For Bed Bath & Beyond, bankruptcy may be the only option

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At its peak, Bed Bath & Beyond piled its aisles high and wide with linens, kitchen items, and gadgets seen on TV. It was the homebody’s happy place, with 20 percent off coupons always within reach.

But now the Union, NJ-based chain is on a precipice as a slow, years-long decline metastasizes into a haze of strategic missteps, poor investments, patchy supplies and indifferent shoppers. Directors warn that bankruptcy is inevitable, although many experts wonder whether the 52-year-old retailer will survive.

Bed Bath & Beyond posted a worse-than-expected loss of $393 million in the third quarter ended Nov. 26, pushing its fiscal year-to-date losses above $1.1 billion. Revenue was down 33 percent from the same three-month period last year.

“What we’re seeing is a tumultuous situation, and it’s taken a really long time,” said Neil Saunders, the general manager of analytics firm GlobalData. There is a “soft erosion of customers … year in, year out.”

College student, 20, earns $110 million trading meme stocks Bed Bath & Beyond

In an earnings call Tuesday, CEO Sue Gove said the company is working with a team of advisors to cut costs by $80 million to $100 million. It is going ahead with plans announced in August to close 150 stores and has said an undisclosed number of layoffs is underway.

“I don’t think that’s going to be enough to balance the book again because the losses are just horrendous and they’re still in this dire situation,” Saunders said.

Gove did not say a Chapter 11 filing — which would allow troubled companies to save themselves by reorganizing their debts — was final. On Friday, a company spokesperson said in a statement to The Washington Post that “multiple paths are being explored and we are determining our next steps thoroughly and in a timely manner.”

But a public acknowledgment generally means there’s no turning back, said Patrick Collins, a partner at New York-based law firm Farrell Fritz, which focuses on bankruptcy and corporate restructuring.

“It becomes inevitable,” Collins said. “Because when you’re a supplier and you hear that, you’re no longer going to extend credit to Bath Bath & Beyond — you’re going to insist on cash on delivery.”

If a bankruptcy filing comes along, Mark Cohen, the director of retail studies at Columbia University, expects it to happen quickly. Most companies file in January because they have not paid their suppliers and have fresh money from holiday sales that can be used to pay legal fees in bankruptcy proceedings.

Cohen added that there is an equal opportunity with the company’s heading for liquidation via a Chapter 7 filing.

“Absent a suitor who buys the company or injects the company with some form of highly visible money, or gets involved in the company’s debt and sends it into pre-packaged bankruptcy — the company is toast,” Cohen said.

‘A terrible, terrible mistake’

Founded in 1971, Bed Bath & Beyond was one of the first major ones shopkeepers in the specialty store space. It became the go-to destination for housewares, small kitchen appliances, wedding registries and supplies for student rooms. But things started to cool in 2010, Saunders said, as Amazon, Wayfair, Walmart, Target and other brands bolstered their lineups of home goods. (Amazon founder Jeff Bezos owns The Washington Post.)

Meanwhile, the company has suffered a number of misses, such as acquiring One Kings Lane for $12 million in 2016. Bed Bath & Beyond sold the online interior design company in 2020.

Mark Tritton, who took over as CEO of Bed Bath & Beyond in 2019, moved to revive the retailer’s private label brand — in an effort to replicate the success he had as head of merchandising at Target. He shifted his focus and resources, but the investment didn’t pay off, Cohen said.

He made other ill-advised decisions before being replaced by Gove last June, Cohen said, including presiding over a $1 billion stock buyback.

“Whether he did it because he didn’t know what he was doing or because he was forced to do it, that was a terrible, terrible mistake,” Cohen said.

And since most of its competitors struggled with excess inventory, Bed Bath & Beyond was a mixed bag. Saunders said supply chain operations were poorly managed. Some shelves were filled to the brim, others were bare. And coupons, which are almost synonymous with Bed Bath & Beyond, became a necessary evil. The discounts weighed on the company’s profits, but they also brought in customers.

“It takes a long time to change a customer’s focus, let alone pull the needle out regarding these millions of ‘X’ percent coupons that have been sitting in people’s mailboxes for years,” Cohen said.

The era of free online returns is coming to an end

While the company was able to ride the wave of consumer spending during the pandemic – as Americans were forced to spend more time at home — it failed to capitalize on the momentum, Saunders said. As the economic climate turned, stubbornly high inflation cut back on US discretionary purchases. This took its toll on most retailers, but “Bed Bath & Beyond tumbled in a way no other retailer had seen,” added Saunders.

According to the analytics firm Placer.ai, foot traffic is down sharply — 26.5 percent in December, year-over-year.

“Customers aren’t likely to dine at an empty restaurant, they aren’t likely to go to empty malls, and they certainly aren’t shopping at stores with empty shelves,” Cohen said.

Over the past four months, as news of Bed Bath & Beyond’s dwindling cash and poor performance spread, many suppliers decided it was too risky to credit the company’s product. If it files for bankruptcy, chances are they won’t get paid.

The chain seems to have few other options. Experts say it’s best to file for Chapter 11 protection or find an interested party to buy the debt.

“I suspect there are vultures out there who are considering or have considered diving in and basically taking control of the company through debt, debt and other debt,” Cohen said.

But this should come at an “absolute bargain, knockdown price,” Saunders noted.

A report surfaced Friday that the company is in talks with Sycamore Partners, a private equity firm, to sell its Buy Buy Baby subsidiary and other assets. A New York Times article, citing unnamed people close to the case, said deals with other parties are also at play.

In a statement to The Post, the retailer declined to discuss possible sales. “We do not comment on speculation of this nature.”

Shares of the company fell 30.1 percent to $3.66 following the report, ending a fiery five-day rally that drew comparisons to Bed Bath & Beyond’s wild meme-stock-driven ride over the summer. It peaked at more than 350 percent in August, largely driven by online message boards.

Saunders doubts Bed Bath & Beyond can turn around if it files for bankruptcy. It’s too focused on staying afloat than forming a long-term strategy, he said.

“The problem is — you save a ship from sinking, it doesn’t mean … you then have a seaworthy ship,” Saunders said. “You just have a ship that you saved from going down. But you still run a real risk of going under in the future.’

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