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*'''Net sales increased 13%''' to $1.92 billion from $1.69 billion in the previous year. The company attributes the gain to an '''8.4% increase in comparable store sales''', an easier competitive landscape, and an increasing demand for home items. *'''Net sales increased 13%''' to $1.92 billion from $1.69 billion in the previous year. The company attributes the gain to an '''8.4% increase in comparable store sales''', an easier competitive landscape, and an increasing demand for home items.
*'''Net income increased 58%''' to $137.6 million during the quarter, from $87.2 million in the year-ago period. *'''Net income increased 58%''' to $137.6 million during the quarter, from $87.2 million in the year-ago period.
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===Q2 2010 (ended August 28, 2010)<ref name=Q22010>[ BBBY Q2 2010 Report]</ref>=== ===Q2 2010 (ended August 28, 2010)<ref name=Q22010>[ BBBY Q2 2010 Report]</ref>===

Revision as of 22:54, April 29, 2011

Bed Bath & Beyond Incorporated (NYSE: BBBY) is the leading U.S. decorative home furnishing and domestic merchandise company, with $7.83 billion in net sales in 2009. [1] The company is most known for its flagship chain Bed Bath & Beyond (BBB), a store that sells everything from the stated bedroom and bathroom furnishings to cookware and home decor. Since 2002, however, the company has expanded its product line and business by acquiring three subsidiaries: Christmas Tree Shops (giftware and household items retailer), Harmon Stores (health and beauty care retailer), and buybuy BABY (infant and toddler merchandise retailer).[2] In 1992, the company engaged in an aggressive Expansion Program and since then has increased its total number of stores from 34 to 1,100 in 2009, which operate in 49 states, Puerto Rico, and Canada. [3]

Like many other retailers that sell discretionary goods, Bed Bath & Beyond do not do well during slow economic times. Consequently, the 2007-2008 recession had a negative impact on Bed Bath & Beyond as the company's net income and comparable store sales fell 24.5% and 2.4% respectively in 2008.[4] However, as consumer demand for discretionary goods rebounded in 2009, the company emerged from the recession with $600 million in net income, a 41.4% increase, and a 4.4% increase in comparable store sales. Additionally, in Q1 2010, the company's net sales and comparable store sales grew by 13% and 8.4% respectively.[5]

The company has benefited from the bankruptcy from former competitors like Linens n' Things. However, the company now has to deal with discount retailers, like Wal-Mart (WMT), that offer similar merchandise as Bed Bath & Beyond but at lower prices, and retailers like Williams-Sonoma (WSM) that offer quality goods. As the economy emerges from the slump, Bed Bath & Beyond is in place to capture the attention of confident consumers.

Company Overview

Founded in 1971, Bed Bath & Beyond has grown from a two store operation that just sold bed linens and bathroom accessories to a supply chain giant with 1,100 stores all over the United States and Canada.

Supply Chain Stores[3]

  • Bed Bath & Beyond (BBB): With a total of 1,100 stores, the Bed Bath and Beyond retail chain is the leader in the decorative home furnishings sector in the United States. BBB sells many different categories of products including: bedroom and bathroom furnishings, cookware, home decor, furniture, lighting, and cleaning products. The chain offers many name brand home furnishings and domestics merchandise for lower prices and better service than department store competitors because they obtain these products in bulk. From 2006 to 2009, domestics merchandise has accounted for nearly half of the chain's total sales; linens make up about 14% of that half.
  • Christmas Tree Shops (CTS): BBBY operates 61 Christmas Tree Shops in 13 states, most of which are concentrated in the northeast. CTS's name can be misleading-- although CTS does sell seasonal gifts, it also carries a lot of other merchandise including furniture, wall decor, gardening tools, and consumable products (especially gourmet items like teas, spices, pastas, and coffees). It directly complements the BBB chain by carrying many similar types of merchandise at a lower quality and price.
  • Harmon Stores: Harmon Stores sells health and beauty products, vitamins, household goods, and skin care products. BBBY operates 45 stores in New York, New Jersey, and Connecticut. Initially the chain expanded at average rate of 4 to 7 stores per year, but the recession slowed expansion down to 1 store per year. However, the company grew in 2009 and opened 5 Harmon stores.
  • buybuy BABY: buybuy BABY is a retail chain that carries infant and toddler merchandise (strollers, clothing, nursery furniture). buybuy BABY's stores are very large and range from 28,000 to 60,000 square feet. BBBY acquired buybuy BABY in March of 2007 and now operates 29 BABY stores in eight states. BABY was founded by the sons of BBBY's co-chairman Leonard Feinstein, and many investors have questioned the motives behind the US $67 million buyout and the agreement to inherit BABY's US $19 million debt. Because the father and sons owned the majority of BABY's stock shares, they are essentially freed from the debt (and take home a big chunk of the $67 million).[6][7]

