Speaker 1: Welcome to Business on the Brink, a production from I
Speaker 1: Heart Radio and how stuff works, Bed Bath and Beyond,
Speaker 1: where you can get a spatula, a bathroom scale, and
Speaker 1: a face mask that looks like a panda. We're building
Speaker 1: a wedding registry. Is kind of like playing a video game.
Speaker 1: But the coupons and return policies that initially brought customers
Speaker 1: to stores soon hit their expiration date on effectiveness, leaving
Speaker 1: management grasping for straws on how to turn the company
Speaker 1: around and learning the hard lesson that more isn't always
Speaker 1: better and all these aren't always goodies. This is I
Speaker 1: can't believe I have to say this, Bed Bath and
Speaker 1: Beyond on Business on the Brink. Hey, everybody, after that
Speaker 1: alliterative opening, I am Jonathan Strickland and I'm Aero Caston,
Speaker 1: and you did a really good job on at one take. Yeah, yeah,
Speaker 1: that's I mean, you know, rubber baby, buggy bumpers. What
Speaker 1: can I say? So this was a suggestion from somebody
Speaker 1: whose name I think I recognize, well, i'd hope so,
Speaker 1: because you know them, it's my mom. Hi mom, don
Speaker 1: your mom suggested this. My mom suggested that she listens
Speaker 1: to the show every week. So thanks mom, Thanks thanks
Speaker 1: Ariel's Mom. Yeah. So we're going to cover Bed Bath
Speaker 1: and Beyond, a company that has a similar sort of
Speaker 1: history as some other big box retail companies have had,
Speaker 1: but there's some particulars in this one. They get awfully juicy. Also, Um,
Speaker 1: one of the things I think we need to start
Speaker 1: off with is the first note you have here. It's
Speaker 1: about the founders, the two founders being at Warren Eisenberg
Speaker 1: and Leonard Feinstein, who founded the company in nineteen seventy one.
Speaker 1: Before we go anywhere in this episode, I just want
Speaker 1: to point out it pays to be the kid of
Speaker 1: the two founders of Bed Bath and Beyond for reasons
Speaker 1: we will get into this episode. Yes, Um, you know,
Speaker 1: like it pays to be the kid of someone who
Speaker 1: listens to your podcast because they give you good suggestions. Anyhow,
Speaker 1: not quite the same. Uh So. Yes, Warren and Leonard
Speaker 1: founded the first bed Bath and Beyond in ninete in Springfield,
Speaker 1: New Jersey, and at the time it was just bed
Speaker 1: and Bath. Yeah, there's there's no beyond yet. No. No,
Speaker 1: they were not like Buzz Lightyear say. It was only
Speaker 1: when they when they hired a young promising Buzz Lightyear
Speaker 1: to join the company that they got. No, they literally
Speaker 1: were selling bed and bath items, so there was no
Speaker 1: call for a Beyond yet. So then in nineteen seventy seven,
Speaker 1: they you know, so they've been operating this for a
Speaker 1: few years now, they bring in a guy called Arthur
Speaker 1: Stark to head the company as president. Right to act
Speaker 1: as president for the company, they the founders would essentially
Speaker 1: stay on as members of the board of directors for
Speaker 1: almost the entire history of Bed Bath and Beyond. Yeah,
Speaker 1: and we see this oftentimes someone will start a company
Speaker 1: and they'll run it by themselves for a little bit
Speaker 1: until they go, well, I really need a professional in
Speaker 1: right this this concern has grown to the point where
Speaker 1: it is beyond my expertise to manage it. And so
Speaker 1: you bring in somebody else to come in and run
Speaker 1: the show while you still oversee the general direction of
Speaker 1: the company. Yeah, so things were going really well. Like
Speaker 1: they continued to grow as a company over the seventies
Speaker 1: and into the eighties, right, Yeah. By five, they expanded
Speaker 1: to seventeen locations and they opened their first superstore, and
Speaker 1: that's that's when they changed their name to Bed Bath
Speaker 1: and Beyond. Because they started selling the Beyond. Yeah, the
Speaker 1: stuff that was not easily fitting wouldn't easily fit into
Speaker 1: the better bath. I mean so at the time, primarily
Speaker 1: kitchen stuff. Yeah, and you know they'd go into deck
Speaker 1: or in other things. Uh, but that that took some
Speaker 1: finag links. So, and this is right around the time
Speaker 1: where superstores were really starting to take off as a
Speaker 1: concept in the mid eighties, like they had come out
Speaker 1: originally in the seventies, but this is when you started
Speaker 1: seeing other types of stores kind of following in those footsteps,
Speaker 1: and uh, and this is one of them. So by
Speaker 1: one they had they were doing around a hundred thirty
Speaker 1: four million dollars in revenue and sales. Uh. And then
Speaker 1: the following year they became a publicly traded company and
Speaker 1: they were trading stock on the NASDACS. Yes, we're going
Speaker 1: through it quickly because for a while, uh, that bath
Speaker 1: thing beyond just did really well. They were making one
Speaker 1: point nine billion dollars a year, a significant jump in
Speaker 1: just a few years. So yeah, they they were doing
Speaker 1: this largely by growing rapidly, opening up new stores. They
Speaker 1: were being very uh aggressive in expansion at that point.
Speaker 1: And this is we haven't even really opened up that
Speaker 1: can yet because we're really they really got crazy in
Speaker 1: the following decade. Yes, by the end of two thousand one,
Speaker 1: they had almost four hundred store locations and hopes to
Speaker 1: grow to up to eight hundred. Wow. Yeah, So here's
Speaker 1: the thing, growing like that, having that sort of aggressive
Speaker 1: growth strategy, opening up new stores, like actually scouting out
Speaker 1: locations and either building a structure or taking over a
Speaker 1: vacant structure. That takes a lot of effort. There is
Speaker 1: another way to grow your business quickly beyond building it yourself,
Speaker 1: and that is buy it, yes, acquiring other stores and companies,
Speaker 1: And that's what bed Bath and Beyond did. So they
Speaker 1: did a bunch of research. From what I read, they
Speaker 1: actually were very careful in their first acquisition. They wanted
Speaker 1: to buy something that could fit in well with their
Speaker 1: current brand, wasn't going to be a direct competitor for them,
Speaker 1: and had good operating margins in long term growth. Right,
Speaker 1: So I didn't want to go out and buy a
Speaker 1: company that was just going to cut into their own sales.
