Volume 16, Issue 2 Winter, 2014

Company Health Check CAN SURVIVE IN THE CURRENT RETAIL ENVIRONMENT?

Last month the Chicago Tribune published a 40-page brochure about In addition to Chairman Lampert, Chicago’s Top Workplaces. Unfortunately, was not one many analysts have been very of the companies listed as a great place to work. negative about Sears. Many dislike Lampert’s merchandising tactics The Tr ibune’s research found that “The culture of an organization sepa- and think he treats the company rates the top workplaces from others … the best organizations work at less as a pure retailer and more like (developing culture). They are run well and treat their employees with re- a bundle of assets that can one day spect. At these firms, the mission is clear, the leaders inspire confidence be turned into cash. and the workers see opportunities for advancement but also can maintain a healthy work-life balance.” Brands to Go For instance, last month it was According to the reported that Sears is considering research, compa- unloading its Lands’ End brand, nies that prosper one of its crown jewels, and Sears use an employee- Auto Center business. The company f i r st approach, purchased Lands’ End in 2002 compared with with the hopes that this classic models that are American brand would draw cus- customer-focused tomers into stores and bolster its or based on opera- online presence. tional excellence, continued on page 2 consistently yields good results.

“Numerous studies show that people-first models deliver above-average This issue of STRAIGHT TALK: returns. But it requires a discipline from the organization, the discipline Health Check for Sears p. 1 to stick to it.” The Crown Jewel p. 3 In the last issue of Straight Talk we asked whether Sears was in rocky Medicare Scam p. 4 territory? This inquiry was based upon comments that Chairman Lampert Private Edward Lampert p. 5 made at Sears Annual Meeting last May. He said that Sears did not move The E-Mailbag p. 7 Cudmore Obituary p. 8 fast enough to cut expenses in the wake of the financial crisis. Charman’s Page p. 10 “I’ve seen businesses … adjust their cost model and come out of it stronger,” Club News p. 11 Lampert said. However, “we haven’t done that in every case … the level of profit- The Way We Were p. 12 ability is still well below where it needs to be … we’ve got a lot of work to do.” ALOTBSOL—AWHFY p. 12

—STRAIGHT TALK Winter 2014— 1 Survive continued from page 1 tic sales are down; (4) The company At last May’s Sears Annual meet- This $1.86 billion acquisition was isn’t investing in the future; and ing Lampert acknowledged that touted as a model for how cata- (5) Rewards program. “we haven’t figured out how to get log and upstart web retailers a decent return on our assets, and Sozzi said that the rewards pro- could complement brick-and-mor- that’s something we just can’t keep gram is “eating the company from tar stores. going on without generating suf- the inside out. It’s driving lower ficient profit … We know that the Sears said moves to split these quality sales today and opening level of profitability in the business businesses would let the divi- the floodgate for even more margin- is still well below where it needs to sions “pursue their own strategic killing promotions in the future.” be to justify the assets we’ve dedi- opportunities, optimize their cap- Unloading Lands’ End and Sears cated to this business.” ital structures, attract talent, Auto businesses shows that the and allocate capital in a more fo- Third-Quarter Report Sears brand is desperate to raise cused manner.” The company reported that its net cash, Sozzi said. “ … At some point loss for the third-quarter, the sixth Furthermore, earlier this year in our lifetime, Sears will run out of in a row, widened to $534 million, Sears said it was evaluating stra- assets to sell to raise cash to fund or $5.03 a share, from $498 million, tegic alternatives for its warranty operations.” He added “every asset or $4.70, a year earlier. Sales fell business, including a possible sale, sale brings Sears closer to death.” 6.6 percent to $8.27 billion. joint venture or recapitalization. In Canada, the company is sell- But analysts have said that the “The gross margins were really ing off prime real estate, opening company’s warranty business has bad,” Matt McGinley, a managing up space for competitor Target, been hurt by steep declines in director at International Strategy Sozzi said. Sears appliance sales. & Investment Group in New York. Wall Street’s Opinion “If there was one silver lining in Justin Lahart, a writer with The Wall And in the October 12, 2013, issue terms of what they did this quar- Street Journal said, “Mr. Lampert of Barron’s it was stated that the ter, it’s that they delivered on what has had years to turn Sears around, rally of Sears shares belies big wor- they said they would do with the and hasn’t done so. The latest ma- ries. “Lampert has done a masterful expense reductions and the inven- neuver looks more like a reshuffling job of ensuring that Sears will have tory reductions.” of the deck than dealing the busi- ample liquidity to stock its shelves ness a new hand.” As reported in the Chicago Tribune, during the holiday season and be- “While analysts have pointed out However, others have said that yond. But questions about the value that Sears spends less than com- Lampert takes a realistic, un- of the company’s real estate and the petitors on store upkeep, the retailer sentimental view of the company. prospects for its retail arm suggests has been pouring money into e- While criticized for refusing to investors should shop elsewhere.” commerce initiatives. Lampert has invest in store revamps and spruc- In the June 20, 2013, issue of highlighted Member Assist, a mobile ing up as a matter of routine, he Forbes it was asked, “Should Eddie application that customers can use recognizes that with many subpar Lampert fire the CEO of Sears?” to text message store associates.” locations and stiff competition, The reason for the question: “Dur- Sears might not get much payoff Sears has also created a social net- ing his tenure, Mr. Lampert cannot from such spending. work for the company’s Shop Your claim to have achieved growth, nor Way loyalty program, which now 5 Disturbing Signs has he avoided sacrificing quality. generates 70 percent of sales. The October 28, 2013 issue of Busi- Perhaps it’s time he looks in the ness Insider cited “five disturbing mirror and tells the CEO of Sears Elsewhere in this issue you will read signs that Sears is getting closer Holdings that he’s fired.” comments received from retirees to death.” According to Brian Sozzi, about a possible future turnaround Unfortunately, Wall Street has unan- chief equities strategist at Belus for the company; Lampert’s back- imously given up on Sears Holdings Capital Advisors these five signs ground; and Sears guarantor and since Sears management has failed are: (1) Spinning off properties; nonguarantor subsidiaries. to deliver a retail turnaround and (2) Bombing in Canada; (3) Domes- profits have evaporated. —STRAIGHT TALK Winter 2014— 2 SEARS REINSURANCE COMPANY LTD.— THE CROWN JEWEL!

