The Sears Holdings Saga Continues into the Holiday · PDF file1 —STRAIGHT TALKWinter...

1—STRAIGHT TALK Winter 2015—

Volume 17, Issue 2 Winter, 2015

The Sears Holdings Saga Continues into the Holiday Season—

Will a Grinch or a Santa Claus Be in Sears Future?Sears Holdings has been in the headlines more than usual dur-ing the past month—some good news, some not so good news. For example, there were headlines such as: “Sears Holdings Considers REIT to Raise Cash.” “Sears Stock Sky-rockets on Real-Estate Potential,” “For Lampert, a Big Step to Tap Sears Real Estate,” “Would a REIT Actually Help Sears?” “Sears Still Can’t Call Itself a Store of Value,” “The Incredible Shrinking Sears,” “Sears: The Death Spiral Contin-ues,” “Department Stores Far from Dead Despite Sears’ Disaster,” “Sears Is in a Hole it Cannot Get Out Of.”

The company has been closing stores, slashing inventory and selling off assets to generate cash after nearly a decade of falling sales and dwindling margins. Last October Sears sold its full-line store in Cupertino, California, for $102.5 million.

A lot has been written about Sears Holdings wanting to set up a Real Estate Investment Trust, or REIT, that will involve around 300 Sears stores. Exactly what is a REIT?

Congress created REITs decades ago as a way to let ordinary Ameri-cans buy shares in skyscrapers, shopping malls, and office build-

ings just as they could buy stock in a company or mutual fund.

The basic rules are relatively sim-ple. REITs have to have most of their assets and income tied to real estate, and they pay no tax on income distributed to their share-holders as long as they pay out

at least 90 percent as dividends. Companies have created REITs to lower taxes and boost returns to their shareholders.

The REIT spinoff would provide Sears with additional cash. Assum-ing an average of $56 a square foot, analysts at Evercore ISI estimate the Sears REIT might be worth $1.9 billion. And Sears might see $1.4 billion of that, which would be enough to fund operations for another year at the rate it is burn-ing cash. But the REIT’s real worth won’t be known until the stores are graded and valued.

Sears Stock SoarsWhen Sears announced on Novem-ber 7 that it was considering selling upwards of 300 of its buildings to

This issue of STRAIGHT TALK:SHC Saga Continues p. 1

Lowe’s Tops Sears? p. 4

Life Insurance Alert p. 5

Syracuse Retiree Club p. 6

Obituaries p. 8

Chairman’s Page p. 9

Former Great Merchants p.10

SHC Gets Perfect Score p.12

Esplanade at Aventura p.12

CEO Eddie Grinch


boost its liquidity and forming a REIT that would hold the stores, the company’s stock jumped more than 31 percent.

As reported in the Chicago Sun-T imes on November 10, “The company (Sears), which was once a staple of American shopping is facing pressure from nimbler ri-vals such as Wal-Mart Stores and Home Depot. It’s also dealing with broader industry issues, includ-ing a slow economic recovery and shoppers who are taking their dol-lars elsewhere.”

While Sears’ stock skyrocketed for one day, the company reported that it expects third-quarter sales to dip 0.1 percent at established locations. An expected 0.7 percent decline at Sears stores offset a 0.5 percent increase at Kmart stores. Last August, Sears reported its ninth straight quarterly loss as sales continued to slide.

As The Wall Street Journal recently reported, while Sears’ “latest round of imaginative financial engineer-ing (has offered the company) a reprieve, (it) doesn’t solve its funda-mental problems of unprofitability.”

Would a REIT Help Sears?Maybe yes. Maybe no. Can a REIT strategy really rescue Sears Hold-ings or is this just another spike on real-estate related news destined to collapse under a pile of operating losses, as reported by Benzinga’s Bill Stoller. (Benzinga is an inno-vative financial media outlet that provides investors with unique content used by Wall Street’s top traders.)

As a result of the one-day Sears stock soar on November 7 that resulted in an increase in equity capitalization of about $1.08 billion, it was a very good day for Chair-

man Lampert and ESL Investments since they are the largest share-holders in the company.

Financial analyst Brian Sozzi, calculated that Sears lost close to another $500 million for the most recent quarter. So, as a result of a REIT, is the solution to have Sears’ best store locations pay rent each month? What that would do is to provide cash-strapped Sears with significant cash injection in an attempt to buy more time to turn things around.

