Volume 17, Issue 1 Summer, 2014

Sears 2014 Annual Meeting Transforming to an Integrated Retail Entity Is Vital for the Company’s Survival

Speaking at the company’s annual the U.S.” currently too big, Lampert said. So he plans shareholders meeting on May 6, Ed- operates 1,152 stores and to continue to lease space at some die Lampert stood alone and faced 778 Sears stores. desirable locations to other retailers his investors for the first time as the like Sears has with Whole Foods company’s chief executive officer, Market and Dick’s Sporting Goods. as well as its chairman, majority He sees rental income as a growing shareholder and engineer of the revenue stream in the future. merger of Kmart Holdings Corp. Eddie rebuffed the notion, however, and Sears, Roebuck and Co. eight that Sears is selling its best stores. years ago. Citing the top 149 malls in America as Eddie said, “Looking back at what defined by and Morgan used to be doesn’t give us a chance Stanley, he said Sears had locations to transform.” And transformation in 63 of them in 2007 and 61 today. is something the company must do Lampert defended the sale of the to survive. Chairman Eddie Lampert Ala Moana “A” store in Honolulu, The past is probably where Eddie Hawaii, as an exception because of doesn’t want Sears shareholders the $300 million financial gain to Sears has closed 305 stores since to have their focus considering the company. While the company 2010 and has spun off Orchard the company has had 28 straight does not disclose sales figures for Supply Hardware, Sears Hometown quarters of declining sales. For specific stores, it has been rumored and Outlet stores, and most recent- those that insist on focusing on continued on page 2 ly, Lands End. Even though closing the past, he pointed to Apple stores is part of Sears modus ope- and General Dynamics as com- This issue of STRAIGHT TALK: randi for the future, Lampert that panies that went through rough Sears Annual Meeting p. 1 “we want to make our bigger and periods before achieving success- N.A.R.S.E. Presentation p. 4 better stores bigger and better.” Icebox Tale p. 5 ful transformations. Gordon Muschett Obit p. 5 In the past, Lampert said he was Closing Stores Part of Our Future Lampert Blogpost p. 6 more inclined to keep a marginal According to Lampert, “closing Steven Dennis p. 7 store open, but now if a store isn’t Retiree Clubs p. 9 stores is going to be part of our turning a healthy profit, his choice Chairman’s Page p. 10 f uture.” He said, “You don’t need would be to not renew the lease. I’m Not Dead Yet! p. 12 2,000 stores to be competitive in Do You Remember? p. 12 At Sears, many stores are simply

