Service Merchandise calls it quits
By Clint Engel -- Furniture Today, January 14, 2002
NASHVILLE, Tenn. — Service Merchandise has decided to liquidate all 216 of its stores and close down for good after a long, failed attempt to restructure under Chapter 11 bankruptcy protection.
As part of a restructuring effort in 2000, the company had cut back on its furniture offering and put greater emphasis on its bread-and-butter jewelry category.
In a press release, Service Merchandise said its performance exceeded its business plan in the past two years "but disappointing 2001 financial results primarily attributable to the combined effects of the events of Sept. 11, the resulting loss of consumer confidence and the soft economy generally weakened the company's financial and liquidity position."
With the announcement, the company also said it has cancelled vendor orders and immediately cut its workforce by 50%, or about 500 people. The retailer expects going-out-of business sales at the stores, located in 32 states, to begin Jan. 19 and be completed this spring.
Service Merchandise filed for Chapter 11 in March 1999 and began a stabilizing effort, closing stores and cutting jobs. It followed the next year with a new business plan, refocusing on core product lines and eliminating some unprofitable categories, including electronics, toys, sporting goods and certain furniture goods.
In the nine months ended Sept. 30, the company reported sales of $636.6 million and a net loss of $106.3 million.
Sam Cusano, chairman and chief executive officer, said that with the support of lenders and creditors, the company had put together the elements needed to emerge from bankruptcy protection.
"However, given the extraordinarily poor retail economy this past year, especially for jewelry retailers, our company's prospects for successfully reorganizing were compromised to the point that we and our creditors consensually concluded that winding down the business and distributing the substantial value of our inventory, real estate and other assets to our creditors was in their best interest," he said.
Pending court approval, the distribution to creditors would begin by the end of the year. Common stockholders would get nothing.
Jim Ziozis, president of Linon, which supplied kitchen work islands, dining goods, tables and chairs to Service Merchandise, said he is sad to see another retailer go.
"It's very unfortunate to see the demise of another retailer, especially when you consider at one point, Service Merchandise was the pioneer of a new discount retail concept," he said.
Linon was doing a significant amount of business with Service Merchandise, Ziozis said, though he wouldn't disclose the amount.
He doesn't anticipate any trouble making up the business elsewhere. He noted that Linon had lost a number of retailer customers to bankruptcy and liquidation before 2001, and "we more than made up the lost volume and even had a significant volume increase" last year.
He also said he anticipates a decent recovery on what it is owed by Service Merchandise, adding that the company has handled its reorganization effort responsibly, with financial backing, and hasn't waited until "everything has been drained and spent" before starting the wind down.
