best buy (BBY) It has a somewhat unique story in the world of retail. The electronics chain seemed to be on its way to bankruptcy when it made the unconventional choice to hire Hubert Jolly – an executive with a hospitality background – to take over the chain.
At the time, this move seemed like a misstep, but it turned out to be one of the best employees in retail history. Julie stepped in and basically changed everything for the retailer. Make painful choices to cut prices, invest in delivery, make people not visit Best Buy, then order from Amazon (AMZN) .
The problem, at least if you’re a struggling retailer, is that Best Buy’s story is essentially self-contained. In most cases—Sears, J.C. Penney, Toys R Us, Circuit City, Neiman Marcus, Borders Books to name a few—it’s proven nearly impossible to turn a sinking retail ship into.
This is what happens at Bed Bath & Beyond (BBBY) Immediately. The chain has been struggling for years, and history suggests that bringing in a new CEO (which the retailer did in June) generally doesn’t change the ending.
Bed Bath & Beyond needs a reason to exist
When Jill Soltau followed Marvin Ellison as CEO of JC Penney, she had some very smart ideas but lacked the resources to implement them. The same could be said of Ellison who wanted to sell hardware and add new services in markets where Sears had abandoned customers.
The problem is that when the customer base has moved, it has historically been very difficult to get it back. This, of course, won’t stop CEOs from trying because you still get paid well to be the CEO of a dying retailer. And since you’re not the cause of his death in the first place, not being able to turn things around isn’t that important in your career.
Ellison failed to become CEO of Lowe’s (a little) While Soltau sits on the board of directors at Auto Zone (AZO) . There simply aren’t many CEO jobs, so open jobs at failed retailers will still attract talented CEOs making comments like this.
Interim CEO Sue Grove said: “We embrace a straightforward, back-to-basics philosophy focused on better serving our customers, driving growth, and delivering business returns.” In a short span of time, we have made major changes and established enablers across our entire organization to regain our dominance as the shopping destination of choice for our customers’ favorite brands and exciting products. We have a special presence in the home and children’s markets, and intend to seize our opportunity to become the preferred retailer of the category.”
These are a lot of words that sound a lot like similar statements made by other CEOs (permanent and temporary) who are in a losing position.
Retail returns never happened
When a retailer loses its customer base, it has to either find a new one or restore its existing customers. Best Buy was a unique case because it was losing sales, but customers were still visiting its stores to look at electronics, even if they bought them online.
Bed Bath & Beyond saw total sales fall 25% and comparable store sales fell 23% in its most recent quarter. Perhaps most worrisome, the company only had $107 million in cash at the end of May, down from about $1.1 billion a year earlier.
The retailer added $500 million in financing in September, but that money is buying it up for a few more months at current operating rates. We’ve also seen – more recently with Sears and JC Penney – that sellers do not ship merchandise to retailers who may not be able to pay for it.
This forces a company like Bed Bath & Beyond to have to set aside cash for inventory that may not sell quickly and within a year of supply chain constraints, it could mean sellers choose to sell their goods elsewhere.
Grove may be the next Joly, but Bed Bath & Beyond appears to be a retailer in a death spiral. That makes its inventory, which is down 72% over the past two months, a clearance rack item that you should definitely keep clear of. Retail miracles happen, but they are widely the exception rather than the rule.