By Ariana McLemore and Siddharth Caval
NEW YORK (Reuters) – A home goods retailer is struggling Bed Bath and Beyond Inc (NASDAQ 🙂 is taking an ax at stores and jobs and overhauling its business strategy, but its return to profitability anytime soon may hinge on attracting American shoppers who currently spend $18.2 billion annually on children’s goods.
The company’s buybuy Baby unit is the largest specialty retailer of baby products in the United States, according to GlobalData. But other retailers — including Gap Inc’s Banana Republic (NYSE:) and drugstore retailer Rite Aid (NYSE:) — are pushing baby goods to fill the void left by the 2017 bankruptcy of parent Toys ‘R’ Us’ Babies ‘R’ Us.
Holding on to buybuy Baby — which Bed Bath & Beyond put up for sale under shareholder pressure before being reversed in August — helped the parent company get its latest $375 million loan, the maximum amount it can borrow, a person familiar with the matter said. The source said Bed Bath & Beyond also kept the buybuy Baby because it believed it would continue to grow, which could allow it to fetch a higher price later or at least modestly improve Bad Bath & Beyond’s finances going forward.
While there are some similarities between buybuy Baby and Babies ‘R’ Us, which sold similar merchandise as part of the eventually liquidated Toys ‘R’ Us company, there are key differences that can lead to the eventual sale of the Buybuy Baby.
Bankers examined the sale of Babies ‘R’ Us years ago, but found separating them would be too complicated because the chain operated mostly in the same retail locations as Toys ‘R’ Us stores and was operating under one lease at each location, a person familiar with the matter said. Both the Bed Bath & Beyond and Toys ‘R’ Us case.
In contrast, Buybuy Baby operates mostly on independent retail sites, which makes the chain’s final sale much simpler, the source said.
But at an operating level, buybuy Baby faces challenges, particularly in its focus on clothing. Baby food and formula are showing some of the strongest growth rates, with sales of baby nutrition products jumping 15.2% and sales of formula and nutritional drinks up 8.7% in the year through July 30, according to NielsenIQ data.
At two buybuy Baby stores in New York City recently, shoppers combed the shelves stocked with Adidas (OTC:) suits for toddlers, Juicy Couture clothing, Calvin Klein clothing and nike (NYSE: Baby Bags. But both stores offered few baby food options.)
Unlike Amazon.com (NASDAQ:) and mass retailers, Walmart (NYSE :), said Neil Saunders, managing director of GlobalData Retail, targeting (NYSE :), which “sells all kinds of children’s goods under one roof.”
David Klink, chief equity analyst at Huntington Private Bank, said the baby supply chain remains the parent company’s “crown jewel”.
Buybuy Baby generated $1.4 billion in sales https://www.prnewswire.com/news-releases/bed-bath–beyond-inc-reports-fiscal-2021-fourth-quarter-results-ending-f February-26th- 2022-301524704.html in the most recent fiscal year, ending February 26, 2022, or about 18% of Bed Bath & Beyond’s total sales of $7.87 billion.
Bed Bath & Beyond does not provide profitability data for buybuy Baby, but does provide some quarterly data on same-store sales. Similar Buybuy Baby sales have outperformed the Bed Bath & Beyond brand in recent quarters, though both brands posted declines in the first fiscal quarter of 2022 ending in May, according to company data.
Buybuy Baby has been profitable at least until 2021, according to GlobalData, unlike the parent company. Bed Bath & Beyond recorded a loss of $150 million for the fiscal year ending February 2021, and another net loss, of $559.6 million, for the year ending February 2022. After growth in US birth rates in 2021, the first rise in seven years, According to the Centers for Disease Control and Prevention’s National Center for Health Statistics, the potential market for baby gear is enormous. Total spending on baby care products in the United States jumped 8% in the 12 months to August 27, according to NielsenIQ, which measures scanner activity in stores.
But holding the buybuy Baby unit could be risky if its value is eroded by continued association with troubled mother Bed Bath & Beyond, which is saddled with $1.4 billion in debt.
Bed Bath & Beyond, formerly known as a “category killer” in household goods, faces a critical holiday season when it must demonstrate its strategy to turn around its business of reversing sales losses and returning customers.