HomeLatest NewsBed bath and merchandise issues can derail transition plans

Bed bath and merchandise issues can derail transition plans

A man exits a Bed Bath & Beyond store in New York City on June 29, 2022.

Andrew Kelly Reuters

Bed Bath & Beyond is betting on a radical overhaul of strategy and recognizable brands to revive its struggling business.

But the retailer’s strained relationships with suppliers of products like air fryers and stand-mixers — some of which disappeared from shelves before the holiday season — could leave stores without hot items again. Out-of-stock products could cripple 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 shakeup, a mountain of debt and a meme-stock frenzy fueled by activist investor Ryan Cohen. On top of that, as the company’s problems worsened, tensions rose with merchandise suppliers, according to former executives who recently left the company. They declined to be named because they were not authorized to speak about internal discussions.

Chief Executive Mark Tritton, hired in 2019 to oversee the company’s earlier turnaround efforts, was ousted by the board this year. Bed Bath’s head of merchandising was also pushed out. Chief Financial Officer Gustavo Arnal, who was integral in lining up a new loan for Bed Bath, died by suicide earlier this month. The company is now led by an interim CEO and interim CFO.

In a call with investors in late August, two days before Arnall’s death, company leaders announced new financing and unveiled a new merchandising strategy that relies heavily on national brands to bring more people into stores. Under Triton, Bed Bath launched and attempted to grow nine exclusive brands. Bed Bath now wants to rapidly scale those private labels – including closing several.

She has leftover store brand merchandise to fill the bed bath shelves. It has dealt with direct-to-consumer brands, such as mattress maker Casper, and is trying to court more of them. Yet to deliver on its new plan, Bed Bath must secure steady shipments from brands that many consumers recognize.

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

“As previously shared, we are committed to delivering what our customers want, driving growth and profitability, and strengthening our financial position. We recognize the critical importance of our supplier partners and our team is working closely with them, where support is enthusiastic and high, Especially with our largest partners,” a company spokesperson said in a statement.

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

Over the past two years, however, Bed Bath has tested vendor relationships by making late payments, aggressively pushing private label and losing buyers. According to former Bed Bath executives, these tensions have intensified as financial problems mount.

make or break

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

Logan Cyrus Bloomberg | Getty Images

Vendor relationships can make or break a retailer. Typically, suppliers ship products and receive returns weeks or months later. Terms can change, however, if a retailer shows signs of financial distress — sometimes pressuring the seller to shorten the payment window, requiring cash on delivery or stopping shipments.

Bed Bath has already agreed to tougher payment terms and advance payments for some suppliers, the company said in public filings. Company leaders acknowledged in a call with investors that it is managing vendor relationships on a week-to-week basis.

Tensions with vendors are often a major reason retailers are pushed to restructure. Debt-laden Toys “R” Us filed for bankruptcy in September 2017 and later folded after its suppliers demanded cash on delivery ahead of the holiday season. Other retailers, such as appliance chain HH Gregg and electronics store RadioShack, suffered a similar fate as sellers struggled to keep shelves stocked and burned through cash due to strict payment terms.

A factor is at work In Bed Bath’s favor is that it works with a large number of vendors and can, if necessary, replace one that won’t ship to the retailer. Retailers like Toys “R” Us, as well as sporting goods chain Sports Authority — which was liquidated as part of bankruptcy in 2016 — were heavily reliant on too few suppliers to stock their shelves.

Bed Bath had a significant debt load prior to the new financing. The retailer has a total of $1.2 billion in unsecured notes – with maturity dates spread across 2024, 2034 and 2044 – that are all trading below par, a sign of its financial distress. In recent quarters, the company said it has burned through a significant amount of cash. Despite this, it went ahead with an aggressive stock buyback plan that added up to $1 billion in repurchases.

The funding, announced in August, will give Bed Bath some breathing room and is expected to buy some favors from sellers. But before the company needed the loan, it lost standing with some of its suppliers, according to former executives. Bed Bath has sparred with big-name sellers over payment terms, and executives have grown frustrated with small shipments of popular products, while other retailers have seen more — and sometimes exclusive — versions of that merchandise.

In time for the 2020 holidays, Air Fryers were down across Bed Bath stores. The KitchenAid stand mixer, a top item on Christmas lists and wedding registries, was out of stock. Some Dyson vacuums and hairstyling tools that arrived in stores were quickly shipped to online shoppers, leaving store displays empty. Yet this At Amazon, Target and Best Buy, those same products were available — and in some cases, even at promotional prices.

KitchenAid parent companies Whirlpool and Dyson did not respond to multiple requests for comment.

growing trouble

Customers carry bags from the Bed Bath & Beyond store on April 10, 2013 in Los Angeles, California.

Kevork Djansezian | Getty Images News | Getty Images

Vendors and licensees, alike, have grown concerned with the pace of change in bed bath — especially as the retailer introduces its own brands of bedding, kitchenware and more. As some brands and manufacturers saw their bed bath orders drop quarterly, they looked to other stores and websites.

The uneasy relationship exacerbated Bed Bath’s supply chain problems during the first two years of the pandemic, when all retailers dealt with temporarily closed factories, congested ports and truck driver shortages. The company lost $175 million in sales in the three months ended Feb. 26 because several items advertised in circulars were out of stock.

Sellers, whose supplies were limited, had to pick and choose where to ship their hot products. As sales at Bed Bath’s namesake stores plummeted, it had a tough time getting items — like Dyson’s hair-styling tools or Keurig’s coffee makers — that are available at retail rivals, according to former executives.

At company meetings, small shipments of bed baths became a frequent theme – merchandising leaders urged buyers to go to vendors and ask for more. There was also internal concern that Bed Bath & Beyond was losing its influence and relevance, former executives said.

Bed bath problems have increased in recent months. Its stock is down nearly 50% this year, with its market cap now around $565 million.

About 60% of total sales come from bed bath stores, but its footprint is shrinking. Last week the company said About 150 of its namesake brands announced the first wave of store closures. Including Harmon and Buybuy Baby stores, the company went from about 1,500 stores at the end of the first quarter of 2020 to fewer than 1,000 stores at the end of the same period this year. As of February, Bed Bath had about 32,000 associates, including about 26,000 store associates and about 3,500 supply chain associates.

Meanwhile, the first wave of holiday merchandise has hit stores, including fall wreaths, pumpkin-print kitchen towels and other fall-themed decor. Most of the merchandise in the store is from Bed Bath & Beyond’s private brands, such as the budget-friendly home line Simply Essentials.

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

Just one stainless-steel, step-on Simple Human trash can, which retails for $149.99, was boxed and ready to go. However, there were small plastic trash cans from Bed Bath’s proprietary brand, spread across multiple rows – selling for $3 each.

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