An overview of the main points
Linens’ n Things company specializes in a diverse range of top-notch home textile products, such as bed linens, kitchen accessories, and various other domestic goods in the United States of America.
Throughout the 1990s, the company experienced significant growth and expansion, resulting in high profits. By 2005, the company had 500 stores operating in 45 states, including 5 in Canadian provinces, all yielding favorable profit margins. In November of that year, a search began for potential suitors to manage the chain of stores, ultimately leading to Apollo Associates taking over management (Mammarella pp H6-H7).
The company operated under strategies aimed at ensuring guaranteed customer services and maximized profits. It employed the strategy of offering brand-named house accessories merchandise at exceptional value on a daily basis. Additionally, customer care was prioritized, and operational costs were kept low across its chain of stores. The company continuously reviewed its brand names for strategic fit and potential growth, positioning itself for sustainable expansion. Leveraging the brand equity allowed for expanding the business with existing customers and attracting new ones, a common strategy utilized by many companies to increase sales and enhance customer satisfaction. The brand strategy of a business plays a vital role in supporting and communicating the key business strategy, ensuring customer satisfaction remains at the forefront.
Before the business strategy comes into play, companies should employ this strategy. Brands cannot be strong unless the business fundamentals are set right. The importance of brands depends on the nature of the company (Melinda pp4). For example, Linens ‘n Things utilized brands to overcome competition in its supply of domestic accessories and house appliances. They assumed that people prefer reliable supplies of commodities that are found to be fit by the majority of the population. By utilizing this strategy, customers tend to associate a particular store with specific brands.
The customers are the central values that impact business decisions on a daily basis. Customers are the fundamental principles that the company stands upon. Maintaining customers requires consistency, steadfastness, and authenticity. The core purpose of a company must align with satisfying customer desires in order to ensure smooth operations and retain customers. Customer care is crucial for the growth and expansion of a company, as it influences customers to spend their time shopping at a specific store instead of others. This was exemplified by Linens’ n Things, where customer satisfaction and consistent branding played a significant role in running the company.
The economics of customer service in a business firm should result in equal or greater output for business growth and expansion. Building a strong relationship between customers and the company portrays reliability and quality service externally. Providing excellent customer service instills a sense of belongingness within customers, making them feel connected to the company. Effective managers prioritize customers over their business endeavors.
Brief History of the company
The company Linens’ n Things was founded in 1958 in the USA and specialized in selling home textiles, housewares, and decorative home accessories. The brand names of their stores encompassed their core product ranges, with “linen” representing items such as bed linens, towels, and pillows; while “things” referred to housewares and a variety of household accessories.
The foundation of the company was established by Eugene Wallace at the age of 22. Following this, he initiated the organization of purchasing and supplies for the Linens’ n Things company.
In 1958, Wallace formed a partnership with the Great Eastern Mills, Inc., a retail discount chain of stores in the U.S. The result was the creation of General Eastern Linens, Inc. Around the same time, Diana stores acquired Great Eastern Mills and its 50% share of Great Eastern Linens. Diana stores was a ladies store chain with a strong presence in the Southern United States. Later, Diana stores sold itself and its 50% share of Great Eastern Linens to Daylin Inc., a departmental store based in Beverly Hills. In exchange for business stock, Daylin also acquired Wallace’s shares of Great Eastern Linens in 1970. However, in 1975, Daylin filed for bankruptcy and the stock that Wallace had acquired became worthless. Despite this setback, the initial public offering of its shares gave Great Eastern Linens a significant boost in the market. The longevity of this success, however, was uncertain.
In 1998, Linens’ n Things had a presence in 37 states in America, operating a total of 176 stores. This comprised of 153 superstores and 23 smaller stores. The company utilized approximately 25 stock keeping units in six product categories: bath section, home accessories, house ware products, storage, top-of the bed, and window treatments like curtains.
Linens’ n Things company sourced its supplies from about 1000 US-based suppliers. The company dealt with various brands such as Wamsutta, Field Crest, Martex, Luminarc products, Lancaster Colony, Zwiesel products, Sango, Tienshen, and Gibson.
In May 2008, Linens’ n Things filed for bankruptcy in a Delaware court, stating that it planned to shut down 120 of its underperforming stores in California. The company attributed its current struggles to the housing market decline and a decrease in consumer spending on housewares and home finishings. These factors significantly impacted its profitability and liquidity. Analysts pointed out that a newly established housewares company, Bed, Bath and Beyond, posed a significant competition to Linens’ n Things, as 50% of their stores were within a three-mile radius in the United States.
The Bed Bath and Beyond company experienced rapid expansion in the 1990s, effectively revolutionizing the concept of superstores. Unlike Linens’ n Things, their stores were bigger and had an extensive assortment of products. The company adopted cutting-edge computer technology to monitor inventory, granting them a competitive advantage. With more than 300 stores throughout the United States, they provided a diverse selection of household appliances such as bed linens, cookware, and kitchen utensils. By 1993, their newly implemented automated inventory system enhanced management efficiency and had a positive impact on annual sales.
