Byline: Georgia Lee

The new Service Merchandise is a far cry from the old take-a-number-and-wait routine.The Nashville-based chain has undergone significant changes after filing Chapter 11 bankruptcy in early 1999. Following a management shuffle in March 1999, the company closed around 150 of its unprofitable stores, then embarked on revamping many of the remaining 220 units in a new prototype.
The new look features a specialty store ambience, contrasting sharply with the original catalog-warehouse presentation. Square footage of each store now averages 23,500 square feet, half of what it used to measure. Selling space in the new layout is roughly 17,500 square feet. Six remodeled Atlanta units were unveiled in September 2000. Around 70 total stores were remodeled in 2000, with another 70 to 80 scheduled for 2001. Several major categories have been eliminated, to make room for expanded jewelry and related items. With a strong focus on the female consumer, the company is playing up its strengths. Jewelry comprises 25 to 30 percent of all expanded areas, along with similar categories — tabletop, dinnerware and gift items. Electronics, toys, juvenile product and sporting goods were eliminated, to avoid competition with the dominant categories and to focus assortments.
During the restructuring, the company studied consumer buying habits from its proprietary database. Studies revealed that 48 percent of customers bought jewelry first, followed by housewares.
“We can dominate in categories like jewelry, with our big assortments, value, and the ability to test product, work with suppliers and get feedback, said Charlie Septer, coo of the Nashville-based retailer.
Eliminating the old catalog showroom format in 1998 allowed product to move from backrooms to floor space. The company still produces a 24-page flyer twice monthly, but now, rather than promotions, the company emphasizes enhanced product, fashion and convenience.
The new stores feature wider aisles, brighter lighting, enhanced displays and more upscale fixtures. One of the most striking new areas, the Gallery, an in-store shop, showcases fine jewelry, priced from $500 to $20,000, and including dramatic pieces such as a 13.5 carat diamond bracelet, a four-carat diamond ring and bold designer pieces. The Gallery will be in 43 Service Merchandise stores by the end of 2001, although the concept won’t spread to all markets.
Per store, fine jewelry sales average more than $3.2 million dollars annually. Bridal, which is one-third of jewelry business, will expand, along with diamond and fashion jewelry, gemstones, gold and silver. Fashion watches, from brands such as Harley-Davidson, Bulova, Disney and Relic, are also growth areas. Crosses and hearts are constant bestsellers. Rather than any one designer, Service Merchandise will build its own brand image as the source for jewelry.
“In fine jewelry, the brand is the store,” said Septer. “We know that upscale jewelry is appealing more to the mainstream, as everybody wants to trade up. We always had the designer business, but we didn’t have enough. We’re keeping the same value in lower price, but stretching into unique, high-priced items.
The new strategy is a three-pronged approach that integrates store, Web site and phone sales. With Service Merchandise in the mail order business for 25 years, e-commerce was an easy transition early on.
An early player in e-commerce, Service Merchandise has refined its bricks-and-clicks strategy for a more integrated approach. The original Service Merchandise Web site, launched in 1997, sold primarily closeout merchandise.By mid-1998, online inventory was vastly expanded. Now, with the complete inventory offered online, Internet sales surpassed phone sales by Christmas 1999, as many original phone customers switched to the new medium.
Kiosks have been placed in 220 stores where customers can go online to buy product for store pickup, or use the store’s Web site for more extensive product information, including a real-time stock check via a satellite system.
As jewelry levels vary from store to store, the kiosk allows customers to see a more complete selection on the Internet.Content, including an info site, is intended to make the site “sticky,” with tips on hot trends and gemstone care. Questions on jewelry are answered by salespeople in a live chat room.
Over 60 percent of net shoppers are also store shoppers. Gold has been a bestseller on the internet, along with precious, semiprecious jewelry and fashion watches. Higher-end purchases, particularly diamond solitaires, are less in demand, as customers prefer to purchase them in stores.

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