Episode Transcript
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Speaker 1 (00:04):
Welcome to Business on the Brink, a production from I
Heart Radio and how stuff works, Bed Bath and Beyond,
where you can get a spatula, a bathroom scale, and
a face mask that looks like a panda. We're building
a wedding registry. Is kind of like playing a video game.
But the coupons and return policies that initially brought customers
(00:27):
to stores soon hit their expiration date on effectiveness, leaving
management grasping for straws on how to turn the company
around and learning the hard lesson that more isn't always
better and all these aren't always goodies. This is I
can't believe I have to say this, Bed Bath and
Beyond on Business on the Brink. Hey, everybody, after that
(00:55):
alliterative opening, I am Jonathan Strickland and I'm Aero Caston,
and you did a really good job on at one take. Yeah, yeah,
that's I mean, you know, rubber baby, buggy bumpers. What
can I say? So this was a suggestion from somebody
whose name I think I recognize, well, i'd hope so,
because you know them, it's my mom. Hi mom, don
(01:19):
your mom suggested this. My mom suggested that she listens
to the show every week. So thanks mom, Thanks thanks
Ariel's Mom. Yeah. So we're going to cover Bed Bath
and Beyond, a company that has a similar sort of
history as some other big box retail companies have had,
but there's some particulars in this one. They get awfully juicy. Also, Um,
(01:44):
one of the things I think we need to start
off with is the first note you have here. It's
about the founders, the two founders being at Warren Eisenberg
and Leonard Feinstein, who founded the company in nineteen seventy one.
Before we go anywhere in this episode, I just want
to point out it pays to be the kid of
the two founders of Bed Bath and Beyond for reasons
(02:06):
we will get into this episode. Yes, Um, you know,
like it pays to be the kid of someone who
listens to your podcast because they give you good suggestions. Anyhow,
not quite the same. Uh So. Yes, Warren and Leonard
founded the first bed Bath and Beyond in ninete in Springfield,
New Jersey, and at the time it was just bed
and Bath. Yeah, there's there's no beyond yet. No. No,
(02:29):
they were not like Buzz Lightyear say. It was only
when they when they hired a young promising Buzz Lightyear
to join the company that they got. No, they literally
were selling bed and bath items, so there was no
call for a Beyond yet. So then in nineteen seventy seven,
they you know, so they've been operating this for a
few years now, they bring in a guy called Arthur
(02:52):
Stark to head the company as president. Right to act
as president for the company, they the founders would essentially
stay on as members of the board of directors for
almost the entire history of Bed Bath and Beyond. Yeah,
and we see this oftentimes someone will start a company
and they'll run it by themselves for a little bit
until they go, well, I really need a professional in
right this this concern has grown to the point where
(03:15):
it is beyond my expertise to manage it. And so
you bring in somebody else to come in and run
the show while you still oversee the general direction of
the company. Yeah, so things were going really well. Like
they continued to grow as a company over the seventies
and into the eighties, right, Yeah. By five, they expanded
(03:37):
to seventeen locations and they opened their first superstore, and
that's that's when they changed their name to Bed Bath
and Beyond. Because they started selling the Beyond. Yeah, the
stuff that was not easily fitting wouldn't easily fit into
the better bath. I mean so at the time, primarily
kitchen stuff. Yeah, and you know they'd go into deck
(04:00):
or in other things. Uh, but that that took some
finag links. So, and this is right around the time
where superstores were really starting to take off as a
concept in the mid eighties, like they had come out
originally in the seventies, but this is when you started
seeing other types of stores kind of following in those footsteps,
(04:22):
and uh, and this is one of them. So by
one they had they were doing around a hundred thirty
four million dollars in revenue and sales. Uh. And then
the following year they became a publicly traded company and
they were trading stock on the NASDACS. Yes, we're going
through it quickly because for a while, uh, that bath
(04:42):
thing beyond just did really well. They were making one
point nine billion dollars a year, a significant jump in
just a few years. So yeah, they they were doing
this largely by growing rapidly, opening up new stores. They
were being very uh aggressive in expansion at that point.
