

J.C. Penney at a Glance

Recent Price* $35.53
12-Month Change 22.0%
Market Value (bil) $7.6
Revenue 2012E (bil) $17
EPS 2012E $1.66
EPS 2013E $2.20
P/E 2012E 21.4
P/E 2013E 16.2
Dividend Yield 2.3%
*Through 1/19. E=Estimate.
Fiscal Year ends in January.
Source: Thomson Reuters

Sears? Yes, It's the Top Dog! Stock, Up 54%, Is 2012's Best Performer
By Steven Russolillo and Steve Eder
Wall Street Journal
January 21, 2012

The best-performing stock of 2012 is the unlikeliest of candidates: Sears Holdings.

The retailer’s share price has surged a whopping 54% throughout the first three weeks of the year, defying many skeptics and regaining much of the steep loss witnessed in 2011.

On Friday, Sears edged past Netflix Inc. as best performer the Standard & Poor’s 500-stock index.

So why would a stock that was recently on some investors’ death-watch suddenly have such a head-snapping turnaround?

There may be lots of reasons – among them, the massive buying spree by largest shareholder, Edward S. Lampert. That’s driven rumors that he could take the company private, reason enough to send the shares higher.

As well, Dow Jones Newswires reporter Karen Talley reported executives have been doing the rounds, reassuring financing partners that the company has the wherewithal to meet its obligations.

Ms. Talley writes that the retailer has talked with a number of large financial partners, and has approached CIT Group Inc., which pulled its funding last week amid uncertainties about Sears’ financial condition.

The inability for many investors to short the stock has also contributed to the recent rally. Sears is among the most expensive stocks to borrow, according to securities-lending trackers at Data Explorers. In a short sale, traders borrow shares and sell them, hoping they can buy the shares back in the future at a lower price and return them, pocketing the difference as profit.

Demand to borrow shares of Sears has skyrocketed, but there are few shares eligible to be shorted. Mr. Lampert’s buying has probably had something to do with that. Data Explorers estimates only about 11% of Sears’ total shares are out on loan, a level that has stayed consistent for much of the year.

“You physically can’t get your hands on more of the shares to short,” said Alex Brog, an analyst at Data Explorers.

Mr. Lampert personally bought roughly $159 million Sears’ stock earlier this month.

The hedge-fund investor is the largest holder of Sears, with a 21% stake valued at roughly $750 million, according to Capital IQ. Mr. Lampert, his hedge fund ESL Investors LLC, and his other related entities control roughly 60% of Sears’ stock.

Mr. Lampert declined to comment. Representatives from Sears declined to comment.

Whitney Tilson, an investor who recently looked into buying shares of Sears, saw Mr. Lampert’s stock purchase as a bullish gesture.

“I think he genuinely believes that the stock is insanely cheap,” said Mr. Tilson, adding that he couldn’t “get comfortable” with Sears as an investment.

Sears: Say Hello To The Hottest Stock In 2012
By George Anderson
Down Jones Newswire
January 20, 2012

It’s a pretty ho-hum day in the stock market, but one company continues to defy all logic or reasoning: Sears.

The retailer’s stock has jumped another 14% today and is up a whopping 56% in 2012. It is now the best-performing company on a year-to-date basis in the entire S&P 500, taking the reigns previously held by Netflix.

Trying to explain or reason the stock’s recent move has been tricky to say the least. Our esteemed Deal Journal colleague Shira Ovide earlier this week wrote “no one one knows anything about Sears.” She cautioned against trying to find any logic in the company’s day-to-day stock action.

Rumors have been flying that more and more institutional buying is taking place as the notion of majority owner Eddie Lampert taking the company private has gained some steam. It’s also tough to bet against Sears in an environment like this. From Shira:

Edward Lampert and his hedge funds control something like 60% of Sears outstanding stock, and he has shown he is willing to buy more stock. No doubt because Lampert is none too willing to loan out his stock, the shares are prohibitively expensive for investors to short — or borrow in the hopes of a stock-price decline.

There were also reports yesterday that CIT Group has begun approving financing for vendors that do business with Sears. That’s good news, especially as questions swirl about the company’s future.

Amazing that it was less than a month ago that Sears reported disappointing sales and elected to close 100 to 120 stores. The stock slumped sharply and analysts cautioned more tough times would be ahead.

That may still be the case. But the stock price has just ripped higher in recent weeks. Is it ready to top? Good luck making that call.

Shares were recently up 14% at $49.60. The stock bottomed in early January just below $30. But remember it had been above $80 as recently as October.

Netflix is now in the two hole as hottest stock in America, up 45% throughout the first few weeks of 2012. JDS Uniphase is third, up 28%, followed by Bank of America and PulteGroup, which have each gained 24%.

Is Eddie Lampert Taking Sears Holdings Private?
By George Anderson
Retail Wire
January 18, 2012

When you're an ailing publicly-traded retailer and just about everything written or said about your company goes through a laundry list of mistakes you made and fixes you need to make to get your business turned around, what do you do? If you're Sears Holdings, apparently, you take the company private. (At least that's the rumor du jour.)

Sears Holdings has seen its stock price rise on speculation that the company's chairman, Edward Lampert, was getting ready to go private. Analysts, even those who saw some value in going private, said that would not be enough.

Morningstar analyst Paul Swinand told Reuters, "They still have to improve the operating structure and costs, pension, etc., then reinvest in stores, and then get appliances to sell again."

The speculation about what Sears Holdings might do next comes after recent reports that lenders are looking to negotiate quicker turnaround on payments from the company. One lender, CIT Group, made the decision to stop financing factors for suppliers waiting on payment from Sears Holdings for orders delivered to the company.

Discussion Questions: Would Sears be smart to go private at this time? What would it be able to do as a private concern that it wouldn't as a publicly-trade company?

Public or private, I don't see Sears being much of a retailer. We have seen a trend of store closings by the bushel and that will probably continue. By going private, stockholders will be able to get something for their shares. Most likely they would become worthless over time. Also being private, the company will no longer have to report earnings which I'm sure is something they dread. There was always the theory that Sears has some kind of super underlying value with its private label and real estate. We've been waiting 10 years for that to appear. Haven't seen it yet. -- David Livingston, Principal, DJL Research

What difference is there if you're private or public, if you have a merchandising vehicle that is broken? Maybe being private they can better evaluate issues like Craftsman and Kenmore without the glare of Wall Street, but at the end of the day they need to create a destination for some portion of the population relative to Walmart, Target, JCPenney, Amazon, Zappos...etc. -- Charlie Moro, President, CFS Consulting Group, LLC

Public or private, would it make any difference? Sears has basic problems that need to be fixed in order to reverse its declining sales. Lampert and team have had many years to reverse this sales trend and have consistently failed. Who wins if Sears goes private? Lampert. -- Max Goldberg, Founding Partner, The Radical Clarity Group

If you are private you are no longer obligated to report what you are -- or in this case aren't -- doing to fix the business. So ... might we not see a scenario in which the company goes private, totally restructures in the most brutal manner imaginable, milking whatever is available in the process, and then either goes public again in some new incarnation people would be willing to invest in ... or ... more likely is stripped of its asset value and whatever left is sold in a fire sale? Don't be so quick to say public versus private doesn't matter. It's a lot easier to loot once you get the right to close the curtains. -- Ryan Mathews, Founder, ceo, Black Monk Consulting

This retail business is without turnaround. Even the poorest of competition beats Sears/Kmart. They have no reason for existence. The only consumer assets they have are some of their brands, which others will be more successful selling than they. Like Lampert, if I have the ability to leverage any value out of this company, I take it private and control the future to my personal benefit, which does not include retail. -- Gene Detroyer, Entrepreneur, Advisor, Consultant, Professor, Independent

Sears of Eddie Lampert has not seemed too interested in paying the rent to live a public retail life. It now appears Sears wants to leave its current financial home (public retailing) for another. I anticipate Sears going private with not much else changing. Sears of Richard Sears is no longer retail oriented. -- Gene Hoffman, President/CEO, Corporate Strategies International

The Sears and Kmart situation reminds me of the last years of Trans World Airlines. -- David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates

Sears value as a retailer lies only within their fast-fading brand value (Kenmore, Craftsman, DieHard). As Sears continues to lose market share through decreased customer visits and store counts, these brands begin to lose their relevance. Sears is finished. Moving the patient from a public hospital to a private hospice service may help to screen the public's view of the rapid decline of the patient, but it won't save its life. Sears best hope is to salvage what they can from their real estate holdings and sell the brands to the highest bidder (while they still have value). -- Charles P. Walsh, President, OmniQuest Resources, Inc

Since 2005, publicly traded shares of Sears Holding are down by 40%+. RBS Partners (Lampert) and Fairholme are the large stakeholders. The group of bloggers at RetailWire have been consistent in commenting that Sears has lost their retailing chops -- either consciously or by marketplace happenstance. An added point that most seem to agree upon is, Sears is a "financial" play. The RBS and Fairholme financial concerns have to go through the "mating dance" of showing "take some profits of the table" (Lampert sold 25 million shares in 2010 when the stock circled 100 bucks), and "love" the stock (buybacks, buying on opportunity, such as now at high 30s). This dance is going to go on for a couple more trips around the floor, but the large institutional and mutual fund players aren't going to listen to the music too much longer. Selected hedge funds and private equity will come in to support and take some crumbs. The financial investors will then be positioned to take the concern private. Then, stores, brands, and distribution points can be parceled off at a cash pace that the investors are seeking. The firm is not positioned to be a retailer 5 years from now. -- Roger Saunders, Managing Director, PROSPER BUSINESS DEVELOPMENT / BIGResearch

So far omitted from this discussion are the hefty fees to lawyers, bankers, therapists, etc. that always accompany these "unlocking value" maneuvers...of course it's not like they're spending it on the stores now, so perhaps out-the-window vs. down-the-drain doesn't really matter. -- 'notcom'

Ok, so I admit I might be a bit over my head on this, but if Lampert were to take this thing private, wouldn't he have to come up with a fair amount of capital to finance the transaction? And who exactly would want to invest in this thing at this point, especially if the creditor community is starting to tighten the noose? -- Ted Hurlbut, Principal, Hurlbut & Associates

• Sears stock rises on speculation it may go private - Reuters
• Sears Rises on Speculation Lampert May Take Retailer Private - Bloomberg News
• Sears Seeks to Calm Nerves - The Wall Street Journal

Sears stock rises on speculation it may go private
By Sandra M. Jones
Chicago Tribune
January 17, 2012

Shares of Sears Holdings Corp. soared amid speculation that the company controlled by hedge fund billionaire Edward Lampert could go private.

The stock climbed 8.2 percent, to $36.31, in midday trading after rising as much as 16 percent earlier in the day.

The speculation follows a revelation on Thursday that CIT Group Inc., a key lender in the retail industry, would no longer provide loans to suppliers shipping goods to Sears and Kmart, news that sparked questions about Sears' future. While CIT has little direct business with Sears, its opinion could sway other such lenders to follow suit.

Sears declined to comment on the prospect of going private. "We don't comment on rumors and speculation," said Chris Brathwaite, spokesman for the Hoffman Estates-based operator of Sears and Kmart stores.

Sears has experienced a rash of financial turmoil of late including a disappointing holiday sales drop, a string of quarterly losses, rising debt, dwindling cash, store closings and downgrades from the major credit agencies deeper into junk territory.

Sears stock had been as high as $80 in October at the start of the critical holiday shopping season, when the company traditionally generates 30 percent of its annual revenue.

Lampert, who is also Sears chairman, owns 62 percent of Sears, and with the stock price falling it gets cheaper to buy the 38 percent he doesn't have, analysts said.

The market buzz followed some unusual buying in Sears call options in the first 25 minutes of trading, said Jon Najarian, a co-founder of online stock, options and futures brokerage TradeMonster.com in Chicago. Buying of Sears stock and options moved up as the rumor of a leveraged buyout spread, Najarian told Reuters.

The History and Future of Sears
By Tim Parker
San Francisco Chronicle
January 16, 2012

You don't have to be a sophisticated investor looking at balance sheets and listening to investor conference calls to see what's happening in the retail space. Look no further than your own shopping habits.

If you're like most, you're doing much more shopping online and for purchases more suited to local stores, you're spending your money at the modern, bargain conscious, in-style stores. What was popular when your parents were your age isn't popular now.

That, at least in part, may sum up what is causing retailers like Sears, JC Penny (NYSE:JCP), and most bookstores to be on financial life support going in to 2012.

The History of Sears

You might best know Sears as the department store where your grandparents shopped, but the company has a long and storied history. Sears can trace its origins back to 1886, when Richard Sears began selling watches at a train station in Minnesota. He was so successful that he moved to Chicago and published an 80-page mail-order catalog.

