Bed, Bath & Beyond Battens Down the Hatches, Thinks Small in a Risky Economy

Last Updated Nov 30, 2010 6:33 PM EST

Bed, Bath & Beyond (BBBY) finished fiscal 2009 strong, making real gains beyond declines suffered in the recession. With all that, though, the retailer isn't jumping on the bandwagon with those who seem to think 2010 will get easier at it goes on. In fact, it's taking a particularly cautious approach by emphasizing its secondary brands over its flagship stores.

Bed, Bath & Beyond's executives were cautious rather than triumphant in announcing fourth-quarter results last week. In the company's conference call, Warren Eisenberg, co-chairman, took pains to point out that consumers continue to face "economic challenges." So why remind people that the economy still isn't going so great?

As I've noted previously, the home-furnishings sector suffers when the housing market tanks. Consumers tend to make major home furnishings purchases when they move, which fewer people are doing these days. Bed, Bath & Beyond's store growth plan shows that the retailer isn't counting on a rebounding housing market or general economic improvement to propel it through 2010.

For one thing, the company will open fewer stores this year than last and will, for the first time, open as many stores in its secondary chains as in the Bed, Bath & Beyond group. In 2009, it opened 39 namesake stores, closing a couple on the way. It also debuted 14 buybuyBaby newborn and toddler stores, not to mention nine of its seasonal/bargain decor-focused Christmas Tree Shops and five Harmon discount beauty care locations. In 2010, the company will open only 30 Bed, Bath & Beyonds, while it debuts 20 buybuyBaby's and 10 Christmas Tree Shops.
Although it won't add new independent stores, Harmon remains key to keeping Bed, Bath & Beyond on the growth track in tough times. The company has been adding low-cost personal care departments patterned after independent Harmon operations to its namesake, Christmas Tree Shops and buybuyBaby stores. The consumable health and beauty items therein can add dollars to a store visit and perhaps even a few special personal care stops.
Any drive to add more independent Harmon shops would force Bed, Bath & Beyond to push them into markets well beyond the chain's New Jersey core. If it asks consumers to spend money at a little-known store when they are being watching their dollars, the company takes a risk. Expanding Harmon-branded health and beauty aid departments in Bed, Bath & Beyond's other chains allows the company to introduce the Harmon name to a captive home furnishings audience in locations across the United States. So, the retailer is turning an extra buck while preparing for the future growth of independent Harmon stores.

Christmas Tree Shop growth will slow somewhat this year. Again, it's a regional chain that isn't well known outside of its core New England market and is a little tough to understand at first glance. The Christmas Tree Shops business really isn't tannenbaums but low-cost decorative accessories with a heavy emphasis on seasonal items. Again, facing uninitiated, cautious consumers, Christmas Tree Shops may enjoy better return on investment from gradual, proximal growth.

Growing buybuyBaby, on the other hand, provides some immediate advantages. For one thing, the name tells consumers all they to know about the store. Plus, buybuyBaby emulated Bed, Bath & Beyond from the start, launched as they were by relatives of a company founder. Their name, signage and even floor plan hints at the association with Bed, Bath & Beyond stores, adding an element of familiarity.

Also, buybuyBaby's recent expansion began from a small base of stores located in markets such as metropolitan New York where Bed, Bath & Beyond's other chains operate lots of locations. So the namesake stores, Christmas Tree Shops and independent Harmon locations are in position to offer support. That can come in the form of buybuyBaby coupons distributed through stores belonging to those other chains, a common Bed, Bath & Beyond practice. Another plus, baby products have done relatively well in the recession, as a newborn has to be clothed and diapered no matter what the economy is doing.

Add it all up, and you get a conservative growth plan developed to make the most of the opportunities afforded to a home furnishings retailer facing a weak housing market.