Author Topic: BBBY - Bed Bath & Beyond  (Read 21629 times)

HJ

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Re: BBBY - Bed Bath & Beyond
« Reply #10 on: July 09, 2014, 02:48:27 PM »
Here's a blog post that I found pretty informative, quite bullish on it as a retailer.

http://www.kurtsalmon.com/US/vertical-insight/Bed-Bath-%26-Beyond%E2%80%99s-Unlikely-Success?vertical=Retail&id=265&language=en-us

And this seekingalpha article summarizes the bullish thesis pretty well as well.

http://seekingalpha.com/article/2293985-bed-bath-and-beyond-has-a-compelling-opportunity-here-and-now

There is also a Harvard Business School Case study, comparing BBBY with Linen'N Things, both late 70's creation focused on home furnishing category:

http://hbr.org/product/let-s-take-this-private-linens-n-things-versus-bed-bath-beyond/an/909M61-PDF-ENG

Among all these articles, they make reference to a unique decentralized operating model for BBBY, not building a distribution center, and allowing individual store managers to order directly from the suppliers.  I'd love to learn more about is particular operating aspect of the business, its pros and cons.

My personal thesis is that a resurgent Pier 1, JCP has been taking a bit of share lately, but the decline of Sears and demolishing of Linen"N Things, has helped them in the years prior.  As long as the competition is in these physical stores, Walmart, Target and Costco are not "existential" threats to BBBY.  Those stores are using grocery to drive traffic into their stores, sacrificing margin there to make money here, so they are going to be "rational competitors" margin wise for this category.  Another good aspect here is that there is no fashion risk in this category, unlike the apparel retailers, yet you still make similar gross margins.  It does have a bit of "product cycle" in that them being an early distributor of Kerug and Sodastream machines may have goosed sales a bit in years past, which they need to overcome now same store comp wise.  But I think I can get comfortable that as long as the category remain mostly physical stores, it's more than priced in at the current valuation.     

The overarching bearish thesis to this business is the existential online threat.  I'd love to find any studies or numbers to either support or against the thesis, which I have not found any so far. 



DanielGMask

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Re: BBBY - Bed Bath & Beyond
« Reply #11 on: July 10, 2014, 01:59:09 AM »
Good links "HJ"! I see almost all of you are bullish on this one, just like me. Are there any bears? What's the bear thesis?
You should follow me on twitter @DanielGMask

giofranchi

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Re: BBBY - Bed Bath & Beyond
« Reply #12 on: July 10, 2014, 02:29:13 AM »
Good links "HJ"! I see almost all of you are bullish on this one, just like me. Are there any bears? What's the bear thesis?

I don’t like the retail business in general… imo it is too much subject to changes… changes that I cannot foresee… That’s why I have always stayed away from SHLD too.
This being said, BBBY is still run by its very capable founder. And anyone cannot but admire his great business accomplishments.
Let’s just say it is exactly the sort of entrepreneur I would like to partner with… in a business too uncertain for my tastes.
And the reason I run such a concentrated portfolio is mostly because I require both things:
1) a great entrepreneur to partner with,
and
2) a predictable business.

Gio
« Last Edit: July 10, 2014, 02:32:55 AM by giofranchi »
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jtvalue

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Re: BBBY - Bed Bath & Beyond
« Reply #13 on: July 10, 2014, 06:26:06 AM »
I'll give my 2 cents as a buy-side consumer analyst on Wall Street.  I'm very concerned about the future of retailers.  Depending on the category E-commerce is now 4-20% of the market and is growing 10-15% y/y.  If overall retail is growing 2% that means E-commerce is taking 20% to over 100% of that growth.  If brick and mortar retailers don't generate growth, their margins deleverage as their costs (leases, labor, etc) grow in-line with inflation.  Bed Bath and Beyond currently has 14% OM's while AMZN is currently competing on 1% margins.  Retailers are also leveraged entities, when you adjust for the leases, debt is generally 2-3x EBITDAR.

I highly recommend that anyone investing in retail read this book first. 

http://www.amazon.com/Everything-Store-Jeff-Bezos-Amazon-ebook/dp/B00BWQW73E/ref=sr_1_1?s=books&ie=UTF8&qid=1404998194&sr=1-1&keywords=the+everything+store       

dwy000

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Re: BBBY - Bed Bath & Beyond
« Reply #14 on: July 10, 2014, 06:48:34 AM »
That's absolutely the risk in retail - that your shoppers will move online.  Part of the question in my mind is where they go to shop online.  If everyone only uses amazon then all retailers are at risk.  But if they are shopping at the same retailer, just online, then that's good for the retailer (didn't WalMart's online sales grow 30% last year?).  BBBY has been investing heavily in online capabilities over the past year or two so hopefully this will pick up some of the SSS slack.  And Google Express is directly challenging amazon by partnering with bricks and mortar stores to provide same day delivery.

At today's price even a flat top line and some stabilization of the margins make this fairly low risk in my mind.

But that is the risk.  If Amazon puts every retailer in jeopardy then there is downside. 


