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Who’s Stealing Bed Bath & Beyond’s Market Share?

As Bed Bath & Beyond embarks on yet another attempt to turnaround its increasingly struggling business, one of the biggest questions remains how did the home goods retailer get to this point? And more important, will it be able to reverse course and stave off a full-blown bankruptcy collapse?

While the past few years have been a boon for many home goods retailers as the pandemic ramped up unprecedented demand for furnishings and other home products, Bed Bath & Beyond has consistently struggled to the point where its finance chief took his life earlier this month. On its most recent earnings call in June, the company reported a 25 percent net sales decline for the first quarter of fiscal 2022 to approximately $1.5 billion and a 23 percent comp sales drop versus last year. The results came after multiple quarters of double-digit losses and spurred the company to boot CEO Mark Tritton. Stockouts cost it $175 million the previous quarter.

Bed Bath & Beyond recently announced it secured commitments for $500 million in financing for incremental liquidity, including an expanded asset-based loan facility of $1.13 billion and $375 million in the form of a first-in, last-out loan. But on that same call, the company reported an approximate comp decline of 26 percent year-over-year, with net sales at $1.45 billion dollars and a free cash flow usage of $325 million. On top of that, the retailer anticipates a comp sales decline in the 20 percent range for the remainder of 2022.

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This news came along with the announcement that Bed Bath & Beyond would close around 150 stores and cut 20 percent of corporate and supply chain jobs in an effort to reduce expenses and right the rapidly sinking ship.

According to YipitData’s second quarter 2022 home goods market share index, which looks at pure players, Bed Bath & Beyond saw the largest decrease in market share year-over-year at -1.7pp, dropping from 7.96 percent in the same quarter of 2021 to 6.19 percent this year. Among the top 10 in that list, Wayfair and Ashley Furniture also saw declines. Per the New York-based market research firm, Bed Bath & Beyond sits at No. 5 on the list according to market share, followed closely by RH, which recently posted an unexpected 0.3 percent revenue growth for the second quarter.

But why has Bed Bath & Beyond lost such a significant share of the home goods retail market while other comparable stores such as Big Lots, which holds the third-largest market share according to YipitData, have fared better? The question has many answers, but one of the biggest is Amazon.

“Traditionally Amazon is seen as more of an electronics retailer, but they’ve seen tremendous growth in the home goods space,” said Ariane Turley, YipitData’s associate director, corporate. “This year for Prime Day, for example, home goods was the largest category.”

And while Amazon has pushed further into the home goods category, Bed Bath & Beyond was slower to adapt Amazon’s style of e-commerce, which famously combines convenience with competitive pricing.

Bed Bath & Beyond “has made changes, and they’re now understanding and cognizant of the threat of online, and they’re trying to combat it. But I think they let Amazon get a little bit too far in front of them,” said Michael Baker, managing director and senior research analyst at D.A. Davidson, a Montana-based financial services firm. “Amazon took a lot of market share and sort of collapsed the margins for Bed Bath & Beyond. One of the big reasons why Amazon was able to take market share is on top of the convenience, their pricing is a lot better than Bed Bath & Beyond.”

Bed Bath & Beyond attempted to compete with Amazon with the launch of its Beyond+ loyalty program, which initially came with a $29.99 fee. The company has since revamped the program to offer two tiers, one paid and one free, and renamed it Welcome Rewards. But while Prime has been a major revenue driver for Amazon, Turley said Bed Bath & Beyond’s program failed to make an impact.

“For Prime, 70 percent of Amazon purchases are from Prime members, but for Bed Bath & Beyond, it was under 30 percent,” she said. “They couldn’t compete on the loyalty front.”

Turley also points to Big Lots, which saw a .26 pp gain in market share during the second quarter, as a close competitor of Bed Bath & Beyond that took a more successful approach to omni-channel retail.

“When the pandemic happened in 2020, they made a lot of investments in their buy online, pickup in store capabilities, along with other omni-channel improvements,” she said. “That’s another reason for Big Lots’ success.”

Bed Bath & Beyond also has seen increasing competition from mass merchants such as Target and Walmart, both of which have significantly expanded their home goods offerings over the past decade. And as Bed Bath & Beyond closes stores as part of its restructuring, those mass merchants are poised to gain customers in areas that lose stores.

Target in particular, I think has done very well in their home space,” said Baker. “I think Bed Bath & Beyond would have been able to continue to compete with Target, if not for Amazon. So certainly Walmart and Target are share gainers, and when Bed Bath & Beyond closes stores, I think one of the biggest beneficiaries will be Target.”

Baker said Target is an interesting comparison, since former Bed Bath & Beyond CEO Tritton found success in his previous role at the mass merchant launching private brands. But that strategy didn’t make a difference at Bed Bath & Beyond, which announced it would discontinue most of its private labels in favor of national brands going forward.

“[Target] has a hybrid strategy, growing a lot of their private label business, but at the same time also coming up with interesting partnerships with nationally known brands, such as Disney and Vineyard Vines,” he said. “And getting that merchandising right—the right combination of national brands and developing their own private label brands—Target has been successful enough that people think of a lot of their private label brands as national brands.”

That strategy helped Target regain market share it lost in 2017 and 2018, but Baker said he’s unsure Bed Bath & Beyond is capable of a similar turnaround.

“Target focused on merchandising that worked,” he said. “They also focused a lot more on their grocery business, and that’s something that Bed Bath & Beyond doesn’t necessarily have as a lever to pull. But that helps drive traffic for Target.”

Baker said the upcoming holiday season will be critical for Bed Bath & Beyond, but maintaining cash flow and ensuring vendors that they are good for their orders is the key for the company to avoid bankruptcy.

“I think the best way they can [avoid bankruptcy] is do whatever they can to shore up their balance sheet, shore up their cash flow,” he said. “Part of that is closing stores and borrowing money, et cetera. And that will give vendors maybe a little bit more confidence that if they ship products, then they’re going to get paid for that product. That’s the best thing they can do—just focus on cash flow.”