(05:03):
And this is we haven't even really opened up that
can yet because we're really they really got crazy in
the following decade. Yes, by the end of two thousand one,
they had almost four hundred store locations and hopes to
grow to up to eight hundred. Wow. Yeah, So here's
the thing, growing like that, having that sort of aggressive
growth strategy, opening up new stores, like actually scouting out
(05:26):
locations and either building a structure or taking over a
vacant structure. That takes a lot of effort. There is
another way to grow your business quickly beyond building it yourself,
and that is buy it, yes, acquiring other stores and companies,
(05:49):
And that's what bed Bath and Beyond did. So they
did a bunch of research. From what I read, they
actually were very careful in their first acquisition. They wanted
to buy something that could fit in well with their
current brand, wasn't going to be a direct competitor for them,
and had good operating margins in long term growth. Right,
So I didn't want to go out and buy a
company that was just going to cut into their own sales.
(06:10):
You didn't want to have, you know, two stores in
the same shopping center, for example, that are competing for
the exact same customers. You're not doubling your sales that way,
You're just dividing where your customers are going. So this
was a very smart move on their part. It was.
And in two thousand two they made the first acquisition.
It was Harmon's Stores. And when I was trying to
(06:30):
figure out who Harmon was, there is a grocery line
in Utah that is also named Harman's Stores. Turns out
that's not the right the right one, right, No, No, Harmon.
The Harmon they bought was a health and beauty retailer
in New Jersey, where they also were. Yeah, and since
we're down here in Atlanta, Georgia, often these regional chains
or regional stores are ones that we may not have
(06:53):
ever encountered. Yeah. So, so we don't know how much
they bought Harmon four, but we do know it was
a cash acquisition. Bed Beth and Beyond has been fairly
private about a lot of their financials, so as much
as they can be so pretty opaque. Yes, yes, um,
but Harmon's at the time was operating seven stores in
three different states, and they had this was the big
(07:15):
thing for Bed Bath and Beyond. They had their own
HB a line Harmon Face Values, and that meant that
bed Bath and Beyond could take this this private brand
and move it into their store because they didn't have
HB A but HbA fits right in when with Bath.
So this way they could actually carry a brand that
no other store in their space could carry apart from Harmon's,
(07:37):
apart from Harmon's which they owned hotly as a subsidiary.
So well, and then they that went so well that
first acquisition that they said, well, shoot, we're professionals at this,
let's really open up them purse strings and start buying stuff. Yeah,
but the next thing they bought. It took me a
while to figure out why. Because the next thing they
(07:59):
bought was the Cris Smiths Tree Shops in two thousand
three for two hundred million dollars, which added another twenty
three subsidiary stores in five states to retinue. Now here's
the weird thing is that Christmas Tree Shops is a
sporting goods store. I'm lying, you are lying. I didn't
I didn't look. I assume they sell Christmas trees and
and like Christmas decor and things like that, ornaments and
(08:21):
things like that, which if you go into a Bed
Bath and Beyond now, because we all know that they
are not absolutely Toys r US right now, well kind
of like Toys r US was a year ago as
of the recording of this episode. By the time this
episode comes out, we don't know. Yeah. Yeah, you know
they do put Christmas ornaments in Christmas decor and their
(08:41):
stores as it's seasonally appropriate to do so. Yes, which
means that since we're recording this at the beginning of September,
probably tomorrow, the start putting them out. Yes. So by
two thousand four, Bed, Bath and Beyond had sales of
five point one billion with a B dollars. So I
guess it's time to make more acquisitions. Yeah. Now, this
(09:03):
next acquisition is one where I object strenuously to the
name of the company, which is Bye Bye Baby, Buy
Buy Baby, So I guess you buy babies there. That
to me is incredibly problematic. No, you don't buy babies,
you buy buy things for babies. It was a competitor
to Babies r US. Yeah, and they bought it for
(09:25):
sixty seven million dollars. Uh. And also part of that
was to pay off some of Bye Bye Baby's debt,
which was like almost twenty million at that point, Yes,
Bye Bye Baby only had eight stores in four states,
and the CEO of bed Bath and Beyond at the
time Stephen Tamaris, who had been with bed Bath and
Beyond ninety two. He became CEO in ninety seven and
(09:47):
then CEO in two thousand three. He called the acquisition
an excellent strategic fit, with the idea that a lot
of their customers are either perspective or current parents. But
here's the thing, Okay, here's where I was saying, it
pays to be the kid of one of the founders
of bed Bath and Beyond. Yes, because the person who
owned Bye Bye Baby was the son of Leonard Feinstein,
(10:07):
one of the founders, And so there were a lot
of people who said this acquisition wasn't so much a
strategic acquisition as it was an effort to bail out
the son of a founder of bed Bath and Beyond.
