LiL' Things, big problems

Why no one is winning the battle of the baby superstores

It's eight minutes before opening time on a chilly Sunday morning, and two suburban moms are huddled outside the locked doors of the LiL' Things store in Plano, waiting for the signal to charge.

The women peer through the doors of the 30,000-foot store, identifying their targets and paths of attack. "I hope they still have the good ones," says one mother, pointing at $60 toddler beds visible through the glass.

It's the Arlington-based retail chain's going-out-of-business sale, and the women don't let their children--a tow-headed toddler boy and a slightly older girl--get in the way of this serious mission. The moms ignore the kids, who scream at the top of their lungs and clamber over a Fisher-Price climbing set, placed just where it is to distract them. Inside are other strategically located diversions: a photographer, a barber, and an aisle designated for kids to test-ride toys.

The mothers' heads turn only when the boy makes a dash for the parking lot. "Wesley, don't!" one woman yells. By the time Wesley scrambles back to the slide, the women have been joined by almost a dozen other combat shoppers.

"I can't believe it--that they're going out of business," says one mom.
Just then, a sales clerk unlatches the doors. The women surge through with their offspring. Any thoughts of the whys and wherefores of this young chain's demise are left behind in the dust trail of bargain shoppers' feet.

The women were shocked for a moment by LiL' Things' closing--but it registered as a much greater tremor in the local retail industry. The chain once operated 20 children's superstores nationwide, employing 700 full- and part-time workers. But in late November, it announced it would close all its outlets in early 1998, including stores in Plano, Arlington, North Richland Hills, and Lewisville. The move followed the company's June bankruptcy filing.

This month at the Plano store, one of the chain's first, a onetime wide array of inventory that encompassed every major brand from Bugle Boy to Baby Dior in clothes and Barbie to Brio in toys had been whittled down to a ragtag assortment. For months, wholesalers had been reluctant to supply the cash-strapped chain.

But even retail industry veterans and local investors, who sank roughly $53 million into the failed stores, didn't anticipate the rapid disintegration of LiL' Things, a concept that came to life less than five years ago. As recently as December 1995, LiL' Things' managers had raised $28 million from investors who bought into the notion of a chain of large-scale specialty stores for the four million women nationwide who have babies each year.

Two years ago, LiL' Things executives predicted the chain would grow to 250 stores with some $100 million in sales. Instead, the company reported revenues of $22 million for the chain's remaining 16 stores in the fiscal year that ended in February 1997.

Although retail ventures always rank as risky, LiL' Things' 1993 start-up seemed to have the formula for success. The two moms who waited outside the Plano store represent precisely the suburban sorts targeted by LiL' Things' founders and financial backers, a group of successful retail veterans.

Ron Steagall, a former Tandy Corp. executive who lives in Arlington, came up with the LiL' Things concept: Build 20,000- to 30,000-square-foot stores, stuff them full of the widest variety of children's goods, keep the prices competitive (if not necessarily discount), and establish a stimulating environment for kids. The idea was to get moms hooked at their child's birth and keep them coming in till their little ones turned 6. Rather than becoming a one-stop shop for a product category--like large office-supply or linen stores--LiL' Things was designed to be a one-stop for a customer category, parents with infants and small children. The store stocked furniture, toys, clothing, disposable diapers, safety items, and--at some locations--baby foods.

When he launched LiL' Things in 1993, Steagall had already made a name for himself in retail. He'd established an impressive entrepreneurial track record by founding BizMart in the Dallas area in 1987. The office-supply superstore grew to a chain of 57 stores and reported $300 million in annual sales before it was acquired in 1991 by Intelligent Electronics, Inc., which sold out to the rival OfficeMax chain 18 months later.

To finance LiL' Things, Steagall tapped Dallas-based venture capitalists Donald Phillips and CeCe Smith, who'd also funded BizMart. Phillips and Smith have a reputation as retail magicians, boasting a string of start-up successes since they began their venture capital firm, Phillips-Smith Specialty Retail Group, in 1986. Drive into just about any Dallas strip mall, and their handiwork is evident. Among the stores the two have helped stake are PetSmart; CompUSA; GadZooks; Ulta3, a discount cosmetics chain; The Sports Authority; and A Pea in the Pod, which sells high-end maternity clothes.

Despite its initial promise, LiL' Things failed so quickly and furiously--federal bankruptcy records show the company lost $3.9 million just in August--that Steagall and his backers continue to scratch their heads about how it all happened.

"If I had all the answers, I'm sure it would have ended better," says Steagall, who estimates he personally lost $250,000.

All of the LiL' Things players agree on one thing, however: If Jack Tate didn't exist, their venture would have had a happier ending. Tate was the owner of Baby Superstores, a 70-store chain that sold out last year to Toys R Us and is now renamed Babies R Us.

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