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10-K Project Bed, Bath & Beyond, Inc.

Monica Ponder MAN 6721 January 26, 2012

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Table of Contents

Concepts and Forces.................................................................................................................................................. 1

Competitive Strategy ................................................................................................................................................. 7

Compare and Contrast .............................................................................................................................................. 8

APPENDIX A - Bed Bath & Beyond: The Best Retailer in America? ........................................................................ 11

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Concepts and Forces 1. PESTLE Forces a) Political b) The Company’s operating results and financial position could be negatively impacted by changes to accounting rules and regulations or new interpretations of existing accounting standards. These changes may include, without limitation, changes to lease accounting standards. The Company’s effective income tax rate could be impacted by changes in accounting standards as well as changes in tax laws or the interpretations of these tax laws by courts and taxing authorities which could negatively impact the Company’s financial results.

c) Political factors show the degree to which government intervenes in the economy in such areas as tax law. The preceding statement indicates that the company’s financial position may be negatively affected by changes in accounting standards, tax law and tax rates.

d) Changes to a company’s effective tax rate can be particularly significant. Since Bed, Bath & Beyond, Inc. (BBBY) is primarily a domestic business; the effective tax rate may be higher than any foreign-based competitors, depending upon the countries in which they conduct business. The effective tax rate for BBBY was 38.8%, 39.1% and 37.8% for fiscal years 2010, 2009 and 2008, respectively. If these are higher than any major competitor, it may make it difficult for BBBY to compete with these rivals successfully. For example, Williams Sonoma had an effective tax rate of 35.6% for fiscal 2009 compared to 39.1% for Bed, Bath & Beyond, Inc.

2. PESTLE Forces

a) Economic

b) General economic factors that are beyond the Company’s control impact the Company’s forecasts and actual performance. These factors include housing markets, recession, inflation, deflation, consumer credit availability, consumer debt levels, fuel and energy costs, interest rates, tax rates and policy, unemployment trends, the impact of natural disasters and terrorist activities, conditions affecting the retail environment for the home and other matters that influence consumer spending. Changes in the economic climate could adversely affect the Company’s performance.

c) Economic factors such as interest rates, inflation, and exchange rates have a major impact on how a business operates and makes decisions. The statement discusses economic factors including energy costs and unemployment trends that are beyond the company’s control and may affect their performance.

d) All of the aforementioned factors affect consumer spending. Further, inflation rates can influence the firm’s cost of capital, affecting their ability to grow and expand. The market in which BBBY competes is particularly fragmented and there are many competitors. Online competitors, for example, who may have fewer physical locations and fewer employees may not be affected as severely by factors such as labor rates and energy costs, supplying them with a potential advantage. 3. PESTLE Forces

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a) Socio-cultural b) The Company’s success depends on our ability to anticipate and respond in a timely manner to changing merchandise trends, customer demands and demographics. The Company’s failure to anticipate, identify or react appropriately to changes in customer tastes, preferences, spending patterns and other lifestyle decisions could lead to, among other things, excess inventories or a shortage of products and could have a material adverse affect on the Company’s financial condition and results of operations. c) Social factors affect the demand for a company's products and how that company operates. Social factors include population growth rate, age distribution and other social trends. This statement discusses, among other things, demographics and lifestyle decisions. d) The statement explains how the company’s failure to anticipate and react to shifts in social trends could lead to shortage of products or excess inventories. With inventories already near $2B, excess inventories could cause a shortage in cash flows and the inability to invest in other projects. BBBY has plans to expand their business by opening additional stores. BBBY has no debt and funds expansion entirely with company funds. An inability to continue with that expansion could affect their competitive position. 4. PESTLE Forces

a) Technological

b) The Company’s operating results could be negatively impacted by a major disruption of the Company’s information technology systems. The Company relies heavily on these systems to process transactions, manage inventory replenishment, summarize results and control distribution of products. Despite numerous safeguards and careful contingency planning, the system is still subject to power outages, computer viruses, telecommunication failures, security breaches and other catastrophic events. A major disruption of the system and its backup mechanisms may cause the Company to incur significant costs to repair the system, experience a critical loss of data and result in business interruptions. c) Technological forces include research and development, automation, changes in technology and other similar items. This statement discusses the company’s information technology systems, an important part of the company’s technology. d) If any of the systems discussed were to be disrupted by a major failure it could cause a loss of data or an interruption in business. BBBY relies on coupons, many sent by mail and email, for the majority of its advertising. For this reason, a loss of this information could affect its sales and compromise its competitive position. 5. PESTLE Forces

