Bed Bath & Beyond aspired to be the next Target. But strategic mistakes made it the year’s biggest retail train wreck

Bed Bath & Beyond Storefront
Shares in Bed Bath & Beyond have fallen below $7; Goldman Sachs believes they could fall as far as $2.
Joe Raedle—Getty Images

Thank-you notes.

Those are what Bed Bath & Beyond’s interim CEO, Sue Gove, has said give her succor as she tries to dig the deeply troubled home goods retailer out of a massive crisis. The company has been plagued for years by plunging sales, lightning-fast cash burn, and a depleted C-suite. (Its business crisis was thrust into an even wider spotlight, in early September, by the suicide of Gustavo Arnal, who was reportedly deeply anxious over the condition of the company.)

But Gove, a board member who took the reins in June after Bed Bath & Beyond abruptly ousted CEO Mark Tritton, insists that she still has the trust of vendors—the big national brands that make the sheets, home goods, and other staples on whom the retailer’s survival depends. 

In late August, Gove was asked by a Wall Street analyst how she could be so sure that those vendors would be willing to work with Bed Bath & Beyond. After all, they’d been burned by the company two years ago, when it shifted its focus to building its own brands. The retailer was now pivoting back to national brands in its umpteenth turnaround attempt; would they be willing to keep its shelves stocked in the upcoming holiday season and beyond?

“One of the most telling pieces to me, in terms of their receptivity, is how they are parroting back to us our strategy,” Gove replied. “That’s come in the form of thank-you notes.” She went on to say there has been a “wide, open-armed embrace” of Bed Bath & Beyond’s old-is-new strategy. Bed Bath & Beyond declined to make Gove available for further comment for this piece, saying the CEO would provide an update publicly on Thursday when the company reports quarterly earnings.

As for those notes? Well, it’s possible that the vendors were just being polite with a declining but still sizable customer. While no vendors have said publicly that they would pull back either partly or altogether from Bed Bath & Beyond, the company acknowledged in August a number of them have tightened their financing terms. That led Gove and her team to spend a lot of time on damage control this summer.

Gove will need more than some warmly worded correspondence to save what was once the largest specialized home goods retailer in the country from retail oblivion. In the company’s most recent quarter, net sales fell 25%, continuing a long streak of dramatic declines—even at a time when the home-furnishings market has been growing 4% annually. And analysts expect Bed Bath & Beyond Inc., the broader company that includes the more successful Buy Buy Baby chain, to post sales of $6 billion in its current fiscal year ending in February 2023—about half their level just four years ago. More worrisome, Wall Street projects Bed Bath & Beyond will lose $500 million this year, adding to losses of $1.4 billion between 2018 and 2022, and accelerating its intense cash burn. Last quarter alone, the company’s operations burned through $383.5 million. 

Perhaps most daunting of all, Bed Bath & Beyond now has to try to effect a turnaround, largely based on reversing most of Tritton’s work, at a time when there are major vacancies in the C-suite. The CEO and finance chief roles are both occupied by interim officers; it named a new chief merchant only a few months ago; and the recent departures of the company’s operations chief and its stores chief are also big changes at the start of the key holiday season. (Some roles in the C-suite have been combined.) A company spokesperson told Fortune in a statement that “the board is very confident that Bed Bath & Beyond Inc. has the leadership team to execute our plans for holiday.”

More fundamentally, Bed Bath & Beyond has to figure out why it needs to exist in consumers’ eyes. “Where do they find themselves now?” asked Mark Cohen, director of retail studies at Columbia Business School and a former CEO of Sears Canada. “They’ve got no senior leadership, they’ve got no strategy, and they’re trying to swing the pendulum back to where it was, and that was a pretty crappy place.”

A retail wunderkind misfires

That crappy place predates the pandemic by a substantial span. While the company’s sales only started to decline in 2018, its problems had been brewing for years.

That’s why, when Bed Bath & Beyond announced in October 2019 that Tritton was taking the reins, investors were elated. Tritton was the whiz chief merchant at Target who oversaw the creation of many of that retailer’s highly successful store brands, engineering 30 label launches in less than three years that helped fuel its stunning turnaround. Tritton was bold enough to scrap some big but stagnant Target brands and replace them with instantly successful house names like Cat & Jack and Opalhouse. 

Bed Bath & Beyond vendors and workers saw a potential savior, and so did Wall Street—maybe the company could reinvent itself as a buzzy “Tarzhay.” But as would soon become clear, as talented as Tritton was, a new CEO can’t just assume his playbook from one company will automatically work at another. Tritton declined to comment for this article.

