Supply Chain Issues Cost Bed Bath & Beyond $100M in Sales
Bed Bath & Beyond suffered a disappointing quarter in the face of supply chain "stresses," but its loyalty program grew by nearly half a million members.
Despite strong customer demand, operational challenges such as vendor constraints and lack of availability with replenishment inventory impacted the home goods retailer.
“Issues in receipt flow and on-shelf availability affected our top 200 items such as kitchen appliances and personal electronics, as well as our key categories such as bed and bath,” Mark Tritton, Bed Bath & Beyond's president and CEO said on the retailer’s earnings call. “The customer experience was compromised as strong demand wasn't met with strong product availability.”
This resulted in approximately $100 million in lost sales versus demand. Comp sales declined 7% in the third quarter (ending November 27, 2021) versus Q3 2020, and 4% versus Q3 2019.
Tritton noted operational issues were not limited to inventory. A disproportionate amount of Bed Bath & Beyond’s sales are generated from its circulars at stores and are a key trip driver, he said, and “paper supply and labor issues for print vendors impeded our ability to reach more scaled circulation.”
Despite issues, Bed Bath & Beyond delivered a high single-digit sales comp in the U.S. over the Black Friday to Cyber Monday period and U.S. stores delivered mid-single-digit sales comps over this five-day holiday period. During the quarter, the retailer also delivered gross margin of 35.9%, well above its plans, despite sharp increases in inflation and active freight and supply chain cost pressures, he noted.
The retailer’s BEYOND+ loyalty program also had a successful quarter, growing from 1.8 to 2.2 million members after one of its largest new subscriber events in November. Tritton called it one of Bed Bath & Beyond’s most successful membership acquisition quarters “in years.” He also noted the retailer has plans for a new loyalty program later this year.
Ongoing Investment
During the third quarter the retailer invested approximately $83 million of capital in store remodels, supply chain, and IT system.
“Our number one priority is to continue to change our current systems and processes to unlock inventory in a faster and more efficient way to meet demand, above and beyond our mid- to long-term investments to improve our top in-stock positions,” said Tritton.
“We are working with our vendors to target constrained inventory and improve flow to both distribution centers (DCs) and stores. Concurrently, we must enhance our ability to fulfill our store demand once inventory is within our position from shipping containers to warehouses to stores.”
To do this, the retailer has created new transfer processes that increase third-party logistics capacity and decreased warehouse holds to assist with flow. It is also adding digital supply chain capabilities to automatically shift inventory sources between owned vendor direct and marketplace availability.
“Our legacy infrastructure undermined our response times to offset the holiday inventory impediments as visibility was limited ahead of our planned supply chain efforts,” Tritton said.
Enablement through better tool to process is the company’s basis of its ongoing supply chain and technology transformation, part of a three-year plan.
[See more: 3 Ways Bed Bath & Beyond Is Transforming With Tech]
“This reformation will help us mitigate misalignment in supply and demand, and prevent interruptions to our plans in the future,” Tritton said. “We believe these work streams will add the necessary reinforcement to alleviate constraints in fiscal '22 and beyond.”