A Closer Look At Bed Bath & Beyond’s World Market Stores

Bed Bath & Beyond (NASDAQ:BBBY) is one of the largest specialty retailer of home furnishing and bath and linen related items. It is known to acquire different businesses and the latest addition to the list is Cost Plus’ world market stores. Bed Bath & Beyond acquired Cost Plus back in June 2012, a retailer selling a variety of home decorating items, furniture, gifts, holiday and seasonal items as well as specialty food and beverages. We have created a separate segment for world market stores in our pricing model. In this analysis, we will take a closer look at this business segment, its growth potential and its significance for Bed Bath & Beyond. Most of world market’s product offerings are similar in nature to Bed Bath & Beyond stores’ product assortments. However, the unique store layout and distinctive offerings add a different appeal to the products.

According to our estimates, World Market stores contribute about 10% to the retailer’s value.

See our complete analysis for Bed Bath & Beyond

World Market Stores’ Business

Through world market stores, Bed Bath & Beyond offers a variety of casual home furnishing products including furniture, bath linens, rugs, pillows, window coverings, gifts and decorative accessories. It also offers food and beverages such as wine, microbrewed and imported beer, bottled water, tea and coffee. While most of the products are similar to Bed Bath & Beyond’s, there are some aspects that add a little more appeal to world market’s products.

World Market stores offer private label (World Market) brands, which have distinct design, good quality and are not available in typical department stores. A significant number of the products including collectibles and jewellery are handcrafted, and bought from different parts of the world, which makes them exclusive. Moreover, these products are sourced from the locations where Bed Bath & Beyond’s presence is not strong. This adds variety to the retailer’s overall product offerings.

The World Market stores have a unique design which incorporates creative and colorful product display and presentation. The goods are displayed in open crates and barrels, and are categorized in separate shops within the stores. This makes the products look a lot more attractive and enhances the shopping experience. In some states, these stores include wine and coffee tasting with other food assortments. We believe, that despite the products being similar, Bed Bath & Beyond can leverage the aforementioned factors to operate a different business altogether.

Significance For Bed Bath & Beyond

At the time of Cost Plus acquisition, Bed Bath & Beyond had 258 world market stores across 30 states in the U.S., which increased to 261 at the end of Q2 fiscal 2012. We expect the retailer to open around 10 stores annually. According to our estimates, the revenue contribution of world market stores will be around 9-10% in the coming years. This might seem to be an insignificant contribution, but there is more to it than just the numbers.

Along with the improving housing industry and customer shift to specialty stores, Bed Bath & Beyond has acquired a unique and distinct business. This will not only help in driving more customers, but will also strengthen the retailers brand image. Moreover, this will bring down the competition (Cost Plus was previously a competitor) and grant Bed Bath & Beyond a competitive advantage over other specialty retailers and department stores.

Our price estimate for Bed Bath & Beyond stands at $ 75, implying a premium of about 25% to the market price.

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