Speaker 1: You didn't want to have, you know, two stores in
Speaker 1: the same shopping center, for example, that are competing for
Speaker 1: the exact same customers. You're not doubling your sales that way,
Speaker 1: You're just dividing where your customers are going. So this
Speaker 1: was a very smart move on their part. It was.
Speaker 1: And in two thousand two they made the first acquisition.
Speaker 1: It was Harmon's Stores. And when I was trying to
Speaker 1: figure out who Harmon was, there is a grocery line
Speaker 1: in Utah that is also named Harman's Stores. Turns out
Speaker 1: that's not the right the right one, right, No, No, Harmon.
Speaker 1: The Harmon they bought was a health and beauty retailer
Speaker 1: in New Jersey, where they also were. Yeah, and since
Speaker 1: we're down here in Atlanta, Georgia, often these regional chains
Speaker 1: or regional stores are ones that we may not have
Speaker 1: ever encountered. Yeah. So, so we don't know how much
Speaker 1: they bought Harmon four, but we do know it was
Speaker 1: a cash acquisition. Bed Beth and Beyond has been fairly
Speaker 1: private about a lot of their financials, so as much
Speaker 1: as they can be so pretty opaque. Yes, yes, um,
Speaker 1: but Harmon's at the time was operating seven stores in
Speaker 1: three different states, and they had this was the big
Speaker 1: thing for Bed Bath and Beyond. They had their own
Speaker 1: HB a line Harmon Face Values, and that meant that
Speaker 1: bed Bath and Beyond could take this this private brand
Speaker 1: and move it into their store because they didn't have
Speaker 1: HB A but HbA fits right in when with Bath.
Speaker 1: So this way they could actually carry a brand that
Speaker 1: no other store in their space could carry apart from Harmon's,
Speaker 1: apart from Harmon's which they owned hotly as a subsidiary.
Speaker 1: So well, and then they that went so well that
Speaker 1: first acquisition that they said, well, shoot, we're professionals at this,
Speaker 1: let's really open up them purse strings and start buying stuff. Yeah,
Speaker 1: but the next thing they bought. It took me a
Speaker 1: while to figure out why. Because the next thing they
Speaker 1: bought was the Cris Smiths Tree Shops in two thousand
Speaker 1: three for two hundred million dollars, which added another twenty
Speaker 1: three subsidiary stores in five states to retinue. Now here's
Speaker 1: the weird thing is that Christmas Tree Shops is a
Speaker 1: sporting goods store. I'm lying, you are lying. I didn't
Speaker 1: I didn't look. I assume they sell Christmas trees and
Speaker 1: and like Christmas decor and things like that, ornaments and
Speaker 1: things like that, which if you go into a Bed
Speaker 1: Bath and Beyond now, because we all know that they
Speaker 1: are not absolutely Toys r US right now, well kind
Speaker 1: of like Toys r US was a year ago as
Speaker 1: of the recording of this episode. By the time this
Speaker 1: episode comes out, we don't know. Yeah. Yeah, you know
Speaker 1: they do put Christmas ornaments in Christmas decor and their
Speaker 1: stores as it's seasonally appropriate to do so. Yes, which
Speaker 1: means that since we're recording this at the beginning of September,
Speaker 1: probably tomorrow, the start putting them out. Yes. So by
Speaker 1: two thousand four, Bed, Bath and Beyond had sales of
Speaker 1: five point one billion with a B dollars. So I
Speaker 1: guess it's time to make more acquisitions. Yeah. Now, this
Speaker 1: next acquisition is one where I object strenuously to the
Speaker 1: name of the company, which is Bye Bye Baby, Buy
Speaker 1: Buy Baby, So I guess you buy babies there. That
Speaker 1: to me is incredibly problematic. No, you don't buy babies,
Speaker 1: you buy buy things for babies. It was a competitor
Speaker 1: to Babies r US. Yeah, and they bought it for
Speaker 1: sixty seven million dollars. Uh. And also part of that
Speaker 1: was to pay off some of Bye Bye Baby's debt,
Speaker 1: which was like almost twenty million at that point, Yes,
Speaker 1: Bye Bye Baby only had eight stores in four states,
Speaker 1: and the CEO of bed Bath and Beyond at the
Speaker 1: time Stephen Tamaris, who had been with bed Bath and
Speaker 1: Beyond ninety two. He became CEO in ninety seven and
Speaker 1: then CEO in two thousand three. He called the acquisition
Speaker 1: an excellent strategic fit, with the idea that a lot
Speaker 1: of their customers are either perspective or current parents. But
Speaker 1: here's the thing, Okay, here's where I was saying, it
Speaker 1: pays to be the kid of one of the founders
Speaker 1: of bed Bath and Beyond. Yes, because the person who
Speaker 1: owned Bye Bye Baby was the son of Leonard Feinstein,
Speaker 1: one of the founders, And so there were a lot
Speaker 1: of people who said this acquisition wasn't so much a
Speaker 1: strategic acquisition as it was an effort to bail out
Speaker 1: the son of a founder of bed Bath and Beyond.