a) Legal

b) The Company is subject to numerous statutory, regulatory and legal requirements at a local, state and national level. The Company’s operating results could be negatively impacted by developments in these areas due to the costs of compliance in addition to possible government penalties and litigation in the event of deemed noncompliance. Changes in the regulatory environment in the area of product safety,

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environmental protection, privacy and information security, wage and hour laws, among others, could potentially impact the Company’s operations and financial results. c) Legal factors can include regulations such as health and safety, employment and imports/exports. This statement reflects the potential for changes in product safety, environmental protection; wage and hour and privacy regulations may negatively affect the company’s performance. d) BBBY has locations in all 50 states of the United States and numerous competitors including online stores, discount stores, and department stores. Competitors that conduct business primarily online or within different states or countries may deal with different regulations. These factors can affect how a company operates, its costs, and the demand for its products. 6. PESTLE Forces

a) Environmental

b) The Company’s operating results could be negatively impacted by unusual weather patterns. Frequent or unusually heavy snow, ice or rain storms, hurricanes, floods, tornados or extended periods of unseasonable temperatures could adversely affect the Company’s performance. c) Environmental factors include environmental and ecological areas such as climate and weather and how they affect an industry. This excerpt refers specifically to problems the company could incur from severe weather and changes in weather patterns. d) As a retail store, inclimate weather can cause disruptions in business. The sales for Bed, Bath & Beyond, Inc. are somewhat seasonal already and sales are lower each year in February. Any of these unusual weather conditions could cause sales to dip even further during the winter and affect the company’s operations. 7. Porter’s Five Forces

a) Current Competitors (and intensity of rivalry among them)

b) The retail business is highly competitive. The Company competes for customers, associates, locations, merchandise, services and other important aspects of the business with many other local, regional and national retailers. Those competitors range from specialty retail stores to department stores, discounters and internet online retailers. Unanticipated changes in the pricing and other practices of those competitors, including promotional activity, may adversely affect the Company’s performance. c) This statement speaks specifically to the highly competitive nature of the retail business including pricing, business practices and promotional activity. d) Bed, Bath & Beyond, Inc. competes with many different businesses including such big name discounters as Walmart as well as home improvement stores such as Lowe’s and Home Depot and department stores such as Sears and JC Penny. In this fragmented market, rivalry is intense. It is important for BBBY to understand its position in the market to compete effectively with these different types of rivals. 8. Porter’s Five Forces

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a) Threat of new entrants (and entry/exit barriers more generally)

b) The Company believes it is the preeminent retailer in its segment of the home goods industry, which is fragmented and highly competitive. In addition, the Company competes with many different types of retail stores that sell many or most of the same products. Such competitors include but are not limited to: (i) department stores, which often carry many of the same product lines as the Company's stores but do not typically have the same depth or breadth of product selection, (ii) specialty stores, which often have a depth of product selection but typically carry only a limited portion of the product lines carried by the Company's stores, (iii) discount and mass merchandise stores, (iv) national chains and (v) internet online retailers. In addition, the Company's stores compete, to a more limited extent, with factory outlet stores that typically offer limited quantities or limited lines of quality merchandise at discount prices.

c) There are relatively low entry and exit barriers in retail. This is exhibited by the numerous competitors already in the market. The many types of competitors are listed in the later portion of the above 10-K statement.

d) Because of their large size, BBBY are likely able to purchase in bulk at lower prices than their smaller competitors. This may be a barrier to smaller competitors entering the market; however, their larger, national competitors such as Target and Walmart have these same abilities. In general, retail is considered to have relatively low entry and exit barriers. This means that more competitors may enter the market at any time affecting those already in the market.

