Bed Bath & Beyond merchandise issues could cripple turnaround plan

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

andrew kelly | Reuters

Bed Bath & Beyond relies on a radical change of strategy and recognized brands to revive its struggling business.

But the retailer’s strained relationship with suppliers of products such as air fryers and stand mixers — some of which were missing from shelves two holiday seasons ago — could again leave stores without hot items. Out-of-stock products could cripple Bed Bath’s already dwindling sales and push the company into bankruptcy.

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Bed Bath is fighting to win back its customers as it faces a management reshuffle, a mountain of debt and the aftermath of a meme-stock frenzy fueled by activist investor Ryan Cohen. On top of that, tensions with merchandise 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.

Chief executive Mark Tritton, hired in 2019 to oversee the company’s previous turnaround effort, was ousted by the board this year. Bed Bath’s head of merchandising was also kicked out. Financial director Gustavo Arnal, who played a key role in securing a new loan for Bed Bath, died by suicide earlier this month. The company is now led by an interim CEO and an interim CFO.

In a call with investors in late August, two days before Arnal’s death, business leaders announced the new funding and revealed a new merchandising strategy that relies heavily on national brands to attract more customers. people in stores. Under Tritton, Bed Bath launched and tried to develop nine exclusive brands. Bed Bath now intends to significantly reduce these private labels, including removing several of them.

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Bed Bath has merchandise from its remaining store brands to fill the shelves. It has struck deals with direct-to-consumer brands, such as mattress maker Casper, and is trying to woo more of them. Yet to realize its new plan, Bed Bath must secure regular shipments from brands that many buyers recognize.

Bed Bath executives say the change in strategy has been welcomed. Acting CEO Sue Gove said in August she had even received thank you notes from suppliers.

“As previously stated, 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 with them continuously, where support has been enthusiastic and high, especially with our larger partners,” a company spokeswoman said in a statement.

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

Over the past two years, however, Bed Bath has tested supplier relationships by making late payments, aggressively pushing private label and losing buyers. Those tensions escalated as financial troubles mounted, according to former Bed Bath executives.

Hit or miss

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. Typically, suppliers ship the goods and get reimbursed weeks or months later. Terms can change, however, if a retailer shows signs of financial difficulty – sometimes prompting a seller to shorten the payment window, require cash on delivery or halt shipments.

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

Tensions with sellers are often one of the main reasons retailers are pushed to restructure. The debt-ridden Toys “R” Us filed for bankruptcy in September 2017 and then went into liquidation, shortly after its suppliers demanded cash on delivery ahead of the holiday season. Other retailers, such as home appliance chain HH Gregg and electronics store RadioShack, suffered the same fate as they struggled to keep shelves stocked and burned through cash due to tighter security conditions. payment from sellers.

A factor that works in favor of Bed Bath is that it works with a large number of suppliers and, if necessary, could replace the one that does not ship to the retailer. Retailers like Toys “R” Us, as well as sporting goods chain Sports Authority – which was wound up in a 2016 bankruptcy filing – relied heavily on very few suppliers to stock their shelves.

Bed Bath already had significant debt before the new financing. The retailer has a total of nearly $1.2 billion in unsecured notes — with maturity dates spread across 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 significant amounts of cash. Despite this, he continued an aggressive stock buyback plan that totaled over $1 billion in buybacks.

The funding announced in August should give Bed Bath some breathing room and buy it some grace with sellers. But even before the company needed a loan, it lost its reputation with some of its suppliers, according to former executives. Bed Bath has argued with major suppliers over payment terms, and executives have grown frustrated with small shipments of popular products, while seeing other retailers with more of that merchandise — and sometimes exclusive releases.

During the holidays of 2020, air fryers sold out in Bed Bath stores. KitchenAid stand mixers, which top Christmas lists and wedding registries, were out of stock. The few Dyson vacuum cleaners and hairdressing tools that arrived in stores were quickly shipped to online shoppers, leaving store shelves bare. Yet at Amazon, Target, and Best Buy, these same products were available — and in some cases, even at popular promotional prices.

KitchenAid’s 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 Djansezyan | Getty Images News | Getty Images

Likewise, sellers and licensees have worried about the pace of change at Bed Bath, especially as the retailer launched its own brands of bedding, kitchenware and more. As some brands and manufacturers saw Bed Bath reduce orders quarter after quarter, they turned to other stores and websites.

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

Vendors, who had a limited supply, had to choose where to send their hot products. As sales fell sharply at Bed Bath’s namesake stores, he found it harder to get those items — such as hair styling tools from Dyson or coffee makers from Keurig — that were available at rival retailers, alumni say. leaders.

At company meetings, small Bed Bath shipments have become a frequent theme – with merchandising managers urging buyers to go to sellers 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 problems have increased in recent months. Its stock has fallen about 50% this year, with its market capitalization now standing at around $565 million.

About 60% of total net sales come from Bed Bath stores, but its footprint is shrinking. Last week, the company announced the first wave of around 150 store closures for its namesake brand. Including 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 approximately 32,000 associates, including approximately 26,000 store associates and approximately 3,500 supply chain associates.

Meanwhile, the first wave of holiday merchandise has hit 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 private labels, such as the budget-friendly Simply Essential home line.

During a CNBC visit in recent days, Bed Bath’s flagship store in New York City was full of hints that the retailer may not have had enough of the hottest items. A Dyson screen featured six models of vacuum cleaners, but only one type was available for purchase. A display for French cookware company Le Creuset featured Dutch ovens in many colors, but only had bright orange in stock.

A single SimpleHuman stainless steel trash can, which retails for $149.99, has been boxed up and ready to go. However, there were small, Bed Bath-owned branded plastic trash cans spread across several rows – sold for $3 each.

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