Although he wasn't the first to make such a catalog, Sears and his partner, Alvah C. Roebuck, eventually had more than 500 pages of products for sale, making them the largest mail-order retailer in America, the amazon.com of their day. In 1925, Sears and Roebuck opened their first retail store and by 1973, the company they founded had built the largest building in America: the Sears Tower.

By the 1990s, Sears wasn't the iconic mail-order brand that it once was. Since the 1930s, they had purchased companies like AllState Insurance, Dean Witter Financial Services (which subsequently merged with Morgan Stanley), Kenmore Appliances and the internet services provider, Prodigy.

By 1992, Sears was facing crippling competition from Wal-Mart (NYSE:WMT) and Kmart, forcing it to cut 47,000 jobs and post a loss of $2.3 billion. Slowly, the retail side of the business became a smaller part of their revenues. By 1993, Sears had stopped publishing its catalog. In 2004, Kmart purchased Sears and formed Sears Holdings (Nasdaq:SHLD), making them the third largest U.S. retailer behind Walmart and Home Depot (NYSE:HD).

Since the merger, the company has continued its downward spiral, losing 83% of their stocks' value in the past five years. Sears Holdings recently announced that it will close up to 120 Sears and Kmart Stores to shore up its finances, further proving that its retail arm may soon be lost.

The Future

Few people are betting on a revitalization of the retail arm of Sears; not even the company itself. In 2010, Sears announced that it would sell its Craftsman and Kenmore brands in other retail stores like Costco (Nasdaq:COST) and Ace Hardware. However, there's another side of Sears that isn't as apparent: Sears Holdings owns a lot of real estate.

In 2011, Sears announced that it was going to open up its 3,800 retail properties to other retailers. This could include smaller outlets on the property, in store kiosks and a retail presence next to a Sears or Kmart store.

Becoming a real estate investment trust (REIT) may not seem like the mark of a healthy company, but consider this: Sears has a market cap of nearly $3.3 billion. Simon Property Group (NYSE:SPG), one of the best known property leasers, is worth $37 billion and Sears owns a lot more retail property than Simon Properties. Sears' real estate may represent an untapped, highly lucrative potential revenue stream.

Sears is still investing a lot of money into becoming a leading online retailer, but many investors believe that monetizing their properties and building their brands outside of their retail stores is their best hope.

The Bottom Line

If you have shopped at a Sears or Kmart recently, you may know firsthand that the brand is in trouble; however, Sears is larger than its highly visible retail presence. Still, investors are largely unconvinced that the company will survive without a major restructuring and even that may be too late.

Can Sears Be Saved?
By Margaret Bogenrief
Business Insider
January 16, 2012

As restructuring and turnaround advisers and investors, we here at ACM Partners are often asked about the big retail “stories of the day” (meaning companies on the brink of distress). GAP, Tiffany & Co., and now Sears and Kmart are the most recent “big cases” we’ve received the majority of inquiries about.

Given Eddie Lampert’s recent repurchase of Sears shares and the news that CIT's pulling the store’s supplier loans, we thought it’d be best to take a closer look at the next steps for the retailer.

Here, then, are a few questions (and answers) about Sears, and its future. (We’ll tackle Kmart tomorrow.)

Do we even need Sears (the store; not the corporate parent) anymore?

Sears has essentially, through hedge fund manager Eddie Lampert's mishandling of the brand/store, disappeared from the retail landscape. Gone are the days of Midwestern families (like mine) setting aside Sundays to peruse Sears' sales-floors to see the "latest and greatest" offerings. Instead, as Lampert “has tried one strategy after another,” including one move “converting 400 Kmart stores to a format called Sears Essentials with grocery and convenience items. Sears Grand, another concept, hewed to a superstore model.” Worst of all, “all have failed to reverse falling sales and ceded customers to the likes of Wal- Mart and Macy’s.”

Here, then, is where Sears went wrong:

• Financial Shortcomings: While “’their balance sheet is fine...for three straight quarters, the retailer has reported negative net income, losing over $400 million in earnings and $824 million in operating cash flow in its last quarter. Fitch recently downgraded its credit rating to CCC, and the company will record up to a $2.4 billion charge this quarter for its store closings.” Even more worrisome, “Cash had dwindled to $624 million at the end of the third quarter, compared with $790 million a year earlier.” Most importantly, “Lampert took an investor's approach to running the chain, scrimping on necessities like store maintenance and ignoring traditional metrics like same-store sales. Meanwhile, he spent $1.5 billion on share buybacks from 2008 to 2010.” In short, Lampert’s managed Sears as an investor, not a turnaround professional.

• Style Drift: Once a venerable brand of all things Americana and, essentially, masculine, Sears has completely lost its style-and-offerings way. What does Sears really offer anymore (at least that can't be purchased less expensively and more conveniently somewhere else?). The recent addition of the Kardashian line perfectly illustrates this point.

• Lack Of Direction: Sears appears to be fumbling along in its efforts of just trying to survive. Most importantly, “Sears is turning upside down a strategy that has prevailed for most of its 118-year history. It’s accelerating franchising efforts -- including Sears Hometown and Sears Auto stores. It’s leasing space to such retailers as Forever 21. And it’s allowing other retailers to sell the popular DieHard, Craftsman and Kenmore products and licensing those brands.” Furthermore, the appointment of former tech executive Lou D'Ambrosio is yet one example of how Sears clearly shows no coherent vision for its future.

If yes, can Sears be turned around? What does the executive team need to do?

Obviously, working in the restructuring and distressed advisory and investment space, we ALWAYS believe something can be turned around and/or fixed. Sears is no exception.

Here are a few things Sears can do to "save" itself:

• Minimize Costs: While “closing the Kmart and Sears stores will generate $140 million to $170 million of cash from inventory sales and leasing or sales of the locations” and “the chain plans to reduce fixed costs by $100 million to $200 million,” Sears must both tighten operations and enact strong cost-cutting actions across the board. Lampert must take a turnaround approach to the inevitable restructuring that’s coming down the pike.

• Create And Maintain A Coherent Vision: What, exactly, is Sears about? Ask different consumers and you'll get a million or more different answers. Sears core brands are Kenmore and Craftsman, meaning the retailer must narrow its focus by returning to its roots: a specialized retailer catering to both men and families. While the retailer risks losing market share to more specialized retailers in this space, it corrects the current issue Sears has right now: attempting to be a jack-of-all-trades, master of none, in a retail world where customers can always easily go somewhere else.

• Go Private: “With a market cap of only $3.45 billion, it wouldn’t be tough to get the financing for a going-private transaction.” After all, “based on its latest balance sheet, Sears has a net book value of $7.7 billion,” which most likely understates the retailer’s true market value. A private equity firm could be the failing retailer’s financial savior, should revenues fall much further.

Tomorrow, we take a look at whether or not Kmart can be saved.

Margaret Bogenrief is a partner with ACM Partners, a boutique crisis management and distressed investing firm serving companies and municipalities in financial distress. She can be reached at margaret@acm-partners.com.

Grayslake's Country Squire Restaurant Closes
CBS News
January 13, 2012

GRAYSLAKE, Ill. (CBS) — A long-time culinary favorite in the northern suburbs has shut its doors for good.

As WBBM Newsradio’s Bernie Tafoya reports, the Country Squire Restaurant, at 19133 E. Belvidere Rd. in Grayslake, is now closed after more than 57 years in business

The restaurant was located in a 17-room mansion that had once belonged to Wesley Sears (1898-1944), the son of Sears, Roebuck & Company founder James Warren Sears.

At the time the house was built in 1938, the mansion was considered 10 years ahead of its time with all of its modern conveniences. It had eight bathrooms and four fireplaces, and featured everything from glass-enclosed bathtubs to brass hardware on the front door.

Martin and Edna Geisel, known at the time for Chicago’s Café de Paris on North Dearborn Parkway, opened the Country Squire in 1958. They turned the original family dining room into a lounge, the living room into a fireside reception area, the library into a library bar, and the bedroom suites into a banquet area.

The estate surrounding the old Sears house included a 13-acre woods with a variety of native and transplanted trees, and current owners Bill and Kris Govas continued the tradition by adding a gingko tree from China to the mix.

The restaurant hosted a vast array of famous visitors, including Carl Sandburg, Marlon Brando, Esther Williams, Gary Coleman, Mike Ditka, puppeteer Burr Tillstrom, and even DJ Wolfman Jack.

“For a place I didn’t design, it’s a nice joint you’ve got here,” the restaurant’s Web site quotes Frank Lloyd Wright as saying about it.

Grayslake village officials said the closure took them by surprise. This past Thursday, the owners called to turn in their liquor license to the village, the Daily Herald reported.

Sears Chairman Buys Shares, but His Reason Is Unclear
By Peter Eavis
New York Times
January 12, 2012

Edward Lampert, who serves as Sears chairman, controls just under 60 percent of the shares of Sears Holdings. When big-name investors increase their personal stakes in stocks, the purchases can be a positive sign for the companies.

Edward S. Lampert sent a murkier message this week after buying extra shares in Sears Holdings, the troubled retailer.

Mr. Lampert, who controls just under 60 percent of the retailer’s shares through his hedge funds and his own portfolio, recently added another $130 million of Sears stock to his personal holdings. But he did not acquire it in the open market from outside investors. Rather, he bought the shares from his hedge fund, ESL Investments, according to a regulatory filing on Wednesday.

It could be a sign his hedge fund investors are dissatisfied.

As of November, Sears made up 30 percent of the holdings of RBS Partners, a $9 billion investment vehicle related to ESL Investments. That holding has been a drag on performance. Over the last 12 months, shares of Sears are down about 55 percent, with the stock being pummeled late last year after disappointing holiday sales.

Mr. Lampert may be under pressure to meet redemptions from his hedge funds. Other regulatory filings suggest that investors have been pulling out in recent weeks.

At the end of 2011, Mr. Lampert’s hedge fund entities returned roughly $1 billion to investors. These distributions — which, unusually, took the form of AutoZone shares, not cash--were done as part of fund restructurings and a wind-down of a portfolio.

It is also not clear how much Mr. Lampert has increased his personal stake in Sears with the $130 million purchase. As a manager of his hedge funds, he already had indirect and sizable economic exposure to Sears. Mr. Lampert, who serves as Sears chairman, also took $17 million worth of the company’s shares from a hedge fund entity in place of cash management fees.

A spokesman for Mr. Lampert declined to comment on investor redemptions.

Since 2008, Mr. Lampert has been feeling heat for his Sears investment. Over the last three years, the company has consistently reported disappointing sales, in part because it has not spent enough money updating its stores, critics say.

The poor sales may now be leading to a cash squeeze. Sears forecasts that cash flows for the quarter that will end this month will be less than half what they were in the year-earlier period.

With the retailer’s financial situation deteriorating, one lender, the CIT Group, has stopped making cash advances to Sears’s suppliers. This could intensify Sears’s woes.

When these advances dry up, suppliers often demand immediate payment for the goods they sell to the retailer. Or they may ask the retailer for a letter of credit, under which a bank guarantees payments.

If suppliers make such demands, they can deplete the retailer’s cash and drain bank credit lines. Both contributed to the 2008 demise of the electronics retailer Circuit City.

In a statement, Sears said it had ample access to cash through bank lines. It also said it disagreed with CIT’s action and noted that the lender’s advances represented “less than 5 percent” of Sears’s inventories. Bloomberg News earlier reported on CIT’s decision.

But the pullback by CIT could make a big dent in Sears’s cash if the retailer cannot find other lenders.

Sears had $10.2 billion in inventory at the end of October. Should Sears have to find cash and letters of credit to pay suppliers for 5 percent of that amount, it could need $510 million.

Fitch Ratings said Thursday that 5 percent of its 2012 Sears inventory forecast would equal $400 million to $450 million. In any case, Fitch said in a report, CIT’s move reduced the retailer’s margin of safety.

How much more punishment can Sears take?
By Alain Sherter
CBS News
January 13, 2012

(MoneyWatch) -- It seems like many moons ago that Sears (SHLD) owner and prominent hedge-fund investor Eddie Lampert was being compared to Warren Buffett. How times change.

Things look grimmer than ever for the struggling retailer after CIT Group, one of the nation's largest commercial lenders, moved this week to halt credit to Sears suppliers. CIT's concern -- that Sears may not be able to pay the finance firm for the loans it makes to manufacturers for shipments to the company.

It isn't a death blow for Sears. The company has plenty of money in the bank to carry on, as a Sears spokesman noted in seeking to minimize the significance of CIT's move. But the lender's importance in the so-called factoring business could sow doubt among other lenders and suppliers that deal with Sears. As one corporate executive whose company has worked with CIT tells the Chicago Tribune:

"Nobody wants to be the supplier who gets stuck," said Rob Mann, CEO of Chicago-based clothing-maker Henry Lee and Co., who doesn't sell to Sears but has at times dealt with CIT. "It becomes like a run on the bank. Everybody wants their money upfront and that drains cash reserves. It's like a self-fulfilling prophecy."

