Struggling Linens ‘n Things to Close Underperforming Stores
Case Type: operations strategy, optimization.
Consulting Firm: OC&C Strategy Consultants first round full time job interview.
Industry Coverage: retail.
Case Interview Question #00871: The client Linens ‘n Things, Inc. is a mall-based retailer of home goods such as home textiles, housewares, home furnishing and decorative home accessories. Headquartered in Clifton, New Jersey, United States, the Linens ‘n Things chain owns and operates more than 500 stores in 47 
U.S. states and six Canadian provinces, and have 7,300 employees as of 2009.
The company’s business strategy is to offer a broad selection of high quality, brand name home furnishings merchandise at exceptional everyday values, provide superior guest service, and maintain low operating costs. Recently, they experienced a drop in both sales and profits. Linens ‘n Things hired your consulting firm to find the root causes and come up with solutions to improve the situation. What would you recommend?
Additional Information: to be provided to candidate after relevant questions
* Both sales and profits declined over the last 3 years or so, having grown steadily prior to that point.
* There are three segments in the home goods market: discount stores (e.g. Target), specialty stores (e.g. Bed, Bath, and Beyond), and other stores (e.g. Linens ‘n Things).
* Overall market size (in terms of sales) has increased over the last 3 years, with discount and specialty segments growing and “other” segment (the client fell into this category) declining.
* Our client Linens ‘n Things did somewhat better than its segment average, but worse than the overall market.
* The client Linens ‘n Things is “stuck” in its segment.
* Cost structure of the three segments. Costs as a % of sales:
| Client | Target | Bed, Bath, and Beyond | |
| Profit Margin | 5% | 25% | 25% |
| SG&A | 15% | 15% | 15% |
| COGS | 40% | 40% | 40% |
| Fixed Costs | 40% | 20% | 20% |
* Rent is the main reason for the client’s higher fixed costs: our client’s stores are in the shopping malls and competitors are free to choose their own locations and likely own the buildings. Our client Linens ‘n Things usually had long-term lease contracts and was “stuck” in the malls.
* Client’s products fall into two broad categories: home textiles and kitchenware. Kitchenware sales were going up, while textile sales were down.
* The client’s merchandise is different from competitors’ merchandise. For example, a comparison of towels sold by the client,
Bed, Bath and Beyond, and Target is given below.
| Towels | Client | Bed, Bath and Beyond | Target |
| Good | 10% | 10% | 80% |
| Better | 70% | 50% | 10% |
| Best | 20% | 40% | 5% |
Possible Solution:
I made the following recommendations:
1. Focus on home textiles first, then do the same type of analysis for kitchenware.
2. Compute sales per square foot both by product line and quality for each store.
3. Use results to dedicate more shelf space and more prominent display to the best-performing products.