Bed Bath & Beyond’s Rapid Propagation of Private Brands
One of retail’s most dramatic private brand buildups is occurring at Bed Bath & Beyond — and it’s happening fast.
BB&B expects that within three years private brands, or what the company refers to as “owned brands,” will represent 30 percent of its business, up from the current 10 percent. This year alone at least eight owned brands are being introduced simultaneously with efforts at eliminating product redundancies and unproductive stock keeping units, remodeling stores and closing others.
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The reimagined portfolio of owned brands in the works — integral to BB&B’s grand turnaround scheme — covers the retailer’s core segments — bed, bath, kitchen/dining, storage/organization and home décor — which represent more than 60 percent of revenues.
For some time, BB&B has struggled with eroding value perceptions, difficult to shop stores cluttered with redundant merchandise and poor signage, and intense competition from Amazon Inc., Target Corp. and Walmart Inc. But since March, three owned brands were introduced. First came Nestwell, for sheets, pillows, blankets, quilts, comforters, duvets, mattress pads, bath rugs, bath towels and bath accessories, and with an online questionnaire to help identify your “nesting archetype,” such as whether you prefer the feel of percale sheets or sateen sheets, or like to layer your bed with heaps of blankets and pillows or keep it simple.
Then came Haven, “a modern, spa-inspired assortment of bath essentials,” including 100 percent organic cotton bath towels and bathrobes, as well as bath rugs, shower curtains, bathroom furniture and accessories and storage solutions.
Most recently, Simply Essential was introduced offering more than 1,200 “hard-working essential items” for every room, from $1 kitchen tools to $160 area rugs, with nothing priced over $200.
Clearly the retailer has lots of work to do. Last year, with the pandemic raging, BB&B reported a loss of $150.77 million on sales of $9.23 billion. But in 2019 the losses were even higher, hitting $613 million on sales of $11.16 billion.
In the fourth quarter, BB&B swung to a profit, and comparable sales rose 4 percent overall, with the BB&B division up 6 percent. It was the third consecutive quarter of same-store sales growth, suggesting that turnaround efforts, led by chief executive officer Mark Tritton, were starting to bear fruit. Last fall, Tritton, formerly the chief merchant at Target where he aggressively ramped up private brands, introduced a three-year transformation BB&B plan involving remodeling 450 stores at a cost of $250 million; 200 store closings; divesting non-core businesses such as Cost Plus World Market, which was sold off last December; curtailing the omnipresent 20 percent off coupons known as “Big Blue,” and building up the private brand stable.
The home business has benefited from the COVID-19 related stay-at-home lifestyle. Whether BB&B can keep up the recent comp gains as COVID-19 cases dwindle is a big question. As of the end of February, the company operated 834 Bed Bath & Beyond stores, 132 Buy Buy Baby stores and 54 beauty stores.
In March 2020, Joe Hartsig became executive vice president and chief merchandising officer of the Union, N.J.-based BB&B. Hartsig is also president of the Harmon Stores division of Bed Bath & Beyond Inc., which operates beauty stores under the names Harmon, Harmon Face Values and Face Values. Hartsig had been senior vice president and chief merchandising officer at Walgreens and earlier held senior-level jobs at Walmart and Motorola. Among his priorities is to revitalize the merchandising, curate it better, and orchestrate the owned-brand buildup, working with Neil Lick, senior vice president of owned brands. Tritton has called the owned-brand buildup “the most significant transformation of our product assortment in a generation.”
Private brands require long lead times, up to a year from development to hitting store shelves and websites. Retailers must hone their design, trend forecasting and marketing skills and supply chain logistics, and educate consumers on the virtues of brands being introduced. But owned brands fill merchandise voids, generally yield better margins than market brands, and differentiate the retailer’s assortment from competitors. They can be game changers for retailers, like Kirkland at Costco, Hotel at Macy’s, or AmazonBasics. A year ago, Target launched Casaluna, a collection of more than 700 bedding and bath items with natural and sustainable materials like linen, hemp, silk and cashmere.
“We are excited to start fresh in 2021 with our sharpened size and scale, a healthier portfolio of core banners and a stronger financial position to execute the first phase of our three-year transformation journey,” Hartsig told WWD in an interview.
In the following Q&A, Hartsig discusses progress in the owned brand portfolio and the philosophy behind the strategy.
WWD: Why was Nestwell launched and how is it different from what BB&B has been selling?
Joe Hartsig: Nestwell is designed to make it easier to select your bedding and bath choices that fit your own style, with a short questionnaire that helps guide you to products best suited to you. It’s a very large line of more than 1,200 products, really stylish, very high-quality, covering a whole range in bedding and bath. There are many different cotton and product types to help you sleep better. There is a real shift to muted colors that are calmer. The color palette is soft and neutral.
WWD: Why was Haven launched and what does it offer?
J.H.: Haven is a great name for really what consumers are looking for — escaping the noise. The bathroom is one of the few sanctuaries where you can close the door and have a lot of “me” time. Fifty-nine percent of Americans (from a 15-minute online BB&B survey among 1,024 adults between Feb. 11 to 21) say they are stressed. Forty-six percent say they felt a high level of exhaustion in the past 12 months. Fifty-three percent of moms with kids under age 18 said they are spending less on self-care compared to pre-pandemic. We are in a different environment where a lot of people don’t have time for themselves. This [situation] was here before. During COVID-19, it’s been elevated. Haven has a lineup of 400 products — bath towels, bath robes, rugs, bath accessories, all in a common design language, as if you are in a nice spa.
WWD: You also have Simply Essential, at more opening price points. Tell me about that.
