Is Bed Bath & Beyond the best retailer in America? Well, it depends on who you ask.
Ask a financial analyst and you’re likely to get a pretty positive response. Through the best and worst of retailing cycles, Bed Bath, with total 2010 sales of almost $8.8 billion and earnings of $790 million, has generally outperformed virtually every other retailer in virtually every other merchandise classification.
Other than a dip in the 2007-2008 retailing meltdown, the store has had positive comp numbers since the day it went public in the mid-1990s. It consistently puts up better numbers quarter after quarter than anybody.
But ask that same analyst what he sees going forward and, chances are, he will shake his head in ignorance. Bed Bath is notoriously close-mouthed when it comes to handing out information on its operations. For the past two decades, its annual meetings – held in a suburban New Jersey hotel that is conveniently located inconvenient to Wall Street types – have averaged 14 minutes in length…including coffee.
Ask Bed Bath’s banker if it’s the best retailer, and he’ll most certainly say yes. The company has zero – that’s a zero followed by more zeroes – debt. In fact, the company as a public entity has never had any debt, never borrowing a dime from anybody ever. Indeed, it routinely lists the interest from its cash-on-hand every 90 days on its financial statements. Is there any other retailer around that has been able to say that for this long?
But ask the companies that supply Bed Bath & Beyond with its bed, bath and beyond products and you may get a decidedly different story. The company has a reputation for being positively ruthless in its dealings with suppliers, negotiating hard and long upfront and not being bashful about collecting a few extra points on the backside of any program. There are countless anecdotal stories from vendors about chargebacks that would embarrass a department store. Yet most home furnishings suppliers will begrudgingly tell you they need Bed Bath, and would still rather sell them than not.
Ask some mall real estate leasing agents and they will tell you they can’t wait to see Bed Bath’s site selection crew walk through their door. The company has a well-deserved reputation for being totally unconventional when it comes to picking store locations. It routinely takes space nobody else will touch, believing, rightfully so, that it is a destination store and that its customers will find it no matter where it is.
Consider these unorthodox real estate choices:
In the mid 1990s, when New York City’s former Ladies Mile district, along Sixth Avenue in the teens, was a barren wasteland of light manufacturing, empty storefronts and absolutely no street traffic, Bed Bath leased its largest store ever in what was once the Siegel Cooper department store building. It turned into the anchor for a brand new retail neighborhood in Manhattan, now one of the strongest shopping districts in the city and the store, at well over 100,000-square-feet, certainly must be the chain’s single largest grossing unit.
Or how about an empty Sakowitz branch store in North Dallas? The impossible-to-get-to ground floor, inaccessible from the rest of the mall, at the Beverly Center on the West Side of Los Angeles? Or a B. Altman anchor store in an upscale suburban New Jersey mall?
Bed Bath operates in all those locations. Successfully. If you build it, they will shop.
But then ask a bunch of retailing experts about the company’s corporate strategy and they will raise serious questions. With almost 1,000 Bed Bath & Beyond units, the company is clearly starting to max out on its US locations. It finally moved into Canada a few years back and operates a two-store joint venture in Mexico, but it’s pretty much nowhere when it comes to international.
So, over the past decade it has bought three small retail operations and while it won’t say it publicly – because it doesn’t say ANYTHING publicly – it is pinning its future growth on those vehicles.
There is Harmon Beauty, a 45-unit discount health and beauty aids chain that it is gradually rebranding Harmon Face Values, a clever if not particularly catchy name. (Why it didn’t choose a family surname like Beauty Basics & Beyond is…well, beyond me.)
Next comes Christmas Tree Shops, an entirely misnamed operation of 70 stores that has a lot less to do with seasonal ornaments than with closeouts and deep discounts. It is being increasingly positioned as a Home Goods wannabe, which is fine, but the name is a major disconnect to shoppers not familiar with the store.
The fourth leg of the Bed Bath table is the one closest to the mothership…in many ways. Buy Buy Baby is a superstore format, like its parent, using the category killer merchandising strategy. It was started by offspring of one of the founders of the parent company. And it sticks with the right naming protocol.
In theory, it’s the logical lead dog in the growth race.
But Buy Buy Baby, currently with about 55 stores, can’t possibly give the company the top and bottom line increases it needs to significantly move the needle. While Bed Bath can target some 200 million potential end users for its product mix, including close to 100 million households, Buy Buy Baby’s merchandise mix essentially is for those under age five. At four million births a year, that’s a 20-million potential customer base max at any given time. As Toys ’R’ Us found with its Babies ’R’ Us unit, the size of the market is just not big enough to support a mammoth, game-changing retail operation.
Here’s what’s more curious. Can you name any retailer in America – any retailer in the world – that has tried to operate four virtually unrelated and independent parallel store businesses? Operations like Urban Outfitters and Williams Sonoma have multiple nameplates, but they are pretty much in the same general merchandising space.
But four entirely separate industries? The only even close parallel goes back to the 1980s when Kmart owned its namesake operation, Borders and Walden book stores, a home improvement chain called Builders Square, Office Max, Sports Authority and the PACE warehouse club unit.
That didn’t work out so well, did it?
Bed Bath management is quite superior, but four lines of business may be pushing it.
Ask those same retail experts about some other parts of the Bed Bath M.O. and they would have mixed opinions. This is a company with thousands of store locations but no central distribution system to speak of. Each store orders independently and vendors ship directly to the individual stores. It’s the Holy Grail of retailing, the gist of what Macy’s is trying with My Macy’s and what the old J.C.Penney was so good at it.
It shouldn’t work on this scale…but it does.
This is also a company that does virtually no advertising. Other than a new store opening print ad, the company relies pretty much exclusively on coupons, sent in direct mail circulars and online. It is the very essence of direct-to-consumer marketing and while all its competitors spend fortunes on sophisticated campaigns and corporate image ads, Bed Bath runs pictures of pretty products. And they don’t even put them on sale, running an everyday-low-price strategy that, frankly, isn’t exactly giving anything away.
It shouldn’t work…but it does.
Finally, you could ask the most important people in this equation whether they think Bed Bath & Beyond is the best store in the country: Shoppers.
Most of them, I think, would give you a pretty positive response. They love the selection. They love the coupons. They love the locations. And they love the prices.
They may quibble about a few things: A disastrous merchandising strategy in soft home over the past few years devastated the department and it doesn’t match up with the Beyond side of the store, much less the competition.
And there are still a few brands unavailable in the store, one of the last cards Terry Lundgren can still play with his suppliers.
But there’s a reason Bed Bath & Beyond is still here and Linens ’n Things, Home Place, Strouds, Lee Jay, Waccamaw, Pacific Linen, Linen Supermarket, Plejs and several other long-forgotten competitors are long gone: They are the best retailer in America.
Then again, it depends on who you ask.
Originally published on therobinreport.com.
4 January 2012