Episode 127

full
Published on:

26th Oct 2024

Small Stores, Big Ideas: The New Bed, Bath and Beyond Strategy

In the latest edition of Omni Talk’s Retail Fast Five sponsored by the A&M Consumer and Retail Group, Avalara, Mirakl, Ownit AI and Ocampo Capital Chris Walton, Anne Mezzenga, and guest hosts from the Alvarez & Marsal Consumer and Retail Group Lakshman Lakshmanan and Chris Creyts discuss: Bed, Bath and Beyond is exploring a new strategy by partnering with Kirkland's to launch smaller format stores, potentially reviving the brand after its struggles. The collaboration includes financial backing and a revenue-sharing agreement, raising questions about the effectiveness of this smaller incarnation in a competitive retail landscape. As the discussion unfolds, the speakers analyze the implications of this approach, considering whether the market truly needs a reimagined Bed, Bath and Beyond. They delve into the challenges the brand faces, including consumer preferences and the crowded retail environment, while highlighting the importance of location and operational efficiency. Ultimately, the conversation reveals a mix of skepticism and cautious optimism regarding the future of Bed, Bath and Beyond's new venture.

A strategic partnership is on the horizon as Kirkland's Home and Beyond collaborates with Beyond to pilot the opening of small format Bed, Bath and Beyond stores. This initiative aims to create a more accessible shopping experience, condensing the usual time commitment for consumers into a quick visit to these charming, compact locations. The collaboration is marked by Beyond's investment of $17 million in debt financing to Kirkland's, suggesting a serious commitment to revamping the Bed, Bath and Beyond brand. Under the terms of their partnership, Beyond stands to gain a share of Kirkland's revenue, with fees tied to retail and e-commerce sales, which indicates a focus on integrating their operations effectively to maximize revenue potential.

The podcast delves deeply into the implications of this partnership, discussing whether a smaller version of Bed, Bath and Beyond can successfully carve out a niche in an already crowded market. Speakers analyze the strategic rationale behind Beyond's push into the brick-and-mortar space again after previously declaring they would not open physical stores. The dialogue reveals a mix of skepticism and cautious optimism about the potential for these small locations to thrive, especially considering the changing landscape of retail, where e-commerce dominance has shifted consumer behavior significantly. The episode invites listeners to ponder the viability of such a venture and the lessons learned from Bed, Bath and Beyond’s previous struggles.

Takeaways:

  • Bed, Bath and Beyond is partnering with Kirkland's to open smaller format stores, potentially revitalizing the brand.
  • This new strategy may focus on home improvement and decor, targeting a niche market.
  • The partnership involves financial backing, with Beyond providing $17 million to Kirkland's for expansion.
  • Experts express skepticism about whether a smaller Bed, Bath and Beyond will succeed in a competitive market.
  • The new stores aim to capitalize on existing brand recognition while testing a new retail format.
  • Concerns remain about whether customers will choose these stores over established competitors like Amazon.

Companies mentioned in this episode:

  • Bed Bath and Beyond
  • Kirkland's
  • Home Depot
  • Zulily
  • Overstock
  • Container Store

For the full episode head here: https://youtu.be/k5dEe64NBUE



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Transcript
Speaker A:

Bed, Bath and Beyond stores could soon return.

Speaker A:

Yay.

Speaker A:

According to Retail Dive, Kirkland's Home and Beyond have entered a strategic partnership that includes the pilot opening of up to 5 neighborhood small format Bed, Bath and Beyond stores.

Speaker A:

The company said Monday.

Speaker A:

You won't need the whole Saturday to go to Bed, Bath and Beyond, Home Depot and others.

Speaker A:

You will just need a short amount of time because they're just tiny little cute Bed, Bath and Beyond good frank to take reference and nice subtle Kirkland's is Beyond beyond exclusive operator and licensee for the new stores.

Speaker A:

Bed, Bath and Beyond shopping shops may also be opened inside of Kirkland's locations, but that's yet to be determined.

Speaker A:

Beyond is providing $17 million in debt financing to Kirkland's under the deal's financial terms.

Speaker A:

Eight and a half million of that is a convertible note that will convert to Kirkland's common stock at $1.85 per share.

Speaker A:

Upon stockholder approval, beyond will also buy $8 million of Kirkland stock in a subscription agreement.

Speaker A:

of:

Speaker A:

Beyond will earn a collaboration fee equal to 0.25% on all of Kirkland's quarterly retail and E Commerce revenue, an incentive fee equal to 1.5% of Kirkland's incremental growth in E Commerce revenue, and a trademark license agreement where beyond will earn a store royalty fee equal to 3% of net store sales generated under the Bed, Bath and Beyond banner.

Speaker A:

I hope you were taking notes there.

Speaker A:

There was a lot of data that I just threw out you, but my question is simpler.

