Neil Saunders, managing director of research firm GlobalData, wrote in a note to clients “There is nothing in these numbers that suggests the company has turned a corner indeed, they firmly point to a business that is living on borrowed time.”Īs he pointed out, BBBY’s liabilities have weakened its balance sheet to the point that it has negative equity - specifically, its liabilities exceed assets by $500 million. Meanwhile, one analyst offered a sober assessment of BBBY’s prospects. After all, it has lost market share on the back of a flawed strategy, competitors are benefiting from its weaknesses, and demand for homegoods is lower and likely to keep falling. This is a tough time to be trying to turn around BBBY. Can BBBY’s Turnaround Strategy Pay Off For Investors? Gove said that BBBY is using its borrowings to make overdue payments to suppliers - sending accounts payable down 21%, noted the Journal. Since closing its books on the fiscal second quarter, BBBY says its has “liquidity of about $850 million as of September, reflecting new loans it secured after the quarter ended,” according to the Journal.īut liquidity is not cash - it is borrowing that BBBY will have to pay back. To be fair, that fiscal second quarter cash position is better than where it was at the end of May - up a mere $27.8 million, noted the Journal. It finished the fiscal second quarter with $135.3 million of cash - 86% below its balance the year before. BBBY’s Diminishing Financial ResourcesīBBY’s cash position was perilous at the end of August. She has jumped ship because the retailer no longer stocks what she wants to buy. For example, Sarah Penrod, a professional chef, used to buy All-Clad cookware and Wüsthof knives from BBBY on a regular basis. Ignoring what its loyal consumers want to buy has cost BBBY dearly. When the pandemic hit, factories closed, BBBY’s shelves were empty and when they finally filled up with the private-label goods, “they didn’t resonate with shoppers,” according to the Journal.Īs Gumz explained, “My customers would look at the private label and say, ‘What is this?’ tried to persuade them to buy dishes, they’d say, ‘Where is Mikasa?’” BBBY stopped ordering popular brands like All-Clad cookware, OXO kitchen gadgets and Mikasa china and heavily discounted the remaining inventory to clear it out of the stores. once got a shipment of 95 purple rugs under the Wild Sage private brand that she had to discount by 80%,” reported the Journal.īBBY clearly did not ask consumers whether they would buy its private label merchandise.īefore the pandemic, BBBY tried to clear the stores of branded merchandise to make room for the private label items. store manager who left when BBBY closed her store, said, “We’d get large quantities of stuff that we couldn’t sell. This centralization landed merchandise in stores that local consumers did not want to buy. Instead, corporate merchandisers told local stores “what to buy and where to place the items in stores,” noted the Journal. Local store managers lost their power to tailor their assortment to the needs of their communities. To the detriment of BBBY investors, customers, and store managers Tritton decided to centralize buying so BBBY could get the best prices for private label products from factories. For example, store managers on the coasts knew that consumers there liked duvet covers while midwestern store managers provided comforters which their consumers preferred, noted the Wall Street Journal. One good thing that BBBY’s founders did was to shun centralized buying and allow store managers to purchase 70% of the products sold in their stores. Earlier this year, Tritton’s strategy sent sales down and in June he was shown the door. Sadly Tritton pushed all the stores to get the items customers wanted off their shelves to make room for the private label goods they shunned. She expressed confidence that BBBY’s “current liquidity - will enable the necessary changes we are implementing.” How BBBY Got Into So Much TroubleĪt the risk of oversimplifying, as I wrote September 5, BBBY tried to reverse a loss of customers to rivals like Target, Costco, Walmart WMT, Amazon AMZN and Home Goods by hiring an executive in 2019, Mark Tritton, from Target to implement a private-label strategy (knock offs of popular brands at a lower price). Gove said that BBBY’s costs will fall by $500 million, according to the Journal. In a news release she said that BBBY is fixing inventory problems by marking down merchandise. Following cost-cutting measures - layoffs and closing about 150 stores - announced in August, BBBY still anticipates full year “comparable sales to decline by about 20% as its business improves in the back half of the fiscal year,” according to CNBC.
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