Indeed, with Sears coming off a weak holiday shopping season and growing investor skepticism about its turnaround strategy, the loss of vendor financing could amount to another nail in the coffin. Credit rating agency Fitch said CIT's move raises "another liquidity concern for Sears" in 2012, boosting the company's working capital requirements in future years. And that could prove challenging, as Sears earnings continue to sag amid strong competition from Walmart (WMT), Target (TGT) and online retailers such as Amazon (AMZN).

Fitch, Standard & Poor's and Moody's (MCO) have all lowered their ratings on Sears debt in recent months. Sears shares fell more than 5 percent on Thursday following news of CIT's decision. The cost to investors of buying insurance on Sears bonds also rose.

Can Sears turn it around? Certainly not in the opinion of many equity analysts, who rate the company's shares as among their "most hated" stocks. Optimists might look at the modestly brighter prospects for the U.S. housing market and expect a boost to Sears's appliance, hardware and other home businesses. Some investors also could take comfort in the retailer's considerable real-estate holdings and name brands, which include Craftsman, DieHard, Lands' End and Kenmore.

Sears is also working hard to attract new customers. In 2010, for example, it launched a Lands' End brand targeting younger shoppers. The company also started working with reality TV icons the Kardashian sisters, who are marketing a clothing brand through Sears.

But Sears execs have been singing a similar song ever since Lampert yoked the company to Kmart in 2004 in an $11 billion deal. Not much has gone right for Sears since the merger, underscoring an axiom of M&As: Two losers don't make a winner.

To put Sears back on track, Lampert may need to borrow Buffett's crystal ball.

Investors Journey Through a Vale of Sears
By Justine Lahart
Wall Street Journal
January 13, 2012

On paper, Sears Holdings looks cheap. But with a key finance firm pulling back from its vendors, investors buying now may find later that they have paid a very high price.

Add up all the things that Sears owns, and the company is trading at a deep discount. There are brands like Lands' End, Kenmore and Craftsman. There are about 100 million square feet in real-estate holdings, along with leases on roughly 150 million square feet. The company has several billion dollars of inventory.

If the company traded at book value, its shares would trade about 110% higher than they do now. But as with the banking business, success in retailing is based on trust. And when a retailer's lenders and vendors begin worrying about whether they are going to be paid, things can go bad quickly.

That is what makes CIT Group's decision to stop financing loans to suppliers awaiting payment from Sears so disconcerting.

Sears points out that CIT's payables account for less than 5% of its inventories and that other "factors," as such vendor financing firms are known, are still lending to its suppliers. That said, CIT is the biggest and best-known factor. If it is uncertain about Sears's efforts to shore up its business, that could give other factors and vendors pause.

Nor are the assets on Sears's books enough to assuage doubts. They are valuable, but much of that hinges on Sears owning them. With the hulks of former Borders stores still sitting empty, Barnes & Noble on the ropes and companies like Gap reducing their store count, it is hard to know what Sears's real estate and leases would fetch on the open market, or how quickly they could be sold. Its brands matter far more to it than they would matter to someone else.

While Sears's trust problem makes it a dangerous place to invest, it also makes betting against the retailer's prospects treacherous. To keep vendors and lenders from becoming more skittish, it is important to the company that its shares stop sliding.

The same is true for Edward Lampert, the hedge-fund investor who controls Sears. With few shares available to borrow, short selling the retailer is expensive already, and could get costlier still.

A 'crisis of confidence'? Lender's decision puts more heat on Sears Holdings. CIT Group won't make loans to Sears and Kmart vendors, but retailer downplays effect.
By Sandra M. Jones
Chicago Tribune
January 13, 2012

Sears Holdings Corp. was dealt another blow Thursday when word spread that CIT Group Inc., a key lender in the retail industry, would no longer provide loans to suppliers shipping goods to Sears and Kmart.

The news sent Sears shares tumbling as much as 6 percent Thursday before the stock recovered to close up 3.3 percent, at $34. Sears stock had been as high as $80 in October at the start of the critical holiday shopping season, when the company traditionally generates 30 percent of its annual revenue.

The volatile swing in Sears' stock price Thursday signals how uneasy investors are about whether the retailer will survive its latest financial trouble. CIT's decision comes on the heels of a disappointing holiday sales drop, a string of quarterly losses, rising debt, dwindling cash, store closings and downgrades from the major credit agencies deeper into junk territory.

While CIT has little direct business with Sears' business, its opinion could sway other such lenders to follow suit.

"Nobody wants to be the supplier who gets stuck," said Rob Mann, CEO of Chicago-based clothing-maker Henry Lee and Co., who doesn't sell to Sears but has at times dealt with CIT. "It becomes like a run on the bank. Everybody wants their money upfront and that drains cash reserves. It's like a self-fulfilling prophecy."

Sears downplayed CIT's decision, saying that New York-based CIT finances less than 5 percent of Sears' inventory. Sears also said it had "more than adequate liquidity" of $4.2 billion as of the end of December, including cash balances of about $900 million and $3.3 billion in credit facilities.

"We disagree with their action," Kimberly Freely, a spokeswoman for Hoffman Estates-based Sears, said in an email. Freely added that CIT competitors are approving shipments to Sears Holdings.

CIT's decision was initially reported by Bloomberg, which cited two people familiar with the situation. CIT, which went through bankruptcy reorganization in 2009, declined to comment.

"We don't comment on specific customers," said CIT spokesman Curt Ritter.

CIT ranks as one of the nation's biggest providers of factoring services, a business practice that keeps goods flowing from manufacturers to retailers. Factors pay vendors for their accounts payable, allowing them to get immediate cash for orders. The factor collects payment from the retailer at a later date, giving manufacturers the working capital to keep the factories running.

Although CIT's decision doesn't have an immediate impact on Sears, the step, in essence, telegraphs to outsiders that the finance firm is doubtful it will be able to collect from Sears when the bills come due.

"It looks like an escalating crisis of confidence," said Carol Levinson, a bond analyst at Chicago-based Gimme Credit, who had covered Sears for 25 years but no longer officially tracks the company's debt.

Indeed, even if other finance companies continue to lend to Sears' suppliers, it could become more expensive for Sears to stock its shelves as vendors charge higher costs to carry what they perceive as a higher risk, said Sean Egan, managing director at Egan-Jones Ratings Co.

"Once you start down this road, it's difficult to regain confidence unless there is a major infusion of capital or some other significant event to bolster credit quality," said Egan. "Sears' options are diminishing for the simple reason that Sears' core business has been declining."

Since hedge fund guru Edward Lampert took control of Sears and combined it with Kmart in 2005, Sears cut back investments in the physical stores in favor of pouring money into its online business. As the stores deteriorated, so did the company's sales, as shoppers bypassed Sears and Kmart for such rivals as Target, Wal-Mart and Best Buy.

Some experts predict Sears will eventually become an e-commerce retailer with fewer, smaller storefronts.

Others predict Lampert will take the company private.

Lampert, who is also Sears chairman, owns 62 percent of Sears, and with the stock price falling it gets cheaper to buy the 38 percent he doesn't have, analysts said. Sears' market cap was $3.6 billion as of Thursday.

Sears referred questions about the possibility of Sears going private to Lampert, whose hedge fund is based in Greenwich, Conn. A spokesman for Lampert was unavailable for comment.

Fitch Ratings said in a Thursday report that it regards CIT's decision to discontinue vendor financing an "additional liquidity concern" that "reduces the company's margin of safety with respect to cash needs." The credit rating agency warned that the action could force Sears to increase borrowing on its revolving credit line and seek additional external financing next year, if not earlier.

Sears Seeks to Calm Nerves: Vendors, Their Lenders Ask for Quicker Payments, Transparency After CIT Balks
By Ann Zimmerman and Steve Eder
Wall Street Journal
January 13, 2012

Several lenders who finance small suppliers to Sears and Kmart say they are pushing for more timely financial information and faster payment terms as they grow worried about the struggling retailer's future. But unlike CIT Group, they aren't pulling the plug.

CIT's decision to stop financing companies that sell to Sears became public Wednesday night, sending the shares of Sears Holdings Corp. down almost 6% at the opening Thursday morning. But as it became clear that other such lenders—known as "factors" in the retailing industry—did not intend to follow suit, Sears shares rebounded and ended the day up more than 3%, at $34, well above Wednesday's closing price of $32.90.

Reassuring vendors and their financial backers will be key to Sears's future, analysts say. Above, a Sears in Milford, Conn., last month.

Investors may also have been reassured by news that Sears Holdings' chairman, Edward S. Lampert, who with his hedge fund and related entities owns almost 60% of Sears, bought about $159 million of Sears shares in recent days. The purchases, disclosed in federal filings late Wednesday, were made from the hedge fund ESL Investors and on the open market.

Though Mr. Lampert's stock purchases could be construed as a vote of confidence, they angered executives at several factoring firms. They said they would have preferred to see him invest that money directly in the company, providing it with capital to improve the business— or speed payments to them.

Sears has tried to reassure suppliers it has adequate liquidity to operate its business, but that hasn't done much to allay financiers' fears, they said. (Factors help finance the short-term needs of suppliers for a fee.)

"We are worried about our financial exposure and that can't be satisfied by conversations about liquidity," said an executive at one New York-based factor. "We want shortened payment terms, more transparency into their finances, to know the value of their assets."

Another executive of a factoring firm said he also has asked Sears for better payment terms and access to more information, but the company wouldn't agree.

Reassuring vendors and their financial backers will be key to Sears's future, analysts said.

"The recent news could exacerbate deteriorating fundamentals if key vendors start to lose faith and follow suit, demanding cash on delivery, letters of credit, or shipping in smaller quantities," Adrianne Shapira, retail analyst at Goldman Sachs, said in a research note Thursday.

Sears is in an untenable situation, said Gary Balter, a retail analyst at Credit Suisse. If the retailer were to shorten payment terms from 90 days to 45, it would cost the company $1 billion this year.

CIT has declined to comment on its relationship with Sears.

Sears says CIT's vendor loans involve less than 5% of its outstanding inventory (or roughly $400 million-$450 million, according to Fitch Ratings).

Some rival factor firms speculated that CIT was being extra cautious given its past history; the company sought bankruptcy protection in 2009 amid the height of retailing's struggles during the downturn and emerged from restructuring later that same year.

Two weeks ago, Sears announced it was closing as many as 120 stores and recording up to $2.4 billion in quarterly charges after holiday sales decreased dramatically. In addition the company said it expected to notch less than $400 million in earnings before interest, taxes, depreciation and amortization this year, down from $3.6 billion four years ago and $1.25 billion last year.

"Sears has adequate liquidity to fund its operations in 2012, if there are no material changes in vendor terms," said Monica Aggarwal, senior director at Fitch Ratings, which reduced Sears's credit ratings in recent weeks and rates its overall default risk as CCC. But if the company's earnings deteriorate further, she said, "it will be at additional heightened risk of restructuring over the next 24 months."

Sears dives after CIT halts supplier loans
By Dhanya Skariachan
Reuters
January 12, 2012

NEW YORK (Reuters) - Sears Holdings (SHLD.O) shares fell 5 percent on Thursday on news that CIT Group Inc (CIT.N) will no longer provide loans to Sears suppliers to finance their shipments to the struggling chain.

The news comes just weeks after the operator of Sears department stores and the Kmart discount chain posted dismal holiday sales numbers, and decided to close as many as 120 stores.

"We disagree with their action," Sears spokeswoman Kimberly Freely said in an email to Reuters. "In fact, we'd point out that other factors are approving shipments to Sears Holdings and CIT's payables represented less than 5 percent of inventories."

A Bloomberg report citing unnamed sources said late Wednesday that CIT, the business lender run by Wall Street executive John Thain, will no longer approve credit for orders after Wednesday. CIT spokesman Curt Ritter said it does not comment on specific customers.

Sears, which has seen sales fall every year since hedge fund manager Edward Lampert formed it through the merger of Sears and Kmart in 2005, also pointed out that it "has more than adequate liquidity and ample resources at our disposal."

Sears shares were down 5 percent at $31.23 on Thursday morning.

The retailer, home to brands including Craftsman tools and Kenmore appliances, is being pressured by the economy, aggressive competition and its own reputation for run-down locations and poor customer service.

A Sears Holdings' collapse was not seen likely in the near future. But that could change if key vendors lose faith and demand cash on delivery, decide to ship in smaller quantities, or ask for letters of credit, bankruptcy experts have told Reuters.

CIT and other factoring companies provide short-term loans to manufacturers while they are yet to be paid by companies receiving their goods or services. Apparel is one key category for which credit is often provided by factoring companies.

When a factoring company pulls credit to suppliers, it could trigger similar reaction from others, some said.

"Though CIT's factoring is only 5 percent of Sears business, I have asked smaller factors what they are thinking, (and) if everyone jumps (the) same way CIT did, then Sears will have a problem," Khawaja Munir, an apparel sourcing agent based in New York, said.

