Linens’n Things, Inc.

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Linens’n Things, Inc.

6 Brighton Road
Clifton, New Jersey 07015
U.S.A.
(973) 778-1300
Fax: (973) 815-2990,
Web site:http://www.lnthings.com

Public Company
Incorporated: 1958 as Great Eastern Linens, Inc.
Employees: 7,700
Sales: $874.22 million (1997)
Stock Exchanges: New York
Ticker Symbol: LIN

SICs: 5714 Drapery, Curtain & Upholstery Stores; 5719 Miscellaneous Home Furnishings; 5722 Household Appliances

Linens‘n Things, Inc. is one of the nation’s two largest and most profitable specialty retailers of home textiles, housewares, and decorative home accessories. In 1998 the company was operating 176 stores (153 superstores and 23 smaller, traditional-size stores) in 37 states. The traditional stores averaged approximately 10,000 gross square feet in size while the superstores ranged from 38,000 to 50,000 gross square feet. The stores carry brand name “linens,” that is, home textiles—such as bed linens, towels and pillows—and “things,” such as housewares and home accessories. The superstores were located predominantly in power-strip centers and, to a lesser extent, in shopping malls. More than 25,000 stock-keeping units (SKUs) supported the company’s six product categories: bath, home accessories, housewares, storage, top-of-the-bed, and window treatments. The company bought its inventory from approximately 1,000 suppliers, 95 percent of whom were in the United States. The superstores represented Linens‘n Things’desire to create a compelling one-stop shopping experience for the time-pressed consumer. The company carried many name brands, including Wamsutta, Martex, Fieldcrest, and Wa-verly in domestics; Libbey, Ravel, Lancaster Colony, Zwiesel Glas, and Luminarc in glassware; Sango, Mikasa, Sakura, Tienshen, and Gibson in stoneware; Calphalon, Circulon, and Farberware in cookware; and Braun and Krups in appliances. Linens’n Things also sold an increasing amount of merchandise (about ten percent) under its own private label, LNT, in order to supplement the offering of brand name products with other high-quality merchandise sold at value pricing below regular department store prices and comparable with, or below, sale prices at department stores.

Creating a Retail Prototype: 1958-83

Eugene Wallace Kalkin laid the initial groundwork for Linens ’n Things, Inc. when he was only 22 years old and began what would be a seven-year stint with Allied Purchasing Corp., the buying office for the second largest department store chain in the United States. In 1958 he entered into a partnership with the retail discount chain known as Great Eastern Mills, Inc.; in that company’s stores, called Great Eastern Linens, Inc., Kalkin set up leased-linen departments. Meanwhile, Great Eastern Mills sold its business and its 50 percent share of Great Eastern Linens to Diana Stores Corporation, a ladies’apparel store chain with a strong market position in the southern United States. Thereupon, Diana Stores opened a chain of stores, named Miller’s Discount Department Stores, in which Great Eastern Linens operated the linen and curtain department.

Diana Stores later sold its company and its 50 percent interest in Great Eastern Linens to Beverly Hills-based Daylin Inc., a national chain of department stores that leased departments for health and beauty aids. In 1970 Daylin bought Kalkin’s share of Great Eastern Linens in exchange for Daylin stock. In 1975, however, Daylin filed for bankruptcy, and Kalkin’s stock became almost worthless. During an interview reported in the May 1998 issue of the UVM Record, a University of Vermont publication, Kalkin recalled how this bankruptcy affected both his finances and his self-esteem: “It wfcs absolutely a devastating blow to my life. To me, there was no alternative but to go back into business,” said Kalkin.

Kalkin did just that. In 1975, from the Daylin bankruptcy court, he bought seven of the leased departments and specialty stores he had started for that company. This seven-unit retail chain with annual sales of $2 million was the beginning of Linens ’n Things, Inc., one of the country’s first specialty retail stores dedicated to home furnishings and decorative accessories. Having experienced the unpredictable consequences related to dependency on landlords, Kalkin turned away from the operation of leased departments and applied a novel set of merchandising techniques to the development of Linens ’n Things as a chain of specialty retail stores.