9. Porter’s Five Forces

a) Suppliers (and their bargaining power)

b) In fiscal 2010, the Company purchased its merchandise from approximately 5,500 suppliers with the Company’s largest supplier accounting for approximately 5% of the Company’s merchandise purchases and the Company’s 10 largest suppliers accounting for approximately 20% of such purchases. The Company purchases substantially all of its merchandise in the United States, the majority from domestic sources and the balance from importers. The Company purchases a small amount of its merchandise directly from overseas sources. The Company has no long term contracts for the purchase of merchandise. The Company believes that most merchandise, other than brand name goods, is available from a variety of sources and that most brand name goods can be replaced with comparable merchandise. c) The bargaining power of suppliers is an important aspect of Porter’s Five Forces. The foregoing statement directly references suppliers and the percentage of the products bought from the suppliers, which helps to determine bargaining power. d) BBBY has no long term contracts for the purchase of merchandise due to its belief that the merchandise is available from a variety of sources. This means that there is little differentiation between the products, many suppliers available for most products and no barriers to switching suppliers. In this situation, suppliers have little bargaining power, making the industry more attractive to potential competitors. 10. Porter’s Five Forces

a) Buyers (and their bargaining power)

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b) While it appears that the economic environment has stabilized, a number of challenges, including higher commodity prices, and relatively high unemployment could continue to pressure consumers and affect their spending. The Company cannot predict whether, when or the manner in which these economic conditions will change. c) This statement discusses economic conditions which may affect consumers and thus affect their ability to make purchases. Thus, changes in these economic conditions may affect the company’s performance. For this reason, this statement describes the bargaining power of buyers. d) US consumers are becoming increasingly price sensitive. In this aspect, the buyers do have bargaining power. Buyers have many choices of other stores with similar products. BBBY hopes to differentiate itself through customer service and in the way they display their merchandise to create the appearance of several small, specialty stores within one store. Regardless, BBBY still has much competition and must understand its customer preferences to stay competitive. 11. Porter’s Five Forces

a) Threat of substitute products/services

b) The Company believes it is the preeminent retailer in its segment of the home goods industry, which is fragmented and highly competitive. In addition, the Company competes with many different types of retail stores that sell many or most of the same products. Such competitors include but are not limited to: (i) department stores, which often carry many of the same product lines as the Company’s stores but do not typically have the same depth or breadth of product selection, (ii) specialty stores, which often have a depth of product selection but typically carry only a limited portion of the product lines carried by the Company’s stores, (iii) discount and mass merchandise stores, (iv) national chains and (v) internet online retailers. In addition, the Company’s stores compete, to a more limited extent, with factory outlet stores that typically offer limited quantities or limited lines of quality merchandise at discount prices.

c) What would be a substitute for Bed, Bath & Beyond? An online retailer? BBBY sells online as well. For this reason, I will discuss switching to other types of stores such as a discount store or mass merchandiser. This beginning of this statement discusses that many other companies sell the same products as Bed, Bath & Beyond, Inc. I believe this shows the opportunity that consumers have to easily change to another type of store.

d) With little product differentiation, consumers may easily move from one retailer to another. It is important to have a strong understanding of customer’s preferences to retain their business. Otherwise, this could negatively affect the company’s performance.

12. SWOT Analysis

a) Strengths

b) The Company has developed a distinctive style of merchandise presentation. Primarily all of the Company's stores have groups of related product lines presented together in separate areas of each store, creating the appearance that the store is comprised of several individual specialty stores for different product lines. The Company believes that this format of merchandise presentation makes it easy for customers to locate products, reinforces customer perception of wide selection and communicates to customers that its stores offer a level of customer service generally associated with smaller specialty stores.

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The Company believes that its extensive merchandise selection, rather than fixturing, should be the focus of customer attention and, accordingly, primarily uses simple modular fixturing throughout its stores. This fixturing is primarily designed so that it can be easily reconfigured to adapt to changes in the store's merchandise mix and presentation. The Company believes that its merchandise displays create an exciting and attractive shopping environment that encourages impulse purchases of additional items.

c) The 10-K lists several items which could be considered strengths. Several deal with merchandising and merchandise selection. I believe that this identifies an aspect that BBBY considers to set them apart from the competition and thus strength.

d) With so many competitors, BBBY must find a way to differentiate itself. BBBY believes it has differentiated itself from the competition through its customer service, merchandise selection, and merchandise presentation. This is important in maintaining their competitiveness against their rivals.

