THREE RETAIL CHAINS FORM VENTURE

NEW YORK (FNS) -- Three of the world's largest retail chains have banded together to form a new venture whose mission is to identify wholesale and retail companies for potential investment and eventual rollout, with a strong focus on technology that facilitates retail processes and on wellness products.

wing through their stores. If we can find an interesting idea in children's, in health and beauty or in decorative home, that helps our members," by providing new products on an exclusive basis.

He also said there are "never-ending opportunities in health and beauty, which thrives on newness and innovation.

"One area we are focused on is the wellness category. It's becoming an important part of people's lives and transcends a broad group. It's not just for people over 40." He said wellness would encompass heath and beauty products, vitamins, skin care -- "all kinds of elements that make you feel good."

Walker said that Retail Options won't be considering pure-play on-line companies or turnaround firms, but added accessory, cosmetics, home, children's and "enabling" technologies are strong possibilities for investment. On-line technologies are also being viewed with a high priority as growth opportunities.

Companies with annual sales of between $5 million and $50 million annually are the target size Retail Options is looking to support.

"This is being done with some care," said Walker. "Each of the retailers has a fairly clear market distinction. I don't think there is much competition between Sears, Carrefour and Federated. They're not direct competitors. We don't have Wal-Mart, a direct competitor to Carrefour. They were very comfortable understanding that we are looking at two fields: the marketing and merchandising arena and technology."

Each firm examined by Retail Options would most likely be appropriate for just one of the three retail members, while technologies could be appropriate for all three members, Walker said.

Sears and Carrefour have already cooperated in a venture, as partners in the GlobalNetXchange, a business-to-business supply marketplace format.

St. Paul Venture Capital and Organic, an Internet professional services firm that is redesigning macys.com, are also partners.

"We will try to figure out what is needed to make the company grow in terms of capital and personnel," Walker said. "The partners have the first look at all deals. If we are raising money, they have the first right of investment. If the retail members don't want to invest, then we bring in the investment community."

Retail Options said it is in due diligence with a few "enabling" software technologies that will make it easier for consumers to shop on-line, and a couple of wholesalers and retailers, as well.

The company has already bought a stake in Fishs Eddy, a four-unit upscale New York retailer selling dishes and glasses, although no firm commitment to grow Fishs Eddy has been made yet.

Retail Options is structured as a limited liability corporation, with the members owning 48% of the company, directors owning 48% and advisory board members owning 4%. Retail Options has a staff of seven people here, four in Philadelphia and one in San Francisco.

According to Joe Laughlin, senior vice president of finance and business development at Sears, "We only make money if Retail Options comes up with some interesting new ideas."

"We have to look at some competitors as partners," he added, particularly in the technology arena, where "a lot of things need critical mass and scale to establish a standard. In some cases, traditional competitors can be partners and help you move faster."

For Sears, he said Retail Options represents a small investment. "Rather than looking to get rich off this, we're looking for new ideas."

Said Walter Levy, senior adviser to Ernst & Young's retail and consumer products group: "This is a very good format in a time of dramatic change in retailing. It gets funding focused, and it's a platform to move a brand quickly to a rollout stage if it tests well. If the concept is good, you'll know quickly from the consumer. It's also an international platform for a quick rollout -- on the Internet, in catalogs and retail stores."

By the end of the year, Retail Options hopes to have one or more deals set, and wants to do two or three projects a year. Retail Options is also headed by Odine Bonthrone, managing director. Peter Morse and Bruce Dalglish, of Morse Partners, LTD., a private equity firm, and Philip Schlein, a former Macy's West chief executive officer and member of U.S. Venture Partners, are directors of Retail Options.

The company's advisory board is comprised of Richard N. Costello, former president and chairman of TBWA Chiat/Day East; Ronald V. Davis, chairman of a private equity investment company; Jonathan Linen, vice chairman of American Express; Walter F. Loeb of Loeb Associates Inc.; John Sculley, partner of Sculley Brothers and former Apple and Pepsi chief executive officer, and J. Arthur Urciuoli, chairman of Archer Corp. and former chairman of Merrill Lynch International.