Eugene Kalkin had learned about the European hy-permarches, stores in which storage cubes filled with food or general merchandise were piled up to the ceiling, thereby saving space and reducing expenses. This merchandising concept later became popular in the United States in discount chain stores, such as those of Sam’s Club, BJ’s Wholesale Club, and Home Depot. Influenced by the concept of the hypermarche no-frills warehouse environment, Kalkin used his retailing experience to create the retail industry’s off-price prototype. He opted for stores with high ceilings in order to save space by installing ten-foot high, warehouse-type shelving for piling up storage cubes. He could then display in 7,000 square feet the quantity of merchandise that previously would have taken 12,000 to 13,000 square feet. In this way, Linens ’n Things cut expenses—especially for rent, lighting, and taxes—and turned a profit while selling quality products at discount prices. “When I went into off-price, the timing was right and we had the right physical format,” Kalkin later commented in an interview for a June 1990 story in Home Fashions Magazine.

The soft economy of the 1970s did elicit enthusiastic consumer response to Linens ’n Things’off-price stores. Other retailers in the home textiles industry kept an eye on the chain’s rapid growth. For instance, Bloomingdales’Norman Axelrod—who would later serve as Linens ’n Things’CEO, president, and chairman—remembered that “Gene [Kalkin] was very dynamic.” “Selling brand names in a low-cost environment was a groundbreaking concept,” Axelrod commented in a 1995 interview for Business News New Jersey.

Transition and Refocus: 1983-95

By 1983 Melville Corporation (later known as CVS Corporation) was also attracted to Linens ’n Things—by then a 55-store chain with sales of over $85 million—and soon acquired the chain. After the sale, Kalkin stayed on to direct the company for two years and was succeeded by his longtime assistant, Robert L. Karan. Sales from 116 stores reached $145.3 million for 1985; $163.4 million from 131 stores for 1986; $175.8 million from 144 stores in 1987; and $180 million for 140 stores by 1988.

Karan’s marketing philosophy, however, was very different from that of Kalkin, who was attuned to the volatile, evolutionary nature of the retail industry and had noted an emerging trend to larger stores. In fact, before Kalkin’s departure, the company already had experimented with the profitable operation of an 18,000-square-foot store and had begun to increase the “things” side of the business in order to meet customer requests for a larger selection of decorative home accessories. Karan, however, held back on making changes and, according to Lasseter’s article, he “scrimped on spending to keep prices low, and sales stagnated.” In January 1988, Melville Corporation asked Norman Axelrod—then senior vice-president at Bloomingdales in New York City—if he would run Linens ’n Things. Axelrod reportedly hesitated because the company had “a lot of problems,” but Stan Goldstein, Melville’s chairman, agreed to invest more money in Linens ’n Things, and in 1988 Axelrod joined the company as chief executive officer.

Axelrod had kept abreast of the radical and dramatic changes taking place in industry and individual lifestyles during the 1980s. Corporate structures were crumbling. Banks, brokerage houses, department stores and specialty stores—to name but a few of the industries needing to change their marketing, distribution and management strategies in order to prosper—were undergoing bankruptcy, acquisitions, and/or consolidation. As for lifestyles, as Barbara Solomon pointed out in an August 1991 article in Realities of Retailing, during the 1980s many married people had settled in the suburbs and their discretionary buying power was reduced by mortgages, children, medical bills, and the need to save for the future. Moreover, many women had entered the work force and had less time to visit downtown banks and stores; instead, they went to branch locations in the malls near their homes and increasingly frequented specialty stores. In addition, department stores had become less efficient; more often than not it took several months for new merchandise to reach the shelves. In short, many retailers had lost touch with consumers.

