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Unit 12: Merchandise Pricing

Notes
Examples of the auditing process include the following: In the case of the information
technology assets, selected sample contracts and license agreements for those assets were
reviewed, and the inventory of assets bundled into logical groupings. For the trademarks
and other marketing assets, historical financial statements were reviewed and trademark
registrations and status reports were examined in detail to evaluate the past history of use
of the trademarks and the revenue generated by each of them. As a result of this work, the
assets were grouped into six areas:
 IT software assets;

 Trademarks and associated brand names;
 E-commerce Assets;
 Databases and customer lists;
 Farberware license; and

 1-800 Jewelry assets.
All of the intangible assets of Service Merchandise were divided amongst these six bundles,
valued and readied for sale. The result of that work is summarized below.
IT software assets and domain names: The in-house systems were developed to a high
standard, but were considered to be legacy technology at the time. In other words, they
were not leading-edge software systems. After detailed analysis of the vendor software
contracts to determine which items might be saleable and which were not, a value range
was established for these third party IT assets. The IT assets were divided into three
groups:
 Integrated systems that were designed for specific purposes within Service
Merchandise;
 Major third-party applications consisting of off-the-shelf software and associated
licenses for main frame systems; and
 OS and utility third-party applications, which were primarily off-the-shelf operating
systems from companies like Microsoft and other PC-based suppliers.

The total value of these assets as a group was determined to be between $210,000 and
$420,000.
Trademarks and associated brand names: The Service Merchandise trademarks and house
brands were bundled together for sale in whole. The intangible asset team further divided
the trademarks and brand assets into three different groups:

 Core brands, which included Service Merchandise, as well as two other closely
related trademarks: At Your Service and Service Select;
 Key concept brands including Kids Central, Designed Just for Kids, and the Royal
Symphony Diamond Collection; and
 Product-based brand groups, from the company’s private label brands including
Preferred Stock, Destinations and Regency.
These groupings of trademarks and brand names represented the best opportunities for
monetization in the then-current marketplace. The assets appeared to have above-average
consumer awareness and some consumer loyalty. The value of the assets was estimated to
be between $800,000 and $2.3 million.
Contd...

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