The troubled retailer has faced increasing pressure from concerned sellers about payment terms.
(Bloomberg) — Bed Bath & Beyond Inc.’s faster-than-expected decline toward bankruptcy happened in large part because suppliers began to ask for increasingly stringent payment terms and credit requirements heading into the pivotal holiday shopping season, according to people who have worked with the company.
The cash-strapped retailer sometimes struggled to meet those demands, said the people, who asked not to be identified discussing private information. Other suppliers, worried about the financial future of one of the largest US home-goods retailers, halted shipments altogether. The result was fewer products on the shelves just as consumers were looking to spend more.
“Inventory is oxygen. They asphyxiated,” said Joel Bines, who recently retired as the global head of retail for consulting company AlixPartners and now runs his own firm, Spruce Advisory. “The odds of bankruptcy are extraordinarily high.”
Reporting third-quarter results on Tuesday, Bed Bath & Beyond cited its inventory struggles as contributing to a loss that was even wider than it had warned of last week. “Although we moved quickly and effectively to change the assortment and other merchandising and marketing strategies, inventory was constrained and we did not achieve our goals,” Chief Executive Officer Sue Gove said in a statement. “We are actively pursuing higher in-stock levels to meet proven demand.”
The paucity of products accelerated a vicious cycle that Bed Bath & Beyond is still trapped in, with no clear way to escape: It’s unable to get the products it needs to sell to the falling number of shoppers who have continued to visit its 900 or so stores across the US. Unable to find what they want, many consumers have stopped going to Bed Bath & Beyond, leading to an even greater drop in sales. That decline has made it harder to pay suppliers.
“The consumer has gone somewhere else,” said Cristina Fernández, a Telsey Advisory Group analyst. She and colleagues visited some Bed Bath & Beyond stores around Black Friday, when the retailer was running major discounts to draw in consumers. “You would think that with those kinds of promotions, there would be more traffic,” Fernández said. Instead, “traffic was very light.”
A Bed Bath & Beyond spokeswoman said Monday that the company is using liquidity it gained from sales during the holiday season to achieve higher levels of in-stock products, with support from key vendors. “We have seen trends improve when in-stock levels have increased,” she added in a response to questions from Bloomberg.
Read more: Bed Bath & Beyond’s bankruptcy path hinges on its fading baby brand
The revenue decline appears to have accelerated in the current quarter. Sales during the week ended Dec. 25 were 37% lower than in the comparable week in 2021, according to data from Bloomberg Second Measure, which tracks credit- and debit-card sales. That came after a 42% year-over-year decline in the previous week. The data excludes sales via gift cards and store-branded credit cards.
The decline in sales and in the number of consumers consistently visiting Bed Bath & Beyond, which was founded in 1971 in Union, New Jersey, means the chain is likely to struggle to boost sales even if it emerges from a potential bankruptcy with less debt and lower costs.
“Winning back a shopper who has walked away unsatisfied is one of the most difficult things for a retailer to do,” said Dennis Cantalupo, chief executive officer of Pulse Ratings, a credit-rating and consulting firm.
A Warning
On Oct. 18, Bed Bath & Beyond launched a bond swap to lessen its debt burden by extending the maturities of some of its notes. In a research note to clients, Cantalupo pointed out that Bed Bath & Beyond — in regulatory documents detailing the bond swap — had explicitly warned of the risk of bankruptcy for the first time.
“If we fail to consummate the exchange offers at meaningful participation levels, we will need to consider other alternatives,” Bed Bath & Beyond said in the regulatory filing. Those include “the potential sale of additional assets” as well as “obtaining relief under the US bankruptcy code.”
“You have to take a retailer seriously when they threaten a bankruptcy,” Cantalupo said. Bed Bath & Beyond called off the debt swap on Jan. 5 and also warned that it might not be able to continue as a going concern.
The October bankruptcy warning exacerbated already deep-seated fears among suppliers about the future of the beleaguered retailer. The company was also running short on cash and had been falling behind on payments to suppliers since the summer of 2022. That led some suppliers to stop shipping their products to Bed Bath & Beyond in the late summer and early autumn, concerned about the company’s outlook even after it secured new financing and announced a turnaround strategy.
Those worries began to snowball in the weeks leading up to Black Friday, the start of the holiday shopping season. The manufacturers that continued to ship to Bed Bath & Beyond asked to be paid either in advance or much more quickly than the retailer was accustomed to, according to the people who have worked with the company.
Some asked to be paid within a week or two — a tight time frame in the industry and a major change for Bed Bath & Beyond, which had a reputation as being slow to pay for products even before its current financial woes began.
Read more: Bed Bath & Beyond traced an erratic path to its current crisis
Other suppliers began to significantly reduce their credit limits with Bed Bath & Beyond, the people said, as another way to limit potential losses.
As early as September, some stores were receiving less than half of their normal merchandise shipments, and employees said they were arranging products to make shelves look more full. The average product availability fell to 53% in December from a year earlier, meaning the retailer only had about half the products on hand versus the same month in 2021, according to DataWeave, a retail data firm. That was down from 77% in June.
“Our unwavering engagement with our supplier community will continue as we work together to realize our full potential,” the Bed Bath & Beyond spokeswoman said.
Suppliers have reason to approach Bed Bath & Beyond with caution. US bankruptcy law requires suppliers to reimburse certain payments made during the 90 days prior to a bankruptcy filing, so that a court can determine the best use of that cash. Also, there’s a risk that Bed Bath & Beyond won’t survive. Many retailers that seek bankruptcy protection end up shutting all of their stores and liquidating inventory to pay off their debts.
Take Picnic Time, which has sold picnic gear and other home goods to Bed Bath & Beyond for more than a decade. In mid-2022, Picnic Time’s finance team started to notice Bed Bath & Beyond was paying the company later, racking up significant outstanding payments. “It’s obviously a red flag,” Chief Executive Officer Paul Cosaro said. The firm stopped shipping products to the retailer in August.
Bed Bath & Beyond has been slowly paying back Picnic Time, Cosaro said, and made one payment earlier this month. But if Bed Bath & Beyond files for bankruptcy within three months after that last payment, Picnic Time might not recover those funds. “There’s a decent chunk of money that we don’t know if we’ll get back,” Cosaro said.
Cosaro and other suppliers say that despite the financial headaches, they still want Bed Bath & Beyond to survive because it would be better for the industry overall and maintain more options for shoppers. “No one ever wants to see a big retailer in this category go out of business because it’s just taking business away from everybody,” Cosaro said. “You’re putting more of your eggs in the Amazon basket.”
(Updates with third-quarter results in fourth paragraph.)
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