October 16, 2008, 12:00 AM

Linens ’n Things throws in the towel

A federal bankruptcy judge approved the retailer’s request to begin closing stores and liquidating merchandise. Linens ’n Things will continue to sell online during the liquidation, but it’s unclear what may happen after that with its web unit.

After filing for bankruptcy in May, Linens ‘n Things is throwing in the towel.

A judge for the U.S. Bankruptcy Court for the District of Delaware has approved the company’s request to begin closing its stores and liquidating merchandise. The company’s e-commerce site, LNT.com, which is operated for Linens ’n Things by third-party service provider GSI Commerce Inc., will remain online during the liquidation process, says a Linens ’n Things spokesman.

The Linens ’n Things closing operation will be handled by a group of liquidation firms which include Hilco Merchant Resources, Gordon Brothers Group, Hudson Capital, SB Capital Group LLC, Great American Group LLC and Tiger/Nassi Group. The group will liquidate about $1 billion in merchandise at discounts of up to 30%, says Hilco.

After the liquidation process is complete, its unknown what will happen to LNT.com, No. 154 in the Internet Retailer Top 500 Guide . GSI Commerce, which has operated the e-commerce platform and fulfillment operation for Linens ’n Things for years, says that it will address the situation on its third quarter earnings call. GSI will release third quarter earnings on Oct. 22.

The liquidation process marks the final chapter in a difficult couple of years for Linens ’n Things. In May, Linens Holding Co., which operates as Linens ’n Things, filed a voluntary petition under Chapter 11 of the bankruptcy code in the U.S. Bankruptcy Court for the District of Delaware. Linens ‘n Things had been looking for a buyer and to conduct an auction prior to liquidating, but a final bidder wasn`t forthcoming.

In the second quarter Linens ’n Things announced plans to close 120 stores and take other measures to improve performance. But overall sales in the second quarter ended June 28 dropped by 21% to $504 million from the previous year while comparable store sales declined year over year by 18.3%.

Linens ’n Things joins a growing list of retailers that have filed for bankruptcy this year. Others include Boscov’s Department Store LLC, Goody’s Family Clothing Inc. and Mervyns LLC. Even though it’s unclear what may yet happen with LNT.com, others are finding there is value in purchasing well known chain store brands and giving them a new lease on life online.

Recent examples include Sharper Image, which after going bankrupt is now building a new business model around product licensing agreements, and CompUSA. In January Systemax Inc. completed an asset purchase agreement with CompUSA Inc. and acquired CompUSA’s e-commerce business and 16 of its retail leases and related fixtures for only $30.4 million.

“It’s hard to put a price on virtual real estate, but shrewd buyers can do well by acquiring the e-commerce and intellectual property rights that are becoming available through these bankruptcy filings,” says Anne Brouwer, senior partner with McMillan Doolittle LLP, a Chicago retail consulting firm. “The next version of Fingerhut can come along and get a real bargain – they would be buying a brand that already has a lot of national recognition among online shoppers.”

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