What sets Sears apart from the competition in repair services?
We think that there's a natural linkage with Sears retail stores because we are the leading hardgoods retailer in the country. And one of the reasons we sell more appliances is because our customers know Sears will stand behind and service all the appliances we sell. In addition, our ability to provide quality service by well-trained technicians, scheduled when the customer wants it and backed by our guarantee, clearly differentiates us from the competition.

Could you evaluate the 1998 performance of Sears Home Services?
We had very aggressive plans which we did not achieve in 1998, due in part to a disappointing performance in our home improvements business. However, many of our businesses increased nicely. We had very good performance in our service contracts business, where our profitability improved markedly. We had solid performance in product services, with increases in service calls, market share and revenue, and we drove improvements in the heating and air conditioning business.

Why should customers turn to Sears for home improvements?
For more than 100 years, Sears has earned a reputation for quality, backed by "Satisfaction Guaranteed or Your Money Back," plus the best warranty in the business. In addition, if you've ever done home improvements, you know there's a great deal of anxiety in choosing a contractor. Contractors seem to come and go, but Sears is going to be there for years after we provide a major home improvement. Importantly, customer satisfaction scores in the home improvement business have gone up significantly this past year, and they continue to rise. Our focus on simplifying the buying process, while providing quality services with quick financing, has proven very successful with our customers.

How is your specialty catalog business doing and what are the plans to increase sales?
To serve customers who enjoy shopping at home, we mailed more than 180 million catalogs in 1998, up from 150 million the prior year. These catalogs, targeted to specific customer needs, include such titles as Craftsman Power & Hand Tools, ShowPlace and Workwear. Moving forward, we will seek additional catalog concepts that reflect the goods Sears has in its stores. We are looking at internal growth as well as key acquisitions and are working with Sears merchants to identify product offerings that our customers would like to purchase through catalogs.

Are you behind the curve in e-commerce?
We believe we are at exactly the right place. Sears online strategy is to be the number one source on the Web for home-related products and services, an area where Sears already has established clear authority. We have the size, scale and volume to dominate this market on the Web and the superior logistics and service operations to support our offerings.

In February 1999, we announced our intent to go online with more than 2,000 major appliances, the largest selection of appliances available anywhere. Customers will find a total appliance resource at the Sears website, including value-added features such as delivery, installation and repair scheduling, and credit services. In March 1999, we introduced PartsDirect online, featuring more than 4.2 million appliance parts from more than 400 manufacturers. At www.sears.com/partsdirect, do-it-yourselfers can view schematics of appliances and parts to determine what parts they need to purchase and how to install them.

Do your direct distribution channels, particularly the Internet, compete with your stores?
We know that customers are using channels such as the Internet and infomercials as pre-shopping tools. For example, Craftsman customers bought 27 percent more in the store after browsing online first. We also know that in many categories, touching and seeing products up close is a prerequisite to purchasing them. The customer who shops and compares products online is more likely to make a purchase in our stores than the average customer. Our goal is to provide our customers the ability to shop anytime, anywhere, anyway they want.