The time has come for Bed Bath & Beyond.
The struggling home goods giant is anticipated to outline its strategies on Wednesday in an effort to regain the trust of customers, suppliers, and investors.
The past several months have been particularly difficult for Bed Bath & Beyond. Earlier this summer, the board of directors of Target fired CEO Mark Tritton and Chief Merchandising Officer Joe Hartsig, two seasoned executives who had contributed to the company’s recovery strategy. Ryan Cohen, an activist investor who disclosed his investment in the company in the spring, criticized it. Its stock, which was the meme stock craze’s darling, shot up before dropping precipitously after Cohen sold out all of his holdings. On Monday, its stock surged, increasing by about 25% to close at $13.35.
Wall Street is now interested in learning how the company plans to right the ship.
Investors will want the following five issues resolved:
A possible infusion of funds
Clarity around how Bed Bath plans to refill its financial reserves to pay suppliers, take care of other expenses, and continue investing in the business will be a significant component of the announcement.
Due to slower sales and a decrease in cash from $1.1 billion a year earlier, Bed Bath & Beyond concluded May with a net loss of nearly $100 million.
Early in August, as the retailer’s stock surged on the back of memes, it announced that it was strengthening its balance sheet with the help of lenders and financial consultants.
Although The Wall Street Journal reported last week that the company and asset management Sixth Street Partners are close to completing terms on a loan of about $400 million, the store has not provided any information about how it would go about doing so.
If Bed Bath did not effectively prepare to take advantage of the busy back-to-school shopping season, the company’s cash pressure might get worse, according to David Silverman, a retail senior director at Fitch Ratings.
“Your liquidity position can get strained as you move through the year for a seasonally oriented retailer because you’re building working capital,” he said.
According to Seth Basham, an analyst at Wedbush Securities, if Bed Bath receives additional funding before the holiday season, it can put off concerns about its financial viability and concentrate on growing its company.
“Then it’s whether or not the customer comes back to them,” he said.
Luring back customers
In addition to addressing its financial problems, Bed Bath must persuade customers to give it another chance.
At stores like Amazon and Target, customers can simply purchase household goods like towels and kitchenware. According to Neil Saunders, managing director of retail consulting firm GlobalData, “there’s someone else in the market that does it better” in practically every area that Bed Bath sells.
“The problem I have with Bed Bath and Beyond — and I think a lot of customers have with it — is that it feels like ‘Why would I go there?’” he said.
According to Harry Kraemer, a professor of management and strategy at Northwestern University’s Kellogg School of Management, news stories about the company’s severe financial situation could also drive away customers.
“Do I want to buy a gift card for my relatives when the store may not be there a year from now?” he said.
Bed Bath might want to stick with its tried-and-true tactic of handing out lots of coupons for 20% off for the time being. Discounts might be the easiest approach to increase foot traffic, especially now that consumers are feeling the pinch from inflation, according to Wedbush’s Basham.
But in the long run, Bed Bath needs to come up with a cleverer approach to stand out, according to retail strategist and former Sears executive Steve Dennis. Other failing shops have found a way to move forward: Petco and Petsmart developed private brands and added vet care so they didn’t merely compete on pet food prices, while Best Buy added services like Geek Squad when sales of goods like CDs and DVDs dwindled away.
In order to minimize costs, Dennis cautioned struggling companies against reducing the size of their stores or their staffing. This might result in decreased convenience and subpar customer service, which would turn customers away.
“It always worries me when companies get to this point because the things they can do that are easy usually make things worse,” he said. “You look like you’re making progress, but you end up cutting into the muscle sometimes.”
The merchandise problem
Many of the same national brands, including KitchenAid, Nespresso, and Mikasa, are sold by Bed Bath and its competitors. Bed Bath competed on price with rivals like Amazon and Macy’s in order to set itself apart.
The retailer adopted a fresh merchandising strategy under Tritton, its former CEO. It introduced nine private label brands in the spring of 2021 that were exclusive to its retail locations and internet. Exclusive but lesser known private labels were prominently displayed in stores, competing with popular national names.
As Bed Bath’s revenues have decreased, the plan has come under scrutiny. In the two most recent quarters of the company, compared to the same quarters a year before, same-store sales decreased by 12% and 24%, respectively.
What will happen to Bed Bath’s assortment of private label goods is unknown. One of them, Wild Sage, a whimsical collection made with younger clients and dorm room decor in mind, has been withdrawn by the company.
In a call with investors in June, Interim CEO Sue Gove cited the success of Simply Essential as evidence that a portfolio of private brands “has a place in our assortment.” That brand consists of inexpensive daily necessities including sheet sets and kitchen utensils.
Fixing the supply chain
As ports became crowded and consumer habits changed during the epidemic, Bed Bath experienced supply chain issues similar to those experienced by many other retailers. But it has also had issues unique to the corporation.
The business said that being out of stock cost it $175 million in sales during the holiday quarter. More recently, it was left with mountains of unsold excess goods. At the end of May, inventory was up roughly 15% over the previous year.
Saunders of GlobalData claimed to have observed uneven inventory while visiting shops. Items are stacked almost to the ceilings in certain categories. Others don’t have any stock.
“It doesn’t matter how great the products are or how nice they are or how much people want to buy them,” he said. “If you can’t get them into stores to sell, it’s not going to work.”
Additionally, Bed Bath faces competition from rivals who are selling off excess inventory. Due to their bloated inventory of small kitchen appliances and other household goods, Walmart and Target both reduced their projected profits.
‘Bye bye’ Baby?
Bed Bath’s line of baby products seemed to be up for auction earlier this year.
When Bed Bath promised to look at strategic options for the banner as part of a truce with Cohen, a potential sale or spinoff of Buybuy Baby gained traction.
A portion of Bed Bath’s operations, including Christmas Tree Shops, Cost Plus World Market, and One Kings Lane, has already been sold. It may have missed the opportunity to sell Buybuy Baby because it now needs to raise additional funds.
Deals in the retail sector, according to bankers, have almost stopped due to the high level of uncertainty around customer behavior. In June, Kohl’s ended negotiations to sell its company, citing a deteriorating retail market and a challenging financing environment. Due to changes in the global market, Walgreens also abandoned plans to sell its Boots business, situated in the United Kingdom.
“Inflation shot up, businesses’ profitability started to get tighter [and] boards were trying to figure out which way is up,” Michael Kollender, director of Stifel’s retail and consumer investment banking, stated.
But if a business is truly in trouble, Kollender said, it will have to reach some form of agreement. He suggested that it might be a restructuring if the corporation is not divesting a portion of itself.
However, if Bed Bath does manage to find a buyer for BuyBuy Baby, it runs the danger of losing one of its strengths. According to Saunders of GlobalData, the infant products industry often remains stable even during more difficult economic times.