Less than a decade ago, it seemed like everything was coming up Bed Bath & Beyond. The home goods company, which was founded in 1971, had held its own as other retailers faltered. Sales were strong, and its longstanding management team was solid. Consumers liked its plentiful, never-expiring coupons and loved its permissive return policy. In its space, it seemed to have everything figured out … until it didn’t. Now, the company is facing potential bankruptcy, and its stock price has plunged.

On Tuesday, January 10, Bed Bath & Beyond reported a net loss of $393 million for its most recent reporting quarter, ending November 26, 2022, and a 33 percent drop in sales. The dismal earnings release wasn’t entirely unexpected — the week prior, on Thursday, January 5, Bed Bath & Beyond said in a regulatory filing that it’s under a cash crunch and there is “substantial doubt about the company’s ability to continue as a going concern,” meaning it might not be financially stable enough to cover its expenses and meet obligations. It has $1.9 billion of long-term debt as of last quarter. It is burning cash fast, and its options for raising money to get more runway are limited.

For anyone who’s been watching closely, this latest development doesn’t exactly come as a surprise: Things have been looking ugly at Bed Bath for a while.

A quick glance at Twitter demonstrates the company’s woes, with multiple gripes pointing to its e-commerce failings. In early January, one customer complained to the retailer that they had returned a bad umbrella to the store and ordered a new one, only to receive the same umbrella they had returned. Many customers who once loved its seemingly endless offering of products (see: the Broad City Bed Bath episode) are now met with empty shelves and lackluster inventory. The company is in a precarious financial spot.

“Bed Bath & Beyond is too far gone to be saved in its present form. A catalog of missteps has run the company into the ground and has made it increasingly irrelevant,” wrote Neil Saunders, managing director and retail analyst at GlobalData Retail, in a research note after Bed Bath’s January 5 regulatory filing. “Only very radical action will allow it to survive and even if it does, it will be a shadow of its former self.”

Bed Bath has fallen behind the e-commerce curve, and that’s hard ground to make up. It has ceded market share to giant retailers such as Amazon, Target, and Walmart while at the same time facing stiff competition from smaller outfits such as Wayfair and HomeGoods. Efforts to orchestrate a turnaround, including with launching private-label brands, have fallen flat. Suppliers and customers are growing frustrated.

Bed Bath has also spent billions of dollars on stock buybacks, meaning it used cash to repurchase its own shares on the open market over the years. That’s money it could put to use now, if it had it, to try to reinvent itself. Still, what that reinvention might look like — bankruptcy or not — is unclear.

“They can’t be the store that has everything, because they’re not. They can’t be a premium guy like Williams Sonoma, because they’re not. They can’t be a bargain guy like HomeGoods, because they’re not,” said Warren Shoulberg, a longtime retail journalist who writes at WarrensReport.com, in an interview. “So what do they do? I don’t know.”

The landscape changed and Bed Bath didn’t

There is no single factor at the core of Bed Bath & Beyond’s woes, but instead, a series of issues that have led to its slow decline. Net profits began to fall steadily throughout the 2010s, largely turning negative after 2019, as the company lost ground to competitors who proved more agile and apt for the changing market landscape.

The Bed Bath business model was “we have more stuff than anybody, so come here to buy it, and we have decent prices,” Shoulberg explained. It drew consumers in and kept them coming back with its iconic blue-and-white coupons that made it feel like the whole store was always on sale.

That value proposition worked for a while, but not forever. “This fellow named Amazon came along and said, ‘No, in fact, we have much more than they do, we have more than anybody, and our prices are decent,’” he said. After that, Bed Bath never found another value proposition or, to put it more plainly, a real reason to exist. Its coupons were nice, and its return policy was generous (it’s less generous now), but that wasn’t really sufficient.

At the same time, Bed Bath & Beyond was slow to get up to speed on e-commerce, and unlike clothes and furniture, it sells a lot of stuff that people are generally fairly comfortable with buying online without seeing. Bed Bath also has a made-for-TV section with items that aren’t meant to be experienced before buying really at all. They got the ball rolling eventually, but they never invested the resources necessary to really land.

