UNION, N.J.—Among the many initiatives in Bed Bath & Beyond’s three-year turnaround plan is a significant investment in supply chain, store remodels and other operations that COO John Hartmann said is already improving its business.
The operating chief discussed those initiatives Thursday with Home Accents Today after the company reported its third quarter earnings in which it highlighted its second consecutive quarter of comparable sales growth, driven by digital sales, and 5% growth in its core business, having recently shed the last of its non-core assets, Cost Plus World Market. Overall, net sales were down 5%.
“We are a different business today than we were a year ago,” Hartmann said. In addition to selling off Cost Plus World Market and Christmas Tree Shops, the company also last year introduced a suite of omnichannel options—namely Buy Online Pick Up in Store (BOPIS) and curbside pickup—that have resonated well with consumers and helped support 94% digital comparable sales growth at Bed Bath & Beyond.
Continued success will likely hinge, at least in part, on operational initiatives.
“We are smack in the middle of a true transformation of supply chain,” Hartmann said. The company has been in the process of changing from a consolidation model to a more centralized system. Its supply chain has historically been based on a small cross-dock model that did not enable it to store a lot of product and which was thus heavily dependent on vendor lead times, Hartmann said. As a result it typically takes 30 to 35 days to replenish inventory in its stores.
The company is collaborating with one or more third-party logistics providers to establish up to four new distribution centers across the country that will enable it to replenish stock in less than 10 days, Hartmann said. It also added a secondary national carrier and several regional parcel delivery carriers to help alleviate COVID-related shipping constraints and additional freight costs.
The company has also pledged greater inventory management, having reduced inventory by 10%. But Hartmann said that rather than thinking of that in terms of cuts, he considers it managing inventory “more sensibly and logically.” Because the cross dock method slowed the time it took to get product onto shelves, the stores had to hold onto more inventory. Now, with investment in an inventory management system, it can track inventory better and get it to the stores that need it most, Hartmann said.
The retailer’s recently formed procurement organization, which is centralizing spending control and vendor management, is a best practice to enhance merchandising and make it more efficient, Hartmann said.
Bed Bath also last year committed to closing 200 underperforming stores in fiscal 2021, a process that is ahead of schedule, the company told analysts in a call yesterday. It originally planned to close 70 stores in fiscal 2020 but is now on pace to close 120 in that time period. Store closure decisions have been heavily dependent on data and analytics, Hartmann said. Those that have been eliminated were overlapping or nonperforming and were not focused on any one particular size of store or geographic area. Hartmann noted that by closing 200 stores it can continue to meet 80% of demand without opening new stores and also increase EBITDA by $100 million annually.
At the same time, the company is in the process of remodeling 450 stores around the country—and is spending $250 million on the effort—that will deliver “a modern, relevant and exciting store environment,” Hartmann promised. The store remodels represent 60% of the company’s overall revenue. “We’re touching a substantial amount of our store revenue base,” he said.
The company has been conducting remodeling tests in Houston and although it is still “early days” in terms of results, by the end of next month there will be 10 remodels: four full-store updates, four “next tier” remodels that will have a substantial re-set and a couple of “omni refreshes” such as updates to BOPIS pickup areas and signage, Hartmann said. “The early results are strongly resonating with customers,” he said. It will identify the first 130 stores to remodel based on these tests.