Besides the electric bill and new credit card offers, it’s probably the least surprising thing in your mailbox: a blue-and-white Bed Bath & Beyond coupon promising 20 percent off one item.
That little piece of paper is creating a big headache for the home furnishings giant, which has seen its profit margins squeezed as customers increasingly rely on the discount. In the most recent quarter, Bed Bath & Beyond reported that its revenue rose 1.7 percent to $3 billion but profits fell 10 percent to $202 million, which company executives largely blamed on “an order of magnitude increase” in expenses related to coupons.
In other words, shopping with a coupon at Bed Bath & Beyond has begun to feel like a given instead of like a special treat, and that’s bad news for the chain’s bottom line.
“These are expected now by most shoppers,” said Seth Basham, a retail analyst at Wedbush Securities. Plus, he added, “you can walk in with a handful of them” and end up getting 20 percent off your entire purchase.
The coupon crush is just one problem that has contributed to the company’s stock tumbling nearly 25 percent this year. Analysts say that like many of its big-box store counterparts, Bed Bath & Beyond has struggled to adapt its sprawling brick-and-mortar chain for the e-commerce era.
The economics of bringing the home furnishings business online aren’t easy: Shipping costs can run high for bulky items. And, generally, “It’s a very low-margin business, and it’s difficult to differentiate” from competitors, said David Trainer, chief executive of investment research firm New Constructs.
Bed Bath & Beyond has been slow to fully embrace e-commerce, and that left room for upstarts such as Wayfair, Hayneedle and Overstock to become go-to destinations for online home goods purchases. Now, it is trying to play catch-up: It has expanded its online assortment to include a wider variety of items such as mattresses and patio furniture. The company is also building more distribution centers to make it easier to ship items to customers and is investing in online analytics that could help it better target shoppers. Meanwhile, it is shifting marketing efforts to digital formats such as e-mail and social media.
The company also recently acquired Of a Kind, a boutique e-commerce site that sells goods from a curated set of up-and-coming fashion and home designers.
The strategies appear to be working. Digital sales grew more than 25 percent in the latest quarter, though that increase is coming off of a relatively small base. Meanwhile, sales declined 1 percent at the chain’s physical stores open more than a year, and have generally been flat in recent quarters.
On a September conference call with investors, chief executive Steven Temares said that in the era of omnichannel shopping – in which customers shift back and forth between online and in-store browsing and purchasing – these numbers don’t tell the whole story.
“When an item purchased online is returned to a store, it results in a reduction in store sales; or when an item is being shopped for in the store and concurrently purchased on a mobile device, it is treated as a mobile sale,” Temares said.
It’s certainly true that it’s getting trickier to determine what should count as online or physical store sales these days, and old measures of retail productivity such as sales per square foot may be less relevant than they once were.
Even as Bed Bath & Beyond works to improve its online strategy, it has not given up on pumping up sales in brick-and-mortar outposts. Next year, it is poised to open a 100,000-square-foot space in Brooklyn that will feature four company-owned stores under one roof: Bed Bath & Beyond, buybuy Baby, Cost Plus World Market and Harmon Face Values. By housing all these brands in a megastore, the company might be able to see some cross-pollination among its chains.
And in both online and physical worlds, the retailer is trying to grow its offering of private-label brands, something it hopes will help it stand out from competitors and build customer loyalty.
In about 200 of its 1,520 stores, the retailer has added “specialty departments” – such as health, beauty, food and beverage – to try broaden its merchandise assortment and, in turn, bring a different kind of shopper into the store.
So far, however, “they’re not rolling them out quickly enough to have a big enough impact on the entire company,” Basham said.
