Today's Troubles Only Enhance Bed, Bath & Beyond's Prospects

(MoneyWatch)  Times may be tough, but when they turn around, Bed, Bath & Beyond should be sitting pretty.

Analysts and pundits beat up on the specialty store retailer when it cut back its quarterly forecast. Certainly, the company is in a tough sector, home furnishings and housewares, that was hit by the bursting housing bubble even before that lead to the current general economic malaise. So Bed, Bath & Beyond will have to live with some pain in the holiday season, but no one should doubt its longer term prospects for several reasons:

• Bed, Bath & Beyond is a category killer. If most people think of it as a specialist now, that's only because the term "category killer" has faded in a changing retail environment. Bed, Bath & Beyond was conceived as a low-price home furnishings and housewares alternative to department stores and successfully diverted sales from them. So it's essentially a discounter that offers bargain prices across a broad assortment of goods. During the 1980s and 1990s, home-goods sales shifted from department stores to mass-market retailers such as JCPenney and Target, but many consumers picked Bed, Bath & Beyond as their destination of choice. They may put off discretionary home furnishings purchasing for now, but those consumers have demonstrated that they won't settle for the brands, private labels and the limited selection typical of the mass market. They like the kind of value an old-time category killer offers.

• Bed, Bath & Beyond is a superior merchant. Specialist rival Linens 'N Things hoped to match Bed, Bath & Beyond in selling "things" such as expensive cookware sets but also the impulse knick-knacks and gadgets its competitor was so good at getting customers to pick up as they wandered through its stores. Linens 'N Things never managed to do that nearly as well and recently went out of business. Small but profitable items made Bed, Bath & Beyond additional money and got consumers to shop more gifts and consumable items as stores added gourmet food and health and beauty aids.

• Bed, Bath & Beyond is uniquely positioned. With Linens 'N Things gone, Bed, Bath & Beyond can win back its former shoppers. And, unlike failed home specialists such as Lechters and Waccamaw, Bed, Bath & Beyond has diversified, so it can fill empty retail locations any of a number of store brands: Bed, Bath & Beyond; Harmon, which offers discount health & beauty aids; or Christmas Tree Shops, with its complement of seasonal items and bargain home furnishings.