‘Most of the things you buy at Bed Bath & Beyond you don’t need’: Why the retailer will have a hard time winning customers back.

By Quentin Fottrell

Bed Bath & Beyond shares were in decline Wednesday after the company said it would close up to 150 stores and cut 20% of its workforce

What’s going on with Bed Bath & Beyond? Quite a lot, it turns out. And there’s a lot going on with the American consumer, too.

Bed Bath & Beyond shares fell Wednesday after the company said it would close up to 150 stores and part with 20% of its workforce. “When I got into the business 20 years ago the story was about category killers Bed Bath & Beyond (BBBY) and Best Buy (BBY) taking market share from Sears (SHLDQ) and Kmart and mom-and-pop independents,” said Bradley Thomas, an analyst at KeyBanc Capital Markets.

Analysts say the US consumer is constantly evolving, and Bed Bath & Beyond did not evolve quickly enough. “How Americans shop changes every decade or two,” Thomas told MarketWatch. “If you look at the most important retailers today, it’s a different group from a decade ago, and different 20 years ago versus 40 years ago. That’s a lot of what is playing out there.”

Amazon (AMZN), in its early days, had success with products like books and DVDs and then televisions, Thomas observed. “More recently, they’ve had tremendous success with their home brands, and third parties selling pillows, sheets, towels and home-related accessories, and that’s made things very tough for Bed Bath & Beyond.” As did Walmart (WMT), HomeGoods , Target (TGT) and Wayfair (W).

For its part, Bed Bath & Beyond says it’s working to restore liquidity and secure its future. It has pledged to implement a “significant” cost-cutting program aimed at lowering expenses by $250 million in fiscal 2022. That involves cutting capital expenditure to an expected $250 million from previous guidance of $400 million. (The company was not immediately available for further comment.)

What about those empty shelves? “At this point, we do not believe the stores are suffering from meaningful inventory shortages, although the company’s inventory is skewed to private-label merchandise that consumers [recently] have not been as interested in,” said Cristina Fernández, managing director and senior research analyst at Telsey Advisory Group.

At the beginning of the pandemic, many people moved into bigger suburban houses that required a lot of renovation, and obviously bought more cookware and appliances, said Joe Derochowski, home industry analyst at The NPD Group. But more people are now returning to the office, and venturing back to outdoor pursuits on weekends and evenings.

Yes, the sales decline is due to lower spending on home goods compared with very high at-home spending last year during an earlier stage of the COVID-19 pandemic. “But the decline at Bed Bath & Beyond is much more pronounced than at other retailers,” Fernández told MarketWatch. Customers, she said, are taking their precious dollars elsewhere.

It’s not just Bed Bath & Beyond. Spooked by rising prices, consumers are not buying new sheets and upgrading their vacuum cleaners when they can make do with what they have. In July 18% of US adults bought fewer home furnishings and appliances, while 49% did not purchase items in the household-goods category at all, according to a survey by Morning Consult.

The company was also caught off guard by the shift to experiences like restaurants and travel, after a shutdown-era shopping splurge where customers clicked on homeware retail websites, Thomas said, and Bed Bath & Beyond is accountable for not moving with the times. “It was not investing enough in digital and customer experience. That’s mostly what’s playing out there in Bed Bath & Beyond.”

Inflation has also taken its toll, and discounts and coupons are not sufficient to sway families who are now worried about having enough money for such necessities as food and gas, Alex Arnold, managing director of Odeon Capital Group, told MarketWatch. “Most of the things you buy at Bed Bath & Beyond, you don’t need. You might want towels, but you can stretch your existing towels out.”

The predominantly bricks-and-mortar chain has been investing in its online presence in recent years, but Arnold is skeptical that can meaningfully address a fundamental shift in consumer priorities and a diminished perception of Bed Bath & Beyond. “This company has been shrinking for a long time,” he said. “Is this brand extendable into the digital realm? That’s the entire bet on this.”

Don’t miss: Bed Bath & Beyond going ‘back-to-basics’ to boost traffic and sales, with ‘unique’ assortment and ‘newness’

Mark Hamrick, senior economic analyst at Bankrate.com, agreed that the retailer is playing catch-up during an economically uncertain time. “Bed Bath & Beyond is a classic example of failing to make a strong transition to online or omnichannel commerce, having made its proverbial mark by expanding its brick-and-mortar presence and ubiquitous coupons,” he told MarketWatch.

“The stay-at-home economy associated with the pandemic made the digital-transition mandate more urgent,” he added. “Many consumers have now checked off the box on sprucing up their homes — and remote offices — over the past couple of years, with some recently transitioning some of their purchases to necessities and/or services, away from discretionary purchases.

“If the in-store experience is suboptimal, whether looking at product mix or the opportunity to interact favorably with engaged and professional store personnel as needed, consumers will go elsewhere or stay away,” Hamrick added. With stiff competition and falling foot traffic coupled with elevated inflation and fears of a recession, he cautioned, “It’s a tough time to mount a turnaround effort.”

Shares of Bed Bath & Beyond, down nearly 19.8% in the closing hour of trading Wednesday, have declined 33% in 2022 and 60% in the past year, as compared with the benchmark S&P 500 index , which has fallen 16.7% and 12.2% over those same time frames.

(Zoe Han contributed to this story.)

Also see: It’s not just inflation. People aren’t visiting clothing stores like they used to because they’re sick of loungewear

-Quentin Fottrell

 

(END) Dow Jones Newswires

09-03-22 1105ET

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