Speaker 1: Because again, if you remember, we mentioned that part of
Speaker 1: that acquisition involved paying off nearly twenty million dollars in death. Yeah. Yeah, Now,
Speaker 1: two thousand seven also saw international expansion, so I mean,
Speaker 1: it's still good things even with this alleged buyout. They
Speaker 1: alleged bailout because it was indefinite buyout. You're right, Jonathan,
Speaker 1: you're very smart. Now shut up. No, please don't please,
Speaker 1: don't shut up. I don't want to do this alone. Uh.
Speaker 1: So they opened their first are in Canada, and the
Speaker 1: next year they expanded into Mexico City through a partnership
Speaker 1: with Home and More. Uh and Home and Moore would
Speaker 1: eventually change a name to that Bath and Beyond. Yes,
Speaker 1: so now they are occupying all of North America. And
Speaker 1: in two thousand and eight, it was great news for
Speaker 1: bed Bath and Beyond, but bad news for somebody else.
Speaker 1: The the business lenens in things, which you could view
Speaker 1: as the lex luthor to bed Bath and Beyond Superman.
Speaker 1: I mean, they definitely had a real close shave in
Speaker 1: two thousands. So they didn't just have a close shave,
Speaker 1: they actually closed up shop. The company went totally bankrupt.
Speaker 1: They liquidated their assets. They sold off all their brick
Speaker 1: and mortar stores. There were five hundred seventy one of
Speaker 1: them at the peak. Yeah. Now, granted they didn't sell
Speaker 1: them all off at once. It was a long, slow,
Speaker 1: painful march towards bankruptcy. And they were really the only
Speaker 1: competitor in the big box retail space for this type
Speaker 1: of stuff that bed Bath and Beyond was doing. And
Speaker 1: there were other companies that were selling stuff that bed
Speaker 1: Bath and Beyond also sold, but Lens and Things was
Speaker 1: the only one really dedicated to the exact same space,
Speaker 1: and now they were gone. So now bed Bath and
Speaker 1: Beyond was operating without a real competitor in that space. Uh.
Speaker 1: Lenons and Things, by the way, would re emerge in
Speaker 1: two thousand nine as a web based retailer, but would
Speaker 1: ultimately shut down for good Z's in two thousand eighteen.
Speaker 1: So maybe at some point we'll do another story, or
Speaker 1: maybe we'll just say, hey, do you remember that episode
Speaker 1: of bead Math and Beyond? Just do a fine copy
Speaker 1: of replace with things, which is not really the case.
Speaker 1: Very different stores now, and I mean bad Beth and
Speaker 1: Beyond would soon get a bunch of competitors, but we
Speaker 1: aren't there yet. By two thousand and eleven, they're making
Speaker 1: nine point five billion dollars so much money. Yes, And
Speaker 1: by two thousand twelve they made two more acquisitions. Okay,
Speaker 1: and uh what were those? Well? The first was cost
Speaker 1: Plus Incorporated or cost Plus World Market, which I love
Speaker 1: for four you love it for four dollars? I love it.
Speaker 1: They bought it for four dollars, But if I had
Speaker 1: four hundred million dollars, I might just be like, okay,
Speaker 1: this one cost plus, give me all your stuff, fair enough, okay.
Speaker 1: And then after that they bought Linen Holdings ll C
Speaker 1: for a hundred five million, right yes, And Linen Holdings
Speaker 1: did more industrial distribution, so bed bath and tableware and
Speaker 1: linens and textiles to things like cruise lines, food service hotels. Yeah,
Speaker 1: like all the hospitality industry and that kind of stuff
Speaker 1: as well. Got you. So we are now at a
Speaker 1: point where we're kind of at the peak of bed
Speaker 1: Bath and Beyond in two thousand eleven, which was not
Speaker 1: that long ago, really wasn't. And yet we're about to
Speaker 1: enter into an era where things would go radically in
Speaker 1: a different direction. But before we get there, I think
Speaker 1: we need to take a quick break, all right. So
Speaker 1: we're back, and we're back with bed Bath and Beyond,
Speaker 1: and now we're up to two thousand thirteen. We were
Speaker 1: still jumping forward a bit and things were still going
Speaker 1: like gang busters. They had five subsidiaries at that point.
Speaker 1: And they even though they had five subsidiaries, bed Beth
Speaker 1: and Beyond like the core business still accounted for the
Speaker 1: majority of their revenue. Yeah, over their stores where Bed
Speaker 1: Bath and Beyond stores because these other acquisitions were small
Speaker 1: when they got them, and more regional, yeah, like the
Speaker 1: like the New Jersey's chains and stuff like that, so
Speaker 1: they grew them, but they also used them to grow
Speaker 1: their business and expand their offerings. This is also when
Speaker 1: we started seeing I mean, obviously the companies were about
Speaker 1: to mention have been around for a while, but we
Speaker 1: started seeing companies like Target and Walmart and Amazon compete
Speaker 1: more fiercely in the same space as Bed Bath and Beyond. Yeah. Yeah.
Speaker 1: But despite that, in two thousand and thirteen, they were
Speaker 1: up to eleven point five billion dollars in sales, and
Speaker 1: it looked like they might actually be able to take
Speaker 1: a stand against all of these extra big box stores,
Speaker 1: which is what I'm going to call them, yeah, some
Speaker 1: of them being online big box stores. Yeah. Amazon. And
Speaker 1: part of it was attributed to the fact that the
Speaker 1: company was very fiscally conservative up to this point other
Speaker 1: than buying the the subsidiaries, so they had very little debt.
Speaker 1: And even when they were acquiring these other companies, they
Speaker 1: did it at a time where they said that it
Speaker 1: wasn't going to affect their bottom line for that year.