Business Segments

BBBY groups all of its sales into one business segment. The company does not release this information to the public.

1992 Expansion Program[3]

In 1992, the company engaged itself into a large expansion program. At the time, Bed Bath & Beyond operated 34 stores with 0.9 million square feet of retail space. At the end of FY2009, the company operated 1,100 stores with 32.1 million square feet of retail space. All of the company's expansion was in the United States until 2007 when the company opened its first Bed Bath and Beyond store in Canada. At the end of 2009, the company operated 16 stores in Canada. BBBY is also involved in a joint venture in Mexico in which they operate two stores under the name Home & More.

Since 2002, as part of the Expansion Program, BBBY has expanded its product line by acquiring CTS, Harmon Stores, and buybuy BABY, all of which have been a major part of the company's growth-- these chains represent nearly 10% of the company's total number of stores.

In 2009, the company opened 67 new stores, 39 of which were BBB stores, 9 CTS stores, 5 Harmon Store, and 14 BABY stores. Continuing off the positive growth in 2009, the company only plans to open 60 new stores in 2010, of which 30 are BBB stores, 10 CTS stores, 20 BABY stores, and 1 Harmon Store.[8]

Business Growth

FY2009 (ended February 27, 2010)[1]

  • BBBY reported net income of $600 million during 2009, which is was a 41.1% increase from its $425 million in earnings from FY2008. BBBY attributes the increase in net income to higher product demand and better inventory management, as the US economic environment showed signs of recovery late in the year and helped get items off of store shelves. BBBY also continued to reap the benefits from customer turnover from its former competitor Linens 'N Things, which was liquidated in October 2008. In addition, the company benefited from the liquidation of some of its smaller competitors that struggled during the slow economic times.
  • Net sales were $7.83 billion in 2009, up 8.6% from net sales of $7.2 billion in 2008. In addition to the effect of increased consumer demand due to improving economic conditions, net sales increased due to better inventory management, which had accumulated during the recession in 2008.
  • Comparable store sales increased by 4.4% during 2009, compared to a 2.4% decrease in 2008.
  • Operating margin was 12.5% of total revenues for the year with operating income at $981 million. This was a 320 bps increase from FY2008, during which operating income was $674 million, or 9.3% of net sales.
  • At the end of 2009, the company operated 1,100 stores in 49 states, Canada, and Puerto Rico. This was a net increase of 63 stores from 2008.
  • In Q4, net earnings were $226 million, up 60% from the previous year. Net sales and comparable store sales increased 16.7% and 11.5% respectively.
  • In Q3, net income and net sales were up 72.5% and 10.8% respectively due to the liquidation of competitors. However, comparable store sales decreased 7.6% for the period.
  • In Q2, net earnings increased 13% on a 3.3% increase in sales. However, comparable store sales for the quarter fell 0.6%.
  • In Q1, net earnings increased by 13.5%. Net sales increased only slightly by 2.8%, which was offset by a 1.6% decline in comparable store sales.

Q1 2010 (ended May 29, 2010)[5]

  • Net sales increased 13% to $1.92 billion from $1.69 billion in the previous year. The company attributes the gain to an 8.4% increase in comparable store sales, an easier competitive landscape, and an increasing demand for home items.
  • Net income increased 58% to $137.6 million during the quarter, from $87.2 million in the year-ago period.

