After embattled home goods retailer Bed Bath & Beyond removes its big blue signage and shuts its doors one last time, the spaces that remain aren’t expected to stay empty for long.
Following its April 23 bankruptcy filing, the Union-based company began liquidation sales across its 360 namesake stores and 120 Buybuy Baby locations nationwide and expects to wind down operations by the end of June. As part of the proceedings, leases for those stores, as well as a handful of warehouses and distribution centers, will soon hit the auction block, according to A&G Real Estate Partners, which is serving as the retailer’s real estate advisor.
Subject to approval by the U.S. Bankruptcy Court, A&G plans to auction the hundreds of retail stores. Additionally, A&G and JLL Commercial Real Estate will market a data center Bed Bath & Beyond owns in North Carolina, along with nine leases for distribution facilities in New Jersey, Texas, Nevada, Pennsylvania, California and Georgia.
With limited new retail real estate construction since the 2008 financial crisis, acquiring leases at auction is “an efficient way for junior anchor tenants to meet growth goals,” said A&G Managing Director Mike Matlat. “Landlords are among the likeliest bidders for these leases. They’re looking forward to getting vacant spaces back, either to backfill them with single large-format tenants or subdivide them and re-lease them to multiple, smaller operators.”
Given the tight commercial real estate market, bad news for one brand means potential for another.
According to A&G, the sheer size of the stores – which range from 18,000 square feet to 92,000 square feet for Bed Bath & Beyond and between 14,000 square feet to 63,000 square feet for Buybuy Baby – make it “an incredible opportunity for an array of operators nationwide.”
Because the brands tend to occupy prime, visible units at destination retail properties, industry experts anticipate that the soon-to-be vacant stores will generate strong interest from national, regional and local players, particularly off-price retailers, dollar stores, discounters and other growing chains.
Matthew Harding, chief executive officer of North Plainfield-based commercial real estate services firm Levin Management Corp., said a few of those potential tenants include Marshalls, Five Below, Dollar Tree and Dollar General.
Besides creating attractive leasing opportunities, the closings are providing a chance to strengthen tenant mixes, he said.
“The demand for retail space has been strong in ‘21 and ‘22 and into ‘23 here and that has driven down vacancy rate quite a bit,” Harding said. “Retailers and shopping centers are still out there looking for space and in general, Bed Bath & Beyond stores are well located, well configured stores, so that should add up to a pretty good opportunity to not only refill the spaces but refill them with better, more active retailers.”
Levin – which has one remaining Bed Bath & Beyond store and a Harmon location in its New Jersey leasing and management portfolio – is in talks with off-price fashion retailers such as Burlington and TJX-owned HomeGoods and TJ Maxx regarding those spaces, Harding said.
At a two-story Bed Bath & Beyond in Bergen County, commercial real estate services firm Cushman & Wakefield was advised of talks to divvy up the property between retailers, according to Richard Latella, an executive managing director in C&W’s retail valuation and advisory practice. Potential tenants could include Ross Stores, Petco, Barnes & Noble and REI.
A few other big-name retailers have also defaulted on debt this year, including Party City, Tuesday Morning, David’s Bridal and a one-time Bed Bath & Beyond subsidiary Christmas Tree Shops, all of which will present even more box opportunities, he said.
“We’re coming off of some very strong quarters in terms of leasing, increasing occupancy, lower vacancy, higher rental rates, positive rent spreads, retailers are becoming more profitable over the last 18 months,” Latella said.
According to C&W’s latest commercial real estate report for the national retail sector, 2023 is off to a strong start, with openings exceeding closures. Altogether, vacancy rates for shopping centers fell to 5.6%, the lowest level since the firm began tracking numbers in 2007.
Despite positive growth and an extremely upbeat jobs report, Latella believes the sector is entering a period “of uncertainty” and retail will see a pullback in the second half of the year should the U.S. enter a recession.
