West Coast Port Disruptions May Hurt Bed Bath & Beyond

Home goods retailer Bed Bath & Beyond (NASDAQ:BBBY) has benefited over the last one-and-a-half years due to a gradual recovery in the U.S. housing market and improvement in consumer affordability. The company’s stock is up by over 35% since July 2014 because of steady growth in sales. Being a specialty retailer, Bed Bath & Beyond offers an expansive variety of home furnishing and bath & kitchen related products, that are mostly inline with customer preferences and are hard to find at other locations. This has been the home goods retailer’s unique selling point for a long time, which has helped it create a niche image for itself in a market dominated by retail giant Wal-Mart (NYSE:WMT) and other department stores having a line of home furnishing items. However, Bed Bath & Beyond’s sales may falter due to West Coast port disruptions, which are causing delays in inventory acquisition.

Imports of fabrics and other goods are not reaching the retailer on time, which is causing a temporary shortage at Bed Bath & Beyond’s warehouses and stores. In fact, in some case, the company is not getting its imports at all. While there have been no clear reports that Bed Bath & Beyond is indeed feeling the impact of delayed shipments, we believe that soon enough its customers may not find the expansive product variety in its aisles, which the retailer is famous for. Also, customers browsing through Bed Bath & Beyond’s websites may see a lot of products out of stock. With diminished product variety, incentives of shopping at Bed Bath & Beyond will decrease, which can have a negative impact on customer loyalty.

Our price estimate for Bed Bath & Beyond stands at $75, which is just below the current market price.

See our complete analysis for Bed Bath & Beyond

What Is The West Coast Port Issue?

Increases in incoming shipments at West Coast ports have resulted in traffic jams  that are causing unwanted delays in movement. Amid this congestion, labor unrest is making things worse. Dockworkers and longshoremen have been working without a contract since July 2014, which has now led to a dispute between workers and shippers. There have been complete port shutdowns on several occasions, as the International Longshore and Warehouse Union (ILWU) is trying to retaliate against the Pacific Maritime Association (PMA), which represents the shippers. According to a PMA spokesman, terminals that usually see 25-30 moves per hour are now seeing less than 10. ^[1] The lengthy dispute between ILWU and PMA is threatening a gridlock at several ports. Contract negotiations between the two parties have recently reached a standstill and a resolution seems far off.  Because of this, a number of retailers are ordering their inventories in advance, which is further contributing to the congestion. According to a Kurt Salmon analysis, retailers can lose up to $7 billion this year due to traffic congestion  at West Coast ports. ^[1]

How This Impacts Bed Bath & Beyond

According to a report published by the National Retail Federation last year, 46% of the total furniture imports and 34% of textile and knitting imports are routed through the affected ports. ^[2] These figures clearly indicate that home furnishing retailers such as Bed Bath & Beyond will eventually feel a significant impact of congestion and shutdown at these ports. In fact, a major importer of fabrics used for curtains and other home decorations, Softline Home Fashions, recently stated that shipments worth $800,000 bound for Bed Bath & Beyond, Wal-Mart and J.C. Penney are still to be unloaded. ^[3] This is just one of the several examples of shippers worried of stuck shipments.

Softline’s president has said that the company is considering importing goods from China via air freight. While this move will address West Coast Port issues and retailers will have their shipments in an insignificant amount of time, it is not a very viable solution altogether. Air freight will cost shippers and retailers huge amounts that will weigh heavily on their profits. For Bed Bath & Beyond, the bottomline is already a worry as it is dealing with increased coupon redemption rates, higher direct-to-consumer shipping expenses and  higher expenses in technology and advertising. Therefore, we believe that Bed Bath & Beyond will either see its revenues suffer from delayed shipments or profits plummet due to higher expenses of air freight. Either way, West Coast port disruption will take a toll on the company. We will adjust our model once we are able to definitively quantify its impact.

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1. West Coast ports: Retail’s $7 billion problem, CNBC, Feb 9 2015 [↩] [↩]
2. The National Impact of a West Coast Port Stoppage, June 2014 [↩]
3. Port Delays Starting to Damage Business, The Wall Street Journal, Feb 16 2015 [↩]