There was a reason Bed Bath & Beyond was one of the most — if not the most — shorted stock on Wall Street for the past couple of years. The Big Box home furnishings retailer was in a free fall, its revenues, profits, comp-store sales and virtually every other matrix falling precipitously…at the same time its overhead costs and SG&A were going in the opposite direction. What was once viewed as the best in class retailer in the home space had fallen on hard times and after an investor revolt resulted in the exit of its senior management, BBB was faced with the inevitable task of trying to rebuild itself, not just from zero but from less than zero.
And while that process is by no means over, this past quarter the company showed real progress, registering it first profitable period in several quarters and its first comp-store gains in four years.
Significant gains in its e-commerce business and attracting new customers were major accomplishments even as its physical store comp numbers remained in the red and progress on a massive redo of its merchandising and product mix is still in its early stages. But progress is progress and black ink is much better than red ink. And Wall Street likes what it\’s seeing. In a pandemic era when retailers who still rely on their physical spaces for the bulk of their sales are often struggling in the market, BBB stock is up more than 600 percent since early April.
[callout]In a pandemic era when retailers who still rely on their physical spaces for the bulk of their sales are often struggling in the market, BBB stock is up more than 600 percent since early April.[/callout]
Certainly, the company has many moving parts that are starting to move in the right direction, but five specific elements can be identified as most impactful on Bed Bath\’s emerging turnaround. Some may say the five strategies are obvious, but the fact of the matter is that if they were so obvious why didn\’t prior management do them? As CEO Mark Tritton, leading the turnaround, told Jim Cramer earlier this month on Mad Money, \”It wasn\’t just low-hanging fruit, there was fruit on the ground.\” Here\’s a closer look:
1. House Cleaning & Reduction
When Tritton took the CEO job 11 months ago, coming over from Target where he was chief merchant, he inherited a very much entrenched management group, many of whom were BBB lifers, or at least near lifers. The company\’s inbred culture was broken and risk-adverse to a fault.Tritton made hard choices and he made them fast. Less than 60 days after arriving he got rid of the entire C-level management group, save for one person who had left on their own. Not all of them deserved to go but Tritton saw the change needed to be dramatic and it needed to be total. Since then he has brought in an entire layer of senior managers from across the retail spectrum, many with serious pedigrees and some from unexpected sources. As he wraps up his first year, Tritton says he has a totally new direct-report org chart, populated with titles and responsibilities that were nowhere to be found in the company previously.
Along with the top-level redo, he has eliminated about 4,000 positions. Retail layoffs in the Covid era are not all that newsworthy but he says the company\’s organization was \”bloated\” and one suspects most of these moves would have come regardless of the pandemic economy.
Personnel is both the biggest cost and the biggest headache for any large retailer today, and it remains to be seen if the new team that has been assembled will be the ones to see this entire change process through. As the company continues to close stores and sell off some of its secondary brands that head count will no doubt be reduced further. But for the time being, this has been one of the big elements of the BBB story this year.
2. Physical Therapy
For decades Bed Bath & Beyond was all about opening new stores. And as if that wasn\’t enough, it was supplemented by buying up other retailers that operated more stores and then expanding those counts. It all worked fine…until it didn\’t. It\’s no secret that as other big U.S. retailing companies were coming to the rationalization that they had too many stores and that online was the growth medium of the future, BBB apparently didn\’t get the memo. It slowed down the number of new stores but kept opening new ones and made no effort to justify the purchases it had made. With more than 1,500 physical stores across a half dozen or so nameplates it was seriously out of step with the rest of the industry.
Again, Tritton and the new board — the entire board of directors was replaced over an 18-month period — moved on two fronts to address the company\’s out-of-whack physicality. New stores were no longer in the plans for a start. Then came the announcement that it would close about 200 locations — representing about 20 percent of the namesake brand\’s 1,000 units — over the next three years. The first 63 have been announced and closing processes have begun. Don\’t be surprised if this speeds up and perhaps even expanded before it\’s all over.
The second piece of the structural overload was to start selling off some of the excess retail baggage. Earlier in October, the company announced it had sold off-pricer Christmas Tree Shops (some stores also go by the dreadful name of \”…\”And That\”) to a private investor, Handil Holdings, which will take ownership in November. At the same time it moved a small institutional textiles unit, Linen Holdings, to another player in that sector. Together the two deals are expected to net about $250 million. These follow earlier sales of One Kings Lane and Personalizationmall.com, which generated a similar amount of proceeds.
