Bed, Bath & Beyond – when you wish upon a digital vision…your share price collapses

SUMMARY:

Bed, Bath & Beyond’s digital direction has been furnished with more detail, but it’s still not clear whether this is a vision or a wish list…

wish list When a traditional retailer gets into trouble the excuse du jour is to cite Amazonian incursion into your market and start talking up your brand spanking digital strategy that’s going to help you to fend off the threat. But there are some cases where kicking the Bezos blame hound doesn’t really fly.

Take Bed, Bath & Beyond, the U.S. furniture and home decor firm, which this week saw its stock price collapse to a ten year low on the back of lacklustre numbers and investor concern about its outlook.

The retailer is in an interesting space in terms of the Amazon-factor. There are a lot of things in its inventory that buyers could certainly look to Amazon to purchase – towels, accessories etc – but equally there are big ticket items that are the kind of things that customers want to see, touch and feel in-store, even if they then complete their transaction online later.

Bed Bath & Beyond needs a strong, coherent omni-channel mix – and the problem is that there’s not a lot of sign of that just yet. CEO Steven Tamares talked nearly a year ago about “the challenges presented by declining foot traffic in stores and the opportunities presented by omni-channel retailing”, but admitted to a degree of ignorance about how this plays out in practice:

It’s hard to explain the dynamic. As we get better [at digital], we are losing foot traffic and that’s the lion share of our business. So even though we’ve been able to sustain very healthy growth in the digital world, when the big base [of foot traffic] deteriorates, that’s a big hit for us.

Vision thing or wish list?

Flash forward to this week and Tamares is talking about a more coherent plan, although when you look between the lines, it’s still not a fully-formed vision just yet. But that’s what it’s pitched as – “our vision for 2020…our roadmap for continuing to evolve the foundational structure of our company to support our mission.”

Giving him the benefit of the doubt and assuming that Bed, Bath  & Beyond is still in business in four years time, what’s the vision going to look like in practice? Tamares says there are some clear goals:

We will be in a position to intelligently and dynamically price our assortment across all channels directed by pricing specialists and driven by systems powered by machine learning. Our value proposition will be further supported by a membership program that is robust, uniquely positioned in the marketplace in terms of offerings and treasured by its members.

We will present best-in-class services and solutions reflecting our leadership and our life stage businesses and strengthening our customer relationships through expanded and faster delivery options, as well as a premier offering of in-home services and we will deliver a superior customer experience across all channels.

Our frictionless digital experience that is more personalized, more inspirational, more educational and enjoyable to use, as well as a store experience that is more engaging that shows more with less inventory and presents products that customer wants and needs today in a store environment including a world-class seasonal offerings, commodity and deep value products, and a treasure hunt experience, all supported by marketing that is both personalized and communicates our branding message.

OK, that’s quite a long to-do list. It’s one thing having ‘world peace and ice cream for all’ wishes, but if the fundamentals aren’t in place to deliver on them, then aspirations are for asses. On this front, Tamares insists that Bed, Bath & Beyond has been doing the spade work for provide the foundation for its 2020 vision:

We have spent the last few years driving the digital experience in terms of getting customers to understand us as a digital choice for them and that that – and in the world we compete, that’s necessary to introduce customers to us as a digital choice. We’ve been doing that to some degree at the expense of profitability.

But it’s been essential work, he states:

During the past few years we have been transforming our company while continuing to conduct business day in and day out. We have challenged best practices, policies and organizational structure while taking advantage of internal and external expertise, better processes and ever developing technology all with the intent of better positioning ourselves to execute the strategic initiatives on our roadmap.

Deliverables

As to what those are, Tamares points to a program called Front End Optimization (FEO), which is pitched as “a major transformation of our digital architecture”. He expands:

In short, we are re-platforming a large portion of our digital commerce solution into a service-based architecture with a responsive design. FEO should significantly increase the speed in which we can develop and release many types of new features and cut down on the time and cost for developing them. We are targeting completion of FEO by this fall.

As part of this transformation, we are migrating our e-commerce systems and applications to the cloud. We are also establishing a dedicated offshore technology office in India, just outside of New Delhi to enhance the delivery of cost-effective supports to this new architecture, as well as other strategic projects and capabilities.

