The San Bernardino County Sun from San Bernardino, California • Page 80

S90is0Mstr Return of the manufactuers Louis Rukeyser finds at least one executive who believes U.S. industry will again dominate the world in the next decade. G-3 Sunday, Oct. 13, 1985 Money funds 2 Mutual funds 5 Classified 6 I t-t Xli-J The Sun San Bernardino, California National Lumber completes expansion On eve of 100th birthday, Sears is taking stock National Lumber 1981 1982 1983 1984 Sates $86.8 $97.9 $114.3 $127.8 Earnings $1.23 $1.65 $2.2 $1.33 Rate of return 1.4 1.68 1.92 1.04 Headquarters: Fountain Valley President: Melvin Jaffee No. of employees: 1,200 Founded: 1942 Assets: $48.1 million Shareholder's equity: $23.69 million Shares outstanding: 5.63 million No.

of shareholders: 3,500 San Bernardino County Los Angeles County I San Bernardino Fontana i Ontario I 4 falfl AV IclJj Riverside Cathedral City iMfif fy Rlverside Coun'y Inland EmpireyJ" locations Staff graphic by Jean Moxam decline to weak housing starts a year ago and to high consumer debt levels that consumers were straining to reduce. He said one of Sears' key objectives in the next year was offering the new Discover credit card nationwide. Sears began offering the card in Atlanta in September and in San Diego earlier this month. "We see plastic as being a very important part of the future," Brennan said. Discover will go nationwide in the middle of next spring.

"It is our expectation that within a few years we'll have between 7 million and 10 million cardholders," said Brennan, whose mother and father, along with one of his grandfathers, were Sears buyers. By comparison, American Express has 15 million cardholders; Mastercard, 65 million, and Visa, 84 million. Brennan said the card's introduction in Atlanta had far exceeded expectations. He said Sears, which had hoped to start 111,000 accounts by Jan. 1, received 80,000 applications in its first month.

Brennan added that the card for which there is no charge to the consumer, at least in its first year was being accepted by hundreds of businesses, including Hertz, Holiday Inns, American Airlines, Hilton Hotels, National Car Rental and the Hospital Corp. of America. "I think it will mainly be a travel-andentertainment card," said Walter Loeb, an analyst with Morgan Stanley Co. "I doubt that many major retailers that compete with Sears will want to take the card." Loeb said introducing the card would cost Sears $25 million this year, $75 million next year and almost $200 million "before it is a nationally recognized card." Last week, Charles T. Russell, the head of Visa, told a bank-card panel of the American Bankers Association in Chicago that Discover lacked several ingredients of success: It is not likely to gain international acceptance, it does not have an active base of cardholders and it does not have access to automated teller machines nationwide.

But Brennan said that consumers were welcoming Discover because "they know and trust the Sears name." Sears' Dean Witter subsidiary is introducing the card, while the banking aspects of the card cardholders can save and invest money through Discover will be through the Greeenwood Trust (Please see Sears, G-3) In at least two markets, San Bernardino and Fullerton, National Lumber had its store site picked out first. But HomeClub was close behind, choosing locations near the National Lumber sites and getting the stores open first. HomeClub opened its colorful store near Interstate 10 and 215 interchange last year. McNulty said earlier this year that store will gross about $35 million. By comparsion, National's Mill and Street is expected to gross up to $12 million, Jaffee said.

Home Depot last month reopened the old Target store at 1055 W. 21st St. The company was formed in 1979 by three men including Patrick Farrah, a former National Lumber employee who now is an executive vice president of that fast-growing chain. Although he doesn't appreciate the competition the stores have created, Jaffee said McNul-ty's and Farrah's success is a good reflection on National Lumber. "I take great pride in it, knowing you can train people to something like that," he said.

"But they're coming back right top of me." Firm plans to battle it out in price war By RUSS STANTON Sun Business Editor FOUNTAIN VALLEY When National Lumber Supply Inc. opens in San Bernardino next month, it will mark the end of the company's two-year expansion in which seven new stores were opened. For president Melvin Jaf-fee, it will mark the beginning of his being able to devote full attention to the biggest retail battle in Southern California: The Great Home Improvement War of 1985. In San Bernardino, National Lumber will be the third major home improvement chain to open a store in the last 12 months, following the HomeClub and Home Depot. Those three chains plus Builders Emporium, Ole's, Angels, Builders Square and several other chains are locked in combat in scores of Southern California cities for part of the fast-growing do-it-yourself consumer market, which industry analysts say will top $30 billion in sales this year.

