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Is spinning off or selling Buybuy Baby the right move for Bed Bath & Beyond?
Bed Bath & Beyond is under pressure from activist investor Ryan Cohen to sell its Buybuy Baby chain and interested parties are lining up for a chance to acquire the business, according to a report last week by The Wall Street Journal.
The paper reports that Cerberus Capital Management and Tailwind Acquisition, a firm chaired by former Casper Sleep CEO Philip Krim, have expressed interest in possible deals to acquire the baby products chain.
Mr. Cohen, who co-founded Chewy and is the current chairman of GameStop, took a nearly 10 percent stake in Bed Bath & Beyond last month and began advocating for the company to spin off Buy Buy Baby and take itself private under new ownership.
Mr. Cohen wrote in a letter last month to Bed Bath & Beyond’s board that Buybuy Baby by itself is likely more valuable than its parent company based on its target of $1.5 billion in sales for fiscal 2023, double-digit growth rates and a market penetration around 50 percent.
“In the event Bed Bath pursued a full or partial sale of BABY, it 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,” wrote Mr. Cohen. “Spinning off shares of BABY would be an even more efficient way to transfer value to shareholders. Notably, BABY’s high online penetration would likely ease operational hurdles. We assume Bed Bath and BABY could still have a shared services agreement to maintain an omnichannel experience for customers.”
Buybuy Baby has been a bright spot for Bed Bath & Beyond, which has seen its performance falter in recent quarters due to supply chain challenges.
Bed Bath & Beyond CEO Mark Tritton, speaking earlier this month on the company’s fourth quarter earnings call, said that a 12 percent decline in same-store sales and adjusted gross margins of 28.8 percent were directly tied to “the lack of available inventory” and which “has proved to be a continuing impediment.”
Buybuy Baby has been identified as a growth business by Bed Bath & Beyond with birth rates rising in the U.S. once again following declines tied to the novel coronavirus pandemic. The chain is expected to open between 20 and 25 new stores this year and its products will be featured as part of Bed Bath & Beyond’s shop-in-shop collaboration with Kroger announced last November.
- Bed Bath & Beyond: Can Baby Get Out of the Bathwater? – The Wall Street Journal
- Bed Bath & Beyond’s Buybuy Baby Draws Buyer Interest – The Wall Street Journal
- RC Ventures Letter to Bed Bath & Beyond Board of Directors – The Wall Street Journal
- Bed Bath & Beyond (BBBY) Q4 2021 Earnings Call Transcript – The Motley Fool
- Supply chain woes just cost Bed Bath & Beyond $100M in sales – RetailWire
- Will Bed Bath & Beyond ‘reach more customers than ever’ with Kroger collab? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Would Bed Bath & Beyond be a stronger company with or without Buybuy Baby? Would Buybuy Baby be a stronger company if it were spun off or sold by Bed Bath & Beyond?
Poll
Loading …BrainTrust
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
DeAnn Campbell
Head of Retail Insights, AAG Consulting Group
Buybuy Baby is a growth engine for Bed Bath & Beyond, and I would be very reluctant to spin it off at this point. Notwithstanding the challenges that Bed Bath & Beyond has had with their core business, Buybuy Baby is about the future, and growth. While spinning it off or selling it may make sense in the future – for example if the leadership at Bed Bath & Beyond can’t right the mother ship – otherwise, I’d hold.
In some of the new remodels of Bed Bath & Beyond, I have seen Buybuy Baby sections in the stores. I am guessing they need that segment as they figure it can be a traffic builder for them. I don’t think it’s a wise idea to sell it off right now.
Although Mr. Cohen has much stronger visibility into the financial ramifications related to such a divestiture, my outside perspective is a bit less bullish on the idea. If Buybuy Baby is truly one of the shining aspects of the enterprise, I could imagine learning from that formula by further narrowing the assortment at the core format and/or tweaking the merchandise to specifically cater to another growth market. Once Bed Bath & Beyond moves away from Buybuy Baby, I fear its risk of survival decreases.
The two companies are in related businesses but not the Sam’s retail businesses. A move like this will probably be a triple win. Shareholders will benefit from the spin-off, Bed Bath & Beyond’s balance sheet will improve, and Bed Bath & Beyond’s management can concentrate on turning around the Bed Bath & Beyond business.
Buybuy Baby is a pipeline of growing families to the parent company. Although they are likely not fully utilizing this asset, a spin off would be a short term strategy for investor returns rather than thinking about the rebuild of the total brand. Bed Bath & Beyond has a lot of other things it should be focusing on to set itself up to capitalize on this structure, but the potential is there as long as the patience is there.
The data that the companies could share would seem like a good fit as someone with a new child would also be looking to buy more creature comforts. However if there is too much overlap with the offerings and the gap between the customer base target on age is too wide it may make for negligible data that they can’t monetize.
Some investors may like this idea as it is a fast way of extracting money from the business. Longer term, however, it would leave Bed Bath & Beyond without a valuable brand that they can use for growth. The problem is that Bed Bath & Beyond is in a weak spot as its results are very poor and there are big question marks over its strategy. That makes it vulnerable to this kind of corporate and financial game playing.
A spin-off to the right buyer would help Buybuy Baby evolve into a stronger entity on its own, but the temporary cash infusion from a sell off won’t be enough to make the foundational changes Bed Bath & Beyond needs to alter their downward trajectory. And while one can build a case that divesting themselves of ancillary business will help Bed Bath & Beyond focus on its core business, losing the higher profits generated by Buybuy Baby could lower the overall value of company – at a time when they are already facing a potential fight with an activist investor who is pushing for a sale of the whole company. This is a tough position for Bed Bath & Beyond — sell off their most profitable division or risk being forced to sell off everything.
Bed Bath & Beyond should get bolder about integrating Buybuy Baby into the Bed Bath & Beyond environment. Buybuy Baby is a traffic-driver and the kids market is evergreen and resilient. Don’t separate – integrate!
Selling Buybuy Baby today would provide some immediate cash for Bed Bath & Beyond to invest in their core business, and Buybuy Baby would thrive without an anchor around its neck. It’s a good move for all parties, including shareholders.
I believe BBBY would be less valuable without Buybuy Baby, but, in contrast, Buybuy Baby would be more valuable without BBBY. The company lost its focus on lifestages which were the highest engagement points for customers; so losing baby would skip a valuable consumption stage. I appreciate the push to right set the brand, but the issues are deeper than the portfolio.
Supply chain issues have plagued all major retailers, not just Bed Bath. Bed Bath has a new management team with an amazing pedigree and a solid business plan. I think that selling some or part of Buybuy Baby would be short-sighted. Bed Bath has a huge customer base with 37M which translates into 1 in 5 homes. As well 100% of their stores have BOPIS and curbside pickup, digital is up +85%, and they have added 2.3M store customers to digital. I think Bed Bath has a huge upside and these short-term issues will pass.
It is very clear — Bed Bath & Beyond is dying. They will sell whatever they can to generate money to keep going further with their poorly run and lousy Bed Bath & Beyond format.
Maybe this will be good news for Buybuy Baby if someone buys it who will be aggressive with it. I already thought Bed Bath & Beyond was somewhat aggressive with Buybuy Baby.
Poor move to divest this. If anything they should move the “Baby” into the “Beyond” and do combo stores.
New parents are some of the most profitable customers ever. For long-term growth, better that Bed Bath & Beyond figure out how to convert those young parent customers into long-term Bed Bath & Beyond customers through all their children’s life events rather than spinning off the more profitable entity.