The Strategy of Change
Bed Bath & Beyond (BB&B) finally filed for bankruptcy on April 23, 2023, after surviving a near-death experience earlier in the year thanks to a last-minute equity infusion from an opportunistic investor. The termination of that agreement and the subsequent failure to raise sufficient capital through new share issuance and other financing techniques meant that the company had exhausted the capacity of creative financial engineering to stay in business.
The financially focused strategy initiated by a new management team installed in 2019 ultimately couldn’t save the struggling retailer. To diagnose why their approach was so misguided and what lessons senior leaders should learn, we surveyed more than 1,600 retail shoppers in the months before BB&B declared bankruptcy.
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The arc of the BB&B story is a familiar one: An innovator enjoys spectacular market success but fails to respond adequately to subsequent changes in the competitive environment. This leads to flatlining growth followed by revenue declines and operating losses. Newly appointed leadership relies on financial engineering to bolster the share price by cutting many of the costs involved in creating the distinctive appeal of the business. Ultimately, the business is acquired or fails.
Looking Back at a Storied Brand
BB&B emerged when its founders spotted the opportunity for a specialty retailer to take market share from department stores by offering a breadth of selection and a shopping experience that the latter could not match.
Retailers that embraced this model, colloquially known as category killers, enjoyed spectacular initial success across multiple product groups, including toys at Toys “R” Us, household electronics at Circuit City, and sports equipment at Sports Authority.
Unlike these other specialty retailers, Bed ’n Bath — the original moniker when the company launched in 1971 — came to recognize that its appeal was based on a type of shopping experience rather than the specific merchandise assortment of its earliest stores. The company understood that the appeal of designer brands extended across multiple household categories beyond bedding, allowing it to create a differentiated shopping experience by expanding its product selection and increasing the size of its stores. This evolution prompted the 1987 adoption of the new company name of Bed Bath & Beyond.
The value proposition of Bed Bath & Beyond as a destination for things that you didn’t realize you wanted was reinforced by an innovative coupon strategy.