Edward Lampert boosts personal Sears stake by $159 million
By David Moin
Chicago Business
January 12, 2012

(Crain's) — Edward Lampert, who controls Sears Holdings Corp., bought about $159 million in stock in the company recently, according to a report.

Mr. Lampert's hedge fund firm, ESL Investments, sold him about 4.46 million shares of Hoffman Estates-based Sears in private sales, the Wall Street Journal reported, citing SEC filings late Wednesday. The shares were worth about $145 based on the Wednesday closing price, the Journal said on its website.

Mr. Lampert also bought the additional Sears stock on the open market, the Journal said, citing a filing.

The paper said it wasn't clear why ESL sold the stock the Mr. Lampert. A representative for him confirmed the deals to the Journal but declined additional comment.

Mr. Lampert, ESL and related entities already control some 59% of Sears stock, the Journal said.

Sears Suffers Setback as Large Lender Balks
By Miguel Bustillo
Wall Street Journal
January 12, 2012

Struggling Sears Holdings Corp. suffered another setback when a large lender said it would no longer finance loans to suppliers awaiting payment from the company.

Sears representatives played down the decision by CIT Group Inc., the largest U.S. provider of what are known as factoring services for vendors, saying the payables the firm had financed amounted to only about 5% of the retailer's inventory.

"We disagree with their action, in fact we'd point out that other factors are approving shipments to Sears Holdings," company spokesman Chris Brathwaite said in a statement.

Nonetheless, the decision highlights growing anxiety among companies doing business with the amalgam of Sears and Kmart stores created by hedge fund financier Edward S. Lampert, which announced that it would be closing up to 120 stores and taking up to $2.4 billion in quarterly charges last month after reporting weak holiday sales.

Representatives for CIT, which sought bankruptcy protection in 2009 amid the height of retailing's struggles during the downturn and emerged from restructuring later that same year, declined to discuss the Sears situation. "We don't comment on specific customers," said spokesman Curt Ritter. Its decision was initially reported by Bloomberg.

Sears has been seeking to reassure investors and business partners in recent days that it remains financially sound. All three major credit-rating firms have downgraded its debt, citing the deterioration of its earnings over the past 12 months, including a $421 million loss last quarter.

Mr. Brathwaite said Wednesday that the company had about $4.2 billion in liquidity at the end of December, including cash balances of about $900 million and $3.3 billion in prearranged credit facilities.

He said the company had "fully paid all borrowings" on its primary revolving credit line at the end of the month and still had $2.5 billion available to borrow, though it expected it would need to access some of the money to fund operations this month.

"Sears Holdings has more than adequate liquidity, and ample resources at our disposal, which give us significant financial flexibility," Mr. Brathwaite said.

The company also made moves to shore up its executive team, which has been light on seasoned retail executives, hiring former Brookstone Inc. Chief Executive Ron Boire as its chief merchandising officer last week.

Still, Sears's struggles haven't gone unnoticed among its vendors, or those who finance them. Another factor this week said it continued to support clients doing business with Sears Holdings, and hadn't changed its terms, but was watching carefully.

"It's fair to say we are concerned," said an executive at the factor, which loans money to vendors to both Sears and Kmart. "But right now, for the immediate future, we see no reason not to continue doing this business."

John D. Goodman Leaves Sears
By David Moin
Women's Wear Daily
January 11, 2012

In yet another big change at Sears Holdings Corp., John D. Goodman, executive vice president of apparel and home, has left the company.

Goodman joined Sears Holdings in November 2009 and had been leading efforts to clean up and focus the merchandising at the Sears and Kmart divisions and redirect the appeal to younger, trendier customers with junior and contemporary styles.

On Jan. 3, Ron Boire, the former Brookstone president and chief executive officer, was named executive vice president, chief merchandising officer and president, Sears and Kmart formats. Two days later, Goodman, a 22-year veteran of retailing, was out. On Wednesday, the company confirmed Goodman's departure.

In addition, the apparel team at Sears Holdings includes Lana Cain Krauter, president of Sears apparel and senior vp of Sears Holdings, and Tara Poseley, president Kmart Apparel and senior vp Sears Holdings. There are also two chief marketing officers: Sheila Field at Sears Apparel, and Robin Creen at Kmart Apparel.

Under Goodman's watch, Sears launched the Kardashian Kollection last September, which is said to be selling well, though Sears sales overall have not been good. After a weak holiday season, Sears said it would close up to 120 stores and take steep charges in the fourth quarter. Other recent proprietary lines launched during his tenure are UK Style by French Connection, for Sears, as well as the Sofia by Sofia Vergara and Dream Out Loud by Selena Gomez collections at Kmart.

Prior to Sears Holdings, Goodman was chief executive officer at Charlotte Russe. Before that, he was chief apparel and home officer for Kmart.He started his career in the Bloomingdale's executive training program.

Boire Takes on the Ultimate Turnaround at Sears
By Damian Ghigliotty
Fins Sales and Marketing
January 11, 2012

Talk about an executive who likes a challenge.

Ron Boire, Sears Holdings' new executive vice president and chief merchandising officer, has been through three turnarounds since leaving Sony Electronics in 2003 as head of consumer sales. After stints at Best Buy, Toys "R" Us, and most recently, Brookstone, Boire, 50, now aims to rebuild a faltering 126-year-old company while cutting jobs and closing stores.

"There are areas where Sears can be more focused and make a more impactful presentation," said Boire. "We think about it like theater."

Sears has struggled since its 2005 merger with Kmart, said Gary Balter, a retail analyst at Credit Suisse. Both retailers took additional hits when consumer spending froze during the recession. But Sears had problems long before then.

"Sears has been a secondary retailer for as long as I can remember," said Balter. "The company has been in 'turnaround mode' for the past 20 years or more."

Last month Sears said it would close between 100 to 120 of its 4,000 stores. That could result in as many as 9,600 job eliminations. "Right now, Sears is facing real pressure from its competitors and making the tough decision of how to deal with its stores that aren't contributing to the company's bottom line," said John Challenger, chief executive of Chicago-based outplacement firm Challenger, Gray & Christmas. Sears wouldn't comment on possible layoffs.

Boire lives for those kinds of challenges, said Robert Willett, 65, a former Best Buy senior manager who served as the company's chief information officer and chief executive of Best Buy International. Willett worked with Boire from 2003 until 2006 when Boire was executive vice president and global general merchandise manager in charge of the company's product strategy and vendor management.

"He brought a lot of good thinking there," said Willett, who retired from Best Buy in January 2010. "Ron is an optimist. I imagine he saw a challenge with Sears and wanted to make a difference. There are a lot of opportunities there for him to reinvent things, so it's good for him."

At Brookstone, where he was chief executive for just two years, Boire revamped the company's website and mobile offerings to boost the number of products the specialty retailer sells online. Brookstone reported an operating loss of $8.8 million in last year's third quarter compared to $14.1 million in the previous year's quarter.

"I am disappointed to see Ron leave Brookstone so soon," said Willet. "That turnaround is still in progress." Boire's tenure at Brookstone was shorter than his stay at Toys "R" Us and Best Buy. He spent three years at each of those retailers. "Ron has butterflies a bit," said Willett. "He certainly has jumped around since he left Sony."

Boire said that in his previous roles he helped drive sales through his understanding of how to market products and attract customers. "If you look at Best Buy, when I was there we launched Geek Squad and created a premier integrated service," he said. "We also took our television strategy to the next level and changed the way people bought home theater."

Boire gained a reputation for great merchandising at Brookstone. "Underneath Ron's friendly, 'walk the halls' style is a leader with laser sharp retailing instincts," Brookstone's 36-year-old chief operating officer James Smith wrote in an email to FINS. "All of us enjoyed collaborating with him in building an innovative and edgy line of products. We are confident Ron will bring the same efforts to Sears."

At Sears Holdings, Boire plans to increase online sales by further integrating the company's in-store products with those offered through Sears' and Kmart's websites, catalogs and mobile applications. "I have been interacting with many of the people here and universally they all have the attitude of 'I will do whatever it takes to help make Sears great again,'" he said.

"This is a great start," Boire said. "The people here have welcomed me and acknowledged that we have a huge opportunity and responsibility together."

Can Sears Be Saved? Four Strategies For Success
By Robert Lenzner
Forbes
January 10, 2012

You may have missed it, but during the week between Christmas and New Year's, Sears Holdings announced that it would close up to 120 stores amid bad holiday shopping results. As Miguel Bustillo and Ann Zimmerman report for The Wall Street Journal, investor and Sears Holdings Chairman Eddie Lampert has a dismal track record with the venerable brand:

An easy lesson to learn from Lampert's struggles is that investing and operating companies are different skills. Or that retail chains, like restaurants don't suffer fools gladly. With one of the nation's oldest retailers poised to close 120 stores, it's fair to ask the bigger question – is there a place for Sears as a brand? As a department store specializing in hard goods, Sears is battered from one end by Lowe's, Home Depot and Best Buy, from another by Target and Wal-Mart and ultimately must fight Amazon for Internet sales. All of those companies have clearer brand missions – and some of them have questionable futures as well. So where does Sears fit?

It may be helpful to remember that Sears originally found success by laying waste to an existing industry – the General Store. When Richard Warren Sears and Alvah Roebuck transformed a mail-order watch company into a catalog business, they revolutionized retailing. By printing prices in the catalog they added transparency to the buying process. Farmers in particular were no longer at the mercy of shopkeepers who could raise prices on market day. The Sears & Roebuck catalog became a standard that defined market prices for many goods. So what is happening to Sears – admittedly helped by inept management – is very similar to what Sears itself created.

The core assets of the Sears brand are sub-brands, two in particular: Kenmore and Craftsman. They have been somewhat damaged by foolish outsourcing but are still relatively strong with consumers. Both sub-brands have a reputation for durability and dependability. Other than Home Depot (which has suffered through foolish management of its own), Sears is the unique among its competitors in projecting a strongly male image. This points to one possible path for the brand. Sears is still a department store, a one-stop shop for everything from clothing (it owns Lands End) to tools. It appeals most strongly to men. As Lowe's and Best Buy have illustrated, customer service counts when selling home improvement or big-box items. If Sears strongly targeted the Wal-Mart Dad, they might have a shot – from a branding perspective at least.

There are lots of obstacles. Sears is dramatically under-investing in its retail stores. Employee staffing and training are not what they need to be to execute a successful retail strategy. Being a jack-of-all-trades specializing in men still leaves Sears vulnerable to more specialized retailers. And many analysts argue that this entire category is disappearing, to be swallowed whole by online retailers like Amazon. The last insight is the most dangerous. Indeed, Sears seems to be pursuing an oddball, online-centered marketing strategy at the moment. But while it's undeniably true that online retail will swallow some part of the current retail market, I would argue it's the bulk sales, low-touch outlets like Wal-Mart, Costco & BJs that have the most to fear. Stores that specialize in service and advice should think of themselves as showrooms and focus on driving impulse purchases and leveraging service, knowing that customers who are purely price-driven will buy online anyway.

So what should Sears do next? Here are four suggestions:

• Get Lean – Closing stores is probably the right thing to do. But Sears needs to make a serious investment in the stores that remain.

• Focus on Men – This is the best option for Sears to become relevant. Stop selling women's clothing and expand the sections of the store that might get men to make impulse purchases (like small tools & electronics).

• Remember Garanimals – This 1972 match-the-animal children's brand was intended to help kids figure out how to put together outfits. Men need the same help. All of the soft goods at Sears could benefit from this approach.

• Think service – The gaping hole in online big-box sales is service. No other business has the brand recognition of Sears. As Sears already stocks and services all of the national brands in appliances and electronics it should aggressively go after the service business that follows from Internet sales.

The prospects for Sears aren't very good, in truth. But it is an incredibly deep brand, with a heritage that is vastly under-leveraged. Still, shed of the worst real-estate and with an infusion of capital and common sense, a refashioned Sears might still have a place in the heartland of American brands.

How Amazon ate Sears' lunch
By Elizabeth G. Olson
Fortune
January 9, 2012

In the Sears of old, you could mail order just about anything you wanted, even a house. Consumers came full circle in the late 90s, but the department store chain didn't catch on.

As recently as your grandparents' generation, Sears was the household goods icon for middle class Americans. The thick Sears catalog was the family go-to source for mail ordering anything from eyeglasses to bicycles, and, in earlier decades, even patent medicines and pre-cut houses complete with kitchen sinks.

Sears, which opened for business in the late 19th century, called itself "The Cheapest Supply House on Earth," and, in its heyday, dominated home delivery with 75 million catalogs distributed each year, bringing goods to far flung farms, towns and other locations. But today's customer, who can browse the Sears website but not order from its catalog service, which was dropped in the early 1990s, is likely to be ordering from Amazon's marketplace instead.

