Bed Bath & Beyond Serves a Warning for All Holiday Shoppers

[mahatmakanejeeves]

Business • Analysis

Bed Bath & Beyond Serves a Warning for All Holiday Shoppers

By Tara Lachapelle | Bloomberg
Today at 12:58 p.m. EDT

Freight costs are crushing Bed Bath & Beyond Inc., and the retailer’s executives are warning that it isn’t alone. Shoppers and investors alike will have to brace for a difficult holiday season marked by soaring prices, empty store shelves and pessimistic forecasts from U.S. retail chains as earnings reports kick off.

“Best of luck,” said one analyst after Bed Bath & Beyond’s executives took his question on Thursday morning’s call to discuss second-quarter results. “Good luck with the rest of the year,” two other analysts echoed at their turns. When the customary “great quarter, guys” is replaced with well-wishing, that’s when you know things aren’t looking good. While Chief Executive Officer Mark Tritton and Chief Financial Officer Gustavo Arnal were speaking, shares of the home-products retailer plunged as much as 29%, dragging down other consumer stocks along with them, not to mention delivering a blow to the meme-stock crowd. The Container Store Group Inc. fell 11%, William-Sonoma-Inc. fell 7% and TJX Cos. fell 3.7% to a nearly two-month low.

Bed Bath & Beyond reported a 26% drop in sales for the three months through August, and the business swung to a loss. It also reduced its projection for full-year revenue to a minimum of $8.1 billion, compared with a forecast of at least $8.2 billion in June. The company attributed much of the summer slowdown to rising Covid-19 cases in three “key states”: Florida, Texas and California. But analysts were quick to point out that demand in other industries temporarily hurt by the spread of the delta variant, such as travel and restaurants, is already rebounding — so what gives? Well, margins — they’re giving way to supply-chain difficulties.



{snip}

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

More stories like this are available on bloomberg.com/opinion

©2021 Bloomberg L.P.

[Thomas Hurt]

1. Oh no! Frenzied consumerism is not going to happen this year?

I mean it sucks for the bottom line of companies but is this such a bad thing?

[chia]

3. I'm not a huge consumer, but I worry about jobs lost by people who can't afford to lose them

[sinkingfeeling]

2. I believe Bed, Bath & Beyond. Their store here was nearly empty the last time I went there. Nothing

on the shelves.

[chia]

4. Shopping at Target for a birthday present, I was shocked at how empty the toy shelves were.

[SWBTATTReg]

5. I too, was shopping briefly in Walgreens, I was surprised at how empty some of the isles were...

and even on the row of merchandise I was in, most of the shelves were empty...I was glad that my stuff was in plentiful supply...I am wondering if I should stock up on it while I can, but I don't really want to hoard too much, just a couple of extra items...

I was shocked and surprised at how empty some of the rows/shelves were. I hope that our medical stuff (supply line, etc.) remains stocked in full, what would happen if such medications aren't available anymore? Just how many off brand versions are there available for stuff?

[Jirel]

6. Not a warning, except to say that BB&B is a crappy company.

Not all retailers are hurting. Some are doing ok, and have made their supply chains work. I am seeing very different response from different retailers online and in stores.

It's interesting that The Container Store, once a high-flyer, is mentioned in the same breath as BB&B. Whatever they're doing, they're doing it wrong. If you go to their reviews on FB and elsewhere, you'll see horror story after horror story. My own TCS story is that I went in to get a shoe rack, and found only one that fulfilled my needs. There was one of the display shelf, but nothing in the stock area. I asked a sales person whether they had any, or any were coming in. She said no, but they could put me on a waiting list to get one when they might become available in 4-5 months. I told her I don't need one in 4-5 months, and asked if I can buy the display model. She said no, because they need it for people to be able to see it and get it. I asked how that's a thing when they will have any to sell no sooner than 4-5 months, possibly never. She repeated the same nonsense. I noted that this sounds a lot like a bait-and-switch, offering a product that may never be available, but certainly not for 4-5 months. After all, nobody who needs a relatively inexpensive item like a shoe rack is going to put their name down on a waiting list and do without one for 4-5 months... or more. She still repeated exactly the same line, which is apparently what they're trained to do by the store. Then, of course, she offered to sell me something entirely different.