Bed Bath & Beyond had fallen a long way by the time he arrived. It was once a beloved retailer that managed to be both mass-market and slightly trendy, introducing consumers to new products like air fryers or single serve coffee makers; it also had a reputation for prompting impulse buys with its ubiquitous 20%-off coupons. But by 2018, the thrill was gone: Stores were cluttered, confusing, and hard for shoppers to navigate; the company offered too many versions of the same products; and it had become almost too reliant on coupons—rather than on buzz or attractive presentation—to drum up sales. There were other strategic misfires: For example, Bed Bath & Beyond had added a huge assortment of household cleaning products, items that consumed considerable shelf space but that shoppers could easily find online or at Walmart. It was not winning new customers, and those that did come often left with only one item.

Tritton, who had been brought in after pressure on the company from an activist investor, got to work right away in November 2019, guns blazing to show Wall Street the rookie CEO meant business. Just as his former boss Brian Cornell had done at Target, Tritton did start to spiffy up many of Bed Bath & Beyond’s clutter-ridden stores. But his first major move? Purging Bed Bath & Beyond’s C-suite—just one week before Christmas, at the peak of the holiday season. Tritton sent five top executives packing, including its merchandising, e-commerce, and marketing chiefs. “They were expensive, and they were ineffective,” he told Fortune in 2020.

Mark Tritton at a Target store holiday preview in 2016. The formula that made Tritton successful at Target didn’t work at Bed Bath & Beyond.
Jerry Holt—Star Tribune/Getty Images

Then COVID-19 struck. While the pandemic delayed the unveiling of Tritton’s fully fleshed out turnaround plan, it also led to a surge in home goods spending—and that, in turn, temporarily hid Bed Bath & Beyond’s deep problems. The pandemic even gave the company a strategic boost by forcing it to improve its e-commerce and offer services like curbside pickup. Bed Bath & Beyond was able to squeeze a couple of quarters of growth out, buoyed by its own moves and the overall spike in home goods spending, temporarily giving people faith the Tritton turnaround was working.

By November 2020, Tritton was ready to announce his master plan. First, he addressed some low-hanging fruit: He would close 200 stores out of some 800 locations at the time (the company is closing another 150 now and cutting 20% of jobs). He would reduce a product selection that could overwhelm shoppers (at the time he was particularly incensed by how many potato-peelers Bed Bath & Beyond carried.) And he had begun selling off smaller store chains in the company’s portfolio like Christmas Tree Shops, raising $2 billion and improving the balance sheet.

Tritton would also apply his brand-building prowess—honed at Target, Nordstrom, and Nike before that—to launch 10 new brands. His bold goal: having store brands generate 30% of sales, up from 10% at the time. He believed that Bed Bath & Beyond had failed to win young customers by not having enough “opening price point” items, retail parlance for cheaper goods. The retailer’s once-dominant wedding registry business had slipped, another sign that young shoppers were looking elsewhere.

Tritton had another structural problem to tame: Bed Bath & Beyond had trouble stocking shelves, owing to an antiquated inventory management system and inadequate supply chain. Tritton vowed to fix that. He also made another, more fateful move: Bed Bath & Beyond ditched much of the chain’s coupons system, which issued weekly discount offers to customers whether they asked for them or not.

By mid-2021, it was becoming clear that any improvements in Bed Bath & Beyond’s trajectory had been fleeting, and sales began to plunge. 

Stacey Widlitz, president of SW Retail Advisors, points out that some of Tritton’s new brands, notably in textiles like sheets or throws, were of too low a quality in relation to their price, certainly in comparison with the deals that shoppers could get for similar items at Amazon Basics. “The playbook from Target did not transfer to Bed Bath & Beyond, and the customer walked in and felt they weren’t providing private label products that were distinctive and at a better price,” she says. Widlitz also said that chronic out-of-stock problems made it hard for shoppers to match items and see what worked together. 

What’s more, while Bed Bath & Beyond had been overdoing it on coupons, in the estimation of analysts (Columbia’s Cohen says it was doling them out “promiscuously”), it was brutally reminded how much shoppers love them, and how hard it is to wean them off the drug. The elimination of most coupons yielded the same disastrous results at Bed Bath & Beyond as they had at J.C. Penney under former Apple whiz kid Ron Johnson years earlier in 2012, when that department store chain lost $4 billion in the first year of a turnaround attempt anchored in large part on ditching discounting.

By the end of 2021, it was also becoming clear that Tritton was not coming even close to licking the company’s out-of-stock problem. In the third quarter of the fiscal year ended in February, Bed Bath & Beyond sales dropped 28% year over year, to $1.88 billion, because of the global supply-chain crisis—a drop far deeper than those endured by its peers facing the same crisis. Tritton blamed vendors for not filling orders in sufficient numbers or early enough. But many of the problems were internal: At Target, which had also had out-of-stock problems for years before taming it, Tritton could at least rely on a well-oiled machine for making and shipping. Bed Bath & Beyond’s supply-chain muscle was considered subpar even before the pandemic; in the COVID era, with its hard-to-predict consumer demand, that vulnerability has proved catastrophic.

