In this episode we talk about the biggest story of the month - the real story of the downfall of one of the largest retailers in the US and the key learnings for the Indian retail brands.
This is September 18th, 2022 and I’m your host Prateek Malik from New Delhi. Let’s get started!
Bed, Bath and Beyond is a home goods multi-brand retailer in the US, founded way back in 1971 with a single outlet in suburban New York. The founders had a decade of experience in operating a specialty linen and bath goods shops when they launched the store called Bed ‘n Bath. The first two stores were 2,000 square feet located in high traffic malls and hosted few of the semi-premium brands along with a few low priced items.
Over the next 15 years, the brand had a healthy learning and growth period and by 1985, the network expanded to 17 stores located across multiple cities in the United States.
By this time, a decent pool of competition had also emerged with multiple bed and bath specialty shops opening across the country; even in this niche retail segment.
Several premium store chains also emerged adding to the competition.
In 1985, the founders also decided to launch their superstore that was 10x larger than the original store at 20,000 square feet, where a wide array of home furnishings products could be catered.
It was sufficient to provide every possible colour, style, size of each type of product they had. The approach was a traditional American superstore concept where a large pool of everyday home related goods are available at everyday low prices. This was a period of retail revolution in the US, with new specialty store chains emerging in various product segments like Toys ‘R’ Us and Blockbuster Video.
Despite having a decent competitive base, specialty superstores were reaching ahead to become category killers by offering literally each type of product at the lowest retail price possible. There was no special sales period, other than the semiannual inventory clearance. It was the lowest price everyday and any day of the year.
By 1991, the brand had opened 7 new superstores. Annual sales were touching $134M an year and the earnings were being reinvested in the company’s growth. In short, according to several analysts, Bed, Bath and Beyond was a category creator and made a less strong product category more important.
The secret behind the retailing approach was a strong word-of-mouth marketing via a unique family atmosphere and highly attentive customer service experience. The entire staff was trained on a hands-on approach - sales members would constantly walk across the floor, sort merchandise, arrange displays, help shoppers select and carry products and what not. Even the founders Feinstein and Eisenburg would join the staff on the floor on Saturdays to help in the regular operational work.
There was a wide number of cash registers (traditional billing devices) to cater to the incoming customers and waiting time was reduced with the operational efficiency. In fact, even at that time, there was a policy that if a particular product was not available at the store, the brand would deliver it at the customer’s home free of cost. As a result of this strategy, the brand was able to keep the advertising budgets also under control.
The organic growth due to traditional efficiency was already ahead of its time.
According to the company, there was a unique methodology of visual placement of the merchandise to present the vastness of the products to the customers. Each product line was grouped in a way that it appeared as if there are multiple category-specific specialty stores within this superstore.
Regular use items were placed in the front to encourage impulsive buying and further behind the other products were grouper under large vertical displays reaching far up to the ceiling.
Any customer would feel they have entered a paradise of home related goods.
Behind this entire workflow, there was another unique management style at the company. There was no regional VP or Retail Head to guide the staff. Instead, store managers were bearing their own responsibility to plan purchases at the store, set their own prices as per local competition and to initiate new marketing plans on the approval of their regional managers.
Each superstore could add or modify new departments based on the regional requirements. This decentralised approach in the early 1990s was so successful that it spread across all the departments of the company. The company had no central warehouses, everything reached directly to the store. There was no cross docking, no central QC - the store was responsible for storing and displaying at their end.
The result was that the brand was earning $7.3 on each $100 of sales. The expansion continued and the company went public in 1992 and has been listed on NASDAQ since then. In 1993, the company adopted computer based inventory management systems or the basic inventory management software. This included a network between the office and all superstores to keep a regular track of inventory and customer records. By 1994, the company added home appliances, accessories and other electronic items to the product offerings. In 1997, the company set a standard to reach 100 stores, which it achieved in the following 2 years.