J.H.: It’s a very broad assortment of more than 1,200 hard-working essential items, with opening price points for every room of the home. It’s the company’s first full-line assortment at opening price points and third owned brand launched this year.
WWD: The goal is for 30 percent of the assortment to be owned brands within three years. How aggressive is that?
J.H.: To be honest, we think there is more opportunity, if you look at our competitive set. We are looking at the broader market, through customer segmentation, competitive analysis, implementation of category line reviews. We are really uncovering great opportunities for us to grow.
WWD: What’s happening with store remodels?
J.H.: We are doing a lot to overhaul our stores. As we do category line reviews, we are working on room resets, lowering shelf sets, brand blocking. Our customers love to shop, but the experience in the stores made it hard to find product. It was just jammed with too much inventory. We have reduced our SKU profile. Every room has soft cloth banners which lower the sight lines and it’s more uniform. It’s a much more calming effect.
WWD: With fashion, steady injections of newness is necessary. In the home sector, how important is newness and constantly refreshing assortments?
J.H.: Our strategy is customer-inspired and data-driven, so we are constantly looking for ways to ensure that our assortment and presentations infuse newness, relevancy and trends that will resonate. We have built a comprehensive category line review process, starting in our destination categories, covering 40 subcategories, and analyzing thousands of brands and SKUs. This has allowed for the necessary space to introduce our owned brands, as well as introducing and refreshing meaningful national brands. We will continue to employ this discipline throughout all of our categories in the months and years to come. The frequency with which we will employ our line reviews and seasonal refreshes changes depending on the needs of the business. Categories that are more seasonal, like outdoor, or trend-focused, like fashion bedding, will be refreshed multiple times a year. Others, like consumables, may be less frequent. We will overlay this with a cadence of newness throughout the year when we have new product and owned and national brand introductions.
WWD: How much better are the margins in owned versus market brands?
J.H.: As we built our owned brands, we expect to further enhance our gross margin as a result of being able to strategically design to cost and source at scale. We are on track to deliver $200 million to $250 million in sourcing benefits within the next three years.
WWD: Besides Wamsutta, what other brands will be narrowed or dropped entirely?
J.H.: We’re focused on rebuilding authority in destination categories by creating a more inspirational and productive assortment by resetting our product offer. As mentioned, we are employing a comprehensive line review process that is data-driven, and it has identified areas where we were either over-assorted or had gaps in our assortment. Using sheets as an example, we found that 30 percent of our items were redundant, irrelevant, and unproductive, and we’ve cut that out. Within that reset assortment, we’ve added back newness, 20 percent, where we’ve filled assortment gaps and broadened relevant items and brands.
As another example, we are discontinuing 20 percent of total core SKUs and 68 percent of total brands in kitchen housewares to improve quality and drive value. For bath towels, we are going from more than 100 brands to keeping just 10 percent of them with an emphasis on owned brands.
WWD: What kinds of products and categories are selling best?
J.H.: In the fourth quarter, sales in our top five destination categories collectively grew 12 percent, with four of the five categories posting double-digit comp growth, with the exception of bath. The bath category was impacted by a planned assortment transition in preparation for the launch of our new owned brands, which resulted in higher category markdowns and temporary out-of-stocks. Early in the first quarter, we already saw the category return to solid growth.
With more at-home working and dining, there was continued strength in the kitchen and food prep category, which grew 16 percent in the quarter. Air fryers and toaster ovens were standouts, showing strong growth of 70 and 60 percent, respectively. We also achieved success in the home organization category, which grew 17 percent in the fourth quarter. In home furnishings, indoor décor was strong with comp growth of approximately 16 percent.
WWD: Are any new categories being added or considered?
J.H.: We are highly focused on doubling down on our home destination categories — bedding, bath, kitchen and storage and organization. At the same time, we are reducing our category emphasis on areas that don’t necessarily serve the home, as well as regional merchandising that is not productive or on brand. We also believe that the health and beauty area is a significant opportunity. We offer this in select stores, but think there is a great opportunity to enhance our assortment, improve the shopping experience, and expand our distribution across our fleet as we remodel our stores.
WWD: What kind of research preceded your decisions to build up your stable of own brands?
J.H.: The work started with the customer. We identified five key customer segments — nester, juggler, minimizer, innovator and creative — and developed assortments designed to appeal to each. In addition to deep analysis of the competitive landscape and market opportunity, we conducted in-depth research across these key customer segments (including segments in which we have under-indexed historically) to learn about their design preferences, shopping behaviors, and how their homes make them feel and to build assortments inspired by and designed for them. As we further engage in the growth segments in our customer base, we may identify gaps in the assortment and will use that to help determine where we should add to the assortment, whether owned or national brand product.
WWD: How is the turnaround going, and in terms of merchandise, what inning are you in? Beyond the rollout of new private brands this year, what’s planned for 2022?
J.H.: We have spent considerable time overhauling our assortment, focusing first on our destination categories. We had a very fragmented assortment, with misalignment between store and digital assortments, and a very low owned brand penetration relative to competition.
As our transformation continues to take hold, we will show up differently for our customers with enhanced omnichannel experiences and modern stores, new communications and differentiated owned brands that will elevate the shopping experience and make it even easier to shop with the new Bed Bath & Beyond. We are very excited about the store of the future efforts we started in our Watchung store (which is in New Jersey and is merchandised around rooms rather than classifications and has more open sight lines) and have now rolled out to the Houston market.
As for 2022, we expect the upward trend and growth to continue as we listen to customers’ needs and transform the company both digitally and through our store remodels to create sustainable, efficient growth.
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