Bed Bath & Beyond, BBBY- The Story Of A Once-Feared Unstoppable Retailer, From Victory As A Category Killer To Bankruptcy.

According to the reports, Bed Bath & Beyond (BBBY) declared bankruptcy in April. The company, which was formed in 1971 and went public in 1992, would eventually liquidate all of its retail outlets, and the company has received $240 million from Sixth Street Specialty Lending to support its operations while in bankruptcy.

In the short term, BBBY will keep certain stores open. That includes 360 Bed Bath & Beyond and 120 buybuy BABY shops and websites, according to a corporate statement, as the business begins its attempts to close its retail locations.

The company’s stock has lost nearly all of its value since peaking at about $81 per share in January 2014, selling for less than 7 cents per share in April.

While the company weathered Amazon‘s competition, its final death was the result of a self-inflicted calamity. In 2019, activist investors took control of the board and selected a CEO who blatantly imposed Target’s private-label approach on BBBY consumers.

Customers went elsewhere because they couldn’t locate the things they wanted on BBBY’s shelves. This reduced sales and left banks and suppliers in the lurch.

BBBY’s Last Gasp.

The company has been on its deathbed since Sue Gove, a company’s board member, took over as CEO in October 2022, following the June 2022 resignation of Mark Tritton, a former Target executive hired in 2019 to revitalise the business.

The holiday season of 2022 it represented the company’s final stand. Its death motion included borrowing $375 million to get through the holidays, delaying bankruptcy in February with an unusual $1 bn hedge fund financing deal as that cut costs and closed hundreds of stores, cancelling that deal in April and failing to raise $300 million from investors [via a share sale].

To be fair, the emergence of Amazon, where customers can buy the same goods at a lesser price, did not force BBBY out of business right away. According to reports, the company’s shops were full of towels & kitchen aids, all available at a lowered price; with that large blue coupon kept buyers coming back following the 2008 financial crisis, while competitors such as The Sharper Image and Linens n’ Things went bankrupt.

BBBY offered consumers with a highly appealing value offering for decades following its foundation. Rather than investing in attractive storefronts or the technology and procedures required for e-commerce, its founders utilised their meagre resources to buy items and pile them to the rafters. Store managers supplied items that local customers requested. In addition, the company provided 20%-off coupons in exchange for spending money on newspaper circulars.

Why Did BBBY Go Bankrupt?

Modern problems need modern solutions- This is something that seems to be not acknowledged by the bankrupt corporation resulting in its game over.

Famous retailers collapse in predictable ways. Their founders rule over explosive expansion and market dominance. When the founders stand back, aggressive competitors go for their consumers, causing them to lose market share.

They recruit so-called expert CEOs from well-known competitors who boldly implement what worked at their former workplace while missing the essential step of listening to consumers and providing them with more of what they require than competitors. That final failure brings the once-proud retailing institution to its knees.

A similar incident where the company entered into bankruptcy as it was unable to decode the market need.

This recalls minding the failure of the electronics shop Circuit City in 2008. Circuit City declared bankruptcy owing to its inability to repay the money borrowed to load its shelves with products that consumers were not purchasing.

Using the so-called five whys analysis, a process developed by industrialist Sakichi Toyoda in which an analyst seeks to solve a problem by asking why in a series of questions & answers, it became clear that Circuit City was solving a wrong issue, attempting to increase earnings per share so that its CEO could earn a significant bonus.

How so? Customers did not purchase the items on Circuit City’s shelves because they preferred to shop at Best Buy and Amazon. The cause for this was a significant increase in consumer complaints regarding Circuit City’s service (combined with its wrong locations and failure to carry desired items).

Circuit City’s choice to replace 3,400 experienced salespeople with 2,100 lower-wage inexperienced workers resulted in the dismal service scores. The CEO did this to reduce expenses, which increased EPS enough to earn him a $7 mn bonus in 2007, the year before Circuit City went bankrupt.

Five Reasons Behind BBBY’s 2023 Bankruptcy.

The company depleted its financial reserves by imposing a strategy that was useful for Tritton at Target private label items on a totally different group of clients.

Why was BBBY cash-strapped?

