Bed Bath & Beyond Bankruptcy: 480 Stores Closing As 'Lethal Combination' Kills Storied Retailer
Bed Bath & Beyond filed for bankruptcy over the weekend, the culmination of the home goods retailer failing to remain relevant to shoppers and its inability to get out from under a mountain of debt.
The chain retailer filed for a Chapter 11 restructuring Sunday, announcing plans to close all of its stores — 360 Bed Bath & Beyond locations as well as 120 Buy Buy Baby shops — by the end of June. Sixth Street Speciality Lending is providing $240M in debtor-in-possession financing for the process, the company said in a regulatory filing.
Bed Bath & Beyond secured $1B in financing in February from investors, including hedge fund Hudson Bay Capital Management, to avoid bankruptcy, a measure that served as a Band-Aid, not a solution, analysts said.
“Failure to remain relevant to your customer combined with a highly leveraged capital structure is a pretty lethal combination,” Tom Mullaney, managing director of restructuring services at JLL, told Bisnow in an email Monday. “A more debt-free capital structure gives you maneuverability and a much bigger margin for error to deal with the course corrections that every business has to make from time to time.”
As of February 2022, Bed Bath & Beyond leased 27.9M SF of retail space across 953 stores in the U.S. and Canada. It reported a 33% sales drop last quarter, with adjusted losses totaling $225M, Yahoo Finance reported.
Financial and personnel tumult has plagued the company for some time; after sales dropped 25% in the first quarter of last year, the company removed its CEO Mark Tritton. Last month, he sued the company, claiming it failed to pay his $6.7M severance package, Reuters reported.
Tritton’s replacement, Sue Gove, was appointed permanently to the role in October with the view of steering the firm to calmer waters. Its recovery strategy, announced last August, involved laying off about 20% of its corporate employees and shuttering 150 stores. It had already closed more than 200 locations in preceding years.
But by January this year, the firm was talking to possible buyers and in discussions with lenders in preparation for the possibility of bankruptcy.
"We often see among weakened companies is that they fail to use bankruptcy as an offensive weapon. Instead, they are like a patient on a gurney, losing blood day after day," Mullaney wrote. "When they finally decide to take action, they have lost so much strength that they just collapse. It is important to act quickly and decisively and not deny and delay: bankruptcy or the carefully executed threat of bankruptcy can allow you to live another day."
High-profile retail bankruptcies have started to pile up. This month, David's Bridal — a once-prolific wedding dress retailer — filed for Chapter 11 bankruptcy protection. In February, discount homewares retailer Tuesday Morning went bankrupt again, a little over two years after it last emerged from restructuring. Those bankruptcies followed Party City, which went bankrupt in January.
UBS retail analyst Michael Lasser told Yahoo Finance he is predicting an acceleration of retail closures, estimating 50,000 retail stores are likely to shutter by 2027. But JLL’s Mullaney cautioned against reading too much into Bed Bath & Beyond’s demise, saying the strength of the economy is still protecting retailers that are both "over leveraged and somewhat irrelevant."
But, so far, retail bankruptcies haven’t caused angst among the retail real estate community. The national retail vacancy rate fell to 5.7% at the end of the year, its lowest level since 2007, according to Cushman & Wakefield, making many confident any space left empty will easily find new occupants.
“E-commerce scared a lot of people off from building retail,” Brandon Isner, the head of retail research at CBRE, told CNN. “A lot of great real estate is going to come available into a market where there’s been no vacancies. It will not take long for retailers to occupy those spaces.”
Retail landlords, particularly in the suburbs, have expressed eagerness to reclaim the large boxes Bed Bath & Beyond and other bankrupt retailers are leaving behind, allowing them to be repurposed into grocery stores or other concepts that draw foot traffic.
"There’s such a paucity of space and the demand is so great," Drew Gorman, the managing partner of Baltimore-based MCB Real Estate, said at a Bisnow event last month. "It was like a feeding frenzy of retailers who are healthy who want space are like frothing because of all the locations that have come in."