Speaker A:

Does the market need a smaller incarnation of Bed, Bath and Beyond or is this an example of two wrongs that won't likely make a right?

Speaker B:

If you step back and think about what beyond is trying to do here.

Speaker B:

Right which is trying to have a broader play in home home improvement, home services, decoration, furniture.

Speaker B:

I think that makes sense, right?

Speaker B:

Zulily they they have bought, you know, bed batten beyond, the IP of it overstock and now they are forging a partnership with Container Store.

Speaker B:

So they're moving more towards this home centered around home concept.

Speaker B:

Right.

Speaker B:

And Marcus is a, is a, is a phenomenally well proven leader so he has a plan to execute against it.

Speaker B:

Now it's a small test that they are trying to get into may likely be that Kirkland's is not penetrated as much in the brick and mortar space as opposed to online.

Speaker B:

Probably their sales are a lot more lopsided towards online and E Commerce, especially Coming out of COVID and I mean they have about $60 million in sales, net sales and likely the revenue is going to be, you know, they're expecting probably the vicinity of 200 to 500 range in terms of revenue from a store from this particular format, which is not huge expectation.

Speaker B:

Right.

Speaker B:

From a small, tightly controlled and well placed retail location.

Speaker B:

That's the key, right.

Speaker B:

If they put it in the right set of semi urban, highly populated strip mall location, then you have low labor, low rentals, low leases.

Speaker B:

So it has some legs, right.

Speaker B:

If you have, you can make the economics work.

Speaker B:

Bed Bath and Beyond still has a wonderful brand recall, but it's a more promotion oriented.

Speaker B:

Coupons, discounts, markdowns, so they'll have to price it properly.

Speaker B:

The biggest thing that led to chapter 11 for bed bath and beyond was that the costs were not in control and a lot of the merchandise choices that were made were competing with the national brands and with Target and with Walmart, especially in the home improvement category, home improvement and decor.

Speaker B:

And now this is a very particular category, furniture that they can probably reach more, lean more into and have very clear merchandising, supply chain procurement, cogs, gross margin play from Kirkland that they probably have a good team already in place and they can lift and shift.

Speaker B:

So if you read the press release, Markus is very clearly pointing that out that they have a track, proven track record and he has confidence in the leadership team.

Speaker B:

So I think if you tie all this together, I think there is something here that they can start this experiment in a small format and then assess.

Speaker B:

And I believe that the right location and the right investments will likely be, will help them shape this strategy and the pilots.

Speaker A:

Okay.

Speaker A:

All right, Chris Kreitz, what do you say about this?

Speaker C:

I'm going to go off on the rails here and just go a totally different direction and answer.

Speaker A:

Oh boy.

Speaker C:

I think the whole history of beyond is so in the new beyond is so interesting, right?

Speaker C:

Yeah.

Speaker C:

They buy the Bed bath and Beyond IP for $20 million, right?

Speaker C:

Then they buy, they close overstock.com they've now reopened overstock.com they did a $40 million deal with the Container Store.

Speaker C:

They did this $17 million deal with Kirkland's.

Speaker C:

They said, we're never going to open physical retail stores again.

Speaker C:

A year later, they've opened physical retail stores again.

Speaker C:

And at the, from the outside, it looks like the most scattered retailing strategy you can possibly imagine.

Speaker C:

And then like, you know, just dumping money into, you know, failing brands or struggling brands.

Speaker C:

If I step back and say it's, you know, it's either a very scattered strategy or there's something brilliant going on here.

Speaker C:

I thought Lakshman had a really good point.

Speaker C:

Right.

Speaker C:

Like the beyond brand has extremely high rankings on search and customer recall that they know the name.

Speaker C:

Right.

Speaker C:

So one of the things that's interesting, in all the releases of the deals that they've done with Kirkland's, with the Container Store, there's like a small snippet that's hidden in where they say all the companies are going to join Beyond Customer Data, global data platform.

Speaker C:

Which means my curiosity is, are they just making these investments to get access to the customer lists, to Lakshman's point, to use their brand recall and search prominence to be able to funnel customers towards these brands.

Speaker C:

Like, I think it could be overall, just a large marketing play.

Speaker C:

The other interesting piece is they all say that they're going to adopt the loyalty program and then it looks like they're going to start selling payment solutions and insurance and those like ancillary financial products now that beyond is going to own.

Speaker C:

So to me, there's some sort of marketing data play there where they're just making these investments into smaller in decline retailers that used to have billion dollars of sales and now you have access to all of that customer data and you can figure out ways to funnel that data towards your future platform of brands.

Speaker C:

So I think it's really interesting from that perspective too.

Speaker A:

So it's a data play.

Speaker A:

You think, Chris Walton, you, this is, this is your wheelhouse.

Speaker A:

You, you worked in home furnishings for a long time with Target.

Speaker A:

What do you make of this?