Even a REIT comprised entirely of the best remaining 200 to 300 re-tail locations (under master lease agreements with Sears) might not be popular on Wall Street due to the company’s junk credit rating, declining sales and consistently huge losses.

The lease payments from Sears Holdings to the REIT would most likely exacerbate the company’s negative cash flow by the amount of contract rent on the master leases. In addition, the new REIT manage-ment and Sears Holdings would likely have conflicting interests and vision for the real estate assets.

According to Benzinga, in the event of a Sears bankruptcy, all bets are off, as a messy situation rife with potential conflicts of interest could unfold over several years.

Target and MervynsIn 2008 hedge-fund manager Bill Ackman urged Target Corp.’s shareholders to spin off the com-pany’s real estate, valuing such a move at $5.1 billion. Investors voted down the proposal.

Mervyns, the middle-scale de-partment store chain based in Hayward, California, and originally owned by Target, was taken over by three private equity titans in 2004:

Cerberus Capital Management, Sun Capital Partners and Lubert-Adler. These three firms stripped the 59-year retailer of its assets and separated its real estate portfolio into a REIT.

On October 17, 2008, the company announced that it would liquidate its assets through a Chapter 7 bankruptcy filing. Thirty thousand people were put out of work.

Mervyns’ collapse reveals danger-ous f laws in the private equity playbook. It shows how investors with risky business plans, unre-alistic financial assumptions and competing agendas can deliver a death blow to companies that oth-erwise could have survived.

Mervyns’ new owners were eager to turn the company’s real estate into gold. When the acquisition closed, they split the company into two main pieces—the retail operation and a much more valuable entity that held the real estate.

Over time the owners would shut down 90 underperforming stores and close two of its four distribu-tion centers in order to sell some of the land they owned. They also sold the decades-old property leases on many other stores to outside com-panies—and then turned around and rented the property back at current market rates. The owners kept the proceeds from the land and lease sales for themselves.

The Mervyns demise offers a sad glimpse into the human suffering wrought by owners looking to turn a quick profit above all else

Shareholder AdvantagesAs unattractive as a REIT may sound, there could be some advantages for existing Sears


shareholders. Benzinga suggests three such advantages:

1. Assuming the leases are struc-tured so the REIT would have taxable income, at least 90 per-cent of it must be paid out in the form of dividends to sharehold-ers—not squandered on failing retail operations

2. There is a chance these real estate assets could be “walled off” from Sears’ creditors, in a similar fashion to the U.S. rights to valuable brands like Kenmore, Diehard and Craftsman, which are held in a separate entity.

3. The new REIT management may be more focused and have more success in maximizing long-term property values than current stalled initia-tives of Seritage and Ubiquity Critical Envi-ronments.

You may reca l l that Seritage is Sears’ secret re-alty trust. It is described on its home page as a nationwide devel-oper of commercial real estate. It was formed in 2012. Its portfolio con-ta ins over 200 properties located in 33 states and totals over 18 million square feet. Their website conspicuously fails to mention the connection with Sears Holdings.

Ubiquity Critical Environments is another Sears-created business that is a developer of datacenter, business continuity and commu-

nication colocation properties. It has a massive real estate portfolio.

In summary, the key to adding tangible value for Sears’ sharehold-ers from a REIT strategy can only come from a “block and tackle” ef-fort, and a vision to transform the bottom 1,500 locations, not from monetizing the top 300, according to Benzinga.

Credit RatingsAt Sears, things are bad enough that Fitch lowered its debt rating from CCC to CC last September. A CC rating indicates highly vulner-able, very speculative bonds. With such a rating it is both difficult and expensive for Sears to continue to borrow money to pay its creditors

and maintain inventory shipments from suppliers.

(Fitch Ratings is a global rating agency dedicated to providing value beyond the rating through objec-tive and balanced credit opinions, research and data. It is a jointly owned subsidiary of the Hearst Corporation and FIMALAC SA, a French holding company.)

Analysts at Credit Suisse said that Sears Holdings would likely put its best performing stores into the REIT, which would need to be strong enough to stand on its own. Sears said it would lease the stores back from the REIT and continue to operate them.

Credit Suisse analyst Gary Bal-ter said that by playing the REIT card, Sears is using what the bulls on the stock have long argued is the real value in the company, its “real testate.”