The company’s cash position was deteriorating. According to its financial report, it had approximately $108 million in cash for the quarter ending May 2022. Nonetheless, the corporation projected on August 31 that it had burned through $325 mn in cash in by the end of the quarter.

The company was short on cash because its costs were higher than its revenue. How so? This $325 million in negative free cash flow occurred during a quarter in which payments were down 25% from the prior year. Furthermore, the company predicts a 20% drop in sales for the entire year.

The company’s financial situation has since deteriorated. After the business failed on its credit lines in January, its banks believed it lacked the funds to reimburse them. The company inked an agreement with a hedge fund in February to raise $225 million and more over the next ten months as the company liquidated locations and slashed expenses. It cancelled the plan in April when its stock plummeted, failing to generate $300 million by issuing new shares.

Why did BBBY’s revenue decline?

The company’s sales fell 33% in the quarter ending November 2022 due to shoppers not purchasing enough of the products on its shelves.

That’s because, under Tritton’s leadership, the company had substituted popular brands like All-Clad cookware, OXO kitchen gadgets, and Mikasa china with so-called private label items. Customers left empty-handed when they noticed shop brands substituting what they were looking for.

One such example was a business in Irvine, California. They did acquire big quantities of items that they couldn’t sell, according to PJ Gumz, the shop manager who departed when the company had shuttered her branch. They once received a shipment of 95 purple carpets under the Wild Sage private label, which they had to discount by 80%.

Why did BBBY go from branded to private-label products?

After serving as Target’s Chief Merchandising Officer, Tritton was appointed CEO of the company in November 2019. His nomination followed a successful campaign by activist investors Legion Partners, Macellum Advisors, & Ancora Advisors to install four BBBY board members, including Tritton.

Until Tritton took over, local shop managers purchased 70% of the items in order to cater to local tastes. He revoked their merchandising power and pushed them to lower the branded products on BBBY’s shelves to make room for the private label stuff, all without consulting customers about their reactions to the adjustments.

Why did Tritton force BBBY customers to buy private branded goods?

Tritton was a key figure in Target’s successful turnaround, which included stocking shelves with private-label items that were more lucrative than branded products and enhancing consumer in-store and online experiences. He contended that what worked at Target would also work at BBBY.

Why did BBBY’s board of directors believe Tritton would fix the company’s problems?

The company’s board of directors believed that what he had done at Target would work at BBBY. January a statement issued in January 2019, Patrick Gaston, then-chair of BBBY, stated that Mark’s ability to redefine the retail experience and drive development at some of the world’s best successful retailers & brands would aid in the resolution of BBBY’s issues.

BBBY will take over for Tritton in June 2022. The company should have employed someone like Hubert Joly, who developed a successful turnaround plan for Best Buy by first listening to its staff and consumers.

What Is the Future of BBBY Stock?

A BBBY stockholder would almost certainly suffer a loss.

When GameStopGME chair Ryan Cohen became associated with BBBY a year ago, there was hope. However, Cohen, whose RC Ventures achieved a $88.1 million return on his $121 million investment in the shop, resigned five months after nominating three board members and then sold his shares in the firm, sending its value tumbling.

The company stated in its bankruptcy petition that by the end of November, their total debt of $5.2 bn outweighed assets by $800 million. It owes money to 25,000 to 50,000 debtors. The Bank of New York MellonBK is its largest unsecured creditor, with a claim of $1.18 billion.

When the company’s assets are liquidated during the bankruptcy process, the company’s stockholders are paid last after all creditors. Simply put, bankruptcy is unlikely to result in any profits for shareholders.

With regret, BBBY’s previously devoted clients have gone on. Sheryl Bilus who is a 68-year-old retired bank manager from Canton, Ga., said she lost trust in the company in 2021 when it replaced Cuisinart food processors with private name models.

As she mentioned, BBBY was their go-to source for bedding, appliances, and everything else she needed for the house. She now purchases everything on Amazon.

Conclusion.

What is the takeaway for business leaders?

Before implementing a new approach, ensure that it addresses the relevant problem better than your sharpest competition.

Proofread & Published By, Naveenika Chauhan