Consequently, Axelrod’s initial undertaking was to iron out some of Linens ’n Things’wrinkles and to learn about the needs and spending habits of its “guests,” as the company called its customers. With a new management team, Axelrod guided the major part of Melville’s first $15 million investment into upgrading the technology in the company’s stores; a highly sophisticated point-of-sale system encompassing application of the Universal Product Code (UPC) and electronic data interchange (EDI) was installed. These UPC and EDI systems allowed the stores to track exactly what was selling on a day-today basis, thereby making it possible to keep lower levels of inventory and to have a more precise policy of maintaining what people wanted. This line of thinking was underscored by Daniel Raff, an industry analyst quoted in Solomon’s 1991 article: “Some of the success of specialty stores has to do with the fact that they have a more sophisticated way of knowing what they’re selling. A big part of retailing is having the product in stock and having it out on the floor.”

Company Perspectives

Linens ’n Things, Inc. is committed to providing a one-stop shopping experience for a broad assortment of high quality brand name housewares, home textiles and designer home furnishings; to keeping “won’t be undersold” everyday low prices; to offering efficient customer service; and to maintaining low operating costs.

However, maintaining an inventory large enough to meet consumer demand and having products out on the floor required much space. Axelrod recognized that the superstore concept that had inspired Kalkin might solve the space problem. In September 1988 Linens ’n Things opened its first superstore in Rockville, Maryland. In 1989 the company started to convert its store base to superstores ranging in size from to 35,000 to 40,000 gross square feet and began to close all but the most profitable and traditional stores.

The superstore format was meant to save a customer’s time by having inventory visible and accessible on the selling floor for immediate purchase. To further enhance customer satisfaction and loyalty, Linens ’n Things strove to provide prompt, knowledgeable sales assistance and enthusiastic customer service. The company offered competitive wages, training, and personnel development in order to attract and retain well-qualified, highly motivated employees dedicated to providing efficient customer service. Recognizing the increasing propensity of consumers to spend more on home decor, Linens ’n Things targeted its product selection to reflect the broadening trends of the 1990s.

The breadth and depth of Linens ’n Things’ extensive merchandise offerings enabled guests to select from a wide assortment of styles, name brands, colors, and designs within each of the company’s six major product lines. An effort was made to present merchandise in a more visually appealing, customer-friendly manner. The company emphasized its “won’t be undersold” policy and explored opportunities to increase sales in its “things” merchandise without sacrificing market share or customer image in the “linens” side of the business. “Linens did not engage in high/low discounting but [held] two clearance events annually, in January and June,” noted James Mammarella in Discount Store News, an industry publication. He also commented that the company did distribute seasonal fliers containing promotional offers but that “the main message, expressed in the store’s slogan, was consistent: ’We give you more for less. Everyday’.”

From 1988 through 1995 Linens ’n Things introduced 101 superstores, resulting in the closing of 85 traditional stores. However, although the total number of stores increased only by 15, the company’s gross square footage more than tripled, going from 1.4 million square feet on January 1, 1992, to 4.8 million square feet by the end of 1995. Net sales, after slow growth from 1988 to 1992, increased annually with added momentum.

With a view toward maintaining a low-cost operating structure, the company also instituted centralized management and operating programs and also invested significant capital in its infrastructure for distribution and management-information systems. In 1995 the company began full operation of its 275,000-square-foot, state-of-the-art distribution center in Greensboro, North Carolina. The center’s EDI capabilities optimized allocation of products to the sites having the highest potential for sales and inventory productivity. Use of this center resulted in lower freight expense averages, more timely control of inventory shipment to stores, improved inventory turnover, better in-stock positions, and improved data flow. Freed from the responsibility of receiving inventory, sales associates had more time to be present on the selling floor to serve the company’s guests.

Expanding and Refining: 1996 and Beyond

In October 1995 CVS Corporation, Linens ’n Things’ parent company, decided to spin off some of its subsidiaries. On November 26, 1996, Linens ’n Things effected an initial public offering (IPO) of its common stock; CVS retained approximately 32.5 percent of the shares, but sold them during 1997.

In response to consumer demands for one-stop shopping destinations, Linens continued to balance its merchandise by bringing in a fuller assortment of “things.” This shift significantly impacted net sales; the “things” side of its business increased from less than ten percent of net sales in 1991 to 35 percent in 1996. The company’s long-term goal was to increase the sale of “things” merchandise to approximately 50 percent of net sales. The chain also moved toward more upstairs brands and more elegant presentations of its merchandise.