Because again, if you remember, we mentioned that part of
that acquisition involved paying off nearly twenty million dollars in death. Yeah. Yeah, Now,
(10:28):
two thousand seven also saw international expansion, so I mean,
it's still good things even with this alleged buyout. They
alleged bailout because it was indefinite buyout. You're right, Jonathan,
you're very smart. Now shut up. No, please don't please,
don't shut up. I don't want to do this alone. Uh.
(10:50):
So they opened their first are in Canada, and the
next year they expanded into Mexico City through a partnership
with Home and More. Uh and Home and Moore would
eventually change a name to that Bath and Beyond. Yes,
so now they are occupying all of North America. And
in two thousand and eight, it was great news for
bed Bath and Beyond, but bad news for somebody else.
(11:10):
The the business lenens in things, which you could view
as the lex luthor to bed Bath and Beyond Superman.
I mean, they definitely had a real close shave in
two thousands. So they didn't just have a close shave,
they actually closed up shop. The company went totally bankrupt.
They liquidated their assets. They sold off all their brick
(11:33):
and mortar stores. There were five hundred seventy one of
them at the peak. Yeah. Now, granted they didn't sell
them all off at once. It was a long, slow,
painful march towards bankruptcy. And they were really the only
competitor in the big box retail space for this type
of stuff that bed Bath and Beyond was doing. And
there were other companies that were selling stuff that bed
(11:54):
Bath and Beyond also sold, but Lens and Things was
the only one really dedicated to the exact same space,
and now they were gone. So now bed Bath and
Beyond was operating without a real competitor in that space. Uh.
Lenons and Things, by the way, would re emerge in
two thousand nine as a web based retailer, but would
(12:15):
ultimately shut down for good Z's in two thousand eighteen.
So maybe at some point we'll do another story, or
maybe we'll just say, hey, do you remember that episode
of bead Math and Beyond? Just do a fine copy
of replace with things, which is not really the case.
Very different stores now, and I mean bad Beth and
Beyond would soon get a bunch of competitors, but we
(12:37):
aren't there yet. By two thousand and eleven, they're making
nine point five billion dollars so much money. Yes, And
by two thousand twelve they made two more acquisitions. Okay,
and uh what were those? Well? The first was cost
Plus Incorporated or cost Plus World Market, which I love
for four you love it for four dollars? I love it.
(13:00):
They bought it for four dollars, But if I had
four hundred million dollars, I might just be like, okay,
this one cost plus, give me all your stuff, fair enough, okay.
And then after that they bought Linen Holdings ll C
for a hundred five million, right yes, And Linen Holdings
did more industrial distribution, so bed bath and tableware and
(13:22):
linens and textiles to things like cruise lines, food service hotels. Yeah,
like all the hospitality industry and that kind of stuff
as well. Got you. So we are now at a
point where we're kind of at the peak of bed
Bath and Beyond in two thousand eleven, which was not
that long ago, really wasn't. And yet we're about to
(13:43):
enter into an era where things would go radically in
a different direction. But before we get there, I think
we need to take a quick break, all right. So
we're back, and we're back with bed Bath and Beyond,
and now we're up to two thousand thirteen. We were
still jumping forward a bit and things were still going
(14:07):
like gang busters. They had five subsidiaries at that point.
And they even though they had five subsidiaries, bed Beth
and Beyond like the core business still accounted for the
majority of their revenue. Yeah, over their stores where Bed
Bath and Beyond stores because these other acquisitions were small
when they got them, and more regional, yeah, like the
(14:29):
like the New Jersey's chains and stuff like that, so
they grew them, but they also used them to grow
their business and expand their offerings. This is also when
we started seeing I mean, obviously the companies were about
to mention have been around for a while, but we
started seeing companies like Target and Walmart and Amazon compete
more fiercely in the same space as Bed Bath and Beyond. Yeah. Yeah.
(14:53):
But despite that, in two thousand and thirteen, they were
up to eleven point five billion dollars in sales, and
it looked like they might actually be able to take
a stand against all of these extra big box stores,
which is what I'm going to call them, yeah, some
of them being online big box stores. Yeah. Amazon. And
part of it was attributed to the fact that the
company was very fiscally conservative up to this point other
(15:16):
than buying the the subsidiaries, so they had very little debt.
And even when they were acquiring these other companies, they
did it at a time where they said that it
wasn't going to affect their bottom line for that year.