—STRAIGHT TALK Summer 2014— 1 Survival continued from page 1 Kodak in the early 2000s. All three may have to be disconnected from that Ala Moana was one of the of these companies produced re- the transformative aspect.” sults that underscore the wisdom highest sales volume stores in the Fully Integrated Retailer of Sears’ own decisions to reduce country. When Sears announced As in the past, Eddie spoke about capital expenditures and divest the closing of this store, a company pursuing a goal of becoming a fully assets, he said. spokeswoman said the Ala Moana integrated multichannel retailer, sale made “good business sense” Lampert pointed out that Apple primarily through the company’s for Sears and was not necessarily dramatically slashed research and Shop Your Way rewards program. He tied to performance. development investment when its said that members of the program His vision of Sears stores five revenue dropped significantly in are the biggest driver of sales for the years from now will be physically the late ’90s. Meanwhile, Eastman company and its greatest focus. Kodak continued to invest even as smaller and will sell both Sears The three-year-old rewards pro- its film business was evaporating in merchandise and goods from third- gram, which Sears says has tens of the face of the digital age. party retailers, much the way the millions of participants, is becom- company’s online Marketplace cur- In the end, of course, Apple rebounded ing increasingly important as the rently sells 120 million products, exponentially while Kodak declared company tries to revive sales. More the vast majority of which are not Chapter 11 bankruptcy in 2012. than half of Sears sales now come Sears own merchandise. from Shop Your Way members, and He also pointed to General Dynam- sales per member increased more “We want to be a partnership com- ics’ divestiture of nearly $6 billion pany,” he said. “Sometimes we’re than 8 percent last year, compared going to be the big dog, with a 4.1 percent drop and sometimes we’re go- company-wide. ing to be a (smaller) piece “We are becoming a of a solution.” company focused less However, Sears isn’t alone on products and less on in shrinking. J.C. Penney, stores and much more on Radio Shack Corp., and members,” Lampert said. Staples have all announced Comparing Sears to a plans to close stores in patient undergoing major of assets in the early 1990s after 2014. Office Depot Inc. recently an- surgery who looks worse before the end of the Cold War. The com- nounced it intends to close at least he gets better, Lampert said the pany, which shrank from about 400 stores in the United States. company’s lackluster financial per- $10 billion in revenue to $3 billion formance does not mean its Shop As American shopping habits in 1994, has since rebounded to a Your Way rewards program and change with more sales online $30 billion company. and fewer shopping trips to indoor focus on integrated retail are not shopping malls, many retailers are Citing these examples of companies successful. Rather, it means these rethinking their stores’ footprint. that have successfully undergone investments will pay off in the fu- transformations despite seemingly ture. “Financial performance does Other Transformations damning financials, he said,“Some - not equal Shop Your Way,” he said. To make his point about the need times you need to go backwards to Over the past two years Sears has for transformation, Mr. Lampert go forwards.” used a powerpoint presentation il- expanded its online marketplace lustrating scenarios used by three Eddie emphasized the need for and has increased available prod- well-known companies. His ex- transformation versus “tweaking.” ucts from 40 million items to about amples included Apple Inc. in the In other words, to save the business 120 million today. “We’ve been very 1990s to early 2000s, aerospace the company must migrate to the focused on serving members, provid- and defense company General Internet economy. He also reminded ing products they want and very Dynamics in the early 2000s, and the shareholders that “financials continued on page 3 camera/film company Eastman —STRAIGHT TALK Summer 2014— 2 Survival continued from page 2 tions about the company’s financial was adjourned and proceeded with focused on price,” Mr. Lampert was struggles were fair, but that they an impassioned monolog culminat- recently quoted as saying. have obscured real progress tak- ing in singing her rendition of the ing place. Lord’s Prayer. Eddie said that Sears is “building a better mousetrap; we’re building He said Sears has hired some of the Q & A Responses a better way for people to manage best minds in retail, and the lack of In response to N.A.R.S.E.’s com- their lives when they’re shopping” immediate financial improvement ments, Eddie made a spoken that will get to know customers points to a radical industry trans- commitment to take care of retir- through more than just stores and formation underway. ees and said the company made a recent $3 billion infusion to company products, but also part- “When the best people in an indus- retiree benefits. He also said that nerships with other brands. try have a very hard time producing the company would start streaming results, it is about the people or the “Retail has been very controlling,” shareholder meetings. he said. He added he is “inspired by industry?” he said. Eddie also acknowledged the hu- what’s happening in the technology “You used to push a button, and man toll of closing stores and the industry, more and more you have to the door opened,” he continued. “It company’s careful weighing of this be part of a network … There are a doesn’t work that way anymore. lot of local and small medium-sized aspect. He said that Sears still has businesses. We can be an advertis- to take care of the profit recovery ing platform for them, a fulfillment program but “bricks and mortar will platform for them.” be around for a long time.”

What About Apparel? Ed i t o r ’s N o t e : The above article was When it comes to apparel, assembled from a report of our rep- Mr. Lampert said the company is resentative at the annual meeting, evaluating its strategy and will Bill Barker; and also news reports focus on shorter inventory cycles from Crain’s Chicago Business, and faster fashion in the future. May 8, 2014, by Brigid Sweeney; It’s smarter to buy $50 million of Bloomberg.net, Lauren Coleman- apparel 10 times throughout the Lochner, May 7, 2014; Chicago year than to make a large $500 mil- Tribune Breaking News, May 6, lion bet a year in advance, he said. 2014; Retail Wire, May 7, 2014 by “We’re going to buy more frequently George Anderson; The Wall Street and in smaller quantities.” Journal, May 6, 2014, by Suzanne Some people continue to push the Kapner; and the Chicago Sun- “We probably have too much space button; other people figure out a new Times, May 7, 2014. at Sears dedicated to apparel,” way to make the door open.” he added. Shareholder Reaction Kmart Prices He also noted that the company Surprisingly, while the company must currently cater to a wide range has posted two years of losses and Kmart sales may be suffering of demographics, from older and six years of declining sales, share- because its prices are more middle-aged shoppers to teens. “Do holders voiced little dissent and than 20% above Target’s and we need to be more effective with all offered ample praise for Eddie and Wal-Mart’s, according to a of these constituents, or do we need his solo performance. Bloomberg industries’ monthly to be much more focused? Those are pricing survey, says David Ber- “I am so happy to see you as chief the things that are being evaluated.” man, a portfolio manager at executive officer,” an elderly female People or the Industry? Durban Capital. “Their prices are investor from Texas told Lampert. higher than their competitors’. As reported in Crain’s Chicago Busi- “Sears needs to be sizzling because Why would a rational person go ness, “Mr. Lampert acknowledged it is hot.” This same shareholder there?” he asks. Sears’ struggles and said the ques- requested time after the meeting —STRAIGHT TALK Summer 2014— 3 A Slight Turn for the N.A.R.S.E. Presentation at N.A.R.S.E. Presentation Sears Holdings Annual Meeting By Bill Barker Tuesday, May 6, 2014