As was recently set forth in the Real Estate Value of Sears Re August 2013 issue of Stansberry’s In November 2003 Sears Hold- Investment Advisory, Sears ings transferred 125 of its best Holdings is a complicat- properties to a “special pur- ed web of subsidiaries, pose entity” (Sears Re) and special purpose entities, agreed to lease these prop- holding companies and erties back from this special other affiliates. purpose entity. Then, using As reported by Stansber- a creative combination of ry’s, “Today, after years of mortgages and mortgage- machinations, Sears Holdings’ backed securities, the value of various business interests fit these properties ($1.25 billion) into two critical, special purpose ended up as securitized assets on entities—guarantor subsidiaries the Sears Re books. and nonguarantor subsidiaries. What Chairman Lampert did was “The first category of assets can legally transfer extremely valuable be used to pay back bondholders real estate assets and the cash flow in the event of a Sears Holdings they generate into an entity that What’s the Game Plan? bankruptcy. The nonguarantor bondholders can’t touch. According to the Investment Ad- subsidiaries are shielded from Intellectual Property Value visory, Lampert “is attempting to bondholders in the event of a Sears of Sears Re make Sears’ best assets (in the Holdings bankruptcy.” nonguarantor Sears Re subsidiary) Business Week t houg ht t hat Lampert’s move regarding intellec- As background, like many other untouchable in the event of a Sears large companies, Sears Holdings Holdings bankruptcy. Meanwhile, tual property was, to say the least, has numerous insurance risks the assets still engaged in the dying groundbreaking: “Sears in on the including: risks associated with retail business remain Sears’ guar- cutting edge of financial innovation merchandise service/protection antor subsidiaries. So in the event so important it could … change the agreements sold to customers, of bankruptcy, the bondholders are way managers of a wide range of workers’ compensation, casualty stuck with the retail assets.” businesses think about their bal- and property risks. ance sheets.” “ … Eddie Lampert has been build- Sears Reinsurance Company Ltd. ing a huge insurance company Using the special purpose entity, (Sears Re) was formed in 2001 from the remnants of Sears. Today, a royalty agreement, and “asset for the purpose of providing cen- Sears Reinsurance holds an incred- backed notes,” Sears Holdings, tralized management of these ible $35 billion in assets. Very few during May 2006, transferred to insurance risks through a single people know anything about this in- Sears Re the $1.8 billion intangible entity to facilitate efficient man- surance company. And since it’s not value associated with the brand agement of them and to provide publicly traded, Sears Reinsurance names , and dedicated assets to meet the related largely flies under the radar.” Die-Hard. insurance obligations. In other words, Lampert has trans- As reported in the Investment Ad- Sears Re is a wholly owned cap- ferred billions of dollars of assets visory, “Sears Holdings now must tive insurance company domiciled from guarantor subsidiaries (where pay royalties every time a Kenmore, in Bermuda and regulated by the debtors have claim) to Sears Re Craftsman or Die-Hard product is Bermuda Monetary Authority. where debtors have no claim. continued on page 4 —STRAIGHT TALK Winter 2014— 3 Jewel continued from page 3 November 18, 2013, issue an insider Seritage marketing materials do sold … Lampert structured the deal reports on what really took place not mention any association with so that the royalty payments ulti- as GM teetered towards liquida- Sears Holdings. In addition, Sears mately go to Sears Reinsurance. So tion. What GM finally did before has also retained local real estate Lampert created licensing income filing for bankruptcy was to split brokers throughout the United from thin air—and assigned that in- the company into two very separate States to source transactions and come to his insurance company.” parts: “NewCo,” a new company accelerate deal activity. with a clean balance sheet, and The Bottom Line As one analyst has said: “The re- “OldCo,” the leftover GM with most Is Sears Re engaged in business development and monetization of of the liabilities. outside of Sears Holdings? With real estate is consistent with Sears’ $35 billion in assets one would The U.S. Treasury agreed to fully stated goal of becoming less reliant think that they would be. However, fund NewCo with equity, and thus on stores and inventory.” This is the company’s filings are silent on it became the chosen path to save but one part of the transformation this issue. the company. of Sears.

