Here’s How Store Closures Can Work In Bed Bath & Beyond’s Favor

Bed Bath & Beyond (NASDAQ:BBBY) reported disappointing Q1 2017 results, with both revenues and earnings falling short of consensus estimates.  Quarterly comparable sales decreased approximately 2% due to a decrease in the number of transactions in stores, partially offset by an increase in average transaction amount. While store traffic for the company is declining as many customers prefer shopping online, the fixed costs  of operating stores remain, leading to margin pressure. The company’s customer facing digital channels are growing in excess of 20% while comp sales from stores have declined in the mid-single digit percentage range. The company is now looking to increase the pace of store closures as leases come up for renewal (if favorable terms are not negotiated) and work on redesigning its existing stores to better execute an integrated retail format. Optimizing its real estate portfolio to deliver a better omni-channel experience can improve Bed Bath & Beyond’s profitability.

See our complete analysis for Bed Bath & Beyond

We forecast the average revenue per square foot of a Bed Bath & Beyond store to increase moderately from $233 in 2017 to nearly $237 by the end of our forecast period.

We expect the company’s store count to remain stable at just over 1000 over our forecast period.

However, if the company is able to reduce its physical stores while making up for that lost revenue via online sales, it could lead to improved margins and profitability, due to higher average revenue per square foot per store. Other retailers such as Home Depot have been able to achieve this with an increased focus on e-commerce. Home Depot has consistently increased its revenues in the past three years without adding any physical stores. Bed Bath & Beyond is working towards creating a better store experience by integrating technology tools and improving store formats. Its stores are a crucial part of its integrated retail strategy, since they work as “demo stations” and proxy warehouses where customers can come and pick up their orders. However, a smaller and more efficient store network can help the company to improve its profitability as sales shift to the online channel. The strategy to design stores as “experience centers” where customers can check out products and the company can use them as “marketing outlets” should work in its favor. In the changing retail landscape, a smaller network of efficient stores is likely to be key to improved profitability.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research