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Bed Bath & Beyond Picks the Low Hanging Fruit

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Bed Bath & Beyond said that 36% of store customers left without finding what they were looking for.

Bed Bath & Beyond said that 36% of store customers left without finding what they were looking for.

Photo: Emily Elconin/Bloomberg News

Bed Bath & Beyond’s
new bosses inherited a house with many cracks. Fortunately, they were highly visible.

Inventory was stacked from floor to ceiling, leading to lots of subsequent markdowns; coupons were disseminated without much thought; prices weren’t competitive compared with mass merchants; the online checkout process involved too many steps; and pricing signage was confusing.

The new executives were refreshingly transparent about the problems during Wednesday’s investor day presentation—perhaps overly so. The stock gave back some of its impressive recent gains.

Fresh blood in the C-suite means not having to justify previous strategy. The company shared that 36% of store customers left without finding what they were looking for and that 41% of online customers left the website because the products were perceived as too expensive. Plus, more than a third of its customers bought only one item.

The good news is that the Bed Bath & Beyond and BuyBuy Baby brands remain well-known. For example, Bed Bath & Beyond is the company that the largest number of people associate bed, bath and kitchen products with, according to the company and NPD Group research. But, as Chief Executive Officer Mark Tritton noted, they stopped coming after disappointing experiences.

On Wednesday, the company’s merchandising officer said the company would pare its offerings while adding value options to better compete with mass merchants.

It plans to get inventory turnover, the rate at which the company sells and replaces inventory, to at least 3.5 times by fiscal year 2023 from the current 2.5 times. Some merchandising improvement was already visible last quarter: Despite a challenging back-to-college environment, the retailer managed to increase sales in that category 21% from a year earlier.

Another big part of the new strategy is pruning its footprint and remodeling existing stores: While store closures don’t always boost retailers’ margins, Bed Bath & Beyond seems to have scope for improvement. That said, its forecast is also ambitious: For example, the company plans to boost return on invested capital is at least 12%. Its five-year average was 6%, with the last two fiscal years being negative.

Bed Bath & Beyond’s shares remain 40% higher than where they were a year ago but are down by nearly two-thirds over the past five years. Investors are intrigued. To keep them around, the company will have to prove it can bring the disappointed customers back, too. The new executive team has plenty of work ahead of it.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

A Global Asset Management Seoul Korea Magazine

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