To Infinity and Beyond: Bed Bath & Beyond’s evolution continues

Terminating your chief product officer without cause, laying off a fifth of your workforce and selling your headquarters: These are not typically the hallmarks of a winning retail strategy. They are, however, aspects of the “transformation” underway at Beyond, which announced its third-quarter results late last week. Those results included a $61 million quarterly loss.

Beyond, parent company of Bed Bath & Beyond and Overstock.com, saw orders across its businesses dive 19% for the quarter compared to a year ago and its net revenues decrease $311 million, or a nearly 17% drop.  

Overstock acquired the Bed, Bath & Beyond name, intellectual property and digital assets in August last year for $21.5 million, then liquidated the chain’s physical store locations before rebranding as Beyond. But, with the announcements of last week, it looks like BB&B could soon be returning to bricks and mortar. 

But first, the cost-cutting. In its quarterly filing with the SEC, Beyond announced plans to shed 20% of its workforce mostly next quarter, the all-important end-of-the-year sales season. The goal is a $20 million fixed cost savings next year. 

The company’s euphemistic explanation: “These actions were taken to strategically create a more variable, leverageable cost structure and create a more streamlined organization to align to its asset-light business that supports an affinity and data monetization model with a strong technology focus,” the filing reads.

Note the verbs in this AI-sounding explanation: Create, align and support. Next, the adjectives: Variable, leverageable, streamlined, asset-light, strong. 

And getting asset-lighter all the time. 

A month ago, in a separate SEC filing, Beyond said it had agreed to sell its headquarters and the nearly 20 acres that HQ sits on in Midvale, Utah, in metro Salt Lake City to the Salt Lake County government for $55 million. The sale will generate approximately $20 million for Beyond after deducting the $34.5 million owed on the building, according to the filing. 

The sale is expected to close at the end of next month, and it includes a provision for Beyond to lease back about 5,000 square feet for its data center. It is this data center that is the key to Beyond’s future. 

New partners

Coincident with the moves to cut costs, the company said it will pour $65 million into two retail concerns, The Container Store ($40 million) and Kirkland’s Home ($25 million). The investment would give Beyond a 40% ownership stake in The Container Store, pending a successful renegotiation with The Container Store’s lenders and approval by shareholders. This partnership could and probably will introduce BB&B products to The Container Store locations. 

With the $25 million from Beyond, Kirkland’s Home said it plans to open five BB&B stores next year of up to 15,000 square feet each, starting in New Jersey, as part of a seven-year “collaboration agreement” joining the two brands. Beyond will earn a collaboration fee of a quarter of a percentage point of Kirkland’s quarterly retail and e-commerce revenue and an incentive fee equal to 1.5% of Kirkland’s incremental growth in e-commerce revenue starting in the first quarter of next year. 

New Jersey is home to six Kirkland’s stores: Brick, Deptford Township, Marlton, May’s Landing, Rockaway and Watchung.

“I am thrilled to announce the strategic partnership between Kirkland and Beyond that we believe will drive value to all of our stakeholders,” said Amy Sullivan, CEO of Kirkland’s, on a call with investors last week. “Earlier this year, we initiated a ‘strategic alternatives’ review to evaluate opportunities that would support Kirkland’s long-term growth and drive value for our shareholders. Through this process, we were introduced to Marcus Lemonis and the Beyond team and began discussions on how our companies could collaborate to drive both of our long-term strategic vision.”

Lemonis is executive chairman of the board for Beyond and CEO of Camping World, the largest retailer of RVs in the country. 

Sullivan said 2025 could see five “neighborhood” BB&B stores in 2025. 

Now open

“We continue to see strength in brick and mortar, and our real estate strategy will evolve as we incorporate the Bed Bath & Beyond neighborhood stores into our overall growth plan,” she said. “We are skilled merchants who will continue to lead with product through identifying trend[s], unique product development, diversified sourcing and strategic assortment planning. We are also disciplined operators that know how to leverage our brick-and-mortar footprint and channel expertise to create memorable customer experiences.”

