Bed Bath and Beyond (BBY), one of the US's largest retail outlets, has been constantly in the news since 2019. It is known for fully stocking its shelves with normal products at expensive prices, had announced 20% employee layoffs after spending billions on buying back its shares, and is perceived as a company that will be bankrupt soon. Also, BBY's CFO Gustavo Arnal died yesterday after falling from a building in Manhattan, USA.
By the looks of it, it seems like everything is going wrong for Bed Bath and Beyond. As people doubt whether there will be a ''beyond'' for the company, here's a look at BBY's business strategies and how the company's woes just worsened with the news of its CFO's death.
1. First, a bit about the company: Bed Bath and Beyond (BBY) is a publicly listed company on NASDAQ and operates in the US, Canada, Mexico and Puerto Rico. BBY is one of the largest home goods retailers in the business of selling bedding, bath items, home decor, furniture and fitness goods.
2. What made BBY famous? BBY was famous for:
Stock of massive inventory that was laid out from floor to ceiling. This would make it a bountiful shopping experience for customers who were willing to pay a higher price for such a wide variety of goods that were easily available at one place.
Aggressive coupon promotions to encourage people to shop more.
3. So, what went wrong? Bed Bath and Beyond was a profit-making company since 2009 and its revenues and profits had been increasing consistently every year. But since 2019, the company has seen some tough times:
Expensive pricing: BBY has always been known to house normal products at expensive prices that would be deemed expensive, even after customers applied their trademark $20 discount coupon. This means that their stocked shelves would remain full and stores would be empty. BBY closed many US stores in the last few years since no customer would buy products higher-priced products when they could buy the same product for much cheaper prices on Amazon or at Walmart.
Supply chain issues: BBY used to source its wide variety of products through a third-party intermediary (middleman) whereas its competitors like Walmart and Best Buy would directly source products from multiple original vendors in countries like China and Vietnam. As it was convenient to manage one third-party vendor as compared to multiple vendors in different countries, this strategy was easy for BBY from the administration point of view. But from the cost point of view, it was a bad move since the third-party intermediary would take a large cut that would increase the prices for customers.
During the pandemic, BBY decided to shift to direct sourcing and started ditching the intermediaries. But the move did not work as it led to additional costs at a time when the supply chains were lagging due to lockdowns and lag in production. Since they were out of stock for a long time, they couldn't sell stuff eventually for a long time, they lost about $175 million in sales.
Poor cash management: BBY's cash levels fell to $100 million this year from $1.1 billion last year due to falling sales and massive losses. Also, BBY had announced that it would spend about $1 billion to buy back its own shares (companies usually buy back their shares so that the number of tradable shares in the market reduces and that pushes up the share price). Though the share price did increase temporarily, the falling sales failed investors' hopes. They ended up selling the shares which led to a further fall in prices.
Slow turnaround strategy: BBY announced a turnaround strategy where it announced the closure of 150 stores and about 20% employee layoffs to cut costs. It also secured $500 million in additional debt and announced a potential 12 million shares sale. But the thing is: with more debt, comes more interest expenses which have to be eventually paid off in cash later on.
Fuming investors: BBY was an extremely popular meme stock on Reddit in August 2022, which means its share prices rose insanely in a short span of time and made investors a lot of money. Share prices once rose by 97% in a span of 5 days and made a monstrous run from $5.77 to $23.08 over a little more than two weeks in August. But when BBY decided to oust two turnaround specialist leaders CEO Mark Tritton and Chief Merchandising Officer Joe Hartsig, it drew criticism from investor Ryan Cohen, who then dumped his shares, leading to a price crash.
Death of CFO: 52-year-old CFO Gustavo Arnal was found unconscious with injuries, which showed that he fell from a tall building. He was pronounced dead at the scene.
What is next for Bed, Bath and Beyond is now left to time.