As the struggling retailer attempts to escape bankruptcy, Bed Bath & Beyond Inc said on Tuesday that it received approximately $225 million in a stock offering and may collect another $800 million over the next 10 months.
According to two people with knowledge of the situation who spoke to sources on Tuesday before the offering ended, Hudson Bay Capital Management is the deal’s principal investor. Bed Bath said on Monday that the company wanted to raise almost $1 billion in a complicated arrangement where it issued preferred shares and warrants, having initially highlighted the possibility of bankruptcy early last month.
According to analysts, Bed Bath may only have a few quarters with the fresh funding to turn around its failing company, and a deteriorating economy would lessen the likelihood of a successful turnaround. Robert Gilliland, managing director at Concenture Wealth Management, said the offering “may be a Band-Aid but I’m not sure of all the makeup of their balance sheet.” The issue is that they most likely won’t be a significant comeback story.
Regarding Hudson Bay Capital’s involvement in the share transaction, Bed Bath declined to comment. Requests for a response from Hudson Bay were not answered. There is no connection between Hudson Bay Capital and the Canadian retail giant Hudson’s Bay Co. To allay fears, Bed Bath CEO Sue Gove stated that she anticipated the stock sale would “catalyze our efforts to rescue the firm.” She requested assistance from the vendor and pledged “open discussion.”
In fiscal 2023, “we also anticipate it to support strategic initiatives, giving the resources and the requisite runway” to keep up the change, she added. Bed Bath’s suppliers are concerned and haven’t given the business much of a chance to respond; as a result, payments have been delayed or stopped. A manufacturer of children’s clothing declared last week that everything was on pause and added that since early January, it has ceased sending goods to Bed Bath. According to a manufacturer of personal care items, payments were “massively delayed.”
Requests for comment about the memo and what suppliers stated did not immediately receive a response from Bed Bath. In case a last-minute buyer materialized, Bed Bath had liquidators lined up to liquidate other locations, according to Reuters late last month.
Prices for Bed Bath & Beyond bonds due in 2024 increased to 24 cents on the dollar on Tuesday from approximately 5 cents the day before, but they still reflect the company’s financial hardship. Shares of Bed Bath & Beyond increased 3% in after-hours trading after falling 49% on Tuesday. Chris Beauchamp, a chief market analyst at IG, said, “It appears like a technique of delaying the time in the hopes someone saves them, but it looks a bit doubtful.”
The fact that this revelation “has stirred the flames of that specific craze” is not surprising, he continued, “having been on the brink of the meme stock frenzy.” When activist investor Ryan Cohen bought a stake in the firm and pushed for improvements, Bed Bath, a participant in the meme stock craze, saw its shares soar as high as $30 last year.
AMC Entertainment AMC.N and video game retailer GameStop Corp GME.N are two other meme stocks that have seen a boost from retail investors in recent years. On Tuesday, these stocks declined by 9% and 11%, respectively. Callie Cox, a U.S. investing analyst at eToro, stated that “the popularity of meme stocks might ebb and flow based on the market’s mood simply have to be careful about it, especially in a high-rate environment.”
The previous volatility and current pricing, according to Bed Bath, “reflect market and trading dynamics unrelated to our core business, or macro or industry fundamentals and we do not sure if or how long these dynamics will persist.”
Bed Bath & Beyond was a retail pioneer.
Bed Bath & Beyond was a shining example of the so-called “category killers” era, which included companies like Toys “R” Us, Circuit City, and Sports Authority. Both of the businesses subsequently declared bankruptcy. Pots and pans, towels, and bedding were packed floor to ceiling in Bed Bath & Beyond’s enormous shops, and 20%-off coupons were a common sight. Millions of Americans ended up hiding the blue-and-white coupons in their basements, closets, and automobiles as they became something of a pop cultural symbol.
By offering name items at discount rates, the business drew a wide variety of customers. Given that it would result in significant sales, the brand desired space on Bed Bath & Beyond’s shelves.
Additionally, the open-concept design of the store promoted impulsive purchases: customers would enter to buy new dishes but leave with pillows, towels, and other products. The back-to-school and college seasons, as well as the winter holidays, made stores a regular stop for customers. Bed Bath & Beyond also did well with its baby and wedding registries.
