Bed Bath & Beyond Inc.
is looking at fewer stores stocked with less stuff as a way to limit the amount of cash trapped in its operations.
The Union, N.J.-based company, which is known for stacking its home goods to the ceiling, is in the process of reducing the number of stores, bringing down its inventory and building out its distribution channels. Bed Bath & Beyond wants to close 63 stores by the end of its fiscal year in February 2021, for a total of 200 over the course of the next two years.
The home-goods retailer has been struggling with falling sales for years and had to temporarily close about 90% of its stores in the early days of the pandemic. Its stores have since reopened, and digital sales are up 89% in the three months ended Aug. 29. Still, revenue in its fiscal second quarter fell to $2.69 billion from $2.72 billion in the prior-year period, Bed Bath Beyond said earlier this month.
Chief Financial Officer Gustavo Arnal, who joined the company in May, is playing a key role in accelerating the retail chain’s transformation and freeing up cash for the business. “The way to get cash flow is working capital optimization,” Mr. Arnal said.
Bed Bath & Beyond’s working capital increased by nearly 10% to $1.24 billion in the year to the end of August, compared with the prior year period, according to CreditRiskMonitor, a provider of commercial credit reports.
The company has been trying to reduce its inventory levels for years, following a peak of $2.9 billion in fiscal 2016, but analysts said it still has room to go. Its fiscal 2019 inventory at $2.1 billion was down 20% from the previous year, and by the end of this year, inventory is expected to drop to $1.9 billion, said Peter Benedict, a managing director at Robert W. Baird & Co., an investment bank.
Bed Bath & Beyond said last fall it wants to cut $1 billion in inventory over a period of 18 months. It was slightly more than halfway to achieving that target at the end of its fiscal quarter ended May 30. The company said it is targeting another $1 billion on top of the existing target over the next 24 months, including through store closures.
Bed Bath & Beyond is hoping that fewer stores overall, more deliveries from stores to customers’ homes and shorter lead times could all contribute to lower inventory held, he said.
The home-goods store also is planning to reduce the range of items it offers in a certain product category and also centralize its order and replenishment system, said Seth Basham, an analyst at Wedbush Securities Inc., a financial services firm.
A new store model, which Bed Bath & Beyond plans to unveil on Oct. 28, will require less inventory to fill shelves, according to analysts. Mr. Arnal declined to provide details on what these stores would look like.
The company also is rationalizing the number of vendors it works with to reduce costs, Mr. Benedict said. “They are pruning the vendors they are working with, and are shifting bigger orders to their remaining vendors in exchange for more favorable terms,” he said.
Bed Bath & Beyond was late in building out store-based fulfillment capabilities, such as buy online and in-store or curbside pickup, which means it hasn’t benefited as much as other retailers in terms of inventory and cost reductions, analysts said.
The retailer’s outdated technology in some parts also contributes to its inventory challenge, Mr. Basham said. The company is introducing new tools and platforms, including, for example, an enterprise resource management system, which will tie together a range of business processes in a common data, or network, structure.
But it will take time until these systems are ready, Mr. Basham said. “They won’t be able to harvest all of the savings” from inventory management and other changes because of that, he said.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8