Whether or not that's actually the case, we don't know,
because they don't really break out these other companies and
their financials. They lump them all together. Oh yeah, that's
(15:38):
one of the issues that we will revisit as well,
is that when it came to financial reporting, they weren't
They wouldn't break this down by here's how much this
particular subsidiary brought in, here's how much this subsidiary brought in,
here's how much bed bath and Beyond brought in. They
would group them all together, and so it made it
very challenging to understand what parts of the company were
(16:01):
doing well and which parts might not be doing So. Yeah, Now,
another part they thought that was leading to their success
was the longevity of their leadership. You know, the founders
are still on the board. They had a very long
standing CEO and a very long standing president and just
and you know, we've tosked so many times about how
you would have like a rapid change in executive leadership
(16:23):
and that could result in doom for the company. So,
you know, you would think that having the same leaders
in place for a long time could really help guide
a company. But here's the here's the thing is that
sometimes stuff changes and you need to have leadership that
can adapt to change. And if you're comfortable, you may
(16:44):
not notice that change. And if you're a company that
makes acquisitions in order to bail out the children of founders,
which would happen again, that's that's uh, it can be
an issue, but we'll we'll, we'll get there. So Ben
Beth and Bon also has aggressive buyers who who really
(17:05):
I would say they could squeeze blood from a stone,
like they're really good on getting distributors to agree to
really good sales prices and things like that. So so
they were going out to to the providers of whatever,
like the companies that are making these products and being
able to get them at a really good price, and
then of course mark it up to sail cell to
(17:26):
the final customer. And they made a lot of demands
to those manufacturers and distributors. But they those manufacturers and
distributors also got a lot of of you know, push
for their products, so it was a given take they
were willing to meet a lot of those demands. They
also looked from some reports that I read for instead
of looking for prime retail space. They looked for affordable
(17:48):
retail space. Now, whether it was affordable enough or not,
I don't know, But in other words, they were looking
for things like they were trying to balance out, Uh,
does this space makes sense? Like if we paid this
premium amount for this space, we might be in a
much more visible spot, but we may not see a
good return on that investment as opposed to let's go,
(18:11):
you know, maybe three blocks over to a spot that's
not considered quite as as valuable, but at the same
time will make a better return. Yeah, I get it.
And then, of course there's one other component we have
to talk about, because anyone who's ever shopped at bed
Bath and Beyond and put their email registered their email
(18:32):
with bed Bath and Beyond knows about the coupons. Yes,
these these coupons got a lot of people into the stores.
I know, I'm married to one of them. I mean,
I usually go, oh, bead Bath and Beyond coupon. I'm
going to go to Bad Bath and Beyond. I'm sure
there's something I need or want, and then I forget
the coupon at home, and then I'm not signed up
(18:52):
for the electronic coupons. Well I am now, but I wasn't,
so I go in and I wouldn't actually have a coupon. Regardless,
these coupons would give you like five off your entire order,
your most expensive item, some really good deals. They were
very lenient with the expiration dates yes, extremely sick yes,
and also very lenient with a return policy. You could
return an item to anywhere used or new, um, well,
(19:14):
any bed, Beth and beyond. Like you couldn't return to
Target exactly. You walk into a game stop and say,
I want I want some money back for this toilet
brush I bought. Yeah, And they thought that they had
this coupon plan figured out. Well, they were going to
factor the discounts into their pricing, so they could do
pricing that was a little bit higher because people would
be using the coupon to bring it back down yeah
(19:36):
yeah um. And then they would also weigh that with
the amount of people that they thought were going to
pay full price for items, like me, when I'd go
in because I forgot my coupon, but I still wanted
the mega coupon ers who have that stack ready to
get at any moment, because they would also stack coupons
for a while. Yeah. Yeah, if you ever saw any
of those shows about like the crazy coupon ing type
(19:58):
stuff like this is one of the company nis that
was a frequent like it would frequently pop up on
that sort of thing. Yes, Um, but I think I
think we've talked too much about coupons, so we'll move on.
So we get over to this this part where Bed
Bath and Beyond has been doing really well, and they've been,
(20:20):
you know, trying to attribute that success to several different things.
But we're now getting to the point where where we're
about to have the tilt right. Yes. Yeah, So in
two thousand fifteen, they planned to open thirty more stores
across all their properties, so not just bed Bath and
Beyond stores. Um, and they made a bunch more acquisitions.
So they bought of a kind in two thousand and fifteen,
(20:41):
one kings Lane and personalization Mall in two thousand sixteen.