The content of Chairman Lampert’s Good morning. My name is Bill Barker. I am a Sears retiree and member remarks, along with those of his of the Board of Directors of N.A.R.S.E., the National Association of Re- staff, necessitated my presentation tired Sears Employees, which has represented the interests of thousands being delivered in an extempo- of Sears retirees for the past 17 years. raneous manner consistent with the positive and opening dialog of N.A.R.S.E. is appreciative of the company’s the chairman. continuance of the drug program subsidy.

However, both the written text and However, we have two major concerns I my actual remarks focused on two will address. First, retirees are very worried areas of concern to retirees: (1) In about the reported continuing dismal results the event of Sears declaring bank- of Sears Holdings retailing efforts and par- ruptcy, would the company commit ticularly rumors of a possible bankruptcy. to fulfilling its obligation to honor What would be the consequences of a bank- the Life Insurance settlement; and ruptcy proceeding on the retiree life insurance Bill Barker (2) Why does Sears avoid “stream- policy benefit settlement which we understand ing” its annual meeting live, similar is not fully funded but whose premiums are paid for on an annual basis. to what other companies do? We would appreciate your personal assurance that the company During chairman Lampert’s re- intends to live up to its moral and legal obligations to Sears retirees marks he actually made definitive upon whose many years of dedicated service the company was built comments regarding the company’s upon into the world’s largest retailer in its day. sensitivity to Sears heritage, his- aside from your February annual letters to shareholders, tor y and the human element as they Second, associates and members, and these Annual meetings, this is the only pursued the process of “transfor- time that we hear from our chairman and Chief Executive Officer. mation” to “integrated retail.” That being the case, why was the Board opposed this year to live Being the first to the microphone, I streaming over the Internet the Annual Meeting? added a personal note that if I were still on Sears payroll I would be cel- You have said in your annual letter that you believe the changes you ebrating my 56th anniversary with are making through Shop Your Way and integrated retail will benefit the company having joined Sears us in the changing retail landscape. on May 6, 1958. The entire assem- We believe all shareholders, not just the several hundred here today, would bly, including chairman Lampert, like to hear directly from you how you plan on transforming the company punctuated this personal note with from traditional brick-and-mortar stores into an integrated platform. general applause. Streaming live is not a new concept for corporations. In fact, on I also mentioned to “Eddie” that if March 19 of this year, the Starbucks Coffee Company live streamed its his remarks were being streamed Annual Meeting. And later today, the Walt Disney Company will be web- live today that retirees and oth- casting live its Q2 earnings results featuring its chairman and CEO. ers could hear first-hand from its chairman the direction the com- Transmitting live would be corporate transparency at its best in that all pany was taking. Streaming would shareholders can hear from our chairman and Chief Executive Officer, also give the chairman the chance his thoughts on positioning the company to compete effectively in 2014 and be- to address retirees’ concerns about yond, especially since the company’s financial results remain challenged. benefits, including life insurance Thank you for your anticipated responses today to both of these major concerns. and pensions. —STRAIGHT TALK Summer 2014— 4 HEARTWARMING ICEBOX TALE

Last Valentine’s Day Don Crookston, moved with them four times as the 90, and his wife, 86, celebrated their family grew. Today, Don boasts that 67th wedding anniversary. They the Coldspot has outrun four other have spent most of their married life refrigerators since 1954. in Muncie, Indiana, together with Today, this Coldspot is down- the same Coldspot refrigerator. stairs behind the bar in Don’s The Coldspot is still in perfect work- “rec room.” While downstairs, ing order and never needed a single the Coldspot became the place service call. The only repair made to store fresh fruits, vegetables, was to replace the gasket around beer and any surplus of groceries the refrigerator’s door in the 1980s. Refrigerator Company in Evan- needing refrigeration. And Don handled that one! ston, Indiana, built the refrigerator “As a cooler for beer since the 1970s, for Sears. That Coldspot, a Sears, Roebuck the door likely has been opened and brand existing from 1928 to 1976, According to Don’s daughter, Steph- closed more than any other Crook- was purchased in Muncie in August anie Penick, this Coldspot was her ston refrigerator, my dad noted 1948. According to Don, Seeger parent’s primary refrigerator. It recently,” said Stephanie.

