A Chapter 11 bankruptcy filing by Linens ‘n Things is the latest sign that the retail sector is becoming leaner and meaner amid a difficult consumer environment.

On Friday, the bedding- and home-furnishings retailer filed a petition in Bankruptcy Court in Delaware and said it would close 120 underperforming stores, almost a quarter of them in California.

Ken Perkins, president of research company Retail Metrics, said the bankruptcy filing stemmed from a combination of operating issues and the lagging economy.

“There’s clearly a shakeout going on in the retail industry which will continue through the rest of the year,” he said. “I think the weaker players are going to be in difficult shape here.”


Clifton, N.J.-based Linens ‘n Things said economic factors such as the decline in the housing market, tightening credit markets and a downturn in consumer discretionary spending, particularly in the housewares and furnishings sector, led to a “precipitous decline” in profitability and liquidity.

The factors worsened in the first quarter of 2008, the company said.

Linens ‘n Things named Michael Gries of the restructuring firm Conway Del Genio Gries & Co. as chief restructuring officer and interim chief executive. Current CEO Robert DiNicola will become executive chairman. The company’s Canadian stores -- which Linens ‘n Things said were among the best-performing stores -- are not included in the filing.

The filing is expected to be a boon to rival home-furnishings retailer Bed, Bath & Beyond Inc.


“The number of stores Linens ‘n Things is closing is equivalent to almost 15% of Bed, Bath & Beyond’s core store base, so there is significant opportunity to gain market share,” said William Blair & Co. analyst John C. Murphy.

The news is not as good for Linens ‘n Things’ parent, New York private investment firm Apollo Management. Apollo took the company private in 2006 for $1.3 billion.

“The rapid spread of the retail recession caught Apollo and other Wall Street firms by surprise,” said Burt P. Flickinger III, managing director of the consumer industry consulting firm Strategic Resource Group.

With competition from Bed, Bath & Beyond, department stores and other specialty stores, “Linens ‘n Things too often had older locations and smaller stores that didn’t have the depth and range of products,” he said.


Linens ‘n Things, which operates about 589 retail stores, joins specialty retailers Sharper Image Corp. and Lillian Vernon Corp. in seeking bankruptcy protection this year.