There's an old adage within business circles: "A goal without a plan is just a wish." It's a poke at business leaders who fall into the trap of painting a compelling picture of the future with powerful words but fail to lay out the specific steps needed to reach those lofty goals.
It's possible this stumbling block was a contributing factor to the 20% plunge Bed Bath & Beyond (BBBY -28.27%) shares dished out a week ago following its earnings report. Yes, same-store sales fell 8.3% year over year, and the retailer swung from a per-share profit of $0.02 last year to a loss of $0.38 for the quarter in question. It may have been the lack of clarity regarding new CEO Mark Tritton's turnaround plan, however, that did much of the damage.
In short, the company is going to focus on "product, price, promise, place, and people" going forward, which is smart but obvious. As Envista's retail consulting director Zac Zalowitz put it to RetailWire, "This is a 'yeah, duh' approach."
There's more to Bed Bath & Beyond's plan than a catchy slogan, however, even if Tritton didn't detail it (much) during the conference call. One just has to connect the dots and read between the lines to see it.
What Tritton actually said
Bed Bath & Beyond's CEO fleshed out the company's "five pillars" in more than five words during the third-quarter earnings call but admittedly still didn't provide much in the way of detail. From the transcript:
Regarding our go-forward strategy, we'll be grounded in the following five pillars. First, our product. We'll refine and amplify an exciting omnichannel assortment that rebuilds authority and preference for Bed Bath & Beyond and creates energy through differentiation and curation. Second, our price. We'll invest in and clarify compelling value through more choice at opening price points, relevant own brands, and clear price communications [...] Third is our promise. We will clarify and deepen our relationship with our customers by connecting, engaging, and motivating them to strengthen loyalty and lifetime value. Fourth is our place. We will accelerate and optimize connecting with, inspiring, and energizing our customer by becoming a truly omni-always retailer [...] And lastly but critically important is our people who create and sustain a talent engine and culture that attracts, retains, and develops high-performing teams who consistently deliver operational excellence and business results.
You get the idea -- lots of action and buzzwords, but in practical terms, what does any of that really mean? We may already have our answers, even if they weren't part of his discussion.
Three of the five pillars don't require much in the way of exploring. The people in question start (and largely end) with replacing the six executives removed in December who presumably had been standing in the way of a turnaround. As for price, that also speaks for itself. By "opening price points," Tritton meant consumers can expect more value-minded options that compete with options found online. The promise piece of the plan is an acknowledgement that the company's prime customers had slowly been alienated.
The two others -- product and place -- are arguably the most important pillars of the turnaround plan. Each deserves a deeper look.
It's noteworthy that Tritton made a point of mentioning "relevant own brands" and "differentiation and curation" as part of the company's strategy going forward. Simply put, it's another indication that Bed Bath & Beyond is looking to introduce more private-label goods into its product mix.
Tritton's the right man to lead that charge, launching more than a couple of dozen private-label lines as the head of merchandising operations for Target, including home goods brands Made by Design and Opalhouse. And it matters. Homegrown products can cost up to 50% less than nationally-branded products to procure, and they've helped propel Target's growth by rounding out its inventory mix.
Even beyond Target's own brands, though, Tritton acknowledges the importance of not selling the exact same goods easily available elsewhere, including online.
There's also little doubt what Tritton meant by "omni-always retailer." Bed Bath & Beyond mostly missed the e-commerce boat that proved a boon for other consumer goods companies. In fact, the company's unwillingness to invest on this front was a big reason activist investors began an effort early last year that would ultimately end with the ouster of then-CEO Steven Temares. Now it's playing catch-up but not just with a better e-commerce machine. It's employing better retailing tech.
The irony is, much of that work was under way before Tritton even came into the picture. It was promising, too. For the few stores that were part of the company's Next Generation Lab experiment a year ago -- which used technology to change product prices, optimize the placement of products in stores, and manage inventories -- things improved. Sales improved more than 2% compared to similar stores, and profit margins expanded an average of 50 basis points.
Tritton could simply take that ball and run with it in addition to smarter use of the web, and he seems willing to do so.
At this price, worth a shot
Bed Bath & Beyond shares have partially bounced back since last week's tumble, suggesting investors realized they may have overreacted to the retailer's results and the retraction of previous guidance, and underreacted to its plausible future.
This is a stock, however, still priced at a modest 11.5 times forward earnings estimates. Bed Bath & Beyond sports a market cap of less than $2 billion versus revenue of more than $11 billion for the past four quarters. Yes, it needs help, but it's getting it -- and a little help could go a long way given its unusually low valuation measures.