The post-mortem obituaries for Bed Bath & Beyond have been coming fast and furiously after the Big Box home furnishings retailer filed for bankruptcy in late April and subsequently headed for liquidation and its final resting place deep beneath the retail terra firma. There are so many factors playing into this demise, all the more astonishing given the speed at which what was not too long ago one of America’s best retailers melted down. Whereas other similar scenarios involving companies like Toys’R’Us, JCPenney, or Tuesday Morning were years – even decades – in the making BBB seems to have gone from great to crap really quickly.
BBB In the Crosshairs
Of course, it’s not quite that simple and in hindsight many of its faults were just below the surface for years, covered up by a strong marketplace, lack of compelling competition, and just the plain old fact that people were not paying close enough attention.
Some will say the company got caught up in the general retail malaise in the country right now. Others will blame it on too many coupons or not enough coupons…or the wrong color coupons. And still others will cite an endless series of minutiae as the cause. They’ll all be right to a certain extent, and while we’ll leave the final analysis for the Harvard case studies and inevitable aftermath business book (gee, why didn’t I think of that?), as a long-time observer, let me try to provide a big-picture summary of what went wrong…in the end, terribly wrong.
For purposes of clarity and simplicity, I’ve organized it around four themes: merchandising, financial, relationships, catch-up etcetera. Each contributed to the ultimate outcome and taken together it may seem only shocking it took this long.
But one prelude: Bed Bath & Beyond was an extraordinary retailer for a very long time. For more than four decades it was a bonified success with investors, suppliers, and its customers in a way very few other retailers have been. It consistently was very profitable, provided a compelling retail experience, and made a lot of people a lot of money. Whatever bad things happened over its final years must be taken in the context of what came before. Bed Bath & Beyond was very, very good…until it was horrid.
Merchandising
If every retailer, no matter the size or shape, has one thing in common it is that it needs a Unique Selling Proposition. That’s fancy business school-speak that just means it has to have a reason to exist that sets it apart from its competitors.
Bed Bath & Beyond’s USP was simple, right from the start when it opened its first superstores, before the internet, and before giant discounters had truly come into their own: “We have more stuff than anybody else and if you use your coupons our prices are really good.” It was a great premise upon which to build a retail business and it served BBB well for decades. It was the basis of the category-killer retail model and one that worked for Toys, Barnes & Noble, and others, all of which also stumbled when the marketplace changed. That is until Amazon and ecommerce came along at around the same time Walmart and Target achieved their national scale and pricing efficiencies.
Suddenly, somebody else, Amazon, had more stuff. In fact, it had much more stuff with its endless aisle. In the meantime, Walmart and, to a lesser extent, Target, had better prices and you didn’t even need a coupon. And that was the fundamental flaw that ultimately doomed BBB.
Try as it wanted to – and sometimes it seemed as if it didn’t want to – it never could come up with a new reason to exist. Various attempts revolving around special occasions, benchmark moments in customer lives, and other assorted handles were underwhelming at best. If some retailers had larger selections and others better prices why would a consumer shop at BBB? It just took a decade or so for that reality to ultimately sink in.
There were many other missteps along the way. The company was late to the internet and never invested in the resources to make itself competitive with others. Its decentralized warehousing structure with few distribution centers compared to other big online sellers made fulfillment poor. It also continued to rely on its vendors for the products on its shelves. While others were moving into direct sourcing and in-house product development organizations it continued to buy essentially off-the-shelf. It tried for product exclusivity, but it was difficult without its own internal resources.
Interestingly, all these negatives predate the Mark Tritton era at Bed Bath, one that many people are assigning full blame for its demise. It’s important to note that all these weaknesses were inherent when he joined the retailer in 2019. Which is not to say he didn’t bring his own set of mistakes to BBB. His rapid move to private label products – ones developed and sourced in-house – was a disaster because this was a retailer incapable of doing neither PD nor direct importing. At Target, where he came from, there was a well-honed organization, and he assumed his new company could replicate those tasks. They couldn’t and while the pandemic supply chain collapse didn’t help, chances are that under the best of circumstances, it wouldn’t have worked either. Having exclusive product, whatever the brand, was not the problem. It was BBB’s execution of that strategy.
