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A Retailer Tries to Blanket Its Market

Date: November 15, 1995

Location: Clifton

Title: A Retailer Tries to Blanket Its Market

Author: Diana G. Lasseter

Subject: The retailing trend of category killer superstores is really picking up speed in the home-furnishings business. In its quest to top the industry, Linens ”n Things is replacing its traditional stores with superstores across the U.S.

Three…Two…One…Go! And she was off, dashing past the towering aisles of towels, squealing around the cookware corner, her shopping cart dancing precariously on two wheels. Finally she pulled to a frenzied stop in front of the designer bedding. It was then, in front of row upon row of satin sheets and cotton comforters, that Elizabeth Vazquez, winner of a 2-minute shopping spree at the 50,000-sq.-ft. Linens ”n Things superstore in Totowa, frantically collected her winnings. Everything she could get into her cart was free. By the time the buzzer sounded, Vazquez had stuffed $4,900 worth of linens ”n things into her basket. Still shaken from her sprint, but beaming broadly, Vazquez screamed, “Oh God, this is unbelievable!”

A spree like that is every shopper”s dream, particularly with the flourishing of chain superstores like Clifton-based Linens ”n Things, where the aisles of lovely loot seem to stretch for miles. Vazquez earned her 2-minute spree in late October by gathering 38 pillows to stuff into the so-called world”s largest pillow, a Linens ”n Things promotion to collect pillows for Northern New Jersey shelters.

All those promotions are standard fare for Linens ”n Things, a home furnishings specialty retailer that has embarked on an aggressive growth strategy. It is four stores shy of its goal to open 29 new stores by the end of 1995. Even bigger news, though, came late in October. Linens ”n Things” parent company, Mel-ville of Rye, N.Y., announced a major restructuring plan to spin off many of its disparate retail operations, paring the main company down to only three publicly held companies. One of those will be Linens ”n Things. “Melville needed to refocus,” explains Donald T. Spindel, an analyst with A.G. Edwards in New York City. “One of the biggest disadvantages of having a lot of companies all under one umbrella is that the better-performing operations don”t get the recognition they deserve.”

Linens ”n Things CEO Norman Axelrod clearly intends to mop up the competition, namely Bed, Bath & Beyond in Springfield, to become the leader in the $55 billion-a-year home-furnishings market in the U.S. Last year, with 144 stores, the company had sales of more than $440 million. Sales for 1995 are expected to top $550 million.

In an annual survey of the 50 largest retailers in home textiles released by Home Textiles Today in July, Linens ”n Things ranked No. 9, topped only by such mammoths as J.C. Penny”s. The listing is based on sales from the stores” textile merchandise, such as towels and linens, which, according to Home Textiles Today editor Warren Shoulberg, makes up 85% of Linens ”n Things” sales. The other 15% include the “Things,” such as framed art and scented soaps. “Home superstores are proliferating,” explains Shoulberg. “There are four or five stores like Linens ”n Things. The consensus is that not all of them will survive. But Linens is a well-managed company with a good merchandise mix and good real estate. It has a shot at surviving.”

Axelrod, 43, joined the company in 1988, when it had sales of $183 million. He had spent 13 years with Bloomingdale”s, where he worked his way up from the executive training program to senior vice president and general manager. All the while he watched the progress of Linens ”n Things, which had been founded by Eugene Kalkin in 1975 as one of the first specialty retail stores dedicated to home furnishings and decorative accessories.

“Gene was very dynamic,” recalls Axelrod. “The concept was groundbreaking-selling brand names in a low-cost environment.” But during the mid-1980s, after the company was bought by Melville, Kalkin”s long-time assistant Bob Karan took the Linens ”n Things reins and, according to Axelrod, went down the wrong aisle. The new CEO scrimped on spending to keep prices low, and sales soon stagnated.