Speaker 1: Whether or not that's actually the case, we don't know,
Speaker 1: because they don't really break out these other companies and
Speaker 1: their financials. They lump them all together. Oh yeah, that's
Speaker 1: one of the issues that we will revisit as well,
Speaker 1: is that when it came to financial reporting, they weren't
Speaker 1: They wouldn't break this down by here's how much this
Speaker 1: particular subsidiary brought in, here's how much this subsidiary brought in,
Speaker 1: here's how much bed bath and Beyond brought in. They
Speaker 1: would group them all together, and so it made it
Speaker 1: very challenging to understand what parts of the company were
Speaker 1: doing well and which parts might not be doing So. Yeah, Now,
Speaker 1: another part they thought that was leading to their success
Speaker 1: was the longevity of their leadership. You know, the founders
Speaker 1: are still on the board. They had a very long
Speaker 1: standing CEO and a very long standing president and just
Speaker 1: and you know, we've tosked so many times about how
Speaker 1: you would have like a rapid change in executive leadership
Speaker 1: and that could result in doom for the company. So,
Speaker 1: you know, you would think that having the same leaders
Speaker 1: in place for a long time could really help guide
Speaker 1: a company. But here's the here's the thing is that
Speaker 1: sometimes stuff changes and you need to have leadership that
Speaker 1: can adapt to change. And if you're comfortable, you may
Speaker 1: not notice that change. And if you're a company that
Speaker 1: makes acquisitions in order to bail out the children of founders,
Speaker 1: which would happen again, that's that's uh, it can be
Speaker 1: an issue, but we'll we'll, we'll get there. So Ben
Speaker 1: Beth and Bon also has aggressive buyers who who really
Speaker 1: I would say they could squeeze blood from a stone,
Speaker 1: like they're really good on getting distributors to agree to
Speaker 1: really good sales prices and things like that. So so
Speaker 1: they were going out to to the providers of whatever,
Speaker 1: like the companies that are making these products and being
Speaker 1: able to get them at a really good price, and
Speaker 1: then of course mark it up to sail cell to
Speaker 1: the final customer. And they made a lot of demands
Speaker 1: to those manufacturers and distributors. But they those manufacturers and
Speaker 1: distributors also got a lot of of you know, push
Speaker 1: for their products, so it was a given take they
Speaker 1: were willing to meet a lot of those demands. They
Speaker 1: also looked from some reports that I read for instead
Speaker 1: of looking for prime retail space. They looked for affordable
Speaker 1: retail space. Now, whether it was affordable enough or not,
Speaker 1: I don't know, But in other words, they were looking
Speaker 1: for things like they were trying to balance out, Uh,
Speaker 1: does this space makes sense? Like if we paid this
Speaker 1: premium amount for this space, we might be in a
Speaker 1: much more visible spot, but we may not see a
Speaker 1: good return on that investment as opposed to let's go,
Speaker 1: you know, maybe three blocks over to a spot that's
Speaker 1: not considered quite as as valuable, but at the same
Speaker 1: time will make a better return. Yeah, I get it.
Speaker 1: And then, of course there's one other component we have
Speaker 1: to talk about, because anyone who's ever shopped at bed
Speaker 1: Bath and Beyond and put their email registered their email
Speaker 1: with bed Bath and Beyond knows about the coupons. Yes,
Speaker 1: these these coupons got a lot of people into the stores.
Speaker 1: I know, I'm married to one of them. I mean,
Speaker 1: I usually go, oh, bead Bath and Beyond coupon. I'm
Speaker 1: going to go to Bad Bath and Beyond. I'm sure
Speaker 1: there's something I need or want, and then I forget
Speaker 1: the coupon at home, and then I'm not signed up
Speaker 1: for the electronic coupons. Well I am now, but I wasn't,
Speaker 1: so I go in and I wouldn't actually have a coupon. Regardless,
Speaker 1: these coupons would give you like five off your entire order,
Speaker 1: your most expensive item, some really good deals. They were
Speaker 1: very lenient with the expiration dates yes, extremely sick yes,
Speaker 1: and also very lenient with a return policy. You could
Speaker 1: return an item to anywhere used or new, um, well,
Speaker 1: any bed, Beth and beyond. Like you couldn't return to
Speaker 1: Target exactly. You walk into a game stop and say,
Speaker 1: I want I want some money back for this toilet
Speaker 1: brush I bought. Yeah, And they thought that they had
Speaker 1: this coupon plan figured out. Well, they were going to
Speaker 1: factor the discounts into their pricing, so they could do
Speaker 1: pricing that was a little bit higher because people would
Speaker 1: be using the coupon to bring it back down yeah
Speaker 1: yeah um. And then they would also weigh that with
Speaker 1: the amount of people that they thought were going to
Speaker 1: pay full price for items, like me, when I'd go
Speaker 1: in because I forgot my coupon, but I still wanted
Speaker 1: the mega coupon ers who have that stack ready to
Speaker 1: get at any moment, because they would also stack coupons
Speaker 1: for a while. Yeah. Yeah, if you ever saw any
Speaker 1: of those shows about like the crazy coupon ing type
Speaker 1: stuff like this is one of the company nis that
Speaker 1: was a frequent like it would frequently pop up on
Speaker 1: that sort of thing. Yes, Um, but I think I
Speaker 1: think we've talked too much about coupons, so we'll move on.
Speaker 1: So we get over to this this part where Bed
Speaker 1: Bath and Beyond has been doing really well, and they've been,
Speaker 1: you know, trying to attribute that success to several different things.
Speaker 1: But we're now getting to the point where where we're
Speaker 1: about to have the tilt right. Yes. Yeah, So in
Speaker 1: two thousand fifteen, they planned to open thirty more stores
Speaker 1: across all their properties, so not just bed Bath and
Speaker 1: Beyond stores. Um, and they made a bunch more acquisitions.
Speaker 1: So they bought of a kind in two thousand and fifteen,
Speaker 1: one kings Lane and personalization Mall in two thousand sixteen.
Speaker 1: One kings Lane. That's the one that's in Kingsman right that.
