Bed Bath & Beyond: A Home Makeover Show Worth Watching
(Bloomberg Opinion) -- Last year’s holiday season was a mess for Bed Bath & Beyond Inc. The ubiquitous home-goods retailer was out of stock on hot items; its website was clunky; and it didn’t offer the option to buy online and pick up in store, a service that, even before the pandemic, was becoming more popular at some of its competitors. This year — even amid widespread consumer uncertainty — is almost sure to be much merrier.
Chief Executive Officer Mark Tritton stepped into his job in November 2019, too late to dramatically shape last year’s holiday results. Now, though, he’s had time to unravel the tangled ball of problems left by his predecessors, and his work has made the company a rare retailer muscling into comeback mode in a year of profound disruption.
Some of the changes are simple — so simple it’s bewildering no one had fixed them earlier. In a presentation last week for investors, executives noted that the online checkout process used to have seven steps; it now has three. There used to be more than 100 options if a user wanted to filter by pillow size; now there are just four. Other fixes are more complex to pull off and likely more important. Executives have started dumping unproductive and redundant merchandise, such as in the sheets category, where they axed 30% of items and added in new ones at varied prices. When the retailer’s catalog landed in my mailbox recently, it didn’t contain one of its notorious 20% off coupons, but rather offered $10 off a purchase of $30 or more, reflecting an effort to shore up profitability with a fresh promotional strategy.
All of those changes, along with a pandemic-fueled boom in demand for home goods, should help Bed Bath & Beyond build on the momentum it had in the latest quarter, when it delivered its first increase in comparable sales since the end of its 2016 fiscal year. To keep it going, though, even more dramatic transformation will be needed. That’s where Tritton’s three-year plan, unveiled last week, comes in. The retailer will remodel 450 stores that account for about 60% of sales, roll out more than 10 private brands, and add more items at lower price points to better compete with big-box stores. The company forecasts these and other changes will help it achieve low- to mid-single-digit comparable sales in fiscal 2023 and a gross margin of at least 38%.
These are the right steps to fix a retailer that, despite its long-standing challenges, maintains significant market share and has lured 1.4 million new customers during this year of stay-at-home living. The refreshed stores, in particular, have the potential to stoke sales growth. Executives had said on an earnings call back in April that when they tested reducing the number of items in a store by 20% to 30%, those locations notched double-digit increases in comparable sales, a testament to what’s possible if they offer curation instead of overwhelming choice.
When Tritton was chief merchant at Target Corp., he oversaw changes such as lowering sight lines and adding more upscale-looking fixtures, makeovers that contributed significantly to the chain’s strong sales. Similar changes could make a world of difference at Bed Bath & Beyond. The recent rollout of curbside and in-store pickup capabilities will also help the company win shoppers and make better use of its large store footprint.
Tritton’s experience at Target also gives me confidence that he can invigorate its private-brand efforts. A previous leadership team made a run at a private-brand rollout in 2019, understanding that such an offering can help with profitability and give shoppers a reason to choose Bed Bath & Beyond. I remember checking out their first effort, Bee & Willow, in a store last year and thinking the display and selection were just sad compared to what was on offer at the Target across the hall. Tritton knows how to develop in-house brands that have a clear aesthetic point of view and showcase them in enticing ways, so the retailer ought to have a much better shot at succeeding on his watch.
Adding items at lower price points is also a smart step. The activist investor coalition that helped pave the way for Tritton’s arrival had pointed out how much duplication there was in the chain’s assortment with a memorable slide showing several can openers sold at bewilderingly similar prices. Changing the mix of items should reduce confusion for shoppers and help make it feel like you can get a good deal there without its famous coupons.
Coupled with behind-the-scenes initiatives such as moving away from an ineffective decentralized inventory management strategy, these updates aimed at improving the customer experience should make for a healthier company. It will help, too, that Tritton has already moved to divest Christmas Tree Shops and other assets — a strategy I had long argued would enable the company to focus on rescuing its biggest, best brands.
Bed Bath & Beyond has sent out no fewer than 13 news releases since Tritton’s arrival heralding new leadership appointments — not just in the C-suite, but even at the senior vice president and regional vice president level. Giving so many personnel changes the news-release treatment leaves the impression that the company is intent on frequently reminding investors and industry watchers that this company is running fast away from the strategies of its predecessors. That’s a smart message to send, and it may be helping fuel the more than 40% increase in share price that the stock has seen in the past year.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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