Service Merchandise Co. Inc., a 42-year-old home-and-jewelry specialty chain that has operated under Chapter 11 bankruptcy protection since March 1999, announced Friday that it is going out of business, the Associated Press (AP) reported.
The company, which has more than 200 stores in 32 states, had been attempting to turn itself around at a time when the retail industry endured what some analysts are calling the weakest holiday season in about 30 years, the AP reported.
Company executives said the weak economy and slow sales after the Sept. 11 terrorist attacks hurt the company’s 2001 results and prevented it from completing its planned business reorganization and emergence from bankruptcy, the AP reported.
Service Merchandise lost $180 million in 2000, but had less than $100 million in losses in 2001, attorney John Butler Jr. said. As of November, the company had liabilities totaling $1.34 billion and assets of $1 billion, the AP reported.
“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,” chairman and chief executive Sam Cusano reportedly said. “While we wish the final result could have been otherwise, our foremost goal throughout the cases has been to maximize value for our stakeholders and we are doing so through this course of action,” he said.
The company says it will fire about 500 of its 1,005 corporate, distribution and sales support employees in January, with the others receiving staggered termination notices throughout the year. About 8,300 store employees will continue working until going-out-of-business sales are completed this spring, the AP reported.
The company will begin the sales Jan. 19 at its stores, pending approval by the U.S. Bankruptcy Court for the Middle District of Tennessee, the AP reported. It intends to file a plan of liquidation by Sept. 30, to provide for the distribution of the proceeds of its assets to creditors.
Executives told a bankruptcy judge Friday about the company’s anticipated closure. The judge will review more detailed plans about how the company will cease operations at a hearing Jan. 18, the AP reported.
Glenn Rice, lead counsel for the Official Committee of Unsecured Creditors, said creditors support the company’s decision, the AP reported.
The company said common stock shareholders will not receive any compensation, the AP reported.
Service Merchandise said employee severance and other benefit payments totaling $28.5 million would be paid in accordance with orders from the bankruptcy court, the AP reported. The company will also sell its real estate, including its headquarters in suburban Nashville, 70 buildings it owns and 150 unexpired leases it holds.
Service Merchandise was founded by Harry and Mary Zimmerman as a “five and dime” in 1934. The first catalog showroom opened in 1960.
During the 1970s, Service Merchandise was the nation’s top catalog-showroom retailer. At its peak, the company achieved more than $4 billion in annual sales.
The company thrived into the 1980s but was hit hard by the emergence of giant discounters such as Wal-Mart and Kmart. The company responded with a series of restructuring plans that included the discontinuation of unprofitable product lines such as electronics, toys, and sporting goods and focusing on fine jewelry, gifts, and home decor products.
While changing its retail format, a group of creditors filed an involuntary petition under Chapter 11 on March 15, 1999, seeking court supervision of the company’s restructuring. The company later filed a voluntary Chapter 11 petition to improve its relations with its vendors and creditors, and to stabilize its business.
Raymond Zimmerman, son of the company founders, resigned as chairman of the board in November 2000.
Over the past two years, Service Merchandise reduced its holdings from about 350 stores to 216 and about 41,000 employees to 9,300.