Given that customers may come into a Bed, Bath & Beyond store to browse and pick out a large item of furniture, go home to mull it over and then complete the purchase online, then fulfilment of that order, including delivery, becomes critical. Tamares acknowledges this:

Our goal is to be able to consistently execute on the delivery promise of click to home within two days. We have plans to open an additional fulfilment facility which when fully operational, should improve our direct-to-customer delivery speeds. We also plan to continue to leverage our existing fulfilment facilities and our store network to expand our same day delivery service from ten markets today up to another ten to fourteen markets during 2018.

In-store there will be some significant tech investments as well, he promises:

Over the next six to twelve months, we are implementing a number of new systems including our new PoS (Point of Sale) system and other technology tools to support associate selling and training programs and further optimize store labor hours. In addition, we launched a series of inventory initiatives during fiscal 2017 including what we call show more, carry less, SKUs base reduction and SKU rationalization, as well as assisted store ordering.

One aspect of the Bed, Bath & Beyond business model that Tamares is keen on is empowering local store managers to re-order up to 70% of the firm’s merchandise directly in order to reflect local demand for products. This practice will now be supported by analytics tools, he says, part of a wider tech overhaul of the buying organization:

Our assisted store ordering initiative optimizes our store inventory levels by utilizing advanced analytics and algorithms to more actively project our inventory needs to support the evolving in-store experience.

In merchandising, we, together with assistance from expert consultants, have identified and begun implementing organizational changes to improve and better align our people, processes and technology to the work being done within our buying organization.

We are restructuring our merchant organization to free up our buyers to focus more of their time on driving a meaningfully differentiated offering and creating a best-in-class digital merchandising strategy.

As the model for our organizational structure, we have recently piloted our new decorative furnishings merchant team which will embed our pricing, analytics, supply chain and web experience experts to work alongside our buyers and planners to drive a more cohesive strategy for decorative furnishings across all of our channels and a number of our concepts.

Personalization

As for outreach to customers, personalization of messaging – another of retail’s Holy Grails – is the objective for Tamares:

Our vision is to deliver personalized marketing communications meaning driving highly relevant cross-channel communications and experiences to our customers that are informed in real-time by an ever increasing level of information about them.

In addition, we are making significant investments to further develop our integrated technology tools including a personalization decision engine, identity management infrastructure, and a customer data platform among others to leverage our best-in-class customer data, as well as demographics and other relevant third-party data to develop and scale tailored and personalized marketing communications.

We are also continuing to optimize our traditional marketing program including direct mail, email and text messaging through enhanced contact strategies, at the same time we will be building a brand awareness strategy for the company that can base Bed, Bath and Beyond as the experts and your choice for all things home.

We believe that future benefits of a more comprehensive personalized marketing strategy together with branding that communicates our expertise for the whole home should significantly contribute to growing the lifetime value of our customers.

The overall wish is clear:

The digital experience we are creating will be more engaging, more inspiring and give us the capability to deliver more personalized content intended to convey our expertise of the home and heartfelt life events.

But one year on from his ‘it’s difficult’ comment and assuming he manages to tick off all the items on his 2020 wish list, does Tamares have a clearer picture of what the omni-channel balance for the firm will be? The answer it seems continues to be ‘it’s difficult’ as Tamares says:

All these things will be determined by things like, are we able to generate additional foot traffic, what are the margins going to be? How the dynamic pricing affect the stores. How does furniture affect the business? What’s the benefit of the stores to our ad sales spend ratio for our digital business? All these things will be the factors that we look at as we go forward.

But he pitches these unanswered questions as a positive, concluding:

We are not locked into an answer. So we can turn left or right. It’s funny, because when you look at the scenarios, there are many ways to driving profitability, but the real world will dictate the answers – how many stores, how much in your digital business, what you show in your digital business, where you are spending your marketing dollars….[what] we intend to do is to give ourselves these choices on the decision tree so that we could come out on the other end of this growing a company tremendously successful and that’s the intention…

The answer is it remains to be seen.

My take

It does indeed.

I always find that before setting out on a journey it’s a good idea to (a) know where you’re going and (b) what route you plan to take. I’m just not seeing that sense of direction here.

In fact the only direction that is in evidence is the downward one of the share price.

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