"Amazon is the new Sears," says Robert Spector, a retail historian who wrote Amazon.com: Get Big Fast, and other books on retailers. "It's also the new Walmart, the new Barnes & Noble and the new Best Buy."

Sears (SHLD) has not retooled its venerable brand for the technology age, which was underscored this past holiday season when retail sales rose, and Internet sales soared, but the venerable store racked up such poor sales that it announced that it will close 120 stores, and projected that its earnings are likely to sink more than 50% for the most recent three months -- usually the time of the year that retailers rake in their biggest revenues.

Sears, says Spector, "tried to hold onto what they were rather than trying to invent themselves. Like Kodak, Sears did not leap forward when it needed to do so."

Yet Sears still has a loyal customer base, attracted by its sturdy Kenmore appliances, reliable Craftsman tools and well-made Lands' End clothing. It totaled more than $40 billion in sales last year, but that amount is down more than $10 billion from its annual totals only a few years ago.

Amazon (AMZN), on the other hand, had healthy sales during the holiday season, although no specific figures have been released. Consumers spent more than $37.2 billion on overall Internet ordering in November and December -- up 15% over last year, according to figures released by comScore, which tracks such spending.

The Seattle-based Amazon launched in 1994, one year after Sears dropped its mail order catalog operation, which department store historian Michael Lisicky believes could have been Sears' foundation to capitalize on its reliable reputation and to build a Web operation that could have cemented its place in the American home.

"Sears could have saved itself if they had switched to an Internet strategy, and combined price and the convenience of things coming to the house," says Lisicky, who is the author of several department store histories, including the most recent "Gimbels Has It!"

Sears has invested in online shopping, mobile applications, and Sears Marketplace, an website that mimics Amazon's reach, offering nearly 20 million products available through third-party sellers. So far, though, that has not bolstered its image or its sales.

Sears "could have used its brands to transcend its recent reputation," agrees Spector, but "it has deeper issues of relating to customers."

Shabby stores, scarce help, and average prices have rendered younger customers indifferent to the Sears brand. They gravitate towards more clearly defined and upscale labels like Apple (AAPL), NorthFace (VFC), or UnderArmour (UA). Or, for lower-priced apparel, they might chose arch rival J.C. Penney (JCP).

Core Sears customers are working class, or those earning between $50,000 and $125,000. For something special, they might splurge on a chic brand, but as they struggle with job uncertainty, unemployment, and a grim housing market, many are increasingly buying their everyday items at stores like Walmart (WMT), Dollar Tree (DLTR), and Target (TGT).

And many consumers have postponed big-ticket purchases like refrigerators, stoves, and other home appliances until the economy and the outlook for jobs seems more secure. All of this has combined to squeeze out the middle layer of retail.

Consumers also changed their buying patterns, and their expectations. They "want to have a relationship with the company, as well as the right price," says Spector. "Amazon, from the beginning, has been all about the customer experience."

In its earliest days, Amazon tested out the book delivery market before it gradually branched out to other items, and, Spector says, "Amazon never promised something it couldn't deliver."

Consumers also are not wedded to malls any more, says Lisicky, "Shopping is no longer a social experience. And department stores, which anchor many malls, now are not service-oriented because it requires a huge labor force and that does not help the bottom line."

When Edward Lampert, a hedge fund manager, acquired Sears six years ago, he merged its operations with discounter Kmart, which he had helped nurture out of bankruptcy. Notably, though, he did not invest in remodeling or refreshing the many worn 2,200 Sears stores and, instead, spent billions on repurchasing shares and left the employee ranks too thin -- even though the parent company, Sears Holdings Corp., still employs some 250,000 people.

Even so, the buying public is willing "to forgo service for price, but they expect value and convenience," Lisicky says, adding that trading down to discount stores began as far back as the 1980s when Kmart "perfected the full discounting store.

"That led to department stores abandoning their full set of offerings," he says. "They closed their restaurants, shut their toys and sporting goods sections, for example. So they were no longer the place to find everything."

Sears has been squeezed by other retailers, , says David Reibstein, a marketing professor at The Wharton School of Business. It was once the super general store. But it was crowded on both sides, by lower-price stores like Walmart, or high-service stores such as Nordstrom (JWN). But it's not the only store stuck in the middle market squeeze, but unlike Walmart or Target, it has not been able to attract a higher-income customer base."

Amazon, on the other hand, "has moved beyond because of its convenience. It's the new version of Sears," says Reibstein.

Lisicky agrees. "Amazon is Sears 100 years later."

General Assembly folded way too soon on this tax-break deal
By Jeff Ward
Courier News - A Chicago Sun-Times publication
January 9, 2012

I tried to tell them it was bluffing. But despite my terminal prognosis for the former catalog giant know as Sears, not even I thought they'd show their hand this quickly.

Mere days after extorting yet another massive tax break by threatening to leave Illinois once again, Sears announced the closure of 120 locations, more employee layoffs, and that their spiraling losses continued through the holiday season.

Don't tell me Sears' CEO Lou D'Ambrosio didn't know that, had he issued this statement prior to the Springfield tax vote, it might not have gone his company's way. Sears suddenly wouldn't have been quite so appealing to those Ohio politicians who pledged $400 million to lure its corporate offices to the Columbus area.

Chicago state Sen. Ira Silverstein responded to these store closings by declaring, "I feel kind of betrayed," adding that when it comes to future tax break packages, "I think we're going to have to look with a little more scrutiny."

Ya think? All it would've taken to avoid this escalating debacle was an absolute minimum amount of scrutiny.

Long before the good senator's vote, Sears had already closed 171 stores and laid off thousands of workers. Since "wunderkind" billionaire hedge fund manager Ed Lampert took over the company in 2005, the company had endured 18 straight quarters of losses culminating in a third quarter 2011 loss of $421 million. That's really hard to do.

Prior to its most recent plunge, Sears' stock had fallen 46 percent this year alone and analysts were warning that default rating was likely to be downgraded, further compromising their ability to borrow money.

As of Oct. 29, Sears claimed cash balances of $632 million, down from $1.4 billion in January, with its total debt sitting at a whopping $4.6 billion. And it's not like it could hide any of this bad news either. It took me all of 10 minutes to come up with those numbers.

So why was anyone surprised with this latest downsizing? And as a result, the company's default rating fell from "B" to "CCC," there's no capital infusion in sight, and, considering the potential for bankruptcy, Sears' suppliers are wary of filling large orders.

I take no joy in saying this, but I give Sears two years before it disintegrates into nothing but a brand name. It's time for Hoffman Estates to prepare for all that vacant office space. And those Sears tax dollars School District 300 Superintendent Michael Bregy fought so hard for won't be around for very long.

I feel betrayed too--by lazy state reps who fail to employ a minimum amount of due diligence before handing a dying concern the taxpayer's head on a silver platter.

In what could've been an even bigger swindle than conning Manhattan from the Indians for trinkets, the state of Illinois could've laughed their butts clean off while watching Ohio pay $400 million for the privilege of watching their "investment" evaporate.

Getting even one year of the higher tax rate out of Sears would've been far better than what we're looking at now. And what makes it so much worse is, if they're smart, every major Illinois corporation will now line up to demand the same tax break we bestowed upon a dying company.

The clarion call of most candidates these days is, "We've got to run government like a business," but when a real opportunity like calling Sears' bluff appears, they completely blow it.

Furthermore, businesses, like Sears, play hardball all the time. So the next time the state of Ohio threatens to entice one of our assets away, here's exactly what we should do. We offer Procter & Gamble, Macy's and Goodyear, three of their biggest corporations, a free 10-year tax ride to come to Illinois.

That oughtta shut Gov. John Kasich up and give any other state considering a similar course of action reason for pause. That kind of run-it-like-a-business thinking also would undercut the leverage from any corporation, like Sears, which threatens to leave for utterly disingenuous reasons.

Don't laugh. This mutually assured destruction scenario has worked really well in preventing the use of nuclear weapons.

But not our state reps or senators. One of the only ones who had the you-know-whats to stand up to Sears was Sen. Chris Lauzen, R-Aurora. Lauzen, of course, is running for Kane County Board chairman.

As for the rest, you certainly won't be seeing them in the World Series of Poker any time soon. Just when you think Springfield can't possibly sink any lower, they go ahead and do just that. Why do we keep re-electing these mopes?

Sears continues top shake-up
Daily Herald - Suburban Chicago
January 6, 2012

Hoffman Estates-based Sears continues its shake-up of top executives after a brutal holiday season.

One of the casualties include John Goodman, who joined Sears as executive vice president of apparel and home in 2009, who is now gone, the retailer said in a statement.

"We will only confirm he is no longer with the company," Sears spokeswoman Amy Dimond said.

During the last couple of years, Goodman had brought in new brands and established the San Francisco office.

Sears appointed Nick Grayston into an expanded role with the home and footwear businesses. Grayston joined Sears as senior vice president and president of footwear in 2008.

The merchandising group will be led by Tara Poseley, president and senior vice president of Kmart apparel, and Lana Cain Krauter, president and senior vice president of Sears apparel.

Krauter, who is based in San Francisco, joined Sears in that position last February and was responsible for in-store and online merchandising along with driving a comprehensive vision focused on product, the customer experience and multichannel initiatives.

Poseley, who is also based in San Francisco, joined the company in February 2010 and was responsible for both in-store and online merchandising.

Earlier this week, Sears named former Brookstone Inc. head Ron Boire as executive vice president, chief merchandising officer and president of its Sears and Kmart brands.

The struggling company, which recently released a list of 79 of the 100 to 120 stores it plans on closing, said that Boire will lead merchandising and retail stores for both the Sears and Kmart brands.

Sorry, Edward Lampert. You Own Some Losers
WallStreetJournal.com
January 6, 2012

Regular readers of Deal Journal will already know that hedge-fund investor Edward Lampert has experienced a bad few weeks. But now we have numbers to back it up. First, of course, Lampert's baby--Sears and Kmart parent company Sears Holdings--dumped a year's worth of bad news on just one day. Bad holiday sales, plans for a bunch of store closures, etc.

It turns out, according to S&P Capital IQ, Lampert owns big investments in two of the worst-performing stocks of the week: AutoNation and Sears Holdings.

Now Sears is no surprise (see the paragraph above). Its stock price has slipped 5.2% so far in 2012, and the company has lost $4.7 billion in market value over the last year (nearly 60%). Ouch.

But one of his big winners hasn't started 2012 on the right foot, either. Car-dealership company AutoNation has been one of Lampert's big investment success stories. Lampert's longstanding investment in shares of AutoNation is valued at more than $2 billion at Friday's stock price, or about six times the market price when Lampert's investment funds first reported their AutoNation equity holdings in 2000.

But AutoNation is the third-worst performing stock of the young year, according to S&P Capital IQ. It is down 7.7% since the end of 2011.

Former Sears exec William Bass is dead at 86
Chicago Business
January 5, 2012

(Crain's) — William I. Bass, who led the merchandising unit of Sears Roebuck & Co. in the 1980s, has died at age 86. Mr. Bass died Tuesday in a Florida hospice of pulmonary fibrosis, according to a statement from the retailer.

He joined Chicago-based Sears — now known as Sears Holdings Corp. and based in Hoffman Estates — in 1950, working his way up through the company, from store manager to director of Sears' Canadian. in 1986 he retired as chairman of Sears' $22-billion merchandise group.

William I. Bass, former Chairman and Chief Executive Officer of Sears Merchandise Group, dies at 86
January 5, 2012

William I. Bass, Jr., born in 1925 in Greenwood, IN, died January 3, 2012 in Winter Haven, FL.

Mr. Bass served as a paratrooper in the 82nd Airborne Division during World War II, having earned three Battle Stars, a Bronze Star, and a Purple Heart. Upon discharge, Mr. Bass enrolled in Johns Hopkins University, where following graduation, he joined Sears, Roebuck and Company in 1950. Throughout his career at Sears, he held positions of Store Manager, Group Manager, and Executive Vice President-Eastern Territory, and was a Director of Sears Canada, Inc. and of the Sears-Roebuck Foundation. He retired as Chairman and Chief Executive Officer of Sears Merchandise Group in 1986.

After retiring from Sears, he moved to Winter Haven, Florida. During his retirement he enjoyed golfing, working in his yard, and was an avid baseball fan. Mr. Bass will be remembered as a kind and generous friend who loved his family. He is survived by his daughters Carolyn and Janet, his son Bill, and six grandchildren. A private service will be held by his family in his honor.

In lieu of flowers, memorial donations may be made to the Alliance for Lupus Research at www.lupusresearch.org or to the Pulmonary Fibrosis Foundation at www.pulmonaryfibrosis.org.

Is Sears A Bankruptcy Candidate?
24/7WallStreet.com
January 4, 2012

The long slow death march at Sears Holdings Corporation (NASDAQ: SHLD) is turning into a case study of what not do. Putting a hedge fund manager in charge of a huge retailer, and then letting the company be run by another person for quite some time without deep retail experience.

