Bed Bath and Beyond is not in a happy place.

Last week, their credit rating was dinged and is now just above a “junk rating.” EBITDA as a percent of revenue has plummeted 30.3% in the past 4 years and, despite a small bump due to Twitter rumors, the stock price is down more than 50% this past year while the S&P is up over 15% during the same period. While most analysts and observers of the retail space are not quite ready to declare the once dominant category-killer dead, the financial picture is causing distress.

It does lead to the obvious questions: what happened and how can it be fixed? We outline two central challenges and suggest two potential solutions.

Challenge: The store

Merchandising at the store embraces the “Beyond” portion of the name like never before. Today, you can find Burt’s Bees, Tylenol, Old Spice and pregnancy tests alongside the traditional categories of pots, pans and bedding. CEO Steve Temares explained his team is transforming stores to dedicate more space for “deep value” items in the hope of driving foot traffic. However, vying for that foot traffic means competing against the likes of Target, Walmart, CVS and Walgreens – giants that have significant brand loyalty and a history of dominating that space.

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Clearance rack at a Bed Bath and Beyond: from Luna Bars to nail polish to spin mops

On top of that, as more items get added and in-store staff continues to be laid off (880 in Q3 2017), the number of items a single staff member must maintain grows exponentially. The pressure will invariably lead to a more disheveled look, not to mention a decline in customer service. As Neil Saunders, managing director of GlobalData Retail, explained in a recently published note:

“Too many of Bed Bath & Beyond’s stores – especially older ones – are a mess,” he wrote, saying the stores are “crammed” and “devoid of inspiration,” making them “sometimes unpleasant to shop.”

As margin pressure (due to couponing and competition) continues to grow, Temares appears to be doubling down on the current strategy. However, there is little evidence of success.

Challenge: Ecommerce

As late as last year, Bed Bath and Beyond has continued to state that a top goal is to “accelerate SKU on-boarding”. From Mr. Temares:

“We have endless aisles and our online assortment includes almost everything we carry in-store and then much, much more. We have an ongoing initiative to accelerate our SKU on-boarding process and we are currently on track to share to add more than 300,000 SKUs.”

Perhaps 5 years ago (an eternity in the digital age) was the time to play the endless aisle game – today, however, the game is over. Amazon has won with over 356 million items as of early 2017. Despite spending billions of dollars in digital and ecommerce to compete, Walmart.com only offers 4.7% (16 million) of the products that Amazon has online. If the #1 brick-and-mortar retailer in the world is soundly defeated, why is Bed Bath and Beyond attempting to compete, such as selling Ibuprofen on their website for $.99?

An ecommerce site in 2018 must be the digital manifestation of the experience that a retailer is trying to create in-store rather than a warehouse of images. For Nordstrom, it is a high-end, fashion feel and for Target, it is “cheap-chic”. While stuffing items to the [digital] ceiling may seem like the quickest way to get online sales, the digital consumer is moving on.

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Nordstrom, Target and Bed Bath & Beyond’s landing pages

Suggestion: Create and communicate the mission – random acts of digital do not translate into a “digital experience”

Launched in 2015, 6 major technology investments (ranging from POS systems to analytics to supply chain) gobbled up huge portions of Bed Bath and Beyond’s CapEx spend. Now, several years later, there are no significant gains nor a clear picture of how the business was impacted. While Mr. Temares has committed the company to a “customer service transformation” project, it is not clear what that means.

Companies undergoing transformations must understand why they are doing so. Data shows that a successful transformation involves taking a step back and defining the purpose of the transformation, publicly and internally. A great example: Domino’s. When asked why the company was not doing great in 2008, their CEO, Patrick Doyle, replied on Jim Cramer’s show that “Our pizza tastes worse than the box…I’m gonna tell people.” By publicly admitting to the core problem rather than stating “slumping sales” or other euphemisms for why change was needed, the stage was set to turn things around. Since then, Domino’s has doubled their market share and their stock price has moved from $3/share in 2007 to $243/share as of April 2018. The transformation was no easy task however by calling out the foundational problem – bad pizza – everyone could rally around the solution to help realize a vision.

Bed Bath and Beyond can progress by defining why they are moving to a “customer service” focused company.  By articulating why this change is needed (beyond just “foot-traffic is down”), a clear course can be charted so employees at all levels are empowered to push for change. To measure success beyond the numbers, executives should ask employees at all levels “why is a customer service transformation necessary” and “what is your role in making it happen”. The answers will paint a picture of whether change is truly taking place. While this move takes courage and guts, it is a step towards successfully turning around the company.

Suggestion: Transform the biggest asset you have – the store.

It is (for now, anyways) the one asset Amazon cannot compete with. As proven by their recent partnership with Best Buy, Amazon understands that the vast majority of retail spend still happens in a store – especially for big ticket items. Bearing that in mind, along with their 1,500+ location, Bed Bath and Beyond has the unique opportunity to go to the drawing board and fundamentally recreate what it means to go shopping for home goods. The company pioneered the superstore concept back in the 80s and reinvented themselves through their famous couponing efforts to drive store traffic. Now is the time to do so again, with the aim of infusing a digital experience into their stores to make the store experience fun and exciting again.

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  1. Become a launching pad for new brands

By focusing merchants’ time on scouting new and cool brands in the space, Bed Bath and Beyond could become the destination to find new items within his specialty market. Investments in the brands will inevitably be required however, creating a specialized and popular assortment keeps competitors at bay because Ecommerce still struggles with discoverability and showcasing items. If a retailer focuses on bringing new, popular products to market, especially a niche market, it can still be relevant and drive foot traffic. Imagine if InstaPot had been on Bed Bath and Beyond’s shelves first because a brilliant merchant found them – rather than Amazon.

  1. Create an experience to go along with the product

With remodeling on the rise, the market for home products will continue to expand. Rather than being a transactional experience, Bed Bath and Beyond can help these DIY remodelers through education, demos and digital experiences. Another player in the market, Home Depot, consistently hosts DIY workshops, with themes ranging from “installing vinyl flooring” to “creating a windmill planted [for kids]”. Bed Bath and Beyond, through a different lens, can provide similar events to aid in decking out those new kitchens, bathrooms and bedrooms. By turning the store into something more than just a place to purchase, a trip to Bed Bath and Beyond becomes a value-add, which will ultimately result in loyalty and purchases.

In conclusion, Bed Bath and Beyond has been “transforming” for some time now however, the results suggest it may be in the wrong direction and with the wrong intentions. There is a huge opportunity for them to turn the company around by hitting pause and thinking through what it means to provide a digital experience. As innovators in the category who redefined what it meant to shop for home goods, they can recreate it again – however, this time with the shopper of the future in mind.

 

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