Service Merchandise Co. Inc., a 42-year-old retail chain that has operated under Chapter 11 bankruptcy protection since March 1999, announced Friday that it is going out of business.
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.
Service Merchandise, with more than 200 stores in 32 states, reported losses of $180 million in 2000 and as of November had liabilities totaling $1.34 billion and assets of $1 billion.
"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 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."
The company says it will fire about 500 of its 9,300 employees in January, with the others receiving staggered termination notices throughout out the year.
The company will begin going-out-of-business sales Jan. 19 at its stores, pending approval by the U.S. Bankruptcy Court for the Middle District of Tennessee.
Service Merchandise said it intends to file a plan of liquidation by Sept. 30, to provide for the distribution of the proceeds of its assets to creditors.
The company expects shareholders will not receive any distribution on their common stock in 2002.
Service Merchandise said employee severance and other benefit payments would be paid in accordance with orders from the bankruptcy court.
The company will also sell its real estate, including its headquarters in suburban Nashville, 70 fee-owned properties and 150 unexpired leaseholds.
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.
In recent years, however, sales at Service Merchandise drastically dropped. The company responded with a series of restructuring plans, starting in 1997.
While changing its retail format, a small 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 and management improved relations with its vendors and stabilized its business.
Over the past two years, Service Merchandise reduced its holdings from about 350 stores to 216 and about 41,000 employees to 9,300.
In February 2000, Service Merchandise discontinued unprofitable product lines such as electronics, toys and sporting goods and focused on jewelry and home products. It also rented its stores to other businesses.