Over the most recent ten quarters, Bed Bath & Beyond has failed to achieve its predicted revenue levels in seven of them. The pandemic has been particularly challenging for the company, creating supply chain issues that left it unable to keep products in stores. But according to analysts, the retailer did not do itself any favors with its reactions. They point to slow shifts to reorient existing supply chains, as well as a strategic attempt to reduce clutter by dramatically limiting the number of products in stores, as evidence of its inability to weather the storm and maintain a competitive position.
A conventional view thus has predicted its death knell, but an unconventional investor’s decision to buy up a lot of Bed Bath & Beyond shares might be enough to silence the ringing. As one of the founders of the Chewy online pet supply store, Ryan Cohen demonstrated his retailing acumen. But he gained even more fame with his investment in GameStop, the chain of video game retailers, and the outcomes of that move.
For whatever reason, Cohen’s investment in GameStop sparked a buying spree among mostly inexperienced stock market players. People who had never invested before bought shares of GameStop, sparking the popular notion of a meme stock—that is, one that people invest in because it is being widely discussed and shared on social media, not on the basis of any of the conventional motives for investing (e.g., predictions of future growth, strong fiscal signals, high promised returns). But regardless of the rationale (or lack thereof), the frenzied buying of GameStop stock increased its valuation exorbitantly, allowing the struggling retailer to survive and keep operating.
The Cohen effect thus might offer promise for Bed Bath & Beyond too, though a few differences imply that a GameStop-level resurgence is too much to hope for. First, Cohen joined the board of directors at GameStop, a move he has declined to undertake at Bed Bath & Beyond, citing his existing commitments. Second, the meme stock bump that it earned after Cohen announced his purchase was both weaker and shorter in duration than the one for GameStop. Third, the positioning and offerings of GameStop and Bed Bath & Beyond differ in relevant ways. Arguably, the inexperienced investors who loved the idea of investing in GameStop were more emotionally connected to a gamer resource than to a store known for a vast array of boring household necessities and questionably necessary gadgets.
Moreover, Bed Bath & Beyond’s strategic positioning has not changed, even as the losses continue. It keeps insisting on developing a stronger private-label assortment, which might sound good but also requires the retailer to design, establish, and maintain sufficient supply chains for those products, which bear its brand name. Such a capacity is clearly questionable, based on recent events. It has acknowledged that it has lost an estimated 5 million customers over the past couple of years. If it cannot keep customers, can it be trusted to attract and keep investors?
Discussion Questions:
- What is a meme stock? Can you think of any other examples?
- Are meme stocks valuable, in the long run? How long can a retailer survive on such a reputation?
- How should Bed Bath & Beyond restructure its supply chain to ensure sufficient supplies to its stores?
Source: Cara Lombardo, “Chewy Co-Founder Ryan Cohen Takes Large Stake in Bed Bath & Beyond, Pushes for Changes,” The Wall Street Journal, March 6, 2022; Caitlin McCabe, “Bed Bath & Beyond Stock Price Soars More than 60% on Ryan Cohen’s Stake,” The Wall Street Journal, March 7, 2022; Jinjoo Lee, “Bed Bath & Beyond’s Diamond Hand Sparkle Could Wear Off,” The Wall Street Journal, April 13, 2022