Skip navigation

Is Bed Bath & Beyond Going Through Temporary Turbulence or More Serious Challenges?

The retailer is looking at right-sizing its portfolio and potentially doing sale-leaseback transactions to raise cash.

Amid falling sales, big-box home goods retailer Bed Bath & Beyond is upping the number of stores it anticipates closing in the fiscal year.

The New Jersey-based retailer, which also operates World Market, buybuy Baby and Harmon Face Values, announced it will shutter 60 stores nationally, which is 20 more than it originally estimated. Most of the closures are anticipated to occur following the 2019 holiday shopping season. Forty will be Bed Bath & Beyond locations and 20 will be stores from the company’s other concepts, according to interim CEO Mary Winston. (Winston will be succeeded by permanent CEO Mark Tritton on Nov. 4, it was announced this week).

At the end of August, the company operated 1,534 stores, including 993 Bed Bath & Beyond locations.  

More changes are coming

In the past several months, a new board of directors has been seeking to transform the flailing company. Company officials insist they’re undertaking major changes to help get it back on track. For example, a refresh of 160 Bed Bath & Beyond stores will occur before the holiday season, according to a Sept. 4 letter the company wrote to shareholders.

In addition, as part of the process of decluttering stores, an “aggressive reduction of up to $1 billion of inventory is expected to be executed over the next 18 months, including the removal of excess aged inventory from our stores anticipated before the 2019 holiday season,” the letter stated.

The company is also evaluating its real estate and online presence. Like many bricks-and-mortar retailers, Bed Bath & Beyond has struggled to adapt to changing shopper preferences.

“We continue to evaluate our fleet to create a better balance between our physical and digital presence within the markets we serve, to deliver the shopping experience our customers want,” the letter noted. The company is looking to take advantage of “heavy lease expiration cadence over the next couple of years, to close underperforming stores or relocate stores to improve sales and profitability.”

The company has also undergone a reshuffling among its executive ranks. Under tremendous pressure, longtime CEO Steven Temares resigned in May and Winston took over as interim CEO. “Our objectives are to accelerate improvement in our financial performance, enhance our competitive positioning and ensure we have a best-in-class governance structure,” the company said in that letter to shareholders. Tritton, the newly appointed permanent company CEO, previously served as executive vice president and chief merchandising officer at Target.

Mixed second-quarter results

In its fiscal second quarter, Bed Bath & Beyond’s profits outperformed analyst estimates. However, the company failed to reach estimates for revenue and same-store sales.

Bed Bath & Beyond was the only retailer in its category-killer sector to survive through the last recession, but many are beginning to wonder if it’s just experiencing temporary turmoil or facing significant problems.

“What I see is more than temporary turbulence; the company is facing serious trouble,” says Lauren Leach, director of real estate advisory services at consulting and advisory firm Conway MacKenzie. “Revenue for the company declined 7.3 percent year-over-year in second quarter. It is closing a total of 60 stores—which is up from the initial estimate of 40—and same-store sales have fallen two years in a row.”

Bed Bath & Beyond’s same-store sales dropped 6.7 percent for the quarter, while analysts had expected a 5.44 percent decline.

“Furthermore, the company’s stock took a nosedive; it has lost 85 percent of its value in the past five years. That’s highly problematic,” Leach notes.

Using sale-leaseback as a strategy for cash?

In the company’s most recent earnings call, Bed Bath & Beyond executives revealed they are evaluating several offers for sale-leaseback transactions, which is a strategy employed to quickly generate liquidity, according to Leach. “This implies the company has a need for cash and is taking steps to address it,” she says.

The initial potential proceeds estimate for sale-leaseback transactions is $50 million for approximately 4 million sq. ft. of retail and 500,000 sq. ft. of land.

“If executed, this will most certainly help, but the question remains whether $50 million alone will be enough, and if the timeframe associated to close all of the transactions will be outpaced by the company’s other looming issues,” Leach notes.

An uphill battle

Bed Bath & Beyond is struggling with what many big-box retailers are struggling with: the fact that they have “huge boxes and everything they sell today, frankly, is available online,” says Farla Efros, president of HRC Retail Advisory, a strategic retail advisory firm with offices in Chicago and Toronto.

“Yes. They survived the recession of the time, but online and e-commerce really wasn’t as developed as it is today,” she notes. “Everything they sell today is available on Amazon, and for the most part, every other retailer is getting into a different element of housewares or towels or, like Urban Outfitters, now is getting into furniture.” (Apparel retailer Urban Outfitters recently launched a new home furnishings collection).

Then there’s Bed Bath & Beyond’s massive excess inventory, which is “probably just bleeding their systems dry,” Efros says.

What can be done to revive Bed Bath & Beyond?

The company has a downsizing opportunity, as well as a customer service opportunity, according to Efros.

“You have to think about the impact to the overall consumer,” she says. “You say to yourself, ‘Okay. So maybe I have to minimize locations, and then I focus on the online to the best of my ability, and maybe I create some kind of service aspect that I don’t have today.’”

However, Bed Bath & Beyond needs to look at its balance sheet and figure out where there are opportunities for cost savings and greater efficiencies, and then right-size its operations before figuring out its next move, she adds.

Meticulously looking at their real estate portfolio to make sure it’s the right portfolio for them will be very important, Efros notes. The more stores they can close, the better off they will be, she says.

“And then I think they need to look not only at their store fleet, but at their folks on the sales floor to understand what they want to be. Do they want to be full-service or self-service or what? They need to define their service model.”

Then there’s Bed Bath & Beyond’s huge inventory. A common complaint from shoppers is that surplus inventory makes Bed Bath & Beyond stores confusing to shop at, Efros says. The company has emphasized that it’s reducing inventory and looking to improve the store experience.

“Right now, based on the inventory that they have in the store, it’s very much ‘stack it high and let it fly,’” she says.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.