Liberty

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Re: BBBY - Bed Bath & Beyond
« Reply #15 on: July 10, 2014, 07:18:13 AM »
That's absolutely the risk in retail - that your shoppers will move online.  Part of the question in my mind is where they go to shop online.  If everyone only uses amazon then all retailers are at risk.  But if they are shopping at the same retailer, just online, then that's good for the retailer (didn't WalMart's online sales grow 30% last year?).  BBBY has been investing heavily in online capabilities over the past year or two so hopefully this will pick up some of the SSS slack.  And Google Express is directly challenging amazon by partnering with bricks and mortar stores to provide same day delivery.

At today's price even a flat top line and some stabilization of the margins make this fairly low risk in my mind.

But that is the risk.  If Amazon puts every retailer in jeopardy then there is downside.

IMO eventually Amazon will release its Firefly shopping app to all platforms (once they realize that their Fire phone is doomed to niche status) and there will be a lot more 'showrooming' going on, as long as Amazon has better prices. Others can make great ecommerce sites if they want, but if they want to maintain their margins, it means that amazon will have a price advantage, and if there's very little friction finding what you see in the other store on amazon, that'll hurt. Not everybody will do that, but probably enough people for it to matter...
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DCG

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Re: BBBY - Bed Bath & Beyond
« Reply #16 on: July 10, 2014, 08:30:04 AM »
I don't think Ikea is a good comparison.


I'd think Amazon would put a much bigger dent in their business than Ikea.
I think that's the fear.  The question is is it already in the price?


Not sure. I haven't done much research on BBBY, but I know what pretty much everything we used to buy at Bed Bath & Beyond, we now order from Amazon.

kfh227

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Re: BBBY - Bed Bath & Beyond
« Reply #17 on: July 10, 2014, 08:54:58 AM »
The one thing I know about BBBY is that everytime I go in a store, people are there buying.  And they are FCF positive.  I see correlation that is probably causation based.

I bought a frying pan there recently.  It's not the kind of thing I buy online.  I want to actually touch it and see that it is to my liking.

Yes, things are going to the internet but some things like couches never will because people don't buy such items without trying them out first.

And everything will not go to the internet.  If that were to happen, people would go to work and go home and that's it.  Shopping in itself is an experience.  I'd rather pay an extra 5% and get out of the house.  I'd go as far as to say that it is a form of socialization more so than entertainment but there is probably a blend of the two psychologically.  And I'm sure this psychological bias is true in everyone to some extent.

Point is, it's not all dollars and cents to everyone all the time.  To me, I'd like to see what the bed linens look and FEEL like in person.  I'd like to see how big that stainless steel kitchen garbage can is.  I'd like to touch the pots and pans.  Feel how heavy they are.  How the handle construction is, etc.

As an aside ...  I am praying that this company will go public one day:
http://www.raymourflanigan.com/Detailed-History.aspx

dwy000

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Re: BBBY - Bed Bath & Beyond
« Reply #18 on: July 10, 2014, 10:27:38 AM »
I'm like you kfh227 (maybe to my detriment on BBBY) - there's an experience that can't be replicated online.  I'm an active Amazon user but only for certain things.  My wife will go shopping with her friends for hours - its a social thing more than needs based. 

There's also something to be said for walking out the door with it.  If I'm in Home Depot and see a tool or outdoor item I like, unless it's a big ticket item, the price differential on Amazon isn't worth the pleasure of taking it home and using it right away.

HJ

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Re: BBBY - Bed Bath & Beyond
« Reply #19 on: July 10, 2014, 01:42:17 PM »
I'll give my 2 cents as a buy-side consumer analyst on Wall Street.  I'm very concerned about the future of retailers.  Depending on the category E-commerce is now 4-20% of the market and is growing 10-15% y/y.  If overall retail is growing 2% that means E-commerce is taking 20% to over 100% of that growth.  If brick and mortar retailers don't generate growth, their margins deleverage as their costs (leases, labor, etc) grow in-line with inflation.  Bed Bath and Beyond currently has 14% OM's while AMZN is currently competing on 1% margins.  Retailers are also leveraged entities, when you adjust for the leases, debt is generally 2-3x EBITDAR.

I highly recommend that anyone investing in retail read this book first. 

http://www.amazon.com/Everything-Store-Jeff-Bezos-Amazon-ebook/dp/B00BWQW73E/ref=sr_1_1?s=books&ie=UTF8&qid=1404998194&sr=1-1&keywords=the+everything+store       

jtvalue, do you ever come across data or study on this specific retail category, i.e. home furnishing online vs. offline, absolute size, the rate of migration, etc?  There are certainly annecdotal evidence that people are doing that.  The question I am really trying to grapple with is what is the rate of that deterioration, measured against the speed of buy back that these guys are doing. 

All the links that I have posted previously are all backward looking, so sure they have been very successful, and we can all pontificate on why they have been successful, but the counterpoint is exactly that all the competition is so far physical.  If people's shopping habbits are changing then all of their previously demonstrable merchandising skills, real estate strategy, etc. simply doensn't really matter to prospective returns.  In your analysis, is there any hope for any kind of physical retail, maybe with the exception of grocery, in the future?  What does the future of physical retail look like?