In a continual effort to offer the best possible customer service, Linens ’n Things also installed satellite transmission for credit card authorizations and upgraded its point-of-sale (POS) system. The company also further refined its planning process through a comprehensive EDI system used for substantially all purchase orders, invoices, and bills of lading. Combined with automatic shipping notice technology used in the distribution systems, the EDI system created additional efficiencies by capturing data through bar codes, thereby reducing clerical errors and inventory shrinkage.

By the end of 1996, net sales increased 25.4 percent to $696.1 million, as compared to $555.1 million in fiscal 1995. The company opened a total of 36 superstores in 1996, increasing gross square footage by 28 percent to approximately 4.6 million gross square feet.

Linens ’n Things superstores continued to grow in size, number, and product line. The operative strategy was to expand market share in new and existing markets, to increase store-productivity levels at existing units, and to penetrate new markets in which the company could become a leading operator of superstores for home furnishings. New markets were located primarily in the western region of the United States, in trading areas of 200,000 persons within a ten-mile radius and having the demographic characteristics that matched the company’s target profile. According to Alan M. Rifkin and Kevin M. Hunt’s Home Furnishings Handbook, Linens ’n Things targeted its product selection “to reflect the broad trends of the 1990s, with an emphasis on consumers’increasing propensity to spend more on home decor.” The company succeeded in making “its stores an exciting experience for today’s consumer, who continued to prefer home-related goods at the expense of apparel,” wrote Rifkin and Hunt.

Linens ’n Things’net sales for fiscal 1997 increased 25.6 percent to $874.22 million, compared with $696.1 million for the same period in 1996. During 1997, the company opened 25 new stores and closed 18 stores. Total square footage of stores increased 16.2 percent to 5.5 million square feet; sales from traditional stores represented less than five percent of total sales. In April 1998 the Linens ’n Things board of directors approved a two-for-one split of the company’s common stock to be effected in the form of a stock dividend distributed on May 7, 1998. Commenting on the results of the first quarter of fiscal 1998, Chairman and Chief Executive Officer Axelrod declared that the company began 1998 “with an improved sales and earnings performance, which carried over from a strong 1997 performance.... The operating margin for the quarter showed meaningful improvement over the prior year as a result of the increase in comparable store net sales, improved selling mix, and lower markdowns.”

The surprise to the bedding industry was that although sales of bedding-specialty chains dropped to 11 percent in 1997 from 13 percent in 1996, “superspecialists Bed Bath & Beyond, Inc. and Linens & Things, Inc. have been growing, both financially and in importance to the whole textiles industry,” wrote David Gill in a 1998 issue of Home Textiles Today. By way of explanation, Gill quoted Chip Fontenot, president and chief executive officer of New York-based Decorative Home Accents: “You have to understand that there are only two specialty chains that are of any size, [Linens ’n Things and Bed Bath & Beyond] and both of these are emphasizing ’things.’ Fewer and fewer customers are running to these stores to buy sheets, while more and more of them are running there to buy kitchen magnets,” quipped Fontenot. Linens ’n Things’broad mix of “things” was obviously in sync with the increasing trend of consumer spending for the home.

As the 21st century drew near, the future looked bright for Linens ’n Things. The company planned to open 30 superstores in 1998 while closing 13 traditional stores, thereby expanding its square footage by 17 percent, and to maintain this expansion rate through the next several years by opening 35 to 40 superstores annually. Moreover, the company’s ability to keep in step with changing trends and lifestyles, its flexible merchandising strategy, and its continually updated POS and MIS systems all allowed the company to increase market share through expansion and increased productivity. In the late 1990s, the company was within reach of increasing “things” by up to 50 percent and was gradually closing its remaining traditional stores as the annual increase of its superstores kept consumers coming to Linens ’n Things for quality home textiles, house-wares and home accessories “at everyday low prices.”