Sears Holdings is really two com- Seritage Realty Editor’s Note: The above article panies. One that makes money Another little known company of was assembled from the editor’s and will be preserved in the event Sears Holdings is Seritage Realty own research and from an article of bankruptcy (Sears Re)—and Trusts formed in 2012. This is a in Porter Stansberry’s August 2013 one that loses money and will be wholly owned subsidiary respon- Investment Advisory; a quote in liquidated in the event of bank- sible for large-scale redevelopment Business Week about Sears Re.; ruptcy (Sears Holdings). What and asset management initia- Forbes article in its 11/18/2013 is- Chairman Lampert is attempting tives to redevelop some of Sears sue titled, “How General Motors Was to do is to make Sears’ best assets and ’s most “shovel-ready” Really Saved”; and a report from untouchable in the event of a Sears properties. Seritage is actively on Baker Street Capital Management Holdings bankruptcy. a National Road Show to engage about Sears Holdings’ entire real in “portfolio reviews with nation- estate portfolio. Is this similar to what General Mo- al chains.” tors did back in 2009? In Forbes Beware Medicare Scam Artists

The Federal Trade Commission has efits if they don’t give the information,” received many complaints about says Micki Nozaki, case specialist for scam artists claiming to be from the California Senior Medicare Patrol, Medicare and asking consumers which is one of the m64 programs for personal or financial informa- working with the U.S. Department tion. They often tell beneficiaries of Health and Human Services to that the new health law (the Federal fight Medicare-related fraud. Affordable Care Act, also known Nozaki says, “Medicare will never, as Obamacare) requires them to ever call you.” You can call Medicare provide such information. at 1-800-633-4227 or contact the Senior For example, a woman in San Diego Medicare Patrol in your state at www. recently received a call from a person smpresource.org. This site is captioned: claiming to be from Medicare. He told “Educating and Empowering Seniors to The woman called the California her that she needed a new Medicare Prevent Health Care Fraud and Abuse.” Senior Medicare Patrol before pro- card because of the health care law and viding the bank information. “People Kimberly Lankford reported this asked for her bank account number. don’t know if the calls are legitimate, warning in the October 2013 issue He told her that her benefits would stop but they’re afraid they’ll lose their ben- of Kiplinger’s Retirement Report. if she did not provide the information. —STRAIGHT TALK Winter 2014— 4 THE VERY, VERY PRIVATE EDWARD LAMPERT

