Home Business Bed Bath & Beyond merchandise problems could cripple turnaround plan

Bed Bath & Beyond merchandise problems could cripple turnaround plan

by SuperiorInvest

A person leaves a Bed Bath & Beyond store in New York City on June 29, 2022.

Andrew Kelly | Reuters

Bath & Beyond bed is betting on a drastic change in strategy and a recognized brand to revive its struggling business.

But the retailer’s strained relationship with suppliers of products such as deep fryers and stand mixers — some of which were missing from shelves two holidays ago — could once again leave stores without hot items. Shortages could cripple Bed Bath’s already declining sales and push the company into bankruptcy.

Bed Bath struggles to win back customers as it grapples with a management shakeup, a mountain of debt and the fallout from a meme stock frenzy activist investor Ryan Cohen. In addition, tensions with suppliers grew as the company’s problems worsened, according to former executives who recently left the company. They declined to be named because they were not authorized to speak about internal discussions.

CEO Mark Tritton, hired in 2019 to oversee the company’s previous turnaround efforts, was fired by the board this year. Bed Bath’s head of merchandising was also pushed out. CFO Gustavo Arnal, who was involved in preparing the new loan for Bed Bath, died earlier this month by suicide. The company is now led by an interim CEO and an interim CFO.

On a call with investors in late August, two days before Arnal’s death, company executives announced the new funding and revealed new merchandising strategy which relies heavily on national brands to bring more people into stores. Under Tritton, Bed Bath launched and attempted to grow nine exclusive brands. Bed Bath now intends to significantly scale back these private labels — including discontinuing several.

Bed Bath has items from the rest of the store’s brands that fill the shelves. It has stores with direct-to-consumer brands such as mattress maker Casper, and is trying to reach more of them. In order to meet its new plan, Bed Bath must secure steady shipments from brands that many shoppers are familiar with.

Bed Bath executives say the change in strategy has been well received. Interim chief executive Sue Gove said in August that she had even received letters of thanks from vendors.

“That being said, we are committed to delivering what our customers want, driving growth and profitability and strengthening our financial position. We recognize the critical importance of our supplier partners and our team works with them continuously, where support is enthusiastic and high, especially at of our largest partners,” the company spokeswoman said in a statement.

“They want us to win by supporting the previously announced assortment changes to create the best experience for our shared customers.” Bed Bath plans to provide an update on its supplier relationships and strategies when it reports fiscal second-quarter earnings next week, she added.

But over the past two years, Bed Bath has tested relationships with suppliers by making late payments, pushing aggressively into private label and losing customers. According to former Bed Bath executives, these tensions intensified as financial problems mounted.

Make or break

A customer carries a shopping bag outside a Bed Bath & Beyond Inc. store. in Charlotte, North Carolina.

Logan Cyrus | Bloomberg | Getty Images

Supplier relationships can make or break a retailer. Suppliers usually ship goods and get reimbursed weeks or months later. However, the terms can change if the seller shows signs of financial distress – sometimes pressuring the seller to shorten the payment window, require cash on delivery or stop shipments.

Bed Bath has already agreed to stricter payment terms and advance payments for some suppliers, the company said in public filings. Company executives confirmed in a call with investors that the company manages relationships with suppliers on a weekly basis.

Tensions with vendors are often the main reason why retailers are forced to restructure. Debt-laden Toys “R” Us filed for bankruptcy in September 2017 and was later liquidated shortly after its suppliers demanded cash-on-delivery payments before the holidays. Other retailers, such as appliance chain HH Gregg and electronics store RadioShack, suffered a similar fate as they struggled to keep shelves stocked and burned through cash due to tighter vendor payment terms.

One factor works in Bed Bath’s favor is that it works with a large number of vendors and, if necessary, can replace one that would not be delivered to the vendor. Retailers like Toys “R” Us, as well as sporting goods chain Sports Authority — which was liquidated in bankruptcy in 2016 — were heavily dependent on a very small number of suppliers to stock their shelves.

Bed Bath already had a significant debt load prior to the new financing. The retailer has a total of nearly $1.2 billion in unsecured notes — with maturity dates spread over 2024, 2034 and 2044 — all of which are trading below par, a sign of its financial distress. In recent quarters, the company said it burned through a significant amount of cash. Despite this, it continued with an aggressive share buyback plan that added more than $1 billion in buybacks.

The funding announced in August is expected to give Bed Bath some breathing room and buy it some grace from retailers. Even before the company needed a loan, it lost its position with some of its suppliers, according to former executives. Bed Bath has struggled with big-name retailers over payment terms, and executives have been frustrated by smaller shipments of popular products while other retailers have seen more of those goods — and sometimes exclusive releases.

During the 2020 holiday season, Bed Bath stores sold out of deep fryers. A top item on Christmas lists and wedding registries, KitchenAid stand mixers have sold out. The few Dyson vacuums and hairstyling tools that did arrive in stores were quickly shipped out by online shoppers, leaving store windows empty. Nevertheless in Amazon, target and Best buythe same products were available – and in some cases even at wildly discounted prices.

The parent company of KitchenAid Whirlpool and Dyson did not respond to multiple requests for comment.

Growing Trouble

Customers carry bags from a Bed Bath & Beyond store on April 10, 2013 in Los Angeles, California.

Kevork Djansezian | Getty Images News | Getty Images

Likewise, retailers and licensees were concerned about the pace of change for Bed Bath — especially as the retailer launched its own brands of bedding, kitchenware and more. As some brands and manufacturers saw Bed Bath drop orders quarter after quarter, they looked to other stores and websites.

The uneasy relationship compounded the woes of Bed Bath’s supply chain during the first two years of the pandemic, when all retailers dealt with temporarily closed factories, overcrowded ports and truck driver shortages. The company lost $175 million in sales in the three months ended Feb. 26 because several items advertised in the circulars were out of stock.

Sellers who had limited supply had to choose where to send their hot products. As sales at Bed Bath’s namesake stores plummeted, former executives said, it became harder to get hold of those items — such as Dyson hairstyling tools or Keurig coffee makers — that were available at retail competitors.

At company meetings, Bed Bath’s small shipments became a frequent topic, with merchandising executives urging buyers to go to retailers and ask for more. There were also internal concerns that Bed Bath & Beyond was losing its influence and its relevance, former executives said.

Bed Bath’s troubles have grown in recent months. Its shares are down about 50% this year, its market capitalization is now about $565 million.

About 60% of total net sales come from Bed Bath stores, but their footprint is shrinking. Last week the company announced the first wave of closures of approximately 150 stores of its namesake brand. Including the Harmon and BuyBuy Baby stores, the company went from nearly 1,500 stores at the end of the first quarter of 2020 to less than 1,000 stores at the end of the same period this year. As of February, Bed Bath had about 32,000 associates, including about 26,000 store associates and about 3,500 supply chain associates.

Meanwhile, the first wave of holiday merchandise has arrived in stores, including fall wreaths, pumpkin-print tea towels and other fall-themed decorations. Much of the merchandise in the stores comes from Bed Bath & Beyond private labels, such as the affordable Simply Essential home line.

During CNBC’s visit the other day, Bed Bath’s New York City flagship store was full of indications that the retailer might not be stocking up on the hottest items. The Dyson display had six vacuum models – but only one type was available to buy. The display of the French company Le Creuset showed Dutch ovens in many colors, but they only had the bright orange ones in stock.

Only one SimpleHuman stainless steel walk-in litter box, which retails for $149.99, was packaged and ready to go. There were, however, small plastic Bed Bath own-brand trash cans, spread out in several rows—selling for $3 each.

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