BED BATH RESEARCH PAPAER (1)

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1 Bed Bath & Beyond Hope ENG240 Professor Nolana Whisnant Carmen Steward February 20, 2024 1

2 Introduction Bed Bath and Beyond is a retail chain that has specialized in the ministering of specialty products to its customers for over 50 years. It was founded in 1971 with a $50,000 investment by Leonard Feinstein and Warren Eisenberg, this partnership would bring the company to its popularity over the next 28 years and in 1999 they sold their stock; with this exit the chain’s gradual decline set in. Beginning in 2004, the chain began over time to spend $11.8 billion to buy back stock and this reduced the chain’s capital. By 2023 Bed Bath & Beyond had a total debt on their balance sheet of $3.25 billion. For years, the brick-and-mortar chain withstood the ever-evolving changes in the way we purchase goods. However, the chain would eventually have to revamp their style due to a new way of shopping. We will explore what it takes for a company of this tenure to remain in business, we will review what was the game plan, was it successful, and the failures that the chain sustained. I will attempt to bring forth the forementioned items and convey if there is hope. The research will reveal the struggles and failed strategies that the financial team endured as they fought to keep the chain in business and maintain its customer base. With the realization of plunging sales and an inability to pay suppliers, the company took to seeking out different strategies to revamp the company. Each attempt failed one after another and when there was a glimmer of strategic hope, projects changed hands, replaced executives, and plans were abandoned. Bed Bath & Beyond attempted several strategies to save their long- standing chain, however at every turn was an obstacle that debilitated these efforts. 2

3 At the end of this report a clear understanding of what is foreseen in the business world regarding trends should be recognized and market tested to prove its stability. Beyond Hope Bed Bath & Beyond had been a crown gem in an era known as “category killers.” In this era of superstores BBB was the dominator of the housewares market with its net sales peaking at $12.3 billion annually. It served as a place where loyal customers once flocked to the oversized store to peruse aisles filled with bedding, window coverings, dinnerware, and knick-knacks. The chain stood in the front line of houseware retail until the explosive growth of online shopping, with the entry of e- commerce and their presence on the debt market. “The growth in e-commerce and Amazon hurt the core concept of category killer. Category Killers were built on the idea of large assortments at fair prices, but e-commerce websites typically had larger assortments and better prices.” (Barbara Khan, 2023). When e-commerce arrived upon the scene BBB had begun to experience a decline in its profits due to misconceptions in navigating the trends of e-commerce. Though Covid-19 played a particular part in the crippling of the Bed Bath & Beyond chain by sinking profits of 32% total by 2021, due to disruptions in global supply. The executives of the company also were instrumental in the disabilities by undermining its own efforts to strategize. Each strategic effort that executives implemented as a plan would be quickly altered by the next executive coming as a replacement to fix the previous plan. Bed Bath & Beyond was known for the strategy of using the best-known 20% discount coupons that were sent to tens of millions of resolute customers. These blue and white coupons became a popular symbol of a culture that stashed them 3

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4 away in purses, cars, and closets. These coupons unfortunately became part of the erosion of the chain’s profits. One executive Arthur Stark stated, “Like any form of promotion, it becomes a drug.” When the strategy that lured those customers was entered to pull back on the coupons acted, it backfired. “Once you’re addicted to it and your customer is addicted to it, it’s a very difficult thing to wean off of.” (Neumann and Ronalds-Hannon Bloomberg Businessweek, 2023). In an article written in Bloomberg Businessweek, Bed Bath & Beyond had been facing financial distress for years due to the instability of profit performance and soaring debt. BBBY began grasping at straws attempting to keep the retail chain from tanking. Previous business plans of Chief Executive Officer Steven Tavares, who kept the business at the front of the line, were no longer working. With a dire outlook and no vision as to how to rebound the BBB as were not “embracing industry change” (Neumann and Ronalds-Hannon, 2023). Tavares had found itself under scrutiny of three activist investment funds who sought and succeeded in ousting him. Next up, in 2019 CEO Mark Tritton, former Target executive implemented a strategy to follow up the marketing mistakes and miscalculations. Mark had the idea to discontinue the 20% coupon concept that failed its dedicated customer base, closure of underperforming stores, selling of stock, and employee layoffs. During his 3 years of tenure with BBBY, the company poured $250 million out to modernize technology platforms and another $250 million to upgrade their supply chain infrastructure. Even after these massive plans, his implanted strategy to do away with the coupons and input a plan of deleting national brand name products and replacing them with private label brands as he did with Target failed, as customers were already accustomed to those wonderful coupons. The national brands that were appearing on social media and no longer on the shelves of Bed 4

5 Bath & Beyond with a coupon to boot hurt the chain’s growth and drove resolute customers elsewhere. “Consumers went to BBBY looking for national brands and just did not recognize or trust the private brands. Supply chain issues during the pandemic did not help. BBB got rid of their coupons, and using these coupons drove consumer traffic to the store. Without those coupons as a trigger to go shopping, foot traffic dropped.” (Barbara Khan, Wharton University Marketing Professor). The marketing lesson here is that what is successful and sustainable for one retailer does not signify that it will be transferrable to another retailer. The strategy initiated by Mark Tritton to take away the ubiquitous coupons; consequences were lowered sales. This CEO’s strategy failed as it came at a time when challenges were heightened. He left the position in 2022 and in his wake the retailer reported a $358 million net loss. Chief Executive Officer Sue Gove became interim CEO of Bed Bath & Beyond in June 2022. Her background career of steering retailers like Zales, Goldsmith and Taylor Brand, Inc away from bankruptcy had been the precursors of the nomination by chief executive of Macellum Capital Management. An activist investment fund had looked for her to serve on Bed Bath & Beyond board. Gove was given the reigns to produce a strategy that would help to divert Bed Bath & Beyond from its hurl toward Bankruptcy. The chain She began her strategy by bringing employees back to the office for more face time with customers thinking this would help the company. “Keeping the company out of bankruptcy gives them the highest chance of survival” (Johnathan Duskin, 2019). The hedge fund wanted Gove to undo what Mark Tritton had done; Gove thought that the company’s push for private brands had gone too far. She took actions of consequence and set out to solicit back the national brands, upgrade its supply chain, and improve digital operations. Sue 5

