Bed Bath & Beyond Carves Out Giant Niche

Discussion
Jul 07, 2010
Tom Ryan

By Tom Ryan

Bed Bath & Beyond has churned out double digit top line growth
over the past three quarters, helping it move up to the sixth position on Consensus
Advisors’ 2009-2010 Retailer Health Ratings, just behind Wal-Mart and CVS.

Following its
strong first quarter report last week, Credit-Suisse analyst Gary Balter in
a note referred to the home furnishings retailer as “a
very well-positioned company, in control of its own destiny, facing no direct
competition.”

In its first quarter ended May 29, earnings climbed a better-than-expected
58 percent, helped by a rebound in spending for home furnishings and market
gains as Linens n’ Things closed its stores last year. Revenue grew 14 percent
to $1.92 billion and ran up 9.4 percent on a same-store basis, outpacing the
industry. Gross margins improved 450 basis points, partly due to efforts to
reduce couponing in recent quarters, which has also lowered advertising costs.
On a conference call, management reiterated that it sees the potential for
another 400 Bed Bath stores in the U.S. and Canada.

“We have to keep doing the same things we’ve done right all along, because
it’s hard to predict what’s coming up in the future,” co-Chairman Leonard
Feinstein told The Record in North Jersey last week following the company’s
annual meeting. “What we’ve got to do is be diligent in terms of taking
care of the customer, staying in stock, making sure there are not lines at
the register — doing
what we hope are those extra special things that aren’t being done elsewhere.”

While it
raised its outlook for the year, shares fell last week after Bed
Bath & Beyond lowered its second quarter earnings guidance slightly
below Wall Street’s targets, apparently due to economic concerns. “While
the economic environment appears to be showing some signs of stabilizing, it
appears the consumer continues to face economic challenges, and the pressures
of the macroeconomic environment persist,” said Mr. Feinstein on the conference
call.

Shares of home furnishing retailers, including Williams & Sonoma and
Pier 1 Imports, as well as DIY chains, are also said to be under pressure in
recent weeks over concerns that the expiration of the U.S. government’s homebuyer
tax credit could hinder a housing recovery.

However, speaking to The Record,
Warren Shoulberg, editor in chief of Home
Furnishings News
, said Bed Bath & Beyond “continues to totally
outclass anybody else in the home business.”

While winning the war against
Linen n’ Things, the chain has also fared well against Wal-Mart and Target.
Both discount giants expanded their housewares and linens offerings several
years ago, but their efforts have been frustrated by merchandise miscues.

“They were all going after Bed Bath’s business,” Mr. Shoulberb said. “But
neither one of them has figured it out yet.”

Discussion Questions: What do you think of Bed Bath & Beyond’s competitive
strength in the marketplace? Why have some of the larger discounters apparently
struggled in the housewares category?

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12 Comments on "Bed Bath & Beyond Carves Out Giant Niche"


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Dick Seesel
Guest
10 years 10 months ago

Bed Bath & Beyond has a big niche practically all to itself–much in the same way that Best Buy “owns” the specialty electronics business despite plenty of competitors in the same space. BB&B benefited greatly from the demise of Linens ‘n Things but frankly it out-executed LNT to get there. And very few general merchandisers have been able to capitalize on the loss of a key competitor, with the possible exception of Kohl’s…certainly JCPenney did not have the kind of growth in its home store that observers expected last year.

Bed Bath & Beyond has stayed focused, is compellingly priced, and takes a “headquarters” position in key businesses like dorm supplies. A good lesson learned for other specialty retailers aspiring to the same kind of dominance in their market space.

Charlie Moro
Guest
Charlie Moro
10 years 10 months ago

Five years is a long time to predict in this environment but Bed Bath and Beyond seems to have a solid platform to build from. They do a great job not with advertising in the classic 6 page insert world, but in their own book with coupons sent to homes giving me a reason to go and explore for things I may not know I need.

They have also done a great job with the expansion of their health and beauty sections so while I may not need a new linen set; I may go in and use my coupon for any number of everyday items that in the past, I may not have ventured into their stores for.

Roger Saunders
Guest
10 years 10 months ago

BIGGER, BETTER, FASTER, yet positively BALANCED. This specialty retailer plays the game exceptionally well for all levels of their customer base.

Their consumer is BETTER educated than the general population, yet they attract a cross-section of consumers in a friendly, open and authentic manner when they circle the store. Their consumer has a BIGGER wallet ($67,000 average vs. $52,000 for the general population), but they have price points to serve all socio-economic levels. They bring design to the marketplace in FAST order, as they have a supply chain model that keeps them mere months behind the items that are HOT.