Identifying the Problem
The Linens’ n Things houseware accessories company is currently facing a financial issue that originated when it was founded in 1958. At that time, the Diana Chain of stores sold its company and its 50% share of Great Eastern Linens to the Daylin chain of stores. This transaction was a result of a partnership between Linens’ n Things and the Great Eastern Mills company. Unfortunately, this partnership led to a weak operational foundation for Linens’ n Things, which ultimately caused various significant setbacks for the company.
During the 1970s, the strong economy of the United States led to a great deal of excitement among consumers at Linens’ n Things stores. This rapid expansion caught the attention of other companies, who saw great potential for the future. In 1983, the Melville corporation, also known as CVS corporation, became interested in Linens’ n Things and sold its chain of 55 stores with sales exceeding $85 million to them. However, in the late 1980s, changes were occurring in the industry, affecting various sectors such as banks, brokerage firms, and department stores. Many of these companies were facing bankruptcy, acquisition, or consolidation (Rifkin, Kevin, pp15). Additionally, during this time, numerous individuals who were married, particularly those living in urban areas, started to move to the suburbs. Their purchasing power diminished due to planned mortgages, medical expenses, children, and the need to save for the future.
Moreover, an increased number of women joined the workforce, leading to a decrease in their availability to visit departmental stores. Instead, they preferred branches near their homes. As a result, these stores experienced reduced efficiency with fewer customers. Certain sections within the stores even took months to be reached by customers. To address these challenges, the company decided to implement a sophisticated system that accurately tracked daily sales and inventory (Rifkin, Kevin, pp16). This system aimed to monitor popular customer purchases. The company also made efforts to enhance customer satisfaction and visual appeal. They revamped the store layout, focusing on promoting impulse buying. New brands were prominently displayed in accessible areas to attract customers and encourage purchases. The company remained optimistic about increasing sales for its “things” without compromising its market share or customer perception in the “linens” business (Duff, Mike pp5).
In May 2008, Linens’ n Things filed for bankruptcy in Delaware, announcing the closure of 120 stores in California. The company faced challenges due to a decline in the housing market and consumer spending on housewares and home finishings. Analysts noted that Bed Bath and Beyond, a newly established competitor, overlapped 50% with Linens’ n Things within close proximity. Bed Bath and Beyond’s financial backing allowed it to stock its stores properly, giving it a competitive advantage. When Bed Bath and Beyond realized that Linens’ n Things was on the verge of collapse, it launched a sales program with the lowest prices to attract customers.Bed Bath and Beyond appeared to be in a better financial position than Linens’ n Things and other companies, which is why they were able to offer better deals. However, the collapse of Linens’ n Things was due to the struggling US economy. The retail consumer industry was experiencing poor business conditions, with predictions that it would continue and impact primarily larger businesses due to their higher expenses. The bankruptcy of Linens’ n Things was attributed to economic factors rather than mismanagement. This sudden change in the US economy posed a serious dilemma for the business community, catching them off guard. The introduction and expansion of credit markets negatively affected houseware stores, making them unprofitable. Linens’ n Things’ management was unprepared for the impact of the retail collapse, as they lacked effective strategies to navigate the challenging business environment caused by the economic recession in the US.
The Linens’ n Things company is confronted with a significant obstacle that must be resolved in order to ensure ongoing business. Several actions must be undertaken to reinvent the Linens’ n Things company and maintain its market share.
Franchising is a method of rejuvenating a company by adopting another company’s patent or business philosophy. In this approach, a fee is paid based on a percentage of monthly sales to the franchise company. Franchising thrives with companies that have previously demonstrated strong profitability and possess a wide geographic appeal, as well as companies that are easy to operate.
The Linens’ n Things company has been profitable and well-regarded by customers since its inception. In order to capitalize on its success and reputation, it would be wise for the management to franchise the company to other businesses. By doing so, the company would generate additional funds through monthly payments. The proposal suggests that Linens’ n Things should team up with young companies in the same industry, allowing them to use the business name while stocking and managing their stores according to Linens’ n Things’ standards. This approach would maintain the company’s reputation, although the performance of these stores would be attributed to another company.
The advantage of franchising is that it provides a well-known trade mark in the market, rather than starting a new business and creating a brand name from the beginning. Franchising also allows businesses to expand quickly across countries and continents. In the case of Linens’ n Things, which already has a presence in most states of the U.S., franchising would mean expanding to parts of Europe and Africa. Additionally, another company that obtains the patent has the opportunity to further explore and utilize the existing foundation.
Acquiring another company, also known as a takeover, is an alternative solution for this company. In friendly acquisitions, companies negotiate the terms. The Linens’ company could consider selling some of its branches to Bath, Bed and Beyond, a major competitor. By purchasing shares from the other company, Linens’ n Things would gain control over its assets. This would allow the company to focus on managing only the profitable branches. Additionally, Linens’ could sell its stores to upcoming companies seeking an operational base for their markets. These new companies have the option to change the store names to align with their branding while benefiting from the strategic location for their business.
