SERVICE MERCHANDISE TO BE `WARM' PLACE UNDER NEW PRESIDENT

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Gary Witkin wants consumers to see the softer side of Service Merchandise Co.

Mr. Witkin-moving from upscale Saks Fifth Avenue to president-chief operating officer at the catalog showroom retailer-plans to polish its image by using lessons learned at Saks, as well as some he received early on in his father's deli.

Service Merchandise may have won the battle of Wall Street, but in the process, shoppers became a casualty. The Nashville, Tenn.-based company has pared expenses and improved profit margins. But Chief Financial Officer Sam Cusano admitted it has lost touch with customers, who complain of poor service and inventory.

"Over the last two to three years, we've tried to operate too efficiently," Mr. Cusano said. "We want to become much more customer and sales driven instead of just price driven."

Though Service Merchandise has added staff, upgraded its computer systems and added inventory, specialty stores like Circuit City and Nobody Beats the Wiz continue to dog the company.

"They're facing tough competition on almost every line of merchandise they've got," said Doug Raymond, president, Retail Advertising Marketing Association.

Hopes are now pinned on Mr. Witkin, 45, to turn the company image around.

"Witkin is a strong operations guy," Mr. Raymond said. "Service Merchandise is trying to reposition its business. They are taking a cue from Sears, Roebuck & Co., maybe bringing him in for the same fresh outlook."

In its search for a new president to replace Raymond Zimmerman, who remains chairman-CEO, the company initially eschewed candidates with a retail resume, hoping to avoid what Mr. Cusano called "fixed ideas."

Still, Mr. Witkin, who insists he's taking a fresh look at the business, was selected after his two-year tenure as Saks vice chairman. At Service Merchandise, he will oversee 405 U.S. stores with almost $4 billion in sales, up 17.6% from last year. Mr. Witkin said he will "be dealing with the store environment-how to create a warm, welcome place to shop at with great prices."

While there's little chance Service Merchandise will suddenly start attracting Saks shoppers, Mr. Cusano said Mr. Witkin's hire "might be an opportunity to become a little more upscale."

Mr. Witkin said the company should target baby boomers as they mature. "How are we going to continue to be the service provider of choice? Look at customers' lifestyles," he said.

Mr. Cusano asserted that Service Merchandise's catalog will continue as the "foundational backbone" of the business, an asset now that more consumers are shopping from home. But the catalog is likely to get a face-lift.

So will the stores. Mr. Witkin said: "I want to create theater in the store so people will say, `I don't go there because I have to, but to see what's new."'

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