Bed Bath & Beyond (NASDAQ:BBBY) lost about 75% of its market value over the past five years as it struggled to compete against Amazon (NASDAQ:AMZN) and superstores like Walmart (NYSE:WMT). Wall Street expects that pain to continue with a 3% decline in sales and 36% drop in earnings this year.
Bed Bath & Beyond's massive stores, which have an average size of nearly 44,000 square feet, were filled with products which could easily be bought from Amazon or Walmart. It generated just $237 in sales per square foot over the past 12 months, which compares poorly to Walmart's sales of $415 per square foot.
Bed Bath & Beyond believes that installing more "furniture vignettes", which combine curated collections of furniture and home furnishings into themed rooms, could boost its sales. It plans to expand those vignettes from 70 stores to 150 locations this year, and use them to showcase its six new in-house furnishing brands over the next two years. It recently launched the first of those brands, Bee & Willow, which sells a mix of modern farmhouse and cottage furnishings.
This sounds like an interesting way to widen its moat against Walmart. Unfortunately, Walmart just tossed a wrench into those plans by launching MoDRN, a private-label modern furniture collection of nearly 650 types of products including sofas, tables, and dinnerware.
Check out the latest earnings call transcript for Bed Bath & Beyond.
Why is Walmart launching its own furniture?
Anthony Soohoo, Walmart's SVP and Group General Manager of its home division, stated that visits to its e-commerce site's home section rose by nearly 35% since its launch nearly a year ago.
Soohoo stated Walmart was focused on "creating this specialty shopping experience" in the first year, and that it was now "doubling down" on increasing its assortment of "high-quality, on-trend collections" of furniture and home furnishings. Soohoo noted that MoDRN was aimed at customers "who embrace a modern aesthetic," and that its Retro Glam, Refined Industrial, and Scandinavian Minimal collections feature higher-end products like velvet and leather upholstery, marble table tops, and exotic veneers.
This move expands Walmart's home furnishing business into the backyard of specialty home furnishing companies like Williams-Sonoma (NYSE:WSM), which also owns Pottery Barn and West Elm. It also widens Walmart's moat against Amazon, which is aggressively expanding into private-label products like consumer goods, apparel, and mattresses.
MoDRN will be an exclusive online brand for Walmart.com, Jet.com, and Jet's Hayneedle.com, so the products won't be showcased in brick-and-mortar stores like Bed Bath & Beyond's furniture vignettes.
That online-only strategy complements its recent acquisition of online art and wall decor retailer Art.com, and expands its broader e-commerce strategy, which already includes the acquisitions of Jet.com, Shoes.com, Moosejaw, Modcloth, Bonobos, Parcel, Flipkart, Cornershop, Eloquii, and Bare Necessities. Walmart's U.S. e-commerce sales surged 43% annually last quarter, so those efforts are clearly paying off.
Should Bed Bath & Beyond investors worry?
Walmart's moves into the furniture market are worrisome for Bed Bath & Beyond, which only got serious about selling furniture at its stores less than a year ago. Last summer it launched a pilot program for selling more furniture at about 10% of its 1,000 stores. That program eventually expanded into its aforementioned plans for furniture vignettes and in-house furnishing brands.
Bed Bath & Beyond isn't the only retailer that will be hurt by Walmart's move into private label furniture. Williams-Sonoma, which is struggling with decelerating comps growth across its main banners, could face tougher headwinds if MoDRN gains momentum. Wayfair (NYSE:W), which posted a streak of widening losses over the past few years, also lacks meaningful ways to counter Walmart.
However, Bed Bath & Beyond still has a lot to lose. It tried to counter Amazon and Walmart with its Beyond+ membership plans, but offering customers free shipping (with no minimum purchase) and a 20% discount on all their orders for just $29 per year was a desperate strategy that crushed its margins. It wants to lure back shoppers with home furnishings, but that strategy could also hit a brick wall as its rivals adopt similar strategies.
On the bright side, Walmart's online-only approach to furniture might only slightly overlap Bed Bath & Beyond's brick-and-mortar strategy. Walmart's focus on higher-end furniture might also make it more of a threat to Williams-Sonoma than Bed Bath & Beyond, which mostly sells cheaper products. Therefore, Bed Bath & Beyond investors shouldn't panic, but they should keep a close eye on Walmart's latest moves.