“Their website was a little bit clunky, hard to use, it took a long time to get items. If you ordered online, they certainly didn’t come in two days like you could get them shipped from Amazon,” said Wall Street Journal reporter Suzanne Kapner in an August podcast interview. “They were behind the curve when it came to e-commerce and all these new technology features that retailers were adding. They just had fallen so far behind that it really started to eat into their sales.”

She added that part of the issue was a broader culture of frugality across the organization and a “forest for the trees” kind of thinking where company leaders missed the bigger e-commerce picture. Over time, Amazon wasn’t the only one of Bed Bath’s e-commerce headaches.

“They had to compete with Amazon and they had to compete with Wayfair, and Wayfair is very good at e-commerce,” Shoulberg said. “Wayfair is a tech company that just happens to sell home furnishings.”

Changes at the top didn’t lead to $$

Activist investors took note of Bed Bath’s struggles and in 2019 launched what would be a months-long campaign to make changes at the retailer — a campaign they eventually won. The activists — Legion Partners, Macellum Advisors, and Ancora Advisors — compelled an overhaul of the company’s board of directors and the replacement of its longtime CEO, Steven Temares. New management, including Target veteran Mark Tritton as CEO, was brought in with the hopes of reviving the company.

Tritton “did some things right initially to help stabilize the patient,” Wedbush analyst Seth Basham told Retail Dive, including expanding in-store and curbside pickups for customers who bought online. The company also benefited from an early pandemic sales boom. Still, the broader new strategy missed the mark.

Under new leadership, Bed Bath sought to declutter its stores and pursued a private-label strategy, meaning it started to create and sell its own brands. That approach proved difficult to execute. The retailer faced supply chain bottlenecks and had problems keeping items in stock, and customers didn’t exactly fall in love with the new products.

In 2021 and 2022, Bed Bath’s woes worsened. “Their credit profile deteriorated, their liquidity began to erode, and in the summer, they started paying suppliers slower,” said Dennis Cantalupo, CEO at Pulse Ratings, a credit rating and consulting firm focused on retail. “It damaged the relationships with suppliers that … interrupted some flow of inventory. So now the shopper is going into stores and not seeing the merchandise that they want. And they’re walking away without anything.”

Bed Bath’s retail problems are a money problem: The company has $1.7 billion of long-term debt, and it needs cash to invest in a turnaround. Yet it’s been spending a lot of money on stock buybacks, meaning repurchasing its own shares instead of using that money to invest in the company elsewhere. In November 2021, Bed Bath announced that it had accelerated its plan to repurchase $1 billion in shares, which it initiated in 2020. Given the company’s financial position, the decision to repurchase stock seems, well, questionable.

“That killed Bed Bath’s cash flow,” Shoulberg said. It didn’t really boost the price of the stock, and it didn’t do much of anything. “[If] they had that working capital, I think it’s safe to say that they would not be in as dire straits as they are now. They’d still have to fix the store, but they’d have a little more breathing room.”

Cantalupo noted the stock buyback issue isn’t just tied to post-2019 management — pre-activist management had done a lot of buybacks as well. To a certain extent, that’s normal behavior in corporate America, and plenty of companies buy back shares all the time (whether that’s a good thing is debatable). And Bed Bath was in a good financial position for quite some time. But hindsight is 20/20. “They would certainly have some more runway had they not been as aggressive with the share repurchases,” Cantalupo said.

2022 was not pretty for Bed Bath & Beyond. 2023 could be even uglier.

Last year was a rocky one for Bed Bath.

In June, Tritton was pushed out as CEO and replaced by Sue Gove as interim chief executive. In August, Bed Bath rolled out yet another turnaround plan, including closing 150 of its nearly 1,000 stores, cutting costs, and implementing layoffs. But those measures appear to be too little, too late.

Bed Bath’s holiday season looks to have been an ugly one, given its most recent earnings release. In a statement accompanying its January 10 earnings, Gove said Bed Bath had moved “quickly and effectively” to change its assortment and merchandising and marketing strategies as part of its turnaround plan, but “inventory was constrained,” and it had not met its goals. Bed Bath initiated cost reductions of $80 million to $100 million during the quarter, including overhead and headcount.

“We continue to work with advisors as we consider all strategic alternatives to accomplish our near — and long-term goals,” she said, adding that “multiple paths are being explored.” The company did not comment explicitly on a potential bankruptcy filing, and in a call following earnings, Gove stuck to prepared remarks centered on Bed Bath’s turnaround efforts.