We all hate Amazon, but I went online to Amazon and looked up this exact shoe rack from this exact manufacturer. No problem getting one. I bought it for about $15 less than they were selling it for at TCS, and got free delivery 2 days later. There is no problem with supply chain for companies who are prioritizing that.

[leighbythesea2]

7. Have a love affair w container store

Myself so i must admit my bias here. But i work in apparel and the brick & mortar model is a contributor. For apparel, we've developed and peaked over decades with the mall experience. It takes LOTS of inventory, exclusive designed lines, and logistics, to maximize profits.

Same w decor, beauty, etc.

The problem is these industries havent adapted well to a non brick and mortar world. And that was before Covid. Now it's accelerated and it's a mess. Supply chains are a mess. I heard today China is rationing electricity (i have not researched why, in my org, the details/entirety yet) and our factories will be reducing production a part of each week. Delivery slides. Less product. Factories have been partially shut bc of worker illness due to covid. Same.
Container ships are another issue. Same.

In fashion, something like 75% of brands were down 80%+ in net profits in 2020. Thats from a year-end report. That is a blood bath.

Amazon has always had an advantage. They have a model that drop ships your shoe rack from the manufacturer, to you. Effectively erasing 60% of the retail process.

So it's all got a cost. The best visual is Barnes & Noble hurt the mom & pop bookstores. And now Amazon has hurt the Barnes & Nobles (and malls). The best we can hope for is small local retail return again--thats supported and profitable.
Not shop it & go buy online. But small local shops would wait 4-5 months now too, if it is a broken supply chain issue. Most likely/guessing it is.
Time will tell.

[Jirel]

8. I mostly agree.

Actually, in my area the mom & pops are doing really well. Most of us shop there, whether for craft supplies, hardware, clothes, kitchen supplies, whatever. We have a 100+ year old general store with everything from clothes to kitchen goods to hardware to fishing and hunting equipment, and they are BOOMING. We've got a hardware store in town that has the best stuff, and we only go to the big box when they're closed (they have bankers' hours - boo!). We have one of the best knitting stores in the state within walking distance. There's a mom & pop hobby and fabric store in the next town over that is now being forced to compete with Walmart and the new Hobby Lobby, but it's still the best and holding its own. I could go on and on. Who's hurting, and who has empty shelves? The big boxes and big chains.

I don't have a lot of sympathy for brick and mortar stores that can't adapt to online sales. There's a lot of hand wringing about people not coming to the brick and mortar chain stores, and why would we any more, for the most part? When I go to the local Office Depot, half the time I can't get what I'm looking for - and that was BEFORE COVID. They wanted to have just a few items of certain types in stock, and for furniture, chairs, etc. they just wanted to be a showroom. Why would I even bother with them, when I can get everything cheaper online from other places, including Amazon? I have no incentive to support a store that won't carry reasonable supplies of basics (to my practice, anyway) like 5 1/4" red rope file sleeves and 2" file folder prongs. I don't care that they offer to order it in for me, to arrive in a few days. When I go in, it's because I need something. So, I'll give my money to Amazon, that will get me the office supplies for less, and usually by the next day. Similarly, I've found that other brick and mortar stores have been downsizing their stock or offering a lot more online than in the store, and they also want to order me stuff. No thanks, guys - I can order it myself, and I won't bother coming into the store next time! The whole reason for brick and mortar is (a) you go get something when you need it, and (b) you are able to see/feel/try it on/test it. If they can't fulfill those reasons for existence, there is no reason to shop there.

