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Anna's Linens Extends Reach

Company's Performance and Outlook Reviewed at Las Vegas Conference

Carole Sloan -- Home Textiles Today, March 10, 2008

The internet is a major growth vehicle for Anna's Linens, scoring a 35% gain in 2007, and projected to post a similar gain this year, after only two years in operation.

In fact, said Alan Gladstone, Anna's chairman, "The internet already is bigger than a major store, and could grow to be the equivalent of 25 stores."

To serve the web and its appetite for merchandise, Anna's has carved out space in a very large California store that houses its fulfillment center. "We will have a duplicate arrangement on the East Coast by mid-year," said Gladstone, and noted, "If we run out of an item in the center, we pull the items from stores."

While Anna's currently focuses on a "broad appeal bringing the best items in the store to the internet, we're trying to identify other opportunities," Gladstone acknowledged. As an example, he cited a Baby Phat assortment from Dan River "that tested way higher than we expected on the internet and we put some into the stores."

Discussing the company's performance and outlook during its annual managers meeting and second annual vendor summit, Gladstone said Anna's had total sales of $360 million in 2007, with $345 million of that in home textiles — compared with $325 million in total sales for 2006, including $260 million in home textiles.

Anna's Linens was No.18 on the HTT Top 50 Retailing Giants list based on 2006 sales.

At year end 2007 the company had 254 stores, with plans for approximately 25 more this year. New stores will mostly be in metro areas, where the company has other units to capitalize on its shift to TV advertising vs. print that began last year.

Under the print approach, ads would be effective three to five miles from a store. With the TV program, Gladstone explained, new stores "ride free" in a market.

The meeting was attended by some 325 Anna's management, buyers and store managers as well as about 215 vendors representing 68 companies, with awards by product category presented at the dinner here in the Flamingo Hilton.

An important change for the company, Gladstone noted, is the shift to direct imports for a growing percentage of its assortment. "We made our first trip to China in early '07. We believe our model will be the combination of direct import, direct ship from China and basic replenishment here," he noted.

Last year, 10% of the mix was direct import; 20% is projected for this year and 25% for 2009. For this year, 40% will be through vendor imports Domestic replenishments will account for the other 40%, mostly for basics — except for opportunistic buys.

One of the reasons for the shift to direct imports, Gladstone explained, "is that we are obliged to reduce costs throughout the supply chain. So why buy from a vendor who also is buying from another vendor? We have to weigh all costs. But we still have to remember that price is not the prime mover. The first thing is to have the right item."

In terms of pricing and price/value, Gladstone explained the company's philosophy: "We sell steak cheap, not cheap steak."

Looking at the store's merchandise mix, Gladstone points to curtains "as our biggest and best area — and our single most profitable." Bath is "very strong," and basic bedding "is coming off our best year and still strong." The "surprise," he noted "is table linens, where we can do no wrong."

Especially exciting, he added, "is that we are having an unbelievable start in top of the bed. We're having higher retails, better fashion and more value. A typical price point is $99 for the comforter and shams, "and we see this as a resounding success in '08."

Overall, Gladstone said, "Our most profitable merchandise are those items that last a long time. We have an obligation to ride with winners and some are timeless." On another merchandise subject, he emphasized "The industry is so busy criticizing vendors for a lack of innovation. I could fill Anna's 10 times over with all the innovative product in the market."

As for the company's buying tactics, "We continue to buy net up front and we have no back-end surprises for suppliers."

Looking at the business scenario, Gladstone said, "It's a very difficult macro environment; our core customers definitely have been hurt. But in these times, customers will seek the stores with the best value, and we're well positioned."

As part of its operational goals, Anna's is seeking to carry 10% less inventory and increase turns to 3.0 vs. the industry 2.0 average. At the same time, it plans to add "best" to its good/better ratio without vacating core business, but instead keep "talking to its customers" about the better goods.

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