Bed Bath & Beyond Takes On a Titan of Retail

Bed Bath & Beyond Takes On a Titan of Retail

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Bed Bath & Beyond (BBBY) doesn't always come across as a discount brand. If anything, the home improvement store often specializes in the kind of higher-end appliances and linens that make it costlier than competitors like Walmart (WMT) or Amazon (AMZN). However, new research from BB&T Bank suggests just the opposite. In findings likely to stun technology bulls and Jeff Bezos fans everywhere, Bed Bath & Beyond is one of a few old-fashioned, brick-and-mortar stores that has targeted Amazon in price wars. The really crazy thing is that Bed Bath & Beyond is actually winning.

In a random selection of 30 items, Bed Bath & Beyond's items were 6.5% cheaper on average than Amazon's. And that's before you factor in the 20% discounts the company is known for mailling out to its customers.

It's an interesting strategy that is proving more resilient to the spector of an online marketplace – customer service. Earlier this year Barron's described BBBY's effective marketing model that uses customer service and steep discounts to get people into stores, and then features a "race-track" layout to encourage more impulse purchases. It's why the store still turns a profit despite a free-wheeling return policy and a tendency to accept expired coupons with a wink. It's exactly the kind of shopping experience that independent bookstore afficionados pine for – and exactly the kind of experience that online retailers, despite their darnedest efforts, have failed to work out by developing shopping algorithms.

While analysts worried this past spring a failure to generate sales online would create difficulties for Bed Bath & Beyond, despite their impeccable balance sheet, August's overall spike in retail numbers has played out more in malls than it did online.

Walmart is trying to compete with Amazon as well. Not wanting to ditch its complex of super-stores in favor of a warehouse model, they have looked at ways to unite its sprawling network – such as using its employees to ship goods from the stores directly. These two fixtures of traditional retailing join a host of smaller companies, such as Overstock.com (OSTK), who have targeted Amazon with price wars of their own.

As almost anyone in Silicon Valley is quick to point out – Amazon's Jeff Bezos is one of the best CEOs in the business. What started out as an online bookstore has since evolved into an empire that sells pretty much everything, from books and consumer goods to groceries and hardware. They've also begun their own online content providers, going after video streaming, setting up their own publishing house, and even buying The Washington Post. Bed Bath & Beyond doesn't really have anything on the back-burner except for more ways to sell its appliances and bath towels.

The really important question to ask, however, is how lucrative any of these new endeavors will be if Amazon ceases its dominance of online sales. A strategy that focuses on market disruption is not going to make you many friends outside of the people who save money on your cheaper products; and makes it harder to maintain your rapid growth without finding new markets to disrupt. This is a much less reliable growth strategy than the one adopted by Bed Bath & Beyond – which focuses on low debt and continuity (they have never borrowed a dollar since the 1992 IPO). Besides, if the companies Amazon once targeted recover further, no one is going to remember Amazon with the kind of nostalgia that sometimes props up its rivals. 

Click on the chart below to see analyst ratings over time.

Do you think Bed Bath & Beyond will continue to gain ground against Amazon? Use the list below as a starting point for your own analysis.

1. Amazon.com Inc. (AMZN, Earnings, Analysts, Financials): Operates as an online retailer in North America and internationally. Market cap at $130.22B, most recent closing price at $285.57.

 

 

2. Bed Bath & Beyond Inc. (BBBY, Earnings, Analysts, Financials): Operates a chain of retail stores. Market cap at $15.78B, most recent closing price at $73.26.

 

 

3. Best Buy Co. Inc. (BBY, Earnings, Analysts, Financials): Operates as a retailer of consumer electronics, home office products and related services primarily in the United States, Europe, Canada, and China. Market cap at $10.42B, most recent closing price at $30.73.

 

4. Overstock.com Inc. (OSTK, Earnings, Analysts, Financials): Operates as an online retailer offering discount brand, non-brand, and closeout merchandise in the United States. Market cap at $700.27M, most recent closing price at $29.53.

 

5. Wal-Mart Stores Inc. (WMT, Earnings, Analysts, Financials): Operates retail stores in various formats worldwide. Market cap at $241.2B, most recent closing price at $73.58.

 

 

(List compiled by James Dennin, analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)

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