Linens N Things‘ Chapter 11 filing should serve as an object lesson for recession-wary chain retailers. Like many big-box operators, LNT has stuffed its shelves with Chinese products. At the same time that traffic drops and spending slows, putting pressure on the top line, the price of Chinese goods is increasing 10 to 15 percent a year, not counting the cost of fuel to float them across the Pacific and drive them to LNT’s 589 stores. That leaves a lot less cash to service the company’s $650 million in debt. One wonders how many execs are rethinking their race to the bottom these days.
Damage to the brand could be significant. As Mae Anderson of The Associated Press points out, LNT may have just created 400,000 peeved consumers:
Brian Riley, senior analyst at research firm The TowerGroup, estimates the filing will freeze about $42 million in consumer gift cards, affecting about 400,000 customers. While consumers may think of the gift cards as cash, the bankruptcy court considers gift cards as debt, and therefore holders are not necessarily going to get paid.
The lesson is clear. In a recession, retailers survive by selling the things that people have to have, either because they truly need them (consumables like bedsheets or drinking glasses) or they’re hooked by an irresistible selling proposition (like iPhones). Given that set of parameters, check the Mother’s Day specials currently in rotation on the LNT home page:
Digital photo frame, $69.99
KitchenAid stand mixer, $299.99
Keurig coffeemaker, $149.99
Margaritaville “frozen concoction maker,” $299.99
Anything there you can’t live without? Anything so fascinating and new you just gotta have it? Does your mom really want a $300 blender? Didn’t think so. There, my friends, is the problem: too many things and not enough linens.
