Analysis: Why baby gear may not alleviate Bed Bath & Beyond’s troubles

Signage is seen at a Bed Bath & Beyond store in Manhattan, New York, U.S., June 29, 2022. REUTERS/Andrew Kelly

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NEW YORK, Sept 16 (Reuters) – Struggling home goods retailer Bed Bath & Beyond Inc is shedding stores and jobs and overhauling its merchandising strategy, but its return to profitability in the short term may depend on attracting US shoppers currently spending $18.2 billion. one year on baby items.

The company’s buybuy Baby unit is the largest specialty retailer of baby products in the US, according to GlobalData. But other retailers, including Gap Inc. (GPS.N) Banana Republic and pharmaceutical retailer Rite Aid (RAD.N) – are pushing baby gear, filling the void created by the 2017 bankruptcy of Babies ‘R’ Us parent Toys ‘R’ Us.

Holding on to buybuy Baby, which Bed Bath & Beyond had put up for sale under shareholder pressure before changing course in August, helped the parent company secure its recent $375 million loan, the most it could borrow. borrowed, a person familiar with the matter said. he said. Bed Bath & Beyond also withheld buybuy Baby because it believes it will continue to grow, which could allow it to fetch a higher price later or at least modestly improve Bad Bath & Beyond’s finances in the future, the source said.

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While there are some similarities between buybuy Baby and Babies ‘R’ Us, which sold similar products as part of the Toys ‘R’ Us company that it eventually liquidated, there are key differences that could help lead to an eventual buybuy Baby sale.

Bankers had looked into the sale of Babies ‘R’ Us years ago, but found separating them would be too complex because the chain predominantly operated out of the same retail locations as Toys ‘R’ Us stores and operated under a single lease in each location, a person familiar with the Bed Bath & Beyond and Toys ‘R’ Us cases said.

By contrast, buybuy Baby for the most part operates out of independent retail stores, which makes an eventual sale of the chain much simpler, the source said.

But on an operational level, buybuy Baby faces challenges, especially in its focus on clothing. Baby food and formulas show some of the strongest growth rates, with sales of baby food products up 15.2% and sales of formulas and nutritional drinks up 8.7% in the year to on July 30, according to data from NielsenIQ.

At two Buybuy Baby stores in New York City recently, shoppers browsed shelves stocked with Adidas toddler tracksuits, Juicy Couture rompers, Calvin Klein apparel and Nike baby bags. But both stores offered few baby food options.

That limitation “undermines its stores’ status as a one-stop shop for all baby needs,” said Neil Saunders, CEO of GlobalData Retail, unlike Amazon.com. (AMZN.O) and mass merchandisers Walmart and Target (TGT.N)which “sells all kinds of baby items under one roof.”

Still, the baby-goods chain is the parent company’s “crown jewel,” said David Klink, senior equity analyst at Huntington Private Bank.

Buybuy Baby Had $1.4 billion in sales in the most recent fiscal year, ending February 26, 2022, or about 18% of Bed Bath & Beyond’s total sales of $7.87 billion.

Bed Bath & Beyond does not provide profitability data for buybuy Baby, but does report some quarterly data on same-store sales. Buybuy Baby’s comparable sales have outperformed the Bed Bath & Beyond brand in recent quarters, though both brands posted declines in the fiscal first quarter of 2022 ending in May, according to company statements.

Buybuy Baby was profitable through at least 2021, according to GlobalData, unlike its parent. Bed Bath & Beyond posted a loss of $150 million for the fiscal year ending February 2021 and another net loss of $559.6 million for the year ending February 2022.

Following growth in US birth rates in 2021, the first increase in seven years, according to the Centers for Disease Control and Prevention’s National Center for Health Statistics, the potential market for baby gear it’s huge. Total spending on baby care products in the US rose 8% in the 12 months through Aug. 27, according to NielsenIQ, which measures in-store scanner activity.

But keeping the Baby buyout unit could be risky if its value erodes due to the continued partnership with struggling parent company Bed Bath & Beyond, which is $1.4bn in debt.

Bed Bath & Beyond, once known as a “category killer” in housewares, faces a critical holiday season in which it must prove that its strategy to turn its business around is to reverse lost sales and win back customers. the clients. read more

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Reporting by Siddharth Cavale, Arriana McLymore, Michael Spector, and Abigail Summervile in New York; additional reporting by Jessica DiNapoli in New York; Edited by Leslie Adler

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