The debenture process is a method that helps companies during difficult times. It involves obtaining an unsecured debt, which is backed by the company but not by collateral. If there is bankruptcy, debenture holders are considered creditors. There are no pledges on assets. One type of debenture is convertible, where buyers can choose to receive stock in the company instead of payment when the debenture matures. Many large companies use debentures to raise capital for projects. In the event of bankruptcy, debenture holders become creditors and have the right to be repaid. This method allows companies to raise capital without using their assets or giving up ownership. The Linens’ n Things company should consider adopting this method to maintain its market share.
On the other hand, mergers allow two or more companies to combine their efforts and operate as one. This voluntary move involves combining stock and trading towards a common target. In this situation, the companies merge their management to ensure transparency and enhance production. A suitable option for Linens’ n Things company, considering its major competitors like the Bath, Bed and Beyond company, would be a horizontal merger. Their similar brands in the same industry could enable them to generate increased profits through this merger. Moreover, Linens’ would benefit from shared resources and would not bear the sole responsibility of managing its stores. However, there is a risk that one of the companies may only engage in trading without generating any profits, leading to an abrupt withdrawal and potentially causing the collapse of the other company.
During times of bankruptcy, a receivership process may be implemented, where a receivership manager is appointed by a bankruptcy court to oversee the company. The primary responsibility of the receiver is to recover unpaid loans to suppliers. In the case of Linens n’ Things, it is necessary to engage a receivership manager to assist in recovering funds and settling debts in the form of loans. This process enables the company to regain its market share once all outstanding bills and loans have been settled.
Linens’ n Things can significantly reduce expenses by closing underperforming branches, as they are not generating any profits. Despite already shutting down several branches in the USA, it is imperative to evaluate others for potential closure. Once the company gains enough funds to pay off its debts, it can gradually initiate its re-expansion process.
Providing excellent customer service is crucial for the Linens’ company to persuade customers about their products and brands, given the current situation. It is essential for their survival in the competitive market that they emphasize the quality of their products. If they fail to do so, it could lead to their complete collapse. However, they have an advantage due to their positive reputation in the house accessories sector which they should strive to maintain. In the short term, conducting refresher courses for employees would be beneficial in educating them on how to establish closer relationships with customers.
The company has the opportunity to secure loans from financial institutions to assist its business. It is crucial for these loans to act as a safety net for the company, as misappropriating them could result in catastrophic outcomes. The primary purpose of utilizing the loan should be to settle any outstanding balances with suppliers.
Linens’, a company, may consider conducting an initial public offer to the public as a means of raising capital for the purpose of preventing collapse. It is crucial, though, that this action is taken before the collapse of the company is imminent in order to salvage and rescue the business. One effective approach to overcome the crisis involves allotting a significant portion of the company’s shares to its suppliers who owe the company outstanding debts. By doing so, the company ensures an uninterrupted supply chain while maintaining its positive reputation among customers.
The Linens’ company can avoid the legal process to rescue itself from failure because it may not be profitable and is time consuming. Instead, it can collaborate with other companies, which would be beneficial. The only feasible solution for the company’s revival is to work together with its stakeholders.
When a company is declared bankrupt through legal proceedings, it loses its reputation, which is just as important an asset as its business. Other companies may find it unappealing to merge or franchise their services with Linens due to the company’s tarnished public image.
Linens’ n Things is currently on the brink of collapse, which requires a strategic approach to save it. Established in 1958, the company cannot afford such a downfall considering its significant investment, global workforce, dedication to customers, and strong international reputation. Unfortunately, the business has experienced severe setbacks, resulting in the closure of multiple branches due to financial issues. The company’s management must reconsider their approach and work towards restoring Linens’ n Things as a leading provider of houseware accessories in the United States. It is crucial to develop strategies to effectively compete with emerging competitors like Bed Bath and Beyond.
References
Denitto, “Meeting in the Streets,” New York Business Magazine, April 15, 1997, pp. 4-5.
The article titled “Freedom Fuels Linens ‘n Things: Discount Store Chain News” by Mammarella was published on May 6, 1998, and can be found on pages H6-H8.The text “Melinda, ‘Linens ‘N Things Records of the Year:’ The Weekly Newspaper for the Home Furnishing Network, February 8, 2000, pp. 6” is a citation from an article published in The Weekly Newspaper for the Home Furnishing Network on February 8, 2000, on page 6.
Rifkin, Kevin M. “The Household Furnishings Handbook:” A Manager’s Guide to Understanding and Investing, Minneapolis: Piper Jaffray Inc., 1997, p. 16
Rifkin, Kevin M. “Linens ‘N Things Plans to Get ahead,” Home Textiles Today Magazine, March 30, 2005, p.17.
