Service Merchandise seeks turnaround with closings

Which stores to shut still being decided

it has 6 in Maryland

February 10, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Struggling retailer Service Merchandise Co. Inc., the last catalog-showroom chain in the United States, will close more than a third of its stores in the next three to four months in a restructuring aimed at shrinking debt and recapturing sales, the company said yesterday.

The Nashville, Tenn.-based retailer said it will shut down as many as 134 underperforming stores to focus on refining its niche in fine jewelry, gifts and home products at the remaining 213 stores.

Service Merchandise, whose sales have been slumping for months as it deals with financing, management and other problems, has stores in 34 states. Its Maryland stores are in White Marsh, Columbia, Frederick, Salisbury, Forestville and Waldorf.

The company did not announce locations to be closed. It said only that it would run clearance sales as a way to pay bank debt.

"The list of stores to be closed is being finalized, and we hope to announce it shortly," said Greg Winnett, a company spokesman.

Service Merchandise opened its first catalog showroom in 1960 in Nashville, positioning itself between high-priced, brand-name department stores and inexpensive, off-brand discounters. The chain, founded by the Zimmerman family, expanded rapidly in the 1970s and 1980s.

For the past several years, Service Merchandise has worked to reposition itself, closing the weakest outlets in 1997 and last year switching from catalog stores to traditional stores and doing away with its catalog.

Also last year, the chain opened six stores, five in a smaller format with a full jewelry department and a selected assortment of home products, and one home superstore.

The catalog format, which left Service Merchandise little flexibility to adjust price or product assortment, had put the company at a disadvantage against an array of retailers competing in sales of merchandise such as sporting goods, toys and appliances, said Craig T. Weichmann, who follows the company as managing director of Memphis, Tenn.-based Morgan Keegan & Co.

With the savings from eliminating the catalog, the company hoped to reach new customers through television advertising, Weichmann said.

"In theory, it made sense, but in practicality they experienced a further decline in sales," he said.

The crucial holiday shopping season dealt Service Merchandise another blow.

"The net result was, they had a very disappointing Christmas," Wiechmann said. "And they've hired a turnaround artist to try to salvage the company."

That specialist, Bettina M. Whyte, a principal of Jay Alix & Associated, was appointed interim chief executive last month by Chairman Raymond Zimmerman.

In a statement yesterday, Whyte called the plan to close stores a key step in an out-of-court restructuring.

In December, several credit-rating agencies, anticipating weak year-end results, lowered Service Merchandise's credit ratings after the company announced several disappointing holiday sale updates and indicated that it could not make a $13.5 million bond interest payment by Dec. 15. With an extension, it later made the payment.

Late last month, the company obtained a 30-month, $750 million secured loan and line of credit from Citibank and BankBoston Retail Finance. The credit agreement required Service Merchandise to present an operating plan within 120 days.

Pub Date: 2/10/99

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