In June last year, Bed Bath & Beyond (NASDAQ:BBBY) acquired Cost Plus, a retailer that offers a variety of home decorating items, furniture, gifts, holiday and seasonal items as well as specialty food and beverages.  This added a new business segment, World Market stores, which accounts for about 10% of the company’s value according to our estimates. Most of World Market’s product categories are similar in nature to products offered by Bed Bath & Beyond. However, the attractive store layout and some distinct offerings add a different appeal. Also, the acquisition has helped the retailer in reducing competition and strengthening its brand image.
Appealing Product Offerings Despite Being Similar To Bed Bath & Beyond
Through World Market stores, Bed Bath & Beyond offers a variety of casual home furnishing products including furniture, bath linens, rugs, pillows, window coverings, gifts and decorative accessories. It also offers food and beverages such as wine, microbrewed and imported beer, bottled water, tea and coffee. While most of the products are similar to those of Bed Bath & Beyond, certain aspects add a little more appeal to World Market’s products. World Market stores offer private label (World Market) brands, which have distinct design, good quality and are not available in typical department stores. Several products including collectibles and jewelry are handcrafted and bought from different parts of the world, which makes them exclusive. Moreover, these products are sourced from locations where Bed Bath & Beyond’s presence is not very strong. This adds variety to the retailer’s overall product offerings. Therefore, we believe that despite the product similarity, Bed Bath & Beyond can target a different set of customers with its World Market stores.
Compelling Store Design To Attract Customers
Since most of Bed Bath & Beyond’s customers are interested in furnishing or remodeling their homes, the shopping experience is of prime importance. World Market stores have an attractive design which incorporates creative and colorful product display and presentation. The goods are displayed in open crates and barrels and are categorized in separate shops within the stores. This makes the products look a lot more appealing and enhances the customers’ shopping experience. In some states, these stores include wine and coffee tasting with other food assortments. Along with the product offerings, the store design is likely to play an important role in driving store traffic. We expect the retailer to adhere to this design as it expands World Market stores in the U.S.
What’s The Significance?
At the time of Cost Plus’ acquisition, Bed Bath & Beyond had 258 World Market stores across 30 states in the U.S. This count increased to 264 by the end of Q3 fiscal 2012. The retailer plans to open 10 such stores in fiscal 2013, and we expect a similar number of store openings in subsequent years. We estimate that World Market stores will account for about 10% of Bed Bath & Beyond’s overall revenues in the coming years. Even if this segment’s revenues double in the next five to six years, there would not be a significant upside to our price estimate.
However, there is more to it than just the numbers, and we believe that this business can pay off in other ways. Bed Bath & Beyond has acquired a unique business which will benefit as the U.S. housing market improves and customer preference shifts to specialty stores. This will not only help drive store traffic but also strengthen the retailer’s brand image. Moreover, it will reduce competition (Cost Plus was previously a competitor) and grant Bed Bath & Beyond a competitive advantage over other specialty retailers and department stores.
Our price estimate for Bed Bath & Beyond stands at $ 69, implying a premium of about 10% to the market price.Notes:
- Cost Plus’ SEC filings [↩]