Speaker 1: You know, I can't disprove it because I don't know
Speaker 1: what one kings Lane self. Call me out, John. I'll
Speaker 1: like to think of that as the store where all
Speaker 1: the Kingsman stuff takes place. I know it's not, but
Speaker 1: just anyway and personalization all was like this little niche
Speaker 1: online things. They're like, Okay, we're gonna we're gonna, yeah,
Speaker 1: we're gonna dip our toe in the online yeah. Um.
Speaker 1: And then they bought cheft Central and the Chorus in
Speaker 1: two thousands seventeen, and a lot of these were nitche
Speaker 1: acquisitions and or helping them get in the online market
Speaker 1: because they had a website. But it you know, even recently,
Speaker 1: it's not super current. Yeah it was. It definitely wasn't
Speaker 1: following the best practices that you would see another online retailers.
Speaker 1: And one of those companies that you just listed, aerial Um,
Speaker 1: I don't think was like a strategic acquisition, wasn't. No,
Speaker 1: it was another quote unquote bailout. Yes, yeah, Warren Eisenberg
Speaker 1: this time. So Feinstein had already had his turn at
Speaker 1: bailing out a kid with the acquisition that we had
Speaker 1: mentioned previously, and chef Central was another one. Now this
Speaker 1: the other founder, Warren Eisenberg's kid. And this is where
Speaker 1: I why I said it pays to be the kid
Speaker 1: of those two founders, because if you if you have
Speaker 1: a business concern and things go belly up. You know,
Speaker 1: maybe Daddy'll run around and help help put things right
Speaker 1: again by spending millions of dollars. It most more like
Speaker 1: millions of dollars, but I mean, come on, still, it's
Speaker 1: still a lot. It's more money than I have. But
Speaker 1: if I fall into major debt, I can't expect my
Speaker 1: parents to rush it and then bail me out. I mean,
Speaker 1: my parents love me, but I'm not going to put
Speaker 1: them in that position. Now. The problem is Chef Central
Speaker 1: is that it had a lot of competing items with
Speaker 1: bed Bath and Beyond. Bed Bath and Beyond already had
Speaker 1: a kitchen section. Yeah, it's pretty extensive. So this was
Speaker 1: one of those cases where it wasn't complementing the the
Speaker 1: overall business. It was actually in competition with it, yes,
Speaker 1: and so eventually those would really struggle in clothes um.
Speaker 1: This is also when they're starting to feel the crunch
Speaker 1: of not having a good online presence um mixed with
Speaker 1: this non methodical acquisition game. I wonder if they were
Speaker 1: like starting to anticipate a downturn and right that maybe
Speaker 1: the core the strategies that had led to kind of
Speaker 1: explosive growth are the sort of things that are not
Speaker 1: sustainable in the long run and can ultimately lead to
Speaker 1: becoming bloated and then collapse. Ye put words in your
Speaker 1: mouth or anything. No, that was much more eloquent than Jonathan.
Speaker 1: So they're way behind on companies like Amazon and Wayfare,
Speaker 1: which are frequently mentioned as two of the big competitors
Speaker 1: to Bed Bath and Beyond. Far far behind them, especially
Speaker 1: particularly in the online world. That's really what we're talking
Speaker 1: Although Wayfair is looking to open brick and mortars, so um, yeah.
Speaker 1: They so they started get limiting their coupons because people
Speaker 1: were going nuts. So with the coupon, yes, and they thought, hey,
Speaker 1: that's what we'll save us. Well, we'll cut out all
Speaker 1: that expense. But the problem was they didn't really have
Speaker 1: a good plan to keep bringing people in. Yeah, and
Speaker 1: the coupons were effective in bringing people into the stores.
Speaker 1: So now that incentive was gone, and that was actually
Speaker 1: slowing down the traffic going into the stores. Yes, And
Speaker 1: this is where you can tell they're grasping at straws
Speaker 1: because for me, that Beth and Beyond is a place
Speaker 1: where you go in you might buy a couple of
Speaker 1: big ticket items or put them on a list, but
Speaker 1: then you're going to impulse buy a bunch of little stuff,
Speaker 1: and they started looking at a showroom model for their
Speaker 1: stores where you could go in and look at things,
Speaker 1: but you'd have to go purchase them online. Yeah, so
Speaker 1: that was that's kind of the approach the Best Buy
Speaker 1: did right where you you go and you might check
Speaker 1: out like an audio system in the store, and then
Speaker 1: you go home and you order it online and then
Speaker 1: they come out and they set it up and everything.
Speaker 1: But they don't You don't need that necessarily with a
Speaker 1: lot of these items. Some of them you might like
Speaker 1: if you're actually getting a bed, but yeah, but if
Speaker 1: if you're looking at kitchen utensils, it's going to kill
Speaker 1: the majority of your impulse buys. So online sales continued
Speaker 1: to go well for other companies, and then you started
Speaker 1: to see because the fact that the brick and mortar
Speaker 1: stores weren't getting as much traffic, they weren't getting as
Speaker 1: much attention, Uh, they were starting to fall into disrepair.
Speaker 1: You started to have stores that may not be as
Speaker 1: well organized as they used to be. This is actually
Speaker 1: this really reminds me of Toys r Us because the
Speaker 1: last few times I went into Toys r Us before
Speaker 1: that one started to close everywhere. Uh, it was a
Speaker 1: nightmare walking into those stores. Well, and here's the thing,
Speaker 1: so we all know that when or you should know
Speaker 1: if you've been listening to enough of our episodes. It
Speaker 1: is common that when your company starts to show some weakness,
Speaker 1: you get private equity firms looking to buy it, saying,
Speaker 1: I this is a profitable company, or a formally profitable company,
Speaker 1: and I bet I could turn it right. It's just
Speaker 1: that the problems that lie with this company are mostly
Speaker 1: at the top level, the management level. They've lost their way.
Speaker 1: So if we just put people in there who know
Speaker 1: how to flip things, this could become a money maker again. Yeah.
