Bed Bath & Beyond Files For Bankruptcy As Turnaround Fails

(Bloomberg) -- US housewares retailer Bed Bath & Beyond Inc. filed for Chapter 11 in New Jersey after struggling to restructure debt, putting thousands of jobs on the line. 

The company estimated it had assets of $4.4 billion and total debt of $5.2 billion as of late November, according to a court filing. The number of creditors is between 25,001 and 50,000, with BNY Mellon having the biggest unsecured claim of $1.18 billion. Bed Bath & Beyond’s chief financial officer, Holly Etlin, will serve as chief restructuring officer to manage the bankruptcy. 

The Union, New Jersey-based company’s crisis spiraled this year, starting in January when it said there was “substantial doubt” about its ability to keep operating and it was weighing options to restructure its debts. Later that month, it received a default notice from JPMorgan Chase & Co. after breaching terms on a credit line. 

The retailer received a last-minute lifeline from the hedge fund Hudson Bay Capital Management — a deal that would have given Bed Bath & Beyond over $1 billion under certain conditions. But the company failed to meet stock-price minimums, and the deal was terminated. Bed Bath & Beyond then said it would sell more shares in an effort to stave off a filing. 

In 2022, the company embarked on a turnaround effort that gave it a $375 million rescue loan as it shuttered some stores and cut roughly 20% of its workforce. The plan, unveiled in August, was among the retailer’s latest comeback attempts as it struggled to keep up with e-commerce competitors and changing consumer shopping habits. 

In recent years, lagging performance has made the company an activist target. In 2019, shareholders forced a revamp of the company’s board and the removal of its chief executive officer, while activist investor Ryan Cohen launched a subsequent campaign in March that saw another CEO ousted after a board shakeup. 

An Avoidable Decline

Bed Bath & Beyond’s demise is not, as some pundits have insisted, an example of the inevitable decline of brick-and-mortar retailers that struggle to compete against Amazon.com Inc. Instead, Bed Bath & Beyond is largely responsible for its own undoing, according to suppliers, analysts and former managers and employees. For nearly a decade, the retailer’s leadership teams made decisions that pushed the company, little by little, toward the brink of financial collapse. 

Under longtime CEO Steve Temares, Bed Bath & Beyond spent too much money and time acquiring companies, such as Cost Plus World Market in 2012 and Decorist in 2017, which ultimately flopped. Temares also spent billions of dollars to buy back shares. 

Meanwhile, the retailer wasn’t investing enough to improve its online and logistics operations, putting Bed Bath & Beyond at a disadvantage as competitors including Target Corp., Walmart Inc. and Lowe’s Cos. began to roll out next-day and eventually same-day shipping, and offer options such as buy online, pick up in store.

Other specialty big-box stores were also shifting gears to compete effectively against Amazon.com, including Best Buy Co., which became a go-to store for consumers to talk to knowledgeable staff and test competitively priced electronics products in person. 

Private-Label Pivot

In 2019, former Target executive Mark Tritton took the helm of Bed Bath & Beyond as it was losing market share and reporting a decrease in quarterly sales. To try to arrest that decline, he decided to produce more products in-house, which can help to cut costs if implemented effectively over time. But at Bed Bath & Beyond the strategy ended up filling stores with too many unknown private-label products at the expense of well-known national brands. 

The retailer’s “fundamental flaw, I think, was around the merchandising decision” to pivot to private-label products, S&P Global Ratings analyst Declan Gargan said in an interview. “Their core customer was not interested in that.”

Shoppers retreated and sales plummeted. Earlier this year, Bed Bath & Beyond was preparing to file for bankruptcy. But, to the astonishment of many suppliers and analysts, the retailer inked a complex eleventh-hour financing deal at the beginning of February to sell its shares to hedge fund Hudson Bay. The deal raised $360 million — far short of the $1 billion goal. 

Bankruptcy loomed large once again. 

Then, the retailer announced yet another last-ditch financing deal at the end of March. But this one didn’t have a hedge fund as an intermediary. This time, Bed Bath & Beyond had several weeks to sell $300 million in shares directly to investors. They were largely uninterested, though, and the stock price kept spiraling downward. 

‘Constant’ Dilution

“The idea that you can continually support your company even in the face of constant dilution of your investors just isn’t a long-term, viable corporate-finance strategy,” said James Gellert, CEO of ratings firm Rapid Ratings. “Bed Bath & Beyond had a seeming disregard for common equity holders.” 

The jobs of thousands of employees — and their retirement savings and severance pay — are on the line. There are, however, some winners amid the collapse of one of the largest home-goods retailers in the US. 

Companies that have been able to effectively pivot in recent years to compete against Amazon and other online giants have seen a pickup in demand. Target, Walmart, HomeGoods and Amazon itself have been beneficiaries, notes GlobalData analyst Neil Saunders. “The store closures and loss of traffic at Bed Bath & Beyond,” he said, “is being spread fairly widely among a variety of retailers.”   

--With assistance from Simon Lee.

(Updates with details on assets and liabilities, biggest creditor and restructuring officer in second paragraph.)

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