Home goods retailer Bed Bath & Beyond is experimenting with a $29 annual membership model giving participating customers 20% discounts on all purchases and free shipping on online purchases, The Wall Street Journal reports.
If successful, the approach would replace Bed Bath & Beyond’s ubiquitous direct mail 20%-off coupons and Sunday circular $5-off coupons, which have long pleased customers but recently eaten into the retailer's bottom line as coupon use has increased by “an order of magnitude.”
Wedbush Securities Inc. hailed the idea as “attractive for frequent shoppers” and Bed Bath & Beyond's best move so far to recapture the retailer’s lost market share. With the planned 20% discount for members, Bed Bath & Beyond prices would beat Amazon’s by an average 13%, Wedbush added.
Analysts see promise in the Bed Bath & Beyond pilot. The proposed set-up should hold significant appeal for customers who spend $145 or more annually, according to UBS analysts cited by The Wall Street Journal; on average, Bed Bath & Beyond customers buy from stores 2.84 times a year and spend an average of $120 per trip, UBS said.
But Bed Bath & Beyond's plan to mitigate its coupon problem is fraught with risk. Customers love the big blue cardboard mailers and the retailer’s willingness to accept them at any time. Beyond that, some experts contend the membership model is overdone. Profitero VP of strategy and insights Keith Anderson believes memberships are “successful, but saturated,” and said that was likely the reason e-commerce retailer Jet abandoned the approach shortly after launch last year.
With sales slipping and e-commerce posing a growing challenge, Bed Bath & Beyond has to make some assertive moves to recapture market share, however. One of its major problems is that its merchandise, which includes a lot of home goods basics, are commodities that shoppers mostly choose on price and that can easily be found on Amazon.
Bed Bath & Beyond's same-store sales overall fell 1.2% in the second quarter compared to last year’s 0.7% rise. But the home-goods retailer's online sales grew more than 20%. Bed Bath & Beyond's reduced free shipping threshold of $29 and increased rate of redemption of coupons both impacted margins during the quarter, executives said.
Bed Bath & Beyond CEO Steven Temares last month emphasized the company’s work to differentiate its product lines, citing proprietary or exclusive brands like Wamsutta, Olivia and Oliver and ED by Ellen DeGeneres. The company is additionally growing its assortment of private label health and beauty care products under the Harmon Face values label.