Speaker 1: And one of those companies was Leonard Green and Partners,
Speaker 1: and they built a stake in the company, but the
Speaker 1: deal never actually went through. And the problem is you
Speaker 1: said that that Beth and Beyond reminded you of Toys
Speaker 1: r US. Well, it started reminding other equity firms of
Speaker 1: Toys r US too, and so everyone started saying, maybe
Speaker 1: we should pour money into this because it may be
Speaker 1: on the fast track to decline. That's so severe that
Speaker 1: we can't turn it around. Yeah, and then if that
Speaker 1: Beth and Beyond said Hey, I want to just sell
Speaker 1: off you know, bye bye bye baby or the chefs. Yeah. Yeah,
Speaker 1: they couldn't do that because they didn't break out the financials.
Speaker 1: They didn't have that transparency to attract buyers for their subsidiaries. Exactly, yes,
Speaker 1: because now they have. Since they were showing it all
Speaker 1: in bulk and not delineating which divisions were doing well,
Speaker 1: then you can't interest people into buying a subsidiary because
Speaker 1: there's no indicators there to say, well, sure, I know
Speaker 1: how well the overall company is doing, but how well
Speaker 1: is that specific part that subsidiary. And this is where
Speaker 1: that decision came back to bite them. Whereas in the
Speaker 1: past they could have hidden weaknesses by covering them with
Speaker 1: the strengths of other part of the company, now ad
Speaker 1: meant that no one had a good handle on how
Speaker 1: any of the parts of bed Beth and beyond we're doing. Yeah,
Speaker 1: and and this is when things get really crazy up
Speaker 1: until present day. But before we get into that, I
Speaker 1: think I need to prepare myself and take a bit
Speaker 1: of a break. All right, So we're coming up on
Speaker 1: the recent past. Now, how I hate to ask this question,
Speaker 1: how's that been going? Uh? Not great? In two thousand eighteen,
Speaker 1: by the end of the fourth quarter, they had closed
Speaker 1: twenty one stores. Yeah, I'm sure they had closed more,
Speaker 1: but in Q four they closed twenty one stores, and
Speaker 1: by two thousand nineteen their profit margin was down to
Speaker 1: less than four percent. It had been up at sixteen
Speaker 1: point five in two thousand eleven, right at their peak. Yeah,
Speaker 1: right around two thousand to two thirteen was kind of
Speaker 1: when they were riding high the highest. So by March
Speaker 1: of twenty nineteen, their stock price had dropped eighty percent
Speaker 1: from the high point, which was from two thousand and fifteen.
Speaker 1: That's when they hit their highest point. So then you've
Speaker 1: got some companies still kind of looking at bed Beth
Speaker 1: and Beyond, but not really ready to pull the cheer
Speaker 1: because like even an activist investor kind of went, I'm
Speaker 1: not going to touch that. Yeah, I'm I'm good, I'm good.
Speaker 1: You go on with yourself. Yeah, but thankfully not thankfully,
Speaker 1: I'm not sure it's really too early to three other
Speaker 1: actor this investors said, well, you're turned down as our game. Yeah,
Speaker 1: So we get three companies swooping in in an effort
Speaker 1: to try and transform Bed Bath and Beyond. Yes, Legion
Speaker 1: partner's Asset Management, mckellum Advisors and and Cora Advisors. Right,
Speaker 1: and so they all think, you know, there's some solutions
Speaker 1: we could make with bed Bath and Beyond and helped
Speaker 1: turn things around, largely by giving some love to their
Speaker 1: online presence, which was still sorely behind other other online
Speaker 1: retailers and um. They also had felt that a lot
Speaker 1: of the the money that bed Bath and Beyond had
Speaker 1: either generated and revenue or received in financing had not
Speaker 1: been properly reinvested in the actual stores themselves. Yeah. Some
Speaker 1: reports say they thought that all the money was being
Speaker 1: reinvested into the long term management. Yeah. One of the
Speaker 1: things we haven't really touched on, but it is definitely
Speaker 1: a factor is that the executives, the executive level uh
Speaker 1: officers of bed Bath and Beyond were handsomely compensated. Yeah. Yeah,
Speaker 1: So these investors, the consortium of hedge funds, leverage their
Speaker 1: collective five percent stake to take control of bed Bath
Speaker 1: and Beyond and affect the change that they saw was
Speaker 1: needed or they thought was needed. Yeah, and specifically that
Speaker 1: meant shaking up management, right, and bed Bath and Beyond
Speaker 1: was not happy with this. Yeah. It turns out like,
Speaker 1: when you've got a company that's still under at least
Speaker 1: the partial control of the founders, there is bound to
Speaker 1: be resistance when there when you know a group that
Speaker 1: has a minority steak, I mean that five is not
Speaker 1: controlling interests, but it's enough to start pushing for change.
Speaker 1: When when you see that happen, that resistance pops up
Speaker 1: pretty darn quick, especially when that trio makes a bunch
Speaker 1: of demands. Yeah, which is to replace bed Bath and
Speaker 1: Beyond's entire board big as potentially Stephen Tomorrow's the CEO,
Speaker 1: and then sell off some of their underperforming brands and
Speaker 1: non core assets and develop a more comprehensive private label.