Financial
If there is emphasis on the merchandising faults in this analysis it is because without the right products, none of the rest of its issues would matter. Retailing has seen any number of operations with great financing and structures that failed because what they sold was irrelevant.
But in this case, the financial mistakes Bed Bath made over its recent lifetime were deadly. The largest were the stock buybacks that began in 2004 and, according to an analysis by CNN Business totaled $11.8 billion, which did little to achieve their intent, which was to drive up the stock price. Again, note the timing: Tritton was responsible for the back end of that, but the strategy came way before he got there, under long-time president Steven Temares.
This was a company that for years – decades – had no debt and in fact showed interest from its cash on hand on its balance sheet. It was only as the stock started to flounder that it began the stock buybacks, even borrowing money to pay for them. Later the buybacks under Tritton seemed to be influenced by a board controlled by outside investors who wanted to get some of their money out of the company and take their profits, regardless of how the company did.
Stock buybacks, CNN pointed out (and I concur) have usually been poor uses of capital and that was most certainly the case in the waning days of BBB. At the end, while it scrambled for cash with screwy stock issuance plans that only postponed the inevitable imagine what it could have done with a better balance sheet. It might not have saved BBB, but it would have given it a fighting chance to at least try to right itself without the overwhelming need to raise capital. The stock buybacks almost over two decades were the single biggest financial reason why BBB failed.
But they weren’t the only problem. While the company was swimming in profits, it chose how to use that money poorly…very poorly. There were a series of confusing acquisitions – Cost Plus/World Market, Harmon Beauty, Christmas Tree Shops, and smaller ones like One Kings Lane and Decorist that seemed to add little to the company overall and ultimately were neither developed as separate entities nor successfully integrated into the mothership.
If the hundreds of millions of dollars spent buying these brands – and the equal amount of time and resources spent trying to figure out what to do with them – had instead been spent on an ecommerce operation the outcome might have been quite different. It’s not outlandish to think that buying Wayfair back in the early 2010s was both possible and a much better use of BBB’s resources.
Even if all that money had been kept for internal investment, to fix up the stores, build up its ecommerce operations organically or open additional distribution centers to service both stores and online, it would have been a better use of capital. Only its BuyBuy Baby investment turned into a wise use of funds. But again, it never invested fast enough to create a category dominant chain, particularly with the white space created by the failure of Kids’R’Us.
And there were other financial negatives. Some executives, notably Temares, seemed to be earning excessive salaries. Its dual structure of separate merchandising and operations offices, a state apart, couldn’t have been very efficient. When they were finally merged several years ago it was done awkwardly and with a great loss of talent.
Granted, this was one frugal company, famously using scrap paper to take notes, housing its central staff in spaces one step up from Soviet-era compounds and even forbidding vendors to buy employees a cup of coffee. While that’s laudable did that represent the best use of its capital? One has to wonder.
Working Relationships
It’s not exactly something that will show up on an Excel spreadsheet but Bed Bath’s relationships with its vendors could be described as contentious in many cases. While there is no evidence that the company wasn’t anything but fair with its employees – there doesn’t seem to be much in the way of labor disputes until the bitter end when severance and notices of store closings disputes cropped up with disturbing frequency – how BBB dealt with its vendor base was another matter entirely.
As a retailer that bought most of its products off the shelf, BBB had what can safely be estimated thousands of suppliers. They ranged from giants like Kitchen Aid, Dyson, and Cuisinart with which it conceivably did hundreds of millions of dollars worth of business on an annual basis, down to small niche companies that made a kitchen peeler or a make-up sensitive pillowcase…or maybe even candy or flavored cooking oil. Those giant stores, stacked up to the ceiling, required a lot of merchandise and it needed to be replenished and refreshed on a constant basis.
But here’s the thing: many vendors, large and small, hated – perhaps too strong a word, but disliked – doing business with Bed Bath. As the alpha male in the buying relationship, the retailer called all the shots and dictated the terms of any transaction. BBB was notorious for industry chargebacks – subtracting penalties and surcharges – for what were often questionable infractions of its rules. Perhaps the shipping label on an incoming package was askew, perhaps it arrived a day late or a dollar short for any number of reasons, many of which could be considered normal in the day-to-day dealings of buyers and sellers. It was up to the vendor to locate the charge and then prove it was not legitimate. And while many retailers – particularly in the department store world – are well known for similar practices, BBB seemed to have honed it to an art.
