A new omni-channel retail game plan for Bed, Bath & Beyond - or just COVID-accelerated digital catch-up?
- Bed, Bath & Beyond CEO Mark Tritton is talking in terms of a "new game plan" of omni-channel retail post-COVID. How to back that up in reality is the big challenge.
Back in April, as COVID-19 was shuttering retail outlet doors across the US, Bed, Bath & Beyond showed the first signs of what has become a sector cliche emerging from the crisis - a public acceleration of digital transformation priorities as a result of the pandemic. As CEO Mark Tritton argued at the time:
If there is a silver lining, I would say that given the monumental changes we've made to our business over the past four weeks, our ability to act decisively, partner up and move with speed and agility has been greatly enhanced.
Flash forward to July and that’s still the party line coming out of the firm, although whether it’s the massively positive, potentially brand saving development Tritton claims it to be is another question altogether. Still, he pitches:
I think it's a new game, coming out of the COVID moment and the customer’s reliance and strength with digital so I think that provides us an even greater access to engage the customer and then provide them with supplementary services…our digital wasn't performing to the strength and the way it is now, so I think we're really looking at a new game plan.
But are we? Or is it more of the same decline that has afflicted the company for years with some (catch-up) digital bells-and-whistles? Last week the retailer announced a 49% year-on-year fall in sales and the planned closure of 200 of its stores around the US, a fifth of the current real estate inventory.
Against that, there was certainly an uptick in digital activity - up 82% year-on-year and now making up 2/3 of total sales - while the transformational work that Tritton pointed to back in April has become more apparent:
This was a critical moment, and we needed to act quickly. It was an important opportunity for us to pivot to a new model and support changing customer preferences and our omni-always approach. With the vast majority of our stores closed, we re-aligned our network and converted 25% of our total store fleet into regional fulfilment centers, nearly doubling our fulfilment capacity to handle the dramatic shift in demand to our own digital channels and unlock store inventory.
Building on our fulfilment capability, we accelerated the pre-planned rollout of our Buy-Online-Pick-Up-In-Store or BOPIS and Curbside Pick-up services offered in April...This was a game changer for us as it allowed us to re-start operations and serve customers at locations that were still closed to the public.
By the start of June, BOPIS and Curbside were in place at around 60% of Bed, Bath & Beyond locations. According to Chief Operating Officer John Hartmann, this has had a positive impact on the prognosis for the future of stores, despite the latest round of announced closures:
In this COVID moment, we believe we can take this opportunity to not just simply close stores, but to pivot and reshape and truly optimize our store footprint. We continue to believe that our physical store channel is an asset for us as we transform into a digital-first company, especially with our new omni-fulfillment capabilities in BOPIS and Curbside.
There had already been a network optimization project running as part of the retailer’s turnaround plans, but there’s now a greater emphasis on getting under the skin of understanding what customers want, he adds:
Our approach includes a much deeper analysis of both individual store and market data. Recent geo-analytical modelling shows that our Bed Bath & Beyond banner has lagged the market in store and digital sales growth. More specifically, we believe that the current physical footprint of our stores only addresses about 80% to 85% of the market opportunity, and does not fully align to the local market sales demand.
Our immediate goal is to right-size our store network in such a way that reduces redundant stores and supports a digital-first platform, with the appropriate number of stores in the right locations, to serve customer demand and accelerate growth. We will both lean into store closures and leverage a significant number of lease expirations, coming due over the next several years, to restructure our Bed Bath & Beyond store portfolio while in parallel, look at our other retail banners, drive cost productivity and accelerate improvements designed to help stabilize the business and deliver long-term profitable results.
That’s about as fully omni-channel buzzword compatible response as you’ll get from any retailer at present and just as lacking in clarity. More detail is however available around attempts to overhaul the global supply chain under the banner of E2E (End To End). Hartmann explains:
[This] is a multi-year initiative, intended to deliver a new supply chain and technology infrastructure to enhance fulfilment, drive cost savings, improve the customer experience and support the acceleration of omni-channel enhancements. The redesign roadmap touches all aspects of our business, including our product assortment, vendors, fulfllment centers and stores all-in support of our customers' experience and cost efficiency. The program is expected to reduce our working capital requirements, significantly expand our direct sourcing and importing capabilities and further optimize our network routing.
The redesign will facilitate growth in own brands, improvements in lead-time for store ordering and support enhanced omni-channel capabilities to drive digital growth. As part of the program, we plan to realign our network of pool points that replenish our store inventory, which will optimize our in-stock numbers and reduce store inventory requirements. We also plan to drastically reduce, by the millions, the number of annual vendor purchase orders we create, which our vendors will love. It will also drive greater efficiencies within our accounts payable area and we plan to further optimize our fulfillment network routing, to increase one day deliveries from our DCs [Distribution Centers] and store locations.
Overall, the e2e to redesign is targeted to deliver significant savings over the next three years, a reduction in inventory and faster lead times. Through this initiative, we expect to deliver significant future cost savings, while driving greater efficiencies across the supply chain.
At the heart of this will be some big technology pushes, he add. Out of total CapEx spend of $42 million, over half (55%) is currently allocated to tech programs:
Our teams are creating a more modern technology stack and efficient operating model to serve the company's transformation efforts. We are currently planning for the migration of our data and computing, to the cloud, which will expedite and enhance our technology capabilities.
Bed, Bath & Beyond entered 2020 as a retail basket-case when it was a case of Bed, Bath & Beyond Hope. As 2020 enters its second half, the world may have changed beyond all recognition, but some things remain constant. To be fair, not the least of these constancies is CEO Tritton’s optimism:
What we're seeing is that the spending patterns of the digital customer in total, whether they are compared from a prior store customer or they are omni-channel, they are spending a really great basket. Our conversion rates are very, very strong and we're really forging a new deep relationship with them. So we're going to come into the post-COVID period as a very fresh company with BOPIS and Curbside intact, but a whole new set of customers and a new way of working in an omni-channel way.
Hmmmm…I’m afraid that while I do see the claimed digital acceleration efforts, what I also see is in fact desperate digital catch-up on omni-channel retail basics, like BOPIS. So my own stance remains unfortunately constant as well and it’s one that sadly I cannot begin to see beyond. As I said at the top of the year:
I’ll be filing away the ‘Bed, Bath and Beyond hope’ phrase. I have a feeling it’s going to be needed again.