ber of executive positions in the Far developing a state-of-the-art in- GORDON H. MUSCHETT West Territory, merchandising and formation center for thousands of Gordon died managing retail stores, and as oper- small business people in western at his home ating manager of a group of stores, Washington State. distribution and service centers. in Palm Des- Gordon lived in Bellevue, Wash., ert, Calif., on Ev Buckardt, former chairman of for 38 years and was married to M a r c h 1 8 , N.A.R.S.E., said, “Gordon was a his late wife, Sally, for 53 years. 2014, after a highly regarded Sears executive. He He loved the outdoors, gardening, br ief b at t le was an active member of N.A.R.S.E., downhill skiing and travel. In with cancer. dedicated to restoring the insurance 2008 he married Rita Jean Hill, He was 82. He was with N.A.R.S.E. coverage. His personal effort played a former fashion executive and from the very beginning and served a role in the N.A.R.S.E. arbitrated grandmother of four who lovingly as one of its vice-presidents. settlement for Sears retirees.” called him “Splash Gordon.” He joined the U.S. Army and had After retiring from Sears in 1990, Gordon and Jean moved to Palm more than 16 years of military Gordon received his Washington Desert in 2009, and each morn- service on active duty and in State Education Certificate to ing Gordon would look across his reserve capacities. He attained teach college-level business cours- pool in the mountains beyond the rank of Major and was a com- es. From there he worked with the and declare, “Just another day in manding officer of an infantry Small Business Administration, paradise, Jeannie!” unit, a member of the Special responsible for a pilot program, Forces FA Team, and an aide-de- concept and organization of the In August 2007, Gordon and his camp to a general officer. nationally acclaimed Small Busi- daughter, Laura Allison of Scotts- Upon his release from active duty ness Development Center. dale, Arizona, joined N.A.R.S.E. at its historic 10th anniversary in 1954, Gordon returned to work Gordon was presented with the meeting in Atlanta, Ga. He was a at Sears, Roebuck and Co. as a Golden Hammer Award by Vice force to be reckoned with, and he management trainee. He advanced President Al Gore, which honored will be missed. over the next 36 years to a num- his key role in establishing and

