If you live within sight of a road that might lead to a highway that perhaps flows past a Bed Bath & Beyond (Nasdaq: BBBY) then undoubtedly you've found your mailbox crammed with blue-and-white discount coupons from the home furnishings retailer. Sometimes you can get two or three on the same day.
The need to offer consumers an incentive to leave their homes and part with their precious dollars has become more acute these days. Whether its Wal-Mart (NYSE: WMT) launching a toy industry salvo to sell more $10-and-under toys this Christmas to luxury ski lodges like Vail Resorts (NYSE: MTN) offering an extra night's stay at one of its ritzy hotels, the promotional environment has been compressing margins of businesses everywhere.
The economy has not only affected consumers who are reining in their spending habits, but corporations as well who are more reluctant to make acquisitions. Pier 1 Imports (Nasdaq: PIR), for example, withdrew its (unwanted) offer for Cost Plus (Nasdaq: CPWM) because it didn't think it could get a majority of shares at a cheap enough price. Gone are the days -- at least for the time being -- when companies were willing to throw money about willy-nilly to make an acquisition.
That's been the case with Bed Bath & Beyond that has found gross, operating, and net margins all being pressured for the past several quarters. In particular, this past second quarter found the retailer being challenged by the clearance sales being offered by a bankrupt rival, presumably Linens 'N' Things, which filed for protection back in May.
Things probably aren't going to get any easier for Bed Bath anytime soon, considering that Linens has decided to pass up bankruptcy court and auction itself off to be liquidated. The company says it has an unnamed "stalking horse" bidder who wants to do just that, which should increase the amount of promotional activity going on. A "stalking horse" is a friendly bidder chosen by the company to prevent any lowball bids being made for the company's assets.
However, with two bidders supposedly looking at Linens 'N' Things' Canadian assets, clearing this up and removing a competitor from the retail landscape (rather than just restructuring it and getting it back on the shelf) ought to improve Bed Bath's position in the long run.
If nothing else, it might save me from being caught under an avalanche of discount coupons when I open my mailbox each day.
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