When I got married, the registry of choice for most of my crowd was Bed Bath & Beyond (NASDAQ:BBBY), for its huge selection and cash-back policy for returned gifts.
Today, better options have arisen. I find Bed Bath & Beyond's store layout large and confusing and the product line outdated. This sentiment is corroborated by a growing string of revenue declines, and the company is finally taking action by hiring a new CEO and executive lineup to turn the tide.
Williams-Sonoma (NYSE:WSM), on the other hand, is an upscale brand that has managed to reach a mass audience while retaining an upmarket image and improving sales. Here are four ways the kitchen and home connoisseur has achieved this, and the lessons Bed Bath & Beyond can learn as it embarks on an overhaul.
1. Use a smaller store format
While Bed Bath & Beyond has mega-size stores, with products piled high in every direction, Williams-Sonoma has smaller stores where customers can find what they need and feel connected to the staff. It was never meant to be a superstore; its goal is to create connection and engagement. This is one of its keys to success.
Bed Bath & Beyond was a hit in the mega-store generation, and its total revenue, including all store brands, was $12 billion for fiscal year 2018, versus $5.7 billion for Williams-Sonoma for the same time period. But shrinking stores is an approach many other large retailers are implementing as more shopping moves online. Customers are utilizing features such as buy online, pickup in store to make purchases more easily, and oversized stores are hard to navigate while offering fewer benefits, such as client engagement.
Bed Bath & Beyond's new CEO, Mark Tritton, came over from Target, which has been working with a small-store format that's been a growth driver. Hopefully, he can turn some of that know-how into a source of positive change for the company.
Target's small-format stores, at an average of 40,000 square feet, are similar in size to standard Bed Bath & Beyond stores, but they carry a greater mix of products. The success of these stores highlights the value in curating the right product assortment and showcasing it in a smaller and more easily navigable space.
2. Be a digital-first company
Williams-Sonoma is aggressively pursuing online growth, where the greatest opportunities lie. While Bed Bath & Beyond was slow to adopt technology, Williams-Sonoma was putting all of its catalogs online and forging a multichannel strategy. It has zeroed in on how its customers want to shop and responded appropriately.
Williams-Sonoma was a catalog company well before the digital revolution, so it already had stocked warehouses and fully equipped shipping operations when online shopping became a part of retail. This gave it a leg up, and transitioning to the e-commerce era was more seamless than it might have been for a company like Bed Bath & Beyond.
Bed Bath & Beyond has also had good reason to move cautiously in the e-commerce arena, as it serves a cheaper price point than Williams-Sonoma. This makes the logistics of shipping more challenging. While Williams-Sonoma can afford the cost of shipping for its high-priced products, Bed Bath & Beyond is competing against the likes of Amazon and Target and needs to offer similar shipping options and prices. However, 25 years is enough time for Bed Bath & Beyond to have figured things out in e-commerce, and that's what it will need to do to survive.
3. Give customers what they want, instead of everything
Williams-Sonoma positions itself as a "multichannel specialty retailer of high-quality products for the home." It has several distinct brands designed to appeal to different customers, instead of trying to be everything to everyone. Still, each brand has the Williams-Sonoma image, with varying product lines at different price points. In fact, the company considers West Elm, its budget brand, as its biggest growth opportunity. This is an important point for Bed Bath & Beyond, since it doesn't have the same exclusive image that Williams-Sonoma has.
There are a few ways Bed Bath & Beyond can implement this type of strategy. One would be to break out different brands to reach different market segments.
The better way to do this would be to simply stop offering numerous, indistinguishable options for the same product. Doing so would help control inventory and allow the company to easily decrease store size without sacrificing name recognition and value. Activist investors made this point in their appeal to overthrow the executive team last year, proposing that the company "supply a compelling, well curated assortment of products."
4. Create an experience
A unique customer experience is another factor that keeps Williams-Sonoma from falling victim to Amazon. Its customers aren't looking for a deal; they want a specialty shop that provides an experience they can only find in-store, and they'll pay a premium for it.
CEO Laura Alber calls Williams-Sonoma the "poignant intersection of superior lifestyle merchandising and state-of-the-art analytics." If the store sells several types of olive oil, a staff member might offer a taste test and recommendations for how to best use each one. Or the store might feature a demonstration of cookware, so customers can decide which pots best fit their needs. This was another recommendation the Bed Bath & Beyond activist investors made, to "recapture space for experiential customer engagement."
Williams-Sonoma may have a different image than Bed Bath & Beyond, but the latter consumer discretionary company seems to be aimless right now. Finding its position, whatever it might be, will help the company mold itself into a leaner, more productive entity. That might mean a reduction in sales while it improves its condition, but either way, it will result in a better-managed company with enhanced long-term prospects.