Bed Bath and Beyond: The Downfall of a Retail Giant

Bed Bath and Beyond, former home goods giant and shopping mall staple, once boasted over to 1400 stores throughout North America. After anticipating the rise of specialty stores in the retail industry, the company's founders hit it big in 1971. The company they created, Bed Bath and Beyond, would become a Fortune 500 company recording billions in profits and surviving multiple recessions. It is hard to believe that today the retail chain would struggle to keep its head above water amid a $1.2 billion dollar class action lawsuit, sluggish sales, executive scandals, and a stock price that has fallen 65% year to date. As leadership arranges to close 150 stores and lay off 20% of its workforce to save the chain's profitability, one must wonder— how did the company go from prosperous to piteous?

While department stores captivated America as the go-to shopping spot, Bed Bath and Beyond's founders, Warren Eisenberg and Leonard Feinstein, saw an opportunity for growth in home goods. Along with Toys R Us, Home Depot, and PetSmart, Bed Bath and Beyond pioneered the "Category Killer" approach— a retailer that carries an extensive product assortment in a specified category. With inventory stocked from floor to ceiling, Bed Bath and Beyond quickly attracted shoppers who could rely on the store to provide all their homeware needs at a competitive price. As we retrace the company's history, it becomes clear that its failure to address operational vulnerabilities amidst the COVID-19 pandemic's impact on its supply chain would lead the dominant force close to bankruptcy.

To provide its customers with prices significantly lower than its competitors, Bed Bath and Beyond maintained low operating costs through decentralized management and aggressive negotiations with suppliers. Store managers had full autonomy over their inventory, pricing, and marketing, enabling them to provide a curated product selection for their relevant market and remain elastic to market demand changes. With no central warehouses, stores independently communicated with suppliers and received their orders directly, allowing Bed Bath and Beyond to reduce inventory and facility costs. The company was also reportedly notoriously aggressive with its supplier relations, eking out favourable deals for the retailer enabled by its dominance in the industry. This strategy would drive Bed Bath and Beyond to grow rapidly in the 90s, reaching $1 billion in sales by 1999 and going from 24 to 311 stores within the decade. However, as e-commerce began to rise following the advent of the internet, Bed Bath and Beyond's failure to invest in distribution and storage facilities would significantly hinder the company's success in the online retail space. Instead of investments in supply chain infrastructure to improve e-commerce operations, in the 2000s Bed Bath and Beyond used their excess liquidity to acquire six home goods retail companies. 

To save the company's diminishing profitability, the company appointed Mark Tritton, the former chief merchandising officer of Target, as CEO in 2019. At Target, Tritton had focused heavily on store refurbishment, digital capabilities, and house brands, leading Target to introduce over 30 new private label brands in the past few years. The strategy provided Target customers with access to various great products at low prices, especially in their home goods category. However, when introduced to Bed Bath and Beyond, the new private label offerings required the retailer, which had previously relied on suppliers for product development and supply chain fulfillment, to build these capabilities from scratch. Once the private labels hit shelves, customers would report disappointment in the store's new bland, low-quality products and the absence of the national brands they once adored. Instead of a strategy specific to Bed Bath and Beyond's operational capabilities and consumer base, Tritton's rapid transformation of Bed Bath and Beyond's product offerings left many customers feeling alienated and disinterested in the brand's new direction.

Macroeconomic disruptors such as COVID-19 strained supply chains globally, causing increased lead times and unreliable shipments, half of which were attributed to the private label brands introduced under Tritton’s leadership. With a 15% inventory excess caused by order unpredictability and a 25% fall in sales, Bed Bath and Beyond would be left with a supply and demand difference of 40%, costing the company around $500 million. Finally, as Bed Bath and Beyond scrambled to find cash, suppliers cancelled orders citing unpaid payments, further contributing to the company’s inventory uncertainties and strain on supplier relations. 

Bed Bath and Beyond reported only 108 million in cash and equivalents in its fiscal first quarter, down from 1.1 billion in the previous year. To gain access to the capital needed to save the struggling retailer, newly appointed CEO Sue Gove secured a $1.13 billion asset-based revolving credit facility from JPMorgan Chase. It will need to use this credit line to rebalance its product portfolio to reintroduce national brands, repair its weak relationships with suppliers, and restructure its supply chain to reduce uncertainty. As the COVID-19 storm calms and leadership changes, Bed Bath and Beyond will have to reestablish its space in the home goods retail industry, adjusting to a much-changed environment from where it first garnered success.