The retailer got a last-minute lifeline from Hudson Bay Capital, but the future of Bed Bath & Beyond remains a challenge.
Bed Bath & Beyond, a favorite among meme stock traders, got a last-minute reprieve when a hedge fund stepped up this week to provide liquidity, but the retailer’s finances remain strained.
While filing for bankruptcy is no longer in his immediate plans, the housewares company’s warning only came in January.
One analyst, Wedbush analyst Seth Basham, believes the retailer faces major hurdles and bankruptcy remains a possibility.
Bed Bath & Beyond got a last-minute postponement from Hudson Bay Capital on February 7. The hedge fund has agreed to invest $1 billion in the retailer in the form of convertible preferred stock and warrants. The retailer is trying to stem the cash hemorrhage as sellers seek money from overdue accounts receivable.
Is a change of course possible?
Reviving Bed Bath & Beyond seems like a daunting task, as shoppers are often fickle, especially as the economy is slowing and consumers are cutting back on non-necessities.
The retailer has been closing stores in locations that had low foot traffic and declining sales and plans to close a total of 400 stores, Bed Bath & Beyond said.
If you haven’t set foot in Bed Bath & Beyond for several years, you’re probably not alone.
After visiting two locations this week in Houston and a nearby suburb, it’s no mystery why the stores are failing to attract shoppers.
While the stores are well lit and items are organized with easy-to-see signage, Bed Bath & Beyond seems to be missing a niche that sets it apart from its competitors.
The street
The store seems to lean towards higher-end products with robotic vacuums and combo air fryers and toaster ovens prominently displayed. Selling kitchen appliances like a $579.99 Vitamix blender might be out of reach for many buyers’ budgets.
Bed Bath & Beyond sells a few cheaper items that might appeal to younger shoppers who might find a $10 aluminum nonstick pan a better fit. While the store offers cheaper cookware, variety is lacking. One store seemed to have sold only one brand of pans.
The stores are quite large and stock everything from drugstore items such as razors, hair dryers, curtains, and Tempur-Pedic pillows that cost well over $100.
The number of items sold can be a bit overwhelming. Shoppers can buy everything from a shower caddy to plates and martini glasses.
Some of the brands sold are well known, including Oxo cookware, Sharper Image compression wraps, iRobot vacuums, KitchenAid mixers, Calphalon pots and pans, and Riedel wine glasses that go for $68.99 a pair.
Shopping at the store can be confusing. On hand you can buy $10 twin sheets, but down the next aisle the store sells $150 625-thread-count king sheets.
Bed Bath & Beyond clearly needs an identity: It must decide whether it wants to be a discount store or one that caters to shoppers looking for higher-end products.
Discounts were few and far between. There was still a section selling leftover Christmas decorations, while another was already selling items for the Easter holidays.
In some sections, such as kitchen accessories, the shelves were often quite bare. Those products were likely sold by vendors who are still owed money.
Some of the Bed Bath & Beyond shelves were missing inventory.
The street
Tech products for the home, like Google’s Nest, were only on display, but none were available to buy.
The relationship between the number of customers and employees was impressive. Sometimes the ratio was 1:1, while other times there were only two customers per employee.
An employee said Tuesday afternoon that he was making $12 an hour and was looking for a new job due to fears the store would close, saying “I have to.”
During a 50 minute span, there were fewer than 10 customers and only a few people made purchases. Checkout lines were closed and customers were directed to the area where returns could be made.
Even though this store is located within walking distance of an AMC theater, very few people shop, the clerk said.
Consumers could be waiting for deals, especially on higher-priced appliances and tech gadgets.
The future looks bleak
No one knows whether the capital injection of $225 million now and a maximum of $800 million over a multi-year period from Hudson Bay Capital and other investors will save the historic mark, though many equity analysts remain very skeptics.
Wedbush’s Basham said the last-minute funding may not be enough to keep current shareholders happy because the new deal dilutes their current holdings.
He raised Bed Bath & Beyond’s price target only slightly, from zero to just $0.25, and warned that bankruptcy could still be a possibility if the remaining $800 million in equity doesn’t come through.
“However, this lifeline comes at an incredible cost to existing shareholders who could see more than 80% dilution of convertible preferred shares and warrants if fully foreclosed,” he wrote in a research note.
“As we see a low probability that the company will achieve its turnaround plan by 2023, we place little or no value on the company’s capital on a probability-weighted basis,” Basham said. /or a failed change in 2023 could put the company back on the brink of bankruptcy.
The company’s shares have plunged 83.85% over the past year and it’s foolish to guess whether shareholders will punish the company further.
The company had already warned in January that it was close to filing for bankruptcy as sales had plummeted even during the holidays, which is typically the busiest time for many retailers.
Before the hedge fund bailout, Bed Bath & Beyond was in dire straits, falling behind on payments to almost everyone. It had failed to make payments to its bondholders, and banks were unwilling to make loans or extend additional lines of credit to the company.
Fed up sellers stopped shipping items until the company could pay for their old merchandise, putting the company in a Catch 22 situation where some items couldn’t be sold to customers, but sales continued to decline.
The Big Blue coupon still exists
Bed Bath & Beyond remains a household name, once known for its ubiquitous Big Blue coupons that were mailed to American consumers by the millions to buy sheets, rugs and other household items.
Consumers hid the coupons, outlined in the retailer’s signature blue color, in their cars, purses, bags and even junk drawers so they could get a 20% discount one day. Management lured shoppers with frequently arriving coupons, often before people could use them to buy a set of Moscow mule mugs or a housewarming gift.
The coupons are still available and consumers can sign up to receive them by mail or text message.
But even coupons are not enough to attract your loyal shoppers who were looking to buy the latest gadgets or kitchen gadgets.
In recent years, the retailer has stalled in malls as competitors like Target increased their offerings of cheap bedding, pillows and glassware, making it easier for shoppers who had originally planned to buy shampoo and laundry detergent to add some additional items to their wagons.
As online shopping became more common, customers often left Bed Bath & Beyond. Those who shopped there complained about a lack of inventory, while others searched for answers to questions about cups or vacuums and were left without help from the employees.
The company’s debt increased over the years to the point that it began to stop paying its interest. Changing CEOs didn’t seem to help either: Last October, the company hired Sue Gove to run the ailing company after Mark Tritton resigned.