But, he said, “that could be good news for discounters, which have continued to really do well – companies like Walmart, Target, Burlington, Ross, TJ Maxx – a lot of those names will be names that will be replacing Bed Bath over the next 12 months.”
Harding echoed the sentiment, saying, “Even though we’re in good times now, they don’t always last because it’s a cyclical economy and cyclical business. So, owners of retail real estate really need to be thoughtful about the tenants that they’re putting into the properties and making sure they’re making properties stronger and reinvesting into the properties, as well.”
At one point, Harding said, “Bed Bath & Beyond was a coup to get into your center because they brought in so many people.”
“In their stronger, better days, Bed Bath & Beyond was a great place to go. You went, you picked up stuff that you didn’t think you needed and maybe didn’t really need, but you had a coupon, so that kept people coming in,” he recalled.
Founded over 50 years ago in Springfield by Leonard Feinstein and Warren Eisenberg, Bed Bath & Beyond was the go-to destination for home goods, selling everything from coffee makers to linens to vacuum cleaners. Its everyday low prices, combined with the iconic blue 20% off coupon, proved to be an effective way to lure in repeat shoppers, making the chain a fierce competitor in the world of retail.
Click here to read more about the company’s bankruptcy filing and to take a look back at some major developments from the past year.
However, as online shopping became more popular, Bed Bath & Beyond failed to embrace e-commerce and lost business to rivals with more established digital platforms, such as Amazon and Target. Eventually, Bed Bath & Beyond launched a website, but its focus remained on its vast footprint of nearly 1,500 brick-and-mortar stores.
Faced with a prolonged sales slump, the company brought on Mark Tritton, a former Target executive, to attempt a turnaround. Under Tritton’s leadership, Bed Bath & Beyond took several steps aimed at propping up the business, including scaling back its coupon program, closing underperforming stores and replacing national brands with its own store label products.
After the measures did little to improve Bed Bath & Beyond’s position, the company replaced Tritton in June 2022 and laid out a turnaround plan that included layoffs and store closures. Despite new CEO Sue Gove’s attempts to improve its footing, Bed Bath & Beyond continued to struggle with slowing sales, low inventory levels and competition from big box retailers, prompting the chain to issue a going concern warning in January.
The cash-strapped company spent the next few months closing more underperforming locations as well as shuttering its Harmon FaceValues beauty chain and its Bed Bath & Beyond stores in Canada.
In early February, the company secured a Hail Mary stock offering that was expected to infuse more than $1 billion in equity, however the effort only brought in $360 million.
A month later, the chain launched a stock sale to raise $300 million and said it planned on using the capital on strategic initiatives, such as investing in merchandise inventory, increasing store footprint and realigning cost structure. But the company warned that if the effort fell short, its next move would be bankruptcy.
Latella said, “I really thought that, up until I read where they couldn’t get the money that they needed, Bed Bath might make it because we’ve seen examples of other retailers that have been experiencing negative trends and then have been able to turn around without having to liquidate.”
“Maybe the jury’s not fully out and maybe there’s a chance they do come back. I’m not going to predict that because there’s a lot of things that could happen, but I’d like to see them continue,” Latella said.
“Years ago, when the whole ‘power center’ concept came up, the idea was that you had all these big box category killers and, in many cases, there were two or three retailers that competed in the same space. And, if you remember, Bed Bath & Beyond competed with Linens ‘n Things. Linens ‘n Things lost and Bed Bath & Beyond survived,” he explained.
“I thought that Bed Bath had a great offering. It had a nice niche, and it’ll be sad to see them leave. I’d love to see them make it, but things evolve and change, and that’s what retail does all the time. It’s always evolving and changing,” said Latella, who added that the CEOs who are brought on to turn around a business always “have tough jobs.”
“There’s success stories and there’s a lot of failures along the way,” he said.
As brands like Bed Bath & Beyond reach their end, other retailers continue to expand, particularly in the discount segment. Despite the current economic climate, last year major U.S. retailers opened more stores than they closed – the first time that’s happened since 2016, according to Coresight Research.
