Bed, Bath & Beyond Slump Puts Its CEO on the Spot

(Bloomberg Gadfly) -- Give Bed Bath & Beyond Inc. credit for one thing: It isn't standing by idly as the home-goods business is rocked by new competition and changing shopper behavior. Instead, the retailer is expanding its online assortment, introducing design-consultation services and testing a membership program similar to Amazon Prime.

The problem is, there's scant evidence any of it is working.

On Wednesday afternoon, Bed Bath & Beyond released its results for the quarter and fiscal year ended March 3, revealing a 1.3 percent drop in comparable sales in fiscal 2017 from a year earlier. Its guidance for the year ahead failed to impress investors, sending its shares plummeting in after-hours trading. 

If anything, its slump is worsening -- and Bed Bath & Beyond's turnaround plans don't inspire much confidence that things will get better anytime soon.

In particular, CEO Steve Temares has said his team is moving to transform Bed Bath & Beyond stores to dedicate more space to so-called "deep value" items -- including consumables such as food, health and beauty products -- and "treasure hunt" items. The idea is that this will drive foot traffic to stores and thus spur more purchases of towels, pillows and the like.

But consumables are typically low-margin goods, so I worry emphasizing these items in stores will do little to help Bed Bath & Beyond's profitability. As it is, Bed Bath & Beyond's profit margins are already seriously pressured -- a result of its unhealthy reliance on those notorious 20 percent off coupons and the shipping expenses associated with e-commerce orders.

The strategy just looks like a desperate, disjointed effort to imitate better-performing rivals. Walmart Inc. and Target Corp. are already doing a solid job of catering to customers who value low prices on everyday essentials. And TJX Cos., corporate parent of TJMaxx and Marshalls, is the absolute master of the "treasure hunt," consistently luring shoppers to its brick-and-mortar stores with its merchandise mix.

Bed Bath & Beyond is never going to beat those guys at their own game. Plus, I don't see how the approach helps it achieve another stated goal: Becoming the trusted expert for home.

The chain is smart to try to foster strong customer service and burnish its reputation as an authoritative furnishings and decor destination -- things that would actually differentiate it from rivals. But blend that with the other things it is trying to do, and it sounds like a retailing identity crisis.

If I were on Bed Bath & Beyond's board, Wednesday's disappointing earnings report and some aspects of the retailer's transformation strategy would have me asking hard questions about whether Temares is the right person to run this company right now.

He's been in the job for 15 years -- an eternity in the current retail environment. Think of all the dramatic change that has happened in the home-goods category in that time. Wayfair Inc. has emerged as a formidable threat and Amazon.com Inc. is ramping up its home-goods offerings. As for Walmart, this may come as a surprise, but many of its online decor and furnishings are seriously stylish and chic.

For all his attempts to keep up, Temares hasn't demonstrated he knows how to navigate this altered terrain. As Seema Shah, a consumer analyst with Bloomberg Intelligence, points out, Bed Bath & Beyond's capital spending has more than doubled since 2010 -- and it doesn't seem to be paying off.

Investor patience is wearing thin. Bed, Bath & Beyond's market value is less than a quarter of what it was three years ago. It had better adjust its strategy quickly if it doesn't want to see that value erode further.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

©2018 Bloomberg L.P.

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