Sears said that the REIT deal would produce substantial infusion of cash. Analysts, however, are skepti-cal that the company can continue to raise the funds it needs un-

less its operations turn around. Fitch Ratings concluded in an analy-sis earlier this year that the company could likely only raise enough money to last through 2016 if it doesn’t stop bleeding cash.

A spinoff would capital-ize on the most valuable asset remaining in Sears’ portfolio—real estate—and reward investors who have been pushing for such a move for years. While CEO Eddie Lampert has previously tapped property holdings to

raise cash, the REIT would be by far the largest.

Analyst Matt McGinley, with Ever-core ISI said about Sears real estate move: “It’s among the last things that they would be able to do in terms of monetizing the assets. There’s not a whole lot left.”

CEO Santa Lampert


While the REIT move would raise money, it also would bring addition-al expenses. McGinley estimates that the company would pay about $150 million in mall rents if it goes through with the plan.

“It’s one additional burden on a company that’s burning over $1.5 billion in free cash flow,” he said. “This places Sears as a retailer in a more precarious predicament.”

Sears ResponseSears said last month that it ex-pects its debt load to decline this year. The spinoffs, however, could reduce the margin of safety for creditors in an extreme hypotheti-cal event in which the company is liquidated to pay its debts.

Sears currently operates about 1,800 stores. If the company com-pletes a REIT deal, it may ultimately own 400 to 500 stores and lease the remainder, Chief Financial Of-ficer Rob Schriesheim said on the company’s blog. “We would realize substantial proceeds from such a sale, which would further enhance our liquidity,” he said.

According to Chris Brathwaite, Sears’ spokesman, “We believe we have financial flexibility, particu-larly as we enter the holiday season, and we expect it will provide con-fidence to our vendors and other constituents that we can generate the liquidity needed to invest in our business.”

A Critic’s ResponseAfter digesting all of the above comments about Sears’ future, some people will wonder if Sears can be saved if a smaller, leaner Sears might be able to carve out a new retail niche. After all, there are still lots of loyal Sears custom-ers out there, and Sears’ iconic brands, such as Craftsman tools,

and its appliances could find a huge market online or through other retail outlets.

According to Daniel Jennings with Market Madhouse, “The best an-swer is that Sears could survive under a different management team. The problem is that its CEO, Lampert, does not seem to be in-terested in running a department store, instead he’s only interested in whatever cash he can wring out of it now. The REIT is only the latest maneuver to squeeze more money out of Sears.”

Can Sears Survive?Is Sears dead because management does not understand retail? How does selling assets to raise cash return a retailer to profitability? Could Sears survive with a new management team?

Or, do you believe what Chair-man Lampert said at Sears’ annual meeting last May that he has set in play a transformation vision for the company. “Transformations are about innovations and iterations—new and often incremental versions of changes. We didn’t fully hit on the importance of our Shop Your Way platform at first, but serving our members, wherever, whenever, and however they want to shop, is how we are transforming our com-pany today.”

Editor’s Note: This article was assembled from the following re-ports—Reuters, November 7, 2014; Bloomberg News, November 7, 2014; The Wall Street Journal, November 8 & 9, 2014; Market Madhouse, November 9, 2014 article by Dan-iel Jennings; Chicago Sun-Times, November 10, 2014; Benzinga, November 10, 2014 article by Bill Stoller; and Bloomberg Business-Week Magazine, November 25, 2008 article by Emily Thorton.

Lowe’s Top Appliance Seller by 2016?According to Gary Balter, an ana-lyst at Credit Suisse Group AG in New York, Sears Holdings may lose its title as America’s top appliance seller in about two years, as re-ported by Bloomberg News.

Sears had 28 percent of the major appliance market in the United States in 2013, and that share could fall to 10 percent by the end of 2016. If Lowe’s picks up a quarter of the shares Sears loses, it would be the top appliance seller by the end of 2016.

Sears, which led the appliance market with a 42 percent share as of 2002, also has lost sales to Best Buy, said Matt McGinley, an analyst at Evercore ISI in New York. However, McGinley doesn’t expect Sears appliance market share to plunge as much as Balter does.

“There is a customer who still val-ues the Kenmore brand, (and) that just tells you that they’re not com-pletely irrelevant in this particular category,” McGinley said.

He estimates Sears’ appliance sales share may be at a range of about 17 to 21 percent in the next two years; depending on how many stores it closes.

