Problems with Bed Bath & Beyond merchandise could cripple the turnaround plan

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

Andrea Kelly | Reuters

Bed Bath & Beyond is betting on a drastic change in strategy and well-known brands to revive its struggling business.

But the retailer’s strained relationships with suppliers of products like air fryers and food processors, some of which were missing from the shelves two seasons ago, could leave stores once again without hot items. Out of stock products could paralyze Bed Bath’s already declining sales and push the company into bankruptcy.

Bed Bath is struggling to win back customers as it grapples with a leadership upheaval, a mountain of debt, and the aftermath of a meme action frenzy fueled by activist investor Ryan Cohen. Additionally, tensions with merchandise suppliers have grown as the company’s problems worsened, according to former executives who recently left the company. They refused to be named because they were not allowed to talk about internal discussions.

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

In an investor call in late August, two days before Arnal’s death, company leaders announced the new funding and revealed a new merchandising strategy that relies heavily on domestic brands to attract more people to stores. . Under Tritton, Bed Bath launched and sought to grow nine exclusive brands. Bed Bath now intends to drastically reduce private labels, including the discontinuation of several.

Bed Bath has merchandise from its remaining store brands to fill the shelves. He has deals with direct-to-consumer brands, such as mattress maker Casper, and is trying to court others. However, to realize its new plan, Bed Bath must ensure consistent shipments from brands that many buyers recognize.

Bed Bath leaders say the change in strategy has been well received. Interim CEO Sue Gove said in August that she even received thank-you notes from suppliers.

“As previously shared, 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 continuously with them, where support he’s been enthusiastic and high, particularly with our major partners, ”a company spokesperson said in a statement.

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

Over the past couple of years, however, Bed Bath has been testing supplier relationships by making late payments, aggressively pushing private labels, and losing buyers. These tensions escalated as financial woes escalated, according to former Bed Bath executives.

Make or break

A customer carries a shopping bag out of a Bed Bath & Beyond Inc. store in Charlotte, North Carolina.

Logan Ciro | Bloomberg | Getty Images

Supplier relationships can make or break a reseller. Typically, suppliers ship goods and are refunded weeks or months later. Terms may change, however, if a retailer shows signs of financial hardship, sometimes prompting a seller to shorten the payment window, request cash on delivery, or stop shipments.

Bed Bath has already accepted stricter payment terms and prepayments for some suppliers, the company said in public documents. The company’s leaders acknowledged in an investor call that it was handling supplier relations on a weekly basis.

Tension with suppliers is often one of the main reasons retailers are pushed towards restructuring. Debt-burdened Toys “R” Us filed for bankruptcy in September 2017 and was subsequently liquidated, shortly after its suppliers demanded cash on delivery before the holiday season. Other retailers, such as appliance chain HH Gregg and electronics store RadioShack, have suffered a similar fate as they struggled to keep shelves stocked and burn cash due to suppliers’ strict payment terms.

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

Bed Bath already had a significant debt load prior to the new financing. The retailer has a total of nearly $ 1.2 billion in unsecured securities – with maturity dates spread between 2024, 2034 and 2044 – all of which are trading below par, a sign of its financial distress. Over the past few quarters, the company has claimed to have burned significant amounts of money. Despite this, it went ahead with an aggressive stock buyback plan that added up to over $ 1 billion in repurchases.

The funding announced in August should give Bed Bath some respite and earn it some grace from suppliers. But even before the company needed a loan, according to former executives, it lost the reputation of some of its suppliers. Bed Bath squabbled with big-name vendors over payment terms, and executives became frustrated with smaller shipments of popular products, as they saw other retailers with more of that merchandise – and sometimes exclusive versions.

Over the 2020 holidays, air fryers sold out in Bed Bath stores. KitchenAid food processors, an item at the top of Christmas lists and wedding lists, were sold out. The few Dyson vacuum cleaners and hairdressing tools that made it to stores were quickly shipped to online shoppers, leaving the shop windows bare. Yet on Amazon, Target and Best Buy, those same products were available and, in some cases, even at attractive 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 Djansezian | Getty Images News | Getty Images

Similarly, suppliers and licensees have become concerned about the pace of Bed Bath’s changes, particularly 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 looked to other stores and websites.

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

Suppliers, who had a limited supply, had to choose where to send their hot products. As sales dropped dramatically at Bed Bath’s eponymous stores, it was more difficult to get those items – such as Dyson’s hairdressing tools or Keurig’s coffee machines – that were available from retail competitors, according to former executives.

During corporate meetings, Bed Bath’s small shipments became a frequent theme, with merchandising leaders urging shoppers to go to suppliers and ask for more. There were also internal concerns that Bed Bath & Beyond was losing its weight and relevance, the former executives said.

Bed Bath’s problems have been growing in recent months. Its shares are down about 50% this year, its market cap is now 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 closings of its namesake brand. Including Harmon and BuyBuy Baby stores, the company has grown from nearly 1,500 stores at the end of the first quarter of 2020 to less than 1,000 at the end of the same period this year. As of February, Bed Bath had approximately 32,000 employees, including approximately 26,000 store associates and approximately 3,500 supply chain associates.

Meanwhile, the first wave of Christmas merchandise has hit stores, including fall wreaths, pumpkin print kitchen towels, and other fall-themed decor. Much of the merchandise in the stores comes from Bed Bath & Beyond’s private brands, such as the Simply Essential budget home line.

On a CNBC visit in recent days, the Bed Bath flagship store in New York City was filled with clues that the retailer might not have enough of the hottest items. A Dyson display had six vacuum cleaner models, but only one type available for purchase. A display for the French cookware company Le Creuset showed Dutch ovens in many colors, but only had bright orange ones in stock.

Just a SimpleHuman stainless steel trash can, which retails for $ 149.99, was boxed and ready to take away. However, there were small plastic trash cans from the Bed Bath-owned brand, spread across multiple rows, selling for $ 3 each.

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