The network of tiny linen and bath businesses, originally known as Bed ‘n Bath, was established in 1971 by two veterans of bargain retail in Springfield, New Jersey, and first spread throughout the northeast and in California by selling designer bedding, which was a new fashion at the time. It didn’t rely on sales events to entice people as department shops did.
According to reports from 1993, co-founder Leonard Feinstein claimed, “We had watched the department store shakeout and felt that specialized stores were going to be the next wave of retailing.” We recognized a significant window of opportunity since it was the beginning of the designer approach to linens and household goods.
To better represent its enlarged product line and larger “superstores,” the business changed its name to Bed Bath & Beyond in 1987. In 1992, the business went public with 38 locations and annual revenues of about $200 million. These numbers soared to 241 locations and $1.1 billion in sales by the year 2000. In 2009, when the chain’s sales had hit $7.8 billion, the 1,000th Bed Bath & Beyond location was inaugurated. The business was a bit of an iconoclast. To draw clients, it made little advertising expenditures and instead relied on print coupons provided in weekly newspapers.
Why not simply inform the consumer that we will offer them a discount on the product they desire rather than the one we wish to make available for sale? In a 2020 New York Times interview, Bed Bath & Beyond co-founder Warren Eisenberg, then 92, said, “We’ll mail a discount, and it will be much cheaper. The business was renowned for allowing shop managers to design their stores, for allowing them to choose which products to carry, and for sending goods directly to stores rather than a central warehouse.
Growing e-commerce
Bed Bath & Beyond, however, took a while to make the switch from brick and store to online shopping, which was a mistake made worse by the fact that home décor is one of the most popular product categories on the internet. Additionally, the popularity of Bed Bath & Beyond’s fan-favorite discounts was damaged by online shopping because customers could discover many more affordable alternatives on Amazon or browse a greater range on websites like Wayfair (W). But more than just Amazon and internet shopping contributed to the demise of Bed Bath & Beyond.
Over the past ten years, Walmart (WMT), Target (TGT), and Costco (COST) have expanded, and they have been successful in luring Bed Bath & Beyond customers with cheaper pricing and a greater selection of goods. The pricing at discount retailers like HomeGoods and TJ Maxx has also been lowered.
Bed Bath & Beyond’s sales stagnated from 2012 to 2019 without the differentiators of the lowest prices or the greatest assortment. The epidemic had a heavy toll on the business, forcing it to temporarily down locations in 2020 while its competitors kept their doors open. Sales dropped 15% and 17% in 2021, respectively.
Additionally, Bed Bath & Beyond has changed leadership and turnaround plans frequently in recent years. Mark Tritton, a former Target executive, assumed leadership in 2019 with financial support and an audacious new plan. In favor of Bed Bath & Beyond’s private-label goods, he reduced inventory and discounts for national brands. This move turned off customers who were devoted to major brands. Additionally, the business missed payments to suppliers, which prevented outlets from stocking their shelves with goods. In 2022, Tritton resigned as CEO.
The firm had 949 locations as of the end of November, comprising 762 Bed Bath & Beyond locations and 137 Buy Buy Baby locations. It said on Tuesday that it will eventually have 360 Bed Bath & Beyond stores and 120 Buy Baby outlets, or roughly half that amount.
The stores that cost Bed Bath & Beyond the most money will be shut down. However, the closures would mean that Bed Bath & Beyond will give up on locations that generated $1.2 billion in yearly sales, according to a note to clients sent out on Tuesday by UBS analyst Michael Lasser. According to Lasser, some of those purchases will be recouped by Bed Bath & Beyond from its other locations and online, but the majority will go to other merchants.
However, for the business to thrive, revenues at its remaining outlets must increase. Otherwise, Bed Bath & Beyond won’t be able to make a profit since too much of its sales would be used to pay off debt. Given the difficulties with dwindling consumer demand, declining internet traffic, and growing competition in Bed Bath & Beyond product categories, Lasser said it won’t be simple to reverse sales reductions. To turn Bed Bath & Beyond into a strong, prosperous business, it will need to get past its considerable obstacles.
edited and proofread by nikita sharma
