Was It The Recession Or Was It Bed, Bath & Beyond?

Implications: Another hedge fund-owned retailer bites the dust! As readers of GLG News know by now, this writer has a thing against retailers using deceptive PR practices to deflect blame from lousey management. This is not a recession related bankruptcy!  In an effort to provide a more realistic context for GLG News readers to interpret this latest retail bankruptcy, and to counteract some of the recent hysteria about how the current recession is devastating the retail world, my commentary will provide a brief historical perspective.

Analysis: Since the dawn of the shopping center age Linens 'n Things (L&T) has been an excellent niche player. They knew their industry and their customer and closely geared their expansion strategy to maximize sales at the lowest possible occupancy cost. For many years their real estate expansion strategy was as well conceived and executed as any national chain store. They relied heavily on opportunistic deals and less expensive strip centers.    

They were highly successful "doing their thing" aided in part by the fact that they had their niche pretty much all to themselves. The few other competitors that came and went were generally more narrowly focused and clearly not of the same caliber as L&T. 

Then along came Bed, Bath & Beyond (BB&B). Not only was BB&B bigger, prettier, more appealing to a broader customer base and taking more prominent and expensive locations, but their management was more energetic and creative while L&T's management was growing old and tired.

By the time BB&B opened their 100th store, knowledgeable industry observers knew L&T's days as the dominant retailer in this category were numbered. To make matters worse, as the result of the phenomenal early success of BB&B combined with the growing housing bubble, Target and Wal-Mart woke up to the opportunity to capitalize on this formerly dreary old category and started expanding their departments.

This combined attack on their market share forced L&T to respond. They decided to "out BB&B BB&B by taking larger, more prominent and far more expensive locations. The Mag Mile store that is being closed and that precipitated the above headline was an excellent example of the major change in direction.

Again, most industry observers quickly recognized this as a desperate and ill-fated reaction to combat BB&B. Within two years after opening the Mag Mile store was quietly being offered for sublease at a steep discount in rent but with no takers.
 
To make matters even worse, in 2006 L&T was acquired by Apollo Management whose record as a turnaround player in the retail field is less than stellar. They may have been inspired by the unbelievable job Eddie Lampert was doing turning around SHLD. Regardless of the reasons all Apollo added to the mix was more debt and management fees which did little to help the ailing L&T.

So now dear reader I hope you have a better perspective in which to understand today's headline about how the current recession is continuing to devastate the retailing industry.