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Done Deal: Lacy, Lampert Outline Future

Carole Sloan -- Home Textiles Today, March 28, 2005

Hoffman Estates, Ill. — The senior managers who will operate the new Sears Holding Corp. (SHLD) under Edward Lampert, chairman, will be announced this week.

The next layer of managers will be divulged the following week, said Alan Lacy, now vice chairman and CEO of the company that was formed with the acquisition of Sears, Roebuck & Co. by Kmart Holding Corp. here last week. By the end of April, Lacy added, the entire organization should be in place.

At a press conference following the separate shareholders meetings of Kmart and Sears held here, Lampert, Lacy and Aylwin Lewis, now president of SHLD and CEO of Kmart and Sears Retail, discussed the company's future and challenges. Lacy also is chairman of Sears Canada succeeding Glenn Richter, Sears' executive vice president and chief financial officer, who left the company as the acquisition was completed. Sears owns 54 percent of Sears Canada.

Concerning layoffs, Lampert said they would come primarily from 5,000 at the headquarters in Troy, Mich., and here as the new organization is developed. The two companies have approximately 400,000 employees at the store level, and most will retain their jobs.

At the meeting, Lampert emphatically denied that there would be a massive selling off or closing of stores, calling it "an incorrect presumption. (At Kmart) we've been able to take non-productive or underperforming stores and make them perform."

Lampert added, "We're converting stores, not closing them," noting that the store closings had come prior to his watch at Kmart. "We have some 1,479 or 1,489 stores" representing the closing of some 30 in two years. He pointed to the store closings of competitors such as Wal-Mart and Target, which close smaller stores as they add more supercenters.

As for Kmart Supercenters, he noted, "Some will be converted, others will stay."

Lampert also sought to abort the speculation that the company had put Lands End on the block. Sears bought the direct-to-consumer apparel and home specialist in 2002 for $1.9 billion. It has not been as successful as anticipated with its presence in the Sears stores, but Lacy emphasized that Lands End, with retail and direct-to-consumer sales combined, increased 20 percent in the last two years.

Discussing opportunities for cross-merchandising some Kmart exclusive brands with Sears brands in each group, Lampert pointed to the opportunities with Martha Stewart Everyday, now a Kmart exclusive in the United States, and a Sears Canada exclusive in that country.

"We have an opportunity going forward. But we won't put the identical Martha Stewart merchandise that is in Kmart in Sears. Sears Canada also has different Martha Stewart product. We will be designing product in the very near future," Lampert said.

Similarly, Lacy pointed out that Sears Canada operates differently from the United States with a catalog, a strong home furnishings presence including free-standing home stores and a large furniture business.

Asked about The Great Indoors, the struggling Sears upper-end home decorating/home improvement chain, Lacy said, "It's a very good store concept, customers like it, but it has been difficult to get financial returns." With recent changes, Lacy said, "The business has been performing consistently; we're pleased. It's cash-flow positive." Yet he added, there are no plans for new The Great Indoors units.

Lampert also acknowledged that there are cultural differences between the Kmart and Sears organizations. Calling this "the most important investment and opportunity," one challenge will be "to transform two great companies. We're trying to build a performance-based culture."

Adding to this, Lewis said senior management will have "focused responsibilities." As for creating a new culture, he emphasized, "It will be messy. It will be difficult."

Regarding the $300 million in anticipated savings from the combination of the two retailers, Lacy said, "We have few specifics yet, but they will come from product sourcing and common supplies like shopping bags. We also will examine buying the same items from the same vendor — at different prices."

The press conference was preceded by the Kmart shareholders meeting to approve the deal, attended by few shareholders, and over in less than one-half hour. The Sears shareholders meeting that followed, on the other hand, was tumultuous and openly hostile.

Before a shareholder comment period that was limited to 20 minutes, Lacy told the group that the move "was the right thing for vendors, customers and shareholders." He added that Sears had been "stuck for 35 years" with its mall-based stores. The new Sears Grand off-mall concept, he said "has been doing fantastically, I'm delighted to say."

But, he added, "It was not enough to rely on organic growth. We approached Kmart and Wal-Mart (for stores) and bought 60 for 2005." With the Kmart move, Sears will open 100 stores this year and 400 Kmart conversions over the next several years. "We're doing it cheaper and faster by renovating (rather) than building."

The Kmart and Sears results were approximately the same. Each drew approximately 69 percent of the outstanding shares. Kmart shareholders approved the move with 99 percent of those shares voting; Sears shareholders approved the merger with 88 percent of the votes cast. Kmart needed 50 percent of outstanding shares to approve; Sears needed two-thirds for approval.

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