How Bed Bath & Beyond lost its financial footing—and its most loyal customers

Is BBBY beyond saving?

Yesterday, Bed Bath & Beyond (Nasdaq: BBBY), the home goods retailer, reported financial results for the third quarter of fiscal 2022 ending Nov. 26. Reporting was delayed by the company for additional time to complete its quarter-end close procedures. 

Net sales declined 33%, compared to the same time the prior year, according to the report. Bed Bath & Beyond comparable sales declined 34%; buybuy Baby comparable sales declined in the low-twenties percent range; and revenue was $1.26 billion compared to $1.34 billion expected.

As it faced the prospect of a critical cash shortfall, the company said last week that it’s exploring options, including a Chapter 11 bankruptcy filing. Sue Gove, president and CEO of Bed Bath & Beyond, said on the earning call the company will make an additional $80-$100 million in cost reductions.

Bed Bath & Beyond, founded in 1971, and known for its 20%-off coupons, was once a darling of American retailers. But for the past few years, there’s been turbulence and tragedy at the company. Departures of top executives, dire financial straits, plans to cut its workforce by 20% and plans to close 150 “lower-producing” stores. The company released a list of closures so far. Then there’s the meme-stock mayhem and credit issues. And tragically, Bed Bath & Beyond’s CFO Gustavo Arnal died by suicide in September. Laura Crossen is in the role of interim CFO.

‘Winning customers back is no easy task’

Of all the company’s challenges, a glaring one is its struggle to understand its customers. Gove said in the earnings announcement on Tuesday that in the beginning of the third quarter last year, the company initiated a turnaround plan. 

It’s “anchored on serving our loyal customers, following a period when our merchandise and strategy had veered away from their preferences,” Gove said. Bed Bath & Beyond “moved quickly and effectively to change the assortment and other merchandising and marketing strategies, but the inventory was constrained and we did not achieve our goals,” she said. 

Gove officially became CEO in October. She was an independent director at the company until she stepped in as interim CEO in June. Gove replaced Mark Tritton as chief executive after his attempt to turn around the company by replacing name brands with private-label goods veered away from customer preferences and further spiraled sales.

“When a company stops resonating with its customers, too many competitors can jump in to steal that business,” says Jason Schloetzer, an associate professor at Georgetown’s McDonough School of Business, and a faculty affiliate at Georgetown McDonough’s Psaros Center for Financial Markets and Policy. “Winning customers back is no easy task. Unfortunately, when you combine that with the competitive nature of the home products landscape, there is no quick win.”

In a recent article on Bed Bath & Beyond’s strategic mistakes, my colleague Phil Wahba includes the replacement of name brands with private labels. “Tritton would apply his brand-building prowess—honed at Target, Nordstrom, and Nike before that—to launch 10 new brands,” Wahba writes. “His bold goal: having store brands generate 30% of sales, up from 10% at the time.” But some of Tritton’s new brands were of too low quality in relation to their price. 

“The playbook from Target did not transfer to Bed Bath & Beyond, and the customer walked in and felt they weren’t providing private label products that were distinctive and at a better price,” Stacey Widlitz, president of SW Retail Advisors, told Wahba. 

Meme stock mayhem

Last year, during Bed Bath & Beyond’s time as a meme stock, (when online communities of retail investors coordinated buying and selling efforts to influence stock prices), a 20-year-old USC student actually netted $110m from stock dump at exactly the right time. But the company’s gains were only short term. 

“When the stock price rallied temporarily from $4 to $23 on Aug. 17, many disregarded the fundamental business performance in favor of short-term excitement,” according to a weekly market update by Ironhold Capital Management released on Tuesday. “The result was a fiasco. Since the peak of $23 on Aug. 17, the share price has fallen 94% to below $2, as investors continue to exit the stock en masse.”

The meme stock period also squandered the opportunity to gauge company leadership. “Stock prices typically offer executives an opportunity to learn how capital markets are thinking about executives’ performance,” Schloetzer says. “Those prices become less informative in the meme stock situation and less informative in the learning process.”

But some think it’s now too late for the retailer to mount a comeback. “They’re just simply not relevant anymore,” Loop Capital Managing Director Anthony Chukumba told Yahoo Finance in December. “We will not be having this same conversation a year from now about Bed Bath & Beyond. Bed Bath & Beyond will be gone.”

I asked Schloetzer his assessment. He wasn’t optimistic. “When you look at the muddling-along progress of other turnaround stories, the notion that BBBY can break out is certainly possible but more likely improbable.”

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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