I do realize we have an erosion problem caused first by big box (your excellent Barnes & Noble example) retail, and then by online retail. I don't know that this is as much of a problem as people think. When you stop driving horse buggies, you no longer need to make and sell buggy whips. If local brick and mortar stores are no longer being useful, it may be time for them to fold as well. I'm not going to cry, if stores like Best Buy, Macy's, Bed Bath & Beyond, etc. either go full online, or close their doors. If they can't make it, we do have local mom & pops that are having a resurgence, as well as some more "boutique" stores. On one hand, the prices will be a bit higher - but people are willing to pay extra for shopping locally, talking to a knowledgeable sales person/owner, and getting goods either immediately or of a quality/type that they can't get as easily online. The ugly fact is, I'm not seeing any supply chain problems in these local stores, except in ammunition and some guns at the local general store. While they're paying more too, and passing on that cost, pandemic supply chain issues are mostly proving to be a matter of whether people are willing to pay an honest price for an honest service or decent quality item.

But what about the workers? The workers will be fine. Working low wages and getting abused at big box/chain stores that are struggling has never been a good deal. The economy is reshaping around resiliency, values, and recognition of needs. It's going to be rocky, of course, but I don't think any of this is a problem. When Starbucks has to close its dining area and go drive-through only, but our local bakery/coffee spot is booming and fully staffed, there are reasons. Neither is short on coffee or milk, but one is short on people wanting to work and buy there.

I really think the supply chain issue is about 80% a red herring. For most things, there is no problem getting them - it's a question of who you're getting them from because some retailers are the ones badly managing the supply chain and the employees needed to deal with everything down the line from distribution to sales. VERY few retail goods or components needed to make them are truly unavailable.

[leighbythesea2]

9. I'd love to see the local

Boutique resurgence, and I do think it is happening. Younger generations (as per focus group info we have) like local, unique, personalized offerings. There's been a re-interest in everything that requires craft and artisanship. Even butchers, baking, and many "utilitarian" arts. The pandemic has created even more interest among young people, and that is so heartening.

The "concepts " about future retail, is it resides in mixed use space. Tightly among residential. You know, like Europe. The square. Gosh I hope so, bc the strip mall is a sad invention.

Meanwhile I do see rural towns without enough balanced retail, contracting. Small mom and pop grocer closing, and the big box is 15 miles away. Covid. Anecdotal but that breaks my heart. I feel for the little towns.

So while I am employed by a structure/paradigm born of the mall boom, I definitely have mixed feelings. There were some egalitarian service it afforded the populace at its height. But it also created the "glut". Over spending, over assorted, over inventoried madness.

The year end report from the Business of Fashion I read (kinsey, you can search it if interested) was the most surreal. It was like the curtain got pulled back. They said "fashion has been "over-stored, over inventoried and unsustainable ". We knew. It was like a thing collectively known, but the industry sells "you need this too", so why would they voluntarily reduce when it was working. Which honestly, so does home decor, and other categories.

They suggested companies will have to "clean up collections, reduce choice counts, and manage lean inventories" to survive/compete. This was already starting to happen, and now its in overdrive! So that may be why you were getting the offer of "we will order it for you", before covid. I agree though, who wants to walk in somewhere and then get something ordered?! Noone I know. There was this tinkering with the "showroom" concept/mentality, --then its shipped to you. I never could get behind that idea. But there were too many choices, and just-too much, overall before.

As for amazon, I just know a little about their inner culture, I guess. Like sabotage your coworkers for the "betterment" of the brand kind of behavior.

I tried forever to buy everything local. Until Covid. I know my stance makes no difference to them, the juggernaut.
(I also tried to reduce my single use plastic as a 2020 resolution, which worked til march, lol)

I just have to say, some of these big players (amazon, walmart) have the worst, most crushing, unfair practices applied to their vendors/factories (and therefore workers) you can even comprehend. Buy local, or try. Or smaller brands, they don't have the leverage to be abusive to the supply chain.

The supply chain is/was only as good as its weakest link. And now there's a bunch of weak links. The report cited that too. Build better relationships with partners, care about their well-being, etc.
So basic. I hope this creates a positive shift that way.

[Jirel]

10. Absolutely.

There's no doubt that retail is making a huge business model shift. That's probably for the best. Here's a bizarre story from yesterday that might illustrate the change in the relationship between business and staff that has nothing to do with supply chain, and everything to do with management and how employees are treated.