Speaker 1: I'm sure the private label thing was actually not what
Speaker 1: Up said that. No, I think it's more about firing
Speaker 1: everybody who's in charge. Yeah. They thought that these these
Speaker 1: investors thought that be Beth and Beyond still had really
Speaker 1: good value, They had a good balance sheet still despite
Speaker 1: the decline um, and that management was what was keeping
Speaker 1: it from growth. And they thought that they could deliver
Speaker 1: five dollars per share and annual earnings over the period
Speaker 1: of the next few years with their changes. And I
Speaker 1: guess other people did too, because when they announced that
Speaker 1: they wanted to shake up the board in the management
Speaker 1: stocks and bid Bath and Beyond. H don't get too
Speaker 1: comfortable with that, because the stock for bed Bath and
Speaker 1: Beyond would get inflated and deflate over and over again
Speaker 1: as there were various discussions about what to actually do
Speaker 1: with the company. They even had a list of sixteen
Speaker 1: nominees that they wanted considered to take over as the
Speaker 1: new board of directors. So then what happens next? Areal
Speaker 1: well that beth Beyond had their fourth quarter call and
Speaker 1: they kind of pushed back in ways that insinuated they
Speaker 1: didn't intend to meet the investors demands and that they
Speaker 1: were already making changes that were underway that we're going
Speaker 1: to improve the company, so things like personalized data driven
Speaker 1: marketing and improving merchandise in the structure within their buying groups,
Speaker 1: and starting various test initiatives like new layouts at Generation
Speaker 1: Lab stores, which they had been already toying with, so
Speaker 1: that was already in effect and those stores were getting
Speaker 1: more profits. So so they were like saying, forget your
Speaker 1: your activist investors, I'm going to make my own restructuring plans. Yeah, yeah,
Speaker 1: we're gonna look at our free shipping requirements and update
Speaker 1: that and things like that. And they had said that
Speaker 1: with these changes that they were already implementing, their turnaround
Speaker 1: should be done by anyone. So they were also creating
Speaker 1: a fairly aggressive plan to get back to to a
Speaker 1: stable position. But then we get to and this is
Speaker 1: all the way up to present day as we record
Speaker 1: this episode. We're recording, by the way, in early September nineteen,
Speaker 1: so by the middle of the spring. Uh, then we
Speaker 1: get a new change in in the story, right, because
Speaker 1: the Founders that the board of directors essentially in the CEO,
Speaker 1: are else saying, hey, no, we have our own plan.
Speaker 1: There is no need for this. You investors don't have
Speaker 1: to push for this. And then in mid spring of
Speaker 1: twenty nineteen, the founders announced they're going to retire from
Speaker 1: the board and that they would allow five new independent
Speaker 1: directors to join the board in May. Yes, but then
Speaker 1: the fourth quarter reports came out from the previous year,
Speaker 1: and uh, stocks they weren't good, and docks dropped lower
Speaker 1: than when the board shake Shacob was announced. So people
Speaker 1: are starting to get hesitant about these changes, and so
Speaker 1: the trio said, yeah, we definitely need to get rid
Speaker 1: of Tameris Um who had been CEO since two thousand three. Yeah,
Speaker 1: and then they also planned to close forty under performing
Speaker 1: stores and revamp and declutter the stores, which by this
Speaker 1: time needed to happen. So then now that they have
Speaker 1: the new independent board members, they have enough support on
Speaker 1: the board to put pressure on to Maris to lead
Speaker 1: to him actually stepping down. So you could say he
Speaker 1: retired or he resigned, or you could say that he
Speaker 1: was fired. It's one of those things where the pressure
Speaker 1: was clear that he was no longer going to be
Speaker 1: able to stay in there. He was strongly encouraged, which
Speaker 1: is essentially firing. We all know what it really means.
Speaker 1: So then we get to June of two thousand nineteen,
Speaker 1: and that's when the company says, okay, investors, will do
Speaker 1: what you want on us to do. Yep. They finished
Speaker 1: changing over management and started looking at selling some of
Speaker 1: the subsidiaries like Bye Bye Baby and the Christmas Tree
Speaker 1: shops and cost Plus. But if they sell Christmas Tree shops,
Speaker 1: where am I going to buy all my sporting gear?
Speaker 1: So yeah, they also started looking for a new CEO.
Speaker 1: Spoiler alert. As of the recording of this podcast. They
Speaker 1: do not have a new permanent CEO. They do have
Speaker 1: an interim CEO, Yes, Mary Winston, who was a president
Speaker 1: of a consulting firm. She is currently serving as CEO. Yes.
Speaker 1: And you know, so these changes are what they promised,
Speaker 1: and bed Bath and Beyond is still struggling to gain
Speaker 1: that market back. So they're lowering prices to compete with Amazon,
Speaker 1: and they're still investing in their stores. But analysts, at
Speaker 1: least as of June, we're pretty wary about the turnaround. Still. Yeah,
Speaker 1: and so most recent news, We've got a couple of
Speaker 1: points here. One is that bed Bath and Beyond has
Speaker 1: retained Goldman Sacks, at least it's reported. Yes, the scuttle butt,
Speaker 1: if you will, is that they've retained Goldman Sacks in
Speaker 1: an effort to look at potential buyers for the for
Speaker 1: the company. So outwardly, this is not what's being messaged
Speaker 1: to the public. The message to the public is that
Speaker 1: they're still working very hard on on various plans to
Speaker 1: kind of turn the company around. But the rumor is
Speaker 1: that they're also at the same time looking for a
Speaker 1: possible buyer to take over the company entirely. Uh and
Speaker 1: Just before we went into the studio to record this,
Speaker 1: I was looking at news reports because sometimes, you know,
Speaker 1: you see something that broke between when we researched and
Speaker 1: wrote up an episode and when we actually recorded. And Yeah,
Speaker 1: the letter to shareholders that went out in the first
Speaker 1: week of September two nine outlined a bunch of near
Speaker 1: term plans to complete what they call a rapid refresh
Speaker 1: of their nearly one sixties stores for the two thousand
Speaker 1: nineteen holiday season, so that there's incentive for people to
Speaker 1: go there for their holiday shopping. That's that's obviously just
Speaker 1: a near term fixed I swear I do a lot
Speaker 1: of my holiday shopping. Yeah, you never know when someone's
Speaker 1: gonna need another toilet brush. So then so then they
Speaker 1: are also looking at reducing the purchasing costs for goods.
