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Can Target's Brand Strategy Work for Bed Bath & Beyond, Too?

By Lois Wachira - Oct 26, 2019 at 11:00AM

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Two ways the new Bed Bath & Beyond CEO can end the company's struggle for position in the home goods industry.

Target (TGT 2.76%) stock has been hitting all-time highs after second-quarter earnings of 3.6% that exceeded Wall Street expectations. The earnings success is thanks to Target's brand strategy that has become a model for struggling retailers like Bed Bath & Beyond (BBBY 7.35%). To keep shoppers happy, Target partnered with celebrity designers to create popular lines that sell out quickly. The store has also refreshed its own store brands such as Cat & Jack (children's clothing), A New Day (women's fashion line), JoyLab (athleisure) and Project 62 (home decor). 

Meanwhile, in recent years, Bed Bath & Beyond has struggled to get a grasp on what their customers want. Although the store's name promises a wide range of goods for the home and more, customers haven't been impressed and sales have been slumping. Reports describe Bed Bath & Beyond stores as messy and overwhelming. And although Bed Bath & Beyond offers some online shopping, it does not have as many delivery options as other competitors such as Home Goods owned by TJX Companies (TJX 1.00%) and Walmart (WMT 0.21%).

A Bed Bath & Beyond gift card being held

Image Source: Bed Bath & Beyond

In 2018, Bed Bath & Beyond's total sales declined by 7%. The company reported earnings per share of $2.00-well below projected Wall Street earnings of $2.28. At this point, activist shareholders demanded a shakeup in company management, and as a result, Steven Temares, its CEO since 2003 stepped down. In November, Mark Tritton, Target's former Chief Merchandising Officer, will take over as Bed Bath & Beyond's new CEO.

By contrast, Target has been making its mark as an outperformer in the retail space where Bed Bath & Beyond has slumped. In 2019, Target beat Wall Street expectations with 2019 earnings per share up by 20%. 

Based on Target's recent history, there are two ways that Tritton is expected to turn around Bed Bath & Beyond's fortunes.

Building the omnichannel experience

Tritton's initial goal is to improve Bed Bath & Beyond's omnichannel experience. Omnichannel retailing integrates the online and physical shopping experience for customers. Retailers manage online and physical inventories as a single unit and customers can choose how they want to shop.

Target stores have built up the omnichannel experience by offering customers multiple ways to get their goods, including same-day shipping, customer pickup services, and building stores in various sizes.

With an omnichannel approach to retailing, Tritton intends to make Bed Bath & Beyond merchandise easily available to a range of customers, from Gen Z and millennials to older generation shoppers.

Private label merchandising

One of the best ways to build customer loyalty is by establishing private label brands. Consumer research shows that a majority of customers trust private label brands equally as much as national brands.

Target is known for private label branding in its apparel and home goods sections as well as its celebrity collaborations. For example, Chrissy Teigen's Cravings cookware line, Chip and Joanna Gaines' home goods and Vineyard Vines brands have done well at Target.

Additional development from Tritton's leadership, Target is moving into the grocery store space with another private label brand called Good & Gather.

Investors can assume that Tritton will bring similar private-label lines to Bed Bath & Beyond that can boost customer loyalty and improve revenues over the next few years.

Target and Bed Bath & Beyond are good buys

Both Target and Bed Bath & Beyond are good buys today. The Target omnichannel approach has been enormously successful and this is because customers can easily find a wide range of the products they need whether they shop online or in the store. If Bed Bath & Beyond can take Target's approach to appeal to customers, Bed Bath & Beyond stock can soar in a similar way.

Lois Wachira has no position in any of the stocks mentioned. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Target Corporation Stock Quote
Target Corporation
TGT
$169.67 (2.76%) $4.55
Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
$10.51 (7.35%) $0.72
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$128.58 (0.21%) $0.27
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
TJX
$63.03 (1.00%) $0.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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