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Strategy Stories - 2008 » E-Commerce Experts
Strategy Stories - 2008
Bombay: a chain with 360 stores, was considered a success in the furniture world, after its sales surged from $393 Million in 1999 to $596 million in 2003.
Then the chain decided to move most of its stores out of enclosed malls into open-air shopping centers. It started a children’s furniture business, called BombayKids. And it started carrying bigger items, like beds and upholstered couches, with higher prices than its regular furniture.
Consumers balked at the changes, hurting Bombay’s sales and profits at the same time that its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early 2007, the housing market began to falter, so purchases of furniture slowed to a trickle.
The company was running out of money, but banks refused to lend more. “They did not want to take the chance that we might not repay the loans,” Elaine D. Crowley, the chief financial officer, said in an interview.
In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company came from liquidation firms, who quickly dismembered the 33-year-old-chain. Bombay, which once employed 3,608, now has 20 employees left. “It is very difficult and sad,” Ms. Crowley said.
CD comment: It wasn’t broke. They fixed it! Never, ever, bet the company.
Posted by Carl Diamond 7/26/08
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An O.P.M. (other people’s money) morality tale. One of the latest Wall Street “rape & pillage” games has been played by so-called private-equity firms. The private-equity firm buys a large company, in this case Linens ‘n Things, immediately loads it up with a massive amount of debt, which they pay out to themselves in the form of a dividend. Later, as the stock market moves up (an interesting assumption), the company is then sold off to the public. If the private-equity firm didn’t make a big profit off of the dividend, they then clean up when the company is sold to the public.
Linens is not exactly a star player in their space. In 2007 it reported it’s third straight annual decline in sales. Each of it’s stores, (it has 549 of them in 47 states), sold $300,000 less stuff in 2007 than it did in 2006. According to The Wall Street Journal, it badly lags it’s main competitor Bed Bath & Beyond in sales per square foot, let alone competitors like Wal-Mart and Target.
Enter stage left: In October 2007, well after the credit crisis had begun, GE Capital lent Linens $700 million against inventory. This, in spite of the fact that Linens had already borrowed $650 million against their inventory as a second-lien debt. Now, surprise, surprise, Linens can’t make their payments. Will anything bad happen to the dodo birds at GE Capital? Not very likely. The senior executives will continue to receive their multi-million dollar pay packages and describe the fiasco as “within an acceptable range of portfolio loan losses”. Who get’s stuck? The shareholders. It’s the Other People’s Money problem. Just like mutual funds. The money doesn’t actually belong to any of the people working at the management company. They are nicely insulated from their crappy decisions.
Posted by Carl Diamond 7/26/08