Bed Bath & Beyond, facing a crisis at the end of the summer as sales slumped and suppliers revolted, insisted white-collar workers return to the office four days a week.
Interim Chief Executive Officer Sue Gove told staff at the company’s headquarters in Union, New Jersey, that face time would help address the overwhelming number of issues facing the retailer, according to six former managers and employees who attended the meeting.
But for the employees, it’s like another example of executives getting dumped when the chain goes bankrupt. Most employees have returned to the office three days a week. One employee spoke up and said the extra day wouldn’t go around the struggling company. Many in the room nodded or applauded, according to former managers and employees.
When other well-known stores have suffered in recent years, the internet often takes the blame. But the case of Bed Bath & Beyond is more complicated. While the chain has been hurt by online rivals like Amazon.com Inc., the setback is also a story of how deciding to tear it up and start over can leave a company broken.
Layoffs, management changes, boardroom shakeups, stock buybacks and strategic overhauls are maneuvers for the modern business, and Bed Bath & Beyond has tried them all. At almost every new turn, the company takes steps that lead it deeper into a financial quagmire.
Weeks after his return to office, Gove said the company would fire about a fifth of its workforce and supply chain and close 150 of its nearly 770 Bed Bath & Beyond brand stores in the US. The retailer has secured new funding, Gove said, and launched a turnaround plan to prepare for the holiday shopping season.
The reprieve didn’t last long. Bed Bath & Beyond has indicated that it is preparing for a potential bankruptcy filing. It has missed payments to banks and bondholders, and former employees say they have not been paid severance payments. If the company restructures in bankruptcy by closing other stores, it can emerge as a smaller version of its former self. However, Bed Bath & Beyond’s financial situation is so dire that the retailer may sell assets and cease operations, Bloomberg News previously reported.
In a surprise move, and a last ditch effort to avoid that fate, Bed Bath & Beyond said Friday afternoon that it will issue securities in a bid to raise more than $1 billion. The retailer said it will use the proceeds to repay missed payments to banks and bondholders and stock its empty store shelves with products. But the troubled company warned that it may not be able to raise as much as planned. Even so, the suppliers will remain vigilant in delivering their products. Many shoppers, meanwhile, have abandoned the brand after years of decline.
A spokesperson for Bed Bath & Beyond did not respond to a request for comment for this article.
At its peak in 2017, Bed Bath & Beyond had 1,560 stores with 65,000 employees, generating $12.3 billion in revenue. But in the nine months to November 2022, sales were just $4.2 billion, and headcount dropped to less than 30,000.
Shares of Bed Bath & Beyond surged 92% on Monday to close at $5.86. The stock has more than quadrupled in value over the past month, riding a wave of enthusiasm among so-called meme-stock investors.
Blind Spot
Warren Eisenberg and Leonard Feinstein founded Bed Bath & Beyond in 1971. As the company grew, it eschewed retail orthodoxy, giving managers the discretion to stock shelves, rather than relying on mandates from headquarters. It is customary to clear the warehouse, open cans, coffee pots and bathmats almost to the ceiling in the store.
“Everything we do is for our customers,” Arthur Stark, president of Bed Bath & Beyond, who left in 2018, said in an interview. “If that means carrying too much inventory in the store, that’s fine. If the customer makes a commitment to come to our store, we’ll have stock.
Bed Bath & Beyond is also happy for its shareholders. Under longtime CEO Steve Temares, billions were poured into stock repurchasing, and acquisitions of Christmas Tree Shops, Cost Plus World Market and Buybuy Baby, founded by Feinstein’s son.
However, company executives have a blind spot: the web. While Amazon.com and other online shopping sites loom on the horizon, Bed Bath & Beyond executives are prioritizing their brick-and-mortar business. In the end, he caught up with them.
Same-store sales, a closely watched retail metric that excludes new or recently closed stores, began falling in 2017. Stark, who joined Bed Bath & Beyond in 1977, said in hindsight, the company should have focused more on online stores.
“Of course we can do better,” he said. “No question.”
According to Stark, the company’s success made him reluctant to change. It has been profitable for years and seems to go from strength to strength, expanding across the US and Canada.
“We face the challenge of maintaining stores, maintaining profitability and investing in technology and digital,” he said in the interview. Stark, 67, currently serves on the senior advisory board for Jefferies Group and Vintage Investment Partners.
Bed Bath & Beyond should consider going private, Stark said, to invest in e-commerce at the temporary expense of profits. Management has advised the company to go private during his tenure, he said.
As executives struggle to invest for the long term amid short-term market pressures, one of the most famous discounts in U.S. retail history is adding to the tension. Bed Bath & Beyond’s 20% off coupons, sent to tens of millions of households over the years, attract shoppers and increase sales. But they eroded profits, too.
