Bed Bath & Beyond was a retail pioneer. Here’s what went wrong

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CNN
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Bed Bath & Beyond, America’s quintessential home furnishings chain, is struggling to stay in business.

The company has avoided a bankruptcy filing for now by completing a complex stock offering that will give it an immediate injection of $225 million in funds and a promise of $800 million in the future to pay off its current debt.

Bed Bath & Beyond is also discounting to save money. The company said it plans to close around 400 of its approximately 760 Bed Bath & Beyond stores. It will keep its most profitable stores open in key markets.

Moving is a lifeline for Bed Bath & Beyond. They will give the company time to pursue a turnaround without filing for bankruptcy, which can be costly, beyond its control and end in liquidation.

“They’re basically reorganizing outside of the bankruptcy court,” said Daniel Gielchinsky, a bankruptcy attorney at DGIM Law. “Slowing cash burn is the name of the game for the next 6-12 months and allowing the business to pivot to a profitable position.”

It will be a complicated turnaround and the future of the company remains uncertain. If Bed Bath & Beyond fails in the current version of its turnaround plan, the likelihood of liquidation increases.

Here’s how Bed Bath & Beyond, once a retail pioneer, veered from the brink of bankruptcy and where it’s turning next.

Bed Bath & Beyond had been a crown jewel of the era of “category killers”: chains that dominated a retail category, such as Toys “R” Us, Circuit City and Sports Authority. These companies, too, eventually filed for bankruptcy.

Bed Bath & Beyond has become known for its pots and pans, towels and bedding piled floor-to-ceiling in its cavernous stores – and for its ubiquitous 20% off coupons. Blue and white coupons have become something of a symbol of pop culture, and millions of Americans have ended up storing them in their cars, closets, and basements.

The retailer has attracted a wide range of customers by selling name brands at discounted prices. Brands coveted a spot on Bed Bath & Beyond’s shelves, knowing it would drive big sales. In addition, the open store layout encouraged impulse purchases: Shoppers came in to buy new dishes and left with pillows, towels, and other items.

The stores were a staple for shoppers during the winter break and back to school and college, and Bed Bath & Beyond also had a strong baby and wedding registry business.

Founded in 1971 by two veterans of the discount retail business in Springfield, New Jersey, the chain of small linen and bath stores – then called Bed ‘n Bath – first expanded in the North East and California selling designer bedding, a new trend at the time. Unlike department stores, it did not rely on sales events to attract customers.

“We had seen the upheaval of department stores and knew that specialty stores were going to be the next wave of retail,” co-founder Leonard Feinstein reportedly said in 1993. “It was the beginning of the designer approach when it comes to linens and housewares and we have seen a real window of opportunity.

In 1987, the company changed its name to Bed Bath & Beyond to reflect its merchandise expansion and larger “supermarkets”. The company went public in 1992 with 38 stores and about $200 million in sales.

In 2000, those numbers jumped to 241 stores and $1.1 billion in sales. The 1,000th Bed Bath & Beyond store opened in 2009, when the chain had reached $7.8 billion in sales.

The company was somewhat iconoclastic. He spends little on advertising, relying instead on printed coupons distributed in weekly newspapers to attract customers.

“Why not just tell the customer that we’ll give them a discount on the item you want, not the one we want to list?” We’ll send a coupon in the mail, and it’ll be a lot cheaper,” Bed Bath & Beyond co-founder Warren Eisenberg, now 92, said in a 2020 New York Times interview.

The chain was known for giving store managers autonomy to decide which products to stock, allowing them to customize their individual stores, and for shipping products directly to stores instead of from a central warehouse.

But as brick and mortar began to give way to e-commerce, Bed Bath & Beyond was slow to make the transition – a misstep made worse by the fact that home decor is one of the most common categories purchased online.

“We missed the mark on the internet,” Eisenberg said in a recent interview with The Wall Street Journal.

Online shopping also weakened the appeal of Bed Bath & Beyond’s fan-favorite coupons, as consumers could find many cheaper alternatives on Amazon or browse a wider selection on sites like Wayfair (W).

However, it wasn’t just Amazon and online shopping that sank Bed Bath & Beyond.

Walmart (WMT), Target (TGT) and Costco (COST) have grown over the past decade and have been able to attract Bed Bath & Beyond customers with lower prices and a wider range of merchandise. Discount chains such as HomeGoods and TJ Maxx also cut prices for Bed Bath & Beyond.

Without the lowest price or widest selection differentiators, Bed Bath & Beyond sales stagnated from 2012 to 2019.

The company has been hit hard during the pandemic, temporarily closing stores in 2020 while rivals remained open. Sales fell 17% in 2020 and 15% in 2021.

Additionally, Bed Bath & Beyond has employed several different leadership and turnaround strategies over the past few years.

Former Target executive Mark Tritton took the helm in 2019 with investor backing and a bold new strategy. It reduced national brand coupons and inventory in favor of Bed Bath & Beyond’s own private label brands.

But this change is alienating loyal customers from big brands. The company also fell behind on payments to suppliers and stores did not have enough merchandise to stock shelves. Tritton stepped down as CEO in 2022.

At the end of November, the company had 949 stores, including 762 Bed Bath & Beyond stores and 137 buybuyBaby stores.

It said on Tuesday it would eventually have about half that number – 360 Bed Bath & Beyond stores and 120 buybuyBaby locations.

Bed Bath & Beyond will close the stores that drain the most cash from its business.

But the closures will mean Bed Bath & Beyond will abandon stores that generated $1.2 billion in annual sales, UBS analyst Michael Lasser said in a note to clients on Tuesday. Bed Bath & Beyond will pick up some of those sales in its other stores and online, Lasser said, but the majority will go to other retailers.

But, to survive, the company must increase sales in its remaining stores. Otherwise, too much of Bed Bath & Beyond’s revenue will go to paying down debt that it won’t be able to make a profit.

Reversing declining sales won’t be easy given the challenges of declining customer demand, online traffic and growing competition in the Bed Bath & Beyond product categories, Lasser said. Bed Bath & Beyond will need to overcome significant hurdles to become a healthy and profitable business.

Bankruptcy lawyer Daniel Gielchinsky, however, said it was an encouraging sign that Bed Bath & Beyond was able to raise enough money through a public offering to stay afloat. The offer was reportedly backed by investment firm Hudson Bay Capital. (Hudson’s Bay did not respond to a CNN Business request for comment.)

Still, liquidators will be watching closely, he said, eager to pounce.

“They are definitely waiting on the sidelines to dismantle the ready business.”