13. SWOT Analysis

a) Weaknesses

b) Revenues from gift cards, gift certificates and merchandise credits are recognized when redeemed. Gift cards have no provisions for reduction in the value of unused card balances over defined time periods and have no expiration dates, but are subject to state escheat regulations; as such, the Company does not record income associated with unredeemed gift cards.

c) The 10-K discusses very little that can be used as a weakness. This statement discusses unredeemed gift cards and credits which have no expiration date. While this is of value to the customer, I believe having this open value that may be used at an unknown time to be a weakness.

d) Because BBBY is so large, the amount of outstanding gift cards and credits may be large in comparison to their rivals. For this reason, I believe this may put BBBY at a disadvantage and should be considered a weakness.

14. SWOT Analysis

a) Opportunities

b) The Company intends to continue its expansion program and believes that the continued growth of the Company is dependent, in large part, on the success of this program. As part of its expansion program, the Company expects to open new stores and expand existing stores as opportunities arise. The Company believes throughout the United States and Canada, there is an opportunity to open in excess of 1,300 BBB stores as well as grow the CTS and buy BABY concepts from coast to coast. c) The aforementioned statement specifically addresses opportunities for expansion that are available to BBBY. d) The company believes expansion is an important part of its continued growth. Over the past 19 years, the company has grown from 34 stores to 1,129 stores. The company expresses in the 10-K that much of its success stems from this past expansion and believes further expansion to be essential to their continued success. 15. SWOT Analysis

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a) Threats

b) The Company’s success depends, in part, on its ability to manage operating costs and to look for opportunities to reduce costs. The Company’s ability to meet its labor needs while controlling costs is subject to external factors such as unemployment levels, prevailing wage rates, minimum wage legislation and changing demographics. The Company’s ability to find qualified vendors and obtain access to products in a timely and efficient manner can be adversely affected by political instability, the financial instability of suppliers, suppliers’ noncompliance with applicable laws, transportation costs and other factors beyond the Company’s control. c) The previous statement lists several outside threats to the company including political instability, transportation costs, unemployment levels and changing demographics.

d) The ability to control costs is important to the competitive strategy of BBBY. Changing legislation, political instability and changing demographics are factors that are beyond the control of BBBY but it is important that they mitigate their risk as much as possible to reduce costs and remain competitive.

Competitive Strategy

The company’s objective is to be the premier supplier of homegoods. A statement that

describes their strategy to obtain this goal comes from the 2011 10-K and follows:

It is the Company's goal to offer quality merchandise at everyday low prices; to maintain a wide assortment of merchandise; to present merchandise in a distinctive manner designed to maximize customer convenience and reinforce customer perception of wide selection; and to emphasize dedication to customer service and satisfaction.

The first point in this statement is regarding pricing. The company maintains an everyday low price.

Within the 10-K report, BBBY states that they regularly monitor the prices of its competitors to ensure

that their prices remain competitive. The market has many competitors and the consumers are price

sensitive so pricing remains an important aspect of their competitive strategy. Even though they

maintain an everyday low price, they chose to also differentiate themselves based on their

merchandising strategy and customer service.

Bed, Bath & Beyond, Inc. sells a wide assortment of merchandise related to kitchen, bed and

bath rooms as well as baby goods. The merchandize mix for each store is chosen based on store size,

market conditions, demographics and local personnel tailor the merchandise to local trends and

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conditions. The categories and size of the categories are constantly tested and changed in response to

changing requirements of the customer as part of the merchandizing strategy.

Merchandise presentation is an important aspect of the BBBY strategy. BBBY has developed a

style of presenting the merchandise that is distinctive among its competitors. Most related items are

grouped in areas of the store to imitate smaller specialty stores. Utilizing modular fixtures and shelving,

the staff can easily reconfigure and relocate merchandise displays as necessary. The intention of the

illusion of smaller, specialty stores is to reinforce the perception of a wide variety of merchandise as well

as high customer service associated with specialty stores. Further, this presentation is easier for

customers to locate groups of products. BBBY believes that this format creates an environment to

promote impulse purchases.

