If the stock's 20% jump following last Wednesday's announcement is any indication, investors are optimistic that the new Bed Bath & Beyond (NASDAQ:BBBY) CEO is the right person to rekindle growth. The beleaguered home goods retailer named now-former Target (NYSE:TGT) chief merchant Mark Tritton to the top spot, effective Nov. 4. Tritton gets much of the credit for taking Target's so-called "cheap chic" shtick from good to great after joining the company in 2016.
It's not a bad bet by the board of directors, nor an unreasonable assumption by shareholders. But given Tritton's track record, the decision also suggests Bed Bath & Beyond may have a particular new strategic initiative in mind. Perhaps above all else, Tritton has proven he's great at cultivating private-label products, which is enormously more profitable than selling goods made by third parties.
Plenty of experience on one particular front
Consumers who've bought goods made by Opalhouse, Wondershop, Made By Design, Threshold, and Hyde & EEK! Boutique at their nearby Target store may not realize it, but they've purchased goods the retailer had made for itself (as opposed to goods brought to it by a third-party wholesaler). All told, Target owns 40 of its own brands that seamlessly sit side-by-side with goods made by national manufacturers (who provide the same products to competitors).
Tritton led the development of much of Target's private-label business, though his proverbial crown jewel is the creation of its Heyday brand of low-cost electronics and accessories.
It's territory that's not easy to encroach upon, being already dominated by names like Sony and JVC. Tritton saw a hole in the market, however, explaining shortly after the Heyday line launched in the middle of last year: "We saw an opportunity in electronics to deliver stylish and quality products our guests will be proud to carry, at a value they can't find anywhere else."
It wasn't Tritton's first foray into the private-label world, though. Prior to becoming part of the Target team, he oversaw the in-house and exclusives business for higher-end department store chain Nordstrom. It was Tritton that brought the Olivia Palermo + Chelsea28 label to the company's stores, and he also oversaw more than 50 private-label brands for the retailer.
A new strategy without strong roots
Bed Bath & Beyond isn't completely devoid of a private-label business, but it's a nascent, modest effort. It only waded into house-branding waters in March of this year, with Bee & Willow. Then, in September, the company unveiled its second private-label venture ... sort of. That is, last month it finally made One Kings Lane goods available in stores, after acquiring the online-only brand in October of 2016.
The retailer reports it intends to launch a total of six in-house labels.
And well it should. Although the profitability metrics can vary from one product category to another, acting as the wholesaler to your own retailing operation can translate into profit margins on the order of 10 times the margins achieved on sales of another manufacturer's goods.
It's a strategic shift, however, that must be handled with care. Most national brands are also well-established names, and these manufacturers often pay for advertising that fuels demand for their products by driving consumers to stores that sell their wares. Marketing private-label goods, conversely, is entirely on the shoulders of the retailer offering them. That can be a tricky business, as can deciding what national-brand goods will be positioned right next to in-house items on a store's shelves.
Fortunately, Tritton has proven he understands the nuances of turning a new in-house brand into a success, and could do the same for his new employer. As the investment research arm of Raymond James wrote, "[A]s head of Target's merchandising operations, he led the improvement and evolution of Target's private label strategy (launched approximately 30 new brands in 2.5 years). This is particularly important, in our view, as Bed Bath & Beyond currently does not have a well-defined private label strategy and strong private-label products are a key pillar in retail success today."
But will it work?
If what ails Bed Bath & Beyond is less about competition from Amazon.com and more about a stale, uninspiring product and price assortment, then yes, Tritton stands a reasonably good chance at turning things around for the beleaguered retailer. Although sales are now in decline, they only began to deteriorate earlier this year. They can still be salvaged. The bigger challenge is profitability, which has been slumping since 2017. The rollout of higher-margin private-label goods will lead to an oversized benefit for the retailer.
If Tritton's prospective magic on store shelves doesn't click with consumers though, then no, his presence will mean little.
It's just too soon to say what sort of impact he'll be able to make. Either way, it seems new in-house brands are going to be the key. Investors would be wise to keep their finger on the pulse of that particular initiative.