The derailing of the global supply chain, continued disruption from the Omicron variant, unprecedented inflation, rising interest rates and a turbulent geopolitical landscape.
That’s the list of excuses from Bed, Bath & Beyond this week for its dreadful performance, a stark reversal of what looked like a promising turnaround a couple of years ago. Of course, there is is validity to much of what CEO Mark Tritton cited yesterday, but nonetheless, at the end of the first year of a corporate transformation that looked so promising, it’s a sorry state of affairs to be in, not least an 18% decline in digital sales.
It’s unclear at this point how far ‘It’s not our fault!’ Is going to fly at a time when activist investors are still circling. But Tritton argues:
Internally, these factors have exposed more short-term to medium-term vulnerabilities that we did not foresee at this stage of our transformation as we completely rebuild the foundation of our business. There have been operational deficits in our near-term execution. And as we enter fiscal 2022, we are focused on re-stabilizing our business, while navigating the headwinds that still persist.
The global supply chain crisis certainly hasn’t helped - the firm’s “not available to sell inventory” has racked up at 30% of late. But Tritton insists that the recent poor performance doesn’t reflect the progress that’s been made in turning around the firm against a multi-year plan:
In this first year, I'm encouraged that we achieved all of our transformational milestones to set the foundation for our future. This was no small feat…we continue to deliver improvements with our customer connections in both digital and in stores. We enhanced our digital-first omni-always commitment through the enablement of cross-banner shopping on our website as well as the launch of our own marketplace.
He points to tie-ups with Uber and DoorDash as indicative of the omni-channel progress made, enabling more same day deliveries and earlier Buy Online, Pick-up In Store opportunities:
The combination of our digital and stores channel has been a powerful enabler for the future omni-always customer promise.
But it is for now about ‘jam tomorrow’, it seems:
In fiscal 2022, we will build on these foundations we established in 2021. Inventory, pricing, and traffic will continue to be the key areas of focus in the near term as we navigate the volatility of the current operating environment. Our year two transformation milestones will support these efforts, including the core of our product pillar will be clearly on unlocking inventory currently held in transit, so that we can again fulfill customer demand in full.
There will be particular focus on supply chain optimization, says Tritton:
Following the opening of our first four regional distribution centers in Pennsylvania in very late 2021, work on our second distribution center for the West Coast is well underway and slated for opening in late 2022. The modernization of our operational foundation will be important tailwinds as we emerge from the current environment and protect us in a completely different way in the future.
And there will be new partnerships, such as the one signed with US grocery giant Kroger:
We'll continue building brand awareness and strength through partnerships and organic investments. Last week, we announced the exciting launch of our Kroger collaboration on their website, expanding the reach of both Bed Bath & Beyond and buybuy BABY to Kroger's extensive customer network. We are currently working on our initial shop-in-shop concept for Kroger, which remains slated for this year.
There are shreds of positivity underlying all of this. Digital sales still represent 41% of total net sales, while overall digital penetration continues to be nearly double 2019 levels. For his part, Tritton argues:
Transformations are complex and often non-linear, but achieving a strategy of this scale amidst the current macroeconomic environment has made it even more difficult to deliver results commensurate with our efforts. The friction in these moments is real, and we're operating in a retail and consumer industry as challenges I have personally seen in my career outside of that critical COVID time frame.
Even after the peak of COVID, we continue to see 35 million customers cherish our differentiated banners across Bed Bath & Beyond, buybuy BABY, Harmon and Decorist. We have a digital reach that saw more than 875 million visits throughout the year, further enabled by a powerful fleet of more than 900 evolving stores.
For now, it’s ‘keep calm and carry on’ as the corporate mantra. Tritton says:
Upon entering this company in late 2019, it was really clear that the business had been underinvested in and required a full-scale transformation and full scale investment in the business. And we outlined a robust plan, and it had to be robust because the level of work required to return us to a level of competition with the competitive retail market. I think the supply chain moment really exemplifies where other retailers are able to cope better than we are at this moment in time in this pivot because of that underinvestment.
So a robust transformation plan - we cannot survive unless we implement that appropriately. And so technology, supply chain, assortment planning, pricing, the way we cost and where we source from, all these have been undertaken robustly.
But the conclusion for now is:
First year completed - benefit is not yet generated clearly.
Turnarounds on the scale that Bed, Bath & Beyond need don’t happen overnight. The question now is how long Tritton and his team will be given the time they need to make the omni-channel conversion come to fruition.