One kings Lane. That's the one that's in Kingsman right that.
You know, I can't disprove it because I don't know
what one kings Lane self. Call me out, John. I'll
like to think of that as the store where all
(21:02):
the Kingsman stuff takes place. I know it's not, but
just anyway and personalization all was like this little niche
online things. They're like, Okay, we're gonna we're gonna, yeah,
we're gonna dip our toe in the online yeah. Um.
And then they bought cheft Central and the Chorus in
two thousands seventeen, and a lot of these were nitche
acquisitions and or helping them get in the online market
(21:23):
because they had a website. But it you know, even recently,
it's not super current. Yeah it was. It definitely wasn't
following the best practices that you would see another online retailers.
And one of those companies that you just listed, aerial Um,
I don't think was like a strategic acquisition, wasn't. No,
it was another quote unquote bailout. Yes, yeah, Warren Eisenberg
(21:50):
this time. So Feinstein had already had his turn at
bailing out a kid with the acquisition that we had
mentioned previously, and chef Central was another one. Now this
the other founder, Warren Eisenberg's kid. And this is where
I why I said it pays to be the kid
of those two founders, because if you if you have
(22:12):
a business concern and things go belly up. You know,
maybe Daddy'll run around and help help put things right
again by spending millions of dollars. It most more like
millions of dollars, but I mean, come on, still, it's
still a lot. It's more money than I have. But
if I fall into major debt, I can't expect my
(22:33):
parents to rush it and then bail me out. I mean,
my parents love me, but I'm not going to put
them in that position. Now. The problem is Chef Central
is that it had a lot of competing items with
bed Bath and Beyond. Bed Bath and Beyond already had
a kitchen section. Yeah, it's pretty extensive. So this was
one of those cases where it wasn't complementing the the
(22:55):
overall business. It was actually in competition with it, yes,
and so eventually those would really struggle in clothes um.
This is also when they're starting to feel the crunch
of not having a good online presence um mixed with
this non methodical acquisition game. I wonder if they were
(23:16):
like starting to anticipate a downturn and right that maybe
the core the strategies that had led to kind of
explosive growth are the sort of things that are not
sustainable in the long run and can ultimately lead to
becoming bloated and then collapse. Ye put words in your
mouth or anything. No, that was much more eloquent than Jonathan.
(23:39):
So they're way behind on companies like Amazon and Wayfare,
which are frequently mentioned as two of the big competitors
to Bed Bath and Beyond. Far far behind them, especially
particularly in the online world. That's really what we're talking
Although Wayfair is looking to open brick and mortars, so um, yeah.
They so they started get limiting their coupons because people
(24:03):
were going nuts. So with the coupon, yes, and they thought, hey,
that's what we'll save us. Well, we'll cut out all
that expense. But the problem was they didn't really have
a good plan to keep bringing people in. Yeah, and
the coupons were effective in bringing people into the stores.
So now that incentive was gone, and that was actually
slowing down the traffic going into the stores. Yes, And
(24:26):
this is where you can tell they're grasping at straws
because for me, that Beth and Beyond is a place
where you go in you might buy a couple of
big ticket items or put them on a list, but
then you're going to impulse buy a bunch of little stuff,
and they started looking at a showroom model for their
stores where you could go in and look at things,
but you'd have to go purchase them online. Yeah, so
that was that's kind of the approach the Best Buy
did right where you you go and you might check
(24:49):
out like an audio system in the store, and then
you go home and you order it online and then
they come out and they set it up and everything.
But they don't You don't need that necessarily with a
lot of these items. Some of them you might like
if you're actually getting a bed, but yeah, but if
if you're looking at kitchen utensils, it's going to kill
the majority of your impulse buys. So online sales continued
(25:13):
to go well for other companies, and then you started
to see because the fact that the brick and mortar
stores weren't getting as much traffic, they weren't getting as
much attention, Uh, they were starting to fall into disrepair.
You started to have stores that may not be as
well organized as they used to be. This is actually
this really reminds me of Toys r Us because the
(25:33):
last few times I went into Toys r Us before
that one started to close everywhere. Uh, it was a
nightmare walking into those stores. Well, and here's the thing,
so we all know that when or you should know
if you've been listening to enough of our episodes. It
is common that when your company starts to show some weakness,
you get private equity firms looking to buy it, saying,
I this is a profitable company, or a formally profitable company,
(25:56):
and I bet I could turn it right. It's just
that the problems that lie with this company are mostly
at the top level, the management level. They've lost their way.
