Mining a gem of a category - selling fine jewelry at Service Merchandise - AM

Discount Store News, June 20, 1994 by Pete Hisey

"America's Leading Jeweler," with a $1 billion fine jewelry business, just increased its lead.

Service Merchandise, which sells more jewelry than any other U.S. chain, debuted its first superstore format outside Akron, Ohio, in May, offering a double-size selection in the fine jewelry category.

The superstore is the first of four planned for 1994; two others will debut this fall in the Dallas market and a third is scheduled for the same time frame, but its location has not yet been confirmed.

If the concept proves viable, many of its elements could be retrofitted into any or all of Service's existing 400 stores.

The accent is clearly on increased presence in the high-margin jewelry category. The number of jewelry cases, with a new black and white color scheme, has more than doubled to 100 from 44. Watch units have increased from about 700 to more than 2,000, with boutiques spotlighting Disney and Looney Tunes, sports and fashion timepieces.

Other departments were condensed slightly to allow for the roughly 40 percent increase in jewelry square footage.

But as division senior vice president Charles Septer notes, a superstore requires more than just a dominant selection. "As far as selection goes, we thought we already had a superstore," he says. The increase in sku count reinforces the superstore image, he says, but service could be the deciding factor.

The new prototype incorporates the services normally found only in higher- end specialty stores, including on-site appraisals, insurance documentation, a loose-gem room and an enclosed repair room.

The glass loose-gem booth, in which customers can select their own gems and mountings, had been available as a traveling show from time to time, vice president of community affairs Greg Winnett says, but the new superstore format will institutionalize it. "It's just like buying in the Diamond District in New York," he says. Customers are provided with "all the technology necessary for viewing fine stones," in a private, soundproof atmosphere. A registered gemologist assists each customer.

The repair room, which again is sealed, marks another first for Service. "The customer can watch the entire repair process," Winnett says. "That's particularly important with family heirlooms and extremely valuable pieces. There's an emotional aspect to the transaction in that the piece can never be replaced. The trust factor is very important here."

Service has been expanded at the sales associate level as well. The take-a-number format has been discontinued; instead, associates outside the jewelry department steer customers to the appropriate area, where a specialist in the category will serve them. A department manager, equipped with a microphone, can call an associate to an unmanned counter instantly.

"Eliminating take-a-number makes our service more personalized," Winnett notes. "Each customer is served by an associate trained specifically in one particular product area, whether gold or diamonds or colored stones." Associates train for up to 18 months each, he says, and continue training throughout their careers.

Despite the increased sku count, Service has not significantly altered its market position. For instance, the company has shunned the industry shift to 10 carat gold. "We don't go after the low end," Winnett says. "And 10k is mainly for kids anyway." The accent, instead, is on increasing selection within existing price points. While Service has always offered goods in the $10,000 and up category, the selection in those price points has been tripled.

The superstore test may be vital to Service's ongoing health. While the company has recovered from the enormous debt it incurred during the '80s, it has been under tremendous pressure in many of its categories over the past year. Its consumer electronics category, for instance, has been battered by rapid expansion by competitors like Best Buy and Circuit City. Traditional discounters have similarly impacted Service's toy business.

In response, Service is re-accentuating its core business. At roughly 25% of sales, and with margins easily double those of most general merchandise, jewelry is Service's raison d'etre. With discounters like Wal-Mart, Kmart and Ames upgrading their fine jewelry selections, Service hopes to become the Toys "R" Us of jewelry retailing, in effect avoiding the squeeze that TRU and major discounters exerted on the toy specialty industry. "With our expanded selection, the consumer really has no need to go anywhere else," Gwinnett says hopefully.

Despite their obvious appeal, the cost of the fixtures could stall any chainwide roll out. Septer notes that they were "very expensive." Increased sales and profits will have to pay back that investment rapidly to make a roll-out affordable, he says. However, since the department was shoehorned into an existing 50,000-sq.-ft. store (later versions will occupy a new format of about 60,000 sq. ft.), if the approach proves viable, it could quickly find a home in at least 100 of Service's most recent units.