It’s why the vendors who could often didn’t bring Bed Bath their best new products, taking them to other customers who might be treating them better. And if there were supply chain issues, dock strikes, or broken-down tractor-trailer trucks, BBB was at the bottom of the food chain.
It’s also why when so many of these suppliers were dropped when BBB moved to in-house sourcing under Tritton they had little sympathy when that plan failed, and his successors wanted to welcome them back with open arms…and loading docks. These same vendors were also largely disappointed in how they were treated during this period when they were asked to start shipping again, even as they still had outstanding invoices. Invoices, it should be noted, for which they could get few answers on payment scheduling. None would use the word vengeance in off-the-record comments – they still wanted the business – but many suppliers were not entirely heartbroken as BBB slid further and further downhill.
This company culture of us-versus-them went far beyond vendor relations. For years under the original founders of the company, Warren Eisenberg and Len Feinstein, the company held its annual meeting at an out-of-the-way suburban hotel an hour – if the traffic cooperated – from Wall Street offices. And, not only that, it was often held on the Friday before July 4th weekend to make it visibly inconvenient for nosey analysts to show up.
For years on its quarterly earning calls, the company took no questions and issued the most perfunctory statement it could that pretty much said it was none of your business what we’re doing, just buy our stock and keep your mouth shut. Some may have seen this arrogance differently, and maybe that was not the intent, but it sure came off that way to many in the industry.
Even as the company was sliding into insolvency, its senior executives did little in the way of feel-good handholding with suppliers and, seemingly, with analysts either. Public statements were brief and there were no appearances at industry trade shows where raising the white flag would have gone a long way to inviting patience. Vendor-customer relationships, as well as those with Wall Street types who loved nothing better than picking apart a stock’s balance sheet, are certainly not uncommon. But Bed Bath & Beyond seemed to be better or worse, depending on which side of the table you were on, than most in the business.
And Beyond
In trying to sum up and paint a big picture of how one of America’s greatest retailers fell apart so quickly, there are many other factors to consider. Its decentralized structure where suppliers shipped directly to stores that were placing individual orders worked well when the company had 250, 500 or even 750 stores. But as it grew to over 1,000 locations and, worse, when ecommerce came along and required central distribution points for online orders, it was nothing short of a disaster. Half-hearted attempts to build out a new structure were too little too late.
The same can be said about its entire approach to ecommerce. Eisenberg and Feinstein admitted as much in a rare Wall Street Journal interview earlier this year that they were too slow to understand online buying. By the time they did, Amazon and Wayfair – not to mention Walmart, Target, Macy’s and so many other direct competitors – were years ahead of them. BBB never caught up.
People will also say BBB lost touch with its customers and, towards the end, that was certainly true. The move to meaningless house brands and a wide-open selling floor was the antithesis of its former self (was there not a happy medium that could have been formatted?). But through it all, Bed Bath retained a loyal customer that viewed a trip to its stores as much as a social event as a utilitarian errand to pick up a new frying pan or set of sheets.
But over the past four years, customers increasingly didn’t like what they saw and walked out with a single can opener instead of a blue shopping cart full of merchandise. Once you lose that loyalty (think JCPenney) it is very hard to get it back. BBB really never did.
And finally, in the end, the endless – indeed, needless – tricks, stunts, and gimmicks to stay out of bankruptcy when it was painfully clear to just about everybody that the company was going down, played a role in virtually guaranteeing this would be a liquidation rather than a reorganization. There’s nothing to say it wouldn’t have ended up as a total meltdown even if the company had pulled the Chapter 11 trigger last fall or even earlier this year as the situation continued to deteriorate. But one has to think the odds would have been better if BBB could have lived to see another retail day.
John Kennedy said, “Victory has a thousand fathers, but defeat is an orphan.” In the case of BBB, there is more than enough blame to go around for oh, so many orphans.
So, a fond…and sad farewell to Bed Bath & Beyond. We did know you…all too well.
