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Bed Bath & Beyond Inc.

 


Address:
715 Morris Avenue
Springfield, New Jersey 07081
U.S.A.

Telephone: (201) 379-1520
Fax: (201) 379-9057


Statistics:
Public Company
Incorporated: 1971 as Bed 'n Bath Inc.
Employees: 3,200
Sales: $305.8 million
Stock Exchanges: NASDAQ
SICs: 5719 Miscellaneous Homefurnishings Stores


Company History:

Bed Bath & Beyond Inc. is one of the largest home furnishing specialty stores in the United States. The company operates a chain of approximately 61 stores that sell such domestic merchandise as bed linens, bath accessories, cookware, dinnerware, kitchen utensils, and small electric appliances. Throughout the company's short history, bigger has proven to be better. In the mid-1980s, Bed Bath & Beyond was a pioneer in the concept of superstores: large, well-stocked specialty shops with prices allegedly comparable to, or lower than, department store sale prices. Some Bed Bath & Beyond stores have over 80,000 square feet of selling floor and offer more than 300,000 different items, stacked literally from floor to ceiling. The company expanded rapidly in the early 1990s on the strength of the superstore concept. It doubled the number of stores under the Bed Bath & Beyond banner and tripled annual sales to $306 million by 1993. More than 60 Bed Bath & Beyond stores were located in 16 states entering the mid-1990s; most of these were located in large metropolitan regions. The company has announced plans to open 40 more stores by 1998.

The driving force behind Bed Bath & Beyond is the partnership between founders Leonard Feinstein and Warren Eisenberg. Both men possessed over a decade of retail experience in 1971 when they formed Bed 'n Bath, a small chain of specialty linen and bath shops in suburban New York. As employees in management positions at Arlan's, a discount chain that fell on hard times during the early 1970s, the two sensed an essential change in retailing trends. "We had witnessed the department store shakeout, and knew that specialty stores were going to be the next wave of retailing," Feinstein told Chain Store Executive in 1993. "It was the beginning of the designer approach to linens and housewares and we saw a real window of opportunity." Bed 'n Bath's first two 2,000-square-foot stores were located in high-traffic strip malls and carried such brand-names as Cannon, Wamsutta, and Fieldcrest, as well as a line of lower&ndash′iced linens and bath towels.

During the 1970s Bed 'n Bath expanded at a healthy but unremarkable pace, and by 1985 the chain had grown to 17 stores located in New York, New Jersey, Connecticut, and California. During this time, however, a number of similar bath and bed specialty shops had opened. What had begun as a niche market was growing increasingly competitive as retailers sensed a "cocooning trend" among baby boomers. Specialty chains such as Linens 'n Things, Pacific Linens, and Luxury Linens sprang up to tap into this new market. Feinstein and Eisenberg opened their first superstore in 1985 in an effort to set themselves apart from the sudden wave of competition that had appeared.

The new superstore was revolutionary in a number of ways. Over ten times the size of Bed 'n Bath's original shop, this 20,000-square-foot outlet offered a comprehensive line of home furnishings in addition to Bed 'n Bath's traditional linens and bath products. While most department stores and specialty shops offered only a few select brands, Bed 'n Bath's superstore offered seemingly every possible color, style, and size of each product. Until this time, most independent home textile retailers either copied department store merchandising techniques or followed the mundane merchandising style used by discount retailers. Eisenberg and Feinstein did neither. Bed 'n Bath, along with chains such as Toys "R" Us and Blockbuster Video, became pioneering "category killers": large specialty retail outlets that beat their competition by offering virtually every possible product in their specific category at everyday low prices. Other than semi-annual clearances to reduce inventory, the company never held sales. They claimed that their prices were already lower than other stores' sale prices.

In 1987 Eisenberg and Feinstein changed the name of their organization to Bed Bath & Beyond in order to more accurately reflect their superstore format. By 1991 Bed Bath & Beyond had opened seven new superstores in New Jersey, California, Virginia, Illinois, Maryland, and Florida, and expanded two existing stores into the superstore format. Sales reached $134 million that year, generating earnings of $10.4 million. Eisenberg and Feinstein funneled the revenue back into the company.

The company's success was considered unusual for the home products industry. As one analyst said, Bed Bath & Beyond "took a less than strong category and made it important." It did so by making ordinary household products seem exciting, even romantic. Customer service was an essential part of this marketing strategy. The company strove to build word-of-mouth advertising through a unique combination of family atmosphere and attentive customer service. Both management and sales personnel worked the floor, arranging merchandise displays, helping shoppers carry products, and otherwise making themselves useful. According to Fortune, even Feinstein and Eisenberg would gather on the floor on Saturday, to "tidy merchandise and ... pick up bits of litter." Check-out waiting time was reduced by increasing the number of cash registers, and the company developed a policy wherein, if the store was out of a desired product, Bed Bath & Beyond would deliver it to the customer's home, free of charge. Due to this strategy, Bed Bath & Beyond was able to keep paid advertising to a minimum. The company often saturated the market with advertising when a new store opened, then successfully relied on word-of-mouth to keep customers coming in.

Another important aspect of Bed Bath & Beyond's success was its merchandise layout. Related product lines were grouped together, giving the impression that the store was "comprised of several individual specialty stores for different product lines," according to company literature. To encourage impulse buying, seasonal products and other impulse items were arranged up front; further back, products were grouped on enormous vertical displays that reached to the ceiling. Such arrangements were designed to make it easier for customers to locate product and also to reinforced the perception that Bed Bath & Beyond offered an enormous assortment of goods.