Reading between the lines, it\’s clear BBB will circle the wagons around the flagship brand, the BuyBuyBaby kids operation and Harmon Beauty/Face Values, which plays in the health and beauty aids sector and is viewed as a subset of BBB that can be opened within the parent company locations. Clearly management has prioritized its work and decided which sectors it wants to emphasize.
That would mean one more big nameplate will be history: Cost Plus, which also has stores under the World Market banner. It is kind of a Pier 1 meets Home Goods hybrid. (Note: It seems to be a weird practice within the BBB structure that many brands have two names.) Watch for this sale maybe as soon as before the end of the month…although retail brands with heavy in-store dependency are not exactly a hot commodity on the sales block these days.
3. He Calls It \”Omni-Always\”
Bed Bath & Beyond was notoriously behind on the e-commerce curve throughout much of the first two decades of this century: everyone knew it, but nobody ever did much about it. For a long time, it was believed online represented at best, mid-single digits of the company\’s overall revenue. That number did gradually increase and pre-Covid, it had grown to nearly 20 percent. That was a big improvement but still woefully behind some competitors, like the Williams Sonoma brands where e-comm represented more than half of all revenue. What\’s worse, there was virtually no integration of online and in-store operations.
When the pandemic hit in the early spring the online strategy accelerated to more than just a matter of addressing a problem. It became an emergency that needed to be fixed…and fast. Tritton, coming from Target where omnichannel integration was as good as any physical-based retailer, knew the company\’s very survival depended on it. As stores were closed due to the coronavirus, he ramped up BOPIS to about 100 stores. By the time stores began to reopen in the late spring and early summer, more than 900 stores in the chain could now offer this service. It had to be one of the fastest implementations of a complicated system like this in retail history.
With BOPIS came curbside pick-up, another non-existent service pre-Covid. This precipitated both systematic and physical changes, and with many locations in shopping malls and strip centers, there were challenges. But they got it done. Tritton calls it \”omni-always\” which is at least better than the hackneyed term omnichannel, but neither term exactly rolls off the retail tongue.
Some will say BOPIS and curbside services are table stakes in retail today — and they\’d be right. Any general merchandise retailer not offering these services for their customers to buy is going to be in serious trouble even after the pandemic. Consumers have new locked on purchasing patterns, which may shift but are not going away. Give BBB credit for getting this done with a new management team that is operating long distance and still trying to figure out where their office is.
Another staple of the modern retail business is the ability to deliver purchases to shoppers\’ homes. This service was virtually unheard of outside of furniture and consumer electronics channels but is now becoming a gotta-have in an era when consumers are still spooked about spending a lot of time inside stores.
Again, Tritton called upon his prior history to get going with deliveries. He brought on Shipt — now owned by Target — as well as Instacart to begin offering home deliveries. The details are still being worked out and probably only one service will end up being dominant, but that\’s beside the point. BBB is now up to par with the rest of the industry in this aspect, a place it usually hasn\’t been in some time. Another low-hanging fruit? Sure. But all these changes reflect how slowly BBB moved previously.
5. The Right Place at the Right Time
What\’s that old saying about it\’s better to be lucky than smart? As smart as many of Bed Bath\’s moves have been over the past months, it has been very lucky to be in the home furnishings business at a time when people are spending an exaggerated amount of time in their homes and using the money they saved from not eating out and traveling to redecorate, remodel and generally refurbish these spaces. Tritton himself admits they are in a sweet spot right now but that doesn\’t mean BBB can\’t stop evolving its business.
All indications are that the home sector has a fair amount of runway ahead to continue to prosper and Bed Bath & Beyond would seem to be in the best position it\’s been in for years to take advantage of that. We\’ll know more when the company hosts its first-ever Investor Day on October 28. Tritton has promised additional details on what else is in the works, another turn of events from a company that previously barely took analyst\’s questions.
The Long March Forward
But let\’s not get too far ahead of ourselves. BBB still has an antiquated store base with too many big stores and too many bad stores in bad locations. The massive remerchandising of its product mix designed to emphasize its own house brands is far from showing any tangible results on the selling floor. And there is still plenty to do to get its online operation up to the competition from Wayfair, Amazon and Home Depot – especially when it comes to AI and 3D technology.
But for those who had written off the chain not all that long ago — and to those who lost their shirts in failed shorting of its stock — this is a remarkable turnaround. More accurately, the start of a turnaround. But you\’ve got to start somewhere.