6 worked to increase liquidity, establish the groundwork to improve customer loyalty, traffic, and market share. She advocated for banks and vendors to trust that their investments were safe and to stick with Bed Bath & Beyond through the overhaul. She was able to secure a loan that would allow BBBY to pay back other loans, severance pay for laid off employees, and debtors. Days after securing financial assistance for the chain, the Chief Financial Officer, Arnal Gustavo had committed suicide by jumping to his death due to the stress from the chain’s financial woes. In this tragic light, Sue continued her strategy to save the chain from demise. Unfortunately, all of Sue Goves efforts to reprieve BBBY from going into bankruptcy did fail. Once the banks learned of the deteriorating value of BBBY’s inventory they gave the company notice to prepare and file for bankruptcy. What is learned by these events is that due to Bed Bath & Beyond’s inability to embrace digital transformation early on played a big part of their bankruptcy. At a crucial time when e-commerce retailers were constructing their digital database and running test markets for enhancing customer experience, BBBY was stuck in an era of Brick and Mortar and what always worked for years. The old strategy turned out to drain all profit margins and by the time they tried digital transformation, it was too late. It came at a time of world upset with the entrance of the Covid 19 Pandemic and most purchases being made online. Due to Bed Bath & Beyond’s lag in e-commerce technology and processes against the other more advanced e- commerce retailers made them less competitive. In the end Bed Bath & Beyond attempted to do too much at a time where revenue was rapidly depleting and outside challenges. As profits progressively slid, with mounting debt and the company’s inability to keep up with payments it caused the demise of Bed Bath & Beyond, there was no “ability to keep going.” Not only being late to the e-commerce 6

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7 party, but there were also marketing mistakes and miscalculations regarding the selling of bonds to buy back stock that was sold in earlier years. The executives of the chain sought to resuscitate a business stricken by an inability to maintain a strategy. Where there was inspiration, there was no diligence, and this would end hope for Bed Bath & Beyond. Annotated Bibliography Neumann, J., & Ronalds-Hannon, E. (2023). BED BATH & BEYOND HOPE. In Bloomberg Businessweek (Issue 4773, pp. 8-). Bloomberg Finance LP Quote 1: “Once you’re addicted to it and your customer is addicted to it, it’s a very difficult thing to wean them off of.” Quote 2: “embracing industry change.” Evaluative Annotation: This source is helpful in the introduction to the topic of my conversation as it paves the way for the examination of the chain’s missteps. The source describes the many changes and failures that took place as the ideas of different executives changed hands one after another. I will associate the quotes within my introduction to build upon the points that I am attempting to convey. I also found these quotes to be helpful information on how being comfortable with what is working at one point in time can certainly change. The source expounds in detail on what happens when those coupons are removed as well as when you do not conform to changing times. 7

8 Thesis: Bed Bath & Beyond attempted several strategies to save their long-standing chain, however at every turn was an obstacle that debilitated these efforts. Body Paragraph: Knowledge at Wharton What Went Wrong at Bed Bath & Beyond - Knowledge at Wharton (upenn.edu) . Quote 1: “There are a few things that predicted the beginning of the end.” Quote 2: “The growth in e-commerce and Amazon hurt the core concept. Category Killers were built on the idea of large assortments at competitive prices, but e- commerce websites typically had larger assortments and better prices.” (Barbara Khan, 2023). Evaluative Annotation: This source allows for a good start to the research paper as it leads the reader into some of the history of Bed Bath & Beyond; where they stood as a company and why they thought they could circumvent the e-commerce trend. It will begin to uncover the missteps BBB faced in their attempts to salvage the business. Body Paragraph Esty, Benjamin C., and Daniel W. Fisher. "Bed Bath & Beyond: The New Strategy to Drive Shareholder Value." Harvard Business School Case 722-408, December 2021. (Revised February 2022.) Quote 1: “to unlock growth and drive significant shareholder value.” Evaluative Annotation: This source will help me elaborate on the strategy of executive Mark Tritton, who led Target into financial success by introducing profitable private label products that were not national brands. He tried to do the same thing with BBB. Body Paragraph: “ How Bed Bath and Beyond Avoided Bankruptcy” by Suzanne Kapner, published in the Wall Street Journal on January 7, 2021 https://www.wsj.com/articles/how-bed-bath-beyond-avoided-bankruptcy-adef9ad4 Quote 1: “Keeping the company out of bankruptcy gives them the highest chance of survival.” Evaluative Annotation: This source will provide information regarding the avoidance of bankruptcy and what steps BBBY took to deter this action, who were the people who backed the 8

9 chain and what was the strategy used. I found key points to add in the paragraph to support the questions. Conclusion Bed Bath & Beyond’s stock has crashed to the earth after a rollercoaster ride that gravity defied. Here is a timeline of a chaotic journey, fueled by meme-stock craze and mounting debt. Bed Bath & Beyond: Timeline of the Meme Stock's Crazy, Chaotic Ride (businessinsider.com) Quote 1: “substantial doubt” Quote 2: “ability to keep going.” I will use this source to sum up my research with the ending results of all strategy efforts for the BBB chain to stay alive, how the meme stock would eventually do the chain in for good. 9

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