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Q2 2010 (ended August 28, 2010)[9]

  • Bed Bath & Beyond's second quarter net income increased by 34% to $182 million. The company attributes the increase to higher sales.
  • Net sales increased 12% to $2.1 billion. Comparable store sales increased 7.4% for the quarter, compared to a 0.6% decrease in the previous year.
  • The company opened 5 Bed Bath & Beyond stores, including its first in Hawaii, and two buybuy BABY stores.

Q3 2010 (ended November 27, 2010)[10]

  • Bed Bath & Beyond's third quarter net income increased by 28% to $188.6 million. The company attributes the increase to higher same-store sales.
  • Net sales increased 11.1% to $2.2 billion. Comparable store sales increased 7% for the quarter, compared to a 7.3% increase in the previous year.
  • The company opened 5 Bed Bath & Beyond stores, 5 Christmas Tree Shops, and 7 buybuy BABY stores during the quarter.

Q4 2010 (ended February 26, 2011)[11]

  • Bed Bath & Beyond's fourth quarter net income increased by 25% to $284 million. The company attributes the increase to strong sales and increased margins
  • Net sales increased 11.6% to $2.51 billion. Comparable store sales increased 8.5% for the quarter, compared to a 11.5% increase in the previous year.
  • Gross margin increased to 43% from 42.6%.
  • During the fiscal fourth quarter, the company opened six Bed Bath & Beyond stores, five buybuy BABY stores and one Harmon Face Values store.

Trends and Forces

BBBY Faces Changing Competitive Landscape After Economic Slowdown

Facing a rebounding retail market, Bed Bath & Beyond hopes to continues benefiting from an increasing consumer demand for home goods and falling home prices. The core products of the company -- home decor and household items -- were some of the worst-hit segments during the recession because consumers cut budgets for discretionary items to opt for necessities.[12]

Adding to recessionary pressures is the challenge of a changing competitive landscape after Bed Bath & Beyond's strongest niche-market competitor, Linens 'N Things, declared bankruptcy in May 2008.[13] Instead of competing with a specialty household good store like Linens 'N Things for the same middle-class and quality-conscious consumer demographic, Bed Bath & Beyond now faces strong competition from discount retailers such as Wal-mart (WMT) and Big Lots (BIG). These discount stores have become more appealing in the weak retail climate, attracting consumers on a reduced budget to trade down for less expensive product offerings.[12] As a result, Bed Bath & Beyond's 2008 net income dropped 24.5%.[4] However, the company stands to gain from the rebounding economy as consumer confidence increases and customers are more willing to pay more money for higher quality items. As the economy grew in 2009, the company's net sales increased 8.6%.[1]

Potential for Growth in the Infant and Toddler Retail Market

BBBY's acquisition of buybuy BABY taps into a different market than do BBB, Harmon, and CTS: the U.S. infant and toddler retail market. If BBBY can use its experience and resources to expand BABY, the company could take home a large chunk of this market. BABY stores already have merchandising and product presentation strategies similar to that of BBB and the company can also use the "shopping synergy" from young mothers drawn to BBB to bring more customers to BABY, and vice versa.

But BABY's success isn't guaranteed--there have already been a number of other companies who have tried to tap the infant and toddler market with little success-- Pottery Bran Kids had -5.1% comparable store sales in 2009[14] and all Pier 1 Kids stores were closed by the parent company Pier 1.[15] Still, there do remain many other competitors in the market. The advantage that BABY stores have over competitors is that since BABY stores are large-- more square footage could lead to more sales because of BABY's ability to carry more merchandise and hold a lot of inventory just like its sister chain BBB.

Too Many Stores Means that Cannibalization Hurts Comparable Store Sales

BBBY has been focusing on expanding BBB since 1992, but with 965 stores throughout the U.S., BBB's growth could slow. Because of the large number of BBBs nationwide, the company must carefully choose new locations for their superstores. BBBs too close to one another, or in the same markets, could steal sales away from already existing BBBs. This effect is known as cannibalization-- when one company's stores steal traffic away from another one of its stores. If cannibalization occurs, new stores will just provide a new location for customers to shop rather than ultimately increasing sales. Cannibalization will also decrease the amount of foot traffic in stores, which will also adversely affect sales.