Speaker 1: You know, we talked about how that was one of
Speaker 1: the things that really boosted bed, Bath and Beyond in
Speaker 1: the two thousands was that they had a very aggressive
Speaker 1: buyer program. They're looking at ways of kind of updating
Speaker 1: that for the current era, and obviously they're looking at
Speaker 1: reducing other things, like they have a have a billion
Speaker 1: dollars in inventory. They're looking to reduce by by the
Speaker 1: end of twenty I think they were looking at getting
Speaker 1: rid of some lower profit items, like some lower margin
Speaker 1: items to help achieve that. And part of that also
Speaker 1: means making up enough space so that they can refresh
Speaker 1: their in how lines as well. So that's what's going
Speaker 1: on now. We still don't know exactly what's going to
Speaker 1: happen next. We don't know if the if this if
Speaker 1: this attempt will be successful, or if it will be
Speaker 1: unsuccessful in bed Bath and Beyond is still on the
Speaker 1: path out, or if we'll have a third party come
Speaker 1: in and take over the company. Yeah, yeah, I kind
Speaker 1: of hope they don't sell off cost plus because my
Speaker 1: favorite bed Bath and Beyond has a cost plus in it,
Speaker 1: and so now I can go to two of uh
Speaker 1: two stores I enjoyed greatly. At the same time, I
Speaker 1: don't understand this whole going to stores thing. Listen, Jonathan,
Speaker 1: So what do we learn from this? I think in
Speaker 1: bed Bath and Beyond case, if you are going to
Speaker 1: be long term management, you really need to keep track
Speaker 1: of trans and pivot when the market is showing that
Speaker 1: you need to pivot. Yeah. I also think you can't
Speaker 1: use your company as a bailout system for your kids. Yes,
Speaker 1: definitely that that's most probably that. I mean, let's just
Speaker 1: say there are other examples we could easily point to
Speaker 1: that are looming large in current events. But you get
Speaker 1: what I'm saying. I don't have to come up and
Speaker 1: say no, no, but yeah, no, it's it's then that
Speaker 1: seems like it's a bit more than a bit excessive,
Speaker 1: and uh, you know, the there were a lot of
Speaker 1: good ideas, but one of the one of the ideas
Speaker 1: I think that was harmful to the company was that
Speaker 1: strategy of explosive growth. They didn't have a way to
Speaker 1: transition out of that into more sustainable growth. Explosive growth
Speaker 1: can work for a company for a time, but it
Speaker 1: is not sustainable in the long run. You will eventually
Speaker 1: hit a market penetration that is at capacity and you
Speaker 1: cannot expand beyond that without cannibalizing your own business. And
Speaker 1: the thing is like as it was going through and researching,
Speaker 1: and I don't know if you run across the same thing.
Speaker 1: A lot of the more current reports are not saying
Speaker 1: that bad Bath and Beyond is no longer a good concept,
Speaker 1: that it all needs to go the way of the Internet,
Speaker 1: because like, I know, when I want to buy sheets,
Speaker 1: I would rather go and touch them. Yeah, and then
Speaker 1: if I'm buying sheets, I want to go ahead and
Speaker 1: buy a new spatula or whatever. So there's a lot
Speaker 1: of stuff that if you, if you're really in the
Speaker 1: market to buy them, it is better for you to
Speaker 1: be able to go and see the stuff in person,
Speaker 1: because we all know that just your monitor settings on
Speaker 1: your computer could mean that something that looked like, oh gosh,
Speaker 1: on the screen, it looked like it's avocado, but that's
Speaker 1: clearly not avocado, and I really needed to match my
Speaker 1: avocado blender and my avocado mixer. And if it's mild
Speaker 1: moss green, that will never do exactly Like now, everything
Speaker 1: clashes and the swamp thing could be wandering around my
Speaker 1: kitchen and I would never know. No, it's it's the uh,
Speaker 1: you know that sort of stuff. We're making light of it,
Speaker 1: but no, that really does have value, right being able
Speaker 1: to go to a physical location and see these things
Speaker 1: and in some cases try them out to make sure
Speaker 1: that it fits whatever it is you're trying to, you know,
Speaker 1: to purchase. There's a real value to that because I mean,
Speaker 1: I know that i've certainly had experiences where I've bought
Speaker 1: things online just for the convenience, received it and thought
Speaker 1: it would have been better to have actually gone to
Speaker 1: a brick and mortar store, because this is not what
Speaker 1: I was hoping it would be. Well, hopefully when we
Speaker 1: get around to doing our follow up episode of all
Speaker 1: the companies we've previously reported on and where they are now,
Speaker 1: we'll still have bricking mortars of bed Bath and Beyond
Speaker 1: to go to. Yep, here's hoping. So let's say that
Speaker 1: someone isn't related to you, Ciel and they want to
Speaker 1: let you know what what sort of company we should
Speaker 1: cover in a future episode. How would they reach out
Speaker 1: to us? Well, they should email us at Feedback at
Speaker 1: the Brink Podcast dot show, and you can go to
Speaker 1: our website that's the Brink Podcast dot Show. You will
Speaker 1: find an archive of all of our past episodes, so
Speaker 1: if you missed any, you can check on those. Learn
Speaker 1: all about Disney. We'll be going back to Disney before
Speaker 1: too long. I'll literally be going to Disney and two
Speaker 1: days quit bragging. But there's gonna be a lot more
Speaker 1: for us to talk about with Disney and future episodes.
Speaker 1: But if you have other ones, send those our way.
Speaker 1: Check out our past episodes. You'll learn more about your
Speaker 1: beloved hosts and until next time. I have been Jonathan
Speaker 1: Strangler and I've been aerial casting. Business on the Brink
Speaker 1: is a production of I Heart Radio and How Stuff Works.
Speaker 1: For more podcasts for my heart Radio, visit the I
Speaker 1: heart Radio app, Apple Podcasts, or wherever you listen to
Speaker 1: your favorite shows.