If Sears loses the top appliance seller title that it had held for de-cades, it would be another casualty of CEO Lampert’s plan to remake his department store chain.

Sears posted just one gain in quarterly same-store sales since Lampert merged Sears and Kmart nine years ago.


LIFE INSURANCE ALERT!Back in 1997, then-Chairman Arthur Martinez ret-roactively took the promised “paid-up” life insurance from the retiree population, previously covered by this life insurance. He did this by implementing a change, effective January 1, 1998, under Sears Group Life Insurance Plan that resulted in a reduction of the Sears-provided retiree life insurance over a 10-year period ending with the year 2007.

Various lawsuits were filed by retirees and were eventually consolidated in the U.S. District court in Chicago. N.A.R.S.E. supported these lawsuits but was not one of the plaintiffs.

This “paid-up” life insurance must be distinguished from the Group Universal Life (GUL) that many re-tirees purchased. The GUL is not subsidized by Sears and is strictly between the retiree and the insurance carrier, which is the Prudential Insurance Company of America.

The “paid-up” life insurance that was sub-ject to the 1997 class action lawsuit was settled in 2002. Based upon the settlement agreement, Sears cannot reduce the final insurance amount to less than $5,000.

When Sears announced the change in the “paid-up” life insurance, the company offered retirees the opportunity to purchase replacement life insurance that would restore the coverage that Sears was taking away. However, because of the substantial increase in the premiums over the years, many retirees have dropped this replacement coverage.

All retirees entitled to this “paid-up” life insurance should have received a statement from Sears stating the exact dollar amount of life insurance they have. If you have not received such information from Pru-dential, call the insurance carrier at 1-800-778-3827.

Now comes the ALERT! The insurance premium to cover the cost of this retiree life insurance is paid by Sears on an annual basis. As long as Sears exists, your insurance is secure. However, if Sears would liquidate its assets through a Chapter 7 bankruptcy filing, the premium payments by Sears would stop, and your life insurance will be cancelled.

Under the bankruptcy code, life insurance and pen-sions are considered “welfare benefits” and are not

protected in bankruptcy. But the Pension Benefit Guarantee Corporation, a government agency, secures pensions up to a certain amount. But there is nothing securing life insurance in a bankruptcy.

Any Options?If the worst-case scenario occurs and Sears would liquidate its assets, retirees will have very few options, if any, to replace their insurance.

If you are an AARP member, you may have read about the $10,000 to $50,000 permanent coverage from New York Life Insurance Company. The rates are based on your age when coverage starts, so the younger you are when you apply, the lower your monthly rate will be. Also,

the rate is guaranteed and won’t go up for any reason.

However, the applicant must be 80 or younger to apply, and the older you are, for many, the

rates could be prohibitive. Also, there is no medical exam; just three health questions

that will vary depending upon what state you reside in. If you feel this might be an

option for you, you can call New York Life at 1-800-269-2016.

We would assume that most insurance carriers have similar age restrictions

and prohibitive premiums. So, realistically, there are no life insurance options if Sears declares bankruptcy.

Therefore, for many reasons, it is in our best interests that Sears survives, especially so that our life insur-ance remains intact.

However, retirees can’t help but worry when they read comments from a veteran retail sector financier How-ard Davidowitz of Davidowitz & Associates who says: “I don’t think Sears is viable. I don’t think they can survive in their current state. Too many things have gone off track. Too many customers have been lost, and it’s too expensive to bring them back.”

In short, under the management of Eddie Lampert, a lot of sins have been committed at Sears. Redemption may not be possible. “It’s too late. Something different has to happen to the company, and I honestly don’t know what it can be,” says Davidowitz.

Maybe the new motto for Sears retirees should be: SHOP AT SEARS. SAVE Your LIFE INSURANCE!

ALERT


Retiree Club Corner

SYRACUSE, NEW YORK RETIREE CLUBJohn Freeman is the president of the Syracuse Retiree Club. He retired from Sears in 2002. His co-vice presidents are Ed Weinstein and Nancy Bentz. Ed retired from Sears in 1991 and Nancy in 1998.

John’s club has about 140 members. He said, “We have our large meet-ing at the club’s annual picnic every July. A small group of the very active members meet weekly at the Gardenview restau-rant just to keep up with each other but to also share information about club members. All meet-ings are very informal and comfortable.”