Led by Dollar General, Family Dollar, Dollar Tree and Five Below, discount stores opened the most locations, with 1,858 sites launched. By contrast, retailers in the apparel sector – clothing, accessories and footwear – shuttered 750 stores in 2022.
Overall, store closures were down by around 50% in 2022 compared to the prior year. Even if economic conditions worsen, Coresight doesn’t expect store closures to reach the numbers seen in 2019 and 2020. “The retailers of the post-pandemic world are more robust, given their ability to survive lockdowns, supply chain problems and high inflation,” the report’s authors wrote.
“If COVID – when so many people, by necessity, migrated to shopping online, wasn’t the final nail in the coffin of bricks-and-mortar retail, I don’t know what will be,” Harding said.
“Post-COVID, we saw that shopping at physical stores and shopping centers rebounded quickly. People went back,” he said. “And it wasn’t that they did that for a little surge and went back to e-commerce. They got out and then stayed out shopping, and that’s why you see so many retailers out looking for space. A lot of the space that was put back onto the market during COVID or just after COVID has already been absorbed,” Harding said.
“You have to evolve, otherwise you’re going to get eaten up by the competition,” said Harding. “Ultimately the competition makes the better tenants stronger. And I think we’ve really seen that now accelerated by COVID and so forth. Building online presence, building delivery to store, pickup in store, return to store, curbside pickup, all those kinds of things just really made bricks and mortar retailers even better. Or e-commerce retailers with a bricks and mortar presence even better … To stand alone without one of those two things is very difficult these days.”
“People thought Best Buy was going to be done in by e-commerce, right? It’s very easy to order stuff that’s a little bit more of commodity online. You can look at the TV, you can order TV online and it shows up,” Harding said. “But what did they do? They trained and educated their staff and made it a better shopping visit.”
“Even Barnes and Noble, we see opening stores now – which is a retailer that I think a lot of folks thought might not be with us today. But, they pivoted to smaller stores, a little bit different stores, and they’re opening places. People love to go to bookstores, still. So those are a couple of examples of, I think, retailers who have done a very good job,” Harding said.
As for the much-buzzed about retail apocalypse, Latella dubbed it “fake news.”
You have to evolve, otherwise you’re going to get eaten up by the competition … Building online presence, building delivery to store, pickup in store, return to store, curbside pickup, all those kinds of things just really made bricks and mortar retailers even better.
– Matthew Harding, CEO of Levin Management Corp.
“It didn’t really happen, but it was scaring everybody. Over the years, retail has gone through different transformations,” said Latella.
And while COVID “was a real gut punch” that many retailers did not recover from, it was also a “real wake-up call” for every business “to look very hard, all the way through from their supply chains to what they’re offering and even their staffing,” he said.
“The businesses that have adapted have figured out what they want to be, where they need to be, what the right store size is for them and what the right mix for them might be when it comes to bricks-and-mortar and online,” Latella said. “Bed Bath & Beyond didn’t react quick enough and create a more robust e-commerce platform, which is what the retailers that are doing really well now have done.”
“Retail is resilient and it will reinvent itself,” Latella said. “You can’t kill it – it’s going to come back and it’ll find ways to reinvigorate, re-energize and replace what is no longer relevant.”
“There was a lot of talk that retail will no longer be relevant, and everything will be bought online. But I think that’s one of the things that has surprised me a bit — that that has really been subdued and it’s no longer a threat. Retailers have adapted to it. Walmart and Target have both figured out how to compete with Amazon,” he remarked.
“That would probably be my biggest takeaway, that we’ve come through these financial crises,” Latella continued. “Things have maybe chipped away initially at the total retail pie, but the pie comes back again with different ingredients and it’s all still there. It just maybe tastes a little different today.”
Editor’s note: This story was updated at 8:50 a.m. ET May 16, 2023, to clarify plans for a Bed Bath & Beyond in Bergen County.-