How Big Can Bed Bath & Beyond’s E-Commerce Business Get By 2020?
Bed Bath & Beyond (NASDAQ: BBBY) is struggling with margin pressure and declining store traffic amid competition from e-commerce and omnichannel competitors. For that reason, management is increasing its efforts in online initiatives to offset the declining foot traffic. The retailer’s investment in digital initiatives have come later than many of its competitors, so it does have a lot of scope to grow further. E-commerce currently accounts for around 16% of Bed Bath & Beyond’s total revenue.
Going forward, we expect Bed Bath & Beyond’s revenue to decline marginally through 2020 and expect its e-commerce sales to contribute about 28% of the total sales. This figure should help the company offset secular pressure on brick-and-mortar retail locations. To arrive at our fiscal 2020 net revenue estimates for Bed Bath & Beyond, we have broken down the revenue streams and estimated separately.
We have created an interactive dashboard on How Much In Online Revenue Can Bed Bath & Beyond Buy Generate In The Next Three Years? which provides a detailed analysis of how to arrive at this growth number. You can make changes to these variables to arrive at your own revenue estimates for the company. We have a $16 price estimate for Bed Bath & Beyond, which is almost 20% ahead of the current market price.
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Can Bed Bath & Beyond Grow Its Digital Sales?
Bed Bath & Beyond’s stock is now trading almost 40% lower than its price at the beginning of the year. Much of this year’s stock decline came after its disappointing fiscal 2018 guidance. In addition, the company’s profits have also declined in recent quarters, in large part due to extensive coupon usage. Going forward, we expect the declining trend in Bed Bath & Beyond’s profitability to continue in the near term. The company is struggling with stagnant revenues and declining comparable sales growth, mainly because the company is still very much brick-and-mortar reliant and simply faces a lot of price competition from online retailers. Accordingly, the company is stepping up its online efforts in order to keep up with the changing retail industry dynamics. The retailer is trying to remodel both its online and offline store formats at the same time – including redesigning stores, spending on its loyalty program, revamping its supply chain and increasing its shipping costs in order to catch up with other online competitors. However, we expect this aggressive push in online initiatives to put further pressure on the company’s margins, due to increased fulfillment costs resulting from growth in digital sales. We have estimated that Bed Bath & Beyond’s e-commerce sales have almost doubled from 8% ($950 million) of its total revenues in 2014 to 16% in 2017 ($1.7 billion). This suggests that the company is making substantial progress in the digital space.
Estimating E-Commerce Revenue
We expect Bed Bath & Beyond’s revenues to decline slightly to $12.3 billion in 2020. We have calculated the retailer’s total revenue in 2020 by estimating the revenues from the company’s Bed Bath & Beyond stores, Christmas Tree Shops, buybuy BABY stores, World Market Stores, and Harmon stores. Further, we have calculated the retailer’s divisional revenues by estimating the number of stores, square footage per store and revenue per square foot through 2020. We also estimate Bed Bath & Beyond’s s e-commerce sales to grow at an 18% CAGR through 2020, based on the company’s reported e-commerce numbers in previous years. Although Bed Bath & Beyond does not specifically disclose its e-commerce sales, we estimate from the 2016 annual report that website and mobile applications make up roughly around 14% of sales, up from about 10% in 2015. We have further added 20% growth to this channel for calculating the company’s 2017 online sales. Going forward, we expect the company’s online sales to keep growing at similar pace.
Total U.S. e-commerce sales came in at $453 billion for 2017 (8.9% of total retail sales), and are expected to reach $526 billion (+16% y-o-y), representing 10% of total retail sales in 2018. Additionally, total e-commerce sales could grow to represent 12.4% of U.S. retail sales in 2020 and reach approximately $703 billion.
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