The Syracuse, N.Y., Club closed out last year with a festive Christmas party. There were 83 attendees, which included 53 former em-ployees. This was a great turnout considering that a number of key members passed away, including John Gory, a store manager for many of the members from the late sixties through 1981.

The Christmas party included a sit-down dinner, 50/50 raffle, Sears’ memorabilia and gift card prizes. The party was also an opportunity to drop off donations for the vet-erans at the Syracuse VA Medical Center. John said that the club supports the veterans through-out the year with donations such as clothes, toothpaste, toiletries,

Christmas cards, wr it ing paper, etc . One c lub member at last year’s Christmas par ty donated fo r t y do l l a r s ’ worth of stamps.

Vice President Nancy Bentz and Jessie Olin are the key players in making the Christmas par-ties a success.

The club has brunches (mini-meetings) 10 times a year at Denny’s on the first Thursday of each month. Usually 20 to 30 members attend. These meetings are primarily social but also give the members an opportunity to get information and have discussions.

As part of these meetings, each person contributes a dollar. There is then a drawing, and the winner gets his or her break-fast free. The remaining money goes to the kitty. This adds up throughout the year and enables the club to buy gift cards to add to donated gifts at the Christmas party and the summer pic-nic. These meetings also provide a drop off for veteran donations.

Everyone Smile!

Club President John Freeman and Vice President Nancy Bentz


The club picnic is held every July at Onondaga Lake Park. The club supplies the meats, breads and bottled water. Everyone brings his or her own favorite dish to share. Volunteers set up the area, man the three grills, handle the 50/50 raffle, etc.

The picnic is also used as an open forum, for those that do not attend the monthly brunches, to ask any questions. However, John Free-man, Ed Weinstein, and Nancy Bentz are available throughout the year via phone to respond to any retirees’ questions.

Freeman said “good and per-sonal communication is the key to our club’s success. The glue that keeps our club together is Nancy Bentz. She puts out all e-mails, mails the Christmas and picnic letters to those that do not use e-mail and buys supplies.

Every organization has someone who is indispensable; Nancy is that person for the Syracuse Re-tiree Club!”

Joh n’s e -m a i l add r ess i s : [email protected]. He can be reached by phone at 1-315-652-5241.

Annual Family Picnic

Christmas Party


David W. RaymondDave, who w a s v i c e p r e s i d e n t and general counsel of Sears, died s u d d e n l y June 21 at the age of 68, after a brief

battle with chronic lymphocytic leukemia. He had just celebrated his 40th anniversary with his wife Margaret (Peggy) in the Bahamas.

Dave worked in the governmen-tal affairs and law departments of Sears from 1970 to 1986 and in its corporate planning depart-ment from 1986 to 1990. He then returned to the law department in the Sears Merchandise Group and, in 1993 was elected its vice president and general counsel.

He left Sears in 1995 for the Washington, D.C., offices of Win-ston & Strawn LLP, where he provided legal advice and counsel to the law firm’s business clients.

In October of 1995 he was ap-pointed by then Illinois Governor Jim Edgar as an original member of the Northern Illinois University (NIU) Board of Trustees. He served on the board from January 1,1996, u nt i l S ept ember o f 1998 .

“Dave came to this board with a keen interest in higher educa-tion, but without much specific knowledge of NIU. That changed quickly,” trustee Bob Boey said on the day of Raymond’s final meet-ing nearly 16 years ago.

“Dave took his role on this board very seriously and spent many hours fa-miliarizing himself with the campus, its students and staff and its mis-sion,” Boey added. “In the process, David Raymond the trustee became David Raymond the loyal supporter.”

His support took on tangible form in April of 1998, when he donated $25,000 to the NIU Foundation to fund faculty innovations in computer-aided teaching.

In 2004 Dave became president of the Alpha Tau Omega Chapter House Corp. of Gettysburg Col-

lege in Pennsylvania, where he had earned his bachelor’s degree in political science in 1967. He earned his law degree from Temple University in 1970.

Since May, 2004, Dave adminis-tered academic award programs for student members of the fra-ternity and maintained relations with key staff members and the college and the fraternity’s na-tional headquarters.

In addition to his many activities, he volunteered at Ford’s Theatre in Washington, D.C., every Thurs-day, said his wife. He had so many projects that he set up three desks … one for travel plans, one for genealogy, and one for civil war letters, she added.