They keep paying attention to the business and their consumers. That’s always a winning formula.

Jeff Hall
Guest
10 years 10 months ago

Nearly 80% of today’s poll respondents feel BB&B will be able to retain its competitive advantage in the next five years. I believe this is true, primarily to Richard’s point that BB&B has this niche to itself in the way Best Buy has in consumer electronics.

Given the current state of our economy, it is hard to imagine any brand–new or existing–making a run at BB&B in developing a stand-alone, big-box store network. BB&B has shown a solid footing in execution at areas of retail–product mix, merchandising, marketing, pricing and customer service.

Carol Spieckerman
Guest
10 years 10 months ago

Target and Walmart aren’t going to cede home to Bed Bath & Beyond and Walmart in particular is poised to pick up a bit of business now that Kmart has transitioned out of Martha Stewart. BB&B’s staying power in this highly competitive space is impressive; however, I see opportunities to create even more distance by editing assortments and clearing clutter in the stores.

Paula Rosenblum
Guest
10 years 10 months ago

I don’t know about “outclassing” the competition. More like just outlasting the competition. I actually thought Linens ‘n Things had a nicer assortment…but the company somehow thought it was in the short lifecycle product business, rather than in the basics business. It really alters your philosophy (sell it out vs. never out).

By the way, the health and beauty aid department is a leased department….

Ed Rosenbaum
Guest
10 years 10 months ago

Bed, Bath & Beyond has created a brand and niche market possibly even better than Best Buy over recent years. Part of this is as a result of their competitive situation with Linens ‘n Things. BB&B learned how to be better at the small things such as having the inventory available, short lines at the registers and in store staff willing to assist the customer find what they are looking for. Pier 1 is working at this but still does not have it down as a regular practice. That, plus the product line is not as varied as BB&B.

I do not see anyone popping up to compete and that is bothersome. Competition keeps us sharp at what we do well. Not having the competition lends to complacency thus diminishing the Customer Service centric model that got them where they are. Once BB&B reaches complacency; the door is open for the Big Boys to come take a chunk out of what to now has been BB&B’s pie.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 10 months ago

Bed, Bath & Beyond has Linen ‘n Things to thank for much of its success over the last 3 quarters. These two went head to head, month after month and accepted each other’s 20% off coupons hitting each of their bottom lines and increasing advertising costs.

Moving forward, Bed, Bath & Beyond will need to focus on staying ahead of Walmart and Target on both price and assortment. Out of these two, I think BB&B’s biggest advantage is their broad assortment. Areas of opportunity include stronger supply chain/inventory control to keep costs in line as well as selective marketing to replace the head on marketing they used to beat Linen ‘n Things.

David Schulz
Guest
David Schulz
10 years 10 months ago

BBBY likes to build market share during periods of economic weakness. Until the economy recovers, it will hold the advantage over a fading Williams-Sonoma in the specialty home goods field. Target will continue to grab consumers interested in designer-type merchandise and hot trends, but Bed Bath & Beyond will remain a source housewares and home decor staples for years, unless Costco or Walmart makes a major move in this merchandise direction.

Crate & Barrel is another upscale specialist that Bed Bath & Beyond can undercut on price and promotion, while The Container Store would have to broaden its mix to really compete. The rejuvenated Pier 1 Imports will fill Linens ‘n Things No. 2 spot.

George Whalin
Guest
George Whalin
10 years 10 months ago

There are two reasons for Bed Bath & Beyond’s recent success. First, when your largest competitor goes out of business you should be able to capture a larger share of the business. But the second reason is the most important…BBBY has long been far better at executing their concept than any other merchant in the category. This includes department stores as well as mass merchants like Walmart and Target.

John Crossman
Guest
John Crossman
10 years 10 months ago

Part of their recent success has been the failure of their competition. Linens n’ Things closing helped. In the market where we live, they have no solid direct competitor.

Odonna Mathews
Guest
Odonna Mathews
10 years 9 months ago

I am not surprised by BB&B’s success. Go to any store and you’ll see consistent execution in customer service, selection, friendliness, and value. What other retailer offers consumers 20% off any item, any time, even if it is on sale? What other retailer allows consumers to bring back their coupon if they forgot it and their receipt tape, and get the 20% discount after purchase?

Linens ‘n Things has surely given them a boost, but their focus on the customer keeps them unique in this category.

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