Service Merchandise Misses Payment
By KARIN MILLER
AP Business Writer
BRENTWOOD, Tenn. (AP) -- Service (NYSE:SME - news) Merchandise Co. was counting on strong Christmas sales to help the struggling catalog showroom chain survive, but that's not happening.
The catalog showroom chain said Tuesday it cannot make a scheduled payment on its $900 million refinanced debt.
Service Merchandise, founded in 1934 as a five-and-dime store, thrived after it opened its first catalog showroom in 1960. But in recent years, the success of mega-discounters like Wal-Mart and other changes in the retail industry caused profits and stock prices to tumble.
''Things go in cycles,'' said Arnold Aronson, managing director of retail strategy for Kurt Simon Associates in New York. ''Catalog showrooms have been the victims of assault from so many other methods of distribution.''
In addition to discounters, he cited the growing strength of large specialty stores like Circuit City and Toys R Us, the proliferation of regular catalogs and the Internet.
Company officials said in a holiday sales update that comparable-store sales from Sept. 13 through Sunday ''were down on a percentage basis in the mid-teens,'' compared to the same period last year.
Jewelry sales were up slightly, but sales of furnishings and other ''hard lines'' dropped at least 20 percent, the company said.
Comparable-store sales are considered the best barometer of a retailer's strength. They exclude the results of newer stores, where sales tend to be unusually high, and stores that have closed over the past year.
This year, in an effort to win back customers, Service Merchandise ditched its traditional mail-out catalog and the clipboard ordering system.
Instead of waiting for merchandise to be brought from the warehouse in back, consumers can pull most items directly off the shelves and take them to a cashier.
The company also narrowed its product offerings to jewelry, housewares and furnishings. But the reorganization hasn't brought back the customers quickly enough.
''To change your identity and change your image is extremely difficult in retailing, and they weren't able to do it,'' said Kurt Barnard, president of Barnard's Retail Trend Report in Upper Montclair, N.J. ''They needed a strong Christmas and they didn't get one.''
Service Merchandise missed Tuesday's scheduled biannual $13.5 million interest payment on its debt. The company said it will consider business alternatives during a 30-day grace period to make the payment, but a spokesman refused to elaborate.
The company employs about 25,000 people and operates 359 stores in 34 states.
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