Bed Bath & Beyond Inc. filed for Chapter 11 bankruptcy in New Jersey with the intent to cease operations, placing tens of thousands of jobs at risk.
According to a statement, the US housewares retailer will use the court system to begin liquidating its 360 Bed Bath & Beyond stores and 120 Buy Buy Baby stores, while also seeking a buyer for some or all of its assets. If the store closings are successful, the company may “pivot away” from them.
As of late November, Bed Bath & Beyond estimated it had $4.4 billion in assets and $5.2 billion in total debt, according to a court filing. Between 25,001 and 50,000 creditors exist, with BNY Mellon holding the largest unsecured claim of $1.18 billion. Holly Etlin, the chief financial officer of Bed Bath & Beyond, will serve as chief restructuring officer to oversee the bankruptcy.
In January of this year, the Union, New Jersey-based company stated that there was “substantial doubt” about its capacity to continue operations and that it was evaluating options to restructure its debts. After violating the terms of a credit line, JPMorgan Chase & Co. issued a default notice later that month.
Bed Bath & Beyond received a last-minute lifeline from the hedge fund Hudson Bay Capital Management — a transaction that, under certain conditions, would have given the retailer more than $1 billion. However, the company failed to satisfy stock price minimums, so the agreement was canceled. Bed Bath & Beyond then announced that it would sell additional shares to avoid a filing.
Bed Bath & Beyond CFO dies after falling from New York’s Jenga tower
A subsidiary of Sixth Street Partners is supplying the company with a $240 million loan to assist with its bankruptcy funding.
An Avoidable Decline
In 2022, the company initiated a rehabilitation effort that resulted in a $375 million rescue loan, the closure of several stores, and the reduction of approximately 20% of its workforce. The plan, which was unveiled in August, was among the retailer’s most recent comeback attempts as it struggled to keep up with e-commerce competitors and shifting consumer purchasing preferences.
In recent years, the company’s lagging performance has made it an activist target. In 2019, shareholders compelled a reorganization of the company’s board and the removal of its CEO, while activist investor Ryan Cohen initiated a subsequent campaign in March that resulted in the removal of another CEO following a board reorganization.
As some commentators have asserted, Bed Bath & Beyond’s demise is not indicative of the inevitable decline of brick-and-mortar retailers that struggle to compete with Amazon.com Inc. According to suppliers, analysts, and former managers and employees, Bed Bath & Beyond is instead primarily responsible for its own downfall. For nearly a decade, the retailer’s leadership teams made decisions that gradually brought the company to the verge of financial ruin.
Under longtime CEO Steve Temares, Bed Bath & Beyond spent too much money and effort on unsuccessful acquisitions, including Cost Plus World Market in 2012 and Decorist in 2017. Additionally, Temares spent billions of dollars to repurchase shares.
Bed Bath & Beyond was at a disadvantage as competitors such as Target Corp., Walmart Inc., and Lowe’s Cos. rolled out next-day and eventually same-day shipping, as well as buy online, pick up in-store options.
Other specialty big-box stores shifted gears to compete effectively with Amazon.com, including Best Buy Co., which became a destination for consumers to speak with knowledgeable staff and try electronics products at competitive prices in person.
Private-Label Pivot
Mark Tritton, a former executive at Target, assumed leadership of Bed Bath & Beyond in 2019, as the company was losing market share and experiencing a decline in quarterly sales. To combat this decline, he decided to produce more products in-house, which, if implemented effectively over time, can result in cost savings. At Bed Bath & Beyond, however, the strategy resulted in the overstocking of stores with private-label products at the expense of well-known national brands.
I believe that the retailer’s “fundamental flaw was the merchandising decision” to switch to private-label products. Declan Gargan, an analyst at S&P Global Ratings, stated in an interview. “Their core customer was not interested in that.”
Consumers withdrew and sales plummeted. Bed Bath & Beyond was preparing to file for bankruptcy earlier this year. To the surprise of many suppliers and analysts, the retailer signed a complex financing agreement at the eleventh hour to sell its shares to the hedge fund Hudson Bay at the beginning of February. The transaction raised $360 million, well below the target of $1 billion.
Again, bankruptcy loomed large.
The retailer then disclosed yet another financing arrangement at the end of March. However, this transaction lacked a hedge fund as an intermediary. This time, Bed Bath & Beyond had several weeks to sell directly to investors $300 million in shares. However, they were largely uninterested, and the stock price continued to spiral downward.
‘Constant’ Dilution
“The notion that you can continue to support your company despite the constant dilution of your investors is not a viable long-term corporate-finance strategy,” said Rapid Ratings CEO James Gellert. Bed Bath & Beyond exhibited an apparent disregard for common shareholders.
Thousands of employees’ livelihoods, as well as their retirement savings and severance pay, are at risk. Despite the failure of one of the largest US home-goods retailers, there are some victors.
Demand has increased for businesses that have successfully adapted in recent years to compete with Amazon and other online titans. Target, Walmart, HomeGoods, and Amazon have benefited, according to Neil Saunders, an analyst with GlobalData. “The store closures and loss of traffic at Bed Bath & Beyond,” he stated, “are being felt by a number of retailers.”