In trying to capture a sizable portion of that market, home improvement retailers have slashed prices to near-cost levels, resulting in razor thin margins. Jaffee believes National Lumber has found a niche in the market by matching low prices, but offering them in less-than-over-whelming surroundings. In planning the expansion, Jaffee settled on a compromise between the warehouse concept and the traditional hardware store. National avoided the warehouses its competitors are building in favor of smaller stores, but beefed up the amount of merchandise offered. The company also is working on other improvements, including: Installing a $3 million point-of-sale computer system that will connect each store to the company's Santa Ana warehouse.

The system will allow National to better monitor inventory levels and improve management efficiency, Jaffee said. Expanding its warehouse to accommodate the new stores. National Lumber moved its corporate offices out of the warehouse to Fountain Valley last year. The move added 12,000 square feet to the company's warehouse. Increasing its advertising budget.

The company's Shorty and Cheap Chicken cartoon I i ffr New York Times News Service CHICAGO When Edward A. Brennan becomes chairman of Sears, Roebuck Co. on Jan. 1, he will preside over one of the nation's largest birthday parties. Next year, the nation's largest retailer marks the 100th anniversary of its founding, and Brennan has long been planning the festivities.

Thus, in addition to overseeing development of Sears' new Discover credit card and keeping tabs on its $26.5 billion merchandising division, Brennan is organizing a large meeting-birthday party for 4.000 Sears managers from around the country. Although Sears has tried to keep things very quiet about the anniversary celebration, Brennan let slip a few details about it during a wide-ranging interview in the 68th floor of the Sears Tower here, which is 12 blocks north of where the chairman-elect was born 51 years ago. Brennan made clear that, as it moved into its second century. Sears planned to get far more of its earnings from financial services than the old Sears did. In addition, he said Sears hoped that highly cyclical durables such as washing machines would represent a smaller percentage of Sears' retail sales while less-cyclical apparel and other soft goods took a bigger share.

Brennan said the slogan for Sears' 100th anniversary would likely be "The New Century." "We wanted something that was forward-looking," the relaxed, self-assured executive said. As part of the birthday promotion, Sears plans to market 100 new products to mark its first 100 years. Consistent with its increased emphasis on soft goods, Sears has a line of Stephanie Powers career wear leading the parade of new products. The line is named after the star of the television show "Hart to Hart." "With the aggressive position we're taking with our 100th anniversary, you'll see a gradual improvement in our sales as we move into Christmas and on into 1986." Brennan said. "We are not looking for a dramatic rise in 1986." Brennan said stronger housing starts and housing sales in the last few months will also help bolster weak retail sales.

"They're probably the single biggest factor in sales of appliances, furniture, carpeting and drapes," he said. For 1985's first six months, Sears earned $488.8 million, down 14.2 percent from $569.8 million a year earlier. Revenues were $18.6 billion, up 4.5 percent. The chairman-elect attributed the earnings March Against Birth Defects. It also uas one of the corporate sponsors of the 1984 Summer Olympics.

However, the company came under attack in September by the Rev. Jerry Falwell and several thousand anti-pornography protestors who gathered across the street from Southland headquarters. The groups have launched campaigns targeting Southland for selling three adult magazines. "1 think it's a free country, and they're free to believe whatever they want," Thompson said. Frank McKeown, Southland's marketing vice president, said research indicates "the vast majority (of customers) agree with our policy," which has the magazines displayed behind the counter with false fronts.

Thompson believes the negative publicity surrounding the bribery investigation hurt the price of the company's stock, but "I don't think the general public paid that much attention to it. I don't think it hurt sales particularly" Southland's 7,520 convenience stores in the United States, which serve an average of 7.5 million customers daily, sold $6.42 billion worth of goods last year, up 8 percent over the previous year. That represents about half of the company's total annual revenues, with an additional $3.8 billion coming from the gasoline refining and supply segment and the rest from stores overseas. But 7-Eleven sales are being About the National Lumber Supply Inc. operates five home center stores in the Inland Empire which sell a wide range of home improvement products for the do-it-yourself market Other outlets are located throughout Los Angeles, Orange and Riverside counties.

characters, known for their corny jokes, will appear in $7.5 million worth of print and broadcast advertisements this year. In 1986, Jaffee plans to increase the ad budget 12 percent, to $8.4 million. Maintaining relatively low long-term debt. National had $2.82 million in long-term obligations at the end of the second quarter, a 100 percent increase from a year ago. That figure could be much higher, but National financed its expansion with the proceeds of a 1983 public offering.