In an email to Vox ahead of earnings, Bed Bath cited the January 5 filing, which reads, in part, “Since initiating Bed Bath & Beyond Inc.’s comprehensive turnaround plan at the start of the third quarter, which included financial actions to improve our balance sheet and cash flows, we have been working with strategic advisors to evaluate all paths to regain market share and enhance liquidity, our stated priorities.” It declined to comment on the company’s troubles further.

As the New York Times’s Andrew Ross Sorkin notes, Bed Bath doesn’t really have a lot of options on where to go for cash. It’s not clear whether existing lenders are willing to give the company more, and its efforts to exchange some bonds for new equity have failed.

It’s also worth pointing out that mending fences with suppliers and customers is hard. “When liquidity became tight, they slowed payments to suppliers and that damaged some relationships there,” Cantalupo said.

In 2022, Bed Bath briefly achieved meme stock status — meaning it became a favorite of retail traders online with a collective, often jokey interest in the company. That does not appear to have ultimately helped, either. That March, Ryan Cohen, the co-founder of the pet e-commerce company Chewy, revealed a large stake in the home goods retailer. Cohen has been a central figure in the gaming retailer GameStop’s attempted turnaround and meme stock story over the past couple of years, and there was hope that his involvement in Bed Bath could lead to something good. He called on Bed Bath to “narrow its focus to fortify operations and maintain the right inventory mix to meet demand” and explore “strategic alternatives,” such as spinning off Buy Buy Baby, the baby chain it owns.

“The issue at Bed Bath is that its highly-publicized and scattershot strategy is not ending the tailspin that has persisted before, during and after the pandemic’s nadir and the appointment of Chief Executive Officer Mark Tritton,” Cohen wrote in a letter to Bed Bath in March. “As evidence, we point to the Company’s disappointing shareholder returns and perpetual underperformance across every relevant time horizon.”

Cohen’s involvement caused Bed Bath’s stock price to pop briefly, and the Canadian entrepreneur was able to secure three board seats. But in late summer, Cohen cashed out. He pocketed $68 million in the process, but Bed Bath’s share price plunged.

In September, Bed Bath’s CFO, Gustavo Arnal, who joined the company in 2020, died by suicide. He was facing a lawsuit, alongside Cohen, that alleged the pair were involved in a pump-and-dump scheme around the stock. The company has said the claims are without merit.

“Although it’s a big story that made the news, I don’t think that’s why we’re here today. The tragedy that’s gone along with that as well,” Cantalupo said.

Bye-bye, Bed Bath?

Moving forward, Bed Bath is on shaky ground, and its list of options as to what’s next isn’t terribly extensive. On January 5, Jaime Katz, an analyst at Morningstar, said in a note that the firm was updating its “fair value estimate to zero” for the “no-moat” company, citing flagging sales and vendors limiting inventory given cash flow uncertainty. “Bankruptcy is a much nearer-term risk than we previously anticipated,” she wrote.

If Bed Bath does file for bankruptcy, it would give the company an opportunity to eliminate a lot of its debt, clean up its balance sheet, and close underperforming stores. Will that be enough to save it? It’s a tough question to answer.

“That’s an uphill battle,” Cantalupo said. “There are certainly other alternatives to buy the merchandise that they sell. They have to figure out a way to differentiate themselves from the competition, which is sometimes easier said than done.”

With the notable exception of Toys R Us, few retailers are completely liquidated when they get into a situation like Bed Bath’s, Shoulberg said. Many companies reemerge from overhauls and bankruptcy, which he thinks will be the case here, though that doesn’t mean Bed Bath is in the clear. “Most of these reorganizations don’t work,” he said. Maybe they come out of it, but then what? “They still don’t have a plan on how to be a successful retailer.”

There are some examples of struggling retailers who have been able to reverse their fortunes. Take the example of Barnes & Noble, which has found a way to survive and thrive in Amazon’s world, and Best Buy, which is still around. In other words, Bed Bath is in a tough spot, but it’s not impossible to make a comeback.

Whatever happens next, Shoulberg said that Bed Bath’s woes should be a warning for other retailers about the dangers of complacency and falling behind. “It wasn’t long ago where Bed Bath & Beyond was considered one of the best retailers in America,” he said. “They unraveled pretty quickly.”