There are many reasons for the decline of Bed Bath & Beyond: years of declining sales, lack of inventory, and an inability to adapt to changing shopper habits. But the end result is clear: after half a century of operation, the company is on the brink of survival.
Bed Bath & Beyond, once popular in malls across the country and suburban plazas, issued a statement on Jan. 5 warning of “serious questions” about its future. The statement concluded that while restructuring measures, including insolvency options, may be required, “these steps may not be successful.”
The announcement follows years of net losses, a new marketing strategy and operating cuts. Former CEO Mark Tritton, who took over from Target in late 2019 after a takeover attempt by activist investors, outlined a reorganization plan based on launching private labels and changing store layouts. But those plans, combined with shutdowns due to the pandemic and disruptions to the supply chain, have failed to steer sales in the right direction. At the end of the summer of 2022, the departure of Tritton, layoffs and store closures, as well as the sudden death of CFO Gustavo Arnal. Moody’s then downgraded his rating to Caa2 in October, just steps away from bottom, citing a “high probability of default over the next 12 months.”
The net loss for fiscal year 2021 was $559.6 million, more than double the net loss for fiscal year 2020 of $150.8 million. The company also reported nearly $1.2 billion in long-term debt. By the second quarter of 2022 (published in September), the company reported a 28% year-over-year decline in net sales and $320.5 million in negative free cash flow.
The January 5 statement said the company, which also owns Buybuy Baby and Harmon Face Values, continues to struggle with inventories as lower credit lines hamper its ability to catch up. However, Bed, Bath & Beyond CEO Sue Gove joined the company as a director in 2019 and was named CEO in October.
“We continue to manage our financial position in a changing environment and work with expert advisors as we consider all paths and strategic options to achieve our short and long term goals,” CEO Sue Gove said in a statement.
Retail consultant Doug Stevens said companies could be hurt by “recentness” or a failure to predict future conditions. Despite Bed Bath & Beyond’s success as a major specialty retailer, the rise of e-commerce and online marketplaces has led to a decline in its value proposition, Stevens said.
That means increased competition from Amazon, Target, and other marketplaces that sell home goods without holding stock. Bed Bath & Beyond said in its latest annual report that while 37% of its sales are online, its competitors included companies that were “bigger than us and with far more financial resources.”
“If Bed Bath & Beyond was going to survive, they probably needed to do something 10 years ago to get on a new trajectory, to a new model where consumers would feel uniquely valued,” he said. “But they didn’t.”
Efforts to revive the company were in full swing in 2019 amid falling sales. At the end of fiscal year 2018, net sales fell 2.6% year-on-year, with a net loss of $137 million. In turn, Bed Bath & Beyond has invested $400 million to refurbish and upgrade technology to keep customers coming back. He plans to reduce inventory and simplify pricing, including reducing reliance on ubiquitous coupons to drive sales.
Another key part of the restructuring plan is investment in private labels. From the end of 2020 until next year, the company plans to launch 10 new brands, including Nestwell bedding, the Haven line of bathroom accessories, and the Wild Sage line of bohemian beds and baths.
But Gartner director of analytics Brad Jashinski said the disruption to the supply chain due to the pandemic has derailed launches, hurting already declining sales. This has led to inventory issues and longer delivery times for products with reduced cash flow.
“The suppliers they had previously worked with had a preference for other retailers and couldn’t offer enough private labels to appeal to shoppers,” Jashinski said.
Brian Gildenberg, retail consultant and CEO of Confluencer Commerce, said private label strategies are being hampered by an advertising environment in which many customers are associated with Bed Bath & Beyond.
“Ultimately, what people want from Bed Bath & Beyond is the promotional price,” he said. “50% off something that’s not sold anywhere else doesn’t have the same value proposition as 50% off something else you know the price of.”
In recent years, Bed Bath & Beyond has also struggled to attract consumers due to increased competition, according to Gartner’s Yashinskiy.
“Competition from other specialty retailers such as Amazon, Target, IKEA, Walmart and The Container Store can quickly adapt to consumer demand and supply chain shocks,” he said.
However, the company is trying to bounce back. In November 2021, the company announced plans to complete a $1 billion share buyback, a decision contingent on the success of its recovery plan.
With net sales down to $1.5 billion, Tritton steps down as CEO in the summer of 2022 and Gove takes over.
Then, at the end of August 2022, another attempt to turn things around began, including the confirmed closure of 150 retail stores. He plans to cut jobs, change management and cut capital spending from $400 million to $250 million. It has also discontinued some new private labels and hopes to refocus on national brands.
Retail consultant Stevens said the options are too few, too late. Delivering value to customers can look like “fun” in a store or changing product lines. It can also be a place for DIY suggestions.
“We’ve come to a point where some retailers are having to reinvent the aggressive level of value they offer to consumers,” Stevens said. “Bed Bath & Beyond didn’t do that. They were just trying to put plasters on the bleeding wounds.”
But the timing is not right for the brand as it takes such drastic steps. Not only is demand for home goods starting to stabilize after the boom in sales during the lockdown era, but rising inflation has weakened demand for this category.
“He’s stuck in a bad discretionary buying environment,” Gildenberg said. “When inflation kicks in, especially in the second half of 2022, buyers will start buying not what they want, but really refocus on what they need.”
Sales for the second quarter of 2022, announced in September, showed a 28% drop in net sales compared to the same period last year. Gove said at the time, “Recovering market share and boosting liquidity are our top priorities.”
But there didn’t seem to be much good news in the next quarter. A third-quarter earnings announcement is scheduled for Jan. 10, although Bed Bath & Beyond has filed a delay notice with the SEC. The company expected a net loss of $385.8 million in the third quarter, compared with a loss of $276.4 million a year earlier, according to the statement. Net sales are expected to be $1.259 billion, up from $1.878 billion a year earlier.
“The expected decrease in net sales compared to last year is due to factors such as lower customer traffic and lower levels of available inventory,” the statement said.
The company has also unsuccessfully attempted to generate cash flow by swapping unsecured senior bonds maturing on January 4th.
But it’s unclear what financial steps can be taken at this stage to address the company’s cash flow problems. A statement sent to Modern Retail on Friday said that while “a decision has yet to be made,” the company will look into “raising additional debt or equity, curtailing or postponing the company’s business activities and strategic plans, selling assets, or other strategic deals.” . and/or other measures.
Looking at the credit markets, Bed Bath & Beyond may find it difficult to get the refinancing it needs to get back on track, Jashinksley said. “This will lead to further inventory issues as suppliers will be reluctant to supply retailers who cannot pay on time,” he said.
Acquisitions are sometimes an option for struggling retailers in the current environment, Gildenberg said, but this is unlikely as real estate holdings may be attractive. The 20,000 to 30,000-square-foot boxes that house Bed, Bath & Beyond are not very popular in the market, Gildenberg said. These places are “too big for a dollar tree” but too small for Target or Best Buy.
Pier 1, which filed for bankruptcy in early 2020 and closed permanently in 2022, suffered the same fate, Gildenberg said.
“I just don’t think the capital markets are very interested in one big retailer buying another,” he said.
As for the bankruptcy option that might be on the table, it’s hard for retailers to succeed, Gildenberg said. This will require major operational changes, such as reducing stores and staff while increasing promotions, which may not be the case for brands that have already implemented such measures.
“This cycle is very difficult to break,” he said. “Very few retailers have gone through Chapter 11 and come out of it with great success.”
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Post time: Jan-13-2023