Ron Olbrysh, who worked with, and for Dave during the pe-riod of 1986 to 1995 said that he was an outstanding, com-passionate attorney and great f r iend who w i l l be missed.

Besides his wife Peggy, his son Russell and daughter, Pamela Weber, survive him.

John C. HoffmanOne year ago in Straight Talk we had a n a r t ic le about John and a pic-ture with his wi fe Fran-c i s . T h e y were mar-

ried 46 years. He was a member of the Sears Atlanta Big Club. He died November 15, 2014, at the age of 94.

He joined the Navy in 1942 and left January 1946. He served on the U.S.S. Sangamon during World War II in both the Atlantic and Pacific.

During his career at Sears, he worked at the Gordon Street store in the plumbing depart-ment; was the West End manager of the garden shop; and in the furniture department at the Shannon Mall.

John was a volunteer with the Boy Scouts of America for over

33 years, where he received vari-ous awards including the Order of the Arrow, and in 1978 he was awarded the Silver Beaver award from the Atlanta Group of Scouts. The Silver Beaver is the highest award given to volunteers.

Many of his pallbearers were Scouts who stayed with his w i fe Francis at the funera l home during the wake. John had many friends, and the At-lanta Big Club will miss his presence at their meet ings.


Ron Olbrysh, N.A.R.S.E. Chairman

Wishing Sears Holdings a Prosperous Holiday Season Filled with Increased Sales …

and a New Year Blessed with Profits.

Chairman’s Page

Renew Your Membership in N.A.R.S.E. Today for 2015!

We again thank you for your past and present support for our retiree organization, which has been in existence for the past 17 years. Our purpose for existence is to keep you informed on issues important to retirees and to be your inde-pendent voice to our company, Sears, Roebuck and Co., now known as Sears Holdings. Your continuing financial sup-port keeps us going strong.

Straight Talk, with informative articles about Sears Holdings and other articles of general interest for our retirees, could not be printed and mailed without your support and the support of many others. In addition, our web site, www.narse.org would not exist without your financial contributions.

N.A.R.S.E. is your independent voice, so please contact us with any concerns you may have about Sears Hold-ings, your benefits or any other matters of a general interest to the retiree population.

Renew NowIf you have not already done so, I am asking you to renew your N.A.R.S.E. membership now for 2015. Enclosed is a membership/renewal application form and mailing envelope.

If you have already renewed, then please pass the ap-

plication form to someone who could benefit from membership in our organization. If you have any com-ments, suggestions or questions, you may contact me.

We need your support to continue our mission of com-municating with retirees, Sears’s officials, legislators, regulators, the media and the general public about all of our retiree concerns.

We are here to serve you, so please let us know what we can do for you. You may contact me at [email protected].

If you didn’t know what a REIT was before reading this issue, you should know now. Is Sears Holdings having problems because management does not understand retail? Time will tell.

We read a comment recently from an anonymous source that said: “How does selling assets to raise cash return a retailer to profitability? They are spending all of their time and effort raising cash to cover the losses the stores are incurring.

“So what happens after all the hard assets are sold? The brands are really not all that strong anymore. Kenmore and Craftsman are not all that valuable as evidence by the rise of Home Depot and Lowes over-taking Sears in appliance and tool sales.

“You would have to have rocks in your head to buy into a REIT that will be completely reliant on Kmart and Sears staying in business and paying rent.”

Have a very Merry Christmas, Happy Holidays, Happy New Year, and the best wishes for Sears and all of us in 2015.


Sears, Where Great Merchants Used to ResideWith all of the recent news about SHC, including REITS, selling off hundreds of stores, years of fall-ing sales and dwindling profits, we thought looking back at the great merchants that created Sears would be enlightening.

The strengths and weaknesses of Sears are almost the same as those of the United States itself. But de-pending upon who is in charge, the results can be radically different.

Sears BeginningAs author Donald R. Katz set forth in The Big Store, the company began in 1886 “at a terminal alongside a rail-way track in the middle of nowhere, when a 23-year old man came upon a means of selling gold-filled watches to rural folks who previously marked their lives by the movement of the sun.

“By the time Richard Warren Sears moved his budding business from Minnesota to Chicago and teamed up with a quiet watchmaker named Alvah Curtis Roebuck, it was clear that the kid was possessed of a peculiar strain of genius that ren-dered him capable of convincing otherwise skeptical individuals to buy things they’d never even heard of from a man in Chicago, Illinois, who they’d never even seen.”