The economic downturn does help to slow cannibalization in the coming years as the company has slowed expansion. In 2008, during the midst of the recession, the company opened 49 new BBB stores. During the following year, the company opened 39 new BBB stores, and additionally only plans to open 30 new BBB stores in 2010. Additionally, the company has slowed cannibalization by expanding internationally -- its first store in Canada opened in 2007 and had 16 stores in the country at the end of 2009.

Store-within-a-Store Saves Money and Increases Foot Traffic

In addition to opening new independent stores, Bed Bath & Beyond has also inserted some Christmas Tree Shops and Harmon stores within already existing BBBs. Using an already existing BBB store instead of leasing a new building saves money on rent, encourages maximization of extra space, and also increases foot traffic within the BBB stores. The synergies between BBB and CTS/Harmon mean that each store can make up for the product offering shortcomings of its fellows. Since BBBY began to incorporate this "store-within-a-store" concept in 2004, same store sales increased by nearly 5% each year until 2007 (after which same store sales decreased due to the struggling economy). As the economy rebounded in 2009, the company's same store sales increased by 4.4%.[1]


The home decor market is extremely diversified because of the large number of smaller stores, as well as the presence of large retail chains. Since the market is so diluted, the top four home decor retailers only account for 12.5% of the entire market.

Bed Bath & Beyond captures customers who want good quality at good prices. The company's competitors are on either end of the market, selling higher and lower quality merchandise. Williams-Sonoma boasts higher quality products than Bed Bath & Beyond. Many furniture and home decor consumers view those products as an investment for their home, but higher quality comes at a higher price. Williams-Sonoma earns three times more revenue per square foot of store selling area than Bed Bath & Beyond.[1][16] This means that Bed Bath & Beyond must sell more than three times as much merchandise to turn the same dollar amount of sales as Williams. This is where Bed Bath & Beyond's large store space comes in. The company has 10 times more square footage and 2.5 times more sales than Williams-Sonoma (WSM). Bed Bath & Beyond has a clear advantage because of the huge amount of square footage. With stores averaging between 20,000 and 50,000 square feet, the giant stores allow the company to carry a large, diverse assortment of merchandise in order to attract its broad consumer base.

The economic slowdown has also brought in a new set of competitors for Bed Bath & Beyond. As consumers cut back on discretionary spending and looked to get the most for their dollar, they flocked to discount stores like Wal-Mart (WMT) for their bedroom and household purchases. Bed Bath & Beyond, which targets middle class consumers, struggled during these hard economic times as some of its customers opted to go for the less expensive option. As a result, comparable store sales for the company fell 2.4% in 2008. As the economy continues to emerge from the recession, it will be a challenge for Bed Bath & Beyond to lure back customers to its higher priced but higher quality items. The company has fared well in the early stages of the rebound as in 2009 comparable store sales growth was 4.4%.[1]


  1. 1.0 1.1 1.2 1.3 1.4 1.5 BBBY 2009 10-K, "Selected Financial Data" pg. 13
  2. BBBY 2009 10-K "History" pg. 3
  3. 3.0 3.1 3.2 BBBY 2009 10-K "Expansion Program" pg. 5
  4. 4.0 4.1 BBBY 2008 10-K "Selected Financial Data" pg. 14
  5. 5.0 5.1 BBBY Q1 2010 Report
  6. "Bed Bath & Beyond Buys buybuyBABY.(Company overview)" March 2007
  7. Reuters "Bed Bath & Beyond buys buybuy Baby for $67 mln" 22 March 2007
  8. BBBY 2009 10-K "Overview" pg. 15
  9. BBBY Q2 2010 Report
  10. BBBY Q3 2010 Report
  11. BBBY Q4 2010 Report
  12. 12.0 12.1 RTT News "Bed Bath & Beyond Q4 Still Clouded By Housing Overhang" 7 April 2009
  13. WSJ Blogs "By the Numbers: Linens ‘n Things’ Bankruptcy Filing" 2 May 2008
  14. WSM 2009 10-K, pg. 28
  15. PIR 2008 10-K, pg. 26
  16. WSM 2009 10-K "Selected Financial Data" pg. 23
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