Business
Bed Bath & Beyond’s merchandise problems
Bed Bath & Beyond is betting on a drastic change in strategy and well-recognized brands to revive its struggling business.
But the retailer’s strained relationships with suppliers of products such as air fryers and stand-mixers – some of which were missing from shelves two holiday seasons ago – could leave stores without hot items once again. Out-of-stock products could cripple Bed Bath’s already-declining sales and push the company toward bankruptcy.
Bed Bath is fighting to win back customers as it contends with a leadership shakeup, a mountain of debt and the aftermath of a meme-stock frenzy fueled by activist investor Ryan Cohen. On top of that, tensions with merchandise suppliers grew as the company’s problems worsened, 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 previous turnaround effort, got ousted by the board this year. Bed Bath’s merchandising chief 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.
On a call with investors in late August, two days before Arnal’s death, company leaders announced the fresh financing and revealed a new merchandising strategy that heavily relies on national brands to get more people into stores. Under Tritton, Bed Bath launched and tried to grow nine exclusive brands. Bed Bath now intends to sharply scale back those private labels – including discontinuing several.
Bed Bath has merchandise from its remaining store brands to fill shelves. It has deals 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 many shoppers recognize.
Bed Bath leaders say that the strategy shift has been well received. Interim CEO Sue Gove said in August that she’s 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 vital importance of our supplier partners and our team is working continuously with them, where support has been enthusiastic and high, particularly with our largest partners,” a company spokeswoman said in a statement.
“They want us to win, by supporting the assortment changes previously announced to create the best experience for our shared customers.” Bed Bath plans to give an update on its vendor relationships and strategies when it reports fiscal second quarter earnings next week, she added.
Over the past two years, however, Bed Bath has tested vendor relationships by making late payments, pushing aggressively into private labels and losing shoppers. Those tensions have intensified as financial troubles mounted, according to the former Bed Bath executives.
Make or break
Vendor relationships can make or break a retailer. Typically, suppliers ship goods and get reimbursed weeks or months later. The terms can change, however, if a retailer shows signs of financial distress – sometimes pushing a vendor to shorten the payment window, require cash on delivery or halt 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 was managing vendor relationships on a week to week basis.
Tension with vendors is often a major reason retailers are pushed toward restructuring. Debt-burdened Toys “R” Us filed for bankruptcy in September 2017, and later liquidated, shortly after its suppliers demanded cash on delivery ahead of the holiday season. Other retailers, such as appliance chain H.H. Gregg and electronics store RadioShack, suffered a similar fate as they struggled to keep shelves stocked and burned through cash due to vendors’ tightened payment terms.
One factor working in Bed Bath’s favor is that it works with a vast number of vendors, and if needed, could replace one that wouldn’t ship to the retailer. Retailers like Toys “R” Us, as well as sporting goods chain Sports Authority – which liquidated as part of a bankruptcy filing in 2016 – were heavily reliant on very few suppliers to stock their shelves.
Bed Bath already had a significant debt load prior to the new financing. The retailer has a total of nearly $1.2 billion in unsecured notes – with maturity dates spread across 2024, 2034 and 2044 – which are all trading below par, a sign of its financial distress. In recent quarters, the company said it burned through significant amounts of cash. Despite this, it pressed ahead with an aggressive stock buyback plan that added up to more than $1 billion in repurchases.
The funding announced in August is expected to provide Bed Bath some breathing room and buy it some grace from vendors. But even before the company needed a loan, it lost standing with some of its suppliers, according to the former executives. Bed Bath has tussled with big-name vendors over terms of payment, and executives grew frustrated with smaller shipments of popular products, while seeing other retailers with more of that merchandise – and sometimes exclusive versions.
During the 2020 holidays, air fryers ran low across Bed Bath’s stores. KitchenAid stand mixers, a top item on Christmas lists and wedding registries, were out of stock. The few vacuums and hair styling tools from Dyson that arrived at stores quickly got shipped to online shoppers, leaving store displays bare. Yet at Amazon, Target and Best Buy, those same products were available – and in some cases, even at buzzy promotional prices.
KitchenAid parent company Whirlpool and Dyson didn’t respond to multiple requests for comment.
Growing troubles
Vendors and licensees, likewise, grew concerned by the pace of Bed Bath’s changes – particularly as the retailer launched its own brands of bedding, kitchen utensils and more. As some brands and manufacturers saw Bed Bath pare down orders quarter after quarter, they looked to other stores and websites.
