The San Juan Daily Star
Bed Bath & Beyond files for bankruptcy
By Jordyn Holman and Lauren Hirsch
Bed Bath & Beyond came out of the 2008 downturn a winner. Although competitors like Sharper Image and Linens ’n Things filed for bankruptcy, Bed Bath & Beyond actually expanded its business by acquiring other retailers. Its home-goods emporiums full of towels and kitchen aids — all available at a reduced price with that big blue coupon — were beacons that kept shoppers coming back.
Now, as the U.S. economy experiences another period of uncertainty, Bed Bath & Beyond is no longer on top, the result of an increasingly unwieldy corporate structure and its failure to fully reckon with the ascendance of online shopping.
On Sunday, the 52-year-old retailer said it was filing for bankruptcy protection in United States Bankruptcy Court for the District of New Jersey. It said it would start the process of closing the company’s 360 Bed Bath & Beyond stores and 120 Buy Buy Baby locations Wednesday and seek to sell parts of its business. In its Chapter 11 filing, the company said that it expected all stores to close by June 30.
It will stop accepting its coupons Wednesday, when its store closing sales begin. Customers will have until May 8 to use Bed Bath & Beyond gift cards. The company did not specify when its store apps would shut down, saying only that customers could continue using them “at this time.”
“Thank you to all of our loyal customers,” the company said on its website. “We have made the difficult decision to begin winding down our operations.”
To help fund its operations in bankruptcy, Bed Bath & Beyond has raised $240 million from the investment firm Sixth Street Specialty Lending.
The company’s decline offers a glimpse into the forces shaping the post-pandemic retail landscape. For companies such as Bed Bath & Beyond, whose financial problems were masked as consumers rushed to spend their stimulus money, the economic concerns of the past few months are exposing those weaknesses. It will become even more crucial for retailers to adapt as shoppers cut back on discretionary spending.
“We are going to see the Darwinism of retail” play out in 2023, said Michael Lasser, a retail analyst at UBS who has covered Bed Bath & Beyond for 16 years.
The past several years have been tumultuous for retailers. In 2020,J.C. Penney, Neiman Marcus and J. Crew all filed for bankruptcy. But in the past two years, retailers have benefited from U.S. consumers’ willingness to spend. Now, as shoppers are being more discerning about their purchases, more companies will be at risk.
The retail landscape looked much different when Bed Bath & Beyond was started in 1971 as a way to compete with the home goods sections of department stores. The company’s founders, Warren Eisenberg and Leonard Feinstein, opened the chain’s first stores in New York and New Jersey. The venture was originally called Bed N’ Bath, a nod to their narrow line of merchandise.
Compared with a store like Macy’s, the upstart retailer promised a larger selection of bedsheets, towels, shower curtains and other home necessities. As their merchandise assortment and store base expanded, the retailer was renamed Bed Bath & Beyond in 1987. It went public in 1992.
It embraced innovation, former executives and employees said. Instead of TV ads, Bed Bath & Beyond relied on word-of-mouth advertising and the large coupons it delivered to millions of Americans’ mailboxes. Countless shoppers would keep those 20% off cards in their cars or junk drawers, a reminder to head to the retailer if they were considering, say, a new toaster.
In 2000, Bed Bath & Beyond had 311 stores. A decade later, it had 1,100. From 2002 until 2012, the company acquired Harmon Stores, Christmas Tree Shops, Buy Buy Baby and Cost Plus World Market. The brands helped diversify the company from a retail perspective, but the moves also diverted management’s focus away from other crucial investments, like its e-commerce business, according to Richard McMahon, who held various executive titles at the company, including chief strategy officer, over 17 years before leaving in 2015.
“There wasn’t as much focus put on the organic business — Bed Bath & Beyond — and evolving that business to consumer behavior,” McMahon said. “The internet started to become real and consumer behavior was changing through that process.”
In 2014, Bed Bath & Beyond got into the debt market for the first time by selling $1.5 billion in bonds to buy back stock. Many retailers avoid taking on debt, well aware of the industry volatility that can quickly turn a reasonable debt load into a serious financial burden. Lasser, the UBS analyst, described the move as a “seminal event” and wondered if it was an attempt to raise the company’s stock price to fend off activist investors.
If that was the intent, it wasn’t a long-term solution. In 2019, a trio of activist investors — Legion Partners, Macellum Advisors and Ancora Advisors — won a fight with the retailer that gave them the choice of four new board members and, eventually, a chief executive they supported: Mark Tritton of Target, the first top executive to come from outside the company.
Much of the workplace culture at Bed Bath & Beyond soon changed. There were layoffs. Store managers had less say over which items would be stocked in their stores. Tritton, who left the company last year, declined to comment on his tenure.
When the pandemic came, Bed Bath & Beyond joined other retailers in dealing with supply chain problems. But the company’s decentralized system complicated things further, and its e-commerce technology was less advanced than many of its biggest competitors.
Revenue in 2020 fell to $2.6 billion, a 16% drop from 2019. What had once been a manageable debt load quickly became unsustainable.
As the company looked for places to cut costs, it started to undo the things that people loved about Bed Bath & Beyond. In 2020, the retailer said it would scale back on mailing its trademark coupons. It moved away from national, well-known brands in favor of making its own batch of private label brands, which usually have better margins. To make stores feel more open, it removed items and tore down its 14-foot-tall tower of towels.
In August, the company announced an aggressive restructuring plan, saying it would close 150 stores and lay off more workers. Just a few days later, the retailer was thrown into emotional tumult when its chief financial officer, Gustavo Arnal, died, a death that was ruled a suicide.
Bed Bath & Beyond’s suppliers started to get spooked and began demanding payment upfront. That led to in-stock levels around 70% during the past holiday season, according to Sue Gove, who became the permanent CEO in October.
In early February, the company sidestepped bankruptcy after coming up with a plan to use a public stock offering to raise more than $1 billion. The plan, backed by Hudson Bay Capital Management, was good only so long as Bed Bath & Beyond’s stock stayed above $1 a share. This month, the retailer canceled that deal after its terms were breached. Its stock closed at 29 cents a share Friday.
All the while, sales continued to fall, starving the company of the cash — and confidence — necessary to keep suppliers shipping to its stores.
“It’s a death spiral,” said Neil Saunders, the managing director at GlobalData’s retail division. “If you can’t get the stock, you can’t make the sales. If you can’t make the sales, your credit deteriorates. If your credit deteriorates, people are less willing to supply you. That cycle seems impossible to break.”