Bed Bath & Beyond's Acquisition Strategy Doesn't Make Sense
Bed Bath & Beyond (NASDAQ: BBBY) is still grasping at straws in its attempt to turn around its sinking fortunes. Over the years, the home goods retailer has made acquisitions that fail to move the needle, whether they're e-commerce platforms or brick-and-mortar stores. Its failure to make discerning choices suggests Bed Bath & Beyond will continue spiraling downward.
Less hit, more miss
Certainly, some of the retailer's acquisitions are probably performing well. I say "probably" because Bed Bath & Beyond doesn't break out any financial details from any of the concepts. Most others appear to be of dubious value.
buybuy Baby, Christmas Tree Shoppes, Cost Plus World Market, and Harmon would likely fall into the former category while One Kings Lane, And That!, Of a Kind, Decorist, PersonalizationMall.com, and Chef Central would rank with the latter. And that's because most are tiny e-commerce platforms with very specialized offerings that aren't going to do much for the broader company.
Instead of making a meaningful purchase of a business that could truly further its operations, as Home Depot just did when it bought The Company Store, an online decor business with some $23 million in sales, it fiddles with these niche providers whose main redeeming value seems to be that they're cheap.
Image source: Getty Images.
Getting filleted
The purchase last year of the all-but-defunct specialty retailer Chef Central is a case in point. At one time a two-store operation, by the time of its acquisition it had only a functioning website to its name. While the $1 million purchase price was small -- even less than it paid for the failed flash-sale site One Kings Lane -- there is a chance for its owner to earn an additional $1.25 million if he opens at least 50 stores in the future, either stand-alone ones or store-in-store boutiques.
The owner of Chef Central was Ron Eisenberg, the son of Bed Bath & Beyond co-founder Warren Eisenberg. If buying the business of a family member sounds somewhat familiar, it's because the home goods retailer previously purchased a store founded by family members of a co-founder, buybuy Baby. It was an eight-store operation when Bed Bath & Beyond bought it in 2007 from Richard and Jeffrey Feinstein, the sons of Bed Bath's other co-founder, Leonard Feinstein.
While the baby clothes and equipment retailer has grown into a 112-store empire since its purchase, there's no indication Chef Central has the same sort of consumer resonance going for it. The home cookware store was supposed to appeal to amateur and professional chefs, and featured a real kitchen where cooking classes were held, but it was unable to stand up to the forces of e-commerce, which led to the closing of its stores.
Perhaps as an in-store boutique there may be some value, though how that differentiates it from the cookware and kitchen gadgets Bed Bath & Beyond already currently sells is unknown. But the home goods retailer has been pushing for more of these store-in-store setups for awhile.
Changing directions
Bed Bath & Beyond has had success with building out its beauty supply brand, Harmon Face Values. In addition to 50 or so stand-alone stores, the brand also has numerous boutiques in Bed Bath & Beyond stores, and now the retailer wants to expand that idea to some of its other concepts.
Yet Bed Bath & Beyond is also transitioning to something it's calling "show more, carry less," meaning it wants to have a broad assortment of product on display, much of which the customer can't actually buy and carry out of the store. Instead, they will have to order it online, either while they're in the store or later from home. Forcing customers to defer a purchase isn't a good idea to grow sales.
Buying up a string of nameplates doesn't help Bed Bath & Beyond counter the retail downturn, diverts resources from its productive assets, and doesn't reverse the decline in profits and comparable-store sales.
With its stock trading at near-decade lows, the home furnishings retailer needs to rethink its strategy. If Bed Bath & Beyond is going to make acquisitions, then it needs to make a transformational one that can alter the consumer's perception of the retailer and what it offers.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.