While he has headed up Sears bitrage department at the bank For any given company, ESL is like- Holdings since 2005, we know very holding company, , ly to be holding more than 5 percent little about a man who is trying to where he worked under Robert E. of issued shares. The main strategy follow in ’s footsteps. Rubin, who later became the U.S. of its hedge funds is event driven. In short, Edward Lampert, CEO of treasury secretary. In particular, ESL specializes in Sears Holdings, like Buffett, has identifying distressed securities Risk analysis became one of gained control of a giant, failing and intends to capitalize on them Lampert’s spe- business with a huge reserve of hid- once circumstances around cialties. Even as den assets. And he has remained the company are reversed. a relatively fresh hidden from the media and Sears Another obvious strateg y is hire, he reduced corporate headquarters for most of picking up securities that his department’s ex- this time. are priced less than their posure to the stock intrinsic or fair value. As was set forth in Stansberry’s market when he foresaw August 2013 issue of Investment overvaluations that led to In 2003 he pur- Advisory, Lampert is slowly trans- the market crash in 1987. chased most of the forming Sears Holdings wasted outstanding debt of ESL Investments assets into a massive reinsurance Kmart, which was In 1988, with $28 million seed firm. “He is following Buffett’s pre- two years into a money, Lampert opened his own cise playbook. And so far … almost prolonged bankruptcy process. private equity fund, ESL Invest- no one knows it.” Lampert, who is an expert in ments, Inc., which delivered annual bankruptcy proceedings and asset Eddie’s Early Background returns of about 25 percent for its distributions, managed to acceler- Edward S. Lampert was born July 19, investors. He gradually gained a ate Kmart’s bankruptcy process 1962 in Roslyn, New York. When he reputation for spotting opportuni- and walked away with control of was 14 years old, his father, an at- ties where others did not. the company. Under Lampert’s torney, died. While his mother took Since its inception, ESL has wit- control, the value of Kmart’s shares a job at Saks Fifth Avenue depart- nessed an average return of 29 increased from $15 in March 2002 ment store to support the family, percent a year. Because of ESL, to $150 by mid 2005. Lampert learned about the stock Lampert was worth about $3.1 market from his grandmother. Merging Kmart and Sears billion (as of 2012). He earned This deal made him, along with By the time he was in high approximately $1.5 billion in his partners and other investors school, he had grown fa- 2006 and subsequently be- in Kmart’s defaulted bonds, gains miliar with corporate came the richest person in excess of 1,000%. With these reports and financial in . winnings, about a year or so later theory. He studied The main objective he decided to reinvest these profits economics at Yale of ESL is to com- by merging Kmart with Sears, Roe- University, where mit itself to large buck forming Sears Holdings. he was select- holdings in com- ed for the elite Lampert Abducted panies that have Skull & Bones so- Lampert has made millions sweet- been studied thor- ciety, was a member talking his way through business oughly by its brokers, which allows of Phi Beta Kappa and became a mergers, but the biggest deal he it to leverage the full potential of its research assistant for Nobel Prize- may have ever made took place on stock holdings. This of course in- wining economist James Tobin. January 10, 2003, when four at- creases its risk as well, considering continued on page 6 In 1984 he graduated summa cum that at any given time, the company laude from Yale. His first job out is likely to hold anywhere between of college was working at the ar- three to 15 securities. —STRAIGHT TALK Winter 2014— 5 Private continued from page 5 looking for a target. Why he chose tackers jumped him on the way to Lampert is unclear. his car at 7:30 p.m. He was taken Lampert’s Success to a Hamden, Connecticut, hotel After turning his initial seed money where he was handcuffed, with his of $28 million into a $9 billion head covered by a cloth hood, and , Lampert stands out placed in a bathtub. as a young and ambitious inves- managerial actions seem He would remain in this position tor. His top clients are some of the inconsistent with a man with for the next 39 hours, having his major players in the business world, a 55 percent stake in the com- hands released and hood removed including Dell Inc. founder Michael pany. He usually shows up at only once when his captors gave S. Dell, the Tisch family of Loews Sears headquarters only for him some fried chicken to eat. Corp. and the family-owned Ziff- the company’s annual meet- Davis Communication Empire. It wasn’t the phone call to his wife, ing every year in May. the motel bill, or the supposed His focus is so remarkable that he The press has reported that ransom offer of $5 million that got was back to work just within a cou- Lampert purchased a $40 Lampert away from his kidnappers. ple of days after he was kidnapped million, 17,000-square-foot It was the pizza that one of his cap- in 2003. According to Thomas J. mansion on a private island on tors ordered using the hedge fund Tisch “Eddie is one of the most ex- Biscayne Bay near Miami. manager’s personal credit card. traordinary investors of our age, if not the most extraordinary.” Some analysts believe that Realizing the mistake, Lampert told Lampert is only giving token his captors that their only chance of In his interview with Business- effort to turning Sears retail not getting caught was to simply let Week, Eddie Lampert stated that operations around. His ac- him go. After all, he hadn’t seen any he wanted to be a role model for tions are more consistent with of their faces because they were all businessmen and show them how a a liquidation strategy, as op- wearing masks. Law enforcers said business is run. Truly, Lampert has posed to a retail strategy. that Lampert may have saved his invested in businesses scarred with own life by convincing his abduc- financial crisis, as well as manage- Where is Sears heading? tors he would pay them at least $5 ment issues. Mr. Lampert says the com- million if they let up go. pany is “transitioning from Lampert & Retail a business that has histori- The kidnappers apparently dropped As the press has reported, the cally focused on running a him at an I–95 exit ramp less than numbers at Sears Holdings are so store network” to one deliv- a half-mile from the Greenwich ugly it would take huge efforts to ering value “by serving its Police Department. turn the “retail nightmare” around. members in the manner most However, on the surface it doesn’t Subsequently, a 24-year old for- convenient for them: whether appear that Lampert is very con- mer Marine, Renaldo Rose, was in store, in home or through cerned. Effective June 2012, ESL sentenced to 15 years in a federal digital devices.” Investments relocated to Florida prison for masterminding the kid- from Greenwich, Connecticut. This Editor’s Note: The above article naping of Lampert. Rose told the was a blow to a town often referred was assembled from news re- judge “I am really sorry I did this … to as the hedge fund capital. ports appearing in: Bloomberg I was raised better than this.” BusinessWeek, USA Today, He now lives and works in South According to the FBI and the Green- Daily Wealth, thesullivanlaw. Florida, 1,400 miles away from wich police, Rose was searching the com, New York Times, and Sears Holdings’ Chicago head- Internet studying chief executive greenwichtime.com. quarters. And some of Lampert’s officers of numerous companies —STRAIGHT TALK Winter 2014— 6 The E-Mailbag— Sears Future Looks Uncertain.

