American retailer Bed Bath & Beyond has hit a rocky road in its retail recovery following the COVID-19 pandemic.
The company announced first quarter sales have plunged by 25 per cent compared with a year ago to $1.5 billion with a net loss of $358 million and it has made some management changes with Sue Gove being named as Interim Chief Executive Officer, replacing Mark Tritton who leaves his role as President and CEO and as a member of the Board.
Also, news reports in the US have indicated the brand has reduced some store hours and reduced air conditioning in some stores to cut down on costs.
“I step into this role keenly aware of the macro-economic environment. In the quarter there was an acute shift in customer sentiment and, since then, pressures have materially escalated. This includes steep inflation and fluctuations in purchasing patterns, leading to significant dislocation in our sales and inventory that we will be working to actively resolve,” said Gove in a statement.
“The simple reality though is that our first quarter’s results are not up to our expectations, nor are they reflective of the Company’s true potential. The initiatives we are instituting today are just the first steps in putting our business on firm footing to drive our future success. I look forward to working with the Board, the management team, and our Associates to immediately address our supply chain challenges, market share recapture, inventory and cash optimization, and cost structure alignment.
“We must deliver improved results. Our shareholders, Associates, customers, and partners all expect more. We are committed to providing customers with a one-stop destination to meet their needs through our assortment, experience, and services, whether online or in stores. Top-tier execution, careful management of costs, greater supply chain reliability, prudent capital spending, a stronger balance sheet, and robust digital capabilities will all be important to our success. I’m eager to start working more closely with our leaders and our Associates across all banners to make the necessary strategy adjustments and create a brighter future for Bed Bath & Beyond Inc.”
George Minakakis, CEO, Inception Retail Group, and author of The New Bricks & Mortar: Future Proofing Retail, said that from the very beginning he did not believe that Bed Bath & Beyond could recover from its dive.
“The CEO came in 2019 and ousted a number of executives. Granted that’s normal. Sales did increase after a dozen quarters of sales declines.
That was a low easy bar to recover from at least short-term. I have seen this pattern before. However, I also saw many of the press releases and that propped up the stock price. Apparently, they made a lot of new hires and fixed merchandising. Okay the basics were covered. Clearly that was not enough,” he said.
“It had me wondering where was “the new brand story” that they were going to inspire consumers with? Traffic clearly did not grow. They did not deliver a value proposition that defines them from all the other shopping options and channels where consumers can buy the same goods. For me that was the biggest failure adding in they did not have control of their supply chains as they had highlighted issues in some of their past quarterly calls.
“What’s next? There will be no Best Buy like recovery story here. Best Buy didn’t wait for their world to collapse; they entered the e-commerce world with the intent to keep their physical world relevant. And became a marketplace. I believe Bed Bath & Beyond missed that opportunity.
Certainly the pandemic, supply chains and the current economy weigh heavily. However, management and the board failed to address these strategic challenges effectively. The new interim CEO is a board director and that may demotivate existing management with no one being appointed from within.”
Liza Amlani, Principal and Founder, Retail Strategy Group, said that the brand was on this path pre-pandemic with internal transformations to discover their core customer.
“BBB has always had a challenge with understanding their customer and developing a merchandise assortment strategy that can speak to right product at the right time. We saw this the last few years when they wanted to shift into more private brand development.”
“Their fire sale and drastic measures that were reported on today tells us they never did try to fix their merchandising strategy. It comes down to mismanagement and an inventory management problem. A brand cannot get closer to market their customer if they are not bringing the right strategists to change the way they go to market. If product doesn’t resonate with customers, they will always be in fire sale mode.”
Bruce Winder, author of RETAIL Before, During & After COVID-19 and President, Bruce Winder Retail, said Bed Bath & Beyond has taken a familiar path to many once great category killer stores of the ’80s and ’90s.
“Once dominant in specific categories for soft home, the retailer out assorted department stores and discounters during the 90’s and perhaps the 2000’s. But the world changed and more of this business was moving to e-commerce while discounters like Target improved their offering significantly with exclusive brands and better value. Bed Bath & Beyond invested in e-commerce but was slow to obtain the payback needed to make the financials work,” said Winder.
“Sales started to soften, and activist investors circled the retailer forcing changes within management. A new CEO from Target gave hope to stakeholders, but the brand was already in a death spiral. As the pandemic comes to an end and consumers buy less home products in favour of travel and experiences, Bed Bath & Beyond’s troubles have found them again perhaps for the last time.
“I don’t see them making it long term as folks like Amazon, Target, Walmart, and Costco will get even stronger in this category as the world flirts with a recession.”
Doug Stephens, Founder of Retail Prophet, said Bed Bath & Beyond has succumbed to something affecting huge swaths of specialty merchants today.
“That is that their bedrock value proposition – depth of assortment – is no longer unique or exclusive. Not that long ago, having an entire store dedicated to one or two categories was a unique competitive position relative to, at the time, department stores and general merchants. The internet and third-party marketplaces have obliterated that advantage – perhaps even turning it into a vulnerability,” he said.
“Now, even specialty merchants have to bring much more and differentiated value to the equation and Bed, Bath & Beyond has seemingly failed to discover what that new value is or could be.”
Michael Kehoe, a commercial real estate broker with Fairfield Commercial Real estate in Calgary and a spokesperson for Consumer Real Estate Canada, said the sudden departure of Bed Bath & Beyond CEO Mark Tritton follows recent shakeups in the executive ranks at several other major retailers.
“Retailing is a ‘Darwinian Struggle’ and this is an example where the drive for market share, sales increases and profitability are commanding an immediate leadership change in the top ranks driven by an activist investor / shareholder in these times of disruption and difficult macroeconomic conditions. The new CEO will be tasked with enhancing the in-store and online merchandise assortment and the customer experience among other immediate challenges such as supply chain reliability,” he said.
In a news release, Harriet Edelman, Independent Chair of the Bed Bath & Beyond Inc. Board of Directors, explained the leadership change at the retailer: “After thorough consideration, the Board determined that it was time for a change in leadership. Our banner’s heritage is built on the premise that when customers are shopping for the home, Bed Bath & Beyond is the perfect destination for unique solutions and inspiration. We must deliver that proposition for customers, drive growth, and unlock the value of the banners. Today’s actions address company performance, the macroeconomic conditions under which we are operating, and the expectations of the Board on behalf of shareholders. We are committed to addressing the urgent issues that have been impacting sales, profitability, and cash flow generation. We are confident Sue brings the right combination of industry experience and knowledge of Bed Bath & Beyond’s operations to lead the Company, focus our resources, and revise strategy, as appropriate.”