Imagine if Wal-Mart Stores Inc. (NYSE: WMT) or Target Corporation began a long secular decline where the only way they could attract investors is by unloading assets here and there, shrinking their geographic footprints time after time, cutting workers endlessly, and by trying to just repurchase enough stock that the free float dwindles. And imagine no real payments to shareholders in the form of dividends.

Fortunately for investors in retail stocks, Target and Wal-Mart are not Sears. We just featured this one as one of the worst big stock stories of 2011, but we did not call for a bankruptcy nor did we include it on our list of stocks unlikely to survive 2012. The most recent effort to spin off Orchard Supply Hardware Stores (NASDAQ: OSH) is interesting on the surface but it is just too small to make a difference at this point.

Unfortunately, a report on the CNN Money site did note that there are rumors of a Sears bankruptcy. That is their story rather than ours. Still, analysts have pounded upon Sears and some see much more downside on top of the pain and suffering we have seen in recent weeks (and years).

In early December came word that Imperial Capital issued a "underperform (SELL) rating and said that it could go down to $6.00 in the new two to three years. Barclays recently cited that Sears appliance market share could fall to 31% from 39% and offer a large reward for other appliance sellers. On December 30, Zacks put Sears on its #5 list, a list of stocks with a "Strong Sell" rating. On December 28 came word that Credit Suisse was maintaining and Underperform rating… with a $20 price target objective. Fitch also lowered its corporate credit rating in the last week of December. Barron's called for the start of 2012 that Sears could lose another 80% of its value. Sears is up 0.1% on Tuesday at $31.46 verus a new 52-week range of $31.17 to $94.97 and its market cap is now down to about $3.35 billion. The most recent short interest was listed as 10.88 million shares as of mid-December before the latest warning.

The saga continues. The question is whether or not this turnaround can ever come to fruition.

New at Sears: An Expert in Retailing
By Miguel Bustillo and Dana Mattioli
Wall Street Journal
January 4, 2012

Sears Holdings Corp., long criticized for giving short shrift to the shopping experience, has hired a retail veteran, the chief executive of Brookstone Inc., to oversee a revamping of its Sears and Kmart stores.

With his hiring, Ron Boire, who previously served in top merchandising roles for Toys "R" Us Inc. and Best Buy Co., instantly becomes one of the most seasoned retail executives at the struggling chain-store holding company. Last week, Sears Holdings said it would close as many as 120 stores following disappointing holiday sales. "My focus will really be on creating more and better theater in the stores," Mr. Boire said in an interview. He will serve as chief merchandising officer and president of the Sears and Kmart store formats—moving to an arena far larger and more diverse than Brookstone.

Mr. Boire, 50 years old, said another of his responsibilities will be better integrating Sears's stores, website and mobile-phone applications, long a holy grail for Edward S. Lampert, the investor and Sears chairman who is aiming to transform the onetime catalog giant into an online-focused retailer.

That was a priority for Mr. Boire at Brookstone, where he overhauled the website and mobile offerings, hired a new e-commerce head and sharply increased the number of products sold online.

Sales at Sears Holdings stores open at least a year have declined each year since Mr. Lampert created the Hoffman Estates, Ill., company by merging Sears and Kmart in 2005.

The pace of deterioration has worsened in the past 12 months — Sears reported a $421 million loss last quarter — and last week it disclosed it would take charges of up to $2.4 billion next quarter, after same-store sales for the eight weeks ending Dec. 25 fell 5.2% compared with the year before.

Chief Executive Lou D'Ambrosio, the fourth person to lead the Sears Holdings since the merger, is a former technology executive who had no prior retail experience.

Mr. Boire's expertise is in finding the right products to stock, a perceived weakness at Sears Holdings, which had been operating without a chief merchandising officer.

Sears also has been criticized for not spending enough on renovations and remodeling. Many of its stores are run down and it remains to be seen whether Sears will increase spending to modernize.

Before Mr. Boire accepted the job, he and Mr. D'Ambrosio walked through a store as Mr. Boire called out improvements to better display the merchandise and emphasize value to customers.

"We're going to take frankly whatever actions we need to restore this company to greatness," Mr. D'Ambrosio said in an interview.

Sears shares, which have plunged 58% in the past 12 months, slipped 35 cents, or 1%, to $31.43 in Tuesday, even though news of the appointment was greeted positively by some retail analysts.

Analysts said Mr. Boire would bring much-needed retail experience to the company, which has more than 4,000 locations in the U.S. and Canada, including franchises.

Still, the two retailers could hardly be more different, with Sears focused on midline basics of appliances and clothes while Brookstone showcases quirky gadgets and unusual tools and toys.

"The right thing for Sears may be to have 500 great stores," said Greg Melich of ISI Group Inc. "Ron's challenge is going to be how to get there from here. It's a big challenge"

Fitch Ratings cut Sears's debt rating last week, concluding that although the company had sufficient working capital for this year, it faced a "heightened risk of restructuring over the next 24 months" if it did not stabilize its declining revenue.

Mr. Melich said Mr. Boire's resumé—which includes 17 years at Sony Corp.—could help Sears as it seeks to reassure vendors it remains a safe partner.

Mr. Boire was put on Mr. Lampert's radar back in 2008 by Berglass & Associates, the executive recruitment firm that eventually placed him at Sears, according to Matt Berglass, president of the head-hunter.

Sears made a heightened push to recruit Mr. Boire in the past two weeks. Messrs. Boire and Lampert met again a week and a half ago for a five-hour conversation in Greenwich, Conn., where Mr. Lampert's ESL Investments Inc. hedge fund is based, and discussed Sears's strategy and direction, said a person familiar with the matter.

Sears didn't disclose Mr. Boire's compensation package.

Brookstone said Chairman Jackson Tai will serve as interim president and CEO while the closely held company searches for a permanent successor to Mr. Boire. Mr. Tai has been chairman since February 2009.

Brookstone, which began as a catalog company, operates more than 300 stores in the U.S. and Puerto Rico. In an interview in November, Mr. Boire said Brookstone had had seven quarters of growth and for the first half of the year sales were up 10%.

Sears hires retailing veteran Ron Boire from Brookstone: New merchandising chief also has been executive at Toys R Us and Best Buy
By Gregory Karp
Chicago Tribune
January 4, 2012

A retail executive who spent the holiday sales season touting electronics and gadgets as president and chief executive of specialty retailer Brookstone will help lead an effort to transform from "top to bottom" struggling retailers Sears and Kmart.

Sears Holdings announced Tuesday that Ron Boire, 50, joined the company as executive vice president, chief merchandising officer and president of Sears and Kmart stores, both owned by Sears Holdings. Boire has broad retail experience working for the past two years at Brookstone Inc. He was also an executive at Toys R Us and Best Buy.

"Ron takes our merchandising skills in the company up dramatically," Lou D'Ambrosio, Sears Holdings chief executive and president, said in an interview Tuesday, adding that he expects to change the business "top to bottom." "What Ron provides us is a set of skills to help speed decisions, help create compelling customer value and he will be an extremely important part to accelerate the transformation of this company."

Efforts toward that transformation were on display last week when Sears announced it would close up to 120 of its 4,000 Sears and Kmart stores in the United States and Canada. A partial list of 79 store closings included none in Illinois, where Sears recently secured state tax breaks worth $150 million in exchange for a commitment to keep its headquarters in Hoffman Estates.

Sears has spent decades trying to find the right formula to stem declining sales. Those store closings suggest that answers continue to elude Edward Lampert, the Connecticut hedge fund manager who in 2005 took control of the company, one of the Chicago area's most high-profile businesses.

Despite Boire's merchandising experience, customers shouldn't expect to see his impact immediately, said Morningstar analyst Paul Swinand. For example, merchandise choices for clothing have already been made for the spring selling season.

"I don't know if it can move the needle," Swinand said of Boire's hiring. "At least we have a guy who has some retailing experience."

Analysts also said the company seems to have trouble holding on to talent.

"There's plenty of good people that they've brought in that have not been able to turn around the business," said Matthew McGinley, a managing director at New York-based International Strategy & Investment Group. "It's like a revolving door there."

Boire said in an interview that he sees his role as integrating all the ways the company sells to customers, whether in stores, online or via mobile devices. "It's exciting," Boire said about his new job.

"My primary role will be around creating an integrated experience, where we can tell the story of the great products and great brands we have in our stores across the platforms. How do we create compelling value propositions for our customers?"

Boire talked about bringing more "theater and excitement" into stores. "It's really about how we think about merchandising our product. It's about how we train our associates and engage our customers. It's some of the technology that's already being deployed in the stores." As an example, Sears has given store salespeople more than 5,000 Apple iPads and 11,000 iPod touches to track inventory and customer orders.

Sears has been criticized for failing to invest in its dingy stores with new floors, fixtures, signs and other maintenance. For that reason, Swinand said, Boire's position as chief merchandiser is an important one. "But if he doesn't have any money to spend, what's he going to do?" Swinand said.

Boire said he'll need to be smart about it. "It doesn't necessarily mean beautiful carpet and plush chairs and chandeliers," he said. "Over time, we'll decide how we deploy assets. ... I think there will have to be appropriate, smart investments in the things that are going to make a difference in the store."

Swinand said Sears is trying to remake itself in a difficult retail environment where Sears and Kmart customers have been hurt by the recession and its aftermath worse than customers of other retailers. And Sears' appliance business has been hurt because consumers can delay buying new appliances while fewer new appliances are sold as part of home sales because the housing market remains sluggish. He said the economic head winds — factors out of Sears' control — need to be less "disastrous" this year than last. "For example, if appliance sales go down from here, it will be tough," he said. "But who knows, if the economy picks up, they could see a huge uptick in buying."

Sears warned investors last week that its profits have plummeted. Fourth-quarter operating income will be less than half of the $933 million generated in the same period a year ago, it said. Meanwhile, sales at Kmart and U.S. Sears stores open at least a year, a key measure of retailers' health, fell 4.4 and 6 percent, respectively, for the eight-week period ended Dec. 25.

D'Ambrosio said that during the hiring process he and Boire walked company stores together, and he liked Boire's focus on consumers. "I was impressed with Ron's conversations that always begin with the customer," D'Ambrosio said.

"We'll take whatever actions are necessary to make this company great again," D'Ambrosio said, adding that last week's store closings were part of that. "We also have a very large appetite to invest for the future."

Part of that is investing in executive talent, including Boire, he said. He also said there would be more "hard choices." However, Sears officials on Tuesday would not speculate whether hard choices in the future would mean more store closings or changes at corporate headquarters.

Prior to joining Brookstone, Boire was president of U.S. Toys, North America, for Toys R Us from 2006 to 2009, overseeing merchandising, marketing and operations for 600 stores in the U.S. and 70 in Canada. Before that he was executive vice president and global merchandise manager for Best Buy, responsible for managing Best Buy's $30 billion U.S. Business Teams, global technology and vendor management, global sourcing and private label development. Prior, Boire served in a variety of roles during a 17-year career at Sony Electronics Inc.

While some retailers have "doubled down" with online selling or concentrated on mobile selling or with physical stores, Sears has the "leverage, capacity and assets to weave those elements together in a way that differentiates our company," D'Ambrosio said. "It's not going to be easy. But it's absolutely doable. Bringing Ron in is an important element in that equation."

Regarding the challenge of remaking Sears "top to bottom," Boire said, "It sounds like a lot of fun, actually. It's a big job, a big opportunity with a great brand."

Boire resides in Warwick, N.Y. "I'll be finding a place in Chicago and trying to convince my wife as to what the appropriate timing for relocation is," he said, laughing. "It's a challenge, but we'll get there eventually."

Shares of Sears Holdings closed Tuesday at $31.43, down 1.1 percent. Its stock price declined 57 percent in 2011.

Bloomberg News contributed.

Sears, in Merchandising Push, Hires Brookstone CEO
By Miguel Bustillo and Dana Mattioli
Dow Jones Newswire
January 3, 2012

Sears Holdings Corp. hired away the chief executive of Brookstone Inc. to oversee its struggling Sears and Kmart stores and serve as its top merchant, bringing in a retail veteran to turn around its sliding fortunes.

Ron Boire, who previously served in top merchandising roles for Toys "R" Us Inc. and Best Buy Co., instantly becomes one of the most seasoned retail executives at Sears Holdings, which saw its shares plunge last week when it announced it was closing as many as 120 stores following a disappointing holiday season.

Mr. Boire, 50 years old, said one of his responsibilities will be better integrating Sears's stores, website and mobile-phone applications, long a holy grail for hedge fund investor and company chairman Edward S. Lampert, who is aiming to transform the onetime catalog giant into an online-focused retailer.

That was a priority for Mr. Boire at Brookstone, where he overhauled the company's Web and mobile offerings, hired a new e-commerce head and increased the number of products sold online.

"My focus will really be on creating more and better theater in the stores," said Mr. Boire, who will serve as chief merchandising officer and president of the Sears and Kmart store formats, speaking in an interview.

