Problems with Bed Bath and Beyond merchandise can derail a turnaround plan

In-person appearances at the Bed Bath & Beyond store in New York City, June 29, 2022.

Andrew Kelly | Reuters

Bed Bath & Beyond is betting on a drastic change in strategy and well-known brands to revive its struggling business.

But the retailer’s strained relationship with suppliers of items such as deep fryers and stand mixers — some of which were off the shelves two holiday seasons ago — could leave stores without the hot item again. Out-of-stock products could undermine Bed Bath’s already declining sales and push the company into bankruptcy.

Bed Bath is struggling to win back customers as it grapples with a leadership shakeup, a mountain of debt and the aftermath of a meme-stock frenzy. activist investor Ryan Cohen. In addition, according to former executives who recently left the company, tensions with suppliers increased as the company’s problems worsened. They declined to be named because they are not authorized to speak about internal discussions.

Chief executive Mark Tritton, who was hired in 2019 to oversee the company’s earlier turnaround efforts, was ousted by the board this year. Bed Bath’s commercial manager was also fired. Chief Financial Officer Gustavo Arnal, who participated in the preparation of the new loan for Bed Bath, died by suicide earlier this month. Currently, the company is led by an interim CEO and an interim CFO.

In a call with investors in late August, two days before Arnal’s death, company executives announced the new financing and new trading strategy relies heavily on national brands to attract more people to stores. Under Tritton, Bed Bath created and worked to develop nine exclusive brands. Bed Bath is now looking to drastically reduce these private labels, including discontinuing several.

Bed Bath has merchandise from the remaining store brands to fill the shelves. It has deals with direct-to-consumer brands, such as mattress maker Casper, and is trying to sue more of them. Still, in order to implement its new plan, Bed Bath must provide consistent shipping from brands that many shoppers recognize.

Bed Bath leaders say the change in strategy has been well received. Interim CEO Sue Gove said in August that she had even received thank-you notes from vendors.

Make or break

A customer carries a shopping bag outside Bed Bath & Beyond Inc. Store in Charlotte, North Carolina.

Logan Cyrus | Bloomberg | Getty Images

Vendor relationships can make or break a retailer. Typically, suppliers ship goods and return them weeks or months later. Terms can change if the retailer shows signs of financial distress — sometimes forcing the seller to shorten the payment window, require cash on delivery or stop shipments.

Bed Bath has already agreed to stricter payment terms and advance payments for some suppliers, the company said in public filings. Company executives acknowledged on a call with investors that it manages vendor relationships on a week-to-week basis.

Tensions with vendors are often the main reason retailers push for restructuring. Debt-laden Toys “R” Us filed for bankruptcy in September 2017 and was later liquidated shortly after its suppliers demanded cash on deliveries ahead of the holiday season. Other retailers, such as appliance chain HH Gregg and electronics store RadioShack, faced a similar fate as sellers struggled to stock shelves and burned through cash due to tightened payment terms.

One factor works In Bed Bath’s favor, it works with a wide variety of vendors and can replace one that doesn’t ship to a retailer if necessary. Retailers such as Toys “R” Us, as well as sporting goods chain Sports Authority, which was dissolved as part of a bankruptcy filing in 2016, relied heavily on a small number of suppliers to stock their shelves.

Before the new financing, Bed Bath already had a significant debt load. Retail has a total of $1.2 billion of unsecured notes — with maturities spread between 2024, 2034 and 2044 — all of which are trading below par, a sign of its financial distress. In recent quarters, the company said it has burned through a significant amount of cash. Nevertheless, it pushed ahead with an aggressive share buyback plan that added more than $1 billion in buybacks.

The funding, announced in August, is expected to give Bed Bath some breathing room and some favor from sellers. The company lost ground with some of its suppliers before it even needed the loan, former executives said. Bed Bath has clashed with popular vendors over payment terms, and executives have grown frustrated with small supplies of popular products while seeing other retailers with more merchandise and sometimes exclusive versions.

During the 2020 holidays, the number of fryers in Bed Bath stores is reduced. A top item on Christmas lists and wedding favors, KitchenAid stand mixers are sold out. The few Dyson vacuum cleaners and hairstyling tools that arrived in stores were quickly shipped to online shoppers, leaving store displays bare. Still Amazon, target and Best Buythose products were available – and in some cases even at outrageous promotional prices.

KitchenAid relative companion Vortex and Dyson did not respond to multiple requests for comment.

Increasing difficulties

Customers carry bags at a Bed Bath & Beyond store on April 10, 2013 in Los Angeles, California.

Kevork Cansezian | Getty Images News | Getty Images

Vendors and licensees have also been concerned about the speed of Bed Bath’s changes – especially since the retailer is selling its bedding, kitchenware and more. when they launch their brands. Some brands and manufacturers looked to other stores and websites as they saw their bed bath orders drop after the quarter.

The uneasy relationship compounded Bed Bath’s supply chain woes in the first two years of the pandemic, when all retailers struggled with temporarily closed factories, congested ports and a shortage of truck drivers. In the three months ending in February, the company lost $175 million in sales. 26 as several items advertised in the circulars are out of stock.

Sellers with limited supplies had to choose where to ship their hot products. As sales at Bed Bath’s namesake stores plummeted, former executives said, products like Dyson’s hairstyling tools or Keurig’s coffee makers available at retail rivals became harder to come by.

At company meetings, Bed Bath’s small shipments became a frequent topic – trade leaders urged buyers to go to sellers and ask for more. Former executives also had internal concerns that Bed Bath & Beyond was losing prestige and relevance.

Bed Bath’s problems have increased in recent months. Its shares are down nearly 50% this year, with a market value now of 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 closings of nearly 150 of its namesake brand’s stores. Including Harmon and BuyBuy Baby stores, the company went from about 1,500 stores at the end of the first quarter of 2020 to less than 1,000 at the end of the same period this year. As of February, Bed Bath has approximately 32,000 employees, including approximately 26,000 store employees and approximately 3,500 supply chain employees.

Meanwhile, the first wave of holiday merchandise has hit stores, including fall wreaths, pumpkin-colored kitchen towels and other fall-themed decor. Most of the items in the stores are from Bed Bath & Beyond’s own brands, such as the budget-friendly home line Simply Essential.

When CNBC visited in recent days, Bed Bath’s New York City flagship store was littered with clues that the retailer might not have enough hot products. Dyson had six vacuum models on display, but only one type was available for purchase. A display for French cookware company Le Creuset featured Dutch ovens in many colors, but only bright orange ones were in stock.

Just one stainless steel SimpleHuman litter box for $149.99 was boxed and ready to go. However, there were small plastic trash cans spread across several rows from a Bed Bath-owned brand — selling for $3 each.