So if we just put people in there who know
how to flip things, this could become a money maker again. Yeah.
And one of those companies was Leonard Green and Partners,
and they built a stake in the company, but the
(26:19):
deal never actually went through. And the problem is you
said that that Beth and Beyond reminded you of Toys
r US. Well, it started reminding other equity firms of
Toys r US too, and so everyone started saying, maybe
we should pour money into this because it may be
on the fast track to decline. That's so severe that
(26:39):
we can't turn it around. Yeah, and then if that
Beth and Beyond said Hey, I want to just sell
off you know, bye bye bye baby or the chefs. Yeah. Yeah,
they couldn't do that because they didn't break out the financials.
They didn't have that transparency to attract buyers for their subsidiaries. Exactly, yes,
because now they have. Since they were showing it all
(27:00):
in bulk and not delineating which divisions were doing well,
then you can't interest people into buying a subsidiary because
there's no indicators there to say, well, sure, I know
how well the overall company is doing, but how well
is that specific part that subsidiary. And this is where
that decision came back to bite them. Whereas in the
(27:21):
past they could have hidden weaknesses by covering them with
the strengths of other part of the company, now ad
meant that no one had a good handle on how
any of the parts of bed Beth and beyond we're doing. Yeah,
and and this is when things get really crazy up
until present day. But before we get into that, I
think I need to prepare myself and take a bit
of a break. All right, So we're coming up on
(27:50):
the recent past. Now, how I hate to ask this question,
how's that been going? Uh? Not great? In two thousand eighteen,
by the end of the fourth quarter, they had closed
twenty one stores. Yeah, I'm sure they had closed more,
but in Q four they closed twenty one stores, and
by two thousand nineteen their profit margin was down to
(28:11):
less than four percent. It had been up at sixteen
point five in two thousand eleven, right at their peak. Yeah,
right around two thousand to two thirteen was kind of
when they were riding high the highest. So by March
of twenty nineteen, their stock price had dropped eighty percent
from the high point, which was from two thousand and fifteen.
That's when they hit their highest point. So then you've
(28:35):
got some companies still kind of looking at bed Beth
and Beyond, but not really ready to pull the cheer
because like even an activist investor kind of went, I'm
not going to touch that. Yeah, I'm I'm good, I'm good.
You go on with yourself. Yeah, but thankfully not thankfully,
(28:55):
I'm not sure it's really too early to three other
actor this investors said, well, you're turned down as our game. Yeah,
So we get three companies swooping in in an effort
to try and transform Bed Bath and Beyond. Yes, Legion
partner's Asset Management, mckellum Advisors and and Cora Advisors. Right,
(29:15):
and so they all think, you know, there's some solutions
we could make with bed Bath and Beyond and helped
turn things around, largely by giving some love to their
online presence, which was still sorely behind other other online
retailers and um. They also had felt that a lot
(29:36):
of the the money that bed Bath and Beyond had
either generated and revenue or received in financing had not
been properly reinvested in the actual stores themselves. Yeah. Some
reports say they thought that all the money was being
reinvested into the long term management. Yeah. One of the
(29:56):
things we haven't really touched on, but it is definitely
a factor is that the executives, the executive level uh
officers of bed Bath and Beyond were handsomely compensated. Yeah. Yeah,
So these investors, the consortium of hedge funds, leverage their
collective five percent stake to take control of bed Bath
(30:18):
and Beyond and affect the change that they saw was
needed or they thought was needed. Yeah, and specifically that
meant shaking up management, right, and bed Bath and Beyond
was not happy with this. Yeah. It turns out like,
when you've got a company that's still under at least
the partial control of the founders, there is bound to
be resistance when there when you know a group that
(30:40):
has a minority steak, I mean that five is not
controlling interests, but it's enough to start pushing for change.
When when you see that happen, that resistance pops up
pretty darn quick, especially when that trio makes a bunch
of demands. Yeah, which is to replace bed Bath and
Beyond's entire board big as potentially Stephen Tomorrow's the CEO,
(31:04):
and then sell off some of their underperforming brands and
non core assets and develop a more comprehensive private label.
