Bed Bath & Beyond’s Trading Troubles Will Make It Hard To Make A Turnaround This Holiday Season

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

Andrew Kelly | Reuters

Bed Bath & Beyond is committed to a drastic change in strategy and well-known brands to revitalize its struggling business.

But the retailer’s strained relationships with suppliers of products like airfryers and stand mixers — some of which were missing from shelves two holiday seasons ago — could once again leave stores without hot items. Out of stock products could cripple Bed Bath’s already declining sales and push the company toward bankruptcy.

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Bed Bath fights to win back customers as it struggles with a leadership shake, a mountain of debt and the aftermath of a meme stock frenzy fueled by activist investor Ryan Cohen. In addition, tensions with suppliers of goods increased 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.

Chief Executive Mark Tritton, hired in 2019 to oversee the company’s previous turnaround, was ousted by the board of directors this year. Bed Bath’s merchandising chief was also pushed out. Chief Financial Officer Gustavo Arnal, who was integral to drafting a new loan for Bed Bath, died by suicide earlier this month. The company is now led by an interim CEO and interim CFO.

During a meeting with investors in late August, two days before Arnal’s death, business leaders announced the new funding and unveiled a new merchandising strategy that relies heavily on national brands to get more people into stores. Under Tritton, Bed Bath launched and sought to grow nine exclusive brands. Bed Bath now plans to scale back those private labels significantly – including discontinuing some.

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Bed Bath has merchandise from the remaining store brands to fill the shelves. It has deals with direct-to-consumer brands, such as mattress maker Casper, and is trying to court more of them. But to execute on its new plan, Bed Bath must secure steady shipments from brands many shoppers recognize.

Bed Bath leaders say the strategy shift has been well received. Interim CEO Sue Gove said in August that she has even received thank you notes from suppliers.

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“As previously shared, we are committed to delivering what our customers want, driving growth and profitability and strengthening our financial position. We recognize the vital importance of our supplier partners and our team works continuously with them wherever the support enthusiastic and high, especially with our largest partners,” a company spokeswoman said in a statement.

“They want us to win by supporting the previously announced range 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 its fiscal second quarter earnings next week, she added.

Over the past two years, however, Bed Bath has tested supplier relationships by making late payments, aggressively pushing for private labels and losing customers. Those tensions have increased as the financial problems worsened, according to former Bed Bath executives.

Make or break

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

Logan Cyrus | Bloomberg | Getty Images

Supplier relationships can make or break a retailer. Typically, suppliers ship goods and get their money back weeks or months later. However, the terms may change if a retailer shows signs of financial distress — sometimes prompting a seller to shorten payment terms, require COD or discontinue shipments.

Bed Bath has already agreed to stricter payment terms and prepayments for some suppliers, the company said in public documents. Business leaders acknowledged in a conversation with investors that it was managing supplier relationships from week to week.

Tensions with suppliers are often a major 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 before the holidays. Other retailers, such as appliance chain HH Gregg and electronics retailer RadioShack, suffered a similar fate as they struggled to keep shelves stocked and eat cash because of vendors’ tightened payment terms.

One factor works Bed Bath’s advantage is that it works with a large number of suppliers and can replace a supplier if necessary that would not be shipped to the retailer. Retailers such as Toys “R” Us, as well as sporting goods chain Sports Authority – which was liquidated in 2016 as part of a bankruptcy filing – relied heavily on very few suppliers to supply their shelves.

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Bed Bath was already heavily indebted prior to the new financing. The retailer has a total of nearly $1.2 billion in unsecured bonds — with maturity dates spanning 2024, 2034 and 2044 — all of which are trading below par, a sign of financial trouble. In recent quarters, the company said it had burned significant amounts of cash. Despite this, it persevered with an aggressive share buyback plan, amounting to more than $1 billion in buybacks.

The financing announced in August is expected to give Bed Bath some breathing room and buy it some grace from suppliers. But even before the company needed a loan, it lost its foothold with some of its suppliers, the former executives said. Bed Bath has struggled with major suppliers over payment terms, and executives became frustrated with smaller shipments of popular products, seeing other retailers with more of those merchandise — and sometimes exclusive versions.

During the holiday season of 2020, the airfryers were almost empty in the Bed Bath stores. KitchenAid stand mixers, a top item on Christmas lists and wedding registries, were sold out. The few Dyson vacuum cleaners and hair styling tools that arrived in stores were quickly shipped to online shoppers, leaving store displays bare. But at Amazon, Target, and Best Buy, those same products were available — and in some cases, even at inflated promotional prices.

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

Growing Problems

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

Kevork Djansezian | Getty Images News | Getty Images

Vendors and licensees were also concerned about the pace of change at Bed Bath, especially as the retailer launched its own brands of bed linen, kitchenware and more. As some brands and manufacturers saw a decline in Bed Bath’s orders quarter after quarter, they looked to other stores and websites.

The uneasy relations exacerbated the problems in Bed Bath’s supply chain during the first two years of the pandemic, when all retailers faced temporarily closed factories, congested ports and a shortage of truck drivers. The company lost $175 million in sales during the three months ended Feb. 26 because several items advertised in circulars were out of stock.

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Sellers, who had a limited supply, had to choose where to send their hot products. With sales at Bed Bath’s eponymous stores slumped, the former executives said it was harder to get those items, such as Dyson’s hair styling tools or Keurig’s coffee makers, that were available at retail rivals.

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

Bed Bath’s problems have increased in recent months. The stock is down about 50% this year, its market cap now stands at about $565 million.

About 60% of total net sales come from Bed Bath’s stores, but the footprint is shrinking. Last week, the company announced the first wave of about 150 store closures for its eponymous brand. Including Harmon and BuyBuy Baby stores, the company went from nearly 1,500 stores at the end of Q1 2020 to fewer than 1,000 stores at the end of the same period this year. In February, Bed Bath had approximately 32,000 employees, including approximately 26,000 store associates and approximately 3,500 supply chain employees.

Meanwhile, the first wave of Christmas items has arrived in stores, including fall wreaths, pumpkin-print kitchen towels, and other fall-themed decorations. Much of the merchandise in stores is from Bed Bath & Beyond’s house brands, such as the budget-friendly house line Simply Essential.

During a visit from TUSEN in recent days, Bed Bath’s flagship store in New York City was filled with indications that the retailer may not have enough of the hottest items. A Dyson display had six vacuum models – but only one type was available for purchase. A display for French cookware company Le Creuset showed Dutch ovens in many colors, but only had bright orange ones in stock.

Just one SimpleHuman stainless steel step-up trash can, which retails for $149.99, was packed and ready to be carried away. However, there were small Bed Bath own-brand plastic trash cans scattered across several rows – selling for $3 each.

If you have suicidal thoughts, please contact the Suicide & Crisis Lifeline at 988 for support and assistance from a trained counselor.

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