Both chains likely see potential gains in partnering because both have struggled to grow revenue and stem net losses. A month ago, Kirkland’s reported second-quarter revenue of $86.3 million, a decline of 3.6% year over year, yielding a net loss of $14.5 million. Both companies are publicly traded.

It’s also worth noting that the two Beyond investments totaling $65 million equal the expected reduction in Beyond’s fixed expense base heading into 2025, according to Adrianne Lee, chief financial and administrative officer at Beyond. 

Change in product direction

Beyond also announced via a separate filing the termination of Carlisha Robinson, chief product officer, to keep Beyond’s executive suite merry-go-round spinning. She was installed as chief customer officer in March this year, a new position, but she had been with Overstock for more than 20 years. As chief customer officer, she was responsible for the end-to-end customer experience across the company’s brands, and she was credited with guiding Overstock’s acquisition of Bed Bath & Beyond. 

Exactly a year ago, then-Bed Bath & Beyond CEO Sue Ellen Gove said on the Q3 investor call that BB&B had “the talent and team to accomplish our goals.” Now both Gove and Robinson are gone. Gove was replaced in February by Chandra Holt, who you might remember also as the CEO at Conn’s for 14 months, until October 2022. She left BB&B in June after roughly four months on the job.

What does all this add up to? A business plan less focused on direct sales and more dependent on that data center that Beyond plans to keep, as well as the partners that data will now support. The press release accompanying the filing has Dave Nielsen, Beyond’s president, stating intentions to “monetize data” via its growing CRM and database capacities, establish a global loyalty program across Beyond brands, and leverage intellectual property with licensing deals. Those brands also include Zulily, acquired out of bankruptcy in March this year, and Overstock.com, which was relaunched early this year after a complete shutdown last year that Lemonis has described as “a fatal mistake.”  

“We are still in the early innings of creating a robust data cooperative that will serve as the affinity and loyalty program foundation,” Lemonis said. “What we are ultimately building at Beyond is intended to leverage the combined strengths of all involved parties.”

Translation: We’re going to generate a boat load of data, mine the heck out of it, and use that mined intelligence to sell more stuff at overall lower costs and at overall higher efficiencies. In short, for all the brands, including the two new to Beyond, the data-driven goals include higher turns, greater profitability, wider distribution and more loyal customers. All pretty basic stuff. 

“We believe the strategic partnership has the potential to accelerate the timeline to achieve our targeted margins and growth guidance for 2028,” Sullivan said to her call audience. 

A few other third-quarter “highlights” for Beyond from its 8K:

• A nearly 20% year-over-year decrease in orders delivered (1.6 million).
• An increase in active customers of 6 million, a 21% increase year over year.
• Total net revenue of $311 million, a 17% drop compared to a year ago.
• Gross profit of $66 million, or 21% of total net revenue.
• Diluted net loss per share of $1.33. 
• Adjusted EBITDA loss of $32 million.

Rough headwinds

The “asset-light” company will have to contend with sluggish home sales, which fell again last month and are on track for their worst year in two decades. Last year, too, was slow, but high home prices and still-elevated mortgage rates are tamping demand.

The filing contained some good news. Growing an active customer base by nearly a fifth positions the company well, especially as it adds retail distribution options via its investments in The Container Store and Kirkland’s Home. In addition, a 3.4% uptick in its average order of just under $200 helps amortize overhead costs.

Among other product categories, Beyond sells furniture, décor, area rugs, bedding and bath, home improvement, outdoor and kitchen and dining. The company sells from its own inventory and from that of its partners. 

Kirkland’s Home, which has nothing to do with the Kirkland brand sold at Costco and Walmart, is a specialty retailer of home décor and furniture operating 325 stores in 35 states. 

One last note: The Beyond collaborations were prophesied when BB&B went bankrupt in April last year. At the time of that filing, BB&B said it would no longer accept its popular coupons from consumers. Which retailers said they would honor them? The Container Store and Kirkland’s. 

Nice.