—STRAIGHT TALK Summer 2014— 5 Turnarounds and Transformations

By Eddie Lampert

Shortly after the Sears annual 1990s. The company’s revenues in industry conditions or competi- meeting, Eddie Lampert issued his declined from $10 billion in 1990 to tive dynamics. latest blogpost. An edited version of only $3 billion by 1995. It divested “Apple, Inc. the text is set forth below. several businesses representing “Apple Inc. Computer took a differ- about 60 percent of its 1990 rev- “At Sears Holdings Corp annual ent tack. Not everyone remembers enues, repurchased $960 million stockholders meeting this week, how perilous the company’s future in stock in 1992 and returned $1.5 we talked a lot about the difference looked in the late 1990s. They had billion to shareholders via special between turnarounds and trans- a 40 percent drop in revenues from dividends in 1993. formations. I want to share some 1996 to 1998 and lost over $1 bil- of those thoughts here. “Capital expenditures plummeted lion in one year alone. Its research by more than 90 percent. It looked and development spending was cut “Turnarounds happen when a like General Dynamics was liq- in half and SG&A was cut by more company succeeds again at doing uidating. But they weren’t—they than a third. A Wired magazine cover what it had once done success- were focusing on transforming featuring the company said, simply, fully before. Transformations are their business portfolio. They had “Pray,” and Michael Dell said that almost entirely different—they oc- the discipline to make adjustments if he were running the place, he’d cur when companies adapt their based on the circumstances they liquidate the company and return business model to fundamental were facing, to provide the founda- the money to the shareholders. shifts in technology, competitive tion for a better future. General landscapes, government policies “When Steve Jobs came back in Dynamics’ $3 billion in 1995 rev- and regulations, or macro trends 1997, he transformed the compa- enues has climbed to over $30 to serve their customers (or, in our ny—Apple Inc. Computer eventually billion today, including several case, members) in new ways. Over became Apple Inc. It focused much large acquisitions, with significant the last decade, incidentally, Sears less on computers and much more returns for its shareholders. and Kmart have faced all of the on developing products and a challenges I just listed. “Eastman Kodak Company platform—iTunes—to serve its “In the late 1990s, Eastman Kodak customers. Later, they added and “As you might expect, we talked a Company knew it had major prob- invented new technologies includ- lot about Sears and Kmart at our lems. While they couldn’t have ing smartphones and tablets. While annual meeting. But we also took a foreseen the phenomenon of In- Apple had other benefits like a close look at the transformations of stagram, many at the company significant cash balance, the les- three other companies: Apple Inc. knew that improved digital imag- sons of its transformation, however (formerly Apple Computer), General ing technologies and decreasing counterintuitive, are clear. Dynamics Corporation, and East- prices for digital cameras were an man Kodak Company. I want to be “Kmart/Sears History existential threat to the world’s clear that I am in no way saying “In 2001, Kmart lost about a bil- biggest film company. They tried ac- that Sears is just like any of these lion dollars. In January 2002, the quisitions—more than $3.8 billion companies, but there are lessons to company entered bankruptcy and from 1997 to 2005. They continued be learned from them, two that were proceeded to lose another billion to spend heavily on research and successful and one that was unsuc- dollars that year. By 2004, how- development, despite their declin- cessful in their transformations. ever, Kmart had emerged from ing financial performance. And bankruptcy, and we had pared “General Dynamics then they went bankrupt in 2012. locations—though far fewer than “With the Cold War ending and Investing heavily isn’t always the many people suggested—improved other political changes affecting right solution (or at least not suf- continued on page 7 it, the future looked uncertain for ficient) when addressing changes General Dynamics in the early —STRAIGHT TALK Summer 2014— 6 Turnarounds continued from page 6 “Sears had great brands and ex- formations are about innovations inventory management and made cellent service businesses, but the and iterations—new and often in- stores far easier to operate. perception was that it was stuck in cremental versions of changes. We mall locations while its competitors didn’t fully hit on the importance “As a result, we restored Kmart’s were opening hundreds of big box of our Shop Your Way platform at financial strength and credibility, stores away from malls that were first, but serving our members— and we posted nearly $1 billion in more convenient for consumers. wherever, whenever, and however EBITDA in 2004. But as impressive they want to shop—is how we are “The merger was the initial phase as the results of all our associates transforming our company today. and partners’ work were, at that of our transformation, but only the point we had only accomplished start. Other aspects have included “Turnarounds are challenging, but a turnaround. divestitures and store closures. transformations are even harder But, more important was our early because not everyone sees the di- “Fortunately, Kmart’s turnaround recognition that no matter where rection you’re heading in or your gave us the foundation to begin the stores were located, people were destination. After spending our execution of a transformation. First, beginning to shop in fundamen- annual meeting with sharehold- Kmart merged with Sears to form tally different ways than they ever ers, associates and other partners, Sears Holdings. Though Kmart had had before. however, I am hopeful that looking many well-located stores, it was not carefully at other companies’ trans- “Few in retail were trying to in- differentiated compared to Wal- formations sheds more light on the tegrate their store and online Mart,Target and others. actions we are taking and why.” channels before we did. But trans-