The annual sales grew to $1B in 1999. During the dot com boom, the company also created a customer ordering website and had successful e-commerce operations. By 2011, the company had a wide network of 1,142 superstores. Till 2018, everything was going as great as ever.
During 2019, there was a company board restructuring and 40 superstores were shut down. Shortly after this, the CEO Steven also resigned due to the push from three investment firms on the company board.
The company used to rely heavily on coupon mailers and promotional discounting techniques to attract the customers. However, to save the declining revenues, the company had to tighten the discount policies.
To further save margins, the brand launched several private label brands across multiple categories.
By the end of 2019, the company was operating 1500+ stores across the various brands of the group.
However, things were not so easy going forward. In 2020, due to the COVID-19 pandemic, the company announced plans to close 200 stores. Shortly after this, another controversy started when the company stopped retailing MyPillow citing poor sales, while the alleged reason was the controversy related to US presidential election involvement of the MyPillow members.
During the pandemic years till 2022, the stock of the company striked meme conversations among the retail investor community.
Further, another holdings group sent an open letter to the board of directors to consider their plan to reduce the company’s debt and improve liquidity. During August 2022, the company announced the closure of 150 more stores.
The unfortunate decline was not the only point, on September 2, 2022 - The CFO fell to his death from a skyscraper, further striking the conversation that the stock of the company could have been allegedly a pump and dump scheme. According to a class action suite, the CFO was one of the targets related to the discrepancies in the company stock. Now, the question striking everyone is - what exactly went wrong with Bed, Bath and Beyond, and how an experienced brand fell to the challenges of the market. According to a recent coverage by the WSJ, there were several more problems. Firstly, the e-commerce business was not doing well. While the stores had enough piled up stock, the website was not upto the mark of market requirements. It was harder to get timely delivery of orders, it never came in 2 days or less like when ordering the same item through Amazon. Other retailers added multiple technology pieces to their online webstore for consumer engagement and marketing, this webstore was still running the classic way. Another reason was that the company never had centralised warehouses needed for dedicated delivery like Amazon, it shipped all products from the store. Part of the problem was that the company ran on a culture of frugality. The independence of the store managers also raised other issues, like even for daily use stationary and computer monitors, many times they had to purchase it at their own personal expense because the company would not approve it on time. The company acknowledged that they did not invest in technology as per the market competition and the sales started declining 2018 onwards. Thirdly, the new CEO Mark Tritton was highly experienced at another large retailer called Target, and had success in the past with launching 35 private label brands.
Here, the company made another fundamental mistake of moving too quickly, they announced 10 private label brand launches in 18 months, while the competition had built their labels over several decades.
While the global supply chain was already affected, the brand tried to implement this in a narrow timeframe. Post the first wave of the pandemic, in 2020, the CEO was able to successfully revive sales at stores and the technological enhancements over the e-commerce website also showed good results with features like same-day delivery and curb-side pickup. There was an entirely new IT infra setup with a prominent global ERP solution provider.
However, the party came to a halt shortly after this. The items could not reach stores on time, resulting in empty shelves, confused sales staff and immense customer frustration. The combined challenges of shipping delays, factory issues, handling a load of assortments, inwarding stock and many allied reasons spoiled the entire plan. Some of the private label items were 10x cheaper than competition but the quality was so poor that the sales staff never recommended the same.
Lastly, the management issues with the activist investors, debate among the Board of Directors, media pressure and legal action suits were adding to the pains of the organisation.
Now that all this has happened, the entire industry is taking takeaways from the do’s and don’ts of this company. However, there is one key learning - each company has to be agile in the VUCA world. Each company needs to have a technologically and operationally flexible framework to sail across the difficult times.
Classic brands are surviving in the market because they were consistently innovative with each part of their process - inside and outside the company.
That’s a quick wrap for this week. If you’re interested in being on our podcast to share your retail experience or reflect on the new developments, you can tweet or DM me over Twitter at @geekprateek . Keep listening to us and do share with your peers in the retail ecosystem.
See you in the next one.
Comments