Bed Bath & Beyond’s continued struggles raise doubts about its future

If you have a stash of Bed Bath & Beyond coupons tucked away in a drawer or saved in your email inbox, it might be time to use them soon.

Following poor sales and inventory outages, as well as an inability to compete with big box stores and online retailers, the cash-strapped, Union-based company recently cautioned that it may need to file for bankruptcy protection — a move that some analysts believe could come in weeks, if not days.

Founded over 50 years ago in Springfield by Warren Eisenberg and Leonard Feinstein, Bed Bath & Beyond was one of the country’s most beloved home goods chains, selling everything from linens to coffee makers to vacuum cleaners. Its everyday low prices, combined with the iconic blue 20% off coupon, proved to be a successful strategy to lure in repeat shoppers, making Bed Bath & Beyond a fierce competitor in the world of retail.

As recently as 2018, Bed Bath & Beyond had more than 1,500 stores across the U.S. And during the Great Recession, when many retailers closed for good, Bed Bath & Beyond grew. But as online and mobile shopping became more popular, the chain failed to embrace e-commerce, losing business to rivals with more established digital platforms, such as Target and Amazon. And though Bed Bath & Beyond eventually launched a website, its focus remained on its brick-and-mortar stores.

By the late 2010s, sales were dropping, and the company launched a series of turnarounds under Mark Tritton, a former Target executive.

Faced with a prolonged slump, the company took steps aimed at propping up the business, including scaling back its big blue coupon program, closing underperforming stores and replacing national brands with its own store label products.

After reporting a $358 million net loss in the first quarter of 2022, Bed Bath & Beyond announced in June it was replacing Tritton and several other executives in an effort to reorganize leadership. In August, the company – which also owns Harmon and Buybuy Baby – laid out a turnaround plan that included laying off 20% of its corporate and supply chain workforce, closing 150 stores and discontinuing some of its private brands in favor of national brands.

Following Tritton’s ouster, Sue Gove was named interim CEO and then took on the role permanently in October.

Gove, who was an independent director on the company’s board and strategy committee chair before her interim appointment, described the strategy as a “back to basics” philosophy that would enable Bed Bath & Beyond to better focus on serving customers and driving growth.

Now, the company is at risk of becoming one of the many retailers that have shut stores and faded away.

Neil Saunders, managing director and retail analyst at GlobalData Retail, described Bed Bath & Beyond’s operations over the past few years as “a catalog of missteps” that “have run the company into the ground and made it increasingly irrelevant.”

In a recent research note, Saunders wrote that the retailer “is too far to be saved in its present form” and “only very radical action will allow it to survive.” Even then, he said, the company “will be a shadow of its former self.”

While Bed Bath & Beyond could restructure under Chapter 11, Saunders said it would still need to come up with a credible plan to reinvent the business – which would be a challenge, especially amid a weakening economic environment.

Months after introducing the turnaround effort, Bed Bath & Beyond continues to wrestle with losses and cash burn, prompting the chain to issue a going concern warning in a Jan. 5 filing with the U.S. Securities & Exchange Commission.

Despite more productive merchandise plans, Gove said the company’s financial performance was negatively affected by reduced credit limits and inventory constraints, which led to lower levels of in-stock items at stores. As a result, the retailer said it likely will not have the cash needed to cover expenses, such as lease agreements and payments to suppliers, and is exploring financial options, such as a potential bankruptcy. However, the chain has acknowledged that even those efforts may not be successful.

Just five days later, Bed Bath & Beyond reported a much wider-than-expected quarterly loss for the period that ended Black Friday weekend. A combination of reduced levels of available inventory and lower customer traffic drove net sales down to $1.26 billion for the three-month period ending Nov. 26 – a 33% decrease from the same quarter last year.

Bed Bath & Beyond reported a net loss of $393 million during the quarter, including impairment charges of $100 million, compared with a net loss of $276.4 million for the same timeframe a year ago. That pushed the company’s losses to $1.9 billion for the first nine months of the fiscal year dating back to February 2022.

The company did not indicate whether it would file for bankruptcy during its latest earnings call but said it will lay off more employees and had started cost cuts of about $80 million to $100 million across the business.

As of late November, the retailer had 949 stores, including 762 Bed Bath & Beyond stores, 137 Buybuy Baby stores and 50 stores under the names Harmon, Harmon Face Values or Face Values.

‘Moving quickly’

During the 10-minute Jan. 10 earnings call, Gove – who did not take questions from investors – said Bed Bath & Beyond is “on track to achieve the 150 store closures” as previously outlined, which “will further enable us to allocate resources according to customer demand.”

Gove went on to say, “Our organization is more streamlined and we have adopted a more focused infrastructure that reflects our current business.” But she acknowledged the company failed to meet its goals for the turnaround plan introduced last summer despite “moving quickly and effectively to change the assortment and other merchandising and marketing strategies.

“As we shared last week, we continue to work with advisors as we consider all strategic alternatives to accomplish our near- and long-term goals,” Gove said. “We have a team, internally and externally, with proven experience helping companies successfully navigate complex situations and become stronger. Multiple paths are being explored and we are determining our next steps thoroughly, and in a timely manner. We are committed to updating all stakeholders on our plans as they develop and finalize – particularly our employees and partners, who are the essential catalysts of our business and the cornerstones of our future.”

