Digital soars, offline slumps at Bed, Bath & Beyond - time to keep calm and carry on the omni-transformation

Profile picture for user slauchlan By Stuart Lauchlan January 8, 2021 Audio version
Summary:
Bed, Bath & Beyond was a 2020 omni-success, but the start of 2021 has seen a return to losses. Just a bump in the transformation road?

bed bath and beyond
(via Bed, Bath & Beyond )

Around this time last year Mark Tritton had completed his first quarter as CEO of US retail institution Bed, Bath & Beyond. He had, not to put too fine a point on it, inherited a basketcase of a company, beset with problems that on the face of it looked like a near impossible task to turnaroud into a viable omni-channel retailer. I quipped that it was a case of Bed, Bath & Beyond hope - and that was before COVID-19 entered the mainstream consciousness.

But by year end, something akin to a retail miracle appeared to have occured as Tritton’s re-vamping saw the retailer turn in its first increase in quarterly sales since 2016 as the necessities of dealing with the pandemic further accelerated the firm’s omni-channel transformation efforts. By year end, I was cautiously confident enough to cite Bed, Bath & Beyond as an omni-winner in our 2020 retail round-up.

That said, caveats remained, one swallow not making a Spring etc etc etc. Yesterday the firm released its Q3 numbers and on the face of it, those caveats looked wise as overall sales fell 5% at the end of 2020 while Q2’s profit became a loss of $75 million.

False dawn?

So, false dawn for Bed, Bath & Beyond? Not exactly. The weakness in the numbers comes from legacy offline, with store sales down 17% year-on-year; the online side of the business on the other hand is booming, with digital sales up 77% across the portfolio of the firm’s brands, with Bed, Bath & Beyond itself seeing 94% online growth year-on-year. That chimes with Tritton’s strategy of beefing up digital while rationalising the store portfolio, with further closures now planned for 2021.

From a digital perspective, this remains a story of successful transformation. Some stats from the company make the point:

  • 7 million new online customers fiscal year-to-date, 2.2 million of those in Q3.
  • Buy Online, Pick-up In Store (BOPIS) now makes up 16% of total digital sales.
  • 60% of BOPIS orders are ready within 30 minutes, beating the guaranteed 2 hour window.
  • 25% year-on-year lift in the online conversion rate.
  • Mobile sales up 107% year-on-year.
  • 800,000 downloads of relaunched mobile apps in Q3.
  • Mobile homes page load rate 74% faster than this time last year.
  • The launch of Same Day Delivery via Shipt and Instacart, with a reach of 80% of US households.

All of this positions the retailer to exceed its target of $3 billion in digital sales by the end of the current quarter, claims Chief Digital Officer Rafeh Masood:

This muscle was not in place last year. Now, we're connecting our stores with our online platforms, and the power of omni is enabling us to better serve our customers however they choose to shop. We know omni-channel is the future of retail, and we are making the right investments that are resonating with our customers.

He adds:

As we look at our digital program holistically, it is a true revolution from where we were a year ago and has become part of the fabric of how we operate at Bed Bath & Beyond. The customer environment is rapidly changing, and we are there to greet them at every turn. Through our enhanced services, speed and focus on engagement, our customer perception continues to improve. Our omni-always strategy is working.

 

Stores and tech 

That being the case, attention must then turn to the perfomance of stores - and their future role. At present, over a third (36%) of all digital sales are fulfiled via stores-as-hub, so there is a definite need for the offline estate to exist, albeit in radically slimmed-down form. Chief Operating Officer John Hartmann picks up on the importance of BOPIS to the ongoing business model for the firm:

While last year, we didn't have BOPIS, Curbside Pickup or Same Day Delivery in our offering, not only do these new capabilities provide ease and convenience to our customers, they also help us to partially alleviate current shipping constraints and additional cost pressures in the supply chain.

That’s an important consideration given rising shipping costs, with Bed, Bath & Beyond’s main carrier, FedEx, bumping up its prices by 20%! (More FedEx ‘wisdom’ here!) Against that backdrop, work is underway to overhaul logistics and distribution to make the retailer more self-sufficient, confirms Hartmann:

This is the cornerstone of the transformation of our supply chain network and will increase our capacity for fast store replenishment, while continuing to leverage the store network for omni-fulfillment. By making the replenishment process more efficient, our store teams will have a more predictable and faster flow of the products we sell most. In turn, this will allow us to meet the increased demand for BOPIS, Curbside and Same Day Delivery services, while also reducing the time our store team spend managing deliveries so they can spend more time with our customers.

Expect also to see an uptick in back-end tech spend as well as part of what Hartmann calls “a disciplined approach” to investment. That includes around $250 million over three years to shift the retailer’s application and tech estate over to the cloud. There’s already a multi-year partnership with Google and Deloitte in place, while specifications for a new ERP system are now ready, he says:

We will also be pursuing a product life-cycle management solution in support of our own brand initiative and an inventory management capability to improve inventory productivity. These plans will all start in 2021 and are foundational parts of building out our technology infrastructure.

My take

Tritton, looking back on his first year in the CEO hotseat, seems content that he’s delivered on the commitments made at the top of 2020:

I declared that we must respond to the challenges we face as a business, including pressured sales and profitability and reconstruct a modern, durable model for long-term profitable growth. Today, we stand in a very different position as a company than we did just a mere 12 months ago.

But like the entire retail industry, Bed, Bath & Beyond remains at the mercy of macro-events:

There's no doubt that the COVID headwinds and the impact of that has had on foot traffic and overall consumer confidence is something that we've had to factor into our plans…the plan we're placing is a responsible plan based on changing circumstances in the market. Any threat or concern would really be a macro market issue, not an internally-caused issue. I think 2020 has exemplified how everyone gets affected by those things. So we are monitoring things very carefully by week and by quarter.

While the store closure program is being accelerated, it’s good to note that Tritton understands the importance of striking the optimal omni-channel balance between online and offline, particularly given the nature of Bed, Bath & Beyond’s business which encourages exploration of inventory in-store:

We see that the driving digital piece really does come from an omni-channel environment. I think there's a number of great retailers that are exemplifying this at the moment.  A trip to the store, whether it be for BOPIS or for a true trip, both generate a sense of sort of in community as part of your network and part of your ‘need lifestyle’.

Overall, for now I’m sticking with my assessment that Bed, Bath & Beyond can still be marked down as a rare omni-transformation success story from 2020. For Tritton, this is a time to keep calm and carry on. One to keep an eye on in 2021 as the Vaccine Economy takes shape.