The retailer hired Ron Boire, who as CEO of Brookstone overhauled its e-commerce operations. Sales at stores open at least a year have declined every single year since Mr. Lampert created the Hoffman Estates, Ill., company by merging Sears and Kmart in 2005. The pace of deterioration has worsened in the past 12 months — Sears reported a $421 million loss last quarter — and last week it disclosed it would take charges of up to $2.4 billion next quarter, after same-store sales for the eight weeks ending Dec. 25 fell 5.2% compared to the year before.

Chief Executive Lou D'Ambrosio, the fourth person to lead the company since the merger, is a former technology executive who had no prior retail experience.

Before Mr. Boire accepted the job, he and Mr. D'Ambrosio walked through a store as Mr. Boire called out improvements to better display the merchandise and emphasize value to customers.

"We're going to take frankly whatever actions we need to restore this company to greatness," Mr. D'Ambrosio said in an interview.

Sears shares, which have plunged 58% in the past 12 months, slipped 35 cents, or 1%, to $31.43 in Tuesday trading.

The move was greeted positively by retail analysts, who said he would bring much-needed retail experience to the struggling company, which has more than 4,000 locations in the U.S. and Canada including franchises.

"The right thing for Sears may be to have 500 great stores," said Greg Melich of ISI Group Inc. "Ron's challenge is going to be how to get there from here. It's a big challenge"

Fitch Ratings cut Sears's debt rating last week, concluding that although the company had sufficient working capital for this year, it faced a "heightened risk of restructuring over the next 24 months" if it did not stabilize its declining revenue. Mr. Melich noted that another aspect of Mr. Boire's resume — a 17-year tenure at Sony Corp. — could help Sears as it seeks to reassure vendors it remains a safe partner.

Mr. Boire was put on Mr. Lampert's radar back in 2008 by Berglass & Associates, the executive recruitment firm that eventually placed him at Sears, according to Matt Berglass, president of the head-hunter.

But Sears made heightened push to recruit Mr. Boire in the past two weeks. The two men met again a week and a half ago for a five-hour conversation in Greenwich, Conn., where Mr. Lampert's ESL Investments Inc. hedge fund is based, and discussed Sears' strategy and direction, said a person familiar with the matter.

Sears didn't disclose Mr. Boire's compensation package.

Brookstone said Chairman Jackson Tai will serve as interim president and CEO while the company searches for a permanent successor to Mr. Boire. Mr. Tai, chairman since February 2009, was previously CEO of Singapore bank DBS Group Holdings Ltd.

Sears hires Brookstone CEO as top merchandising exec
By
Chicago Business
January 3, 2012

(Crain's) — Sears Holdings Corp. hired the CEO of Brookstone Inc. as chief merchandising officer and president of the Sears and Kmart formats.

Ron Boire will head merchandising and retail stores for the two brands, Hoffman Estates-based Sears said in a statement Tuesday.

"By attracting someone with Ron's significant experience in retail, merchandising and product development as well as in leading companies through turnarounds, we're adding a key talent in accelerating our transformation," Sears Holdings CEO Lou D'Ambrosio said in the statement.

Mr. Boire, 50, said: "I understand the company's challenges, but I am more persuaded by the company's opportunities and strengths. As a company with over $40 billion in sales, millions of customers, irreplaceable brands, thousands of stores and committed associates, we have a lot to work with to improve our business and delight our customers."

Sears recently announced it would close as many as 120 Sears and Kmart stores.

Before being named CEO of Brookstone in October 2009, Mr. Boire was head of U.S. toys for Toys "R" Us. Previously he worked for Best Buy Co. and Sony Electronics Inc.

Merrimack, N.H.-based Brookstone is a specialty retailer with about 300 stores in the U.S. and Puerto Rico, according to its website. The company reported sales of $243.8 million for the first three quarters of 2011, with same-store sales up 8.2% from the same period the previous year.

Sears Holdings Names Ron Boire to Lead Merchandising and Store Formats: Proven Brand Builder, Merchant and Retail Leader
By
PRNewswire via Sacremento Bee
January 3, 2012

HOFFMAN ESTATES, Ill. -- Sears Holdings (NASDAQ: SHLD) announced today that Ron Boire has joined the company as executive vice president, chief merchandising officer and president, Sears and Kmart formats. Mr. Boire comes to Sears Holdings from Brookstone, Inc. where he was president and CEO.

In this new role, Mr. Boire will lead merchandising and retail stores for both the Sears and Kmart brands. He will work with our leadership team to better serve our customers and Shop Your Way Rewards Members by integrating their experiences across our stores, online, services, and mobile capabilities.

"We are in the midst of a transformation of our business, from top to bottom, as we seek to become the leading integrated retailer in the country," said Lou D'Ambrosio, Sears Holdings' chief executive officer and president. "By attracting someone with Ron's significant experience in retail, merchandising and product development as well as in leading companies through turnarounds, we're adding a key talent in accelerating our transformation."

Commenting on his appointment, Mr. Boire said, "I am excited to join Sears Holdings at this time. I understand the company's challenges, but I am more persuaded by the company's opportunities and strengths. As a company with over $40 billion in sales, millions of customers, irreplaceable brands, thousands of stores and committed associates, we have a lot to work with to improve our business and delight our customers. It is also important to have a board of directors and shareholders who are truly long-term oriented and who have made such a significant financial commitment in working to transform this iconic company."

D'Ambrosio added, "We have made some difficult decisions recently and will make the hard choices necessary to turn our business around going forward. At the same time, we will continue to invest to better serve our customers by delivering world-class, integrated experiences across our stores, our online sites, our services and our mobile capabilities. And, we will continue to invest in our people, ensuring that we have the talent and skills necessary to effect this transformation."

Prior to Brookstone, Mr. Boire served as president, U.S. Toys, North America for Toys "R" Us from 2006 to 2009, overseeing merchandising, marketing and operations for 600 stores in the U.S. and 70 in Canada. He joined Toys "R" Us after serving as the executive vice president, global merchandise manager for Best Buy, responsible for managing Best Buy's $30 billion U.S. Business Teams, global technology and vendor management, global sourcing and private label development. Before that, Mr. Boire served in a variety of increasingly senior roles during a 17-year career at Sony Electronics Inc., including president of Sony's Consumer Sales Company and president of Sony's Personal Mobile Products Company.

Mr. Boire has MBAs from both Columbia Business School and London Business School.

Brookstone Announces CEO Succession
By
PRNewswire via COMTEX
January 3, 2012

--Resignation of Ron Boire as President and CEO --Chairman of the Board, Jackson Tai, appointed as Interim President and CEO --James M. Speltz appointed to serve as Vice President, Chief Operating Officer

MERRIMACK, N.H., -- Brookstone, Inc. today announced that it has accepted the resignation of Ron Boire, its President and CEO and a member of the company's Board of Directors. Mr. Boire's resignation will be effective January 3, 2012, following which he will be joining Sears Holdings Corporation as its new Executive Vice President, Chief Merchandising Officer and President, Sears and Kmart Formats. Mr. Boire joined Brookstone in 2009.

Effective upon Mr. Boire's resignation, Jackson Tai, the Company's Chairman of the Board, will also serve as Interim President and CEO while the Company undertakes a search for a permanent successor for Mr. Boire. Mr. Tai has been a director since August 2008 and non-executive Chairman of the Board of Directors since February 2009. Mr. Tai was Vice Chairman and CEO of DBS Group Holdings until 2008. Prior to his eight years of service with DBS in Singapore, he served 25 years with J.P. Morgan & Co. as a managing director in the Investment Banking Division, holding management positions in New York, Tokyo and San Francisco. Mr. Tai is a director of NYSE Euronext, the Bank of China Limited, MasterCard Incorporated, Royal Philips Electronics NV, Singapore Airlines and privately-held Cassis International. Mr Tai, 61, holds a Master of Business Administration from Harvard University and a Bachelor of Science from Rensselaer Polytechnic Institute.

Brookstone also announced that James M. Speltz has been appointed as the Company's Vice President, Chief Operating Officer. Mr. Speltz has been with the Company since 1998. Most recently, he has served as the Company's Vice President, Business Development and Supply Chain since January 2011, and previously held positions as the Operational Vice President of Inventory Management and various roles in the Company's IT Department.

Mr. Tai stated, "On behalf of the Board of Directors and myself, we look forward to working with Jim in his new role. For more than 13 years, Jim has been intimately involved in many critical aspects of the Company's operations and has been a key driver of the Company's new business initiatives in the wholesale and licensing areas. His "hands-on" leadership and his strong operating insight will be invaluable as the Company takes steps to meet the challenges presented by the current retail environment."

"Everyone at Brookstone is deeply committed to product excellence and the first-rate service our customers have come to expect from us," said Speltz. "I am proud to be able to continue working with Jack and our existing management team which has provided unparalleled leadership and strong support across all areas of the Company. I look forward to building upon the strength of the Brookstone brand, continuing the significant progress we have made over the past few years, and expanding upon our business development initiatives."

Thomas Moynihan, the Company's Vice President, Chief Financial Officer, reported that while the Company has not yet reconciled its 2011 year end accounts, the Company anticipates that its 2011 sales increased at least 5% over fiscal year 2010, and that it will have an estimated increase in its EBITDA of at least 20% over fiscal year 2010. The Company's cash balances remain healthy and will be approximately equal to its 2010 year end levels. Mr. Moynihan commented: "We continue to be encouraged by our improving operational and financial results despite the difficult macro-economic environment. Our new initiatives, including our on-line Marketplace and expanding Wholesale and Licensing divisions, have been important pieces of our continued success and will be critical to the Company's future growth. As previously announced, the Company recently entered into a new senior secured credit facility with Wells Fargo Bank, National Association, which provides for a revolving credit facility with aggregate lending commitments of up to $100.0 million, a committed revolving credit facility accordion of up to $25.0 million and a $15.0 million term loan facility. This new credit facility, along with the Company's improved performance, position the Company well for continued growth."

Adam Suttin, a Partner of J.W. Childs Associates and a director of the Company since its 2005 acquisition by J.W. Childs Associates, OSIM International, Ltd. and Temasek Holdings (Pte) Limited, said, "Brookstone has been fortunate to have Ron's leadership over the last two years. He successfully implemented numerous new business initiatives that will have a lasting impact on the Company's continued growth and success. We thank Ron for his many contributions to Brookstone and wish him well in his future endeavors."

Insight: Memo to Eddie Lampert - Dump Kmart
By Dhanya Skariachan and Phil Wahba
Reuters
January 3, 2012

If hedge fund manager Eddie Lampert wants to save one of the oldest retail empires in the United States, he should consider shutting down Sears Holdings Corp's Kmart discount chain and focus on revamping its Sears department stores.

Such is the advice of half a dozen retail executives and restructuring experts who have watched the company's sales shrink every year since 2005, when Lampert formed Sears Holdings by combining two of the most iconic American chains in an $11 billion deal.

After a dismal showing this holiday season due to dowdy merchandise, run-down stores and a reputation for poor service compared with rivals such as Macy's and Target, the retailer last week said it would close 100 to 120 of its 3,500 U.S. stores. The news wiped more than a quarter off Sears Holdings' market value, which now stands at just $3.4 billion.

The company needs to take much more radical action to turn around its business, the experts said, pointing to 18 straight quarters of sales declines and Lampert's propensity to spend company cash on buying back shares instead of upgrading stores. His ESL Investments Inc owns 45 percent of Sears Holdings.

"Trimming down a hundred stores is like rearranging deck chairs on the Titanic," said Craig Johnson, president of retail strategy and consulting firm Customer Growth Partners, whose clients include J.C. Penney Co Inc and Toys R Us. "This is a company that needs not just cosmetic surgery, not just minor surgery, but radical surgery."

Johnson and others said Sears Holdings should close as many as 1,000 stores to cut costs and recoup what it can from selling off inventory and related real estate. Then, it needs to significantly revamp its remaining stores and expand its online business to reverse its years long decline.

Such a culling would be very painful, likely resulting in layoffs for tens of thousands of the company's 280,000-strong U.S. workforce and loss of the major retail store in some communities, according to retail specialists.

Once the largest U.S. discount chain, Kmart has declined over the years as it has been unable to keep up with Wal-Mart's low prices and Target's more upscale though still affordable offerings. Kmart went bankrupt nearly a decade ago and never fully recovered -- its 2010 sales of $15.6 billion were only about 5 percent of Wal-Mart's U.S. sales.

"In a world that has Wal-Mart and Target, there is really no need for a Kmart," said Roger Goddu, who was CEO of the Montgomery Ward department store chain, which went out of business in 2001.

"The one I would choose to save is Sears," said Goddu, now a partner in private equity firm Brentwood Associates.

