Why Bed Bath & Beyond Stores Won’t Stay Empty For Long

It’s happening again—article headlines are proclaiming the “retail apocalypse” in response to Bed Bath & Beyond’s
BBBY
announcement that it is filing for voluntary Chapter 11. However, I see this as more of a retail evolution rather than a doom-and-gloom scenario.

As someone well-versed in the retail industry, I find the constantly shifting landscape exciting. While we cannot predict what the future of retail will look like, change always presents opportunities for growth and innovation. And although many retailers may feel anxious about the prospect of going bankrupt, this is a chance for brands to expand their horizons and explore new markets.

It is also important to recognize that retailers may encounter obstacles from time to time, but such setbacks do not necessarily spell long-term trouble. Rather, they may serve as an indicator that change, a fresh perspective, or a new approach is needed.

Construction challenges makes vacated space more appealing

New retail construction in many developed markets is slow due to the lack of available supply. This shortfall in supply is likely to contribute to rental growth for the highest-quality retail spaces as inflationary pressures begin to ease and growth resumes.

A space like Bed Bath & Beyond is attractive to discount retailers looking to expand because in the current economic environment consumers want more bang for their buck, but also construction to the space would be minimal. Just like Bed Bath & Beyond, other retailers in the home furnishing and accessories sector may also face difficulties due to the current state of the housing market. With low rates of new housing construction and home sales, there is simply less demand for new furniture. However, this gap in the market may present an opportunity for other retailers to step in and fill the void.

Despite challenges such as high inflation and supply chain issues, there is reason for optimism in the industry. For the first time since 2016, physical store openings exceeded closings last year. This suggests that there are still expansion opportunities for the thriving boutique fitness category, or retailers with a great in-store experience and comprehensive product offerings. One example of this is Planet Fitness
PLNT
, a discount gym that has been growing rapidly, opening 200 new locations per year. With its eye on repurposing existing retail spaces, the company sees potential in locations such as those being vacated by Bed, Bath & Beyond. Their strategy highlights the potential for retailers to transform existing spaces into something new and exciting rather than relying on new construction.

Consumers want fresh experiences

The struggles faced by Bed Bath & Beyond are not unique. Many brick-and-mortar retailers were hit hard during the pandemic, grappling with dwindling sales, mounting debts, rising rent costs and stiff competition from e-commerce. In 2020, the pandemic forced iconic retailers such as Neiman Marcus and JCPenney to shutter their doors, sparking fears among investors and consumers about the future of retail. However, it is worth noting that these retailers were already facing longstanding challenges, and the pandemic only hastened their demise.

After a challenging year in 2020, the retail industry made a significant rebound as consumers began returning to stores and dining out. Yet, we find ourselves once again with narratives and discussions about the future of retail due to the recent closure of big retailers such as Bed Bath & Beyond, David’s Bridal, Tuesday Morning and Party City. However, I repeat, this is not a cause for alarm within the retail sector. These retailers have simply reached a point where their businesses have become stagnant and it is time for them to wind down.

Bed Bath & Beyond is set to begin removing the blue signage at 360 of its stores across the country. While this number may seem significant, it’s not necessarily a large number in the broader context of the retail industry. In all likelihood, I can see discount stores such as Nordstrom
JWN
Rack, Burlington, Marshalls, T.J. Maxx, Family Dollar, Dollar General
DG
and Dollar Tree
DLTR
move quickly to occupy these vacant spaces.

Consumers are looking to maximize the value of their spending, particularly considering current inflation, and retail space has become increasingly scarce as a result. These factors suggest that there will be ample demand for the retail space left behind by Bed Bath & Beyond. A challenging economic climate has made value retail particularly appealing to families with limited budgets. Discount department stores such as Walmart
WMT
and warehouse clubs like Costco have seen a surge in shoppers, as they provide assurance that customers will receive the best possible value for their money.

We’ve been here before

Despite Bed Bath & Beyond’s recent struggles, their challenges reflect ongoing changes in consumer preferences and the broader economic environment. However, the retail industry is adaptable and resilient, with many retailers successfully weathering similar challenges in the past. Discount retailers are well positioned to succeed, as consumers seek value and affordability, but other retailers who can adapt and provide value will also have opportunities for growth and success.