She went on, “We want our customers to know that we hear them and are charging ahead every day to meet their needs. Our entire organization is laser-focused on maximizing the value of our company by reconnecting with our customers and positioning Bed Bath & Beyond, Buybuy Baby and Harmon for long-term success.”

Sources familiar with Bed Bath & Beyond’s situation told Reuters the company has enlisted C Street Advisory Group, a corporate strategy and communications firm, to help navigate options. Bed Bath & Beyond is also being advised by turnaround and consulting firm AlixPartners, investment bank Lazard and restructuring specialist law firm Kirkland & Ellis, the outlet reported.

Reuters also noted that Bed Bath & Beyond obtained $375 million in new financing last August but failed to convince bondholders earlier in January to swap out their investments for new debt, which, analysts believe is evidence that creditors are unlikely to take on more risk.

While Bed Bath & Beyond is considering bankruptcy, it also said it is weighing other strategic alternatives including restructuring or refinancing debt, seeking additional debt or equity capital, pulling back on or delaying other business activities, or selling assets.

How likely is it the company would be successful in pursuing other options besides bankruptcy? Philip Goldstein, a certified public accountant and chief executive officer of Goldstein Lieberman & Co., a Mahwah-based full-service tax, accounting and business consulting firm, said a solid business plan and alternate financing is key for moving forward.

“Anything is possible, however Bed Bath & Beyond is going to have a tough fight to stay in business as it is competing with online shopping and traditional brick and mortar stores that sell the same or similar merchandise,” Goldstein said. “So, unless they get the right leadership and reinvent their brand, it is probably unlikely that they will stay in business using the same model that got them into this mess in the first place.”

Ken DeGraw, a partner and market leader of financial distress and recovery services at Withum, a leading certified public accounting and consulting firm, said, “The key is understanding what other options they may have, which are likely limited.”

“A number of the big box retailers are under pressure from online sales, which is no surprise. Mall traffic is way down. In addition, the real estate involved creates a problem all by itself, if they are indeed looking to shed leases then bankruptcy may be their only option. Their ability to raise capital will of course be constrained by the recent rise in interest rates and they will likely look to shed inventory as well. One of the things I often tell clients is to consider what will be different after bankruptcy if all we have done is shed some leases, unloaded some inventory, recast the debt and refocused our portfolio. What has changed that will make the way the new Bed Bath & Beyond will go to market different from the old Bed Bath & Beyond model went to market?”

A bankruptcy filing would not necessarily mean the chain would shut its doors. Some retailers reorganize without any noticeable change while others become drastically different or close down entirely. In some cases, a company can restructure and reorganize its debts, with the goal of staying in business but emerging at a better place, financially.

Goldstein pointed out that there have been several companies that emerged stronger after declaring bankruptcy. “Believe it or not even though Apple never declared bankruptcy they were once in financial despair and got bailed out by Microsoft,” he recalled. “General Motors declared bankruptcy and is obviously one of the largest car companies in the world. Marvel Entertainment filed for bankruptcy and is now an entertainment powerhouse. Chrysler car company filed for bankruptcy. The restaurant chain Sbarro filed for bankruptcy at one point and turned their businesses around. The list goes on and on.”

He went on to say, “Our firm has helped endless companies restructure and avoid going out of business over the years, the key is thinking outside of the box and reinventing the company.”

As for Bed Bath & Beyond, Goldstein believes it’ll take time to restructure and find a team to reinvent the business. “Or they can sell off the brand or entire company to some other company. However, that is most likely an uphill battle as the brand is not that unique,” said Goldstein, who went on to note that Bed Bath & Beyond’s name still “has value,” though.

“The reality is with the right management team they could reinvent themselves like Amazon did when it was a book selling company or Netflix when they were selling DVD rentals, it all comes down to reinventing themselves,” he recalled. “Toy R US tried it and they were unsuccessful and eventually sold off their name and brand.”

The potential bankruptcy comes as the pandemic-related surge for home décor has slowed and inflation continues to suppress spending, causing shoppers to rethink non-essential purchases.

And, after being cooped up at home during the extended public health emergency, more people are opting to shell out money on experiences, like travel and dining out, instead of furnishings, décor and linens, according to a recent Mastercard SpendingPulse survey.

In his latest commentary following Bed Bath & Beyond’s Q3 report, Saunders said, “Sadly, bankruptcy has been the inevitable destination of Bed Bath & Beyond for quite some time. The turnaround plan was sensible, but lacked any oomph or detail on how the company was going to differentiate to compete. Too much rot has set in, too many customers have been alienated and lost, and there is far too much debt sitting on the company’s balance sheet. And on top of all of this, the consumer economy in the home retail market is very soft. When the cards are stacked against you, sometimes you just need to fold.”

A representative from Bed Bath & Beyond did not respond to a request for comment.

Editor’s note: The online version of this story, which originally appeared in the Jan. 16, 2023, issue of NJBIZ, has corrected the name of Bed Bath & Beyond CEO Sue Gove.