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Chewy Co-Founder Takes 9.8% Stake in Bed Bath & Beyond, Calls for Sale of buybuy BABY

RC Ventures, the venture capital fund of Chewy Co-founder and GameStop Chairman Ryan Cohen, has taken a 9.8% stake in Bed Bath & Beyond and is urging the company look into the sale of buybuy BABY, among other changes. The firm cited “concerns about leadership’s compensation relative to performance and its strategy for reigniting meaningful growth,” outlined in the retailer’s turnaround plan announced in fall 2020.

At that time, Bed Bath & Beyond had reported its first sales increase in nearly four years due to an emphasis on omnichannel services. The retailer’s efforts also have included increasing the number of private label brands in its assortment, reducing reliance on coupons to improve margins and modernizing stores.

However, the efforts may not be paying off. Bed Bath & Beyond reported a 28% year-over-year sales decline in Q3 2021, its most recently reported results period. Comparable sales fell 7% during the period as well. However, RC Ventures noted that it’s not the most recent decline but the retailer’s longer track record that compelled it to act.

“It is important to stress that we do not place significant emphasis on any one quarter or any one year when evaluating a business,” said RC Ventures in a letter sent to Bed Bath & Beyond. “We also do not criticize a board of directors and management team when they are quietly laying a foundation for future growth and value creation. To the contrary, we are maniacally focused on the long term. But the issue at Bed Bath is that its highly-publicized and scattershot strategy is not ending the tailspin that has persisted before, during and after the pandemic’s nadir and the appointment of CEO Mark Tritton.”

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RC Ventures questioned the overall turnaround effort, stating that it “appears that trying to execute on dozens of initiatives at once is leading to dozens of mediocre outcomes.” Specific criticisms include:

  • Bed Bath & Beyond should focus on the basics of modernizing its supply chain and technology stack before pursuing “more fanciful” growth strategies;
  • More effort should have been put into maintaining the core product catalog and inventory amidst a tight supply chain rather than trying to lunch multiple new private label brands; and
  • The retailer should bring more “simplicity” to its future plans by fortifying its infrastructure, completing the remaining store improvements and prioritizing inventory efforts that will help it meet near-term demand.

Another point of contention: buybuy BABY. The children’s retailer has been greatly outperforming its parent company — in Q3 2021, buybuy BABY experienced mid-teens percentage comparable sales growth driven by both in-store and online demand. Bed Beth & Beyond plans to ride this momentum by executing its private label strategy at buybuy BABY.

However, RC Ventures believes buybuy BABY would be better served through a sale, noting that “we believe it is likely much more valuable than the Company’s entire market capitalization today.” The firm believes the banner could justify a valuation in the billions on the strength of its ecommerce offerings, and a full or partial sale would give its parent company capital that could be used to “pay off debt, put cash on the balance sheet and continue reducing its share count, thereby creating significant value for shareholders.”

Bed Bath & Beyond has yet to directly comment on RC Venture’s suggestions or criticisms. “Bed Bath & Beyond’s Board and management team maintain a consistent dialogue with our shareholders and, while we have had no prior contact with RC Ventures, we will carefully review their letter and hope to engage constructively around the ideas they have put forth,” said the retailer in a statement.

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