Hey Mark, What About the Stores?
Warren Shoulberg - The Robin Report - Bed Bath and Beyond - Tritton

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Mark Tritton most certainly learned a lot of good things during his three-plus-year tenure at Target where he helped lead one of the most impressive turnarounds in recent retail history. These are the things he has already been talking about at his new job as CEO and president of Bed Bath & Beyond.

But was he out sick the day they talked about how to invest in your business? Clearly, with his recent capital investment plan that puts the majority of a $1 billion spend into stock buybacks and debt service rather than into his stores, he is putting his money where somebody else\’s mouth is. Tritton came over to the troubled big box home retailer in early November following his dramatic stint as chief merchant at Target. In mid-February, he announced the company would spend $1 billion over the next year on investments. But $600 million of it would go towards buying back the company\’s very cheap stock and paying down some debt. Only about 40 percent of it would go towards fixing Bed Bath\’s tired fleet of stores, its underperforming e-commerce business and a supply chain that is drastically out of date with modern retailing.

[callout]The company’s balance sheet, despite flat and more recently decreasing top and bottom lines, is still one of the stronger ones in the retailing business. In fact, the company is sitting on more than $900 million in cash.[/callout]

In fact, he said over the next year the retailer would focus its efforts on just 30 of its 1,000 stores (1,500 counting its other brands which may or may not be around under his master plan). For the math-challenged, that\’s a tiny three percent of its total Bed Bath & Beyond store count that will get the full treatment in 2020. Presumably others will see sku reductions, better signage and a general clean-up but as for gut-job new formats, it\’s very close to a mere rounding error.

Head-Scratching Choices

Likewise, the choice of where the bulk of the billion will go is a bit of a head-scratcher. The company\’s balance sheet, despite flat and more recently decreasing top and bottom lines, is still one of the stronger ones in the retailing business. In fact, the company is sitting on more than $900 million in cash, a number that no doubt will rise following a sale-leaseback of more than half its real estate and the divestiture of one of its smaller branded businesses. Together they could add another $300 or $400 million in cash to its bank account.

And while, yes, its stock price is at an historically abysmal low level, it will be made even worse by Tritton\’s prediction that business is going to continue to be bad for the near term. But this is a company that has spent nearly $2 billion in buying back its stock over the last several years…even as its stock price has lost some 80 percent of its value over the past five years. Those buybacks, in hindsight, turned out to be terrible investments of the company\’s hard-earned, coupon-infested revenues.

The $7 Billion Man

What makes Tritton\’s choices even harder to understand is the history lesson he should have learned while with Target. In February 2017 his former boss, Target CEO Brian Cornell, essentially told Wall Street to buzz off when he announced the retailer would spend $7 billion over the next several years to fix its problems…not assuage its investors. In fact, he told the market that the company\’s financial performance was going to pretty much stink for the foreseeable future as it worked through its problems.

While a big chunk of that $7 billion went to supply chain, tech and e-commerce, the biggest piece was for fixing its stores, something you didn\’t hear a whole lot of retail CEOs say too often anymore. \”We\’re putting a big premium on experience, both physically and digitally,\” he said in announcing the rather astonishing plan. \”We\’re putting a huge premium on the assortment of brands, both our own and from great vendor partners. We\’re obviously making a big bet on the importance of fulfillment, and all of that has to be underscored by the feedback we get from our consumers and our guest insights, and the data analytics that help us make better choices more rapidly. All of this has to come together to create a brand that is going to be preferred and relevant in today\’s retail environment.\”

Wow. Talk about putting up or shutting up.

The Trouble with Trifles

Tritton\’s trifle is so hard to understand considering his role at Target. When he came on board to BBB, he said the same kinds of things Cornell did: the stores had to be fixed, the supply chain was broken, and they needed to develop monster private label product programs that would distinguish its merchandising assortment.

Four years after Cornell bit the bullet, Target\’s stock is back at its pre-downturn days, it has developed any number of massive new branded programs and by the end of this year, more than half its 1800 stores will have been remodeled. The rest of the fleet looks fresher, less cluttered and more modern too.

Target has fewer out-of-stocks than before, a notorious issue for the company previously. And it just cracked the top 10 e-commerce sellers in the country after being way behind the e-curve for so long. Target\’s $7 billion went a long way, spent on the right things at the right time.

Did Bed Bath\’s $400 Million for the Same Strategy Work?

Not so much. Tritton has made some very bold and aggressive moves over his first 100 days on the job, including gutting virtually the entire C-level of management and just last week eliminating 500 corporate-level jobs, selling off real estate plus one marginal business unit and stepping up already-in-progress moves to rejuvenate the stores and try to moderate the company\’s coupon addiction. It\’s too early to judge any results from all of this but certainly his sense of urgency is in marked contrast to what we saw before from prior BBB management. And many of these moves are both long overdue and being quietly embraced by the store\’s supplier community.

But honestly, these choices on investing are downright baffling. Bed Bath & Beyond doesn\’t have a debt problem. Bed Bath & Beyond doesn\’t need to buy back shares to inflate its stock price, and that didn\’t work before. What Bed Bath & Beyond has is a store problem and until the company starts to spend some serious money to fix it, nothing else will matter. It\’s one of the simplest retail lessons there is, and Mark Tritton had great on-the-job training in which to learn it. That\’s why it\’s so hard to understand these spending choices so far.

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