I'm sure the private label thing was actually not what
Up said that. No, I think it's more about firing
everybody who's in charge. Yeah. They thought that these these
investors thought that be Beth and Beyond still had really
good value, They had a good balance sheet still despite
(31:25):
the decline um, and that management was what was keeping
it from growth. And they thought that they could deliver
five dollars per share and annual earnings over the period
of the next few years with their changes. And I
guess other people did too, because when they announced that
they wanted to shake up the board in the management
stocks and bid Bath and Beyond. H don't get too
(31:48):
comfortable with that, because the stock for bed Bath and
Beyond would get inflated and deflate over and over again
as there were various discussions about what to actually do
with the company. They even had a list of sixteen
nominees that they wanted considered to take over as the
new board of directors. So then what happens next? Areal
(32:08):
well that beth Beyond had their fourth quarter call and
they kind of pushed back in ways that insinuated they
didn't intend to meet the investors demands and that they
were already making changes that were underway that we're going
to improve the company, so things like personalized data driven
marketing and improving merchandise in the structure within their buying groups,
(32:30):
and starting various test initiatives like new layouts at Generation
Lab stores, which they had been already toying with, so
that was already in effect and those stores were getting
more profits. So so they were like saying, forget your
your activist investors, I'm going to make my own restructuring plans. Yeah, yeah,
we're gonna look at our free shipping requirements and update
(32:52):
that and things like that. And they had said that
with these changes that they were already implementing, their turnaround
should be done by anyone. So they were also creating
a fairly aggressive plan to get back to to a
stable position. But then we get to and this is
(33:12):
all the way up to present day as we record
this episode. We're recording, by the way, in early September nineteen,
so by the middle of the spring. Uh, then we
get a new change in in the story, right, because
the Founders that the board of directors essentially in the CEO,
are else saying, hey, no, we have our own plan.
There is no need for this. You investors don't have
(33:35):
to push for this. And then in mid spring of
twenty nineteen, the founders announced they're going to retire from
the board and that they would allow five new independent
directors to join the board in May. Yes, but then
the fourth quarter reports came out from the previous year,
(33:55):
and uh, stocks they weren't good, and docks dropped lower
than when the board shake Shacob was announced. So people
are starting to get hesitant about these changes, and so
the trio said, yeah, we definitely need to get rid
of Tameris Um who had been CEO since two thousand three. Yeah,
and then they also planned to close forty under performing
(34:16):
stores and revamp and declutter the stores, which by this
time needed to happen. So then now that they have
the new independent board members, they have enough support on
the board to put pressure on to Maris to lead
to him actually stepping down. So you could say he
retired or he resigned, or you could say that he
(34:38):
was fired. It's one of those things where the pressure
was clear that he was no longer going to be
able to stay in there. He was strongly encouraged, which
is essentially firing. We all know what it really means.
So then we get to June of two thousand nineteen,
and that's when the company says, okay, investors, will do
(34:59):
what you want on us to do. Yep. They finished
changing over management and started looking at selling some of
the subsidiaries like Bye Bye Baby and the Christmas Tree
shops and cost Plus. But if they sell Christmas Tree shops,
where am I going to buy all my sporting gear?
So yeah, they also started looking for a new CEO.
(35:20):
Spoiler alert. As of the recording of this podcast. They
do not have a new permanent CEO. They do have
an interim CEO, Yes, Mary Winston, who was a president
of a consulting firm. She is currently serving as CEO. Yes.
And you know, so these changes are what they promised,
and bed Bath and Beyond is still struggling to gain
(35:41):
that market back. So they're lowering prices to compete with Amazon,
and they're still investing in their stores. But analysts, at
least as of June, we're pretty wary about the turnaround. Still. Yeah,
and so most recent news, We've got a couple of
points here. One is that bed Bath and Beyond has
retained Goldman Sacks, at least it's reported. Yes, the scuttle butt,
(36:05):
if you will, is that they've retained Goldman Sacks in
an effort to look at potential buyers for the for
the company. So outwardly, this is not what's being messaged
to the public. The message to the public is that
they're still working very hard on on various plans to
kind of turn the company around. But the rumor is
(36:29):
that they're also at the same time looking for a
possible buyer to take over the company entirely. Uh and
Just before we went into the studio to record this,
I was looking at news reports because sometimes, you know,
you see something that broke between when we researched and
wrote up an episode and when we actually recorded. And Yeah,
the letter to shareholders that went out in the first
(36:51):
week of September two nine outlined a bunch of near
term plans to complete what they call a rapid refresh
of their nearly one sixties stores for the two thousand
nineteen holiday season, so that there's incentive for people to
go there for their holiday shopping. That's that's obviously just
a near term fixed I swear I do a lot
(37:13):
of my holiday shopping. Yeah, you never know when someone's
gonna need another toilet brush. So then so then they
are also looking at reducing the purchasing costs for goods.