Adding to the drama of the past year, Tritton had to deal with activist investor Ryan Cohen, one of the founders of Cohen in August exited his position in Bed Bath & Beyond after months of pushing for changes, like selling off Buy Buy Baby, more cost discipline, and changing up the board.

Tritton did appease investors in one way: Under his leadership, the company spent $1 billion on share buybacks to mollify Wall Street. But that’s a move now seen as misguided, given that the money could have been better used on store improvements and beefing up Bed Bath & Beyond’s distribution system—and that shares plunged anyway.

Tough holidays ahead

As Bed Bath & Beyond heads into the holiday season, it’s not clear vendors will do any better this year at keeping the struggling retailer’s shelves stocked, or that they’ll even try. For one thing, they’ll face a financial disincentive. In August, several “factors”—companies that provide short-term financing to retail vendors by buying their accounts receivable—revoked coverage of the company, making it riskier for vendors to ship to Bed Bath & Beyond.

Thank-you notes to Gove aside, Bed Bath & Beyond has a lot of repair work to do in its relations with national brands, the retail term for brands widely available at many other major retailers such as Amazon, Macy’s, Kohl’s, and Walmart. In a rebuke to Tritton, Gove last month announced that the retailer would renew its focus on those brands, and close two-thirds of the brands that Tritton launched. 

That is likely sensible. Widlitz says in home goods in particular, shoppers generally prefer national brands over store brands, unlike apparel where they are more adventurous. But that prompts the question: Will the brands that Bed Bath & Beyond alienated under Tritton step up again, when many have found other more financially stable retailers to ship to? 

Even if they do ship, their goods will be arriving at stores that are in disarray. Recently on a Reddit page for Bed Bath & Beyond store managers, some were lamenting how unreliably stocked their stores were with Wamsutta sheets—a popular and widely available mid-price brand. Others fretted over how low morale was on the front lines. Elsewhere, other workers were chafing under a new, no-personal-phones rule on store floors, with one posting, “The store/company has bigger issues to worry about other than me being on my phone.” 

Vendors who do play ball with Bed Bath & Beyond are unlikely to send their best merchandise or offer much in the way of exclusives that would give anyone a compelling reason to visit. “If you’re a national brand, why on earth would you decide to launch exclusive things with Bed Bath & Beyond given the state that they’re in?” asked Neil Saunders, a managing director at GlobalData. (Bed Bath & Beyond’s brand president, Mara Sirhal, told analysts in August that the company had lined up some exclusive lines for the holidays.)

What’s more, vendors have been burned in recent years by the Chapter 11 bankruptcy filings of rivals like J.C. Penney, Pier 1 Imports, Sears, and Linens ’n Things, and they are more likely to want to supply their best merchandise to retailers that are actually growing. “Vendors always get slammed, and they never get any kind of reasonable recovery,” says Columbia’s Cohen.

But bringing back coupons and offering more national brands won’t guarantee shoppers will go running back into Bed Bath & Beyond’s stores. Just ask J.C. Penney, which filed for Chapter 11 bankruptcy protection two years ago and never really recovered from customer defection after it ditched coupons, and now is half the size it was a decade ago. 

There is no shortage of challenges for Gove, who according to a Reuters report, will stay in the interim CEO post for a least a year,. While she has eliminated some C-suite jobs, Bed Bath & Beyond must fill its leadership gap. And talent attraction is a tough order for a company in such dire straits, and with compromised institutional memory after all the turnover at the top. 

Bed Bath & Beyond’s decision to essentially reverse strategy and go back to a model that was not working at all just three years ago has echoes of what Penney did to stanch the hemorrhage nine years ago. Ostensibly the goal is for the retailer to steady itself while it figures out what gives Bed Bath & Beyond a raison d’être, outside of being yet another place to buy a KitchenAid cake maker. 

“The market is very crowded, and it’s hard to see where they fit in,” says GlobalData’s Saunders. “They need to be a very innovative retailer, a place of discovery. But they really aren’t that good at those things anymore.”

After years of shopper exodus, it will take a truly spectacular shopping experience to win them back. Wall Street has its doubts: Goldman Sachs has a price target on BBBY of $2, compared with its current price of $6.65. Industry analysts are similarly skeptical Bed Bath & Beyond can pull it off. 

During the August investor presentation, a Baird analyst said to Gove: “Just trying to understand how you really differentiate the business by selling product that is widely available at other retailers.” That is exactly what Gove has to figure out, and fast.

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