Linens ‘n Things CEO Robert DiNicola apparently did the math a few months ago.
“No Volume = No Cash – Can’t Pay Bills.”
That’s the equation he reportedly scribbled into his notes as he prepared for a January meeting with Leon Black, the billionaire buyout mogul. Black’s Apollo Management acquired Linens ‘n Things for $1.3 billion in 2006, so it’s a good thing he has a guy on staff who can do advanced equations.
It’s also a good thing that the New York Post got hold of DiNic ola’s notes, giving us a rare peek at a retailing executive’s genius.
To me, reducing the complexity of a 589-store, big-box retail chain to a simple equation is almost reminiscent of Einstein’s E = mc2.
In another elegant formula, written under the heading “Receipts/ Inventory,” DiNicola wrote: “Rock/Hard Place/Abyss.”
He also devised a solution in what could be a haiku: “must … stop reliance on low margin.”
Bed Bath & Beyond was running Linens ‘n Things through the wringer long before Black came along. And Black has loaded the home-accessories chain with so much debt, he might as well call it Bloated Balance Sheets ‘n Things.
Add a housing bust, a credit crunch, a recession, $3.40 gasoline and evaporating consumer spending, and it’s no surprise to see Linens hanging in the breeze.
On Tuesday, the Clifton, N.J.- based chain (with 14 stores in Colorado) missed a $16 million payment on its debt and said it is working with lenders to restructure. DiNicola was not as concise in the official corporate statement as he was in his notes.
“The increasing deterioration of the credit markets and the residential real estate meltdown, both stemming from the turmoil in the subprime mortgage market, and the resulting downturn in consumer spending, especially in the home sector, have combined to create additional and acute financial challenges,” he said.
Linens is reportedly trying to sell its 40 Canadian stores. The most likely buyer is Bed Bath & Beyond. Many observers see these moves as a precursor to a prepackaged bankruptcy. Linens, with $2.8 billion in annual sales, would be the biggest retailer to throw in the towel since last fall.
Recent bankruptcy filings include gadget-peddler Sharper Image; furniture stores Levitz, the Bombay Co. and Wickes; catalog gift-seller Lillian Vernon; New York housewares-seller Fortunoff; and Harvey Electronics.
Watch for more, particularly stores that sell unnecessary products, have been beaten down by competitors or are loaded with debt because they were acquired by a private-equity firm.
Earlier this week, shares of Talbots tumbled 30 percent after the women’s clothing chain announced that two of its creditors had canceled $265 million in credit.
Other retailers have announced plans to close stores over the next year, including Foot Locker, 140; Ann Taylor, 117; and Zales, 100.
All retailers can do now is hope the big government tax giveaway due out later this year is of some help. Sears/Kmart recently announced “a 10 percent bonus to every customer who converts their government stimulus checks into gift cards.” Kroger, parent of King Soopers and City Market grocery stores, made a similar offer.
I wonder if DiNicola could boil this down to a handy formula:
Stimulus checks = thin hopes – desperation + possible liquidation sale.
Respond to Al Lewis at , 303-954-1967 or alewis@denverpost.com.
