Bed Bath & Beyond Closing 40 Stores, Focusing on Next-Gen Labs

Bed Bath & Beyond is closing “a minimum” of 40 stores, as it shifts focus to open 15 new Next Generation Lab stores, allowing the retailer to test assortments and visual merchandising to reimagine the in-store experience.

Most of the planned closures are for its namesake Bed Bath & Beyond stores, of which is operates 994 currently. The home goods retailer operates several banners, including Christmas Tree Shops, Harmon, buybuy BABY and World Market.

"This number will grow unless we are able to negotiate more favorable lease terms with our landlords,” Robyn D'Elia, CFO and treasurer, said during the company’s earnings call.

Bed Bath & Beyond already operates 21 of the test lab stores and is looking to add the 15 new stores in its 2019 fiscal year. The company is using these labs to test a variety of experiences, as well as visual merchandising to enhance its customer experience, value optimization, and front-end optimization to support a better customer experience across digital channels.

“We believe these initiatives lay the foundation for long-term revenue growth in the low-single-digit percentage range,” said CEO Steven Temares.

Experiences in these labs stores include scarcity product and a bigger emphasis on home decor, food and beverage, and health and beauty care. In addition, the labs test improved sight lines, cross-merchandising, lifestyle merchandising and queue lines, as well as a reduction in inventory.

What Bed Bath & Beyond learns from the lab stores will be “refined and scaled into additional stores to accelerate sales and enhance margins,” according to Temares. The company has already started rolling out some of the learnings to additional stores, such as queue lines and increasing sight lines, he noted.

Additionally, the lab stores that have a different combination of these experiences and have been open for at least four weeks are outperforming similar stores in sales, transactions, margins and margin dollars.

Temares said sales in these stores are about 2.2% higher than comparable Bed Bath & Beyond stores, over the last four weeks.

“Transactions are higher by about 3.7%, product margin dollars are higher by 3.6%, and the product margin rate is slightly higher by 50 basis points,” he noted. “For the same period, these lab stores are also achieving inventory reductions approximately 7% better than the inventory reductions already being achieved by comparable stores. We're excited about our next generation lab store initiatives.”

Beyond opening the new stores, the company said it plans capital expenditures for 2019 to be approximately $350-$375 million, which includes about $50 million associated with investments in warehouses for e-commerce distribution and personalized products. In technology related expenses, the company expects increased expense associated with maintenance costs and its shift to cloud computing, as well cost from some of the IT projects delivered midway through 2018, such as front-end optimization and human capital management.

The following are takeaways from the retailer’s fourth quarter of 2018:

Bed Bath & Beyond Takeaways

• Last fall, the company replatformed Bed Bath & Beyond's and buybuy BABY's digital channels with a new service-based architecture and responsive design to allow for a faster and more cost-effective implementation of features across the two web and mobile channels. The websites now have an improved page load performance and a cleaner, more contemporary design.
• Destinational categories have ascended to the company’s strongest performing product categories. Last month the retailer launched the first of six new private label home furnishings brands in Bed Bath & Beyond that are planned to be introduced over the course of fiscal 2019 and 2020.
• The company invested in enhanced analytic tools and new internal reporting capabilities that provide greater visibility to better evaluate the profitability of product offering by item and channel.
• To help support the growth in IT projects, the company established an India development center in fiscal 2018 and plans to expand the center in 2019 to leverage the additional skilled workforce 24 hours a day.
• The retailer had approximately 1.1 million BEYOND+ members at the end of the fourth quarter. Members shop more frequently and bring in higher revenue than the company’s average customers. The retailer said it will continue to grow the loyalty program, evaluating the benefit and long term potential.