I was working with a friend on cleaning out and repairing a house she expects to move into next month. We got hungry, and went into town to get a fast snack. The first fast food place we tried was a bust - in 10 minutes, the only reason we got any closer even to the ordering speaker was because 2 people in line who had already ordered, simply left because the wait was untenable. Bad sign - we left too, without ordering. We went to a fallback that we both like. Both drivethrough lanes were closed. The manager was out on the sidewalk talking to a couple people who wanted to come in. We asked what was up, and she said she had locked up and was going home - her entire staff had just walked out on her. So we went to fallback #2, just a few doors down. They had just closed within the past week - there was brown paper across all the windows. Ok, let's try fallback #3, a great (but more expensive) local BBQ. Nope - that didn't pan out either. The owner was at the door, explaining to a customer who had just parked that they, too, had closed early that day. Lordy... fallback #4 was a Subway's by my office. Nope. Just closed because of something going on with management, and 2 employees were sitting on the curb outside it, having just locked the doors. By the time we got to fallback #5, we were looking for tumbleweeds and zombies in the streets. All this is NOT the economy or supply chain, but management and ownership that has not woken up to the reality that employees are no longer willing to be abused and underpaid.

As much as we hate Amazon, I have hope that they will be forced to get their act together with regard to employees, or they WILL have supply chain disasters looming. If they think that they will be able to continue their past and current practices, with this many people dead or retired/disabled out of the workforce, they'll be taking a huge hit as they run through all the people willing to work for them until they're burned out and quit or are fired. I have less faith that Walmart, Target, Best Buy, etc. will be able to continue. Amazon flourishes in part because they have a varied supply chain and endless sellers in the network. Walmart et al are dependent on singular supply chains for many goods, having bullied specific suppliers into providing (substandard) goods at excessively discounted prices. I had a friend who worked for Best Buy in their purchasing/testing department. They would get an amazing product from a manufacturer and give it glowing reviews in testing, but of course it would be too expensive for Best Buy's taste. So his department would receive demo model after demo model for revised versions of those products, stripped down and made more cheaply, to meet BB's desires. Basically, it just had to work long enough to get past the warranty period before exploding. The same can be said for those other retail chains. The only thing that was buffering Walmart past supply shutdowns and international shipping bottlenecks was that they had 1-2 years of stored stock warehoused away - which is now running low, or even running out. A case in point is why you never buy pool chemicals from Walmart (assuming that you'd even set foot at Walmart). They are famous for getting lousy mixes from cheap chemical plants in China, that then sit on ships and in shipping containers at the docks for months, and then get squirreled away in storage for months, maybe even a year or more. That "great deal" on chlorine or other chems is an awful deal, because by the time a customer picks it up on the store shelves, it has lost so much potency that they have to use twice as much as if they were buying from a reputable source.

I agree with you about the mall paradigm. However, I think that malls were already becoming a thing of the past, or at least being deprecated for retail. Between the rise of the huge online sellers and the small "fly by night" sellers hawking garbage on Facebook and other media, people have become used to taking greater risks to buy extremely cheap merchandise, and never seeing the quality before rolling the dice. I don't think we'll lose the malls, but we're already seeing the range of stores becoming ever narrower. Clothing and shoes - things you really do need to try on if you want quality and good fit - still abound. Categories of stores where people feel less urgency in handling merchandise, such as electronics, music, pop art, games, etc., have been disappearing for a long time. I do feel that this idea of "cleaning up collections" and "managing lean inventories" will absolutely bite those remaining stores in the tail. A great example of this is the holiday shopping frenzy. The only things that bring people to the stores in droves are (a) the (often fictitious) promise of Black Friday deals, and (b) items that are more special and won't be offered except during the shopping seasons. For going on 10 years now, the second category has been falling off year by year. They're hastening their own irrelevance.

