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Bed Bath & Beyond US in a ‘death spiral’

Fresh figures from beleaguered US retailer Bed Bath & Beyond show sales slumped by a third in the latest quarter driving a loss of US$451 million in three months. 

Analyst Neil Saunders, MD at GlobalData, said the “torrid” figures show the company has “completely lost control and is in a tailspin”. 

“With the ground fast approaching, survival now looks unlikely. A third of revenue has vanished, plunging an already beleaguered company into the depths of chaos.”

The latest quarterly deficit takes the company’s losses to well over $1 billion but Saunders says the company’s predicament represents an acceleration of old problems rather than a new set of issues. 

“Over the past three years, Bed Bath and Beyond’s sales have declined by 54.4 per cent or by $1.5 billion in monetary terms. The perpendicular nature of this drop cannot be blamed solely on market forces nor on competition, it also needs significant doses of negligence and misjudgment. Sadly, Bed Bath & Beyond had both things by the bucketload thanks to a botched reinvention program and a complete lack of commercial understanding.”

Last week, the company revealed that Chapter 11 bankruptcy protection may be likely with “substantial doubt about the company’s ability to continue” after sales floundered over Christmas-New Year.

Saunders said the company’s biggest challenges right now are that it is rapidly running out of cash and the confidence of suppliers is extremely limited. 

“This death spiral is very hard to escape from.”

“This combination means it is becoming increasingly difficult to secure stock, which is why inventory is so light at many stores. Out-of-stocks diminish sales and drive away customers. This pushes down profit which, in turn, weakens the cash position still further. This death spiral is very hard to escape from.”

Too much rot had set into the business he said to allow a quick change of fortune despite effort from the new management team led by Sue Gove. 

“In any case, the latest plans were not so much a blueprint for a turnaround as a series of steps designed to stabilise the business as far as possible given the serious financial constraints Bed Bath & Beyond is operating under. It now looks as if even that modest aim is unattainable.”

Saunders believes the company’s longstanding issues include a lack of product differentiation, the inability to successfully compete with rivals, the weak state of the homewares market, the margin erosion from trying to match prices and stimulate demand with coupons, a lack of understanding of the core customer, and almost $2 billion of debt sitting on the balance sheet. 

“What Bed Bath & Beyond desperately needs is a big infusion of money. However, while this would help solve the short-term issue of inventory and operations, it would not resolve any of those longstanding issues. Many potential investors or saviours will be deterred by such a high pile of difficulties.”

He suggested that the sale of the company’s Buybuy Baby division would raise cash as would an infusion of funds from a lender, but those would likely be on unfavourable terms. 

“Neither of these is particularly desirable but they would buy the company some more time. However, in our view, given the extent of the problems, the most sensible solution would be restructuring under Chapter 11. This would mean giving up some control over the process but would allow some slates to be wiped clean. A buyer may also emerge for some of the assets, including the brand name and website – similar to what happened with Pier 1,” said Saunders.

“Whatever path Bed Bath & Beyond determines, it will not be the final resolution to this saga. It will be just the beginning of many more months or turmoil and disruption.”

Footnote: Bed Bath & Beyond in the US has no association with the New Zealand company trading under the same name.

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