In January 1988, Axelrod got a telephone call at home from Melville chairman, Stan Goldstein. “He asked me if I wanted to run Linens ”n Things,” says Axelrod. “I said, ”Stan, I”m not sure, the company has a lot of problems.” He knew he had to either invest in the firm or sell it, so he agreed to put money into it.”

Axelrod came aboard as CEO that April, vowing to iron out some of Linens ”n Things” wrinkles. He guided Melville”s first $15 million investment, which went largely to upgrading the stores” technology. Since then, the parent company has pumped more than $100 million into expansion. In 1989, Linens ”n Things introduced its first superstore, which gave it the expanse-always 25,000 sq. ft. or more-to step up the “Things” dimension of the business. The company is now solely committed to the superstore format. Says Shoulberg: “Linens ”n Things is closing its traditional 5,000-sq.-ft. stores and replacing them with 30,000-sq.-ft. superstores. Nearly 75% of Linens ”n Things superstores are fairly new.” With a total of 145 stores in 29 states, the company now has 72 superstores and 73 traditional ones. The Totowa store opened last month, and a new superstore is slated to open in West Windsor around Thanksgiving.

Before securing the location for the West Windsor store, which is nestled between two other superstores, Home Depot and Wal-Mart, just off Route 1, Linens ”n Things had to wrestle for the space with its top competitor, Bed, Bath & Beyond, which was looking to expand its neighboring Lawrence store. Though Linens ”n Things won that round, the two home-furnishings superstore chains often come head to head-or, in this case, bed to bed. “Linens ”n Things is extremely competitive with Bed, Bath & Beyond,” says Home Textiles Today”s Shoulberg. The two stores have similar growth strategies, though Bed, Bath & Beyond launched its superstore format in 1985. “Bed, Bath & Beyond is larger than Linens ”n Things as a total company,” continues Shoulberg, “but Linens has more sales in core textiles. Bed, Bath & Beyond has been opening 12 new stores a year, while Linens has averaged 20 units a year. But the industry really credits Bed, Bath & Beyond as the first home superstore.” In 1994, Bed, Bath & Beyond had sales of $440 million and net income of $30 million.

Analysts following the home furnishings market are intrigued by comparable-store sales figures for October, which reflect year-to-year growth of particular stores. Linens ”n Things same-store sales were down 6.4% in October, while Bed, Bath & Beyond”s comparable figures increased 3.2%.

“Bed, Bath & Beyond seems to be bucking the trend with a better assortment of merchandise,” says Margaret Whitfield, a retail analyst with Hancock Institutional Equity in New York City. “It claims to control a 1% share of the home furnishings market, while all the look-alikes control less than 3%,” she continues. “Bed, Bath & Beyond does believe, though, that Linens ”n Things is the most likely to survive among the look-alikes.” HomePlace, based in Ohio, is another expansion-minded home furnishings retailer that just opened its first New Jersey store in Springfield.

Sales in the entire home furnishings category have been off this year. Until a few months ago, however, Linens ”n Things showed increased same-store sales. Then the figures dropped. “We”re disappointed with the numbers,” admits Axelrod, “But our same-store sales include traditional stores, and only a handful of the new superstores that are more than one year old. We are still doubling our size every three years.” Linens ”n Things plans to open 35 stores in 1996 and another 35 in 1997.

The only point of uncertainty in Linens ”n Things future is when Melville will snip the apron strings, and then what will become of the steady cashflow from the parent company that has fueled the firm”s growth? Melville says Linens ”n Things has “excellent potential” to become a stand-alone company. According to Axelrod, Melville does not plan to abandon its housewares prodigy. “Melville has made a capital-funding commitment to us until we are strong enough to stand on our own,” he explains.

Meanwhile, Linens ”n Things stores around the country are bulking up their bountiful shelves with red and green towels and pine-and spice-scented potpourri. The chain may have a merry retail Christmas if it can attract consumers as eager as the spree-winning Vazquez to fill their shopping carts to overflowing. This time, though, the shoppers will have to pay.

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