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Service Merchandise Exiting Electronics

Struggling catalog showroom Service Merchandise said it will exit the consumer electronics category and slash more than 5,000 jobs as part of its plan to emerge from Chapter 11 reorganization by 2001.

According to CEO Sam Cusano, the retailer is dropping most CE products, as well as toys, sporting goods and indoor furniture, in order to focus on and expand its core jewelry business. He said the targeted categories have continued to prove unprofitable for the company due to limited floor space and the “highly competitive nature of those sectors.”

Clearance sales will be held during the next several months to rebalance the store’s merchandise mix, which will continue to include housewares and giftware. In addition, about 5,150 corporate, in-store and warehouse jobs will be phased out during the year, and two distribution centers will be closed.

Also in the works is a store refurbishing program that will expand the jewelry department and add Internet kiosks, while about half of each unit will be subleased or made available for “other real estate transactions.” Cusano said the company will continue to operate all of its remaining 221 stores, although 50 to 60 will be evaluated for “possible replacement.” The company shut 122 underperforming stores and one distribution center last year.

Service Merchandise voluntarily filed for Chapter 11 protection last spring after five vendors initiated an involuntary reorganization petition against the publicly traded merchant. The retailer ranked 17th on TWICE’s Top 100 Retail Registry last year with CE sales of $927 million in 1998. The company reported a net loss of $243.7 million for fiscal 1999 on net sales of $2.23 billion, compared to a net loss of $110.3 million on net sales of $3.17 billion the year prior.

Cusano said that the forthcoming actions are based on in-depth customer research, performance reviews of each business line, analyses of overhead cost structure and potential cost reductions, and an assessment of store space needs and real estate value opportunities.