The uneasy relationships exacerbated Bed Bath’s supply chain woes during the first two years of the pandemic, when all retailers coped with temporarily shuttered factories, congested ports and a shortage of truck drivers. The company lost $175 million in sales during the three months ended Feb. 26 as several items that were advertised in circulars were out of stock.
Vendors, which had limited supply, had to pick and choose where to send their hot products. As sales declined sharply at Bed Bath’s namesake stores, it had a harder time getting those items – such as Dyson’s hair styling tools or Keurig’s coffee makers– that were available at retail rivals, according to the former executives.
At company meetings, Bed Bath’s small shipments became a frequent theme – with merchandising leaders urging buyers to go to vendors and ask for more. There were also internal concerns that Bed Bath & Beyond was losing its clout and its relevance, the former executives said.
Bed Bath’s troubles have grown in recent months. Its stock has fallen about 50% this year, its market cap now at about $565 million.
About 60% of total net sales come from Bed Bath’s stores, but its footprint is shrinking. Last week, the company announced the first wave of approximately 150 store closures of its namesake brand.
Including Harmon and BuyBuy Baby stores, the company went from nearly 1,500 stores at the end of the first quarter in 2020 to fewer than 1,000 stores at the end of the same period this year. As of February, Bed Bath had roughly 32,000 associates, including approximately 26,000 store associates and about 3,500 supply chain associates.
Meanwhile, the first wave of holiday merchandise has arrived at stores, including autumn wreaths, pumpkin-print kitchen towels and other fall-themed decor. Much of the merchandise at stores is from Bed Bath & Beyond’s private brands, such as budget-friendly home line Simply Essential.
During a CNBC visit in recent days, Bed Bath’s flagship store in New York City was full of clues that the retailer may not have enough of the hottest items. A Dyson display had six vacuum models – but only one type available for purchase. A display for French cookware company Le Creuset showed off Dutch ovens in many colors, but only had bright orange ones in stock.
Only one stainless-steel, step-on SimpleHuman garbage can, which retails for $149.99, was boxed and ready to be carried away. However, there were small plastic garbage cans from Bed Bath’s owned brand, spread across multiple rows – selling for $3 each.
If you are having suicidal thoughts, contact the Suicide & Crisis Lifeline at 988 for support and assistance from a trained counselor.
The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.
“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.
Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.
Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.
Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.
In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.
However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.
The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.
But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.
As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.
The USO is a potential sticking point for both the government and unions.
Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.
How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.
Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.
Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.
‘Unconditional commitment’
Mr Kretinsky has committed in writing to honouring the USO, but only for five years.
And after that, in theory, the new owners could just walk away from it.
However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.
“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”
Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.
Another potential stumbling block for the deal, however, is how the company will be structured.
Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.
Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.
To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.
It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.
If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.
Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.
“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.
“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”
Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.
The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.
Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.
“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”
He said if the management, union and employees work together, “we will be successful”.
Another concern is the potential break-up of the business.
The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.
Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.
But he has a way to go to convince the CWU.
“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.
However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”
The union cannot stop this deal but the government can block it under the National Security and Investment Act.
Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.
Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.
Who is Daniel Kretinsky?
Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.
He then made serious money in Central and Eastern European energy interests.
This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.
He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.
The Czech businessman is worth about £6bn, according to reports.
Father of five blasted for leashing kids, gives them odd nickname
This heartwarming prom story goes viral again and we all understand why
Simon Cowell Won’t Leave Son His $600 M Fortune; Says If He or Future Children Wants to “Start a Business … I’ll Invest. They Aren’t Getting Trusts”
Five wedding outfits for just £29!
Mikhail Gorbachev changed history
Tracking the war with Russia
-
Fashion2 years agoFive wedding outfits for just £29!
-
Politics2 years agoMikhail Gorbachev changed history
-
Politics2 years agoTracking the war with Russia
-
Everything About Youtube2 years agoThe Twitter Artist who makes a Fortune off YouTube Thumbnails while Studying.
-
Fashion2 years agoOn presents first ever shoe made from carbon
-
Politics2 years agoCharles is announced to be the new King
-
Tech2 years agoThe rise of the AI artists stirs debate
-
Everything About Youtube2 years agoEveryone knows YouTube, but not how it works.