I suspect we will see that trend toward local/regional stores, and away from big-box retail. As I said before, I live in a rural community. We have a small-chain regional grocery store, and it was a horror show when we moved here about 15 years ago. We're talking about a store that stunk, sold rotten produce, and that had meat offerings like chicken so freezer-burned the skin was brown and desiccated. Now, that store is merely unreasonably expensive for certain random items, such as bacon. The whole store has been cleaned up and renovated. They are now offering more ready-to-eat choices and specialty items. Certain higher-end brands that would never have been seen on the shelves before are now bizarrely plentiful. Of course, there are still major deficiencies compared to the larger chain 20 miles down the road. However, I can now get 80% of what I'm looking for - assuming I'm willing to pay a silly premium on some items. Although they cleaned up their meat game pretty decently as well, the butcher shop/meat locker across the street has amazingly good offerings - another win for mom and pop stores. I'm actually amazed at the mom and pop explosion in town, overall. In a town of about 2,500, we have FIVE coffee houses. (Bizarre, right?) They're not tourist spots, either. One is a long-standing bakery as well, and provides employment for youngsters with developmental difficulties in the community. Another is a pure local dive that also happens to have a booming mail order and festival business baking specialty cakes and cheesecake. The oldest of them is purely a local hangout that started from a tiny storefront with 3 tables and a porch, and has become a large eatery that also sells unusual specialty books about the region, art, and local wines, as well as hosting cooking classes. We have a mom and pop pharmacy, nursery, art school/studio, fiber store, wood-fired pizza shop, liquor store, high end furniture store, low end/used furniture and home goods store, and a bunch more that really, if people didn't want to leave town, they could do pretty well without ever encountering a chain store. Fifteen years ago, it was a bunch of empty store fronts, antique stores, and short-time entrepreneurs that failed because they couldn't finance a quality store. That is no longer the case, and business space is at a premium. Some of it DOES cater to a cut of the tourist trade on the weekends, a slopover from the tourist mecca 25 miles north, but a lot of the businesses that opened with that in mind failed pretty quickly, and fell off almost altogether since COVID began. Strangely, it has been easier to buy local than ever before.

So, let's hear it for the changing face of retail. I really don't think the supply chain is going to be an issue except for the (soon-to-be-former) 800 lb gorillas of the retail world who painted themselves into a corner with their own unreasonable demands.

[leighbythesea2]

11. Your Best Buy story

I was dying, and nodding my head. Not at all suprising to hear. Apparel has been in same mode. Brands figured out the only way to continually hit increased sales goals, quarter after quarter, was to reduce the quality of the raw materials, etc. And squeeze their vendors into incurring some of the risks.

Everyone did this. Even brands like Lands End who had a nice lifetime guarantee and were known for quality.
It's that "race to the bottom", and it's a zero-sum game.

I have found vendors, after covid hit, have changed some practices. They had massive cancellation orders and got stuck holding inventory, already through production. Once things resumed, they are not "developing another version of that fabric, except lighter/cheaper/etc"---at their own expense, which is what brands had been asking of them. We kept pushing risk onto that side. It's still happening, but they went/are going thru covid too. It's not over.

Covid exposed all the weaknesses, and the unkind practices looked significantly worse too. You start to really see, is there humanity in this process, when things are at their most dire?

Your town sounds lovely. Although, that local restaurant odyssey really does speak to the core of it all too. Again, we had a cycle of cheap goods and cheap labor and now those at the bottom--once you add "health risk, masking up, but probably no dignity around how that IS more taxing" are fed up.

Food workers couldnt get 40 hrs, and couldnt get the same hours each week often, so they could go get another job. (Itself apalling) Yet in pandemic, im sure some of these toxic employers (fast food chains) want some kind of above and beyond efforts. It's so one-sided.
Yes, the amazons, and distro centers will face it too. I agree. There's a long article, older, at mother jones i believe, with a first-hand account of working in distro centers in Columbus, Oh. Horrible. Something will probably start to break there, if not already.

We do have a paradigm shift happening. And some of it (the consumption cycle) needed a reality check. i hope it shifts "forms"--and can be better, for the worker bees in the cycle/process.