“Like any form of promotion, it’s a drug,” Stark said. Over the years, efforts to pull back on mailings or reduce discounts backfired. “If you’re addicted and your customers are addicted, it’s very difficult to break it.”
In early 2019, activist investors began agitating for change. Ancora Advisors, Macelum Capital Management and Mitra Legiun Asset Management want Temares gone. The trio is calling for asset sales, more investment in private label brands and online commerce, and more buybacks.
In a 168-page document making the case, investors noted that the first time a Bed Bath & Beyond executive said the word “Amazon” in a conference call was Dec. 21, 2016, a sign that he did not “embrace industry change.”
Within a few months, Temares was out.
“We are always aware of our competitors, respect them, and learn what they are doing to learn what we can do better,” Temares wrote in a statement in response to questions from Bloomberg.
“I couldn’t be more proud of the colleagues I work with, the quality of people, and the dedication they exhibit,” he said. “It was then. Ultimately, as we’ve seen time and time again, arrogance and ineptitude kill.
The board, with four new members elected as part of an agreement with activists, named former Target executive Mark Tritton CEO in October 2019. As Target’s chief merchandising officer, Tritton has overseen a private-label overhaul that he credits with helping accelerate growth at the discount giant.
Tritton and his team, which includes former senior executives from TrueValue, Walgreens and Macy’s, moved quickly to tackle falling profits and revenue they inherited. They want a third of Bed Bath & Beyond products to be private label, up from 10%, within three years.
Tritton also said he plans to get rid of bad labels and double down on well-known brands such as KitchenAid and Oxo. But those efforts failed as major brands faced pandemic supply chain problems and a deepening cash crunch left companies unable to pay for premium products, according to former managers.
Even before Bed Bath & Beyond’s finances took a nosedive, Tritton and his team were introducing new private-label items in redesigned stores and undervalued national brands, according to several former managers and employees.
In a presentation to investors a year after taking the reins, Tritton likened the revamp to renovating a house. “Our home is loved by many, but a home that relies on positive memories from the past will not weather the storm,” he said.
Share Buybacks
In the first five months of 2021, Tritton is pushing to introduce six new private label product lines – ambitious by retail standards. The level of difficulty increased with trying to plan, order and monitor the manufacturing of thousands of new goods as the pandemic snarled output and shipments from China. Once private label brands arrive in stores, many of them are new to shoppers and may not resonate with them.
Tritton also pledged to use cash to buy back shares. In October 2020, he and his team pledged to buy back $675 million in shares over three years. In November 2021, that number is growing and the timeline is accelerating: They will complete a $1 billion share buyback in about a year. At the time, the retailer had about $600 million in cash.
Some analysts think this is aggressive. Executives seem very optimistic that the strong spending by consumers combined in 2020 and 2021 will last. Dennis Cantalupo, CEO of Pulse Ratings, a credit rating and consulting firm, said the company could survive at least another six months if it didn’t buy back stock.
“Instead of taking the money and putting it in the bank and assuming that the tailwinds for the industry will decrease or normalize, they start a buyback campaign,” said Cantalupo.
The timing and magnitude of the buybacks stood out “given the simultaneous rapid decline in the company’s topline and cash flow and the need for the company to reinvest in the business quickly,” Fitch Ratings analysts David Silverman and Monica Aggarwal wrote in an email.
Tritton’s private-label push ultimately exceeded the goals of some activist shareholders, according to people familiar with their thinking.
Several former Bed Bath & Beyond executives said the pandemic and supply chain issues made it nearly impossible for Tritton to turn around the ailing company.
In March 2022, Tritton and his team welcomed employees back to the company’s renovated headquarters for the first time since the start of the pandemic. The theme is “Together, Happier,” a sign for a marketing campaign launched in 2021, called “Home, Happier.”
As part of the return, employees participate in activities including a scavenger hunt. One clue led to a new mural of Bed Bath & Beyond’s history titled “Our Big Moments (So Far),” according to a photo seen by Bloomberg News. The chronology includes the founding, the 1992 public listing and the purchase of Buybuy Baby in 2007.
While the timeline mentions Tritton’s appointment in 2019, it does not include the names of the founders or their predecessors. That resonates with some former managers and employees, who say it ignores the company’s history and what makes it unique.
Retailers atrophied as the years went on. Tritton was fired in June. Sales in the three months ended August 27 were down 28% from a year earlier. Inventories are running low as many suppliers, worried about being paid, stop or limit shipments.
That meant many shoppers left the store empty-handed, including former Bed Bath & Beyond president Stark.
About a year ago, she said, she went to a store in East Hanover, New Jersey, to buy a wedding registry gift with her son and her son’s fiancé. The couple wanted Wamsutta sheets, which were once a staple in the store. They have no luck.
“He said, ‘Let’s go to Bloomingdale’s,'” Stark said.