The latest addition to the list of vulnerable retailers pushed into bankruptcy by the crappy retail environment is Linens ‘n Things, which has joined Sharper Image, Lillian Vernon, and others in receivership. As widely expected, on Friday the nation’s #2 home goods chain (behind Bed Bath & Beyond) voluntarily filed for Chapter 11 Bankruptcy protection. Its now-ex CEO Robert DiNicola, who has been replaced by a restructuring expert, cited “significant deterioration in the mortgage, housing and credit markets and the resulting impact on the retail marketplace” as the reason for the chain’s slide into bankruptcy.
Truth be told, Linens ‘n Things has been battling declining same-store sales and profitability for years and was in pretty bad shape prior to the economic downturn. (Sales at stores open at least a year are considered the best indicator of a retailer’s performance.)
DiNicola blamed the current retail malaise for overwhelming the operating and merchandising improvements he’s made since joining Linens ‘n Things in 2006 when the already-struggling firm was acquired by Apollo Management. Upon taking charge he launched a “long-term, three phase multi-year plan” to turn the company around. Improvements included beefing up the selection of higher-end merchandise to differentiate Linens ‘n Things from mass market competitors (such as Target and Wal-Mart) and cost cutting. But alas, it was all too little too late for Linens ‘n Things, whose bankruptcy filing is a black eye for both DiNicola, a retail industry veteran, and Apollo.
The chain’s current woes demonstrate how hard it is to be #2 in a hyper competitive market and unforgiving retail economy. The fix Linens n’ Things finds itself in is not unlike that of ailing Circuit City, which trails its much larger rival, Best Buy, in the consumer electronics retail market. (Circuit City is the target of an arguably ill-advised hostile takeover by the video rental firm Blockbuster, which my colleague Larry Bills detailed in April.) Indeed, both Best Buy and Bed Bath & Beyond appear to be thriving in spite of the lousy housing market and decline in consumer spending.
Linens ‘n Things, which had added more than 100 stores since 2005, said in a court filing that it will shutter about 120 locations as part of its restructuring. While store closings may help put the company back on the road to profitability, I’m skeptical that a smaller Linens ‘n Things will ultimately be able to compete successfully in the market with Bed Bath & Beyond’s nearly 900 locations (and counting).
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