BBBY places a strong focus on customer service and seeks to make visits to its stores pleasant

and convenient. Stores are open 7 days a week during both the day and evening to make shopping

convenient. Additionally, websites are available 24 hours a day.

BBBY clearly has a differentiation strategy with a broad target. This strategy works well and

BBBY is extremely successful with net sales of $929.7 million in their past fiscal year, which represented

an 11.9% increase over the prior year. There are risks associated with this strategy. Such risks include a

change in consumer preferences and competitor imitation. Competitors with a narrow focus may

succeed in further differentiating themselves within their target market.

Compare and Contrast

Warren Shoulberg describes Bed, Bath & Beyond as the “best retailer in America.” (Shoulberg,

2011) In fact, he gushed about many of the unconventional aspects of the company’s strategy in his

article titled Bed Bath & Beyond: The Best Retailer in America? In many ways, the company that the

article describes is very similar to the one described in the company’s 10-K report.

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Bed, Bath & Beyond, Inc. carries a wide variety of merchandise which is tailored to each store by

local representatives. Much of the inventory is carried within the store and the company supports only

three warehouses for additional product. The company believes that their way of maintaining and

displaying merchandise is unique by giving the impression that one is shopping in specialty shop but one

with a wide variety of product. Much time is spent testing the categories and size of the categories of

merchandise within the store to ensure that the consumer’s preferences are being met. The article

written by Shoulberg describes this in a very similar fashion. “This is a company with thousands of store

locations but no central distribution system to speak of. Each store orders independently and vendors

ship directly to the individual stores. It’s the Holy Grail of retailing, the gist of what Macy’s is trying with

My Macy’s and what the old J.C.Penney was so good at it. It shouldn’t work…but it does.” (Shoulberg,

2011)

Bed, Bath & Beyond has a strategy of excellent customer service, everyday low prices and

superior selection. Because the company is strong in the areas, they rely on word-of-mouth rather than

major advertising campaigns. The main advertising utilized is the mailing and emailing of coupons to

customers and newspaper circulars. This is not very different than the view from industry analysts.

“This is also a company that does virtually no advertising. Other than a new store opening print ad, the

company relies pretty much exclusively on coupons, sent in direct mail circulars and online. It is the very

essence of direct-to-consumer marketing and while all its competitors spend fortunes on sophisticated

campaigns and corporate image ads, Bed Bath runs pictures of pretty products. And they don’t even

put them on sale, running an everyday-low-price strategy that, frankly, isn’t exactly giving anything

away.” (Shoulberg, 2011)

Bed, Bath & Beyond, Inc. describes in their most recent annual report that they do not have long

term contracts with suppliers as many of their products, most of which are produced domestically, are

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readily available with little product differentiation if they were to switch to another vendor. As a

company with a low cost strategy, this likely helps to keep costs low. The article written by Warren

Shoulberg describes the relationship with vendors as less than perfect but still not very different than

the Bed, Bath & Beyond description. “The company has a reputation for being positively ruthless in its

dealings with suppliers, negotiating hard and long upfront and not being bashful about collecting a few

extra points on the backside of any program. There are countless anecdotal stories from vendors about

chargebacks that would embarrass a department store. Yet most home furnishings suppliers will

begrudgingly tell you they need Bed Bath, and would still rather sell them than not.” (Shoulberg, 2011)

The biggest contrast from the article to the 10-K is Shoulberg’s description of the ability of the

Bed, Bath & Beyond, Inc. management to effectively manage four different chains which include Bed,

Bath & Beyond; Buy, Buy, Baby; Harmon Beauty and Christmas Tree Shops. The annual report doesn’t

separate these chains out in any way in its discussions in the “Business” or “Risk” sections of the report.

