Bed Bath & Beyond (NASDAQ:BBBY) is one of the largest specialty retailers of home furnishings and bath and linen-related items in the U.S. It depends primarily on in-store purchases as online sales account for a measly 1% of total revenues, a metric that we believe can be improved. We think Bed Bath & Beyond has fared relatively well in the recent past and remained profitable even during the economic crisis. Bed Bath & Beyond competes with specialty retailers like Williams-Sonoma, IKEA, Pier 1 Imports and with large retailers like Wal-Mart (NYSE:WMT), Target (NYSE:TGT).
Key Factors for Future Growth
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The demise of Linen ‘n Things
- Since the bankruptcy of Linen ‘n Things in 2008 and the closure of over 500 of its stores, Bed Bath & Beyond witnessed a strong rebound in comparable sales and average revenue per square foot in 2009 and 2010. We expect the positive effects to continue for a few years more.
Scope to increase online presence
- According to trade publication Internet Retailer, Bed Bath & Beyond’s website ranks a lowly 154th in e-commerce, representing just 1% of the company’s sales. Management has indicated that it will strengthen its online presence but has not provided details on how it will implement the plan. If the company succeeds in increasing its online sales, this could be a key contributor to its future growth.
Shift in consumer preference toward home ownership vs. renting
- The Trulia Rent vs. Buy Index shows home ownership to be more economical than renting in 4 out of 5 major U.S. cities. As the economy recovers and stabilizes, this could lead to greater home ownership levels. This would benefit Bed Bath & Beyond since new home owners are likely to spend more money on furnishing their houses in comparison to rental customers.
Focus on its decentralized strategy
- We believe Bed Bath & Beyond should stick to its strategy of decentralized store management, wherein individual store managers can stock their stores according to local needs and preferences. This strategy has worked really well for the company so far, as it means appropriate stocking of inventory and ensures a better shopping experience for customers.