complete these questions once you are done reading the case.
1. The last sentence in this case asks: "What is the best course for LNT?" - Assume that you were Bob DiNicola: What would you recommend to turn around LNT? Provide a concise answer and be prepared to defend your recommendation in class.
2. Industry
- Define the industry that LNT and BBBY operate in.
- What do you think the Key Success Factors are in this industry? Explain. (Hint: First think like a customer, what is important to LNT and BBBY customer base? Why do they shop at these stores?).
household appliances, picture frames, and more). Everyday low prices eliminate the need for sales. BBB relies exclusively on circulars, mailings, and word-of-mouth for advertising. New superstore openings 70 or more per year account for much of the firm's growth. Starting in 1971, BBBY opened two stores, one in New York City and one in New Jersey. BBBY's aim was to be "a customer's first choice" and to "achieve this objective through excellent customer service, an extensive breadth and depth of assortment, every day low prices, introduction of new merchandising offerings and development of its infrastructure." Co-founders Warren Eisenberg and Leonard Feinstein continued to serve on the board of directors of the company. LNT and BBBY shared a very similar customer value proposition. Both companies offered similar merchandise (see Exhibit 3) and covered virtually the same geographic areas (see Exhibit 4). In addition, both companies had grown through store expansion. Through the 1970s and 1980s, the number of LNT stores grew at a faster rate than BBBY. Starting in 1985, however, BBBY expanded its inventory and opened its first super store. With the capital raised in its Initial Public Offering in 1992, the pace of BBBY expansion increased dramatically. In 1990, LNT responded to the changes at BBBY by also expanding inventory and opening its own super store; for the next five years, LNT worked to expand all its stores into a super store format. Exhibit 5 provides a timeline listing key events in the development of BBBY and LNT. Going beyond low-cost product promotion and modest store fronts, BBBY extended cost-saving measures through the implementation of specialized inventory systems and staffing. BBBY saved on the cost of warehousing inventory by shipping merchandise directly from manufacturers to store locations. BBBY carried no debt on its balance sheet and promoted only from within the company, while relying on store Use outside these parameters is a copyright violation managers for inventory control. This was consistent with another characteristic of the company the ability to change and adapt. According to a BBBY spokesperson, "Flexibility is definitely an advantage we think we have." Store managers retained greater control over inventory, presentation and how items were sold, allowing the firm to remain aware and responsive to consumers. For example, a local manager switched to selling glasses individually instead of in packages sales increased by 30 per cent and other BBBY stores soon implemented the same practice. As a retailer, BBBY's employee investment accrued benefits beyond simple cost savings. According to Kevin Hunt, an analyst with Piper Jaffray, "They [BBBY] stress service, every retailer tries to do that, but they are better at it than most." More recently, BBBY had expanded into fine tabletop products (fine china, crystal, silver and silver plate flatware). After several years of testing, BBBY began to expand store locations offering fine tabletop products. BBBY's expansion into fine tabletops was especially timely because echo boomers were approaching their late twenties, the age when Americans typically married. APOLLO ACQUISITION In February 2006, attracted by a low purchase price (see Exhibit 6 for relative stock price performance), LNT was acquired by Apollo Management and National Realty and Development Corporation (NRDC) Equity Partners for $1.3 billion; at that time the market capitalization for BBBY was approximately $10.7 billion. The purchase made LNT a private venture once again. DeNicola's first mandate was to implement a new strategic vision: "Linens 'n Things is a business that should be operated at a much higher level, with high-quality products and perhaps with a little different demographic profile. DiNicola intended to differentiate LNT by providing higher benefits to customers and leaving cost leadership in the market to players like Walmart and Target. He was experiencing difficulty, however, working within LNT's existing structure. The ability to appeal to new customers was hampered by a limited advertising budget and product offerings. In addition, customer service was threatened by reductions in both the total number of employees and the number of full-time employees per store between 2003 and 2005. Given these difficulties, LNT might have more freedom to make needed changes than a publicly traded firm. However, comparing the strengths and weaknesses of LNT and BBBY revealed how BBBY's agile structure created a formidable competitor. Could a similar culture be created at LNT? More importantly, could LNT'S strengths be used to make a unique position for the company with consumers? DiNicola had only a few months to start to implement specific steps designed to set LNT on a path to long-term growth and profitability and even less time to convince management that LNT was ready to become an industry leader. What was the best course for LNT
