In perhaps the strongest, most robust market for home furnishings in at least a decade, two national retailers that do nothing but sell into that sector are colossally stumbling, not necessarily in danger of going under but certainly on the brink of disaster.
For Bed Bath & Beyond and Pier 1, the retail clock is ticking—and ticking loudly. While each company has a balance sheet that won’t necessarily tip it into bankruptcy territory, investors, suppliers and—most importantly—paying customers are running out of patience and increasingly using their credit cards elsewhere.
Each retailer is putting up absolutely dismal sales numbers with comp store sales in glaring red ink. And each is trying to put together a turnaround plan that will get it back to positive territory. But each also carries relatively low debt levels and is not into private equity for the big bucks that have brought down such other retail casualties as Toys “R” Us and Payless.
A look at individual elements of the two retailers’ positions shows some more similarities about their predicaments but some glaring differences in how they are dealing with those situations.
What’s Similar:
- Each retailer has too many stores. Pier 1 has around 1,000 locations, a number Bed Bath beats by about 10 percent for its own nameplate but when it adds in other brands like buy buy Baby and Cost Plus World Market that tally goes up to more than 1400 physical stores.
- Each has too many bad stores. Pier 1 originally embarked on a strategy to position many of its stores just outside regional malls—many of which are faltering themselves causing big traffic problems for these outlier locations. BBB’s real estate strategy was always based around the fact that it was a destination so it often grabbed sub-par locations and off-beat choices. That worked for a long time until shoppers stopped going out of their way in the age of e-commerce.
- Each has severely underinvested in its physical footprint. Walking into either company’s typical store and you can practically smell 2004. Stores are overcrowded with poorly chosen, low quality merchandise, oddly out-of-whack assortments and a clear lack of the remodeling efforts that are a fundamental foundation of any modern retailing corporation.
- Each is woefully behind on the e-commerce curve. Pier 1 in fact got out of online sales for several years under a previous management, claiming it was devoting all its efforts and finances to fixing its physical business. When it finally returned to the Internet, its stores were no better while its online business had to restart from scratch. Bed Bath at least was an early adapter online but refused to invest in the business and has found itself playing catch-up ever since to more tech-savvy competitors who understood e-commerce was not a static game.
- Finally, each simply refused to accept the obvious conclusion and realize it needed to do something drastic to get back in the game. When Target went through a similar soul-searching moment, management told Wall Street and Main Street that it was going to be rough for a little while as it straightened out the mess it was in. Several years later, after investing billions back into the business, Target is reaping the benefits of its massive turnaround plan. Bed Bath and Pier 1 have each consistently failed to do a serious mea culpa and swallow their pride, instead choosing small incremental improvements and whitewashing the situation with promises that better times were around the next few quarterly corners.
What’s Not Similar
- Pier 1 has at least tried to admit that the current management wasn’t doing the trick and they have turned over the corner office twice in the past several years. That it hasn’t made much of a difference is besides the point, at least it went that far. Bed Bath has largely kept its upper management (and board) in place, only finally giving in and changing the chief merchant position last year.
- In line with personnel shifts, Pier 1 has now brought in both a CEO and CFO whose resumes are stacked with turnaround situations. They have also brought in advisors to talk about dreaded “other option” situations. BBB is sticking with the crowd that got them where they are now, saying these are the folks who can get them back to the good times.
- While both retailers have not talked about the massive store closings that might ultimately be necessary for survival, Pier 1 in announcing its dismal quarter earlier this week, said it may close up to 145 stores (representing 15 of its total footprint). At Bed Bath’s comparable point earlier this month it announced up to 40 store closings chain-wide, something less than 3 percent of its total.
- Each company has talked about cost savings but each is taking different routes when it comes to achieving them. Bed Bath wants to cut its couponing, which is its fundamental marketing tool. Pier 1 is less specific, talking about more efficient merchandising methods and the reduced overhead that comes with fewer stores. Curiously Bed Bath still plans pretty substantial stock buy backs, which over the past few years of its rapidly falling share price have proven to be one of the worst uses of its excess capital.
- Finally, there is what may be the biggest difference between these two faltering retailers. Bed Bath has a group of dissident investors breathing down its corporate neck demanding a total gut job of management and the board while substantially changing the company’s operating methods. Though they control a relatively small number of shares – about 5% — they are very vocal and even more tenacious. On the other hand, nobody wants Pier 1. With a market cap of just under $40 million at closing on Thursday of this week, an adventurous bidder could buy the company and put it on their Platinum Amex card…and still have enough of a credit line left to start to fix up the place.
The one more piece of the puzzle that both have in common is that neither has an endless runway to make itself right again. Retailing has turned out to be a very harsh business these days and even companies with decent balance sheets have gone from struggling to defunct in less time than it takes to decorate your powder room.
No matter how this retail coin continues to flip, if things continue to deteriorate as they recently have, it could eventually land face down for one or both of these companies.