Shoulberg, however, is skeptical that the company’s management can effectively manage all four of

these chains. He says, “Bed Bath management is quite superior, but four lines of business may be

pushing it.” (Shoulberg, 2011)

Surprisingly, these two perceptions of Bed, Bath & Beyond, Inc. are not as different as I

expected. The statement that I believe best sums up Bed, Bath & Beyond, Inc. comes from the

Shoulberg article. “Finally, you could ask the most important people in this equation whether they think

Bed Bath & Beyond is the best store in the country: Shoppers. Most of them, I think, would give you a

pretty positive response. They love the selection. They love the coupons. They love the locations. And

they love the prices.” (Shoulberg, 2011) I, personally, love Bed, Bath & Beyond too. I agree that “there’s

a reason Bed Bath & Beyond is still here and Linens ’n Things, Home Place, Strouds, Lee Jay, Waccamaw,

Pacific Linen, Linen Supermarket, Plejs and several other long-forgotten competitors are long gone: They

are the best retailer in America.” (Shoulberg, 2011)

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APPENDIX A

Bed Bath & Beyond: The Best Retailer in America? by Warren Shoulberg

Is Bed Bath & Beyond the best retailer in America?

Well, it depends on who you ask.

Ask a financial analyst and you’re likely to get a

pretty positive response. Through the best and

worst of retailing cycles, Bed Bath, with total 2010

sales of almost $8.8 billion and earnings of $790

million, has generally outperformed virtually every

other retailer in virtually every other merchandise

classification.

Other than a dip in the 2007-2008 retailing meltdown, the store has had positive comp numbers

since the day it went public in the mid-1990s. It consistently puts up better numbers quarter after

quarter than anybody.

But ask that same analyst what he sees going forward and, chances are, he will shake his head in

ignorance. Bed Bath is notoriously close-mouthed when it comes to handing out information on

its operations. For the past two decades, its annual meetings – held in a suburban New Jersey

hotel that is conveniently located inconvenient to Wall Street types – have averaged 14 minutes

in length…including coffee.

Ask Bed Bath’s banker if it’s the best retailer, and he’ll most certainly say yes. The company has

zero – that’s a zero followed by more zeroes – debt. In fact, the company as a public entity has

never had any debt, never borrowing a dime from anybody ever. Indeed, it routinely lists the

interest from its cash-on-hand every 90 days on its financial statements. Is there any other retailer

around that has been able to say that for this long?

But ask the companies that supply Bed Bath & Beyond with its bed, bath and beyond products

and you may get a decidedly different story. The company has a reputation for being positively

ruthless in its dealings with suppliers, negotiating hard and long upfront and not being bashful

about collecting a few extra points on the backside of any program. There are countless

anecdotal stories from vendors about chargebacks that would embarrass a department store. Yet

most home furnishings suppliers will begrudgingly tell you they need Bed Bath, and would still

rather sell them than not.

Ask some mall real estate leasing agents and they will tell you they can’t wait to see Bed Bath’s

site selection crew walk through their door. The company has a well-deserved reputation for

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being totally unconventional when it comes to picking store locations. It routinely takes space

nobody else will touch, believing, rightfully so, that it is a destination store and that its customers

will find it no matter where it is.

Consider these unorthodox real estate choices:

In the mid 1990s, when New York City’s former Ladies Mile district, along Sixth Avenue in the

teens, was a barren wasteland of light manufacturing, empty storefronts and absolutely no street

traffic, Bed Bath leased its largest store ever in what was once the Siegel Cooper department

store building. It turned into the anchor for a brand new retail neighborhood in Manhattan, now

one of the strongest shopping districts in the city and the store, at well over 100,000-square-feet,

certainly must be the chain’s single largest grossing unit.

Or how about an empty Sakowitz branch store in North Dallas? The impossible-to-get-to ground

floor, inaccessible from the rest of the mall, at the Beverly Center on the West Side of Los

Angeles? Or a B. Altman anchor store in an upscale suburban New Jersey mall?

Bed Bath operates in all those locations. Successfully. If you build it, they will shop.

But then ask a bunch of retailing experts about the company’s corporate strategy and they will

raise serious questions. With almost 1,000 Bed Bath & Beyond units, the company is clearly

starting to max out on its US locations. It finally moved into Canada a few years back and

operates a two-store joint venture in Mexico, but it’s pretty much nowhere when it comes to

international.

