Bed Bath & Beyond

Walk onto the floor at your local Bed Bath and Beyond and you will Shelves are piled to the ceiling with coffee makers, vacu Customers and industry analysts used to praise Bed Bath and Beyond's vast and diverse inventory and exceptional customer service. Now they say these stores are confusing and difficult to shop in. Bed Bath and Beyond's mazes of merchandise were once one of its most valuable traits. Now they are physical evidence of a company in crisis. Over the last several years, sales at the retailer have grown, but profits have tanked. The company lost $137 million in the fiscal year ended March 2019. The first annual loss it's had since going public in 1992. In March of 2019, a group of activist investors amassed approximately a 5% stake in the company, sparking a fight w These activists charged that Bed Bath and Beyond has been badly mismanaged for years. Apart from the cluttered stores, the company has totally failed to keep up with onslaughts from e-commerce players such as Amazon. And management has made a series of bad acquisitions and strategic errors, all w Bed Bath and Beyond shares have underperformed those of its peers by 800% in shareholder returns since 2003. The activist group, comprised of firms Legion Partners, McKell But some are skeptical that anyt W To answer t Bed Bath and Beyond was founded in 1971 by former co-chairman Warren Eisenberg and Leonard Feinstein. It was originally called Bed and Bath and started with one store in New Jersey. Over time, the company expanded into a broad array of housewares and added the beyond to the name in 1987. It also expanded, going from 241 stores at the beginning of the year 2000 to 1552 stores at the beginning of 2018. It went public in 1992 and the early years saw a fast and steady rise to the top of its category, outlasting its closest direct competitors, such as fellow big box home goods retailer Linens and T From the very beginning, Bed Bath and Beyond had some unique quirks. For example, it didn't rely on a team of dedicated buyers to purchase products for store shelves, un Store managers did a lot of the purchasing instead. T In addition, leaders were known for being extremely thrifty. Expenses were so tightly managed that the company had reportedly refused to buy Post-it notes for employee supply closets, favoring cheaper scrap paper instead. To customers, however, Bed Bath and Beyond is perhaps best known for practices such as its very generous return policy and its liberal use of coupons. Perhaps its most famous is the coupon offering a 20% discount, w For a long time, both the coupon and the return policy were thought to be clever ways of drawing customers into stores and getting them to purchase more than they had originally intended when walking in. W Shares rose from $1. 13 on the first trading day at the company's IPO to an all-time 82 set in January 2014. The company from the time it went public in 1992 did not miss my estimates until 2007. It was really one of the most impressive performances that I've ever seen out of a public company. Thrift, strong customer service, and a decentralized structure that gave store managers a lot of power paid off for a company that was rapidly expanding. Over time, Bed Bath and Beyond became what industry observers call a category killer. That is a term for a retailer with a large network of unusually big stores stocked with vast inventories and very competitive prices. They include home improvement stores such as Home Depot and Lowe's, Petco and PetSmart in the Pets category, and Best Buy in electronics. For a time, Bed Bath and Beyond wasn'the only killer in its category until close competitor Linens and T S. economy fell into a deep recession. That seemed a blessing for Bed Bath and Beyond and put the wind at its back, but many say the years that followed were when t W In the first fiscal quarter of 2019, same-store sales fell more than 6% over the same quarter in the previous year, widely missing estimates. And despite rising revenues, profits fell every year from a 03 billion in 2013 to that $137 million loss in 2019. Its share price began to fall in early 2015 from the Bed Bath and Beyond is facing trouble just about everywhere, online and offline. Its famous frugal company culture kept it from making needed investments in technology to keep up with emerging trends, particularly in its online platforms. Critics disparage the company's website as clunky and inefficient. Customers have to go through several more steps on its site to complete a purchase than they do at major competitors such as Amazon and Wayfair. But complaints about the company's brick-and-mortar stores abound as well. Sections are said to be overstocked with a dizzying array of choices. During a presentation to shareholders, activist investors counted frying pans from 18 different vendors in one store and a wall of various garbage cans. The activists declined to comment for t Despite the choice, most of the products Bed Bath and Beyond sells can be bought just about anywhere, w Customers can search the internet for prices on branded stand mixers, vacu T In contrast, many of Bed Bath and Beyond's more successful peers have private labels and products customers can only buy from them. Fingers have also pointed at those famous coupons. For example, expiration dates are frequently ignored by staff. Critics say the liberal use of coupons has pushed down margins without driving any new traffic into the stores. The trouble is that Bed Bath and Beyond shoppers have become hooked on these coupons, so it is difficult for the store to place limits