Another Point of View Former Sears Vice President Suggests Sears Folds

Steven Dennis, former Sears vice up to do, and it now would be president of corporate strategy and unable to fund the necessary head of Lands’ End integration, who upgrades. It is just digging a exited the company in 2003 after deeper hole. about a decade, set forth five reasons 4. The company has a leader who why Sears should “stop the charade is either a liar or delusional. and embrace the inevitable.” 5. Its valuable assets, including The five reasons that Dennis gives proprietary brands , for Sears to throw in the towel are: and Diehard and its 1. It doesn’t offer a value proposi- real estate portfolio, are becom- tion. No reason for being. Just ing “less valuable every day.” about every action taken over Dennis said that when he left in Steven Dennis the past 10 years has weakened 2003 the company was “gaining “Stop the insanity,” is the advice Sears’s competitive position. traction in our core full-line depart- that a former Sears’s executive, Ste- And the horrific results make ment store business and piloting ven Dennis, is giving the struggling, this plain for all to see. several important growth initiatives. money-bleeding retailer, according 2. The competitive gap continues To be fair, whether we could pull off to John Presta, Chicago Finance to widen. The company has lost the necessary transformation was Examiner. Dennis advises that this its relevance in nearly every highly questionable. But one thing action should happen immediately major category. is now certain. The subsequent ac- before it is too late, CNBC.com re- continued on page 8 ported on May 12, 2014. 3. After years of underinvesting in its stores, it has a lot of catching —STRAIGHT TALK Summer 2014— 7 Folds continued from page 7 foibles of JC Penney and Kohl’s and According to Dennis, “there are tions taken under a decade of Eddie yet still woefully under-performed. pockets of meaningful value within Lampert’s leadership have assured Both competitors have key advan- Sears Holdings, but proprietary the retailer’s demise.” tages relative to Sears. As they start brands like Craftsman, Kenmore to execute better, they will win back and Diehard are not sold where In other words, according to John the share they lost. the majority of customers wish to Presta, “Dennis is advising Eddie buy them.” Lampert to surrender. Dennis says For Sears to be a successful omni- the liquidation is already underway, channel retailer, its core physical Added Dennis, “Ultimately the referring to Sears as the world’s stores have to be compelling. Sears brands are only as good as their slowest liquidation sale.” has underinvested in its brick-and- distribution channels. Simply mortar stores for years. stated, as Sears and Kmart con- It is clear that Dennis is not a fan tinue to weaken, so do the value of The most damning reason Dennis of Lampert and apparently, for these brands.” He urges Sears to act gives for immediate liquidation is good reason. Dennis argues that quickly or these brands will become that “Lampert doesn’t know what Lampert “doesn’t know what he is as worthless as the Sears name. doing,” and is investing in the wrong he is doing.” After 28 straight quar- areas, such as the highly touted ters of declining sales (and heavy Regardless of the harsh words Shop Your Way loyalty program. losses), Dennis says that Lampert by Mr. Dennis, he really wants “has the chutzpah to assert, Sears to turnaround. He has no The problem with the Shop Your among other things, that Sears is vendetta against the company or Way program is that it is only investing in where retail will be in Eddie Lampert. He believes that a highly touted by Eddie Lampert the future.” viable Sears remaining in business and his executives who state that contributing to the pension and in- No “Shop Your Way” it represents a significant portion surance plans is in the best interest Lampert believes that the “Shop of their business. of everyone. Your Way” rewards program is Mr. Dennis points his finger at Ed- some huge differentiator, that hav- Mr. Dennis joined The Neiman die Lampert. He says, “Lampert has ing fewer, less convenient locations Marcus Group following his exit still failed to articulate a vision of than the competition is a good from Sears and now serves as an why and how Sears will fight and thing and that Sears can compete advisor at the retail-consulting firm win in the intensively competi- effectively with Amazon. All of these of SageBerry Consulting LLC. Den- tive mid-market sector.” He adds hypotheses would be laughable if nis said none of his clients compete that the company’s moves under the implications were not so tragic, broadly with Sears. And Sears, as Lampert have simply left it un- says Dennis. a general policy, does not comment able to appeal to consumers and on the circumstances behind the “Whether he really believes any of have robbed it of any advantage it departure of former employees. once had. this is, or is merely spinning the story to buy time, remains an open Final Footnote No Relevance question. But regardless of whether As a footnote, last month, retail In every major product category he is being disingenuous or whether expert Robin Lewis, author of the Sears has lost relevance (and he is nuts, you’d be crazy to give online newsletter The Robin Report, market share) while its key com- him your money,” Dennis says. made the argument that Amazon petitors continue to improve. In should acquire Sears. He called the But the final point he makes is the hard goods, Sears is fundamentally idea “win-win” for both companies, most damning of all. He says that disadvantage by its real estate, and as an acquisition would supply “valuable assets,” such as Crafts- as a practical matter there is not the online giant with thousands man, Kenmore and Diehard, “get enough time or capital to fix this of distribution centers, while it less valuable every day.” These truly core issue. would give Lampert a “profitable valuable brand names are losing exit strategy.” In soft lines, the company has been their meaning in the marketplace given a great gift by the recent by the day.

—STRAIGHT TALK Summer 2014— 8 Memphis, Tennessee Sears Retiree Club

Last March, Regional Vice President Ken Winkler and his wife Patsy attended the regular luncheon of the Sears Retiree Club in Memphis, TN. Since Patsy is a native of Memphis and this is where Ken began his Sears career, it was a great reunion for both of them.

This club is 150+ members strong and the current president is Ms. Melba Moxley. Approximately one- third of the members attended the March gathering.

