Bed Bath & Beyond Stock Won’t Be Making a Comeback

The retailer has a new strategic plan. History says it won’t matter.

Best Buy (BBY) – Get Best Buy Co. Inc. Report has a fairly unique story in the retail world. The electronics chain appeared to be on its way toward bankruptcy when it made the unconventional choice to hire Hubert Joly — an executive with a hospitality background — to take over the chain.

At the time, that move seemed like a misstep, but it turned out to be one of the best hires it retail history. Joly stepped in and basically changed everything for the retailer. He made painful choices to lower prices, invest in delivery, and make it so people would not visit Best Buy, then order from Amazon (AMZN) – Get Inc. Report.

The problem, at least if you are a struggling retailer, is that Best Buy’s story basically stands on its own. In most cases — Sears, J.C. Penney, Toys R Us, Circuit City, Neiman Marcus, and Borders Books just to name a few — it has proven nearly impossible to turn around a sinking retail ship.

That’s what’s happening at Bed Bath & Beyond (BBBY) – Get Bed Bath & Beyond Inc. Report right now. The chain has been struggling for years and history suggests that bringing in a new CEO (which the retailer did in June) generally doesn’t change the ending.

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Bed Bath & Beyond Needs a Reason to Exist

When Jill Soltau followed Marvin Ellison as CEO of J.C. Penney, she had some very smart ideas but lacked the resources to implement them. The same could be said of Ellison who wanted to sell appliances and add new services in markets where Sears had abandoned customers.

The problem is that when a customer base moves on, it has historically been very hard to get it back. That, of course, won’t stop executives from trying as you still get paid really well to be the CEO of a dying retailer. And, since you aren’t the reason it’s dying in the first place, not being able to turn things around isn’t even that big of a black mark on your career.

Ellison failed up to become CEO of Lowe’s (LOW) – Get Lowe’s Companies Inc. Report while Soltau sits on the board of directors at Auto Zone (AZO) – Get AutoZone Inc. Report. There simply aren’t that many CEO jobs, so open ones at failing retailers will still attract talented executives who make comments like this.

“We are embracing a straight-forward, back-to-basics philosophy that focuses on better serving our customers, driving growth, and delivering business returns’ said interim CEO Sue Grove. “In a short period of time, we have made significant changes and instituted enablers across our entire enterprise to regain our dominance as a preferred shopping destination for our customers’ favorite brands and exciting products. We command a special presence in the Home and Baby markets, and we intend to fulfill our opportunity to be the category retailer of choice.”

That’s a lot of words that sound a lot like similar statements made by other CEOs (both permanent and interim) stepping into a losing situation.

Retail Comebacks Almost Never Happen

When a retailer loses its customer base, it either has to find a new one or win its existing customers back. Best Buy was a unique case because it was losing sales, but customers were still visiting its stores to look at electronics, even if they bought them online.

Bed Bath & Beyond saw total sales drop by 25% and comparable-store sales fall by 23% in its most recent quarter. Perhaps more troubling is that the company had only $107 million in cash on hand at the end of May, down from about $1.1 billion a year ago.

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The retailer did add $500 million in financing in September but that money buys it a few more months at its current operating rates. We’ve also seen — most recently with Sears and J.C. Penney — that vendors don’t ship merchandise to retailers that may not be able to pay for it.

That forces a company like Bed Bath & Beyond to have to lay out cash for inventory that may not quickly sell and in a year of supply chain constraints, it could mean vendors opt to sell their merchandise elsewhere.

Grove might be the next Joly, but Bed Bath & Beyond looks like a retailer in a death spiral. That makes its stock, which is down 72% over the past two months, a clearance rack item you should almost certainly stay clear of. Retail miracles happen, but they’re very broadly the exception, not the rule.

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