Kmart accounted for about 36 percent of the company's sales in 2010 but only 32 percent of gross profit, reflecting the discount retailer's thinner margins compared with Sears. Restructuring experts said it was difficult to estimate how much Kmart would be worth if it was liquidated because the company does not break out inventory by business unit, and the value of its roughly 1,300 stores would depend on when leases expire.

Sears Holdings declined to comment specifically on the future of Kmart, but said the company was an "asset rich enterprise" with well over $3.5 billion of liquidity.

Sears recent store closures http://link.reuters.com/dax75s
Top five holders of Sears: http://link.reuters.com/wuq75s
Sears vs. competitors http://link.reuters.com/req75s

HISTORIC BRAND

For those trying to predict the future of Sears Holdings, one key date is February 23, when the company will report annual results. Lampert typically publishes a letter to shareholders at around that time.

Investors lost 56.6 percent on their Sears' stock last year. It hit $193.98 in April 2007, but ended 2011 at just $31.78.

Sears was once one of the most successful U.S. retailers with a history going back to 1886, when Richard Sears began to sell watches as a train station agent in North Redwood, Minnesota. Its sprawling empire had included a radio station in Chicago, Allstate Insurance Co, and Chicago's Sears Tower, the world's tallest building when it was completed in 1973.

The department stores were beloved by generations of Kenmore appliance buyers, while the do-it-yourself crowd scooped up Sears' Craftsman tools. But the company has let its stores deteriorate over the years, say critics, who also faulted poor locations and ho-hum merchandise.

Sears Holdings is now the tenth largest U.S. retailer, with annual sales of $43.3 billion in 2010, down from $53 billion in 2006. Analysts expect it to post an annual loss for the first time in 2011, as their average estimate for fourth quarter net profit of $105 million will not fully offset the $743 million loss that it reported for the first nine months.

Sears Holdings worried Wall Street last week by announcing a 5.2 percent drop in sales at established stores in the 8 weeks leading up to Christmas. It also said that it tapped its credit line, something that alarmed investors since retailers are typically flush with cash during the holiday season.

Fitch Ratings responded by cutting Sears Holdings' credit rating to CCC from B, and Standard & Poor's put its rating on review for a possible downgrade. The cost of insuring Sears Holdings' debt rose as investors saw higher risks of default.

Fitch saw rising risk that Sears Holdings' earnings before interest, tax, depreciation and amortization (EBITDA) could turn negative in 2012, and said it may need to restructure.

"If Sears is unable to access the capital markets or find other adequate sources of availability, and EBITDA remains at the current rate or lower, there is a heightened risk of restructuring over the next 24 months," Fitch said. A CCC rating is defined by Fitch as indicating substantial credit risk, with default a real possibility.

When asked to comment on the company's financial position, Sears Holdings spokesman Chris Brathwaite said: "There's a considerable difference between disappointing operating performance and liquidity."

He noted that Sears Holdings had roughly $700 million in cash and $2.9 billion available on its credit facilities. It also has historically had between $8 billion and $10 billion of inventory and a substantial real estate portfolio, he added.

VENDORS KEY

A Sears Holdings' collapse is not seen likely in the near future. But that could change if key vendors lose faith and demand cash on delivery, decide to ship in smaller quantities, or ask for letters of credit, according to bankruptcy experts.

"The hurdle is going to be when one of the suppliers for a category that is important to them says we want letters of credit to back our receivables, at which point the unused bank lines get used very fast," said John Hempton, chief investment officer of a small hedge fund, Bronte Capital, in Australia. He has a short position on Sears.

Whirlpool Corp and LG Electronics Inc said there were no changes in their business ties with Sears and declined to comment on payment terms. Other suppliers General Electric Co, Newell Rubbermaid Inc and Stanley Black and Decker Inc declined to comment.

"While it's clear that Sears has issues to tackle, they remain a trusted partner," said Jay Vandenbree, senior vice president, LG Electronics USA.

Whirlpool Corp spokeswoman Kristine Vernier said, "We have had a long history with Sears and expect to continue a productive relationship going forward."

Turnaround expert Gene Baldwin of CRG Partners, a restructuring firm, said that if Sears Holdings' sales continue to decline, large vendors, particularly in consumer electronics, will tighten credit to the company within a couple of years.

"One day, one of the large vendors will say: 'You know, I don't believe this story any more' ... and that will start a snowball of vendor activity," he said.

While he called the situation at Sears "very dire," others are more optimistic about the retailer, saying it can be revived if Lampert brings in a top executive with extensive retail experience. Since he owns nearly half of Sears, Lampert has more reason than most chairmen to avoid bankruptcy.

WANTED: RETAIL GENIUS

Lampert has been criticized for tumult in the executive suite. The retailer in February named Lou D'Ambrosio as its CEO after a three-year search, appointing a technology executive with no retail experience. Sears also appointed a new chief financial officer in the past year, and lost its marketing chief at the start of the holiday season.

Sears could use the Midas touch of someone like Mickey Drexler, a legend in the industry for building up the Gap brand in the 1990's and working his magic at J. Crew where he has been CEO since 2003, said retail consultant Mark Freiman of Focus Management Group, a financial advisory and restructuring firm.

"They have got some iconic brands that if they had the capital behind them and the right merchants in the company, they could be turned around," said Freiman, who was the chief executive of a franchise chain of retail Hallmark stores.

Some analysts said Lampert's tight control over the company made it less attractive to top talent, and it would be difficult for Sears to land someone like Apple Inc's ex-retail chief Ron Johnson who joined J.C. Penney last year as its CEO.

One area which retail experts say Sears has done well on is its website Sears.com, considered to be among the best operated by department stores. But they say the online brand has been damaged by shabby bricks-and-mortar stores.

Sears Holdings spent $441 million on capital expenditure in 2010, which includes spending on technology as well as remodeling stores. In comparison, Macy's spent $505 million and it has only 850 stores.

"It's almost a white flag - by letting your stores degrade, you're saying you're not planning to stay long term," said David Berliner, a partner in BDO Consulting's restructuring practice.

Going back to fiscal 2006, Sears Holdings has spent about $2.7 billion on capital expenditures, half the $5.4 billion that the company has spent to buy back shares.

QUESTIONABLE REAL ESTATE

When Lampert engineered the merger, he touted the value of the real estate of the chains. Kmart's stores are primarily leased. About 61 percent of Sears' 800 mall stores are owned, while the others are under longer term leases.

That value has declined over the years as high-profile retail bankruptcies pushed up vacancies in U.S. shopping malls. The average vacancy rate for large U.S. shopping malls hit an 11-year high in the third quarter of 2011.

"There isn't a whole lot of need for empty big boxes right now," said Craig Boucher, another turnaround expert at CRG. "We still have empty Circuit City stores and empty Linens N Things stores out there," he said in reference to two chains that closed in recent years.

(Reporting By Dhanya Skariachan and Phil Wahba in New York. Additional reporting by Ilaina Jonas in New York, Tom Hals in Wilmington Delaware and Nivedita Bhattacharjee in Chicago. Editing by Tiffany Wu and Martin Howell)

Sears Chief Says Retail Turnaround Means Melding Tech With Store Upgrades
By Carol Hymowitz
Bloomberg
January 2, 2012

Lou D'Ambrosio, chief executive officer of Sears Holdings Corp. (SHLD), said creatively combining more technology with increased spending on stores is the strategy to turn around the largest U.S. department store chain.

On Dec. 27, Sears announced it was closing as many as 120 locations after same-store sales slipped 5.2 percent in the eight weeks ended Dec. 25. The shares plunged 27 percent on the news, the biggest drop since April 29, 2003. Sears fell 3.4 percent in New York on Dec. 30 to $31.78.

A former Avaya Inc. and International Business Machines Corp. (IBM) executive who joined the Hoffman Estates, Illinois-based company in February, D'Ambrosio is drawing on his tech background and telling managers to gather more information about customers' buying patterns and product preferences and to ramp up Web operations.

"Everything starts with knowing what our customers want to buy and how and then delivering that across platforms," he said in a telephone interview.

Sears technicians each year make 17 million visits to customers' homes and communicate even more frequently with shoppers online and on the phone, according to D'Ambrosio.

As part of that effort, Sears has given store salespeople more than 5,000 Apple Inc. (AAPL) iPads and 11,000 iPod touches to track inventory and customer orders, he said.

Sears Chairman Edward Lampert, who along with his hedge funds owns 60 percent of Sears, has attempted multiple turnaround strategies that have failed to reverse a slide in sales. D'Ambrosio is the fourth CEO since Lampert merged Sears with Kmart in 2005.

Capital Starved

The company's larger stores have been starved of capital investment and customers have defected, according to Gary Balter, an analyst with Credit Suisse Group AG in New York.

Sears is spending less than a quarter of the $8 a square foot that retailers typically invest to maintain stores, according to International Strategy & Investment Group. In an August report, the New York-based company put Sears and Kmart at the bottom of the list of a dozen retailers ranked by sales per square foot and operating profitability.

"Sure we want to have stores that look nice so we're investing in fixtures, paint and new designs but store appearance in itself isn't enough," D'Ambrosio said. "Borders had great bathrooms but that didn't help them because they missed the e-book revolution in their industry."

While Lampert sticks mostly to his base in Greenwich, Connecticut, D'Ambrosio is in close touch with managers down the ranks and visited several Sears stores last month, he said.

"Eddie and I have aligned views about what it takes to make this company great," D'Ambrosio said. "We're in touch regularly."

The retailer's (SHLD) "assets are undervalued, which creates an opportunity," said D'Ambrosio, who recalls visiting Sears auto centers with his father as a child. "Sears is an iconic brand. It's important to revitalize this company."

Trouble in the Aisles at Sears: Once viewed as an investing genius, Sears Holdings Chairman Eddie Lampert not longer looks so smart. Headed for a hat size?
By Jonathan R. Laing
Barron's
January 1, 2012

Let's not mince words. Shares of Sears Holdings (ticker: SHLD), the 2005 combination of the once-iconic store chains Kmart and Sears Roebuck, which topped $80 in October, could be headed for a hat size—or worse—in a year or so.

The glide path of the retailing concern has been relentlessly downward from practically the day hedge-fund manager Edward Lampert and his investment fund ESL Investments combined the two retailers, like two drunks leaning against each other for support. Then he loaded the company with debt so it could buy back shares at an average of $103.58. The shares closed the week at $31.78.

On Tuesday, Sears dropped a bombshell. It disclosed that sales for its stores open at least a year had dropped 5.2% during the first two months of the fourth quarter, ending on Christmas Day. As a result, the company said it would be closing some 5% of its big-box stores, slashing inventories and taking noncash charges of as much as $2.4 billion.

The stock, which sank 27% on the news, is down 84% since peaking at $195 in 2007 when Lampert was riding high as the supposed next Warren Buffett.

Once viewed as an investing genius, Sears Chairman Eddie Lampert no longer looks so smart.

Last week's announcement further implied that Sears could soon face a cash crunch. Sears signaled that its favorite and all-forgiving metric, adjusted earnings before interest, taxes, and depreciation and amortization, or Ebidta, for the fiscal fourth quarter would drop by half.

That would result in a total of around $400 million in adjusted Ebitda for the year, compared with $1.45 billion earned a year ago and $3.3 billion five years ago, observes Credit Suisse retail analyst Gary Balter. That trend, he says, calls into question Sears' ability to survive.

Even more ominous is the fact that Sears hasn't been able to pay down all its credit lines during the current quarter—a period when retailers, flush with cash from the holidays, typically pay off all their bills. A spokesman said, "Sears Holdings has more than $3.5 billion of liquidity consisting of $700 million in cash and $2.9 billion of availability under our existing credit facilities." The e-mailed statement went on to say that the company has "between $8 billion and $10 billion in inventory as well as a large portfolio of owned real estate."

Perhaps so, but one need only look at all the Borders locations that are lying empty to guess what that real estate might be worth.

The company's parlous financial state comes as scant surprise to Barron's. We published a cover story on Aug. 24, 2009 entitled "Washed Out," predicting Sears, then trading at around $65, was destined to fall at least 50% because of its declining sales, poor merchandising, skimping on store remodeling and misquided micromanaging by financial engineer Ed Lampert. That assessment now looks optimistic.

The latest slide in Sears stock began in earnest after a dire report on Dec. 9 by West Coast research outfit Imperial Capital. After analyzing the company's balance sheet, cash flow and operating results, the firm slapped a median two-to-three-year price target on the shares of just $6; the stock then was trading at around $58.

The report singled out an ominous "cash flow burn" at the company that during the fiscal year would consume more than $800 million, after factoring in obligatory payments to reduce the $1.9 billion shortfall in the company's pension and other post-retirement obligations.

Late Thursday, Fitch Ratings downgraded Sears debt from B, already junk territory, to CCC, arguing that it expects Sears' liquidity to be "inadequate" in 2012 if the company can't tap the markets for new cash. Ominously, the report stated, "There's a heightened risk of restructuring over the next 24 months."