Se a t e d : Effie Fleet, Mrs. Rankin, Hal Rankin. St a n d i n g : Lafayette Draper, Arnold Prather, Richard Fleet and President Melba Moxley. For more information about the Memphis club con- tact Melba by phone at 901-386-4267. She does not have an e-mail address. Polly Crowder, Jean Searl, Joan Hix and Dorene Holman

Warner Robins Georgia Sears Retiree Club

Gathered around the table at their regular third Thursday of the even-numbered months, these folks are enjoying good companionship and a great lunch. To get more information about this fun retiree group, contact Cathy Larkin at 478-923-4473. —STRAIGHT TALK Summer 2014— 9 Chairman’s Page Sears Holdings Today—Sears, Roebuck Yesterday

At Sears annual meeting this Sears struggled, it was dropped from the DJIA. And year there was much talk then a financier took over the company in 2005. about “transformations.” Eddie As recent history has shown, extensive financial rigor elaborated upon it during his was applied to the company to improve the profitabil- solo performance at the meet- ity of every line item, dropping poor performers and ing and later in his blogpost.” closing low margin stores, and sometimes even a very In his blog he said: “Turn- profitable one. It finally recognized the importance of arounds are challenging, Internet sales and attempted to catch-up. However, but transformations are even while Sears is still trying to transform itself, it is still harder because not everyone unable to compete effectively against other retailers that sees the direction you’re are lower cost, or have better merchandise or service. Ron Olbrysh, heading in or your destina- Eddie’s performance at the shareholder’s meeting this N.A.R.S.E. Chairman tion.” Eddie concluded by year was very upbeat, but considering first quarter saying that looking at other companies’ transformations results, also very realistic. As we have said many times sheds light “on the actions we are taking and why.” before on these pages, we hope the best for Sears and want However, as a contrary point of view, compare Eddie’s the company to succeed. We want Eddie’s transformation comments with what Steven Dennis, a former Sears to be a successful undertaking (no pun intended!). vice president suggests that Sears should do, which ap- Please Renew Now pears on page 7; and also Wall Street’s comments after If you have not already done so, won’t you please take SHC’s first quarter loss, which appears on page 12. the time to renew your N.A.R.S.E. membership today? Past Missteps Enclosed is a Membership/Renewal application form While Sears is struggling today, it was by no means the and mailing envelope. perfect company during the days most of us retirees If you have already renewed for 2014, then pass the worked there. First, during our days at Sears, senior application form to someone who could benefit from mem- management never viewed Wal-Mart as a competitor bership in our 17-year-old organization. If you have any and ignored it. Big mistake! comments, suggestions or questions about N.A.R.S.E., Second, in the middle to late 1990s, as Amazon was please contact me at: [email protected]. just starting to appear on radar screens, it appeared N.A.R.S.E is an all-volunteer association with no paid like Sears would be the kind of company that could employees. We are funded solely by retiree membership dominate the Internet. Why? dues and voluntary contributions. We receive no finan- Sears was big! It was a Dow Jones Industrial Average cial support from Sears Holdings. The dues we collect (DJIA) member that had ample resources to invest in are used to support our communication efforts with the new emerging growth market. Sears had a history the thousands of Sears retirees across the country. of pioneering markets. It had once dominated retail Since so many local Sears retiree clubs are folding, our with its catalogs, then became “king of the mountain” primary purpose for existence is to keep you informed in free-standing retail stores, then led the movement on issues important to retirees and to represent you to shopping malls as an anchor chain. and be your voice to Sears Holdings. As many have acknowledged, Sears had shifted with Have a very safe and enjoyable summer and our next historical trends, and we thought that the company bi-annual Straight Talk will be in the mail this Decem- could bring its resources to the shifting retail environ- ber. In the meantime, you can check our website often ment in order to remain dominant. Unfortunately it did at www.narse.org for the latest retail news. not. The company went a different direction, preferring to focus on defending its current business model. As —STRAIGHT TALK Summer 2014— 10 Not Dead continued from page 12 genius is beyond question or even that Lampert never even tried to run transformation. We are moving away accurate measure. with the big dogs as a retailer.” from a company that was heavily “One of the best things you can And he concludes by acknowledging based on selling products solely say about (Lampert) and his stew- that it is “irrelevant as to whether through a store-based network to ardship of Sears Holdings is he or not Lampert could be a retailer a member-centric business model doesn’t even really pretend to be a if he wanted to because he’s one focused on providing benefits to our merchant,” says Santoli. “Sears is of the best investors of all time. members anytime and anyplace. a collection of assets Lampert has Whether by Forrest Gump-style “We are seeing progress in our carefully, brilliantly chopped up, luck or devious plot, Lampert’s non- transformation to a member-centric, spun off and monetized to the ben- investment in retail infrastructure integrated retailer, as we continue efit of himself and shareholders.” were worth billions in gains and sidestepped losses.” to invest heavily in driving our Shop These two financial analysts than Your Way program. Member sales for grade Eddie’s performance as head An anonymous Internet retail ob- the first quarter represented their of SHC. They said that this is a very server responded: “Sears died long highest level ever, representing 74 subjective exercise, the outcome of before Lampert ever came to the percent of eligible sales.” which depends entirely on whether helm … it all started with Martinez. David Tawil, co-founder or not you think he’s actually He made change after change for and portfolio manager of change sake only to lose Maglan Capital, which on each venture, allowing follows distressed com- Target and Wal-Mart to panies, says the Shop take over as the big dawgs. Your Way loyalty program Since Mar tinez, Sears went hasn’t “gained enough from number one retailer traction or isn’t unique to what it is today.” enough to set it apart Morningstar from others.” O n M a y 2 2 , i t w a s Analysts Response announced that Morning- Jeff Macke, writing for star, Inc. a Chicago-based Merrill Edge Breakout, company, has dropped and Mike Santoli, senior coverage of Sears Holdings columnist for Yahoo Fi- Corp., leaving only a hand- nance, had the following ful of analysts following a company that was once the largest comments about Mr. Lampert’s been trying to perform an opera- U.S. retail chain. Retail analyst Paul message to investors: tional turnaround of the company. Swinand said in a company note, Mr. Macke states: “To appreciate (Lampert’s statement) “We provide broad coverage of more you need to first accept that it has “If Lampert truly thought he could than 1,700 companies across more nothing to do with actual retail op- make Sears a bonafide competitor than 140 industries and adjust our erations … the percentage of Shop of Target and Wal-Mart, he’s been a coverage as necessary based on cli- Your Way program eligible sales failure. If instead you think as I do ent demand and investor interest.” hitting 74 percent isn’t really a retail that he’s been starving the chain, For comparison, Dick’s Sporting metric. It’s a shiny object designed stashing assets and quietly disman- Goods does under $7 billion in to distract the wee ones who insist tling the company despite repeated sales per year and is followed by on looking for a retailer at what is denials, then Lampert is truly an 27 different Wall Street analysts. the greatest chop-shop in retail in- investing genius. Looking at the Sears, with nearly five times the vesting history. stores’ physical condition and finan- revenues of Dick’s is almost totally cial performance, it’s impossible to “The entire statement is gibberish ignored by Wall Street. until you get to liquidity and asset come to any conclusion other than sales. On those topics, Lampert’s —STRAIGHT TALK Summer 2014— 11 Do You Remember “Bato”?