So, over the past decade it has bought three small retail operations and while it won’t say it

publicly – because it doesn’t say ANYTHING publicly – it is pinning its future growth on those

vehicles.

There is Harmon Beauty, a 45-unit discount health and beauty aids chain that it is gradually

rebranding Harmon Face Values, a clever if not particularly catchy name. (Why it didn’t choose

a family surname like Beauty Basics & Beyond is…well, beyond me.)

Next comes Christmas Tree Shops, an entirely misnamed operation of 70 stores that has a lot less

to do with seasonal ornaments than with closeouts and deep discounts. It is being increasingly

positioned as a Home Goods wannabe, which is fine, but the name is a major disconnect to

shoppers not familiar with the store.

The fourth leg of the Bed Bath table is the one closest to the mothership…in many ways. Buy

Buy Baby is a superstore format, like its parent, using the category killer merchandising strategy.

It was started by offspring of one of the founders of the parent company. And it sticks with the

right naming protocol.

In theory, it’s the logical lead dog in the growth race.

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But Buy Buy Baby, currently with about 55 stores, can’t possibly give the company the top and

bottom line increases it needs to significantly move the needle. While Bed Bath can target some

200 million potential end users for its product mix, including close to 100 million households,

Buy Buy Baby’s merchandise mix essentially is for those under age five. At four million births a

year, that’s a 20-million potential customer base max at any given time. As Toys ’R’ Us found

with its Babies ’R’ Us unit, the size of the market is just not big enough to support a mammoth,

game-changing retail operation.

Here’s what’s more curious. Can you name any retailer in America – any retailer in the world –

that has tried to operate four virtually unrelated and independent parallel store businesses?

Operations like Urban Outfitters and Williams Sonoma have multiple nameplates, but they are

pretty much in the same general merchandising space.

But four entirely separate industries? The only even close parallel goes back to the 1980s when

Kmart owned its namesake operation, Borders and Walden book stores, a home improvement

chain called Builders Square, Office Max, Sports Authority and the PACE warehouse club unit.

That didn’t work out so well, did it?

Bed Bath management is quite superior, but four lines of business may be pushing it.

Ask those same retail experts about some other parts of the Bed Bath M.O. and they would have

mixed opinions. This is a company with thousands of store locations but no central distribution

system to speak of. Each store orders independently and vendors ship directly to the individual

stores. It’s the Holy Grail of retailing, the gist of what Macy’s is trying with My Macy’s and

what the old J.C.Penney was so good at it.

It shouldn’t work on this scale…but it does.

This is also a company that does virtually no advertising. Other than a new store opening print

ad, the company relies pretty much exclusively on coupons, sent in direct mail circulars and

online. It is the very essence of direct-to-consumer marketing and while all its competitors spend

fortunes on sophisticated campaigns and corporate image ads, Bed Bath runs pictures of pretty

products. And they don’t even put them on sale, running an everyday-low-price strategy that,

frankly, isn’t exactly giving anything away.

It shouldn’t work…but it does.

Finally, you could ask the most important people in this equation whether they think Bed Bath &

Beyond is the best store in the country: Shoppers.

Most of them, I think, would give you a pretty positive response. They love the selection. They

love the coupons. They love the locations. And they love the prices.

They may quibble about a few things: A disastrous merchandising strategy in soft home over the

past few years devastated the department and it doesn’t match up with the Beyond side of the

store, much less the competition.

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And there are still a few brands unavailable in the store, one of the last cards Terry Lundgren can

still play with his suppliers.

But there’s a reason Bed Bath & Beyond is still here and Linens ’n Things, Home Place, Strouds,

Lee Jay, Waccamaw, Pacific Linen, Linen Supermarket, Plejs and several other long-forgotten

competitors are long gone: They are the best retailer in America.

Then again, it depends on who you ask.

Warren Shoulberg is editorial director for several Sandow Media home furnishings business

publications and has been following Bed Bath & Beyond since 1988. He has some extra coupons

if you need them.)