Amid rapid rollout, Anna's Linens courts bargain hunters

DSN Retailing Today, Nov 8, 2004 by Mike Duff

COSTA MESA, CALIF. -- With an initial public offering within sight and a format that has proven itself from coast to coast, Anna's Linens is poised to take a series of important steps toward achieving chairman Alan Gladstone's goal of operating a thousand stores across the United States.

He promised his mother, for whom the company is named, that he would achieve that goal, and he told DSN Retailing Today that getting there now looks like an easier trek than opening the first 100 stores.

The 160-store chain has surpassed $160 million in annual sales--an estimate based on published reports and DSNRT research--and recently set an important record. Joan Storms, a Wedbush Morgan analyst, reported that a Lauderdale Lakes, Fla., store opening this spring set an opening day record of $60,000 in sales.

The bulk of buying and planogramming decisions are made at the company's Southern California headquarters, but much of the promotional space, including tables and endcaps, are merchandised at the discretion of the store manager. In giving the manager on-the-spot power over those high-profile spaces, Gladstone said Anna's Linens can adjust to regional and ethnic preferences in its customer base.

That base has and is expanding as the company continues its nationwide rollout. Originating in California, Anna's reached the East Coast last year when it opened stores in south Florida. It also has made a significant effort in the Texas market, and locations in those two states have proven profitable in a shorter amount of times and with greater volumes than expected. Gladstone said he hopes the investment community takes notice of the fact that the company's strongest stores are outside its Southern California heartland.

Ethnicity, density and average household income are key factors that Anna's Linens looks at when it pursues locations. Ethnic, urban, lower-income consumers respond to Anna's Linens--although in these bargain-conscious times, the company is drawing more higher-income consumers, Gladstone said--and he refers to cities such as New York longingly. "Imagine what we could do in Manhattan?" he mused.

Storms said the explanation for Anna's success with ethnic consumers reflects a fit between store concept and consumer lifestyle. "Ethnic consumers don't renovate their homes as often as some but tend to redecorate the bedroom and bathroom instead," she said.

With its mix of higher-end, aspirational labels and everyday value merchandise, Anna's gives them the tools to do that. "I think it's really about the value," she told DSNRT.

As it penetrates new markets, Anna's eschews electronic and other media advertising in preference to direct mail. This year, the company will produce 400 million direct mail pieces and plans 600 million for next year. Anna's tracks ZIP codes when customers make purchases to ensure its direct mail campaigns are going to where they will be most effective, Gladstone said.

Anna's offers shoppers price points similar to those found at discounters but provides more service, and, so, creates an immediate point of differentiation.

Product is key, of course. Bed, bath and window are the three legs of Anna's business. Products include some obscure labels but also many well known to the customer such as Wamsutta and Grand Patrician. Today, about 20% of its products are imports, up from 5% just a few years ago.

Many of the products it sells were originally placed in department stores, but Gladstone notes that comforter sets that sell for $99 in that channel can go for $49 at Anna's.

The product mix is evolving as the stores do. While Anna's locations originally ranged from 5,000 square feet to 6,000 square feet, today new units average 9,000 square feet and can be as large as around 15,000 square feet.

The additional space has given Anna's more room to try new things. Gladstone said Anna's shoppers are ready for more. "Our customers have said they want to see more things at Anna's," he said. So the company has responded by adding home decor, silk flowers and housewares such as tabletop where Gibson Overseas is a significant presence.

Anna's also has been able to consider the top end of its traditional lineup as it has had more space to work with. The company won't abandon anything that has appealed to customers, but with more space to work with the chain has introduced more fashion into its traditional lineup, which has helped it draw beyond its traditional base.

Gladstone said Anna's has established a unique niche which provides a solid base for competing in a tough retail environment. The approach avoids competition with the larger home specialists who appeal to a higher-end customer while giving consumers a clear choice between it and its major competitors, discount broadliners, including Wal-Mart.

Everyone at Anna's is cognizant of competing with what Gladstone said is the best retailer in business, Wal-Mart, and the best specialty retailer, Bed Bath & Beyond. Gladstone insisted that it is ridiculous to be in retailing and not have a plan for coping with Wal-Mart and other best-of-class retailers. "We have to know how to compete with Wal-Mart. With mass merchants, you have a lengthy shopping experience. Shopping them takes a long time. Our customer has great service of their home fashion needs at a great price. As for Bed, Bath & Beyond, we cater to a different customer."