Joe H. Batogowski, the boyish- looking merchant, known as “Bato” or the “Polish Prince” dur- ing his later years at Sears, started as a trainee at the West Hartford, Conn., Sears store where he drilled holes in bowling balls.

He was with Sears, Roebuck from 1966–1988 and left as senior executive vice president of mer- chandising & marketing. He had an uncanny ability to know what sells and how to sell it. He was responsible for numerous notable product lines such as the DieHard battery and Steady Rider shocks.

He also worked hard to sell man- agement on the importance of the I’m Not Dead Yet! sales technique called “direct- But Does Wall Street Agree? response marketing.” Late last month, SHC reported its financial results for It has been reported that on his the first quarter. Overall, Sears posted a loss of way up the corporate ladder, a Sears $402 million, or $3.79 a share, compared with senior executive suggested that he a prior-year loss of $279 million, or $2.63 a change his name to something sim- share. Excluding certain tax matters, the pler. Joe was asked to think about this Lands’ End spinoff and other items, Sears and report back to this executive. adjusted per share loss was $2.24. Joe Batogowski returned the In a prerecorded earnings call on May next day and suggested if “Bob 22 to investors, Eddie Lampert laid out what Batogowski” sounded more appro- he called a “profitability framework.” It included priate! He certainly had a sense of items such as “optimizing our store network” and humor about his name. “transforming select business models.” But he After leaving Sears, Joe continued also said that it was “not intended to provide to utilize his gift for understanding guidance or predict results.” merchandising and the mindset Lampert said in the call that the company “may of the people in the industry. He close additional stores in the course of this year,” served as a consultant and director on top of the 80 now being closed. of several advertising and marketing companies and co-founded News- Chairman Lampert justified the company’s paper Services of America in 1991. surreal loss with the following commentary:

He died May 12, 2005, at the age “Sears is undergoing a significant transformation, of 65 after fighting a lengthy battle and we fundamentally are changing the way we with leukemia. You can read more do business. Our performance in the first quarter about Joe in the book, The Big highlights the challenges we are facing as well Store by Donald R. Katz. as the progress we are making in this continued on page 11—STRAIGHT TALK Summer 2014— 12