Every move appears to an outside observer indicates a mid-long term decision to dramatically change the retail structure of what was once a retail company dedicated to serve middle American consumers. Elec- tronic merchandising is a rapidly growing business. I applaud this approach; however, I have serious con- In the last issue of Straight Talk we asked our readers cerns this will carry Sears to profitability. for their opinions on the future of Sears Holdings. We must have struck a nerve as an outpouring of e-mails Sears stores are in need of point-of-sale upgrading. A came in. A representative sampling of their comments, basic retail requirement. It appears to me the company some of which are very lengthy, are set forth below. is currently being “operated” not merchandised. Sell- ing Sears traditional branded products in competitors’ Eddie Is Brilliant (Elmhurst, IL retiree) outlets is mind boggling, unless it is a strategy to Eddie Lampert is a brilliant strategist and investor, eventually exit in-store Sears retail business. Sears’ who is using his investment in Sears to realize his historic strengths are being challenged. objective of becoming the new “Warren Buffet.” What is Sears strategic plan? What I have read, Eddie is only giving a token effort to turning around watched at point of sale, leaves one to ask “does Sears Sears retail operations. I believe there are good rea- business plan, include brick and mortar?” sons for his lack of investment in the stores. First of all he is using the savings to buy back Sears Holdings I sincerely wish Mr. Lampert success. shares at a low price, and secondly he is positioning Future Very Grim (San Diego, CA retiree) the various components of SHC for liquidation, after I hope I’m wrong, but my view of SHLD’s future is very transferring billions of dollars of assets to Sears Re- grim under Eddie Lampert’s continuing “leadership.” insurance (where debtors have no claim). Sounds like Warren Buffet’s play book, doesn’t it. Retailing by it’s very nature is constantly changing and evolving (as are our customers), and since that’s the Another Amazon (Akron, OH retiree) name of the game, you can only win if you know your Lampert is not making investments in the stores be- customers well, your competitors even better, and are cause he is getting away from the brick-and-mortar willing to take the risks of endlessly investing to stay system and trying to become another Amazon. How- ahead of the game we’re in and b e a t competition . ever, I think he is too late for this. No question, he is protecting himself and regardless of what happens to We all realize that customers have more choices than Sears, he will come out on top. ever, are inclined to lack loyalty, and since we’re largely locked into established mall locations, we m u s t aggres- I only wish that Sears sales and profits could be as sively reach and motivate customers each and every great as some recent Kmart commercials including week (Kohl’s) with u r g e n t & c o m p e l l i n g r e a s o n s t o s h o p “Ship My Pants” and “Show Your Joe Boxers.” n o w ! (Does JCP’s failed strategy come to mind?)

Swimming Against Retail Tide Eddie just doesn’t get the retailing basics of customers (Lake Forest, IL retiree) & competition, hasn’t and won’t make the investments With deep reservation and consideration for former necessary to win this continuing battle for business, and current Sears associates, I will make my observa- and if he continues to use SHLD’s assets as his per- tions on Sears Holdings future. Lampert is swimming sonal piggy-bank for his other interests, it’s only a against retail tide. A difficult trip in the calmest question of “When” not “if” SHLD will cease to exist. of waters. continued on page 8

