Service Merchandise set to revamp marketing strategy, test teleshopping

Discount Store News, April 4, 1994 by Arthur Markowitz

NASHVILLE, Tenn. -- Service Merchandise has hired anew ad agency as part of its effort to develop a "customer-driven strategic marketing plan."

Separately, Service Merchandise plans a six-month teleshopping test on the ValueVision cable network. The retailer will air segments featuring goods from its catalog and handle fulfillment.

Service Merchandise's decision to develop a new marketing strategy follows disappointing results from its advertising program in last year's key holiday period. It increased its advertising during that period by $28.8 million, with "a significant portion" going to the network TV ads with Bill Cosby.

Chariman Raymond Zimmerman stated in the company's just released annual report that "our research tells us that the Cosby campaign generated strong customer awareness; unfortunately, that did not translate into the sales increases we had expected."

Service Merchandise said sales for the quarter ended Jan. 1, 1994, increased 4% to $1.634 billion from $1.568 billion, while profits remained flat at $89 million. On the positive side, Service's gross margin in dollars was up 6.8% to $420.7 million from $391 million.

Overall, Service merchandise last year recorded a 2.7% gain in sales to $3.814 billion from $3.712 billion, but net income dropped 2.3% to $82.6 million from $84.5 million. Gross margins as a percent of sales rose to 24.8% from 24.4%, "reflecting less reliance on promotional pricing and a shift in the sales mix from hard lines to jewelry," Zimmerman said.

Service's two-year contract with Cosby runs through the end of 1994. The comedian is still featured in showroom point-of-purchase promotions and in-store signage.

The retailer started its creative review late last year, continued it through early this year and signed The Saffer Group, a Toronto-based strategic retail marketing agency, March 22.

Staffer is both Service's consulting service and the creative and media agency of record. Staffer replaces Ingalls, Quinn and Johnson, a Boston ad agency.

"Saffer was selected because of their unique ability to combine the strategic marketing and creative process at the senior management level," said Bill Cress, group vice president, advertising and marketing.

Saffer president Eddie Black said, "Our mission is to partner with our clients in developing an integrated marketing, merchandising and operating stratetgy that will focus on results. To that end, we team with no more than 10 major retailers at a time."

As for Service's teleshopping test, Zimmerman said "it is important to measure customer response to new formats and technologies, and this provides us with a cost effective test of TV home shopping potential."

ValueVision chairman and ceo Robert L. Johander said the deal with Service Merchandise "is representative of a major trend among retailers to build new merchandising, sales and distribution opportunities through the resources provided by interactive TV home shopping networks." Although ValueVision is currently a minor player in the teleretailing arena, the agreement "helps pave the way for ValueVision to provide these resources to a number of major U.S. retailers," he added.