In the story of Bed Bath & Beyond’s bankruptcy, which hit the court docket Sunday after months of speculation, the retailer’s suppliers and supply chain play leading roles.
The company is in Chapter 11 today partly because it could no longer afford to pay vendors and fully stock its shelves without protection from creditors.
As Bed Bath & Beyond’s recently appointed interim CFO and chief restructuring officer Holly Etlin put it in court papers, the retailer “is simply unable to service its funded debt obligations while simultaneously supplying sufficient inventory to its store locations.”
However, the troubles with suppliers started long before the filing. Etlin, a managing partner with AlixPartners who is frequently tasked with taking on interim executive roles at struggling companies, said that by early 2019 the retailer’s supply chain, along with its product development, was outdated and supported by old systems.
When the retailer brought in Target veteran Mark Tritton as CEO later that year, the chief went all-in on omnichannel and private label brands.
Those strategies had proved successful for Target. But Etlin said Tritton’s new initiatives “proved too much for Bed Bath & Beyond’s supply chain to handle.”
The private label products had longer production and shipping lead times compared to the national brands with which the retailer, as Etlin put it, “built its reputation and customer base.” And customers weren’t as enthusiastic about the new assortment as hoped.
Moreover, the pivot to private label led to “changes to previous long-standing vendor relationships,” Etlin said.
Buying shares, losing cash, spooking suppliers
In November 2021, Bed Bath & Beyond announced that it was significantly speeding up a stock buyback program, spending $400 million in cash in the second two quarters of that year to repurchase its own shares.
The buyback blitz, a move to return capital to investors, came just over a month after retailer reported a net loss and 1% decline in comparable sales, a disappointing quarter after a surge in sales and profits earlier in the pandemic as consumers invested in their home spaces.
Etlin said that the buybacks “caused some concerns amongst its merchandise suppliers, with vendors fearing the Company would not have enough cash on hand to pay them in full, resulting in some vendors scaling back their business with Bed Bath & Beyond.”
Suppliers had every reason to worry about the cash the retailer was spending on its shares. At the end of September 2021 — just prior to the buyback acceleration — the retailer had cash and equivalents amounting $1.1 billion, and liquidity of $2 billion, according to its earnings for that period. By the next June, when Tritton stepped down, both cash and liquidity had each fallen by around $1 billion.
A vicious cycle took hold. As Bed Bath & Beyond’s finances became ever tighter, the company began slowing payments and trimming orders with suppliers, sending some of them to competitors, according to Etlin.
Wary suppliers pulled back and tightened terms, demanding payment sooner or cash up front, as the company’s new CEO, Sue Gove, said later. Tighter terms crimped the company’s liquidity ever more. Meanwhile, the scaled-back shipments meant fewer products on shelves and significantly lower sales for the company, and thus less and less cash coming in the door.
By January of 2023, Bed Bath & Beyond consistently trailed competitors Wayfair, Home Depot, Kohl’s and Lowes in inventory availability across major categories, according to an emailed analysis from Dataweave.
After Bed Bath & Beyond’s inventory levels began a steep decline last summer and bottomed out in February, inventory began ticking back up in February, according to Dataweave. The company made securing cash and inventory a priority, including through a new consignment program, announced a couple weeks before it filed.
But the last-ditch efforts weren’t enough to save Bed Bath & Beyond. By the time the retailer filed, it decided to wind down its business by closing all its stores and selling off the remaining assets, including its brand property.
Even with liquidation pending in the coming months, the company still needs the support of its suppliers to do so in an orderly and effective way, and has sought court permission to pay key vendor bills.
As the company put it in court papers, Bed Bath & Beyond “can ill-afford severe disruption to their flow of Merchandise at this critical juncture.”