National's expansion, which was followed by the price wars, caused 1984 profits to tumble 40 percent, to $1.33 million. The company's 1985 first-quarter profits fell 46 percent, but recovered in the second quarter and were down only 7.9 percent from year-ago levels. The completion of National Lumber's expansion conies at a time when several of its biggest competitors are embarking on similar expansions, and some are having trouble. Fullerton-based HomeClub, for example, was counting on a $30 million public offering to fund the construction of 10 new stores this year. But that offering was rs AP wiraphoto Corp.

weathers tough times canceled last month when the company received commitments for only $11 million. Six of those stores have already been opened, and were financed primarily by reinvested profits and increased borrowing. Atlanta-based Home Depot, the original home improvement warehouse chain, has only three California stores, but plans to open 20 more by the end of 1986. The expansion will be financed by reinvesting profits, which will depress earnings in the short term, said Leon Borchers, an analyst with Robinson-HumphreyAmerican Express an Atlanta brokerage. Another competitor on the horizon is San Antonio-based Builders Square, a mart Corp.

subsidiary. Builder's Square opened its first California warehouse in Riverside in mid-August, and plans to build another 19 stores in the state by the end of next year. Ironically, National Lumber was the training ground for the founders of the HomeClub and Home Depot, and both of those chains beat National into the San Bernardino market. HomeClub was founded in 1983 by Bob McNulty, who managed National Lumber stores from 1908 to 1970. Southland Sup News Services DALLAS These are not easy times for Southland the parent company of 7-Eleven, inventor of the Slurpee and the 30-second checkout.

The world's largest operator of convenience stores has been beset with legal, economic and image problems, but Southland Chairman John P. Thompson says it is not "the end of the world." A five-year federal bribery investigation in New York led to a tax fraud conviction for Southland, a proxy fraud conviction for one of its top officers and a guilty plea to bribe conspiracy by another Southland official who resigned. Then Southland's refining business, Citgo Petroleum sustained large losses, forcing big layoffs last year. More Citgo losses followed in the first quarter. The volatile refinery business turned around and Citgo turned profitable in the second quarter, boosting Southland earnings to a record $88.7 million.

But at the same time, the 7-Eleven retail division was hit hard by increasingly tough competition and a continued attack from conservative religious groups wh picket the stores for selling adult magazines. Thompson remains optimistic, however, even as the company continues to pursue new merchandizing techniques. The low-key, slow-talking Texan who, along with two brothers, runs the 58-year-old company. the on a hurt this year by other factors, Thompson said, including tougher competition and many price promotions of 7-Eleven "7-Eleven is not going to have a great year," he said. In June, Southland opened a distribution plant in San Bernardino to serve 1,000 stores in the Southwest.

Company profits this year will probably come from the cyclical gasoline refining segment, which Thompson joked cannot accurately be predicted for more than six weeks at a time. Despite such trials, Southland seems regarded by most analysts as the leader in the industry. They do not project failure. "They're so far ahead of everyone else and probably the best run company in that business," said Fred Wintzer of the investment firm Alex Brown Sons in Baltimore. The basic 7-Eleven, he added, is growing away from groceries and moving toward fast food and financial services.

Armed with a new food serv ice staff, Southland is testing salad bars in four markets along with sit-down tables. The company's finely tuned marketing data shows its customers are getting older and more health-conscious. But food is not the only segment to reach for variety. Videotape cassettes are rented out in 1,500 stores, and automated teller machines offer cash in nearly 2,000 stores. Gasoline debit cards, lottery ticket sales and the direct order of merchandise by computer are all being tested around the country, McKeown said.

says Southland has had tough years before. "Obviously, the last two to three years have been difficult ones. I don't consider it the end of the world," he said. Asked about the tax fraud and bribery case, Thompson said he was personally hurt to learn that former Southland executive Eugene DeFalco had arranged a bribe scheme involving state tax officials in New York. DeFalco resigned from the company and pleaded guilty to bribe conspiracy.

"When you have a lot of people, I guess once in a while you get bad apple," Thompson said. But he continues to argue the innocence of Clark J. Matthews II, the company's chief financial officer who is appealing his conviction on proxy fraud. Thompson said that even if Matthews does serve his two-month prison sentence, "I look forward to him returning to Southland as quickly as he can." Southland also was convicted in New York of illegally claiming tax deductions for bribe money and fined $10,000. Thompson said he does not brood about the past.

"We've got a fine company, and certainly over the years have been involved in outside activities charitable activities, the Olympics, which offset the negative with the positive," he said. For years the company has sponsored the Jerry Lewis Muscular Dystrophy Association telethon and the March of Dimes' if' 4 Chairman John Thompson with a replica the company's original horse-drawn ice Southland of one of wagons..