Bankruptcy for Linens 'n Things
Saturday, May 3, 2008
NEW YORK, May 2 -- A Chapter 11 bankruptcy filing by Linens 'n Things is the latest sign that the retail sector is floundering. .
On Friday, the bedding and home-furnishing retailer filed for bankruptcy protection at a court in Delaware and said it would close 120 underperforming stores, almost a quarter of them in California.
Ken Perkins, president of research company RetailMetrics, said the bankruptcy stems from operating issues and the lagging economy.
"There's clearly a shakeout going on in the retail industry, which will continue through the rest of the year," he said. "I think the weaker players are going to be in difficult shape here."
The company, based in Clifton, N.J., said economic factors such as the decline in the housing market, tightening credit and a downturn in discretionary spending, particularly in housewares and home furnishings, led to a "precipitous decline" in profitability and liquidity.
The factors worsened in the first quarter of 2008, the company said.
Linens 'n Things, which operates about 589 retail stores in 47 states, joins specialty retailers Sharper Image and Lillian Vernon in seeking bankruptcy protection. The filing is expected to be a boon to rival home-furnishings retailer Bed, Bath & Beyond.
"The number of stores Linens 'n Things is closing is equivalent to almost 15 percent of Bed, Bath & Beyond's core store base, so there is significant opportunity to gain market share," said John C. Murphy, an analyst for William Blair & Co.
The news is not as good for Linens 'n Things' parent, New York private investment firm Apollo Management. Apollo took the company private in 2006 for $1.3 billion.
"The rapid spread of the retail recession caught Apollo and other Wall Street firms by surprise," said Burt P. Flickinger III, managing director of the consumer industry consulting firm Strategic Resource Group.
Bankruptcy will eventually make the company a better competitor, Flickinger said.
"Apollo knows how to restructure a bankrupt business," Flickinger said. "The business will be smaller, but it will be more stable."
Linens 'n Things named Michael Gries of the restructuring firm Conway Del Genio Gries & Co. as chief restructuring officer and interim chief executive. Chief executive Robert DiNicola will become executive chairman. The company's Canadian stores -- which Linens 'n Things said are among the best-performing stores -- are not included in the filing.