Bed, Bath & Beyond’s problems go beyond leadership, analysts say

By RetailFOXBusiness

Activist investors take on Bed, Bath & Beyond

FBN's Lauren Simonetti on a trio of activist investors joining forces to get Bed, Bath & Beyond to replace its entire 12-person board.

Bed, Bath & Beyond is facing pressure from a trio of activist investors to overhaul its entire board of directors, but the retailer’s problems extend beyond leadership and are amplified as a result of the competition from the growing number of e-commerce firms, according to analysts.

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Online-only companies in the home improvement and design space have exploded in recent years. Leesa, Tuft & Needle and other direct-to-consumer mattress firms -- as well as bedding and home décor companies like Serena & Lily and Boll & Branch -- have found success in using social media networks like Instagram to grow brand awareness.

Now, some are even expanding into brick-and-mortar locations as a route to further boost sales. Wayfair, for example, announced on Tuesday it would open its first permanent store, while Casper previously said it would open 200 stores over the next few years

The growing threat has only drawn more focus on the mistakes made by the current Bed, Bath & Beyond leadership, according to Jefferies analyst Jonathan Matuszewski.

“We believe the impact of an intensifying competitive landscape has been amplified by management focusing on non-strategic businesses, which has shown in the meager pace of progress with important strategic initiatives,” he wrote in a recent note.

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Jefferies previously estimated that 20 direct-to-consumer brands had annual sales of $3.5 billion, a number that could rise as much as 50 percent by 2021. And in a survey conducted by the firm, Bed, Bath & Beyond ranked as the top retailer that consumers are shopping at less.

For its part, Bed, Bath & Beyond says the activists have not provided any suggestions to improve the business.

“Instead they chose to publicly attack the Company and provide their intent to nominate directors to take over the full board,” the Union, New Jersey-based company said in a statement, adding that the company "is undertaking a comprehensive transformation to evolve the foundational structure of the business, drive shareholder value and best position the Company for long-term success.”

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BBBYBED BATH & BEYOND INC.16.66-0.06-0.36%

In a letter issued on Tuesday, Legion Partners Asset Management LLC, Macellum Advisors GP LLC and Ancora Advisors LLC outlined what they are seeking, including more streamlined product offerings, less reliance on promotional campaigns to drive traffic, improved e-commerce operations and better supply chain operations.

They are also seeking to install 16 new individuals on a board that has been overseen by co-Chairmen Warren Eisenberg and Leonard Feinstein for the past 48 years.

"This has resulted in an apparent inability to appropriately respond to a changing retail landscape that demands greater aptitude for how to compete in an ominchannel world," the letter reads.

The aim is to turnaround a retailer that has seen its stock fall nearly 80 percent over the past five years. Shares rose 23 percent on the news of the activist effort.

The suggestions from the three firms were embraced by analysts, including Telsey Advisory Group’s Cristina Fernandez.

“Bed Bath & Beyond could look to Target as an example of a mature business that has reinvented itself by revamping its private label brands, modernizing the presentation in stores, lowering prices for core items, and upgrading its digital sites and fulfillment options,” she wrote in a Tuesday note.

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The activists are also pushing the company to divest its slew of businesses, like its baby-only brand buybuyBABY – which Fernandez estimated generated $862 million in sales in 2018 – and Cost Plus World Market.

Legion, Macellum and Ancora also blasted the salary for CEO Steven Temares, which totaled $51 million between 2015 and 2017 as the company stock fell 70 percent.