Beleaguered Bed Bath & Beyond Inc. finally filed for Chapter 11 bankruptcy on Sunday, eight months after speculation about its finances suggested a collapse could be coming and days after reports said it was once again running out of options.
The petition—filed Sunday in a New Jersey federal bankruptcy court, along with 72 affiliates—said the Union, N.J.-based chain is trying to sell whatever assets it can while shutting down, but will “pivot away from any store closings” if a buyer emerges to rescue the company.
One executive sees the struggling company as a cautionary tale for retail.
“Despite the warning signs, Bed Bath & Beyond serves as a stark reminder to all traditional brick-and-mortar stores: adapt to the fast-paced demands of modern consumers or risk sinking in today’s hyper-competitive retail environment,” said James Gellert, CEO of ratings firm RapidRatings.
Early clues hinting at the retailer’s financial decline emerged back in 2018, he pointed out. Other highly leveraged companies could have the same problem trying to refinancing as Bed Bath & Beyond did, he said, especially with high inflation and interest rates right now saddling companies with unsustainable debt.
Though Bed Bath & Beyond started the year with about 30,000 employees, closing 416 U.S. stores and shutting down the entire Canada business have eaten away at its payroll and added to the 90,000 stores at risk of closing over the next five years, according to data compiled by UBS retail analyst Michael Lasser.
Party City, long a fixture on credit ratings watch lists, kicked off retail’s 2023 bankruptcy bandwagon. David’s Bridal‘s Chapter 11 bankruptcy filing just a week ago could see the 294-store-chain sell off assets or end up liquidating.
Bed Bath & Beyond attempted several “Hail Marys” to buy itself more time and avoid a full-blown collapse after self-inflicted missteps.
The home goods chain dismissed chief executive Mark Tritton and its merchandising leader in the wake of a first-quarter flop last year when it burned through nearly $500 million in Q1 alone. It also spent $589 million on share buybacks instead of investing in turnaround strategies.
There was speculation that Bed Bath & Beyond would sell BuyBuy Baby for around $630 million to $910 million last fall. But now the baby banner is likely worth a faction of those numbers.
Bed Bath & Beyond needs every dollar it can get.
The Chapter 11 petition listed assets and liabilities between $1 billion to $10 billion apiece. Bed Bath & Beyond has $1.8 billion in total funded debt obligations, included $791.5 million in secured debt and nearly $1.03 billion in unsecured debt. The retailer got a $240 million debtor-in-possession (DIP) financing facility from Sixth Street Specialty Lending Inc. to fund its bankruptcy. Bed Bath & Beyond said it intends to honor the “obligations of critical vendors,” but that will likely leave unsecured creditors out of luck.
Finances aside, merchandising was a huge source of concern for Bed Bath & Beyond.
“I used to like shopping at Bed Bath & Beyond, but the store is so huge and the last time I was there in the summer there were only three other people in the store,” said a former customer, who requested anonymity, of the Brooklyn, N.Y. store in Sunset Park’s Industry City. The retailer didn’t appear to sell many of the national brands found at rival stores, this person also pointed out.
Under Tritton, Bed Bath & Beyond announced a $250 million supply chain investment focused on bringing the company into the digital era. But he essentially tripled the number of private brands it carried to lift opening price points and value products, a move that proved out of touch with what consumers were looking for.
Now Bed Bath & Beyond has several lawsuits on its hands, including a securities claim seeking class action status naming the retailer, JP Morgan Securities, investor Ryan Cohen and his company RC Ventures as defendants. Bed Bath & Beyond’s former chief financial officer, Gustavo Arnal—who committed suicide last year—was removed as one of the defendants named in the lawsuit. All pending lawsuits are on hold because of the Chapter 11 bankruptcy petition.
Earlier this month, the retailer got ReStore Capital, an affiliate of Hilco Global, to agree to purchase up to $120 million of vendor merchandise to shore up inventory.
But the writing was already on the wall last November when many vendors concerned about Bed Bath & Beyond’s payment problems refused to ship to the troubled chain.
Bed Bath & Beyond’s chief restructuring officer, Holly Etlin of AlixPartners, said fourth quarter in-store sales fell by almost $1 billion dollars from a year ago. By 2018, the company’s stock price plunged to $14 per share from its all-time high of $80 in January 2014. A failure to keep up with retail’s omnichannel transformation wiped out $15 billion in value, Etlin said.
Bed Bath & Beyond couldn’t replicate Target’s private-label success, she continued, because slumping traffic and market share decimated loyalty and customer registries.
“Changes were ushered in faster than the company built systems to support them, and the transformation strategy proved too much for [the retailer’s] supply chain to handle,” Etlin said in a court document. The changes also confused customers looking for national brands who instead found in-house brands they didn’t want. Then came the pandemic supply chain disruption, leaving the retailer stuck with late-arriving merch shoppers refused to buy.
Bed Bath & Beyond’s 30 largest unsecured creditor claims include BNY Mellon, which holds an unsecured bond totaling $1.18 billion. Personalizationmall holds the second largest unsecured claim and the largest trade payable at $11.1 million. Many of the claims include service providers, such as FedEx at $3.9 million and Facebook at $3.4 million. Among the vendors, Tempur-Pedic is owed $3.7 million, while Lifetime Brands Inc.’s total claim is $3.3 million. William Carter Co., the marketer of children’s products under the brand Carter’s, is owed $3.1 million, and The Knot Worldwide Inc., a wedding marketplace platform, has a trade claim of $2.6 million.
Founded in 1971 by retail executives Leonard Feinstein and Warren Eisenberg, Bed Bath & Beyond started with two stores operating under the Bed ‘n Bath banner. The expanding company tweaked its name to Bed Bath & Beyond in 1987 and the founders took the company public in five years later. Buybuy Baby, founded in 1996, was acquired by Bed Bath & Beyond in 2007.
Bed Bath & Beyond currently operates 360 stores and 120 Buybuy Baby locations.