Feinstein and Eisenberg also took an unusual hands-off approach to management. Bed Bath & Beyond employed no vice presidents. Instead, store managers were given autonomy to cut prices to meet local competition or to try new marketing plans with the consent of the district manager. Within each store, new departments could be created and existing departments could be expanded or reduced as needed to respond to marketing trends.

This decentralization approach permeated all aspects of Bed Bath & Beyond's management. The company had no central warehouses. Goods were delivered directly to stores, where they either entered on-site inventory areas or went directly to the floor. This greatly reduced inventory costs and also gave store managers greater control over the flow of goods through the store.

These management strategies provided Bed Bath & Beyond with one of the retail trade's strongest return on sales during the early 1990s. Out of every $100 in sales, Bed Bath & Beyond retained $7.36. The company's growth soared in the early 1990s, fueled by its ability to tap into hot marketing trends. Between 1989 and 1993 Bed Bath & Beyond increased its number of stores from 24 to 38 in 11 states.

Bed Bath & Beyond went public on the NASDAQ exchange in June 1992, trading at $17 per share. The company immediately became a Wall Street favorite, fueled by a rush of media coverage and the successful launch of a new Manhattan store. Analysts noted that, given the popularity of the merchandising concept that the company was championing, the timing to go public was ideal. By May 1993, shares were trading around $32 as the company announced record sales for the year: $216.7 million in sales, with earnings of $15.9 million.

As proof of Bed Bath & Beyond's status as a trendsetter, one need only examine the success of its Manhattan store. The store opened in November 1992 in what had been an abandoned, graffiti-covered department store at the heart of a dismal section of the city known as Ladies Mile. At the beginning of the twentieth century, Ladies Mile had been a booming retail center, revered as the place where upscale, fashionable ladies bought their clothing. By 1990, despite its desirable location in the center of Manhattan, the district was a mess. When Bed Bath & Beyond opened, however, it kindled a renaissance of the neighborhood. Within a year, a number of other superstores, including Barnes & Noble books, Today's Man menswear, and Staples, a discount office-supply chain, had also renovated boarded-up old emporiums. Bed Bath & Beyond added 30,000 more square feet to the store and it became the company's flagship store, a site where new merchandising concepts (such as a cafe and the introduction of gourmet food products) are given trial runs.

While Bed Bath & Beyond enjoyed tremendous success during this period in the home furnishings business, competitors sought to erode the company's standing. In the early 1990s, its primary rival, Linens 'n Things, began blatantly imitating its merchandising format. Supported by Melville Corp., a large conglomerate whose financial resources far outstrip Bed Bath & Beyond's, Linens 'n Things operated a chain of 144 stores by 1993 with annual sales around $290 million.

Linens 'n Things, which had utilized an integrated computer system since the late 1980s, enjoyed a tremendous advantage over Bed Bath & Beyond in the inventory management area. In 1993, however, Bed Bath & Beyond installed integrated computer systems in all stores that allowed managers to track inventory, sales, and receivables more efficiently. The new automated system also enabled the company to develop a chain-wide bridal registry that analysts estimated would add another 15 percent to annual sales.

Luxury Linens and Pacific Linens also posed a threat to Bed Bath & Beyond's attempts to venture into new markets. Still, the company enjoyed a 37 percent increase in sales in 1992 as it continued to grow without benefit of acquisitions. Most competitors, on the other hand, relied on expansion through acquisitions to a much greater degree. Sales in the first six months of 1993 increased 43 percent and earnings improved by 47 percent, garnering Bed Bath & Beyond first place recognition in Chain Store Executive's survey of high performance retailers.

In 1994 the company began offering such small electric appliances as coffee makers, hair dryers, toaster ovens, and vacuum cleaners. Other home accessories like gourmet foods, clocks, and lamps were added to the product line as well. This further broadened its customer base and fortified the chain's edge in the retail market.

Entering the mid-1990s, Bed Bath & Beyond notes that none of its competition offers the diversity of products it sells. Moreover, no competitors have been able to achieve the profit margins registered by Bed Bath & Beyond. By 1997 Bed Bath & Beyond hopes to have approximately 100 stores across the United States, and Feinstein predicts that company sales will rise by 30 to 35 percent by that time.

The proliferating number of imitators, however, has created what Barron's called "a treacherous environment requiring astute management." Analysts fear that the market will be saturated by the year 2000 and that perhaps Bed Bath & Beyond's impressive earnings have already peaked. They note that by 1994, Feinstein, Eisenberg, and members of their respective families had sold almost five million shares. Nevertheless, Feinstein and Eisenberg remain the driving force behind this company, and together they control over 40 percent of company shares. In addition, the two signed an employment agreement that guarantees their continued management of the company until mid-1997.





Further Reading:


"Bigger Stores, Bigger Profits Boost Bed Bath & Beyond," Chain Store Executive, November 1993, p. 21.
Norton, Leslie P., "One Step Beyond," Barron's, August 8, 1994, p. 17.
Shoulberg, Warren, "Way Beyond," Home Textiles Today, September 6, 1993, p. 1.
Slesin, Suzanne, "It's Fun. It's Romantic. It's Soap and Dish Towels," New York Times, November 16, 1992, p. C1.

Source: International Directory of Company Histories, Vol. 13. St. James Press, 1996.




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