The Wiz initiates cost-cutting measures after losses at underperforming stores - Brief Article

DSN Retailing Today, Sept 9, 2002 by Laura Heller

BETHZPAGE, N.Y.--Four years after being rescued from Chapter 11 bankruptcy protection, The Wiz is once again faced with store closures and cost-cutting measures. Management's attempts to stem losses from underperforming stores and create a more focused merchandise mix to better promote owner Cablevision Systems' digital services have generated minimal success. So it announced last month it would close 26 stores, scale back an exclusive agreement with Sony to provide digital set-top boxes and put the 59-theater Clearview Cinema chain up for sale as part of an effort to close a pending funding gap facing Cablevision in the coming year.

The 26 Wiz stores are currently hosting going-out-of-business sales, leaving the chain with 17 units in the New York metropolitan market. Also slated for closure are the three newest locations opened since its acquisition, locations designed to better showcase Cablevision properties.

Cablevision bought The Wiz in January 1998 for a reported $90 to $95 million. But the chain has never been profitable for the cable giant, in spite of its efforts to open enticing stores and update its image by shortening the name from Nobody Beats The Wiz. The company brought retail veteran Norman Goldberg in as coo to bring store design and signage more in line with the national chains, which had begun entering the company's New York market around that time.

Although Goldberg is still with Cablevision, his responsibility for the retail business has been passed to Jeffrey Yapp, who was named group vp of that division last December. Jeff Kaufman was later named gin and senior vp of merchandising.

At the time of its bankruptcy filing in December 1997, The Wiz operated 55 stores, but was in the process of shuttering 17 units when Cablevision bought the chain. Chairman Charles Dolan planned to use The Wiz as a showcase for Cablevision's entertainment properties and new technologies, such as HDTV.

A strategy The Wiz has pursued, even opening a Digital Solutions Store in Carle Place, N.Y., in July to showcase its new service iO (Interactive Optimum), a digital set-top box service currently available only at two stores in Long Island and a single location in northern New Jersey The program will be rolled out to Cablevision's franchise territory over the next few years, according to spokeswoman Laura Conover. Originally, Sony was contracted to be the exclusive supplier for iO boxes, but that agreement has been scaled back in line with new cost-saving measures.

The rest of The Wiz locations will have merchandise sections tightened as it tries to achieve a more focused digital strategy with high-end TVs, PC peripherals, PDAs, digital cameras and camcorders, and bundled solutions, according to Conover. "We have trimmed our selection to good, better, best," she said. "Narrowing down what products we want to focus on within those parameters."

Under Cablevision's stewardship, the Wiz grew to 43 stores, but continued to lose money. With the remaining stores, The Wiz hopes to finally achieve break-even cash flow, compared with an operating loss of $60 million in 2002, according to Salomon Smith Barney analyst Niraj Gupta. Gupta anticipates those 17 stores will generate $91 million in sales compared with $222 million for the entire chain last year. For 2003, he estimates revenue of $264 million versus $712 million and an EBITDA loss of $3 million compared with a $36 million estimated loss for 2003.

"Cablevision believes the remaining stores will continue to be of strategic significance and will be used to promote and deliver its cable products," he said.

But a leaner Wiz is no assurance it will be profitable. Dolan said a failure to break even in 2003 would result in more drastic measures. With just 17 stores left, the next move may well be to say good night.