Bed Bath & Beyond Inc.’s strategic update detailed how the ailing homewares retailer would strengthen its balance sheet, but also detailed a “back-to-basics” philosophy focused on driving more traffic and more merchandise for sale.
With the share BBBY,
Down 22.1% in afternoon trade, there appeared to be some skepticism on Wall Street as to whether the company’s new focus would work.
“After another strategic shift at BBBY, we can’t help but feel like we’ve seen this movie before – and it didn’t end well.””
A key part of the company’s plan to “better serve customers” was the decision to retain rather than sell its buybuy BABY department store chain. After an “extensive” review of the banner’s value and potential, the company identified strategies to accelerate growth:
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Build on the banner digital and registration platforms
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Address other age groups
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Expand products and services
The company said its board will continue to monitor the deal and indicated it may change its mind about selling the company.
Other steps to increase overall sales include “adjusting merchandise allocations to lead with customer preferences,” suggesting the retailer is increasing inventory of products that have outperformed. The company said it would do so by bringing back popular national brands and introducing “new, emerging” direct brands.
“The company is working expeditiously to increase its inventory of national brands where possible and will increase inventory penetration by 20 percentage points over the long term,” the company said in a statement.
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The retailer also said it will exit three of its nine own brands as it discontinues its Haven, Wild Sage and Studio 3B labels. And for the six remaining labels – Simply Essential, Nestwell, Our Table, Squared Away, H for Happy and Everhome – inventory will be reduced by a fifth to improve sales-to-inventory ratios.
Properly sizing merchandising allocations also includes a reduced number of stores. The company said it has identified about 150 “lower production” Bed Bath & Beyond banner stores that it intends to close. That’s about a fifth of the Bed Bath & Beyond banner stores it operated as of February 26, and about 16% of the total number of stores.
The company has also “realigned” its leadership team to reflect its new priorities. Mara Sirhal, who was chief merchandising officer, was named brand president of Bed Bath & Beyond, while Patty Wu, general manager of Harmon, was promoted to brand president of buybuy BABY.
Accordingly, the company said it has eliminated the roles of chief operating officer and chief stores officer. John Hartmann was COO and Gregg Melnick was CSO.
In terms of customer retention, the company plans to “capture” its Welcome Rewards loyalty program. Launched in late June, the program has five million members.
Wells Fargo analyst Zachary Fadem wasn’t too impressed with Bed Bath & Beyond’s new sales-boosting strategy, as he reiterated his underweight position and said the retailer’s shares needed to fall much further to reflect the company’s prospects .
“All things considered, we’re struggling to find a cop case here; and while we think BBBY’s restructuring efforts and move away from own brands are likely to make sense, we see few reasons to think so [same-store sales]/Margins can structurally improve from here; and as such, we view stocks as significantly overvalued at these levels,” Fadem wrote in a note to clients.
Fadem has a $3 target price on the stock, which represents a roughly 68% decline from current levels.
And Joseph Acosta, a partner at Dorsey & Whitney, said that while Bed Bath & Beyond has great ideas, brands, and product lines, it also has a lot of competition. The company said it would bring back better brands to entice consumers to shop at its stores, but Acosta found its competitors are selling those brands as well.
“In an increasingly competitive environment, BBBY needs to convince people to buy from them over others,” Acosta said. “Remember, big retailers like Target and Walmart have proven dominant and e-commerce, not just Amazon, has steadily increased its presence in the market.”
Bed Bath & Beyond stock is down 65.7% over the past 12 months. In comparison, Target Corp.’s TGT stock is down.
down 35.2%, Walmart Inc. shares WMT,
have lost 10.5% and Amazon.com Inc. shares AMZN,
are down 26.6%. The S&P 500 Index SPX,
has lost 12.2% over the past year.
also read: Bed Bath & Beyond stock is on track for the second-best monthly performance in its 30-year history.