—STRAIGHT TALK Winter 2014— 7 E-Mailbag continued America’s premier retailer. from page 7 Telling, and his ultimate Case in point, among Obituary successor, Ed Brennan, the 17 retail properties was going to transform he recently sold was the Lawrence E. (Larry) Cud- Sears into a worldwide Sears Ala Moana Store in moe, retired president of financial services jug- Hawaii, the #1 sales (over Sears Merchandise Group, gernaut (also doing some $100 million) and profit died October 17, 2013 in retail business). store in the company, Shrewsbury, Massachu- Lowe was “promoted” to with no replacement store setts, after a long struggle with Alzheimer’s head Sears Midwest (Chi- for that market, thereby disease. He was 77. cago based) Territory. just giving those sales to Larry had a long and successful career with “Put a lid on Lowe,” as our competition! This is Sears, Roebuck and Co., and his work took him some put it. not the way to grow the and his family to various parts of the country, business i f you’re commit- including Westborough, Newtown Square, PA, Sears’ most notable ac- ted to winning the retail Oakville, Ontario, Canada and Chicago. He complishment in those game, which sadly I’m served as chief operating officer and president years was building Sears convinced he’s not. of and later as president of Sears Tower, the (then) tallest building in the world. A Lacks Retail Knowledge Merchandise Group in Chicago before retiring in textbook example of ego- (Estes Park, CO retiree) 1993. He was also on the board of directors of centric mismanagement. Sears, since its merger N.A.R.S.E. for many years. with Kmart, is headed by He graduated from Brockton High School, where The strategy to become a billionaire financier who he played varsity basketball on the team that won the world’s premier fi- is now also the majority the state championship at the former Boston Gar- nancial services provider owner. He is evidently an den in 1954. He was recruited to play basketball flopped as Sears exited excellent financier, but and study at Colby College, where he earned his banking (Sears Bank), In- has no merchandising bachelor of arts degree. surance (), Sears knowledge or experience World Trade and other in his background. He From a friendship that formed in the third grade money-losing ventures. now runs the company as with Jane E. Caldwell to courtship that tagged Even Sears core, basic both CEO and chairman. them high school sweethearts, they married on retail, suffered. Sears, Since he lacks a mer- February 4, 1956, in Brockton. Jane died De- the icon of catalog mer- chandising background, cember 1, 2011. chandising, gave up on the final result can only Larry and his wife had two daughters, two sons, the business that Richard be total liquidation of the and nine grandchildren. Sears, Julius Rosenwald merged firm. and General Robert Wood We will miss Larry, our friend and colleague. built into an American History and Eddie legend. And Sears Tow- (Phoenix, AR retiree) er: Po o f ! On a Spring day in 1978, two Sears executive air- craft headed toward a Colorado airfield. One came And don’t blame Arthur Martinez. He was just a from Chicago carrying outgoing Chairman Arthur poor hire (wrong place, wrong time, wrong guy). Wood and Chairman-designate Ed Telling. The other And don’t even blame Eddie Lampert. He, at least, carried John Lowe, a board member and executive acquired control of Sears through crafty stock ma- vice president of Sears successful but rogue Western nipulation. (Pacific Coast) territory. Blame instead a corporate mind-set that abandoned The point of the meeting was not “necessarily” to the idea that to be a successful retailer you must: humiliate Lowe (that was just a collateral objective). continued on page 9 The point was that a new dawn had come to Sears. The company was to become something more than —STRAIGHT TALK Winter 2014— 8 E-Mailbag continued from page 8 personal campaign to reduce the number of SHLD’s 1. Have quality product, priced competitively and shares outstanding by using the company’s cash to convenient to the customer. purchase over 8 million shares of SHLD’s stock on the open market. The ironic part of it was that it was 2. Have attractive, comfortable, convenient availabil- done at various intervals when the stock was trading ity (stores, catalogs, internet). in the $100 to $150 range.

