Bed, Bath & Bankruptcy - cataloging the multi-year failure of an omni-channel retail transformation
- Bed, Bath & Beyond has been on a long omni-channel transformation journey, but with too little, too late being the inevitable end.
It’s been a long time coming, but this is the last time that diginomica rolls out our much used headline of Bed, Bath & Beyond (Hope). Because this time, finally, it’s all over for a flagship US retailer which has paid the ultimate price for failing to execute on a necessary omni-channel retail strategy that’s a long way away from its original thinking back in 1971 when the firm was founded.
Last weekend the company filed for Chapter 11 bankruptcy protection. Its 360 stores and 120 buybuy BABY outlets remain open for now as the retailer looks to liquidate its assets. It’s the latest big scalp in a turbulent retail sector, although others in the home furnishing space are plowing on, most notably Williams Sonoma with its pragmatic ‘digital-first, but not digital-only’ operating model.
What went wrong with Bed, Bath & Beyond? Analysts have their own interpretations. Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown PLC, is quoted as stating:
Bed, Bath & Beyond fell between the racks, unable to compete with the cut-price offerings of rivals like TJ Maxx and value ranges of Target, and with their products not seen as little luxuries worth paying more for.
Meanwhile Neil Saunders, Managing Director of GlobalData Retail, has said:
It's the death of an icon - a lot of people have grown up with it. It's an institution in retailing, but unfortunately being an institution doesn't protect you from financial woes.
Omni-future in sight
As noted above, this has been a long time coming. Back in 2016, the firm was talking up its supposed omni-channel future, purchasing digital furniture retailer One Kings Lane to bolster its efforts. This actually wasn’t the great move that it was pitched to be, given the acquired firm’s own relatively small footprint. As one analyst snarked at the time:
This is not like Bed Bath is buying Facebook; it’s more like they just bought MySpace!
Looking back, this was perhaps a case of, ‘Something must be done. This is something. Let’s do this!’, a reactive mindset that seldom, if ever, drives strategically-sound decision making. But at the time, the 'Great Satan' of retail, Amazon, dominated the thinking of retail CEOs everywhere, with the unhealthy result that everyone thought they needed to be Amazon-like, with the emphasis on being online and not on the more important o-word - omni-channel.
And for Bed, Bath & Beyond, there were other threats beyond Amazon. According to a study from research firm Technavio - Global Online Home Décor Market 2016-2020 - the global online market for home furnishings was set to experience a compound annual growth rate of 19.45%, with competition also looming from Costco Wholesale, J.C. Penney, Sears Holdings, Target, Tesco, Walmart and Ikea.
In retrospect, many of those threats didn’t appear - and in the case of J.C. Penney and Sears has disappeared - but for then CEO Steve Temares, getting “a more inspirational and personal shopping experience” was top priority to fend off the marauding rivals and that meant online, online, online:
As retail continues to evolve, there's been a democratization of shopping, enabled by technology and the Internet, which has resulted in an ongoing shift in the way the customer shops. We now have more choices, more transparency and more convenience than ever, all resulting in significant investments in technology and dramatic shifts in the retail landscape.
But by the following year, things seemed a lot less clear as Temares bemoaned the difficulty of striking the necessary omni-channel balance:
It’s hard to explain the dynamic. As we get better [at digital], we are losing foot traffic and that’s the lion's 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.
By 2018, there was more detail about what was driving transformation plans, but little evidence that there was anyone in the driving seat as Temares floundered:
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.
As we noted at the time:
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.
Word salad and COVID
By the following year, Temares was gone, but the world salad remained, albeit served up in ludicrously expensive Bed, Bath & Beyond salad bowls, as interim CEO Mary Winston admitted:
There needs to be a fundamental change in our approach to executing the company's business transformation. A key challenge for the business in the past has been that there have been too many initiatives underway which has resulted in a lack of strategic focus and less meaningful results.
Then came COVID. As with so many in the retail sector, the pandemic had a profound impact on Bed, Bath & Beyond, although in this case it was a positive one. With customers confined to house arrest under lockdowns, attention turned to the state of their homes. The result of that was a 400% increase in sales of bread machines, for example, and a 100% increase in people buying new vacuum cleaners.
The crisis also put some necessary acceleration behind long-overdue omni-channel initiatives, most notably Buy Online, Pick-up In Store (BOPIS) and curbside pick-up. Incoming turnaround CEO Mark Tritton had found on his appointment that Bed, Bath & Beyond was a brand that somehow, in 2020, didn’t offer such services to its customers:
Not having BOPIS versus the rest of the industry has been Achilles' heel. We were set to launch that in full in May in stores and we've maintained that spend and commitment to be ready when our doors do open. Then I have also added in curbside. And now we've stood up store fulfilment, which was something that we had on our agenda, but we wanted to get through the other piece first. We've accelerated those.
And Tritton was ready to spend to maintain this acceleration, allocating $250 million to support transformation work. A five year deal was signed with Google Cloud, while Oracle was brought in to overhaul financial, supply-chain and merchandizing systems and replace an ageing legacy architecture.
For a time, it looked as though Tritton’s turnaround plans were working. By 2021, there was talk of a retail resurrection for the company as its losses were reduced and digital penetration was nearly double that of 2019, with an 84% growth rate. But it wasn’t to last - by October of that same year, sales were on the decline, and the firm was struggling with supply-chain issues as well as a number of unforced errors on the part of the retailer. Tritton admitted:
There were opportunities where we should have been more effective in allocating marketing resources to stimulate and support traffic in stores and online. In an effort to diversify and shift our customer engagement towards online and social media channels, we overcorrected and be too far from the core fundamental, historical and current traffic drivers.
By the middle of 2022, Tritton was gone and cost-cutting was the name of the game, with the CapEx budget cut by a third, headcount reductions underway and store closures announced. It was promised that omni-channel investment would be protected, but when a new - another! - strategic plan was unveiled in September, two-thirds of the way down page 7, only six words were dedicated to omni-channel:
Expansion of digital offerings and services.
Social commerce got a nod, the latest silver bullet that was going to restore the fortunes of buybuy BABY, and some new funding was secured, but the end was in sight. As 2023 opened, the stench of looming bankruptcy was impossible to ignore.
The company was indeed beyond hope.
One of the benefits of contributing to a site like diginomica is the ability it affords to take a long game approach to analyzing business transformation. In our case, we’ve been tracking the ups and (mostly) downs of Bed, Bath & Beyond for a decade. The brand has been a US retail bellwether for so much of its life; sadly it’s now a bellwether for how not to execute an omni-channel transformation.
It’s not the tech that was the issue - the latter day investments in Google and Oracle as transformation platforms were sound moves. The problem fundamentally lay in lack of vision early enough. Target is often cited as a retail brand that saw the way the wind was blowing and made what many commentators at the time saw as counterintuitive strategic decisions. In his turn as Bed, Bath & Beyond CEO, Tritton, a Target alumni, tried to do the right things, but the pace of change was just too lethargic. The fact that it took COVID to get the firm to a place where BOPIS was a reality speaks volumes. There was a disturbing reliance in the dying days on rolling out calorie-free mission statements and not enough on keeping the corporate foot on the transformation accelerator.
Last year, CEO Sue Gove tried to assure investors:
There is still an incredible degree of love for Bed, Bath & Beyond.
Maybe so, but it was a kind of nostalgic love for an age that had long since left Bed, Bath & Beyond behind. Lesson learned...too late.