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Standardized Product Recall Initiative

Wednesday, July 30, 2008

Sears Holdings Corporation will begin seeking reimbursement from vendors for the costs incurred in connection with actions that are required to be taken by Sears Holdings when there are stop sales and recalls.

As you are aware, a tremendous amount of time, effort, and store labor is involved when an item must be located, removed from the sales floor, and disposed of by the store, whether for a quality issue or a safety issue. As a result, Sears Holdings Corporation will begin seeking reimbursement from vendors for the costs incurred in connection with actions that are required to be taken by Sears Holdings when there are stop sales and recalls. Specifically, beginning August 1, 2008, a new Product Recall Initiative will be implemented to reimburse Sears Holdings for various costs associated with quality stop sales and recalls, safety stop sales and recalls, whether initiated by a governmental agency or the vendor, and intellectual property infringement claims. (All quality stop sales and recalls, safety stop sales and recalls, and intellectual property infringement claims shall collectively be referred to as the “recall” or “recalls”.) All recalls will be managed by the Sears Holdings Legal Department’s Product Safety Office and Kmart Retail Services (KRS).

The Vendor Information Manual and Vendor Information Guide (domestic and international) have been updated to address this initiative. Please refer to the applicable document for detailed information regarding the Product Recall Initiative.

Under the Product Recall Initiative, the following costs will be assessed to Sears Holdings vendors to reimburse Sears Holdings for the various costs associated with recalls: Administrative Charge, Store Labor Charge, Merchandise Transportation Charge, Distribution Center Charge, and, if deemed necessary, Photo Verification Charge. An explanation of these charges, as well as the manner in which the charges will be determined, is set forth in the Vendor Information Manual and Vendor Information Guide.

All charges identified above will be a deduction from invoice payments. Vendors with no pending balances from which to deduct the charges will be pursued in other ways.

In addition to the foregoing charges, vendors may be responsible for Sears Holdings’ sales and profit loss due to the recall. The determination as to whether the vendor will be responsible for paying such sales and profit loss to Sears Holdings will be made by the Vice President of the Merchant Group. For those recalls involving serviceable items for which Sears Holdings will perform the repair for the customers, vendors will continue to be responsible for compensating Sears Holdings for the repair work performed by its technicians. The terms of the repair program, with all associated costs, will continue to be set forth in writing in a Letter of Agreement to be executed by and between Sears Holdings and the vendor. A National Account Manager from Home Services will continue to negotiate the terms of the Letter of Agreement on behalf of Sears Holdings with the vendor.

If you have any questions regarding the new Product Recall Initiative, please contact David Haluska (KRS) at 248-463-7749 or Patty Schattler (KRS) at 248-463-5015.

Regards,
Jerry House
Vice President, Store Implementation

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