3. Have knowledgeable, motivated staff at every level. By doing so, he tried to reduce the share count, thus 4. Have a business plan consistent with your increasing the price of the stock plus increasing the core business. earnings per share in future quarters. Eddie Lampert’s actions drained the company of operating cash to levels I believe Lampert’s plan is inconsistent with the four which forced staff cutbacks, advertising reductions, points above. capital improvement postponements, reduced 401k Stock Rally (Detroit, MI retiree) plan contributions, pension plan curtailments, etc. As the WSJ recently reported, Lampert “has proved Looking back, what a total waste of company cash. hopeless as a retailer since taking control in 2005.” Now he is borrowing money and selling assets to raise However, as a financier, he is doing great! During the cash to run the company. With all the money he blew, past three months, SHC’s stock has soared about he could have hired a hundred retail visionaries to 48 percent. I guess he is good at something! Now, put SHLD back on the map. if only his company’s sales and profits could do a little soaring!! In Defense of Lampert (Sleepy Hollow, IL retiree) I give Lampert credit for staying in the scene. It is obvi- Analysts Are Right (Louisville, KY retiree) ous he wants to be there. Other investors spend their It is with a heav y heart that I must agree with the ana- time investing and selling. Why does Lampert stay in lysts, not because they say it, but when I walk into my the management ranks of Sears? Apparently he sees local Sears store, it is so evident. The lack of timeless- an opportunity. I see no other reason for him staying ness of displays, poor clothing and offerings (just look in the management ranks. at the up-to-date displays and clothing at Kohl’s). If his desire is to sell the company entirely off, just The mall always has plenty of shoppers but they are turn it over to a CEO and spend his time with the not in Sears. They are always too late and a dollar liquidation process. That I do not see Lampert entirely short on pricing, and contrary to what they think, the doing. Yes, stores have been sold. Let’s give the benefit service is not good. to him that they were wise decisions. One would have I realize there is a lot of competition out there, but that to know all the stats. is no excuse for, what used to be, a leader. Competition Sears, in my opinion, is in a transformation status. I should make them better merchants, but it appears do not think this is the date for everyone to be radi- to me they have taken the attitude I’ll do it my way cal. One thing for sure—Sears has the strength to regardless of the consequences. stay in the game and to play the markets. That is the I have the impression the company is being drained of strength of Sears. every cent they can get out of it with very little intention My advice to Mr. Lampert: Get some absolutely great of making it successful. What a shame for what used consultants that know the past, present and future to be the biggest and best merchant in the world. of retail and the direction it is heading. I do not see I hope I am not being too cynical, and it is my sincere Sears having those persons on board. Even if they hope they “wake up” before it is too late, and it may have top national managers in all departments, they be already, as the “old Sears” was very good to me and still need help. its customers. One should not let the general economic problems that Financial Engineering (Phoenixville, PA retiree) all retailers are going through isolate to just problems Eddie Lampert is guilty of financial engineering. that Sears is having. The whole merchandising climate During the years of 2005 through 2007 he went on a is changing.

—STRAIGHT TALK Winter 2014— 9 Chairman’s Page Renew or Join N.A.R.S.E. Today for 2014!

Sears Holdings is strug- such as health care, pensions, Medicare and Social gling but Chairman Lampert Security changes and the taxation of such benefits. is betting on e-commerce We still have monthly meetings in Chicago that in- initiatives to save the com- clude a toll-free conference-call segment available to pany. However, today online any retiree in the country. Check our website for the retailers like Amazon and dates of these meetings. deep-discount brick-and- mortar retailers like Wal-Mart Our Board of Directors is an all-volunteer group with and Costco make it very dif- no paid employees. We are funded totally by the re- ficult for Sears to prosper. tiree membership dues and voluntary contributions. The dues we receive are used to support our commu- Since 1987, the combined nication efforts with the tens of thousands of retirees Ron Olbrysh, annual revenues of Kmart across the country. N.A.R.S.E. Chairman and Sears have dropped from nearly $100 billion to less than $40 billion. In the This issue of Straight Talk could not be printed meantime, Wal-Mart and Amazon sales, during the and mailed to you without your continued support same period of time, have gone from $15 billion to and the support of many others. And our website, more than $500 billion. www.narse.org would not exist without your fi- nancial contributions. N.A.R.S.E. will be around for as long as Sears will be around, and we hope that will be for a very distant I am asking you to please renew your N.A.R.S.E. mem- time in the future. But Mr. Lampert has his work cut bership for 2014. Enclosed is a N.A.R.S.E. Membership/ out for him. We wish him well and hope he can imple- Renewal Application form and mailing envelope. ment strategies that will save the company. If you have already renewed, then pass the appli- Our organization will be celebrating its 17th anniver- cation form to someone who would be interested sary next summer. Over the years we have provided in supporting our organization. If you have any speakers to local retiree clubs, reunited thousands of questions about N.A.R.S.E., you may contact me retirees with former associates and friends and kept at [email protected]. our membership up to speed as to what is happening Have a very Merry Christmas, Happy Holidays, and at Sears Holdings and at the federal level that could the best wishes for all of us in 2014. impact our benefits—benefits

Wishing you a Holiday Season Filled with Peace and Love … and a New Year Rich with Blessings.

—STRAIGHT TALK Winter 2014— 10 Retiree Club News

Salinas, CA Retiree Club Sears Three Cities Retiree Club (Clarksburg, Fairmont, Carol Robies, president of the Salinas Club, reports that her “once-a-month” lunch organization meets Morgantown, WV) the second Tuesday of each month at 11:30 a.m. Dorothy J. Moore, president of the Three Cities Club, at Sang’s on Main Street in Salinas. Ten to twenty meets the third Thursday of every month, rotating retirees attend each monthly get-together. their meetings in the three cities. In Clarksburg This is a very informal club. Members keep in (Bridgeport) and Morgantown the club members contact with each other by word of mouth, phone meet at the Sears store. In Fairmont, they meet at or e-mail. a local restaurant.