on them without alienating the chain's core customer base. Bed Bath and Beyond's costs are also sky Sales, general and administrative expenses have risen 55% since fiscal year 2011, growing from about 25% of sales that year to just over 30% in fiscal year 2018. The Board of Directors has taken some of the blame for lacking the expertise and fresh perspectives to keep up with the profound changes in retail over the last decade. Before the shakeup, its board members had served on average about 15 years by some counts, far longer than directors at many of Bed Bath and Beyond's peers. The activist nominees appointed to the board include people who have served retailers such as the Gap, Golfsmith, Zales, Target, Uniclo and Walmart. But the activists have also accused the leaders One director was essentially voted off the board in 2018 by shareholders, and yet fellow directors refused to accept her resignation. CEO Stephen Tamaris and co-founders Eisenberg and Feinstein were collectively paid $313 million between fiscal year 2003 and fiscal year 2017. Tamaris' pay package for the fiscal year 2017, for example, was $4 million, compared with $1. 3 million for the CEOs of Walmart, Target and Best Buy. Critics also said the company spent too much time on acquisitions that were unnecessary and distracted Bed Bath and Beyond from its core business. Between 2002 and 2017, Bed Bath and Beyond bought 10 different companies, including a business that sells baby merchandise, another that sells health and beauty care, and an online interior design service. The activists have gone so far as to claim that some of these deals were done out of nepotism. In 2007, Bed Bath and Beyond paid $67 million in cash and an additional $19 million in debt repayment for Buy Baby, a chain of stores that sells baby supplies, and was started by the sons of Bed Bath and Beyond co-founder Leonard Feinstein. It also paid $1 million to purchase a kitchen goods retailer called Chef Central in 2017, started by the son of Bed Bath and Beyond co-founder Warren Eisenberg. Feinstein and Eisenberg recused themselves from the transactions involving their sons. The company also said at the time of each deal that the board was advised by an independent legal counsel. On the Buy Baby acquisition, the company also had the opinion of financial advisors, according to a company press release. Bed Bath and Beyond declined to comment. As of July 2019, the company was still searc It has also revamped its board, appointing some of the candidates the activist group has nominated. The activist group has been pus The group has argued that the company can restore value to shareholders just by making some simple fixes to the company's business that bring it in line with competitors. That begins with reigning in costs. For example, the company could simplify its supply chain and buy products from fewer vendors of lower prices. Much of Bed Bath and Beyond's inventory is purchased through US-based middlemen, whereas many major retailers buy their products directly from overseas manufacturers for far less money. When Electronics retailer Best Buy began its own turnaround in 2012, the company already bought its goods directly from overseas manufacturers. So the opportunity here alone is huge, say the activists. The group has also argued that the company can do a lot to improve its in-store experience, reduce the clutter, and develop displays and shopping demos that draw in customers, such as a coffee bar that uses a coffee maker to store sales. CEO Mary Winston said on a call with investors in July that the retailer is already taking steps toward transforming its business. We are in full agreement on our four key near-term priorities. First, stabilizing sales and driving top-line growth. Secondly, resetting the cost structure. T And finally, refining our organization structure. Two weeks after her remarks, the company set it plans to cut its corporate workforce by about 7% and eliminate the role of c But skepticism lingers as to how much of a difference these moves can make. Investors did not flock to the company after the group announced its stake and issued its initial slate of nominees for the board. Shares fell from a closing price of $16. 92 on March 26th to $11. 44 on July 9th. CNBC reported in March that multiple private equity firms have considered buying Bed Bath & Beyond over the past few years, but no deals were done. There are plenty of areas where Bed Bath & Beyond can streamline operations, but there is a fundamental problem facing the chain. Much of what it sells is already easily purchased online via Amazon or other competitors. There is also a whole new batch of direct-to-cons Casper, Parachute, Bolen Branch, and others all sell their products directly to cons Each one of them is tiny compared to a massive retailer such as Bed Bath & Beyond, but in aggregate they make a formidable competitor. In terms of the DTC landscape, there's a n I those 45 have raised several billion dollars in venture capital funding. They're growing at a pace in excess of the industry growth by a large measure. They're doing great they grew up in that channel. They're also marketing to this millennial customer a little bit better than the established players They're putting certain values frontward in terms of their marketing strategies. So eco-friendly materials or ethical labor, so things like that appeal to the millennial cons Despy is a notable example of a company that managed to turn itself around by matc Maybe Bed Bath and Beyond's cluttered stores could, But it needs to give people a reason to go into them.