You know, we talked about how that was one of
the things that really boosted bed, Bath and Beyond in
the two thousands was that they had a very aggressive
buyer program. They're looking at ways of kind of updating
(37:35):
that for the current era, and obviously they're looking at
reducing other things, like they have a have a billion
dollars in inventory. They're looking to reduce by by the
end of twenty I think they were looking at getting
rid of some lower profit items, like some lower margin
items to help achieve that. And part of that also
means making up enough space so that they can refresh
(37:58):
their in how lines as well. So that's what's going
on now. We still don't know exactly what's going to
happen next. We don't know if the if this if
this attempt will be successful, or if it will be
unsuccessful in bed Bath and Beyond is still on the
path out, or if we'll have a third party come
(38:19):
in and take over the company. Yeah, yeah, I kind
of hope they don't sell off cost plus because my
favorite bed Bath and Beyond has a cost plus in it,
and so now I can go to two of uh
two stores I enjoyed greatly. At the same time, I
don't understand this whole going to stores thing. Listen, Jonathan,
So what do we learn from this? I think in
(38:40):
bed Bath and Beyond case, if you are going to
be long term management, you really need to keep track
of trans and pivot when the market is showing that
you need to pivot. Yeah. I also think you can't
use your company as a bailout system for your kids. Yes,
definitely that that's most probably that. I mean, let's just
(39:01):
say there are other examples we could easily point to
that are looming large in current events. But you get
what I'm saying. I don't have to come up and
say no, no, but yeah, no, it's it's then that
seems like it's a bit more than a bit excessive,
and uh, you know, the there were a lot of
good ideas, but one of the one of the ideas
(39:23):
I think that was harmful to the company was that
strategy of explosive growth. They didn't have a way to
transition out of that into more sustainable growth. Explosive growth
can work for a company for a time, but it
is not sustainable in the long run. You will eventually
hit a market penetration that is at capacity and you
(39:49):
cannot expand beyond that without cannibalizing your own business. And
the thing is like as it was going through and researching,
and I don't know if you run across the same thing.
A lot of the more current reports are not saying
that bad Bath and Beyond is no longer a good concept,
that it all needs to go the way of the Internet,
because like, I know, when I want to buy sheets,
(40:09):
I would rather go and touch them. Yeah, and then
if I'm buying sheets, I want to go ahead and
buy a new spatula or whatever. So there's a lot
of stuff that if you, if you're really in the
market to buy them, it is better for you to
be able to go and see the stuff in person,
because we all know that just your monitor settings on
your computer could mean that something that looked like, oh gosh,
(40:31):
on the screen, it looked like it's avocado, but that's
clearly not avocado, and I really needed to match my
avocado blender and my avocado mixer. And if it's mild
moss green, that will never do exactly Like now, everything
clashes and the swamp thing could be wandering around my
kitchen and I would never know. No, it's it's the uh,
(40:52):
you know that sort of stuff. We're making light of it,
but no, that really does have value, right being able
to go to a physical location and see these things
and in some cases try them out to make sure
that it fits whatever it is you're trying to, you know,
to purchase. There's a real value to that because I mean,
I know that i've certainly had experiences where I've bought
things online just for the convenience, received it and thought
(41:15):
it would have been better to have actually gone to
a brick and mortar store, because this is not what
I was hoping it would be. Well, hopefully when we
get around to doing our follow up episode of all
the companies we've previously reported on and where they are now,
we'll still have bricking mortars of bed Bath and Beyond
to go to. Yep, here's hoping. So let's say that
someone isn't related to you, Ciel and they want to
(41:36):
let you know what what sort of company we should
cover in a future episode. How would they reach out
to us? Well, they should email us at Feedback at
the Brink Podcast dot show, and you can go to
our website that's the Brink Podcast dot Show. You will
find an archive of all of our past episodes, so
if you missed any, you can check on those. Learn
all about Disney. We'll be going back to Disney before
(41:57):
too long. I'll literally be going to Disney and two
days quit bragging. But there's gonna be a lot more
for us to talk about with Disney and future episodes.
But if you have other ones, send those our way.
Check out our past episodes. You'll learn more about your
beloved hosts and until next time. I have been Jonathan
Strangler and I've been aerial casting. Business on the Brink
(42:21):
is a production of I Heart Radio and How Stuff Works.
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