Even with a new lease on life, Linens ‘N Things online faces a tough fight.
Mark Brohan , Research Director
Though it was a relatively early e-commerce player, Linens ‘N Things never differentiated itself online to become a dominant brand in the online housewares and home furnishings space, say retail analysts.
But even with a renewed lease on life from new owners that bill themselves as brand-building specialists, LNT.com, the e-commerce destination for Linens ‘N Things, still faces a tough fight to acquire customers, let alone become a dominant housewares and home furnishings web merchant, analysts also say. “It is a crummy time to try and dominate this particular category, and I’m not sure there’s room for more than one top player anymore. Online, it’s still tough because there are so many retailers selling similar stuff,” says Paula Rosenblum, managing partner at research and advisory firm RSR Research LLC. “So what are their future prospects? Meh.”
Today no single web merchant owns outright the Top 500 housewares and home furnishings products category, which generated combined web sales of $5.60 billion in 2012, an increase of 19% over the prior year. In the run-up to the Great Recession Linens ‘N Things and Bed Bath & Beyond had a better than average chance to dominate the category given that those two retail chains had the most recognizable brand names, analysts say.
Linens ‘N Things and Bed Bath & Beyond, respectively, operated hundreds of stores, had big supply chains and generated total annual sales of more than $1 billion. But in 2008, Bed Bath & Beyond only accounted for about 2.2% of all Top 500 housewares and home furnishings sales and Linens ‘N Things for only 2%. In 2012, Williams-Sonoma, with web sales of $1.66 billion, accounted for about 29% of all category sales compared to 1.7% for Bed Bath & Beyond, which posted 2012 web sales of $95.6 million. LNT.com is currently not ranked in The Top 500 or in the Second 500, Internet Retailer’s annual research guide that ranks up-and-coming and leading niche web merchants. Bed Bath & Beyond ranks No. 210, well below its position five years earlier.
“These two chains had the opportunity to really own this space, but they were lackadaisical about e-commerce and ceded market share to Amazon.com, Target, J.C. Penney and a few other competitors,” says Jim Okamura, managing director of Chicago-based retail consulting firm Okamura Consulting.
Yesterday Linens ‘N Things, once a major home furnishings brand online and offline that now survives only as an e-commerce site, got a new owner. Hilco Global, Gordon Brothers Group and Infinity Group sold the brand assets of Linens ‘N Things to Galaxy Brand Holdings after about five years of ownership. The sale includes LNT.com, the e-commerce site of the former chain retailer of home goods and home décor. The parties did not disclose the terms of the sale.
Hilco and the others purchased Linens ‘N Things in February 2009 after the retail chain declared bankruptcy in 2008. They re-launched LNT.com in spring 2009 and the brand has existed as a web-only retailer since. Now that it’s under new ownership, it’s not clear how Galaxy Brand Holdings, a brand development company majority-owned since May by private equity and asset management firm The Carlyle Group, intends to build up LNT.com into a more viable web site. “We’re currently exploring all opportunities with the brand,” says Galaxy vice president of corporate development Abraham Hidary.
If LNT.com is to survive and grow, the site can’t repeat historical mistakes and must look to differentiate itself, analysts say. Back in 1975 when the chain launched its first store, Linens ‘N Things was onto a new niche in the housewares and home furnishings products category—selling high-quality home textiles, housewares and decorative accessories at competitive prices. The concept worked in the bricks-and-mortar world and at its height as a store-based retailer around 2000 to 2004 the company generated annual revenue of about $1.5 billion and operated a national network of about 571 stores.
But Linens ‘N Things failed to make e-commerce a true priority and strayed from its original niche while trying to operate too much like its close rival Bed Bath & Beyond Inc., say retail and industry e-commerce analysts. Linens ‘N Things filed for bankruptcy in 2007, closed all of its stores and sold its e-commerce assets in 2008 for about $1 million to a group of retail liquidation firms headed up by Gordon Brothers Brands LLC.
“Back in the day, Linens ‘N Things was a big-box retailer that treated e-commerce as a rounding error and didn’t treat the Internet seriously as a traffic and sales driver,” says Jim Okamura, managing director of Chicago-based retail consulting firm Okamura Consulting. “They didn’t have a strategy that says ‘we want to own this category.’”
In its Top 500 Guide and in earlier editions of the Top 400 and Top 300 Guide, Internet Retailer ranked Linens ‘N Things and its chief rival, Bed Bath & Beyond. But an analysis of Top 500 data from 2004 to 2007, the last year Linens ‘N Things appeared in the rankings, shows that while Linens ‘N Things was a slightly bigger web merchant than Bed Bath & Beyond, neither chain retailer had established a dominant position online. In the 2008 edition of the Top 500 Guide, Linens ‘N Things ranked No. 154, while Bed Bath & Beyond ranked 20 spots higher at No. 134. From 2004 to 2007, when web sales reached $75 million, Linens ‘N Things grew e-commerce revenue at a compound annual growth rate of 13.6%. In comparison Bed Bath & Beyond had web sales of $86 million in 2007, but grew e-commerce at a slower compound annual growth rate of 8.5%.
In its early days of e-commerce, Linens ‘N Things took a different approach to e-commerce than Bed Bath & Beyond, says Rosenblum. From 2000 to about 2007, Linens ‘N Things developed an e-commerce business that was centered on a fast turn-around on seasonal items, such as flannel bed sheets in fall and winter, while Bed Bath & Beyond focused on a broader selection of housewares and home furnishings, she says. Ultimately, Linens ‘N Things didn’t do enough online to differentiate itself as the best seller of home textiles, housewares and decorative accessories and began losing market share to other retailers. “LNT.com viewed itself as a company selling a short lifecycle product and its emphasis was on a fast sell-through,” Rosenblum says. “Bed Bath & Beyond had a different take—that it is mostly selling basics, and so its strategy was to be ‘never out.’ The in-store perception of ‘Oh, they don’t always have what I want’ just bled to the same online perception and that hurt Linens ‘N Things over the long run.”
Galaxy says it’s serious about developing LNT.com as a recognizable e-commerce brand and building on the company’s once well-known niche. “We plan to leverage Linens ‘N Things’ heritage to connect with consumers by offering Linens ‘N Things branded products, and by re-establishing the brand as a premier home destination both in-store and online,” says Hidary.
But Bed Bath & Beyond also is getting more serious about e-commerce. In June, Bed Bath & Beyond’s growing emphasis on e-commerce, including a new online fulfillment center and a new e-commerce platform, led an investment banker to project web sales for the home furnishings retailer to reach 4% of total sales, or about $373 million, as soon as the next three to five years.
Bed Bath & Beyond, or BBBY, “has launched the first of two new e-commerce sites, and we are raising our estimates as we incorporate growth of the online channel into our model,” writes Laura Champine, an analyst with Canaccord Genuity, the market analysis unit of investment banker Canaccord Financial Inc., in a June 19 report. “Behind sizable investments in a new e-commerce platform, including data analytics and web marketing teams, we believe BBBY can increase e-commerce penetration from its current level of 2% to 10% by the end of fiscal 2015.”
In order for LNT.com to increase its e-commerce base it needs to focus deeply on a customer acquisition strategy to attract and retain new and repeat customers, Okamura says. In a mature category, LNT.com and Galaxy also must take market share away from other retailers, especially Bed Bath & Beyond. “Being as good as someone else already is won’t be good enough to build a long-term and sustainable e-commerce business,” he says. “They will have to be a bigger and better product source than other online retailers and build a superior web site that keeps customers coming back. That will take a serious commitment of money and time.”