Sometimes it’s good to be wrong. As 2020 kicked off, it still looked like a case of Bed, Bath and Beyond hope for the US retail institution. Then along came COVID-19 and signs of a digital transformation acceleration that has been reported across the entire sector.
Then last week came further signs that maybe, just maybe, turnaround CEO Mark Tritton is succeeding in doing what so many of his peers have failed to do and actually turning around what has so long been a retail car crash of a business. The firm turned in total quarterly sales that were up 6% year-on-year - the first time it’s recorded any increase since 2016! - while digital sales soared by 89%. Tritton says:
By the end of the second quarter, our digital sales represented approximately 32% of total sales, benefiting from our enhanced omni-channel capabilities, including Buy Online, Pick-up In Store (BOPIS) and Curbside Pickup, which now represent over 15% of total digital sales and growing. Together with our Ship-From-Store capability, our stores have filled approximately 36% of our total digital orders in the second quarter. These expanded fulfilment capabilities are favorably impacting our gross margin and will continue to further enhance the overall profitability of our digital business.
We are delighted by the continued strong response to our new BOPIS and curbside services and the recent launch of our new Same Day Delivery service this week, making it even easier to shop with us. These new services are contributing to customer growth as we gained approximately 2 million new online customers in the quarter, including approximately 800,000 who are completely new to Bed Bath & Beyond.
It could be argued that the retailer is benefiting from the same ‘stuck at home’ boost that the likes of Home Depot, Lowes and Kingfisher Group have enjoyed, which Tritton concedes:
During this unprecedented time when our homes have become the center of our lives, we are well-placed as customers spend more in their home and lifestyle. We see this trend continuing, and we've been responding with agility to the changing needs of our customers, both in terms of our merchandise and service offerings.
That said, all three of those brands entered lockdown in better omni-channel shape than Bed, Bath & Beyond, so credit is due to the firm for its response to the crisis. Chief Brand Officer Cindy Davis expands on what form this took:
We delivered a plan that was both inspired by and inspiring to existing and new customers alike. We created and communicated compelling value and made it easy with our 'omni-always' approach. By sharpening our focus on the key drivers of gross margin, product mix, pricing and promotion and channel mix, we were able to deliver growth in both comp sales and margin with the potential to unlock significant expansion going forward.
Digitally, we saw exciting growth in the second quarter with more than 180 million visits to our sites, representing a 52% increase over last year. In addition, we grew our online conversion to 4%, an increase of 33% versus the prior year period. Our new mobile app was launched 20 million times during the quarter, which contributed to 133% increase in demand from our mobile channel.
Davis drills down further into Tritton’s customer stats:
From a customer standpoint, we gained approximately 2 million new online customers this quarter, and 42% of these customers were new to our brand. These new customers are enhancing our overall customer profile as they are six years younger on average than our existing customers and less likely to use coupons. In addition, over 1 million of our in-store shoppers became omni-channel customers, shopping online with us for the first time this quarter. Omni-channel customers are highly engaged, shopping with us three times more often and spending two times more per year than single-channel customers.
BOPIS is flagged up as a particular success story, she adds:
Customer response to our new BOPIS and contactless Curbside Pickup services has been strong, generating over $120 million in sales during the quarter and earning us a 5-star rating on over 80% of these of these orders. BOPIS and curbside are great solutions for our customers and benefit us financially with respect to gross margin, since BOPIS eliminates the shipping expense usually associated with a digital order. This is key, since our digital penetration grew to approximately 32% from approximately 18% in the prior year, but it is what has enabled these results.
That said, Bed, Bath & Beyond isn’t out of the woods yet by any measure so initiatives such as Store Network Optimization - aka store closures - are still to the fore, says Chief Operating Officer John Hartmann:
In real estate, we have begun executing on our Store Network Optimization plan to develop the right network of stores to serve our customers as we rebuild our authority and establish a truly 'omni-always' shopping experience. We recently confirmed that the first one-third of the 200 Bed Bath & Beyond store closures that we previously announced will occur by the end of calendar 2020. As part of this process, there will be store closing sales in the weeks leading up to the close to work down in-store inventory.
In addition, a comprehensive sales and marketing program has been established to drive sales to our other stores and digital channels. As we said previously, we expect to be able to transition at least 15% to 20% of sales from these planned store closures to our digital channels or other store locations.
Certainly if BOPIS is to play the pivotal role that is being pitched for it, physical store outlets must remain a critical part of the omni-channel mix. Hartmann emphasises:
Our Store Network Optimization project is not simply to close stores, but to reshape and truly optimize our store footprint. Our physical stores are a strategic asset for us as we transform as a digital-first company. Market data shows that our current store base addresses 80% of the domestic market. This is especially important as we further leverage our stores with new omni fulfillment capabilities in BOPIS, curbside, and now Same Day Delivery. Following this work, we will lean into a store remodel program next year that has been developed to have a clear and positive ROI and deliver truly 'omni-always' and inspirational shopping
Behind the scenes, there’s an ongoing technology upgrade program underway, he adds:
From an operations perspective, at the core of our transformation is technology. We have initiated an end-to-end modernization of our technology infrastructure to deliver a more agile, responsive, and customer-inspired shopping experience. Today, our digital platform is supporting substantial digital growth and strong customer adoption of new services like BOPIS and curbside.
Recently, we announced a new multiyear collaboration with Google and supported by Deloitte to accelerate our omni-always transformation. Through this expanded relationship, we will deploy a range of platform solutions to further personalize our omni-channel shopping experience for our customers, enhance fulfillment capacity, and optimize merchandising planning and demand forecasting.
By combining our unique data and insights in the home, baby, and beauty and wellness markets, with the exceptional platform capabilities and expertise that Google with their cloud capabilities provide, we exceptional platform capabilities and expertise that agile, responsive and customer-inspired shopping experience, making it even easier to feel at home with Bed Bath & Beyond.
As we build our 'omni-always' capabilities, we will have a strong foundation of systems to support our long-term growth objectives. Our near-term technology road map includes a new enterprise resource planning system, including core merchandising, and further supply chain improvements, such as optimizing processes for omni-channel forecast, replenishment, and allocation. The result will be noticeable improvements for our improvements for our customers while lowering our overall inventory investment.
It’s good to be able to cite what looks like a - frankly, unexpected - retail success story emerging from 2020, albeit with the necessary caveats attached.
Credit must go to Tritton for his turnaround work. In less than a year, he’s performed some tough, but necessary corporate surgery, cutting away at dead wood in a way that his predecessor failed to do, and bringing in impressive executive talent, such as Scott Lindblom as Chief Technology Officer; and Anu Gupta as Chief Strategy and Transformation Officer. (Plaudits ought perhaps to go to the shareholder activists who’s campaigning cleared the way for Tritton’s appointment!).
Last words then to Tritton:
There's no doubt that this will be a third and fourth quarter unlike no other. I think customers we're seeing from our data points will begin to shop earlier for value and for the holidays and we're adjusting accordingly like many retailers. So we think it's going to be competitive. It's going to be different. We are agile and flexible. And we've built our plans accordingly and are ready to roll…The rubber really hits the road from Thanksgiving onwards, when we see that changing shopping pattern and behavior.