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May the Best Brand Win: Bed Bath & Beyond vs. Linens 'N Things

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Where are the fluffy towels of yesteryear?

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Over the past couple of years, Linens 'n Things lost countless customers to Bed Bath & Beyond (BBBY), struggled to adapt to a changing marketplace, and finally went private following a $1.3 billion sale to Apollo Management, NRDC Real Estate Advisors, and Silver Point Capital Fund Investments.

But Linens 'n Things continued to disappoint, and finally succumbed to bankruptcy.

At the same time, its competitor has thrived: The Chicago Tribune says Bed Bath *& Beyond is "in outstanding financial health, with strong cash flow to fund the opening of new stores and no long-term debt. Although it has reduced its expansion plans to 50 or fewer new Bed Bath & Beyond stores this fiscal year because of the economy, it is expected to emerge from the recession in dominant fashion."

BBBY operates about 1,000 stores in 49 states, Puerto Rico and Canada, as well as a joint venture in Mexico. It also runs the Christmas Tree gift-and-housewares shops, Harmon health- and beauty-care stores and Buybuy Baby infant accessory stores.

Deutsche Bank analyst Mike Baker said 50% of Bed, Bath & Beyond stores overlap with a Linens 'n Things store within 3 miles. He thinks the bankruptcy could potentially add as much as $0.18 per share to BBBY's annual earnings.

Bed and bath accessories, like food, water, and shelter, are necessary for our survival. For that matter, so are linens. But why does "beyond" sell so much better than "things"? What is "beyond"? What are "things"?

No one interviewed seemed to have an acceptable answer to these essential philosophical questions. Perhaps there's just more consumer demand for "beyond" than for "things".

Or is there? Other thing-focused merchants seem to have done just fine:

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Come on, Linens 'N Things: Owls N' Things is still in business, but you're bankrupt?

Guys, you could've made this work.

Maybe it's because BBBY carries more by way of owls, beads, 'n eggs.

Or perhaps, as Neil Stern, market analyst for McMillan/Doolittle, said: "It came down to execution. Bed Bath & Beyond had better merchandise, planning and promotions."

On second thought, it was probably that.
No positions in stocks mentioned.
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