In addition to Katz’ book, an earlier book about the company is Gordon L. Weil’s 1977 Sears, Roebuck, U.S.A. Rather than “reinventing the wheel” we have taken passages from these books about the company’s history and comments about the three corpo-rate giants of Sears, Roebuck and Co.

Profile of a CorporationLike many other corporate giants, Sears bears the imprint of just a few people who shaped its devel-

opment. First, there was Richard Warren Sears, the founder, who was a “swashbuckling salesman.” As one of his colleagues said, “He could probably sell a breath of air.” His boldness made the company.

He worked day and night creating the prose for his big, illustrated catalogs that became for significant segments of the population one of the only two books they ever read. These big books promised “free trial offers” and unheard-of “money back guarantees.”

Richard Sears’ description of items

taught the common folks about cream separators, bicycles and even machines that sewed clothes. He even offered to send out sure-fire bottled cures for consumption, drug addiction, stammering, deafness and stupidity.

Sears new partner, Julius Rosen-wald, became determined to rein in Richard Sears’ more tendentious salesmanship. Finally, in 1908 Sears decided to quit the company. Systems were replacing his literary talents, and it seemed that he was out of place in his own company. He sold his stock in 1913 and died during the following autumn.

Then, Roebuck’s place was taken by Julius Rosenwald, also known as “J.R.,” a man whose administrative and business skills struck the proper counterbalance to Sears’ dynamism.

Under Rosenwald, Sears became a catalog empire. The network of fac-tories selling products to Sears and the means of financing and moving goods became so large and complex that the company became a full-fledged working economy unto itself.

The third of the Sears greats was General Robert Wood, who took the

firm from mail order into retail sales.

While all three were obviously su-perb businessmen, Rosenwald, was exceptional because he was also a moralist. He set standards for deal-ing with the public that dictated that the company would not cut cor-ners and would keep its promises.

Richard Sears succeeded because he knew his customers. The catalog was in them, waiting to be pulled out and put in print. But it would never have kept selling over the decades if a man called Julius Rosenwald had not

Julius RosenwaldRichard Warren Sears


been around to turn the fantasy of the catalog into commercial reality.

Rosenwald’s obvious skill, as presi-dent of Sears, was in attracting and retaining inventive and dynamic peo-ple and then letting them get on with the job. Without Rosenwald’s ability to solve the problems of such transfor-mation, it is likely that Sears, Roebuck would not have been able to survive.

Rosenwald was the model of modern corporate manager. He believed that fair management of a private compa-ny could bring benefit to society as a whole. He realized that business was not everything in life and devoted him-self to an extraordinary philanthropy

with as much zeal as he ran Sears.

Above all, Julius Rosenwald saw himself as a trustee. He had an obli-gation to less fortunate people. And he had an obligation to Sears, Roebuck.

Rosenwald decided to pass the busi-ness on to yet another visionary executive during the 1920s. He said he wanted to stop running Sears in order to dedicate the rest of his life to what became a legendary effort to give much of his money away.

Rosenwald went on to create and support social programs through-out the country that were often

adopted later by the government as public policy—the county farm-agent program and decent schooling for blacks, among them.

At the time that Rosenwald passed the management of Sears to General Robert Wood, the Golden Age of the American catalog was already in decline. The big books had thrived at a time when over half of the popula-tion lived in rural areas. When Wood arrived at Sears in 1922, he said the future could be seen in the Model Ts, and the growth of large cities.

The General dreamed of a company so deeply entwined in the life of the nation that it could call itself “the purchas-ing agent for the American people.”

Wood decided to use the regional mail-order plants Rosenwald and his catalog men had built as sup-ply bases for a sprawling network of stores. By 1928 there were 27 stores, and by the end of 1929 there were 324 of them. In 1932 the volume of the General’s retail store sales surpassed those of the catalog.

Wherever people moved to build new homes it seemed that a well-stocked Sears’ retail store was located nearby. The General became world-famous for his prescience, and Sears became one of the most powerful organizations of all time by virtue of the business system he built upon the franchise of trust and loy-alty he’d inherited from the catalog

As a result, Sears’ entry into the retail business is remembered as General Robert Wood’s greatest accomplishment. He established new relationships with suppliers, expanded credit operations, turned to foreign markets and created the Allstate Insurance Company.