Speaker D:

Yeah, you, I mean, I.

Speaker D:

God, there's a lot here.

Speaker D:

I mean, I think both, both the two gentlemen before me summed it up pretty well.

Speaker D:

I mean, I mean, my biggest takeaway from this is I got to say, great job, Marcus.

Speaker D:

You know, like he's doing what the entrepreneur does, which is like offloading all the risk onto two other companies.

Speaker D:

You know, we brought up the Container Store, but in this case, you know, he's offloading it to Kirkland's.

Speaker D:

Like, you know, that basically the money is just going to float to beyond, you know, if Kirkland tries to do anything.

Speaker D:

And Bed Bath beyond doesn't really have to do anything to make that happen.

Speaker D:

So from a, from a cash flow perspective, I got to think that's good for Beyond's business.

Speaker D:

But net net, when I step back from it, I struggle seeing why a new, smaller incarnation of Bed Bath and Beyond is going to amount to anything.

Speaker D:

Because I Just don't know the why.

Speaker D:

Like, what is the why in terms of why I'm going to that store over any other option?

Speaker D:

Like, I just don't get it.

Speaker D:

The space is so crowded already.

Speaker D:

Yeah.

Speaker D:

And you know, when I go back to like why, why Bed Bath beyond failed initially, it's because Bed Bath and Beyond was done better by Amazon.

Speaker D:

It was all the beyond stuff that you could get now through Amazon just delivered to you.

Speaker D:

So especially with all the other competitions.

Speaker D:

So I.

Speaker D:

Good luck.

Speaker D:

Kirkland's trying to do this.

Speaker D:

I think you might have gotten hoodwinked a little bit on this one.

Speaker A:

Yeah, I agree, Chris.

Speaker A:

I don't understand the new small format ones.

Speaker A:

I'm a little softer on the, you know, the collaborations, the going inside the Container Store or going inside of a Kirklands.

Speaker A:

Like, I don't hate that idea.

Speaker A:

I think that's an easy, easier thing for them to test and they have the data, like Chris was saying, you know, collected from shoppers across the platform, what they're interested in, what people are buying in those locations.

Speaker A:

And I think the thing that we haven't talked about is from a customer perspective, I do like the potential option to use these Kirkland's locations, these Container Store locations, as, you know, returns drop off points for these retailers.

Speaker A:

Like there is some benefit there, especially when you're buying home products.

Speaker A:

I think that it's just like a peril in my mind where it's like you could be trying a different color pillow or comforter or something and so you might be ordering three or four.

Speaker A:

Like, I think that from a customer standpoint it could be worth the test.

Speaker A:

But does it have the long term support?

Speaker A:

I think from an organizational perspective and from an ROI perspective, I really, I don't see that happening.

Speaker D:

But yeah, and I don't know, I think like, while Bed Bath and Beyond has good recall nationally as a brand, I don't see like what products are driving me into a shop and shop in either instance.

Speaker D:

Like, you know, like, oh, I'm going to go to the Container Store to check out Bed, Bath and Beyond.

Speaker D:

What, you know?

Speaker A:

Well, I mean, I think it's more of like a vignette.

Speaker A:

Like when you go into the Container Store, like, are you able to make purchases like, do you buy a rug at that same point in time?

Speaker A:

Or are there certain items that maybe make sense that, you know, it's just saving their customers a trip.

Speaker D:

But brands don't matter.

Speaker D:

In home furnishings though, like we've talked about, what people care about is the style, design, and the quality of the product.

Speaker D:

So the brands of home furnishings are almost obsolete at this point, you know, so.

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About the Podcast

Omni Talk Retail
Omni Talk Retail provides news, analysis, and commentary on the latest trends and issues in the retail industry
Omni Talk Retail provides news, analysis, and commentary on the latest trends and issues in the retail industry. It covers a wide range of topics related to retail, including e-commerce, technology, marketing, and consumer behavior. The podcast regularly features industry experts, Chris Walton and Anne Mezzenga, as well as retail thought leaders who all share their insights and perspectives on the latest developments in retail.

About your hosts

Anne Mezzenga

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Anne Mezzenga is an entrepreneurial Marketing Executive with nearly 20 years in the retail, experience design, and technology industries.

Currently, she is one of the founders and Co-CEOs of Omni Talk.

Prior to her latest ventures, Anne was most recently the Head of Marketing and Partnerships for Target’s Store of the Future project. Early in her career, Anne worked as a producer for advertising agencies, Martin Williams and Fallon, and as a producer and reporter for news affiliates NBC New York and KMSP Minneapolis.

Anne holds a BA in Journalism from the University of Minnesota – Twin Cities.

When Anne is not busy blogging, podcasting, or sharing her expertise with clients, she loves spending time with her husband and two boys and partaking in all the Minneapolis food scene has to offer.

Chris Walton

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