One quarter does not define or derail a multi-year strategic plan.
Ouch! One of the more remarkable omni-channel transformation turnarounds has hit a big bump in the road. It’s just over a year or so since Bed, Bath & Beyond was marked down here at diginomica as Bed, Bath & Beyond Hope, but rescue CEO Mark Tritton has done a remarkable job in getting things back on (omni) track.
By this summer, I was ready to say, Bed, Bath & Beyond's omni-transformation turnaround continues. It can be done! But yesterday saw a 30% drop in the firm’s share price as revenue for Q2 fell 26% year-on-year to $1.99 billion and earnings per share came in at 4 cents rather than the 52 cents expected by Wall Street.
So, was the seeming resurrection in fortunes a false dawn? Perhaps - we’ll see what pans out for the rest of the year. More likely what’s just happened to Bed, Bath & Beyond should serve as a timely warning to everyone across the retail sector. The COVID crisis isn’t over yet and throw in a global supply chain crisis and the mix becomes particularly toxic. As Tritton stated:
External disruptive forces such as the resurgence of COVID-19 cases and growing Delta fears, creates a challenging and volatile environment. This is particularly evident in large southern states such as Florida and Texas, as well as California, which in aggregate represent approximately 30% of our total sales.
As lower traffic impacted our ability to lead the sales, we operated under unprecedented supply chain conditions that have continued to increasingly tighten global trade since last year. As the quarter progressed, particularly in August, conditions worsened relative to our thoughtful preparations. The speed of industry inflation and lead time pressures outpaced our plans to offset these headwinds. And as a result, we did not pivot fast enough especially on price and margin recovery.
Basically, everything was still on track up until around July, then a “rapid decline in traffic” took the firm into an uncomfortable August, he explained. And this was compounded by some unforced errors on the part of the retailer:
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.
For example, we disproportionately reduced the distribution of our printed circulars, which are a continuous and critical store in digital traffic driver for our Bed Bath & Beyond business. Our recently combined brand and digital teams are quickly correcting costs to rectify these issues.
That said, the firm’s digital channel represented 34% of total net sales, double the penetration versus pre-pandemic level. This will be an asset moving forward, said Tritton:
Our omni-always principle remains a cornerstone of our evolution. For the group, we continue to leverage our enhanced digital channel, which delivered a significant sales increase above 2019 at nearly double the proportion of sale.
We are also building on the underlying foundation of the business. As part of our commitment to enhancing the customer experience, we instituted cross-banner browsing across our entire group of concepts, including Bed Bath & Beyond, buybuy BABY and Harmon. We look forward to further enabling cross-banner shopping and check out soon.
And fulfillment options are also expanding, a key component of any successful omni-channel retail strategy:
Our omni-channel presence continues to grow as well. During the quarter, we expanded our same day delivery reach for our new partnership with Roadie, which is in addition to our existing capabilities with both DoorDash and Shipped. We continue to make significant progress against our store remodel plan.
We've added a same day delivery opportunity, which has really helped us and the customer is really leaning into. We feel very strongly that the ease and convenience that we've created throughout the last 12 months and most recently, is also one of our opportunities and strengths going into this fourth quarter. It's going to be a fight for getting the goods to the customer and for the customer. And we think we have the right menu to provide that. We're very happy with how our customers are engaging digitally without end using both BOPIS [Buy Online, Pick-up In Store] and same day delivery.
Coming up, of course, is the critical Holiday period when many retailers have their strengths and weaknesses cast under an unforgiving spotlight. Tritton remains upbeat:
In terms of the holiday period, we have a lot more tools in our tool belt to be able to challenge that season and really drive growth. We’ve got assortment, we've got inventory management, we've got a revised marketing plan, we'll have a better balanced digital and store business. We were at 41% [digital] penetration in the fourth quarter last year, and it was an unusual time. And then we've really added an awful lot of ease and convenience opportunities for our customers to engage with us. So we feel strongly about our plans today.
Just as one swallow doesn’t make a spring, one bad quarter doesn’t meant everything’s been thrown off track. Tritton and his team laid out a 3 year plan to complete Bed, Bath & Beyond’s omni-channel reinvention. This is a setback without question, but as the next set of retail quarterly earnings reports starts to come in, I suspect we’re going to be hearing a lot of the same from other brands.