Perhaps the retail development that bears the clearest imprint of the General’s will was real estate. All

phases of the retail business are linked. But it all begins with real estate—where to build the stores and what kind of stores to build.

To translate Wood’s vision into commercial reality, a real estate department was created. It quickly became one of the most important departments in the company.

Today’s ProfileWhat seems to be lacking in the transformation of Sears Holdings today is the dash, the flair and the retail expertise of the earlier days. Sears, Roebuck, for all of its size, was a company created by its three “greats”: Sears, Rosenwald and Wood.

Because the company had relied so heavily on people brought up through the ranks, the heads of the company who succeeded the “greats” embodied the same values and the same way of looking at the business.

Yes, today merchandising is certain-ly different than it was during the time of Sears, Rosenwald and Wood. How would these merchants have responded to the digital age, social media, Amazon.com, etc.? The es-sence of their lasting contribution was in making Sears an integral part of American life, a commercial re-flection of solid, middle-class values.

In the days gone-by, Sears had an extraordinary track record in reprogramming itself to adapt to change. Would these “giants” have let Sears falter today and lose its premier retail status?

One Sears, Roebuck executive used to keep four picture frames on his office wall. Three held the portraits of the “greats.” The fourth was kept empty—a constant challenge to each succeeding chairman to join the pantheon.

General Robert E. Wood

SHC Gets Perfect Score

On November 20, 2014, Sears Hold-ings Corporation announced that it received a perfect score on the 2015 Human Rights Campaign Founda-tion’s Corporate Equality Index (CEI) for the 10th year in a row.

The CEI evaluates top companies based on their policies toward les-bian, gay, bisexual and transgender (LGBT) employees. Sears Holdings is one 366 major U.S. businesses, including only five Fortune 100 re-tailers, to attain a perfect CEI score and earn the Campaign’s “Best Places to Work” distinction.

The Human Rights Campaign Foundation provides research, advocacy and education for the Hu-man Rights Campaign, America’s largest civil rights organization. They work to achieve lesbian, gay, bisexual and transgender (LGBT) equality at home, work and in the community.

“Sears Holdings’ culture values and celebrates the diversity of our employee population and the commitment to equality and inclu-siveness,” said Dean Carter, chief human resources officer, Sears Holdings. “It’s an honor to be rec-ognized by the CEI as a leader in this space for the 10th consecu-tive year.”

The 2015 CEI rated 781 businesses in the report, which evaluates LGBT-related policies and practices including non-discrimination work-place protections, domestic partner benefits, transgender-inclusive health care benefits, competency programs and public engagement with the LGBT community.

Esplanade at Aventura — New Strategy?What Sears is doing in South Florida may provide a glimpse of where the company plans on going in the future.

Sears Holdings announced in November that it will convert its lo-cation in Aventura, Florida, into an open-air development that includes dining, other retailers and a scaled-down Sears store. The project is called Esplanade at Aventura.

The Aventura Mall that opened in 1963 is an upscale super-regional shopping mall in a northern suburb of Miami. It is the largest conventional shopping mall in Florida, having a cur-rent gross leasable area of 2,700,000 square feet, and is the third largest shopping center in the United States.

The mall has three floors of retail space, comprising more than 300 retailers. In addition, there is a food court with 18 fast food eateries, as well as several chains and other restaurants at the mall’s entrance.

What Sears is doing at the Adventura Mall fits in with its strategy of squeez-ing more value out of its extensive real

estate holdings. The company has been leasing space in some of its stores to other retailers, the most recent being U.K.’s Primark budget-clothing chain.

Primark stores are known as “traffic drivers,” said Matt McGinley, managing director at New York-based Internation-al Strategy & Investment Group. “That could help the Sears stores,” he said.

With the Aventura Mall project, Sears would modify the site’s parking lot, auto center and de-partment store into a more inviting property. The plan calls for about 250,000 square feet of restau-rants and retail. That includes a 20,000-square-foot Sears store and about 45,000 square feet of office space, parking and a hotel.

“Our owned real estate adjacent to Aventura Mall, one of the largest and most successful malls in the coun-try, provides a significant platform for shareholder value creation,” ac-cording to S. Jeffrey Stollenwerck, also known as Jeff, president, Sears Real Estate Business and SVP.

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