Three Factors That Will Bring Bed Bath & Beyond’s Customers Back

by Trefis Team
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Since the release of its last quarterly earnings release on January 8th, Bed Bath & Beyond‘s (NASDAQ:BBBY) shares have stumbled by almost 20%. The company’s Q3 sales growth fell short of market expectations and its Q4 EPS guidance was relatively weak.  However, we believe that the home goods retailer can regain its value as the impact of the weak holiday season subsides. During the months of November and December, many U.S. buyers stayed away from stores and bought more online. Since Bed Bath & Beyond’s online channel accounts for just 3% of its overall revenues, this trend did not help its cause. This appears to be the main reason why the retailer slashed its Q4 guidance.

However, Bed Bath & Beyond still maintains its strength on three main fronts – product variety, pricing and shopping experience. It offers a large variety of home furnishing, bath, kitchenware, etc., at competitive prices, which are not easy to find at other stores and websites. Moreover, the company has been working aggressively to enhance its customer shopping experience, which gives it a slight edge over players such as Amazon (NASDAQ:AMZN) and Williams Sonoma. We believe that by leveraging these aspects, Bed Bath & Beyond can continue to attract customers and fend off competition from other home goods retailers. This can help it sustain the market leader position in the long term.

Our price estimate for Bed Bath & Beyond stands at $80, implying a premium of about 25% to the market price.

See our complete analysis for Bed Bath & Beyond

Expansive Product Variety

Bed Bath & Beyond has been one of the most sought-after destinations for home goods shopping due to its vast product range. During the last 10-12 years, the retailer has acquired different business concepts to add a greater depth to its portfolio of retail chains. Bed Bath & Beyond made its first acquisition in 2002, when it bought Harmon stores. Although this is still a small business, it adds a different product category (health and beauty care products) to the company. Soon after Harmon, Bed Bath & Beyond acquired the Christmas Tree Shops, which offers home decor, home furnishing and gift items. The retailer has grown this concept from 23 stores at the time of acquisition to over 75 stores currently. In 2007, the company bought buy buy Baby to add baby products and children’s accessories to its arsenal. Bed Bath & Beyond’s most recent acquisition is World Market, whose products are similar in nature to Bed Bath & Beyond’s but still have a unique appeal.

The company’s decentralized management culture helps it ensure that its customers can browse from the most relevant merchandise range. Through this culture, Bed Bath & Beyond leverages the knowledge, independence and customer focus of its store associates to offer products in accordance to the regional and chain-specific tastes. It enables the retailer to better understand its customers’ needs and respond accordingly.

With a diverse and dedicated product range, it is not surprising that U.S. buyers usually prefer Bed Bath & Beyond over other retailers such as Target (NYSE:TGT) and Wal-Mart (NYSE:WMT).  They are accorded greater selection at a wider range of price points. Moreover, customers are even tempted to buy more when they have so many options to choose from. Tall shelves filled with a variety of merchandise not only helps customers find products best suited to their likings, but also induce impulse buying. Therefore, we believe that the slight fumble Bed Bath & Beyond had recently will have no permanent impact on its loyal customer base.

Competitive Pricing

In addition to offering attractive products, Bed Bath & Beyond keeps its prices comparable with other popular retailers to ensure the best deals for its customers. Although it is difficult to compete with online giant Amazon over prices, Bed Bath & Beyond has managed to do so. According to Oppenheimer analyst Brian Nagel, Bed Bath & Beyond’s prices are 15% lower (on average) than that of Amazon’s after incorporating the home goods retailer’s 20% discount coupon. Moreover, while Amazon’s prices are 7% lower on average excluding sales taxes, it is at par with Bed Bath & Beyond once taxes are included. [1]

Considering that the home goods retailer has a better product range that Amazon, lower or comparative prices gives it a competitive edge over the online retailer. Moreover, it positions Bed Bath & Beyond better to curb the growing threat of showrooming from Amazon. Wal-Mart may offer the lowest prices in the market, but its product variety, quality and shopping experience cannot match that of Bed Bath & Beyond. Hence, we believe that the home goods retailer is well-poised in terms of pricing to continue driving store traffic.

Excellent Shopping Experience And Customer Service

Bed Bath & Beyond understands the basics of its business very well. Accordingly, it combines its attractive product offerings and prices, with a compelling shopping experience. Since buyers shop for home furnishing products occasionally, in-store experience is very important. A number of the retailer’s Christmas Tree Shops resemble older buildings in Colonial and Victorian architectural style. Its World Market stores are filled with creative and colorful presentations with goods displayed in open crates and barrels. The products are categorized in various separate “shops” within the store. In some states, these stores even have wine and coffee tasting along with other food assortments.

Additionally, Bed Bath & Beyond is adding food and beverages section to some of its namesake stores to further elevate the shopping experience. The company is also investing in its online business to make shopping more convenient. Bed Bath & Beyond is adding additional functions to its relaunched websites for Bed Bath & Beyond and buybuy Baby. It is also upgrading its mobile websites and apps along with network enhancement in stores. Alongside, the retailer is developing IT analytics, and marketing and e-commerce groups. With consumer interest shifting to online shopping, these efforts should enable Bed Bath & Beyond to serve its customers better.

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Notes:
  1. Can Bed Bath & Beyond, Inc. Effectively Compete With Amazon.com, iStockAnalyst, Mar 19 2013 []
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