Carol maintains a listing of the former employ- This club has about 40 members with 10 to 12 at- ees who worked at the “old” store before Sears tending each of the monthly meetings. moved to the “new” Mall in 1981. Carol said: The December meeting is being held at the Morgan- “We have not made the effort to keep in touch town Sears store. According to Dorothy, the store with the employees who come and go from the manager, Danny Potesta, who has been with Sears “new” store. Such employees are mostly part- for more than 30 years, usually attends these meet- time with a high turnover rate. Not the loyalty ings and reports on how Sears is doing. we had before.” For more information about this club you can reach Carol can be contacted by e-mail at: carolrobies@ Dorothy by e-mail at: [email protected], or phone .net, or phone 1-831-424-8946. 1-304-292-7946.

Sears Atlanta Big Club

This club currently holds the record of being the largest Sears Retiree Club in the country. It meets the fourth Tuesday of the first month of each quarter with an attendance of well over 100 for each meeting! And it is still attracting new members.

The president of the club is Robert Strickland; vice- president is Jon White; secretary is Gail Walton; and treasurer is John DuBose. Bob can be reached by e-mail at: [email protected].

At the club’s last meeting, John Hoffman and his wife Francis were in attendance. John is a World War II veteran serving in the Navy on the USS Sangamon #26. He was blown off the ship along with 63 others and was picked up by other ships in the area. John served in the Navy during 1942 to 1946 in both the John Hoffman and his wife Francis. Atlantic and Pacific.

—STRAIGHT TALK Winter 2014— 11 The Way We Were

“Sears is the paragon of retailers,” proclaimed a Fortune magazine cover story in 1964, and in a refer- ence to the five awesomely powerful territories it said, “It is number one in the U.S., and also number 2, 3, 4, and 5.”

Sears was just that big. Fortune noted that the company’s sales volume was bigger than that of the entire tobacco or furniture in- dustry. Alone, Sears dwarfed the American entertainment and lodg- ing industries.

As huge shopping centers began to cover the landscape, entire ALOTBSOL—AWHFY developments were predicated on Isn’t texting great?! Text messaging is a term for short communications the presence of a Sears store, and made through cell phones. Young users especially seem drawn to it as a fundamental alterations in sur- quick and easy way to stay in constant contact. rounding marketing areas occurred because of the corporate advertis- The above texting headline means, “Always Look on the Bright Side of ing that made the sound of Sears Life,” and “Are We Having Fun Yet?” part of the background noise of Young folks can text OMG (Oh My God), YAHOO (You Always Have Other Op- everyday life. tions), TTG (Time To Go), DIKU (Do I Know You), A/S/L/P (Age/Sex/Location/ By 1972, Sears, Roebuck and Co. Picture), 88 (Hugs and Kisses), 4COL (For Crying out Loud), but what about accounted for over one percent of us retirees? Well, seniors have their own texting codes. For instance: the American gross national prod- ATD—At the Doctor’s OGR—Old Geeks Rule uct, and surveys confirmed that BFF—Best Friend’s Funeral OMSG—Oh My! Sorry, Gas it was the most trusted economic BTW—Bring the Wheelchair PESM—Please Explain Social Media institution in the country. BYOT—Bring Your Own Teeth RNMN—Renew N.A.R.S.E Member- “Being the largest retailer in the CBM—Covered by Medicare ship Now! world,” former chairman Gordon CUATSC—See You at the Senior Center TOT—Texting on Toilet Metcalf had told Time magazine, DISC—Don’t Ignore Senior Citizens WAITT—Who Am I Talking To? “we thought we should have the larg- DWI—Driving While Incontinent WSS—Will Sears Survive? est headquarters in the world.” And FWIW—Forgot Where I Was YAHOIOP—Young at Heart, Older in thus was born the Sears Tower. GGPBL— Gotta Go, Pacemaker Bat- Other Places tery Low Inside the company, the Tower was GHA—Got Heartburn Again named for the executive who or- HGBM—Had Good Bowel Movement dered its construction. It was called HICGU—Help! I Can’t Get Up! “Gordon Metcalf’s last erection.” INDY—I’m Not Dead Yet! Editor’s Note: The above was taken IRDIY—I’m Retired, Do It Yourself from The Big Store, a non-fiction epic LMDO—Laughing My Dentures Out story of Sears by Donald R. Katz (1987). LOL—Living on Lipitor —STRAIGHT TALK Winter 2014— 12