A Venture Capital Letter Sends Bed Bath & Beyond Stock Gyrating

A letter addressed to the Bed Bath & Beyond board on Sunday March 6th, created a whole new round of trauma for the retailer. It’s another in a string of “activist investor” acts intended to increase shareholder results. The letter’s author is RC Ventures LLC, headed by Ryan Cohen, GameStop’s Chairman and co-founder of Chewy.

RC Ventures has acquired a 9.8% stake in Bed Bath & Beyond, making it the fourth largest shareholder. Excerpts of the letter include: “We suspect Bed Bath will benefit more at this stage by bringing simplicity to its plan: finish fortifying the infrastructure, make remaining store fleet improvements, and prioritize core assortment and inventory fixes to meet near-term demand.”

This reads like something borrowed from the game plan established by CEO Mark Tritton, soon after arriving at BB&B from Target in 2019. It’s a subject I have covered at length. The letter also states: “We also do not criticize a board of directors and management team when they are quietly laying a foundation for future growth and value creation. To the contrary, we are maniacally focused on the long-term.” Hah?

The letter also went on to suggest that the board should be “exploring strategic alternatives that include separating Buy Buy Baby, Inc, which could position itself to pay off debt, put cash on the balance sheet and continue reducing its share count, thereby creating significant value for shareholders.” This is not an unreasonable notion, although there are questions whether sale of BABY would yield the “several billions” based on its growth trajectory.

But I take exception to the notion that BB&B should “evaluate a full sale to a well-capitalized acquirer” as the letter suggests. Such past moves have not gone well for any number of retailers. Bed Bath & Beyond said Monday it will carefully review the letter from RC Ventures pushing it to explore a sale, and hopes “to engage constructively” with the company.

The Immediate Upshot

The immediate upshot of Sunday’s letter was to push the stock up as much as 85% at Monday’s high, before dropping back to a 34% increase at closing bell. Ryan Cohen, as many remember was at the heart of the GameStop meme stock saga last year. Cohen has built a huge following on Reddit and social media in 2021, so there is little doubt that today’s price gyrations may have been spurred, at least in part by his minions.

I will be the first to give credit to “team Tritton” for taking on a major retail mess and attempting to deconstruct and then reconstruct a brand that languished for years under its previous founder/owners. And I’ve given high praise for many of the initiatives including cutting back inventory, creating a host of new private labels, and reimagining the entire customer experience, offline and online.

These moves have been costly, and the monumental makeover converging with the pandemic and the associated supply chain crisis exceeded any worst-case scenario for such a turn-around. That said, more product editing should be considered.

Case In Point

While I rarely use my own shopping experiences to exemplify anything, my wife and I had an experience this past weekend that might be indicative of a larger issue. A kitchen drawer full of mismatched daily-use flatware, sent us venturing out to our local Bed Bath & Beyond store. The “flatware wall” provided a massive assortment of styles and price points, but the only styles that met our quest for contemporary simplicity were out of stock.

A subsequent trip to Target provided us with a narrower “field of choice” but a broader selection of desirable, simple patterns. And more importantly, ample product stock. Once again Target’s penchant for edited offerings won the day.

This is not to suggest that this one outing exemplifies the state of the complex reconnoitering going on at BB&B. It does suggest that additional “editing of the offering” is in order. However, I maintain that the current trajectory of BB&B is far more likely to yield long-term viability then in its pre-Tritton state.

Seen This Movie Before

I see no positive or sustainable outcome from the final point made in the letter, that: “We want to raise for consideration a full sale of Bed Bath, in its current form, to one of the many well-capitalized financial sponsors with track records in the retail and consumer sectors and the ability to pay a meaningful premium.” Selling Buy Buy Baby is one thing, the latter notion is tantamount to throwing the baby out with the bath water.